<PAGE>
<PAGE>
As filed with the Securities and Exchange Commission on November 5, 1996
Registration No. 333-11095
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 4
to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
CWABS, Inc.
(Exact name of registrant as specified in its charter)
Delaware 95-4596514
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
----------------------
155 North Lake Avenue
Pasadena, California 91101-7139
(818) 584-2212
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------------
Sandor E. Samuels, Esq.
Countrywide Home Loans, Inc.
155 North Lake Avenue
Pasadena, California 91101-7139
(818) 304-8505
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------------
With a copy to:
Edward J. Fine, Esq.
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
----------------------
Approximate date of commencement of proposed sale to the public:
From time to time on or after the effective date of the registration
statement, as determined by market conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. | |___________
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.| |____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.| |____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.| |
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================
Proposed Proposed
Amount Maximum Maximum Amount of
Title of Each Class of to be Offering Price Aggregate Registration
Securities to Be Registered Registered(1) Per Unit(2) Offering Price(2) Fee
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Backed Notes and Asset Backed
Certificates.......................... $2,000,000,000(3) 100% $2,000,000,000 $606,060.61(4)
===================================================================================================================
</TABLE>
(1) This Registration Statement relates to the initial offering from time to
time of $2,000,000,000 aggregate principal amount of Asset Backed Notes and
Asset Backed Certificates and to any resales thereof in market making
transactions by Countrywide Securities Corporation, an affiliate of the
Registrant, to the extent required.
(2) Estimated for the purpose of calculating the registration fee.
(3) Not specified as to each class of Asset Backed Securities to be registered
pursuant to General Instruction II.D of Form S-3.
(4) Previously paid.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 5, 1996
SUPPLEMENT
TO PROSPECTUS SUPPLEMENT DATED _______ __, 199_
(To Prospectus dated _______ __, 199_)
CWABS, INC.
Depositor
COUNTRYWIDE HOME LOANS, INC.
[LOGO]
Seller and Master Servicer
[TITLE OF SECURITIES]
---------------------
This Supplement relates to the offering of the Certificates of the Series
referenced above. This Supplement does not contain complete information about
the offering of the Certificates. Additional information is contained in the
Prospectus Supplement dated ________ __, 199_ (the "Prospectus Supplement")
prepared in connection with the offering of the Certificates of the Series
referenced above and in the Prospectus of the Depositor dated ________ __, 199_
(the "Prospectus"). Purchasers are urged to read this Supplement, the Prospectus
Supplement and the Prospectus in full.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER
"RISK FACTORS" ON PAGE S-__ IN THE PROSPECTUS SUPPLEMENT
AND ON PAGE __ IN THE ACCOMPANYING PROSPECTUS.
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST FUND ONLY
AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE
DEPOSITOR, COUNTRYWIDE, THE TRUSTEE OR ANY AFFILIATE
THEREOF, EXCEPT TO THE EXTENT PROVIDED IN THE
ACCOMPANYING PROSPECTUS SUPPLEMENT AND
PROSPECTUS. NEITHER THE CERTIFICATES
NOR THE MORTGAGE LOANS ARE
INSURED OR GUARANTEED BY
ANY GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS SUPPLEMENT, THE PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
This Supplement is to be used by Countrywide Securities Corporation, an
affiliate of CWABS, Inc. and Countrywide Home Loans, Inc., in connection with
offers and sales relating to market making transactions in the [title of
securities] in which Countrywide Securities Corporation acts as principal.
Countrywide Securities Corporation may also act as agent in such transactions.
Sales will be made at prices related to the prevailing prices at the time of
sale.
______________ __, 199_
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
<PAGE>
This Supplement is qualified in its entirety by reference to the
detailed information appearing in the accompanying Prospectus Supplement and
Prospectus. Certain capitalized terms used in this Supplement are defined in the
Prospectus Supplement or the Prospectus.
THE MORTGAGE POOL
As of _________ __, 199_ (the "Reference Date"), the Mortgage Pool
included approximately ____ Mortgage Loans having an aggregate Principal Balance
of approximately $___________.
The following table summarizes the delinquency and foreclosure
experience of the Mortgage Loans as of the Reference Date.
DELINQUENCY STATUS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF POOL
MORTGAGE CUT-OFF DATE BY CUT-OFF DATE
NUMBER OF DAYS DELINQUENT LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------ -------- ---------------- --------------
<S> <C> <C> <C>
0 to 29.................................. $ %
30 to 59..................................
60 to 89..................................
90+.......................................
-------- ---------------- --------------
Total................................ $ 100.00%
======== ================ ==============
</TABLE>
_____ of the Mortgage Loans has been converted to REO as of the
Reference Date and, as of the Reference Date, there have been ____ realized
losses.
Certain information as to the Mortgage Loans as of the Reference Date is
set forth in Exhibit 1 in tabular format. Other than with respect to rates of
interest, percentages (approximate) are stated in such tables by Principal
Balance of the Mortgage Loans as of the Reference Date and have been rounded in
order to total 100.00%.
SS-2
<PAGE>
<PAGE>
SERVICING OF MORTGAGE LOANS
THE MASTER SERVICER
Countrywide will continue to act as Master Servicer under the Agreement.
FORECLOSURE AND DELINQUENCY EXPERIENCE
The following table summarizes the delinquency and foreclosure
experience, respectively, on the dates indicated, of home equity loans serviced
by the Master Servicer. Since Countrywide only began servicing home equity loans
in October 1994, the delinquency and foreclosure 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 Mortgage Loans and no
assurances can be given that the foreclosure and delinquency experience
presented in the table below will be indicative of such experience on the
Mortgage Loans:
DELINQUENCY STATUS AS OF ________ __, 199_*
<TABLE>
<CAPTION>
DOLLARS PERCENT UNITS PERCENT
--------------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Current ............................ $
30-59 days .........................
60-89 days .........................
90+ days ...........................
--------------- ---------- ------- ----------
TOTAL.......................... $ 100.00% 100.00%
=============== ========== ======= ==========
</TABLE>
- -----------------------------
* Delinquencies are reported on a contractual basis.
FEDERAL INCOME TAX CONSEQUENCES
Prospective purchasers of the Certificates should consider carefully the
income tax consequences of an investment in the Certificates discussed under
"Federal Income Tax Consequences" in the Prospectus Supplement and in the
Prospectus. Such purchasers should also consult their own tax advisors with
respect to those consequences.
ERISA CONSIDERATIONS
Prospective purchasers of the Certificates should consider carefully the
ERISA consequences of an investment in the Certificates discussed under "ERISA
Considerations" in the Prospectus and the Prospectus Supplement, and should
consult their own advisors with respect to those consequences.
METHOD OF DISTRIBUTION
This Supplement is to be used by Countrywide Securities Corporation, an
affiliate of CWABS, Inc. and Countrywide Home Loans, Inc., in connection with
offers and sales relating to market making transactions in the [title of
securities] in which Countrywide Securities Corporation acts as principal.
Countrywide Securities Corporation may also act as agent in such transactions.
Sales will be made at prices related to the prevailing prices at the time of
sale.
SS-3
<PAGE>
<PAGE>
EXHIBIT 1
[Updated Mortgage Pool Tables will be provided]
<PAGE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 5, 1996
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED NOVEMBER , 1996)
$246,033,118
(APPROXIMATE)
COUNTRYWIDE HOME EQUITY LOAN TRUST 1996-A
REVOLVING HOME EQUITY LOAN ASSET BACKED CERTIFICATES, SERIES 1996-A
CWABS, INC.
DEPOSITOR
[LOGO]
SELLER AND MASTER SERVICER
------------------------
Each Revolving Home Equity Loan Asset Backed Certificate, Series 1996-A
(collectively, the 'Certificates') will represent an undivided interest in the
Countrywide Home Equity Loan Trust 1996-A (the 'Trust Fund') to be formed
pursuant to a Pooling and Servicing Agreement among Countrywide Home Loans, Inc.
('Countrywide'), as Seller and Master Servicer, CWABS, Inc., as Depositor, and
The First National Bank of Chicago, as Trustee. The property of the Trust Fund
will include a pool of adjustable rate home equity revolving credit line loans
made or to be made in the future (the 'Mortgage Loans') under certain home
equity revolving credit line loan agreements. The Mortgage Loans are secured by
either first or second deeds of trust or mortgages on one- to four-family
residential properties. See 'Index of Defined Terms' on page S-54 of this
Prospectus Supplement and on page 95 of the Prospectus for the location of the
definitions of certain capitalized terms.
The aggregate undivided interest in the Trust Fund represented by the
Certificates is expected to represent, as of October 31, 1996 (the 'Cut-off
Date'), approximately 98% of the sum of the outstanding principal balances of
the Mortgage Loans. The remaining undivided interest in the Trust Fund not
represented by the Certificates (the 'Transferor Interest') is expected to
represent approximately 2% of the outstanding principal balances of the Mortgage
Loans. Only the Certificates are offered hereby.
Distributions of principal and interest on the Certificates will be made on
the fifteenth day of each month or, if such date is not a Business Day, then on
the succeeding Business Day (each, a 'Distribution Date'), commencing December
16, 1996. On each Distribution Date, holders of the Certificates will be
entitled to receive, from and to the limited extent of funds available in the
Collection Account (as defined herein), distributions with respect to interest
and principal calculated as set forth under 'Summary -- Interest,'
'Summary -- Principal Payments from Principal Collections' and 'Description of
the Certificates -- Distributions on the Certificates' herein. The Certificates
are not guaranteed by the Depositor, Countrywide or any affiliate thereof.
However, the Certificates will be unconditionally and irrevocably guaranteed as
to the payment of the Guaranteed Distributions (as defined herein) on each
Distribution Date pursuant to the terms of a financial guaranty insurance policy
(the 'Policy') to be issued by
[Logo]
There is currently no market for the Certificates offered hereby and there
can be no assurance that such a market will develop or if it does develop that
it will continue. See 'Risk Factors' herein and in the Prospectus.
------------------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER 'RISK
FACTORS' ON PAGE S-15 HEREIN AND ON PAGE 14 IN THE ACCOMPANYING PROSPECTUS.
----------------------------------------
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST FUND ONLY AND DO NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR, COUNTRYWIDE, THE TRUSTEE OR
ANY AFFILIATE THEREOF, EXCEPT TO THE EXTENT PROVIDED HEREIN.
NEITHER THE CERTIFICATES NOR THE MORTGAGE LOANS ARE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY.
------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) THE DEPOSITOR(3)
<S> <C> <C> <C>
Per Certificate......................................................... % % %
Total................................................................... $ $ $
</TABLE>
(1) Plus accrued interest, if any, from November , 1996.
(2) The Depositor has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(3) Before deducting expenses, estimated to be $350,000.
------------------------
The 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 Certificates will be made in book-entry form only through the
facilities of The Depository Trust Company, CEDEL S.A. and the Euroclear System
on or about November , 1996 (the 'Closing Date'). The Certificates will be
offered in Europe and the United States of America.
LEHMAN BROTHERS COUNTRYWIDE SECURITIES CORPORATION
NOVEMBER , 1996
<PAGE>
<PAGE>
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 CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS ACTING AS UNDERWRITERS TO
DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
The Certificates offered hereby constitute part of a separate series of
Revolving Home Equity Loan Asset Backed Certificates being offered by CWABS,
Inc. from time to time pursuant to its Prospectus dated November , 1996. This
Prospectus Supplement does not contain complete information about the offering
of the Certificates. Additional information is contained in the Prospectus and
investors are urged to read both this Prospectus Supplement and the Prospectus
in full. Sales of the Certificates may not be consummated unless the purchaser
has received both this Prospectus Supplement and the Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
In addition to the documents described under 'Incorporation of Certain
Documents by Reference' in the Prospectus, the financial statements of the
Certificate Insurer included in, or as exhibits to, the following documents,
which have been filed with the Securities and Exchange Commission by Financial
Security Assurance Holdings Ltd. ('Holdings'), are hereby incorporated by
reference in this Prospectus Supplement:
(a) The consolidated financial statements included as an exhibit to
the Annual Report on Form 10-K for the year ended December 31,
1995; and
(b) The unaudited financial statements for the six-month period ended
June 30, 1996, included as an exhibit to the Quarterly Report on
Form 10-Q for the period ended June 30, 1996.
All financial statements of the Certificate Insurer included in documents
filed by Holdings pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 (the '1934 Act'), as amended, subsequent to the
date of this Prospectus Supplement and prior to the termination of the offering
of the 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, each filing of the financial
statements of the Certificate Insurer included in or as an exhibit to the
documents of Holdings 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 Certificates offered hereby, and the offering of such 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 The First National Bank of Chicago, One
First National Plaza, Suite 0126, Chicago, Illinois 60670, telephone: (312)
407-1902, facsimile number: (312) 407-1708, attention: Corporate Trust Services
Division.
S-2
<PAGE>
<PAGE>
SUMMARY
The following summary of certain pertinent information is qualified in its
entirety by reference to the detailed information appearing elsewhere in this
Prospectus Supplement and the accompanying Prospectus. Certain capitalized terms
used in the Summary are defined elsewhere in the Prospectus Supplement or in the
Prospectus. See 'Index of Defined Terms' on page S-54 of this Prospectus
Supplement and on page 95 of the Prospectus for the location of the definitions
of certain capitalized terms.
<TABLE>
<S> <C>
Trust Fund.......................... Countrywide Home Equity Loan Trust 1996-A (the 'Trust Fund') will be formed
pursuant to a pooling and servicing agreement (the 'Agreement') to be dated
as of October 31, 1996 (the 'Cut-off Date') among Countrywide Home Loans,
Inc. ('Countrywide'), as seller and master servicer (together with any
successor in such capacity, the 'Seller' and the 'Master Servicer',
respectively), CWABS, Inc., as depositor (the 'Depositor'), and The First
National Bank of Chicago, as trustee (the 'Trustee'). The property of the
Trust Fund will include: a pool of adjustable rate home equity revolving
credit line loans made or to be made in the future (the 'Mortgage Loans'),
under certain home equity revolving credit line loan agreements (the
'Credit Line Agreements') and secured by either first or second mortgages
on residential properties that are one- to four-family properties,
condominiums and planned unit developments (the 'Mortgaged Properties');
the collections in respect of the Mortgage Loans received after the Cut-off
Date (exclusive of payments in respect of accrued interest due on or prior
to the Cut-off Date); property that secured a Mortgage Loan which has been
acquired by foreclosure or deed in lieu of foreclosure; an irrevocable and
unconditional limited financial guaranty insurance policy (the 'Policy');
an assignment of the Depositor's rights under the Purchase Agreement (as
defined herein); rights under certain hazard insurance policies covering
the Mortgaged Properties; and certain other property, as described more
fully under 'Description of the Certificates -- General' herein.
The Trust Fund property will include the unpaid principal balance of each
Mortgage Loan as of the Cut-off Date (the 'Cut-off Date Principal Balance')
plus any additions thereto as a result of new advances made pursuant to the
applicable Credit Line Agreement (the 'Additional Balances') during the
life of the Trust Fund. With respect to any date, the 'Pool Balance' will
be equal to the aggregate of the Principal Balances of all Mortgage Loans
as of such date. The aggregate Cut-off Date Principal Balance of the
Mortgage Loans is expected to be approximately $251,054,202.11 (the
'Cut-off Date Pool Balance'). The 'Principal Balance' of a Mortgage Loan
(other than a Liquidated Mortgage Loan) on any day is equal to its Cut-off
Date Principal Balance plus (i) any Additional Balances in respect of such
Mortgage Loan, minus (ii) all collections credited against the Principal
Balance of such Mortgage Loan in accordance with the related Credit Line
Agreement prior to such day. The Principal Balance of a Liquidated Mortgage
Loan (as defined herein) after final recovery of related Liquidation
Proceeds (as defined herein) shall be zero.
Securities Offered.................. Each of the Revolving Home Equity Loan Asset Backed Certificates, Series
1996-A offered hereby (the 'Certificates') represents an undivided interest
in the Trust Fund. Each Certificate represents the right to receive
payments of interest at the variable rate described below (the 'Certificate
Rate'), payable monthly, and payments of principal at such time and to
</TABLE>
S-3
<PAGE>
<PAGE>
<TABLE>
<S> <C>
the extent provided herein under 'Description of the Certificates --
Distributions on the Certificates'. The aggregate undivided interest in the
Trust Fund represented by the Certificates as of the Closing Date is
expected to equal $246,033,118.00 (the 'Original Invested Amount'), which
represents approximately 98% of the Cut-off Date Pool Balance. The
'Original Certificate Principal Balance' is expected to equal
$246,033,118.00. Following the Closing Date, the 'Invested Amount' with
respect to any date will be an amount equal to the Original Invested Amount
minus (i) the amount of Investor Principal Collections (as defined herein)
previously distributed to Certificateholders, and minus (ii) an amount
equal to the product of the Investor Floating Allocation Percentage and the
Liquidation Loss Amounts (each as defined herein). The Transferor (as
described below) will own the remaining undivided interest (the 'Transferor
Interest') in the Mortgage Loans, which is equal to the Pool Balance minus
the Invested Amount and is expected to initially equal approximately 2% of
the Cut-off Date Pool Balance. The Transferor (the 'Transferor') as of any
date is the owner of the Transferor Interest which initially will be
Countrywide.
The Certificates will be issued pursuant to the Agreement. The principal
amount of the outstanding Certificates (the 'Certificate Principal
Balance') on any date is equal to the Original Certificate Principal
Balance minus the aggregate of amounts actually distributed as principal to
the Certificateholders. See 'Description of the Certificates' herein.
Removal of Certain Mortgage Loans;
Additional Balances............... In order to permit the Transferor to remove Mortgage Loans from the Trust
Fund at such times, if any, as the Transferor Interest exceeds the level
required by the Certificate Insurer and the Rating Agencies, on any
Distribution Date the Transferor may, but shall not be obligated to, remove
from the Trust Fund certain Mortgage Loans without notice to the
Certificateholders. The Transferor is permitted to designate the Mortgage
Loans to be removed. Mortgage Loans so designated will only be removed upon
satisfaction of the following conditions: (i) No Rapid Amortization Event
(as defined herein) has occurred; (ii) the Transferor Interest as of the
Transfer Date (as defined herein) (after giving effect to such removal)
exceeds the Minimum Transferor Interest (as defined below); (iii) the
transfer of any Mortgage Loans on any Transfer Date during the Managed
Amortization Period (as defined herein) shall not, in the reasonable belief
of the Transferor, cause a Rapid Amortization Event to occur or an event
which with notice or lapse of time or both would constitute a Rapid
Amortization Event; (iv) the Transferor shall have delivered to the Trustee
a 'Mortgage Loan Schedule' containing a list of all Mortgage Loans
remaining in the Trust Fund after such removal; (v) the Transferor shall
represent and warrant that no selection procedures reasonably believed by
the Transferor to be adverse to the interests of the Certificateholders or
the Certificate Insurer were used by the Transferor in selecting such
Mortgage Loans; (vi) in connection with the first such retransfer of
Mortgage Loans, the Rating Agencies (as defined herein) shall have been
notified of the proposed transfer and prior to the Transfer Date shall not
have notified the Transferor in writing that such transfer would result in
a reduction or withdrawal of the ratings assigned to the Certificates
without regard to the Policy; and (vii) the Transferor shall have delivered
to the Trustee and the Certificate Insurer an officer's
</TABLE>
S-4
<PAGE>
<PAGE>
<TABLE>
<S> <C>
certificate confirming the conditions set forth in clauses (i) through (vi)
above. See 'Description of the Certificates -- Optional Transfers of
Mortgage Loans to the Transferor' herein.
The 'Minimum Transferor Interest' as of any date is an amount equal to the
lesser of (a) 5% of the Pool Balance on such date and (b) the Transferor
Interest as of the Closing Date.
During the term of the Trust Fund, all Additional Balances will be
transferred to and become property of the Trust Fund. The Pool Balance at
any time will generally fluctuate from day to day because the amount of
Additional Balances and the amount of principal payments with respect to
the Mortgage Loans will usually differ from day to day. Because the
Transferor Interest is equal to the Pool Balance minus the Invested Amount,
the amount of the Transferor Interest will fluctuate from day to day as
draws are made with respect to the Mortgage Loans and as Principal
Collections are received.
The Mortgage Loans.................. The statistical information presented in this Prospectus Supplement
concerning the pool of Mortgage Loans (such pool, the 'Statistic
Calculation Pool' and each such Mortgage Loan, a 'Statistic Calculation
Pool Mortgage Loan') does not reflect all of the Mortgage Loans which will
be included on the Closing Date in the final pool. The Statistic
Calculation Pool reflects the Mortgage Loans originated by the Seller
through September 30, 1996 (the 'Statistic Calculation Date') and the
statistical information presented herein is based on the number and the
principal balances of such Mortgage Loans as of the Statistic Calculation
Date. The aggregate principal balance of the Statistic Calculation Pool
Mortgage Loans is $216,574,732.71 (the 'Statistic Calculation Date
Principal Balance'). The Depositor expects that the actual pool as of the
Closing Date will represent approximately $251,054,202.11 aggregate
Principal Balance of Mortgage Loans. The additional Mortgage Loans to be
included in the final pool will represent Mortgage Loans originated by the
Seller prior to the Cut-off Date and sold by the Seller to the Depositor,
and by the Depositor to the Trust Fund, on the Closing Date. In addition,
with respect to the Statistic Calculation Pool as to which statistical
information is presented herein, some amortization of the Statistic
Calculation Pool Mortgage Loans will occur prior to the Closing Date.
Moreover, certain Statistic Calculation Pool Mortgage Loans may prepay in
full or may be determined not to meet the eligibility requirements for the
final pool and as a result may not be included in the final pool. As a
result of the foregoing, the statistical distribution of such
characteristics as of the Closing Date in the final Mortgage Loan pool will
vary from the statistical distribution of such characteristics in the
Statistic Calculation Pool as presented in this Prospectus Supplement,
although such variance will not be material. In the event that the Seller
does not, as of the Closing Date, have the full amount of Mortgage Loans
which the Depositor expects to purchase from the Seller and sell to the
Trust Fund on such date (i.e., approximately $251,054,202.11 aggregate
Principal Balance of Mortgage Loans), the Depositor will reduce the size of
the offering. The Depositor does not expect that the original principal
amount of the Certificates will increase or decrease by more than 5% as a
result of such non-delivery.
</TABLE>
S-5
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Unless otherwise noted, all statistical percentages in this Prospectus
Supplement are measured by the aggregate principal balance of the Statistic
Calculation Pool Mortgage Loans.
The Statistic Calculation Pool Mortgage Loans are secured by first or
second mortgages on Mortgaged Properties located in 44 states and the
District of Columbia. On the Closing Date, Countrywide will sell the
Mortgage Loans to the Depositor, pursuant to a purchase agreement (the
'Purchase Agreement').
The percentage of the Statistic Calculation Date Principal Balance of the
Statistic Calculation Pool Mortgage Loans secured by Mortgaged Properties
located in the states of California, Washington, Colorado, Utah and Florida
is approximately 30.54%, 7.20%, 4.75%, 4.54% and 4.28%, respectively. The
'Combined Loan-to-Value Ratio' of each Mortgage Loan is the ratio of (A)
the sum of (i) the maximum amount the borrower was permitted to draw down
under the related Credit Line Agreement (the 'Credit Limit') and (ii) the
amounts of any related senior mortgage loans and any related mortgage loan
of equal priority (computed generally as of the date of origination of each
such Mortgage Loan) to (B) the lesser of (i) the appraised value of the
Mortgaged Property or (ii) in the case of a Mortgaged Property purchased
within one year of the origination of the related Mortgage Loan, the
purchase price of such Mortgaged Property. As of the Statistic Calculation
Date the weighted average Combined Loan-to-Value Ratio of the Statistic
Calculation Pool Mortgage Loans was approximately 78.76%.
Interest on each Mortgage Loan is payable monthly and computed on the
related daily outstanding Principal Balance for each day in the billing
cycle at a variable rate per annum (the 'Loan Rate') equal at any time
(subject to maximum rates, as described herein under 'Description of the
Mortgage Loans -- Mortgage Loan Terms,' and further subject to applicable
usury limitations) to the sum of (i) the highest prime rate published in
the 'Money Rates' section of The Wall Street Journal and (ii) a Margin
within the range of 0.125% to 5.50%. As of the Statistic Calculation Date,
the weighted average Margin of the Statistic Calculation Pool Mortgage
Loans was approximately 2.20%. Loan Rates are adjusted monthly on the first
business day of the calendar month preceding the Due Date. As to each
Mortgage Loan, the 'Due Date' is the fifteenth day of each month. The
Statistic Calculation Date Principal Balances of the Statistic Calculation
Pool Mortgage Loans ranged from zero to $730,420 and averaged approximately
$23,894. Credit Limits under the Statistic Calculation Pool Mortgage Loans
as of the Statistic Calculation Date ranged from $9,400 to $1,000,000 and
averaged approximately $34,552. Each Statistic Calculation Pool Mortgage
Loan was originated in the period from December 1, 1994 to September 30,
1996. As of the Statistic Calculation Date, the maximum Credit Limit
Utilization Rate (as defined herein) of the Statistic Calculation Pool
Mortgage Loans was 100% and the weighted average Credit Limit Utilization
Rate was approximately 69.15%. As of the Statistic Calculation Date,
approximately 5.01% by Statistic Calculation Date Principal Balance of the
Statistic Calculation Pool Mortgage Loans represented first liens on the
related Mortgaged Properties, while approximately 94.99% of such Mortgage
Loans represented second liens. As of the Statistic Calculation Date, the
Statistic Calculation Pool
</TABLE>
S-6
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Mortgage Loans had remaining terms to scheduled maturity ranging from 147
months to 305 months and had a weighted average remaining term to scheduled
maturity of approximately 287 months. See 'Description of the Mortgage
Loans' herein.
Denominations....................... The Certificates will be offered for purchase in denominations of $1,000
and multiples of $1 in excess thereof. The interest in the Trust Fund
evidenced by a Certificate (the 'Percentage Interest') will be equal to the
percentage derived by dividing the denomination of such Certificate by the
Original Certificate Principal Balance.
Registration of Certificates........ The Certificates will initially be issued in book-entry form. Persons
acquiring beneficial ownership interests in the Certificates ('Certificate
Owners') may elect to hold their Certificate interests through The
Depository Trust Company ('DTC'), in the United States, or Centrale de
Livraison de Valeurs Mobilieres S.A. ('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 Certificates are
Book-Entry Certificates (as defined herein), 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
Certificates will initially be registered in the name of Cede. The
interests of the 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 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 Certificates
are held by DTC. See 'Risk Factors -- Book-Entry Certificates',
'Description of the Certificates -- Book-Entry Certificates' herein and
'Annex I' hereto.
Depositor........................... CWABS, Inc., a Delaware corporation and a limited purpose finance
subsidiary of Countrywide Credit Industries, Inc., a Delaware corporation.
The principal executive offices of the Depositor are located at 155 North
Lake Avenue, Pasadena, California 91101 (Telephone: (818) 584-2212). See
'The Depositor' in the Prospectus.
Master Servicer of the Mortgage
Loans............................. Countrywide Home Loans, Inc., a New York corporation headquartered in
Pasadena, California. The principal executive offices of the Master
Servicer are located at 155 North Lake Avenue, Pasadena, California 91101
(Telephone: (818) 304-8400). See 'Servicing of the Mortgage Loans -- The
Master Servicer' herein.
</TABLE>
S-7
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Collections......................... All collections on the Mortgage Loans will generally be allocated in
accordance with the Credit Line Agreements between amounts collected in
respect of interest and amounts collected in respect of principal. As to
any Distribution Date, 'Interest Collections' will be equal to the amounts
collected during the related Collection Period, including without
limitation the portion of Net Liquidation Proceeds (as defined below)
allocated to interest pursuant to the terms of the Credit Line Agreements
less Servicing Fees for the related Collection Period.
As to any Distribution Date, 'Principal Collections' will be equal to the
sum of (i) the amounts collected during the related Collection Period,
including without limitation the portion of Net Liquidation Proceeds
allocated to principal pursuant to the terms of the Credit Line Agreements
and (ii) any Transfer Deposit Amounts (as defined herein).
'Net Liquidation Proceeds' with respect to a Mortgage Loan are the proceeds
(excluding amounts drawn on the Policy) received in connection with the
liquidation of any Mortgage Loan, whether through trustee's sale,
foreclosure sale or otherwise, reduced by related expenses, but not
including the portion, if any, of such amount that exceeds the Principal
Balance of the Mortgage Loan plus any accrued and unpaid interest thereon
to the end of the Collection Period during which such Mortgage Loan became
a Liquidated Mortgage Loan.
With respect to any Distribution Date, the portion of Interest Collections
allocable to the Certificates ('Investor Interest Collections') will equal
the product of (a) Interest Collections for such Distribution Date and (b)
the Investor Floating Allocation Percentage. With respect to any
Distribution Date, the 'Investor Floating Allocation Percentage' is the
percentage equivalent of a fraction determined by dividing the Invested
Amount at the close of business on the preceding Distribution Date (or at
the Closing Date in the case of the first Distribution Date) by the Pool
Balance at the beginning of the related Collection Period. The remaining
amount of Interest Collections will be allocated to the Transferor Interest
as more fully described under 'Description of the Certificates --
Allocations and Collections' herein.
On each Distribution Date, the Investor Interest Collections will be
applied in the following order of priority: (i) as payment to the Trustee
for its fee for services rendered pursuant to the Agreement; (ii) as
payment for the premium for the Policy; (iii) as payment for the accrued
interest due and any overdue accrued interest (with interest thereon to the
extent permitted by applicable law) on the Certificate Principal Balance of
the Certificates; (iv) to pay any Investor Loss Amount (as defined herein)
for such Distribution Date; (v) as payment for any Investor Loss Amount for
a previous Distribution Date that was not previously (a) funded by Investor
Interest Collections allocable to the Certificateholders, (b) absorbed by
the Overcollateralization Amount, (c) funded by amounts on deposit in the
Spread Account or (d) funded by draws on the Policy; (vi) to reimburse
prior draws made from the Policy (with interest thereon); (vii) to pay
principal on the Certificates until the Invested Amount exceeds the
Certificate Principal Balance by the Required Overcollateralization Amount,
each as defined herein (such amount, if any, paid pursuant to this clause
(vii) being referred to herein as the 'Accelerated Principal Distribution
Amount'); (viii) to any other amounts
</TABLE>
S-8
<PAGE>
<PAGE>
<TABLE>
<S> <C>
required to be deposited in an account for the benefit of the Certificate
Insurer and Certificateholders pursuant to the Agreement or amounts owed to
the Certificate Insurer pursuant to the Insurance Agreement; (ix) as
payment of certain amounts that may be required to be paid to the Master
Servicer pursuant to the Agreement; and (x) to the Transferor to the extent
permitted as described under 'Description of the Certificates --
Distributions on the Certificates' herein.
Investor Interest Collections available after the payment of interest on
the Certificates may be insufficient to cover any Investor Loss Amount. If
such insufficiency results in the Certificate Principal Balance exceeding
the Invested Amount, a draw in an amount equal to such difference will be
made on the Policy in accordance with the terms of the Policy.
The 'Overcollateralization Amount' on any date of determination is the
amount, if any, by which the Invested Amount exceeds the Certificate
Principal Balance on such day. Payments to Certificateholders pursuant to
clause (iii) above will be interest payments on the Certificates. Payments
to Certificateholders pursuant to clauses (iv), (v) and (vii) will be
principal payments on the Certificates and will therefore reduce the
Certificate Principal Balance, however, payments pursuant to clause (vii)
will not reduce the Invested Amount. The Accelerated Principal Distribution
Amount is not guaranteed by the Policy.
'Liquidation Loss Amount' means, with respect to any Liquidated Mortgage
Loan, the unrecovered Principal Balance thereof at the end of the related
Collection Period in which such Mortgage Loan became a Liquidated Mortgage
Loan, after giving effect to the Net Liquidation Proceeds in connection
therewith. The 'Investor Loss Amount' shall be the product of the Investor
Floating Allocation Percentage and the Liquidation Loss Amount for such
Distribution Date. See 'Description of the Certificates -- Distributions on
the Certificates' herein.
Principal Collections will be allocated between the Certificateholders and
the Transferor ('Investor Principal Collections' and 'Transferor Principal
Collections', respectively) in accordance with their percentage interests
in the Mortgage Loans of approximately 98% and 2%, respectively, as of the
Closing Date without giving effect to any collections received on or in
respect thereof after the Cut-off Date (the 'Fixed Allocation Percentage'),
but a lesser amount of Principal Collections may be distributed to
Certificateholders during the Managed Amortization Period, as described
below. The 'Investor Fixed Allocation Percentage' shall be 98%.
The Master Servicer will deposit Interest Collections and Principal
Collections in respect of the Mortgage Loans in an account established for
such purpose under the Agreement (the 'Collection Account'). See
'Description of the Certificates -- Payments on Mortgage Loans; Deposits to
Collection Account' herein.
Collection Period................... As to any Distribution Date, the 'Collection Period' is the calendar month
preceding the month of such Distribution Date.
Interest............................ Interest on the Certificates will be distributed monthly on the fifteenth
day of each month or, if such day is not a Business Day, then the next
succeeding Business Day (each, a 'Distribution Date'), commencing on
December 16, 1996, at the Certificate Rate for the related Interest Period
</TABLE>
S-9
<PAGE>
<PAGE>
<TABLE>
<S> <C>
(as defined below). The 'Certificate Rate' for an Interest Period will
generally equal the sum of (a) the London Interbank offered rate for one-
month United States dollar deposits ('LIBOR') appearing on the Telerate
Screen Page 3750, as of the second LIBOR Business Day (as defined herein)
prior to the first day of such Interest Period (or as of two LIBOR Business
Days prior to the Closing Date, in the case of the first Interest Period)
and (b) %. Notwithstanding the foregoing, in no event will the amount of
interest required to be distributed in respect of the Certificates on any
Distribution Date exceed a per annum rate equal to the weighted average of
the Loan Rates (net of the Servicing Fee Rate, the rate at which the fee
payable to the Trustee is calculated, the rate at which the premium payable
to the Certificate Insurer is calculated and, commencing with the
Distribution Date in June 1997, 0.50%) weighted on the basis of the daily
average balance of each Mortgage Loan during the related billing cycle
prior to the Collection Period relating to such Distribution Date. Interest
on the Certificates in respect of any Distribution Date will accrue from
the preceding Distribution Date (or in the case of the first Distribution
Date, from the date of the initial issuance of the Certificates (the
'Closing Date')) through the day preceding such Distribution Date (each
such period, an 'Interest Period') on the basis of the actual number of
days in the Interest Period and a 360-day year.
Interest payments on the Certificates will be funded from Investor Interest
Collections, any funds on deposit in the Spread Account and from draws on
the Policy. See 'Description of the Certificates' herein.
Principal Payments from Principal
Collections....................... For the period beginning on the first Distribution Date and, unless a Rapid
Amortization Event (as defined herein) shall have earlier occurred, ending
on the Distribution Date in November, 2001 (the 'Managed Amortization
Period'), the amount of Principal Collections payable to Certificateholders
as of each Distribution Date during the Managed Amortization Period will
equal, to the extent funds are available therefor, the Scheduled Principal
Collections Distribution Amount for such Distribution Date. On any
Distribution Date during the Managed Amortization Period, the 'Scheduled
Principal Collections Distribution Amount' shall equal the lesser of (i)
the Maximum Principal Payment (as defined herein) and (ii) the Alternative
Principal Payment (as defined herein). With respect to any Distribution
Date, the 'Maximum Principal Payment' will equal the product of the
Investor Fixed Allocation Percentage and Principal Collections for such
Distribution Date. With respect to any Distribution Date, the 'Alternative
Principal Payment' will equal the amount, but not less than zero, of
Principal Collections for such Distribution Date less the aggregate of
Additional Balances created during the related Collection Period.
Beginning with the first Distribution Date following the end of the Managed
Amortization Period, the amount of Principal Collections payable to
Certificateholders on each Distribution Date will be equal to the Maximum
Principal Payment. See 'Description of the Certificates -- Distributions on
the Certificates' herein. In addition, to the extent funds are available
therefor (including funds available under the Policy), on the Distribution
Date in January, 2028, Certificateholders will be entitled to receive as
payment of principal an amount equal to the outstanding Certificate
Principal Balance.
</TABLE>
S-10
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Distributions of Principal Collections based upon the Investor Fixed
Allocation Percentage may result in distributions of principal to
Certificateholders in amounts that are greater relative to the declining
Pool Balance than would be the case if the Investor Floating Allocation
Percentage were used to determine the percentage of Principal Collections
distributed in respect of the Invested Amount. The aggregate distributions
of principal to Certificateholders will not exceed the Original Certificate
Principal Balance.
The Certificate Insurer............. Financial Security Assurance Inc. (the 'Certificate Insurer') is a New York
monoline insurance company engaged exclusively in the business of writing
financial guaranty insurance, principally in respect of asset-backed and
other collateralized securities offered in domestic and foreign markets.
The Certificate Insurer's claims-paying ability is rated 'Aaa' by Moody's
Investors Service, Inc. ('Moody's') and 'AAA' by each of Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies, Inc. ('Standard
& Poor's'), Nippon Investors Service, Inc. and Standard & Poor's
(Australia) Pty. Ltd. See 'The Certificate Insurer' herein.
Policy.............................. On or before the Closing Date, the Policy will be issued by the Certificate
Insurer pursuant to the provisions of the Insurance and Indemnity Agreement
(the 'Insurance Agreement') to be dated as of October 31, 1996, among the
Seller, the Depositor, the Master Servicer and the Certificate Insurer.
The Policy will irrevocably and unconditionally guarantee payment on each
Distribution Date to the Trustee for the benefit of the Certificateholders
the full and complete payment of (i) the Guaranteed Principal Distribution
Amount (as defined herein) with respect to the Certificates for such
Distribution Date and (ii) accrued and unpaid interest due on the
Certificates (together, the 'Guaranteed Distributions'), with such
Guaranteed Distributions having been calculated in accordance with the
original terms of the Certificates or the Agreement except for amendments
or modifications to which the Certificate Insurer has given its prior
written consent. The effect of the Policy is to guarantee the timely
payment of interest on, and the ultimate payment of the principal amount
of, all of the Certificates.
The 'Guaranteed Principal Distribution Amount' for any Distribution Date
shall be the amount by which the Certificate Principal Balance (after
giving effect to all other amounts distributable and allocable to principal
on the Certificates on such Distribution Date) exceeds the Invested Amount
for such Distribution Date. In addition, the Policy will guarantee the
payment of the outstanding Certificate Principal Balance on the
Distribution Date in January, 2028 (after giving effect to all other
amounts distributable and allocable to principal on such Distribution
Date).
In accordance with the Agreement, the Trustee will be required to establish
and maintain an account (the 'Spread Account') for the benefit of the
Certificate Insurer and the Certificateholders. The Trustee shall deposit
the amounts into the Spread Account as required by the Agreement.
In the absence of payments under the Policy, Certificateholders will
directly bear the credit and other risks associated with their undivided
</TABLE>
S-11
<PAGE>
<PAGE>
<TABLE>
<S> <C>
interest in the Trust Fund. See 'Description of the Certificates -- The
Policy' herein.
Overcollateralization Amount........ The distribution of Accelerated Principal Distribution Amounts, if any, to
Certificateholders may result in the Invested Amount being greater than the
Certificate Principal Balance, thereby creating the Overcollateralization
Amount. The Overcollateralization Amount, if any, will be available to
absorb any Investor Loss Amount not covered by Investor Interest
Collections. Payments of Accelerated Principal Distribution Amounts are not
covered by the Policy. Any Investor Loss Amounts not covered by such
overcollateralization, amounts on deposit in the Spread Account or Investor
Interest Collections will be covered by draws on the Policy to the extent
provided therein.
Record Date......................... The last day preceding a Distribution Date or, if the Certificates are no
longer Book-Entry Certificates, the last day of the month preceding a
Distribution Date.
Servicing........................... The Master Servicer will be responsible for servicing, managing and making
collections on the Mortgage Loans. The Master Servicer will deposit all
collections in respect of the Mortgage Loans into the Collection Account as
described under 'Description of the Certificates -- Payments on Mortgage
Loans; Deposits to Collection Account' herein. On the third Business Day
prior to each Distribution Date (the 'Determination Date'), the Master
Servicer will calculate, and instruct the Trustee regarding the amounts
available to be paid, as described under 'Description of the
Certificates -- Payments on Mortgage Loans; Deposits to Collection Account'
herein, to the Certificateholders on such Distribution Date. See
'Description of the Certificates -- Distributions on the Certificates'
herein. With respect to each Collection Period, the Master Servicer will
receive from collections in respect of interest on the Mortgage Loans, on
behalf of itself, a portion of such collections as a monthly servicing fee
(the 'Servicing Fee') in the amount of 0.50% per annum (the 'Servicing Fee
Rate') on the aggregate Principal Balances of the Mortgage Loans as of the
first day of each such Collection Period. See 'Description of the
Certificates -- Servicing Compensation and Payment of Expenses' herein. In
certain limited circumstances, the Master Servicer may resign or be
removed, in which event either the Trustee or a third-party servicer will
be appointed as a successor Master Servicer. See 'Description of the
Certificates -- Certain Matters Regarding the Master Servicer and the
Transferor' herein.
Final Payment of Principal;
Termination....................... The Trust Fund will terminate on the Distribution Date following the later
of (A) payment in full of all amounts owing to the Certificate Insurer and
(B) the earliest of (i) the Distribution Date on which the Certificate
Principal Balance has been reduced to zero, (ii) the final payment or other
liquidation of the last Mortgage Loan in the Trust Fund, (iii) the optional
retransfer to the Transferor of the Certificates, as described below and
(iv) the Distribution Date in January, 2028. The Certificates will be
subject to optional retransfer to the Transferor on any Distribution Date
after the Certificate Principal Balance is reduced to an amount less than
or equal to 10% of the Original Certificate Principal Balance and all
amounts due and owing to the Certificate Insurer and unreimbursed draws on
the Policy, together with interest thereon, as provided under the Insurance
</TABLE>
S-12
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Agreement, have been paid. The retransfer price will be equal to the sum of
the outstanding Certificate Principal Balance and accrued and unpaid
interest thereon at the Certificate Rate through the day preceding the
final Distribution Date. See 'Description of The
Certificates -- Termination; Retirement of the Certificates' herein and
'The Agreements -- Termination; Optional Termination' in the Prospectus.
In addition, the Trust Fund may be liquidated as a result of certain events
of bankruptcy, insolvency or receivership relating to the Transferor. See
'Description of the Certificates -- Rapid Amortization Events' herein.
Trustee............................. The First National Bank of Chicago, a national banking association (the
'Trustee'), will act as Trustee on behalf of the Certificateholders.
Mandatory Retransfer of Certain
Mortgage Loans.................... The Seller will make certain representations and warranties in the
Agreement with respect to the Mortgage Loans. If the Seller breaches
certain of its representations and warranties with respect to any Mortgage
Loan and such breach materially and adversely affects the interests of the
Certificateholders or the Certificate Insurer and is not cured within the
specified period, the Mortgage Loan will be removed from the Trust Fund
upon the expiration of a specified period from the date on which the Seller
becomes aware or receives notice of such breach and will be reassigned to
the Seller. See 'Description of the Certificates -- Assignment of Mortgage
Loans' herein.
Federal Income Tax Consequences..... Subject to the qualifications set forth in 'Federal Income Tax
Consequences' herein, special tax counsel to the Depositor and counsel to
the Underwriters is of the opinion that, under existing law, a Certificate
will be treated as a debt instrument for federal income tax purposes as of
the Closing Date. Under the Agreement, the Transferor, the Depositor and
the Certificateholders will agree to treat the Certificates as indebtedness
for federal income tax purposes. Furthermore, special tax counsel to the
Depositor and counsel to the Underwriters is of the opinion that the Trust
Fund will not be treated as either an association or a publicly traded
partnership taxable as a corporation or as a taxable mortgage pool. See
'Federal Income Tax Consequences' herein and in the Prospectus for
additional information concerning the application of federal income tax
laws.
ERISA Considerations................ The acquisition of a Certificate by a pension or other employee benefit
plan (a 'Plan') subject to the Employee Retirement Income Security Act of
1974, as amended ('ERISA'), 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 the
Certificates. Any Plan fiduciary considering whether to purchase any
Certificate 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 Considerations..... The Certificates will not constitute 'mortgage related securities' for
purposes of the Secondary Mortgage Market Enhancement Act of 1984
('SMMEA'), because not all of the Mortgages securing the Mortgage Loans are
first mortgages. Accordingly, many institutions with legal authority to
invest in comparably rated securities based solely on first
</TABLE>
S-13
<PAGE>
<PAGE>
<TABLE>
<S> <C>
mortgages may not be legally authorized to invest in the Certificates. See
'Legal Investment Considerations' herein and 'Legal Investment' in the
Prospectus.
Certificate Rating.................. It is a condition to the issuance of the Certificates that they be rated
'AAA' by Standard & Poor's and 'Aaa' by Moody's (each a 'Rating Agency').
In general, ratings address credit risk and do not address the likelihood
of prepayments. See 'Ratings' herein and 'Risk Factors -- Rating of the
Securities' in the Prospectus.
Risk Factors........................ For a discussion of certain risks associated with an investment in the
Certificates, see 'Risk Factors' on page S-15 herein and on page 14 in the
Prospectus.
</TABLE>
S-14
<PAGE>
<PAGE>
RISK FACTORS
Investors should consider the following risks in connection with the
purchase of Certificates.
Consequences of Owning Book-Entry Certificates. Issuance of the
Certificates in book-entry form may reduce the liquidity of such Certificates in
the secondary trading market since investors may be unwilling to purchase
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 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 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 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 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 Certificateholders as such term is used in the Agreement, and
Certificate Owners will be permitted to exercise the rights of
Certificateholders only indirectly through DTC and its Participants. See
'Description of the Certificates -- Book-Entry Certificates' herein and 'Risk
Factors -- Book-Entry Registration' in the Prospectus.
Cash Flow Considerations and Risks. Minimum monthly payments on the
Mortgage Loans will at least equal and may exceed accrued interest thereon. 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 that are delinquent and resulting shortfalls in
distributions to Certificateholders could occur if the Certificate Insurer were
unable to perform its obligations under the Policy. Further, liquidation
expenses (such as legal fees, real estate taxes, and maintenance and
preservation expenses) will reduce the security for the related Mortgage Loans
and thereby reduce the proceeds payable to Certificateholders. In the event any
of the Mortgaged Properties fail to provide adequate security for the related
Mortgage Loans, Certificateholders could experience a loss if the Certificate
Insurer were unable to perform its obligations under the Policy.
Prepayment Considerations and Risks. Substantially all of the Mortgage
Loans may be prepaid in whole or in part at any time without penalty. Home
equity loans, such as the Mortgage Loans, have been originated in significant
volume only during the past few years and neither the Depositor nor the Master
Servicer is aware of any publicly available studies or statistics on the rate of
prepayment of such loans. Generally, home equity loans are not viewed by
borrowers as permanent financing. Accordingly, the Mortgage Loans may experience
a higher rate of prepayment than traditional loans. 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 'Description of the Certificates' herein and 'Certain Legal Aspects of
the Loans -- Due-on-Sale Clauses' in the Prospectus for a description of certain
provisions of the Credit Line Agreements that may affect the prepayment
experience on the Mortgage Loans. The yield to maturity and weighted average
life of the Certificates will be affected primarily by the rate and timing of
prepayments on the Mortgage Loans. Any reinvestment risks resulting from a
faster or slower incidence of prepayment of Mortgage Loans will be borne
entirely by the Certificateholders. See 'Maturity and Prepayment Considerations'
herein and 'Yield and Prepayment Considerations' in the Prospectus.
Certificate Rating. The rating of the 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 Certificates may result in a reduction in the
rating of the Certificates. The rating by the Rating Agencies of the
Certificates is not a recommendation to purchase, hold or sell the Certificates,
inasmuch as such rating does not
S-15
<PAGE>
<PAGE>
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 Mortgage Loans are secured by
mortgages (which generally are second mortgages). With respect to Mortgage Loans
that are secured by first mortgages, the Master Servicer has the power under
certain circumstances to consent to a new mortgage lien on the Mortgaged
Property having priority over such Mortgage Loan. 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 Policy, the
Certificateholders will bear (i) the risk of delay in distributions while a
deficiency judgment against the borrower is obtained and (ii) the risk of loss
if the deficiency judgment cannot be obtained or is not realized upon. See
'Certain Legal Aspects of the Loans' in the Prospectus.
Legal Considerations -- Security Interest. Under the terms of the
Agreement, so long as Countrywide's long-term senior unsecured debt is rated at
least 'BBB-' by Standard & Poor's and 'Baa2' by Moody's, the Master Servicer
will be entitled to maintain possession of the documentation relating to each
Mortgage Loan sold by it, including the Credit Line Agreements and the Related
Documents or other evidence of indebtedness signed by the borrower, and the
assignments of the related mortgages to the Trust Fund will not be required to
be recorded. Failure to deliver the Related Documents to the Trustee will have
the result in most (if not all) of the states in which the Related Documents
will be held, and failure to record the assignments of the related mortgages to
the Trustee will have the result in certain states in which the Mortgaged
Properties are located, of making the sale of the Closing Date Pool Balance,
Additional Balances and Related Documents potentially ineffective against (i)
any creditors of Countrywide, who may have been fraudulently or inadvertently
induced to rely on the Mortgage Loans as assets of Countrywide, or (ii) any
purchaser of a Mortgage Loan who had no notice of the prior conveyance to the
Trust Fund if such purchaser perfects his interest in the Mortgage Loan by
taking possession of the Related Documents or other evidence of indebtedness or
otherwise. In such event, the Trust Fund would be an unsecured creditor of
Countrywide.
Bankruptcy and Insolvency Risks. The sale of the Mortgage Loans from
Countrywide to the Depositor pursuant to the Purchase Agreement will be treated
as a sale of the Mortgage Loans. However, in the event of an insolvency of
Countrywide, the receiver 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 receiver decided to challenge such transfer,
(i) if the Mortgage Loans have not been delivered to the Trustee, the interest
of the Trust Fund in the Mortgage Loans will be that of an unperfected security
interest and (ii) even if the Mortgage Loans have been delivered to the Trustee,
delays in payments of the Certificates and reductions in the amounts thereof
could occur. The Depositor will warrant in the 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.
If a conservator, receiver or trustee were appointed for the Transferor, or
if certain other events relating to the bankruptcy or insolvency of the
Transferor were to occur, Additional Balances would not be sold to the Trust
Fund. In such an event, the Rapid Amortization Period would commence and the
Trustee would attempt to sell the Mortgage Loans (unless Certificateholders
holding Certificates evidencing undivided interests aggregating at least 51% of
the Certificate Principal Balance instruct otherwise), thereby causing early
payment of the Certificate Principal Balance. The net proceeds of such sale will
first be paid to the Certificate Insurer to the extent of unreimbursed draws
under the Policy and other amounts owing to the Certificate Insurer pursuant to
the Insurance Agreement. The Investor Fixed Allocation Percentage of remaining
amounts will be distributed to the Certificateholders and the Policy will cover
any amount by which such remaining net proceeds are insufficient to pay the
Certificate Principal Balance in full.
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
Certificateholders from appointing a successor Master Servicer.
Geographic Concentration. As of the Cut-off Date, approximately 30.54% (by
Statistic Calculation Date Principal Balance of the Statistic Calculation Pool
Mortgage Loans) of the Mortgaged Properties are located in
S-16
<PAGE>
<PAGE>
the State of California. An overall decline in the California residential real
estate market could adversely affect the values of the Mortgaged Properties
securing the Mortgage Loans such that the Principal Balances of the related
Mortgage Loans, together with any primary financing on such Mortgaged
Properties, 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 the Mortgage Loans, the
rates of losses on the Mortgage Loans would be expected to increase, and could
increase substantially.
Master Servicer's Ability to Change the Terms of the Mortgage Loans. The
Master Servicer may agree to changes in the terms of a Credit Line Agreement,
provided that such changes (i) do not materially and adversely affect the
interest of the Certificateholders or the Certificate Insurer, and (ii) are
consistent with prudent business practice. There can be no assurance that
changes in applicable law or the marketplace for home equity loans or prudent
business practice will not result in changes in the terms of the Mortgage Loans.
In addition, the Agreement permits the Master Servicer, within certain
limitations described therein, to increase the Credit Limit of the related
Mortgage Loan or reduce the Loan Rate for such Mortgage Loan. Any such increase
in the Credit Line of a Mortgage Loan would increase the Loan-to-Value Ratio of
such Mortgage Loan and, accordingly, would increase the risk of the Trust Fund's
investment in such Mortgage Loan. In addition, any reduction in the Loan Rate of
a Mortgage Loan would reduce the excess cash flow available to absorb losses.
Delinquent Mortgage Loans. The Trust Fund will include Statistic
Calculation Pool Mortgage Loans which are 59 or fewer days delinquent as of the
Statistic Calculation Date. The Statistic Calculation Date Principal Balance of
Statistic Calculation Pool Mortgage Loans which are between 30 days and 59 days
delinquent as of the Statistic Calculation Date was $384,240.79. If there are
not sufficient funds from the Investor Interest Collections to cover the
Investor Loss Amounts for any Distribution Date, the Overcollateralization
Amount and the amount on deposit in the Spread Account have been reduced to
zero, and the Certificate Insurer fails to perform its obligations under the
Policy, the aggregate amount of principal returned to the Certificateholders may
be less than the Certificate Principal Balance on the day the Certificates are
issued.
For a discussion of additional risks pertaining to the Certificates, see
'Risk Factors' in the Prospectus.
THE CERTIFICATE INSURER
The following information set forth in this section has been provided by
the Certificate Insurer. Accordingly, neither the Depositor nor the Master
Servicer makes any representation as to the accuracy and completeness of such
information.
General. Financial Security Assurance Inc. (the 'Certificate Insurer' or
'Financial Security') is a monoline insurance company incorporated in 1984 under
the laws of the State of New York. The Insurer is licensed to engage in the
financial guaranty insurance business in all 50 states, the District of Columbia
and Puerto Rico.
The Certificate Insurer and its subsidiaries are engaged exclusively in the
business of writing financial guaranty insurance, principally in respect of
securities offered in domestic and foreign markets. In general, financial
guaranty insurance consists of the issuance of a guaranty of scheduled payments
of an issuer's securities thereby enhancing the credit rating of those
securities in consideration for the payment of a premium to the insurer. The
Certificate Insurer and its subsidiaries principally insure asset-backed,
collateralized and municipal securities. Asset-backed securities are generally
supported by residential mortgage loans, consumer or trade receivables,
securities or other assets having an ascertainable cash flow or market value.
Collateralized securities include public utility first mortgage bonds and
sale/leaseback obligation bonds. Municipal securities consist largely of general
obligation bonds, special revenue bonds and other special obligations of state
and local governments. The Certificate Insurer insures both newly issued
securities sold in the primary market and outstanding securities sold in the
secondary market that satisfy the Certificate Insurer's underwriting criteria.
The Certificate Insurer is a wholly owned subsidiary of Financial Security
Assurance Holdings Ltd. ('Holdings'), a New York Stock Exchange listed company.
Major shareholders of Holdings include Fund American Enterprises Holdings, Inc.,
U S WEST Capital Corporation and the Tokio Marine and Fire Insurance Co., Ltd.
No shareholder of Holdings is obligated to pay any debt of the Certificate
Insurer or any claim under
S-17
<PAGE>
<PAGE>
any insurance policy issued by the Certificate Insurer or to make any additional
contribution to the capital of the Certificate Insurer.
The principal executive offices of the Certificate Insurer are located at
350 Park Avenue, New York, New York 10022, and its telephone number at that
location is (212) 826-0100.
Reinsurance. Pursuant to an intercompany agreement, liabilities on
financial guaranty insurance written or reinsured from third parties by the
Certificate Insurer or any of its domestic operating insurance company
subsidiaries are reinsured among such companies on an agreed-upon percentage
substantially proportional to their respective capital, surplus and reserves,
subject to applicable statutory risk limitations. In addition, the Certificate
Insurer reinsures a portion of its liabilities under certain of its financial
guaranty insurance policies with other reinsurers under various quota share
treaties and on a transaction-by-transaction basis. Such reinsurance is utilized
by the Certificate Insurer as a risk management device and to comply with
certain statutory and rating agency requirements; it does not alter or limit the
Certificate Insurer's obligations under any financial guaranty insurance policy.
Ratings of Claims-Paying Ability. The Certificate Insurer's claims-paying
ability is rated 'Aaa' by Moody's and 'AAA' by each of S&P, Nippon Investors
Service Inc. and Standard & Poor's (Australia) Pty. Ltd. Such ratings reflect
only the views of the respective rating agencies, are not recommendations to
buy, sell or hold securities and are subject to revision or withdrawal at any
time by such rating agencies.
Capitalization. The following table sets forth the capitalization of the
Certificate Insurer and its wholly owned subsidiaries on the basis of generally
accepted accounting principles as of June 30, 1996 (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------
(UNAUDITED)
<S> <C>
Deferred Premium Revenue
(net of prepaid reinsurance premiums)........................................ $ 351,180
-------------
Shareholder's Equity:
Common Stock.............................................................. 15,000
Additional Paid-In Capital................................................ 681,470
Unrealized Loss on Investments (net of deferred income taxes)............. (5,685)
Accumulated Earnings...................................................... 94,287
-------------
Total Shareholder's Equity..................................................... $ 785,072
-------------
Total Deferred Premium Revenue and Shareholder's Equity........................ $ 1,136,252
-------------
-------------
</TABLE>
For further information concerning the Certificate Insurer, see the
Consolidated Financial Statements of the Certificate Insurer and Subsidiaries,
and the notes thereto, incorporated by reference herein. Copies of the statutory
quarterly and annual statements filed with the State of New York Insurance
Department by the Certificate Insurer are available upon request to the State of
New York Insurance Department.
Incorporation of Certain Documents by Reference. The consolidated
financial statements of the Certificate Insurer and Subsidiaries included as an
exhibit to the Annual Report on Form 10-K for the year ended December 31, 1995,
and the unaudited financial statements of the Certificate Insurer and
Subsidiaries for the six-month period ended June 30, 1996 included as an exhibit
to the Quarterly Report on Form 10-Q for the period ended June 30, 1996, each of
which has been filed with the Securities and Exchange Commission by Holdings,
are hereby incorporated by reference in this Prospectus Supplement.
All financial statements of the Certificate Insurer and Subsidiaries
included in documents filed by Holdings pursuant to Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended (the 'Exchange Act'),
subsequent to the date of this Prospectus Supplement and prior to the
termination of the offering of the 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 of such documents.
Insurance Regulation. The Certificate Insurer is licensed and subject to
regulation as a financial guaranty insurance corporation under the laws of the
State of New York, its state of domicile. In addition, the Certificate Insurer
and its insurance subsidiaries are subject to regulation by insurance laws of
the various other jurisdictions in which they are licensed to do business. As a
financial guaranty insurance corporation licensed to do business in the State of
New York, the Certificate Insurer is subject to Article 69 of the New York
Insurance Law which, among other things, limits the business of each such
insurer to financial guaranty insurance and
S-18
<PAGE>
<PAGE>
related lines, requires that each such insurer maintain a minimum surplus to
policyholders, establishes contingency, loss and unearned premium reserve
requirements for each such insurer, and limits the size of individual
transactions ('single risks') and the volume of transactions ('aggregate risks')
that may be underwritten by each such insurer. Other provisions of the New York
Insurance Law, applicable to non-life insurance companies such as the
Certificate Insurer, regulate, among other things, permitted investments,
payment of dividends, transactions with affiliates, mergers, consolidations,
acquisitions or sales of assets and incurrence of liability for borrowings.
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, other than with respect to the accuracy
of information regarding the Certificate Insurer or Holdings set forth under the
heading 'The Certificate Insurer.'
THE MASTER SERVICER
GENERAL
The Master Servicer will service the Mortgage Loans in accordance with the
terms set forth in the Agreement. The Master Servicer may perform any of its
obligations under the 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 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 Master Servicer
for the Mortgage Loans pursuant to the 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. Countrywide
began servicing home equity lines of credit in October 1994.
At September 30, 1996, Countrywide provided servicing for approximately
$150 billion aggregate principal amount of mortgage loans, substantially all of
which are being serviced for unaffiliated persons. At September 30, 1996,
Countrywide provided servicing for approximately $359 million aggregate
principal amount of first and second lien mortgage loans originated under home
equity lines of credit.
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 located throughout the nation.
THE HOME EQUITY LOAN PROGRAM
UNDERWRITING PROCEDURES RELATING TO HOME EQUITY LOANS
The following is a description of the underwriting procedures customarily
employed by the Seller with respect to home equity 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 the Seller's underwriting guidelines will
be made when compensating factors are present. Such factors include the
borrower's employment stability, favorable credit history, equity in the related
property and the nature of the underlying first mortgage loan.
Each applicant for a home equity 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 home equity loan, the Seller
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
S-19
<PAGE>
<PAGE>
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.
The Seller 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 home equity loans which at
origination had a principal balance greater than $100,000. Such appraisals are
determined on the basis of a Seller-approved, independent third-party, fee-based
appraisal completed on forms approved by Federal National Mortgage Association
('FNMA') or Federal Home Loan Mortgage Corporation ('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 home equity loans are currently $10,000
and $500,000, respectively. Borrowers may draw under the home equity loans in
minimum amounts of $250 and maximum amounts up to the remaining available credit
thereunder, in each case after giving effect to all prior draws and payments
thereon.
After obtaining all applicable employment, credit and property information,
the Seller 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 home equity 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. The Seller currently offers home equity
loan products that allow maximum Combined Loan-to-Value Ratios of 70%, 80%, 90%
and 100%.
It is generally the Seller's policy to require a title search or limited
coverage policy before it makes a home equity loan for amounts less than or
equal to $100,000. In addition, if the home equity loan has an original
principal balance of $100,000 or more, the Seller 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 home equity loan is in first lien
position.
SERVICING OF THE MORTGAGE LOANS
The Master Servicer has established standard policies for the servicing and
collection of the home equity loans. Servicing includes, but is not limited to,
(i) the collection and aggregation of payments relating to the Mortgage Loans;
(ii) the supervision of delinquent Mortgage Loans, loss mitigation efforts,
foreclosure proceedings and, if applicable, the disposition of Mortgaged
Properties; and (iii) the preparation of tax related information in connection
with the Mortgage Loans.
Billing statements are mailed monthly by the Master Servicer. The
statements detail all debits and credits and specify the minimum payment due and
the available credit line. Notice of changes in the applicable loan
S-20
<PAGE>
<PAGE>
rate are provided by the Master Servicer to the Mortgagor with such statements.
All payments are due by the fifteenth day of the month.
With respect to Mortgage Loans, the general policy of the Master Servicer
is to initiate foreclosure in the underlying property (i) after such loan is 75
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 the
Master Servicer. 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 the Master Servicer, 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, the Master Servicer determines the
amount of the foreclosure bid and whether to liquidate the loan.
After foreclosure, if the home equity loan is secured by a first mortgage
lien, the Master Servicer may liquidate the Mortgaged Property and charge off
the home equity loan balance which was not recovered through liquidation
proceeds. If the Mortgaged Property was subject to a senior lien, the Master
Servicer 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 the
Master Servicer, the cost of maintaining or purchasing the senior lien position
exceeds the economic benefit of such action, the Master Servicer will generally
charge off the entire home equity loan and may seek a money judgment against the
borrower.
Servicing and charge-off policies and collection practices may change over
time in accordance with, among other things, the Master Servicer's business
judgment, changes in the portfolio and applicable laws and regulations.
FORECLOSURE AND DELINQUENCY EXPERIENCE
The following table summarizes the delinquency and foreclosure experience,
respectively, on the dates indicated, of home equity loans serviced by the
Master Servicer. Since Countrywide only began servicing home equity loans in
October 1994, the delinquency and foreclosure 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 Mortgage Loans and no
assurances can be given that the foreclosure and delinquency experience
presented in the table below will be indicative of such experience on the
Mortgage Loans:
DELINQUENCY AND FORECLOSURE EXPERIENCE(1)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995 AS OF MARCH 31, 1996 AS OF JUNE 30, 1996
---------------------------- ---------------------------- ----------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
BALANCE PERCENTAGE BALANCE PERCENTAGE BALANCE PERCENTAGE
--------------- ---------- --------------- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Portfolio..................... $149,806,173.13 -- $187,322,867.98 -- $269,442,905.49 --
Delinquency percentage(1)
30-59 Days................ 303,577.48 0.20% 581,873.78 0.31% 516,544.61 0.19%
60-89 Days................ 537,731.49 0.36 62,481.03 0.03 212,827.86 0.08
90+ Days.................. 13,644.96 0.01 0.00 0.00 59,530.64 0.02
--------------- --- --------------- --- --------------- ---
Total(2).............. $ 854,953.93 0.57% $ 644,354.81 0.34% $ 788,903.11 0.29%
--------------- --- --------------- --- --------------- ---
--------------- --- --------------- --- --------------- ---
Foreclosure Rate(3)........... $ 288,439.89 0.19% $ 918,836.11 0.49% $ 996,352.86 0.37%
Bankruptcy Rate(4)............ $ 112,516.75 0.08% $ 212,516.75 0.11% $ 231,197.38 0.09%
<CAPTION>
AS OF SEPTEMBER 30, 1996
----------------------------
PRINCIPAL
BALANCE PERCENTAGE
--------------- ----------
<S> <C> <C>
Portfolio..................... $358,377,596.62 --
Delinquency percentage(1)
30-59 Days................ 1,072,768.00 0.30%
60-89 Days................ 230,262.33 0.06
90+ Days.................. 102,612.93 0.03
--------------- ---
Total(2).............. $ 1,405,643.26 0.39%
--------------- ---
--------------- ---
Foreclosure Rate(3)........... $ 806,077.95 0.22%
Bankruptcy Rate(4)............ $ 385,975.59 0.11%
</TABLE>
- ------------
(1) The period of delinquency is based on the number of days payments are
contractually past due.
(2) Certain total percentages and dollar amounts may not equal the sum of the
percentages and dollar amounts indicated in the columns due to differences
in rounding.
(footnotes continued on next page)
S-21
<PAGE>
<PAGE>
(footnotes continued from previous page)
(3) 'Foreclosure Rate' is the dollar amount of mortgage loans in foreclosure as
a percentage of the total principal balance of mortgage loans outstanding as
of the date indicated.
(4) 'Bankruptcy Rate' is the dollar amount of mortgage loans for which the
related borrower has declared bankruptcy as a percentage of the total
principal balance of mortgage loans outstanding as of the date indicated.
DESCRIPTION OF THE MORTGAGE LOANS
GENERAL
Certain information with respect to the Statistic Calculation Pool Mortgage
Loans is set forth below. A detailed description of the Mortgage Loans actually
delivered will be available to purchasers of the Certificates at or before, and
will be filed on Form 8-K with the Securities and Exchange Commission within
fifteen days after, delivery of the Certificates. The Mortgage Loans were
originated pursuant to loan agreements and disclosure statements (the 'Credit
Line Agreements') and are secured by mortgages or deeds of trust, which are
either first or second mortgages or deeds of trust, on Mortgaged Properties
located in 44 states and the District of Columbia. The Mortgaged Properties
securing the Mortgage Loans consist of residential properties that are one- to
four-family properties. See ' -- Mortgage Loan Terms' below.
The Statistic Calculation Date Pool Balance is $216,574,732.71, which is
equal to the aggregate Principal Balances of the Statistic Calculation Pool
Mortgage Loans as of the Statistic Calculation Date. As of the Statistic
Calculation Date, the Statistic Calculation Pool Mortgage Loans were not more
than 89 days delinquent. The average Statistic Calculation Date Principal
Balance of the Statistic Calculation Pool Mortgage Loans was approximately
$23,894, the minimum Statistic Calculation Date Principal Balance was zero, the
maximum Statistic Calculation Date Principal Balance was $730,420, the minimum
Loan Rate and the maximum Loan Rate as of the Statistic Calculation Date were
6.99% and 13.75% per annum, respectively, and the weighted average Loan Rate as
of the Statistic Calculation Date was approximately 9.85% per annum. As of the
Statistic Calculation Date, the average Credit Limit Utilization Rate of the
Statistic Calculation Pool Mortgage Loans was approximately 69.15%. The 'Credit
Limit Utilization Rate' is determined by dividing the Statistic Calculation Date
Pool Balance by the aggregate of the Credit Limits of the related Credit Line
Agreements. The remaining term to scheduled maturity for the Statistic
Calculation Pool Mortgage Loans as of the Statistic Calculation Date ranged from
147 months to 305 months and the weighted average remaining term to scheduled
maturity was approximately 287 months. As of the Statistic Calculation Date, the
weighted average Combined Loan-to-Value Ratio of the Statistic Calculation Pool
Mortgage Loans was approximately 78.76%. The Combined Loan-to-Value Ratio for a
Mortgage Loan is the ratio (expressed as a percentage) of (A) the sum of (i) the
Credit Limit of the Mortgage Loan and (ii) any outstanding principal balances of
mortgage loans senior or equal in priority to such Mortgage Loan (calculated
generally at the date of origination of the Mortgage Loan) to (B) the lesser of
(i) the appraised value of the related Mortgaged Property as set forth in the
loan files at such date of origination or (ii) in the case of a Mortgaged
Property purchased within one year of the origination of the related Mortgage
Loan, the purchase price of such Mortgaged Property. Credit Limits under the
Statistic Calculation Pool Mortgage Loans as of the Statistic Calculation Date
ranged from $9,400 to $1,000,000 and averaged approximately $34,552. The
weighted average second mortgage ratio (which is the Credit Limit for the
related Mortgage Loan, provided such Mortgage Loan was in the second lien
position, divided by the sum of such Credit Limit and the outstanding principal
balance of any mortgage loan senior to the related Mortgage Loan) was
approximately 25.36%. As of the Statistic Calculation Date, approximately 5.01%
by Statistic Calculation Date Principal Balance of the Statistic Calculation
Pool Mortgage Loans represented first liens on the related Mortgaged Properties,
while approximately 94.99% of such Mortgage Loans represented second liens. As
of the Statistic Calculation Date, approximately 88.62% of the Statistic
Calculation Pool Mortgage Loans are secured by Mortgaged Properties which are
single-family residences and 96.53% were owner-occupied. As of the Statistic
Calculation Date, approximately 30.54%, 7.20%, 4.75%, 4.54% and 4.28% of the
Statistic Calculation Pool Mortgage Loans by Statistic Calculation Date
Principal Balance are located in California, Washington, Colorado, Utah and
Florida, respectively.
S-22
<PAGE>
<PAGE>
MORTGAGE LOAN TERMS
General. A borrower may access a Mortgage Loan by writing a check in a
minimum amount of $250. The Mortgage Loans bear interest at a variable rate
which changes monthly on the first business day of the related month with
changes in the applicable Index Rate. The Statistic Calculation Pool Mortgage
Loans are subject to a maximum per annum interest rate (the 'Maximum Rate')
ranging from 12.25% to 18.00% per annum and subject to applicable usury
limitations. As of the Statistic Calculation Date, the weighted average Maximum
Rate for the Statistic Calculation Pool Mortgage Loans was approximately 17.86%.
See 'Certain Legal Aspects of the Loans -- Applicability of Usury Laws' in the
Prospectus. The daily periodic rate on the Mortgage Loans (the 'Loan Rate') is
the sum of the Index Rate plus the spread (the 'Margin'), divided by 365 days.
The Margin generally ranges between 0.125% and 5.50% and has a weighted average,
with respect to the Statistic Calculation Pool Mortgage Loans as of the
Statistic Calculation Date, of approximately 2.20%. The 'Index Rate' is based on
the highest 'prime rate' (the 'Index') published in the 'Money Rates' table of
The Wall Street Journal as of the first business day of each calendar month.
Countrywide offers an introductory loan rate on home equity lines of credit
which are originated with Combined Loan-to-Value Ratios of 80%. The introductory
rate applies to any payments made during the first three months after
origination. After such three month period, the Loan Rate will adjust to the
Index Rate plus the applicable Margin. As of the Statistic Calculation Date,
approximately 24.65% of the Statistic Calculation Pool Mortgage Loans by
Statistic Calculation Date Principal Balance were subject to an introductory
rate of 6.99% per annum.
In general, the home equity loans may be drawn upon for a period (the 'Draw
Period') of either five years (which may be extendible for an additional five
years, upon Countrywide's approval) or three years. Home equity loans with an
initial Draw Period of five years, which constitute approximately 93.17% of the
Statistic Calculation Pool Mortgage Loans by Statistic Calculation Date
Principal Balance, are subject to a fifteen year repayment period (the
'Repayment Period') following the end of the Draw Period during which the
outstanding principal balance of the loan will be repaid in monthly installments
equal to 1/180 of the outstanding principal balance as of the end of the Draw
Period. Mortgage Loans with a Draw Period of three years, which constitute
approximately 6.80% of the Statistic Calculation Pool Mortgage Loans by
Statistic Calculation Date Principal Balance, are subject to a ten year
Repayment Period following the end of the Draw Period during which the
outstanding principal balance of the loan will be paid in monthly installments
equal to 1/120 of the outstanding principal balance as of the end of the Draw
Period.
The minimum payment due during the Draw Period will be equal to the finance
charges accrued on the outstanding principal balance of the home equity loan
during the related billing period. The minimum payment due during the repayment
period will be equal to the sum of the finance charges accrued on the
outstanding principal balance of the Mortgage Loan during the related billing
period and the principal payment described above.
Difference between Statistic Calculation Pool and Cut-off Date Pool. The
statistical information presented in this Prospectus Supplement is based on the
Statistic Calculation Pool. The Statistic Calculation Pool reflects the Mortgage
Loans originated by the Seller through the Statistic Calculation Date, and the
statistical information presented herein is based on the number and the
principal balances of such Mortgage Loans as of the Statistic Calculation Date.
The Depositor expects that the actual pool as of the Closing Date will represent
approximately $251,054,202.11 aggregate Principal Balance of Mortgage Loans. The
Mortgage Loans to be included in the final pool will represent Mortgage Loans
originated or to be originated by the Seller on or prior to the Cut-off Date and
sold by the Seller to the Depositor, and by the Depositor to the Trust Fund, on
the Closing Date. In addition, with respect to the Statistic Calculation Pool
Mortgage Loans, as to which statistical information is presented herein, some
amortization will occur prior to the Cut-off Date. In addition, certain
Statistic Calculation Pool Mortgage Loans may prepay in full or may be
determined not to meet the eligibility requirements for the final pool and as a
result may not be included in the final pool. As a result of the foregoing, the
statistical distribution of characteristics as of the Cut-off Date for the final
Mortgage Loan pool will vary from the statistical distribution of such
characteristics of the Statistic Calculation Pool as presented in this
Prospectus Supplement, although such variance will not be material. In the event
that the Seller does not, as of the Cut-off Date, have the full amount of
Mortgage Loans which the Depositor expects to purchase from the Seller and sell
to the Trust Fund on such date, (i.e., approximately $251,054,202.11 aggregate
Principal Balance of Mortgage Loans) the Depositor will reduce the size of the
offering. The Depositor does not expect that the
S-23
<PAGE>
<PAGE>
original principal amount of the Certificates will increase or decrease by more
than 5% as a result of such non-delivery.
The following tables describe the Statistic Calculation Pool Mortgage Loans
and the related Mortgaged Properties based upon the Statistic Calculation Pool
as of the close of business on the Statistic Calculation Date:
<TABLE>
<CAPTION>
PRINCIPAL BALANCES
- ------------------------------------------------------------
PERCENT OF
POOL BY
STATISTIC STATISTIC
CALCULATION CALCULATION
NUMBER OF DATE DATE
RANGE OF PRINCIPAL MORTGAGE PRINCIPAL PRINCIPAL
BALANCES LOANS BALANCE BALANCE
- ------------------- --------- --------------- ------------
<S> <C> <C> <C>
0.00 to
10,000.00........ 2,088 $ 9,418,647.57 4.35%
10,000.01 to
20,000.00........ 3,117 48,593,970.84 22.44
20,000.01 to
30,000.00........ 1,754 43,627,142.51 20.14
30,000.01 to
40,000.00........ 936 32,833,991.07 15.16
40,000.01 to
50,000.00........ 472 21,359,325.38 9.86
50,000.01 to
60,000.00........ 213 11,884,650.81 5.49
60,000.01 to
70,000.00........ 138 8,992,906.15 4.15
70,000.01 to
80,000.00........ 84 6,272,179.82 2.90
80,000.01 to
90,000.00........ 52 4,416,801.99 2.04
90,000.01 to
100,000.00....... 76 7,395,882.84 3.41
100,000.01 to
125,000.00....... 51 5,754,581.71 2.66
125,000.01 to
150,000.00....... 43 6,030,178.22 2.78
150,000.01 to
175,000.00....... 7 1,152,668.94 0.53
175,000.01 to
200,000.00....... 10 1,904,219.06 0.88
200,000.01 to
225,000.00....... 5 1,070,974.58 0.49
225,000.01 to
250,000.00....... 8 1,920,951.10 0.89
250,000.01 to
275,000.00....... 1 251,005.21 0.12
275,000.01 to
300,000.00....... 1 295,240.26 0.14
300,000.01 to
325,000.00....... 3 943,507.49 0.44
325,000.01 to
350,000.00....... 1 334,943.37 0.15
350,000.01 and
up............... 4 2,120,963.79 0.98
--------- --------------- ------
Total.......... 9,064 $216,574,732.71 100.00%
--------- --------------- ------
--------- --------------- ------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION(1)
- ------------------------------------------------------------
PERCENT OF
POOL BY
STATISTIC STATISTIC
CALCULATION CALCULATION
NUMBER OF DATE DATE
MORTGAGE PRINCIPAL PRINCIPAL
STATE LOANS BALANCE BALANCE
- ------------------- --------- --------------- ------------
<S> <C> <C> <C>
Alabama............ 139 $ 2,343,542.40 1.08%
Arizona............ 289 6,015,284.69 2.78
California......... 2,284 66,150,678.27 30.54
Colorado........... 388 10,293,831.80 4.75
Connecticut........ 80 2,413,619.76 1.11
Delaware........... 10 159,753.58 0.07
District of
Columbia......... 4 104,911.16 0.05
Florida............ 448 9,262,459.12 4.28
Georgia............ 212 4,734,092.25 2.19
Idaho.............. 233 5,227,102.74 2.41
Illinois........... 405 8,440,490.73 3.90
Indiana............ 128 2,543,245.08 1.17
Iowa............... 27 537,463.66 0.25
Kansas............. 52 1,007,274.34 0.47
Kentucky........... 16 381,758.16 0.18
Louisiana.......... 175 3,398,109.34 1.57
Maine.............. 14 235,571.71 0.11
Maryland........... 134 2,636,550.44 1.22
Massachusetts...... 206 4,617,396.94 2.13
Michigan........... 377 7,077,181.92 3.27
Mississippi........ 28 609,667.94 0.28
Missouri........... 150 2,370,986.19 1.09
Montana............ 21 655,268.37 0.30
Nebraska........... 15 164,710.96 0.08
Nevada............. 155 3,432,717.99 1.59
New Hampshire...... 18 351,016.67 0.16
New Jersey......... 331 6,899,277.64 3.19
New Mexico......... 91 2,196,277.02 1.01
New York........... 178 4,892,923.64 2.26
North Carolina..... 156 2,753,133.87 1.27
North Dakota....... 3 59,095.20 0.03
Ohio............... 294 5,041,827.96 2.33
Oklahoma........... 50 1,115,809.98 0.52
Oregon............. 296 8,342,977.32 3.85
Pennsylvania....... 272 5,098,194.26 2.35
Rhode Island....... 32 659,791.79 0.30
South Carolina..... 43 918,203.17 0.42
South Dakota....... 12 208,461.32 0.10
Tennessee.......... 104 2,132,824.68 0.98
Utah............... 293 9,832,041.14 4.54
Vermont............ 8 146,252.71 0.07
Virginia........... 123 2,798,616.12 1.29
Washington......... 618 15,588,671.56 7.20
Wisconsin.......... 123 2,030,830.54 0.94
Wyoming............ 29 694,836.58 0.32
--------- --------------- ------
Total.......... 9,064 $216,574,732.71 100.00%
--------- --------------- ------
--------- --------------- ------
</TABLE>
- ------------
(1) Geographic location is determined by the address of the Mortgaged Property
securing the related Mortgage Loan.
S-24
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
COMBINED LOAN-TO-VALUE RATIOS(1)
- ------------------------------------------------------------
PERCENT OF
POOL BY
STATISTIC
STATISTIC CALCULATION
RANGE OF COMBINED NUMBER OF CALCULATION DATE
LOAN-TO-VALUE MORTGAGE DATE PRINCIPAL PRINCIPAL
RATIOS LOANS BALANCE BALANCE
- ------------------- --------- --------------- ------------
<S> <C> <C> <C>
0.000% to 10.000% 19 $ 309,994.22 0.14%
10.001% to 20.000% 74 1,622,830.07 0.75
20.001% to 30.000% 84 1,988,895.23 0.92
30.001% to 40.000% 111 3,838,645.08 1.77
40.001% to 50.000% 205 4,984,740.53 2.30
50.001% to 60.000% 368 9,454,932.16 4.37
60.001% to 70.000% 1,053 26,955,392.73 12.45
70.001% to 80.000% 2,676 63,282,874.63 29.22
80.001% to 90.000% 3,758 89,176,611.93 41.18
90.001% to 100.000% 716 14,921,154.82 6.89
--------- --------------- ------
Total.......... 9,064 $216,574,732.71 100.00%
--------- --------------- ------
--------- --------------- ------
</TABLE>
- ------------
(1) The ratio (expressed as a percentage) of (A) the sum of (i) the Credit Limit
of the Mortgage Loans and (ii) any outstanding principal balances of
mortgage loans senior or of equal priority to the Mortgage Loans (calculated
generally at the date of origination of the Mortgage Loans) to (B) the
lesser of (i) the appraised value of the related Mortgaged Property as set
forth in loan files at such date of origination or (ii) in the case of a
Mortgaged Property purchased within one year of the origination of the
related Mortgage Loan, the purchase price of such Mortgaged Property.
<TABLE>
<CAPTION>
PROPERTY TYPE
- ------------------------------------------------------------
PERCENT OF
POOL BY
STATISTIC
STATISTIC CALCULATION
NUMBER OF CALCULATION DATE
MORTGAGE DATE PRINCIPAL PRINCIPAL
PROPERTY TYPE LOANS BALANCE BALANCE
- ------------------- --------- --------------- ------------
<S> <C> <C> <C>
Single Family...... 8,092 $191,925,772.28 88.62%
Two-to-Four-Family... 79 2,189,630.89 1.01
Condominium........ 177 4,252,828.50 1.96
PUD................ 716 18,206,501.04 8.41
--------- --------------- ------
Total.......... 9,064 $216,574,732.71 100.00%
--------- --------------- ------
--------- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
LIEN PRIORITY
- ------------------------------------------------------------
PERCENT OF
POOL BY
STATISTIC
STATISTIC CALCULATION
NUMBER OF CALCULATION DATE
MORTGAGE DATE PRINCIPAL PRINCIPAL
LIEN PRIORITY LOANS BALANCE BALANCE
- ------------------- --------- --------------- ------------
<S> <C> <C> <C>
First Lien......... 261 $ 10,810,278.83 4.99%
Second Lien........ 8,803 205,764,453.88 95.01
--------- --------------- ------
Total.......... 9,064 $216,574,732.71 100.00%
--------- --------------- ------
--------- --------------- ------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOAN RATES(1)
- ------------------------------------------------------------
PERCENT OF
POOL BY
STATISTIC
STATISTIC CALCULATION
NUMBER OF CALCULATION DATE
RANGE OF MORTGAGE DATE PRINCIPAL PRINCIPAL
LOAN RATES LOANS BALANCE BALANCE
- ------------------- --------- --------------- ------------
<S> <C> <C> <C>
6.99%.............. 2,186 $ 53,375,340.64 24.65%
8.25% to 8.50%..... 43 1,019,575.74 0.47
8.51% to 8.75%..... 531 11,568,762.88 5.34
8.76% to 9.00%..... 35 1,088,606.72 0.50
9.01% to 9.25%..... 543 14,298,370.80 6.60
9.26% to 9.50%..... 4 76,363.73 0.04
9.51% to 9.75%..... 719 18,576,016.83 8.58
9.76% to 10.00%.... 74 1,553,142.28 0.72
10.01% to 10.25%... 329 7,648,420.23 3.53
10.26% to 10.50%... 82 1,999,113.09 0.92
10.51% to 10.75%... 698 15,715,964.72 7.26
10.76% to 11.00%... 751 17,009,785.16 7.85
11.01% to 11.25%... 669 17,454,438.04 8.06
11.26% to 11.50%... 844 21,909,609.70 10.12
11.51% to 11.75%... 38 780,284.98 0.36
11.76% to 12.00%... 692 15,454,306.97 7.14
12.01% to 12.25%... 187 3,609,623.16 1.67
12.26% to 12.50%... 188 4,129,746.64 1.91
12.51% to 12.75%... 68 1,542,611.40 0.71
12.76% to 13.00%... 65 1,559,466.90 0.72
13.01% to 13.25%... 276 5,421,260.31 2.50
13.26% to 13.50%... 21 362,540.19 0.17
13.51% to 13.75%... 21 421,381.60 0.19
--------- --------------- ------
Total.......... 9,064 $216,574,732.71 100.00%
--------- --------------- ------
--------- --------------- ------
</TABLE>
- ------------
(1) Approximately 24.65% of the Statistic Calculation Pool Mortgage Loans by
Statistic Calculation Date Principal Balance are subject to an introductory
rate of 6.99% per annum.
<TABLE>
<CAPTION>
MARGIN
- ------------------------------------------------------------
PERCENT OF
POOL BY
STATISTIC STATISTIC
CALCULATION CALCULATION
NUMBER OF DATE DATE
RANGE OF MORTGAGE PRINCIPAL PRINCIPAL
MARGINS LOANS BALANCE BALANCE
- ------------------- --------- --------------- ------------
<S> <C> <C> <C>
0.000% to 0.250%... 63 $ 1,511,363.59 0.70%
0.251% to 0.500%... 998 21,304,099.72 9.84
0.501% to 0.750%... 407 9,108,689.64 4.21
0.751% to 1.000%... 762 21,718,272.81 10.03
1.001% to 1.250%... 178 5,813,541.03 2.68
1.251% to 1.500%... 1,115 27,547,029.11 12.72
1.501% to 1.750%... 317 6,929,816.96 3.20
1.751% to 2.000%... 450 11,289,197.49 5.21
2.001% to 2.250%... 153 3,383,092.37 1.56
2.251% to 2.500%... 768 17,455,201.46 8.06
2.501% to 2.750%... 766 17,463,209.76 8.06
2.751% to 3.000%... 683 17,685,686.92 8.17
3.001% to 3.250%... 845 22,003,909.70 10.16
3.251% to 3.500%... 39 830,284.98 0.38
3.501% to 3.750%... 692 15,454,306.97 7.14
3.751% to 4.000%... 190 3,679,223.16 1.70
4.001% to 4.250%... 187 4,090,546.64 1.89
4.251% to 4.500%... 68 1,542,611.40 0.71
4.501% to 4.750%... 65 1,559,466.90 0.72
4.751% to 5.000%... 276 5,421,260.31 2.50
5.001% and up...... 42 783,921.79 0.36
--------- --------------- ------
Total.......... 9,064 $216,574,732.71 100.00%
--------- --------------- ------
--------- --------------- ------
</TABLE>
S-25
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
CREDIT LIMIT UTILIZATION RATES
- ------------------------------------------------------------
PERCENT OF
POOL BY
STATISTIC STATISTIC
CALCULATION CALCULATION
RANGE OF CREDIT NUMBER OF DATE DATE
LIMIT MORTGAGE PRINCIPAL PRINCIPAL
UTILIZATION RATES LOANS BALANCE BALANCE
- ------------------- --------- --------------- ------------
<S> <C> <C> <C>
0.0001% to
10.000%.......... 985 $ 428,607.52 0.20%
10.001% to
20.000%.......... 237 1,880,196.49 0.87
20.001% to
30.000%.......... 256 2,745,454.07 1.27
30.001% to
40.000%.......... 335 5,046,198.12 2.33
40.001% to
50.000%.......... 371 5,787,062.87 2.67
50.001% to
60.000%.......... 431 8,121,441.71 3.75
60.001% to
70.000%.......... 584 12,255,191.67 5.66
70.001% to
80.000%.......... 547 14,193,398.32 6.55
80.001% to
90.000%.......... 590 16,408,919.52 7.58
90.001% to
100.000%......... 4,728 149,708,262.42 69.12
--------- --------------- ------
Total.......... 9,064 $216,574,732.71 100.00%
--------- --------------- ------
--------- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
CREDIT LIMITS
- ------------------------------------------------------------
PERCENT OF
POOL BY
STATISTIC
STATISTIC CALCULATION
NUMBER OF CALCULATION DATE
RANGE OF CREDIT MORTGAGE DATE PRINCIPAL PRINCIPAL
LIMITS LOANS BALANCE BALANCE
- ------------------- --------- --------------- ------------
<S> <C> <C> <C>
0.00 to
10,000.00........ 144 $ 1,030,035.33 0.48%
10,000.01 to
20,000.00........ 3,087 39,270,470.15 18.13
20,000.01 to
30,000.00........ 2,354 44,000,924.64 20.32
30,000.01 to
40,000.00........ 1,330 34,250,110.25 15.81
40,000.01 to
50,000.00........ 888 26,715,116.30 12.34
50,000.01 to
60,000.00........ 322 12,453,032.20 5.75
60,000.01 to
70,000.00........ 241 10,656,116.54 4.92
70,000.01 to
80,000.00........ 165 6,886,058.04 3.18
80,000.01 to
90,000.00........ 98 5,275,006.31 2.44
90,000.01 to
100,000.00....... 211 11,113,631.26 5.13
100,000.01 to
125,000.00....... 69 5,276,356.31 2.44
125,000.01 to
150,000.00....... 81 8,073,486.30 3.73
150,000.01 to
175,000.00....... 13 1,347,990.62 0.62
175,000.01 to
200,000.00....... 22 2,458,145.10 1.14
200,000.01 to
225,000.00....... 7 1,004,986.65 0.46
225,000.01 to
250,000.00....... 10 1,308,809.03 0.60
250,000.01 to
275,000.00....... 4 750,315.42 0.35
275,000.01 to
300,000.00....... 3 494,976.25 0.23
300,000.01 to
325,000.00....... 3 828,717.53 0.38
325,000.01 to
350,000.00....... 4 800,943.37 0.37
350,000.01 and
up............... 8 2,579,505.11 1.19
--------- --------------- ------
Total.......... 9,064 $216,574,732.71 100.00%
--------- --------------- ------
--------- --------------- ------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MAXIMUM RATES
- ------------------------------------------------------------
PERCENT OF
POOL BY
STATISTIC
STATISTIC CALCULATION
NUMBER OF CALCULATION DATE
MORTGAGE DATE PRINCIPAL PRINCIPAL
MAXIMUM RATES LOANS BALANCE BALANCE
- ------------------- --------- --------------- ------------
<S> <C> <C> <C>
12.25%............. 31 $ 503,128.24 0.23%
15.00%............. 7 319,247.24 0.15
15.90%............. 5 93,649.83 0.04
16.00%............. 158 2,869,233.73 1.32
17.00%............. 834 19,493,127.20 9.00
18.00%............. 8,029 193,296,346.47 89.26
--------- --------------- ------
Total.......... 9,064 $216,574,732.71 100.00%
--------- --------------- ------
--------- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
MONTHS REMAINING TO SCHEDULED MATURITY(1)
- ------------------------------------------------------------
PERCENT OF
POOL BY
STATISTIC
RANGE OF MONTHS STATISTIC CALCULATION
REMAINING TO NUMBER OF CALCULATION DATE
SCHEDULED MORTGAGE DATE PRINCIPAL PRINCIPAL
MATURITY LOANS BALANCE BALANCE
- ------------------- --------- --------------- ------------
<S> <C> <C> <C>
145-150............ 85 $ 1,633,174.49 0.75%
151-155............ 461 9,773,583.42 4.51
156-160............ 165 3,312,542.00 1.53
276-280............ 1 19,974.93 0.01
286-290............ 1 20,669.39 0.01
291-295............ 2,623 62,915,031.40 29.05
296-300............ 5,643 136,976,589.75 63.25
301-305............ 85 1,923,167.33 0.89
--------- --------------- ------
Total.......... 9,064 $216,574,732.71 100.00%
--------- --------------- ------
--------- --------------- ------
</TABLE>
- ------------
(1) Assumes that the Draw Period for Statistic Calculation Pool Mortgage Loans
with five year Draw Periods will be extended for an additional five years.
<TABLE>
<CAPTION>
ORIGINATION YEAR
- ------------------------------------------------------------
PERCENT OF
POOL BY
STATISTIC
STATISTIC CALCULATION
NUMBER OF CALCULATION DATE
MORTGAGE DATE PRINCIPAL PRINCIPAL
ORIGINATION YEAR LOANS BALANCE BALANCE
- ------------------- --------- --------------- ------------
<S> <C> <C> <C>
1994............... 4 $ 73,674.90 0.03%
1995............... 9 123,498.01 0.06
1996............... 9,051 216,377,559.80 99.91
--------- --------------- ------
Total.......... 9,064 $216,574,732.71 100.00%
--------- --------------- ------
--------- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
DELINQUENCY STATUS
- ------------------------------------------------------------
PERCENT OF
POOL BY
STATISTIC
STATISTIC CALCULATION
NUMBER OF CALCULATION DATE
NUMBER OF DAYS MORTGAGE DATE PRINCIPAL PRINCIPAL
DELINQUENT LOANS BALANCE BALANCE
- ------------------- --------- --------------- ------------
<S> <C> <C> <C>
0 to 29............ 9,047 $216,190,491.92 99.82%
30 to 59........... 17 384,240.79 0.18
--------- --------------- ------
Total.......... 9,064 $216,574,732.71 100.00%
--------- --------------- ------
--------- --------------- ------
</TABLE>
CONVEYANCE OF MORTGAGE LOANS
The obligation of the Trust Fund to purchase Mortgage Loans on the Closing
Date is subject to the following requirements, any of which requirements may be
waived or modified in any respect by the Certificate Insurer: (i) such Mortgage
Loan may not be 89 or more days delinquent as of the Closing Date; (ii) the
S-26
<PAGE>
<PAGE>
remaining term to stated maturity of such Mortgage Loan will not exceed 27
years; (iii) such Mortgage Loan will be secured by a Mortgage in a first or
second lien position; (iv) such Mortgage Loan will not have a Loan Rate less
than 5.99%; (v) such Mortgage Loan will be otherwise acceptable to the
Certificate Insurer; (vi) following the purchase of such Mortgage Loan by the
Trust, the Mortgage Loans as of the Closing Date; (a) will have a weighted
average Loan Rate of at least 9.85%; (b) will have a weighted average remaining
term to stated maturity of not more than 300 months; (c) will have a weighted
average Combined Loan-to-Value Ratio of not more than 79.25%; (d) will have no
Mortgage Loan with a Principal Balance in excess of $860,000; (e) will have a
concentration in any one state not in excess of 31%; and (f) will have not more
than 3.5% in aggregate principal balance of Mortgage Loans relating to non-owner
occupied properties; (vii) such Mortgage Loan shall have a Combined
Loan-to-Value Ratio not in excess of 101%; (viii) such Mortgage Loan will have a
Credit Limit between $9,400 and $1,000,000; (ix) such Mortgage Loan will have a
Margin between 0.125% and 5.5%; and (x) such Mortgage Loan will comply with the
representations and warranties in the Agreement.
MATURITY AND PREPAYMENT CONSIDERATIONS
The Agreement, except as otherwise described herein, provides that the
Certificateholders will be entitled to receive on each Distribution Date
distributions of principal, in the amounts described under 'Description of the
Certificates Distributions on the Certificates' herein, until the Certificate
Principal Balance is reduced to zero. During the Managed Amortization Period,
Certificateholders will receive amounts from Principal Collections based upon
their Fixed Allocation Percentage subject to reduction as described below.
During the Rapid Amortization Period, Certificateholders will receive amounts
from Principal Collections based solely upon their Fixed Allocation Percentage.
Because prior distributions of Principal Collections to Certificateholders serve
to reduce the Investor Floating Allocation Percentage but do not change their
Fixed Allocation Percentage, allocations of Principal Collections based on the
Fixed Allocation Percentage may result in distributions of principal to the
Certificateholders in amounts that are, in most cases, greater relative to the
declining balance of the Mortgage Loans than would be the case if the Investor
Floating Allocation Percentage were used to determine the percentage of
Principal Collections distributed to Certificateholders. This is especially true
during the Rapid Amortization Period when the Certificateholders are entitled to
receive Investor Principal Collections and not a lesser amount. In addition,
Investor Interest Collections may be distributed as principal to
Certificateholders in connection with the Accelerated Principal Distribution
Amount, if any. Moreover, to the extent of losses allocable to the
Certificateholders, Certificateholders may also receive as payment of principal
the amount of such losses from Investor Interest Collections, amounts on deposit
in the Spread Account or, in some instances, draws under the Policy. The level
of losses may therefore affect the rate of payment of principal on the
Certificates.
To the extent obligors make more draws than principal payments, the
Transferor Interest may grow. Because during the Rapid Amortization Period the
Certificateholders share of Principal Collections is based upon its Fixed
Allocation Percentage (without reduction), an increase in the Transferor
Interest due to additional draws may also result in Certificateholders receiving
principal at a greater rate. The Agreement permits the Transferor, at its
option, but subject to the satisfaction of certain conditions specified in the
Agreement, including the conditions described below, to remove certain Mortgage
Loans from the Trust Fund at any time during the life of the Trust Fund, so long
as the Transferor Interest (after giving effect to such removal) is not less
than the Minimum Transferor Interest. Such removals may affect the rate at which
principal is distributed to Certificateholders by reducing the overall Pool
Balance and thus the amount of Principal Collections. See 'Description of the
Certificates -- Optional Retransfers of Mortgage Loans to the Transferor'
herein.
All of the Mortgage Loans may be prepaid in full or in part at any time.
However, Mortgage Loans secured by Mortgaged Properties in California are
subject to an account termination fee equal to the lesser of $350 and six months
interest on the amount prepaid, to the extent the prepaid amount exceeds 20% of
the unpaid principal balance, if the account is terminated on or before its
fifth year anniversary. In addition, Mortgage Loans secured by Mortgaged
Properties in other jurisdictions may be subject to account termination fees to
the extent permitted by law. In general, such account termination fees do not
exceed $350 and do not apply to accounts terminated subsequent to a date
designated in the related Mortgage Note which, depending on the jurisdiction,
ranges between six months and five years following origination. The prepayment
experience with respect to the Mortgage Loans will affect the weighted average
life of the Certificates.
S-27
<PAGE>
<PAGE>
The rate of prepayment on the Mortgage Loans cannot be predicted. Neither
the Depositor nor the Master Servicer is aware of any publicly available studies
or statistics on the rate of prepayment of such Mortgage Loans. Generally, home
equity revolving credit lines are not viewed by borrowers as permanent
financing. Accordingly, the Mortgage Loans may experience a higher rate of
prepayment than traditional first mortgage loans. On the other hand, because the
Mortgage Loans amortize as described under 'Description of the Mortgage
Loans -- Mortgage Loan Terms' herein, rates of principal payment on the Mortgage
Loans will generally be slower than those of traditional fully-amortizing first
mortgages in the absence of prepayments on such Mortgage Loans. The prepayment
experience of the Trust Fund with respect to the Mortgage Loans may be affected
by a wide variety of factors, including general economic conditions, prevailing
interest rate levels, the availability of alternative financing, homeowner
mobility, the frequency and amount of any future draws on the Credit Line
Agreements and changes affecting the deductibility for federal income tax
purposes of interest payments on home equity credit lines. Substantially all of
the Mortgage Loans contain 'due-on-sale' provisions, and, with respect to the
Mortgage Loans, 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. The
enforcement of a 'due-on-sale' provision will have the same effect as a
prepayment of the related Mortgage Loan. See 'Certain Legal Aspects of the
Loans -- Due-on-Sale Clauses' in the Prospectus.
The yield to an investor who purchases the Certificates in the secondary
market at a price other than par will vary from the anticipated yield if the
rate of prepayment on the Mortgage Loans is actually different than the rate
anticipated by such investor at the time such Certificates were purchased.
Collections on the Mortgage Loans may vary because, among other things,
borrowers may make payments during any month as low as the minimum monthly
payment for such month or as high as the entire outstanding principal balance
plus accrued interest and the fees and charges thereon. It is possible that
borrowers may fail to make scheduled payments. Collections on the Mortgage Loans
may vary due to seasonal purchasing and payment habits of borrowers.
No assurance can be given as to the level of prepayments that will be
experienced by the Trust Fund and it can be expected that a portion of borrowers
will not prepay their Mortgage Loans to any significant degree. See 'Yield and
Prepayment Considerations' in the Prospectus.
POOL FACTOR AND TRADING INFORMATION
The 'Pool Factor' is a seven-digit decimal which the Master Servicer will
compute monthly expressing the Certificate Principal Balance of the Certificates
as of each Distribution Date (after giving effect to any distribution of
principal on such Distribution Date) as a proportion of the Original Certificate
Principal Balance. On the Closing Date, the Pool Factor will be 1.0000000. See
'Description of the Certificates -- Distributions on the Certificates' herein.
Thereafter, the Pool Factor will decline to reflect reductions in the related
Certificate Principal Balance resulting from distributions of principal to the
Certificates and the Invested Amount of any unreimbursed Liquidation Loss
Amounts.
Pursuant to the Agreement, monthly reports concerning the Invested Amount,
the Pool Factor and various other items of information will be made available to
the Certificateholders. In addition, within 60 days after the end of each
calendar year, beginning with the 1996 calendar year, information for tax
reporting purposes will be made available to each person who has been a
Certificateholder of record at any time during the preceding calendar year. See
'Description of the Certificates -- Book-Entry Certificates' and ' -- Reports to
Certificateholders' herein.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement. The form of the
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus Supplement and the Prospectus is a part. The following is a
description of the material provisions of the Agreement. Wherever particular
sections or defined terms of the Agreement are referred to, such sections or
defined terms are hereby incorporated herein by reference.
S-28
<PAGE>
<PAGE>
GENERAL
The Certificates will be issued in denominations of $1,000 and multiples of
$1 in excess thereof and will evidence specified undivided interests in the
Trust Fund. The property of the Trust Fund will consist of, to the extent
provided in the Agreement: (i) each of the Mortgage Loans that from time to time
are subject to the Agreement; (ii) collections on the Mortgage Loans received
after the Cut-off Date (exclusive of payments in respect of accrued interest due
on or prior to the Cut-off Date); (iii) Mortgaged Properties relating to the
Mortgage Loans that are acquired by foreclosure or deed in lieu of foreclosure;
(iv) the Collection Account for the Certificates (excluding net earnings
thereon); (v) the Policy; (vi) the Spread Account (for the benefit of the
Certificate Insurer and the Certificateholders); and (vii) an assignment of the
Depositor's rights under the Purchase Agreement. Definitive Certificates (as
defined below), if issued, will be transferable and exchangeable at the
corporate trust office of the Trustee, which will initially maintain the
Security Register for the Certificates. See ' -- Book-Entry Certificates' below.
No service charge will be made for any registration of exchange or transfer of
Certificates, but the Trustee may require payment of a sum sufficient to cover
any tax or other governmental charge.
The aggregate undivided interest in the Trust Fund represented by the
Certificates as of the Closing Date is expected to equal $246,033,118.00 (the
'Original Invested Amount'), which represents approximately 98% of the Cut-off
Date Pool Balance. The 'Original Certificate Principal Balance' is expected to
equal $246,033,118.00. Following the Closing Date, the 'Invested Amount' with
respect to any Distribution Date will be an amount equal to the Original
Invested Amount minus (i) the amount of Investor Principal Collections
previously distributed to Certificateholders, and minus (ii) an amount equal to
the product of the Investor Floating Allocation Percentage and the Liquidation
Loss Amounts (each as defined herein) for such Distribution Date. The principal
amount of the outstanding Certificates (the 'Certificate Principal Balance') on
any Distribution Date is equal to the Original Certificate Principal Balance
minus the aggregate of amounts actually distributed as principal to the
Certificateholders. See ' -- Distributions on the Certificates' below. Each
Certificate represents the right to receive payments of interest at the
Certificate Rate and payments of principal as described below.
The Transferor will own the remaining undivided interest in the Mortgage
Loans (the 'Transferor Interest'), which, as of any date of determination, will
equal the Pool Balance as of the close of business on the day preceding such
date of determination, less the Invested Amount as of the close of business on
the preceding Distribution Date. The Transferor Interest is expected to
initially equal $5,021,084.11, which represents approximately 2% of the Cut-off
Date Pool Balance. The Transferor as of any date is the owner of the Transferor
Interest which initially will be the Seller. In general, the Pool Balance will
vary each day as principal is paid on the Mortgage Loans, liquidation losses are
incurred, Additional Balances are drawn down by borrowers and Mortgage Loans are
transferred to the Trust Fund.
The Transferor has the right to sell or pledge the Transferor Interest at
any time, provided (i) the Rating Agencies (as defined herein) have notified the
Transferor and the Trustee in writing that such action will not result in the
reduction or withdrawal of the ratings assigned to the Certificates, and (ii)
certain other conditions specified in the Agreement are satisfied.
BOOK-ENTRY CERTIFICATES
The Certificates will be book-entry Certificates (the 'Book-Entry
Certificates'). Persons acquiring beneficial ownership interests in the
Certificates ('Certificate Owners') may elect to hold their 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 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 Certificate
Principal Balances of $1,000 and in multiples of $1 in excess thereof. Except as
described below, no person acquiring a Book-Entry
S-29
<PAGE>
<PAGE>
Certificate (each, a 'beneficial owner') will be entitled to receive a physical
certificate representing such Certificate (a 'Definitive Certificate'). Unless
and until Definitive Certificates are issued, it is anticipated that the only
'Certificateholder' of the 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 Certificates from the Trustee through DTC and DTC participants.
While the 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 Certificates and
is required to receive and transmit distributions of principal of, and interest
on, the 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 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 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 Certificates only through Participants and Indirect Participants by
instructing such Participants and Indirect Participants to transfer
Certificates, by book-entry transfer, through DTC for the account of the
purchasers of such Certificates, which account is maintained with their
respective Participants. Under the Rules and in accordance with DTC's normal
procedures, transfers of ownership of 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 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
S-30
<PAGE>
<PAGE>
Relevant Depositary; however, such cross market transactions will require
delivery of instructions to the relevant European international clearing system
by the counterparty 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.
S-31
<PAGE>
<PAGE>
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 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
Certificates in the secondary market since certain potential investors may be
unwilling to purchase 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 Transferor 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 Certificateholder under the 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
Certificates which conflict with actions taken with respect to other
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 Transferor 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 Transferor or the
Trustee is unable to locate a qualified successor, (b) the Transferor, at its
sole option, elects to terminate a book-entry system through DTC or (c) after
the occurrence of an Event of Servicing Termination (as defined herein),
beneficial owners having Percentage Interests aggregating not less than 51% of
the Certificate Principal Balance of the Book-Entry 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
Certificateholders under the 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.
S-32
<PAGE>
<PAGE>
ASSIGNMENT OF MORTGAGE LOANS
At the time of issuance of the Certificates, the Depositor will transfer to
the Trust Fund all of its right, title and interest in and to each Mortgage Loan
(including any Additional Balances arising in the future), related Credit Line
Agreements, mortgages and other related documents (collectively, the 'Related
Documents'), including all collections received on or with respect to each such
Mortgage Loan after the Cut-off Date (exclusive of payments in respect of
accrued interest due on or prior to the Cut-off Date). The Trustee, concurrently
with such transfer, will deliver the Certificates to the Depositor and the
Transferor Certificate (as defined in the Agreement) to the Transferor. Each
Mortgage Loan transferred to the Trust Fund will be identified on a schedule
(the 'Mortgage Loan Schedule') delivered to the Trustee pursuant to the
Agreement. Such schedule will include information as to the Cut-off Date
Principal Balance of each Mortgage Loan as well as information with respect to
the Loan Rate.
The Agreement will permit Countrywide to maintain possession of the Related
Documents and certain other documents relating to the Mortgage Loans (the
'Mortgage Files') and assignments of the Mortgage Loans to the Trustee will not
be required to be recorded for so long as the long-term senior unsecured debt of
Countrywide is rated at least 'BBB-' by Standard & Poor's and 'Baa2' by Moody's.
In the event that Countrywide's long-term senior unsecured debt rating does not
satisfy the above-described standards (an 'Assignment Event'), Countrywide will
have 90 days to record assignments of the mortgages for each such Mortgage Loan
in favor of the Trustee and 60 days to deliver the Mortgage Files pertaining to
each such Mortgage Loan to the Trustee (unless opinions of counsel satisfactory
to the Rating Agencies and the Certificate Insurer to the effect that
recordation of such assignments or delivery of such documentation is not
required in the relevant jurisdiction to protect the interest of Countrywide and
the Trustee in the Mortgage Loans). In lieu of delivery of original
documentation, Countrywide may deliver documents which have been imaged
optically upon delivery of an opinion of counsel that such documents are
enforceable to the same extent as the originals and do not impair the
enforceability of the transfer to the Trust Fund of the Mortgage Loans.
Within 90 days of an Assignment Event, the Trustee will review the Mortgage
Loans and the Related Documents and if any Mortgage Loan or Related Document is
found to be defective in any material respect and such defect is not cured
within 90 days following notification thereof to the Seller and the Depositor by
the Trustee, the Seller will be obligated to accept the transfer of such
Mortgage Loan from the Trust Fund. Upon such transfer, the Principal Balance of
such Mortgage Loan will be deducted from the Pool Balance, thus reducing the
amount of the Transferor Interest. If the deduction would cause the Transferor
Interest to become less than the Minimum Transferor Interest at such time (a
'Transfer Deficiency'), the Seller will be obligated to either substitute an
Eligible Substitute Mortgage Loan or make a deposit into the Collection Account
in the amount (the 'Transfer Deposit Amount') equal to the amount by which the
Transferor Interest would be reduced to less than the Minimum Transferor
Interest at such time. Any such deduction, substitution or deposit, will be
treated under the Agreement as a payment in full of such Mortgage Loan. Any
Transfer Deposit Amount will be treated as a Principal Collection.
Notwithstanding the foregoing, however, prior to all required deposits to the
Collection Account being made no such transfer shall be considered to have
occurred unless such deposit is actually made. The obligation of the Seller to
accept a transfer of a Defective Mortgage Loan is the sole remedy regarding any
defects in the Mortgage Loans and Related Documents available to the Trustee or
the Certificateholders.
An 'Eligible Substitute Mortgage Loan' is a mortgage loan substituted by
the Seller for a Defective Mortgage Loan which must, on the date of such
substitution, (i) have an outstanding Principal Balance (or in the case of a
substitution of more than one Mortgage Loan for a Defective Mortgage Loan, an
aggregate Principal Balance), not 10% more or less than the Transfer Deficiency
relating to such Defective Mortgage Loan; (ii) have a Loan Rate not less than
the Loan Rate of the Defective Mortgage Loan and not more than 1% in excess of
the Loan Rate of such Defective Mortgage Loan; (iii) have a Loan Rate based on
the same Index with adjustments to such Loan Rate made on the same Interest Rate
Adjustment Date as that of the Defective Mortgage Loan; (iv) have a Margin that
is not less than the Margin of the Defective Mortgage Loan and not more than 100
basis points higher than the Margin for the Defective Mortgage Loan; (v) have a
mortgage of the same or higher level
of priority as the mortgage relating to the Defective Mortgage Loan; (vi) have a
remaining term to maturity not more than six months earlier and not more than 60
months later than the remaining term to maturity of the Defective Mortgage Loan;
(vii) comply with each representation and warranty as to the Mortgage Loans set
forth in the Agreement (deemed to be made as of the date of substitution);
(viii) in general, have an original
S-33
<PAGE>
<PAGE>
Combined Loan-to-Value Ratio not greater than that of the Defective Mortgage
Loan; and (ix) satisfy certain other conditions specified in the Agreement. To
the extent the Principal Balance of an Eligible Substitute Mortgage Loan is less
than the Principal Balance of the related Defective Mortgage Loan and to the
extent that the Transferor Interest would be reduced below the Minimum
Transferor Interest, the Seller will be required to make a deposit to the
Collection Account equal to such difference.
The Seller will make certain representations and warranties as to the
accuracy in all material respects of certain information furnished to the
Trustee with respect to each Mortgage Loan (e.g., Cut-off Date Principal Balance
and the Loan Rate). In addition, the Seller will represent and warrant on the
Closing Date that at the time of transfer to the Depositor, the Seller has
transferred or assigned all of its rights, title and interest in each Mortgage
Loan and the Related Documents, free of any lien (subject to certain
exceptions). Upon discovery of a breach of any such representation and warranty
which materially and adversely affects the interests of the Certificateholders
or the Certificate Insurer in the related Mortgage Loan and Related Documents,
the Seller will have a period of 90 days after discovery or notice of the breach
to effect a cure. If the breach cannot be cured within the 90-day period, the
Seller will be obligated to accept a transfer of the Defective Mortgage Loan
from the Trust Fund. The same procedure and limitations that are set forth in
the second preceding paragraph for the transfer of Defective Mortgage Loans will
apply to the transfer of a Mortgage Loan that is required to be transferred
because of such breach of a representation or warranty in the Agreement that
materially and adversely affects the interests of the Certificateholders.
Mortgage Loans required to be transferred to the Seller as described in the
preceding paragraphs are referred to as 'Defective Mortgage Loans.'
Pursuant to the Agreement, the Master Servicer will service and administer
the Mortgage Loans as more fully set forth above.
AMENDMENTS TO CREDIT LINE AGREEMENTS
Subject to applicable law, the Master Servicer may change the terms of the
Credit Line Agreements at any time provided that such changes (i) do not
materially and adversely affect the interest of the Certificateholders or the
Certificate Insurer, and (ii) are consistent with prudent business practice. In
addition, the Agreement permits the Master Servicer, within certain limitations
described therein, to increase the Credit Limit of the related Mortgage Loan or
reduce the Margin for such Mortgage Loan.
OPTIONAL TRANSFERS OF MORTGAGE LOANS TO THE TRANSFEROR
In order to permit the Transferor to remove Mortgage Loans from the Trust
Fund at such times, if any, as the Transferor Interest exceeds the level
required by the Certificate Insurer and the Rating Agencies, on any Distribution
Date the Transferor may, but shall not be obligated to, remove on such
Distribution Date (the 'Transfer Date') from the Trust Fund, certain Mortgage
Loans without notice to the Certificateholders. The Transferor is permitted to
designate the Mortgage Loans to be removed. Mortgage Loans so designated will
only be removed upon satisfaction of the following conditions: (i) No Rapid
Amortization Event (as defined herein) has occurred; (ii) the Transferor
Interest as of such Transfer Date (after giving effect to such removal) exceeds
the Minimum Transferor Interest; (iii) the transfer of any Mortgage Loans on any
Transfer Date during the Managed Amortization Period (as defined herein) shall
not, in the reasonable belief of the Transferor, cause a Rapid Amortization
Event to occur or an event which with notice or lapse of time or both would
constitute a Rapid Amortization Event; (iv) the Transferor shall have delivered
to the Trustee a 'Mortgage Loan Schedule' containing a list of all Mortgage
Loans remaining in the Trust Fund after such removal; (v) the Transferor shall
represent and warrant that no selection procedures which the Transferor
reasonably believes are adverse to the interests of the Certificateholders or
the Certificate Insurer were used by the Transferor in selecting such Mortgage
Loans; (vi) in connection with the first such retransfer of Mortgage Loans, the
Rating Agencies shall have been notified of the proposed transfer and prior to
the Transfer Date shall not have notified the Transferor in writing that such
transfer would result in a reduction or withdrawal of the ratings assigned to
the Certificates without regard to the Policy; and (vii) the Transferor shall
have delivered to the Trustee and the Certificate Insurer an officer's
certificate confirming the conditions set forth in clauses (i) through (vi)
above.
As of any date of determination, the 'Minimum Transferor Interest' is an
amount equal to the lesser of (a) 5% of the Pool Balance on such date and (b)
the Transferor Interest as of the Closing Date.
S-34
<PAGE>
<PAGE>
PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO COLLECTION ACCOUNT
The Trustee shall establish and maintain on behalf of the Master Servicer
an account (the 'Collection Account') for the benefit of the Certificateholders
and the Transferor, as their interests may appear. The Collection Account will
be an Eligible Account (as defined herein). Subject to the investment provision
described in the following paragraphs, within two Business Days of receipt by
the Master Servicer of amounts in respect of the Mortgage Loans (excluding
amounts representing administrative charges, annual fees, taxes, assessments,
credit insurance charges, insurance proceeds to be applied to the restoration or
repair of a Mortgaged Property or similar items), the Master Servicer will
deposit such amounts in the Collection Account. Amounts so deposited may be
invested in Eligible Investments (as described in the Agreement) maturing no
later than one Business Day prior to the date on which the amount on deposit
therein is required to be deposited in the Collection Account or on such
Distribution Date if approved by the Rating Agencies and the Certificate
Insurer. Not later than the third Business Day prior to each Distribution Date
(the 'Determination Date'), the Master Servicer will notify the Trustee of the
amount of such deposit to be included in funds available for the related
Distribution Date.
An 'Eligible Account' is (i) an account that is maintained with a
depository institution whose debt obligations throughout the time of any deposit
therein have the highest short-term debt rating by the Rating Agencies, (ii) one
or more accounts with a depository institution having a minimum long-term
unsecured debt rating of 'BBB-' by Standard & Poor's and 'Baa3' by Moody's,
which accounts are fully insured by either the Savings Association Insurance
Fund ('SAIF') or the Bank Insurance Fund ('BIF') of the Federal Deposit
Insurance Corporation established by such fund, (iii) a segregated trust account
maintained with the Trustee or an Affiliate of the Trustee in its fiduciary
capacity or (iv) otherwise acceptable to each Rating Agency and the Certificate
Insurer as evidenced by a letter from each Rating Agency and the Certificate
Insurer to the Trustee, without reduction or withdrawal of their then current
ratings of the Certificates without regard to the Policy.
Eligible Investments are specified in the Agreement and are limited to (i)
obligations of the United States or any agency thereof, provided the timely
payment of such obligations are backed by the full faith and credit of the
United States; (ii) general obligations of or obligations guaranteed by any
state of the United States or the District of Columbia receiving the highest
long-term debt rating of each Rating Agency, or such lower rating as will not
result in the downgrading or withdrawal of the ratings then assigned to the
Certificates by each Rating Agency without regard to the Policy; (iii)
commercial paper issued by Countrywide Home Loans, Inc. or any of its
affiliates; provided that such commercial paper is rated no lower than A-1 and
P-2 and the long-term debt of Countrywide Home Loans, Inc. is rated at least A3
by Moody's, or such lower ratings as will not result in the downgrading or
withdrawal of the rating then assigned to the Certificates by any Rating Agency
without regard to the Policy; (iv) commercial or finance company paper which is
then receiving the highest commercial or finance company paper rating of each
Rating Agency, or such lower rating as will not result in the downgrading or
withdrawal of the ratings then assigned to the Certificates by any Rating Agency
without regard to the Policy; (v) certificates of deposit, demand or time
deposits, or bankers' acceptances issued by any depository institution or trust
company incorporated under the laws of the United States or of any state thereof
and subject to supervision and examination by federal and/or state banking
authorities, provided that the commercial paper and/or long term unsecured debt
obligations of such depository institution or trust company (or in the case of
the principal depository institution in a holding company system, the commercial
paper or long-term unsecured debt obligations of such holding company, but only
if Moody's is not a Rating Agency) are then rated one of the two highest
long-term and the highest short-term ratings of each Rating Agency for such
securities, or such lower ratings as will not result in the downgrading or
withdrawal of the rating then assigned to the Certificates by any Rating Agency
without regard to the Policy; (vi) demand or time deposits or certificates of
deposit issued by any bank or trust company or savings institution to the extent
that such deposits are fully insured by the FDIC; (vii) guaranteed reinvestment
agreements issued by any bank, insurance company or other corporation
containing, at the time of the issuance of such agreements, such terms and
conditions as will not result in the downgrading or withdrawal of the rating
then assigned to the Certificates by any Rating Agency without regard to the
Policy; (viii) repurchase obligations with respect to any security described in
clauses (i) and (ii) above, in either case entered into with a depository
institution or trust company (acting as principal) described in clause (v)
above; (ix) securities (other than stripped bonds, stripped coupons or
instruments sold at a purchase price in excess of 115% of the face amount
thereof) bearing interest or sold at a discount issued by any corporation
incorporated under the laws of the United States or any state thereof which, at
the time of such investment, have one of the two highest ratings of each Rating
Agency (except if the Rating Agency is Moody's, such rating shall be the
S-35
<PAGE>
<PAGE>
highest commercial paper rating of Moody's for any such securities), or such
lower rating as will not result in the downgrading or withdrawal of the rating
then assigned to the Certificates by any Rating Agency without regard to the
Policy, as evidenced by a signed writing delivered by each Rating Agency; (x)
interests in any money market fund which at the date of acquisition of the
interests in such fund and throughout the time such interests are held in such
fund has the highest applicable rating by each Rating Agency or such lower
rating as will not result in the downgrading or withdrawal of the ratings then
assigned to the Certificates by each Rating Agency without regard to the Policy;
(xi) short term investment funds sponsored by any trust company or national
banking association incorporated under the laws of the United States or any
state thereof which on the date of acquisition has been rated by each Rating
Agency in their respective highest applicable rating category or such lower
rating as will not result in the downgrading or withdrawal of the ratings then
assigned to the Certificates by each Rating Agency without regard to the Policy;
and (xii) such other investments having a specified stated maturity and bearing
interest or sold at a discount acceptable to each Rating Agency as will not
result in the downgrading or withdrawal of the rating then assigned to the
Certificates by any Rating Agency without regard to the Policy, as evidenced by
a signed writing delivered by each Rating Agency; provided that no such
instrument shall be an Eligible Investment if such instrument evidences the
right to receive (a) interest only payments with respect to the obligations
underlying such instrument or (b) both principal and interest payments derived
from obligations underlying such instrument and the interest and principal
payments with respect to such instrument provide a yield to maturity at par
greater than 120% of the yield to maturity at par of the underlying obligations;
and provided, further, that no instrument described hereunder may be purchased
at a price greater than par if such instrument may be prepaid or called at a
price less than its purchase price prior to its stated maturity.
ALLOCATIONS AND COLLECTIONS
All collections on the Mortgage Loans will generally be allocated in
accordance with the Credit Line Agreements between amounts collected in respect
of interest and amounts collected in respect of principal. As to any
Distribution Date, 'Interest Collections' will be equal to the amounts collected
during the related Collection Period, including without limitation such portion
of Net Liquidation Proceeds allocated to interest pursuant to the terms of the
Credit Line Agreements less Servicing Fees for the related Collection Period.
As to any Distribution Date, 'Principal Collections' will be equal to the
sum of (i) the amounts collected during the related Collection Period, including
without limitation such portion of Net Liquidation Proceeds allocated to
principal pursuant to the terms of the Credit Line Agreements and (ii) any
Transfer Deposit Amounts. 'Net Liquidation Proceeds' with respect to a Mortgage
Loan are equal to the Liquidation Proceeds, reduced by related expenses, but not
including the portion, if any, of such amount that exceeds the Principal Balance
of the Mortgage Loan plus accrued and unpaid interest thereon to the end of the
Collection Period during which such Mortgage Loan became a Liquidated Mortgage
Loan. 'Liquidation Proceeds' are the proceeds (excluding any amounts drawn on
the Policy) received in connection with the liquidation of any Mortgage Loan,
whether through trustee's sale, foreclosure sale or otherwise.
With respect to any Distribution Date, the portion of Interest Collections
allocable to the Certificates ('Investor Interest Collections') will equal the
product of (a) Interest Collections for such Distribution Date and (b) the
Investor Floating Allocation Percentage. With respect to any Distribution Date,
the 'Investor Floating Allocation Percentage' is the percentage equivalent of a
fraction determined by dividing the Invested Amount at the close of business on
the preceding Distribution Date (or the Closing Date in the case of the first
Distribution Date) by the Pool Balance at the beginning of the related
Collection Period. The remaining amount of Interest Collections will be
allocated to the Transferor Interest.
Principal Collections will be allocated between the Certificateholders and
the Transferor ('Investor Principal Collections' and 'Transferor Principal
Collections', respectively) as described herein.
The Trustee will deposit any amounts drawn under the Policy into the
Collection Account.
With respect to any date, the 'Pool Balance' will be equal to the aggregate
of the Principal Balances of all Mortgage Loans as of such date. The Principal
Balance of a Mortgage Loan (other than a Liquidated Mortgage Loan) on any day is
equal to its Cut-off Date Principal Balance, plus (i) any Additional Balances in
respect of such Mortgage Loan minus (ii) all collections credited against the
Principal Balance of such Mortgage Loan in
S-36
<PAGE>
<PAGE>
accordance with the related Credit Line Agreement prior to such day. The
Principal Balance of a Liquidated Mortgage Loan after final recovery of related
Liquidation Proceeds shall be zero.
DISTRIBUTIONS ON THE CERTIFICATES
Beginning with the first Distribution Date (which will occur on December
16, 1996), distributions on the Certificates will be made by the Trustee or the
Paying Agent on each Distribution Date to the persons in whose names such
Certificates are registered at the close of business on the day prior to each
Distribution Date or, if the Certificates are no longer Book-Entry Certificates,
at the close of business on the last day of the month preceding such
Distribution Date (the 'Record Date'). The term 'Distribution Date' means the
fifteenth day of each month or, if such day is not a Business Day, then the next
succeeding Business Day. Distributions will be made by check or money order
mailed (or upon the request of a Certificateholder owning Certificates having
denominations aggregating at least $1,000,000, by wire transfer or as otherwise
agreed by such Certificateholder and the Trustee) to the address of the person
entitled thereto (which, in the case of Book-Entry Certificates, will be DTC or
its nominee) as it appears on the Certificate Register in amounts calculated as
described herein on the Determination Date. However, the final distribution in
respect of the Certificates will be made only upon presentation and surrender
thereof at the office or the agency of the Trustee specified in the notice to
Certificateholders of such final distribution. For purposes of the Agreement, a
'Business Day' is any day other than (i) a Saturday or Sunday or (ii) a day on
which banking institutions in the states of New York, California or Illinois are
required or authorized by law to be closed.
Application of Interest Collections. On each Distribution Date, the Trustee
or the Paying Agent will apply the Investor Interest Collections in the
following manner and order of priority:
(i) as payment to the Trustee for its fee for services rendered
pursuant to the Agreement;
(ii) as payment to the Certificate Insurer for the premium for the
Policy;
(iii) as payment to Certificateholders for the accrued interest due
and any overdue accrued interest (with interest thereon to the extent
permitted by applicable law) on the Certificate Principal Balance of the
Certificates;
(iv) to pay to Certificateholders the Investor Loss Amount for such
Distribution Date;
(v) as payment to Certificateholders for any Investor Loss Amount for
a previous Distribution Date that was not previously (a) funded by Investor
Interest Collections, (b) absorbed by the Overcollateralization Amount, (c)
funded by amounts on deposit in the Spread Account or (d) funded by draws
on the Policy;
(vi) to reimburse the Certificate Insurer for prior draws made from
the Policy (with interest thereon);
(vii) to pay to Certificateholders principal on the Certificates until
the Invested Amount exceeds the Certificate Principal Balance by the
Required Overcollateralization Amount (such amount so paid, the
'Accelerated Principal Distribution Amount');
(viii) in respect of any other amounts required to be deposited in an
account for the benefit of the Certificate Insurer and the
Certificateholders or owed to the Certificate Insurer pursuant to the
Insurance Agreement;
(ix) as payment to the Master Servicer for certain amounts that may be
required to be paid to the Master Servicer pursuant to the Agreement; and
(x) to pay to the Transferor to the extent permitted as described
herein.
Payments to Certificateholders pursuant to clause (iii) will be interest
payments on the Certificates. Payments to Certificateholders pursuant to clauses
(iv), (v) and (vii) will be principal payments on the Certificates and will
therefore reduce the Certificate Principal Balance; however, payments pursuant
to clause (vii) will not reduce the Invested Amount. The Accelerated Principal
Distribution Amount is not guaranteed by the Policy.
To the extent that Investor Interest Collections are applied to pay the
interest on the Certificates, Investor Interest Collections may be insufficient
to cover Investor Loss Amounts. If such insufficiency results in the Certificate
Principal Balance exceeding the Invested Amount, a draw will be made on the
Policy in accordance with the terms of the Policy.
S-37
<PAGE>
<PAGE>
The 'Required Overcollateralization Amount' shall be an amount set forth in
the Insurance Agreement (as defined herein). 'Liquidation Loss Amount' means
with respect to any Liquidated Mortgage Loan, the unrecovered Principal Balance
thereof at the end of the Collection Period in which such Mortgage Loan became a
Liquidated Mortgage Loan, after giving effect to the Net Liquidation Proceeds in
connection therewith. The 'Investor Loss Amount' shall be the product of the
Investor Floating Allocation Percentage and the Liquidation Loss Amount for such
Distribution Date.
A 'Liquidated Mortgage Loan' means, as to any Distribution Date, any
Mortgage Loan in respect of which the Master Servicer has determined, based on
the servicing procedures specified in the Agreement, as of the end of the
preceding Collection Period, that all Liquidation Proceeds which it expects to
recover with respect to the disposition of the Mortgage Loan or the related
Mortgaged Property have been recovered. The Investor Loss Amount will be
allocated to the Certificateholders.
As to any Distribution Date, the 'Collection Period' is the calendar month
preceding each Distribution Date.
Interest will be distributed on each Distribution Date at the Certificate
Rate for the related Interest Period (as defined below). The 'Certificate Rate'
for a Distribution Date will generally equal a per annum rate equal to the sum
of (a) LIBOR, calculated as specified below, as of the second LIBOR Business Day
prior to the first day of such Interest Period (or as of two LIBOR Business Days
prior to the Closing Date, in the case of the first Distribution Date) plus (b)
%. Notwithstanding the foregoing, in no event will the amount of interest
required to be distributed in respect of the Certificates on any Distribution
Date exceed a per annum rate equal to the weighted average of the Loan Rates
(net of the Servicing Fee Rate, the rate at which the fee payable to the Trustee
is calculated; the rate at which the premium payable to the Certificate Insurer
is calculated and, commencing with the Distribution Date in June 1997, 0.50%)
weighted on the basis of the daily average balance of each Mortgage Loan during
the related billing cycle prior to the Collection Period relating to such
Distribution Date.
Interest on the Certificates in respect of any Distribution Date will
accrue on the Certificate Principal Balance from the preceding Distribution Date
(or in the case of the first Distribution Date, from the date of the initial
issuance of the Certificates (the 'Closing Date')) through the day preceding
such Distribution Date (each such period, an 'Interest Period') on the basis of
the actual number of days in the Interest Period and a 360-day year. Interest
payments on the Certificates will be funded from Investor Interest Collections,
amounts on deposit in the Spread Account and, if necessary, from draws on the
Policy.
Calculation of the LIBOR Rate. On the second LIBOR Business Day immediately
preceding each Distribution Date, the Trustee shall determine LIBOR for the
Interest Period commencing on such Distribution Date. LIBOR will equal the rate
for United States dollar deposits for one month which appears on the Telerate
Screen Page 3750 as of 11:00 A.M., London time, on the second LIBOR Business Day
prior to the first day of such Interest Period. 'Telerate Screen Page 3750'
means the display designated as page 3750 on the Telerate Service (or such other
page as may replace page 3750 on that service for the purpose of displaying
London interbank offered rates of major banks). If such rate does not appear on
such page (or such other page as may replace that page on that service, or if
such service is no longer offered, such other service for displaying LIBOR or
comparable rates as may be selected by the Depositor after consultation with the
Trustee), the rate will be the Reference Bank Rate. The 'Reference Bank Rate'
will be determined on the basis of the rates at which deposits in United States
dollars are offered by the reference banks (which shall be three major banks
that are engaged in transactions in the London interbank market, selected by the
Depositor after consultation with the Trustee) as of 11:00 A.M., London time, on
the day that is two LIBOR Business Days prior to the first day of such Interest
Period to prime banks in the London interbank market for a period of one month
in amounts approximately equal to the principal amount of the Certificates then
outstanding. The Trustee will request the principal London office of each of the
reference banks to provide a quotation of its rate. If at least two such
quotations are provided, the rate will be the arithmetic mean of the quotations.
If on such date fewer than two quotations are provided as requested, the rate
will be the arithmetic mean of the rates quoted by one or more major banks in
New York City, selected by the Depositor after consultation with the Trustee, as
of 11:00 A.M., New York City time, on such date for loans in United States
dollars to leading European banks for a period of one month in amounts
approximately equal to the principal amount of the Certificates then
outstanding. If no such quotations can be obtained, the rate will be LIBOR for
the preceding Interest Period. 'LIBOR Business
S-38
<PAGE>
<PAGE>
Day' means any day other than (i) a Saturday or a Sunday or (ii) a day on which
banking institutions in the State of New York or in the city of London, England
are required or authorized by law to be closed.
Transferor Collections. Collections allocable to the Transferor Interest
will be distributed to the Transferor only to the extent that such distribution
will not reduce the amount of the Transferor Interest as of the related
Distribution Date below the Minimum Transferor Interest. Amounts not distributed
to the Transferor because of such limitations will be retained in the Collection
Account until the Transferor Interest exceeds the Minimum Transferor Interest,
at which time such excess shall be released to the Transferor. If any such
amounts are still retained in the Collection Account upon the commencement of
the Rapid Amortization Period, such amounts will be paid to the
Certificateholders as a reduction of the Certificate Principal Balance.
Overcollateralization. The distribution of the aggregate Accelerated
Principal Distribution Amount, if any, to Certificateholders may result in the
Invested Amount being greater than the Certificate Principal Balance, thereby
creating overcollateralization. The Overcollateralization Amount, if any, will
be available to absorb any Investor Loss Amount that is not covered by Investor
Interest Collections.
Distributions of Principal Collections. For the period beginning on the
Closing Date and, unless a Rapid Amortization Event shall have earlier occurred,
ending on the Distribution Date in November, 2001 (the 'Managed Amortization
Period'), the amount of Principal Collections payable to Certificateholders as
of each Distribution Date during the Managed Amortization Period will equal, to
the extent funds are available therefor, the Scheduled Principal Collections
Distribution Amount for such Distribution Date. On any Distribution Date during
the Managed Amortization Period, the 'Scheduled Principal Collections
Distribution Amount' shall equal the lesser of (i) the Maximum Principal Payment
(as defined herein) and (ii) the Alternative Principal Payment (as defined
herein). With respect to any Distribution Date, the 'Maximum Principal Payment'
will equal the product of the Investor Fixed Allocation Percentage and Principal
Collections for such Distribution Date. With respect to any Distribution Date,
the 'Alternative Principal Payment' will equal the amount, but not less than
zero, of Principal Collections for such Distribution Date less the aggregate of
Additional Balances created during the related Collection Period.
Beginning with the first Distribution Date following the end of the Managed
Amortization Period, the amount of Principal Collections payable to
Certificateholders on each Distribution Date will be equal to the Maximum
Principal Payment.
The amount of Principal Collections to be distributed to Certificateholders
on the first Distribution Date will reflect Principal Collections and Additional
Balances during the first Collection Period which is the period beginning after
the Cut-off Date through the last day of November 1996.
Distributions of Principal Collections based upon the Investor Fixed
Allocation Percentage may result in distributions of principal to
Certificateholders in amounts that are greater relative to the declining Pool
Balance than would be the case if the Investor Floating Allocation Percentage
were used to determine the percentage of Principal Collections distributed in
respect of the Invested Amount. Principal Collections not allocated to the
Certificateholders will be allocated to the Transferor Interest. The aggregate
distributions of principal to the Certificateholders will not exceed the
Original Certificate Principal Balance.
In addition, to the extent of funds available therefor (including funds
available under the Policy), on the Distribution Date in January, 2028,
Certificateholders will be entitled to receive as a payment of principal an
amount equal to the outstanding Certificate Principal Balance.
The Paying Agent. The Paying Agent shall initially be the Trustee, together
with any successor thereto in such capacity (the 'Paying Agent'). The Paying
Agent shall have the revocable power to withdraw funds from the Collection
Account for the purpose of making distributions to the Certificateholders.
RAPID AMORTIZATION EVENTS
As described above, the Managed Amortization Period will continue through
the Distribution Date in November, 2001, unless a Rapid Amortization Event
occurs prior to such date in which case the Rapid Amortization Period will
commence prior to such date. 'Rapid Amortization Event' refers to any of the
following events:
(a) failure on the part of the Seller (i) to make a payment or deposit
required under the Agreement within three Business Days after the date such
payment or deposit is required to be made, (ii) to record
S-39
<PAGE>
<PAGE>
assignments of Mortgage Loans when required pursuant to the Agreement or
(iii) to observe or perform in any material respect any other covenants or
agreements of the Seller set forth in the Agreement, which failure
materially and adversely affects the interests of the Certificateholders or
the Certificate Insurer and, with certain exceptions, continues unremedied
for a period of 60 days after written notice;
(b) any representation or warranty made by the Seller or the Depositor
in the Agreement proves to have been incorrect in any material respect when
made and continues to be incorrect in any material respect for a period of
60 days after written notice and as a result of which the interests of the
Certificateholders or the Certificate Insurer are materially and adversely
affected; provided, however, that a Rapid Amortization Event shall not be
deemed to occur if the Seller has purchased or made a substitution for the
related Mortgage Loan or Mortgage Loans if applicable during such period
(or within an additional 60 days with the consent of the Trustee) in
accordance with the provisions of the Agreement;
(c) the occurrence of certain events of bankruptcy, insolvency or
receivership relating to the Transferor;
(d) the Trust Fund becomes subject to regulation by the Securities and
Exchange Commission as an investment company within the meaning of the
Investment Company Act of 1940, as amended; or
(e) the aggregate of all draws under the Policy incurred during the
Managed Amortization Period exceed 1% of the Cut-off Date Pool Balance.
In the case of any event described in clause (a) or (b), a Rapid
Amortization Event will be deemed to have occurred only if, after the applicable
grace period, if any, described in such clauses, either the Trustee or
Certificateholders holding Certificates evidencing more than 51% of the
Percentage Interests or the Certificate Insurer (so long as there is no default
by the Certificate Insurer in the performance of its obligations under the
Policy), by written notice to the Transferor, the Depositor and the Master
Servicer (and to the Trustee, if given by either the Certificate Insurer or the
Certificateholders) declare that a Rapid Amortization Event has occurred as of
the date of such notice. In the case of any event described in clause (c), (d)
or (e), a Rapid Amortization Event will be deemed to have occurred without any
notice or other action on the part of the Trustee, the Certificate Insurer or
the Certificateholders immediately upon the occurrence of such event.
In addition to the consequences of a Rapid Amortization Event discussed
above, if the Transferor voluntarily files a bankruptcy petition or goes into
liquidation or any person is appointed a receiver or bankruptcy trustee of the
Transferor, on the day of any such filing or appointment no further Additional
Balances will be transferred to the Trust Fund, the Transferor will immediately
cease to transfer Additional Balances to the Trust Fund and the Transferor will
promptly give notice to the Trustee of any such filing or appointment. Within 15
days, the Trustee will publish a notice of the liquidation or the filing or
appointment stating that the Trustee intends to sell, dispose of or otherwise
liquidate the Mortgage Loans in a commercially reasonable manner and to the best
of its ability. Unless otherwise instructed within a specified period by
Certificateholders representing undivided interests aggregating at least 51% of
the aggregate principal amount of the Certificates, the Trustee will sell,
dispose of or otherwise liquidate the Mortgage Loans in a commercially
reasonable manner and on commercially reasonable terms. Any proceeds will first
be paid to the Certificate Insurer to the extent of any unreimbursed draws under
the Policy and other amounts owing to the Certificate Insurer pursuant to the
Insurance Agreement. The Investor Fixed Allocation Percentage of remaining
amounts will be distributed to the Certificateholders on the date such amounts
are received (the 'Dissolution Distribution Date'). If the portion of such
amounts allocable to the Certificateholders are not sufficient to pay in full
the remaining amount due on the Certificates, the Policy will cover such
shortfall.
Notwithstanding the foregoing, if a conservator, receiver or
trustee-in-bankruptcy is appointed for the Transferor and no Rapid Amortization
Event exists other than such conservatorship, receivership or insolvency of the
Transferor, the conservator, receiver or trustee-in-bankruptcy may have the
power to prevent the commencement of the Rapid Amortization Period or the sale
of Mortgage Loans described above.
THE POLICY
On or before the Closing Date, the Policy will be issued by the Certificate
Insurer pursuant to the provisions of the Agreement and the Insurance and
Indemnity Agreement (the 'Insurance Agreement') to be dated as of October 31,
1996, among the Seller, the Depositor, the Master Servicer, the Trustee and the
Certificate Insurer.
S-40
<PAGE>
<PAGE>
The Policy will irrevocably and unconditionally guarantee payment on each
Distribution Date to the Trustee for the benefit of the Certificateholders the
full and complete payment of (i) the Guaranteed Principal Distribution Amount
(as defined herein) with respect to the Certificates for such Distribution Date
and (ii) accrued and unpaid interest due on the Certificates (together, the
'Guaranteed Distributions'), with such Guaranteed Distributions having been
calculated in accordance with the original terms of the Certificates or the
Agreement except for amendments or modifications to which the Certificate
Insurer has given its prior written consent. The effect of the Policy is to
guarantee the timely payment of interest on, and the ultimate payment of the
principal amount of, all of the Certificates.
The 'Guaranteed Principal Distribution Amount' shall be the amount, if any,
by which the Certificate Principal Balance (after giving effect to all other
amounts distributable and allocable to principal on the Certificates) exceeds
the Invested Amount as of such Distribution Date (after giving effect to all
other amounts distributable and allocable to principal on the Certificates for
such Distribution Date). In addition, the Policy will guarantee the payment of
the outstanding Certificate Principal Balance on the Distribution Date in
January, 2028 (after giving effect to all other amounts distributable and
allocable to principal on such Distribution Date).
In accordance with the Agreement, the Trustee will be required to establish
and maintain an account (the 'Spread Account') for the benefit of the
Certificate Insurer and the Certificateholders. The Trustee shall deposit the
amounts into the Spread Account as required by the Agreement.
Payment of claims on the Policy will be made by the Certificate Insurer
following Receipt by the Certificate Insurer of the appropriate notice for
payment on the later to occur of (i) 12:00 noon, New York City time, on the
second Business Day following Receipt of such notice for payment and (ii) 12:00
noon, New York City time, on the relevant Distribution Date.
If payment of any amount guaranteed by the Certificate Insurer pursuant to
the Policy is avoided as a preference payment under applicable bankruptcy,
insolvency, receivership or similar law, the Certificate Insurer will pay such
amount out of the funds of the Certificate Insurer on the later of (a) the date
when due to be paid pursuant to the Order referred to below or (b) the first to
occur of (i) the fourth Business Day following Receipt by the Certificate
Insurer from the Trustee of (A) a certified copy of the order (the 'Order') of
the court or other governmental body which exercised jurisdiction to the effect
that the Certificateholder is required to return the amount of any Guaranteed
Distributions distributed with respect to the Certificates during the term of
the Policy because such distributions were avoidable preference payments under
applicable bankruptcy law, (B) a certificate of the Certificateholder that the
Order has been entered and is not subject to any stay and (C) an assignment duly
executed and delivered by the Certificateholder, in such form as is reasonably
required by the Certificate Insurer and provided to the Certificateholder by the
Certificate Insurer, irrevocably assigning to the Certificate Insurer all rights
and claims of the Certificateholder relating to or arising under the
Certificates against the debtor which made such preference payment or otherwise
with respect to such preference payment, or (ii) the date of Receipt by the
Certificate Insurer from the Trustee of the items referred to in clauses (A),
(B) and (C) above if, at least four Business Days prior to such date of Receipt,
the Certificate Insurer shall have Received written notice from the Trustee that
such items were to be delivered on such date and such date was specified in such
notice. Such payment shall be disbursed to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the Order and not to the
Trustee or any Certificateholder directly (unless a Certificateholder has
previously paid such amount to the receiver, conservator, debtor-in-possession
or trustee in bankruptcy named in the Order, in which case such payment shall be
disbursed to the Trustee for distribution to such Certificateholder upon proof
of such payment reasonably satisfactory to the Certificate Insurer).
The terms 'Receipt' and 'Received', with respect to the Policy, mean actual
delivery to the Certificate Insurer and to its fiscal agent appointed by the
Certificate Insurer at its option, if any, prior to 12:00 noon, New York City
time, on a Business Day; delivery either on a day that is not a Business Day or
after 12:00 noon, New York City time, shall be deemed to be Received on the next
succeeding Business Day. If any notice or certificate given under the Policy by
the Trustee is not in proper form or is not properly completed, executed or
delivered, it shall be deemed not to have been Received, and the Certificate
Insurer or the fiscal agent shall promptly so advise the Trustee and the Trustee
may submit an amended notice.
Under the Policy, 'Business Day' means any day other than (i) a Saturday or
Sunday or (ii) a day on which banking institutions in the states of New York,
California or Illinois are authorized or obligated by law or executive order to
be closed.
S-41
<PAGE>
<PAGE>
The Certificate Insurer's obligations under the Policy in respect of
Guaranteed Distributions shall be discharged to the extent funds are transferred
to the Trustee as provided in the Policy, whether or not such funds are properly
applied by the Trustee.
The Certificate Insurer shall be subrogated to the rights of each
Certificateholder to receive payments of principal and interest, as applicable,
with respect to distributions on the Certificates to the extent of any payment
by the Certificate Insurer under the Policy. To the extent the Certificate
Insurer makes Guaranteed Distributions, either directly or indirectly (as by
paying through the Trustee), to the Certificateholders, the Certificate Insurer
will be subrogated to the rights of the Certificateholders, as applicable, with
respect to such Guaranteed Distributions, shall be deemed to the extent of the
payments so made to be a registered Certificateholder for purposes of payment
and shall receive all future Guaranteed Distributions until all such Guaranteed
Distributions by the Certificate Insurer have been fully reimbursed, provided
that the Certificateholders have received the full amount of the Guaranteed
Distributions.
The terms of the Policy cannot be modified, altered or affected by any
other agreement or instrument, or by the merger, consolidation or dissolution of
the Seller. The Policy by its terms may not be cancelled or revoked. The Policy
is governed by the laws of the State of New York.
The Policy is not covered by the Property/Casualty Insurance Security fund
specified in Article 76 of the New York Insurance Law. The Policy is not covered
by the Florida Insurance Guaranty Association created under Part II of Chapter
631 of the Florida Insurance Code. In the event the Certificate Insurer were to
become insolvent, any claims arising under the Policy are excluded from coverage
by the California Insurance Guaranty Association, established pursuant to
Article 14.2 of Chapter 1 of part 2 of Division 1 of the California Insurance
Code.
Pursuant to the terms of the Agreement, unless a Certificate Insurer
default exists, the Certificate Insurer shall be deemed to be the Holder of the
Certificates for certain purposes (other than with respect to payment on the
Certificates), will be entitled to exercise all rights of the Certificateholders
thereunder, without the consent of such Holders and the Holders of the
Certificates may exercise such rights only with the prior written consent of the
Certificate Insurer. In addition, the Certificate Insurer will have certain
additional rights as third party beneficiary to the Agreement.
In the absence of payments under the Policy, Certificateholders will bear
directly the credit and other risks associated with their undivided interest in
the Trust Fund.
REPORTS TO CERTIFICATEHOLDERS
Concurrently with each distribution to the Certificateholders, the Master
Servicer will forward to the Trustee for mailing to such Certificateholder a
statement setting forth among other items:
(i) the Investor Floating Allocation Percentage for the preceding
Collection Period;
(ii) the amount being distributed to Certificateholders;
(iii) the amount of interest included in such distribution and the
related Certificate Rate;
(iv) the amount, if any, of overdue accrued interest included in such
distribution (and the amount of interest thereon to the extent permitted by
applicable law);
(v) the amount, if any, of the remaining overdue accrued interest
after giving effect to such distribution;
(vi) the amount, if any, of principal included in such distribution;
(vii) the amount, if any, of the reimbursement of previous Investor
Loss Amounts included in such distribution;
(viii) the amount, if any, of the aggregate unreimbursed Investor Loss
Amounts after giving effect to such distribution;
(ix) the Servicing Fee for such Distribution Date;
(x) the Invested Amount, the Certificate Principal Balance and the
Pool Factor, each after giving effect to such distribution;
(xi) the Pool Balance as of the end of the preceding Collection
Period;
S-42
<PAGE>
<PAGE>
(xii) the number and aggregate Principal Balances of the Mortgage
Loans as to which the minimum monthly payment is delinquent for 30-59 days,
60-89 days and 90 or more days, respectively, as of the end of the
preceding Collection Period;
(xiii) the book value of any real estate which is acquired by the
Trust Fund through foreclosure or grant of deed in lieu of foreclosure; and
(xiv) the amount of any draws on the Policy.
In the case of information furnished pursuant to clauses (iii), (iv), (v),
(vi), (vii) and (viii) above, the amounts shall be expressed as a dollar amount
per Certificate with a $1,000 denomination.
Within 60 days after the end of each calendar year commencing in 1996, the
Master Servicer will be required to forward to the Trustee a statement
containing the information set forth in clauses (iii) and (vi) above aggregated
for such calendar year.
COLLECTION AND OTHER SERVICING PROCEDURES ON MORTGAGE LOANS
The Master Servicer will make reasonable efforts to collect all payments
called for under the Mortgage Loans and will, consistent with the Agreement,
follow such collection procedures as it follows from time to time with respect
to the home equity loans in its servicing portfolio comparable to the Mortgage
Loans. Consistent with the above, the Master Servicer may in its discretion
waive any late payment charge or any assumption or other fee or charge that may
be collected in the ordinary course of servicing the Mortgage Loans.
With respect to the Mortgage Loans, the Master Servicer may arrange with a
borrower a schedule for the payment of interest due and unpaid for a period,
provided that any such arrangement is consistent with the Master Servicer's
policies with respect to the mortgage loans it owns or services. In accordance
with the terms of the Agreement, the Master Servicer may consent under certain
circumstances to the placing of a subsequent senior lien in respect of a
Mortgage Loan.
HAZARD INSURANCE
The Agreement provides that the Master Servicer maintain certain hazard
insurance on the Mortgaged Properties relating to the Mortgage Loans. While the
terms of the related Credit Line Agreements generally require borrowers to
maintain certain hazard insurance, the Master Servicer will not monitor the
maintenance of such insurance.
The Agreement requires the Master Servicer to maintain for any Mortgaged
Property relating to a Mortgage Loan acquired upon foreclosure of a Mortgage
Loan, or by deed in lieu of such foreclosure, hazard insurance with extended
coverage in an amount equal to the lesser of (a) the maximum insurable value of
such Mortgaged Property or (b) the outstanding balance of such Mortgage Loan
plus the outstanding balance on any mortgage loan senior to such Mortgage Loan
at the time of foreclosure or deed in lieu of foreclosure, plus accrued interest
and the Master Servicer's good faith estimate of the related liquidation
expenses to be incurred in connection therewith. The Agreement provides that the
Master Servicer may satisfy its obligation to cause hazard policies to be
maintained by maintaining a blanket policy insuring against losses on such
Mortgaged Properties. If such blanket policy contains a deductible clause, the
Master Servicer will be obligated to deposit in the Collection Account the sums
which would have been deposited therein but for such clause. The Master Servicer
will satisfy these requirements by maintaining a blanket policy. As set forth
above, all amounts collected by the Master Servicer (net of any reimbursements
to the Master Servicer) under any hazard policy (except for amounts to be
applied to the restoration or repair of the Mortgaged Property) will ultimately
be deposited in the Collection Account.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements on the property by fire,
lightning, explosion, smoke, windstorm and hail, and the like, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies relating to the Mortgage Loans will be underwritten by
different insurers and therefore will not contain identical terms and
conditions, the basic terms thereof are dictated by state laws and most of such
policies typically do not cover any physical damage resulting from the
following: war, revolution, governmental actions, floods and other water-related
causes, earth movement (including earthquakes, landslides and mudflows), nuclear
reactions, wet or dry rot, vermin, rodents, insects or domestic animals, theft
and, in certain cases,
S-43
<PAGE>
<PAGE>
vandalism. The foregoing list is merely indicative of certain kinds of uninsured
risks and is not intended to be all-inclusive or an exact description of the
insurance policies relating to the Mortgaged Properties.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
The Master Servicer will foreclose upon or otherwise comparably convert to
ownership Mortgaged Properties securing such of the Mortgage Loans as come into
default when, in accordance with applicable servicing procedures under the
Agreement, no satisfactory arrangements can be made for the collection of
delinquent payments. In connection with such foreclosure or other conversion,
the Master Servicer will follow such practices as it deems necessary or
advisable and as are in keeping with its general mortgage servicing activities,
provided the Master Servicer will not be required to expend its own funds in
connection with foreclosure or other conversion, correction of default on a
related senior mortgage loan or restoration of any property unless, in its sole
judgment, such foreclosure, correction or restoration will increase Net
Liquidation Proceeds. The Master Servicer will be reimbursed out of Liquidation
Proceeds and, if necessary, from other collections on or in respect of the
Mortgage Loans, for advances of its own funds as liquidation expenses before any
Net Liquidation Proceeds are distributed to Certificateholders or the
Transferor.
OPTIONAL PURCHASE OF DEFAULTED LOAN
The Master Servicer may, at its option, purchase from the Trust Fund any
Mortgage Loan which is delinquent in payment for 91 days or more. Any such
purchase shall be at a price equal to 100% of the Principal Balance of such
Mortgage Loan plus accrued interest thereon at the applicable Loan Rate from the
date through which interest was last paid by the related mortgagor to the first
day of the month in which such amount is to be distributed to
Certificateholders.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
With respect to each Collection Period, the Master Servicer will receive
from Interest Collections in respect of the Mortgage Loans a portion of such
Interest Collections as a monthly Servicing Fee in the amount equal to 0.50% per
annum ('Servicing Fee Rate') on the aggregate Principal Balances of the Mortgage
Loans as of the first day of the related Collection Period. All assumption fees,
late payment charges and other fees and charges, to the extent collected from
borrowers, will be retained by the Master Servicer as additional servicing
compensation.
The Master Servicer will pay certain ongoing expenses associated with the
Trust Fund and incurred by it in connection with its responsibilities under the
Agreement. In addition, the Master Servicer will be entitled to reimbursement
for certain expenses incurred by it in connection with defaulted Mortgage Loans
and in connection with the restoration of Mortgaged Properties, such right of
reimbursement being prior to the rights of Certificateholders to receive any
related Net Liquidation Proceeds and, if necessary, other collections on or in
respect of the Mortgage Loans.
EVIDENCE AS TO COMPLIANCE
The Agreement provides for delivery on or before May 31 in each year,
beginning May 31, 1997, to the Trustee of an annual statement signed by an
officer of the Master Servicer to the effect that the Master Servicer has
fulfilled its material obligations under the Agreement throughout the preceding
fiscal year, except as specified in such statement.
On or before May 31 of each year, beginning May 31, 1997, the Master
Servicer will furnish a report prepared by a firm of nationally recognized
independent public accountants (who may also render other services to the Master
Servicer or the Transferor) to the Trustee, the Certificate Insurer and the
Rating Agencies to the effect that such firm has examined certain documents and
the records relating to servicing of the Mortgage Loans under the Agreement and
that, on the basis of such examination, such firm believes that such servicing
was conducted in compliance with the Agreement except for (a) such exceptions as
such firm believes to be immaterial and (b) such other exceptions as shall be
set forth in such report.
S-44
<PAGE>
<PAGE>
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE TRANSFEROR
The Agreement provides that the Master Servicer may not resign from its
obligations and duties thereunder, except in connection with a permitted
transfer of servicing, unless (i) such duties and obligations are no longer
permissible under applicable law or are in material conflict by reason of
applicable law with any other activities of a type and nature presently carried
on by it or its affiliate or (ii) upon the satisfaction of the following
conditions: (a) the Master Servicer has proposed a successor servicer to the
Trustee in writing and such proposed successor servicer is reasonably acceptable
to the Trustee; (b) the Rating Agencies have confirmed to the Trustee that the
appointment of such proposed successor servicer as the Master Servicer will not
result in the reduction or withdrawal of the then current rating of the
Certificates without regard to the Policy; and (c) such proposed successor
servicer is reasonably acceptable to the Certificate Insurer. No such
resignation will become effective until the Trustee or a successor servicer has
assumed the Master Servicer's obligations and duties under the Agreement.
The Master Servicer may perform any of its duties and obligations under the
Agreement through one or more subservicers or delegates, which may be affiliates
of the Master Servicer. Notwithstanding any such arrangement, the Master
Servicer will remain liable and obligated to the Trustee and the
Certificateholders for the Master Servicer's duties and obligations under the
Agreement, without any diminution of such duties and obligations and as if the
Master Servicer itself were performing such duties and obligations.
The Agreement provides that the Master Servicer will indemnify the Trust
Fund and the Trustee from and against any loss, liability, expense, damage or
injury suffered or sustained as a result of the Master Servicer's actions or
omissions in connection with the servicing and administration of the Mortgage
Loans which are not in accordance with the provisions of the Agreement. Under
the Agreement, the Transferor will indemnify an injured party for the entire
amount of any losses, claims, damages or liabilities arising out of or based on
the Agreement to the extent described therein (other than losses resulting from
defaults under the Mortgage Loans). In the event of an Event of Servicing
Termination (as defined below) resulting in the assumption of servicing
obligations by a successor Master Servicer, the successor Master Servicer will
indemnify the Transferor for any losses, claims, damages and liabilities of the
Transferor as described in this paragraph arising from the successor Master
Servicer's actions or omissions. The Agreement provides that neither the
Depositor, the Transferor nor the Master Servicer nor their directors, officers,
employees or agents will be under any other liability to the Trust Fund, the
Trustee, the Certificateholders or any other person for any action taken or for
refraining from taking any action pursuant to the Agreement. However, neither
the Depositor, the Transferor nor the Master Servicer will be protected against
any liability which would otherwise be imposed by reason of willful misconduct,
bad faith or gross negligence of the Depositor, the Transferor or the Master
Servicer in the performance of its duties under the Agreement or by reason of
reckless disregard of its obligations thereunder. In addition, the Agreement
provides that the Master Servicer will not be under any obligation to appear in,
prosecute or defend any legal action which is not incidental to its servicing
responsibilities under the Agreement and which in its opinion may expose it to
any expense or liability. The Master Servicer may, in its sole discretion,
undertake any such legal action which it may deem necessary or desirable with
respect to the Agreement and the rights and duties of the parties thereto and
the interest of the Certificateholders thereunder.
Any corporation into which the Master Servicer may be merged or
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Master Servicer shall be a party, or any corporation
succeeding to the business of the Master Servicer shall be the successor of the
Master Servicer under the Agreement, without the execution or filing of any
paper or any further act on the part of any of the parties thereto, anything in
the Agreement to the contrary notwithstanding.
EVENTS OF SERVICING TERMINATION
'Events of Servicing Termination' will consist of: (i) any failure by the
Master Servicer to deposit in the Collection Account any deposit required to be
made under the Agreement, which failure continues unremedied for five Business
Days after the giving of written notice of such failure to the Master Servicer
by the Trustee, or to the Master Servicer and the Trustee by the Certificate
Insurer or Certificateholders evidencing an aggregate, undivided interest in the
Trust Fund of at least 25% of the Certificate Principal Balance; (ii) any
failure by the Master Servicer duly to observe or perform in any material
respect any other of its covenants or agreements in the Certificates or the
Agreement which, in each case, materially and adversely affects the interests of
the Certificateholders or the Certificate Insurer and continues unremedied for
60 days after the giving of written
S-45
<PAGE>
<PAGE>
notice of such failure to the Master Servicer by the Trustee, or to the Master
Servicer and the Trustee by the Certificate Insurer or Certificateholders
evidencing an aggregate, undivided interest in the Trust Fund of at least 25% of
the Certificate Principal Balance; or (iii) certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings relating to the Master Servicer and certain actions by the Master
Servicer indicating insolvency, reorganization or inability to pay its
obligations. Under certain other circumstances, the Certificate Insurer with the
consent of holders of Investor Certificates evidencing an aggregate, undivided
interest in the Trust Fund of at least 51% of the Certificate Principal Balance
may deliver written notice to the Master Servicer terminating all the rights and
obligations of the Master Servicer under the Agreement.
Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (i) above for a period of ten Business Days or referred
to under clause (ii) above for a period of 60 Business Days, shall not
constitute an Event of Servicing Termination if such delay or failure could not
be prevented by the exercise of reasonable diligence by the Master Servicer and
such delay or failure was caused by an act of God or other similar occurrence.
Upon the occurrence of any such event the Master Servicer shall not be relieved
from using its best efforts to perform its obligations in a timely manner in
accordance with the terms of the Agreement and the Master Servicer shall provide
the Trustee, the Depositor, the Transferor, the Certificate Insurer and the
Certificateholders prompt notice of such failure or delay by it, together with a
description of its efforts to so perform its obligations.
RIGHTS UPON AN EVENT OF SERVICING TERMINATION
So long as an Event of Servicing Termination remains unremedied, either the
Trustee, or Certificateholders evidencing an aggregate, undivided interest in
the Trust Fund of at least 51% of the Certificate Principal Balance or the
Certificate Insurer, may terminate all of the rights and obligations of the
Master Servicer under the Agreement, whereupon the Trustee will succeed to all
the responsibilities, duties and liabilities of the Master Servicer under the
Agreement and will be entitled to similar compensation arrangements. In the
event that the Trustee would be obligated to succeed the Master Servicer but is
unwilling or unable so to act, it may appoint, or petition a court of competent
jurisdiction for the appointment of, a housing and home finance institution or
other mortgage loan or home equity loan servicer with all licenses and permits
required to perform its obligations under the Agreement and having a net worth
of at least $15,000,000 and acceptable to the Certificate Insurer to act as
successor to the Master Servicer under the Agreement. Pending such appointment,
the Trustee will be obligated to act in such capacity unless prohibited by law.
Such successor will be entitled to receive the same compensation that the Master
Servicer would otherwise have received (or such lesser compensation as the
Trustee and such successor may agree). A receiver or conservator for the Master
Servicer may be empowered to prevent the termination and replacement of the
Master Servicer where the Event of Servicing Termination that has occurred is an
Insolvency Event.
AMENDMENT
The Agreement may be amended from time to time by the Seller, the Master
Servicer, the Depositor and the Trustee and with the consent of the Certificate
Insurer, but without the consent of the Certificateholders, to cure any
ambiguity, to correct any defective provision or to correct or supplement any
provisions therein which may be inconsistent with any other provisions of the
Agreement, to add to the duties of the Depositor, the Seller, the Transferor or
the Master Servicer or to add or amend any provisions of the Agreement as
required by the Rating Agencies in order to maintain or improve any rating of
the Certificates (it being understood that, after obtaining the ratings in
effect on the Closing Date, neither the Transferor, the Seller, the Depositor,
the Trustee nor the Master Servicer is obligated to obtain, maintain, or improve
any such rating) or to add any other provisions with respect to matters or
questions arising under the Agreement or the Policy which shall not be
inconsistent with the provisions of the Agreement, to comply with any
requirement imposed by the Code (as defined herein) or to increase the limits
set forth in the Agreement as to the amount of senior liens which the Master
Servicer may consent to, provided that such action will not, as evidenced by an
opinion of counsel, materially and adversely affect the interests of any
Certificateholder or the Certificate Insurer; provided, that any such amendment
will not be deemed to materially and adversely affect the Certificateholders and
no such opinion will be required to be delivered if the person requesting such
amendment obtains a letter from the Rating Agencies stating that such amendment
would not result in a downgrading of the then current rating of the
S-46
<PAGE>
<PAGE>
Certificates without regard to the Policy. The Agreement may also be amended
from time to time by the Seller, the Master Servicer, the Depositor, and the
Trustee, and the Master Servicer and the Certificate Insurer may from time to
time consent to the amendment of the Policy, with the consent of
Certificateholders evidencing an aggregate, undivided interest in the Trust Fund
of at least 51% of the Certificate Principal Balance and the Certificate Insurer
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Agreement or of modifying in any manner
the rights of the Certificateholders, provided that no such amendment will (i)
reduce in any manner the amount of, or delay the timing of, payments on the
Certificates or distributions or payments under the Policy which are required to
be made on any Certificate without the consent of the holder of such
Certificate, (ii) reduce the aforesaid percentage required to consent to any
such amendment, without the consent of the holders of all Certificates then
outstanding or (iii) adversely affect in any material respect the interests of
the Certificate Insurer.
TERMINATION; RETIREMENT OF THE CERTIFICATES
The Trust Fund will terminate on the Distribution Date following the later
of (A) payment in full of all amounts owing to the Certificate Insurer and (B)
the earliest of (i) the Distribution Date on which the Certificate Principal
Balance has been reduced to zero, (ii) the final payment or other liquidation of
the last Mortgage Loan in the Trust Fund, (iii) the optional transfer to the
Transferor of the Certificates, as described below and (iv) the Distribution
Date in January, 2028.
The Certificates will be subject to optional retransfer to the Transferor
on any Distribution Date after the Certificate Principal Balance is reduced to
an amount less than or equal to 10% of the Original Certificate Principal
Balance and all amounts due and owing to the Certificate Insurer and
unreimbursed draws on the Policy, together with interest thereon, as provided
under the Insurance Agreement, have been paid. The transfer price will be equal
to the sum of the outstanding Certificate Principal Balance and accrued and
unpaid interest thereon at the Certificate Rate through the day preceding the
final Distribution Date. In no event, however, will the Trust Fund created by
the Agreement continue for more than 21 years after the death of certain
individuals named in the Agreement. Written notice of termination of the
Agreement will be given to each Certificateholder, and the final distribution
will be made only upon surrender and cancellation of the Certificates at an
office or agency appointed by the Trustee which will be specified in the notice
of termination.
In addition, the Trust Fund may be liquidated as a result of certain events
of bankruptcy, insolvency or receivership relating to the Transferor. See
' -- Rapid Amortization Events' herein.
THE TRUSTEE
The First National Bank of Chicago, a national banking association with its
principal place of business in Illinois, has been named Trustee pursuant to the
Agreement.
The commercial bank or trust company serving as Trustee may own
Certificates and have normal banking relationships with the Depositor, the
Master Servicer, the Seller and the Certificate Insurer and/or their affiliates.
The Trustee may resign at any time, in which event the Depositor will be
obligated to appoint a successor Trustee, as approved by the Certificate
Insurer. The Depositor may also remove the Trustee if the Trustee ceases to be
eligible to continue as such under the Agreement or if the Trustee becomes
insolvent. Upon becoming aware of such circumstances, the Depositor will be
obligated to appoint a successor Trustee, as approved by the Certificate
Insurer. Any resignation or removal of the Trustee and appointment of a
successor Trustee will not become effective until acceptance of the appointment
by the successor Trustee.
No holder of a Certificate will have any right under the Agreement to
institute any proceeding with respect to the Agreement unless such holder
previously has given to the Trustee written notice of default and unless
Certificateholders evidencing an aggregate, undivided interest in the Trust Fund
of at least 51% of the Certificate Principal Balance have made written requests
upon the Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable indemnity and the Trustee
for 60 days has neglected or refused to institute any such proceeding. The
Trustee will be under no obligation to exercise any of the trusts or powers
vested in it by the Agreement or to make any investigation of matters arising
thereunder or to institute, conduct or defend any litigation thereunder or in
relation thereto at the request, order or direction of any of the
Certificateholders, unless such Certificateholders have offered to the Trustee
reasonable security or indemnity against the cost, expenses and liabilities
which may be incurred therein or thereby.
S-47
<PAGE>
<PAGE>
CERTAIN ACTIVITIES
The Trust Fund will not: (i) borrow money; (ii) make loans; (iii) invest in
securities for the purpose of exercising control; (iv) underwrite securities;
(v) except as provided in the Agreement, engage in the purchase and sale (or
turnover) of investments; (vi) offer securities in exchange for property (except
Certificates for the Mortgage Loans); or (vii) repurchase or otherwise reacquire
its securities. See ' -- Evidence as to Compliance' above for information
regarding reports as to the compliance by the Master Servicer with the terms of
the Agreement.
DESCRIPTION OF THE PURCHASE AGREEMENT
The Mortgage Loans to be transferred to the Trust Fund by the Depositor
will be purchased by the Depositor from Countrywide pursuant to the Purchase
Agreement to be entered into between the Depositor, as purchaser of the Mortgage
Loans, and Countrywide, as Seller of the Mortgage Loans. Under the Purchase
Agreement, the Seller will agree to transfer the Mortgage Loans and related
Additional Balances to the Depositor. Pursuant to the Agreement, the Mortgage
Loans will be immediately transferred by the Depositor to the Trust Fund, and
the Depositor will assign its rights in, to and under the Purchase Agreement to
the Trust Fund. The following is a description of the material provisions of the
Purchase Agreement.
TRANSFERS OF MORTGAGE LOANS
Pursuant to the Purchase Agreement, the Seller will transfer and assign to
the Depositor, all of its right, title and interest in and to the Mortgage Loans
and all of the Additional Balances thereafter created. The purchase price of the
Mortgage Loans is a specified percentage of the face amount thereof as of the
time of transfer and is payable by the Depositor in cash. The purchase price of
each Additional Balance comprising the Principal Balance of a Mortgage Loan is
the amount of such Additional Balance.
REPRESENTATIONS AND WARRANTIES
The Seller will represent and warrant to the Depositor that, among other
things, as of the Closing Date, it is duly organized and in good standing and
that it has the authority to consummate the transactions contemplated by the
Purchase Agreement. The Seller will also represent and warrant to the Depositor
that, among other things, immediately prior to the sale of the Mortgage Loans to
the Depositor, the Seller was the sole owner and holder of the Mortgage Loans
free and clear of any and all liens and security interests. The Seller will make
similar representations and warranties in the Agreement. The Seller will also
represent and warrant to the Depositor that, among other things, as of the
Closing Date, (a) the Purchase Agreement constitutes a legal, valid and binding
obligation of the Seller and (b) the Purchase Agreement constitutes a valid sale
to the Depositor of all right, title and interest of the Seller in and to the
Mortgage Loans and the proceeds thereof.
ASSIGNMENT TO TRUST FUND
The Seller will expressly acknowledge and consent to the Depositor's
transfer of its rights relating to the Mortgage Loans under the Agreement to the
Trust Fund. The Seller also will agree to perform its obligations under the
Purchase Agreement for the benefit of the Trust Fund.
TERMINATION
The Purchase Agreement will terminate upon the termination of the Trust
Fund.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will be
applied by the Depositor towards the purchase of the Mortgage Loans.
S-48
<PAGE>
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion, which summarizes the material U.S. federal income
tax aspects of the purchase, ownership and disposition of the Certificates, is
based on the provisions of the Internal Revenue Code of 1986, as amended (the
'Code'), the Treasury Regulations thereunder, and published rulings and court
decisions in effect as of the date hereof, all of which are subject to change,
possibly retroactively. This discussion does not address every aspect of the
U.S. federal income tax laws which may be relevant to Certificate Owners in
light of their personal investment circumstances or to certain types of
Certificate Owners subject to special treatment under the U.S. federal income
tax laws (for example, banks and life insurance companies). Accordingly,
investors should consult their tax advisors regarding U.S. federal, state,
local, foreign and any other tax consequences to them of investing in the
Certificates.
CHARACTERIZATION OF THE CERTIFICATES AS INDEBTEDNESS
Based on the application of existing law to the facts as set forth in the
Agreement and other relevant documents and assuming compliance with the terms of
the Agreement as in effect on the date of issuance of the Certificates, Brown &
Wood LLP, special tax counsel to the Depositor ('Tax Counsel') and counsel to
the Underwriters, is of the opinion that the Certificates will be treated as
debt instruments for federal income tax purposes as of such date. Accordingly,
upon issuance, the Certificates will be treated as 'Debt Securities' as
described in the Prospectus. See 'Federal Income Tax Consequences' in the
Prospectus.
The Transferor and the Certificateholders express in the Agreement their
intent that, for applicable tax purposes, the Certificates will be indebtedness
secured by the Mortgage Loans. The Transferor, the Depositor and the
Certificateholders, by accepting the Certificates, and each Certificate Owner by
its acquisition of a beneficial interest in a Certificate, have agreed to treat
the Certificates as indebtedness for U.S. federal income tax purposes. However,
because different criteria are used to determine the non-tax accounting
characterization of the transaction, the Transferor intends to treat this
transaction as a sale of an interest in the Asset Balances of the Mortgage Loans
for financial accounting purposes.
In general, whether for U.S. federal income tax purposes a transaction
constitutes a sale of property or a loan, the repayment of which is secured by
property, is a question of fact, the resolution of which is based upon the
economic substance of the transaction rather than its form or the manner in
which it is labeled. While the Internal Revenue Service (the 'IRS') and the
courts have set forth several factors to be taken into account in determining
whether the substance of a transaction is a sale of property or a secured loan,
the primary factor in making this determination is whether the transferee has
assumed the risk of loss or other economic burdens relating to the property and
has obtained the benefits of ownership thereof. Tax Counsel has analyzed and
relied on several factors in reaching its opinion that the weight of the
benefits and burdens of ownership of the Mortgage Loans has been retained by the
Transferor and has not been transferred to the Certificate Owners.
In some instances, courts have held that a taxpayer is bound by the
particular form it has chosen for a transaction, even if the substance of the
transaction does not accord with its form. Tax Counsel has advised that the
rationale of those cases will not apply to this transaction, because the form of
the transaction as reflected in the operative provisions of the documents either
accords with the characterization of the Certificates as debt or otherwise makes
the rationale of those cases inapplicable to this situation.
TAXATION OF INTEREST INCOME OF CERTIFICATE OWNERS
Assuming that the Certificate Owners are holders of debt obligations for
U.S. federal income tax purposes, the Certificates generally will be taxable as
Debt Securities. See 'Federal Income Tax Consequences' in the Prospectus.
While it is not anticipated that the Certificates will be issued at a
greater than de minimis discount, under Treasury regulations (the 'OID
Regulations') it is possible that the Certificates could nevertheless be deemed
to have been issued with original issue discount ('OID') if the interest were
not treated as 'unconditionally payable' under the OID Regulations. If such
regulations were to apply, all of the taxable income to be recognized with
respect to the Certificates would be includible in income of Certificate Owners
as OID, but would not be includible again when the interest is actually
received. See 'Federal Income Tax Consequences --
S-49
<PAGE>
<PAGE>
Taxation of Debt Securities; Interest and Acquisition Discount' in the
Prospectus for a discussion of the application of the OID rules if the
Certificates are in fact issued at a greater than de minimis discount or are
treated as having been issued with OID under the OID Regulations. For purposes
of calculating OID, it is likely that the Certificates will be treated as
Pay-Through Securities.
POSSIBLE CLASSIFICATION OF THE CERTIFICATES AS A PARTNERSHIP OR ASSOCIATION
TAXABLE AS A CORPORATION
The opinion of Tax Counsel is not binding on the courts or the IRS. It is
possible that the IRS could assert that, for purposes of the Code, the
transaction contemplated by this Prospectus Supplement and the accompanying
Prospectus with respect to the Certificates constitutes a sale of the Mortgage
Loans (or an interest therein) to the Certificate Owners and that the proper
classification of the legal relationship between the Transferor and the
Certificate Owners resulting from this transaction is that of a partnership, a
publicly traded partnership treated as a corporation, or an association taxable
as a corporation. Since Tax Counsel has advised that the Certificates will be
treated as indebtedness in the hands of the Certificateholders for U.S. federal
income tax purposes, the Transferor will not attempt to comply with U.S. federal
income tax reporting requirements applicable to partnerships or corporations.
If it were determined that this transaction created an entity classified as
a corporation (including a publicly traded partnership taxable as a
corporation), the Trust Fund would be subject to U.S. federal income tax at
corporate income tax rates on the income it derives from the Mortgage Loans,
which would reduce the amounts available for distribution to the Certificate
Owners. Cash distributions to the Certificate Owners generally would be treated
as dividends for tax purposes to the extent of such corporation's earnings and
profits.
If the transaction were treated as creating a partnership between the
Certificate Owners and the Transferor, the partnership itself would not be
subject to U.S. federal income tax (unless it were to be characterized as a
publicly traded partnership taxable as a corporation); rather, the Transferor
and each Certificate Owner would be taxed individually on their respective
distributive shares of the partnership's income, gain, loss, deductions and
credits. The amount and timing of items of income and deductions of the
Certificate Owner could differ if the Certificates were held to constitute
partnership interests rather than indebtedness. Assuming that all of the
provisions of the Agreement, as in effect on the date of the issuance, are
complied with, it is the opinion of Tax Counsel that the Trust Fund will not be
treated as either an association or a partnership taxable as a corporation or as
a taxable mortgage pool.
POSSIBLE CLASSIFICATION AS A TAXABLE MORTGAGE POOL
In relevant part, Section 7701(i) of the Code provides that any entity (or
a portion of an entity) that is a 'taxable mortgage pool' will be classified as
a taxable corporation and will not be permitted to file a consolidated U.S.
federal income tax return with another corporation. Subject to a grandfather
provision for existing entities, any entity (or a portion of any entity) will be
a taxable mortgage pool if (i) substantially all of its assets consist of debt
instruments, more than 50% of which are real estate mortgages, (ii) the entity
is the obligor under debt obligations with two or more maturities, and (iii)
under the terms of the entity's debt obligations (or an underlying arrangement),
payments on such debt obligations bear a relationship to the debt instruments
held by the entity.
Assuming that all of the provisions of the Agreement, as in effect on the
date of issuance, are complied with, Tax Counsel is of the opinion that the
arrangement created by the Agreement will not be a taxable mortgage pool under
Section 7701(i) of the Code because only one class of indebtedness secured by
the Mortgage Loans is being issued.
The opinion of Tax Counsel is not binding on the IRS or the courts. If the
IRS were to contend successfully (or future regulations were to provide) that
the arrangement created by the Agreement is a taxable mortgage pool, such
arrangement would be subject to U.S. federal corporate income tax on its taxable
income generated by ownership of the Mortgage Loans. Such a tax might reduce
amounts available for distributions to Certificate Owners. The amount of such a
tax would depend upon whether distributions to Certificate Owners would be
deductible as interest expense in computing the taxable income of such an
arrangement as a taxable mortgage pool.
S-50
<PAGE>
<PAGE>
FOREIGN INVESTORS
In general, subject to certain exceptions, interest (including OID) paid on
a Certificate to a nonresident alien individual, foreign corporation or other
non-United States person is not subject to U.S. federal income tax, provided
that such interest is not effectively connected with a trade or business of the
recipient in the United States and the Certificate Owner provides the required
foreign person information certification. See 'Federal Income Tax
Consequences -- Tax Treatment of Foreign Investors' in the Prospectus.
If the interests of the Certificate Owners were deemed to be partnership
interests, the partnership would be required, on a quarterly basis, to pay
withholding tax equal to the product, for each foreign partner, of such foreign
partner's distributive share of 'effectively connected' income of the
partnership multiplied by the highest rate of tax applicable to that foreign
partner. In addition, such foreign partner would be subject to branch profits
tax. Each non-foreign partner would be required to certify to the partnership
that it is not a foreign person. The tax withheld from each foreign partner
would be credited against such foreign partner's U.S. income tax liability.
If the Trust Fund were taxable as a corporation, distributions to foreign
persons, to the extent treated as dividends, would generally be subject to
withholding at the rate of 30%, unless such rate were reduced by an applicable
tax treaty.
BACKUP WITHHOLDING
Certain Certificate Owners may be subject to backup withholding at the rate
of 31% with respect to interest paid on the Certificates if the Certificate
Owners, upon issuance, fail to supply the Trustee or his broker with his
taxpayer identification number, furnish an incorrect taxpayer identification
number, fail to report interest, dividends, or other 'reportable payments' (as
defined in the Code) properly, or, under certain circumstances, fail to provide
the Trustee or his broker with a certified statement, under penalty of perjury,
that he is not subject to backup withholding.
The Trustee will be required to report annually to the IRS, and to each
Certificateholder of record, the amount of interest paid (and OID accrued, if
any) on the Certificates (and the amount of interest withheld for U.S. federal
income taxes, if any) for each calendar year, except as to exempt holders
(generally, holders that are corporations, certain tax-exempt organizations or
nonresident aliens who provide certification as to their status as
nonresidents). As long as the only 'Certificateholder' of record is Cede, as
nominee for DTC, Certificate Owners and the IRS will receive tax and other
information including the amount of interest paid on the Certificates owned from
Participants and Indirect Participants rather than from the Trustee. (The
Trustee, however, will respond to requests for necessary information to enable
Participants, Indirect Participants and certain other persons to complete their
reports.) Each non-exempt Certificate Owner will be required to provide, under
penalty of perjury, a certificate on IRS Form W-9 containing his or her name,
address, correct federal taxpayer identification number and a statement that he
or she is not subject to backup withholding. Should a nonexempt Certificate
Owner fail to provide the required certification, the Participants or Indirect
Participants (or the Paying Agent) will be required to withhold 31% of the
interest (and principal) otherwise payable to the holder, and remit the withheld
amount to the IRS as a credit against the holder's federal income tax liability.
STATE TAXES
The Depositor makes no representations regarding the tax consequences of
purchase, ownership or disposition of the Certificates under the tax laws of any
state. Investors considering an investment in the 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 CERTIFICATES.
ERISA CONSIDERATIONS
Any Plan fiduciary which proposes to cause a Plan to acquire any of the
Certificates should consult with its counsel with respect to the potential
consequences under the Employee Retirement Income Security Act of 1974, as
amended ('ERISA'), and the Code, of the Plan's acquisition and ownership of such
Certificates. See 'ERISA Considerations' in the Prospectus.
S-51
<PAGE>
<PAGE>
The U.S. Department of Labor has granted to Lehman Brothers, Inc. ('Lehman
Brothers') Prohibited Transaction Exemption 91-14 (the 'Exemption') which
exempts from the application of the prohibited transaction rules transactions
relating to (1) the acquisition, sale and holding by Plans of certain
certificates representing an undivided interest in certain asset-backed
pass-through trusts, with respect to which Lehman Brothers or any of its
affiliates is the sole underwriter or the manager or co-manager of the
underwriting syndicate; and (2) the servicing, operation and management of such
asset-backed pass-through trusts, provided that the general conditions and
certain other conditions set forth in the Exemption are satisfied. The Exemption
will apply to the acquisition, holding and resale of the Certificates by a Plan
provided that certain conditions are met.
Among the conditions which 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 such Certificates) that are at least as favorable
to the investing Plan as they would be in an arm's-length transaction with
an unrelated party;
(2) The rights and interests evidenced by the Certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by
other certificates of the Trust;
(3) The Certificates acquired by the Plan have received a rating at
the time of such acquisition that is in one of the three highest generic
rating categories from Standard & Poor's, Moody's, or Duff & Phelps;
(4) 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 such Certificates; the sum of
all payments made to and retained by the Depositor pursuant to the sale of
the Mortgage Loans to the Trust Fund represents not more than the fair
market value of such Mortgage Loans; the sum of all payments made to and
retained by the Master Servicer represent not more than reasonable
compensation for the Master Servicer's services under the Agreement and
reimbursement of the Master Servicer's reasonable expenses in connection
therewith;
(5) The Trustee is not an affiliate of either Underwriter, the Seller,
the Depositor, the Master Servicer, the Certificate Insurer, any borrower
whose obligations under one or more Mortgage Loans constitute more than 5%
of the aggregate unamortized principal balance of the assets in the Trust
Fund, or any of their respective affiliates (the 'Restricted Group'); 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, as amended.
The Underwriters believe that the Exemption will apply to the acquisition
and holding of the Certificates by Plans and that all conditions of the
Exemption other than those within the control of the investors will be met.
Any Plan fiduciary considering whether to purchase any Certificates on
behalf of a Plan should consult with its counsel regarding the applicability of
the fiduciary responsibility and prohibited transaction provisions of ERISA and
the Code to such investment. Among other things, before purchasing any
Certificates, a fiduciary of a Plan subject to the fiduciary responsibility
provisions of ERISA or an employee benefit plan subject to the prohibited
transaction provisions of the Code should make its own determination as to the
availability of the exemptive relief provided in the Exemption, and also
consider the availability of any other prohibited transaction exemptions.
LEGAL INVESTMENT CONSIDERATIONS
Although, as a condition to their issuance, the Certificates will be rated
in the highest rating category of the Rating Agencies, the Certificates will not
constitute 'mortgage related securities' for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ('SMMEA'), because not all of the Mortgages
securing the Mortgage Loans are first mortgages. Accordingly, many institutions
with legal authority to invest in comparably rated securities based on first
mortgage loans may not be legally authorized to invest in the Certificates,
which because they evidence interests in a pool that includes junior mortgage
loans are not 'mortgage related securities' under SMMEA. See 'Legal Investment'
in the Prospectus.
S-52
<PAGE>
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, dated November , 1996 (the 'Underwriting Agreement'), among the
Depositor, Lehman Brothers, Inc. ('Lehman Brothers') and Countrywide Securities
Corporation (an affiliate of the Depositor, the Seller and the Master Servicer
and, together with Lehman Brothers, the 'Underwriters'), the Depositor has
agreed to sell to the Underwriters, and Lehman Brothers and Countrywide
Securities Corporation have respectively agreed to purchase from the Depositor,
$ and $ initial Certificate Principal Balance of the
Certificates.
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all the Certificates offered
hereby if any of the Certificates are purchased.
The Depositor has been advised by the Underwriters that they propose
initially to offer the Certificates to the public in Europe and the United
States at the offering price set forth on the cover page hereof and to certain
dealers at such price less a discount not in excess of % of the Certificate
denominations. The Underwriters may allow and such dealers may reallow a
discount not in excess of % of the Certificate denominations to certain
other dealers. After the initial public offering, the public offering price,
such concessions and such discounts may be changed.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriters against certain civil liabilities, including liabilities under the
Act.
LEGAL MATTERS
Certain legal matters with respect to the Certificates will be passed upon
for the Depositor and the Underwriters by Brown & Wood LLP, New York, New York.
EXPERTS
The consolidated balance sheets of Financial Security Assurance Inc. and
Subsidiaries as of December 31, 1995 and 1994 and the related consolidated
statements of income, changes in shareholder's equity, and cash flows for each
of the three years in the period ended December 31, 1995, incorporated by
reference in this Prospectus Supplement, have been incorporated herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
RATINGS
It is a condition to issuance that the Certificates be rated 'AAA' by
Standard & Poor's 'Aaa' by Moody's.
A securities rating addresses the likelihood of the receipt by
Certificateholders of distributions on the Mortgage Loans. The rating takes into
consideration the characteristics of the Mortgage Loans and the structural,
legal and tax aspects associated with the Certificates. The ratings on the
Certificates do not, however, constitute statements regarding the likelihood or
frequency of prepayments on the Mortgage Loans or the possibility that
Certificateholders might realize a lower than anticipated yield.
The ratings assigned to the Certificates will depend primarily upon the
creditworthiness of the Certificate Insurer. Any reduction in a rating assigned
to the claims-paying ability of the Certificate Insurer below the ratings
initially assigned to the Certificates may result in a reduction of one or more
of the ratings assigned to the Certificates.
A securities rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each securities rating should be evaluated independently of
similar ratings on different securities.
The Depositor has not requested a rating of the 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 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 Certificates could be lower than the respective
ratings assigned by the Rating Agencies.
S-53
<PAGE>
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----------------
<S> <C>
Accelerated Principal Distribution
Amount.......................... S-8, S-37
1934 Act.......................... S-2
Additional Balances............... S-3
Agreement......................... S-3
ALTA.............................. S-20
Alternative Documentation
Program......................... S-20
Alternative Principal Payment..... S-10, S-39
Assignment Event.................. S-33
Bankruptcy Rate................... S-22
beneficial owner.................. S-30
BIF............................... S-35
Book-Entry Certificates........... S-29
Business Day...................... S-37, S-41
Cede.............................. S-7
CEDEL............................. S-7
CEDEL Participants................ S-31
Certificate Insurer............... S-11, S-17
Certificate Owners................ S-7, S-29
Certificate Principal Balance..... S-4, S-29
Certificate Rate.................. S-3, S-9, S-38
Certificateholder................. S-30, S-52
Certificates...................... S-1, S-3
Chase............................. S-7
Citibank.......................... S-7
Closing Date...................... S-1, S-10, S-38
Code.............................. S-49
Collection Account................ S-9, S-35
Collection Period................. S-9, S-38
Combined Loan-to-Value Ratio...... S-6
Cooperative....................... S-31
Countrywide....................... S-1, S-3, S-19
Credit Limit...................... S-6
Credit Limit Utilization Rate..... S-22
Credit Line Agreements............ S-3, S-22
Cut-off Date...................... S-1, S-3
Cut-off Date Pool Balance......... S-3
Cut-off Date Principal Balance.... S-3
debt-to-income ratio.............. S-20
Defective Mortgage Loans.......... S-34
Definitive Certificate............ S-30
Depositor......................... S-3
Determination Date................ S-12, S-35
Dissolution Distribution Date..... S-40
Distribution Date................. S-1, S-9, S-37
Draw Period....................... S-23
DTC............................... S-7, S-29, S-56
Due Date.......................... S-6
Eligible Account.................. S-35
Eligible Substitute Mortgage
Loan............................ S-33
<CAPTION>
PAGE
----------------
<S> <C>
ERISA............................. S-13, S-51
Euroclear......................... S-7
Euroclear Operator................ S-31
Euroclear Participants............ S-31
European Depositaries............. S-8, S-29
Exchange Act...................... S-18
Events of Servicing Termination... S-45
Exemption......................... S-52
FHLMC............................. S-20
Financial Intermediary............ S-30
Financial Security................ S-17
Fixed Allocation Percentage....... S-9
Foreclosure Rate.................. S-22
FNMA.............................. S-20
Global Securities................. S-56
Guaranteed Distributions.......... S-11, S-41
Guaranteed Principal Distribution
Amount.......................... S-11, S-41
Holdings.......................... S-2, S-17
Index............................. S-23
Index Rate........................ S-23
Indirect Participants............. S-30
Insurance Agreement............... S-11, S-40
Interest Collections.............. S-8, S-36
Interest Period................... S-10, S-38
Invested Amount................... S-4, S-29
Investor Fixed Allocation
Percentage...................... S-9
Investor Floating Allocation
Percentage...................... S-8, S-36
Investor Interest Collections..... S-8, S-36
Investor Loss Amount.............. S-9, S-38
Investor Principal Collections.... S-9, S-36
IRS............................... S-49
Lehman Brothers................... S-52, S-53
LIBOR............................. S-10
LIBOR Business Day................ S-38
Liquidated Mortgage Loan.......... S-38
Liquidation Loss Amount........... S-9, S-38
Liquidation Proceeds.............. S-37
Loan Rate......................... S-6, S-23
Managed Amortization Period....... S-10, S-39
Margin............................ S-23
Master Servicer................... S-3
Maximum Principal Payment......... S-10, S-39
Maximum Rate...................... S-22
Minimum Transferor Interest....... S-5, S-34
Money Rates....................... S-6, S-23
Mortgage Files.................... S-33
Mortgage Loan Schedule............ S-4, S-33, S-35
Mortgage Loans.................... S-1, S-3
Mortgaged Properties.............. S-3
</TABLE>
S-54
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----------------
<S> <C>
Moody's........................... S-11
Net Liquidation Proceeds.......... S-8, S-37
OID............................... S-49
OID Regulations................... S-49
Order............................. S-41
Original Certificate Principal
Balance......................... S-4, S-29
Original Invested Amount.......... S-4, S-29
Overcollateralization Amount...... S-9
Participants...................... S-30
Paying Agent...................... S-39
Percentage Interest............... S-7
Plan.............................. S-13
Policy............................ S-1, S-3
Pool Balance...................... S-3, S-36
Pool Factor....................... S-28
Principal Balance................. S-3
Principal Collections............. S-8, S-36
Purchase Agreement................ S-6
Rapid Amortization Event.......... S-39
Rating Agency..................... S-14
Receipt........................... S-41
Received.......................... S-41
Record Date....................... S-37
Reduced Documentation Program..... S-20
Reference Bank Rate............... S-38
Related Documents................. S-33
Relevant Depositary............... S-29
Repayment Period.................. S-23
Required Overcollateralization
Amount.......................... S-38
<CAPTION>
PAGE
----------------
<S> <C>
Restricted Group.................. S-52
Rules............................. S-30
SAIF.............................. S-35
Scheduled Principal Collections
Distribution Amount............. S-10, S-39
Seller............................ S-3
Servicing Fee..................... S-12
Servicing Fee Rate................ S-12, S-44
SMMEA............................. S-13, S-52
Spread Account.................... S-11, S-41
Standard & Poor's................. S-11
Statistic Calculation Date........ S-5
Statistic Calculation Date
Principal Balance............... S-5
Statistic Calculation Pool........ S-5
Statistic Calculation Pool
Mortgage Loan................... S-5
Tax Counsel....................... S-49
Telerate Screen Page 3750......... S-38
Terms and Conditions.............. S-31
Transfer Date..................... S-34
Transfer Deficiency............... S-33
Transfer Deposit Amount........... S-33
Transferor........................ S-4
Transferor Interest............... S-1, S-4, S-29
Transferor Principal Collections.. S-9, S-36
Trust Fund........................ S-1, S-3
Trustee........................... S-3, S-13
Underwriters...................... S-53
Underwriting Agreement............ S-53
U.S. Person....................... S-58
</TABLE>
S-55
<PAGE>
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Revolving
Home Equity Loan Asset Backed Certificates, Series 1996-A (the 'Global
Securities') will be available only in book-entry form. Investors in the Global
Securities may hold such Global Securities through any of The Depository Trust
Company ('DTC'), CEDEL or Euroclear. The Global Securities will be tradeable as
home market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through CEDEL and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional Eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations and prior revolving home equity loan asset
backed certificate issues.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of CEDEL and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, CEDEL and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to other home equity loan asset backed
certificate issues. Investor securities custody accounts will be credited with
their holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional Eurobonds, except that there will be no temporary global security
and no 'lock-up' or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior revolving
home equity loan asset backed certificate issues in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional Eurobonds in same-day funds.
Trading between DTC Seller and CEDEL or Euroclear Purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a CEDEL Participant or a Euroclear Participant, the purchaser will
send instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. CEDEL or Euroclear
will instruct the respective Depositary, as the case may be, to receive the
Global Securities against payment. Payment will include interest accrued on the
Global Securities from and including the last coupon payment date to and
S-56
<PAGE>
<PAGE>
excluding the settlement date, on the basis of the actual number of days in such
accrual period and a year assumed to consist of 360 days. For transactions
settling on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. Payment will then be made by the
respective Depositary of the DTC Participant's account against delivery of the
Global Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the CEDEL Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debt will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the CEDEL or Euroclear cash debt
will be valued instead as of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within CEDEL or Euroclear. Under this approach,
they may take on credit exposure to CEDEL or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL Participants or Euroclear Participants can elect not to preposition
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, CEDEL Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each CEDEL Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective European Depositary for the benefit of CEDEL Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller on
the settlement date. Thus, to the DTC Participants a cross-market transaction
will settle no differently than a trade between two DTC Participants.
Trading between CEDEL or Euroclear Seller and DTC Purchaser. Due to time
zone differences in their favor, CEDEL Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to CEDEL or Euroclear through a CEDEL Participant or Euroclear Participant at
least one business day prior to settlement. In these cases CEDEL or Euroclear
will instruct the respective Depositary, as appropriate, to deliver the Global
Securities to the DTC Participant's account against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment to and excluding the settlement date on the basis of the actual
number of days in such accrual period and a year assumed to consist of 360 days.
For transactions settling on the 31st of the month, payment will include
interest accrued to and excluding the first day of the following month. The
payment will then be reflected in the account of the CEDEL Participant or
Euroclear Participant the following day, and receipt of the cash proceeds in the
CEDEL Participant's or Euroclear Participant's account would be back-valued to
the value date (which would be the preceding day, when settlement occurred in
New York). Should the CEDEL Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect to be in debt in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft incurred over that one-day period. If settlement
is not completed on the intended value date (i.e., the trade fails), receipt of
the cash proceeds in the CEDEL Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase Global
Securities from DTC Participants for delivery to CEDEL Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the
purchase side of the day trade is reflected in their CEDEL or Euroclear
accounts) in accordance with the clearing system's customary procedures;
S-57
<PAGE>
<PAGE>
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their CEDEL or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the CEDEL Participant
or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through CEDEL or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form 1001). Non-U.S. Persons that are Certificate Owners residing in a country
that has a tax treaty with the United States can obtain an exemption or reduced
tax rate (depending on the treaty terms) by filing Form 1001 (Ownership,
Exemption or Reduced Rate Certificate). If the treaty provides only for a
reduced rate, withholding tax will be imposed at that rate unless the filer
alternatively files Form W-8. Form 1001 may be filed by the Certificate Owners
or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
The term 'U.S. Person' means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, or an estate
whose income is subject to U.S. federal income tax regardless of its source of
income, or a trust if a court within the United States is able to exercise
primary supervision of the administration of the trust and one or more United
States fiduciaries have the authority to control all substantial decisions of
the trust. This summary does not deal with all aspects of U.S. federal income
tax withholding that may be relevant to foreign holders of the Global
Securities. Investors are advised to consult their own tax advisors for specific
tax advice concerning their holding and disposing of the Global Securities.
S-58
<PAGE>
<PAGE>
_____________________________ _____________________________
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH THEY RELATE OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THEIR RESPECTIVE DATES.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Summary................................. S-3
Risk Factors............................ S-15
The Certificate Insurer................. S-17
The Master Servicer..................... S-19
The Home Equity Loan Program............ S-19
Description of the Mortgage Loans....... S-22
Maturity and Prepayment
Considerations........................ S-27
Pool Factor and Trading Information..... S-28
Description of the Certificates......... S-28
Description of the Purchase Agreement... S-48
Use of Proceeds......................... S-48
Federal Income Tax Consequences......... S-49
State Taxes............................. S-51
ERISA Considerations.................... S-51
Legal Investment Considerations......... S-52
Underwriting............................ S-53
Legal Matters........................... S-53
Experts................................. S-53
Ratings................................. S-53
Index of Defined Terms.................. S-54
Annex I................................. S-56
PROSPECTUS
Prospectus Supplement or Current Report
on Form 8-K........................... 3
Available Information................... 3
Incorporation of Certain Documents by
Reference............................. 3
Reports to Securityholders.............. 4
Summary of Terms........................ 5
Risk Factors............................ 14
The Trust Fund.......................... 20
Use of Proceeds......................... 24
The Depositor........................... 24
Loan Program............................ 24
Description of the Securities........... 27
Credit Enhancement...................... 39
Yield and Prepayment Considerations..... 44
The Agreements.......................... 46
Certain Legal Aspects of the Loans...... 58
Federal Income Tax Consequences......... 71
State Tax Considerations................ 89
ERISA Considerations.................... 89
Legal Investment........................ 92
Method of Distribution.................. 93
Legal Matters........................... 94
Financial Information................... 94
Ratings................................. 94
Index of Defined Terms.................. 95
</TABLE>
$246,033,118
(APPROXIMATE)
COUNTRYWIDE HOME EQUITY LOAN TRUST 1996-A
CWABS, INC.
DEPOSITOR
[LOGO]
SELLER AND MASTER SERVICER
REVOLVING HOME
EQUITY LOAN ASSET
BACKED CERTIFICATES,
SERIES 1996-A
-----------------------------------------
PROSPECTUS SUPPLEMENT
-----------------------------------------
LEHMAN BROTHERS
COUNTRYWIDE SECURITIES CORPORATION
NOVEMBER , 1996
_____________________________ _____________________________
<PAGE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation, or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED NOVEMBER 5, 1996
PROSPECTUS SUPPLEMENT
(To Prospectus dated ______________, 199__)
$__________________
(Approximate)
Home Equity Loan Asset Backed Certificates, Series 199_-_
CWABS, Inc.
Depositor
[Countrywide Home Loans, Inc.]
Seller and Master Servicer
Each Home Equity Loan Asset Backed Certificate, Series 199_-_
(collectively, the "Certificates") will represent an undivided interest in the
[Countrywide] Home Equity Loan Trust 199_-_ (the "Trust Fund") to be formed
pursuant to a Pooling and Servicing Agreement among [Countrywide Home Loans,
Inc. ("Countrywide")], as Seller and Master Servicer, CWABS, Inc., as Depositor,
and [ ], as Trustee. The property of the Trust Fund will include a pool of
[adjustable rate] home equity revolving credit line loans made or to be made in
the future (the "Mortgage Loans") under certain home equity revolving credit
line loan agreements. The Mortgage Loans are secured by either first and second
deeds of trust or mortgages on one- to four-family residential properties. See
"Index of Defined Terms" on Page S-56 of this Prospectus Supplement and on Page
98 of the Prospectus for the location of the definitions of certain capitalized
terms.
The aggregate undivided interest in the Trust Fund represented by the
Certificates will, as of ____________, 199_ (the "Cut-off Date"), represent
approximately __% of the outstanding principal balances of the Mortgage Loans.
The remaining undivided interest in the Trust Fund not represented by the
Certificates (the "Transferor Interest") will initially be equal to
$_________________, which as of the Cut-off Date is _% of the outstanding
principal balances of the Mortgage Loans. Only the Certificates are offered
hereby.
Distributions of principal and interest on the Certificates will be made on
the __________th day of each month or, if such date is not a Business Day, then
on the succeeding Business Day (each, a "Distribution Date"), commencing
___________, 199_. On each Distribution Date, holders of the Certificates will
be entitled to receive, from and to the limited extent of funds available in the
Collection Account (as defined herein), distributions with respect to interest
and principal calculated as set forth under "Summary--Interest,"
"Summary--Principal Payments from Principal Collections" and "Description of the
Certificates--Distributions on the Certificates" herein. The Certificates are
not guaranteed by the Depositor, [Countrywide] or any affiliate thereof.
[However, the Certificates will be unconditionally and irrevocably guaranteed as
to the payment of the Guaranteed Distributions (as defined herein) on each
Distribution Date pursuant to the terms of a financial guaranty insurance policy
(the "Policy") to be issued by
[INSURER]
There is currently no market for the Certificates offered hereby and there
can be no assurance that such a market will develop or if it does develop that
it will continue. See "Risk Factors" herein and in the Prospectus.
----------------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER
"RISK FACTORS" ON PAGE S-16 HEREIN AND ON PAGE 12 IN THE
ACCOMPANYING PROSPECTUS.
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST FUND ONLY AND DO
NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR,
[COUNTRYWIDE], THE TRUSTEE OR ANY AFFILIATE THEREOF,
EXCEPT TO THE EXTENT PROVIDED HEREIN. NEITHER
THE CERTIFICATES NOR THE MORTGAGE LOANS ARE
INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==========================================================================================================================
Price to Underwriting Proceeds to
Public (1) Discount(2) the Depositor(3)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Certificate..................................................... % % %
- --------------------------------------------------------------------------------------------------------------------------
Total............................................................... $ $ $
==========================================================================================================================
</TABLE>
(1) Plus accrued interest, if any, from _______________, 199_.
(2) The Depositor has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933.
(3) Before deducting expenses, estimated to be $_______________.
----------------------
The Certificates are offered subject to prior sale and subject to the
Underwriter's right to reject orders in whole or in part. It is expected that
delivery of the Certificates will be made in book-entry form only through the
facilities of The Depository Trust Company, CEDEL S.A. and the Euroclear System
on or about ______________, 199_ (the "Closing Date"). The Certificates will be
offered in Europe and the United States of America.
----------------------
[UNDERWRITER]
_____________, 199_
<PAGE>
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER 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 Certificates, whether or not participating in this
distribution, may be required to deliver a Prospectus Supplement and Prospectus.
This is in addition to the obligation of dealers acting as underwriters to
deliver a Prospectus Supplement and Prospectus with respect to their unsold
allotments or subscriptions.
----------------------
The Certificates offered hereby constitute part of a separate series of
Home Equity Loan Asset Backed Certificates being offered by CWABS, Inc. from
time to time pursuant to its Prospectus dated _______________, 199__. This
Prospectus Supplement does not contain complete information about the offering
of the Certificates. Additional information is contained in the Prospectus and
investors are urged to read both this Prospectus Supplement and the Prospectus
in full. Sales of the Certificates may not be consummated unless the purchaser
has received both this Prospectus Supplement and the Prospectus.
The Trustee on behalf of any 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 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 _____________, telephone:_________, facsimile
number:_____________, attention:__________.
S-2
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY
The following summary of certain pertinent information is qualified in its
entirety by reference to the detailed information appearing elsewhere in this
Prospectus Supplement and the accompanying Prospectus. Certain capitalized terms
used in the Summary are defined elsewhere in the Prospectus Supplement or in the
Prospectus. See "Index of Defined Terms" on Page S-56 of this Prospectus
Supplement and on Page 98 of the Prospectus for the location of the definitions
of certain capitalized terms.
Trust Fund.................. [Countrywide] Home Equity Loan Trust 199_-_ (the
"Trust Fund") will be formed pursuant to a pooling
and servicing agreement (the "Agreement") to be
dated as of ______________, 199_ (the "Cut-off
Date") among [Countrywide Home Loans, Inc.
("Countrywide")], as seller and servicer (together
with any successor in such capacity, the "Seller"
and the "Master Servicer", respectively), CWABS,
Inc., as depositor (the "Depositor"), and [ ], as
trustee (the "Trustee"). The property of the Trust
Fund will include: a pool of [adjustable rate]
home equity revolving credit line loans made or to
be made in the future (the "Mortgage Loans"),
under certain home equity revolving credit line
loan agreements (the "Credit Line Agreements") and
secured by either first or second mortgages on
residential properties that are one- to
four-family properties (the "Mortgaged
Properties"); the collections in respect of the
Mortgage Loans received after the Cut-off Date
(exclusive of payments in respect of accrued
interest due on or prior to the Cut-off Date or
due in the month of _____________); property that
secured a Mortgage Loan which has been acquired by
foreclosure or deed in lieu of foreclosure; an
irrevocable and unconditional limited financial
guaranty insurance policy (the "Policy"); an
assignment of the Depositor's rights under the
Purchase Agreement (as defined herein); rights
under certain hazard insurance policies covering
the Mortgaged Properties; and certain other
property, as described more fully under
"Description of the Certificates--General" herein.
The Trust Fund property will include the unpaid
principal balance of each Mortgage Loan as of the
Cut-off Date (the "Cut-off Date Principal
Balance") plus any additions thereto as a result
of new advances made pursuant to the applicable
Credit Line Agreement (the "Additional Balances")
during the life of the Trust Fund. With respect to
any date, the "Pool Balance" will be equal to the
aggregate of the Principal Balances of all
Mortgage Loans as of such date. The aggregate
Cut-off Date Principal Balance of the Mortgage
Loans is $____________________ (the "Cut-off Date
Pool Balance"). The "Principal Balance" of a
Mortgage Loan (other than a Liquidated Mortgage
Loan) on any day is equal to its Cut-off Date
Principal Balance, plus (i) any Additional
Balances in respect of such Mortgage Loan, minus
(ii) all collections credited against the
Principal Balance of such Mortgage Loan in
accordance with the related Credit Line Agreement
prior to
- --------------------------------------------------------------------------------
S-3
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
such day. The Principal Balance of a Liquidated
Mortgage Loan (as defined herein) after final
recovery of related Liquidation Proceeds (as
defined herein) shall be zero.
Securities Offered.......... Each of the Home Equity Loan Asset Backed
Certificates, Series 199_-_ offered hereby (the
"Certificates") represents an undivided interest
in the Trust Fund. Each Certificate represents the
right to receive payments of interest at the
variable rate described below (the "Certificate
Rate"), payable monthly, and payments of principal
at such time and to the extent provided herein
under "Description of the Certificates --
Distributions on the Certificates". The aggregate
undivided interest in the Trust Fund represented
by the Certificates as of the Closing Date will
equal $__________________ (the "Original Invested
Amount"), which represents __% of the Cut- off
Date Pool Balance. The "Original Certificate
Principal Balance" will equal $__________________.
Following the Closing Date, the "Invested Amount"
with respect to any date will be an amount equal
to the Original Invested Amount minus (i) the
amount of Investor Principal Collections (as
defined herein) previously distributed to
Certificateholders, and minus (ii) an amount equal
to the product of the Investor Floating Allocation
Percentage and the Liquidation Loss Amounts (each
as defined herein). The Transferor (as described
below) will own the remaining undivided interest
(the "Transferor Interest") in the Mortgage Loans,
which is equal to the Pool Balance minus the
Invested Amount and will initially equal
approximately __% of the Cut-off Date Pool
Balance. The Transferor (the "Transferor") as of
any date is the owner of the Transferor Interest
which initially will be [Countrywide].
The Certificates will be issued pursuant to the
Agreement. The principal amount of the outstanding
Certificates (the "Certificate Principal Balance")
on any date is equal to the Original Certificate
Principal Balance minus the aggregate of amounts
actually distributed as principal to the
Certificateholders. See "Description of the
Certificates" herein.
Removal of Certain
Mortgage Loans;
Additional Balances......... In order to permit the Transferor to remove
Mortgage Loans from the Trust Fund at such times,
if any, as the overcollateralization exceeds the
level required to maintain the ratings on the
Certificates, on any Distribution Date the
Transferor may, but shall not be obligated to,
remove from the Trust Fund certain Mortgage Loans
without notice to the Certificateholders. The
Transferor is permitted to designate the Mortgage
Loans to be removed. Mortgage Loans so designated
will only be removed upon satisfaction of the
following conditions (i) No Rapid Amortization
Event (as defined herein) has occurred; (ii) the
Transferor Interest as of the
- --------------------------------------------------------------------------------
S-4
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Transfer Date (as defined herein) (after giving
effect to such removal) exceeds the Minimum
Transferor Interest (as defined below); (iii) the
transfer of any Mortgage Loans on any Transfer
Date during the Managed Amortization Period (as
defined herein) shall not, in the reasonable
belief of the Transferor, cause a Rapid
Amortization Event to occur or an event which with
notice or lapse of time or both would constitute a
Rapid Amortization Event; (iv) the Transferor
shall have delivered to the Trustee a "Mortgage
Loan Schedule" containing a list of all Mortgage
Loans remaining in the Trust Fund after such
removal; (v) the Transferor shall represent and
warrant that no selection procedures which are
adverse to the interests of the Certificateholders
or the Certificate Insurer were used by the
Transferor in selecting such Mortgage Loans; (vi)
in connection with the first such retransfer of
Mortgage Loans, the Rating Agencies (as defined
herein) shall have been notified of the proposed
transfer and prior to the Transfer Date shall not
have notified the Transferor in writing that such
transfer would result in a reduction or withdrawal
of the ratings assigned to the Certificates
without regard to the Policy; and (vii) the
Transferor shall have delivered to the Trustee and
the Certificate Insurer an officer's certificate
confirming the conditions set forth in clauses (i)
through (vi) above. See "Description of the
Certificates--Optional Transfers of Mortgage Loans
to the Transferor" herein.
The "Minimum Transferor Interest" as of any date
is an amount equal to the lesser of (a) __% of the
Pool Balance on such date and (b) the Transferor
Interest as of the Closing Date.
During the term of the Trust Fund, all Additional
Balances will be transferred to and become
property of the Trust Fund. The Pool Balance at
any time will generally fluctuate from day to day
because the amount of Additional Balances and the
amount of principal payments with respect to the
Mortgage Loans will usually differ from day to
day. Because the Transferor Interest is equal to
the Pool Balance minus the Invested Amount, the
amount of the Transferor Interest will fluctuate
from day to day as draws are made with respect to
the Mortgage Loans and as Principal Collections
are received.
The Mortgage Loans.......... The Mortgage Loans are secured by first and second
mortgages on Mortgaged Properties located in ___
states. On the Closing Date, [Countrywide] will
sell the Mortgage Loans to the Depositor, pursuant
to a purchase agreement (the "Purchase
Agreement").
The percentage of the Cut-off Date Principal
Balance of the Mortgage Loans secured by Mortgaged
Properties located in the states of __________,
________, __________, _______, ______ and ________
is approximately ____%, ____%, ____%, ____%, ____%
and ____%, respectively. The
- --------------------------------------------------------------------------------
S-5
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
"Combined Loan-to-Value Ratio" of each Mortgage
Loan is the ratio of (A) the sum of (i) the
maximum amount the borrower was permitted to draw
down under the related Credit Line Agreement (the
"Credit Limit") and (ii) the amounts of any
related senior mortgage loans (computed as of the
date of origination of each such Mortgage Loans)
to (B) the lesser of (i) the appraised value of
the Mortgaged Property or (ii) in the case of a
Mortgaged Property purchased within one year of
the origination of the related Mortgage Loan, the
purchase price of such Mortgaged Property. As of
the Cut-off Date the Combined Loan-to-Value Ratios
ranged from ____% to ______% and, as of the
Cut-off Date, the weighted average Combined
Loan-to-Value Ratio of the Mortgage Loans was
approximately ____%.
[Interest on each Mortgage Loan is payable monthly
and computed on the related daily outstanding
Principal Balance for each day in the billing
cycle at a variable rate per annum (the "Loan
Rate") equal at any time (subject to maximum
rates, as described herein under "Description of
the Mortgage Loans--Mortgage Loan Terms," and
further subject to applicable usury limitations)
to the sum of (i) the highest prime rate published
in the "Money Rates" section of The Wall Street
Journal and (ii) a Margin within the range of
____% to ____%]. As of the Cut-off Date, the
weighted average Margin was approximately ____%.
Loan Rates are adjusted monthly on the first
business day of the calendar month preceding the
Due Date. As to each Mortgage Loan, the "Due Date"
is the fifteenth day of each month. The Cut-off
Date Principal Balances ranged from zero to
$__________ and averaged approximately
$__________. Credit Limits under the Mortgage
Loans as of the Cut-off Date ranged from
$__________ to $__________ and averaged
approximately $__________. Each Mortgage Loan was
originated in the period from _______________,
199_ to ________________, 199_. As of the Cut-off
Date, the maximum Credit Limit Utilization Rate
(as defined herein) was 100% and the weighted
average Credit Limit Utilization Rate was
approximately ____%. As of the Cut-off Date,
approximately ____% by Cut-off Date Principal
Balance of the Mortgage Loans represented first
liens on the related Mortgaged Properties, while
approximately ____% of the Mortgage Loans
represented second liens. As of the Cut-off Date,
the Mortgage Loans had remaining terms to
scheduled maturity ranging from ___ months to ___
months and had a weighted average of approximately
___ months. See "Description of the Mortgage
Loans" herein.
Denominations.............. The Certificates will be offered for purchase in
denominations of $1,000 and multiples of $1 in
excess thereof. The interest in the Trust Fund
evidenced by a Certificate (the "Percentage
Interest") will be equal to the percentage derived
by dividing
- --------------------------------------------------------------------------------
S-6
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
the denomination of such Certificate by the
Original Certificate Principal Balance.
Registration of
Certificates................ The Certificates will initially be issued in
book-entry form. Persons acquiring beneficial
ownership interests in the Certificates
("Certificate Owners") may elect to hold their
Certificate interests through The Depository Trust
Company ("DTC"), in the United States, or Centrale
de Livraison de Valeurs Mobilieres S.A. ("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 Certificates are Book-Entry
Certificates (as defined herein), 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 Certificates will
initially be registered in the name of Cede. The
interests of the 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
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 Certificates are held by DTC.
See "Risk Factors--Book-Entry Certificates",
"Description of the Certificates--Book-Entry
Certificates" herein and "Annex I" hereto.
Depositor.................. CWABS, Inc., a Delaware corporation and a limited
purpose finance subsidiary of Countrywide Credit
Industries, Inc., a Delaware corporation. The
principal executive offices of the Depositor are
located at 155 North Lake Avenue, Pasadena,
California 91101 (Telephone: (818) 584-2212). See
"The Depositor" in the Prospectus.
Master Servicer of the
Mortgage Loans............. [Countrywide Home Loans, Inc.,a New York
corporation headquartered in Pasadena, California.
The principal executive offices of the Master
Servicer are located at 155 North Lake Avenue,
Pasadena, California 91101 (Telephone: (818)
- --------------------------------------------------------------------------------
S-7
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
304-8400).] See "Servicing of the Mortgage
Loans--The Master Servicer" herein.
Collections................ All collections on the Mortgage Loans will
generally be allocated in accordance with the
Credit Line Agreements between amounts collected
in respect of interest and amounts collected in
respect of principal. As to any Distribution Date,
"Interest Collections" will be equal to the
amounts collected during the related Collection
Period, including the portion of Net Liquidation
Proceeds (as defined below) allocated to interest
pursuant to the terms of the Credit Line
Agreements less Servicing Fees for the related
Collection Period.
As to any Distribution Date, "Principal
Collections" will be equal to the sum of (i) the
amounts collected during the related Collection
Period, including the portion of Net Liquidation
Proceeds allocated to principal pursuant to the
terms of the Credit Line Agreements and (ii) any
Transfer Deposit Amounts (as defined herein).
"Net Liquidation Proceeds" with respect to a
Mortgage Loan are the proceeds (excluding amounts
drawn on the Policy) received in connection with
the liquidation of any Mortgage Loan, whether
through trustee's sale, foreclosure sale or
otherwise, reduced by related expenses, but not
including the portion, if any, of such amount that
exceeds the Principal Balance of the Mortgage Loan
plus any accrued and unpaid interest thereon to
the end of the Collection Period during which such
Mortgage Loan became a Liquidated Mortgage Loan.
With respect to any Distribution Date, the portion
of Interest Collections allocable to the
Certificates ("Investor Interest Collections")
will equal the product of (a) Interest Collections
for such Distribution Date and (b) the Investor
Floating Allocation Percentage. With respect to
any Distribution Date, the "Investor Floating
Allocation Percentage" is the percentage
equivalent of a fraction determined by dividing
the Invested Amount at the close of business on
the preceding Distribution Date (or at the Closing
Date in the case of the first Distribution Date)
by the Pool Balance at the beginning of the
related Collection Period. The remaining amount of
Interest Collections will be allocated to the
Transferor Interest as more fully described under
"Description of the Certificates--Allocations and
Collections" herein.
On each Distribution Date, the Investor Interest
Collections will be applied in the following order
of priority: (i) as payment to the Trustee for its
fee for services rendered pursuant to the
Agreement; (ii) as payment for the premium for the
Policy; (iii) as payment for the accrued interest
due and any overdue accrued interest (with
interest thereon) on the Certificate
- --------------------------------------------------------------------------------
S-8
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Principal Balance of the Certificates; (iv) to pay
any Investor Loss Amount (as defined herein) for
such Distribution Date; (v) as payment for any
Investor Loss Amount for a previous Distribution
Date that was not previously (a) funded by
Investor Interest Collections allocable to the
Certificateholders, (b) absorbed by the
Overcollateralization Amount, (c) funded by
amounts on deposit in the Spread Account or (d)
funded by draws on the Policy; (vi) to reimburse
prior draws made from the Policy (with interest
thereon); (vii) to pay principal on the
Certificates until the Invested Amount exceeds the
Certificate Principal Balance by the Required
Overcollateralization Amount, each as defined
herein (such amount, if any, paid pursuant to this
clause (vii) being referred to herein as the
"Accelerated Principal Distribution Amount");
(viii) any other amounts required to be deposited
in an account for the benefit of the Certificate
Insurer and Certificateholders pursuant to the
Agreement or amounts owed to the Certificate
Insurer pursuant to the Insurance Agreement; (ix)
certain amounts that may be required to be paid to
the Master Servicer pursuant to the Agreement; and
(x) to the Transferor to the extent permitted as
described under "Description of the
Certificates--Distributions on the Certificates"
herein.
Investor Interest Collections available after the
payment of interest on the Certificates may be
insufficient to cover any Investor Loss Amount. If
such insufficiency results in the Certificate
Principal Balance exceeding the Invested Amount, a
draw in an amount equal to such difference will be
made on the Policy in accordance with the terms of
the Policy.
The "Overcollateralization Amount" on any date of
determination is the amount, if any, by which the
Invested Amount exceeds the Certificate Principal
Balance on such day. Payments to
Certificateholders pursuant to clause (iii) above
will be interest payments on the Certificates.
Payments to Certificateholders pursuant to clauses
(iv), (v) and (vii) will be principal payments on
the Certificates and will therefore reduce the
Certificate Principal Balance, however, payments
pursuant to clause (vii) will not reduce the
Invested Amount. The Accelerated Principal
Distribution Amount is not guaranteed by the
Policy.
"Liquidation Loss Amount" means with respect to
any Liquidated Mortgage Loan, the unrecovered
Principal Balance thereof at the end of the
related Collection Period in which such Mortgage
Loan became a Liquidated Mortgage Loan, after
giving effect to the Net Liquidation Proceeds in
connection therewith. The "Investor Loss Amount"
shall be the product of the Investor Floating
Allocation Percentage and the Liquidation Loss
Amount for such Distribution Date. See
"Description of the Certificates--Distributions on
the Certificates" herein.
- --------------------------------------------------------------------------------
S-9
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Principal Collections will be allocated between
the Certificateholders and the Transferor
("Investor Principal Collections" and "Transferor
Principal Collections", respectively) in
accordance with their percentage interests in the
Mortgage Loans of __% and __%, respectively, as of
the Cut-off Date (the "Fixed Allocation
Percentage"), but a lesser amount of Principal
Collections may be distributed to
Certificateholders during the Managed Amortization
Period, as described below. The "Investor Fixed
Allocation Percentage" shall be __%.
The Master Servicer will deposit Interest
Collections and Principal Collections in respect
of the Mortgage Loans in an account established
for such purpose under the Agreement (the
"Collection Account"). See "Description of the
Certificates--Payments on Mortgage Loans; Deposits
to Collection Account" herein.
Collection Period.......... As to any Distribution Date other than the first
Distribution Date, the "Collection Period" is the
calendar month preceding the month of such
Distribution Date. As to the first Distribution
Date, the "Collection Period" is the period
beginning after the Cut-off Date and ending on the
last day of _____________, 199_.
Interest................... Interest on the Certificates will be distributed
monthly on the fifteenth day of each month or, if
such day is not a Business Day, then the next
succeeding Business Day (each, a "Distribution
Date"), commencing on ______________, 199_, at the
Certificate Rate for the related Interest Period
(as defined below). The "Certificate Rate" for an
Interest Period will generally equal the sum of
[(a) the London Interbank offered rate for
one-month Eurodollar deposits ("LIBOR") appearing
on the Telerate Screen Page 3750, as of the second
LIBOR Business Day (as defined herein) prior to
the first day of such Interest Period (or as of
two LIBOR Business Days prior to the Closing Date,
in the case of the first Interest Period) and (b)
____%.] Notwithstanding the foregoing, in no event
will the amount of interest required to be
distributed in respect of the Certificates on any
Distribution Date exceed a rate equal to the
weighted average of the Loan Rates (net of the
Servicing Fee Rate, the fee payable to the Trustee
and the rate at which the premium payable to the
Certificate Insurer is calculated) weighted on the
basis of the daily balance of each Mortgage Loan
during the related billing cycle prior to the
Collection Period relating to such Distribution
Date. Interest on the Certificates in respect of
any Distribution Date will accrue from the
preceding Distribution Date (or in the case of the
first Distribution Date, from the date of the
initial issuance of the Certificates (the "Closing
Date") through the day preceding such Distribution
Date (each such period, an "Interest Period")
- --------------------------------------------------------------------------------
S-10
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
on the basis of the actual number of days in the
Interest Period and a 360-day year.
Interest payments on the Certificates will be
funded from Investor Interest Collections, any
funds on deposit in the Spread Account and from
draws on the Policy. See "Description of the
Certificates" herein.
Principal Payments from
Principal Collections...... For the period beginning on the first Distribution
Date and, unless a Rapid Amortization Event (as
defined herein) shall have earlier occurred,
ending on the Distribution Date in _____________,
200_ (the "Managed Amortization Period"), the
amount of Principal Collections payable to
Certificateholders as of each Distribution Date
during the Managed Amortization Period will equal,
to the extent funds are available therefor, the
Scheduled Principal Collections Distribution
Amount for such Distribution Date. On any
Distribution Date during the Managed Amortization
Period, the "Scheduled Principal Collections
Distribution Amount" shall equal the lesser of (i)
the Maximum Principal Payment (as defined herein)
and (ii) the Alternative Principal Payment (as
defined herein). With respect to any Distribution
Date, the "Maximum Principal Payment" will equal
the product of the Investor Fixed Allocation
Percentage and Principal Collections for such
Distribution Date. With respect to any
Distribution Date, the "Alternative Principal
Payment" will equal the greater of (x) ____% of
the Certificate Principal Balance immediately
prior to such Distribution Date and (y) the
amount, but not less than zero, of Principal
Collections for such Distribution Date less the
aggregate of Additional Balances created during
the related Collection Period.
Beginning with the first Distribution Date
following the end of the Managed Amortization
Period, the amount of Principal Collections
payable to Certificateholders on each Distribution
Date will be equal to the Maximum Principal
Payment. See "Description of the
Certificates--Distributions on the Certificates"
herein.
In addition, to the extent funds are available
therefor (including funds available under the
Policy), on the Distribution Date in _____________
20__, Certificateholders will be entitled to
receive as payment of principal an amount equal to
the outstanding Certificate Principal Balance.
Distributions of Principal Collections based upon
the Investor Fixed Allocation Percentage may
result in distributions of principal to
Certificateholders in amounts that are greater
relative to the declining Pool Balance than would
be the case if the Investor Floating Allocation
Percentage were used to determine the percentage
of Principal Collections distributed in
- --------------------------------------------------------------------------------
S-11
<PAGE>
<PAGE>
respect of the Invested Amount. The aggregate
distributions of principal to Certificateholders
will not exceed the Original Certificate Principal
Balance.
The Certificate Insurer.... [Insurer] (the "Certificate Insurer") is a
insurance company engaged exclusively in the
business of writing financial guaranty insurance,
principally in respect of securities offered in
domestic and foreign markets. The Certificate
Insurer's claims-paying ability is rated ____ by
_________________________________________ and
_____ by ________________________________________.
See "The Certificate Insurer" in this Prospectus
Supplement.
Policy..................... On or before the Closing Date, the Policy will be
issued by the Certificate Insurer pursuant to the
provisions of the Insurance and Indemnity
Agreement (the "Insurance Agreement") to be dated
as of _____________, 199_, among the Seller, the
Depositor, the Master Servicer and the Certificate
Insurer.
The Policy will irrevocably and unconditionally
guarantee payment on each Distribution Date to the
Trustee for the benefit of the Certificateholders
the full and complete payment of (i) the
Guaranteed Principal Distribution Amount (as
defined herein) with respect to the Certificates
for such Distribution Date and (ii) accrued and
unpaid interest due on the Certificates (together,
the "Guaranteed Distributions"), with such
Guaranteed Distributions having been calculated in
accordance with the original terms of the
Certificates or the Agreement except for
amendments or modifications to which the
Certificate Insurer has given its prior written
consent. The effect of the Policy is to guarantee
the timely payment of interest on, and the
ultimate payment of the principal amount of, all
of the Certificates.
The "Guaranteed Principal Distribution Amount" for
any Distribution Date shall be the amount by which
the Certificate Principal Balance (after giving
effect to all other amounts distributable and
allocable to principal on the Certificates on such
Distribution Date) exceeds the Invested Amount for
such Distribution Date. In addition, the Policy
will guarantee the payment of the outstanding
Certificate Principal Balance on the Distribution
Date in ____________, 20__ (after giving effect to
all other amounts distributable and allocable to
principal on such Distribution Date).
In accordance with the Agreement, the Trustee will
be required to establish and maintain an account
(the "Spread Account") for the benefit of the
Certificate Insurer and the Certificateholders.
The Trustee shall deposit the amounts into the
Spread Account as required by the Agreement.
- --------------------------------------------------------------------------------
S-12
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
In the absence of payments under the Policy,
Certificateholders will directly bear the credit
and other risks associated with their undivided
interest in the Trust Fund. See "Description of
the Certificates--The Policy" herein.
Overcollateralization
Amount.................... The distribution of Accelerated Principal
Distribution Amounts, if any, to
Certificateholders may result in the Invested
Amount being greater than the Certificate
Principal Balance, thereby creating the
Overcollateralization Amount. The
Overcollateralization Amount, if any, will be
available to absorb any Investor Loss Amount not
covered by Investor Interest Collections. Payments
of Accelerated Principal Distribution Amounts are
not covered by the Policy. Any Investor Loss
Amounts not covered by such overcollateralization,
amounts on deposit in the Spread Account or
Investor Interest Collections will be covered by
draws on the Policy to the extent provided
therein.
Record Date............... The last day preceding a Distribution Date or, if
the Certificates are no longer Book-Entry
Certificates, the last day of the month preceding
a Distribution Date.
Servicing................. The Master Servicer will be responsible for
servicing, managing and making collections on the
Mortgage Loans. The Master Servicer will deposit
all collections in respect of the Mortgage Loans
into the Collection Account as described under
"Description of the Certificates--Payments on
Mortgage Loans; Deposits to Collection Account"
herein. On the third Business Day prior to each
Distribution Date (the "Determination Date"), the
Master Servicer will calculate, and instruct the
Trustee regarding the amounts available to be
paid, as described under "Description of the
Certificates--Payments on Mortgage Loans; Deposits
to Collection Account" herein, to the
Certificateholders on such Distribution Date. See
"Description of the Certificates--Distributions on
the Certificates" herein. With respect to each
Collection Period, the Master Servicer will
receive from collections in respect of interest on
the Mortgage Loans, on behalf of itself, a portion
of such collections as a monthly servicing fee
(the "Servicing Fee") in the amount of
approximately ____% per annum (the "Servicing Fee
Rate") on the aggregate Principal Balances of the
Mortgage Loans as of the first day of each such
Collection Period. See "Description of the
Certificates--Servicing Compensation and Payment
of Expenses" herein. In certain limited
circumstances, the Master Servicer may resign or
be removed, in which event either the Trustee or a
third-party servicer will be appointed as a
successor Master Servicer. See "Description of the
Certificates--Certain Matters Regarding the Master
Servicer and the Transferor" herein.
- --------------------------------------------------------------------------------
S-13
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Final Payment of
Principal; Termination..... The Trust Fund will terminate on the Distribution
Date following the later of (A) payment in full of
all amounts owing to the Certificate Insurer and
(B) the earliest of (i) the Distribution Date on
which the Certificate Principal Balance has been
reduced to zero, (ii) the final payment or other
liquidation of the last Mortgage Loan in the Trust
Fund, (iii) the optional retransfer to the
Transferor of the Certificates, as described below
and (iv) the Distribution Date in ______________,
20__. The Certificates will be subject to optional
retransfer to the Transferor on any Distribution
Date after the Certificate Principal Balance is
reduced to an amount less than or equal to
$________________ (__% of the Original Certificate
Principal Balance) and all amounts due and owing
to the Certificate Insurer and unreimbursed draws
on the Policy, together with interest thereon, as
provided under the Insurance Agreement, have been
paid. The retransfer price will be equal to the
sum of the outstanding Certificate Principal
Balance and accrued and unpaid interest thereon at
the Certificate Rate through the day preceding the
final Distribution Date. See "Description Of The
Certificates--Termination; Retirement of the
Certificates" herein and "The
Agreements--Termination; Optional Termination" in
the Prospectus.
In addition, the Trust Fund may be liquidated as a
result of certain events of bankruptcy, insolvency
or receivership relating to the Transferor. See
"Description of the Certificates--Rapid
Amortization Events" herein.
Trustee.................... [ ], a ____________________________ (the
"Trustee") will act as Trustee on behalf of the
Certificateholders.
Mandatory Retransfer of
Certain Mortgage Loans..... The Seller will make certain representations and
warranties in the Agreement with respect to the
Mortgage Loans. If the Seller breaches certain of
its representations and warranties with respect to
any Mortgage Loan and such breach materially and
adversely affects the interests of the
Certificateholders or the Certificate Insurer and
is not cured within the specified period, the
Mortgage Loan will be removed from the Trust Fund
upon the expiration of a specified period from the
date on which the Seller becomes aware or receives
notice of such breach and will be reassigned to
the Seller. See "Description of the
Certificates--Assignment of Mortgage Loans"
herein.
Federal Income Tax
Consequences............... Subject to the qualifications set forth in
"Federal Income Tax Consequences" herein, special
tax counsel to the Depositor is of the opinion
that, under existing law, a Certificate will be
treated as a debt instrument for federal income
tax purposes as of the Closing Date. Under the
Agreement, the Transferor, the Depositor and the
Certificateholders will agree to treat the
- --------------------------------------------------------------------------------
S-14
<PAGE>
<PAGE>
Certificates as indebtedness for federal income
tax purposes. Furthermore, special tax counsel to
the Depositor is of the opinion that the Trust
Fund will not be treat as either an association
or a publicly traded partnership taxable as a
corporation. See "Federal Income Tax
Consequences" herein and in the Prospectus for
additional information concerning the application
of federal income tax laws.
ERISA Considerations....... The acquisition of a Certificate by a pension or
other employee benefit plan (a "Plan") subject to
the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), 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 the
Certificates. Any Plan fiduciary considering
whether to purchase any Certificate 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
Considerations............. The Certificates will not constitute "mortgage
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA"),
because not all of the Mortgages securing the
Mortgage Loans are first mortgages. Accordingly,
many institutions with legal authority to invest
in comparably rated securities based solely on
first mortgages may not be legally authorized to
invest in the Certificates. See "Legal Investment
Considerations" herein and "Legal Investment" in
the Prospectus.
Certificate Rating......... It is a condition to the issuance of the
Certificates that they be rated "___" by _____ and
"___" by _________ (each a "Rating Agency"). In
general, ratings address credit risk and do not
address the likelihood of prepayments. See
"Ratings" herein and "Risk Factors--Rating of the
Securities" in the Prospectus.
Risk Factors............... For a discussion of certain risks associated with
an investment in the Certificates, see "Risk
Factors" on Page S-16 herein and on page 12 in the
Prospectus.
- --------------------------------------------------------------------------------
S-15
<PAGE>
<PAGE>
RISK FACTORS
Investors should consider the following risks in connection with the
purchase of Certificates.
Consequences of Owning Book-Entry Certificates. Issuance of the
Certificates in book-entry form may reduce the liquidity of such Certificates in
the secondary trading market since investors may be unwilling to purchase
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 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 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 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 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 Certificateholders as such term is used in the Agreement, and
Certificate Owners will be permitted to exercise the rights of Certificate-
holders 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. Minimum monthly payments on the
Mortgage Loans will at least equal and may exceed accrued interest. 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 that are delinquent and resulting shortfalls in
distributions to Certificateholders could occur if the Certificate Insurer were
unable to perform on its obligations under the Policy. Further, liquidation
expenses (such as legal fees, real estate taxes, and maintenance and
preservation expenses) will reduce the proceeds payable to Certificateholders
and thereby reduce the security for the Mortgage Loans. In the event any of the
Mortgaged Properties fail to provide adequate security for the related Mortgage
Loans, Certificateholders could experience a loss if the Certificate Insurer
were unable to perform its obligations under the Policy.
Prepayment Considerations and Risks. Substantially all of the Mortgage
Loans may be prepaid in whole or in part at any time without penalty. Home
equity loans, such as the Mortgage Loans, have been originated in significant
volume only during the past few years and neither the Depositor nor the Master
Servicer is aware of any publicly available studies or statistics on the rate of
prepayment of such loans. Generally, home equity loans are not viewed by
borrowers as permanent financing. Accordingly, the Mortgage Loans may experience
a higher rate of prepayment than traditional loans. 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 "Description of the Certificates" herein and "Certain Legal Aspects of
Loans--Due-on-Sale Clauses" in the Prospectus for a description of certain
provisions of the Credit Line Agreements that may affect the prepayment
experience on the Mortgage Loans. The yield to maturity and weighted average
life of the Certificates will be affected primarily by the rate and timing of
prepayments on the Mortgage Loans. Any reinvestment risks resulting from a
faster or slower incidence of prepayment of Mortgage Loans will be borne
entirely by the Certificateholders. See "Maturity and Prepayment Considerations"
herein and "Yield and Prepayment Considerations" in the Prospectus.
Certificate Rating. The rating of the 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 Certificates may result in a reduction in the
rating of the Certificates. The rating by the Rating Agencies of the
Certificates is not a recommendation to purchase, hold or sell the Certificates,
inasmuch as such rating does not comment as to the
S-16
<PAGE>
<PAGE>
market price or suitability for a particular investor. There is no assurance
that the ratings will remain in place forany 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 Mortgage Loans are secured by
mortgages (which generally are second mortgages). With respect to Mortgage Loans
that are secured by first mortgages, the Master Servicer has the power under
certain circumstances to consent to a new mortgage lien on the Mortgaged
Property having priority over such Mortgage Loan. 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 Policy, the
Certificateholders will bear (i) the risk of delay in distributions while a
deficiency judgment against the borrower is obtained and (ii) the risk of loss
if the deficiency judgment cannot be obtained or is not realized upon. See
"Certain Legal Aspects of the Loans" in the Prospectus.
Legal Considerations -- Security Interest. Under the terms of the
Agreement, so long as [Countrywide's] long-term senior unsecured debt is rated
at least "____" by ___ and "____" by _______, the Master Servicer will be
entitled to maintain possession of the documentation relating to each Mortgage
Loan sold by it, including the Credit Line Agreements and the Related Documents
or other evidence of indebtedness signed by the borrower, and the assignments of
the related mortgages to the Trust Fund will not be required to be recorded.
Failure to deliver the Related Documents to the Trustee will have the result in
most (if not all) of the states in which the Related Documents will be held, and
failure to record the assignments of the related mortgages to the Trustee will
have the result in certain states in which the Mortgaged Properties are located,
of making the sale of the Cut-off Date Principal Balances, Additional Balances
and Related Documents potentially ineffective against (i) any creditors of
[Countrywide], who may have been fraudulently or inadvertently induced to rely
on the Mortgage Loans as assets of [Countrywide], or (ii) any purchaser of a
Mortgage Loan who had no notice of the prior conveyance to the Trust Fund if
such purchaser perfects his interest in the Mortgage Loan by taking possession
of the Related Documents or other evidence of indebtedness or otherwise. In such
event, the Trust Fund would be an unsecured creditor of [Countrywide].
Bankruptcy and Insolvency Risks. The sale of the Mortgage Loans from
[Countrywide] to the Depositor pursuant to the Purchase Agreement will be
treated as a sale of the Mortgage Loans. However, in the event of an insolvency
of [Countrywide], the receiver 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 receiver decided to challenge
such transfer, (i) if the Mortgage Loans have not been delivered to the Trustee,
the interest of the Trust Fund in the Mortgage Loans will be that of an
unperfected security interest and (ii) even if the Mortgage Loans have been
delivered to the Trustee, delays in payments of the Certificates and reductions
in the amounts thereof could occur. The Depositor will warrant in the 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.
If a conservator, receiver or trustee were appointed for the Transferor, or
if certain other events relating to the bankruptcy or insolvency of the
Transferor were to occur, Additional Balances would not be sold to the Trust
Fund. In such an event, the Rapid Amortization Period would commence and the
Trustee would attempt to sell the Mortgage Loans (unless Certificateholders
holding Certificates evidencing undivided interests aggregating at least 51% of
the Certificate Principal Balance instruct otherwise), thereby causing early
payment of the Certificate Principal Balance. The net proceeds of such sale will
first be paid to the Certificate Insurer to the extent of unreimbursed draws
under the Policy and other amounts owing to the Certificate Insurer pursuant to
the Insurance Agreement. The Investor Fixed Allocation Percentage of remaining
amounts will be distributed to the Certificateholders and the Policy will cover
any amount by which such remaining net proceeds are insufficient to pay the
Certificate Principal Balance in full.
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
Certificateholders from appointing a successor Master Servicer.
S-17
<PAGE>
<PAGE>
[Geographic Concentration. As of the Cut-off Date, approximately _____% (by
Cut-off Date Principal Balance) of the Mortgaged Properties are located in the
State of __________. An overall decline in the __________ 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, together with any primary financing on such Mortgaged
Properties, 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 __________ residential real estate market will not weaken. If the
__________ residential real estate market should experience an overall decline
in property values after the dates of origination of the Mortgage Loans, the
rates of losses on the Mortgage Loans would be expected to increase, and could
increase substantially.]
Master Servicer's Ability to Change the Terms of the Mortgage Loans. The
Master Servicer may agree to changes in the terms of a Credit Line Agreement,
provided that such changes (i) do not adversely affect the interest of the
Certificateholders or the Certificate Insurer, and (ii) are consistent with
prudent business practice. There can be no assurance that changes in applicable
law or the marketplace for home equity loans or prudent business practice will
not result in changes in the terms of the Mortgage Loans. In addition, the
Agreement permits the Master Servicer, within certain limitations described
therein, to increase the Credit Limit of the related Mortgage Loan or reduce the
Margin for such Mortgage Loan. Any such increase in the Credit Line of a
Mortgage Loan would increase the Loan-to-Value Ratio of such Mortgage Loan and,
accordingly, would increase the risk of the Trust Fund's investment in such
Mortgage Loan. In addition, any reduction in the Margin of a Mortgage Loan would
reduce the excess cash flow available to absorb losses.
Delinquent Mortgage Loans. The Trust Fund will include Mortgage Loans which
are 89 or fewer days delinquent as of the Cut-off Date. The Cut-off Date
Principal Balance of Mortgage Loans which are between 30 days and 89 days
delinquent as of the Cut-off Date was $_________________. If there are not
sufficient funds from the Investor Interest Collections to cover the Investor
Loss Amounts for any Distribution Date, the Overcollateralization Amount and the
amount on deposit in the Spread Account have been reduced to zero, and the
Certificate Insurer fails to perform its obligations under the Policy, the
aggregate amount of principal returned to the Certificateholders may be less
than the Certificate Principal Balance on the day the Certificates are issued.
For a discussion of additional risks pertaining to the Certificates, see
"Risk Factors" in the Prospectus.
THE CERTIFICATE INSURER
The following information set forth in this section has been provided by
the Certificate Insurer. Accordingly, neither the Depositor nor the Master
Servicer makes any representation as to the accuracy and completeness of such
information.
[Description of Certificate Insurer]
S-18
<PAGE>
<PAGE>
THE MASTER SERVICER
General
[The Master Servicer will service the Mortgage Loans in accordance with the
terms set forth in the Agreement. The Master Servicer may perform any of its
obligations under the 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 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 Master Servicer
for the Mortgage Loans pursuant to the 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. Countrywide
began servicing home equity lines of credit in ________________ 199_.
At ______________, 199_, Countrywide provided servicing for approximately
$____ billion aggregate principal amount of first-lien mortgage loans,
substantially all of which are being serviced for unaffiliated persons. At
___________, 199_, Countrywide provided servicing for approximately $___ million
aggregate principal amount of first and second lien mortgage loans originated
under home equity lines of credit.
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 located throughout the nation.]
THE HOME EQUITY LOAN PROGRAM
Underwriting Procedures Relating to Home Equity Loans
The following is a description of the underwriting procedures customarily
employed by the Seller with respect to home equity 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 the Seller's underwriting guidelines will
be made when compensating factors are present. Such factors include the
borrower's employment stability, credit history, disposable income, equity in
the related property and the nature of the underlying first mortgage loan.
Each applicant for a home equity 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 home equity loan, the Seller
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 debt payments
and any record of delinquencies, defaults, bankruptcy, collateral repossessions,
suits or judgments.
The Seller 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
S-19
<PAGE>
<PAGE>
underwriting and certain credit underwriting documentation concerning income and
employment verification therefore is waived. Mortgage loans underwritten under
the Reduced Documentation Program generally 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 home equity loans which at
origination had a principal balance greater than $100,000. Such appraisals are
determined on the basis of a Seller-approved, independent third-party, fee-based
appraisal completed on forms approved by Federal National Mortgage Association
("FNMA") or Federal Home Loan Mortgage Corporation ("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 home equity loans are $10,000 and
$500,000, respectively. Borrowers may draw under the home equity loans in
minimum amounts of $250 and maximum amounts up to the remaining available credit
thereunder, in each case after giving effect to all prior draws and payments
thereon.
After obtaining all applicable employment, credit and property information,
the Seller 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 home equity 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 plus a margin
of 2%) 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 38%.
Variations in the monthly debt-to-income ratios limits are permitted based on
compensating factors. The Seller currently offers home equity loan products
that allow maximum Combined Loan-to-Value Ratios of 70%, 80%, 90% and 100%.
It is generally the Seller's policy to require a title search before it
makes a home equity loan for amounts less than or equal to $100,000. In
addition, if the home equity loan has an original principal balance of $100,000
or more, the Seller 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 home equity loan is in first lien position.
Servicing of the Mortgage Loans
The Master Servicer has established standard policies for the servicing and
collection of the home equity loans. Servicing includes, but is not limited to,
(i) the collection and aggregation of payments relating to the Mortgage Loans;
(ii) the supervision of delinquent Mortgage Loans, loss mitigation efforts,
foreclosure proceedings and, if applicable, the disposition of Mortgaged
Properties; and (iii) the preparation of tax related information in connection
with the Mortgage Loans.
Billing statements are mailed monthly by the Master Servicer. The statement
details all debits and credits and specifies the minimum payment due and the
available credit line. Notice of changes in the applicable loan rate are
provided by the Master Servicer to the Mortgagor with such statements. All
payments are due by the fifteenth day of the month.
With respect to Mortgage Loans, the general policy of the Master Servicer
is to initiate foreclosure in the underlying property (i) after such loan is 75
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 the
Master Servicer. 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 the Master Servicer, a foreclosure
tracking system is used to monitor the progress of the proceedings. The system
includes state specific parameters to monitor whether proceedings are
S-20
<PAGE>
<PAGE>
progressing within the time frame typical for the state in which the property is
located. During the foreclosure proceeding, the Master Servicer determines the
amount of the foreclosure bid and whether to liquidate the loan.
After foreclosure, if the home equity loan is secured by a first mortgage
lien, the Master Servicer may liquidate the Mortgaged Property and charge off
the home equity loan balance which was not recovered through liquidation
proceeds. If the Mortgaged Property was subject to a senior lien, the Master
Servicer 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 the
Master Servicer, the cost of maintaining or purchasing the senior lien position
exceeds the economic benefit of such action, the Master Servicer will generally
charge off the entire home equity loan and may seek a money judgment against the
borrower.
Servicing and charge-off policies and collection practices may change over
time in accordance with, among other things, the Master Servicer's business
judgment, changes in the portfolio and applicable laws and regulations.
Foreclosure and Delinquency Experience
The following table summarizes the delinquency and foreclosure experience,
respectively, on the dates indicated, of home equity loans serviced by the
Master Servicer. Since [Countrywide] only began servicing home equity loans in
__________________ 199_, the delinquency and foreclosure 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 Mortgage Loans
and no assurances can be given that the foreclosure and delinquency experience
presented in the table below will be indicative of such experience on the
Mortgage Loans:
Delinquency Status As Of ___________, 199__*
<TABLE>
<CAPTION>
Dollars Percent Units Percent
------------------ ------------ -------- ------------
<S> <C> <C> <C> <C>
Current.......................................... $
30-59 days.......................................
60-89 days.......................................
90+ days.........................................
------------------ ------------ -------- ------------
Total....................................... $ 100.00% 100.00%
================== ============ ======== ============
</TABLE>
- ----------
* Delinquencies are reported on a contractual basis.
As of ___________, 199_, loans with an aggregate balance of $_______ are in
bankruptcy and ____ loans with an aggregate balance of $___________ are in
foreclosure. Of the loans in foreclosure, there will be a _______, 199_ charge
off of $_______. [In addition to this charge off, there is an anticipated charge
off of approximately $ which may also be realized in _______________.]
DESCRIPTION OF THE MORTGAGE LOANS
General
The Mortgage Loans were originated pursuant to loan agreements and
disclosure statements (the "Credit Line Agreements") and are secured by
mortgages or deeds of trust, which are either first or second mortgages or deeds
of trust, on Mortgaged Properties located in ____ states. The Mortgaged
Properties securing the Mortgage Loans consist of residential properties that
are one- to four-family properties. See "--Mortgage Loan Terms" below.
The Cut-off Date Pool Balance is $______________, which is equal to the
aggregate Principal Balances of the Mortgage Loans as of the Cut-off Date. As of
the Cut-off Date, the Mortgage Loans were not more than 89 days delinquent. The
average Cut-off Date Principal Balance was approximately $ , the minimum
Cut-off Date
S-21
<PAGE>
<PAGE>
Principal Balance was zero, the maximum Cut-off Date Principal Balance was
$____________, the minimum Loan Rateand the maximum Loan Rate as of the Cut-off
Date were ___% and ___% per annum, respectively, and the weighted average Loan
Rate as of the Cut-off Date was approximately ___% per annum. As of the Cut-off
Date, the weighted average Credit Limit Utilization Rate was approximately %,
the minimum Credit Limit Utilization Rate was zero and the maximum Credit Limit
Utilization Rate was 100%. The "Credit Limit Utilization Rate" is determined by
dividing the Cut-off Date Principal Balance of a Mortgage Loan by the Credit
Limit of the related Credit Line Agreement. The remaining term to scheduled
maturity for the Mortgage Loans as of the Cut-off Date ranged from ___ months to
___ months and the weighted average remaining term to scheduled maturity was
approximately months. As of the Cut-off Date, the Combined Loan-to-Value Ratio
of the Mortgage Loans ranged from ___% to ___% and the weighted average Combined
Loan-to-Value Ratio was approximately %. The Combined Loan-to-Value Ratio for a
Mortgage Loan is the ratio (expressed as a percentage) of (A) the sum of (i) the
Credit Limit of the Mortgage Loan and (ii) any outstanding principal balances of
mortgage loans senior to such Mortgage Loan (calculated at the date of
origination of the Mortgage Loan) to (B) the lesser of (i) the appraised value
of the related Mortgaged Property as set forth in the loan files at such date of
origination or (ii) in the case of a Mortgaged Property purchased within one
year of the origination of the related Mortgage Loan, the purchase price of such
Mortgaged Property. Credit Limits under the Mortgage Loans as of the Cut-off
Date ranged from $________ to $________ and averaged approximately $________.
The weighted average second mortgage ratio (which is the Credit Limit for the
related Mortgage Loan, provided such Mortgage Loan was in the second lien
position, divided by the sum of such Credit Limit and the outstanding principal
balance of any mortgage loan senior to the related Mortgage Loan) was
approximately ___%. As of the Cut-off Date, approximately ___% by Cut-off Date
Principal Balance of the Mortgage Loans represented first liens on the related
Mortgaged Properties, while approximately % of the Mortgage Loans represented
second liens. As of the Cut-off Date, approximately ___% of the Mortgage Loans
are secured by Mortgaged Properties which are single-family residences and ___%
were owner-occupied. As of the Cut-off Date, approximately ___%, ___%, ___%,
__%, ___% and ___% by Cut-off Date Principal Balance are located in __________,
________, __________, _______, ______ and ________], respectively.
Mortgage Loan Terms
[A borrower may access a Mortgage Loan by writing a check in a minimum
amount of $250. The Mortgage Loans bear interest at a variable rate which
changes monthly on the first business day of the related month with changes in
the applicable Index Rate. The Mortgage Loans are subject to a maximum per annum
interest rate (the "Maximum Rate") ranging from [_____% to _____%] per annum and
subject to applicable usury limitations. As of the Cut-off Date, the weighted
average Maximum Rate was approximately ___%. See "Certain Legal Aspects of the
Loans--Applicability of Usury Laws" in the Prospectus. The daily periodic rate
on the Mortgage Loans (the "Loan Rate") is the sum of the Index Rate plus the
spread (the "Margin") which generally ranges between ____% and ____% and had a
weighted average, as of the Cut-off Date, of approximately %, divided by 365
days. The "Index Rate" is based on the highest "prime rate" published in the
'Money Rates' table of The Wall Street Journal as of the first business day of
each calendar month.]
[Countrywide] offers an introductory loan rate on home equity lines of
credit which are originated with Combined Loan-to-Value Ratios of 75% and 80%.
The introductory rate applies to any payments made during the first three months
after origination. After such three month period, the Loan Rate will adjust to
the Index plus the applicable Margin. As of the Cut-off Date, approximately % of
the Mortgage Loans by Cut-off Date Principal Balance were subject to an
introductory rate of ____% per annum.
In general, the home equity loans may be drawn upon for a period (the "Draw
Period") of either five years (which may be extendible for an additional five
years, upon [Countrywide's] approval) or three years. Home equity loans with an
initial Draw Period of five years, which constitute approximately ___% of the
Mortgage Loans by Cut-off Date Principal Balance, are subject to a fifteen year
repayment period (the "Repayment Period") following the end of the Draw Period
during which the outstanding principal balance of the loan will be repaid in
monthly installments equal to 1/180 of the outstanding principal balance as of
the end of the Draw Period. Mortgage Loans with a Draw Period of three years,
which constitute approximately ___% of the Mortgage Loans by Cut-off Date
Principal Balance, are subject to a ten year Repayment Period following the end
of the Draw Period during which the outstanding principal balance of the loan
will be paid in monthly installments equal to 1/120 of the outstanding principal
balance as of the end of the Draw Period.
S-22
<PAGE>
<PAGE>
The minimum payment due during the Draw Period will be equal to the finance
charges accrued on the outstanding principal balance of the home equity loan
during the related billing period. The minimum payment due during the repayment
period will be equal to the sum of the finance charges accrued on the
outstanding principal balance of the Mortgage Loan during the related billing
period and the principal payment described above.
Set forth below is a description of certain characteristics of the Mortgage
Loans as of the Cut-off Date:
PRINCIPAL BALANCES
<TABLE>
<CAPTION>
Number of Percent of Pool
Mortgage Cut-off Date by Cut-off Date
Range of Principal Balances Loans Principal Balance Principal Balance
- --------------------------------------------------- ---------- ------------------- -----------------
<S> <C> <C> <C>
$_______ to $_________............................. $ %
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ and over..................................
---------- ------------------- -----------------
Total......................................... $ 100.00%
========== =================== =================
</TABLE>
S-23
<PAGE>
<PAGE>
GEOGRAPHIC DISTRIBUTION(1)
<TABLE>
<CAPTION>
Number of Percent of Pool
Mortgage Cut-off Date by Cut-off Date
State Loans Principal Balance Principal Balance
- --------------------------------------------------- ---------- ------------------- -----------------
<S> <C> <C> <C>
$ %
---------- ------------------- -----------------
Total......................................... $ 100.00%
========== =================== =================
</TABLE>
- ----------
(1) Geographic location is determined by the address of the Mortgaged Property
securing the related Mortgage Loan.
S-24
<PAGE>
<PAGE>
COMBINED LOAN-TO-VALUE RATIOS(1)
<TABLE>
<CAPTION>
Number of Percent of Pool
Range of Combined Mortgage Cut-off Date by Cut-off Date
Loan-to-Value Ratios Loans Principal Balance Principal Balance
- --------------------------------------------------- ---------- ------------------- -----------------
<S> <C> <C> <C>
_____% to ______%................................. $ %
______% to ______%.................................
______% to ______%.................................
______% to ______%.................................
______% to ______%.................................
______% to ______%.................................
______% to ______%.................................
______% to ______%.................................
______% to ______%.................................
______% to ______%.................................
---------- ------------------- -----------------
Total......................................... $ 100.00%
========== =================== =================
</TABLE>
- ----------
(1) The ratio (expressed as a percentage) of (A) the sum of (i) the Credit
Limit of the Mortgage Loans and (ii) any outstanding principal balances of
mortgage loans senior to the Mortgage Loans (calculated at the date of
origination of the Mortgage Loans) to (B) the lesser of (i) the appraised
value of the related Mortgaged Property as set forth in loan files at such
date of origination or (ii) in the case of a Mortgaged Property purchased
within one year of the origination of the related Mortgage Loan, the
purchase price of such Mortgaged Property.
PROPERTY TYPE
<TABLE>
<CAPTION>
Number of Percent of Pool
Mortgage Cut-off Date by Cut-off Date
Property Type Loans Principal Balance Principal Balance
- --------------------------------------------------- ---------- ------------------- -----------------
<S> <C> <C> <C>
Single Family...................................... $ %
Two- to Four-Family................................
Condominium........................................
PUD................................................
---------- ------------------- -----------------
Total......................................... $ 100.00%
========== =================== =================
</TABLE>
LIEN PRIORITY
<TABLE>
<CAPTION>
Number of Percent of Pool
Mortgage Cut-off Date by Cut-off Date
Lien Priority Loans Principal Balance Principal Balance
- --------------------------------------------------- ---------- ------------------- -----------------
<S> <C> <C> <C>
First Lien......................................... $ %
Second Lien........................................
---------- ------------------- -----------------
Total......................................... $ 100.00%
========== =================== =================
</TABLE>
S-25
<PAGE>
<PAGE>
LOAN RATES(1)
<TABLE>
<CAPTION>
Number of Percent of Pool
Range of Mortgage Cut-off Date by Cut-off Date
Loan Rates Loans Principal Balance Principal Balance
- --------------------------------------------------- ---------- ------------------- -----------------
<S> <C> <C> <C>
_____% to _____%................................... $ %
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
---------- ------------------- -----------------
Total......................................... $ 100.00%
========== =================== =================
</TABLE>
- ----------
(1) Approximately % of the Mortgage Loans by Cut-Off Date Principal Balance are
subject to an introductory rate of _____% per annum.
S-26
<PAGE>
<PAGE>
MARGIN
<TABLE>
<CAPTION>
Number of Percent of Pool
Range of Mortgage Cut-off Date by Cut-off Date
Margins Loans Principal Balance Principal Balance
- --------------------------------------------------- ---------- ------------------- -----------------
<S> <C> <C> <C>
_____% to _____%................................... $ %
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
---------- ------------------- -----------------
Total......................................... $ 100.00%
========== =================== =================
</TABLE>
CREDIT LIMIT UTILIZATION RATES
<TABLE>
<CAPTION>
Number of Percent of Pool
Range of Credit Limit Mortgage Cut-off Date by Cut-off Date
Utilization Rates Loans Principal Balance Principal Balance
- --------------------------------------------------- ---------- ------------------- -----------------
<S> <C> <C> <C>
_____% to _____%................................... $ %
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
---------- ------------------- -----------------
Total......................................... $ 100.00%
========== =================== =================
</TABLE>
S-27
<PAGE>
<PAGE>
CREDIT LIMITS
<TABLE>
<CAPTION>
Number of Percent of Pool
Mortgage Cut-off Date by Cut-off Date
Range of Credit Limits Loans Principal Balance Principal Balance
- --------------------------------------------------- ---------- ------------------- -----------------
<S> <C> <C> <C>
$__________to $_________........................... $ %
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ and over................................
---------- ------------------- -----------------
Total......................................... $ 100.00%
========== =================== =================
</TABLE>
MAXIMUM RATES
<TABLE>
<CAPTION>
Number of Percent of Pool
Mortgage Cut-off Date by Cut-off Date
Maximum Rates Loans Principal Balance Principal Balance
- --------------------------------------------------- ---------- ------------------- -----------------
<S> <C> <C> <C>
- -----%............................................. $ %
- -----%.............................................
- -----%.............................................
- -----%.............................................
---------- ------------------- -----------------
Total......................................... $ 100.00%
========== =================== =================
</TABLE>
S-28
<PAGE>
<PAGE>
MONTHS REMAINING TO SCHEDULED MATURITY(1)
<TABLE>
<CAPTION>
Number of Percent of Pool
Range of Months Mortgage Cut-off Date by Cut-off Date
Remaining to Scheduled Maturity Loans Principal Balance Principal Balance
- --------------------------------------------------- ---------- ------------------- -----------------
<S> <C> <C> <C>
___ to ___......................................... $ %
___ to ___.........................................
___ to ___.........................................
___ to ___.........................................
___ to ___.........................................
___ to ___.........................................
___ to ___.........................................
___ to ___.........................................
___ to ___.........................................
___ to ___.........................................
---------- ------------------- -----------------
Total......................................... $ 100.00%
========== =================== =================
</TABLE>
- ----------
(1) Assumes that the Draw Period for Mortgage Loans with five year Draw Periods
will be extended for an additional five years.
ORIGINATION YEAR
<TABLE>
<CAPTION>
Number of Percent of Pool
Mortgage Cut-off Date by Cut-off Date
Organization Year Loans Principal Balance Principal Balance
- --------------------------------------------------- ---------- ------------------- -----------------
<S> <C> <C> <C>
- ----............................................... $ %
- ----...............................................
---------- ------------------- -----------------
Total......................................... $ 100.00%
========== =================== =================
</TABLE>
DELINQUENCY STATUS
<TABLE>
<CAPTION>
Number of Percent of Pool
Mortgage Cut-off Date by Cut-off Date
Number of Days Delinquent Loans Principal Balance Principal Balance
- --------------------------------------------------- ---------- ------------------- -----------------
<S> <C> <C> <C>
0 to 29 ........................................... $ %
30 to 59...........................................
---------- ------------------- -----------------
60 to 89...........................................
---------- ------------------- -----------------
Total......................................... $ 100.00%
========== =================== =================
</TABLE>
MATURITY AND PREPAYMENT CONSIDERATIONS
The Agreement, except as otherwise described herein, provides that the
Certificateholders will be entitled to receive on each Distribution Date
distributions of principal, in the amounts described under "Description of the
Certificates--Distributions on the Certificates" herein, until the Certificate
Principal Balance is reduced to zero. During the Managed Amortization Period,
Certificateholders will receive amounts from Principal Collections based upon
their Fixed Allocation Percentage subject to reduction as described below.
During the Rapid Amortization Period, Certificateholders will receive amounts
from Principal Collections based solely upon their Fixed Allocation
S-29
<PAGE>
<PAGE>
Percentage. Because prior distributions of Principal Collections to
Certificateholders serve to reduce the Investor Floating Allocation Percentage
but do not change their Fixed Allocation Percentage, allocations of Principal
Collections based on the Fixed Allocation Percentage may result in distributions
of principal to the Certificateholdersin amounts that are, in most cases,
greater relative to the declining balance of the Mortgage Loans than would be
the case if the Investor Floating Allocation Percentage were used to determine
the percentage of Principal Collections distributed to Certificateholders. This
is especially true during the Rapid Amortization Period when the
Certificateholders are entitled to receive Investor Principal Collections and
not a lesser amount. In addition, Investor Interest Collections may be
distributed as principal to Certificateholders in connection with the
Accelerated Principal Distribution Amount, if any. Moreover, to the extent of
losses allocable to the Certificateholders, Certificateholders may also receive
as payment of principal the amount of such losses either from Investor Interest
Collections or, in some instances, draws under the Policy. The level of losses
may therefore affect the rate of payment of principal on the Certificates.
To the extent obligors make more draws than principal payments, the
Transferor Interest may grow. Because during the Rapid Amortization Period the
Certificateholders share of Principal Collections is based upon its Fixed
Allocation Percentage (without reduction), an increase in the Transferor
Interest due to additional draws may also result in Certificateholders receiving
principal at a greater rate. The Agreement permits the Transferor, at its
option, but subject to the satisfaction of certain conditions specified in the
Agreement, including the conditions described below, to remove certain Mortgage
Loans from the Trust Fund at any time during the life of the Trust Fund, so long
as the Transferor Interest (after giving effect to such removal) is not less
than the Minimum Transferor Interest. Such removals may affect the rate at which
principal is distributed to Certificateholders by reducing the overall Pool
Balance and thus the amount of Principal Collections. See "Description of the
Certificates--Optional Retransfers of Mortgage Loans to the Transferor" herein.
All of the Mortgage Loans may be prepaid in full or in part at any time.
[However, Mortgage Loans secured by Mortgaged Properties in California are
subject to an account termination fee equal to the lesser of $350 and six months
interest on the amount prepaid, to the extent the prepaid amount exceeds 20% of
the unpaid principal balance, if the account is terminated on or before its
fifth year anniversary. In addition, Mortgage Loans secured by Mortgaged
Properties in other jurisdictions may be subject to account termination fees to
the extent permitted by law. In general, such account termination fees do not
exceed $350 and do not apply to accounts terminated subsequent to a date
designated in the related Mortgage Note which, depending on the jurisdiction,
ranges between six months and five years following origination.] The prepayment
experience with respect to the Mortgage Loans will affect the weighted average
life of the Certificates.
The rate of prepayment on the Mortgage Loans cannot be predicted. Neither
the Depositor nor the Master Servicer is aware of any publicly available studies
or statistics on the rate of prepayment of such Mortgage Loans. Generally, home
equity revolving credit lines are not viewed by borrowers as permanent
financing. Accordingly, the Mortgage Loans may experience a higher rate of
prepayment than traditional first mortgage loans. On the other hand, because the
Mortgage Loans amortize as described under "Description of the Mortgage
Loans--Mortgage Loan Terms" herein, rates of principal payment on the Mortgage
Loans will generally be slower than those of traditional fully-amortizing first
mortgages in the absence of prepayments on such Mortgage Loans. The prepayment
experience of the Trust Fund with respect to the Mortgage Loans may be affected
by a wide variety of factors, including general economic conditions, prevailing
interest rate levels, the availability of alternative financing, homeowner
mobility, the frequency and amount of any future draws on the Credit Line
Agreements and changes affecting the deductibility for Federal income tax
purposes of interest payments on home equity credit lines. Substantially all of
the Mortgage Loans contain "due-on-sale" provisions, and, with respect to the
Mortgage Loans, the Master Servicer intends to enforce such provisions, unless
such enforcement is not permitted by applicable law. The enforcement of a
"due-on-sale" provision will have the same effect as a prepayment of the related
Mortgage Loan. See "Certain Legal Aspects of The Loans--Due-on-Sale Clauses" in
the Prospectus.
The yield to an investor who purchases the Certificates in the secondary
market at a price other than par will vary from the anticipated yield if the
rate of prepayment on the Mortgage Loans is actually different than the rate
anticipated by such investor at the time such Certificates were purchased.
Collections on the Mortgage Loans may vary because, among other things,
borrowers may make payments during any month as low as the minimum monthly
payment for such month or as high as the entire outstanding principal balance
plus accrued interest and the fees and charges thereon. It is possible that
borrowers may fail to
S-30
<PAGE>
<PAGE>
make scheduled payments. Collections on the Mortgage Loans may vary due to
seasonal purchasing and payment habits of borrowers.
No assurance can be given as to the level of prepayments that will be
experienced by the Trust Fund and it can be expected that a portion of borrowers
will not prepay their Mortgage Loans to any significant degree. See "Yield and
Prepayment Considerations" in the Prospectus.
POOL FACTOR AND TRADING INFORMATION
The "Pool Factor" is a seven-digit decimal which the Master Servicer will
compute monthly expressing the Certificate Principal Balance of the Certificates
as of each Distribution Date (after giving effect to any distribution of
principal on such Distribution Date) as a proportion of the Original Certificate
Principal Balance. On the Closing Date, the Pool Factor will be 1.0000000. See
"Description of the Certificates--Distributions on the Certificates" herein.
Thereafter, the Pool Factor will decline to reflect reductions in the related
Certificate Principal Balance resulting from distributions of principal to the
Certificates and the Invested Amount of any unreimbursed Liquidation Loss
Amounts.
Pursuant to the Agreement, monthly reports concerning the Invested Amount,
the Pool Factor and various other items of information will be made available to
the Certificateholders. In addition, within 60 days after the end of each
calendar year, beginning with the 199_ calendar year, information for tax
reporting purposes will be made available to each person who has been a
Certificateholder of record at any time during the preceding calendar year. See
"Description of the Certificates--Book-Entry Certificates" and "--Reports to
Certificateholders" herein.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement. The form of the
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus Supplement and the Prospectus is a part. The following is a
description of the material provisions of the Agreement. Wherever particular
sections or defined terms of the Agreement are referred to, such sections or
defined terms are hereby incorporated herein by reference.
General
The Certificates will be issued in denominations of $1,000 and multiples of
$1 in excess thereof and will evidence specified undivided interests in the
Trust Fund. The property of the Trust Fund will consist of, to the extent
provided in the Agreement: (i) each of the Mortgage Loans that from time to time
are subject to the Agreement; (ii) collections on the Mortgage Loans received
after the Cut-off Date (exclusive of payments in respect of accrued interest due
on or prior to the Cut-off Date or due in the month of ); (iii) Mortgaged
Properties relating to the Mortgage Loans that are acquired by foreclosure or
deed in lieu of foreclosure; (iv) the Collection Account and the Security
Account for the Certificates (excluding net earnings thereon); (v) the Policy;
(vi) the Spread Account (for the benefit of the Certificate Insurer and the
Certificateholders); and (vii) an assignment of the Depositor's rights under the
Purchase Agreement. Definitive Certificates (as defined below), if issued, will
be transferable and exchangeable at the corporate trust office of the Trustee,
which will initially maintain the Security Register for the Certificates. See
"--Book-Entry Certificates" below. No service charge will be made for any
registration of exchange or transfer of Certificates, but the Trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge.
The aggregate undivided interest in the Trust Fund represented by the
Certificates as of the Closing Date will equal $ (the "Original Invested
Amount"), which represents __% of the Cut-off Date Pool Balance. The "Original
Certificate Principal Balance" will equal $ . Following the Closing Date, the
"Invested Amount" with respect to any Distribution Date will be an amount equal
to the Original Invested Amount minus (i) the amount of Investor Principal
Collections previously distributed to Certificateholders, and minus (ii) an
amount equal to the product of the Investor Floating Allocation Percentage and
the Liquidation Loss Amounts (each as defined herein). The principal amount of
the outstanding Certificates (the "Certificate Principal Balance") on any
Distribution Date is equal to the Original Certificate Principal Balance minus
the aggregate of amounts actually distributed as principal to the
Certificateholders. See "--Distributions on the Certificates" below. Each
Certificate
S-31
<PAGE>
<PAGE>
represents the right to receive payments of interest at the Certificate Rate and
payments of principal as described below.
The Transferor will own the remaining undivided interest in the Mortgage
Loans (the "Transferor Interest"), which is equal to the Pool Balance less the
Invested Amount. The Transferor Interest will initially equal $________, which
represents _% of the Cut-off Date Pool Balance. The Transferor as of any date is
the owner of the Transferor Interest which initially will be the Seller. In
general, the Pool Balance will vary each day as principal is paid on the
Mortgage Loans, liquidation losses are incurred, Additional Balances are drawn
down by borrowers and Mortgage Loans are transferred to the Trust Fund.
The Transferor has the right to sell or pledge the Transferor Interest at
any time, provided (i) the Rating Agencies (as defined herein) have notified the
Transferor and the Trustee in writing that such action will not result in the
reduction or withdrawal of the ratings assigned to the Certificates, and (ii)
certain other conditions specified in the Agreement are satisfied.
Book-Entry Certificates
The Certificates will be book-entry Certificates (the "Book-Entry
Certificates"). Persons acquiring beneficial ownership interests in the
Certificates ("Certificate Owners") may elect to hold their 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 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 Certificate
Principal Balances of $1,000 and in multiples of $1 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 Certificate (a "Definitive Certificate"). Unless and until
Definitive Certificates are issued, it is anticipated that the only
"Certificateholder" of the 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 Certificates from the Trustee through DTC and DTC participants.
While the 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 Certificates and
is required to receive and transmit distributions of principal of, and interest
on, the 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 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.
S-32
<PAGE>
<PAGE>
Certificate Owners will not receive or be entitled to receive certificates
representing their respective interests in the 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 Certificates only through Participants and Indirect Participants by
instructing such Participants and Indirect Participants to transfer
Certificates, by book-entry transfer, through DTC for the account of the
purchasers of such Certificates, which account is maintained with their
respective Participants. Under the Rules and in accordance with DTC's normal
procedures, transfers of ownership of 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 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 counterparty 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
S-33
<PAGE>
<PAGE>
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 andinterfaces 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 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
Certificates in the secondary market since certain potential investors may be
unwilling to purchase 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 the Depository, and to the Financial Intermediaries to whose DTC
accounts the Book-Entry Certificates of such beneficial owners are credited.
DTC has advised the Transferor 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 Certificateholder under the Agreement on
behalf of a CEDEL Participant or Euroclear
S-34
<PAGE>
<PAGE>
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 Certificates which conflict with actions
taken with respect to other 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 Transferor advises the Trustee in writing that DTC is no longer willing,
qualified or able to discharge properly its responsibilities as nominee and
depository with respect to the Book-Entry Certificates and the Transferor or the
Trustee is unable to locate a qualified successor, (b) the Transferor, at its
sole option, elects to terminate a book-entry system through DTC or (c) after
the occurrence of an Event of Servicing Termination (as defined herein),
beneficial owners having Percentage Interests aggregating not less than 51% of
the Certificate Principal Balance of the Book-Entry 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
Certificateholders under the 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.
Assignment of Mortgage Loans
At the time of issuance of the Certificates, the Depositor will transfer to
the Trust Fund all of its right, title and interest in and to each Mortgage Loan
(including any Additional Balances arising in the future), related Credit Line
Agreements, mortgages and other related documents (collectively, the "Related
Documents"), including all collections received on or with respect to each such
Mortgage Loan after the Cut-off Date (exclusive of payments in respect of
accrued interest due on or prior to the Cut-off Date or due in the month of
_____). The Trustee, concurrently with such transfer, will deliver the
Certificates to the Depositor and the Transferor Certificate (as defined in the
Agreement) to the Transferor. Each Mortgage Loan transferred to the Trust Fund
will be identified on a schedule (the "Mortgage Loan Schedule") delivered to the
Trustee pursuant to the Agreement. Such schedule will include information as to
the Cut-off Date Principal Balance of each Mortgage Loan, as well as information
with respect to the Loan Rate.
The Agreement will permit the Seller to maintain possession of the Related
Documents and certain other documents relating to the Mortgage Loans (the
"Mortgage Files") and assignments of the Mortgage Loans to the Trustee will not
be required to be recorded for so long as the long-term senior unsecured debt of
[Countrywide] is rated at least "______" by ___ and "______" by _______. In the
event that [Countrywide's] long-term senior unsecured debt rating does not
satisfy the above-described standards (an "Assignment Event"), [Countrywide]
will have 90 days to record assignments of the mortgages for each such Mortgage
Loan in favor of the Trustee and 60 days to deliver the Mortgage Files
pertaining to each such Mortgage Loan to the Trustee (unless opinions of counsel
satisfactory to the Rating Agencies and the Certificate Insurer to the effect
that recordation of such assignments or delivery of such documentation is not
required in the relevant jurisdiction to protect the interest of [Countrywide]
and the Trustee in the Mortgage Loans). In lieu of delivery of original
documentation, [Countrywide] may deliver documents which have been imaged
optically upon delivery of an opinion of counsel that such documents do not
impair the enforceability of the transfer to the Trust Fund of the Mortgage
Loans.
Within 90 days of an Assignment Event, the Trustee will review the Mortgage
Loans and the Related Documents and if any Mortgage Loan or Related Document is
found to be defective in any material respect and such defect is not cured
within 90 days following notification thereof to the Seller and the Depositor by
the Trustee, the Seller will be obligated to accept the transfer of such
Mortgage Loan from the Trust Fund. Upon such transfer, the Principal Balance of
such Mortgage Loan will be deducted from the Pool Balance, thus reducing the
amount of the Transferor Interest. If the deduction would cause the Transferor
Interest to become less than the Minimum Transferor Interest at such time (a
"Transfer Deficiency"), the Seller will be obligated to either substitute an
Eligible
S-35
<PAGE>
<PAGE>
Substitute Mortgage Loan or make a deposit into the Collection Account in the
amount (the "Transfer Deposit Amount") equal to the amount by which the
Transferor Interest would be reduced to less than the Minimum Transferor
Interest at such time. Any such deduction, substitution or deposit, will be
considered a payment in full of such Mortgage Loan. Any Transfer Deposit Amount
will be treated as a Principal Collection. Notwithstandingthe foregoing,
however, prior to all required deposits to the Collection Account being made no
such transfer shall be considered to have occurred unless such deposit is
actually made. The obligation of the Seller to accept a transfer of a Defective
Mortgage Loan is the sole remedy regarding any defects in the Mortgage Loans and
Related Documents available to the Trustee or the Certificateholders.
An "Eligible Substitute Mortgage Loan" is a mortgage loan substituted by
the Depositor for a Defective Mortgage Loan which must, on the date of such
substitution, (i) have an outstanding Principal Balance (or in the case of a
substitution of more than one Mortgage Loan for a Defective Mortgage Loan, an
aggregate Principal Balance), not __% more or less than the Transfer Deficiency
relating to such Defective Mortgage Loan; (ii) have a Loan Rate not less than
the Loan Rate of the Defective Mortgage Loan and not more than _% in excess of
the Loan Rate of such Defective Mortgage Loan; (iii) have a Loan Rate based on
the same Index with adjustments to such Loan Rate made on the same Interest Rate
Adjustment Date as that of the Defective Mortgage Loan; (iv) have a Margin that
is not less than the Margin of the Defective Mortgage Loan and not more than ___
basis points higher than the Margin for the Defective Mortgage Loan; (v) have a
mortgage of the same or higher level of priority as the mortgage relating to the
Defective Mortgage Loan; (vi) have a remaining term to maturity not more than
___ months earlier and not more than __ months later than the remaining term to
maturity of the Defective Mortgage Loan; (vii) comply with each representation
and warranty as to the Mortgage Loans set forth in the Agreement (deemed to be
made as of the date of substitution); (viii) in general, have an original
Combined Loan-to-Value Ratio not greater than that of the Defective Mortgage
Loan; and (ix) satisfy certain other conditions specified in the Agreement. To
the extent the Principal Balance of an Eligible Substitute Mortgage Loan is less
than the Principal Balance of the related Defective Mortgage Loan and to the
extent that the Transferor Interest would be reduced below the Minimum
Transferor Interest, the Seller will be required to make a deposit to the
Collection Account equal to such difference.
The Seller will make certain representations and warranties as to the
accuracy in all material respects of certain information furnished to the
Trustee with respect to each Mortgage Loan (e.g., Cut-off Date Principal Balance
and the Loan Rate). In addition, the Seller will represent and warrant on the
Closing Date that at the time of transfer to the Depositor, the Seller has
transferred or assigned all of its rights, title and interest in each Mortgage
Loan and the Related Documents, free of any lien (subject to certain
exceptions). Upon discovery of a breach of any such representation and warranty
which materially and adversely affects the interests of the Certificateholders
or the Certificate Insurer in the related Mortgage Loan and Related Documents,
the Seller will have a period of 90 days after discovery or notice of the breach
to effect a cure. If the breach cannot be cured within the 90-day period, the
Seller will be obligated to accept a transfer of the Defective Mortgage Loan
from the Trust Fund. The same procedure and limitations that are set forth in
the second preceding paragraph for the transfer of Defective Mortgage Loans will
apply to the transfer of a Mortgage Loan that is required to be transferred
because of such breach of a representation or warranty in the Agreement that
materially and adversely affects the interests of the Certificateholders.
Mortgage Loans required to be transferred to the Seller as described in the
preceding paragraphs are referred to as "Defective Mortgage Loans."
Pursuant to the Agreement, the Master Servicer will service and administer
the Mortgage Loans as more fully set forth above.
Amendments to Credit Line Agreements
Subject to applicable law, the Master Servicer may change the terms of the
Credit Line Agreements at any time provided that such changes (i) do not
adversely affect the interest of the Certificateholders or the Certificate
Insurer, and (ii) are consistent with prudent business practice. In addition,
the Agreement permits the Master Servicer, within certain limitations described
therein, to increase the Credit Limit of the related Mortgage Loan or reduce the
Margin for such Mortgage Loan.
Optional Transfers of Mortgage Loans to the Transferor
S-36
<PAGE>
<PAGE>
In order to permit the Transferor to remove Mortgage Loans from the Trust
Fund at such times, if any, as the overcollateralization exceeds the level
required to maintain the ratings on the Certificates, on any Distribution Date
the Transferor may, but shall not be obligated to, remove on such Distribution
Date (the "Transfer Date") from the Trust Fund, certain Mortgage Loans without
notice to the Certificateholders. The Transferor is permitted to designate the
Mortgage Loans to be removed. Mortgage Loans so designated will only be removed
upon satisfaction of the following conditions: (i) No Rapid Amortization Event
(as defined herein) has occurred; (ii) the Transferor Interest as of such
Transfer Date (after giving effect to such removal) exceeds the Minimum
Transferor Interest; (iii) the transfer of any Mortgage Loans on any Transfer
Date during the Managed Amortization Period (as defined herein) shall not, in
the reasonable belief of the Transferor, cause a Rapid Amortization Event to
occur or an event which with notice or lapse of time or both would constitute a
Rapid Amortization Event; (iv) the Transferor shall have delivered to the
Trustee a "Mortgage Loan Schedule" containing a list of all Mortgage Loans
remaining in the Trust Fund after such removal; (v) the Transferor shall
represent and warrant that no selection procedures which the Transferor
reasonably believes are adverse to the interests of the Certificateholders or
the Certificate Insurer were used by the Transferor in selecting such Mortgage
Loans; (vi) in connection with the first such retransfer of Mortgage Loans, the
Rating Agencies shall have been notified of the proposed transfer and prior to
the Transfer Date shall not have notified the Transferor in writing that such
transfer would result in a reduction or withdrawal of the ratings assigned to
the Certificates without regard to the Policy; and (vii) the Transferor shall
have delivered to the Trustee and the Certificate Insurer an officer's
certificate confirming the conditions set forth in clauses (i) through (vi)
above.
As of any date of determination, the "Minimum Transferor Interest" is an
amount equal to the lesser of (a) _% of the Pool Balance on such date and (b)
the Transferor Interest as of the Closing Date.
Payments on Mortgage Loans; Deposits to Collection Account
The Trustee shall establish and maintain on behalf of the Master Servicer
an account (the "Collection Account") for the benefit of the Certificateholders
and the Transferor, as their interests may appear. The Collection Account will
be an Eligible Account (as defined herein). Subject to the investment provision
described in the following paragraphs, within two days of receipt by the Master
Servicer of amounts in respect of the Mortgage Loans (excluding amounts
representing administrative charges, annual fees, taxes, assessments, credit
insurance charges, insurance proceeds to be applied to the restoration or repair
of a Mortgaged Property or similar items), the Master Servicer will deposit such
amounts in the Collection Account. Amounts so deposited may be invested in
Eligible Investments (as described in the Agreement) maturing no later than one
Business Day prior to the date on which the amount on deposit therein is
required to be deposited in the Collection Account or on such Distribution Date
if approved by the Rating Agencies and the Certificate Insurer. Not later than
the third Business Day prior to each Distribution Date (the "Determination
Date"), the Master Servicer will notify the Trustee of the amount of such
deposit to be included in funds available for the related Distribution Date.
An "Eligible Account" is (i) an account that is maintained with a
depository institution whose debt obligations at the time of any deposit therein
have the highest short-term debt rating by the Rating Agencies, (ii) one or more
accounts with a depository institution having a minimum long-term unsecured debt
rating of "____" by _______ and "____" by ___, which accounts are fully insured
by either the Savings Association Insurance Fund ("SAIF") or the Bank Insurance
Fund ("BIF") of the Federal Deposit Insurance Corporation established by such
fund, (iii) a segregated trust account maintained with the Trustee or an
Affiliate of the Trustee in its fiduciary capacity or (iv) otherwise acceptable
to each Rating Agency and the Certificate Insurer as evidenced by a letter from
each Rating Agency and the Certificate Insurer to the Trustee, without reduction
or withdrawal of their then current ratings of the Certificates.
Eligible Investments are specified in the Agreement and are limited to (i)
obligations of the United States or any agency thereof, provided such
obligations are backed by the full faith and credit of the United States; (ii)
general obligations of or obligations guaranteed by any state of the United
States or the District of Columbia receiving the highest long-term debt rating
of each Rating Agency rating the Certificates, or such lower rating as will not
result in the downgrading or withdrawal of the ratings then assigned to the
Certificates by
S-37
<PAGE>
<PAGE>
each such Rating Agency; (iii) commercial or finance company paper (including,
without limitation, commercial paper issued by Countrywide Home Loans, Inc. or
any of its affiliates) which is then receiving the highest commercial or finance
company paper rating of each such Rating Agency, or such lower rating as will
not result in the downgrading or withdrawal of the ratings then assigned to the
Certificates by each such Rating Agency; (iv) certificates of deposit, demand or
time deposits, or bankers' acceptances issued by any depository institution or
trust company incorporated under the laws of the United States or of any state
thereof and subject to supervision and examination by federal and/or state
banking authorities, provided that the commercial paper and/or long term
unsecured debt obligations of such depository institution or trust company (or
in the case of the principal depository institution in a holding company system,
the commercial paper or long-term unsecured debt obligations of such holding
company, but only if Moody's Investors Service, Inc. ("Moody's") is not a Rating
Agency) are then rated one of the two highest long-term and the highest
short-term ratings of each such Rating Agency for such securities, or such lower
ratings as will not result in the downgrading or withdrawal of the rating then
assigned to the Certificates by any such Rating Agency; (iv) demand or time
deposits or certificates of deposit issued by any bank or trust company or
savings institution to the extent that such deposits are fully insured by the
FDIC; (v) guaranteed reinvestment agreements issued by any bank, insurance
company or other corporation containing, at the time of the issuance of such
agreements, such terms and conditions as will not result in the downgrading or
withdrawal of the rating then assigned to the Certificates by any such Rating
Agency; (vi) repurchase obligations with respect to any security described in
clauses (i) and (ii) above, in either case entered into with a depository
institution or trust company (acting as principal) described in clause (iv)
above; (vii) securities (other than stripped bonds, stripped coupons or
instruments sold at a purchase price in excess of 115% of the face amount
thereof) bearing interest or sold at a discount issued by any corporation
incorporated under the laws of the United States or any state thereof which, at
the time of such investment, have one of the two highest ratings of each Rating
Agency (except if the Rating Agency is Moody's, such rating shall be the highest
commercial paper rating of Moody's for any such securities), or such lower
rating as will not result in the downgrading or withdrawal of the rating then
assigned to the Certificates by any such Rating Agency, as evidenced by a signed
writing delivered by each such Rating Agency; and (viii) such other investments
having a specified stated maturity and bearing interest or sold at a discount
acceptable to each Rating Agency as will not result in the downgrading or
withdrawal of the rating then assigned to the Certificates by any such Rating
Agency, as evidenced by a signed writing delivered by each such Rating Agency;
provided that no such instrument shall be a Permitted Investment if such
instrument evidences the right to receive interest only payments with respect to
the obligations underlying such instrument.
Allocations and Collections
All collections on the Mortgage Loans will generally be allocated in
accordance with the Credit Line Agreements between amounts collected in respect
of interest and amounts collected in respect of principal. As to any
Distribution Date, "Interest Collections" will be equal to the amounts collected
during the related Collection Period, including such portion of Net Liquidation
Proceeds allocated to interest pursuant to the terms of the Credit Line
Agreements less Servicing Fees for the related Collection Period.
As to any Distribution Date, "Principal Collections" will be equal to the
sum of (i) the amounts collected during the related Collection Period, including
such portion of Net Liquidation Proceeds allocated to principal pursuant to the
terms of the Credit Line Agreements and (ii) any Transfer Deposit Amounts. "Net
Liquidation Proceeds" with respect to a Mortgage Loan are equal to the
Liquidation Proceeds, reduced by related expenses, but not including the
portion, if any, of such amount that exceeds the Principal Balance of the
Mortgage Loan plus accrued and unpaid interest thereon to the end of the
Collection Period during which such Mortgage Loan became a Liquidated Mortgage
Loan. "Liquidation Proceeds" are the proceeds (excluding any amounts drawn on
the Policy) received in connection with the liquidation of any Mortgage Loan,
whether through trustee's sale, foreclosure sale or otherwise.
With respect to any Distribution Date, the portion of Interest Collections
allocable to the Certificates ("Investor Interest Collections") will equal the
product of (a) Interest Collections for such Distribution Date and (b) the
Investor Floating Allocation Percentage. With respect to any Distribution Date,
the "Investor Floating Allocation Percentage" is the percentage equivalent of a
fraction determined by dividing the Invested Amount at the close of business on
the preceding Distribution Date (or the Closing Date in the case of the first
Distribution Date) by the Pool Balance at the beginning of the related
Collection Period. The remaining amount of Interest Collections will be
allocated to the Transferor Interest.
Principal Collections will be allocated between the Certificateholders and
the Transferor ("Investor Principal Collections" and "Transferor Principal
Collections", respectively) as described herein.
S-38
<PAGE>
<PAGE>
The Trustee will deposit any amounts drawn under the Policy into the
Collection Account.
With respect to any date, the "Pool Balance" will be equal to the aggregate
of the Principal Balances of all Mortgage Loans as of such date. The Principal
Balance of a Mortgage Loan (other than a Liquidated Mortgage Loan) on any day is
equal to the Cut-off Date Principal Balance thereof, plus (i) any Additional
Balances in respect of such Mortgage Loan minus (ii) all collections credited
against the Principal Balance of such Mortgage Loan in accordance with the
related Credit Line Agreement prior to such day. The Principal Balance of a
Liquidated Mortgage Loan after final recovery of related Liquidation Proceeds
shall be zero.
Distributions on the Certificates
Beginning with the first Distribution Date (which will occur on __________,
199_), distributions on the Certificates will be made by the Trustee or the
Paying Agent on each Distribution Date to the persons in whose names such
Certificates are registered at the close of business on the day prior to each
Distribution Date or, if the Certificates are no longer Book-Entry Certificates,
at the close of business on the last day of the month preceding such
Distribution Date (the "Record Date"). The term "Distribution Date" means the
fifteenth day of each month or, if such day is not a Business Day, then the next
succeeding Business Day. Distributions will be made by check or money order
mailed (or upon the request of a Certificateholder owning Certificates having
denominations aggregating at least $_________, by wire transfer or otherwise) to
the address of the person entitled thereto (which, in the case of Book-Entry
Certificates, will be DTC or its nominee) as it appears on the Certificate
Register in amounts calculated as described herein on the Determination Date.
However, the final distribution in respect of the Certificates will be made only
upon presentation and surrender thereof at the office or the agency of the
Trustee specified in the notice to Certificateholders of such final
distribution. For purposes of the Agreement, a "Business Day" is any day other
than (i) a Saturday or Sunday or (ii) a day on which banking institutions in New
York State are required or authorized by law to be closed.
Application of Interest Collections. On each Distribution Date, the Trustee
or the Paying Agent will apply the Investor Interest Collections in the
following manner and order of priority:
(i) as payment to the Trustee for its fee for services rendered
pursuant to the Agreement;
(ii) as payment for the premium for the Policy;
(iii) as payment for the accrued interest due and any overdue accrued
interest (with interest thereon to the extent permitted by law) on the
Certificate Principal Balance of the Certificates;
(iv) to pay Certificateholders the Investor Loss Amount for such
Distribution Date;
(v) as payment for any Investor Loss Amount for a previous
Distribution Date that was not previously (a) funded by Investor Interest
Collections, (b) absorbed by the Overcollateralization Amount, (c) funded
by amounts on deposit in the Spread Account or (d) funded by draws on the
Policy;
(vi) to reimburse prior draws made from the Policy (with interest
thereon);
(vii) to pay principal on the Certificates until the Invested Amount
exceeds the Certificate Principal Balance by the Required
Overcollateralization Amount (such amount so paid, the "Accelerated
Principal Distribution Amount");
(viii) any other amounts required to be deposited in an account for
the benefit of the Certificate Insurer and the Certificateholders or owed
to the Certificate Insurer pursuant to the Insurance Agreement;
(ix) certain amounts that may be required to be paid to the Master
Servicer pursuant to the Agreement; and
(x) to the Transferor to the extent permitted as described herein.
S-39
<PAGE>
<PAGE>
Payments to Certificateholders pursuant to clause (iii) will be interest
payments on the Certificates. Payments to Certificateholders pursuant to clauses
(iv), (v) and (vii) will be principal payments on the Certificates and will
therefore reduce the Certificate Principal Balance, however, payments pursuant
to clause (vii) will not reduce the Invested Amount. The Accelerated Principal
Distribution Amount is not guaranteed by the Policy.
To the extent that Investor Interest Collections are applied to pay the
interest on the Certificates, Investor Interest Collections may be insufficient
to cover Investor Loss Amounts. If such insufficiency results in the Certificate
Principal Balance exceeding the Invested Amount, a draw will be made on the
Policy in accordance with the terms of the Policy.
The "Required Overcollateralization Amount" shall be an amount set forth in
the Agreement. "Liquidation Loss Amount" means with respect to any Liquidated
Mortgage Loan, the unrecovered Principal Balance thereof during the Collection
Period in which such Mortgage Loan became a Liquidated Mortgage Loan, after
giving effect to the Net Liquidation Proceeds in connection therewith. The
"Investor Loss Amount" shall be the product of the Investor Floating Allocation
Percentage and the Liquidation Loss Amount for such Distribution Date.
A "Liquidated Mortgage Loan" means, as to any Distribution Date, any
Mortgage Loan in respect of which the Master Servicer has determined, based on
the servicing procedures specified in the Agreement, as of the end of the
preceding Collection Period that all Liquidation Proceeds which it expects to
recover with respect to the disposition of the related Mortgaged Property have
been recovered. The Investor Loss Amount will be allocated to the
Certificateholders.
As to any Distribution Date other than the first Distribution Date, the
"Collection Period" is the calendar month preceding each Distribution Date. As
to the first Distribution Date, the "Collection Period" is the period beginning
after the Cut-off Date and ending on the last day of _______________ 199_.
Interest will be distributed on each Distribution Date at the Certificate
Rate for the related Interest Period (as defined below). The "Certificate Rate"
for a Distribution Date will generally equal the sum of [(a) LIBOR, calculated
as specified below, as of the second LIBOR Business Day prior to the immediately
preceding Distribution Date (or as of two LIBOR Business Days prior to the
Closing Date, in the case of the first Distribution Date) plus (b) ____% per
annum.] Notwithstanding the foregoing, in no event will the amount of interest
required to be distributed in respect of the Certificates on any Distribution
Date exceed a rate equal to the weighted average of the Loan Rates (net of the
Servicing Fee Rate, the fee payable to the Trustee and the rate at which the
premium payable to the Certificate Insurer is calculated) weighted on the basis
of the daily balance of each Mortgage Loan during the related billing cycle
prior to the Collection Period relating to such Distribution Date.
Interest on the Certificates in respect of any Distribution Date will
accrue on the Certificate Principal Balance from the preceding Distribution Date
(or in the case of the first Distribution Date, from the date of the initial
issuance of the Certificates (the "Closing Date")) through the day preceding
such Distribution Date (each such period, an "Interest Period") on the basis of
the actual number of days in the Interest Period and a 360-day year. Interest
payments on the Certificates will be funded from Investor Interest Collections
and, if necessary, from draws on the Policy.
[Calculation of the LIBOR Rate. On each Distribution Date, LIBOR shall be
established by the Trustee and as to any Interest Period, LIBOR will equal the
rate for United States dollar deposits for one month which appears on the
Telerate Screen Page 3750 as of 11:00 A.M., London time, on the second LIBOR
Business Day prior to the first day of such Interest Period. "Telerate Screen
Page 3750" means the display designated as page 3750 on the Telerate Service (or
such other page as may replace page 3750 on that service for the purpose of
displaying London interbank offered rates of major banks). If such rate does not
appear on such page (or such other page as may replace that page on that
service, or if such service is no longer offered, such other service for
displaying LIBOR or comparable rates as may be selected by the Depositor after
consultation with the Trustee), the rate will be the Reference Bank Rate. The
"Reference Bank Rate" will be determined on the basis of the rates at which
deposits in U.S. Dollars are offered by the reference banks (which shall be
three major banks that are engaged in transactions in the London interbank
market, selected by the Depositor after consultation with the Trustee) as of
11:00 A.M., London time, on the day that is two LIBOR Business Days prior to the
immediately preceding Distribution Date to prime banks in the London interbank
market for a period of one month in amounts approximately equal to the principal
amount of the Certificates then outstanding. The Trustee will request the
principal London office of each
S-40
<PAGE>
<PAGE>
of the reference banks to provide a quotation of its rate. If at least two such
quotations are provided, the rate will be the arithmetic mean of the quotations.
If on such date fewer than two quotations are provided as requested, the rate
will be the arithmetic mean of the rates quoted by one or more major banks in
New York City, selected by the Depositor after consultation with the Trustee, as
of 11:00 A.M., New York City time, on such date for loans in U.S. Dollars to
leading European banks for a period of one month in amounts approximately equal
to the principal amount of the Certificates then outstanding. If no such
quotations can be obtained, the rate will be LIBOR for the prior Distribution
Date. "LIBOR Business Day" means any day other than (i) a Saturday or a Sunday
or (ii) a day on which banking institutions in the State of New York or in the
city of London, England are required or authorized by law to be closed.]
Transferor Collections. Collections allocable to the Transferor Interest
that are not distributed to Certificateholders will be distributed to the
Transferor only to the extent that such distribution will not reduce the amount
of the Transferor Interest as of the related Distribution Date below the Minimum
Transferor Interest. Amounts not distributed to the Transferor because of such
limitations will be retained in the Collection Account until the Transferor
Interest exceeds the Minimum Transferor Interest, at which time such excess
shall be released to the Transferor. If any such amounts are still retained in
the Collection Account upon the commencement of the Rapid Amortization Period,
such amounts will be paid to the Certificateholders as a reduction of the
Certificate Principal Balance.
Overcollateralization. The distribution of the aggregate Accelerated
Principal Distribution Amount, if any, to Certificateholders may result in the
Invested Amount being greater than the Certificate Principal Balance, thereby
creating overcollateralization. The Overcollateralization Amount, if any, will
be available to absorb any Investor Loss Amount that is not covered by Investor
Interest Collections.
Distributions of Principal Collections. For the period beginning on the
first Distribution Date and, unless a Rapid Amortization Event shall have
earlier occurred, ending on the Distribution Date in ______________ 20__ (the
"Managed Amortization Period"), the amount of Principal Collections payable to
Certificateholders as of each Distribution Date during the Managed Amortization
Period will equal, to the extent funds are available therefor, the Scheduled
Principal Collections Distribution Amount for such Distribution Date. On any
Distribution Date during the Managed Amortization Period, the "Scheduled
Principal Collections Distribution Amount" shall equal the lesser of (i) the
Maximum Principal Payment (as defined herein) and (ii) the Alternative Principal
Payment (as defined herein). With respect to any Distribution Date, the "Maximum
Principal Payment" will equal the product of the Investor Fixed Allocation
Percentage and Principal Collections for such Distribution Date. With respect to
any Distribution Date, the "Alternative Principal Payment" will equal the
greater of (x) 0___% of the Certificate Principal Balance immediately prior to
such Distribution Date and (y) the amount, but not less than zero, of Principal
Collections for such Distribution Date less the aggregate of Additional Balances
created during the related Collection Period.
Beginning with the first Distribution Date following the end of the Managed
Amortization Period, the amount of Principal Collections payable to
Certificateholders on each Distribution Date will be equal to the Maximum
Principal Payment.
The amount of Principal Collections to be distributed to Certificateholders
on the first Distribution Date will reflect Principal Collections and Additional
Balances during the first Collection Period which is the period beginning after
the Cut-off Date through the last day of __________ 199_.
Distributions of Principal Collections based upon the Investor Fixed
Allocation Percentage may result in distributions of principal to
Certificateholders in amounts that are greater relative to the declining Pool
Balance than would be the case if the Investor Floating Allocation Percentage
were used to determine the percentage of Principal Collections distributed in
respect of the Invested Amount. Principal Collections not allocated to the
Certificateholders will be allocated to the Transferor Interest. The aggregate
distributions of principal to the Certificateholders will not exceed the
Original Certificate Principal Balance.
In addition, to the extent of funds available therefor (including funds
available under the Policy), on the Distribution Date in ____________ 20__,
Certificateholders will be entitled to receive as a payment of principal an
amount equal to the outstanding Certificate Principal Balance.
S-41
<PAGE>
<PAGE>
The Paying Agent. The Paying Agent shall initially be the Trustee, together
with any successor thereto in such capacity (the "Paying Agent"). The Paying
Agent shall have the revocable power to withdraw funds from the Collection
Account for the purpose of making distributions to the Certificateholders.
Rapid Amortization Events
As described above, the Managed Amortization Period will continue through
the Distribution Date in 20 , unless a Rapid Amortization Event occurs prior to
such date in which case the Rapid Amortization Period will commence prior to
such date. "Rapid Amortization Event" refers to any of the following events:
(a) failure on the part of the Seller (i) to make a payment or deposit
required under the Agreement within three Business Days after the date such
payment or deposit is required to be made or (ii) to observe or perform in
any material respect any other covenants or agreements of the Seller set
forth in the Agreement, which failure continues unremedied for a period of
60 days after written notice;
(b) any representation or warranty made by the Seller in the Agreement
proves to have been incorrect in any material respect when made and
continues to be incorrect in any material respect for a period of 60 days
after written notice and as a result of which the interests of the
Certificateholders are materially and adversely affected; provided,
however, that a Rapid Amortization Event shall not be deemed to occur if
the Seller has purchased or made a substitution for the related Mortgage
Loan or Mortgage Loans if applicable during such period (or within an
additional 60 days with the consent of the Trustee) in accordance with the
provisions of the Agreement;
(c) the occurrence of certain events of bankruptcy, insolvency or
receivership relating to the Transferor; or
(d) the Trust Fund becomes subject to regulation by the Securities and
Exchange Commission as an investment company within the meaning of the
Investment Company Act of 1940, as amended.
In the case of any event described in clause (a) or (b), a Rapid
Amortization Event will be deemed to have occurred only if, after the applicable
grace period, if any, described in such clauses, either the Trustee or
Certificateholders holding Certificates evidencing more than 51% of the
Percentage Interests or the Certificate Insurer (so long as there is no default
by the Certificate Insurer in the performance of its obligations under the
Policy), by written notice to the Depositor and the Master Servicer (and to the
Trustee, if given by the Certificateholders) declare that a Rapid Amortization
Event has occurred as of the date of such notice. In the case of any event
described in clause (c) or (d), a Rapid Amortization Event will be deemed to
have occurred without any notice or other action on the part of the Trustee or
the Certificateholders immediately upon the occurrence of such event.
In addition to the consequences of a Rapid Amortization Event discussed
above, if the Transferor voluntarily files a bankruptcy petition or goes into
liquidation or any person is appointed a receiver or bankruptcy trustee of the
Transferor, on the day of any such filing or appointment no further Additional
Balances will be transferred to the Trust Fund, the Transferor will immediately
cease to transfer Additional Balances to the Trust Fund and the Transferor will
promptly give notice to the Trustee of any such filing or appointment. Within 15
days, the Trustee will publish a notice of the liquidation or the filing or
appointment stating that the Trustee intends to sell, dispose of or otherwise
liquidate the Mortgage Loans in a commercially reasonable manner and to the best
of its ability. Unless otherwise instructed within a specified period by
Certificateholders representing undivided interests aggregating more than 51% of
the aggregate principal amount of the Certificates, the Trustee will sell,
dispose of or otherwise liquidate the Mortgage Loans in a commercially
reasonable manner and on commercially reasonable terms. Any proceeds will be
treated as collections allocable to the Certificateholders and the Investor
Fixed Allocation Percentage of such remaining proceeds and will be distributed
to the Certificateholders on the date such proceeds are received (the
"Dissolution Distribution Date"). If the portion of such proceeds allocable to
the Certificateholders are not sufficient to pay in full the remaining amount
due on the Certificates, the Policy will cover such shortfall.
Notwithstanding the foregoing, if a conservator, receiver or
trustee-in-bankruptcy is appointed for the Transferor and no Rapid Amortization
Event exists other than such conservatorship, receivership or insolvency of
S-42
<PAGE>
<PAGE>
the Transferor, the conservator, receiver or trustee-in-bankruptcy may have the
power to prevent the commencement of the Rapid Amortization Period or the sale
of Mortgage Loans described above.
The Policy
[On or before the Closing Date, the Policy will be issued by the
Certificate Insurer pursuant to the provisions of the Agreement and the
Insurance and Indemnity Agreement (the "Insurance Agreement") to be dated as of
____________, 199_, among the Seller, the Depositor, the Master Servicer and the
Certificate Insurer.
The Policy will irrevocably and unconditionally guarantee payment on each
Distribution Date to the Trustee for the benefit of the Certificateholders the
full and complete payment of (i) the Guaranteed Principal Distribution Amount
(as defined herein) with respect to the Certificates for such Distribution Date
and (ii) accrued and unpaid interest due on the Certificates (together, the
"Guaranteed Distributions"), with such Guaranteed Distributions having been
calculated in accordance with the original terms of the Certificates or the
Agreement except for amendments or modifications to which the Certificate
Insurer has given its prior written consent. The effect of the Policy is to
guarantee the timely payment of interest on, and the ultimate payment of the
principal amount of, all of the Certificates.
The "Guaranteed Principal Distribution Amount" shall be the amount, if any,
by which the Certificate Principal Balance (after giving effect to all other
amounts distributable and allocable to principal on the Certificates) exceeds
the Invested Amount as of such Distribution Date (after giving effect to all
other amounts distributable and allocable to principal on the Certificates for
such Distribution Date). In addition, the Policy will guarantee the payment of
the outstanding Certificate Principal Balance on the Distribution Date in
______________ 20__ (after giving effect to all other amounts distributable and
allocable to principal on such Distribution Date).
In accordance with the Agreement, the Trustee will be required to establish
and maintain an account (the "Spread Account") for the benefit of the
Certificate Insurer and the Certificateholders. The Trustee shall deposit the
amounts into the Spread Account as required by the Agreement.
Payment of claims on the Policy will be made by the Certificate Insurer
following Receipt by the Certificate Insurer of the appropriate notice for
payment on the later to occur of (i) 12:00 noon, New York City time, on the
second Business Day following Receipt of such notice for payment and (ii) 12:00
noon, New York City time, on the relevant Distribution Date.
If payment of any amount guaranteed by the Certificate Insurer pursuant to
the Policy is avoided as a preference payment under applicable bankruptcy,
insolvency, receivership or similar law, the Certificate Insurer will pay such
amount out of the funds of the Certificate Insurer on the later of (a) the date
when due to be paid pursuant to the Order referred to below or (b) the first to
occur of (i) the fourth Business Day following Receipt by the Certificate
Insurer from the Trustee of (A) a certified copy of the order (the "Order") of
the court or other governmental body which exercised jurisdiction to the effect
that the Certificateholder is required to return the amount of any Guaranteed
Distributions distributed with respect to the Certificates during the term of
the related Policy because such distributions were avoidable preference payments
under applicable bankruptcy law, (B) a certificate of the Certificateholder that
the Order has been entered and is not subject to any stay and (C) an assignment
duly executed and delivered by the Certificateholder, in such form as is
reasonably required by the Certificate Insurer and provided to the
Certificateholder by the Certificate Insurer, irrevocably assigning to the
Certificate Insurer all rights and claims of the Certificateholder relating to
or arising under the Certificates against the debtor which made such preference
payment or otherwise with respect to such preference payment, or (ii) the date
of Receipt by the Certificate Insurer from the Trustee of the items referred to
in clauses (A), (B) and (C) above if, at least four Business Days prior to such
date of Receipt, the Certificate Insurer shall have Received written notice from
the Trustee that such items were to be delivered on such date and such date was
specified in such notice. Such payment shall be disbursed to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in the Order
and not to the Trustee or any Certificateholder directly (unless a
Certificateholder has previously paid such amount to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the Order in which case
such payment shall be disbursed to the Trustee for distribution to such
Certificateholder upon proof of such payment reasonably satisfactory to the
Certificate Insurer).
S-43
<PAGE>
<PAGE>
The terms "Receipt" and "Received", with respect to the Policy, mean actual
delivery to the Certificate Insurer and to its fiscal agent appointed by the
Certificate Insurer at its option, if any, prior to 12:00 noon, New York City
time, on a Business Day; delivery either on a day that is not a Business Day or
after 12:00 noon, New York City time, shall be deemed to be Receipt on the next
succeeding Business Day. If any notice or certificate given under the Policy by
the Trustee is not in proper form or is not properly completed, executed or
delivered it shall be deemed not to have been Received, and the Certificate
Insurer or the fiscal agent shall promptly so advise the Trustee and the Trustee
may submit an amended notice.
Under the Policy, "Business Day" means any day other than (i) a Saturday or
Sunday or (ii) a day on which banking institutions in The City of New York, New
York are authorized or obligated by law or executive order to be closed.
The Certificate Insurer's obligations under the Policy in respect of
Guaranteed Distributions shall be discharged to the extent funds are transferred
to the Trustee as provided in the Policy, whether or not such funds are properly
applied by the Trustee.
The Certificate Insurer shall be subrogated to the rights of each
Certificateholder to receive payments of principal and interest, as applicable,
with respect to distributions on the Certificates to the extent of any payment
by the Certificate Insurer under the Policy. To the extent the Certificate
Insurer makes Guaranteed Distributions, either directly or indirectly (as by
paying through the Trustee), to the Certificateholders, the Certificate Insurer
will be subrogated to the rights of the Certificateholders, as applicable, with
respect to such Guaranteed Distributions, shall be deemed to the extent of the
payments so made to be a registered Certificateholder for purposes of payment
and shall receive all future Guaranteed Distributions until all such Guaranteed
Distributions by the Certificate Insurer have been fully reimbursed, provided
that the Certificateholders have received the full amount of the Guaranteed
Distributions.
The terms of the Policy cannot be modified, altered or affected by any
other agreement or instrument, or by the merger, consolidation or dissolution of
the Seller. The Policy by its terms may not be cancelled or revoked.
The Policy is governed by the laws of the State of ________.
The Policy is not covered by the Property/Casualty Insurance Security fund
specified in Article 76 of the New York Insurance Law. The Policy is not covered
by the Florida Insurance Guaranty Association created under Part II of Chapter
631 of the Florida Insurance Code. In the event the Certificate Insurer were to
become insolvent, any claims arising under the Policy are excluded from coverage
by the California Insurance Guaranty Association, established pursuant to
Article 14.2 of Chapter 1 of part 2 of Division 1 of the California Insurance
Code.
Pursuant to the terms of the Agreement, unless a Certificate Insurer
default exists, the Certificate Insurer shall be deemed to be the Holder of the
Certificates for certain purposes (other than with respect to payment on the
Certificates), will be entitled to exercise all rights of the Certificateholders
thereunder, without the consent of such Holders and the Holders of the
Certificates may exercise such rights only with the prior written consent of the
Certificate Insurer. In addition, the Certificate Insurer will have certain
additional rights as third party beneficiary to the Agreement.
In the absence of payments under the Policy, Certificateholders will bear
directly the credit and other risks associated with their undivided interest in
the Trust Fund.]
Reports to Certificateholders
Concurrently with each distribution to the Certificateholders, the Master
Servicer will forward to the Trustee for mailing to such Certificateholder a
statement setting forth among other items:
(i) the Investor Floating Allocation Percentage for the preceding
Collection Period;
(ii) the amount being distributed to Certificateholders;
(iii) the amount of interest included in such distribution and the
related Certificate Rate;
S-44
<PAGE>
<PAGE>
(iv) the amount, if any, of overdue accrued interest included in such
distribution (and the amount of interest thereon);
(v) the amount, if any, of the remaining overdue accrued interest
after giving effect to such distribution;
(vi) the amount, if any, of principal included in such distribution;
(vii) the amount, if any, of the reimbursement of previous Liquidation
Loss Amounts included in such distribution;
(viii) the amount, if any, of the aggregate unreimbursed Liquidation
Loss Amounts after giving effect to such distribution;
(ix) the Servicing Fee for such Distribution Date;
(x) the Invested Amount and the Certificate Principal Balance, each
after giving effect to such distribution;
(xi) the Pool Balance as of the end of the preceding Collection
Period;
(xii) the number and aggregate Principal Balances of the Mortgage
Loans as to which the minimum monthly payment is delinquent for 30-59 days,
60-89 days and 90 or more days, respectively, as of the end of the
preceding Collection Period;
(xiii) the book value of any real estate which is acquired by the
Trust Fund through foreclosure or grant of deed in lieu of foreclosure; and
(xiv) the amount of any draws on the Policy.
In the case of information furnished pursuant to clauses (iii), (iv), (v),
(vi), (vii) and (viii) above, the amounts shall be expressed as a dollar amount
per Certificate with a $1,000 denomination.
Within 60 days after the end of each calendar year commencing in 1996, the
Master Servicer will be required to forward to the Trustee a statement
containing the information set forth in clauses (iii) and (vi) above aggregated
for such calendar year.
Collection and Other Servicing Procedures on Mortgage Loans
The Master Servicer will make reasonable efforts to collect all payments
called for under the Mortgage Loans and will, consistent with the Agreement,
follow such collection procedures as it follows from time to time with respect
to the home equity loans in its servicing portfolio comparable to the Mortgage
Loans. Consistent with the above, the Master Servicer may in its discretion
waive any late payment charge or any assumption or other fee or charge that may
be collected in the ordinary course of servicing the Mortgage Loans.
With respect to the Mortgage Loans, the Master Servicer may arrange with a
borrower a schedule for the payment of interest due and unpaid for a period,
provided that any such arrangement is consistent with the Master Servicer's
policies with respect to the home equity mortgage loans it owns or services. In
accordance with the terms of the Agreement, the Master Servicer may consent
under certain circumstances to the placing of a subsequent senior lien in
respect of a Mortgage Loan.
Hazard Insurance
The Agreement provides that the Master Servicer maintain certain hazard
insurance on the Mortgaged Properties relating to the Mortgage Loans. While the
terms of the related Credit Line Agreements generally require borrowers to
maintain certain hazard insurance, the Master Servicer will not monitor the
maintenance of such insurance.
The Agreement requires the Master Servicer to maintain for any Mortgaged
Property relating to a Mortgage Loan acquired upon foreclosure of a Mortgage
Loan, or by deed in lieu of such foreclosure, hazard insurance with
S-45
<PAGE>
<PAGE>
extended coverage in an amount equal to the lesser of (a) the maximum insurable
value of such Mortgaged Property or (b) the outstanding balance of such Mortgage
Loan plus the outstanding balance on any mortgage loan senior to such Mortgage
Loan at the time of foreclosure or deed in lieu of foreclosure, plus accrued
interest and the Master Servicer's good faith estimate of the related
liquidation expenses to be incurred in connection therewith. The Agreement
provides that the Master Servicer may satisfy its obligation to cause hazard
policies to be maintained by maintaining a blanket policy insuring against
losses on such Mortgaged Properties. If such blanket policy contains a
deductible clause, the Master Servicer will be obligated to deposit in the
Collection Account the sums which would have been deposited therein but for such
clause. The Master Servicer will satisfy these requirements by maintaining a
blanket policy. As set forth above, all amounts collected by the Master Servicer
(net of any reimbursements to the Master Servicer) under any hazard policy
(except for amounts to be applied to the restoration or repair of the Mortgaged
Property) will ultimately be deposited in the Collection Account.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements on the property by fire,
lightning, explosion, smoke, windstorm and hail, and the like, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies relating to the Mortgage Loans will be underwritten by
different insurers and therefore will not contain identical terms and
conditions, the basic terms thereof are dictated by state laws and most of such
policies typically do not cover any physical damage resulting from the
following: war, revolution, governmental actions, floods and other water-related
causes, earth movement (including earthquakes, landslides and mudflows), nuclear
reactions, wet or dry rot, vermin, rodents, insects or domestic animals, theft
and, in certain cases vandalism. The foregoing list is merely indicative of
certain kinds of uninsured risks and is not intended to be all-inclusive or an
exact description of the insurance policies relating to the Mortgaged
Properties.
Realization Upon Defaulted Mortgage Loans
The Master Servicer will foreclose upon or otherwise comparably convert to
ownership Mortgaged Properties securing such of the Mortgage Loans as come into
default when, in accordance with applicable servicing procedures under the
Agreement, no satisfactory arrangements can be made for the collection of
delinquent payments. In connection with such foreclosure or other conversion,
the Master Servicer will follow such practices as it deems necessary or
advisable and as are in keeping with its general subordinate mortgage servicing
activities, provided the Master Servicer will not be required to expend its own
funds in connection with foreclosure or other conversion, correction of default
on a related senior mortgage loan or restoration of any property unless, in its
sole judgment, such foreclosure, correction or restoration will increase Net
Liquidation Proceeds. The Master Servicer will be reimbursed out of Liquidation
Proceeds for advances of its own funds as liquidation expenses before any Net
Liquidation Proceeds are distributed to Certificateholders or the Transferor.
Optional Purchase of Defaulted Loan
The Master Servicer may, at its option, purchase from the Trust Fund any
Mortgage Loan which is delinquent in payment by 91 days or more. Any such
purchase shall be at a price equal to 100% of the Principal Balance of such
Mortgage Loan plus accrued interest thereon at the applicable Loan Rate from the
date through which interest was last paid by the related mortgagor to the first
day of the month in which such amount is to be distributed to
Certificateholders.
Servicing Compensation and Payment of Expenses
With respect to each Collection Period, the Master Servicer will receive
from interest collections in respect of the Mortgage Loans a portion of such
interest collections as a monthly Servicing Fee in the amount equal to
approximately 0.50% per annum ("Servicing Fee Rate") on the aggregate Principal
Balances of the Mortgage Loans as of the first day of the related Collection
Period (or at the Cut-off Date for the first Collection Period). All assumption
fees, late payment charges and other fees and charges, to the extent collected
from borrowers, will be retained by the Master Servicer as additional servicing
compensation.
The Master Servicer will pay certain ongoing expenses associated with the
Trust Fund and incurred by it in connection with its responsibilities under the
Agreement. In addition, the Master Servicer will be entitled to
S-46
<PAGE>
<PAGE>
reimbursement for certain expenses incurred by it in connection with defaulted
Mortgage Loans and in connection with the restoration of Mortgaged Properties,
such right of reimbursement being prior to the rights of Certificateholders to
receive any related Net Liquidation Proceeds.
Evidence as to Compliance
The Agreement provides for delivery on or before ___________ in each year,
beginning in ___________, 199_, to the Trustee of an annual statement signed by
an officer of the Master Servicer to the effect that the Master Servicer has
fulfilled its material obligations under the Agreement throughout the preceding
fiscal year, except as specified in such statement.
On or before _____________ of each year, beginning ___________, 199_, the
Master Servicer will furnish a report prepared by a firm of nationally
recognized independent public accountants (who may also render other services to
the Master Servicer or the Transferor) to the Trustee, the Certificate Insurer
and the Rating Agencies to the effect that such firm has examined certain
documents and the records relating to servicing of the Mortgage Loans under the
Agreement and that, on the basis of such examination, such firm believes that
such servicing was conducted in compliance with the Agreement except for (a)
such exceptions as such firm believes to be immaterial and (b) such other
exceptions as shall be set forth in such report.
Certain Matters Regarding the Master Servicer and the Transferor
The Agreement provides that the Master Servicer may not resign from its
obligations and duties thereunder, except in connection with a permitted
transfer of servicing, unless (i) such duties and obligations are no longer
permissible under applicable law or are in material conflict by reason of
applicable law with any other activities of a type and nature presently carried
on by it or its affiliate or (ii) upon the satisfaction of the following
conditions: (a) the Master Servicer has proposed a successor servicer to the
Trustee in writing and such proposed successor servicer is reasonably acceptable
to the Trustee; (b) the Rating Agencies have confirmed to the Trustee that the
appointment of such proposed successor servicer as the Master Servicer will not
result in the reduction or withdrawal of the then current rating of the
Certificates; and (c) such proposed successor servicer is reasonably acceptable
to the Certificate Insurer. No such resignation will become effective until the
Trustee or a successor servicer has assumed the Master Servicer's obligations
and duties under the Agreement.
The Master Servicer may perform any of its duties and obligations under the
Agreement through one or more subservicers or delegates, which may be affiliates
of the Master Servicer. Notwithstanding any such arrangement, the Master
Servicer will remain liable and obligated to the Trustee and the
Certificateholders for the Master Servicer's duties and obligations under the
Agreement, without any diminution of such duties and obligations and as if the
Master Servicer itself were performing such duties and obligations.
The Agreement provides that the Master Servicer will indemnify the Trust
Fund and the Trustee from and against any loss, liability, expense, damage or
injury suffered or sustained as a result of the Master Servicer's actions or
omissions in connection with the servicing and administration of the Mortgage
Loans which are not in accordance with the provisions of the Agreement. Under
the Agreement, the Transferor will indemnify an injured party for the entire
amount of any losses, claims, damages or liabilities arising out of or based on
the Agreement (other than losses resulting from defaults under the Mortgage
Loans). In the event of an Event of Servicing Termination (as defined below)
resulting in the assumption of servicing obligations by a successor Master
Servicer, the successor Master Servicer will indemnify the Transferor for any
losses, claims, damages and liabilities of the Transferor as described in this
paragraph arising from the successor Master Servicer's actions or omissions. The
Agreement provides that neither the Depositor, the Transferor nor the Master
Servicer nor their directors, officers, employees or agents will be under any
other liability to the Trust Fund, the Trustee, the Certificateholders or any
other person for any action taken or for refraining from taking any action
pursuant to the Agreement. However, neither the Depositor, the Transferor nor
the Master Servicer will be protected against any liability which would
otherwise be imposed by reason of willful misconduct, bad faith or gross
negligence of the Depositor, the Transferor or the Master Servicer in the
performance of its duties under the Agreement or by reason of reckless disregard
of its obligations thereunder. In addition, the Agreement provides that the
Master Servicer will not be under any obligation to appear in, prosecute or
defend any legal action which is not incidental to its servicing
responsibilities under the Agreement and which in its opinion may expose it to
any expense or liability. The Master Servicer may,
S-47
<PAGE>
<PAGE>
in its sole discretion, undertake any such legal action which it may deem
necessary or desirable with respect to the Agreement and the rights and duties
of the parties thereto and the interest of the Certificateholders thereunder.
Any corporation into which the Master Servicer may be merged or
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Master Servicer shall be a party, or any corporation
succeeding to the business of the Master Servicer shall be the successor of the
Master Servicer hereunder, without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything in the Agreement
to the contrary notwithstanding.
Events of Servicing Termination
"Events of Servicing Termination" will consist of: (i) any failure by the
Master Servicer to deposit in the Collection Account any deposit required to be
made under the Agreement, which failure continues unremedied for five business
days after the giving of written notice of such failure to the Master Servicer
by the Trustee, or to the Master Servicer and the Trustee by the Certificate
Insurer or Certificateholders evidencing an aggregate, undivided interest in the
Trust Fund of at least 25% of the Certificate Principal Balance; (ii) any
failure by the Master Servicer duly to observe or perform in any material
respect any other of its covenants or agreements in the Agreement which, in each
case, materially and adversely affects the interests of the Certificateholders
or the Certificate Insurer and continues unremedied for 60 days after the giving
of written notice of such failure to the Master Servicer by the Trustee, or to
the Master Servicer and the Trustee by the Certificate Insurer or
Certificateholders evidencing an aggregate, undivided interest in the Trust Fund
of at least 25% of the Certificate Principal Balance; or (iii) certain events of
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings relating to the Master Servicer and certain actions by the
Master Servicer indicating insolvency, reorganization or inability to pay its
obligations. Under certain other circumstances, the Certificate Insurer with the
consent of holders of Investor Certificates evidencing an aggregate, undivided
interest in the Trust Fund of at least 51% of the Certificate Principal Balance
may deliver written notice to the Master Servicer terminating all the rights and
obligations of the Master Servicer under the Agreement.
Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (i) above for a period of ten Business Days or referred
to under clause (ii) above for a period of 60 Business Days, shall not
constitute an Event of Servicing Termination if such delay or failure could not
be prevented by the exercise of reasonable diligence by the Master Servicer and
such delay or failure was caused by an act of God or other similar occurrence.
Upon the occurrence of any such event the Master Servicer shall not be relieved
from using its best efforts to perform its obligations in a timely manner in
accordance with the terms of the Agreement and the Master Servicer shall provide
the Trustee, the Depositor, the Transferor, the Certificate Insurer and the
Certificateholders prompt notice of such failure or delay by it, together with a
description of its efforts to so perform its obligations.
Rights Upon an Event of Servicing Termination
So long as an Event of Servicing Termination remains unremedied, either the
Trustee, or Certificateholders evidencing an aggregate, undivided interest in
the Trust Fund of at least 51% of the Certificate Principal Balance or the
Certificate Insurer, may terminate all of the rights and obligations of the
Master Servicer under the Agreement and in and to the Mortgage Loans, whereupon
the Trustee will succeed to all the responsibilities, duties and liabilities of
the Master Servicer under the Agreement and will be entitled to similar
compensation arrangements. In the event that the Trustee would be obligated to
succeed the Master Servicer but is unwilling or unable so to act, it may
appoint, or petition a court of competent jurisdiction for the appointment of, a
housing and home finance institution or other mortgage loan or home equity loan
servicer with all licenses and permits required to perform its obligations under
the Agreement and having a net worth of at least $__________ and acceptable to
the Certificate Insurer to act as successor to the Master Servicer under the
Agreement. Pending such appointment, the Trustee will be obligated to act in
such capacity unless prohibited by law. Such successor will be entitled to
receive the same compensation that the Master Servicer would otherwise have
received (or such lesser compensation as the Trustee and such successor may
agree). A receiver or conservator for the Master Servicer may be empowered to
prevent the termination and replacement of the Master Servicer where the only
Event of Servicing Termination that has occurred is an Insolvency Event.
Amendment
S-48
<PAGE>
<PAGE>
The Agreement may be amended from time to time by the Seller, the Master
Servicer, the Depositor and the Trustee and with the consent of the Certificate
Insurer, but without the consent of the Certificateholders, to cure any
ambiguity, to correct or supplement any provisions therein which may be
inconsistent with any other provisions of the Agreement, to add to the duties of
the Depositor, the Seller, the Transferor or the Master Servicer or to add or
amend any provisions of the Agreement as required by the Rating Agencies in
order to maintain or improve any rating of the Certificates (it being understood
that, after obtaining the ratings in effect on the Closing Date, neither the
Transferor, the Trustee nor the Master Servicer is obligated to obtain,
maintain, or improve any such rating) or to add any other provisions with
respect to matters or questions arising under the Agreement which shall not be
inconsistent with the provisions of the Agreement, provided that such action
will not, as evidenced by an opinion of counsel, materially and adversely affect
the interests of any Certificateholder or the Certificate Insurer; provided,
that any such amendment will not be deemed to materially and adversely affect
the Certificateholders and no such opinion will be required to be delivered if
the person requesting such amendment obtains a letter from the Rating Agencies
stating that such amendment would not result in a downgrading of the then
current rating of the Certificates. The Agreement may also be amended from time
to time by the Seller, the Master Servicer, the Depositor, and the Trustee, with
the consent of Certificateholders evidencing an aggregate, undivided interest in
the Trust Fund of at least 51% of the Certificate Principal Balance and the
Certificate Insurer for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of the Agreement or of modifying
in any manner the rights of the Certificateholders, provided that no such
amendment will (i) reduce in any manner the amount of, or delay the timing of,
collections of payments on the Certificates or distributions or payments under
the Policy which are required to be made on any Certificate without the consent
of the holder of such Certificate or (ii) reduce the aforesaid percentage
required to consent to any such amendment, without the consent of the holders of
all Certificates then outstanding.
Termination; Retirement of the Certificates
The Trust Fund will terminate on the Distribution Date following the later
of (A) payment in full of all amounts owing to the Certificate Insurer and (B)
the earliest of (i) the Distribution Date on which the Certificate Principal
Balance has been reduced to zero, (ii) the final payment or other liquidation of
the last Mortgage Loan in the Trust Fund, (iii) the optional transfer to the
Transferor of the Certificates, as described below and (iv) the Distribution
Date in ____________ 20__.
The Certificates will be subject to optional transfer to the Transferor on
any Distribution Date after the Certificate Principal Balance is reduced to an
amount less than or equal to __% of the Original Certificate Principal Balance
and all amounts due and owing to the Certificate Insurer and unreimbursed draws
on the Policy, together with interest thereon, as provided under the Insurance
Agreement, have been paid. The transfer price will be equal to the sum of the
outstanding Certificate Principal Balance and accrued and unpaid interest
thereon at the Certificate Rate through the day preceding the final Distribution
Date. In no event, however, will the Trust Fund created by the Agreement
continue for more than 21 years after the death of certain individuals named in
the Agreement. Written notice of termination of the Agreement will be given to
each Certificateholder, and the final distribution will be made only upon
surrender and cancellation of the Certificates at an office or agency appointed
by the Trustee which will be specified in the notice of termination.
In addition, the Trust Fund may be liquidated as a result of certain events
of bankruptcy, insolvency or receivership relating to the Transferor. See
"--Rapid Amortization Events" herein.
The Trustee
[________], a ____________________________ with its principal place of
business in ________, has been named Trustee pursuant to the Agreement.
The commercial bank or trust company serving as Trustee may own
Certificates and have normal banking relationships with the Depositor, the
Master Servicer, the Seller and the Certificate Insurer and/or their affiliates.
The Trustee may resign at any time, in which event the Depositor will be
obligated to appoint a successor Trustee, as approved by the Certificate
Insurer. The Depositor may also remove the Trustee if the Trustee ceases to be
eligible to continue as such under the Agreement or if the Trustee becomes
insolvent. Upon becoming aware of such circumstances, the Depositor will be
obligated to appoint a successor Trustee, as approved by the Certificate
S-49
<PAGE>
<PAGE>
Insurer. Any resignation or removal of the Trustee and appointment of a
successor Trustee will not become effective until acceptance of the appointment
by the successor Trustee.
No holder of a Certificate will have any right under the Agreement to
institute any proceeding with respect to the Agreement unless such holder
previously has given to the Trustee written notice of default and unless
Certificateholders evidencing an aggregate, undivided interest in the Trust Fund
of at least 51% of the Certificate Principal Balance have made written requests
upon the Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable indemnity and the Trustee
for 60 days has neglected or refused to institute any such proceeding. The
Trustee will be under no obligation to exercise any of the trusts or powers
vested in it by the Agreement or to make any investigation of matters arising
thereunder or to institute, conduct or defend any litigation thereunder or in
relation thereto at the request, order or direction of any of the
Certificateholders, unless such Certificateholders have offered to the Trustee
reasonable security or indemnity against the cost, expenses and liabilities
which may be incurred therein or thereby.
Certain Activities
The Trust Fund will not: (i) borrow money; (ii) make loans; (iii) invest in
securities for the purpose of exercising control; (iv) underwrite securities;
(v) except as provided in the Agreement, engage in the purchase and sale (or
turnover) of investments; (vi) offer securities in exchange for property (except
Certificates for the Mortgage Loans); or (vii) repurchase or otherwise reacquire
its securities. See "--Evidence as to Compliance" above for information
regarding reports as to the compliance by the Master Servicer with the terms of
the Agreement.
DESCRIPTION OF THE PURCHASE AGREEMENT
The Mortgage Loans to be transferred to the Trust Fund by the Depositor
will be purchased by the Depositor from [Countrywide] pursuant to the Purchase
Agreement to be entered into between the Depositor, as purchaser of the Mortgage
Loans, and [Countrywide], as Seller of the Mortgage Loans. Under the Purchase
Agreement, the Seller will agree to transfer the Mortgage Loans and related
Additional Balances to the Depositor. Pursuant to the Agreement, the Mortgage
Loans will be immediately transferred by the Depositor to the Trust Fund, and
the Depositor will assign its rights in, to and under the Purchase Agreement to
the Trust Fund. The following is a description of the material provisions of the
Purchase Agreement.
Transfers of Mortgage Loans
Pursuant to the Purchase Agreement, the Seller will transfer and assign to
the Depositor, all of its right, title and interest in and to the Mortgage Loans
and all of the Additional Balances thereafter created. The purchase price of the
Mortgage Loans is a specified percentage of the face amount thereof as of the
time of transfer and is payable by the Depositor in cash. The purchase price of
each Additional Balance comprising the Principal Balance of a Mortgage Loan is
the amount such Additional Balance.
Representations and Warranties
The Seller will represent and warrant to the Depositor that, among other
things, as of the Closing Date, it is duly organized and in good standing and
that it has the authority to consummate the transactions contemplated by the
Purchase Agreement. The Seller will also represent and warrant to the Depositor
that, among other things, immediately prior to the sale of the Mortgage Loans to
the Depositor, the Seller was the sole owner and holder of the Mortgage Loans
free and clear of any and all liens and security interests. The Seller will make
similar representations and warranties in the Agreement. The Seller will also
represent and warrant to the Depositor that, among other things, as of the
Closing Date, (a) the Purchase Agreement constitutes a legal, valid and binding
obligation of the Seller and (b) the Purchase Agreement constitutes a valid sale
to the Depositor of all right, title and interest of the Seller in and to the
Mortgage Loans and the proceeds thereof.
Assignment to Trust Fund
S-50
<PAGE>
<PAGE>
The Seller expressly acknowledges and consents to the Depositor's transfer
of its rights relating to the Mortgage Loans under the Agreement to the Trust
Fund. The Seller also agrees to perform its obligations under the Purchase
Agreement for the benefit of the Trust Fund.
Termination
The Purchase Agreement will terminate upon the termination of the Trust
Fund.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will be
applied by the Depositor towards the purchase of the Mortgage Loans.
FEDERAL INCOME TAX CONSEQUENCES
General
The following discussion, which summarizes the material U.S. federal income
tax aspects of the purchase, ownership and disposition of the Certificates, is
based on the provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), the Treasury Regulations thereunder, and published rulings and court
decisions in effect as of the date hereof, all of which are subject to change,
possibly retroactively. This discussion does not address every aspect of the
U.S. federal income tax laws which may be relevant to Certificate Owners in
light of their personal investment circumstances or to certain types of
Certificate Owners subject to special treatment under the U.S. federal income
tax laws (for example, banks and life insurance companies). Accordingly,
investors should consult their tax advisors regarding U.S. federal, state,
local, foreign and any other tax consequences to them of investing in the
Certificates.
Characterization of the Certificates as Indebtedness
Based on the application of existing law to the facts as set forth in the
Agreement and other relevant documents and assuming compliance with the terms of
the Agreement as in effect on the date of issuance of the Certificates, Brown &
Wood llp, special tax counsel to the Depositor ("Tax Counsel"), is of the
opinion that the Certificates will be treated as debt instruments for Federal
income tax purposes as of such date. Accordingly, upon issuance, the
Certificates will be treated as "Debt Securities" as described in the
Prospectus. See "Federal Income Tax Consequences" in the Prospectus.
The Transferor and the Certificateholders express in the Agreement their
intent that, for applicable tax purposes, the Certificates will be indebtedness
secured by the Mortgage Loans. The Transferor, the Depositor and the
Certificateholders, by accepting the Certificates, and each Certificate Owner by
its acquisition of a beneficial interest in a Certificate, have agreed to treat
the Certificates as indebtedness for U.S. federal income tax purposes. However,
because different criteria are used to determine the non-tax accounting
characterization of the transaction, the Transferor intends to treat this
transaction as a sale of an interest in the Asset Balances of the Mortgage Loans
for financial accounting and certain regulatory purposes.
In general, whether for U.S. federal income tax purposes a transaction
constitutes a sale of property or a loan, the repayment of which is secured by
property, is a question of fact, the resolution of which is based upon the
economic substance of the transaction rather than its form or the manner in
which it is labeled. While the Internal Revenue Service (the "IRS") and the
courts have set forth several factors to be taken into account in determining
whether the substance of a transaction is a sale of property or a secured loan,
the primary factor in making this determination is whether the transferee has
assumed the risk of loss or other economic burdens relating to the property and
has obtained the benefits of ownership thereof. Tax Counsel has analyzed and
relied on several factors in reaching its opinion that the weight of the
benefits and burdens of ownership of the Mortgage Loans has been retained by the
Transferor and has not been transferred to the Certificate Owners.
S-51
<PAGE>
<PAGE>
In some instances, courts have held that a taxpayer is bound by the
particular form it has chosen for a transaction, even if the substance of the
transaction does not accord with its form. Tax Counsel has advised that the
rationale of those cases will not apply to this transaction, because the form of
the transaction as reflected in the operative provisions of the documents either
accords with the characterization of the Certificates as debt or otherwise makes
the rationale of those cases inapplicable to this situation.
Taxation of Interest Income of Certificate Owners
Assuming that the Certificate Owners are holders of debt obligations for
U.S. federal income tax purposes, the Certificates generally will be taxable as
Debt Securities. See "Federal Income Tax Consequences" in the Prospectus.
While it is not anticipated that the Certificates will be issued at a
greater than de minimis discount, under Treasury regulations (the "OID
Regulations") it is possible that the Certificates could nevertheless be deemed
to have been issued with original issue discount ("OID") if the interest were
not treated as "unconditionally payable" under the OID Regulations. If such
regulations were to apply, all of the taxable income to be recognized with
respect to the Certificates would be includible in income of Certificate Owners
as OID, but would not be includible again when the interest is actually
received. See "Federal Income Tax Consequences--Taxation of Debt Securities;
Interest and Acquisition Discount" in the Prospectus for a discussion of the
application of the OID rules if the Certificates are in fact issued at a greater
than de minimis discount or are treated as having been issued with OID under the
OID Regulations. For purposes of calculating OID, it is likely that the
Certificates will be treated as Pay-Through Securities.
Possible Classification of the Certificates as a Partnership or Association
Taxable as a Corporation
The opinion of Tax Counsel is not binding on the courts or the IRS. It is
possible that the IRS could assert that, for purposes of the Code, the
transaction contemplated by this Prospectus with respect to the Certificates
constitutes a sale of the Mortgage Loans (or an interest therein) to the
Certificate Owners and that the proper classification of the legal relationship
between the Transferor and the Certificate Owners resulting from this
transaction is that of a partnership, a publicly traded partnership treated as a
corporation, or an association taxable as a corporation. Since Tax Counsel has
advised that the Certificates will be treated as indebtedness in the hands of
the Certificateholders for U.S. federal income tax purposes, the Transferor will
not attempt to comply with U.S. federal income tax reporting requirements
applicable to partnerships or corporations.
If it were determined that this transaction created an entity classified as
a corporation (including a publicly traded partnership taxable as a
corporation), the Trust Fund would be subject to U.S. federal income tax at
corporate income tax rates on the income it derives from the Mortgage Loans,
which would reduce the amounts available for distribution to the Certificate
Owners. Cash distributions to the Certificate Owners generally would be treated
as dividends for tax purposes to the extent of such corporation's earnings and
profits.
If the transaction were treated as creating a partnership between the
Certificate Owners and the Transferor, the partnership itself would not be
subject to U.S. federal income tax (unless it were to be characterized as a
publicly traded partnership taxable as a corporation); rather, the Transferor
and each Certificate Owner would be taxed individually on their respective
distributive shares of the partnership's income, gain, loss, deductions and
credits. The amount and timing of items of income and deductions of the
Certificate Owner could differ if the Certificates were held to constitute
partnership interests rather than indebtedness. Assuming that all of the
provisions of the Agreement, as in effect on the date of issuance, are
complied with, it is the opinion of Tax Counsel that the Trust Fund will not
be treated as either an association or a partnership taxable as a corporation.
Possible Classification as a Taxable Mortgage Pool
In relevant part, Section 7701(i) of the Code provides that any entity (or
a portion of an entity) that is a "taxable mortgage pool" will be classified as
a taxable corporation and will not be permitted to file a consolidated U.S.
federal income tax return with another corporation. Subject to a grandfather
provision for existing entities, any entity (or a portion of any entity) will be
a taxable mortgage pool if (i) substantially all of its assets consist of debt
instruments, more than 50% of which are real estate mortgages, (ii) the entity
is the obligor under debt obligations with two or more maturities, and (iii)
under the terms of the entity's debt obligations (or an underlying arrangement),
payments on such debt obligations bear a relationship to the debt instruments
held by the entity.
S-52
<PAGE>
<PAGE>
Assuming that all of the provisions of the Agreement, as in effect on the
date of issuance, are complied with, Tax Counsel is of the opinion that the
arrangement created by the Agreement will not be a taxable mortgage pool under
Section 7701(i) of the Code because only one class of indebtedness secured by
the Mortgage Loans is being issued.
The opinion of Tax Counsel is not binding on the IRS or the courts. If the
IRS were to contend successfully (or future regulations were to provide) that
the arrangement created by the Agreement is a taxable mortgage pool, such
arrangement would be subject to U.S. federal corporate income tax on its taxable
income generated by ownership of the Mortgage Loans. Such a tax might reduce
amounts available for distributions to Certificate Owners. The amount of such a
tax would depend upon whether distributions to Certificate Owners would be
deductible as interest expense in computing the taxable income of such an
arrangement as a taxable mortgage pool.
Foreign Investors
In general, subject to certain exceptions, interest (including OID) paid on
a Certificate to a nonresident alien individual, foreign corporation or other
non-United States person is not subject to U.S. federal income tax, provided
that such interest is not effectively connected with a trade or business of the
recipient in the United States and the Certificate Owner provides the required
foreign person information certification. See "Federal Income Tax
Consequences--Tax Treatment of Foreign Investors" in the Prospectus.
If the interests of the Certificate Owners were deemed to be partnership
interests, the partnership would be required, on a quarterly basis, to pay
withholding tax equal to the product, for each foreign partner, of such foreign
partner's distributive share of "effectively connected" income of the
partnership multiplied by the highest rate of tax applicable to that foreign
partner. In addition, such foreign partner would be subject to branch profits
tax. Each non-foreign partner would be required to certify to the partnership
that it is not a foreign person. The tax withheld from each foreign partner
would be credited against such foreign partner's U.S. income tax liability.
If the Trust Fund were taxable as a corporation, distributions to foreign
persons, to the extent treated as dividends, would generally be subject to
withholding at the rate of 30%, unless such rate were reduced by an applicable
tax treaty.
Backup Withholding
Certain Certificate Owners may be subject to backup withholding at the rate
of 31% with respect to interest paid on the Certificates if the Certificate
Owners, upon issuance, fail to supply the Trustee or his broker with his
taxpayer identification number, furnish an incorrect taxpayer identification
number, fail to report interest, dividends, or other "reportable payments" (as
defined in the Code) properly, or, under certain circumstances, fail to provide
the Trustee or his broker with a certified statement, under penalty of perjury,
that he is not subject to backup withholding.
The Trustee will be required to report annually to the IRS, and to each
Certificateholder of record, the amount of interest paid (and OID accrued, if
any) on the Certificates (and the amount of interest withheld for U.S. federal
income taxes, if any) for each calendar year, except as to exempt holders
(generally, holders that are corporations, certain tax-exempt organizations or
nonresident aliens who provide certification as to their status as
nonresidents). As long as the only "Certificateholder" of record is Cede, as
nominee for DTC, Certificate Owners and the IRS will receive tax and other
information including the amount of interest paid on the Certificates owned from
Participants and Indirect Participants rather than from the Trustee. (The
Trustee, however, will respond to requests for necessary information to enable
Participants, Indirect Participants and certain other persons to complete their
reports.) Each non-exempt Certificate Owner will be required to provide, under
penalty of perjury, a certificate on IRS Form W-9 containing his or her name,
address, correct federal taxpayer identification number and a statement that he
or she is not subject to backup withholding. Should a nonexempt Certificate
Owner fail to provide the required certification, the Participants or Indirect
Participants (or the Paying Agent) will be required to withhold 31% of the
interest (and principal) otherwise payable to the holder, and remit the withheld
amount to the IRS as a credit against the holder's federal income tax liability.
STATE TAXES
S-53
<PAGE>
<PAGE>
The Depositor makes no representations regarding the tax consequences of
purchase, ownership or disposition of the Certificates under the tax laws of any
state. Investors considering an investment in the 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 Certificates.
ERISA CONSIDERATIONS
Any Plan fiduciary which proposes to cause a Plan to acquire any of the
Certificates should consult with its counsel with respect to the potential
consequences under the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and the Code, of the Plans acquisition and ownership of such
Certificates. See "ERISA Considerations" in the Prospectus.
The U.S. Department of Labor has granted to _________________
("Underwriter") Prohibited Transaction Exemption _____ (the "Exemption") which
exempts from the application of the prohibited transaction rules transactions
relating to (1) the acquisition, sale and holding by Plans of certain
certificates representing an undivided interest in certain asset-backed
pass-through trusts, with respect to which Underwriter or any of its affiliates
is the sole underwriter or the manager or co-manager of the underwriting
syndicate; and (2) the servicing, operation and management of such asset-backed
pass-through trusts, provided that the general conditions and certain other
conditions set forth in the Exemption are satisfied. The Exemption will apply to
the acquisition, holding and resale of the Certificates by a Plan provided that
certain conditions are met.
For a general description of the Exemption and the conditions that must be
satisfied for the Exemption to apply, see "ERISA Considerations" in the
Prospectus.
The Underwriter believes that the Exemption will apply to the acquisition
and holding of the Certificates by Plans and that all conditions of the
Exemption other than those within the control of the investors will be met.
Any Plan fiduciary considering whether to purchase any Certificates on
behalf of a Plan should consult with its counsel regarding the applicability of
the fiduciary responsibility and prohibited transaction provisions of ERISA and
the Code to such investment. Among other things, before purchasing any
Certificates, a fiduciary of a Plan subject to the fiduciary responsibility
provisions of ERISA or an employee benefit plan subject to the prohibited
transaction provisions of the Code should make its own determination as to the
availability of the exemptive relief provided in the Exemption, and also
consider the availability of any other prohibited transaction exemptions.
LEGAL INVESTMENT CONSIDERATIONS
Although, as a condition to their issuance, the Certificates will be rated
in the highest rating category of the Rating Agencies, the Certificates will not
constitute "mortgage related securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA"), because not all of the Mortgages
securing the Mortgage Loans are first mortgages. Accordingly, many institutions
with legal authority to invest in comparably rated securities based on first
mortgage loans may not be legally authorized to invest in the Certificates,
which because they evidence interests in a pool that includes junior mortgage
loans are not "mortgage related securities" under SMMEA. See "Legal Investment"
in the Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, dated ___________, 199_ (the "Underwriting Agreement"), among the
Depositor and [Underwriter] (the "Underwriter"), the Depositor has agreed to
sell to the Underwriter, and the Underwriter has agreed to purchase from the
Depositor all the Certificates.
In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions set forth therein, to purchase all the Certificates offered
hereby if any of the Certificates are purchased.
S-54
<PAGE>
<PAGE>
The Depositor has been advised by the Underwriter that it proposes
initially to offer the Certificates to the public in Europe and the United
States at the offering price set forth on the cover page hereof and to certain
dealers at such price less a discount not in excess of ____% of the Certificate
denominations. The Underwriter may allow and such dealers may reallow a discount
not in excess of _____% of the Certificate denominations to certain other
dealers. After the initial public offering, the public offering price, such
concessions and such discounts may be changed.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriter against certain civil liabilities, including liabilities under the
Act.
LEGAL MATTERS
Certain legal matters with respect to the Certificates will be passed upon
for the Depositor by Brown & Wood llp, New York, New York and for the
Underwriter by Strook & Strook & Lavan, New York, New York.
EXPERTS
The consolidated balance sheets of [Insurer] and Subsidiaries as of
___________, 199_ and 199_ and the related consolidated statements of income,
changes in shareholder's equity, and cash flows for each of the three years in
the period ended ___________, 199_, incorporated by reference in this Prospectus
Supplement, have been incorporated herein in reliance on the report of
________________________, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
RATINGS
It is a condition to issuance that the Certificates be rated "___" by _____
and "___" by _________.
A securities rating addresses the likelihood of the receipt by
Certificateholders of distributions on the Mortgage Loans. The rating takes into
consideration the characteristics of the Mortgage Loans and the structural,
legal and tax aspects associated with the Certificates. The ratings on the
Certificates do not, however, constitute statements regarding the likelihood or
frequency of prepayments on the Mortgage Loans or the possibility that
Certificateholders might realize a lower than anticipated yield.
The ratings assigned to the Certificates will depend primarily upon the
creditworthiness of the Certificate Insurer. Any reduction in a rating assigned
to the claims-paying ability of the Certificate Insurer below the ratings
initially assigned to the Certificates may result in a reduction of one or more
of the ratings assigned to the Certificates.
A securities rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each securities rating should be evaluated independently of
similar ratings on different securities.
The Depositor has not requested a rating of the 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 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 Certificates could be lower than the respective
ratings assigned by the Rating Agencies.
S-55
<PAGE>
<PAGE>
INDEX OF DEFINED TERMS
Page
----
Accelerated Principal Distribution Amount.....................S-9, S-39
Additional Balances.................................................S-3
Agreement...........................................................S-3
ALTA ..........................................................S-20
Alternative Documentation Program..................................S-19
Alternative Principal Payment................................S-11, S-41
Assignment Event...................................................S-35
BIF ..........................................................S-37
Book-Entry Certificates............................................S-32
Business Day.................................................S-39, S-44
Cede ...........................................................S-7
CEDEL ...........................................................S-7
CEDEL Participants.................................................S-33
Certificate Insurer................................................S-12
Certificate Owners............................................S-7, S-32
Certificate Principal Balance.................................S-4, S-31
Certificate Rate........................................S-4, S-10, S-40
Certificateholder............................................S-32, S-53
Certificates...................................................S-1, S-4
Chase ...........................................................S-7
Citibank ...........................................................S-7
Closing Date............................................S-1, S-10, S-40
Code ..........................................................S-51
Collection Account...........................................S-10, S-37
Collection Period............................................S-10, S-40
Combined Loan-to-Value Ratio........................................S-6
Cooperative........................................................S-34
[Countrywide]............................................S-1, S-3, S-19
Credit Limit........................................................S-6
Credit Limit Utilization Rate......................................S-22
Credit Line Agreements........................................S-3, S-21
Cut-off Date...................................................S-1, S-3
Cut-off Date Pool Balance...........................................S-3
Cut-off Date Principal Balance......................................S-3
Debt Securities....................................................S-51
debt-to-income ratio...............................................S-20
Defective Mortgage Loans...........................................S-36
Definitive Certificate.............................................S-32
Depositor...........................................................S-3
Determination Date...........................................S-13, S-37
Dissolution Distribution Date......................................S-42
Distribution Date.......................................S-1, S-10, S-39
Draw Period........................................................S-22
DTC ...............................................S-7, S-32, S-60
Due Date ...........................................................S-6
Eligible Account...................................................S-37
Eligible Substitute Mortgage Loan..................................S-36
ERISA ....................................................S-15, S-54
Euroclear...........................................................S-7
Euroclear Operator.................................................S-33
Euroclear Participants.............................................S-33
European Depositaries.........................................S-7, S-32
S-56
<PAGE>
<PAGE>
Page
----
Events of Servicing Termination....................................S-48
Exemption..........................................................S-54
FHLMC ..........................................................S-20
Financial Intermediary.............................................S-32
Fixed Allocation Percentage........................................S-10
FNMA ..........................................................S-20
Guaranteed Distributions.....................................S-12, S-43
Guaranteed Principal Distribution Amount.....................S-12, S-43
Index Rate.........................................................S-22
Insurance Agreement..........................................S-12, S-43
Interest Collections..........................................S-8, S-38
Interest Period..............................................S-10, S-40
Invested Amount...............................................S-4, S-31
Investor Fixed Allocation Percentage...............................S-10
Investor Floating Allocation Percentage.......................S-8, S-38
Investor Interest Collections.................................S-8, S-38
Investor Loss Amount..........................................S-9, S-40
Investor Principal Collections...............................S-10, S-38
IRS ..........................................................S-51
LIBOR ..........................................................S-10
LIBOR Business Day.................................................S-40
Liquidated Mortgage Loan...........................................S-40
Liquidation Loss Amount.......................................S-9, S-40
Liquidation Proceeds...............................................S-38
Loan Rate.....................................................S-6, S-22
Managed Amortization Period..................................S-11, S-41
Margin ..........................................................S-22
Master Servicer.....................................................S-3
Maximum Principal Payment....................................S-11, S-41
Maximum Rate.......................................................S-22
Minimum Transferor Interest...................................S-5, S-37
Money Rates.........................................................S-6
Mortgage Files.....................................................S-35
Mortgage Loan Schedule..................................S-5, S-35, S-37
Mortgage Loans.................................................S-1, S-3
Mortgaged Properties................................................S-3
Moody's ..........................................................S-37
Net Liquidation Proceeds......................................S-8, S-38
OID ..........................................................S-52
OID Regulations....................................................S-52
Order ..........................................................S-43
Original Certificate Principal Balance........................S-4, S-31
Original Invested Amount......................................S-4, S-31
Overcollateralization Amount........................................S-9
Paying Agent.......................................................S-11
Percentage Interest.................................................S-6
Plan ..........................................................S-15
Policy ......................................................S-1, S-3
Pool Balance..................................................S-3, S-38
Pool Factor........................................................S-31
Principal Balance...................................................S-3
Principal Collections.........................................S-8, S-38
Purchase Agreement..................................................S-5
Rapid Amortization Event...........................................S-42
S-57
<PAGE>
<PAGE>
Page
----
Rating Agency......................................................S-15
Receipt ..........................................................S-43
Received ..........................................................S-43
Record Date........................................................S-39
Reduced Documentation Program......................................S-19
Reference Bank Rate................................................S-40
Related Documents..................................................S-35
Relevant Depositary................................................S-32
Repayment Period...................................................S-22
Required Overcollateralization Amount..............................S-40
Rules ..........................................................S-32
SAIF ..........................................................S-37
Scheduled Principal Collections Distribution Amount..........S-11, S-41
Seller ...........................................................S-3
Servicing Fee......................................................S-13
Servicing Fee Rate...........................................S-13, S-46
SMMEA ....................................................S-15, S-54
Spread Account...............................................S-12, S-43
Tax Counsel........................................................S-51
Telerate Screen Page 3750..........................................S-40
Terms and Conditions...............................................S-34
Transfer Date......................................................S-36
Transfer Deficiency................................................S-35
Transfer Deposit Amount............................................S-35
Transferor..........................................................S-4
Transferor Interest......................................S-1, S-4, S-32
Transferor Principal Collections.............................S-10, S-38
Trust Fund.....................................................S-1, S-3
Trustee .....................................................S-3, S-14
Underwriter........................................................S-54
Underwriting Agreement.............................................S-54
S-58
<PAGE>
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Home Equity
Loan Asset Backed Certificates, Series 199_-_ (the "Global Securities") will be
available only in book-entry form. Investors in the Global Securities may hold
such Global Securities through any of The Depository Trust Company ("DTC"),
CEDEL or Euroclear. The Global Securities will be tradeable as home market
instruments in both the European and U.S. domestic markets. Initial settlement
and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through CEDEL and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations and prior Home Equity Loan Asset Backed
Certificates issues.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of CEDEL and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, CEDEL and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to prior Home Equity Loan Asset Backed
Certificates issues. Investor securities custody accounts will be credited with
their holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior Home
Equity Loan Asset Backed Certificates issues in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
S-59
<PAGE>
<PAGE>
Trading between DTC seller and CEDEL or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a CEDEL Participant or a Euroclear Participant, the purchaser will
send instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. CEDEL or Euroclear
will instruct the respective Depositary, as the case may be, to receive the
Global Securities against payment. Payment will include interest accrued on the
Global Securities from and including the last coupon payment date to and
excluding the settlement date, on the basis of the actual number of days in such
accrual period and a year assumed to consist of 360 days. For transactions
settling on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. Payment will then be made by the
respective Depositary of the DTC Participant's account against delivery of the
Global Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the CEDEL Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debt will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the CEDEL or Euroclear cash debt
will be valued instead as of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within CEDEL or Euroclear. Under this approach,
they may take on credit exposure to CEDEL or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL Participants or Euroclear Participants can elect not to preposition
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, CEDEL Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each CEDEL Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective European Depositary for the benefit of CEDEL Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller on
the settlement date. Thus, to the DTC Participants a cross-market transaction
will settle no differently than a trade between two DTC Participants.
Trading between CEDEL or Euroclear Seller and DTC Purchaser. Due to time
zone differences in their favor, CEDEL Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to CEDEL or Euroclear through a CEDEL Participant or Euroclear Participant at
least one business day prior to settlement. In these cases CEDEL or Euroclear
will instruct the respective Depositary, as appropriate, to deliver the Global
Securities to the DTC Participant's account against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment to and excluding the settlement date on the basis of the actual
number of days in such accrual period and a year assumed to consist of 360 days.
For transactions settling on the 31st of the month, payment will include
interest accrued to and excluding the first day of the following month. The
payment will then be reflected in the account of the CEDEL Participant or
Euroclear Participant the following day, and receipt of the cash proceeds in the
CEDEL Participant's or Euroclear Participant's account would be back-valued to
the value date (which would be the preceding day, when settlement occurred in
New York). Should the CEDEL Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect to be in debt in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft incurred over that one-day period. If settlement
is not completed on the intended value date (i.e., the trade fails), receipt of
the cash proceeds in the CEDEL Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
S-60
<PAGE>
<PAGE>
Finally, day traders that use CEDEL or Euroclear and that purchase Global
Securities from DTC Participants for delivery to CEDEL Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the purchase
side of the day trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant no
later than one day prior to settlement, which would give the Global Securities
sufficient time to be reflected in their CEDEL or Euroclear account in order to
settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC Participant is at least one
day prior to the value date for the sale to the CEDEL Participant or Euroclear
Participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through CEDEL or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form 1001). Non-U.S. Persons that are Certificate Owners residing in a country
that has a tax treaty with the United States can obtain an exemption or reduced
tax rate (depending on the treaty terms) by filing Form 1001 (Ownership,
Exemption or Reduced Rate Certificate). If the treaty provides only for a
reduced rate, withholding tax will be imposed at that rate unless the filer
alternatively files Form W-8. Form 1001 may be filed by the Certificate Owners
or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate or trust
the income of which is includible in gross income for United States tax
purposes, regardless of its source. This summary does not deal with all aspects
of U.S. federal income tax withholding that may be relevant to foreign holders
of the Global Securities. Investors are advised to consult their own tax
advisors for specific tax advice concerning their holding and disposing of the
Global Securities.
S-61
<PAGE>
<PAGE>
================================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the Company
or [Underwriter]. This Prospectus Supplement and the Prospectus do not
constitute an offer of any securities other than those to which they relate or
an offer to sell, or a solicitation of an offer to buy, to any person in any
jurisdiction where such an offer or solicitation would be unlawful. Neither the
delivery of this Prospectus Supplement and the Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any time subsequent to their
respective dates.
----------------------
TABLE OF CONTENTS
Page
----
Prospectus Supplement
Summary ................................................................. S-3
Risk Factors ............................................................ S-16
The Certificate Insurer ................................................. S-18
The Master Servicer ..................................................... S-19
The Home Equity Loan Program ............................................ S-19
Description of the Mortgage Loans ....................................... S-21
Maturity and Prepayment Considerations .................................. S-29
Pool Factor and Trading Information ..................................... S-31
Description of the Certificates ......................................... S-31
Description of the Purchase Agreement ................................... S-50
Use of Proceeds ......................................................... S-51
Federal Income Tax Consequences ......................................... S-51
State Taxes ............................................................. S-53
ERISA Considerations .................................................... S-54
Legal Investment Considerations ......................................... S-54
Underwriting ............................................................ S-54
Legal Matters ........................................................... S-55
Experts ................................................................. S-55
Ratings ................................................................. S-55
Index of Defined Terms .................................................. S-56
Annex I ................................................................. S-59
Prospectus
Prospectus Supplement or Current Report on Form 8K ...................... 2
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
Method of Distribution .................................................. 94
Legal Matters ........................................................... 95
Financial Information ................................................... 95
Ratings ................................................................. 95
Index of Defined Terms .................................................. 97
================================================================================
[COUNTRYWIDE] HOME
EQUITY LOAN TRUST 199__-__
$_______________
(Approximate)
Home Equity Loan
Asset Backed Certificates
Series 199__-__
CWABS, Inc.
Depositor
[Countrywide Home Loans, Inc.]
Seller and Master Servicer
---------------------------
PROSPECTUS SUPPLEMENT
____________, 199__
---------------------------
[UNDERWRITER]
================================================================================
<PAGE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation, or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED NOVEMBER 5, 1996
PROSPECTUS SUPPLEMENT
(To Prospectus dated __________, 1996)
$
(Approximate)
Mortgage Pass-Through Certificates, Series 19__-__
Distributions payable on the ____ day of each month, commencing in _____ 19__
CWABS, Inc.
Depositor
[Countrywide Home Loans, Inc.]
Seller and Master Servicer
-------------------
The Mortgage Pass-Through Certificates, Series 199__-__ (collectively, the
"Certificates") will represent the entire beneficial interest in a Trust Fund
consisting of a pool (the "Mortgage Pool") of [fixed-rate] sub-prime Mortgage
Loans secured by first liens on one- to four-family residential properties. Only
the Classes of Certificates identified in the table below (collectively, the
"Offered Certificates") are offered hereby. See "Index of Defined Terms" on Page
S-57 of this Prospectus Supplement and on Page 98 of the Prospectus for the
location of the definitions of certain capitalized terms.
-------------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER "RISK
FACTORS" ON PAGE S-12 HEREIN AND ON PAGE 12 IN THE ACCOMPANYING PROSPECTUS.
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 AFFILIATES OR ANY OTHER PERSON.
DISTRIBUTIONS ON THE CERTIFICATES WILL BE PAYABLE SOLELY FROM THE ASSETS
TRANSFERRED TO THE TRUST FUND FOR THE BENEFIT OF CERTIFICATEHOLDERS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==================================================================================================================
Initial Class
Certificate
Balance (1) Pass-Through Rate
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Class A- $ %
- ------------------------------------------------------------------------------------------------------------------
Class $ %
- ------------------------------------------------------------------------------------------------------------------
Class PO $ (2)
- ------------------------------------------------------------------------------------------------------------------
Class X (3) (4)
- ------------------------------------------------------------------------------------------------------------------
Class A-R $ %
- ------------------------------------------------------------------------------------------------------------------
Class B- $ %
- ------------------------------------------------------------------------------------------------------------------
Class $ %
- ------------------------------------------------------------------------------------------------------------------
Class $ %
==================================================================================================================
</TABLE>
(1) Subject to the permitted variance described under "Summary of
Terms--Offered Certificates" herein.
(2) The Class PO Certificates will be Principal Only Certificates and will not
bear interest.
(3) The Class X Certificates will be Notional Amount Certificates, will have no
principal balance and will bear interest on their Notional Amount
(initially expected to be approximately $ ).
(4) The Pass-Through Rate for the Class X Certificates for any Distribution
Date will be equal to the excess of (a) the weighted average of the Net
Mortgage Rates of the Non-Discount Mortgage Loans over (b) % per annum. The
Pass-Through Rate for the Class X Certificates for the first Distribution
Date is expected to be approximately % per annum.
The Senior Certificates, other than the Class PO and Class X Certificates
(the "Underwritten Senior Certificates"), will be purchased by _________ and the
Class ___ Certificates (together with the Underwritten Senior Certificates, the
"Underwritten Certificates") offered hereby will be purchased by _________
(each, an "Underwriter") from the Depositor and will be offered by the
Underwriters from time to time in negotiated transactions or otherwise at
varying prices to be determined at the time of sale. Proceeds to the Depositor
from the sale of the Underwritten Certificates are expected to be approximately
$_________, plus accrued interest, before deducting issuance expenses payable by
the Depositor. The Class , Class PO and Class X Certificates will be issued to
the Depositor on or about _________, 19__ as partial consideration for the sale
of the Mortgage Loans to the Trust Fund.
The Underwritten Certificates are offered by the respective Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters and subject to their right to reject orders in whole or in part. It
is expected that delivery of the Underwritten
<PAGE>
<PAGE>
Senior Certificates, other than the Class A-R Certificates, will be made in
book-entry form only through the facilities of The Depository Trust Company,
that the Class A-R Certificates will be delivered at the offices of
_________________ in New York, New York and that the Class Certificates will be
delivered at the offices of_______________ in New York, New York, in each case
on or about _________, 19__.
[Underwriters]
<PAGE>
<PAGE>
The Mortgage Loans will be sold to the Depositor by [Countrywide Home
Loans, Inc. ("Countrywide")].
An election will be made to treat the Trust Fund as a "real estate mortgage
investment conduit" (the "REMIC") for federal income tax purposes. As described
more fully herein and in the Prospectus, Offered Certificates, other than the
Class A-R Certificates, will constitute "regular interests" in the REMIC. The
Class A-R Certificates will constitute the sole class of "residual interest" in
the REMIC. Prospective investors are cautioned that a Class A-R
Certificateholder's REMIC taxable income and the tax liability thereon will
exceed cash distributions in certain periods, in which event such holder must
have sufficient alternative sources of funds to pay such tax liability. See
"Federal Income Tax Consequences" herein and in the Prospectus.
The Class A-R Certificates will be subject to certain transfer
restrictions. See "Description of the Certificates -- Restrictions on Transfer
of the Class A-R Certificates" herein.
The yield to investors on each Class of Offered Certificates will be
sensitive in varying degrees to, among other things, the rate and timing of
principal payments (including prepayments) of the Mortgage Loans, which may vary
significantly over time. The yield to maturity of a Class of Offered
Certificates purchased at a discount or premium will be more sensitive to the
rate and timing of payments thereon. Holders of the Offered Certificates should
consider, in the case of any such Certificates purchased at a discount, and
particularly the Principal Only Certificates, the risk that a slower than
anticipated rate of principal payments on the Mortgage Loans could result in an
actual yield that is lower than the anticipated yield and, in the case of any
Offered Certificates purchased at a premium and particularly the Interest Only
Certificates, the risk that a faster than anticipated rate of principal payments
on the Mortgage Loans could result in an actual yield that is lower than the
anticipated yield. Holders of the Interest Only Certificates should carefully
consider the risk that a rapid rate of principal payments on the Mortgage Loans
could result in the failure of such holders to recover their initial
investments. The yield to investors in the Offered Certificates, and
particularly the Class ____ Certificates, also will be adversely affected by Net
Interest Shortfalls and by Realized Losses. No representation is made as to the
anticipated rate of prepayments on the Mortgage Loans, the amount and timing of
Net Interest Shortfalls or Realized Losses, or as to the resulting yield to
maturity of any Class of Certificates.
Each Underwriter intends to make a secondary market in the Classes of
Underwritten Certificates being purchased by it, but no Underwriter has an
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 it will provide
Certificateholders with a sufficient level of liquidity of investment.
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.
-------------------
This Prospectus Supplement does not contain complete information about the
offering of the Offered Certificates. Additional information is contained in the
Prospectus of the Depositor dated _________, 1996 (the "Prospectus") 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.
The Trustee on behalf of any 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 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 _____________, telephone:_________, facsimile
number:_____________, attention:__________.
S-2
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
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-57 of this Prospectus Supplement and on
Page 98 of the Prospectus for the location of the definitions of certain
capitalized terms.
Title of Certificates........... Mortgage Pass-Through Certificates, Series
199 - (the "Certificates").
Offered Certificates............ Class A-__, Class _____, Class PO, Class X,
Class A-R, Class B-__ and Class _____
Certificates. Only the Offered Certificates
are offered hereby. The aggregate initial
Class Certificate Balances of the
Certificates will be subject to a permitted
variance in the aggregate of plus or minus
__%. Variances in the Class Certificate
Balances may result in variances in the
Notional Amount of the Class of Notional
Amount Certificates.
The Notional Amount of the Class X
Certificates for any Distribution Date will
be equal to the aggregate of the Stated
Principal Balances of the Non-Discount
Mortgage Loans with respect to such
Distribution Date. The initial Notional
Amount of the Class X Certificates will be
equal to the aggregate of the Stated
Principal Balances of the Non-Discount
Mortgage Loans as of the Cut-off Date.
Certificates other than the
Offered Certificates.......... In addition to the Offered Certificates, the
following Classes of Certificates will be
issued in the indicated approximate initial
Class Certificate Balances and will bear
interest at the indicated Pass-Through
Rates, but are not offered hereby:
Initial Class
Certificate Pass-Through
Balance Rate
---------- ------------
Class (1)... $ %
Class (1)... $ %
Class (1)... $ %
--------
(1) The Class _________, Class __________
and Class _________ Certificates will
provide limited credit support to the Senior
Certificates and the other Subordinated
Certificates, as described under
"Description of the
Certificates--Principal--Subordinated
Principal Distribution Amount" and "Credit
Enhancement--Subordination of Certain
Classes" herein.
- --------------------------------------------------------------------------------
S-3
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Any information contained herein with
respect to the Class _____, Class _____ and
Class _____ Certificates is provided only to
permit a better understanding of the Offered
Certificates.
Designations
Regular Certificates.......... All Classes of Certificates other than the
Class A-R Certificates.
Residual Certificates......... Class A-R Certificates.
Senior Certificates........... Class A-__, Class __________, Class PO,
Class X and Class A-R Certificates.
Subordinated Certificates..... Class B-__, Class __________, and Class
_________ Certificates.
Principal Only Certificates... Class PO Certificates.
Interest Only Certificates.... Class X Certificates.
Notional Amount
Certificates................ Class X Certificates.
Fixed Rate Certificates....... All Classes of Certificates other than the
Class PO and Class X Certificates.
Variable Rate Certificates.... Class X Certificates.
Physical Certificates......... Class PO, Class X and Class A-R Certificates
and the Subordinated Certificates.
Book-Entry Certificates....... All Classes of Certificates other than the
Physical Certificates.
Trust Fund...................... The Certificates will represent the entire
beneficial ownership interest in the Trust
Fund, which will consist of the Mortgage
Pool.
Pooling and Servicing
Agreement..................... The Certificates will be issued pursuant to
a Pooling and Servicing Agreement dated as
of ________, 19 (the "Agreement"), among the
Depositor, the Seller, the Master Servicer
and the Trustee.
Depositor....................... CWABS, Inc. (the "Depositor"), a Delaware
corporation and a limited purpose finance
subsidiary of Countrywide Credit Industries,
Inc. See "The Depositor" in the Prospectus.
- --------------------------------------------------------------------------------
S-4
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
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 in the normal course
of its business by the Seller and will be
acquired by the Depositor in a privately
negotiated transaction. The Master Servicer
will be responsible for the servicing of the
Mortgage Loans and will receive the Master
Servicing Fee from interest collected on the
Mortgage Loans. See "Servicing of Mortgage
Loans -- Servicing Compensation and Payment
of Expenses" herein.
Trustee......................... __________________, a _____________________
organized under the laws of
_____________________ (the "Trustee").
Cut-off Date.................... ___________, 19__.
Closing Date.................... On or about ___________, 19__.
Determination Date.............. The ________ day of each month or, if such
day is not a business day, the preceding
business day; provided that the
Determination Date in each month will be at
least two business days prior to the related
Distribution Date.
Mortgage Loans.................. The Mortgage Pool will consist of 30-year
conventional [fixed-rate] mortgage loans
secured by first liens on one- to
four-family residential properties.
Distributions of principal and interest on
the Certificates will be based solely on
payments received on the Mortgage Loans, as
described under "Description of the
Certificates" herein. See "The Mortgage
Pool" herein.
Distribution Date............... The _________ day of each month or, if such
day is not a business day, on the first
business day thereafter, commencing in
___________ 19 (each, a "Distribution
Date"). Distributions on each Distribution
Date will be made to Certificateholders of
record as of the related Record Date, except
that the final distribution on the
Certificates will be made only upon
presentment and surrender of the
Certificates at the Corporate Trust Office
of the Trustee.
Record Date..................... The Record Date for each Distribution Date
will be the last business day of the month
preceding the month of such Distribution
Date.
Priority of Distributions....... Distributions will be made on each
Distribution Date from Available Funds in
the following order of priority: (i) to
interest
- --------------------------------------------------------------------------------
S-5
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
on each interest bearing Class of Senior
Certificates; (ii) to principal on the
Classes of Senior Certificates then entitled
to receive distributions of principal, in
the order and subject to the priorities set
forth herein under "Description of the
Certificates -- Principal," in each case in
an aggregate amount up to the maximum amount
of principal to be distributed on such
Classes on such Distribution Date; (iii) to
any Class PO Deferred Amounts with respect
to the Class PO Certificates, but only from
amounts that would otherwise be
distributable on such Distribution Date as
principal of the Subordinated Certificates;
and (iv) to interest on and then principal
of each Class of Subordinated Certificates,
in the order of their numerical Class
designations, beginning with the Class __
Certificates, in each case subject to the
limitations set forth herein under
"Description of the Certificates --
Principal."
Under certain circumstances, distributions
from Available Funds for a Distribution Date
that would otherwise be made on the
Subordinated Certificates may be distributed
instead on the Senior Certificates. See
"Description of the Certificates --
Allocation of Losses" herein.
Distributions of Interest....... To the extent funds are available therefor,
each interest bearing Class of Certificates
will be entitled to receive interest in the
amount of the Interest Distribution Amount
for such Class. The Class PO Certificates
are Principal Only Certificates and will not
bear interest. See "Description of the
Certificates -- Interest" herein.
A. Interest Distribution
Amount...................... For each interest bearing Class of
Certificates, the amount of interest accrued
during the related Interest Accrual Period
at the applicable Pass-Through Rate on the
related Class Certificate Balance or
Notional Amount, as the case may be.
B. Pass-Through Rate.......... The Pass-Through Rate for each interest
bearing Class of Offered Certificates for
each Distribution Date will be as set forth
or described on the cover page hereof.
The Pass-Through Rate for the Class X
Certificates for any Distribution Date will
be equal to the excess of (a) the weighted
average of the Net Mortgage Rates of the
Non-Discount Mortgage Loans over (b) ____%
per annum. The Pass-Through Rate for the
Class X Certificates for the first
Distribution Date is expected to be
approximately ___% per annum.
- --------------------------------------------------------------------------------
S-6
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
With respect to each Distribution Date, the
"Interest Accrual Period" for each interest
bearing Class of Certificates will be the
calendar month preceding the month of such
Distribution Date.
Distributions of Principal...... On each Distribution Date, to the extent
funds are available therefor, principal
distributions in reduction of the Class
Certificate Balances of each Class of
Certificates (other than the Notional Amount
Certificates) will be made in the order and
subject to the priorities set forth herein
under "Description of the Certificates --
Principal" in an aggregate amount equal to
such Class' allocable portion of the Senior
Principal Distribution Amount, the Class PO
Principal Distribution Amount or the
Subordinated Principal Distribution Amount,
as applicable. The Notional Amount
Certificates do not have principal balances
and are not entitled to any distributions in
respect of principal of the Mortgage Loans.
See "Description of the Certificates --
Principal" herein.
Credit Enhancement -- General... Credit enhancement for the Senior
Certificates will be provided by the
Subordinated Certificates and credit
enhancement for each Class of Subordinated
Certificates will be provided by the Class
or Classes of Subordinated Certificates with
higher numerical Class ______ designations,
as described below. The aggregate of the
initial Class Certificate Balances of the
Class _____, Class and Class ______
Certificates, which are the only
Certificates supporting the Class
Certificates, is expected to be
approximately $_________.
Subordination................... The rights of holders of the Subordinated
Certificates to receive distributions with
respect to the Mortgage Loans in the Trust
Fund will be subordinated to such rights of
holders of the Senior Certificates, and the
rights of the holders of each Class of
Subordinated Certificates (other than the
Class _______ Certificates) to receive such
distributions will be further subordinated
to such rights of the Class or Classes of
Subordinated Certificates with lower
numerical Class designations, in each case
only to the extent described under "Credit
Enhancement--Subordination of Certain
Classes" herein.
The subordination of the Subordinated
Certificates to the Senior Certificates, and
the further subordination within the
Subordinated Certificates, is intended to
increase the likelihood of timely receipt by
the holders of Certificates with higher
relative payment priority of the maximum
amount to which they are entitled on any
Distribution Date and to provide such
holders
- --------------------------------------------------------------------------------
S-7
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
protection against losses on the Mortgage
Loans to the extent described under
"Description of Certificates--Allocation of
Losses" herein. The Subordinated
Certificates also provide protection, to a
lesser extent, against Special Hazard
Losses, Bankruptcy Losses and Fraud Losses.
However, in certain circumstances the amount
of available subordination (including the
limited subordination provided for certain
types of losses) may be exhausted and
shortfalls in distributions on the
Certificates could result. Holders of the
Senior Certificates will bear their
proportionate share of any losses realized
on the Mortgage Loans in excess of the
available subordination amount. See
"Description of the Certificates -- Priority
of Distributions Among Certificates," " --
Allocation of Losses," and "Credit
Enhancement -- Subordination of Certain
Classes" herein.
In addition, Realized Losses on the Mortgage
Loans will reduce the Class Certificate
Balances of the applicable Class of
Subordinated Certificates to the extent of
any losses allocated thereto (as described
under "Description of the Certificates --
Allocation of Losses" herein), without the
receipt of cash attributable to such
reduction. As a result of such reductions,
less interest will accrue on such Class of
Subordinated Certificates than otherwise
would be the case. The yield to maturity of
the Subordinated Certificates will also be
affected by the disproportionate allocation
of principal prepayments to the Senior
Certificates, Net Interest Shortfalls, other
cash shortfalls in Available Funds and
distribution of funds to Class PO
Certificateholders otherwise available for
distribution on the Subordinated
Certificates to the extent of reimbursement
for Class PO Deferred Amounts. See
"Description of the Certificates --
Allocation of Losses" herein.
Advances........................ 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 under "Servicing of Mortgage
Loans--Advances" 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
Agreement. See "Servicing of Mortgage Loans
-- Advances" herein.
Prepayment Considerations and
Risks; Reinvestment Risk...... The rate of principal payments on the
Offered Certificates, the aggregate amount
of distributions on the Offered Certificates
and the yield to maturity of the Offered
Certificates will be related
- --------------------------------------------------------------------------------
S-8
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
to the rate and timing of payments of
principal on 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
extent to which the yield to maturity of a
Class of Offered Certificates may vary from
the anticipated yield may depend upon the
degree to which it is purchased at a
discount or premium, and the degree to which
the timing of payments thereon is sensitive
to prepayments, liquidations and purchases
of the Mortgage Loans. Further, an investor
should consider the risk that, in the case
of the Principal Only Certificates and any
other Offered Certificate purchased at a
discount, a slower than anticipated rate of
principal payments (including prepayments)
on the Mortgage Loans could result in an
actual yield to such investor that is lower
than the anticipated yield and, in the case
of the Interest Only Certificates and any
other Offered Certificate purchased at a
premium, a faster than anticipated rate of
principal payments could result in an actual
yield to such investor that is lower than
the anticipated yield. Investors in the
Interest Only Certificates should carefully
consider the risk that a rapid rate of
principal payments on the Mortgage Loans
could result in the failure of such
investors to recover their initial
investments.
Because the Mortgage Loans may be prepaid at
any time, it is not possible to predict the
rate at which distributions of principal of
the Offered Certificates will be received.
Since prevailing interest rates are subject
to fluctuation, there can be no assurance
that investors in the Offered Certificates
will be able to reinvest the distributions
thereon at yields equaling or exceeding the
yields on such Offered Certificates. It is
possible that yields on any such
reinvestments will be lower, and may be
significantly lower, than the yields on the
Offered Certificates. See "Risk
Factors--Prepayment Considerations and
Risks" and "Yield, Prepayment and Maturity
Considerations" herein.
Optional Termination............ On any Distribution Date on which the Pool
Principal Balance is less than 10% of the
Cut-off Date Pool Principal Balance, the
Master Servicer will have the option to
purchase, in whole, the Mortgage Loans and
the REO Property, if any, remaining in the
Trust Fund. See "Description of the
Certificates -- Optional Termination"
herein.
Federal Income Tax
- --------------------------------------------------------------------------------
S-9
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Consequences.................. An election will be made to treat the Trust
Fund as a "real estate mortgage investment
conduit" ("REMIC") for federal income tax
purposes. The Regular Certificates will
constitute "regular interests" in the REMIC
and the Residual Certificates will
constitute the sole class of "residual
interest" in the REMIC. The Class A-_, Class
PO and Class X Certificates will, and
depending on their respective issue prices
certain other Classes of Offered
Certificates may, be issued with original
issue discount ("OID") for federal income
tax purposes. See "Federal Income Tax
Consequences" herein and in the Prospectus.
The holders of the Class A-R Certificates
will be subject to special federal income
tax rules that may significantly reduce the
after-tax yield of such Certificates.
Further, significant restrictions apply to
the transfer of the Class A-R Certificates.
See "Description of the
Certificates--Restrictions on Transfer of
the Class A-R Certificates" herein.
The Interest Only Certificates and the
Principal Only Certificates will, and
certain other Classes of Offered
Certificates may, be issued with original
issue discount for federal income tax
purposes. See "Federal Income Tax
Consequences" herein and "Federal Income Tax
Consequences" in the Prospectus.
ERISA Considerations............ The acquisition of an Offered Certificate by
a pension or other employee benefit plan (a
"Plan") subject to the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), could, in some instances, result
in a prohibited transaction or other
violation of the fiduciary responsibility
provisions of ERISA and Section 4975 of the
Internal Revenue Code of 1986, as amended
(the "Code").
Subject to the considerations and conditions
described under "ERISA Considerations"
herein, it is expected that the Senior
Certificates (other than the Class PO, Class
X and Class A-R 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.
Legal Investment................ The Senior Certificates and the Class _____
Certificates will constitute "mortgage
related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA") so long as they are rated in
one of the two highest
- --------------------------------------------------------------------------------
S-10
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
rating categories by at least one nationally
recognized statistical rating organization
and, as such, are legal investments for
certain entities to the extent provided for
in SMMEA.
It is anticipated that the Class _____ and
Class _____ Certificates will not be rated
in one of the two highest rating categories
by a nationally recognized statistical
rating organization and, therefore, will not
constitute "mortgage related securities" for
purposes of SMMEA.
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 to the issuance of the
Senior Certificates that they be rated
______ by ("______") and ______ by ("______"
and, together with ______, the "Rating
Agencies"). See ______, "Ratings" herein. It
is a condition to the issuance of the Class
______, Class ______ and Class ______
Certificates that they be rated at least
______, and ______, respectively, by ______.
The ratings of the Offered Certificates of
any Class should be evaluated independently
from similar ratings on other types of
securities. A rating is not a recommendation
to buy, sell or hold securities and may be
subject to revision or withdrawal at any
time by either of the Rating Agencies. See
"Risk Factors--Certificate Rating" and
"Ratings" herein.
Risk Factors.................... For a discussion of certain risks associated
with an investment in the Certificates, see
"Risk Factors" on Page S-12 herein and on
Page S-12 in the Prospectus.
- --------------------------------------------------------------------------------
S-11
<PAGE>
<PAGE>
RISK FACTORS
Investors should consider the following risks in connection with the
purchase of the Certificates.
Consequences of Owning Book-Entry Certificates. Issuance of the
Certificates in book-entry form may reduce the liquidity of such Certificates in
the secondary trading market since investors may be unwilling to purchase
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 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 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 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 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 Certificateholders as such term is used in the Agreement, and
Certificate Owners will be permitted to exercise the rights of Certificate-
holders 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. Minimum monthly payments on the
Mortgage Loans will at least equal and may exceed accrued interest. 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 that are delinquent and resulting shortfalls in
distributions to Certificateholders could occur. Further, liquidation expenses
(such as legal fees, real estate taxes, and maintenance and preservation
expenses) will reduce the proceeds payable to Certificateholders and thereby
reduce the security for the Mortgage Loans. In the event any of the Mortgaged
Properties fail to provide adequate security for the related Mortgage Loans,
Certificateholders could experience a loss.
Prepayment Considerations and Risks. Substantially all of the Mortgage
Loans may be prepaid in whole or in part at any time without penalty. The
Trust'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
Certificates will be affected primarily by the rate and timing of prepayment on
the Mortgage Loans. Any reinvestment risks resulting from a faster or slower
incidence of prepayment of Mortgage Loans will be borne entirely by the
Certificateholders. See
S-12
<PAGE>
<PAGE>
"Yield, Prepayment and Maturity Considerations" herein and "Yield and Prepayment
Considerations" in the Prospectus.
Certificate Rating. The rating of the Certificates will depend primarily on
an assessment by the Rating Agencies of the Mortgage Loans. The rating by the
Rating Agencies of the Certificates is not a recommendation to purchase, hold or
sell the 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.
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 receiver 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 receiver decided to challenge such transfer, delays in payments of
the Certificates and reductions in the amounts thereof could occur. The
Depositor will warrant in the Agreement that the transfer of the Mortgage Loans
by it to the Trust is either a valid transfer and assignment of such Mortgage
Loans to the Trust or the grant to the Trust 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
Certificateholders from appointing a successor Master Servicer.
[Geographic Concentration. As of the Cut-off Date, approximately _____% (by
Cut-off Date Pool Principal Balance) of the Mortgaged Properties are located in
the State of __________. An overall decline in the __________ 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 __________ residential real estate market will not weaken. If the
__________ residential real estate market should experience an overall decline
in property values after the dates of origination of the Mortgage Loans, the
rates of losses on the Mortgage Loans would be expected to increase, and could
increase substantially.]
Delinquent Mortgage Loans. The Trust will include Mortgage Loans which are
89 or fewer days delinquent as of the Cut-off Date. The Cut-off Date Pool
Principal Balance of Mortgage Loans which are between 30 days and 89 days
delinquent as of the Cut-off Date was $_________________. If there are not
sufficient Available Funds on any Distribution Dates, the aggregate amount of
principal returned to the Certificateholders may be less than the respective
Class Certificate Principal Balances on the day the Certificates were issued.
Risks of Holding Subordinated Certificates. The subordination of the
Subordinated Certificates to the Senior Certificates, and the further
subordination within the Subordinated Certificates, is intended to increase the
likelihood of timely receipt by the holders of Certificates with higher relative
payment priority of the maximum amount to which they are entitled on any
Distribution Date and to provide such holders protection against losses on the
Mortgage Loans to the extent described under
S-13
<PAGE>
<PAGE>
"Description of the Certificates--Allocation of Losses" and "Credit
Enhancement--Subordination of Certain Classes". However, in certain
circumstances the amount of available subordination (including the limited
subordination provided for certain types of losses) may be exhausted and
shortfalls in distributions on the Certificates could result. Holders of the
Senior Certificates will bear their proportionate share of any losses realized
on the Mortgage Loans in excess of the available subordination amount.
In addition, the weighted average life of, and the yield to maturity on,
the Subordinated Certificates, in increasing order of their numerical Class
designation, will be progressively more sensitive to the rate and timing of
mortgagor defaults and the severity of ensuing losses on the Mortgage Loans. If
the actual rate and severity of losses on the Mortgage Loans is higher than
those assumed by a holder of a Subordinated Certificate, the actual yield to
maturity of such Certificate may be lower than the yield expected by such holder
based on such assumption. The timing of losses on Mortgage Loans will also
affect an investor's actual yield to maturity, even if the rate of defaults and
severity of losses over the life of the Mortgage Pool are consistent with an
investor's expectations. Realized Losses on the Mortgage Loans will reduce the
Class Certificate Balances of the applicable Class of Subordinated Certificates
to the extent of any losses allocated thereto (as described under "Description
of the Certificates--Allocation of Losses" herein), without the receipt of cash
attributable to such reduction. As a result of such reductions, less interest
will accrue on such Class of Subordinated Certificates than otherwise would be
the case. The yield to maturity of the Subordinated Certificates will also be
affected by the disproportionate allocation of principal prepayments to the
Senior Certificates, Net Interest Shortfalls, other cash shortfalls in Available
Funds and distribution of funds to Class PO Certificateholders otherwise
available for distribution on the Subordinated Certificates to the extent of
reimbursement for Class PO Deferred Amounts. See "Description of the
Certificates--Allocation of Losses" and "Yield, Prepayment and Maturity
Considerations--The Subordinated Certificates" herein.
For a discussion of additional risks pertaining to the Certificates, see
"Risk Factors" in the Prospectus.
S-14
<PAGE>
<PAGE>
THE MORTGAGE POOL
General
The Depositor will purchase the Mortgage Loans from [Countrywide] pursuant
to the Pooling and Servicing Agreement dated as of the Cut-off Date among
[Countrywide], as Seller and Master Servicer, the Depositor and the Trustee (the
"Agreement") and will cause the Mortgage Loans to be assigned, without recourse,
to the Trustee for the benefit of the holders of the Certificates (the
"Certificateholders").
Under the Agreement, the Seller will make certain representations,
warranties and covenants to the Depositor relating to, among other things, the
due execution and enforceability of the Agreement and certain characteristics of
the Mortgage Loans and, subject to the limitations described below under " --
Assignment of the Mortgage Loans," will be obligated to repurchase or substitute
a similar mortgage loan for any Mortgage Loan as to which there exists deficient
documentation or an uncured material breach of any such representation, warranty
or covenant. The Seller will represent and warrant to the Depositor in the
Agreement that the Mortgage Loans were selected from among the outstanding one-
to four-family mortgage loans in the Seller's portfolio as to which the
representations and warranties set forth in the Agreement can be made and that
such selection was not made in a manner that would adversely affect the
interests of the Certificateholders. See "Loan Program -- Representations by
Sellers; Repurchases" in the Prospectus. Under the Agreement, the Depositor will
assign all its right, title and interest in and to such representations,
warranties and covenants (including the Seller's repurchase obligation) to the
Trustee for the benefit of Certificateholders. The Depositor will make no
representations or warranties with respect to the Mortgage Loans and will have
no obligation to repurchase or substitute Mortgage Loans with deficient
documentation or which are otherwise defective. [Countrywide] is selling the
Mortgage Loans without recourse and will have no obligation with respect to the
Certificates in its capacity as Seller other than the repurchase obligation
described above. The obligations of [Countrywide], as Master Servicer, with
respect to the Certificates are limited to the Master Servicer's contractual
servicing obligations under the Agreement.
Certain information with respect to the Mortgage Loans expected 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 under "The Mortgage Pool" 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 herein under "The Mortgage Pool"
expressed as a percentage (other than rates of interest) are approximate
percentages based on the Stated Principal Balances of the Mortgage Loans as of
the Cut-off Date.
As of the Cut-off Date, the aggregate of the Stated Principal Balances of
the Mortgage Loans is expected to be approximately $ (the "Cut-off Date Pool
Principal Balance"). The Mortgage Loans provide for the amortization of the
amount financed over a series of substantially equal monthly payments. All the
Mortgage Loans provide for payments due as of the first day of each month (the
"Due Date"). At origination, substantially all of the Mortgage Loans had stated
terms to maturity of 30 years. The Mortgage Loans to be included in the Mortgage
Pool were originated or purchased by [Countrywide] and were originated
substantially in accordance with [Countrywide's] underwriting criteria for
sub-prime ("B&C") quality mortgage loans described under "The Mortgage
Pool--Underwriting Standards" herein. Sub-prime mortgage loans are generally
first mortgage loans made to borrowers with prior credit difficulties.
S-15
<PAGE>
<PAGE>
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 ________ (__) day grace period for monthly payments. Any Mortgage Loan may be
prepaid in full or in part at any time; however, approximately ____% of the
Mortgage Loans provide for the payment by the borrower of a prepayment charge in
limited circumstances on full prepayments made within ____ 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 ____ 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 ____ 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 __% of
the original balance of such Mortgage Loan.]
Each Mortgage Loan was originated after __________________.
The latest stated maturity date of any Mortgage Loan is ____________. The
earliest stated maturity date of any Mortgage Loan is ____________.
As of the Cut-off Date, no Mortgage Loan was delinquent more than 89 days.
[No] Mortgage Loan will be subject to a buydown agreement. [No] Mortgage
Loan provides for deferred interest or negative amortization.
[No Mortgage Loan had a Loan-to-Value Ratio at origination of more than
95%. Each Mortgage Loan with a Loan-to-Value Ratio at origination of greater
than 80% is covered by a primary mortgage guaranty insurance policy issued by a
mortgage insurance company acceptable to FNMA or FHLMC, which policy provides
coverage in an amount equal to the excess of the original principal balance of
the related Mortgage Loan over 75% of the value of the related Mortgaged
Property, plus accrued interest thereon and related foreclosure expenses.
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. If the
residential real estate market should experience an overall decline in property
values such that the outstanding balances of the Mortgage Loans become equal to
or greater than the value of the Mortgaged Properties, actual losses on the
Mortgage Loans could be higher than losses now generally experienced in the
mortgage lending industry.
The following information sets forth in tabular format certain information,
as of the Cut-off Date, as to the Mortgage Loans. Other than with respect to
rates of interest, percentages (approximate) are stated by Stated Principal
Balance of the Mortgage Loans as of the Cut-off Date and have been rounded in
order to total 100%.
S-16
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Mortgage Rates(1)
-----------------
Number of Mortgage Aggregate Principal Balance
Mortgage Rates (%) Loans Outstanding Percent of Mortgage Pool
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
6.250....................... $ %
6.750.......................
6.875.......................
7.000.......................
7.125.......................
7.250.......................
7.375.......................
7.500.......................
7.625.......................
7.750.......................
7.875.......................
8.000.......................
8.125.......................
8.250.......................
8.375.......................
8.500.......................
8.625.......................
8.750.......................
8.875.......................
9.000.......................
9.125.......................
9.250.......................
9.375.......................
9.500.......................
9.875.......................
10.000.......................
---------- ----------- ------
Totals....................... $ 100.00%
---------- ----------- ------
---------- ----------- ------
</TABLE>
- ----------
(1) As of the Cut-off Date, the weighted average Mortgage Rate of the Mortgage
Loans (as so adjusted) is expected to be approximately ______%. Without
such adjustment, the weighted average Mortgage Rate of the Mortgage Loans
is expected to be approximately ______% per annum.
S-17
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Original Loan-to-Value Ratios(1)
--------------------------------
Original Loan-to-Value Number of Mortgage Aggregate Principal Balance
Rates (%) Loans Outstanding Percent of Mortgage Pool
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
50.00 and below.............. $ %
50.01 to 55.00...............
55.01 to 60.00...............
60.01 to 65.00...............
65.01 to 70.00...............
70.01 to 75.00...............
75.01 to 80.00...............
80.01 to 85.00...............
85.01 to 90.00...............
90.01 to 95.00...............
---------- ----------- ------
Totals....................... $ 100.00%
---------- ----------- ------
---------- ----------- ------
</TABLE>
- ----------
(1) The weighted average original Loan-to-Value Ratio of the Mortgage Loans is
expected to be approximately %.
<TABLE>
<CAPTION>
Current Mortgage Loan Principal Balances(1)
-------------------------------------------
Current Mortgage Loan Number of Mortgage Aggregate Principal Balance
Amounts Loans Outstanding Percent of Mortgage Pool
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 0 - $ 50,000...... $ %
$ 50,001 - $ 100,000.........
$100,001 - $ 150,000.........
$150,001 - $ 200,000.........
$200,001 - $ 250,000.........
$250,001 - $ 300,000.........
$300,001 - $ 350,000.........
$350,001 - $ 400,000.........
$400,001 - $ 450,000.........
$450,001 - $ 500,000.........
$500,001 - $ 550,000.........
$550,001 - $ 600,000.........
$600,001 - $ 650,000.........
$650,001 - $ 750,000.........
$750,001 - $1,000,000........
---------- ----------- ------
Totals....................... $ 100.00%
---------- ----------- ------
---------- ----------- ------
</TABLE>
S-18
<PAGE>
<PAGE>
- ----------
(1) As of the Cut-off Date, the average current Mortgage Loan principal balance
is expected to be approximately $ .
<TABLE>
<CAPTION>
Documentation Program for Mortgage Loans
----------------------------------------
Type of Program Number of Mortgage Aggregate Principal Balance
Loans Outstanding Percent of Mortgage Pool
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Full......................... $ %
Alternative..................
Reduced......................
Streamlined..................
---------- ----------- ------
Totals....................... $ 100.00%
---------- ----------- ------
---------- ----------- ------
</TABLE>
<TABLE>
<CAPTION>
Type of Mortgaged Properties
----------------------------
Property Type Number of Mortgage Aggregate Principal Balance
Loans Outstanding Percent of Mortgage Pool
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Single Family................ $ %
Condominium..................
Two- to Four-Family.........
Planned Unit Development.....
---------- ----------- ------
Totals....................... $ 100.00%
---------- ----------- ------
---------- ----------- ------
</TABLE>
<TABLE>
<CAPTION>
Occupancy Types(1)
------------------
Occupancy Type Number of Mortgage Aggregate Principal Balance
Loans Outstanding Percent of Mortgage Pool
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Primary Residence............ $ %
Investor Property............
Second Residence.............
---------- ----------- ------
Totals....................... $ 100.00%
---------- ----------- ------
---------- ----------- ------
</TABLE>
S-19
<PAGE>
<PAGE>
- ----------
(1) Based upon representations of the related mortgagors at the time of
origination.
<TABLE>
<CAPTION>
State Distribution of Mortgaged Properties(1)
---------------------------------------------
State Number of Mortgage Aggregate Principal Balance
Loans Outstanding Percent of Mortgage Pool
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ %
Other (less than [2]%).......
---------- ----------- ------
Totals....................... $ 100.00%
---------- ----------- ------
---------- ----------- ------
</TABLE>
- ----------
(1) Other includes other states with under [2]% concentrations individually. No
more than approximately % of the Mortgage Loans will be secured by
Mortgaged Properties located in any one postal zip code area.
<TABLE>
<CAPTION>
Purpose of Mortgage Loans
-------------------------
Loan Purpose Number of Mortgage Aggregate Principal Balance
Loans Outstanding Percent of Mortgage Pool
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchase..................... $ %
Refinance (rate/term)........
Refinance (cash out).........
-- ----------- ------------
Totals....................... $ 100.00%
-- ----------- ------------
-- ----------- ------------
</TABLE>
S-20
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Remaining Terms to Maturity(1)
------------------------------
Remaining Term to Maturity Number of Mortgage Aggregate Principal Balance
(Months) Loans Outstanding Percent of Mortgage Pool
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
360..........................
359..........................
358..........................
357..........................
356..........................
355..........................
354..........................
353..........................
352..........................
351..........................
349..........................
348..........................
347..........................
345..........................
344..........................
343..........................
342..........................
341..........................
338..........................
335..........................
334..........................
333..........................
332..........................
328..........................
326..........................
325..........................
321..........................
320..........................
319..........................
318..........................
314..........................
297..........................
293..........................
259..........................
240..........................
238..........................
237..........................
---------- ----------- ------
Totals....................... $ 100.00%
---------- ----------- ------
---------- ----------- ------
</TABLE>
- ----------
S-21
<PAGE>
<PAGE>
(1) As of the Cut-off Date, the weighted average remaining term to maturity of
the Mortgage Loans is expected to be approximately months.
Assignment of the Mortgage Loans
Pursuant to the 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 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 described under "Credit
Enhancement" herein, including all principal and interest received on or with
respect to the Mortgage Loans, exclusive of principal and interest due on or
prior to the Cut-off Date.
In connection with such transfer and assignment, the Depositor will deliver
or cause to be delivered to the Trustee, or a custodian for the Trustee, among
other things, the original promissory note (the "Mortgage Note") (and any
modification or amendment thereto) endorsed in blank without recourse, the
original instrument creating a first lien on the related Mortgaged Property (the
"Mortgage") with evidence of recording indicated thereon, an assignment in
recordable form of the Mortgage, the title policy with respect to the related
Mortgaged Property and, if applicable, all recorded intervening assignments of
the Mortgage and any riders or modifications to such Mortgage Note and Mortgage
(except for any such documents not returned from the public recording office,
which will be delivered to the Trustee as soon as the same is available to the
Depositor) (collectively, the "Mortgage File"). 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 where in
the opinion of counsel 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.
The Trustee will review each Mortgage File within 90 days of the Closing
Date (or promptly after the Trustee's receipt of any document permitted to be
delivered after the Closing Date) and if any document in a Mortgage File is
found to be missing or defective in a material respect and the Seller does not
cure such defect within 90 days of notice thereof from the Trustee (or within
such longer period not to exceed ___ days after the Closing Date as provided in
the Agreement in the case of missing documents not returned from the public
recording office), the Seller will be obligated to repurchase the related
Mortgage Loan from the Trust Fund. Rather than repurchase the Mortgage Loan as
provided above, the Seller may remove such Mortgage Loan (a "Deleted Mortgage
Loan") from the Trust Fund and substitute in its place another mortgage loan (a
"Replacement Mortgage Loan"); however, such substitution is permitted only
within two years of the Closing Date and may not be made unless an opinion of
counsel is provided to the Trustee to the effect that such substitution will not
disqualify the 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 Agreement, (i) have a principal balance,
after deduction of all Scheduled Payments due in the month of substitution, not
in excess of, and not more than 10% less than, the Stated Principal Balance of
the Deleted Mortgage Loan (the amount of any shortfall to be deposited by the
Seller in the Certificate Account and held for distribution to the
Certificateholders on the related Distribution Date (a "Substitution Adjustment
Amount")), (ii) have a Mortgage Rate not lower than, and not more than 1% per
annum higher than, that of the Deleted Mortgage Loan, (iii) have a Loan-to-Value
Ratio not higher than that of the Deleted Mortgage Loan, (iv) have a remaining
term to maturity not greater than (and not more than one year less than) that of
the Deleted Mortgage Loan, and (v) comply with all of the representations and
warranties set forth in the Agreement as of the date of substitution. This cure,
repurchase or substitution obligation constitutes the sole
S-22
<PAGE>
<PAGE>
remedy available to Certificateholders or the Trustee for omission of, or a
material defect in, a Mortgage Loan document.
Underwriting Standards
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 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 substantial number of the Mortgage Loans to be
included in the Mortgage Pool will have been originated based on such
underwriting exceptions.
Each prospective borrower completes an application which includes
information with respect to the applicant's 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 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,
the Seller 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 any
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 ratio limit are permitted
based on compensating factors.
Countrywide's underwriting standards 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
S-23
<PAGE>
<PAGE>
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
at origination of up to 85% depending on the program, type and use of the
property, creditworthiness of the borrower and debt-to-income ratio. The maximum
combined loan-to-value ratio for purchase money mortgage loans, including any
second deeds of trust subordinate to Countrywide's first deed of trust, is 90%.
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
S-24
<PAGE>
<PAGE>
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 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.
SERVICING OF 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 information set forth in the following section through and including
the section captioned "Delinquency Status as of _____________, 199_" has been
provided by [Countrywide]. No representation is made by the Depositor or any of
its affiliates as to the accuracy or completeness of any such information.
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 __________, 199_, Countrywide provided servicing for approximately
$__________ million in B&C quality mortgages. As of ___________, 199_,
Countrywide also provided servicing for prime quality mortgage loans with an
aggregate principal balance of approximately $__________ 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 B&C quality mortgage loans. Servicing includes, but is not limited
to, collecting and remitting mortgage loan payments, accounting for principal
S-25
<PAGE>
<PAGE>
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 B&C 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
When a mortgagor fails to make a payment on a 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 60 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 may change over
time in accordance with, among other things, Countrywide's business judgment,
changes in the servicing portfolio and applicable laws and regulations.
Foreclosure and Delinquency Experience
The following table summarizes the delinquency experience of Countrywide's
B&C quality mortgage loans as of _________, 199_. A mortgage loan is
characterized as delinquent if the borrower has not paid the minimum payment due
by the due date. The table below excludes mortgage loans where the mortgage loan
is in foreclosure or the borrower has filed for bankruptcy. 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
Mortgage Loans, and no assurances can be given that the foreclosure experience
presented in the second paragraph below the table will be indicative of such
experience on the Mortgage Loans.
S-26
<PAGE>
<PAGE>
Delinquency Status as of __________, 199_
Dollars Percent Units Percent
Current $_________ ____% ____ ____%
30-59 Days $_________ ____% ____ ____%
60-89 Days $_________ ____% ____ ____%
90+ Days $_________ ____% ____ ____%
Total $_________ 100.00% ____ 100.00%
[This table does not include ________ mortgage loans with principal
balances aggregating $_____________ that were sold, but were being serviced on
an interim basis pending transfer of servicing, as of ___________, 199_. As of
the date hereof, servicing with respect to such mortgage loans has been
transferred.]
Delinquencies are reported on a contractual basis. As of _____________,
199_, __________ mortgage loans with an aggregate principal balance of
$______________ were in foreclosure and, there were ___________ loans in
bankruptcy with a combined loan balance of $______________.
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.
[Over the last several years, there has been a general deterioration of the
real estate market and weakening economy in many regions of the country,
including __________. The general deterioration of the real estate market has
been reflected in increases in delinquencies of loans secured by real estate,
slower absorption rates of real estate into the market and lower sales prices
for real estate. The general weakening of the economy has been reflected in
decreases in the financial strength of borrowers and decreases in the value of
collateral serving as security for loans. If the real estate market and economy
continue to decline, Countrywide may experience an increase in delinquencies on
the loans it services and higher net losses on liquidated B&C loans.]
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 ________% 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 Master 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
S-27
<PAGE>
<PAGE>
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 Master Servicing Fee in Connection with Certain Prepaid Mortgage
Loans
When a borrower prepays a Mortgage Loan between Due Dates, the borrower is
required to pay interest on the amount prepaid only to the date of prepayment
and not thereafter. Except with respect to the month of the Cut-off Date,
principal prepayments by borrowers received by the Master Servicer from the
first day through the fifteenth day of a calendar month will be distributed to
Certificateholders on the Distribution Date in the same month in which such
prepayments are received and, accordingly, no shortfall in the amount of
interest to be distributed to Certificateholders with respect to the prepaid
Mortgage Loans results. Conversely, principal prepayments by borrowers received
by the Master Servicer from the sixteenth day (or, in the case of the first
Distribution Date, from the Cut-off Date) through the last day of a calendar
month will be distributed to Certificateholders on the Distribution Date in the
month following the month of receipt and, accordingly, a shortfall in the amount
ofinterest to be distributed to Certificateholders with respect to such prepaid
Mortgage Loans would result. Pursuant to the Agreement, the Master Servicing
Fee for any month will be reduced, but not by more than [one-half] of such
Master Servicing Fee, by an amount sufficient to pass through to
Certificateholders the full amount of interest to which they would be entitled
in respect of each such prepaid Mortgage Loan on the related Distribution Date.
If shortfalls in interest as a result of prepayments in any Prepayment Period
exceed an amount equal to one-half of the Master Servicing Fee otherwise
payable on the related Distribution Date, the amount of interest available to
be distributed to Certificateholders will be reduced by the amount of such
excess. See "Description of the Certificates -- Interest" herein.
Advances
Subject to the following limitations, the Master Servicer will be required
to advance prior to each Distribution Date, from its own funds or funds in the
Certificate Account that do not constitute Available Funds for such Distribution
Date, an amount equal to the aggregate of payments of principal and interest on
the Mortgage Loans (net of the Master Servicing Fee with respect to the related
Mortgage Loans) which were due on the related Due Date and which were delinquent
on the related Determination Date, together with an amount equivalent to
interest on each Mortgage Loan as to which the related Mortgaged Property has
been acquired by the Trust Fund through foreclosure or deed-in-lieu of
foreclosure ("REO Property") (any such advance, an "Advance").
Advances are intended to maintain a regular flow of scheduled interest and
principal payments on the 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 to the
extent that such Advances are, in its reasonable judgment, 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 Certificateholders on the related Distribution Date. Any failure
by the Master Servicer to make an Advance as required under the Agreement with
respect to the Certificates will constitute an Event of Default thereunder, in
which case the Trustee or the successor master servicer will be obligated to
make any such Advance, in accordance with the terms of the Agreement.
S-28
<PAGE>
<PAGE>
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to the Agreement. Set forth below
are descriptions of the material terms and provisions pursuant to which the
Certificates will be issued. When particular provisions or terms used in the
Agreement are referred to, the actual provisions (including definitions of
terms) are incorporated by reference.
The Mortgage Pass-Through Certificates, Series 199_ - __ will consist of
the Class A-__, Class ______, Class PO, Class X and Class A-R Certificates
(collectively, the "Senior Certificates") and the Class B-__, Class ______ and
Class ______ Certificates (collectively, the "Subordinated Certificates"). The
Senior Certificates and Subordinated Certificates are collectively referred to
herein as the "Certificates." Only the Classes of Certificates listed on the
cover page hereof (collectively, the "Offered Certificates") are offered hereby.
The Classes of Offered Certificates will have the respective initial Class
Certificate Balances or initial Notional Amounts (subject to the permitted
variance) and Pass-Through Rates set forth or described on the cover hereof.
The Class Certificate Balance of any Class of Certificates as of any
Distribution Date is the initial Class Certificate Balance thereof (A) reduced
by the sum of (i) all amounts previously distributed to holders of Certificates
of such Class as payments of principal, (ii) the amount of Realized Losses
(including Excess Losses) allocated to such Class and (iii) in the case of any
Class of Subordinated Certificates, any amounts allocated to such Class in
reduction of its Class Certificate Balance in respect of payments of Class PO
Deferred Amounts, as described below under " -- Allocation of Losses". In
addition, the Class Certificate Balance of the Class of Subordinated
Certificates then outstanding with the highest numerical Class designation will
be reduced if and to the extent that the aggregate of the Class Certificate
Balances of all Classes of Certificates, following all distributions and the
allocation of Realized Losses on a Distribution Date, exceeds the Pool Principal
Balance as of the Due Date occurring in the month of such Distribution Date. The
Notional Amount Certificates do not have principal balances and are not entitled
to any distributions in respect of principal of the Mortgage Loans.
The Notional Amount of the Class X Certificates for any Distribution Date
will be equal to the aggregate of the Stated Principal Balances of the
Non-Discount Mortgage Loans with respect to such Distribution Date. A
"Non-Discount Mortgage Loan" is any Mortgage Loan with a Net Mortgage Rate equal
to or greater than __%. The initial Notional Amount of the Class X Certificates
will be equal to the aggregate of the Stated Principal Balance of the
Non-Discount Mortgage Loans as of the Cut-off Date.
The Senior Certificates will have an initial aggregate principal balance of
approximately $__________ and will evidence in the aggregate an initial
beneficial ownership interest of approximately ______% in the Trust Fund. The
Class B-__, Class B-__, Class B-__, Class B-__, Class B-__ and Class B-__
Certificates will each evidence in the aggregate an initial beneficial ownership
interest of approximately ___%, ___%, ___%, ___%, ___%, and ___%, respectively,
in the Trust Fund.
The Book-Entry Certificates will be issuable in book-entry form only. The
Physical Certificates will be issued in fully registered certificated form. The
Physical Certificates (other than Class A-R Certificates) offered hereby will be
issued in minimum dollar denominations of $25,000 and integral multiples of
$1,000 in excess thereof. A single Certificate of each such Class may be issued
in an amount different than described above. The Class A-R Certificates will be
issued as a single Certificate in a denomination of $1,000.
S-29
<PAGE>
<PAGE>
Book-Entry Certificates
Each Class of Book-Entry Certificates will be issued in one or more
certificates which equal the aggregate initial Class Certificate Balance of each
such Class of Certificates and which will be held by a nominee of The Depository
Trust Company (together with any successor depository selected by the Depositor,
the "Depository"). Beneficial interests in the Book-Entry Certificates will be
held indirectly by investors through the book-entry facilities of the
Depository, as described herein. Investors may hold such beneficial interests in
the Book-Entry Certificates in minimum denominations representing an original
principal amount of $25,000 and integral multiples of $1,000 in excess thereof.
One investor of each Class of Book-Entry Certificates may hold a beneficial
interest therein that is not an integral multiple of $1,000. The Depositor has
been informed by the Depository that its nominee will be CEDE & Co. ("CEDE").
Accordingly, CEDE is expected to be the holder of record of the Book-Entry
Certificates. Except as described in the Prospectus under "Description of the
Certificates -- Book-Entry Certificates," no person acquiring a Book-Entry
Certificate (each, a "beneficial owner") will be entitled to receive a physical
certificate representing such Certificate (a "Definitive Certificate").
Unless and until Definitive Certificates are issued, it is anticipated that
the only "Certificateholder" of the Book-Entry Certificates will be CEDE, as
nominee of the Depository. Beneficial owners of theBook-Entry Certificates will
not be Certificateholders, as that term is used in the Agreement. Beneficial
owners are only permitted to exercise the rights of Certificateholders
indirectly through Financial Intermediaries and the Depository. Monthly and
annual reports on the Trust Fund provided to CEDE, as nominee of the Depository,
may be made available to beneficial owners upon request, in accordance with the
rules, regulations and procedures creating and affecting the Depository, and to
the Financial Intermediaries to whose Depository accounts the Book-Entry
Certificates of such beneficial owners are credited.
For a description of the procedures generally applicable to the Book-Entry
Certificates, see "Description of the Securities -- Book-Entry Registration of
Securities" in the Prospectus.
Payments on Mortgage Loans; Accounts
On or prior to the Closing Date, the Master Servicer will establish an
account (the "Certificate Account"), which will be maintained in trust for the
benefit of the Certificateholders. Funds credited to the Certificate Account may
be invested for the benefit and at the risk of the Master Servicer in Permitted
Investments that are scheduled to mature on or prior to the business day
preceding the next Distribution Date. On or prior to the business day
immediately preceding each Distribution Date, the Master Servicer will withdraw
from the Certificate Account the amount of Available Funds and will deposit such
Available Funds in an account established and maintained with the Trustee on
behalf of the Certificateholders (the "Distribution Account").
"Permitted Investments" will be specified in the Agreement and will be
limited to (i) obligations of the United States or any agency thereof, provided
such obligations are backed by the full faith and credit of the United States;
(ii) general obligations of or obligations guaranteed by any state of the United
States or the District of Columbia receiving the highest long-term debt rating
of each Rating Agency rating the Certificates, or such lower rating as will not
result in the downgrading or withdrawal of the ratings then assigned to the
Certificates by each such Rating Agency; (iii) commercial or finance company
paper (including, without limitation, commercial paper issued by Countrywide
Home Loans, Inc. or any of its affiliates) which is then receiving the highest
commercial or finance company paper
S-30
<PAGE>
<PAGE>
rating of each such Rating Agency, or such lower rating as will not result
in the downgrading or withdrawal of the ratings then assigned to the
Certificates by each such Rating Agency; (iv) certificates of deposit, demand
or time deposits, or bankers' acceptances issued by any depository institution
or trust company incorporated under the laws of the United States or of any
state thereof and subject to supervision and examination by federal and/or
state banking authorities, provided that the commercial paper and/or long-term
unsecured debt obligations of such depository institution or trust company
(or in the case of the principal depository institution in a holding
company system, the commercial paper or long-term unsecured debt obligations
of such holding company, but only if Moody's Investors Service, Inc.
("Moody's") is not a Rating Agency) are then rated one of the two highest
long-term and the highest short-term ratings of each such Rating Agency for such
securities, or such lower ratings as will not result in the downgrading or
withdrawal of the rating then assigned to the Certificates by any such Rating
Agency; (iv) demand or time deposits or certificates of deposit issued by any
bank or trust company or savings institution to the extent that such deposits
are fully insured by the FDIC; (v) guaranteed reinvestment agreements issued
by any bank, insurance company or other corporation containing, at the time
of the issuance of such agreements, such terms and conditions as will not
result in the downgrading or withdrawal of the rating then assigned to the
Certificates by any such Rating Agency; (vi) repurchase obligations with
respect to any security described in clauses (i) and (ii) above, in either
case entered into with a depository institution or trust company (acting as
principal) described in clause (iv) above; (vii) securities (other than
stripped bonds, stripped coupons or instruments sold at a purchase price in
excess of 115% of the face amount thereof) bearing interest or sold at a
discountissued by any corporation incorporated under the laws of the United
States or any state thereof which, at the time of such investment, have one of
the two highest ratings of each Rating Agency (except if the Rating Agency is
Moody's, such rating shall be the highest commercial paper rating of Moody's for
any such securities), or such lower rating as will not result in the downgrading
or withdrawal of the rating then assigned to the Certificates by any such Rating
Agency, as evidenced by a signed writing delivered by each such Rating Agency;
and (viii) such other investments having a specified stated maturity and bearing
interest or sold at a discount acceptable to each Rating Agency as will not
result in the downgrading or withdrawal of the rating then assigned to the
Certificates by any such Rating Agency, as evidenced by a signed writing
delivered by each such Rating Agency; provided that no such instrument shall be
a Permitted Investment if such instrument evidences the right to receive
interest only payments with respect to the obligations underlying such
instrument.
Distributions
Distributions on the Certificates will be made by the Trustee on the __th
day of each month, or if such day is not a business day, on the first business
day thereafter, commencing in ________ 199_ (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 applicable
certificate register or, in the case of a Certificateholder who holds 100% of a
Class of Certificates or who holds Certificates with an aggregate initial
Certificate Balance of $1,000,000 or more or who holds an Interest Only
Certificate and who has so notified the Trustee in writing in accordance with
the 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
presentment and surrender of such Certificates at the Corporate Trust Office of
the Trustee.
Priority of Distributions Among Certificates
S-31
<PAGE>
<PAGE>
As more fully described under "Description of the Certificates--Interest",
"--Principal" and "--Allocation of Losses" herein, distributions will be made on
each Distribution Date from Available Funds in the following order of priority:
(i) to interest on each interest bearing Class of Senior Certificates; (ii) to
principal on the Classes of Senior Certificates then entitled to receive
distributions of principal, in the order and subject to the priorities set forth
herein under " -- Principal," in each case in an aggregate amount up to the
maximum amount of principal to be distributed on such Classes on such
Distribution Date; (iii) to any Class PO Deferred Amounts with respect to the
Class PO Certificates, but only from amounts that would otherwise be distributed
on such Distribution Date as principal of the Subordinated Certificates; and
(iv) to interest on and then principal of each Class of Subordinated
Certificates, in the order of their numerical Class designations, beginning with
the Class _____ Certificates, in each case subject to the limitations set forth
herein under "Description of the Certificates -- Principal."
"Available Funds" with respect to any Distribution Date will be equal to
the sum of (i) all scheduled installments of interest (net of the related
Expense Fees) and principal due on the Due Date in the month in which such
Distribution Date occurs and received prior to the related Determination Date,
together with any Advances in respect thereof; (ii) all proceeds of any primary
mortgage guaranty insurance policies and any other insurance policies with
respect to the Mortgage Loans, to the extent such proceeds are not applied to
the restoration of the related Mortgaged Property or released to the Mortgagor
in accordance with the Master Servicer's normal servicing procedures
(collectively, "Insurance Proceeds") and all other cash amounts received and
retained in connection with the liquidation of defaulted Mortgage Loans, by
foreclosure or otherwise ("Liquidation Proceeds") during the calendar month
preceding the month of such Distribution Date (in each case, net of unreimbursed
expenses incurred in connection with a liquidation or foreclosure and
unreimbursed Advances, if any); (iii) all partial or full prepayments received
during the month preceding the month of such Distribution Date; and (iv) amounts
received with respect to such Distribution Date as the Substitution Adjustment
Amount or purchase price in respect of a Deleted Mortgage Loan or a Mortgage
Loan repurchased by the Seller or the Master Servicer as of such Distribution
Date, reduced by amounts in reimbursement for Advances previously made and other
amounts as to which the Master Servicer is entitled to be reimbursed from the
Certificate Account pursuant to the Agreement.
With respect to any Distribution Date, the Class PO Deferred Amount is the
aggregate of the applicable PO Percentage of each Realized Loss, other than any
Excess Loss, to be allocated to the Class PO Certificates on such Distribution
Date on or prior to the Senior Credit Support Depletion Date or previously
allocated to the Class PO Certificates and not yet paid to the holders of the
Class PO Certificates.
Interest
The Classes of Offered Certificates will have the respective Pass-Through
Rates set forth or described on the cover hereof.
The Pass-Through Rate for the Class X Certificates for any Distribution
Date will be equal to the excess of (a) the average of the Net Mortgage Rates of
the Non-Discount Mortgage Loans, weighted on the basis of the Stated Principal
Balances thereof, over (b) ___% per annum. The Pass-Through Rate for the Class X
Certificates for the first Distribution Date is expected to be approximately
___% per annum. The Net Mortgage Rate for each Mortgage Loan is the interest
rate thereon (the "Mortgage Rate") less the Expense Fee Rate for such Mortgage
Loan.
On each Distribution Date, to the extent of funds available therefor, each
interest bearing Class of Certificates will be entitled to receive an amount
allocable to interest (as to each such Class, the "Interest
S-32
<PAGE>
<PAGE>
Distribution Amount") with respect to the related Interest Accrual Period. The
Interest Distribution Amount for any interest bearing Class will be equal to the
sum of (i) interest at the applicable Pass-Through Rate on the related Class
Certificate Balance or Notional Amount, as the case may be, and (ii) the sum of
the amounts, if any, by which the amount described in clause (i) above on each
prior Distribution Date exceeded the amount actually distributed as interest on
such prior Distribution Dates and not subsequently distributed ("Unpaid Interest
Amounts"). The Class PO Certificates are Principal Only Certificates and will
not bear interest.
With respect to each Distribution Date, the "Interest Accrual Period" for
each interest bearing Class of Certificates will be the calendar month preceding
the month of such Distribution Date.
The interest entitlement described above for each Class of Certificates for
any Distribution Date will be reduced by the amount of "Net Interest Shortfalls"
for such Distribution Date. With respect to any Distribution Date, the "Net
Interest Shortfall" is equal to (i) the amount of interest that would otherwise
have been received with respect to any Mortgage Loan that was the subject of (x)
a Relief Act Reduction or (y) a Special Hazard Loss, Fraud Loss, Debt Service
Reduction or Deficient Valuation, after the exhaustion of the respective amounts
of coverage provided by the Subordinated Certificates for such types of losses
and (ii) any Net Prepayment Interest Shortfalls with respect to such
Distribution Date. A "Relief Act Reduction" is a reduction in the amount of
monthly interest payment on a Mortgage Loan pursuant to the Soldiers' and
Sailors' Civil Relief Act of 1940. See "Certain Legal Aspects of the Loans --
Soldiers' and Sailors' Civil Relief Act" in the Prospectus. With respect to any
Distribution Date, a "Net Prepayment Interest Shortfall" is the amount by which
the aggregate of Prepayment Interest Shortfalls during the calendar month
preceding the month of such Distribution Date exceeds the aggregate amount
payable on such Distribution Date by the Master Servicer as described under
"Servicing of Mortgage Loans -- Adjustment to Master Servicing Fee in Connection
with Certain Prepaid Mortgage Loans." A "Prepayment Interest Shortfall" is the
amount by which interest paid by a borrower in connection with a prepayment of
principal on a Mortgage Loan is less than one month's interest at the related
Mortgage Rate on the Stated Principal Balance of such Mortgage Loan. Each Class'
pro rata share of such Net Interest Shortfalls will be based on the amount of
interest such Class otherwise would have been entitled to receive on such
Distribution Date.
Accrued interest to be distributed on any Distribution Date will be
calculated, in the case of each interest bearing Class of Certificates, on the
basis of the related Class Certificate Balance or Notional Amount, as
applicable, immediately prior to such Distribution Date. Interest will be
calculated and payable on the basis of a 360-day year divided into twelve 30-day
months.
In the event that, on a particular Distribution Date, Available Funds in
the Certificate Account applied in the order described above under " -- Priority
of Distributions Among Certificates" are not sufficient to make a full
distribution of the interest entitlement on the Certificates, interest will be
distributed on each Class of Certificates of equal priority based on the amount
of interest each such Class would otherwise have been entitled to receive in the
absence of such shortfall. Any Unpaid Interest Amount will be carried forward
and added to the amount holders of each such Class of Certificates will be
entitled to receive on the next Distribution Date. Such a shortfall could occur,
for example, if losses realized on the Mortgage Loans were exceptionally high or
were concentrated in a particular month. Any Unpaid Interest Amount so carried
forward will not bear interest.
Principal
General. All payments and other amounts received in respect of principal of
the Mortgage Loans will be allocated between (i) the Senior Certificates (other
than the Notional Amount Certificates and the Class
S-33
<PAGE>
<PAGE>
PO Certificates) and the Subordinated Certificates and (ii) the Class PO
Certificates, in each case based on the applicable Non-PO Percentage and
the applicable PO Percentage, respectively, of such amounts.
The Non-PO Percentage with respect to any Mortgage Loan with a Net Mortgage
Rate ("NMR") less than ___% (each such Mortgage Loan, a "Discount Mortgage
Loan") will be equal to NMR / ___%. The Non-PO Percentage with respect to any
Non-Discount Mortgage Loan will be 100%. The PO Percentage with respect to any
Discount Mortgage Loan will be equal to (___% - NMR) / ___%. The PO Percentage
with respect to any Non-Discount Mortgage Loan will be 0%.
Non-PO Formula Principal Amount. On each Distribution Date, the Non-PO
Formula Principal Amount will be distributed as principal of the Senior
Certificates (other than the Notional Amount Certificates and the Class
PO Certificates) and the Subordinated Certificates, to the extent of the
amount available from Available Funds for the distribution of principal on
such respective Classes, as described below.
The Non-PO Formula Principal Amount for any Distribution Date will equal
the sum of the applicable Non-PO Percentage of (a) all monthly payments of
principal due on each Mortgage Loan on the related Due Date, (b) the principal
portion of the purchase price of each Mortgage Loan that was repurchased by the
Seller or another person pursuant to the Agreement as of such Distribution Date,
(c) the Substitution Adjustment Amount in connection with any Deleted Mortgage
Loan received with respect to such Distribution Date, (d) any Insurance Proceeds
or Liquidation Proceeds allocable to recoveries of principal of Mortgage Loans
that are not yet Liquidated Mortgage Loans received during the calendar month
preceding the month of such Distribution Date, (e) with respect to each Mortgage
Loan that became a Liquidated Mortgage Loan during the calendar month preceding
the month of such Distribution Date, the amount of the Liquidation Proceeds
allocable to principal received with respect to such Mortgage Loan and (f) all
partial and full principal prepayments by borrowers received during the related
Prepayment Period.
Senior Principal Distribution Amount. On each Distribution Date prior to
the Senior Credit Support Depletion Date, the Non-PO Formula Principal Amount,
up to the amount of the Senior Principal Distribution Amount for such
Distribution Date, will be distributed as principal of the following Classes of
Senior Certificates in the following order of priority:
(i) to the Class A-R Certificates until the Class Certificate Balance
thereof has been reduced to zero;
(ii) concurrently, to the Class _____ and Class _____ Certificates,
pro rata based on their respective Class Certificate Balances, until the
Class _____ Certificate Balances thereof have been reduced to zero;
(iii) sequentially, to the Class _____ and Class _____ Certificates,
in that order, until the respective Class Certificate Balances thereof have
been reduced to zero;
(iv) sequentially, to the Class _____ and Class _____ Certificates, in
that order, until the respective Class Certificate Balances thereof have
been reduced to zero; and
(v) to the Class _____ Certificates until the Class Certificate
Balance thereof has been reduced to zero.
Notwithstanding the foregoing, on each Distribution Date on and after the
Senior Credit Support Depletion Date, the Non-PO Formula Principal Amount will
be distributed, concurrently as principal of the Classes of Senior Certificates
(other than the Notional Amount Certificates and the Class PO Certificates), pro
rata, in accordance with their respective Class Certificate Balances immediately
prior to such Distribution Date.
S-34
<PAGE>
<PAGE>
The Senior Credit Support Depletion Date is the date on which the Class
Certificate Balance of each Class of Subordinated Certificates has been reduced
to zero.
The Senior Principal Distribution Amount for any Distribution Date will
equal the sum of (i) the Senior Percentage of the applicable Non-PO Percentage
of all amounts described in clauses (a) through (d) of the definition of "Non-PO
Formula Principal Amount" for such Distribution Date, (ii) with respect to each
Mortgage Loan that became a Liquidated Mortgage Loan during the calendar month
preceding the month of such Distribution Date, the lesser of (x) the Senior
Percentage of the applicable Non-PO Percentage of the Stated Principal Balance
of such Mortgage Loan and (y) either (A) the Senior Prepayment Percentage or (B)
if an Excess Loss was sustained with respect to such Liquidated Mortgage Loan
during such preceding calendar month, the Senior Percentage of the applicable
Non-PO Percentage of the amount of the Liquidation Proceeds allocable to
principal received with respect to such Mortgage Loan, and (iii) the Senior
Prepayment Percentage of the applicable Non-PO Percentage of amounts described
in clause (f) of the definition of "Non-PO Formula Principal Amount" for such
Distribution Date; provided, however, that if a Bankruptcy Loss that is an
Excess Loss is sustained with respect to a Mortgage Loan that is not a
Liquidated Mortgage Loan, the Senior Principal Distribution Amount will be
reduced on the related Distribution Date by the Senior Percentage of the
applicable Non-PO Percentage of the principal portion of such Bankruptcy Loss.
"Stated Principal Balance" means as to any Mortgage Loan and Due Date, the
unpaid principal balance of such Mortgage Loan as of such Due Date, as specified
in the amortization schedule at the time relating thereto (before any adjustment
to such amortization schedule by reason of any moratorium or similar waiver or
grace period), after giving effect to any previous partial prepayments and
Liquidation Proceeds received and to the payment of principal due on such Due
Date and irrespective of any delinquency in payment by the related Mortgagor.
The Pool Principal Balance with respect to any Distribution Date equals the
aggregate of the Stated Principal Balances of the Mortgage Loans outstanding on
the Due Date in the month preceding the month of such Distribution Date.
The Senior Percentage for any Distribution Date is the percentage
equivalent of a fraction the numerator of which is the aggregate of the Class
Certificate Balances of each Class of Senior Certificates (other than the Class
PO Certificates) immediately prior to such date and the denominator of which is
the aggregate of the Class Certificate Balances of all Classes of Certificates,
other than the Class PO Certificates, immediately prior to such date.
The Senior Prepayment Percentage for any Distribution Date occurring during
the ____ years beginning on the first Distribution Date will equal 100%.
Thereafter, the Senior Prepayment Percentage will, except as described below, be
subject to gradual reduction as described in the following paragraph. This
disproportionate allocation of certain unscheduled payments in respect of
principal will have the effect of accelerating the amortization of the Senior
Certificates which receive these unscheduled payments of principal (other than
the Class PO Certificates) while, in the absence of Realized Losses, increasing
the interest in the Pool Principal Balance evidenced by the Subordinated
Certificates. Increasing the respective interest of the Subordinated
Certificates relative to that of the Senior Certificates is intended to preserve
the availability of the subordination provided by the Subordinated Certificates.
The Senior Prepayment Percentage for any Distribution Date occurring on or
after the _____ anniversary of the first Distribution Date will be as follows:
for any Distribution Date in the _____ year thereafter, the Senior Percentage
plus __% of the Subordinated Percentage for such Distribution Date; for any
Distribution Date in the ______ year thereafter, the Senior Percentage plus __%
of the Subordinated Percentage for such Distribution Date; for any Distribution
Date in the _____ year thereafter, the Senior Percentage plus __% of the
Subordinated Percentage for such Distribution Date; for any Distribution Date in
the ______ year thereafter, the Senior Percentage plus __% of the Subordinated
Percentage for such Distribution Date; and
S-35
<PAGE>
<PAGE>
for any Distribution Date thereafter, the Senior Percentage for such
Distribution Date (unless on any of the foregoing Distribution Dates the
Senior Percentage exceeds the initial Senior Percentage, in which case the
Senior Prepayment Percentage for such Distribution Date will once again equal
100%). Notwithstanding the foregoing, no decrease in the Senior Prepayment
Percentage will occur if (i) the outstanding principal balance of all Mortgage
Loans delinquent __ days or more (averaged over the preceding _________
period), as a percentage of the aggregate principal balance of the Subordinated
Certificates (averaged over the preceding _________ period), is equal to or
greater than __%, or (ii) cumulative Realized Losses with respect to the
Mortgage Loans exceed (a) with respect to the Distribution Date on the _____
anniversary of the first Distribution Date, __% of the aggregate of the
principal balances of the Subordinated Certificates as of the Cut-off Date (the
"Original Subordinated Principal Balance"), (b) with respect to the Distribution
Date on the ____ anniversary of the first Distribution Date, __% of the Original
Subordinated Principal Balance, (c) with respect to the Distribution Date on the
_______ anniversary of the first Distribution Date, __% of the Original
Subordinated Principal Balance, (d) with respect to the Distribution Date on the
______ anniversary of the first Distribution Date, __% of the Original
Subordinated Principal Balance, and (e) with respect to the Distribution Date on
the _____ anniversary of the first Distribution Date, __% of the Original
Subordinated Principal Balance. The Subordinated Prepayment Percentage as of any
Distribution Date will be calculated as the difference between 100% and the
Senior Prepayment Percentage for such date.
If on any Distribution Date the allocation to the Class of Senior
Certificates then entitled to distributions of principal of full and partial
principal prepayments and other amounts in the percentage required above would
reduce the outstanding Class Certificate Balance of such Class below zero, the
distribution to such Class of Certificates of the Senior Prepayment Percentage
of such amounts for such Distribution Date will be limited to the percentage
necessary to reduce the related Class Certificate Balance to zero.
Subordinated Principal Distribution Amount. On each Distribution Date, to
the extent of Available Funds therefor, the Non-PO Formula Principal Amount, up
to the amount of the Subordinated Principal Distribution Amount for such
Distribution Date, will be distributed as principal of the Subordinated
Certificates. Except as provided in the next paragraph, each Class of
Subordinated Certificates will be entitled to receive its pro rata share of the
Subordinated Principal Distribution Amount (based on its respective Class
Certificate Balance), in each case to the extent of the amount available from
Available Funds for distribution of principal. Distributions of principal of the
Subordinated Certificates will be made sequentially to the Classes of
Subordinated Certificates in the order of their numerical Class designations,
beginning with the Class ___ Certificates, until the respective Class
Certificate Balances thereof are reduced to zero. The Subordinated Percentage
for any Distribution Date will be calculated as the difference between 100% and
the Senior Percentage.
With respect to each Class of Subordinated Certificates, if on any
Distribution Date the sum of the related Class Subordination Percentages of such
Class and all Classes of Subordinated Certificates which have higher numerical
Class designations than such Class (the "Applicable Credit Support Percentage")
is less than the Applicable Credit Support Percentage for such Class on the date
of issuance of the Certificates (the "Original Applicable Credit Support
Percentage"), no distribution of partial principal prepayments and principal
prepayments in full will be made to any such Classes (the "Restricted Classes")
and the amount of partial principal prepayments and principal prepayments in
full otherwise distributable to the Restricted Classes will be allocated among
the remaining Classes of Subordinated Certificates, pro rata, based upon their
respective Class Certificate Balances, and distributed in the sequential order
described above.
The Class Subordination Percentage with respect to any Distribution Date
and each Class of Subordinated Certificates, will equal the fraction (expressed
as a percentage) the numerator of which is the Class Certificate Balance of such
Class of Subordinated Certificates immediately prior to such Distribution Date
S-36
<PAGE>
<PAGE>
and the denominator of which is the aggregate of the Class Certificate Balances
of all Classes of Certificates immediately prior to such Distribution Date.
The approximate Original Applicable Credit Support Percentages for the
Subordinated Certificates on the date of issuance of the Certificates are
expected to be as follows:
Class ....................................................... %
Class ....................................................... %
Class ....................................................... %
Class ....................................................... %
Class ....................................................... %
Class ....................................................... %
The Subordinated Principal Distribution Amount for any Distribution Date
will equal (A) the sum of (i) the Subordinated Percentage of the applicable
Non-PO Percentage of all amounts described in clauses (a) through (d) of the
definition of "Non-PO Formula Principal Amount" for such Distribution Date, (ii)
with respect to each Mortgage Loan that became a Liquidated Mortgage Loan during
the calendar month preceding the month of such Distribution Date, the applicable
Non-PO Percentage of the Liquidation Proceeds allocable to principal received
with respect to such Mortgage Loan, after application of such amounts pursuant
to clause (ii) of the definition of Senior Principal Distribution Amount, up to
the Subordinated Percentage of the applicable Non-PO Percentage of the Stated
Principal Balance of such Mortgage Loan and (iii) the Subordinated Prepayment
Percentage of the applicable Non-PO Percentage of the amounts described in
clause (f) of the definition of "Non-PO Formula Principal Amount" for such
Distribution Date reduced by (B) the amount of any payments in respect of Class
PO Deferred Amounts on the related Distribution Date.
Residual Certificates. The Class A-R Certificates will remain outstanding
for so long as the Trust Fund shall exist, whether or not they are receiving
current distributions of principal or interest. In addition to distributions of
interest and principal as described above, on each Distribution Date, the
holders of the Class A-R Certificates will be entitled to receive any Available
Funds remaining after payment of interest and principal on the Senior
Certificates and Class PO Deferred Amounts on the Class PO Certificates and
interest and principal on the Subordinated Certificates, as described above. It
is not anticipated that there will be any significant amounts remaining for any
such distribution.
Class PO Principal Distribution Amount. On each Distribution Date,
distributions of principal of the Class PO Certificates will be made in an
amount (the "Class PO Principal Distribution Amount") equal to the lesser of (x)
the PO Formula Principal Amount for such Distribution Date and (y) the product
of (i) Available Funds remaining after distribution of interest on the Senior
Certificates and (ii) a fraction, the numerator of which is the PO Formula
Principal Amount and the denominator of which is the sum of the PO Formula
Principal Amount and the Senior Principal Distribution Amount.
If the Class PO Principal Distribution Amount on a Distribution Date is
calculated as provided in clause (y) above, principal distributions to holders
of the Senior Certificates (other than the Class PO Certificates) will be in an
amount equal to the product of (i) Available Funds remaining after distribution
of interest on the Senior Certificates and (ii) a fraction, the numerator of
which is the Senior Principal Distribution Amount and the denominator of which
is the sum of the Senior Principal Distribution Amount and the PO Formula
Principal Amount.
S-37
<PAGE>
<PAGE>
The PO Formula Principal Amount for any Distribution Date will equal the
sum of the applicable PO Percentage of (a) all monthly payments of principal due
on each Mortgage Loan on the related Due Date, (b) the principal portion of the
purchase price of each Mortgage Loan that was repurchased by the Seller or
another person pursuant to the Agreement as of such Distribution Date, (c) the
Substitution Adjustment Amount in connection with any Deleted Mortgage Loan
received with respect to such Distribution Date, (d) any Insurance Proceeds or
Liquidation Proceeds allocable to recoveries of principal of Mortgage Loans that
are not yet Liquidated Mortgage Loans received during the calendar month
preceding the month of such Distribution Date, (e) with respect to each Mortgage
Loan that became a Liquidated Mortgage Loan during the calendar month preceding
the month of such Distribution Date, the amount of Liquidation Proceeds
allocable to principal received with respect to such Mortgage Loan and (f) all
partial and full principal prepayments by borrowers received during the related
Prepayment Period; provided, however, that if a Bankruptcy Loss that is an
Excess Loss is sustained with respect to a Discount Mortgage Loan that is
not a Liquidated Mortgage Loan, the PO Formula Principal Amount will be reduced
on the related Distribution Date by the applicable PO Percentage of the
principal portion of such Bankruptcy Loss.
Allocation of Losses
On each Distribution Date, the applicable PO Percentage of any Realized
Loss, including any Excess Loss, on a Discount Mortgage Loan will be allocated
to the Class PO Certificates until the Class Certificate Balance thereof is
reduced to zero. The amount of any such Realized Loss, other than an Excess
Loss, allocated on or prior to the Senior Credit Support Depletion Date will be
treated as a Class PO Deferred Amount. To the extent funds are available on such
Distribution Date or on any future Distribution Date from amounts that would
otherwise be allocable to the Subordinated Principal Distribution Amount, Class
PO Deferred Amounts will be paid on the Class PO Certificates prior to
distributions of principal on the Subordinated Certificates. Any distribution of
Available Funds in respect of unpaid Class PO Deferred Amounts will not further
reduce the Class Certificate Balance of the Class PO Certificates. The Class PO
Deferred Amounts will not bear interest. The Class Certificate Balance of the
Class of Subordinated Certificates then outstanding with the highest numerical
Class designation will be reduced by the amount of any payments in respect of
Class PO Deferred Amounts. After the Senior Credit Support Depletion Date, no
new Class PO Deferred Amounts will be created.
On each Distribution Date, the applicable Non-PO Percentage of any Realized
Loss, other than any Excess Loss, will be allocated first to the Subordinated
Certificates, in the reverse order of their numerical Class designations
(beginning with the Class of Subordinated Certificates then outstanding with the
highest numerical Class designation), in each case until the Class Certificate
Balance of the respective Class of Certificates has been reduced to zero, and
then to the Senior Certificates (other than the Notional Amount Certificates and
the Class PO Certificates) pro rata, based upon their respective Class
Certificate Balances.
On each Distribution Date, the applicable Non-PO Percentage of Excess
Losses will be allocated pro rata among the Classes of Senior Certificates
(other than the Notional Amount Certificates and the Class PO Certificates) and
the Subordinated Certificates based upon their respective Class Certificate
Balances.
Because principal distributions are paid to certain Classes of Certificates
(other than the Class PO Certificates) before other Classes of Certificates,
holders of such Certificates that are entitled to receive principal later bear a
greater risk of being allocated Realized Losses on the Mortgage Loans than
holders of Classes that are entitled to receive principal earlier.
Realized Losses allocated to a Class of Certificates comprised of multiple
payment Components will be allocated pro rata among the Components of such Class
of Certificates based on their respective Component Balances.
S-38
<PAGE>
<PAGE>
In general, a "Realized Loss" means, with respect to a Liquidated Mortgage
Loan, the amount by which the remaining unpaid principal balance of the Mortgage
Loan exceeds the amount of Liquidation Proceeds applied to the principal balance
of the related Mortgage Loan. "Excess Losses" are (i) Special Hazard Losses in
excess of the Special Hazard Loss Coverage Amount, (ii) Bankruptcy Losses in
excess of the Bankruptcy Loss Coverage Amount and (iii) Fraud Losses in excess
of the Fraud Loss Coverage Amount. "Bankruptcy Losses" are losses that are
incurred as a result of Debt Service Reductions and Deficient Valuations.
"Special Hazard Losses" are Realized Losses in respect of Special Hazard
Mortgage Loans. "Fraud Losses" are losses sustained on a Liquidated Mortgage
Loan by reason of a default arising from fraud, dishonesty or misrepresentation.
See "Credit Enhancement -- Subordination of Certain Classes" herein.
A "Liquidated Mortgage Loan" is a defaulted Mortgage Loan as to which the
Master Servicer has determined that all recoverable liquidation and insurance
proceeds have been received. A "Special Hazard Mortgage Loan" is a Liquidated
Mortgage Loan as to which the ability to recover the full amount due thereunder
was substantially impaired by a hazard not insured against under a standard
hazard insurance policy of the type described in the Prospectus under "Credit
Enhancement -- Special Hazard Insurance Policies." See "Credit Enhancement --
Subordination of Certain Classes" herein.
Structuring Assumptions
Unless otherwise specified, the information in the tables in this
Prospectus Supplement has been prepared on the basis of the following assumed
characteristics of the Mortgage Loans and the following additional assumptions
(collectively, the "Structuring Assumptions"): (i) the Mortgage Pool consists of
Mortgage Loans with the following characteristics:
<TABLE>
<CAPTION>
Original Term to Remaining Term to
Principal Balance Mortgage Rate Net Mortgage Rate Maturity (in months) Maturity (in months) Loan Age
- ----------------- -------------- ----------------- ------------------- ------------------- -----------
<S> <C> <C> <C> <C> <C>
$ % %
$ % %
</TABLE>
(ii) the Mortgage Loans prepay at the specified constant percentages of SPA,
(iii) no defaults in the payment by Mortgagors of principal of and interest on
the Mortgage Loans are experienced, (iv) scheduled payments on the Mortgage
Loans are received on the first day of each month commencing in the calendar
month following the Closing Date and are computed prior to giving effect to
prepayments received on the last day of the prior month, (v) prepayments are
allocated as described herein without giving effect to loss and delinquency
tests, (vi) there are no Net Interest Shortfalls and prepayments represent
prepayments in full of individual Mortgage Loans and are received on the last
day of each month, commencing in the calendar month of the Closing Date, (vii)
the scheduled monthly payment for each Mortgage Loan has been calculated such
that each Mortgage Loan will amortize in amounts sufficient to repay the current
balance of such Mortgage Loan by its respective remaining term to maturity,
(viii) the initial Class Certificate Balance or Notional Amount, as applicable,
of each Class of Certificates is as set forth on the cover page hereof and under
"Summary of Terms -- Certificates other than the Offered Certificates", (ix)
interest accrues on each interest bearing Class of Certificates at the
applicable interest rate set forth or described on the cover hereof and as
described under "Description of the Certificates--Interest" herein, (x)
distributions in respect of the Certificates are received in cash on the day of
each month commencing in the calendar month following the Closing Date, (xi) the
closing date of the sale of the Offered Certificates is the date set forth under
"Summary of Terms -- Closing Date," (xii) the Seller is not required to
repurchase or substitute for any Mortgage Loan, (xiii) the Master Servicer does
not exercise the option to repurchase the Mortgage Loans
S-39
<PAGE>
<PAGE>
described herein under " -- Optional Purchase of Defaulted Loans" and
" -- Optional Termination" and (xiv) no Class of Certificates becomes a
Restricted Class. While it is assumed that each of the Mortgage Loans prepays
at the specified constant percentages of SPA, this is not likely to be the case.
Moreover, discrepancies may exist between the characteristics of the actual
Mortgage Loans which will be delivered to the Trustee and characteristics of the
Mortgage Loans used in preparing the tables herein.
Prepayments of mortgage loans commonly are measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement is
the Standard Prepayment Assumption ("SPA"), which represents an assumed rate of
prepayment each month of the then outstanding principal balance of a pool of new
mortgage loans. SPA does not purport to be either a historical description of
the prepayment experience of any pool of mortgage loans or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
Mortgage Loans. 100% SPA assumes prepayment rates of 0.2% per annum of the
then unpaid principal balance of such pool of mortgage loans in the first
month of the life of such mortgage loans and an additional 0.2% per annum
in each month thereafter (for example, 0.4% per annum in the second month)
until the 30th month. Beginning in the 30th month and in each month thereafter
during the life of such mortgage loans, 100% SPA assumes a constant prepayment
rate of 6% per annum. Multiples may be calculated from this prepayment rate
sequence. For example, ___% SPA assumes prepayment rates will be ___% per annum
in month one, ___% per annum in month two, and increasing by ___% in each
succeeding month until reaching a rate of ___% per annum in month 30 and
remaining constant at ___% per annum thereafter. 0% SPA assumes no prepayments.
There is no assurance that prepayments will occur at any SPA rate or at any
other constant rate.
Optional Purchase of Defaulted Loans
The Master Servicer may, at its option, purchase from the Trust Fund any
Mortgage Loan which is delinquent in payment by 91 days or more. Any such
purchase shall be at a price equal to 100% of the Stated Principal Balance of
such Mortgage Loan plus accrued interest thereon at the applicable Mortgage Rate
from the date through which interest was last paid by the related mortgagor or
advanced (and not reimbursed) to the first day of the month in which such amount
is to be distributed.
Optional Termination
The Master Servicer will have the right to repurchase all remaining
Mortgage Loans and REO Properties in the Mortgage Pool and thereby effect early
retirement of the Certificates, subject to the Pool Principal Balance of such
Mortgage Loans and REO Properties at the time of repurchase being less than or
equal to 10% of the Cut-off Date Pool Principal Balance. In the event the Master
Servicer exercises such option, the purchase price distributed with respect to
each Certificate will be 100% of its then outstanding principal balance plus any
Class PO Deferred Amounts in the case of the Class PO Certificates and, in the
case of an interest bearing Certificate, any unpaid accrued interest thereon at
the applicable Pass-Through Rate (in each case subject to reduction as provided
in the Agreement if the purchase price is based in part on the appraised value
of any REO Properties and such appraised value is less than the Stated Principal
Balance of the related Mortgage Loans). Distributions on the Certificates in
respect of any such optional termination will first be paid to the Senior
Certificates and then to the Subordinated Certificates. The proceeds from any
such distribution may not be sufficient to distribute the full amount to which
each Class of Certificates is entitled if the purchase price is based in part on
the appraised value of any REO Property and such appraised value is less than
the Stated Principal Balance of the related Mortgage Loan.
The Trustee
S-40
<PAGE>
<PAGE>
______________________ will be the Trustee under the Agreement. The
Depositor and the Master Servicer may maintain other banking relationships in
the ordinary course of business with ___________________. Offered Certificates
may be surrendered at the Corporate Trust Office of the Trustee located at
_______________________________, Attention: _____________________ or at such
other addresses as the Trustee may designate from time to time.
Restrictions on Transfer of the Class A-R Certificates
The Class A-R Certificates will be subject to the restrictions on transfer
described in the Prospectus under "Federal Income Tax Consequences -- REMIC
Certificates -- Tax-Related Restrictions on Transfers of Residual Certificates
- -- Disqualified Organizations," " -- Noneconomic Residual Interests" and "
- -- Foreign Investors." The Agreement provides that the Class A-R Certificates
(in addition to certain other Classes of Certificates) may not be acquired by an
ERISA Plan. See "ERISA Considerations" herein. Each Class A-R Certificate will
contain a legend describing the foregoing restrictions.
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
General
The effective yield to the holders of the interest bearing Certificates
will be lower than the yield 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 ____ 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
Mortgage Loans (without any additional distribution of interest or earnings
thereon in respect of such delay).
Delinquencies on the Mortgage Loans which are not advanced by or on behalf
of the Master Servicer (because amounts, if advanced, would be nonrecoverable),
will adversely affect the yield on the Certificates. Because of the priority of
distributions, shortfalls resulting from delinquencies not so advanced will be
borne first by the Subordinated Certificates, in the reverse order of their
numerical Class designations, and then by the Senior Certificates. If, as a
result of such shortfalls, the aggregate of the Class Certificate Balances of
all Classes of Certificates exceeds the Pool Principal Balance, the Class
Certificate Balance of the Class of Subordinated Certificates then outstanding
with the highest numerical Class designation will be reduced by the amount of
such excess.
Net Interest Shortfalls will adversely affect the yields on the Offered
Certificates. In addition, although all losses initially will be borne by the
Subordinated Certificates, in the reverse order of their numerical Class
designations (either directly or through distributions in respect of Class PO
Deferred Amounts on the Class PO Certificates), Excess Losses will be borne by
all Classes of Certificates (other than the Notional Amount Certificates) on a
pro rata basis. Moreover, since the Subordinated Principal Distribution Amount
for each Distribution Date will be reduced by the amount of any distributions on
such Distribution Date in respect of Class PO Deferred Amounts, the amount
distributable as principal on each such Distribution Date to each Class of
Subordinated Certificates then entitled to a distribution of principal will be
less than it otherwise would be in the absence of such Class PO Deferred
Amounts. As a result, the yields on the Offered Certificates will depend on the
rate and timing of Realized Losses, including Excess Losses. Excess Losses could
occur at a time when one or more Classes of Subordinated Certificates are still
outstanding and otherwise available to absorb other types of Realized Losses.
S-41
<PAGE>
<PAGE>
Prepayment Considerations and Risks
The rate of principal payments on the Offered Certificates, the aggregate
amount of distributions on the Offered Certificates and the yield to maturity of
the Offered Certificates will be related to the rate and timing of payments of
principal on the Mortgage Loans. The rate of principal payments on the Mortgage
Loans will in turn be affected by the amortization schedules of the Mortgage
Loans and by the rate of principal prepayments (including for this purpose
prepayments resulting from refinancing, liquidations of the Mortgage Loans due
to defaults, casualties, condemnations and repurchases by the Seller or Master
Servicer). The Mortgage Loans may be prepaid by the Mortgagors at any time
without a prepayment penalty. The Mortgage Loans are subject to the
"due-on-sale" provisions included therein. See "The Mortgage Pool" herein.
Prepayments, liquidations and purchases of the Mortgage Loans (including
any optional purchase by the Master Servicer of a defaulted Mortgage Loan and
any optional repurchase of the remaining Mortgage Loans in connection with the
termination of the Trust Fund, in each case as described under "Description of
the Certificates--Optional Purchase of Defaulted Loans" and "--Optional
Termination" herein) will result in distributions on the Offered Certificates of
principal amounts which would otherwise be distributed over the remaining terms
of the Mortgage Loans. Since the rate of payment of principal of 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 extent to which
the yield to maturity of a Class of Offered Certificates may vary from the
anticipated yield will depend upon the degree to which such Offered Certificate
is purchased at a discount or premium, and the degree to which the timing of
payments thereon is sensitive to prepayments, liquidations and purchases of the
Mortgage Loans. Further, an investor should consider the risk that, in the case
of the Principal Only Certificates and any other Offered Certificate purchased
at a discount, a slower than anticipated rate of principal payments (including
prepayments) on the Mortgage Loans could result in an actual yield to such
investor that is lower than the anticipated yield and, in the case of the
Interest Only Certificates and any other Offered Certificate purchased at a
premium, a faster than anticipated rate of principal payments could result in an
actual yield to such investor that is lower than the anticipated yield.
Investors in the Interest Only Certificates should carefully consider the risk
that a rapid rate of principal payments on the Mortgage Loans could result in
the failure of such investors to recover their initial investments.
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. In general, if prevailing interest
rates were to fall significantly below the Mortgage Rates on the Mortgage Loans,
the Mortgage Loans could be subject to higher prepayment rates than if
prevailing interest rates were to remain at or above the Mortgage Rates on the
Mortgage Loans. Conversely, if prevailing interest rates were to rise
significantly, the rate of prepayments on the Mortgage Loans would generally be
expected to decrease. No assurances can be given as to the rate of prepayments
on the Mortgage Loans in stable or changing interest rate environments.
As described herein under "Description of the Certificates -- Principal,"
the Senior Prepayment Percentage of the applicable Non-PO Percentage of all
principal prepayments will be initially distributed to the Classes of Senior
Certificates (other than the Class PO Certificates) then entitled to receive
principal prepayment distributions. This may result in all (or a
disproportionate percentage) of such principal prepayments being distributed to
holders of such Classes of Senior Certificates and none (or less than their pro
rata share) of such principal prepayments being distributed to holders of the
Subordinated Certificates during the periods of time described in the definition
of "Senior Prepayment Percentage."
S-42
<PAGE>
<PAGE>
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 as a result 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.
The tables below indicate the sensitivity of the pre-tax corporate bond
equivalent yields to maturity of certain Classes of Certificates to various
constant percentages of SPA. The yields set forth in the tables were calculated
by determining the monthly discount rates that, when applied to the assumed
streams of cash flows to be paid on the applicable Classes of Certificates,
would cause the discounted present value of such assumed streams of cash flows
to equal the assumed aggregate purchase prices of such Classes and converting
such monthly rates to corporate bond equivalent rates. Such calculations do
not take into account variations that may occur in the interest rates at which
investors may be able to reinvest funds received by them as distributions on
such Certificates and consequently do not purport to reflect the return on any
investment in any such Class of Certificate when such reinvestment rates
are considered.
Sensitivity of the Interest Only Certificates
As indicated in the table below, the yield to investors in the Class X
Certificates will be sensitive to the rate of principal payments (including
prepayments) of the Non-Discount Mortgage Loans (particularly those with high
Net Mortgage Rates), which generally can be prepaid at any time. On the basis of
the assumptions described below, the yield to maturity on the Class X
Certificates would be approximately 0% if prepayments were to occur at a
constant rate of approximately ___% SPA. If the actual prepayment rate of the
Non-Discount Mortgage Loans were to exceed the foregoing level for as little as
one month while equaling such level for the remaining months, the investors in
the Class X Certificates would not fully recoup their initial investments.
As described above under "Description of the Certificates -- General," the
Pass-Through Rate of the Class X Certificates in effect from time to time is
calculated by reference to the Net Mortgage Rates of the Non-Discount Mortgage
Loans. The Non-Discount Mortgage Loans will have higher Net Mortgage Rates (and
higher Mortgage Rates) than the other Mortgage Loans. In general, mortgage loans
with higher mortgage rates tend to prepay at higher rates than mortgage loans
with relatively lower mortgage rates in response to a given change in market
interest rates. As a result, the Non-Discount Mortgage Loans may prepay at
higher rates, thereby reducing the Pass-Through Rate and Notional Amount of the
Class X Certificates.
The information set forth in the following table has been prepared on the
basis of the Structuring Assumptions and on the assumption that the purchase
price of the Class X Certificates (expressed as a percentage of initial Notional
Amount) is as follows:
Class Price*
------ ------
Class X...................... %
- ----------
* The price does not include accrued interest. Accrued interest has been
added to such price in calculating the yields set forth in the table below.
S-43
<PAGE>
<PAGE>
Sensitivity of the Interest Only Certificates to Prepayments
(Pre-Tax Yields to Maturity)
<TABLE>
<CAPTION>
SFA Prepayment /Assumption
--------------------------
Class 0% % % % % %
- ------------------- --------------- -------------- -------------- -------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Class X % % % % % %
</TABLE>
It is unlikely that the Non-Discount Mortgage Loans will have the precise
characteristics described herein or that the Non-Discount Mortgage Loans will
all prepay at the same rate until maturity or that all of the Non-Discount
Mortgage Loans will prepay at the same rate or time. As a result of these
factors, the pre-tax yields on the Class X Certificates are likely to
differ from those shown in the table above, even if all of the Mortgage Loans
prepay at the indicated percentages of SPA. No representation is made as to the
actual rate of principal payments on the Mortgage Loans for any period or over
the lives of the Class X Certificates or as to the yield on the Class X
Certificates. Investors must make their own decisions as to the appropriate
prepayment assumptions to be used in deciding whether to purchase the Class X
Certificates.
Sensitivity of the Principal Only Certificates
The Class PO Certificates will be "principal only" certificates and will
not bear interest. As indicated in the table below, a lower than anticipated
rate of principal payments (including prepayments) on the Discount Mortgage
Loans will have a negative effect on the yield to investors in the Principal
Only Certificates.
As described above under "Description of the Certificates -- Principal,"
the Class PO Principal Distribution Amount is calculated by reference to the
principal payments (including prepayments) on the Discount Mortgage Loans. The
Discount Mortgage Loans will have lower Net Mortgage Rates (and lower Mortgage
Rates) than the other Mortgage Loans. In general, mortgage loans with higher
mortgage rates tend to prepay at higher rates than mortgage loans with
relatively lower mortgage rates in response to a given change in market interest
rates. As a result, the Discount Mortgage Loans may prepay at lower rates,
thereby reducing the rate of payment of principal and the resulting yield of the
Class PO Certificates.
S-44
<PAGE>
<PAGE>
The information set forth in the following table has been prepared on the
basis of the Structuring Assumptions and on the assumption that the aggregate
purchase price of the Principal Only Certificates (expressed as a percentage of
initial Class Certificate Balance) is as follows:
Class Price*
----- ------
Class PO..................... %
Sensitivity of the Principal Only Certificates to Prepayments
(Pre-Tax Yields to Maturity)
<TABLE>
<CAPTION>
SFA Prepayment /Assumption
--------------------------
Class 0% % % % % %
- ------------------- --------------- -------------- -------------- -------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Class PO % % % % % %
Class PO......................... % % % % % %
</TABLE>
It is unlikely that the Discount Mortgage Loans will have the precise
characteristics described herein or that the Discount Mortgage Loans will all
prepay at the same rate until maturity or that all of such Discount Mortgage
Loans will prepay at the same rate or time. As a result of these factors, the
pre-tax yield on the Principal Only Certificates is likely to differ from those
shown in the table above, even if all of the Mortgage Loans prepay at the
indicated percentages of SPA. No representation is made as to the actual rate of
principal payments on the Mortgage Loans for any period or over the life of the
Principal Only Certificates or as to the yield on the Principal Only
Certificates. Investors must make their own decisions as to the appropriate
prepayment assumptions to be used in deciding whether to purchase the
Principal Only Certificates.
Additional Information
The Depositor intends to file certain additional yield tables and other
computational materials with respect to one or more Classes of Underwritten
Certificates with the Commission in a report on Form 8-K to be dated
___________, 19__. Such tables and materials were prepared by each Underwriter
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 Offered Certificates
The weighted average life of an Offered Certificate is determined by (a)
multiplying the amount of the net reduction, if any, of the Class Certificate
Balance of such Certificate on each Distribution Date by the number of years
from the date of issuance to such Distribution Date, (b) summing the results and
(c) dividing the sum by the aggregate amount of the net reductions in Class
Certificate Balance of such Certificate referred to in clause (a).
S-45
<PAGE>
<PAGE>
For a discussion of the factors which may influence the rate of payments
(including prepayments) of the Mortgage Loans, see " -- Prepayment
Considerations and Risks" herein and "Yield and Prepayment Considerations" in
the Prospectus.
In general, the weighted average lives of the Offered Certificates will be
shortened if the level of prepayments of principal of the Mortgage Loans
increases. However, the weighted average lives of the Offered Certificates will
depend upon a variety of other factors, including the timing of changes in such
rate of principal payments and the priority sequence of distributions of
principal of the Classes of Certificates and the distribution of principal of
the Planned Principal Classes and the Targeted Principal Classes in accordance
with the Principal Balance Schedules herein. In particular, if the amount
available for distribution as principal of the Senior Certificates (other than
the Class PO Certificates) on any Distribution Date exceeds the amount required
to reduce the principal balances of the Planned Principal Classes and the
Targeted Principal Classes then entitled to receive a distribution of principal
to their respective scheduled balances as set forth in the Principal Balance
Schedules, such excess principal will be distributed on the remaining Classes of
Senior Certificates (other than the Class PO Certificates) on such Distribution
Date. Conversely, if the amount available for distribution of principal of the
Senior Certificates (other than the Class PO Certificates) on any Distribution
Date is less than the amount so required to reduce the Planned Principal Classes
and the Targeted Principal Classes then entitled to receive a distribution of
principal to their respective scheduled balances, no principal will be
distributed on such other Classes of Senior Certificates on such Distribution
Date. Accordingly, the rate of principal payments on the Mortgage Loans is
expected to have a greater effect on the weighted average life of the Support
Classes and under certain prepayment scenarios, the weighted average lives of
the Targeted Principal Classes, than on the weighted average lives of the
Planned Principal Classes.
The interaction of the foregoing factors may have different effects on
various Classes of Offered Certificates and the effects on any Class may vary at
different times during the life of such Class. Accordingly, no assurance can be
given as to the weighted average life of any Class of Offered Certificates.
Further, to the extent the prices of the Offered Certificates represent
discounts or premiums to their respective original Class Certificate Balances,
variability in the weighted average lives of such Classes of Offered
Certificates will result in variability in the related yields to maturity.
For an example of how the weighted average lives of the Classes of Offered
Certificates may be affected at various constant percentages of SPA, see
the Decrement Tables below.
Decrement Tables
The following tables indicate the percentages of the initial Class
Certificate Balances of the Classes of Offered Certificates (other than the
Notional Amount Certificates) that would be outstanding after each of the dates
shown at various constant percentages of SPA and the corresponding weighted
average lives of such Classes. The tables have been prepared on the basis of the
Structuring Assumptions. It is not likely that (i) the Mortgage Loans will have
the precise characteristics described herein or (ii) all of the Mortgage Loans
will prepay at a constant percentage of SPA. Moreover, the diverse remaining
terms to maturity of the Mortgage Loans could produce slower or faster principal
distributions than indicated in the tables, which have been prepared using the
specified constant percentages of SPA, even if the remaining term to maturity of
the Mortgage Loans is consistent with the remaining terms to maturity of the
Mortgage Loans specified in the Structuring Assumptions.
S-46
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Percent of Initial Class Certificate
Balances Outstanding*
Class A-
--------
Distribution Date 0% % % % % % %
- -------------------------------- ------------ ------------ ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Initial......................... % % % % % %
19..........................
19..........................
19..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
-- -- -- -- -- --
Weighted Average
Life (in years)**..........
</TABLE>
S-47
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Class
-----
Distribution Date 0% % % % % % %
- -------------------------------- ------------ ------------ ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Initial......................... % % % % % %
19..........................
19..........................
19..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
20..........................
-- -- -- -- -- --
Weighted Average
Life (in years)**..........
</TABLE>
- ---------
* Rounded to the nearest whole percentage.
** Determined as specified under "Weighted Average Lives of the Offered
Certificates" herein.
Last Scheduled Distribution Date
S-48
<PAGE>
<PAGE>
The Last Scheduled Distribution Date for each Class of Offered Certificates
is the Distribution Date in ___________, 20__, which is the Distribution Date in
the __________ month following the latest scheduled maturity date for any of the
Mortgage Loans. Since the rate of distributions in reduction of the Class
Certificate Balance or Notional Amount of each Class of Offered Certificates
will depend on the rate of payment (including prepayments) of the Mortgage
Loans, the Class Certificate Balance or Notional Amount of any such Class could
be reduced to zero significantly earlier or later than the Last Scheduled
Distribution Date. The rate of payments on the Mortgage Loans will depend on
their particular characteristics, as well as on prevailing interest rates from
time to time and other economic factors, and no assurance can be given as to the
actual payment experience of the Mortgage Loans. See "Yield, Prepayment and
Maturity Considerations -- Prepayment Considerations and Risks" and " --
Weighted Average Lives of the Offered Certificates" herein and "Yield and
Prepayment Considerations" in the Prospectus.
The Subordinated Certificates
The weighted average life of, and the yield to maturity on, the
Subordinated Certificates, in increasing order of their numerical Class
designation, will be progressively more sensitive to the rate and timing of
mortgagor defaults and the severity of ensuing losses on the Mortgage Loans. If
the actual rate and severity of losses on the Mortgage Loans is higher than
those assumed by a holder of a Subordinated Certificate, the actual yield to
maturity of such Certificate may be lower than the yield expected by such holder
based on such assumption. The timing of losses on Mortgage Loans will also
affect an investor's actual yield to maturity, even if the rate of defaults and
severity of losses over the life of the Mortgage Pool are consistent with an
investor's expectations. In general, the earlier a loss occurs, the greater the
effect on an investor's yield to maturity. Realized Losses on the Mortgage Loans
will reduce the Class Certificate Balances of the applicable Class of
Subordinated Certificates to the extent of any losses allocated thereto (as
described under "Description of the Certificates -- Allocation of Losses"
herein), without the receipt of cash attributable to such reduction. In
addition, shortfalls in cash available for distributions on the Subordinated
Certificates will result in a reduction in the Class Certificate Balance of the
Class of Subordinated Certificates then outstanding with the highest numerical
Class designation if and to the extent that the aggregate of the Class
Certificate Balances of all Classes of Certificates, following all distributions
and the allocation of Realized Losses on a Distribution Date, exceeds the Pool
Principal Balance as of the Due Date occurring in the month of such Distribution
Date. As a result of such reductions, less interest will accrue on such Class of
Subordinated Certificates than otherwise would be the case. The yield to
maturity of the Subordinated Certificates will also be affected by the
disproportionate allocation of principal prepayments to the Senior Certificates,
Net Interest Shortfalls, other cash shortfalls in Available Funds and
distribution of funds to Class PO Certificateholders otherwise available for
distribution on the Subordinated Certificates to the extent of reimbursement for
Class PO Deferred Amounts. See "Description of the Certificates -- Allocation of
Losses" herein.
If on any Distribution Date, the Applicable Credit Support Percentage for
any Class of Subordinated Certificates is less than its Original Applicable
Credit Support Percentage, all partial principal prepayments and principal
prepayments in full available for distribution on the Subordinated Certificates
will be allocated solely to such Class and all other Classes of Subordinated
Certificates with lower numerical Class designations, thereby accelerating the
amortization thereof relative to that of the Restricted Classes and reducing the
weighted average lives of such Classes of Subordinated Certificates receiving
such distributions. Accelerating the amortization of the Classes of Subordinated
Certificates with lower numerical Class designations relative to the other
Classes of Subordinated Certificates is intended to preserve the availability of
the subordination provided by such other Classes.
CREDIT ENHANCEMENT
S-49
<PAGE>
<PAGE>
Subordination of Certain Classes
The rights of the holders of the Subordinated Certificates to receive
distributions with respect to the Mortgage Loans will be subordinated to such
rights of the holders of the Senior Certificates and the rights of the holders
of each Class of Subordinated Certificates (other than the Class B-1
Certificates) to receive such distributions will be further subordinated to such
rights of the Class or Classes of Subordinated Certificates with lower numerical
Class designations, in each case only to the extent described herein. The
subordination of the Subordinated Certificates to the Senior Certificates and
the subordination of the Classes of Subordinated Certificates with higher
numerical Class designations to those with lower numerical Class designations is
intended to increase the likelihood of receipt, respectively, by the Senior
Certificateholders and the holders of Subordinated Certificates with lower
numerical Class designations of the maximum amount to which they are entitled on
any Distribution Date and to provide such holders protection against Realized
Losses, other than Excess Losses. In addition, the Subordinated Certificates
will provide limited protection against Special Hazard Losses, Bankruptcy Losses
and Fraud Losses up to the Special Hazard Loss Coverage Amount, Bankruptcy Loss
Coverage Amount and Fraud Loss Coverage Amount, respectively, as described
below. The applicable Non-PO Percentage of Realized Losses, other than Excess
Losses, will be allocated to the Class of Subordinated Certificates then
outstanding with the highest numerical Class designation. In addition, the Class
Certificate Balance of such Class of Subordinated Certificates will be reduced
by the amount of distributions on the Class PO Certificates in reimbursement for
Class PO Deferred Amounts.
The Subordinated Certificates will provide limited protection to the
Classes of Certificates of higher relative priority against (i) Special Hazard
Losses in an initial amount expected to be up to approximately $_________ (the
"Special Hazard Loss Coverage Amount"), (ii) Bankruptcy Losses in an initial
amount expected to be up to approximately $_________ (the "Bankruptcy Loss
Coverage Amount") and (iii) Fraud Losses in an initial amount expected to be up
to approximately $_________ (the "Fraud Loss Coverage Amount").
The Special Hazard Loss Coverage Amount will be reduced, from time to time,
to be an amount equal on any Distribution Date to the lesser of (a) the greatest
of (i) __% of the aggregate of the principal balances of the Mortgage Loans,
(ii) _____ the principal balance of the largest Mortgage Loan and (iii) the
aggregate principal balances of the Mortgage Loans secured by Mortgaged
Properties located in the single California postal zip code area having the
highest aggregate principal balance of any such zip code area and (b) the
Special Hazard Loss Coverage Amount as of the Closing Date less the amount, if
any, of losses attributable to Special Hazard Mortgage Loans incurred since the
Closing Date. All principal balances for the purpose of this definition will be
calculated as of the first day of the month preceding such Distribution Date
after giving effect to scheduled installments of principal and interest on the
Mortgage Loans then due, whether or not paid.
The Fraud Loss Coverage Amount will be reduced, from time to time, by the
amount of Fraud Losses allocated to the Certificates. In addition, on each
anniversary of the Cut-off Date, the Fraud Loss Coverage Amount will be reduced
as follows: (a) on the _____, ______, _____ and ______ anniversaries of the
Cut-off Date, to an amount equal to the lesser of (i) __% of the then current
Pool Principal Balance and (ii) the excess of the Fraud Loss Coverage Amount as
of the preceding anniversary of the Cut-off Date over the cumulative amount of
Fraud Losses allocated to the Certificates since such preceding anniversary and
(b) on the _____ anniversary of the Cut-off Date, to zero.
The Bankruptcy Loss Coverage Amount will be reduced, from time to time, by
the amount of Bankruptcy Losses allocated to the Certificates.
S-50
<PAGE>
<PAGE>
The amount of coverage provided by the Subordinated Certificates for
Special Hazard Losses, Bankruptcy Losses and Fraud Losses may be cancelled or
reduced from time to time for each of the risks covered, provided that the then
current ratings of the Certificates assigned by the Rating Agencies are not
adversely affected thereby. In addition, a reserve fund or other form of credit
enhancement may be substituted for the protection provided by the Subordinated
Certificates for Special Hazard Losses, Bankruptcy Losses and Fraud Losses.
As used herein, a "Deficient Valuation" is a bankruptcy proceeding whereby
the bankruptcy court may establish the value of the Mortgaged Property at an
amount less than the then outstanding principal balance of the Mortgage Loan
secured by such Mortgaged Property or may reduce the outstanding principal
balance of a Mortgage Loan. In the case of a reduction in the value of the
related Mortgaged Property, the amount of the secured debt could be reduced to
such value, and the holder of such Mortgage Loan thus would become an unsecured
creditor to the extent the outstanding principal balance of such Mortgage Loan
exceeds the value so assigned to the Mortgaged Property by the bankruptcy court.
In addition, certain other modifications of the terms of a Mortgage Loan can
result from a bankruptcy proceeding, including the reduction (a "Debt Service
Reduction") of the amount of the monthly payment on the related Mortgage Loan.
Notwithstanding the foregoing, no such occurrence shall be considered a Debt
Service Reduction or Deficient Valuation so long as the Master Servicer is
pursuing any other remedies that may be available with respect to the related
Mortgage Loan and (i) such Mortgage Loan is not in default with respect to
payment due thereunder or (ii) scheduled monthly payments of principal and
interest are being advanced by the Master Servicer without giving effect to any
Debt Service Reduction or Deficient Valuation.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the sale of the Certificates
against the purchase price of the Mortgage Loans.
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, an election will be made to treat the
Trust Fund as a REMIC. Assuming such an election is timely made and the terms of
the Pooling and Servicing Agreement are complied with, Brown & Wood LLP, special
tax counsel to the Depositor ("Tax Counsel") is of the opinion that the Trust
Fund will qualify as a REMIC within the meaning of the Code. The Regular
Certificates will constitute the regular interests in the REMIC. The Residual
Certificates will constitute the sole class of "residual interest" in the REMIC.
See "Federal Income Tax Consequences" in the Prospectus.
The Regular Certificates generally will be treated as debt instruments
issued by the REMIC for federal income tax purposes. Income on the Regular
Certificates must be reported under an accrual method of accounting.
In the opinion of Tax Counsel, the Principal Only Certificates will be
treated for federal income tax purposes as having been issued with an amount of
Original Issue Discount ("OID") equal to the difference between their principal
balance and their issue price. Although the tax treatment is not entirely
certain, Notional Amount Certificates will be treated as having been issued with
OID for federal income tax purposes equal to the excess of all expected payments
of interest on such Certificates over their issue price. Although unclear, a
holder of a Notional Amount Certificate may be entitled to deduct a loss to the
extent that its
S-51
<PAGE>
<PAGE>
remaining basis exceeds the maximum amount of future payments to which such
Certificateholder would be entitled if there were no further prepayments of the
Mortgage Loans. The remaining Classes of Regular Certificates, depending on
their respective issue prices (as described in the Prospectus under "Federal
Income Tax Consequences"), may be treated as having been issued with OID for
federal income tax purposes. For purposes of determining the amount and rate of
accrual of OID and market discount, the Trust Fund intends to assume that there
will be prepayments on the Mortgage Loans at a rate equal to % SPA (the
"Prepayment Assumption"). No representation is made as to whether the Mortgage
Loans will prepay at the foregoing rate or any other rate. See "Yield,
Prepayment and Maturity Considerations" herein and "Federal Income Tax
Consequences" in the Prospectus. Computing accruals of OID in the manner
described in the Prospectus may (depending on the actual rate of prepayments
during the accrual period) result in the accrual of negative amounts of OID on
the Certificates issued with OID in an accrual period. Holders will be entitled
to offset negative accruals of OID only against future OID accrual on such
Certificates.
If the holders of any Regular Certificates are treated as holding such
Certificates at a premium, such holders should consult their tax advisors
regarding the election to amortize bond premium and the method to be employed.
As is described more fully under "Federal Income Tax Consequences" in the
Prospectus, the Offered Certificates will represent qualifying assets under
Sections 593(d), 856(c)(5)(A) and 7701(a)(19)(C) 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 Regular Certificates will represent qualifying
assets under Section 860G(a)(3) if acquired by a REMIC within the prescribed
time periods of the Code.
The holders of the Residual Certificates must include the taxable income of
the REMIC in their federal taxable income. The resulting tax liability of the
holders may exceed cash distributions to such holders during certain periods.
All or a portion of the taxable income from a Residual Certificate recognized by
a holder may be treated as "excess inclusion" income, which with limited
exceptions, is subject to U.S federal income tax.
Prospective purchasers of a Residual Certificate should consider carefully
the tax consequences of an investment in Residual Certificates discussed in the
Prospectus and should consult their own tax advisors with respect to those
consequences. See "Federal Income Tax Consequences -- REMIC Certificates -- b.
Residual Certificates" in the Prospectus. Specifically, prospective holders of
Residual Certificates should consult their tax advisors regarding whether, at
the time of acquisition, a Residual Certificate will be treated as a
"noneconomic" residual interest, a "non-significant value" residual interest and
a "tax avoidance potential" residual interest. See "Federal Income Tax
Consequences -- Tax-Related Restrictions on Transfer of Residual Certificates --
Noneconomic Residual Certificates -- Residual Certificates -- Mark to Market
Rules -- Residual Certificates -- Excess Inclusions and -- Tax-Related
Restrictions on Transfers of Residual Certificates -- Foreign Investors" in the
Prospectus. Additionally, for information regarding Prohibited Transactions and
Treatment of Realized Losses, see "Federal Income Tax Consequences -- Prohibited
Transactions and Other Taxes" and " -- REMIC Certificates -- a. Regular
Certificates -- Treatment of Realized Losses" in the Prospectus.
ERISA CONSIDERATIONS
S-52
<PAGE>
<PAGE>
Any Plan fiduciary which proposes to cause a Plan (as defined below) to
acquire any of the Offered Certificates should consult with its counsel with
respect to the potential consequences under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") and/or the Code, of the Plan's
acquisition and ownership of such Certificates. See "ERISA Considerations" in
the Prospectus. Section 406 of ERISA prohibits "parties in interest" with
respect to an employee benefit plan subject to ERISA and/or the excise tax
provisions set forth under Section 4975 of the Code (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 and
other arrangements (including, but not limited to, individual retirement
accounts) described under that Section; ERISA authorizes the imposition of civil
penalties for prohibited transactions involving Plans not subject to the
requirements of Section 4975 of the Code.
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 that 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 that decides to
invest the assets of a Plan in the Offered Certificates should consider, among
other factors, the extreme sensitivity of the investment to the rate of
principal payments (including prepayments) on the Mortgage Loans.
The U.S. Department of Labor has granted an individual administrative
exemption to (Prohibited Transaction Exemption , Exemption Application No.
D-_____, Fed. Reg. (_____) (_____) (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.
For a general description of the Exemption and the conditions that must be
satisfied for the Exemption to apply, see "ERISA Considerations" in the
Prospectus.
It is expected that the Exemption will apply to the acquisition and holding
by Plans of the Senior Certificates (other than the Class _____, Class PO, Class
X and Class A-R Certificates) 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. Because the Class
, Class PO and Class X Certificates are not being purchased by either
Underwriter, such Classes of Certificates do not currently meet the requirements
of the Exemption or any comparable individual administrative exemption granted
to either Underwriter. Consequently, the sale or exchange of the Class , Class
PO and Class X Certificates may be made only under the conditions set forth for
the Class B-, Class B- and Class B-Certificates below.
Because the characteristics of the Class B-__, Class B-__, Class B-__ and
Class __ A-R Certificates may not meet the requirements of PTCE 83-1, the
Exemption or any other issued exemption under ERISA, the
S-53
<PAGE>
<PAGE>
purchase and holding of the Class B-__, Class B-__, Class B-__ and Class A-R
Certificates by a Plan or by individual retirement accounts or other plans
subject to Section 4975 of the Code may result in prohibited transactions or the
imposition of excise taxes or civil penalties. Consequently, transfers of the
Class B-__, Class B-__, Class B-__ and Class A-R Certificates will not be
registered by the Trustee unless the Trustee receives: (i) a representation from
the transferee of such Certificate, acceptable to and in form and substance
satisfactory to the Trustee, to the effect that such transferee is not an
employee benefit plan subject to Section 406 of ERISA or a plan or arrangement
subject to Section 4975 of the Code, nor a person acting on behalf of any such
plan or arrangement nor using the assets of any such plan or arrangement to
effect such transfer; (ii) if the purchaser is an insurance company, a
representation that the purchaser is an insurance company which is purchasing
such Certificates with funds contained in an "insurance company general account"
(as such term is defined in Section V(e) of Prohibited Transaction Class
Exemption 95-60 ("PTCE 95-60")) and that the purchase and holding of such
Certificates are covered under PTCE 95-60; or (iii) an opinion of counsel
satisfactory to the Trustee that the purchase or holding of such Certificate by
a Plan, any person acting on behalf of a Plan or using such Plan's assets, will
not result in the assets of the Trust Fund being deemed to be "plan assets" and
subject to the prohibited transaction requirements of ERISA and the Code and
will not subject the Trustee to any obligation in addition to those undertaken
in the Agreement. Such representation as described above shall be deemed to have
been made to the Trustee by the transferee's acceptance of a Class B-__, Class
B-__ or Class B-Certificate. In the event that such representation is violated,
or any attempt to transfer to a plan or person acting on behalf of a Plan or
using such Plan's assets is attempted without such opinion of counsel, such
attempted transfer or acquisition shall be void and of no effect.
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 any of the
Offered Certificates. Moreover, each Plan fiduciary should determine whether
under the general fiduciary standards of investment prudence and
diversification, an investment in any of 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 and the Underwriters, the Depositor has agreed to sell to
the Underwriters, and each Underwriter has agreed to purchase from the Depositor
the respective Classes of Underwritten Certificates indicated on the cover page
hereof to be purchased by it. Distribution of the Underwritten Certificates will
be made by the respective Underwriters in each case from time to time in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale. In connection with the sale of the Underwritten Certificates, the
Underwriters may be deemed to have received compensation from the Depositor in
the form of underwriting discounts.
Each Underwriter intends to make a secondary market in the Classes of
Underwritten Certificates being purchased by it, but no 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 it will provide Certificateholders with a sufficient level of liquidity
of investment.
S-54
<PAGE>
<PAGE>
The Depositor has agreed to indemnify the Underwriters against, or make
contributions to the Underwriters with respect to, certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
The Class X and Class PO Certificates may be offered by the Depositor from
time to time directly or through underwriters or agents (either of which may
include Countrywide Securities Corporation, an affiliate of the Depositor and
the Master Servicer) in one or more negotiated transactions, or otherwise, at
varying prices to be determined at the time of sale, in one or more separate
transactions at prices to be negotiated at the time of each sale. Proceeds to
the Depositor from any sale of the Class X or Class PO Certificates will equal
the purchase price paid by the purchaser thereof, net of any expenses payable by
the Depositor and any compensation payable to any such underwriter or agent. Any
underwriters or agents that participate in the distribution of the Class X or
Class PO Certificates may be deemed to be "underwriters" within the meaning of
the Securities Act of 1933 and any profit on the sale of such Certificates by
them and any discounts, commissions, concessions or other compensation received
by any such underwriter or agent may be deemed to be underwriting discounts and
commissions under such Act.
LEGAL MATTERS
The validity of the Certificates, including certain federal income tax
consequences with respect thereto, will be passed upon for the Depositor by
Brown & Wood LLP, New York, New York. Strook & Strook & Lavan, New York, New
York, will pass upon certain legal matters on behalf of the Underwriters.
RATINGS
It is a condition to the issuance of the Senior Certificates that they be
rated ______ by ("_____") and, by ("______" and, together with ______, the
"Rating Agencies"). It is a condition to the issuance of the Class B-__, Class
B-__ and Class B-__ Certificates that they be rated at least _____, and _____,
respectively, by _____.
The ratings assigned by ________ to mortgage pass-through certificates
address the likelihood of the receipt of all distributions on the mortgage loans
by the related certificateholders under the agreements pursuant to which such
certificates are issued. _______'s ratings take into consideration the credit
quality of the related mortgage pool, including any credit support providers,
structural and legal aspects associated with such certificates, and the extent
to which the payment stream on the mortgage pool is adequate to make the
payments required by such certificates. _______ratings on such certificates do
not, however, constitute a statement regarding frequency of payments of the
mortgage loans.
The ratings assigned by ________ to mortgage pass-through certificates
address the likelihood of the receipt of all distributions on the mortgage loans
by the related certificateholders under the agreements pursuant to which such
certificates are issued. _______'s ratings take into consideration the credit
quality of the related mortgage pool, including any credit support providers,
structural and legal aspects associated with such certificates, and the extent
to which the payment stream on such mortgage pool is adequate to make payments
required by such certificates. _______'s ratings on such certificates do not,
however, constitute a statement regarding frequency of prepayments on the
related mortgage loans.
The ratings of the Rating Agencies do not address the possibility that, as
a result of principal prepayments, Certificateholders may receive a lower than
anticipated yield.
S-55
<PAGE>
<PAGE>
The security ratings assigned to 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.
S-56
<PAGE>
<PAGE>
INDEX OF DEFINED TERMS
Page
----
Advance..............................................................S-8, S-28
Agreement............................................................S-4, S-15
Applicable Credit Support Percentage......................................S-35
Available Funds...........................................................S-31
B&C.......................................................................S-15
Bankruptcy Losses.........................................................S-38
Bankruptcy Loss Coverage Amount...........................................S-48
Beneficial Owner..........................................................S-29
Book-Entry Certificates....................................................S-4
CEDE......................................................................S-29
Certificate Account.......................................................S-30
Certificateholder...................................................S-15, S-29
Certificates..........................................................S-1, S-3
Class PO Principal Distribution Amount....................................S-36
Class Subordination Percentage............................................S-35
Closing Date...............................................................S-5
Code......................................................................S-10
Corporate Trust Office.....................................................S-2
Countrywide.....................................................S-2, S-4, S-25
Cut-off Date Pool Principal Balance.......................................S-15
Cut-Off Date...............................................................S-5
Debt Service Reduction....................................................S-49
Deficient Valuation.......................................................S-49
Definitive Certificate....................................................S-29
Deleted Mortgage Loan.....................................................S-22
Depositor..................................................................S-4
Depository................................................................S-29
Determination Date.........................................................S-5
Discount Mortgage Loan....................................................S-33
Distribution Account......................................................S-30
Distribution Date....................................................S-5, S-31
ERISA...............................................................S-10, S-50
Excess Losses.............................................................S-37
Exemption.................................................................S-51
FHLMC.....................................................................S-23
Fixed Rate Certificates....................................................S-4
FNMA......................................................................S-23
Fraud Loss Coverage Amount................................................S-48
Fraud Losses..............................................................S-38
Full Doc Program..........................................................S-24
Insurance Proceeds........................................................S-31
Interest Distribution Amount.........................................S-6, S-32
Interest Only Certificates.................................................S-4
Interest Accrual Period....................................................S-6
Last Scheduled Distribution Date..........................................S-46
S-57
<PAGE>
<PAGE>
Page
----
Liquidated Mortgage Loan..................................................S-38
Liquidation Proceeds......................................................S-31
Loan-to-Value Ratio.......................................................S-16
Master Servicer............................................................S-4
Moody's...................................................................S-30
Mortgage..................................................................S-22
Mortgage File.............................................................S-22
Mortgage Loans.............................................................S-5
Mortgage Note.............................................................S-22
Mortgage Pool........................................................S-1, S-15
Mortgage Rate.............................................................S-32
Net Prepayment Interest Shortfall.........................................S-32
Net Interest Shortfall....................................................S-32
NMR.......................................................................S-33
Non-Discount Mortgage Loan................................................S-29
Non-PO Percentage.........................................................S-33
Non-PO Formula Principal Amount...........................................S-33
Notional Amount Certificates...............................................S-4
Notional Amount...........................................................S-29
Offered Certificates............................................S-1, S-3, S-28
OID..................................................................S-9, S-49
Original Subordinated Principal Balance...................................S-35
Original Applicable Credit Support Percentage.............................S-35
Pass-Through Rate..........................................................S-6
Permitted Investments.....................................................S-30
Physical Certificates......................................................S-4
Plan................................................................S-10, S-50
Pool Principal Balance....................................................S-34
PO Formula Principal Amount.........................................S-36, S-37
PO Percentage.............................................................S-33
Prepayment Assumption.....................................................S-49
Prepayment Interest Excess................................................S-27
Prepayment Interest Shortfall.............................................S-32
Principal Only Certificates................................................S-4
Prospectus.................................................................S-2
PTCE 95-60................................................................S-51
Rating Agencies.....................................................S-10, S-53
Realized Loss.............................................................S-37
Record Date..........................................................S-5, S-31
Regular Certificates.......................................................S-4
Regular Interests.....................................................S-2, S-9
Relief Act Reduction......................................................S-32
REMIC.................................................................S-2, S-9
REO Property..............................................................S-28
Replacement Mortgage Loan.................................................S-22
Residual Certificates......................................................S-4
Residual Interest.....................................................S-2, S-9
Restricted Classes........................................................S-35
S-58
<PAGE>
<PAGE>
Page
----
Scheduled Payments........................................................S-15
Seller.....................................................................S-4
Senior Credit Support Depletion Date......................................S-34
Senior Prepayment Percentage..............................................S-34
Senior Certificates..................................................S-4, S-28
Senior Principal Distribution Amount......................................S-33
Senior Percentages........................................................S-34
Senior Credit Support Depletion Date......................................S-34
Servicing Fee.............................................................S-27
Simple Doc Program........................................................S-24
SMMEA.....................................................................S-10
SPA.......................................................................S-39
Special Hazard Mortgage Loan..............................................S-38
Special Hazard Losses.....................................................S-38
Special Hazard Loss Coverage Amount.......................................S-48
Stated Income Program.....................................................S-24
Stated Principal Balance..................................................S-34
Subordinated Prepayment Percentage........................................S-35
Subordinated Certificates............................................S-4, S-28
Subordinated Principal Distribution Amount................................S-35
Substitution Adjustment Amount............................................S-22
Trust Fund.................................................................S-4
Trustee....................................................................S-5
Underwriter................................................................S-1
Underwritten Senior Certificates...........................................S-1
Underwritten Certificates..................................................S-1
Unpaid Interest Amounts...................................................S-32
Variable Rate Certificates.................................................S-4
S-59
<PAGE>
<PAGE>
================================================================================
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus Supplement or the
Prospectus and, if given or made, such information or representations must not
be relied upon. This Prospectus Supplement and the Prospectus do not constitute
an offer to sell or a solicitation of an offer to buy any of the securities
offered hereby, nor an offer of Offered Certificates in any state or
jurisdiction in which, or to any person to whom, such offer would be unlawful.
The delivery of this Prospectus Supplement or the Prospectus at any time does
not imply that the information contained herein or therein is correct as of any
time subsequent to its date; however, if any material change occurs while this
Prospectus Supplement or Prospectus is required by law to be delivered, this
Prospectus Supplement or the Prospectus will be amended or supplemented
accordingly.
_______________
TABLE OF CONTENTS
Page
----
Prospectus Supplement
Summary of Terms ..................................................... S-3
Risk Factors ......................................................... S-12
The Mortgage Pool .................................................... S-15
Servicing of Mortgage Loans .......................................... S-24
Description of the Certificates ...................................... S-28
Yield, Prepayment and Maturity Considerations ........................ S-40
Credit Enhancement ................................................... S-47
Use of Proceeds ...................................................... S-49
Federal Income Tax Consequences ...................................... S-49
ERISA Considerations ................................................. S-50
Method of Distribution ............................................... S-52
Legal Matters ........................................................ S-53
Ratings .............................................................. S-53
Index of Defined Terms ............................................... S-54
PROSPECTUS
Prospectus Supplement or Current Report on Form 8-K .................. 2
Available Information ................................................ 2
Incorporation of Certain Document 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
Method of Distribution ............................................... 94
Legal Matters ........................................................ 95
Financial Information ................................................ 95
Rating ............................................................... 95
Index of Defined Terms ............................................... 97
================================================================================
$[_____________]
(Approximate)
Mortgage Pass-Through
Certificates,
Series 199_ - _
CWABS, Inc.
Depositor
[Countrywide Home Loans, Inc.]
Seller and Master Servicer
-----------------------------
PROSPECTUS SUPPLEMENT
[_________, 199_]
-----------------------------
================================================================================
S-60
<PAGE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED NOVEMBER 5, 1996
PROSPECTUS SUPPLEMENT
(To Prospectus dated ___________, 1996)
$___________
[COUNTRYWIDE] HOME EQUITY LOAN TRUST 199___
$___________ HOME EQUITY LOAN ASSET BACKED NOTES, SERIES 199_-_
$__________ HOME EQUITY LOAN ASSET BACKED CERTIFICATES, SERIES 199_-_
The [Countrywide] Home Equity Loan Trust 199__ (the "Trust Fund") will be
formed pursuant to a trust agreement to be dated as of ______, 199_ (the "Trust
Agreement") and entered into by CWABS, Inc. (the "Depositor"), ________________
and _____________, as owner trustee (the "Owner Trustee"). The Trust Fund will
issue $___________ aggregate principal amount of Home Equity Loan Asset Backed
Notes (the "Notes"). The Notes will be issued pursuant to an indenture to be
dated as of __________ __, 199_ (the "Indenture"), between the Trust Fund and
____________, as indenture trustee (the "Indenture Trustee"). The Trust Fund
will also issue $____________ aggregate principal amount of Home Equity Loan
Asset Backed Certificates, Series 199_-_ (the "Certificates" and, together with
the Notes, the "Securities"). See "Index of Defined Terms" on Page S-45 of this
Prospectus Supplement and on Page 98 of the Prospectus for the location of the
definitions of certain capitalized terms.
The property of the Trust Fund will include a pool of [adjustable rate]
home equity revolving credit line loans made or to be made in the future (the
"Mortgage Loans") under certain home equity revolving credit line loan
agreements. The Mortgage Loans are secured by first and second deeds of trust or
mortgages on one- to four-family residential properties. [In addition, the
Securities will have the benefit of an irrevocable and unconditional limited
financial guaranty insurance policy (the "Policy") issued by ______________ (the
"Certificate Insurer") covering [describe].]
Distributions of principal and interest on the Notes will be made on the
_________ day of each month or, if such date is not a Business Day, then on the
succeeding Business Day (each a "Distribution Date"), commencing on ________,
199_ to the extent described under "Summary of Terms--Description of the
Securities" and "Description of the Securities" herein. Interest will accrue on
the Notes at a rate (the "Note Rate") equal to ___% per annum from the Closing
Date to the first Distribution Date and at [a floating rate equal to [LIBOR] (as
defined herein) plus ___% per annum] [___% per annum] thereafter.
The Certificates will represent fractional undivided interests in the Trust
Fund. Distribution of principal and interest on the Certificates will be made on
each Distribution Date to the extent described herein. Interest will accrue on
the Certificates at a rate (the "Pass-Through Rate") equal to ___% per annum
from the Closing Date to the first Distribution Date and at [a floating rate
equal to [LIBOR] plus ___% per annum] [___% per annum] thereafter.
Payments of interest and principal on the Notes will have equal priority
with payments of principal and interest (and will be made pro rata) on the
Certificates.
There is currently no market for the Securities offered hereby and there
can be no assurance that such a market will develop or if it does develop that
it will continue. See "Risk Factors" herein.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER
"RISK FACTORS" ON PAGE S-12 HEREIN AND ON PAGE 12 IN THE
ACCOMPANYING PROSPECTUS.
----------
<PAGE>
<PAGE>
THE SECURITIES REPRESENT INTERESTS IN OR OBLIGATIONS OF THE TRUST ONLY
AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR,
OWNER TRUSTEE, INDENTURE TRUSTEE OR ANY AFFILIATE THEREOF, EXCEPT TO
THE EXTENT PROVIDED HEREIN. THE SECURITIES ARE NOT INSURED OR
GUARANTEED BY ANY GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The Securities offered hereby will be purchased by [ ] (the "Underwriter")
from the Depositor and will, in each case, be offered by the Underwriter from
time to time to the public in negotiated transactions or otherwise at varying
prices to be determined at the time of sale. The aggregate proceeds to the
Depositor from the sale of the Notes are expected to be $_____________ and from
the sale of the Certificates are expected to be $__________ before deducting
expenses payable by the Depositor of $_______.
The Securities are offered subject to prior sale and subject to the
Underwriters' right to reject orders in whole or in part. It is expected that
the Notes will be delivered in book-entry form through the facilities of The
Depository Trust Company, [Cedel, S.A. and the Euroclear System] on or about
_______, 199_. The Securities will be offered in [Europe and] the United States
of America.
----------
Until ninety days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Securities, whether or not participating in this
distribution, may be required to deliver a Prospectus Supplement and Prospectus
to investors. This is in addition to the obligation of dealers acting as
Underwriters to deliver a Prospectus Supplement and Prospectus with respect to
their unsold allotments or subscriptions.
----------
Each Series of Securities offered hereby constitute part of a separate
Series of Asset Backed Securities being offered by the Underwriter from time to
time pursuant to the Prospectus dated ____________, 199_. This Prospectus
Supplement does not contain complete information about the offering of the
Securities. Additional information is contained in the Prospectus and investors
are urged to read both this Prospectus Supplement and the Prospectus in full.
Sales of the Securities may not be consummated unless the purchaser has received
both this Prospectus Supplement and the Prospectus.
The Trustee on behalf of any 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 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 _____________, telephone:_________, facsimile
number:_____________, attention:__________.
----------
[UNDERWRITER]
_______________, 199_
S-2
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF TERMS
The following summary of certain pertinent information 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 herein are defined elsewhere in the Prospectus Supplement or in the
Prospectus. See "Index of Defined Terms" on Page S-45 of this Prospectus
Supplement and on Page 98 of the Prospectus for the location of the definitions
of certain capitalized terms.
Title of Securities .................. Home Equity Loan Asset Backed Notes,
Series 199__-__(the "Notes") and Home
Equity Loan Asset Backed Certificates,
Series 199__-__ (the "Certificates" and,
together with the Notes, the
"Securities").
Securities Offered ................... All of the Securities, including the
Class ___, Class __ and Class __ Notes
and the Class __, Class __ and Class __
Certificates. Each Security represents
the right to receive payments of
interest at the variable rate described
below, payable monthly, and payments of
principal at such time and to the extent
provided below.
Trust Fund............................ [Countrywide] Home Equity Loan Trust
199_-_ (the "Trust Fund" or the
"Issuer"), a Delaware business trust
established pursuant to the Trust
Agreement (as defined herein), dated as
of ___, 199_ (the "Cut-off Date"). The
property of the Trust Fund will include:
a pool of [adjustable rate] home equity
revolving credit line loans made or to
be made in the future (the "Mortgage
Loans"), under certain home equity
revolving credit line loan agreements
(the "Credit Line Agreements") and
secured by either first or second
mortgages on residential properties that
are one- to four-family properties (the
"Mortgaged Properties"); the collections
in respect of the Mortgage Loans
received after the Cut-off Date
(exclusive of payments in respect of
accrued interest due on or prior to the
Cut-off Date or due in the month of
_____________); property that secured a
Mortgage Loan which has been acquired by
foreclosure or deed in lieu of
foreclosure; [an irrevocable and
unconditional limited financial guaranty
insurance policy (the "Policy")]; an
assignment of the Depositor's rights
under the Purchase Agreement (as defined
herein); rights under certain hazard
insurance policies covering the
Mortgaged Properties; and certain other
property, as described more fully under
"The Trust Fund" herein.
The Trust Fund will include the unpaid
principal balance of each Mortgage Loan
as of the Cut-off Date (the "Cut-off
Date Principal Balance") plus any
additions thereto as a result of new
advances made pursuant to the applicable
Credit Line Agreement (the "Additional
Balances") during the life of the Trust
Fund. With respect to any date, the
"Pool Balance"
- --------------------------------------------------------------------------------
S-3
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
will be equal to the aggregate of the
Principal Balances of all Mortgage Loans
as of such date. The "Principal Balance"
of a Loan (other than a Liquidated Loan)
on any day is equal to its Cut-off Date
Principal Balance, plus (i) any
Additional Balances in respect of such
Mortgage Loan, minus (ii) all
collections credited against the
Principal Balance of such Mortgage Loan
in accordance with the related Credit
Line Agreement prior to such day. The
Principal Balance of a Liquidated Loan
after the final recovery of related
Liquidation Proceeds shall be zero.
Indenture ........................... The Notes will be issued pursuant to an
indenture dated as of _________, 199_
(the "Indenture") between the Trust Fund
and the Indenture Trustee. The Indenture
Trustee will allocate distributions of
principal and interest to holders of the
Notes (the "Noteholders") in accordance
with the Indenture.
Trust Agreement....................... Pursuant to a trust agreement dated as
of ________ 1, 199_ (the "Trust
Agreement"), among the Depositor,
________ and the Owner Trustee, the
Trust Fund will issue the Certificates
in an initial aggregate amount of
$__________. The Certificates will
represent fractional undivided interests
in the Trust Fund.
Depositor............................. CWABS, Inc. a Delaware corporation and a
limited purpose finance subsidiary of
Countrywide Credit Industries, Inc., a
Delaware corporation.
Master Servicer....................... [Countrywide Home Loans, Inc.
("Countrywide") and, in its capacity as
Master Servicer of the Mortgage Loans,
the "Master Servicer". The Master
Servicer will service the Mortgage Loans
pursuant to a Master Servicing Agreement
dated _________ 1, 199_ between the
Issuer and the Master Servicer.
Indenture Trustee..................... _______________ (the "Indenture
Trustee").
Owner Trustee......................... _______________ (the "Owner Trustee").
Cut-off Date.......................... __________ 1, 199__.
Closing Date.......................... On or about __________ __, 199__.
Determination Date.................... The ___ business day, but no later than
the ___ calendar day, of each month (the
"Determination Date").
The Mortgage Loans.................... The Mortgage Loans are secured by first
and second mortgages on Mortgaged
Properties. The Mortgage Loans were
originated or acquired in the normal
course of its business by [Countrywide]
(in such capacity, the "Seller").
- --------------------------------------------------------------------------------
S-4
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
On the Closing Date, [Countrywide] will
sell the Mortgage Loans to the
Depositor, pursuant to a purchase
agreement (the "Purchase Agreement").
The aggregate Principal Balance of the
Mortgage loans as of the Cut-off Date is
$___________ (the "Cut-off Date Pool
Principal Balance").
The percentage of the Cut-off Date
Principal Balance of the Mortgage Loans
secured by Mortgaged Properties located
in the states of [__________, _________,
_________, _______, ______ and ________]
is approximately ____%, ____%, ____%,
____%, ____% and ____%, respectively.
The "Combined Loan-to-Value Ratio" of
each Mortgage Loan is the ratio of (A)
the sum of (i) the maximum amount the
borrower was permitted to draw down
under the related Credit Line Agreement
(the "Credit Limit") and (ii) the
amounts of any related senior mortgage
loans (computed as of the date of
origination of each such Mortgage Loans)
to (B) the lesser of (i) the appraised
value of the Mortgaged Property or (ii)
in the case of a Mortgaged Property
purchased within one year of the
origination of the related Mortgage
Loan, the purchase price of such
Mortgaged Property. As of the Cut-off
Date the Combined Loan-to-Value Ratios
ranged from ____% to ______% and, as of
the Cut-off Date, the weighted average
Combined Loan-to-Value Ratio of the
Mortgage Loans was approximately ____%.
Interest on each Mortgage Loan is
payable monthly and computed on the
related daily outstanding Principal
Balance for each day in the billing
cycle at a variable rate per annum (the
"Loan Rate") equal at any time (subject
to maximum rates, as described herein
under "The Home Equity Lending
Program--Mortgage Loan Terms," and
further subject to applicable usury
limitations) to the sum of [(i) the
highest prime rate published in the
"Money Rates" section of The Wall Street
Journal] and (ii) a Margin within the
range of ___% to ___%. As of the Cut-off
Date, the weighted average Margin was
approximately %. Loan Rates are adjusted
monthly on the first business day of the
calendar month preceding the Due Date.
As to each Mortgage Loan, the "Due Date"
is the ___ day of each month. The
Cut-off Date Principal Balances ranged
from zero to $________ and averaged
approximately $_______. Credit Limits
under the Mortgage Loans as of the
Cut-off Date ranged from $________ to
$________ and averaged approximately
$________. Each Mortgage Loan was
originated in the period from __________
__, 19__ to __________ __, 19__. As of
the Cut-off Date, the maximum Credit
Limit Utilization Rate (as defined
herein) was 100% and the weighted
average Credit Limit Utilization Rate
was approximately %. As of the Cut-off
Date,
- --------------------------------------------------------------------------------
S-5
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
approximately ___% by Cut-off Date
Principal Balance of theMortgage Loans
represented first liens on the related
Mortgaged Properties, while
approximately ___% of the Mortgage Loans
represented second liens. As of the
Cut-off Date, the Mortgage Loans had
remaining terms to scheduled maturity
ranging from ___ months to ___ months
and had a weighted average of
approximately ___ months. See "The Home
Equity Lending Program" and "Description
of the Mortgage Loans" herein.
Distribution Date..................... The ____ day of each month or, if such
day is not a Business Day, the next
succeeding Business Day, commencing with
_______, 199_. A "Business Day" is any
day other than a Saturday or Sunday or
another day on which banking
institutions in New York, New York [and
____________] are authorized or
obligated by law, regulations or
executive order to be closed.
Final Scheduled
Distribution Dates............... With respect to the Certificates,
___________________. To the extent not
previously paid, the principal balance
(the "Security Principal Balance") of
the Notes will be due on the
Distribution Date in _______, 199_.
Failure to pay the full principal
balance of Notes on or before the
applicable final scheduled payment dates
constitutes an Event of Default under
the Indenture.
Record Date........................... The last day preceding a Distribution
Date or, if the Securities are no longer
Book-Entry Securities, the last day of
the month preceding a Distribution Date.
Collections........................... All collections on the Mortgage Loans
will be allocated by the Master Servicer
in accordance with the Loan Agreements
between amounts collected in respect of
interest ("Interest Collections") and
amounts collected in respect of
principal ("Principal Collections" and
collectively with Interest Collections,
the "Collections"). The Master Servicer
will generally deposit Collections
distributable to the Holders in an
account established for such purpose
under the Servicing Agreement (the
"Collection Account"). See "Description
of the Master Servicing Agreement --
Allocations and Collections" herein and
"The Agreements -- Payments on Loans;
Deposits to Security Account" and "--
Collection Procedures" in the
Prospectus.
Description of the Securities.........
A. Distributions...................On each Distribution Date, collections
on the Mortgage Loans will be applied in
the following order of priority:
- --------------------------------------------------------------------------------
S-6
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
(i) to the Master Servicer, the
Servicing Fee;
(ii) as payment for the accruedinterest
due and any overdue accrued
interest (with interest thereon)
on the respective Security
Principal Balances of the Notes
and the Certificates;
(iii) as principal on the
Securities, the excess of
Principal Collections over
Additional Balances created during
the preceding Collection Period,
such amount to be allocated
between the Notes and
Certificates, pro rata, based on
their respective Security
Principal Balances;
(iv) as principal on the
Securities, as payment for any
Liquidation Loss Amounts on the
Mortgage Loans;
(v) as payment for the premium on
the Policy;
(vi) to reimburse prior draws made
on the Policy; and
(vii) any remaining amounts to the
Seller.
As to any Distribution Date, the
"Collection Period" is the calendar
month preceding the month of such
Distribution Date.
"Liquidation Loss Amount" means with
respect to any Liquidated Mortgage
Loan, the unrecovered Principal Balance
thereof at the end of the related
Collection Period in which such Mortgage
Loan became a Liquidated Mortgage Loan
after giving effect to the Net
Liquidation Proceeds in connection
therewith.
B. Note Rate.......................... Interest will accrue on the unpaid
Security Principal Balance of the Notes
at the per annum rate (the "Note Rate")
equal to ___% per annum from the Closing
Date to the first Distribution Date and
thereafter interest will accrue on the
Notes from and including the preceding
Distribution Date to but excluding such
current Distribution Date (each, an
"Interest Accrual Period") at [a
floating rate equal to LIBOR (as defined
herein) plus ___%] [___%]. [Interest
will be calculated on the basis of the
actual number of days in each Interest
Accrual Period divided by 360.] A
failure to pay interest on any Notes on
any Distribution Date that continues for
five days constitutes an Event of
Default under the Indenture.
C. Pass-Through Rate.................. Interest will accrue on the unpaid
Principal Balance of the Certificates at
the per annum rate (the "Pass-Through
Rate") equal to ___% per annum from the
Closing Date to the first
- --------------------------------------------------------------------------------
S-7
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Distribution Date and thereafter
interest will accrue on the Certificates
for each Interest Accrual Period at [a
floating rateequal to LIBOR (as defined
herein) plus ___%] [___%]. [Interest
will be calculated on the basis of the
actual number of days in each Interest
Accrual Period divided by 360.] A
failure to pay interest on any
Certificates on any Distribution Date
that continues for five days constitutes
an Event of Default under the Trust
Agreement.
D. Form and Registration.............. The Securities will initially be
delivered in book-entry form
("Book-Entry Securities"). Holders of
such Securities may elect to hold their
interests through The Depository Trust
Company ("DTC"), [in the United States,
or Centrale de Livraison de Valeurs
Mobilieres S.A. ("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 Securities are
Book-Entry Securities, such Securities
will be evidenced by one or more
securities 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 and Euroclear, respectively, and
each a participating member of DTC. The
Securities will initially be registered
in the name of Cede. The interests of
such Holders will be represented by book
entries on the records of DTC and
participating members thereof. No Holder
of a Security will be entitled to
receive a definitive note representing
such person's interest, except in the
event that Securities in fully
registered, certificated form
("Definitive Securities") are issued
under the limited circumstances
described in "Description of the
Securities ___ Book-Entry Registration
of Securities" in the Prospectus. All
references in this Prospectus Supplement
to Securities reflect the rights of
Holders of such Notes only as such
rights may be exercised through DTC and
its participating organizations for so
long as such Securities are held by DTC.
See "Risk Factors -- Book-Entry
Securities" herein.
E. Denominations...................... The Securities will be issued in minimum
denominations of $[________] and
integral multiples thereof.
[Final Payment of Principal;
Termination..................... The Trust Fund will terminate on the
Distribution Date following the earlier
of (i) _________________________ and
- --------------------------------------------------------------------------------
S-8
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
(ii) the final payment or other
liquidation of the last Mortgage Loan in
the Trust Fund. The Mortgage Loans will
be subjectto optional repurchase by the
Master Servicer on any Distribution Date
after the Principal Balance is reduced
to an amount less than or equal to $
(____% of the initial Principal
Balance). The repurchase price will be
equal to the sum of the outstanding
Principal Balance and accrued and unpaid
interest thereon at the weighted average
of the Loan Rates through the day
preceding the final Distribution Date.
See "Description of the Securities --
Optional Termination" herein and "The
Agreements -- Termination; Optional
Termination" in the Prospectus.
[Letter of Credit]
[Surety Bond]
Issuer........................ _________________ (the "[Letter of
Credit] [Surety Bond] Issuer"). See "The
[Letter of Credit] [Surety Bond] Issuer"
herein.
[Letter of Credit]
[Surety Bond]................... On the Closing Date, the [Letter of
Credit] [Surety Bond] Issuer will issue
a [letter of credit] [surety bond] (the
"[Letter of Credit] [Surety Bond]") in
favor of the Owner Trustee on behalf of
the Trust Fund. In the event that, on
any Distribution Date, available amounts
on deposit in the Collection Account
with respect to the preceding Collection
Period are insufficient to provide for
the payment of the amount required to be
distributed to the Holders and the
Master Servicer on such Distribution
Date, the Trustee will draw on the
[Letter of Credit] [Surety Bond], to the
extent of the [Letter of Credit] [Surety
Bond] Amount for such Distribution Date,
in an amount equal to such deficiency.
See "Description of the Securities --
Distributions" herein and "Credit
Enhancement" in the Prospectus.
[[Letter of Credit]
[Surety Bond]
Amount......................... The amount available under the [Letter
of Credit] [Surety Bond] (the "[Letter
of Credit] [Surety Bond] Amount") for
the initial Distribution Date will be
$_______. For each Distribution Date
thereafter, the [Letter of Credit]
[Surety Bond] Amount will equal the
lesser of (i) ___% of the Pool Balance
as of the first day of the preceding
Collection Period (after giving effect
to any amounts distributed with respect
to principal of the Mortgage Loans on
the Distribution Date occurring in such
preceding Collection Period) and (ii)
the [Letter of Credit] [Surety Bond]
Amount as of the first day of the
preceding Collection Period, minus any
amounts drawn under the [Letter of
Credit] [Surety Bond] during such
preceding Collection Period, plus any
amounts paid to the [Letter of Credit]
[Surety Bond] Issuer on the Distribution
- --------------------------------------------------------------------------------
S-9
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Date occurring in such preceding
Collection Period up to theamount of any
previous draws on the [Letter of Credit]
[Surety Bond].]
Federal Income Tax
Consequences.................... Brown & Wood LLP, special counsel to the
Depositor ("Tax Counsel"), is of the
opinion that the Trust Fund will not be
an association (or a publicly traded
partnership) taxable as a corporation
for federal income tax purposes. The
Trust Fund will agree, and the
Noteholders will agree by their purchase
of the Notes, to treat the Notes as debt
for federal income tax purposes. Based
on the application of existing law to
the facts as set forth in the Agreement
and other relevant documents and
assuming compliance with the terms of
the Agreement as in effect on the date
of issuance of the Notes and
Certificates, Tax Counsel is of the
opinion that the Notes will be treated
as debt instruments for federal income
tax purposes as of such date.
It is not anticipated that the Notes
will be issued with original issue
discount ("OID"). The stated interest
thereon will be taxable to a Noteholder
as ordinary interest income when
received or accrued in accordance with
such Noteholder's method of tax
accounting.
The Trust Fund and the Master Servicer
will agree, and the Certificateholders
will agree by their purchase of
Certificates, to treat the Trust Fund as
a partnership for purposes of federal
and state income tax, franchise tax and
any other tax measured in whole or in
part by income, with the assets of the
partnership being the assets held by the
Trust Fund, the partners of the
partnership being the
Certificateholders, and the Notes being
debt of the partnership. However, the
proper characterization of the
arrangement involving the Trust Fund,
the Certificates, the Notes, the Trust
Fund and the Master Servicer is not
clear because there is no authority on
transactions closely comparable to that
contemplated herein. See "Federal Income
Tax Consequences" and "State Tax
Consequences" herein and "Federal Income
Tax Consequences" and "State Tax
Considerations" in the Prospectus
concerning the application of federal,
state and local tax laws.
ERISA Considerations.................. Generally, plans that are subject to the
requirements of ERISA and the Code are
permitted to purchase instruments like
the Notes that are debt under applicable
state law and have no "substantial
equity features" without reference to
the prohibited transaction requirements
of ERISA and the Code. In the opinion of
ERISA Counsel (as defined herein), the
Notes will be classified as indebtedness
without substantial equity features for
ERISA purposes. However, if the Notes
are deemed to be equity interests and no
statutory, regulatory or administrative
exemption applies, the Trust Fund will
hold plan assets by reason of a Plan's
investment in the Notes. Accordingly,
any Plan fiduciary considering whether
to purchase the Notes on behalf of a
Plan should consult with its counsel
regarding the applicability of the
provisions of ERISA and the Code and the
availability of any exemptions. Under
current law the purchase and holding of
the Certificates by or on behalf of any
employee benefit plan (a "Plan") subject
to the fiduciary responsibility
provisions of the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), may result in a "prohibited
transaction" within the meaning of ERISA
and the Code or other violation of the
fiduciary responsibility provisions of
ERISA and Section 4975 of the Code.
[Consequently, Certificates may not be
transferred to a proposed transferee
that is a Plan subject to ERISA or that
is described in Section 4975(e)(1) of
the Code, or a person acting on behalf
of any such Plan or using the assets of
such plan unless the Owner Trustee and
the Depositor receive the opinion of
counsel reasonably satisfactory to the
Owner Trustee and the Depositor to the
effect that the purchase and holding of
such Certificate will not result in the
assets of the Trust Fund being deemed to
be "plan assets" for ERISA purposes and
will not be a prohibited
- --------------------------------------------------------------------------------
S-10
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
transaction under ERISA or Section 4975
of the Code.] See "ERISA Considerations"
herein and in the Prospectus.
Legal Investment...................... The Securities will not constitute
"mortgage related securities" for
purposes of the Secondary Mortgage
Market Enhancement Act of 1984
("SMMEA"), because some of the Mortgages
securing the Mortgage Loans are not
first mortgages. Accordingly, many
institutions with legal authority to
invest in comparably rated securities
based solely on first mortgages may not
be legally authorized to invest in the
Certificates. See "Legal Investment
Considerations" herein and "Legal
Investment" in the Prospectus.
Rating................................ It is a condition to the issuance of the
Securities that they be rated _________
by at least ____ nationally recognized
statistical rating organizations (each a
"Rating Agency"). In general, ratings
address credit risk and do not address
the likelihood of prepayments. A
security rating is not a recommendation
to buy, sell or hold securities.
Risk Factors.......................... For a discussion of certain risks
associated with an investment in the
Securities, see "Risk Factors" on Page
S-12 herein and on Page 12 in the
Prospectus.
- --------------------------------------------------------------------------------
S-11
<PAGE>
<PAGE>
RISK FACTORS
Investors should consider the following risks in connection with the
Purchase of the Securities.
Consequences of Owning Book-Entry Securities
Issuance of the Securities in book-entry form may reduce the liquidity of
such Securities in the secondary trading market since investors may be unwilling
to purchase Securities for which they cannot obtain physical securities. See
"Description of the Securities--Book-Entry Securities" herein and "Risk
Factors-- Book-Entry Registration" in the Prospectus.
Since transactions in the Securities can be effected only through DTC,
CEDEL, Euroclear, participating organizations, indirect participants and certain
banks, the ability of a Security Owner to pledge a Security to persons or
entities that do not participate in the DTC, CEDEL or Euroclear system may be
limited due to lack of a physical security representing the Securities. See
"Description of the Securities--Book-Entry Securities" herein and "Risk
Factors--Book-Entry Registration" in the Prospectus.
Security Owners may experience some delay in their receipt of distributions
of interest and principal on the Securities 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 Security Owners either directly or indirectly through
indirect participants. Security Owners will not be recognized as Securityholders
as such term is used in the Agreement, and Security Owners will be permitted to
exercise the rights of Securityholders only indirectly through DTC and its
Participants. See "Description of the Securities--Book-Entry Securities" herein
and "Risk Factors--Book-Entry Registration" in the Prospectus.
Cash Flow Considerations and Risks
Minimum monthly payments will at least equal and may exceed accrued
interest. Even assuming that the Mortgaged Properties provide adequate security
for the Mortgage Loans, substantial delay could be encountered in connection
with the liquidation of Mortgage Loans that are delinquent and corresponding
delays in the receipt of related proceeds by Holders could occur if the [Letter
of Credit] [Surety Bond] provider were unable to perform on its obligations
under the [Letter of Credit] [Surety Bond]. Further, liquidation expenses (such
as legal fees, real estate taxes, and maintenance and preservation expenses)
will reduce the proceeds payable to Holders and thereby reduce the security for
the Mortgage Loans. In the event any of the Mortgaged Properties fail to provide
adequate security for the related Mortgage Loans, Holders could experience a
loss if the [Letter of Credit] [Surety Bond] provider were unable to perform its
obligations under the [Letter of Credit] [Surety Bond].]
Prepayment Considerations and Risks
Substantially all of the Mortgage Loans may be prepaid in whole or in part
at any time without penalty. Home equity loans, such as the Mortgage Loans, have
been originated in significant volume only during the past few years and neither
the Depositor nor the Master Servicer is aware of any publicly available studies
or statistics on the rate of prepayment of such loans. Generally, home equity
loans are not viewed by borrowers as permanent financing. Accordingly, the
Mortgage Loans may experience a higher rate of prepayment than traditional
loans. 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 "Certain Legal Aspects of the
Loans--Due-on-Sale Clauses" in the Prospectus for a description of certain
provisions of the Credit Line Agreements that may affect the prepayment
experience
S-12
<PAGE>
<PAGE>
on the Mortgage Loans. The yield to maturity and weighted average life of the
Securities will be affected primarily by the rate and timing of prepayments on
the Mortgage Loans. Any reinvestment risks resulting from a faster or slower
incidence of prepayment of Mortgage Loans will be borne entirely by the
Securityholders.
Certificate Rating. The rating of the Securities will depend primarily on
an assessment by the Rating Agencies of the Loans and upon the claims-paying
ability [Letter of Credit] [Surety Bond] provider. Any reduction in a rating
assigned to the claims-paying ability of the [Letter of Credit][Surety Bond]
provider below the rating initially given to the Securities may result in a
reduction in the rating of the Securities. The rating by the Rating Agencies of
the Securities is not a recommendation to purchase, hold or sell the Securities,
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 Securities
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 Mortgage Loans are secured by deeds of trust or mortgages (which
generally are second mortgages). With respect to Mortgage Loans that are secured
by first mortgages, the Master Servicer has the power under certain
circumstances to consent to a new mortgage lien on the Mortgaged Property having
priority over such Mortgage Loan. Mortgage Loans secured by second mortgages are
entitled to proceeds that remain from the sale of the related Mortgage 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 [Letter of Credit] [Surety Bond]
provider is unable to perform its obligations under the [Letter of Credit]
[Surety Bond] or if the coverage under the [Letter of Credit] [Surety Bond] is
exhausted] the Trust Fund and, accordingly, the Holders, bear (i) the risk of
delay in distributions while a deficiency judgment against the borrower is
obtained and (ii) the risk of loss if the deficiency judgment cannot be obtained
or is not realized upon. See "Certain Legal Aspects of the Mortgage Loans" in
the Properties.
Legal Considerations--Security Interest
Under the terms of the Purchase Agreement, so long as [Countrywide's]
long-term senior unsecured debt is rated at least "____" by ____ and "________"
by ______, the Master Servicer will be entitled to maintain possession of the
documentation relating to each Mortgage Loan sold by it, including the Credit
Line Agreements and the Related Documents or other evidence of indebtedness
signed by the borrower, and the assignments of the related mortgages to the
Trust will not be required to be recorded. Failure to deliver the Related
Documents to the Owner Trustee will have the result in most (if not all) of the
states in which the Related Documents will be held, and failure to record the
assignments of the related mortgages to the Owner Trustee will have the result
in certain states in which the Mortgaged Properties are located, of making the
sale of the Cut-off Date Principal Balances, Additional Balances and Related
Documents potentially ineffective against (i) any creditors of [Countrywide],
who may have been fraudulently or inadvertently induced to rely on the Mortgage
Loans as assets of [Countrywide], or (ii) any purchaser of a Mortgage Loan who
had no notice of the prior conveyance to the Trust Fund if such purchaser
perfects his interest in the Mortgage Loan by taking possession of the Related
Documents or other evidence of indebtedness or otherwise. In such event, the
Trust Fund would be an unsecured creditor of [Countrywide].
Bankruptcy and Insolvency Risks
The sale of the Mortgage Loans from the Seller to the Depositor pursuant to
the Purchase Agreement will be treated as a sale of the Mortgage Loans. The
Seller will warrant that such transfer is either a sale of
S-13
<PAGE>
<PAGE>
its interest in the Mortgage Loans or a grant of a first priority perfected
security interest therein. In the event of an insolvency of the Seller, the
receiver of the Seller may attempt to recharacterize the sale of the Mortgage
Loans as a borrowing by the Seller secured by a pledge of the Mortgage Loans. If
the receiver decided to challenge such transfer, delays in payments of the
Securities and possible reductions in the amount thereof could occur. The
Depositor will warrant in the Trust Agreement that the transfer of its interest
in the Mortgage Loans to the Trust Fund is a valid transfer and assignment of
such interest.
If a conservator, receiver or trustee were appointed for the Seller, or if
certain other events relating to the bankruptcy or insolvency of the Seller were
to occur, Additional Balances would not be transferred by the Seller to the
Trust Fund. In such an event, an Event of Default under the Pooling and
Servicing Agreement and Indenture would occur and the Owner Trustee would
attempt to sell the Mortgage Loans (unless Holders holding Securities evidencing
undivided interests aggregating at least 51% of each of the Security Principal
Balance of the Notes and the Certificates instruct otherwise), thereby causing
early payment of the Security Principal Balance of the Notes and the
Certificates.
In the event of a bankruptcy or insolvency of the Master Servicer, the
bankruptcy trustee or receiver may have the power to prevent the applicable
Trustee or the Holders from appointing a successor Master Servicer.
[Geographic Concentration. As of the Cut-off Date, approximately _____% (by
Cut-off Date Principal Balance) of the Mortgaged Properties are located in the
State of __________. An overall decline in the __________ 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, together with any primary financing on such Mortgaged
Properties, 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 __________ residential real estate market will not weaken. If the
__________ residential real estate market should experience an overall decline
in property values after the dates of origination of the Mortgage Loans, the
rates of losses on the Mortgage Loans would be expected to increase, and could
increase substantially.]
Master Servicer's Ability to Change the Terms of the Mortgage Loans
The Master Servicer may agree to changes in the terms of a Credit Line
Agreement, provided that such changes (i) do not adversely affect the interest
of the Holders or the [Letter of Credit] [Surety Bond] provider, and (ii) are
consistent with prudent business practice. There can be no assurance that
changes in applicable law or the marketplace for home equity loans or prudent
business practice will not result in changes in the terms of the Mortgage Loans.
In addition, the Master Servicing Agreement permits the Master Servicer, within
certain limitations described therein, to increase the Credit Limit of the
related Mortgage Loan or reduce the Margin for such Mortgage Loan. Any such
increase in the Credit Limit of a Mortgage Loan would increase the Loan-to-Value
Ratio of such Mortgage Loan and, accordingly, would increase the risk of the
Trust Fund's investment in such Mortgage Loan. In addition, any reduction in the
Margin of a Mortgage Loan would reduce the excess cash flow available to absorb
losses.
Delinquent Mortgage Loans
The Trust Fund will include Mortgage Loans which are __ or fewer days
delinquent. The Cut-off Date Principal Balance of such delinquent Mortgage Loans
was $______________.]
For a discussion of additional risks pertaining to the Securities, see
"Risk Factors" in the Prospectus.
S-14
<PAGE>
<PAGE>
THE TRUST FUND
General
The Issuer, [Countrywide] Home Equity Loan Trust 199_, is a business trust
formed under the laws of the State of Delaware pursuant to the Trust Agreement
for the transactions described in this Prospectus Supplement. The Trust
Agreement constitutes the "governing instrument" under the laws of the State of
Delaware relating to business trusts. After its formation, the Issuer will not
engage in any activity other than (i) acquiring, holding and managing the
Mortgage Loans and the other assets of the Trust Fund and proceeds therefrom,
(ii) issuing the Notes and the Certificates, (iii) making payments on the Notes
and the Certificates and (iv) engaging in other activities that are necessary,
suitable or convenient to accomplish the foregoing or are incidental thereto or
connected therewith.
The property of the Trust Fund will consist of: (i) each of the Mortgage
Loans that are _________; (ii) collections on the Mortgage Loans received after
the Cut-off Date; (iii) Mortgaged Properties relating to the Mortgage Loans that
are acquired by foreclosure or deed in lieu of foreclosure; (iv) the Collection
Account and the Distribution Account (excluding net earnings thereon); (v) the
[Letter of Credit] [Surety Bond]; and (vi) an assignment of the Depositor's
rights under the Purchase Agreement, including all rights of the Depositor to
purchase Additional Balances.
The Trust Fund's principal offices are in __________, Delaware, in care of
________________________, as Owner Trustee, at [ ].
THE [LETTER OF CREDIT][SURETY BOND] ISSUER
The following information with respect to _________ ("_______") has been
furnished by __________. Accordingly, none of the Issuer, the Depositor or the
Master Servicer makes any representation as to the accuracy and completeness of
such information.
[Description of Letter of Credit/Surety Issuer]
THE MASTER SERVICER
General
The Master Servicer will service the Mortgage Loans in accordance with the
terms set forth in the Master Servicing Agreement. The Master Servicer may
perform any of its obligations under the Master 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 Master 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 Master Servicer
for the Mortgage Loans pursuant to the Master 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.
S-15
<PAGE>
<PAGE>
Countrywide's mortgage loans are principally first-lien, fixed or adjustable
rate mortgage loans secured by single-family residences. Countrywide began
servicing home equity lines of credit in _______ 19__.
At ______________, 199_, Countrywide provided servicing for approximately
$______ billion aggregate principal amount of first-lien mortgage loans,
substantially all of which are being serviced for unaffiliated persons. At
_____________, 199_, Countrywide provided servicing for approximately $______
million aggregate principal amount of first and second lien mortgage loans
originated under home equity lines of credit.
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 located through the nation.]
THE HOME EQUITY LOAN PROGRAM
Underwriting Procedures Relating to Home Equity Loans
The following is a description of the underwriting procedures customarily
employed by the Seller with respect to home equity 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 the Seller's underwriting guidelines will
be made when compensating factors are present. Such factors include the
borrower's employment stability, credit history, disposable income, equity in
the related property and the nature of the underlying first mortgage loan.
Each applicant for a home equity 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 home equity loan, the Seller
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 debt payments
and any record of delinquencies, defaults, bankruptcy, collateral repossessions,
suits or judgments.
The Seller 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 generally
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 home equity loans which at
origination had a principal balance greater than $100,000. Such appraisals are
determined on the basis of a Seller-approved, independent third-party, fee-based
appraisal completed on forms approved by Federal National Mortgage Association
("FNMA") or Federal Home Loan Mortgage Corporation ("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.
S-16
<PAGE>
<PAGE>
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 home equity loans are $10,000 and
$500,000, respectively. Borrowers may draw under the home equity loans in
minimum amounts of $250 and maximum amounts up to the remaining available
credit thereunder, in each case after giving effect to all prior draws and
payments thereon.
After obtaining all applicable employment, credit and property information,
the Seller 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 home equity 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 plus a margin
of 2%) 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 38%.
Variations in the monthly debt-to-income ratios limits are permitted based on
compensating factors. The Seller currently offers home equity loan products
that allow maximum Combined Loan-to-Value Ratios of 70%, 80%, 90% and 100%.
It is generally the Seller's policy to require a title search before it
makes a home equity loan for amounts less than or equal to $100,000. In
addition, if the home equity loan has an original principal balance of $100,000
or more, the Seller 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 home equity loan is in first lien position.
Servicing of the Mortgage Loans
The Master Servicer has established standard policies for the servicing and
collection of the home equity loans. Servicing includes, but is not limited to,
(i) the collection and aggregation of payments relating to the Mortgage Loans;
(ii) the supervision of delinquent Mortgage Loans, loss mitigation efforts,
foreclosure proceedings and, if applicable, the disposition of Mortgaged
Properties; and (iii) the preparation of tax related information in connection
with the Mortgage Loans.
Billing statements are mailed monthly by the Master Servicer. The statement
details all debits and credits and specifies the minimum payment due and the
available credit line. Notice of changes in the applicable loan rate are
provided by the Master Servicer to the Mortgagor with such statements. All
payments are due by the fifteenth day of the month.
With respect to Mortgage Loans, the general policy of the Master Servicer
is to initiate foreclosure in the underlying property (i) after such loan is 75
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 the
Master Servicer. 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 the Master Servicer, 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, the Master Servicer determines the
amount of the foreclosure bid and whether to liquidate the loan.
After foreclosure, if the home equity loan is secured by a first mortgage
lien, the Master Servicer may liquidate the Mortgaged Property and charge off
the home equity loan balance which was not recovered through liquidation
proceeds. If the Mortgaged Property was subject to a senior lien, the Master
Servicer will
S-17
<PAGE>
<PAGE>
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 the Master Servicer,
the cost of maintaining or purchasing the senior lien position exceeds the
economic benefit of such action, the Master Servicer will generally charge off
the entire home equity loan and may seek a money judgment against the borrower.
Servicing and charge-off policies and collection practices may change over
time in accordance with, among other things, the Master Servicer's business
judgment, changes in the portfolio and applicable laws and regulations.
Foreclosure and Delinquency Experience
The following table summarizes the delinquency and foreclosure experience,
respectively, on the dates indicated, of home equity loans serviced by the
Master Servicer. Since [Countrywide] only began servicing home equity loans in
_______ 199_, the delinquency and foreclosure 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 Mortgage Loans and no
assurances can be given that the foreclosure and delinquency experience
presented in the table below will be indicative of such experience on the
Mortgage Loans:
Delinquency Status as of _____________, 199_*
Dollars Percent Units Percent
------- ------- ----- -------
Current............................. $______ ______% _____ _______%
30-59 days.......................... ______ ______ _____ _______
60-89 days.......................... ______ ______ _____ _______
90+ days............................
------ ------ ----- -------
Total $ 100.00% 100.00%
======== ====== ====== =======
- ----------
* Delinquencies are reported on a contractual basis.
As of _____________, 199_, ______ loans with an aggregate balance of
$___________ are in bankruptcy and ________ loans with an aggregate balance of
$___________ are in foreclosure. Of the loans in foreclosure, there will be a
____________ 199_ charge off of $________. In addition to this charge off, there
is an anticipated charge off of approximately $_____________ which may also be
realized in --------------.]
DESCRIPTION OF THE MORTGAGE LOANS
General
The Mortgage Loans were originated pursuant to loan agreements and
disclosure statements (the "Credit Line Agreements") and are secured by
mortgages or deeds of trust, which are either first or second
S-18
<PAGE>
<PAGE>
mortgages or deeds of trust, on Mortgaged Properties located in [__] states. The
Mortgaged Propertiessecuring the Mortgage Loans consist of residential
properties that are one- to four-family properties. See "--Mortgage Loan Terms"
below.
The Cut-off Date Pool Balance is $______________, which is equal to the
aggregate Principal Balances of the Mortgage Loans as of the Cut-off Date. As of
the Cut-off Date, the Mortgage Loans were not more than 89 days delinquent. The
average Cut-off Date Principal Balance was approximately $_________, the minimum
Cut-off Date Principal Balance was zero, the maximum Cut-off Date Principal
Balance was $________, the minimum Loan Rate and the maximum Loan Rate as of the
Cut-off Date were ___% and ___% per annum, respectively, and the weighted
average Loan Rate as of the Cut-off Date was approximately ___% per annum. As of
the Cut-off Date, the weighted average Credit Limit Utilization Rate was
approximately ___%, the minimum Credit Limit Utilization Rate was zero and the
maximum Credit Limit Utilization Rate was 100%. The "Credit Limit Utilization
Rate" is determined by dividing the Cut-off Date Principal Balance of a Mortgage
Loan by the Credit Limit of the related Credit Line Agreement. The remaining
term to scheduled maturity for the Mortgage Loans as of the Cut-off Date ranged
from ___ months to ___ months and the weighted average remaining term to
scheduled maturity was approximately months. As of the Cut-off Date, the
Combined Loan-to-Value Ratio of the Mortgage Loans ranged from ___% to ______%
and the weighted average Combined Loan-to-Value Ratio was __%. The Combined
Loan-to-Value Ratio for a Mortgage Loan is the ratio (expressed as a percentage)
of (A) the sum of (i) the Credit Limit of the Mortgage Loan and (ii) any
outstanding principal balances of mortgage loans senior to such Mortgage Loan
(calculated at the date of origination of the Mortgage Loan) to (B) the lesser
of (i) the appraised value of the related Mortgaged Property as set forth in the
loan files at such date of origination or (ii) in the case of a Mortgaged
Property purchased within one year of the origination of the related Mortgage
Loan, the purchase price of such Mortgaged Property. Credit Limits under the
Mortgage Loans as of the Cut-off Date ranged from $________ to $________ and
averaged approximately $________. The weighted average second mortgage ratio
(which is the Credit Limit for the related Mortgage Loan, provided such Mortgage
Loan was in the second lien position, divided by the sum of such Credit Limit
and the outstanding principal balance of any mortgage loan senior to the related
Mortgage Loan) was approximately ___%. As of the Cut-off Date, approximately %
by Cut-off Date Principal Balance of the Mortgage Loans represented first liens
on the related Mortgaged Properties, while approximately ___% of the Mortgage
Loans represented second liens. As of the Cut-off Date, approximately ___% of
the Mortgage Loans are secured by Mortgaged Properties which are single-family
residences and ___% were owner-occupied. As of the Cut-off Date, approximately
___%, ___%, ___%, ___%, ___% and ___% by Cut-off Date Principal Balance are
located in [__________, ________, __________, _______, ______ and ________],
respectively.
Mortgage Loan Terms
[A borrower may access a Mortgage Loan by writing a check in a minimum
amount of $250. The Mortgage Loans bear interest at a variable rate which
changes monthly on the first business day of the related month with changes in
the applicable Index Rate. The Mortgage Loans are subject to a maximum per annum
interest rate (the "Maximum Rate") ranging from _____% to _____% per annum and
subject to applicable usury limitations. As of the Cut-off Date, the weighted
average Maximum Rate was approximately ___%. See "Certain Legal Aspects of the
Loans--Applicability of Usury Laws" in the Prospectus. The daily periodic rate
on the Mortgage Loans (the "Loan Rate") is the sum of the Index Rate plus the
spread (the "Margin") which generally ranges between ____% and ____% and had a
weighted average, as of the Cut-off Date, of approximately ___%, divided by 365
days. The "Index Rate" is based on the highest "prime rate" published in the
'Money Rates' table of The Wall Street Journal as of the first business day of
each calendar month.]
[Countrywide] offers an introductory loan rate on home equity lines of
credit which are originated with Combined Loan-to-Value Ratios of 75% and 80%.
The introductory rate applies to any payments made during the first three months
after origination. After such three month period, the Loan Rate will adjust to
S-19
<PAGE>
<PAGE>
the Index plus the applicable Margin. As of the Cut-off Date, approximately ___%
of the Mortgage Loans by Cut-off Date Principal Balance were subject to an
introductory rate of ____% per annum.
In general, the home equity loans may be drawn upon for a period (the "Draw
Period") of either five years (which may be extendible for an additional five
years, upon [Countrywide's] approval) or three years. Home equity loans with an
initial Draw Period of five years, which constitute approximately ___% of the
Mortgage Loans by Cut-off Date Principal Balance, are subject to a fifteen year
repayment period (the "Repayment Period") following the end of the Draw Period
during which the outstanding principal balance of the loan will be repaid in
monthly installments equal to [1/180] of the outstanding principal balance as of
the end of the Draw Period. Mortgage Loans with a Draw Period of three years,
which constitute approximately ___% of the Mortgage Loans by Cut-off Date
Principal Balance, are subject to a ten year Repayment Period following the end
of the Draw Period during which the outstanding principal balance of the loan
will be paid in monthly installments equal to [1/120] of the outstanding
principal balance as of the end of the Draw Period.
The minimum payment due during the Draw Period will be equal to the finance
charges accrued on the outstanding principal balance of the home equity loan
during the related billing period. The minimum payment due during the repayment
period will be equal to the sum of the finance charges accrued on the
outstanding principal balance of the Mortgage Loan during the related billing
period and the principal payment described above.
Set forth below is a description of certain characteristics of the Mortgage
Loans as of the Cut-off Date:
PRINCIPAL BALANCES
<TABLE>
<CAPTION>
Number of Percent of Pool
Mortgage Cut-off Date by Cut-off Date
Range of Principal Balances Loans Principal Balance Principal Balance
- --------------------------------------------------- ---------- ----------------- ----------------
<S> <C> <C> <C> <C>
$ ______ to $ ___________.......................... $
$ ______ to $ ___________..........................
$ ______ to $ ___________..........................
$ ______ to $ ___________..........................
$ ______ to $ ___________..........................
$ ______ to $ ___________..........................
$ ______ to $ ___________..........................
$ ______ to $ ___________..........................
$ ______ to $ ___________..........................
$ ______ to $ ___________..........................
$ ______ to $ ___________..........................
$ ______ to $ ___________..........................
$ ______ to $ ___________..........................
$ ______ to $ ___________..........................
$ ______ to $ ___________..........................
$ ______ to $ ___________..........................
$ ______ to $ ___________..........................
$ ______ to $ ___________..........................
$ ______ to $ ___________..........................
$ ______ to $ ___________..........................
$ ______ to $ ___________..........................
--------- ----------------- ----------------
$ ______ to $ ___________..........................
Total......................................... $ 100.00%
========== ================= ================
</TABLE>
S-20
<PAGE>
<PAGE>
GEOGRAPHIC DISTRIBUTION(1)
<TABLE>
<CAPTION>
Number of Percent of Pool
Mortgage Cut-off Date by Cut-off Date
State Loans Principal Balance Principal Balance
- --------------------------------------------------- ---------- ----------------- ----------------
<S> <C> <C> <C>
$
---------- ------------------ -----------------
Total......................................... $ 100.00%
=========== ================== =================
</TABLE>
- ----------
(1) Geographic location is determined by the address of the Mortgaged Property
securing the related Mortgage Loan.
S-21
<PAGE>
<PAGE>
COMBINED LOAN-TO-VALUE RATIOS(1)
<TABLE>
<CAPTION>
Number of Percent of Pool
Range of Combined Mortgage Cut-off Date by Cut-off Date
Loan-to-Value Ratios Loans Principal Balance Principal Balance
- --------------------------------------------------- ---------- ----------------- ----------------
<S> <C> <C> <C> <C>
____% to ________%.................................
____% to ________%.................................
____% to ________%.................................
____% to ________%.................................
____% to ________%.................................
____% to ________%.................................
____% to ________%.................................
____% to ________%.................................
____% to ________%.................................
____% to ________%.................................
____% to ________%.................................
---------- ----------------- ----------------
____% to ________%.................................
Total......................................... $ 100.00%
========== ================= ================
</TABLE>
- ----------
(1) The ratio (expressed as a percentage) of (A) the sum of (i) the Credit
Limit of the Mortgage Loans and (ii) any outstanding principal balances of
mortgage loans senior to the Mortgage Loans (calculated at the date of
origination of the Mortgage Loans) to (B) the lesser of (i) the appraised
value of the related Mortgaged Property as set forth in loan files at such
date of origination or (ii) in the case of a Mortgaged Property purchased
within one year of the origination of the related Mortgage Loan, the
purchase price of such Mortgaged Property.
PROPERTY TYPE
<TABLE>
<CAPTION>
Number of Percent of Pool
Mortgage Cut-off Date by Cut-off Date
Property Type Loans Principal Balance Principal Balance
- --------------------------------------------------- ---------- ----------------- -----------------
<S> <C> <C> <C>
Single Family...................................... $ %
Two- to Four-Family................................
Condominium........................................
PUD................................................
---------- ------------------ -----------------
Total......................................... $ 100.00%
========== ================== =================
</TABLE>
S-22
<PAGE>
<PAGE>
LIEN PRIORITY
<TABLE>
<CAPTION>
Number of Percent of Pool
Mortgage Cut-off Date by Cut-off Date
Lien Priority Loans Principal Balance Principal Balance
- --------------------------------------------------- ---------- ----------------- -----------------
<S> <C> <C> <C>
First Lien......................................... $ %
Second Lien........................................
---------- ----------------- ----------------
Total......................................... $ 100.00%
========== ================== ================
</TABLE>
LOAN RATES(1)
<TABLE>
<CAPTION>
Number of Percent of Pool
Range of Mortgage Cut-off Date by Cut-off Date
Loan Rates Loans Principal Balance Principal Balance
- --------------------------------------------------- ---------- ----------------- -----------------
<S> <C> <C> <C> <C>
______% to ________%...............................
______% to ________%............................... $ %
______% to ________%...............................
______% to ________%...............................
______% to ________%...............................
______% to ________%...............................
______% to ________%...............................
______% to ________%...............................
______% to ________%...............................
______% to ________%...............................
______% to ________%...............................
______% to ________%...............................
______% to ________%...............................
______% to ________%...............................
______% to ________%...............................
______% to ________%...............................
______% to ________%...............................
______% to ________%...............................
______% to ________%...............................
______% to ________%...............................
______% to ________%...............................
______% to ________%...............................
---------- ----------------- ----------------
Total......................................... $ 100.00%
========== ================= ================
</TABLE>
- ----------
(1) Approximately ___% of the Mortgage Loans by Cut-Of Date Principal Balance
are subject to an introductory rate of ____% per annum.
S-23
<PAGE>
<PAGE>
MARGIN
<TABLE>
<CAPTION>
Number of Percent of Pool
Range of Mortgage Cut-off Date by Cut-off Date
Margins Loans Principal Balance Principal Balance
- --------------------------------------------------- ---------- ----------------- -----------------
<S> <C> <C> <C> <C>
____% to ______%................................... $
____% to ______%...................................
____% to ______%...................................
____% to ______%...................................
____% to ______%...................................
____% to ______%...................................
____% to ______%...................................
____% to ______%...................................
____% to ______%...................................
____% to ______%...................................
____% to ______%...................................
____% to ______%...................................
____% to ______%...................................
____% to ______%...................................
____% to ______%...................................
____% to ______%...................................
____% to ______%...................................
____% to ______%...................................
____% to ______%...................................
____% to ______%...................................
---------- ----------------- ----------------
Total......................................... $ 100.00%
========== ================= ================
</TABLE>
CREDIT LIMIT UTILIZATION RATES
<TABLE>
<CAPTION>
Number of Percent of Pool
Range of Credit Limit Mortgage Cut-off Date by Cut-off Date
Utilization Rates Loans Principal Balance Principal Balance
- --------------------------------------------------- ---------- ----------------- -----------------
<S> <C> <C> <C> <C>
____% to _____% ................................... $
____% to _____% ................................... %
____% to _____% ...................................
____% to _____% ...................................
____% to _____% ...................................
____% to _____% ...................................
____% to _____% ...................................
____% to _____% ...................................
____% to _____% ...................................
____% to _____% ...................................
____% to _____% ...................................
---------- ----------------- ----------------
Total......................................... $ 100.00%
========== ================= ================
</TABLE>
S-24
<PAGE>
<PAGE>
CREDIT LIMITS
<TABLE>
<CAPTION>
Number of Percent of Pool
Mortgage Cut-off Date by Cut-off Date
Range of Credit Limits Loans Principal Balance Principal Balance
- --------------------------------------------------- ---------- ----------------- -----------------
<S> <C> <C> <C> <C>
$________ to $________ ............................ $
$________ to $________ ............................ %
$________ to $________ ............................
$________ to $________ ............................
$________ to $________ ............................
$________ to $________ ............................
$________ to $________ ............................
$________ to $________ ............................
$________ to $________ ............................
$________ to $________ ............................
$________ to $________ ............................
$________ to $________ ............................
$________ to $________ ............................
$________ to $________ ............................
$________ to $________ ............................
$________ to $________ ............................
$________ to $________ ............................
$________ to $________ ............................
$________ to $________ ............................
$________ to $________ ............................
$________ to $________ ............................
$________ to $________ ............................
---------- ----------------- ----------------
Total......................................... $ 100.00%
========== ================= ================
</TABLE>
MAXIMUM RATES
<TABLE>
<CAPTION>
Number of Percent of Pool
Mortgage Cut-off Date by Cut-off Date
Maximum Rates Loans Principal Balance Principal Balance
- --------------------------------------------------- ---------- ----------------- -----------------
<S> <C> <C> <C>
- -----%............................................. $ %
- -----%.............................................
- -----%.............................................
- -----%.............................................
---------- ----------------- ----------------
Total......................................... $ 100.00%
========== ================= ================
</TABLE>
S-25
<PAGE>
<PAGE>
MONTHS REMAINING TO SCHEDULED MATURITY(1)
<TABLE>
<CAPTION>
Number of Percent of Pool
Range of Months Mortgage Cut-off Date by Cut-off Date
Remaining to Scheduled Maturity Loans Principal Balance Principal Balance
- --------------------------------------------------- ---------- ----------------- -----------------
<S> <C> <C> <C> <C>
___ to _____ ...................................... $
___ to _____ ...................................... %
___ to _____ ......................................
___ to _____ ......................................
___ to _____ ......................................
___ to _____ ......................................
___ to _____ ......................................
___ to _____ ......................................
___ to _____ ......................................
___ to _____ ......................................
___ to _____ ......................................
---------- ----------------- ----------------
Total......................................... $ 100.00%
========== ================= ================
</TABLE>
- ----------
(1) Assumes that the Draw Period for Mortgage Loans with five year Draw Periods
will be extended for an additional five years.
ORIGINATION YEAR
<TABLE>
<CAPTION>
Number of Percent of Pool
Mortgage Cut-off Date by Cut-off Date
Origination Year Loans Principal Balance Principal Balance
- --------------------------------------------------- ---------- ----------------- -----------------
<S> <C> <C> <C>
- ----............................................... $ %
- ----...............................................
---------- ----------------- ----------------
Total......................................... $ 100.00%
========== ================= ================
</TABLE>
DELINQUENCY STATUS
<TABLE>
<CAPTION>
Number of Percent of Pool
Mortgage Cut-off Date by Cut-off Date
Number of Days Delinquent Loans Principal Balance Principal Balance
- --------------------------------------------------- ---------- ----------------- -----------------
<S> <C> <C> <C>
0 to 29............................................ $ %
30 to 59...........................................
60 to 89...........................................
---------- ----------------- ----------------
Total......................................... $ 100.00%
========== ================= ================
</TABLE>
S-26
<PAGE>
<PAGE>
Assignment of Mortgage Loans
At the time of issuance of the Securities, the Depositor will transfer to
the Trust Fund all of its right, title and interest in and to each Mortgage Loan
(including its right to purchase any Additional Balances arising in the future),
related Credit Line Agreements, mortgages and other related documents
(collectively, the "Related Documents"), without recourse, including all
collections received on or with respect to each such Mortgage Loan after the
Cut-off Date (exclusive of payments in respect of accrued interest due on or
prior to the Cut-off Date or due in the month of ______). The Owner Trustee,
concurrently with such transfer, will deliver the Securities. Each Mortgage Loan
transferred to the Trust Fund will be identified on a schedule delivered to the
Owner Trustee pursuant to the Purchase Agreement. Such schedule will include
information as to the Cutoff Date Principal Balance of each Mortgage Loan, as
well as information with respect to the Loan Rate.
The Purchase Agreement will permit the Seller to maintain possession of the
Related Documents and certain other documents relating to the Mortgage Loans
(the "Mortgage Files") and assignments of the Mortgage Loans to the Owner
Trustee will not be required to be recorded for so long as the long-term senior
unsecured debt of [Countrywide] is rated at least "________" by ___ and
"________" by _______. In the event that [Countrywide's] long-term senior
unsecured debt rating does not satisfy the above-described standards (an
"Assignment Event"), [Countrywide] will have 90 days to record assignments of
the mortgages for each such Mortgage Loan in favor of the Owner Trustee and 60
days to deliver the Mortgage Files pertaining to each such Mortgage Loan to the
Owner Trustee (unless opinions of counsel satisfactory to the Rating Agencies
and the [Letter of Credit][Surety Bond] provider to the effect that recordation
of such assignments or delivery of such documentation is not required in the
relevant jurisdiction to protect the interest of [Countrywide] and the Owner
Trustee in the Mortgage Loans). In lieu of delivery of original documentation,
[Countrywide] may deliver documents which have been imaged optically upon
delivery of an opinion of counsel that such documents do not impair the
enforceability of the transfer to the Trust Fund of the Mortgage Loans.
Within 90 days of on Assignment Event the Owner Trustee will review the
Mortgage Loans and the Related Documents and if any Mortgage Loan or Related
Document is found to be defective in any material respect and such defect is not
cured within 90 days following notification thereof to the Seller and the
Depositor by the Owner Trustee, the Seller will be obligated to repurchase the
Mortgage Loan and to deposit the Repurchase Price into the Collection Account.
Upon such retransfer, the Principal Balance of such Mortgage Loan will be
deducted from the Pool Balance. In lieu of any such repurchase, the Seller may
substitute an Eligible Substitute Mortgage Loan. Any such repurchase or
substitution will be considered a payment in full of such Mortgage Loan. The
obligation of the Seller to accept a transfer of a Defective Mortgage Loan is
the sole remedy regarding any defects in the Mortgage Loans and Related
Documents available to the Owner Trustee or the Holders.
With respect to any Mortgage Loan, the "Repurchase Price" is equal to the
Principal Balance of such Mortgage Loan at the time of any transfer described
above plus accrued and unpaid interest thereon to the date of repurchase.
An "Eligible Substitute Mortgage Loan" is a mortgage loan substituted by
the Depositor for a Defective Mortgage Loan which must, on the date of such
substitution, (i) have an outstanding Principal Balance (or in the case of a
substitution of more than one Mortgage Loan for a Defective Mortgage Loan, an
aggregate Principal Balance), not __% more or less than the Transfer Deficiency
relating to such Defective Mortgage Loan; (ii) have a Loan Rate not less than
the Loan Rate of the Defective Mortgage Loan and not more than 1% in excess of
the Loan Rate of such Defective Mortgage Loan; (iii) have a Loan Rate based on
the same Index with adjustments to such Loan Rate made on the same Interest Rate
Adjustment Date as that of the Defective Mortgage Loan; (iv) have a Margin that
is not less than the Margin of the Defective Mortgage Loan and not more than ___
basis points higher than the Margin for the Defective Mortgage Loan; (v) have a
mortgage of the same or higher level of priority as the mortgage relating to the
Defective Mortgage Loan; (vi) have a remaining term to maturity not more than
___ months earlier and not more than __ months later
S-27
<PAGE>
<PAGE>
than the remaining term to maturity of the Defective Mortgage Loan; (vii) comply
with each representation and warranty as to the Mortgage Loans set forth in the
Purchase Agreement (deemed to be made as of the date of substitution); (viii) in
general, have an original Combined Loan-to-Value Ratio not greater than that of
the Defective Mortgage Loans; and (ix) satisfy certain other conditions
specified in the Purchase Agreement. To the extent the Principal Balance of an
Eligible Substitute Mortgage Loan is less than the Principal Balance of the
related Defective Mortgage Loan, the Seller will be required to make a deposit
to the Collection Account equal to such difference.
The Seller will make certain representations and warranties as to the
accuracy in all material respects of certain information furnished to the Owner
Trustee with respect to each Mortgage Loan (e.g., Cut-off Date Principal Balance
and the Loan Rate). In addition, the Seller will represent and warrant on the
Closing Date that at the time of transfer to the Depositor, the Seller has
transferred or assigned all of its right, title and interest in each Mortgage
Loan and the Related Documents, free of any lien (subject to certain
exceptions). Upon discovery of a breach of any such representation and warranty
which materially and adversely affects the interests of the Holders or the
[Letter of Credit][Surety Bond] provider in the Related Mortgage Loan and
Related Documents, the Seller will have a period of 90 days after discovery or
notice of the breach to effect a cure. If the breach cannot be cured within the
90-day period, the Seller will be obligated to repurchase or substitute the
Defective Mortgage Loan from the Trust Fund. The same procedure and limitations
that are set forth above for the repurchase or substitution of Defective
Mortgage Loans will apply to the transfer of a Mortgage Loan that is required to
be repurchased or substituted because of a breach of a representation or
warranty in the Purchase Agreement that materially and adversely affects the
interests of the Holders.
Mortgage Loans required to be transferred to the Seller as described in the
preceding paragraphs are referred to as "Defective Mortgage Loans."
MATURITY AND PREPAYMENT CONSIDERATIONS
[All of the Mortgage Loans may be prepaid in full or in part at any time.]
However, Mortgage Loans secured by Mortgaged Properties in California are
subject to an account termination fee equal to the lesser of $350 and six months
interest on the amount prepaid, to the extent the prepaid amount exceeds 20% of
the unpaid principal balance, if the account is terminated on or before its
fifth year anniversary. In addition, Mortgage Loans secured by Mortgaged
Properties in other jurisdictions may be subject to account termination fees to
the extent permitted by law. In general, such account termination fees do not
exceed $350 and do not apply to accounts terminated subsequent to a date
designated in the related Mortgage Note which, depending on the jurisdiction,
ranges between [six months and five years] following origination.] The
prepayment experience with respect to the Mortgage Loans will affect the
weighted average life of the Securities.
The rate of prepayment on the Mortgage Loans cannot be predicted. Neither
the Depositor nor the Master Servicer is aware of any publicly available studies
or statistics on the rate of prepayment of such Mortgage Loans. Generally, home
equity revolving credit lines are not viewed by borrowers as permanent
financing. Accordingly, the Mortgage Loans may experience a higher rate of
prepayment than traditional first mortgage loans. On the other hand, because the
Mortgage Loans amortize as described under "Description of the Mortgage
Loans--Mortgage Loan Terms" herein, rates of principal payment on the Mortgage
Loans will generally be slower than those of traditional fully-amortizing first
mortgages in the absence of prepayments on such Mortgage Loans. The prepayment
experience of the Trust Fund with respect to the Mortgage Loans may be affected
by a wide variety of factors, including general economic conditions, prevailing
interest rate levels, the availability of alternative financing, homeowner
mobility, the frequency and amount of any future draws on the Credit Line
Agreements and changes affecting the deductibility for Federal income tax
purposes of interest payments on home equity credit lines. Substantially all of
the Mortgage Loans contain "due-on-sale" provisions, and, with respect to the
Mortgage Loans, the Master Servicer intends to enforce such provisions, unless
such enforcement is not permitted by applicable law. The enforcement of a
"due-on-sale"
S-28
<PAGE>
<PAGE>
provision will have the same effect as a prepayment of the related Mortgage
Loan. See "Certain Legal Aspects of the Loans--Due-on-Sale Clauses" in the
Prospectus.
The yield to an investor who purchases the Securities in the secondary
market at a price other than par will vary from the anticipated yield if the
rate of prepayment on the Mortgage Loans is actually different than the rate
anticipated by such investor at the time such Securities were purchased.
Collections on the Mortgage Loans may vary because, among other things,
borrowers may make payments during any month as low as the minimum monthly
payment for such month or as high as the entire outstanding principal balance
plus accrued interest and the fees and charges thereon. It is possible that
borrowers may fail to make scheduled payments. Collections on the Mortgage Loans
may vary due to seasonal purchasing and payment habits of borrowers.
No assurance can be given as to the level of prepayments that will be
experienced by the Trust Fund and it can be expected that a portion of borrowers
will not prepay their Mortgage Loans to any significant degree.
See "Yield and Prepayment Considerations" in the Prospectus.
DESCRIPTION OF THE MASTER SERVICING AGREEMENT
The Master Servicer shall establish and maintain on behalf of the Owner
Trustee an account (the "Collection Account") for the benefit of the Holders.
The Collection Account will be an Eligible Account (as defined herein). Subject
to the investment provision described in the following paragraphs, upon receipt
by the Master Servicer of amounts in respect of the Mortgage Loans (excluding
amounts representing administrative charges, annual fees, taxes, assessments,
credit insurance charges, insurance proceeds to be applied to the restoration or
repair of a Mortgaged Property or similar items), the Master Servicer will
deposit such amounts in the Collection Account. Amounts so deposited may be
invested in Eligible Investments (as described in the Servicing Agreement)
maturing no later than one Business Day prior to the date on which the amount on
deposit therein is required to be deposited in the Distribution Account or on
such Distribution Date if approved by the Rating Agencies. Not later than the
_____ Business Day prior to each Distribution Date (the "Determination Date"),
the Master Servicer will notify the Owner Trustee and the Indenture Trustee of
the amount of such deposit to be included in funds available for the related
Distribution Date.
The Owner Trustee and the Indenture Trustee will establish one or more
accounts (the "Security Account") into which will be deposited amounts withdrawn
from the Collection Account for distribution to Holders on a Distribution Date.
The Security Account will be an Eligible Account. Amounts on deposit therein
will be invested in Eligible Investments maturing on or before the Business Day
prior to the related Distribution Date.
An "Eligible Account" is (i) an account that is maintained with a
depository institution whose debt obligations at the time of any deposit therein
have the highest short-term debt rating by the Rating Agencies, (ii) one or more
accounts with a depository institution having a minimum long-term unsecured debt
rating of "____" by _____ and "____" by _____, which accounts are fully insured
by either the Savings Association Insurance Fund ("SAIF") or the Bank Insurance
Fund ("BIF") of the Federal Deposit Insurance Corporation established by such
fund, (iii) a segregated trust account maintained with the Owner Trustee or an
Affiliate of the Owner Trustee in its fiduciary capacity or (iv) otherwise
acceptable to each Rating Agency as evidenced by a letter from each Rating
Agency to the Owner Trustee, without reduction or withdrawal of their then
current ratings of the Securities.
Eligible Investments are specified in the Servicing Agreement and are
limited to (i) obligations of the United States or any agency thereof, provided
such obligations are backed by the full faith and credit of the United
States; (ii) general obligations of or obligations guaranteed by any state of
the United
S-29
<PAGE>
<PAGE>
States or the District of Columbia receiving the highest long-term debt
rating of each Rating Agency rating the Securities, or such lower rating as
will not result in the downgrading or withdrawal of the ratings then assigned to
the Securities by each such Rating Agency; (iii) commercial or finance company
paper (including, without limitation, commercial paper issued by Countrywide
Home Loans, Inc. or any of its affiliates) which is then receiving the highest
commercial or finance company paper rating of each such Rating Agency, or such
lower rating as will not result in the downgrading or withdrawal of the ratings
then assigned to the Securities by each such Rating Agency; (iv) certificates of
deposit, demand or time deposits, or bankers' acceptances issued by any
depository institution or trust company incorporated under the laws of the
United States or of any state thereof and subject to supervision and examination
by federal and/or state banking authorities, provided that the commercial paper
and/or long term unsecured debt obligations of such depository institution or
trust company (or in the case of the principal depository institution in a
holding company system, the commercial paper or long-term unsecured debt
obligations of such holding company, but only if Moody's Investors Service, Inc.
("Moody's") is not a Rating Agency) are then rated one of the two highest
long-term and the highest short-term ratings of each such Rating Agency for such
securities, or such lower ratings as will not result in the downgrading or
withdrawal of the rating then assigned to the Securities by any such Rating
Agency; (iv) demand or time deposits or certificates of deposit issued by any
bank or trust company or savings institution to the extent that such deposits
are fully insured by the FDIC; (v) guaranteed reinvestment agreements issued by
any bank, insurance company or other corporation containing, at the time of the
issuance of such agreements, such terms and conditions as will not result in the
downgrading or withdrawal of the rating then assigned to the Securities by any
such Rating Agency; (vi) repurchase obligations with respect to any security
described in clauses (i) and (ii) above, in either case entered into with a
depository institution or trust company (acting as principal) described in
clause (iv) above; (vii) securities (other than stripped bonds, stripped coupons
or instruments sold at a purchase price in excess of 115% of the face amount
thereof) bearing interest or sold at a discount issued by any corporation
incorporated under the laws of the United States or any state thereof which, at
the time of such investment, have one of the two highest ratings of each Rating
Agency (except if the Rating Agency is Moody's, such rating shall be the highest
commercial paper rating of Moody's for any such securities), or such lower
rating as will not result in the downgrading or withdrawal of the rating then
assigned to the Securities by any such Rating Agency, as evidenced by a signed
writing delivered by each such Rating Agency; and (viii) such other investments
having a specified stated maturity and bearing interest or sold at a discount
acceptable to each Rating Agency as will not result in the downgrading or
withdrawal of the rating then assigned to the Securities by any such Rating
Agency, as evidenced by a signed writing delivered by each such Rating Agency;
provided that no such instrument shall be a Permitted Investment if such
instrument evidences the right to receive interest only payments with respect to
the obligations underlying such instrument.
Allocations and Collections
All collections on the Mortgage Loans will generally be allocated in
accordance with the Credit Line Agreements between amounts collected in respect
of interest and amounts collected in respect of principal. As to any
Distribution Date, "Interest Collections" will be equal to the aggregate of the
amounts collected during the related Collection Period, including Net
Liquidation Proceeds (as defined below), allocated to interest pursuant to the
terms of the Credit Line Agreements.
As to any Distribution Date, "Principal Collections" will be equal to the
sum of (i) the amounts collected during the related Collection Period, including
Net Liquidation Proceeds, and allocated to principal pursuant to the terms of
the Credit Line Agreements and (ii) any Substitution Adjustment Amounts. "Net
Liquidation Proceeds" with respect to a Mortgage Loan are equal to the aggregate
of all amounts received upon liquidation of such Mortgage Loan, including,
without limitation, insurance proceeds, reduced by related expenses, but not
including the portion, if any, of such amount that exceeds the Principal Balance
of the Mortgage Loan at
S-30
<PAGE>
<PAGE>
the end of the Collection Period immediately preceding the Collection Period in
which such Mortgage Loan became a Liquidated Mortgage Loan plus accrued and
unpaid interest thereon through the date of liquidation.
With respect to any date, the "Pool Balance" will be equal to the aggregate
of the Principal Balances of all Mortgage Loans as of such date. The Principal
Balance of a Mortgage Loan (other than a Liquidated Mortgage Loan) on any day is
equal to the Cut-off Date Principal Balance thereof, plus (i) any Additional
Balances in respect of such Mortgage Loan minus (ii) all collections credited
against the Principal Balance of such Mortgage Loan in accordance with the
related Credit Line Agreement prior to such day. The Principal Balance of a
Liquidated Mortgage Loan after final recovery of related Liquidation Proceeds
shall be zero.
Hazard Insurance
The Master Servicing Agreement provides that the Master Servicer maintain
certain hazard insurance on the Mortgaged Properties relating to the Mortgage
Loans. While the terms of the related Credit Line Agreements generally require
borrowers to maintain certain hazard insurance, the Master Servicer will not
monitor the maintenance of such insurance.
The Master Servicing Agreement requires the Master Servicer to maintain for
any Mortgaged Property relating to a Mortgage Loan acquired upon foreclosure of
a Mortgage Loan, or by deed in lieu of such foreclosure, hazard insurance with
extended coverage in an amount equal to the lesser of (a) the maximum insurable
value of such Mortgaged Property or (b) the outstanding balance of such Mortgage
Loan plus the outstanding balance on any mortgage loan senior to such Mortgage
Loan at the time of foreclosure or deed in lieu of foreclosure, plus accrued
interest and the Master Servicer's good faith estimate of the related
liquidation expenses to be incurred in connection therewith. The Master
Servicing Agreement provides that the Master Servicer may satisfy its obligation
to cause hazard policies to be maintained by maintaining a blanket policy
insuring against losses on such Mortgaged Properties. If such blanket policy
contains a deductible clause, the Master Servicer will be obligated to deposit
in the Collection Account the sums which would have been deposited therein but
for such clause. The Master Servicer will satisfy these requirements by
maintaining a blanket policy. As set forth above, all amounts collected by the
Master Servicer (net of any reimbursements to the Master Servicer) under any
hazard policy (except for amounts to be applied to the restoration or repair of
the Mortgaged Property) will ultimately be deposited in the Collection Account.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements on the property by fire,
lightning, explosion, smoke, windstorm and hail, and the like, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies relating to the Mortgage Loans will be underwritten by
different insurers and therefore will not contain identical terms and
conditions, the basic terms thereof are dictated by state laws and most of such
policies typically do not cover any physical damage resulting from the
following: war, revolution, governmental actions, floods and other water-related
causes, earth movement (including earthquakes, landslides and mudflows), nuclear
reactions, wet or dry rot, vermin, rodents, insects or domestic animals, theft
and, in certain cases vandalism. The foregoing list is merely indicative of
certain kinds of uninsured risks and is not intended to be all-inclusive or an
exact description of the insurance policies relating to the Mortgaged
Properties.
Realization Upon Defaulted Mortgage Loans
The Master Servicer will foreclose upon or otherwise comparably convert to
ownership Mortgaged Properties securing such of the Mortgage Loans as come into
default when in accordance with applicable servicing procedures under the Master
Servicing Agreement, no satisfactory arrangements can be made for the collection
of delinquent payments. In connection with such foreclosure or other conversion,
the Master Servicer will follow such practices as it deems necessary or
advisable and as are in keeping with its general subordinate mortgage servicing
activities, provided the Master Servicer will not be required to expend its own
S-31
<PAGE>
<PAGE>
funds in connection with foreclosure or other conversion, correction of default
on a related senior mortgage loan or restoration of any property unless, in its
sole judgment, such foreclosure, correction or restoration will increase net
Liquidation Proceeds. The Master Servicer will be reimbursed out of Liquidation
Proceeds for advances of its own funds as liquidation expenses before any Net
Liquidation Proceeds are distributed to Holders or the [Transferor][Seller].
"Net Liquidation Proceeds" with respect to a Mortgage Loan is the amount
received upon liquidation of such Mortgage Loan reduced by related expenses,
which may include the amount advanced in respect of a senior mortgage, up to the
unpaid Principal Balance of the Mortgage Loan plus accrued and unpaid interest
thereon.
Servicing Compensation and Payment of Expenses
With respect to each Collection Period, other than the first Collection
Period, the Master Servicer will retain from interest collections in respect of
the Mortgage Loan a portion of such interest collections as a monthly Servicing
Fee in the amount equal to ___% per annum ("Servicing Fee Rate") on the
aggregate Principal Balances of the Mortgage Loans as of the first day of each
such Collection Period. All assumption fees, late payment charges and other fees
and charges, to the extent collected from borrowers, will be retained by the
Master Servicer as additional servicing compensation.
The Master Servicer will pay certain ongoing expenses associated with the
Trust Fund and incurred by it in connection with its responsibilities under the
Servicing Agreement, including, without limitation, payment of the fees and
disbursements of the Trustee, any custodian appointed by the Trustee, the entity
maintaining the Security Register relating to the Securities and any paying
agent. In addition, the Master Servicer will be entitled to reimbursement for
certain expenses incurred by it in connection with defaulted Mortgage Loans and
in connection with the restoration of Mortgaged Properties, such right of
reimbursement being prior to the rights of Holders to receive any related Net
Liquidation Proceeds.
DESCRIPTION OF THE SECURITIES
General
The Notes will be issued pursuant to the Indenture dated as of ___________,
199_, between the Trust Fund and _______________, as Indenture Trustee. The
Certificates will be issued pursuant to the Trust Agreement dated as of
______________, 199_, among the Depositor, __________, and ______________, as
Owner Trustee. The following is a description of the material provisions of the
Securities, Indenture and Trust Agreement. As used herein, "Agreement" shall
mean either the Trust Agreement or the Indenture, as the context requires.
The Securities will be issued in fully registered, certificated form only.
The Securities will be freely transferrable and exchangeable at the corporate
trust office of the Owner Trustee, with respect to the Certificates or the
Indenture Trustee with respect to the Notes.
Book-Entry Securities
The Senior Certificates will be book-entry Certificates (the "Book-Entry
Certificates"). Persons acquiring beneficial ownership interests in the Senior
Certificates ("Certificate Owners") will hold their 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 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
S-32
<PAGE>
<PAGE>
which in turn will hold such positions in customers' securities accounts in the
depositaries' names on the books of DTC. Citibank N.A. 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 Certificate Principal
Balances of $1,000 and in integral multiples 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 Certificate (a "Definitive Certificate"). Unless and until
Definitive Certificates are issued, it is anticipated that the only
"Certificateholder" of the Certificates will be Cede & Co., as nominee of DTC.
Certificate Owners will not be Certificateholders as that term is used in the
Pooling and Servicing Agreement. Certificate Owners are only permitted to
exercise their rights indirectly through Participants and DTC.
Distributions
On each Distribution Date, collections on the Mortgage Loans will be
applied in the following order of priority:
(i) to the Master Servicer, the Servicing Fee;
(ii) as payment for the accrued interest due and any overdue accrued
interest on the respective Security Principal Balance of the Notes and the
Certificates;
(iii) as principal on the Securities, the excess of Principal
Collections over Additional Balances created during the preceding
Collection Period, such amount to be allocated between the Notes and
Certificates pro rata, based on their respective Security Principal
Balances;
(iv) as principal on the Securities, as payment for any Liquidation
Loss Amounts on the Mortgage Loans;
(v) as payment for the premium for the [Letter of Credit][Surety
Bond];
(vi) to reimburse prior draws made on the [Letter of Credit][Surety
Bond]; and
(vii) any remaining amounts to the Seller.
As to any Distribution Date, the "Collection Period" is the calendar month
preceding the month of such Distribution Date.
"Liquidation Loss Amount" means with respect to any Liquidated Mortgage
Loan, the unrecovered Principal Balance thereof at the end of the Collection
Period in which such Mortgage Loan became a Liquidated Mortgage Loan after
giving effect to the Net Liquidation Proceeds in connection therewith.
Interest
Note Rate. Interest will accrue on the unpaid Security Principal Balance of
the Notes at the per annum rate (the "Note Rate") equal to __% per annum from
the Closing Date to the first Distribution Date and thereafter interest will
accrue on the Notes from and including the preceding Distribution Date to but
excluding such current Distribution Date (each, an "Interest Accrual Period") at
[a floating rate equal to LIBOR (as defined herein) plus __%] [__%]. [Interest
will be calculated on the basis of the actual number of days in each Interest
Accrual Period by 360.] A failure to pay interest on any Notes on any
Distribution Date that continues for five days constitutes an Event of Default
under the Indenture.
S-33
<PAGE>
<PAGE>
Pass-Through Rate. Interest will accrue on the unpaid Security Principal
Balance of the Certificates at the per annum rate (the "Pass-Through Rate")
equal to __% per annum from the Closing Date to the first Distribution Date and
thereafter interest will accrue on the Certificates for each Interest Accrual
Period at [a floating rate equal to LIBOR (as defined herein) plus __%] [__%].
[Interest will be calculated on the basis of the actual number of days in each
Interest Accrual Period divided by 360.] A failure to pay interest on any
Certificates on any Distribution Date that continues for five days constitutes
an Event of Default under the Trust Agreement.
Optional Termination
The Trust Fund will terminate on the Distribution Date following the
earlier of (i) _________________________ and (ii) the final payment or other
liquidation of the last Mortgage Loan in the Trust Fund. The Mortgage Loans will
be subject to optional repurchase by the Master Servicer on any Distribution
Date after the Principal Balance is reduced to an amount less than or equal to
$________ (__% of the initial Principal Balance). The repurchase price will be
equal to the sum of the outstanding Principal Balance and accrued and unpaid
interest thereon at the weighted average of the Loan Rates through the day
preceding the final Distribution Date.
THE DEPOSITOR
CWABS, Inc. the Depositor, is a Delaware corporation organized on August
__, 1996 for the limited purpose of acquiring, owning and transferring Trust
Assets and selling interests therein or bonds secured thereby. It is a limited
purpose finance subsidiary of Countrywide Credit Industries, Inc., a Delaware
corporation. The Depositor maintains its principal office at 155 North Lake
Avenue, Pasadena, California 91101-7139. Its telephone number is (818) 584-2212.
THE INDENTURE
The following is a description of the material terms of the Indenture.
Whenever particular sections or defined terms of the Indenture are referred to,
such sections or defined terms are thereby incorporated herein by reference. See
"Description of the Securities" herein for a description of certain additional
terms of the Indenture.
Reports to Noteholders
The Indenture Trustee will mail to each Noteholder, at such Noteholder's
request, at its address listed on the Note Register maintained with the
Indenture Trustee a report setting forth certain amounts relating to the Notes.
Events of Default; Rights Upon Event of Default
With respect to the Notes, "Events of Default" under the Indenture will
consist of: (i) a default for five days or more in the payment of any interest
on any Note; (ii) a default in the payment of the principal of or any
installment of the principal of any Note when the same becomes due and payable;
(iii) a default in the observance or performance of any covenant or agreement of
the Trust Fund made in the Indenture and the continuation of any such default
for a period of 30 days after notice thereof is given to the Trust Fund by the
Indenture Trustee or to the Trust Fund and the Indenture Trustee by the holders
of at least 25% in principal amount of the Notes then outstanding; (iv) any
representation or warranty made by the Trust Fund in the Indenture or in any
certificate delivered pursuant thereto or in connection therewith having been
incorrect in a material respect as of the time made, and such breach not having
been cured within 30 days after notice
S-34
<PAGE>
<PAGE>
thereof is given to the Trust Fund by the Indenture Trustee or to the Trust Fund
and the Indenture Trustee by the holders of at least 25% in principal amount of
Notes then outstanding; or (v) certain events of bankruptcy, insolvency,
receivership or liquidation of the Trust Fund. [The amount of principal required
to be paid to Noteholders under the Indenture will generally be limited to
amounts available to be deposited in the Collection Account. Therefore, the
failure to pay principal on the Notes generally will not result in the
occurrence of an Event of Default until the final scheduled Distribution Date
for such Notes.] If there is an Event of Default with respect to a Note due to
late payment or nonpayment of interest due on a Note, additional interest will
accrue on such unpaid interest at the interest rate on the Note (to the extent
lawful) until such interest is paid. Such additional interest on unpaid interest
shall be due at the time such interest is paid. If there is an Event of Default
due to late payment or nonpayment of principal on a Note, interest will continue
to accrue on such principal at the interest rate on the Note until such
principal is paid. If an Event of Default should occur and be continuing with
respect to the Notes, the Indenture Trustee or holders of a majority in
principal amount of Notes then outstanding may declare the principal of such
Notes to be immediately due and payable. Such declaration may, under certain
circumstances, be rescinded by the holders of a majority in principal amount of
the Notes then outstanding. If the Notes are due and payable following an Event
of Default with respect thereto, the Indenture Trustee may institute proceedings
to collect amounts due or foreclose on Trust Fund property or exercise remedies
as a secured party. If an Event of Default occurs and is continuing with respect
to the Notes, the Indenture Trustee will be under no obligation to exercise any
of the rights or powers under the Indenture at the request or direction of any
of the holders of the Notes, if the Indenture Trustee reasonably believes it
will not be adequately indemnified against the costs, expenses and liabilities
which might be incurred by it in complying with such request. Subject to the
provisions for indemnification and certain limitations contained in the
Indenture, the holders of a majority in principal amount of the outstanding
Notes will have the right to direct the time, method and place of conducting any
proceeding or any remedy available to the Indenture Trustee, and the holders of
a majority in principal amount of the Notes then outstanding may, in certain
cases, waive any default with respect thereto, except a default in the payment
of principal or interest or a default in respect of a covenant or provision of
the Indenture that cannot be modified without the waiver or consent of all the
holders of the outstanding Notes. No holder of a Note will have the right to
institute any proceeding with respect to the Indenture, unless (i) such holder
previously has given the Indenture Trustee written notice of a continuing Event
of Default, (ii) the holders of not less than 25% in principal amount of the
outstanding Notes have made written request to the Indenture Trustee to
institute such proceeding in its own name as Indenture Trustee, (iii) such
holder or holders have offered the Indenture Trustee reasonable indemnity, (iv)
the Indenture Trustee has for 60 days failed to institute such proceeding and
(v) no direction inconsistent with such written request has been given to the
Indenture Trustee during the 60-day period by the holders of a majority in
principal amount of the Notes. In addition, the Indenture Trustee and the
Noteholders, by accepting the Notes, will covenant that they will not at any
time institute against the Trust Fund any bankruptcy, reorganization or other
proceeding under any federal or state bankruptcy or similar law. With respect to
the Trust Fund, neither the Indenture Trustee nor the Owner Trustee in its
individual capacity, nor any holder of a Certificate representing an ownership
interest in the Trust Fund nor any of their respective owners, beneficiaries,
agents, officers, directors, employees, affiliates, successors or assigns will,
in the absence of an express agreement to the contrary, be personally liable for
the payment of the principal of or interest on the Notes or for the agreements
of the Trust Fund contained in the Indenture.
Certain Covenants
The Indenture will provide that the Trust Fund may not consolidate with or
merge into any other entity, unless (i) the entity formed by or surviving such
consolidation or merger is organized under the laws of the United States, any
state or the District of Columbia, (ii) such entity expressly assumes the Trust
Fund's obligation to make due and punctual payments upon the Notes and the
performance or observance of any agreement and covenant of the Trust Fund under
the Indenture, (iii) no Event of Default shall have occurred and be continuing
immediately after such merger or consolidation, (iv) the Trust Fund has been
advised that the ratings of the Securities then in effect would not be reduced
or withdrawn by any Rating Agency as a
S-35
<PAGE>
<PAGE>
result of such merger or consolidation and (v) the Trust Fund has received an
opinion of counsel to the effect that such consolidation or merger would have no
material adverse tax consequence to the Trust Fund or to any Noteholder or
Certificateholder. The Trust Fund will not, among other things, (i) except as
expressly permitted by the Indenture, sell, transfer, exchange or otherwise
dispose of any of the assets of the Trust Fund, (ii) claim any credit on or make
any deduction from the principal and interest payable in respect of the Notes
(other than amounts withheld under the Code or applicable state law) or assert
any claim against any present or former holder of Notes because of the payment
of taxes levied or assessed upon the Trust Fund, (iii) dissolve or liquidate in
whole or in part, (iv) permit the validity or effectiveness of the Indenture to
be impaired or permit any person to be released from any covenants or
obligations with respect to the Notes under the Indenture except as may be
expressly permitted thereby or (v) permit any lien, charge excise, claim,
security interest, mortgage or other encumbrance to be created on or extend to
or otherwise arise upon or burden the assets of the Trust Fund or any part
thereof, or any interest therein or the proceeds thereof. The Trust Fund may not
engage in any activity other than as specified under "The Trust Fund" herein.
The Trust Fund will not incur, assume or guarantee any indebtedness other than
indebtedness incurred pursuant to the Notes and the Indenture.
Annual Compliance Statement
The Trust Fund will be required to file annually with the Indenture Trustee
a written statement as to the fulfillment of its obligations under the
Indenture.
Indenture Trustee's Annual Report
The Indenture Trustee will be required to mail each year to all Noteholders
a report relating to any change in its eligibility and qualification to continue
as Indenture Trustee under the Indenture, any amounts advanced by it under the
Indenture, the amount, interest rate and maturity date of any indebtedness owing
by the Trust Fund to the Indenture Trustee in its individual capacity, any
change in the property and funds physically held by the Indenture Trustee as
such and any action taken by it that materially affects the Notes and that has
not been previously reported, but if no such changes have occurred, then no
report shall be required.
Satisfaction and Discharge of Indenture
The Indenture will be discharged with respect to the collateral securing
the Notes upon the delivery to the Indenture Trustee for cancellation of all the
Notes or, with certain limitations, upon deposit with the Indenture Trustee of
funds sufficient for the payment in full of all the Notes.
Modification of Indenture
With the consent of the holders of a majority in principal amount of the
Notes then outstanding, the Trust Fund and the Indenture Trustee may execute a
supplemental indenture to add provisions to, change in any manner or eliminate
any provisions of, the Indenture, or modify (except as provided below) in any
manner the rights of the Noteholders. Without the consent of the holder of each
outstanding Note affected thereby, however, no supplemental indenture will: (i)
change the due date of any installment of principal of or interest on any Note
or reduce the principal amount thereof, the interest rate specified thereon or
the redemption price with respect thereto or change any place of payment where
or the coin or currency in which any Note or any interest thereon is payable;
(ii) impair the right to institute suit for the enforcement of certain
provisions of the Indenture regarding payment; (iii) reduce the percentage of
the aggregate amount of the outstanding Notes, the consent of the holders of
which is required for any supplemental indenture or the consent of the holders
of which is required for any waiver of compliance with certain provisions of the
Indenture or of certain defaults thereunder and their consequences as provided
for in the Indenture; (iv) modify or alter the provisions of the Indenture
regarding the voting of Notes held by the Trust Fund, the Depositor or an
affiliate of any of them; (v) decrease the percentage of the aggregate principal
amount of Notes required to amend the sections
S-36
<PAGE>
<PAGE>
of the Indenture which specify the applicable percentage of aggregate principal
amount of the Notes necessary to amend the Indenture or certain other related
agreements; or (vi) permit the creation of any lien ranking prior to or on a
parity with the lien of the Indenture with respect to any of the collateral for
the Notes or, except as otherwise permitted or contemplated in the Indenture,
terminate the lien of the Indenture on any such collateral or deprive the holder
of any Note of the security afforded by the lien of the Indenture. The Trust
Fund and the Indenture Trustee may also enter into supplemental indentures,
without obtaining the consent of the Noteholders, for the purpose of, among
other things, adding any provisions to or changing in any manner or eliminating
any of the provisions of the Indenture or of modifying in any manner the rights
of the Noteholders; provided that such action will not materially and adversely
affect the interest of any Noteholder.
Voting Rights
At all times, the voting rights of Noteholders under the Indenture will be
allocated among the Notes pro rata in accordance with their outstanding
principal balances.
Certain Matters Regarding the Indenture Trustee and the Depositor
Neither the Depositor, the Indenture Trustee nor any director, officer or
employee of the Depositor or the Indenture Trustee will be under any liability
to the Trust Fund or the related Noteholders for any action taken or for
refraining from the taking of any action in good faith pursuant to the Indenture
or for errors in judgment; provided, however, that none of the Indenture
Trustee, the Depositor and any director, officer or employee thereof will be
protected against any liability which would otherwise be imposed by reason of
willful malfeasance, bad faith or gross negligence in the performance of duties
or by reason of reckless disregard of obligations and duties under the
Indenture. Subject to certain limitations set forth in the Indenture, the
Indenture Trustee and any director, officer, employee or agent of the Indenture
Trustee shall be indemnified by the Trust Fund and held harmless against any
loss, liability or expense incurred in connection with investigating, preparing
to defend or defending any legal action, commenced or threatened, relating to
the Indenture other than any loss, liability or expense incurred by reason of
willful malfeasance, bad faith or gross negligence in the performance of its
duties under such Indenture or by reason of reckless disregard of its
obligations and duties under the Indenture. Any such indemnification by the
Trust Fund will reduce the amount distributable to the Noteholders. All persons
into which the Indenture Trustee may be merged or with which it may be
consolidated or any person resulting from such merger or consolidation shall be
the successor of the Indenture Trustee under each Indenture.
THE TRUST AGREEMENT
The following is a description of the material terms of the Trust
Agreement. Whenever particular sections or defined terms of the Trust Agreement
are referred to, such sections or defined terms are thereby incorporated herein
by reference. See "Description of the Securities" herein for a description of
certain additional terms of the Trust Agreement.
Amendment
The Trust Agreement may be amended by the Depositor and the Owner Trustee,
without consent of the Holders, to cure any ambiguity, to correct or supplement
any provision or for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions thereof or of modifying in any
manner the rights of such Holders; provided, however, that such action will not,
as evidenced by an opinion of counsel satisfactory to the Owner Trustee,
adversely affect in any material respect the interests of any Holders. The Trust
Agreement may also be amended by the Depositor and the Owner Trustee with the
consent of the holders of Certificates evidencing at least a majority in
principal amount of then outstanding Certificates and Holders owning Voting
Interests (as herein defined) aggregating not less than a majority of
S-37
<PAGE>
<PAGE>
the aggregate Voting Interests for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the Trust
Agreement or modifying in any manner the rights of the Holders.
Insolvency Event
"Insolvency Event" means, with respect to any Person, any of the following
events or actions; certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings with respect to
such Person and certain actions by such Person indicating its insolvency,
reorganization pursuant to bankruptcy proceedings or inability to pay its
obligations. Upon termination of the Trust Fund, the Owner Trustee shall direct
the Indenture Trustee promptly to sell the assets of the Trust Fund (other than
the Collection Account) in a commercially reasonable manner and on commercially
reasonable terms. The proceeds from any such sale, disposition or liquidation of
the Mortgage Loans will be treated as collections on the Mortgage Loans and
deposited in the Collection Account. The Trust Agreement will provide that the
Owner Trustee does not have the power to commence a voluntary proceeding in
bankruptcy with respect to the Trust Fund without the unanimous prior approval
of all Holders (including the Depositor) of the Trust Fund and the delivery to
the Owner Trustee by each Holder (including the Depositor) of a certificate
certifying that the Holder reasonably believes that the Trust Fund is insolvent.
Liability of the Depositor
Under the Trust Agreement, the Depositor will agree to be liable directly
to an injured party for the entire amount of any losses, claims, damages or
liabilities (other than those incurred by a Noteholder or a Holder in the
capacity of an investor with respect to the Trust Fund) arising out of or based
on the arrangement created by the Trust Agreement.
Voting Interests
As of any date, the aggregate principal balance of all Certificates
outstanding will constitute the voting interest of the Issuer (the "Voting
Interests"), except that, for purposes of determining Voting Interests,
Certificates owned by the Issuer or its affiliates (other than the Depositor)
will be disregarded and deemed not to be outstanding, and except that, in
determining whether the Owner Trustee is protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only
Certificates that the Owner Trustee knows to be so owned will be so disregarded.
Certificates so owned that have been pledged in good faith may be regarded as
outstanding if the pledgee establishes to the satisfaction of the Owner Trustee
the pledgor's right so to act with respect to such Certificates and that the
pledgee is not the Issuer or its affiliates.
Certain Matters Regarding the Owner Trustee and the Depositor
Neither the Depositor, the Owner Trustee nor any director, officer or
employee of the Depositor or the Owner Trustee will be under any liability to
the Trust Fund or the related Holders for any action taken or for refraining
from the taking of any action in good faith pursuant to the Trust Agreement or
for errors in judgment; provided, however, that none of the Owner Trustee, the
Depositor and any director, officer or employee thereof will be protected
against any liability which would otherwise be imposed by reason of willful
malfeasance, bad faith or gross negligence in the performance of duties or by
reason of reckless disregard of obligations and duties under the Trust
Agreement. Subject to certain limitations set forth in the Trust Agreement, the
Owner Trustee and any director, officer, employee or agent of the Owner Trustee
shall be indemnified by the Trust Fund and held harmless against any loss,
liability or expense incurred in connection with investigating, preparing to
defend or defending any legal action, commenced or threatened, relating to the
Trust Agreement other than any loss, liability or expense incurred by reason of
willful malfeasance, bad faith or gross negligence in the performance of its
duties under such Trust Agreement or by reason of reckless disregard of its
obligations and duties under the Trust Agreement. Any such indemnification by
the Trust
S-38
<PAGE>
<PAGE>
Fund will reduce the amount distributable to the Holders. All persons into which
the Owner Trustee may be merged or with which it may be consolidated or any
person resulting from such merger or consolidation shall be the successor of the
Owner Trustee under each Trust Agreement.
ADMINISTRATION AGREEMENT
The _________________, in its capacity as Administrator, will enter into
the Administration Agreement with the Trust Fund and the Owner Trustee pursuant
to which the Administrator will agree, to the extent provided in such
Administration Agreement, to provide notices and perform other administrative
obligations required by the Indenture and the Trust Agreement.
THE INDENTURE TRUSTEE
[ ] is the Indenture Trustee under the Indenture. The mailing address of
the Indenture Trustee is [ ], Attention: Corporate Trust Department.
THE OWNER TRUSTEE
[ ] is the Owner Trustee under the Trust Agreement. The mailing address of
the Owner Trustee is [ ], Attention: Corporate Trust Administration.
USE OF PROCEEDS
The net proceeds from the sale of the Securities will be applied by the
Depositor towards the purchase price of the Mortgage Loans.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion, which summarizes the material U.S. federal
income tax aspects of the purchase, ownership and disposition of the Notes and
Certificates, is based on the provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), the Treasury Regulations thereunder, and published
rulings and court decisions in effect as of the date hereof, all of which are
subject to change, possibly retroactively. This discussion does not address
every aspect of the U.S. federal income tax laws which may be relevant to
Noteholders and Certificateowners in light of their personal investment
circumstances or to certain types of Certificateowners subject to special
treatment under the U.S. federal income tax laws (for example, tax exempt
investors, banks and life insurance companies). Accordingly, investors should
consult their tax advisors regarding U.S. federal, state, local, foreign and any
other tax consequences to them of investing in the Notes and Certificates.
TAX CHARACTERIZATION OF THE TRUST FUND AS A PARTNERSHIP
Brown & Wood LLP, special counsel to the Depositor ("Tax Counsel"), is
of the opinion that the Trust Fund will not be an association (or a publicly
traded partnership) taxable as a corporation for federal income tax purposes.
This opinion is based on the assumption that the terms of the Trust Agreement
and related documents will be complied with, and on Tax Counsel's conclusions
that (1) the Trust Fund will not have certain characteristics necessary for a
business trust to be classified as an association taxable as a corporation and
(2) the nature of the income of the Trust Fund exempts it from the rule that
certain publicly traded partnerships are taxable as corporations, so that the
Trust Fund will not be characterized as a publicly traded partnership taxable as
a corporation.
If the Trust Fund were taxable as a corporation for federal income tax
purposes, the Trust Fund would be subject to corporate income tax on its taxable
income. The Trust Fund's taxable income would include all its income, possibly
reduced by its interest expense on the Notes. Any such corporate income tax
could materially reduce cash available to make payments on the Notes and
distributions on the Certificates, and Certificateholders could be liable for
any such tax that is unpaid by the Trust Fund.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
The Trust Fund will agree, and the Noteholders will agree by their
purchase of the Notes, to treat the Notes as debt for federal income tax
purposes. Based on the application of existing law to the facts as set forth in
the Agreement and other relevant documents and assuming compliance with the
terms of the Agreement as in effect on the date of issuance of the Notes and
Certificates, Tax Counsel is of the opinion that the Notes will be treated as
debt instruments for federal income tax purposes as of such date. See "Federal
Income Tax Consequences--Tax Consequences to Holders of Notes" in the
Prospectus.
It is not anticipated that the Notes will be issued with original issue
discount ("OID"). The stated interest thereon will be taxable to a Noteholder as
ordinary interest income when received or accrued in accordance with such
Noteholder's method of tax accounting. Under the OID regulations, a holder of a
Note issued with a de minimis amount of OID must include such OID in income, on
a pro rata basis, as principal payments are made on the Note. It is believed
that any prepayment premium paid as a result of a mandatory redemption will be
taxable as contingent interest when it becomes fixed and unconditionally
payable. A purchaser who buys a Note for more or less than its principal amount
will generally be subject, respectively, to the premium amortization or market
discount rules of the Code.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
The Trust Fund and the Master Servicer will agree, and the
Certificateholders will agree by their purchase of Certificates, to treat the
Trust Fund as a partnership for purposes of federal and state income tax,
franchise tax and any other tax measured in whole or in part by income, with the
assets of the partnership being the assets held by the Trust Fund, the partners
of the partnership being the Certificateholders, and the Notes being debt of the
partnership. However, the proper characterization of the arrangement involving
the Certificates, the Notes, the Trust Fund and the Master Servicer is not
clear because there is no authority on transactions closely comparable to that
contemplated herein. For example, because the Certificates have certain features
characteristic of debt, the Certificates might be considered debt of the Trust
Fund. Any such characterization would not result in materially adverse tax
consequences to Certificateholders as compared to the consequences from
treatment of the Certificates as equity in a partnership.
As a partnership, the Trust Fund will not be subject to federal income
tax. Rather, each Certificateholder will be required to separately take into
account such holder's allocated share of income, gains, losses, deductions and
credits of the Trust Fund. The Trust Fund's income will consist primarily of
interest and finance charges earned on the Mortgage Loans (including appropriate
adjustments for market discount, OID and bond premium) and any gain upon
collection or disposition of Loans. The Trust Fund's deductions will consist
primarily of interest accruing with respect to the Notes, servicing and other
fees, and losses or deductions upon collection or disposition of Loans. See
"Federal Income Tax Consequences -- Tax Consequences to Holders of the
Certificates" in the Prospectus.
The Trust Fund expects to withhold on the portion of its taxable income
that is allocable to foreign Certificateholders pursuant to Section 1446 of the
Code, as if such income were effectively connected to a U.S. trade or business,
at a rate of 35% for foreign holders that are taxable as corporations and 39.6%
for all other foreign holders. Subsequent adoption of Treasury regulations or
the issuance of other administrative pronouncements may require the Trust Fund
to change its withholding procedures. See "Federal Income Tax Consequences --Tax
Consequences to Foreign Certificateholders" in the Prospectus.
STATE TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Federal
Income Tax Consequences" herein, potential investors should consider the state
income tax consequences of the acquisition, ownership, and disposition of the
Securities offered hereunder. State income tax law may differ substantially from
the corresponding federal tax law, and this discussion does not purport to
describe any aspect of the income tax laws of any state. Therefore, potential
investors should consult their own tax advisors with respect to the various tax
consequences of investments in the Securities offered hereunder.
S-39
<PAGE>
<PAGE>
ERISA CONSIDERATIONS
General
The Employee Retirement Income Security Act of 1974, as amended ("ERISA")
and Section 4975 of the Code impose certain restrictions on employee benefit
plans subject to ERISA or plans or arrangements subject to Section 4975 of the
Code ("Plans") and on persons who are parties in interest or disqualified
persons ("parties in interest") with respect to such Plans. Certain employee
benefit plans, such as governmental plans and church plans (if no election has
been made under section 410(d) of the Code), are not subject to the restrictions
of ERISA, and assets of such plans may be invested in the Securities without
regard to the ERISA considerations described below, subject to other applicable
federal and state law. However, any such governmental or church plan which is
qualified under section 401(a) of the Code and exempt from taxation under
section 501(a) of the Code is subject to the prohibited transaction rules set
forth in section 503 of the Code. Any Plan fiduciary which proposes to cause a
Plan to acquire any of the Securities should consult with its counsel with
respect to the potential consequences under ERISA, and the Code, of the Plan's
acquisition and ownership of the Securities. See "ERISA Considerations" in the
Prospectus. Investments by Plans are also 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.
Prohibited Transactions
General
Section 406 of ERISA prohibits parties in interest with respect to a Plan
from engaging in certain transactions (including loans) involving a Plan and its
assets unless a statutory or administrative exemption applies to the
transaction. Section 4975 of the Code imposes certain excise taxes (or, in some
cases, a civil penalty may be assessed pursuant to section 502(i) of ERISA) on
parties in interest which engage in non-exempt prohibited transactions.
Plan Asset Regulation
The United States Department of Labor ("Labor") has issued final
regulations concerning the definition of what constitutes the assets of a Plan
for purposes of ERISA and the prohibited transaction provisions of the Code (the
"Plan Asset Regulation"). The Plan Asset Regulation describes the circumstances
under which the assets of an entity in which a Plan invests will be considered
to be "plan assets" such that any person who exercises control over such assets
would be subject to ERISA's fiduciary standards. Under the Plan Asset
Regulation, generally when a Plan invests in another entity, the Plan's assets
do not include, solely by reason of such investment, any of the underlying
assets of the entity. However, the Plan Asset Regulation provides that, if a
Plan acquires an "equity interest" in an entity that is neither a
"publicly-offered security" (as defined therein) nor a security issued by an
investment company registered under the Investment Company Act of 1940, the
assets of the entity will be treated as assets of the Plan investor unless
certain exceptions apply. If the [Notes/Certificates] were deemed to be equity
interests and no statutory, regulatory or administrative exemption applies, the
Trust Fund could be considered to hold plan assets by reason of a Plan's
investment in the Notes. Such plan assets would include an undivided interest in
any assets held by the Trust Fund. In such an event, the Trustee and other
persons, in providing services with respect to the Trust Fund's assets, may be
parties in interest with respect to such Plans, subject to the fiduciary
responsibility provisions of Title I of ERISA, including the prohibited
transaction provisions of Section 406 of ERISA, and Section 4975 of the Code
with respect to transactions involving the Trust Fund's assets. Under the Plan
Asset Regulation, the term "equity interest" is defined as any interest in an
entity other than an instrument that is treated as indebtedness under
"applicable local law" and which has no "substantial equity features." Although
the Plan Assets Regulation is silent with respect to the question of which law
constitutes "applicable local law" for this
S-40
<PAGE>
<PAGE>
purpose, Labor has stated that these determinations should be made under the
state law governing interpretation of the instrument in question. In the
preamble to the Plan Assets Regulation, Labor declined to provide a precise
definition of what features are equity features or the circumstances under which
such features would be considered "substantial," noting that the question of
whether a plan's interest has substantial equity features is an inherently
factual one, but that in making a determination it would be appropriate to take
into account whether the equity features are such that a Plan's investment would
be a practical vehicle for the indirect provision of investment management
services. Brown & Wood llp ("ERISA Counsel") has rendered its opinion that the
Notes will be classified as indebtedness without substantial equity features for
ERISA purposes. ERISA Counsel's opinion is based upon the terms of the Notes,
the opinion of Tax Counsel that the Notes will be classified as debt instruments
for federal income tax purposes and the ratings which have been assigned to the
Notes. However, if contrary to ERISA Counsel's opinion the Notes are deemed to
be equity interests in the Trust Fund and no statutory, regulatory or
administrative exemption applies, the Trust Fund could be considered to hold
plan assets by reason of a Plan's investment in the Notes.
The Underwriter's Exemption
Labor has granted to [ ] (the "Underwriter") an administrative exemption
(Prohibited Transaction Exemption _____ (the "Exemption")) which exempts from
the application of the prohibited transaction rules of ERISA and the related
excise tax provisions of Section 4975 of the Code transactions relating to: (i)
the acquisition, sale and holding by Plans of certificates representing an
undivided interest in certain asset backed pass-through trusts with respect to
which the Underwriter or any of its affiliates is the sole underwriter or the
manager or co-manager of the underwriting syndicate; and (ii) the servicing,
operation and management of such asset backed pass-through trusts, provided that
the general conditions and certain other conditions set forth in the Exemption
are satisfied. The Exemption will apply to the acquisition, holding and resale
of the Certificates by a Plan provided that certain conditions (some of which
are described below) are met.
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;
(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 either Standard & Poor's Corporation, Moody's
Investors Service, Inc, Duff & Phelps Inc. or Fitch Investors Service,
Inc.;
(4) the trustee must not be an affiliate of the Underwriter, the
Trustee, any Master Servicer, any obligor with respect to assets held in
the Trust Fund constituting more than five percent of the aggregate
unamortized principal balance of the assets in the Trust Fund;
(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 retain by the Issuer pursuant to the assignment of
the Mortgage Loans to the Trust Fund represents not more than the fair
market value of such Mortgage Loans; the sum of all payments made to and
retained by the servicer represents not more than reasonable compensation
for such person's services under a pooling and servicing agreement and
reimbursements of such person's reasonable expenses in connection
therewith; and
S-41
<PAGE>
<PAGE>
(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 Underwriter believes that the Exemption will apply to the acquisition
and holding of the Certificates by Plans and that all conditions of the
Exemption other than those within the control of the investors will be met.
Review by Plan Fiduciaries
Any Plan fiduciary considering whether to purchase any [Notes/Certificates]
on behalf of a Plan should consult with its counsel regarding the applicability
of the fiduciary responsibility and prohibited transaction provisions of ERISA
and the Code to such investment. Among other things, before purchasing any
[Notes/Certificates], a fiduciary of a Plan should make its own determination as
to whether the Trust Fund, as obligor on the [Notes/Certificates], is a party in
interest with respect to the Plan, the availability of the exemptive relief
provided in the Plan Asset Regulations and the availability of any other
prohibited transaction exemptions. Purchasers should analyze whether the
decision may have an impact with respect to purchases of the
[Notes/Certificates].
LEGAL INVESTMENT CONSIDERATIONS
The appropriate characterization of the Securities under various legal
investment restrictions, and thus the ability of investors subject to these
restrictions to purchase Securities, may be subject to significant interpretive
uncertainties. All investors whose investment authority is subject to legal
restrictions should consult their own legal advisors to determine whether, and
to what extent, the Securities will constitute legal investments for them. The
Depositor makes no representation as to the proper characterization of the
Securities for legal investment or financial institution regulatory purposes, or
as to the ability of particular investors to purchase Securities under
applicable legal investment restrictions. The uncertainties described above (and
any unfavorable future determinations concerning legal investment or financial
institution regulatory characteristics of the Securities) may adversely affect
the liquidity of the Securities.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
between the Depositor and [ ] (the "Underwriting Agreement"), the Depositor has
agreed to sell to [ ] (the "Underwriter"), and the Underwriter has agreed to
purchase from the Depositor, the Securities. The Underwriter is obligated to
purchase all the Securities offered hereby if any are purchased. Distribution of
the Securities will be made by the Underwriter from time to time in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. Proceeds to the Depositor are expected to be $________________ from the
sale of the Notes and $___________ from the sale of the Certificates, before
deducting expenses payable by the Depositor of $_________. In connection with
the purchase and sale of the Securities, the Underwriter may be deemed to have
received compensation from the Depositor in the form of underwriting discounts,
concessions or commissions.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, or contribute payments the Underwriter may be required
to make in respect thereof. The Depositor is an affiliate of the Underwriter.
The Underwriter is an affiliate of the Depositor.
S-42
<PAGE>
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the Securities will be passed upon
for the Depositor by Brown & Wood llp, New York, New York and for the
Underwriter by _____________________________.
RATINGS
It is a condition to issuance that each Class of the Notes be rated be
rated not lower than "_________" by [ ] and _______ by [ ]. It is a condition to
issuance that the Certificates be rated at least "___" by [ ] and "___" by [ ].
A securities rating addresses the likelihood of the receipt by
Certificateholders and Noteholders of distributions on the Mortgage Loans. The
rating takes into consideration the structural, legal and tax aspects associated
with the Certificates and Notes. The ratings on the Securities do not, however,
constitute statements regarding the possibility that Certificateholders or
Noteholders might realize a lower than anticipated yield. A securities rating is
not a recommendation to buy, sell or hold securities and may be subject to
revision or withdrawal at any time by the assigning rating organization. Each
securities rating should be evaluated independently of similar ratings on
different securities.
[The ratings assigned by Duff & Phelps Credit Rating Co. ("DCR") to
securities address the likelihood of the receipt by the holders of such
securities of all distributions to which they are entitled under the transaction
structure. DCR's ratings reflect its analysis of the riskiness of the mortgages
and its analysis of the structure of the transaction as set forth in the
operative documents. DCR's ratings do not address the effect on yield on the
securities attributable to prepayments or recoveries on the underlying assets.]
[The ratings assigned by Fitch Investors Service, L.P. ("Fitch") to
securities address the likelihood of the receipt of all distributions on the
assets by the related holders of securities under the agreements pursuant to
which such securities are issued. Fitch's ratings take into consideration the
credit quality of the related pool, including any credit support providers,
structural and legal aspects associated with such securities, and the extent to
which the payment stream on the pool is adequate to make the payments required
by such securities. Fitch ratings on such securities do not, however, constitute
a statement regarding frequency of prepayments of the assets.]
[The ratings assigned by Moody's Investors Service, Inc. ("Moody's") to
securities address the likelihood of the receipt by holders of securities of all
distributions to which such holders of securities are entitled. Moody's ratings
on securities do not represent any assessment of the likelihood or rate of
principal prepayments. The ratings do not address the possibility that holders
of securities might suffer a lower than anticipated yield as a result of
prepayments.]
[The ratings assigned by Standard & Poor's Ratings Group, a Division of The
McGraw-Hill Companies ("Standard & Poor's"), to securities address the
likelihood of the receipt of all distributions on the assets by the related
holders of securities under the agreements pursuant to which such securities are
issued. Standard & Poor's ratings take into consideration the credit quality of
the related pool, including any credit support providers, structural and legal
aspects associated with such securities, and the extent to which the payment
stream on such pool is adequate to make payments required by such securities.
Standard & Poor's ratings on such certificates do not, however, constitute a
statement regarding frequency of prepayments on the related assets. The letter
"r" attached to a Standard & Poor's rating highlights derivative, hybrid and
certain other types of securities that Standard & Poor's believes may experience
high volatility or high variability in expected returns due to non-credit risks.
The absence of an "r" symbol in the rating of a class of securities should not
be taken as an indication that such securities will exhibit no volatility or
variability in total return.]
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
S-43
<PAGE>
<PAGE>
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.
S-44
<PAGE>
<PAGE>
INDEX OF DEFINED TERMS
Page
----
Additional Balances..........................................................S-3
ALTA........................................................................S-17
Alternative Documentation Program...........................................S-16
Assignment Event............................................................S-27
beneficial owners...........................................................S-32
BIF.........................................................................S-29
Book-Entry Certificates.....................................................S-32
Book-Entry Securities........................................................S-8
Business Day.................................................................S-6
Cede.........................................................................S-8
Cedel........................................................................S-8
Certificate Insurer..........................................................S-1
Certificate Owners..........................................................S-32
Certificates............................................................S-1, S-3
Chase........................................................................S-8
Citibank.....................................................................S-8
Collection Account.....................................................S-6, S-29
Collection Period......................................................S-7, S-33
Collections..................................................................S-6
Combined Loan-to-Value Ratio.................................................S-5
Countrywide............................................................S-4. S-15
Credit Limit.................................................................S-5
Credit Limited Utilization Rate.............................................S-19
Credit Line Agreement..................................................S-3, S-18
Cut-Off Date.................................................................S-3
Cut-Off Date Principal Balance..........................................S-3, S-5
DCR.........................................................................S-43
debt-to-income ratio........................................................S-17
Defective Mortgage Loans....................................................S-28
Definitive Certificate......................................................S-33
Definitive Securities........................................................S-8
Depositor....................................................................S-1
Determination Date.....................................................S-4, S-29
Distribution Date............................................................S-1
Draw Period.................................................................S-20
DTC....................................................................S-8, S-32
Due Date.....................................................................S-5
Eligible Account............................................................S-29
Eligible Substitution Mortgage Loan.........................................S-27
ERISA.................................................................S-10, S-39
ERISA Counsel...............................................................S-41
Euroclear....................................................................S-8
European Depositories..................................................S-8, S-32
Events of Default...........................................................S-34
Exemption...................................................................S-41
FHLMC.......................................................................S-16
final OID regulations.......................................................S-39
Fitch.......................................................................S-43
S-45
<PAGE>
<PAGE>
Page
----
FNMA........................................................................S-16
Indenture...............................................................S-1, S-4
Indenture Trustee.......................................................S-1, S-4
Index Rate..................................................................S-19
Insolvency Event............................................................S-38
Interest Accrual Period................................................S-7, S-33
Interest Collections...................................................S-6, S-30
Issuer.......................................................................S-3
Labor.......................................................................S-40
Letter of Credit.............................................................S-9
Letter of Credit Amount......................................................S-9
Liquidation Loss Amount................................................S-7, S-33
Loan Rate..............................................................S-5, S-19
Margin......................................................................S-19
Master Servicer..............................................................S-4
Maximum Rate................................................................S-19
Money Rates..................................................................S-5
Moody's...............................................................S-30, S-43
Mortgage Files..............................................................S-27
Mortgage Loans..........................................................S-1, S-3
Mortgaged Properties.........................................................S-3
Net Liquidation Proceeds..............................................S-30, S-31
Note Rate.........................................................S-1, S-7, S-33
Noteholders..................................................................S-4
Notes...................................................................S-1, S-3
OID.........................................................................S-39
Owner Trustee...........................................................S-1, S-4
parties in interest.........................................................S-40
Pass-Through Rate.................................................S-1, S-7, S-33
Plan..................................................................S-10, S-40
plan assets.................................................................S-10
Plan Asset Regulation.......................................................S-40
Policy..................................................................S-1, S-3
Pool Balance...........................................................S-3, S-30
Principal Balance............................................................S-4
Principal Collections..................................................S-6, S-30
Purchase Agreement...........................................................S-5
Rating Agency...............................................................S-11
Reduced Documentation Program...............................................S-16
Related Documents...........................................................S-26
Relevant Depositary.........................................................S-32
Repayment Period............................................................S-20
Repurchase Price............................................................S-27
SAIF........................................................................S-29
Securities...................................................................S-3
Security Account............................................................S-29
Security Principal Balance...................................................S-6
Seller.......................................................................S-4
Servicing Fee Rate..........................................................S-32
SMMEA.......................................................................S-11
S-46
<PAGE>
<PAGE>
Page
----
Standard & Poor's...........................................................S-43
Surety Bond..................................................................S-9
Surety Bond Amount...........................................................S-9
Trust Agreement.........................................................S-1, S-4
Trust Fund..............................................................S-1, S-3
Underwriter......................................................S-2, S-41, S-42
Underwriting Agreement......................................................S-42
Voting Interests............................................................S-38
S-47
<PAGE>
<PAGE>
================================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE DEPOSITOR OR THE UNDERWRITER. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THOSE TO WHICH THEY RELATE OR AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
$______________PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THEIR
RESPECTIVE DATES.
----------
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
Summary of Terms ........................................................... S-3
Risk Factors ...............................................................S-12
The Trust Fund .............................................................S-15
The [Letter of Credit][Surety Bond] Issuer .................................S-15
The Master Servicer ........................................................S-15
The Home Equity Loan Program ...............................................S-16
Description of the Mortgage Loans ..........................................S-18
Maturity and Prepayment Considerations .....................................S-28
Description of the Master Servicing Agreement ..............................S-29
Description of the Securities ..............................................S-32
The Depositor ..............................................................S-34
The Indenture ..............................................................S-34
The Trust Agreement ........................................................S-37
Administration Agreement ...................................................S-39
The Indenture Trustee ......................................................S-39
The Owner Trustee ..........................................................S-39
Use of Proceeds ............................................................S-39
Federal Income Tax Consequences ............................................S-39
State Tax Consequences .....................................................S-39
ERISA Considerations .......................................................S-39
Legal Investment Considerations ............................................S-42
Underwriting ...............................................................S-42
Legal Matters ..............................................................S-42
Ratings ....................................................................S-43
Defined Terms ..............................................................S-44
PROSPECTUS
Prospectus Supplement or Current Report on Form 8-K ....................... 2
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
Method of Distribution .................................................... 94
Legal Matters ............................................................. 95
Financial Information ..................................................... 95
Rating .................................................................... 95
Index of Defined Terms .................................................... 97
================================================================================
================================================================================
$________________
[COUNTRYWIDE] HOME EQUITY LOAN
TRUST 199___
$______ [FIXED] [FLOATING] RATE
ASSET BACKED NOTES
$______ [FIXED] [FLOATING] RATE
ASSET BACKED CERTIFICATES,
CWABS, Inc.
(Depositor)
----------------
PROSPECTUS SUPPLEMENT
[_______, 199 ]
----------------
[UNDERWRITER]
================================================================================
<PAGE>
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 5, 1996
PROSPECTUS
CWABS, INC.
Depositor
$2,000,000,000
(Aggregate Amount)
Asset Backed Securities
(Issuable in Series)
------------------------------
This Prospectus relates to the issuance of Asset Backed Certificates (the
'Certificates') and Asset Backed Notes (the 'Notes' and, together with the
Certificates, the 'Securities'), which may be sold from time to time in one or
more series (each, a 'Series') by CWABS, Inc. (the 'Depositor') or by a Trust
Fund (as defined below) on terms determined at the time of sale and described in
this Prospectus and the related Prospectus Supplement. The Securities of a
Series will consist of Certificates which evidence beneficial ownership of a
trust established by the Depositor (each, a 'Trust Fund'), and/or Notes secured
by the assets of a Trust Fund. As specified in the related Prospectus
Supplement, the Trust Fund for a Series of Securities will include certain
assets (the 'Trust Fund Assets') which will consist of the following types of
single family mortgage loans (the 'Loans'): (i) mortgage loans secured by first
and/or subordinate liens on one- to four-family residential properties, (ii)
closed-end and/or revolving home equity loans (the 'Home Equity Loans') secured
by subordinate liens on one- to four-family residential properties and (iii)
home improvement installment sale contracts and installment loan agreements (the
'Home Improvement Contracts') that are either unsecured or secured by first or
subordinate liens on one-to four-family residential properties, or by purchase
money security interests in the home improvements financed thereby (the 'Home
Improvements'). The Trust Fund Assets will be acquired by the Depositor, either
directly or indirectly, from one or more institutions (each, a 'Seller'), which
may be affiliates of the Depositor, and conveyed by the Depositor to the related
Trust Fund. A Trust Fund also may include insurance policies, surety bonds, cash
accounts, reinvestment income, guaranties or letters of credit to the extent
described in the related Prospectus Supplement. See 'Index of Defined Terms' on
Page 95 of this Prospectus for the location of the definitions of certain
capitalized terms.
Each Series of Securities will be issued in one or more classes. Each class
of Certificates of a Series will evidence beneficial ownership of a specified
percentage (which may be 0%) or portion of future interest payments and a
specified percentage (which may be 0%) or portion of future principal payments
on the related Trust Fund Assets. Each class of Notes of a Series will be
secured by the related Trust Fund Assets or, if so specified in the related
Prospectus Supplement, a portion thereof. A Series of Securities may include one
or more classes that are senior in right of payment to one or more other classes
of Securities of such Series. One or more classes of Securities of a Series may
be entitled to receive
(cover continued on next page)
------------------------------
FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN THE
SECURITIES, SEE THE INFORMATION UNDER 'RISK FACTORS' ON PAGE 14.
------------------------------
THE CERTIFICATES OF A GIVEN SERIES WILL REPRESENT BENEFICIAL INTERESTS IN,
AND THE NOTES OF A GIVEN SERIES WILL REPRESENT OBLIGATIONS OF, THE RELATED TRUST
FUND ONLY AND WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR,
THE MASTER SERVICER, ANY SELLER OR ANY AFFILIATES THEREOF, EXCEPT TO THE EXTENT
DESCRIBED IN THE RELATED PROSPECTUS SUPPLEMENT. THE SECURITIES AND THE LOANS
WILL NOT BE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY
OR BY THE DEPOSITOR OR ANY OTHER PERSON OR ENTITY, EXCEPT IN EACH CASE TO THE
EXTENT DESCRIBED IN THE RELATED PROSPECTUS SUPPLEMENT.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
Prior to issuance there will have been no market for the Securities of any
Series and there can be no assurance that a secondary market for any Securities
will develop, or if it does develop, that it will continue or provide
Securityholders with a sufficient level of liquidity of investment. This
Prospectus may not be used to consummate sales of Securities of any Series
unless accompanied by a Prospectus Supplement. Offers of the Securities may be
made through one or more different methods, including offerings through
underwriters, as more fully described under 'Method of Distribution' herein and
in the related Prospectus Supplement.
November , 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
<PAGE>
(continued from cover page)
distributions of principal, interest or any combination thereof prior to one or
more other classes of Securities of such Series or after the occurrence of
specified events, in each case as specified in the related Prospectus
Supplement.
Distributions to Securityholders will be made monthly, quarterly,
semi-annually or at such other intervals and on the dates specified in the
related Prospectus Supplement. Distributions on the Securities of a Series will
be made from the related Trust Fund Assets or proceeds thereof pledged for the
benefit of the Securityholders as specified in the related Prospectus
Supplement.
The related Prospectus Supplement will describe any insurance or guarantee
provided with respect to the related Series of Securities including, without
limitation, any insurance or guarantee provided by the Department of Housing and
Urban Development, the United States Department of Veterans' Affairs or any
private insurer or guarantor. The only obligations of the Depositor with respect
to a Series of Securities will be to obtain certain representations and
warranties from each Seller and to assign to the Trustee for the related Series
of Securities the Depositor's rights with respect to such representations and
warranties. The principal obligations of the Master Servicer named in the
related Prospectus Supplement with respect to the related Series of Securities
will be limited to obligations pursuant to certain representations and
warranties and to its contractual servicing obligations, including any
obligation it may have to advance delinquent payments on the related Trust Fund
Assets.
The yield on each class of Securities of a Series will be affected by,
among other things, the rate of payments of principal (including prepayments) on
the related Trust Fund Assets and the timing of receipt of such payments as
described under 'Risk Factors -- Prepayment and Yield Considerations' and 'Yield
and Prepayment Considerations' herein and in the related Prospectus Supplement.
A Trust Fund may be subject to early termination under the circumstances
described under 'The Agreements -- Termination; Optional Termination herein and
in the related Prospectus Supplement.
If specified in the related Prospectus Supplement, one or more elections
may be made to treat a Trust Fund or specified portions thereof as a 'real
estate mortgage investment conduit' ('REMIC') for federal income tax purposes.
See 'Federal Income Tax Consequences.'
2
<PAGE>
<PAGE>
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the securities covered by such Prospectus Supplement,
whether or not participating in the distribution thereof, may be required to
deliver such Prospectus Supplement and this Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus and Prospectus Supplement when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
PROSPECTUS SUPPLEMENT OR CURRENT REPORT ON FORM 8-K
The Prospectus Supplement or Current Report on Form 8-K relating to the
Securities of each Series to be offered hereunder will, among other things, set
forth with respect to such Securities, as appropriate: (i) the aggregate
principal amount, interest rate and authorized denominations of each class of
such Series of Securities; (ii) information as to the assets comprising the
Trust Fund, including the general characteristics of the related Trust Fund
Assets included therein and, if applicable, the insurance policies, surety
bonds, guaranties, letters of credit or other instruments or agreements included
in the Trust Fund or otherwise, and the amount and source of any reserve account
or other cash account; (iii) the circumstances, if any, under which the Trust
Fund may be subject to early termination; (iv) the circumstances, if any, under
which the Notes of such Series are subject to redemption; (v) the method used to
calculate the amount of principal to be distributed or paid with respect to each
class of Securities; (vi) the order of application of distributions or payments
to each of the classes within such Series, whether sequential, pro rata, or
otherwise; (vii) the Distribution Dates with respect to such Series; (viii)
additional information with respect to the method of distribution of such
Securities; (ix) whether one or more REMIC elections will be made with respect
to the Trust Fund and, if so, the designation of the regular interests and the
residual interests; (x) the aggregate original percentage ownership interest in
the Trust Fund to be evidenced by each class of Certificates; (xi) the stated
maturity of each class of Notes of such Series; (xii) information as to the
nature and extent of subordination with respect to any class of Securities that
is subordinate in right of payment to any other class; and (xiii) information as
to the Seller, the Master Servicer and the Trustee.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
'Commission') a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Securities. This Prospectus, which forms a part of
the Registration Statement, and the Prospectus Supplement relating to each
Series of Securities contain descriptions of the material terms of the documents
referred to herein and therein, but do not contain all of the information set
forth in the Registration Statement pursuant to the Rules and Regulations of the
Commission. For further information, reference is made to such Registration
Statement and the exhibits thereto. Such Registration Statement and exhibits can
be inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at its Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at its Regional Offices located as follows:
Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661; and Northeast Regional Office, Seven World Trade Center, Suite 1300, New
York, New York 10048. The Commission also maintains a Web site at
http://www.sec.gov from which such Registration Statement and exhibits may be
obtained.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Securities offered
hereby and thereby nor an offer of the Securities to any person in any state or
other jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus at any time does not imply that information herein is correct as of
any time subsequent to its date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by or on behalf of the Trust Fund referred
to in the accompanying Prospectus Supplement with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the 'Exchange Act'), after the date of this Prospectus and prior to the
termination of any offering of the Securities issued by such Trust Fund shall be
deemed to be incorporated by
3
<PAGE>
<PAGE>
reference in this Prospectus and to be a part of this Prospectus from the date
of the filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for all purposes of this Prospectus to the extent that
a statement contained herein (or in the accompanying Prospectus Supplement) or
in any other subsequently filed document which also is or is deemed to be
incorporated by reference modifies or replaces such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus. Neither the Depositor
nor the Master Servicer for any Series intends to file with the Commission
periodic reports with respect to the related Trust Fund following completion of
the reporting period required by Rule 15d-1 or Regulation 15D under the Exchange
Act.
The Trustee or such other entity specified in the related Prospectus
Supplement on behalf of any Trust Fund will provide without charge to each
person to whom this Prospectus is delivered, on the written or oral request of
such person, a copy of any or all of the documents referred to above that have
been or may be incorporated by reference in this Prospectus (not including
exhibits to the information that is incorporated by reference unless such
exhibits are specifically incorporated by reference into the information that
this Prospectus incorporates). Such requests should be directed to the Corporate
Trust Office of the Trustee or the address of such other entity specified in the
accompanying Prospectus Supplement. Included in the accompanying Prospectus
Supplement is the name, address, telephone number, and, if available, facsimile
number of the office or contact person at the Corporate Trust Office of the
Trustee or such other entity.
REPORTS TO SECURITYHOLDERS
Periodic and annual reports concerning the related Trust Fund for a Series
of Securities will be forwarded to Securityholders. However, such reports will
neither be examined nor reported on by an independent public accountant. See
'Description of the Securities -- Reports to Securityholders'.
4
<PAGE>
<PAGE>
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the related Prospectus
Supplement with respect to the Series of Securities offered thereby and to the
related Agreement (as such term is defined below) which will be prepared in
connection with each Series of Securities. Unless otherwise specified,
capitalized terms used and not defined in this Summary of Terms have the
meanings given to them in this Prospectus and in the related Prospectus
Supplement. See 'Index of Defined Terms' on page 95 of this Prospectus for the
location of the definitions of certain capitalized terms.
<TABLE>
<S> <C>
Title of Securities....................... Asset Backed Certificates (the 'Certificates') and Asset Backed Notes
(the 'Notes' and, together with the Certificates, the 'Securities'),
which are issuable in Series.
Depositor................................. CWABS, Inc., a Delaware corporation.
Trustee................................... The trustee(s) (the 'Trustee') for each Series of Securities will be
specified in the related Prospectus Supplement. See 'The Agreements'
herein for a description of the Trustee's rights and obligations.
Master Servicer........................... The entity or entities named as Master Servicer (the 'Master
Servicer') in the related Prospectus Supplement, which may be an
affiliate of the Depositor. See 'The Agreements -- Certain Matters
Regarding the Master Servicer and the Depositor'.
Trust Fund Assets......................... Assets of the Trust Fund for a Series of Securities will include
certain assets (the 'Trust Fund Assets') which will consist of the
Loans, together with payments in respect of such Trust Fund Assets,
as specified in the related Prospectus Supplement. At the time of
issuance of the Securities of the Series, the Depositor will cause
the Loans comprising the related Trust Fund to be assigned to the
Trustee, without recourse. The Loans will be collected in a pool
(each, a 'Pool') as of the first day of the month of the issuance of
the related Series of Securities or such other date specified in the
related Prospectus Supplement (the 'Cut-off Date'). Trust Fund Assets
also may include insurance policies, surety bonds, cash accounts,
reinvestment income, guaranties or letters of credit to the extent
described in the related Prospectus Supplement. See 'Credit
Enhancement'. In addition, if the related Prospectus Supplement so
provides, the related Trust Fund Assets will include the funds on
deposit in an account (a 'Pre-Funding Account') which will be used to
purchase additional Loans during the period specified in such
Prospectus Supplement. See 'The Agreements -- Pre-Funding Account'.
Loans..................................... The Loans will consist of (i) mortgage loans secured by first and/or
subordinate liens on one- to four-family residential properties or
security interests in shares issued by cooperative housing
corporations (each, a 'Mortgage Loan'), (ii) closed-end loans (the
'Closed-End Loans') and/or revolving home equity loans or certain
balances thereof (the 'Revolving Credit Line Loans', together with
the Closed-End Loans, the 'Home Equity Loans'), and (iii) home
improvement installment sales contracts and installment loan
agreements (the 'Home Improvement Contracts'). All Loans will have
been purchased by the Depositor, either directly or through an
affiliate, from one or more Sellers.
</TABLE>
5
<PAGE>
<PAGE>
<TABLE>
<S> <C>
As specified in the related Prospectus Supplement, the Home Equity
Loans will, and the Home Improvement Contracts may, be secured by
mortgages or deeds of trust or other similar security instruments
creating a lien on a Mortgaged Property, which may be subordinated to
one or more senior liens on the Mortgaged Property, as described in
the related Prospectus Supplement. As specified in the related
Prospectus Supplement, Home Improvement Contracts may be unsecured or
secured by purchase money security interests in the Home Improvements
financed thereby. The Mortgaged Properties and the Home Improvements
are collectively referred to herein as the 'Properties'.
Description of the Securities............. Each Security will represent a beneficial ownership interest in, or
be secured by the assets of, a Trust Fund created by the Depositor
pursuant to an Agreement among the Depositor, the Master Servicer and
the Trustee for the related Series. The Securities of any Series may
be issued in one or more classes as specified in the related
Prospectus Supplement. A Series of Securities may include one or more
classes of senior Securities (collectively, the 'Senior Securities')
and one or more classes of subordinate Securities (collectively, the
'Subordinated Securities'). Certain Series or classes of Securities
may be covered by insurance policies or other forms of credit
enhancement, in each case as described under 'Credit Enhancement'
herein and in the related Prospectus Supplement.
One or more classes of Securities of each Series (i) may be entitled
to receive distributions allocable only to principal, only to
interest or to any combination thereof; (ii) may be entitled to
receive distributions only of prepayments of principal throughout the
lives of the Securities or during specified periods; (iii) may be
subordinated in the right to receive distributions of scheduled
payments of principal, prepayments of principal, interest or any
combination thereof to one or more other classes of Securities of
such Series throughout the lives of the Securities or during
specified periods; (iv) may be entitled to receive such distributions
only after the occurrence of events specified in the related
Prospectus Supplement; (v) may be entitled to receive distributions
in accordance with a schedule or formula or on the basis of
collections from designated portions of the related Trust Fund
Assets; (vi) as to Securities entitled to distributions allocable to
interest, may be entitled to receive interest at a fixed rate or a
rate that is subject to change from time to time; and (vii) as to
Securities entitled to distributions allocable to interest, may be
entitled to distributions allocable to interest only after the
occurrence of events specified in the related Prospectus Supplement
and may accrue interest until such events occur, in each case as
specified in the related Prospectus Supplement. The timing and
amounts of such distributions may vary among classes or over time, as
specified in the related Prospectus Supplement.
Distributions on the Securities........... Distributions on the Securities entitled thereto will be made
monthly, quarterly, semi-annually or at such other intervals and on
the dates specified in the related Prospectus Supplement (each, a
'Distribution Date') out of the payments received in respect of the
</TABLE>
6
<PAGE>
<PAGE>
<TABLE>
<S> <C>
assets of the related Trust Fund or Funds or other assets pledged for
the benefit of the Securities as described under 'Credit Enhancement'
herein to the extent specified in the related Prospectus Supplement.
The amount allocable to payments of principal and interest on any
Distribution Date will be determined as specified in the related
Prospectus Supplement. The Prospectus Supplement for a Series of
Securities will describe the method for allocating distributions
among Securities of different classes as well as the method for
allocating distributions among Securities for any particular class.
Unless otherwise specified in the related Prospectus Supplement, the
aggregate original principal balance of the Securities will not
exceed the aggregate distributions allocable to principal that such
Securities will be entitled to receive. If specified in the related
Prospectus Supplement, the Securities will have an aggregate original
principal balance equal to the aggregate unpaid principal balance of
the Trust Fund Assets as of the related Cut-off Date and will bear
interest in the aggregate at a rate equal to the interest rate borne
by the underlying Loans (the 'Loan Rate') net of the aggregate
servicing fees and any other amounts specified in the related
Prospectus Supplement (the 'Pass-Through Rate') or at such other
interest rate as may be specified in such Prospectus Supplement. If
specified in the related Prospectus Supplement, the aggregate
original principal balance of the Securities and interest rates on
the classes of Securities will be determined based on the cash flow
on the Trust Fund Assets.
The rate at which interest will be passed through or paid to holders
of each class of Securities entitled thereto may be a fixed rate or a
rate that is subject to change from time to time from the time and
for the periods, in each case, as specified in the related Prospectus
Supplement. Any such rate may be calculated on a loan-by-loan,
weighted average or notional amount in each case as described in the
related Prospectus Supplement.
Credit Enhancement........................ The assets in a Trust Fund or the Securities of one or more classes
in the related Series may have the benefit of one or more types of
credit enhancement as described in the related Prospectus Supplement.
The protection against losses afforded by any such credit support may
be limited. The type, characteristics and amount of credit
enhancement will be determined based on the characteristics of the
Loans comprising the Trust Fund Assets and other factors and will be
established on the basis of requirements of each Rating Agency rating
the Securities of such Series. See 'Credit Enhancement.'
A. Subordination.......................... A Series of Securities may consist of one or more classes of Senior
Securities and one or more classes of Subordinated Securities. The
rights of the holders of the Subordinated Securities of a Series to
receive distributions with respect to the assets in the related Trust
Fund will be subordinated to such rights of the holders of the Senior
Securities of the same Series to the extent described in the related
Prospectus Supplement. This subordination is intended to enhance the
likelihood of regular receipt by holders of Senior
</TABLE>
7
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Securities of the full amount of monthly payments of principal and
interest due them. The protection afforded to the holders of Senior
Securities of a Series by means of the subordination feature will be
accomplished by (i) the preferential right of such holders to
receive, prior to any distribution being made in respect of the
related Subordinated Securities, the amounts of interest and/or
principal due them on each Distribution Date out of the funds
available for distribution on such date in the related Security
Account and, to the extent described in the related Prospectus
Supplement, by the right of such holders to receive future
distributions on the assets in the related Trust Fund that would
otherwise have been payable to the holders of Subordinated
Securities; (ii) reducing the ownership interest (if applicable) of
the related Subordinated Securities; or (iii) a combination of
clauses (i) and (ii) above. If so specified in the related Prospectus
Supplement, subordination may apply only in the event of certain
types of losses not covered by other forms of credit support, such as
hazard losses not covered by standard hazard insurance policies or
losses due to the bankruptcy or fraud of the borrower. The related
Prospectus Supplement will set forth information concerning, among
other things, the amount of subordination of a class or classes of
Subordinated Securities in a Series, the circumstances in which such
subordination will be applicable, and the manner, if any, in which
the amount of subordination will decrease over time.
B. Reserve Account........................ One or more reserve accounts or other cash accounts (each, a 'Reserve
Account') may be established and maintained for each Series of
Securities. The related Prospectus Supplement will specify whether or
not such Reserve Accounts will be included in the corpus of the Trust
Fund for such Series and will also specify the manner of funding such
Reserve Accounts and the conditions under which the amounts in any
such Reserve Accounts will be used to make distributions to holders
of Securities of a particular class or released from such Reserve
Accounts.
C. Letter of Credit....................... If so specified in the related Prospectus Supplement, credit support
may be provided by one or more letters of credit. A letter of credit
may provide limited protection against certain losses in addition to
or in lieu of other credit support, such as losses resulting from
delinquent payments on the Loans in the related Trust Fund, losses
from risks not covered by standard hazard insurance policies, losses
due to bankruptcy of a borrower and application of certain provisions
of the federal Bankruptcy Code, and losses due to denial of insurance
coverage due to misrepresentations made in connection with the
origination or sale of a Loan. The issuer of the letter of credit
(the 'L/C Bank') will be obligated to honor demands with respect to
such letter of credit, to the extent of the amount available
thereunder to provide funds under the circumstances and subject to
such conditions as are specified in the related Prospectus
Supplement. The liability of the L/C Bank under its letter of credit
will be reduced by the amount of unreimbursed payments thereunder.
The maximum liability of a L/C Bank under its letter of credit will
be an amount equal to a percentage specified in the related
</TABLE>
8
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Prospectus Supplement of the initial aggregate outstanding principal
balance of the Loans in the related Trust Fund or one or more Classes
of Securities of the related Series (the 'L/C Percentage'). The
maximum amount available at any time to be paid under a letter of
credit will be determined in the manner specified therein and in the
related Prospectus Supplement.
D. Insurance Policies; Surety Bonds and
Guarantees............................. If so specified in the related Prospectus Supplement, credit support
for a Series may be provided by an insurance policy and/or a surety
bond issued by one or more insurance companies or sureties. Such
certificate guarantee insurance or surety bond will guarantee timely
distributions of interest and/or full distributions of principal on
the basis of a schedule of principal distributions set forth in or
determined in the manner specified in the related Prospectus
Supplement. If specified in the related Prospectus Supplement, one or
more bankruptcy bonds, special hazard insurance policies, other
insurance or third-party guarantees may be used to provide coverage
for the risks of default or types of losses set forth in such
Prospectus Supplement.
E. Over-Collateralization................. If so provided in the Prospectus Supplement for a Series of
Securities, a portion of the interest payment on each Loan may be
applied as an additional distribution in respect of principal to
reduce the principal balance of a certain class or classes of
Securities and, thus, accelerate the rate of payment of principal on
such class or classes of Securities.
F. Loan Pool Insurance.................... Policy A mortgage pool insurance policy or policies may be obtained
and maintained for Loans relating to any Series of Securities, which
shall be limited in scope, covering defaults on the related Loans in
an initial amount equal to a specified percentage of the aggregate
principal balance of all Loans included in the Pool as of the related
Cut-off Date.
G. FHA Insurance.......................... If specified in the related Prospectus Supplement, all or a portion
of the Loans in a Pool may be (i) insured by the Federal Housing
Administration (the 'FHA') and/or (ii) partially guaranteed by the
Department of Veterans' Affairs (the 'VA'). See 'Certain Legal
Aspects of the Loans -- The Title I Program'.
H. Cross-Collateralization................ If specified in the related Prospectus Supplement, separate classes
of a Series of Securities may evidence the beneficial ownership of,
or be secured by, separate groups of assets included in a Trust Fund.
In such case, credit support may be provided by a cross-
collateralization feature which requires that distributions be made
with respect to Securities evidencing a beneficial ownership interest
in, or secured by, one or more asset groups prior to distributions to
Subordinated Securities evidencing a beneficial ownership interest
in, or secured by, other asset groups within the same Trust Fund. See
'Credit Enhancement -- Cross-Collateralization.'
If specified in the related Prospectus Supplement, the coverage
provided by one or more of the forms of credit enchancement described
in this Prospectus may apply concurrently to two or more separate
Trust Funds. If applicable, the related Prospectus Supplement will
identify the Trust Funds to which such credit
</TABLE>
9
<PAGE>
<PAGE>
<TABLE>
<S> <C>
enchancement relates and the manner of determining the amount of
coverage provided to such Trust Funds thereby and of the application
of such coverage to the identified Trust Funds. See 'Credit
Enhancement -- Cross-Collateralization.'
Advances.................................. The Master Servicer and, if applicable, each mortgage servicing
institution that services a Loan in a Pool on behalf of the Master
Servicer (each, a 'Sub-Servicer') may be obligated to advance amounts
(each, an 'Advance') corresponding to delinquent interest and/or
principal payments on such Loan (including, in the case of
Cooperative Loans, unpaid maintenance fees or other charges under the
related proprietary lease) until the date, as specified in the
related Prospectus Supplement, following the date on which the
related Property is sold at a foreclosure sale or the related Loan is
otherwise liquidated. Any obligation to make Advances may be subject
to limitations as specified in the related Prospectus Supplement. If
so specified in the related Prospectus Supplement, Advances may be
drawn from a cash account available for such purpose as described in
such Prospectus Supplement. Advances will be reimbursable to the
extent described under 'Description of the Securities -- Advances'
herein and in the related Prospectus Supplement.
In the event the Master Servicer or Sub-Servicer fails to make a
required Advance, the Trustee may be obligated to advance such
amounts otherwise required to be advanced by the Master Servicer or
Sub-Servicer. See 'Description of the Securities -- Advances.'
Optional Termination...................... The Master Servicer or the party specified in the related Prospectus
Supplement, including the holder of the residual interest in a REMIC,
may have the option to effect early retirement of a Series of
Securities through the purchase of the Trust Fund Assets. The Master
Servicer will deposit the proceeds of any such purchase in the
Security Account for each Trust Fund as described under 'The
Agreements -- Payments on Loans; Deposit to Security Account.' Any
such purchase of Trust Fund Assets and property acquired in respect
of Trust Fund Assets evidenced by a Series of Securities will be made
at the option of the Master Servicer, such other person or, if
applicable, such holder of the REMIC residual interest, at a price
specified in the related Prospectus Supplement. The exercise of such
right will effect early retirement of the Securities of that Series,
but the right of the Master Servicer, such other person or, if
applicable, such holder of the REMIC residual interest, to so
purchase is subject to the principal balance of the related Trust
Fund Assets being less than the percentage specified in the related
Prospectus Supplement of the aggregate principal balance of the Trust
Fund Assets at the Cut-off Date for the Series. The foregoing is
subject to the provision that if a REMIC election is made with
respect to a Trust Fund, any repurchase pursuant to clause (ii) above
will be made only in connection with a 'qualified liquidation' of the
REMIC within the meaning of Section 860F(g)(4) of the Code.
Legal Investment.......................... The Prospectus Supplement for each series of Securities will specify
which, if any, of the classes of Securities offered thereby
constitute 'mortgage related securities' for purposes of the
</TABLE>
10
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Secondary Mortgage Market Enhancement Act of 1984 ('SMMEA'). Classes
of Securities that qualify as 'mortgage related securities' will be
legal investments for certain types of institutional investors to the
extent provided in SMMEA, subject, in any case, to any other
regulations which may govern investments by such institutional
investors. Institutions whose investment activities are subject to
review by federal or state authorities should consult with their
counsel or the applicable authorities to determine whether an
investment in a particular class of Securities (whether or not such
class constitutes a 'mortgage related security') complies with
applicable guidelines, policy statements or restrictions. See 'Legal
Investment.'
Federal Income Tax Consequences........... The federal income tax consequences to Securityholders will vary
depending on whether one or more elections are made to treat the
Trust Fund or specified portions thereof as a REMIC under the
provisions of the Internal Revenue Code of 1986, as amended (the
'Code'). The Prospectus Supplement for each Series of Securities will
specify whether such an election will be made.
If a REMIC election is made, Securities representing regular
interests in a REMIC will generally be taxable to holders in the same
manner as evidences of indebtedness issued by the REMIC. Stated
interest on such regular interests will be taxable as ordinary income
and taken into account using the accrual method of accounting,
regardless of the holder's normal accounting method. If no REMIC
election is made, interest (other than original issue discount
('OID') on Securities that are characterized as indebtedness for
federal income tax purposes will be includible in income by holders
thereof in accordance with their usual method of accounting.
Certain Classes of Securities may be issued with OID. A holder should
be aware that the Code and the Treasury regulations promulgated
thereunder do not adequately address certain issues relevant to
prepayable securities, such as the Securities.
Holders that will be required to report income with respect to the
related Securities under the accrual method of accounting will do so
without giving effect to delays and reductions in distributions
attributable to a default or delinquency on the Loans, except
possibly to the extent that it can be established that such amounts
are uncollectible. As a result, the amount of income (including OID)
reported by a holder of a Security in any period could significantly
exceed the amount of cash distributed to such holder in that period.
In the opinion of Brown & Wood LLP, if a REMIC election is made with
respect to a Series of Securities, then the arrangement by which such
Securities are issued will be treated as a REMIC as long as all of
the provisions of the applicable Agreement are complied with and the
statutory and regulatory requirements are satisfied. Securities will
be designated as 'regular interests' or 'residual interests' in a
REMIC. A REMIC will not be subject to entity-level tax. Rather, the
taxable income or net loss of a REMIC will be taken into account by
the holders of residual interests. Such holders
</TABLE>
11
<PAGE>
<PAGE>
<TABLE>
<S> <C>
will report their proportionate share of the taxable income of the
REMIC whether or not they receive cash distributions from the REMIC
attributable to such income. The portion of the REMIC taxable income
consisting of 'excess inclusions' may not be offset against other
deductions or losses of the holder, including the net operating
losses.
In the opinion of Brown & Wood LLP, if a REMIC or a partnership
elections not made with respect to a Series of Securities, then the
arrangement by which such Securities are issued will be classified as
a grantor trust under Subpart E, Part I of Subchapter J of the Code
and not as an association taxable as a corporation. If so provided in
the Prospectus Supplement for a Series, there will be no separation
of the principal and interest payments on the Loans. In such
circumstances, the holder will considered to have purchased a pro
rata undivided interest in each of the Loans. In other cases, sale of
the Securities will produce a separation in the ownership of all or a
portion of the principal payments from all or a portion of the
interest payments on the Loans.
In the opinion of Brown & Wood LLP, if a partnership election is
made, the Trust Fund will not be treated as an association or a
publicly traded partnership taxable as a corporation as long as all
of the provisions of the applicable Agreement are complied with and
the statutory and regulatory requirements are satisfied. If Notes are
issued by such Trust Fund, such Notes will be treated as indebtedness
for federal income tax purposes. The holders of the Certificates
issued by such Trust Fund, if any, will agree to treat the
Certificates as equity interests in a partnership.
The Securities will be treated as assets described in section
7701(a)(19)(C) of the Code and as real estate assets described in
section 856(c) of the Code.
Generally, gain or loss will be recognized on a sale of Securities in
the amount equal to the difference between the amount realized and
the seller's tax basis in the Securities sold.
The material federal income tax consequences for investors associated
with the purchase, ownership and disposition of the Securities are
set forth herein udner 'Federal Income -- Tax Consequences'. The
material federal income tax consequences for investors associated
with the purchase, ownership and disposition of Securities of any
particular Series will be set forth under the heading 'Federal Income
Tax Consequences' in the related Prospectus Supplement. See 'Federal
Income Tax Consequences'.
ERISA Considerations...................... A fiduciary of any employee benefit plan or other retirement plan or
arrangement subject to the Employee Retirement Income Security Act of
1974, as amended ('ERISA'), or the Code should carefully review with
its legal advisors whether the purchase or holding of Securities
could give rise to a transaction prohibited or not otherwise
permissible under ERISA or the Code. See 'ERISA Considerations'.
Certain classes of Securities may not be transferred unless the
Trustee and the Depositor are furnished with a letter of
representation or an opinion of counsel to the effect that such
transfer will not result in a violation of the prohibited
</TABLE>
12
<PAGE>
<PAGE>
<TABLE>
<S> <C>
transaction provisions of ERISA and the Code and will not subject the
Trustee, the Depositor or the Master Servicer to additional
obligations. See 'Description of the Securities-General' and 'ERISA
Considerations'.
Risk Factors.............................. For a discussion of certain risks associated with an investment in
the Securities, see 'Risk Factors' on page 14 herein and in the
related Prospectus Supplement.
</TABLE>
13
<PAGE>
<PAGE>
RISK FACTORS
Investors should consider the following factors in connection with the
purchase of the Securities.
LIMITED LIQUIDITY
There will be no market for the Securities of any Series prior to the
issuance thereof, and there can be no assurance that a secondary market will
develop or, if it does develop, that it will provide Securityholders with
liquidity of investment or will continue for the life of the Securities of such
Series.
LIMITED SOURCE OF PAYMENTS -- NO RECOURSE TO SELLERS, DEPOSITOR OR MASTER
SERVICER
The Depositor does not have, nor is it expected to have, any significant
assets. Unless otherwise specified in the related Prospectus Supplement, the
Securities of a Series will be payable solely from the Trust Fund for such
Securities and will not have any claim against or security interest in the Trust
Fund for any other Series. There will be no recourse to the Depositor or any
other person for any failure to receive distributions on the Securities.
Further, at the times set forth in the related Prospectus Supplement, certain
Trust Fund Assets and/or any balance remaining in the Security Account
immediately after making all payments due on the Securities of such Series,
after making adequate provision for future payments on certain classes of
Securities and after making any other payments specified in the related
Prospectus Supplement, may be promptly released or remitted to the Depositor,
the Master Servicer, any credit enhancement provider or any other person
entitled thereto and will no longer be available for making payments to
Securityholders. Consequently, holders of Securities of each Series must rely
solely upon payments with respect to the Trust Fund Assets and the other assets
constituting the Trust Fund for a Series of Securities, including, if
applicable, any amounts available pursuant to any credit enhancement for such
Series, for the payment of principal of and interest on the Securities of such
Series.
The Securities will not represent an interest in or obligation of the
Depositor, the Master Servicer, any Seller or any of their respective
affiliates. The only obligations, if any, of the Depositor with respect to the
Trust Fund Assets or the Securities of any Series will be pursuant to certain
representations and warranties. The Depositor does not have, and is not expected
in the future to have, any significant assets with which to meet any obligation
to repurchase Trust Fund Assets with respect to which there has been a breach of
any representation or warranty. If, for example, the Depositor were required to
repurchase a Loan, its only sources of funds to make such repurchase would be
from funds obtained (i) from the enforcement of a corresponding obligation, if
any, on the part of the related Seller or originator of such Loan, or (ii) to
the extent provided in the related Prospectus Supplement, from a Reserve Account
or similar credit enhancement established to provide funds for such repurchases.
The only obligations of the Master Servicer, other than its master
servicing obligations, with respect to the Trust Fund Assets or the Securities
of any Series will be pursuant to certain representations and warranties. The
Master Servicer may be required to repurchase or substitute for any Loan with
respect to which such representations and warranties are breached. There is no
assurance, however, that the Master Servicer will have the financial ability to
effect any such repurchase or substitution.
The only obligations of any Seller with respect to Trust Fund Assets or the
Securities of any Series will be pursuant to certain representations and
warranties and certain document delivery requirements. A Seller may be required
to repurchase or substitute for any Loan with respect to which such
representations and warranties or document delivery requirements are breached.
There is no assurance, however, that such Seller will have the financial ability
to effect such repurchase or substitution.
CREDIT ENHANCEMENT
Although credit enhancement is intended to reduce the risk of delinquent
payments or losses to holders of Securities entitled to the benefit thereof, the
amount of such credit enhancement will be limited, as set forth in the related
Prospectus Supplement, and may be subject to periodic reduction in accordance
with a schedule or formula or otherwise decline, and could be depleted under
certain circumstances prior to the payment in full of the related Series of
Securities, and as a result Securityholders of the related Series may suffer
losses. Moreover, such credit enhancement may not cover all potential losses or
risks. For example, credit enhancement may or may not cover fraud or negligence
by a loan originator or other parties. In addition, the Trustee will generally
be
14
<PAGE>
<PAGE>
permitted to reduce, terminate or substitute all or a portion of the credit
enhancement for any Series of Securities, provided the applicable Rating Agency
indicates that the then-current rating of the Securities of such Series will not
be adversely affected. See 'Credit Enhancement'.
PREPAYMENT AND YIELD CONSIDERATIONS
The timing of principal payments of the Securities of a Series will be
affected by a number of factors, including the following: (i) the extent of
prepayments (including for this purpose prepayments resulting from refinancing
or liquidations of the Loans due to defaults, casualties, condemnations and
repurchases by the Depositor or the Master Servicer) of the Loans comprising the
Trust Fund, which prepayments may be influenced by a variety of factors
including general economic conditions, prevailing interest rate levels, the
availability of alternative financing and homeowner mobility, (ii) the manner of
allocating principal and/or payments among the classes of Securities of a Series
as specified in the related Prospectus Supplement, (iii) the exercise by the
party entitled thereto of any right of optional termination and (iv) the rate
and timing of payment defaults and losses incurred with respect to the Trust
Fund Assets. The repurchase of Loans by the Depositor or the Master Servicer may
result from repurchases of Trust Fund Assets due to material breaches of the
Depositor's or the Master Servicer's representations and warranties, as
applicable. The yields to maturity and weighted average lives of the Securities
will be affected primarily by the rate and timing of prepayment of the Loans
comprising the Trust Fund Assets. In addition, the yields to maturity and
weighted average lives of the Securities will be affected by the distribution of
amounts remaining in any Pre-Funding Account following the end of the related
Funding Period. Any reinvestment risks resulting from a faster or slower
incidence of prepayment of Loans held by a Trust Fund will be borne entirely by
the holders of one or more classes of the related Series of Securities. See
'Yield and Prepayment Considerations' and 'The Agreements -- Pre-Funding
Account.'
Interest payable on the Securities of a Series on a Distribution Date will
include all interest accrued during the period specified in the related
Prospectus Supplement. In the event interest accrues over a period ending two or
more days prior to a Distribution Date, the effective yield to Securityholders
will be reduced from the yield that would otherwise be obtainable if interest
payable on the Securities were to accrue through the day immediately preceding
each Distribution Date, and the effective yield (at par) to Securityholders will
be less than the indicated coupon rate. See 'Description of the
Securities -- Distributions on Securities -- Distributions of Interest'.
BALLOON PAYMENTS
Certain of the Loans as of the related Cut-off Date may not be fully
amortizing over their terms to maturity and, thus, will require substantial
principal payments (i.e., balloon payments) at their stated maturity. Loans with
balloon payments involve a greater degree of risk because the ability of a
borrower to make a balloon payment typically will depend upon its ability either
to timely refinance the loan or to timely sell the related Property. The ability
of a borrower to accomplish either of these goals will be affected by a number
of factors, including the level of available mortgage rates at the time of sale
or refinancing, the borrower's equity in the related Property, the financial
condition of the borrower and tax laws. Losses on such Loans that are not
otherwise covered by the credit enhancement described in the applicable
Prospectus Supplement will be borne by the holders of one or more classes of
Securities of the related Series.
NATURE OF MORTGAGES
Property Values. There are several factors that could adversely affect the
value of Properties such that the outstanding balance of the related Loans,
together with any senior financing on the Properties, if applicable, would equal
or exceed the value of the Properties. Among the factors that could adversely
affect the value of the Properties are an overall decline in the residential
real estate market in the areas in which the Properties are located or a decline
in the general condition of the Properties as a result of failure of borrowers
to maintain adequately the Properties or of natural disasters that are not
necessarily covered by insurance, such as earthquakes and floods. In the case of
Home Equity Loans, such decline could extinguish the value of the interest of a
junior mortgagee in the Property before having any effect on the interest of the
related senior mortgagee. If such a decline occurs, the actual rates of
delinquencies, foreclosures and losses on all Loans could
15
<PAGE>
<PAGE>
be higher than those currently experienced in the mortgage lending industry in
general. Losses on such Loans that are not otherwise covered by the credit
enhancement described in the applicable Prospectus Supplement will be borne by
the holder of one or more classes of Securities of the related Series.
Delays Due to Liquidation. Even assuming that the Properties provide
adequate security for the Loans, substantial delays could be encountered in
connection with the liquidation of defaulted Loans and corresponding delays in
the receipt of related proceeds by Securityholders could occur. An action to
foreclose on a Property securing a Loan is regulated by state statutes and rules
and is subject to many of the delays and expenses of other lawsuits if defenses
or counterclaims are interposed, sometimes requiring several years to complete.
Furthermore, in some states an action to obtain a deficiency judgment is not
permitted following a nonjudicial sale of a Property. In the event of a default
by a borrower, these restrictions, among other things, may impede the ability of
the Master Servicer to foreclose on or sell the Property or to obtain
liquidation proceeds sufficient to repay all amounts due on the related Loan. In
addition, the Master Servicer will be entitled to deduct from related
liquidation proceeds all expenses reasonably incurred in attempting to recover
amounts due on defaulted Loans and not yet repaid, including payments to senior
lienholders, legal fees and costs of legal action, real estate taxes and
maintenance and preservation expenses.
Disproportionate Effect of Liquidation Expenses. Liquidation expenses with
respect to defaulted loans do not vary directly with the outstanding principal
balance of the loan at the time of default. Therefore, assuming that a servicer
took the same steps in realizing upon a defaulted loan having a small remaining
principal balance as it would in the case of a defaulted loan having a large
remaining principal balance, the amount realized after expenses of liquidation
would be smaller as a percentage of the outstanding principal balance of the
small loan than would be the case with the defaulted loan having a large
remaining principal balance.
Home Equity Loans; Junior Liens. Since the mortgages and deeds of trust
securing the Home Equity Loans will be primarily junior liens subordinate to the
rights of the mortgagee under the related senior mortgage(s) or deed(s) of
trust, the proceeds from any liquidation, insurance or condemnation proceeds
will be available to satisfy the outstanding balance of such junior lien only to
the extent that the claims of such senior mortgagees have been satisfied in
full, including any related foreclosure costs. In addition, a junior mortgagee
may not foreclose on the property securing a junior mortgage unless it
forecloses subject to any senior mortgage, in which case it must either pay the
entire amount due on any senior mortgage to the related senior mortgagee at or
prior to the foreclosure sale or undertake the obligation to make payments on
any such senior mortgage in the event the mortgagor is in default thereunder.
The Trust Fund will not have any source of funds to satisfy any senior mortgages
or make payments due to any senior mortgagees and may therefore be prevented
from foreclosing on the related property.
Consumer Protection Laws. Applicable state laws generally regulate
interest rates and other charges, require certain disclosures, and require
licensing of certain originators and servicers of Loans. In addition, most
states have other laws, public policy and general principles of equity relating
to the protection of consumers, unfair and deceptive practices and practices
which may apply to the origination, servicing and collection of the Loans.
Depending on the provisions of the applicable law and the specific facts and
circumstances involved, violations of these laws, policies and principles may
limit the ability of the Master Servicer to collect all or part of the principal
of or interest on the Loans, may entitle the borrower to a refund of amounts
previously paid and, in addition, could subject the Master Servicer to damages
and administrative sanctions. See 'Certain Legal Aspects of the Loans'.
ENVIRONMENTAL RISKS
Real property pledged as security to a lender may be subject to certain
environmental risks. Under the laws of certain states, contamination of a
property may give rise to a lien on the property to assure the costs of cleanup.
In several states, such a lien has priority over the lien of an existing
mortgage against such property. In addition under the laws of some states and
under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ('CERCLA'), a lender may be liable, as an 'owner' or
'operator', for costs of addressing releases or threatened releases of hazardous
substances that require remedy at a property, if agents or employees of the
lender have become sufficiently involved in the operations of the borrower,
regardless of whether the environmental damage or threat was caused by a prior
owner. Such costs could result in a loss to the holders of one or more classes
of Securities of the related Series. A lender also risks such
16
<PAGE>
<PAGE>
liability on foreclosure of the related property. See 'Certain Legal Aspects of
the Loans -- Environmental Risks'.
CERTAIN OTHER LEGAL ASPECTS OF THE LOANS
Consumer Protection Laws. The Loans may also be subject to federal laws,
including:
(i) the Federal Truth in Lending Act and Regulation Z promulgated
thereunder, which require certain disclosures to the borrowers regarding
the terms of the Loans;
(ii) the Equal Credit Opportunity Act and Regulation B promulgated
thereunder, which prohibit discrimination on the basis of age, race, color,
sex, religion, marital status, national origin, receipt of public
assistance or the exercise of any right under the Consumer Credit
Protection Act, in the extension of credit;
(iii) the Fair Credit Reporting Act, which regulates the use and
reporting of information related to the borrower's credit experience; and
(iv) for Loans that were originated or closed after November 7, 1989,
the Home Equity Loan Consumer Protection Act of 1988, which requires
additional application disclosures, limits changes that may be made to the
loan documents without the borrower's consent and restricts a lender's
ability to declare a default or to suspend or reduce a borrower's credit
limit to certain enumerated events.
The Riegle Act. Certain mortgage loans may be subject to the Riegle
Community Development and Regulatory Improvement Act of 1994 (the 'Riegle Act')
which incorporates the Home Ownership and Equity Protection Act of 1994. These
provisions impose additional disclosure and other requirements on creditors with
respect to non-purchase money mortgage loans with high interest rates or high
up-front fees and charges. The provisions of the Riegle Act apply on a mandatory
basis to all mortgage loans originated on or after October 1, 1995. These
provisions can impose specific statutory liabilities upon creditors who fail to
comply with their provisions and may affect the enforceability of the related
loans. In addition, any assignee of the creditor would generally be subject to
all claims and defenses that the consumer could assert against the creditor,
including, without limitation, the right to rescind the mortgage loan.
Holder in Due Course Rules. The Home Improvement Contracts are also
subject to the Preservation of Consumers' Claims and Defenses regulations of the
Federal Trade Commission and other similar federal and state statutes and
regulations (collectively, the 'Holder in Due Course Rules'), which protect the
homeowner from defective craftsmanship or incomplete work by a contractor. These
laws permit the obligor to withhold payment if the work does not meet the
quality and durability standards agreed to by the homeowner and the contractor.
The Holder in Due Course Rules have the effect of subjecting any assignee of the
seller in a consumer credit transaction to all claims and defenses which the
obligor in the credit sale transaction could assert against the seller of the
goods.
Violations of certain provisions of these federal laws may limit the
ability of the Master Servicer to collect all or part of the principal of or
interest on the Loans and in addition could subject the Trust Fund to damages
and administrative enforcement. Losses on such Loans that are not otherwise
covered by the credit enhancement described in the applicable Prospectus
Supplement will be borne by the holders of one or more classes of Securities of
the related Series. See 'Certain Legal Aspects of the Loans'.
RATING OF THE SECURITIES
It will be a condition to the issuance of a class of Securities offered
hereby that they be rated in one of the four highest rating categories by the
Rating Agency identified in the related Prospectus Supplement. Any such rating
would be based on, among other things, the adequacy of the value of the related
Trust Fund Assets and any credit enhancement with respect to such class and will
represent such Rating Agency's assessment solely of the likelihood that holders
of such class of Securities will receive payments to which such Securityholders
are entitled under the related Agreement. Such rating will not constitute an
assessment of the likelihood that principal prepayments on the related Loans
will be made, the degree to which the rate of such prepayments might differ from
that originally anticipated or the likelihood of early optional termination of
the Series of Securities. Such rating shall not be deemed a recommendation to
purchase, hold or sell Securities, inasmuch as it does not address market price
or suitability for a particular investor. Such rating will not address the
possibility that prepayment at higher or lower rates than anticipated by an
investor may cause such investor to
17
<PAGE>
<PAGE>
experience a lower than anticipated yield or that an investor purchasing a
Security at a significant premium might fail to recoup its initial investment
under certain prepayment scenarios.
There is also no assurance that any such rating will remain in effect for
any given period of time or that it may not be lowered or withdrawn entirely by
the Rating Agency in the future if in its judgment circumstances in the future
so warrant. In addition to being lowered or withdrawn due to any erosion in the
adequacy of the value of the Trust Fund Assets or any credit enhancement with
respect to a Series of Securities, such rating might also be lowered or
withdrawn because of, among other reasons, an adverse change in the financial or
other condition of a credit enhancement provider or a change in the rating of
such credit enhancement provider's long term debt.
The amount, type and nature of credit enhancement, if any, established with
respect to a class of Securities will be determined on the basis of criteria
established by each Rating Agency rating classes of such Series. Such criteria
are sometimes based upon an actuarial analysis of the behavior of similar loans
in a larger group. Such analysis is often the basis upon which each Rating
Agency determines the amount of credit enhancement required with respect to each
such class. There can be no assurance that the historical data supporting any
such actuarial analysis will accurately reflect future experience nor any
assurance that the data derived from a large pool of similar loans accurately
predicts the delinquency, foreclosure or loss experience of any particular pool
of Loans. No assurance can be given that the values of any Properties have
remained or will remain at their levels on the respective dates of origination
of the related Loans. If the residential real estate markets should experience
an overall decline in property values such that the outstanding principal
balances of the Loans in a particular Trust Fund and any secondary financing on
the related Properties become equal to or greater than the value of the
Properties, the rates of delinquencies, foreclosures and losses could be higher
than those now generally experienced in the mortgage lending industry. In
addition, adverse economic conditions (which may or may not affect real property
values) may affect the timely payment by mortgagors of scheduled payments of
principal and interest on the Loans and, accordingly, the rates of
delinquencies, foreclosures and losses with respect to any Trust Fund. To the
extent that such losses are not covered by credit enhancement, such losses will
be borne, at least in part, by the holders of one or more classes of Securities
of the related Series. See 'Rating'.
BOOK-ENTRY REGISTRATION
If issued in book-entry form, such registration may reduce the liquidity of
the Securities in the secondary trading market since investors may be unwilling
to purchase Securities for which they cannot obtain physical certificates. Since
transactions in book-entry Securities can be effected only through the
Depository Trust Company ('DTC'), participating organizations, Financial
Intermediaries and certain banks, the ability of a Securityholder to pledge a
book-entry Security to persons or entities that do not participate in the DTC
system may be limited due to lack of a physical certificate representing such
Securities. Securities Owners will not be recognized as Securityholders as such
term is used in the related Agreement, and Security Owners will be permitted to
exercise the rights of Securityholders only indirectly through DTC and its
Participants.
In addition, Securityholders may experience some delay in their receipt of
distributions of interest and principal on book-entry Securities since
distributions are required to be forwarded by the Trustee to DTC and DTC will
then be required to credit such distributions to the accounts of Depository
participants which thereafter will be required to credit them to the accounts of
Securityholders either directly or indirectly through Financial Intermediaries.
See 'Description of the Securities -- Book-Entry Registration of Securities'.
PRE-FUNDING ACCOUNTS
If so provided in the related Prospectus Supplement, on the related Closing
Date the Depositor will deposit cash in an amount (the 'Pre-Funded Amount')
specified in such Prospectus Supplement into an account (the 'Pre-Funding
Account'). In no event shall the Pre-Funded Amount exceed 50% of the initial
aggregate principal amount of the Certificates and/or Notes of the related
Series of Securities. The Pre-Funded Amount will be used to purchase Loans
('Subsequent Loans') in a period from the related Closing Date to a date not
more than one year after such Closing Date (such period, the 'Funding Period')
from the Depositor (which, in turn, will acquire such Subsequent Loans from the
Seller or Sellers specified in the related Prospectus Supplement). The
Pre-Funding Account will be maintained with the Trustee for the related Series
of Securities and is designed solely to hold funds to be applied by such Trustee
during the Funding Period to pay to the Depositor the purchase price for
Subsequent Loans. Monies on deposit in the Pre-Funding Account will not be
available to
18
<PAGE>
<PAGE>
cover losses on or in respect of the related Loans. To the extent that the
entire Pre-Funded Amount has not been applied to the purchase of Subsequent
Loans by the end of the related Funding Period, any amounts remaining in the
Pre-Funding Account will be distributed as a prepayment of principal to
Certificateholders and/or Noteholders on the Distribution Date immediately
following the end of the Funding Period, in the amounts and pursuant to the
priorities set forth in the related Prospectus Supplement. Any reinvestment risk
resulting from such prepayment will be borne entirely by the holders of one or
more classes of the related Series of Certificates.
BANKRUPTCY AND INSOLVENCY RISKS
The Seller and the Depositor will treat the transfer of the Loans by the
Seller to the Depositor as a sale for accounting purposes. The Depositor and the
Trust Fund will treat the transfer of Loans from the Depositor to the Trust Fund
as a sale for accounting purposes. As a sale of the Loans by the Seller to the
Depositor, the Loans would not be part of the Seller's bankruptcy estate and
would not be available to the Seller's creditors. However, in the event of the
insolvency of the Seller, it is possible that the bankruptcy trustee or a
creditor of the Seller may attempt to recharacterize the sale of the Loans as a
borrowing by the Seller, secured by a pledge of the Loans. Similarly, as a sale
of the Loans by the Depositor to the Trust Fund, the Loans would not be part of
the Depositor's bankruptcy estate and would not be available to the Depositor's
creditors. However, in the event of the insolvency of the Depositor, it is
possible that the bankruptcy trustee or a creditor of the Depositor may attempt
to recharacterize the sale of the Loans as a borrowing by the Depositor, secured
by a pledge of the Loans. In either case, this position, if argued before or
accepted by a court, could prevent timely payments of amounts due on the
Securities and result in a reduction of payments due on the Securities.
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
Securityholders from appointing a successor Servicer. The time period during
which cash collections may be commingled with the Master Servicer's own funds
prior to each Distribution Date will be specified in the related Prospectus
Supplement. In the event of the insolvency of the Master Servicer and if such
cash collections are commingled with the Master Servicer's own funds for at
least ten days, the Trust Fund will likely not have a perfected interest in such
collections since such collections would not have been deposited in a segregated
account within ten days after the collection thereof, and the inclusion thereof
in the bankruptcy estate of the Master Servicer may result in delays in payment
and failure to pay amounts due on the Securities of the related Series.
In addition, federal and state statutory provisions, including the federal
bankruptcy laws and state laws affording relief to debtors, may interfere with
or affect the ability of the secured mortgage lender to realize upon its
security. For example, in a proceeding under the federal Bankruptcy Code, a
lender may not foreclose on a mortgaged property without the permission of the
bankruptcy court. The rehabilitation plan proposed by the debtor may provide, if
the mortgaged property is not the debtor's principal residence and the court
determines that the value of the mortgaged property is less than the principal
balance of the mortgage loan, for the reduction of the secured indebtedness to
the value of the mortgaged property as of the date of the commencement of the
bankruptcy, rendering the lender a general unsecured creditor for the
difference, and also may reduce the monthly payments due under such mortgage
loan, change the rate of interest and alter the mortgage loan repayment
schedule. The effect of any such proceedings under the federal Bankruptcy Code,
including but not limited to any automatic stay, could result in delays in
receiving payments on the Loans underlying a Series of Securities and possible
reductions in the aggregate amount of such payments.
CONSEQUENCES OF OWNING ORIGINAL ISSUE DISCOUNT SECURITIES.
Debt Securities that are Compound Interest Securities will be, and certain
of the other Debt Securities may be, issued with original discount for federal
income tax purposes. A holder of Debt Securities issued with original issue
discount will be required to include original issue discount in ordinary gross
income for federal income tax purposes as it accrues, in advance of receipt of
the cash attributable to such income. Accrued but unpaid interest on the Debt
Securities that are Compound Interest Securities generally will be treated as
original issue discount for this purpose. See Federal Income Tax
Consequences -- Taxation of Debt Securities -- Interest and Acquisition
Discount' and ' -- Market Discount' herein.
19
<PAGE>
<PAGE>
VALUE OF TRUST FUND ASSETS
There is no assurance that the market value of the Trust Fund Assets or any
other assets relating to a Series of Securities described under 'Credit
Enhancement' herein will at any time be equal to or greater than the principal
amount of the Securities of such Series then outstanding, plus accrued interest
thereon. Moreover, upon an event of default under the Agreement for a Series of
Securities and a sale of the related Trust Fund Assets or upon a sale of the
assets of a Trust Fund for a Series of Securities, the Trustee, the Master
Servicer, the credit enhancer, if any, and any other service provider specified
in the related Prospectus Supplement generally will be entitled to receive the
proceeds of any such sale to the extent of unpaid fees and other amounts owing
to such persons under the related Agreement prior to distributions to
Securityholders. Upon any such sale, the proceeds thereof may be insufficient to
pay in full the principal of and interest on the Securities of such Series.
THE TRUST FUND
GENERAL
The Securities of each Series will represent interests in the assets of the
related Trust Fund, and the Notes of each Series will be secured by the pledge
of the assets of the related Trust Fund. The Trust Fund for each Series will be
held by the Trustee for the benefit of the related Securityholders. Each Trust
Fund will consist of certain assets (the 'Trust Fund Assets') consisting of a
pool (each, a 'Pool') comprised of Loans as specified in the related Prospectus
Supplement, together with payments in respect of such Loans, as specified in the
related Prospectus Supplement.* The Pool will be created on the first day of the
month of the issuance of the related Series of Securities or such other date
specified in the related Prospectus Supplement (the 'Cut-off Date'). The
Securities will be entitled to payment from the assets of the related Trust Fund
or Funds or other assets pledged for the benefit of the Securityholders, as
specified in the related Prospectus Supplement and will not be entitled to
payments in respect of the assets of any other trust fund established by the
Depositor.
The Trust Fund Assets will be acquired by the Depositor, either directly or
through affiliates, from originators or sellers which may be affiliates of the
Depositor (the 'Sellers'), and conveyed without recourse by the Depositor to the
related Trust Fund. Loans acquired by the Depositor will have been originated in
accordance with the underwriting criteria specified below under 'Loan
Program -- Underwriting Standards' or as otherwise described in the related
Prospectus Supplement. See 'Loan Program -- Underwriting Standards'.
The Depositor will cause the Trust Fund Assets to be assigned to the
Trustee named in the related Prospectus Supplement for the benefit of the
holders of the Securities of the related Series. The Master Servicer named in
the related Prospectus Supplement will service the Trust Fund Assets, either
directly or through other servicing institutions ('Sub-Servicers'), pursuant to
a Pooling and Servicing Agreement among the Depositor, the Master Servicer and
the Trustee with respect to a Series consisting of Certificates, or a master
servicing agreement (each, a 'Master Servicing Agreement') between the Trustee
and the Master Servicer with respect to a Series consisting of Certificates and
Notes, and will receive a fee for such services. See 'Loan Program' and 'The
Agreements'. With respect to Loans serviced by the Master Servicer through a
Sub-Servicer, the Master Servicer will remain liable for its servicing
obligations under the related Agreement as if the Master Servicer alone were
servicing such Loans.
As used herein, 'Agreement' means, with respect to a Series consisting of
Certificates, the Pooling and Servicing Agreement, and with respect to a Series
consisting of Certificates and Notes, the Trust Agreement, the Indenture and the
Master Servicing Agreement, as the context requires.
If so specified in the related Prospectus Supplement, a Trust Fund relating
to a Series of Securities may be a business trust formed under the laws of the
state specified in the related Prospectus Supplement pursuant to a trust
agreement (each, a 'Trust Agreement') between the Depositor and the trustee of
such Trust Fund.
- ------------------------------
* Whenever the terms 'Pool', 'Certificates', 'Notes' and 'Securities' are used
in this Prospectus, such terms will be deemed to apply, unless the context
indicates otherwise, to one specific Pool and the Securities of one Series
including the Certificates representing certain undivided interests in, and/or
Notes secured by the assets of, a single Trust Fund consisting primarily of
the Loans in such Pool. Similarly, the term 'Pass-Through Rate' will refer to
the Pass-Through Rate borne by the Certificates and the term 'interest rate'
will refer to the interest rate borne by the Notes of one specific Series, as
applicable, and the term 'Trust Fund' will refer to one specific Trust Fund.
20
<PAGE>
<PAGE>
With respect to each Trust Fund, prior to the initial offering of the
related Series of Securities, the Trust Fund will have no assets or liabilities.
No Trust Fund is expected to engage in any activities other than acquiring,
managing and holding of the related Trust Fund Assets and other assets
contemplated herein specified and in the related Prospectus Supplement and the
proceeds thereof, issuing Securities and making payments and distributions
thereon and certain related activities. No Trust Fund is expected to have any
source of capital other than its assets and any related credit enhancement.
Unless otherwise specified in the related Prospectus Supplement, the only
obligations of the Depositor with respect to a Series of Securities will be to
obtain certain representations and warranties from the Sellers and to assign to
the Trustee for such Series of Securities the Depositor's rights with respect to
such representations and warranties. See 'The Agreements -- Assignment of the
Trust Fund Assets'. The obligations of the Master Servicer with respect to the
Loans will consist principally of its contractual servicing obligations under
the related Agreement (including its obligation to enforce the obligations of
the Sub-Servicers or Sellers, or both, as more fully described herein under
'Loan Program -- Representations by Sellers; Repurchases' and 'The
Agreements -- Sub-Servicing By Sellers' and ' -- Assignment of the Trust Fund
Assets') and its obligation, if any, to make certain cash advances in the event
of delinquencies in payments on or with respect to the Loans in the amounts
described herein under 'Description of the Securities -- Advances'. The
obligations of the Master Servicer to make advances may be subject to
limitations, to the extent provided herein and in the related Prospectus
Supplement.
The following is a brief description of the assets expected to be included
in the Trust Funds. If specific information respecting the Trust Fund Assets is
not known at the time the related Series of Securities initially is offered,
more general information of the nature described below will be provided in the
related Prospectus Supplement, and specific information will be set forth in a
report on Form 8-K to be filed with the Securities and Exchange Commission
within fifteen days after the initial issuance of such Securities (the 'Detailed
Description'). A copy of the Agreement with respect to each Series of Securities
will be attached to the Form 8-K and will be available for inspection at the
corporate trust office of the Trustee specified in the related Prospectus
Supplement. A schedule of the Loans relating to such Series will be attached to
the Agreement delivered to the Trustee upon delivery of the Securities.
THE LOANS
General. Loans will consist of mortgage loans or deeds of trust secured by
first or subordinated liens on one- to four-family residential properties, Home
Equity Loans or Home Improvement Contracts. For purposes hereof, 'Home Equity
Loans' includes 'Closed-End Loans' and 'Revolving Credit Line Loans'. If so
specified, the Loans may include cooperative apartment loans ('Cooperative
Loans') secured by security interests in shares issued by private, non-profit,
cooperative housing corporations ('Cooperatives') and in the related proprietary
leases or occupancy agreements granting exclusive rights to occupy specific
dwelling units in such Cooperatives' buildings. As more fully described in the
related Prospectus Supplement, the Loans may be 'conventional' loans or loans
that are insured or guaranteed by a governmental agency such as the FHA or VA.
Unless otherwise specified in the related Prospectus Supplement, all of the
Loans in a Pool will have monthly payments due on the first day of each month.
The payment terms of the Loans to be included in a Trust Fund will be described
in the related Prospectus Supplement and may include any of the following
features (or combination thereof), all as described below or in the related
Prospectus Supplement:
(a) Interest may be payable at a fixed rate, a rate adjustable from
time to time in relation to an index (which will be specified in the
related Prospectus Supplement), a rate that is fixed for a period of time
or under certain circumstances and is followed by an adjustable rate, a
rate that otherwise varies from time to time, or a rate that is convertible
from an adjustable rate to a fixed rate. Changes to an adjustable rate may
be subject to periodic limitations, maximum rates, minimum rates or a
combination of such limitations. Accrued interest may be deferred and added
to the principal of a Loan for such periods and under such circumstances as
may be specified in the related Prospectus Supplement. Loans may provide
for the payment of interest at a rate lower than the specified interest
rate borne by such Loan (the 'Loan Rate') for a period of time or for the
life of the Loan, and the amount of any difference may be contributed from
funds supplied by the seller of the Property or another source.
(b) Principal may be payable on a level debt service basis to fully
amortize the Loan over its term, may be calculated on the basis of an
assumed amortization schedule that is significantly longer than the
21
<PAGE>
<PAGE>
original term to maturity or on an interest rate that is different from the
Loan Rate or may not be amortized during all or a portion of the original
term. Payment of all or a substantial portion of the principal may be due
on maturity ('balloon payment'). Principal may include interest that has
been deferred and added to the principal balance of the Loan.
(c) Monthly payments of principal and interest may be fixed for the
life of the Loan, may increase over a specified period of time or may
change from period to period. Loans may include limits on periodic
increases or decreases in the amount of monthly payments and may include
maximum or minimum amounts of monthly payments.
(d) Prepayments of principal may be subject to a prepayment fee, which
may be fixed for the life of the Loan or may decline over time, and may be
prohibited for the life of the Loan or for certain periods ('lockout
periods'). Certain Loans may permit prepayments after expiration of the
applicable lockout period and may require the payment of a prepayment fee
in connection with any such subsequent prepayment. Other Loans may permit
prepayments without payment of a fee unless the prepayment occurs during
specified time periods. The Loans may include 'due on sale' clauses which
permit the mortgagee to demand payment of the entire Loan in connection
with the sale or certain transfers of the related Property. Other Loans may
be assumable by persons meeting the then applicable underwriting standards
of the related Seller.
A Trust Fund may contain certain Loans ('Buydown Loans') that include
provisions whereby a third party partially subsidizes the monthly payments of
the borrowers on such Loans during the early years of such Loans, the difference
to be made up from a fund (a 'Buydown Fund') contributed by such third party at
the time of origination of the Loan. A Buydown Fund will be in an amount equal
either to the discounted value or full aggregate amount of future payment
subsidies. The underlying assumption of buydown plans is that the income of the
borrower will increase during the buydown period as a result of normal increases
in compensation and inflation, so that the borrower will be able to meet the
full loan payments at the end of the buydown period. To the extent that this
assumption as to increased income is not fulfilled, the possibility of defaults
on Buydown Loans is increased. The related Prospectus Supplement will contain
information with respect to any Buydown Loan concerning limitations on the
interest rate paid by the borrower initially, on annual increases in the
interest rate and on the length of the buydown period.
The real property which secures repayment of the Loans is referred to as
the 'Mortgaged Properties'. Home Improvement Contracts may, and the other Loans
will, be secured by mortgages or deeds of trust or other similar security
instruments creating a lien on a Mortgaged Property. In the case of Home Equity
Loans, such liens generally will be subordinated to one or more senior liens on
the related Mortgaged Properties as described in the related Prospectus
Supplement. As specified in the related Prospectus Supplement, Home Improvement
Contracts may be unsecured or secured by purchase money security interests in
the Home Improvements financed thereby. The Mortgaged Properties and the Home
Improvements are collectively referred to herein as the 'Properties'. The
Properties relating to Loans will consist of detached or semi-detached one- to
four-family dwelling units, townhouses, rowhouses, individual condominium units,
individual units in planned unit developments, and certain other dwelling units
('Single Family Properties'). Such Properties may include vacation and second
homes, investment properties and leasehold interests. In the case of leasehold
interests, the term of the leasehold will exceed the scheduled maturity of the
Loan by at least five years, unless otherwise specified in the related
Prospectus Supplement. The Properties may be located in any one of the fifty
states, the District of Columbia, Guam, Puerto Rico or any other territory of
the United States.
Loans with certain Loan-to-Value Ratios and/or certain principal balances
may be covered wholly or partially by primary mortgage guaranty insurance
policies (each, a 'Primary Mortgage Insurance Policy'). The existence, extent
and duration of any such coverage will be described in the applicable Prospectus
Supplement.
The aggregate principal balance of Loans secured by Properties that are
owner-occupied will be disclosed in the related Prospectus Supplement. Unless
otherwise specified in the related Prospectus Supplement, the sole basis for a
representation that a given percentage of the Loans is secured by Single Family
Properties that are owner-occupied will be either (i) the making of a
representation by the borrower at origination of the Loan either that the
underlying Property will be used by the borrower for a period of at least six
months every year or that the borrower intends to use the Property as a primary
residence or (ii) a finding that the address of the underlying Property is the
borrower's mailing address.
22
<PAGE>
<PAGE>
Home Equity Loans. As more fully described in the related Prospectus
Supplement, interest on each Revolving Credit Line Loan, excluding introduction
rates offered from time to time during promotional periods, is computed and
payable monthly on the average daily outstanding principal balance of such Loan.
Principal amounts on a Revolving Credit Line Loan may be drawn down (up to a
maximum amount as set forth in the related Prospectus Supplement) or repaid
under each Revolving Credit Line Loan from time to time, but may be subject to a
minimum periodic payment. Except to the extent provided in the related
Prospectus Supplement, the Trust Fund will not include any amounts borrowed
under a Revolving Credit Line Loan after the Cut-off Date. The full amount of a
Closed-End Loan is advanced at the inception of the Loan and generally is
repayable in equal (or substantially equal) installments of an amount to fully
amortize such Loan at its stated maturity. Except to the extent provided in the
related Prospectus Supplement, the original terms to stated maturity of
Closed-End Loans will not exceed 360 months. Under certain circumstances, under
either a Revolving Credit Line Loan or a Closed-End Loan, a borrower may choose
an interest only payment option and is obligated to pay only the amount of
interest which accrues on the Loan during the billing cycle. An interest only
payment option may be available for a specified period before the borrower must
begin paying at least the minimum monthly payment of a specified percentage of
the average outstanding balance of the Loan.
Home Improvement Contracts. The Trust Fund Assets for a Series of
Securities may consist, in whole or in part, of Home Improvement Contracts
originated by a home improvement contractor, a thrift or a commercial mortgage
banker in the ordinary course of business. The Home Improvements securing the
Home Improvement Contracts may include, but are not limited to, replacement
windows, house siding, new roofs, swimming pools, satellite dishes, kitchen and
bathroom remodeling goods and solar heating panels. As specified in the related
Prospectus Supplement, the Home Improvement Contracts will either be unsecured
or secured by mortgages on Single Family Properties which are generally
subordinate to other mortgages on the same Property, or secured by purchase
money security interests in the Home Improvements financed thereby. Except as
otherwise specified in the related Prospectus Supplement, the Home Improvement
Contracts will be fully amortizing and may have fixed interest rates or
adjustable interest rates and may provide for other payment characteristics as
described below and in the related Prospectus Supplement. The initial
Loan-to-Value Ratio of a Home Improvement Contract is computed in the manner
described in the related Prospectus Supplement.
Additional Information. Each Prospectus Supplement will contain
information, as of the date of such Prospectus Supplement and to the extent then
specifically known to the Depositor, with respect to the Loans contained in the
related Pool, including (i) the aggregate outstanding principal balance and the
average outstanding principal balance of the Loans as of the applicable Cut-off
Date, (ii) the type of property securing the Loan (e.g., single family
residences, individual units in condominium apartment buildings, two- to four-
family dwelling units, other real property or Home Improvements), (iii) the
original terms to maturity of the Loans, (iv) the largest principal balance and
the smallest principal balance of any of the Loans, (v) the earliest origination
date and latest maturity date of any of the Loans, (vi) the Loan-to-Value Ratios
or Combined Loan-to-Value Ratios, as applicable, of the Loans, (vii) the Loan
Rates or annual percentage rates ('APR') or range of Loan Rates or APR's borne
by the Loans, (viii) the maximum and minimum per annum Loan Rates, and (ix) the
geographical location of the Loans. If specific information respecting the Loans
is not known to the Depositor at the time the related Securities are initially
offered, more general information of the nature described above will be provided
in the related Prospectus Supplement, and specific information will be set forth
in the Detailed Description.
The 'Loan-to-Value Ratio' of a Loan at any given time is the fraction,
expressed as a percentage, the numerator of which is the original principal
balance of the related Loan and the denominator of which is the Collateral Value
of the related Property. The 'Combined Loan-to-Value Ratio' of a Loan at any
given time is the ratio, expressed as a percentage, of (i) the sum of (a) the
original principal balance of the Loan (or, in the case of a Revolving Credit
Line Loan, the maximum amount thereof available) and (b) the outstanding
principal balance at the date of origination of the Loan of any senior mortgage
loan(s) or, in the case of any open-ended senior mortgage loan, the maximum
available line of credit with respect to such mortgage loan, regardless of any
lesser amount actually outstanding at the date of origination of the Loan, to
(ii) the Collateral Value of the related Property. The 'Collateral Value' of the
Property, other than with respect to certain Loans the proceeds of which were
used to refinance an existing mortgage loan (each, a 'Refinance Loan'), is the
lesser of (a) the appraised value determined in an appraisal obtained by the
originator at origination of such Loan and (b) the sales price for such
Property. In the case of Refinance Loans, the 'Collateral Value' of the related
Property is the appraised value thereof determined in an appraisal obtained at
the time of refinancing.
23
<PAGE>
<PAGE>
No assurance can be given that values of the Properties have remained or
will remain at their levels on the dates of origination of the related Loans. If
the residential real estate market should experience an overall decline in
property values such that the sum of the outstanding principal balances of the
Loans and any primary or secondary financing on the Properties, as applicable,
in a particular Pool become equal to or greater than the value of the
Properties, the actual rates of delinquencies, foreclosures and losses could be
higher than those now generally experienced in the mortgage lending industry. In
addition, adverse economic conditions and other factors (which may or may not
affect real property values) may affect the timely payment by borrowers of
scheduled payments of principal and interest on the Loans and, accordingly, the
actual rates of delinquencies, foreclosures and losses with respect to any Pool.
To the extent that such losses are not covered by subordination provisions or
alternative arrangements, such losses will be borne, at least in part, by the
holders of the Securities of the related Series.
SUBSTITUTION OF TRUST FUND ASSETS
Substitution of Trust Fund Assets will be permitted in the event of
breaches of representations and warranties with respect to any original Trust
Fund Asset or in the event the documentation with respect to any Trust Fund
Asset is determined by the Trustee to be incomplete. The period during which
such substitution will be permitted generally will be indicated in the related
Prospectus Supplement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Securities will be
applied by the Depositor to the purchase of Trust Fund Assets or will be used by
the Depositor for general corporate purposes. The Depositor expects to sell
Securities in Series from time to time, but the timing and amount of offerings
of Securities will depend on a number of factors, including the volume of Trust
Fund Assets acquired by the Depositor, prevailing interest rates, availability
of funds and general market conditions.
THE DEPOSITOR
CWABS, Inc., a Delaware corporation (the 'Depositor'), was incorporated in
August 1996 for the limited purpose of acquiring, owning and transferring Trust
Fund Assets and selling interests therein or bonds secured thereby. The
Depositor is a limited purpose finance subsidiary of Countrywide Credit
Industries, Inc., a Delaware corporation. The Depositor maintains its principal
office at 155 North Lake Avenue, Pasadena, California 91101-7139. Its telephone
number is (818) 584-2212.
Neither the Depositor nor any of the Depositor's affiliates will insure or
guarantee distributions on the Securities of any Series.
LOAN PROGRAM
The Loans will have been purchased by the Depositor, either directly or
through affiliates, from Sellers. Unless otherwise specified in the related
Prospectus Supplement, the Loans so acquired by the Depositor will have been
originated in accordance with the underwriting criteria specified below under
'Underwriting Standards'.
UNDERWRITING STANDARDS
Unless otherwise specified in the related Prospectus Supplement, each
Seller will represent and warrant that all Loans originated and/or sold by it to
the Depositor or one of its affiliates will have been underwritten in accordance
with standards consistent with those utilized by mortgage lenders generally
during the period of origination for similar types of loans. As to any Loan
insured by the FHA or partially guaranteed by the VA, the Seller will represent
that it has complied with underwriting policies of the FHA or the VA, as the
case may be.
Underwriting standards are applied by or on behalf of a lender to evaluate
the borrower's credit standing and repayment ability, and the value and adequacy
of the related Property as collateral. In general, a prospective borrower
applying for a Loan is required to fill out a detailed application designed to
provide to the underwriting officer pertinent credit information, including the
principal balance and payment history with respect to any senior mortgage, if
any, which, unless otherwise specified in the related Prospectus Supplement,
will be verified by the related Seller. As part of the description of the
borrower's financial condition, the borrower generally is required to provide a
current list of assets and liabilities and a statement of income and expenses,
as well as an authorization to apply for a credit report which summarizes the
borrower's credit history with local merchants
24
<PAGE>
<PAGE>
and lenders and any record of bankruptcy. In most cases, an employment
verification is obtained from an independent source (typically the borrower's
employer) which verification reports, among other things, the length of
employment with that organization and the borrower's current salary. If a
prospective borrower is self-employed, the borrower may be required to submit
copies of signed tax returns. The borrower may also be required to authorize
verification of deposits at financial institutions where the borrower has demand
or savings accounts.
In determining the adequacy of the property to be used as collateral, an
appraisal will generally be made of each property considered for financing. The
appraiser is generally required to inspect the property, issue a report on its
condition and, if applicable, verify construction, if new, has been completed.
The appraisal is based on the market value of comparable homes, the estimated
rental income (if considered applicable by the appraiser) and the cost of
replacing the home. The value of the property being financed, as indicated by
the appraisal, must be such that it currently supports, and is anticipated to
support in the future, the outstanding loan balance.
The maximum loan amount will vary depending upon a borrower's credit grade
and loan program but will not generally exceed $1,000,000. Variations in maximum
loan amount limits will be permitted based on compensating factors. Compensating
factors may generally include, to the extent specified in the related Prospectus
Supplement, low loan-to-value ratio, low debt-to-income ratio, stable
employment, favorable credit history and the nature of the underlying first
mortgage loan, if applicable.
Each Seller's underwriting standards will generally permit loans with
loan-to-value ratios at origination of up to 100% depending on the loan program,
type and use of the property, creditworthiness of the borrower and
debt-to-income ratio. Loan-to-value ratios are not evaluated in the case of
Title I Loans.
After obtaining all applicable employment, credit and property information,
the related Seller will use 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 will vary depending upon a borrower's
credit grade and loan program but will not generally exceed 55%. Variations in
the monthly debt-to-income ratio limit will be permitted based on compensating
factors to the extent specified in the related Prospectus Supplement.
In the case of a Loan secured by a leasehold interest in real property, the
title to which is held by a third party lessor, the related Seller will, unless
otherwise specified in the related Prospectus Supplement, represent and warrant,
among other things, that the remaining term of the lease and any sublease is at
least five years longer than the remaining term on the Loan.
Certain of the types of Loans that may be included in a Trust Fund are
recently developed and may involve additional uncertainties not present in
traditional types of loans. For example, certain of such Loans may provide for
escalating or variable payments by the borrower. These types of Loans are
underwritten on the basis of a judgment that the borrowers have the ability to
make the monthly payments required initially. In some instances, a borrower's
income may not be sufficient to permit continued loan payments as such payments
increase. These types of Loans may also be underwritten primarily upon the basis
of Loan-to-Value Ratios or other favorable credit factors.
QUALIFICATIONS OF SELLERS
Each Seller will be required to satisfy the following qualifications. Each
Seller must be an institution experienced in originating and servicing loans of
the type contained in the related Pool in accordance with accepted practices and
prudent guidelines, and must maintain satisfactory facilities to originate and
service those loans. Each Seller must be a seller/servicer approved by either
the Federal National Mortgage Association ('FNMA') or the Federal Home Loan
Mortgage Corporation ('FHLMC'). Each Seller must be a mortgagee approved by the
FHA or an institution the deposit accounts in which are insured by the Federal
Deposit Insurance Corporation (the 'FDIC').
REPRESENTATIONS BY SELLERS; REPURCHASES
Each Seller will have made representations and warranties in respect of the
Loans sold by such Seller and evidenced by all, or a part, of a Series of
Securities. Such representations and warranties may include, among other things:
(i) that title insurance (or in the case of Properties located in areas where
such policies are
25
<PAGE>
<PAGE>
generally not available, an attorney's certificate of title) and any required
hazard insurance policy were effective at origination of each Loan, other than a
Cooperative Loan, and that each policy (or certificate of title as applicable)
remained in effect on the date of purchase of the Loan from the Seller by or on
behalf of the Depositor; (ii) that the Seller had good title to each such Loan
and such Loan was subject to no offsets, defenses, counterclaims or rights of
rescission except to the extent that any buydown agreement may forgive certain
indebtedness of a borrower; (iii) that each Loan constituted a valid lien on, or
a perfected security interest with respect to, the Property (subject only to
permissible liens disclosed, if applicable, title insurance exceptions, if
applicable, and certain other exceptions described in the Agreement) and that
the Property was free from damage and was in acceptable condition; (iv) that
there were no delinquent tax or assessment liens against the Property; (v) that
no required payment on a Loan was delinquent more than the number of days
specified in the related Prospectus Supplement; and (vi) that each Loan was made
in compliance with, and is enforceable under, all applicable local, state and
federal laws and regulations in all material respects.
If so specified in the related Prospectus Supplement, the representations
and warranties of a Seller in respect of a Loan will be made not as of the
Cut-off Date but as of the date on which such Seller sold the Loan to the
Depositor or one of its affiliates. Under such circumstances, a substantial
period of time may have elapsed between the sale date and the date of initial
issuance of the Series of Securities evidencing an interest in such Loan. Since
the representations and warranties of a Seller do not address events that may
occur following the sale of a Loan by such Seller, its repurchase obligation
described below will not arise if the relevant event that would otherwise have
given rise to such an obligation with respect to a Loan occurs after the date of
sale of such Loan by such Seller to the Depositor or its affiliates. However,
the Depositor will not include any Loan in the Trust Fund for any Series of
Securities if anything has come to the Depositor's attention that would cause it
to believe that the representations and warranties of a Seller will not be
accurate and complete in all material respects in respect of such Loan as of the
date of initial issuance of the related Series of Securities. If the Master
Servicer is also a Seller of Loans with respect to a particular Series of
Securities, such representations will be in addition to the representations and
warranties made by the Master Servicer in its capacity as a Master Servicer.
The Master Servicer or the Trustee, if the Master Servicer is the Seller,
will promptly notify the relevant Seller of any breach of any representation or
warranty made by it in respect of a Loan which materially and adversely affects
the interests of the Securityholders in such Loan. Unless otherwise specified in
the related Prospectus Supplement, if such Seller cannot cure such breach within
90 days following notice from the Master Servicer or the Trustee, as the case
may be, then such Seller will be obligated either (i) to repurchase such Loan
from the Trust Fund at a price (the 'Purchase Price') equal to 100% of the
unpaid principal balance thereof as of the date of the repurchase plus accrued
interest thereon to the first day of the month following the month of repurchase
at the Loan Rate (less any Advances or amount payable as related servicing
compensation if the Seller is the Master Servicer) or (ii) substitute for such
Loan a replacement loan that satisfies the criteria specified in the related
Prospectus Supplement. If a REMIC election is to be made with respect to a Trust
Fund, unless otherwise specified in the related Prospectus Supplement, the
Master Servicer or a holder of the related residual certificate generally will
be obligated to pay any prohibited transaction tax which may arise in connection
with any such repurchase or substitution and the Trustee must have received a
satisfactory opinion of counsel that such repurchase or substitution will not
cause the Trust Fund to lose its status as a REMIC or otherwise subject the
Trust Fund to a prohibited transaction tax. The Master Servicer may be entitled
to reimbursement for any such payment from the assets of the related Trust Fund
or from any holder of the related residual certificate. See 'Description of the
Securities -- General'. Except in those cases in which the Master Servicer is
the Seller, the Master Servicer will be required under the applicable Agreement
to enforce this obligation for the benefit of the Trustee and the holders of the
Securities, following the practices it would employ in its good faith business
judgment were it the owner of such Loan. This repurchase or substitution
obligation will constitute the sole remedy available to holders of Securities or
the Trustee for a breach of representation by a Seller.
Neither the Depositor nor the Master Servicer (unless the Master Servicer
is the Seller) will be obligated to purchase or substitute a Loan if a Seller
defaults on its obligation to do so, and no assurance can be given that Sellers
will carry out their respective repurchase or substitution obligations with
respect to Loans. However, to the extent that a breach of a representation and
warranty of a Seller may also constitute a breach of a representation made by
the Master Servicer, the Master Servicer may have a repurchase or substitution
obligation as described below under 'The Agreements -- Assignment of Trust Fund
Assets'.
26
<PAGE>
<PAGE>
DESCRIPTION OF THE SECURITIES
Each Series of Certificates will be issued pursuant to separate agreements
(each, a 'Pooling and Servicing Agreement' or a 'Trust Agreement') among the
Depositor, the Master Servicer and the Trustee. A form of Pooling and Servicing
Agreement and Trust Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. Each Series of Notes will be
issued pursuant to an indenture (the 'Indenture') between the related Trust Fund
and the entity named in the related Prospectus Supplement as trustee (the
'Trustee') with respect to such Series, and the related Loans will be serviced
by the Master Servicer pursuant to a Master Servicing Agreement. A form of
Indenture and Master Servicing Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. A Series of
Securities may consist of both Notes and Certificates. Each Agreement, dated as
of the related Cut-off Date, will be among the Depositor, the Master Servicer
and the Trustee for the benefit of the holders of the Securities of such Series.
The provisions of each Agreement will vary depending upon the nature of the
Securities to be issued thereunder and the nature of the related Trust Fund. The
following are descriptions of the material provisions which may appear in each
Agreement. The descriptions are subject to, and are qualified in their entirety
by reference to, all of the provisions of the Agreement for each Series of
Securities and the applicable Prospectus Supplement. The Depositor will provide
a copy of the Agreement (without exhibits) relating to any Series without charge
upon written request of a holder of record of a Security of such Series
addressed to CWABS, Inc., 155 North Lake Avenue, Pasadena, California
91101-7139, Attention: Secretary.
GENERAL
Unless otherwise specified in the related Prospectus Supplement, the
Securities of each Series will be issued in book-entry or fully registered form,
in the authorized denominations specified in the related Prospectus Supplement,
will, in the case of Certificates, evidence specified beneficial ownership
interests in, and in the case of Notes, be secured by, the assets of the related
Trust Fund created pursuant to each Agreement and will not be entitled to
payments in respect of the assets included in any other Trust Fund established
by the Depositor. Unless otherwise specified in the related Prospectus
Supplement, the Securities will not represent obligations of the Depositor or
any affiliate of the Depositor. Certain of the Loans may be guaranteed or
insured as set forth in the related Prospectus Supplement. Each Trust Fund will
consist of, to the extent provided in the related Agreement, (i) the Trust Fund
Assets, as from time to time are subject to the related Agreement (exclusive of
any amounts specified in the related Prospectus Supplement ('Retained
Interest')), including all payments of interest and principal received with
respect to the Loans after the Cut-off Date (to the extent not applied in
computing the principal balance of such Loans as of the Cut-off Date (the
'Cut-off Date Principal Balance')); (ii) such assets as from time to time are
required to be deposited in the related Security Account, as described below
under 'The Agreements -- Payments on Loans; Deposits to Security Account'; (iii)
property which secured a Loan and which is acquired on behalf of the
Securityholders by foreclosure or deed in lieu of foreclosure and (iv) any
insurance policies or other forms of credit enhancement required to be
maintained pursuant to the related Agreement. If so specified in the related
Prospectus Supplement, a Trust Fund may also include one or more of the
following: reinvestment income on payments received on the Trust Fund Assets, a
Reserve Account, a mortgage pool insurance policy, a special hazard insurance
policy, a bankruptcy bond, one or more letters of credit, a surety bond,
guaranties or similar instruments.
Each Series of Securities will be issued in one or more classes. Each class
of Certificates of a Series will evidence beneficial ownership of a specified
percentage (which may be 0%) or portion of future interest payments and a
specified percentage (which may be 0%) or portion of future principal payments
on, and each class of Notes of a Series will be secured by, the related Trust
Fund Assets. A Series of Securities may include one or more classes that are
senior in right to payment to one or more other classes of Securities of such
Series. Certain Series or classes of Securities may be covered by insurance
policies, surety bonds or other forms of credit enhancement, in each case as
described under 'Credit Enhancement' herein and in the related Prospectus
Supplement. One or more classes of Securities of a Series may be entitled to
receive distributions of principal, interest or any combination thereof.
Distributions on one or more classes of a Series of Securities may be made prior
to one or more other classes, after the occurrence of specified events, in
accordance with a schedule or formula or on the basis of collections from
designated portions of the related Trust Fund Assets, in each case as specified
in the related Prospectus Supplement. The timing and amounts of such
distributions may vary among classes or over time as specified in the related
Prospectus Supplement.
27
<PAGE>
<PAGE>
Distributions of principal and interest (or, where applicable, of principal
only or interest only) on the related Securities will be made by the Trustee on
each Distribution Date (i.e., monthly, quarterly, semi-annually or at such other
intervals and on the dates as are specified in the related Prospectus
Supplement) in proportion to the percentages specified in the related Prospectus
Supplement. Distributions will be made to the persons in whose names the
Securities are registered at the close of business on the dates specified in the
related Prospectus Supplement (each, a 'Record Date'). Distributions will be
made in the manner specified in the related Prospectus Supplement to the persons
entitled thereto at the address appearing in the register maintained for holders
of Securities (the 'Security Register'); provided, however, that the final
distribution in retirement of the Securities will be made only upon presentation
and surrender of the Securities at the office or agency of the Trustee or other
person specified in the notice to Securityholders of such final distribution.
The Securities will be freely transferable and exchangeable at the
Corporate Trust Office of the Trustee as set forth in the related Prospectus
Supplement. No service charge will be made for any registration of exchange or
transfer of Securities of any Series, but the Trustee may require payment of a
sum sufficient to cover any related tax or other governmental charge.
Under current law the purchase and holding of a class of Securities
entitled only to a specified percentage of payments of either interest or
principal or a notional amount of either interest or principal on the related
Loans or a class of Securities entitled to receive payments of interest and
principal on the Loans only after payments to other classes or after the
occurrence of certain specified events by or on behalf of any employee benefit
plan or other retirement arrangement (including individual retirement accounts
and annuities, Keogh plans and collective investment funds in which such plans,
accounts or arrangements are invested) subject to provisions of ERISA or the
Code, may result in prohibited transactions, within the meaning of ERISA and the
Code. See 'ERISA Considerations'. Unless otherwise specified in the related
Prospectus Supplement, the transfer of Securities of such a class will not be
registered unless the transferee (i) represents that it is not, and is not
purchasing on behalf of, any such plan, account or arrangement or (ii) provides
an opinion of counsel satisfactory to the Trustee and the Depositor that the
purchase of Securities of such a class by or on behalf of such plan, account or
arrangement is permissible under applicable law and will not subject the
Trustee, the Master Servicer or the Depositor to any obligation or liability in
addition to those undertaken in the Agreements.
As to each Series, an election may be made to treat the related Trust Fund
or designated portions thereof as a 'real estate mortgage investment conduit' or
'REMIC' as defined in the Code. The related Prospectus Supplement will specify
whether a REMIC election is to be made. Alternatively, the Agreement for a
Series may provide that a REMIC election may be made at the discretion of the
Depositor or the Master Servicer and may only be made if certain conditions are
satisfied. As to any such Series, the terms and provisions applicable to the
making of a REMIC election will be set forth in the related Prospectus
Supplement. If such an election is made with respect to a Series, one of the
classes will be designated as evidencing the sole class of 'residual interests'
in the related REMIC, as defined in the Code. All other classes of Securities in
such a Series will constitute 'regular interests' in the related REMIC, as
defined in the Code. As to each Series with respect to which a REMIC election is
to be made, the Master Servicer or a holder of the related residual certificate
will be obligated to take all actions required in order to comply with
applicable laws and regulations and will be obligated to pay any prohibited
transaction taxes. The Master Servicer, unless otherwise provided in the related
Prospectus Supplement, will be entitled to reimbursement for any such payment
from the assets of the Trust Fund or from any holder of the related residual
certificate.
DISTRIBUTIONS ON SECURITIES
General. In general, the method of determining the amount of distributions
on a particular Series of Securities will depend on the type of credit support,
if any, that is used with respect to such Series. See 'Credit Enhancement'. Set
forth below are descriptions of various methods that may be used to determine
the amount of distributions on the Securities of a particular Series. The
Prospectus Supplement for each Series of Securities will describe the method to
be used in determining the amount of distributions on the Securities of such
Series.
Distributions allocable to principal and interest on the Securities will be
made by the Trustee out of, and only to the extent of, funds in the related
Security Account, including any funds transferred from any Reserve Account (a
'Reserve Account'). As between Securities of different classes and as between
distributions of principal (and, if applicable, between distributions of
Principal Prepayments, as defined below, and scheduled payments of principal)
and interest, distributions made on any Distribution Date will be applied as
specified in
28
<PAGE>
<PAGE>
the related Prospectus Supplement. The Prospectus Supplement will also describe
the method for allocating distributions among Securities of a particular class.
Available Funds. All distributions on the Securities of each Series on
each Distribution Date will be made from the Available Funds described below, in
accordance with the terms described in the related Prospectus Supplement and
specified in the Agreement. 'Available Funds' for each Distribution Date will
generally equal the amount on deposit in the related Security Account on such
Distribution Date (net of related fees and expenses payable by the related Trust
Fund) other than amounts to be held therein for distribution on future
Distribution Dates.
Distributions of Interest. Interest will accrue on the aggregate principal
balance of the Securities (or, in the case of Securities entitled only to
distributions allocable to interest, the aggregate notional amount) of each
class of Securities (the 'Class Security Balance') entitled to interest from the
date, at the Pass-Through Rate or interest rate, as applicable (which in either
case may be a fixed rate or rate adjustable as specified in such Prospectus
Supplement), and for the periods specified in such Prospectus Supplement. To the
extent funds are available therefor, interest accrued during each such specified
period on each class of Securities entitled to interest (other than a class of
Securities that provides for interest that accrues, but is not currently
payable, referred to hereafter as 'Accrual Securities') will be distributable on
the Distribution Dates specified in the related Prospectus Supplement until the
aggregate Class Security Balance of the Securities of such class has been
distributed in full or, in the case of Securities entitled only to distributions
allocable to interest, until the aggregate notional amount of such Securities is
reduced to zero or for the period of time designated in the related Prospectus
Supplement. The original Class Security Balance of each Security will equal the
aggregate distributions allocable to principal to which such Security is
entitled. Distributions allocable to interest on each Security that is not
entitled to distributions allocable to principal will be calculated based on the
notional amount of such Security. The notional amount of a Security will not
evidence an interest in or entitlement to distributions allocable to principal
but will be used solely for convenience in expressing the calculation of
interest and for certain other purposes.
Interest payable on the Securities of a Series on a Distribution Date will
include all interest accrued during the period specified in the related
Prospectus Supplement. In the event interest accrues over a period ending two or
more days prior to a Distribution Date, the effective yield to Securityholders
will be reduced from the yield that would otherwise be obtainable if interest
payable on the Security were to accrue through the day immediately preceding
such Distribution Date, and the effective yield (at par) to Securityholders will
be less than the indicated coupon rate.
With respect to any class of Accrual Securities, if specified in the
related Prospectus Supplement, any interest that has accrued but is not paid on
a given Distribution Date will be added to the aggregate Class Security Balance
of such class of Securities on that Distribution Date. Distributions of interest
on any class of Accrual Securities will commence only after the occurrence of
the events specified in such Prospectus Supplement. Prior to such time, the
beneficial ownership interest in the Trust Fund or the principal balance, as
applicable, of such class of Accrued Securities, as reflected in the aggregate
Class Security Balance of such class of Accrual Securities, will increase on
each Distribution Date by the amount of interest that accrued on such class of
Accrual Securities during the preceding interest accrual period but that was not
required to be distributed to such class on such Distribution Date. Any such
class of Accrual Securities will thereafter accrue interest on its outstanding
Class Security Balance as so adjusted.
Distributions of Principal. The related Prospectus Supplement will specify
the method by which the amount of principal to be distributed on the Securities
on each Distribution Date will be calculated and the manner in which such amount
will be allocated among the classes of Securities entitled to distributions of
principal. The aggregate Class Security Balance of any class of Securities
entitled to distributions of principal generally will be the aggregate original
Class Security Balance of such class of Securities specified in such Prospectus
Supplement, reduced by all distributions reported to the holders of such
Securities as allocable to principal and, (i) in the case of Accrual Securities,
unless otherwise specified in the related Prospectus Supplement, increased by
all interest accrued but not then distributable on such Accrual Securities and
(ii) in the case of adjustable rate Securities, subject to the effect of
negative amortization, if applicable.
If so provided in the related Prospectus Supplement, one or more classes of
Securities will be entitled to receive all or a disproportionate percentage of
the payments of principal which are received from borrowers in advance of their
scheduled due dates and are not accompanied by amounts representing scheduled
interest due
29
<PAGE>
<PAGE>
after the month of such payments ('Principal Prepayments') in the percentages
and under the circumstances or for the periods specified in such Prospectus
Supplement. Any such allocation of Principal Prepayments to such class or
classes of Securities will have the effect of accelerating the amortization of
such Securities while increasing the interests evidenced by one or more other
classes of Securities in the Trust Fund. Increasing the interests of the other
classes of Securities relative to that of certain Securities is intended to
preserve the availability of the subordination provided by such other
Securities. See 'Credit Enhancement -- Subordination'.
Unscheduled Distributions. If specified in the related Prospectus
Supplement, the Securities will be subject to receipt of distributions before
the next scheduled Distribution Date under the circumstances and in the manner
described below and in such Prospectus Supplement. If applicable, the Trustee
will be required to make such unscheduled distributions on the day and in the
amount specified in the related Prospectus Supplement if, due to substantial
payments of principal (including Principal Prepayments) on the Trust Fund
Assets, the Trustee or the Master Servicer determines that the funds available
or anticipated to be available from the Security Account and, if applicable, any
Reserve Account, may be insufficient to make required distributions on the
Securities on such Distribution Date. Unless otherwise specified in the related
Prospectus Supplement, the amount of any such unscheduled distribution that is
allocable to principal will not exceed the amount that would otherwise have been
required to be distributed as principal on the Securities on the next
Distribution Date. Unless otherwise specified in the related Prospectus
Supplement, the unscheduled distributions will include interest at the
applicable Pass-Through Rate (if any) or interest rate (if any) on the amount of
the unscheduled distribution allocable to principal for the period and to the
date specified in such Prospectus Supplement.
ADVANCES
To the extent provided in the related Prospectus Supplement, the Master
Servicer will be required to advance on or before each Distribution Date (from
its own funds, funds advanced by Sub-Servicers or funds held in the Security
Account for future distributions to the holders of Securities of the related
Series), an amount equal to the aggregate of payments of interest and/or
principal that were delinquent on the related Determination Date (as such term
is defined in the related Prospectus Supplement) and were not advanced by any
Sub-Servicer, subject to the Master Servicer's determination that such advances
may be recoverable out of late payments by borrowers, Liquidation Proceeds,
Insurance Proceeds or otherwise. In the case of Cooperative Loans, the Master
Servicer also may be required to advance any unpaid maintenance fees and other
charges under the related proprietary leases as specified in the related
Prospectus Supplement.
In making Advances, the Master Servicer will endeavor to maintain a regular
flow of scheduled interest and principal payments to holders of the Securities,
rather than to guarantee or insure against losses. If Advances are made by the
Master Servicer from cash being held for future distribution to Securityholders,
the Master Servicer will replace such funds on or before any future Distribution
Date to the extent that funds in the applicable Security Account on such
Distribution Date would be less than the amount required to be available for
distributions to Securityholders on such date. Any Master Servicer funds
advanced will be reimbursable to the Master Servicer out of recoveries on the
specific Loans with respect to which such Advances were made (e.g., late
payments made by the related borrower, any related Insurance Proceeds,
Liquidation Proceeds or proceeds of any Loan purchased by the Depositor, a
Sub-Servicer or a Seller pursuant to the related Agreement). Advances by the
Master Servicer (and any advances by a Sub-Servicer) also will be reimbursable
to the Master Servicer (or Sub-Servicer) from cash otherwise distributable to
Securityholders (including the holders of Senior Securities) to the extent that
the Master Servicer determines that any such Advances previously made are not
ultimately recoverable as described above. To the extent provided in the related
Prospectus Supplement, the Master Servicer also will be obligated to make
Advances, to the extent recoverable out of Insurance Proceeds, Liquidation
Proceeds or otherwise, in respect of certain taxes and insurance premiums not
paid by borrowers on a timely basis. Funds so advanced are reimbursable to the
Master Servicer to the extent permitted by the related Agreement. The
obligations of the Master Servicer to make advances may be supported by a cash
advance reserve fund, a surety bond or other arrangement of the type described
herein under 'Credit Enhancement', in each case as described in the related
Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, in the
event the Master Servicer or a Sub-Servicer fails to make a required Advance,
the Trustee will be obligated to make such Advance in its capacity as successor
servicer. If the Trustee makes such an Advance, it will be entitled to be
reimbursed for such Advance
30
<PAGE>
<PAGE>
to the same extent and degree as the Master Servicer or a Sub-Servicer is
entitled to be reimbursed for Advances. See 'Description of the
Securities -- Distributions on Securities'.
REPORTS TO SECURITYHOLDERS
Prior to or concurrently with each distribution on a Distribution Date the
Master Servicer or the Trustee will furnish to each Securityholder of record of
the related Series a statement setting forth, to the extent applicable to such
Series of Securities, among other things:
(i) the amount of such distribution allocable to principal, separately
identifying the aggregate amount of any Principal Prepayments and if so
specified in the related Prospectus Supplement, any applicable prepayment
penalties included therein;
(ii) the amount of such distribution allocable to interest;
(iii) the amount of any Advance;
(iv) the aggregate amount (a) otherwise allocable to the Subordinated
Securityholders on such Distribution Date, and (b) withdrawn from the
Reserve Account, if any, that is included in the amounts distributed to the
Senior Securityholders;
(v) the outstanding principal balance or notional amount of each class
of the related Series after giving effect to the distribution of principal
on such Distribution Date;
(vi) the percentage of principal payments on the Loans (excluding
prepayments), if any, which each such class will be entitled to receive on
the following Distribution Date;
(vii) the percentage of Principal Prepayments on the Loans, if any,
which each such class will be entitled to receive on the following
Distribution Date;
(viii) the related amount of the servicing compensation retained or
withdrawn from the Security Account by the Master Servicer, and the amount
of additional servicing compensation received by the Master Servicer
attributable to penalties, fees, excess Liquidation Proceeds and other
similar charges and items;
(ix) the number and aggregate principal balances of Loans (A)
delinquent (exclusive of Loans in foreclosure) (1) 1 to 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) 1 to 30 days, (2) 31 to 60 days, (3) 61 to 90 days and
(4) 91 or more days, as of the close of business on the last day of the
calendar month preceding such Distribution Date;
(x) the book value of any real estate acquired through foreclosure or
grant of a deed in lieu of foreclosure;
(xi) the Pass-Through Rate or interest rate, as applicable, if
adjusted from the date of the last statement, of any such class expected to
be applicable to the next distribution to such class;
(xii) if applicable, the amount remaining in any Reserve Account at
the close of business on the Distribution Date;
(xiii) the Pass-Through Rate or interest rate, as applicable, as of
the day prior to the immediately preceding Distribution Date; and
(xiv) any amounts remaining under letters of credit, pool policies or
other forms of credit enhancement.
Where applicable, any amount set forth above may be expressed as a dollar
amount per single Security of the relevant class having the Percentage Interest
specified in the related Prospectus Supplement. The report to Securityholders
for any Series of Securities may include additional or other information of a
similar nature to that specified above.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer or the Trustee will mail to each
Securityholder of record at any time during such calendar year a report (a) as
to the aggregate of amounts reported pursuant to (i) and (ii) above for such
calendar year or, in the event such person was a Securityholder of record during
a portion of such calendar year, for the applicable portion of such year and (b)
such other customary information as may be deemed necessary or desirable for
Securityholders to prepare their tax returns.
31
<PAGE>
<PAGE>
CATEGORIES OF CLASSES OF SECURITIES
The Securities of any Series may be comprised of one or more classes. Such
classes, in general, fall into different categories. The following chart
identifies and generally defines certain of the more typical categories. The
Prospectus Supplement for a series of Securities may identify the classes which
comprise such Series by reference to the following categories.
<TABLE>
<CAPTION>
CATEGORIES OF CLASSES DEFINITION
<S> <C>
PRINCIPAL TYPES
Accretion Directed............ A class that receives principal payments from the accreted interest from
specified Accrual classes. An Accretion Directed class also may receive principal
payments from principal paid on the underlying Trust Fund Assets for the related
Series.
Component Securities.......... A class consisting of 'Components.' The Components of a class of Component
Securities may have different principal and/or interest payment characteristics
but together constitute a single class. Each Component of a class of Component
Securities may be identified as falling into one or more of the categories in
this chart.
Notional Amount Securities.... A class having no principal balance and bearing interest on the related notional
amount. The notional amount is used for purposes of the determination of interest
distributions.
Planned Principal Class (also
sometimes referred to as
'PACs')..................... A class that is designed to receive principal payments using a predetermined
principal balance schedule derived by assuming two constant prepayment rates for
the underlying Trust Fund Assets. These two rates are the endpoints for the
'structuring range' for the Planned Principal Class. The Planned Principal
Classes in any Series of Securities may be subdivided into different categories
(e.g., Primary Planned Principal Classes, Secondary Planned Principal Classes and
so forth) having different effective structuring ranges and different principal
payment priorities. The structuring range for the Secondary Planned Principal
Categories of Classes Definition Class of a Series of Securities will be narrower
than that for the Primary Planned Principal Class of such Series.
Scheduled Principal Class..... A class that is designed to receive principal payments using a predetermined
principal balance schedule but is not designated as a Planned Principal Class or
Targeted Principal class. In may cases, the schedule is derived by assuming two
constant prepayment rates for the underlying Trust Fund Assets. These two rates
are the endpoints for the 'structuring range' for the Scheduled Principal Class.
Sequential Pay................ Classes that receive principal payments in a prescribed sequence, that do not
have predetermined principal balance schedules and that under all circumstances
receive payments of principal continuously from the first Distribution Date on
which they receive principal until they are retired. A single class that receives
principal payments before or after all other classes in the same Series of
Securities may be identified as a Sequential Pay class.
Strip......................... A class that receives a constant proportion, or 'strip,' of the principal
payments on the underlying Trust Fund Assets.
Support Class (also sometimes
referred to as 'companion
classes')................... A class that receives principal payments on any Distribution Date only if
scheduled payments have been made on specified Planned Principal Classes,
Targeted Principal Classes and/or Scheduled Principal Classes.
</TABLE>
32
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Targeted Principal Class (also
sometimes referred to as
'TACs')..................... A class that is designed to receive principal payments using a predetermined
principal balance schedule derived by assuming a single constant prepayment rate
for the underlying Trust Fund Assets.
INTEREST TYPES
Fixed Rate.................... A class with an interest rate that is fixed throughout the life of the class.
Floating Rate................. A class with an interest rate that resets periodically based upon a designated
index and that varies directly with changes in such index.
Inverse Floating Rate......... A class with an interest rate that resets periodically based upon a designated
index and that varies inversely with changes in such index.
Variable Rate................. A class with an interest rate that resets periodically and is calculated by
reference to the rate or rates of interest applicable to specified assets or
instruments (e.g., the Loan Rates borne by the underlying Loans).
Interest Only................. A class that receives some or all of the interest payments made on the underlying
Trust Fund Assets and little or no principal. Interest Only classes have either a
nominal principal balance or a notional amount. A nominal principal balance
represents actual principal that will be paid on the class. It is referred to as
nominal since it is extremely small compared to other classes. A notional amount
is the amount used as a reference to calculate the amount of interest due on an
Interest Only class that is not entitled to any distributions in respect of
principal.
Principal..................... Only A class that does not bear interest and is entitled to receive only
distributions in respect of principal.
Partial Accrual............... A class that accretes a portion of the amount of accrued interest thereon, which
amount will be added to the principal balance of such class on each applicable
Distribution Date, with the remainder of such accrued interest to be distributed
currently as interest on such class. Such accretion may continue until a
specified event has occurred or until such Partial Accrual class is retired.
Accrual....................... A class that accretes the amount of accrued interest otherwise distributable on
such class, which amount will be added as principal to the principal balance of
such class on each applicable Distribution Date. Such accretion may continue
until some specified event has occurred or until such Accrual class is retired.
</TABLE>
INDICES APPLICABLE TO FLOATING RATE AND INVERSE FLOATING RATE CLASSES
LIBOR
Unless otherwise specified in the related Prospectus Supplement, on the
LIBOR Determination Date (as such term is defined in the related Prospectus
Supplement) for each class of Securities of a Series as to which the applicable
interest rate is determined by reference to an index denominated as LIBOR, the
Person designated in the related Agreement (the 'Calculation Agent') will
determine LIBOR by reference to the quotations, as set forth on the Reuters
Screen LIBO Page (as defined in the International Swap Dealers Association, Inc.
Code of Standard Wording, Assumptions and Provisions for Swaps, 1986 Edition),
offered by the principal London office of each of the designated reference banks
meeting the criteria set forth below (the 'Reference Banks') for making
one-month United States dollar deposits in leading banks in the London Interbank
market, as of 11:00 a.m. (London time) on such LIBOR Determination Date. In lieu
of relying on the quotations for those Reference Banks that appear at such time
on the Reuters Screen LIBO Page, the Calculation Agent will request each of the
Reference Banks to provide such offered quotations at such time.
LIBOR will be established by the Calculation Agent on each LIBOR
Determination Date as follows:
33
<PAGE>
<PAGE>
(a) If on any LIBOR Determination Date two or more Reference Banks
provide such offered quotations, LIBOR for the next Interest Accrual Period
shall be the arithmetic mean of such offered quotations (rounded upwards if
necessary to the nearest whole multiple of 1/32%).
(b) If on any LIBOR Determination Date only one or none of the
Reference Banks provides such offered quotations, LIBOR for the next
Interest Accrual Period (as such term is defined in the related Prospectus
Supplement) shall be whichever is the higher of (i) LIBOR as determined on
the previous LIBOR Determination Date or (ii) the Reserve Interest Rate.
The 'Reserve Interest Rate' shall be the rate per annum which the
Calculation Agent determines to be either (i) the arithmetic mean (rounded
upwards if necessary to the nearest whole multiple of 1/32%) of the
one-month United States dollar lending rates that New York City banks
selected by the Calculation Agent are quoting, on the relevant LIBOR
Determination Date, to the principal London offices of at least two of the
Reference Banks to which such quotations are, in the opinion of the
Calculation Agent being so made, or (ii) in the event that the Calculation
Agent can determine no such arithmetic mean, the lowest one-month United
States dollar lending rate which New York City banks selected by the
Calculation Agent are quoting on such LIBOR Determination Date to leading
European banks.
(c) If on any LIBOR Determination Date for a class specified in the
related Prospectus Supplement, the Calculation Agent is required but is
unable to determine the Reserve Interest Rate in the manner provided in
paragraph (b) above, LIBOR for the next Interest Accrual Period shall be
LIBOR as determined on the preceding LIBOR Determination Date, or, in the
case of the first LIBOR Determination Date, LIBOR shall be deemed to be the
per annum rate specified as such in the related Prospectus Supplement.
Each Reference Bank (i) shall be a leading bank engaged in transactions in
Eurodollar deposits in the international Eurocurrency market; (ii) shall not
control, be controlled by, or be under common control with the Calculation
Agent; and (iii) shall have an established place of business in London. If any
such Reference Bank should be unwilling or unable to act as such or if
appointment of any such Reference Bank is terminated, another leading bank
meeting the criteria specified above will be appointed.
The establishment of LIBOR on each LIBOR Determination Date by the
Calculation Agent and its calculation of the rate of interest for the applicable
classes for the related Interest Accrual Period shall (in the absence of
manifest error) be final and binding.
COFI
The Eleventh District Cost of Funds Index is designed to represent the
monthly weighted average cost of funds for savings institutions in Arizona,
California and Nevada that are member institutions of the Eleventh Federal Home
Loan Bank District (the 'Eleventh District'). The Eleventh District Cost of
Funds Index for a particular month reflects the interest costs paid on all types
of funds held by Eleventh District member institutions and is calculated by
dividing the cost of funds by the average of the total amount of those funds
outstanding at the end of that month and of the prior month and annualizing and
adjusting the result to reflect the actual number of days in the particular
month. If necessary, before these calculations are made, the component figures
are adjusted by the Federal Home Loan Bank of San Francisco ('FHLBSF') to
neutralize the effect of events such as member institutions leaving the Eleventh
District or acquiring institutions outside the Eleventh District. The Eleventh
District Cost of Funds Index is weighted to reflect the relative amount of each
type of funds held at the end of the relevant month. The major components of
funds of Eleventh District member institutions are: (i) savings deposits, (ii)
time deposits, (iii) FHLBSF advances, (iv) repurchase agreements and (v) all
other borrowings. Because the component funds represent a variety of maturities
whose costs may react in different ways to changing conditions, the Eleventh
District Cost of Funds Index does not necessarily reflect current market rates.
A number of factors affect the performance of the Eleventh District Cost of
Funds Index, which may cause it to move in a manner different from indices tied
to specific interest rates, such as United States Treasury bills or LIBOR.
Because the liabilities upon which the Eleventh District Cost of Funds Index is
based were issued at various times under various market conditions and with
various maturities, the Eleventh District Cost of Funds Index may not
necessarily reflect the prevailing market interest rates on new liabilities of
similar maturities. Moreover, as stated above, the Eleventh District Cost of
Funds Index is designed to represent the average cost of funds for Eleventh
District savings institutions for the month prior to the month in which it its
due to be
34
<PAGE>
<PAGE>
published. Additionally, the Eleventh District Cost of Funds Index may not
necessarily move in the same direction as market interest rates at all times,
since as longer term deposits or borrowings mature and are renewed at prevailing
market interest rates, the Eleventh District Cost of Funds Index is influenced
by the differential between the prior and the new rates on those deposits or
borrowings. In addition, movements of the Eleventh District Cost of Funds Index,
as compared to other indices tied to specific interest rates, may be affected by
changes instituted by the FHLBSF in the method used to calculate the Eleventh
District Cost of Funds Index.
The FHLBSF publishes the Eleventh District Cost of Funds Index in its
monthly Information Bulletin. Any individual may request regular receipt by mail
of Information Bulletins by writing the Federal Home Loan Bank of San Francisco,
P.O. Box 7948, 600 California Street, San Francisco, California 94120, or by
calling (415) 616-1000. The Eleventh District Cost of Funds Index may also be
obtained by calling the FHLBSF at (415) 616-2600.
The FHLBSF has stated in its Information Bulletin that the Eleventh
District Cost of Funds Index for a month 'will be announced on or near the last
working day' of the following month and also has stated that it 'cannot
guarantee the announcement' of such index on an exact date. So long as such
index for a month is announced on or before the tenth day of the second
following month, the interest rate for each class of Securities of a Series as
to which the applicable interest rate is determined by reference to an index
denominated as COFI (each, a class of 'COFI Securities') for the Interest
Accrual Period commencing in such second following month will be based on the
Eleventh District Cost of Funds Index for the second preceding month. If
publication is delayed beyond such tenth day, such interest rate will be based
on the Eleventh District Cost of Funds Index for the third preceding month.
Unless otherwise specified in the related Prospectus Supplement, if on the
tenth day of the month in which any Interest Accrual Period commences for a
class of COFI Securities the most recently published Eleventh District Cost of
Funds Index relates to a month prior to the third preceding month, the index for
such current Interest Accrual Period and for each succeeding Interest Accrual
Period will, except as described in the next to last sentence of this paragraph,
be based on the National Monthly Median Cost of Funds Ratio to SAIF-Insured
Institutions (the 'National Cost of Funds Index') published by the Office of
Thrift Supervision (the 'OTS') for the third preceding month (or the fourth
preceding month if the National Cost of Funds Index for the third preceding
month has not been published on such tenth day of an Interest Accrual Period).
Information on the National Cost of Funds Index may be obtained by writing the
OTS at 1700 G Street, N.W., Washington, D.C. 20552 or calling (202) 906-6677,
and the current National Cost of Funds Index may be obtained by calling (202)
906-6988. If on any such tenth day of the month in which an Interest Accrual
Period commences the most recently published National Cost of Funds Index
relates to a month prior to the fourth preceding month, the applicable index for
such Interest Accrual Period and each succeeding Interest Accrual Period will be
based on LIBOR, as determined by the Calculation Agent in accordance with the
Agreement relating to such Series of Securities. A change of index from the
Eleventh District Cost of Funds Index to an alternative index will result in a
change in the index level, and, particularly if LIBOR is the alternative index,
could increase its volatility.
The establishment of COFI by the Calculation Agent and its calculation of
the rates of interest for the applicable classes for the related Interest
Accrual Period shall (in the absence of manifest error) be final and binding.
Treasury Index
Unless otherwise specified in the related Prospectus Supplement, on the
Treasury Index Determination Date (as such term is defined in the related
Prospectus Supplement) for each class of Securities of a Series as to which the
applicable interest rate is determined by reference to an index denominated as a
Treasury Index, the Calculation Agent will ascertain the Treasury Index for
Treasury securities of the maturity and for the period (or, if applicable, date)
specified in the related Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, the Treasury Index for any period means the
average of the yield for each business day during the period specified therein
(and for any date means the yield for such date), expressed as a per annum
percentage rate, on (i) U.S Treasury securities adjusted to the 'constant
maturity' (as further described below) specified in such Prospectus Supplement
or (ii) if no 'constant maturity' is so specified, U.S. Treasury securities
trading on the secondary market having the maturity specified in such Prospectus
Supplement, in each case as published by the Federal Reserve Board in its
Statistical Release No. H.15(519). Statistical Release No.
35
<PAGE>
<PAGE>
H.15(519) is published on Monday or Tuesday of each week and may be obtained by
writing or calling the Publications Department at the Board of Governors of the
Federal Reserve System, 21st and C Streets, Washington, D.C. 20551 (202)
452-3244. If the Calculation Agent has not yet received Statistical Release No.
H.15(519) for such week, then it will use such Statistical Release from the
immediately preceding week.
Yields on U.S. Treasury securities at 'constant maturity' are derived from
the U.S. Treasury's daily yield curve. This curve, which relates the yield on a
security to its time to maturity, is based on the closing market bid yields on
actively traded Treasury securities in the over-the-counter market. These market
yields are calculated from composites of quotations reported by five leading
U.S. Government securities dealers to the Federal Reserve Bank of New York. This
method provides a yield for a given maturity even if no security with that exact
maturity is outstanding. In the event that the Treasury Index is no longer
published, a new index based upon comparable data and methodology will be
designated in accordance with the Agreement relating to the particular Series of
Securities. The Calculation Agent's determination of the Treasury Index, and its
calculation of the rates of interest for the applicable classes for the related
Interest Accrual Period shall (in the absence of manifest error) be final and
binding.
Prime Rate
Unless otherwise specified in the related Prospectus Supplement, on the
Prime Rate Determination Date (as such term is defined in the related Prospectus
Supplement) for each class of Securities of a Series as to which the applicable
interest rate is determined by reference to an index denominated as the Prime
Rate, the Calculation Agent will ascertain the Prime Rate for the related
Interest Accrual Period. Unless otherwise specified in the related Prospectus
Supplement, the Prime Rate for an Interest Accrual Period will be the 'Prime
Rate' as published in the 'Money Rates' section of The Wall Street Journal (or
if not so published, the 'Prime Rate' as published in a newspaper of general
circulation selected by the Calculation Agent in its sole discretion) on the
related Prime Rate Determination Date. If a prime rate range is given, then the
average of such range will be used. In the event that the Prime Rate is no
longer published, a new index based upon comparable data and methodology will be
designated in accordance with the Agreement relating to the particular Series of
Securities. The Calculation Agent's determination of the Prime Rate and its
calculation of the rates of interest for the related Interest Accrual Period
shall (in the absence of manifest error) be final and binding.
BOOK-ENTRY REGISTRATION OF SECURITIES
As described in the related Prospectus Supplement, if not issued in fully
registered form, each class of Securities will be registered as book-entry
certificates (the 'Book-Entry Securities'). Persons acquiring beneficial
ownership interests in the Securities ('Security Owners') will hold their
Securities 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 Securities will be issued in one or more certificates which equal the
aggregate principal balance of the Securities 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, N.A., will
act as depositary for CEDEL and The Chase Manhattan Bank will act as depositary
for Euroclear (in such capacities, individually the 'Relevant Depositary' and
collectively the 'European Depositaries'). Except as described below, no person
acquiring a Book-Entry Security (each, a 'beneficial owner') will be entitled to
receive a physical certificate representing such Security (a 'Definitive
Security'). Unless and until Definitive Securities are issued, it is anticipated
that the only 'Securityholders' of the Securities will be Cede & Co., as nominee
of DTC. Security Owners are only permitted to exercise their rights indirectly
through Participants and DTC.
The beneficial owner's ownership of a Book-Entry Security 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 Security 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
36
<PAGE>
<PAGE>
owner's Financial Intermediary is not a DTC participant, and on the records of
CEDEL or Euroclear, as appropriate).
Security Owners will receive all distributions of principal of, and
interest on, the Securities from the Trustee through DTC and DTC participants.
While the Securities 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 Securities and is
required to receive and transmit distributions of principal of, and interest on,
the Securities. Participants and indirect participants with whom Security Owners
have accounts with respect to Securities are similarly required to make
book-entry transfers and receive and transmit such distributions on behalf of
their respective Security Owners. Accordingly, although Security Owners will not
possess certificates, the Rules provide a mechanism by which Security Owners
will receive distributions and will be able to transfer their interest.
Security Owners will not receive or be entitled to receive certificates
representing their respective interests in the Securities, except under the
limited circumstances described below. Unless and until Definitive Securities
are issued, Security Owners who are not Participants may transfer ownership of
Securities only through Participants and indirect participants by instructing
such Participants and indirect participants to transfer Securities, by
book-entry transfer, through DTC for the account of the purchasers of such
Securities, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of Securities 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 Security
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
herein) or Euroclear Participant (as defined herein) 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.
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 counterparty 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.
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,
37
<PAGE>
<PAGE>
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 its participants
('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 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 ('Morgan' and in such capacity, the
'Euroclear Operator'), under contract with Euroclear Clearance Systems S.C., a
Belgian cooperative corporation (the 'Belgian Cooperative'). All operations are
conducted by Morgan, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Belgian Cooperative. The Belgian 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.
Morgan 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 Morgan 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.
Under a book-entry format, beneficial owners of the Book-Entry Securities
may experience some delay in their receipt of payments, since such payments will
be forwarded by the Trustee to Cede & Co., as nominee of DTC. Distributions with
respect to Securities 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 -Tax Treatment of Foreign Investors' and ' -- Tax
Consequences to Holders of the Notes -- Backup Withholding' herein. Because DTC
can only act on behalf of Financial Intermediaries, the ability of a beneficial
owner to pledge Book-Entry Securities to persons or entities that do not
participate in the Depository system may be limited due to the lack of physical
certificates for such Book-Entry Securities. In addition, issuance of the Book-
Entry Securities in book-entry form may reduce the liquidity of such Securities
in the secondary market since certain potential investors may be unwilling to
purchase Securities for which they cannot obtain physical certificates.
Monthly and annual reports on the Trust will be provided to Cede & Co., as
nominee of DTC, and may be made available by Cede & Co. to beneficial owners
upon request, in accordance with the rules, regulations and procedures creating
and affecting the Depository, and to the Financial Intermediaries to whose DTC
accounts the Book-Entry Securities of such beneficial owners are credited.
DTC has advised the Trustee that, unless and until Definitive Securities
are issued, DTC will take any action permitted to be taken by the holders of the
Book-Entry Securities under the applicable Agreement only at the direction of
one or more Financial Intermediaries to whose DTC accounts the Book-Entry
Securities are credited, to the extent that such actions are taken on behalf of
Financial Intermediaries whose holdings include such Book-Entry Securities.
CEDEL or the Euroclear Operator, as the case may be, will take any other action
permitted to be taken by a Securityholder under the 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
38
<PAGE>
<PAGE>
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
Securities which conflict with actions taken with respect to other Securities.
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 Securities. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Securities and instructions for
re-registration, the Trustee will issue Definitive Securities, and thereafter
the Trustee will recognize the holders of such Definitive Securities as
Securityholders under the applicable Agreement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Securities 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.
None of the Master Servicer, the Depositor or the Trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the Book-Entry Securities held by
Cede & Co., as nominee of DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
CREDIT ENHANCEMENT
GENERAL
Credit enhancement may be provided with respect to one or more classes of a
Series of Securities or with respect to the related Trust Fund Assets. Credit
enhancement may be in the form of a limited financial guaranty policy issued by
an entity named in the related Prospectus Supplement, the subordination of one
or more classes of the Securities of such Series, the establishment of one or
more Reserve Accounts, the use of a cross-collateralization feature, use of a
mortgage pool insurance policy, FHA Insurance, VA Guarantee, bankruptcy bond,
special hazard insurance policy, surety bond, letter of credit, guaranteed
investment contract, overcollateralization, or another method of credit
enhancement contemplated herein and described in the related Prospectus
Supplement, or any combination of the foregoing. Unless otherwise specified in
the related Prospectus Supplement, credit enhancement will not provide
protection against all risks of loss and will not guarantee repayment of the
entire principal balance of the Securities and interest thereon. If losses occur
which exceed the amount covered by credit enhancement or which are not covered
by the credit enhancement, Securityholders will bear their allocable share of
any deficiencies.
SUBORDINATION
If so specified in the related Prospectus Supplement, protection afforded
to holders of one or more classes of Securities of a Series by means of the
subordination feature may be accomplished by the preferential right of holders
of one or more other classes of such Series (the 'Senior Securities') to
distributions in respect of scheduled principal, Principal Prepayments, interest
or any combination thereof that otherwise would have been payable to holders of
Subordinated Securities under the circumstances and to the extent specified in
the related Prospectus Supplement. Protection may also be afforded to the
holders of Senior Securities of a Series by: (i) reducing the ownership interest
(if applicable) of the related Subordinated Securities; (ii) a combination of
the immediately preceding sentence and clause (i) above; or (iii) as otherwise
described in the related Prospectus Supplement. If so specified in the related
Prospectus Supplement, delays in receipt of scheduled payments on the Loans and
losses on defaulted Loans may be borne first by the various classes of
Subordinated Securities and thereafter by the various classes of Senior
Securities, in each case under the circumstances and subject to the limitations
specified in such Prospectus Supplement. The aggregate distributions in respect
of delinquent payments on the Loans over the lives of the Securities or at any
time, the aggregate losses in respect of defaulted Loans which must be borne by
the Subordinated Securities by virtue of subordination and the amount of the
distributions otherwise distributable to the Subordinated Securityholders that
will be distributable to Senior Securityholders on any Distribution Date may be
limited as specified in the related Prospectus Supplement. If aggregate
distributions in respect of delinquent payments on the Loans or aggregate losses
in respect of such Loans were to exceed an amount specified in the related
Prospectus Supplement, holders of Senior Securities would experience losses on
the Securities.
39
<PAGE>
<PAGE>
In addition to or in lieu of the foregoing, if so specified in the related
Prospectus Supplement, all or any portion of distributions otherwise payable to
holders of Subordinated Securities on any Distribution Date may instead be
deposited into one or more Reserve Accounts established with the Trustee or
distributed to holders of Senior Securities. Such deposits may be made on each
Distribution Date, for specified periods or until the balance in the Reserve
Account has reached a specified amount and, following payments from the Reserve
Account to holders of Senior Securities or otherwise, thereafter to the extent
necessary to restore the balance in the Reserve Account to required levels, in
each case as specified in the related Prospectus Supplement. Amounts on deposit
in the Reserve Account may be released to the holders of certain classes of
Securities at the times and under the circumstances specified in such Prospectus
Supplement.
If specified in the related Prospectus Supplement, various classes of
Senior Securities and Subordinated Securities may themselves be subordinate in
their right to receive certain distributions to other classes of Senior and
Subordinated Securities, respectively, through a cross-collateralization
mechanism or otherwise.
As between classes of Senior Securities and as between classes of
Subordinated Securities, distributions may be allocated among such classes (i)
in the order of their scheduled final distribution dates, (ii) in accordance
with a schedule or formula, (iii) in relation to the occurrence of events, or
(iv) otherwise, in each case as specified in the related Prospectus Supplement.
As between classes of Subordinated Securities, payments to holders of Senior
Securities on account of delinquencies or losses and payments to any Reserve
Account will be allocated as specified in the related Prospectus Supplement.
LETTER OF CREDIT
The letter of credit, if any, with respect to a Series of Securities will
be issued by the bank or financial institution specified in the related
Prospectus Supplement (the 'L/C Bank'). Under the letter of credit, the L/C Bank
will be obligated to honor drawings thereunder in an aggregate fixed dollar
amount, net of unreimbursed payments thereunder, equal to the percentage
specified in the related Prospectus Supplement of the aggregate principal
balance of the Loans on the related Cut-off Date or of one or more Classes of
Securities (the 'L/C Percentage'). If so specified in the related Prospectus
Supplement, the letter of credit may permit drawings in the event of losses not
covered by insurance policies or other credit support, such as losses arising
from damage not covered by standard hazard insurance policies, losses resulting
from the bankruptcy of a borrower and the application of certain provisions of
the federal Bankruptcy Code, or losses resulting from denial of insurance
coverage due to misrepresentations in connection with the origination of a Loan.
The amount available under the letter of credit will, in all cases, be reduced
to the extent of the unreimbursed payments thereunder. The obligations of the
L/C Bank under the letter of credit for each Series of Securities will expire at
the earlier of the date specified in the related Prospectus Supplement or the
termination of the Trust Fund. See 'The Agreements -- Termination: Optional
Termination.' A copy of the letter of credit for a Series, if any, will be filed
with the Commission as an exhibit to a Current Report on Form 8-K to be filed
within 15 days of issuance of the Securities of the related Series.
INSURANCE POLICIES, SURETY BONDS AND GUARANTIES
If so provided in the Prospectus Supplement for a Series of Securities,
deficiencies in amounts otherwise payable on such Securities or certain classes
thereof will be covered by insurance policies and/or surety bonds provided by
one or more insurance companies or sureties. Such instruments may cover, with
respect to one or more classes of Securities of the related series, timely
distributions of interest and/or full distributions of principal on the basis of
a schedule of principal distributions set forth in or determined in the manner
specified in the related Prospectus Supplement. In addition, if specified in the
related Prospectus Supplement, a Trust Fund may also include bankruptcy bonds,
special hazard insurance policies, other insurance or guaranties for the purpose
of (i) maintaining timely payments or providing additional protection against
losses on the assets included in such Trust Fund, (ii) paying administrative
expenses or (iii) establishing a minimum reinvestment rate on the payments made
in respect of such assets or principal payment rate on such assets. Such
arrangements may include agreements under which Securityholders are entitled to
receive amounts deposited in various accounts held by the Trustee upon the terms
specified in such Prospectus Supplement. A copy of any such instrument for a
series will be filed with the Commission as an exhibit to a Current Report on
Form 8-K to be filed with the Commission within 15 days of issuance of the
Securities of the related series.
40
<PAGE>
<PAGE>
OVER-COLLATERALIZATION
If so provided in the Prospectus Supplement for a Series of Securities, a
portion of the interest payment on each Loan may be applied as an additional
distribution in respect of principal to reduce the principal balance of a
certain class or classes of Securities and, thus, accelerate the rate of payment
of principal on such class or classes of Securities.
RESERVE ACCOUNTS
If specified in the related Prospectus Supplement, credit support with
respect to a Series of Securities will be provided by the establishment and
maintenance with the Trustee for such Series of Securities, in trust, of one or
more Reserve Accounts for such Series. The related Prospectus Supplement will
specify whether or not any such Reserve Accounts will be included in the Trust
Fund for such Series.
The Reserve Account for a Series will be funded (i) by the deposit therein
of cash, United States Treasury securities, instruments evidencing ownership of
principal or interest payments thereon, letters of credit, demand notes,
certificates of deposit or a combination thereof in the aggregate amount
specified in the related Prospectus Supplement, (ii) by the deposit therein from
time to time of certain amounts, as specified in the related Prospectus
Supplement to which the Subordinate Securityholders, if any, would otherwise be
entitled or (iii) in such other manner as may be specified in the related
Prospectus Supplement.
Any amounts on deposit in the Reserve Account and the proceeds of any other
instrument upon maturity will be held in cash or will be invested in 'Permitted
Investments' which may include (i) obligations of the United States or any
agency thereof, provided such obligations are backed by the full faith and
credit of the United States; (ii) general obligations of or obligations
guaranteed by any state of the United States or the District of Columbia
receiving the highest long-term debt rating of each Rating Agency rating the
related Series of Securities, or such lower rating as will not result in the
downgrading or withdrawal of the ratings then assigned to such Securities by
each such Rating Agency; (iii) commercial paper issued by Countrywide Home
Loans, Inc. or any of its affiliates; provided that such commercial paper is
rated no lower than the rating specified in the related Prospectus Supplement;
(iv) commercial or finance company paper which is then receiving the highest
commercial or finance company paper rating of each such Rating Agency, or such
lower rating as will not result in the downgrading or withdrawal of the ratings
then assigned to such Securities by each such Rating Agency; (v) certificates of
deposit, demand or time deposits, or bankers' acceptances issued by any
depository institution or trust company incorporated under the laws of the
United States or of any state thereof and subject to supervision and examination
by federal and/or state banking authorities, provided that the commercial paper
and/or long term unsecured debt obligations of such depository institution or
trust company (or in the case of the principal depository institution in a
holding company system, the commercial paper or long-term unsecured debt
obligations of such holding company, but only if Moody's Investors Service, Inc.
('Moody's') is not a Rating Agency) are then rated one of the two highest
long-term and the highest short-term ratings of each such Rating Agency for such
securities, or such lower ratings as will not result in the downgrading or
withdrawal of the rating then assigned to such Securities by any such Rating
Agency; (vi) demand or time deposits or certificates of deposit issued by any
bank or trust company or savings institution to the extent that such deposits
are fully insured by the FDIC; (vii) guaranteed reinvestment agreements issued
by any bank, insurance company or other corporation containing, at the time of
the issuance of such agreements, such terms and conditions as will not result in
the downgrading or withdrawal of the rating then assigned to such Securities by
any such Rating Agency; (viii) repurchase obligations with respect to any
security described in clauses (i) and (ii) above, in either case entered into
with a depository institution or trust company (acting as principal) described
in clause (v) above; (ix) securities (other than stripped bonds, stripped
coupons or instruments sold at a purchase price in excess of 115% of the face
amount thereof) bearing interest or sold at a discount issued by any corporation
incorporated under the laws of the United States or any state thereof which, at
the time of such investment, have one of the two highest ratings of each Rating
Agency (except if the Rating Agency is Moody's, such rating shall be the highest
commercial paper rating of Moody's for any such securities), or such lower
rating as will not result in the downgrading or withdrawal of the rating then
assigned to such Securities by any such Rating Agency, as evidenced by a signed
writing delivered by each such Rating Agency; (x) interests in any money market
fund which at the date of acquisition of the interests in such fund and
throughout the time such interests are held in such fund has the highest
applicable rating by each such Rating Agency or such lower rating as will not
result in the downgrading or withdrawal of the ratings then assigned to
41
<PAGE>
<PAGE>
such Securities by each such Rating Agency; (xi) short term investment funds
sponsored by any trust company or national banking association incorporated
under the laws of the United States or any state thereof which on the date of
acquisition has been rated by each such Rating Agency in their respective
highest applicable rating category or such lower rating as will not result in
the downgrading or withdrawal of the ratings then assigned to such Securities by
each such Rating Agency; and (xii) such other investments having a specified
stated maturity and bearing interest or sold at a discount acceptable to each
Rating Agency as will not result in the downgrading or withdrawal of the rating
then assigned to such Securities by any such Rating Agency, as evidenced by a
signed writing delivered by each such Rating Agency; provided that no such
instrument shall be a Permitted Investment if such instrument evidences the
right to receive interest only payments with respect to the obligations
underlying such instrument; and provided, further, that no investment specified
in clause (x) or clause (xi) above shall be a Permitted Investment for any
Pre-Funding Account or any related Capitalized Interest Account. If a letter of
credit is deposited with the Trustee, such letter of credit will be irrevocable.
Unless otherwise specified in the related Prospectus Supplement, any instrument
deposited therein will name the Trustee, in its capacity as trustee for the
holders of the Securities, as beneficiary and will be issued by an entity
acceptable to each Rating Agency that rates the Securities of the related
Series. Additional information with respect to such instruments deposited in the
Reserve Accounts will be set forth in the related Prospectus Supplement.
Any amounts so deposited and payments on instruments so deposited will be
available for withdrawal from the Reserve Account for distribution to the
holders of Securities of the related Series for the purposes, in the manner and
at the times specified in the related Prospectus Supplement.
POOL INSURANCE POLICIES
If specified in the related Prospectus Supplement, a separate pool
insurance policy ('Pool Insurance Policy') will be obtained for the Pool and
issued by the insurer (the 'Pool Insurer') named in such Prospectus Supplement.
Each Pool Insurance Policy will, subject to the limitations described below,
cover loss by reason of default in payment on Loans in the Pool in an amount
equal to a percentage specified in such Prospectus Supplement of the aggregate
principal balance of such Loans on the Cut-off Date which are not covered as to
their entire outstanding principal balances by Primary Mortgage Insurance
Policies. As more fully described below, the Master Servicer will present claims
thereunder to the Pool Insurer on behalf of itself, the Trustee and the holders
of the Securities of the related Series. The Pool Insurance Policies, however,
are not blanket policies against loss, since claims thereunder may only be made
respecting particular defaulted Loans and only upon satisfaction of certain
conditions precedent described below. Unless otherwise specified in the related
Prospectus Supplement, the Pool Insurance Policies will not cover losses due to
a failure to pay or denial of a claim under a Primary Mortgage Insurance Policy.
Unless otherwise specified in the related Prospectus Supplement, the Pool
Insurance Policy will provide that no claims may be validly presented unless (i)
any required Primary Mortgage Insurance Policy is in effect for the defaulted
Loan and a claim thereunder has been submitted and settled; (ii) hazard
insurance on the related Property has been kept in force and real estate taxes
and other protection and preservation expenses have been paid; (iii) if there
has been physical loss or damage to the Property, it has been restored to its
physical condition (reasonable wear and tear excepted) at the time of issuance
of the policy; and (iv) the insured has acquired good and merchantable title to
the Property free and clear of liens except certain permitted encumbrances. Upon
satisfaction of these conditions, the Pool Insurer will have the option either
(a) to purchase the property securing the defaulted Loan at a price equal to the
principal balance thereof plus accrued and unpaid interest at the Loan Rate to
the date of such purchase and certain expenses incurred by the Master Servicer
on behalf of the Trustee and Securityholders, or (b) to pay the amount by which
the sum of the principal balance of the defaulted Loan plus accrued and unpaid
interest at the Loan Rate to the date of payment of the claim and the
aforementioned expenses exceeds the proceeds received from an approved sale of
the Property, in either case net of certain amounts paid or assumed to have been
paid under the related Primary Mortgage Insurance Policy. If any Property
securing a defaulted Loan is damaged and proceeds, if any, from the related
hazard insurance policy or the applicable special hazard insurance policy are
insufficient to restore the damaged Property to a condition sufficient to permit
recovery under the Pool Insurance Policy, the Master Servicer will not be
required to expend its own funds to restore the damaged Property unless it
determines that (i) such restoration will increase the proceeds to
Securityholders on liquidation of the Loan after reimbursement
42
<PAGE>
<PAGE>
of the Master Servicer for its expenses and (ii) such expenses will be
recoverable by it through proceeds of the sale of the Property or proceeds of
the related Pool Insurance Policy or any related Primary Mortgage Insurance
Policy.
Unless otherwise specified in the related Prospectus Supplement, the Pool
Insurance Policy will not insure (and many Primary Mortgage Insurance Policies
do not insure) against loss sustained by reason of a default arising from, among
other things, (i) fraud or negligence in the origination or servicing of a Loan,
including misrepresentation by the borrower, the originator or persons involved
in the origination thereof, or (ii) failure to construct a Property in
accordance with plans and specifications. A failure of coverage attributable to
one of the foregoing events might result in a breach of the related Seller's
representations described above, and, in such events might give rise to an
obligation on the part of such Seller to repurchase the defaulted Loan if the
breach cannot be cured by such Seller. No Pool Insurance Policy will cover (and
many Primary Mortgage Insurance Policies do not cover) a claim in respect of a
defaulted Loan occurring when the servicer of such Loan, at the time of default
or thereafter, was not approved by the applicable insurer.
Unless otherwise specified in the related Prospectus Supplement, the
original amount of coverage under each Pool Insurance Policy will be reduced
over the life of the related Securities by the aggregate dollar amount of claims
paid less the aggregate of the net amounts realized by the Pool Insurer upon
disposition of all foreclosed properties. The amount of claims paid will include
certain expenses incurred by the Master Servicer as well as accrued interest on
delinquent Loans to the date of payment of the claim, unless otherwise specified
in the related Prospectus Supplement. Accordingly, if aggregate net claims paid
under any Pool Insurance Policy reach the original policy limit, coverage under
that Pool Insurance Policy will be exhausted and any further losses will be
borne by the related Securityholders.
CROSS-COLLATERALIZATION
If specified in the related Prospectus Supplement, the beneficial ownership
of separate groups of assets included in a Trust Fund may be evidenced by
separate classes of the related Series of Securities. In such case, credit
support may be provided by a cross-collateralization feature which requires that
distributions be made with respect to Securities evidencing a beneficial
ownership interest in, or secured by, one or more asset groups within the same
Trust Fund prior to distributions to Subordinated Securities evidencing a
beneficial ownership interest in, or secured by, one or more other asset groups
within such Trust Fund. Cross-collateralization may be provided by (i) the
allocation of certain excess amounts generated by one or more asset groups to
one or more other asset groups within the same Trust Fund or (ii) the allocation
of losses with respect to one or more asset groups to one or more other asset
groups within the same Trust Fund. Such excess amounts will be applied and/or
such losses will be allocated to the class or classes of Subordinated Securities
of the related Series then outstanding having the lowest rating assigned by any
Rating Agency or the lowest payment priority, in each case to the extent and in
the manner more specifically described in the related Prospectus Supplement. The
Prospectus Supplement for a Series which includes a cross-collateralization
feature will describe the manner and conditions for applying such
cross-collateralization feature.
If specified in the related Prospectus Supplement, the coverage provided by
one or more of the forms of credit enhancement described in this Prospectus may
apply concurrently to two or more separate Trust Funds. If applicable, the
related Prospectus Supplement will identify the Trust Funds to which such credit
enhancement relates and the manner of determining the amount of coverage
provided to such Trust Funds thereby and of the application of such coverage to
the identified Trust Funds.
43
<PAGE>
<PAGE>
YIELD AND PREPAYMENT CONSIDERATIONS
The yields to maturity and weighted average lives of the Securities will be
affected primarily by the amount and timing of principal payments received on or
in respect of the Trust Fund Assets included in the related Trust Fund. The
original terms to maturity of the Loans in a given Pool will vary depending upon
the type of Loans included therein. Each Prospectus Supplement will contain
information with respect to the type and maturities of the Loans in the related
Pool. The related Prospectus Supplement will specify the circumstances, if any,
under which the related Loans will be subject to prepayment penalties. The
prepayment experience on the Loans in a Pool will affect the weighted average
life of the related Series of Securities.
The rate of prepayment on the Loans cannot be predicted. Home equity loans
and home improvement contracts have been originated in significant volume only
during the past few years and the Depositor is not aware of any publicly
available studies or statistics on the rate of prepayment of such loans.
Generally, home equity loans and home improvement contracts are not viewed by
borrowers as permanent financing. Accordingly, such Loans may experience a
higher rate of prepayment than traditional first mortgage loans. On the other
hand, because home equity loans such as the Revolving Credit Line Loans
generally are not fully amortizing, the absence of voluntary borrower
prepayments could cause rates of principal payments lower than, or similar to,
those of traditional fully-amortizing first mortgage loans. The prepayment
experience of the related Trust Fund may be affected by a wide variety of
factors, including general economic conditions, prevailing interest rate levels,
the availability of alternative financing, homeowner mobility and the frequency
and amount of any future draws on any Revolving Credit Line Loans. Other factors
that might be expected to affect the prepayment rate of a pool of home equity
mortgage loans or home improvement contracts include the amounts of, and
interest rates on, the underlying senior mortgage loans, and the use of first
mortgage loans as long-term financing for home purchase and subordinate mortgage
loans as shorter-term financing for a variety of purposes, including home
improvement, education expenses and purchases of consumer durables such as
automobiles. Accordingly, such Loans may experience a higher rate of prepayment
than traditional fixed-rate mortgage loans. In addition, any future limitations
on the right of borrowers to deduct interest payments on home equity loans for
federal income tax purposes may further increase the rate of prepayments of the
Loans. The enforcement of a 'due-on-sale' provision (as described below) will
have the same effect as a prepayment of the related Loan. See 'Certain Legal
Aspects of the Loans -- Due-on-Sale Clauses'. The yield to an investor who
purchases Securities in the secondary market at a price other than par will vary
from the anticipated yield if the rate of prepayment on the Loans is actually
different than the rate anticipated by such investor at the time such Securities
were purchased.
Collections on Revolving Credit Line Loans may vary because, among other
things, borrowers may (i) make payments during any month as low as the minimum
monthly payment for such month or, during the interest-only period for certain
Revolving Credit Line Loans and, in more limited circumstances, Closed-End
Loans, with respect to which an interest-only payment option has been selected,
the interest and the fees and charges for such month or (ii) make payments as
high as the entire outstanding principal balance plus accrued interest and the
fees and charges thereon. It is possible that borrowers may fail to make the
required periodic payments. In addition, collections on the Loans may vary due
to seasonal purchasing and the payment habits of borrowers.
Unless otherwise specified in the related Prospectus Supplement, all
conventional Loans will contain due-on-sale provisions permitting the mortgagee
to accelerate the maturity of the loan upon sale or certain transfers by the
borrower of the related Property. Loans insured by the FHA, and Single Family
Loans partially guaranteed by the VA, are assumable with the consent of the FHA
and the VA, respectively. Thus, the rate of prepayments on such Loans may be
lower than that of conventional Loans bearing comparable interest rates. The
Master Servicer generally will enforce any due-on-sale or due-on-encumbrance
clause, to the extent it has knowledge of the conveyance or further encumbrance
or the proposed conveyance or proposed further encumbrance of the Property and
reasonably believes that it is entitled to do so under applicable law; provided,
however, that the Master Servicer will not take any enforcement action that
would impair or threaten to impair any recovery under any related insurance
policy. See 'The Agreements -- Collection Procedures' and 'Certain Legal Aspects
of the Loans' for a description of certain provisions of each Agreement and
certain legal developments that may affect the prepayment experience on the
Loans.
The rate of prepayments with respect to conventional mortgage loans has
fluctuated significantly in recent years. In general, if prevailing rates fall
significantly below the Loan Rates borne by the Loans, such Loans are
44
<PAGE>
<PAGE>
more likely to be subject to higher prepayment rates than if prevailing interest
rates remain at or above such Loan Rates. Conversely, if prevailing interest
rates rise appreciably above the Loan Rates borne by the Loans, such Loans are
more likely to experience a lower prepayment rate than if prevailing rates
remain at or below such Loan Rates. However, there can be no assurance that such
will be the case.
When a full prepayment is made on a Loan, the borrower is charged interest
on the principal amount of the Loan so prepaid only for the number of days in
the month actually elapsed up to the date of the prepayment, rather than for a
full month. The effect of prepayments in full will be to reduce the amount of
interest passed through or paid in the following month to holders of Securities
because interest on the principal amount of any Loan so prepaid will generally
be paid only to the date of prepayment. Partial prepayments in a given month may
be applied to the outstanding principal balances of the Loans so prepaid on the
first day of the month of receipt or the month following receipt. In the latter
case, partial prepayments will not reduce the amount of interest passed through
or paid in such month. Unless otherwise specified in the related Prospectus
Supplement, neither full nor partial prepayments will be passed through or paid
until the month following receipt.
Even assuming that the Properties provide adequate security for the Loans,
substantial delays could be encountered in connection with the liquidation of
defaulted Loans and corresponding delays in the receipt of related proceeds by
Securityholders could occur. An action to foreclose on a Property securing a
Loan is regulated by state statutes and rules and is subject to many of the
delays and expenses of other lawsuits if defenses or counterclaims are
interposed, sometimes requiring several years to complete. Furthermore, in some
states an action to obtain a deficiency judgment is not permitted following a
nonjudicial sale of a property. In the event of a default by a borrower, these
restrictions among other things, may impede the ability of the Master Servicer
to foreclose on or sell the Property or to obtain liquidation proceeds
sufficient to repay all amounts due on the related Loan. In addition, the Master
Servicer will be entitled to deduct from related liquidation proceeds all
expenses reasonably incurred in attempting to recover amounts due on defaulted
Loans and not yet repaid, including payments to senior lienholders, legal fees
and costs of legal action, real estate taxes and maintenance and preservation
expenses.
Liquidation expenses with respect to defaulted mortgage loans do not vary
directly with the outstanding principal balance of the loan at the time of
default. Therefore, assuming that a servicer took the same steps in realizing
upon a defaulted mortgage loan having a small remaining principal balance as it
would in the case of a defaulted mortgage loan having a large remaining
principal balance, the amount realized after expenses of liquidation would be
smaller as a percentage of the remaining principal balance of the small mortgage
loan than would be the case with the other defaulted mortgage loan having a
large remaining principal balance.
Applicable state laws generally regulate interest rates and other charges,
require certain disclosures, and require licensing of certain originators and
servicers of Loans. In addition, most have other laws, public policy and general
principles of equity relating to the protection of consumers, unfair and
deceptive practices and practices which may apply to the origination, servicing
and collection of the Loans. Depending on the provisions of the applicable law
and the specific facts and circumstances involved, violations of these laws,
policies and principles may limit the ability of the Master Servicer to collect
all or part of the principal of or interest on the Loans, may entitle the
borrower to a refund of amounts previously paid and, in addition, could subject
the Master Servicer to damages and administrative sanctions.
If the rate at which interest is passed through or paid to the holders of
Securities of a Series is calculated on a Loan-by-Loan basis, disproportionate
principal prepayments among Loans with different Loan Rates will affect the
yield on such Securities. In most cases, the effective yield to Securityholders
will be lower than the yield otherwise produced by the applicable Pass-Through
Rate or interest rate and purchase price, because while interest will accrue on
each Loan from the first day of the month (unless otherwise specified in the
related Prospectus Supplement), the distribution of such interest will not be
made earlier than the month following the month of accrual.
Under certain circumstances, the Master Servicer, the holders of the
residual interests in a REMIC or any person specified in the related Prospectus
Supplement may have the option to purchase the assets of a Trust Fund thereby
effecting earlier retirement of the related Series of Securities. See 'The
Agreements -- Termination; Optional Termination'.
45
<PAGE>
<PAGE>
The relative contribution of the various factors affecting prepayment may
vary from time to time. There can be no assurance as to the rate of payment of
principal of the Trust Fund Assets at any time or over the lives of the
Securities.
The Prospectus Supplement relating to a Series of Securities will discuss
in greater detail the effect of the rate and timing of principal payments
(including prepayments), delinquencies and losses on the yield, weighted average
lives and maturities of such Securities.
THE AGREEMENTS
Set forth below is a description of the material provisions of each
Agreement which are not described elsewhere in this Prospectus. The description
is subject to, and qualified in its entirety by reference to, the provisions of
each Agreement. Where particular provisions or terms used in the Agreements are
referred to, such provisions or terms are as specified in the Agreements.
ASSIGNMENT OF THE TRUST FUND ASSETS
Assignment of the Loans. At the time of issuance of the Securities of a
Series, the Depositor will cause the Loans comprising the related Trust Fund to
be assigned to the Trustee, without recourse, together with all principal and
interest received by or on behalf of the Depositor on or with respect to such
Loans after the Cut-off Date, other than principal and interest due on or before
the Cut-off Date and other than any Retained Interest specified in the related
Prospectus Supplement. The Trustee will, concurrently with such assignment,
deliver such Securities to the Depositor in exchange for the Loans. Each Loan
will be identified in a schedule appearing as an exhibit to the related
Agreement. Such schedule will include information as to the outstanding
principal balance of each Loan after application of payments due on or before
the Cut-off Date, as well as information regarding the Loan Rate or APR, the
maturity of the Loan, the Loan-to-Value Ratios or Combined Loan-to-Value Ratios,
as applicable, at origination and certain other information.
Unless otherwise specified in the related Prospectus Supplement, the
Agreement will require that, within the time period specified therein, the
Depositor will also deliver or cause to be delivered to the Trustee (or to the
custodian hereinafter referred to) as to each Mortgage Loan or Home Equity Loan,
among other things, (i) the mortgage note or contract endorsed without recourse
in blank or to the order of the Trustee, (ii) the mortgage, deed of trust or
similar instrument (a 'Mortgage') with evidence of recording indicated thereon
(except for any Mortgage not returned from the public recording office, in which
case the Depositor will deliver or cause to be delivered a copy of such Mortgage
together with a certificate that the original of such Mortgage was delivered to
such recording office), (iii) an assignment of the Mortgage to the Trustee,
which assignment will be in recordable form in the case of a Mortgage
assignment, and (iv) such other security documents, including those relating to
any senior interests in the Property, as may be specified in the related
Prospectus Supplement or the related Agreement. Unless otherwise specified in
the related Prospectus Supplement, the Depositor will promptly cause the
assignments of the related Loans to be recorded in the appropriate public office
for real property records, except in states in which, in the opinion of counsel
acceptable to the Trustee, such recording is not required to protect the
Trustee's interest in such Loans against the claim of any subsequent transferee
or any successor to or creditor of the Depositor or the originator of such
Loans.
With respect to any Loans that are Cooperative Loans, the Depositor will
cause to be delivered to the Trustee the related original cooperative note
endorsed without recourse in blank or to the order of the Trustee, the original
security agreement, the proprietary lease or occupancy agreement, the
recognition agreement, an executed financing agreement and the relevant stock
certificate, related blank stock powers and any other document specified in the
related Prospectus Supplement. The Depositor will cause to be filed in the
appropriate office an assignment and a financing statement evidencing the
Trustee's security interest in each Cooperative Loan.
Unless otherwise specified in the related Prospectus Supplement, the
Depositor will as to each Home Improvement Contract, deliver or cause to be
delivered to the Trustee the original Home Improvement Contract and copies of
documents and instruments related to each Home Improvement Contract and, other
than in the case of unsecured Home Improvement Contracts, the security interest
in the Property securing such Home Improvement Contract. In order to give notice
of the right, title and interest of Securityholders to the Home Improvement
Contracts, the Depositor will cause a UCC-1 financing statement to be executed
by the Depositor
46
<PAGE>
<PAGE>
or the Seller identifying the Trustee as the secured party and identifying all
Home Improvement Contracts as collateral. Unless otherwise specified in the
related Prospectus Supplement, the Home Improvement Contracts will not be
stamped or otherwise marked to reflect their assignment to the Trustee.
Therefore, if, through negligence, fraud or otherwise, a subsequent purchaser
were able to take physical possession of the Home Improvement Contracts without
notice of such assignment, the interest of Securityholders in the Home
Improvement Contracts could be defeated. See 'Certain Legal Aspects of the
Loans -- The Home Improvement Contracts.'
The Trustee (or the custodian hereinafter referred to) will review such
Loan documents within the time period specified in the related Prospectus
Supplement after receipt thereof, and the Trustee will hold such documents in
trust for the benefit of the related Securityholders. Unless otherwise specified
in the related Prospectus Supplement, if any such document is found to be
missing or defective in any material respect, the Trustee (or such custodian)
will notify the Master Servicer and the Depositor, and the Master Servicer will
notify the related Seller. If such Seller cannot cure the omission or defect
within the time period specified in the related Prospectus Supplement after
receipt of such notice, such Seller will be obligated to either (i) purchase the
related Loan from the Trust Fund at the Purchase Price or (ii) if so specified
in the related Prospectus Supplement, remove such Loan from the Trust Fund and
substitute in its place one or more other Loans that meets certain requirements
set forth therein. There can be no assurance that a Seller will fulfill this
purchase or substitution obligation. Although the Master Servicer may be
obligated to enforce such obligation to the extent described above under 'Loan
Program -- Representations by Sellers; Repurchases', neither the Master Servicer
nor the Depositor will be obligated to purchase or replace such Loan if the
Seller defaults on its obligation, unless such breach also constitutes a breach
of the representations or warranties of the Master Servicer or the Depositor, as
the case may be. Unless otherwise specified in the related Prospectus
Supplement, this obligation to cure, purchase or substitute constitutes the sole
remedy available to the Securityholders or the Trustee for omission of, or a
material defect in, a constituent document.
The Trustee will be authorized to appoint a custodian pursuant to a
custodial agreement to maintain possession of and, if applicable, to review the
documents relating to the Loans as agent of the Trustee.
The Master Servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the Agreement. Upon a breach of any such representation of
the Master Servicer which materially and adversely affects the interests of the
Securityholders in a Loan, the Master Servicer will be obligated either to cure
the breach in all material respects or to purchase (at the Purchase Price) or if
so specified in the related Prospectus Supplement, replace the Loan. Unless
otherwise specified in the related Prospectus Supplement, this obligation to
cure, purchase or substitute constitutes the sole remedy available to the
Securityholders or the Trustee for such a breach of representation by the Master
Servicer.
Notwithstanding the foregoing provisions, with respect to a Trust Fund for
which a REMIC election is to be made, no purchase or substitution of a Loan will
be made if such purchase or substitution would result in a prohibited
transaction tax under the Code.
No Recourse to Sellers; Depositor or Master Servicer. As described above
under ' -- Assignment of the Loans,' the Depositor will cause the Loans
comprising the related Trust Fund to be assigned to the Trustee, without
recourse. However, each Seller will be obligated to repurchase or substitute for
any Loan as to which certain representations and warranties are breached or for
failure to deliver certain documents relating to the Loans as described herein
under 'Assignment of the Loans' and 'Loan Program -- Representations by Sellers;
Repurchases.' In addition, the Master Servicer and the Depositor will be
obligated to purchase or substitute for any Loan as to which certain
representations and warranties are breached as described herein under
' -- Assignment of the Loans.' These obligations to purchase or substitute
constitute the sole remedy available to the Securityholders or the Trustee for a
breach of any such representation or failure to deliver a constituent document.
PAYMENTS ON LOANS; DEPOSITS TO SECURITY ACCOUNT
The Master Servicer will establish and maintain or cause to be established
and maintained with respect to the related Trust Fund a separate account or
accounts for the collection of payments on the related Trust Fund Assets in the
Trust Fund (the 'Security Account') which, unless otherwise specified in the
related Prospectus Supplement, must be either (i) maintained with a depository
institution the debt obligations of which (or in the
47
<PAGE>
<PAGE>
case of a depository institution that is the principal subsidiary of a holding
company, the obligations of which) are rated in one of the two highest rating
categories by the Rating Agency or Rating Agencies that rated one or more
classes of the related Series of Securities, (ii) an account or accounts the
deposits in which are fully insured by either the Bank Insurance Fund (the
'BIF') of the FDIC or the Savings Association Insurance Fund (as successor to
the Federal Savings and Loan Insurance Corporation ('SAIF')), (iii) an account
or accounts the deposits in which are insured by the BIF or SAIF (to the limits
established by the FDIC), and the uninsured deposits in which are otherwise
secured such that, as evidenced by an opinion of counsel, the Securityholders
have a claim with respect to the funds in the Security Account or a perfected
first priority security interest against any collateral securing such funds that
is superior to the claims of any other depositors or general creditors of the
depository institution with which the Security Account is maintained, or (iv) an
account or accounts otherwise acceptable to each Rating Agency. The collateral
eligible to secure amounts in the Security Account is limited to Permitted
Investments. A Security Account may be maintained as an interest bearing account
or the funds held therein may be invested pending each succeeding Distribution
Date in Permitted Investments. Unless otherwise specified in the related
Prospectus Supplement, the Master Servicer or its designee will be entitled to
receive any such interest or other income earned on funds in the Security
Account as additional compensation and will be obligated to deposit in the
Security Account the amount of any loss immediately as realized. The Security
Account may be maintained with the Master Servicer or with a depository
institution that is an affiliate of the Master Servicer, provided it meets the
standards set forth above.
The Master Servicer will deposit or cause to be deposited in the Security
Account for each Trust Fund, to the extent applicable and unless otherwise
specified in the related Prospectus Supplement and provided in the Agreement,
the following payments and collections received or advances made by or on behalf
of it subsequent to the Cut-off Date (other than payments due on or before the
Cut-off Date and exclusive of any amounts representing Retained Interest):
(i) all payments on account of principal, including Principal
Prepayments and, if specified in the related Prospectus Supplement, any
applicable prepayment penalties, on the Loans;
(ii) all payments on account of interest on the Loans, net of
applicable servicing compensation;
(iii) all proceeds (net of unreimbursed payments of property taxes,
insurance premiums and similar items ('Insured Expenses') incurred, and
unreimbursed Advances made, by the Master Servicer, if any) of the hazard
insurance policies and any Primary Mortgage 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 (collectively, 'Insurance Proceeds') and all other
cash amounts (net of unreimbursed expenses incurred in connection with
liquidation or foreclosure ('Liquidation Expenses') and unreimbursed
Advances made, by the Master Servicer, if any) received and retained in
connection with the liquidation of defaulted Loans, by foreclosure or
otherwise ('Liquidation Proceeds'), together with any net proceeds received
on a monthly basis with respect to any properties acquired on behalf of the
Securityholders by foreclosure or deed in lieu of foreclosure;
(iv) all proceeds of any Loan or property in respect thereof purchased
by the Master Servicer, the Depositor or any Seller as described under
'Loan Program -- Representations by Sellers; Repurchases' or
' -- Assignment of Trust Fund Assets' above and all proceeds of any Loan
repurchased as described under ' -- Termination; Optional Termination'
below;
(v) all payments required to be deposited in the Security Account with
respect to any deductible clause in any blanket insurance policy described
under ' -- Hazard Insurance' below;
(vi) any amount required to be deposited by the Master Servicer in
connection with losses realized on investments for the benefit of the
Master Servicer of funds held in the Security Account and, to the extent
specified in the related Prospectus Supplement, any payments required to be
made by the Master Servicer in connection with prepayment interest
shortfalls; and
(vii) all other amounts required to be deposited in the Security
Account pursuant to the Agreement.
The Master Servicer (or the Depositor, as applicable) may from time to time
direct the institution that maintains the Security Account to withdraw funds
from the Security Account for the following purposes:
48
<PAGE>
<PAGE>
(i) to pay to the Master Servicer the servicing fees described in the
related Prospectus Supplement, the master servicing fees (subject to
reduction) and, as additional servicing compensation, earnings on or
investment income with respect to funds in the amounts in the Security
Account credited thereto;
(ii) to reimburse the Master Servicer for Advances, such right of
reimbursement with respect to any Loan being limited to amounts received
that represent late recoveries of payments of principal and/or interest on
such 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 which the Master Servicer has determined to be nonrecoverable;
(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 reimburse the Master Servicer for unpaid master servicing fees
and unreimbursed out-of-pocket costs and expenses incurred by the Master
Servicer in the performance of its servicing obligations, such right of
reimbursement being limited to amounts received representing late
recoveries of the payments for which such advances were made;
(vi) to pay to the Master Servicer, with respect to each Loan or
property acquired in respect thereof that has been purchased by the Master
Servicer pursuant to the Agreement, all amounts received thereon and not
taken into account in determining the principal balance of such repurchased
Loan;
(vii) to reimburse the Master Servicer or the Depositor for expenses
incurred and reimbursable pursuant to the Agreement;
(viii) to withdraw any amount deposited in the Security Account and
not required to be deposited therein; and
(ix) to clear and terminate the Security Account upon termination of
the Agreement.
In addition, unless otherwise specified in the related Prospectus
Supplement, on or prior to the business day immediately preceding each
Distribution Date, the Master Servicer shall withdraw from the Security Account
the amount of Available Funds, to the extent on deposit, for deposit in an
account maintained by the Trustee for the related Series of Securities.
PRE-FUNDING ACCOUNT
If so provided in the related Prospectus Supplement, the Master Servicer
will establish and maintain a Pre-Funding Account, in the name of the related
Trustee on behalf of the related Securityholders, into which the Depositor will
deposit cash in an amount equal to the Pre-Funded Amount on the related Closing
Date. The Pre-Funding Account will be maintained with the Trustee for the
related Series of Securities and is designed solely to hold funds to be applied
by such Trustee during the Funding Period to pay to the Depositor the purchase
price for Subsequent Loans. Monies on deposit in the Pre-Funding Account will
not be available to cover losses on or in respect of the related Loans. The
Pre-Funded Amount will not exceed 50% of the initial aggregate principal amount
of the Certificates and Notes of the related Series. The Pre-Funded Amount will
be used by the related Trustee to purchase Subsequent Loans from the Depositor
from time to time during the Funding Period. The Funding Period, if any, for a
Trust Fund will begin on the related Closing Date and will end on the date
specified in the related Prospectus Supplement, which in no event will be later
than the date that is one year after the related Closing Date. Monies on deposit
in the Pre-Funding Account may be invested in Permitted Investments under the
circumstances and in the manner described in the related Agreement. Earnings on
investment of funds in the Pre-Funding Account will be deposited into the
related Security Account or such other trust account as is specified in the
related Prospectus Supplement and losses will be charged against the funds on
deposit in the Pre-Funding Account. Any amounts remaining in the Pre-Funding
Account at the end of the Funding Period will be distributed to the related
Securityholders in the manner and priority specified in the related Prospectus
Supplement, as a prepayment of principal of the related Securities.
In addition, if so provided in the related Prospectus Supplement, on the
related Closing Date the Depositor will deposit in an account (the 'Capitalized
Interest Account') cash in such amount as is necessary to cover shortfalls in
interest on the related Series of Securities that may arise as a result of
utilization of the Pre-Funding Account as described above. The Capitalized
Interest Account shall be maintained with the Trustee for the
49
<PAGE>
<PAGE>
related Series of Securities and is designed solely to cover the above-mentioned
interest shortfalls. Monies on deposit in the Capitalized Interest Account will
not be available to cover losses on or in respect of the related Loans. To the
extent that the entire amount on deposit in the Capitalized Interest Account has
not been applied to cover short falls in interest on the related Series of
Securities by the end of the Funding Period, any amounts remaining in the
Capitalized Interest Account will be paid to the Depositor.
SUB-SERVICING BY SELLERS
Each Seller of a Loan or any other servicing entity may act as the
Sub-Servicer for such Loan pursuant to an agreement (each, a 'Sub-Servicing
Agreement'), which will not contain any terms inconsistent with the related
Agreement. While each Sub-Servicing Agreement will be a contract solely between
the Master Servicer and the Sub-Servicer, the Agreement pursuant to which a
Series of Securities is issued will provide that, if for any reason the Master
Servicer for such Series of Securities is no longer the Master Servicer of the
related Loans, the Trustee or any successor Master Servicer must recognize the
Sub-Servicer's rights and obligations under such Sub-Servicing Agreement.
Notwithstanding any such subservicing arrangement, unless otherwise provided in
the related Prospectus Supplement, the Master Servicer will remain liable for
its servicing duties and obligations under the Master Servicing Agreement as if
the Master Servicer alone were servicing the Loans.
COLLECTION PROCEDURES
The Master Servicer, directly or through one or more Sub-Servicers, will
make reasonable efforts to collect all payments called for under the Loans and
will, consistent with each Agreement and any Pool Insurance Policy, Primary
Mortgage Insurance Policy, FHA Insurance, VA Guaranty, bankruptcy bond or
alternative arrangements, follow such collection procedures as are customary
with respect to loans that are comparable to the Loans. Consistent with the
above, the Master Servicer may, in its discretion, (i) waive any assumption fee,
late payment or other charge in connection with a Loan and (ii) to the extent
not inconsistent with the coverage of such Loan by a Pool Insurance Policy,
Primary Mortgage Insurance Policy, FHA Insurance, VA Guaranty, bankruptcy bond
or alternative arrangements, if applicable, arrange with a borrower a schedule
for the liquidation of delinquencies running for no more than 125 days after the
applicable due date for each payment. To the extent the Master Servicer is
obligated to make or cause to be made Advances, such obligation will remain
during any period of such an arrangement.
In any case in which property securing a Loan has been, or is about to be,
conveyed by the mortgagor or obligor, the Master Servicer will, to the extent it
has knowledge of such conveyance or proposed conveyance, exercise or cause to be
exercised its rights to accelerate the maturity of such Loan under any
due-on-sale clause applicable thereto, but only if the exercise of such rights
is permitted by applicable law and will not impair or threaten to impair any
recovery under any Primary Mortgage Insurance Policy. If these conditions are
not met or if the Master Servicer reasonably believes it is unable under
applicable law to enforce such due-on-sale clause or if such Loan is a mortgage
loan insured by the FHA or partially guaranteed by the VA, the Master Servicer
will enter into or cause to be entered into an assumption and modification
agreement with the person to whom such property has been or is about to be
conveyed, pursuant to which such person becomes liable for repayment of the Loan
and, to the extent permitted by applicable law, the mortgagor remains liable
thereon. Any fee collected by or on behalf of the Master Servicer for entering
into an assumption agreement will be retained by or on behalf of the Master
Servicer as additional servicing compensation. See 'Certain Legal Aspects of the
Loans -- Due-on-Sale Clauses'. In connection with any such assumption, the terms
of the related Loan may not be changed.
With respect to Cooperative Loans, any prospective purchaser will generally
have to obtain the approval of the board of directors of the relevant
Cooperative before purchasing the shares and acquiring rights under the related
proprietary lease or occupancy agreement. See 'Certain Legal Aspects of the
Loans'. This approval is usually based on the purchaser's income and net worth
and numerous other factors. Although the Cooperative's approval is unlikely to
be unreasonably withheld or delayed, the necessity of acquiring such approval
could limit the number of potential purchasers for those shares and otherwise
limit the Trust Fund's ability to sell and realize the value of those shares.
In general a 'tenant-stockholder' (as defined in Code Section 216(b)(2) of
a corporation that qualifies as a 'cooperative housing corporation' within the
meaning of Code Section 216(b)(1) is allowed a deduction for
50
<PAGE>
<PAGE>
amounts paid or accrued within his taxable year to the corporation representing
his proportionate share of certain interest expenses and certain real estate
taxes allowable as a deduction under Code Section 216(a) to the corporation
under Code Sections 163 and 164. In order for a corporation to qualify under
Code Section 216(b)(1) for its taxable year in which such items are allowable as
a deduction to the corporation, such Section requires, among other things, that
at least 80% of the gross income of the corporation be derived from its tenant-
stockholders (as defined in Code Section 216(b)(2)). By virtue of this
requirement, the status of a corporation for purposes of Code Section 216(b)(1)
must be determined on a year-to-year basis. Consequently, there can be no
assurance that Cooperatives relating to the Cooperative Loans will qualify under
such Section for any particular year. In the event that such a Cooperative fails
to qualify for one or more years, the value of the collateral securing any
related Cooperative Loans could be significantly impaired because no deduction
would be allowable to tenant-stockholders under Code Section 216(a) with respect
to those years. In view of the significance of the tax benefits accorded
tenant-stockholders of a corporation that qualifies under Code Section
216(b)(1), the likelihood that such a failure would be permitted to continue
over a period of years appears remote.
HAZARD INSURANCE
Except as otherwise specified in the related Prospectus Supplement, the
Master Servicer will require the mortgagor or obligor on each Loan to maintain a
hazard insurance policy providing for no less than the coverage of the standard
form of fire insurance policy with extended coverage customary for the type of
Property in the state in which such Property is located. Such coverage will be
in an amount that is at least equal to the lesser of (i) the maximum insurable
value of the improvements securing such Loan or (ii) the greater of (y) the
outstanding principal balance of the Loan and (z) an amount such that the
proceeds of such policy shall be sufficient to prevent the mortgagor and/or the
mortgagee from becoming a co-insurer. All amounts collected by the Master
Servicer under any hazard policy (except for amounts to be applied to the
restoration or repair of the Property or released to the mortgagor or obligor in
accordance with the Master Servicer's normal servicing procedures) will be
deposited in the related Security Account. In the event that the Master Servicer
maintains a blanket policy insuring against hazard losses on all the Loans
comprising part of a Trust Fund, it will conclusively be deemed to have
satisfied its obligation relating to the maintenance of hazard insurance. Such
blanket policy may contain a deductible clause, in which case the Master
Servicer will be required to deposit from its own funds into the related
Security Account the amounts which would have been deposited therein but for
such clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements securing a Loan by fire,
lightning, explosion, smoke, windstorm and hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Although the policies relating to the Loans may have been underwritten
by different insurers under different state laws in accordance with different
applicable forms and therefore may not contain identical terms and conditions,
the basic terms thereof are dictated by respective state laws, and most such
policies typically do not cover any physical damage resulting from the
following: war, revolution, governmental actions, floods and other water-related
causes, earth movement (including earthquakes, landslides and mud flows),
nuclear reactions, wet or dry rot, vermin, rodents, insects or domestic animals,
theft and, in certain cases, vandalism. The foregoing list is merely indicative
of certain kinds of uninsured risks and is not intended to be all inclusive. If
the Property securing a Loan is located in a federally designated special flood
area at the time of origination, the Master Servicer will require the mortgagor
or obligor to obtain and maintain flood insurance.
The hazard insurance policies covering properties securing the Loans
typically contain a clause which in effect requires the insured at all time to
carry insurance of a specified percentage of a specified percentage (generally
80% to 90%) of the full replacement value of the insured property in order to
recover the full amount of any partial loss. If the insured's coverage falls
below this specified percentage, then the insurer's liability in the event of
partial loss will not exceed the larger of (i) the actual cash value (generally
defined as replacement cost at the time and place of loss, less physical
depreciation) of the improvements damaged or destroyed or (ii) such proportion
of the loss as the amount of insurance carried bears to the specified percentage
of the full replacement cost of such improvements. Since the amount of hazard
insurance the Master Servicer may cause to be maintained on the improvements
securing the Loans declines as the principal balances owing thereon decrease,
and since improved real estate generally has appreciated in value over time in
the past, the effect of
51
<PAGE>
<PAGE>
this requirement in the event of partial loss may be that hazard insurance
proceeds will be insufficient to restore fully the damaged property. If
specified in the related Prospectus Supplement, a special hazard insurance
policy will be obtained to insure against certain of the uninsured risks
described above. See 'Credit Enhancement'.
The Master Servicer will not require that a standard hazard or flood
insurance policy be maintained on the cooperative dwelling relating to any
Cooperative Loan. Generally, the Cooperative itself is responsible for
maintenance of hazard insurance for the property owned by the Cooperative and
the tenant-stockholders of that Cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a Cooperative and the related
borrower on a Cooperative Loan do not maintain such insurance or do not maintain
adequate coverage or any insurance proceeds are not applied to the restoration
of damaged property, any damage to such borrower's cooperative dwelling or such
Cooperative's building could significantly reduce the value of the collateral
securing such Cooperative Loan to the extent not covered by other credit
support.
If the Property securing a defaulted Loan is damaged and proceeds, if any,
from the related hazard insurance policy are insufficient to restore the damaged
Property, the Master Servicer is not required to expend its own funds to restore
the damaged Property unless it determines (i) that such restoration will
increase the proceeds to Securityholders on liquidation of the Loan after
reimbursement of the Master Servicer for its expenses and (ii) that such
expenses will be recoverable by it from related Insurance Proceeds or
Liquidation Proceeds.
If recovery on a defaulted Loan under any related Insurance Policy is not
available for the reasons set forth in the preceding paragraph, or if the
defaulted Loan is not covered by an Insurance Policy, the Master Servicer will
be obligated to follow or cause to be followed such normal practices and
procedures as it deems necessary or advisable to realize upon the defaulted
Loan. If the proceeds of any liquidation of the Property securing the defaulted
Loan are less than the principal balance of such Loan plus interest accrued
thereon that is payable to Securityholders, the Trust Fund will realize a loss
in the amount of such difference plus the aggregate of expenses incurred by the
Master Servicer in connection with such proceedings and which are reimbursable
under the Agreement. In the unlikely event that any such proceedings result in a
total recovery which is, after reimbursement to the Master Servicer of its
expenses, in excess of the principal balance of such Loan plus interest accrued
thereon that is payable to Securityholders, the Master Servicer will be entitled
to withdraw or retain from the Security Account amounts representing its normal
servicing compensation with respect to such Loan and, unless otherwise specified
in the related Prospectus Supplement, amounts representing the balance of such
excess, exclusive of any amount required by law to be forwarded to the related
borrower, as additional servicing compensation.
If the Master Servicer or its designee recovers Insurance Proceeds which,
when added to any related Liquidation Proceeds and after deduction of certain
expenses reimbursable to the Master Servicer, exceed the principal balance of
such Loan plus interest accrued thereon that is payable to Securityholders, the
Master Servicer will be entitled to withdraw or retain from the Security Account
amounts representing its normal servicing compensation with respect to such
Loan. In the event that the Master Servicer has expended its own funds to
restore the damaged Property and such funds have not been reimbursed under the
related hazard insurance policy, it will be entitled to withdraw from the
Security Account out of related Liquidation Proceeds or Insurance Proceeds an
amount equal to such expenses incurred by it, in which event the Trust Fund may
realize a loss up to the amount so charged. Since Insurance Proceeds cannot
exceed deficiency claims and certain expenses incurred by the Master Servicer,
no such payment or recovery will result in a recovery to the Trust Fund which
exceeds the principal balance of the defaulted Loan together with accrued
interest thereon. See 'Credit Enhancement'.
The proceeds from any liquidation of a Loan will be applied in the
following order of priority: first, to reimburse the Master Servicer for any
unreimbursed expenses incurred by it to restore the related Property and any
unreimbursed servicing compensation payable to the Master Servicer with respect
to such Loan; second, to reimburse the Master Servicer for any unreimbursed
Advances with respect to such Loan; third, to accrued and unpaid interest (to
the extent no Advance has been made for such amount) on such Loan; and fourth,
as a recovery of principal of such Loan.
52
<PAGE>
<PAGE>
REALIZATION UPON DEFAULTED LOANS
Primary Mortgage Insurance Policies. If so specified in the related
Prospectus Supplement, the Master Servicer will maintain or cause to be
maintained, as the case may be, in full force and effect, a Primary Mortgage
Insurance Policy with regard to each Loan for which such coverage is required.
Primary Mortgage Insurance Policies reimburse certain losses sustained by reason
of defaults in payments by borrowers. The Master Servicer will not cancel or
refuse to renew any such Primary Mortgage Insurance Policy in effect at the time
of the initial issuance of a Series of Securities that is required to be kept in
force under the applicable Agreement unless the replacement Primary Mortgage
Insurance Policy for such cancelled or nonrenewed policy is maintained with an
insurer whose claims-paying ability is sufficient to maintain the current rating
of the classes of Securities of such Series that have been rated.
FHA Insurance; VA Guaranties. Loans designated in the related Prospectus
Supplement as insured by the FHA will be insured by the FHA as authorized under
the United States Housing Act of 1937, as amended. In addition to the Title I
Program of the FHA, see 'Certain Legal Aspects of the Loans -- Title I Program',
certain Loans will be insured under various FHA programs including the standard
FHA 203(b) program to finance the acquisition of one- to four-family housing
units and the FHA 245 graduated payment mortgage program. These programs
generally limit the principal amount and interest rates of the mortgage loans
insured. Loans insured by FHA generally require a minimum down payment of
approximately 5% of the original principal amount of the loan. No FHA-insured
Loans relating to a Series may have an interest rate or original principal
amount exceeding the applicable FHA limits at the time of origination of such
loan.
Loans designated in the related Prospectus Supplement as guaranteed by the
VA will be partially guaranteed by the VA under the Serviceman's Readjustment
Act of 1944, as amended (a 'VA Guaranty'). The Serviceman's Readjustment Act of
1944, as amended, permits a veteran (or in certain instances the spouse of a
veteran) to obtain a mortgage loan guaranty by the VA covering mortgage
financing of the purchase of a one- to four-family dwelling unit at interest
rates permitted by the VA. The program has no mortgage loan limits, requires no
down payment from the purchaser and permits the guaranty of mortgage loans of up
to 30 years' duration. However, no Loan guaranteed by the VA will have an
original principal amount greater than five times the partial VA guaranty for
such Loan. The maximum guaranty that may be issued by the VA under a VA
guaranteed mortgage loan depends upon the original principal amount of the
mortgage loan, as further described in 38 United States Code Section 1803(a), as
amended.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal servicing compensation to be paid to the Master Servicer in
respect of its master servicing activities for each Series of Securities will be
equal to the percentage per annum described in the related Prospectus Supplement
(which may vary under certain circumstances) of the outstanding principal
balance of each Loan, and such compensation will be retained by it from
collections of interest on such Loan in the related Trust Fund (the 'Master
Servicing Fee'). As compensation for its servicing duties, a Sub-Servicer or, if
there is no Sub-Servicer, the Master Servicer will be entitled to a monthly
servicing fee as described in the related Prospectus Supplement. In addition,
the Master Servicer or Sub-Servicer will retain all prepayment charges,
assumption fees and late payment charges, to the extent collected from
borrowers, and any benefit that may accrue as a result of the investment of
funds in the applicable Security Account (unless otherwise specified in the
related Prospectus Supplement).
The Master Servicer will pay or cause to be paid certain ongoing expenses
associated with each Trust Fund and incurred by it in connection with its
responsibilities under the related Agreement, including, without limitation,
payment of any fee or other amount payable in respect of any credit enhancement
arrangements, payment of the fees and disbursements of the Trustee, any
custodian appointed by the Trustee, the certificate registrar and any paying
agent, and payment of expenses incurred in enforcing the obligations of
Sub-Servicers and Sellers. The Master Servicer will be entitled to reimbursement
of expenses incurred in enforcing the obligations of Sub-Servicers and Sellers
under certain limited circumstances.
EVIDENCE AS TO COMPLIANCE
Each Agreement will provide that on or before a specified date in each
year, a firm of independent public accountants will furnish a statement to the
Trustee to the effect that, on the basis of the examination by such
53
<PAGE>
<PAGE>
firm conducted substantially in compliance with the Uniform Single Attestation
Program for Mortgage Bankers or the Audit Program for Mortgages serviced for
FHLMC, the servicing by or on behalf of the Master Servicer of mortgage loans or
private asset backed securities, or under pooling and servicing agreements
substantially similar to each other (including the related Agreement) was
conducted in compliance with such agreements except for any significant
exceptions or errors in records that, in the opinion of the firm, the Audit
Program for Mortgages serviced for FHLMC, or the Uniform Single Attestation
Program for Mortgage Bankers, it is required to report. In rendering its
statement such firm may rely, as to matters relating to the direct servicing of
Loans by Sub-Servicers, upon comparable statements for examinations conducted
substantially in compliance with the Uniform Single Attestation Program for
Mortgage Bankers or the Audit Program for Mortgages serviced for FHLMC (rendered
within one year of such statement) of firms of independent public accountants
with respect to the related Sub-Servicer.
Each Agreement will also provide for delivery to the Trustee, on or before
a specified date in each year, of an annual statement signed by two officers of
the Master Servicer to the effect that the Master Servicer has fulfilled its
obligations under the Agreement throughout the preceding year.
Copies of the annual accountants' statement and the statement of officers
of the Master Servicer may be obtained by Securityholders of the related Series
without charge upon written request to the Master Servicer at the address set
forth in the related Prospectus Supplement.
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE DEPOSITOR
The Master Servicer under each Pooling and Servicing Agreement or Master
Servicing Agreement, as applicable, will be named in the related Prospectus
Supplement. The entity serving as Master Servicer may have normal business
relationships with the Depositor or the Depositor's affiliates.
Each Agreement will provide that the Master Servicer may not resign from
its obligations and duties under the Agreement except upon a determination that
its duties thereunder are no longer permissible under applicable law. The Master
Servicer may, however, be removed from its obligations and duties as set forth
in the Agreement. No such resignation will become effective until the Trustee or
a successor servicer has assumed the Master Servicer's obligations and duties
under the Agreement.
Each Agreement will further provide that neither the Master Servicer, the
Depositor nor any director, officer, employee, or agent of the Master Servicer
or the Depositor will be under any liability to the related Trust Fund or
Securityholders for any action taken or for refraining from the taking of any
action in good faith pursuant to the Agreement, or for errors in judgment;
provided, however, that neither the Master Servicer, the Depositor nor any such
person will be protected against any liability which would otherwise be imposed
by reason of wilful misfeasance, bad faith or gross negligence in the
performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. Each Agreement will further provide that the
Master Servicer, the Depositor and any director, officer, employee or agent of
the Master Servicer or the Depositor will be entitled to indemnification by the
related Trust Fund and will be held harmless against any loss, liability or
expense incurred in connection with any legal action relating to the Agreement
or the Securities, other than any loss, liability or expense related to any
specific Loan or Loans (except any such loss, liability or expense otherwise
reimbursable pursuant to the Agreement) and any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. In addition, each Agreement will provide that
neither the Master Servicer nor the Depositor will be under any obligation to
appear in, prosecute or defend any legal action which is not incidental to its
respective responsibilities under the Agreement and which in its opinion may
involve it in any expense or liability. The Master Servicer or the Depositor
may, however, in its discretion undertake any such action which it may deem
necessary or desirable with respect to the Agreement and the rights and duties
of the parties thereto and the interests of the Securityholders thereunder. In
such event, the legal expenses and costs of such action and any liability
resulting therefrom will be expenses, costs and liabilities of the Trust Fund
and the Master Servicer or the Depositor, as the case may be, will be entitled
to be reimbursed therefor out of funds otherwise distributable to
Securityholders.
Except as otherwise specified in the related Prospectus Supplement, any
person into which the Master Servicer may be merged or consolidated, or any
person resulting from any merger or consolidation to which the Master Servicer
is a party, or any person succeeding to the business of the Master Servicer,
will be the successor
54
<PAGE>
<PAGE>
of the Master Servicer under each Agreement, provided that such person is
qualified to sell mortgage loans to, and service mortgage loans on behalf of,
FNMA or FHLMC and further provided that such merger, consolidation or succession
does not adversely affect the then current rating or ratings of the class or
classes of Securities of such Series that have been rated.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
Pooling and Servicing Agreement; Master Servicing Agreement. Except as
otherwise specified in the related Prospectus Supplement, Events of Default
under each Agreement will consist of (i) any failure by the Master Servicer to
distribute or cause to be distributed to Securityholders of any class any
required payment (other than an Advance) which continues unremedied for five
days after the giving of written notice of such failure to the Master Servicer
by the Trustee or the Depositor, or to the Master Servicer, the Depositor and
the Trustee by the holders of Securities of such class evidencing not less than
25% of the total distributions allocated to such class ('Percentage Interests');
(ii) any failure by the Master Servicer to make an Advance as required under the
Agreement, unless cured as specified therein; (iii) any failure by the Master
Servicer duly to observe or perform in any material respect any of its other
covenants or agreements in the Agreement which continues unremedied for thirty
days after the giving of written notice of such failure to the Master Servicer
by the Trustee or the Depositor, or to the Master Servicer, the Depositor and
the Trustee by the holders of Securities of any class evidencing not less than
25% of the aggregate Percentage Interests constituting such class; and (iv)
certain events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceeding and certain actions by or on behalf of the
Master Servicer indicating its insolvency, reorganization or inability to pay
its obligations.
If specified in the related Prospectus Supplement, the Agreement will
permit the Trustee to sell the Trust Fund Assets and the other assets of the
Trust Fund described under 'Credit Enhancement' herein in the event that
payments in respect thereto are insufficient to make payments required in the
Agreement. The assets of the Trust Fund will be sold only under the
circumstances and in the manner specified in the related Prospectus Supplement.
Unless otherwise provided in the related Prospectus Supplement, so long as
an Event of Default under an Agreement remains unremedied, the Depositor or the
Trustee may, and at the direction of holders of Securities of any class
evidencing not less than 25% of the aggregate Percentage Interests constituting
such class and under such other circumstances as may be specified in such
Agreement, the Trustee shall terminate all of the rights and obligations of the
Master Servicer under the Agreement relating to such Trust Fund and in and to
the related Trust Fund Assets, whereupon the Trustee will succeed to all of the
responsibilities, duties and liabilities of the Master Servicer under the
Agreement, including, if specified in the related Prospectus Supplement, the
obligation to make Advances, and will be entitled to similar compensation
arrangements. In the event that the Trustee is unwilling or unable so to act, it
may appoint, or petition a court of competent jurisdiction for the appointment
of, a mortgage loan servicing institution with a net worth of a least
$10,000,000 to act as successor to the Master Servicer under the Agreement.
Pending such appointment, the Trustee is obligated to act in such capacity. The
Trustee and any such successor may agree upon the servicing compensation to be
paid, which in no event may be greater than the compensation payable to the
Master Servicer under the Agreement.
Unless otherwise provided in the related Prospectus Supplement, no
Securityholder, solely by virtue of such holder's status as a Securityholder,
will have any right under any Agreement to institute any proceeding with respect
to such Agreement, unless such holder previously has given to the Trustee
written notice of default and unless the holders of Securities of any class of
such Series evidencing not less than 25% of the aggregate Percentage Interests
constituting such class have made written request upon the Trustee to institute
such proceeding in its own name as Trustee thereunder and have offered to the
Trustee reasonable indemnity, and the Trustee for 60 days has neglected or
refused to institute any such proceeding.
Indenture. Except as otherwise specified in the related Prospectus
Supplement, Events of Default under the Indenture for each Series of Notes
include: (i) a default in the payment of any principal of or interest on any
Note of such Series which continues unremedied for five days after the giving of
written notice of such default is given as specified in the related Prospectus
Supplement; (ii) failure to perform in any material respect any other covenant
of the Depositor or the Trust Fund in the Indenture which continues for a period
of thirty (30) days after notice thereof is given in accordance with the
procedures described in the related Prospectus Supplement; (iii) certain events
of bankruptcy, insolvency, receivership or liquidation of the Depositor or the
55
<PAGE>
<PAGE>
Trust Fund; or (iv) any other Event of Default provided with respect to Notes of
that Series including but not limited to certain defaults on the part of the
issuer, if any, of a credit enhancement instrument supporting such Notes.
If an Event of Default with respect to the Notes of any Series at the time
outstanding occurs and is continuing, either the Trustee or the holders of a
majority of the then aggregate outstanding amount of the Notes of such Series
may declare the principal amount (or, if the Notes of that Series have an
interest rate of 0%, such portion of the principal amount as may be specified in
the terms of that Series, as provided in the related Prospectus Supplement) of
all the Notes of such Series to be due and payable immediately. Such declaration
may, under certain circumstances, be rescinded and annulled by the holders of
more than 50% of the Percentage Interests of the Notes of such Series.
If, following an Event of Default with respect to any Series of Notes, the
Notes of such Series have been declared to be due and payable, the Trustee may,
in its discretion, notwithstanding such acceleration, elect to maintain
possession of the collateral securing the Notes of such Series and to continue
to apply distributions on such collateral as if there had been no declaration of
acceleration if such collateral continues to provide sufficient funds for the
payment of principal of and interest on the Notes of such Series as they would
have become due if there had not been such a declaration. In addition, the
Trustee may not sell or otherwise liquidate the collateral securing the Notes of
a Series following an Event of Default, other than a default in the payment of
any principal or interest on any Note of such Series for five days or more,
unless (a) the holders of 100% of the Percentage Interests of the Notes of such
Series consent to such sale, (b) the proceeds of such sale or liquidation are
sufficient to pay in full the principal of and accrued interest, due and unpaid,
on the outstanding Notes of such Series at the date of such sale or (c) the
Trustee determines that such collateral would not be sufficient on an ongoing
basis to make all payments on such Notes as such payments would have become due
if such Notes had not been declared due and payable, and the Trustee obtains the
consent of the holders of 66 2/3% of the Percentage Interests of the Notes of
such Series.
In the event that the Trustee liquidates the collateral in connection with
an Event of Default involving a default for five days or more in the payment of
principal of or interest on the Notes of a Series, the Indenture provides that
the Trustee will have a prior lien on the proceeds of any such liquidation for
unpaid fees and expenses. As a result, upon the occurrence of such an Event of
Default, the amount available for distribution to the Noteholders would be less
than would otherwise be the case. However, the Trustee may not institute a
proceeding for the enforcement of its lien except in connection with a
proceeding for the enforcement of the lien of the Indenture for the benefit of
the Noteholders after the occurrence of such an Event of Default.
Except as otherwise specified in the related Prospectus Supplement, in the
event the principal of the Notes of a Series is declared due and payable, as
described above, the holders of any such Notes issued at a discount from par may
be entitled to receive no more than an amount equal to the unpaid principal
amount thereof less the amount of such discount which is unamortized.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing with respect
to a Series of Notes, the Trustee shall be under no obligation to exercise any
of the rights or powers under the Indenture at the request or direction of any
of the holders of Notes of such Series, unless such holders offered to the
Trustee security or indemnity satisfactory to it against the costs, expenses and
liabilities which might be incurred by it in complying with such request or
direction. Subject to such provisions for indemnification and certain
limitations contained in the Indenture, the holders of a majority of the then
aggregate outstanding amount of the Notes of such Series shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee with respect to the Notes of such Series, and the holders of a majority
of the then aggregate outstanding amount of the Notes of such Series may, in
certain cases, waive any default with respect thereto, except a default in the
payment of principal or interest or a default in respect of a covenant or
provision of the Indenture that cannot be modified without the waiver or consent
of all the holders of the outstanding Notes of such Series affected thereby.
AMENDMENT
Except as otherwise specified in the related Prospectus Supplement, each
Agreement may be amended by the Depositor, the Master Servicer and the Trustee,
without the consent of any of the Securityholders, (i) to cure
56
<PAGE>
<PAGE>
any ambiguity; (ii) to correct or supplement any provision therein which may be
defective or inconsistent with any other provision therein; or (iii) to make any
other revisions with respect to matters or questions arising under the Agreement
which are not inconsistent with the provisions thereof, provided that such
action will not adversely affect in any material respect the interests of any
Securityholder. An amendment will be deemed not to adversely affect in any
material respect the interests of the Securityholders if the person requesting
such amendment obtains a letter from each Rating Agency requested to rate the
class or classes of Securities of such Series stating that such amendment will
not result in the downgrading or withdrawal of the respective ratings then
assigned to such Securities. In addition, to the extent provided in the related
Agreement, an Agreement may be amended without the consent of any of the
Securityholders, to change the manner in which the Security Account is
maintained, provided that any such change does not adversely affect the then
current rating on the class or classes of Securities of such Series that have
been rated. In addition, if a REMIC election is made with respect to a Trust
Fund, the related Agreement may be amended to modify, eliminate or add to any of
its provisions to such extent as may be necessary to maintain the qualification
of the related Trust Fund as a REMIC, provided that the Trustee has received an
opinion of counsel to the effect that such action is necessary or helpful to
maintain such qualification. Except as otherwise specified in the related
Prospectus Supplement, each Agreement may also be amended by the Depositor, the
Master Servicer and the Trustee with consent of holders of Securities of such
Series evidencing not less than 66% of the aggregate Percentage Interests of
each class affected thereby for the purpose of adding any provisions to or
changing in an manner or eliminating any of the provisions of the Agreement or
of modifying in any manner the rights of the holders of the related Securities;
provided, however, that no such amendment may (i) reduce in any manner the
amount of or delay the timing of, payments received on Loans which are required
to be distributed on any Security without the consent of the holder of such
Security, or (ii) reduce the aforesaid percentage of Securities of any class the
holders of which are required to consent to any such amendment without the
consent of the holders of all Securities of such class covered by such Agreement
then outstanding. If a REMIC election is made with respect to a Trust Fund, the
Trustee will not be entitled to consent to an amendment to the related Agreement
without having first received an opinion of counsel to the effect that such
amendment will not cause such Trust Fund to fail to qualify as a REMIC.
TERMINATION; OPTIONAL TERMINATION
Pooling and Servicing Agreement; Trust Agreement. Unless otherwise
specified in the related Agreement, the obligations created by each Pooling and
Servicing Agreement and Trust Agreement for each Series of Securities will
terminate upon the payment to the related Securityholders of all amounts held in
the Security Account or by the Master Servicer and required to be paid to them
pursuant to such Agreement following the later of (i) the final payment of or
other liquidation of the last of the Trust Fund Assets subject thereto or the
disposition of all property acquired upon foreclosure of any such Trust Fund
Assets remaining in the Trust Fund and (ii) the purchase by the Master Servicer
or, if REMIC treatment has been elected and if specified in the related
Prospectus Supplement, by the holder of the residual interest in the REMIC (see
'Federal Income Tax Consequences' below), from the related Trust Fund of all of
the remaining Trust Fund Assets and all property acquired in respect of such
Trust Fund Assets.
Unless otherwise specified by the related Prospectus Supplement, any such
purchase of Trust Fund Assets and property acquired in respect of Trust Fund
Assets evidenced by a Series of Securities will be made at the option of the
Master Servicer, such other person or, if applicable, such holder of the REMIC
residual interest, at a price specified in the related Prospectus Supplement.
The exercise of such right will effect early retirement of the Securities of
that Series, but the right of the Master Servicer, such other person or, if
applicable, such holder of the REMIC residual interest, to so purchase is
subject to the principal balance of the related Trust Fund Assets being less
than the percentage specified in the related Prospectus Supplement of the
aggregate principal balance of the Trust Fund Assets at the Cut-off Date for the
Series. The foregoing is subject to the provision that if a REMIC election is
made with respect to a Trust Fund, any repurchase pursuant to clause (ii) above
will be made only in connection with a 'qualified liquidation' of the REMIC
within the meaning of Section 860F(g)(4) of the Code.
Indenture. The Indenture will be discharged with respect to a Series of
Notes (except with respect to certain continuing rights specified in the
Indenture) upon the delivery to the Trustee for cancellation of all the
57
<PAGE>
<PAGE>
Notes of such Series or, with certain limitations, upon deposit with the Trustee
of funds sufficient for the payment in full of all of the Notes of such Series.
In addition to such discharge with certain limitations, the Indenture will
provide that, if so specified with respect to the Notes of any Series, the
related Trust Fund will be discharged from any and all obligations in respect of
the Notes of such Series (except for certain obligations relating to temporary
Notes and exchange of Notes, to register the transfer of or exchange Notes of
such Series, to replace stolen, lost or mutilated Notes of such Series, to
maintain paying agencies and to hold monies for payment in trust) upon the
deposit with the Trustee, in trust, of money and/or direct obligations of or
obligations guaranteed by the United States of America which through the payment
of interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of and each
installment of interest on the Notes of such Series on the last scheduled
Distribution Date for such Notes and any installment of interest on such Notes
in accordance with the terms of the Indenture and the Notes of such Series. In
the event of any such defeasance and discharge of Notes of such Series, holders
of Notes of such Series would be able to look only to such money and/or direct
obligations for payment of principal and interest, if any, on their Notes until
maturity.
THE TRUSTEE
The Trustee under each Agreement will be named in the applicable Prospectus
Supplement. The commercial bank or trust company serving as Trustee may have
normal banking relationships with the Depositor, the Master Servicer and any of
their respective affiliates.
CERTAIN LEGAL ASPECTS OF THE LOANS
The following discussion contains summaries, which are general in nature,
of certain legal matters relating to the Loans. Because such legal aspects are
governed primarily by applicable state law (which laws may differ
substantially), the descriptions do not, except as expressly provided below,
reflect the laws of any particular state, nor to encompass the laws of all
states in which the security for the Loans is situated. The descriptions are
qualified in their entirety by reference to the applicable federal laws and the
appropriate laws of the states in which Loans may be originated.
GENERAL
The Loans for a Series may be secured by deeds of trust, mortgages,
security deeds or deeds to secure debt, depending upon the prevailing practice
in the state in which the property subject to the loan is located. Deeds of
trust are used almost exclusively in California instead of mortgages. A mortgage
creates a lien upon the real property encumbered by the mortgage, which lien is
generally not prior to the lien for real estate taxes and assessments. Priority
between mortgages depends on their terms and generally on the order of recording
with a state or county office. There are two parties to a mortgage, the
mortgagor, who is the borrower and owner of the mortgaged property, and the
mortgagee, who is the lender. Under the mortgage instrument, the mortgagor
delivers to the mortgagee a note or bond and the mortgage. Although a deed of
trust is similar to a mortgage, a deed of trust formally has three parties, the
borrower-property owner called the trustor (similar to a mortgagor), a lender
(similar to a mortgagee) called the beneficiary, and a third-party grantee
called the trustee. Under a deed of trust, the borrower grants the property,
irrevocably until the debt is paid, in trust, generally with a power of sale, to
the trustee to secure payment of the obligation. A security deed and a deed to
secure debt are special types of deeds which indicate on their face that they
are granted to secure an underlying debt. By executing a security deed or deed
to secure debt, the grantor conveys title to, as opposed to merely creating a
lien upon, the subject property to the grantee until such time as the underlying
debt is repaid. The trustee's authority under a deed of trust, the mortgagee's
authority under a mortgage and the grantee's authority under a security deed or
deed to secure debt are governed by law and, with respect to some deeds of
trust, the directions of the beneficiary.
Cooperatives. Certain of Loans may be Cooperative Loans. The Cooperative
owns all the real property that comprises the project, including the land,
separate dwelling units and all common areas. The Cooperative is directly
responsible for project management and, in most cases, payment of real estate
taxes and hazard and liability insurance. If there is a blanket mortgage on the
Cooperative and/or underlying land, as is generally the case, the Cooperative,
as project mortgagor, is also responsible for meeting these mortgage
obligations. A
58
<PAGE>
<PAGE>
blanket mortgage is ordinarily incurred by the Cooperative in connection with
the construction or purchase of the Cooperative's apartment building. The
interest of the occupant under proprietary leases or occupancy agreements to
which that Cooperative is a party are generally subordinate to the interest of
the holder of the blanket mortgage in that building. If the Cooperative is
unable to meet the payment obligations arising under its blanket mortgage, the
mortgagee holding the blanket mortgage could foreclose on that mortgage and
terminate all subordinate proprietary leases and occupancy agreements. In
addition, the blanket mortgage on a Cooperative may provide financing in the
form of a mortgage that does not fully amortize with a significant portion of
principal being due in one lump sum at final maturity. The inability of the
Cooperative to refinance this mortgage and its consequent inability to make such
final payment could lead to foreclosure by the mortgagee providing the
financing. A foreclosure in either event by the holder of the blanket mortgage
could eliminate or significantly diminish the value of any collateral held by
the lender who financed the purchase by an individual tenant-stockholder of
Cooperative shares or, in the case of a Trust Fund including Cooperative Loans,
the collateral securing the Cooperative Loans.
The Cooperative is owned by tenant-stockholders who, through ownership of
stock, shares or membership certificates in the corporation, receive proprietary
leases or occupancy agreements which confer exclusive rights to occupy specific
units. Generally, a tenant-stockholder of a Cooperative must make a monthly
payment to the Cooperative representing such tenant-stockholder's pro rata share
of the Cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a Cooperative and accompanying rights is financed through a
Cooperative share loan evidenced by a promissory note and secured by a security
interest in the occupancy agreement or proprietary lease and in the related
Cooperative shares. The lender takes possession of the share certificate and a
counterpart of the proprietary lease or occupancy agreement, and a financing
statement covering the proprietary lease or occupancy agreement and the
Cooperative shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of Cooperative
shares.
FORECLOSURE/REPOSSESSION
Deed of Trust. Foreclosure of a deed of trust is generally accomplished by
a non-judicial sale under a specific provision in the deed of trust which
authorizes the trustee to sell the property at public auction upon any default
by the borrower under the terms of the note or deed of trust. In certain states,
such foreclosure also may be accomplished by judicial action in the manner
provided for foreclosure of mortgages. In addition to any notice requirements
contained in a deed of trust, in some states (such as California), the trustee
must record a notice of default and send a copy to the borrower-trustor, to any
person who has recorded a request for a copy of any notice of default and notice
of sale, to any successor in interest to the borrower-trustor, to the
beneficiary of any junior deed of trust and to certain other persons. In some
states (including California), the borrower-trustor has the right to reinstate
the loan at any time following default until shortly before the trustee's sale.
In general, the borrower, or any other person having a junior encumbrance on the
real estate, may, during a statutorily prescribed reinstatement period, cure a
monetary default by paying the entire amount in arrears plus other designated
costs and expenses incurred in enforcing the obligation. Generally, state law
controls the amount of foreclosure expenses and costs, including attorney's
fees, which may be recovered by a lender. After the reinstatement period has
expired without the default having been cured, the borrower or junior lienholder
no longer has the right to reinstate the loan and must pay the loan in full to
prevent the scheduled foreclosure sale. If the deed of trust is not reinstated
within any applicable cure period, a notice of sale must be posted in a public
place and, in most states (including California), published for a specific
period of time in one or more newspapers. In addition, some state laws require
that a copy of the notice of sale be posted on the property and sent to all
parties having an interest of record in the real property. In California, the
entire process from recording a notice of default to a non-judicial sale usually
takes four to five months.
Mortgages. Foreclosure of a mortgage is generally accomplished by judicial
action. The action is initiated by the service of legal pleadings upon all
parties having an interest in the real property. Delays in completion of the
foreclosure may occasionally result from difficulties in locating necessary
parties. Judicial foreclosure
59
<PAGE>
<PAGE>
proceedings are often not contested by any of the parties. When the mortgagee's
right to foreclosure is contested, the legal proceedings necessary to resolve
the issue can be time consuming. After the completion of a judicial foreclosure
proceeding, the court generally issues a judgment of foreclosure and appoints a
referee or other court officer to conduct the sale of the property. In some
states, mortgages may also be foreclosed by advertisement, pursuant to a power
of sale provided in the mortgage.
Although foreclosure sales are typically public sales, frequently no third
party purchaser bids in excess of the lender's lien because of the difficulty of
determining the exact status of title to the property, the possible
deterioration of the property during the foreclosure proceedings and a
requirement that the purchaser pay for the property in cash or by cashier's
check. Thus the foreclosing lender often purchases the property from the trustee
or referee for an amount equal to the principal amount outstanding under the
loan, accrued and unpaid interest and the expenses of foreclosure in which event
the mortgagor's debt will be extinguished or the lender may purchase for a
lesser amount in order to preserve its right against a borrower to seek a
deficiency judgment in states where such judgment is available. Thereafter,
subject to the right of the borrower in some states to remain in possession
during the redemption period, the lender will assume the burden of ownership,
including obtaining hazard insurance and making such repairs at its own expense
as are necessary to render the property suitable for sale. The lender will
commonly obtain the services of a real estate broker and pay the broker's
commission in connection with the sale of the property. Depending upon market
conditions, the ultimate proceeds of the sale of the property may not equal the
lender's investment in the property. Any loss may be reduced by the receipt of
any mortgage guaranty insurance proceeds.
Courts have imposed general equitable principles upon foreclosure, which
are generally designed to mitigate the legal consequences to the borrower of the
borrower's defaults under the loan documents. Some courts have been faced with
the issue of whether federal or state constitutional provisions reflecting due
process concerns for fair notice require that borrowers under deeds of trust
receive notice longer than that prescribed by statute. For the mostpart, these
cases have upheld the notice provisions as being reasonable or have found that
the sale by a trustee under a deed of trust does not involve sufficient state
action to afford constitutional protection to the borrower.
When the beneficiary under a junior mortgage or deed of trust cures the
default and reinstates or redeems by paying the full amount of the senior
mortgage or deed of trust, the amount paid by the beneficiary so to cure or
redeem becomes a part of the indebtedness secured by the junior mortgage or deed
of trust. See 'Junior Mortgages; Rights of Senior Mortgagees' below.
Cooperative Loans. The Cooperative shares owned by the tenant-stockholder
and pledged to the lender are, in almost all cases, subject to restrictions on
transfer as set forth in the Cooperative's certificate of incorporation and
bylaws, as well as the proprietary lease or occupancy agreement, and may be
cancelled by the Cooperative for failure by the tenant-stockholder to pay rent
or other obligations or charges owed by such tenant-stockholder, including
mechanics' liens against the cooperative apartment building incurred by such
tenant-stockholder. The proprietary lease or occupancy agreement generally
permits the Cooperative to terminate such lease or agreement in the event an
obligor fails to make payments or defaults in the performance of covenants
required thereunder. Typically, the lender and the Cooperative enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder on its obligations
under the proprietary lease or occupancy agreement. A default by the
tenant-stockholder under the proprietary lease or occupancy agreement will
usually constitute a default under the security agreement between the lender and
the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the Cooperative will recognize the
lender's lien against proceeds form the sale of the Cooperative apartment,
subject, however, to the Cooperative's right to sums due under such proprietary
lease or occupancy agreement. The total amount owed to the Cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the Cooperative Loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a foreclosure on a
Cooperative Loan, the lender must obtain the approval or consent of the
Cooperative as required by the proprietary lease before transferring
60
<PAGE>
<PAGE>
the Cooperative shares or assigning the proprietary lease. Generally, the lender
is not limited in any rights it may have to dispossess the tenant-stockholders.
In some states, foreclosure on the Cooperative shares is accomplished by a
sale in accordance with the provisions of Article 9 of the Uniform Commercial
Code (the 'UCC') and the security agreement relating to those shares. Article 9
of the UCC requires that a sale be conducted in a 'commercially reasonable'
manner. Whether a foreclosure sale has been conducted in a 'commercially
reasonable' manner will depend on the facts in each case. In determining
commercial reasonableness, a court will look to the notice given the debtor and
the method, manner, time, place and terms of the foreclosure. Generally, a sale
conducted according to the usual practice of banks selling similar collateral
will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the Cooperative to receive sums due under the
proprietary lease or occupancy agreement. If there are proceeds remaining, the
lender must account to the tenant-stockholder for the surplus. Conversely, if a
portion of the indebtedness remains unpaid, the tenant-stockholder is generally
responsible for the deficiency. See 'Anti-Deficiency Legislation and Other
Limitations on Lenders' below.
In the case of foreclosure on a building which was converted from a rental
building to a building owned by a Cooperative under a non-eviction plan, some
states require that a purchaser at a foreclosure sale take the property subject
to rent control and rent stabilization laws which apply to certain tenants who
elected to remain in the building but who did not purchase shares in the
Cooperative when the building was so converted.
ENVIRONMENTAL RISKS
Real property pledged as security to a lender may be subject to unforeseen
environmental risks. Under the laws of certain states, contamination of a
property may give risks to a lien on the property to assure the payment of the
costs of clean-up. In several states such a lien has priority over the lien of
an existing mortgage against such property. In addition, under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
('CERCLA'), the United States Environmental Protection Agency ('EPA') may impose
a lien on property where EPA has incurred clean-up costs. However, a CERCLA lien
is subordinate to pre-existing, perfected security interests.
Under the laws of some states, and under CERCLA, it is conceivable that a
secured lender may be held liable as an 'owner' or 'operator' for the costs of
addressing releases or threatened releases of hazardous substances at a
Property, even though the environmental damage or threat was caused by a prior
or current owner or operator. CERCLA imposes liability for such costs on any and
all 'responsible parties,' including owners or operators. However, CERCLA
excludes from the definition of 'owner or operator' a secured creditor who holds
indicia of ownership primarily to protect its security interest (the 'secured
creditor exclusion') but without 'participating in the management' of the
Property. Thus, if a lender's activities begin to encroach on the actual
management of a contaminated facility or property, the lender may incur
liability as an 'owner or operator' under CERCLA. Similarly, if a lender
forecloses and takes title to a contaminated facility or property, the lender
may incur CERCLA liability in various circumstances, including, but not limited
to, when it holds the facility or property as an investment (including leasing
the facility or property to third party), or fails to market the property in a
timely fashion.
Whether actions taken by a lender would constitute participation in the
management of a mortgaged property, or the business of a borrower, so as to
render the secured creditor exemption unavailable to a lender has been a matter
of judicial interpretation of the statutory language, and court decisions have
been inconsistent. In 1990, the Court of Appeals for the Eleventh Circuit
suggested that the mere capacity of the lender to influence a borrower's
decisions regarding disposal of hazardous substances was sufficient
participation in the management of the borrower's business to deny the
protection of the secured creditor exemption to the lender.
This ambiguity appears to have been resolved by the enactment of the Asset
Conservation, Lender Liability and Deposit Insurance Protection Act of 1996,
which was signed into law by President Clinton on September 30, 1996. The new
legislation provides that in order to be deemed to have participated in the
management of a mortgaged property, a lender must actually participate in the
operational affairs of the property or the borrower. The legislation also
provides that participation in the management of the property does not
61
<PAGE>
<PAGE>
include 'merely having the capacity to influence, or unexercised right to
control' operations. Rather, a lender will lose the protection of the secured
creditor exemption only if it exercises decision-making control over the
borrower's environmental compliance and hazardous substance handling and
disposal practices, or assumes day-to-day management of all operational
functions of the mortgaged property.
If a lender is or becomes liable, it can bring an action for contribution
against any other 'responsible parties,' including a previous owner or operator,
who created the environmental hazard, but those persons or entities may be
bankrupt or otherwise judgment proof. The costs associated with environmental
cleanup may be substantial. It is conceivable that such costs arising from the
circumstances set forth above would result in a loss to Certificateholders.
CERCLA does not apply to petroleum products, and the secured creditor
exclusion does not govern liability for cleanup costs under federal laws other
than CERCLA, in particular Subtitle I of the federal Resource Conservation and
Recovery Act ('RCRA'), which regulates underground petroleum storage tanks
(except heating oil tanks). The EPA has adopted a lender liability rule for
underground storage tanks under Subtitle I of RCRA. Under such rule, a holder of
a security interest in an underground storage tank or real property containing
an underground storage tank is not considered an operator of the underground
storage tank as long as petroleum is not added to, stored in or dispensed from
the tank. In addition, under the Asset Conservation, Lender Liability and
Deposit Insurance Protection Act of 1996, the protections accorded to lenders
under CERCLA are also accorded to the holders of security interests in
underground storage tanks. It should be noted, however, that liability for
cleanup of petroleum contamination may be governed by state law, which may not
provide for any specific protection for secured creditors.
Except as otherwise specified in the related Prospectus Supplement, at the
time the Loans were originated, no environmental assessment or a very limited
environmental assessment of the Properties was conducted.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property from the foreclosure sale. In certain
other states (including California), this right of redemption applies only to
sales following judicial foreclosure, and not to sales pursuant to a
non-judicial power of sale. In most states where the right of redemption is
available, statutory redemption may occur upon payment of the foreclosure
purchase price, accrued interest and taxes. In other states, redemption may be
authorized if the former borrower pays only a portion of the sums due. The
effect of a statutory right of redemption is to diminish the ability of the
lender to sell the foreclosed property. The exercise of a right of redemption
would defeat the title of any purchaser from the lender subsequent to
foreclosure or sale under a deed of trust. Consequently, the practical effect of
the redemption right is to force the lender to retain the property and pay the
expenses of ownership until the redemption period has run. In some states, there
is no right to redeem property after a trustee's sale under a deed of trust.
ANTI-DEFICIENCY LEGISLATION; BANKRUPTCY LAWS; TAX LIENS
Certain states have imposed statutory and judicial restrictions that limit
the remedies of a beneficiary under a deed of trust or a mortgagee under a
mortgage. In some states, including California, statutes and case law limit the
right of the beneficiary or mortgagee to obtain a deficiency judgment against
borrowers financing the purchase of their residence or following sale under a
deed of trust or certain other foreclosure proceedings. A deficiency judgment is
a personal judgment against the borrower equal in most cases to the difference
between the amount due to the lender and the fair market value of the real
property at the time of the foreclosure sale. As a result of these prohibitions,
it is anticipated that in most instances the Master Servicer will utilize the
non-judicial foreclosure remedy and will not seek deficiency judgments against
defaulting borrowers.
Some state statutes require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
In certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of these states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies with respect to the security. Consequently, the
practical effect of the election requirement,
62
<PAGE>
<PAGE>
when applicable, is that lenders will usually proceed first against the security
rather than bringing a personal action against the borrower. In some states,
exceptions to the anti-deficiency statutes are provided for in certain instances
where the value of the lender's security has been impaired by acts or omissions
of the borrower, for example, in the event of waste of the property. Finally,
other statutory provisions limit any deficiency judgment against the former
borrower following a foreclosure sale to the excess of the outstanding debt over
the fair market value of the property at the time of the public sale. The
purpose of these statutes is generally to prevent a beneficiary or a mortgagee
from obtaining a large deficiency judgment against the former borrower as a
result of low or no bids at the foreclosure sale.
Generally, Article 9 of the UCC governs foreclosure on Cooperative shares
and the related proprietary lease or occupancy agreement. Some courts have
interpreted section 9-504 of the UCC to prohibit a deficiency award unless the
creditor establishes that the sale of the collateral (which, in the case of a
Cooperative Loan, would be the shares of the Cooperative and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
and state laws affording relief to debtors, may interfere with or affect the
ability of the secured mortgage lender to realize upon its security. For
example, in a proceeding under the federal Bankruptcy Code, a lender may not
foreclose on a mortgaged property without the permission of the bankruptcy
court. The rehabilitation plan proposed by the debtor may provide, if the
mortgaged property is not the debtor's principal residence and the court
determines that the value of the mortgaged property is less than the principal
balance of the mortgage loan, for the reduction of the secured indebtedness to
the value of the mortgaged property as of the date of the commencement of the
bankruptcy, rendering the lender a general unsecured creditor for the
difference, and also may reduce the monthly payments due under such mortgage
loan, change the rate of interest and alter the mortgage loan repayment
schedule. The effect of any such proceedings under the federal Bankruptcy Code,
including but not limited to any automatic stay, could result in delays in
receiving payments on the Loans underlying a Series of Securities and possible
reductions in the aggregate amount of such payments.
The federal tax laws provide priority to certain tax liens over the lien of
a mortgage or secured party.
DUE-ON-SALE CLAUSES
Unless otherwise specified in the related Prospectus Supplement, each
conventional Loan will contain a due-on-sale clause which will generally provide
that if the mortgagor or obligor sells, transfers or conveys the Property, the
loan or contract may be accelerated by the mortgagee or secured party. Court
decisions and legislative actions have placed substantial restriction on the
right of lenders to enforce such clauses in many states. For instance, the
California Supreme Court in August 1978 held that due-on-sale clauses were
generally unenforceable. However, the Garn-St Germain Depository Institutions
Act of 1982 (the 'Garn-St Germain Act'), subject to certain exceptions, preempts
state constitutional, statutory and case law prohibiting the enforcement of
due-on-sale clauses. As a result, due-on-sale clauses have become generally
enforceable except in those states whose legislatures exercised their authority
to regulate the enforceability of such clauses with respect to mortgage loans
that were (i) originated or assumed during the 'window period' under the Garn-St
Germain Act which ended in all cases not later than October 15, 1982, and (ii)
originated by lenders other than national banks, federal savings institutions
and federal credit unions. FHLMC has taken the position in its published
mortgage servicing standards that, out of a total of eleven 'window period
states,' five states (Arizona, Michigan, Minnesota, New Mexico and Utah) have
enacted statutes extending, on various terms and for varying periods, the
prohibition on enforcement of due-on-sale clauses with respect to certain
categories of window period loans. Also, the Garn-St Germain Act does
'encourage' lenders to permit assumption of loans at the original rate of
interest or at some other rate less than the average of the original rate and
the market rate.
As to loans secured by an owner-occupied residence, the Garn-St Germain Act
sets forth nine specific instances in which a mortgagee covered by the Act may
not exercise its rights under a due-on-sale clause, notwithstanding the fact
that a transfer of the property may have occurred. The inability to enforce a
due-on-sale clause may result in transfer of the related Property to an
uncreditworthy person, which could increase the likelihood of default or may
result in a mortgage bearing an interest rate below the current market rate
being assumed by a new home buyer, which may affect the average life of the
Loans and the number of Loans which may extend to maturity.
63
<PAGE>
<PAGE>
In addition, under federal bankruptcy law, due-on-sale clauses may not be
enforceable in bankruptcy proceedings and may, under certain circumstances, be
eliminated in any modified mortgage resulting from such bankruptcy proceeding.
ENFORCEABILITY OF PREPAYMENT AND LATE PAYMENT FEES
Forms of notes, mortgages and deeds of trust used by lenders may contain
provisions obligating the borrower to pay a late charge if payments are not
timely made, and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states, there
are or may be specific limitations upon the late charges which a lender may
collect from a borrower for delinquent payments. Certain states also limit the
amounts that a lender may collect from a borrower as an additional charge if the
loan is prepaid. Under certain state laws, prepayment charges may not be imposed
after a certain period of time following the origination of mortgage loans with
respect to prepayments on loans secured by liens encumbering owner-occupied
residential properties. Since many of the Properties will be owner-occupied, it
is anticipated that prepayment charges may not be imposed with respect to many
of the Loans. The absence of such a restraint on prepayment, particularly with
respect to fixed rate Loans having higher Loan Rates, may increase the
likelihood of refinancing or other early retirement of such loans or contracts.
Late charges and prepayment fees are typically retained by servicers as
additional servicing compensation.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ('Title V') provides that state usury
limitations shall not apply to certain types of residential first mortgage loans
originated by certain lenders after March 31, 1980. The Office of Thrift
Supervision, as successor to the Federal Home Loan Bank Board, is authorized to
issue rules and regulations and to publish interpretations governing
implementation of Title V. The statute authorized the states to reimpose
interest rate limits by adopting, before April 1, 1983, a law or constitutional
provision which expressly rejects an application of the federal law. Fifteen
states adopted such a law prior to the April 1, 1983 deadline. In addition, even
where Title V is not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on mortgage loans covered by
Title V. Certain states have taken action to reimpose interest rate limits
and/or to limit discount points or other charges.
THE HOME IMPROVEMENT CONTRACTS
General. The Home Improvement Contracts, other than those Home Improvement
Contracts that are unsecured or secured by mortgages on real estate (such Home
Improvement Contracts are hereinafter referred to in this section as
'contracts') generally are 'chattel paper' or constitute 'purchase money
security interests' each as defined in the UCC. Pursuant to the UCC, the sale of
chattel paper is treated in a manner similar to perfection of a security
interest in chattel paper. Under the related Agreement, the Depositor will
transfer physical possession of the contracts to the Trustee or a designated
custodian or may retain possession of the contracts as custodian for the
Trustee. In addition, the Depositor will make an appropriate filing of a UCC-1
financing statement in the appropriate states to, among other things, give
notice of the Trust Fund's ownership of the contracts. Unless otherwise
specified in the related Prospectus Supplement, the contracts will not be
stamped or otherwise marked to reflect their assignment from the Depositor to
the Trustee. Therefore, if through negligence, fraud or otherwise, a subsequent
purchaser were able to take physical possession of the contracts without notice
of such assignment, the Trust Fund's interest in the contracts could be
defeated.
Security Interests in Home Improvements. The contracts that are secured by
the Home Improvements financed thereby grant to the originator of such contracts
a purchase money security interest in such Home Improvements to secure all or
part of the purchase price of such Home Improvements and related services. A
financing statement generally is not required to be filed to perfect a purchase
money security interest in consumer goods. Such purchase money security
interests are assignable. In general, a purchase money security interest grants
to the holder a security interest that has priority over a conflicting security
interest in the same collateral and the proceeds of such collateral. However, to
the extent that the collateral subject to a purchase money security interest
becomes a fixture, in order for the related purchase money security interest to
take priority over a conflicting interest in the fixture, the holder's interest
in such Home Improvement must generally
64
<PAGE>
<PAGE>
be perfected by a timely fixture filing. In general, a security interest does
not exist under the UCC in ordinary building material incorporated into an
improvement on land. Home Improvement Contracts that finance lumber, bricks,
other types of ordinary building material or other goods that are deemed to lose
such characterization upon incorporation of such materials into the related
property, will not be secured by a purchase money security interest in the Home
Improvement being financed.
Enforcement of Security Interest in Home Improvements. So long as the Home
Improvement has not become subject to the real estate law, a creditor can
repossess a Home Improvement securing a contract by voluntary surrender, by
'self-help' repossession that is 'peaceful' (i.e., without breach of the peace)
or, in the absence of voluntary surrender and the ability to repossess without
breach of the peace, by judicial process. The holder of a contract must give the
debtor a number of days' notice, which varies from 10 to 30 days depending on
the state, prior to commencement of any repossession. The UCC and consumer
protection laws in most states place restrictions on repossession sales,
including requiring prior notice to the debtor and commercial reasonableness in
effecting such a sale. The law in most states also requires that the debtor be
given notice of any sale prior to resale of the unit that the debtor may redeem
at or before such resale.
Under the laws applicable in most states, a creditor is entitled to obtain
a deficiency judgment from a debtor for any deficiency on repossession and
resale of the property securing the debtor's loan. However, some states impose
prohibitions or limitations on deficiency judgments, and in many cases the
defaulting borrower would have no assets with which to pay a judgment.
Certain other statutory provisions, including federal and state bankruptcy
and insolvency laws and general equitable principles, may limit or delay the
ability of a lender to repossess and resell collateral or enforce a deficiency
judgment.
Consumer Protection Laws. The so-called 'Holder-in-Due Course' rule of the
Federal Trade Commission is intended to defeat the ability of the transferor of
a consumer credit contract which is the seller of goods which gave rise to the
transaction (and certain related lenders and assignees) to transfer such
contract free of notice of claims by the debtor thereunder. The effect of this
rule is to subject the assignee of such a contract to all claims and defenses
which the debtor could assert against the seller of goods. Liability under this
rule is limited to amounts paid under a contract; however, the obligor also may
be able to assert the rule to set off remaining amounts due as a defense against
a claim brought by the Trustee against such obligor. Numerous other federal and
state consumer protection laws impose requirements applicable to the origination
and lending pursuant to the contracts, including the Truth in Lending Act, the
Federal Trade Commission Act, the Fair Credit Billing Act, the Fair Credit
Reporting Act, the Equal Credit Opportunity Act, the Fair Debt Collection
Practices Act and the Uniform Consumer Credit Code. In the case of some of these
laws, the failure to comply with their provisions may affect the enforceability
of the related contract.
Applicability of Usury Laws. Title V of the Depository Institutions
Deregulation and Monetary Control Act of 1980, as amended ('Title V'), provides
that, subject to the following conditions, state usury limitations shall not
apply to any contract which is secured by a first lien on certain kinds of
consumer goods. The contracts would be covered if they satisfy certain
conditions governing, among other things, the terms of any prepayments, late
charges and deferral fees and requiring a 30-day notice period prior to
instituting any action leading to repossession of the related unit.
Title V authorized any state to reimpose limitations on interest rates and
finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen states
adopted such a law prior to the April 1, 1983 deadline. In addition, even where
Title V was not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on loans covered by Title V.
INSTALLMENT CONTRACTS
The Loans may also consist of installment contracts. Under an installment
contract ('Installment Contract') the seller (hereinafter referred to in this
section as the 'lender') retains legal title to the property and enters into an
agreement with the purchaser hereinafter referred to in this section as the
'borrower') for the payment of the purchase price, plus interest, over the term
of such contract. Only after full performance by the borrower of the contract is
the lender obligated to convey title to the property to the purchaser. As with
mortgage or deed of trust financing, during the effective period of the
Installment Contract, the borrower is generally
65
<PAGE>
<PAGE>
responsible for maintaining the property in good condition and for paying real
estate taxes, assessments and hazard insurance premiums associated with the
property.
The method of enforcing the rights of the lender under an Installment
Contract varies on a state-by-state basis depending upon the extent to which
state courts are willing, or able pursuant to state statute, to enforce the
contract strictly according to its terms. The terms of Installment Contracts
generally provide that upon a default by the borrower, the borrower loses his or
her right to occupy the property, the entire indebtedness is accelerated, and
the buyer's equitable interest in the property is forfeited. The lender in such
a situation does not have to foreclose in order to obtain title to the property,
although in some cases a quiet title action is in order if the borrower has
filed the Installment Contract in local land records and an ejectment action may
be necessary to recover possession. In a few states, particularly in cases of
borrower default during the early years of an Installment Contract, the courts
will permit ejectment of the buyer and a forfeiture of his or her interest in
the property. However, most state legislatures have enacted provisions by
analogy to mortgage law protecting borrowers under Installment Contracts from
the harsh consequences of forfeiture. Under such statutes, a judicial or
nonjudicial foreclosure may be required, the lender may be required to give
notice of default and the borrower may be granted some grace period during which
the Installment Contract may be reinstated upon full payment of the default
amount and the borrower may have a post-foreclosure statutory redemption right.
In other states, courts in equity may permit a borrower with significant
investment in the property under an Installment Contract for the sale of real
estate to share in the proceeds of sale of the property after the indebtedness
is repaid or may otherwise refuse to enforce the forfeiture clause.
Nevertheless, generally speaking, the lender's procedures for obtaining
possession and clear title under an Installment Contract in a given state are
simpler and less time-consuming and costly than are the procedures for
foreclosing and obtaining clear title to a property subject to one or more
liens.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended (the 'Relief Act'), a borrower who enters military service
after the origination of such borrower's Loan (including a borrower who is a
member of the National Guard or is in reserve status at the time of the
origination of the Loan and is later called to active duty) may not be charged
interest above an annual rate of 6% during the period of such borrower's active
duty status, unless a court orders otherwise upon application of the lender. It
is possible that such interest rate limitation could have an effect, for an
indeterminate period of time, on the ability of the Master Servicer to collect
full amounts of interest on certain of the Loans. Unless otherwise provided in
the related Prospectus Supplement, any shortfall in interest collections
resulting from the application of the Relief Act could result in losses to
Securityholders. The Relief Act also imposes limitations which would impair the
ability of the Master Servicer to foreclose on an affected Loan during the
borrower's period of active duty status. Moreover, the Relief Act permits the
extension of a Loan's maturity and the re-adjustment of its payment schedule
beyond the completion of military service. Thus, in the event that such a Loan
goes into default, there may be delays and losses occasioned by the inability to
realize upon the Property in a timely fashion.
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGEES
To the extent that the Loans comprising the Trust Fund for a Series are
secured by mortgages which are junior to other mortgages held by other lenders
or institutional investors, the rights of the Trust Fund (and therefore the
Securityholders), as mortgagee under any such junior mortgage, are subordinate
to those of any mortgagee under any senior mortgage. The senior mortgagee has
the right to receive hazard insurance and condemnation proceeds and to cause the
property securing the Loan to be sold upon default of the mortgagor, thereby
extinguishing thejunior mortgagee's lien unless the junior mortgagee asserts its
subordinate interest in the property in foreclosure litigation and, possibly,
satisfies the defaulted senior mortgage. A junior mortgagee may satisfy a
defaulted senior loan in full and, in some states, may cure a default and bring
the senior loan current, in either event adding the amounts expended to the
balance due on the junior loan. In most states, absent a provision in the
mortgage or deed of trust, no notice of default is required to be given to a
junior mortgagee.
The standard form of the mortgage used by most institutional lenders
confers on the mortgagee the right both to receive all proceeds collected under
any hazard insurance policy and all awards made in connection with condemnation
proceedings, and to apply such proceeds and awards to any indebtedness secured
by the
66
<PAGE>
<PAGE>
mortgage, in such order as the mortgagee may determine. Thus, in the event
improvements on the property are damaged or destroyed by fire or other casualty,
or in the event the property is taken by condemnation, the mortgagee or
beneficiary under senior mortgages will have the prior right to collect any
insurance proceeds payable under a hazard insurance policy and any award of
damages in connection with the condemnation and to apply the same to the
indebtedness secured by the senior mortgages. Proceeds in excess of the amount
of senior mortgage indebtedness, in most cases, may be applied to the
indebtedness of a junior mortgage.
Another provision sometimes found in the form of the mortgage or deed of
trust used by institutional lenders obligates the mortgagor to pay before
delinquency all taxes and assessments on the property and, when due, all
encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the property or the rights of the mortgagee under the mortgage. Upon a
failure of the mortgagor to perform any of these obligations, the mortgagee is
given the right under certain mortgages to perform the obligation itself, at its
election, with the mortgagor agreeing to reimburse the mortgagee for any sums
expended by the mortgagee on behalf of the mortgagor. All sums so expended by
the mortgagee become part of the indebtedness secured by the mortgage.
The form of credit line trust deed or mortgage generally used by most
institutional lenders which make Revolving Credit Line Loans typically contains
a 'future advance' clause, which provides, in essence, that additional amounts
advanced to or on behalf of the borrower by the beneficiary or lender are to be
secured by the deed of trust or mortgage. Any amounts so advanced after the
Cut-off Date with respect to any Mortgage will not be included in the Trust
Fund. The priority of the lien securing any advance made under the clause may
depend in most states on whether the deed of trust or mortgage is called and
recorded as a credit line deed of trust or mortgage. If the beneficiary or
lender advances additional amounts, the advance is entitled to receive the same
priority as amounts initially advanced under the trust deed or mortgage,
notwithstanding the fact that there may be junior trust deeds or mortgages and
other liens which intervene between the date of recording of the trust deed or
mortgage and the date of the future advance, and notwithstanding that the
beneficiary or lender had actual knowledge of such intervening junior trust
deeds or mortgages and other liens at the time of the advance. In most states,
the trust deed or mortgage lien securing mortgage loans of the type which
includes home equity credit lines applies retroactively to the date of the
original recording of the trust deed or mortgage, provided that the total amount
of advances under the home equity credit line does not exceed the maximum
specified principal amount of the recorded trust deed or mortgage, except as to
advances made after receipt by the lender of a written notice of lien from a
judgment lien creditor of the trustor.
THE TITLE I PROGRAM
General. Certain of the Loans contained in a Trust Fund may be loans
insured under the FHA Title I Credit Insurance program created pursuant to
Sections 1 and 2(a) of the National Housing Act of 1934 (the 'Title I Program').
Under the Title I Program, the FHA is authorized and empowered to insure
qualified lending institutions against losses on eligible loans. The Title I
Program operates as a coinsurance program in which the FHA insures up to 90% of
certain losses incurred on an individual insured loan, including the unpaid
principal balance of the loan, but only to the extent of the insurance coverage
available in the lender's FHA insurance coverage reserve account. The owner of
the loan bears the uninsured loss on each loan.
The types of loans which are eligible for insurance by the FHA under the
Title I Program include property improvement loans ('Property Improvement Loans'
or 'Title I Loans'). A Property Improvement Loan or Title I Loan means a loan
made to finance actions or items that substantially protect or improve the basic
livability or utility of a property and includes single family improvement
loans.
There are two basic methods of lending or originating such loans which
include a 'direct loan' or a 'dealer loan'. With respect to a direct loan, the
borrower makes application directly to a lender without any assistance from a
dealer, which application may be filled out by the borrower or by a person
acting at the direction of the borrower who does not have a financial interest
in the loan transaction, and the lender may disburse the loan proceeds solely to
the borrower or jointly to the borrower and other parties to the transaction.
With respect to a dealer loan, the dealer, who has a direct or indirect
financial interest in the loan transaction, assists the borrower in preparing
the loan application or otherwise assists the borrower in obtaining the loan
from lender and the lender may distribute proceeds solely to the dealer or the
borrower or jointly to the borrower and the dealer or
67
<PAGE>
<PAGE>
other parties. With respect to a dealer Title I Loan, a dealer may include a
seller, a contractor or supplier of goods or services.
Loans insured under the Title I Program are required to have fixed interest
rates and, generally, provide for equal installment payments due weekly,
biweekly, semi-monthly or monthly, except that a loan may be payable quarterly
or semi-annually in order to correspond with the borrower's irregular flow of
income. The first or last payments (or both) may vary in amount but may not
exceed 150% of the regular installment payment, and the first payment may be due
no later than two months from the date of the loan. The note must contain a
provision permitting full or partial prepayment of the loan. The interest rate
may be established by the lender and must be fixed for the term of the loan and
recited in the note. Interest on an insured loan must accrue from the date of
the loan and be calculated according to the actuarial method. The lender must
assure that the note and all other documents evidencing the loan are in
compliance with applicable federal, state and local laws.
Each insured lender is required to use prudent lending standards in
underwriting individual loans and to satisfy the applicable loan underwriting
requirements under the Title I Program prior to its approval of the loan and
disbursement of loan proceeds. Generally, the lender must exercise prudence and
diligence to determine whether the borrower and any co-maker is solvent and an
acceptable credit risk, with a reasonable ability to make payments on the loan
obligation. The lender's credit application and review must determine whether
the borrower's income will be adequate to meet the periodic payments required by
the loan, as well as the borrower's other housing and recurring expenses, which
determination must be made in accordance with the expense-to-income ratios
published by the Secretary of HUD.
Under the Title I Program, the FHA does not review or approve for
qualification for insurance the individual loans insured thereunder at the time
of approval by the lending institution (as is typically the case with other
federal loan programs). If, after a loan has been made and reported for
insurance under the Title I Program, the lender discovers any material
misstatement of fact or that the loan proceeds have been misused by the
borrower, dealer or any other party, it shall promptly report this to the FHA.
In such case, provided that the validity of any lien on the property has not
been impaired, the insurance of the loan under the Title I Program will not be
affected unless such material misstatements of fact or misuse of loan proceeds
was caused by (or was knowingly sanctioned by) the lender or its employees.
Requirements for Title I Loans. The maximum principal amount for Title I
Loans must not exceed the actual cost of the project plus any applicable fees
and charges allowed under the Title I Program; provided that such maximum amount
does not exceed $25,000 (or the current applicable amount) for a single family
property improvement loan. Generally, the term of a Title I Loan may not be less
than six months nor greater than 20 years and 32 days. A borrower may obtain
multiple Title I Loans with respect to multiple properties, and a borrower may
obtain more than one Title I Loan with respect to a single property, in each
case as long as the total outstanding balance of all Title I Loans in the same
property does not exceed the maximum loan amount for the type of Title I Loan
thereon having the highest permissible loan amount.
Borrower eligibility for a Title I Loan requires that the borrower have at
least a one-half interest in either fee simple title to the real property, a
lease thereof for a term expiring at least six months after the final maturityof
the Title I Loan or a recorded land installment contract for the purchase of the
real property, and that the borrower have equity in the property being improved
at least equal to the amount of the Title I Loan if such loan amount exceeds
$15,000. Any Title I Loan in excess of $7,500 must be secured by a recorded lien
on the improved property which is evidenced by a mortgage or deed of trust
executed by the borrower and all other owners in fee simple.
The proceeds from a Title I Loan may be used only to finance property
improvements which substantially protect or improve the basic livability or
utility of the property as disclosed in the loan application. The Secretary of
HUD has published a list of items and activities which cannot be financed with
proceeds from any Title I Loan and from time to time the Secretary of HUD may
amend such list of items and activities. With respect to any dealer Title I
Loan, before the lender may disburse funds, the lender must have in its
possession a completion certificate on a HUD approved form, signed by the
borrower and the dealer. With respect to any direct Title I Loan, the lender is
required to obtain, promptly upon completion of the improvements but not later
than six months after disbursement of the loan proceeds with one six month
extension if necessary, a completion certificate, signed by the borrower. The
lender is required to conduct an on-site inspection on any Title I Loan where
the principal obligation is $7,500 or more, and on any direct Title I Loan where
the borrower fails to submit a completion certificate.
68
<PAGE>
<PAGE>
FHA Insurance Coverage. Under the Title I Program the FHA establishes an
insurance coverage reserve account for each lender which has been granted a
Title I insurance contract. The amount of insurance coverage in this account is
10% of the amount disbursed, advanced or expended by the lender in originating
or purchasing eligible loans registered with FHA for Title I insurance, with
certain adjustments. The balance in the insurance coverage reserve account is
the maximum amount of insurance claims the FHA is required to pay. Loans to be
insured under the Title I Program will be registered for insurance by the FHA
and the insurance coverage attributable to such loans will be included in the
insurance coverage reserve account for the originating or purchasing lender
following the receipt and acknowledgment by the FHA of a loan report on the
prescribed form pursuant to the Title I regulations. The FHA charges a fee of
0.50% per annum of the net proceeds (the original balance) of any eligible loan
so reported and acknowledged for insurance by the originating lender. The FHA
bills the lender for the insurance premium on each insured loan annually, on
approximately the anniversary date of the loan's origination. If an insured loan
is prepaid during the year, FHA will not refund or abate the insurance premium.
Under the Title I Program the FHA will reduce the insurance coverage
available in the lender's FHA insurance coverage reserve account with respect to
loans insured under the lender's contract of insurance by (i) the amount of the
FHA insurance claims approved for payment relating to such insured loans and
(ii) the amount of insurance coverage attributable to insured loans sold by the
lender, and such insurance coverage may be reduced for any FHA insurance claims
rejected by the FHA. The balance of the lender's FHA insurance coverage reserve
account will be further adjusted as required under Title I or by the FHA, and
the insurance coverage therein may be earmarked with respect to each or any
eligible loans insured thereunder, if a determination is made by the Secretary
of HUD that it is in its interest to do so. Originations and acquisitions of new
eligible loans will continue to increase a lender's insurance coverage reserve
account balance by 10% of the amount disbursed, advanced or expended in
originating or acquiring such eligible loans registered with the FHA for
insurance under the Title I Program. The Secretary of HUD may transfer insurance
coverage between insurance coverage reserve accounts with earmarking with
respect to a particular insured loan or group of insured loans when a
determination is made that it is in the Secretary's interest to do so.
The lender may transfer (except as collateral in a bona fide transaction)
insured loans and loans reported for insurance only to another qualified lender
under a valid Title I contract of insurance. Unless an insured loan is
transferred with recourse or with a guaranty or repurchase agreement, the FHA,
upon receipt of written notification of the transfer of such loan in accordance
with the Title I regulations, will transfer from the transferor's insurance
coverage reserve account to the transferee's insurance coverage reserve account
an amount, if available, equal to 10% of the actual purchase price or the net
unpaid principal balance of such loan (whichever is less). However, under the
Title I Program not more than $5,000 in insurance coverage shall be transferred
to or from a lender's insurance coverage reserve account during any October 1 to
September 30 period without the prior approval of the Secretary of HUD.
Claims Procedures Under Title I. Under the Title I Program the lender may
accelerate an insured loan following a default on such loan only after the
lender or its agent has contacted the borrower in a face-to-face meeting or by
telephone to discuss the reasons for the default and to seek its cure. If the
borrower does not cure the default or agree to a modification agreement or
repayment plan, the lender will notify the borrower in writing that, unless
within 30 days the default is cured or the borrower enters into a modification
agreement or repayment plan, the loan will be accelerated and that, if the
default persists, the lender will report the default to an appropriate credit
agency. The lender may rescind the acceleration of maturity after full payment
is due and reinstate the loan only if the borrower brings the loan current,
executes a modification agreement or agrees to an acceptable repayment plan.
Following acceleration of maturity upon a secured Title I Loan, the lender
may either (a) proceed against the property under any security instrument, or
(b) make a claim under the lender's contract of insurance. If the lender chooses
to proceed against the property under a security instrument (or if it accepts a
voluntary conveyance or surrender of the property), the lender may file an
insurance claim only with the prior approval of the Secretary of HUD.
When a lender files an insurance claim with the FHA under the Title I
Program, the FHA reviews the claim, the complete loan file and documentation of
the lender's efforts to obtain recourse against any dealer who has agreed
thereto, certification of compliance with applicable state and local laws in
carrying out any foreclosure or repossession, and evidence that the lender has
properly filed proofs of claims, where the borrower
69
<PAGE>
<PAGE>
is bankrupt or deceased. Generally, a claim for reimbursement for loss on any
Title I Loan must be filed with the FHA no later than nine months after the date
of default of such loan. Concurrently with filing the insurance claim, the
lender shall assign to the United States of America the lender's entire interest
in the loan note (or a judgment in lieu of the note), in any security held and
in any claim filed in any legal proceedings. If, at the time the note is
assigned to the United States, the Secretary has reason to believe that the note
is not valid or enforceable against the borrower, the FHA may deny the claim and
reassign the note to the lender. If either such defect is discovered after the
FHA has paid a claim, the FHA may require the lender to repurchase the paid
claim and to accept a reassignment of the loan note. If the lender subsequently
obtains a valid and enforceable judgment against the borrower, the lender may
resubmit a new insurance claim with an assignment of the judgment. The FHA may
contest any insurance claim and make a demand for repurchase of the loan at any
time up to two years from the date the claim was certified for payment and may
do so thereafter in the event of fraud or misrepresentation on the part of the
lender.
Under the Title I Program the amount of an FHA insurance claim payment,
when made, is equal to the Claimable Amount, up to the amount of insurance
coverage in the lender's insurance coverage reserve account. For the purposes
hereof, the 'Claimable Amount' means an amount equal to 90% of the sum of: (a)
the unpaid loan obligation (net unpaid principal and the uncollected interest
earned to the date of default) with adjustments thereto if the lender has
proceeded against property securing such loan; (b) the interest on the unpaid
amount of the loan obligation from the date of default to the date of the
claim's initial submission for payment plus 15 calendar days (but not to exceed
9 months from the date of default), calculated at the rate of 7% per annum; (c)
the uncollected court costs; (d) the attorney's fees not to exceed $500; and (e)
the expenses for recording the assignment of the security to the United States.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws impose substantive
requirements upon mortgage lenders in connection with the origination, servicing
and enforcement of loans secured by Single Family Properties. These laws include
the federal Truth-in-Lending Act and Regulation Z promulgated thereunder, Real
Estate Settlement Procedures Act and Regulation B promulgated thereunder, Equal
Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act and
related statutes and regulations. In particular, Regulation Z, requires certain
disclosures to the borrowers regarding the terms of the Loans; the Equal Credit
Opportunity Act and Regulation B promulgated thereunder prohibit discrimination
on the basis of age, race, color, sex, religion, marital status, national
origin, receipt of public assistance or the exercise of any right under the
Consumer Credit Protection Act, in the extension of credit; the Fair Credit
Reporting Act regulates the use and reporting of information relatedto the
borrower's credit experience. Certain provisions of these laws impose specific
statutory liabilities upon lenders who fail to comply therewith. In addition,
violations of such laws may limit the ability of the Sellers to collect all or
part of the principal of or interest on the Loans and could subject the Sellers
and in some cases their assignees to damages and administrative enforcement.
70
<PAGE>
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of the anticipated material federal income tax
consequences of the purchase, ownership, and disposition of the Securities and
is based on advice of Brown & Wood LLP, special counsel to the Depositor. The
summary is based upon the provisions of the Code, the regulations promulgated
thereunder, including, where applicable, proposed regulations, and the judicial
and administrative rulings and decisions now in effect, all of which are subject
to change or possible differing interpretations. The statutory provisions,
regulations, and interpretations on which this interpretation is based are
subject to change, and such a change could apply retroactively.
The summary does not purport to deal with all aspects of federal income
taxation that may affect particular investors in light of their individual
circumstances, nor with certain types of investors subject to special treatment
under the federal income tax laws. This summary focuses primarily upon investors
who will hold Securities as 'capital assets' (generally, property held for
investment) within the meaning of Section 1221 of the Code, but much of the
discussion is applicable to other investors as well. Prospective Investors are
advised to consult their own tax advisers concerning the federal, state, local
and any other tax consequences to them of the purchase, ownership and
disposition of the Securities.
The federal income tax consequences to Holders will vary depending on
whether (i) the Securities of a Series are classified as indebtedness; (ii) an
election is made to treat the Trust Fund relating to a particular Series of
Securities as a real estate mortgage investment conduit ('REMIC') under the
Internal Revenue Code of 1986, as amended (the 'Code'); (iii) the Securities
represent an ownership interest in some or all of the assets included in the
Trust Fund for a Series; or (iv) an election is made to treat the Trust Fund
relating to a particular Series of Certificates as a partnership. The Prospectus
Supplement for each Series of Securities will specify how the Securities will be
treated for federal income tax purposes and will discuss whether a REMIC
election, if any, will be made with respect to such Series. Prior to issuance of
each Series of Securities, the Depositor shall file with the Commission a Form
8-K on behalf of the related Trust Fund containing an opinion of Brown & Wood
LLP with respect to the validity of the information set forth under 'Federal
Income Tax Consequences' herein and in the related Prospectus Supplement.
TAXATION OF DEBT SECURITIES
Status as Real Property Loans. Except to the extent otherwise provided in
the related Prospectus Supplement, Brown & Wood LLP will have advised the
Depositor that: (i) Securities held by a domestic building and loan association
will constitute 'loans... secured by an interest in real property' within the
meaning of Code Section 7701(a)(19)(C)(v); and (ii) Securities held by a real
estate investment trust will constitute 'real estate assets' within the meaning
of Code Section 856(c)(5)(A) and interest on Securities will be considered
'interest on obligations secured by mortgages on real property or on interests
in real property' within the meaning of Code Section 856(c)(3)(B).
The Small Business Job Protection Act of 1996, as part of the repeal of the
bad debt reserve method for thrift institutions, repealed the application of
Code Section 593(d) to any taxable year beginning after December 31, 1995.
Interest and Acquisition Discount. Securities representing regular
interests in a REMIC ('Regular Interest Securities') are generally taxable to
holders in the same manner as evidences of indebtedness issued by the REMIC.
Stated interest on the Regular Interest Securities will be taxable as ordinary
income and taken into account using the accrual method of accounting, regardless
of the Holder's normal accounting method. Interest (other than original issue
discount) on Securities (other than Regular Interest Securities) that are
characterized as indebtedness for federal income tax purposes will be includible
in income by holders thereof in accordance with their usual methods of
accounting. Securities characterized as debt for federal income tax purposes and
Regular Interest Securities will be referred to hereinafter collectively as
'Debt Securities.'
Debt Securities that are Compound Interest Securities will, and certain of
the other Debt Securities may, be issued with 'original issue discount' ('OID').
The following discussion is based in part on the rules governing OID which are
set forth in Sections 1271-1275 of the Code and the Treasury regulations issued
thereunder on
71
<PAGE>
<PAGE>
February 2, 1994 (the 'OID Regulations'). A Holder should be aware, however,
that the OID Regulations do not adequately address certain issues relevant to
prepayable securities, such as the Debt Securities.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Debt Security and its issue price. A holder of
a Debt Security must include such OID in gross income as ordinary interest
income as it accrues under a method taking into account an economic accrual of
the discount. In general, OID must be included in income in advance of the
receipt of the cash representing that income. The amount of OID on a Debt
Security will be considered to be zero if it is less than a de minimis amount
determined under the Code.
The issue price of a Debt Security is the first price at which a
substantial amount of Debt Securities of that class are sold to the public
(excluding bond houses, brokers, underwriters or wholesalers). If less than a
substantial amount of a particular class of Debt Securities is sold for cash on
or prior to the related Closing Date, the issue price for such class will be
treated as the fair market value of such class on such Closing Date. The issue
price of a Debt Security also includes the amount paid by an initial Debt
Security holder for accrued interest that relates to a period prior to the issue
date of the Debt Security. The stated redemption price at maturity of a Debt
Security includes the original principal amount of the Debt Security, but
generally will not include distributions of interest if such distributions
constitute 'qualified stated interest.'
Under the OID Regulations, qualified stated interest generally means
interest payable at a single fixed rate or qualified variable rate (as described
below) provided that such interest payments are unconditionally payable at
intervals of one year or less during the entire term of the Debt Security. The
OID Regulations state that interest payments are unconditionally payable only if
a late payment or nonpayment is expected to be penalized or reasonable remedies
exist to compel payment. Certain Debt Securities may provide for default
remedies in the event of late payment or nonpayment of interest. The interest on
such Debt Securities will be unconditionally payable and constitute qualified
stated interest, not OID. However, absent clarification of the OID Regulations,
where Debt Securities do not provide for default remedies, the interest payments
will be included in the Debt Security's stated redemption price at maturity and
taxed as OID. Interest is payable at a single fixed rate only if the rate
appropriately takes into account the length of the interval between payments.
Distributions of interest on Debt Securities with respect to which deferred
interest will accrue, will not constitute qualified stated interest payments, in
which case the stated redemption price at maturity of such Debt Securities
includes all distributions of interest as well as principal thereon. Where the
interval between the issue date and the first Distribution Date on a Debt
Security is either longer or shorter than the interval between subsequent
Distribution Dates, all or part of the interest foregone, in the case of the
longer interval, and all of the additional interest, in the case of the shorter
interval, will be included in the stated redemption price at maturity and tested
under the de minimis rule described below. In the case of a Debt Security with a
long first period which has non-de minimis OID, all stated interest in excess of
interest payable at the effective interest rate for the long first period will
be included in the stated redemption price at maturity and the Debt Security
will generally have OID. Holders of Debt Securities should consult their own tax
advisors to determine the issue price and stated redemption price at maturity of
a Debt Security.
Under the de minimis rule, OID on a Debt Security will be considered to be
zero if such OID is less than 0.25% of the stated redemption price at maturity
of the Debt Security multiplied by the weighted average maturity of the Debt
Security. For this purpose, the weighted average maturity of the Debt Security
is computed as the sum of the amounts determined by multiplying the number of
full years (i.e., rounding down partial years) from the issue date until each
distribution in reduction of stated redemption price at maturity is scheduled to
be made by a fraction, the numerator of which is the amount of each distribution
included in the stated redemption price at maturity of the Debt Security and the
denominator of which is the stated redemption price at maturity of the Debt
Security. Holders generally must report de minimis OID pro rata as principal
payments are received, and such income will be capital gain if the Debt Security
is held as a capital asset. However, accrual method holders may elect to accrue
all de minimis OID as well as market discount under a constant interest method.
Debt Securities may provide for interest based on a qualified variable
rate. Under the OID Regulations, interest is treated as payable at a qualified
variable rate and not as contingent interest if, generally, (i) such interest is
unconditionally payable at least annually, (ii) the issue price of the debt
instrument does not exceed the total noncontingent principal payments and (iii)
interest is based on a 'qualified floating rate,' an 'objective rate,' or a
combination of 'qualified floating rates' that do not operate in a manner that
significantly accelerates or defers interest payments on such Debt Security. In
the case of Compound Interest Securities, certain Interest
72
<PAGE>
<PAGE>
Weighted Securities (as defined herein), and certain of the other Debt
Securities, none of the payments under the instrument will be considered
qualified stated interest, and thus the aggregate amount of all payments will be
included in the stated redemption price.
The Internal Revenue Services (the 'IRS') recently issued final regulations
(the 'Contingent Regulations') governing the calculation of OID on instruments
having contingent interest payments. The Contingent Regulations specifically do
not apply for purposes of calculating OID on debt instruments subject to Code
Section 1272(a)(6), such as the Debt Security. Additionally, the OID Regulations
do not contain provisions specifically interpreting Code Section 1272(a)(6).
Until the Treasury issues guidance to the contrary, the Trustee intends to base
its computation on Code Section 1272(a)(6) and the OID Regulations as described
in this Prospectus. However, because no regulatory guidance currently exists
under Code Section 1272(a)(6), there can be no assurance that such methodology
represents the correct manner of calculating OID.
The holder of a Debt Security issued with OID must include in gross income,
for all days during its taxable year on which it holds such Debt Security, the
sum of the 'daily portions' of such original issue discount. The amount of OID
includible in income by a holder will be computed by allocating to each day
during a taxable year a pro rata portion of the original issue discount that
accrued during the relevant accrual period. In the case of a Debt Security that
is not a Regular Interest Security and the principal payments on which are not
subject to acceleration resulting from prepayments on the Loans, the amount of
OID includible in income of a Holder for an accrual period (generally the period
over which interest accrues on the debt instrument) will equal the product of
the yield to maturity of the Debt Security and the adjusted issue price of the
Debt Security, reduced by any payments of qualified stated interest. The
adjusted issue price is the sum of its issue price plus prior accruals or OID,
reduced by the total payments made with respect to such Debt Security in all
prior periods, other than qualified stated interest payments.
The amount of OID to be included in income by a holder of a debt
instrument, such as certain Classes of the Debt Securities, that is subject to
acceleration due to prepayments on other debt obligations securing such
instruments (a 'Pay-Through Security'), is computed by taking into account the
anticipated rate of prepayments assumed in pricing the debt instrument (the
'Prepayment Assumption'). The amount of OID that will accrue during an accrual
period on a Pay-Through Security is the excess (if any) of the sum of (a) the
present value of all payments remaining to be made on the Pay-Through Security
as of the close of the accrual period and (b) the payments during the accrual
period of amounts included in the stated redemption price of the Pay-Through
Security, over the adjusted issue price of the Pay-Through Security at the
beginning of the accrual period. The present value of the remaining payments is
to be determined on the basis of three factors: (i) the original yield to
maturity of the Pay-Through Security (determined on the basis of compounding at
the end of each accrual period and properly adjusted for the length of the
accrual period), (ii) events which have occurred before the end of the accrual
period and (iii) the assumption that the remaining payments will be made in
accordance with the original Prepayment Assumption. The effect of this method is
to increase the portions of OID required to be included in income by a Holder to
take into account prepayments with respect to the Loans at a rate that exceeds
the Prepayment Assumption, and to decrease (but not below zero for any period)
the portions of original issue discount required to be included in income by a
Holder of a Pay-Through Security to take into account prepayments with respect
to the Loans at a rate that is slower than the Prepayment Assumption. Although
original issue discount will be reported to Holders of Pay-Through Securities
based on the Prepayment Assumption, no representation is made to Holders that
Loans will be prepaid at that rate or at any other rate.
The Depositor may adjust the accrual of OID on a Class of Regular Interest
Securities (or other regular interests in a REMIC) in a manner that it believes
to be appropriate, to take account of realized losses on the Loans, although the
OID Regulations do not provide for such adjustments. If the IRS were to require
that OID be accrued without such adjustments, the rate of accrual of OID for a
Class of Regular Interest Securities could increase.
Certain classes of Regular Interest Securities may represent more than one
class of REMIC regular interests. Unless otherwise provided in the related
Prospectus Supplement, the Trustee intends, based on the OID Regulations, to
calculate OID on such Securities as if, solely for the purposes of computing
OID, the separate regular interests were a single debt instrument.
A subsequent holder of a Debt Security will also be required to include OID
in gross income, but such a holder who purchases such Debt Security for an
amount that exceeds its adjusted issue price will be entitled (as
73
<PAGE>
<PAGE>
will an initial holder who pays more than a Debt Security's issue price) to
offset such OID by comparable economic accruals of portions of such excess.
Effects of Defaults and Delinquencies. Holders will be required to report
income with respect to the related Securities under an accrual method without
giving effect to delays and reductions in distributions attributable to a
default or delinquency on the Loans, except possibly to the extent that it can
be established that such amounts are uncollectible. As a result, the amount of
income (including OID) reported by a holder of such a Security in any period
could significantly exceed the amount of cash distributed to such holder in that
period. The holder will eventually be allowed a loss (or will be allowed to
report a lesser amount of income) to the extent that the aggregate amount of
distributions on the Securities is deducted as a result of a Loan default.
However, the timing and character of such losses or reductions in income are
uncertain and, accordingly, holders of Securities should consult their own tax
advisors on this point.
Interest Weighted Securities. It is not clear how income should be accrued
with respect to Regular Interest Securities or Stripped Securities (as defined
under ' -- Tax Status as a Grantor Trust; General' herein) the payments on which
consist solely or primarily of a specified portion of the interest payments on
qualified mortgages held by the REMIC or on Loans underlying Pass-Through
Securities ('Interest Weighted Securities'). The Issuer intends to take the
position that all of the income derived from an Interest Weighted Security
should be treated as OID and that the amount and rate of accrual of such OID
should be calculated by treating the Interest Weighted Security as a Compound
Interest Security. However, in the case of Interest Weighted Securities that are
entitled to some payments of principal and that are Regular Interest Securities
the Internal Revenue Service could assert that income derived from an Interest
Weighted Security should be calculated as if the Security were a security
purchased at a premium equal to the excess of the price paid by such holder for
such Security over its stated principal amount, if any. Under this approach, a
holder would be entitled to amortize such premium only if it has in effect an
election under Section 171 of the Code with respect to all taxable debt
instruments held by such holder, as described below. Alternatively, the Internal
Revenue Service could assert that an Interest Weighted Security should be
taxable under the rules governing bonds issued with contingent payments. Such
treatment may be more likely in the case of Interest Weighted Securities that
are Stripped Securities as described below. See ' -- Tax Status as a Grantor
Trust -- Discount or Premium on Pass-Through Securities.'
Variable Rate Debt Securities. In the case of Debt Securities bearing
interest at a rate that varies directly, according to a fixed formula, with an
objective index, it appears that (i) the yield to maturity of such Debt
Securities and (ii) in the case of Pay-Through Securities, the present value of
all payments remaining to be made on such Debt Securities, should be calculated
as if the interest index remained at its value as of the issue date of such
Securities. Because the proper method of adjusting accruals of OID on a variable
rate Debt Security is uncertain, holders of variable rate Debt Securities should
consult their own tax advisers regarding the appropriate treatment of such
Securities for federal income tax purposes.
Market Discount. A purchaser of a Security may be subject to the market
discount rules of Sections 1276-1278 of the Code. A Holder that acquires a Debt
Security with more than a prescribed de minimis amount of 'market discount'
(generally, the excess of the principal amount of the Debt Security over the
purchaser's purchase price) will be required to include accrued market discount
in income as ordinary income in each month, but limited to an amount not
exceeding the principal payments on the Debt Security received in that month
and, if the Securities are sold, the gain realized. Such market discount would
accrue in a manner to be provided in Treasury regulations but, until such
regulations are issued, such market discount would in general accrue either (i)
on the basis of a constant yield (in the case of a Pay-Through Security, taking
into account a prepayment assumption) or (ii) in the ratio of (a) in the case of
Securities (or in the case of a Pass-Through Security (as defined herein), as
set forth below, the Loans underlying such Security) not originally issued with
original issue discount, stated interest payable in the relevant period to total
stated interest remaining to be paid at the beginning of the period or (b) in
the case of Securities (or, in the case of a Pass-Through Security, as described
below, the Loans underlying such Security) originally issued at a discount, OID
in the relevant period to total OID remaining to be paid.
Section 1277 of the Code provides that, regardless of the origination date
of the Debt Security (or, in the case of a Pass-Through Security, the Loans),
the excess of interest paid or accrued to purchase or carry a Security (or, in
the case of a Pass-Through Security, as described below, the underlying Loans)
with market discount over interest received on such Security is allowed as a
current deduction only to the extent such excess
74
<PAGE>
<PAGE>
is greater than the market discount that accrued during the taxable year in
which such interest expense was incurred. In general, the deferred portion of
any interest expense will be deductible when such market discount is included in
income, including upon the sale, disposition, or repayment of the Security (or
in the case of a Pass-Through Security, an underlying Loan). A holder may elect
to include market discount in income currently as it accrues, on all market
discount obligations acquired by such holder during the taxable year such
election is made and thereafter, in which case the interest deferral rule will
not apply.
Premium. A holder who purchases a Debt Security (other than an Interest
Weighted Security to the extent described above) at a cost greater than its
stated redemption price at maturity, generally will be considered to have
purchased the Security at a premium, which it may elect to amortize as an offset
to interest income on such Security (and not as a separate deduction item) on a
constant yield method. Although no regulations addressing the computation of
premium accrual on securities similar to the Securities have been issued, the
legislative history of the 1986 Act indicates that premium is to be accrued in
the same manner as market discount. Accordingly, it appears that the accrual of
premium on a Class of Pay-Through Securities will be calculated using the
prepayment assumption used in pricing such Class. If a holder makes an election
to amortize premium on a Debt Security, such election will apply to all taxable
debt instruments (including all REMIC regular interests and all pass-through
certificates representing ownership interests in a trust holding debt
obligations) held by the holder at the beginning of the taxable year in which
the election is made, and to all taxable debt instruments acquired thereafter by
such holder, and will be irrevocable without the consent of the IRS. Purchasers
who pay a premium for the Securities should consult their tax advisers regarding
the election to amortize premium and the method to be employed.
On June 27, 1996 the IRS issued proposed regulations (the 'Amortizable Bond
Premium Regulations') dealing with amortizable bond premium. These regulations
specifically do not apply to prepayable debt instruments subject to Code Section
1272(a)(6) such as the Securities. Absent further guidance from the IRS, the
Trustee intends to account for amortizable bond premium in the manner described
above. Prospective purchasers of the Securities should consult their tax
advisors regarding the possible application of the Amortizable Bond Premium
Regulations.
Election to Treat All Interest as Original Issue Discount. The OID
Regulations permit a holder of a Debt Security to elect to accrue all interest,
discount (including de minimis market or original issue discount) and premium in
income as interest, based on a constant yield method for Debt Securities
acquired on or after April 4, 1994. If such an election were to be made with
respect to a Debt Security with market discount, the holder of the Debt Security
would be deemed to have made an election to include in income currently market
discount with respect to all other debt instruments having market discount that
such holder of the Debt Security acquires during the year of the election or
thereafter. Similarly, a holder of a Debt Security that makes this election for
a Debt Security that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such holder owns or acquires. The election to
accrue interest, discount and premium on a constant yield method with respect to
a Debt Security is irrevocable.
TAXATION OF THE REMIC AND ITS HOLDERS
General. In the opinion of Brown & Wood LLP, special counsel to the
Depositor, if a REMIC election is made with respect to a Series of Securities,
then the arrangement by which the Securities of that Series are issued will be
treated as a REMIC as long as all of the provisions of the applicable Agreement
are complied with and the statutory and regulatory requirements are satisfied.
Securities will be designated as 'Regular Interests' or 'Residual Interests' in
a REMIC, as specified in the related Prospectus Supplement.
Except to the extent specified otherwise in a Prospectus Supplement, if a
REMIC election is made with respect to a Series of Securities, (i) Securities
held by a domestic building and loan association will constitute 'a regular or a
residual interest in a REMIC' within the meaning of Code Section
7701(a)(19)(C)(xi) (assuming that at least 95% of the REMIC's assets consist of
cash, government securities, 'loans secured by an interest in real property,'
and other types of assets described in Code Section 7701(a)(19)(C)); and (ii)
Securities held by a real estate investment trust will constitute 'real estate
assets' within the meaning of Code Section 856(c)(6)(B), and income with respect
to the Securities will be considered 'interest on obligations secured by
mortgages on real property or on interests in real property' within the meaning
of Code Section 856(c)(3)(B) (assuming, for both purposes, that at least 95% of
the REMIC's assets are qualifying assets). If less than 95% of the REMIC's
75
<PAGE>
<PAGE>
assets consist of assets described in (i) or (ii) above, then a Security will
qualify for the tax treatment described in (i), (ii) or (iii) in the proportion
that such REMIC assets are qualifying assets.
The Small Business Job Protection Act of 1996, as part of the repeal of the
bad debt reserve method for thrift institutions, repealed the application of
Code Section 593(d) to any taxable year beginning after December 31, 1995.
REMIC EXPENSES; SINGLE CLASS REMICS
As a general rule, all of the expenses of a REMIC will be taken into
account by holders of the Residual Interest Securities. In the case of a 'single
class REMIC,' however, the expenses will be allocated, under Treasury
regulations, among the holders of the Regular Interest Securities and the
holders of the Residual Interest Securities (as defined herein) on a daily basis
in proportion to the relative amounts of income accruing to each Holder on that
day. In the case of a holder of a Regular Interest Security who is an individual
or a 'pass-through interest holder' (including certain pass-through entities but
not including real estate investment trusts), such expenses will be deductible
only to the extent that such expenses, plus other 'miscellaneous itemized
deductions' of the Holder, exceed 2% of such Holder's adjusted gross income. In
addition, for taxable years beginning after December 31, 1990, the amount of
itemized deductions otherwise allowable for the taxable year for an individual
whose adjusted gross income exceeds the applicable amount (which amount will be
adjusted for inflation for taxable years beginning after 1990) will be reduced
by the lesser of (i) 3% of the excess of adjusted gross income over the
applicable amount, or (ii) 80% of the amount of itemized deductions otherwise
allowable for such taxable year. The reduction or disallowance of this deduction
may have a significant impact on the yield of the Regular Interest Security to
such a Holder. In general terms, a single class REMIC is one that either (i)
would qualify, under existing Treasury regulations, as a grantor trust if it
were not a REMIC (treating all interests as ownership interests, even if they
would be classified as debt for federal income tax purposes) or (ii) is similar
to such a trust and which is structured with the principal purpose of avoiding
the single class REMIC rules. Unless otherwise specified in the related
Prospectus Supplement, the expenses of the REMIC will be allocated to holders of
the related residual interest securities.
TAXATION OF THE REMIC
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC is not generally subject to entity-level tax. Rather, the
taxable income or net loss of a REMIC is taken into account by the holders of
residual interests. As described above, the regular interests are generally
taxable as debt of the REMIC.
Calculation of REMIC Income. The taxable income or net loss of a REMIC is
determined under an accrual method of accounting and in the same manner as in
the case of an individual, with certain adjustments. In general, the taxable
income or net loss will be the difference between (i) the gross income produced
by the REMIC's assets, including stated interest and any original issue discount
or market discount on loans and other assets, and (ii) deductions, including
stated interest and original issue discount accrued on Regular Interest
Securities, amortization of any premium with respect to Loans, and servicing
fees and other expenses of the REMIC. A holder of a Residual Interest Security
that is an individual or a 'pass-through interest holder' (including certain
pass-through entities, but not including real estate investment trusts) will be
unable to deduct servicing fees payable on the loans or other administrative
expenses of the REMIC for a given taxable year, to the extent that such
expenses, when aggregated with such holder's other miscellaneous itemized
deductions for that year, do not exceed two percent of such holder's adjusted
gross income.
For purposes of computing its taxable income or net loss, the REMIC should
have an initial aggregate tax basis in its assets equal to the aggregate fair
market value of the regular interests and the residual interests on the Startup
Day (generally, the day that the interests are issued). That aggregate basis
will be allocated among the assets of the REMIC in proportion to their
respective fair market values.
The OID provisions of the Code apply to loans of individuals originated on
or after March 2, 1984, and the market discount provisions apply to loans
originated after July 18, 1984. Subject to possible application of the de
minimis rules, the method of accrual by the REMIC of OID income on such loans
will be equivalent to the method under which holders of Pay-Through Securities
accrue original issue discount (i.e., under the constant yield method taking
into account the Prepayment Assumption). The REMIC will deduct OID on the
Regular
76
<PAGE>
<PAGE>
Interest Securities in the same manner that the holders of the Regular Interest
Securities include such discount in income, but without regard to the de minimis
rules. See 'Taxation of Debt Securities' above. However, a REMIC that acquires
loans at a market discount must include such market discount in income
currently, as it accrues, on a constant interest basis.
To the extent that the REMIC's basis allocable to loans that it holds
exceeds their principal amounts, the resulting premium, if attributable to
mortgages originated after September 27, 1985, will be amortized over the life
of the loans (taking into account the Prepayment Assumption) on a constant yield
method. Although the law is somewhat unclear regarding recovery of premium
attributable to loans originated on or before such date, it is possible that
such premium may be recovered in proportion to payments of loan principal.
Prohibited Transactions and Contributions Tax. The REMIC will be subject
to a 100% tax on any net income derived from a 'prohibited transaction.' For
this purpose, net income will be calculated without taking into account any
losses from prohibited transactions or any deductions attributable to any
prohibited transaction that resulted in a loss. In general, prohibited
transactions include: (i) subject to limited exceptions, the sale or other
disposition of any qualified mortgage transferred to the REMIC; (ii) subject to
a limited exception, the sale or other disposition of a cash flow investment;
(iii) the receipt of any income from assets not permitted to be held by the
REMIC pursuant to the Code; or (iv) the receipt of any fees or other
compensation for services rendered by the REMIC. It is anticipated that a REMIC
will not engage in any prohibited transactions in which it would recognize a
material amount of net income. In addition, subject to a number of exceptions, a
tax is imposed at the rate of 100% on amounts contributed to a REMIC after the
close of the three-month period beginning on the Startup Day. The holders of
Residual Interest Securities will generally be responsible for the payment of
any such taxes imposed on the REMIC. To the extent not paid by such holders or
otherwise, however, such taxes will be paid out of the Trust Fund and will be
allocated pro rata to all outstanding classes of Securities of such REMIC.
TAXATION OF HOLDERS OF RESIDUAL INTEREST SECURITIES
The holder of a Security representing a residual interest (a 'Residual
Interest Security') will take into account the 'daily portion' of the taxable
income or net loss of the REMIC for each day during the taxable year on which
such holder held the Residual Interest Security. The daily portion is determined
by allocating to each day in any calendar quarter its ratable portion of the
taxable income or net loss of the REMIC for such quarter, and by allocating that
amount among the holders (on such day) of the Residual Interest Securities in
proportion to their respective holdings on such day.
The holder of a Residual Interest Security must report its proportionate
share of the taxable income of the REMIC whether or not it receives cash
distributions from the REMIC attributable to such income or loss. The reporting
of taxable income without corresponding distributions could occur, for example,
in certain REMIC issues in which the loans held by the REMIC were issued or
acquired at a discount, since mortgage prepayments cause recognition of discount
income, while the corresponding portion of the prepayment could be used in whole
or in part to make principal payments on REMIC Regular Interests issued without
any discount or at an insubstantial discount (if this occurs, it is likely that
cash distributions will exceed taxable income in later years). Taxable income
may also be greater in earlier years of certain REMIC issues as a result of the
fact that interest expense deductions, as a percentage of outstanding principal
on REMIC Regular Interest Securities, will typically increase over time as lower
yielding Securities are paid, whereas interest income with respect to loans will
generally remain constant over time as a percentage of loan principal.
In any event, because the holder of a residual interest is taxed on the net
income of the REMIC, the taxable income derived from a Residual Interest
Security in a given taxable year will not be equal to the taxable income
associated with investment in a corporate bond or stripped instrument having
similar cash flow characteristics and pretax yield. Therefore, the after-tax
yield on the Residual Interest Security may be less than that of such a bond or
instrument.
Limitation on Losses. The amount of the REMIC's net loss that a holder may
take into account currently is limited to the holder's adjusted basis at the end
of the calendar quarter in which such loss arises. A holder's basis in a
Residual Interest Security will initially equal such holder's purchase price,
and will subsequently be increased by the amount of the REMIC's taxable income
allocated to the holder, and decreased (but not below zero) by the amount of
distributions made and the amount of the REMIC's net loss allocated to the
holder. Any
77
<PAGE>
<PAGE>
disallowed loss may be carried forward indefinitely, but may be used only to
offset income of the REMIC generated by the same REMIC. The ability of holders
of Residual Interest Securities to deduct net losses may be subject to
additional limitations under the Code, as to which such holders should consult
their tax advisers.
Distributions. Distributions on a Residual Interest Security (whether at
their scheduled times or as a result of prepayments) will generally not result
in any additional taxable income or loss to a holder of a Residual Interest
Security. If the amount of such payment exceeds a holder's adjusted basis in the
Residual Interest Security, however, the holder will recognize gain (treated as
gain from the sale of the Residual Interest Security) to the extent of such
excess.
Sale or Exchange. A holder of a Residual Interest Security will recognize
gain or loss on the sale or exchange of a Residual Interest Security equal to
the difference, if any, between the amount realized and such holder's adjusted
basis in the Residual Interest Security at the time of such sale or exchange.
Except to the extent provided in regulations, which have not yet been issued,
any loss upon disposition of a Residual Interest Security will be disallowed if
the selling holder acquires any residual interest in a REMIC or similar mortgage
pool within six months before or after such disposition.
Excess Inclusions. The portion of the REMIC taxable income of a holder of
a Residual Interest Security consisting of 'excess inclusion' income may not be
offset by other deductions or losses, including net operating losses, on such
holder's federal income tax return. Further, if the holder of a Residual
Interest Security is an organization subject to the tax on unrelated business
income imposed by Code Section 511, such holder's excess inclusion income will
be treated as unrelated business taxable income of such holder. In addition,
under Treasury regulations yet to be issued, if a real estate investment trust,
a regulated investment company, a common trust fund, or certain cooperatives
were to own a Residual Interest Security, a portion of dividends (or other
distributions) paid by the real estate investment trust (or other entity) would
be treated as excess inclusion income. If a Residual Security is owned by a
foreign person excess inclusion income is subject to tax at a rate of 30% which
may not be reduced by treaty, is not eligible for treatment as 'portfolio
interest' and is subject to certain additional limitations. See 'Tax Treatment
of Foreign Investors.' The Small Business Job Protection Act of 1996 has
eliminated the special rule permitting Section 593 institutions ('thrift
institutions') to use net operating losses and other allowable deductions to
offset their excess inclusion income from REMIC residual certificates that have
'significant value' within the meaning of the REMIC Regulations, effective for
taxable years beginning after December 31, 1995, except with respect to residual
certificates continuously held by a thrift institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides three
rules for determining the effect on excess inclusions on the alternative minimum
taxable income of a residual holder. First, alternative minimum taxable income
for such residual holder is determined without regard to the special rule that
taxable income cannot be less than excess inclusions. Second, a residual
holder's alternative minimum taxable income for a tax year cannot be less than
excess inclusions for the year. Third, the amount of any alternative minimum tax
net operating loss deductions must be computed without regard to any excess
inclusions. These rules are effective for tax years beginning after December 31,
1986, unless a residual holder elects to have such rules apply only to tax years
beginning after August 20, 1996.
The excess inclusion portion of a REMIC's income is generally equal to the
excess, if any, of REMIC taxable income for the quarterly period allocable to a
Residual Interest Security, over the daily accruals for such quarterly period of
(i) 120% of the long term applicable federal rate on the Startup Day multiplied
by (ii) the adjusted issue price of such Residual Interest Security at the
beginning of such quarterly period. The adjusted issue price of a Residual
Interest at the beginning of each calendar quarter will equal its issue price
(calculated in a manner analogous to the determination of the issue price of a
Regular Interest), increased by the aggregate of the daily accruals for prior
calendar quarters, and decreased (but not below zero) by the amount of loss
allocated to a holder and the amount of distributions made on the Residual
Interest Security before the beginning of the quarter. The long-term federal
rate, which is announced monthly by the Treasury Department, is an interest rate
that is based on the average market yield of outstanding marketable obligations
of the United States government having remaining maturities in excess of nine
years.
Under the REMIC Regulations, in certain circumstances, transfers of
Residual Securities may be disregarded. See ' -- Restrictions on Ownership and
Transfer of Residual Interest Securities' and ' -- Tax Treatment of Foreign
Investors' below.
78
<PAGE>
<PAGE>
Restrictions on Ownership and Transfer of Residual Interest Securities. As
a condition to qualification as a REMIC, reasonable arrangements must be made to
prevent the ownership of a REMIC residual interest by any 'Disqualified
Organization.' Disqualified Organizations include the United States, any State
or political subdivision thereof, any foreign government, any international
organization, or any agency or instrumentality of any of the foregoing, a rural
electric or telephone cooperative described in Section 1381(a)(2)(C) of the
Code, or any entity exempt from the tax imposed by Sections 1-1399 of the Code,
if such entity is not subject to tax on its unrelated business income.
Accordingly, the applicable Pooling and Servicing Agreement will prohibit
Disqualified Organizations from owning a Residual Interest Security. In
addition, no transfer of a Residual Interest Security will be permitted unless
the proposed transferee shall have furnished to the Trustee an affidavit
representing and warranting that it is neither a Disqualified Organization nor
an agent or nominee acting on behalf of a Disqualified Organization.
If a Residual Interest Security is transferred to a Disqualified
Organization after March 31, 1988 (in violation of the restrictions set forth
above), a substantial tax will be imposed on the transferor of such Residual
Interest Security at the time of the transfer. In addition, if a Disqualified
Organization holds an interest in a pass-through entity after March 31, 1988
(including, among others, a partnership, trust, real estate investment trust,
regulated investment company, or any person holding as nominee), that owns a
Residual Interest Security, the pass-through entity will be required to pay an
annual tax on its allocable share of the excess inclusion income of the REMIC.
Under the REMIC Regulations, if a Residual Interest Security is a
'noneconomic residual interest,' as described below, a transfer of a Residual
Interest Security to a United States person will be disregarded for all Federal
tax purposes unless no significant purpose of the transfer was to impede the
assessment or collection of tax. A Residual Interest Security is a 'noneconomic
residual interest' unless, at the time of the transfer (i) the present value of
the expected future distributions on the Residual Interest Security at least
equals the product of the present value of the anticipated excess inclusions and
the highest rate of tax for the year in which the transfer occurs, and (ii) the
transferor reasonably expects that the transferee will receive distributions
from the REMIC at or after the time at which the taxes accrue on the anticipated
excess inclusions in an amount sufficient to satisfy the accrued taxes. If a
transfer of a Residual Interest is disregarded, the transferor would be liable
for any Federal income tax imposed upon taxable income derived by the transferee
from the REMIC. The REMIC Regulations provide no guidance as to how to determine
if a significant purpose of a transfer is to impede the assessment or collection
of tax. A similar type of limitation exists with respect to certain transfers of
residual interests by foreign persons to United States persons. See ' -- Tax
Treatment of Foreign Investors.'
Mark to Market Rules. Prospective purchasers of a REMIC Residual Interest
Security should be aware that the IRS recently released proposed regulations
(the 'Proposed Mark-to-Market Regulations') which provide that a REMIC Residual
Interest Security acquired after January 3, 1995 cannot be marked-to-market. The
Proposed Mark-to-Market Regulations replace the temporary regulations which
allowed a REMIC Residual Interest Security to be marked-to-market provided that
it was not a negative value residual interest and did not have the same economic
effect as a negative value residual interest. The IRS could issue subsequent
regulations, which could apply retroactively, providing additional or different
requirements with respect to such deemed negative value residual interests.
Prospective purchasers of a REMIC Residual Interest Security should consult
their tax advisors regarding the possible application of the Proposed
Mark-to-Market Regulations.
ADMINISTRATIVE MATTERS
The REMIC's books must be maintained on a calendar year basis and the REMIC
must file an annual federal income tax return. The REMIC will also be subject to
the procedural and administrative rules of the Code applicable to partnerships,
including the determination of any adjustments to, among other things, items of
REMIC income, gain, loss, deduction, or credit, by the IRS in a unified
administrative proceeding.
TAX STATUS AS A GRANTOR TRUST
General. As specified in the related Prospectus Supplement if a REMIC or
partnership election is not made, in the opinion of Brown & Wood LLP, special
counsel to the Depositor, the Trust Fund relating to a Series of Securities will
be classified for federal income tax purposes as a grantor trust under Subpart
E, Part I of Subchapter J of the Code and not as an association taxable as a
corporation (the Securities of such Series,
79
<PAGE>
<PAGE>
'Pass-Through Securities'). In some Series there will be no separation of the
principal and interest payments on the Loans. In such circumstances, a Holder
will be considered to have purchased a pro rata undivided interest in each of
the Loans. In other cases ('Stripped Securities'), sale of the Securities will
produce a separation in the ownership of all or a portion of the principal
payments from all or a portion of the interest payments on the Loans.
Each Holder must report on its federal income tax return its share of the
gross income derived from the Loans (not reduced by the amount payable as fees
to the Trustee and the Servicer and similar fees (collectively, the 'Servicing
Fee')), at the same time and in the same manner as such items would have been
reported under the Holder's tax accounting method had it held its interest in
the Loans directly, received directly its share of the amounts received with
respect to the Loans, and paid directly its share of the Servicing Fees. In the
case of Pass-Through Securities other than Stripped Securities, such income will
consist of a pro rata share of all of the income derived from all of the Loans
and, in the case of Stripped Securities, such income will consist of a pro rata
share of the income derived from each stripped bond or stripped coupon in which
the Holder owns an interest. The holder of a Security will generally be entitled
to deduct such Servicing Fees under Section 162 or Section 212 of the Code to
the extent that such Servicing Fees represent 'reasonable' compensation for the
services rendered by the Trustee and the Servicer (or third parties that are
compensated for the performance of services). In the case of a noncorporate
holder, however, Servicing Fees (to the extent not otherwise disallowed, e.g.,
because they exceed reasonable compensation) will be deductible in computing
such holder's regular tax liability only to the extent that such fees, when
added to other miscellaneous itemized deductions, exceed 2% of adjusted gross
income and may not be deductible to any extent in computing such holder's
alternative minimum tax liability. In addition, for taxable years beginning
after December 31, 1990, the amount of itemized deductions otherwise allowable
for the taxable year for an individual whose adjusted gross income exceeds the
applicable amount (which amount will be adjusted for inflation in taxable years
beginning after 1990) will be reduced by the lesser of (i) 3% of the excess of
adjusted gross income over the applicable amount or (ii) 80% of the amount of
itemized deductions otherwise allowable for such taxable year.
Discount or Premium on Pass-Through Securities. The holder's purchase
price of a Pass-Through Security is to be allocated among the Loans in
proportion to their fair market values, determined as of the time of purchase of
the Securities. In the typical case, the Trustee (to the extent necessary to
fulfill its reporting obligations) will treat each Loan as having a fair market
value proportional to the share of the aggregate principal balances of all of
the Loans that it represents, since the Securities, unless otherwise specified
in the related Prospectus Supplement, will have a relatively uniform interest
rate and other common characteristics. To the extent that the portion of the
purchase price of a Pass-Through Security allocated to a Loan (other than to a
right to receive any accrued interest thereon and any undistributed principal
payments) is less than or greater than the portion of the principal balance of
the Loan allocable to the Security, the interest in the Loan allocable to the
Pass-Through Security will be deemed to have been acquired at a discount or
premium, respectively.
The treatment of any discount will depend on whether the discount
represents OID or market discount. In the case of a Loan with OID in excess of a
prescribed de minimis amount or a Stripped Security, a holder of a Security will
be required to report as interest income in each taxable year its share of the
amount of OID that accrues during that year in the manner described above. OID
with respect to a Loan could arise, for example, by virtue of the financing of
points by the originator of the Loan, or by virtue of the charging of points by
the originator of the Loan in an amount greater than a statutory de minimis
exception, in circumstances under which the points are not currently deductible
pursuant to applicable Code provisions. Any market discount or premium on a Loan
will be includible in income, generally in the manner described above, except
that in the case of Pass-Through Securities, market discount is calculated with
respect to the Loans underlying the Certificate, rather than with respect to the
Security. A Holder that acquires an interest in a Loan originated after July 18,
1984 with more than a de minimis amount of market discount (generally, the
excess of the principal amount of the Loan over the purchaser's allocable
purchase price) will be required to include accrued market discount in income in
the manner set forth above. See ' -- Taxation of Debt Securities; Market
Discount' and ' -- Premium' above.
In the case of market discount on a Pass-Through Security attributable to
Loans originated on or before July 18, 1984, the holder generally will be
required to allocate the portion of such discount that is allocable to a loan
among the principal payments on the Loan and to include the discount allocable
to each principal payment in ordinary income at the time such principal payment
is made. Such treatment would generally result in
80
<PAGE>
<PAGE>
discount being included in income at a slower rate than discount would be
required to be included in income using the method described in the preceding
paragraph.
Stripped Securities. A Stripped Security may represent a right to receive
only a portion of the interest payments on the Loans, a right to receive only
principal payments on the Loans, or a right to receive certain payments of both
interest and principal. Certain Stripped Securities ('Ratio Strip Securities')
may represent a right to receive differing percentages of both the interest and
principal on each Loan. Pursuant to Section 1286 of the Code, the separation of
ownership of the right to receive some or all of the interest payments on an
obligation from ownership of the right to receive some or all of the principal
payments results in the creation of 'stripped bonds' with respect to principal
payments and 'stripped coupons' with respect to interest payments. Section 1286
of the Code applies the OID rules to stripped bonds and stripped coupons. For
purposes of computing original issue discount, a stripped bond or a stripped
coupon is treated as a debt instrument issued on the date that such stripped
interest is purchased with an issue price equal to its purchase price or, if
more than one stripped interest is purchased, the ratable share of the purchase
price allocable to such stripped interest.
Servicing fees in excess of reasonable servicing fees ('excess servicing')
will be treated under the stripped bond rules. If the excess servicing fee is
less than 100 basis points (i.e., 1% interest on the Loan principal balance) or
the Securities are initially sold with a de minimis discount (assuming no
prepayment assumption is required), any non-de minimis discount arising from a
subsequent transfer of the Securities should be treated as market discount. The
IRS appears to require that reasonable servicing fees be calculated on a Loan by
Loan basis, which could result in some Loans being treated as having more than
100 basis points of interest stripped off.
The Code. OID Regulations and judicial decisions provide no direct
guidance as to how the interest and original issue discount rules are to apply
to Stripped Securities and other Pass-Through Securities. Under the method
described above for Pay-Through Securities (the 'Cash Flow Bond Method'), a
prepayment assumption is used and periodic recalculations are made which take
into account with respect to each accrual period the effect of prepayments
during such period. However, the 1986 Act does not, absent Treasury regulations,
appear specifically to cover instruments such as the Stripped Securities which
technically represent ownership interests in the underlying Loans, rather than
being debt instruments 'secured by' those loans. Nevertheless, it is believed
that the Cash Flow Bond Method is a reasonable method of reporting income for
such Securities, and it is expected that OID will be reported on that basis
unless otherwise specified in the related Prospectus Supplement. In applying the
calculation to Pass-Through Securities, the Trustee will treat all payments to
be received by a holder with respect to the underlying Loans as payments on a
single installment obligation. The IRS could, however, assert that original
issue discount must be calculated separately for each Loan underlying a
Security.
Under certain circumstances, if the Loans prepay at a rate faster than the
Prepayment Assumption, the use of the Cash Flow Bond Method may accelerate a
Holder's recognition of income. If, however, the Loans prepay at a rate slower
than the Prepayment Assumption, in some circumstances the use of this method may
decelerate a Holder's recognition of income.
In the case of a Stripped Security that is an Interest Weighted Security,
the Trustee intends, absent contrary authority, to report income to Security
holders as OID, in the manner described above for Interest Weighted Securities.
Possible Alternative Characterizations. The characterizations of the
Stripped Securities described above are not the only possible interpretations of
the applicable Code provisions. Among other possibilities, the IRS could contend
that (i) in certain Series, each non-Interest Weighted Security is composed of
an unstripped undivided ownership interest in Loans and an installment
obligation consisting of stripped principal payments; (ii) the non-Interest
Weighted Securities are subject to the contingent payment provisions of the
Contingent Regulations; or (iii) each Interest Weighted Stripped Security is
composed of an unstripped undivided ownership interest in Loans and an
installment obligation consisting of stripped interest payments.
Given the variety of alternatives for treatment of the Stripped Securities
and the different federal income tax consequences that result from each
alternative, potential purchasers are urged to consult their own tax advisers
regarding the proper treatment of the Securities for federal income tax
purposes.
Character as Qualifying Loans. In the case of Stripped Securities, there
is no specific legal authority existing regarding whether the character of the
Securities, for federal income tax purposes, will be the same as
81
<PAGE>
<PAGE>
the Loans. The IRS could take the position that the Loans' character is not
carried over to the Securities in such circumstances. Pass-Through Securities
will be, and, although the matter is not free from doubt, Stripped Securities
should be considered to represent 'real estate assets' within the meaning of
Section 856(c)(6)(B) of the Code and 'loans secured by an interest in real
property' within the meaning of Section 7701(a)(19)(C)(v) of the Code; and
interest income attributable to the Securities should be considered to represent
'interest on obligations secured by mortgages on real property or on interests
in real property' within the meaning of Section 856(c)(3)(B) of the Code.
Reserves or funds underlying the Securities may cause a proportionate reduction
in the above-described qualifying status categories of Securities.
SALE OR EXCHANGE
Subject to the discussion below with respect to Trust Funds as to which a
partnership election is made, a Holder's tax basis in its Security is the price
such holder pays for a Security, plus amounts of original issue or market
discount included in income and reduced by any payments received (other than
qualified stated interest payments) and any amortized premium. Gain or loss
recognized on a sale, exchange, or redemption of a Security, measured by the
difference between the amount realized and the Security's basis as so adjusted,
will generally be capital gain or loss, assuming that the Security is held as a
capital asset. In the case of a Security held by a bank, thrift, or similar
institution described in Section 582 of the Code, however, gain or loss realized
on the sale or exchange of a Regular Interest Security will be taxable as
ordinary income or loss. In addition, gain from the disposition of a Regular
Interest Security that might otherwise be capital gain will be treated as
ordinary income to the extent of the excess, if any, of (i) the amount that
would have been includible in the holder's income if the yield on such Regular
Interest Security had equaled 110% of the applicable federal rate as of the
beginning of such holder's holding period, over the amount of ordinary income
actually recognized by the holder with respect to such Regular Interest
Security. For taxable years beginning after December 31, 1993, the maximum tax
rate on ordinary income for individual taxpayers is 39.6% and the maximum tax
rate on long-term capital gains reported after December 31, 1990 for such
taxpayers is 28%. The maximum tax rate on both ordinary income and long-term
capital gains of corporate taxpayers is 35%.
MISCELLANEOUS TAX ASPECTS
Backup Withholding. Subject to the discussion below with respect to Trust
Funds as to which a partnership election is made, a Holder, other than a holder
of a REMIC Residual Security, may, under certain circumstances, be subject to
'backup withholding' at a rate of 31% with respect to distributions or the
proceeds of a sale of certificates to or through brokers that represent interest
or original issue discount on the Securities. This withholding generally applies
if the holder of a Security (i) fails to furnish the Trustee with its taxpayer
identification number ('TIN'); (ii) furnishes the Trustee an incorrect TIN;
(iii) fails to report properly interest, dividends or other 'reportable
payments' as defined in the Code; or (iv) under certain circumstances, fails to
provide the Trustee or such holder's securities broker with a certified
statement, signed under penalty of perjury, that the TIN provided is its correct
number and that the holder is not subject to backup withholding. Backup
withholding will not apply, however, with respect to certain payments made to
Holders, including payments to certain exempt recipients (such as exempt
organizations) and to certain Nonresidents (as defined below). Holders should
consult their tax advisers as to their qualification for exemption from backup
withholding and the procedure for obtaining the exemption.
The Trustee will report to the Holders and to the Servicer for each
calendar year the amount of any 'reportable payments' during such year and the
amount of tax withheld, if any, with respect to payments on the Securities.
TAX TREATMENT OF FOREIGN INVESTORS
Subject to the discussion below with respect to Trust Funds as to which a
partnership election is made, under the Code, unless interest (including OID)
paid on a Security (other than a Residual Interest Security) is considered to be
'effectively connected' with a trade or business conducted in the United States
by a nonresident alien individual, foreign partnership or foreign corporation
('Nonresidents'), such interest will normally qualify as portfolio interest
(except where (i) the recipient is a holder, directly or by attribution, of 10%
or more of the capital or profits interest in the issuer, or (ii) the recipient
is a controlled foreign corporation
82
<PAGE>
<PAGE>
to which the issuer is a related person) and will be exempt from federal income
tax. Upon receipt of appropriate ownership statements, the issuer normally will
be relieved of obligations to withhold tax from such interest payments. These
provisions supersede the generally applicable provisions of United States law
that would otherwise require the issuer to withhold at a 30% rate (unless such
rate were reduced or eliminated by an applicable tax treaty) on, among other
things, interest and other fixed or determinable, annual or periodic income paid
to Nonresidents. Holders of Pass-Through Securities and Stripped Securities,
including Ratio Strip Securities, however, may be subject to withholding to the
extent that the Loans were originated on or before July 18, 1984.
Interest and OID of Holders who are foreign persons are not subject to
withholding if they are effectively connected with a United States business
conducted by the Holder. They will, however, generally be subject to the regular
United States income tax.
Payments to holders of Residual Interest Securities who are foreign persons
will generally be treated as interest for purposes of the 30% (or lower treaty
rate) United States withholding tax. Holders should assume that such income does
not qualify for exemption from United States withholding tax as 'portfolio
interest.' It is clear that, to the extent that a payment represents a portion
of REMIC taxable income that constitutes excess inclusion income, a holder of a
Residual Interest Security will not be entitled to an exemption from or
reduction of the 30% (or lower treaty rate) withholding tax rule. If the
payments are subject to United States withholding tax, they generally will be
taken into account for withholding tax purposes only when paid or distributed
(or when the Residual Interest Security is disposed of). The Treasury has
statutory authority, however, to promulgate regulations which would require such
amounts to be taken into account at an earlier time in order to prevent the
avoidance of tax. Such regulations could, for example, require withholding prior
to the distribution of cash in the case of Residual Interest Securities that do
not have significant value. Under the REMIC Regulations, if a Residual Interest
Security has tax avoidance potential, a transfer of a Residual Interest Security
to a Nonresident will be disregarded for all federal tax purposes. A Residual
Interest Security has tax avoidance potential unless, at the time of the
transfer the transferor reasonably expects that the REMIC will distribute to the
transferee residual interest holder amounts that will equal at least 30% of each
excess inclusion, and that such amounts will be distributed at or after the time
at which the excess inclusions accrue and not later than the calendar year
following the calendar year of accrual. If a Nonresident transfers a Residual
Interest Security to a United States person, and if the transfer has the effect
of allowing the transferor to avoid tax on accrued excess inclusions, then the
transfer is disregarded and the transferor continues to be treated as the owner
of the Residual Interest Security for purposes of the withholding tax provisions
of the Code. See ' -- Excess Inclusions.'
TAX CHARACTERIZATION OF THE TRUST FUND AS A PARTNERSHIP
Brown & Wood LLP, special counsel to the Depositor, will deliver its
opinion that a Trust Fund for which a partnership election is made will not be
an association (or publicly traded partnership) taxable as a corporation for
federal income tax purposes. This opinion will be based on the assumption that
the terms of the Trust Agreement and related documents will be complied with,
and on counsel's conclusions that (1) the Trust Fund will not have certain
characteristics necessary for a business trust to be classified as an
association taxable as a corporation and (2) the nature of the income of the
Trust Fund will exempt it from the rule that certain publicly traded
partnerships are taxable as corporations or the issuance of the Securities has
been structured as a private placement under an IRS safe harbor, so that the
Trust Fund will not be characterized as a publicly traded partnership taxable as
a corporation.
If the Trust Fund were taxable as a corporation for federal income tax
purposes, the Trust Fund would be subject to corporate income tax on its taxable
income. The Trust Fund's taxable income would include all its income, possibly
reduced by its interest expense on the Notes. Any such corporate income tax
could materially reduce cash available to make payments on the Notes and
distributions on the Certificates, and Certificateholders could be liable for
any such tax that is unpaid by the Trust Fund.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
Treatment of the Notes as Indebtedness. The Trust Fund will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for federal income tax purposes. Special counsel to the Depositor will, except
as otherwise provided in the related Prospectus Supplement, advise the Depositor
that the
83
<PAGE>
<PAGE>
Notes will be classified as debt for federal income tax purposes. The discussion
below assumes this characterization of the Notes is correct.
OID, Indexed Securities, etc. The discussion below assumes that all
payments on the Notes are denominated in U.S. dollars, and that the Notes are
not Indexed Securities or Strip Notes. Moreover, the discussion assumes that the
interest formula for the Notes meets the requirements for 'qualified stated
interest' under the OID regulations, and that any OID on the Notes (i.e., any
excess of the principal amount of the Notes over their issue price) does not
exceed a de minimis amount (i.e., 0.25% of their principal amount multiplied by
the number of full years included in their term), all within the meaning of the
OID regulations. If these conditions are not satisfied with respect to any given
series of Notes, additional tax considerations with respect to such Notes will
be disclosed in the applicable Prospectus Supplement.
Interest Income on the Notes. Based on the above assumptions, except as
discussed in the following paragraph, the Notes will not be considered issued
with OID. The stated interest thereon will be taxable to a Noteholder as
ordinary interest income when received or accrued in accordance with such
Noteholder's method of tax accounting. Under the OID regulations, a holder of a
Note issued with a de minimis amount of OID must include such OID in income, on
a pro rata basis, as principal payments are made on the Note. It is believed
that any prepayment premium paid as a result of a mandatory redemption will be
taxable as contingent interest when it becomes fixed and unconditionally
payable. A purchaser who buys a Note for more or less than its principal amount
will generally be subject, respectively, to the premium amortization or market
discount rules of the Code.
A holder of a Note that has a fixed maturity date of not more than one year
from the issue date of such Note (a 'Short-Term Note') may be subject to special
rules. An accrual basis holder of a Short-Term Note (and certain cash method
holders, including regulated investment companies, as set forth in Section 1281
of the Code) generally would be required to report interest income as interest
accrues on a straight-line basis over the term of each interest period. Other
cash basis holders of a Short-Term Note would, in general, be required to report
interest income as interest is paid (or, if earlier, upon the taxable
disposition of the Short-Term Note). However, a cash basis holder of a
Short-Term Note reporting interest income as it is paid may be required to defer
a portion of any interest expense otherwise deductible on indebtedness incurred
to purchase or carry the Short-Term Note until the taxable disposition of the
Short-Term Note. A cash basis taxpayer may elect under Section 1281 of the Code
to accrue interest income on all nongovernment debt obligations with a term of
one year or less, in which case the taxpayer would include interest on the
Short-Term Note in income as it accrues, but would not be subject to the
interest expense deferral rule referred to in the preceding sentence. Certain
special rules apply if a Short-Term Note is purchased for more or less than its
principal amount.
Sale or Other Disposition. If a Noteholder sells a Note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the holder's
cost for the Note, increased by any market discount, acquisition discount, OID
and gain previously included by such Noteholder in income with respect to the
Note and decreased by the amount of bond premium (if any) previously amortized
and by the amount of principal payments previously received by such Noteholder
with respect to such Note. Any such gain or loss will be capital gain or loss if
the Note was held as a capital asset, except for gain representing accrued
interest and accrued market discount not previously included in income. Capital
losses generally may be used only to offset capital gains.
Foreign Holders. Interest payments made (or accrued) to a Noteholder who
is a nonresident alien, foreign corporation or other non-United States person (a
'foreign person') generally will be considered 'portfolio interest', and
generally will not be subject to United States federal income tax and
withholding tax, if the interest is not effectively connected with the conduct
of a trade or business within the United States by the foreign person and the
foreign person (i) is not actually or constructively a '10 percent shareholder'
of the Trust Fund or the Seller (including a holder of 10% of the outstanding
Certificates) or a 'controlled foreign corporation' with respect to which the
Trust Fund or the Seller is a 'related person' within the meaning of the Code
and (ii) provides the Owner Trustee or other person who is otherwise required to
withhold U.S. tax with respect to the Notes with an appropriate statement (on
Form W-8 or a similar form), signed under penalties of perjury, certifying that
the beneficial owner of the Note is a foreign person and providing the foreign
person's name and address. If a Note is held through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide the relevant signed statement to the withholding agent;
84
<PAGE>
<PAGE>
in that case, however, the signed statement must be accompanied by a Form W-8 or
substitute form provided by the foreign person that owns the Note. If such
interest is not portfolio interest, then it will be subject to United States
federal income and withholding tax at a rate of 30 percent, unless reduced or
eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
Backup Withholding. Each holder of a Note (other than an exempt holder
such as a corporation, tax-exempt organization, qualified pension and
profit-sharing trust, individual retirement account or nonresident alien who
provides certification as to status as a nonresident) will be required to
provide, under penalties of perjury, a certificate containing the holder's name,
address, correct federal taxpayer identification number and a statement that the
holder is not subject to backup withholding. Should a nonexempt Noteholder fail
to provide the required certification, the Trust Fund will be required to
withhold 31 percent of the amount otherwise payable to the holder, and remit the
withheld amount to the IRS as a credit against the holder's federal income tax
liability.
Possible Alternative Treatments of the Notes. If, contrary to the opinion
of special counsel to the Company, the IRS successfully asserted that one or
more of the Notes did not represent debt for federal income tax purposes, the
Notes might be treated as equity interests in the Trust Fund. If so treated, the
Trust Fund might be taxable as a corporation with the adverse consequences
described above (and the taxable corporation would not be able to reduce its
taxable income by deductions for interest expense on Notes recharacterized as
equity). Alternatively, and most likely in the view of special counsel to the
Depositor, the Trust Fund might be treated as a publicly traded partnership that
would not be taxable as a corporation because it would meet certain qualifying
income tests. Nonetheless, treatment of the Notes as equity interests in such a
publicly traded partnership could have adverse tax consequences to certain
holders. For example, income to certain tax-exempt entities (including pension
funds) would be 'unrelated business taxable income', income to foreign holders
generally would be subject to U.S. tax and U.S. tax return filing and
withholding requirements, and individual holders might be subject to certain
limitations on their ability to deduct their share of the Trust Fund's expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
Treatment of the Trust Fund as a Partnership. The Trust Fund and the
Master Servicer will agree, and the Certificateholders will agree by their
purchase of Certificates, to treat the Trust Fund as a partnership for purposes
of federal and state income tax, franchise tax and any other tax measured in
whole or in part by income, with the assets of the partnership being the assets
held by the Trust Fund, the partners of the partnership being the
Certificateholders, and the Notes being debt of the partnership. However, the
proper characterization of the arrangement involving the Trust Fund, the
Certificates, the Notes, the Trust Fund and the Servicer is not clear because
there is no authority on transactions closely comparable to that contemplated
herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Trust Fund. Any such
characterization would not result in materially adverse tax consequences to
Certificateholders as compared to the consequences from treatment of the
Certificates as equity in a partnership, described below. The following
discussion assumes that the Certificates represent equity interests in a
partnership.
Indexed Securities, etc. The following discussion assumes that all
payments on the Certificates are denominated in U.S. dollars, none of the
Certificates are Indexed Securities or Strip Certificates, and that a Series of
Securities includes a single class of Certificates. If these conditions are not
satisfied with respect to any given Series of Certificates, additional tax
considerations with respect to such Certificates will be disclosed in the
applicable Prospectus Supplement.
Partnership Taxation. As a partnership, the Trust Fund will not be subject
to federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust Fund. The Trust Fund's income will
consist primarily of interest and finance charges earned on the Loans (including
appropriate adjustments for market discount, OID
85
<PAGE>
<PAGE>
and bond premium) and any gain upon collection or disposition of Loans. The
Trust Fund's deductions will consist primarily of interest accruing with respect
to the Notes, servicing and other fees, and losses or deductions upon collection
or disposition of Loans.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
Trust Agreement and related documents). The Trust Agreement will provide, in
general, that the Certificateholders will be allocated taxable income of the
Trust Fund for each month equal to the sum of (i) the interest that accrues on
the Certificates in accordance with their terms for such month, including
interest accruing at the Pass-Through Rate for such month and interest on
amounts previously due on the Certificates but not yet distributed; (ii) any
Trust Fund income attributable to discount on the Loans that corresponds to any
excess of the principal amount of the Certificates over their initial issue
price (iii) prepayment premium payable to the Certificateholders for such month;
and (iv) any other amounts of income payable to the Certificateholders for such
month. Such allocation will be reduced by any amortization by the Trust Fund of
premium on Loans that corresponds to any excess of the issue price of
Certificates over their principal amount. All remaining taxable income of the
Trust Fund will be allocated to the Company. Based on the economic arrangement
of the parties, this approach for allocating Trust Fund income should be
permissible under applicable Treasury regulations, although no assurance can be
given that the IRS would not require a greater amount of income to be allocated
to Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be allocated income equal to the entire Pass-Through Rate
plus the other items described above even though the Trust Fund might not have
sufficient cash to make current cash distributions of such amount. Thus, cash
basis holders will in effect be required to report income from the Certificates
on the accrual basis and Certificateholders may become liable for taxes on Trust
Fund income even if they have not received cash from the Trust Fund to pay such
taxes. In addition, because tax allocations and tax reporting will be done on a
uniform basis for all Certificateholders but Certificateholders may be
purchasing Certificates at different times and at different prices,
Certificateholders may be required to report on their tax returns taxable income
that is greater or less than the amount reported to them by the Trust Fund.
All of the taxable income allocated to a Certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will constitute 'unrelated business
taxable income' generally taxable to such a holder under the Code.
An individual taxpayer's share of expenses of the Trust Fund (including
fees to the Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or in
part and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life of
the Trust Fund.
The Trust Fund intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Loan, the Trust Fund
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on Certificateholders.
Discount and Premium. It is believed that the Loans were not issued with
OID, and, therefore, the Trust Fund should not have OID income. However, the
purchase price paid by the Trust Fund for the Loans may be greater or less than
the remaining principal balance of the Loans at the time of purchase. If so, the
Loan will have been acquired at a premium or discount, as the case may be. (As
indicated above, the Trust Fund will make this calculation on an aggregate
basis, but might be required to recompute it on a Loan by Loan basis.)
If the Trust Fund acquires the Loans at a market discount or premium, the
Trust Fund will elect to include any such discount in income currently as it
accrues over the life of the Loans or to offset any such premium against
interest income on the Loans. As indicated above, a portion of such market
discount income or premium deduction may be allocated to Certificateholders.
Section 708 Termination. Under Section 708 of the Code, the Trust Fund
will be deemed to terminate for federal income tax purposes if 50% or more of
the capital and profits interests in the Trust Fund are sold or exchanged within
a 12-month period. If such a termination occurs, the Trust Fund will be
considered to distribute its assets to the partners, who would then be treated
as recontributing those assets to the Trust Fund as a new partnership. The Trust
Fund will not comply with certain technical requirements that might apply when
such a constructive termination occurs. As a result, the Trust Fund may be
subject to certain tax penalties and
86
<PAGE>
<PAGE>
may incur additional expenses if it is required to comply with those
requirements. Furthermore, the Trust Fund might not be able to comply due to
lack of data.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust Fund income (includible
in income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
realized on a sale of a Certificate would include the holder's share of the
Notes and other liabilities of the Trust Fund. A holder acquiring Certificates
at different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's share of
unrecognized accrued market discount on the Loans would generally be treated as
ordinary income to the holder and would give rise to special tax reporting
requirements. The Trust Fund does not expect to have any other assets that would
give rise to such special reporting requirements. Thus, to avoid those special
reporting requirements, the Trust Fund will elect to include market discount in
income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the Trust
Fund's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the Certificateholders
in proportion to the principal amount of Certificates owned by them as of the
close of the last day of such month. As a result, a holder purchasing
Certificates may be allocated tax items (which will affect its tax liability and
tax basis) attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust Fund might be reallocated among the Certificateholders. The Trust
Fund's method of allocation between transferors and transferees may be revised
to conform to a method permitted by future regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder had.
The tax basis of the Trust Fund's assets will not be adjusted to reflect that
higher (or lower) basis unless the Trust Fund were to file an election under
Section 754 of the Code. In order to avoid the administrative complexities that
would be involved in keeping accurate accounting records, as well as potentially
onerous information reporting requirements, the Trust Fund will not make such
election. As a result, Certificateholders might be allocated a greater or lesser
amount of Trust Fund income than would be appropriate based on their own
purchase price for Certificates.
Administrative Matters. The Owner Trustee is required to keep or have kept
complete and accurate books of the Trust Fund. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust Fund will be the calendar year. The Trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
Trust Fund and will report each Certificateholder's allocable share of items of
Trust Fund income and expense to holders and the IRS on Schedule K-1. The Trust
Fund will provide the Schedule K-l information to nominees that fail to provide
the Trust Fund with the information statement described below and such nominees
will be required to forward such information to the beneficial owners of the
Certificates. Generally, holders must file tax returns that are consistent with
the information return filed by the Trust Fund or be subject to penalties unless
the holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust Fund
with a statement containing certain information on the nominee, the beneficial
owners and the Certificates so held. Such information includes (i) the name,
address and
87
<PAGE>
<PAGE>
taxpayer identification number of the nominee and (ii) as to each beneficial
owner (x) the name, address and identification number of such person, (y)
whether such person is a United States person, a tax-exempt entity or a foreign
government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust Fund information
as to themselves and their ownership of Certificates. A clearing agency
registered under Section 17A of the Exchange Act is not required to furnish any
such information statement to the Trust Fund. The information referred to above
for any calendar year must be furnished to the Trust Fund on or before the
following January 31. Nominees, brokers and financial institutions that fail to
provide the Trust Fund with the information described above may be subject to
penalties.
The Depositor will be designated as the tax matters partner in the related
Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Trust Fund by the appropriate taxing authorities
could result in an adjustment of the returns of the Certificateholders, and,
under certain circumstances, a Certificateholder may be precluded from
separately litigating a proposed adjustment to the items of the Trust Fund. An
adjustment could also result in an audit of a Certificateholder's returns and
adjustments of items not related to the income and losses of the Trust Fund.
Tax Consequences to Foreign Certificateholders. It is not clear whether
the Trust Fund would be considered to be engaged in a trade or business in the
United States for purposes of federal withholding taxes with respect to non-U.S.
persons because there is no clear authority dealing with that issue under facts
substantially similar to those described herein. Although it is not expected
that the Trust Fund would be engaged in a trade or business in the United States
for such purposes, the Trust Fund will withhold as if it were so engaged in
order to protect the Trust Fund from possible adverse consequences of a failure
to withhold. The Trust Fund expects to withhold on the portion of its taxable
income that is allocable to foreign Certificateholders pursuant to Section 1446
of the Code, as if such income were effectively connected to a U.S. trade or
business, at a rate of 35% for foreign holders that are taxable as corporations
and 39.6% for all other foreign holders. Subsequent adoption of Treasury
regulations or the issuance of other administrative pronouncements may require
the Trust Fund to change its withholding procedures. In determining a holder's
withholding status, the Trust Fund may rely on IRS Form W-8, IRS Form W-9 or the
holder's certification of nonforeign status signed under penalties of perjury.
The term 'U.S. Person' means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, or an estate
whose income is subject to U.S. federal income tax regardless of its source of
income, or a trust if a court within the United States is able to exercise
primary supervision of the administration of the trust and one or more United
States fiduciaries have the authority to control all substantial decisions of
the trust.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the branch
profits tax) on its share of the Trust Fund's income. Each foreign holder must
obtain a taxpayer identification number from the IRS and submit that number to
the Trust Fund on Form W-8 in order to assure appropriate crediting of the taxes
withheld. A foreign holder generally would be entitled to file with the IRS a
claim for refund with respect to taxes withheld by the Trust Fund taking the
position that no taxes were due because the Trust Fund was not engaged in a U.S.
trade or business. However, interest payments made (or accrued) to a
Certificateholder who is a foreign person generally will be considered
guaranteed payments to the extent such payments are determined without regard to
the income of the Trust Fund. If these interest payments are properly
characterized as guaranteed payments, then the interest will not be considered
'portfolio interest.' As a result, Certificateholders will be subject to United
States federal income tax and withholding tax at a rate of 30 percent, unless
reduced or eliminated pursuant to an applicable treaty. In such case, a foreign
holder would only be entitled to claim a refund for that portion of the taxes in
excess of the taxes that should be withheld with respect to the guaranteed
payments.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a 'backup' withholding tax
of 31% if, in general, the Certificateholder fails to comply with
88
<PAGE>
<PAGE>
certain identification procedures, unless the holder is an exempt recipient
under applicable provisions of the Code.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in 'Federal
Income Tax Consequences,' potential investors should consider the state and
local income tax consequences of the acquisition, ownership, and disposition of
the Securities. State and local income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state or locality. Therefore, potential
investors should consult their own tax advisors with respect to the various
state and local tax consequences of an investment in the Securities.
ERISA CONSIDERATIONS
The following describes certain considerations under ERISA and the Code,
which apply only to Securities of a Series that are not divided into subclasses.
If Securities are divided into subclasses the related Prospectus Supplement will
contain information concerning considerations relating to ERISA and the Code
that are applicable to such Securities.
ERISA imposes requirements on employee benefit plans (and on certain other
retirement plans and arrangements, including individual retirement accounts and
annuities, Keogh plans and collective investment funds and separate accounts in
which such plans, accounts or arrangements are invested) (collectively 'Plans')
subject to ERISA and on persons who are fiduciaries with respect to such Plans.
Generally, ERISA applies to investments made by Plans. Among other things, ERISA
requires that the assets of Plans be held in trust and that the trustee, or
other duly authorized fiduciary, have exclusive authority and discretion to
manage and control the assets of such Plans. ERISA also imposes certain duties
on persons who are fiduciaries of Plans. Under ERISA, any person who exercises
any authority or control respecting the management or disposition of the assets
of a Plan is considered to be a fiduciary of such Plan (subject to certain
exceptions not here relevant). Certain employee benefit plans, such as
governmental plans (as defined in ERISA Section 3(32)) and, if no election has
been made under Section 410(d) of the Code, church plans (as defined in ERISA
Section 3(33)), are not subject to ERISA requirements. Accordingly, assets of
such plans may be invested in Securities without regard to the ERISA
considerations described above and below, subject to the provisions of
applicable state law. Any such plan which is qualified and exempt from taxation
under Code Sections 401(a) and 501(a), however, is subject to the prohibited
transaction rules set forth in Code Section 503.
On November 13, 1986, the United States Department of Labor (the 'DOL')
issued final regulations concerning the definition of what constitutes the
assets of a Plan. (Labor Reg. Section 2510.3-101) Under this regulation, the
underlying assets and properties of corporations, partnerships and certain other
entities in which a Plan makes an 'equity' investment could be deemed for
purposes of ERISA to be assets of the investing Plan in certain circumstances.
However, the regulation provides that, generally, the assets of a corporation or
partnership in which a Plan invests will not be deemed for purposes of ERISA to
be assets of such Plan if the equity interest acquired by the investing Plan is
a publicly-offered security. A publicly-offered security, as defined in the
Labor Reg. Section 2510.3-101, is a security that is widely held, freely
transferable and registered under the Securities Exchange Act of 1934, as
amended.
In addition to the imposition of general fiduciary standards of investment
prudence and diversification, ERISA prohibits a broad range of transactions
involving Plan assets and persons ('Parties in Interest') having certain
specified relationships to a Plan and imposes additional prohibitions where
Parties in Interest are fiduciaries with respect to such Plan. Because the Loans
may be deemed Plan assets of each Plan that purchases Securities, an investment
in the Securities by a Plan might be a prohibited transaction under ERISA
Sections 406 and 407 and subject to an excise tax under Code Section 4975 unless
a statutory or administrative exemption applies.
In Prohibited Transaction Exemption 83-1 ('PTE 83-1'), which amended
Prohibited Transaction Exemption 81-7, the DOL exempted from ERISA's prohibited
transaction rules certain transactions relating to the operation of residential
mortgage pool investment trusts and the purchase, sale and holding of 'mortgage
pool pass-through certificates' in the initial issuance of such certificates.
PTE 83-1 permits, subject to certain conditions, transactions which might
otherwise be prohibited between Plans and Parties in Interest with respect
89
<PAGE>
<PAGE>
to those Plans related to the origination, maintenance and termination of
mortgage pools consisting of mortgage loans secured by first or second mortgages
or deeds of trust on single-family residential property, and the acquisition and
holding of certain mortgage pool pass-through certificates representing an
interest in such mortgage pools by Plans. If the general conditions (discussed
below) of PTE 83-1 are satisfied, investments by a Plan in Securities that
represent interests in a Pool consisting of Loans ('Single Family Securities')
will be exempt from the prohibitions of ERISA Sections 406(a) and 407 (relating
generally to transactions with Parties in Interest who are not fiduciaries) if
the Plan purchases the Single Family Securities at no more than fair market
value and will be exempt from the prohibitions of ERISA Sections 406(b)(1) and
(2) (relating generally to transactions with fiduciaries) if, in addition, the
purchase is approved by an independent fiduciary, no sales commission is paid to
the pool sponsor, the Plan does not purchase more than 25% of all Single Family
Securities, and at least 50% of all Single Family Securities are purchased by
persons independent of the pool sponsor or pool trustee. PTE 83-1 does not
provide an exemption for transactions involving Subordinate Securities.
Accordingly, unless otherwise provided in the related Prospectus Supplement, no
transfer of a Subordinate Security or a Security which is not a Single Family
Security may be made to a Plan.
The discussion in this and the next succeeding paragraph applies only to
Single Family Securities. The Depositor believes that, for purposes of PTE 83-1,
the term 'mortgage pass-through certificate' would include: (i) Securities
issued in a Series consisting of only a single class of Securities; and (ii)
Securities issued in a Series in which there is only one class of such
Securities; provided that the Securities in the case of clause (i), or the
Securities in the case of clause (ii), evidence the beneficial ownership of both
a specified percentage of future interest payments (greater than 0%) and a
specified percentage (greater than 0%) of future principal payments on the
Loans. It is not clear whether a class of Securities that evidences the
beneficial ownership in a Trust Fund divided into Loan groups, beneficial
ownership of a specified percentage of interest payments only or principal
payments only, or a notional amount of either principal or interest payments, or
a class of Securities entitled to receive payments of interest and principal on
the Loans only after payments to other classes or after the occurrence of
certain specified events would be a 'mortgage pass-through certificate' for
purposes of PTE 83-1.
PTE 83-1 sets forth three general conditions which must be satisfied for
any transaction to be eligible for exemption: (i) the maintenance of a system of
insurance or other protection for the pooled mortgage loans and property
securing such loans, and for indemnifying Securityholders against reductions in
pass-through payments due to property damage or defaults in loan payments in an
amount not less than the greater of one percent of the aggregate principal
balance of all covered pooled mortgage loans or the principal balance of the
largest covered pooled mortgage loan; (ii) the existence of a pool trustee who
is not an affiliate of the pool sponsor; and (iii) a limitation on the amount of
the payment retained by the pool sponsor, together with other funds inuring to
its benefit, to not more than adequate consideration for selling the mortgage
loans plus reasonable compensation for services provided by the pool sponsor to
the Pool. The Depositor believes that the first general condition referred to
above will be satisfied with respect to the Securities in a Series issued
without a subordination feature, or the Securities only in a Series issued with
a subordination feature, provided that the subordination and Reserve Account,
subordination by shifting of interests, the pool insurance or other form of
credit enhancement described under 'Credit Enhancement' herein (such
subordination, pool insurance or other form of credit enhancement being the
system of insurance or other protection referred to above) with respect to a
Series of Securities is maintained in an amount not less than the greater of one
percent of the aggregate principal balance of the Loans or the principal balance
of the largest Loan. See 'Description of the Securities' herein. In the absence
of a ruling that the system of insurance or other protection with respect to a
Series of Securities satisfies the first general condition referred to above,
there can be no assurance that these features will be so viewed by the DOL. The
Trustee will not be affiliated with the Depositor.
Each Plan fiduciary who is responsible for making the investment decisions
whether to purchase or commit to purchase and to hold Single Family Securities
must make its own determination as to whether the first and third general
conditions, and the specific conditions described briefly in the preceding
paragraph, of PTE 83-1 have been satisfied, or as to the availability of any
other prohibited transaction exemptions. Each Plan fiduciary should also
determine whether, under the general fiduciary standards of investment prudence
and diversification, an investment in the Securities is appropriate for the
Plan, taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio.
90
<PAGE>
<PAGE>
The DOL has granted to certain underwriters individual administrative
exemptions (the 'Underwriter Exemptions') 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 Underwriter Exemptions.
While each underwriter Exemption is an individual exemption separately
granted to a specific underwriter, the terms and conditions which generally
apply to the Underwriter Exemptions are substantially 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 required 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 Ratings Group, 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, Inc.
('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 as amended.
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 Underwriter Exemptions generally provide 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 is invested in certificates representing an interest in
one or more trusts containing assets sold or serviced by the same entity. The
Underwriter Exemptions do not apply to Plans sponsored by the Seller, the
related Underwriter, the Trustee, the Master Servicer, any insurer with respect
to the Loans, any obligor with respect to Loans included in the Trust Fund
constituting more than five percent (5%) of the aggregate unamortized principal
balance of the assets in the Trust Fund, or any affiliate of such parties (the
'Restricted Group').
The Prospectus Supplement for each Series of Securities will indicate the
classes of Securities, if any, offered thereby as to which it is expected that
an Underwriter Exemption will apply.
91
<PAGE>
<PAGE>
The Underwriter Exemption contains several requirements, some of which
differ from those in PTE 83-l. The Underwriter Exemption contains an expanded
definition of 'certificate' which includes an interest which entitles the holder
to pass-through payments of principal, interest and/or other payments. The
Underwriter Exemption contains an expanded definition of 'trust' which permits
the trust corpus to consist of secured consumer receivables. The definition of
'trust', however, does not include any investment pool unless, inter alia, (i)
the investment pool consists only of assets of the type which have been included
in other investment pools, (ii) certificates evidencing interests in such other
investment pools have been purchased by investors other than Plans for at least
one year prior to the Plan's acquisition of certificates pursuant to the
Underwriter Exemption, and (iii) certificates in such other investment pools
have been rated in one of the three highest generic rating categories of the
four credit rating agencies noted below. Generally, the Underwriter Exemption
holds that the acquisition of the certificates by a Plan must be 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.
The Underwriter Exemption requires that the rights and interests evidenced by
the certificates not be 'subordinated' to the rights and interests evidenced by
other certificates of the same trust. The Underwriter Exemption requires that
certificates acquired by a Plan have received a rating at the time of their
acquisition that is in one of the three highest generic rating categories of
S&P, Moody's, Fitch or DCR. The Underwriter Exemption specifies that the pool
trustee must not be an affiliate of the pool sponsor, nor an affiliate of the
Underwriter, the pool servicer, any obligor with respect to mortgage loans
included in the trust constituting more than five percent of the aggregate
unamortized principal balance of the assets in the trust, or any affiliate of
such entities. Finally, the Underwriter Exemption stipulates that any Plan
investing in the certificates must be an 'accredited investor' as defined in
Rule 501(a)(1) of Regulation D of the Securities and Exchange Commission under
the Securities Act of 1933.
Any Plan fiduciary which proposes to cause a Plan to purchase Securities
should consult with their counsel concerning the impact of ERISA and the Code,
the applicability of PTE 83-1 and the Underwriter Exemption, and the potential
consequences in their specific circumstances, prior to making such investment.
Moreover, each Plan fiduciary should determine whether under the general
fiduciary standards of investment procedure and diversification an investment in
the Securities is appropriate for the Plan, taking into account the overall
investment policy of the Plan and the composition of the Plan's investment
portfolio.
LEGAL INVESTMENT
The Prospectus Supplement for each series of Securities will specify which,
if any, of the classes of Securities offered thereby constitute 'mortgage
related securities' for purposes of the Secondary Mortgage Market Enhancement
Act of 1984 ('SMMEA'). Classes of Securities that qualify as 'mortgage related
securities' will be legal investments for persons, trusts, corporations,
partnerships, associations, business trusts, and business entities (including
depository institutions, life insurance companies and pension funds) created
pursuant to or existing under the laws of the United States or of any state
(including the District of Columbia and Puerto Rico) whose authorized
investments are subject to state regulations to the same extent as, under
applicable law, obligations issued by or guaranteed as to principal and interest
by the United States or any such entities. Under SMMEA, if a state enacts
legislation prior to October 4, 1991 specifically limiting the legal investment
authority of any such entities with respect to 'mortgage related securities',
securities will constitute legal investments for entities subject to such
legislation only to the extent provided therein. Approximately twenty-one states
adopted such legislation prior to the October 4, 1991 deadline. SMMEA provides,
however, that in no event will the enactment of any such legislation affect the
validity of any contractual commitment to purchase, hold or invest in
securities, or require the sale or other disposition of securities, so long as
such contractual commitment was made or such securities were acquired prior to
the enactment of such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in Securities
without limitations as to the percentage of their assets represented thereby,
federal credit unions may invest in mortgage related securities, and national
banks may purchase securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
24 (Seventh), subject in each case to such regulations as the applicable federal
authority may prescribe. In this connection, federal credit unions should review
the National Credit Union Administration ('NCUA') Letter to Credit Unions No.
96, as modified by Letter to Credit Unions No. 108, which includes guidelines to
assist federal credit unions in making investment decisions for mortgage related
securities and the NCUA's regulation 'Investment and Deposit
92
<PAGE>
<PAGE>
Activities' (12 C.F.R. Part 703), which sets forth certain restrictions on
investment by federal credit unions in mortgage related securities (in each case
whether or not the class of Securities under consideration for purchase
constituted a 'mortgage related security').
All depository institutions considering an investment in the Securities
(whether or not the class of Securities under consideration for purchase
constitutes a 'mortgage related security') should review the Federal Financial
Institutions Examination Council's Supervisory Policy Statement on the
Securities Activities (to the extent adopted by their respective regulators)
(the 'Policy Statement') setting forth, in relevant part, certain securities
trading and sales practices deemed unsuitable for an institution's investment
portfolio, and guidelines for (and restrictions on) investing in mortgage
derivative products, including 'mortgage related securities', which are
'high-risk mortgage securities' as defined in the Policy Statement. According to
the Policy Statement, such 'high-risk mortgage securities' include securities
such as Securities not entitled to distributions allocated to principal or
interest, or Subordinated Securities. Under the Policy Statement, it is the
responsibility of each depository institution to determine, prior to purchase
(and at stated intervals thereafter), whether a particular mortgage derivative
product is a 'high-risk mortgage security', and whether the purchase (or
retention) of such a product would be consistent with the Policy Statement.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to 'prudent investor' provisions which may restrict or prohibit investment in
securities which are not 'interest bearing' or 'income paying'.
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Securities or to purchase
Securities representing more than a specified percentage of the investor's
assets. Investors should consult their own legal advisors in determining whether
and to what extent the Securities constitute legal investments for such
investors.
METHOD OF DISTRIBUTION
Securities are being offered hereby in Series from time to time (each
Series evidencing or relating to a separate Trust Fund) through any of the
following methods:
1. By negotiated firm commitment underwriting and public reoffering by
underwriters;
2. By agency placements through one or more placement agents primarily
with institutional investors and dealers; and
3. By placement directly by the Depositor with institutional
investors.
A Prospectus Supplement will be prepared for each Series which will
describe the method of offering being used for that Series and will set forth
the identity of any underwriters thereof and either the price at which such
Series is being offered, the nature and amount of any underwriting discounts or
additional compensation to such underwriters and the proceeds of the offering to
the Depositor, or the method by which the price at which the underwriters will
sell the Securities will be determined. Each Prospectus Supplement for an
underwritten offering will also contain information regarding the nature of the
underwriters' obligations, any material relationship between the Depositor and
any underwriter and, where appropriate, information regarding any discounts or
concessions to be allowed or reallowed to dealers or others and any arrangements
to stabilize the market for the Securities so offered. In firm commitment
underwritten offerings, the underwriters will be obligated to purchase all of
the Securities of such Series if any such Securities are purchased. Securities
may be acquired by the underwriters for their own accounts and may be resold
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale.
Underwriters and agents may be entitled under agreements entered into with
the Depositor to indemnification by the Depositor against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribution with respect to payments which such underwriters or agents
may be required to make in respect thereof.
If a Series is offered other than through underwriters, the Prospectus
Supplement relating thereto will contain information regarding the nature of
such offering and any agreements to be entered into between the Depositor and
purchasers of Securities of such Series.
93
<PAGE>
<PAGE>
LEGAL MATTERS
The validity of the Securities of each Series, including certain federal
income tax consequences with respect thereto, will be passed upon for the
Depositor by Brown & Wood LLP, One World Trade Center, New York, New York 10048.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each Series of Securities
and no Trust Fund will engage in any business activities or have any assets or
obligations prior to the issuance of the related Series of Securities.
Accordingly, no financial statements with respect to any Trust Fund will be
included in this Prospectus or in the related Prospectus Supplement.
RATING
It is a condition to the issuance of the Securities of each Series offered
hereby and by the Prospectus Supplement that they shall have been rated in one
of the four highest rating categories by the nationally recognized statistical
rating agency or agencies (each, a 'Rating Agency') specified in the related
Prospectus Supplement.
Any such rating would be based on, among other things, the adequacy of the
value of the Trust Fund Assets and any credit enhancement with respect to such
class and will reflect such Rating Agency's assessment solely of the likelihood
that holders of a class of Securities of such class will receive payments to
which such Securityholders are entitled under the related Agreement. Such rating
will not constitute an assessment of the likelihood that principal prepayments
on the related Loans will be made, the degree to which the rate of such
prepayments might differ from that originally anticipated or the likelihood of
early optional termination of the Series of Securities. Such rating should not
be deemed a recommendation to purchase, hold or sell Securities, inasmuch as it
does not address market price or suitability for a particular investor. Each
security rating should be evaluated independently of any other security rating.
Such rating will not address the possibility that prepayment at higher or lower
rates than anticipated by an investor may cause such investor to experience a
lower than anticipated yield or that an investor purchasing a Security at a
significant premium might fail to recoup its initial investment under certain
prepayment scenarios.
There is also no assurance that any such rating will remain in effect for
any given period of time or that it may not be lowered or withdrawn entirely by
the Rating Agency in the future if in its judgment circumstances in the future
so warrant. In addition to being lowered or withdrawn due to any erosion in the
adequacy of the value of the Trust Fund Assets or any credit enhancement with
respect to a Series, such rating might also be lowered or withdrawn among other
reasons, because of an adverse change in the financial or other condition of a
credit enhancement provider or a change in the rating of such credit enhancement
provider's long term debt.
The amount, type and nature of credit enhancement, if any, established with
respect to a Series of Securities will be determined on the basis of criteria
established by each Rating Agency rating classes of such Series. Such criteria
are sometimes based upon an actuarial analysis of the behavior of mortgage loans
in a larger group. Such analysis is often the basis upon which each Rating
Agency determines the amount of credit enhancement required with respect to each
such class. There can be no assurance that the historical data supporting any
such actuarial analysis will accurately reflect future experience nor any
assurance that the data derived from a large pool of mortgage loans accurately
predicts the delinquency, foreclosure or loss experience of any particular pool
of Loans. No assurance can be given that values of any Properties have remained
or will remain at their levels on the respective dates of origination of the
related Loans. If the residential real estate markets should experience an
overall decline in property values such that the outstanding principal balances
of the Loans in a particular Trust Fund and any secondary financing on the
related Properties become equal to or greater than the value of the Properties,
the rates of delinquencies, foreclosures and losses could be higher than those
now generally experienced in the mortgage lending industry. In additional,
adverse economic conditions (which may or may not affect real property values)
may affect the timely payment by mortgagors of scheduled payments of principal
and interest on the Loans and, accordingly, the rates of delinquencies,
foreclosures and losses with respect to any Trust Fund. To the extent that such
losses are not covered by credit enhancement, such losses will be borne, at
least in part, by the holders of one or more classes of the Securities of the
related Series.
94
<PAGE>
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM PAGE
- ------------------------------------------ ---------
<S> <C>
Accretion Directed........................ 32
Accrual................................... 33
Accrual Securities........................ 29
Advance................................... 10
Agreement................................. 18
Amortizable Bond Premium Regulations...... 75
APR....................................... 23
Available Funds........................... 29
Balloon payment........................... 22
Belgian Cooperative....................... 38
beneficial owner.......................... 36
BIF....................................... 48
Book-Entry Securities..................... 36
borrower.................................. 65
Buydown Fund.............................. 22
Buydown Loans............................. 22
Calculation Agent......................... 33
Cash Flow Bond Method..................... 81
CEDEL Participants........................ 37
CERCLA.................................... 16, 61
Certificates.............................. 1, 5
Capitalized Interest Account.............. 49
Claimable Amount.......................... 70
Class Security Balance.................... 29
Closed-End Loans.......................... 5
Code...................................... 11, 71
COFI Securities........................... 35
Collateral Value.......................... 23
Combined Loan-to-Value Ratio.............. 23
Commission................................ 3
companion classes......................... 32
Component Securities...................... 32
Contingent Regulations.................... 73
contracts................................. 64
Cooperative Loans......................... 21
Cooperatives.............................. 21
Cut-off Date.............................. 5, 17
Cut-off Date Principal Balance............ 27
DCR....................................... 91
Debt Securities........................... 71
debt-to-income ratio...................... 25
Definitive Security....................... 36
Depositor................................. 1, 24
Detailed Description...................... 21
Distribution Date......................... 6
DOL....................................... 89
DTC....................................... 18, 36
Eleventh District......................... 34
EPA....................................... 61
ERISA..................................... 12
Euroclear Operator........................ 38
<CAPTION>
TERM PAGE
- ------------------------------------------ ---------
<S> <C>
Euroclear Participants.................... 38
European Depositaries..................... 36
excess servicing.......................... 81
Exchange Act.............................. 3
FDIC...................................... 25
FHA....................................... 9
FHLBSF.................................... 34
FHLMC..................................... 25
Financial Intermediary.................... 36
Fitch..................................... 91
Fixed Rate................................ 33
Floating Rate............................. 33
FNMA...................................... 25
Foreign person............................ 85
Funding Period............................ 18
Garn-St Germain Act....................... 63
Holder in Due Course Rules................ 17
Home Equity Loans......................... 1, 5
Home Improvement Contracts................ 1, 5, 20
Home Improvements......................... 1
Indenture................................. 27
Installment Contract...................... 65
Insurance Proceeds........................ 48
Insured Expenses.......................... 48
Interest Only............................. 33
Interest Weighted Securities.............. 74
Inverse Floating Rate..................... 33
IRS....................................... 73
L/C Bank.................................. 8, 40
L/C Percentage............................ 9, 40
lender.................................... 65
Liquidation Expenses...................... 48
Liquidation Proceeds...................... 48
Loan Rate................................. 7, 19
Loans..................................... 1
Loan-to-Value Ratio....................... 23
Lockout periods........................... 22
Master Servicer........................... 5
Master Servicing Agreement................ 20
Master Servicing Fee...................... 53
Moody's................................... 91
Morgan.................................... 38
Mortgage.................................. 46
Mortgage Loan............................. 5
Mortgaged Properties...................... 20
National Cost of Funds Index.............. 35
NCUA...................................... 92
Nonresidents.............................. 82
Notes..................................... 1, 5
Notional Amount Securities................ 32
OID....................................... 11, 71
OID Regulations........................... 72
</TABLE>
95
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ------------------------------------------ ---------
<S> <C>
OTS....................................... 35
PACs...................................... 32
Partial Accrual........................... 33
Parties in Interest....................... 89
Pass-Through Rate......................... 7
Pass-Through Securities................... 80
Pay-Through Security...................... 73
Percentage Interests...................... 55
Permitted Investments..................... 41
Planned Principal Class................... 32
Plans..................................... 89
Policy Statement.......................... 93
Pool...................................... 5, 20
Pool Insurance Policy..................... 42
Pool Insurer.............................. 42
Pooling and Servicing Agreement........... 27
Pre-Funded Amount......................... 18
Pre-Funding Account....................... 5, 18
Prepayment Assumption..................... 73
Primary Mortgage Insurance Policy......... 22
Prime Rate................................ 36
Principal Only............................ 33
Principal Prepayments..................... 30
Properties................................ 6, 20
Property Improvement Loans................ 67
Proposed Mark-to-Market Regulations....... 79
PTE 83-1.................................. 89
Purchase Price............................ 26
Rating Agency............................. 94
Ratio Strip Securities.................... 81
RCRA...................................... 62
Record Date............................... 28
Reference Banks........................... 33
Refinance Loan............................ 23
Regular Interest Securities............... 71
Relevant Depositary....................... 36
Relief Act................................ 66
REMIC..................................... 2, 26, 71
Reserve Account........................... 8, 28
Reserve Interest Rate..................... 34
Residual Interest Security................ 77
Restricted Group.......................... 91
Retained Interest......................... 27
Revolving Credit Line Loans............... 5
<CAPTION>
TERM PAGE
- ------------------------------------------ ---------
<S> <C>
Riegle Act................................ 17
Rules..................................... 37
S&P....................................... 91
SAIF...................................... 48
Scheduled Principal Class................. 32
Securities................................ 1, 5
Security Account.......................... 47
Security Owners........................... 36
Security Register......................... 28
Securityholders........................... 36
Seller.................................... 1
Sellers................................... 20
Senior Securities......................... 6, 39
Sequential Pay............................ 32
Series.................................... 1
Servicing Fee............................. 80
Short-Term Note........................... 84
Single Family Properties.................. 22
Single Family Securities.................. 90
SMMEA..................................... 11, 92
Strip..................................... 32
Stripped Securities....................... 80
Sub-Servicer.............................. 10, 20
Sub-Servicing Agreement................... 50
Subordinated Securities................... 6
Subsequent Loans.......................... 18
Support Class............................. 32
TACs...................................... 33
Targeted Principal Class.................. 33
Terms and Conditions...................... 38
TIN....................................... 82
Title I Loans............................. 67
Title I Program........................... 67
Title V................................... 64, 65
Trust Agreement........................... 20, 27
Trust Fund................................ 1
Trust Fund Assets......................... 1, 5, 20
Trustee................................... 5, 27
UCC....................................... 61
Underwriter Exemptions.................... 91
U.S. Person............................... 88
VA........................................ 9
VA Guaranty............................... 53
Variable Rate............................. 33
</TABLE>
96
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution*
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the Securities being registered under this
Registration Statement, other than underwriting discounts and commissions:
SEC Registration Fee ..................................... $ 606,060.61
Printing and Engraving Expenses .......................... $ 35,000.00
Legal Fees and Expenses .................................. $ 65,000.00
Trustee Fees and Expenses ................................ $ 15,000.00
Accounting Fees and Expenses ............................. $ 25,000.00
Blue Sky Fees and Expenses ............................... $ 5,000.00
Rating Agency Fees ....................................... $ 125,000.00
Miscellaneous ............................................ $ 5,000.00
==============
Total .................................................... $ 881,060.61
==============
- ------------
* All amounts except the SEC Registration Fee are estimates of expenses
incurred in connection with the issuance and distribution of a Series of
Securities in an aggregate principal amount assumed for these purposes to be
equal to $250,000,000 of Securities registered hereby.
Item 15. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of Delaware empowers a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation), by reason of the fact that he or she is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise. Depending on the character of the proceeding, a corporation may
indemnify against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
such action, suit or proceeding if the person indemnified acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no cause to believe his or her conduct was unlawful. In the case
of an action by or in the right of the corporation, no indemnification may be
made in respect to any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper. Section 145
further provides that to the extent a director or officer of a corporation has
been successful in the defense of any action, suit or proceeding referred to
above or in the defense of any claim, issue or matter therein, he or she shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection therewith.
The Certificate of Incorporation and Bylaws of the Registrant provide, in
effect, that, to the extent and under the circumstances permitted by Section 145
of the General Corporation Law of Delaware, the Registrant
II-1
<PAGE>
<PAGE>
shall indemnify any person who was or is a party or is threatened to be made a
party to any action, suit or proceeding of the type described above by reason of
the fact that he or she is or was a director, officer, employee or agent of the
Registrant.
Item 16. Exhibits.
1.1(a) Form of Underwriting Agreement.**
1.1(b) Form of Indemnification and Contribution Agreement.**
3.1 Certificate of Incorporation of the Registrant.**
3.2 By-laws of the Registrant.**
4.1 Form of Pooling and Servicing Agreement relating to Home Equity Loan
Asset Backed Certificates.**
4.2 Form of Pooling and Servicing Agreement relating to Mortgage
Pass-Through Certificates.**
4.3 Form of Trust Agreement.**
4.4 Form of Indenture.**
4.5 Form of Master Servicing Agreement.**
5.1 Opinion of Brown & Wood LLP as to legality of the Securities.**
8.1 Opinion of Brown & Wood LLP as to tax matters
(included in Exhibit 5.1).**
10.1 Form of Loan Purchase Agreement.**
23.1 Consent of Brown & Wood LLP (included in Exhibits 5.1 and 8.1
hereof).**
24.1 Power of Attorney.**
- ------------
** Previously filed.
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most
recent post-effective amendment hereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
Registration Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in this Registration
Statement.
II-2
<PAGE>
<PAGE>
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Act, each filing of a Trust Fund's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in this Registration Statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(d) The undersigned Registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act of 1939 in accordance
with the rules and regulations prescribed by the Commission under Section
305(b)(2) of the Trust Indenture Act of 1939.
II-3
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that (i) it reasonably believes that the security rating
requirement of Transaction Requirement B.5 of Form S-3 will be met by the time
of sale of each Series of Securities to which this Registration Statement
relates and (ii) it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 4 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Pasadena, California on the 4th day of November,
1996.
CWABS, Inc.
By /s/ STANFORD L. KURLAND
--------------------------------------
Name: Stanford L. Kurland
Title: Chairman of the Board,
President and Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 4 to Registration Statement has been signed by the following
persons in the capacities indicated on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ STANFORD L. KURLAND Chairman of the Board, President November 4, 1996
- ------------------------ (Principal Executive Officer)
Stanford L. Kurland and Director
* Executive Vice President and Chief November 4, 1996
- ------------------------ Financial Officer (Principal
Carlos M. Garcia Accounting Officer) and Director
* Director November 4, 1996
- ------------------------
Kevin W. Bartlett
* Director November 4, 1996
- ------------------------
Thomas H. Boone
* Director November 4, 1996
- ------------------------
Jeffrey P. Grogin
*By /s/ STANFORD L. KURLAND
------------------------
Stanford L. Kurland
Attorney-in-Fact
II-4
<PAGE>
<PAGE>
EXHIBIT INDEX
Sequential
Exhibit Page
No. Description of Exhibit Number
1.1(a) Form of Underwriting Agreement.**
1.1(b) Form of Indemnification and Contribution Agreement.**
3.1 Certificate of Incorporation of the Registrant.**
3.2 By-laws of the Registrant.**
4.1 Form of Pooling and Servicing Agreement relating to Home Equity Loan
Asset Backed Certificates.**
4.2 Form of Pooling and Servicing Agreement relating to Mortgage
Pass-Through Certificates.**
4.3 Form of Trust Agreement.**
4.4 Form of Indenture.**
4.5 Form of Master Servicing Agreement.**
5.1 Opinion of Brown & Wood LLP as to legality of the Securities.**
8.1 Opinion of Brown & Wood LLP as to tax matters
(included in Exhibit 5.1).**
10.1 Form of Loan Purchase Agreement.**
23.1 Consent of Brown & Wood LLP (included in Exhibits 5.1 and 8.1
hereof).**
24.1 Power of Attorney.**
- ------------
** Previously filed.
<PAGE>
