As filed with the Securities and Exchange Commission on March 21, 2000
REGISTRATION NO. 333-_______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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IMPAC SECURED ASSETS CORP.
(Exact name of Registrant as specified in its charter)
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CALIFORNIA 33-071587 1
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1401 DOVE STREET WILLIAM ASHMORE
NEWPORT BEACH, CALIFORNIA 92660 1401 DOVE STREET
(949) 475-3600 NEWPORT BEACH, CALIFORNIA 92660
(Address, including zip code, and telephone number, (949) 475-3600
including area code, of Registrant's principal (Name, address, including zip code, and telephone number,
executive offices) including
area code, of agent for service with respect to the
Registrant)
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COPIES TO:
PAUL D. TVETENSTRAND
THACHER PROFFITT & WOOD
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 912-7400
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Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement as
determined by market conditions and pursuant to Rule 415.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. o
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, 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. o
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 number of the earlier effective registration statement for the same
offering. o
If the delivery of the Prospectus Supplement is expected to be made
pursuant to Rule 434, please check the following box. o
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Amount of
Proposed Title of Securities to Amount to Be Offering Price Per Maximum Aggregate Registration
be Registered Registered Unit (1) Offering Price (1) Fee (2)
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Pass-Through Certificates and
Mortgage-Backed Notes, issued
in series....................... $1,000,000,000 100% $1,000,000,000 $264,000.00
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(1) Estimated solely for the purpose of calculating the registration fee on the
basis of the proposed maximum offering price per unit.
(2) Pursuant to Rule 429 of the General Rules and Regulations under the
Securities Act of 1933, as amended $623,066,084.00 of Pass-Through Certificates
and Mortgage Backed Notes are being carried forward from the Registrant's
Registration Statement No. 333-44209. All filing fees associated with such
securities were previously paid upon the filing of said registration statement.
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THIS REGISTRATION 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 THIS 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 GENERAL RULES AND REGULATIONS OF THE
SECURITIES ACT OF 1933, AS AMENDED, THE RESIDENTIAL LOAN PROSPECTUS WHICH IS A
PART OF THIS REGISTRATION STATEMENT IS A COMBINED PROSPECTUS RELATING ALSO TO
$623,066,084 OF SECURITIES REGISTERED UNDER THE REGISTRATION STATEMENT NO.
333-44209 AND REMAINING UNISSUED AS OF THE DATE HEREOF. ACCORDINGLY, THE TOTAL
AMOUNT REGISTERED UNDER THIS REGISTRATION STATEMENT, AS COMBINED, AS OF THE DATE
OF THIS FILING IS $1,623,066,084.
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EXPLANATORY NOTE
This Registration Statement includes (i) a basic prospectus, (ii) an
illustrative form of prospectus supplement for use in an offering of Mortgage
Pass-Through Certificates consisting of senior and subordinate certificate
classes ("Version 1"), (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 financial guaranty insurance policy and
overcollateralization ("Version 2") and (iv) an illustrative form of prospectus
supplement for use in an offering of Mortgage-Backed Notes ("Version 3").
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PRELIMINARY PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF
THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.
Subject to Completion
Preliminary Prospectus Dated March 21, 2000
IMPAC SECURED ASSETS CORP.
Company
MORTGAGE PASS-THROUGH CERTIFICATES
MORTGAGE-BACKED NOTES
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YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS IN THE PROSPECTUS SUPPLEMENT.
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THE OFFERED SECURITIES
The company proposes to establish one or more trusts to issue and sell from time
to time one or more classes of offered securities, which shall be mortgage
pass-through certificates or mortgage- backed notes.
THE TRUST FUND
Each series of securities will be secured by a trust fund consisting primarily
of a segregated pool of mortgage loans, including:
o mortgage loans secured by first and junior liens on the
related mortgage property;
o home equity revolving lines of credit;
o mortgage loans where the borrower has little or no equity in
the related mortgaged property;
o mortgage loans secured by one-to-four-family residential
properties;
o mortgage loans secured by multifamily properties;
o mortgage loans secured by commercial properties;
o mortgage loans secured by mixed residential and commercial
properties; and
o manufactured housing conditional sales contracts and
installment loan agreements or interests therein;
in each case acquired by the company from one or more affiliated or unaffiliated
institutions.
CREDIT ENHANCEMENT
If so specified in the related prospectus supplement, the trust for a series of
securities may include any one or any combination of a financial guaranty
insurance policy, mortgage pool insurance policy, letter of credit, special
hazard insurance policy or reserve fund, and currency or interest rate exchange
agreements. In addition to or in lieu of the foregoing, credit enhancement may
be provided by means of subordination of one or more classes of securities, by
cross-support or by overcollateralization.
The offered securities may be offered to the public through different methods as
described in "Methods of Distribution" in this prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OFFERED HEREBY OR
DETERMINED THAT THIS PROSPECTUS OR THE PROSPECTUS SUPPLEMENT IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is March __, 2000.
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TABLE OF CONTENTS
Caption Page
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INTRODUCTION...................................................................4
General ..................................................................4
THE MORTGAGE POOLS.............................................................5
General ..................................................................5
The Mortgage Loans.........................................................7
Underwriting Standards....................................................11
Qualifications of Originators and Sellers.................................14
Representations by Sellers................................................14
SERVICING OF MORTGAGE LOANS...................................................17
General .................................................................17
The Master Servicer.......................................................18
Collection and Other Servicing Procedures; Mortgage
Loan Modifications...............................................18
Subservicers..............................................................20
Special Servicers.........................................................20
Realization Upon or Sale of Defaulted Mortgage Loans......................21
Servicing and Other Compensation and Payment of
Expenses; Retained Interest......................................23
Evidence as to Compliance.................................................24
DESCRIPTION OF THE SECURITIES.................................................25
General .................................................................25
Form of Securities........................................................27
Global Securities.........................................................28
Assignment of Trust Fund Assets...........................................31
Certificate Account.......................................................34
Distributions.............................................................38
Distributions of Interest and Principal on the Securities.................39
Pre-Funding Account.......................................................40
Distributions on the Securities in Respect of Prepayment
Premiums.........................................................40
Allocation of Losses and Shortfalls.......................................40
Advances .................................................................41
Reports to Securityholders................................................42
DESCRIPTION OF CREDIT ENHANCEMENT.............................................43
General .................................................................43
Subordinate Securities....................................................44
Cross-support.............................................................44
Overcollateralization.....................................................44
Financial Guaranty Insurance Policy.......................................44
Mortgage Pool Insurance Policies..........................................45
Letter of Credit..........................................................47
Special Hazard Insurance Policies.........................................47
Reserve Funds.............................................................48
Maintenance of Credit Enhancement.........................................49
Reduction or Substitution of Credit Enhancement...........................51
OTHER FINANCIAL OBLIGATIONS RELATED TO THE SECURITIES.........................51
Swaps and Yield Supplement Agreements.....................................51
Purchase Obligations......................................................52
PRIMARY MORTGAGE INSURANCE, HAZARD INSURANCE;
CLAIMS THEREUNDER.........................................................52
General .................................................................52
Primary Mortgage Insurance Policies.......................................53
Hazard Insurance Policies.................................................54
FHA Insurance.............................................................55
VA Mortgage Guaranty......................................................56
THE COMPANY...................................................................57
IMPAC FUNDING CORPORATION.....................................................57
IMPAC MORTGAGE HOLDINGS, INC..................................................57
THE AGREEMENTS................................................................58
General .................................................................58
Certain Matters Regarding the Master Servicer and the
Company..........................................................58
Events of Default and Rights Upon Event Default...........................59
Amendment.................................................................63
Termination; Retirement of Securities.....................................64
The Trustee...............................................................65
Duties of the Trustee.....................................................66
Some Matters Regarding the Trustee........................................66
Resignation and Removal of the Trustee....................................66
YIELD CONSIDERATIONS..........................................................66
MATURITY AND PREPAYMENT CONSIDERATIONS........................................69
LEGAL ASPECTS OF MORTGAGE LOANS...............................................71
Mortgages.................................................................71
Cooperative Mortgage Loans................................................72
Tax Aspects of Cooperative Ownership......................................73
Leases and Rents..........................................................73
Contracts.................................................................73
Foreclosure on Mortgages and Some Contracts...............................75
Foreclosure on Shares of Cooperatives.....................................77
Repossession with respect to Contracts....................................78
Rights of Redemption......................................................79
Anti-Deficiency Legislation and Other Limitations on
Lenders..........................................................80
Environmental Legislation.................................................82
Consumer Protection Laws with respect to Contracts
................................................................83
Enforceability of Some Provisions.........................................84
Subordinate Financing.....................................................85
Installment Contracts.....................................................85
Applicability of Usury Laws...............................................86
Alternative Mortgage Instruments..........................................86
Formaldehyde Litigation with respect to Contracts.........................87
Soldiers' and Sailors' Civil Relief Act of 1940...........................87
Forfeitures in Drug and RICO Proceedings..................................88
Junior Mortgages..........................................................88
Negative Amortization Loans...............................................89
FEDERAL INCOME TAX CONSEQUENCES...............................................89
General .................................................................89
REMICs .................................................................90
Notes ................................................................107
Grantor Trust Funds......................................................107
STATE AND OTHER TAX CONSEQUENCES.............................................117
ERISA CONSIDERATIONS.........................................................117
Representation from Plans Investing in Notes with
"Substantial Equity Features" or Non-Exempt
Certificates....................................................122
Tax Exempt Investors.....................................................123
Consultation with Counsel................................................123
LEGAL INVESTMENT MATTERS.....................................................124
USE OF PROCEEDS..............................................................125
METHODS OF DISTRIBUTION......................................................125
LEGAL MATTERS................................................................126
FINANCIAL INFORMATION........................................................127
RATING ....................................................................127
AVAILABLE INFORMATION........................................................127
REPORTS TO SECURITYHOLDERS...................................................128
INCORPORATION OF INFORMATION BY REFERENCE....................................128
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INTRODUCTION
ALL CAPITALIZED TERMS IN THIS PROSPECTUS ARE DEFINED IN THE GLOSSARY AT THE END.
GENERAL
The mortgage pass-through certificates or mortgage-backed notes offered by
this prospectus and the prospectus supplement will be offered from time to time
in series. The securities of each series will consist of the offered securities
of the series, together with any other mortgage pass-through certificates or
mortgage-backed notes of the series.
Each series of certificates will represent in the aggregate the entire
beneficial ownership interest in, and each series of notes will represent
indebtedness of, a trust fund to be established by the company. Each trust fund
will consist primarily of a mortgage pool of mortgage loans or interests
therein, which may include mortgage securities, acquired by the company from one
or more affiliated or unaffiliated sellers. See "The Company" and "The Mortgage
Pools." The mortgage loans may include sub-prime mortgage loans. The trust fund
assets may only include, if applicable, the mortgage loans, reinvestment income,
reserve funds, cash accounts and various forms of credit enhancement as
described in this prospectus and will be held in trust for the benefit of the
related securityholders pursuant to: (1) with respect to each series of
certificates, a pooling and servicing agreement or other agreement, or (2) with
respect to each series of notes, an indenture, in each case as more fully
described in this prospectus and in the related prospectus supplement.
Information regarding the offered securities of a series, and the general
characteristics of the mortgage loans and other trust fund assets in the related
trust fund, will be set forth in the related prospectus supplement.
Each series of securities will include one or more classes. Each class of
securities 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 securities,
to receive a specified portion of payments of principal or interest or both on
the mortgage loans and the other trust fund assets in the related trust fund in
the manner described in this prospectus under "Description of the Securities"
and in the related prospectus supplement. A series may include one or more
classes of securities entitled to principal distributions, with
disproportionate, nominal or no interest distributions, or to interest
distributions, with disproportionate, nominal or no principal distributions. A
series may include two or more classes of securities which differ as to the
timing, sequential order, priority of payment, pass-through rate or amount of
distributions of principal or interest or both.
The company's only obligations with respect to a series of securities will
be pursuant to representations and warranties made by the company, except as
provided in the related prospectus supplement. The master servicer for any
series of securities 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 advances in
the event of delinquencies in payments on the related mortgage loans. See
"Description of the Securities."
If so specified in the related prospectus supplement, the trust fund for a
series of securities may include any one or any combination of a financial
guaranty insurance policy, mortgage pool insurance policy, letter of credit,
special hazard insurance policy, reserve fund or currency or interest rate
exchange agreements. In addition to or in lieu of the foregoing, credit
enhancement may be provided by means of subordination of one or more classes of
securities or by overcollateralization. See "Description of Credit Enhancement."
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The rate of payment of principal of each class of securities entitled to a
portion of principal payments on the mortgage loans in the related mortgage pool
and the trust fund assets will depend on the priority of payment of the class
and the rate and timing of principal payments on the mortgage loans and other
trust fund assets, including by reason of prepayments, defaults, liquidations
and repurchases of mortgage loans. A rate of principal payment slower or faster
than that anticipated may affect the yield on a class of securities in the
manner described in this prospectus and in the related prospectus supplement.
See "Yield Considerations."
With respect to each series of certificates, one or more separate elections
may be made to treat the related trust fund or a designated portion thereof as a
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" in this prospectus.
The offered securities may be offered through one or more different
methods, including offerings through underwriters, as more fully described under
"Methods of Distribution" and in the related prospectus supplement.
There will be no secondary market for the offered securities of any series
prior to the offering thereof. There can be no assurance that a secondary market
for any of the offered securities will develop or, if it does develop, that it
will continue. The offered securities will not be listed on any securities
exchange.
THE MORTGAGE POOLS
GENERAL
Each mortgage pool will consist primarily of mortgage loans, minus any
interest retained by the company or any affiliate of the company. The mortgage
loans may consist of single family loans, multifamily loans, commercial loans,
mixed-use loans and Contracts, each as described below.
The single family loans will be evidenced by mortgage notes and secured by
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
related mortgaged property for a single family loan may be owner-occupied or may
be a vacation, second or non-owner-occupied home.
If specified in the related prospectus supplement relating to a series of
securities, the single family loans may include cooperative apartment loans
evidenced by a mortgage note secured by security interests in the related
mortgaged property including shares issued by cooperatives and in the related
proprietary leases or occupancy agreements granting exclusive rights to occupy
specific dwelling units in the related buildings.
The multifamily loans will be evidenced by mortgage notes and secured by
mortgages that create a first or junior lien on residential properties
consisting of five or more dwelling units in high-rise, mid- rise or garden
apartment structures or projects.
The commercial loans will be evidenced by mortgage notes and secured
mortgages that create a first or junior lien on commercial properties including
office building, retail building and a variety of
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other commercial properties as may be described in the related prospectus
supplement. No more than 10% of the mortgage loans in any mortgage pool, by
original principal balance of the mortgage pool, will be secured by commercial
properties.
The mixed-use loans will be evidenced by mortgage loans and secured by
mortgages that create a first or junior lien on properties consisting of mixed
residential and commercial structures.
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 or any
of its affiliates. However, if so specified in the related prospectus
supplement, the mortgage loans may be insured by the FHA or the VA. See
"Description of Primary Insurance Policies--FHA Insurance" and "-- VA
Insurance."
A mortgage pool may include mortgage loans that are delinquent as of the
date the related series of securities is issued. In that case, the related
prospectus supplement will set forth, as to each mortgage loan, available
information as to the period of delinquency and any other information relevant
for a prospective purchaser to make an investment decision. No mortgage loan in
a mortgage pool shall be 90 days or more delinquent. Mortgage loans which are
more than 30 and less than 90 days delinquent included in any mortgage pool will
have delinquency data relating to them included in the related prospectus
supplement. No mortgage pool will include a concentration of mortgage loans
which is more than 30 and less than 90 days delinquent of 20% or more.
The mortgage loans may include "sub-prime" mortgage loans. "Sub-prime"
mortgage loans will be underwritten in accordance with underwriting standards
which are less stringent than guidelines for "A" quality borrowers. Mortgagors
may have a record of outstanding judgments, prior bankruptcies and other credit
items that do not satisfy the guidelines for "A" quality borrowers. They may
have had past debts written off by past lenders.
A mortgage pool may include mortgage loans that do not meet the purchase
requirements of Fannie Mae and Freddie Mac. These mortgage loans are known as
nonconforming loans. The mortgage loans may be nonconforming because they exceed
the maximum principal balance of mortgage loans purchased by Fannie Mae and
Freddie Mac, known as jumbo loans, because they are sub-prime mortgage loans, or
because of some other failure to meet the purchase criteria of Fannie Mae and
Freddie Mac. The related prospectus supplement will detail to what extent the
mortgage loans are nonconforming mortgage loans.
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 Unaffiliated Sellers or Affiliated 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 the mortgage pool.
The mortgage loans may be delivered to the trust fund pursuant to a
Designated Seller Transaction, concurrently with the issuance of the related
series of securities. These securities may be sold in whole or in part to the
Seller in exchange for the related mortgage loans, or may be offered under
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any of the other methods described in this prospectus 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.
If specified in the related prospectus supplement, the trust fund for a
series of securities may include mortgage securities, as described in this
prospectus. 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 trusts, and selling beneficial interests in trusts. The
mortgage securities will be generally similar to securities offered under this
prospectus. However, any mortgage securities included in a trust fund will (1)
either have been (a) previously registered under the Securities Act, or (b)
eligible for sale under Rule 144(k) under the Exchange Act; and (2) be acquired
in bona fide secondary market transactions. If the mortgage securities are the
securities of the company or an affiliate thereof, they will be registered under
the Securities Act, even if they satisfy the requirements of the preceding
sentence. As to any series of mortgage securities, the related prospectus
supplement will include a description of (1) the mortgage securities and any
related credit enhancement, and (2) the mortgage loans underlying the mortgage
securities.
THE MORTGAGE LOANS
Each of the mortgage loans will be a type of mortgage loan described or
referred to below, with any variations described in the related prospectus
supplement:
o 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;
o 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 30 years;
o Fully-amortizing ARM Loans having an original or modified term to
maturity of not more than approximately 30 years with a related
mortgage rate which generally adjusts initially either three months,
six months or one, two, three, five, seven or ten years or other
intervals 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 the related Note Margin
and the Note Index. 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 the ARM Loan generally not later than
six to ten years subsequent to the initial payment date;
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o Negatively-amortizing ARM Loans having original or modified terms to
maturity of not more than approximately 30 years with mortgage rates
which generally adjust initially on the payment date referred to in
the related prospectus supplement, and on each of specified 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 limitations as specified in the related
prospectus supplement. Any Deferred Interest will be added to the
principal balance of the mortgage loan;
o 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 the mortgage loan. Monthly payments on these mortgage
loans 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 these
mortgage loans;
o Fixed-rate, graduated payment mortgage loans having original or
modified terms to maturity of not more than approximately 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. The monthly payments on these mortgage loans 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 these mortgage loans;
o Balloon loans having payment terms similar to those described in one
of the preceding paragraphs, calculated on the basis of an assumed
amortization term, but providing for a balloon payment of all
outstanding principal and interest to be made at the end of a
specified term that is shorter than the assumed amortization term.
o Mortgage loans that provide for a line of credit pursuant to which
amounts may be advanced to the borrower from time to time; or
o Another type of mortgage loan described in the related prospectus
supplement.
The mortgage pool may contain mortgage loans secured by junior liens, and
the related senior liens may not be included in the mortgage pool. The primary
risk to holders of 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 the proceeds are sufficient, before the trust fund as
holder of the junior lien receives any payments in
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respect of the mortgage loan. If the master servicer were to foreclose on a
mortgage loan secured by a junior lien, 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 the sale, a bidder at the foreclosure sale of the 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 the 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 securities of the
related series bear (1) the risk of delay in distributions while a deficiency
judgment against the borrower is sought and (2) the risk of loss if the
deficiency judgment is not realized upon. Moreover, deficiency judgments may not
be available in some 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.
A mortgage loan may contain a prohibition on prepayment or lock-out period
or require payment of a prepayment penalty. A multifamily, commercial or
mixed-use 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. If the holders of any class or classes of offered securities of a
series will be entitled to all or a portion of this type of equity
participation, the related prospectus supplement will describe the equity
participation and the method or methods by which distributions in respect
thereof will be made to such holders.
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. In addition, some or all of the single family loans secured by
junior liens may be High LTV Loans.
A mortgage pool may contain convertible ARM Loans which allow the
mortgagors to convert the adjustable rates on these mortgage loans to a fixed
rate at some point during the life of these mortgage loans, generally not later
than six to ten years subsequent to the date of origination, depending upon the
length of the initial adjustment period. If specified in the related prospectus
supplement, upon any conversion, the company, the related master servicer, the
applicable Seller or a third party will purchase the converted mortgage loan as
and to the extent set forth in the related prospectus supplement. Alternatively,
if specified in the related prospectus supplement, the company or the related
master servicer (or another specified party) may agree to act as remarketing
agent with respect to the converted mortgage loans and, in this 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
converted mortgage loan, the inability of any remarketing agent to arrange for
the sale of the converted mortgage loan and the unwillingness of the 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.
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If provided for in the related prospectus supplement, the mortgage loans
may include buydown mortgage loans. Under the terms of a buydown mortgage loan,
the monthly payments made by the mortgagor during the early years of the
mortgage loan will be less than the scheduled monthly payments on the mortgage
loan. The resulting difference will made up from:
o funds contributed by the seller of the mortgaged property or another
source and placed in a custodial account,
o if funds contributed by the seller are contributed on a present value
basis, investment earnings on these funds or
o additional funds to be contributed over time by the mortgagor's
employer or another source.
See "Description of the Securities--Payments on Mortgage Loans; Deposits to
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 some
buydown mortgage loans, during the Buydown Period.
The prospectus supplement for each series of securities will contain
information, to the extent known or reasonably ascertainable, as to the loss and
delinquency experience of the Seller and/or the master servicer with respect to
mortgage loans similar to those included in the trust fund. Information
generally will be provided when the Seller and/or master servicer have a
seasoned portfolio of mortgage loans.
The prospectus supplement for each series of securities 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
securities will include information, generally as of the cut-off date and to the
extent then available to the company, on an approximate basis, as to the
following:
o the aggregate principal balance of the mortgage loans,
o the type of property securing the mortgage loans,
o the original or modified terms to maturity of the mortgage loans,
o the range of principal balances of the mortgage loans at origination
or modification,
o the earliest origination or modification date and latest maturity date
of the mortgage loans,
o the loan-to-value ratios of the mortgage loans,
o the mortgage rate or range of mortgage rates borne by the mortgage
loans,
o if any of the mortgage loans are ARM Loans, the applicable Index, the
range of Note Margins and the weighted average Note Margin,
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o the geographical distribution of the mortgage loans,
o the number of buydown mortgage loans, if applicable, and
o 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 securities and will be filed, together with the related
pooling and servicing agreement, with respect to each series of certificates, or
the related servicing agreement, owner trust agreement and indenture, with
respect to each series of notes, with the Commission within fifteen days after
the initial issuance of the securities. In the event that mortgage loans are
added to or deleted from the trust fund after the date of the related prospectus
supplement, the addition or deletion will be noted in the Current Report on Form
8-K. In no event, however, will more than 5% (by principal balance at the
cut-off date) of the mortgage loans or mortgage securities deviate from the
characteristics of the mortgage loans or mortgage securities set forth in the
related prospectus supplement.
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 securities 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 subservicers, pursuant to a
pooling and servicing agreement, with respect to each series of certificates, or
a servicing agreement, with respect to each series of notes, and will receive a
fee for these services. See "Servicing of Mortgage Loans," "Description of the
Securities" and "The Agreements." 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 and servicing
agreement or servicing agreement as if the master servicer alone were servicing
the mortgage loans. The master servicer's obligations with respect to the
mortgage loans will consist principally of its contractual servicing obligations
under the related pooling and servicing agreement or servicing agreement
(including its obligation to enforce the purchase and other obligations of
subservicers and Sellers, as more fully described in this prospectus under
"--Representations by Sellers" in this prospectus, "Servicing of Mortgage
Loans--Subservicers," and "Description of the Securities--Assignment of Trust
Fund Assets," and, if and to the extent set forth in the related prospectus
supplement, its obligation to make cash advances in the event of delinquencies
in payments on or with respect to the mortgage loans as described in this
prospectus under "Description of the Securities--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. The mortgage loans,
as well as mortgage loans underlying mortgage securities, will have been
originated in accordance with underwriting standards acceptable to the company
and generally described below. Any mortgage loan not directly underwritten by
the company or its affiliates will be reunderwritten by the company or its
affiliates, except in the case of a Designated Seller's Transaction, in which
case each mortgage loan will be underwritten by the Seller or an affiliate
thereof. The reunderwriting standards of the company or its affiliates for these
mortgage loans generally will be in accordance with the same standards as those
for mortgage loans directly underwritten, with any variations described in the
related prospectus supplement.
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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 the property as collateral for the
mortgage loan.
The primary considerations in underwriting a mortgage loan are the
mortgagor's employment stability and whether the mortgagor has sufficient
monthly income available (1) 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
(including property taxes and hazard insurance) and (2) 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.
High LTV Loans are underwritten with an emphasis on the creditworthiness of
the related mortgagor. High LTV Loans are underwritten with a limited
expectation of recovering any amounts from the foreclosure of the related
mortgaged property.
In the case of the multifamily loans, commercial loans or mixed-use loans,
lenders typically look to the debt service coverage ratio of a loan as an
important measure of the risk of default on that loan. Unless otherwise defined
in the related prospectus supplement, the debt service coverage ratio of a
multifamily loan or commercial loan at any given time is the ratio of (1) the
net operating income of the related mortgaged property for a twelve-month period
which is to (2) 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. The total operating revenues derived from a
multifamily, commercial or mixed-use property, as applicable, during that
period, minus the total operating expenses incurred in respect of that property
during that period other than (a) non-cash items such as depreciation and
amortization, (b) capital expenditures and (c) debt service on loans (including
the related mortgage loan) secured by liens on that property. The net operating
income of a multifamily, commercial or mixed-use property, as applicable, 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, commercial or mixed-use property, as
applicable, 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, commercial or mixed-use loan. Lenders also
look to the loan-to-value ratio of a multifamily, commercial or mixed-use loan
as a measure of risk of loss if a property must be liquidated following a
default.
Each prospective mortgagor will generally complete a mortgage loan
application that includes information on 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 generally
will be required. 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. In the
case of a multifamily loan, commercial loan or mixed-use loan, the mortgagor
will also be required to provide certain information regarding the related
mortgaged 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 mortgaged property, the
availability of competitive lease space and rental income of comparable
properties in the relevant market
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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 or commercial properties, as the case may be.
Mortgaged properties generally 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 mortgaged
properties secured by single family loans, 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,
commercial properties and mixed-use 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 support, and support in the future, the
outstanding loan balance. All appraisals are required to be on forms acceptable
to Fannie Mae or 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 securities 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.
Mortgage loans which are subject to negative amortization will have
loan-to-value ratios which will increase after origination as a result of
negative amortization. Also, even when current, an appraisal is not necessarily
a reliable estimate of value for a multifamily property or commercial property.
As stated above, appraised values of multifamily, commercial and mixed-use
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 those 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, commercial loan or mixed-use loan may also include
environmental testing. Under the laws of some states, contamination of real
property may give rise to a lien on the property to assure the costs of cleanup.
In several states, this type of lien has priority over an existing mortgage lien
on that property. In addition, under the laws of some states and under the
federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, a lender may be liable, as an "owner" or "operator", for costs of
addressing releases or threatened releases of hazardous substances at a
property, if agents or employees of the lender have become sufficiently involved
in the operations of the borrower, regardless of whether or not the
environmental damage or threat was caused by the borrower or a prior owner. A
lender also risks such liability on foreclosure of the mortgage as described
under "Certain Legal Aspects of Mortgage Loans--Environmental Legislation" in
this prospectus.
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With respect to any FHA loan or VA loans the mortgage loan Seller will be
required to represent that it has complied with the applicable underwriting
policies of the FHA or VA, respectively. See "Description of Primary Insurance
Policies--FHA Insurance" and "--VA Insurance" in this prospectus.
QUALIFICATIONS OF ORIGINATORS AND SELLERS
Each mortgage loan generally 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 Housing Act.
REPRESENTATIONS BY SELLERS
Each Seller will have made representations and warranties in respect of the
mortgage loans and/or mortgage securities sold by the Seller and evidenced by a
series of securities. In the case of mortgage loans, representations and
warranties will generally include, among other things, that as to each mortgage
loan:
o any required hazard and primary mortgage insurance policies were
effective at the origination of the mortgage loan, and each the policy
remained in effect on the date of purchase of the mortgage loan from
the Seller by or on behalf of the company;
o with respect to each mortgage loan other than a Contract or a
cooperative mortgage loan, 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 the
mortgage loan and the 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 the mortgage loan is
located in an area where these policies are generally not available,
there is in the related mortgage file an attorney's certificate of
title indicating (subject to permissible exceptions set forth therein)
the lien status of the mortgage;
o the Seller has good title to the mortgage loan and the 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;
o 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);
o the related mortgaged property is free from damage and in good repair;
o there are no delinquent tax or assessment liens against the related
mortgaged property;
o the mortgage loan is not more than 90 days' delinquent as to any
scheduled payment of principal and/or interest;
o if a Primary Insurance Policy is required with respect to the mortgage
loan, the mortgage loan is the subject of the policy; and
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o the mortgage loan was made in compliance with, and is enforceable
under, all applicable local, state and federal laws in all material
respects.
If the mortgage loans include cooperative mortgage loans, representations and
warranties with respect to title insurance or hazard insurance may not be given.
Generally, the cooperative itself is responsible for the maintenance of hazard
insurance for property owned by the cooperative, and the borrowers
(tenant-stockholders) of the cooperative do not maintain hazard insurance on
their individual dwelling units. In the case of mortgage securities,
representations and warranties will generally include, among other things, that
as to each mortgage security: (1) the mortgage security is validly issued and
outstanding and entitled to the benefits of the agreement pursuant to which it
was issued; and (2) the Seller has good title to the mortgage security. In the
event of a breach of a Seller's representation or warranty that materially
adversely affects the interests of the securityholders in a mortgage loan or
mortgage security, the related Seller will be obligated to cure the breach or
repurchase or, if permitted, replace the 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 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
the mortgage loan or mortgage security was purchased from the Seller by or on
behalf of the company. As a result, the date as of which the representations and
warranties were made may be a date prior to the date of initial issuance of the
related series of securities 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 securities. 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 a purchase obligation had
the event occurred prior to sale of the affected mortgage loan or mortgage
security, as the case may be. The only representations and warranties to be made
for the benefit of holders of securities in respect of any related mortgage loan
or mortgage security relating to the period commencing on the date of sale of
the mortgage loan or mortgage security by the Seller to or on behalf of the
company will be the limited representations of the company and the master
servicer described under "Description of the Securities--Assignment of Trust
Fund Assets" below.
The company will assign to the trustee for the benefit of the holders of
the related series of securities all of its right, title and interest in each
purchase agreement by which it purchased a mortgage loan or mortgage security
from a Seller insofar as the purchase agreement relates to the representations
and warranties made by the Seller in respect of the mortgage loan or mortgage
security and any remedies provided for with respect to any breach of
representations and warranties with respect to the mortgage loan or mortgage
security. 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 securityholders therein within a
specified period after having discovered or received notice of a breach, then,
the Seller will be obligated to purchase the mortgage loan or mortgage security
at a purchase price set forth in the related pooling and servicing agreement or
other agreement which purchase price generally will 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 this interest payable to the
Seller in respect of master servicing compensation, special servicing
compensation or subservicing compensation, as applicable, and any interest
retained by the company).
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As to any mortgage loan required to be purchased by a Seller as provided
above, rather than repurchase the mortgage loan, the Seller, if so specified in
the related prospectus supplement, will be entitled, at its sole option, to
remove the Deleted Mortgage Loan from the trust fund and substitute in its place
a Qualified Substitute Mortgage Loan; however, with respect to a series of
certificates for which no REMIC election is to be made, the 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 a REMIC election
is to be made, the 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 the 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. Any Qualified Substitute Mortgage
Loan generally will, on the date of substitution:
o have an outstanding principal balance, after deduction of the
principal portion of the monthly payment due in the month of
substitution, not in excess of the outstanding principal balance of
the Deleted Mortgage Loan (the amount of any shortfall to be deposited
in the Certificate Account by the related Seller or the master
servicer in the month of substitution for distribution to the
securityholders),
o 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,
o 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,
o have a remaining term to maturity not greater than (and not more than
one year less than) that of the Deleted Mortgage Loan and
o comply with all of the representations and warranties made by the
Seller as of the date of substitution.
The related mortgage loan 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. No 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 and
servicing agreement or servicing agreement to use reasonable efforts to enforce
this purchase or substitution obligation for the benefit of the trustee and the
securityholders, following those 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 the 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 the related Seller that could provide for the purchase of only a
portion of the affected mortgage loans and/or mortgage securities. Any
settlement could lead to losses on the mortgage loans and/or mortgage securities
which would be borne by the related securities. 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
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determines in the reasonable exercise of its business judgment that the matters
related to the 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, the repurchase obligation of the Seller will not become an
obligation of the company or any other party. The foregoing obligations will
constitute the sole remedies available to securityholders or the trustee for a
breach of any representation by a Seller or for any other event giving rise to
the 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 their purchase
obligations. 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
Securities--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 securities.
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 for a breach of those
representations and warranties, the identity of that person will be specified in
the related prospectus supplement.
SERVICING OF MORTGAGE LOANS
GENERAL
The mortgage loans and mortgage securities included in each mortgage pool
will be serviced and administered pursuant to either a pooling and servicing
agreement or a servicing agreement. Forms of pooling and servicing agreements
and a form of servicing agreement have been filed as an exhibit to the
registration statement of which this prospectus is a part. However, the
provisions of each pooling and servicing agreement or servicing 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 and servicing agreement or servicing agreement for a mortgage pool
that includes mortgage loans. The related prospectus supplement will describe
any servicing-related provision of its related pooling and servicing agreement
or servicing agreement that materially differs from the description thereof
contained in this prospectus. If the related mortgage pool includes mortgage
securities, the related prospectus supplement will summarize the material
provisions of the related pooling and servicing agreement and identify the
responsibilities of the parties to that pooling and servicing agreement.
With respect to any series of securities as to which the related mortgage
pool includes mortgage securities, the servicing and administration of the
mortgage loans underlying any mortgage securities will be pursuant to the terms
of those mortgage securities. Mortgage loans underlying mortgage securities in a
mortgage pool will be serviced and administered generally in the same manner as
mortgage loans included in a mortgage pool, however, there can be no assurance
that this will be the case, particularly if
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the 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 the
mortgage loans underlying mortgage securities in any mortgage pool.
THE MASTER SERVICER
The master servicer, if any, for a series of securities will be named in
the related prospectus supplement and may be Impac Funding Corporation or
another affiliate of the company. The master servicer is 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 and servicing agreement or a
servicing agreement.
COLLECTION AND OTHER SERVICING PROCEDURES; MORTGAGE LOAN MODIFICATIONS
The master servicer for any mortgage pool, directly or through
subservicers, will be obligated under the pooling and servicing agreement or
servicing agreement to service and administer the mortgage loans in the mortgage
pool for the benefit of the related securityholders, in accordance with
applicable law, the terms of the pooling and servicing agreement or servicing
agreement, the mortgage loans and any instrument of credit enhancement included
in the related trust fund, and, to the extent consistent with the foregoing, the
customs and standards of 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 servicing and administration that it may deem necessary and
desirable.
As part of its servicing duties, the 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. The master servicer will be
obligated to follow the same collection procedures as it would follow for
comparable mortgage loans held for its own account, so long as these procedures
are consistent with the servicing standard of and the terms of the related
pooling and servicing agreement or servicing agreement and the servicing
standard generally described in the preceding paragraph, and do not impair
recovery under any instrument of credit enhancement included in the related
trust fund. Consistent with the foregoing, the master servicer will be
permitted, in its discretion, to waive any prepayment premium, late payment
charge or other charge in connection with any mortgage loan.
Under a pooling and servicing agreement or a servicing agreement, a master
servicer will be granted discretion to extend relief to mortgagors whose
payments become delinquent. In the case of single family loans and Contracts, a
master servicer may, for example, grant a period of temporary indulgence to a
mortgagor or may enter into a liquidating plan providing for repayment of
delinquent amounts within a specified period from the date of execution of the
plan. However, the master servicer must first determine that any waiver or
extension will not impair the coverage of any related insurance policy or
materially adversely affect the security for the 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, commercial loan or mixed-use loan, the master servicer will be
permitted, subject to any specific limitations set forth in the related pooling
and servicing agreement or servicing 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 the modification, waiver or
amendment (1) is reasonably likely to produce a greater recovery with respect to
that mortgage loan on a present value basis than would liquidation and (2) will
not adversely affect the coverage under any applicable instrument of credit
enhancement.
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In the case of multifamily loans, commercial loans and mixed-use 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, commercial or mixed-use 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.
Generally, the related master servicer will be required to monitor any
multifamily loan or commercial 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 any other actions as are consistent with
the servicing standard described above and in the pooling and servicing
agreement or servicing agreement. 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 securityholders of the related
series may vary considerably depending on the particular multifamily, commercial
or mixed-use loan, the mortgaged property, the mortgagor, the presence of an
acceptable party to assume that 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, commercial or mixed-use loan or to foreclose on the
mortgaged property for a considerable period of time. See "Certain Legal Aspects
of Mortgage Loans."
Some or all 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. In any case in which a mortgaged property is
being conveyed by the mortgagor, the master servicer will in general be
obligated, to the extent it has knowledge of the conveyance, to exercise its
rights to accelerate the maturity of the related mortgage loan under any
due-on-sale clause applicable thereto, but only if the exercise of these 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 applicable law prevents the master servicer
from enforcing a due-on-sale or due-on-encumbrance clause or if the master
servicer determines that it is reasonably likely that the related mortgagor
would institute a legal action to avoid enforcement of a due-on-sale or
due-on-encumbrance clause, the master servicer may enter into an assumption and
modification agreement with the person to whom the property has been or is about
to be conveyed, pursuant to which this person becomes liable under the mortgage
loan subject to specified conditions. The original mortgagor may be released
from liability on a single family loan if the master servicer shall have
determined in good faith that the release will not adversely affect the
collectability of the mortgage loan. 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, commercial loan or mixed-use
loan in a manner consistent with the servicing standard. The master servicer
generally will be entitled to retain as additional servicing compensation any
fee collected in connection with the permitted transfer of a mortgaged property.
See "Legal Aspects of Mortgage Loans--Enforceability of Certain Provisions." FHA
loans do not contain due-on-sale or due-on-encumbrance clauses 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 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 approval will not adversely
affect the
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security for, or the timely and full collectability of, the related mortgage
loan. Any fee collected by the master servicer for processing these requests
will be retained by the master servicer as additional servicing compensation.
In the case of mortgage loans secured by junior liens on the related
mortgaged properties, 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 the junior lienholder's equity of redemption.
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, 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 securityholders, and/or to preserve the security of the related
mortgage loan, subject to the REMIC Provisions, if applicable. The master
servicer will be required to advance the necessary funds to cure the default or
reinstate the superior lien, if the advance is in the best interests of the
related securityholders and the master servicer determines the 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 REO properties; and maintaining
servicing records relating to the mortgage loans in the mortgage pool. 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 subservicers, but the
master servicer will remain liable for its obligations under the related pooling
and servicing agreement or servicing agreement. The master servicer will be
solely liable for all fees owed by it to any subservicer, regardless of whether
the master servicer's compensation pursuant to the related pooling and servicing
agreement or servicing agreement is sufficient to pay the subservicer's fees.
Each subservicer will be entitled to reimbursement for some of the 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; Retained Interest" below and "Description of the
Securities--The Certificate Account."
SPECIAL SERVICERS
If and to the extent specified in the related prospectus supplement, a
special servicer may be a party to the related pooling and servicing agreement
or servicing agreement or may be appointed by the master servicer or another
specified party to perform 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
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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 that prospectus supplement.
REALIZATION UPON OR SALE OF DEFAULTED MORTGAGE LOANS
Except as described below, 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 any mortgage loans in
the related mortgage pool that come into and continue in default and as to which
no satisfactory arrangements can be made for collection of delinquent payments.
Generally, the foreclosure process will commence no later than 90 days after
delinquency of the related mortgage loan. 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
the 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 (1) the foreclosure and/or restoration will
increase the proceeds of liquidation of the mortgage loan to the related
securityholders after reimbursement to itself for these expenses and (2) these
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 and
servicing agreement or servicing agreement).
However, unless otherwise specified in the related prospectus supplement,
the master servicer may not acquire title to any multifamily property or
commercial property securing a mortgage loan or take any other action that would
cause the related trustee, for the benefit of securityholders 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 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:
(1) the mortgaged property is in compliance with applicable
environmental laws and regulations or, if not, that taking actions as are
necessary to bring the mortgaged property into compliance with these laws
is reasonably likely to produce a greater recovery on a present value basis
than not taking those actions; and
(2) 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 those
circumstances or conditions are present for which any such action could be
required, taking those actions with respect to the mortgaged property is
reasonably likely to produce a greater recovery on a present value basis
than not taking those actions. See "Certain Legal Aspects of Mortgage
Loans--Environmental Legislation."
The master servicer will not be obligated to foreclose upon or otherwise
convert the ownership of any mortgaged property securing a single family loan if
it has received notice or has actual knowledge that the property may be
contaminated with or affected by hazardous wastes or hazardous substances;
however, environmental testing will not be required. The master servicer will
not be liable to the
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securityholders 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 the mortgaged property, and thereafter the 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 remedies if it determines that one remedy is
more likely than the other 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, the 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 the mortgage loan thereafter incurred will be reimbursable
to the master servicer (or any subservicer) from any amounts otherwise
distributable to holders of securities of the related series, or may be offset
by any subsequent recovery related to the mortgage loan. Alternatively, for
purposes of determining the amount of related Liquidation Proceeds to be
distributed to securityholders, 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 the defaulted mortgage loan.
With respect to a series of securities, if so provided in the related
prospectus supplement, the applicable form of credit enhancement may provide, to
the extent of coverage, that a defaulted mortgage loan will be removed from the
trust fund prior to the final liquidation thereof. In addition, a pooling and
servicing agreement or servicing agreement may grant to the master servicer, a
special servicer, a provider of credit enhancement and/or the holder or holders
of specified classes of securities of the related series a right of first
refusal to purchase from the trust fund, at a predetermined purchase price, any
mortgage loan as to which a specified number of scheduled payments are
delinquent. If the purchase price is insufficient to fully fund the entitlements
of securityholders to principal and interest, it will be specified in the
related prospectus supplement. Furthermore, a pooling and servicing agreement or
a servicing 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 the sale would produce a greater recovery to
securityholders on a present value basis than would liquidation of the related
mortgaged property.
In the event that title to any mortgaged property is acquired by
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
will be issued to the trustee or to its nominee on behalf of securityholders of
the related series. Notwithstanding any acquisition of title and cancellation of
the related mortgage loan, the REO Mortgage Loan will be considered for most
purposes to be an outstanding mortgage loan held in the trust fund until the
mortgaged property is sold and all recoverable Liquidation Proceeds and
Insurance Proceeds have been received with respect to the defaulted mortgage
loan. For purposes of calculations of amounts distributable to securityholders
in respect of an REO Mortgage Loan, the amortization schedule in effect at the
time of any 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, the amortization schedule will be deemed to have adjusted in
accordance with any interest rate changes occurring on any adjustment date
therefor) so long as the REO Mortgage Loan is considered to remain in the trust
fund.
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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 three years of
acquisition, unless (1) the IRS grants an extension of time to sell the property
or (2) the trustee receives an opinion of independent counsel to the effect that
the holding of the property by the trust fund for more than three 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 generally will be required to
solicit bids for any mortgaged property so acquired in a manner as will be
reasonably likely to realize a fair price for the property. 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 Section 860G(a)(8) of the Code at all times, that the sale
of the property does not result in the receipt by the trust fund of any income
from non-permitted assets as described in Section 860F(a)(2)(B) of the Code, and
that the trust fund does not derive any "net income from foreclosure property"
within the meaning of Section 860G(c)(2) of the Code with respect to the
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 accrued interest plus the aggregate amount of reimbursable expenses
incurred by the master servicer with respect to the 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 the
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 Liquidation Proceeds to securityholders, 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 specified
conditions in the event that, following the final liquidation of a mortgage loan
and a draw under the credit enhancement, subsequent recoveries are received. In
addition, if a gain results from the final liquidation of a defaulted mortgage
loan or an REO Mortgage Loan which is not required by law to be remitted to the
related mortgagor, the master servicer will be entitled to retain the 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; RETAINED INTEREST
The principal servicing compensation to be paid to the master servicer in
respect of its master servicing activities for a series of securities will be
equal to the percentage or range of percentages per annum described in the
related prospectus supplement of the outstanding principal balance of each
mortgage loan, and this compensation will be retained by it on a monthly or
other periodic basis from collections of interest on each mortgage loan in the
related trust fund at the time the collections are deposited into the applicable
Certificate Account. This portion of the servicing fee will be calculated with
respect to each mortgage loan by multiplying the fee by the principal balance of
the mortgage loan. In addition, the master servicer may 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
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be described in the related prospectus supplement. Any subservicer will receive
a portion of the master servicer's compensation as its subservicing
compensation.
In addition to amounts payable to any subservicer, the master servicer will
pay or cause to be paid some of the ongoing expenses associated with each trust
fund and incurred by it in connection with its responsibilities under the
pooling and servicing agreement or servicing 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 security 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 limited circumstances. In addition, the master
servicer will be entitled to reimbursements for some of its expenses incurred in
connection with liquidated mortgage loans and in connection with the restoration
of mortgaged properties, this right of reimbursement being prior to the rights
of securityholders 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 reimbursable expenses for the period that the advances are outstanding at
the rate specified in the prospectus supplement, and the master servicer will be
entitled to payment of the interest periodically from general collections on the
mortgage loans in the related trust fund prior to any payment to securityholders
or as otherwise provided in the related pooling and servicing agreement or
servicing agreement and described in the prospectus supplement.
The prospectus supplement for a series of securities will specify whether
there will be any interest in the mortgage loans retained by the company. Any
retained interest 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 retained interest 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 and servicing agreement or servicing
agreement. Any partial recovery of interest in respect of a mortgage loan will
be allocated between the owners of any retained interest and the holders of
classes of securities entitled to payments of interest as provided in the
related prospectus supplement and the applicable pooling and servicing agreement
or servicing 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 that period. See "Yield
Considerations."
EVIDENCE AS TO COMPLIANCE
Each pooling and servicing agreement and servicing 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 the 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
and servicing agreement or servicing agreement) substantially similar to each
other was conducted in compliance with the agreements except for 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 the firm may rely, as to the matters relating to the direct servicing
of mortgage loans by subservicers, upon
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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 the
statement) of firms of independent public accountants with respect to those
subservicers which also have been the subject of this type of examination.
Each pooling and servicing agreement and servicing 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 officer, the master servicer has
fulfilled in all material respects its obligations under the pooling and
servicing agreement or servicing agreement throughout the preceding year or, if
there has been a material default in the fulfillment of any obligation, the
statement shall specify each known default and the nature and status thereof.
This statement may be provided as a single form making the required statements
as to more than one pooling and servicing agreement or servicing agreement.
Copies of the annual accountants' statement and the annual statement of
officers of a master servicer may be obtained by securityholders without charge
upon written request to the master servicer or trustee.
DESCRIPTION OF THE SECURITIES
GENERAL
The securities will be issued in series. Each series of certificates (or,
in some instances, two or more series of certificates) will be issued pursuant
to a pooling and servicing agreement, similar to one of the forms filed as an
exhibit to the registration statement of which this prospectus is a part. Each
pooling and servicing agreement will be filed with the Commission as an exhibit
to a Current Report on Form 8- K. Each series of notes (or, in some instances,
two or more series of notes) will be issued pursuant to an indenture between the
related Issuer and the trustee, similar to the form filed as an exhibit to the
registration statement of which this prospectus is a part. The trust fund will
be created pursuant to an owner trust agreement between the company and the
owner trustee. Each indenture, along with the related servicing agreement and
owner trust agreement, will be filed with the Commission as an exhibit to a
Current Report on Form 8-K. Qualified counsel will render an opinion to the
effect that the trust fund's assets will not be considered assets of the Seller
or the company in the event of the bankruptcy Seller or the company. The
following summaries (together with additional summaries under "The Agreements"
below) describe the material provisions relating to the securities common to
each Agreements.
Certificates of each series covered by a particular pooling and servicing
agreement will evidence specified beneficial ownership interests in a separate
trust fund created pursuant to the pooling and servicing agreement. Each series
of notes covered by a particular indenture will evidence indebtedness of a
separate trust fund created pursuant to the related owner trust agreement. A
trust fund will consist of, to the extent provided in the pooling and servicing
agreement or owner trust agreement:
o the mortgage loans (and the related mortgage documents) or interests
therein (including any mortgage securities) underlying a particular
series of securities as from time to time are subject to the pooling
and servicing agreement or servicing agreement, exclusive of, if
specified in the related prospectus supplement, any interest retained
by the company or any of its affiliates with respect to each mortgage
loan;
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o 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;
o any property acquired in respect of mortgage loans in the trust fund,
whether through foreclosure of a mortgage loan or by deed in lieu of
foreclosure;
o hazard insurance policies, Primary Insurance Policies and FHA
insurance policies, if any, maintained in respect of mortgage loans in
the trust fund and the proceeds of these policies;
o the rights of the company under any mortgage loan purchase agreement,
including in respect of any representations and warranties therein;
and
o any combination, as and to the extent specified in the related
prospectus supplement, of a financial guaranty insurance policy,
mortgage pool insurance policy, letter of credit, special hazard
insurance policy, or currency or interest rate exchange agreements as
described under "Description of Credit Enhancement."
If provided in the related prospectus supplement, the original principal
amount of a series of securities may exceed the principal balance of the
mortgage loans or mortgage securities initially being delivered to the trustee.
Cash in an amount equal to this difference will be deposited into a 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. Any amounts remaining in the pre-funding account at the end of the
period will be distributed as a principal prepayment to the holders of the
related series of securities at the time and in the manner set forth in the
related prospectus supplement.
Each series of securities may consist of any one or a combination of the
following:
o a single class of securities;
o two or more classes of securities, one or more classes of which will
be senior in right of payment to one or more of the other classes, and
as to which some classes of senior (or subordinate) securities may be
senior to other classes of senior (or subordinate) securities, as
described in the respective prospectus supplement;
o two or more classes of securities, one or more classes of which will
be Strip Securities;
o two or more classes of securities 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 a 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 Accrual Securities; or
o other types of classes of securities, as described in the related
prospectus supplement.
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With respect to any series of notes, the related Equity Certificates, insofar as
they represent the beneficial ownership interest in the Issuer, will be
subordinate to the related notes. As to each series, the offered securities will
be rated in one of the four highest rating categories by one or more Rating
Agencies. Credit support for the offered securities of each series may be
provided by a financial guaranty insurance policy, mortgage pool insurance
policy, letter of credit, reserve fund, overcollateralization, and currency or
interest rate exchange agreements as described under "Description of Credit
Enhancement," by the subordination of one or more other classes of securities as
described under "Subordination" 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 an election is made with respect
to a series of certificates, one of the classes of certificates in the 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 the residual interests. All other classes of
certificates in the series will constitute "regular interests" in the related
REMIC, as defined in the Code. 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 specified actions required in order to comply
with applicable laws and regulations.
FORM OF SECURITIES
Except as described below, the offered securities of each series will be
issued as physical certificates or notes 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
named in the related prospectus supplement. No service charge will be made for
any registration of exchange or transfer of offered securities, but the trustee
may require payment of a sum sufficient to cover any tax or other governmental
charge. A "securityholder" or "holder" is the entity whose name appears on the
records of the registrar (consisting of or including the security register) as
the registered holder of a security.
If so specified in the related prospectus supplement, specified classes of
a series of securities will be initially issued through the book-entry
facilities of the DTC. As to any class of DTC Registered Securities, the record
holder of the securities 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 participants and facilitates the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in the accounts of participants. Intermediaries have indirect access to
DTC's clearance system.
No Beneficial Owner will be entitled to receive a Security representing its
interest in registered, certificated form, unless either (1) DTC ceases to act
as depository in respect thereof and a successor depository is not obtained, or
(2) the company elects in its sole discretion to discontinue the registration of
the securities through DTC. Prior to one of these events, Beneficial Owners will
not be recognized by the trustee or the master servicer as holders of the
related securities for purposes of the related pooling and servicing agreement
or indenture, and Beneficial Owners will be able to exercise their rights as
owners of the securities only indirectly through DTC, participants and
Intermediaries. Any Beneficial Owner that desires to purchase, sell or otherwise
transfer any interest in DTC Registered Securities may do so only through DTC,
either directly if the 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 Securities will
be required to be made in minimum denominations specified in the related
prospectus supplement. The ability of a Beneficial Owner to
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pledge DTC Registered Securities to persons or entities that are not
participants in the DTC system, or to otherwise act with respect to the
securities, may be limited because of the lack of physical certificates or notes
evidencing the securities and because DTC may act only on behalf of
participants.
Distributions in respect of the DTC Registered Securities will be forwarded
by the trustee or other specified person to DTC, and DTC will be responsible for
forwarding the payments to participants, each of which will be responsible for
disbursing the 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 securities. Under DTC's
procedures, DTC will take actions permitted to be taken by holders of any class
of DTC Registered Securities under the pooling and servicing agreement or
indenture only at the direction of one or more participants to whose account the
DTC Registered Securities 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 securities of any class to the extent that participants authorize these
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 Securities, or for maintaining, supervising or reviewing any
records relating to the beneficial ownership interests.
GLOBAL SECURITIES
Some of the offered securities may be Global Securities. Except in some
limited circumstances, the Global Securities will be available only in
book-entry form. Investors in the Global Securities may hold those Global
Securities through any of DTC, Clearstream Banking, societe anonyme, forferly
known as Cedelbank SA, or Euroclear. The Global Securities will be traceable as
home market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors through Clearstream and
Euroclear will be conducted in the ordinary way in accordance with the normal
rules and operating procedures of Clearstream and Euroclear and in accordance
with conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors through DTC will be conducted
according to DTC's rules and procedures applicable to U.S. corporate debt
obligations.
Secondary cross-market trading between Clearstream or Euroclear and DTC
participants holding Notes will be effected on a delivery-against-payment basis
through the respective Depositaries of Clearstream and Euroclear (in that
capacity) and as DTC participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless those holders meet various requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect participants in DTC. As a result, Clearstream and Euroclear will
hold positions on behalf of their participants through their Relevant Depositary
which in turn will hold those positions in their accounts as DTC participants.
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Investors electing to hold their Global Securities through DTC will follow
DTC settlement practices. Investor securities custody accounts will be credited
with their holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Clearstream or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Secondary market trading between DTC participants will be settled using the
procedures applicable to prior mortgage loan asset-backed notes issues in
same-day funds. Secondary market trading between Clearstream participants or
Euroclear participants will be settled using the procedures applicable to
conventional eurobonds in same-day funds. When Global Securities are to be
transferred from the account of a DTC participant to the account of a
Clearstream participant or a Euroclear participant, the purchaser will send
instructions to Clearstream or Euroclear through a Clearstream participant or
Euroclear participant at least one business day prior to settlement. Clearstream
or Euroclear will instruct the Relevant Depositary, as the case may be, to
receive the Global Securities against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment date
to and excluding the settlement date, on the basis of the actual number of days
in that accrual period and a year assumed to consist of 360 days. For
transactions settling on the 31st of the month, payment will include interest
accrued to and excluding the first day of the following month. Payment will then
be made by the Relevant Depositary to the DTC participant's account against
delivery of the Global Securities. After settlement has been completed, the
Global Securities will be credited to the respective clearing system and by the
clearing system, in accordance with its usual procedures, to the Clearstream
participant's or Euroclear participant's account. The securities credit will
appear the next day (European time) and the cash debt will be back-valued to,
and the interest on the Global Securities will accrue from, the value date
(which would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (I.E., the trade fails),
the Clearstream or Euroclear cash debt will be valued instead as of the actual
settlement date.
Clearstream participants and Euroclear participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Clearstream or Euroclear. Under
this approach, they may take on credit exposure to Clearstream or Euroclear
until the Global Securities are credited to their account one day later. As an
alternative, if Clearstream or Euroclear has extended a line of credit to them,
Clearstream participants or Euroclear participants can elect not to preposition
funds and allow that credit line to be drawn upon to finance settlement. Under
this procedure, Clearstream participants or Euroclear participants purchasing
Global Securities would incur overdraft charges for one day, assuming they
cleared the overdraft when the Global Securities were credited to their
accounts. However, interest on the Global Securities would accrue from the value
date. Therefore, in many cases the investment income on the Global Securities
earned during that one-day period may substantially reduce or offset the amount
of those overdraft charges, although the result will depend on each Clearstream
participant's or Euroclear participant's particular cost of funds. Since the
settlement is taking place during New York business hours, DTC participants can
employ their usual procedures for crediting Global Securities to the respective
European depositary for the benefit of Clearstream participants or Euroclear
participants. The
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sale proceeds will be available to the DTC seller on the settlement date. Thus,
to the DTC participants a cross-market transaction will settle no differently
than a trade between two DTC participants.
Due to time zone differences in their favor, Clearstream participants and
Euroclear participants may employ their customary procedures for transactions in
which Global Securities are to be transferred by the respective clearing system,
through the respective depositary, to a DTC participant. The seller will send
instructions to Clearstream or Euroclear through a Clearstream participant or
Euroclear participant at least one business day prior to settlement. In these
cases Clearstream or Euroclear will instruct the respective depositary, as
appropriate, to credit the Global Securities to the DTC participant's account
against payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment to and excluding the settlement date
on the basis of the actual number of days in that accrual period and a year
assumed to consist to 360 days. For transactions settling on the 31st of the
month, payment will include interest accrued to and excluding the first day of
the following month. The payment will then be reflected in the account of
Clearstream participant or Euroclear participant the following day, and receipt
of the cash proceeds in the Clearstream participant's or Euroclear participant's
account would be back-valued to the value date (which would be the preceding
day, when settlement occurred in New York). Should the Clearstream participant
or Euroclear participant have a line of credit with its respective clearing
system and elect to be in debt in anticipation of receipt of the sale proceeds
in its account, the back-valuation will extinguish any overdraft incurred over
that one-day period. If settlement is not completed on the intended value date
(i.e., the trade fails), receipt of the cash proceeds in the Clearstream
participant's or Euroclear participant's account would instead be valued as of
the actual settlement date.
Finally, day traders that use Clearstream or Euroclear and that purchase
Global Securities from DTC participants for delivery to Clearstream participants
or Euroclear participants should note that these trades would automatically fail
on the sale side unless affirmative action is taken. At least three techniques
should be readily available to eliminate this potential problem:
o borrowing through Clearstream or Euroclear for one day (until the
purchase side of the trade is reflected in their Clearstream or
Euroclear accounts) in accordance with the clearing system's customary
procedures;
o borrowing the Global Securities in the U.S. from a DTC participant no
later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Clearstream or
Euroclear account in order to settle the sale side of the trade; or
o staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC participant is at
least one day prior to the value date for the sale to the Clearstream
participant or Euroclear participant.
A beneficial owner of Global Securities holding securities through
Clearstream or Euroclear (or through DTC if the holder has an address outside
the U.S.) will be subject to the 30% U.S. withholding tax that generally applies
to payments of interest (including original issue discount) on registered debt
issued by U.S. Persons (as defined below), unless (i) each clearing system, bank
or other financial institution that holds customers' securities in the ordinary
course of its trade or business in the chain of intermediaries between that
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) that beneficial owner takes one
of the following steps to obtain an exemption or reduced tax rate: Exemption for
Non-U.S. Persons (Form W-8). Beneficial holders of Global Securities that are
Non-U.S. Persons (as defined below) can obtain a complete
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exemption from the withholding tax by filing a signed Form W-8 (Certificate of
Foreign Status). If the information shown on Form W-8 changes, a new Form W-8
must be filed within 30 days of that change.
A Non-U.S. Person (as defined below), including a non-U.S. corporation or
bank with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a Trade
or Business in the United States).
Non-U.S. Persons residing in a country that has a tax treaty with the
United States can obtain an exemption or reduced tax rate (depending on the
treaty terms) by filing Form 1001 (Holdership, Exemption or Reduced Rate
Certificate). If the treaty provides only for a reduced rate, withholding tax
will be imposed at that rate unless the filer alternatively files Form W-8. Form
1001 may be filed by Noteholders or their agent.
U.S. Persons can obtain a complete exemption from the withholding tax by
filing Form W-9 (Payer's Request for Taxpayer Identification Number and
Certification).
The holder of a Global Security or, in the case of a Form 1001 or a Form
4224 filer, his agent, files by submitting the appropriate form to the person
through whom it holds the security (the clearing agency, in the case of persons
holding directly on the books of the clearing agency). Form W-8 and Form 1001
are effective for three calendar years and Form 4224 is effective for one
calendar year. The term "U.S. Person" means a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in, or
under the laws of, the United States or any political subdivision thereof
(except, in the case of a partnership, to the extent provided in regulations),
or an estate whose income is subject to United States federal income tax
regardless of its source, or a trust if a court within the United States is able
to exercise primary supervision over the administration of the trust and one or
more United States Persons have the authority to control all substantial
decisions of the trust. The term "Non-U.S. Person" means any person who is not a
U.S. Person. This summary does not deal with all aspects of U.S. Federal income
tax withholding that may be relevant to foreign holders of the Global
Securities. Investors are advised to consult their own tax advisors for specific
tax advice concerning their holding and disposing of the Global Securities.
ASSIGNMENT OF TRUST FUND ASSETS
At the time of issuance of a series of securities, 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, all principal and interest received on or
with respect to the 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 an interest in the trust fund assets, if any, for itself
or transfer the same to others. The trustee will, concurrently with the
assignment, deliver the securities of the 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 and servicing agreement or
servicing agreement. The 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).
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In addition, 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 following documents:
o the mortgage note endorsed, without recourse, either in blank or to
the order of the trustee (or its nominee),
o the mortgage with evidence of recording indicated on the mortgage
(except for any mortgage not returned from the public recording
office) or, in the case of a cooperative mortgage loan, on the related
financing statement,
o an assignment of the mortgage in blank or to the trustee (or its
nominee) in recordable form (or, with respect to a cooperative
mortgage loan, an assignment of the respective security agreements,
any applicable UCC financing statements, recognition agreements,
relevant stock certificates, related blank stock powers and the
related proprietary leases or occupancy agreements),
o any intervening assignments of the mortgage with evidence of recording
on the assignment (except for any assignment not returned from the
public recording office),
o if applicable, any riders or modifications to the mortgage note and
mortgage, and
o any other documents set forth in the related pooling and servicing
agreement, mortgage loan purchase agreement or servicing agreement.
The 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 on the assignment
concurrently with the execution and delivery of the related pooling and
servicing agreement or servicing 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 the
mortgage or assignment as submitted for recording within one year. The company
will deliver, or cause to be delivered, to the related trustee (or the
custodian) the mortgage or assignment with evidence of recording indicated on
the assignment 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 on the mortgage or assignment
concurrently with the execution and delivery of the related pooling and
servicing agreement or servicing agreement because the 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 the mortgage
or assignment with evidence of recording on the mortgage or assignment.
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, 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 the mortgage loan.
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As to each Contract, the company will deliver, or cause to be delivered, to
the related trustee (or the custodian) the following documents:
o the original Contract endorsed, without recourse, to the order of the
trustee,
o copies of documents and instruments related to the Contract and the
security interest in the Manufactured Home securing the Contract, and
o a blanket assignment to the trustee of all Contracts in the related
trust fund and the related documents and instruments.
In order to give notice of the right, title and interest of the securityholders
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.
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 or note evidencing the mortgage security, registered in the
name of the related trustee (or its nominee), or endorsed in blank or to the
related trustee (or its nominee), or accompanied by transfer documents
sufficient to effect a transfer to the trustee (or its nominee).
The trustee (or the custodian) will hold the documents in trust for the
benefit of the related securityholders, and generally will review the documents
within 120 days after receipt thereof in the case of documents delivered
concurrently with the execution and delivery of the related pooling and
servicing agreement or indenture, and within the time period specified in the
related pooling and servicing agreement or indenture in the case of all other
documents delivered. If any document is found to be missing or defective in any
material respect, the trustee (or the 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 the omission or defect materially
and adversely affects the interests of securityholders in the affected mortgage
loan or mortgage security, then, the related Seller will be obligated to
purchase the 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 the 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. The company
will not be obligated to purchase or substitute for the mortgage loan or
mortgage security if the Seller defaults on its obligation to do so. This
purchase or substitution obligation constitutes the sole remedy available to the
related securityholders 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 the mortgage loans
and/or mortgage securities, in any case as the agent of the trustee. The
identity of any custodian to be appointed on the date of initial issuance of the
securities will be set forth in the related prospectus supplement. A custodian
may be an affiliate of the company or the master servicer.
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Except in the case of a Designated Seller Transaction or as to mortgage
loans underlying any mortgage securities, the company will make representations
and warranties as to the types and geographical concentrations of the mortgage
loans and as to the accuracy of some of the information furnished to the related
trustee in respect of each mortgage loan (for example, the original
Loan-to-Value Ratio, the principal balance as of the cut-off date, the mortgage
rate and maturity). Upon a breach of any of these representations which
materially and adversely affects the interests of the securityholders 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, to substitute
for the mortgage loan a Qualified Substitute Mortgage Loan in accordance with
the provisions for 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 the breach also
constitutes fraud in the origination of the related mortgage loan. This purchase
or substitution obligation constitutes the sole remedy available to
securityholders or the trustee for a breach of a 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 and servicing agreement or servicing
agreement, the master servicer for any mortgage pool, either directly or through
subservicers, will service and administer the mortgage loans included in the
mortgage pool and assigned to the related trustee as more fully set forth under
"Servicing of Mortgage Loans." The master servicer will make representations and
warranties regarding its authority to enter into, and its ability to perform its
obligations under, the pooling and servicing agreement or servicing 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 a
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
securities of the related series. A Certificate Account shall be maintained as
an Eligible Account, and the funds held therein may be held as cash or invested
in Permitted Investments. Any Permitted Investments shall not cause the company
to register under the Investment Company Act of 1940. 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 the
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. With respect to each series of securities, the related master
servicer, trustee or special servicer will be required to deposit or cause to be
deposited in the Certificate Account for the related trust fund within a 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 the trust fund (other than
payments due on or before the cut-off date):
o all payments on account of principal, including principal prepayments,
on the mortgage loans;
o 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
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special servicer or subservicer as its servicing compensation or as
compensation to the trustee, and further net of any retained interest
of the company;
o all payments on the mortgage securities;
o all Insurance Proceeds and Liquidation Proceeds;
o any amounts paid under any instrument or drawn from any fund that
constitutes credit enhancement for the related series of securities as
described under "Description of Credit Enhancement";
o any advances made as described under "--Advances" below;
o any Buydown Funds (and, if applicable, investment earnings on the
Buydown Funds) required to be paid to securityholders, as described
below;
o 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; Retained Interest";
o to the extent that any 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 or prepayment premiums on the mortgage loans;
o 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
o any other amounts required to be deposited in the Certificate Account
as provided in the related pooling and servicing agreement or the
related servicing agreement and indenture and described in this
prospectus 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 in this prospectus
with respect to the Certificate Account. The terms of all buydown mortgage loans
provide for the contribution of Buydown Funds in an amount equal to or exceeding
either (1) the total payments to be made from the funds pursuant to the related
buydown plan or (2) if the Buydown Funds are to be deposited on a discounted
basis, that amount of Buydown Funds which, together with investment earnings on
the Buydown Funds 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 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 insufficiency is not recoverable from the
mortgagor or, in an appropriate case, from the Seller, distributions to
securityholders 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 on the Buydown Funds)
for each buydown mortgage loan that, when added to the amount due from the
mortgagor on the buydown mortgage loan, equals the full monthly payment which
would be due on the buydown mortgage loan if it
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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 the 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 the 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 generally will be required to
withdraw from the Buydown Account and deposit in the Certificate Account the
Buydown Funds and investment earnings on the Buydown Funds, if any, which
together with the prepayment will result in a prepayment in full; provided that
Buydown Funds may not be available to cover a prepayment under some 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 the other designated party pursuant to the Buydown
Agreement relating to each buydown mortgage loan. If the mortgagor defaults
during the Buydown Period with respect to a buydown mortgage loan and the
property securing the buydown mortgage loan is sold in liquidation (either by
the master servicer, the primary insurer, any 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 on the Buydown Funds, 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 the insurer and the insurer pays all of
the loss incurred in respect of the default.
WITHDRAWALS. With respect to each series of securities, the master
servicer, trustee or special servicer may make withdrawals from the Certificate
Account for the related trust fund for any of the following purposes, unless
otherwise provided in the related agreement and described in the related
prospectus supplement:
(1) to make distributions to the related securityholders on each
distribution date;
(2) to reimburse the master servicer or any other specified person for
unreimbursed amounts advanced by it in respect of mortgage loans in
the trust fund as described under "--Advances" below, these
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 the
mortgage loans;
(3) to reimburse the master servicer or a special servicer for unpaid
servicing fees earned by it and some unreimbursed servicing expenses
incurred by it with respect to mortgage loans in the trust fund and
properties acquired in respect thereof, these 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 the fees were earned or the expenses were incurred or out of
amounts drawn under any form of credit enhancement with respect to the
mortgage loans and properties;
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(4) to reimburse the master servicer or any other specified person for any
advances described in clause (2) above made by it and any servicing
expenses referred to in clause (3) above incurred by it which, in the
good faith judgment of the master servicer or the other person, will
not be recoverable from the amounts described in clauses (2) and (3),
respectively, the 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 and servicing agreement or the related
servicing agreement and indenture and described in the related
prospectus supplement, only from that portion of amounts collected on
the other mortgage loans that is otherwise distributable on one or
more classes of subordinate securities of the related series;
(5) 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 (2) above made by it and the
servicing expenses described in clause (3) above incurred by it while
these remain outstanding and unreimbursed;
(6) to reimburse the master servicer, the company, or any of their
respective directors, officers, employees and agents, as the case may
be, for expenses, costs and liabilities incurred thereby, as and to
the extent described under "The Agreements--Certain Matters Regarding
the Master Servicer and the company";
(7) if and to the extent described in the related prospectus supplement,
to pay the fees of the trustee;
(8) to reimburse the trustee or any of its directors, officers, employees
and agents, as the case may be, for expenses, costs and liabilities
incurred thereby, as and to the extent described under "The
Agreements--Certain Matters Regarding the Trustee";
(9) 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;
(10) to pay (generally from related income) the master servicer or a
special servicer for costs incurred in connection with the operation,
management and maintenance of any mortgaged property acquired by the
trust fund by foreclosure or by deed in lieu of foreclosure;
(11) 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";
(12) 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 the mortgage loan or property;
(13) to pay for the cost of various opinions of counsel obtained pursuant
to the related pooling and servicing agreement or the related
servicing agreement and indenture for the benefit of the related
securityholders;
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(14) 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 and servicing agreement or the related
servicing agreement and indenture and not required to be distributed
as of the date on which the related purchase price is determined;
(15) to make any other withdrawals permitted by the related pooling and
servicing agreement or the related servicing agreement and indenture
and described in the related prospectus supplement;
(16) to pay for costs and expenses incurred by the trust fund for
environmental site assessments performed with respect to multifamily
or commercial properties that constitute security for defaulted
mortgage loans, and for any containment, clean-up or remediation of
hazardous wastes and materials present on that mortgaged properties,
as described under "Servicing of Mortgage Loans--Realization Upon or
Sale of Defaulted Mortgage Loans"; and
(17) to clear and terminate the Certificate Account upon the termination of
the trust fund.
DISTRIBUTIONS
Distributions on the securities 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
the series and the distribution date. The available distribution amount for any
series of securities and any distribution date will generally 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
securityholders of the series on that 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.
Distributions on the securities of each series (other than the final
distribution in retirement of any certificate) will be made to the persons in
whose names the securities are registered on the Record Date, and the amount of
each distribution will be determined as of the Determination Date. All
distributions with respect to each class of securities on each distribution date
will be allocated in equal proportion among the outstanding securities in the
class. Payments will be made either by wire transfer in immediately available
funds to the account of a securityholder at a bank or other entity having
appropriate facilities therefor, if the securityholder has provided the trustee
or other person required to make the payments with wiring instructions no later
than five business days prior to the related Record Date or other date specified
in the related prospectus supplement (and, if so provided in the related
prospectus supplement, the securityholder holds securities in the requisite
amount or denomination specified therein), or by check mailed to the address of
the securityholder as it appears on the security register; provided, however,
that the final distribution in retirement of any class of securities will be
made only upon presentation and surrender of the securities at the location
specified in the notice to securityholders of the final distribution. Payments
will be made to each certificateholder in accordance with the holder's
Percentage Interest in a particular class.
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DISTRIBUTIONS OF INTEREST AND PRINCIPAL ON THE SECURITIES
Each class of securities of each series, other than Strip Securities and
REMIC Residual Certificates that have no security interest rate, may have a
different per annum rate at which interest accrues on that class of securities,
which may be fixed, variable or adjustable, or any combination of rates. The
related prospectus supplement will specify the security interest rate or, in the
case of a variable or adjustable security interest rate, the method for
determining the security interest rate, for each class. The related prospectus
supplement will specify whether interest on the securities of the series will be
calculated on the basis of a 360-day year consisting of twelve 30-day months or
on a different method.
Distributions of interest in respect of the securities of any class, other
than any class of Accrual Securities, Strip Securities or REMIC Residual
Certificates that is not entitled to any distributions of interest, will be made
on each distribution date based on the accrued interest for the class and the
distribution date, subject to the sufficiency of the portion of the available
distribution amount allocable to the class on the distribution date. Prior to
the time interest is distributable on any class of Accrual Securities, the
amount of accrued interest otherwise distributable on the class will be added to
the principal balance thereof on each distribution date. With respect to each
class of interest-bearing securities, accrued interest for each distribution
date will be equal to interest at the applicable security interest rate accrued
for a specified period (generally one month) on the outstanding principal
balance thereof immediately prior to the distribution date. Accrued interest for
each distribution date on Strip Securities entitled to distributions of interest
will be similarly calculated except that it will accrue on a notional amount
that is based on either (1) based on the principal balances of some or all of
the mortgage loans and/or mortgage securities in the related trust fund or (2)
equal to the principal balances of one or more other classes of securities of
the same series. Reference to a notional amount with respect to a class of Strip
Securities is solely for convenience in making calculations of accrued interest
and does not represent the right to receive any distribution of principal. If so
specified in the related prospectus supplement, the amount of accrued interest
that is otherwise distributable on (or, in the case of Accrual Securities, that
may otherwise be added to the principal balance of) one or more classes of the
securities 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 the shortfalls. The particular manner in which the shortfalls
will be allocated among some or all of the classes of securities 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 interest
that is otherwise distributable on (or, in the case of Accrual Securities, that
may otherwise be added to the principal balance of) a class of offered
securities 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 the mortgage
loans. Any reduction in the amount of accrued interest otherwise distributable
on a class of securities by reason of the allocation to the 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 the class.
As and to the extent described in the related prospectus supplement,
distributions of principal with respect to a series of securities will be made
on each distribution date to the holders of the class or classes of securities
of the series entitled thereto until the principal balance(s) of the securities
have been reduced to zero. In the case of a series of securities which includes
two or more classes of securities, the timing, sequential order, priority of
payment or amount of distributions in respect of principal, and any schedule or
formula or other provisions applicable to the determination thereof (including
distributions among multiple classes of senior securities or subordinate
securities), shall be as set forth in the related
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prospectus supplement. Distributions of principal with respect to one or more
classes of securities 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 events such as the
retirement of one or more other classes of securities 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 the
mortgage loans and/or mortgage securities. In addition, distributions of
principal with respect to one or more classes of securities may be made, subject
to available funds, based on a specified principal payment schedule and, with
respect to one or more classes of securities, 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.
PRE-FUNDING ACCOUNT
If so specified in the related prospectus supplement, the pooling and
servicing agreement or other agreement may provide for the transfer by the
Sellers of additional mortgage loans to the related trust after the Closing
Date. The additional mortgage loans will be required to conform to the
requirements set forth in the related Agreement or other agreement providing for
the transfer, and will be underwritten to the same standards as the mortgage
loans initially included in the trust fund as described in the prospectus
supplement. As specified in the related prospectus supplement, the transfer may
be funded by the establishment of a pre-funding account with the trustee. If a
pre-funding account is established, all or a portion of the proceeds of the sale
of one or more classes of securities of the related series will be deposited in
the account to be released as additional mortgage loans are transferred. A
pre-funding account will be required to be maintained as an Eligible Account,
the amounts therein may be required to be invested in Permitted Investments and
the amount held therein shall at no time exceed 40% of the aggregate outstanding
principal balance of the related securities. The related Agreement or other
agreement providing for the transfer of additional mortgage loans generally will
provide that the transfers must be made within up to three months (with respect
to any series of certificates) or up to one year (with respect to any series of
notes) after the Closing Date, and that amounts set aside to fund the 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 the prospectus supplement. To the extent amounts in
any pre-funding account have not been used to purchase additional mortgage
loans, holders of the securities may receive an additional prepayment, which may
affect their yield to maturity. In addition, securityholders may not be able to
reinvest amounts received from any pre-funding account in comparable securities,
or may only be able to do so at a lower interest rate.
DISTRIBUTIONS ON THE SECURITIES IN RESPECT OF PREPAYMENT PREMIUMS
Prepayment premiums will generally be retained by the master servicer or by
the Seller as additional compensation. However, if so provided in the related
prospectus supplement, prepayment premiums received on or in connection with the
mortgage loans or mortgage securities in any trust fund will be distributed on
each distribution date to the holders of the class or classes of securities of
the related series entitled thereto in accordance with the provisions described
in the prospectus supplement.
ALLOCATION OF LOSSES AND SHORTFALLS
The amount of any losses or shortfalls in collections on the mortgage loans
and/or mortgage securities in any trust fund (to the extent not covered or
offset by draws on any reserve fund or under any instrument of credit
enhancement) will be allocated among the respective classes of securities of the
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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, these allocations may result in reductions in the
entitlements to interest and/or principal balances of one or more classes of
securities, or may be effected simply by a prioritization of payments among
classes of securities.
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 securities for the distribution date, an amount
up to the aggregate of any payments of interest (and, if specified in the
related prospectus supplement, principal) that were due on or in respect of the
mortgage loans during the related Due Period and were delinquent on the related
Determination Date. No notice will be given to the certificateholders of these
advances. 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 the
Determination Date.
Advances are intended to maintain a regular flow of scheduled interest and
principal payments to holders of the class or classes of securities 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 advances
were made and other specific sources as may be identified in the related
prospectus supplement, including amounts which would otherwise be payable to the
offered securities. No Nonrecoverable Advance will be required to be made by the
master servicer; 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 securityholders.
If advances have been made from excess funds in a Certificate Account, the
master servicer that advanced the funds will be required to replace the 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
securityholders on that 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, a 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 the
person.
If and to the extent so provided in the related prospectus supplement, any
entity making advances will be entitled to receive interest on the advances for
the period that the advances are outstanding at the rate specified in the
prospectus supplement, and the entity will be entitled to payment of the
interest periodically from general collections on the mortgage loans in the
related trust fund prior to any payment to securityholders or as otherwise
provided in the related pooling and servicing agreement or servicing agreement
and described in the prospectus supplement.
As specified in the related prospectus supplement with respect to any
series of securities as to which the trust fund includes mortgage securities,
the advancing obligations with respect to the
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underlying mortgage loans will be pursuant to the terms of the mortgage
securities, as may be supplemented by the terms of the applicable pooling and
servicing agreement or servicing agreement, and may differ from the provisions
described above.
REPORTS TO SECURITYHOLDERS
With each distribution to securityholders of a particular class of offered
securities, the related master servicer or trustee will forward or cause to be
forwarded to each holder of record of the class of securities a statement or
statements with respect to the related trust fund setting forth the information
specifically described in the related pooling and servicing agreement or the
related servicing agreement or indenture, which generally will include the
following as applicable except as otherwise provided therein:
o the amount, if any, of the distribution allocable to principal;
o the amount, if any, of the distribution allocable to interest;
o the amount, if any, of the distribution allocable to prepayment
premiums;
o 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 the distribution
date;
o 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 subservicer);
o the aggregate amount of advances included in the distributions on the
distribution date, and the aggregate amount of unreimbursed advances
at the close of business on the distribution date;
o the aggregate principal balance of the mortgage loans in the related
mortgage pool on, or as of a specified date shortly prior to, the
distribution date;
o 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;
o the book value of any real estate acquired the trust fund by
foreclosure or by a deed in lieu of foreclosure;
o the balance of the reserve fund, if any, at the close of business on
the distribution date;
o the amount of coverage under any financial guaranty insurance policy,
mortgage pool insurance policy or letter of credit covering default
risk as of the close of business on the applicable Determination Date
and a description of any credit enhancement substituted therefor;
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o 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 these amounts;
o with respect to any series of securities as to which the trust fund
includes mortgage securities, additional information as required under
the related pooling and servicing agreement and specified in the
related prospectus supplement; and
o any other material information as required under the related pooling
and servicing agreement.
In the case of information furnished pursuant to the first three items
above, the amounts will be expressed as a dollar amount per minimum denomination
of the relevant class of offered securities or per a specified portion of the
minimum denomination. In addition to the information described above, reports to
securityholders will contain other information as is set forth in the applicable
pooling and servicing agreement or the applicable servicing agreement or
indenture, which may include 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 securities at any time during the
calendar year which, for example, will include information as to the aggregate
of amounts reported pursuant to the first three items above for the calendar
year or, in the event the person was a holder of record of a class of securities
during a portion of the calendar year, for the applicable portion of the year.
DESCRIPTION OF CREDIT ENHANCEMENT
GENERAL
Credit support with respect to the offered securities of each series may be
comprised of one or more of the following components. Each component will have
limitations and will provide coverage with respect to Realized Losses on the
related mortgage loans. Credit support will cover Defaulted Mortgage Losses, but
coverage may be limited or unavailable with respect to Special Hazard Losses,
Fraud Losses, Bankruptcy Losses and Extraordinary Losses. To the extent that the
credit support for the offered securities of any series is exhausted, the
holders thereof will bear all further risk of loss.
As set forth below and in the applicable prospectus supplement, coverage
with respect to Realized Losses may be provided by one or more of a financial
guaranty insurance policy, a special hazard insurance policy, a mortgage pool
insurance policy or a letter of credit. 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 the losses, in the form of subordination of one or more classes of
subordinate securities to provide credit support to one or more classes of
senior securities, in the form of overcollateralization, or in the form of a
combination of the foregoing. The credit support may be provided by an
assignment of the right to receive specified 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 securities of each
series will be set forth in the related prospectus
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supplement. To the extent provided in the applicable prospectus supplement and
the pooling and servicing agreement or indenture, 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 securities of one series may cover the offered
securities of one or more other series.
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 securities, 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 in this prospectus. The related prospectus supplement will
specify, as to each form of credit support, the information indicated below with
respect thereto, to the extent the information is material and available.
SUBORDINATE SECURITIES
If so specified in the related prospectus supplement, one or more classes
of securities of a series may be subordinate securities. To the extent specified
in the related prospectus supplement, the rights of the holders of subordinate
securities to receive distributions from the Certificate Account on any
distribution date will be subordinated to the corresponding rights of the
holders of senior securities. 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) some types of losses or shortfalls. The related prospectus
supplement will set forth information concerning the manner and amount of
subordination provided by a class or classes of subordinate securities in a
series and the circumstances under which the subordination will be available.
The offered securities of any series may include one or more classes of
subordinate securities.
CROSS-SUPPORT
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
securities of the related series, credit enhancement may be provided by
cross-support provisions requiring that distributions be made on senior
securities evidencing interests in one group of mortgage loans and/or mortgage
securities prior to distributions on subordinate securities 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 the provisions.
OVERCOLLATERALIZATION
If so specified in the related prospectus supplement, interest collections
on the mortgage loans may exceed interest payments on the securities for the
related distribution date. The excess interest may be deposited into a reserve
fund or applied as a payment of principal on the securities. To the extent
excess interest is applied as principal payments on the securities, the effect
will be to reduce the principal balance of the securities relative to the
outstanding balance of the mortgage loans, thereby creating
overcollateralization and additional protection to the securityholders, as
specified in the related prospectus supplement. If so provided in the related
prospectus supplement, overcollateralization may also be provided as to any
series of securities by the issuance of securities in an initial aggregate
principal amount which is less than the aggregate principal amount of the
related mortgage loans.
FINANCIAL GUARANTY INSURANCE POLICY
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If so specified in the related prospectus supplement, a financial guaranty
insurance policy may be obtained and maintained for a class or series of
securities. The insurer with respect to a financial guaranty insurance policy
will be described in the related prospectus supplement and a copy of the form of
financial guaranty insurance policy will be filed with the related Current
Report on Form 8-K.
A financial guaranty insurance policy will be unconditional and irrevocable
and will guarantee to holders of the applicable securities that an amount equal
to the full amount of payments due to the holders will be received by the
trustee or its agent on behalf of the holders for payment on each distribution
date. The specific terms of any financial guaranty insurance policy will be set
forth in the related prospectus supplement. A financial guaranty insurance
policy may have limitations and generally will not insure the obligation of the
Sellers or the master servicer to purchase or substitute for a defective
mortgage loan and will not guarantee any specific rate of principal prepayments.
The insurer will be subrogated to the rights of each holder to the extent the
insurer makes payments under the financial guaranty insurance policy.
MORTGAGE POOL INSURANCE POLICIES
Any mortgage pool insurance policy obtained by the company for each trust
fund will be issued by the pool insurer named in the applicable prospectus
supplement. Each mortgage pool insurance policy will, subject to the limitations
described below, cover Defaulted Mortgage Losses in an amount equal to a
percentage specified in the applicable prospectus supplement of the aggregate
principal balance of the mortgage loans on the cut-off date. As set forth under
"Maintenance of Credit Enhancement," the master servicer will use reasonable
efforts to maintain the mortgage pool insurance policy and to present claims
thereunder to the pool insurer on behalf of itself, the related trustee and the
related securityholders. 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 the
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:
o any required Primary Insurance Policy is in effect for the defaulted
mortgage loan and a claim thereunder has been submitted and settled,
o hazard insurance on the property securing the mortgage loan has been
kept in force and real estate taxes and other protection and
preservation expenses have been paid by the master servicer,
o 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
o the insured has acquired good and merchantable title to the mortgaged
property free and clear of liens, except for permitted encumbrances.
Upon satisfaction of these conditions, the pool insurer will have the option
either (1) to purchase the property securing the defaulted mortgage loan at a
price equal to the principal balance thereof plus accrued and unpaid interest at
the applicable mortgage rate to the date of purchase and expenses incurred by
the master servicer, special servicer or subservicer on behalf of the related
trustee and securityholders,
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or (2) 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 amounts paid or assumed to have been paid under any related Primary
Insurance Policy. Securityholders will experience a shortfall in the amount of
interest payable on the related securities 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 the claim is paid. In addition, the
securityholders will also experience losses with respect to the related
securities 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 the policy and will be reimbursable to the master
servicer from funds otherwise payable to the securityholders. 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
the policies), from the related hazard insurance policy or applicable special
hazard insurance policy 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 the restoration will increase
the proceeds to one or more classes of securityholders on liquidation of the
mortgage loan after reimbursement of the master servicer for its expenses and
(y) that the expenses will be recoverable by it through Liquidation Proceeds or
Insurance Proceeds.
A mortgage pool insurance policy (and most Primary Insurance Policies) will
likely not insure against loss sustained by reason of a default arising from,
among other things, (1) 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 (2) 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. This breach, if it materially and adversely affects the interests
of securityholders 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, this 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 securities 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 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 securities. 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 the mortgage loan or otherwise, the master servicer would not
be obligated to make an advance respecting the 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
Securities--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, the policy will not provide coverage
against hazard losses. As set forth under "Primary Mortgage Insurance,
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Hazard Insurance; Claims Thereunder," the hazard policies covering the mortgage
loans typically exclude from coverage physical damage resulting from a number of
causes and, even when the damage is covered, may afford recoveries which are
significantly less than full replacement cost of the losses. Further, no
coverage in respect of Special Hazard Losses, Fraud Losses or Bankruptcy Losses
will cover all risks, and the amount of the coverage will be limited. See
"Special Hazard Insurance Policies" below. As a result, some hazard risks will
not be insured against and will therefore be borne by the related
securityholders.
LETTER OF CREDIT
If any component of credit enhancement as to the offered securities of any
series is to be provided by a letter of credit, a 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. The bank that
delivered the letter of credit, 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 some 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.
SPECIAL HAZARD INSURANCE POLICIES
Any special hazard insurance policy covering Special Hazard Losses 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
securities from 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, some governmental
actions, errors in design, faulty workmanship or materials (except under some
circumstances), nuclear reaction, chemical contamination, waste by the mortgagor
and 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 the 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 the 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 (1) the
cost of repair or replacement of the property or (2) upon transfer of the
property to the insurer, the unpaid principal balance of the mortgage loan at
the time of acquisition of the property by foreclosure or deed in lieu of
foreclosure, plus accrued interest at the mortgage rate to the date of claim
settlement and expenses incurred by the master servicer, special servicer or
subservicer with respect to the property. If the property is transferred to a
third party in a sale approved by the issuer of the special hazard insurance
policy, the amount that the issuer 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
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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 issuer of the special hazard insurance
policy). If the unpaid principal balance plus accrued interest and expenses is
paid by the insurer, the amount of further coverage under the related special
hazard insurance policy will be reduced by that 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 that amount. Restoration of the
property with the proceeds described under (1) above will satisfy the condition
under each mortgage pool insurance policy that the property be restored before a
claim under the mortgage pool insurance policy may be validly presented with
respect to the defaulted mortgage loan secured by the property. The payment
described under (2) above will render presentation of a claim in respect of the
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 expenses will not affect the total Insurance Proceeds paid
to securityholders, 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 securities may be
provided, in whole or in part, by a type of instrument other than a special
hazard insurance policy or by means of a special hazard representation of the
Seller or the company.
RESERVE FUNDS
If so provided in the related prospectus supplement, the company will
deposit or cause to be deposited in a reserve fund account 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 the prospectus supplement. In the
alternative or in addition to the 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
securities, from the retained interest of the company or otherwise. To the
extent that the funding of the reserve fund is dependent on amounts otherwise
payable on related subordinate securities, any retained interest of the company
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 the funding is
dependent are lower than anticipated. In addition, with respect to any series of
securities as to which credit enhancement includes a letter of credit, if so
specified in the related prospectus supplement, if specified conditions are met,
the remaining amount of the letter of credit may be drawn by the trustee and
deposited in a reserve fund. Amounts in a reserve fund may be distributed to
securityholders, or applied to reimburse the 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. The related prospectus
supplement will disclose whether a reserve fund is 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 securities.
In connection with the establishment of any reserve fund, the reserve fund
will be structured so that the trustee will have a perfected security interest
for the benefit of the securityholders 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 that entity, there could be delays in withdrawals
from the reserve fund and corresponding payments to the securityholders which
could adversely affect the yield to investors on the related securities.
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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.
CASH FLOW AGREEMENTS
If so provided in the related prospectus supplement, the trust fund may
include guaranteed investment contracts pursuant to which moneys held in the
funds and accounts established for the related series will be invested at a
specified rate. The principal terms of a guaranteed investment contract or other
cash flow agreement, and the identity of the obligor, will be described in the
prospectus supplement for a series of notes.
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 financial guaranty insurance policy has been obtained for a series of
securities, the master servicer will be obligated to exercise reasonable efforts
to keep the financial guaranty insurance policy in full force and effect
throughout the term of the applicable pooling and servicing agreement, unless
coverage thereunder has been exhausted through payment of claims or until the
financial guaranty insurance policy is replaced in accordance with the terms of
the applicable pooling and servicing agreement. The master servicer will agree
to pay the premiums for each financial guaranty insurance policy on a timely
basis. In the event the insurer ceases to be a qualified insurer as described in
the related prospectus supplement, or fails to make a required payment under the
related financial guaranty insurance policy, the master servicer will have no
obligation to replace the insurer. Any losses associated with any reduction or
withdrawal in rating by an applicable Rating Agency shall be borne by the
related securityholders.
If a mortgage pool insurance policy has been obtained for a series of
securities, the master servicer will be obligated to exercise reasonable efforts
to keep the mortgage pool insurance policy (or an alternate form of credit
support) in full force and effect throughout the term of the applicable pooling
and servicing agreement or servicing agreement, unless coverage thereunder has
been exhausted through payment of claims or until the mortgage pool insurance
policy is replaced in accordance with the terms of the applicable pooling and
servicing agreement or servicing agreement. 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 because it ceases to
be qualified by law to transact pool insurance business or coverage is
terminated for any reason other than exhaustion of the 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 the mortgage
pool insurance policy, provided that, if the cost of the replacement policy is
greater than the cost of the 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 the
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
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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 securityholders.
If a letter of credit or alternate form of credit enhancement has been
obtained for a series of securities, the master servicer will be obligated to
exercise reasonable efforts cause to be kept or to keep the letter of credit (or
an alternate form of credit support) in full force and effect throughout the
term of the applicable pooling and servicing agreement or indenture, 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
securities is scheduled to expire prior to the date the final distribution on
the securities is made and coverage under the 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 the amount in trust for the
securityholders.
In lieu of the master servicer's obligation to maintain a financial
guaranty insurance policy, mortgage pool insurance policy or letter of credit as
provided above, the master servicer may obtain a substitute financial guaranty
insurance policy, mortgage pool insurance policy or letter of credit. If the
master servicer obtains a substitute, it will maintain and keep the substitute
in full force and effect as provided in this prospectus. Prior to its obtaining
any substitute financial guaranty insurance policy, mortgage pool insurance
policy or letter of credit, the master servicer will obtain written confirmation
from the Rating Agency or Agencies that rated the related series of securities
that the substitution of the financial guaranty insurance policy, mortgage pool
insurance policy or letter of credit for the existing credit enhancement will
not adversely affect the then-current ratings assigned to the securities by the
Rating Agency or Agencies.
If a special hazard insurance policy has been obtained for a series of
securities, the master servicer will also be obligated to exercise reasonable
efforts to maintain and keep the policy in full force and effect throughout the
term of the applicable pooling and servicing agreement or servicing agreement,
unless coverage thereunder has been exhausted through payment of claims or
otherwise or substitution therefor is made as described below under "--Reduction
or Substitution of Credit Enhancement." If coverage for Special Hazard Losses
takes the form of a special hazard insurance policy, the policy will provide
coverage against risks of the type described in this prospectus under
"Description of Credit Enhancement--Special Hazard Insurance Policies." The
master servicer may obtain a substitute policy for the existing special hazard
insurance policy if prior to the substitution the master servicer obtains
written confirmation from the Rating Agency or Agencies that rated the related
securities that the substitution shall not adversely affect the then-current
ratings assigned to the securities by the Rating Agency or Agencies.
The master servicer, on behalf of itself, the trustee and securityholders,
will provide the trustee information required for the trustee to draw under the
letter of credit and will present claims to each pool insurer, to the issuer of
each special hazard insurance policy, and, in respect of defaulted mortgage
loans for which there is no subservicer, to each primary insurer and take any
reasonable steps as are necessary to permit recovery under the letter of credit,
insurance policies or comparable coverage respecting defaulted mortgage loans or
mortgage loans which are the subject of a bankruptcy proceeding. As set forth
above, all collections by the master servicer under any mortgage pool insurance
policy or any Primary Insurance Policy and, where the related property has not
been restored, any special hazard insurance policy, 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
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of itself, the trustee and the securityholders will present claims to the
primary insurer, and all paid claims 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 insurance policy are insufficient to restore the damaged property to a
condition sufficient to permit recovery under any financial guaranty insurance
policy, mortgage pool insurance policy, letter of credit 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 (1) that the restoration will
increase the proceeds to one or more classes of securityholders on liquidation
of the mortgage loan after reimbursement of the master servicer for its expenses
and (2) that the expenses will be recoverable by it through Liquidation Proceeds
or Insurance Proceeds. If recovery under any financial guaranty insurance
policy, mortgage pool insurance policy, letter of credit or any related Primary
Insurance Policy is not available because the master servicer has been unable to
make the above determinations, has made the determinations incorrectly or
recovery is not available for any other reason, the master servicer is
nevertheless obligated to follow the normal practices and procedures (subject to
the preceding sentence) as it deems necessary or advisable to realize upon the
defaulted mortgage loan and in the event the determination has been incorrectly
made, is entitled to reimbursement of its expenses in connection with the
restoration.
REDUCTION OR SUBSTITUTION OF CREDIT ENHANCEMENT
The amount of credit support provided pursuant to any form of credit
enhancement may be reduced. 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 and servicing agreement or indenture. Additionally, in most
cases, the 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 securityholders, upon the
written assurance from each applicable Rating Agency that the then-current
rating of the related series of securities will not be adversely affected.
Furthermore, in the event that the credit rating of any obligor under any
applicable credit enhancement is downgraded, the credit rating(s) of the related
series of securities may be downgraded to a corresponding level, and, the master
servicer will not be obligated to obtain replacement credit support in order to
restore the rating(s) of the related series of securities. The master servicer
will also be permitted to replace the credit support with other credit
enhancement instruments issued by obligors whose credit ratings are equivalent
to the downgraded level and in lower amounts which would satisfy the downgraded
level, provided that the then-current rating(s) of the related series of
securities 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 the other person that is entitled thereto. Any assets so
released will not be available for distributions in future periods.
OTHER FINANCIAL OBLIGATIONS RELATED TO THE SECURITIES
SWAPS AND YIELD SUPPLEMENT AGREEMENTS
The trustee on behalf of a trust fund may enter into interest rate swaps
and related caps, floors and collars to minimize the risk of securityholders
from adverse changes in interest rates, which are collectively referred to as
swaps, and other yield supplement agreements or similar yield maintenance
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arrangements that do not involve swap agreements or other notional principal
contracts, which are collectively referred to as yield supplement agreements.
An interest rate swap is an agreement between two parties to exchange a
stream of interest payments on an agreed hypothetical or "notional" principal
amount. No principal amount is exchanged between the counterparties to an
interest rate swap. In the typical swap, one party agrees to pay a fixed rate on
a notional principal amount, while the counterparty pays a floating rate based
on one or more reference interest rates including the London Interbank Offered
Rate, or LIBOR, a specified bank's prime rate or U.S. Treasury Bill rates.
Interest rate swaps also permit counterparties to exchange a floating rate
obligation based upon one reference interest rate, such as LIBOR, for a floating
rate obligation based upon another referenced interest rate, such as U.S.
Treasury Bill rates.
Yield supplement agreements may be entered into to supplement the interest
rate or other rates on one or more classes of the securities of any series.
Additionally, agreements relating to other types of derivative products that are
designed to provide credit enhancement to the related series may be entered into
by a trustee and one or more counterparties. The terms of any derivative product
agreement and any counterparties will be described in the accompanying
prospectus supplement.
There can be no assurance that the trustee will be able to enter into or
offset swaps or enter into yield supplement agreements or derivative product
agreements at any specific time or at prices or on other terms that are
advantageous. In addition, although the terms of the swaps and yield supplement
agreements may provide for termination under various circumstances, there can be
no assurance that the trustee will be able to terminate a swap or yield
supplement agreement when it would be economically advantageous to the trust
fund to do so.
PURCHASE OBLIGATIONS
Some types of trust assets and some classes of securities of any series, as
specified in the accompanying prospectus supplement, may be subject to a
purchase obligation that would become applicable on one or more specified dates,
or upon the occurrence of one or more specified events, or on demand made by or
on behalf of the applicable securityholders. A purchase obligation may be in the
form of a conditional or unconditional purchase commitment, liquidity facility,
remarketing agreement, maturity guaranty, put option or demand feature. The
terms and conditions of each purchase obligation, including the purchase price,
timing and payment procedure, will be described in the accompanying prospectus
supplement. A purchase obligation relating to trust assets may apply to those
trust assets or to the related securities. Each purchase obligation may be a
secured or unsecured obligation of the provider thereof, which may include a
bank or other financial institution or an insurance company. Each purchase
obligation will be evidenced by an instrument delivered to the trustee for the
benefit of the applicable securityholders of the related series. As specified in
the accompanying prospectus supplement, each purchase obligation relating to
trust assets will be payable solely to the trustee for the benefit of the
securityholders of the related series. Other purchase obligations may be payable
to the trustee or directly to the holders of the securities to which that
obligation relate.
PRIMARY MORTGAGE INSURANCE, HAZARD INSURANCE;
CLAIMS THEREUNDER
GENERAL
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The mortgaged property with respect to each mortgage loan will be required
to be covered by a hazard insurance policy and, if required as described below,
a Primary Insurance Policy. The following is only a brief description of these
insurance policies and does not purport to summarize or describe all of the
provisions of these policies. The insurance is subject to underwriting and
approval of individual mortgage loans by the respective insurers.
PRIMARY MORTGAGE INSURANCE POLICIES
In a securitization of single family loans, single family loans included in
the related mortgage pool having a loan-to-value ratio at origination of over
80% (or other percentage as described in the related prospectus supplement) may
be required by the company to be covered by a Primary Insurance Policy. The
Primary Insurance Policy will insure against default on a mortgage loan as to at
least the principal amount thereof exceeding 75% of the Value of the related
mortgaged property (or other percentage as described in the related prospectus
supplement) 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% (or other percentage as
described in the prospectus supplement). The company will represent and warrant
that, to the best of the company's knowledge, mortgage loans of this type are so
covered. This type of 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 the above loan-to-value
ratio percentage 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 the coverage was so required upon their origination, notwithstanding
that subsequent negative amortization may cause the mortgage loan's
loan-to-value ratio, based on the then-current balance, to subsequently exceed
the limits which would have required the coverage upon their origination.
Multifamily, commercial and mixed-use 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
a primary insurer will differ from those in Primary Insurance Policies issued by
other primary insurers, each Primary Insurance Policy will in general cover the
Primary Insurance Covered Loss. The primary insurer generally will be required
to pay:
o the insured percentage of the Primary Insurance Covered Loss;
o the entire amount of the Primary Insurance Covered Loss, after receipt
by the primary insurer of good and merchantable title to, and
possession of, the mortgaged property; or
o at the option of the primary insurer, 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 (1) the date the mortgage loan would have been discharged
in full if the default had not occurred or (2) an approved sale.
As conditions precedent to the filing or payment of a claim under a Primary
Insurance Policy, in the event of default by the mortgagor, the insured will
typically be required, among other things, to:
o advance or discharge (1) hazard insurance premiums and (2) as
necessary and approved in advance by the primary insurer, real estate
taxes, protection and preservation expenses and foreclosure and
related costs;
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o 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
o tender to the primary insurer good and merchantable title to, and
possession of, the mortgaged property.
For any single family loan for which the coverage is required under the
standard described above, 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, provided that the Primary Insurance Policy was in place as
of the cut-off date and the company had knowledge of the Primary Insurance
Policy. In the event the company gains knowledge that as of the Closing Date, a
mortgage loan which required a Primary Insurance Policy did not have one, then
the master servicer is required to use reasonable efforts to obtain and maintain
a Primary Insurance Policy to the extent that the policy is obtainable at a
reasonable price. The master servicer or the Seller will not cancel or refuse to
renew a Primary Insurance Policy in effect at the time of the initial issuance
of a series of securities that is required to be kept in force under the
applicable pooling and servicing agreement or indenture unless the replacement
Primary Insurance Policy for the canceled or non-renewed policy is maintained
with an insurer whose claims-paying ability is acceptable to the Rating Agency
or Agencies that rated the series of securities for mortgage pass-through
certificates having a rating equal to or better than the highest then-current
rating of any class of the series of securities. 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 and
servicing agreement or servicing 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. The coverage generally will be in an amount equal to the lesser of the
principal balance owing on the mortgage loan or 100% of the insurable value of
the improvements securing the mortgage loan except that, if generally available,
the 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 and servicing agreement or servicing 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 the 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 the clause.
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In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements on the property by fire,
lightning, explosion, smoke, windstorm, hail, riot, strike and civil commotion,
subject to the conditions and exclusions specified in each policy. Although the
policies relating to the mortgage loans will be underwritten by different
insurers under different state laws in accordance with different applicable
state forms and therefore will not contain identical terms and conditions, the
basic terms thereof are dictated by respective state laws, and most of these
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, depending on the case, vandalism. The foregoing list is merely indicative
of the 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 the mortgage loan, the pooling and
servicing agreement or servicing agreement requires the master servicer to cause
to be maintained for this mortgage loan, 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, the clause generally provides that the insurer's liability
in the event of partial loss does not exceed the greater of (1) the replacement
cost of the improvements damaged or destroyed less physical depreciation or (2)
the proportion of the loss as the amount of insurance carried bears to the
specified percentage of the full replacement cost of the 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 of the related mortgage loans 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
securityholders, is obligated to present claims under any special hazard
insurance policy and any blanket insurance policy insuring against hazard losses
on the mortgaged properties. However, the ability of the master servicer to
present the 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 HUD to insure mortgage loans that are secured by newly constructed and
substantially rehabilitated multifamily rental projects. Section 244 of
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the Housing Act provides for co-insurance of such mortgage loans made under
Sections 221 (d)(3) and (d)(4) by HUD/FHA and a HUD-approved co-insurer.
Generally the term of such a mortgage loan may be up to 40 years and the ratio
of the loan amount to property replacement cost can be up to 90%.
Section 223(f) of the Housing Act allows HUD to insure mortgage loans made
for the purchase or refinancing of existing apartment projects which are at
least three years old. Section 244 also provides for co-insurance of mortgage
loans made under Section 223(f). Under Section 223(f), the loan proceeds cannot
be used for substantial rehabilitation work, but repairs may be made for up to,
in general, the greater of 15% of the value of the project or a dollar amount
per apartment unit established from time to time by HUD. In general the loan
term may not exceed 35 years and a loan to value ratio of no more than 85% is
required for the purchase of a project and 70% for the refinancing of a project.
HUD has the option, in most cases, to pay insurance claims in cash or in
debentures issued by HUD. Presently, claims are being paid in cash, and claims
have not been paid in debentures since 1965. HUD debentures issued in
satisfaction of FHA insurance claims bear interest at the applicable HUD
debenture interest rate. The master servicer will be obligated to purchase a
debenture issued in satisfaction of a defaulted FHA insured mortgage loan
serviced by it for an amount equal to the principal amount of any the debenture.
The master servicer will be required to take steps reasonably necessary to
keep FHA insurance in full force and effect.
VA MORTGAGE GUARANTY
The Servicemen's Readjustment Act of 1944, as amended, permits a veteran
or, in some instances, his or her spouse, to obtain a mortgage loan guaranty by
the VA covering mortgage financing of the purchase of a one-to four-family
dwelling unit to be occupied as the veteran's home at an interest rate not
exceeding the maximum rate in effect at the time the loan is made, as
established by HUD. The program has no limit on the amount of a mortgage loan,
requires no down payment for the purchaser and permits the guaranty of mortgage
loans with terms, limited by the estimated economic life of the property, up to
30 years. The maximum guaranty that may be issued by the VA under this program
is 50% of the original principal amount of the mortgage loan up to a dollar
limit established by the VA. The liability on the guaranty is reduced or
increased pro rata with any reduction or increase in amount of indebtedness, but
in no event will the amount payable on the guaranty exceed the amount of the
original guaranty. Notwithstanding the dollar and percentage limitations of the
guaranty, a mortgagee will ordinarily suffer a monetary loss only when the
difference between the unsatisfied indebtedness and the proceeds of a
foreclosure sale of mortgaged premises is greater than the original guaranty as
adjusted. The VA may, at its option, and without regard to the guaranty, make
full payment to a mortgagee of the unsatisfied indebtedness on a mortgage upon
its assignment to the VA.
Since there is no limit imposed by the VA on the principal amount of a
VA-guaranteed mortgage loan but there is a limit on the amount of the VA
guaranty, additional coverage under a Primary Mortgage Insurance Policy may be
required by the company for VA loans in excess of amounts specified by the VA.
The amount of the additional coverage will be set forth in the related
prospectus supplement. Any VA guaranty relating to Contracts underlying a series
of certificates will be described in the related prospectus supplement.
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THE COMPANY
The company is a wholly-owned subsidiary of Impac Funding Corporation. The
company was incorporated in the State of Delaware 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. On January 29, 1998, the company changed its name from
ICIFC Secured Assets Corp. to Impac Secured Assets Corp.
The company maintains its principal office at 2037 Irvine Avenue, Suite
200, Santa Ana Heights, California 92707. Its telephone number is (714)
556-0122.
IMPAC FUNDING CORPORATION
Impac Funding Corporation, the Company's parent, will be a Seller and may
act as master servicer with respect to a mortgage pool. Impac 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. Impac Funding is a non-consolidating subsidiary of
Impac Mortgage Holdings, Inc. Impac Funding primarily acquires mortgage loans
from approved correspondents.
Prior to November 1995, Impac Funding was a division of Imperial Credit
Industries, Inc. In November 1995, Imperial Credit Industries, Inc. restructured
its operations pursuant to which Impac Funding became a separate corporation and
Imperial Credit Industries, Inc. contributed, among other things, all of the
outstanding nonvoting preferred stock of Impac Funding, which represents 99% of
the economic interest in Impac Funding, to Impac Mortgage Holdings, Inc., in
exchange for approximately 10% of the common stock of Impac Mortgage Holdings,
Inc. The common stock of Impac Funding was retained by Imperial Credit
Industries, Inc. until March 1997 when it was distributed to certain officers
and/or directors of Impac Funding who are also officers and/or directors of
Impac Mortgage Holdings, Inc.
Impac Funding's executive offices are located at 1401 Dove Street, Newport
Beach, California 92660, and its telephone number is (949) 475-3700.
IMPAC MORTGAGE HOLDINGS, INC.
Impac Mortgage Holdings, Inc. 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 Impac
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 Impac Mortgage Holdings by Imperial Credit Industries,
Inc., a leading specialty finance company, in November 1995. Impac Mortgage
Holdings 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.
Impac Mortgage Holdings, Inc.'s executive offices are located at 20371
Irvine Avenue, Santa Ana Heights, California 92707, and its telephone number is
(714) 556-0122.
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THE AGREEMENTS
GENERAL
Each series of certificates will be issued pursuant to a pooling and
servicing agreement or other agreement specified in the related prospectus
supplement. In general, the parties to a pooling and servicing agreement will
include the company, the trustee, the master servicer and, in some cases, a
special servicer. However, a pooling and servicing agreement that relates to a
trust fund that includes mortgage securities may include a party solely
responsible for the administration of the mortgage securities, and a pooling and
servicing 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 and servicing agreement under
which securities of a series are issued will be identified in the related
prospectus supplement. Each series of notes will be issued pursuant to an
indenture. The parties to each indenture will be the related Issuer and the
trustee. The Issuer will be created pursuant to an owner trust agreement between
the company and the owner trustee.
Forms of the Agreements have been filed as exhibits to the registration
statement of which this prospectus is a part. However, the provisions of each
Agreement will vary depending upon the nature of the related securities and the
nature of the related trust fund. The following summaries describe provisions
that may appear in a pooling and servicing agreement with respect to a series of
certificates or in either the servicing agreement or indenture with respect to a
series of notes. The prospectus supplement for a series of securities will
describe any provision of the related Agreements that materially differs from
the description thereof set forth below. The company will provide a copy of the
Agreement (without exhibits) that relates to any series of securities without
charge upon written request of a holder of an offered security of the series
addressed to it at its principal executive offices specified in this prospectus
under "The Company".
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE COMPANY
The pooling and servicing agreement or servicing agreement for each series
of securities will provide that the master servicer may not resign from its
obligations and duties except upon a determination that performance of the
duties is no longer permissible under applicable law or except (1) in connection
with a permitted transfer of servicing or (2) 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 the resignation
and appointment will not, in and of itself, result in a downgrading of the
securities. No resignation will become effective until the trustee or a
successor servicer has assumed the master servicer's responsibilities, duties,
liabilities and obligations under the pooling and servicing agreement or
servicing agreement.
Each pooling and servicing agreement and servicing agreement will also
provide that the master servicer, the company and their directors, officers,
employees or agents will not be under any liability to the trust fund or the
securityholders for any action taken or for refraining from the taking of any
action in good faith, or for errors in judgment, unless the liability which
would otherwise be imposed was 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. Each pooling and servicing agreement and servicing
agreement will further provide that the master servicer, the company, and any
director, officer, employee or agent of the master servicer or the company are
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 and servicing agreement or servicing agreement or the
related series of securities, other than any loss, liability or expense related
to any specific mortgage loan or mortgage loans (except a
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loss, liability or expense otherwise reimbursable pursuant to the pooling and
servicing agreement) and any loss, liability or expense incurred by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of reckless disregard of obligations and duties. In
addition, each pooling and servicing agreement and servicing 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 and servicing
agreement or servicing 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 action which it may deem necessary or desirable with
respect to the pooling and servicing agreement or servicing agreement and the
rights and duties of the parties to that agreement and the interests of the
securityholders. The legal expenses and costs of the action and any resulting
liability 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
reimbursement from funds otherwise distributable to securityholders.
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 related pooling
and servicing agreement or servicing agreement, provided that (1) the person is
qualified to service mortgage loans on behalf of Fannie Mae or Freddie Mac and
(2) the merger, consolidation or succession does not adversely affect the
then-current ratings of the classes of securities 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 and
servicing agreement or servicing agreement to any person to whom the master
servicer is transferring a substantial portion of its mortgage servicing
portfolio, provided clauses (1) and (2) above are satisfied and the person is
reasonably satisfactory to the company and the trustee. In the case of an
assignment, the master servicer will be released from its obligations under the
pooling and servicing agreement or servicing agreement, exclusive of liabilities
and obligations incurred by it prior to the time of the assignment.
EVENTS OF DEFAULT AND RIGHTS UPON EVENT DEFAULT
POOLING AND SERVICING AGREEMENT
Events of default under the pooling and servicing agreement in respect of a
series of certificates, unless otherwise specified in the prospectus supplement,
will include:
o 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 the series
any required payment which continues unremedied for 5 days (or other
time period described in the related prospectus supplement) after the
giving of written notice of the 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;
o 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 and servicing agreement with respect to the 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 and servicing agreement)
after the giving of written notice of the 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
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certificates evidencing not less than 25% of the aggregate undivided
interests (or, if applicable, voting rights) in the related trust
fund;
o events of insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings regarding the master servicer and
some actions by the master servicer indicating its insolvency or
inability to pay its obligations, as specified in the related pooling
and servicing agreement; and
o any failure of the master servicer to make advances as described in
this prospectus under "Description of the Securities--Advances."
Additional events of default will be described in the related prospectus
supplement. 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 and servicing agreement.
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 and servicing agreement (other than any rights of the master
servicer as certificateholder) covering the 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 the
pooling and servicing agreement (other than any obligation to purchase mortgage
loans) 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,
an established mortgage loan servicing institution with a net worth of at least
$15,000,000 to act as successor to the master servicer under the pooling and
servicing agreement (unless otherwise set forth in the pooling and servicing
agreement). Pending an appointment, the trustee is obligated to act as master
servicer. The trustee and the 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 and servicing agreement.
No certificateholder will have any right under a pooling and servicing
agreement to institute any proceeding with respect to the pooling and servicing
agreement unless (1) that holder previously gave the trustee written notice of a
default that is continuing, (2) the holders of certificates evidencing not less
than 25% of the aggregate undivided interests (or, if applicable, voting rights)
in the related trust fund requested the trustee in writing to institute the
proceeding in its own name as trustee, (3) the trustee receives reasonable
security or indemnity against the costs, expenses and liabilities that may be
incurred in or because of the proceeding and (4) the trustee for a reasonable
time after receipt of the request and indemnity has neglected or refused to
institute any proceeding. .
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 the default or
event of default (other than a failure by the master servicer to make an
advance); provided, however, that (1) a default or event of default under the
first or fourth items listed under "--Events of Default" above may be waived
only by all of the holders of certificates affected by the default or event of
default and (2) no waiver shall reduce in any manner the amount of, or delay the
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timing of, payments received on mortgage loans which are required to be
distributed to, or otherwise materially adversely affect, any non-consenting
certificateholder.
SERVICING AGREEMENT
For a series of notes, a servicing default under the related servicing
agreement generally will include:
o 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 notes or Equity Certificates
of the series any required payment which continues unremedied for 5
business days (or other period of time described in the related
prospectus supplement) after the giving of written notice of the
failure to the master servicer by the trustee or the Issuer;
o any failure by the master servicer duly to observe or perform in any
material respect any other of its covenants or agreements in the
servicing agreement with respect to the series of securities which
continues unremedied for 45 days after the giving of written notice of
the failure to the master servicer by the trustee or the Issuer;
o events of insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings regarding the master servicer and
some actions by the master servicer indicating its insolvency or
inability to pay its obligations, as specified in the related
servicing agreement; and
o any other servicing default as set forth in the servicing agreement.
So long as a servicing default remains unremedied, either the company or
the trustee may, by written notification to the master servicer and to the
Issuer or the trustee or trust fund, as applicable, terminate all of the rights
and obligations of the master servicer under the servicing agreement (other than
any right of the master servicer as noteholder or as holder of the Equity
Certificates and other than the right to receive servicing compensation and
expenses for servicing the mortgage loans during any period prior to the date of
the termination), whereupon the trustee will succeed to all responsibilities,
duties and liabilities of the master servicer under the servicing agreement
(other than any obligation to purchase mortgage loans) 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 an approved mortgage servicing
institution with a net worth of at least $15,000,000 to act as successor to the
master servicer under the servicing agreement (unless otherwise set forth in the
servicing agreement). Pending the appointment, the trustee is obligated to act
in the capacity. The trustee and the 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 servicing agreement.
INDENTURE
For a series of notes, an event of default under the indenture generally
will include:
o a default for five days or more (or other period of time described in
the related prospectus supplement) in the payment of any principal of
or interest on any note of the series;
o failure to perform any other covenant of the company or the trust fund
in the indenture which continues for a period of thirty days after
notice thereof is given in accordance with the procedures described in
the related prospectus supplement;
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o any representation or warranty made by the company or the trust fund
in the indenture or in any certificate or other writing delivered
pursuant thereto or in connection therewith with respect to or
affecting the series having been incorrect in a material respect as of
the time made, and the breach is not cured within thirty days after
notice thereof is given in accordance with the procedures described in
the related prospectus supplement;
o events of bankruptcy, insolvency, receivership or liquidation of the
company or the trust fund, as specified in the indenture; or
o any other event of default provided with respect to notes of that
series.
If an event of default with respect to the notes of any series at the time
outstanding occurs and is continuing, the trustee or the holders of a majority
of the then aggregate outstanding amount of the notes of the series may declare
the principal amount of all the notes of the series to be due and payable
immediately. The declaration may, in some circumstances, be rescinded and
annulled by the holders of a majority in aggregate outstanding amount of the
related notes.
If following an event of default with respect to any series of notes, the
notes of the series have been declared to be due and payable, the trustee may,
in its discretion, notwithstanding the acceleration, elect to maintain
possession of the collateral securing the notes of the series and to continue to
apply payments on the collateral as if there had been no declaration of
acceleration if the collateral continues to provide sufficient funds for the
payment of principal of and interest on the notes of the series as they would
have become due if there had not been a declaration. In addition, the trustee
may not sell or otherwise liquidate the collateral securing the notes of a
series following an event of default, unless (1) the holders of 100% of the then
aggregate outstanding amount of the notes of the series consent to the sale, (2)
the proceeds of the sale or liquidation are sufficient to pay in full the
principal of and accrued interest, due and unpaid, on the outstanding notes of
the series at the date of the sale or (3) the trustee determines that the
collateral would not be sufficient on an ongoing basis to make all payments on
the notes as the payments would have become due if the notes had not been
declared due and payable, and the trustee obtains the consent of the holders of
66 2/3% of the then aggregate outstanding amount of the notes of the series.
In the event that the trustee liquidates the collateral in connection with
an event of default, the indenture provides that the trustee will have a prior
lien on the proceeds of the liquidation for unpaid fees and expenses. As a
result, upon the occurrence of the event of default, the amount available for
payments to the noteholders would be less than would otherwise be the case.
However, the trustee may not institute a proceeding for the enforcement of its
lien except in connection with a proceeding for the enforcement of the lien of
the indenture for the benefit of the noteholders after the occurrence of the
event of default.
In the event the principal of the notes of a series is declared due and
payable, as described above, the holders of the notes issued at a discount from
par may be entitled to receive no more than an amount equal to the unpaid
principal amount thereof less the amount of the discount that is unamortized.
No noteholder or holder of an Equity Certificate generally will have any
right under an owner trust agreement or indenture to institute any proceeding
with respect to the Agreement unless (1) that holder previously has given to the
trustee written notice of default and the continuance thereof, (2) the holders
of notes or Equity Certificates of any class evidencing not less than 25% of the
aggregate Percentage Interests constituting that class (a) have made written
request upon the trustee to institute the proceeding
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in its own name as trustee and (b) have offered to the trustee reasonable
security or indemnity against the costs, expenses and liabilities that may be
incurred in or because of the proceeding, (3) the trustee has neglected or
refused to institute the proceeding for 60 days after receipt of the request and
indemnity and (4) no direction inconsistent with the written request has been
given to the trustee during the 60 day period by the holders of a majority of
the Note Balances of that class.
AMENDMENT
Each pooling and servicing agreement may be amended by the parties thereto,
without the consent of any of the holders of certificates covered by the pooling
and servicing agreement,
o to cure any ambiguity,
o to correct, modify or supplement any provision therein which may be
inconsistent with any other provision therein or to correct any error,
o to change the timing and/or nature of deposits in the Certificate
Account, provided that (1) the change would not adversely affect in
any material respect the interests of any certificateholder, as
evidenced by an opinion of counsel, and (2) the 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,
o 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 the
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) the action is
necessary or desirable to maintain the qualification or to avoid or
minimize the risk, and (2) the action will not adversely affect in any
material respect the interests of any holder of certificates covered
by the pooling and servicing 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 the
amendment will not give rise to any tax with respect to the transfer
of the REMIC Residual Certificates to a non-permitted transferee,
o to make any other provisions with respect to matters or questions
arising under the pooling and servicing agreement which are not
materially inconsistent with the provisions thereof, provided that the
action will not adversely affect in any material respect the interests
of any certificateholder, or
o to amend specified provisions that are not material to holders of any
class of certificates offered under this prospectus.
The pooling and servicing 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, at least 66% of the aggregate Percentage
Interests constituting the class for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the pooling and
servicing agreement or of modifying in any manner the rights of the holders of
certificates covered by the pooling and servicing agreement, except that the
amendment may not (1) 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
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any class without the consent of the holder of the certificate or (2) reduce the
aforesaid percentage of certificates of any class the holders of which are
required to consent to the amendment without the consent of the holders of all
certificates of the class covered by the pooling and servicing 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 and servicing agreement without having first
received an opinion of counsel to the effect that the amendment or the exercise
of any power granted to the master servicer, the company, the trustee or any
other specified person in accordance with the amendment will not result in the
imposition of a tax on the related trust fund or cause the trust fund to fail to
qualify as a REMIC.
With respect to each series of notes, each related servicing agreement or
indenture may be amended by the parties thereto without the consent of any of
the holders of the notes covered by the Agreement, to cure any ambiguity, to
correct, modify or supplement any provision therein, or to make any other
provisions with respect to matters or questions arising under the Agreement
which are not inconsistent with the provisions thereof, provided that the action
will not adversely affect in any material respect the interests of any holder of
notes covered by the Agreement. Each Agreement may also be amended by the
parties thereto with the consent of the holders of notes evidencing not less
than 66% of the voting rights, for any purpose; provided, however, that the
amendment may not:
(1) reduce in any manner the amount of or delay the timing of, payments
received on trust fund assets which are required to be distributed on
any certificate without the consent of the holder of the certificate,
(2) adversely affect in any material respect the interests of the holders
of any class of notes in a manner other than as described in (1),
without the consent of the holders of notes of the class evidencing
not less than 66% of the aggregate voting rights of the class or
(3) reduce the aforesaid percentage of voting rights required for the
consent to the amendment without the consent of the holders of all
notes covered by the Agreement then outstanding.
The voting rights evidenced by any security will be the portion of the voting
rights of all of the securities in the related series allocated in the manner
described in the related prospectus supplement.
TERMINATION; RETIREMENT OF SECURITIES
The obligations created by the related Agreements for each series of
securities (other than the limited payment and notice obligations of the trustee
and the company, respectively) will terminate upon the payment to
securityholders 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 the
Agreements following the earlier of (1) 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 (2) the purchase by
the master servicer or the company or (a) if specified in the related prospectus
supplement with respect to each series of certificates, by the holder of the
REMIC Residual Certificates (see "Federal Income Tax Consequences" below) or (b)
if specified in the prospectus supplement with respect to each series of notes,
by the holder of the Equity Certificates, from the trust fund for the 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 securities specified in the
related prospectus supplement in the manner set forth in the related prospectus
supplement. With
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respect to any series of certificates, the purchase shall not be made unless
either: (1) the aggregate principal balance of the certificates as of the date
is equal to or less than the percentage specified in the related prospectus
supplement (which shall not be greater than 10%) of the aggregate principal
balance of the certificates as of the Closing Date or (2) the aggregate
principal balance of the mortgage loans as of the date is equal to or less than
the percentage specified in the related prospectus supplement (which shall not
be greater than 10%) of the aggregate principal balance of the mortgage loans as
of the cut-off date. With respect to any series of notes, the purchase shall not
be made unless the aggregate principal balance of the notes as of the date is
equal to or less than the percentage specified in the related prospectus
supplement (which shall not be greater than 25%) of the aggregate principal
balance of the notes as of the Closing Date or a period specified in the related
prospectus supplement (which shall not be shorter than seven years) has elapsed
since the initial distribution date. Upon the purchase of the securities 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
securities and the termination of the trust fund, or the securities 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 and servicing agreement continue
beyond the expiration of 21 years from the death of the survivor of the persons
named in the pooling and servicing agreement. Written notice of termination of
the pooling and servicing agreement will be given to each securityholder, and
the final distribution will be made only upon surrender and cancellation of the
securities at an office or agency appointed by the trustee which will be
specified in the notice of termination. If the securityholders are permitted to
terminate the trust under the applicable pooling and servicing agreement, a
penalty may be imposed upon the securityholders based upon the fee that would be
foregone by the master servicer because of the termination.
The purchase of mortgage loans and property acquired in respect of mortgage
loans evidenced by a series of securities shall be made at the option of the
master servicer, the company or, if applicable, the holder of the REMIC Residual
Certificates or Equity Certificates at the price specified in the related
prospectus supplement. The exercise of the right will effect early retirement of
the securities of that series, but the right of the master servicer, the company
or, if applicable, the 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 securityholders being less than the percentage
specified in the related prospectus supplement of the aggregate principal
balance of the mortgage loans and/or mortgage securities at the cut-off date for
that series. The prospectus supplement for each series of securities will set
forth the amounts that the holders of the securities will be entitled to receive
upon the early retirement. The early termination may adversely affect the yield
to holders of the securities. With respect to any series of certificates, an
optional purchase of the mortgage loans in the related trust fund may not result
in the related certificates receiving an amount equal to the principal balance
thereof plus accrued and unpaid interest and any undistributed shortfall on the
related certificates. If a REMIC election has been made, the termination of the
related trust fund will be effected in a manner consistent with applicable
federal income tax regulations and its status as a REMIC.
Following any optional termination, there will be no continuing direct or
indirect liability of the trust fund or any securityholder as sellers of the
assets of the trust fund.
THE TRUSTEE
The trustee under each pooling and servicing agreement and indenture 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. The
trustee shall at all times be a corporation or an association organized and
doing business
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under the laws of any state or the United States of America, authorized under
the laws to exercise corporate trust powers, having a combined capital and
surplus of at least $15,000,000 and subject to supervision or examination by
federal or state authority.
DUTIES OF THE TRUSTEE
The trustee for each series of securities will make no representation as to
the validity or sufficiency of the related Agreements, the securities 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 securities or the underlying mortgage loans or mortgage
securities, or any funds deposited into or withdrawn from the Certificate
Account for the 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 securities will be required to
perform only those duties specifically required under the related pooling and
servicing agreement or indenture. However, upon receipt of any of the various
certificates, reports or other instruments required to be furnished to it
pursuant to the related Agreement, a trustee will be required to examine the
documents and to determine whether they conform to the requirements of the
agreement.
SOME 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.
The trustee for each series of securities generally will be entitled to
indemnification, from amounts held in the Certificate Account for the 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 and servicing agreement or indenture unless the loss, liability, cost or
expense was 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, or by reason of its reckless disregard of its obligations or duties.
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 under the pooling and
servicing agreement or if the trustee becomes insolvent. Upon becoming aware of
the circumstances, the company will be obligated to appoint a successor trustee.
The trustee may also be removed at any time by the holders of securities
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 the certificate, the security interest rate on a
certificate entitled to payments of interest (which security interest 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
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loans and the allocation thereof to reduce the principal balance of the
certificate (or notional amount thereof if applicable) and other factors.
A class of securities may be entitled to payments of interest at a fixed
security interest rate, a variable security interest rate or adjustable security
interest rate, or any combination of the security interest rates, each as
specified in the related prospectus supplement. A variable security interest
rate may be calculated based on the weighted average of the Net Mortgage Rates
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
securities, and their yield to maturity, will be affected by the rate of payment
of principal on the securities (or the rate of reduction in the notional balance
of securities entitled only to payments of interest) and, in the case of
securities evidencing interests in ARM Loans, by changes in the Net Mortgage
Rates on the ARM Loans. See "Maturity and Prepayment Considerations" below. The
yield on the securities 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 the 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 Securities--Assignment of Trust Fund Assets" above. Holders
of Strip Securities or a class of securities having a security interest rate
that varies based on the weighted average mortgage rate of the underlying
mortgage loans may be affected by disproportionate prepayments and repurchases
of mortgage loans having higher Net Mortgage Rates or rates applicable to the
Strip Securities, as applicable.
With respect to any series of securities, 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 the payments are passed through to
securityholders. That delay will effectively reduce the yield that would
otherwise be produced if payments on the mortgage loans were distributed to
securityholders on or near the date they were due.
In general, if a class of securities 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. Similarly, if
a class of securities is purchased at initial issuance at a discount and
payments of principal on the related mortgage loans occur at a rate slower than
that assumed at the time of purchase, the purchaser's actual yield to maturity
will be lower than that originally anticipated. The effect of principal
prepayments, liquidations and purchases on yield will be particularly
significant in the case of a series of securities having a class entitled to
payments of interest only or to payments of interest that are disproportionately
high relative to the principal payments to which the class is entitled. This
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. Extremely rapid prepayments may result in the failure of the
holders to recoup their original investment. In addition, the yield to maturity
on other types of classes of securities, including Accrual Securities and
securities with a security interest rate which fluctuates inversely with or at a
multiple of an index, may be relatively more sensitive to the rate of prepayment
on the related mortgage loans than other classes of securities.
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
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period immediately following the issuance of a series of securities would not be
fully offset by a subsequent like reduction (or increase) in the rate of
principal payments.
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 the 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
accrued interest for less than the full accrual period). However, interest
accrued and distributable on any series of securities 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 securityholders on a
particular distribution date, but the prepayment is not accompanied by accrued
interest for the full accrual period, the interest charged to the borrower (net
of servicing and administrative fees and any retained interest of the company)
may be less than the corresponding amount of interest accrued and otherwise
payable on the related mortgage loan, and a Prepayment Interest Shortfall will
result. If and to the extent that the shortfall is allocated to a class of
offered securities, its yield will be adversely affected. The prospectus
supplement for a series of securities will describe the manner in which the
shortfalls will be allocated among the classes of the securities. 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 the shortfalls. The related
prospectus supplement will also describe any other amounts available to offset
the shortfalls. See "Servicing of Mortgage Loans--Servicing and Other
Compensation and Payment of Expenses; Retained Interest".
The trust fund with respect to any series may include convertible ARM
Loans. As is the case with conventional, fixed-rate mortgage loans originated in
a high interest rate environment which may be subject to a greater rate of
principal prepayments when interest rates decrease, convertible ARM Loans may be
subject to a greater rate of principal prepayments (or purchases by the related
subservicer or the master servicer) due to their refinancing or conversion to
fixed interest rate loans in a low interest rate environment. For example, if
prevailing interest rates fall significantly, convertible ARM 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 to take advantage of the availability of 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. A rising interest rate environment may also result in an increase
in the rate of defaults on the mortgage loans. If the related subservicer or the
master servicer purchases convertible ARM Loans, a mortgagor's exercise of the
conversion option will result in a distribution of the principal portion thereof
to the securityholders, as described in this prospectus. Alternatively, to the
extent subservicers or the master servicer fail to purchase converting ARM
Loans, the mortgage pool will include fixed-rate mortgage loans.
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
securities. In general, defaults on single family loans are expected to occur
with greater frequency in their early years. The rate of default on single
family 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
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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.
With respect to some mortgage loans in a mortgage pool, 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 the 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 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 the mortgage loans may exceed the amount of
their minimum scheduled monthly payment. 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 the Deferred Interest to the
principal balance of any related class or classes of securities will lengthen
the weighted average life thereof and may adversely affect yield to holders
thereof, depending upon the price at which the securities were purchased. In
addition, with respect to ARM Loans subject to negative amortization, during a
period of declining interest rates, it might be expected that each minimum
scheduled monthly payment on the mortgage loan would exceed the amount of
scheduled principal and accrued interest on the principal balance thereof, and
since the excess will be applied to reduce the principal balance of the related
class or classes of securities, the weighted average life of the securities will
be reduced and may adversely affect yield to holders thereof, depending upon the
price at which the securities 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 the mortgage pool. The prospectus
supplement for a series of securities will contain information with respect to
the types and maturities of the mortgage loans in the related mortgage pool. 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 securities.
With respect to balloon loans, payment of the balloon payment (which, based
on the amortization schedule of the mortgage loans, is expected to be a
substantial amount) will generally depend on the mortgagor's ability to obtain
refinancing of the 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 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. None of the
company, the
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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 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, commercial and
mixed-use loans, the quality of management of the mortgage properties, the
servicing of the mortgage loans, possible changes in tax laws and other
opportunities for investment. In addition, the rate of principal payments on the
mortgage loans may be affected by the existence of lock-out periods and
requirements that principal prepayments be accompanied by prepayment premiums,
as well as due-on- sale and due-on-encumbrance provisions, and by the extent to
which the provisions may be practicably enforced. See "Servicing of Mortgage
Loans--Collection and Other Servicing Procedures" and "Legal Aspects of the
Mortgage Loans--Enforceability of Some Provisions" for a description of
provisions of the pooling and servicing agreement and legal aspects of mortgage
loans 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 (1) converting
to a fixed rate loan and thereby "locking in" the rate or (2) 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, the adjustments generally will
not increase or decrease the mortgage rates by more than a fixed percentage
amount on each adjustment date, will not increase the mortgage rates over a
fixed percentage amount during the life of any ARM Loan and will 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 high interest
rate environments, the prevailing rates on fixed-rate mortgage loans may be
sufficiently high in relation to the then-current mortgage rates on newly
originated ARM Loans that the rate of prepayment may increase as a result of
refinancings. There can be no assurance as to the rate of prepayments on the
mortgage loans during any period or over the life of any series of securities.
If the applicable pooling and servicing agreement for a series of
securities provides for a pre-funding account or other means of funding the
transfer of additional mortgage loans to the related trust fund, as described
under "Description of the Securities--Pre-Funding Account" in this prospectus,
and the trust fund is unable to acquire the additional mortgage loans within any
applicable time limit, the amounts set aside for the purpose may be applied as
principal payments on one or more classes of securities of the series. See
"Yield Considerations."
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
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to the particular factors that will affect the prepayment of the mortgage loans
or as to the relative importance of these factors.
As described in this prospectus and in the prospectus supplement, the
master servicer, the company or a person specified in the related prospectus
supplement (other than holder of any class of offered certificates, other than
the REMIC Residual Certificates, if offered) may have the option to purchase the
assets in a trust fund and effect early retirement of the related series of
securities. See "The Agreements--Termination; Retirement of Securities."
LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion summarizes legal aspects of mortgage loans that is
general in nature. The summaries do not purport to be complete. They do not
reflect the laws of any particular state nor the laws of all states in which the
mortgaged properties may be situated. This is because these legal aspects are
governed in part by the law of the state that applies to a particular mortgaged
property and the laws of the states may vary substantially. You should refer to
the applicable federal and state laws governing the mortgage loans.
MORTGAGES
Each single family, multifamily, commercial and mixed-use loan and, if
applicable, the Contracts (in each case other than cooperative mortgage loans),
will be evidenced by a note or bond and secured by an instrument granting a
security interest in real property, which may be a mortgage, deed of trust or a
deed to secure debt, depending upon the prevailing practice and law in the state
in which the related mortgaged property is located, and may have first, second
or third priority. Mortgages and deeds to secure debt are referred to as
"mortgages." Contracts evidence both the obligation of the obligor to repay the
loan evidenced thereby and grant a security interest in the related Manufactured
Homes to secure repayment of the loan. However, 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 become subject to real estate title and recording laws.
See "--Contracts" below. In some states, a mortgage or deed of trust creates a
lien upon the real property encumbered by the mortgage or deed of trust.
However, in other states, the mortgage or deed of trust conveys legal title to
the property respectively, to the mortgagee or to a trustee for the benefit of
the mortgagee subject to a condition subsequent (i.e., the payment of the
indebtedness secured thereby). The lien created by the mortgage or deed of trust
is not prior to the lien for real estate taxes and assessments and other charges
imposed under governmental police powers. Priority between mortgages depends on
their terms or on the terms of separate subordination or inter-creditor
agreements, the knowledge of the parties in some cases and generally on the
order of recordation of the mortgage in the appropriate recording office. There
are two parties to a mortgage, the mortgagor, who is the borrower and homeowner,
and the mortgagee, who is the lender. Under the mortgage instrument, the
mortgagor delivers to the mortgagee a note or bond and the mortgage. In the case
of a land trust, there are three parties because title to the property is held
by a land trustee under a land trust agreement of which the borrower is the
beneficiary; at origination of a mortgage loan, the borrower executes a separate
undertaking to make payments on the mortgage note. Although a deed of trust is
similar to a mortgage, a deed of trust has three parties: the trustor who is the
borrower-homeowner; the beneficiary who is the lender; and a third-party grantee
called the trustee. Under a deed of trust, the borrower grants the property,
irrevocably until the debt is paid, in trust, generally with a power of sale, to
the trustee to secure payment of the obligation. The trustee's authority under a
deed of trust, the grantee's authority under a deed to secure debt and the
mortgagee's authority under a mortgage are governed by the law of the state
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in which the real property is located, the express provisions of the deed of
trust or mortgage, and, in deed of trust transactions, the directions of the
beneficiary.
COOPERATIVE MORTGAGE LOANS
If specified in the prospectus supplement relating to a series of
certificates, the mortgage loans and Contracts may include cooperative mortgage
loans. Each mortgage note evidencing a cooperative mortgage loan will be secured
by a security interest in shares issued by the related Cooperative, and in the
related proprietary lease or occupancy agreement granting exclusive rights to
occupy a specific dwelling unit in the Cooperative's building. The security
agreement will create a lien upon the shares of the Cooperative, the priority of
which will depend on, among other things, the terms of the particular security
agreement as well as the order of recordation and/or filing of the agreement (or
financing statements related thereto) in the appropriate recording office.
All Cooperative buildings relating to the cooperative mortgage loans are
located primarily in the State of New York. Generally, each Cooperative owns in
fee or has a long-term leasehold interest in all the real property and owns in
fee or leases the building and all separate dwelling units therein. The
Cooperative is directly responsible for property management and, in most cases,
payment of real estate taxes, other governmental impositions and hazard and
liability insurance. If there is an underlying mortgage (or mortgages) on the
Cooperative's building or underlying land, as is generally the case, or an
underlying lease of the land, as is the case in some instances, the Cooperative,
as mortgagor or lessor, as the case may be, is also responsible for fulfilling
the mortgage or rental obligations. An underlying mortgage loan is ordinarily
obtained by the Cooperative in connection with either the construction or
purchase of the Cooperative's building or the obtaining of capital by the
Cooperative. The interest of the occupant under proprietary leases or occupancy
agreements as to which that Cooperative is the landlord is generally subordinate
to the interest of the holder of an underlying mortgage and to the interest of
the holder of a land lease. If the Cooperative is unable to meet the payment
obligations (1) arising under an underlying mortgage, the mortgagee holding an
underlying mortgage could foreclose on that mortgage and terminate all
subordinate proprietary leases and occupancy agreements or (2) arising under its
land lease, the holder of the landlord's interest under the land lease could
terminate it and all subordinate proprietary leases and occupancy agreements. In
addition, an underlying mortgage on a Cooperative may provide financing in the
form of a mortgage that does not fully amortize, with a significant portion of
principal being due in one final payment at maturity. The inability of the
Cooperative to refinance a mortgage and its consequent inability to make the
final payment could lead to foreclosure by the mortgagee. Similarly, a land
lease has an expiration date and the inability of the Cooperative to extend its
term or, in the alternative, to purchase the land, could lead to termination of
the Cooperative's interest in the property and termination of all proprietary
leases and occupancy agreements. In either event, a foreclosure by the holder of
an underlying mortgage or the termination of the underlying lease could
eliminate or significantly diminish the value of any collateral held by the
mortgagee who financed the purchase by an individual tenant-stockholder of
shares of the Cooperative or, in the case of the mortgage loans, the collateral
securing the cooperative mortgage loans.
Each Cooperative is owned by shareholders (referred to as
tenant-stockholders) who, through ownership of stock or shares in the
Cooperative, receive proprietary leases or occupancy agreements which confer
exclusive rights to occupy specific dwellings. Generally, a tenant-stockholder
of a Cooperative must make a monthly payment to the Cooperative pursuant to the
proprietary lease, which payment represents the tenant-stockholder's
proportional share of the Cooperative's payments for its underlying mortgage,
real property taxes, maintenance expenses and other capital or ordinary
expenses. An ownership interest in a Cooperative and accompanying occupancy
rights may be financed through a cooperative mortgage loan evidenced by a
mortgage note and secured by an assignment of and a security
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interest in the occupancy agreement or proprietary lease and a security interest
in the related shares of the related Cooperative. The mortgagee generally takes
possession of the share certificate and a counterpart of the proprietary lease
or occupancy agreement and a financing statement covering the proprietary lease
or occupancy agreement and the Cooperative shares is filed in the appropriate
state and local offices to perfect the mortgagee's interest in its collateral.
Subject to the limitations discussed below, upon default of the
tenant-stockholder, the lender may sue for judgment on the mortgage note,
dispose of the collateral at a public or private sale or otherwise proceed
against the collateral or tenant-stockholder as an individual as provided in the
security agreement covering the assignment of the proprietary lease or occupancy
agreement and the pledge of Cooperative shares. See "--Foreclosure on Shares of
Cooperatives" below.
TAX ASPECTS OF COOPERATIVE OWNERSHIP
In general, a "tenant-stockholder" (as defined in Section 216(b)(2) of the
Code) of a corporation that qualifies as a "cooperative housing corporation"
within the meaning of Section 216(b)(1) of the Code is allowed a deduction for
amounts paid or accrued within his taxable year to the corporation representing
his proportionate share of interest expenses and real estate taxes allowable as
a deduction under Section 216(a) of the Code to the corporation under Sections
163 and 164 of the Code. In order for a corporation to qualify under Section
216(b)(1) of the Code for its taxable year in which the items are allowable as a
deduction to the corporation, the section requires, among other things, that at
least 80% of the gross income of the corporation be derived from its
tenant-stockholders. By virtue of this requirement, the status of a corporation
for purposes of Section 216(b)(1) of the Code must be determined on a year-to-
year basis. Consequently, there can be no assurance that Cooperatives relating
to the cooperative mortgage loans will qualify under the section for any
particular year. In the event that the Cooperative fails to qualify for one or
more years, the value of the collateral securing any related cooperative
mortgage loans could be significantly impaired because no deduction would be
allowable to tenant- stockholders under Section 216(a) of the Code with respect
to those years. In view of the significance of the tax benefits accorded
tenant-stockholders of a corporation that qualifies under Section 216(b)(1) of
the Code, the likelihood that a failure would be permitted to continue over a
period of years appears remote.
LEASES AND RENTS
Mortgages that encumber income-producing multifamily and commercial
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. Financing statements are
effective for five years and must be renewed prior to the end of each five year
period. 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
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vehicles department (or a similar entity) of the 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 the 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 the
office, depending on state law.
The master servicer will be required under the related pooling and
servicing agreement or servicing agreement to effect the 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 the notation or delivery, or files the security interest
under the wrong law (for example, under a motor vehicle title statute rather
than under the UCC, in a few states), the trustee may not have a first priority
security interest in the Manufactured Home securing a Contract. As manufactured
homes have become larger and often have been attached to their sites without any
apparent intention by the borrowers to move them, courts in many states have
held that manufactured homes may 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 securityholders. Neither the
company, the master servicer nor the trustee will amend the certificates of
title to identify the trustee, on behalf of the securityholders, 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, the assignment is an effective conveyance of
the 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, the 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, the 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 securityholders, as the new secured party on the certificate of
title that, through fraud or negligence, the security interest of the trustee
could be released.
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In the event that the owner of a Manufactured Home moves it to a state
other than the state in which the 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 the relocation and
thereafter until the owner re-registers the Manufactured Home in the state. If
the owner were to relocate a Manufactured Home to another state and re-register
the Manufactured Home in the state, and if the company did not take steps to
re-perfect its security interest in the 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 the Manufactured Home or, in the case of Manufactured Homes
registered in states that provide for notation of lien, the company would
receive notice of surrender if the security interest in the Manufactured Home is
noted on the certificate of title. Accordingly, the company would have the
opportunity to re-perfect its security interest in the Manufactured Home in the
state of relocation. In states that do not require a certificate of title for
registration of a manufactured home, re-registration could defeat perfection.
Similarly, when an obligor under a manufactured housing conditional sales
contract sells a manufactured home, the obligee must surrender possession of the
certificate of title or it will receive notice as a result of its lien noted
thereon and accordingly will have an opportunity to require satisfaction of the
related manufactured housing conditional sales contract before release of the
lien. Under each related pooling and servicing agreement or servicing agreement,
the master servicer will be obligated to take these 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 of these liens with respect to any Manufactured Home securing a
Contract. However, these liens could arise at any time during the term of a
Contract. No notice will be given to the trustee or securityholders in the event
this type of lien arises.
FORECLOSURE ON MORTGAGES AND SOME CONTRACTS
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 a specified manner
prior to the date of trustee's sale. 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.
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 these 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.
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
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mortgagee's right to foreclose is contested, the legal proceedings necessary to
resolve the issue can be time-consuming.
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
note plus the accrued and unpaid interest and the expense of foreclosure, in
which case the mortgagor's debt will be extinguished unless the lender purchases
the property for a lesser amount in order to preserve its right against a
borrower to seek a deficiency judgment and the remedy is available under state
law and the related loan documents. In the same states, there is a statutory
minimum purchase price which the lender may offer for the property and
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, paying taxes and making the repairs at its
own expense as are necessary to render the property suitable for sale.
Generally, the lender will obtain the services of a real estate broker and pay
the broker's commission in connection with the sale of the property. Depending
upon market conditions, the ultimate proceeds of the sale of the property may
not equal the lender's investment in the property and, in some states, the
lender may be entitled to a deficiency judgment. Any loss may be reduced by the
receipt of any mortgage insurance proceeds or other forms of credit enhancement
for a series of certificates. See "Description of Credit Enhancement".
A junior mortgagee may not foreclose on the property securing a junior
mortgage unless it forecloses subject to the senior mortgages. The junior
mortgagee must either pay the entire amount due on the senior mortgages prior to
or at the time of the foreclosure sale or undertake to pay on any senior
mortgages that the mortgagor is currently in a state of default under. Under
either course of action, the junior mortgagee may add the amounts paid 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 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 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
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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.
FORECLOSURE ON SHARES OF COOPERATIVES
The Cooperative shares owned by the tenant-stockholder, together with the
rights of the tenant- stockholder under the proprietary lease or occupancy
agreement, are pledged to the lender and are, in almost all cases, subject to
restrictions on transfer as set forth in the Cooperative's certificate of
incorporation and by-laws, as well as in the proprietary lease or occupancy
agreement. The Cooperative may cancel the proprietary lease or occupancy
agreement, even while pledged, for failure by the tenant- stockholder to pay its
obligations or charges owed by the tenant-stockholder, including mechanics'
liens against the Cooperative's building incurred by the tenant-stockholder.
Generally, obligations and charges arising under a proprietary lease or
occupancy agreement which are owed to the Cooperative are made liens upon the
shares to which the proprietary lease or occupancy agreement relates. In
addition, the Cooperative may generally terminate a proprietary lease or
occupancy agreement in the event the borrower breaches its covenants in the
proprietary lease or occupancy agreement. Typically, the lender and the
Cooperative enter into a recognition agreement which, together with any lender
protection provisions contained in the proprietary lease or occupancy agreement,
establishes the rights and obligations of both parties in the event of a default
by the tenant-stockholder on its obligations under the proprietary lease or
occupancy agreement. A default by the tenant-stockholder under the proprietary
lease or occupancy agreement will usually constitute a default under the
security agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate the lease or
agreement until the lender has been provided with notice of and an opportunity
to cure the default. The recognition agreement typically provides that if the
proprietary lease or occupancy agreement is terminated, the Cooperative will
recognize the lender's lien against proceeds from a sale of the shares and the
proprietary lease or occupancy agreement allocated to the dwelling, subject,
however, to the Cooperative's right to sums due under the proprietary lease or
occupancy agreement or which have become liens on the shares relating to the
proprietary lease or occupancy agreement. The total amount owed to the
Cooperative by the tenant-stockholder, which the lender generally cannot
restrict and does not monitor, could reduce the amount realized upon a sale of
the collateral below the outstanding principal balance of the cooperative
mortgage loan and accrued and unpaid interest on the loan.
Recognition agreements also generally provide that in the event the lender
succeeds to the tenant- shareholder's shares and proprietary lease or occupancy
agreement as the result of realizing upon its collateral for a cooperative
mortgage loan, the lender must obtain the approval or consent of the board of
directors of the Cooperative as required by the proprietary lease before
transferring the Cooperative shares or assigning the proprietary lease. The
approval or consent is usually based on the prospective purchaser's income and
net worth, among other factors, and may significantly reduce the number of
potential purchasers, which could limit the ability of the lender to sell and
realize upon the value of the collateral. Generally, the lender is not limited
in any rights it may have to dispossess the tenant- stockholder.
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Because of the nature of cooperative mortgage loans, lenders do not require
the tenant-stockholder (i.e., the borrower) to obtain title insurance of any
type. Consequently, the existence of any prior liens or other imperfections of
title affecting the Cooperative's building or real estate also may adversely
affect the marketability of the shares allocated to the dwelling unit in the
event of foreclosure.
In New York, foreclosure on the Cooperative shares is accomplished by
public sale in accordance with the provisions of Article 9 of the New York UCC
and the security agreement relating to those shares. Article 9 of the New York
UCC requires that a sale be conducted in a "commercially reasonable" manner.
Whether a sale has been conducted in a "commercially reasonable" manner will
depend on the facts in each case. In determining commercial reasonableness, a
court will look to the notice given the debtor and the method, manner, time,
place and terms of the sale and the sale price. Generally, a sale conducted
according to the usual practice of banks selling similar collateral in the same
area will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the Cooperative corporation to receive sums due under
the proprietary lease or occupancy agreement. If there are proceeds remaining,
the lender must account to the tenant-stockholder for the surplus. Conversely,
if a portion of the indebtedness remains unpaid, the tenant-stockholder is
generally responsible for the deficiency. See "--Anti-Deficiency Legislation and
Other Limitations on Lenders" below.
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 the home in the
event of a default by the obligor generally will 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 small particulars, the general repossession procedure
established by the UCC is as follows:
o Except in those states where the debtor must receive notice of the
right to cure a default, repossession can commence immediately upon
default without prior notice. Repossession may be effected either
through self-help (peaceable retaking without court order), voluntary
repossession or through judicial process (repossession pursuant to
court-issued writ of replevin). The self-help and/or voluntary
repossession methods are more commonly employed, and are accomplished
simply by retaking possession of the manufactured home. In cases in
which the debtor objects or raises a defense to repossession, a court
order must be obtained from the appropriate state court, and the
manufactured home must then be repossessed in accordance with that
order. Whether the method employed is self-help, voluntary
repossession or judicial repossession, the repossession can be
accomplished either by an actual physical removal of the manufactured
home to a secure location for refurbishment and resale or by removing
the occupants and their belongings from the manufactured home and
maintaining possession of the manufactured home on the location where
the occupants were residing. Various factors may affect whether the
manufactured home is physically removed or left on location, such as
the nature and term of the lease of the site on which it is located
and the condition of the unit. In many cases, leaving the manufactured
home on location is preferable,
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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.
o 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.
o 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 the 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, MULTIFAMILY AND COMMERCIAL PROPERTIES. The purposes of a
foreclosure action in respect of a mortgaged property is to enable the lender to
realize upon its security and to bar the
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borrower, and all persons who have interests in the property that are
subordinate to that of the foreclosing lender, from exercise of their "equity of
redemption". The doctrine of equity of redemption provides that, until the
property encumbered by a mortgage has been sold in accordance with a properly
conducted foreclosure and foreclosure sale, those having interests that are
subordinate to that of the foreclosing lender have an equity of redemption and
may redeem the property by paying the entire debt with interest.
Those having an equity of redemption must generally be made parties and joined
in the foreclosure proceeding in order for their equity of redemption to be
terminated.
The equity of redemption is a common-law (non-statutory) right which should
be distinguished from post-sale statutory rights of redemption. In some states,
after sale pursuant to a deed of trust or foreclosure of a mortgage, the
borrower and foreclosed junior lienors are given a statutory period in which to
redeem the property. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
permitted if the former borrower pays only a portion of the sums due. The effect
of a statutory right of redemption is to diminish the ability of the lender to
sell the foreclosed property because the exercise of a right of redemption would
defeat the title of any purchase through a foreclosure. Consequently, the
practical effect of the redemption right is to force the lender to maintain the
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, MULTIFAMILY AND COMMERCIAL LOANS. Some 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 non-judicial foreclosure by power of
sale. 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 the deficiency judgment may be executed. Some
state 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
other states, the lender has the option of bringing a personal action against
the borrower on the debt without first exhausting the security; however in some
of these states, the lender, following judgment on the 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 the election, is that lenders will
usually proceed against the security first rather than bringing a personal
action against the borrower. Finally, in some 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.
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Generally, Article 9 of the UCC governs foreclosure on Cooperative Shares
and the related proprietary lease or occupancy agreement. Some courts have
interpreted Article 9 to prohibit or limit a deficiency award in some
circumstances, including circumstances where the disposition of the collateral
(which, in the case of a cooperative mortgage loan, would be the shares of the
Cooperative and the related proprietary lease or occupancy agreement) was not
conducted in a commercially reasonable manner.
In addition to laws limiting or prohibiting deficiency judgments, numerous
other federal and state statutory provisions, including the federal bankruptcy
laws and state laws affording relief to debtors, may interfere with or affect
the ability of the secured mortgage lender to realize upon collateral or enforce
a deficiency judgment. For example, under the federal Bankruptcy Code, 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
the 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 the 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 arrearages, which may be cured within
a reasonable time period.
In the case of income-producing multifamily properties, federal bankruptcy
law may also have the effect of interfering with or affecting the ability of the
secured lender to enforce the borrower's assignment of rents and leases related
to the mortgaged property. Under Section 362 of the Bankruptcy Code, the lender
will be stayed from enforcing the assignment, and the legal proceedings
necessary to resolve the issue could be time-consuming, with resulting delays in
the lender's receipt of the rents.
Tax liens arising under the Code may have priority over the lien of a
mortgage or deed of trust. In addition, substantive requirements are imposed
upon mortgage lenders in connection with the origination and the servicing of
mortgage loans by numerous federal and some state consumer protection laws.
These laws include 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.
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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.
ENVIRONMENTAL LEGISLATION
Under CERCLA, and under state law in some states, a secured party which
takes a deed-in-lieu of foreclosure, purchases a mortgaged property at a
foreclosure sale, or operates a mortgaged property may become liable for the
costs of cleaning up hazardous substances regardless of whether they have
contaminated the property. CERCLA imposes strict, as well as joint and several,
liability on several classes of potentially responsible parties, including
current owners and operators of the property who did not cause or contribute to
the contamination. Furthermore, liability under CERCLA is not limited to the
original or unamortized principal balance of a loan or to the value of the
property securing a loan. Lenders may be held liable under CERCLA as owners or
operators unless they qualify for the secured creditor exemption to CERCLA. This
exemption exempts from the definition of owners and operators those who, without
participating in the management of a facility, hold indicia of ownership
primarily to protect a security interest in the facility.
The Conservation Act amended, among other things, the provisions of CERCLA
with respect to lender liability and the secured creditor exemption. The
Conservation Act offers substantial protection to lenders by defining the
activities in which a lender can engage and still have the benefit of the
secured creditor exemption. In order for lender to be deemed to have
participated in the management of a mortgaged property, the lender must actually
participate in the operational affairs of the property of the borrower. The
Conservation Act provides that "merely having the capacity to influence, or
unexercised right to control" operations does not constitute participation in
management. A lender will lose the protection of the secured creditor exemption
only if it exercises decision-making control over the borrower's environmental
compliance and hazardous substance handling and disposal practices, or assumes
day-to-day management of all operational functions of the mortgaged property.
The Conservation Act also provides that a lender will continue to have the
benefit of the secured creditor exemption even if it forecloses on a mortgaged
property, purchases it at a foreclosure sale or accepts a deed-in-lieu of
foreclosure provided that the lender seeks to sell the mortgaged property at the
earliest practicable commercially reasonable time on commercially reasonable
terms.
Other federal and state laws may impose liability on a secured party which
takes a deed-in-lieu of foreclosure, purchases a mortgaged property at a
foreclosure sale, or operates a mortgaged property on which contaminants other
than CERCLA hazardous substances are present, including petroleum, agricultural
chemicals, hazardous wastes, asbestos, radon, and lead-based paint. The cleanup
costs may be substantial. It is possible that the cleanup costs could become a
liability of a trust fund and reduce the amounts otherwise distributable to the
holders of the related series of certificates. Moreover, federal statutes and
states by statute may impose a lien for any cleanup costs incurred by the state
on the property that is the subject of the cleanup costs. All subsequent liens
on the property generally are subordinated to the lien and, in some states, even
prior recorded liens are subordinated to such lien. In the latter states, the
security interest of the trustee in a related parcel of real property that is
subject to the lien could be adversely affected.
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Traditionally, many residential mortgage lenders have not taken steps to
evaluate whether contaminants are present with respect to any mortgaged property
prior to the origination of the mortgage loan or prior to foreclosure or
accepting a deed-in-lieu of foreclosure. Accordingly, the company has not made
and will not make the evaluations prior to the origination of the Secured
Contracts. Neither the company nor any replacement Servicer will be required by
any Agreement to undertake these evaluations prior to foreclosure or accepting a
deed-in-lieu of foreclosure. The company does not make any representations or
warranties or assume any liability with respect to the absence or effect of
contaminants on any related real property or any casualty resulting from the
presence or effect of contaminants. However, the company will not be obligated
to foreclose on related real property or accept a deed-in-lieu of foreclosure if
it knows or reasonably believes that there are material contaminated conditions
on the property. A failure so to foreclose may reduce the amounts otherwise
available to certificateholders of the related series.
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. Federal and state
law may specifically limit the amount of late charges that may be collected.
Under the related pooling and servicing agreement or servicing 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 securityholders.
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 FTC Rule has the effect of subjecting a seller (and some 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 under the contract.
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. If
an obligor is successful in asserting the claim or defense, and if the Seller
had or should have had knowledge of the claim or defense, the master servicer
will have the right to require the Seller to repurchase the Contract because of
a breach of its Seller's representation and warranty that no claims or defenses
exist that would affect the obligor's obligation to make the required payments
under the Contract. The Seller would then have the right to require the
originating dealer to repurchase the Contract
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from it and might also have the right to recover from the dealer any losses
suffered by the Seller with respect to which the dealer would have been
primarily liable to the obligor.
ENFORCEABILITY OF SOME PROVISIONS
TRANSFER OF MORTGAGED PROPERTIES. Unless the related prospectus supplement
indicates otherwise, the mortgage 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 without the prior consent of
the lender. 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, 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 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, some 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 the contracts by the obligee on the contract
upon the sale or transfer that is not consented to. The master servicer will, to
the extent it has knowledge of the 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 some cases, the transfer may be made by a delinquent obligor in
order to avoid a repossession proceeding with respect to a Manufactured Home.
In the case of a transfer of a Manufactured Home as to which the master
servicer desires to accelerate the maturity of the related Contract, the master
servicer's ability to do so will depend on the enforceability under state law of
the due-on-sale clause. The Garn-St Germain Act preempts, subject to certain
exceptions and conditions, state laws prohibiting enforcement of due-on-sale
clauses applicable to the Manufactured Homes. Consequently, in some cases the
master servicer may be prohibited from enforcing a due-on-sale clause in respect
of a Manufactured Home.
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 some states, there are or may be specific limitations upon the
late charges which a lender may collect from a borrower for delinquent
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payments. Some 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
proceedings by the senior lender.
INSTALLMENT CONTRACTS
The trust fund assets may also consist of installment sales contracts.
Under an installment contract the seller (referred to in this section as the
"lender") retains legal title to the property and enters into an agreement with
the purchaser (referred to in this section as the "borrower") for the payment of
the purchase price, plus interest, over the term of the contract. Only after
full performance by the borrower of the installment contract is the lender
obligated to convey title to the property to the purchaser. As with mortgage or
deed of trust financing, during the effective period of the installment
contract, the borrower is generally responsible for the maintaining the property
in good condition and for paying real estate taxes, assessments and hazard
insurance premiums associated with the property.
The method of enforcing the rights of the lender under an installment
contract varies on a state-by- state basis depending upon the extent to which
state courts are willing, or able pursuant to state statute, to enforce the
contract strictly according to its terms. The terms of installment contracts
generally provide that upon a default by the borrower, the borrower loses his or
her right to occupy the property, the entire indebtedness is accelerated and the
buyer's equitable interest in the property is forfeited. The lender in this
situation is not required to foreclose in order to obtain title to the property,
although in some cases a quiet title action is in order if the borrower has
filed the installment contract in local land records and an ejectment action may
be necessary to recover possession. In a few states, particularly in cases of
borrower default during the early years of an installment contract, the courts
will permit ejectment of the buyer and a forfeiture of his or her interest in
the property. However, most state legislatures have enacted provisions by
analogy to mortgage law protecting borrowers under installment contracts from
the harsh consequences of forfeiture. Under these statutes, a judicial or
nonjudicial foreclosure may be required, the lender may be required to give
notice of default and the borrower may be granted some grace period during which
the installment contract may be reinstated upon full payment of the defaulted
amount and the borrower may have a post-foreclosure statutory redemption right.
In other states, courts in equity may permit a borrower with significant
investment in the property under an installment contract for the sale of real
estate to share in the proceeds of sale of the property after the indebtedness
is repaid or may otherwise refuse to enforce the forfeiture clause.
Nevertheless, the lender's procedures for obtaining possession and clear title
under an installment contract in a given state are simpler and less
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time consuming and costly than are the procedures for foreclosing and obtaining
clear title to a property subject to one or more liens.
APPLICABILITY OF USURY LAWS
Title V provides that state usury limitations shall not apply to some types
of residential first mortgage loans originated by some 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. Some 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
some kinds of manufactured housing. Contracts would be covered if they satisfy
conditions including, among other things, terms governing 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 this type of 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.
Usury limits apply to junior mortgage loans in many states. Any applicable
usury limits in effect at origination will be reflected in the maximum mortgage
rates for ARM Loans, as set forth in the related prospectus supplement.
As indicated above under "The Mortgage Pools--Representations by Sellers,"
each Seller of a mortgage loan will have represented that the 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 historically have been subjected to a variety of restrictions. The
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. Title
VIII provides that, notwithstanding any state law to the contrary, (1)
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,
(2) 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 (3) all other
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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 the provisions. Some states have taken
this 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 components of manufactured housing such 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 this claim, the related securityholders could suffer
a loss if (1) the related Seller fails or cannot be required to repurchase the
affected Contract for a breach of representation and warranty and (2) the master
servicer or the trustee were unsuccessful in asserting any claim of contribution
or subrogation on behalf of the securityholders 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 these
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 Relief Act, a mortgagor who enters military service
after the origination of the 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 the mortgagor's active duty status,
unless a court orders otherwise upon application of the lender. The Relief Act
applies to mortgagors 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 the mortgage loans subject to the Relief Act. Any shortfall in
interest collections resulting from the application of the Relief Act or similar
legislation or regulations, which would not be recoverable from the related
mortgage loans, would result in a reduction of the amounts distributable to the
holders of the related securities, and would not be covered by advances by the
master servicer or other entity or by any form of credit enhancement provided in
connection with the related series of securities, unless described in the
prospectus supplement. In addition, the Relief Act imposes limitations that
would impair the ability of the master
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servicer to foreclose on an affected single family loan or enforce rights under
a Contract during the mortgagor's period of active duty status, and, under some
circumstances, during an additional three month period thereafter. Thus, in the
event that the Relief Act or similar legislation or regulations applies to any
mortgage loan which goes into default, there may be delays in payment and losses
on the related securities in connection therewith. Any other interest
shortfalls, deferrals or forgiveness of payments on the mortgage loans resulting
from similar legislation or regulations may result in delays in payments or
losses to securityholders of the related series.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of RICO can be seized by the
government if the property was used in, or purchased with the proceeds of, these
crimes. Under procedures contained in the Crime Control Act, the government may
seize the property even before conviction. The government must publish notice of
the forfeiture proceeding and may give notice to all parties "known to have an
alleged interest in the property", including the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (1) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (2) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
JUNIOR MORTGAGES
Some of the mortgage loans may be secured by 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 securityholders, as mortgagee under a junior
mortgage, are subordinate to those of the mortgagee under the senior mortgage,
including the prior rights of the senior mortgagee to receive hazard insurance
and condemnation proceeds and to cause the property securing the mortgage loan
to be sold upon default of the mortgagor, which may extinguish the junior
mortgagee's lien unless the junior mortgagee asserts its subordinate interest in
the property in foreclosure litigation and, in some cases, either reinitiates or
satisfies the defaulted senior loan or loans. A junior mortgagee may satisfy a
defaulted senior loan in full or, in some states, may cure the default and bring
the senior loan current thereby reinstating the senior loan, in either event
usually adding the amounts expended to the balance due on the junior loan. In
most states, absent a provision in the mortgage or deed of trust, no notice of
default is required to be given to a junior mortgagee. Where applicable law or
the terms of the senior mortgage or deed of trust do not require notice of
default to the junior mortgagee, the lack of this notice may prevent the junior
mortgagee from exercising any right to reinstate the loan which applicable law
may provide.
The standard form of the mortgage or deed of trust used by most
institutional lenders confers on the mortgagee the right both to receive all
proceeds collected under any hazard insurance policy and all awards made in
connection with condemnation proceedings, and to apply the proceeds and awards
to any indebtedness secured by the mortgage or deed of trust, in the order the
mortgagee may determine. Thus, in the event improvements on the property are
damaged or destroyed by fire or other casualty, or in the event the property is
taken by condemnation, the mortgagee or beneficiary under underlying senior
mortgages will have the prior right to collect any insurance proceeds payable
under a hazard insurance policy and any award of damages in connection with the
condemnation and to apply the same to the indebtedness secured by the senior
mortgages. Proceeds in excess of the amount of senior mortgage indebtedness, in
most cases, may be applied to the indebtedness of junior mortgages in the order
of their priority.
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Another provision sometimes found in the form of the mortgage or deed of
trust used by institutional lenders obligates the mortgagor to pay before
delinquency all taxes and assessments on the property and, when due, all
encumbrances, charges and liens on the property which are prior to the mortgage
or deed of trust, to provide and maintain fire insurance on the property, to
maintain and repair the property and not to commit or permit any waste thereof,
and to appear in and defend any action or proceeding purporting to affect the
property or the rights of the mortgagee under the mortgage. Upon a failure of
the mortgagor to perform any of these obligations, the mortgagee or beneficiary
is given the right under some mortgages or deeds of trust to perform the
obligation itself, at its election, with the mortgagor agreeing to reimburse the
mortgagee for any sums expended by the mortgagee on behalf of the mortgagor. All
sums so expended by a senior mortgagee become part of the indebtedness secured
by the senior mortgage.
NEGATIVE AMORTIZATION LOANS
A recent case decided by the United States Court of Appeals, First Circuit,
held that state restrictions on the compounding of interest are not preempted by
the provisions of the DIDMC and as a result, a mortgage loan that provided for
negative amortization violated New Hampshire's requirement that first mortgage
loans provide for computation of interest on a simple interest basis. The
holding was limited to the effect of DIDMC on state laws regarding the
compounding of interest and the court did not address the applicability of the
Alternative Mortgage Transaction Parity Act of 1982, which authorizes lender to
make residential mortgage loans that provide for negative amortization. The
First Circuit's decision is binding authority only on Federal District Courts in
Maine, New Hampshire, Massachusetts, Rhode Island and Puerto Rico.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion is the opinion of Thacher Proffitt & Wood, counsel
to the company, with respect to the anticipated material federal income tax
consequences of the purchase, ownership and disposition of offered securities
offered under this prospectus and the prospectus supplement insofar as it
relates to matters of law or legal conclusions with respect thereto. This
discussion is directed solely to securityholders that hold the securities as
capital assets within the meaning of Section 1221 of the Code and does not
purport to discuss all federal income tax consequences that may be applicable to
the individual circumstances of particular categories of investors, some of
which (such as banks, insurance companies and foreign investors) may be subject
to special treatment under the Code. 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 IRS
with respect to any of the federal income tax consequences discussed below, and
no assurance can be given the IRS will not take contrary positions. 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 (1) 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 (2) 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 in this
prospectus. In addition to the federal income tax consequences described in this
prospectus, potential investors should consider the state and local tax
consequences, if any, of the purchase, ownership and disposition of the
securities. See "State and Other Tax Consequences."
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The following discussion addresses securities of three general types:
o REMIC Certificates representing interests in a trust fund, or a
portion thereof, that the REMIC Administrator will elect to have
treated as a REMIC under the REMIC Provisions of the Code,
o notes representing indebtedness of a trust fund as to which no REMIC
election will be made and
o Grantor Trust Certificates representing interests in a Grantor Trust
Fund as to which no REMIC 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
this 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
"securityholder" or a "holder" are to the beneficial owner of a security.
The following discussion is based in part upon the OID Regulations and in
part upon REMIC Regulations. The OID Regulations do not adequately address
issues relevant to securities such as the offered securities. In some instances,
the OID Regulations provide that they are not applicable to securities such as
the offered securities.
REMICS
CLASSIFICATION OF REMICS. On or prior to the date of the related prospectus
supplement with respect to the proposed issuance of each series of REMIC
Certificates, Thacher Proffitt & Wood, 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, for federal income tax purposes,
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 REMIC Regular Certificates or REMIC Residual
Certificates in that REMIC within the meaning of the REMIC Provisions.
If an entity electing to be treated as a REMIC fails to comply with one or
more of the ongoing requirements of the Code for status as a REMIC during any
taxable year, the Code provides that the entity will not be treated as a REMIC
for that year and thereafter. In that event, the 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
REMIC's income for the period in which the requirements for status as a REMIC
are not satisfied. The pooling and servicing agreement with respect to each
REMIC will include provisions designed to maintain the related 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 inadvertently terminated.
CHARACTERIZATION OF INVESTMENTS IN REMIC CERTIFICATES. In general, the
REMIC Certificates will be "real estate assets" within the meaning of Section
856(c)(4)(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 the
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
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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 the certificates are treated as "real estate assets"
within the meaning of Section 856(c)(4)(A) of the Code. In addition, the REMIC
Regular Certificates will be "qualified mortgages" within the meaning of Section
860G(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 the calendar quarter. The REMIC Administrator will report
those determinations to certificateholders in the manner and at the times
required by applicable Treasury regulations.
The assets of the REMIC will include, in addition to mortgage loans,
payments on mortgage loans held pending distribution on the REMIC Certificates
and any 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 the 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 Code sections mentioned in the immediately preceding paragraph. In addition,
in some instances mortgage loans may not be treated entirely as assets described
in the foregoing sections of the Code. If so, the related prospectus supplement
will describe the mortgage loans that may not be so treated. The REMIC
Regulations do provide, however, that cash received from payments on mortgage
loans held pending distribution is considered part of the mortgage loans for
purposes of Section 856(c)(4)(A) of the Code. Furthermore, foreclosure property
will qualify as "real estate assets" under Section 856(c)(4)(A) of the Code.
TIERED REMIC STRUCTURES. For some series of REMIC Certificates, two or more
separate elections may be made to treat designated portions of the related trust
fund as REMICs for federal income tax purposes. As to each such series of REMIC
Certificates, in the opinion of counsel to the company, assuming compliance with
all provisions of the related pooling and servicing agreement, each of the
REMICs in that trust fund will qualify as a REMIC and the REMIC Certificates
issued by these REMICs 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)(4)(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 the certificates is interest described in
Section 856(c)(3)(B) of the Code, all of the REMICs in that trust fund 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. A REMIC Regular Certificate may be issued with
"original issue discount" within the meaning of Section 1273(a) of the Code. Any
holder of a REMIC Regular Certificate issued with original issue discount
generally will be required to include original issue discount in income as it
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accrues, in accordance with the "constant yield" method described below, in
advance of the receipt of the cash attributable to that income. In addition,
Section 1272(a)(6) of the Code provides special rules applicable to REMIC
Regular Certificates and some other debt instruments issued with original issue
discount. Regulations have not been issued under that section.
The Code requires that a reasonable 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 that 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 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 the REMIC Regular
Certificate. 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,
none of the company, the master servicer or the trustee will make any
representation that the mortgage loans will in fact prepay at a rate conforming
to the Prepayment Assumption or at any other rate.
The original issue discount, if any, on a REMIC Regular Certificate will be
the excess of its stated redemption price at maturity over its issue price. The
issue price of a particular class of REMIC Regular Certificates will be the
first cash price at which a substantial amount of REMIC Regular Certificates of
that class is sold (excluding sales to bond houses, brokers and underwriters).
If less than a substantial amount of a particular class of REMIC Regular
Certificates is sold for cash on or prior to the Closing Date, the issue price
for that class will be the fair market value of that 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 the certificate
other than "qualified stated interest." "Qualified stated interest" is interest
that is unconditionally payable at least annually (during the entire term of the
instrument) 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 the 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
the REMIC Regular Certificates. If the original issue discount rules apply to
the certificates in a particular series, those related prospectus supplement
will describe the manner in which these rules will be applied with respect to
the certificates in that series that bear an adjustable interest rate in
preparing information returns to the certificateholders and the IRS.
The first interest payment on a REMIC Regular Certificate may be made more
than one month after the date of issuance, which is a period 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 the day prior to each 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.
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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 the 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 the 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 the
REMIC Regular Certificate. However, the OID Regulations state that all or some
portion of the 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 a REMIC Regular Certificate is computed as the sum
of the amounts determined, as to each payment included in the stated redemption
price of the REMIC Regular Certificate, by multiplying (1) the number of
complete years (rounding down for partial years) from the issue date until that
payment is expected to be made (presumably taking into account the Prepayment
Assumption) by (2) a fraction, the numerator of which is the amount of the
payment, and the denominator of which is the stated redemption price at maturity
of the 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 de minimis original issue
discount attributable to that certificate and a fraction, the numerator of which
is the amount of the 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 this 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 the 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 the 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, each period that ends on a date that
corresponds to the day prior to each 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 the accrual
period. The portion of original issue discount that accrues in any accrual
period will equal the excess, if any, of (1) 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 the REMIC Regular Certificate during the accrual period of
amounts included in the stated redemption price, over (2) the adjusted issue
price of the 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 (1) assuming that distributions on the REMIC Regular
Certificate will be received in future periods based on the
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mortgage loans being prepaid at a rate equal to the Prepayment Assumption, (2)
using a discount rate equal to the original yield to maturity of the certificate
and (3) taking into account events (including actual prepayments) that have
occurred before the close of the accrual period. 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
the certificate, increased by the aggregate amount of original issue discount
that accrued with respect to the certificate in prior accrual periods, and
reduced by the amount of any distributions made on the 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 that day.
A subsequent purchaser of a REMIC Regular Certificate that purchases a
certificate that is treated as having been issued with original issue discount
at a cost (excluding any portion of the 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 the certificate. However, each such daily portion will
be reduced, if the cost of the certificate is in excess of its "adjusted issue
price," in proportion to the ratio the excess bears to the aggregate original
issue discount remaining to be accrued on the REMIC Regular Certificate. The
adjusted issue price of a REMIC Regular Certificate on any given day equals the
sum of (1) the adjusted issue price (or, in the case of the first accrual
period, the issue price) of the certificate at the beginning of the accrual
period which includes that day and (2) the daily portions of original issue
discount for all days during the accrual period prior to that day.
MARKET DISCOUNT. A certificateholder that purchases a REMIC Regular
Certificate at a market discount, that is, in the case of a REMIC Regular
Certificate issued without original issue discount, at a purchase price less
than its remaining stated principal amount, or in the case of a REMIC Regular
Certificate issued with original issue discount, at a purchase price less than
its adjusted issue price will recognize gain upon receipt of each distribution
representing stated redemption price. In particular, under Section 1276 of the
Code such a certificateholder generally will be required to allocate the portion
of each 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, the election will apply to all market
discount bonds acquired by the certificateholder on or after the first day of
the first taxable year to which the 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) in income as interest,
and to amortize premium, 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 the 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 the 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, except with the approval of the IRS.
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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 the
market discount is less than 0.25% of the remaining stated redemption price of
the 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. This 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, the 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: (1) on the basis of a constant yield method,
(2) 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 (3) 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 these 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 the 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 the certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary
income.
Further, under Section 1277 of the Code a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry a REMIC Regular Certificate purchased with market discount.
For these purposes, the de minimis rule referred to above applies. Any such
deferred interest expense would not exceed the market discount that accrues
during the taxable year and is, in general, allowed as a deduction not later
than the year in which the market discount is includible in income. If a holder
elects to include market discount in income currently as it accrues on all
market discount instruments acquired by the 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 the 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 a REMIC Regular Certificate may elect under
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Section 171 of the Code to amortize the premium under the constant yield method
over the life of the certificate. If made, the 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 the certificates have original issue
discount) will also apply in amortizing bond premium under Section 171 of the
Code.
REALIZED LOSSES. Under Section 166 of the Code, both corporate holders of
the REMIC Regular Certificates and noncorporate holders of the REMIC Regular
Certificates that acquire the 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 the 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 the certificate, without
giving effect to any reductions in distributions attributable to defaults or
delinquencies on the mortgage loans or the certificate underlying the REMIC
Certificates, as the case may be, until it can be established this the 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 that holder in the 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 this loss or
reduction in income.
TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES
GENERAL. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC generally is not subject to entity-level taxation, except with
regard to prohibited transactions and some other transactions. See "--Prohibited
Transactions Tax and Other Taxes" below. Rather, the taxable income or net loss
of a REMIC is generally taken into account by the holder of the REMIC Residual
Certificates. Accordingly, 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 the holder owned the REMIC Residual Certificate. For this
purpose, the taxable income or net loss of the REMIC will be allocated to each
day in the calendar quarter ratably using a "30 days per month/90 days per
quarter/360 days per year" convention unless otherwise disclosed in the related
prospectus supplement. The daily amounts so allocated will then be allocated
among the
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REMIC Residual Certificateholders in proportion to their respective ownership
interests on that 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 the certificate
from a prior holder of that 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 the 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 some 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 the REMIC Residual Certificate from a prior
holder of the certificate at a price greater than (or less than) the adjusted
basis (as defined below) the REMIC Residual Certificate would have had in the
hands of an original holder of the 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 the REMIC Residual Certificate will be taken
into account in determining the income of the holder for federal income tax
purposes. Although it appears likely that any of these payments would be
includible in income immediately upon its receipt, the IRS might assert that
these payments 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 these payments, holders of REMIC
Residual Certificates should consult their tax advisors concerning the treatment
of these payments for income tax purposes.
The amount of income REMIC Residual Certificateholders will be required to
report (or the tax liability associated with the 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" 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 the REMIC
Residual Certificateholders for the corresponding period may significantly
adversely affect the REMIC Residual Certificateholders' after-tax rate of
return. This disparity between income and distributions may not be offset by
corresponding losses or reductions of income attributable to the REMIC Residual
Certificateholder until subsequent tax years and, then, may not be completely
offset due to changes in the Code, tax rates or character of the income or loss.
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 by the
prospectus), amortization of any premium on the mortgage loans, bad debt losses
with respect to the mortgage loans and, except as described below, for
servicing, administrative and other expenses.
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For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to the sum of the issue prices of
all REMIC Certificates (or, if a class of REMIC Certificates is not sold
initially, their fair market values). The 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 offered REMIC
Certificates 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 the
interests in the mortgage loans or other property. Accordingly, if one or more
classes of REMIC Certificates are retained initially rather than sold, the REMIC
Administrator may be required to estimate the fair market value of the 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 the 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 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 the 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 the 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
the 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 by this
prospectus) 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 by this prospectus) 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 by this prospectus) described therein will not apply.
If a class of REMIC Regular Certificates is issued with 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 that 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 clear, it is likely that Issue Premium would be amortized under a
constant yield method in a manner analogous to the method
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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 these deductions only to the
extent they exceed in the aggregate two percent of the taxpayer's adjusted gross
income) will not be applied at the REMIC level so that the REMIC will be allowed
deductions for servicing, administrative and other non-interest expenses in
determining its taxable income. All such expenses will be allocated as a
separate item to the holders of REMIC Certificates, subject to the limitation of
Section 67 of the Code. See "--Possible Pass-Through of Miscellaneous Itemized
Deductions" below. If the deductions allowed to the REMIC exceed its gross
income for a calendar quarter, the 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 the 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 the REMIC Residual Certificateholder.
A REMIC Residual Certificateholder is not allowed to take into account any
net loss for any calendar quarter to the extent the net loss exceeds the REMIC
Residual Certificateholder's adjusted basis in its REMIC Residual Certificate as
of the close of the calendar quarter (determined without regard to the 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 the REMIC Residual Certificate. To the extent a distribution
on a REMIC Residual Certificate exceeds the adjusted basis, it will be treated
as gain from the sale of the REMIC Residual Certificate. Holders of REMIC
Residual Certificates may be entitled to distributions early in the term of the
related REMIC under circumstances in which their bases in the REMIC Residual
Certificates will not be sufficiently large that the distributions will be
treated as nontaxable returns of capital. Their bases in the REMIC Residual
Certificates will initially equal the amount paid for the REMIC Residual
Certificates and will be increased by their allocable shares of taxable income
of the REMIC. However, these bases increases may not occur until the end of the
calendar quarter, or perhaps the end of the calendar year, with respect to which
the REMIC taxable income is allocated to the REMIC Residual Certificateholders.
To the extent the REMIC Residual Certificateholders' initial bases are less than
the distributions to the REMIC Residual Certificateholders, and increases in
initial bases either occur after the distributions or (together with their
initial bases) are less than the amount of the distributions, gain will be
recognized to the REMIC Residual Certificateholders on these 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
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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 the REMIC Residual Certificate to the REMIC Residual
Certificateholder and the adjusted basis the 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 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 (1) the
daily portions of REMIC taxable income allocable to the REMIC Residual
Certificate over (2) the sum of the "daily accruals" (as defined below) for each
day during the quarter that the REMIC Residual Certificate was held by the REMIC
Residual Certificateholder. The daily accruals of a REMIC Residual
Certificateholder will be determined by allocating to each day during a calendar
quarter its ratable portion of the product of the "adjusted issue price" of the
REMIC Residual Certificate at the beginning of the calendar quarter and 120% of
the "long- term Federal rate" in effect on the Closing Date. For this purpose,
the adjusted issue price of a REMIC Residual Certificate as of the beginning of
any calendar quarter will be equal to the issue price of the REMIC Residual
Certificate, increased by the sum of the daily accruals for all prior quarters
and decreased (but not below zero) by any distributions made with respect to the
REMIC Residual Certificate before the beginning of that 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. Although it has not done so,
the Treasury has authority to issue regulations that would treat the entire
amount of income accruing on a REMIC Residual Certificate as an excess inclusion
if the REMIC Residual Certificates are considered to have "significant value."
For REMIC Residual Certificateholders, an excess inclusion (1) will not be
permitted to be offset by deductions, losses or loss carryovers from other
activities, (2) will be treated as "unrelated business taxable income" to an
otherwise tax-exempt organization and (3) 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.
Furthermore, for purposes of the alternative minimum tax, excess inclusions
will not be permitted to be offset by the alternative tax net operating loss
deduction and alternative minimum taxable income may not be less than the
taxpayer's excess inclusions. The latter rule has the effect of preventing
nonrefundable tax credits from reducing the taxpayer's income tax to an amount
lower than the tentative minimum tax on excess inclusions.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to the 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 the trust in proportion to the dividends received by the shareholders from
the 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 the
shareholder. Treasury regulations yet to be issued could apply a similar rule to
regulated investment companies, common trust funds and cooperatives; the REMIC
Regulations currently do not address this subject.
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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 the
transfer is disregarded, the purported transferor will continue to remain liable
for any taxes due with respect to the income on the "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 restrictions under the terms of the related pooling and servicing
agreement that are intended to reduce the possibility of any such transfer being
disregarded. These restrictions will require each party to a transfer to provide
an affidavit that no purpose of the transfer is to impede the assessment or
collection of tax, including 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 the 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 the 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 the 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
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 REMIC Residual Certificates to foreign persons.
MARK-TO-MARKET RULES. In general, all securities owned by a dealer, except
to the extent that the dealer has specifically identified a security as held for
investment, must be marked to market in accordance with the applicable Code
provision and the related regulations. However, the IRS recently issued
regulations which provide that for purposes of this mark-to-market requirement,
a Residual Certificate acquired after January 4, 1995 is not treated as a
security and thus may not be marked to market. Prospective purchasers of a
Residual Certificate should consult their tax advisors regarding the possible
application of the mark-to-market requirement to Residual Certificates.
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 these fees and expenses should be allocated to the
holders of the related REMIC Regular Certificates. Except as stated in the
related prospectus supplement, these 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.
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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, (1) an amount equal to the individual's, estate's or trust's
share of the fees and expenses will be added to the gross income of the holder
and (2) the individual's, estate's or trust's share of the fees and expenses
will be treated as a miscellaneous itemized deduction allowable subject to the
limitation of Section 67 of the Code, which permits these 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 (1) 3% of the excess
of the individual's adjusted gross income over that amount or (2) 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 the holder's allocable
portion of servicing fees and other miscellaneous itemized deductions of the
REMIC, even though an amount equal to the amount of the fees and other
deductions will be included in the holder's gross income. Accordingly, these
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. Prospective investors should consult with their
tax advisors prior to making an investment in the certificates.
SALES OF REMIC CERTIFICATES. If a REMIC Certificate is sold, the selling
Certificateholder will recognize gain or loss equal to the difference between
the amount realized on the sale and its adjusted basis in the REMIC Certificate.
The adjusted basis of a REMIC Regular Certificate generally will equal the cost
of the REMIC Regular Certificate to the certificateholder, increased by income
reported by the certificateholder with respect to the REMIC Regular Certificate
(including original issue discount and market discount income) and reduced (but
not below zero) by distributions on the REMIC Regular Certificate received by
the 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 four paragraphs, any such
gain or loss will be capital gain or loss, provided the REMIC Certificate is
held as a capital asset (generally, property held for investment) within the
meaning of Section 1221 of the Code.
Gain from the sale of a REMIC Regular Certificate that might otherwise be
capital gain will be treated as ordinary income to the extent the gain does not
exceed the excess, if any, of (1) the amount that would have been includible in
the seller's income with respect to the 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 the certificate, which rate is
computed and published monthly by the IRS), determined as of the date of
purchase of the REMIC Regular Certificate, over (2) the amount of ordinary
income actually includible in the seller's income prior to the sale. In
addition, gain recognized on the sale of a REMIC Regular Certificate by a seller
who purchased the REMIC Regular Certificate at a market discount will be taxable
as ordinary income in an amount not exceeding the portion of the discount that
accrued during the period the REMIC Certificate was held by the 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."
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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 this 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 the 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 the 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 the 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 the 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 the 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 the REMIC Residual Certificateholder's adjusted basis in the
newly-acquired asset.
PROHIBITED TRANSACTIONS AND OTHER POSSIBLE REMIC TAXES. In the event a
REMIC engages in a prohibited transaction, the Code imposes a 100% tax on the
income derived by the REMIC from the prohibited transaction. In general, subject
to 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
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, a contribution to a REMIC made after the day on which the
REMIC issues all of its interests could result in the imposition on the REMIC of
a tax equal to 100% of the value of the contributed property. Each pooling and
servicing agreement will include provisions designed to prevent the acceptance
of any contributions that would be subject to this 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.
It is not anticipated that any REMIC will recognize "net income from foreclosure
property" subject to federal income tax.
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To the extent permitted by then applicable laws, any tax resulting from a
prohibited transaction, tax resulting from a contribution made after the Closing
Date, 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 the 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 (1) 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 the REMIC Residual Certificate for periods after the transfer
and (2) 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 the 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 the transfer is
through an agent for a disqualified organization, the tax would instead be
imposed on the agent. However, a transferor of a REMIC Residual Certificate
would in no event be liable for the 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 the affidavit is false. Moreover, an entity
will not qualify as a REMIC unless there are reasonable arrangements designed to
ensure that (1) residual interests in the entity are not held by disqualified
organizations and (2) information necessary for the application of the tax
described herein will be made available. Restrictions on the transfer of REMIC
Residual Certificates and other provisions that are intended to meet this
requirement will be included in the pooling and servicing agreement, and will be
discussed more fully in any prospectus supplement relating to the offering of
any REMIC Residual Certificate.
In addition, if a "pass-through entity" (as defined below) includes in
income excess inclusions with respect to a REMIC Residual Certificate, and a
disqualified organization is the record holder of an interest in the entity,
then a tax will be imposed on the entity equal to the product of (1) the amount
of excess inclusions on the REMIC Residual Certificate that are allocable to the
interest in the pass-through entity held by the disqualified organization and
(2) 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 the pass-through entity furnishes to the
pass-through entity (1) the holder's social security number and a statement
under penalties of perjury that the social security number is that of the record
holder or (2) a statement under penalties of perjury that the record holder is
not a disqualified organization. For taxable years beginning after December 31,
1997, notwithstanding the preceding two sentences, in the case of a REMIC
Residual Certificate held by an "electing large partnership," all interests in
the partnership shall be treated as held by disqualified organizations (without
regard to whether the record holders of the partnership furnish statements
described in the preceding sentence) and the amount that is subject to tax under
the second preceding sentence is excluded from the gross income of the
partnership allocated to the partners (in lieu of allocating to the partners a
deduction for the tax paid by the partnership).
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For these purposes, a "disqualified organization" means:
o 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
Freddie Mac),
o 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
o 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 the 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 the REMIC
Residual Certificate is less than the REMIC Residual Certificateholder's
adjusted basis in the certificate, the REMIC Residual Certificateholder should
(but may not) be treated as realizing a loss equal to the amount of the
difference, and the 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.
The REMIC Administrator (or other party described in the related prospectus
supplement) will file REMIC federal income tax returns on behalf of the related
REMIC, and under the terms of the related Agreement, will either (1) 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 (2)
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.
The REMIC Administrator, as the tax matters person or as agent for the tax
matters person, subject to 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 these 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 IRS 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. 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 the person and other information.
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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
IRS; holders of REMIC Regular Certificates that are corporations, trusts,
securities dealers and some 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 the information to be reported to the IRS. 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, Treasury 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."
The responsibility for complying with the foregoing reporting rules will be
borne by the REMIC Administrator or other party designated in the related
prospectus supplement.
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 the payments fail to furnish to
the payor certain information, including their taxpayer identification numbers,
or otherwise fail to establish an exemption from the backup withholding tax. Any
amounts deducted and withheld from a distribution to a recipient would be
allowed as a credit against the recipient's federal income tax. Furthermore,
penalties may be imposed by the IRS on a recipient of payments that is required
to supply information but that does not do so in the proper manner.
FOREIGN INVESTORS IN REMIC CERTIFICATES. A REMIC Regular Certificateholder
that is not a United States Person and is not subject to federal income tax as a
result of any direct or indirect connection to the United States in addition to
its ownership of a REMIC Regular Certificate will not be subject to United
States federal income or withholding tax in respect of a distribution on a REMIC
Regular Certificate, provided that the holder complies to the extent necessary
with identification requirements, including delivery of a statement, signed by
the certificateholder under penalties of perjury, certifying that the
certificateholder is not a United States person and providing the name and
address of the certificateholder. It is possible that the IRS may assert that
the foregoing tax exemption should not apply with respect to a REMIC Regular
Certificate held by a REMIC Residual Certificateholder that owns directly or
indirectly a 10% or greater interest in the REMIC Residual Certificates. If the
holder does not qualify for exemption, distributions of interest, including
distributions in respect of accrued original issue discount, to the holder may
be subject to a tax rate of 30%, subject to reduction under any applicable tax
treaty.
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In addition, the foregoing rules will not apply to exempt a United States
shareholder of a controlled foreign corporation from taxation on the United
States shareholder's allocable portion of the interest income received by the
controlled foreign corporation.
Further, it appears that a REMIC Regular Certificate would not be included
in the estate of a non- resident alien individual and would not be subject to
United States estate taxes. However, certificateholders who are non-resident
alien individuals should consult their tax advisors concerning this question.
Except as 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.
NEW WITHHOLDING REGULATIONS
The IRS has issued new regulations which make certain modifications to the
withholding, backup withholding and information reporting rules described above.
The new regulations attempt to unify certification requirements and modify
reliance standards. These regulations will generally be effective for payments
made after December 31, 2000, subject to certain transition rules. Prospective
investors are urged to consult their tax advisors regarding these regulations.
NOTES
On or prior to the date of the related prospectus supplement with respect
to the proposed issuance of each series of notes, Thacher Proffitt & Wood,
counsel to the company, will deliver its opinion to the effect that, assuming
compliance with all provisions of the indenture, owner trust agreement and other
related documents, for federal income tax purposes (1) the notes will be treated
as indebtedness and (2) the Issuer, as created pursuant to the terms and
conditions of the owner trust agreement, will not be characterized as an
association (or publicly traded partnership) taxable as a corporation or as a
taxable mortgage pool. For purposes of this tax discussion, references to a
"noteholder" or a "holder" are to the beneficial owner of a note.
STATUS AS REAL PROPERTY LOANS
(1) Notes held by a domestic building and loan association will not
constitute "loans . . . secured by an interest in real property" within the
meaning of Code section 7701(a)(19)(C)(v); and (2) notes held by a real estate
investment trust will not constitute "real estate assets" within the meaning of
Code section 856(c)(4)(A) and interest on notes will not be considered "interest
on obligations secured by mortgages on real property" within the meaning of Code
section 856(c)(3)(B).
TAXATION OF NOTEHOLDERS
Notes generally will be subject to the same rules of taxation as REMIC
Regular Certificates issued by a REMIC, as described above, except that (1)
income reportable on the notes is not required to be reported under the accrual
method unless the holder otherwise uses the accrual method and (2) the special
rule treating a portion of the gain on sale or exchange of a REMIC Regular
Certificate as ordinary income is inapplicable to the notes. See
"--REMICs--Taxation of Owners of REMIC Regular Certificates" and "--Sales of
REMIC Certificates."
GRANTOR TRUST FUNDS
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CLASSIFICATION OF GRANTOR TRUST FUNDS. On or prior to the date of the
related prospectus supplement with respect to the proposed issuance of each
series of Grantor Trust Certificates, Thacher Proffitt & Wood, counsel to the
company, will deliver its opinion generally to the effect that, assuming
compliance with all provisions of the related pooling and servicing agreement,
the related Grantor Trust Fund will be classified as a grantor trust under
subpart E, part I of subchapter J of Chapter 1 of the Code and not as a
partnership or an association taxable as a corporation.
CHARACTERIZATION OF INVESTMENTS IN GRANTOR TRUST CERTIFICATES.
GRANTOR TRUST FRACTIONAL INTEREST CERTIFICATES. In the case of Grantor
Trust Fractional Interest Certificates, except as disclosed in the related
prospectus supplement, counsel to the company will deliver an opinion that, in
general, Grantor Trust Fractional Interest Certificates will represent interests
in (1) "loans ... secured by an interest in real property" within the meaning
of Section 7701(a)(19)(C)(v) of the Code; (2) "obligation[s] (including any
participation or Certificate of beneficial ownership therein) which ...[are]
principally secured by an interest in real property" within the meaning of
Section 860G(a)(3) of the Code; and (3) "real estate assets" within the meaning
of Section 856(c)(4)(A) of the Code. In addition, counsel to the company will
deliver an opinion that interest on Grantor Trust Fractional Interest
Certificates will to the same extent be considered "interest on obligations
secured by mortgages on real property or on interests in real property" within
the meaning of Section 856(c)(3)(B) of the Code.
GRANTOR TRUST STRIP CERTIFICATES. Even if Grantor Trust Strip Certificates
evidence an interest in a Grantor Trust Fund consisting of mortgage loans that
are "loans ... secured by an interest in real property" within the meaning of
Section 7701(a)(19)(C)(v) of the Code, and "real estate assets" within the
meaning of Section 856(c)(4)(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 these sections (namely, to encourage or require
investments in mortgage loans by thrift institutions and real estate investment
trusts) may suggest that this characterization is appropriate. Counsel to the
company will not deliver any opinion on these questions. Prospective purchasers
to which the 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 860G(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 some pass-through entities will be allowed a
deduction for the reasonable servicing fees and expenses only to the extent that
the aggregate of the holder's miscellaneous itemized deductions exceeds two
percent of the holder's adjusted gross income. In addition, Section 68 of the
Code provides that the amount of itemized deductions otherwise allowable for
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an individual whose adjusted gross income exceeds a specified amount will be
reduced by the lesser of (1) 3% of the excess of the individual's adjusted gross
income over the amount or (2) 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 the 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, the 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 the 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 (1) a class of Grantor
Trust Strip Certificates is issued as part of the same series of certificates or
(2) 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 "safe harbors." The servicing fees
paid with respect to the mortgage loans for a series of Grantor Trust
Certificates may be higher than the "safe harbors" and, accordingly, may not
constitute reasonable servicing compensation. The related prospectus supplement
will include information regarding servicing fees paid to the master servicer,
any subservicer or their respective affiliates necessary to determine whether
the preceding "safe harbor" rules apply.
IF STRIPPED BOND RULES APPLY. If the stripped bond rules apply, each
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
some 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 the 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 the 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 the 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 the certificate, other than "qualified stated interest,"
if any, as well as the 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 the income that accrues
in any month would equal the product of the holder's adjusted basis in the
Grantor Trust Fractional Interest Certificate at the beginning of the month (see
"Sales of Grantor Trust Certificates") and the yield of the
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Grantor Trust Fractional Interest Certificate to the holder. This yield would be
computed at the rate (compounded based on the regular interval between
distribution 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 the 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 the certificateholder's share of any reasonable servicing fees and other
expenses.
To the extent the Grantor Trust Fractional Interest Certificates represent
an interest in any pool of debt instruments the yield on which may be affected
by reason of prepayments, for taxable years beginning after August 5, 1997,
Section 1272(a)(6) of the Code requires (1) the use of a reasonable prepayment
assumption in accruing original issue discount and (2) adjustments in the
accrual of original issue discount when prepayments do not conform to the
prepayment assumption. It is unclear whether those provisions would be
applicable to the Grantor Trust Fractional Interest Certificates that do not
represent an interest in any pool of debt instruments the yield on which may be
affected by reason of prepayments, or for taxable years beginning prior to
August 5, 1997 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 with respect to Grantor Trust
Fractional Interest Certificates and, in particular, whether a prepayment
assumption should be used in reporting original issue discount.
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 the
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
the principal amount, respectively), the use of a reasonable prepayment
assumption would increase or decrease the 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 the certificate and the portion of the
adjusted basis of the certificate that is allocable to the certificateholder's
interest in the mortgage loan. If a prepayment assumption is used, it appears
that no separate item of income or loss should be recognized upon a prepayment.
Instead, a prepayment should be treated as a partial payment of the stated
redemption price of the Grantor Trust Fractional Interest Certificate and
accounted for under a method similar to that described for taking account of
original issue discount on REMIC Regular Certificates. See "--REMICs--Taxation
of Owners of REMIC Regular Certificates--Original Issue Discount." It is unclear
whether any other adjustments would be required to reflect differences between
an assumed prepayment rate and the actual rate of prepayments.
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 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, none of the company, the
master servicer or the trustee will
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make any representation that the mortgage loans will in fact prepay at a rate
conforming to the Prepayment Assumption or any other rate and certificateholders
should bear in mind that the use of a representative initial offering price will
mean that the 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 1.1286-1, some 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 (1) there is no
original issue discount (or only a de minimis amount of original issue discount)
or (2) 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 that 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 "Characteristics of Investments
in Grantor Trust 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
the 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 the 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 the mortgage loan other than "qualified
stated interest." "Qualified stated interest" is 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 the 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. The determination as to whether original issue discount will
be considered to be de minimis will be calculated using the same test described
in the REMIC discussion. See "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" above.
In the case of mortgage loans bearing adjustable or variable interest
rates, the related prospectus supplement will describe the manner in which the
rules will be applied with respect to those mortgage loans by the master
servicer or the trustee in preparing information returns to the
certificateholders and the IRS.
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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. Section
1272(a)(6) of the Code requires that a prepayment assumption be made in
computing yield with respect to any pool of debt instruments the yield on which
may be affected by reason of prepayments. Accordingly, for certificates backed
by these pools, it is intended to base information reports and returns to the
IRS and certificateholders for taxable years beginning after August 5, 1997, on
the use of a prepayment assumption. However, in the case of certificates not
backed by these pools or with respect to taxable years beginning prior to August
5, 1997, it currently is not intended to base the reports and returns on the use
of a prepayment assumption. 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 the series.
A purchaser of a Grantor Trust Fractional Interest Certificate that
purchases the Grantor Trust Fractional Interest Certificate at a cost less than
the 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 the certificate's daily portions of any original
issue discount with respect to the mortgage loans. However, each such daily
portion will be reduced, if the cost of the Grantor Trust Fractional Interest
Certificate to the purchaser is in excess of the 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 the excess bears to
the certificate's allocable portion of the aggregate original issue discount
remaining to be accrued on the mortgage loans. The adjusted issue price of a
mortgage loan on any given day equals the sum of (1) the adjusted issue price
(or, in the case of the first accrual period, the issue price) of the mortgage
loan at the beginning of the accrual period that includes the day and (2) the
daily portions of original issue discount for all days during the accrual period
prior to the day. The adjusted issue price of a mortgage loan at the beginning
of any accrual period will equal the issue price of the mortgage loan, increased
by the aggregate amount of original issue discount with respect to the mortgage
loan that accrued in prior accrual periods, and reduced by the amount of any
payments made on the mortgage loan in prior accrual periods of amounts included
in its stated redemption price.
In addition to its regular reports, the master servicer or the trustee,
except as provided in the related prospectus supplement, will provide to any
holder of a Grantor Trust Fractional Interest Certificate such information as
the 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 the discount that has accrued (under the rules described in the
next paragraph) through the month that has not previously been included in
income, but limited, in the case of the portion of the discount that is
allocable to any mortgage loan, to the payment of stated redemption price on the
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
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certificate to the holder) rather than including it on a deferred basis in
accordance with the foregoing under rules similar to those described in
"--Taxation of Owners of REMIC Regular Certificates--Market Discount" above.
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, some 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: (1) on the basis of a constant yield method, (2) 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
(3) 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 the
discount income. Because the regulations referred to in this paragraph have not
been issued, it is not possible to predict what effect the 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, the market discount may be required to be included in income
at a rate that is not significantly slower than the rate at which the discount
would be included in income if it were original issue discount.
Market discount with respect to mortgage loans may be considered to be de
minimis and, if so, will be includible in income under de minimis rules similar
to those described above in "--REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" with the exception that it is less likely
that a prepayment assumption will be used for purposes of these rules with
respect to the mortgage loans.
Further, under the rules described in "--REMICs--Taxation of Owners of
REMIC Regular Certificates--Market Discount," above, 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, the certificateholder may elect under Section 171 of
the Code to amortize using a constant yield method the portion of the 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 these payments are made (or, for a certificateholder using the
accrual method of accounting, when the payments of stated redemption price are
due).
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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 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 "Characterization of Investments in
Grantor Trust 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 the 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 Contingent Payment Rules" and
assumes that the holder of a Grantor Trust Strip Certificate will not own any
Grantor Trust Fractional Interest Certificates.
Under the stripped coupon rules, it appears that original issue discount
will be required to be accrued in each month on the Grantor Trust Strip
Certificates based on a constant yield method. In effect, each holder of Grantor
Trust Strip Certificates would include as interest income in each month an
amount equal to the product of the holder's adjusted basis in the Grantor Trust
Strip Certificate at the beginning of that month and the yield of the Grantor
Trust Strip Certificate to the holder. The 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 "Characterization of Investments in Grantor Trust
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 some categories of debt instruments, and that adjustments be made in
the amount and rate of accrual of the discount when prepayments do not conform
to the prepayment assumption. To the extent the Grantor Trust Strip Certificates
represent an interest in any pool of debt instruments the yield on which may be
affected by reason of prepayments, those provisions will apply to the Grantor
Trust Strip Certificates for taxable years beginning after August 5, 1997. It is
unclear whether those provisions would be applicable to the Grantor Trust Strip
Certificates that do not represent an interest in any such pool or for taxable
years beginning prior to August 5, 1997, or whether use of a prepayment
assumption may be required or permitted in the absence of these provisions. 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
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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. 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, none of the company, the master servicer or 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 the 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 the
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 the 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. Regulations were
promulgated on June 14, 1996, regarding contingent payment debt instruments (the
"Contingent Payment Regulations"), but it appears that Grantor Trust Strip
Certificates, to the extent subject to Section 1272(a)(6) of the Code, as
described above, or due to their similarity to other mortgage-backed securities
(such as REMIC regular interests and debt instruments subject to Section
1272(a)(6) of the Code) that are expressly excepted from the application of the
Contingent Payment Regulations, are or may be excepted from these regulations.
Like the OID Regulations, 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 rules under the Contingent Payment Regulations
were to apply, the holder of a Grantor Trust Strip Certificate would be required
to apply the "noncontingent bond method." Under the "noncontingent bond method,"
the issuer of a Grantor Trust Strip Certificate determines a projected payment
schedule on which interest will accrue. Holders of Grantor Trust Strip
Certificates are bound by the issuer's projected payment schedule. The projected
payment schedule consists of all noncontingent payments and a projected amount
for each contingent payment based on the projected yield (as described below) of
the Grantor Trust Strip Certificate. The projected amount of each payment is
determined so that the projected payment schedule reflects the projected yield.
The projected amount of each payment
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must reasonably reflect the relative expected values of the payments to be
received by the holder of a Grantor Trust Strip Certificate. The projected yield
referred to above is a reasonable rate, not less than the "applicable Federal
rate" that, as of the issue date, reflects 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, and would add to, or subtract from, the income any variation between the
payment actually received in that month and the payment originally projected to
be made in that month.
Assuming that a prepayment assumption were used, if the Contingent Payment
Regulations or their principles were applied to Grantor Trust Strip
Certificates, the amount of income reported with respect thereto would be
substantially similar to that described under "Taxation of Owners of Grantor
Trust Strip Certificates". Certificateholders should consult their tax advisors
concerning the possible application of the contingent payment rules to the
Grantor Trust Strip Certificates.
SALES OF GRANTOR TRUST CERTIFICATES. Any gain or loss equal to the
difference between the amount realized on the sale or exchange of a Grantor
Trust Certificate and its adjusted basis, recognized on the sale or exchange of
a Grantor Trust Certificate by an investor who holds the 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 the Grantor Trust
Certificate.
Gain or loss from the sale of a Grantor Trust Certificate may be partially
or wholly ordinary and not capital in some 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 the 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 the 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. The master servicer or the trustee will furnish to
each holder of a Grantor Trust Fractional Interest Certificate with each
distribution a statement setting forth the amount of the distribution allocable
to principal on the underlying mortgage loans and to interest thereon at the
related Pass-Through Rate. In addition, the master servicer or 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 a holder at any time during that
year, information regarding the amount of servicing compensation received by the
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master servicer and subservicer (if any) and any other customary factual
information as the master servicer or the trustee deems necessary or desirable
to enable holders of Grantor Trust Certificates to prepare their tax returns and
will furnish comparable information to the IRS 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 IRS will agree with the trust fund's information reports of these
items of income and expense. Moreover, these information reports, even if
otherwise accepted as accurate by the IRS, 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 the reports.
Except as disclosed in the related prospectus supplement, the
responsibility for complying with the foregoing reporting rules will be borne by
the master servicer or the trustee.
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" applies to
Grantor Trust Certificates except that Grantor Trust Certificates will, except
as disclosed in the related prospectus supplement, be eligible for exemption
from U.S. withholding tax, subject to the conditions described in the
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, the 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
securities offered under this prospectus and the prospectus supplement. 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 state and other tax
consequences of investments in the securities offered under this prospectus and
the prospectus supplement.
ERISA CONSIDERATIONS
Sections 404 and 406 of ERISA impose fiduciary and prohibited transaction
restrictions on ERISA Plans and on other retirement plans and arrangements,
including individual retirement accounts and annuities, Keogh plans and bank
collective investment funds and insurance company general and separate accounts
in which ERISA Plans are invested. Section 4975 of the Code imposes essentially
the same prohibited transaction restrictions on Tax Favored Plans. ERISA and the
Code prohibit a broad range of transactions involving assets of Plans and
Parties in Interest, unless a statutory or administrative exemption is available
with respect to any such transaction.
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Some employee benefit plans, such as governmental plans (as defined in
Section 3(32) of ERISA), 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 these plans may be invested in the
securities without regard to the ERISA considerations described below, subject
to the provisions of other applicable federal, state and local 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.
Some transactions involving the trust fund might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Plan that
purchases the securities, if the mortgage loans and other assets included in a
trust fund are deemed to be assets of the Plan. The DOL has promulgated the DOL
Regulations defining the term "Plan Assets" for purposes of applying the general
fiduciary responsibility provisions of ERISA and the prohibited transaction
provisions of ERISA and the Code. Under the DOL Regulations, generally, when a
Plan acquires an "equity interest" in another entity (such as the trust fund),
the underlying assets of that entity may be considered to be Plan Assets unless
an exception applies. Exceptions contained in the DOL Regulations provide that a
Plan's assets will not include an undivided interest in each asset of an entity
in which the Plan makes an equity investment if: (1) the entity is an operating
company; (2) the equity investment made by the Plan is either a "publicly-
offered security" that is "widely held," both as defined in the DOL Regulations,
or a security issued by an investment company registered under the Investment
Company Act of 1940, as amended; or (3) Benefit Plan Investors do not own 25% or
more in value of any class of equity securities issued by the entity. In
addition, the DOL Regulations provide that the term "equity interest" means any
interest in an entity other than an instrument which is treated as indebtedness
under applicable local law and which has no "substantial equity features." Under
the DOL Regulations, Plan Assets will be deemed to include an interest in the
instrument evidencing the equity interest of a Plan (such as a certificate or a
note with "substantial equity features"), and, because of the factual nature of
some of the rules set forth in the DOL Regulations, Plan Assets may be deemed to
include an interest in the underlying assets of the entity in which a Plan
acquires an interest (such as the trust fund). Without regard to whether the
notes are characterized as equity interests, the purchase, sale and holding of
notes by or on behalf of a Plan could be considered to give rise to a prohibited
transaction if the Issuer, the trustee or any of their respective affiliates is
or becomes a Party in Interest with respect to the Plan. Neither Plans nor
persons investing Plan Assets should acquire or hold securities in reliance upon
the availability of any exception under the DOL Regulations.
ERISA generally imposes on Plan fiduciaries 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. Any person who has discretionary authority or control with respect to the
management or disposition of Plan Assets and any person who provides investment
advice with respect to Plan Assets for a fee is a fiduciary of the investing
Plan. If the mortgage loans and other assets included in the trust fund were to
constitute Plan Assets, then any party exercising management or discretionary
control with respect to those Plan Assets may be deemed to be a Plan
"fiduciary," and thus subject to the fiduciary responsibility provisions of
ERISA and the prohibited transaction provisions of ERISA and Section 4975 of the
Code with respect to any investing Plan. In addition, the acquisition or holding
of securities by or on behalf of a Plan or with Plan Assets, as well as the
operation of the trust fund, may constitute or involve a prohibited transaction
under ERISA and the Code unless a statutory or administrative exemption is
available.
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The DOL has issued Exemptions to some underwriters, which generally exempts
from the application of the prohibited transaction provisions of Section 406 of
ERISA, and the excise taxes imposed on those prohibited transactions pursuant to
Section 4975(a) and (b) of the Code, some transactions, among others, relating
to the servicing and operation of mortgage pools and the initial purchase,
holding and subsequent resale of mortgage pass-through certificates underwritten
by an Underwriter, provided that the conditions set forth in the Exemption are
satisfied. For purposes of this Section "ERISA Considerations", the term
"Underwriter" shall include (1) the underwriter, (2) any person directly or
indirectly, through one or more intermediaries, controlling, controlled by or
under common control with the underwriter and (3) any member of the underwriting
syndicate or selling group of which a person described in (1) or (2) is a
manager or co-manager with respect to a class of securities.
The Exemption sets forth six general conditions which must be satisfied for
the Exemption to apply. First, the acquisition of securities by a Plan or with
Plan Assets must be on terms that are at least as favorable to the Plan as they
would be in an arm's-length transaction with an unrelated party. Second, the
Exemption only applies to securities evidencing rights and interests that are
not subordinated to the rights and interests evidenced by other securities of
the same trust. Third, the securities at the time of acquisition by a Plan or
with Plan Assets must be rated in one of the three highest generic rating
categories by an Exemption Rating Agency. Fourth, the trustee cannot be an
affiliate of any member of the "Restricted Group" which consists of any
Underwriter, the company, the master servicer, the special servicer, any
subservicer and any obligor with respect to assets included in the trust fund
constituting more than 5% of the aggregate unamortized principal balance of the
assets in the trust fund as of the date of initial issuance of the securities.
Fifth, the sum of all payments made to and retained by the Underwriter(s) must
represent not more than reasonable compensation for underwriting the securities;
the sum of all payments made to and retained by the company pursuant to the
assignment of the assets to the related trust fund must represent not more than
the fair market value of the obligations; and the sum of all payments made to
and retained by the master servicer, the special servicer and any subservicer
must represent not more than reasonable compensation for the person's services
under the related Agreement and reimbursement of the person's reasonable
expenses in connection therewith. Sixth, the Exemption states that the investing
Plan or Plan Asset investor must be an accredited investor as defined in Rule
501(a)(1) of Regulation D of the Commission under the Securities Act.
The Exemption also requires that the trust fund meet the following
requirements: (1) the trust fund must consist solely of assets of the type that
have been included in other investment pools; (2) securities evidencing
interests in the other investment pools must have been rated in one of the three
highest generic categories of one of the Exemption Rating Agencies for at least
one year prior to the acquisition of securities by or on behalf of a Plan or
with Plan Assets; and (3) securities evidencing interests in the other
investment pools must have been purchased by investors other than Plans for at
least one year prior to any acquisition of securities by or on behalf of a Plan
or with Plan Assets.
A fiduciary of a Plan or any person investing Plan Assets to purchase a
certificate must make its own determination that the conditions set forth above
will be satisfied with respect to the certificate.
If the general conditions of the Exemption are satisfied, the Exemption may
provide an exemption from the restrictions imposed by Sections 406(a) and 407(a)
of ERISA, and the excise taxes imposed by Sections 4975(a) and (b) of the Code
by reason of Sections 4975(c)(1)(A) through (D) of the Code, in connection with
the direct or indirect sale, exchange or transfer of securities in the initial
issuance of the securities or the direct or indirect acquisition or disposition
in the secondary market of securities by a Plan or with Plan Assets or the
continued holding of securities acquired by a Plan or with Plan Assets pursuant
to either of the foregoing. However, no exemption is provided from the
restrictions of Sections 406(a)(1)(E), 406(a)(2) and 407 of ERISA for the
acquisition or holding of a Security on behalf of an
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"Excluded Plan" by any person who has discretionary authority or renders
investment advice with respect to the assets of an Excluded Plan. For purposes
of the securities, an Excluded Plan is a Plan sponsored by any member of the
Restricted Group.
If the specific conditions of the Exemption are also satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA, and the excise taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Section 4975(c)(1)(E) of the Code, in
connection with (1) the direct or indirect sale, exchange or transfer of
securities in the initial issuance of securities between the Depositor or an
Underwriter and a Plan when the person who has discretionary authority or
renders investment advice with respect to the investment of Plan Assets in the
securities is (a) a mortgagor with respect to 5% or less of the fair market
value of the trust fund assets or (b) an affiliate of such a person, (2) the
direct or indirect acquisition or disposition in the secondary market of
securities by a Plan or with Plan Assets and (3) the continued holding of
securities acquired by a Plan or with Plan Assets pursuant to either of the
foregoing.
Further, if the specific conditions of the Exemption are satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(a), 406(b) and 407 of ERISA, and the excise taxes imposed by Sections
4975(a) and (b) of the Code by reason of Section 4975(c) of the Code for
transactions in connection with the servicing, management and operation of the
trust fund. The Depositor expects that the specific conditions of the Exemption
required for this purpose will be satisfied with respect to the securities so
that the Exemption would provide an exemption from the restrictions imposed by
Sections 406(a) and (b) of ERISA (as well as the excise taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c) of the Code)
for transactions in connection with the servicing, management and operation of
the trust fund, provided that the general conditions of the Exemption are
satisfied.
The Exemption also may provide an exemption from the restrictions imposed
by Sections 406(a) and 407(a) of ERISA, and the excise taxes imposed by Section
4975(a) and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of
the Code if the restrictions are deemed to otherwise apply merely because a
person is deemed to be a Party in Interest with respect to an investing Plan by
virtue of providing services to the Plan (or by virtue of having a specified
relationship to such a person) solely as a result of the Plan's ownership of
securities.
On July 21, 1997, the DOL published in the Federal Register an amendment to
the Exemption, which will extend exemptive relief to mortgage-backed and
asset-backed securities transactions using pre-funding accounts for trusts
issuing pass-through certificates. With respect to the certificates, the
amendment will generally allow mortgage loans supporting payments to
certificateholders, and having a value equal to no more than 25% of the total
principal amount of the certificates being offered by a trust fund, to be
transferred to the trust fund within the Pre-Funding Period instead of requiring
that all the mortgage loans be either identified or transferred on or before the
Closing Date. In general, the relief applies to the purchase, sale and holding
of certificates which otherwise qualify for the Exemption, provided that the
following general conditions are met:
o the ratio of the amount allocated to the pre-funding account to the
total principal amount of the certificates being offered must be less
than or equal to 25%;
o all additional mortgage loans transferred to the related trust fund
after the Closing Date must meet the same terms and conditions for
eligibility as the original mortgage loans used to create the trust
fund, which terms and conditions have been approved by one of the
Exemption Rating Agencies;
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o the transfer of the additional mortgage loans to the trust fund during
the Pre-Funding Period must not result in the certificates to be
covered by the Exemptions receiving a lower credit rating from an
Exemption Rating Agency upon termination of the Pre-Funding Period
than the rating that was obtained at the time of the initial issuance
of the certificates by the trust fund;
o solely as a result of the use of pre-funding, the weighted average
annual percentage interest rate for the mortgage loans included in the
related trust fund on the Closing Date and all additional mortgage
loans transferred to the related trust fund after the Closing Date at
the end of the Pre- Funding Period must not be more than 100 basis
points lower than the rate for the mortgage loans which were
transferred to the trust fund on the Closing Date;
o for transactions occurring on or after May 23, 1997, either:
(1) the characteristics of the additional mortgage loans
transferred to the related trust fund after the Closing Date must be
monitored by an insurer or other credit support provider which is
independent of the Depositor; or
(2) an independent accountant retained by the Depositor must
provide the Depositor with a letter (with copies provided to the
Exemption Rating Agency rating the certificates, the Underwriter and
the trustee) stating whether or not the characteristics of the
additional mortgage loans transferred to the related trust fund after
the Closing Date conform to the characteristics described in the
prospectus or prospectus supplement and/or Agreement. In preparing the
letter, the independent accountant must use the same type of
procedures as were applicable to the mortgage loans which were
transferred to the trust fund as of the Closing Date;
o the Pre-Funding Period must end no later than three months or 90 days
after the Closing Date or earlier in some circumstances if the
pre-funding accounts falls below the minimum level specified in the
Agreement or an event of default occurs;
o amounts transferred to any pre-funding accounts and/or capitalized
interest account used in connection with the pre-funding may be
invested only in investments which are permitted by the Exemption
Rating Agencies rating the certificates and must:
(1) be direct obligations of, or obligations fully guaranteed as
to timely payment of principal and interest by, the United States or
any agency or instrumentality thereof (provided that the obligations
are backed by the full faith and credit of the United States); or
(2) have been rated (or the obligor has been rated) in one of the
three highest generic rating categories by one of the Exemption Rating
Agencies ("ERISA Permitted Investments");
o the prospectus or prospectus supplement must describe the duration of
the Pre-Funding Period;
o the trustee (or any agent with which the trustee contracts to provide
trust services) must be a substantial financial institution or trust
company experienced in trust activities and familiar with its duties,
responsibilities and liabilities with ERISA. The trustee, as legal
owner of the trust fund, must enforce all the rights created in favor
of certificateholders of the trust fund, including employee benefit
plans subject to ERISA.
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In addition to the Exemption, a Plan fiduciary or other Plan Asset investor
should consider any available class exemptions granted by the DOL, which may
provide relief from some of the prohibited transaction provisions of ERISA and
the related excise tax provisions of the Code, including PTCE 83-1, regarding
transactions involving mortgage pool investment trusts; PTCE 84-14, regarding
transactions effected by a "qualified professional asset manager"; PTCE 90-1,
regarding transactions by insurance company pooled separate accounts; PTCE
91-38, regarding investments by bank collective investment funds; PTCE 95-60,
regarding transactions by insurance company general accounts; and PTCE 96-23,
regarding transactions effected by an "in-house asset manager."
In addition to any exemption that may be available under PTCE 95-60 for the
purchase and holding of the securities by an insurance company general account,
the Small Business Job Protection Act of 1996 added a new Section 401(c) to
ERISA, which provides some exemptive relief from the provisions of Part 4 of
Title I of ERISA and Section 4975 of the Code, including the prohibited
transaction restrictions imposed by ERISA and the related excise taxes imposed
by the Code, for transactions involving an insurance company general account.
Pursuant to Section 401(c) of ERISA, the DOL issued proposed regulations on
December 22, 1997 which propose guidance for the purpose of determining, in
cases where insurance policies supported by an insurer's general account are
issued to or for the benefit of a Plan on or before December 31, 1998, which
general account assets constitute Plan Assets. Section 401(c) of ERISA generally
provides that, until the date which is 18 months after the 401(c) Regulations
become final, no person shall be subject to liability under Part 4 of Title I of
ERISA and Section 4975 of the Code on the basis of a claim that the assets of an
insurance company general account constitute Plan Assets, unless (1) as
otherwise provided by the Secretary of Labor in the 401(c) Regulations to
prevent avoidance of the regulations or (2) an action is brought by the
Secretary of Labor for certain breaches of fiduciary duty which would also
constitute a violation of federal or state criminal law. In addition, because
Section 401(c) does not relate to insurance company separate accounts, separate
account assets are still treated as Plan Assets of any Plan invested in the
separate account. Insurance companies contemplating the investment of general
account assets in the securities should consult with their legal counsel with
respect to the applicability of Section 401(c) of ERISA, including the general
account's ability to continue to hold the securities after the date which is 18
months after the date the proposed 401(c) Regulations become final.
REPRESENTATION FROM PLANS INVESTING IN NOTES WITH "SUBSTANTIAL EQUITY FEATURES"
OR NON-EXEMPT CERTIFICATES
Because the exemptive relief afforded by the Exemption (or any similar
exemption that might be available) will not apply to the purchase, sale or
holding of certain securities, such as notes with "substantial equity features,"
subordinate securities, REMIC Residual Certificates, any securities which are
not rated in one of the three highest generic rating categories by the Exemption
Rating Agencies transfers of any the securities to a Plan, to a trustee or other
person acting on behalf of any Plan, or to any other person investing Plan
Assets to effect the acquisition will not be registered by the trustee unless
the transferee provides the company, the trustees and the master servicer with
an opinion of counsel satisfactory to the company, the trustee (or Indenture
Trustee in the case of transfer of notes) and the master servicer, which opinion
will not be at the expense of the company, the trustee (or the Indenture Trustee
in the case of the transfer of notes) or the master servicer, that the purchase
of the securities by or on behalf of the Plan is permissible under applicable
law, will not constitute or result in any non-exempt prohibited transaction
under ERISA or Section 4975 of the Code and will not subject the company, the
trustee (or the Indenture Trustee in the case of the transfer of notes) or the
master servicer to any obligation in addition to those undertaken in the related
Agreement.
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In lieu of an opinion of counsel, the transferee may provide a
certification substantially to the effect that the purchase of securities by or
on behalf of a Plan is permissible under applicable law, will not constitute or
result in any non-exempt prohibited transaction under ERISA or Section 4975 of
the Code and will not subject the company, the trustees or the master servicer
to any obligation in addition to those undertaken in the Agreement and the
following statements are correct: (1) the transferee is an insurance company,
(2) the source of funds used to purchase the securities is an "insurance company
general account" (as that term is defined in PTCE 95-60), (3) the conditions set
forth in PTCE 95-60 have been satisfied and (4) there is no Plan with respect to
which the amount of the general account's reserves and liabilities for contracts
held by or on behalf of the Plan and all other Plans maintained by the same
employer (or any "affiliate" thereof, as defined in PTCE 95-60) or by the same
employee organization exceed 10% of the total of all reserves and liabilities of
the general account (as determined under PTCE 95-60) as of the date of the
acquisition of the securities.
An opinion of counsel or certification will not be required with respect to
the purchase of securities registered with the DTC. Any purchaser of a DTC
registered Security will be deemed to have represented by the purchase that
either (a) the purchaser is not a Plan and is not purchasing the securities on
behalf of, or with Plan Assets of, any Plan or (b) the purchase of any such
Security by or on behalf of, or with Plan Assets of, any Plan is permissible
under applicable law, will not result in any non-exempt prohibited transaction
under ERISA or Section 4975 of the Code and will not subject the company, the
trustee or the master servicer to any obligation in addition to those undertaken
in the related Agreement.
TAX EXEMPT INVESTORS
A Plan that is exempt from federal income taxation pursuant to Section 501
of the Code nonetheless will be subject to federal income taxation to the extent
that its income is "unrelated business taxable income" within the meaning of
Section 512 of the Code. All "excess inclusion" of a REMIC allocated to a REMIC
Residual Certificate and held by such an investor will be considered "unrelated
business taxable income" 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
There can be no assurance that any DOL exemption will apply with respect to
any particular Plan that acquires the securities or, even if all the conditions
specified therein were satisfied, that any such exemption would apply to
transactions involving the trust fund. Prospective Plan investors should consult
with their legal counsel concerning the impact of ERISA and the Code and the
potential consequences to their specific circumstances prior to making an
investment in the securities. Neither the company, the trustees, the master
servicer nor any of their respective affiliates will make any representation to
the effect that the securities satisfy all legal requirements with respect to
the investment therein by Plans generally or any particular Plan or to the
effect that the securities are an appropriate investment for Plans generally or
any particular Plan.
BEFORE PURCHASING AN OFFERED SECURITY, A FIDUCIARY OF A PLAN OR OTHER PLAN
ASSET INVESTOR SHOULD ITSELF CONFIRM THAT (A) ALL THE SPECIFIC AND GENERAL
CONDITIONS SET FORTH IN THE EXEMPTION, ONE OF THE CLASS EXEMPTIONS OR SECTION
401(C) OF ERISA WOULD BE SATISFIED AND (B) IN THE CASE OF A CERTIFICATE
PURCHASED UNDER THE EXEMPTION, THE CERTIFICATE CONSTITUTES A "CERTIFICATE" FOR
PURPOSES OF THE EXEMPTION. IN ADDITION TO MAKING ITS OWN DETERMINATION AS TO THE
AVAILABILITY OF THE EXEMPTIVE RELIEF PROVIDED IN THE EXEMPTION, ONE OF THE CLASS
EXEMPTIONS OR SECTION 410(C) OF ERISA, THE PLAN FIDUCIARY SHOULD CONSIDER ITS
GENERAL FIDUCIARY OBLIGATIONS UNDER ERISA IN DETERMINING WHETHER TO PURCHASE THE
SECURITIES ON BEHALF OF A PLAN.
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LEGAL INVESTMENT MATTERS
Each class of certificates offered by this prospectus 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. If so 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 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
the 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 the legislation only to the
extent provided therein. Some 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 the securities, so long
as the contractual commitment was made or the securities acquired prior to the
enactment of the 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 the securities, and
national banks may purchase the securities for their own account without regard
to the limitations generally applicable to investment securities set forth in 12
U.S.C. 24 (Seventh), subject in each case to such regulations as the applicable
federal regulatory authority may prescribe.
The Federal Financial Institutions Examination Council has issued a
supervisory policy statement 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
securities will be treated as high-risk under the policy statement.
The predecessor to the 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 the securities by insolvent,
undercapitalized or otherwise "troubled" institutions. According to the
bulletin, such "high-risk" mortgage derivative securities include securities
having specified characteristics, which may include some classes of offered
securities. In addition, the National Credit Union Administration has issued
regulations governing federal credit union investments
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which prohibit investment in specified types of securities, which may include
some classes of offered securities. Similar policy statements have been issued
by regulators having jurisdiction over other types of depository institutions.
Any class of securities that is not rated in one of the two highest rating
categories by at least one Rating Agency, and any other class of securities
specified in the related prospectus supplement, will not constitute "mortgage
related securities" for purposes of SMMEA. Prospective investors in these
classes of securities, in particular, should consider the matters discussed in
the following paragraph.
There may be other restrictions on the ability of investors either to
purchase some classes of offered securities or to purchase any class of offered
securities representing more than a specified percentage of the investors'
assets. The company will make no representations as to the proper
characterization of any class of offered securities 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 securities 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 the investor.
USE OF PROCEEDS
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 and to pay other
expenses. The company expects that it will make additional sales of securities
similar to the offered securities from time to time, but the timing and amount
of any such additional offerings will be dependent upon a number of factors,
including the volume of mortgage loans purchased by the company, prevailing
interest rates, availability of funds and general market conditions.
METHODS OF DISTRIBUTION
The certificates offered by this prospectus 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 the sale.
The company intends that offered securities will be offered through the
following methods from time to time and that offerings may be made concurrently
through more than one of these methods or that an offering of the offered
securities of a particular series may be made through a combination of two or
more of these methods. The methods are as follows:
o By negotiated firm commitment or best efforts underwriting and public
re-offering by underwriters;
o By placements by the company with institutional investors through
dealers; and
o By direct placements by the company with institutional investors.
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If underwriters are used in a sale of any offered securities (other than in
connection with an underwriting on a best efforts basis), the 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. The 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 securities of a particular series will be set forth on the cover of the
prospectus supplement relating to the series and the members of the underwriting
syndicate, if any, will be named in the prospectus supplement.
In connection with the sale of the offered securities, underwriters may
receive compensation from the company or from purchasers of the certificates in
the form of discounts, concessions or commissions. Underwriters and dealers
participating in the distribution of the offered securities may be deemed to be
underwriters in connection with the certificates, and any discounts or
commissions received by them from the company and any profit on the resale of
offered securities 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 securities of any series will provide that the obligations of the
underwriters will be subject to 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 specified 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 the offering
and any agreements to be entered into between the company and purchasers of
offered securities of the series.
The company anticipates that the certificates offered by this prospectus
and the prospectus supplement will be sold primarily to institutional investors
or sophisticated non-institutional investors. Purchasers of offered securities,
including dealers, may, depending on the facts and circumstances of the
purchases, be deemed to be "underwriters" within the meaning of the Securities
Act in connection with reoffers and sales by them of the certificates. Holders
of offered securities should consult with their legal advisors in this regard
prior to any such reoffer or sale.
LEGAL MATTERS
Legal matters, including federal income tax matters, in connection with the
securities of each series will be passed upon for the company by Thacher
Proffitt & Wood, New York, New York. With respect to each series of securities,
a copy of this opinion will be filed with the Commission on Form 8-K within 15
days after the Closing Date.
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FINANCIAL INFORMATION
With respect to each series of certificates, a new trust fund will be
formed, 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 related to a series of certificates will be included in this prospectus or
in the related prospectus supplement.
With respect to each series of notes, where the issuer is a statutory
business trust or a limited liability company, financial statements will be
filed as required by the Exchange Act. Each such issuer will suspend filing the
reports if and when the reports are no longer required under the Exchange Act.
RATING
It is a condition to the issuance of any class of offered securities 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 and mortgage-backed notes
address the likelihood of receipt by the holders thereof of all collections on
the underlying mortgage assets to which the holders are entitled. These ratings
address the structural, legal and issuer-related aspects associated with the
certificates and notes, the nature of the underlying mortgage assets and the
credit quality of the guarantor, if any. Ratings on mortgage pass-through
certificates and mortgage-backed notes do not represent any assessment of the
likelihood of principal prepayments by borrowers or of the degree by which the
prepayments might differ from those originally anticipated. As a result,
securityholders might suffer a lower than anticipated yield, and, in addition,
holders of stripped interest securities in extreme cases might fail to recoup
their initial investments.
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.
AVAILABLE INFORMATION
The company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports and other information with the
Commission. Reports and other information filed by the company can be inspected
and copied at the public reference facilities maintained by the Commission at
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 the 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 securityholders.
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
and to which reference is hereby made.
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REPORTS TO SECURITYHOLDERS
The master servicer or another designated person will be required to
provide periodic unaudited reports concerning each trust fund to all registered
holders of offered securities of the related series with respect to each trust
fund as are required under the Exchange Act and the Commission's related rules
and regulations. See "Description of the Securities--Reports to
Securityholders."
INCORPORATION OF INFORMATION BY REFERENCE
There are incorporated in this prospectus 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 Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act, prior to the termination of the offering of the
offered securities 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 securities,
upon written or oral request of the person, a copy of any or all the reports
incorporated in this prospectus by reference, in each case to the extent the
reports relate to one or more of such classes of the offered securities, other
than the exhibits to the documents, unless the exhibits are specifically
incorporated by reference in the documents. Requests should be directed in
writing to Impac Secured Assets Corp., 20371 Irvine Avenue, 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 securities.
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GLOSSARY
ACCRUAL SECURITY -- A security with respect to which some or all of its
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.
AFFILIATED SELLER -- Impac Funding Corporation, the parent of the company,
and their respective affiliates.
AGREEMENT -- An owner trust agreement, servicing agreement, indenture or
pooling and servicing agreement.
ARM LOAN -- A mortgage loan with an adjustable interest rate.
BANKRUPTCY CODE -- Title 11 of the United States Code, as amended from time
to time.
BANKRUPTCY LOSS -- A Realized Loss 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.
BENEFICIAL OWNER -- A person acquiring an interest in any DTC Registered
Security.
BENEFIT PLAN INVESTORS -- Plans, as well as any "employee benefit plan" (as
defined in Section 3(3) or ERISA) which is not subject to Title I of ERISA, such
as governmental plans (as defined in Section 3(32) of ERISA) and church plans
(as defined in Section 3(33) of ERISA) which have not made an election under
Section 410(d) of the Code, and any entity whose underlying assets include Plan
Assets by reason of a Plan's investment in the entity.
BUYDOWN ACCOUNT -- With respect to a buydown mortgage loan, the custodial
account where the Buydown Funds are placed.
BUYDOWN FUNDS -- With respect a buydown mortgage loan, the amount
contributed by the seller of the mortgaged property or another source and placed
in the Buydown Account.
BUYDOWN PERIOD -- The period during which funds on a buydown mortgage loan
are made up for from the Buydown Account.
CERCLA -- The federal Comprehensive Environmental Response, Compensation
and Liability Act, as amended.
CERTIFICATE ACCOUNT -- One or more separate accounts for the collection of
payments on the related mortgage loans and/or mortgage securities constituting
the related trust fund.
CLOSING DATE -- With respect to any series of securities, the date on which
the securities are issued.
CODE-- The Internal Revenue Code of 1986.
COMMISSION-- The Securities and Exchange Commission.
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COMMITTEE REPORT -- The Conference Committee Report accompanying the Tax
Reform Act of 1986.
CONSERVATION ACT -- The Asset Conservation, Lender Liability and Deposit
Insurance Act of 1996.
CONTRACT -- Manufactured housing conditional sales contracts and
installment loan agreements each secured by a Manufactured Home.
CONTRIBUTIONS TAX -- With respect to specific contributions to a REMIC made
after the Closing Date, a tax on the REMIC equal to 100% of the value of the
contributed property.
COOPERATIVE -- With respect to a cooperative mortgage loan, the corporation
that owns the related apartment building.
CRIME CONTROL ACT-- The Comprehensive Crime Control Act of 1984.
DEFAULTED MORTGAGE LOSS -- A Realized Loss other than a Special Hazard
Loss, Extraordinary Loss or other losses resulting from damage to a mortgaged
property, Bankruptcy Loss or Fraud Loss.
DEFERRED INTEREST -- If an adjustment to the mortgage rate on a mortgage
loan has caused the amount of accrued interest on the mortgage loan in any month
to exceed the scheduled monthly payment on the mortgage loan, the resulting
amount of interest that has accrued but is not then payable;
DELETED MORTGAGE LOAN -- A mortgage loan which has been removed from the
related trust fund.
DESIGNATED SELLER TRANSACTION -- A series of securities where the related
mortgage loans are provided either directly or indirectly to the company by one
or more Sellers identified in the related prospectus supplement.
DETERMINATION DATE -- The close of business on the date on which the amount
of each distribution to securityholders will be determined, which shall be
stated in each prospectus supplement.
DIDMC -- The Depository Institutions Deregulation and Monetary Control Act
of 1980.
DOL-- The U.S. Department of Labor.
DOL REGULATIONS-- Regulations by the DOL promulgated at 29
C.F.R.ss.2510.3-101.
DTC REGISTERED SECURITY -- Any security initially issued through the
book-entry facilities of the DTC.
DUE PERIOD -- The period between distribution dates.
ELIGIBLE ACCOUNT -- An account maintained with a federal or state chartered
depository institution (i) the short-term obligations of which are rated by each
of the Rating Agencies in its highest rating at the time of any deposit therein,
or (ii) insured by the FDIC (to the limits established by the FDIC), the
uninsured deposits in which account are otherwise secured such that, as
evidenced by an opinion of counsel (obtained by and at the expense of the person
requesting that the account be held pursuant to this clause (ii)) delivered to
the trustee prior to the establishment of the account, the securityholders will
have a claim with respect to the funds in the account and a perfected first
priority security interest against any
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collateral (which shall be limited to Permitted Instruments) securing the funds
that is superior to claims of any other depositors or general creditors of the
depository institution with which the account is maintained or (iii) a trust
account or accounts maintained with a federal or state chartered depository
institution or trust company with trust powers acting in its fiduciary capacity
or (iv) an account or accounts of a depository institution acceptable to the
Rating Agencies (as evidenced in writing by the Rating Agencies that use of any
such account as the Certificate Account will not have an adverse effect on the
then-current ratings assigned to the classes of the securities then rated by the
Rating Agencies). Eligible Accounts may or may not bear interest.
EQUITY CERTIFICATES -- With respect to any series of notes, the certificate
or certificates representing a beneficial ownership interest in the related
issuer.
ERISA PLANS -- Employee pension and welfare benefit plans subject to ERISA.
EXEMPTION -- An individual prohibited transactions exemption issued by the
DOL to an underwriter.
EXEMPTION RATING AGENCY-- Standard & Poor's Structured Rating Group,
Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co. or Fitch IBCA,
Inc.
EXCHANGE ACT-- The Securities Exchange Act of 1934, as amended.
EXTRAORDINARY LOSS -- Any Realized Loss occasioned by war, civil
insurrection, certain governmental actions, nuclear reaction and certain other
risks.
FRAUD LOSS -- A Realized Loss incurred on a defaulted mortgage loan as to
which there was fraud in the origination of the mortgage loan.
FTC RULE -- The so-called "Holder-in-Due-Course" Rule of the Federal Trade
Commission.
GARN-ST GERMAIN ACT -- The Garn-St Germain Depository Institutions Act of
1982.
GLOBAL SECURITIES - The globally offered securities of the classes
specified in the related prospectus supplement.
GRANTOR TRUST CERTIFICATE -- A certificate representing an interest in a
Grantor Trust Fund.
GRANTOR TRUST FRACTIONAL CERTIFICATE -- 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 on the Grantor Trust Certificates at a pass-through rate.
GRANTOR TRUST STRIP CERTIFICATE -- A 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 retained interest of the company) and interest paid to the holders of
Grantor Trust Fractional Interest Certificates issued with respect to the
Grantor Trust Fund. 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.
GRANTOR TRUST FUND -- A trust fund as to which no REMIC election will be
made and which qualifies as a "grantor trust" within the meaning of Subpart E,
part I of subchapter J of the Code.
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HIGH LTV LOANS -- Mortgage loans with loan-to-value ratios in excess of 80%
and as high as 150% and which are not be insured by a Primary Insurance Policy.
HOUSING ACT-- The National Housing Act of 1934, as amended.
INDEX -- With respect to an ARM Loan, the related index, which will be
specified in the related prospectus supplement and may include one of the
following indexes: (1) the weekly average yield on U.S. Treasury securities
adjusted to a constant maturity of either six months or one year, (2) the weekly
auction average investment yield of U.S. Treasury bills of six months, (3) the
daily Bank Prime Loan rate made available by the Federal Reserve Board, (4) the
cost of funds of member institutions for the Federal Home Loan Bank of San
Francisco, (5) 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 (6) any other index described in the related prospectus
supplement.
INSURANCE PROCEEDS -- 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.
INTERMEDIARY -- An institution that is not a participant in the DTC but
clears through or maintains a custodial relationship with a participant.
ISSUE PREMIUM -- The excess of the issue price of a REMIC Regular
Certificate over its stated redemption price.
ISSUER -- With respect to a series of notes, the Delaware business trust or
other trust, created pursuant to the owner trust agreement, that issues the
notes.
LIQUIDATION PROCEEDS -- (1) All amounts, other than Insurance Proceeds
received and retained in connection with the liquidation of defaulted mortgage
loans or property acquired in respect thereof, by foreclosure or otherwise,
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 and (2) all proceeds of any mortgage
loan or mortgage security purchased (or, in the case of a substitution, amounts
representing a principal adjustment) by the master servicer, the company, a
Seller or any other person pursuant to the terms of the related pooling and
servicing agreement or servicing 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 and "The Agreements--Termination."
MANUFACTURED HOME -- 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 the term shall include any structure which meets
all the requirements of this paragraph except the size requirements and with
respect to which the manufacturer
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voluntarily files a certification required by the Secretary of Housing and Urban
Development and complies with the standards established under this chapter."
NET MORTGAGE RATE -- With respect to a mortgage loan, the mortgage rate net
of the per annum rate or rates applicable to the calculation of servicing and
administrative fees and any retained interest of the company.
NONRECOVERABLE ADVANCE -- An advance which, in the good faith judgment of
the master servicer, will not be recoverable from recoveries on the related
mortgage loan or another specifically identified source.
NOTE MARGIN -- With respect to an ARM Loan, the fixed percentage set forth
in the related mortgage note, which when added to the related Index, provides
the mortgage rate for the ARM Loan.
OID REGULATIONS -- The rules governing original issue discount that are set
forth in Sections 1271- 1273 and 1275 of the Code and in the related Treasury
regulations.
OTS-- The Office of Thrift Supervision.
PARTIES IN INTEREST -- With respect to a Plan, persons who have specified
relationships to the Plans, either "Parties in Interest" within the meaning of
ERISA or "Disqualified Persons" within the meaning of the Code.
PERCENTAGE INTEREST -- With respect to a security of a particular class,
the percentage obtained by dividing the initial principal balance or notional
amount of the security by the aggregate initial amount or notional balance of
all the securities of the class.
PERMITTED INVESTMENTS -- United States government securities and other
investment grade obligations specified in the related pooling and servicing
agreement or the related servicing agreement and indenture.
PLANS-- ERISA Plans and Tax Favored Plans.
PREPAYMENT ASSUMPTION -- With respect to a REMIC Regular Certificate or a
Grantor Trust Certificate, the prepayment assumption used in pricing the initial
offering of that security.
PREPAYMENT INTEREST SHORTFALL -- With respect to any mortgage loan with a
prepayment in part or in full the excess, if any, of interest accrued and
otherwise payable on the related mortgage loan over the interest charged to the
borrower (net of servicing and administrative fees and any retained interest of
the company).
PRIMARY INSURANCE COVERED LOSS -- With respect to a mortgage loan covered
by a Primary Insurance Policy, the amount of the related loss covered pursuant
to the terms of the Primary Insurance Policy, which will generally consist of
the unpaid principal amount of the mortgage loan and accrued and unpaid interest
on the mortgage loan and reimbursement of specific expenses, less (1) 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, (2)
hazard insurance proceeds in excess of the amount required to restore the
related mortgaged property and which have not been applied to the payment of the
mortgage loan, (3) amounts expended but not approved by the primary insurer, (4)
claim payments previously made on the mortgage loan and (5) unpaid premiums and
other specific amounts.
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PRIMARY INSURANCE POLICY -- A primary mortgage guaranty insurance policy.
PRIMARY INSURER-- An issuer of a Primary Insurance Policy.
PTCE-- Prohibited Transaction Class Exemption.
QUALIFIED SUBSTITUTE MORTGAGE LOAN -- A mortgage loan substituted for a
Deleted Mortgage Loan, meeting the requirements described under "The Mortgage
Pools-- Representations by Sellers" in this prospectus.
RATING AGENCY -- A "nationally recognized statistical rating organization"
within the meaning of Section 3(a)(41) of the Exchange Act.
REALIZED LOSS -- Any loss on a mortgage loan attributable to the
mortgagor's failure to make any payment of principal or interest as required
under the mortgage note.
RECORD DATE -- The close of business on the last business day of the month
preceding the month in which the applicable distribution date occurs.
RELIEF ACT -- The Soldiers' and Sailors' Civil Relief Act of 1940, as
amended.
REMIC -- A real estate mortgage investment conduit as defined in Sections
860A through 860G of the Code.
REMIC ADMINISTRATOR -- The trustee, the master servicer or another
specified party who administers the related REMIC.
REMIC CERTIFICATES -- Certificates evidencing interests in a trust fund as
to which a REMIC election has been made.
REMIC PROVISIONS -- Sections 860A through 860G of the Code.
REMIC REGULAR CERTIFICATE -- A REMIC Certificate designated as a "regular
interest" in the related REMIC.
REMIC RESIDUAL CERTIFICATE -- A REMIC Certificate designated as a "residual
interest" in the related REMIC.
REMIC REGULATIONS -- The REMIC Provisions and the related Treasury
regulations.
REO MORTGAGE LOAN -- A mortgage loan where title to the related mortgaged
property has been obtained by the trustee or to its nominee on behalf of
securityholders of the related series.
RICO-- The Racketeer Influenced and Corrupt Organizations statute.
SECURITIES ACT -- The Securities Act of 1933, as amended.
SELLER -- The seller of the mortgage loans or mortgage securities included
in a trust fund to the company with respect a series of securities, who shall be
an Affiliated Seller or an Unaffiliated Seller.
134
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SINGLE FAMILY PROPERTY -- An attached or detached one-family dwelling unit,
two- to four-family dwelling unit, condominium, townhouse, row house, individual
unit in a planned-unit development and other individual dwelling units.
SMMEA-- The Secondary Mortgage Market Enhancement Act of 1984.
SPECIAL HAZARD LOSS -- (1) 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 (2) losses from partial
damage caused by reason of the application of the co-insurance clauses contained
in hazard insurance policies.
STRIP SECURITY -- A security which will be entitled to (1) principal
distributions, with disproportionate, nominal or no interest distributions or
(2) interest distributions, with disproportionate, nominal or no principal
distributions.
TAX FAVORED PLANS -- Tax-qualified retirement plans described in Section
401(a) of the Code and on Individual Retirement Accounts described in Section
408 of the Code.
TITLE V -- Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, enacted in March 1980.
TITLE VIII -- Title VIII of the Garn-St Germain Act.
UNAFFILIATED SELLERS -- Banks, savings and loan associations, mortgage
bankers, mortgage brokers, investment banking firms, the Resolution Trust
Corporation, the FDIC and other mortgage loan originators or sellers not
affiliated with the company.
UNITED STATES PERSON -- A citizen or resident of the United States, a
corporation or partnership (including an entity treated as a corporation or
partnership for federal income tax purposes) created or organized in, or under
the laws of, the United States or any state thereof or the District of Columbia
(except, in the case of a partnership, to the extent provided in regulations),
or an estate whose income is subject to United States federal income tax
regardless of its source, or a trust if a court within the United States is able
to exercise primary supervision over the administration of the trust and one or
more United States persons have the authority to control all substantial
decisions of the trust. To the extent prescribed in regulations by the Secretary
of the Treasury, which have not yet been issued, a trust which was in existence
on August 20, 1996 (other than a trust treated as owned by the grantor under
subpart E of part I of subchapter J of chapter 1 of the Code), and which was
treated as a United States person on August 20, 1996 may elect to continue to be
treated as a United States person notwithstanding the previous sentence.
VALUE -- With respect to a mortgaged property securing a single family,
multifamily, commercial or mixed-use loan, the lesser of (x) the appraised value
determined in an appraisal obtained at origination of the mortgage loan, if any,
or, if the related mortgaged property has been appraised subsequent to
origination, the value determined in the subsequent appraisal and (y) the sales
price for the related mortgaged property (except in circumstances in which there
has been a subsequent appraisal). However, in the case of refinanced, modified
or converted single family, multifamily, commercial or mixed-use loans, 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 mortgaged 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
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<PAGE>
the sales price of the related mortgaged property plus the added value of any
improvements. With respect 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, 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. 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.
136
<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.
Subject to Completion, Dated March 21, 2000
[Version 1]
Prospectus Supplement
(To Prospectus dated , ____)
$_______________ (Approximate)
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES ____-__
IMPAC FUNDING CORPORATION
MASTER SERVICER
IMPAC SECURED ASSETS CORP.
COMPANY
- --------------------------------------------------------------------------------
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-__ IN THIS
PROSPECTUS SUPPLEMENT.
- --------------------------------------------------------------------------------
THE TRUST --
The trust will consist primarily of a mortgage pool of one- to
four-family [fixed-rate] residential mortgage loans. The trust will be
represented by ______ classes of certificates, ______ of which are offered under
this prospectus supplement.
CREDIT ENHANCEMENT --
o the offered certificates will have credit enhancement in the form
of subordination.
The price to investors will vary from time to time and will be determined at the
time of sale. The proceeds to the company from the offering will be ___% of the
aggregate principal balance of the offered certificates, less expenses equal to
$_______. See "Method of Distribution" in this prospectus supplement.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS 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.
[NAME OF UNDERWRITER]
Underwriter
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
We provide information to you about the offered certificates in two separate
documents that progressively provide more detail:
o the accompanying prospectus, which provides general information,
some of which may not apply to this series of certificates; and
o this prospectus supplement, which describes the specific terms of
this series of certificates.
The Company's principal offices are located at 1401 Dove Street, Newport Beach,
CA 92660 and its phone number is (949) 475-3600.
TABLE OF CONTENTS
PAGE
PROSPECTUS SUPPLEMENT
Summary of Prospectus Supplement...................................S-__
Risk Factors.......................................................S-__
Use of Proceeds....................................................S-__
The Mortgage Pool..................................................S-__
Yield on the Certificates..........................................S-__
Description of the Certificates....................................S-__
Pooling and Servicing Agreement....................................S-__
Federal Income Tax Consequences....................................S-__
Method of Distribution.............................................S-__
Secondary Market...................................................S-__
Legal Opinions.....................................................S-__
Ratings ..........................................................S-__
Legal Investment...................................................S-__
ERISA Considerations...............................................S-__
S-2
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
THE FOLLOWING SUMMARY IS A VERY BROAD OVERVIEW OF THE OFFERED
CERTIFICATES AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD
CONSIDER IN MAKING YOUR INVESTMENT DECISION. TO UNDERSTAND ALL OF THE TERMS OF
THE OFFERED CERTIFICATES, READ CAREFULLY THIS ENTIRE PROSPECTUS SUPPLEMENT AND
THE ENTIRE ACCOMPANYING PROSPECTUS. A GLOSSARY IS INCLUDED AT THE END OF THIS
PROSPECTUS SUPPLEMENT. CAPITALIZED TERMS USED BUT NOT DEFINED IN THE GLOSSARY AT
THE END OF THIS PROSPECTUS SUPPLEMENT HAVE THE MEANINGS ASSIGNED TO THEM IN THE
GLOSSARY AT THE END OF THE PROSPECTUS.
<TABLE>
<CAPTION>
<S> <C>
Title of Series.............................Impac Secured Assets Corp., Mortgage Pass-Through Certificates,
Series ____-_.
Cut-off Date................................__________ __, ____.
Closing Date................................On or about __________ __, ____.
Company.....................................Impac Secured Assets Corp., an affiliate of Impac Funding
Corporation.
Seller......................................[Name of Seller].
Originator..................................[Name of Originator].
Master Servicer.............................Impac Funding Corporation.
Trustee.....................................[Name of Trustee].
Distribution Dates..........................Distributions on the offered certificates will be made on the ___
day of each month, or, if the day is not a business day, on the next
succeeding business day, beginning in ______ ____.
Offered Certificates........................The classes of offered certificates and their pass-through rates and
certificate principal balances or notional amounts are set forth in
the table below.
</TABLE>
S-3
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================================
INITIAL CERTIFICATE PASS-THROUGH INITIAL CERTIFICATE PASS-THROUGH
CLASS PRINCIPAL BALANCE(1) RATE CLASS PRINCIPAL BALANCE(1) RATE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
A-1............ $_________ ____% XS. . . . . $__________(2) Variable(3)
A-2............ $_________ ____% B-1. . . . . $__________ ____%
A-3............ $_________ ____% B-2. . . . . $__________ ____%
A-4............ $_________ ____% B-3. . . . . $__________ ____%
A-5............ $_________ ____% R. . . . . . $ 100 ____%
A-6............ $_________ ____%
======================================================================================================================
</TABLE>
- ----------------------
(1) Approximate.
(2) Approximate initial notional amount.
(3) Calculated as described in this prospectus supplement.
THE TRUST
The company will establish a trust with respect to the Series ____-_
Certificates, pursuant to a pooling and servicing agreement dated as of
__________ __, ____ among the company, the master servicer and the trustee.
There are _____ classes of certificates representing the trust. See "Description
of the Certificates" in this prospectus supplement.
The certificates represent in the aggregate the entire beneficial ownership
interest in the trust. Distributions of interest and/or principal on the offered
certificates will be made only from payments received in connection with the
mortgage loans described below.
THE MORTGAGE LOANS
The trust will contain approximately _____ conventional, one- to four-family,
[fixed-rate] mortgage loans secured by first liens on residential real
properties. The mortgage loans have an aggregate principal balance of
approximately $__________ as of _________
- -- ----.
The mortgage loans have original terms to maturity of not greater than [30]
years and the following characteristics as of __________ __,
- ----.
Range of mortgage rates _____% to _____%.
(approximate):
Weighted average mortgage ______%.
rate
(approximate):
Weighted average remaining ___ years and ___
term to stated maturity months.
(approximate):
Range of principal balances $__________ to
(approximate): $____________.
Average principal balance: $_____________.
Range of loan-to-value ratios _____% to _____%.
(approximate):
Weighted average
loan-to-value
ratio (approximate): ______%.
Approximately ___% of the mortgage loans are "sub-prime" mortgage loans.
For additional information regarding the mortgage loans, see "The Mortgage Pool"
in this prospectus supplement.
THE CERTIFICATES
OFFERED CERTIFICATES. The offered certificates will have the characteristics
shown in the table above in this prospectus supplement. The pass-through rates
on each class of offered certificates (other than the Class XS Certificates) are
fixed and shown in the table above.
The pass-through rate on the Class XS Certificates is variable. Investors in the
Class XS Certificates should fully consider the risk that a rapid rate of
S-4
<PAGE>
prepayments on the mortgage loans that have net mortgage rates higher than ____%
could result in the failure of these investors to fully recover their
investments.
[The Class PO Certificates are not entitled to interest payments and their yield
is extremely sensitive to the rate of prepayments on the mortgage loans.]
CREDIT ENHANCEMENT
The credit enhancement provided for the benefit of the holders of the offered
certificates consists of subordination as described under "Description of the
Certificates--Allocation of Losses; Subordination" in this prospectus
supplement.
OPTIONAL TERMINATION
At its option, the master servicer may purchase all of the mortgage loans,
together with any properties in respect thereof acquired on behalf of the trust,
and thereby effect termination and early retirement of the certificates, after
the aggregate principal balance of the mortgage loans (and properties acquired
in respect thereof) remaining in the trust has been reduced to less than [10%]
of the aggregate principal balance of the mortgage loans as of __________ __,
____. See "Pooling and Servicing Agreement-- Termination" in this prospectus
supplement.
FEDERAL INCOME TAX CONSEQUENCES
An election will be made to treat the trust as a real estate mortgage investment
conduit for federal income tax purposes. See "Federal Income Tax Consequences"
in this prospectus supplement.
RATINGS
It is a condition to the issuance of the
certificates that the offered certificates receive
the following ratings from [______________
and ___________]:
OFFERED
CERTIFICATES [RA] [RA]
Class A-1 AAA AAA
through Class
A-7
Class XS AAA AAA[r]
Class B-1 AA AA
Class B-2 A A
Class B-3 BBB BBB
Class R AAA AAA
- ---------------------
[(1) Not rated.]
[The "r" symbol in some of the ratings is attached to highlight certificates
that __________ believes may experience high volatility or high variability in
expected returns due to non-credit risks. The absence of an "r" symbol should
not be taken as an indication that a certificate will exhibit no volatility or
variability in total return.]
See "Yield on the Certificates" and "Ratings" in this prospectus supplement and
"Yield Considerations" in the prospectus.
LEGAL INVESTMENT
The offered certificates (other than the Class ___ and Class ___ Certificates)
will constitute "mortgage related securities" for purposes of SMMEA. The Class
___ Certificates and the Class ___ Certificates will not constitute "mortgage
related securities" for purposes of SMMEA. See "Legal Investment" in this
prospectus supplement and in the prospectus.
ERISA CONSIDERATIONS
The U.S. Department of Labor has issued an individual exemption, Prohibited
Transaction Exemption __-__, to the underwriter.
The exemption will only apply to the Class A Certificates and the Class XS
Certificates. Accordingly, the other classes of certificates may not be acquired
by or on behalf of a plan except as described in this prospectus supplement. See
S-5
<PAGE>
"ERISA Considerations" in this prospectus supplement and in the prospectus.
S-6
<PAGE>
RISK FACTORS
You should carefully consider, among other things, the following factors in
connection with the purchase of the offered certificates:
[Appropriate risk factors from the following list as necessary]
THE OFFERED CERTIFICATES WILL HAVE LIMITED LIQUIDITY, SO YOU MAY BE UNABLE TO
SELL YOUR SECURITIES OR MAY BE FORCED TO SELL THEM AT A DISCOUNT FROM THEIR FAIR
MARKET VALUE
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 offered 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 the
offered certificates, however no underwriter will be obligated to do so. As a
result, any resale prices that may be available for any offered certificate in
any market that may develop may be at a discount from the initial offering price
or the fair market value thereof. The offered certificates will not be listed on
any securities exchange.
CREDIT ENHANCEMENT IS LIMITED; THE FAILURE OF CREDIT ENHANCEMENT TO COVER LOSSES
ON THE TRUST FUND ASSETS MAY RESULT IN LOSSES ALLOCATED TO THE OFFERED
CERTIFICATES
With respect to the offered certificates, credit enhancement will be
provided in limited amounts to cover various types of losses on the underlying
mortgage loans. Credit enhancement will be provided in one or more of the forms
referred to in this prospectus supplement, including: subordination of any
subordinate securities of the same series; a financial guaranty insurance
policy; a letter of credit; a purchase obligation; a mortgage pool insurance
policy; a special hazard insurance policy; overcollateralization; a reserve
fund; a cash flow agreement; or any combination thereof. See "Subordination" and
"Description of Credit Enhancement" in the prospectus. 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, credit enhancement may provide only very
limited coverage as to some types of losses or risks, and may provide no
coverage as to 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, they will be borne by the holders of
the related offered certificates in the order described in this prospectus
supplement. 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 offered certificates, if each
applicable rating agency indicates that the then-current rating(s) thereof will
not be adversely affected. The ratings of any series of offered certificates by
any applicable rating agencies 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 the rating agencies at the time of their
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 offered certificates. See "Description of Credit
Enhancement--Reduction or Substitution of Credit Enhancement" in the prospectus.
THE RATINGS ON THE OFFERED CERTIFICATES ARE NOT A RECOMMENDATION TO BUY, SELL OR
HOLD THE OFFERED CERTIFICATES AND ARE SUBJECT TO WITHDRAWAL AT ANY TIME, WHICH
MAY RESULT IN LOSSES ON THE OFFERED CERTIFICATES
S-7
<PAGE>
It is a condition to the issuance of the offered certificates that each
class of offered 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 offered certificate, and, accordingly, there can be
no assurance that the ratings assigned to any offered certificate on the date on
which the offered certificates are initially 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 offered
certificates may be adversely affected. See "Rating" in this prospectus
supplement and in the prospectus.
STATUTORY AND JUDICIAL LIMITATIONS ON FORECLOSURE PROCEDURES MAY DELAY RECOVERY
IN RESPECT OF THE MORTGAGED PROPERTY AND, IN SOME INSTANCES, LIMIT THE AMOUNT
THAT MAY BE RECOVERED BY THE FORECLOSING LENDER, RESULTING IN LOSSES ON THE
MORTGAGE LOANS THAT MIGHT BE ALLOCATED TO THE OFFERED CERTIFICATES
Foreclosure procedures may vary from state to state. Two primary methods of
foreclosing a mortgage instrument are judicial foreclosure, involving court
proceedings, and non-judicial foreclosure pursuant to a power of sale granted in
the mortgage instrument. A foreclosure action is subject to most of the delays
and expenses of other lawsuits if defenses are raised or counterclaims are
asserted. Delays may also result from difficulties in locating necessary
defendants. Non-judicial foreclosures may be subject to delays resulting from
state laws mandating the recording of notice of default and notice of sale and,
in some states, notice to any party having an interest of record in the real
property, including junior lienholders. Some states have adopted
"anti-deficiency" statutes that limit the ability of a lender to collect the
full amount owed on a loan if the property sells at foreclosure for less than
the full amount owed. In addition, United States courts have traditionally
imposed general equitable principles to limit the remedies available to lenders
in foreclosure actions that are perceived by the court as harsh or unfair. The
effect of these statutes and judicial principles may be to delay and/or reduce
distributions in respect of the offered certificates. See "Legal Aspects of
Mortgage Loans--Foreclosure on Mortgage Loans" in the prospectus.
THE VALUE OF THE MORTGAGE LOANS MAY BE AFFECTED BY, AMONG OTHER THINGS, A
DECLINE IN REAL ESTATE VALUES AND CHANGES IN THE BORROWERS' FINANCIAL CONDITION,
WHICH MAY RESULT IN LOSSES ON THE OFFERED CERTIFICATES.
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 so that the outstanding balances of the
mortgage loans, and any secondary financing on the mortgaged properties, in a
particular mortgage pool become equal to or greater than the value of the
mortgaged properties, the actual rates of delinquencies, foreclosures and losses
could be higher than those now generally experienced in the mortgage lending
industry. In particular, mortgage loans with high loan-to-value ratios will be
affected by any decline in real estate values. Any decrease in the value of the
mortgage loans may result in the allocation of losses which are not covered by
credit enhancement to the offered certificates.
THE MORTGAGE LOANS WERE UNDERWRITTEN TO NON-CONFORMING UNDERWRITING STANDARDS,
WHICH MAY RESULT IN LOSSES ON THE MORTGAGE LOANS ALLOCATED TO THE OFFERED
CERTIFICATES
Some mortgage loans may be underwritten in accordance with underwriting
standards which are primarily intended to provide single family mortgage loans
for non-conforming credits. A "non-conforming credit" means a mortgage loan
which is ineligible for purchase by Fannie Mae or Freddie Mac due to credit
characteristics that do not meet the Fannie Mae or Freddie Mac underwriting
guidelines, including mortgagors whose creditworthiness and repayment ability do
not satisfy these underwriting guidelines and
S-8
<PAGE>
mortgagors who may have a record of credit write-offs, outstanding judgments,
prior bankruptcies and other credit items that do not satisfy these underwriting
guidelines. Accordingly, mortgage loans underwritten under the originators'
non-conforming credit underwriting standards are likely to experience rates of
delinquency, foreclosure and loss that are higher, and may be substantially
higher, than mortgage loans originated in accordance with the Fannie Mae or
Freddie Mac underwriting guidelines. Any resulting losses, to the extent not
covered by credit enhancement, may affect the yield to maturity of the offered
certificates.
THE MORTGAGE LOANS HAVE VARIABLE PAYMENTS, WHICH MAY RESULT IN LOSSES WITH
RESPECT TO THESE MORTGAGE LOANS
Some of the types of loans included in the mortgage pool may involve
additional uncertainties not present in traditional types of 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 these
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. In the case of buydown loans, the increase in the monthly payment by
the mortgagor during and following the buydown period may result in an increased
risk of default on a buydown loan. Some of the mortgage loans provide for
escalating or variable payments by the mortgagor, as to which the mortgagor is
generally qualified on the basis of the initial payment amount. In some
instances, mortgagors may not be able to make their loan payments as payments
increase and thus the likelihood of default will increase.
This is a consideration with respect to revolving credit loans, since
additional draws may be made by the mortgagor in the future up to the applicable
credit limit. Although revolving credit loans are generally subject to
provisions whereby the credit limit may be reduced as a result of a material
adverse change in the mortgagor's economic circumstances, the servicer or master
servicer generally will not monitor for these changes and may not become aware
of them until after the mortgagor has defaulted. Under extreme circumstances, a
mortgagor may draw his entire credit limit in response to personal financial
needs resulting from an adverse change in circumstances. For a series of offered
certificates backed by the trust balances of revolving credit loans, even though
the trust balance of a revolving credit loan will not increase as a result of
draws after the offered certificates are issued, the foregoing considerations
are relevant because the trust balance will share pro rata in any losses
incurred on a revolving credit loan.
Any risks associated with the variable payments of the mortgage loans may
affect the yield to maturity of the offered certificates to the extent of losses
caused by these risks which are not covered by credit enhancement are allocated
to the offered certificates.
THE MORTGAGE LOANS ARE SECURED BY JUNIOR LIENS, WHICH MAY RESULT IN LOSSES WITH
RESPECT TO THESE MORTGAGE LOANS
The mortgage loan are secured by second liens on the related mortgaged
properties. As to mortgage loans secured by second mortgages, the proceeds from
any liquidation, insurance or condemnation proceedings will be available to
satisfy the outstanding balance of these mortgage loans only to the extent that
the claims of the senior mortgages have been satisfied in full, including any
related foreclosure costs. In addition, the holder of a mortgage loan secured by
a junior mortgage may not foreclose on the mortgaged property unless it
forecloses subject to the senior mortgages, in which case it must either pay the
entire amount due on the senior mortgages to the senior mortgagees at or prior
to the foreclosure sale or undertake the obligation to make payments on the
senior mortgages in the event the mortgagor is in default. The trust fund will
not have any source of funds to satisfy the senior mortgages or make payments
due to the senior mortgagees, although the master servicer or subservicer may,
at its option, advance these amounts to the extent deemed recoverable and
prudent. In the event that proceeds from a foreclosure or similar sale of the
S-9
<PAGE>
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 offered
certificates, to the extent not covered by credit enhancement, are likely to (1)
incur losses in jurisdictions in which a deficiency judgment against the
borrower is not available, and (2) incur losses if any deficiency judgment
obtained is not realized upon. In addition, the rate of default of second
mortgage loans may be greater than that of mortgage loans secured by first liens
on comparable properties.
THE MORTGAGE LOANS ARE CONCENTRATED IN THE STATE OF [NAME OF STATE], WHICH MAY
RESULT IN LOSSES WITH RESPECT TO THESE MORTGAGE LOANS
Approximately ___% of the mortgage loans are in the state of [Name of
State.] Investors should note that some 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 securing the offered
certificates may be concentrated in these regions, and any concentration may
present risk considerations in addition to those generally present for similar
mortgage-backed securities without this concentration. Moreover, as described
below, any mortgage loan for which a breach of a representation or warranty
exists will remain in the related trust fund in the event that a seller is
unable, or disputes its obligation, to repurchase the mortgage loan and the
breach does not also constitute a breach of any representation made by any other
person. In this event, any resulting losses will be borne by the related form of
credit enhancement, to the extent available. Any risks associated with mortgage
loan concentration may affect the yield to maturity of the offered certificates
to the extent losses caused by these risks which are not covered by [credit
enhancement] are allocated to the offered certificates.
SOME OF THE MORTGAGE LOANS PROVIDE FOR BALLOON PAYMENTS AT MATURITY, WHICH MAY
RESULT IN A GREATER RISK OF LOSS WITH RESPECT TO THESE MORTGAGE LOANS
Approximately ___% of the mortgage loans are balloon loans. These mortgage
loans 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. Any risks associated with the balloon loans may affect the
yield to maturity of the offered certificates to the extent losses caused by
these risks which are not covered by credit enhancement are allocated to the
offered certificates.
THE MORTGAGE LOANS MAY HAVE LIMITED RECOURSE TO THE RELATED BORROWER, WHICH MAY
RESULT IN LOSSES WITH RESPECT TO THESE MORTGAGE LOANS
Some or all of the mortgage loans included in the trust fund 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
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mortgagor and its assets generally, there can be no assurance that enforcement
of the 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. Any risks associated with mortgage loans with no or limited recourse
may affect the yield to maturity of the offered certificates to the extent
losses caused by these risks which are not covered by credit enhancement are
allocated to the offered certificates.
THE MORTGAGE LOANS HAVE HIGH COMBINED LOAN-TO-VALUE RATIOS, SO THAT THE RELATED
BORROWER HAS LITTLE OR NO EQUITY IN THE RELATED MORTGAGED PROPERTY, WHICH MAY
RESULT IN LOSSES WITH RESPECT TO THESE MORTGAGE LOANS
The mortgage loans have combined loan-to-value ratios in excess of 100%.
These mortgage loans were originated with a limited expectation of recovering
any amounts from the foreclosure of the related mortgaged property and are
underwritten with an emphasis on the creditworthiness of the related borrower.
If these mortgage loans go into foreclosure and are liquidated, there may
be no amounts recovered from the related mortgaged property because the value of
the collateral with respect to such mortgage loan may be less than the amount of
the mortgage loan. Unless the value of the property increases or the principal
amount of the related senior liens have been reduced so as to reduce the current
combined loan-to-value ratio of the related mortgage loan to below 100%, there
may be no recovery from the related mortgaged property in the event of
foreclosure. Any resulting losses, to the extent not covered by credit
enhancement, may affect the yield to maturity of the offered certificates.
THE MORTGAGE LOANS PROVIDE FOR REVOLVING LINES OF CREDIT, WHICH MAY RESULT IN
LOSSES WITH RESPECT TO THESE MORTGAGE LOANS
With respect to revolving credit loans, except for some programs under
which the draw period is less than the full term thereof, required minimum
monthly payments are generally equal to or not significantly larger than the
amount of interest currently accruing on its balance, and therefore are not
expected to significantly amortize the outstanding principal amount of these
mortgage loans prior to maturity, which amount may include substantial draws
recently made. As a result, a borrower will generally be required to pay a
substantial principal amount at the maturity of a revolving credit loan. The
ability of a borrower to make this payment may be dependent on the ability to
obtain refinancing of the balance due on the revolving credit loan or to sell
the related mortgaged property. Furthermore, revolving credit loans generally
have adjustable rates that are subject to much higher maximum rates than
typically apply to adjustable rate first mortgage loans, and which may be as
high as applicable usury limitations. Mortgagors under revolving credit loans
are generally qualified based on an assumed payment which reflects either the
initial interest rate or a rate significantly lower than the maximum rate. An
increase in the interest rate over the mortgage rate applicable at the time the
revolving credit loan was originated may have an adverse effect on the ability
of the mortgagor to pay the required monthly payment. In addition, an increase
in prevailing market interest rates may reduce the borrower's ability to obtain
refinancing and to pay the balance of a revolving credit loan at its maturity.
VIOLATION OF VARIOUS FEDERAL AND STATE LAWS MAY RESULT IN LOSSES ON THE MORTGAGE
LOANS
Applicable federal and state laws generally regulate interest rates and
other charges, require specific disclosures, prohibit unfair and deceptive
practices, regulate debt collection, and require licensing of the originators of
the mortgage loans and contracts. Depending on the provisions of the applicable
law and the specified facts and circumstances involved, violations of those
laws, policies and principles may limit the ability to collect all or part of
the principal of or interest on the mortgage loans and may entitle the borrower
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to a refund of amounts previously paid. See "Legal Aspects of Mortgage Loans" in
the prospectus. To the extent these laws and regulations result in losses on the
mortgage loans, the yield to maturity of the offered certificates, to the extent
not covered by credit enhancement, may be affected.
THE RATE OF PREPAYMENTS ON THE TRUST FUND ASSETS AND THE PURCHASE PRICE YOU PAID
FOR THE OFFERED CERTIFICATES MAY CAUSE YOUR YIELD TO BE LOWER THAN ANTICIPATED
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 adjustable rate loans to fixed interest rate loans or breaches of
representations and warranties), or draws (if applicable) on the related
mortgage loans and the price paid by offered certificateholders. The yield may
be adversely affected by a higher or lower than anticipated rate of prepayments
(or draws if applicable) on the related mortgage loans. The yield to maturity on
interest only offered certificates will be extremely sensitive to the rate of
prepayments (or draws if applicable) on the related mortgage loans. In addition,
the yield to maturity on other types of classes of offered certificates,
including offered certificates with an accrual feature, offered certificates
with an interest rate which fluctuates based on an index or inversely with an
index or other classes in a series including more than one class of offered
certificates, may be relatively more sensitive to the rate of prepayment (or
draws if applicable) on the related mortgage loans than other classes of offered
certificates. In addition, to the extent amounts in any funding account have not
been used to purchase additional mortgage loans, holders of the offered
certificates may receive an additional prepayment. Prepayments are influenced by
a number of factors, including prevailing mortgage market interest rates, local
and regional economic conditions and homeowner mobility. See "Yield
Considerations" and "Maturity and Prepayment Considerations" in the prospectus.
[THE RATE AND TIMING OF PRINCIPAL DISTRIBUTIONS ON THE OFFERED CERTIFICATES WILL
BE AFFECTED BY PREPAYMENT SPEEDS
The rate and timing of distributions allocable to principal on the Class A
Certificates will depend, in general, on the rate and timing of principal
payments (including prepayments and collections upon defaults, liquidations and
repurchases) on the mortgage loans and the allocation thereof to pay principal
on these certificates as provided in this prospectus supplement. The rate and
timing of distributions allocable to principal on the other classes of offered
certificates, other than the Class XS Certificates, will depend in general, on
the rate and timing of principal payments (including prepayments and collections
upon defaults, liquidations and repurchases) on all of the mortgage loans and
the allocation thereof to pay principal on these certificates as provided in
this prospectus supplement. As is the case with mortgage pass-through
certificates generally, the offered certificates are subject to substantial
inherent cash-flow uncertainties because the mortgage loans may be prepaid at
any time. However, with respect to approximately _____% of the mortgage loans,
by aggregate principal balance as of ________ __, ____, a prepayment may subject
the related mortgagor to a prepayment charge, which may act as a deterrent to
prepayment of the mortgage loan. See "The Mortgage Pool" in this prospectus
supplement.
Generally, when prevailing interest rates are increasing, prepayment rates
on mortgage loans tend to decrease. A decrease in the prepayment rates on the
mortgage loans will result in a reduced rate of return of principal to investors
in the Class A Certificates at a time when reinvestment at higher prevailing
rates would be desirable. A decrease in the prepayment rates on all of the
mortgage loans will result in a reduced rate of return of principal to investors
in the other classes of offered certificates, other than the Class XS
Certificates, at a time when reinvestment at higher prevailing rates would be
desirable.
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Conversely, when prevailing interest rates are declining, prepayment rates
on mortgage loans tend to increase. An increase in the prepayment rates on the
mortgage loans will result in a greater rate of return of principal to investors
in the related Class A Certificates, at time when reinvestment at comparable
yields may not be possible. An increase in the prepayment rates on all of the
mortgage loans will result in a greater rate of return of principal to investors
in the other classes of offered certificates, other than the Class XS
Certificates, at a time when reinvestment at comparable yields may not be
possible.
Prior to the distribution date in _______ ____, the subordinate
certificates will be entitled to receive distributions allocable to principal
based on a disproportionately small percentage of principal prepayments on the
mortgage loans, and the Class A Certificates will be entitled to receive
distributions allocable to principal based on a disproportionately large
percentage (which may be 100%) of principal prepayments on the mortgage loans.
To the extent that no principal prepayments or a disproportionately small
percentage of prepayments are distributed on the subordinate certificates, the
subordination afforded to the Class A Certificates, in the absence of losses
allocated to the Class A Certificates, will be increased.
For further information regarding the effect of principal prepayments on
the weighted average lives of the offered certificates, see "Yield on the
Certificates" in this prospectus supplement, including the table entitled
"Percent of Initial Certificate Principal Balance Outstanding at the Following
Percentages of the Prepayment Assumption" in this prospectus supplement].
THE MORTGAGE LOANS MAY HAVE ENVIRONMENTAL RISKS, WHICH MAY RESULT IN INCREASED
LOSSES WITH RESPECT TO THESE MORTGAGE LOANS
To the extent the master servicer for a mortgage loan acquires title to any
related mortgaged property with contaminated with or affected by hazardous
wastes or hazardous substances, these mortgage loans may incur losses. See
"Servicing of Mortgage Loans--Realization Upon or Sale of Defaulted Mortgage
Loans" and "Legal Aspects of Mortgage Loans--Environmental Legislation" in the
prospectus To the extent these environmental risks result in losses on the
mortgage loans, the yield to maturity of the offered certificates, to the extent
not covered by credit enhancement, may be affected.
THE [CLASS ___ CERTIFICATES] ARE ERISA-RESTRICTED, WHICH BY RESTRICTING THE
MARKET, MAY AFFECT THE LIQUIDITY OF THE OFFERED CERTIFICATES
Generally, ERISA applies to investments made by employee benefit plans and
transactions involving the assets of plans. Due to the complexity of regulations
that govern these 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" in this prospectus supplement and in the
prospectus.
[SOME MORTGAGE LOANS ARE DELINQUENT AS OF THE CUT-OFF DATE, WHICH MAY PRESENT A
GREATER RISK OF LOSS WITH RESPECT TO THESE MORTGAGE LOANS
Approximately ____% of the mortgage loans, by aggregate principal balance
as of ________ __, ____, were thirty days or more but less than sixty days
delinquent in their monthly payments as of _______ __, ____. Approximately ____%
of the mortgage loans, by aggregate principal balance as of ________ __, ____,
were sixty days or more but less than ninety days delinquent in their monthly
payments as of the _________ __, ____. However, investors in the mortgage loans
should realize that approximately _____% of the mortgage loans, by aggregate
principal balance as of ________ __, ____, have a first payment date occurring
on or after _________ __, ____ and, therefore, these mortgage loans could not
have been delinquent as of _______ __, ____].
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[THE YIELD TO MATURITY ON THE OFFERED CERTIFICATES WILL DEPEND ON A VARIETY OF
FACTORS
The yield to maturity on the offered certificates, particularly the Class
XS Certificates, will depend, in general, on:
o the applicable purchase price; and
o the rate and timing of principal payments (including prepayments and
collections upon defaults, liquidations and repurchases) on the related
mortgage loans and the allocation thereof to reduce the certificate
principal balance or notional amount of the offered certificates, as
well as other factors.
The yield to investors on the offered certificates will be adversely
affected by any allocation thereto of interest shortfalls on the mortgage loans.
In general, if the offered certificates, other than the Class XS
Certificates, are purchased at a premium and principal distributions 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 the offered certificates, other than the Class XS Certificates,
are purchased at a discount and principal distributions occur at a rate slower
than that anticipated at the time of purchase, the investor's actual yield to
maturity will be lower than that originally assumed.
The proceeds to the company from the sale of the offered certificates were
determined based on a number of assumptions, including a prepayment assumption
of ____% of the standard prepayment assumption, and weighted average lives
corresponding thereto. No representation is made that the mortgage loans will
prepay at this rate or at any other rate, or that the mortgage loans will prepay
at the same rate. The yield assumptions for the offered certificates will vary
as determined at the time of sale. See "Yield on the Certificates" in this
prospectus supplement].
[THE MULTIPLE CLASS STRUCTURE OF THE OFFERED CERTIFICATES CAUSES THE YIELD OF
SOME CLASSES TO BE PARTICULARLY SENSITIVE TO CHANGES IN THE RATES OF PREPAYMENT
OF THE RELATED MORTGAGE LOANS AND OTHER FACTORS
CLASS XS CERTIFICATES: The Class XS Certificates will receive a portion of
the interest payments ONLY from mortgage loans that have net mortgage rates
higher than ____%. Therefore, the yield on the Class XS Certificates will be
extremely sensitive to the rate and timing of principal prepayments and defaults
on the mortgage loans. Investors in the Class XS Certificates should be aware
that mortgage loans with higher mortgage rates may prepay faster than mortgage
loans with lower mortgage rates. If the mortgage loans that have net mortgage
rates higher than ____% are prepaid at a rate faster than an investor assumed at
the time of purchase, the yield to investors in the Class XS Certificates will
be adversely affected. Investors in the Class XS Certificates should fully
consider the risk that a rapid rate of prepayments on the mortgage loans that
have net mortgage rates higher than ____% could result in the failure of these
investors to fully recover their investments.
[CLASS PO CERTIFICATES: The Class PO Certificates are extremely sensitive
to the rate of prepayments on the mortgage loans. A slower than expected rate of
principal prepayments may result in a negative yield to investors in the Class
PO Certificates.]
SUBORDINATE CERTIFICATES: The weighted average lives of, and the yield to
maturity on, the Class B-1 Certificates, the Class B-2 Certificates and the
Class B-3 Certificates will be progressively more sensitive, in increasing order
of their numerical class designations, to losses due to defaults on the mortgage
loans (and
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the timing thereof), to the extent these losses are not covered by subordinate
certificates with a higher numerical class designation (including covered by the
Class B-4, Class B-5 and Class B-6 Certificates which are not offered by this
prospectus supplement). Furthermore, as described in this prospectus supplement,
the timing of receipt of principal and interest by any class of subordinate
certificates may be adversely affected by losses even if this class does not
ultimately bear this loss].
[THE RESIDUAL CERTIFICATES WILL RECEIVE LIMITED DISTRIBUTIONS OF PRINCIPAL AND
INTEREST AND MAY HAVE SIGNIFICANT TAX LIABILITIES
Holders of the Class R Certificates are entitled to receive distributions
of principal and interest as described in this prospectus supplement, but the
holders of the Class R Certificates are not expected to receive any
distributions after the first distribution date. In addition, holders of the
Class R Certificates will have tax liabilities with respect to their
certificates during the early years of the term of the trust that substantially
exceed the principal and interest payable during or prior to that time. See
"Federal Income Tax Consequences" below and in the prospectus and "Yield on the
Certificates--Additional Yield Considerations Applicable Solely to the Residual
Certificates" in this prospectus supplement].
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[VIOLATION OF VARIOUS FEDERAL AND STATE LAWS MAY RESULT IN LOSSES ON THE
MORTGAGE LOANS
Applicable state laws generally regulate interest rates and other charges,
require specific disclosure, and require licensing of the originator. In
addition, other state laws, public policy and general principles of equity
relating to the protection of consumers, unfair and deceptive practices and debt
collection practices may apply to the origination, servicing and collection of
the mortgage loans.
The mortgage loans are also subject to federal laws, including:
o the Federal Truth-in-Lending Act and Regulation Z promulgated
thereunder, which require specific disclosures to the borrowers
regarding the terms of the mortgage loans;
o the Equal Credit Opportunity Act and Regulation B promulgated
thereunder, which prohibit discrimination on the basis of age,
race, color, sex, religion, marital status, national origin,
receipt of public assistance or the exercise of any right under
the Consumer Credit Protection Act, in the extension of credit;
and
o the Fair Credit Reporting Act, which regulates the use and
reporting of information related to the borrower's credit
experience.
Depending on the provisions of the applicable law and the specific facts
and circumstances involved, violations of these federal or state laws, policies
and principles may limit the ability of the trust to collect all or part of the
principal of or interest on the mortgage loans, may entitle the borrower to a
refund of amounts previously paid and, in addition, could subject the originator
to damages and administrative enforcement.
The originator will represent that as of the closing date, each mortgage
loan is in compliance with applicable federal and state laws and regulations. In
the event of a breach of this representation, it will be obligated to cure the
breach or repurchase or replace the affected mortgage loan in the manner
described in the prospectus].
[YEAR 2000 SYSTEMS RISK COULD AFFECT THE ABILITY OF THE MASTER SERVICER TO
PERFORM ITS DUTIES
As is the case with most companies using computers in their operations, the
master servicer is faced with the task of completing its compliance goals in
connection with the year 2000 issue. The year 2000 issue is the result of prior
computer programs being written using two digits, rather than four digits, to
define the applicable year. Any of the master servicer's computer programs that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. Any failure to recognize the correct date could
result in major computer system failure or miscalculations. The master servicer
is presently engaged in various procedures to ensure that its computer systems
and software will be year 2000 compliant. However, in the event that the master
servicer, or any of its suppliers, customers, brokers or agents do not
successfully and timely achieve year 2000 compliance, the performance of
obligations of the master servicer under the pooling and servicing agreement
could be materially adversely affected].
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THE MORTGAGE POOL
GENERAL
References to percentages of the mortgage loans unless otherwise noted are
calculated based on the aggregate principal balance of the mortgage loans as of
the Cut-off Date.
The mortgage pool will consist of approximately _____ conventional, one- to
four-family, [fixed-rate,] fully-amortizing mortgage loans secured by first
liens on mortgaged properties and having an aggregate principal balance as of
the Cut-off Date of approximately $___________, after application of scheduled
payments due on or before the Cut-off Date whether or not received and subject
to a permitted variance of plus or minus __%. The mortgage loans have original
terms to maturity of not greater than [30] years.
The mortgage loans are secured by first mortgages or deeds of trust or
other similar security instruments creating first liens on one- to four-family
residential properties consisting of one- to four-family dwelling units,
townhouses, individual condominium units and individual units in planned unit
developments. The mortgage loans to be included in the mortgage pool will be
acquired by the company from the Originator. See "--Underwriting Standards;
Representations" in this prospectus supplement. The Originator will act as the
Master Servicer for the mortgage loans originated by it pursuant to the
Agreement.
All of the mortgage loans have scheduled monthly payments due on the Due
Date. Each mortgage loan will contain a customary "due-on-sale" clause.
Approximately _____% of the mortgage loans provide for payment by the
mortgagor of a prepayment charge in limited circumstances on prepayments.
Generally, these mortgage loans provide for payment of a prepayment charge on
partial or full prepayments made within one year, five years or other period as
provided in the related mortgage note from the date of origination of the
mortgage loan. The amount of the prepayment charge is as provided in the related
mortgage note, and the prepayment charge will generally apply if, in any
twelve-month period during the first year, five years or other period as
provided in the related mortgage note from the date of origination of the
mortgage loan, the Mortgagor prepays an aggregate amount exceeding __% of the
original principal balance of the mortgage loan. With respect to _____% of the
mortgage loans, the amount of the prepayment charge will generally be equal to
___ months' advance interest calculated on the basis of the mortgage rate in
effect at the time of the prepayment on the amount prepaid in excess of __% of
the original principal balance of the mortgage loan for a period of five years
and one year, respectively. The _____________ will be entitled to all prepayment
charges received on the mortgage loans, and these amounts will not be available
for distribution on the Certificates. The Master Servicer may, in its
discretion, waive the collection of any otherwise applicable prepayment charge
or reduce the amount thereof actually collected, and accordingly, there can be
no assurance that the prepayment charges will have any effect on the prepayment
performance of the mortgage loans.
The average principal balance of the mortgage loans at origination was
approximately $______. No mortgage loan had a principal balance at origination
of greater than approximately $_______ or less than approximately $______. The
average principal balance of the mortgage loans as of the Cut-off Date was
approximately $______. No mortgage loan had a principal balance as of the
Cut-off Date of greater than approximately $_______ or less than approximately
$______.
As of the Cut-off Date, the mortgage loans had mortgage rates ranging from
approximately _____% per annum to approximately ______% per annum and the
weighted average mortgage rate was approximately _____% per annum. The weighted
average remaining term to stated maturity of the mortgage loans will be
approximately __ years and __ months as of the Cut-off Date. None of the
mortgage loans will have a first
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Due Date prior to ________ ____ or after _________ ____, or will have a
remaining term to maturity of less than __ years and __ months or greater than
__ years as of the Cut-off Date. The latest maturity date of any mortgage loan
is ________ ____.
The weighted average loan-to-value ratio at origination of the mortgage
loans was approximately ______%. No loan-to-value ratio at origination was
greater than approximately _____% or less than approximately ____%.
UNDERWRITING STANDARDS; REPRESENTATIONS
All of the mortgage loans were originated by the Seller, generally in
accordance with the underwriting criteria specified in the prospectus, except as
described in this prospectus supplement.
____% and ____% of the mortgage loans were underwritten pursuant to, or in
accordance with, the standards of Impac Funding's Progressive Series Program or
Progressive Express(TM) Program, respectively, each of which is described below.
THE PROGRESSIVE SERIES PROGRAM
GENERAL. The underwriting guidelines utilized in the Progressive Series
Program, as developed by Impac 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, V or VI, depending on which series' mortgage
loan parameters meets the borrower's unique credit profile. Series II, III,
III+, IV, V or VI 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, V and VI 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, Impac 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 Impac 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, Impac 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
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than those which are originated in accordance with FHLMC and FNMA standards. In
general, the maximum amount for mortgage loans originated under the Progressive
Series Program is $750,000; however, Impac 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, II and
III Programs are underwritten either by employees of Impac Funding or by
contracted mortgage insurance companies or delegated conduit sellers. Generally
all of the mortgage loans originated under the Series III+, IV, V and VI
Programs are underwritten by employees of Impac Funding. Substantially all of
the Series I Program mortgage loans and all of the Series II and III Program
mortgage loans with Loan-to-Value Ratios at origination in excess of 80% are
insured by a Primary Insurance Policy. 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, V and VI Program
Mortgage Loans have Loan-to-Value Ratios at origination which are less than or
equal to 85% and do not require a Primary Insurance Policy. Impac Funding
receives verbal verification from Impac 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. Impac 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 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 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, Impac 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, Series V
and Series VI 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.
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Under all Progressive Series Programs, Impac Funding or the 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, V and VI Reduced Documentation Program is
$450,000, however, exceptions are granted on a case- by-case basis. Secondary
financing is allowed in the origination of the Limited Documentation Program but
must meet the CLTV requirements described above and certain other requirements
for subordinate financing. 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 four 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
four 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 12 months and may have
no more than three 30-day delinquent mortgage payments within the past 13th
through 24th 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 generally are paid prior to
or at 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 generally are paid prior to or at
closing. 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.
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With respect to the Series IV Program, a borrower may not have more than
four 30-day delinquent mortgage payments or three 30-day delinquent mortgage
payments and one 60-day delinquent mortgage payment within the past 12 months.
The borrower may not have more than four 30-day delinquent payments or two
60-day delinquent payments or one 90-day delinquent payment on revolving debt in
the 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 generally are paid prior to
or 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, charge-offs not to exceed $4,000 generally are paid prior to
or 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.
With respect to the Series VI program, a borrower may not have more than
one 90-day delinquent mortgage payment within the past 12 months. For both
revolving and installment debt, the borrower is sporadic in some or all areas
with a general disregard for timely payment or credit standing. Any open
judgements, suits, liens, collections, charge-offs, generally are paid prior to
or at closing. Bankruptcies must be at least 6 months old. Foreclosures are not
allowed in the past 6 months.
QUALITY CONTROL. Impac 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. Impac 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. Impac Funding does not publish an approved appraiser list for
the conduit seller. Conduit sellers may select any appraiser of choice,
regardless of the LTV of the related loan, from the seller's approved appraiser
list. At the discretion of the underwriter a full appraisal or enhanced desk
review appraisal, or a field review appraisal may be required.
The seller is responsible for maintaining an approved appraiser list with
appraisers meeting the following requirements:
o be a state licensed or certified appraiser;
o meet the independent appraiser requirements for staff appraisers, or,
if appropriate, be on appraisers specified by the Office of the
Comptroller of the Currency, the Board of Governors of the Federal
Reserve System, the FDIC and the Office of Thrift Supervision under
their respective real estate appraisal regulations adopted in
accordance with Title XI of the Financial Institutions Reform
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Recovery and Enforcement Act of 1989, regardless of whether the seller
is subject to those regulations;
o be experienced in the appraisal of properties similar to the type being
appraised;
o be actively engaged in appraisal work; and
o subscribe to a code of ethics that is at least as strict as the code of
the American Institute of Real Estate Appraisers or the Society of Real
Estate Appraisers.
One full appraisal is required on each loan, however, an enhanced desk
review is also required when the loan amount is between $350,000 and $500,000;
the Loan-to-Value Ratio is over 90%; or the property has multiple units and the
Loan-to-Value Ratio is equal to or greater than 80%; the property is unique; or
the property exceeds 10 acres. An enhanced field review is also required when
the loan amount is above $500,000.
VARIATIONS. Impac Funding uses the foregoing parameters as guidelines only.
On a case-by-case basis, Impac 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 EXPRESSTM PROGRAM
GENERAL. In July 1996, Impac 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
borrower's 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 Credit Score 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 Credit Score that must be met by the
borrower's primary wage earner and does not allow for exceptions to the Credit
Score requirement. The Credit Score requirement is as follows: Progressive
Express(TM) I above 680, Progressive Express(TM) II 680-620, Progressive
Express(TM) III 619-601, 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 Credit 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.
All of the mortgage loans originated under the Progressive Express(TM)
program are underwritten either by employees of Impac Funding or by contracted
mortgage insurance companies or delegated conduit sellers. Under the Progressive
Express(TM) Program, Impac Funding underwrites single family dwellings with
Loan-to-
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Value Ratios at origination of up to 95%. In order for the property to
be eligible for the Progressive Express(TM) Program, it must be a single family
residence (1 unit only), condominium, and/or planned unit development (PUD).
Progressive Express(TM) Programs I through IV loans with Loan-to-Value Ratios at
origination in excess of 80% are insured by Radian. The borrower can elect to
have primary mortgage insurance covered by their loan payment. If the borrower
makes such election, a Loan-to-Value Ratio between 80.01% and 85.00% requires
25% coverage, and a Loan-to-Value Ratio between 85.01% and 95.00% requires 30%
coverage. If the borrower does not make such election, the related mortgage loan
will be covered by a modified primary mortgage insurance policy issued by Radian
to Impac Funding providing coverage in the amount of 22% for a mortgage loan
with a Loan-to-Value Ratio between 80.01% and 89.99% and of 30% for a mortgage
loan with a Loan-to-Value Ratio between 90% and 95%.
Each borrower completes a Progressive Express(TM) Doc loan application or a
Residential Loan Application (Fannie Mae 1003 or FHLMC Form 65). 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. At the signing of loan documents,
each such borrower executes a "Borrower's Certification" certifying the
following:
o loan terms stated on the Progressive Express(TM) Application
and/or Residential Loan Application for the loan are true,
accurate, and complete;
o borrower intends to occupy the property;
o if the property is a condominium, attached planned unit
development (PUD), attached townhouse/rowhouse or the loan is
securing a second home funds used to close the loan are not a gift
and are from the Borrower's own funds;
o borrower has four months reserves available after closing,
exclusive of cash-out proceeds (for Progressive Express(TM) V and
VI the reserve requirement is not applicable);
o borrower and co-borrower, if applicable, are currently employed as
stated on the loan application; and
o the transaction is an arms length transaction.
Impac Funding uses the foregoing parameters as guidelines only. Sellers may
include certain provisions in the note that Impac Funding may not enforce,
particularly, when a fixed rate loan provides in the 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 four 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, tax liens, other liens, collections or
charge-offs are allowed within the past 24 months.
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With respect to Progressive Express(TM) II, a borrower must have a minimum
of four 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 within the last 24 months.
With respect to Progressive Express(TM) III, a borrower must have a minimum
of four trade accounts, no late mortgage payments for the past 12 months and may
have one 30-day late 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 within the last 24 months.
With respect to Progressive Express(TM) IV, a borrower must have a minimum
of four trade accounts, no more than two 30-day late mortgage payments for 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 and must be paid prior to closing. Tax liens
are not allowed within the last 24 months.
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, may not exceed $500, and
must be paid at closing. Tax liens are not allowed within the last 12 months.
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, may not exceed $1,000, and must be paid at closing.
Tax liens are not allowed within the last 12 months.
QUALITY CONTROL. Impac 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. Impac 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.
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APPRAISALS. Impac Funding does not publish an approved appraiser list for
the conduit seller. Conduit sellers may select any appraiser of choice,
regardless of the LTV of the related mortgage loan, from the seller's approved
appraiser list. At the discretion of the underwriter a full appraisal or
enhanced desk review appraisal, or a field review appraisal may be required.
The seller is responsible for maintaining an approved appraiser list with
appraisers meeting the following requirements:
o be a state licensed or certified appraiser;
o meet the independent appraiser requirements for staff appraisers, or,
if appropriate, fee appraisers specified by the Office of the
Comptroller of the Currency, the Board of Governors of the Federal
Reserve System, the FDIC and the Office of Thrift Supervision
consistent with their respective real estate appraisal regulations
adopted in accordance with Title XI of the Financial Institutions
Reform Recovery and Enforcement Act of 1989, regardless of whether the
seller is subject to those regulations;
o be experienced in the appraisal of properties similar to the type being
appraised;
o be actively engaged in appraisal work; and
o subscribe to a code of ethics that is at least as strict as the code of
the American Institute of Real Estate Appraisers or the Society of Real
Estate Appraisers.
One full appraisal is required on each loan, however, an enhanced desk
review is also required when the loan amount is between $350,000 and $500,000;
the Loan-to-Value Ratio is over 90%; the property has multiple units and the
Loan-to-Value Ratio is equal to or greater than 80%. An enhanced field review is
required when the loan amount is above $500,000.
Impac 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, Impac Funding has limited
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. It is contemplated that all of the Progressive
Series Program and Progressive Express(TM) Program mortgage loans originated or
acquired by Impac Funding will also be underwritten with a view toward the
resale thereof in the secondary mortgage market.
VARIATIONS. Impac Funding uses the foregoing parameters as guidelines only.
On a case-by-case basis, Impac Funding may determine that the prospective
mortgagor warrants an exception outside the standard Progressive Express(TM)
Program guidelines. An exception may be allowed if the loan application reflects
certain compensating factors, including instances where the prospective
mortgagor:
o has demonstrated an ability to save and devote a greater portion of
income to basic housing needs;
o 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;
o has demonstrated an ability to maintain a debt free position;
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o 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
o has net worth substantial enough to suggest that repayment of the loan
is within the prospective mortgagor's ability.
In addition, see "The Mortgage Pools--Underwriting Standards" in the
Prospectus.
[Description of differences with prospectus description under the heading
"Underwriting Standards; Representations"].
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 this 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 this removal necessary or
desirable, and may be prepaid at any time. A limited number of other mortgage
loans may be included in the mortgage pool prior to the issuance of the
Certificates unless including these mortgage loans would materially alter the
characteristics of the mortgage pool as described in this prospectus supplement.
The company believes that the information set forth in this prospectus
supplement will be representative of the characteristics of the mortgage pool as
it will be constituted at the time the Certificates are issued, although the
range of mortgage rates and maturities and other characteristics of the mortgage
loans may vary. In no event, however, will more than 5% (by principal balance at
the Cut- off Date) of the mortgage loans deviate from the characteristics of the
mortgage loans set forth in the related prospectus supplement.
YIELD ON THE CERTIFICATES
DELAY IN DISTRIBUTIONS ON THE OFFERED CERTIFICATES
The effective yield to holders of the offered certificates of each class
will be less than the yields otherwise produced by their respective Pass-Through
Rates and purchase prices because (1) on the first distribution date one month's
interest is payable even though __ days will have elapsed from the date on which
interest begins to accrue, (2) on each succeeding distribution date the interest
payable is the interest accrued during the month preceding the month of the
distribution date, which ends __ days prior to the distribution date and (3)
during each Interest Accrual Period (other than the first Interest Accrual
Period), interest accrues on a Certificate Principal Balance or Notional Amount
that is less than the Certificate Principal Balance or Notional Amount of the
class actually outstanding for the first __ days of this Interest Accrual
Period.
SHORTFALLS IN COLLECTIONS OF INTEREST
When a principal prepayment in full is made on a mortgage loan, the
mortgagor is charged interest only for the period from the Due Date of the
preceding monthly payment up to the date of the principal prepayment, instead of
for a full month. When a partial principal prepayment is made on a mortgage
loan, the mortgagor is not charged interest on the amount of the prepayment for
the month in which the prepayment is made. In addition, the application of the
Relief Act to any mortgage loan will adversely affect, for an indeterminate
period of time, the ability of the Master Servicer to collect full amounts of
interest on
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the mortgage loan. See "Legal Aspects of the Mortgage Loans--Soldiers' and
Sailors' Civil Relief Act of 1940" in the prospectus. The Master Servicer is
obligated to pay from its own funds only those interest shortfalls attributable
to full and partial prepayments by the mortgagors on the mortgage loans master
serviced by it, but only to the extent of its aggregate Servicing Fee for the
related Due Period. See "Pooling and Servicing Agreement--Servicing and Other
Compensation and Payment of Expenses" in this prospectus supplement.
Accordingly, the effect of (1) any principal prepayments on the mortgage loans,
to the extent that any resulting Prepayment Interest Shortfall exceeds any
Compensating Interest or (2) any shortfalls resulting from the application of
the Relief Act, will be to reduce the aggregate amount of interest collected
that is available for distribution to holders of the Certificates. Any resulting
shortfalls will be allocated among the Certificates as provided in this
prospectus supplement under "Description of the Certificates--Interest
Distributions".
GENERAL PREPAYMENT CONSIDERATIONS
The rate of principal payments on each class of offered certificates (other
than the Class XS Certificates), the aggregate amount of distributions on each
class of offered certificates and the yield to maturity of each class of offered
certificates will be related to the rate and timing of payments of principal on
the mortgage loans. The rate of principal payments on the mortgage loans will in
turn be affected by the amortization schedules of the mortgage loans and by the
rate of principal prepayments on the mortgage loans (including for this purpose
payments resulting from refinancings, liquidations of the mortgage loans due to
defaults, casualties, condemnations and repurchases, whether optional or
required, by the company, the Seller, the Originator or the Master Servicer, as
the case may be). The mortgage loans generally may be prepaid by the mortgagors
at any time; however, as described under "The Mortgage Pool" in this prospectus
supplement, with respect to approximately _____% of the mortgage loans, by
aggregate principal balance as of the Cut-off Date, a prepayment may subject the
related mortgagor to a prepayment charge. All of the mortgage loans contain
due-on-sale clauses. As described under "Description of the
Certificates--Principal Distributions on the Senior Certificates" in this
prospectus supplement, prior to the distribution date in ________ ____, all
principal prepayments on the mortgage loans will be allocated to the Senior
Certificates (other than the Class XS Certificates). Thereafter, as further
described in this prospectus supplement, during some periods, subject to loss
and delinquency criteria described in this prospectus supplement, the Senior
Prepayment Percentage may continue to be disproportionately large (relative to
the Senior Percentage) and the percentage of principal prepayments payable to
the Subordinate Certificates may continue to be disproportionately small.
Prepayments, liquidations and repurchases of the mortgage loans will result
in distributions in respect of principal to the holders of the class or classes
of offered certificates then entitled to receive these principal distributions
that otherwise would be distributed over the remaining terms of the mortgage
loans. 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 in this prospectus supplement
and in the prospectus under "Yield Considerations" and "Maturity and Prepayment
Considerations"), no assurance can be given as to the rate of principal
prepayments. The extent to which the yield to maturity of any class of offered
certificates (other than the Class XS Certificates) may vary from the
anticipated yield will depend upon the degree to which they are purchased at a
discount or premium and the degree to which the timing of payments on the
offered certificates is sensitive to prepayments on the mortgage loans. Further,
an investor should consider, in the case of any offered certificate purchased at
a discount, the risk that a slower than anticipated rate of principal payments
on the mortgage loans could result in an actual yield to an investor that is
lower than the anticipated yield and, in the case of any offered certificate
purchased at a premium, the risk that a faster than anticipated rate of
principal payments could result in an actual yield to the investor that is lower
than the anticipated yield. In general, the earlier a prepayment of principal on
the mortgage loans, the greater will be the effect on the investor's yield to
maturity. As a result, the effect on an investor's yield of principal payments
occurring at a rate higher (or
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lower) than the rate anticipated by the investor during the period immediately
following the issuance of the offered certificates would not be fully offset by
a subsequent like reduction (or increase) in the rate of principal payments.
The yield to maturity on the Class XS Certificates will be extremely
sensitive to prepayments on the mortgage loans generally, and most sensitive to
prepayments on mortgage loans with relatively high mortgage rates. See "--Yield
Sensitivity of the Class XS Certificates" in this prospectus supplement.
It is highly unlikely that the mortgage loans will prepay at any constant
rate until maturity or that all of the mortgage loans will prepay at the same
rate. Moreover, the timing of prepayments on the mortgage loans may
significantly affect the actual yield to maturity on the offered certificates,
even if the average rate of principal payments experienced over time is
consistent with an investor's expectation.
Because principal distributions are paid to some classes of offered
certificates before other classes, holders of classes of offered certificates
having a later priority of payment bear a greater risk of losses (because the
offered certificates will represent an increasing percentage interest in the
trust fund during the period prior to the commencement of distributions of
principal thereon) than holders of classes having earlier priorities for
distribution of principal. In particular with respect to the Lockout
Certificates, as described under "Description of the Certificates--Principal
Distributions on the Senior Certificates" in this prospectus supplement, during
some periods, no principal payments or a disproportionately small portion of the
Senior Principal Distribution Amount will be distributed on the Lockout
Certificates, and during other periods, a disproportionately large portion of
the Senior Principal Distribution Amount will be distributed on the Lockout
Certificates. Unless the Certificate Principal Balances of the Class A
Certificates (other than the Lockout Certificates) have been reduced to zero,
the Lockout Certificates will not be entitled to receive any distributions of
principal payments prior to the distribution date in ________ ____.
The rate of payments (including prepayments) on pools of mortgage loans is
influenced by a variety of economic, geographic, social and other factors. If
prevailing mortgage rates fall 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 rise significantly above the
mortgage rates on the mortgage loans, the rate of prepayment on the mortgage
loans would be expected to decrease. Other factors affecting prepayment of
mortgage loans include changes in mortgagors' housing needs, job transfers,
unemployment, mortgagors' net equity in the mortgaged properties and servicing
decisions. There can be no certainty as to the rate of prepayments on the
mortgage loans during any period or over the life of the Certificates. See
"Yield Considerations" and "Maturity and Prepayment Considerations" in the
prospectus.
In general, defaults on mortgage loans are expected to occur with greater
frequency in their early years. In addition, default rates generally are higher
for mortgage loans used to refinance an existing mortgage loan.
In the event of a mortgagor's default on a mortgage loan, there can be no
assurance that recourse beyond the specific mortgaged property pledged as
security for repayment will be available. See "The Mortgage Pool--Underwriting
Standards; Representations" in this prospectus supplement.
MARKET INTEREST RATE AND SUBORDINATION YIELD CONSIDERATIONS
Because the mortgage rates on the mortgage loans and the Pass-Through Rates
on the offered certificates (other than the Class XS Certificates) are fixed,
these rates will not change in response to changes in market interest rates.
Accordingly, if mortgage market interest rates or market yields for securities
similar to these offered certificates were to rise, the market value of these
offered certificates may decline.
S-28
<PAGE>
As described under "Description of the Certificates--Allocation of Losses;
Subordination", amounts otherwise distributable to holders of the Subordinate
Certificates may be made available to protect the holders of the Senior
Certificates against interruptions in distributions due to mortgagor
delinquencies, to the extent not covered by P&I Advances, and amounts otherwise
distributable to holders of the Subordinate Certificates with a higher numerical
class designation may be made available to protect the holders of Subordinate
Certificates with a lower numerical class designation against interruptions in
distributions. Delinquencies may affect the yield to investors on the
Subordinate Certificates, and, even if subsequently cured, will affect the
timing of the receipt of distributions by the holders of the Subordinate
Certificates. In addition, a larger than expected rate of delinquencies or
losses will affect the rate of principal payments on each class of the
Subordinate Certificates if it delays the scheduled reduction of the Senior
Prepayment Percentage, triggers an increase of the Senior Prepayment Percentage
to [100]% or triggers a lockout of one or more classes of Subordinate
Certificates from distributions of portions of the Subordinate Principal
Distribution Amount. See "Description of the Certificates--Principal
Distributions on the Senior Certificates" and "--Principal Distributions on the
Subordinate Certificates" in this prospectus supplement.
WEIGHTED AVERAGE LIFE
Weighted average life refers to the amount of time that will elapse from
the date of issuance of a security until each dollar of principal of the
security will be repaid to the investor. The weighted average life of the
offered certificates of each class will be influenced by the rate at which
principal on the mortgage loans is paid, which may be in the form of scheduled
payments or prepayments (including prepayments of principal by the mortgagor as
well as amounts received by virtue of condemnation, insurance or foreclosure
with respect to the mortgage loans), and the timing thereof.
Except as otherwise described under "Description of the
Certificates--Principal Distributions on the Senior Certificates" in this
prospectus supplement, distributions of principal will be made to the classes of
Class A Certificates according to the priorities described in this prospectus
supplement, rather than on a PRO RATA basis among the Class A Certificates,
unless the Certificate Principal Balances of the Subordinate Certificates have
been reduced to zero. The timing of commencement of principal distributions and
the weighted average life of each class of Class A Certificates will be affected
by the rates of prepayment on the mortgage loans experienced both before and
after the commencement of principal distributions on each class of Class A
Certificates. Moreover, because the Lockout Certificates do not receive (unless
the Certificate Principal Balances of the Class A Certificates, other than the
Lockout Certificates, have been reduced to zero) any portion of principal
payments prior to the distribution date occurring in ________ ____ and
thereafter will receive (unless the Certificate Principal Balances of the Class
A Certificates, other than the Lockout Certificates, have been reduced to zero)
a disproportionately small or large portion of principal payments, the weighted
average life of the Lockout Certificates will be longer or shorter than would
otherwise be the case, and the effect on the market value of the Lockout
Certificates of changes in market interest rates or market yields for similar
securities may be greater or lesser than for the other classes of Class A
Certificates entitled to principal distributions.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this prospectus supplement is
the Prepayment Assumption No representation is made that the mortgage loans in
the mortgage pool will prepay at the above-described rates or any other rate.
CPR refers to the Constant Prepayment Rate model, which assumes that the
outstanding principal balance of a pool of mortgage loans prepays at a specified
constant annual rate or CPR. In generating monthly cash flows, this rate is
converted to an equivalent constant monthly rate. To assume __% CPR or any other
CPR percentage is to assume that the stated percentage of the outstanding
principal balance of the pool is prepaid over the course of a year.
S-29
<PAGE>
The tables following the next paragraph indicate the percentage of the
initial Certificate Principal Balance of the indicated classes of Certificates
that would be outstanding after each of the dates shown at various constant
percentages of the Prepayment Assumption and the corresponding weighted average
life of the indicated class of Certificates. The table is based on the following
modeling assumptions:
(1) the mortgage pool consists of ____ mortgage loans with the
characteristics set forth in the table below,
(2) distributions on the indicated Certificates are received, in cash, on
the ___ day of each month, commencing in ________ ____,
(3) the mortgage loans prepay at the constant percentages of the
Prepayment Assumption indicated,
(4) no defaults or delinquencies occur in the payment by mortgagors of
principal and interest on the mortgage loans and no shortfalls due to
the application of the Relief Act are incurred,
(5) none of the company, the Seller, the Originator, the Master Servicer
or any other person purchases from the trust fund any mortgage loan
pursuant to any obligation or option under the Agreement (except as
indicated in footnote (2) in the tables),
(6) scheduled monthly payments on the mortgage loans are received on the
first day of each month commencing in ________ ____, and are computed
prior to giving effect to any prepayments received in the prior month,
(7) prepayments representing payment in full of individual mortgage loans
are received on the last day of each month commencing in _______ ____,
and include 30 days' interest,
(8) the scheduled monthly payment for each mortgage loan is calculated
based on its principal balance, mortgage rate and remaining term to
maturity so that the mortgage loan will amortize in amounts sufficient
to repay the remaining principal balance of the mortgage loan by its
remaining term to maturity,
(9) the Certificates are purchased on _______ __, ____ and
(10) the Servicing Fee Rate is ____% per annum and the Trustee's Fee Rate
is _____% per annum.
<TABLE>
<CAPTION>
ASSUMED MORTGAGE LOAN CHARACTERISTICS
PRINCIPAL BALANCE ORIGINAL TERM REMAINING TERM
AS OF THE MORTGAGE TO MATURITY TO MATURITY
CUT-OFF DATE RATE (MONTHS) (MONTHS)
<S> <C> <C> <C>
$ %
$ %
$ %
%
$
</TABLE>
There will be discrepancies between the characteristics of the actual
mortgage loans and the characteristics assumed in preparing the table below. Any
discrepancy may have an effect upon the
S-30
<PAGE>
percentages of the initial Certificate Principal Balances outstanding (and the
weighted average lives) of the classes of Certificates set forth in the table.
In addition, to the extent that the actual mortgage loans included in the
mortgage pool have characteristics that differ from those assumed in preparing
the table below, the classes of Certificates set forth below may mature earlier
or later than indicated by the table below. Based on the foregoing assumptions,
the table below indicates the weighted average life of each class of the Class A
Certificates and the Subordinate Certificates and sets forth the percentage of
the initial Certificate Principal Balance of each of these Certificates that
would be outstanding after each of the dates shown, at various percentages of
the Prepayment Assumption. Neither the prepayment model used in this prospectus
supplement nor any other prepayment model or assumption purports 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 included in the trust fund. Variations in the prepayment
experience and the balance of the mortgage loans that prepay may increase or
decrease the percentages of initial Certificate Principal Balance (and weighted
average lives) shown in the following table. Variations may occur even if the
average prepayment experience of all of the mortgage loans equals any of the
specified percentages of the Prepayment Assumption.
S-31
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE
SPECIFIED PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS A-1 CERTIFICATES CLASS A-2 CERTIFICATES
DISTRIBUTION DATE 0% 25% 50% 75% 100% 125% 150% 0% 25%% 50% 75% 100% 125% 150%
----------------- -- --- --- --- ---- ---- ---- -- ---- --- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
................................
................................
................................
Weighted Average Life
in Years(1)...................
Weighted Average Life
in Years(2)...................
</TABLE>
<TABLE>
<CAPTION>
CLASS A-3 CERTIFICATES
DISTRIBUTION DATE 0% 25% 50% 75% 100% 125% 150%
----------------- -- --- --- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
................................
................................
................................
Weighted Average Life
in Years(1)...................
Weighted Average Life
in Years(2)...................
</TABLE>
-----------------
(1) The weighted average life of a Certificate is determined by (a)
multiplying the amount of each distribution of principal by the number
of years from the date of issuance of the Certificate to the related
distribution date, (b) adding the results and (c) dividing the sum by
the initial Certificate Principal Balance of the Certificate.
(2) Calculated pursuant to footnote one but assumes the Master Servicer
exercises its option to purchase the mortgage loans. See "Pooling and
Servicing Agreement-- Termination" in this prospectus supplement.
<TABLE>
<CAPTION>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE
SPECIFIED PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS A-4 CERTIFICATES CLASS A-5 CERTIFICATES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DISTRIBUTION DATE 0% 25% 50% 75% 100% 125% 150% 0% 25% 50% 75% 100% 125% 150%
----------------- -- --- --- --- ---- ---- ---- -- --- --- --- ---- ---- ----
.................................
.................................
.................................
.................................
Weighted Average Life
in Years(1)....................
Weighted Average Life
in Years(2)....................
-----------------
</TABLE>
(1) The weighted average life of a Certificate is determined by (a)
multiplying the amount of each distribution of principal by the number
of years from the date of issuance of the Certificate to the related
distribution date, (b) adding the results and (c) dividing the sum by
the initial Certificate Principal Balance of the Certificate.
(2) Calculated pursuant to footnote one but assumes the Master Servicer
exercises its option to purchase the mortgage loans. See "Pooling and
Servicing Agreement-- Termination" in this prospectus supplement.
(TABLE CONTINUED ON NEXT PAGE.)
S-32
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE
SPECIFIED PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS A-6 CERTIFICATES SUBORDINATE CERTIFICATES
DISTRIBUTION DATE 0% 25% 50% 75% 100% 125% 150% 0% 25% 50% 75% 100% 125% 150%
----------------- -- --- --- --- ---- ---- ---- -- --- --- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
..................................
..................................
..................................
..................................
Weighted Average Life
in Years(1).....................
Weighted Average Life
in Years(2).....................
-----------------
</TABLE>
(1) The weighted average life of a Certificate is determined by (a)
multiplying the amount of each distribution of principal by the number
of years from the date of issuance of the Certificate to the related
distribution date, (b) adding the results and (c) dividing the sum by
the initial Certificate Principal Balance of the Certificate.
(2) Calculated pursuant to footnote one but assumes the Master Servicer
exercises its option to purchase the mortgage loans. See "Pooling and
Servicing Agreement-- Termination" in this prospectus supplement.
S-33
<PAGE>
There is no assurance that prepayments of the mortgage loans will conform
to any of the levels of the Prepayment Assumption indicated in the table above
or to any other level, or that the actual weighted average life of any class of
Certificates will conform to any of the weighted average lives set forth in the
table above. Furthermore, the information contained in the table with respect to
the weighted average life of each specified class of Certificates is not
necessarily indicative of the weighted average life that might be calculated or
projected under different or varying prepayment assumptions.
The characteristics of the mortgage loans will differ from those assumed in
preparing the table above. In addition, it is unlikely that any mortgage loan
will prepay at any constant percentage of the Prepayment Assumption until
maturity or that all of the mortgage loans will prepay at the same rate. The
timing of changes in the rate of prepayments may significantly affect the actual
yield to maturity to investors, even if the average rate of principal
prepayments is consistent with the expectations of investors.
YIELD SENSITIVITY OF THE CLASS XS CERTIFICATES
The yield to maturity of the Class XS Certificates will be extremely
sensitive to the prepayment, repurchase and default experience on the mortgage
loans, which may fluctuate significantly from time to time. A rapid rate of
principal payments on the mortgage loans will have a materially negative effect
on the yield to maturity of the Class XS Certificates, and principal prepayments
on mortgage loans with higher mortgage rates will have a greater negative impact
on the yield to maturity of the Class XS Certificates than principal prepayments
on mortgage loans with lower mortgage rates. There can be no assurance that the
mortgage loans will prepay at any particular rate. Prospective investors in the
Class XS Certificates should fully consider the associated risks, including the
risk that they may not fully recover their initial investment.
The following table indicates the sensitivity of the yield of the Class XS
Certificates to various rates of prepayment on the mortgage loans and the
corresponding pre-tax yield on a corporate bond equivalent basis.
The table set forth below has been prepared based on the modeling assumptions.
<TABLE>
<CAPTION>
PRE-TAX YIELD TO MATURITY ON THE CLASS XS CERTIFICATES
AT VARIOUS PERCENTAGES OF THE PREPAYMENT ASSUMPTION
ASSUMED AGGREGATE
PURCHASE PRICE PERCENTAGES OF THE PREPAYMENT ASSUMPTION
-------------- ----------------------------------------
0% 25% 50% 75% 100% 125% 150%
-- --- --- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$........................... % % % % % % %
</TABLE>
On the basis of a constant prepayment rate of approximately ___% of the
Prepayment Assumption and the purchase price assumed above, the yield to
maturity of the Class XS Certificates would be approximately __%. If the actual
prepayment rate were to exceed this rate, initial investors in the Class XS
Certificates would not fully recover their initial investment.
The pre-tax yields set forth in the preceding table were calculated by
determining the monthly discount rates that, when applied to the assumed streams
of cash flows to be paid on the Class XS Certificates, would cause the
discounted present value of these assumed stream of cash flows to equal the
assumed purchase price of the Class XS Certificates, and by converting the
monthly rates to corporate bond equivalent rates. This calculation does not take
into account shortfalls in collection of interest due to prepayments (or other
liquidations) on the mortgage loans or the interest rates at which investors may
be able to reinvest funds received by them as distributions on the Class XS
Certificates and consequently does not purport to reflect the return on any
investment in the Class XS Certificates when the reinvestment rates are
considered.
The characteristics of the mortgage loans will differ from those assumed in
preparing the table above. There can be no assurance that the cash flows on the
Class XS Certificates will correspond to those used to determine the pre-tax
yields shown above or that the aggregate purchase price of the Class XS
Certificates will be as assumed. It is unlikely that any mortgage loan will
prepay at the specified percentages of the
S-34
<PAGE>
Prepayment Assumption until maturity or that all of the mortgage loans will
prepay at the same rate. The timing of changes in the rate of prepayments may
significantly affect the actual yield to maturity to investors, even if the
average rate of principal prepayments is consistent with the expectations of
investors. The portion of interest payments on the mortgage loans distributable
to the Class XS Certificates will vary from mortgage loan to mortgage loan, and
will be greater with respect to mortgage loans with higher mortgage rates.
Accordingly, the yield on the Class XS Certificates will be lower than indicated
in the applicable table above with respect to any particular average prepayment
rate if mortgage loans with higher mortgage rates prepay faster than mortgage
loans with lower mortgage rates, assuming no variation in mortgage loan
principal balance. Moreover, the variable Pass-Through Rate on the Class XS
Certificates will generally decrease as the Certificate Principal Balances of
Class A Certificates with lower fixed Pass-Through Rates decline. There can be
no assurance that the mortgage loans will prepay at any of the rates shown in
the table or at any other particular rate, or that mortgage loans with
relatively high mortgage rates will prepay at the same rate as the mortgage
loans generally. Investors must make their own decisions as to the appropriate
prepayment assumptions to be used in deciding whether to purchase the Class XS
Certificates.
YIELD SENSITIVITY OF THE SUBORDINATE CERTIFICATES
If the Certificate Principal Balances of the Class B-6 Certificates, Class
B-5 Certificates, Class B-4 Certificates, Class B-3 Certificates and Class B-2
Certificates have been reduced to zero, the yield to maturity on the Class B-1
Certificates will become extremely sensitive to losses on the mortgage loans
(and the timing thereof) that are covered by subordination, because the entire
amount of losses on the mortgage loans will be allocated to the Class B-1
Certificates. If the Certificate Principal Balances of the Class B-6
Certificates, Class B-5 Certificates, Class B-4 Certificates and Class B-3
Certificates have been reduced to zero, the yield to maturity on the Class B-2
Certificates will become extremely sensitive to losses on the mortgage loans
(and the timing thereof) that are covered by subordination, because the entire
amount of losses on the mortgage loans will be allocated to the Class B-2
Certificates. If the Certificate Principal Balances of the Class B-6
Certificates, Class B-5 Certificates and Class B-4 Certificates have been
reduced to zero, the yield to maturity on the Class B-3 Certificates will become
extremely sensitive to losses on the mortgage loans (and the timing thereof)
that are covered by subordination, because the entire amount of losses on the
mortgage loans will be allocated to the Class B-3 Certificates. The initial
undivided interest in the trust fund evidenced by the Class B-1 Certificates,
the Class B-2 Certificates, the Class B-3 Certificates, the Class B-4
Certificates, the Class B-5 Certificates and the Class B-6 Certificates is
approximately ____%, approximately ____%, approximately ____%, approximately
____%, approximately ____% and approximately ____%, respectively. Investors in
the Subordinate Certificates should fully consider the risk that Realized Losses
on the mortgage loans could result in the failure of these investors to fully
recover their investments. For additional considerations relating to the yield
on the Subordinate Certificates, see "Yield Considerations" and "Maturity and
Prepayment Considerations" in the prospectus.
ADDITIONAL YIELD CONSIDERATIONS APPLICABLE SOLELY TO THE RESIDUAL CERTIFICATES
The certificateholders' after-tax rate of return on their Residual
Certificates will reflect their pre-tax rate of return, reduced by the taxes
required to be paid with respect to the Residual Certificates. Holders of
Residual Certificates will have tax liabilities with respect to their Residual
Certificates during the early years of the REMIC's term that substantially
exceed any distributions payable thereon during or prior to any such period. In
addition, holders of Residual Certificates will have tax liabilities with
respect to their Residual Certificates the present value of which substantially
exceeds the present value of distributions payable thereon and of any tax
benefits that may arise with respect thereto. Accordingly, the after-tax rate of
return on the Residual Certificates may be negative or may otherwise be
significantly adversely affected. The timing and amount of taxable income
attributable to the Residual Certificates will depend on, among other things,
the timing and amounts of prepayments and losses experienced with respect to the
mortgage pool.
S-35
<PAGE>
The Residual Certificateholders should consult their own tax advisors as to
the effect of taxes and the receipt of any payments made to these holders in
connection with the transfer of the Residual Certificates on after-tax rates of
return on the Residual Certificates. See "Federal Income Tax Consequences" in
this prospectus supplement and in the prospectus.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Series ____-___ Certificates will consist of ________ classes of
certificates. Only the offered certificates are offered by this prospectus
supplement.
The Certificates represent in the aggregate the entire beneficial ownership
interest in a trust fund consisting primarily of a mortgage pool of mortgage
loans and an aggregate principal balance as of the Cut- off Date, after
application of scheduled payments due whether or not received, of approximately
$___________, subject to a permitted variance as described in this prospectus
supplement under "The Mortgage Pool".
Each class of the offered certificates will have the approximate initial
Certificate Principal Balance or Notional Amount, as applicable, as set forth on
the cover hereof and will have the Pass-Through Rate determined as provided
under "Summary--Pass-Through Rate" and "--Interest Distributions" in this
prospectus supplement. The Residual Certificates also represent the right to
receive additional distributions in respect of the trust fund on any
distribution date after all required payments of principal and interest have
been made on this date in respect of the other classes of Certificates, although
it is not anticipated that funds will be available for any additional
distribution. The Class B-4 Certificates, Class B-5 Certificates and Class B-6
Certificates have in the aggregate an initial Certificate Principal Balance of
approximately $______ and a fixed Pass-Through Rate for each distribution date
of ____% per annum. The Class B-4 Certificates, the Class B-5 Certificates and
the Class B-6 Certificates, which are not being offered by this prospectus
supplement, will be sold by the company to _________________________ on the
Closing Date.
The Class A Certificates will be issued, maintained and transferred on the
book-entry records of DTC and its participants in minimum denominations of
$_____ and integral multiples of $____ in excess thereof. The Class XS
Certificates and the Subordinate Certificates will be issued in registered,
certificated form, in minimum percentage interests corresponding to initial
Certificate Principal Balances or notional amounts, as applicable, of $______
and integral multiples of $_____ in excess thereof, except that one Certificate
of each of these classes may be issued evidencing an amount equal to either (1)
the sum of an otherwise authorized denomination thereof plus the remainder of
the aggregate initial Certificate Principal Balance or Notional Amount, as
applicable, for the class or (2) the remainder. The Residual Certificates will
be offered in registered, certificated form, in minimum denominations of $___
and integral multiples thereof.
The Book-Entry Certificates will initially be represented by one or more
global certificates registered in the name of a nominee of DTC. The company has
been informed by DTC that DTC's nominee will be Cede & Co.. No person acquiring
an interest in any class of the Book-Entry Certificates will be entitled to
receive a certificate representing such person's interest, except as set forth
below under "--Definitive Certificates". Unless and until definitive
certificates are issued under the limited circumstances described in this
prospectus supplement, all references to actions by certificateholders with
respect to the Book-Entry Certificates shall refer to actions taken by DTC upon
instructions from its participants and all references in this prospectus
supplement to distributions, notices, reports and statements to
certificateholders with respect to the Book-Entry Certificates shall refer to
distributions, notices, reports and statements to DTC or CEDE, as the registered
holder of the Book-Entry Certificates, for distribution to Certificate Owners in
accordance with DTC procedures. See "--Registration of the Book-Entry
Certificates" and "--Definitive Certificates" in this prospectus supplement.
S-36
<PAGE>
The Class XS Certificates, the Class B-1 Certificates, the Class B-2
Certificates, the Class B-3 Certificates, the Residual Certificates and the
definitive certificates will be transferable and exchangeable at the offices of
the Trustee. The Subordinate Certificates and the Residual Certificates may not
be purchased by or transferred to a Plan except upon delivery of a certification
of facts or an opinion of counsel, as provided in this prospectus supplement.
See "--Restrictions on Transfer of the Subordinate Certificates and the Residual
Certificates" and "ERISA Considerations" in this prospectus supplement. Transfer
of the Residual Certificates will be subject to additional restrictions and
transfer of the Residual Certificates to any non-United States person will be
prohibited, in each case as described under "Federal Income Tax
Consequences--Special Tax Considerations Applicable to Residual Certificates" in
this prospectus supplement and under "Federal Income Tax
Consequences--REMICs--Tax On Transfers of REMIC Residual Certificates to Certain
Organizations" and "--Taxation of Owners of Residual Certificates--Noneconomic
REMIC Residual Certificates" in the prospectus. No service charge will be
imposed for any registration of transfer or exchange, but the Trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge imposed in connection therewith.
All distributions to holders of the Certificates, other than the final
distribution on any class of Certificates, will be made on each distribution
date by or on behalf of the Trustee to the persons in whose names the
Certificates are registered at the close of business on the related Record Date.
Distributions will be made either (a) by check mailed to the address of each
certificateholders as it appears in the Certificate Register or (b) upon written
request to the Trustee at least five business days prior to the relevant Record
Date by any holder of Certificates having an aggregate initial Certificate
Principal Balance or Notional Amount, as applicable, that is in excess of the
lesser of (1) $5,000,000 or (2) two-thirds of the initial aggregate Certificate
Principal Balance or Notional Amount, as applicable, of the class of
Certificates, by wire transfer in immediately available funds to the account of
the certificateholders specified in the request. The final distribution on any
class of Certificates will be made in like manner, but only upon presentment and
surrender of the class at the corporate trust office of the Trustee or any other
location specified in the notice to certificateholders of the final
distribution.
REGISTRATION OF THE BOOK-ENTRY CERTIFICATES
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities for its participants and to
facilitate the clearance and settlement of securities transactions between
participants through electronic book entries, thereby eliminating the need for
physical movement of certificates.
Certificate Owners that are not participants or indirect participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, the Book-Entry Certificates may do so only through participants and indirect
participants. In addition, Certificate Owners will receive all distributions of
principal of and interest on the Book-Entry Certificates from the Trustee
through DTC and DTC participants. The Trustee will forward payments to DTC in
same day funds and DTC will forward payments to participants in next day funds
settled through the New York Clearing House. Each participant will be
responsible for disbursing the payments. Unless and until definitive
certificates are issued, it is anticipated that the only certificateholders of
the Book-Entry Certificates will be CEDE, as nominee of DTC. Certificate Owners
will not be recognized by the Trustee as certificateholders, as such term is
used in the Agreement and Certificate Owners will be permitted to exercise the
rights of certificateholders only indirectly through DTC and its participants.
Under the Rules, DTC is required to make book-entry transfers of Book-Entry
Certificates among participants and to receive and transmit distributions of
principal of, and interest on, the Book-Entry Certificates. participants and
indirect participants with which Certificate Owners have accounts with respect
to the Book-Entry Certificates similarly are required to make book-entry
transfers and receive and transmit
S-37
<PAGE>
these payments on behalf of their respective Certificate Owners. Accordingly,
although Certificate Owners will not possess definitive certificates, the Rules
provide a mechanism by which Certificate Owners through their participants and
indirect participants will receive payments and will be able to transfer their
interest.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and on behalf of certain banks, the ability of a
Certificate Owner to pledge Book-Entry Certificates to persons or entities that
do not participate in the DTC system, or to otherwise act with respect to
Book-Entry Certificates, may be limited due to the absence of physical
certificates for the Book-Entry Certificates. In addition, under a book-entry
format, Certificate Owners may experience delays in their receipt of payments
since distribution will be made by the Trustee to CEDE, as nominee for DTC.
Under the Rules, DTC will take action permitted to be taken by a
certificateholders under the Agreement only at the direction of one or more
participants to whose DTC account the Book-Entry Certificates are credited.
Additionally, under the Rules, DTC will take actions with respect to specified
Voting Rights only at the direction of and on behalf of participants whose
holdings of Book-Entry Certificates evidence these specified Voting Rights. DTC
may take conflicting actions with respect to Voting Rights, to the extent that
participants whose holdings of Book-Entry Certificates evidence Voting Rights,
authorize divergent action.
DTC management is aware that some Systems that are dependent upon calendar
dates, including dates before, on and after January 1, 2000, may encounter "Year
2000 problems". DTC has informed the Industry that it has developed and is
implementing a program so that its Systems, as the same relate to the timely
payment of distributions (including principal and income payments) to
securityholders, book-entry deliveries and settlement of trades within DTC,
continue to function appropriately. This program includes a technical assessment
and a remediation plan, each of which is complete. Additionally, DTC's plan
includes a testing phase, which is expected to be completed within appropriate
time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to, issuers and their agents, as
well as third party vendors from whom DTC licenses software and hardware, and
third party vendors on which DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed the Industry that it is contacting (and will
continue to contact) third party vendors from whom DTC acquires services to: (1)
impress upon them the importance of these services being Year 2000 compliant and
(2) determine the extent of their efforts for Year 2000 remediation (and, as
appropriate, testing) of their services. In addition, DTC is in the process of
developing contingency plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the Industry for informational purposes only and is not intended to
serve as a representation, warranty or contract modification of any kind.
The company, the Master Servicer and the Trustee will have no liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in the Book-Entry Certificates held by CEDE, as nominee for
DTC, or for maintaining, supervising or reviewing any records relating to
beneficial ownership interests.
DEFINITIVE CERTIFICATES
Definitive certificates will be issued to Certificate Owners or their
nominees, respectively, rather than to DTC or its nominee, only if (1) the
company advises the Trustee in writing that DTC is no longer willing or able to
discharge properly its responsibilities as clearing agency with respect to the
Book-Entry Certificates and the company is unable to locate a qualified
successor, (2) the company, at its option, elects to terminate the book-entry
system through DTC, or (3) after the occurrence of an Event of Default,
Certificate Owners representing in the aggregate not less than 51% of the Voting
Rights of the Book-Entry Certificates advise the Trustee and DTC through
participants, in writing, that the continuation of a book-entry system through
DTC (or a successor thereto) is no longer in the Certificate Owners' best
interest.
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Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee is required to notify all Certificate Owners through
participants of the availability of definitive certificates. Upon surrender by
DTC of the definitive certificates representing the Book-Entry Certificates and
receipt of instructions for re-registration, the Trustee will reissue the
Book-Entry Certificates as definitive certificates issued in the respective
principal amounts owned by individual Certificate Owners, and thereafter the
Trustee will recognize the holders of definitive certificates as
certificateholders under the Agreement. definitive certificates will be issued
in minimum denominations of $______, except that any beneficial ownership
represented by a Book-Entry Certificate in an amount less than $______
immediately prior to the issuance of a definitive certificate shall be issued in
a minimum denomination equal to the amount of the beneficial ownership.
PASS-THROUGH RATES
The Pass-Through Rate for each class of Certificates (other than the Class
XS Certificates) is ____% per annum. The Pass-Through Rate applicable to the
calculation of the Interest Distribution Amount for the Class XS Certificates
for any distribution date is the rate per annum expressed as the percentage
equivalent of a fraction, the numerator of which is equal to (1) (A) the amount
of interest accrued on the mortgage loans for the immediately preceding calendar
month at the Net Mortgage Rate minus (B) the aggregate amount of interest
payable on the Certificates (other than the XS Certificates), and the
denominator of which is equal to (2) the Notional Amount of the Class XS
Certificates. The initial variable Pass-Through Rate for the Class IO
Certificates is approximately ______% per annum.
INTEREST DISTRIBUTIONS
Distributions on each distribution date will be made to the extent of the
Available Distribution Amount.
Distributions in respect of interest will be made (1) on each distribution
date to the holders of the Senior Certificates and, on the first distribution
date, to the holders of the Residual Certificates, in an aggregate amount equal
to the Senior Interest Distribution Amount and (2) on each distribution date to
the holders of the Subordinate Certificates, in an aggregate amount equal to the
Subordinate Interest Distribution Amount, to the extent of the portion of the
Available Distribution Amount remaining after distribution of the Senior
Interest Distribution Amount and the Senior Principal Distribution Amount.
All distributions of interest will be based on a 360-day year consisting of
twelve 30-day months. Except as otherwise described in this prospectus
supplement, on any distribution date, distributions of the Interest Distribution
Amount for a class of Certificates will be made, to the extent provided in this
prospectus supplement, on a PARI PASSU basis, based on the Certificate Principal
Balance or Notional Amount, as applicable, of the Certificates of each such
class.
Distributions of the Subordinate Interest Distribution Amount on each
distribution date will be made first, to the holders of the Class B-1
Certificates, second to the holders of the Class B-2 Certificates, third to the
holders of the Class B-3 Certificates, and then to the holders of the remaining
classes of Subordinate Certificates, in each case to the extent of available
funds and in each case to the extent of the Interest Distribution Amount for
these Certificates for the distribution date.
PRINCIPAL DISTRIBUTIONS ON THE SENIOR CERTIFICATES
Distributions in respect of principal will be made on each distribution
date to the holders of the class or classes of the Class A Certificates then
entitled to distributions in respect of principal, and on the first distribution
date to the holders of the Residual Certificates, in an aggregate amount equal
to the Senior Principal Distribution Amount.
Holders of the Class A Certificates then entitled to distributions in
respect of principal will be entitled to receive on each distribution date, and
holders of the Residual Certificates will be entitled to receive on the first
distribution date, distributions allocable to principal in reduction of the
Certificate Principal
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<PAGE>
Balances of the Class A Certificates, and on the first distribution date the
Residual Certificates, equal to the sum of the following:
(1) 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 during the related Due Period, whether or not
received;
(2) the principal portion of all proceeds received in respect
of the repurchase of a mortgage loan (or, in the case of a
substitution, amounts received representing a principal adjustment) as
required by the Agreement during the related Prepayment Period; and
(3) the principal portion of all other unscheduled collections
(other than amounts described in clauses (2) and (3) hereof), including
insurance proceeds and liquidation proceeds, received during the
related Prepayment Period, to the extent applied as recoveries of
principal;
(2) the product of (A) the then applicable Senior Prepayment Percentage
and (B) the aggregate of all full and partial principal prepayments
received during the related Prepayment Period;
(3) with respect to the net liquidation proceeds received and allocable
to principal of any mortgage loan that was finally liquidated during the
related Prepayment Period, the lesser of (a) the then applicable Senior
Prepayment Percentage multiplied by these net liquidation proceeds and (b)
the then applicable Senior Percentage multiplied by the Scheduled Principal
Balance of the mortgage loan at the time of liquidation; and
(4) any amounts allocable to principal for any previous distribution
date (calculated pursuant to the three preceding clauses) that remain
undistributed, to the extent that any of these amounts are not attributable
to Realized Losses that were allocated to the Subordinate Certificates.
Holders of the Class XS Certificates are not entitled to receive any
distributions allocable to principal.
The Senior Percentage initially will equal approximately _____%, and will
in no event exceed 100%.
The disproportionate allocation of unscheduled payments in respect of
principal will have the effect of accelerating the amortization of the Senior
Certificates (other than the Class XS Certificates) while, in the absence of
Realized Losses, increasing the respective percentage interest in the principal
balance of the mortgage loans evidenced by the Subordinate Certificates.
Increasing the respective percentage interest in the trust fund of the
Subordinate Certificates relative to that of the Senior Certificates is intended
to preserve the availability of the subordination provided by the Subordinate
Certificates.
If on any distribution date the allocation to the Class A Certificates of
full and partial principal prepayments and other amounts in the percentage
required above would reduce the aggregate outstanding Certificate Principal
Balance of the Class A Certificates below zero, the Senior Prepayment Percentage
for the distribution date will be limited to the percentage necessary to reduce
the aggregate Certificate Principal Balance of the Class A Certificates to zero.
For purposes of all principal distributions described above and for
calculating the Senior Percentage, the Subordinate Percentage and the Senior
Prepayment Percentage, the applicable Certificate Principal Balance for any
distribution date shall be determined after the allocation of losses on the
mortgage loans in the mortgage pool to be made on such distribution date as
described under "--Allocation of Losses; Subordination" below.
PRIORITY OF PRINCIPAL DISTRIBUTIONS ON THE CLASS A CERTIFICATES AND THE
RESIDUAL CERTIFICATES
Distributions of the Senior Principal Distribution Amount on the Class A
Certificates and the Residual Certificates on each distribution date will be
made as follows:
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<PAGE>
(1) First, concurrently, to the holders of each class of the Residual
Certificates on the distribution date in ________ ____, an amount equal to
the entire Certificate Principal Balance thereof;
(2) Second, to the holders of the Lockout Certificates, the Lockout
Distribution Percentage of the Senior Principal Distribution Amount, until
the Certificate Principal Balance thereof has been reduced to zero;
(3) Third, to the holders of the Class A-1 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero;
(4) Fourth, to the holders of the Class A-2 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero;
(5) Fifth, to the holders of the Class A-3 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero;
(6) Sixth, to the holders of the Class A-4 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero;
(7) Seventh, to the holders of the Class A-5 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero;
(8) Eighth, to the holders of the Lockout Certificates, until the
Certificate Principal Balance thereof has been reduced to zero.
Notwithstanding the foregoing priorities, upon the reduction of the
Certificate Principal Balances of the Subordinate Certificates to zero, the
priority of distributions of principal among the Class A Certificates will be
disregarded and distributions allocable to principal will be paid on each
succeeding distribution date to holders of the Class A Certificates, on a PRO
RATA basis, based on the Certificate Principal Balances thereof.
PRINCIPAL DISTRIBUTION ON THE SUBORDINATE CERTIFICATES
Holders of each class of Subordinate Certificates will be entitled to
receive on each distribution date, to the extent of the portion of the Available
Distribution Amount remaining after distribution of the Senior Interest
Distribution Amount, the Senior Principal Distribution Amount and the
Subordinate Interest Distribution Amount, distributions allocable to principal
in reduction of the Certificate Principal Balances thereof equal to the sum of
the following:
(1) the product of (A) the then applicable related Class B Percentage
and (B) the aggregate of the following amounts:
(1) the principal portion of all scheduled monthly payments on
the mortgage loans due during the related Due Period, whether or not
received;
(2) the principal portion of all proceeds received in respect
of the repurchase of a mortgage loan (or, in the case of a
substitution, amounts received representing a principal adjustment) as
required by the Agreement during the related Prepayment Period; and
(3) the principal portion of all other unscheduled collections
(other than amounts described in clauses (2) and (3) hereof), including
insurance proceeds and liquidation proceeds, received during the
related Prepayment Period, to the extent applied as recoveries of
principal;
(2) the portion allocable to such class of Subordinate Certificates,
as described below, of the product of (A) the then applicable Subordinate
Prepayment Percentage and (B) the aggregate of all full and partial
principal prepayments received during the related Prepayment Period;
(3) the portion allocable to such class of Subordinate Certificates,
as described below, of net liquidation proceeds received and allocable to
principal of any mortgage loan that was finally liquidated during the
related Prepayment Period, to the extent of the amount, if any, by which
such net liquidation
S-41
<PAGE>
proceeds exceed the amount distributable to the Class A Certificates in
respect of such net liquidation proceeds pursuant to clause (3) of the
definition of Senior Principal Distribution Amount; and
(4) any amounts allocable to principal for any previous distribution
date (calculated pursuant to the three preceding clauses) that remain
undistributed, to the extent that any of these amounts are not attributable
to Realized Losses that were allocated to classes of the Subordinate
Certificates bearing a higher numerical class designation.
On any distribution date, the portion of (a) all principal prepayments on
the mortgage loans and (b) net liquidation proceeds allocable to principal of
any mortgage loan that was finally liquidated during the related Prepayment
Period, in each case not included in the Senior Principal Distribution Amount
will be allocated on a PRO RATA basis among the following classes of Subordinate
Certificates in proportion to the respective outstanding Certificate Principal
Balances thereof: (1) the Class B-1 Certificates; (2) the Class B-2
Certificates, if on such distribution date the aggregate percentage interest in
the trust fund evidenced by the Class B-2 Certificates, the Class B-3
Certificates, the Class B-4 Certificates, the Class B-5 Certificates and the
Class B-6 Certificates equals or exceeds ____% before giving effect to
distributions on such distribution date; (3) the Class B-3 Certificates, if on
such distribution date the aggregate percentage interest in the trust fund
evidenced by the Class B-3 Certificates, the Class B-4 Certificates, the Class
B-5 Certificates and the Class B-6 Certificates equals or exceeds ____% before
giving effect to distributions on such distribution date; (4) the Class B-4
Certificates, if on such distribution date the percentage interest in the trust
fund evidenced by the Class B-4 Certificates, the Class B-5 Certificates and the
Class B-6 Certificates equals or exceeds ____% before giving effect to
distributions on such distribution date; (5) the Class B-5 Certificates, if on
such distribution date the percentage interest in the trust fund evidenced by
the Class B-5 Certificates and the Class B-6 Certificates equals or exceeds
____% before giving effect to distributions on such distribution date; and (6)
the Class B-6 Certificates, if on such distribution date the percentage interest
in the trust fund evidenced by the Class B-6 Certificates equals or exceeds
____% before giving effect to distributions on such distribution date.
For purposes of all principal distributions described above and for
calculating the Subordinate Percentage, the applicable Certificate Principal
Balance for any distribution date shall be determined after the allocation of
losses on the mortgage loans in the mortgage pool to be made on such
distribution date as described under "--Allocation of Losses; Subordination"
below.
As stated above under "--Principal Distributions on the Senior
Certificates", for each distribution date occurring prior to the distribution
date in ________ ____, the Senior Prepayment Percentage will equal 100%, and
until the earlier of such date and the date on which the Class A Certificates
are paid in full, no distributions based on principal prepayments or, in some
instances, net liquidation proceeds, on the mortgage loans will be distributed
to the Subordinate Certificates. Thereafter, unless the Certificate Principal
Balances of the Senior Certificates have been reduced to zero, the Subordinate
Prepayment Percentage may continue to be 0% or otherwise be disproportionately
small relative to the Subordinate Percentage. See "--Principal Distributions on
the Senior Certificates" in this prospectus supplement.
Distributions of the Subordinate Principal Distribution Amount on each
distribution date will be made as follows: first to the holders of the Class B-1
Certificates, second to the holders of the Class B-2 Certificates, third to the
holders of the Class B-3 Certificates, and then to the holders of the remaining
classes of Subordinate Certificates, in each case to the extent of available
funds and in each case to the extent of the portion of the Subordinate Principal
Distribution Amount payable in respect of each such class of Subordinate
Certificates for such distribution date.
P&I ADVANCES
Subject to the following limitations, the Master Servicer will be obligated
to advance or cause to be advanced on or before each distribution date its own
funds, or funds in the Certificate Account that are not
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<PAGE>
included in the Available Distribution Amount for such distribution date, in an
amount equal to the P&I Advances for such distribution date.
P&I 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 or liquidation proceeds. The purpose of making P&I 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
P&I 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.
All P&I Advances will be reimbursable to the Master Servicer from late
collections, insurance proceeds and liquidation proceeds from the mortgage loan
as to which the unreimbursed P&I Advance was made. In addition, any P&I Advances
previously made in respect of any mortgage loan that are deemed by the Master
Servicer to be nonrecoverable from related late collections, insurance proceeds
or liquidation proceeds may be reimbursed to the Master Servicer out of any
funds in the Certificate Account prior to the distributions on the Certificates.
In the event the Master Servicer fails in its obligation to make any such
advance, the Trustee will be obligated to make any such advance, to the extent
required in the Agreement.
ALLOCATION OF LOSSES; SUBORDINATION
Realized Losses (other than Excess Losses) will be allocated on any
distribution date as follows: first, to the Class B-6 Certificates; second, to
the Class B-5 Certificates; third, to the Class B-4 Certificates; fourth, to the
Class B-3 Certificates; fifth, to the Class B-2 Certificates; and sixth, to the
Class B-1 Certificates, in each case until the Certificate Principal Balance of
such class has been reduced to zero. Thereafter, such Realized Losses will be
allocated on any distribution date among the Class A Certificates on a PRO RATA
basis. Excess Losses will be allocated on any distribution date among all the
Certificates (other than the Class XS Certificates) on a PRO RATA basis. Any
allocation of a Realized Loss to a Certificate will be made by reducing the
Certificate Principal Balance thereof by the amount so allocated as of the
distribution date in the month following the calendar month in which such
Realized Loss was incurred.
An allocation of a Realized Loss on a PRO RATA basis among two or more
classes of Certificates means an allocation to each such class of Certificates
on the basis of its then outstanding Certificate Principal Balance prior to
giving effect to distributions to be made on such distribution date.
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 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 P&I Advances, Servicing Fees and Servicing Advances) 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 in this prospectus supplement as "Realized Losses".
The Special Hazard Amount, Fraud Loss Amount and Bankruptcy Amount may be
reduced or modified upon confirmation from Standard & Poor's and Fitch that such
reduction or modification will not adversely affect the then-current ratings
assigned to the offered certificates rated thereby. Such a reduction or
modification may adversely affect the coverage provided by the subordination
with respect to Special Hazard Losses, Fraud Losses and Bankruptcy Losses.
In the event that Realized Losses are incurred that are covered by
subordination, such losses will be allocated to the most subordinate class of
Certificates then outstanding. The priorities for distribution of cash flows
described in this prospectus supplement, in some circumstances, may result in
cash flow shortfalls to any class of Subordinate Certificates even if it is not
the most subordinate class of Certificates then outstanding; however, the
interest portion of any such shortfall would be distributable as unpaid Interest
S-43
<PAGE>
Distribution Amount on future distribution dates as cash flows allow, to the
extent of available funds, and the principal portion of any such shortfall would
not result in a reduction of the Certificate Principal Balance of such class. In
such event, the percentage interest represented by such class would increase
relative to the respective Certificate Principal Balances of the more
subordinate classes of Certificates. With respect to the most subordinate class
of the Certificates outstanding at the time any Realized Loss is incurred, the
total amount of the Realized Loss allocated to such class may be greater than
the concurrent reduction in the Certificate Principal Balance thereof because
such reduction will not reflect any undistributed Interest Distribution Amount
on such class. Such undistributed Interest Distribution Amount on the most
subordinate class of the Certificates outstanding will not be distributable on
any future distribution date. As a result, it is possible that the total amount
of Realized Losses that may be allocated to any class of Subordinate
Certificates may exceed the initial Certificate Principal Balance thereof.
In order to maximize the likelihood of distribution in full of the Senior
Interest Distribution Amount and the Senior Principal Distribution Amount, on
each distribution date, holders of Senior Certificates have a right to
distributions of the Available Distribution Amount that is prior to the rights
of the holders of the Subordinate Certificates, to the extent necessary to
satisfy the Senior Interest Distribution Amount and the Senior Principal
Distribution Amount.
The application of the Senior Prepayment Percentage (when it exceeds the
Senior Percentage) to determine the Senior Principal Distribution Amount will
accelerate the amortization of the Class A Certificates relative to the actual
amortization of the mortgage loans. To the extent that the Class A Certificates
are amortized faster than the mortgage loans, in the absence of offsetting
Realized Losses allocated to the Subordinate Certificates, the percentage
interest evidenced by the Class A Certificates in the trust fund will be
decreased (with a corresponding increase in the percentage interest in the trust
fund evidenced by the Subordinate Certificates), thereby increasing, relative to
their respective Certificate Principal Balances, the subordination afforded the
Senior Certificates by the Subordinate Certificates.
RESTRICTIONS ON TRANSFER OF THE SUBORDINATE CERTIFICATES AND THE RESIDUAL
CERTIFICATES
Because the Subordinate Certificates are subordinate to the Senior
Certificates, the Subordinate Certificates of any class may not be purchased by
or transferred to a Plan except upon the delivery of a certification of facts or
an opinion of counsel, as provided in this prospectus supplement. In addition,
the Residual Certificates may not be purchased by or transferred to a Plan
except upon the delivery of a certification of facts or an opinion of counsel,
as provided in this prospectus supplement. See "ERISA Considerations" in this
prospectus supplement. In addition, the Residual Certificates will be subject to
additional restrictions described under "Federal Income Tax
Consequences--Special Tax Considerations Applicable to the Residual
Certificates" in this prospectus supplement and "Federal Income Tax
Consequences--REMICs--Tax on Transfers of REMIC Residual Certificates to Certain
Organizations" and "--Taxation of Owners of REMIC Residual
Certificates--Noneconomic REMIC Residual Certificates" in the prospectus.
POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to the Agreement, a form of which
is filed as an exhibit to the registration statement. A Current Report on Form
8-K relating to the Certificates containing a copy of the Agreement as executed
will be filed by the company with the Securities and Exchange Commission within
fifteen days of the initial issuance of the Certificates. The trust fund created
under the Agreement will consist of (1) all of the company's right, title and
interest in and to the mortgage loans, the related mortgage notes, mortgages and
other related documents, (2) all payments on or collections in respect of the
mortgage loans due after the Cut-off Date, together with any proceeds thereof,
(3) any mortgaged properties acquired on behalf of certificateholders by
foreclosure or by deed in lieu of foreclosure, and any revenues received
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<PAGE>
thereon, (4) the rights of the Trustee under all insurance policies required to
be maintained pursuant to the Agreement and (5) the rights of the company under
the Mortgage Loan Purchase Agreement among the company, the Seller and the
Originator (other than certain rights of the company to indemnification by the
Originator). Reference is made to the prospectus for important information in
addition to that set forth in this prospectus supplement regarding the trust
fund, the terms and conditions of the Agreement and the offered certificates.
The offered certificates will be transferable and exchangeable at the corporate
trust offices of the Trustee, located in Minneapolis, Minnesota. The company
will provide to prospective or actual certificateholders without charge, on
written request, a copy (without exhibits) of the Agreement. Requests should be
addressed to the Secretary, Impac Secured Assets Corp., 1401 Dove Street,
Newport Beach, CA 92660 and its phone number is (949) 475-3600.
ASSIGNMENT OF THE MORTGAGE LOANS
The company will deliver to the Trustee or to a custodian with respect to
each mortgage loan (1) the mortgage note endorsed without recourse to the
Trustee to reflect the transfer of the mortgage loan, (2) the original mortgage
with evidence of recording indicated thereon and (3) an assignment of the
mortgage in recordable form to the Trustee, reflecting the transfer of the
mortgage loan. Such assignments of mortgage loans are required to be recorded by
or on behalf of the company in the appropriate offices for real property
records.
DELINQUENCY AND FORECLOSURE EXPERIENCE OF IMPAC FUNDING
[Sample disclosure as follows:
Based solely upon information provided by Impac Funding, the following
tables summarize, for the respective dates indicated, the delinquency,
foreclosure, bankruptcy and REO property status with respect to all mortgage
loans originated or acquired by Impac Funding which were being master serviced
by Impac Funding at the dates 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. A mortgage loan is considered "30 days" delinquent if a payment
due on the first of the month is not received by the second day of the following
month, and so forth.
A substantial majority of mortgage loan sales by Impac Funding during 1999
were made on a servicing- released basis. The following information does not
include statistical information on such mortgage loans.
As a result, the aggregate principal balance of non-delinquent mortgage loans
serviced by Impac Funding is not as high as it would otherwise be, resulting in
increased delinquency percentages for the total portfolio of mortgage loans
serviced as of December 31, 1999.
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<PAGE>
<TABLE>
<CAPTION>
At December 31, 1996 At December 31, 1997 At December 31, 1998 At December 31, 1999
------------------------- ------------------------ ----------------------- --------------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL
OF LOANS AMOUNT OF LOANS AMOUNT OF LOANS AMOUNT OF LOANS AMOUNT
-------- ------ -------- -------- -------- -------- -------- -------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Loans Outstanding...... 11,996 $1,550,121 28,494 $3,028,554 33,414 $3,713,986 26,002 $2,878,701
DELINQUENCY1 2 Period of
Delinquency:
30-59 Days............ 587 $66,272 1,167 $136,427 1,677 $172,723 1,152 $128,385
60-89 Days............ 118 15,089 282 33,203 506 46,719 331 30,817
90 Days or More....... 3 95 69 6,454 799 51,454 369 21,113
------ ------- ------- -------- ------- --------
Total Delinquencies...... 708 $81,456 1,518 $176,084 2,982 $270,896 1,852 $180,315
====== ======= ======= ======== ======= ======== ===== ========
Delinquencies as a Percentage
of Total Loans Outstanding... 5.90% 5.25% 5.33% 5.81% 8.92% 7.29% 7.12% 6.26%
</TABLE>
- --------
1 The delinquency balances, percentages and numbers set forth under this
heading exclude (a) delinquent mortgage loans that were in foreclosure at
the respective dates indicated ("Foreclosure Loans"), (b) delinquent
mortgage loans as to which the related mortgagor was in bankruptcy
proceedings at the respective dates indicated ("Bankruptcy Loans") and (c)
REO properties that have been purchased upon foreclosure of the related
mortgage loans. All Foreclosure Loans, Bankruptcy Loans and REO properties
have been segregated into the sections of the table entitled "Foreclosures
Pending," "Bankruptcies Pending" and "REO Properties," respectively, and
are not included in the "30-59 Days," "60-89 Days," "90 Days or More" and
"Total Delinquencies" sections of the table. See the section of the table
entitled "Total Delinquencies plus Foreclosures Pending and Bankruptcies
Pending" for total delinquency balances, percentages and numbers which
include 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 A substantial majority of mortgage loan sales by Impac Funding during 1999
were made on a servicing-released basis. The information on this table does
not include statistical information on such mortgage loans. As a result,
the aggregate principal balance of non-delinquent mortgage loans serviced
by Impac Funding is not as high as it would otherwise be, resulting in
increased delinquency percentages for the total portfolio of mortgage loans
serviced as of December 31, 1999.
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<PAGE>
<TABLE>
<CAPTION>
At December 31, 1996 At December 31, 1997 At December 31, 1998 At December 31, 1999
------------------------- ------------------------- ------------------------ ------------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL
OF LOANS AMOUNT OF LOANS AMOUNT OF LOANS AMOUNT OF LOANS AMOUNT
-------- ------ -------- -------- -------- -------- -------- -------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FORECLOSURES PENDING3.......... 180 $ 25,697 378 $ 41,792 459 $ 54,678 334 $46,969
Foreclosures Pending as a
Percentage of Total Loans
Outstanding.................... 1.50% 1.66% 1.33% 1.38% 1.37% 1.47% 1.29% 1.64%
BANKRUPTCIES PENDING4.......... 55 $ 6,315 140 $ 15,517 362 $ 25,973 325 $26,858
Bankruptcies Pending as a
Percentage of Total Loans
Outstanding.................... 0.46% 0.41% 0.49% 0.51% 1.08% 0.70% 1.25% 0.93%
Total Delinquencies plus
Foreclosures Pending and
Bankruptcies Pending........... 943 $113,468 2,036 $233,393 3,803 $351,547 2,511 $254,142
Total Delinquencies plus
Foreclosures Pending and
Bankruptcies Pending as a
Percentage of Total Loans
Outstanding.................... 7.86% 7.32% 7.15% 7.71% 11.38% 9.47% 9.66% 8.83%
REO PROPERTIES5................ 2 $ 429 80 $ 9,276 116 $ 13,958 119 $13,882
REO Properties as a Percentage
of Total Loans Outstanding...... 0.02% 0.03% 0.28% 0.31% 0.35% 0.38% 0.46% 0.48%
</TABLE>
- --------
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 Impac Funding, to commence foreclosure proceedings when a
mortgage loan is 60 days or more delinquent. However, the Master Servicer
may delay the foreclosure process as a result of loss mitigation efforts.
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 Impac
Funding after the respective dates indicated.
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<PAGE>
The above data on delinquency, foreclosure, bankruptcy and REO property
status as of December 31, 1998, include mortgage loans which were sold
servicing-released by Impac Funding, but for which the servicing had not yet
been transferred as of such date.
A substantial majority of mortgage loan sales by Impac Funding during
1999 were made on a servicing-released basis. The following information does not
include statistical information on such mortgage loans. As a result, the
aggregate principal balance of non-delinquent mortgage loans serviced by Impac
Funding is not as high as it would otherwise be, resulting in increased loss
percentages for the total portfolio of mortgage loans serviced as of December
31, 1999.
Based solely on information provided by Impac Funding, the following
table presents the changes in Impac Funding's charge-offs and recoveries for the
periods indicated.
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<PAGE>
<TABLE>
<CAPTION>
TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS
ENDED ENDED ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1999
-------------------------- -------------------------- -------------------------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Charge-offs:
Mortgage Loan Properties.......... $ 291 $ 2,684 $
REO Properties.................... 4,862 (153)
Recoveries:
Mortgage Loan Properties.......... 62 0
REO Properties.................... 18 0 0
Net charge-offs:....................... 5,073 2,531*
Ratio of net charge-offs to average
loans
outstanding during the indicated 0.22%** 0.08%** ____%**
period***..............................
</TABLE>
- ---------------
* Does not include losses of $358,354 from the sale of delinquent loans
recorded by Impac Funding during the twelve months ended
December 31, 1998.
** The ratio of net charge-offs was based upon annualized charge-offs for
the indicated periods. The average loans outstanding was computed using
monthly balances for the indicated periods.
*** The information on this table does not include statistical information
on mortgage loans which have recently been sold on a servicing-released
basis by Impac Funding to third parties. In addition, it does not
include statistical information for mortgage loans for which the
servicing rights were sold by Impac Funding in 1999. As a result, the
aggregate principal balance of non-delinquent mortgage loans serviced
has decreased, resulting in increased loss percentages for mortgage
loans serviced as of December 31, 1998 and December 31, 1999.
From November 1995 through December 1996, Impac Funding experienced no
charge-offs and no recoveries.
The above data on charge-offs and recoveries are calculated on the
basis of the total mortgage loans originated or acquired by Impac Funding.
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 Impac
Funding has been provided by Impac Funding.]
THE TRUSTEE
___________________, a national banking association, will act as
Trustee for the Certificates pursuant to the Agreement. The Trustee's offices
for notices under the Agreement are located at [address].
The principal compensation to be paid to the Trustee in respect of its
obligations under the Agreement will be equal to the Trustee's Fee. The
Agreement will provide that the Trustee and any director, officer, employee or
agent of the Trustee will be indemnified by the trust fund and will be held
harmless against any loss, liability or expense (not including expenses,
disbursements and advances incurred or made by the Trustee, including the
compensation and the expenses and disbursements of its agents and counsel, in
the ordinary course of the Trustee's performance in accordance with the
provisions of the Agreement)
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<PAGE>
incurred by the Trustee in connection with any pending or threatened claim or
legal action arising out of or in connection with the acceptance or
administration of its obligations and duties under the Agreement, other than any
loss, liability or expense (1) resulting from a breach of either of the Master
Servicer's obligations and duties under the Agreement, (2) that constitutes a
specific liability of Trustee under the Agreement or (3) incurred by reason of
willful misfeasance, bad faith or negligence in the performance of the Trustee's
duties under the Agreement or as a result of a breach, or by reason of reckless
disregard, of the Trustee's obligations and duties under the Agreement.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation to be paid to the Master Servicer in respect
of its servicing activities for the Certificates will be equal to the Servicing
Fee. As additional servicing compensation, the Master Servicer is entitled to
retain all assumption fees and late payment charges in respect of mortgage loans
master serviced by it, to the extent collected from mortgagors, together with
any interest or other income earned on funds held in the Certificate Account and
any escrow accounts in respect of mortgage loans master serviced by it.
The Master Servicer is obligated to offset any Prepayment Interest Shortfall in
respect of the mortgage loans on any distribution date with Compensating
Interest to the extent of its aggregate Servicing Fee for such distribution
date. The Master Servicer is obligated to pay insurance premiums and ongoing
expenses associated with the mortgage pool in respect of mortgage loans and
incurred by the Master Servicer in connection with its responsibilities under
the Agreement. However, the Master Servicer is entitled to reimbursement
therefor as provided in the Agreement. See "Description of the
Certificates--Retained Interest; Servicing Compensation and Payment of Expenses"
in the prospectus for information regarding expenses payable by the Master
Servicer and "Federal Income Tax Consequences" in this prospectus supplement
regarding taxes payable by the Master Servicer.
VOTING RIGHTS
At all times, __% of all Voting Rights will be allocated among the
holders of the Certificates (other than the Class XS Certificates and the
Residual Certificates) in proportion to the then outstanding Certificate
Principal Balances of their respective Certificates, __% of all Voting Rights
will be allocated among the holders of the Class XS Certificates in proportion
to the then outstanding Notional Amounts of their respective Certificates and
__% of all Voting Rights will be allocated among the holders of the Residual
Certificates in proportion to the percentage interests in each such class
evidenced by their respective Certificates.
TERMINATION
The circumstances under which the obligations created by the Agreement
will terminate in respect of the Certificates are described in "Description of
the Certificates--Termination" in the prospectus. The Master Servicer will have
the right to purchase the mortgage loans and any properties acquired in respect
thereof on any distribution date, once the aggregate principal balance of the
mortgage loans and such properties at the time of purchase is reduced to less
than __% of the aggregate principal balance of the mortgage loans as of the
Cut-off Date. If the Master Servicer elects to exercise the foregoing option, it
will effect the termination of the trust fund and the early retirement of the
Certificates. In the event the Master Servicer exercises this option,
notwithstanding the terms of the prospectus, the purchase price payable in
connection therewith generally will be equal to par plus accrued interest for
each mortgage loan at the related mortgage rate to but not including the first
day of the month in which the repurchase price is distributed, and the portion
of the purchase price allocable to the Certificates of each class will be, to
the extent of available funds, (1) in the case of the Certificates of any class,
other than the Class XS Certificates, 100% of the then outstanding Certificate
Principal Balance thereof, plus (2) in the case of the Certificates of any
class, one month's interest on the then outstanding Certificate Principal
Balance or Notional Amount thereof at the then applicable Pass-Through Rate for
such class plus any previously accrued but unpaid interest thereon. In no event
will the trust created by the Agreement continue beyond the expiration of 21
years from the death of
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<PAGE>
the survivor of the persons named in the Agreement. See "Description of the
Certificates--Termination" in the prospectus. In no event will the trust created
by the Agreement continue beyond the expiration of 21 years from the death of
the survivor of the person or persons named in the Agreement. See "Description
of the Certificates--Termination" in the prospectus.
FEDERAL INCOME TAX CONSEQUENCES
An election will be made to treat the trust fund as a REMIC for federal
income tax purposes. Upon the issuance of the offered certificates, Thacher
Proffitt & Wood, counsel to the company, will deliver its opinion generally to
the effect that, assuming compliance with all provisions of the Agreement, for
federal income tax purposes, the REMIC will qualify as a REMIC under Sections
860A through 860G of the Code.
For federal income tax purposes, (1) the Class R Certificates will be
the sole class of "residual interests" in the REMIC and (2) the Senior
Certificates and the Subordinate Certificates will evidence the "regular
interests" in, and will be treated as debt instruments of, the REMIC. See
"Federal Income Tax Consequences--REMIC--Classification of REMICs" in the
prospectus.
For federal income tax reporting purposes, the Class XS Certificates
will, and the Class A Certificates, the Class B-1 Certificates, the Class B-2
Certificates and the Class B-3 Certificates will not, 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, premium and
market discount, 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 ____% of the Prepayment Vector. 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" in the prospectus.
The IRS has issued 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 Class XS Certificates should be aware that the
OID Regulations do not adequately address some issues relevant to, or are not
applicable to, securities such as the Class XS Certificates. In addition, there
is considerable uncertainty concerning the application of the OID Regulations to
REMIC Regular Certificates that provide for payments based on a variable rate
such as the Class XS Certificates. Prospective purchasers of the Class XS
Certificates are advised to consult their tax advisors concerning the tax
treatment of such Certificates.
If the method of computing original issue discount described in the
prospectus results in a negative amount for any period with respect to any
certificateholders (in particular, the holders of the Class XS Certificates),
the amount of original issue discount allocable to such period would be zero,
and such certificateholders will be permitted to offset such amounts only
against the respective future income (if any) from such Certificate. Although
uncertain, a certificateholders may be permitted to deduct a loss to the extent
that his or her respective remaining basis in such Certificate exceeds the
maximum amount of future payments to which such certificateholders is entitled,
assuming no further prepayments of the mortgage loans. Although the matter is
not free from doubt, any such loss might be treated as a capital loss.
The OID Regulations suggest that original issue discount with respect
to securities such as the Class XS Certificates that represent multiple
uncertificated REMIC regular interests, in which ownership interests will be
issued simultaneously to the same buyer should be computed on an aggregate
method. In the absence of further guidance from the IRS, original issue discount
with respect to the uncertificated regular interests represented by the Class XS
Certificates will be reported to the IRS and the certificateholders on an
aggregate method based on a single overall constant yield and the prepayment
assumption stated above, treating all such uncertificated regular interests as a
single debt instrument as set forth in the OID Regulations.
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<PAGE>
The OID Regulations in some circumstances permit the holder of a debt
instrument to recognize original issue discount under a method that differs from
that of the issuer. Accordingly, it is possible that holders of offered
certificates issued with original issue discount may be able to select a method
for recognizing original issue discount that differs from that used in preparing
reports to certificateholders and the IRS. Prospective purchasers of offered
certificates issued with original issue discount are advised to consult their
tax advisors concerning the tax treatment of such Certificates in this regard.
Some Classes of Certificates may be treated for federal income tax
purposes as having been issued with a premium. Certificateholders may elect to
amortize such premium under a constant yield method in which case such
amortizable premium will generally be allocated among the interest payments on
such Certificates and will be applied as an offset against such interest
payments. See "Federal Income Tax Consequences--REMICs--Taxation of Owners of
REMIC Regular Certificates--Premium" in the prospectus.
The offered certificates will be treated as assets described in Section
7701(a)(19)(C) of the Code and "real estate assets" under Section 856(c)(4)(A)
of the Code, generally in the same proportion that the assets in the related
trust fund would be so treated. In addition, interest on the offered
certificates will be treated as "interest on obligations secured by mortgages on
real property" under Section 856(c)(3)(B) of the Code, generally to the extent
that the offered certificates are treated as "real estate assets" under Section
856(c)(4)(A) of the Code. The offered certificates (other than the Residual
Certificates) also will be treated as "qualified mortgages" under Section
860G(a)(3) of the Code. See "Federal Income Tax
Consequences--REMICs--Characterization of Investments in REMIC Certificates" in
the prospectus.
It is not anticipated that the REMIC will engage in any transactions
that would subject it to the prohibited transactions tax as defined in Section
860F(a)(2) of the Code, the contributions tax as defined in Section 860G(d) of
the Code or the tax on net income from foreclosure property as defined in
Section 860G(c) of the Code. However, in the event that any such tax is imposed
on the REMIC, such tax will be borne (1) by the Trustee, if the Trustee has
breached its obligations with respect to REMIC compliance under the Agreement,
(2) by the Master Servicer, if the Master Servicer has breached its obligations
with respect to REMIC compliance under the Agreement and (3) otherwise by the
trust fund, with a resulting reduction in amounts otherwise distributable to
holders of the related offered certificates. See "Description of the
Certificates-- General" and "Federal Income Tax Consequences--REMICs--Prohibited
Transactions Tax and Other Taxes" in the prospectus.
The responsibility for filing annual federal information returns and
other reports will be borne by the Trustee. See "Federal Income Tax
Consequences--REMICs--Reporting and Other Administrative Matters" in the
prospectus.
For further information regarding the federal income tax consequences
of investing in the offered certificates, see "Federal Income Tax
Consequences--REMICs" in the prospectus.
SPECIAL TAX CONSIDERATIONS APPLICABLE TO RESIDUAL CERTIFICATES
The IRS has issued REMIC Regulations that significantly affect holders
of the Residual Certificates. The REMIC Regulations will impose restrictions on
the transfer or acquisition of residual interests, including the Residual
Certificates. In addition, the REMIC Regulations contain restrictions that apply
to the transfer of "noneconomic" residual interests to United States persons.
The REMIC Regulations also provide that transfers of a Residual Certificate to a
non-United States person will be disregarded for tax purposes in some cases.
Transfers of the Residual Certificates to such persons are, however, prohibited
under the Agreement.
See "Federal Income Tax Consequences--REMICs--Taxation of Owners of REMIC
Residual Certificates--Noneconomic REMIC Residual Certificates" in the
prospectus and "ERISA Considerations" and "Description of the
Certificates--Restrictions on Transfer of the Residual Certificates" in this
prospectus supplement for additional restrictions on transfer of the Residual
Certificates.
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<PAGE>
The REMIC Regulations also provide that a transfer to a United States
person of "noneconomic" residual interests will be disregarded for all federal
income tax purposes, and that the purported transferor of "noneconomic" residual
interests will continue to remain liable for any taxes due with respect to the
income on such residual interests, unless "no significant purpose of the
transfer was 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 terms for purposes of the REMIC
Regulations and, accordingly, unless no significant purpose of a transfer is 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 restrictions under the
terms of the Agreement that are intended to reduce the possibility of any such
transfer being disregarded to the extent that the Residual Certificates
constitute noneconomic residual interests.
The holders of the Residual Certificates will be required to report
taxable income and pay tax with respect to the early accrual periods of the
REMIC's term that significantly exceeds the amount of cash distributions
received by such holders 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, holders of Residual Certificates should
have other sources of funds sufficient to pay any federal income taxes due in
the earlier years of the REMIC as a result of their ownership of Class R
Certificates. In addition, the required inclusion of this amount of taxable
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 after-tax rate
of return of a holder of a Residual Certificate to be zero or negative even
where such holders' pre-tax rate of return is positive. That is, on a present
value basis, the resulting tax liabilities of a holder of a Residual Certificate
will 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 a pass-through entity) 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
holder's regular tax liability and will not be able to deduct these fees or
expenses to any extent in computing such holder's alternative minimum tax
liability. See "Federal Income Tax Consequences--REMICs--Taxation of Owners of
REMIC Residual Certificates--Pass Through of Miscellaneous Itemized Deductions"
in the prospectus.
Potential investors in Residual Certificates should also be aware that
under the terms of the Agreement, the holders of the largest Percentage Interest
in the Residual Certificates shall, by their acceptance of such Certificates,
agree to irrevocably appoint the Trustee as their agent to perform all of the
duties of the tax matters person for the REMIC.
Purchasers of the Residual Certificates are strongly advised to consult
their own tax advisors as to the economic and tax consequences of investment in
the Residual Certificates.
For further information regarding the federal income tax consequences
of investing in the Residual Certificates, see "Yield on the
Certificates--Additional Yield Considerations Applicable Solely to the Residual
Certificates" in this prospectus supplement and "Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Residual Certificates" in the
prospectus.
For further information regarding the federal income tax consequences
of investing in the offered certificates, see "Federal Income Tax
Consequences--REMICs" in the prospectus.
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<PAGE>
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the underwriting
agreement, dated _________ __, ____, the company has agreed to sell, and the
Underwriter has agreed to purchase the offered certificates.
The Underwriter is obligated to purchase all offered certificates of the
respective classes offered by this prospectus supplement if it purchases any.
The Underwriter is an affiliate of the company.
Distribution of the offered certificates will be made from time to time
in negotiated transactions or otherwise at varying prices to be determined at
the time of sale. Proceeds to the company from the sale of the offered
certificates, before deducting expenses payable by the company, will be
approximately _________% of the aggregate initial Certificate Principal Balance
of the offered certificates, plus accrued interest on the offered certificates.
In connection with the purchase and sale of the offered certificates, the
Underwriter may be deemed to have received compensation from the company in the
form of underwriting discounts.
The offered certificates are offered subject to receipt and acceptance
by the Underwriter, to prior sale and to the Underwriter's right to reject any
order in whole or in part and to withdraw, cancel or modify the offer without
notice. It is expected that delivery of the Book-Entry Certificates will be made
through the facilities of DTC, and that delivery of each other class of offered
certificates and the Residual Certificates will be made at the offices of the
Underwriter, [Address], in each case, on or about the Closing Date.
The underwriting agreement provides that the company will indemnify the
Underwriter against certain civil liabilities, including liabilities under the
Securities Act of 1933, as amended, or will contribute to payments the
Underwriter may be required to make in respect thereof.
SECONDARY MARKET
There can be no assurance that a secondary market for the offered
certificates will develop or, if it does develop, that it will continue. The
primary source of information available to investors concerning the offered
certificates will be the monthly statements discussed in the prospectus under
"Description of the Securities--Reports to Certificateholders", which will
include information as to the outstanding principal balance of the offered
certificates and the status of the applicable form of credit enhancement. There
can be no assurance that any additional information regarding the offered
certificates will be available through any other source. In addition, the
company is not aware of any source through which price information about the
offered certificates will be generally available on an ongoing basis. The
limited nature of information regarding the offered certificates may adversely
affect the liquidity of the offered certificates, even if a secondary market for
the offered certificates becomes available.
LEGAL OPINIONS
Legal matters relating to the offered certificates will be passed upon
for the company and the Underwriter by Thacher Proffitt & Wood, New York, New
York.
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<PAGE>
RATINGS
It is a condition to the issuance of the Certificates that the Class A
Certificates and the Residual Certificates be rated "AAA" by _________________
("_____") and "AAA" by ____________ ("____"), that the Class XS Certificates be
rated "AAAr" by ________ and "AAA" by ______, that the Class B-1 Certificates be
rated at least "AA" by _________ and at least "AA" by _______, that the Class
B-2 Certificates be rated at least "A" by _________ and at least "A" by
________, and that the Class B-3 Certificates be rated at least "BBB" by
__________.
The ratings of _________ and ________ assigned to mortgage pass-through
certificates address the likelihood of the receipt by certificateholders of all
distributions to which the certificateholders are entitled.
The rating process addresses structural and legal aspects associated with the
Certificates, including the nature of the underlying mortgage loans. The ratings
assigned to mortgage pass-through certificates do not represent any assessment
of the likelihood that principal prepayments will be made by the mortgagors or
the degree to which the rate and timing principal prepayments will differ from
that originally anticipated. The ratings do not address the possibility that
certificateholders might suffer a lower than anticipated yield due to non-credit
events or that the holders of the Class XS Certificates may fail to recover
fully their initial investment. In addition, the ratings on the Residual
Certificates do not address the likelihood of receipt by the holders of the
Residual Certificates of any amounts in excess of their initial Certificate
Balance thereof and interest thereon. [The "r" of the "AAAr" rating of the Class
XS Certificates by ____________ is attached to highlight derivative, hybrid, and
certain other certificates that _____________ believes may experience high
volatility or high variability in expected returns due to non-credit risks.
Examples of such obligations are: securities whose principal or interest return
is indexed to equities, commodities or currencies; swaps and options; and
interest only and principal only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that a Certificate will exhibit no
volatility or variability in total return].
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 ratings
initially assigned to the offered certificates are subsequently lowered for any
reason, no person or entity is obligated to provide any additional credit
support or credit enhancement with respect to the offered certificates.
The company has not requested that any rating agency rate any class of
the offered certificates other than as stated above. However, there can be no
assurance as to whether any other rating agency will rate any class of the
offered certificates, or, if it does, what rating would be assigned by any other
rating agency. A rating on any class of the offered certificates by another
rating agency, if assigned at all, may be lower than the ratings assigned to the
offered certificates as stated above.
LEGAL INVESTMENT
The Senior Certificates and the Class B-1 Certificates will constitute
"mortgage related securities" for purposes of SMMEA for so long as they are
rated not lower than the second highest rating category by a Rating Agency (as
defined in the prospectus) and, as such, will be legal investments for entities
to the extent provided in SMMEA. SMMEA, however, provides for state limitation
on the authority of these entities to invest in "mortgage related securities"
provided that restrictive legislation by the state was enacted prior to October
3, 1991. Some states have enacted legislation which overrides the preemption
provisions of SMMEA. The Class B-2 Certificates and the Class B-3 Certificates
will not constitute "mortgage related securities" for purposes of SMMEA.
The company makes 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 offered certificates under applicable legal investment restrictions.
These uncertainties
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<PAGE>
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 offered certificates constitutes a legal
investment or is subject to investment, capital or other restrictions.
See "Legal Investment" in the prospectus.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or any Plan or any person
investing Plan Assets of any Plan should carefully review with its legal
advisors whether the purchase, sale or holding of Certificates will give rise to
a prohibited transaction under ERISA or Section 4975 of the Code.
The U.S. Department of Labor has issued an Exemption, as described
under "ERISA Considerations" in the prospectus, to the Underwriter. The
Exemption generally exempts from the application of certain of the prohibited
transaction provisions of Section 406 of ERISA, and the excise taxes imposed on
such prohibited transactions by Section 4975(a) and (b) of the Code and Section
502(i) of ERISA, transactions relating to the purchase, sale and holding of
pass-through certificates underwritten by the Underwriter such as the Senior
Certificates, and the servicing and operation of asset pools such as the
mortgage pool, provided that conditions are satisfied. The purchase of the
Senior Certificates by, on behalf of or with the Plan Assets of any Plan may
qualify for exemptive relief under the Exemption. However, the Exemption
contains a number of conditions which must be met for the Exemption to apply (as
described in the prospectus), including the requirement that any such Plan must
be an "accredited investor" as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of 1933, as amended.
A fiduciary of a Plan contemplating purchasing a Senior Certificate must make
its own determination that the conditions set forth in the Exemption will be
satisfied with respect to the Senior Certificates.
Because the characteristics of the Subordinate Certificates and the
Residual Certificates will not meet the requirements of PTCE 83-1 (as described
in the prospectus) or the Exemption, the purchase, sale or holding of the
Subordinate Certificates or the Residual Certificates by, on behalf of or with
Plan Assets of any Plan may result in prohibited transactions or the imposition
of excise taxes or civil penalties. Therefore, the Agreement provides that
transfers of Subordinate or Residual Certificates to a Plan, a trustee or other
person acting on behalf of any Plan or to any person using Plan Assets to effect
such acquisition will not be registered by the Trustee unless the purchaser
thereof provides the company, the Trustee and the Master Servicer with either
(1) an opinion of counsel satisfactory to the company, the Trustee and the
Master Servicer, which opinion will not be at the expense of the company, the
Master Servicer, the Trustee or the trust fund, to the effect that the purchase
of such Certificates is permissible under applicable law, will not constitute or
result in any non-exempt prohibited transaction under ERISA or Section 4975 of
the Code and will not subject the company, the Master Servicer, the Trustee or
the trust fund to any obligation in addition to those undertaken in the
Agreement or (2) a certification of facts (which in the case of the Class B-1
Certificates, the Class B-2 Certificates and the Class B-3 Certificates, the
purchaser will be deemed to have represented such certification of facts)
substantially to the effect that the purchase of offered certificates by or on
behalf of such Plan is permissible under applicable law, will not constitute or
result on a non-exempt prohibited transaction under ERISA or Section 4975 of the
Code, will not subject the company, the Trustee or the Master Servicer to any
obligation in addition to those undertaken in the Agreement and the following
conditions are met: (a) the transferee is an insurance company and (1) the
source of funds used to purchase such offered certificates is an "insurance
company general account" (as such term is defined in PTCE 95-60), (2) the
conditions set forth in Sections I and III of PTCE 95-60 have been satisfied and
(3) there is no Plan with respect to which the amount of such general account's
reserves and liabilities for contracts held by or on behalf of such Plan and all
other Plans maintained by the same employer (or any "affiliate" thereof, as
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defined in PTCE 95-60) or by the same employee organization, exceeds 10% of the
total of all reserves and liabilities of such general account (as determined
under PTCE 95-60) as of the date of the acquisition of such Certificates; (b)
the transferee is an insurance company and (1) the source of funds used to
purchase such Certificates is an insurance company general account, (2) the
requirements of Sections 401(c) of ERISA and the regulations to be promulgated
thereunder have been satisfied and will continue to be satisfied and (3) the
insurance company represents that it understands that the operation of the
general account after December 31, 1998 may affect its ability to continue to
hold such Certificates after the date which is 18 months after the 401(c)
Regulations become final and that unless a Class Exemption or an exception under
Section 401(c) of ERISA is then available for the continued holding of such
Certificates, it will dispose of such Certificates prior to the date which is 18
months after the 401(c) Regulations become final; (c) the transferee is an
insurance company and (1) the source of funds used to purchase such Certificates
is an "insurance company pooled separate account" (as such term is defined in
PTCE 90-1), (2) the conditions set forth in PTCE 90-1 have been satisfied and
(3) there is no Plan, together with all other Plans maintained by the same
employer (or any "affiliate" thereof, as defined in PTCE 90-1) or by the same
employee organization, with assets which exceed 10% of the total of all assets
in such pooled separate account (as determined under PTCE 90-1) as of the date
of the acquisition of such Certificates; (d) the transferee is a bank and (1)
the source of funds used to purchase such Certificates is a "collective
investment fund" (as defined in PTCE 91-38), (2) the conditions set forth in
PTCE 91-38 have been satisfied and (3) there is no Plan, the interests of which,
together with the interests of any other Plans maintained by the same employer
or employee organization, in the collective investment fund exceed 10% of the
total of all assets in the collective investment fund (as determined under PTCE
91-38) as of the date of acquisition of such Certificates; (e) the transferee is
a "qualified professional asset manager" described in PTCE 84-14 and the
conditions set forth in PTCE 84-14 have been satisfied and will continue to be
satisfied; or (f) the transferee is an "in-house asset manager" described in
PTCE 96-23 and the conditions set forth in PTCE 96-23 have been satisfied and
will continue to be satisfied. The Subordinate Certificates and the Residual
Certificates will contain a legend describing such restrictions on transfer.
Before purchasing a Senior Certificate, a fiduciary of a Plan should
itself confirm (a) that the Senior Certificates constitute "certificates" for
purposes of the Exemption and (b) that the specific and general conditions of
the Exemption and the other requirements set forth in the Exemption would be
satisfied. In addition, before purchasing a Subordinate Certificate or Residual
Certificate, a fiduciary of a Plan should itself confirm that the conditions to
such purchase described above would be satisfied. Any Plan fiduciary that
proposes to cause a Plan to purchase a Certificate should consult with its
counsel with respect to the potential applicability to such investment of the
fiduciary responsibility and prohibited transaction provisions of ERISA and the
Code to the proposed investment. For further information regarding the ERISA
considerations of investing in the Certificates, see "ERISA Considerations" in
the prospectus.
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GLOSSARY
AVAILABLE DISTRIBUTION AMOUNT -- For any distribution date, an amount which
generally includes scheduled payments on the mortgage loans due during the
related Due Period and received on or prior to the related Determination Date,
prepayments and other unscheduled collections received on the mortgage loans
during the related Prepayment Period, any P&I Advances made by the Master
Servicer for such distribution date and with respect to each mortgage loan with
a first payment date occurring in _________ ____, a cash amount equal to
interest on such mortgage loan, net of the amount of any prepayment charges
received on the mortgage loans and net of fees payable to the Master Servicer
and the Trustee and amounts reimbursable to the Master Servicer, the company and
the Trustee as provided in the Agreement.
BANKRUPTCY AMOUNT -- The aggregate amount of Realized Losses which may be
allocated in connection with Bankruptcy Losses through subordination will
initially be equal to approximately $_______. As of any date of determination,
the Bankruptcy Amount shall equal the initial Bankruptcy Amount less the sum of
any amounts allocated through subordination for such losses up to such date of
determination.
BOOK-ENTRY CERTIFICATES -- The Class A Certificates issued, maintained and
transferred at the DTC.
CERTIFICATE PRINCIPAL BALANCE -- With respect to any Certificate (other than a
Class XS Certificate), the then maximum amount that the holder thereof is
thereafter entitled to receive as distributions allocable to principal from the
cash flow on the mortgage loans and the other assets in the trust fund. The
Certificate Principal Balance of any class of Certificates (other than the Class
XS Certificates) 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) without duplication of amounts described in clause (a)
above, any reductions in the Certificate Principal Balance thereof deemed to
have occurred in connection with allocations thereto of Realized Losses on the
mortgage loans as described below.
CLASS A CERTIFICATES -- The Lockout Certificates together with the Senior
Sequential Certificates.
CLASS B PERCENTAGE -- For the Class B-1 Certificates, the Class B-2
Certificates, the Class B-3 Certificates, the Class B-4 Certificates, the Class
B-5 Certificates and the Class B-6 Certificates initially will equal
approximately ____%, approximately ____%, approximately ____%, approximately
____%, approximately ____% and approximately ____%, respectively, and will in no
event exceed 100%, and will be adjusted for each distribution date to be the
percentage equal to the Certificate Principal Balance of the related class of
Subordinate Certificates immediately prior to such distribution date divided by
the aggregate of the Scheduled Principal Balance of each of the mortgage loans
immediately prior to such distribution date.
COMPENSATING INTEREST -- Any payments made by the Master Servicer from its own
funds to cover Prepayment Interest Shortfalls.
CPR -- A constant rate of prepayment on the mortgage loans.
CUT-OFF DATE-- [Date]
DETERMINATION DATE -- With respect to any distribution date is on the 15th day
of the month in which such distribution date occurs or, if such day is not a
business day, on the immediately preceding business day.
DUE DATE -- With respect to each mortgage loans, the first day of the month.
DUE PERIOD -- With respect to any distribution date commences on the second day
of the month immediately preceding the month in which such distribution date
occurs and ends on the first day of the month in which such distribution date
occurs.
EXCESS BANKRUPTCY LOSSES-- Bankruptcy Losses in excess of the Bankruptcy Amount.
EXCESS FRAUD LOSSES -- Fraud Losses in excess of the Fraud Loss Amount.
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EXCESS LOSSES -- Excess Special Hazard Losses, Excess Bankruptcy Losses, Excess
Fraud Losses and Extraordinary Losses.
EXCESS SPECIAL HAZARD LOSSES -- Special Hazard Losses in excess of the Special
Hazard Amount.
EXEMPTION-- Prohibited Transaction Exemption __-__.
FRAUD LOSS AMOUNT -- The aggregate amount of Realized Losses which may be
allocated in connection with Fraud Losses through subordination shall initially
be equal to approximately $_________. 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 amounts allocated through subordination with respect to Fraud Losses
on the mortgage loans up to such date of determination, (Y) from the first to
the second 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
amounts allocated through subordination with respect to Fraud Losses on the
mortgage loans since the most recent anniversary of the Cut-off Date up to such
date of determination and (Z) from the second to the fifth anniversary of the
Cut-off Date, an amount equal to (1) the lesser of (a) the Fraud Loss Amount as
of the most recent anniversary of the Cut-off Date, and (b) ____% of the
aggregate principal balance of all of the mortgage loans as of the most recent
anniversary of the Cut-off Date minus (2) the aggregate amounts allocated
through subordination with respect to Fraud Losses on the mortgage loans since
the most recent anniversary of the Cut-off Date up to such date of
determination. On and after the fifth anniversary of the Cut-off Date, the Fraud
Loss Amount shall be zero.
INDUSTRY -- DTC's participants and other members of the financial community.
INTEREST ACCRUAL PERIOD -- For each class of Certificates for any distribution
date, the one-month period preceding the month in which such distribution date
occurs.
INTEREST DISTRIBUTION AMOUNT -- With respect to the Certificates of any class on
any distribution date, is equal to interest accrued during the related Interest
Accrual Period on the Certificate Principal Balance or Notional Amount, as
applicable, of such Certificates immediately prior to such distribution date at
the then applicable Pass-Through Rate for such class, plus, in the case of each
such class, any such amount remaining unpaid from previous distribution dates,
and reduced (to not less than zero), in the case of each such class, by the
allocable share for such class of Prepayment Interest Shortfalls to the extent
not covered by Compensating Interest paid by the Master Servicer, shortfalls
resulting from the application of the Relief Act and other interest shortfalls
not covered by the subordination provided by more subordinate classes of
Certificates. Any Prepayment Interest Shortfalls for any distribution date to
the extent not covered by Compensating Interest paid by the Master Servicer will
be allocated among the holders of the Certificates on a PRO RATA basis based on
the respective amounts of interest accrued on such Certificates for such
distribution date. In addition, any shortfalls resulting from the application of
the Relief Act will be allocated among the holders of all of the Certificates on
a PRO RATA basis as described above.
LOCKOUT CERTIFICATES-- The Class A-6 Certificates.
LOCKOUT CERTIFICATE PERCENTAGE -- As calculated for each distribution date, the
percentage equal to the aggregate Certificate Principal Balance of the Lockout
Certificates divided by the sum of the aggregate Certificate Principal Balances
of the Class A Certificates.
LOCKOUT DISTRIBUTION PERCENTAGE -- For any distribution date occurring prior to
the distribution date in _________ ____ will be equal to 0%. The "Lockout
Distribution Percentage" for any distribution date occurring after the first
____ years following the Closing Date will be as follows: for any distribution
date during the _______ year after the Closing Date, __% of the Lockout
Certificate Percentage for such distribution date; for any distribution date
during the ______ year after the Closing Date, __% of the Lockout
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Certificate Percentage for such distribution date; for any distribution date
during the _______ year after the Closing Date, ___% of the Lockout Certificate
Percentage for such distribution date, and for any distribution date thereafter,
the lesser of (x) 300% of the Lockout Certificate Percentage and (y) 100%.
Notwithstanding the foregoing, if the Certificate Principal Balances of the
Class A Certificates (other than the Lockout Certificates) have been reduced to
zero, the Lockout Distribution Percentage will be equal to 100%.
MASTER SERVICER-- [Name of Master Servicer].
NET MORTGAGE RATE -- On any mortgage loan, the then applicable mortgage rate
thereon minus the sum of (1) the Servicing Fee Rate and (2) the Trustee's Fee
Rate.
NOTIONAL AMOUNT -- With respect to the Class XS Certificates as of any date of
determination, the aggregate principal balance of the then outstanding mortgage
loans. Reference to the Notional Amount of the Class XS Certificates is solely
for convenience in calculations and does not represent the right to receive any
distributions allocable to principal.
OFFERED CERTIFICATES -- The Senior Certificates, the Class B-1 Certificates, the
Class B-2 Certificates, the Class B-3 Certificates and the Residual
Certificates.
P&I ADVANCE -- The aggregate of all payments of principal and interest, net of
the Servicing Fee, that were due during the related Due Period on the mortgage
loans master serviced by it and that were delinquent on the related
Determination Date, plus amounts representing assumed payments not covered by
any current net income on the mortgaged properties acquired by foreclosure or by
deed in lieu of foreclosure.
PASS-THROUGH RATE -- With respect to any class of Certificates other than the
Class XS Certificates, the fixed rate set forth on the cover hereof. The
Pass-Through Rate applicable to the calculation of the Interest Distribution
Amount for the Class XS Certificates for any distribution date is the rate per
annum expressed as the percentage equivalent of a fraction, the numerator of
which is equal to (1)(A) the amount of interest accrued on the mortgage loans
for the immediately preceding calendar month at the Net Mortgage Rate minus (B)
the aggregate amount of interest payable on the Certificates (other than the XS
Certificates), and the denominator of which is equal to (2) the Notional Amount
of the Class XS Certificates. The initial variable Pass-Through Rate for the
Class XS Certificates is approximately _______% per annum.
PREPAYMENT ASSUMPTION -- A prepayment rate for the mortgage loans of ___% of the
Prepayment Vector.
PREPAYMENT PERIOD -- With respect to any distribution date is the calendar month
immediately preceding the month in which such distribution date occurs.
PREPAYMENT VECTOR -- A ___% Prepayment Vector assumes that the outstanding
balance of a pool of mortgage loans prepays at a rate of ____% CPR in the first
month of the life of such pool, such rate increasing by an additional
approximate ____% CPR (precisely __/__, expressed as a percentage) each month
thereafter through the eleventh month of the life of such pool, and such rate
thereafter remaining constant at __% CPR for the remainder of the life of such
pool. An __% Prepayment Vector assumes, for example, that the outstanding
balance of a pool of mortgage loans prepays at a rate of ____% CPR in the first
month of the life of such pool, such rate increasing by an additional
approximate ____% CPR (precisely _____/__, expressed as a percentage) each month
thereafter through the ________ month of the life of the pool, and such rate
thereafter remaining constant at __% CPR for the remainder of the life of the
pool.
RATING AGENCIES-- [Names of Rating Agencies].
RECORD DATE -- For each distribution date (1) with respect to any Book-Entry
Certificate will be the close of business on the business day immediately
preceding such distribution date or (2) with respect to any other class of
Certificates, including any definitive certificates, will be the close of
business on the last business day of the month preceding the month in which such
distribution date occurs.
RESIDUAL CERTIFICATES-- The Class R Certificates.
RULES -- The rules, regulations and procedures creating and affecting DTC and
its operations.
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SCHEDULED PRINCIPAL BALANCE -- With respect to 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 (x) the principal portion of
all monthly payments due on or before the date of determination, whether or not
received, (y) all amounts allocable to unscheduled principal that were received
prior to the calendar month in which the date of determination occurs, and (z)
any Bankruptcy Loss occurring out of a Deficient Valuation that was incurred
prior to the calendar month in which the date of determination occurs.
SELLER-- [Name of Seller]
SENIOR CERTIFICATES-- The Class A Certificates and the Class XS Certificates
SENIOR INTEREST DISTRIBUTION AMOUNT -- On each distribution date, the aggregate
of the Interest Distribution Amounts for such distribution date on all of the
Senior Certificates and, on the first distribution date, the Residual
Certificates.
SENIOR INTEREST DISTRIBUTION AMOUNT -- On each distribution date, the aggregate
of the Interest Distribution Amounts for such distribution date on all of the
Senior Certificates and, on the first distribution date, the Residual
Certificates.
SENIOR PERCENTAGE -- The percentage equal to the aggregate Certificate Principal
Balances of the Class A Certificates immediately prior to such distribution date
divided by the aggregate of the Scheduled Principal Balance of each of the
mortgage loans immediately prior to such distribution date.
SENIOR PREPAYMENT PERCENTAGE -- Except as described below, the Senior Prepayment
Percentage for any distribution date occurring prior to the distribution date in
________ ____ will equal ___%. Except as described below, the Senior Prepayment
Percentage for any distribution date occurring after the first five years will
be as follows: for any distribution date during the _____ year after the Closing
Date, the Senior Percentage for such distribution date plus ___% of the
Subordinate Percentage for such distribution date; for any distribution date
during the _______ year after the Closing Date, the Senior Percentage for such
distribution date plus __% of the Subordinate Percentage for such distribution
date; for any distribution date during the ______ year after the Closing Date,
the Senior Percentage for such distribution date plus __% of the Subordinate
Percentage for such distribution date; for any distribution date during the
_______ year after the Closing Date, the Senior Percentage for such distribution
date plus __% of the Subordinate Percentage for such distribution date; and for
any distribution date thereafter, the Senior Percentage for such distribution
date (unless on any such distribution date the Senior Percentage exceeds the
initial Senior Percentage, in which case the Senior Prepayment Percentage for
such distribution date will equal ___%). Any scheduled reduction to the Senior
Prepayment Percentage described above shall not be made as of any distribution
date unless (1) the outstanding principal balance of mortgage loans delinquent
60 days or more (including real estate owned and mortgage loans in foreclosure)
averaged over the last six months does not exceed 50% of the sum of the then
current Certificate Principal Balances of the Subordinate Certificates and (2)
Realized Losses on the mortgage loans to date are less than the then applicable
Trigger Amount. The Trigger Amount for any distribution date occurring after the
first ____ years will be as follows: for any distribution date during the _____
year after the Closing Date, __% of the initial sum of the Certificate Principal
Balances of the Subordinate Certificates; for any distribution date during the
seventh year after the Closing Date, __% of the initial sum of the Certificate
Principal Balances of the Subordinate Certificates; for any distribution date
during the ______ year after the Closing Date, __% of the initial sum of the
Certificate Principal Balances of the Subordinate Certificates; and for any
distribution date during the _____ year after the Closing Date, __% of the
initial sum of the Certificate Principal Balances of the Subordinate
Certificates.
Notwithstanding the foregoing, upon reduction of the Certificate Principal
Balances of the Senior Certificates to zero, the Senior Prepayment Percentage
will equal 0%.
SENIOR PRINCIPAL DISTRIBUTION AMOUNT -- With respect to any distribution date,
the lesser of (a) the balance of the Available Distribution Amount remaining
after the Senior Interest Distribution Amount is distributed
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and (b) the sum of the amounts described in clauses (1) through (4) in section
___________.
SENIOR SEQUENTIAL CERTIFICATES -- The Class A-1 Certificates, the Class A-2
Certificates, the Class A-3 Certificates, the Class A-4 Certificates and the
Class A-5 Certificates.
SERVICING FEE -- With respect to each mortgage loan, accrued interest at the
Servicing Fee Rate of ----% per annum with respect to the mortgage loan on the
same principal balance on which interest on the mortgage loan accrues for the
calendar month.
SERVICING FEE RATE -- On each mortgage loan, a rate equal to ____% per annum.
SPECIAL HAZARD AMOUNT -- The aggregate amount of Realized Losses which may be
allocated in connection with Special Hazard Losses through subordination shall
initially be equal to approximately $_________. As of any date of determination
following the Cut-off Date, the Special Hazard Amount shall equal approximately
$_________ less the sum of (A) any amounts allocated through subordination in
respect of Special Hazard Losses and (B) the Adjustment Amount. The Adjustment
Amount will be equal to an amount calculated pursuant to the terms of the
Agreement.
SUBORDINATE CERTIFICATES-- The Class B-1 Certificates, the Class B-2
Certificates, the Class B-3 Certificates, the Class B-4 Certificates, the Class
B-5 Certificates and the Class B-6 Certificates
SUBORDINATE PERCENTAGE -- As of any date of determination, a percentage equal to
___% minus the Senior Percentage.
SUBORDINATE CERTIFICATES-- The Class B-1 Certificates, the Class B-2
Certificates, the Class B-3 Certificates, the Class B-4 Certificates, the Class
B-5 Certificates and the Class B-6 Certificates
SUBORDINATE INTEREST DISTRIBUTION AMOUNT -- On each distribution date, is equal
to the aggregate of the Interest Distribution Amounts on all of the Subordinate
Certificates.
SUBORDINATE PREPAYMENT PERCENTAGE -- For any distribution date will equal 100%
minus the Senior Prepayment Percentage.
SUBORDINATE PRINCIPAL DISTRIBUTION AMOUNT -- With respect to any distribution
date, the lesser of (a) the balance of the Available Distribution Amount
remaining after the distribution of the Senior Interest Distribution Amount, the
Senior Principal Distribution Amount and the Subordinate Interest Distribution
Amount and (b) the aggregate of the sum for each class of Subordinate
Certificates of the amounts described in clauses (1) through (4) of "______".
SYSTEMS -- Computer applications, systems and similar items for processing data.
TRUSTEE [Name of Trustee].
TRUSTEE'S FEE -- Accrued interest at the Trustee's Fee Rate of ______% per annum
on the Stated Principal Balance of each mortgage loan.
TRUSTEE'S FEE RATE -- On each mortgage loan, a rate equal to ______% per annum.
UNDERWRITER-- [Name of Underwriter]
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$____________ (APPROXIMATE)
IMPAC SECURED ASSETS CORP.
COMPANY
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES ____-__
PROSPECTUS SUPPLEMENT
DATED _________ ___, ____
IMPAC FUNDING CORPORATION
MASTER SERVICER
[NAME OF UNDERWRITER]
UNDERWRITER
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
WE ARE NOT OFFERING THE OFFERED CERTIFICATES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED.
Dealers will be required to deliver a prospectus supplement and prospectus when
acting as underwriters of the certificates offered by this prospectus supplement
and with respect to their unsold allotments or subscriptions. In addition, all
dealers selling the offered certificates, whether or not participating in this
offering, may be required to deliver a prospectus supplement and prospectus
until _______ ___, ____.
<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.
Subject to Completion, Dated March 21, 2000
[Version 2]
Prospectus Supplement
(To Prospectus dated , ____)
$___________ (APPROXIMATE)
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES ____-___
IMPAC FUNDING CORPORATION
MASTER SERVICER
IMPAC SECURED ASSETS CORP.
COMPANY
- --------------------------------------------------------------------------------
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-__ IN THIS
PROSPECTUS SUPPLEMENT.
- --------------------------------------------------------------------------------
THE TRUST --
The trust will consist primarily of a pool of one- to four-family
fixed-rate, first lien and second lien residential mortgage loans. The trust
will be represented by _______ classes of certificates, _______ of which are
offered by this prospectus supplement.
CREDIT ENHANCEMENT --
o will be provided in the form of (1) a certificate insurance policy
issued by _____________ and (2) overcollateralization.
The price to investors will vary from time to time and will be determined at the
time of sale. The proceeds to the company from the offering will be ___% of the
aggregate principal balance of the offered certificates, less expenses equal to
$_______. See "Method of Distribution" in this prospectus supplement.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE OFFERED CERTIFICATES OR DETERMINED
THAT THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS TRUTHFUL OR COMPLETE. 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.
[NAME OF UNDERWRITER]
Underwriter
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
We provide information to you about the offered certificates in two separate
documents that progressively provide more detail:
o the accompanying prospectus, which provides general information, some
of which may not apply to this series of certificates; and
o this prospectus supplement, which describes the specific terms of this
series of certificates.
The Company's principal offices are located at 1401 Dove Street, Newport Beach,
CA 92660 and its phone number is (949) 475-3600.
TABLE OF CONTENTS
Page
----
PROSPECTUS SUPPLEMENT
Summary of Prospectus Supplement............................................S-__
Risk Factors................................................................S-__
Use of Proceeds.............................................................S-__
The Mortgage Pool...........................................................S-__
Yield on the Certificates...................................................S-__
Description of the Certificates.............................................S-__
Pooling and Servicing Agreement.............................................S-__
the Insurer.................................................................S-__
Federal Income Tax Consequences.............................................S-__
Method of Distribution......................................................S-__
Secondary Market............................................................S-__
Legal Opinions..............................................................S-__
Experts ...................................................................S-__
Ratings ...................................................................S-__
Legal Investment............................................................S-__
ERISA Considerations........................................................S-__
S-2
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
THE FOLLOWING SUMMARY IS A VERY BROAD OVERVIEW OF THE CERTIFICATES OFFERED
BY THIS PROSPECTUS SUPPLEMENT AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT
YOU SHOULD CONSIDER IN MAKING YOUR INVESTMENT DECISION. TO UNDERSTAND ALL OF THE
TERMS OF THE OFFERED CERTIFICATES, READ CAREFULLY THIS ENTIRE PROSPECTUS
SUPPLEMENT AND THE ENTIRE ACCOMPANYING PROSPECTUS. A GLOSSARY IS INCLUDED AT THE
END OF THIS PROSPECTUS SUPPLEMENT. CAPITALIZED TERMS USED BUT NOT DEFINED IN THE
GLOSSARY AT THE END OF THIS PROSPECTUS SUPPLEMENT HAVE THE MEANINGS ASSIGNED TO
THEM IN THE GLOSSARY AT THE END OF THE PROSPECTUS.
Title of Series................... Impac Secured Assets Corp., Mortgage
Pass-Through Certificates, Series ____-___.
Cut-off Date...................... ________ __, ____.
Closing Date...................... On or about _______ __, ____.
Company........................... Impac Secured Assets Corp., an indirect
wholly-owned subsidiary of [Parent Corp].
Seller............................ [Name of Seller].
Master Servicer................... Impac Funding Corporation.
Originator[s] and Servicer[s]..... [Name of Originator[s] and Servicer[s].
Trustee........................... [Name of Trustee]
Trust Administrator............... [Name of Trust Administrator], [a national
banking association, will perform some
administrative functions on behalf of the
trustee and will act as the initial paying
agent, certificate registrar and custodian.]
Insurer........................... [Name of Insurer].
Distribution Dates................ Distributions on the offered certificates
will be made on the 25th day of each month,
or, if the day is not a business day, on the
next succeeding business day, beginning in
_______ ____.
Offered Certificates.............. Each class of offered certificates will have
the approximate initial certificate principal
balance and fixed pass-through rate set forth
in the table below, [subject to the indicated
limitation in the case of the Class A-6
Certificates].
<TABLE>
<CAPTION>
=============================================================================================
INITIAL CERTIFICATE PASS-THROUGH INITIAL CERTIFICATE PASS-THROUGH
CLASS PRINCIPAL BALANCE(1) RATE CLASS PRINCIPAL BALANCE(1) RATE
- --------- -------------------- -------------- ----------- -------------------- -------------
<S> <C> <C> <C> <C> <C>
A-1...... $___________ _____% A-5 ...... $__________ _____%
A-2...... $___________ _____% A-6 ...... $__________ _____%
A-3...... $___________ _____% A-7 ...... $__________ _____%
</TABLE>
S-3
<PAGE>
A-4...... $___________ _____%
================================================================================
(1) Approximate.
____________________
THE TRUST
The company will establish a trust with respect to the Series ____-___
Certificates, pursuant to a pooling and servicing agreement dated as of _______
__, ____ among the company, the servicers, the trust administrator and the
trustee. There are _____ classes of certificates representing the trust. See
"Description of the Certificates" in this prospectus supplement.
Each Series ____-___ Certificate will evidence a partial undivided interest in
the trust. Distributions of interest and/or principal on the offered
certificates will be made only from payments received in connection with the
mortgage loans described below and payments under the certificate insurance
policy.
THE MORTGAGE LOANS
The trust will contain approximately _____ conventional, one- to four-family,
fixed-rate mortgage loans secured by first liens and second liens on residential
real properties. The mortgage loans have an aggregate principal balance of
approximately $___________ as of _______ __, ____.
The mortgage loans have original terms to maturity of not greater than [30]
years and the following characteristics as of _______ __, ______:
Range of mortgage rates _____% to ______%.
(approximate):
Weighted average mortgage rate _____%.
(approximate):
Weighted average remaining __ years and __
term to stated maturity months.
(approximate):
Second lien mortgage loans ____%.
(approximate):
Balloon loans (approximate): _____%.
[Approximately ___% of the mortgage loans are "sub-prime" mortgage loans.]
For additional information regarding the mortgage loans, see "The Mortgage Pool"
in this prospectus supplement.
S-4
<PAGE>
THE CERTIFICATES
OFFERED CERTIFICATES. The offered certificates will have the characteristics
shown in the table above in this prospectus supplement. The offered certificates
will be sold by the company to the underwriter on the closing date.
CREDIT ENHANCEMENT
The credit enhancement provided for the benefit of the holders of the offered
certificates consists of the policy and overcollateralization, each as described
below and under "Description of the Certificates--Credit Enhancement" and
"--Overcollateralization Provisions" in this prospectus supplement.
OPTIONAL TERMINATION
At its option, the majority holder of the Class CE Certificates (or if the
holder does not exercise the option, the master servicer or the insurer) may
purchase all of the mortgage loans, together with any properties in respect
thereof acquired on behalf of the trust, and thereby effect termination and
early retirement of the certificates, after the aggregate principal balance of
the mortgage loans (and properties acquired in respect thereof) remaining in the
trust has been reduced to less than __% or __% (as further provided in this
prospectus supplement) of the aggregate principal balance of the mortgage loans
as of _______ __, ____. See "Pooling and Servicing Agreement-- Termination" in
this prospectus supplement and "Description of the Securities-- Termination" in
the prospectus.
FEDERAL INCOME TAX CONSEQUENCES
Three separate elections will be made to treat the trust fund as a REMIC for
federal income tax purposes. See "Federal Income Tax Consequences--
Characterization of Investments in REMIC Certificates" in the prospectus.
For further information regarding the federal income tax consequences of
investing in the offered certificates, see "Federal Income Tax Consequences" in
this prospectus supplement and in the prospectus.
RATINGS
It is a condition to the issuance of the certificates that the offered
certificates receive a rating of "Aaa" from _____________ and a rating of "AAA"
from _____________.
The ratings on the offered certificates are based in part on the ratings of the
claims-paying ability of the insurer by _______ and __________.
A security rating does not address the frequency of prepayments on the mortgage
loans or the corresponding effect on yield to investors. See "Yield on the
Certificates" and "Ratings" in this prospectus supplement and "Yield
Considerations" in the prospectus.
LEGAL INVESTMENT
The offered certificates will not constitute "mortgage related securities" for
purposes of SMMEA because the mortgage pool includes some mortgage loans that
are secured by subordinate liens on the related mortgaged properties. See "Legal
Investment" in this prospectus supplement and in the prospectus.
ERISA CONSIDERATIONS
The U.S. Department of Labor has issued an individual exemption, Prohibited
Transaction Exemption __-__, to the underwriter. This exemption generally
applies to certificates such as the offered certificates, and the servicing and
operation of asset pools such as the mortgage pool, provided that some
conditions are satisfied. See "ERISA Considerations" in this prospectus
supplement and in the prospectus.
S-5
<PAGE>
RISK FACTORS
You should carefully consider, among other things, the following factors in
connection with the purchase of the offered certificates:
[See version 1 of the prospectus supplement for some risk factors that may be
applicable.]
[Appropriate risk factors from the following list are particular to the
securitization represented by this version of the prospectus supplement]
[THE RATE AND TIMING OF PRINCIPAL DISTRIBUTIONS ON THE OFFERED CERTIFICATES WILL
BE AFFECTED BY PREPAYMENT SPEEDS AND BY THE PRIORITY OF PAYMENT ON THE
CERTIFICATES
The rate and timing of distributions allocable to principal on the offered
certificates will depend, in general, on the rate and timing of principal
payments (including prepayments and collections upon defaults, liquidations and
repurchases) on the mortgage loans and the allocation thereof to pay principal
on the offered certificates as provided in this prospectus supplement. As is the
case with mortgage pass-through certificates generally, the offered certificates
are subject to substantial inherent cash-flow uncertainties because the mortgage
loans may be prepaid at any time. However, with respect to approximately _____%
of the mortgage loans, by aggregate principal balance as of _______ __, ____, a
prepayment may subject the related mortgagor to a prepayment charge, which may
act as a deterrent to prepayment of the mortgage loan. See "The Mortgage Pool"
in this prospectus supplement.
Generally, when prevailing interest rates are increasing, prepayment rates
on mortgage loans tend to decrease; a decrease in the prepayment rates on the
mortgage loans will result in a reduced rate of return of principal to investors
in the offered certificates at a time when reinvestment at the higher prevailing
rates would be desirable. Conversely, when prevailing interest rates are
declining, prepayment rates on mortgage loans tend to increase; an increase in
the prepayment rates on the mortgage loans will result in a greater rate of
return of principal to investors in the offered certificates at a time when
reinvestment at comparable yields may not be possible.
Except as otherwise described in this prospectus supplement, distributions
of principal will be made to the classes of offered certificates according to
the priorities described in this prospectus supplement, rather than on a PRO
RATA basis among these classes. The timing of commencement of principal
distributions and the weighted average life of each class of certificates will
be affected by the rates of prepayment on the mortgage loans experienced both
before and after the commencement of principal distributions on the class.
During certain periods, no principal payments or a disproportionately small
portion of the amount of principal then payable to the offered certificates will
be distributed on the Class A-7 Certificates. During certain other periods, a
disproportionately large portion of the amount of principal then payable to the
offered certificates will be distributed on the Class A-7 Certificates as more
fully described in this prospectus supplement.
For further information regarding the effect of principal prepayments on
the weighted average lives of the offered certificates, see "Yield on the
Certificates" in this prospectus supplement, including the table entitled
"Percent of Initial Certificate Principal Balance Outstanding at the Following
Percentages of the Prepayment Assumption"].
[THE YIELD TO MATURITY ON THE OFFERED CERTIFICATES WILL DEPEND ON A VARIETY OF
FACTORS
The yield to maturity on the offered certificates will depend, in general,
on:
S-6
<PAGE>
o the applicable purchase price; and
o the rate and timing of principal payments (including prepayments and
collections upon defaults, liquidations and repurchases) on the
mortgage loans, payments by the insurer, and the allocation thereof to
reduce the certificate principal balance of the certificates, as well
as other factors.
The yield to investors on the offered certificates will be adversely
affected by any allocation thereto of interest shortfalls on the mortgage loans
not covered by the insurer.
In general, if the offered certificates are purchased at a premium and
principal distributions on them 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 the offered certificates
are purchased at a discount and principal distributions on them occur at a rate
slower than that anticipated at the time of purchase, the investor's actual
yield to maturity will be lower than that originally assumed.
The proceeds to the company from the sale of the offered certificates were
determined based on a number of assumptions, including a prepayment assumption
of ___% of the prepayment vector (as more fully described in this prospectus
supplement) and weighted average lives corresponding thereto. No representation
is made that the mortgage loans will prepay at any particular rate. The yield
assumptions for the offered certificates will vary as determined at the time of
sale].
[THE YIELD TO MATURITY ON THE OFFERED CERTIFICATES WILL BE SENSITIVE TO THE RATE
OF PREPAYMENTS ON THE MORTGAGE LOANS, ESPECIALLY THE CLASS A-7 CERTIFICATES
The multiple class structure of the offered certificates causes the yield
of some classes to be particularly sensitive to changes in the rates of
prepayments of the mortgage loans. Because distributions of principal will be
made to the classes of offered certificates according to the priorities
described in this prospectus supplement, the yield to maturity on these classes
of certificates will be sensitive to the rates of prepayment on the mortgage
loans experienced both before and after the commencement of principal
distributions on the related class.
In particular, the Class A-7 Certificates do not receive (unless the
certificate principal balances of the other classes of offered certificates have
been reduced to zero) any portion of principal payments prior to the
distribution date in _______ ____. In addition, the Class A-7 Certificates will
receive (unless the certificate principal balances of the other classes of
offered certificates have been reduced to zero) a disproportionately small or
large portion of the amount of principal then payable to the offered
certificates thereafter. Therefore, the weighted average life of the Class A-7
Certificates will be longer or shorter than would otherwise be the case. The
effect on the market value of the Class A-7 Certificates of changes in market
interest rates or market yields for similar securities may be greater or lesser
than for the other classes of offered certificates entitled to principal
distributions].
[IF THE INSURER FAILS TO MEET ITS OBLIGATIONS UNDER THE POLICY, HOLDERS OF THE
OFFERED CERTIFICATES MAY EXPERIENCE A LOSS ON THEIR INVESTMENT
If the protection created by the overcollateralization is insufficient and
the insurer is unable to meet its obligations under the policy, then you could
experience a loss of some of your investment. In addition, any reduction in a
rating of the claims-paying ability of the insurer may result in a reduction in
the rating of the offered certificates].
S-7
<PAGE>
USE OF PROCEEDS
The Seller will sell the mortgage loans to the company and the company will
convey the mortgage loans to the trust fund in exchange for and concurrently
with the delivery of the Certificates (as defined in this prospectus
supplement). Net proceeds from the sale of the Certificates will be applied by
the company to the purchase of the mortgage loans from the Seller. The net
proceeds will represent the purchase price to be paid by the company to the
Seller for the mortgage loans. The mortgage loans were previously purchased by
the Seller either directly or indirectly from _____________ and ______________.
THE MORTGAGE POOL
GENERAL
The pool of mortgage loans will consist of approximately _____
conventional, one- to four-family, fixed-rate mortgage loans secured by first
liens or second liens on residential real properties and having an aggregate
principal balance as of _______ __, ____ of approximately $___________, after
application of scheduled payments due on or before the Cut-off Date whether or
not received and subject to a permitted variance of plus or minus [5]%. The
mortgage loans have original terms to maturity of not greater than [30] years.
References to percentages of the mortgage loans, unless otherwise noted,
are calculated based on the aggregate principal balance of the mortgage loans as
of the Cut-off Date.
The mortgage loans are secured by first or second mortgages or deeds of
trust or other similar security instruments creating first liens or second liens
on residential properties consisting of attached, detached or semi-detached,
one- to four-family dwelling units, townhouses, individual condominium units,
individual units in planned unit developments and manufactured housing. The
mortgage loans to be included in the mortgage pool will be acquired by the
company from the Seller, who acquired the mortgage loans either directly or
indirectly from the Originators. _______________ will act as the master servicer
pursuant to the Agreement (as defined in this prospectus supplement) for the
mortgage loans and each of the Master Servicer and ________________ will act as
the servicer pursuant to the Agreement for the mortgage loans originated by it.
See "--Underwriting Standards; Representations" in this prospectus supplement
__________ mortgage loans, representing approximately ____% of the mortgage
loans, have first payment dates occurring in _________ ____. With respect to
these mortgage loans, no principal amortization payments will be distributed in
_______ ____ unless principal payments on them are received in the Prepayment
Period applicable to the Distribution Date occurring in _______ ____. On the
Closing Date, however, cash will be deposited with the Trust Administrator in an
amount equal to interest accrued on these mortgage loans (net of the related
Servicing Fee (as defined in this prospectus supplement)) for the related
Interest Accrual Period for distribution to the holders of the offered
certificates on the first Distribution Date.
The mortgage loans have scheduled monthly payments due generally on the
first day of the month. Each mortgage loan will contain a customary
"due-on-sale" clause.
Approximately _____% of the mortgage loans provide for payment by the
mortgagor of a prepayment charge in limited circumstances on certain prepayments
as provided in the related mortgage note. These mortgage loans provide for
payment of a Prepayment Charge on certain partial prepayments and all
prepayments in full made within a specified period not in excess of ____ years
from the date of origination
S-8
<PAGE>
of the mortgage loan, as provided in the related mortgage note. The amount of
the Prepayment Charge is as provided in the related mortgage note, but is
generally equal to _____ month's interest on any amounts prepaid in excess of
__% of the then outstanding principal balance of the related mortgage loan in
any __ month period, as permitted by law. The holders of the Class P
Certificates will be entitled to all Prepayment Charges received on the mortgage
loans, and the amounts will not be available for distribution on the other
classes of Certificates. Under some instances, as described in the Agreement,
the applicable Servicer may waive the payment of any otherwise applicable
Prepayment Charge. Investors should conduct their own analysis of the effect, if
any, that the Prepayment Charges, and decisions by the Servicers with respect to
the waiver thereof, may have on the prepayment performance of the mortgage
loans. The company makes no representation as to the effect that the Prepayment
Charges, and decisions by the Servicers with respect to the waiver thereof, may
have on the prepayment performance of the mortgage loans.
None of the mortgage loans are buydown mortgage loans.
Approximately _____% of the mortgage loans are Balloon Loans. Each Balloon
Loan amortizes over ___ months, but the final payment on each Balloon Loan is
due and payable on the ___ month. The amount of the Balloon Payment on each
Balloon Loan is substantially in excess of the amount of the scheduled monthly
payment on the Balloon Loan for the period prior to the Due Date of the Balloon
Payment.
The average principal balance of the mortgage loans at origination was
approximately $______. No mortgage loan had a principal balance at origination
greater than approximately $_________ or less than approximately $_____. The
average principal balance of the mortgage loans as of the Cut-off Date was
approximately $______. No mortgage loan had a principal balance as of the
Cut-off Date greater than approximately $_________ or less than approximately
$_____.
The mortgage loans had mortgage rates as of the Cut-off Date ranging from
approximately _____% per annum to approximately ______% per annum, and the
weighted average mortgage rate was approximately _____% per annum.
The weighted average loan-to-value ratio (or combined loan-to-value ratio,
in the case of second lien mortgage loans) of the mortgage loans at origination
was approximately _____%. At origination, no mortgage loan will have a
loan-to-value ratio (or combined loan-to-value ratio, in the case of any second
lien mortgage loan) greater than approximately _____% or less than approximately
____%.
Approximately ____% of the mortgage loans are secured by second liens on
the related mortgaged property.
The weighted average remaining term to stated maturity of the mortgage
loans will be approximately __ years and __ months as of the Cut-off Date. None
of the mortgage loans will have a first Due Date prior to ______ ____ or after
_________ ____, or will have a remaining term to stated maturity of less than __
years and __ months or greater than [30] years as of the Cut-off Date. The
latest maturity date of any mortgage loan is _______ ____.
The mortgage loans are expected to have the following characteristics as of
the Cut-off Date (the sum in any column may not equal the total indicated due to
rounding):
S-9
<PAGE>
PRINCIPAL BALANCES OF THE MORTGAGE LOANS AT ORIGINATION
% OF
NUMBER AGGREGATE ORIGINAL AGGREGATE ORIGINAL
RANGE ($) OF LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
--------- -------- ------------------ ------------------
- ................
- ................
- ................
- ................
Total........................
PRINCIPAL BALANCES OF THE MORTGAGE LOANS AS OF THE CUT-OFF DATE
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
RANGE ($) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
--------- -------- ------------------ -----------------
- ................
- ................
- ................
- ................
Total........................
S-10
<PAGE>
MORTGAGE RATES OF THE MORTGAGE LOANS AS OF THE CUT-OFF DATE
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
MORTGAGE RATE (%) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------------- -------- ----------------- ----------------
- ................
- ................
- ................
- ................
Total..........................
ORIGINAL LOAN-TO-VALUE RATIOS OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
LOAN-TO-VALUE RATIO (%) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------------------- -------- ----------------- ----------------
- ............................
- ............................
- ............................
- ............................
Total.....................
________________
o References to loan-to-value ratios are references to combined loan-to-value
ratios with respect to second lien mortgage loans.
GEOGRAPHIC DISTRIBUTION OF THE MORTGAGED PROPERTIES
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
LOCATION OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- -------- -------- ----------------- ----------------
................................
................................
................................
................................
Total......................
S-11
<PAGE>
MORTGAGED PROPERTY TYPES OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
PROPERTY TYPE OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------- -------- ----------------- ----------------
................................
................................
................................
................................
................................
Total......................
MORTGAGED PROPERTY OCCUPANCY STATUS OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
OCCUPANCY STATUS OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ---------------- -------- ----------------- ----------------
................................
................................
................................
Total......................
The occupancy status of a mortgaged property is as represented by the
mortgagor in its loan application.
PURPOSE OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
LOAN PURPOSE OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------ -------- ----------------- ----------------
................................
................................
................................
Total......................
LOAN PROGRAMS OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
LOAN PROGRAM OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------ -------- ----------------- ----------------
................................
................................
Total......................
S-12
<PAGE>
RISK CATEGORIES OF THE _____________ MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
RISK CATEGORIES OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- --------------- -------- ----------------- ----------------
................................
................................
................................
................................
................................
................................
................................
Total......................
* Underwritten pursuant to the Mortgage Credit Only program.
** Underwritten pursuant to the Home Saver program.
RISK CATEGORIES OF THE __________ MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
RISK CATEGORIES OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- --------------- -------- ----------------- ----------------
................................
................................
................................
................................
................................
Total......................
UNDERWRITING STANDARDS; REPRESENTATIONS
[The mortgage loans will be acquired by the company from the Seller. The
Seller will have acquired, either directly or indirectly, approximately _____%
of the mortgage loans, by aggregate principal balance as of the Cut-off Date,
from _______. The Seller will have acquired approximately _____% of the mortgage
loans, by aggregate principal balance as of the Cut-off Date, from
______________. All of the mortgage loans were originated or acquired by the
Originators generally in accordance with the underwriting criteria described
below.
The information set forth below with regard to the Originators'
underwriting standards has been provided to the company or compiled from
information provided to the company by the Originators.
The Originators' underwriting standards are primarily intended to assess
the value of the mortgaged property and to evaluate the adequacy of the property
as collateral for the mortgage loan. All of the mortgage loans were also
underwritten with a view toward the resale thereof in the secondary mortgage
market. While the Originators' primary consideration in underwriting a mortgage
loan is the value of the mortgaged property, the Originators also consider,
among other things, a mortgagor's credit history, repayment ability and debt
service-to-income ratio, as well as the type and use of the mortgaged property.
The mortgage loans generally bear higher rates of interest than mortgage loans
that are originated in accordance with Fannie Mae and Freddie Mac standards,
which is likely to result in rates of delinquencies
S-13
<PAGE>
and foreclosures that are higher, and that may be substantially higher, than
those experienced by portfolios of mortgage loans underwritten in a more
traditional manner.
As a result of the Originators' underwriting criteria, changes in the
values of mortgaged properties may have a greater effect on the delinquency,
foreclosure and loss experience on the mortgage loans than the changes would be
expected to have on mortgage loans that are originated in a more traditional
manner. No assurance can be given that the values of the related mortgaged
properties have remained or will remain at the levels in effect on the dates of
origination of the related mortgage loans.
[ORIGINATOR'S UNDERWRITING PROGRAMS]
[Discussion of Underwriting programs used by Originator 1 to originate
mortgage loans such as those in the securitization]
[ORIGINATOR'S UNDERWRITING PROGRAMS]
[Discussion of Underwriting programs used by Originator 2 to originate
mortgage loans such as those in the securitization]
[See version 1 of the prospectus supplement]
ADDITIONAL INFORMATION
The description in this prospectus supplement of the mortgage pool and the
mortgaged properties is based upon the mortgage pool as constituted as of the
close of business on the Cut-off Date, as adjusted for the scheduled principal
payments due on or before the Cut-off 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 the removal
necessary or desirable, and may be prepaid at any time. A limited number of
other mortgage loans may be included in the mortgage pool prior to the issuance
of the Certificates unless including these mortgage loans would materially alter
the characteristics of the mortgage pool as described in this prospectus
supplement. The company believes that the information set forth in this
prospectus supplement will be representative of the characteristics of the
mortgage pool as it will be constituted at the time the Certificates are issued,
although the range of mortgage rates and maturities and some other
characteristics of the mortgage loans may vary. In no event, however, will more
than 5% (by principal balance at the Cut-off Date) of the mortgage loans or
mortgage securities deviate from the characteristics of the mortgage loans or
mortgage securities set forth in the related prospectus supplement.
S-14
<PAGE>
YIELD ON THE CERTIFICATES
DELAY IN DISTRIBUTIONS ON THE OFFERED CERTIFICATES
The effective yield to holders of the offered certificates of each class
will be less than the yields otherwise produced by their respective Pass-Through
Rates (as defined in this prospectus supplement) and purchase prices because (1)
on the first Distribution Date one month's interest is payable on the offered
certificates even though __ days will have elapsed from the date on which
interest begins to accrue on the offered certificates, (2) on each succeeding
Distribution Date the interest payable on the offered certificates is the
interest accrued during the month preceding the month of the Distribution Date,
which ends 24 days prior to the Distribution Date and (3) during each Interest
Accrual Period (as defined in this prospectus supplement) (other than the first
Interest Accrual Period), interest accrues on a Certificate Principal Balance
that may be less than the Certificate Principal Balance of the class actually
outstanding for the first 24 days of the Interest Accrual Period.
POSSIBLE SHORTFALLS IN COLLECTIONS OF INTEREST
When a principal prepayment in full is made on a mortgage loan, the
mortgagor is charged interest only for the period from the Due Date of the
preceding monthly payment up to the date of the prepayment, instead of for a
full month. When a partial principal prepayment is made on a mortgage loan, the
mortgagor is not charged interest on the amount of the prepayment for the month
in which the prepayment is made. In addition, the application of the Relief Act
to any mortgage loan will adversely affect, for an indeterminate period of time,
the ability of applicable Servicer to collect full amounts of interest on the
mortgage loan. See "Certain Legal Aspects of the Mortgage Loans--Soldiers' and
Sailors' Civil Relief Act of 1940" in the prospectus. Each Servicer is obligated
to pay from its own funds only those interest shortfalls attributable to full
and partial prepayments by the mortgagors on the related mortgage loans, but
only to the extent of its Servicing Fee for the related Due Period (as defined
in this prospectus supplement). See "Pooling and Servicing Agreement--Servicing
and Other Compensation and Payment of Expenses" in this prospectus supplement.
Accordingly, the effect of (1) any principal prepayments on the mortgage loans,
to the extent that any resulting shortfall exceeds any payments made by the
applicable Servicer from its own funds or (2) any shortfalls resulting from the
application of the Relief Act, will be to reduce the aggregate amount of
interest collected that is available for distribution to certificateholders. Any
of these shortfalls will be allocated among the Certificates as provided under
"Description of the Certificates--Interest Distributions on the Offered
Certificates" and "--Overcollateralization Provisions" in this prospectus
supplement. The Policy will not cover any shortfalls resulting from application
of the Relief Act.
GENERAL PREPAYMENT CONSIDERATIONS
The rate of principal payments on the offered certificates, the aggregate
amount of distributions on the offered certificates and the yield to maturity of
the offered certificates will be related to the rate and timing of payments of
principal on the mortgage loans. Furthermore, since mortgage loans secured by
second liens are not generally viewed by borrowers as permanent financing and
generally carry a high rate of interest, the mortgage loans may experience a
higher rate of prepayments than traditional mortgage loans. The rate of
principal payments on the mortgage loans will in turn be affected by the
amortization schedules of the mortgage loans and the rate of principal
prepayments on the mortgage loans (including for this purpose, payments
resulting from refinancings, liquidations of the mortgage loans due to defaults,
casualties, condemnations and repurchases, whether optional or required, by the
company, the Originators, the Seller, the majority holder of the Class CE
Certificates, the insurer or the master servicer, as the case may be). The
mortgage loans generally may be prepaid by the mortgagors at any time; however,
as described under "The Mortgage Pool" in this prospectus supplement, with
respect to approximately _____% of the mortgage
S-15
<PAGE>
loans, by aggregate principal balance as of the Cut-off Date, a prepayment may
subject the related mortgagor to a Prepayment Charge.
Prepayments, liquidations and repurchases of the mortgage loans will result
in distributions in respect of principal to the holders of the offered
certificates that otherwise would be distributed over the remaining terms of the
mortgage loans. 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 in this
prospectus supplement and in the prospectus under "Yield Considerations" and
"Maturity and Prepayment Considerations"), no assurance can be given as to this
rate or the rate of principal prepayments. The extent to which the yield to
maturity of the offered certificates may vary from the anticipated yield will
depend upon the degree to which the offered certificates are purchased at a
discount or premium and the degree to which the timing of payments on the
offered certificates is sensitive to prepayments on the mortgage loans. Further,
an investor should consider, in the case of any Offered Certificate purchased at
a discount, the risk that a slower than anticipated rate of principal payments
on the mortgage loans could result in an actual yield to the investor that is
lower than the anticipated yield and, in the case of any Offered Certificate
purchased at a premium, the risk that a faster than anticipated rate of
principal payments could result in an actual yield to the investor that is lower
than the anticipated yield. In general, the earlier a prepayment of principal is
made on the mortgage loans, the greater the effect on the yield to maturity of
the offered certificates. As a result, the effect on an investor's yield of
principal payments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the issuance
of the offered certificates would not be fully offset by a subsequent like
reduction (or increase) in the rate of principal payments.
It is highly unlikely that the mortgage loans will prepay at any constant
rate until maturity or that all of the mortgage loans will prepay at the same
rate. Moreover, the timing of prepayments on the mortgage loans may
significantly affect the actual yield to maturity on the offered certificates,
even if the average rate of principal payments experienced over time is
consistent with an investor's expectation.
The rate of payments (including prepayments) on pools of mortgage loans is
influenced by a variety of economic, geographic, social and other factors. If
prevailing mortgage rates fall 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 rise significantly above the
mortgage rates on the mortgage loans, the rate of prepayment on the mortgage
loans would be expected to decrease. Other factors affecting prepayment of
mortgage loans include changes in mortgagors' housing needs, job transfers,
unemployment, mortgagors' net equity in the mortgaged properties and servicing
decisions. There can be no certainty as to the rate of prepayments on the
mortgage loans during any period or over the life of the Certificates. See
"Yield Considerations" and "Maturity and Prepayment Considerations" in the
prospectus.
Because principal distributions are paid to some classes of offered
certificates before other classes, holders of classes of offered certificates
having a later priority of payment bear a greater risk of losses (because these
Certificates will represent an increasing percentage interest in the trust fund
prior to the commencement of their receipt of distributions of principal) than
holders of classes having earlier priorities for distribution of principal. In
particular, with respect to the Lockout Certificates (as defined in this
prospectus supplement), as described under "Description of the
Certificates--Principal Distributions on the Offered Certificates" in this
prospectus supplement, during some periods, no principal payments or a
disproportionately small portion of the amount of principal then payable to the
offered certificates will be distributed on the Lockout Certificates, and during
other periods, a disproportionately large portion of the amount of principal
then payable to the offered certificates will be distributed on the Lockout
Certificates. Unless the Certificate Principal Balances of the offered
certificates (other than the Lockout Certificates) have been reduced to zero,
the Lockout Certificates will not be entitled to receive any distributions of
principal payments prior to the Distribution Date in _______ ____.
S-16
<PAGE>
In general, defaults on mortgage loans are expected to occur with greater
frequency in their early years and the rate of defaults and the severity of
losses on mortgage loans secured by second liens may be substantially higher
than mortgage loans secured by first liens. In addition, default rates may be
higher for mortgage loans used to refinance an existing mortgage loan. In the
event of a mortgagor's default on a mortgage loan, other than as provided by the
Policy as described in this prospectus supplement, there can be no assurance
that recourse will be available beyond the specific mortgaged property pledged
as security for repayment. See "The Mortgage Pool--Underwriting Standards;
Representations" in this prospectus supplement.
MARKET INTEREST RATE CONSIDERATIONS
Because the mortgage rates on the mortgage loans and the Pass-Through Rates
on the offered certificates are fixed, these rates will not change in response
to changes in market interest rates. Accordingly, if mortgage market interest
rates or market yield for securities similar to these offered certificates were
to rise, the market value of these offered certificates may decline.
BALLOON PAYMENTS
The mortgage loans with Balloon Payments will not be fully-amortizing over
their terms to maturity, and will require substantial principal 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 borrower to make a
Balloon Payment typically will depend upon the borrower's ability either to
fully refinance the loan or to sell the related mortgaged property at a price
sufficient to permit the borrower to make the Balloon Payment. The ability of a
borrower 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 borrower's
equity in the related mortgaged property, tax laws, prevailing general economic
conditions and the availability of credit for loans secured by residential
property. Because the ability of a borrower to make a Balloon Payment typically
will depend upon the borrower's ability to either refinance the loan or to sell
the related mortgaged property, there is a risk that the Balloon Loans may
default at maturity. Any defaulted Balloon Payment that extends the maturity of
a mortgage loan may delay distributions of principal on the offered certificates
and thereby extend the weighted average life of the Certificates and, if the
Certificates were purchased at a discount, reduce the yield on the Certificates.
WEIGHTED AVERAGE LIVES
Weighted average life refers to the amount of time that will elapse from
the date of issuance of a security until each dollar of principal of the
security will be repaid to the investor. The weighted average life of each class
of offered certificates will be influenced by the rate at which principal on the
mortgage loans is paid, which may be in the form of scheduled payments or
prepayments (including repurchases and prepayments of principal by the borrower
as well as amounts received by virtue of condemnation, insurance or foreclosure
with respect to the mortgage loans), and the timing thereof.
Except as otherwise described under "Description of the Certificates--
Principal Distributions on the Offered Certificates" in this prospectus
supplement, distributions of principal will be made to the classes of the
offered certificates according to the priorities described in this prospectus
supplement, rather than on a PRO RATA basis among these classes, unless an
insurer default exists. The timing of commencement of principal distributions to
each class of the offered certificates and the weighted average life of each
class will be affected by the rates of prepayment on the mortgage loans
experienced both before and after the commencement of principal distributions on
each class. Moreover, because the Lockout Certificates do not receive (unless
the Certificate Principal Balances of the offered certificates, other than the
Lockout Certificates, have been reduced to zero) any portion of principal
payments prior to the Distribution Date
S-17
<PAGE>
occurring in _______ ____ and thereafter will receive (unless the Certificate
Principal Balances of the offered certificates, other than the Lockout
Certificates, have been reduced to zero) a disproportionately small or large
portion of principal payments, the weighted average life of the Lockout
Certificates will be longer or shorter than would otherwise be the case, and the
effect on the market value of the Lockout Certificates of changes in market
interest rates or market yields for similar securities may be greater or lesser
than for the other classes of offered certificates entitled to principal
distributions.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this prospectus supplement
assumes a prepayment rate for the mortgage loans of ___% of the Prepayment
Vector. A ___% Prepayment Vector assumes that the outstanding balance of a pool
of mortgage loans prepays at a rate of ____% CPR in the first month of the life
of the pool, this rate increasing by an additional approximate ____% CPR
(precisely __/__, expressed as a percentage) each month thereafter through the
eleventh month of the life of the pool, and the rate thereafter remaining
constant at __% CPR for the remainder of the life of the pool. A __% Prepayment
Vector assumes, for example, that the outstanding balance of a pool of mortgage
loans prepays at a rate of ____% CPR in the first month of the life of the pool,
the rate increasing by an additional approximate ____% CPR (precisely __/__,
expressed as a percentage) each month thereafter through the eleventh month of
the life of the pool, and the rate thereafter remaining constant at _____% CPR
for the remainder of the life of the pool. No representation is made that the
mortgage loans in the mortgage pool will prepay at the above-described rates or
any other rate. CPR refers to the Constant Prepayment Rate model, which assumes
that the outstanding principal balance of a pool of mortgage loans prepays at a
specified constant annual rate or CPR. In generating monthly cash flows, this
rate is converted to an equivalent constant monthly rate. To assume __% CPR or
any other CPR percentage is to assume that the stated percentage of the
outstanding principal balance of the pool is prepaid over the course of a year.
The tables following the next paragraph indicate the percentage of the
initial Certificate Principal Balance of the offered certificates that would be
outstanding after each of the dates shown at various percentages of the
Prepayment Assumption and the corresponding weighted average lives of the
Certificates. The tables are based on the following assumptions: (1) the
mortgage pool consists of ______ mortgage loans with the characteristics set
forth below, (2) distributions on the Certificates are received, in cash, on the
25th day of each month, commencing in _______ ____, (3) the mortgage loans
prepay at the percentages of the Prepayment Assumption indicated, (4) no
defaults or delinquencies occur in the payment by mortgagors of principal and
interest on the mortgage loans and no shortfalls due to the application of the
Relief Act are incurred, (5) none of the company, the Originators, the Seller,
the majority holder of the Class CE Certificates, the Insurer, the Servicers,
the Master Servicer or any other person purchases from the trust fund any
mortgage loan pursuant to any obligation or option under the Agreement, except
as indicated in footnote two in the tables below, (6) scheduled monthly payments
on the mortgage loans are received on the first day of each month commencing in
_______ ____, and are computed prior to giving effect to any prepayments
received in the prior month, (7) prepayments representing payment in full of
individual mortgage loans are received on the last day of each month commencing
in _______ ____, and include 30 days' interest on the mortgage loans, (8) the
scheduled monthly payment for each mortgage loan is calculated based on its
principal balance, mortgage rate, original term to stated maturity and remaining
term to stated maturity such that the mortgage loan will amortize in amounts
sufficient to repay the remaining principal balance of the mortgage loan by its
remaining term to stated maturity, (9) the Certificates are purchased on _______
__, ____, (10) the Servicing Fee Rate is equal to ____% per annum, the Master
Servicing Fee Rate is equal to ____% per annum on the mortgage loans directly
serviced by ________ and is equal to ____% per annum on the mortgage loans
serviced by __________, the Administration Fee Rate is equal to ______% per
annum and the amount of the premium payable to the insurer is as described under
the heading "Pooling and Servicing Agreement--Some Matters Regarding the
Insurer", (11) the first _____ mortgage loans in the table below are mortgage
loans that do not by their terms have Prepayment Charges and the last _____
mortgage loans in the table below are mortgage loans that by their terms do have
Prepayment Charges, (12) the _____ mortgage loan in the table below is a Balloon
Loan with a Balloon
S-18
<PAGE>
Payment of $_______ and the _____ mortgage loan in the table below is a Balloon
Loan with a Balloon Payment of $_______ and (13) the _____, _____, _____,
______, _____ and _____ mortgage loans in the table below are mortgage loans
that have been originated by __________ and the _____, _____, _____, _____,
_____ and ______ mortgage loans in the table below are mortgage loans that have
been originated by _________.
ASSUMED MORTGAGE LOAN CHARACTERISTICS
PRINCIPAL BALANCE ORIGINAL TERM REMAINING TERM
AS OF THE MORTGAGE TO MATURITY TO MATURITY
CUT-OFF DATE RATE (MONTHS) (MONTHS)
- ----------------- --------- ------------- ---------------
There will be discrepancies between the characteristics of the actual
mortgage loans and the characteristics assumed in preparing the tables. Any of
these discrepancies may have an effect upon the percentages of the initial
Certificate Principal Balance outstanding (and the weighted average lives) of
the offered certificates set forth in the tables. In addition, since the actual
mortgage loans included in the mortgage pool will have characteristics that
differ from those assumed in preparing the tables set forth below, the offered
certificates may mature earlier or later than indicated by the tables. Based on
the foregoing assumptions, the tables indicate the weighted average lives of the
offered certificates and sets forth the percentages of the initial Certificate
Principal Balance of the offered certificates that would be outstanding after
each of the Distribution Dates shown, at various percentages of the Prepayment
Assumption. Neither the prepayment model used in this prospectus supplement nor
any other prepayment model or assumption purports to be an historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of mortgage loans, including the mortgage loans included
in the mortgage pool. Variations in the prepayment experience and the balance of
the mortgage loans that prepay may increase or decrease the percentages of
initial Certificate Principal Balances (and weighted average lives) shown in the
following table. These variations may occur even if the average prepayment
experience of all the mortgage loans equals any of the specified percentages of
the Prepayment Assumption.
S-19
<PAGE>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE
SPECIFIED PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS A-1 CERTIFICATES CLASS A-2 CERTIFICATES
--------------------------- -------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200% 0% 50% 100% 150% 200%
- ----------------- --------------------------- -------------------------
Closing Date.............
.........................
.........................
.........................
.........................
Weighted Average Life
in Years(1)............
Weighted Average Life
in Years(2)............
CLASS A-3 CERTIFICATES CLASS A-4 CERTIFICATES
-------------------------- -------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200% 0% 50% 100% 150% 200%
- ----------------- -------------------------- -------------------------
Closing Date.............
.........................
.........................
.........................
.........................
Weighted Average Life
in Years(1)............
Weighted Average Life
in Years(2)............
- -----------------
* Represents less than one-half of one percent.
(1) The weighted average life of a Certificate is determined by (a) multiplying
the amount of each distribution of principal by the number of years from
the date of issuance of the Certificate to the related Distribution Date,
(b) adding the results and (c) dividing the sum by the initial Certificate
Principal Balance of the Certificate.
(2) Calculated pursuant to footnote one but assumes the majority holder of the
Class CE Certificates exercises its option to purchase the mortgage loans
on the earliest possible Distribution Date on which it is permitted to
exercise its option. See "Pooling and Servicing Agreement --Termination" in
this prospectus supplement.
(TABLE CONTINUED ON NEXT PAGE.)
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE
SPECIFIED PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS A-5 CERTIFICATES CLASS A-6 CERTIFICATES CLASS A-7 CERTIFICATES
------ --------------------------- ------------------------------ ----------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200% 0% 50% 100% 150% 200% 0% 50% 100% 150% 200%
- ----------------- ----- --- ----- ---- ---- ---- --- ----- ---- ----- ---- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date.............
.........................
.........................
.........................
.........................
Weighted Average Life
in Years(1)............
Weighted Average Life
in Years(2)............
- -----------------
</TABLE>
* Represents less than one-half of one percent.
(1) The weighted average life of a Certificate is determined by (a) multiplying
the amount of each distribution of principal by the number of years from
the date of issuance of the Certificate to the related Distribution Date,
(b) adding the results and (c) dividing the sum by the initial Certificate
Principal Balance of the Certificate.
(2) Calculated pursuant to footnote one but assumes the majority holder of the
Class CE Certificates exercises its option to purchase the mortgage loans
on the earliest possible Distribution Date on which it is permitted to
exercise its option. See "Pooling and Servicing Agreement --Termination" in
this prospectus supplement.
(TABLE CONTINUED FROM PRIOR PAGE.)
S-21
<PAGE>
There is no assurance that prepayments of the mortgage loans will conform
to any of the levels of the Prepayment Assumption indicated in the tables above,
or to any other level, or that the actual weighted average lives of the offered
certificates will conform to any of the weighted average lives set forth in the
tables above. Furthermore, the information contained in the tables with respect
to the weighted average lives of the offered certificates is not necessarily
indicative of the weighted average lives that might be calculated or projected
under different or varying prepayment assumptions.
The characteristics of the mortgage loans will differ from those assumed in
preparing the tables above. In addition, it is unlikely that any mortgage loan
will prepay at any constant percentage until maturity, that all of the mortgage
loans will prepay at the same rate. The timing of changes in the rate of
prepayments may significantly affect the actual yield to maturity to investors,
even if the average rate of principal prepayments is consistent with the
expectations of investors.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Impac Secured Assets Corp., Mortgage Pass-Through Certificates, Series
____-___ will consist of ______ classes of certificates, designated as: (1) the
Class A-1 Certificates, the Class A-2 Certificates, the Class A-3 Certificates,
the Class A-4 Certificates, the Class A-5 Certificates, the Class A-6
Certificates ; (2) the Class A-7 Certificates; (3) the Class CE Certificates;
(4) the Class P Certificates and (5) the Class R-I Certificates, the Class R-II
Certificates and the Class R-III Certificates. Only the offered certificates are
offered by this prospectus supplement. The Class CE Certificates, the Class P
Certificates and the Residual Certificates, which are not being offered by this
prospectus supplement, will be sold by the company to ______________ on the
Closing Date.
Distributions on the offered certificates will be made on the 25th day of
each month, or, if the day is not a business day, on the next succeeding
business day, beginning in _______ ____.
The Certificates represent in the aggregate the entire beneficial ownership
interest in a trust fund consisting primarily of the mortgage pool of
conventional, one- to four-family, fixed-rate, first lien and second lien
mortgage loans having original terms to maturity of not greater than [30] years.
The Certificates have an aggregate principal balance as of the Cut-off Date of
approximately $___________, subject to a permitted variance as described under
"The Mortgage Pool" in this prospectus supplement.
Each class of offered certificates will have the approximate initial
Certificate Principal Balance and Pass- Through Rate as set forth under "Summary
of Prospectus Supplement--Offered Certificates" above. The Pass-Through Rate on
the Class A-6 Certificates for any Distribution Date will be a rate per annum
equal to the lesser of (1) _____% and (2) the Net WAC Pass-Through Rate for the
related Distribution Date. The offered certificates in the aggregate evidence an
initial undivided interest of approximately _____% in the trust fund and the
Class CE Certificates evidence an initial undivided interest of approximately
____% in the trust fund.
The offered certificates will be issued, maintained and transferred on the
book-entry records of the DTC and its participants (as defined in this
prospectus supplement) in minimum denominations of $[10,000] and integral
multiples of $[1.00] in excess thereof.
S-22
<PAGE>
The offered certificates will initially be represented by one or more
global certificates registered in the name of the nominee of the DTC (or any
successor clearing agency selected by the company), except as provided below.
The company has been informed by the DTC that the DTC's nominee will be Cede &
Co.. No person acquiring an interest in any Offered Certificate will be entitled
to receive a certificate representing the person's interest, except as set forth
below under "--Definitive Certificates". Unless and until a certificate is
issued in fully registered certificated form under the limited circumstances
described in this prospectus supplement, all references to actions by
certificateholders with respect to the offered certificates shall refer to
actions taken by the DTC upon instructions from its participants, and all
references in this prospectus supplement to distributions, notices, reports and
statements to certificateholders with respect to the offered certificates shall
refer to distributions, notices, reports and statements to the DTC or CEDE, as
the registered holder of the offered certificates, for distribution to
Certificate Owners in accordance with the DTC procedures. See "--Registration of
the Offered Certificates" and "--Definitive Certificates" in this prospectus
supplement.
Any Definitive Certificates will be transferable and exchangeable at the
offices of the Trust Administrator. No service charge will be imposed for any
registration of transfer or exchange, but the Trust Administrator may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
All distributions to holders of the Certificates, other than the final
distribution on any class of Certificates, will be made by the Trust
Administrator on behalf of the Trustee to the persons in whose names the
Certificates are registered at the close of business on each Record Date. These
distributions will be made either (a) by check mailed to the address of each
certificateholder as it appears in the Certificate Register or (b) upon written
request to the Trust Administrator at least five business days prior to the
relevant Record Date by any holder of Certificates having an aggregate initial
Certificate Principal Balance that is in excess of the lesser of (1) $5,000,000
or (2) two-thirds of the initial aggregate Certificate Principal Balance of the
class of Certificates, by wire transfer in immediately available funds to the
account of the certificateholder specified in the request. The final
distribution on any class of Certificates will be made in like manner, but only
upon presentment and surrender of the Certificates at the corporate trust office
of the Trust Administrator or the other location specified in the notice to
certificateholders of the final distribution.
REGISTRATION OF THE OFFERED CERTIFICATES
The DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. the DTC was created to hold
securities for its participating organizations and to facilitate the clearance
and settlement of securities transactions between participants through
electronic book entries, thereby eliminating the need for physical movement of
certificates. participants include securities brokers and dealers (including
[Name of Underwriter]), banks, trust companies and clearing corporations.
Indirect access to the DTC system is also available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
Certificate Owners that are not participants or indirect participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, the offered certificates may do so only through participants and indirect
participants. In addition, Certificate Owners will receive all distributions of
principal of and interest on the offered certificates from the Trust
Administrator through the DTC and the DTC participants. The Trust Administrator
will forward payments to the DTC in same day funds and the
S-23
<PAGE>
DTC will forward the payments to participants in next day funds settled through
the New York Clearing House. Each participant will be responsible for disbursing
the payments to indirect participants or to Certificate Owners. Unless and until
Definitive Certificates are issued, it is anticipated that the only
certificateholder of the offered certificates will be CEDE, as nominee of the
DTC. Certificate Owners will not be recognized by the Trust Administrator as
certificateholders, as the term is used in the Agreement, and Certificate Owners
will be permitted to exercise the rights of certificateholders only indirectly
through the DTC and its participants.
Under the rules, regulations and procedures creating and affecting the DTC
and its operations, the DTC is required to make book-entry transfers of offered
certificates among participants and to receive and transmit distributions of
principal of, and interest on, the offered certificates. Participants and
indirect participants with which Certificate Owners have accounts with respect
to the offered certificates similarly are required to make book-entry transfers
and receive and transmit the payments on behalf of their respective Certificate
Owners. Accordingly, although Certificate Owners will not possess Definitive
Certificates, the Rules provide a mechanism by which Certificate Owners through
their participants and indirect participants will receive payments and will be
able to transfer their interest.
Because the DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and on behalf of certain banks, the ability of a
Certificate Owner to pledge offered certificates to persons or entities that do
not participate in the DTC system, or to otherwise act with respect to the
Certificates, may be limited due to the absence of physical certificates for the
offered certificates. In addition, under a book- entry format, Certificate
Owners may experience delays in their receipt of payments since distribution
will be made by the Trust Administrator to CEDE, as nominee for the DTC.
Under the Rules, the DTC will take action permitted to be taken by a
certificateholder under the Agreement only at the direction of one or more
participants to whose the DTC account the offered certificates are credited.
Additionally, under the Rules, the DTC will take the actions with respect to
specified Voting Rights only at the direction of and on behalf of participants
whose holdings of offered certificates evidence the specified Voting Rights. the
DTC may take conflicting actions with respect to Voting Rights to the extent
that participants whose holdings of offered certificates evidence these Voting
Rights, authorize divergent action.
The company, the Servicers, the Trustee, the Trust Administrator, the
Originators, the insurer and the Seller will have no liability for any actions
taken by the DTC or its nominee, including actions for any aspect of the records
relating to or payments made on account of beneficial ownership interests in the
offered certificates held by CEDE, as nominee for the DTC, or for maintaining,
supervising or reviewing any records relating to these beneficial ownership
interests.
DEFINITIVE CERTIFICATES
Definitive Certificates will be issued to Certificate Owners or their
nominees, rather than to the DTC or its nominee, only if (1) the company advises
the Trust Administrator in writing that the DTC is no longer willing or able to
discharge properly its responsibilities as Clearing Agency with respect to the
offered certificates and the company is unable to locate a qualified successor,
(2) the company, at its option, advises the Trust Administrator in writing that
it elects to terminate the book-entry system through the DTC, or (3) after the
occurrence of an Event of Default, Certificate Owners representing in the
aggregate not less than 51% of the Voting Rights of the offered certificates
advise the Trust Administrator and the DTC through participants, in writing,
that the continuation of a book-entry system through the DTC (or a successor
thereto) is no longer in the Certificate Owners' best interest.
S-24
<PAGE>
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trust Administrator is required to notify all Certificate Owners
through participants of the availability of Definitive Certificates. Upon
surrender by the DTC of the Definitive Certificates representing the offered
certificates and receipt of instructions for re-registration, the Trust
Administrator will reissue the offered certificates as Definitive Certificates
issued in the respective principal amounts owned by individual Certificate
Owners, and thereafter the Trust Administrator will recognize the holders of the
Definitive Certificates as certificateholders under the Agreement. These
Definitive Certificates will be issued in minimum denominations of $10,000,
except that any beneficial ownership represented by a Offered Certificate in an
amount less than $10,000 immediately prior to the issuance of a Definitive
Certificate shall be issued in a minimum denomination equal to the amount
represented by the Offered Certificate.
INTEREST DISTRIBUTIONS ON THE OFFERED CERTIFICATES
Distributions in respect of interest will be made on each Distribution Date
to the holders of each class of offered certificates in an amount (allocable
among these Certificates PRO RATA in accordance with the respective amounts
payable as to each in respect of interest) equal to the Interest Distribution
Amount for the class for the Distribution Date.
All distributions of interest on the offered certificates will be based on
a 360-day year consisting of twelve 30-day months. Except as otherwise described
in this prospectus supplement, on any Distribution Date, distributions of the
Interest Distribution Amount for a class of Certificates will be made in respect
of the class of Certificates, to the extent provided in this prospectus
supplement, on a PARI PASSU basis, based on the Certificate Principal Balance of
the Certificates of each class.
Subject to the terms of the Policy, any interest losses incurred by the
offered certificates (other than shortfalls resulting from the application of
the Relief Act) will be covered under the Policy. Notwithstanding the foregoing,
however, if payments are not made as required under the Policy, any of these
interest losses may be borne by the offered certificates to the extent the
amount of the losses is not paid from Net Monthly Excess Cashflow (as defined in
this prospectus supplement), in the priority described under
"--Overcollateralization Provisions" in this prospectus supplement.
The Certificate Principal Balance of an Offered Certificate outstanding at
any time represents the then maximum amount that the holder thereof is entitled
to receive as distributions allocable to principal from the cash flow on the
mortgage loans and the other assets in the trust fund. The Certificate Principal
Balance of any class of offered certificates as of any date of determination is
equal to the initial Certificate Principal Balance thereof reduced by the
aggregate of (1) all amounts allocable to principal previously distributed with
respect to the Certificate and (2) any reductions in the Certificate Principal
Balance thereof deemed to have occurred in connection with allocations of
Realized Losses in the manner described in this prospectus supplement. The
Certificate Principal Balance of the Class CE Certificates as of any date of
determination is equal to the excess, if any, of (1) the then aggregate
principal balance of the mortgage loans over (2) the then aggregate Certificate
Principal Balance of the offered certificates and the Class P Certificates.
PRINCIPAL DISTRIBUTIONS ON THE OFFERED CERTIFICATES
On each Distribution Date, the Principal Distribution Amount will be
distributed to the holders of the offered certificates then entitled to the
distributions.
Notwithstanding the foregoing, as described under "--Overcollateralization
Provisions" in this prospectus supplement, no amounts will be distributed to the
holders of the offered certificates pursuant to
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clause (5) above except to the extent of any Net Monthly Excess Cashflow
remaining after payment to the holders of the offered certificates of all
amounts in respect of Realized Losses pursuant to clause (4) above and payment
to the insurer of any Cumulative Insurance Payments.
In no event will the Principal Distribution Amount with respect to any
Distribution Date be (x) less than zero or (y) greater than the then outstanding
aggregate Certificate Principal Balance of the offered certificates.
In addition, on each Distribution Date, funds received as a result of a
claim under the Policy in respect of the principal portion of Realized Losses
allocated to the offered certificates will be distributed by the Trust
Administrator on behalf of the Trustee to the holders of the Certificates. See
"--Financial Guaranty Insurance Policy" in this prospectus supplement.
Distributions of the Principal Distribution Amount (and any amounts
distributable in accordance with clauses first and third under
"--Overcollateralization Provisions" in this prospectus supplement) on the
offered certificates on each Distribution Date will be made as follows:
(1) First, to the holders of the Lockout Certificates, the Lockout
Distribution Percentage of the Principal Distribution Amount, until the
Certificate Principal Balance thereof has been reduced to zero;
(2) Second, to the holders of the Class A-1 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero;
(3) Third, to the holders of the Class A-2 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero;
(4) Fourth, to the holders of the Class A-3 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero;
(5) Fifth, to the holders of the Class A-4 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero;
(6) Sixth, to the holders of the Class A-5 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero;
(7) Seventh, to the holders of the Class A-6 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero; and
(8) Eighth, to the holders of the Lockout Certificates, until the
Certificate Principal Balance thereof has been reduced to zero.
Notwithstanding the foregoing priorities, if an Insurer Default exists, the
priority of distributions of principal among the offered certificates will be
disregarded and distributions allocable to principal will be paid on each
succeeding Distribution Date to holders of the offered certificates, on a PRO
RATA basis, based on the Certificate Principal Balances thereof.
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OVERCOLLATERALIZATION PROVISIONS
The weighted average mortgage rate (net of the Administration Fee Rate, the
Servicing Fee Rate, the Master Servicing Fee Rate and the amount of the premium
payable to the insurer) for the mortgage loans is generally expected to be
higher than the weighted average of the Pass-Through Rate on the offered
certificates, thus generating excess interest collections which, in the absence
of Realized Losses, will not be necessary to fund interest distributions on the
offered certificates. The Agreement requires that, on each Distribution Date,
the Net Monthly Excess Cashflow, if any, be applied on the Distribution Date as
an accelerated payment of principal on the offered certificates, but only to the
limited extent hereafter described.
With respect to any Distribution Date, any Net Monthly Excess Cashflow (or,
in the case of clause first below, the Net Monthly Excess Cashflow exclusive of
any Overcollateralization Reduction Amount) shall be paid as follows:
FIRST, to the holders of the class or classes of offered certificates then
entitled to receive distributions in respect of principal, in an amount
equal to the principal portion of any Realized Losses incurred or deemed to
have been incurred on the mortgage loans;
SECOND, to the insurer, in an amount equal to any Cumulative Insurance
Payments;
THIRD, to the holders of the class or classes of offered certificates then
entitled to receive distributions in respect of principal, in an amount
equal to the Overcollateralization Increase Amount;
FOURTH, to the holders of the offered certificates, in an amount equal to
the Certificates' allocated share of any shortfalls resulting from the
application of the Relief Act with respect to the mortgage loans;
FIFTH, to the insurer, for any amounts remaining due to the insurer under
the terms of the Insurance Agreement (as defined in this prospectus
supplement);
SIXTH, to the holders of the Class CE Certificates as provided in the
Agreement; and
SEVENTH, to the holders of the Residual Certificates, any remaining
amounts; provided that if the Distribution Date is the Distribution Date
immediately following the expiration of the latest Prepayment Charge term
or any Distribution Date thereafter, then any of these remaining amounts
will be distributed FIRST, to the holders of the Class P Certificates,
until the Certificate Principal Balance thereof has been reduced to zero;
and SECOND, to the holders of the Residual Certificates.
As of the Closing Date, the aggregate principal balance of the mortgage
loans as of the Cut-off Date will exceed the sum of the aggregate Certificate
Principal Balances of the offered certificates and the Class P Certificates by
an amount equal to approximately $__________, which is equal to the initial
Certificate Principal Balance of the Class CE Certificates. This amount
represents approximately ____% of the aggregate principal balance of the
mortgage loans as of the Cut-off Date and is the initial amount of
overcollateralization required to be provided by the mortgage pool under the
Agreement. Under the Agreement, the Overcollateralized Amount is required to be
maintained at the Required Overcollateralization Amount. In the event that
Realized Losses are incurred on the mortgage loans, these Realized Losses may
result in an overcollateralization deficiency since these Realized Losses will
reduce the principal balance of the mortgage loans without a corresponding
reduction to the aggregate Certificate Principal Balances of the offered
certificates. In this event, the Agreement requires the payment from Net Monthly
Excess Cashflow, subject to available funds, of an amount equal to the
overcollateralization deficiency, which shall constitute
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a principal distribution on the offered certificates in reduction of the
Certificate Principal Balances thereof. This has the effect of accelerating the
amortization of the offered certificates relative to the amortization of the
mortgage loans, and of increasing the Overcollateralized Amount.
In the event that the Required Overcollateralized Amount is required to
step up on any Distribution Date, the Agreement provides that all Net Monthly
Excess Cashflow remaining after the distributions described in clauses FIRST and
SECOND above will be distributed in respect of the Overcollateralization
Increase Amount for the offered certificates until the Overcollateralized Amount
is equal to the stepped up Required Overcollateralized Amount. This has the
effect of accelerating the amortization of the offered certificates relative to
the amortization of the mortgage loans, and of increasing the Overcollateralized
Amount.
In the event that the Required Overcollateralized Amount is permitted to
step down on any Distribution Date, the Agreement provides that a portion of the
principal which would otherwise be distributed to the holders of the offered
certificates on the related Distribution Date shall be distributed to the
holders of the Class CE Certificates on the related Distribution Date. With
respect to each related Distribution Date, the Principal Distribution Amount
will be reduced by the amount by which the Overcollateralized Amount exceeds the
Required Overcollateralized Amount after taking into account all other
distributions to be made on the related Distribution Date. Any of this
Overcollateralization Reduction Amount shall be distributed as part of Net
Monthly Excess Cashflow pursuant to the priorities set forth above. This has the
effect of decelerating the amortization of the offered certificates relative to
the amortization of the mortgage loans and of reducing the Overcollateralized
Amount.
FINANCIAL GUARANTY INSURANCE POLICY
The following summary of the terms of the Policy does not purport to be
complete and is qualified in its entirety by reference to the Policy. A form of
the Policy may be obtained, upon request, from the company.
Simultaneously with the issuance of the offered certificates, the insurer
will deliver the Policy to the Trust Administrator for the benefit of the
holders of the offered certificates. Under the Policy, the insurer will
irrevocably and unconditionally guarantee payment to the Trust Administrator on
behalf of the Trustee on each Distribution Date for the benefit of the holders
of the offered certificates, the full and complete payment of Insured Payments
with respect to the offered certificates calculated in accordance with the
original terms of the offered certificates when issued and without regard to any
amendment or modification of the offered certificates or the Agreement except
amendments or modifications to which the insurer has given its prior written
consent.
If any Insured Payment is avoided as a preference payment under applicable
bankruptcy, insolvency, receivership or similar law, the insurer will pay this
amount out of funds of the insurer on the later of (1) the date when due to be
paid pursuant to the Order referred to below or (2) the first to occur of (a)
the a fourth Business Day following Receipt by the insurer from the Trust
Administrator of (A) a certified copy of the order of the court or other
governmental body which exercised jurisdiction to the effect that a holder of
offered certificates is required to return principal or interest distributed
with respect to an Offered Certificate during the Term of the Policy because
these distributions were avoidable preferences under applicable bankruptcy law,
(B) a certificate of the holder of offered certificates that the Order has been
entered and is not subject to any stay, and (C) an assignment duly executed and
delivered by the holder of offered certificates, in the form as is reasonably
required by the insurer and provided to the holder of offered certificates by
the insurer, irrevocably assigning to the insurer all rights and claims of the
holder of offered certificates relating to or arising under the offered
certificates against the debtor which made the preference payment or otherwise
with respect to the preference payment, or (b) the date of Receipt by the
insurer from
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the Trust Administrator of the items referred to in clauses (A), (B) and (C)
above if, at least four Business Days prior to the date of Receipt, the insurer
shall have Received written notice from the Trust Administrator that the items
were to be delivered on a specified date and the date was specified in the
notice. The payment shall be disbursed to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the Order and not to the
Trust Administrator or holder of offered certificates directly, unless a holder
of offered certificates has previously paid the amount to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in the Order,
in which case the payment shall be disbursed to the Trust Administrator for
distribution to the holder of the offered certificates upon proof of the payment
reasonably satisfactory to the insurer. In connection with the foregoing, the
insurer shall have the rights provided pursuant to the Agreement.
Payment of claims under the Policy made in respect of Insured Payments will
be made by the insurer following Receipt by the insurer of the appropriate
notice for payment on the later to occur of (a) 12:00 noon, New York City time,
on the second Business Day following Receipt of the notice for payment, and (b)
12:00 noon, New York City time, on the relevant Distribution Date.
The insurer's obligations under the Policy to make Insured Payments shall
be discharged to the extent funds are transferred to the Trust Administrator as
provided in the Policy, whether or not the funds are properly applied by the
Trust Administrator.
The insurer shall be subrogated to the rights of the holders of the offered
certificates to receive payments of principal and interest, as applicable, with
respect to distributions on the Certificates to the extent of any payment by the
insurer under the Policy. To the extent the insurer makes Insured Payments,
either directly or indirectly (as by paying through the Trust Administrator), to
the holders of the offered certificates, the insurer will be subrogated to the
rights of the holders of the offered certificates, as applicable, with respect
to the Insured Payment and shall be deemed to the extent of the payments so made
to be a registered holder of the offered certificates for purposes of payment.
Claims under the Policy constitute direct unsecured and unsubordinated
obligations of the insurer, and will rank not less than PARI PASSU with any
other unsecured and unsubordinated indebtedness of the insurer except for some
obligations with respect to tax and other payments to which preference is or may
become afforded by statute. The terms of the Policy cannot be modified, altered
or affected by any other agreement or instrument, or by the merger,
consolidation or dissolution of the company. The Policy by its terms may not be
canceled or revoked prior to distribution in full of all Guaranteed
Distributions (as defined in the Policy). The Policy is governed by the laws of
the State of New York. The Policy is not covered by the property/casualty
insurance security fund specified in Article 76 of the New York Insurance Law.
To the fullest extent permitted by applicable law, the insurer agrees under
the Policy not to assert, and waives, for the benefit of each holder of the
offered certificates, all its rights (whether by counterclaim, setoff or
otherwise) and defenses (including the defense of fraud), whether acquired by
subrogation, assignment or otherwise, to the extent that these rights and
defenses may be available to the insurer to avoid payment of its obligations
under the Policy in accordance with the express provisions of the Policy.
Pursuant to the terms of the Agreement, unless an Insurer Default exists,
the insurer will be entitled to exercise certain rights of the holders of the
offered certificates, without the consent of the certificateholders, and the
holders of the offered certificates may exercise the rights only with the prior
written consent of the insurer. See "Pooling and Servicing Agreement--Voting
Rights" and "--Certain Matters Regarding the Insurer" in this prospectus
supplement.
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The company, the Seller, the Servicers and the insurer will enter into an
Insurance Agreement pursuant to which the company, the Seller and the Servicers
will agree to reimburse, with interest, the insurer for amounts paid pursuant to
claims under the Policy. The company, the Seller and the Servicers will further
agree to pay the insurer all reasonable charges and expenses which the insurer
may pay or incur relative to any amounts paid under the Policy or otherwise in
connection with the transaction and to indemnify the insurer against some
liabilities. Except to the extent provided in the Insurance Agreement, amounts
owing under the Insurance Agreement will be payable solely from the trust fund.
An event of default by either Servicer under the Insurance Agreement will
constitute an Event of Default by the Servicer under the Agreement and allow the
insurer, among other things, to direct the Trustee to terminate the Servicer. An
"event of default" by each Servicer under the Insurance Agreement includes (1)
the Servicer's failure to pay when due any amount owed under the Insurance
Agreement or other documents, (2) the Servicer's untruth or incorrectness in any
material respect of any representation or warranty of the Servicer in the
Insurance Agreement, the Agreement (in its capacity as Servicer) or other
documents, (3) the Servicer's failure to perform or to observe any covenant or
agreement in the Insurance Agreement, the Agreement (in its capacity as
Servicer) and other documents, (4) the Servicer's failure to pay its debts in
general or the occurrence of certain events of insolvency or bankruptcy with
respect to the Servicer and (5) the occurrence of an Event of Default relating
to the Servicer under the Agreement or other documents.
ALLOCATION OF LOSSES; SUBORDINATION
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 equal the portion of the
unpaid principal balance remaining, if any, plus interest through the last day
of the month in which the mortgage loan was finally liquidated, after
application of all amounts recovered (net of amounts reimbursable to the
Servicers for P&I Advances, servicing advances and other related expenses,
including attorney's fees) towards interest and principal owing on the mortgage
loan. In the event that amounts recovered in connection with the final
liquidation of a defaulted mortgage loan are insufficient to reimburse the
Servicers for P&I Advances and servicing advances, these amounts may be
reimbursed to the Servicers out of any funds in the Certificate Account prior to
the distribution on the Certificates.
Any Realized Losses on the mortgage loans will be allocated on any
Distribution Date, first, to Net Monthly Excess Cashflow, second, to the Class
CE Certificates until the Certificate Principal Balance thereof has been reduced
to zero, and third, to the offered certificates on a PRO RATA basis. The
Agreement does not permit the allocation of any Realized Losses to the Class P
Certificates. The Policy will cover any Realized Losses allocable to the offered
certificates pursuant to clause third above. Notwithstanding the foregoing,
however, if payments are not made as required under the Policy, Realized Losses
will be allocated to the offered certificates.
If Realized Losses have been allocated to the offered certificates and the
insurer has defaulted in its obligation to cover these Realized Losses, these
amounts with respect to the Certificates will no longer accrue interest nor will
the amounts be reinstated thereafter (even if Net Monthly Excess Cashflow and/or
the Overcollateralized Amount are greater than zero on any subsequent
Distribution Dates).
Any allocation of a Realized Loss to a Certificate will be made by reducing
the Certificate Principal Balance thereof by the amount so allocated as of the
Distribution Date in the month following the calendar month in which the
Realized Loss was incurred. An allocation of a Realized Loss on a PRO RATA basis
between two or more classes of Certificates means an allocation to each of the
classes of Certificates on the basis of its then outstanding Certificate
Principal Balance prior to giving effect to distributions to be made on the
related Distribution Date. Notwithstanding anything to the contrary described in
this prospectus
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supplement, in no event will the Certificate Principal Balance of an Offered
Certificate be reduced more than once in respect of any particular amount both
(1) allocable to the Offered Certificate in respect of Realized Losses and (2)
payable as principal to the holder of the Offered Certificate from Net Monthly
Excess Cashflow or from amounts paid under the Policy.
P&I ADVANCES
Subject to the following limitations, each Servicer will be obligated to
advance or cause to be advanced on or before each Distribution Date its own
funds, or funds in the Certificate Account that are not included in the
Available Distribution Amount for the Distribution Date, in an amount equal to
the aggregate of all payments of principal and interest, net of the Servicing
Fee, that were due during the related Due Period on the mortgage loans serviced
by it and that were delinquent on the related Determination Date, plus some
amounts representing assumed payments not covered by any current net income on
the mortgaged properties acquired by foreclosure or deed in lieu of foreclosure.
With respect to a delinquent Balloon Payment, the related Servicer is not
required to make a P&I Advance of the delinquent Balloon Payment. The related
Servicer will, however, make monthly P&I Advances with respect to a Balloon Loan
with delinquent Balloon Payments, in each case in an amount equal to the assumed
monthly principal and interest payment (net of the related Servicing Fee) that
would have been due during the related Due Period based on the original
principal amortization schedule for the Balloon Loan.
P&I Advances are required to be made only to the extent they are deemed by
the applicable Servicer to be recoverable from related late collections,
insurance proceeds or liquidation proceeds. The purpose of making the P&I
Advances is to maintain a regular cash flow to the certificateholders, rather
than to guarantee or insure against losses. Neither Servicer will be required to
make any P&I 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.
All P&I Advances will be reimbursable to the applicable Servicer from late
collections, insurance proceeds and liquidation proceeds from the mortgage loan
serviced by it as to which the unreimbursed P&I Advance was made. In addition,
any P&I Advances previously made in respect of any mortgage loan that are deemed
by applicable Servicer to be nonrecoverable from related late collections,
insurance proceeds or liquidation proceeds may be reimbursed to the Servicer out
of any funds in the Certificate Account prior to the distributions on the
Certificates. In the event that either Servicer fails in its obligation to make
any required advance, the Trust Administrator will be obligated to make any
related advance and in the event that the Trust Administrator fails in its
obligation to make any related advance, the Trustee will be obligated to make
any related advance, in each case to the extent required in the Agreement.
Notwithstanding the foregoing, in the event _______ fails in its obligation to
make any required advance as Servicer, the Master Servicer will be obligated to
make any related advance prior to the obligation of the Trust Administrator or
the Trustee to make the related advances as provided above.
POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement, dated as of __, ____, among the company, the Servicers, the Trust
Administrator and the Trustee, a form of which is filed as an exhibit to the
registration statement. A Current Report on Form 8-K relating to the
Certificates containing a copy of the Agreement as executed will be filed by the
company with the Securities and
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Exchange Commission within fifteen days of the initial issuance of the
Certificates. The trust fund created under the Agreement will consist of (1) all
of the company's right, title and interest in the mortgage loans, the related
mortgage notes, mortgages and other related documents, (2) all payments on or
collections in respect of the mortgage loans due after the Cut-off Date,
together with any proceeds thereof, (3) any mortgaged properties acquired on
behalf of certificateholders by foreclosure or by deed in lieu of foreclosure,
and any revenues received on the mortgaged properties, (4) the rights of the
Trustee under all insurance policies required to be maintained pursuant to the
Agreement and (5) some of the rights of the company under the Mortgage Loan
Purchase Agreement among the company, the Seller and ___________ and under the
Mortgage Loan Purchase Agreement among the company, the Seller and ___________.
Reference is made to the prospectus for important information in addition to
that set forth in this prospectus supplement regarding the trust fund, the terms
and conditions of the Agreement and the offered certificates. The offered
certificates will be transferable and exchangeable at the corporate trust
offices of the Trust Administrator, located in ______, __________. The company
will provide to a prospective or actual certificateholder without charge, on
written request, a copy (without exhibits) of the Agreement. Requests should be
addressed to the Secretary, Impac Secured Assets Corp., 1401 Dove Street,
Newport Beach, CA 92660 and its phone number is (949) 475-3600.
ASSIGNMENT OF THE MORTGAGE LOANS
The company will deliver to the Trust Administrator, as custodian for the
Trustee, with respect to each mortgage loan (1) the mortgage note endorsed
without recourse to the Trustee to reflect the transfer of the mortgage loan,
(2) the original mortgage with evidence of recording indicated on the mortgage
and (3) an assignment of the mortgage in recordable form to the Trustee,
reflecting the transfer of the mortgage loan. These assignments of mortgage
loans are required to be recorded by or on behalf of the company in the
appropriate offices for real property records.
LOSS AND DELINQUENCY INFORMATION OF THE MASTER SERVICER
[See version 1 of the prospectus supplement].
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THE TRUSTEE
_______________, a national banking association, will act as Trustee for
the Certificates pursuant to the Agreement. The Trustee's offices for notices
under the Agreement are located at _________________, and its telephone number
is __________. In the event the Trust Administrator advises the Trustee that it
is unable to continue to perform its obligations pursuant to the terms of the
Agreement prior to the appointment of a successor, the Trustee shall be
obligated to perform these obligations until a new trust administrator is
appointed.
The principal compensation to be paid to the Trustee in respect of its
obligations under the Agreement will be equal to the related portion of accrued
interest at the Administration Fee Rate of ______% per annum on the Scheduled
Principal Balance of the mortgage loans. The Agreement will provide that the
Trustee and any director, officer, employee or agent of the Trustee will be
indemnified by the trust fund and will be held harmless against any loss,
liability or expense (not including expenses, disbursements and advances
incurred or made by the Trustee, including the compensation and the expenses and
disbursements of its agents and counsel, in the ordinary course of the Trustee's
performance in accordance with the provisions of the Agreement) incurred by the
Trustee in connection with any pending or threatened claim or legal action
arising out of or in connection with the acceptance or administration of its
obligations and duties under the Agreement, other than any loss, liability or
expense (1) resulting from a breach of either Servicer's or the Trust
Administrator's obligations and duties under the Agreement, (2) that constitutes
a specific liability of the Trustee under the Agreement or (3) incurred by
reason of willful misfeasance, bad faith or negligence in the performance of the
Trustee's duties under the Agreement or as a result of a breach, or by reason of
reckless disregard, of the Trustee's obligations and duties under the Agreement.
THE TRUST ADMINISTRATOR
_______________, a national banking association, will act as Trust
Administrator for the Certificates pursuant to the Agreement. The Trust
Administrator's offices for notices under the Agreement are located at
__________________, and its telephone number is ______________. The Trust
Administrator will perform some administrative functions on behalf of the
Trustee and will act as initial paying agent, certificate registrar and
custodian.
The principal compensation to be paid to the Trust Administrator in respect
of its obligations under the Agreement will be equal to the related portion of
the Administration Fee. The Agreement will provide that the Trust Administrator
and any director, officer, employee or agent of the Trust Administrator will be
indemnified by the trust fund and will be held harmless against any loss,
liability or expense (not including expenses, disbursements and advances
incurred or made by the Trust Administrator, including the compensation and the
expenses and disbursements of its agents and counsel, in the ordinary course of
the Trust Administrator's performance in accordance with the provisions of the
Agreement) incurred by the Trust Administrator in connection with any pending or
threatened claim or legal action arising out of or in connection with the
acceptance or administration of its obligations and duties under the Agreement,
other than any loss, liability or expense (1) resulting from a breach of either
Servicer's or the Trustee's obligations and duties under the Agreement, (2) that
constitutes a specific liability of the Trust Administrator under the Agreement
or (3) incurred by reason of willful misfeasance, bad faith or negligence in the
performance of the Trust Administrator's duties under the Agreement or as a
result of a breach, or by reason of reckless disregard, of the Trust
Administrator's obligations and duties under the Agreement.
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SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation to be paid to ___________, in its capacity as
Master Servicer, will be equal to accrued interest at the Master Servicing Fee
Rate of ____% per annum with respect to each mortgage loan serviced by _________
on the Scheduled Principal Balance of each mortgage loan. The principal
compensation to be paid to each of __________ and ___________, in its capacity
as a Servicer, in respect of its servicing activities for the Certificates will
be equal to accrued interest at the Servicing Fee Rate of ____% per annum with
respect to each mortgage loan serviced by it on the Scheduled Principal Balance
of each mortgage loan. As additional servicing compensation, each Servicer is
entitled to retain all assumption fees, late payment charges and other
miscellaneous servicing fees in respect of the mortgage loans serviced by it
(with the exception of Prepayment Charges, which will be distributed to the
holders of the Class P Certificates) to the extent collected from mortgagors,
together with any interest or other income earned on funds held in the
Certificate Account and any escrow accounts in respect of the mortgage loans
serviced by it.
Each Servicer is obligated to offset any Prepayment Interest Shortfall in
respect of the mortgage loans serviced by it on any Distribution Date to the
extent of its Servicing Fee for the Distribution Date. Each Servicer is
obligated to pay some insurance premiums and some ongoing expenses associated
with the mortgage pool in respect of the mortgage loans serviced by it and
incurred by the Servicer in connection with its responsibilities under the
Agreement and is entitled to reimbursement therefor as provided in the
Agreement. See "Description of the Securities--Retained Interest; Servicing
Compensation and Payment of Expenses" in the prospectus for information
regarding expenses payable by the Servicers and "Federal Income Tax
Consequences" in this prospectus supplement regarding some taxes payable by the
Servicers.
OPTIONAL PURCHASE OF DEFAULTED MORTGAGE LOANS
The Master Servicer has the option to purchase from the trust fund any
mortgage loan that is 90 days or more delinquent, which the Master Servicer
determines in good faith will otherwise become subject to foreclosure
proceedings; provided, however, that (1) the Master Servicer shall purchase any
of these mortgage loans on the basis of delinquency, purchasing the most
delinquent mortgage loans first and (2) after it has purchased __% of the
mortgage loans, by aggregate principal balance as of the Cut-off Date, pursuant
to clause (1) above, the Master Servicer must also obtain the consent of the
insurer prior to any further purchases of delinquent mortgage loans.
Notwithstanding the foregoing, prior to purchasing any mortgage loan serviced by
___________, the Master Servicer must give ___________ the right of first
refusal to purchase the mortgage loan.
EVENTS OF DEFAULT
In addition to those events of default described under "Description of the
Securities--Events of Default" in the prospectus, upon the occurrence of loss
and delinquency triggers with respect to the mortgage loans serviced by the
related Servicer or upon the occurrence of certain other defaults which are set
forth in the Agreement, each Servicer may be removed as servicer of the mortgage
loans in accordance with the terms of the Agreement and the Insurance Agreement.
In addition, if ______________ is terminated in its capacity as Servicer under
the Agreement, it shall also be terminated as Master Servicer.
Pursuant to the Agreement, each Servicer covenants and agrees to act as a
Servicer for an initial term from the Closing Date to __________ __, ____, which
term shall be extendable by the insurer for successive terms of three (3)
calendar months thereafter, until the termination of the trust fund. Each notice
of extension shall be delivered by the insurer to the Trustee, the Trust
Administrator and the related Servicer. Each
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Servicer will, upon its receipt of the notice of extension, become bound for the
duration of the term covered by the notice of extension to continue as a
Servicer subject to and in accordance with the other provisions of the
Agreement. If as of the fifteenth (15th) day prior to the last day of any term
of the Servicer, the Trust Administrator shall not have received any notice of
extension from the insurer, the Trust Administrator will, within five (5) days
thereafter, give written notice of the non-receipt to the insurer, the related
Servicer and the Trustee. The failure of the insurer to deliver a notice of
extension by the end of a calendar term shall result in the termination of the
related Servicer.
Any successor to either Servicer appointed under the Agreement must be a
housing loan servicing institution acceptable to each Rating Agency (as defined
in the prospectus) with a net worth at the time of the appointment of at least
$15,000,000. See "Description of the Securities--Rights Upon Event of Default"
in the prospectus.
VOTING RIGHTS
At all times, __% of all Voting Rights will be allocated among the holders
of the offered certificates and the Class CE Certificates in proportion to the
then outstanding Certificate Principal Balances of their respective
Certificates, __% of all Voting Rights will be allocated to the holders of the
Class P Certificates in proportion to the then outstanding Certificate Principal
Balances of their respective Certificates and --/-- of __% of all Voting Rights
will be allocated among the holders of each class of Residual Certificates in
proportion to the percentage interests in the classes evidenced by their
respective Certificates. Unless an Insurer Default exists, the insurer will be
entitled to exercise some voting and other rights of the holders of the offered
certificates. See "--Some Matters Regarding the Insurer" in this prospectus
supplement.
SOME MATTERS REGARDING THE INSURER
Under the Agreement, on each Distribution Date, the Trust Administrator is
required to pay to the insurer a premium with respect to the Policy equal to
__/__ times ____% per annum times the Certificate Principal Balance of the
offered certificates.
Pursuant to the terms of the Agreement, unless there exists a continuance
of any failure by the insurer to make a required payment under the Policy or
there exists a proceeding in bankruptcy by or against the insurer, the insurer
will be entitled to exercise, among others, the following rights of the holders
of the offered certificates, without the consent of the holders, and the holders
of the offered certificates may exercise the rights only with the prior written
consent of the insurer: (1) the right to direct the Trustee to terminate the
rights and obligations of the either Servicer under the Agreement in the event
of a default by the Servicer; (2) the right to consent to or direct any waivers
of defaults by either Servicer; (3) the right to remove the Trustee or the Trust
Administrator pursuant to the Agreement; and (4) the right to institute
proceedings against either Servicer in the event of default by the Servicer and
refusal of the Trustee to institute the proceedings. In addition, unless an
Insurer Default exists, the insurer will have the right to direct all matters
relating to any proceeding seeking the avoidance as a preferential transfer
under applicable bankruptcy, insolvency, receivership or similar law of any
distribution made with respect to the offered certificates, and, unless an
Insurer Default exists, the insurer's consent will be required prior to, among
other things, (1) the removal of the Trustee or the Trust Administrator, (2) the
appointment of any successor Trustee, Trust Administrator or Servicer, as the
case may be, or (3) any amendment to the Agreement.
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<PAGE>
TERMINATION
The circumstances under which the obligations created by the Agreement will
terminate in respect of the Certificates are described in "Description of the
Securities--Termination" in the prospectus. The majority holder of the Class CE
Certificates (or if the holder does not exercise the option, the Master Servicer
or the insurer) will have the right to purchase all remaining mortgage loans and
any properties acquired in respect thereof and thereby effect early retirement
of the Certificates on any Distribution Date following the Due Period during
which the aggregate principal balance of the mortgage loans (and properties
acquired in respect thereof) remaining in the trust fund at the time of purchase
is reduced to less than __%, in the event the majority holder of the Class CE
Certificates exercises the option, or __%, in the event the Master Servicer or
the insurer exercises the option, of the aggregate principal balance of the
mortgage loans as of the Cut-off Date. In the event the majority holder of the
Class CE Certificates exercises the option, the purchase price payable in
connection therewith generally will be equal to par, and in the event the Master
Servicer or the insurer exercises the option, the purchase price payable in
connection therewith generally will be equal to the greater of par or the fair
market value of the mortgage loans and the properties, in each case plus accrued
interest for each mortgage loan at the related mortgage rate to but not
including the first day of the month in which the repurchase price is
distributed, together with any amounts due to the Servicers for unpaid Servicing
Fees and any unreimbursed advances and any amounts due to ___________, in its
capacity as Master Servicer for any unpaid Master Servicing Fees. In the event
the majority holder of the Class CE Certificates or the Master Servicer or the
insurer exercises the option, the portion of the purchase price allocable to the
offered certificates will be, to the extent of available funds (including funds
paid under the Policy), (1) 100% of the then outstanding Certificate Principal
Balance, plus (2) one month's interest on the then outstanding Certificate
Principal Balance at the then applicable Pass-Through Rate for the class, plus
(3) any previously accrued but unpaid interest to which the holders of the
Certificates are entitled. The holders of the Residual Certificates shall pledge
any amount received in a termination in excess of par to the holders of the
Class CE Certificates. In no event will the trust created by the Agreement
continue beyond the expiration of 21 years from the death of the survivor of the
persons named in the Agreement. See "Description of the Securities--Termination"
in the prospectus.
THE INSURER
The following information has been supplied by __________________ for
inclusion in this prospectus supplement.
GENERAL
The principal executive offices of the insurer are located at
_______________, and its telephone number at that location is __________.
REINSURANCE
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties by the insurer or any of its
domestic or Bermuda operating insurance company subsidiaries are generally
reinsured among the companies on an agreed-upon percentage substantially
proportional to their respective capital, surplus and reserves, subject to
applicable statutory risk limitations. In addition, the
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insurer reinsures a portion of its liabilities under some of its financial
guaranty insurance policies with other reinsurers under various treaties and on
a transaction-by-transaction basis. The reinsurance is utilized by the insurer
as a risk management device and to comply with certain statutory and rating
agency requirements; it does not alter or limit the insurer's obligations under
any financial guaranty insurance policy.
RATINGS
The insurer's insurance financial strength is rated "Aaa" by _________. The
insurer's insurer financial strength is rated "AAA" by each of ____________ and
____________. The insurer's claims-paying ability is rated "AAA" by ___________
and ___________ and _______________. These ratings reflect only the views of the
respective rating agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time by the rating
agencies. See "Ratings".
CAPITALIZATION
<TABLE>
<CAPTION>
MARCH 31, 1999
ACTUAL AS ADJUSTED(1)
(UNAUDITED)
(IN THOUSANDS)
---------------------
<S> <C> <C>
Deferred Premium Revenue
(net of prepaid reinsurance premiums).................... $___________ $_____________
Surplus Notes...............................................
Minority Interest...........................................
Shareholder's Equity
Common Stock.............................................
Additional Paid-In Capital...............................
Accumulated Other Comprehensive Income (net of
deferred income taxes)...................................
Accumulated Earnings.....................................
Total Shareholder's Equity..................................
Total Deferred Premium Revenue, Surplus Notes, Minority
Interest and Shareholder's Equity...........................
</TABLE>
_________________
(1) Adjusted to give effect to the ____________ (a) purchase by _________ of $__
million of surplus notes from the insurer in connection with the formation of a
new indirect _________ subsidiary of the insurer, initially capitalized with
$___ million, including a $__ million minority interest owned by ____________,
and (b) contribution by _______ to the capital of the insurer of approximately
$__ million, representing a portion of the proceeds from the sale by Holdings of
$___ million of _______% Senior Quarterly Income Debt Securities due ____.
For further information concerning the insurer, see the Consolidated
Financial Statements of the insurer and subsidiaries, and the notes thereto,
incorporated by reference in this prospectus supplement. The insurer's financial
statements are included as exhibits in the Annual Reports on Form 10-K and the
Quarterly Reports on Form 10-Q filed with the Commission and may be reviewed at
the EDGAR web site maintained by the Commission and at Holding's website,
http://www._______.com. Copies of the statutory quarterly and annual financial
statements filed with the State of New York Insurance Department by the insurer
are available upon request to the State of New York Insurance Department.
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INCORPORATION OF DOCUMENTS BY REFERENCE
In addition to the documents described under "Incorporation of Certain
Information by Reference" in the prospectus, the consolidated financial
statements of the insurer and subsidiaries included in or as exhibits to the
following documents which have been filed with the Securities and Exchange
Commission by _________, are incorporated by reference in this prospectus
supplement, which together with the prospectus, forms a part of the company's
registration statement: (a) the Annual Report on Form 10-K for the year ended
December 31, 1998 and (b) the Quarterly Report on Form 10-Q for the period ended
March 31, 1999.
All financial statements of the insurer and subsidiaries included in
documents filed by Holdings pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, subsequent to the date of this
prospectus supplement and prior to the termination of the offering of the
offered certificates shall be deemed to be incorporated by reference into this
prospectus supplement and to be a part hereof from the respective dates of
filing the documents.
The company will provide without charge to any person to whom this
prospectus supplement is delivered, upon oral or written request of the person,
a copy of any or all of the foregoing financial statements incorporated by
reference. Requests for the copies should be directed to the Secretary, Impac
Secured Assets Corp., 1401 Dove Street, Newport Beach, CA 92660 and its phone
number is (949) 475-3600.
INSURANCE REGULATION
The insurer is licensed and subject to regulation as a financial guaranty
insurance corporation under the laws of the State of New York, its state of
domicile. In addition, the insurer and its insurance subsidiaries are subject to
regulation by insurance laws of the various other jurisdictions in which they
are licensed to do business. As a financial guaranty insurance corporation
licensed to do business in the State of New York, the insurer is subject to
Article 69 of the New York Insurance Law which, among other things, limits the
business of each insurer to financial guaranty insurance and related lines,
requires that each insurer maintain a minimum surplus to policyholders,
establishes contingency, loss and unearned premium reserve requirements for each
insurer, and limits the size of individual transactions ("single risks") and the
volume of transactions ("aggregate risks") that may be underwritten by each
insurer. Other provisions of the New York Insurance Law, applicable to non-life
insurance companies such as the insurer, regulate, among other things, permitted
investments, payment of dividends, transactions with affiliates, mergers,
consolidations, acquisitions or sales of assets and incurrence of liability for
borrowings.
FEDERAL INCOME TAX CONSEQUENCES
Three separate elections will be made to treat the trust fund as real
estate mortgage investment conduits ("REMIC I", "REMIC II" and "REMIC III",
respectively) for federal income tax purposes. Upon the issuance of the offered
certificates, Thacher Proffitt & Wood, counsel to the company, will deliver its
opinion generally to the effect that, assuming compliance with all provisions of
the Agreement, for federal income tax purposes, each of REMIC I, REMIC II and
REMIC III will qualify as a REMIC under Sections 860A through 860G of the
Internal Revenue Code of 1986.
For federal income tax purposes, (1) the Class R-I Certificates will be the
sole class of "residual interests" in REMIC I, (2) separate non-certificated
regular interests in REMIC I will be issued and will be the "regular interests"
in REMIC I, (3) the Class R-II Certificates will be the sole class of "residual
interests" in REMIC II, (4) separate non-certificated regular interests in REMIC
II will be issued and will be the "regular interests" in REMIC II, (5) the Class
R-III Certificates will be the sole class of "residual interests" in REMIC III,
and (6) the offered certificates, the Class CE Certificates and the Class P
Certificates will be
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<PAGE>
the "regular interests" in, and will be treated as debt instruments of, REMIC
III. See "Federal Income Tax Consequences--REMIC--Classification of REMICs" in
the prospectus.
For federal income tax reporting purposes, the offered certificates will
not 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, premium and market discount, 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 constant rate equal to ___% of
the Prepayment Vector. No representation is made that the mortgage loans will
prepay at the above rate or at any other rate. See "Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular Certificates--Original
Issue Discount" in the prospectus.
The Internal Revenue Service has issued regulations under Sections 1271 to
1275 of the Code generally addressing the treatment of debt instruments issued
with original issue discount. The OID Regulations in some circumstances permit
the holder of a debt instrument to recognize original issue discount under a
method that differs from that of the issuer. Accordingly, it is possible that
holders of offered certificates issued with original issue discount may be able
to select a method for recognizing original issue discount that differs from
that used in preparing reports to certificateholders and the IRS. Prospective
purchasers of offered certificates issued with original issue discount are
advised to consult their tax advisors concerning the tax treatment of the
Certificates in this regard.
The offered certificates may be treated for federal income tax purposes as
having been issued at a premium. Whether any holder of a Offered Certificate
will be treated as holding a Certificate with amortizable bond premium will
depend on the certificateholder's purchase price and the distributions remaining
to be made on the Certificate at the time of its acquisition by the
certificateholder. Holders of offered certificates should consult their own tax
advisors regarding the possibility of making an election to amortize the
premium. See "Federal Income Tax Consequences-- REMICs--Taxation of Owners of
REMIC Regular Certificates--Premium" in the prospectus.
The offered certificates will be treated as assets described in Section
7701(a)(19)(C) of the Code and "real estate assets" under Section 856(c)(4)(A)
of the Code, generally in the same proportion that the assets in the trust fund
would be so treated. In addition, interest on the offered certificates will be
treated as "interest on obligations secured by mortgages on real property" under
Section 856(c)(3)(B) of the Code, generally to the extent that the offered
certificates are treated as "real estate assets" under Section 856(c)(4)(A) of
the Code. The offered certificates will also be treated as "qualified mortgages"
under Section 860G(a)(3) of the Code. See "Federal Income Tax Consequences--
REMICs--Characterization of Investments in REMIC Certificates" in the
prospectus.
It is not anticipated that any of REMIC I, REMIC II or REMIC III will
engage in any transactions that would subject it to the prohibited transactions
tax as defined in Section 860F(a)(2) of the Code, the contributions tax as
defined in Section 860G(d) of the Code or the tax on net income from foreclosure
property as defined in Section 860G(c) of the Code. However, in the event that
any of the above-mentioned taxes are imposed on REMIC I, REMIC II or REMIC III,
the tax will be borne (1) by the Trust Administrator, if the Trust Administrator
has breached its obligations with respect to REMIC compliance under the
Agreement, (2) by __________, if ____________, in its capacity as Master
Servicer or as a Servicer, has breached its obligations with respect to REMIC
compliance under the Agreement, (3) by ___________, if ___________, in its
capacity as a Servicer has breached its obligations with respect to REMIC
compliance under the Agreement, (4) by the Trustee, if the Trustee has breached
its obligations with respect to REMIC compliance under the Agreement and (5)
otherwise by the trust fund, with a resulting reduction in amounts otherwise
distributable to holders of the related offered certificates. See "Description
of the Securities-- General" and "Federal Income Tax Consequences--REMICs--
Prohibited Transactions and Other Possible REMIC Taxes" in the prospectus.
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<PAGE>
The responsibility for filing annual federal information returns and other
reports will be borne by the Trustee, the Trust Administrator or the Master
Servicer. See "Federal Income Tax Consequences--REMICs-- Reporting and Other
Administrative Matters" in the prospectus.
For further information regarding the federal income tax consequences of
investing in the offered certificates, see "Federal Income Tax
Consequences--REMICs" in the prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement, dated _________ __, ______, the company has agreed to sell, and [Name
of Underwriter] has agreed to purchase the offered certificates. The Underwriter
is obligated to purchase all offered certificates if it purchases any. The
Underwriter is an affiliate of the company.
Distribution of the offered certificates will be made from time to time in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale. Proceeds to the company from the sale of the offered certificates,
before deducting expenses payable by the company, will be 99.50% of the
aggregate initial Certificate Principal Balance of the offered certificates,
plus accrued interest. In connection with the purchase and sale of the offered
certificates, the Underwriter may be deemed to have received compensation from
the company in the form of underwriting discounts.
The offered certificates are offered subject to receipt and acceptance by
the Underwriter, to prior sale and to the Underwriter's right to reject any
order in whole or in part and to withdraw, cancel or modify the offer without
notice. It is expected that delivery of the offered certificates will be made
through the facilities of the DTC on or about the Closing Date.
The Underwriting Agreement provides that the company will indemnify the
Underwriter against some civil liabilities, including liabilities under the
Securities Act of 1933, as amended, or will contribute to payments the
Underwriter may be required to make in respect thereof.
SECONDARY MARKET
There is currently no secondary market for the offered certificates and
there can be no assurance that a secondary market for the offered certificates
will develop or, if it does develop, that it will continue. The Underwriter
intends to establish a market in the offered certificates but it is not
obligated to do so. The primary source of information available to investors
concerning the offered certificates will be the monthly statements discussed in
the prospectus under "Description of the Securities--Reports to
Certificateholders", which will include information as to the outstanding
principal balance of the offered certificates and the status of the applicable
form of credit enhancement. There can be no assurance that any additional
information regarding the offered certificates will be available through any
other source. In addition, the company is not aware of any source through which
price information about the offered certificates will be generally available on
an ongoing basis. The limited nature of the information regarding the offered
certificates may adversely affect the liquidity of the offered certificates,
even if a secondary market for the offered certificates becomes available.
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<PAGE>
LEGAL OPINIONS
Some legal matters relating to the offered certificates will be passed upon
for the company and the Underwriter by Thacher Proffitt & Wood, New York, New
York.
EXPERTS
The consolidated balance sheets of the insurer and subsidiaries as of
December 31, 1998 and 1997 and the related consolidated statements of income,
changes in shareholder's equity, and cash flows for each of the three years in
the period ended December 31, 1998, incorporated by reference in this prospectus
supplement, have been incorporated in this prospectus supplement in reliance on
the report of _______________, independent accountants, given on the authority
of that firm as experts in accounting and auditing.
RATINGS
It is a condition to the issuance of the Certificates that the offered
certificates be rated "Aaa" by ____________ and "AAA" by _____________.
The ratings of ________ and ___________ assigned to mortgage pass-through
certificates address the likelihood of the receipt by certificateholders of all
distributions to which the certificateholders are entitled. The rating process
addresses structural and legal aspects associated with the Certificates,
including the nature of the underlying mortgage loans. The ratings assigned to
mortgage pass-through certificates do not represent any assessment of the
likelihood that principal prepayments will be made by the mortgagors or the
degree to which the prepayments will differ from that originally anticipated.
The ratings assigned by __________ and _________ on the offered certificates are
based in part upon the insurer's claims paying ability. Any change in the
ratings of the insurer by _________ or ___________ may result in a change in the
ratings on the offered certificates. The ratings do not address the possibility
that certificateholders might suffer a lower than anticipated yield due to
non-credit events.
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 ratings initially assigned to the
offered certificates are subsequently lowered for any reason, no person or
entity is obligated to provide any additional credit support or credit
enhancement with respect to the offered certificates.
The company has not requested that any rating agency rate the offered
certificates other than as stated above. However, there can be no assurance as
to whether any other rating agency will rate the offered certificates, or, if it
does, what rating would be assigned by any other rating agency. A rating on the
offered certificates by another rating agency, if assigned at all, may be lower
than the ratings assigned to the offered certificates as stated above.
LEGAL INVESTMENT
The offered certificates will not constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984 because
the mortgage pool includes some mortgage loans that are secured by subordinate
liens on the related mortgaged properties
The company makes 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
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class of 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 offered
certificates constitutes a legal investment or is subject to investment, capital
or other restrictions. On December 1, 1998, the Office of Thrift Supervision
issued Thrift Bulletin 13a, entitled "Management of Interest Rate Risk,
Investment Securities, and Derivatives Activities", which is applicable to
thrift institutions regulated by the OTS. TB 13a should be reviewed by any of
the above-mentioned thrift institutions prior to investing in the offered
certificates.
See "Legal Investment" in the prospectus.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or any other plan or arrangement
subject to the Employee Retirement Income Security Act of 1974, as amended, or
Section 4975 of the Code or any person investing Plan Assets of any Plan should
carefully review with its legal advisors whether the purchase, sale or holding
of Certificates will give rise to a prohibited transaction under ERISA or
Section 4975 of the Code.
The U.S. Department of Labor has issued an individual exemption, Prohibited
Transaction Exemption __-__, as described under "ERISA Considerations" in the
prospectus, to the Underwriter. The Exemption generally exempts from the
application of some of the prohibited transaction provisions of Section 406 of
ERISA, and the excise taxes imposed on these prohibited transactions by Section
4975(a) and (b) of the Code and Section 502(i) of ERISA, transactions relating
to the purchase, sale and holding of pass-through certificates underwritten by
the Underwriter, such as the offered certificates, and the servicing and
operation of asset pools such as the mortgage pool, provided that certain
conditions are satisfied. The purchase of the offered certificates by, on behalf
of or with the Plan Assets of any Plan may qualify for exemptive relief under
the Exemption. However, the Exemption contains a number of conditions which must
be met for the Exemption to apply (as described in the prospectus), including
the requirement that any Plan must be an "accredited investor" as defined in
Rule 501(a)(1) of Regulation D of the Securities and Exchange Commission under
the Securities Act of 1933, as amended. A fiduciary of a Plan contemplating
purchasing an Offered Certificate must make its own determination that the
conditions set forth in the Exemption will be satisfied with respect to the
offered certificates.
Before purchasing an Offered Certificate, a fiduciary of a Plan should
itself confirm (a) that the offered certificates constitute "certificates" for
purposes of the Exemption and (b) that the specific and general conditions of
the Exemption and the other requirements set forth in the Exemption would be
satisfied. Any Plan fiduciary that proposes to cause a Plan to purchase a
Certificate should consult with its counsel with respect to the potential
applicability to the investment of the fiduciary responsibility and prohibited
transaction provisions of ERISA and the Code to the proposed investment. For
further information regarding ERISA considerations of investing in the
Certificates, see "ERISA Considerations" in the prospectus.
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GLOSSARY
ADMINISTRATION FEE -- The principal compensation to be paid to the Trustee in
respect of its obligations under the Agreement and is equal to the related
portion of accrued interest at the Administration Fee Rate of ______% per annum
on the Scheduled Principal Balance of the mortgage loans.
ADMINISTRATION FEE RATE -- On each mortgage loan, a rate equal to ____% per
annum.
AVAILABLE DISTRIBUTION AMOUNT -- For any Distribution Date, is equal to the sum,
net of amounts reimbursable to the Master Servicer, the Servicers, the Trust
Administrator or the Trustee, of (1) the aggregate amount of scheduled monthly
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 Servicing Fees,
the Master Servicing Fee, the Administration Fee and the premium payable with
respect to the Policy, (2) some unscheduled payments in respect of the mortgage
loans, including prepayments, insurance proceeds, liquidation proceeds and
proceeds from repurchases of and substitutions for the mortgage loans occurring
during the preceding calendar month and (3) all P&I Advances with respect to the
mortgage loans received for the Distribution Date. The holders of the Class P
Certificates will be entitled to all Prepayment Charges received on the mortgage
loans and the amounts will not be available for distribution on the offered
certificates.
BALLOON LOAN -- A mortgage loan with an amortization term greater than its term
to maturity, resulting in a Balloon Payment on its maturity date.
BALLOON PAYMENT -- With respect to a Balloon Loan, the payment on the maturity
date of an amount equal to the remaining principal balance of the related
mortgage loan.
BOOK-ENTRY CERTIFICATES -- The offered certificates issued, maintained and
transferred at the DTC.
BUSINESS DAY -- Under the Policy, Business Day means any day other than (1) a
Saturday or Sunday or (2) a day on which banking institutions in the City of New
York, New York, the State of New York or in the city in which the corporate
trust office of the Trust Administrator is located, are authorized or obligated
by law or executive order to be closed. The insurer's obligations under the
Policy to make Insured Payments shall be discharged to the extent funds are
transferred to the Trust Administrator as provided in the Policy, whether or not
the funds are properly applied by the Trust Administrator.
CEDE--Cede & Co.
CERTIFICATE OWNER -- A person acquiring an interest in any Offered Certificate.
CERTIFICATES -- Impac Secured Assets Corp., Mortgage Pass-Through Certificates,
Series -___.
CERTIFICATE PRINCIPAL BALANCE -- With respect to any Certificate, the then
maximum amount that the holder is entitled to receive as distributions allocable
to principal from the cash flow on the mortgage loans and the other assets in
the trust fund. The Certificate Principal Balance of any class of Certificates
as of any date of determination is equal to the initial Certificate Principal
Balance, reduced by the aggregate of (1) all amounts allocable to principal
previously distributed with respect to the Certificate and (2) any reductions in
the Certificate Principal Balance deemed to have occurred in connection with
allocations of Realized Losses in the manner described in this prospectus
supplement.
CLEARING AGENCY -- DTC or any successor clearing agency selected by the company.
COMPENSATING INTEREST -- Any payments made by the Master Servicer from its own
funds to cover Prepayment Interest Shortfalls.
CPR -- A constant prepayment rate model.
CUMULATIVE INSURANCE PAYMENTS -- As of any Distribution Date, the aggregate of
any payments made by the insurer under the Policy to the extent not previously
reimbursed, plus interest on those payments.
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CUT-OFF DATE-- [Date].
DEFINITIVE CERTIFICATES -- A certificate which is issued in fully registered
certificated form.
DETERMINATION DATE -- With respect to any Distribution Date is on the 15th day
of the month in which the Distribution Date occurs or, if the day is not a
business day, on the immediately preceding business day.
DISTRIBUTION DATE -- The 25th day of the month or, if the day is not a business
day, on next succeeding business day.
DUE DATE -- With respect to each mortgage loan, the first day of the month.
DUE PERIOD -- With respect to any Distribution Date commences on the second day
of the month immediately preceding the month in which the Distribution Date
occurs and ends on the first day of the month in which the Distribution Date
occurs.
EXEMPTION-- Prohibited Transaction Exemption __-__.
EXPENSE ADJUSTED MORTGAGE RATE -- The then applicable mortgage rate on the
mortgage loan minus the sum of (1) the Administration Fee Rate, (2) the
Servicing Fee Rate and (3) the Master Servicing Fee Rate.
INDIRECT PARTICIPANTS -- Banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a participant, either directly
or indirectly.
INDUSTRY -- DTC's participants and other members of the financial community.
INSURANCE AGREEMENT -- An Insurance and Indemnity Agreement among the company,
the Seller, the Servicers and the insurer pursuant to which the company, the
Seller and the Servicers will agree to reimburse, with interest, the insurer for
amounts paid pursuant to claims under the Policy.
INSURED PAYMENTS -- With respect to the offered certificates as of any
Distribution Date, the sum of (1) any shortfall in amounts available in the
Distribution Account (as defined in the Agreement) to pay the Interest
Distribution Amount on the Certificates for the related Interest Accrual Period,
(2) the excess, if any, of (a) the aggregate Certificate Principal Balance of
the offered certificates then outstanding over (b) the aggregate principal
balances of the mortgage loans then outstanding and (3) without duplication of
the amount specified in clause (2), the aggregate Certificate Principal Balance
of the offered certificates to the extent unpaid on the final Distribution Date
or the earlier termination of the trust fund pursuant to the terms of the
Agreement. The Policy does not cover Relief Act Shortfalls.
INSURER DEFAULT -- A continuance of any failure by the insurer to make a
required payment under the Policy or the existence of a proceeding in bankruptcy
by or against the insurer.
INTEREST ACCRUAL PERIOD -- For each class of Certificates for any Distribution
Date, the one-month period preceding the month in which the Distribution Date
occurs.
INTEREST DISTRIBUTION AMOUNT -- With respect to the Certificates of any class on
any Distribution Date, is equal to interest accrued during the related Interest
Accrual Period on the Certificate Principal Balance of the Certificates
immediately prior to the Distribution Date at the Pass-Through Rate for the
class, reduced (to not less than zero), in the case of each class, by the
allocable share for the class of shortfalls resulting from the application of
the Relief Act, plus any undistributed Interest Distribution Amount for the
class from any previous Distribution Dates. On any Distribution Date, any
shortfalls resulting from the application of the Relief Act will be allocated,
first, to the interest distribution amount with respect to the Class CE
Certificates, and thereafter, to the Interest Distribution Amounts with respect
to the offered certificates on a PRO RATA basis based on the respective amounts
of interest accrued on the Certificates for the Distribution Date. On any
Distribution Date, any Prepayment Interest Shortfalls to the extent not covered
by Compensating Interest (as defined in this prospectus supplement) paid by the
Servicers will be allocated to the interest distribution amount with respect to
the Class CE Certificates. The holders of the offered
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<PAGE>
certificates will be entitled to reimbursement for any shortfalls resulting from
application of the Relief Act, subject to available funds, in the priority
described under "--Overcollateralization Provisions" in this prospectus
supplement. The Pass-Through Rate applicable to the calculation on the Interest
Distribution Amount for each class of offered certificates is fixed and set
forth under "Summary of Prospectus Supplement--Offered Certificates" above;
subject to the Net WAC Pass-Through Rate in the case of the Class A-6
Certificates.
LOCKOUT CERTIFICATES-- The Class A-7 Certificates.
LOCKOUT CERTIFICATE PERCENTAGE -- As calculated for each Distribution Date, the
percentage equal to the aggregate Certificate Principal Balance of the Lockout
Certificates immediately prior to the Distribution Date divided by the sum of
the aggregate Certificate Principal Balances of the offered certificates
immediately prior to the Distribution Date.
LOCKOUT DISTRIBUTION PERCENTAGE -- For any Distribution Date occurring prior to
the Distribution Date in _________ ____ will be equal to 0%. The "Lockout
Distribution Percentage" for any Distribution Date occurring after the first
three years following the Closing Date will be as follows: for any Distribution
Date during the _____ or _____ year after the Closing Date, __% of the Lockout
Certificate Percentage for the Distribution Date; for any Distribution Date
during the _____ year after the Closing Date, __% of the Lockout Certificate
Percentage for the Distribution Date; for any Distribution Date during the
_______ year after the Closing Date, ___% of the Lockout Certificate Percentage
for the Distribution Date, and for any Distribution Date thereafter, the lesser
of (x) ___% of the Lockout Certificate Percentage and (y) ___%. Notwithstanding
the foregoing, if the Certificate Principal Balances of the offered certificates
(other than the Lockout Certificates) have been reduced to zero, the Lockout
Distribution Percentage will be equal to ___%.
MASTER SERVICER-- Impac Funding Corporation.
MASTER SERVICING FEE -- The principal compensation to be paid to ___________, in
its capacity as Master Servicer, will be equal to accrued interest at the Master
Servicing Fee Rate of ____% per annum with respect to each mortgage loan
serviced by _________ on the Scheduled Principal Balance of each mortgage loan.
MASTER SERVICING FEE RATE -- On each mortgage loan, a rate equal to ____% per
annum.
NET MONTHLY EXCESS CASH FLOW -- For any Distribution Date, is equal to the sum
of (1) any Overcollateralization Reduction Amount and (2) the excess of (x) the
Available Distribution Amount for the Distribution Date over (y) the sum for the
Distribution Date of the aggregate of the Interest Distribution Amounts payable
to the holders of the offered certificates and the sum of the amounts described
in clauses (b)(1) through (3) of the definition of Principal Distribution
Amount.
NET WAC PASS-THROUGH RATE -- For any Distribution Date, a rate per annum equal
to the fraction, expressed as a percentage, the numerator of which is (1) an
amount equal to (A) 1/12 of the aggregate Scheduled Principal Balance of the
then outstanding mortgage loans multiplied by the weighted average of the
Expense Adjusted Mortgage Rates on the then outstanding mortgage loans minus (B)
the amount of the premium payable to the insurer with respect to the Policy for
the related Distribution Date, and the denominator of which is (2) 1/12 of the
aggregate Scheduled Principal Balance of the then outstanding mortgage loans.
OFFERED CERTIFICATES -- The Class A-1 Certificates, Class A-2 Certificates,
Class A-3 Certificates, Class A-4 Certificates, Class A-5 Certificates, Class
A-6 Certificates and Class A-7 Certificates.
ORDER -- The order of the court or other governmental body which exercised
jurisdiction to the effect that a holder of offered certificates is required to
return principal or interest distributed with respect to an Offered Certificate
during the Term of the Policy because these distributions were avoidable
preferences under applicable bankruptcy law.
ORIGINATOR[S] AND SERVICER[S] -- the Originator[s] and the Servicer[s].
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<PAGE>
OVERCOLLATERALIZED AMOUNT -- With respect to any Distribution Date, the excess,
if any, of (a) the aggregate principal balance of the mortgage loans immediately
following the Distribution Date, over (b) the sum of the aggregate Certificate
Principal Balances of the offered certificates and the Class P Certificates as
of the related Distribution Date, after taking into account the payment of the
amounts described in clauses (2)(a) through (d) of the definition of Principal
Distribution Amount on the related Distribution Date.
OVERCOLLATERALIZATION INCREASE AMOUNT -- With respect to the offered
certificates and any Distribution Date, any amount of Net Monthly Excess
Cashflow actually applied as an accelerated payment of principal to the extent
the Required Overcollateralized Amount exceeds the Overcollateralized Amount as
of the related Distribution Date.
OVERCOLLATERALIZATION REDUCTION AMOUNT -- With respect to each related
Distribution Date, the amount by which the Overcollateralized Amount exceeds the
Required Overcollateralized Amount.
P&I ADVANCE -- The aggregate of all payments of principal and interest, net of
the Servicing Fee, that were due during the related Due Period on the mortgage
loans serviced by it and that were delinquent on the related Determination Date,
plus amounts representing assumed payments not covered by any current net income
on the mortgaged properties acquired by foreclosure or by deed in lieu of
foreclosure.
PASS-THROUGH RATE -- With respect to any class of Certificates, the fixed rate
set forth on the cover hereof.
POLICY -- The certificate insurance policy.
PREPAYMENT ASSUMPTION -- A prepayment rate for the mortgage loans of ___% of the
Prepayment Vector.
PREPAYMENT CHARGE -- A fee which a mortgagor must pay in limited circumstances
when it has prepaid a mortgage loan, as is provided in the related mortgage
note.
PREPAYMENT PERIOD -- With respect to any Distribution Date is the calendar month
immediately preceding the month in which the Distribution Date occurs.
PREPAYMENT VECTOR -- A ___% Prepayment Vector assumes that the outstanding
balance of a pool of mortgage loans prepays at a rate of ____% CPR in the first
month of the life of the pool, the rate increasing by an additional approximate
____% CPR (precisely __/__, expressed as a percentage) each month thereafter
through the eleventh month of the life of the pool, and the rate thereafter
remaining constant at __% CPR for the remainder of the life of the pool. An __%
Prepayment Vector assumes, for example, that the outstanding balance of a pool
of mortgage loans prepays at a rate of ____% CPR in the first month of the life
of the pool, the rate increasing by an additional approximate ____% CPR
(precisely _____/__, expressed as a percentage) each month thereafter through
the ________ month of the life of the pool, and the rate thereafter remaining
constant at __% CPR for the remainder of the life of the pool.
PRINCIPAL DISTRIBUTION AMOUNT -- For any Distribution Date, Principal
Distribution Amount will be the lesser of:
(1) the excess of the Available Distribution Amount over the aggregate
of the Interest Distribution Amounts for the offered certificates; and
(2) THE SUM OF:
(a) the principal portion of all scheduled monthly payments on
the mortgage loans due during the related Due Period, whether or not
received on or prior to the related Determination Date;
(b) the principal portion of all proceeds received in respect of
the repurchase of a mortgage loan (or, in the case of a substitution,
amounts representing a principal adjustment) as required by the
Agreement during the related Prepayment Period;
S-46
<PAGE>
(c) the principal portion of all other unscheduled collections,
including insurance proceeds, liquidation proceeds and all full and
partial principal prepayments, received during the related Prepayment
Period, to the extent applied as recoveries of principal on the
mortgage loans;
(d) the principal portion of any Realized Losses incurred or
deemed to have been incurred on any mortgage loans in the calendar
month preceding the Distribution Date to the extent covered by Net
Monthly Excess Cashflow for the Distribution Date; and
(e) the amount of any Overcollateralization Increase Amount (as
defined in this prospectus supplement) for the Distribution Date;
MINUS
(f) the amount of any Overcollateralization Reduction Amount (as
defined in this prospectus supplement) for the Distribution Date.
RECEIPT OR RECEIVED -- With respect to the Policy, means actual delivery to the
insurer and to its fiscal agent appointed by the insurer at its option, if any,
prior to 12:00 p.m., New York City time, on a Business Day; delivery either on a
day that is not a Business Day or after 12:00 p.m., New York City time, shall be
deemed to be Receipt on the next succeeding Business Day. If any notice or
certificate given under the Policy by the Trust Administrator is not in proper
form or is not properly completed, executed or delivered, it shall be deemed not
to have been Received, and the insurer or the fiscal agent shall promptly so
advise the Trust Administrator and the Trust Administrator may submit an amended
notice.
RECORD DATE -- For each Distribution Date (1) with respect to any Book-Entry
Certificate will be the close of business on the business day immediately
preceding the Distribution Date or (2) with respect to any other class of
Certificates, including any Definitive Certificates, will be the close of
business on the last business day of the month preceding the month in which the
Distribution Date occurs.
REQUIRED OVERCOLLATERALIZATION AMOUNT -- With respect to any Distribution Date,
the Required Overcollateralized Amount for the offered certificates will be an
amount equal to approximately ____% of the aggregate principal balance of the
mortgage loans as of the Cut-off Date, subject to increase ("step up") or, after
__ months, decrease ("step down"), upon the occurrence of loss and delinquency
triggers with respect to the mortgage pool which are set forth in the Agreement.
RESIDUAL CERTIFICATES -- The Class R-I, Class R-II and Class R-III Certificates.
RIEGLE ACT-- The Community Development and Regulatory Improvement Act of 1994.
RULES -- The rules, regulations and procedures creating and affecting DTC and
its operations.
SCHEDULED PRINCIPAL BALANCE -- With respect to any mortgage loan as of any date
of determination is equal to the principal balance 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 (x) the principal portion of all
monthly payments due on or before the date of determination, whether or not
received, (y) all amounts allocable to unscheduled principal that were received
prior to the calendar month in which the date of determination occurs and (z)
any Bankruptcy Loss (as defined in this prospectus supplement) occurring out of
a Deficient Valuation (as defined in this prospectus supplement) that was
incurred prior to the calendar month in which the date of determination occurs.
SELLER -- [Name of the Seller].
SENIOR SEQUENTIAL CERTIFICATES -- The Class A-1 Certificates, the Class A-2
Certificates, the Class A-3 Certificates, the Class A-4 Certificates and the
Class A-5 Certificates.
SERVICING FEE --The principal compensation to be paid to each of __________ and
___________, in its capacity as a Servicer, in respect of its servicing
activities for the Certificates will be equal to accrued interest
S-47
<PAGE>
at the Servicing Fee Rate of ____% per annum with respect to each mortgage loan
serviced by it on the Scheduled Principal Balance of each mortgage loan.
SERVICING FEE RATE -- On each mortgage loan, a rate equal to ____% per annum.
SYSTEMS -- Computer applications, systems and similar items for processing data.
TERM OF THE POLICY -- The period from and including the date of issuance of the
Policy to and including the date on which the Certificate Principal Balances of
the offered certificates are reduced to zero, plus the additional period, to the
extent specified in the Policy, during which any payment on the offered
certificates could be avoided in whole or in part as a preference payment.
TRUST ADMINISTRATOR-- [Name of the Trust Administrator].
TRUSTEE -- [Name of the Trustee].
TRUSTEE'S FEE RATE -- On each mortgage loan, a rate equal to ______% per annum.
UNDERWRITER -- [Name of the Underwriter].
UNDERWRITING AGREEMENT -- The Underwriting Agreement, dated _________ __, ____.
S-48
<PAGE>
$___________ (APPROXIMATE)
IMPAC SECURED ASSETS CORP.
COMPANY
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES ____-___
PROSPECTUS SUPPLEMENT
DATED _______ __, ____
IMPAC FUNDING CORPORATION
MASTER SERVICER
[NAME OF UNDERWRITER]
UNDERWRITER
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
WE ARE NOT OFFERING THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT IN
ANY STATE WHERE THE OFFER IS NOT PERMITTED.
Dealers will be required to deliver a prospectus supplement and prospectus when
acting as underwriters of the certificates offered by this prospectus supplement
and with respect to their unsold allotments or subscriptions. In addition, all
dealers selling the offered certificates, whether or not participating in this
offering, may be required to deliver a prospectus supplement and prospectus
until ______ __, ____.
<PAGE>
INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT 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.
Subject to Completion, Dated March 21, 2000
[Version 3]
Prospectus Supplement
(To Prospectus dated , ____)
$_______________ (APPROXIMATE)
MORTGAGE-BACKED NOTES, SERIES ____-__
IMPAC MBN TRUST SERIES ____-__
ISSUER
IMPAC FUNDING CORPORATION
MASTER SERVICER
IMPAC SECURED ASSETS CORP.
COMPANY
- --------------------------------------------------------------------------------
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-__ IN THIS
PROSPECTUS SUPPLEMENT.
- --------------------------------------------------------------------------------
THE TRUST --
The trust will consist primarily of a mortgage pool of one- to
four-family fixed-rate and adjustable-rate residential mortgage loans. The trust
will be represented by ______ classes of notes, ______ of which are offered by
this prospectus supplement.
CREDIT ENHANCEMENT --
o the notes will have credit enhancement in the form of subordination.
The price to investors will vary from time to time and will be determined at the
time of sale. The proceeds to the company from the offering will be ___% of the
aggregate principal balance of the offered notes, less expenses equal to
$_______. See "Method of Distribution" in this prospectus supplement.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE OFFERED NOTES OR DETERMINED THAT
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS TRUTHFUL OR COMPLETE. 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.
[NAME OF UNDERWRITER]
Underwriter
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
We provide information to you about the offered notes in two separate documents
that progressively provide more detail:
o the accompanying prospectus, which provides general information,
some of which may not apply to this series of notes; and
o this prospectus supplement, which describes the specific terms of
this series of notes.
The Company's principal offices are located at 1401 Dove Street, Newport Beach,
CA 92660 and its phone number is (949) 475-3600.
TABLE OF CONTENTS
PAGE
PROSPECTUS SUPPLEMENT
Summary of Prospectus Supplement............................................S-__
Risk Factors................................................................S-__
Use of Proceeds.............................................................S-__
The Mortgage Pool...........................................................S-__
Yield on the Notes..........................................................S-__
Description of the Notes....................................................S-__
The Issuer..................................................................S-__
The Seller..................................................................S-__
The Owner Trustee...........................................................S-__
The Indenture Trustee.......................................................S-__
The Servicing Agreement.....................................................S-__
The Indenture and Owner Trust Agreement.....................................S-__
Federal Income Tax Consequences.............................................S-__
Method of Distribution......................................................S-__
Secondary Market............................................................S-__
Legal Opinions..............................................................S-__
Ratings ...................................................................S-__
Legal Investment............................................................S-__
ERISA Considerations........................................................S-__
Glossary....................................................................S-__
S-2
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
THE FOLLOWING SUMMARY IS A VERY BROAD OVERVIEW OF THE NOTES OFFERED BY
THIS PROSPECTUS SUPPLEMENT AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU
SHOULD CONSIDER IN MAKING YOUR INVESTMENT DECISION. TO UNDERSTAND ALL OF THE
TERMS OF THE OFFERED NOTES, READ CAREFULLY THIS ENTIRE PROSPECTUS SUPPLEMENT AND
THE ENTIRE ACCOMPANYING PROSPECTUS. CAPITALIZED TERMS USED BUT NOT DEFINED IN
THIS PROSPECTUS SUPPLEMENT HAVE THE MEANINGS ASSIGNED TO THEM IN THE PROSPECTUS.
A GLOSSARY IS INCLUDED AT THE END OF THIS PROSPECTUS SUPPLEMENT. CAPITALIZED
TERMS USED BUT NOT DEFINED IN THE GLOSSARY AT THE END OF THIS PROSPECTUS
SUPPLEMENT HAVE THE MEANINGS ASSIGNED TO THEM IN THE GLOSSARY AT THE END OF THE
PROSPECTUS.
<TABLE>
<CAPTION>
<S> <C>
Title of Series.............................Impac Secured Assets Corp., Mortgage-Backed Notes, Series ____-_.
Cut-off Date................................__________ __, ____.
Closing Date................................On or about __________ __, ____.
Issuer......................................Impac MBN Trust Series ____-__.
Company.....................................Impac Secured Assets Corp., an affiliate of Impac Funding
Corporation.
Master Servicer.............................Impac Funding Corporation.
Originators and Servicers...................[Names of Originators and Servicers.]
Seller......................................[Name of Seller].
Owner Trustee...............................[Name of Owner Trustee.]
Indenture Trustee...........................[Name of Indenture Trustee.]
Distribution Dates..........................Distributions on the offered notes will be made on the ___ day of
each month, or, if that day is not a business day, on the next
succeeding business day, beginning in ______ ____.
Offered Notes...............................The classes of offered notes and their interest rates, note balances and
final maturity date are shown in the table below.
</TABLE>
S-3
<PAGE>
NOTE INTEREST FINAL MATURITY DATE
CLASS INITIAL NOTE RATE
BALANCE(1)
- -----------------------------------------------------------------------------
A.......... $_________ Variable(2) ________ ____
M-1........ $_________ Variable(2) ________ ____
M-2........ $_________ Variable(2) _________ ____
M-3........ $_________ Variable(2) _______ ____
=============================================================================
- ----------------------
(1)Approximate.
(2)Calculated as described in this prospectus supplement.
THE ISSUER
The notes will be issued by the issuer, a Delaware business trust established
pursuant to an owner trust agreement between the company and the owner trustee.
The issuer will issue _____ classes of notes representing non-recourse debt
obligations of the issuer secured by the trust estate. See "Description of the
Notes" in this prospectus supplement.
Distributions of interest and/or principal on the offered notes will be made
only from payments received in connection with the mortgage loans described
below.
THE MORTGAGE LOANS
The trust will contain approximately _____ conventional, one- to four-family,
fixed-rate and adjustable-rate mortgage loans secured by first liens on
residential real properties. The mortgage loans have an aggregate principal
balance of approximately $__________ as of _________ __
- ----.
The mortgage loans have original terms to maturity of not greater than [30]
years and the following characteristics as of __________ __,
- ----.
Range of mortgage rates _____% to _____%.
(approximate):
Weighted average mortgage ______%.
rate
(approximate):
Weighted average remaining ___ years and ___
term to stated maturity months.
(approximate):
Range of principal balances $__________ to
(approximate): $____________.
Average principal balance: $_____________.
Range of loan-to-value ratios _____% to _____%.
(approximate):
Weighted average
loan-to-value
ratio (approximate): ______%.
[Approximately ___% of the mortgage loans are "sub-prime" mortgage loans.]
For additional information regarding the mortgage loans, see "The Mortgage Pool"
in this prospectus supplement.
THE NOTES
OFFERED NOTES. The offered notes will have the characteristics shown in the
table above in this prospectus supplement. The interest rates on each class of
offered notes are variable and are calculated for each distribution date as
described in this prospectus supplement under "Description of the Notes--Note
Interest Rates" in this prospectus supplement.
S-4
<PAGE>
CREDIT ENHANCEMENT
The credit enhancement provided for the benefit of the holders of the offered
notes consists of subordination as described below and under "Description of the
Notes--Allocation of Losses; Subordination" in this prospectus supplement.
OPTIONAL REDEMPTION
At its option, the majority holder of the equity certificates may redeem the
notes and thereby effect termination and early retirement of the notes, after
the aggregate Note balance has been reduced to less than [__%] of the aggregate
initial note balance. See "The Indenture and Owner Trust Agreement-- Optional
Redemption" in this prospectus supplement and "Description of the Securities--
Termination" in the prospectus.
FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the notes, Thacher Proffitt & Wood, counsel to the company,
will deliver its opinion generally to the effect that the notes will be
characterized as indebtedness and the issuer will not be classified as an
association taxable as a corporation, a publicly traded partnership or a taxable
mortgage pool.
For further information regarding the federal income tax consequences of
investing in the offered notes, see "Federal Income Tax Consequences" in this
prospectus supplement and in the prospectus.
RATINGS
It is a condition to the issuance of the notes that
the offered notes receive the following ratings
from [______________ and ___________]:
OFFERED NOTES [RA] [RA]
- ------------- ---- ----
Class A AAA AAA
Class M-1 AA AA
Class M-2 A A
Class M-3 BBB BBB
- ---------------------
[(1) Not rated.]
[The "r" symbol in some _____________ ratings is attached to highlight notes
that __________ believes may experience high volatility or high variability in
expected returns due to non-credit risks. The absence of an "r" symbol should
not be taken as an indication that a note will exhibit no volatility or
variability in total return.]
See "Yield on the Notes" and "Ratings" in this prospectus supplement and "Yield
Considerations" in the prospectus.
LEGAL INVESTMENT
The offered notes (other than the Class ___ and Class ___ Notes) will constitute
"mortgage related securities" for purposes of SMMEA. The Class ___ Notes and the
Class ___ Notes will not constitute "mortgage related securities" for purposes
of SMMEA. See "Legal Investment" in this prospectus supplement and in the
prospectus.
ERISA CONSIDERATIONS
Subject to important considerations, the notes may be eligible for purchase by
persons investing assets of employee benefit plans or individual retirement
accounts. Plans should consult with their legal advisors before investing. See
"ERISA Considerations" in this prospectus supplement and in the prospectus.
S-5
<PAGE>
RISK FACTORS
You should carefully consider, among other things, the following factors in
connection with the purchase of the offered notes:
[See version 1 of the prospectus supplement for some risk factors that may be
applicable.]
[Appropriate risk factors from the following list are particular to the
securitization represented by this version of the prospectus supplement]
[THE CLASS M-1, CLASS M-2 AND CLASS M-3 NOTES WILL BE PARTICULARLY SENSITIVE TO
LOSSES ON THE MORTGAGE LOANS
The weighted average lives of, and the yields to maturity on, the Class
M-1, Class M-2 and Class M-3 Notes will be progressively more sensitive, in
increasing order of their numerical class designations, to the rate and timing
of mortgagor defaults and the severity of ensuing losses on the mortgage loans.
If the actual rate and severity of losses on the mortgage loans is higher than
those assumed by an investor in one of the Class M-1, Class M-2 or Class M-3
Notes, the actual yield to maturity of the note may be lower than the yield
anticipated by the holder based on the investor's assumption. The timing of
losses on the mortgage loans will also affect an investor's actual yield to
maturity, even if the rate of defaults and severity of losses over the life of
the mortgage pool are consistent with an investor's expectations. In general,
the earlier a loss occurs, the greater the effect on an investor's yield to
maturity. Losses on the mortgage loans in any due period, to the extent they
exceed the overcollateralized amount following payments of principal on the
related payment date, will reduce the note balance of the class of notes then
outstanding with the highest numerical class designation. As a result of these
reductions, less interest will accrue on the class of subordinate notes than
would otherwise be the case].
[THE CLASS M-1, CLASS M-2 AND CLASS M-3 NOTES WILL GENERALLY NOT BE ENTITLED TO
RECEIVE PRINCIPAL PAYMENTS UNTIL ALL PRINCIPAL PAYMENTS HAVE BEEN MADE ON THE
CLASS A NOTES WHICH MAY RESULT IN LOSSES ON THOSE NOTES
Unless the note balance of the Class A Notes has been reduced to zero, the
Class M-1, Class M-2 and Class M-3 Notes will not be entitled to any principal
payments until _________ ____ or a later period as described in this prospectus
supplement. As a result, the weighted average lives of these notes will be
longer than would otherwise be the case if payments of principal were allocated
among all of the notes at the same time. As a result of the longer weighted
average lives of these notes, the holders of these notes have a greater risk of
suffering a loss on their investments. Further, because these notes might not
receive any principal if certain delinquency levels occur, it is possible for
these notes to receive no principal payments even if no losses have occurred on
the mortgage pool].
[THE NOTES ARE OBLIGATIONS OF THE TRUST ONLY
The notes will not represent an interest in or obligation of the
originators, the company, the master servicer, the seller, _________, the owner
trustee, the indenture trustee or any of their respective affiliates. The only
obligations of the foregoing entities with respect to the notes or any mortgage
loan will be the obligations of the seller pursuant to the limited
representations and warranties made with respect to the mortgage loans and of
the servicers with respect to their servicing obligations under the related
servicing agreement (including the limited obligation to make advances, as
described in this prospectus supplement). Neither the notes nor the underlying
mortgage loans will be guaranteed or insured by any governmental
S-6
<PAGE>
agency or instrumentality, or by the issuer, the originators, the company, the
master servicer, the seller, ________, the owner trustee, the indenture trustee
or any of their respective affiliates. Proceeds of the assets included in the
trust (including the mortgage loans) will be the sole source of payments on the
notes, and there will be no recourse to the issuer, the originators, the
company, the master servicer, the seller,
- -------,
the owner trustee, the indenture trustee or any of their respective affiliates
or any other entity in the event that the proceeds are insufficient or otherwise
unavailable to make all payments provided for under the notes].
[THE DIFFERENCE BETWEEN THE INTEREST RATES ON THE NOTES AND THE MORTGAGE LOANS
MAY RESULT IN INTEREST SHORTFALLS ALLOCATED TO THE NOTES
The note interest rate for each class of the notes adjusts monthly based on
a particular index, subject to the limitations described in this prospectus
supplement. However, the mortgage rates on the fixed rate mortgage loans are
fixed and will not vary with any index, and the mortgage rates on the adjustable
rate mortgage loans adjust semi-annually (after an initial fixed rate period in
the case of some of the adjustable rate mortgage loans) based on the index
(which may not move in tandem with the index), subject to periodic and lifetime
limitations as described in this prospectus supplement. As a result of the
foregoing as well as other factors like the prepayment behavior of the mortgage
pool, relative increases in the index or relative decreases in the weighted
average of the mortgage rates on the mortgage loans (i) could cause the amount
of interest generated by the mortgage pool to be less than the aggregate of the
amount of interest that would otherwise be payable on the notes, leading one or
more classes of notes to accept payments of interest at a later date, as
described in this prospectus supplement or (ii) could cause the maximum note
interest rate to apply to one or more classes of notes, as described in this
prospectus supplement.
Because the mortgage rate for each adjustable rate mortgage loan will be
adjusted, subject to periodic and lifetime limitations, to equal the sum of the
index and the related gross margin, these rates could be higher than prevailing
market interest rates, possibly resulting in an increase in the rate of
prepayments on the adjustable rate mortgage loans after their adjustments. In
particular, investors should note that approximately _____% of the adjustable
rate mortgage loans have their interest rates fixed for two years following
origination and approximately _____% of the adjustable rate mortgage loans have
their interest rates fixed for three years following origination, in each case
by aggregate principal balance as of
- ---------
__, ___. The weighted average next adjustment date for the adjustable rate
mortgage loans whose interest rates are fixed for two years is _______ ____, and
the weighted average next adjustment date for the adjustable rate mortgage loans
whose interest rates are fixed for three years is _______ ____].
[THE RATE AND TIMING OF PRINCIPAL DISTRIBUTIONS ON THE OFFERED NOTES WILL BE
AFFECTED BY PREPAYMENT SPEEDS
The rate and timing of distributions allocable to principal on the offered
notes will depend, in general, on the rate and timing of principal payments
(including prepayments and collections upon defaults, liquidations and
repurchases) on the mortgage loans and the allocation thereof to pay principal
on the offered notes as provided in this prospectus supplement. As is the case
with mortgage securities generally, the offered notes are subject to substantial
inherent cash-flow uncertainties because the mortgage loans may be prepaid at
any time. However, with respect to approximately ____% of the mortgage loans, by
aggregate principal balance as of _______ __, ____, a prepayment may subject the
related mortgagor to a prepayment charge, which may act as a deterrent to
prepayment of the mortgage loan. See "The Mortgage Pool" in this prospectus
supplement.
Generally, when prevailing interest rates are increasing, prepayment rates
on mortgage loans tend to decrease; a decrease in the prepayment rates on the
mortgage loans will result in a reduced rate of return of
S-7
<PAGE>
principal to investors in the offered notes at a time when reinvestment at these
higher prevailing rates would be desirable. Conversely, when prevailing interest
rates are declining, prepayment rates on mortgage loans tend to increase; an
increase in the prepayment rates on the mortgage loans will result in a greater
rate of return of principal to investors in the offered notes at a time when
reinvestment at comparable yields may not be possible.
Distributions of principal will be made to the subordinate notes according
to the priorities described in this prospectus supplement. The timing of
commencement of principal distributions and the weighted average life of each of
these classes of notes will be affected by the rates of prepayment on the
mortgage loans experienced both before and after the commencement of principal
distributions on the class. For further information regarding the effect of
principal prepayments on the weighted average lives of the offered notes, see
"Yield on the Notes" in this prospectus supplement and the table entitled
"Percent of Initial Note Balance Outstanding at the Following Percentages of the
Prepayment Assumption" therein.
[THE YIELD TO MATURITY ON THE OFFERED NOTES WILL DEPEND ON A VARIETY OF FACTORS
The yield to maturity on the offered notes will depend, in general, on:
o the applicable note interest rate and note accrual rate thereon from
time to time;
o the applicable purchase price; and
o the rate and timing of principal payments (including prepayments and
collections upon defaults, liquidations and repurchases) on the
mortgage loans and the allocation thereof to reduce the note balance of
the notes, as well as other factors.
The yield to investors on any class of offered notes will be adversely
affected by any allocation thereto of interest shortfalls on the mortgage loans.
In general, if the offered notes are 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 the offered notes are purchased
at a discount and principal distributions thereon occur at a rate slower than
that anticipated at the time of purchase, the investor's actual yield to
maturity will be lower than that originally assumed.
The proceeds to the company from the sale of the offered notes were
determined based on a number of assumptions, including a prepayment assumption
of __% of the [constant prepayment rate model] and weighted average lives
corresponding thereto. No representation is made that the mortgage loans will
prepay at this particular rate or at any other rate. The yield assumptions for
the offered notes will vary as determined at the time of sale].
[THE SERVICING RIGHTS TO SOME OF THE MORTGAGE LOANS WILL BE TRANSFERRED TO THE
MASTER SERVICER WHICH MAY LEAD TO AN INCREASE IN DELINQUENCIES AND LOSSES ON
THOSE LOANS
The master servicer and _____________ have advised the company that with
respect to a portion of the mortgage loans initially to be serviced by
___________, the servicing thereof is expected to be transferred to the master
servicer by _________ __, ____, whereupon the master servicer will act in the
capacity as "servicer" under the applicable servicing agreement to the extent of
those mortgage loans. The portion of the mortgage loans that are expected to be
subject to the servicing transfer represents approximately _____% of the
mortgage loans, by aggregate principal balance as of _________ __, ____.
Investors should note that
S-8
<PAGE>
when servicing of mortgage loans is transferred, there may be a rise in
delinquencies associated with the transfer].
S-9
<PAGE>
THE MORTGAGE POOL
GENERAL
The mortgage pool will consist of approximately _____ conventional, one- to
four-family, fixed rate mortgage loans and approximately _____ conventional,
one-to four-family, adjustable rate mortgage loans, in each case secured by
first liens on residential real properties and having an aggregate principal
balance as of Cut-off Date of approximately $___________ after application of
scheduled payments due on or before the Cut-off Date whether or not received,
subject to a permitted variance of plus or minus [5]%. The mortgage loans have
original terms to maturity of not greater than [30] years. References to
percentages of the mortgage loans, unless otherwise noted, are calculated based
on the aggregate principal balance of the mortgage loans as of the Cut-off Date.
The mortgage loans are secured by first mortgages or deeds of trust or other
similar security instruments creating first liens on residential properties
consisting of attached, detached or semi-detached, one- to four-family dwelling
units, townhouses, individual condominium units, individual units in planned
unit developments and manufactured housing.
The mortgage loans to be included in the mortgage pool will be acquired by
the company on the Closing Date from ________________, who will have acquired
the mortgage loans on the Closing Date from the Seller. See "--Underwriting
Standards; Representations" below and "The Seller" in this prospectus
supplement. The Seller in turn will have acquired the mortgage loans on the
Closing Date from [Name of Seller], an affiliate of the company. The Seller will
have acquired the mortgage loans directly or indirectly from the Originators.
Each adjustable rate mortgage loan provides for semi-annual adjustment to
the mortgage rate on that adjustable rate mortgage loan and for corresponding
adjustments to the monthly payment amount due on that adjustable rate mortgage
loan, in each case on each Adjustment Date applicable thereto; provided,
however, that in the case of approximately _____% and approximately _____% of
the adjustable rate mortgage loans by aggregate principal balance as of the
Cut-off Date, the first Adjustment Date will occur after an initial period of
approximately ____ years and approximately ______ years, respectively, from the
date of origination of that adjustable rate mortgage loan, each being a Delayed
First Adjustment Mortgage Loan. The weighted average month of origination of the
_____ year Delayed First Adjustment Mortgage Loans is _________ _____, and the
weighted average month of origination of the ______ year Delayed First
Adjustment Mortgage Loans is _________ _____. On each Adjustment Date, the
mortgage rate on each adjustable rate mortgage loan will be adjusted to equal
the sum, rounded as provided in the related mortgage note, of the Index (as
described below) and the Gross Margin; provided, however, that the mortgage rate
on each adjustable rate mortgage loan, including each Delayed First Adjustment
Mortgage Loan, will generally not increase or decrease by more than the Periodic
Rate Cap on any related Adjustment Date and will not exceed the Maximum Mortgage
Rate or be less than the Minimum Mortgage Rate. For Adjustment Dates other than
the first Adjustment Date after origination, the Periodic Rate Cap for the
majority of the adjustable rate mortgage loans is 1.00% per annum, and with
respect to substantially all of the adjustable rate mortgage loans, for
Adjustment Dates other than the first Adjustment Date after origination, the
Periodic Rate Cap will not exceed ____% per annum. Effective with the first
monthly payment due on each adjustable rate mortgage loan after each related
Adjustment Date, the monthly payment amount will be adjusted to an amount that
will amortize fully the outstanding principal balance of the related adjustable
rate mortgage loan over its remaining term and pay interest at the mortgage rate
as so adjusted. Due to the application of the Periodic Rate Caps and the Maximum
Mortgage Rates, the mortgage rate on each mortgage loan, as adjusted on any
related Adjustment Date, may be less than the sum of the Index and Gross Margin,
calculated as described in this prospectus supplement. See "--The Index" in this
prospectus supplement. None of the adjustable rate mortgage loans permits the
related mortgagor to convert the adjustable mortgage rate on that adjustable
rate mortgage loan to a fixed mortgage rate.
S-10
<PAGE>
The mortgage loans generally have scheduled monthly payments due on each
Due Date. Each mortgage loan will contain a customary "due-on-sale" clause or
will be assumable by a creditworthy purchaser of the related mortgaged property.
Approximately ______% of the mortgage loans provide for payment by the
mortgagor of a Prepayment Charge in limited circumstances on voluntary
prepayments in full made within one to five years from the date of origination
of those mortgage loans. The amount of the Prepayment Charge is as provided in
the related mortgage note. Prepayment Charge obligations generally expire by
their terms after a limited period specified in the related mortgage note. The
weighted average month of origination of the mortgage loans with Prepayment
Charges is _________ ____. The holders of the Equity Certificates will be
entitled to all Prepayment Charges received on the mortgage loans, and that
amount will [not] be available for distribution on the notes. Under some
instances, as described in the related Servicing Agreement, the related Servicer
may waive the payment of any otherwise applicable Prepayment Charge, and
accordingly, there can be no assurance that the Prepayment Charges will have any
effect on the prepayment performance of the mortgage loans.
None of the mortgage loans are buydown mortgage loans.
Approximately ____% of the mortgage loans are Balloon Loans. Each Balloon
Loan is a fixed rate mortgage loan that amortizes over ___ months, but the
Balloon Payment on each Balloon Loan is due and payable on the ___ month. The
amount of the Balloon Payment on each Balloon Loan is substantially in excess of
the amount of the scheduled monthly payment on that Balloon Loan for the period
prior to the Due Date of that Balloon Payment.
The average principal balance of the mortgage loans at origination was
approximately $_______. No mortgage loan had a principal balance at origination
greater than approximately $________ or less than approximately $______. The
average principal balance of the mortgage loans as of the Cut-off Date was
approximately $_______.
The mortgage loans had mortgage rates as of the Cut-off Date ranging from
approximately ____% per annum to approximately _____% per annum, and the
weighted average mortgage rate was approximately ______% per annum. The weighted
average loan-to-value ratio of the mortgage loans at origination was
approximately _____%. At origination, no mortgage loan will have a loan-to-value
ratio greater than approximately _____% or less than approximately ____%.
The weighted average remaining term to maturity of the mortgage loans will
be approximately __ years and __ months as of the Cut-off Date. None of the
mortgage loans will have a first Due Date prior to _______ ____ or after
___________ ____, or will have a remaining term to maturity of less than __
years or greater than __ years as of the Cut-off Date. The latest maturity date
of any mortgage loan is
- ----------
- ----.
As of the Cut-off Date, the adjustable rate mortgage loans had Gross
Margins ranging from approximately ____% to approximately ____%, Minimum
Mortgage Rates ranging from approximately ____% per annum to approximately
_____% per annum and Maximum Mortgage Rates ranging from approximately _____%
per annum to approximately _____% per annum. As of the Cut-off Date, the
weighted average Gross Margin was approximately ______%, the weighted average
Minimum Mortgage Rate was approximately _____% per annum and the weighted
average Maximum Mortgage Rate was approximately _______% per annum. The latest
first Adjustment Date following the Cut-off Date on any adjustable rate mortgage
loan occurs in _______ ____ and the weighted average next Adjustment Date for
all of the mortgage loans following the Cut-off Date is _______ ____.
S-11
<PAGE>
The mortgage loans are expected to have the following characteristics as of
the Cut-off Date (the sum in any column may not equal the total indicated due to
rounding):
PRINCIPAL BALANCES OF THE MORTGAGE LOANS AT ORIGINATION
% OF
NUMBER AGGREGATE ORIGINAL AGGREGATE ORIGINAL
RANGE ($) OF LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- --------- -------- ------------------- ------------------
. . . . . .
. . . . . .
. . . . . .
. . . . . .
. . . . . .
. . . . . .
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. . . . . .
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. . . . . .
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. . . . . .
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. . . . . .
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. . . . . .
. . . . . .
. . . . . .
. . . . . .
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. . . . . .
. . . . . .
. . . . . .
. . . . . .
. . . . . .
Total. . . . . . . .
PRINCIPAL BALANCES OF THE MORTGAGE LOANS AS OF THE CUT-OFF DATE
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
RANGE ($) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- --------- -------- ------------------ -----------------
. . . . . .
. . . . . .
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Total. . . . . . . .
S-12
<PAGE>
MORTGAGE RATES OF THE MORTGAGE LOANS AS OF THE CUT-OFF DATE
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
MORTGAGE RATE (%) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------------- -------- ------------------ -----------------
......................
......................
......................
......................
......................
Total............
MAXIMUM MORTGAGE RATES OF THE ADJUSTABLE RATE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
MAXIMUM NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
MORTGAGE RATE (%) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------------- -------- ------------------ -----------------
.......................
.......................
.......................
.......................
Total.............
MINIMUM MORTGAGE RATES OF THE ADJUSTABLE RATE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
MINIMUM NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
MORTGAGE RATE (%) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------------- -------- ------------------ -----------------
.......................
.......................
Total.............
GROSS MARGINS OF THE ADJUSTABLE RATE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
GROSS MARGIN (%) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ---------------- -------- ------------------ -----------------
.......................
.......................
.......................
.......................
Total.............
S-13
<PAGE>
ORIGINAL LOAN-TO-VALUE RATIOS OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
LOAN-TO-VALUE RATIO (%) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------------------- -------- ------------------ -----------------
.........................
.........................
.........................
.........................
Total...............
GEOGRAPHIC DISTRIBUTION OF THE MORTGAGED PROPERTIES
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
LOCATION OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- -------- -------- ------------------ -----------------
.......................
.......................
.......................
.......................
.......................
Total.............
MORTGAGED PROPERTY TYPES OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
PROPERTY TYPE OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------- -------- ------------------ -----------------
.......................
.......................
.......................
.......................
.......................
.......................
Total.............
MORTGAGED PROPERTY OCCUPANCY STATUS OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
OCCUPANCY STATUS OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ---------------- -------- ------------------ -----------------
.......................
.......................
Total.............
The occupancy status of a mortgaged property is as represented by the
mortgagor in its loan application.
S-14
<PAGE>
LOAN PURPOSE OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
LOAN PURPOSE OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------ -------- ------------------ -----------------
.......................
.......................
.......................
Total.............
LOAN PROGRAMS OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
LOAN PROGRAM OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------ -------- ------------------ -----------------
.......................
.......................
.......................
Total.............
S-15
<PAGE>
RISK CATEGORIES OF THE FIXED RATE ______________ MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
RISK CATEGORIES OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- --------------- -------- ------------------ -----------------
.......................
.......................
.......................
.......................
.......................
Total.............
RISK CATEGORIES OF THE ADJUSTABLE RATE ____________ MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
RISK CATEGORIES OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- --------------- -------- ------------------ -----------------
.......................
.......................
.......................
.......................
.......................
.......................
Total.............
RISK CATEGORIES OF THE ____________ MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
RISK CATEGORIES OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- --------------- -------- ------------------ -----------------
.......................
.......................
.......................
.......................
.......................
.......................
Total.............
RISK CATEGORIES OF THE ____________ MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
RISK CATEGORIES OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- --------------- -------- ------------------ -----------------
.......................
.......................
.......................
.......................
.......................
Total.............
S-16
<PAGE>
NEXT ADJUSTMENT DATES FOR THE ADJUSTABLE RATE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
MONTH OF NEXT ADJUSTMENT DATE OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------------------------- -------- ------------------ -----------------
...............................
...............................
...............................
...............................
Total..........................
THE INDEX
As of any Adjustment Date, the Index applicable to the determination of the
mortgage rate on each mortgage loan will be the average of the interbank offered
rates for six-month United States dollar deposits in the London market as
published in THE WALL STREET JOURNAL and as of a date as specified in the
related mortgage note. In the event that the Index becomes unavailable or
otherwise unpublished, each Servicer will select a comparable alternative index
over which it has no direct control and which is readily verifiable.
The table below sets forth historical average rates of six-month LIBOR for
the months indicated as made available from Fannie Mae, which rates may differ
from the rates of the Index, which is six-month LIBOR as published in THE WALL
STREET JOURNAL as described above. The table does not purport to be
representative of the subsequent rates of the Index which will be used to
determine the mortgage rate on each mortgage loan.
Year
Month ----
- ----- ----- ----- ----- ----- ----- ----- -----
UNDERWRITING STANDARDS; REPRESENTATIONS
The mortgage loans will be acquired by the company on the Closing Date from
__________, who will have acquired the mortgage loans on the Closing Date from
the Seller. The Seller in turn will have acquired the mortgage loans on the
Closing Date from [Name of Seller]. [Name of Seller], an affiliate of the
company, will have acquired the mortgage loans directly or indirectly from the
Originators.
S-17
<PAGE>
The information presented below with regard to each Originator's
underwriting standards has been provided to the company or compiled from
information provided to the company by that Originator.
[Discussion of each Originator's Underwriting Standards used to originate the
mortgage loans follows. See version 1 of the prospectus supplement].
REPRESENTATIONS
The Seller will make representations and warranties as of the Closing Date
with respect to the mortgage loans, and will be obligated to repurchase that
mortgage loan in respect of which a material breach of the representations and
warranties it has made has occurred (other than those breaches which have been
cured). For a discussion of the representations and warranties made and the
repurchase obligation, see "Mortgage Loan Program--Representations by or on
behalf of the Seller; Repurchases" in the prospectus.
ADDITIONAL INFORMATION
The description in this prospectus supplement of the mortgage pool and the
mortgaged properties is based upon the mortgage pool as constituted as of the
close of business on the Cut-off Date, as adjusted for the scheduled principal
payments due on or before that date. Prior to the issuance of the notes,
mortgage loans may be removed from the mortgage pool as a result of incomplete
documentation or otherwise if the company deems that removal necessary or
desirable, and may be prepaid at any time. A limited number of other mortgage
loans may be included in the mortgage pool prior to the issuance of the notes
unless including those mortgage loans would materially alter the characteristics
of the mortgage pool as described in this prospectus supplement. The company
believes that the information provided in this prospectus supplement will be
representative of the characteristics of the mortgage pool as it will be
constituted at the time the notes are issued, although the range of mortgage
rates and maturities and some other characteristics of the mortgage loans may
vary. In no event, however, will more than 5% (by principal balance at the
Cut-off Date) of the mortgage loans or mortgage securities deviate from the
characteristics of the mortgage loans or mortgage securities set forth in the
related prospectus supplement.
S-18
<PAGE>
YIELD ON THE NOTES
GENERAL PREPAYMENT CONSIDERATIONS
The rate of principal payments on the notes, the aggregate amount of
payments on the notes and the yield to maturity of the notes will be related to
the rate and timing of payments of principal on the mortgage loans.
The rate of principal payments on the mortgage loans will in turn be affected by
the amortization schedules of those mortgage loans and by the rate of principal
prepayments on those mortgage loans (including for this purpose, payments
resulting from refinancings, liquidations of the mortgage loans due to defaults,
casualties, condemnations and repurchases, whether optional or required, by the
company, the Seller or the majority holder of the Equity Certificates, as the
case may be). The mortgage loans generally may be prepaid by the mortgagors at
any time; however, as described under "The Mortgage Pool" in this prospectus
supplement, with respect to approximately _____% of the mortgage loans, by
aggregate principal balance as of the Cut-off Date, a prepayment may subject the
related mortgagor to a Prepayment Charge. Prepayment Charge obligations
generally expire by their terms after a limited period specified in the related
mortgage note. The weighted average month of origination of the mortgage loans
with Prepayment Charges is ________
- ----.
Prepayments, liquidations and repurchases of the mortgage loans will result
in payments in respect of principal to the holders of the class or classes of
notes then entitled to receive those payments that otherwise would be
distributed over the remaining terms of the mortgage loans. 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 in this prospectus supplement and in the
prospectus under "Yield Considerations" and "Maturity and Prepayment
Considerations"), no assurance can be given as to that rate or the rate of
principal prepayments. The extent to which the yield to maturity of any class of
notes may vary from the anticipated yield will depend upon the degree to which
those notes are purchased at a discount or premium and the degree to which the
timing of payments on those notes is sensitive to prepayments on the mortgage
loans. Further, an investor should consider, in the case of a Note purchased at
a discount, the risk that a slower than anticipated rate of principal payments
on the mortgage loans could result in an actual yield to that investor that is
lower than the anticipated yield and, in the case of a Note purchased at a
premium, the risk that a faster than anticipated rate of principal payments
could result in an actual yield to that investor that is lower than the
anticipated yield. In general, the earlier a prepayment of principal is made on
the mortgage loans, the greater the effect on the yield to maturity of the
notes. As a result, the effect on an investor's yield of principal payments
occurring at a rate higher (or lower) than the rate anticipated by the investor
during the period immediately following the issuance of those notes would not be
fully offset by a subsequent like reduction (or increase) in the rate of
principal payments.
It is highly unlikely that the mortgage loans will prepay at any constant
rate until maturity or that all of the mortgage loans will prepay at the same
rate. Moreover, the timing of prepayments on the mortgage loans may
significantly affect the actual yield to maturity on the notes, even if the
average rate of principal payments experienced over time is consistent with an
investor's expectation.
The rate of payments (including prepayments) on pools of mortgage loans is
influenced by a variety of economic, geographic, social and other factors. If
prevailing mortgage rates fall 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 rise significantly above the
mortgage rates on the mortgage loans, the rate of prepayment on the mortgage
loans would be expected to decrease. Other factors affecting prepayment of
mortgage loans include changes in mortgagors' housing needs, job transfers,
unemployment, mortgagors' net equity in the mortgaged properties and servicing
decisions. In addition, in the case of the adjustable rate mortgage loans in the
mortgage pool, the existence of the applicable Periodic
S-19
<PAGE>
Rate Cap, Maximum Mortgage Rate and Minimum Mortgage Rate may affect the
likelihood of prepayments resulting from refinancings. There can be no certainty
as to the rate of prepayments on the mortgage loans during any period or over
the life of the notes. See "Yield Considerations" and "Maturity and Prepayment
Considerations" in the prospectus.
Because principal payments are paid to some classes of notes before other
classes, holders of classes of notes having a later priority of payment bear a
greater risk of losses (because those notes will represent an increasing
percentage of the Trust Estate during the period prior to the commencement of
payments of principal on those notes) than holders of classes having earlier
priorities for payment of principal. As described under "Description of the
Notes--Principal Payments on the Notes" in this prospectus supplement, prior to
the Stepdown Date (as defined in this prospectus supplement), all principal
payments on the mortgage loans will be allocated to the Class A Notes.
Thereafter, as further described in this prospectus supplement, subject to
various delinquency triggers described in this prospectus supplement, all
principal payments on the mortgage loans will be allocated among all classes of
the notes then outstanding as described under "Description of the
Notes--Principal Payments on the Notes" in this prospectus supplement.
In general, defaults on mortgage loans are expected to occur with greater
frequency in their early years. In addition, default rates may be higher for
mortgage loans used to refinance an existing mortgage loan. In the event of a
mortgagor's default on a mortgage loan, there can be no assurance that recourse
will be available beyond the specific mortgaged property pledged as security for
repayment. See "The Mortgage Pool--Underwriting Standards; Representations" in
this prospectus supplement.
SPECIAL YIELD CONSIDERATIONS
The Note Interest Rate for each class of the notes adjusts monthly based on
One-Month LIBOR as described under "Description of the Notes--Calculation of
One-Month LIBOR" in this prospectus supplement, subject to the Maximum Note
Interest Rate and the Available Interest Rate. However, the mortgage rates on
the fixed rate mortgage loans are fixed and will not vary with any index, and
the mortgage rates on the adjustable rate mortgage loans adjust semi-annually
(after an initial fixed rate period in the case of Delayed First Adjustment
Mortgage Loans) based on the Index (which may not move in tandem with One- Month
LIBOR), subject to periodic and lifetime limitations as described in this
prospectus supplement. Investors should note that approximately _____% of the
mortgage loans are ____ year Delayed First Adjustment Mortgage Loans,
approximately ____% of the mortgage loans are _____ year Delayed First
Adjustment Loans and approximately _____% of the mortgage loans are fixed rate
mortgage loans, in each case by aggregate principal balance as of the Cut-off
Date. The weighted average month of origination of the two year Delayed First
Adjustment Mortgage Loans is _____ ____, and the weighted average month of
origination of the ______ year Delayed First Adjustment Mortgage Loans is ______
____. Because of the application of the Maximum Note Interest Rate and the
Available Interest Rate, increases in the Note Interest Rate on the notes may be
limited for extended periods or indefinitely in a rising interest rate
environment. The interest due on the mortgage loans during any Due Period may
not equal the amount of interest that would accrue at One-Month LIBOR plus the
applicable spread on the notes during the related Interest Accrual Period. In
addition, the Index and One-Month LIBOR may respond differently to economic and
market factors. Thus, it is possible, for example, that if both One-Month LIBOR
and the Index rise during the same period, One-Month LIBOR may rise more rapidly
than the Index or may rise higher than the Index, potentially resulting in
Interest Carry Forward Amounts with respect to one or more classes of notes. As
a result of the foregoing as well as other factors such as the prepayment
behavior of the mortgage pool, relative increases in One-Month LIBOR or relative
decreases in the weighted average of the mortgage rates on the mortgage loans
(i) could cause the Current Interest Payment Amount generated by the mortgage
pool to be
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less than the aggregate of the Interest Payment Amounts that would otherwise be
payable on the notes, leading one or more classes of notes to incur Interest
Carry Forward Amounts, or (ii) could cause the Maximum Note Interest Rate to
apply to one or more classes of notes.
Because the mortgage rate for each adjustable rate mortgage loan will be
adjusted, subject to periodic and lifetime limitations, to equal the sum of the
Index and the related Gross Margin, those rates could be higher than prevailing
market interest rates, possibly resulting in an increase in the rate of
prepayments on the adjustable rate mortgage loans after their adjustments.
As described under "Description of the Notes--Allocation of Losses;
Subordination", amounts otherwise distributable to holders of the Subordinate
Notes may be made available to protect the holders of the Class A Notes against
interruptions in payments due to various mortgagor delinquencies, to the extent
not covered by P&I Advances. Those delinquencies may affect the yield to
investors on those classes of Subordinate Notes and, even if subsequently cured,
will affect the timing of the receipt of payments by the holders of those
classes of Subordinate Notes. In addition, a larger than expected rate of
delinquencies or losses will affect the rate of principal payments on each class
of Subordinate Notes. See "Description of the Notes--Principal Payments on the
Notes" in this prospectus supplement.
WEIGHTED AVERAGE LIVES
Weighted average life refers to the amount of time that will elapse from
the date of issuance of a security until each dollar of principal of that
security will be repaid to the investor. The weighted average life of each class
of notes will be influenced by the rate at which principal on the mortgage loans
is paid, which may be in the form of scheduled payments or prepayments
(including repurchases and prepayments of principal by the borrower as well as
amounts received by virtue of condemnation, insurance or foreclosure with
respect to the mortgage loans), and the timing of those principal payments.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The Prepayment Assumption assumes a prepayment
rate for the mortgage loans of __% CPR. The CPR assumes that the outstanding
principal balance of a pool of mortgage loans prepays at a specified constant
annual rate or CPR. In generating monthly cash flows, this rate is converted to
an equivalent constant monthly rate. To assume __% CPR or any other CPR
percentage is to assume that the stated percentage of the outstanding principal
balance of the pool is prepaid over the course of a year. No representation is
made that the mortgage loans will prepay at __% CPR or any other rate.
The tables following the next paragraph indicate the percentage of the
initial Note Balance of the notes that would be outstanding after each of the
dates shown at various percentages of the Prepayment Assumption and the
corresponding weighted average lives of those notes. The tables are based on the
following Modeling Assumptions: (i) the mortgage pool consists of __ mortgage
loans with the characteristics described below, (ii) payments on those notes are
received, in cash, on the 25th day of each month, commencing in _______ ____,
(iii) the mortgage loans prepay at the percentages of the Prepayment Assumption
indicated, (iv) no defaults or delinquencies occur in the payment by mortgagors
of principal and interest on the mortgage loans, (v) none of the majority holder
of the Equity Certificates, the Seller, the Master Servicer, the Servicers or
any other person purchases from the Trust Estate any mortgage loan or redeems
the notes pursuant to any obligation or option under the Indenture, the
Servicing Agreements or any other agreement except as indicated in footnote two
in the tables below, and no partial early redemption of the notes occurs with
respect to the ___________ Mortgage Loans, (vi) scheduled monthly payments on
the mortgage loans are received on the first day of each month commencing in
_______ ____, and are computed prior to giving effect to any prepayments
received in the prior month, (vii) prepayments representing payment
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in full of individual mortgage loans are received on the last day of each month
commencing in ________ ____, and include 30 days' interest on those mortgage
loans, (viii) the scheduled monthly payment for each mortgage loan is calculated
based on its principal balance, mortgage rate, original term to stated maturity
and remaining term to stated maturity so that the mortgage loan will amortize in
amounts sufficient to repay the remaining principal balance of that mortgage
loan by its remaining term to stated maturity, (ix) the notes are purchased on
________ __, ____, (x) the Index remains constant at _____% per annum and the
mortgage rate on each adjustable rate mortgage loan is adjusted on the next
Adjustment Date (and on subsequent Adjustment Dates, if necessary) to equal the
Index plus the applicable Gross Margin, subject to the applicable Periodic Rate
Cap, (xi) One-Month LIBOR remains constant at _____% per annum, (xii) the
monthly payment on each adjustable rate mortgage loan is adjusted on the Due
Date immediately following the next Adjustment Date (and on subsequent
Adjustment Dates, if necessary) to equal a fully amortizing monthly payment as
described in clause (viii) above and (xiii) the Master Servicing Fee Rate is as
shown in the "Assumed Mortgage Loan Characteristics" table below and the Master
Servicing Fee is payable monthly, the Servicing Fee Rate for each Servicer is
equal to ____% per annum and the Servicing Fees are payable monthly, and the
Indenture Trustee Fee Rate is equal to ______% per annum and the Indenture
Trustee Fee is paid monthly.
<TABLE>
<CAPTION>
ASSUMED MORTGAGE LOAN CHARACTERISTICS
PRINCIPAL BALANCE ORIGINAL TERM REMAINING TERM NEXT MAXIMUM MINIMUM PERIODIC MASTER PREPAY
AS OF THE MORTGAGE TO MATURITY TO MATURITY ADJUSTMENT GROSS MORTGAGE MORTGAGE RATE SERVICING PENALTY
CUT-OFF DATE RATE (%) (MONTHS) (MONTHS) DATE MARGIN (%) RATE (%) RATE (%) CAP (%) FEE RATE (%) (YES/NO)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------- -------- ------------- ------------- ---------- ---------- --------- -------- -------- ----------- --------
</TABLE>
There will be discrepancies between the characteristics of the actual
mortgage loans and the characteristics assumed in preparing the tables. This
discrepancy may have an effect upon the percentages of the initial Note Balance
outstanding (and the weighted average lives) of the notes shown in the tables.
In addition, since the actual mortgage loans included in the mortgage pool will
have characteristics that differ from those assumed in preparing the tables
shown below and since it is not likely the level of the Index or One-Month LIBOR
will remain constant as assumed, the notes may mature earlier or later than
indicated by the tables. In addition, as described under "Description of the
Notes--Principal Payments on the Notes" in this prospectus supplement, the
occurrence of the Stepdown Date or a Trigger Event (each as defined in this
prospectus supplement) will have the effect of accelerating or decelerating the
amortization of the notes, affecting the weighted average lives of the notes.
Based on the foregoing assumptions, the tables indicate the weighted average
lives of the notes and show the percentages of the initial Note Balance of those
notes that would be outstanding after each of the Payment Dates shown, at
various percentages of the Prepayment Assumption. Neither the prepayment model
used in this prospectus supplement nor any other prepayment model or assumption
purports 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 included in the mortgage pool. Variations in the prepayment
experience and the balance of the mortgage loans that prepay
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<PAGE>
may increase or decrease the percentages of initial Note Balances (and weighted
average lives) shown in the following tables. Those variations may occur even if
the average prepayment experience of all the mortgage loans equals any of the
specified percentages of the Prepayment Assumption.
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<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL NOTE BALANCE OUTSTANDING AT THE
SPECIFIED PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS A NOTES CLASS M-1 NOTES CLASS M-2 NOTES CLASS M-3 NOTES
------------- --------------- --------------- ---------------
PAYMENT DATE 0% 15% 28% 35% 45% 0% 15% 28% 35% 45% 0% 15% 28% 35% 45% 0% 15% 28% 35% 45%
- ------------ -- --- --- --- --- -- --- --- --- --- -- --- --- --- --- -- --- --- --- ---
<S> <C>
Closing Date.....
.................
.................
.................
.................
Weighted Average
Life
in Years(1)....
Weighted Average
Life
in Years(2)....
- -----------------
</TABLE>
(1) The weighted average life of a Note is determined by (a) multiplying the
amount of each payment of principal by the number of years from the date of
issuance of the Note to the related Payment Date, (b) adding the results
and (c) dividing the sum by the initial Note Balance of the notes.
(2) Calculated pursuant to footnote one but assumes the majority holder of the
Equity Certificates exercises its option to redeem the notes when the
aggregate Note Balance has been reduced to less than 20% of the initial
aggregate Note Balance. See "The Indenture and Owner Trust
Agreement--Redemption" in this prospectus supplement.
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<PAGE>
There is no assurance that prepayments of the mortgage loans will conform
to any of the levels of the Prepayment Assumption indicated in the tables above,
or to any other level, or that the actual weighted average lives of the notes
will conform to any of the weighted average lives shown in the tables above.
Furthermore, the information contained in the tables with respect to the
weighted average lives of the notes is not necessarily indicative of the
weighted average lives that might be calculated or projected under different or
varying prepayment or Index level assumptions.
The characteristics of the mortgage loans will differ from those assumed in
preparing the tables above. In addition, it is unlikely that any mortgage loan
will prepay at any constant percentage until maturity, that all of the mortgage
loans will prepay at the same rate or that the level of the Index will remain
constant or at any level for any period of time. The timing of changes in the
rate of prepayments may significantly affect the actual yield to maturity to
investors, even if the average rate of principal prepayments and the level of
the Index is consistent with the expectations of investors.
YIELD SENSITIVITY OF THE SUBORDINATE NOTES
If on any Payment Date, the Overcollateralized Amount and the Note Balances
of the Class M-3 Notes and the Class M-2 Notes have been reduced to zero, the
yield to maturity on the Class M-1 Notes will become extremely sensitive to
losses on the mortgage loans (and the timing of those losses) that are covered
by subordination, because the entire amount of any Realized Losses (to the
extent not covered by Net Monthly Excess Cashflow) will be allocated to the
Class M-1 Notes. If on any Payment Date, the Overcollateralized Amount and the
Note Balance of the Class M-3 Notes have been reduced to zero, the yield to
maturity on the Class M-2 Notes will become extremely sensitive to losses on the
mortgage loans (and the timing of those losses) that are covered by
subordination, because the entire amount of any Realized Losses (to the extent
not covered by Net Monthly Excess Cashflow) will be allocated to the Class M-2
Notes. If on any Payment Date, the Overcollateralized Amount has been reduced to
zero, the yield to maturity on the Class M-3 Notes will become extremely
sensitive to losses on the mortgage loans (and the timing of those losses) that
are covered by subordination, because the entire amount of any Realized Losses
(to the extent not covered by Net Monthly Excess Cashflow) will be allocated to
the Class M-3 Notes. Once Realized Losses have been allocated to the Subordinate
Notes, those Realized Losses will not be reinstated thereafter.
However, Allocated Realized Loss Amounts may be paid to the holders of those
classes of notes, after various distributions to the holders of the Class A
Notes and Subordinate Notes with lower numerical class designations, but before
the Equity Certificates are entitled to any distributions. See "Description of
the Notes--Overcollateralization Provisions" in this prospectus supplement.
Investors in the Subordinate Notes should fully consider the risk that
Realized Losses on the mortgage loans could result in the failure of those
investors to fully recover their investments. For additional considerations
relating to the yield on the Subordinate Notes, see "Yield Considerations" and
"Maturity and Prepayment Considerations" in the prospectus.
DESCRIPTION OF THE NOTES
GENERAL
Impac MBN Trust Series ____-__, Mortgage-Backed Notes, Series ____-__ will
consist of ____ classes of notes, designated as (i) the Class A Notes and (ii)
the Class M-1 Notes, the Class M-2 Notes and the Class
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M-3 Notes. The notes will be issued by Impac MBN Trust Series ____-__ pursuant
to the Indenture, dated as of ________ __, ____, between the Issuer and the
Indenture Trustee. Only the notes are offered by this prospectus supplement.
Trust Certificates, Series ____-__ will be issued pursuant to the Owner Trust
Agreement, dated as of ________ __, ____, between the company and the Owner
Trustee, and will represent the beneficial ownership interest in the Issuer. The
Equity Certificates are not being offered by this prospectus supplement and will
be delivered on the Closing Date to the ____________, as partial consideration
for the conveyance of the mortgage loans by ____________ to the company.
Distributions on the offered notes will be made on each Distribution Date.
The notes represent non-recourse debt obligations of the Issuer secured by
the Trust Estate, which consists primarily of a mortgage pool of conventional,
one- to four-family, adjustable rate mortgage loans and fixed rate mortgage
loans having an aggregate principal balance as of the Cut-off Date of
approximately $___________, subject to a permitted variance as described in this
prospectus supplement under "The Mortgage Pool". Proceeds of the Trust Estate
will be the sole source of payments on the notes. The Issuer is not expected to
have any significant assets other than the Trust Estate pledged as collateral to
secure the notes.
The Class A Notes, the Class M-1 Notes, the Class M-2 Notes and the Class
M-3 Notes will have an aggregate initial Note Balance of approximately
$___________, approximately $_________, approximately $__________ and
approximately $__________, respectively, in each case subject to a permitted
variance of plus or minus [5]%. The Note Interest Rates on the notes are
adjustable, subject to the Maximum Note Interest Rate and the Available Interest
Rate, and will be calculated for each Payment Date as described under "--Note
Interest Rate" in this prospectus supplement. The "Final Maturity Date" of the
notes is the Payment Date occurring in _______ ____.
The notes will be issued, maintained and transferred on the book-entry
records of DTC and its participants in minimum denominations of $[10,000] and
integral multiples of $[1.00] in excess of that minimum denomination.
The notes will initially be represented by one or more global notes
registered in the name of the nominee of DTC, except as provided below. The
company has been informed by DTC that DTC's nominee will be CEDE. No person
acquiring an interest in any class of the notes will be entitled to receive a
note representing those person's interest, except as described below under
"--Definitive Notes". Unless and until Definitive Notes are issued under the
limited circumstances described in this prospectus supplement, all references to
actions by noteholders with respect to the notes shall refer to actions taken by
DTC upon instructions from its participants (as defined below), and all
references in this prospectus supplement to payments, notices, reports and
statements to noteholders with respect to the notes shall refer to payments,
notices, reports and statements to DTC or CEDE, as the registered holder of the
notes, for payment to Note Owners in accordance with DTC procedures. See
"--Registration" and "--Definitive Notes" in this prospectus supplement.
Any Definitive Notes will be transferable and exchangeable at the offices
of the Indenture Trustee. No service charge will be imposed for any registration
of transfer or exchange, but the Indenture Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith.
All payments to holders of the notes, other than the final payment on any
class of notes, will be made by or on behalf of the Indenture Trustee to the
persons in whose names those notes are registered at the close of business on
each Record Date. Those payments will be made either (a) by check mailed to the
address
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of that noteholder as it appears in the Note Register or (b) upon written
request to the Indenture Trustee at least five business days prior to the
relevant Record Date by any holder of notes having an aggregate initial Note
Balance that is in excess of the lesser of (i) $5,000,000 or (ii) two-thirds of
the initial aggregate Note Balance of that class of notes, by wire transfer in
immediately available funds to the account of that noteholder specified in the
request. The final payment on any class of notes will be made in like manner,
but only upon presentment and surrender of those notes at the corporate trust
office of the Indenture Trustee or another location specified in the notice to
noteholders of that final payment.
REGISTRATION
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold securities
for its participants and to facilitate the clearance and settlement of
securities transactions between participants through electronic book entries,
thereby eliminating the need for physical movement of notes. participants
include securities brokers and dealers (including [Name of Underwriter]), banks,
trust companies and clearing corporations.
Indirect access to the DTC system is also available to indirect participants.
Note Owners that are not participants or indirect participants but desire
to purchase, sell or otherwise transfer ownership of, or other interests in, the
notes may do so only through participants and indirect participants. In
addition, Note Owners will receive all payments of principal of and interest on
the notes from the Indenture Trustee through DTC and DTC participants. The
Indenture Trustee will forward payments to DTC in same day funds and DTC will
forward those payments to participants in next day funds settled through the New
York Clearing House. Each Participant will be responsible for disbursing those
payments to indirect participants or to Note Owners. Unless and until Definitive
Notes are issued, it is anticipated that the only holder of the notes will be
CEDE, as nominee of DTC. Note Owners will not be recognized by the Indenture
Trustee as noteholders, as that term is used in the Indenture, and Note Owners
will be permitted to exercise the rights of noteholders only indirectly through
DTC and its participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers of notes among
participants and to receive and transmit payments of principal of, and interest
on, the notes. Participants and indirect participants with which Note Owners
have accounts with respect to the notes similarly are required to make
book-entry transfers and receive and transmit those payments on behalf of their
respective Note Owners. Accordingly, although Note Owners will not possess
Definitive Notes, the Rules provide a mechanism by which Note Owners through
their participants and indirect participants will receive payments and will be
able to transfer their interest.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and on behalf of some banks, the ability of a
Note Owner to pledge notes to persons or entities that do not participate in the
DTC system, or to otherwise act with respect to those notes, may be limited due
to the absence of physical notes for the notes. In addition, under a book-entry
format, Note Owners may experience delays in their receipt of payments since
payment will be made by the Indenture Trustee to CEDE, as nominee for DTC.
Under the Rules, DTC will take action permitted to be taken by a noteholder
under the Indenture only at the direction of one or more participants to whose
DTC account the notes are credited. Clearstream or the Euroclear Operator (as
defined in this prospectus supplement), as the case may be, will take any other
action permitted to be taken by a noteholder under the Indenture on behalf of a
Clearstream Participant (as defined
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<PAGE>
in this prospectus supplement) or Euroclear Participant (as defined in this
prospectus supplement) only in accordance with its relevant rules and procedures
and subject to the ability of the Relevant Depositary (as defined in this
prospectus supplement) to effect those actions on its behalf through DTC.
Additionally, under the Rules, DTC will take those actions with respect to
specified Voting Rights only at the direction of and on behalf of participants
whose holdings of notes evidence those specified Voting Rights. DTC may take
conflicting actions with respect to Voting Rights to the extent that
participants whose holdings of notes evidence those Voting Rights, authorize
divergent action.
DTC management is aware that its Systems that are dependent upon calendar
dates, including dates before, on and after January 1, 2000, may encounter "Year
2000 problems". DTC has informed the Industry that it has developed and is
implementing a program so that its Systems, as the same relate to DTC Services,
continue to function appropriately. This program includes a technical assessment
and a remediation plan, each of which is complete. Additionally, DTC's plan
includes a testing phase, which is expected to be completed within appropriate
time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to, issuers and their agents, as
well as third party vendors from whom DTC licenses software and hardware, and
third party vendors on which DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed the Industry that it is contacting (and will
continue to contact) third party vendors from whom DTC acquires services to: (i)
impress upon them the importance of those services being Year 2000 compliant and
(ii) determine the extent of their efforts for Year 2000 remediation (and, as
appropriate, testing) of their services. In addition, DTC is in the process of
developing those contingency plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the Industry for informational purposes only and is not intended to
serve as a representation, warranty or contract modification of any kind.
The Issuer, the Originators, the company, the Master Servicer, the Seller,
________, the Owner Trustee, the Indenture Trustee and their respective
affiliates will have no liability for any actions taken by DTC or its nominee or
Clearstream or Euroclear, including actions for any aspect of the records
relating to or payments made on account of beneficial ownership interests in the
notes held by CEDE, as nominee for DTC, or for maintaining, supervising or
reviewing any records relating to those beneficial ownership interests.
DEFINITIVE NOTES
Definitive Notes will be issued to Note Owners or their nominees, rather
than to DTC or its nominee, only if (i) the company advises the Indenture
Trustee in writing that DTC is no longer willing or able to discharge properly
its responsibilities as clearing agency with respect to the notes and the
company is unable to locate a qualified successor, (ii) the company, at its
option, advises the Indenture Trustee in writing that it elects to terminate the
book-entry system through DTC, or (iii) after the occurrence of an Event of
Default (as defined in this prospectus supplement), Note Owners representing in
the aggregate not less than 51% of the Voting Rights of the notes advise the
Indenture Trustee and DTC through participants, in writing, that the
continuation of a book-entry system through DTC (or a successor thereto) is no
longer in the Note Owners' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Indenture Trustee is required to notify all Note Owners through
participants of the availability of Definitive Notes.
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Upon surrender by DTC of the definitive notes representing the Notes and receipt
of instructions for re- registration, the Indenture Trustee will reissue the
notes as Definitive Notes issued in the respective principal amounts owned by
individual Note Owners, and thereafter the Indenture Trustee will recognize the
holders of those Definitive Notes as noteholders under the Indenture. Those
Definitive Notes will be issued in minimum denominations of $10,000, except that
any beneficial ownership represented by a note in an amount less than $10,000
immediately prior to the issuance of a Definitive Note shall be issued in a
minimum denomination equal to the amount represented by that note.
BOOK-ENTRY FACILITIES
Note Owners may elect to hold their interests in the notes through DTC in
the United States or through Clearstream or Euroclear in Europe, if they are
participants of those systems, or indirectly through organizations which are
participants in those systems. The notes of each class will be issued in one or
more notes which equal the aggregate Note Balance of that class and will
initially be registered in the name of Cede, the nominee of DTC. Clearstream and
Euroclear will hold omnibus positions on behalf of their participants through
customers' securities accounts in Clearstream's and Euroclear's names on the
books of their respective depositaries which in turn will hold those positions
in customers' securities accounts in the depositaries' names on the books of
DTC. Citibank will act as depositary for Clearstream and Chase will act as
depositary for Euroclear.
Because of time zone differences, credits of securities received in
Clearstream or Euroclear as a result of a transaction with a Participant will be
made during subsequent securities settlement processing and dated the business
day following the DTC settlement date. Those credits or any transactions in
those securities settled during that processing will be reported to the relevant
Euroclear participants or Clearstream participants on that business day. Cash
received in Clearstream or Euroclear as a result of sales of securities by or
through a Clearstream Participant or Euroclear Participant to a Participant will
be received with value on the DTC settlement date but will be available in the
relevant Clearstream or Euroclear cash account only as of the business day
following settlement in DTC.
Transfers between participants will occur in accordance with DTC rules.
Transfers between Clearstream participants and Euroclear participants will occur
in accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Clearstream
participants or Euroclear participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, those cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in that system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. Clearstream participants and Euroclear participants may not deliver
instructions directly to the European Depositaries.
Clearstream is incorporated under the laws of Luxembourg as a professional
depository. Clearstream holds securities for its Clearstream participants and
facilitates the clearance and settlement of securities transactions between
Clearstream participants through electronic book-entry changes in accounts of
Clearstream participants, thereby eliminating the need for physical movement of
notes. Transactions may
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be settled in Clearstream in any of 28 currencies, including United States
dollars. Clearstream provides to its Clearstream participants, among other
things, services for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing.
Clearstream interfaces with domestic markets in several countries. As a
professional depository, Clearstream is subject to regulation by the Luxembourg
Monetary Institute. Clearstream participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and other organizations.
Indirect access to Clearstream is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Clearstream Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its Euroclear
participants and to clear and settle transactions between Euroclear participants
through simultaneous electronic book-entry delivery against payment, thereby
eliminating the need for physical movement of notes and any risk from lack of
simultaneous transfers of securities and cash. Transactions may now be settled
in any of 32 currencies, including United States dollars. Euroclear includes
various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. Euroclear is
operated by the Brussels, Belgium office of the Euroclear Operator, under
contract with the Cooperative. All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy for Euroclear on behalf of Euroclear
participants. Euroclear participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries.
Indirect access to Euroclear is also available to other firms that clear through
or maintain a custodial relationship with a Euroclear Participant, either
directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law.
The Terms and Conditions govern transfers of securities and cash within
Euroclear, withdrawals of securities and cash from Euroclear, and receipts of
payments with respect to securities in Euroclear. All securities in Euroclear
are held on a fungible basis without attribution of specific notes to specific
securities clearance accounts. The Euroclear Operator acts under the Terms and
Conditions only on behalf of Euroclear participants, and has no record of or
relationship with persons holding through Euroclear participants.
Payments with respect to notes held through Clearstream or Euroclear will
be credited to the cash accounts of Clearstream participants or Euroclear
participants in accordance with the relevant system's rules and procedures, to
the extent received by the Relevant Depositary. Those payments will be subject
to tax reporting in accordance with relevant United States tax laws and
regulations.
Although DTC, Clearstream and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of notes among participants of DTC,
Clearstream and Euroclear, they are under no obligation to perform or continue
to perform those procedures and those procedures may be discontinued at any
time. See "Description of the Securities--Form of Securities" in the prospectus.
S-30
<PAGE>
NOTE INTEREST RATES
The Note Interest Rate on the Class A Notes will be a rate per annum equal
to the lesser of (i) One- Month LIBOR plus ____%, in the case of each Payment
Date through and including the Payment Date on which the aggregate Note Balance
is reduced to less than __% of the aggregate initial Note Balance, or One- Month
LIBOR plus ____%, in the case of any Payment Date thereafter, (ii) the Available
Interest Rate for that Payment Date and (iii) the Maximum Note Interest Rate.
The Note Interest Rate on the Class M-1 Notes will be a rate per annum
equal to the lesser of (i) One- Month LIBOR plus ____%, in the case of each
Payment Date through and including the Payment Date on which the aggregate Note
Balance is reduced to less than __% of the aggregate initial Note Balance, or
One- Month LIBOR plus ____%, in the case of any Payment Date thereafter, (ii)
the Available Interest Rate for that Payment Date and (iii) the Maximum Note
Interest Rate.
The Note Interest Rate on the Class M-2 Notes will be a rate per annum
equal to the lesser of (i) One- Month LIBOR plus ____%, in the case of each
Payment Date through and including the Payment Date on which the aggregate Note
Balance is reduced to less than __% of the aggregate initial Note Balance, or
One- Month LIBOR plus ____%, in the case of any Payment Date thereafter, (ii)
the Available Interest Rate for that Payment Date and (iii) the Maximum Note
Interest Rate.
The Note Interest Rate on the Class M-3 Notes will be a rate per annum
equal to the lesser of (i) One- Month LIBOR plus ____%, in the case of each
Payment Date through and including the Payment Date on which the aggregate Note
Balance is reduced to less than __% of the aggregate initial Note Balance, or
One- Month LIBOR plus _____%, in the case of any Payment Date thereafter, (ii)
the Available Interest Rate for that Payment Date and (iii) the Maximum Note
Interest Rate.
See "--Calculation of One-Month LIBOR" in this prospectus supplement.
The Note Interest Rate and the Note Accrual Rate for the notes for the
current related Interest Accrual Period, to the extent it has been determined,
and for the immediately preceding Interest Accrual Period may be obtained by
telephoning the Indenture Trustee at __________.
INTEREST PAYMENTS ON THE NOTES
To the extent of the Current Interest Payment Amount, in the priorities
listed below, the holders of each class of notes will be entitled to receive on
each Payment Date interest payments in an amount equal to the Interest Payment
Amount for that class. On each Payment Date, the Current Interest Payment Amount
will be distributed in the following order of priority:
first, to the holders of the Class A Notes, the Interest Payment Amount
for those notes;
second, to the extent of the Current Interest Payment Amount remaining
after payment of the Interest Payment Amount for the Class A Notes, to the
holders of the Class M-1 Notes, the Interest Payment Amount for those
Notes;
third, to the extent of the Current Interest Payment Amount remaining after
payment of the Interest Payment Amounts for the Class A Notes and the Class
M-1 Notes, to the holders of the Class M-2 Notes, the Interest Payment
Amount for those notes; and
S-31
<PAGE>
fourth, to the extent of the Current Interest Payment Amount remaining
after payment of the Interest Payment Amounts for the Class A Notes, the
Class M-1 Notes and the Class M-2 Notes, to the holders of the Class M-3
Notes, the Interest Payment Amount for those notes.
With respect to any Payment Date, to the extent that the aggregate of the
Interest Payment Amounts for the notes is limited by the Current Interest
Payment Amount for the related Due Period, the holders of some classes of notes
may receive an Interest Payment Amount calculated at the Available Interest Rate
rather than at the applicable Note Accrual Rate for those classes and that
Payment Date. The Interest Carry Forward Amount, if any, for any class of the
notes for any Payment Date is payable to the extent of available funds remaining
after some other payments on the notes on that Payment Date, but before any
payments on the Equity Certificates on that Payment Date. See
"--Overcollateralization Provisions" in this prospectus supplement.
All payments of interest on the notes will be based on a 360-day year and
the actual number of days in the applicable Interest Accrual Period.
The Note Balance of a note outstanding at any time represents the then
maximum amount that the holder of that note is entitled to receive as payments
allocable to principal from the cash flow on the mortgage loans and the other
assets in the Trust Estate.
CALCULATION OF ONE-MONTH LIBOR
With respect to each Interest Accrual Period, on the Interest Determination
Date, the Indenture Trustee will determine One-Month LIBOR for the next Interest
Accrual Period. If that rate does not appear on Telerate Page 3750, the rate for
that day will be determined on the basis of the offered rates of the Reference
Banks (as defined in this prospectus supplement) for one-month U.S. dollar
deposits, as of 11:00 a.m. (London time) on that Interest Determination Date.
The Indenture Trustee will request the principal London office of each of the
Reference Banks to provide a quotation of its rate. If on that Interest
Determination Date two or more Reference Banks provide those offered quotations,
One-Month LIBOR for the related Interest Accrual Period shall be the arithmetic
mean of those offered quotations (rounded upwards if necessary to the nearest
whole multiple of 0.0625%). If on that Interest Determination Date fewer than
two Reference Banks provide those offered quotations, One-Month LIBOR for the
related Interest Accrual Period shall be the higher of (x) One-Month LIBOR as
determined on the previous Interest Determination Date and (y) the Reserve
Interest Rate (as defined in this prospectus supplement).
As used in this section, "business day" means a day on which banks are open
for dealing in foreign currency and exchange in London and New York City.
The establishment of One-Month LIBOR on each Interest Determination Date by
the Indenture Trustee and the Indenture Trustee's calculation of the rate of
interest applicable to the notes for the related Interest Accrual Period shall
(in the absence of manifest error) be final and binding.
PRINCIPAL PAYMENTS ON THE NOTES
On each Payment Date, the Principal Payment Amount will be distributed to
the holders of the notes then entitled to payments of principal. In no event
will the Principal Payment Amount with respect to any Payment Date be (x) less
than zero or (y) greater than the then-outstanding aggregate Note Balance of the
notes. The Principal Payment Amount for the first Payment Date will include
approximately $_________
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<PAGE>
collected by the Servicers in respect of prepayments on the mortgage loans
during the _________ ____ Prepayment Period.
On each Payment Date (a) prior to the Stepdown Date or (b) on which a
Trigger Event is in effect, the Principal Payment Amount shall be distributed:
first, to the Class A Notes, until the Note Balance thereof has been reduced to
zero; second, to the Class M-1 Notes, until the Note Balance thereof has been
reduced to zero; third, to the Class M-2 Notes, until the Note Balance thereof
has been reduced to zero; and fourth, to the Class M-3 Notes, until the Note
Balance thereof has been reduced to zero.
On each Payment Date (a) on or after the Stepdown Date and (b) on which a
Trigger Event is not in effect, the holders of the Class A Notes and the
Subordinate Notes shall be entitled to receive payments in respect of principal
to the extent of the Principal Payment Amount in the following amounts and order
of priority:
first, the lesser of (x) the Principal Payment Amount and (y) the Class A
Principal Payment Amount, shall be distributed to the holders of the Class
A Notes, until the Note Balance thereof has been reduced to zero;
second, the lesser of (x) the excess of (i) the Principal Payment Amount
over (ii) the amount distributed to the holders of the Class A notes
pursuant to clause first above and (y) the Class M-1 Principal Payment
Amount, shall be distributed to the holders of the Class M-1 Notes, until
the Note Balance thereof has been reduced to zero;
third, the lesser of (x) the excess of (i) the Principal Payment Amount
over (ii) the sum of the amounts distributed to the holders of the Class A
Notes pursuant to clause first above and to the holders of the Class M-1
Notes pursuant to clause second above and (y) the Class M-2 Principal
Payment Amount, shall be distributed to the holders of the Class M-2 Notes,
until the Note Balance thereof has been reduced to zero; and
fourth, the lesser of (x) the excess of (i) the Principal Payment Amount
over (ii) the sum of the amounts distributed to the holders of the Class A
Notes pursuant to clause first above, to the holders of the Class M-1 Notes
pursuant to clause second above and to the holders of the Class M-2 Notes
pursuant to clause third above and (y) the Class M-3 Principal Payment
Amount, shall be distributed to the holders of the Class M-3 Notes, until
the Note Balance thereof has been reduced to zero.
On the Final Maturity Date or the Payment Date immediately following the
acceleration of the notes due to any Event of Default principal will be payable
on each class of notes in an amount equal to the Note Balance thereof on that
Payment Date. On the Final Maturity Date or the Payment Date immediately
following the acceleration of the notes due to any Event of Default, amounts in
respect of accrued interest, Interest Carry Forward Amounts and Allocated
Realized Loss Amounts will also be payable on each class of notes in the
priorities listed in the Indenture. There can be no assurance, however, that
sufficient funds will be available on that date to retire the Note Balances and
pay those other amounts.
The allocation of payments in respect of principal to the Class A Notes on
each Payment Date (a) prior to the Stepdown Date or (b) on which a Trigger Event
has occurred, will have the effect of accelerating the amortization of the Class
A Notes while, in the absence of Realized Losses, increasing the respective
percentage interest in the principal balance of the mortgage loans evidenced by
the Subordinate Notes and the Overcollateralized Amount. Increasing the
respective percentage interest in the Trust Estate of the Subordinate Notes and
the Overcollateralized Amount relative to that of the Class A Notes is intended
to
S-33
<PAGE>
preserve the availability of the subordination provided by the Subordinate Notes
and the Overcollateralized Amount.
The holders of the Equity Certificates will be entitled to all Prepayment
Charges received on the mortgage loans and those amounts will not be available
for distribution on the notes.
CREDIT ENHANCEMENT
The Credit Enhancement provided for the benefit of the holders of the notes
consists of subordination, as described below, and overcollateralization, as
described under "--Overcollateralization Provisions" in this prospectus
supplement.
The rights of the holders of the Subordinate Notes and the Equity
Certificates to receive payments will be subordinated, to the extent described
in this prospectus supplement, to the rights of the holders of the Class A
Notes. This subordination is intended to enhance the likelihood of regular
receipt by the holders of the Class A Notes of the full amount of interest and
principal to which they are entitled and to afford those holders protection
against Realized Losses.
The protection afforded to the holders of the Class A Notes by means of the
subordination of the Subordinate Notes and the Equity Certificates will be
accomplished by (i) the preferential right of the holders of the Class A Notes
to receive on any Payment Date, prior to payment on the Subordinate Notes and
the Equity Certificates, payments in respect of interest and principal, subject
to available funds, and (ii) if necessary, the right of the holders of the Class
A Notes to receive future payments of amounts that would otherwise be payable to
the holders of the Subordinate Notes and the Equity Certificates.
In addition, the rights of the holders of Subordinate Notes with lower
numerical class designations will be senior to the rights of holders of
Subordinate Notes with higher numerical class designations, and the rights of
the holders of all of the Subordinate Notes to receive payments in respect of
the mortgage loans will be senior to the rights of the holders of the Equity
Certificates, in each case to the extent described in this prospectus
supplement. This subordination is intended to enhance the likelihood of regular
receipt by the holders of Subordinate Notes with lower numerical class
designations relative to the holders of Subordinate Notes with higher numerical
class designations (and by the holders of all of the Subordinate Notes relative
to the holders of the Equity Certificates) of the full amount of interest and
principal to which they are entitled and to afford those holders protection
against Realized Losses, as described under "--Allocation of Realized Losses" in
this prospectus supplement.
OVERCOLLATERALIZATION PROVISIONS
The weighted average mortgage rate for the mortgage loans (adjusted to
reflect the Master Servicing Fee, the Servicing Fees and the Indenture Trustee
Fee payable from interest received or advanced on the mortgage loans) is
generally expected to be higher than the weighted average of the Note Interest
Rates on the notes, thus generating excess interest collections which, in the
absence of Realized Losses, will not be necessary to fund interest payments on
the notes. The Indenture requires that, on each Payment Date, the Net Monthly
Excess Cashflow, if any, be applied on that Payment Date as an accelerated
payment of principal on class or classes of notes then entitled to receive
payments in respect of principal, but only to the limited extent hereafter
described.
With respect to any Payment Date, any Net Monthly Excess Cashflow (or, in
the case of clause first below, the Net Monthly Excess Cashflow exclusive of any
Overcollateralization Reduction Amount) shall be paid as follows:
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<PAGE>
first, to the holders of the class or classes of notes then entitled to
receive payments in respect of principal, in an amount equal to the
principal portion of any Realized Losses incurred or deemed to have been
incurred on the mortgage loans;
second, to the holders of the class or classes of notes then entitled to
receive payments in respect of principal, in an amount equal to the
Overcollateralization Increase Amount;
third, to the holders of the Class A Notes, in an amount equal to the
Interest Carry Forward Amount for those notes;
fourth, to the holders of the Class M-1 Notes, in an amount equal to the
Interest Carry Forward Amount for those notes;
fifth, to the holders of the Class M-1 Notes, in an amount equal to the
Allocated Realized Loss ----- Amount for those notes;
sixth, to the holders of the Class M-2 Notes, in an amount equal to the
Interest Carry Forward Amount for those notes;
seventh, to the holders of the Class M-2 Notes, in an amount equal to the
Allocated Realized Loss Amount for those notes;
eighth, to the holders of the Class M-3 Notes, in an amount equal to the
Interest Carry Forward Amount for those notes;
ninth, to the holders of the Class M-3 Notes, in an amount equal to the
Allocated Realized Loss Amount for those notes; and
tenth, to the holders of the Equity Certificates as provided in the
Indenture.
With respect to any Payment Date, the excess, if any, of (a) the aggregate
principal balance of the mortgage loans immediately following that Payment Date
over (b) the Note Balance of the notes, after taking into account the payment of
the amounts described in clauses (b)(i) through (iv) of the definition of
Principal Payment Amount on that Payment Date, is the "Overcollateralized
Amount" for the notes as of that Payment Date. As of the Closing Date, the
aggregate principal balance of the mortgage loans as of the Cut-off Date will
exceed the aggregate Note Balance of the notes by an amount equal to
approximately $_________. That amount represents approximately ____% of the
aggregate principal balance of the mortgage loans as of the Cut-off Date, which
is the initial amount of overcollateralization required to be provided by the
mortgage pool under the Indenture. Under the Indenture, the Overcollateralized
Amount is required to be maintained at the Required Overcollateralized Amount.
In the event that Realized Losses are incurred on the mortgage loans, those
Realized Losses may result in an overcollateralization deficiency since those
Realized Losses will reduce the principal balance of the mortgage loans without
a corresponding reduction to the aggregate Note Balance of the notes. In that
event, the Indenture requires the payment from Net Monthly Excess Cashflow,
subject to available funds, of an amount equal to that overcollateralization
deficiency, which shall constitute a principal payment on the notes in reduction
of the Note Balances thereof. This has the effect of accelerating the
amortization of the notes relative to the amortization of the mortgage loans,
and of increasing the Overcollateralized Amount.
On and after the Stepdown Date and provided that a Trigger Event is not in
effect, the Required Overcollateralized Amount may be permitted to decrease, or
"step down", below the initial $_________ level
S-35
<PAGE>
to a level equal to approximately ____% of the then current aggregate
outstanding principal balance of the mortgage loans (after giving effect to
principal payments to be distributed on that Payment Date), subject to a floor
of $_________. In the event that the Required Overcollateralized Amount is
permitted to step down on any Payment Date, the Indenture provides that a
portion of the principal which would otherwise be distributed to the holders of
the notes on that Payment Date shall be distributed to the holders of the Equity
Certificates, subject to the priorities listed above. With respect to that
Payment Date, the Principal Payment Amount will be reduced by the
Overcollateralization Reduction Amount after taking into account all other
payments to be made on that Payment Date, which amount shall be distributed as
Net Monthly Excess Cashflow pursuant to the priorities listed above. This has
the effect of decelerating the amortization of the notes relative to the
amortization of the mortgage loans, and of reducing the Overcollateralized
Amount. However, if on any Payment Date a Trigger Event is in effect, the
Required Overcollateralized Amount will not be permitted to step down on that
Payment Date.
ALLOCATION OF LOSSES; SUBORDINATION
With respect to any defaulted mortgage loan that is finally liquidated
through foreclosure sale, disposition of the related mortgaged property (if
acquired by deed in lieu of foreclosure) or otherwise, the amount of loss
realized, if any, will equal the portion of the unpaid principal balance
remaining, if any, plus interest on that mortgage loan through the last day of
the month in which that mortgage loan was finally liquidated, after application
of all amounts recovered (net of amounts reimbursable to the Servicers for P&I
Advances, servicing advances and Servicing Fees) towards interest and principal
owing on the mortgage loan.
Any Realized Loss on the mortgage loans will be allocated on any Payment
Date, first, to Net Monthly Excess Cashflow, second, to the Overcollateralized
Amount, third, to the Class M-3 Notes, fourth, to the Class M-2 Notes, and
fifth, to the Class M-1 Notes. The Indenture does not permit the allocation of
Realized Losses to the Class A Notes. Investors in the Class A Notes should note
that although Realized Losses cannot be allocated to those notes, under various
loss scenarios there will not be enough principal and interest collected on the
mortgage loans to pay the Class A Notes all interest and principal amounts to
which they are then entitled.
Once Realized Losses have been allocated to the Subordinate Notes, those
Realized Losses will not be reinstated thereafter. However, Allocated Realized
Loss Amounts may be paid to the holders of those classes of notes, after various
distributions to the holders of the Class A Notes and Subordinate Notes with
lower numerical class designations, but before the Equity Certificates are
entitled to any distributions.
Any allocation of a Realized Loss to a note will be made by reducing the
Note Balance thereof by the amount so allocated on the Payment Date in the month
following the calendar month in which that Realized Loss was incurred.
Notwithstanding anything to the contrary described in this prospectus
supplement, in no event will the Note Balance of any note be reduced more than
once in respect of any particular amount both (i) allocable to those notes in
respect of Realized Losses and (ii) payable as principal to the holder of those
notes from Net Monthly Excess Cashflow.
P&I ADVANCES
Subject to the following limitations, each Servicer will be obligated to
advance or cause to be advanced on or before each Payment Date from its own
funds, or funds in the Certificate Account that are not included in the
Available Payment Amount for that Payment Date, any P&I Advance.
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<PAGE>
P&I Advances are required to be made only to the extent they are deemed by
the related Servicer to be recoverable from related late collections, insurance
proceeds or liquidation proceeds. The purpose of making those P&I Advances is to
maintain a regular cash flow to the noteholders, rather than to guarantee or
insure against losses. The Servicers will not be required to make any P&I
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.
All P&I Advances will be reimbursable to the related Servicer from late
collections, insurance proceeds and liquidation proceeds from the mortgage loan
as to which that unreimbursed P&I Advance was made. In addition, any P&I
Advances previously made in respect of any mortgage loan that are deemed by the
related Servicer to be nonrecoverable from related late collections, insurance
proceeds or liquidation proceeds may be reimbursed to the related Servicer out
of any funds in the Certificate Account prior to the payments on the notes. In
the event that any Servicer fails in its obligation to make any required
advance, the Master Servicer will be obligated to make that advance, and in the
event that the Master Servicer fails in its obligation to make that advance, the
Indenture Trustee will be obligated to make that advance, in each of these cases
to the extent required in the related Servicing Agreement.
THE ISSUER
Impac MBN Trust Series ____-__ is a business trust formed under the laws of
the State of Delaware pursuant to the Owner Trust Agreement, dated as of
________ __, ____, between the company and the Owner Trustee for the
transactions described in this prospectus supplement. The Owner Trust Agreement
constitutes the "governing instrument" under the laws of the State of Delaware
relating to business trusts.
After its formation, the Issuer will not engage in any activity other than (i)
acquiring and holding the mortgage loans and the proceeds therefrom, (ii)
issuing the notes and the Equity Certificates, (iii) making payments on the
notes and the Equity Certificates and (iv) engaging in other activities that are
necessary, suitable or convenient to accomplish the foregoing or are incidental
thereto or connected therewith. The Issuer is not expected to have any
significant assets other than the Trust Estate pledged as collateral to secure
the notes. The assets of the Issuer will consist of the mortgage loans pledged
to secure the notes. The Issuer's principal offices are in __________, ________,
in care of ________________, as Owner Trustee.
THE SELLER
The Seller, in its capacity as mortgage loan seller, will sell the mortgage
loans to the ___________ pursuant to a mortgage loan Purchase Agreement, dated
as of _________ __, ____, between the Seller and
- ----------.
THE OWNER TRUSTEE
_________________ is the Owner Trustee under the Owner Trust Agreement. The
Owner Trustee is a _________ banking corporation and its principal offices are
located in _____________.
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<PAGE>
Neither the Owner Trustee nor any director, officer or employee of the
Owner Trustee will be under any liability to the Issuer or the noteholders under
the Owner Trust Agreement under any circumstances, except for the Owner
Trustee's own misconduct, gross negligence, bad faith or grossly negligent
failure to act or in the case of the inaccuracy of some representations made by
the Owner Trustee in the Owner Trust Agreement. All persons into which the Owner
Trustee may be merged or with which it may be consolidated or any person
resulting from that merger or consolidation shall be the successor of the Owner
Trustee under the Owner Trust Agreement.
The principal compensation to be paid to the Owner Trustee in respect of
its obligations under the Owner Trust Agreement will have been paid by or on
behalf of the Issuer on or prior to the Closing Date.
THE INDENTURE TRUSTEE
____________________, a ____________ banking association, will act as
Indenture Trustee for the notes pursuant to the Indenture. The Indenture
Trustee's offices for notices under the Indenture are located at
______________________________ and its telephone number is ______________.
The Indenture will provide that the Indenture Trustee may withdraw funds
from the Certificate Account (i) to reimburse itself for all reasonable
out-of-pocket expenses incurred or made by it, including costs of collection and
including reasonable compensation and expenses, disbursements and advances of
its agents, counsel, accountants and experts and (ii) to reimburse the Owner
Trustee for all reasonable out-of pocket expenses incurred or made by the Owner
Trustee for all services rendered by the Owner Trustee it in the Owner Trustee's
execution of the trust created under the Owner Trust Agreement and in the
exercise and performance of any of the Owner Trustee's powers and duties under
the Owner Trust Agreement. Under the Indenture, the Issuer (from the assets of
the Trust Estate) shall indemnify the Indenture Trustee against any and all
loss, liability or expense (including reasonable attorneys' fees) incurred by
the Indenture Trustee in connection with the administration of the Trust Estate
and the performance of the Indenture Trustee's duties under this prospectus
supplement. The Issuer is not required, however, to reimburse any expense or
indemnify against any loss, liability or expense incurred by the Indenture
Trustee through the Indenture Trustee's own willful misconduct, negligence or
bad faith.
THE SERVICING AGREEMENTS
The following summary describes a number of terms of the Servicing
Agreements, dated as of __________ __, ____, among the Issuer, the Indenture
Trustee, the Master Servicer and the related Servicer.
The summary does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the provisions of the Servicing Agreements.
Whenever particular sections or defined terms of the Servicing Agreements are
referred to, those sections or defined terms are incorporated in this prospectus
supplement by reference. The company will provide to a prospective or actual
noteholder without charge, on written request, a copy (without exhibits) of the
Servicing Agreements. Requests should be addressed to the Secretary, Impac
Secured Assets Corp., 1401 Dove Street, Newport Beach, CA 92660 and its phone
number is (949) 475-3600.
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<PAGE>
ORIGINATORS AND SERVICERS
[See version 1 of the prospectus supplement]
[ORIGINATOR]
The information shown in the following paragraphs has been provided by
_______________. The following table summarizes ____________'s one- to
four-family residential mortgage loan origination and sales activity for the
periods shown below. Sales activity may include sales of mortgage loans
purchased by __________ from other loan originators.
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------------
1995 1996 1997 1998 1999
--------------------------------------------------------------
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------
Originations...
Sales..........
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<PAGE>
The following table sets forth the delinquency and loss experience at the
dates indicated for residential (one- to four-family and multifamily) loans
serviced by ___________ that were originated or purchased by
- ----------:
<TABLE>
<CAPTION>
AT
MARCH
AT DECEMBER 31, 31,
--------------------------------------------------------------------------------
1995 1996 1997 1998 1999
--------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C>
Total Outstanding Principal
Balance...............................
Number of Loans.........................
DELINQUENCY
Period of Delinquency:
31-60 Days
Principal Balance...............
Number of Loans.................
Delinquency as a Percentage
of Total Outstanding Principal
Balance.......................
Delinquency as a Percentage
of Number of Loans............
61-90 Days
Principal Balance...............
Number of Loans.................
Delinquency as a Percentage
of Total Outstanding
Principal Balance.............
Delinquency as a Percentage
of Number of Loans............
91 Days or More
Principal Balance...............
Number of Loans.................
Delinquency as a Percentage
of Total Outstanding
Principal Balance.............
Delinquency as a Percentage
of Number of Loans............
Total Delinquencies:
Principal Balance...............
Number of Loans.................
Delinquency as a Percentage
of Total Outstanding
Principal Balance.............
Delinquency as a Percentage
of Number of Loans............
FORECLOSURES PENDING(1)
Principal Balance...............
Number of Loans.................
Foreclosures Pending as a
Percentage of Total
Outstanding Principal
Balance.......................
Foreclosures Pending as
a Percentage of Number of
Loans...........................
NET LOAN LOSSES for the
Period(2).............................
NET LOAN LOSSES as a
Percentage of Total Outstanding
Principal Balance.....................
</TABLE>
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<PAGE>
(1) Includes mortgage loans which are in foreclosure but as to which title to
the mortgaged property has not been acquired, at the end of the period
indicated. Foreclosures pending are included in the delinquencies shown
above.
(2) Net Loan Losses is calculated for loans conveyed to REMIC trust funds as
the aggregate of the net loan loss for all those loans liquidated during
the period indicated. The net loan loss for any of these loans is equal to
the difference between (a) the principal balance plus accrued interest
through the date of liquidation plus all liquidation expenses related to
that loan and (b) all amounts received in connection with the liquidation
of that loan. The majority of residential loans serviced by ________ have
been conveyed to REMIC trust funds.
[ORIGINATOR]
The information presented in the following paragraphs has been provided by
______________. Pursuant to the related Servicing Agreement, ____________ will
serve as Servicer for the mortgage loans sold indirectly by it to the company.
Notwithstanding the foregoing, the Master Servicer and ___________ have advised
the company that with respect to a portion of the mortgage loans initially to be
serviced by _____________, the servicing thereof is expected to be transferred
to the Master Servicer, whereupon the Master Servicer will act in the capacity
as "Servicer" under the applicable Servicing Agreement to the extent of those
mortgage loans. That portion of the mortgage loans that is expected to be
subject to that servicing transfer represents approximately _____% of the
mortgage loans, by aggregate principal balance as of the Cut-off Date.
The table below sets forth the overall delinquency experience on
residential one-to-four-family mortgage loans for non-conforming credits which
are currently serviced by ____________. No mortgage loan is considered
delinquent for purposes of the table until a payment is 30 days past due on a
contractual basis.
It should be noted that ______________ commenced its servicing activities for
these types of non- conforming mortgage loans in ____ and that its portfolio
consists of mortgage loans that were originated during the periods from ____ to
____ in accordance with the underwriting standards it had established or other
underwriting guidelines that it determined were substantially similar. The
information in the table below is not intended to indicate or predict the
expected delinquency experience on past, current or future pools of mortgage
loans for which __________ _ is the primary servicer.
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<PAGE>
<TABLE>
<CAPTION>
NON-CONFORMING MORTGAGE LOAN PORTFOLIO EXPERIENCE
Year Ended December 31, Six Months Ended
------------------------- ----------------
1996 1997 1998 June 30, 1999
---- ---- ---- -------------
<S> <C>
Total principal balance (at period end).........
Average portfolio principal
balance(1)..........
DELINQUENCIES (at period end)(2) 30-59 Days:
Principal balance.............................
Percent(3)....................................
60-89 Days:
Principal balance.............................
Percent(3)....................................
90 Days or More:
Principal balance.............................
Percent(3)....................................
Total Delinquencies:
Principal balance.............................
Percent(3)....................................
FORECLOSURES
Principal balance.............................
Percent(3)....................................
REO (at period end).............................
Net gains/(losses) on liquidated loans..........
Percentage of net gains/(losses) on
liquidated loans (based on average
portfolio principal balance)..................
</TABLE>
(1) Calculated by summing the actual outstanding principal balances at the end
of each month and dividing the total by the number of months in the
applicable period.
(2) Delinquency information does not include loans in foreclosure or REO.
(3) Percentages are expressed based upon the total outstanding principal
balance at the end of the indicated period.
(4) Annualized.
It is unlikely that the delinquency experience of the mortgage loans
comprising the mortgage pool will correspond to the delinquency experience of
the mortgage portfolios shown in the foregoing tables. The statistics shown
above represent the delinquency experience for the indicated mortgage servicing
portfolios only for the periods presented, whereas the aggregate delinquency
experience on the mortgage loans comprising the mortgage pool will depend on the
results obtained over the life of the mortgage pool. The mortgage servicing
portfolios shown above include mortgage loans that were originated using a
variety of different underwriting procedures and standards which may have been
more selective. They include 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
comprising the mortgage pool. 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 ______________. 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 pool.
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<PAGE>
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The Servicing Fee to be paid to each Servicer in respect of its servicing
activities for the notes will be equal to accrued interest at the Servicing Fee
Rate of ____% per annum with respect to each mortgage loan serviced by it for
each calendar month on the same principal balance on which interest on that
mortgage loan accrues for that calendar month. As additional servicing
compensation, each Servicer is entitled to retain all assumption fees and late
payment charges in respect of mortgage loans serviced by it, to the extent
collected from mortgagors, together with any interest or other income earned on
funds held in the Certificate Account (to the extent not payable as compensation
to the Indenture Trustee) and any escrow accounts in respect of mortgage loans
serviced by it.
When a principal prepayment in full is made on a mortgage loan, the
mortgagor is charged interest only for the period from the Due Date of the
preceding monthly payment up to the date of that prepayment, instead of for a
full month. When a partial principal prepayment is made on a mortgage loan, the
mortgagor is not charged interest on the amount of that prepayment for the month
in which that prepayment is made. Each Servicer is obligated to pay Compensating
Interest from its own funds a Prepayment Interest Shortfall, but only to the
extent of its aggregate Servicing Fee for the related Due Period. Each Servicer
is obligated to pay various insurance premiums and ongoing expenses associated
with the mortgage pool in respect of mortgage loans serviced by it and incurred
by that Servicer in connection with its responsibilities under the related
Servicing Agreement and is entitled to reimbursement therefor as provided in
that Servicing Agreement. With respect to the mortgage loans serviced by
_________, _________ will also be entitled to reimbursement of servicing
advances and principal and interest advances made by it as servicer of those
mortgage loans prior to the Cut-off Date. See "Description of the
Securities--Retained Interest; Servicing Compensation and Payment of Expenses"
in the prospectus for information regarding expenses payable by the Servicers.
SALE OF DEFAULTED MORTGAGE LOANS
If consent to the operation of the provisions described below shall have
been given by the related Servicer (unless the Directing Holder, as defined
below, is the Seller or an affiliate thereof, in which case that consent shall
not be required), then with respect to any mortgage loan that is delinquent in
excess of the number of days provided in the related Servicing Agreement, (i)
the Directing Holder may direct the related Servicer to commence foreclosure and
(ii) prior to commencement of foreclosure of any mortgage loan, that Servicer
will notify the Directing Holder of that proposed foreclosure in order to permit
the Directing Holder the right to instruct that Servicer to delay the proposed
foreclosure. In the case of the exercise by the Directing Holder of the right to
direct the related Servicer pursuant to either clause (i) or clause (ii) above,
the Directing Holder will provide to that Servicer the Loan Appraisal for each
related mortgaged property. Within two business days of instructing the related
Servicer to commence or delay foreclosure, the Directing Holder will deposit in
the related Collateral Account for the benefit of the noteholders an amount
equal to ___% of the Valuation (as defined below) of the related mortgage loan
plus three months' interest at the related mortgage rate. While foreclosure is
delayed pursuant to the direction of the Directing Holder, the Directing Holder
may direct the related Servicer to proceed with foreclosure at anytime.
Upon the liquidation of the related mortgage loan or the disposition of the
related mortgaged property in accordance with the requirements provided in the
related Servicing Agreement, the related Servicer will calculate the amount, if
any, by which the Valuation exceeds the actual sales price obtained for the
related mortgage loan or the mortgaged property, as the case may be, and the
related Servicer will withdraw the amount of that excess from the Collateral
Account and deposit that amount into the related Certificate Account. If the
amount realized pursuant to the above-described procedures exceeds the
Valuation, the related Servicer will deposit immediately upon realization from
those proceeds that excess into the Certificate Account. The related Servicer
shall apply all those amounts as additional liquidation proceeds pursuant to the
related Servicing Agreement. If any election to delay foreclosure is to be
extended for a period in excess of three months from the Directing Holder's
direction to the related Servicer to delay
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<PAGE>
foreclosure, the Directing Holder will be required to deposit in the Collateral
Account in advance the amount of each additional month's interest at the related
mortgage rate. If the above-described procedures do not result in the mortgage
loan being brought current within six months of the Directing Holder's direction
to the related Servicer to delay foreclosure, the Directing Holder will be
required to either (i) purchase the mortgage loan for a purchase price equal to
the fair market value thereof as shown on the Loan Appraisal or (ii) allow the
related Servicer to proceed with the commencement of foreclosure. Should the
Directing Holder elect to purchase the mortgage loan, the related Servicer will
first apply funds on deposit in the related Collateral Account towards that
purchase price; any shortage will be paid by the Directing Holder and any excess
will be returned to it.
With respect to any mortgage loan as to which the Directing Holder has
directed the related Servicer to commence foreclosure or to delay foreclosure,
that Servicer may withdraw from the Collateral Account from time to time amounts
necessary to reimburse that Servicer for all P&I Advances and servicing advances
in accordance with the related Servicing Agreement. In the event that the
related mortgage loan is brought current, the amounts so withdrawn from the
Collateral Account by the related Servicer as reimbursement for P&I Advances or
servicing advances shall be redeposited in that Collateral Account by the
related Servicer and that Servicer shall be reimbursed as provided in the
related Servicing Agreement. Following foreclosure, liquidation, disposition or
the bringing current of the related mortgage loan, as applicable, all amounts
remaining in the Collateral Account will be released to the Directing Holder. In
the event that amounts on deposit in the Collateral Account are insufficient to
cover the withdrawals that the related Servicer is entitled to make for P&I
Advances, servicing advances or for deposit into the Certificate Account, the
Directing Holder will be obligated to pay those amounts to the related Servicer
for deposit into the Collateral Account. The Directing Holder may direct that
amounts on deposit in the Collateral Account be invested in Permitted
Investments. Interest or other income earned on funds in the Collateral Account
will be paid to the Directing Holder and the amount of any loss on those funds
will be immediately deposited into the Collateral Account by the Directing
Holder when realized. The Directing Holder will grant to the related Servicer
for the benefit of the noteholders a security interest in the Collateral
Account, all amounts deposited in that Collateral Account or invested in
Permitted Investments, and all proceeds of the foregoing.
Notwithstanding the foregoing, the provisions described above shall not be
operative in the case of the mortgage loans serviced by ___________.
SERVICER EVENTS OF DEFAULT
In addition to those Events of Default (as defined in the prospectus)
pertaining to the servicing of the mortgage loans and described under
"Description of the Securities--Events of Default" in the prospectus, upon the
occurrence of various loss triggers with respect to the mortgage loans, the
Servicer may be removed as servicer of the mortgage loans serviced by it in
accordance with the terms of the related Servicing Agreement. If any Servicer is
removed in connection with an Event of Default applicable to that Servicer under
the terms of the related Servicing Agreement, the Master Servicer will become
the successor Servicer of the mortgage loans serviced by that terminated
Servicer.
THE MASTER SERVICER
__________________ is the Master Servicer under each of the Servicing
Agreements. The Master Servicer is a ____________ corporation. The Master
Servicer's principal offices are located in ---------------.
The Master Servicing Fee will be equal to accrued interest at the Master
Servicing Fee Rate on the Scheduled Principal Balance of each mortgage loan,
payable monthly.
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<PAGE>
THE INDENTURE AND OWNER TRUST AGREEMENT
The following summary describes some of the terms of the Indenture. The
summary does not purport to be complete and is subject to, and qualified in its
entirety by reference to, the provisions of the Owner Trust Agreement and
Indenture. Whenever particular defined terms of the Indenture are referred to,
those defined terms are incorporated in this prospectus supplement by reference.
The company will provide to a prospective or actual noteholder without charge,
on written request, a copy (without exhibits) of the Indenture and the Owner
Trust Agreement. Requests should be addressed to the Secretary, Impac Secured
Assets Corp., 1401 Dove Street, Newport Beach, CA 92660 and its phone number is
(949) 475-3600.
GENERAL
The notes will be issued pursuant to the Indenture, a form of which is
filed as an exhibit to the registration statement. A Current Report on Form 8-K
relating to the notes containing a copy of the Indenture and the Owner Trust
Agreement as executed will be filed by the company with the Securities and
Exchange Commission within fifteen days of the initial issuance of the notes.
Reference is made to the prospectus for important information in addition to
that presented in this prospectus supplement regarding the Trust Estate, the
terms and conditions of the Indenture and the Owner Trust Agreement and the
notes. The notes will be transferable and exchangeable at the corporate trust
offices of the Indenture Trustee, located in _______________.
ASSIGNMENT OF MORTGAGE LOANS
On or prior to the date the notes are issued, the Seller will convey each
mortgage loan to ----------, who in turn will convey each that mortgage loan to
the company, who in turn will convey each mortgage loan to the Issuer.
At the time of issuance of the notes, the Issuer will pledge all of its
right, title and interest in and to the mortgage loans, including all principal
and interest due on that mortgage loan after the Cut-off Dates, without
recourse, to the Indenture Trustee pursuant to the Indenture as collateral for
the notes; provided, however, that the Seller will reserve and retain all its
right, title and interest in and to principal and interest due on that mortgage
loan on or prior to the Cut-off Date (whether or not received on or prior to the
Cut-off Date), and to prepayments received prior to the Cut-off Date. The
Indenture Trustee, concurrently with that assignment, will authenticate and
deliver the notes at the direction of the Issuer in exchange for, among other
things, the mortgage loans.
The Indenture will require the Issuer to deliver to the Indenture Trustee
or to a custodian with respect to each mortgage loan (i) the mortgage note
endorsed without recourse to the Indenture Trustee, (ii) the original mortgage
with evidence of recording indicated on that mortgage and (iii) an assignment of
the mortgage in recordable form to the Indenture Trustee. Those assignments of
mortgage loans are required to be recorded by or on behalf of the Seller, at the
expense of the Seller, in the appropriate offices for real property records.
EVENTS OF DEFAULT
Notwithstanding, the prospectus, if an Event of Default occurs and is
continuing, the Indenture Trustee or the holders of a majority of the Voting
Rights may declare the Note Balance of all the notes to be due and payable
immediately. That declaration may, under various circumstances, be rescinded and
annulled by the holders of a majority in aggregate outstanding Voting Rights.
If following an Event of Default, the notes have been declared to be due
and payable, the Indenture Trustee may, in its discretion, notwithstanding that
acceleration, elect to maintain possession of the collateral
S-45
<PAGE>
securing the notes and to continue to apply payments on that collateral as if
there had been no declaration of acceleration if that collateral continues to
provide sufficient funds for the payment of principal of and interest on the
notes as they would have become due if there had not been that declaration. In
addition, the Indenture Trustee may not sell or otherwise liquidate the
collateral securing the notes following an Event of Default, unless (a) the
holders of 100% of the then aggregate outstanding Voting Rights consent to that
sale, (b) the proceeds of that sale or liquidation are sufficient to pay in full
the principal of and accrued interest, due and unpaid at their respective Note
Accrual Rates, on the outstanding notes at the date of that sale or (c) the
Indenture Trustee determines that the collateral would not be sufficient on an
ongoing basis to make all payments on those notes as those payments would have
become due if those notes had not been declared due and payable, and the
Indenture Trustee obtains the consent of the holders of 66 2/3% of the then
aggregate outstanding Voting Rights.
In the event that the Indenture Trustee liquidates the collateral in
connection with an Event of Default, the Indenture provides that the Indenture
Trustee will have a prior lien on the proceeds of that liquidation for unpaid
fees and expenses. As a result, upon the occurrence of that Event of Default,
the amount available for payments to the noteholders would be less than would
otherwise be the case. However, the Indenture Trustee may not institute a
proceeding for the enforcement of its lien except in connection with a
proceeding for the enforcement of the lien of the Indenture for the benefit of
the noteholders after the occurrence of that Event of Default.
In the event the principal of the notes is declared due and payable, as
described above, the holders of any those notes issued at a discount from par
may be entitled to receive no more than an amount equal to the unpaid principal
amount thereof less the amount of that discount that is unamortized.
No noteholder will have any right under the Indenture to institute any
proceeding with respect to that Indenture unless (a) that holder previously has
given to the Indenture Trustee written notice of default and the continuance
thereof, (b) the holders of notes of any class evidencing not less than 25% of
the aggregate outstanding Note Balance constituting that class (i) have made
written request upon the Indenture Trustee to institute that proceeding in its
own name as Indenture Trustee under the Indenture and (ii) have offered to the
Indenture Trustee reasonable indemnity, (c) the Indenture Trustee has neglected
or refused to institute that proceeding for 60 days after receipt of that
request and indemnity and (d) no direction inconsistent with that written
request has been given to the Indenture Trustee during that 60 day period by the
holders of a majority of the Note Balance of that class. However, the Indenture
Trustee will be under no obligation to exercise any of the trusts or powers
vested in it by the Indenture or to institute, conduct or defend any litigation
under that Indenture or in relation thereto at the request, order or direction
of any of the holders of notes covered by that Indenture, unless those holders
have offered to the Indenture Trustee reasonable security or indemnity against
the costs, expenses and liabilities which may be incurred therein or thereby.
VOTING RIGHTS
At all times, 100% of all Voting Rights will be allocated among the holders
of the Class A Notes (or, after the Class A Notes have been paid in full, the
class of Subordinate Notes then outstanding with the lowest numerical class
designation) in proportion to the then outstanding Note Balances of their
respective notes.
OPTIONAL REDEMPTION
The circumstances under which the obligations created by the Indenture will
terminate in respect of the notes are described in "Description of the
Securities--Termination" in the prospectus.
At its option, the majority holder of the Equity Certificates may redeem
the notes, in whole but not in part, on any Payment Date on or after the Payment
Date on which the aggregate Note Balance is reduced to
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<PAGE>
less than 20% of the aggregate initial Note Balance. That redemption will be
paid in cash at a price equal to the sum of (w) 100% of the aggregate Note
Balance then outstanding, (x) the aggregate of any Allocated Realized Loss
Amounts on the notes remaining unpaid immediately prior to that Payment Date,
(y) the aggregate of the Interest Payment Amounts on the notes for that Payment
Date and (z) the aggregate of any Interest Carry Forward Amounts for that
Payment Date. Upon that redemption, the remaining assets in the Trust Estate
shall be released from the lien of the Indenture.
In addition, with respect to the ____-___ Mortgage Loans, the majority
holder of the Equity Certificates may at its option obtain the release of that
portion of the mortgage pool (together with any properties acquired in respect
thereof) remaining in the Trust Estate from the lien of the Indenture, and in
connection therewith effect a partial redemption of the notes, on any Payment
Date on or after the Payment Date following the Due Period in which the
aggregate principal balance of the ____-___ Mortgage Loans (and properties
acquired in respect thereof) remaining in the Trust Estate is reduced to less
than $-------------. The ____-___ Mortgage Loans have an aggregate principal
balance of approximately $__________ as of the Cut-off Date. That redemption
shall be paid in cash at a price generally equal to the sum of (x) 100% of the
then-outstanding principal balance of that mortgage loan plus accrued interest
on that mortgage loan at their respective mortgage rates through the last day of
the calendar month preceding the month in which that redemption occurs, (y) the
then fair market value of that property and (z) the amount of any servicing
advances reimbursable to the related Servicer in respect of those mortgage
loans. For purposes of payments on the notes and Equity Certificates on the
Payment Date of that redemption, that redemption price shall be applied by the
Indenture Trustee as a final liquidation of each of those mortgage loans and
properties. The redemption price relating to those properties, at their then
fair market value, may result in a shortfall in payment to, and/or the
allocation of Realized Losses to, one or more classes of the notes. Furthermore,
the Master Servicing Fee, the Servicing Fee and the Indenture Trustee Fee, as
well as expenses and reimbursements permitted to be paid from the assets of the
Trust Estate under the Indenture or the applicable Servicing Agreement, in each
case to the extent payable or reimbursable with respect to those mortgage loans,
will be payable from the amount received in respect of that redemption price and
therefore, as provided in the Indenture, will be excluded from the Available
Payment Amount for the Payment Date of that redemption.
In no event will the trust created by the Indenture continue beyond the
expiration of 21 years from the death of the survivor of the persons named in
the Indenture. See "Description of the Securities--Termination" in the
prospectus.
FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the notes, Thacher Proffitt & Wood, counsel to the
company, will deliver its opinion generally to the effect that based on the
application of existing law and assuming compliance with the Owner Trust
Agreement, for federal income tax purposes, (a) the notes will be characterized
as indebtedness and not as representing an ownership interest in the Trust
Estate or an equity interest in the Issuer or the company and (b) the Issuer
will not be (i) classified as an association taxable as a corporation for
federal income tax purposes, (ii) a "publicly traded partnership" as defined in
Treasury Regulation Section 1.7704 or (iii) a "taxable mortgage pool" within the
meaning of Section 7701(i) of the Code. The notes will not be treated as having
been issued with "original issue discount" (as defined in the prospectus).
The prepayment assumption that will be used in determining the rate of
amortization of market discount and premium, if any, for federal income tax
purposes will be based on the assumption that the mortgage loans will prepay at
a rate equal to __% CPR. No representation is made that the mortgage loans will
prepay at that rate or at any other rate. See "Federal Income Tax Consequences"
in the prospectus.
The notes will not be treated as assets described in Section 7701(a)(19)(C)
of the Code or "real estate assets" under Section 856(c)(4)(A) of the Code. In
addition, interest on the notes will not be treated as
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<PAGE>
"interest on obligations secured by mortgages on real property" under Section
856(c)(3)(B) of the Code. The notes will also not be treated as "qualified
mortgages" under Section 860G(a)(3)(C) of the Code.
Prospective investors in the notes should see "Federal Income Tax
Consequences" and "State and Other Tax Consequences" in the prospectus for a
discussion of the application of some federal income and state and local tax
laws to the Issuer and purchasers of the notes.
METHOD OF DISTRIBUTION
Subject to the terms and conditions provided in the Underwriting Agreement,
dated ________ __, ----, the company has agreed to sell, and the Underwriter has
agreed to purchase the notes. The Underwriter is obligated to purchase all notes
of the respective classes offered by this prospectus supplement if it purchases
any. The Underwriter is an affiliate of the company.
The notes will be purchased from the company by the Underwriter and will be
offered by the Underwriter to the public from time to time in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. Proceeds to the company from the sale of the notes, before deducting
expenses payable by the company, will be approximately ___% of the aggregate
initial Note Balance of the notes. In connection with the purchase and sale of
the notes, the Underwriter may be deemed to have received compensation from the
company in the form of underwriting discounts.
The offered notes are offered subject to receipt and acceptance by the
Underwriter, to prior sale and to the Underwriter's right to reject any order in
whole or in part and to withdraw, cancel or modify the offer without notice. It
is expected that delivery of the offered notes will be made through the
facilities of DTC on or about the Closing Date.
The Underwriting Agreement provides that the company will indemnify the
Underwriter against some civil liabilities, including liabilities under the
Securities Act of 1933, as amended, or will contribute to payments the
Underwriter may be required to make in respect thereof.
SECONDARY MARKET
There can be no assurance that a secondary market for the notes will
develop or, if it does develop, that it will continue. The primary source of
information available to investors concerning the notes will be the monthly
statements discussed in the prospectus under "Description of the
Securities--Reports to Securityholders", which will include information as to
the outstanding principal balance of the notes and the status of the applicable
form of credit enhancement. There can be no assurance that any additional
information regarding the notes will be available through any other source. In
addition, the company is not aware of any source through which price information
about the notes will be generally available on an ongoing basis. The limited
nature of that information regarding the notes may adversely affect the
liquidity of the notes, even if a secondary market for the notes becomes
available.
LEGAL OPINIONS
A number of legal matters relating to the notes will be passed upon for the
company and the Underwriter by Thacher Proffitt & Wood, New York, New York.
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<PAGE>
RATINGS
It is a condition of the issuance of the notes that the Class A Notes be
rated "AAA" by ------------- and "AAA" by _______________, that the Class M-1
Notes be rated at least "AA" by ____ and at least "AA" by ____, that the Class
M-2 Notes be rated at least "A" by ____ and at least "A" by _____ and that the
Class M-3 Notes be rated at least "BBB" by _____.
The ratings of _____ and _____ assigned to the notes address the likelihood
of the receipt by noteholders of all payments to which those noteholders are
entitled, other than payments of interest to the extent of any Interest Carry
Forward Amounts. The rating process addresses structural and legal aspects
associated with the notes, including the nature of the underlying mortgage
loans. The ratings assigned to the notes do not represent any assessment of the
likelihood that principal prepayments will be made by the mortgagors or the
degree to which the rate of those prepayments will differ from that originally
anticipated. The ratings do not address the possibility that noteholders might
suffer a lower than anticipated yield due to non-credit events.
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 ratings initially assigned to the
notes are subsequently lowered for any reason, no person or entity is obligated
to provide any additional credit support or credit enhancement with respect to
the notes.
The company has not requested that any rating agency rate the notes other
than as stated above. However, there can be no assurance as to whether any other
rating agency will rate the notes, or, if it does, what rating would be assigned
by another rating agency. A rating on the notes by another rating agency, if
assigned at all, may be lower than the ratings assigned to the notes as stated
above.
LEGAL INVESTMENT
The Class A Notes and the Class M-1 Notes will constitute "mortgage related
securities" for purposes of SMMEA for so long as they are rated not lower than
the second highest rating category by a Rating Agency (as defined in the
prospectus) and, as such, will be legal investments for various entities to the
extent provided in SMMEA. SMMEA, however, provides for state limitation on the
authority of those entities to invest in "mortgage related securities", provided
that this restricting legislation was enacted prior to October 3, 1991. Some
states have enacted legislation which overrides the preemption provisions of
SMMEA. The Class M-2 Notes and the Class M-3 Notes will not constitute "mortgage
related securities" for purposes of SMMEA.
The company makes no representations as to the proper characterization of
the notes for legal investment or other purposes, or as to the ability of
particular investors to purchase the notes under applicable legal investment
restrictions. These uncertainties may adversely affect the liquidity of the
notes. 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 notes constitute a legal investment
or are subject to investment, capital or other restrictions.
See "Legal Investment" in the prospectus.
ERISA CONSIDERATIONS
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ERISA and the Code impose a number of requirements on Plans and on persons
who are fiduciaries with respect to those Plans. ERISA and the Code prohibit
various transactions involving the assets of a Plan and Disqualified Persons and
Parties in Interest who have a number of specified relationships to the Plan.
Accordingly, prior to making an investment in the notes, investing Plans should
determine whether the Issuer, the company, the Seller, the Trust Estate, the
Underwriter, any other underwriter, the Owner Trustee, the Indenture Trustee,
the Master Servicer, the Servicers, any other servicer, any administrator, any
provider of credit support, or any insurer or any of their affiliates is a Party
in Interest or Disqualified Person with respect to that Plan and, if so, whether
that transaction is subject to one or more statutory or administrative
exemptions. Additionally, an investment of the assets of a Plan in securities
may cause the assets included in the Trust Estate to be deemed "Plan Assets" of
that Plan, and any person with specified relationships to the Trust Estate to be
deemed a Party in Interest or Disqualified Person. The DOL has promulgated the
Plan Asset Regulations defining the term "Plan Assets" for purposes of applying
the general fiduciary responsibility provisions of ERISA and the prohibited
transaction provisions of ERISA and Section 4975 of the Code. Under the Plan
Asset Regulations, generally, when a Plan acquires an "equity interest" in
another entity (such as the Trust Estate), the underlying assets of that entity
may be considered to be Plan Assets. The Plan Asset Regulations provide that the
term "equity interest" means any interest in an entity other than an instrument
which is treated as indebtedness under applicable local law and which has no
"substantial equity features." Although not entirely free from doubt, it is
believed that, as of the date hereof, the notes will be treated as debt
obligations without significant equity features for the purposes of the Plan
Asset Regulations. Because of the factual nature of some of the above-described
provisions of ERISA, the Code and the Plan Asset Regulations, Plans or persons
investing Plan Assets should carefully consider whether that investment might
constitute or give rise to a prohibited transaction under ERISA or the Code. Any
Plan fiduciary which proposes to cause a Plan to acquire any of the notes should
consult with its counsel with respect to the potential consequences under ERISA
and the Code of the Plan's acquisition and ownership of those notes.
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GLOSSARY
ADJUSTMENT DATE -- With respect to the adjustable rate mortgage loans, each
date on which the related mortgage rate adjusts.
ALLOCATED REALIZED LOSS AMOUNT -- With respect to any class of Subordinate
Notes and any Payment Date, the sum of (i) any Realized Loss allocated to that
class of Subordinate Notes on that Payment Date and (ii) any Allocated Realized
Loss Amount for that class remaining unpaid from previous Payment Dates plus
accrued interest on that class at the Note Accrual Rate for that class.
AVAILABLE INTEREST RATE -- With respect to any Payment Date, a rate per
annum equal to the fraction, expressed as a percentage, the numerator of which
is (i) the Current Interest Payment Amount for that Payment Date, and the
denominator of which is (ii) the aggregate Note Balance of the notes immediately
prior to that Payment Date multiplied by the actual number of days elapsed in
the related Interest Accrual Period and divided by 360.
AVAILABLE PAYMENT AMOUNT -- With respect to the notes and any Payment Date,
an amount equal to the sum, net of amounts reimbursable therefrom to the Master
Servicer, the Servicers, the Indenture Trustee or the Owner Trustee, of (i) the
aggregate amount of scheduled monthly 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 Master Servicing Fee, the Servicing Fees and the
Indenture Trustee Fee, (ii) various unscheduled payments in respect of the
mortgage loans, including prepayments, insurance proceeds, liquidation proceeds
and proceeds from repurchases of and substitutions for the mortgage loans
occurring during the preceding calendar month and (iii) all P&I Advances with
respect to the mortgage loans received for that Payment Date.
BALLOON PAYMENT -- The final payment made with respect to each Balloon
Loan.
CEDE-- Cede & Co., or its successors in interest.
CLASS A PRINCIPAL PAYMENT AMOUNT -- With respect to the Class A Notes and
any Payment Date on or after the Stepdown Date and on which a Trigger Event is
not in effect, an amount equal to the excess of (x) the Note Balance of the
Class A Notes immediately prior to that Payment Date over (y) the lesser of (A)
the product of (i) _____% and (ii) the aggregate principal balance of the
mortgage loans as of the last day of the related Due Period and (B) the
aggregate principal balance of the mortgage loans as of the last day of the
related Due Period minus $_________.
CLASS M-1 PRINCIPAL PAYMENT AMOUNT -- With respect to any Payment Date on
or after the Stepdown Date and on which a Trigger Event is not in effect, an
amount equal to the excess of (x) the sum of (i) the Note Balance of the Class A
Notes (after taking into account the payment of the Class A Principal Payment
Amount on that Payment Date) and (ii) the Note Balance of the Class M-1 Notes
immediately prior to that Payment Date over (y) the lesser of (A) the product of
(i) _____% and (ii) the aggregate principal balance of the mortgage loans as of
the last day of the related Due Period and (B) the aggregate principal balance
of the mortgage loans as of the last day of the related Due Period minus
$_________.
CLASS M-2 PRINCIPAL PAYMENT AMOUNT -- With respect to any Payment Date on
or after the Stepdown Date and on which a Trigger Event is not in effect, an
amount equal to the excess of (x) the sum of (i) the Note Balance of the Class A
Notes (after taking into account the payment of the Class A Principal Payment
Amount on that Payment Date), (ii) the Note Balance of the Class M-1 Notes
(after taking into account the payment of the Class M-1 Principal Payment Amount
on that Payment Date) and (iii) the Note Balance of the Class M-2 Notes
immediately prior to that Payment Date over (y) the lesser of (A) the product of
(i) _____% and (ii) the aggregate principal balance of the mortgage loans as of
the last day of the related Due Period and (B) the aggregate principal balance
of the mortgage loans as of the last day of the related Due Period minus
$__________.
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CLASS M-3 PRINCIPAL PAYMENT AMOUNT -- With respect to any Payment Date on
or after the Stepdown Date and on which a Trigger Event is not in effect, an
amount equal to the excess of (x) the sum of (i) the Note Balance of the Class A
Notes (after taking into account the payment of the Class A Principal Payment
Amount on that Payment Date), (ii) the Note Balance of the Class M-1 Notes
(after taking into account the payment of the Class M-1 Principal Payment Amount
on that Payment Date), (iii) the Note Balance of the Class M-2 Notes (after
taking into account the payment of the Class M-2 Principal Payment Amount on
that date) and (iv) the Note Balance of the Class M-3 Notes immediately prior to
that Payment Date over (y) the lesser of (A) the product of (i) _____% and (ii)
the aggregate principal balance of the mortgage loans as of the last day of the
related Due Period and (B) the aggregate principal balance of the mortgage loans
as of the last day of the related Due Period minus $__________.
CLEARSTREAM PARTICIPANTS -- The participating organizations of Clearstream.
COLLATERAL ACCOUNT -- Each segregated account maintained by the related
Servicer.
COOPERATIVE-- With respect to Euroclear, Euroclear Clearance Systems S.C.,
a Belgian cooperative corporation.
CPR -- With respect to the mortgage loans, the constant prepayment rate
model.
CREDIT ENHANCEMENT PERCENTAGE -- With respect to the notes and any Payment
Date, the percentage obtained by dividing (x) the sum of the Overcollateralized
Amount and the aggregate Note Balance of the Subordinate Notes by (y) the
aggregate principal balance of the mortgage loans, calculated after taking into
account payments of principal on the mortgage loans and payment of the Principal
Payment Amount to the notes on that Payment Date.
CURRENT INTEREST PAYMENT AMOUNT -- With respect to any Payment Date, an
amount equal to interest collections or advances on the mortgage loans during
the related Due Period (net of the Master Servicing Fee, the Servicing Fees and
the Indenture Trustee Fee).
CUT-OFF DATE-- _________, ___.
DEBT SERVICE REDUCTION -- With respect to any mortgage loan, any reduction
in the amount which a mortgagor is obligated to pay on a monthly basis as a
result of any proceeding initiated under the United States Bankruptcy Code,
other than a reduction attributable to a Deficient Valuation.
DEFICIENT VALUATION -- With respect to any mortgage loan, a valuation by a
court of competent jurisdiction of the related mortgaged property in an amount
less than the then outstanding indebtedness under the mortgage loan, which
valuation results from a proceeding initiated under the United States Bankruptcy
Code.
DELAYED FIRST ADJUSTMENT MORTGAGE LOAN -- The adjustable rate mortgage
loans for which the first Adjustment Date will occur after an initial period
from the date of origination of that adjustable rate mortgage loan as specified
in this prospectus supplement.
DISQUALIFIED PERSONS -- Certain specified persons as defined under the
Code.
DISTRIBUTION DATE -- With respect to the offered notes, the 25th day of
each month, or, if that day is a not a business day, on the next succeeding
business day, beginning in _________, ___.
DIRECTING HOLDER -- The holder of a majority in Percentage Interest of the
Equity Certificates.
DTC SERVICES -- The timely payment of distributions (including principal
and income payments) to securityholders, book-entry deliveries and settlement of
trades within DTC.
DUE DATE -- With respect to each mortgage loan, the first day of the month
on which scheduled monthly payments are due.
EUROCLEAR OPERATOR -- With respect to Euroclear, Morgan Guaranty Trust
Company of New York.
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EUROCLEAR PARTICIPANTS -- The participating organizations of Euroclear.
EUROPEAN DEPOSITARIES -- Collectively, Citibank and Chase, acting in their
respective capacities as depositaries.
EVENT OF DEFAULT -- With respect to the notes, any one of the following:
(a) the failure of the Issuer to pay the Interest Payment Amount, the Principal
Payment Amount or any Overcollateralization Increase Amount on any Payment Date,
in each case to the extent that funds are available on that Payment Date to make
those payments, which continues unremedied for a period of five days; (b) the
failure by the Issuer on the Final Maturity Date to reduce the Note Balances of
any notes then outstanding to zero; (c) a default in the observance or
performance of any covenant or agreement of the Issuer in the Indenture and the
continuation of that default for a period of thirty days after notice to the
Issuer by the Indenture Trustee or by the holders of at least 25% of the Voting
Rights of the notes; (d) any representation or warranty made by the Issuer in
the Indenture or in any certificate or other writing delivered pursuant thereto
having been incorrect in any material respect as of the time made, and the
circumstance in respect of which that representation or warranty being incorrect
not having been cured within thirty days after notice thereof is given to the
Issuer by the Indenture Trustee or by the holders of at least 25% of the Voting
Rights of the notes; or (e) various events of bankruptcy, insolvency,
receivership or reorganization of the Issuer.
FINAL MATURITY DATE-- With respect to the notes, the Payment Date occurring
in _______ ____.
GLOBAL SECURITIES - The globally offered Impac Securities Corp., Impac MBN
Trust Series ____-__, Mortgage-Backed Notes, Series ____-__, Class A, Class M-1,
Class M-2 and Class M-3 Notes.
GROSS MARGIN -- With respect to each adjustable rate mortgage loan, the
fixed percentage amount described in this prospectus supplement.
INDENTURE -- The indenture dated as of ________ __, ____, between the
Issuer and the Indenture Trustee.
INDENTURE TRUSTEE-- ______________.
INDENTURE TRUSTEE FEE -- The principal compensation paid to the Indenture
Trustee in respect of its obligations under the Indenture, equal to (i) the
Indenture Trustee Fee Rate on the Scheduled Principal Balance of each mortgage
loan, payable monthly, and (ii) any interest or other income earned on funds
held in the Certificate Account (to the extent not payable as compensation to
the related Servicer) as provided in the Indenture.
INDENTURE TRUSTEE FEE RATE -- With respect to any mortgage loan, a rate
equal to ________% per annum.
INDIRECT PARTICIPANTS -- Entities such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly, having indirect access to the DTC
system.
INDUSTRY -- Collectively, the participants and other members of the
financial community.
INTEREST ACCRUAL PERIOD -- With respect to any class of notes and any
Payment Date, the period commencing on the Payment Date of the month immediately
preceding the month in which that Payment Date occurs (or, in the case of the
first period, commencing on the Closing Date) and ending on the day preceding
that Payment Date.
INTEREST CARRY FORWARD AMOUNT -- With respect to any class of notes and any
Payment Date, any shortfall in payment of interest represented by the excess, if
any, of the Interest Payment Amount that would be payable on that class at the
applicable Note Accrual Rate over the Interest Payment Amount actually paid on
that class at the Available Interest Rate, together with that shortfall in
payment of interest remaining unpaid from previous Payment Dates plus interest
accrued on that class at the related Note Accrual Rate.
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INTEREST DETERMINATION DATE -- With respect to each Interest Accrual
Period, the second business day preceding that Interest Accrual Period.
INTEREST PAYMENT AMOUNT -- With respect to any class of notes and any
Payment Date, an amount equal to interest accrued during the related Interest
Accrual Period on the Note Balance of those notes immediately prior to that
Payment Date at the then-applicable Note Interest Rate for that class.
ISSUER-- Impac MBN Trust Series ______-___.
LOAN APPRAISAL -- With respect to the mortgage loans, an appraisal of the
related mortgaged property which the Directing Holder will provide to the
related Servicer.
MASTER SERVICER-- ______________.
MASTER SERVICING FEE -- The principal compensation paid to the Master
Servicer in respect of its obligations under the Servicing Agreements equal to
accrued interest at the Master Servicing Fee Rate on the Scheduled Principal
Balance of each mortgage loan, payable monthly.
MASTER SERVICING FEE RATE -- A rate equal to (i) ____% per annum in the
case of each ____-____ Mortgage Loan and (ii) ____% per annum in the case of
each other mortgage loan.
MAXIMUM MORTGAGE RATE -- With respect to each adjustable rate mortgage
loan, a specified maximum mortgage rate which will not be exceeded over the life
of that adjustable rate mortgage loan.
MINIMUM MORTGAGE RATE -- With respect to each adjustable rate mortgage
loan, a specified minimum mortgage rate beyond which that mortgage rate will not
be reduced over the life of that adjustable rate mortgage loan.
NET MONTHLY EXCESS CASHFLOW -- With respect to any Payment Date, an amount
equal to the sum of (a) any Overcollateralization Reduction Amount and (b) the
excess of (x) the Available Payment Amount for that Payment Date over (y) the
sum for that Payment Date of the aggregate of the Interest Payment Amounts
payable to the holders of the notes and the sum of the amounts described in
clauses (b)(i) through (iii) of the definition of Principal Payment Amount.
NOTE BALANCE -- With respect to any class of notes and any date of
determination, an amount equal to the initial Note Balance thereof reduced by
the aggregate of (a) all amounts allocable to principal previously distributed
with respect to that note and (b) any reductions in the Note Balance thereof
deemed to have occurred in connection with allocations of Realized Losses in the
manner described in this prospectus supplement.
NOTE OWNER -- Any person acquiring an interest in the notes.
NOTE ACCRUAL RATE -- (i) In the case of the Class A Notes, the lesser of
(a) One-Month LIBOR plus ____%, in the case of each Payment Date through and
including the Payment Date on which the aggregate Note Balance is reduced to
less than __% of the aggregate initial Note Balance, or One-Month LIBOR plus
_____%, in the case of any Payment Date thereafter and (b) the Maximum Note
Interest Rate; (ii) in the case of the Class M-1 Notes, the lesser of (a)
One-Month LIBOR plus ____%, in the case of each Payment Date through and
including the Payment Date on which the aggregate Note Balance is reduced to
less than __% of the aggregate initial Note Balance, or One-Month LIBOR plus
_____%, in the case of any Payment Date thereafter and (b) the Maximum Note
Interest Rate; (iii) in the case of the Class M-2 Notes, the lesser of (a)
One-Month LIBOR plus ____%, in the case of each Payment Date through and
including the Payment Date on which the aggregate Note Balance is reduced to
less than __% of the aggregate initial Note Balance, or One-Month LIBOR plus
_____%, in the case of any Payment Date thereafter and (b) the Maximum Note
Interest Rate; and (iv) in the case of the Class M-3 Notes, the lesser of (a)
One-Month LIBOR plus ____%, in the case of each Payment Date through and
including the Payment Date on which the aggregate Note Balance is reduced to
less than __% of the aggregate initial Note Balance, or One-Month LIBOR plus
_____%, in the case of any Payment Date thereafter and (b) the Maximum Note
Interest Rate.
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ONE-MONTH LIBOR -- As of any Interest Determination Date, the London
interbank offered rate for one-month U.S. dollar deposits which appears on
Telerate Page 3750 as of 11:00 a.m. (London time) on that date.
OVERCOLLATERALIZATION INCREASE AMOUNT -- With respect to the notes and any
Payment Date, the Net Monthly Excess Cashflow actually applied as an accelerated
payment of principal to the extent the Required Overcollateralized Amount
exceeds the Overcollateralized Amount as of that Payment Date.
OVERCOLLATERALIZATION REDUCTION AMOUNT -- The amount by which the
Overcollateralized Amount exceeds the Required Overcollateralized Amount.
OWNER TRUST AGREEMENT -- The trust agreement, dated as of ________ __,
____, between the company and the Owner Trustee.
PARTICIPANTS -- The participating organizations for which DTC holds
securities.
P&I ADVANCE -- With respect to the mortgage loans, an advance made by the
related Servicer, in an amount equal to the aggregate of all payments of
principal and interest, net of the related Servicing Fee, that were due during
the related Due Period on the mortgage loans serviced by that Servicer and that
were delinquent on the related Determination Date, plus various amounts
representing assumed payments not covered by any current net income on the
mortgaged properties acquired by foreclosure or deed in lieu of foreclosure.
PERIODIC RATE CAP -- With respect to each adjustable rate mortgage loan, a
specified periodic adjustment limitation on the related mortgage rate on any
related Adjustment Date.
PLAN ASSET REGULATIONS - The regulations provided under 29 C.F.R. Section
2510.3-101.
PREPAYMENT ASSUMPTION -- The prepayment standard or model used in this
prospectus supplement which assumes a prepayment rate for the mortgage loans of
__% CPR.
PREPAYMENT INTEREST SHORTFALL -- With respect to the mortgage loans,
interest shortfalls attributable to full and partial prepayments by the
mortgagors on those mortgage loans.
PRINCIPAL PAYMENT AMOUNT -- With respect to any Payment Date, other than
the Final Maturity Date and the Payment Date immediately following the
acceleration of the notes due to an Event of Default, will be the lesser of (a)
the excess of the Available Payment Amount over the aggregate of the Interest
Payment Amounts for the notes; and (b) THE SUM OF: (i) the principal portion of
all scheduled monthly payments on the mortgage loans due during the related Due
Period, whether or not received on or prior to the related Determination Date;
(ii) the principal portion of all proceeds received during the related
Prepayment Period in respect of the repurchase of a mortgage loan (or, in the
case of a substitution, amounts representing a principal adjustment) as
contemplated in the Servicing Agreements; (iii) the principal portion of all
other unscheduled collections, including insurance proceeds, liquidation
proceeds and all full and partial principal prepayments, received during the
related Prepayment Period, to the extent applied as recoveries of principal on
the mortgage loans; (iv) the principal portion of any Realized Losses incurred
or deemed to have been incurred on any mortgage loans in the calendar month
preceding that Payment Date to the extent covered by Net Monthly Excess Cashflow
for that Payment Date; and (v) the amount of any Overcollateralization Increase
Amount for that Payment Date; MINUS the amount of any Overcollateralization
Reduction Amount for that Payment Date. With respect to the Final Maturity Date
or the Payment Date immediately following the acceleration of the notes due to
an Event of Default, the Principal Payment Amount will equal the amount
necessary to reduce the Note Balance of any notes outstanding to zero.
RECORD DATE -- For each Payment Date (i) with respect to the notes (other
than any Definitive Notes), the close of business on the business day
immediately preceding that Payment Date or (ii) with respect to the Definitive
Notes, the close of business on the last business day of the month preceding the
month in which that Payment Date occurs.
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REFERENCE BANKS -- Leading banks selected by the Indenture Trustee and
engaged in transactions in Eurodollar deposits in the international Eurocurrency
market (i) with an established place of business in London, (ii) which have been
designated as such by the Indenture Trustee and (iii) not controlling,
controlled by, or under common control with, the company or the Issuer.
RELEVANT DEPOSITARY -- With respect to Euroclear, Chase, and with respect
to Clearstream, Citibank.
REQUIRED OVERCOLLATERALIZED AMOUNT -- As of any date of determination, the
amount of overcollateralization required to be provided by the mortgage pool
under the Indenture, which is equal to approximately ____% of the aggregate
principal balance of the mortgage loans.
RESERVE INTEREST RATE -- The rate per annum that the Indenture Trustee
determines to be either (i) the arithmetic mean (rounded upwards if necessary to
the nearest whole multiple of 0.0625%) of the one-month U.S. dollar lending
rates which New York City banks selected by the Indenture Trustee are quoting on
the relevant Interest Determination Date to the principal London offices of
leading banks in the London interbank market or, (ii) in the event that the
Indenture Trustee cannot determine this arithmetic mean, the lowest one-month
U.S. dollar lending rate which New York City banks selected by the Indenture
Trustee are quoting on that Interest Determination Date to leading European
banks.
RULES -- The rules, regulations and procedures creating and affecting DTC
and its operations.
SCHEDULED PRINCIPAL BALANCE -- With respect to any mortgage loan and as of
any date of determination, an amount equal to the principal balance of that
mortgage loan 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 (x) the principal portion of all monthly payments due on or before
the date of determination, whether or not received, (y) all amounts allocable to
unscheduled principal that were received prior to the calendar month in which
the date of determination occurs, and (z) any Bankruptcy Loss occurring out of a
Deficient Valuation that was incurred prior to the calendar month in which the
date of determination occurs.
SELLER -- _________________, in its capacity as mortgage loan seller.
SERVICER-- With respect to ____ ___ Mortgage Loans, _________________, and
with respect to ----- ____ Mortgage Loans, _________________.
SERVICING AGREEMENTS -- The Servicing Agreements, dated as of __________
__, ____, among the Issuer, the Indenture Trustee, the Master Servicer and the
related Servicer.
SERVICING FEE -- The principal compensation paid to each Servicer in
respect of its servicing activities for the notes equal to accrued interest at
the Servicing Fee Rate of ____% per annum with respect to each mortgage loan
serviced by it for each calendar month on the same principal balance on which
interest on that mortgage loan accrues for that calendar month.
STEPDOWN DATE -- The later to occur of (x) the Payment Date occurring in
_______ ____ and (y) the first Payment Date on which the Credit Enhancement
Percentage (calculated for this purpose only after taking into account payments
of principal on the mortgage loans, but prior to any payment of the Principal
Payment Amount to the notes then entitled to payments of principal on that
Payment Date) is greater than or equal to _____%.
SYSTEMS -- DTC's computer applications, systems and similar items for
processing data.
TELERATE PAGE 3750 -- The display page currently so designated on the Dow
Jones Telerate Capital Markets Report (or another page as may replace that page
on that service for the purpose of displaying comparable rates or prices).
TERMS AND CONDITIONS -- Collectively, the Terms and Conditions Governing
Use of Euroclear and the related Operating Procedures of the Euroclear System
and applicable Belgian law.
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TRIGGER EVENT -- With respect to the notes, any Payment Date in which the
percentage obtained by dividing (x) the principal amount of mortgage loans
delinquent 60 days or more by (y) the aggregate principal balance of the
mortgage loans, in each case, as of the last day of the previous calendar month,
exceeds the lesser of (i) _____% of the Credit Enhancement Percentage and (ii)
______%.
TRUST ESTATE -- The trust estate established under the Owner Trust
Agreement, which consists primarily of the mortgage pool.
UNDERWRITER-- _________________.
UNDERWRITING AGREEMENT -- The underwriting agreement, dated ________ __,
____, between the company and the Underwriter.
VALUATION -- With respect to any mortgage loan, (i) in the case of an
election by the Directing Holder to delay foreclosure, an amount equal to the
greater of the outstanding principal balance of that mortgage loan and the fair
market value of that mortgage loan as provided in the related Loan Appraisal,
and (ii) in the case of an election by the Directing Holder to commence
foreclosure, an amount equal to the outstanding principal balance of that
mortgage loan.
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$___________ (APPROXIMATE)
IMPAC SECURED ASSETS CORP.
COMPANY
MORTGAGE-BACKED NOTES, SERIES ____-___
PROSPECTUS SUPPLEMENT
DATED _______ __, ____
IMPAC FUNDING CORPORATON
MASTER SERVICER
[NAME OF UNDERWRITER]
UNDERWRITER
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
WE ARE NOT OFFERING THE NOTES OFFERED BY THIS PROSPECTUS SUPPLEMENT IN ANY STATE
WHERE THE OFFER IS NOT PERMITTED.
Dealers will be required to deliver a prospectus supplement and prospectus when
acting as underwriters of the offered notes offered by this prospectus
supplement and with respect to their unsold allotments or subscriptions. In
addition, all dealers selling the offered notes, whether or not participating in
this offering, may be required to deliver a prospectus supplement and prospectus
until _______ __, ____.
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PART II
INFORMATION NOT REQUIRED TO BE IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses in connection with the issuance and distribution
of the securities, other than underwriting discounts and commissions*, are as
follows:
Registration Fee -- Securities and Exchange Commission............ $264,000
Printing and Engraving Expenses................................... 80,000
Accounting Fees and Expenses...................................... 200,000
Legal Fees and Expenses........................................... 200,000
Trustee Fees and Expenses......................................... 16,000
Rating Agency Fees................................................ 160,000
Miscellaneous Expenses............................................ 20,000
--------
Total................................................. $940,000
========
- ---------
* To be provided for each Series of Securities on the cover page of the
related Prospectus Supplement.
** To be provided by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the proposed form of Underwriting Agreement to be filed as
Exhibit 1.1 hereto, the Underwriter will be obligated under certain
circumstances to indemnify officers and directors of Impac Secured Assets Corp.
(the "Company") who sign the Registration Statement, and certain controlling
persons of the Company, against certain liabilities, including liabilities under
the Securities Act of 1933, as amended and the Securities Exchange Act of 1934,
as amended.
The Company's Certificate of Incorporation provides for
indemnification of directors and officers of the Company to the full extent
permitted by California law.
Section 317 of the California General Corporation Law provides, in
substance, that California corporations shall have the power, under specified
circumstances, to indemnify their directors, officers, employees and agents in
connection with threatened, pending or completed actions or proceedings brought
against them (other than an action by or in the right of the Company to procure
a judgment in its favor) by reason of the fact that such persons are or were
directors, officers, employees or agents, against (i) expenses, judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with any such action, suit or proceeding and (ii) with respect to
actions by or in the right of the Company to procure a judgment in its favor,
against expenses actually and reasonably incurred in connection with any such
action, suit or proceeding. The California General Corporation Law also provides
that the Company may purchase insurance on
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behalf of any such director, officer, employee or agent. The Company has entered
into agreements with its directors and executive officers that would require the
Company, 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 Company does not maintain liability insurance
for its officers or directors.
The Pooling and Servicing Agreement will provide that no director,
officer, employee or agent of the Company will be liable to the Trust Fund, the
Certificateholders or the Noteholders for any action taken or for refraining
from the taking of any action pursuant to the Pooling and Servicing Agreement,
the Servicing Agreement, Indenture or Owner Trust Agreement, as applicable,
except for such person's own misfeasance, bad faith or gross negligence in the
performance of duties. The Pooling and Servicing Agreement with respect to each
series of Certificates, and the Servicing Agreements, Indentures, and Owner
Trust Agreements with respect to each series of Notes, will provide further
that, with the exceptions stated above, any director, officer, employee or agent
of the Company will be indemnified and held harmless against any loss, liability
or expense incurred in connection with any legal action relating to such Pooling
and Servicing Agreement, Servicing Agreements, Indentures and Owner Trust
Agreements, the related Certificates and Notes, other than any loss, liability
or expense (i) related to any specific Mortgage Loan or Mortgage Loans (except
as any such loss, liability or expense shall be otherwise reimbursable pursuant
to such agreements), (ii) incurred in connection with any violation by him or
her of any state or federal securities law or (iii) imposed by any taxing
authority if such loss, liability or expense is not specifically reimbursable
pursuant to the terms of such agreements.
ITEM 16. EXHIBITS
Exhibit
Number
*1.1 Form of Underwriting Agreement
*3.1 Amended Articles of Incorporation of the Company
*3.2 Bylaws of the Company
*4.1 Form of Pooling and Servicing Agreement for an offering of
Pass-Through Certificates consisting of senior and
subordinated classes related to the Residential Loan
Prospectus
*4.2 Form of Pooling and Servicing Agreement for alternate forms
of credit support (single class) related to the Residential
Loan Prospectus
**4.3 Form of Servicing Agreement for an offering of Mortgage-Backed
Notes related to the Residential Loan Prospectus
**4.4 Form of Trust Agreement for an offering of Mortgage-Backed Notes
related to the Residential Loan Prospectus
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**4.5 Form of Indenture for an offering of Mortgage-Backed Notes
related to the Residential Loan Prospectus
5.1 Opinion of Thacher Proffitt & Wood regarding the legality of the
Certificates and the Notes issued pursuant to the Residential
Loan Prospectus
8.1 Opinion of Thacher Proffitt & Wood regarding certain tax
matters related to the Certificates and the Notes issued
pursuant to Residential Loan Prospectus (included with
Exhibit 5.1)
23.1 Consent of Thacher Proffitt & Wood (included as part of
Exhibit 5.1)
***24.1 Power of Attorney
----------
* Incorporated by reference from the Registration Statement on Form S-3 (File
No. 333-8439)
** Incorporated by reference from the Registration Statement on Form S-3 (File
No. 333-40125)
*** Incorporated by reference from the Registration Statement on Form S-3 (File
No. 333-44209)
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post- effective amendment to this Registration
Statement: (i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933 (the "Securities Act"); (ii)
to reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the Registration Statement; (iii) to include any material
information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to
such information in the Registration Statement; provided, however,
that no such post-effective amendment shall be required if the
information which would be required by clauses (i) and (ii) is
contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934
(the "Exchange Act") that are incorporated by reference in this
Registration Statement.
II-3
<PAGE>
(2) That, for the purpose of determining any liability
under the Securities Act, 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) The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the Act, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act
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.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the provisions described in Item 15 above, 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 Securities 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 of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Newport Beach, State of California on the 21st day of
March 2000.
IMPAC SECURED ASSETS CORP.
By: /s/ Richard Johnson
-------------------------------
Richard Johnson, Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ William Ashmore Director, Chairman of the
- ------------------------ Board, Chief Executive Officer, March 21, 2000
William Ashmore (Principal Executive Officer)
Director, Chief Financial
/s/ Richard Johnson Officer (Principal Financial
- ------------------------ Officer and Principal March 21, 2000
Richard Johnson
Accounting Officer) and
Secretary
/s/ Blaine Ung
- ------------------------ Director March 21, 2000
Blaine Ung
II-5
Exhibits 5.1, 8.1, 23.1
-----------------------
March 21, 2000
Impac Secured Assets Corp.
1401 Dove Street
Newport Beach, California 92660
Impac Secured Assets Corp.
Mortgage Pass-Through Certificates
Mortgage-Backed Notes
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We are counsel to Impac Secured Assets Corp., a Delaware corporation
(the "Registrant"), in connection with the registration under the Securities Act
of 1933, as amended (the "1933 Act"), of Mortgage Pass-Through Certificates
("Certificates") and Mortgage-Backed Notes ("Notes"; collectively with
Certificates, "Securities"), and the related preparation and filing of the
Registration Statement on Form S-3 as an Exhibit to which this opinion letter is
being filed (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 and a master servicer
and a trustee, each to be identified in the prospectus supplement for such
series of Certificates. The Notes are issuable in series under separate
indentures (each such indenture, an "Indenture"), between an indenture trustee
and an issuer to be formed, each to be identified in the prospectus supplement
for such series of Notes. Each Pooling and Servicing Agreement and Indenture is
substantially in the form filed as an Exhibit to the Registration Statement.
In rendering this opinion letter, as to relevant factual matters we
have examined the documents described above and such other documents as we have
deemed necessary including, where we have deemed appropriate, representations or
certifications of officers of parties thereto or public officials. In rendering
this opinion letter, except for the matters that are specifically
<PAGE>
Impac Secured Assets Corp. Page 2.
March 21, 2000
addressed in the opinions expressed below, we have assumed (i) the authenticity
of all documents submitted to us as originals or as copies thereof, and the
conformity to the originals of all documents submitted to us as copies, (ii) the
necessary entity formation and continuing existence in the jurisdiction of
formation, and the necessary licensing and qualification in all jurisdictions,
of all parties to all documents, (iii) the necessary authorization, execution,
delivery and enforceability of all documents, and the necessary entity power
with respect thereto, and (iv) that there is not any other agreement that
modifies or supplements the agreements expressed in any document to which this
opinion letter relates and that renders any of the opinions expressed below
inconsistent with such document as so modified or supplemented. In rendering
this opinion letter, we have made no inquiry, have conducted no investigation
and assume no responsibility with respect to (a) the accuracy of and compliance
by the parties thereto with the representations, warranties and covenants as to
factual matters contained in any document or (b) the conformity of the
underlying assets and related documents to the requirements of any agreement to
which this opinion letter relates.
The opinions expressed below with respect to the enforceability of
any right or obligation under any agreement are subject to (i) general
principles of equity, including concepts of materiality, reasonableness, good
faith and fair dealing and the possible unavailability of specific performance
and injunctive relief, regardless of whether considered in a proceeding in
equity or at law, (ii) the effect of certain laws, regulations and judicial and
other decisions upon the availability and enforceability of certain remedies
including the remedies of specific performance and self-help and provisions
purporting to waive the obligation of good faith, materiality, fair dealing,
diligence, reasonableness or objection to venue or forum, to confer subject
matter jurisdiction on a federal court located within the State of New York to
adjudicate any controversy in any situation in which such court would not have
subject matter jurisdiction, to waive the right to jury trial, to impose a
penalty or forfeiture, to release, exculpate or exempt a party from, to require
indemnification of a party for, liability for its own action or inaction to the
extent that the action or inaction includes negligence, recklessness or willful
or unlawful conduct, to sever any provision of any agreement, to restrict access
to legal or equitable remedies, to establish evidentiary standards, to appoint
any person or entity as the attorney-in-fact of any other person or entity, to
require that any agreement may only be amended, modified or waived in writing,
to provide that all rights or remedies of any party are cumulative and may be
enforced in addition to any other right or remedy, to provide that the election
of a particular remedy does not preclude recourse to one or more remedies, to
provide that the failure to exercise or the delay in exercising rights or
remedies will not operate as a waiver of any such rights or remedies, to waive
rights or remedies which can not be waived as a matter of law, to provide for
set-off unless there is mutuality between the parties or to provide that any
agreement is to be governed by or construed in accordance with the laws of any
jurisdiction other than the State of New York, (iii) bankruptcy, insolvency,
receivership, reorganization, liquidation, voidable preference, fraudulent
conveyance and transfer, moratorium and other similar laws affecting the rights
of creditors or secured parties and (iv) public policy considerations underlying
the securities laws, to the extent that such public policy considerations limit
the enforceability of any provision of any agreement
<PAGE>
Impac Secured Assets Corp. Page 3.
March 21, 2000
which purports or is construed to provide indemnification with respect to
securities law violations. We do not express any opinion herein with respect to
any law the violation of which would not have any material adverse effect on the
ability of any party to perform its obligations under any agreement. However,
the non-enforceability of any such provisions will not, taken as a whole,
materially interfere with the practical realization of the benefits of the
rights and remedies included in any such agreement which is the subject of any
opinion expressed below, except for the considerations referred to in foregoing
clause (iv) and the consequences of any judicial, administrative, procedural or
other delay which may be imposed by, relate to or arise from applicable laws,
equitable principles and interpretations thereof. Wherever we indicate that our
opinion with respect to the existence or absence of facts is based on our
knowledge, our opinion is based solely on the actual present knowledge of the
attorneys in this firm who are directly involved in the representation of
parties to the transactions described herein in connection therewith. In that
regard we have conducted no special or independent investigation of factual
matters in connection with this opinion letter.
In rendering this opinion letter, we do not express any opinion
concerning any law other than the federal laws of the United States including
without limitation the Securities Act of 1933, as amended (the "1933 Act") and
Sections 860A through 860G (the "REMIC Provisions") of the Internal Revenue Code
of 1986 (the "Code") applicable to a real estate mortgage investment conduit
("REMIC") and applicable regulations thereunder and current judicial and
administrative authority with respect thereto and the laws of the State of New
York. We do not express any opinion herein with respect to any matter not
specifically addressed in the opinions expressed below, including without
limitation (i) any statute, regulation or provision of law of any county,
municipality or other political subdivision or any agency or instrumentality
thereof or (ii) the securities or tax laws of any jurisdiction.
Based upon and subject to the foregoing, it is our opinion that:
1. Each Indenture, assuming the authorization, execution and
delivery thereof by the parties thereto, will be a valid and
legally binding agreement under the laws of the State of New
York, enforceable thereunder against the parties thereto in
accordance with its terms.
2. Each series of Notes, assuming the authorization, execution
and authentication thereof in accordance with the Indenture
and the delivery thereof and payment therefor as
contemplated in the Registration Statement and the
prospectus delivered in connection therewith, will be
legally and validly issued and outstanding, fully paid and
non-assessable and entitled to the benefits of the
Indenture.
3. Each Pooling and Servicing Agreement, assuming the
authorization, execution and delivery thereof by the parties
thereto, will be a valid and legally binding
<PAGE>
Impac Secured Assets Corp. Page 4.
March 21, 2000
agreement under the laws of the State of New York,
enforceable thereunder against the parties thereto in
accordance with its terms.
4. Each series of Certificates, assuming the authorization,
execution and delivery of the related Pooling and Servicing
Agreement, the execution and authentication of such
Certificates in accordance with that Pooling and Servicing
Agreement and the delivery and payment therefor as
contemplated in the Registration Statement and the
prospectus supplement and the prospectus contained therein
delivered in connection therewith, will be legally and
validly issued and outstanding, fully paid and
non-assessable and entitled to the benefits of that Pooling
and Servicing Agreement.
5. The description of 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, and we hereby adopt and confirm that description
as 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 headings
"Federal Income Tax Consequences" and "Legal Matters", without admitting that we
are "persons" within the meaning of Section 7(a) or 11(a)(4) of the 1933 Act, or
"experts" within the meaning of Section 11 thereof, with respect to any portion
of the Registration Statement.
Very truly yours,
THACHER PROFFITT & WOOD
By /s/Thacher Proffitt & Wood
