Rule 424(b)(5)
File #333-11095
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. This prospectus shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall there by 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 NOVEMBER 15, 1996
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED NOVEMBER 13, 1996)
CWABS, INC.
Depositor
$ 299,835,000
ASSET-BACKED CERTIFICATES, SERIES 1996-1
DISTRIBUTIONS PAYABLE ON THE 25TH DAY OF EACH MONTH, COMMENCING IN
DECEMBER 1996
------------------------
COUNTRYWIDE HOME LOANS, INC.
(LOGO)
Seller and Master Servicer
----------------------------
The Asset-Backed Certificates, Series 1996-1, will consist of the
Class A-1 Certificates (the "Class A-1 Certificates"), the Class A-2
Certificates (the "Class A-2 Certificates"), the Class A-3 Certificates
(the "Class A-3 Certificates") and the Class R Certificates (the "Residual
Certificates"). Only the Class A-1 Certificates, the Class A-2
Certificates and the Class A-3 Certificates (together, the "Offered
Certificates") are offered hereby. See "Index of Defined Terms" on page
S-72 of this Prospectus Supplement and on page 95 of the Prospectus for
the location of the definitions of certain capitalized terms.
(cover continued on next page)
--------------------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER
"RISK FACTORS" ON PAGE S-13 HEREIN AND ON PAGE 14 IN THE ACCOMPANYING
PROSPECTUS.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EX-CHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------------
The Offered Certificates will be unconditionally and irrevocably
guaranteed as to the payment of the Insured Payments (as defined herein)
on each Distribution Date pursuant to the terms of two irrevocable
financial guaranty insurance policies (collectively, the "Certificate
Insurance Policy") to be issued by
(MBIA LOGO)
(cover continued on next page)
<TABLE>
<CAPTION> Initial Class Proceeds to
Certificate Price to Underwriting Depositor(1)(
Principal Balance Pass-Through Rate Public(1) Discount 2)
<S> <S> <S> <S> <S> <S>
Class A-1 $204,424,000 (3) % % %
Class A-2 $ 72,500,000 % % % %
Class A-3 $ 22,911,000 %(4) % % %
Total $299,835,000 N/A N/A N/A N/A
</TABLE>
(1) Plus accrued interest, if any, at the respective Pass-Through Rates
from November 1, 1996 (or in the case of the Class A-1 Certificates
from November __, 1996).
(2) Before deduction of expenses payable by the Depositor estimated to be
$_____________.
(3) The Class A-1 Certificates will bear interest during each Accrual
Period at a per annum rate equal to the least of (i) the sum of (a)
One-Month LIBOR (as defined herein) and (b) the applicable Class A-1
Pass-Through Margin (as defined herein), (ii) the Class A-1 Available
Funds Cap (as defined herein) and (iii) the Class A-1 Fixed Rate Cap
(as defined herein).
(4) The Pass-Through Rate on the Class A-3 Certificates will increase to
___% following the Optional Termination Date (as defined herein).
The Offered Certificates are offered subject to prior sale and
subject to the Underwriters' right to reject orders in whole or in part.
It is expected that delivery of the Offered Certificates will be made in
book-entry form only though the facilities of The Depository Trust
Company, CEDEL Bank, societe anonyme and the Euroclear System on or about
November __, 1996 (the "Closing Date"). The Offered Certificates will be
offered in Europe and the United States of America.
(PRUDENTIAL SECURITIES LOGO) (COUNTRYWIDE SECURITIES LOGO)
November __, 1996
(cover page continued)
The Offered Certificates and the Residual Certificates (collectively,
the "Certificates") will represent the entire beneficial ownership interest
in a trust fund (the "Trust Fund") to be created pursuant to a Pooling and
Servicing Agreement, dated as of November 1, 1996, among the Depositor,
Countrywide Home Loans, Inc., as master servicer and seller (referred to
herein as "Countrywide", the "Master Servicer" or the "Seller," as
applicable), and The Bank of New York, as trustee (the "Trustee"). The Trust
Fund will consist of a pool (the "Mortgage Pool") of conventional, sub-prime
and prime mortgage loans (the "Mortgage Loans") secured by first or second
liens on one- to four-family residential properties and certain other assets
described herein. The Mortgage Pool will be divided into two separate groups
of Mortgage Loans (each, a "Loan Group"). Loan Group 1 will consist of
adjustable-rate Mortgage Loans (the "Group 1 Mortgage Loans") secured by
first liens on one- to four-family residential properties. Substantially all
of the Group 1 Mortgage Loans will be subject to semi-annual mortgage rate
adjustments based upon changes in the average of the London interbank offered
rates for six-month U.S. dollar deposits in the London market (the "Mortgage
Index"), as described herein. Loan Group 2 will consist of fixed rate
Mortgage Loans (the "Group 2 Mortgage Loans") secured by first or second
liens on one- to four-family residential properties. See "The Mortgage Pool"
herein.
THE YIELD TO INVESTORS ON THE OFFERED CERTIFICATES WILL BE SENSITIVE IN
VARYING DEGREES TO, AMONG OTHER THINGS, THE RATE AND TIMING OF PRINCIPAL
PAYMENTS (INCLUDING PREPAYMENTS) OF, AND LOSSES ON, THE MORTGAGE LOANS IN THE
RELATED LOAN GROUP AND, IN CERTAIN CIRCUMSTANCES, THE RATE AND TIMING OF
PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) OF, AND LOSSES ON, THE MORTGAGES
LOANS IN THE OTHER LOAN GROUP. THE YIELD TO INVESTORS ON THE CLASS A-1
CERTIFICATES WILL ALSO BE SENSITIVE TO THE LEVEL OF THE LONDON INTERBANK
OFFERED RATE FOR ONE-MONTH UNITED STATES DOLLAR DEPOSITS ("ONE-MONTH LIBOR"),
THE LEVEL OF THE MORTGAGE INDEX AND THE ADDITIONAL LIMITATIONS ON THE PASS-
THROUGH RATE FOR THE CLASS A-1 CERTIFICATES, AS DESCRIBED HEREIN. ALTHOUGH
ALL OF THE MORTGAGE LOANS IN LOAN GROUP 1 BEAR INTEREST AT ADJUSTABLE RATES
(ARMS), THE INTEREST RATES ON THE MAJORITY OF THE ARMS IN LOAN GROUP 1 WILL
NOT ADJUST FOR TWO YEARS FOLLOWING ORIGINATION. IN ADDITION, THE YIELD TO
MATURITY OF THE OFFERED CERTIFICATES PURCHASED AT A DISCOUNT OR PREMIUM WILL
BE MORE SENSITIVE TO THE RATE AND TIMING OF PAYMENTS THEREON.
CERTIFICATEHOLDERS SHOULD CONSIDER, IN THE CASE OF ANY OFFERED CERTIFICATE
PURCHASED AT A DISCOUNT, THE RISK THAT A LOWER THAN ANTICIPATED RATE OF
PRINCIPAL PAYMENTS COULD RESULT IN AN ACTUAL YIELD 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 THAT IS LOWER THAN THE ANTICIPATED YIELD.
BECAUSE CERTAIN OF THE MORTGAGE LOANS CONTAIN PREPAYMENT PENALTIES, THE RATE
OF PRINCIPAL PAYMENTS MAY BE LESS THAN THE RATE OF PRINCIPAL PAYMENTS FOR
MORTGAGE LOANS WHICH DO NOT CONTAIN PREPAYMENT PENALTIES. NO REPRESENTATION
IS MADE AS TO THE ANTICIPATED RATE OF PREPAYMENTS ON THE MORTGAGE LOANS, THE
AMOUNT AND TIMING OF LOSSES THEREON, THE LEVEL OF ONE-MONTH LIBOR OR THE
MORTGAGE INDEX OR THE RESULTING YIELD TO MATURITY OF ANY CLASS OF
CERTIFICATES.
The Trust Fund is subject to optional termination under the limited
circumstances described herein. Any such optional termination will result in
an early retirement of the Certificates. Distributions to Certificateholders
will be made on the 25th day of each month or, if such 25th day is not a
Business Day, on the first Business Day thereafter (each, a "Distribution
Date"), commencing in December 1996.
Except for certain representations and warranties relating to the
Mortgage Loans, Countrywide's obligations with respect to the Certificates
are limited to its contractual servicing obligations. The Offered
Certificates evidence interests in the Trust Fund only and are payable solely
from amounts received with respect thereto and from amounts payable pursuant
to the Certificate Insurance Policy.
------------------------------
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
DEPOSITOR, THE SELLER, THE MASTER SERVICER, THE TRUSTEE OR ANY OF THEIR
RESPECTIVE AFFILIATES. NEITHER THE CERTIFICATES NOR THE MORTGAGE LOANS ARE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL ENTITY, THE DEPOSITOR, THE SELLER,
THE MASTER SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES OR ANY
OTHER PERSON EXCEPT AS DESCRIBED HEREIN. DISTRIBUTIONS ON THE CERTIFICATES
WILL BE PAYABLE SOLELY FROM THE ASSETS TRANSFERRED TO THE TRUST FUND FOR THE
BENEFIT OF CERTIFICATEHOLDERS.
------------------------------
An election will be made to treat the Trust Fund as a real estate mortgage
investment conduit (the "REMIC") for federal income tax purposes.
The Offered Certificates will be entitled to the benefit of two
irrevocable financial guaranty insurance policies (collectively, the
"Certificate Insurance Policy") to be issued by MBIA Insurance Corporation
(the "Certificate Insurer") pursuant to which the Certificate Insurer will
unconditionally and irrevocably guarantee the payment of the Insured Payments
(as defined herein) on the Offered Certificates. See "Description of the
Certificates--The Financial Guaranty Insurance Policy" herein.
Prudential Securities Incorporated and Countrywide Securities
Corporation (each, an "Underwriter") intend to make a secondary market in the
Offered Certificates but have no obligation to do so. There is currently no
secondary market for the Offered Certificates and there can be no assurance
that such a market will develop or, if it does develop, that it will continue
or that such market will provide sufficient liquidity to Certificateholders.
------------------------------
This Prospectus Supplement does not contain complete information about
the offering of the Offered Certificates. Additional information is contained
in the Prospectus dated November 13, 1996 (the "Prospectus") which
accompanies this Prospectus Supplement and purchasers are urged to read both
this Prospectus Supplement and the Prospectus in full. Sales of the Offered
Certificates may not be consummated unless the purchaser has received both
this Prospectus Supplement and the Prospectus.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL
DEALERS EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
In addition to the documents described under "Incorporation of Certain
Documents by Reference" in the Prospectus, the consolidated financial
statements of the Certificate Insurer, a wholly-owned subsidiary of MBIA
Inc., and its subsidiaries as of December 31, 1995 and December 31, 1994 and
for the three years ended December 31, 1995, prepared in accordance with
generally accepted accounting principles, included in the Annual Report on
Form 10-K of MBIA Inc. for the year ended December 31, 1995 and the
consolidated financial statements of the Certificate Insurer and its and its
subsidiaries for the nine-months ended September 30, 1996 and for the periods
ending September 30, 1996 and September 30, 1995, included in the Quarterly
Report on Form 10-Q of MBIA, Inc. for the period ending September 30, 1996,
are hereby incorporated by reference into this Prospectus Supplement and
shall be deemed to be a part hereof. Any statement contained in a document
incorporated by reference herein shall be modified or superseded for purposes
of this Prospectus Supplement to the extent that a statement contained herein
or in any other subsequently filed document which also is incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus Supplement.
All financial statements of the Certificate Insurer and its subsidiaries
included in documents filed by MBIA Inc. 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 such documents.
The Depositor hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, as amended, each filing of the
financial statements of the Certificate Insurer included in or as an exhibit
to the documents of MBIA Inc. referred to above and filed pursuant to Section
13(a) or Section 15(d) of the 1934 Act that is incorporated by reference in
the Registration Statements of which this Prospectus Supplement and the
accompanying Prospectus is a part shall be deemed to be a new registration
statement relating to the Offered Certificates offered hereby, and the
offering of such Offered Certificates at that time shall be deemed to be the
initial bona fide offering thereof.
THE TRUSTEE ON BEHALF OF THE TRUST FUND WILL PROVIDE WITHOUT CHARGE TO
EACH PERSON TO WHOM THIS PROSPECTUS SUPPLEMENT IS DELIVERED, ON THE WRITTEN
OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY OR ALL OF THE DOCUMENTS
REFERRED TO ABOVE AND IN THE PROSPECTUS UNDER "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE" THAT HAVE BEEN OR MAY BE INCORPORATED BY REFERENCE
IN THE PROSPECTUS (NOT INCLUDING EXHIBITS TO THE INFORMATION THAT IS
INCORPORATED BY REFERENCE UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE INTO THE INFORMATION THAT THE PROSPECTUS INCORPORATES). SUCH
REQUESTS SHOULD BE DIRECTED TO THE CORPORATE TRUST OFFICE OF THE TRUSTEE AT
101 BARCLAY STREET, 12E, NEW YORK, NEW YORK 10286, TELEPHONE:_________,
FACSIMILE NUMBER:_____________, ATTENTION: CORPORATE TRUST WINDOW.
SUMMARY OF TERMS
This Summary of Terms is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and
in the accompanying Prospectus. Certain capitalized terms used in this
Summary of Terms are defined elsewhere in this Prospectus Supplement or in
the Prospectus. See "Index of Defined Terms" on page S-72 of this Prospectus
Supplement and on page 95 of the Prospectus for the location of the
definitions of certain capitalized terms.
Title of Certificates Asset-Backed Certificates, Series 1996-1
(the "Certificates"), consisting of (i)
the Class A-1 Certificates (the "Class A-1
Certificates"), (ii) the Class A-2 Certificates
(the "Class A-2 Certificates"), (iii) the Class
A-3 Certificates (the "Class A-3 Certificates")
and (iv) the Class R Certificates (the
"Residual Certificates"). Only the Class A-1
Certificates, the Class A-2 Certificates and
the Class A-3 Certificates (together, the
"Offered Certificates") are offered hereby.
Designations
Loan Group 1 All Mortgage Loans in Loan Group 1.
Loan Group 2 All Mortgage Loans in Loan Group 2.
Loan Group Loan Group 1 or Loan Group 2, as the case
may be.
Group 1 Certificates The Class A-1 Certificates.
Group 2 Certificates The Class A-2 and A-3 Certificates.
Certificate Group "Certificate Group 1" (consisting of the
Group 1 Certificates) or "Certificate Group
2" (consisting of the Group 2 Certificates),
as the case may be.
Variable Rate Certificates Class A-1 Certificates.
Fixed Rate Certificates
Certificates. Class A-2 Certificates and Class A-3
The Depositor CWABS, Inc. (the "Depositor"), a Delaware
corporation that is a limited purpose
finance subsidiary of Countrywide Credit
Industries, Inc. and an affiliate of the Seller
and Master Servicer. See "The Depositor" in the
Prospectus.
Seller and Master Servicer Countrywide Home Loans, Inc. ("Countrywide" or
the "Seller" and, in its capacity as master
servicer of the Mortgage Loans, the "Master
Servicer"). See "Servicing of Mortgage Loans
--The Master Servicer" herein. The Mortgage
Loans were originated or acquired by the Seller
in the normal course of its business.
Trustee The Bank of New York, a New York banking
corporation, not in its individual capacity
but solely as trustee on behalf of the
Certificateholders and the Certificate Insurer
(the "Trustee").
Certificate Insurer MBIA Insurance Corporation (the "Certificate
Insurer"). See "Description of the Certificates
-- The Financial Guaranty Insurance Policy"
herein.
Cut-off Date November 1, 1996.
Closing Date On or about November __, 1996.
Description of Certificates
A. General The Certificates will be issued pursuant
to a Pooling and Servicing Agreement, dated as
of November 1, 1996 (the "Pooling and Servicing
Agreement"), among the Depositor, the Master
Servicer, the Seller and the Trustee.
The Offered Certificates and the Residual
Certificates will represent the entire
beneficial ownership interest in a
trust fund (the "Trust Fund"), which will
consist of a pool (the "Mortgage Pool") of
conventional mortgage loans secured by
first liens and non-conforming mortgage
loans secured by second liens (together,
the "Mortgage Loans") on one- to four-
family residential properties (the
"Mortgaged Properties") and certain other
assets described herein. The Mortgage
Pool will be divided into two separate groups
of Mortgage Loans (each, a "Loan Group"). Loan
Group 1 will consist of sub-prime adjustable-
rate Mortgage Loans (the "Group 1 Mortgage
Loans") secured by first liens on one- to
four- family residential properties.
Substantially all of the Group 1 Mortgage
Loans will be subject to semi-annual mortgage
rate adjustments based upon changes in the
average of the London interbank offered rates
for six-month U.S. dollar deposits in the
London market (the "Mortgage Index"), as
described herein. Loan Group 2 will consist
of fixed-rate sub-prime grade first Mortgage
Loans and prime second Mortgage Loans (the
"Group 2 Mortgage Loans") secured by one- to
four-family residential properties. The aggregate
unpaid principal balance of the Group 1 Mortgage
Loans as of the Cut-off Date is referred to
herein as the "Group 1 Cut-off Date Principal
Balance" and the aggregate unpaid principal
balance of the Group 2 Mortgage Loans as of the
Cut-off Date is referred to herein as the
"Group 2 Cut-off Date Principal Balance".
See "The Mortgage Pool" herein.
B. Form of Certificates The Offered Certificates will initially
be issued in book-entry form. Persons
acquiring beneficial ownership interests in
the Offered Certificates ("Certificate
Owners") may elect to hold their Offered
Certificate interests through The Depository
Trust Company ("DTC"), in the United States,
or Cedel Bank, soci t anonyme ("CEDEL") or
the Euroclear System ("Euroclear"), in Europe.
Transfers within DTC, CEDEL or Euroclear, as
the case may be, will be in accordance with
the usual rules and operating procedures of the
relevant system. So long as the Offered
Certificates are Book-Entry Certificates
(as defined herein), each class of such
Certificates will be evidenced by one or
more Certificates registered in the name of
Cede & Co. ("Cede"), as the nominee of
DTC or one of the relevant depositaries
(collectively, the "European Depositaries").
Cross-market transfers between persons holding
directly or indirectly through DTC, on the one
hand, and counterparties holding directly or
indirectly through CEDEL or Euroclear, on the
other, will be effected in DTC through Citibank
N.A. ("Citibank") or The Chase Manhattan
Bank ("Chase"), the relevant depositaries of
CEDEL or Euroclear, respectively, and each a
participating member of DTC. The interests
of the Offered Certificateholders will be
represented by book entries on the records of
DTC and participating members thereof.
No Certificate Owner will be entitled to
receive a definitive certificate
representing such person's interest,
except in the event that Definitive
Certificates (as defined herein) are issued
under the limited circumstances described
under "Description of the Certificates--Book
-Entry Certificates" herein. All references
in this Prospectus Supplement to any Offered
Certificates reflect the rights of Certificate
Owners only as such rights may be exercised
through DTC and its participating organizations
for so long as such Offered Certificates are
held by DTC. See "Risk Factors-- Book-Entry
Certificates", "Description of the
Certificates--Book-Entry
Certificates" herein and "Annex I" hereto.
C. Distributions Distributions on the Offered Certificates
will be made on the 25th day of each month or,
if such day is not a Business Day, on the first
Business Day thereafter, commencing in December
1996 (each, a "Distribution Date").
Distributions on each Distribution Date will
be made to Certificateholders of record as of
the close of business on the last day of the
month preceding the month of such Distribution
Date (each, a "Record Date"), except that the
final distribution on the Offered Certificates
will be made only upon presentation and
surrender of the Offered Certificates at the
office or agency of the Trustee in New York,
New York. Distributions on the Offered
Certificates of a Certificate Group on each
Distribution Date will be based on the
Available Funds for the related Loan Group and
will be made in accordance with the priorities
described below. The rights of the Residual
Certificateholders to receive distributions
with respect to the Mortgage Loans are
subordinate to the rights of the Offered
Certificateholders, to the extent described
herein.
1. Interest On each Distribution Date, to the extent funds
(including Insured Payments) are available
therefor, interest will be paid on each Class
of Offered Certificates in an amount (the
"Interest Distribution Amount") equal to the
sum of (i) interest accrued during the related
Accrual Period (as defined herein) at the
applicable Pass-Through Rate (as defined
herein) on the related Class Certificate
Principal Balance (as defined herein), subject
to reduction in the event of Prepayment
Interest Shortfalls (as defined herein) in the
related Loan Group, to the extent not covered
by one-half of the related Loan Group's share
of the Servicing Fee as described herein, and
Relief Act Shortfalls (as defined herein) in
the related Loan Group and (ii) that portion
of the related Carry-Forward Amount (as
defined herein) relating to certain shortfalls
in interest. See "Description of the
Certificates--Allocation of Available Funds"
herein.
With respect to each Distribution Date, the
"Accrual Period" for the Group 1 Certificates
will be the period from and including the
preceding Distribution Date (or, in the case
of the first Distribution Date, from the
Closing Date) to and including the day prior
to such next Distribution Date and the Accrual
Period for the Group 2 Certificates will be
the calendar month preceding the month of such
Distribution Date.
Interest on the Group 1 Certificates will be
calculated on the basis of a 360-day year and
the actual number of days elapsed in the
applicable Accrual Period. Interest on the
Group 2 Certificates will be calculated on
the basis of a 360-day year consisting of
twelve 30-day months.
2. Principal On each Distribution Date, to the extent funds
(including Insured Payments) are available
therefor after distributions of interest with
respect to a Certificate Group, Holders of the
related Offered Certificates will be entitled
to receive, as payment of principal, the
difference between (a) the sum (without
duplication) of (i) all scheduled installments
of principal on the
Mortgage Loans in the related Loan Group due
during the related Due Period and received by the
Master Servicer on or before the related
Determination Date, and all unscheduled
collections of principal on, and recoveries of
principal and certain other amounts with respect
to, such Mortgage Loans, as described in more
detail herein, during the related Prepayment
Period (excluding certain amounts received in
respect of scheduled principal on such Mortgage
Loans due after the related Due Date), together
with all Advances (as defined herein) in respect
of principal on such Mortgage Loans made by the
Master Servicer, (ii) any Subordination Deficit
(as defined herein) for such Certificate Group
and Distribution Date, (iii) that portion of any
Carry-Forward Amount that relates to a shortfall
in a distribution of a Subordination Deficit for
such Certificate Group, and (iv) an amount
necessary to increase the Subordinated Amount (as
defined herein) for such Certificate Group to the
Required Subordinated Amount (as defined herein)
for such Certificate Group, and (b) the
Subordination Reduction Amount (as defined
herein) for such Certificate Group, if any, for
such Distribution Date (such difference, the
"Group Principal Distribution Amount" for such
Certificate Group). See "Description of the
Certificates--Allocation of Available Funds"
herein.
Pass-Through Rate The Pass-Through Rate for the Class A-1
Certificates and a particular Distribution Date
will be equal to the least of (i) the sum of (a)
One-Month LIBOR and (b) the applicable Class A-1
Pass-Through Margin, (ii) the Class A-1 Available
Funds Cap and (iii) _____% per annum (the "Class
A-1 Fixed Rate Cap"). The "Class A-1 Pass-Through
Margin" will equal ____% (__ basis points) per
annum until the first Accrual Period after the
Optional Termination Date (as defined herein), at
which time the Class A-1 Pass-Through Margin will
equal ____% (__ basis points) per annum. As to
any Distribution Date, the "Class A-1 Available
Funds Cap" is a per annum rate equal to a
fraction, expressed as a percentage, the
numerator of which equals the excess of (i) the
sum of (a) the aggregate amount of interest due
on the Group 1 Mortgage Loans on the related Due
Date (to the extent received or advanced) and (b)
the Subordination Reduction Amount, if any, for
Certificate Group 1 and such Distribution Date
over (ii) the sum of (a) Loan Group 1's share of
the Servicing Fee (as defined herein) as
described herein under "Servicing of the Mortgage
Loans--Servicing Compensation and Payment of
Expenses," (b) Loan Group 1's share of the
Premium Amount payable to the Certificate Insurer
and (c) the Group 1 Available Funds Rate
Adjustment for such Distribution Date, and the
denominator of which is equal to (1) the Class
Certificate Principal Balance of the Class A-1
Certificates for such Distribution Date
multiplied by (2) the actual number of days
elapsed in the related Accrual Period divided by
360. The "Group 1 Available Funds Rate
Adjustment" for any Distribution Date (a) prior
to the thirteenth Distribution Date will equal
zero and (b) beginning on the thirteenth
Distribution Date will be equal to the product of
(x) one-twelfth of 0.50% (50 basis points) and
(y) the Stated Principal Balance of the Group 1
Mortgage Loans on such date. The initial Pass-
Through Rate for the Class A-1 Certificates and
Class A-2 Certificates and the Distribution Date
in December 1996 will not be established until
November ___, 1996, the date on which One-Month
LIBOR for such Distribution Date will be
determined. See "Description of the Certificates-
-Calculation of One-Month LIBOR" herein for an
explanation of how One-Month LIBOR is determined.
The One-Month LIBOR value on November __, 1996
was approximately _____% per annum.
If on any Distribution Date, the Pass-Through Rate for the Class
A-1 Certificates is based on the Class A-1 Available Funds Cap,
holders of the Class A-1 Certificates will be entitled to
receive the Class A-1 Basis Risk Carryover Amount (as defined
herein) to the extent of funds available therefor as described
herein. The Certificate Insurance Policy will not cover the
payment of, and the ratings assigned to the Class A-1
Certificates do not address the likelihood of the payment of,
any Class A-1 Basis Risk Carryover Amount.
The portion of the Servicing Fee allocable to a Loan Group for
any Distribution Date will be equal to the Servicing Fee Rate
(as defined herein) times one-twelfth the Stated Principal
Balance of the Mortgage Loans in such Loan Group as of the
immediately preceding Due Date. The portion of the Premium
Amount allocable to a Loan Group for any Distribution Date will
be equal to the Premium Percentage (as set forth in the
Insurance Agreement) times one-twelfth the aggregate Class
Certificate Principal Balance of the Certificates in the related
Certificate Group on such Distribution Date before giving effect
to distributions to be made thereon on such date.
The Pass-Through Rate for each Class of Group 2 Certificates for
any Distribution Date will be as set forth on the cover page
hereof.
Credit Enhancement The credit enhancement provided for the benefit
of the Offered Certificateholders consists solely
of (a) any overcollateralization and cross-
collateralization which utilize the internal cash
flows of the Trust Fund and (b) the Certificate
Insurance Policy (as defined below), in each case
as described below.
Overcollateralization. The allocation provisions of the Trust
Fund result in a limited acceleration of principal of a
Certificate Group relative to the amortization of the Mortgage
Loans in the related Loan Group. The acceleration of principal
achieved by the application of certain excess interest amounts
to reduce the Class Certificate Principal Balance of the
Certificates in such Certificate Group results in
overcollateralization to the extent the Stated Principal Balance
(as defined herein) of the Mortgage Loans in the related Loan
Group exceeds the Class Certificate Principal Balance of such
Certificates. Once the required level of overcollateralization
for a Certificate Group is reached, and subject to the
provisions described in the next paragraph, further application
of the acceleration feature to such Certificate Group will
cease, unless necessary to maintain the required level of
overcollateralization.
The Pooling and Servicing Agreement provides that, subject to
certain trigger tests, the required level of
overcollateralization for a Certificate Group may increase or
decrease over time. An increase would result in a temporary
period of accelerated amortization of the related Certificates
to increase the actual level of overcollateralization for such
Certificate Group to its required level; a decrease would result
in a temporary period of decelerated amortization of the related
Certificates to reduce the actual level of overcollateralization
for such Certificate Group to its required level. As a result of
the "sequential pay" feature of the Group 2 Certificates, any
such accelerated principal distributions will be paid to the
Class of Group 2 Certificates then entitled to receive
distributions of principal. See "Description of the
Certificates--Overcollateralization Provisions" herein.
Crosscollateralization. The Pooling and Servicing Agreement
provides for crosscollateralization through the application of
certain excess amounts generated by one Loan Group to fund
shortfalls in Available Funds and the required level of
overcollateralization in the other Loan Group. See "Description
of the Certificates--Crosscollateralization" and "Yield,
Prepayment and Maturity Considerations--Overcollateralization
Provisions" herein.
The Financial Guaranty Insurance Policy. The Offered
Certificates will have the benefit of two financial guaranty
insurance policies (collectively, the "Certificate Insurance
Policy") to be issued by the Certificate Insurer. Under the
Certificate Insurance Policy, the Certificate Insurer will,
subject to the terms of the Certificate Insurance Policy, pay
the Trustee, for the benefit of the Holders of the Offered
Certificates, as further described herein, an amount that will
insure the payment of the sum of (i) on each Distribution Date,
the Interest Distribution Amount, (ii) on each Distribution
Date, any Subordination Deficit (as defined herein) and (iii)
any Preference Amounts (as defined below under "Description of
the Certificates--The Financial Guaranty Insurance Policy"
herein)(such sum, the "Insured Distribution Amount"). No
payments in respect of principal will be made under the
Certificate Insurance Policy unless a Subordination Deficit
occurs. The effect of the Certificate Insurance Policy is to
guaranty the timely payment of interest on, and ultimate payment
of the principal amount of, the Offered Certificates. A payment
by the Certificate Insurer under the Certificate Insurance
Policy is referred to herein as an "Insured Payment." See
"Description of the Certificates--The Financial Guaranty
Insurance Policy" herein.
Mortgage Rate As described herein under "The Mortgage Pool--
General," (i) the Mortgage Rate for substantially all
of the Group 1 Mortgage Loans will be subject to
adjustment semi-annually to equal the sum, rounded to
the nearest 0.125%, of the applicable Mortgage Index
value and the Gross Margin for such Mortgage Loan,
subject to the effects of any applicable Periodic Rate
Cap, Maximum Mortgage Rate and Minimum Mortgage Rate
(each as defined herein) and (ii) all of the Group 2
Mortgage Loans will bear interest at fixed rates.
Mortgage Index The Mortgage Index value applicable to any semi-annual
Adjustment Date (as defined herein) for substantially
all of the Group 1 Mortgage Loans will be the average
of the London interbank offered rates for six-month
U.S. dollar deposits in the London market, as set
forth in The Wall Street Journal, or, if the Mortgage
Index ceases to be published in The Wall Street
Journal or becomes unavailable for any reason, then
the Mortgage Index shall be a new index selected by
the Trustee, as holder of the related Mortgage Note,
with the consent of the Certificate Insurer, based on
comparable information, in each case as most recently
announced as of a date 45 days prior to such
Adjustment Date. The Mortgage Index value published on
November __, 1996 was _____%.
Servicing Countrywide will serve as the Master Servicer of the
Mortgage Loans under the Pooling and Servicing Agreement.
The Master Servicer will be responsible for the servicing
of the Mortgage Loans and will receive from interest
collected on the Mortgage Loans a monthly servicing fee on
each Mortgage Loan equal to the Stated Principal Balance
thereof multiplied by one-twelfth of the Servicing Fee Rate
(such product, the "Servicing Fee"). See "Servicing of
Mortgage Loans--Servicing Compensation and Payment of
Expenses" herein.
The Master Servicer is obligated to make cash advances
("Advances") with respect to delinquent payments of principal of
and interest on any Mortgage Loan to the extent described
herein. The Trustee will be obligated to make any such Advance
if the Master Servicer fails in its obligation to do so, to the
extent provided in the Pooling and Servicing Agreement. See
"Servicing of Mortgage Loans--Advances" herein.
Optional Termination On any Distribution Date on which the Pool
Stated Principal Balance (as defined herein)
is less than or equal to 10% of the Cut-off
Date Pool Principal Balance (as defined
herein) (the "Optional Termination Date"),
the Master Servicer or the Certificate
Insurer will have the option (but not the
obligation) to purchase, in whole, the
Mortgage Loans and the REO Property (as
defined herein), if any, remaining in the
Trust Fund and thereby effect the early
retirement of all Certificates. See
"Description of the Certificates--Optional
Termination" herein.
Federal Income Tax
Considerations An election will be made to treat the Trust Fund
as a "real estate mortgage investment conduit"
(the "REMIC") for federal income tax purposes.
The Offered Certificates will constitute "regular
interests" in the REMIC and the Residual
Certificates will constitute the sole class of
"residual interests" in the REMIC. The Offered
Certificates may be issued with original issue
discount for federal income tax purposes. For
purposes of determining the amount and rate of
accrual of original issue discount and market
discount, the Depositor intends to assume that
there will be Principal Prepayments on the
Mortgage Loans at a rate equal to 100% of the
Prepayment Model (as defined herein). No
representation is made as to whether the Mortgage
Loans will prepay at that rate or any other rate.
See "Federal Income Tax Consequences" herein and
in the Prospectus.
ERISA Considerations The acquisition of an Offered Certificate by
an employee benefit plan subject to the
Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or a plan or
arrangement subject to Section 4975 of the
Code (each of the foregoing, a "Plan")
could, in some instances, result in a
"prohibited transaction" or other violation
of the fiduciary responsibility provisions
of ERISA and Code Section 4975. Certain
exemptions from the prohibited transaction
rules could be applicable to the acquisition
of such Certificates. Subject to the
considerations and conditions described
under "ERISA Considerations" herein, it is
expected that the Offered Certificates may
be purchased by a Plan.
Any Plan fiduciary considering whether to purchase any Offered
Certificates on behalf of a Plan should consult with its counsel
regarding the applicability of the provisions of ERISA and the
Code. See "ERISA Considerations" herein and in the Prospectus.
Legal Investment The Offered Certificates will not constitute
"mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984
("SMMEA"). Accordingly, many institutions with
legal authority to invest in comparably rated
securities may not be legally authorized to
invest in the Offered Certificates. Institutions
whose investment activities are subject to review
by federal or state regulatory authorities should
consult with their counsel or the applicable
authorities to determine whether an investment in
the Offered Certificates complies with applicable
guidelines, policy statements or restrictions.
See "Legal Investment" in the Prospectus.
Ratings It is a condition of the issuance of the Offered
Certificates that they be rated AAA by Standard & Poor's
Ratings Service, Inc., a division of the McGraw-Hill
Companies ("S&P"), and Aaa by Moody's Investors Service,
Inc. ("Moody's" and, together with S&P, the "Rating
Agencies"). The security ratings of the Offered
Certificates should be evaluated independently from similar
ratings on other types of securities. 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
Rating Agencies. The Depositor has not requested a rating
of the Offered Certificates by any rating agency other than
the Rating Agencies; there can be no assurance, however, as
to whether any other rating agency will rate the Offered
Certificates or, if it does, what rating would be assigned
by such other rating agency. The rating assigned by such
other rating agency to the Offered Certificates could be
lower than the respective ratings assigned by the Rating
Agencies. See "Ratings" herein.
RISK FACTORS
Investors should consider the following risks in connection with the
purchase of the Offered Certificates.
Consequences of Owning Book-Entry Certificates. Issuance of the Offered
Certificates in book-entry form may reduce the liquidity of such Offered
Certificates in the secondary trading market since investors may be unwilling
to purchase Offered Certificates for which they cannot obtain physical
certificates. See "Description of the Certificates--Book-Entry Certificates"
herein and "Risk Factors--Book-Entry Registration" in the Prospectus.
Since transactions in the Offered Certificates can be effected only
through DTC, CEDEL, Euroclear, participating organizations, indirect
participants and certain banks, the ability of a Certificate Owner to pledge
a Offered Certificate to persons or entities that do not participate in the
DTC, CEDEL or Euroclear system may be limited due to lack of a physical
certificate representing the Offered Certificates. See "Description of the
Certificates--Book-Entry Certificates" herein and "Risk Factors--Book-Entry
Registration" in the Prospectus.
Certificate Owners may experience some delay in their receipt of
distributions of interest and principal on the Offered Certificates since
such distributions will be forwarded by the Trustee to DTC and DTC will
credit such distributions to the accounts of its Participants (as defined
herein) which will thereafter credit them to the accounts of Certificate
Owners either directly or indirectly through indirect participants.
Certificate Owners will not be recognized as Offered Certificateholders as
such term is used in the Pooling and Servicing Agreement, and Certificate
Owners will be permitted to exercise the rights of Offered Certificateholders
only indirectly through DTC and its Participants. See "Description of the
Certificates--Book-Entry Certificates" herein and "Risk Factors--Book-Entry
Registration" in the Prospectus.
Cash Flow Considerations and Risks. Even assuming that the Mortgaged
Properties provide adequate security for the Mortgage Loans, substantial
delays could be encountered in connection with the liquidation of Mortgage
Loans in a Loan Group that are delinquent and resulting shortfalls in
distributions to the related Certificateholders could occur if the
Certificate Insurer were unable to perform its obligations under the
Certificate Insurance Policy. Further, liquidation expenses (such as legal
fees, real estate taxes, and maintenance and preservation expenses) will
reduce the security for such Mortgage Loans and thereby reduce the proceeds
payable to the related Certificateholders. In the event any of the Mortgaged
Properties fail to provide adequate security for the related Mortgage Loans,
such Certificateholders could experience a loss if the Certificate Insurer
were unable to perform its obligations under the Certificate Insurance
Policy.
Overcollateralization and Crosscollateralization Provisions. The
operation of the overcollateralization provisions of the Pooling and
Servicing Agreement will affect the weighted average lives of the Offered
Certificates and consequently the yields to maturity of such Certificates.
Unless and until the Subordinated Amount equals the Required Subordinated
Amount for a Certificate Group, Net Monthly Excess Cashflow will be applied
as distributions of principal of the Offered Certificates in such Certificate
Group, thereby reducing the weighted average lives thereof. The actual
Subordinated Amount for a Certificate Group may change from Distribution Date
to Distribution Date producing uneven distributions of Net Monthly Excess
Cash Flow. There can be no assurance as to when or whether the Subordinated
Amount for a Certificate Group will equal the related Required Subordinated
Amount.
Net Monthly Excess Cashflow generally is a function of the excess of
interest collected or advanced on the Mortgage Loans over the interest
required to pay interest on the Offered Certificates, the premium for the
Certificate Insurance Policy and certain Trust Fund expenses. Mortgage Loans
with higher Net Mortgage Rates will contribute more interest to the Net
Monthly Excess Cashflow. Mortgage Loans with higher Net Mortgage Rates may
prepay faster than Mortgage Loans with relatively lower Net Mortgage Rates
in response to a given change in market interest rates. Any such
disproportionate prepayments of Mortgage Loans in a Loan Group with higher
Net Mortgage Rates may adversely affect the amount of Net Monthly Excess
Cashflow available to make accelerated payments of principal of the Offered
Certificates in the related Certificate Group.
In addition to the use of Net Monthly Excess Cashflow for a Loan Group
to pay interest and principal on the related Certificate Group, Net Monthly
Excess Cashflow for a Loan Group will be available to pay interest and
principal on the other Certificate Group to the extent described herein under
"Description of the Certificates--Allocation of Available Funds".
Furthermore, in addition to the use of Net Monthly Excess Cashflow with
respect to a Loan Group to distribute Subordination Increase Amounts on the
related Certificate Group, Net Monthly Excess Cashflow will be available to
distribute Subordination Increase Amounts on the other Certificate Group to
the extent described herein.
As a result of the interaction of the foregoing factors, the effect of
the overcollateralization and crosscollateralization provisions on the
weighted average lives of the Offered Certificates in a Certificate Group may
vary significantly over time and, in the case of the Group 2 Certificates,
from class to class. See "Yield, Prepayment and Maturity Considerations"
herein and "Yield and Prepayment Considerations" in the Prospectus.
Prepayment Considerations and Risks. The Trust Fund's prepayment
experience may be affected by a wide variety of factors, including general
economic conditions, interest rates, the availability of alternative
financing and homeowner mobility. In addition, substantially all of the
Mortgage Loans contain due-on-sale provisions and the Master Servicer intends
to enforce such provisions unless (i) such enforcement is not permitted by
applicable law or (ii) the Master Servicer, in a manner consistent with
reasonable commercial practice, permits the purchaser of the related
Mortgaged Property to assume the Mortgage Loan. To the extent permitted by
applicable law, such assumption will not release the original borrower from
its obligation under any such Mortgage Loan. See "Yield, Prepayment and
Maturity Considerations--Prepayment Considerations and Risks" herein and
"Certain Legal Aspects of the Loans--Due-on-Sale Clauses" in the Prospectus
for a description of certain provisions of the Mortgage Loans that may affect
the prepayment experience thereof. The yield to maturity and weighted
average life of the Offered Certificates in a Certificate Group will be
affected primarily by the rate and timing of principal payments (including
prepayments) of, and losses on, the Mortgage Loans in the related Loan Group
and, in certain circumstances, the rate and timing of principal prepayments
(including prepayments) of, and losses on, the Mortgage Loans in the other
Loan Group. The yield to investors on the Class A-1 Certificates will also
be sensitive to the level of One-Month LIBOR, the level of the Mortgage Index
and the additional limitations on the Pass-Through Rate for the Class A-1
Certificates, as described herein. Although all of the Mortgage Loans in
Loan Group 1 bear interest at adjustable rates ("ARMs"), the interest rates
on a majority of the ARMs will not adjust for two years following
origination. In addition, the yield to maturity of the Offered Certificates
purchased at a discount or premium will be more sensitive to the rate and
timing of payments thereon. Certificateholders should consider, in the case
of any Offered Certificate purchased at a discount, the risk that a lower
than anticipated rate of principal payments could result in an actual yield
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 that is lower than
the anticipated yield. Because certain of the Mortgage Loans contain
prepayment penalties, the rate of principal payments may be less than the
rate of principal payments for mortgage loans which do not contain prepayment
penalties. No representation is made as to the anticipated rate of
prepayments on the Mortgage Loans, the amount and timing of losses thereon,
the level of One-Month LIBOR or the Mortgage Index or the resulting yield to
maturity of any Class of Offered Certificates. Any reinvestment risks
resulting from a faster or slower incidence of payments on the Mortgage Loans
will be borne entirely by the related Offered Certificateholders. See
"Yield, Prepayment and Maturity Considerations" herein and "Yield and
Prepayment Considerations" in the Prospectus.
Certificate Rating. The rating of the Offered Certificates will depend
primarily on an assessment by the Rating Agencies of the Mortgage Loans and
upon the claims-paying ability of the Certificate Insurer. Any reduction in
a rating assigned to the claims-paying ability of the Certificate Insurer
below the rating initially given to the Offered Certificates may result in
a reduction in the rating of the Offered Certificates. The rating by the
Rating Agencies of the Offered Certificates is not a recommendation to
purchase, hold or sell the Offered Certificates, inasmuch as such rating does
not comment as to the market price or suitability for a particular investor.
There is no assurance that the ratings will remain in place for any given
period of time or that the ratings will not be lowered or withdrawn by the
Rating Agencies. In general, the ratings address credit risk and do not
address the likelihood of prepayments. The ratings of the Certificates do
not address the possibility of the imposition of United States withholding
tax with respect to non-U.S. persons.
Legal Considerations -- Lien Priority. The Group 2 Mortgage Loans are
secured predominantly by second mortgages. Mortgage Loans secured by second
mortgages are entitled to proceeds that remain from the sale of the related
Mortgaged Property after any related senior mortgage loan and prior statutory
liens have been satisfied. In the event that such proceeds are insufficient
to satisfy such loans and prior liens in the aggregate and the Certificate
Insurer is unable to perform its obligations under the Certificate Insurance
Policy, the Holders of Group 2 Certificates will bear (i) the risk of delay
in distributions while a deficiency judgment, if any, against the borrower
is sought and (ii) the risk of loss if the deficiency judgment cannot be
obtained or is not realized upon. See "Certain Legal Aspects of the Loans"
in the Prospectus.
Bankruptcy and Insolvency Risks. The sale of the Mortgage Loans from
Countrywide to the Depositor will be treated as a sale of the Mortgage Loans.
However, in the event of an insolvency of Countrywide, the trustee in
bankruptcy of Countrywide may attempt to recharacterize the sale of the
Mortgage Loans as a borrowing by Countrywide, secured by a pledge of the
applicable Mortgage Loans. If the trustee in bankruptcy decided to challenge
such transfer, delays in payments of the Offered Certificates and reductions
in the amounts thereof could occur. The Depositor will warrant in the
Pooling and Servicing Agreement that the transfer of the Mortgage Loans by
it to the Trust Fund is either a valid transfer and assignment of such
Mortgage Loans to the Trust Fund or the grant to the Trust Fund of a security
interest in such Mortgage Loans.
In the event of a bankruptcy or insolvency of the Master Servicer, the
bankruptcy trustee or receiver may have the power to prevent the Trustee or
the Offered Certificateholders from appointing a successor Master Servicer.
Geographic Concentration. As of the Cut-off Date, approximately 19.57%
and 52.50% (by Cut-off Date Principal Balance) of the Mortgaged Properties
relating to Loan Group 1 and Loan Group 2, respectively, are located in the
State of California. An overall decline in the California residential real
estate market could adversely affect the values of the Mortgaged Properties
securing such Mortgage Loans such that the Principal Balances of the related
Mortgage Loans could equal or exceed the value of such Mortgaged Properties.
As the residential real estate market is influenced by many factors,
including the general condition of the economy and interest rates, no
assurances may be given that the California residential real estate market
will not weaken. If the California residential real estate market should
experience an overall decline in property values after the dates of
origination of such Mortgage Loans, the rates of losses on such Mortgage
Loans would be expected to increase, and could increase substantially.
Delinquent Mortgage Loans. The Trust Fund will include Mortgage Loans
which are 59 or fewer days delinquent as of the Cut-off Date. The Cut-off
Date Principal Balance of Group 1 Mortgage Loans and Group 2 Mortgage Loans
which are between 30 days and 59 days delinquent as of the Cut-off Date was
approximately $1,521,399 and $149,518, respectively. If there are not
sufficient funds from Available Funds for a Loan Group, or
overcollateralization or crosscollateralization for the related Certificate
Group, and the Certificate Insurer fails to perform its obligations under the
Certificate Insurance Policy, the aggregate amount of principal returned to
the related Certificateholders may be less than the respective Class
Certificate Principal Balances on the day the Certificates were issued.
For a discussion of additional risks pertaining to the Offered
Certificates, see "Risk Factors" in the Prospectus.
THE MORTGAGE POOL
GENERAL
The following discussion applies to the origination, sales and servicing
practices of Countrywide in effect at the time of the origination of the
Mortgage Loans.
Certain information with respect to the Mortgage Loans to be included
in the Mortgage Pool is set forth below. Prior to the Closing Date, Mortgage
Loans may be removed from the Mortgage Pool and other Mortgage Loans may be
substituted therefor. The Depositor believes that the information set forth
herein with respect to the Mortgage Pool as presently constituted is
representative of the characteristics of the Mortgage Pool as it will be
constituted at the Closing Date, although certain characteristics of the
Mortgage Loans in the Mortgage Pool may vary. Unless otherwise indicated,
information presented below expressed as a percentage (other than rates of
interest) are approximate percentages based on the Cut-off Date Pool
Principal Balance, the Group 1 Cut-off Date Principal Balance or the Group
2 Cut-off Date Principal Balance, as the context may require.
The Mortgage Pool will consist of Mortgage Loans with an aggregate
unpaid principal balance as of the Cut-off Date (the "Cut-off Date Pool
Principal Balance") expected to be approximately $299,836,146. The Group 1
Mortgage Loans provide for the amortization of the amount financed over a
series of monthly payments. The Group 2 Mortgage Loans provide for the
amortization of the amount financed over a series of substantially equal
monthly payments. All of the Mortgage Loans provide for payments due as of
the first day of each month. The Mortgage Loans to be included in the
Mortgage Pool were originated or purchased by Countrywide Home Loans, Inc.
("Countrywide") and (a) in the case of substantially all of the Group 1
Mortgage Loans and approximately 30.02% of the Group 2 Mortgage Loans, were
originated substantially in accordance with Countrywide's underwriting
criteria for sub-prime ("B&C") quality mortgage loans described herein under
"--Underwriting Standards--B&C Quality Mortgage Loans", and (b) in the case
of approximately 66.89% of the Group 2 Mortgage Loans, were originated
substantially in accordance with Countrywide's underwriting criteria for
closed end second mortgage loans described herein under "--Underwriting
Standards--Closed End Second Mortgage Loans". In addition, approximately
0.22% of the Group 1 Mortgage Loans and 3.10% of the Group 2 Mortgage Loans
were originated in accordance with other underwriting guidelines; however,
such Mortgage Loans have been examined by the Seller and the Seller has
determined that such Mortgage Loans are in substantial compliance with
Countrywide's underwriting criteria for B&C quality mortgage loans and closed
end second mortgage loans, as applicable. Sub-prime mortgage loans are
generally first mortgage loans made to borrowers with prior credit
difficulties.
At origination, approximately 77.27% of the Mortgage Loans had a stated
term to maturity of 30 years. Scheduled monthly payments made by the
Mortgagors on the Mortgage Loans ("Scheduled Payments") either earlier or
later than the scheduled due dates thereof will not affect the amortization
schedule or the relative application of such payments to principal and
interest. All of the Mortgage Notes provide for a fifteen (15) day grace
period for monthly payments. Any Mortgage Loan may be prepaid in full or in
part at any time; however, approximately 47.27% of the Group 1 Mortgage Loans
and approximately 23.12% of the Group 2 Mortgage Loans provide for the
payment by the borrower of a prepayment charge in limited circumstances on
full prepayments made within five years from the date of execution of the
related Mortgage Note. In general, the Mortgage Note provides that a
prepayment charge will apply if, during the first five years from the date
of origination of such Mortgage Loan, the borrower prepays such Mortgage Loan
in full. The amount of the prepayment charge will generally be equal to six
months' advance interest calculated on the basis of the rate in effect at the
time of such prepayment on the amount prepaid in excess of 20% of the
original balance of such Mortgage Loan.
Substantially all of the Group 1 Mortgage Loans have a Mortgage Rate
subject to semi-annual adjustment on the first day of the months specified
in the related Mortgage Note (each such date, an "Adjustment Date") to equal
the sum, rounded to the nearest 0.125%, of (i) the average of the London
interbank offered rates for six-month U.S. dollar deposits in the London
market, as set forth in The Wall Street Journal, or, if the Mortgage Index
ceases to be published in The Wall Street Journal or becomes unavailable for
any reason, then the Mortgage Index shall be a new index selected by the
Trustee, as holder of the related Mortgage Note, with the consent of the
Certificate Insurer, based on comparable information, in each case as most
recently announced as of a date 45 days prior to such Adjustment Date (the
"Mortgage Index"), and (ii) a fixed percentage amount specified in the
related Mortgage Note (the "Gross Margin"); provided, however, that the
Mortgage Rate will not increase or decrease by more than 1.50% on any
Adjustment Date (the "Periodic Rate Cap") for substantially all of the Group
1 Mortgage Loans. Substantially all of the Group 1 Mortgage Loans were
originated with Mortgage Rates less than the sum of the then applicable
Mortgage Index values and the related Gross Margins, rounded as described
herein. Approximately 54.98% of the Group 1 Mortgage Loans (the "2/28
Mortgage Loans") will have fixed Mortgage Rates for 24 months after
origination thereof before becoming subject to the semi-annual adjustment
described in the preceding sentence. Substantially all of the Group 1
Mortgage Loans provide that over the life of the Mortgage Loan the Mortgage
Rate will in no event be more than the initial Mortgage Rate plus 7.00% (the
"Maximum Mortgage Rate"). Substantially all of the Group 1 Mortgage Loans
provide that in no event will the Mortgage Rate be less than the initial
Mortgage Rate (such rate, the "Minimum Mortgage Rate"). Effective with the
first payment due on a Group 1 Mortgage Loan, after each related Adjustment
Date, the monthly payment will be adjusted to an amount which will fully
amortize the outstanding principal balance of the Mortgage Loan over its
remaining term.
As of the Cut-off Date, approximately 0.85% of the Group 1 Mortgage
Loans and approximately 0.18% of the Group 2 Mortgage Loans were
contractually delinquent for thirty or more days.
GROUP 1 MORTGAGE LOANS
The Group 1 Mortgage Loans had the following characteristics as of the
Cut-off Date (expressed as percentages of the Group 1 Cut-off Date Principal
Balance, except as otherwise stated):
The next Adjustment Date following the Cut-off Date for each of the
Group 1 Mortgage Loans other than the 2/28 Mortgage Loans will occur on the
first day of the following months, with the percentages of such Mortgage
Loans indicated on an approximate basis in the following table:
<TABLE>
<CAPTION> % of
Number of Group 1
Mortgage Cut-off Date Cut-off Date
Next Adjustment Date Loans Principal Balance Principal Balance
<S> <C> <C>
December 1, 1996 1 $ 210,932.63 0.23%
January 1, 1997 1 230,556.58 0.25
February 1, 1997 33 4,633,029.72 5.03
March 1, 1997 212 25,243,625.19 27.43
April 1, 1997 277 31,430,210.93 34.15
May 1, 1997 260 29,857,254.41 32.44
June 1, 1997 2 180,000.00 00.20
October 1, 1997 1 247,279.26 00.27
TOTAL . . . . . . . . . . 787 $92,032,888.72 100.00%
</TABLE>
The initial Adjustment Date for each of the 2/28 Mortgage Loans will
occur on the first day of the following months, with the percentages of such
Mortgage Loans indicated on an approximate basis in the following table:
<TABLE>
<CAPTION> % of
Number of Group 1
Mortgage Cut-off Date Cut-off Date
Next Adjustment Date Loans Principal Balance Principal Balance
<S> <C> <C> <C>
March 1, 1998 1 $ 181,341.39 0.16%
April 1, 1998 2 74,874.80 0.07
June 1, 1998 2 146,931.83 0.13
July 1, 1998 18 1,584,409.09 1.41
August 1, 1998 98 10,077,761.90 8.97
September 1, 1998 333 28,207,323.03 25.10
October 1, 1998 445 37,154,435.75 33.06
November 1, 1998 417 34,805,680.00 30.97
December 1, 1998 2 159,000.00 0.14
TOTAL . . . . . . . . . 1,318 $112,391,757.79 100.00%
</TABLE>
None of the Group 1 Mortgage Loans had a first payment date prior to
November 1, 1992. The latest maturity date of any of the Group 1 Mortgage
Loans is December 1, 2026.
Approximately 31.76% of the Group 1 Mortgage Loans are Mortgage Loans
the proceeds of which were used to purchase the related Mortgaged Property.
Approximately 68.24% of the Group 1 Mortgage Loans are Mortgage Loans the
proceeds of which were used to refinance an existing mortgage loan.
Approximately 82.35% of the Group 1 Mortgage Loans are secured by
detached one-family dwelling units and approximately 9.42% of the Group 1
Mortgage Loans are secured by dwelling units in Planned Unit Developments
("PUDs"). No more than approximately 4.06% of the Group 1 Mortgage Loans are
secured by units in condominiums. No more than approximately 4.17% of the
Group 1 Mortgage Loans are secured by two- to four-family dwelling units.
On the basis of representations made by the mortgagors in their loan
applications, no more than approximately 7.67% of the Group 1 Mortgage Loans
are secured by investor properties.
None of the Group 1 Mortgage Loans are subject to any buydown agreement.
None of the Group 1 Mortgage Loans are insured by any primary mortgage
insurance policy.
The weighted average Loan-to-Value Ratio (as defined below) of the Group
1 Mortgage Loans as of the Cut-off Date (weighted based on the Cut-off Date
Principal Balances) is expected to be approximately 72.70%. The Loan-to-Value
Ratios of the Group 1 Mortgage Loans as of the Cut-off Date are expected to
be distributed as follows (the sum of the percentages in the following table
may not equal the total due to rounding):
<TABLE>
<CAPTION> % of
Number of Group 1
Loan-to-Value Mortgage Cut-off Date Cut-off Date
Ratio (%) Loans Principal Balance Principal Balance
<S> <C> <C> <C>
10.00 15.00 1 $ 26,987.41 0.01%
15.01 20.00 5 115,670.93 0.06
20.01 25.00 3 128,489.84 0.06
25.01 30.00 10 583,651.93 0.29
30.01 35.00 13 574,533.76 0.28
35.01 40.00 28 1,526,634.57 0.75
40.01 45.00 22 1,324,693.73 0.65
45.01 50.00 52 3,890,687.18 1.90
50.01 55.00 76 5,991,746.07 2.93
55.01 60.00 124 9,265,682.60 4.53
60.01 65.00 208 17,127,606.18 8.38
65.01 70.00 394 36,261,838.43 17.74
70.01 75.00 534 54,658,882.74 26.74
75.01 80.00 371 41,822,418.99 20.46
80.01 85.00 233 26,314,681.91 12.87
85.01 90.00 31 4,810,440.24 2.35
TOTAL . . . . . 2,105 $204,424,646.51 100.00%
</TABLE>
The "Loan-to-Value Ratio" of a Mortgage Loan is equal to (i) the
principal balance of such Mortgage Loan at the date of origination, divided
by (ii) the Collateral Value of the related Mortgaged Property. The
"Collateral Value" of a Mortgaged Property is the lesser of (x) the appraised
value based on an appraisal made for Countrywide by an independent fee
appraiser at the time of the origination of the related Mortgage Loan, and
(y) the sales price of such Mortgaged Property at such time of origination.
With respect to a Mortgage Loan the proceeds of which were used to refinance
an existing mortgage loan, the Collateral Value is the appraised value of the
Mortgaged Property based upon the appraisal obtained at the time of
refinancing. No assurance can be given that the values of the Mortgaged
Properties have remained or will remain at their levels as of the dates of
origination of the related Mortgage Loans.
As of the Cut-off Date, the weighted average remaining term to maturity
of the Group 1 Mortgage Loans (weighted based on the Cut-off Date Principal
Balances) is expected to be approximately 357 months. The distribution of the
remaining terms to maturity (in months) of the Group 1 Mortgage Loans as of
the Cut-off Date is expected to be as follows (the sum of the percentages in
the following table may not equal the total due to rounding):
<TABLE>
<CAPTION>
REMAINING % OF
TERM TO NUMBER OF GROUP 1
MATURITY MORTGAGE CUT-OFF DATE CUT-OFF DATE
(IN MONTHS) LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C>
168 180 38 $ 2,294,394.14 1.12%
300 312 1 247,279.26 0.12
336 348 1 212,006.39 0.10
348 360 2,065 201,670,966.72 98.65
TOTAL . 2,105 $204,424,646.51 100.00%
</TABLE>
As of the Cut-off Date, the weighted average Mortgage Rate of the Group
1 Mortgage Loans (weighted based on the Cut-off Date Principal Balances) is
expected to be approximately 9.64% per annum. The Mortgage Rates of the Group
1 Mortgage Loans are expected to be distributed as follows as of the Cut-off
Date (the sum of the percentages in the following table may not equal the
total due to rounding):
<TABLE>
<CAPTION> % OF
GROUP 1
NUMBER OF CUT-OFF DATE
MORTGAGE CUT-OFF DATE PRINCIPAL
MORTGAGE RATE (%) LOANS PRINCIPAL BALANCE BALANCE
<S> <C> <C> <C>
5.50 6.00 1 $ 224,000.00 0.11%
6.01 6.50 6 1,004,987.55 0.49
6.51 7.00 18 2,459,026.41 1.20
7.01 7.50 46 5,476,243.63 2.68
7.51 8.00 88 10,991,234.52 5.38
8.01 8.50 167 18,851,713.43 9.22
8.51 9.00 287 32,936,415.10 16.11
9.01 9.50 261 27,162,886.66 13.29
9.51 10.00 336 32,519,733.99 15.91
10.01 10.50 292 25,430,922.29 12.44
10.51 11.00 258 20,234,813.44 9.90
11.01 11.50 176 13,850,467.86 6.78
11.51 12.00 104 8,370,894.92 4.09
12.01 12.50 38 2,245,486.93 1.10
12.51 13.00 14 1,648,993.35 0.81
13.01 13.50 5 297,792.44 0.15
13.51 14.00 6 538,431.70 0.26
14.01 14.50 2 180,602.29 0.09
TOTAL . . . . . 2,105 $204,424,646.51 100.00%
</TABLE>
As of the Cut-off Date, the weighted average Gross Margin of the Group
1 Mortgage Loans (weighted based on the Cut-off Date Principal Balances) is
expected to be approximately 6.23% per annum. The Gross Margins set forth in
the Mortgage Notes with respect to the Group 1 Mortgage Loans are expected
to be distributed as follows as of the Cut-off Date (the sum of the
percentages in the following table may not equal the total due to rounding):
<TABLE>
<CAPTION> % OF
NUMBER OF GROUP 1
MORTGAGE CUT-OFF DATE CUT-OFF DATE
GROSS MARGIN (%) LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C>
2.50 3.00 2 $ 459,285.65 0.22%
4.01 4.50 12 1,266,466.18 0.62
4.51 5.00 97 10,155,899.98 4.97
5.01 5.50 318 34,852,779.87 17.05
5.51 6.00 466 54,275,856.58 26.55
6.01 6.50 462 42,498,771.29 20.79
6.51 7.00 356 30,931,218.80 15.13
7.01 7.50 219 16,187,336.67 7.92
7.51 8.00 130 10,943,984.16 5.35
8.01 8.50 30 2,258,697.55 1.10
8.51 9.00 11 481,319.85 0.24
9.01 9.50 1 40,779.93 0.02
9.51 10.00 1 72,250.00 0.04
TOTAL . . . . . 2,105 $204,424,646.51 100.00%
</TABLE>
As of the Cut-off Date, the weighted average Maximum Mortgage Rate of
the Group 1 Mortgage Loans (weighted based on the Cut-off Date Principal
Balances) is expected to be approximately 16.64% per annum. The Maximum
Mortgage Rates with respect to the Group 1 Mortgage Loans are expected to be
distributed as follows as of the Cut-off Date (the sum of the percentages in
the following table may not equal the total due to rounding):
<TABLE>
<CAPTION> % OF
NUMBER OF GROUP 1
MAXIMUM MORTGAGE CUT-OFF DATE CUT-OFF DATE
MORTGAGE RATE (%) LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C>
12.50 13.00 2 $ 471,279.26 0.23%
13.01 13.50 7 1,216,993.94 0.60
13.51 14.00 17 2,211,747.15 1.08
14.01 14.50 46 5,476,243.63 2.68
14.51 15.00 88 10,991,234.52 5.38
15.01 15.50 167 18,851,713.43 9.22
15.51 16.00 287 32,935,341.34 16.11
16.01 16.50 261 27,162,886.66 13.29
16.51 17.00 336 32,519,733.99 15.91
17.01 17.50 291 25,219,989.66 12.34
17.51 18.00 258 20,234,813.44 9.90
18.01 18.50 176 13,850,467.86 6.78
18.51 19.00 104 8,370,894.92 4.09
19.01 19.50 38 2,245,486.93 1.10
19.51 20.00 14 1,648,993.35 0.81
20.01 20.50 5 297,792.44 0.15
20.51 21.00 6 538,431.70 0.26
21.01 21.50 2 180,602.29 0.09
TOTAL . . . . 2,105 $204,424,646.51 100.00%
</TABLE>
As of the Cut-off Date, the weighted average Minimum Mortgage Rate with
respect to the Group 1 Mortgage Loans (weighted based on the Cut-off Date
Principal Balances) is expected to be approximately 9.64% per annum. The
Minimum Mortgage Rates with respect to the Group 1 Mortgage Loans are
expected to be distributed as follows as of the Cut-off Date (the sum of the
percentages in the following table may not equal the total due to rounding):
<TABLE>
<CAPTION> % OF
NUMBER OF GROUP 1
MINIMUM MORTGAGE CUT-OFF DATE CUT-OFF DATE
MORTGAGE RATE (%) LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C>
5.50 6.00 1 $ 224,000.00 0.11%
6.01 6.50 6 1,004,987.55 0.49
6.51 7.00 18 2,459,026.41 1.20
7.01 7.50 46 5,476,243.63 2.68
7.51 8.00 88 10,991,234.52 5.38
8.01 8.50 168 19,063,719.82 9.33
8.51 9.00 287 32,935,341.34 16.11
9.01 9.50 261 27,162,886.66 13.29
9.51 10.00 336 32,519,733.99 15.91
10.01 10.50 291 25,219,989.66 12.34
10.51 11.00 258 20,234,813.44 9.90
11.01 11.50 176 13,850,467.86 6.78
11.51 12.00 104 8,370,894.92 4.09
12.01 12.50 38 2,245,486.93 1.10
12.51 13.00 14 1,648,993.35 0.81
13.01 13.50 5 297,792.44 0.15
13.51 14.00 6 538,431.70 0.26
14.01 14.50 2 180,602.29 0.09
TOTAL . . . 2,105 $204,424,646.51 100.00%
</TABLE>
As of the Cut-off Date, the average of the Cut-off Date Principal
Balances of the Group 1 Mortgage Loans is expected to be approximately
$97,113.85. The distribution of the Cut-off Date Principal Balances of the
Group 1 Mortgage Loans is expected to be as follows (the sum of the
percentages in the following table may not equal the total due to rounding):
<TABLE>
<CAPTION> % OF
NUMBER OF GROUP 1
CUT-OFF DATE MORTGAGE CUT-OFF DATE CUT-OFF DATE
PRINCIPAL BALANCE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C>
$ 5,000 $10,000 2 $ 16,957.77 0.01%
$10,001 $15,000 7 95,643.06 0.05
$15,001 $20,000 24 426,413.93 0.21
$20,001 $25,000 63 1,446,542.95 0.71
$25,001 $30,000 57 1,614,177.38 0.79
$30,001 $35,000 58 1,901,793.93 0.93
$35,001 $40,000 74 2,796,954.95 1.37
$40,001 $45,000 100 4,290,219.36 2.10
$45,001 $50,000 98 4,673,332.41 2.29
$50,001 $55,000 100 5,299,685.57 2.59
$55,001 $60,000 119 6,889,454.77 3.37
$60,001 $65,000 110 6,946,612.17 3.40
$65,001 $70,000 117 7,908,827.61 3.87
$70,001 $75,000 88 6,414,555.51 3.14
$75,001 $80,000 96 7,466,444.63 3.65
$80,001 $85,000 70 5,808,664.16 2.84
$85,001 $90,000 63 5,542,287.45 2.71
$90,001 $95,000 64 5,944,099.85 2.91
$95,001 $100,000 87 8,528,147.52 4.17
$100,001 $105,000 47 4,831,689.79 2.36
$105,001 $110,000 59 6,362,216.93 3.11
$110,001 $115,000 52 5,858,680.03 2.87
$115,001 $120,000 50 5,883,783.40 2.88
$120,001 $125,000 40 4,938,540.05 2.42
$125,001 $130,000 35 4,463,296.46 2.18
$130,001 $135,000 23 3,055,632.46 1.49
$135,001 $140,000 32 4,421,197.27 2.16
$140,001 $145,000 22 3,141,294.03 1.54
$145,001 $150,000 32 4,752,658.81 2.32
$150,001 $200,000 154 26,499,844.34 12.96
$200,001 $250,000 80 17,925,871.13 8.77
$250,001 $300,000 32 8,811,559.76 4.31
$300,001 $350,000 23 7,575,690.76 3.71
$350,001 $400,000 10 3,817,118.94 1.87
$400,001 $450,000 4 1,721,587.77 0.84
$450,001 $500,000 10 4,733,665.11 2.32
$500,001 $550,000 2 1,039,504.49 0.51
$550,001 $600,000 1 580,000.00 0.28
TOTAL . . . . . . . 2,105 $204,424,646.51 100.00%
</TABLE>
As of the Cut-off Date, the geographic distribution of the Group 1
Mortgage Loans is expected to be as follows (the sum of the percentages in
the following table may not equal the total due to rounding):
<TABLE>
<CAPTION> % OF
NUMBER OF GROUP 1
MORTGAGE CUT-OFF DATE CUT-OFF DATE
STATE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C>
Arizona . . . . . . . . 70 $ 5,961,671.61 2.92%
California . . . . . . 248 40,014,451.57 19.57
Colorado . . . . . . . 129 13,892,108.58 6.80
Florida . . . . . . . . 124 11,429,952.28 5.59
Hawaii . . . . . . . . 30 5,605,259.07 2.74
Idaho . . . . . . . . . 146 11,591,791.83 5.67
Illinois . . . . . . . 71 6,640,045.96 3.25
Louisiana . . . . . . . 71 5,256,484.50 2.57
Michigan . . . . . . . 115 9,367,935.74 4.58
New Mexico . . . . . . 49 5,273,966.60 2.58
Ohio . . . . . . . . . 108 7,233,620.93 3.54
Pennsylvania . . . . . 98 7,270,110.10 3.56
Tennessee . . . . . . . 58 4,548,247.11 2.22
Texas . . . . . . . . . 78 6,988,338.64 3.42
Utah . . . . . . . . . 88 10,038,802.22 4.91
Washington . . . . . . 65 6,445,825.55 3.15
Wisconsin . . . . . . . 71 5,479,110.44 2.68
Other(1) . . . . . . . 486 41,386,923.78 20.25
TOTAL . . . . . . 2,105 $204,424,646.51 100.00%
</TABLE>
(1) Other includes 33 other states and the District of Columbia with under
2% concentration individually. No more than approximately 0.62% of the Group
1 Mortgage Loans will be secured by Mortgaged Properties in any one zip code
area.
GROUP 2 MORTGAGE LOANS
The Group 2 Mortgage Loans had the following characteristics as of the
Cut-off Date (expressed as percentages of the Group 2 Cut-off Date Principal
Balance, except as otherwise stated):
None of the Group 2 Mortgage Loans had a first payment date prior to
December 1, 1993. The latest maturity date of any of the Group 2 Mortgage
Loans is November 1, 2026.
Approximately 84.49% of the Group 2 Mortgage Loans are secured by
detached one-family dwelling units and approximately 10.49% of the Group 2
Mortgage Loans are secured by dwelling units in PUDs. No more than
approximately 2.45% of the Group 2 Mortgage Loans are secured by units in
condominiums. No more than approximately 2.57% of the Group 2 Mortgage Loans
are secured by two- to four-family dwelling units. On the basis of
representations made by the mortgagors in their loan applications, no more
than approximately 3.92% of the Group 2 Mortgage Loans are secured by
investor properties.
None of the Group 2 Mortgage Loans are subject to any buydown agreement.
None of the Group 2 Mortgage Loans are insured by any primary mortgage
insurance policy.
The weighted average Loan-to-Value Ratio (as defined below) of the Group
2 Mortgage Loans as of the Cut-off Date (weighted based on the Cut-off Date
Principal Balances) is expected to be approximately 79.75%. The Combined
Loan-to-Value Ratios of the Group 2 Mortgage Loans as of the Cut-off Date are
expected to be distributed as follows (the sum of the percentages in the
following table may not equal the total due to rounding):
<TABLE>
<CAPTION> % of
Group 2
Number of Cut-off Date Cut-off Date
Loan-to-Value Mortgage Principal Balance Principal Balance
Ratio(1) (%) Loans
<S> <C> <C> <C>
5.00 10.00 2 $ 53,985.29 0.06%
10.01 15.00 2 55,096.10 0.06
15.01 20.00 2 54,897.38 0.06
20.01 25.00 6 167,583.12 0.18
25.01 30.00 7 143,867.17 0.15
30.01 35.00 8 331,918.95 0.35
35.01 40.00 11 386,129.96 0.40
40.01 45.00 16 841,402.48 0.88
45.01 50.00 28 1,348,812.14 1.41
50.01 55.00 40 1,988,494.37 2.08
55.01 60.00 44 2,242,392.08 2.35
60.01 65.00 92 4,780,613.58 5.01
65.01 70.00 151 7,642,008.92 8.01
70.01 75.00 192 10,925,379.89 11.45
75.01 80.00 322 14,979,975.03 15.70
80.01 85.00 176 8,184,731.13 8.58
85.01 90.00 951 34,485,694.08 36.14
90.01 95.00 62 1,991,553.13 2.09
95.01 100.00 160 4,710,761.01 4.94
greater than 100 3 96,204.05 0.10
TOTAL . . . . . . . . . . 2,275 $95,411,499.86 100.00%
</TABLE>
(1) The Loan-to-Value Ratio includes Mortgage Loans which are second
mortgage loans. The Loan-to-Value Ratio for those Mortgage Loans which are
second mortgage loans includes, in the calculation of the principal balance
of such Mortgage Loan, the principal balance of the first mortgage loan and
the second Mortgage Loan.
As of the Cut-off Date, the weighted average Mortgage Rate of the Group
2 Mortgage Loans (weighted based on the Cut-off Date Principal Balances) is
expected to be approximately 10.770% per annum. The Mortgage Rates of the
Group 2 Mortgage Loans are expected to be distributed as follows as of the
Cut-off Date (the sum of the percentages in the following table may not equal
the total due to rounding):
<TABLE>
<CAPTION> % OF
NUMBER OF GROUP 2
MORTGAGE CUT-OFF DATE CUT-OFF DATE
MORTGAGE RATE (%) LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C>
6.00 6.50 1 $ 246,106.18 0.26%
6.51 7.00 2 473,267.50 0.50
7.01 7.50 3 512,647.35 0.54
7.51 8.00 8 575,167.94 0.60
8.01 8.50 14 1,020,606.51 1.07
8.51 9.00 60 3,256,544.22 3.41
9.01 9.50 226 10,089,544.81 10.57
9.51 10.00 289 13,330,644.77 13.97
10.01 10.50 162 7,464,580.03 7.82
10.51 11.00 412 16,861,071.79 17.67
11.01 11.50 496 18,908,700.17 19.82
11.51 12.00 307 11,933,499.39 12.51
12.01 12.50 175 5,830,253.01 6.11
12.51 13.00 81 3,030,780.24 3.18
13.01 13.50 16 931,461.20 0.98
13.51 14.00 15 693,691.42 0.73
14.01 14.50 4 112,969.75 0.12
14.51 15.00 3 122,640.61 0.13
15.51 16.00 1 17,322.97 0.02
TOTAL . . . . . 2,275 $95,411,499.86 100.00%
</TABLE>
As of the Cut-off Date, the weighted average remaining term to maturity
of the Group 2 Mortgage Loans (weighted based on the Cut-off Date Principal
Balances) is expected to be approximately 232 months. The distribution of the
remaining terms to maturity (in months) of the Group 2 Mortgage Loans as of
the Cut-off Date is expected to be as follows (the sum of the percentages in
the following table may not equal the total due to rounding):
<TABLE>
<CAPTION>
REMAINING % OF
TERM TO NUMBER OF GROUP 2
MATURITY MORTGAGE CUT-OFF DATE CUT-OFF DATE
(IN MONTHS) LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C>
48 60 4 $ 826,042.85 0.87%
108 120 3 51,722.22 0.05
156 168 27 922,923.67 0.97
169 180 1,835 64,044,091.87 67.12
324 336 1 258,399.14 0.27
337 348 1 65,052.24 0.07
349 360 404 29,243,267.87 30.65
TOTAL . 2,275 $95,411,499.86 100.00%
</TABLE>
As of the Cut-off Date, the average of the Cut-off Date Principal Balances
of the Group 2 Mortgage Loans is expected to be approximately $41,939.12. The
distribution of the Cut-off Date Principal Balance of the Group 2 Mortgage
Loans is expected to be as follows (the sum of the percentages in the
following table may not equal the total due to rounding):
<TABLE>
<CAPTION> % OF
NUMBER OF GROUP 2
CUT-OFF DATE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
PRINCIPAL BALANCE PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C>
$5,000 $10,000 9 $ 87,427.05 0.09%
$10,000 $15,000 103 1,487,046.50 1.56
$15,000 $20,000 285 5,322,671.77 5.58
$20,000 $25,000 317 7,318,789.18 7.67
$25,000 $30,000 307 8,624,103.23 9.04
$30,000 $35,000 254 8,335,859.93 8.74
$35,000 $40,000 262 9,895,324.91 10.37
$40,000 $45,000 164 7,000,785.28 7.34
$45,000 $50,000 110 5,358,858.70 5.62
$50,000 $55,000 66 3,483,246.62 3.65
$55,000 $60,000 62 3,577,642.47 3.75
$60,000 $65,000 45 2,826,549.37 2.96
$65,000 $70,000 39 2,637,740.76 2.76
$70,000 $75,000 30 2,181,468.48 2.29
$75,000 $80,000 32 2,487,701.81 2.61
$80,000 $85,000 24 1,995,645.56 2.09
$85,000 $90,000 21 1,856,703.66 1.95
$90,000 $95,000 20 1,848,254.55 1.94
$95,000 $100,000 28 2,766,189.87 2.90
$100,000 $105,000 8 820,919.98 0.86
$105,000 $110,000 8 873,558.29 0.92
$110,000 $115,000 4 446,049.77 0.47
$115,000 $120,000 7 827,866.91 0.87
$120,000 $125,000 7 859,829.96 0.90
$125,000 $130,000 4 509,497.95 0.53
$130,000 $135,000 6 796,885.79 0.84
$135,000 $140,000 4 553,650.00 0.58
$140,000 $145,000 3 430,293.85 0.45
$145,000 $150,000 4 596,180.02 0.62
$150,000 $200,000 18 3,129,169.89 3.28
$200,000 $250,000 11 2,457,363.69 2.58
$250,000 $300,000 6 1,600,298.11 1.68
$300,000 $350,000 4 1,266,425.95 1.33
$350,000 $400,000 2 743,500.00 0.78
$400,000 $450,000 1 408,000.00 0.43
TOTAL . . . . . 2,275 $95,411,499.86 100.00%
</TABLE>
As of the Cut-off Date, the geographic distribution of the Group 2
Mortgage Loans is expected to be as follows (the sum of the percentages in
the following table may not equal the total due to rounding):
<TABLE>
<CAPTION> % OF
NUMBER OF GROUP 2
MORTGAGE CUT-OFF DATE CUT-OFF DATE
LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
STATE
<S> <C> <C> <C>
Arizona . . . . . . 46 $ 2,053,225.38 2.15%
California . . . . 1,181 50,091,087.96 52.50
Florida . . . . . . 85 4,071,776.81 4.27
Hawaii . . . . . . 14 2,293,326.40 2.40
Louisiana . . . . . 38 1,988,989.15 2.08
Michigan . . . . . 53 2,045,056.81 2.14
Oregon . . . . . . 56 2,748,114.81 2.88
Utah . . . . . . . 75 2,483,718.04 2.60
Washington . . . . 101 4,078,186.26 4.27
Other(1) . . . . . 626 23,558,018.24 24.71
TOTAL . . . 2,275 $95,411,499.86 100.00%
</TABLE>
(1) Other includes 36 other states and the District of Columbia with under
2% concentration individually. No more than approximately 0.68% of the Group
2 Mortgage Loans will be secured by Mortgaged Properties in any one zip code
area.
As of the Cut-off Date, the distribution of Group 2 Mortgage Loans which
are secured by first or second liens is expected to be as follows (the sum
of the percentages in the following table may not equal the total due to
rounding):
<TABLE>
<CAPTION> % of
Number of Group 2
Mortgage Cut-off Date Cut-off Date
Lien Priority Loans Principal Balance Principal Balance
<S> <C> <C>
First 409 $30,372,283.44 31.83%
Second 1,866 65,039,216.42 68.17
Total . . 2,275 $95,411,499.86 100.00%
</TABLE>
ASSIGNMENT OF THE MORTGAGE LOANS
Pursuant to the Pooling and Servicing Agreement, the Depositor on the
Closing Date will sell, transfer, assign, set over and otherwise convey
without recourse to the Trustee in trust for the benefit of the
Certificateholders and the Certificate Insurer all right, title and interest
of the Depositor in and to each Mortgage Loan and all right, title and
interest in and to all other assets included in the Trust Fund, including all
principal and interest received on or with respect to the Mortgage Loans,
exclusive of principal due on or before, and interest accruing prior to, the
Cut-off Date.
In connection with such transfer and assignment, the Depositor will
deliver on the Closing Date the following documents (collectively
constituting the "Trustee's Mortgage File") with respect to each Mortgage
Loan:
(i) the original Mortgage Note, endorsed by Countrywide or the
originator of the Mortgage Loan, without recourse in the following form: "Pay
to the order of ____________ without recourse," with all intervening
endorsements that show a complete chain of endorsement from the originator
to Countrywide;
(ii) the original recorded Mortgage;
(iii) a duly executed assignment of the Mortgage to "The Bank of New
York, a New York banking corporation, as trustee under the Pooling and
Servicing Agreement dated as of November 1, 1996, CWABS, Inc., Asset-Backed
Certificates, Series 1996-1, without recourse"; in recordable form, as
described in the Pooling and Servicing Agreement;
(iv) the original recorded assignment or assignments of the Mortgage
together with all interim recorded assignments of such Mortgage;
(v) the original or copies of each assumption, modification, written
assurance or substitution agreement, if any; and
(vi) the original or duplicate original lender's title policy and all
riders thereto or, in the event such original title policy has not been
received from the insurer, any one of an original title binder, an original
preliminary title report or an original title commitment, or a copy thereof
certified by the title company, with the original policy of title insurance
to be delivered within one year of the Closing Date.
Assignments of the Mortgage Loans to the Trustee (or its nominee) will
be recorded in the appropriate public office for real property records,
except in states (such as California) as to which an opinion of counsel is
delivered to the effect that such recording is not required to protect the
Trustee's interests in the Mortgage Loan against the claim of any subsequent
transferee or any successor to or creditor of the Depositor or the Seller.
As to any Mortgage Loan, the recording requirement exception described in the
preceding sentence is applicable only so long as the related Mortgage File
is maintained in the possession of the Trustee in one of the states to which
such exception applies. In the event any such assignment is delivered to the
Trustee in blank and the related Mortgage File is released by the Trustee
pursuant to applicable provisions of the Pooling and Servicing Agreement, the
Trustee shall complete such assignment as provided in subparagraph (iii)
above prior to any such release. In the event such recording is required to
protect the interest of the Trustee in the Mortgage Loans, the Master
Servicer is required to cause each previously unrecorded assignment to be
submitted for recording.
The Trustee will review the Mortgage Loan documents on or prior to the
Closing Date and will hold such documents in trust for the benefit of the
Holders of the Certificates and the Certificate Insurer. After the Closing
Date, if any document is found to be missing or defective in any material
respect, the Trustee is required to notify the Master Servicer, Countrywide
and the Certificate Insurer in writing. If Countrywide cannot or does not
cure such omission or defect within 90 days of its receipt of notice from the
Trustee, Countrywide is required to repurchase the related Mortgage Loan from
the Trust Fund at a price (the "Purchase Price") equal to 100% of the Stated
Principal Balance thereof plus accrued and unpaid interest thereon, at a rate
equal to the difference between the Mortgage Rate and the Servicing Fee Rate
(the "Net Mortgage Rate") (or, if Countrywide is no longer the Master
Servicer, at the applicable Mortgage Rate) to the first day of the month in
which the Purchase Price is to be distributed to holders of Certificates in
the related Certificate Group. Rather than repurchase the Mortgage Loan as
provided above, Countrywide may remove such Mortgage Loan (a "Deleted
Mortgage Loan") from the Trust Fund and substitute in its place another
Mortgage Loan of like kind (a "Replacement Mortgage Loan"); however, such
substitution is only permitted within two years after the Closing Date, and
may not be made unless an opinion of counsel is provided to the effect that
such substitution would not disqualify the Trust Fund as a REMIC or result
in a prohibited transaction tax under the Code. Any Replacement Mortgage Loan
generally will, on the date of substitution, among other characteristics set
forth in the Pooling and Servicing Agreement, (i) have a Stated Principal
Balance, after deduction of the principal portion of the scheduled payment
due in the month of substitution, not in excess of, and not less than 90% of,
the Stated Principal Balance of the Deleted Mortgage Loan (the amount of any
shortfall to be deposited by Countrywide in the Certificate Account not later
than the succeeding Determination Date and held for distribution to the
holders of Certificates in the related Certificate Group on the related
Distribution Date), (ii) (a) in the case of Group 1 Mortgage Loans, (1) have
a Maximum Mortgage Rate not more than 1% per annum higher or lower than the
Maximum Mortgage Rate of the Deleted Mortgage Loan, (2) have a Minimum
Mortgage Rate not more than 1% per annum higher or lower than the Minimum
Mortgage Rate of the Deleted Mortgage Loan, (3) have the same Mortgage Index
and Periodic Rate Cap as the Deleted Mortgage Loan and a Gross Margin not
more than 1% per annum higher or lower than that of the Deleted Mortgage Loan
and (4) have the same or higher credit quality characteristics than that of
the Deleted Mortgage Loan, and (b) in the case of Group 2 Mortgage Loans,
have a Mortgage Rate not more than 1% higher or lower than the Mortgage Rate
of the deleted Mortgage Loan, (iii) be accruing interest at a rate not more
than 1% per annum higher or lower than that of the Deleted Mortgage Loan,
(iv) have a Loan-to-Value Ratio no higher than that of the Deleted Mortgage
Loan, (v) have a remaining term to maturity not greater than (and not more
than one year less than) that of the Deleted Mortgage Loan, (vi) (a) in the
case of Group 1 Mortgage Loans, not permit conversion of the related Mortgage
Rate to a fixed Mortgage Rate and (b) in the case of Group 2 Mortgage Loans,
not permit conversion of the related Mortgage Rate to an adjustable Mortgage
Rate, (vii) provide for a prepayment charge on terms substantially similar
to those of the prepayment charge, if any, of the Deleted Mortgage Loan and
(viii) comply with all of the representations and warranties set forth in the
Pooling and Servicing Agreement as of the date of substitution. This cure,
repurchase or substitution obligation constitutes the sole remedy available
to the Certificateholders, the Trustee or the Depositor for omission of, or
a material defect in, a Mortgage Loan document.
UNDERWRITING STANDARDS
B&C Quality Mortgage Loans. The following is a description of the
underwriting procedures customarily employed by Countrywide with respect to
B&C quality mortgage loans. Countrywide produces its B&C quality mortgage
loans through its Wholesale Lending Division, which works with mortgage
brokers and other entities located throughout the United States. Prior to the
funding of any B&C quality mortgage loan, Countrywide underwrites the related
mortgage loan in accordance with the underwriting standards established by
Countrywide. The mortgage loans are underwritten centrally by a specialized
group of underwriters who are familiar with the unique characteristics of B&C
quality mortgage loans. As a matter of policy, Countrywide does not purchase
any B&C quality mortgage loan that it has not itself underwritten.
Countrywide's underwriting standards are primarily intended to evaluate
the value and adequacy of the mortgaged property as collateral for the
proposed mortgage loan but also take into consideration the borrower's credit
standing and repayment ability. On a case by case basis, Countrywide may
determine that, based upon compensating factors, a prospective borrower not
strictly qualifying under the underwriting risk category guidelines described
below warrants an underwriting exception. Compensating factors may include
low loan-to-value ratio, low debt-to-income ratio, stable employment and time
in the same residence. It is expected that a significant number of the
Mortgage Loans underwritten in accordance with Countrywide's B&C quality
mortgage loan underwriting guidelines, will have been originated based on
such underwriting exceptions.
Each prospective borrower completes an application which includes
information with respect to the applicant's assets, liabilities, income,
credit history and employment history, as well as certain other personal
information. As part of its quality control system, Countrywide reverifies
information with respect to the foregoing matters that has been provided by
the mortgage brokerage company prior to funding a loan and periodically
audits files based on a random sample of closed loans. If the loan-to-value
ratio is greater than 70%, Countrywide generally verifies the source of funds
for the down-payment; Countrywide does not verify the source of such funds
if the loan-to-value ratio is 70% or less. Countrywide requires an
independent credit bureau report on the credit history of each applicant in
order to evaluate the applicant's ability to repay. The report typically
contains information relating to such matters as credit history with local
and national merchants and lenders, installment debt payments and any record
of defaults, bankruptcy, repossession, suits or judgments.
After obtaining all applicable employment, credit and property
information, Countrywide uses a debt-to-income ratio to assist in determining
whether the prospective borrower has sufficient monthly income available to
support the payments of principal and interest on the mortgage loan in
addition to other monthly credit obligations. The "debt-to-income ratio" is
the ratio of the borrower's total monthly payments to the borrower's gross
monthly income. The maximum monthly debt-to-income ratio varies depending
upon a borrower's credit grade and documentation level (as described below)
but does not generally exceed 55%. Variations in the monthly debt-to-income
ratios limit are permitted based on compensating factors.
Countrywide's underwriting standards are applied in accordance with
applicable federal and state laws and regulations and require an independent
appraisal of the mortgaged property which conforms to Federal Home Loan
Mortgage Corporation ("FHLMC") and Federal National Mortgage Corporation
("FNMA") standards. Each appraisal includes a market data analysis based on
recent sales of comparable homes in the area and, where deemed appropriate,
replacement cost analysis based on the current cost of constructing a similar
home and generally is required to have been made not earlier than 180 days
prior to the date of origination of the mortgage loan. Every independent
appraisal is reviewed by a Countrywide representative before the loan is
funded, and an additional drive-by appraisal is generally performed in
connection with loan amounts over $350,000 with 80% or higher loan-to-value
ratios. A drive-by appraisal is an exterior examination of the premises by
the appraiser to determine that the property is in good condition. In most
cases, properties that are not in good condition (including properties
requiring major deferred maintenance) are not acceptable as collateral for
a B&C loan. The maximum loan amount varies depending upon a borrower's
credit grade and documentation level but does not generally exceed $500,000.
Variations in maximum loan amount limits are permitted based on compensating
factors.
Countrywide's underwriting standards permit loans with loan-to-value
ratios or combined loan-to-value ratios (for second mortgage loans) at
origination of up to 90% depending on the program, type and use of the
property, creditworthiness of the borrower and debt-to-income ratio.
Countrywide requires title insurance on all B&C quality mortgage loans.
Countrywide also requires that fire and extended coverage casualty insurance
be maintained on the mortgaged property in an amount at least equal to the
principal balance or the replacement cost of the mortgaged property,
whichever is less.
Countrywide's B&C mortgage loan underwriting standards are less
stringent than the standards generally acceptable to FNMA and FHLMC with
regard to the borrower's credit standing and repayment ability because the
standards focus more on the value of the mortgaged property. Borrowers who
qualify generally have payment histories and debt-to-income ratios which
would not satisfy FNMA and FHLMC underwriting guidelines and may have a
record of major derogatory credit items such as outstanding judgments or
prior bankruptcies. Countrywide's B&C mortgage loan underwriting guidelines
establish the maximum permitted loan-to-value ratio for each loan type based
upon these and other risk factors with more risk factors resulting in lower
loan-to-value ratios.
Countrywide underwrites or originates B&C quality mortgage loans
pursuant to alternative sets of underwriting criteria under its Full
Documentation Loan Program (the "Full Doc Program"), Simple Documentation
Loan Program (the "Simple Doc Program") and Stated Income Loan Program (the
"Stated Income Program"). Under each of the underwriting programs,
Countrywide verifies the loan applicant's sources of income (except under the
Stated Income Program), calculates the amount of income from all sources
indicated on the loan application, reviews the credit history of the
applicant, calculates the debt-to-income ratio to determine the applicant's
ability to repay the loan, and reviews the appraisal of the mortgaged
property for compliance with Countrywide's underwriting standards.
The Simple Doc Program is an alternative documentation program whereby
income is verified using methods other than those employed by FNMA and FHLMC.
Under the Simple Doc Program, acceptable documentation of income consists of
six months' bank statements. In the case of self-employed individuals,
acceptable alternative documentation consists of a profit and loss statement
supported by a record of bank statements. Maximum loan-to-value ratios and
maximum loan amounts are generally lower than those permitted under the Full
Doc Program.
Under the Stated Income Program, the borrower's employment and income
sources must be stated on the borrower's application. The borrower's income
as stated must be reasonable for the related occupation and such
determination as to reasonableness is subject to the loan underwriter's
discretion. However, the borrower's income as stated on the application is
not independently verified. Maximum loan-to-value ratios are generally lower
than those permitted under the Full Doc Program. Except as otherwise stated
above, the same mortgage credit, consumer credit and collateral related
underwriting guidelines apply.
Under the Full Doc, Simple Doc, and Stated Income Programs, various risk
categories are used to grade the likelihood that the mortgagor will satisfy
the repayment conditions of the mortgage loan. These risk categories
establish the maximum permitted loan-to-value ratio, debt-to-income ratio and
loan amount, given the occupancy status of the mortgaged property and the
borrower's credit history and debt-to-income ratio. In general, higher debt-
to-income ratios and more (or more recent) major derogatory credit items such
as outstanding judgments or prior bankruptcies result in a loan being graded
in a higher credit risk category.
Closed End Second Mortgage Loans. The following is a description of the
underwriting procedures customarily employed by Countrywide with respect to
closed end second mortgage loans. The underwriting process is intended to
assess the applicant's credit standing and repayment ability, and the value
and adequacy of the real property security as collateral for the proposed
loan. Exceptions to Countrywide's underwriting guidelines will be made when
compensating factors are present. Such factors include the borrower's
employment stability, credit history, disposable income, demonstrated savings
ability, equity in the related property and the nature of the underlying
first mortgage loan.
Each applicant for a closed end second mortgage loan is required to
complete an application which lists the applicant's assets, liabilities,
income, credit and employment history and other demographic and personal
information. If information in the loan application demonstrates that there
is sufficient income and equity in the real property to justify making a
closed end second mortgage loan, Countrywide will conduct a further credit
investigation of the applicant. This investigation includes obtaining and
reviewing an independent credit bureau report on the credit history of the
applicant in order to evaluate the applicant's ability to repay. The credit
report typically contains information relating to such matters as credit
history with local merchants and lenders, installment and revolving debt
payments and any record of delinquencies, defaults, bankruptcy, collateral
repossessions, suits or judgments.
Countrywide originates or acquires mortgage loans pursuant to
alternative sets of underwriting criteria under its Alternative Documentation
Loan Program (the "Alternative Documentation Program") and its Reduced
Documentation Loan Program (the "Reduced Documentation Program"). The
Alternative Documentation Program permits a borrower to provide W-2 forms
instead of tax returns covering the most recent two years, permits bank
statements in lieu of verifications of deposits and permits alternative
methods of employment verification. Under the Reduced Documentation Program,
relatively more emphasis is placed on property underwriting than on credit
underwriting and certain credit underwriting documentation concerning income
and employment verification therefore is waived. Mortgage loans underwritten
under the Reduced Documentation Program are limited to self-employed
borrowers with credit histories that demonstrate an established ability to
repay indebtedness in a timely fashion.
Full appraisals are generally performed on all closed end second
mortgage loans which at origination had a principal balance greater than
$100,000. Such appraisals are determined on the basis of a Countrywide-
approved, independent third-party, fee-based appraisal completed on forms
approved by FNMA or FHLMC. For loans which had at origination a principal
balance equal to or less than $100,000, a drive-by evaluation is generally
completed by a state licensed, independent third-party, professional
appraiser on forms approved by either FNMA or FHLMC. The drive-by evaluation
is an exterior examination of the premises by the appraiser to determine that
the property is in good condition. The appraisal is based on various
factors, including the market value of comparable homes and the cost of
replacing the improvement and generally is required to have been made not
earlier than 150 days prior to the date of origination of the Mortgage Loan.
The minimum and maximum loan amounts for closed end second mortgage loans are
currently $10,000 and $500,000, respectively.
After obtaining all applicable employment, credit and property
information, Countrywide uses a debt-to-income ratio to assist in determining
whether the prospective borrower has sufficient monthly income available to
support the payments on the closed end second mortgage loan in addition to
any senior mortgage loan payments (including any escrows for property taxes
and hazard insurance premiums) and other monthly credit obligations. The
"debt-to-income ratio" is the ratio of the borrower's total monthly payments
(assumed to be based on the applicable fully indexed interest rate) to the
borrower's gross monthly income. Based on the foregoing, for loans with
Combined Loan-to-Value Ratios of 90% or less, the maximum monthly debt-to-
income ratio is 45%. For loans with Combined Loan-to-Value Ratios greater
than 90%, the maximum monthly debt-to-income ratio is generally 40%.
Variations in the monthly debt-to-income ratios limits are permitted based
on compensating factors. Countrywide currently offers closed end second
mortgage loan products that allow maximum Combined Loan-to-Value Ratios of
70%, 80%, 90% and 100%.
It is generally Countrywide's policy to require a title search or
limited coverage policy before it makes a closed end second mortgage loan for
amounts less than or equal to $100,000. In addition, if the closed end
second mortgage loan has an original principal balance of $100,000 or more,
Countrywide requires that the borrower obtain an American Land Title
Association ("ALTA") policy, or other assurance of title customary in the
relevant jurisdiction. In addition, ALTA title policies are generally
obtained in situations where the property is on leased land or there has been
a change in title or such closed end second mortgage loan is in first lien
position.
SERVICING OF THE MORTGAGE LOANS
GENERAL
The Master Servicer will service the Mortgage Loans in accordance with
the terms set forth in the Pooling and Servicing Agreement. The Master
Servicer may perform any of its obligations under the Pooling and Servicing
Agreement through one or more subservicers. Notwithstanding any such
subservicing arrangement, the Master Servicer will remain liable for its
servicing duties and obligations under the Pooling and Servicing Agreement
as if the Master Servicer alone were servicing the Mortgage Loans. As of the
Closing Date, the Master Servicer will service the Mortgage Loans without
subservicing arrangements.
THE MASTER SERVICER
Countrywide Home Loans, Inc. ("Countrywide"), a New York corporation and
a subsidiary of Countrywide Credit Industries, Inc., will act as the Master
Servicer of the Mortgage Loans pursuant to the Pooling and Servicing
Agreement. Countrywide is engaged primarily in the mortgage banking business,
and as such, originates, purchases, sells and services mortgage loans.
Countrywide originates mortgage loans through a retail branch system and
through mortgage loan brokers and correspondents nationwide. Countrywide's
mortgage loans are principally first-lien, fixed or adjustable rate mortgage
loans secured by single-family residences.
As of October 31, 1996, Countrywide provided servicing for approximately
$499 million and $65 million in B&C quality mortgages and closed end second
mortgage loans, respectively. As of October 31, 1996, Countrywide also
provided servicing for prime quality mortgage loans with an aggregate
principal balance of approximately $151 billion, substantially all of which
are being serviced for unaffiliated persons.
The principal executive offices of Countrywide are located at 155 North
Lake Avenue, Pasadena, California 91101-7139. Its telephone number is (818)
304-8400. Countrywide conducts operations from its headquarters in Pasadena
and from offices throughout the nation.
LOAN SERVICING
Countrywide services substantially all of the mortgage loans it
originates or acquires. Countrywide has established standard policies for the
servicing and collection of mortgage. Servicing includes, but is not limited
to, collecting, aggregating and remitting mortgage loan payments, accounting
for principal and interest, holding escrow (impound) funds for payment of
taxes and insurance, making inspections as required of the mortgaged
properties, preparation of tax related information in connection with the
mortgage loans, supervision of delinquent mortgage loans, loss mitigation
efforts, foreclosure proceedings and, if applicable, the disposition of
mortgaged properties, and generally administering the mortgage loans, for
which it receives servicing fees.
Billing statements with respect to mortgage loans are mailed monthly by
Countrywide. The statement details all debits and credits and specifies the
payment due. Notice of changes in the applicable loan rate are provided by
Countrywide to the mortgagor with such statements. All payments are due by
the first day of the month.
COLLECTION PROCEDURES
B&C Quality Mortgage Loans. When a mortgagor fails to make a payment
on a B&C quality mortgage loan, Countrywide attempts to cause the deficiency
to be cured by corresponding with the mortgagor. In most cases, deficiencies
are cured promptly. Pursuant to Countrywide's B&C servicing procedures,
Countrywide generally mails to the mortgagor a notice of intent to foreclose
after the loan becomes 31 days past due (two payments due but not received)
and, within 30 days thereafter, if the loan remains delinquent, institutes
appropriate legal action to foreclose on the mortgaged property. Foreclosure
proceedings may be terminated if the delinquency is cured. Mortgage loans to
borrowers in bankruptcy proceedings may be restructured in accordance with
law and with a view to maximizing recovery of such loans, including any
deficiencies.
Once foreclosure is initiated by Countrywide, a foreclosure tracking
system is used to monitor the progress of the proceedings. The system
includes state specific parameters to monitor whether proceedings are
progressing within the time frame typical for the state in which the
mortgaged property is located. During the foreclosure proceeding, Countrywide
determines the amount of the foreclosure bid and whether to liquidate the
mortgage loan.
After foreclosure, Countrywide may liquidate the mortgaged property and
charge-off the loan balance which was not recovered through liquidation
proceeds. If foreclosed, the mortgaged property is sold at a public or
private sale and may be purchased by Countrywide.
Servicing and charge-off policies and collection practices with respect
to B&C quality mortgage loans may change over time in accordance with, among
other things, Countrywide's business judgment, changes in the servicing
portfolio and applicable laws and regulations.
Closed End Second Mortgage Loans. With respect to closed end second
mortgage loans, the general policy of Countrywide is to initiate foreclosure
in the underlying property (i) after such loan is 60 days or more delinquent
and satisfactory arrangements cannot be made with the Mortgagor; or (ii) if
a notice of default on a senior lien is received by Countrywide. Foreclosure
proceedings may be terminated if the delinquency is cured. Closed end second
mortgage loans to borrowers in bankruptcy proceedings may be restructured in
accordance with law and with a view to maximizing recovery of such loans,
including any deficiencies.
Once foreclosure is initiated by Countrywide, a foreclosure tracking
system is used to monitor the progress of the proceedings. The system
includes state specific parameters to monitor whether proceedings are
progressing within the time frame typical for the state in which the property
is located. During the foreclosure proceeding, Countrywide determines the
amount of the foreclosure bid and whether to liquidate the loan.
After foreclosure, if the closed end second mortgage loan is secured by
a first mortgage lien, Countrywide may liquidate the Mortgaged Property and
charge off the closed end second mortgage loan balance which was not
recovered through liquidation proceeds. If the Mortgaged Property was
subject to a senior lien, Countrywide will either directly manage the
foreclosure sale of the property and satisfy such lien at the time of sale
or take other action as deemed necessary to protect the interest in the
Mortgaged Property. If in the judgment of Countrywide, the cost of
maintaining or purchasing the senior lien position exceeds the economic
benefit of such action, Countrywide will generally charge off the entire
closed end second mortgage loan and may seek a money judgment against the
borrower where permitted by applicable state law.
Servicing and charge-off policies and collection practices with respect
to closed end second mortgage loans may change over time in accordance with,
among other things, Countrywide's business judgment, changes in the portfolio
and applicable laws and regulations.
FORECLOSURE AND DELINQUENCY EXPERIENCE
B&C Quality Mortgage Loans. The following table summarizes the
delinquency experience of Countrywide's B&C quality mortgage loans as of
October 31, 1996. A B&C quality mortgage loan is characterized as delinquent
if the borrower has not paid the monthly payment due within one month of the
Due Date. Since Countrywide only began servicing B&C quality mortgage loans
in August 1995, the delinquency percentages may be affected by the size and
relative lack of seasoning of the servicing portfolio because many of such
loans were not outstanding long enough to give rise to some or all of the
periods of delinquency indicated in the chart below. Accordingly, the
information should not be considered as a basis for assessing the likelihood,
amount, or severity of delinquency or losses on the applicable Mortgage
Loans, and no assurances can be given that the delinquency experience
presented in the table below or that the foreclosure experience presented in
the paragraph below the table will be indicative of such experience on such
Mortgage Loans.
DELINQUENCY STATUS AS OF OCTOBER 31, 1996*
<TABLE>
<CAPTION> Dollars Percent Units Percent
<S> <S> <S>
Current . . . . . . . . . . . $411,140,554.03 96.17% 4183 96.29%
30-59 days . . . . . . . . . . 8,775,140.72 2.05% 94 2.16%
60-90 days . . . . . . . . . . 2,020,669.88 0.47% 20 0.46%
90+ days . . . . . . . . . . . 318,613.45 0.07% 3 0.07%
Foreclosures . . . . . . . . . 2,964,418.70 0.69% 28 0.64%
Bankruptcy . . . . . . . . . . 2,316,147.23 0.54% 16 0.37%
TOTAL . . . . . . . . . . $427,535,544.01 100.00% 4,344 100.00%
</TABLE>
Delinquencies shown in the table are reported on a contractual basis.
The table does not include 760 B&C quality mortgage loans with principal
balances aggregating $71,491,984.76 that were sold, but were being serviced
on an interim basis pending transfer of servicing, as of October 31, 1996.
As of the date hereof, servicing with respect to such mortgage loans has been
transferred.
Historically, a variety of factors, including the appreciation of real
estate values, have limited the loss and delinquency experience on B&C
quality mortgage loans. There can be no assurance that factors beyond
Countrywide's control, such as national or local economic conditions or
downturn in the real estate markets of its lending areas, will not result in
increased rates of delinquencies and foreclosure losses in the future.
Closed End Second Mortgage Loans. The following table summarizes the
delinquency experience on the dates indicated, of closed end second mortgage
loans serviced by Countrywide. Since Countrywide only began servicing closed
end second mortgage loans in August 1995, the delinquency percentages may be
affected by the size and relative lack of seasoning of the servicing
portfolio because many of such loans were not outstanding long enough to give
rise to some or all of the periods of delinquency indicated in the chart
below. Accordingly, the information should not be considered as a basis for
assessing the likelihood, amount or severity of delinquency or losses on the
applicable Mortgage Loans and no assurances can be given that the delinquency
experience presented in the tables below or that the foreclosure experience
presented in the paragraphs below the tables will be indicative of such
experience on such Mortgage Loans:
DELINQUENCY STATUS AS OF OCTOBER 31, 1996*
<TABLE>
<CAPTION> Dollars Percent Units Percent
<S> <C> <C> <C> <C>
Current . . . . . . . . . . . . . . . $ 65,297,398.32 99.99% 1876 99.95%
30-59 days . . . . . . . . . . . . . . $ 8,301.34 0.01% 1 0.05%
60-90 days . . . . . . . . . . . . . . 0 0.00% 0 0.00%
90+ days . . . . . . . . . . . . . . . 0 0.00% 0 0.00%
Foreclosures . . . . . . . . . . . . . 0 0.00% 0 0.00%
Bankruptcy . . . . . . . . . . . . . . 0 0.00% 0 0.00%
TOTAL . . . . . . . . . . . . . . $65,305,699.66 100.00% 1877 100.00%
</TABLE>
* Delinquencies are reported on a contractual basis.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Master Servicer will be paid a monthly fee from interest collected
with respect to each Mortgage Loan (as well as from any liquidation proceeds
from a Liquidated Mortgage Loan that are applied to accrued and unpaid
interest) equal to one-twelfth of the Stated Principal Balance thereof
multiplied by the Servicing Fee Rate (such product, the "Servicing Fee"). The
"Servicing Fee Rate" for each Mortgage Loan will equal 0.50% per annum. The
amount of the monthly Servicing Fee is subject to adjustment with respect to
prepaid Mortgage Loans, as described herein under "--Adjustment to Servicing
Fee in Connection with Certain Prepaid Mortgage Loans." The Master Servicer
is also entitled to receive, as additional servicing compensation, amounts
in respect of interest paid on Principal Prepayments (as defined below)
received from the 2nd day through the 15th day of a month ("Prepayment
Interest Excess"), all late payment fees, assumption fees, prepayment
penalties and other similar charges and all reinvestment income earned on
amounts on deposit in the Certificate Account and Distribution Account. The
Master Servicer is obligated to pay certain ongoing expenses associated with
the Mortgage Loans and incurred by the Trustee in connection with its
responsibilities under the Pooling and Servicing Agreement.
ADJUSTMENT TO SERVICING FEE IN CONNECTION WITH CERTAIN PREPAID MORTGAGE LOANS
When a borrower prepays all or a portion of a Mortgage Loan between
scheduled monthly payment dates ("Due Dates"), the borrower pays interest on
the amount prepaid only to the date of prepayment. Principal Prepayments (as
defined below) received from the 2nd day through the 15th day of a month are
included in the related distribution on the 25th day of the same month, and
accordingly no shortfall in interest otherwise distributable to Holders of
Certificates of the related Certificate Group results. Conversely, Principal
Prepayments received from the 16th day of a month to the first day of the
following month are not distributed until the 25th day of such following
month, and accordingly an interest shortfall (a "Prepayment Interest
Shortfall") would result. In order to mitigate the effect of any such
shortfall in interest distributions to Holders of Certificates of the related
Certificate Group on any Distribution Date, one-half of the amount of the
Servicing Fee otherwise payable to the Master Servicer in respect of the
related Loan Group for such month shall, to the extent of such shortfall, be
deposited by the Master Servicer in the Certificate Account for distribution
to Holders of Certificates of the related Certificate Group on such
Distribution Date. However, any such reduction in the Servicing Fee will be
made only to the extent of one-half of the Servicing Fee otherwise payable
to the Master Servicer with respect to Scheduled Payments on Mortgage Loans
in the related Loan Group having the Due Date to which such Distribution Date
relates. Any such deposit by the Master Servicer will be reflected in the
distributions to Holders of Certificates of the related Certificate Group
made on the Distribution Date on which the Principal Prepayment received
would be distributed.
ADVANCES
Subject to the following limitations, on the Business Day prior to each
Distribution Date, the Master Servicer will be required to advance its own
funds, or funds in the Certificate Account that do not constitute Available
Funds (as defined herein) for such Distribution Date, in an amount equal to
the aggregate of payments of principal and interest on the Mortgage Loans
(adjusted to the applicable Net Mortgage Rate) that were due during the
related Due Period and delinquent on the related Determination Date, together
with an amount equivalent to interest (adjusted to the applicable Net
Mortgage Rate) deemed due on each Mortgage Loan as to which the related
Mortgaged Property has been acquired by the Master Servicer through
foreclosure or deed-in-lieu of foreclosure in connection with a defaulted
Mortgage Loan ("REO Property"), such latter amount to be calculated after
taking into account any rental income from such Mortgaged Property (any such
advance, an "Advance", and the date of any such Advance, as described herein,
a "Master Servicer Advance Date").
Advances are intended to maintain a regular flow of scheduled interest
and principal payments on the Offered Certificates rather than to guarantee
or insure against losses. The Master Servicer is obligated to make Advances
with respect to delinquent payments of principal of or interest on each
Mortgage Loan (with such payments of interest adjusted to the related Net
Mortgage Rate) to the extent that such Advances are, in its judgment,
reasonably recoverable from future payments and collections or insurance
payments or proceeds of liquidation of the related Mortgage Loan. If the
Master Servicer determines on any Determination Date to make an Advance, such
Advance will be included with the distribution to Holders of Certificates of
the related Certificate Group on the related Distribution Date. Any failure
by the Master Servicer to make an Advance as required under the Pooling and
Servicing Agreement will constitute an event of default thereunder, in which
case the Trustee, as successor master servicer, or such other entity as may
be appointed as successor master servicer, will be obligated to make any such
Advance in accordance with the terms of the Pooling and Servicing Agreement.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Offered Certificates will be issued pursuant to a Pooling and
Servicing Agreement, dated as of November 1, 1996 (the "Pooling and Servicing
Agreement"), among the Depositor, the Master Servicer, the Seller and the
Trustee. Set forth below are summaries of the material terms and provisions
pursuant to which the Offered Certificates will be issued. The following
summaries are subject to, and are qualified in their entirety by reference
to, the provisions of the Pooling and Servicing Agreement. When particular
provisions or terms used in the Pooling and Servicing Agreement are referred
to, the actual provisions (including definitions of terms) are incorporated
by reference.
The CWABS, Inc. Asset-Backed Certificates, Series 1996-1 will consist
of (i) the Class A-1 Certificates (the "Class A-1 Certificates"), (ii) the
Class A-2 Certificates (the "Class A-2 Certificates") and (iii) the Class A-3
Certificates (the "Class A-3 Certificates" and, together with the Class A-1
Certificates and the Class A-2 Certificates the "Offered Certificates") and
(v) the Class R Certificates (the "Residual Certificates"). The Offered
Certificates and the Residual Certificates are collectively referred to
herein as the "Certificates." Only the Offered Certificates are offered
hereby.
The Offered Certificates will have an initial Certificate Principal
Balance of approximately $299,835,000 and will evidence a senior beneficial
ownership interest in the Trust Fund. The remaining beneficial ownership
interest in the Trust Fund will be evidenced by the Residual Certificates,
which do not have a principal balance and will evidence a residual interest
in the Trust Fund. The rights of the Residual Certificateholders to receive
distributions with respect to the Mortgage Loans will be subordinate to the
rights of the Offered Certificateholders, to the extent described herein.
The Offered Certificates will be issued in book-entry form as described
below. The Offered Certificates will be issued in minimum dollar
denominations of $25,000 and integral multiples of $1,000 in excess thereof.
The assumed final maturity date of the Class A-1 Certificates is the
Distribution Date occurring in _____ 20__, which is the Distribution Date
immediately following the latest scheduled maturity date of any Group 1
Mortgage Loan. The assumed final maturity date of the Class A-3 Certificates
is the Distribution Date occurring in _______, 20__, which is thirteen months
after the Distribution Date immediately following the latest scheduled
maturity date of any Group 2 Mortgage Loan. The assumed final maturity date
of the Class A-2 Certificates is the Distribution Date occurring in ______,
20__, and has been calculated on the basis of assumptions set forth under
"Yield, Prepayment and Maturity Considerations - Weighted Average Lives of
the Group 2 Certificates" and the assumption that there are no prepayments
on the Mortgage Loans in Loan Group 2.
BOOK-ENTRY CERTIFICATES
The Offered Certificates will be book-entry Certificates (the "Book-
Entry Certificates"). Persons acquiring beneficial ownership interests in
the Offered Certificates ("Certificate Owners") may elect to hold their
Offered Certificates through the Depository Trust Company ("DTC") in the
United States, or CEDEL or Euroclear (in Europe) if they are participants of
such systems, or indirectly through organizations which are participants in
such systems. The Book-Entry Certificates will be issued in one or more
certificates which equal the aggregate principal balance of the Offered
Certificates and will initially be registered in the name of Cede & Co., the
nominee of DTC. CEDEL and Euroclear will hold omnibus positions on behalf
of their participants through customers' securities accounts in CEDEL's and
Euroclear's names on the books of their respective depositaries which in turn
will hold such positions in customers' securities accounts in the
depositaries' names on the books of DTC. Citibank will act as depositary for
CEDEL and Chase will act as depositary for Euroclear (in such capacities,
individually the "Relevant Depositary" and collectively the "European
Depositaries"). Investors may hold such beneficial interests in the Book-
Entry Certificates in minimum denominations representing Class Certificate
Principal Balances of $25,000 and integral multiples of $1,000 in excess
thereof. Except as described below, no person acquiring a Book-Entry
Certificate (each, a "beneficial owner") will be entitled to receive a
physical certificate representing such Offered Certificate (a "Definitive
Certificate"). Unless and until Definitive Certificates are issued, it is
anticipated that the only Certificateholder of the Offered Certificates will
be Cede & Co., as nominee of DTC. Certificate Owners will not be
Certificateholders as that term is used in the Agreement. Certificate Owners
are only permitted to exercise their rights indirectly through the
participating organizations that utilize the services of DTC, including
securities brokers and dealers, banks and trust companies and clearing
corporations and certain other organizations ("Participants") and DTC.
The beneficial owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or
other financial intermediary (each, a "Financial Intermediary") that
maintains the beneficial owner's account for such purpose. In turn, the
Financial Intermediary's ownership of such Book-Entry Certificate will be
recorded on the records of DTC (or of a participating firm that acts as agent
for the Financial Intermediary, whose interest will in turn be recorded on
the records of DTC, if the beneficial owner's Financial Intermediary is not
a DTC participant and on the records of CEDEL or Euroclear, as appropriate).
Certificate Owners will receive all distributions of principal of, and
interest on, the Offered Certificates from the Trustee through DTC and DTC
participants. While the Offered Certificates are outstanding (except under
the circumstances described below), under the rules, regulations and
procedures creating and affecting DTC and its operations (the "Rules"), DTC
is required to make book-entry transfers among Participants on whose behalf
it acts with respect to the Offered Certificates and is required to receive
and transmit distributions of principal of, and interest on, the Offered
Certificates. Participants and organizations which have indirect access to
the DTC system, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly ("Indirect Participants"), with whom Certificate
Owners have accounts with respect to Offered Certificates are similarly
required to make book-entry transfers and receive and transmit such
distributions on behalf of their respective Certificate Owners. Accordingly,
although Certificate Owners will not possess certificates, the Rules provide
a mechanism by which Certificate Owners will receive distributions and will
be able to transfer their interest.
Certificate Owners will not receive or be entitled to receive
certificates representing their respective interests in the Offered
Certificates, except under the limited circumstances described below. Unless
and until Definitive Certificates are issued, Certificate Owners who are not
Participants may transfer ownership of Offered Certificates only through
Participants and Indirect Participants by instructing such Participants and
Indirect Participants to transfer Offered Certificates, by book-entry
transfer, through DTC for the account of the purchasers of such Offered
Certificates, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of Offered Certificates will be executed through DTC and the
accounts of the respective Participants at DTC will be debited and credited.
Similarly, the Participants and Indirect Participants will make debits or
credits, as the case may be, on their records on behalf of the selling and
purchasing Certificate Owners.
Because of time zone differences, credits of securities received in
CEDEL, 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. Such credits or any
transactions in such securities, settled during such processing will be
reported to the relevant Euroclear or CEDEL Participants on such business
day. Cash received in CEDEL or Euroclear, as a result of sales of securities
by or through a CEDEL Participant (as defined, below) or Euroclear
Participant (as defined below) to a DTC Participant, will be received with
value on the DTC settlement date but will be available in the relevant CEDEL
or Euroclear cash account only as of the business day following settlement
in DTC. For information with respect to tax documentation procedures,
relating to the Offered Certificates, see "Federal Income Tax Consequences--
Foreign Investors" and "--Backup Withholding" herein and "Global, Clearance,
Settlement And Tax Documentation Procedures--Certain U.S. Federal Income Tax
Documentation Requirements" in Annex I hereto.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL 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 CEDEL
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, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterpart in such 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. CEDEL Participants and Euroclear Participants may not deliver
instructions directly to the European Depositaries.
DTC, which is a New York-chartered limited purpose trust company,
performs services for its participants, some of which (and/or their
representatives) own DTC. In accordance with its normal procedures, DTC is
expected to record the positions held by each DTC participant in the Book-
Entry Certificates, whether held for its own account or as a nominee for
another person. In general, beneficial ownership of Book-Entry Certificates
will be subject to the rules, regulations and procedures governing DTC and
DTC participants as in effect from time to time.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations
("CEDEL Participants") and facilitates the clearance and settlement of
securities transactions between CEDEL Participants through electronic book-
entry changes in accounts of CEDEL Participants, thereby eliminating the need
for physical movement of certificates. Transactions may be settled in CEDEL
in any of 28 currencies, including United States dollars. CEDEL provides to
its CEDEL Participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. CEDEL interfaces with domestic markets
in several countries. As a professional depository, CEDEL is subject to
regulation by the Luxembourg Monetary Institute. CEDEL participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. Indirect access to CEDEL is also available
to others, such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a CEDEL Participant, either
directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("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 certificates 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 Morgan Guaranty Trust Company
of New York (the "Euroclear Operator"), under contract with Euroclear
Clearance Systems S.C., a Belgian cooperative corporation (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 (collectively, the "Terms and Conditions"). 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 certificates 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.
Distributions on the Book-Entry Certificates will be made on each
Distribution Date by the Trustee to DTC. DTC will be responsible for
crediting the amount of such payments to the accounts of the applicable DTC
participants in accordance with DTC's normal procedures. Each DTC
participant will be responsible for disbursing such payments to the
beneficial owners of the Book-Entry Certificates that it represents and to
each Financial Intermediary for which it acts as agent. Each such Financial
Intermediary will be responsible for disbursing funds to the beneficial
owners of the Book-Entry Certificates that it represents.
Under a book-entry format, beneficial owners of the Book-Entry
Certificates may experience some delay in their receipt of payments, since
such payments will be forwarded by the Trustee to Cede. Distributions with
respect to Offered Certificates held through CEDEL or Euroclear will be
credited to the cash accounts of CEDEL Participants or Euroclear Participants
in accordance with the relevant system's rules and procedures, to the extent
received by the Relevant Depositary. Such distributions will be subject to
tax reporting in accordance with relevant United States tax laws and
regulations. See "Federal Income Tax Consequences--Foreign Investors" and
"--Backup Withholding" herein. Because DTC can only act on behalf of
Financial Intermediaries, the ability of a beneficial owner to pledge Book-
Entry Certificates to persons or entities that do not participate in the
depository system, or otherwise take actions in respect of such Book-Entry
Certificates, may be limited due to the lack of physical certificates for
such Book-Entry Certificates. In addition, issuance of the Book-Entry
Certificates in book-entry form may reduce the liquidity of such Offered
Certificates in the secondary market since certain potential investors may
be unwilling to purchase Offered Certificates for which they cannot obtain
physical certificates.
Monthly and annual reports on the Trust Fund provided by the Master
Servicer to CEDE, as nominee of DTC, may be made available to beneficial
owners upon request, in accordance with the rules, regulations and procedures
creating and affecting DTC or the Relevant Depositary, and to the Financial
Intermediaries to whose DTC accounts the Book-Entry Certificates of such
beneficial owners are credited.
DTC has advised the Depositor and the Trustee that, unless and until
Definitive Certificates are issued, DTC will take any action permitted to be
taken by the holders of the Book-Entry Certificates under the Agreement only
at the direction of one or more Financial Intermediaries to whose DTC
accounts the Book-Entry Certificates are credited, to the extent that such
actions are taken on behalf of Financial Intermediaries whose holdings
include such Book-Entry Certificates. CEDEL or the Euroclear Operator, as
the case may be, will take any other action permitted to be taken by a Holder
of a Offered Certificate under the Pooling and Servicing Agreement on behalf
of a CEDEL Participant or Euroclear Participant only in accordance with its
relevant rules and procedures and subject to the ability of the Relevant
Depositary to effect such actions on its behalf through DTC. DTC may take
actions, at the direction of the related Participants, with respect to some
Offered Certificates which conflict with actions taken with respect to other
Offered Certificates.
Definitive Certificates will be issued to beneficial owners of the Book-
Entry Certificates, or their nominees, rather than to DTC, only if (a) DTC
or the Depositor advises the Trustee in writing that DTC is no longer
willing, qualified or able to discharge properly its responsibilities as
nominee and depositary with respect to the Book-Entry Certificates and the
Depositor or the Trustee is unable to locate a qualified successor, (b) the
Depositor at its sole option, elects to terminate a book-entry system through
DTC or (c) after the occurrence of an Event of Default (as defined herein),
beneficial owners having not less than 51% of the Voting Rights (as defined
herein) evidenced by the Offered Certificates advise the Trustee and DTC
through the Financial Intermediaries and the DTC participants in writing that
the continuation of a book-entry system through DTC (or a successor thereto)
is no longer in the best interests of beneficial owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as Holders of Offered Certificates under the Pooling and
Servicing Agreement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Certificates among
participants of DTC, CEDEL and Euroclear, they are under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time.
DISTRIBUTIONS
General. Distributions on the Certificates will be made by the Trustee
on the 25th day of each month, or if such day is not a Business Day, on the
first Business Day thereafter, commencing in December 1996 (each, a
"Distribution Date"), to the persons in whose names such Certificates are
registered at the close of business on the last Business Day of the month
preceding the month of such Distribution Date (the "Record Date").
Distributions on each Distribution Date will be made by check mailed to
the address of the person entitled thereto as it appears on the Certificate
Register or, in the case of any Certificateholder that holds 100% of a Class
of Certificates or who holds a Class of Certificates with an aggregate
initial Class Certificate Principal Balance of $1,000,000 or more and that
has so notified the Trustee in writing in accordance with the Pooling and
Servicing Agreement, by wire transfer in immediately available funds to the
account of such Certificateholder at a bank or other depository institution
having appropriate wire transfer facilities; provided, however, that the
final distribution in retirement of the Certificates will be made only upon
presentation and surrender of such Certificates at the Corporate Trust Office
of the Trustee. On each Distribution Date, a Holder of a Certificate will
receive such Holder's Percentage Interest of the amounts required to be
distributed with respect to the applicable Class of Certificates. The
"Percentage Interest" evidenced by a Certificate will equal the percentage
derived by dividing the denomination of such Certificate by the aggregate
denominations of all Certificates of the applicable Class.
DEPOSITS TO THE CERTIFICATE ACCOUNT
The Trustee shall establish and, initially, maintain an account (the
"Certificate Account") on behalf of the Certificateholders and the
Certificate Insurer. Within two Business Days after receipt, the Master
Servicer shall remit to the Trustee (or, in the event the Certificate Account
is maintained with another institution pursuant to the Pooling and Servicing
Agreement, to such institution) for deposit into the Certificate Account the
following payments and collections received or made by it subsequent to the
Cut-off Date (to the extent not applied in computing the Cut-off Date Pool
Principal Balance):
(i) all payments on account of principal, including Principal
Prepayments, on the Mortgage Loans;
(ii) all payments on account of interest (other than interest accruing
on the Mortgage Loans prior to the Cut-off Date) on the Mortgage Loans, net
of the related Servicing Fee;
(iii) all proceeds of any insurance policies (to the extent such
proceeds are not applied to the restoration of the property or released to
the mortgagor in accordance with the Master Servicer's normal servicing
procedures), other than proceeds that represent reimbursement of the Master
Servicer's costs and expenses incurred in connection with presenting claims
under the related insurance policies ("Insurance Proceeds"), all other net
proceeds received in connection with the partial or complete liquidation of
Mortgage Loans (whether through trustee's sale, foreclosure sale or
otherwise) or in connection with any condemnation or partial release of a
Mortgaged Property, together with the net proceeds received with respect to
any Mortgage Properties acquired by the Master Servicer by foreclosure or
deed in lieu of foreclosure in connection with defaulted Mortgage Loans
(other than the amount of such net proceeds representing any profit realized
by the Master Servicer in connection with the disposition of any such
properties) (together with Insurance Proceeds, "Liquidation Proceeds");
(iv) all payments made by the Master Servicer in respect of Prepayment
Interest Shortfalls;
(v) any amount required to be deposited by the Master Servicer in
connection with any losses on investment of funds in the Certificate Account;
(vi) any amounts required to be deposited by the Master Servicer with
respect to any deductible clause in any blanket hazard insurance policy
maintained by the Master Servicer in lieu of requiring each mortgagor to
maintain a primary hazard insurance policy;
(vii) all amounts required to be deposited in connection with
shortfalls in the principal amount of Replacement Mortgage Loans; and
(viii) all Advances.
WITHDRAWALS FROM THE CERTIFICATE ACCOUNT
The Master Servicer (or the Depositor or the Seller, as applicable) may
from time to time direct the Trustee to withdraw funds from the Certificate
Account for the following purposes:
(i) to pay to the Master Servicer the Servicing Fee to the extent not
previously paid to or withheld by the Master Servicer (subject to reduction
as described above under "Servicing of the Mortgage Loans--Adjustment to
Servicing Fee in Connection with Prepaid Mortgage Loans") and, as additional
servicing compensation, prepayment penalties, assumption fees, late payment
charges, net earnings on or investment income with respect to funds in or
credited to the Certificate Account, the amount of Prepayment Interest Excess
for the related Prepayment Period and any Excess Proceeds;
(ii) to reimburse the Master Servicer for Advances, such right of
reimbursement with respect to any Mortgage Loan pursuant to this clause (ii)
being limited to amounts received that represent late recoveries of payments
of principal and/or interest on the Mortgage Loan (or Insurance Proceeds or
Liquidation Proceeds with respect thereto) with respect to which such Advance
was made;
(iii) to reimburse the Master Servicer for any Advances previously made
that the Master Servicer has determined to be nonrecoverable, such right of
reimbursement with respect to any Mortgage Loan pursuant to this clause (iii)
being limited to amounts received in respect of Mortgage Loans in the Loan
Group with respect to which such Advance was made;
(iv) to reimburse the Master Servicer from Insurance Proceeds for
expenses incurred by the Master Servicer and covered by the related insurance
policies;
(v) to pay the Master Servicer any unpaid Servicing Fees and to
reimburse it for any unreimbursed ordinary and necessary out-of-pocket costs
and expenses incurred by the Master Servicer in the performance of its master
servicing obligations, such right of reimbursement pursuant to this clause
(v) being limited to amounts received representing late recoveries of the
payments of such costs and expenses (or Liquidation Proceeds, purchase
proceeds or repurchase proceeds with respect thereto);
(vi) to pay to the Depositor, the Seller or the Master Servicer, as
applicable, with respect to each Mortgage Loan or property acquired in
respect thereof that has been purchased by the Seller or the Master Servicer
from the Trust Fund pursuant to the Pooling and Servicing Agreement, all
amounts received thereon and not taken into account in determining the
related Stated Principal Balance of such repurchased Mortgage Loan;
(vii) to reimburse the Seller, the Master Servicer or the Depositor for
expenses incurred and reimbursable pursuant to the Pooling and Servicing
Agreement, such right of reimbursement pursuant to this clause (vii) being
limited to amounts received in respect of the related Loan Group;
(viii) to withdraw any amount deposited in the Certificate Account and
not required to be deposited therein; and
(ix) to clear and terminate the Certificate Account upon termination
of the Pooling and Servicing Agreement.
In addition, not later than 1:00 p.m. Pacific Time on each Master
Servicer Advance Date, the Trustee shall withdraw from the Certificate
Account the amount of Available Funds for each Loan Group, to the extent on
deposit, and the Trustee shall deposit such amount in the Distribution
Account, as described below.
DEPOSITS TO THE DISTRIBUTION ACCOUNT
The Trustee shall establish and maintain a distribution account (the
"Distribution Account") on behalf of the Certificateholders and the
Certificate Insurer. The Trustee shall, promptly upon receipt, deposit in the
Distribution Account and retain therein (i) the aggregate amount withdrawn
by it from the Certificate Account; (ii) any amount required to be deposited
by the Master Servicer in connection with any losses on investment of funds
in the Distribution Account; and (iii) any Insured Payment made by the
Certificate Insurer.
WITHDRAWALS FROM THE DISTRIBUTION ACCOUNT
The Trustee shall withdraw funds from the Distribution Account for
distribution to the Certificate Insurer and the Certificateholders as
described below under "--Allocation of Available Funds" and may from time to
time make withdrawals from the Distribution Account (i) to pay to the Master
Servicer, as additional servicing compensation, earnings on or investment
income with respect to funds in or credited to the Distribution
Account;(ii) to withdraw any amount deposited in the Distribution Account and
not required to be deposited therein; and (iii) to clear and terminate the
Distribution Account upon the termination of the Pooling and Servicing
Agreement.
ALLOCATION OF AVAILABLE FUNDS
Distributions to Holders of Certificates in each Certificate Group will
be made on each Distribution Date. "Available Funds" as of any Distribution
Date and with respect to a Loan Group, is the sum of the following amounts
(without duplication):
(i) the aggregate amount on deposit in the Certificate Account in
respect of such Loan Group as of the close of business on the immediately
preceding Determination Date;
(ii) Advances in respect of such Loan Group for such Distribution
Date; and
(iii) any amounts deposited by the Master Servicer in the Certificate
Account in respect of Prepayment Interest Shortfalls in respect of
such Loan Group during the related Prepayment Period,
less the sum of:
(x) the portion thereof representing (A) Principal Prepayments and
Liquidation Proceeds received in respect of such Loan Group after the last
day of the related Prepayment Period and (B) all Scheduled Payments or
portions thereof received in respect of scheduled principal and interest on
the Mortgage Loans in such Loan Group due after the preceding Due Date; and
(y) amounts relating to such Loan Group permitted to be withdrawn
from the Certificate Account pursuant to clauses (i)-(viii), inclusive, under
"--Withdrawals from the Certificate Account" above.
On each Distribution Date, the Trustee will withdraw from the
Distribution Account (a) the amount of any Insured Payment and (b) all
Available Funds then on deposit and will distribute the same as follows:
A. Group 1 Certificates. With respect to the Group 1 Certificates, the
Available Funds and Insured Payment relating to such Certificate Group in the
following order of priority:
(i) to the Certificate Insurer, Certificate Group 1's share of the
Premium Amount (except during the pendency of a payment default under the
Certificate Insurance Policy);
(ii) to the Class A-1 Certificateholders, an amount equal to the
Interest Distribution Amount for the Class A-1 Certificates;
(iii) to the Class A-1 Certificateholders, an amount equal to the
related Group Principal Distribution Amount (excluding any Subordination
Increase Amounts included therein); and
(iv) to the Certificate Insurer, the portion of the Reimbursement
Amount relating to Certificate Group 1.
B. Group 2 Certificates. With respect to the Group 2 Certificates, the
Available Funds and Insured Payment relating to such Certificate Group in the
following order of priority:
(i) to the Certificate Insurer, Certificate Group 2's share of the
Premium Amount (except during the pendency of a payment default under the
Certificate Insurance Policy);
(ii) to the Holders of the Group 2 Certificates, pro rata without any
priority among such Certificates, an amount equal to the respective Interest
Distribution Amounts for the classes of Group 2 Certificates;
(iii) sequentially, to the Holders of the Class A-2 Certificates and
the Class A-3 Certificates, an amount equal to the related Group Principal
Distribution Amount (excluding any Subordination Increase Amount included
therein), until the respective Class Certificate Principal Balances thereof
are reduced to zero; and
(iv) to the Certificate Insurer, the portion of the Reimbursement
Amount relating to Certificate Group 2.
C. Crosscollateralization. On any Distribution Date, to the extent
Available Funds and Insured Payments for a Certificate Group are insufficient
to make distributions specified above pursuant to (i) - (iv) of the
applicable subclause, the Available Funds for the other Certificate Group
remaining after making the distributions required to be made pursuant to (i)
- - (iv) of the applicable subclause for such Certificate Group, if any, shall
be distributed to the extent of such insufficiency in accordance with the
priorities for distribution set forth in the subclauses above with respect
to the Certificate Group experiencing such insufficiency.
D. Overcollateralization. On any Distribution Date, to the extent that
there are Available Funds for a Certificate Group remaining after making
distributions required to be made pursuant to (i) - (iv) of the applicable
subclause for such Certificate Group and pursuant to subclause C. above, such
amount shall be applied to the Class Certificate Principal Balance of the
Certificates in such Certificate Group until the Subordinated Amount for such
Certificate Group on such Distribution Date is equal to the Required
Subordinated Amount for such Certificate Group on such Distribution Date.
Thereafter, any remaining Available Funds for such Certificate Group shall
be applied to the other Certificate Group to the extent necessary to provide
that the Subordinated Amount for the other Certificate Group on such
Distribution Date equals the related Required Subordinated Amount for such
Certificate Group and Distribution Date. Any distribution to the Group 2
Certificates pursuant to this subclause D will be made as provided in
subclause B (iii) above.
E. Basis Risk Carryover Amount. After making distributions referred to
in subclauses A, B, C and D above, the Trustee shall make distributions to
the extent of the Available Funds for either Loan Group, to the Class A-1
Certificateholders, the aggregate Class A-1 Basis Risk Carryover Amount.
F. Residual Payment. As more fully described in the Pooling and
Servicing Agreement, the remaining Available Funds for each Loan Group, if
any, for such Distribution Date will be distributed to the Holders of the
Residual Certificates.
OVERCOLLATERALIZATION PROVISIONS
Overcollateralization Resulting from Cash Flow Structure. The Pooling
and Servicing Agreement requires that, on each Distribution Date, the Net
Monthly Excess Cashflow, if any, with respect to a Loan Group is to be
applied to accelerate payment of principal on the Offered Certificates of the
related Certificate Group until the Subordinated Amount for such Certificate
Group is equal to the Required Subordinated Amount for such Certificate Group
and Distribution Date. This application of the Net Monthly Excess Cashflow
has the effect of accelerating the amortization of the Offered Certificates
relative to the amortization of the related Mortgage Loan Group, and of
increasing the Subordinated Amount for the related Certificate Group.
The Pooling and Servicing Agreement provides that in the event of a
permitted reduction in the Required Subordinated Amount for a Certificate
Group, a portion of the amount that would otherwise be distributed as
principal to Holders of the Offered Certificates of such Certificate Group
on such date shall instead be distributed to the Holders of the Residual
Certificates (to the extent not applied to the other Certificate Group). This
application of principal has the effect of decelerating the amortization of
such Offered Certificates relative to the amortization of the related
Mortgage Loan Group, and of reducing the Subordinated Amount for the related
Certificate Group.
The Pooling and Servicing Agreement provides that, on any Distribution
Date, all unscheduled collections on account of principal in respect of a
Loan Group (other than any such amounts applied to the payment of a
Subordination Reduction Amount for the related Certificate Group) during the
related Prepayment Period are to be distributed to the Holders of the Offered
Certificates of the related Certificate Group on such Distribution Date. If
any Mortgage Loan in such Loan Group became a Liquidated Loan during such
Prepayment Period, a Realized Loss could result. The Pooling and Servicing
Agreement does not contain any provision that requires the amount of any
Realized Loss to be distributed to the Holders of the Offered Certificates
of the related Certificate Group on the Distribution Date immediately
following the event of loss; i.e., the Pooling and Servicing Agreement does
not require the current recovery of losses. However, the occurrence of a
Realized Loss with respect to a Loan Group would reduce the Subordinated
Amount for the related Certificate Group, which, to the extent that such
reduction caused the Subordinated Amount for such Certificate Group to be
less than the Required Subordinated Amount for such Certificate Group and
such Distribution Date, would require the payment of a Subordination Increase
Amount for such Certificate Group on such Distribution Date (or, in the event
of insufficient Available Funds for the related Loan Group on such
Distribution Date, on subsequent Distribution Dates, until such Subordinated
Amount equaled the Required Subordinated Amount). The effect of the foregoing
is to allocate losses to the Holders of the Residual Certificates by
reducing, or eliminating entirely, payments of Net Monthly Excess Cashflow
and of Subordination Reduction Amounts that such Holders would otherwise
receive. Investors in the Offered Certificates should realize that, under
extreme loss or delinquency scenarios, they may temporarily receive no
distributions of principal.
Overcollateralization and the Certificate Insurance Policy. The Pooling
and Servicing Agreement requires the Trustee to make a claim for an Insured
Payment for a Certificate Group under the Certificate Insurance Policy not
later than the second two Business Day prior to any Distribution Date as to
which the Trustee has determined that an Available Funds Shortfall with
respect to the related Loan Group is likely to occur, for the purpose of
applying the proceeds of such Insured Payment as a payment of Insured
Distribution Amount for such Certificate Group on such Distribution Date.
CROSSCOLLATERALIZATION
In addition to the use of Net Monthly Excess Cashflow for a Loan Group
to pay interest and principal on the related Certificate Group, Net Monthly
Excess Cashflow for a Loan Group will be available to pay interest and
principal on the other Certificate Group to the extent described under "--
Allocation of Available Funds" above. Furthermore, in addition to the use
of Net Monthly Excess Cashflow with respect to a Loan Group to distribute
Subordination Increase Amounts on the related Certificate Group, Net Monthly
Excess Cashflow will be available to distribute Subordination Increase
Amounts on the other Certificate Group.
DEFINITIONS
The "Accrual Period" for a Distribution Date is (a) in the case of the
Group 1 Certificates, the period commencing on the Distribution Date
occurring in the month immediately preceding the month in which such
Distribution Date occurs (or, in the case of the initial Accrual Period,
commencing on the Closing Date) and ending on the day immediately preceding
such Distribution Date, and (b) in the case of the Group 2 Certificates, the
calendar month preceding the month of such Distribution Date.
The "Available Funds Shortfall" with respect to a Loan Group as of any
Distribution Date is an amount equal to the excess of (i) the sum of (a) the
Interest Distribution Amount for the related Certificate Group for such
Distribution Date and (b) the Subordination Deficit for such Certificate
Group and (ii) Available Funds for such Loan Group (net of the related
Certificate Group's share of the Premium Amount) for such Distribution Date
(but not less than zero).
The "Carry-Forward Amount" for any Certificate Group as of any
Distribution Date equals the sum of (i) the amount, if any, by which (a) the
Insured Distribution Amount for such Certificate Group for the immediately
preceding Distribution Date exceeded (b) the amount actually distributed to
the Holders of each class of Certificates in such Certificate Group on such
Distribution Date in respect of such Insured Distribution Amount (including,
without limitation, any related Insured Payments (as defined herein)) and
(ii) 30 days' interest on such amount in clause (i) at (a) in the case of the
Group 1 Certificates, the applicable Pass-Through Rate for such Distribution
Date and (b) in the case of the Group 2 Certificates, at the weighted average
of the Pass-Through Rates for the Class A-2 Certificates and the Class A-3
Certificates.
The "Class A-1 Available Funds Cap" as of any Distribution Date is a per
annum rate equal to a fraction, expressed as a percentage, the numerator of
which is equal to the excess of (i) the sum of (a) the aggregate amount of
interest due on the Group 1 Mortgage Loans on the related Due Date and (b)
the Subordination Reduction Amount, if any, for Certificate Group 1 and such
Distribution Date, over (ii) the sum of (a) Loan Group 1's share of the
Servicing Fee, (b) Loan Group 1's share of the Premium Amount payable to the
Certificate Insurer and (c) the Group 1 Available Funds Rate Adjustment for
such Distribution Date, and the denominator of which is equal to (1) the
Class Certificate Principal Balance of the Class A-1 Certificates for such
Distribution Date multiplied by (2) the actual number of days elapsed in the
related Accrual Period divided by 360.
The "Class A-1 Basis Risk Carryover Amount" as of any Distribution Date
is equal to the sum of (A) if on such Distribution Date the Pass-Through Rate
for the Class A-1 Certificates is based upon the Class A-1 Available Funds
Cap, the excess of (i) the amount of interest the Class A-1 Certificates
would otherwise be entitled to receive on such Distribution Date had such
rate been calculated as the sum of One-Month LIBOR and the applicable Class
A-1 Margin for such Distribution Date over (ii) the amount of interest
payable on the Class A-1 Certificates at the Class A-1 Available Funds Cap
for such Distribution Date and (B) the Class A-1 Basis Risk Carryover Amount
for all previous Distribution Dates not previously paid pursuant to the "-
Allocation of Available Funds" above together with interest thereon at a rate
equal to the sum of One-Month LIBOR and the applicable Class A-1 Pass-Through
Margin for such Distribution Date. The Certificate Insurance Policy does not
cover the payment, nor do the ratings assigned to the Class A-1 Certificates
address the likelihood of the payment, of any Class A-1 Basis Risk Carryover
Amount.
The "Class A-1 Pass-Through Margin" will equal ____% (__ basis points)
per annum until the first Accrual Period after the Optional Termination Date,
at which time the Class A-1 Pass-Through Margin will equal ____% (__ basis
points) per annum.
The "Class Certificate Principal Balance" of any class of Offered
Certificates, as of any Distribution Date, will be equal to the Class
Certificate Principal Balance thereof on the Closing Date (the "Original
Class Certificate Principal Balance") minus all distributions in respect of
principal allocated thereto on previous Distribution Dates.
A "Due Period" with respect to any Distribution Date is the period
beginning on the second day of the calendar month preceding the calendar
month in which such Distribution Date occurs and ending on the Due Date in
the month in which such Distribution Date occurs.
"Excess Proceeds" with respect to any Liquidated Loan, is the amount by
which Liquidation Proceeds (as defined herein) in respect of such Liquidated
Loan exceeds the sum of (i) the Stated Principal Balance of such Liquidated
Loan as of the date of such liquidation and (ii) interest at the related
Mortgage Rate from the Due Date as to which interest was last paid or
advanced to Certificateholders up to the Due Date in the month in which such
Liquidation Proceeds are required to be distributed on the Stated Principal
Balance of such Liquidated Loan outstanding during each Due Period as to
which such interest was not paid or advanced.
The "Excess Subordinated Amount" for a Certificate Group and
Distribution Date is the amount, if any, by which (i) the Subordinated Amount
for such Certificate Group that would apply on such Distribution Date after
taking into account all distributions to be made on such Distribution Date
(without giving effect to any reductions in such Subordination Amount
attributable to Subordination Reduction Amounts for such Certificate Group
on such Distribution Date) exceeds (ii) the Required Subordinated Amount for
such Certificate Group and such Distribution Date.
The "Group 1 Available Funds Rate Adjustment" as of any Distribution
Date (a) prior to the thirteenth Distribution Date will equal zero and (b)
beginning on the thirteenth Distribution Date will be equal to the product
of (i) the Group 1 Stated Principal Balance on such date and (ii) one-twelfth
of 0.50% (50 basis points).
The "Group Principal Distribution Amount" for any Distribution Date and
Certificate Group equals the lesser of (a) the excess of (i) the sum, as of
such Distribution Date, of (A) the Available Funds for the related Loan Group
less such Certificate Group's share of the Premium Amount for such
Distribution Date and (B) any Insured Payment relating to such Certificate
Group over (ii) the related Interest Distribution Amount for such
Distribution Date and (b) the sum, without duplication, of (i) the portion
of any related Carry-Forward Amount that relates to a shortfall in a
distribution of a Subordination Deficit relating to such Certificate Group,
(ii) all scheduled installments of Mortgage Loan principal due during the
related Due Period that were received by the Master Servicer on or before the
related Determination Date or as to which the Master Servicer made an Advance
on the related Master Servicer Advance Date, together with all unscheduled
recoveries of principal on the Mortgage Loans received by the Master Servicer
during the related Prepayment Period (excluding certain amounts received in
respect of scheduled principal on the Mortgage Loans due after the related
Due Date), in each case in respect of the related Loan Group, (iii) the
Stated Principal Balance of each Mortgage Loan in the related Loan Group that
either was purchased or repurchased, as the case may be, by the Seller, the
Depositor or the Master Servicer during the related Prepayment Period, (iv)
any Substitution Adjustment Amounts delivered by the Seller during the
related Prepayment Period in connection with the substitution of Mortgage
Loans in the related Loan Group, (v) all Liquidation Proceeds collected by
the Master Servicer in respect of the related Loan Group during the related
Prepayment Period (to the extent such Liquidation Proceeds are related to
principal), (vi) the amount of any Subordination Deficit for such Certificate
Group for such Distribution Date, (vii) such Certificate Group's share of the
proceeds received by the Trustee of any termination of the Trust Fund (to the
extent such proceeds are related to principal) and (viii) the amount of any
Subordination Increase Amount for such Certificate Group for such
Distribution Date (to the extent of any Net Excess Monthly Cash Flow
available for such purpose); minus (ix) the amount of any Subordination
Reduction Amount for such Certificate Group for such Distribution Date. In
no event will the Group Principal Distribution Amount with respect to any
Certificate Group and Distribution Date be less than zero or greater than the
then outstanding aggregate Class Certificate Principal Balance of the
Certificates in such Certificate Group.
The "Insured Distribution Amount" for a Certificate Group and
Distribution Date is the sum of (i) on each Distribution Date, the Interest
Distribution Amount for such Certificate Group (ii) on each Distribution
Date, the amount of the Subordination Deficit for such Certificate Group, if
any, and (iii) any Preference Amounts, in each case with respect to such
Distribution Date.
An "Insured Payment" for a Certificate Group and Distribution Date is
the Available Funds Shortfall for the related Loan Group for such
Distribution Date.
The "Interest Distribution Amount" for any Distribution Date and
Certificate Group equals the sum of (i) interest accrued for the related
Accrual Period on the Class Certificate Principal Balance of each class of
Certificates in such Certificate Group at the applicable Pass-Through Rate,
as reduced by the sum of (a) Prepayment Interest Shortfalls in the related
Loan Group, if any, for such Distribution Date to the extent not covered by
one-half of the applicable portion of the Servicing Fee as described above
under "Servicing of the Mortgage Loans--Adjustment to Servicing Fee in
Connection with Certain Prepaid Mortgage Loans" and (b) shortfalls resulting
from the Soldiers' and Sailors' Civil Relief Act of 1940 ("Relief Act
Shortfalls")in the related Loan Group and (ii) that portion of the Carry-
Forward Amount relating to a shortfall (other than a Prepayment Interest
Shortfall or Relief Act Shortfall) in a distribution of an Interest
Distribution Amount in respect of such Certificate Group. The Interest
Distribution Amount is calculated on the basis of (a) in the case of the
Group 1 Certificates, a 360-day year and the actual number of days elapsed
during the related Accrual Period and (b) in the case of the Group 2
Certificates, a 360-day year consisting of twelve 30-day months.
The "Loan Group Stated Principal Balance" of a Loan Group as of any date
is the aggregate Stated Principal Balance of the Mortgage Loans in such Loan
Group as of such date.
The "Net Monthly Excess Cashflow" for any Loan Group and Distribution
Date equals the amount, if any, by which (i) the Available Funds for such
Loan Group and Distribution Date (less the related Certificate Group's share
of the Premium Amount for such Distribution Date) exceeds (ii) the sum of (a)
the aggregate Interest Distribution Amount for such Certificate Group and
Distribution Date plus the amount described in clause (b) of the definition
of Group Principal Distribution Amount for such Certificate Group (calculated
for this purpose without regard to any Subordination Increase Amount for such
Certificate Group or portion thereof included therein) and (b) any
Reimbursement Amount relating to such Certificate Group owed to the
Certificate Insurer.
The "Pass-Through Rate" as to the Class A-1 Certificates for any
Distribution Date shall be the per annum rate equal to the least of (i) the
sum of (a) One-Month LIBOR (as defined in "--Calculation of One-Month LIBOR"
below) and (b) the applicable Class A-1 Pass-Through Margin, (ii) the
Class A-1 Available Funds Cap for such Distribution Date and (iii) _____% per
annum (the "Group 1 Fixed Rate Cap"). The Pass-Through Rate for each class
of Group 2 Certificates for any Distribution Date will be as set forth on the
cover page hereof.
The "Premium Amount" allocable to a Certificate Group and payable to the
Certificate Insurer on any Distribution Date (commencing with the second
Distribution Date) equals one-twelfth of the product of a per annum rate (the
"Premium Percentage") set forth in the Insurance Agreement and the aggregate
Class Certificate Principal Balance of the related Offered Certificates for
such Distribution Date; provided, however, that for any Distribution Date on
which a Certificate Insurer Default has occurred and is continuing, the
Premium Amount will be equal to zero.
A "Principal Prepayment" with respect to any Distribution Date is any
mortgagor payment or other recovery of principal on a Mortgage Loan
(including all proceeds allocable to principal of any Mortgage Loan or
property acquired in respect thereof that has been repurchased by the Seller
or purchased by the Master Servicer) that is received in advance of its
scheduled Due Date and is not accompanied by an amount representing scheduled
interest due on any date or dates in any month or months subsequent to the
month of prepayment.
The "Pool Stated Principal Balance" as of any date is the aggregate
Stated Principal Balance of the Mortgage Loans in all Loan Groups as of such
date.
A "Realized Loss" (i) with respect to any defaulted Mortgage Loan that
is finally liquidated (a "Liquidated Loan") is the amount of loss realized
equal to the portion of the Stated Principal Balance remaining unpaid after
application of all amounts recovered (net of amounts reimbursable to the
Master Servicer for related Advances, expenses and Servicing Fees) towards
interest and principal owing on such Liquidated Loan and (ii) with respect
to certain Mortgage Loans the principal balances or the scheduled payments
of principal and interest of which have been reduced in connection with
bankruptcy proceedings, the amount of such reduction.
The "Reimbursement Amount" for a Certificate Group as of any
Distribution Date is the amount of all Insured Payments relating to such
Certificate Group made by the Certificate Insurer pursuant to the Certificate
Insurance Policy and certain other amounts owed in respect of such
Certificate Group to the Certificate Insurer pursuant to the Insurance
Agreement (together with interest thereon at the Late Payment Rate (as
defined in the Insurance Agreement) that have not been previously repaid as
of such Distribution Date.
The "Required Subordinated Amount" for a Certificate Group as of any
Distribution Date will initially equal a percentage, calculable in accordance
with the Pooling and Servicing Agreement and the Insurance and Indemnity
Agreement dated as of November 1, 1996 (the "Insurance Agreement") among the
Certificate Insurer, the Depositor, Countrywide Home Loans, Inc. and the
Trustee, of the Cut-off Date Principal Balance of the Mortgage Loans in the
related Loan Group. The Pooling and Servicing Agreement and Insurance
Agreement generally provide that the Required Subordinated Amount for a
Certificate Group may, over time, decrease or increase, subject to certain
floors, caps and triggers.
The "Stated Principal Balance" of any Mortgage Loan or related REO
Property equals (i) as of the Cut-off Date and each day thereafter to and
including the first Distribution Date, the Cut-off Date Principal Balance
thereof, and (ii) as of any Distribution Date after the first Distribution
Date, such Cut-off Date Principal Balance minus the sum of (a) the principal
portion of the Scheduled Payments due with respect to such Mortgage Loan or
REO Property during each Due Period ending prior to the immediately preceding
Distribution Date which were received by the Master Servicer as of the close
of business on the Determination Date related to such preceding Distribution
Date or with respect to which Advances were made on the Master Servicer
Advance Date prior to such preceding Distribution Date, (b) all Principal
Prepayments with respect to such Mortgage Loan or REO Property, and all
Liquidation Proceeds to the extent applied by the Master Servicer as
recoveries of principal with respect to such Mortgage Loan or REO Property,
which were received by the Master Servicer as of the close of business on the
Determination Date related to such preceding Distribution Date, and (c) any
Realized Loss with respect thereto applied prior to the close of business on
the Determination Date relating to such preceding Distribution Date;
provided, however, that the Stated Principal Balance of any Mortgage Loan
that becomes a Liquidated Loan will be zero immediately following the
Distribution Date that follows the Prepayment Period in which such Mortgage
Loan becomes a Liquidated Loan.
The "Subordinated Amount" for a Certificate Group with respect to any
Distribution Date is the amount (not less than zero), if any, by which (i)
the related Loan Group Stated Principal Balance immediately following such
Distribution Date exceeds (ii) the aggregate Class Certificate Principal
Balance of the related Certificates as of such Distribution Date after giving
effect to the payment of the Group Principal Distribution Amount for such
Certificate Group on such Distribution Date.
A "Subordination Deficiency Amount" for a Certificate Group with respect
to any Distribution Date is the amount, if any, by which the Required
Subordinated Amount for such Certificate Group as of such Distribution Date
exceeds the Subordinated Amount for such Certificate Group as of such
Distribution Date before taking into account the payment of any related
Subordination Increase Amounts on such Distribution Date.
A "Subordination Deficit" for a Certificate Group with respect to any
Distribution Date is the amount, if any, by which (i) the aggregate Class
Certificate Principal Balance of the related Certificates as of such
Distribution Date, after giving effect to the payment of the Group Principal
Distribution Amount for such Certificate Group on such Distribution Date
(except for any payment to be made as to principal constituting a related
Insured Payment), exceeds (ii) the related Loan Group Stated Principal
Balance immediately following such Distribution Date.
A "Subordination Increase Amount" for a Certificate Group with respect
to any Distribution Date is the lesser of (a) the Subordination Deficiency
Amount for such Certificate Group as of such Distribution Date (after taking
into account the payment of the related Group Principal Distribution Amount
on such Distribution Date (other than any Subordination Increase Amount for
such Certificate Group)) and (b) the amount of Net Monthly Excess Cashflow
for the related Loan Group on such Distribution Date.
The "Subordination Reduction Amount" for a Certificate Group with
respect to any Distribution Date equals the lesser of (i) the Excess
Subordinated Amount for such Certificate Group for such Distribution Date and
(ii) the sum, without duplication, of the amounts specified in clauses
(b)(ii) through (v) and (vii) of the definition of "Principal Distribution
Amount" above.
The "Substitution Adjustment Amount" as of the date of substitution by
the Seller of one or more Replacement Mortgage Loans for one or more Mortgage
Loans that are removed from a Loan Group equals the amount (if any) by which
the aggregate principal balance of such Replacement Mortgage Loans is less
than the aggregate Stated Principal Balance (after application of the
scheduled principal portion of the monthly payments due in the month of
substitution) of all such removed Mortgage Loans.
CALCULATION OF ONE-MONTH LIBOR
On the second LIBOR Business Day (as defined below) preceding the
commencement of each Accrual Period for the Group 1 Certificates (each such
date, an "Interest Determination Date"), the Trustee will determine the
London interbank offered rate for one-month United States dollar deposits
("One-Month LIBOR") for such Accrual Period for the Group 1 Certificates on
the basis of the offered rates of the Reference Banks for one-month United
States dollar deposits, as such rates appear on the Reuters Screen LIBO Page,
as of 11:00 a.m. (London time) on such Interest Determination Date. As used
in this section, "LIBOR Business Day" means a day on which banks are open for
dealing in foreign currency and exchange in London and New York City;
"Reuters Screen LIBO Page" means the display designated as page "LIBO" on the
Reuters Monitor Money Rates Service (or such other page as may replace the
LIBO page on that service for the purpose of displaying London interbank
offered rates of major banks); and "Reference Banks" means leading banks
selected by the Trustee and engaged in transactions in Eurodollar deposits
in the international Eurocurrency market (i) with an established place of
business in London, (ii) whose quotations appear on the Reuters Screen LIBO
Page on the Interest Determination Date in question, (iii) which have been
designated as such by the Trustee and (iv) not controlling, controlled by,
or under common control with, the Depositor, Countrywide or any successor
Master Servicer.
On each Interest Determination Date, One-Month LIBOR for the related
Accrual Period for the Group 1 Certificates will be established by the
Trustee as follows:
(a) If on such Interest Determination Date two or more Reference Banks
provide such offered quotations, One-Month LIBOR for the related Accrual
Period shall be the arithmetic mean of such offered quotations (rounded
upwards if necessary to the nearest whole multiple of 0.03125%).
(b) If on such Interest Determination Date fewer than two Reference
Banks provide such offered quotations, One-Month LIBOR for the related
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.
The "Reserve Interest Rate" shall be the rate per annum that the Trustee
determines to be either (i) the arithmetic mean (rounded upwards if necessary
to the nearest whole multiple of 0.03125%) of the one-month United States
dollar lending rates which New York City banks selected by the Trustee are
quoting on the relevant Interest Determination Date to the principal London
offices of leading banks in the London interbank market or, in the event that
the Trustee can determine no such arithmetic mean, (ii) the lowest one-month
United States dollar lending rate which New York City banks selected by the
Trustee are quoting on such Interest Determination Date to leading European
banks.
The establishment of One-Month LIBOR on each Interest Determination Date
by the Trustee and the Trustee's calculation of the rate of interest
applicable to the Group 1 Certificates for the related Accrual Period shall
(in the absence of manifest error) be final and binding.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Trustee will forward to each
Certificateholder, the Master Servicer, the Depositor and the Certificate
Insurer a statement generally setting forth, among other information:
(i) the amount of the related distribution to Holders of each Class
of Offered Certificates allocable to principal, separately identifying (A)
the aggregate amount of any Principal Prepayments included therein, and (B)
the aggregate of all scheduled payments of principal included therein;
(ii) the amount of such distribution to Holders of each Class of
Offered Certificates allocable to interest;
(iii) the amount of any Insured Payment for a Certificate Group
included in the amounts distributed to each Class of Offered
Certificateholders on such Distribution Date;
(iv) the Carry-Forward Amount for each Certificate Group;
(v) the Class Certificate Principal Balance of each Class of Offered
Certificates after giving effect to the distribution of principal on such
Distribution Date;
(vi) the Pool Stated Principal Balance and the Loan Group Stated
Principal Balance for each Loan Group for the following Distribution Date;
(vii) the Required Subordinated Amount for each Certificate Group and
the Subordinated Amount for each Certificate Group as of such Distribution
Date;
(viii) the related amount of the Servicing Fee for each Loan Group paid
to or retained by the Master Servicer;
(ix) the Pass-Through Rate for the Class A-1 Certificates for such
Distribution Date;
(x) the amount of Advances for each Loan Group included in the
distribution to the related Certificate Group on such Distribution Date;
(xi) the number and aggregate principal amounts of Mortgage Loans in
each Loan Group (A) delinquent (exclusive of Mortgage Loans in foreclosure)
(1) 30 days, (2) 31 to 60 days, (3) 61 to 90 days and (4) 91 or more days,
and (B) in foreclosure and delinquent (1) 30 days, (2) 31 to 60 days, (3) 61
to 90 days and (4) 91 or more days, in each case as of the close of business
on the last day of the calendar month preceding such Distribution Date;
(xii) with respect to any Mortgage Loan that became an REO Property
during the preceding calendar month, the loan number, Stated Principal
Balance and Loan Group of such Mortgage Loan as of the close of business on
the Determination Date preceding such Distribution Date and the date of
acquisition thereof;
(xiii) the total number and principal balance of any REO Properties in
each Loan Group as of the close of business on the Determination Date
preceding such Distribution Date;
(xiv) the aggregate Stated Principal Balance of all Liquidated Loans
in each Loan Group and the aggregate of all Realized Losses relating thereto;
(xv) with respect to any Liquidated Loan, the loan number, Loan Group
Stated Principal Balance and Realized Losses relating thereto; and
(xvi) the amount of any Subordination Deficiency Amount for each
Certificate Group after giving effect to the distribution of principal on
such Distribution Date.
In addition, within a reasonable period of time after the end of each
calendar year, the Trustee will prepare and deliver to each Certificateholder
of record during the previous calendar year a statement containing
information necessary to enable Certificateholders to prepare their tax
returns. Such statements will not have been examined and reported upon by an
independent public accountant.
AMENDMENT
The Pooling and Servicing Agreement may be amended by the Depositor, the
Master Servicer, the Seller and the Trustee, without the consent of
Certificateholders but only with the consent of the Certificate Insurer, for
any of the purposes set forth under "The Agreements--Amendment" in the
Prospectus. In addition, the Pooling and Servicing Agreement may be amended
by the Depositor, the Master Servicer, the Seller and the Trustee with the
consent of the Certificate Insurer and the Holders of a Majority in Interest
of each Class of Certificates affected thereby 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 Certificateholders; provided, however, that no such amendment
may (i) reduce in any manner the amount of, or delay the timing of, payments
required to be distributed on any Certificate without the consent of the
Holder of such Certificate; (ii) adversely affect in any material respect the
interests of the Holders of any Class of Certificates in a manner other than
as described in clause (i) above, without the consent of the Holders of
Certificates of such Class evidencing, as to such Class, Percentage Interests
aggregating 66%; or (iii) reduce the aforesaid percentage of aggregate
outstanding principal amounts of Certificates of each Class, the Holders of
which are required to consent to any such amendment, without the consent of
the Holders of all Certificates of such Class.
OPTIONAL TERMINATION
The Master Servicer will have the right to repurchase all remaining
Mortgage Loans and REO Properties in the Trust Fund and thereby effect early
retirement of all the Certificates, subject to the Pool Stated Principal
Balance of the Mortgage Loans and REO Properties at the time of repurchase
being less than or equal to 10% of Cut-off Date Pool Principal Balance
thereof (the "Optional Termination Date"). Any such purchase of Mortgage
Loans requires the consent of the Certificate Insurer if it would result in
a draw on the Certificate Insurance Policy. In the event that the Master
Servicer does not exercise this option and the Certificate Insurer did not
refuse consenting to such option, the Certificate Insurer will have the
option to purchase, in whole, the Mortgage Loans and REO Properties, if any,
remaining in the Trust Fund on any such Distribution Date. In the event such
option is exercised by the Master Servicer or the Certificate Insurer, the
repurchase will be made at a price equal to the sum of (i) 100% of the Stated
Principal Balance of each Mortgage Loan (other than in respect of REO
Property) plus accrued interest thereon at the applicable Mortgage Rate (or,
if such option is exercised by the Master Servicer, at the applicable Net
Mortgage Rate), (ii) the appraised value of any REO Property (up to the
Stated Principal Balance of the related Mortgage Loan) and (iii) any
unreimbursed out-of-pocket costs and expenses and the principal portion of
Advances, in each case previously incurred by the Master Servicer in the
performance of its servicing obligations. Proceeds from such repurchase will
be included in Available Funds and will be distributed to the
Certificateholders. Any repurchase of the Mortgage Loans and REO Properties
will result in an early retirement of the Certificates.
OPTIONAL PURCHASE OF DEFAULTED LOANS
As to any Mortgage Loan which is delinquent in payment by 91 days or
more, the Master Servicer may, at its option, purchase such Mortgage Loan
from the Trust Fund at a price equal to 100% of the Stated Principal Balance
thereof plus accrued interest thereon at the applicable Net Mortgage Rate
from the date through which interest was last paid by the related mortgagor
or advanced to the first day of the month in which such amount is to be
distributed.
EVENTS OF DEFAULT; MASTER SERVICER TERMINATION TRIGGER EVENT
Events of Default will consist of: (i) any failure by the Master
Servicer to deposit in the Certificate Account or the Distribution Account
the required amounts or remit to the Trustee any payment (including an
Advance required to be made under the terms of the Pooling and Servicing
Agreement) which continues unremedied for five Business Days after written
notice of such failure shall have been given to the Master Servicer by the
Trustee, the Certificate Insurer or the Depositor, or to the Master Servicer
and the Trustee by the Holders of Certificates evidencing not less than 25%
of the Voting Rights evidenced by the Certificates; (ii) any failure by the
Master Servicer to observe or perform in any material respect any other of
its covenants or agreements, or any breach of a representation or warranty
made by the Master Servicer, in the Pooling and Servicing Agreement, which
continues unremedied for 60 days after the giving of written notice of such
failure to the Master Servicer by the Trustee, the Certificate Insurer or the
Depositor, or to the Master Servicer and the Trustee by the Holders of
Certificates evidencing not less than 25% of the Voting Rights evidenced by
the Certificates; or (iii) insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings, and certain actions by or on
behalf of the Master Servicer indicating its insolvency or inability to pay
its obligations. A "Master Servicer Termination Trigger Event" will occur if
certain loss or delinquency levels are exceeded with respect to the Mortgage
Loans, as described in the Insurance Agreement. As of any date of
determination, (i) Holders of the Offered Certificates will be allocated a
percentage of all of the Voting Rights equal to 100% minus the fraction
(expressed as a percentage) whose numerator is the sum of the Required
Subordinated Amounts for each Certificate Group on such date and whose
denominator is the Pool Stated Principal Balance on such date and (ii)
Holders of the Residual Certificates will in the aggregate be allocated all
of the remaining Voting Rights. Voting Rights will be allocated among the
Certificates of each such Class in accordance with their respective
Percentage Interests.
RIGHTS UPON EVENT OF DEFAULT OR MASTER SERVICER TERMINATION TRIGGER EVENT
So long as an Event of Default under the Pooling and Servicing Agreement
remains unremedied, the Trustee shall, but only upon the receipt of
instructions from the Certificate Insurer or the Holders of Certificates
having not less than 25% of the Voting Rights evidenced by the Certificates
(with the prior written consent of the Certificate Insurer), terminate all
of the rights and obligations of the Master Servicer under the Pooling and
Servicing Agreement and in and to the Mortgage Loans, whereupon the Trustee
will succeed to all of the responsibilities and duties of the Master Servicer
under the Pooling and Servicing Agreement, including the obligation to make
Advances. If a Master Servicer Termination Trigger Event occurs, the Trustee
shall, but only upon receipt of written instructions from the Certificate
Insurer, terminate all of the rights and obligations of the Master Servicer
under the Pooling and Servicing Agreement and in and to the Mortgage Loans
as described in the preceding sentence. No assurance can be given that
termination of the rights and obligations of the Master Servicer under the
Pooling and Servicing Agreement would not adversely affect the servicing of
the Mortgage Loans, including the delinquency experience of the Mortgage
Loans.
No Certificateholder, solely by virtue of such Holder's status as a
Certificateholder, will have any right under the Pooling and Servicing
Agreement to institute any proceeding with respect thereto, unless such
Holder previously has given to the Trustee written notice of the continuation
of an Event of Default and unless the Holders of Certificates having not less
than 25% of the Voting Rights evidenced by the Certificates have made written
request to the Trustee to institute such proceeding in its own name as
Trustee thereunder and have offered to the Trustee reasonable indemnity, the
Certificate Insurer shall have consented thereto and the Trustee for 60 days
has neglected or refused to institute any such proceeding.
THE TRUSTEE
The Bank of New York will be the Trustee under the Pooling and Servicing
Agreement. The Depositor and Countrywide may maintain other banking
relationships in the ordinary course of business with the Trustee. Offered
Certificates may be surrendered at the Corporate Trust Office of the Trustee
located at 101 Barclay Street, 12 E., New York, New York 10286, Attention:
Corporate Trust Window or at such other addresses as the Trustee may
designate from time to time.
THE FINANCIAL GUARANTY INSURANCE POLICY
The following information has been supplied by MBIA Insurance
Corporation for inclusion herein.
The Certificate Insurer, in consideration of the payment of the premium
and subject to the terms of the Certificate Insurance Policy, thereby
unconditionally and irrevocably guarantees to any Owner that an amount equal
to each full and complete Insured Payment will be received by the Trustee,
or its successor, on behalf of the Owners from the Insurer, for distribution
by the Trustee to each Owner of each Owner's proportionate share of the
Insured Payment. The Certificate Insurer's obligations under the Certificate
Insurance Policy with respect to a particular Insured Payment shall be
discharged to the extent funds equal to the applicable Insured Payment are
received by the Trustee, whether or not such funds are properly applied by
the Trustee. Insured Payments shall be made only at the time set forth in
the Certificate Insurance Policy, and no accelerated Insured Payments shall
be made regardless of any acceleration of the Offered Certificates, unless
such acceleration is at the sole option of the Certificate Insurer.
Notwithstanding the foregoing paragraph, the Certificate Insurance
Policy does not cover shortfalls, if any, attributable to the liability of
the Trust Fund, the REMIC or the Trustee for withholding taxes, if any
(including interest and penalties in respect of any such liability).
The Certificate Insurer will pay any Insured Payment that is a
Preference Amount on the Business Day following receipt on a Business Day by
the Fiscal Agent (as defined below) of (i) a certified copy of the order
requiring the return of a preference payment, (ii) an opinion of counsel
satisfactory to the Certificate Insurer that such order is final and not
subject to appeal, (iii) an assignment in such form as is reasonably required
by the Certificate Insurer, irrevocably assigning to the Certificate Insurer
all rights and claims of the Owner relating to or arising under the related
Offered Certificates against the debtor which made such preference payment
or otherwise with respect to such preference payment and (iv) appropriate
instruments to effect the appointment of the Certificate Insurer as agent for
such Owner in any legal proceeding related to such preference payment, such
instruments being in a form reasonably satisfactory to the Certificate
Insurer, provided that if such documents are received after 12:00 noon New
York City time on such Business Day, they will be deemed to be received on
the following Business Day. Such payments shall be disbursed to the receiver
or trustee in bankruptcy named in the final order of the court exercising
jurisdiction on behalf of the Owner and not to any Owner directly unless such
Owner has returned principal or interest paid on the related Offered
Certificates to such receiver or trustee in bankruptcy, in which case such
payment shall be disbursed to such Owner.
The Certificate Insurer will pay any other amount payable under the
Certificate Insurance Policy no later than 12:00 noon, New York City time,
on the later of the Distribution Date on which the related Deficiency Amount
(as defined below) is due or the second Business Day following receipt in New
York, New York on a Business Day by State Street Bank and Trust Company,
N.A., as the Certificate Insurer's fiscal agent or any successor fiscal agent
appointed by the Certificate Insurer (the "Fiscal Agent") of a Notice (as
described below); provided that if such Notice is received after 12:00 noon,
New York City time, on such Business Day, it will be deemed to be received
on the following Business Day. If any such Notice received by the Fiscal
Agent is not in proper form or is otherwise insufficient for the purpose of
making a claim under the Certificate Insurance Policy it shall be deemed not
to have been received by the Certificate Insurer's Fiscal Agent for purposes
of this paragraph, and the Certificate Insurer or the Fiscal Agent, as the
case may be, shall promptly so advise the Trustee and the Trustee may submit
an amended Notice.
Insured Payments due under the Policy, unless otherwise stated therein,
will be disbursed by the Fiscal Agent to the Trustee on behalf of the Owners
by wire transfer of immediately available funds in the amount of the Insured
Payment less, in respect of Insured Payments related to Preference Amounts,
any amount held by the Trustee for payment of such Insured Payment and
legally available therefor.
The Fiscal Agent is the agent of the Certificate Insurer only and the
Fiscal Agent shall in no event be liable to Owners for any acts of the Fiscal
Agent or any failure of the Certificate Insurer to deposit, or cause to be
deposited, sufficient funds to make payments due under the Certificate
Insurance Policy.
As used in the Certificate Insurance Policy, the following terms shall
have the following meanings:
"Business Day" means any day other than a Saturday, a Sunday or a day
on which banking institutions in New York City or in the city in which the
corporate trust office of the Trustee under the Pooling and Servicing
Agreement or the Certificate Insurer is located are authorized or obligated
by law or executive order to close.
"Deficiency Amount" means, with respect to a Certificate Group as of any
Distribution Date, the Available Funds Shortfall for the related Loan Group.
"Notice" means the telephonic or telegraphic notice, promptly confirmed
in writing by telecopy substantially in the form of Exhibit A attached to the
Certificate Insurance Policy, the original of which is subsequently delivered
by registered or certified mail, from the Trustee specifying the Insured
Payment which shall be due and owing on the applicable Distribution Date.
"Owner" means each Holder (as defined in the Pooling and Servicing
Agreement) of any Offered Certificate who, on the applicable Distribution
Date, is entitled under the terms of the Offered Certificates to payment
thereunder.
"Preference Amount" means any amount previously distributed to an Owner
on the related Offered Certificates that is recoverable and sought to be
recovered as a voidable preference by a trustee in bankruptcy pursuant to the
United States Bankruptcy Code (11 U.S.C.), as amended from time to time in
accordance with a final nonappealable order of a court having competent
jurisdiction.
Capitalized terms used in the Certificate Insurance Policy and not
otherwise defined in the Certificate Insurance Policy shall have the
respective meanings set forth in the Pooling and Servicing Agreement as of
the date of execution of the Certificate Insurance Policy, without giving
effect to any subsequent amendment or modification to the Pooling and
Servicing Agreement unless such amendment or modification has been approved
in writing by the Certificate Insurer.
Any notice under the Certificate Insurance Policy or service of process
on the Fiscal Agent of the Certificate Insurer may be made at the address
listed below for the Fiscal Agent of the Certificate Insurer or such other
address as the Certificate Insurer shall specify in writing to the Trustee.
The notice address of the Fiscal Agent is 61 Broadway, 15th Floor, New
York, New York, 10006, Attention: Municipal Registrar and Paying Agency, or
such other address as the Fiscal Agent shall specify in writing to the
Trustee.
The Certificate Insurance Policy is being issued under and pursuant to
and shall be construed under, the laws of the State of New York, without
giving effect to the conflict of laws principles thereof.
The insurance provided by the Certificate Insurance Policy is not
covered by the Property/Casualty Insurance Security Fund specified in Article
76 of the New York Insurance Law.
The Certificate Insurance Policy is not cancelable for any reason. The
premium on the Certificate Insurance Policy is not refundable for any reason
including payment, or provision being made for payment, prior to maturity of
the Offered Certificates.
The Certificate Insurer is the principal operating subsidiary of MBIA
Inc., a New York Stock Exchange listed company. MBIA Inc. is not obligated
to pay the debts of or claims against the Certificate Insurer. The
Certificate Insurer is domiciled in the State of New York and licensed to do
business in and is subject to regulations under the laws of all 50 states,
the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth
of the Northern Mariana Islands, the Virgin Islands of the United States and
the Territory of Guam. The Certificate Insurer has two European branches,
one in the Republic of France and the other in the Kingdom of Spain. New York
has laws prescribing minimum capital requirements, limited classes and
concentrations of investments and requiring the approval of policy rates and
forms. State laws also regulate the amount of both the aggregate and
individual risks that may be insured, the payment of dividends by the
Certificate Insurer, changes in control and transactions among affiliates.
Additionally, the Certificate Insurer is required to maintain contingency
reserves on its liabilities in certain amounts and for certain periods of
time.
The consolidated financial statements of the Certificate Insurer, a
wholly owned subsidiary of MBIA Inc., and its subsidiaries as of December 31,
1995 and December 31, 1994 and for the three years ended December 31, 1995,
prepared in accordance with generally accepted accounting principles,
included in the Annual Report on Form 10-K of MBIA Inc. for the year ended
December 31, 1995 and the consolidated financial statements of the
Certificate Insurer and its subsidiaries for the nine months ended September
30, 1996 and for the periods ending September 30, 1996 and September 30, 1995
included in the Quarterly Report on Form 10-Q of MBIA Inc. for the period
ending September 30, 1996, are hereby incorporated by reference into this
Prospectus Supplement and shall be deemed to be a part hereof. Any statement
contained in a document incorporated by reference herein shall be modified
or superseded for purposes of this Prospectus Supplement to the extent that
a statement contained herein or in any other subsequently filed document
which also is incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus
Supplement.
All financial statements of the Certificate Insurer and its subsidiaries
included in documents filed by MBIA Inc. 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 such documents.
The tables below present selected financial information of the
Certificate Insurer determined in accordance with statutory accounting
practices prescribed or permitted by insurance regulatory authorities ("SAP")
and generally accepted accounting principles ("GAAP").
<TABLE>
<CAPTION> SAP
December 31, 1995 September 30, 1996
(Audited) (Unaudited)
(IN MILLIONS)
<S> <C> <C>
Admitted Assets . . . . . . . . . . . . . . . . . . $3,814 $4,348
Liabilities . . . . . . . . . . . . . . . . . . . . 2,540 2,911
Capital and Surplus . . . . . . . . . . . . . . . . 1,274 1,437
</TABLE>
<TABLE>
<CAPTION> GAAP
December 31, 1995 September 30, 1996
(Audited) (Unaudited)
(IN MILLIONS)
<S> <C> <C>
Admitted Assets . . . . . . $4,463 $4,861
Liabilities . . . . . . . . 1,937 2,161
Shareholder's Equity . . . . 2,526 2,700
</TABLE>
Copies of the financial statements of the Certificate Insurer
incorporated by reference herein and copies of the Certificate Insurer's 1995
year-end audited financial statements prepared in accordance with statutory
accounting practices are available, without charge, from the Insurer. The
address of the Certificate Insurer is 113 King Street, Armonk, New York
10504. The telephone number of the Certificate Insurer is (914) 273-4545.
The Certificate Insurer does not accept any responsibility for the
accuracy or completeness of this Prospectus Supplement or any information or
disclosure contained herein, or omitted herefrom.
Moody's Investors Service ("Moody's") rates the claims paying ability
of the Insurer "Aaa."
Standard & Poor's Ratings Services, Inc., a division of The McGraw-Hill
Companies, Inc. ("S&P"), rates the claims paying ability of the Certificate
Insurer "AAA."
Fitch Investors Service, L.P. rates the claims paying ability of the
Certificate Insurer "AAA."
Each rating of the Certificate Insurer should be evaluated
independently. The ratings reflect the respective rating agency's current
assessment of the creditworthiness of the Certificate Insurer and its ability
to pay claims on its policies of insurance. Any further explanation as to
the significance of the above ratings may be obtained only from the
applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the
Offered Certificates, and such ratings may be subject to revision or
withdrawal at any time by the rating agencies. Any downward revision or
withdrawal of any of the above ratings may have an adverse effect on the
market price of the Offered Certificates. The Insurer does not guaranty the
market price of the Offered Certificates nor does it guaranty that the
ratings on the Offered Certificates will not be revised or withdrawn.
RIGHTS OF THE CERTIFICATE INSURER
The Pooling and Servicing Agreement provides that the Trustee is
permitted to distribute Insured Payments only for purposes of paying the
Holders of the Offered Certificates any Insured Distribution Amount for which
a claim was made to the Certificate Insurer.
In the event an Insured Payment is made, the Certificate Insurer, until
all such Insured Payments have been fully reimbursed, will be entitled to
receive the Reimbursement Amount. However, the Certificate Insurer will not
be entitled to reimbursement on any Distribution Date unless on such
Distribution Date the Certificate Insurer shall have paid all amounts
required to have been paid by it under the Certificate Insurance Policy on
or prior to such Distribution Date.
Provided no Certificate Insurer Default has occurred and is continuing,
the Certificate Insurer shall have the right to direct certain actions of the
Master Servicer and Trustee and shall control all Certificateholder consents,
approvals and directions under the Pooling and Servicing Agreement.
The Certificate Insurance Policy does not guarantee to the Holders of
the Offered Certificates any specified rate of Principal Prepayments.
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
GENERAL
The effective yields to the holders of the Group 2 Certificates will be
lower than the yields otherwise produced by the applicable rate at which
interest is passed through to such holders and the purchase price of such
Certificates because monthly distributions will not be payable to such
holders until the 25th day (or, if such day is not a Business Day, the
following Business Day) of the month following the month in which interest
accrues on the Group 2 Mortgage Loans (without any additional distribution
of interest or earnings thereon in respect of such delay).
Each Accrual Period for the Class A-1 Certificates will consist of the
actual number of days elapsed from the 25th day of the month preceding the
month of the applicable Distribution Date (or, in the case of the first
Accrual Period, from the Closing Date) through the 24th day of the month of
such Distribution Date.
INTEREST RATE FLUCTUATIONS
The yield to investors on the Class A-1 Certificates will be sensitive
to, among other things, the level of One-Month LIBOR, the level of the
Mortgage Index on each Interest Determination Date and to the additional
limitations specified herein affecting the Pass-Through Rate for the Class A-
1 Certificates. As described herein, the Pass-Through Rate for the Class A-1
Certificates may in no event exceed the lesser of _____% and the applicable
Class A-1 Available Funds Cap, which depends, in large part, on the Net
Mortgage Rates of the Group 1 Mortgage Loans in effect during the preceding
calendar month. Disproportionate principal payments (whether resulting from
full or partial prepayments) on Group 1 Mortgage Loans having Net Mortgage
Rates higher or lower than the Pass-Through Rate for the Class A-1
Certificates (as calculated solely pursuant to clauses (i) and (ii) of the
definition of "Pass-Through Rate" for the Class A-1 Certificates herein)
could therefore affect the yield on such Certificates. In particular, the
yield to maturity of the Class A-1 Certificates could be lower than that
otherwise produced if disproportionate principal payments (including
prepayments) are made on Group 1 Mortgage Loans having Net Mortgage Rates
that exceed the related Pass-Through Rate. Although each of the Group 1
Mortgage Loans bears interest at an adjustable rate, the interest rate on a
majority of such Mortgage Loans will not adjust for two years, and
thereafter, adjustments to such rate is subject to a Periodic Rate Cap and
a Maximum Mortgage Rate. If the Mortgage Index changes substantially between
Adjustment Dates, the adjusted Mortgage Rate on a related Mortgage Loan may
not equal the Mortgage Index plus the related Gross Margin due to the
constraint of such caps. In such event, the related Net Mortgage Rate will
be less than would have been the case in the absence of such caps.
Although the Mortgage Rates on the ARMs also are subject to adjustment,
the Mortgage Rates adjust less frequently than the Class A-1 Pass-Through
Rate and adjust by reference to the Mortgage Index. Changes in One-Month
LIBOR may not correlate with changes in the Mortgage Index and also may not
correlate with prevailing interest rates. It is possible that an increased
level of One-Month LIBOR could occur simultaneously with a lower level of
prevailing interest rates which would be expected to result in faster
prepayments, thereby reducing the weighted average life of the Class A-1
Certificates. In addition, the Mortgage Rate applicable to the Group 1
Mortgage Loans and any Adjustment Date will be based on the Mortgage Index
value most recently announced generally as of a date 45 days prior to such
Adjustment Date. Thus, if the Mortgage Index value with respect to a Group
1 Mortgage Loan rises, the lag in time before the corresponding Mortgage Rate
increases will, all other things being equal, slow the upward adjustment of
the Class A-1 Available Funds Cap. See "The Mortgage Pool" herein.
Although the Pooling and Servicing Agreement provides a mechanism to pay
any Class A-1 Basis Risk Carryover Amount, there is no assurance that funds
will be available to pay such amount. In addition, the Certificate Insurance
Policy will not cover the payment of, and the ratings assigned to the Class
A-1 Certificates do not address the likelihood of the payment of, any such
amount.
The extent to which the yield to maturity of a Offered Certificate may
vary from the anticipated yield will depend upon the degree to which it is
purchased at a discount or premium and, correspondingly, the degree to which
the timing of payments thereon is sensitive to prepayments, liquidations and
purchases of the Mortgage Loans. In particular, in the case of a Offered
Certificate purchased at a discount, an investor should consider the risk
that a slower than anticipated rate of principal payments, liquidations and
purchases of the Mortgage Loans in the related Loan Group could result in an
actual yield to such 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, liquidations and
purchases of such Mortgage Loans could result in an actual yield to such
investor that is lower than the anticipated yield.
DEFAULTS AND DELINQUENT PAYMENTS
The yield to maturity of the Offered Certificates will be sensitive to
defaults and delinquent payments on the Mortgage Loans. If a purchaser of a
Offered Certificate calculates its anticipated yield based on an assumed rate
of default and amount of losses that is lower than the default rate and
amount of losses actually incurred and not covered by the Certificate
Insurance Policy, its actual yield to maturity will be lower than that so
calculated and could, in the event of substantial losses, be negative. The
timing of Realized Losses that are not covered by payments under the
Certificate Insurance Policy will also affect an investor's actual yield to
maturity even if the rate of defaults and severity of such losses are
consistent with an investor's expectations. Realized Losses will reduce the
Available Funds for the related Loan Group which, if not covered by Net
Monthly Excess Cashflow from the other Loan Group, will slow the amortization
of the related Offered Certificates. A draw on the Certificate Insurance
Policy in respect of principal will not be made unless a Subordination
Deficit exists. Thus, Holders of the Offered Certificates may not receive
reimbursement for Realized Losses in the month following the occurrence of
such losses. However, such Holders are entitled to receive ultimate
reimbursement for Realized Losses under the Certificate Insurance Policy. In
general, the earlier a loss occurs, the greater is the effect on an
investor's yield to maturity. There can be no assurance as to the
delinquency, foreclosure or loss experience with respect to the Mortgage
Loans. Because the Mortgage Loans are underwritten in accordance with
standards less stringent than those generally acceptable to FNMA and FHLMC
with regard to a borrower's credit standing and repayment ability, the risk
of delinquencies with respect to, and losses on, the Mortgage Loans will be
greater than that of mortgage loans underwritten in accordance with FNMA and
FHLMC standards.
PREPAYMENT CONSIDERATIONS AND RISKS
The rates 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, among other
things, the rate and timing of payments of principal on the Mortgage Loans
in the related Loan Group. The rate of principal payments on the Mortgage
Loans will in turn be affected by the amortization schedules of the Mortgage
Loans (which, in the case of the Group 1 Mortgage Loans, will change
periodically to accommodate adjustments to the Mortgage Rates) and by the
rate of Principal Prepayments thereon (including for this purpose,
prepayments resulting from (i) refinancing, (ii) liquidations of the Mortgage
Loans due to defaults, casualties and condemnations and (iii) repurchases by
Countrywide or the Master Servicer). The Mortgage Loans may be prepaid by the
mortgagors at any time; however, with respect to approximately 47.27% and
23.12% of the Group 1 Mortgage Loans and Group 2 Mortgage Loans (by Loan
Group Stated Principal Balance as of the Cut-off Date), respectively, a
prepayment charge may apply to full prepayments by borrowers during the first
five years after origination under the limited circumstances described above
under "The Mortgage Pool--General." Increases in the required monthly
payments on the Mortgage Loans in excess of those assumed in underwriting
such Mortgage Loans may result in a default rate higher than that which may
have been experienced had the Mortgage Loans borne fixed interest rates. The
Mortgage Loans are subject to the "due-on-sale" provisions included therein.
Prepayments, liquidations and purchases of the Mortgage Loans in a Loan
Group (including any optional purchase by Countrywide or the Master Servicer
of a defaulted Mortgage Loan or any purchase by the Master Servicer or the
Certificate Insurer of the remaining Mortgage Loans and REO Property in such
Loan Group in connection with the optional termination of the Trust Fund)
will, subject to certain conditions, result in distributions to the related
Offered Certificateholders of principal amounts that would otherwise be
distributed over the remaining terms of the Mortgage Loans. Since the rate
of payment of principal on the Mortgage Loans will depend on future events
and a variety of factors, no assurance can be given as to such rate or the
rate of Principal Prepayments.
The rate of principal payments (including prepayments) on pools of
mortgage loans may vary significantly over time and may be influenced by a
variety of economic, geographic, social and other factors, including changes
in mortgagors' housing needs, job transfers, unemployment, mortgagors net
equity in the mortgaged properties and servicing decisions. No assurances
can be given as to the rate of prepayments on the Mortgage Loans in stable
or changing interest rate environments. In general, if prevailing interest
rates were to fall significantly below the Mortgage Rates on the Mortgage
Loans in Loan Group 2 or the Mortgage Rates on the 2/28 Mortgage Loans prior
to their first Adjustment Dates, such Mortgage Loans could be subject to
higher prepayment rates than if prevailing interest rates were to remain at
or above the Mortgage Rates on such Mortgage Loans. Conversely, if prevailing
interest rates were to rise significantly, the rate of prepayments on the
Mortgage Loans in Loan Group 2 would generally be expected to decrease.
All of the Group 1 Mortgage Loans are adjustable rate mortgage loans
("ARMs"). The rate of principal prepayments with respect to ARMs has
fluctuated in recent years. As is the case with conventional fixed-rate
mortgage loans, ARMs may be subject to a greater rate of principal
prepayments in a declining interest rate environment. For example, if
prevailing interest rates were to fall significantly, ARMs could be subject
to higher prepayment rates than if prevailing interest rates were to remain
constant because the availability of fixed-rate mortgage loans at competitive
interest rates may encourage mortgagors to refinance their ARMs to "lock in"
lower fixed interest rates. The existence of the applicable Periodic Rate Cap
and Maximum Mortgage Rate also may affect the likelihood of prepayments
resulting from refinancings. In addition, the 2/28 Mortgage Loans may
experience prepayments at rates which differ from the other ARMs. Finally,
the delinquency and loss experience of the ARMs may differ from that on the
fixed rate Mortgage Loans because the amount of the monthly payments on the
ARMs are subject to adjustment on each Adjustment Date. If such different
experience were to occur, the prepayment experience on the Class A-1
Certificates may differ from that on the other Classes of Offered
Certificates.
The timing of changes in the rate of prepayments on the Mortgage Loans
may significantly affect an investor's actual yield to maturity, even if the
average rate of principal payments is consistent with an investor's
expectation. In general, the earlier a prepayment of principal on the
Mortgage Loans, the greater the effect on an investor's yield to maturity.
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 may not be
offset by a subsequent like decrease (or increase) in the rate of principal
payments.
OVERCOLLATERALIZATION PROVISIONS
The operation of the overcollateralization provisions of the Pooling and
Servicing Agreement will affect the weighted average lives of the Offered
Certificates and consequently the yields to maturity of such Certificates.
Unless and until the Subordinated Amount equals the Required Subordinated
Amount for a Certificate Group, Net Monthly Excess Cashflow will be applied
as distributions of principal of the Offered Certificates in such Certificate
Group, thereby reducing the weighted average lives thereof. The actual
Subordinated Amount for a Certificate Group may change from Distribution Date
to Distribution Date producing uneven distributions of Net Monthly Excess
Cash Flow. There can be no assurance as to when or whether any Subordinated
Amount will equal the related Required Subordinated Amount.
Net Monthly Excess Cashflow generally is a function of the excess of
interest collected or advanced on the Mortgage Loans over the interest
required to pay interest on the Offered Certificates, the premium for the
Policy and certain Trust Fund expenses. Mortgage Loans with higher Net
Mortgage Rates will contribute more interest to the Net Monthly Excess
Cashflow. Mortgage Loans with higher Net Mortgage Rates may prepay faster
than Mortgage Loans with relatively lower Net Mortgage Rates in response to
a given change in market interest rates. Any such disproportionate
prepayments of Mortgage Loans in a Loan Group with higher Net Mortgage Rates
may adversely affect the amount of Net Monthly Excess Cashflow available to
make accelerated payments of principal of the Offered Certificates in the
related Certificate Group.
As a result of the interaction of the foregoing factors, the effect of
the overcollateralization provisions on the weighted average lives of the
Offered Certificates in a Certificate Group may vary significantly over time
and, in the case of the Group 2 Certificates, from class to class.
LIMITATION ON ADJUSTMENTS
Although each of the Mortgage Loans in Loan Group 1 bears interest at
an adjustable Mortgage Rate, a majority of the Mortgage Rates will not adjust
for two years. In addition, the adjustments of the Mortgage Rate for any such
Mortgage Loan will not exceed the Periodic Rate Cap, and the Mortgage Rate
will in no event exceed the Maximum Mortgage Rate for such Mortgage Loan,
regardless of the level of interest rates generally or the rate otherwise
produced by adding the Index and the Gross Margin. In addition, such
adjustments will be subject to rounding to the nearest one-eighth of 1%.
Substantially all of the ARMs were originated at rates that were lower than
the sum of the then-applicable Mortgage Index and the related Gross Margin.
Such Mortgage Loans are more likely to be subject to the applicable Periodic
Rate Cap on their first, and possibly subsequent, Adjustment Dates.
ADDITIONAL INFORMATION
The Depositor intends to file certain additional yield tables and other
computational materials with respect to one or more Classes of Offered
Certificates with the Securities and Exchange Commission in a report on Form
8-K to be dated November __, 1996. Such tables and materials were prepared
by the Underwriters at the request of certain prospective investors, based
on assumptions provided by, and satisfying the special requirements of, such
prospective investors. Such tables and assumptions may be based on
assumptions that differ from the Structuring Assumptions. Accordingly, such
tables and other materials may not be relevant to or appropriate for
investors other than those specifically requesting them.
WEIGHTED AVERAGE LIVES OF THE GROUP 2 CERTIFICATES
The following information is given solely to illustrate the effect of
prepayments on the Group 2 Mortgage Loans on the weighted average lives of
the Group 2 Certificates under the stated assumptions and is not a prediction
of the prepayment rate that might actually be experienced by the Group 2
Mortgage Loans.
Weighted average life refers to the average amount of time from the date
of issuance of a security until each dollar of principal of such security
will be repaid to the investor. The weighted average life of the Offered
Certificates will be affected by the rate at which principal on the Mortgage
Loans in the related Loan Group is paid. Principal payments on the Mortgage
Loans may be in the form of scheduled amortization or prepayments (for this
purpose, the term "prepayment" includes repayments and liquidations due to
default or other dispositions of the Mortgage Loans). Prepayments on
contracts may be measured by a prepayment standard or model. The model used
in this Prospectus Supplement ("Prepayment Model") is based on an assumed
rate of prepayment each month of the then unpaid principal balance of a pool
of mortgage loans similar to the Group 2 Mortgage Loans. 100% of the
Prepayment Model assumes prepayment rates of _____% per annum of the then
unpaid principal balance of such mortgage loans in the first month of the
life of the mortgage loans and an additional _____% per annum in each month
thereafter until the ___th month. Beginning in the _____th month and in each
month thereafter during the life of the mortgage loans, 100% of the
Prepayment Model assumes a constant prepayment rate of _____% per annum.
As used in the following tables "0% of the Prepayment Model" assumes no
prepayments on the Group 2 Mortgage Loans; "100% of the Prepayment Model"
assumes the Group 2 Mortgage Loans will prepay at rates equal to 100% of the
Prepayment Model assumed prepayment rates; "175% of the Prepayment Model"
assumes the Group 2 Mortgage Loans will prepay at rates equal to 175% of the
Prepayment Model assumed prepayment rates; "250% of the Prepayment Model"
assumes the Group 2 Mortgage Loans will prepay at rates equal to 250% of the
Prepayment Model assumed prepayment rates; and "350% of the Prepayment Model"
assumes the Group 2 Mortgage Loans will prepay at rates equal to 350% of the
Prepayment Model assumed prepayment rates.
There is no assurance, however, that prepayments on the Group 2 Mortgage
Loans will conform to any level of the Prepayment Model, and no
representation is made that the Mortgage Loans will prepay at the prepayment
rates shown or any other prepayment rate. The rate of principal payments on
pools of mortgage loans is influenced by a variety of economic, geographic,
social and other factors, including the level of interest rates. Other
factors affecting prepayment of mortgage loans include changes in obligors'
housing needs, job transfers and unemployment. In the case of mortgage loans
in general, if prevailing interest rates fall significantly below the
interest rates on such mortgage loans, the mortgage loans are likely to be
subject to higher prepayment rates than if prevailing interest rates remain
at or above the rates borne by such mortgage loans. Conversely, if
prevailing interest rates rise above the interest on such mortgage loans, the
rate of prepayment would be expected to decrease.
The tables set forth below assume that there are no delinquencies on the
Mortgage Loans and that there will be a sufficient Available Funds to
distribute interest on the Group 2 Certificates and the Group Principal
Distribution Amount to the Group 2 Certificateholders then entitled thereto.
The percentages and weighted average lives in the following tables were
determined assuming that (i) scheduled interest and principal payments on the
Group 2 Mortgage Loans are received in a timely manner and prepayments are
made at the indicated percentages of the Prepayment Model set forth in the
tables; (ii) the Master Servicer does not exercises its right of optional
termination described above; (iii) the Group 2 Mortgage Loans will, as of the
Cut-off Date, have the characteristics set forth below under "Assumed Group
2 Mortgage Loan Characteristics"; and (iii) a servicing fee of 0.50% per
annum will be paid to the Master Servicer. No representation is made that
the Contracts will experience delinquencies or losses at the respective rates
assumed above or at any other rates.
<TABLE>
<CAPTION> ASSUMED GROUP 2 MORTGAGE LOAN CHARACTERISTICS
REMAINING ORIGINAL
TERM TO TERM
CURRENT MATURITY (MONTHS) TO
MATURITY
Mortgage PRINCIPAL BALANCE (MONTHS)
LOANS MORTGAGE
RATE
<S> <C> <C> <C> <C>
1/(1)/ . . . . . . . $ %
2 . . . . . . . . . . $ %
3 . . . . . . . . . . $ %
4 . . . . . . . . . . $ %
5 . . . . . . . . . . $ %
6 . . . . . . . . . . $ %
7 . . . . . . . . . . $ %
Total . . . . . $
</TABLE>
________
(1)
Since the tables were prepared on the basis of the assumptions in the
preceding paragraph, there are discrepancies between the characteristics of
the actual Group 2 Mortgage Loans and the characteristics of the mortgage
loans assumed in preparing the tables. Any such discrepancy may have an
effect upon the percentages of the Initial Class Certificate Principal
Balance for the Class A-2 Certificates and the Class A-3 Certificates
outstanding and weighted average lives of the Class A-2 Certificates and
Class A-3 Certificates set forth in the tables. In addition, since the
actual Group 2 Mortgage Loans and the Trust Fund have characteristics which
differ from those assumed in preparing the tables set forth below, the
distributions of principal on the Class A-2 Certificates and Class A-3
Certificates may be made earlier or later than as indicated in the tables.
It is not likely that the Group 2 Mortgage Loans will prepay at any
constant percentage of the Prepayment Model to maturity or that all the Group
2 Mortgage Loans will prepay at the same rate. In addition, the diverse
remaining terms to maturity of the Group 2 Mortgage Loans (which include
recently originated Mortgage Loans) could produce slower distributions of
principal than as indicated in the tables at the various percentages of the
Prepayment Model specified even if the weighted average remaining term to
maturity of the Group 2 Mortgage Loans is the same as the weighted average
remaining term to maturity of the Assumed Group 2 Mortgage Loan
Characteristics.
Investors are urged to make their investment decisions on a basis that
includes their determination as to anticipated prepayment rates under a
variety of the assumptions discussed herein.
Based on the foregoing assumptions, the following tables indicate the
percentage of the Initial Class Certificate Principal Balance of the Class
A-2 Certificates and the Class A-3 Certificates that would be outstanding
after each of the dates shown at the indicated percentages of the Prepayment
Model and the corresponding weighted average lives of the Class A-2
Certificate and Class A-3 Certificates.
PERCENT OF THE INITIAL CLASS CERTIFICATE PRINCIPAL BALANCE OF THE CLASS A-2
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE
PREPAYMENT MODEL SET FORTH BELOW:
<TABLE>
<CAPTION> Prepayments (% of Prepayment Model)
----------------------------------------------------------------------------
0% 100% 175% 250% 300%
------- -------- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
Initial Percentage . . . . . . 100 100 100 100 100
Weighted Average Life (years)(1)
</TABLE>
___________________________
(1) The weighted average life of the Class A-2 Certificates is determined
by (i) multiplying the amount of each principal distribution by the number
of years from the initial date of issuance of the Class A-2 Certificates to
the related Distribution Date, (ii) summing the results and (iii) dividing
the sum by the initial Class Certificate Principal Balance of the Class A-2
Certificates.
PERCENT OF THE INITIAL CLASS CERTIFICATE PRINCIPAL BALANCE OF THE CLASS A-3
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE
PREPAYMENT MODEL SET FORTH BELOW:
<TABLE>
<CAPTION> Prepayments (% of Prepayment Model)
----------------------------------------------------------------------------
0% 100% 175% 250% 300%
------- -------- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
Initial Percentage . . . . . . 100 100 100 100 100
Weighted Average Life (years)(1)
Weighted Average
Life (years)(1) . .
</TABLE>
___________________________
(1) The weighted average life of the Class A-3 Certificates is determined
by (i) multiplying the amount of each principal distribution by the number
of years from the initial date of issuance of the Class A-3 Certificates to
the related Distribution Date, (ii) summing the results and (iii) dividing
the sum by the initial Class Certificate Principal Balance of the Class A-3
Certificates.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the sale of the Offered
Certificates against the purchase price of the Mortgage Loans.
FEDERAL INCOME TAX CONSEQUENCES
An election will be made to treat the Trust Fund as a "real estate
mortgage investment conduit" (a "REMIC") for federal income tax purposes. The
Offered Certificates will constitute "regular interests" in the REMICs and
the Residual Certificates will constitute the sole class of "residual
interests" in the REMICs.
ORIGINAL ISSUE DISCOUNT
The Offered Certificates may be issued with original issue discount for
federal income tax purposes. For purposes of determining the amount and rate
of accrual of original issue discount and market discount, the Depositor
intends to assume that there will be prepayments on the Mortgage Loans at a
rate equal to 100% of the Prepayment Model. No representation is made as to
whether the Mortgage Loans will prepay at that rate or any other rate. See
"Yield, Prepayment and Maturity Considerations" herein and "Federal Income
Tax Consequences" in the Prospectus.
The Offered Certificates may be treated as being issued at a premium.
In such case, the Offered Certificateholders may elect under Section 171 of
the Code to amortize such premium under the constant yield method and to
treat such amortizable premium as an offset to interest income on the
Certificates. Such election, however, applies to all the Certificateholder's
debt instruments acquired on or after the first taxable year in which the
election is first made, and should only be made after consulting with a tax
adviser.
If the method for computing original issue discount described in the
Prospectus results in a negative amount for any period with respect to a
Certificateholder, such Certificateholder will be permitted to offset such
amounts only against the respective future income, if any, from such
Certificate. Although the tax treatment is uncertain, a Certificateholder may
be permitted to deduct a loss to the extent that such Holder's respective
remaining basis in such Certificate exceeds the maximum amount of future
payments to which such Holder is entitled, assuming no further Principal
Prepayments of the Mortgage Loans are received. Although the matter is not
free from doubt, any such loss might be treated as a capital loss.
SPECIAL TAX ATTRIBUTES OF THE OFFERED CERTIFICATES
As is described more fully under "Federal Income Tax Consequences" in
the Prospectus, the Offered Certificates will represent qualifying assets
under Sections 856(c)(5)(A) and 7701(a)(19)(C)(v) of the Code, and net
interest income attributable to the Offered Certificates will be "interest
on obligations secured by mortgages on real property" within the meaning of
Section 856(c)(3)(B) of the Code, to the extent the assets of the Trust Fund
are assets described in such sections. The Offered Certificates will
represent qualifying assets under Section 860G(a)(3) if acquired by a REMIC
within the prescribed time periods of the Code.
PROHIBITED TRANSACTIONS TAX AND OTHER TAXES
The Code imposes a tax on REMICs equal to 100% of the net income derived
from "prohibited transactions" (the "Prohibited Transactions Tax"). In
general, subject to certain specified exceptions, a prohibited transaction
means the disposition of a Mortgage Loan, the receipt of income from a source
other than a Mortgage Loan or certain other permitted investments, the
receipt of compensation for services, or gain from the disposition of an
asset purchased with the payments on the Mortgage Loans for temporary
investment pending distribution on the Certificates. It is not anticipated
that the Trust Fund will engage in any prohibited transactions in which it
would recognize a material amount of net income.
In addition, certain contributions to a trust fund that elects to be
treated as a REMIC made after the day on which such trust fund issues all of
its interests could result in the imposition of a tax on the trust fund equal
to 100% of the value of the contributed property (the "Contributions Tax").
The Trust Fund will not accept contributions that would subject it to such
tax.
In addition, a trust fund that elects to be treated as a REMIC may also
be 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 other than
qualifying rents and other qualifying income for a real estate investment
trust. It is not anticipated that the Trust Fund will recognize net income
from foreclosure property subject to federal income tax.
Where any Prohibited Transactions Tax, Contributions Tax, tax on net
income from foreclosure property or state or local income or franchise tax
that may be imposed on the REMIC arises out of a breach of the Master
Servicer's or the Trustee's obligations, as the case may be, under the
Pooling and Servicing Agreement and in respect of compliance with then
applicable law, such tax will be borne by the Master Servicer or Trustee in
either case out of its own funds. In the event that either the Master
Servicer or the Trustee, as the case may be, fails to pay or is not required
to pay any such tax as provided above, such tax will be paid by the Trust
Fund first with amounts otherwise distributable to the Holders of
Certificates in the manner provided in the Pooling and Servicing Agreement.
It is not anticipated that any material state or local income or franchise
tax will be imposed on the Trust Fund.
For further information regarding the federal income tax consequences
of investing in the Offered Certificates, see "Federal Income Tax
Consequences--REMIC Certificates" in the Prospectus.
STATE TAXES
The Depositor makes no representations regarding the tax consequences
of purchase, ownership or disposition of the Offered Certificates under the
tax laws of any state. Investors considering an investment in the Offered
Certificates should consult their own tax advisors regarding such tax
consequences.
All investors should consult their own tax advisors regarding the
federal, state, local or foreign income tax consequences of the purchase,
ownership and disposition of the Offered Certificates.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), prohibits "parties in interest" with respect to an
employee benefit plan subject to ERISA and/or a plan or other arrangement
subject to the excise tax provisions set forth under Section 4975 of the Code
(each of the foregoing, a "Plan") from engaging in certain transactions
involving such Plan and its assets unless a statutory or administrative
exemption applies to the transaction. Section 4975 of the Code imposes
certain excise taxes on prohibited transactions involving plans described
under that Section; ERISA authorizes the imposition of civil penalties for
prohibited transactions involving plans not covered under Section 4975 of the
Code. Any Plan fiduciary which proposes to cause a Plan to acquire any of the
Offered Certificates should consult with its counsel with respect to the
potential consequences under ERISA and the Code of the Plan's acquisition and
ownership of such Certificates. See "ERISA Considerations" in the Prospectus.
Certain employee benefit plans, including governmental plans and certain
church plans, are not subject to ERISA's requirements. Accordingly, assets
of such plans may be invested in the Offered Certificates without regard to
the ERISA considerations described herein and in the Prospectus, subject to
the provisions of other applicable federal and state law. Any such plan which
is qualified and exempt from taxation under Sections 401(a) and 501(a) of the
Code may nonetheless be subject to the prohibited transaction rules set forth
in Section 503 of the Code.
Except as noted above, investments by Plans are subject to ERISA's
general fiduciary requirements, including the requirement of investment
prudence and diversification and the requirement that a Plan's investments
be made in accordance with the documents governing the Plan. A fiduciary
which decides to invest the assets of a Plan in the Offered Certificates
should consider, among other factors, the extreme sensitivity of the
investments to the rate of principal payments (including prepayments) on the
Mortgage Loans.
The U.S. Department of Labor has granted to Prudential Securities,
Incorporated an administrative exemption (Prohibited Transaction Exemption
90-32; Exemption Application No. D-8145, 55 Fed. Reg. 23147 (1990)) (the
"Exemption") from certain of the prohibited transaction rules of ERISA and
the related excise tax provisions of Section 4975 of the Code with respect
to the initial purchase, the holding and the subsequent resale by Plans of
certificates in pass-through trusts that consist of certain receivables,
loans and other obligations that meet the conditions and requirements of the
Exemption. The Exemption applies to mortgage loans such as the Mortgage Loans
in the Trust Fund.
Among the conditions that must be satisfied for the Exemption to apply
are the following:
(1) the acquisition of the certificates by a Plan is on terms
(including the price for the certificates) that are at least as favorable to
the Plan as they would be in an arm's length transaction with an unrelated
party;
(2) the rights and interest evidenced by the certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by other
certificates of the trust fund;
(3) the certificates acquired by the Plan have received a rating at the
time of such acquisition that is one of the three highest generic rating
categories from Standard & Poor's, a division of the McGraw-Hill Companies
("S&P"), Moody's Investors Service, Inc. ("Moody's"), Duff & Phelps Credit
Rating Co. ("DCR") or Fitch Investors Service, L.P. ("Fitch");
(4) the trustee must not be an affiliate of any other member of the
Restricted Group (as defined below);
(5) the sum of all payments made to and retained by the underwriters
in connection with the distribution of the certificates represents not more
than reasonable compensation for underwriting the certificates; the sum of
all payments made to and retained by the seller pursuant to the assignment
of the loans to the trust fund represents not more than the fair market value
of such loans; the sum of all payments made to and retained by the servicer
and any other servicer represents not more than reasonable compensation for
such person's services under the agreement pursuant to which the loans are
pooled and reimbursements of such person's reasonable expenses in connection
therewith; and
(6) the Plan investing in the certificates is an "accredited investor"
as defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933.
The trust fund must also meet the following requirements:
(i) the corpus of the trust fund must consist solely of assets of the
type that have been included in other investment pools;
(ii) certificates in such other investment pools must have been rated
in one of the three highest rating categories of S&P, Moody's, Fitch or DCR
for at least one year prior to the Plan's acquisition of certificates; and
(iii) certificates evidencing interests in such other investment pools
must have been purchased by investors other than Plans for at least one year
prior to any Plan's acquisition of certificates.
Moreover, the Exemption provides relief from certain self-
dealing/conflict of interest prohibited transactions that may occur when the
Plan fiduciary causes a Plan to acquire certificates in a trust as to which
the fiduciary (or its affiliate) is an obligor on the receivables held in the
trust provided that, among other requirements, (i) in the case of an
acquisition in connection with the initial issuance of certificates, at least
fifty percent (50%) of each class of certificates in which Plans have
invested is acquired by persons independent of the Restricted Group; (ii)
such fiduciary (or its affiliate) is an obligor with respect to five percent
(5%) or less of the fair market value of the obligations contained in the
trust; (iii) the Plan's investment in certificates of any class does not
exceed twenty-five percent (25%) of all of the certificates of that class
outstanding at the time of the acquisition; and (iv) immediately after the
acquisition, no more than twenty-five percent (25%) of the assets of the Plan
with respect to which such person is a fiduciary are invested in certificates
representing an interest in one or more trusts containing assets sold or
serviced by the same entity. The Exemption does not apply to Plans sponsored
by either Underwriter, the Trustee, the Master Servicer, any obligor with
respect to Mortgage Loans included in the Trust Fund constituting more than
five percent of the aggregate unamortized principal balance of the assets in
the Trust Fund, or any affiliate of such parties (the "Restricted Group").
It is expected that the Exemption will apply to the acquisition and
holding of the Offered Certificates by Plans and that all conditions of the
Exemption other than those within the control of the investors will be met.
In addition, as of the date hereof, there is no single Mortgagor that is the
obligor on five percent (5%) of the Mortgage Loans included in the Trust Fund
by aggregate unamortized principal balance of the assets of the Trust Fund.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of PTCE 83-1
described in the Prospectus and the Exemption, and the potential consequences
in their specific circumstances, prior to making an investment in the Offered
Certificates. Moreover, each Plan fiduciary should determine whether under
the general fiduciary standards of investment prudence and diversification,
an investment in the Offered Certificates is appropriate for the Plan, taking
into account the overall investment policy of the Plan and the composition
of the Plan's investment portfolio.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement between the Depositor, Prudential Securities Incorporated and
Countrywide Securities Corporation (an affiliate of the Depositor and the
Seller and Master Servicer and, together with Prudential Securities
Incorporated, the "Underwriters"), the Depositor has agreed to sell the
Offered Certificates to the Underwriters, and the Underwriters have
respectively agreed to purchase from the Depositor the respective initial
Class Certificate Principal Balance of Offered Certificates from the
Depositor set forth below.
<TABLE>
CLASS CERTIFICATE
<CAPTION> CLASS CERTIFICATE CLASS CERTIFICATE PRINCIPAL PRINCIPAL BALANCE
PRINCIPAL BALANCE OF CLASS BALANCE OF CLASS A-2 OF CLASS A-3
UNDERWRITERS A-1 CERTIFICATES CERTIFICATES CERTIFICATES
-------------------------- ------------------------------ -----------------------
Prudential Securities <S> <C> <C>
Incorporated . . . . . $ $ $
Countrywide Securities
Corporation . . . . . . $ $ $
Total . . . . . . . . . $ $ $
</TABLE>
The Depositor has been advised by each Underwriter that it intends to
make a market in the Offered Certificates, but neither Underwriter has any
obligation to do so. There can be no assurance that a secondary market for
the Offered Certificates will develop or, if it does develop, that it will
continue or that such market will provide sufficient liquidity to
Certificateholders.
to buy any of the securities
offered hereby in any state to any
person to whom it is unlawful to make
such offer or solicitation in such
state. The delivery of this Prospectus Asset-Backed Certificates,
Supplement and the Prospectus at any Series 1996-1
time does not imply that the
information contained herein or
therein is correct as of any time ____________________
subsequent to the date hereof.
TABLE OF CONTENTS PROSPECTUS SUPPLEMENT
Page --------------------
____
Prospectus Supplement S-5
Summary of Terms . . . . . . . . S-5
Risk Factors . . . . . . . . . S-13
The Mortgage Pool . . . . . . . S-16
Servicing of the Mortgage Loans S-33
Description of the Certificates S-38
Yield, Prepayment and Maturity [PRUDENTIAL SECURITIES LOGO]
Considerations . . . . . . . . . S-59
Use of Proceeds . . . . . . . . . S-66
Federal Income Tax Consequences . S-66
State Taxes . . . . . . . . . . . S-67
ERISA Considerations . . . . . . S-67
Method of Distribution . . . . . S-69
Legal Matters . . . . . . . . . . S-70
Ratings . . . . . . . . . . . . . S-70
Experts . . . . . . . . . . . . . S-70
Index of Defined Terms . . . . . S-71
Annex I . . . . . . . . . . . . . S-75
Prospectus
Prospectus Supplement or Current
Report on Form 8-K . . . . . . . . 2 [COUNTRYWIDE SECURITIES LOGO]
Available Information . . . . . . . 2
Incorporation of Certain Documents by
Reference . . . . . . . . . . . . 2
Reports to Securityholders . . . 3
Summary of Terms . . . . . . . . 4
Risk Factors . . . . . . . . . . 11
The Trust Fund . . . . . . . . . . 17
Use of Proceeds . . . . . . . . . . 21
The Depositor . . . . . . . . . . . 22
Loan Program . . . . . . . . . . . 22
Description of the Securities . . 24
Credit Enhancement . . . . . . . 38
Yield and Prepayment Considerations 43
The Agreements . . . . . . . . . . 45
Certain Legal Aspects of the Loans 57
Federal Income Tax Consequences . 71
State Tax Considerations . . . . 90
ERISA Considerations . . . . . . 90
Legal Investment . . . . . . . . 93 November _____, 1996
Method of Distribution . . . . . . 94
Legal Matters . . . . . . . . . . . 95
Financial Information . . . . . 95
Rating . . . . . . . . . . . . . 95
Index of Defined Terms . . . . . 97
