<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 6, 1998
REGISTRATION NO. 333-
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CWABS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
DELAWARE 95-4596514
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
4500 PARK GRANADA
CALABASAS, CALIFORNIA 91302
(818) 225-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
SANDOR E. SAMUELS, ESQ.
COUNTRYWIDE HOME LOANS, INC.
4500 PARK GRANADA
CALABASAS, CALIFORNIA 91302
(818) 225-3505
(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. [ ]
------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
PROPOSED
MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE
<S> <C> <C> <C> <C>
Asset Backed Securities(2).................... $3,099,200,373 100% $ 3,099,200,373 $ 914,264.11
</TABLE>
(1) Estimated for the purpose of calculating the registration fee.
(2) $1,099,200,373.00 in securities are being carried forward and $324,264.11 of
the filing fee is associated with the securities being carried forward and
was previously paid with the earlier registration statement.
------------------------
Pursuant to Rule 429 under the Securities Act of 1933, the Prospectus
included in this Registration Statement is a combined prospectus and relates to
registration statement No. 333-37539 as previously filed by the Registrant. Such
registration statement No. 333-37539 was declared effective on November 7, 1997.
------------------------
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>
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 ,
SUPPLEMENT TO PROSPECTUS SUPPLEMENT DATED __________________, _____
(TO PROSPECTUS DATED AUGUST , 1998)
CWABS, INC.
DEPOSITOR
[LOGO]
SELLER AND MASTER SERVICER
[TITLE OF SECURITIES]
------------------------
This Supplement relates to the offering of the Certificates of the Services
referenced above. This Supplement does not contain complete information about
the offering of the Certificates. Additional information is contained in the
Prospectus Supplement dated , (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 August , 1998
(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 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 IN
THE ACCOMPANYING PROSPECTUS SUPPLEMENT AND PROSPECTUS. NEITHER THE
CERTIFICATES NOR THE MORTGAGE LOANS ARE INSURED OR GUARANTEED
BY ANY GOVERNMENTAL AGENCY.
------------------------
THE 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.
,
<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 , (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 , *
<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 ,
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED AUGUST , 1998)
CWABS, INC.
DEPOSITOR
ASSET-BACKED CERTIFICATES, SERIES -
DISTRIBUTIONS PAYABLE ON THE TH DAY OF EACH MONTH, COMMENCING IN
[LOGO]
SELLER AND MASTER SERVICER
<TABLE>
<S> <C> <C> <C>
$ CLASS AF-1 CERTIFICATES $ CLASS MF-2 CERTIFICATES
$ CLASS AF-2 CERTIFICATES $ CLASS BF CERTIFICATES
$ CLASS AF-3 CERTIFICATES $ CLASS AV-1 CERTIFICATES
$ CLASS AF-4 CERTIFICATES $ CLASS MV-1 CERTIFICATES
$ CLASS MF-1 CERTIFICATES $ CLASS MV-2 CERTIFICATES
$ CLASS BV CERTIFICATES
</TABLE>
------------------------
The Asset-Backed Certificates, Series - , will consist of: (a) the
following Fixed Rate Certificates: (i) Class AF-1, Class AF-2, Class AF-3 and
Class AF-4 Certificates (collectively, the 'Class A Fixed Rate Certificates'),
(cover continued on next page)
------------------------
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.
------------------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER 'RISK
FACTORS' ON PAGE S-17 HEREIN AND ON PAGE 14 IN THE ACCOMPANYING PROSPECTUS.
------------------------
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>
ORIGINAL CERTIFICATE PRICE UNDERWRITING PROCEEDS TO
PRINCIPAL BALANCE(1) TO PUBLIC DISCOUNT DEPOSITOR(2)
<S> <C> <C> <C> <C>
Class AF-1...... $ % % %
Class AF-2...... $ % % %
Class AF-3...... $ % % %
Class AF-4...... $ % % %
Class MF-1...... $ % % %
Class MF-2...... $ % % %
Class BF........ $ % % %
Class AV-1...... $ % % %
Class MV-1...... $ % % %
Class MV-2...... $ % % %
Class BV........ $ % % %
Total........... $ $ $ $
</TABLE>
(1) Subject to the permitted variance described herein.
(2) Before deduction of expenses payable by the Depositor estimated to be
$ .
------------------------
The Offered Certificates are offered subject to prior sale and subject to
the Underwriters' right to reject orders in whole or in part. It is expected
that delivery of the Offered Certificates will be made in book-entry form only
though the facilities of The Depository Trust Company, CEDEL Bank, societe
anonyme and the Euroclear System on or about , (the 'Closing
Date'). The Offered Certificates will be offered in Europe and the United States
of America.
------------------------
[UNDERWRITER]
,
<PAGE>
<PAGE>
(continued from cover page)
(ii) Class MF-1 and Class MF-2 Certificates (collectively, the 'Mezzanine Fixed
Rate Certificates'), (iii) Class BF Certificates (the 'Class BF Certificates'
and together with the Mezzanine Fixed Rate Certificates, the 'Subordinated
Offered Fixed Rate Certificates') and (iv) Class BF-IO Certificates (the 'Class
BF-IO Certificates'); (b) the following Adjustable Rate Certificates: (i) Class
AV-1 Certificates (the 'Class A Adjustable Rate Certificates'), (ii) Class MV-1
and Class MV-2 Certificates (collectively, the 'Mezzanine Adjustable Rate
Certificates'), (iii) Class BV Certificates (the 'Class BV Certificates' and
together with the Mezzanine Adjustable Rate Certificates, the 'Subordinated
Offered Adjustable Rate Certificates') and (iv) Class BV-IO Certificates (the
'Class BV-IO Certificates'); and (c) Class R Certificates (the 'Residual
Certificates')]. The group of Fixed Rate Certificates and the group of
Adjustable Rate Certificates are each referred to herein as a 'Certificate
Group' and collectively as the 'Certificate Groups.' Only the Fixed Rate
Certificates other than the Class BF-IO Certificates (the 'Offered Fixed Rate
Certificates') and the Adjustable Rate Certificates other than the Class BV-IO
Certificates (the 'Offered Adjustable Rate Certificates' and collectively with
the Offered Fixed Rate Certificates, the 'Offered Certificates') are offered
hereby. See 'Index of Defined Terms' on page S-64 of this Prospectus Supplement
and on page 98 of the Prospectus for the location of the definitions of certain
capitalized terms.
The Offered Certificates, the Class BF-IO and Class BV-IO Certificates
(collectively or individually, as the context requires, the 'Class B-IO
Certificates'), and the Residual Certificates (collectively or individually, as
the context requires, the 'Certificates') will represent the entire beneficial
ownership interest in a trust fund (the 'Trust Fund') to be created pursuant to
a Pooling and Servicing Agreement, dated as of , , among CWABS,
Inc., as depositor (the 'Depositor'), [Countrywide Home Loans, Inc.], as master
servicer and seller (referred to herein as 'Countrywide,' the 'Master Servicer'
or the 'Seller,' as applicable) and , as trustee (the
'Trustee'). The Trust Fund will consist of a pool (the 'Mortgage Pool') of
conventional, sub-prime mortgage loans (the 'Mortgage Loans') secured by first
and second liens (in the case of the Fixed Rate Mortgage Loan Group) and first
liens only (in the case of the Adjustable Rate Mortgage Loan Group) on one- to
four-family residential properties (each, a 'Mortgaged Property') and certain
other assets described herein. The Mortgage Pool will be divided into two
separate groups of Mortgage Loans (each, a 'Loan Group') based on whether the
interest rate for the related Mortgage Loans is fixed or adjustable. The Fixed
Rate Certificates will represent an undivided ownership interest in a Loan Group
of fixed rate Mortgage Loans (the 'Fixed Rate Mortgage Loan Group') and the
Adjustable Rate Certificates will represent an undivided ownership interest in a
Loan Group of adjustable rate Mortgage Loans (the 'Adjustable Rate Mortgage Loan
Group'). See 'The Mortgage Pool' herein. Distributions in respect of the Fixed
Rate Certificates will generally be calculated with reference to the Fixed Rate
Mortgage Loan Group. Distributions in respect of the Adjustable Rate
Certificates will generally be calculated with reference to the Adjustable Rate
Mortgage Loan Group.
For federal income tax purposes, the Trust Fund will comprise multiple real
estate mortgage investment conduits (each, a 'REMIC') organized in a tiered
REMIC structure. The Offered Certificates will represent ownership of regular
interests in the Upper Tier REMIC (as defined in the Pooling and Servicing
Agreement).
Each Loan Group is subject to optional redemption under the limited
circumstances described herein. Any such optional redemption will result in an
early retirement of the Certificates in the Certificate Group related to such
Loan Group. Distributions to Certificateholders will be made on the th day of
each month or, if such th day is not a Business Day, on the first Business Day
thereafter (each, a 'Distribution Date'), commencing in , .
Except for certain representations and warranties relating to the Mortgage
Loans, Countrywide's obligations with respect to the Certificates are limited to
its contractual servicing obligations. The Offered Certificates evidence
interests in the Trust Fund only and are payable solely from amounts received
with respect thereto.
------------------------
THE YIELD TO INVESTORS ON THE OFFERED CERTIFICATES OF EACH CERTIFICATE
GROUP WILL BE SENSITIVE TO, AMONG OTHER THINGS, THE RATE AND TIMING OF PRINCIPAL
PAYMENTS (INCLUDING PREPAYMENTS) OF, AND LOSSES ON, THE MORTGAGE LOANS IN THE
RELATED LOAN GROUP AND, IN CERTAIN CIRCUMSTANCES, THE RATE AND TIMING OF
PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) OF, AND LOSSES ON, THE MORTGAGES
LOANS IN THE OTHER LOAN GROUP, AS DESCRIBED HEREIN. BECAUSE CERTAIN OF THE
MORTGAGE LOANS CONTAIN PREPAYMENT PENALTIES, THE
S-2
<PAGE>
<PAGE>
RATE OF PRINCIPAL PAYMENTS MAY BE LESS THAN THE RATE OF PRINCIPAL PAYMENTS FOR
MORTGAGE LOANS WHICH DO NOT CONTAIN PREPAYMENT PENALTIES. THE YIELD TO INVESTORS
ON THE OFFERED ADJUSTABLE RATE CERTIFICATES WILL ALSO BE SENSITIVE TO THE LEVEL
OF THE LONDON INTERBANK OFFERED RATE FOR ONE-MONTH UNITED STATES DOLLAR DEPOSITS
('ONE-MONTH LIBOR'). IN ADDITION, THE YIELD TO INVESTORS ON THE OFFERED
ADJUSTABLE RATE CERTIFICATES WILL BE SENSITIVE TO THE LEVEL OF THE MORTGAGE
INDEX AND THE ADDITIONAL LIMITATIONS ON THE PASS-THROUGH RATE FOR THE OFFERED
ADJUSTABLE RATE CERTIFICATES, AS DESCRIBED HEREIN. ALTHOUGH ALL OF THE MORTGAGE
LOANS IN THE ADJUSTABLE RATE MORTGAGE LOAN GROUP BEAR INTEREST AT ADJUSTABLE
RATES ('ARMS'), THE INTEREST RATES ON A MAJORITY OF THE ARMS WILL NOT ADJUST FOR
TWO YEARS FOLLOWING ORIGINATION. NO REPRESENTATION IS MADE AS TO THE ANTICIPATED
RATE OF PREPAYMENTS ON THE MORTGAGE LOANS, THE AMOUNT AND TIMING OF LOSSES
THEREON, THE LEVEL OF ONE-MONTH LIBOR OR THE MORTGAGE INDEX OR THE RESULTING
YIELD TO MATURITY OF THE OFFERED CERTIFICATES.
and
(each, an 'Underwriter') intend to make a
secondary market in the Offered Certificates but have no obligation to do so.
There is currently no secondary market for the Offered Certificates and there
can be no assurance that such a market will develop or, if it does develop, that
it will continue or that such market will provide sufficient liquidity to
Certificateholders.
------------------------
This Prospectus Supplement does not contain complete information about the
offering of the Offered Certificates. Additional information is contained in the
Prospectus dated August , 1998 (the 'Prospectus') which accompanies this
Prospectus Supplement and purchasers are urged to read both this Prospectus
Supplement and the Prospectus in full. Sales of the Offered Certificates may not
be consummated unless the purchaser has received both this Prospectus Supplement
and the Prospectus.
Certain persons participating in this offering may engage in transactions
that stabilize, maintain, or otherwise affect the price of the Offered
Certificates. Such transactions may include stabilizing and the purchase of the
Offered Certificates to cover syndicate short positions. For a description of
these activities, see 'Method of Distribution' herein.
------------------------
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.
S-3
<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-64 of this Prospectus Supplement and on
page 98 of the Prospectus for the location of the definitions of certain
capitalized terms.
<TABLE>
<S> <C>
Title of Certificates........................ Asset-Backed Certificates, Series (the 'Certificates'),
consisting of: (a) the following fixed rate certificates (the
'Fixed Rate Certificates'): (i) Class AF-1, Class AF-2, Class AF-3
and Class AF-4 Certificates (collectively, the 'Class A Fixed Rate
Certificates'), (ii) Class MF-1 and Class MF-2 Certificates
(collectively, the 'Mezzanine Fixed Rate Certificates'), (iii)
Class BF Certificates (the 'Class BF Certificates' and together
with the Mezzanine Fixed Rate Certificates, the 'Subordinated
Offered Fixed Rate Certificates') and (iv) Class BF-IO
Certificates (the 'Class BF-IO Certificates'); (b) the following
adjustable rate certificates (the 'Adjustable Rate Certificates'):
(i) Class AV-1 Certificates (the 'Class A Adjustable Rate
Certificates'), (ii) Class MV-1 and Class MV-2 Certificates (the
'Mezzanine Adjustable Rate Certificates'), (iii) Class BV
Certificates (the 'Class BV Certificates' and together with the
Mezzanine Adjustable Rate Certificates, the 'Subordinated Offered
Adjustable Rate Certificates') and (iv) Class BV-IO Certificates
(the 'Class BV-IO Certificates'); and (c) Class R Certificates
(the 'Residual Certificates'). The group of Fixed Rate
Certificates and the group of Adjustable Rate Certificates are
each referred to herein as a 'Certificate Group' and collectively
as the 'Certificate Groups.' Only the Fixed Rate Certificates
other than the Class BF-IO Certificates (the 'Offered Fixed Rate
Certificates') and the Adjustable Rate Certificates other than the
Class BV-IO Certificates (the 'Offered Adjustable Rate
Certificates' and collectively with the Offered Fixed Rate
Certificates, the 'Offered Certificates') are offered hereby.
References to 'Class A,' 'Class M-1,' 'Class M-2,' 'Class B,'
'Class B-IO,' 'Mezzanine Certificates' and 'Subordinated Offered
Certificates' are references to Certificates of either or both
Certificate Groups of similar designations, as the context
requires.
The Depositor................................ CWABS, Inc. (the 'Depositor'), a Delaware corporation that is a
limited purpose finance subsidiary of Countrywide Credit
Industries, Inc. [and an affiliate of the Seller and Master
Servicer.] See 'The Depositor' in the Prospectus.
Seller and Master Servicer................... [Countrywide Home Loans, Inc. ('Countrywide' or the 'Seller' and,
in its capacity as master servicer of the Mortgage Loans, the
'Master Servicer')]. See 'Servicing of Mortgage Loans -- The
Master Servicer' herein. The Mortgage Loans were originated or
acquired by the Seller in the normal course of its business.
Trustee...................................... , a , not in its individual
capacity but solely as trustee on behalf of the Certificateholders
(the 'Trustee').
Cut-off Date................................. .
</TABLE>
S-4
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Closing Date................................. On or about .
Statistic Calculation Date................... .
Description of Certificates
A. General.............................. The Certificates will be issued pursuant to a Pooling and
Servicing Agreement, dated as of (the 'Pooling
and Servicing Agreement'), among the Depositor, the Master
Servicer, the Seller and the Trustee.
The Offered Certificates, the Class B-IO Certificates and the
Residual Certificates will represent the entire beneficial
ownership interest in a trust fund (the 'Trust Fund'), which will
consist of a pool (the 'Mortgage Pool') of conventional, sub-prime
mortgage loans (the 'Mortgage Loans') secured by first and second
liens (in the case of the Fixed Rate Mortgage Loan Group) and
first liens only (in the case of the Adjustable Rate Mortgage Loan
Group) on one- to four- family residential properties (each, a
'Mortgaged Property') and certain other assets described herein.
The Mortgage Pool will be divided into two separate groups of
Mortgage Loans (each, a 'Loan Group') based on whether the
interest rate for the related Mortgage Loans is fixed or
adjustable. The Fixed Rate Certificates will represent an
undivided ownership interest in a Loan Group of fixed rate
Mortgage Loans (the 'Fixed Rate Mortgage Loan Group') and the
Adjustable Rate Certificates will represent an undivided ownership
interest in a Loan Group of adjustable rate Mortgage Loans (the
'Adjustable Rate Mortgage Loan Group'). See 'The Mortgage Pool'
herein.
The Original Certificate Principal Balances, the Pass-Through
Rates and the Last Scheduled Distribution Dates for the Offered
Certificates are as follows:
</TABLE>
<TABLE>
<CAPTION>
ORIGINAL LAST
CERTIFICATE SCHEDULED
PRINCIPAL PASS-THROUGH DISTRIBUTION
CLASS BALANCE(1) RATE DATE(2)
- ----------------------- ------------ ------------ ------------------
<S> <C> <C> <C>
Offered Fixed Rate
Certificates
Class AF-1........... $ %
Class AF-2........... $ %
Class AF-3........... $ %
Class AF-4........... $ %
Class MF-1........... $ %
Class MF-2........... $ %
Class BF............. $ %(3)
Offered Adjustable Rate
Certificates
Class AV-1........... $ (4)
Class MV-1........... $ (4)
Class MV-2........... $ (4)
Class BV............. $ (4)
</TABLE>
(1) The Original Certificate Principal Balance of the Offered
Certificates will be subject to a permitted variance of plus or minus
10%.
(2) Calculated in accordance with the assumptions for the determination
of Last Scheduled Distribution Date set forth under 'Yield,
Prepayment and Maturity Considerations' in this Prospectus
Supplement. It is expected that the actual last Distribution Date for
each Class of Certificates will occur significantly earlier.
S-5
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<PAGE>
(3) The Pass-Through Rates for the Class BF Certificates on any
Distribution Date will equal the lesser of (i) the per annum rate for
such Class set forth above and (ii) the weighted average Mortgage
Interest Rates on the Mortgage Loans in the Fixed Rate Mortgage Loan
Group less the Servicing Fee.
(4) The Pass-Through Rates for the Offered Adjustable Rate Certificates
adjust monthly as described below.
<TABLE>
<S> <C>
The Pass-Through Rates per annum for the Offered Adjustable Rate
Certificates will be equal to the least of (i) the London
interbank offered rate for one month United States dollar deposits
('One-Month LIBOR') (calculated as described under 'Description of
the Certificates -- Calculation of One-Month LIBOR') plus the
Pass-Through Margin for such Class, (ii) the weighted average of
the maximum lifetime Mortgage Interest Rates on the Mortgage Loans
in the Adjustable Rate Mortgage Loan Group less the Servicing Fee,
and (iii) the 'Available Funds Cap' for the Offered Adjustable
Rate Certificates, which is defined as a per annum rate equal to
times the quotient of (x) the total scheduled interest on the
Mortgage Loans in the Adjustable Rate Mortgage Loan Group based on
the Mortgage Interest Rates in effect on the related Due Date less
the Servicing Fees for such Due Date divided by (y) the
Certificate Principal Balance of the Offered Adjustable Rate
Certificates.
The 'Pass-Through Margin' for each Class of Offered Adjustable
Rate Certificates is as follows: for any Distribution Date on or
prior to the Optional Termination Date for the Adjustable Rate
Mortgage Loan Group: Class AV-1, %; Class MV-1, %; Class
MV-2, %; and Class BV, %; and for any Distribution Date
after the Optional Termination Date for the Adjustable Rate
Mortgage Loan Group: Class AV-1, %; Class MV-1, %; Class
MV-2, %; and Class BV, %.
If on any Distribution Date, the Pass-Through Rate for a Class of
Offered Adjustable Rate Certificates is based upon its Available
Funds Cap, the excess of (i) the amount of interest that such
Class would have been entitled to receive on such Distribution
Date had the Pass-Through Rate for that Class not been calculated
based on the Available Funds Cap over (ii) the amount of interest
such Class received on such Distribution Date based on the
Available Funds Cap, up to but not exceeding the weighted average
of the maximum lifetime Mortgage Interest Rates on the Mortgage
Loans in the Adjustable Rate Mortgage Loan Group, less the
Servicing Fee, together with the unpaid portion of any such excess
from prior Distribution Dates (and interest accrued thereon at the
then applicable Pass-Through Rate, without giving effect to the
Available Funds Cap) is the 'Adjustable Rate Certificate
Carryover' for such Class. Any Adjustable Rate Certificate
Carryover will be paid on future Distribution Dates from and to
the extent of amounts distributed on the Class B-IO Certificates
which are deposited in a reserve fund ('Carryover Reserve Fund'),
as provided in the Pooling and Servicing Agreement. The rating of
the Offered Adjustable
</TABLE>
S-6
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<TABLE>
<S> <C>
Rate Certificates does not address the likelihood of the payment
of any Adjustable Rate Certificate Carryover.
B. Form of Certificates................. The Offered Certificates will initially be issued in book-entry
form. Persons acquiring beneficial ownership interests in the
Offered Certificates ('Certificate Owners') may elect to hold
their Offered Certificate interests through The Depository Trust
Company ('DTC'), in the United States, or Cedel Bank, societe
anonyme ('CEDEL') or the Euroclear System ('Euroclear'), in
Europe. Transfers within DTC, CEDEL or Euroclear, as the case may
be, will be in accordance with the usual rules and operating
procedures of the relevant system. So long as the Offered
Certificates are Book-Entry Certificates (as defined herein), such
Certificates will be evidenced by one or more Certificates
registered in the name of Cede & Co. ('Cede'), as the nominee of
DTC or one of the relevant depositaries (collectively, the
'European Depositaries'). Cross-market transfers between persons
holding directly or indirectly through DTC, on the one hand, and
counterparties holding directly or indirectly through CEDEL or
Euroclear, on the other, will be effected in DTC through Citibank
N.A. ('Citibank') or The Chase Manhattan Bank ('Chase'), the
relevant depositaries of CEDEL or Euroclear, respectively, and
each a participating member of DTC. The interests of the Offered
Certificateholders will be represented by book entries on the
records of DTC and participating members thereof. No Certificate
Owner will be entitled to receive a definitive certificate
representing such person's interest, except in the event that
Definitive Certificates (as defined herein) are issued under the
limited circumstances described under 'Description of the
Certificates -- Book-Entry Certificates' herein. All references in
this Prospectus Supplement to the Offered Certificates reflect the
rights of Certificate Owners only as such rights may be exercised
through DTC and its participating organizations for so long as the
Offered Certificates are held by DTC. See 'Risk
Factors -- Consequences of Owning Book-Entry Certificates,'
'Description of the Certificates -- Book-Entry Certificates'
herein and 'Annex I' hereto.
C. Distributions........................ Distributions on the Offered Certificates will be made on the th
day of each month or, if such day is not a Business Day, on the
first Business Day thereafter, commencing in (each, a
'Distribution Date'). Distributions on each Distribution Date will
be made to Certificateholders of record as of the close of
business on the last day of the month preceding the month of such
Distribution Date (each, a 'Record Date'), except that the final
distribution on any Offered Certificate will be made only upon
presentation and surrender of such Offered Certificate at the
office or agency of the Trustee in New York, New York.
Distributions on the Offered Certificates on each Distribution
Date will be applied to the payment of principal and interest on
such Certificates in accordance with the priorities described in
this Prospectus Supplement. Subject in certain cases to the cross-
collateralization provisions of the Pooling and Servicing
</TABLE>
S-7
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<TABLE>
<S> <C>
Agreement described below under 'Description of the
Certificates -- Overcollateralization and Crosscollateralization
Provisions,' with respect to the Offered Certificates: (i) the
rights of the holders of the Class BF Certificates to receive
distributions with respect to the Mortgage Loans in the Fixed Rate
Mortgage Loan Group are subordinate to the rights of the holders
of the Mezzanine Fixed Rate Certificates, which in turn are
subordinate to the rights of the holders of the Class A Fixed Rate
Certificates and (ii) the rights of the holders of the BV
Certificates to receive distributions with respect to the Mortgage
Loans in the Adjustable Rate Mortgage Loan Group are subordinate
to rights of the holders of the Mezzanine Adjustable Rate
Certificates, which in turn are subordinate to the rights of the
holders of the Class A Adjustable Rate Certificates, in each case
to the extent described herein. The rights of the holders of the
Class B-IO Certificates and the Residual Certificates to receive
distributions with respect to the Mortgage Loans are subordinate
to the rights of the Offered Certificateholders, to the extent
described herein.
1. Interest............................. On each Distribution Date, the interest distributable with respect
to the Offered Fixed Rate Certificates is the interest which has
accrued thereon at the related Pass-Through Rate during the
calendar month immediately preceding the calendar month in which
such Distribution Date occurs; and the interest distributable with
respect to the Offered Adjustable Rate Certificates is the
interest which has accrued thereon at the related Pass-Through
Rate from and including the preceding Distribution Date (or from
the Closing Date, in the case of the first Distribution Date) to
and including the day prior to the current Distribution Date. Each
period referred to in the prior sentence relating to the accrual
of interest is the 'Accrual Period' for the related Class or
Classes of Offered Certificates.
All calculations of interest on the Offered Fixed Rate
Certificates will be made on the basis of a 360-day year assumed
to consist of twelve 30-day months. All calculations of interest
on the Offered Adjustable Rate Certificates will be made on the
basis of a 360-day year and the actual number of days elapsed in
the applicable Accrual Period.
2. Principal............................ On each Distribution Date, monthly distributions that reduce the
Certificate Principal Balances of the Offered Certificates: (i)
will generally reflect collections of principal in respect of the
Mortgage Loans in the related Loan Group; and (ii) until certain
overcollateralization levels have been reached, will include
excess interest collected on the Mortgage Loans. See 'Description
of the Certificates -- Distributions' and
' -- Overcollateralization and Crosscollateralization Provisions'
herein.
Credit Enhancement........................... The Credit Enhancement provided for the benefit of the holders of
the Offered Certificates consists of (x) with respect to the
Class A Certificates and, to a limited extent, the Mezzanine
Certificates, the provisions with respect to preferential
distributions of principal and interest described herein and
</TABLE>
S-8
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<TABLE>
<S> <C>
(y) the application of excess interest on the Mortgage Loans under
the overcollateralization and crosscollateralization mechanics
discussed herein.
Senior and Subordinated Distributions: On each Distribution Date,
distributions with respect to principal of and interest on the
Certificates of each Certificate Group will be made: first, to the
Class A Certificates (in the case of the Fixed Rate Class A
Certificates, in the manner described herein under 'Description of
the Certificates -- Distributions'); second, to the Class M-1
Certificates; third, to the Class M-2 Certificates; fourth, to the
Class B Certificates; and fifth to the Class B-IO Certificates and
the Residual Certificates and to Master Servicer as an Extra
Servicing Fee (in each case in this clause fifth as provided in
the Pooling and Servicing Agreement).
Initially, principal will be distributed exclusively to the Class
A Certificates of a Certificate Group until the Stepdown Date (as
defined herein). On or after the Stepdown Date, so long as a
Trigger Event is not in effect for such Loan Group, principal for
each Certificate Group will be distributed first with respect to
the Class A Certificates of that Certificate Group generally until
the excess of the aggregate Stated Principal Balances of the
Mortgage Loans in the related Loan Group over the Certificate
Principal Balance of the Class A Certificates of the related
Certificate Group is equal to, in the case of the Fixed Rate
Mortgage Loan Group, % of such Loan Group's Stated Principal
Balance as of the preceding Due Date and, in the case of the
Adjustable Rate Mortgage Loan Group, % of such Loan Group's
Stated Principal Balance as of the preceding Due Date; thereafter,
principal not required to be distributed with respect to the
Class A Certificates of that Certificate Group will be distributed
to the Class M-1 Certificates of that Certificate Group generally
until the excess of the aggregate Stated Principal Balances of the
Mortgage Loans in the related Loan Group over the sum of the
Certificate Principal Balances of the Class A and Class M-1
Certificates of the related Certificate Group is equal to, in the
case of the Fixed Rate Mortgage Loan Group, % of such Loan
Group's Stated Principal Balance as of the preceding Due Date and,
in the case of the Adjustable Rate Mortgage Loan Group, % of
such Loan Group's Stated Principal Balance as of the preceding Due
Date; thereafter, principal not required to be distributed with
respect to the Class A and Class M-1 Certificates will be
distributed to the Class M-2 Certificates generally until the
excess of the aggregate Stated Principal Balances of the Mortgage
Loans in the related Loan Group over the sum of the Certificate
Principal Balances of the Class A, Class M-1 and Class M-2
Certificates of the related Certificate Group is equal to, in the
case of the Fixed Rate Mortgage Loan Group, % of such Loan
Group's Stated Principal Balance as of the preceding Due Date and,
in the case of the Adjustable Rate Mortgage Loan Group, % of
such Loan Group's Stated Principal Balance as of the preceding Due
Date; thereafter principal not required to be distributed with
respect to Class A,
</TABLE>
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<TABLE>
<S> <C>
Class M-1 and Class M-2 Certificates will be distributed to the
Class B Certificates of the related Certificate Group generally
until the excess of the aggregate Stated Principal Balances of the
Mortgage Loans in the related Loan Group over the sum of the
Certificate Principal Balances of the Class A, Class M-1, Class
M-2 and Class B Certificates of the related Certificate Group is,
in the case of the Fixed Rate Mortgage Loan Group, % of such Loan
Group's Stated Principal Balance as of the preceding Due Date and,
in the case of the Adjustable Rate Mortgage Loan Group, % of such
Loan Group's Stated Principal Balance as of the preceding Due
Date; thereafter principal not required to be distributed to the
Offered Certificates will be distributed to the Class B-IO
Certificates and the Residual Certificates and to the Master
Servicer as an Extra Master Servicing Fee (in each case as
provided in the Pooling and Servicing Agreement).
See 'Description of Offered Certificates -- Distributions --
Distributions of Principal' herein.
Overcollateralization and Crosscollateralization. The cashflow
provisions are expected to result initially in an increased rate
of amortization of the Class A Certificates of each Certificate
Group relative to the amortization of the Mortgage Loans in the
related Loan Group through the application of excess interest
received on the Mortgage Loan in such Loan Group to the payment of
the principal of Class A Certificates of such Certificate Group
('overcollateralization') until a required level of
overcollateralization is achieved (as to either Certificate Group,
the 'Specified Overcollateralization Amount'). In addition, the
cashflow provisions require, under certain circumstances, that
excess interest generated by one Loan Group be used with respect
to the other Loan Group ('crosscollateralization'). As a result,
the aggregate Stated Principal Balances of the Mortgage Loans in
each Loan Group are expected, from time to time, to exceed the
aggregate Certificate Principal Balances of the Offered
Certificates in the related Certificate Group. Once the Specified
Overcollateralization Amount is reached, and subject to the
provisions described in the next paragraph, the increased rate of
amortization of the Class A Certificates will cease, unless
necessary to maintain the required level of overcollateralization.
The Pooling and Servicing Agreement provides that, subject to
certain floors, caps and triggers, the Specified
Overcollateralization Amount with respect to a Loan Group may
increase or decrease over time as described herein. An increase
would result in a temporary period of faster amortization of
certain of the Class A Certificates in the related Certificate
Group to increase the actual level of overcollateralization to its
required level; a decrease would result in a temporary period of
slower amortization to reduce the actual level of
overcollateralization to its required level.
See 'Description of the Offered Certificates -- Overcollateraliza-
tion and Crosscollateralization Provisions' herein.
</TABLE>
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<TABLE>
<S> <C>
Realized Losses. If on any Distribution Date the Certificate
Principal Balances of the Offered Certificates of a Certificate
Group exceed the Stated Principal Balances of the Mortgage Loans
in the related Loan Group, the Certificate Principal Balances of
the related Subordinated Offered Certificates (but not the Class A
Certificates) of such Certificate Group will be reduced, in
reverse order of seniority (first Class B, second Class M-2 and
third Class M-1), by the amount of the excess; any such excess is
referred to as an 'Applied Realized Loss Amount.' Thereafter, such
Subordinated Offered Certificates are only entitled to
distributions of interest and principal with respect to their
Certificate Principal Balances as so reduced, and the amount of
any Applied Realized Loss Amount will be payable to the applicable
Class of Subordinated Offered Certificates only to the extent of
future excess cash flow as described herein. See 'Description of
the Offered Certificates -- Overcollateralization and
Crosscollateralization -- Provisions.'
The Mortgage Loans........................... The mortgage loans (the 'Mortgage Loans') included in the Trust
Fund will be divided into two separate groups of Mortgage Loans
(each, a 'Loan Group') based on whether the interest rate for the
related Mortgage Loan is fixed or adjustable. Each of the Mortgage
Loans is secured by first and second liens (in the case of the
Fixed Rate Mortgage Loan Group) and first liens only (in the case
of the Adjustable Rate Mortgage Loan Group) on one-to four-family
residential properties (each, a 'Mortgaged Property'). The Fixed
Rate Mortgage Loan Group consists of all fixed rate Mortgage
Loans. The adjustable rate Mortgage Loan Group consists of all
adjustable rate Mortgage Loans. The statistical information
presented in this Prospectus Supplement concerning each Loan Group
(collectively, 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 in
the Trust Fund on the Closing Date. 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 aggregate principal balance of the
Statistic Calculation Pool Mortgage Loans is $ (the
'Statistic Calculation Date Principal Balance'). The aggregate
principal balance of the Statistic Calculation Pool Mortgage Loans
that are Mortgage Loans in the Fixed Rate Mortgage Loan Group
('Statistic Calculation Fixed Rate Mortgage Loans') is
$ (the 'Statistic Calculation Date Fixed Rate Principal
Balance'). The aggregate principal balance of the Statistic
Calculation Pool Balance Mortgage Loans that are Mortgage Loans in
the Adjustable Rate Mortgage Loan Group ('Statistic Calculation
Adjustable Rate Mortgage Loans') is $ (the 'Statistic
Calculation Date Adjustable Rate Principal Balance'). The
Depositor expects that the actual pool as of the Closing Date will
represent approximately $
</TABLE>
S-11
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<TABLE>
<S> <C>
aggregate Stated Principal Balance of Mortgage Loans
(approximately $ of which represents the aggregate
Stated Principal Balance of Mortgage Loans in the Fixed Rate
Mortgage Loan Group and approximately $ of which
represents the aggregate Stated Principal Balance of Mortgage
Loans in the Adjustable Rate Mortgage Loan Group). The additional
Mortgage Loans to be included in the final pool will represent
Mortgage Loans 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 as to which statistical
information is presented herein, some amortization of the
Statistic Calculation Pool Mortgage Loans will occur on or prior
to the Cut-off 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 in
the final Mortgage Pools as of the Cut-off Date 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. Unless otherwise
indicated, information presented herein with respect to the
Statistic Calculation Fixed Rate Mortgage Loans and the Statistic
Calculation Adjustable Rate Mortgage Loans is based on the
Statistic Calculation Principal Balances thereof as of the
Statistic Calculation Date.
Fixed Rate Mortgage Loan Group. The following summarizes certain
characteristics of the Statistic Calculation Fixed Rate Mortgage
Loans:
</TABLE>
<TABLE>
<S> <C>
Aggregate Principal Balance............... $
Average Principal Balance................. $
Range of Principal Balances............... $ to $
Range of Mortgage Rates................... % to %
Weighted Average Mortgage Rate............ %
Weighted Average Combined Loan-to-Value
Ratio................................... %
Weighted Average Scheduled Remaining
Term.................................... months
Range of Scheduled Remaining Terms........ months to months
Mortgaged Premises
Single-family detached dwellings...... %
2-4 Family dwellings.................. %
Planned unit developments............. %
Condominiums.......................... %
First Liens............................... %
</TABLE>
<TABLE>
<S> <C>
Adjustable Rate Mortgage Loan Group. The following summarizes the
characteristics of the Statistic Calculation Adjustable Rate
Mortgage Loans:
</TABLE>
<TABLE>
<S> <C>
Aggregate Principal Balance.............. $
Average Principal Balance................ $
Range of Principal Balances.............. $ to $
Mortgage Interest Rates
Current Weighted Average Mortgage
Rate............................... %
Range of Current Mortgage Rates...... % to %
Weighted Average Maximum Lifetime
Mortgage Rate...................... %
</TABLE>
S-12
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<TABLE>
<S> <C>
Range of Maximum Lifetime Mortgage
Rates.............................. % to %
Weighted Average Lifetime Minimum
Mortgage Rate...................... %
Range of Minimum Lifetime Mortgage
Rates.............................. % to %
Weighted Average Loan-to-Value Ratio..... %
Weighted Average Scheduled Remaining
Term................................... months
Range of Scheduled Remaining Terms....... months to months
Mortgaged Premises
Single-family detached dwelling...... %
2-4 Family dwellings................. %
Planned unit developments............ %
Condominiums......................... %
First Liens.............................. %
</TABLE>
<TABLE>
<S> <C>
All the Mortgage Loans in the Adjustable Rate Mortgage Loan Group
are expected to be subject to periodic interest rate adjustment
caps, lifetime interest rate ceilings and lifetime interest rate
floors. As described herein under 'The Mortgage Pool -- General,'
the Mortgage Rate for substantially all of the Adjustable Rate
Mortgage Loans will generally be subject to adjustment
semi-annually to equal the sum, rounded to the nearest 0.125%, of
the Mortgage Index and the Gross Margin for such Mortgage Loan,
subject to the effects of any applicable Periodic Rate Cap,
Maximum Mortgage Rate and Minimum Mortgage Rate.
Approximately % of the Statistic Calculation Adjustable Rate
Mortgage Loans are 2/28 Mortgage Loans (as defined herein).
The Mortgage Index applicable to any semi-annual Adjustment Date
for substantially all of the Adjustable Rate Mortgage Loans will
be the average of the London interbank offered rates for six-month
U.S. dollar deposits in the London market, as set forth in The
Wall Street Journal, or, if the Mortgage Index ceases to be
published in The Wall Street Journal or becomes unavailable for
any reason, then the Mortgage Index shall be a new index selected
by the Trustee, as holder of the related Mortgage Note, based on
comparable information, in each case as most recently announced as
of a date 45 days prior to such Adjustment Date. The Mortgage
Index value published on , was %. See 'The
Mortgage Pool' in this Prospectus Supplement.
Servicing.................................... [Countrywide] will serve as the Master Servicer of the Mortgage
Loans under the Pooling and Servicing Agreement. The Master
Servicer will be responsible for the servicing of the Mortgage
Loans and will receive from interest collected on the Mortgage
Loans a monthly servicing fee on each Mortgage Loan equal to the
Stated Principal Balance thereof multiplied by one-twelfth of the
Servicing Fee Rate (such product, the 'Servicing Fee'). See
'Servicing of Mortgage Loans -- Servicing Compensation and Payment
of Expenses' herein.
The Master Servicer is obligated to make cash advances
('Advances') with respect to delinquent payments of principal of
and interest on any Mortgage Loan to the extent described herein.
The Trustee will be obligated to make any such Advance
</TABLE>
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<S> <C>
if the Master Servicer fails in its obligation to do so, to the
extent provided in the Pooling and Servicing Agreement. See
'Servicing of Mortgage Loans -- Advances' herein.
Optional Termination......................... [On any Distribution Date on which the Stated Principal Balance of
either Loan Group is less than or equal to 10% of the Cut-off Date
Stated Principal Balance for all Mortgage Loans in such Loan Group
(an 'Optional Termination Date'), the Master Servicer will have
the option (but not the obligation) to purchase, in whole, the
Mortgage Loans and the REO Property (as defined herein), if any,
remaining in such Loan Group and thereby effect the early
retirement of all Certificates in the related Certificate Group.
See 'Description of the Certificates -- Optional Termination'
herein.]
Federal Income Tax Consequences.............. An election of REMIC status for federal income tax purposes will
be made with respect to each REMIC described in the Pooling and
Servicing Agreement. The Offered Certificates and the Class B-IO
Certificates will represent beneficial ownership of REMIC regular
interests in the Upper Tier REMIC (as defined in the Pooling and
Servicing Agreement). See 'Federal Income Tax Consequences'
herein. The Residual Certificates will represent the beneficial
ownership of the sole class of 'residual interest' in each REMIC.
Certain 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 Adjustable Rate Certificates will also represent the
beneficial interest in the right to receive payments from the
Carryover Reserve Fund pursuant to the Interest Rate Cap Agreement
(as defined herein). The Carryover Reserve Fund will be treated as
an 'outside reserve fund' for purposes of the Code.
Beneficial owners of the Offered Adjustable Rate Certificates will
be treated for federal income tax purposes as having purchased an
undivided beneficial interest in regular interests in the Upper
Tier REMIC and as having acquired rights under the Interest Rate
Cap Agreement, both to the extent of the owner's proportionate
interest in the Offered Adjustable Rate Certificates. An Offered
Adjustable Rate Certificateholder generally will recognize
ordinary income equal to such Certificateholder's proportionate
share of interest and original issue discount, if any, accrued on
the Offered Adjustable Rate Regular Interests and will take into
account a proportionate share of any payments received under the
Interest Rate Cap Agreement. An Offered Adjustable Rate
Certificateholder's income derived from payments received under
the Interest Rate Cap Agreement generally must be accounted for
under the notional principal contract regulations. See 'Federal
Income Tax Consequences Taxation of Interest Rate Cap Agreement'
herein.
ERISA Considerations......................... The acquisition of a Class A Certificate by an employee benefit
plan subject to the Employee Retirement Income Security Act of
1974, as amended ('ERISA'), or a plan or arrangement subject to
Section 4975 of the Code (each of the foregoing, a 'Plan') could,
in some instances, result in a 'prohibited transaction' or
</TABLE>
S-14
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<S> <C>
other violation of the fiduciary responsibility provisions of
ERISA and Code Section 4975.
However, certain exemptions from the prohibited transaction rules
of ERISA could be applicable to the acquisition of Class A
Certificates. Subject to the considerations and conditions
described under 'ERISA Considerations' herein, it is expected that
the Class A Certificates may be purchased by a Plan.
Any Plan fiduciary considering whether to purchase any Class of
the Class A Certificates on behalf of a Plan should consult with
its counsel regarding the applicability of the provisions of ERISA
and the Code. The Subordinated Offered Certificates may not be
purchased by Plans except as provided herein. See 'ERISA
Considerations' herein and in the Prospectus.
Legal Investment............................. None of the Offered Fixed Rate Certificates will constitute
mortgage-related securities for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ('SMMEA'). With respect to the
Offered Adjustable Rate Certificates, the Class AV-1 Certificates
and the Class MV-1 Certificates will constitute 'mortgage related
securities' for purposes of SMMEA so long as they are rated in one
of the two highest 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. The Class MV-2 Certificates and the Class BV Certificates
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 of the issuance of the Offered Certificates that
each Class of Offered Certificates be assigned the ratings
designated below by [Moody's Investors Service, Inc. ('Moody's')
and Fitch IBCA, Inc. ('Fitch,' and together with Moody's, the
'Rating Agencies').]
</TABLE>
<TABLE>
<CAPTION>
[MOODY'S]
CLASS RATING [FITCH RATING]
----- ------------------ -----------------------
<S> <C> <C>
AF-1
AF-2
AF-3
AF-4
MF-1
MF-2
BF
AV-1
MV-1
MV-2
BV
</TABLE>
<TABLE>
<S> <C>
The security ratings of the Offered Certificates should be
evaluated independently from similar ratings on other types of
</TABLE>
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<TABLE>
<S> <C>
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 ratings assigned to the
Offered Adjustable Rate Certificates do not address the likelihood
of the payment of any Adjustable Rate Certificate Carryover. 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 any Class of 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 any Class of the Offered
Certificates could be lower than the respective ratings assigned
by the Rating Agencies. See 'Ratings' herein.
</TABLE>
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RISK FACTORS
Investors should consider the following risks in connection with the
purchase of the Offered Certificates.
Consequences of Owning Book-Entry Certificates. Issuance of the Offered
Certificates in book-entry form may reduce the liquidity of the Offered
Certificates in the secondary trading market since investors may be unwilling to
purchase Offered Certificates for which they cannot obtain physical
certificates. See 'Description of the Certificates -- Book-Entry Certificates'
herein and 'Risk Factors -- Book-Entry Registration' in the Prospectus.
Since transactions in the Offered Certificates can be effected only through
DTC, CEDEL, Euroclear, participating organizations, indirect participants and
certain banks, the ability of a Certificate Owner to pledge an Offered
Certificate to persons or entities that do not participate in the DTC, CEDEL or
Euroclear system may be limited due to lack of a physical certificate
representing the Offered Certificates. See 'Description of the
Certificates -- Book-Entry Certificates' herein and 'Risk Factors -- Book-Entry
Registration' in the Prospectus.
Certificate Owners may experience some delay in their receipt of
distributions of interest and principal on the Offered Certificates since such
distributions will be forwarded by the Trustee to DTC and DTC will credit such
distributions to the accounts of its Participants (as defined herein) which will
thereafter credit them to the accounts of Certificate Owners either directly or
indirectly through indirect participants. Certificate Owners will not be
recognized as Certificateholders of the Offered Certificates as such term is
used in the Pooling and Servicing Agreement, and Certificate Owners will be
permitted to exercise the rights of Offered Certificateholders only indirectly
through DTC and its Participants. See 'Description of the
Certificates -- Book-Entry Certificates' herein and 'Risk Factors -- Book-Entry
Registration' in the Prospectus.
Cash Flow Considerations and Risks. Even assuming that the Mortgaged
Properties provide adequate security for the Mortgage Loans, substantial delays
could be encountered in connection with the liquidation of Mortgage Loans that
are delinquent and resulting shortfalls in distributions to the
Certificateholders could occur. Further, liquidation expenses (such as legal
fees, real estate taxes, and maintenance and preservation expenses) will reduce
the security for such Mortgage Loans and thereby reduce the proceeds payable to
the Certificateholders. In the event any of the Mortgaged Properties fail to
provide adequate security for the related Mortgage Loans, the Offered
Certificates (particularly the most subordinate Classes) could experience a
loss.
Subordination -- Limited Protection Afforded to Offered Certificates. The
rights of the Class M-1 Certificates of each Certificate Group to receive
distributions with respect to the Mortgage Loans of the related Loan Group will
be subordinate to the rights of the Class A Certificates of such Certificate
Group to receive such distributions; the rights of the Class M-2 Certificates to
receive distributions with respect to the Mortgage Loans of the related Loan
Group will be subordinate to the rights of the Class A and the Class M-1
Certificates of such Certificate Group to receive such distributions; and the
rights of the Class B Certificates of such Certificate Group to receive
distributions with respect to the Mortgage Loans of the related Loan Group will
be subordinate to the rights of the Class A, Class M-1 and Class M-2
Certificates of such Certificate Group to receive such distributions. The Class
BI-IO Certificates and the Residual Certificates are subordinated to all Classes
of the Offered Certificates. The subordination of the Subordinated Certificates
of each Certificate Group relative to the Class A Certificates of such
Certificate Group (and of the more lower-ranking Classes of the Subordinated
Certificates of each Certificate Group to the higher-ranking Classes thereof) is
intended to enhance the likelihood of regular receipt by each holder of a
Certificate of relatively higher payment priority of the full amount of the
monthly distributions allocable to them, and to afford protection against
losses.
Subordination -- Allocation of Losses to Subordinated Offered Certificates.
If Realized Losses are incurred with respect to the Mortgage Loans in a Loan
Group to the extent that the aggregate Certificate Principal Balances of the
Offered Certificates of such Certificate Group exceed the Stated Principal
Balances of the Mortgage Loans in such Loan Group, the Certificate Principal
Balances of the Subordinated Offered Certificates of such Certificate Group will
be reduced in reverse order of seniority (first Class B, second Class M-2 and
third Class M-1) by the amount of the excess. Consequently, the yields to
maturity on the Mezzanine Certificates and Class B Certificates of each
Certificate Group will be sensitive, in varying degrees, to defaults on the
Mortgage Loans in such Loan Group (and the timing thereof). Investors should
fully consider the risks associated with an investment in the Mezzanine
Certificates or Class B Certificates, including the possibility that such
investors may not fully recover their initial investment as a result of Realized
Losses.
S-17
<PAGE>
<PAGE>
Overcollateralization Provisions. The operation of the
overcollateralization provisions of the Pooling and Servicing Agreement will
affect the weighted average life of the Certificates of each Certificate Group
and consequently the yield to maturity of such Certificates. Unless and until
the required amount of overcollateralization for such Certificate Group is
reached, Excess Cashflow (as defined herein) for the related Loan Group will be
applied as distributions of principal of the Class or Classes of Certificates of
such Certificate Group then entitled to distributions of principal, thereby
reducing the weighted average lives thereof. The actual required amount of
overcollateralization for a Certificate Group may change from Distribution Date
to Distribution Date pursuant to the terms set forth in the Pooling and
Servicing Agreement, producing uneven distributions of accelerated payments in
respect of principal for such Certificate Group. There can be no assurance as to
when or whether the required amount of overcollateralization for a Certificate
Group will be reached.
Excess Cashflow for a particular Loan Group generally is a function of the
excess of interest collected or advanced on the Mortgage Loans in such Loan
Group over the interest required to pay interest on the Certificates in the
related Certificate Group and certain Trust Fund expenses allocable to such
Certificate Group. Mortgage Loans with higher Net Mortgage Rates will contribute
more interest to the Excess Cashflow. Mortgage Loans with higher Net Mortgage
Rates may prepay faster than Mortgage Loans with relatively lower Net Mortgage
Rates in response to a given change in market interest rates. Any such
disproportionate prepayments of Mortgage Loans in a Loan Group with higher Net
Mortgage Rates may adversely affect the amount of Excess Cashflow for such Loan
Group.
As a result of the interaction of the foregoing factors, the effect of the
overcollateralization provisions on the weighted average life of a Class of
Offered Certificates may vary significantly over time. See 'Yield, Prepayment
and Maturity Considerations' herein and 'Yield and Prepayment Considerations' in
the Prospectus.
Prepayment Considerations and Risks. Each Loan Group'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' herein and 'Certain
Legal Aspects of the Loans -- Due-on-Sale Clauses' in the Prospectus for a
description of certain provisions of the Mortgage Loans that may affect the
prepayment experience thereof. The yield to maturity and weighted average life
of the Offered Certificates in each Certificate Group will be affected primarily
by the rate and timing of principal payments (including prepayments) of, and
losses on, the Mortgage Loans in the related Loan Group.
The yield to investors on the Offered Adjustable Rate Certificates will
also be sensitive to the level of One-Month LIBOR, the level of the Mortgage
Index and the additional limitations on the Pass-Through Rate as described
herein. Although all of the Adjustable Rate Mortgage Loans bear interest at
adjustable rates ('ARMs'), the interest rates on a majority of the ARMs will not
adjust for two years following origination. In addition, the yield to maturity
of the Offered Certificates purchased at a discount or premium will be more
sensitive to the rate and timing of payments thereon. Certificateholders should
consider, in the case of the Offered Certificates purchased at a discount, the
risk that a lower than anticipated rate of principal payments could result in an
actual yield that is lower than the anticipated yield and, in the case of the
Offered Certificates purchased at a premium, the risk that a faster than
anticipated rate of principal payments could result in an actual yield that is
lower than the anticipated yield. Because certain of the Mortgage Loans contain
prepayment penalties, the rate of principal payments may be less than the rate
of principal payments for mortgage loans which do not contain prepayment
penalties. No representation is made as to the anticipated rate of prepayments
on the Mortgage Loans, the amount and timing of losses thereon, the level of
One-Month LIBOR or the Mortgage Index or the resulting yield to maturity of any
Offered Certificates. Any reinvestment risks resulting from a faster or slower
incidence of payments on the Mortgage Loans will be borne entirely by the
Offered Certificateholders as described herein. See 'Yield, Prepayment and
Maturity Considerations' herein and 'Yield and Prepayment Considerations' in the
Prospectus.
Certificate Ratings. The ratings of each Class of the Offered Certificates
will depend primarily on an assessment by the Rating Agencies of the Mortgage
Loans as well as the structure of the transaction. The ratings
S-18
<PAGE>
<PAGE>
by the Rating Agencies of any Class of Offered Certificates is not a
recommendation to purchase, hold or sell any Offered Certificates, inasmuch as
such ratings do 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 each Class of
the Offered 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 trustee in bankruptcy
of Countrywide may attempt to recharacterize the sale of the Mortgage Loans as a
borrowing by Countrywide, secured by a pledge of the applicable Mortgage Loans.
If the trustee in bankruptcy decided to challenge such transfer, delays in
payments of the Offered Certificates and reductions in the amounts thereof could
occur. The Depositor will warrant in the Pooling and Servicing Agreement that
the transfer of the Mortgage Loans by it to the Trust Fund is either a valid
transfer and assignment of such Mortgage Loans to the Trust Fund or the grant to
the Trust Fund of a security interest in such Mortgage Loans.
In the event of a bankruptcy or insolvency of the Master Servicer, the
bankruptcy trustee or receiver may have the power to prevent the Trustee or the
Class A Certificateholders from appointing a successor Master Servicer.
Geographic Concentration. As of the Statistic Calculation Date
approximately % of the Statistic Calculation Date Fixed Rate Mortgage Loans
and approximately % of the Statistic Calculation Date Adjustable Rate
Mortgage Loans were secured by Mortgaged Properties 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 such Mortgage Loans, the rates of
losses on such Mortgage Loans would be expected to increase, and could increase
substantially.
Delinquent Mortgage Loans. The Trust Fund may include Mortgage Loans which
are 59 or fewer days delinquent as of the Cut-off Date. It is expected that not
more than % of the Mortgage Loans (by Cut-off Date Principal Balance) will be
between 30 days and 59 days delinquent. As of the Statistic Calculation Date, 6
of the Statistic Calculation Fixed Rate Mortgage Loans (representing % of
all Statistic Calculation Fixed Rate Mortgage Loans) and Statistic Calculation
Adjustable Rate Mortgage Loans (representing % of all Statistic Calculation
Adjustable Rate Mortgage Loans) were more than 30 days delinquent. [None of the
Statistic Calculation Pool Mortgage Loans were contractually delinquent for more
than 59 days as of the Statistic Calculation Date.] If there are not sufficient
funds from amounts collected on the Mortgage Loans, the aggregate amount of
principal returned to any Class of Offered Certificateholders may be less than
the Certificate Principal Balance thereof on the day the such Class of Offered
Certificates were issued.
For a discussion of additional risks pertaining to the Offered
Certificates, see 'Risk Factors' in the Prospectus.
S-19
<PAGE>
<PAGE>
THE MORTGAGE POOL
GENERAL
The following discussion applies to the origination, sales and servicing
practices of [Countrywide] in effect at the time of the origination of the
Mortgage Loans.
Certain information with respect to the Statistic Calculation Pool Mortgage
Loans expected to be included in the Mortgage Pool is set forth below. Unless
otherwise indicated, information presented herein with respect to the Statistic
Calculation Fixed Rate Mortgage Loans and the Statistic Calculation Adjustable
Rate Mortgage Loans is based on the Statistic Calculation Principal Balances
thereof as of the Statistic Calculation Date. A detailed description of the
Mortgage Loans actually delivered (the 'Detailed Description') 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 Detailed Description will specify the aggregate of the
Stated Principal Balances of the Mortgage Loans included in the Trust Fund as of
the Cut-off Date (the 'Cut-off Date Pool Principal Balance'), will specify the
Stated Principal Balance of all Fixed Rate Mortgage Loans as of the Cut-off Date
(the 'Fixed Rate Cut-off Date Principal Balance') and the Stated Principal
Balances of all Adjustable Rate Mortgage Loans as of the Cut-off Date (the
'Adjustable Rate Cut-off Date Principal Balance' and collectively with the Fixed
Rate Cut-off Date Principal Balance, the 'Cut-off Date Principal Balance') and
will also include, among other things, the following information regarding the
Mortgage Loans in each Mortgage Loan Group: the Mortgage Rates borne by such
Mortgage Loans as of the Cut-off Date, the Combined Loan-to-Value Ratios or
Loan-to-Value Ratios, as applicable, of such Mortgage Loans, the remaining term
to scheduled maturity of such Mortgage Loans, the type of properties securing
such Mortgage Loans and the geographical distribution of such Mortgage Loans by
state, in each case as of the Cut-off Date.
All of the Mortgage Loans will provide for the amortization of the amount
financed over a series of monthly payments and will provide for payments due as
of the first day of each month. [The Mortgage Loans to be included in the Trust
Fund will have been originated or purchased by Countrywide Home Loans, Inc.
('Countrywide') and will have been originated substantially in accordance with
Countrywide's underwriting criteria for sub-prime ('B&C') quality mortgage loans
described herein under ' -- Underwriting Standards -- B&C Quality Mortgage
Loans.'] Sub-prime mortgage loans are generally mortgage loans made to borrowers
with prior credit difficulties.
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 will
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 Statistic Calculation Fixed Rate Mortgage Loans and % of the
Statistic Calculation Adjustable Rate Mortgage Loans provide for the payment by
the borrower of a prepayment charge in limited circumstances on full prepayments
typically made within five years from the date of execution of the related
Mortgage Note. In general, the related Mortgage Note will provide that a
prepayment charge will apply if, during the first five years from the date of
origination of such Mortgage Loan, the borrower prepays such Mortgage Loan in
full. The amount of the prepayment charge will generally be equal to 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.
Substantially all of the Adjustable Rate Mortgage Loans will have a
Mortgage Rate which is subject to semi-annual adjustment on the first day of the
months specified in the related Mortgage Note (each such date, an 'Adjustment
Date') to equal the sum, rounded to the nearest 0.125%, of (i) the average of
the London interbank offered rates for six-month U.S. dollar deposits in the
London market, as set forth in The Wall Street Journal, or, if such rate ceases
to be published in The Wall Street Journal or becomes unavailable for any
reason, then based upon a new index selected by the Trustee, as holder of the
related Mortgage Note, based on comparable information, in each case as most
recently announced as of a date 45 days prior to such Adjustment Date (the
'Mortgage Index'), and (ii) a fixed percentage amount specified in the related
Mortgage Note (the 'Gross Margin'); provided, however, that the Mortgage Rate
will not increase or decrease by more than % on any Adjustment Date (the
'Periodic Rate Cap'). Substantially all of the Statistic Calculation Adjustable
Rate Mortgage Loans were originated with Mortgage Rates less than the sum of the
then applicable Mortgage Index
S-20
<PAGE>
<PAGE>
and the related Gross Margin. Approximately % of the Statistic Calculation
Adjustable Rate Mortgage Loans have fixed Mortgage Rates for approximately
months (the '2/28 Mortgage Loans') after origination thereof before becoming
subject to the semi-annual adjustment described in the preceding sentences.
Substantially all of the Statistic Calculation Adjustable Rate Mortgage Loans
will provide that over the life of each such Adjustable Rate Mortgage Loan the
Mortgage Rate will in no event be more than the initial Mortgage Rate plus %
(the 'Maximum Mortgage Rate'). Substantially all of the Statistic Calculation
Adjustable Rate Mortgage Loans provide that in no event will the Mortgage Rate
for each such Adjustable Rate Mortgage Loan be less than the initial Mortgage
Rate (such rate, the 'Adjustable Rate Minimum Mortgage Rate'). Effective with
the first payment due on a Adjustable Rate Mortgage Loan after each related
Adjustment Date, the monthly payment will be adjusted to an amount which will
fully amortize the outstanding principal balance of the Mortgage Loan over its
remaining term.
The Statistic Calculation Date Pool Balance is $ , which is
equal to the aggregate Principal Balance of the Statistic Calculation Pool
Mortgage Loans as of the Statistic Calculation Date. As of the Statistic
Calculation Date, of the Statistic Calculation Fixed Rate Mortgage Loans
(representing % of all Statistic Calculation Fixed Rate Mortgage Loans) and
Statistic Calculation Adjustable Rate Mortgage Loans (representing % of
all Statistic Calculation Adjustable Rate Mortgage Loans) were more than 30 days
delinquent. [None of the Statistic Calculation Pool Mortgage Loans were
contractually delinquent for more than 59 days as of the Statistic Calculation
Date.]
Fixed Rate Mortgage Loan Group. The aggregate of the Statistic Calculation
Principal Balances for the Fixed Rate Mortgage Loan Group is $ , which
is equal to the aggregate Stated Principal Balance of the Statistic Calculation
Fixed Rate Mortgage Loans as of the Statistic Calculation Date. The average
Statistic Calculation Date Principal Balance of the Statistic Calculation Fixed
Rate Mortgage Loans was $ , the minimum Statistic Calculation Date
Principal Balance was $ , the maximum Statistic Calculation Date Principal
Balance was $ . The minimum Mortgage Rate and the maximum Mortgage Rate
as of the Statistic Calculation Date were % and % per annum,
respectively, and the weighted average Mortgage Rate as of the Statistic
Calculation Date was approximately % per annum. The remaining term to
scheduled maturity for the Statistic Calculation Fixed Rate Mortgage Loans as of
the Statistic Calculation Date ranged from months to months and the
weighted average remaining term to scheduled maturity was approximately
months. As of the Statistic Calculation Date, approximately % of the
Statistic Calculation Fixed Rate Mortgage Loans were secured by Mortgaged
Properties which are single-family detached residences and % were
owner-occupied. As of the Statistic Calculation Date, approximately %,
% and % of the Statistic Calculation Fixed Rate Mortgage Loans are
secured by Mortgaged Properties located in , and
respectively. As of the Statistic Calculation Date, approximately % of the
Statistic Calculation Fixed Rate Mortgage Loans were underwritten pursuant to
Countrywide's Stated Income Program.
Adjustable Rate Mortgage Loan Group. The aggregate of the Statistic
Calculation Principal Balances for the Adjustable Rate Mortgage Loan Group is
$ , which is equal to the aggregate Stated Principal Balance of the
Statistic Calculation Adjustable Rate Mortgage Loans as of the Statistic
Calculation Date. The average Statistic Calculation Date Principal Balance of
the Statistic Calculation Adjustable Rate Mortgage Loans was approximately
$ , the minimum Statistic Calculation Date Principal Balance was $ ,
the maximum Statistic Calculation Date Principal Balance was $ . The
minimum current Mortgage Rate and the maximum current Mortgage Rate as of the
Statistic Calculation Date were approximately % and % per annum,
respectively, and the weighted average Mortgage Rate was approximately %
per annum. The remaining term to scheduled maturity for the Statistic
Calculation Adjustable Rate Mortgage Loans ranged from to months and the
weighted average remaining term to scheduled maturity was approximately
months. As of the Statistic Calculation Date, approximately % of the
Statistic Calculation Adjustable Rate Mortgage Loans were secured by Mortgaged
Properties which are single-family detached residences and % were
owner-occupied. As of the Statistic Calculation Date, approximately %, %
and % of the Statistic Calculation Adjustable Rate Mortgage Loans by
Statistic Calculation Date Principal Balance are secured by Mortgaged Properties
located in , and , respectively. As of the Statistic
Calculation Date, approximately % of the Statistic Calculation Adjustable
Rate Mortgage Loans were underwritten pursuant to [Countrywide's Stated Income
Program].
S-21
<PAGE>
<PAGE>
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 'Combined Loan-to-Value
Ratio' of a Mortgage Loan at any given time is the ratio, expressed as a
percentage, of (i) the sum of (a) the original principal balance of the Mortgage
Loan and (b) the outstanding principal balance at the date of origination of the
Mortgage 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 Mortgage Loan, to (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. The weighted average Combined
Loan-to-Value Ratio as of the Statistic Calculation Date for the Statistic
Calculation Fixed Rate Mortgage Loans was %, and the weighted average
Loan-to-Value Ratio for the Statistic Calculation Adjustable Rate Mortgage Loans
was %.
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 $ aggregate Principal Balance of Mortgage Loans
(representing $ aggregate Principal Balance of Fixed Rate Mortgage
Loans and $ aggregate Principal Balance of Adjustable Rate 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.
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 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.
MORTGAGE LOANS
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. The sum of the
columns below may not equal the total indicated due to rounding.
S-22
<PAGE>
<PAGE>
FIXED RATE LOAN GROUP
<TABLE>
<CAPTION>
CURRENT MORTGAGE RATES FOR THE FIXED RATE
MORTGAGE LOAN GROUP(1)
- --------------------------------------------------------------
AGGREGATE PERCENT
NUMBER OF PRINCIPAL OF
RANGE OF CURRENT MORTGAGE BALANCE LOAN
MORTGAGE RATES (%) LOANS OUTSTANDING GROUP
- --------------------------------------------------------------
<S> <C> <C> <C>
6.751 - 7.000.............
7.001 - 7.250.............
7.251 - 7.500.............
7.501 - 7.750.............
7.751 - 8.000.............
8.001 - 8.250.............
8.251 - 8.500.............
8.501 - 8.750.............
8.751 - 9.000.............
9.001 - 9.250.............
9.251 - 9.500.............
9.501 - 9.750.............
9.751 - 10.000.............
10.001 - 10.250.............
10.251 - 10.500.............
10.501 - 10.750.............
10.751 - 11.000.............
11.001 - 11.250.............
11.251 - 11.500.............
11.501 - 11.750.............
11.751 - 12.000.............
12.001 - 12.250.............
12.251 - 12.500.............
12.501 - 12.750.............
12.751 - 13.000.............
13.001 - 13.250.............
13.251 - 13.500.............
13.501 - 13.750.............
13.751 - 14.000.............
14.001 - 14.250.............
14.251 - 14.500.............
14.501 - 14.750.............
14.751 - 15.000.............
15.251 - 15.500.............
15.501 - 15.750.............
--------- -------------- -------
Total.................... $ 100.00%
--------- -------------- -------
--------- -------------- -------
</TABLE>
- ------------
(1) As of the Statistic Calculation Date, the weighted average Mortgage Rate of
the Statistic Calculation Date Fixed Rate Mortgage Loans was approximately
% per annum.
<TABLE>
<CAPTION>
COMBINED LOAN-TO-VALUE RATIOS FOR THE FIXED RATE
MORTGAGE LOAN GROUP(1)
- --------------------------------------------------------------
AGGREGATE PERCENT
NUMBER OF PRINCIPAL OF
RANGE OF COMBINED MORTGAGE BALANCE LOAN
LOAN-TO-VALUE RATIOS (%) LOANS OUTSTANDING GROUP
- --------------------------------------------------------------
<S> <C> <C> <C>
5.001 - 10.000............
10.001 - 15.000............
15.001 - 20.000............
20.001 - 25.000............
25.001 - 30.000............
30.001 - 35.000............
35.001 - 40.000............
40.001 - 45.000............
45.001 - 50.000............
50.001 - 55.000............
55.001 - 60.000............
60.001 - 65.000............
65.001 - 70.000............
70.001 - 75.000............
75.001 - 80.000............
80.001 - 85.000............
85.001 - 90.000............
90.001 - 95.000............
95.001 - 100.000............
--------- -------------- -------
Total.................... $ 100.00%
--------- -------------- -------
--------- -------------- -------
</TABLE>
- ------------
(1) As of the Statistic Calculation Date, the weighted average Combined
Loan-to-Value Ratio of the Statistic Calculation Date Fixed Rate Mortgage
Loans was approximately %.
<PAGE>
<TABLE>
<CAPTION>
CURRENT MORTGAGE LOAN PRINCIPAL BALANCE FOR THE FIXED RATE
MORTGAGE LOAN GROUP(1)
- --------------------------------------------------------------
AGGREGATE PERCENT
RANGE OF CURRENT NUMBER OF PRINCIPAL OF
MORTGAGE LOAN MORTGAGE BALANCE LOAN
PRINCIPAL BALANCES ($) LOANS OUTSTANDING GROUP
- --------------------------------------------------------------
<S> <C> <C> <C>
5,000.01 - 10,000.00......
10,000.01 - 15,000.00.....
15,000.01 - 20,000.00.....
20,000.01 - 25,000.00.....
25,000.01 - 30,000.00.....
30,000.01 - 35,000.00.....
35,000.01 - 40,000.00.....
40,000.01 - 45,000.00.....
45,000.01 - 50,000.00.....
50,000.01 - 55,000.00.....
55,000.01 - 60,000.00.....
60,000.01 - 65,000.00.....
65,000.01 - 70,000.00.....
70,000.01 - 75,000.00.....
75,000.01 - 80,000.00.....
80,000.01 - 85,000.00.....
85,000.01 - 90,000.00.....
90,000.01 - 95,000.00.....
95,000.01 - 100,000.00.....
100,000.01 - 105,000.00.....
105,000.01 - 110,000.00.....
110,000.01 - 115,000.00.....
115,000.01 - 120,000.00.....
120,000.01 - 125,000.00.....
125,000.01 - 130,000.00.....
130,000.01 - 135,000.00.....
135,000.01 - 140,000.00.....
140,000.01 - 145,000.00.....
145,000.01 - 150,000.00.....
150,000.01 - 200,000.00.....
200,000.01 - 250,000.00.....
250,000.01 - 300,000.00.....
300,000.01 - 350,000.00.....
350,000.01 - 400,000.00.....
400,000.01 - 450,000.00.....
--------- -------------- -------
Total.................... $ 100.00%
--------- -------------- -------
--------- -------------- -------
</TABLE>
- ------------
(1) As of the Statistic Calculation Date, the average current Statistic
Calculation Date Fixed Rate Mortgage Loan principal balance was
approximately $ .
<TABLE>
<CAPTION>
STATE DISTRIBUTIONS OF FIXED RATE MORTGAGED PROPERTIES*
- --------------------------------------------------------------
AGGREGATE PERCENT
NUMBER OF PRINCIPAL OF
MORTGAGE BALANCE LOAN
STATE LOANS OUTSTANDING GROUP
- --------------------------------------------------------------
<S> <C> <C> <C>
California..................
Washington..................
Florida.....................
Ohio........................
Hawaii......................
Michigan....................
Utah........................
Louisiana...................
Oregon......................
Arizona.....................
Indiana.....................
New York....................
Texas.......................
Tennessee...................
Colorado....................
Georgia.....................
Pennsylvania................
Wisconsin...................
Montana.....................
Other.......................
--------- -------------- -------
Total.................... $ 100.00%
--------- -------------- -------
--------- -------------- -------
</TABLE>
- ------------
* Other includes states which have a concentration of less than %.
S-23
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TYPE OF MORTGAGED PROPERTIES FOR THE FIXED RATE
MORTGAGE LOAN GROUP
- --------------------------------------------------------------
AGGREGATE PERCENT
NUMBER OF PRINCIPAL OF
MORTGAGE BALANCE LOAN
PROPERTY TYPE LOANS OUTSTANDING GROUP
- --------------------------------------------------------------
<S> <C> <C> <C>
2-4 Family..................
High-Rise Condo.............
Low-Rise Condo..............
PUD.........................
Single-family...............
--------- -------------- -------
Total.................... $ 100.00%
--------- -------------- -------
--------- -------------- -------
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY TYPES FOR THE FIXED RATE
MORTGAGE LOAN GROUP(1)
- --------------------------------------------------------------
AGGREGATE PERCENT
NUMBER OF PRINCIPAL OF
MORTGAGE BALANCE LOAN
OCCUPANCY TYPE LOANS OUTSTANDING GROUP
- --------------------------------------------------------------
<S> <C> <C> <C>
Vacation/Second Home........
Non-Owner Occupied..........
Owner Occupied..............
--------- -------------- -------
Total.................... $ 100.00%
--------- -------------- -------
--------- -------------- -------
</TABLE>
- ------------
(1) Based upon representations of the related mortgagors at the time of
origination.
<TABLE>
<CAPTION>
REMAINING MONTHS TO STATED MATURITY FOR THE FIXED RATE
MORTGAGE LOAN GROUP(1)
- --------------------------------------------------------------
AGGREGATE PERCENT
NUMBER OF PRINCIPAL OF
MORTGAGE BALANCE LOAN
REMAINING TERM LOANS OUTSTANDING GROUP
- --------------------------------------------------------------
<S> <C> <C> <C>
109 - 120...................
169 - 180...................
229 - 240...................
349 - 360...................
--------- -------------- -------
Total.................... $ 100.00%
--------- -------------- -------
--------- -------------- -------
</TABLE>
- ------------
(1) As of the Statistic Calculation Date, the weighted average remaining months
to scheduled maturity was approximately months.
<TABLE>
<CAPTION>
FIXED RATE MORTGAGE LOAN GROUP BY LOAN PURPOSE
- --------------------------------------------------------------
AGGREGATE PERCENT
NUMBER OF PRINCIPAL OF
MORTGAGE BALANCE LOAN
LOANS OUTSTANDING GROUP
- --------------------------------------------------------------
<S> <C> <C> <C>
Refinance-Cashout...........
Purchase....................
Refinance-Rate/Term.........
--------- -------------- -------
Total.................... $ 100.00%
--------- -------------- -------
--------- -------------- -------
</TABLE>
S-24
<PAGE>
<PAGE>
ADJUSTABLE RATE LOAN GROUP
<TABLE>
<CAPTION>
CURRENT MORTGAGE RATES FOR THE ADJUSTABLE RATE
MORTGAGE LOAN GROUP(1)
- --------------------------------------------------------------
AGGREGATE PERCENT
NUMBER OF PRINCIPAL OF
RANGE OF CURRENT MORTGAGE BALANCE LOAN
MORTGAGE RATES (%) LOANS OUTSTANDING GROUP
- --------------------------------------------------------------
<S> <C> <C> <C>
4.501 - 4.750............
4.751 - 5.000............
5.001 - 5.250............
5.251 - 5.500............
5.501 - 5.750............
5.751 - 6.000............
6.001 - 6.250............
6.251 - 6.500............
6.501 - 6.750............
6.751 - 7.000............
7.001 - 7.250............
7.251 - 7.500............
7.501 - 7.750............
7.751 - 8.000............
8.001 - 8.250............
8.251 - 8.500............
8.501 - 8.750............
8.751 - 9.000............
9.001 - 9.250............
9.251 - 9.500............
9.501 - 9.750............
9.751 - 10.000............
10.001 - 10.250............
10.251 - 10.500............
10.501 - 10.750............
10.751 - 11.000............
11.001 - 11.250............
11.251 - 11.500............
11.501 - 11.750............
11.751 - 12.000............
12.001 - 12.250............
12.251 - 12.500............
12.501 - 12.750............
13.001 - 13.250............
13.251 - 13.500............
13.751 - 14.000............
14.001 - 14.250............
--------- --------------- -------
Total................... $ 100.00%
--------- --------------- -------
--------- --------------- -------
</TABLE>
- ------------
(1) As of the Statistic Calculation Date, the weighted average Mortgage Rate of
the Statistic Calculation Date Adjustable Rate Mortgage Loans was
approximately % per annum.
<TABLE>
<CAPTION>
GROSS MARGINS FOR ADJUSTABLE RATE MORTGAGE LOAN GROUP(1)
- --------------------------------------------------------------
AGGREGATE PERCENT
NUMBER OF PRINCIPAL OF
MORTGAGE BALANCE LOAN
RANGE OF GROSS MARGINS (%) LOANS OUTSTANDING GROUP
- --------------------------------------------------------------
<S> <C> <C> <C>
2.501 - 3.000.............
4.001 - 4.500.............
4.501 - 5.000.............
5.001 - 5.500.............
5.501 - 6.000.............
6.001 - 6.500.............
6.501 - 7.000.............
7.001 - 7.500.............
7.501 - 8.000.............
8.001 - 8.500.............
8.501 - 9.000.............
9.501 - 10.000.............
--------- --------------- -------
Total................... $ 100.00%
--------- --------------- -------
--------- --------------- -------
</TABLE>
- ------------
(1) As of the Statistic Calculation Date, the weighted average Gross Margin of
the Statistic Calculation Date Adjustable Rate Mortgage Loans was
approximately %.
<PAGE>
<TABLE>
<CAPTION>
MAXIMUM RATES FOR THE ADJUSTABLE RATE MORTGAGE LOAN GROUP(1)
- --------------------------------------------------------------
AGGREGATE PERCENT
NUMBER OF PRINCIPAL OF
RANGE OF MORTGAGE BALANCE LOAN
MAXIMUM RATES (%) LOANS OUTSTANDING GROUP
- --------------------------------------------------------------
<S> <C> <C> <C>
11.501 - 12.000............
12.001 - 12.500............
12.501 - 13.000............
13.001 - 13.500............
13.501 - 14.000............
14.001 - 14.500............
14.501 - 15.000............
15.001 - 15.500............
15.501 - 16.000............
16.001 - 16.500............
16.501 - 17.000............
17.001 - 17.500............
17.501 - 18.000............
18.001 - 18.500............
18.501 - 19.000............
19.001 - 19.500............
19.501 - 20.000............
20.001 - 20.500............
20.501 - 21.000............
--------- --------------- -------
Total................... $ 100.00%
--------- --------------- -------
--------- --------------- -------
</TABLE>
- ------------
(1) As of the Statistic Calculation Date, the weighted average Maximum Rate of
the Statistic Calculation Date Adjustable Rate Mortgage Loans was
approximately % per annum.
<TABLE>
<CAPTION>
CURRENT MORTGAGE LOAN
PRINCIPAL BALANCES FOR THE ADJUSTABLE
RATE MORTGAGE LOAN GROUP(1)
- --------------------------------------------------------------
AGGREGATE PERCENT
RANGE OF NUMBER OF PRINCIPAL OF
CURRENT MORTGAGE LOAN MORTGAGE BALANCE LOAN
PRINCIPAL BALANCES ($) LOANS OUTSTANDING GROUP
- --------------------------------------------------------------
<S> <C> <C> <C>
10,000.01 - 15,000.00....
15,000.01 - 20,000.00....
20,000.01 - 25,000.00....
25,000.01 - 30,000.00....
30,000.01 - 35,000.00....
35,000.01 - 40,000.00....
40,000.01 - 45,000.00....
45,000.01 - 50,000.00....
50,000.01 - 55,000.00....
55,000.01 - 60,000.00....
60,000.01 - 65,000.00....
65,000.01 - 70,000.00....
70,000.01 - 75,000.00....
75,000.01 - 80,000.00....
80,000.01 - 85,000.00....
85,000.01 - 90,000.00....
90,000.01 - 95,000.00....
95,000.01 - 100,000.00....
100,000.01 - 105,000.00....
105,000.01 - 110,000.00....
110,000.01 - 115,000.00....
115,000.01 - 120,000.00....
120,000.01 - 125,000.00....
125,000.01 - 130,000.00....
130,000.01 - 135,000.00....
135,000.01 - 140,000.00....
140,000.01 - 145,000.00....
145,000.01 - 150,000.00....
150,000.01 - 200,000.00....
200,000.01 - 250,000.00....
250,000.01 - 300,000.00....
300,000.01 - 350,000.00....
350,000.01 - 400,000.00....
400,000.01 - 450,000.00....
450,000.01 - 500,000.00....
500,000.01 - 550,000.00....
550,000.01 - 600,000.00....
650,000.01 - 700,000.00....
--------- --------------- -------
Total................... $ 100.00%
--------- --------------- -------
--------- --------------- -------
</TABLE>
- ------------
(1) As of the Statistic Calculation Date, the average current Statistic
Calculation Date Adjustable Rate Mortgage Loan principal balance was
approximately $ .
S-25
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
MINIMUM MORTGAGE RATES FOR ADJUSTABLE RATE
MORTGAGE LOAN GROUP(1)
- --------------------------------------------------------------
AGGREGATE PERCENT
RANGE OF NUMBER OF PRINCIPAL OF
MINIMUM INTEREST MORTGAGE BALANCE LOAN
RATES (%) LOANS OUTSTANDING GROUP
- --------------------------------------------------------------
<S> <C> <C> <C>
4.501 - 5.000............
5.001 - 5.500............
5.501 - 6.000............
6.001 - 6.500............
6.501 - 7.000............
7.001 - 7.500............
7.501 - 8.000............
8.001 - 8.500............
8.501 - 9.000............
9.001 - 9.500............
9.501 - 10.000............
10.001 - 10.500............
10.501 - 11.000............
11.001 - 11.500............
11.501 - 12.000............
12.001 - 12.500............
12.501 - 13.000............
13.001 - 13.500............
13.501 - 14.000............
14.001 - 14.500............
--------- --------------- -------
Total................... $ 100.00%
--------- --------------- -------
--------- --------------- -------
</TABLE>
- ------------
(1) As of the Statistic Calculation Date, the weighted average Minimum Rate of
the Statistic Calculation Date Adjustable Rate Mortgage Loans was
approximately % per annum.
<TABLE>
<CAPTION>
LOAN-TO-VALUE RATIO FOR THE ADJUSTABLE RATE
MORTGAGE LOAN GROUP(1)
- --------------------------------------------------------------
AGGREGATE PERCENT
RANGE OF NUMBER OF PRINCIPAL OF
LOAN-TO-VALUE MORTGAGE BALANCE LOAN
RATIOS (%) LOANS OUTSTANDING GROUP
- --------------------------------------------------------------
<S> <C> <C> <C>
5.001 - 10.000............
15.001 - 20.000............
20.001 - 25.000............
25.001 - 30.000............
30.001 - 35.000............
35.001 - 40.000............
40.001 - 45.000............
45.001 - 50.000............
50.001 - 55.000............
55.001 - 60.000............
60.001 - 65.000............
65.001 - 70.000............
70.001 - 75.000............
75.001 - 80.000............
80.001 - 85.000............
85.001 - 90.000............
90.001 - 95.000............
--------- --------------- -------
Total................... $ 100.00%
--------- --------------- -------
--------- --------------- -------
</TABLE>
- ------------
(1) As of the Statistic Calculation Date, the weighted average Loan-to-Value
Ratio of the Statistic Calculation Date Adjustable Rate Mortgage Loans was
approximately %.
<PAGE>
<TABLE>
<CAPTION>
STATE DISTRIBUTION OF ADJUSTABLE RATE MORTGAGED PROPERTIES*
- --------------------------------------------------------------
AGGREGATE PERCENT
NUMBER OF PRINCIPAL OF
MORTGAGED BALANCE LOAN
STATE LOANS OUTSTANDING GROUP
- --------------------------------------------------------------
<S> <C> <C> <C>
California.................
Washington.................
Ohio.......................
Florida....................
Michigan...................
Illinois...................
Utah.......................
Wisconsin..................
Colorado...................
Arizona....................
Texas......................
New Jersey.................
Pennsylvania...............
Indiana....................
North Carolina.............
Idaho......................
Oregon.....................
Georgia....................
Other......................
--------- --------------- -------
Total................... $ 100.00%
--------- --------------- -------
--------- --------------- -------
</TABLE>
- ------------
* Other includes states which have a concentration of less than %.
<TABLE>
<CAPTION>
INITIAL FIXED RATE PERIOD
- --------------------------------------------------------------
AGGREGATE PERCENT
NUMBER OF PRINCIPAL OF
INITIAL FIXED RATE MORTGAGE BALANCE LOAN
PERIOD - (MONTHS) LOANS OUTSTANDING GROUP
- --------------------------------------------------------------
<S> <C> <C> <C>
6..........................
12.........................
24.........................
36.........................
60.........................
--------- --------------- -------
Total................... $ 100.00%
--------- --------------- -------
--------- --------------- -------
</TABLE>
<TABLE>
<CAPTION>
NEXT ADJUSTMENT DATE - 2/28 MORTGAGE LOANS
- -------------------------------------------------------------
AGGREGATE PERCENT
NUMBER OF PRINCIPAL OF 2/28
MORTGAGE BALANCE MORTGAGE
NEXT ADJUSTMENT DATE LOANS OUTSTANDING LOANS
- -------------------------------------------------------------
<S> <C> <C> <C>
.................
.................
.................
.................
.................
.................
.................
.................
.................
.................
--------- --------------- --------
Total................. $ 100.00%
--------- --------------- --------
--------- --------------- --------
</TABLE>
S-26
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
NEXT ADJUSTMENT DATE - NON-2/28 MORTGAGE LOANS
- -------------------------------------------------------------
PERCENT
AGGREGATE OF NON
NUMBER OF PRINCIPAL 2/28
MORTGAGE BALANCE MORTGAGE
NEXT ADJUSTMENT DATE LOANS OUTSTANDING LOANS
- -------------------------------------------------------------
<S> <C> <C> <C>
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
--------- -------------- --------
Total.................. $ 100.00%
--------- -------------- --------
--------- -------------- --------
</TABLE>
<TABLE>
<CAPTION>
TYPE OF MORTGAGED PROPERTIES FOR THE ADJUSTABLE RATE
MORTGAGE LOAN GROUP
- --------------------------------------------------------------
AGGREGATE PERCENT
NUMBER OF PRINCIPAL OF
MORTGAGE BALANCE LOAN
PROPERTY TYPE LOANS OUTSTANDING GROUP
- --------------------------------------------------------------
<S> <C> <C> <C>
2-4 Family.................
High-Rise Condo............
Low-Rise Condo.............
PUD........................
Single-family..............
--------- --------------- -------
Total................... $ 100.00%
--------- --------------- -------
--------- --------------- -------
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY TYPES FOR THE ADJUSTABLE RATE MORTGAGE LOAN GROUP(1)
- --------------------------------------------------------------
AGGREGATE PERCENT
NUMBER OF PRINCIPAL OF
MORTGAGE BALANCE LOAN
OCCUPANCY TYPE LOANS OUTSTANDING GROUP
- --------------------------------------------------------------
<S> <C> <C> <C>
Vacation/Second Home.......
Non-Owner Occupied.........
Owner Occupied.............
--------- --------------- -------
Total................... $ 100.00%
--------- --------------- -------
--------- --------------- -------
</TABLE>
- ------------
(1) Based upon representation of the related mortgagors at the time of
origination.
<PAGE>
<TABLE>
<CAPTION>
REMAINING MONTHS TO STATED MATURITY FOR THE ADJUSTABLE RATE
MORTGAGE LOAN GROUP(1)
- --------------------------------------------------------------
AGGREGATE PERCENT
NUMBER OF PRINCIPAL OF
MORTGAGE BALANCE LOAN
REMAINING TERM LOANS OUTSTANDING GROUP
- --------------------------------------------------------------
<S> <C> <C> <C>
169 - 180..................
337 - 348..................
349 - 360..................
--------- --------------- -------
Total................... $ 100.00%
--------- --------------- -------
--------- --------------- -------
</TABLE>
- ------------
(1) As of the Statistic Calculation Date, the weighted average remaining months
to scheduled maturity was approximately months.
<TABLE>
<CAPTION>
ADJUSTABLE RATE MORTGAGE LOAN GROUP BY LOAN PURPOSE
- --------------------------------------------------------------
AGGREGATE PERCENT
NUMBER OF PRINCIPAL OF
MORTGAGE BALANCE LOAN
LOANS OUTSTANDING GROUP
- --------------------------------------------------------------
<S> <C> <C> <C>
Refinance - Cashout........
Purchase...................
Refinance - Rate/Term......
--------- --------------- -------
Total................... $ 100.00%
--------- --------------- -------
--------- --------------- -------
</TABLE>
S-27
<PAGE>
<PAGE>
ASSIGNMENT OF THE MORTGAGE LOANS
Pursuant to the Pooling and Servicing Agreement, the Depositor on the
Closing Date will sell, transfer, assign, set over and otherwise convey without
recourse to the Trustee in trust for the benefit of the Certificateholders all
right, title and interest of the Depositor in and to each Mortgage Loan and all
right, title and interest in and to all other assets included in the Trust Fund,
including all principal and interest received on or with respect to the Mortgage
Loans on and after the Cut-off Date, exclusive of principal due prior to the
Cut-off Date and interest accruing prior to .
In connection with such transfer and assignment, the Depositor will deliver
on the Closing Date the following documents (collectively constituting the
'Trustee's Mortgage File') with respect to each Mortgage Loan:
(i) the original Mortgage Note, endorsed by Countrywide or the
originator of the Mortgage Loan, without recourse in the following form:
'Pay to the order of without recourse,' with all
intervening endorsements that show a complete chain of endorsement from the
originator to Countrywide;
(ii) the original recorded Mortgage;
(iii) a duly executed assignment of the Mortgage to '
, a , as trustee
under the Pooling and Servicing Agreement dated as of , ,
CWABS, Inc., Asset-Backed Certificates, Series , without
recourse'; in recordable form, as described in the Pooling and Servicing
Agreement;
(iv) the original recorded assignment or assignments of the Mortgage
together with all interim recorded assignments of such Mortgage;
(v) the original or copies of each assumption, modification, written
assurance or substitution agreement, if any; and
(vi) the original or duplicate original lender's title policy and all
riders thereto or, in the event such original title policy has not been
received from the insurer, such original or duplicate original lender's
title policy and all riders thereto shall be delivered within one year of
the Closing Date.
Assignments of the Mortgage Loans to the Trustee (or its nominee) will be
recorded in the appropriate public office for real property records, except in
states (such as California) as to which an opinion of counsel is delivered to
the effect that such recording is not required to protect the Trustee's
interests in the Mortgage Loan against the claim of any subsequent transferee or
any successor to or creditor of the Depositor or the Seller. As to any Mortgage
Loan, the recording requirement exception described in the preceding sentence is
applicable only so long as the related Mortgage File is maintained in the
possession of the Trustee in one of the states to which such exception applies.
In the event any such assignment is delivered to the Trustee in blank and the
related Mortgage File is released by the Trustee pursuant to applicable
provisions of the Pooling and Servicing Agreement, the Trustee shall complete
such assignment as provided in subparagraph (iii) above prior to any such
release. In the event such recording is required to protect the interest of the
Trustee in the Mortgage Loans, the Master Servicer is required to cause each
previously unrecorded assignment to be submitted for recording.
The Trustee will review the Mortgage Loan documents on or prior to the
Closing Date and will hold such documents in trust for the benefit of the
holders of the Certificates. After the Closing Date, if any document is found to
be missing or defective in any material respect, the Trustee is required to
notify the Master Servicer and Countrywide in writing. If Countrywide cannot or
does not cure such omission or defect within 90 days of its receipt of notice
from the Trustee, Countrywide is required to repurchase the related Mortgage
Loan from the Trust Fund at a price (the 'Purchase Price') equal to 100% of the
Stated Principal Balance thereof plus accrued and unpaid interest thereon, at a
rate equal to the difference between the Mortgage Rate and the Servicing Fee
Rate (the 'Net Mortgage Rate') (or, if Countrywide is no longer the Master
Servicer, at the applicable Mortgage Rate) to the first day of the month in
which the Purchase Price is to be distributed to holders of the Certificates.
Rather than repurchase the Mortgage Loan as provided above, Countrywide may
remove such Mortgage Loan (a 'Deleted Mortgage Loan') from the Trust Fund and
substitute in its place another Mortgage Loan of like kind (a 'Replacement
Mortgage Loan'); however, such substitution is only permitted within two years
after the Closing Date, and may not be made unless an opinion of counsel is
provided to the effect that such substitution would not disqualify either REMIC
or result in a prohibited transaction tax under the Code. Any Replacement
Mortgage Loan generally will, on the date of substitution, among other
characteristics set forth in the Pooling
S-28
<PAGE>
<PAGE>
and Servicing Agreement, (i) have a Stated Principal Balance, after deduction of
the principal portion of the scheduled payment due in the month of substitution,
not in excess of, and not less than 90% of, the Stated Principal Balance of the
Deleted Mortgage Loan (the amount of any shortfall to be deposited by
Countrywide in the Certificate Account not later than the succeeding
Determination Date and held for distribution to the holders of the Certificates
on the related Distribution Date), (ii) have a Maximum Mortgage Rate not more
than 1% per annum higher or lower than the Maximum Mortgage Rate of the Deleted
Mortgage Loan, (iii) have a Minimum Mortgage Rate not more than 1% per annum
higher or lower than the Minimum Mortgage Rate of the Deleted Mortgage Loan,
(iv) have the same Mortgage Index and Periodic Rate Cap as the Deleted Mortgage
Loan and a Gross Margin not more than 1% per annum higher or lower than that of
the Deleted Mortgage Loan, (v) have the same or higher credit quality
characteristics than that of the Deleted Mortgage Loan, (vi) be accruing
interest at a rate not more than 1% per annum higher or lower than that of the
Deleted Mortgage Loan, (vii) have a Combined Loan-to-Value Ratio or
Loan-to-Value Ratio, as applicable, no higher than that of the Deleted Mortgage
Loan, (viii) have a remaining term to maturity not greater than (and not more
than one year less than) that of the Deleted Mortgage Loan, (ix) not permit
conversion of the Mortgage Rate from a fixed rate to a variable rate or vice
versa, (x) provide for a prepayment charge on terms substantially similar to
those of the prepayment charge, if any, of the Deleted Mortgage Loan, (xi)
constitute the same occupancy type as the Deleted Mortgage Loan, and (xii)
comply with all of the representations and warranties set forth in the Pooling
and Servicing Agreement as of the date of substitution. This cure, repurchase or
substitution obligation constitutes the sole remedy available to the
Certificateholders, the Trustee or the Depositor for omission of, or a material
defect in, a Mortgage Loan document.
UNDERWRITING STANDARDS
[B&C Quality Mortgage Loans. The following is a description of the
underwriting procedures customarily employed by Countrywide with respect to B&C
quality mortgage loans. Countrywide produces its B&C quality mortgage loans
through its Consumer Markets, Full Spectrum Lending, Correspondent Lending and
Wholesale Lending Divisions. 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. In general, the mortgage
loans are underwritten centrally by a specialized group of underwriters who are
familiar with the unique characteristics of B&C quality mortgage loans. In
general, Countrywide does not purchase any B&C quality mortgage loan that it has
not itself underwritten.
Countrywide's underwriting standards are primarily intended to evaluate the
value and adequacy of the mortgaged property as collateral for the proposed
mortgage loan but also take into consideration the borrower's credit standing
and repayment ability. On a case by case basis, Countrywide may determine that,
based upon compensating factors, a prospective borrower not strictly qualifying
under the underwriting risk category guidelines described below warrants an
underwriting exception. Compensating factors may include low loan-to-value
ratio, low debt-to-income ratio, stable employment and time in the same
residence. It is expected that a significant number of the Mortgage Loans
underwritten in accordance with Countrywide's B&C quality mortgage loan
underwriting guidelines, will have been originated based on such underwriting
exceptions.
Each prospective borrower completes an application which includes
information with respect to the applicant's assets, liabilities, income, credit
history and employment history, as well as certain other personal information.
If the loan-to-value ratio is greater than 70%, Countrywide generally verifies
the source of funds for the down-payment; Countrywide does not verify the source
of such funds if the loan-to-value ratio is 70% or less. Countrywide requires an
independent credit bureau report on the credit history of each applicant in
order to evaluate the applicant's ability to repay. The report typically
contains information relating to such matters as credit history with local and
national merchants and lenders, installment debt payments and any record of
defaults, bankruptcy, repossession, suits or judgments.
After obtaining all applicable employment, credit and property information,
Countrywide uses a debt-to-income ratio to assist in determining whether the
prospective borrower has sufficient monthly income available to support the
payments of principal and interest on the mortgage loan in addition to other
monthly credit obligations. The 'debt-to-income ratio' is the ratio of the
borrower's total monthly credit obligations to the borrower's gross monthly
income. The maximum monthly debt-to-income ratio varies depending upon a
borrower's credit grade and documentation level (as described below) but does
not generally exceed 55%. Variations in the monthly debt-to-income ratios limit
are permitted based on compensating factors.
S-29
<PAGE>
<PAGE>
Countrywide's underwriting standards are applied in accordance with
applicable federal and state laws and regulations and require an independent
appraisal of the mortgaged property which conforms to Federal Home Loan Mortgage
Corporation ('FHLMC') and Federal National Mortgage Corporation ('FNMA')
standards. Each appraisal includes a market data analysis based on recent sales
of comparable homes in the area and, where deemed appropriate, replacement cost
analysis based on the current cost of constructing a similar home and generally
is required to have been made not earlier than 180 days prior to the date of
origination of the mortgage loan. Every independent appraisal is reviewed by a
Countrywide representative before the loan is funded, and an additional drive-by
appraisal is generally performed in connection with loan amounts over $350,000
with 80% or higher loan-to-value ratios. A drive-by appraisal is an exterior
examination of the premises by the appraiser to determine that the property is
in good condition. In most cases, properties that are not in good condition
(including properties requiring major deferred maintenance) are not acceptable
as collateral for a B&C loan. The maximum loan amount varies depending upon a
borrower's credit grade and documentation level but does not generally exceed
$500,000. Variations in maximum loan amount limits are permitted based on
compensating factors.
Countrywide's underwriting standards permit first mortgage loans with
loan-to-value ratios at origination of up to 90% and second mortgage loans with
combined loan-to-value ratios at origination of up to 85% depending on the
program, type and use of the property, documentation level, creditworthiness of
the borrower and debt-to-income ratio.
Countrywide requires title insurance on all B&C quality mortgage loans.
Countrywide also requires that fire and extended coverage casualty insurance be
maintained on the mortgaged property in an amount at least equal to the
principal balance or the replacement cost of the mortgaged property, whichever
is less.
Countrywide's B&C mortgage loan underwriting standards are less stringent
than the standards generally acceptable to FNMA and FHLMC with regard to the
borrower's credit standing and repayment ability because the standards focus
more on the value of the mortgaged property. Borrowers who qualify generally
have payment histories and debt-to-income ratios which would not satisfy FNMA
and FHLMC underwriting guidelines and may have a record of major derogatory
credit items such as outstanding judgments or prior bankruptcies. Countrywide's
B&C mortgage loan underwriting guidelines establish the maximum permitted
loan-to-value ratio for each loan type based upon these and other risk factors
with more risk factors resulting in lower loan-to-value ratios.
Countrywide underwrites or originates B&C quality mortgage loans pursuant
to alternative sets of underwriting criteria under its Full Documentation Loan
Program (the 'Full Doc Program'), Simple Documentation Loan Program (the 'Simple
Doc Program') and Stated Income Loan Program (the 'Stated Income Program').
Under each of the underwriting programs, Countrywide verifies the loan
applicant's sources of income (except under the Stated Income Program),
calculates the amount of income from all sources indicated on the loan
application, reviews the credit history of the applicant, calculates the
debt-to-income ratio to determine the applicant's ability to repay the loan, and
reviews the appraisal of the mortgaged property for compliance with
Countrywide's underwriting standards.
The Simple Doc Program is an alternative documentation program whereby
income is verified using methods other than those employed by FNMA and FHLMC.
Under the Simple Doc Program, acceptable documentation of income consists of six
months' bank statements. In the case of self-employed individuals, acceptable
alternative documentation consists of a profit and loss statement supported by a
record of bank statements. Maximum loan-to-value ratios and maximum loan amounts
are generally lower than those permitted under the Full Doc Program.
Under the Stated Income Program, the borrower's employment and income
sources must be stated on the borrower's application. The borrower's income as
stated must be reasonable for the related occupation and such determination as
to reasonableness is subject to the loan underwriter's discretion. However, the
borrower's income as stated on the application is not independently verified.
Maximum loan-to-value ratios are generally lower than those permitted under the
Full Doc Program. Except as otherwise stated above, the same mortgage credit,
consumer credit and collateral related underwriting guidelines apply.
Under the Full Doc, Simple Doc, and Stated Income Programs, various risk
categories are used to grade the likelihood that the mortgagor will satisfy the
repayment conditions of the mortgage loan. These risk categories establish the
maximum permitted loan-to-value ratio, debt-to-income ratio and loan amount,
given the
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borrower's credit history, the occupancy status of the mortgaged property and
the type of mortgaged property. 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 THE MORTGAGE LOANS
GENERAL
The Master Servicer will service the Mortgage Loans in accordance with the
terms set forth in the Pooling and Servicing Agreement. The Master Servicer may
perform any of its obligations under the Pooling and Servicing Agreement through
one or more subservicers. Notwithstanding any such subservicing arrangement, the
Master Servicer will remain liable for its servicing duties and obligations
under the Pooling and Servicing Agreement as if the Master Servicer alone were
servicing the Mortgage Loans. As of the Closing Date, the Master Servicer will
service the Mortgage Loans without subservicing arrangements.
THE MASTER SERVICER
[Countrywide Home Loans, Inc. ('Countrywide'), a New York corporation and a
subsidiary of Countrywide Credit Industries, Inc., will act as the Master
Servicer of the Mortgage Loans pursuant to the Pooling and Servicing Agreement.
Countrywide is engaged primarily in the mortgage banking business, and as such,
originates, purchases, sells and services mortgage loans. Countrywide originates
mortgage loans through a retail branch system and through mortgage loan brokers
and correspondents nationwide. Countrywide's mortgage loans are principally
first-lien, fixed or adjustable rate mortgage loans secured by single-family
residences.
As of , Countrywide provided servicing for
approximately $ billion in B&C quality mortgages loans. As of
, 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 4500 Park
Granada, Calabasas, California 91302. Its telephone number is (818) 225-3300.
Countrywide conducts operations from its headquarters in Calabasas and from
offices throughout the nation.]
LOAN SERVICING
[Countrywide services substantially all of the mortgage loans it originates
or acquires. Countrywide has established standard policies for the servicing and
collection of mortgage. Servicing includes, but is not limited to, collecting,
aggregating and remitting mortgage loan payments, accounting for principal and
interest, holding escrow (impound) funds for payment of taxes and insurance,
making inspections as required of the mortgaged properties, preparation of tax
related information in connection with the mortgage loans, supervision of
delinquent mortgage loans, loss mitigation efforts, foreclosure proceedings and,
if applicable, the disposition of mortgaged properties, and generally
administering the mortgage loans, for which it receives servicing fees.
Billing statements with respect to mortgage loans are mailed monthly by
Countrywide. The statement details all debits and credits and specifies the
payment due. Notice of changes in the applicable loan rate are provided by
Countrywide to the mortgagor with such statements. All payments are due by the
first day of the month.]
COLLECTION PROCEDURES
[B&C Quality Mortgage Loans. When a mortgagor fails to make a payment on a
B&C quality mortgage loan, Countrywide attempts to cause the deficiency to be
cured by corresponding with the mortgagor. In most cases, deficiencies are cured
promptly. Pursuant to Countrywide's B&C servicing procedures, Countrywide
generally mails to the mortgagor a notice of intent to foreclose after the loan
becomes 31 days past due (two payments due but not received) and, within 30 days
thereafter, if the loan remains delinquent, institutes appropriate legal action
to foreclose on the mortgaged property. Foreclosure proceedings may be
terminated if
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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.
If foreclosed, the mortgaged property is sold at a public or private sale
and may be purchased by Countrywide. After foreclosure, Countrywide may
liquidate the mortgaged property and charge-off the loan balance which was not
recovered through liquidation proceeds.
Servicing and charge-off policies and collection practices with respect to
B&C quality mortgage loans may change over time in accordance with, among other
things, Countrywide's business judgment, changes in the servicing portfolio and
applicable laws and regulations.]
FORECLOSURE AND DELINQUENCY EXPERIENCE
[B&C Quality Mortgage Loans. The following table summarizes the delinquency
experience of Countrywide's B&C quality mortgage loans as of
. A B&C quality mortgage loan is characterized as delinquent
if the borrower has not paid the monthly payment due within one month of the Due
Date. [Since Countrywide only began servicing B&C quality mortgage loans in
August 1995, the delinquency percentages may be affected by the size and
relative lack of seasoning of the servicing portfolio because many of such loans
were not outstanding long enough to give rise to some or all of the periods of
delinquency indicated in the chart below.] Accordingly, the information should
not be considered as a basis for assessing the likelihood, amount, or severity
of delinquency or losses on the applicable Mortgage Loans, and no assurances can
be given that the delinquency experience presented in the table below or that
the foreclosure experience presented in the paragraph below the table will be
indicative of such experience on such Mortgage Loans. The sum of the columns
below may not equal the total indicated due to rounding.]
DELINQUENCY STATUS AS OF *
<TABLE>
<CAPTION>
DOLLARS PERCENT UNITS PERCENT
----------------- ------- ------ -------
<S> <C> <C> <C> <C>
Current........................................................ $ % %
30-59 days.....................................................
60-89 days.....................................................
90+ days.......................................................
Foreclosures...................................................
Delinquent Bankruptcy..........................................
Current Bankruptcy.............................................
----------------- ------- ------ -------
Total................................................ $ 100.00% 100.00%
----------------- ------- ------ -------
----------------- ------- ------ -------
</TABLE>
- ------------
* Delinquencies are reported on a contractual basis.
------------------------
[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.]
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 %
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per annum. The amount of the monthly Servicing Fee is subject to adjustment with
respect to prepaid Mortgage Loans, as described herein under ' -- Adjustment to
Servicing Fee in Connection with Certain Prepaid Mortgage Loans.' The Master
Servicer is also entitled to receive, as additional servicing compensation,
amounts in respect of interest paid on Principal Prepayments (as defined below)
received from the 2nd day through the 15th day of a month ('Prepayment Interest
Excess'), all late payment fees, assumption fees, prepayment penalties and other
similar charges and all reinvestment income earned on amounts on deposit in the
Certificate Account and Distribution Account. The Master Servicer is obligated
to pay certain ongoing expenses associated with the Mortgage Loans and incurred
by the Trustee in connection with its responsibilities under the Pooling and
Servicing Agreement.
[ADJUSTMENT TO SERVICING FEE IN CONNECTION WITH CERTAIN PREPAID MORTGAGE LOANS
When a borrower prepays all or a portion of a Mortgage Loan between
scheduled monthly payment dates ('Due Dates'), the borrower pays interest on the
amount prepaid only to the date of prepayment. Principal Prepayments (as defined
below) received from the 2nd day through the 15th day of a month are included in
the related distribution on the 25th day of the same month, and accordingly no
shortfall in interest otherwise distributable to holders of the Offered
Certificates results. Conversely, Principal Prepayments received from the 16th
day of a month to the first day of the following month are not distributed until
the 25th day of such following month, and accordingly an interest shortfall (a
'Prepayment Interest Shortfall') would result. The period from the 16th day of
the month prior to a Distribution Date (or, in the case of the first
Distribution Date, from the Cut-off Date) to and including the 15th day of the
month in which such Distribution Date occurs is herein referred to as the
'Prepayment Period.' In order to mitigate the effect of any such shortfall in
interest distributions to holders of the Offered Certificates on any
Distribution Date, one-half of the amount of the Servicing Fee otherwise payable
to the Master Servicer for such month (the 'Compensating Interest') shall, to
the extent of such shortfall, be deposited by the Master Servicer in the
Certificate Account for distribution to holders of the Offered Certificates
entitled thereto on such Distribution Date. However, any such reduction in the
Servicing Fee will be made only to the extent of one-half of the Servicing Fee
otherwise payable to the Master Servicer with respect to Scheduled Payments on
Mortgage Loans having the Due Date to which such Distribution Date relates. Any
such deposit by the Master Servicer will be reflected in the distributions to
holders of the Offered Certificates entitled thereto made on the Distribution
Date on which the Principal Prepayment received would be distributed.]
ADVANCES
Subject to the following limitations, on the Business Day prior to each
Distribution Date, the Master Servicer will be required to advance its own
funds, or funds in the Certificate Account that are not required to be
distributed on such Distribution Date, in an amount equal to the aggregate of
payments of principal and interest on the Mortgage Loans (adjusted to the
applicable Net Mortgage Rate) that were due on the related Due Date and
delinquent on the related Determination Date, together with an amount equivalent
to interest (adjusted to the applicable Net Mortgage Rate) deemed due on each
Mortgage Loan as to which the related Mortgaged Property has been acquired by
the Master Servicer through foreclosure or deed-in-lieu of foreclosure in
connection with a defaulted Mortgage Loan ('REO Property'), such latter amount
to be calculated after taking into account any rental income from such Mortgaged
Property (any such advance, an 'Advance', and the date of any such Advance, as
described herein, a 'Master Servicer Advance Date').
Advances are intended to maintain a regular flow of scheduled interest and
principal payments on the Offered Certificates rather than to guarantee or
insure against losses. The Master Servicer is obligated to make Advances with
respect to delinquent payments of principal of or interest on each Mortgage Loan
(with such payments of interest adjusted to the related Net Mortgage Rate) to
the extent that such Advances are, in its judgment, reasonably recoverable from
future payments and collections or insurance payments or proceeds of liquidation
of the related Mortgage Loan. If the Master Servicer determines on any
Determination Date to make an Advance, such Advance will be included with the
distribution to holders of the Offered Certificates on the related Distribution
Date. Any failure by the Master Servicer to make an Advance as required under
the Pooling and Servicing Agreement will constitute an event of default
thereunder, in which case the Trustee, as successor master servicer, or such
other entity as may be appointed as successor master servicer, will be obligated
to make any such Advance in accordance with the terms of the Pooling and
Servicing Agreement.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
The Offered Certificates will be issued pursuant to a Pooling and Servicing
Agreement, dated as of , (the 'Pooling and Servicing
Agreement'), among the Depositor, the Master Servicer, the Seller and the
Trustee. Set forth below are summaries of the material terms and provisions
pursuant to which the Offered Certificates will be issued. The following
summaries are subject to, and are qualified in their entirety by reference to,
the provisions of the Pooling and Servicing Agreement. When particular
provisions or terms used in the Pooling and Servicing Agreement are referred to,
the actual provisions (including definitions of terms) are incorporated by
reference.
The CWABS, Inc. Asset-Backed Certificates, Series - (the
'Certificates') will consist of: (a) the following fixed rate certificates (the
'Fixed Rate Certificates'): Class AF-1, Class AF-2, Class AF-3 and Class AF-4
Certificates (collectively, the 'Class A Fixed Rate Certificates'), Class MF-1
Certificates (the 'Class MF-1 Certificates'), Class MF-2 Certificates (the
'Class MF-2 Certificates' and together with the Class MF-1 Certificates, the
'Mezzanine Fixed Rate Certificates'), Class BF Certificates (the 'Class BF
Certificates' and together with the Mezzanine Fixed Rate Certificates, the
'Subordinated Offered Fixed Rate Certificates') and Class BF-IO Certificates
(the 'Class BF-IO Certificates'); (b) the following adjustable rate certificates
(the 'Adjustable Rate Certificates'): Class AV-1 Certificates (the 'Class A
Adjustable Rate Certificates' and together with the Class A Fixed Rate
Certificates, the 'Class A Certificates'), Class MV-1 Certificates (the 'Class
MV-1 Certificates' and together with the Class MF-1 Certificates, the 'Class M-1
Certificates'), Class MV-2 Certificates (the 'Class MV-2 Certificates' and
together with the Class MV-1 Certificates, the 'Mezzanine Adjustable Rate
Certificates'; and together with the MF-2 Certificates, the 'Class M-2
Certificates') and Class BV Certificates (the 'Class BV Certificates' and
together with the Mezzanine Adjustable Rate Certificates, the 'Subordinated
Offered Adjustable Rate Certificates'; and together with the Class BF
Certificates, the 'Class B Certificates') and Class BV-IO Certificates (the
'Class BV-IO Certificates'; and together with the Class BF-IO Certificates, the
'Class B-IO Certificates'); and (c) Class R Certificates (the 'Residual
Certificates'). The Mezzanine Fixed Rate Certificates and the Mezzanine
Adjustable Rate Certificates are referred to collectively as the 'Mezzanine
Certificates.' The Subordinated Offered Fixed Rate Certificates and the
Subordinated Offered Adjustable Rate Certificates are referred to collectively
as the 'Subordinated Offered Certificates.' As used herein, a 'Certificate
Group' is either the Fixed Rate Certificates or the Adjustable Rate
Certificates, as the context requires. The Class B-IO Certificates are
interest-only Certificates issued with a notional principal balance as provided
in the Pooling and Servicing Agreement. Only the Fixed Rate Certificates other
than the Class BF-IO Certificates (the 'Offered Fixed Rate Certificates') and
the Adjustable Rate Certificates other than the Class BV-IO Certificates (the
'Offered Adjustable Rate Certificates' and collectively with the Offered Fixed
Rate Certificates, the 'Offered Certificates') are offered hereby.
The Offered Certificates will be issued in book-entry form as described
below. The Offered Certificates will be issued in minimum dollar denominations
of $25,000 and integral multiples of $1,000 in excess thereof.
BOOK-ENTRY CERTIFICATES
The Offered Certificates will be book-entry Certificates (the 'Book-Entry
Certificates'). Persons acquiring beneficial ownership interests in the Offered
Certificates ('Certificate Owners') may elect to hold their Offered Certificates
through the Depository Trust Company ('DTC') in the United States, or CEDEL or
Euroclear (in Europe) if they are participants of such systems, or indirectly
through organizations which are participants in such systems. The Book-Entry
Certificates will be issued in one or more certificates which equal the
aggregate principal balance of the Offered Certificates and will initially be
registered in the name of Cede & Co., the nominee of DTC. CEDEL and Euroclear
will hold omnibus positions on behalf of their participants through customers'
securities accounts in CEDEL's and Euroclear's names on the books of their
respective depositaries which in turn will hold such positions in customers'
securities accounts in the depositaries' names on the books of DTC. Citibank
will act as depositary for CEDEL and Chase will act as depositary for Euroclear
(in such capacities, individually the 'Relevant Depositary' and collectively the
'European Depositaries'). Investors may hold such beneficial interests in the
Book-Entry Certificates in minimum denominations representing Certificate
Principal Balances of $25,000 and integral multiples of $1,000 in excess
thereof. Except as described below, no
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person acquiring a Book-Entry Certificate (each, a 'beneficial owner') will be
entitled to receive a physical certificate representing such Offered Certificate
(a 'Definitive Certificate'). Unless and until Definitive Certificates are
issued, it is anticipated that the only Certificateholder of the Offered
Certificates will be Cede & Co., as nominee of DTC. Certificate Owners will not
be Certificateholders as that term is used in the Pooling and Servicing
Agreement. Certificate Owners are only permitted to exercise their rights
indirectly through the participating organizations that utilize the services of
DTC, including securities brokers and dealers, banks and trust companies and
clearing corporations and certain other organizations ('Participants') and DTC.
The beneficial owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a 'Financial Intermediary') that maintains the
beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on the
records of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the beneficial owner's Financial Intermediary is not a DTC participant and on
the records of CEDEL or Euroclear, as appropriate).
Certificate Owners will receive all distributions of principal of, and
interest on, the Offered Certificates from the Trustee through DTC and DTC
participants. While the Offered Certificates are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the 'Rules'), DTC is required to
make book-entry transfers among Participants on whose behalf it acts with
respect to the Offered Certificates and is required to receive and transmit
distributions of principal of, and interest on, the Offered Certificates.
Participants and organizations which have indirect access to the DTC system,
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ('Indirect Participants'), with whom Certificate Owners have accounts
with respect to Offered Certificates are similarly required to make book-entry
transfers and receive and transmit such distributions on behalf of their
respective Certificate Owners. Accordingly, although Certificate Owners will not
possess certificates, the Rules provide a mechanism by which Certificate Owners
will receive distributions and will be able to transfer their interest.
Certificate Owners will not receive or be entitled to receive certificates
representing their respective interests in the Offered Certificates, except
under the limited circumstances described below. Unless and until Definitive
Certificates are issued, Certificate Owners who are not Participants may
transfer ownership of Offered Certificates only through Participants and
Indirect Participants by instructing such Participants and Indirect Participants
to transfer Offered Certificates, by book-entry transfer, through DTC for the
account of the purchasers of such Offered Certificates, which account is
maintained with their respective Participants. Under the Rules and in accordance
with DTC's normal procedures, transfers of ownership of Offered Certificates
will be executed through DTC and the accounts of the respective Participants at
DTC will be debited and credited. Similarly, the Participants and Indirect
Participants will make debits or credits, as the case may be, on their records
on behalf of the selling and purchasing Certificate Owners.
Because of time zone differences, credits of securities received in CEDEL,
or Euroclear as a result of a transaction with a Participant will be made
during, subsequent securities settlement processing and dated the business day
following, the DTC settlement date. Such credits or any transactions in such
securities, settled during such processing will be reported to the relevant
Euroclear or CEDEL Participants on such business day. Cash received in CEDEL or
Euroclear, as a result of sales of securities by or through a CEDEL Participant
(as defined, below) or Euroclear Participant (as defined below) to a DTC
Participant, will be received with value on the DTC settlement date but will be
available in the relevant CEDEL or Euroclear cash account only as of the
business day following settlement in DTC. For information with respect to tax
documentation procedures, relating to the Offered Certificates, see 'Federal
Income Tax Consequences -- Tax Treatment of Foreign Investors' in the Prospectus
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
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Relevant Depositary; however, such cross market transactions will require
delivery of instructions to the relevant European international clearing system
by the counterpart in such system in accordance with its rules and procedures
and within its established deadlines (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to the Relevant Depositary to take action to
effect final settlement on its behalf by delivering or receiving securities in
DTC, and making or receiving payment in accordance with normal procedures for
same day funds settlement applicable to DTC. CEDEL Participants and Euroclear
Participants may not deliver instructions directly to the European Depositaries.
DTC, which is a New York-chartered limited purpose trust company, performs
services for its participants, some of which (and/or their representatives) own
DTC. In accordance with its normal procedures, DTC is expected to record the
positions held by each DTC participant in the Book-Entry Certificates, whether
held for its own account or as a nominee for another person. In general,
beneficial ownership of Book-Entry Certificates will be subject to the rules,
regulations and procedures governing DTC and DTC participants as in effect from
time to time.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ('CEDEL
Participants') and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ('Euroclear Participants') and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the 'Euroclear Operator'), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
'Cooperative'). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. Indirect access to Euroclear is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the 'Terms and Conditions'). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
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Distributions on the Book-Entry Certificates will be made on each
Distribution Date by the Trustee to DTC. DTC will be responsible for crediting
the amount of such payments to the accounts of the applicable DTC participants
in accordance with DTC's normal procedures. Each DTC participant will be
responsible for disbursing such payments to the beneficial owners of the
Book-Entry Certificates that it represents and to each Financial Intermediary
for which it acts as agent. Each such Financial Intermediary will be responsible
for disbursing funds to the beneficial owners of the Book-Entry Certificates
that it represents.
Under a book-entry format, beneficial owners of the Book-Entry Certificates
may experience some delay in their receipt of payments, since such payments will
be forwarded by the Trustee to Cede. Distributions with respect to Offered
Certificates held through CEDEL or Euroclear will be credited to the cash
accounts of CEDEL Participants or Euroclear Participants in accordance with the
relevant system's rules and procedures, to the extent received by the Relevant
Depositary. Such distributions will be subject to tax reporting in accordance
with relevant United States tax laws and regulations. See 'Federal Income Tax
Consequences -- Tax Treatment of Foreign Investors' and 'Miscellaneous Tax
Aspects -- Backup Withholding' in the Prospectus. Because DTC can only act on
behalf of Financial Intermediaries, the ability of a beneficial owner to pledge
Book-Entry Certificates to persons or entities that do not participate in the
depository system, or otherwise take actions in respect of such Book-Entry
Certificates, may be limited due to the lack of physical certificates for such
Book-Entry Certificates. In addition, issuance of the Book-Entry Certificates in
book-entry form may reduce the liquidity of such Offered Certificates in the
secondary market since certain potential investors may be unwilling to purchase
Offered Certificates for which they cannot obtain physical certificates.
Monthly and annual reports on the Trust Fund provided by the Master
Servicer to Cede, as nominee of DTC, may be made available to beneficial owners
upon request, in accordance with the rules, regulations and procedures creating
and affecting DTC or the Relevant Depositary, and to the Financial
Intermediaries to whose DTC accounts the Book-Entry Certificates of such
beneficial owners are credited.
DTC has advised the Depositor and the Trustee that, unless and until
Definitive Certificates are issued, DTC will take any action permitted to be
taken by the holders of the Book-Entry Certificates under the Pooling and
Servicing Agreement only at the direction of one or more Financial
Intermediaries to whose DTC accounts the Book-Entry Certificates are credited,
to the extent that such actions are taken on behalf of Financial Intermediaries
whose holdings include such Book-Entry Certificates. CEDEL or the Euroclear
Operator, as the case may be, will take any other action permitted to be taken
by a holder of an Offered Certificate under the Pooling and Servicing Agreement
on behalf of a CEDEL Participant or Euroclear Participant only in accordance
with its relevant rules and procedures and subject to the ability of the
Relevant Depositary to effect such actions on its behalf through DTC. DTC may
take actions, at the direction of the related Participants, with respect to some
Offered Certificates which conflict with actions taken with respect to other
Offered Certificates.
Definitive Certificates will be issued to beneficial owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if (a) DTC
or the Depositor advises the Trustee in writing that DTC is no longer willing,
qualified or able to discharge properly its responsibilities as nominee and
depositary with respect to the Book-Entry Certificates and the Depositor or the
Trustee is unable to locate a qualified successor, (b) the Depositor at its sole
option, elects to terminate a book-entry system through DTC or (c) after the
occurrence of an Event of Default (as defined herein), beneficial owners having
not less than 51% of the Voting Rights (as defined herein) evidenced by the
Offered Certificates advise the Trustee and DTC through the Financial
Intermediaries and the DTC participants in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in the best
interests of beneficial owners of such Class.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and thereafter
the Trustee will recognize the holders of such Definitive Certificates as
holders of the Offered Certificates under the Pooling and Servicing Agreement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Certificates among participants of DTC,
CEDEL and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
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DEPOSITS TO THE CERTIFICATE ACCOUNT
The Trustee shall establish and initially maintain an account (the
'Certificate Account') on behalf of the Certificateholders. Within two Business
Days after receipt, the Master Servicer shall remit to the Trustee (or, in the
event the Certificate Account is maintained with another institution pursuant to
the Pooling and Servicing Agreement, to such institution) for deposit into the
Certificate Account the following payments and collections received or made or
to be applied by it on or subsequent to the Cut-off Date (to the extent not
applied in computing the Cut-off Date Pool Principal Balance):
(i) all payments on account of principal, including Principal
Prepayments, on the Mortgage Loans;
(ii) all payments on account of interest (other than interest accruing
on the Mortgage Loans prior to , ) on the Mortgage Loans,
net of the related Servicing Fee;
(iii) all proceeds of any insurance policies (to the extent such
proceeds are not applied to the restoration of the property or released to
the mortgagor in accordance with the Master Servicer's normal servicing
procedures), other than proceeds that represent reimbursement of the Master
Servicer's costs and expenses incurred in connection with presenting claims
under the related insurance policies ('Insurance Proceeds'), all other net
proceeds received in connection with the partial or complete liquidation of
Mortgage Loans (whether through trustee's sale, foreclosure sale or
otherwise) or in connection with any condemnation or partial release of a
Mortgaged Property, together with the net proceeds received with respect to
any Mortgaged Properties acquired by the Master Servicer by foreclosure or
deed in lieu of foreclosure in connection with defaulted Mortgage Loans
(other than the amount of such net proceeds representing any profit
realized by the Master Servicer in connection with the disposition of any
such properties) (together with Insurance Proceeds, 'Liquidation
Proceeds');
(iv) all payments made by the Master Servicer in respect of Prepayment
Interest Shortfalls;
(v) any amount required to be deposited by the Master Servicer in
connection with any losses on investment of funds in the Certificate
Account;
(vi) any amounts required to be deposited by the Master Servicer with
respect to any deductible clause in any blanket hazard insurance policy
maintained by the Master Servicer in lieu of requiring each mortgagor to
maintain a primary hazard insurance policy;
(vii) all amounts required to be deposited in connection with
shortfalls in the principal amount of Replacement Mortgage Loans; and
(viii) all Advances.
WITHDRAWALS FROM THE CERTIFICATE ACCOUNT
The Master Servicer (or the Depositor or the Seller, as applicable) may
from time to time direct the Trustee to withdraw funds from the Certificate
Account prior to the close of business on the related Determination Date for the
following purposes:
(i) to pay to the Master Servicer the Servicing Fee to the extent not
previously paid to or withheld by the Master Servicer (subject to reduction
as described above under 'Servicing of the Mortgage Loans -- Adjustment to
Servicing Fee in Connection with Prepaid Mortgage Loans') and, as
additional servicing compensation, prepayment penalties, assumption fees,
late payment charges, net earnings on or investment income with respect to
funds in or credited to the Certificate Account and the amount of
Prepayment Interest Excess for the related Prepayment Period;
(ii) to reimburse the Master Servicer for Advances, such right of
reimbursement with respect to any Mortgage Loan pursuant to this clause
(ii) being limited to amounts received that represent late recoveries of
payments of principal and/or interest on the related Mortgage Loan (or
Insurance Proceeds or Liquidation Proceeds with respect thereto) with
respect to which such Advance was made;
(iii) to reimburse the Master Servicer for any Advances previously
made that the Master Servicer has determined to be nonrecoverable;
(iv) to reimburse the Master Servicer from Insurance Proceeds for
expenses incurred by the Master Servicer and covered by the related
insurance policies;
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(v) to pay the Master Servicer any unpaid Servicing Fees and to
reimburse it for any unreimbursed ordinary and necessary out-of-pocket
costs and expenses incurred by the Master Servicer in the performance of
its master servicing obligations, such right of reimbursement pursuant to
this clause (v) being limited to amounts received representing late
recoveries of the payments of such costs and expenses (or Liquidation
Proceeds, purchase proceeds or repurchase proceeds with respect thereto);
(vi) to pay to the Seller or the Master Servicer, as applicable, with
respect to each Mortgage Loan or Mortgaged Property acquired in respect
thereof that has been purchased by the Seller or the Master Servicer from
the Trust Fund pursuant to the Pooling and Servicing Agreement, all amounts
received thereon and not taken into account in determining the related
Stated Principal Balance of such repurchased Mortgage Loan;
(vii) to reimburse the Seller, the Master Servicer or the Depositor
for fees and expenses incurred and reimbursable pursuant to the Pooling and
Servicing Agreement (including in the case of the Master Servicer, the
Extra Master Servicing Fee);
(viii) to withdraw any amount deposited in the Certificate Account and
not required to be deposited therein; and
(ix) to clear and terminate the Certificate Account upon termination
of the Pooling and Servicing Agreement.
In addition, not later than 1:00 p.m. Pacific Time on each Master Servicer
Advance Date, the Trustee shall withdraw from the Certificate Account the amount
of Interest Funds and Principal Funds for each Loan Group, to the extent on
deposit, and the Trustee shall deposit such amount in the Distribution Account,
as described below.
The 'Interest Funds' with respect to each Loan Group are equal to the sum,
without duplication, of (i) all scheduled interest collected during the related
Due Period less the related Servicing Fee, (ii) all Advances relating to
interest, (iii) all Compensating Interest and (iv) Liquidation Proceeds (to the
extent such Liquidation Proceeds relate to interest) less all non-recoverable
Advances relating to interest and certain expenses reimbursed during the related
Due Period.
The 'Principal Funds' with respect to each Loan Group are equal to the sum,
without duplication, of (i) the scheduled principal collected during the related
Due Period or advanced on or before the related Master Servicer Advance Date,
(ii) prepayments collected in the related Prepayment Period, (iii) the Stated
Principal Balance of each Mortgage Loan that was repurchased by the Seller or
the Master Servicer, (iv) the amount, if any, by which the aggregate unpaid
principal balance of any Replacement Mortgage Loans is less than the aggregate
unpaid principal balance of any Deleted Mortgage Loans delivered by the Seller
in connection with a substitution of a Mortgage Loan and (v) all Liquidation
Proceeds collected during the related Due Period (to the extent such Liquidation
Proceeds related to principal) less all non-recoverable Advances relating to
principal reimbursed during the related Due Period.
A 'Due Period' with respect to any Distribution Date is the period
beginning on the second day of the calendar month preceding the calendar month
in which such Distribution Date occurs (or, in the case of the first
Distribution Date, on the Cut-off Date) and ending on the Due Date in the month
in which such Distribution Date occurs.
DEPOSITS TO THE DISTRIBUTION ACCOUNT
The Trustee shall establish and maintain a distribution account (the
'Distribution Account') on behalf of the Certificateholders. The Trustee shall,
promptly upon receipt, deposit in the Distribution Account and retain therein
(i) the aggregate amount withdrawn by it from the Certificate Account; and (ii)
any amount required to be deposited by the Master Servicer in connection with
any losses on investment of funds in the Distribution Account.
WITHDRAWALS FROM THE DISTRIBUTION ACCOUNT
The Trustee shall withdraw funds from the Distribution Account for
distribution to the Certificateholders as described below under
' -- Distributions' and may from time to time make withdrawals from the
Distribution Account (i) to pay to the Master Servicer, as additional servicing
compensation, earnings on or investment
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income with respect to funds in or credited to the Distribution Account; (ii) to
withdraw any amount deposited in the Distribution Account and not required to be
deposited therein; and (iii) to clear and terminate the Distribution Account
upon the termination of the Pooling and Servicing Agreement.
DISTRIBUTIONS
General. 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 (each, a 'Distribution
Date'), to the persons in whose names such Certificates are registered at the
close of business on the last Business Day of the month preceding the month of
such Distribution Date (the 'Record Date').
Distributions on each Distribution Date will be made by check mailed to the
address of the person entitled thereto as it appears on the Certificate Register
or, in the case of any Certificateholder that holds 100% of a Class of
Certificates or who holds a Class of Certificates with an aggregate initial
Certificate Principal Balance of $1,000,000 or more and that has so notified the
Trustee in writing in accordance with the Pooling and Servicing Agreement, by
wire transfer in immediately available funds to the account of such
Certificateholder at a bank or other depository institution having appropriate
wire transfer facilities; provided, however, that the final distribution in
retirement of the Certificates will be made only upon presentation and surrender
of such Certificates at the Corporate Trust Office of the Trustee. On each
Distribution Date, a holder of a Certificate will receive such holder's
Percentage Interest of the amounts required to be distributed with respect to
the applicable Class of Certificates. The 'Percentage Interest' evidenced by a
Certificate will equal the percentage derived by dividing the denomination of
such Certificate by the aggregate denominations of all Certificates of the
applicable Class.
Distributions of Interest. On each Distribution Date, the interest
distributable with respect to the Offered Fixed Rate Certificates is the
interest which has accrued thereon at the related Pass-Through Rate during the
calendar month immediately preceding the calendar month in which such
Distribution Date occurs; and the interest distributable with respect to the
Offered Adjustable Rate Certificates is the interest which has accrued thereon
at the then applicable related Pass-Through Rate from and including the
preceding Distribution Date (or from the Closing Date in the case of the first
Distribution Date) to and including the day prior to the current Distribution
Date. Each period referred to in the prior sentence relating to the accrual of
interest is the 'Accrual Period' for the related Class of Offered Certificates.
All calculations of interest of the Offered Fixed Rate Certificates will be
made on the basis of a 360-day year assumed to consist of twelve 30-day months.
All calculations of interest on the Offered Adjustable Rate Certificates will be
made on the basis of a 360-day year and the actual number of days elapsed in the
applicable Accrual Period.
On each Distribution Date, the Interest Funds for such Distribution Date
with respect to each Loan Group are required to be distributed in the following
order of priority, until such Interest Funds have been fully distributed:
(i) to each Class of the Class A Certificates of the Certificate Group
related to such Loan Group, the Current Interest and any Interest Carry
Forward Amount; provided, however, that if the Interest Funds for the
Offered Fixed Rate Certificates are not sufficient to make a full
distribution of the aggregate Current Interest and the aggregate Interest
Carry Forward Amount, the Interest Funds for such Certificate Group will be
distributed pro rata among each Class of the Fixed Rate Class A
Certificates based upon the ratio of (x) the Current Interest and Interest
Carry Forward Amount for such Class of the Class A Certificates of such
Certificate Group to (y) the total amount of Current Interest and any
Interest Carry Forward Amount for the Class A Certificates of such
Certificate Group;
(ii) to the Class M-1 Certificates of such Certificate Group, the
Current Interest for such Class;
(iii) to the Class M-2 Certificates of such Certificate Group, the
Current Interest for such Class;
(iv) to the Class B Certificates of such Certificate Group, the
Current Interest for such Class; and
(v) any remainder to be distributed as described below under
' -- Overcollateralization and Crosscollateralization Provisions'.
'Current Interest', with respect to each Class of the Offered Certificates
and each Distribution Date, is the interest accrued at the applicable
Pass-Through Rate for the applicable Accrual Period on the Certificate
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Principal Balance of such Class plus any amount previously distributed with
respect to interest for such Class that is recovered as a voidable preference by
a trustee in bankruptcy.
'Interest Carry Forward Amount', with respect to each Class of the Offered
Certificates and each Distribution Date, is the sum of (i) the excess of (A)
Current Interest for such Class with respect to prior Distribution Dates
(excluding any Adjustable Rate Certificate Carryover) over (B) the amount
actually distributed to such Class with respect to interest on such prior
Distribution Dates and (ii) interest on such excess (to the extent permitted by
applicable law) at the applicable Pass-Through Rate.
Distributions of Principal. On each Distribution Date, the Principal
Distribution Amount for such Distribution Date with respect to each Loan Group
is required to be distributed as follows until such Principal Distribution
Amount has been fully distributed:
(i) to the Class A Certificates of the Certificate Group related to
such Loan Group, the related Class A Principal Distribution Amount for such
Certificate Group; provided that the Class A Principal Distribution Amount
for the Fixed Rate Class A Certificates is required to be distributed as
set forth below;
(ii) to the Class M-1 Certificates of each Certificate Group, the
Class M-1 Principal Distribution Amount for such Certificate Group;
(iii) to the Class M-2 Certificates of each Certificate Group, the
Class M-2 Principal Distribution Amount for such Certificate Group;
(iv) to the Class B Certificates of each Certificate Group, the Class
B Principal Distribution Amount for such Certificate Group; and
(v) any remainder to be distributed as described under
' -- Overcollateralization and Crosscollateralization Provisions' below.
The Class A Principal Distribution Amount for the Fixed Rate Certificate
Group is required to be distributed in the following order of priority:
(i) to the Class AF-4 Certificates, the Class AF-4 Distribution
Amount, until the Certificate Principal Balance thereof is reduced to zero;
and
(ii) sequentially, to the Class AF-1, Class AF-2, Class AF-3 and
Class AF-4 Certificates, in that order, until the respective Certificate
Principal Balances thereof are reduced to zero.
Notwithstanding the foregoing order of priority, on any Distribution Date
on which the aggregate Certificate Principal Balances of all Offered Fixed Rate
Certificates are equal to or greater than the Stated Principal Balances of all
Mortgage Loans in the Fixed Rate Mortgage Loan Group, the Class A Principal
Distribution Amount for the Fixed Rate Certificate Group will be distributed pro
rata and not sequentially.
'Principal Distribution Amount', with respect to each Distribution Date and
a Certificate Group, is the sum of (i) the Principal Funds for such Distribution
Date for such Certificate Group and (ii) any Extra Principal Distribution Amount
for such Distribution Date for the related Certificate Group.
'Class A Principal Distribution Amount', for a Loan Group is (i) with
respect to any Distribution Date prior to the related Stepdown Date or as to
which a Trigger Event exists, 100% of the Principal Distribution Amount for the
related Loan Group for such Distribution Date and (ii) with respect to any
Distribution Date on or after the Stepdown Date and as to which a Trigger Event
does not exist, the excess of (A) the Certificate Principal Balance of the
Class A Certificates for such Certificate Group immediately prior to such
Distribution Date over (B) the lesser of (I) % for the Fixed Rate Mortgage
Loan Group and % for the Adjustable Rate Mortgage Loan Group, of the Stated
Principal Balances of the Mortgage Loans in such Loan Group on the preceding Due
Date and (II) the Stated Principal Balances of the Mortgage Loans in such Loan
Group on the preceding Due Date less approximately $ for the Fixed Rate
Mortgage Loan Group and approximately $ for the Adjustable Rate Mortgage
Loan Group.
'Class AF-4 Distribution Amount', for any Distribution Date, is the product
of (i) a fraction, the numerator of which is the Certificate Principal Balance
of the Class AF-4 Certificates and the denominator of which is the aggregate
Certificate Principal Balance of the Class A Certificates in the related
Certificate Group, in each case immediately prior to such Distribution Date,
(ii) the Class A Principal Distribution Amount with respect to the
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Fixed Rate Mortgage Loan Group for such Distribution Date and (iii) the
applicable percentage for such Distribution Date set forth in the following
table:
<TABLE>
<CAPTION>
DISTRIBUTION DATE PERCENTAGE
- ---------------------------------------------------------------------------------- ----------
<S> <C>
- .................................................... %
- .................................................... %
- .................................................... %
- .................................................... %
and thereafter........................................................ %
</TABLE>
'Class M-1 Principal Distribution Amount', for a Loan Group and with
respect to any Distribution Date on or after the related Stepdown Date is 100%
of the Principal Distribution Amount for the related Loan Group if the
Certificate Principal Balance of each Class of Class A Certificates for such
Certificate Group has been reduced to zero and a Trigger Event exists, or, if
the Class A Certificates for such Certificate Group are still outstanding, and
as long as a Trigger Event is not in effect for such Loan Group, is the excess
of (i) the sum for such Loan Group of (A) the Certificate Principal Balance of
the Class A Certificates (after taking into account distributions of the Class A
Principal Distribution Amount for such Distribution Date) and (B) the
Certificate Principal Balance of the Class M-1 Certificates immediately prior to
such Distribution Date over (ii) the lesser of (A) % for the Fixed Rate
Mortgage Loan Group and % for the Adjustable Rate Mortgage Loan Group of
the Stated Principal Balances of the Mortgage Loans in such Loan Group on the
preceding Due Date and (B) the Stated Principal Balances of the Mortgage Loans
in such Loan Group on the preceding Due Date less approximately $ for the
Fixed Rate Mortgage Loan Group and approximately $ for the Adjustable
Rate Mortgage Loan Group.
'Class M-2 Principal Distribution Amount', for a Loan Group and with
respect to any Distribution Date on or after the related Stepdown Date, is 100%
of the Principal Distribution Amount for the related Loan Group if the
Certificate Principal Balance of each Class A and Class M-1 Certificates for
such Certificate Group has been reduced to zero and a Trigger Event exists, or,
if the Class A and Class M-1 Certificates for such Certificate Group are still
outstanding and as long as a Trigger Event is not in effect for such Loan Group,
is the excess of (i) of the sum for such Loan Group of (A) the Certificate
Principal Balance of the Class A Certificates (after taking into account
distributions of the Class A Principal Distribution Amount for such Distribution
Date), (B) the Certificate Principal Balance of the Class M-1 Certificates
(after taking into account distribution of the Class M-1 Principal Distribution
Amount for such Distribution Date) and (C) the Certificate Principal Balance of
the Class M-2 Certificates immediately prior to such Distribution Date over
(ii) the lesser of (A) % for the Fixed Rate Mortgage Loan Group and %
for the Adjustable Rate Mortgage Loan Group, of the aggregate Stated Principal
Balances of the Mortgage Loans in such Loan Group on the preceding Due Date and
(B) the Stated Principal Balances of the Mortgage Loans in such Loan Group on
the preceding Due Date less approximately $ for the Fixed Rate Mortgage
Loan Group and approximately $ for the Adjustable Rate Mortgage Loan
Group.
'Class B Principal Distribution Amount', for a Loan Group and with respect
to any Distribution Date on or after the related Stepdown Date and as long as a
Trigger Event is not in effect for such Loan Group, is the excess of (i) of the
sum for such Loan Group of (A) the Certificate Principal Balance of the Class A
Certificates (after taking into account distributions of the Class A Principal
Distribution Amount for such Distribution Date), (B) the Certificate Principal
Balance of the Class M-1 Certificates (after taking into account distribution of
the Class M-1 Principal Distribution Amount for such Distribution Date), (C) the
Certificate Principal Balance of the Class M-2 Certificates (after taking into
account distributions of the Class M-2 Principal Distribution Amount for such
Distribution Date) and (D) the Certificate Principal Balance of the Class B
Certificates immediately prior to such Distribution Date over (ii) the lesser of
(A) % for the Fixed Rate Mortgage Loan Group and % for the Adjustable
Rate Mortgage Loan Group, of the Stated Principal Balances of the Mortgage Loans
in such Loan Group on the preceding Due Date and (B) the Stated Principal
Balances of the Mortgage Loans in such Loan Group on the preceding Due Date less
approximately $ for the Fixed Rate Mortgage Loan Group and approximately
$ for the Adjustable Rate Mortgage Loan Group, provided, however, that
after the Certificate Principal Balances of the Class A, Class M-1 and Class M-2
Certificates for such Certificate Group are reduced to zero, the Class B
Principal Distribution Amount for such Distribution Date will equal 100% of the
Principal Distribution Amount for the related Loan Group.
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'Extra Principal Distribution Amount', for a Loan Group and with respect to
any Distribution Date, is the lesser of (i) the excess, if any, of the Specified
Overcollateralization Amount for such Loan Group and Distribution Date over the
Overcollateralization Amount (after giving effect to distributions of principal
on the related Certificate Group other than any Extra Principal Distribution
Amount) for such Loan Group and Distribution Date and (ii) the Excess Cashflow
for such Loan Group and Distribution Date and any Remainder Excess Cashflow from
the other Loan Group for such Distribution Date available therefor in the
priority set forth herein.
'Excess Cashflow' for a Loan Group and Distribution Date is the excess, if
any, of the Interest Funds and Principal Funds for such Loan Group and
Distribution Date over required distributions of interest and principal
(excluding any Extra Principal Distribution Amount) on the Offered Certificates
in the related Certificate Group on such Distribution Date.
'Remainder Excess Cashflow' for a Loan Group and Distribution Date is the
excess, if any, of the Excess Cashflow for such Loan Group and Distribution Date
over the portion thereof, if any, applied to the Offered Certificates in the
related Certificate Group pursuant to clauses (i) through (vii) under the third
paragraph under ' -- Overcollateralization and Crosscollateralization
Provisions' below.
'Specified Overcollateralization Amount' means, with respect to each Loan
Group prior to the Stepdown Date for the related Certificate Group, an amount
equal to % for the Fixed Rate Mortgage Loan Group and % for the Adjustable
Rate Mortgage Loan Group of the Cut-off Date Principal Balance of the Mortgage
Loans in the related Loan Group, and with respect to each Loan Group on and
after the Stepdown Date for the related Certificate Group, an amount equal to
% for the Fixed Rate Mortgage Loan Group and % for the Adjustable Rate
Mortgage Loan Group of the Stated Principal Balance of the Mortgage Loans in
such Loan Group as of the preceding Due Date, subject to a minimum amount equal
to % for the Fixed Rate Mortgage Loan Group and % for the Adjustable
Rate Mortgage Loan Group of Cut-off Date Principal Balance of the Mortgage Loans
in the related Loan Group; provided, however, that, if on any Distribution Date,
a Trigger Event for a Certificate Group has occurred, the Specified
Overcollateralization Amount shall not be reduced to the applicable percentage
of the then current Stated Principal Balance of the Mortgage Loans in the
related Loan Group until the Distribution Date on which a Trigger Event for such
Certificate Group no longer exists.
'Overcollateralization Amount' with respect to any Distribution Date and
Loan Group, is the excess, if any, of (a) the aggregate Stated Principal
Balances of the Mortgage Loans in such Loan Group immediately following such
Distribution Date over (b) the Class Certificate Balance of the Offered
Certificates in the related Certificate Group as of such date (after taking into
account the payment of principal on such Certificates on such Distribution
Date).
'Stepdown Date', with respect to each Certificate Group, is the later to
occur of (i) the Distribution Date in or (ii) the first
Distribution Date on which (A) the Class A Certificate Principal Balance of such
Certificate Group is less than or equal to (B) % for the Fixed Rate
Mortgage Loan Group and % for the Adjustable Rate Mortgage Loan Group, of
the Stated Principal Balances of the Mortgage Loans in the related Loan Group.
A 'Trigger Event', with respect to each Certificate Group and a
Distribution Date after the Stepdown Date, exists if the product of (i) times
for the Fixed Rate Mortgage Loan Group and times for the Adjustable Rate
Mortgage Loan Group and (ii) the quotient of (A) the aggregate Stated Principal
Balance of all Mortgage Loans 60 or more days delinquent for each Loan Group
(including Mortgage Loans in foreclosure and REO Properties) and (B) the Stated
Principal Balance of that Loan Group as of the preceding Master Servicer Advance
Date equals or exceeds the Required Percentage. A 'Required Percentage,' with
respect to each Certificate Group and a Distribution Date after the Stepdown
Date is equal to the quotient of (x) the excess (I) the Stated Principal
Balances of such Loan Group over (II) the Certificate Principal Balance of the
most senior Class of Certificates of such Certificate Group outstanding as of
the preceding Master Servicer Advance Date and (y) the Certificate Principal
Balance of the most senior Class of Certificates of such Certificate Group
outstanding. As used herein, the Certificate Principal Balance of the most
senior Class of Certificates of the Offered Fixed Rate Certificates will equal
the aggregate Certificate Principal Balance of the Class A Fixed Rate
Certificates for such date of calculation (until the Certificate Principal
Balance of the Class A Fixed Rate Certificates is reduced to zero).
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OVERCOLLATERALIZATION AND CROSSCOLLATERALIZATION PROVISIONS
As set forth below, the Excess Cashflow for a Loan Group will be required
to be applied as an Extra Principal Distribution Amount with respect to the
related Certificate Group whenever the Overcollateralization Amount for such
Loan Group is less than the related Specified Overcollateralization Amount. In
addition, any Remainder Excess Cashflow with respect to a Loan Group will be
required to be applied as an Extra Principal Distribution Amount with respect to
the Certificate Group related to the other Loan Group whenever the
Overcollateralization Amount for such other Loan Group is less than the related
Specified Overcollateralization Amount. If on any Distribution Date, after
giving effect to any Extra Principal Distribution Amount, the aggregate
Certificate Principal Balances of the Offered Certificates with respect to a
Certificate Group exceed the Stated Principal Balances of the Mortgage Loans in
the related Loan Group, the Certificate Principal Balances of the Subordinated
Offered Certificates (but not the Class A Certificates) of such Certificate
Group will be reduced, in inverse order of seniority (beginning with the Class B
Certificates) by an amount equal to such excess. Any such reduction is an
'Applied Realized Loss Amount.'
If the Certificate Principal Balance of a Class of Subordinated Offered
Certificates is reduced, that Class thereafter will be entitled to distributions
of interest and principal only with respect to the Certificate Principal Balance
as so reduced. On subsequent Distribution Dates, however, as described below,
Excess Cashflow from the related Loan Group and Remainder Excess Cashflow from
the other Loan Group will be applied to reduce Unpaid Realized Loss Amounts
previously allocated to such Certificates in order of seniority.
On each Distribution Date, the Excess Cashflow with respect to a Loan Group
will be required to be distributed as follows:
(i) the Extra Principal Distribution Amount for such Loan Group;
(ii) to the Class M-1 Certificates of such Certificate Group, any
Interest Carry Forward Amount for such Class;
(iii) to the Class M-1 Certificates of such Certificate Group, any
Unpaid Realized Loss Amount for such Class;
(iv) to the Class M-2 Certificates of such Certificate Group, any
Interest Carry Forward Amount for such Class;
(v) to the Class M-2 Certificates of such Certificate Group, any
Unpaid Realized Loss Amount for such Class;
(vi) to the Class B Certificates of such Certificate Group, any
Interest Carry Forward Amount for such Class; and
(vii) to the Class B Certificates of such Certificate Group, the
Unpaid Realized Loss Amount for such Class.
On each Distribution Date, the Remainder Excess Cashflow with respect to a
Loan Group will be required to be distributed as follows:
(i) for distribution to the Certificates in the other Certificate
Group to the extent that any of the amounts listed in clauses (i) through
(vii) in the immediately preceding paragraph with respect to the other
Certificate Group have not otherwise been funded in full for such
Distribution Date in accordance with the priorities set forth above;
(ii) in the case of the Adjustable Rate Mortgage Loan Group, to the
Offered Adjustable Rate Certificates, on a pro rata basis, the Adjustable
Rate Certificate Carryover (to be treated as paid from and to the extent of
funds on deposit in the Carryover Reserve Fund, after giving effect to
distributions pursuant to clause (iii) below);
(iii) to the Class B-IO Certificates of such Certificate Group, first,
in the case of the Adjustable Rate Certificate Group, for deposit in the
Carryover Reserve Fund (for distribution (if any) pursuant to clause (ii)
above) in an amount equal to the Carryover Reserve Fund Deposit, and then
for distribution on the Class B-IO Certificates of each Certificate Group,
in each case as provided in the Pooling and Servicing Agreement;
(iv) to pay the Master Servicer an extra master servicing fee as
provided in the Pooling and Servicing Agreement (the 'Extra Master
Servicing Fee'); and
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(v) to the Residual Certificates, any remaining amount.
'Applied Realized Loss Amount', with respect to any Class of the
Subordinated Offered Certificates and as to any Distribution Date, means the sum
of the Realized Losses with respect to Mortgage Loans which have been applied in
reduction of the Certificate Principal Balance of such Class.
'Realized Loss' is the excess of the Stated Principal Balance of a
defaulted Mortgage Loan over the net liquidation proceeds with respect thereto
that are allocated to principal.
'Unpaid Realized Loss Amount', with respect to any Class of the
Subordinated Offered Certificates and as to any Distribution Date, is the excess
of (i) Applied Realized Loss Amounts with respect to such Class over (ii) the
sum of all distributions in reduction of the Applied Realized Loss Amounts on
all previous Distribution Dates. Any amounts distributed to a Class of
Subordinated Offered Certificates in respect of any Unpaid Realized Loss Amount
will not be applied to reduce the Certificate Principal Balance of such Class.
In the event that a Specified Overcollateralization Amount is permitted to
decrease or 'step down' on a Distribution Date in the future, or in the event
that an Excess Overcollateralization Amount (as defined below) for a Certificate
Group otherwise exists, the Remainder Excess Cash Flow for the related Loan
Group will be distributed (to the extent not otherwise required to be applied to
the other Certificate Group) to the holders of the related Class B-IO
Certificates, to the Master Servicer as an Extra Master Servicing Fee and to the
holders of the Residual Certificates (in each case as provided in the Pooling
and Servicing Agreement) on such Distribution Date until the applicable Excess
Overcollateralization Amount is reduced to zero. This has the effect of
decelerating the amortization of the Certificates in the related Certificate
Group relative to the amortization of the Mortgage Loans in the related Loan
Group, and of reducing the related Overcollateralization Amount to the
applicable Specified Overcollateralization Amount. With respect to a Certificate
Group and any Distribution Date, the excess, if any, of (a) the
Overcollateralization Amount on such Distribution Date over (b) the Specified
Overcollateralization Amount is the 'Excess Overcollateralization Amount' with
respect to such Distribution Date. If, on any Distribution Date, the Excess
Overcollateralization Amount is, or, after taking into account all other
distributions to be made on such Distribution Date, would be, greater than zero
(i.e., the related Overcollateralization Amount is or would be greater than the
related Specified Overcollateralization Amount), then any amounts relating to
principal which would otherwise be distributed to the holders of the
Certificates in the related Certificate Group on such Distribution Date will (to
the extent not otherwise required to be applied to the other Certificate Group)
instead be distributed to the holders of the related Class B-IO Certificates, to
the Master Servicer as an Extra Master Servicing Fee and to the holders of the
Residual Certificates (in each case as provided in the Pooling and Servicing
Agreement).
CALCULATION OF ONE-MONTH LIBOR
On the second LIBOR Business Day (as defined below) preceding the
commencement of each Accrual Period for the Offered Adjustable Rate Certificates
(each such date, an 'Interest Determination Date'), the Trustee will determine
the London interbank offered rate for one-month United States dollar deposits
('One-Month LIBOR') for such Accrual Period on the basis of such rate as it
appears on Telerate Screen Page 3750, as of 11:00 a.m. (London time) on such
Interest Determination Date. 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 reasonably selected by the Trustee), One-Month LIBOR for the applicable
Accrual Period will be the Reference Bank Rate as defined herein. If no such
quotations can be obtained and no Reference Bank Rate is available, One-Month
LIBOR will be the One-Month LIBOR applicable to the preceding Accrual Period.
The 'Reference Bank Rate' with respect to any Accrual Period, means the
arithmetic mean (rounded upwards, if necessary, to the nearest whole multiple of
0.03125%) of the offered rates for United States dollar deposits for one month
that are quoted by the Reference Banks as of 11:00 a.m., New York City time, on
the related Interest Determination Date to prime banks in the London interbank
market for a period of one month in amounts approximately equal to the aggregate
Certificate Principal Balance of all Adjustable Rate Certificates for such
Accrual Period, provided that at least two such Reference Banks provide such
rate. If fewer than two offered rates appear, the Reference Bank Rate will be
the arithmetic mean (rounded upwards, if necessary, to the nearest whole
multiple of 0.03125%) of the rates quoted by one or more major banks in New York
City, selected by 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 Certificate Principal Balance of all
Adjustable Rate Certificates for such Accrual
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Period. As used in this section, 'LIBOR Business Day' means a day on which banks
are open for dealing in foreign currency and exchange in London and New York
City; and 'Reference Banks' means leading banks selected by the Trustee and
engaged in transactions in Eurodollar deposits in the international Eurocurrency
market (i) with an established place of business in London, (ii) which have been
designated as such by the Trustee and (iii) which are not controlling,
controlled by, or under common control with, the Depositor, Countrywide or any
successor Master Servicer.
The establishment of One-Month LIBOR on each Interest Determination Date by
the Trustee and the Trustee's calculation of the rate of interest applicable to
the Offered Adjustable Rate Certificates for the related Accrual Period for the
Offered Adjustable Rate Certificates shall (in the absence of manifest error) be
final and binding.
[CARRYOVER RESERVE FUND
The Pooling and Servicing Agreement contains an interest rate cap agreement
(the 'Interest Rate Cap Agreement') which establishes an account (the 'Carryover
Reserve Fund'), which is held in trust by the Trustee on behalf of the Offered
Adjustable Rate Certificateholders. The Carryover Reserve Fund will not be an
asset of any REMIC. Holders of the Offered Adjustable Rate Certificates will be
entitled to receive payments from the Carryover Reserve Fund pursuant to the
Interest Rate Cap Agreement in an amount equal to any Adjustable Rate
Certificate Carryover for such Certificates as described herein under
' -- Overcollateralization and Crosscollateralization Provisions.' The amount
required to be deposited in the Carryover Reserve Fund on any Distribution Date
(the 'Carryover Reserve Fund Deposit') will equal any Adjustable Rate
Certificate Carryover for such Distribution Date, or, if no Adjustable Rate
Certificate Carryover is payable on such Distribution Date, an amount such that
when added to other amounts already on deposit in the Carryover Reserve Fund,
the aggregate amount on deposit therein is equal to $10,000. Any investment
earnings on amounts on deposit in the Carryover Reserve Fund will be paid to
(and for the benefit of) the holders of the Class BV-IO Certificates and will
not be available to pay any Adjustable Rate Certificate Carryover.]
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Trustee will forward to each
Certificateholder, the Master Servicer and the Depositor a statement generally
setting forth, among other information:
(i) the amount of the related distribution to holders of the Offered
Certificates allocable to principal, separately identifying (A) the
aggregate amount of any Principal Prepayments included therein, (B) the
aggregate of all scheduled payments of principal included therein and (C)
Extra Principal Distribution Amount;
(ii) the amount of such distribution to holders of the Offered
Certificates allocable to interest;
(iii) the Interest Carry-Forward Amount;
(iv) the Certificate Principal Balance of the Offered Certificates
after giving effect to the distribution of principal on such Distribution
Date;
(v) the Pool Stated Principal Balance for the following Distribution
Date;
(vi) the amount of the Servicing Fee paid to or retained by the Master
Servicer for the related Due Period;
(vii) the Pass-Through Rate for each Class of Offered Adjustable Rate
Certificates for such Distribution Date;
(viii) the amount of Advances included in the distribution on such
Distribution Date;
(ix) the number and aggregate principal amounts of Mortgage Loans in
each Loan Group (A) delinquent (exclusive of Mortgage Loans in foreclosure)
(1) 30 days, (2) 31 to 60 days, (3) 61 to 90 days and (4) 91 or more days,
and (B) in foreclosure and delinquent (1) 30 days, (2) 31 to 60 days, (3)
61 to 90 days and (4) 91 or more days, in each case as of the close of
business on the last day of the calendar month preceding such Distribution
Date;
(x) with respect to any Mortgage Loan that became an REO Property in
each Loan Group during the preceding calendar month, the loan number and
Stated Principal Balance of such Mortgage Loan as of the
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close of business on the Determination Date preceding such Distribution
Date and the date of acquisition thereof;
(xi) with respect to each Loan Group, whether a Trigger Event exists;
(xii) the total number and principal balance of any REO Properties in
each Loan Group as of the close of business on the Determination Date
preceding such Distribution Date; and
(xiii) any Adjustable Rate Certificate Carryover paid and all
remaining Adjustable Rate Certificate Carryover remaining on each Class of
the Offered Adjustable Rate Certificate on such Distribution Date.
In addition, within a reasonable period of time after the end of each
calendar year, the Trustee will prepare and deliver to each Certificateholder of
record during the previous calendar year a statement containing information
necessary to enable Certificateholders to prepare their tax returns. Such
statements will not have been examined and reported upon by an independent
public accountant.
AMENDMENT
The Pooling and Servicing Agreement may be amended by the Depositor, the
Master Servicer, the Seller and the Trustee, without the consent of
Certificateholders, for any of the purposes set forth under 'The
Agreements -- Amendment' in the Prospectus. In addition, the Pooling and
Servicing Agreement may be amended by the Depositor, the Master Servicer, the
Seller and the Trustee and the holders of a Majority in Interest of each Class
of Certificates affected thereby for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the Pooling and
Servicing Agreement or of modifying in any manner the rights of the
Certificateholders; provided, however, that no such amendment may (i) reduce in
any manner the amount of, or delay the timing of, payments required to be
distributed on any Certificate without the consent of the holder of such
Certificate; (ii) adversely affect in any material respect the interests of the
holders of any Class of Certificates in a manner other than as described in
clause (i) above, without the consent of the holders of Certificates of such
Class evidencing, as to such Class, Percentage Interests aggregating 66%; or
(iii) reduce the aforesaid percentage of aggregate outstanding principal amounts
of Certificates of each Class, the holders of which are required to consent to
any such amendment, without the consent of the holders of all Certificates of
such Class.
OPTIONAL TERMINATION
[The Master Servicer will have the right to repurchase all remaining
Mortgage Loans and REO Properties in each Loan Group and thereby effect early
retirement of all the Certificates of the related Certificate Group, subject to
the Stated Principal Balance of the Mortgage Loans and REO Properties in such
Loan Group at the time of repurchase being less than or equal to 10% of Cut-off
Date Pool Principal Balance of such Loan Group (each, an 'Optional Termination
Date'). In the event such option is exercised by the Master Servicer, the
repurchase will be made at a price equal to the sum of (i) 100% of the Stated
Principal Balance of each Mortgage Loan (other than in respect of REO Property)
plus accrued interest thereon at the applicable Mortgage Rate, net of the
Servicing Fee, (ii) the appraised value of any REO Property (up to the Stated
Principal Balance of the related Mortgage Loan), and (iii) any unreimbursed
out-of-pocket costs and expenses and the principal portion of Advances, in each
case previously incurred by the Master Servicer in the performance of its
servicing obligations. Proceeds from such repurchase will be distributed to the
Certificateholders in the related Certificate Group in the priority described
above. 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 of the appraised value of any REO Property
and such appraised value is less than the Stated Principal Balance of the
related Mortgage Loan. Any repurchase of the Mortgage Loans and REO Properties
will result in an early retirement of the Certificates in the related
Certificate Group.]
OPTIONAL PURCHASE OF DEFAULTED LOANS
As to any Mortgage Loan which is delinquent in payment by 91 days or more,
the Master Servicer may, at its option, purchase such Mortgage Loan at a price
equal to 100% of the Stated Principal Balance thereof plus accrued interest
thereon at the applicable Mortgage Rate, from the date through which interest
was last paid by the related mortgagor or advanced to the first day of the month
in which such amount is to be distributed.
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EVENTS OF DEFAULT
Events of Default will consist of: (i) any failure by the Master Servicer
to deposit in the Certificate Account or the Distribution Account the required
amounts or remit to the Trustee any payment (including an Advance required to be
made under the terms of the Pooling and Servicing Agreement) which continues
unremedied for five Business Days after written notice of such failure shall
have been given to the Master Servicer by the Trustee or the Depositor, or to
the Master Servicer and the Trustee by the holders of Certificates evidencing
not less than 25% of the Voting Rights evidenced by the Certificates; (ii) any
failure by the Master Servicer to observe or perform in any material respect any
other of its covenants or agreements, or any breach of a representation or
warranty made by the Master Servicer, in the Pooling and Servicing Agreement,
which continues unremedied for 60 days after the giving of written notice of
such failure to the Master Servicer by the Trustee or the Depositor, or to the
Master Servicer and the Trustee by the holders of Certificates evidencing not
less than 25% of the Voting Rights evidenced by the Certificates; or (iii)
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings, and certain actions by or on behalf of the Master Servicer
indicating its insolvency or inability to pay its obligations. As of any date of
determination, (i) holders of the Offered Certificates will be allocated 95% of
all Voting Rights, allocated among the Offered Certificates in proportion to
their respective outstanding Certificate Principal Balances and (ii) holders of
the Class B-IO Certificates and the Residual Certificates will be allocated all
of the remaining Voting Rights. Voting Rights will be allocated among the
Certificates of each such Class in accordance with their respective Percentage
Interests.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default under the Pooling and Servicing Agreement
remains unremedied, the Trustee shall, but only upon the receipt of instructions
from the holders of Certificates having not less than 25% of the Voting Rights
evidenced by the Certificates, terminate all of the rights and obligations of
the Master Servicer under the Pooling and Servicing Agreement and in and to the
Mortgage Loans, whereupon the Trustee will succeed to all of the
responsibilities and duties of the Master Servicer under the Pooling and
Servicing Agreement, including the obligation to make Advances. No assurance can
be given that termination of the rights and obligations of the Master Servicer
under the Pooling and Servicing Agreement would not adversely affect the
servicing of the Mortgage Loans, including the delinquency experience of the
Mortgage Loans.
No Certificateholder, solely by virtue of such holder's status as a
Certificateholder, will have any right under the Pooling and Servicing Agreement
to institute any proceeding with respect thereto, unless such holder previously
has given to the Trustee written notice of the continuation of an Event of
Default and unless the holders of Certificates having not less than 25% of the
Voting Rights evidenced by the Certificates have made written request to the
Trustee to institute such proceeding in its own name as Trustee thereunder and
have offered to the Trustee reasonable indemnity and the Trustee for 60 days has
neglected or refused to institute any such proceeding.
THE TRUSTEE
will be the Trustee under the Pooling and
Servicing Agreement. The Depositor and Countrywide may maintain other banking
relationships in the ordinary course of business with the Trustee. Offered
Certificates may be surrendered at the Corporate Trust Office of the Trustee
located at , Attention: or at
such other addresses as the Trustee may designate from time to time.
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YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
GENERAL
The weighted average life of, and the yield to maturity on each Class of
the Offered Certificates will be directly related to the rate of payment of
principal (including prepayments) of the Mortgage Loans in the related Loan
Group. The actual rate of principal prepayments on pools of mortgage loans is
influenced by a variety of economic, tax, geographic, demographic, social, legal
and other factors and has fluctuated considerably in recent years. In addition,
the rate of principal prepayments may differ among pools of mortgage loans at
any time because of specific factors relating to the mortgage loans in the
particular pool, including, among other things, the age of the mortgage loans,
the geographic locations of the properties securing the loans, the extent of the
mortgagor's equity in such properties, and changes in the mortgagors' housing
needs, job transfers and employment status.
The timing of changes in the rate of prepayments may significantly affect
the actual yield to investors who purchase the Offered Certificates at prices
other than par, even if the average rate of principal prepayments is consistent
with the expectations of investors. In general, the earlier the payment of
principal of the Mortgage Loans the greater the effect on an investor's yield to
maturity. As a result, the effect on an investor's yield of principal
prepayments 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 reduction (or increase) in
the rate of principal prepayments. Investors must make their own decisions as to
the appropriate prepayment assumptions to be used in deciding whether to
purchase any of the Offered Certificates. The Depositor does not make any
representations or warranties as to the rate of prepayment or the factors to be
considered in connection with such determinations.
The weighted average life and yield to maturity of each Class of Offered
Certificates will also be influenced by the amount of Excess Cashflow generated
by the Mortgage Loans and applied in reduction of the Certificate Principal
Balances of such Certificates. The level of Excess Cashflow available on any
Distribution Date to be applied in reduction of the Certificate Principal
Balances of the Offered Certificates will be influenced by, among other factors,
(i) the overcollateralization level of the assets in the Loan Group at such time
(i.e., the extent to which interest on the Mortgage Loans is accruing on a
higher Stated Principal Balance than the Certificate Principal Balance of the
related Offered Certificates); (ii) the delinquency and default experience of
the Mortgage Loans, (iii) the level of One-Month LIBOR and the Mortgage Index
for the Adjustable Rate Mortgage Loans, and (iv) the provisions of the Pooling
and Servicing Agreement that permit any Remainder Excess Cashflow to be
distributed to the Class B-IO Certificates and the Residual Certificates and to
the Master Servicer as an Extra Master Servicing Fee (in each case as provided
in the Pooling and Servicing Agreement) when required overcollateralization
levels have been met. To the extent that greater amounts of Excess Cashflow are
distributed in reduction of the Certificate Principal Balances of a Class of
Offered Certificates, the weighted average life thereof can be expected to
shorten. No assurance, however, can be given as to the amount of Excess Cashflow
distributed at any time or in the aggregate. See 'Description of the Offered
Certificates -- Overcollateralization and Crosscollateralization Provisions'
herein.
The Class AF-4 Certificates will not be entitled to distributions of
principal until the Distribution Date in (except as otherwise
described herein). Thereafter, the relative entitlement of the Class AF-4
Certificates to payments in respect of principal is subject to increase in
accordance with the calculation of the Class AF-4 Distribution Amount. See
'Description of the Certificates -- Distributions' herein.
PREPAYMENTS AND YIELDS FOR OFFERED CERTIFICATES
Generally, if purchased at other than par, the yield to maturity on the
Offered Certificates will be affected by the rate of the payment of principal of
the Mortgage Loans in the related Loan Group. If the actual rate of payments on
the Mortgage Loans in a Loan Group is slower than the rate anticipated by an
investor who purchases related Offered Certificates at a discount, the actual
yield to such investor will be lower than such investor's anticipated yield. If
the actual rate of payments on the Mortgage Loans in a Loan Group is faster than
the rate anticipated by an investor who purchases related Offered Certificates
at a premium, the actual yield to such investor will be lower than such
investor's anticipated yield.
All the Mortgage Loans in the Fixed Rate Mortgage Loan Group are fixed rate
Mortgage Loans. In general, if prevailing interest rates fall significantly
below the interest rates on fixed rate mortgage loans, such mortgage
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loans are likely to be subject to higher prepayment rates than if prevailing
rates remain at or above the interest rates on such mortgage loans. Conversely,
if prevailing interest rates rise appreciably above the interest rates on fixed
rate mortgage loans, such mortgage loans are likely to experience a lower
prepayment rate than if prevailing rates remain at or below the interest rates
on such mortgage loans.
All the Mortgage Loans in the Adjustable Rate Mortgage Loan Group are
adjustable rate Mortgage Loans. As is the case with conventional fixed rate
mortgage loans, adjustable rate mortgage loans may be subject to a greater rate
of principal prepayments in a declining interest rate environment. For example,
if prevailing interest rates fall significantly, adjustable rate mortgage loans
could be subject to higher prepayment rates than if prevailing interest rates
remain constant because the availability of fixed rate mortgage loans at lower
interest rates may encourage mortgagors to refinance their adjustable rate
mortgage loans to a lower fixed interest rate. Nevertheless, no assurance can be
given as to the level of prepayment that the Mortgage Loans will experience.
Although the Mortgage Rates on the Mortgage Loans in the Adjustable Rate
Mortgage Loan Group are subject to adjustment, the Mortgage Rates adjust less
frequently than the Pass-Through Rate on the Offered Adjustable Rate
Certificates and adjust by reference to the Mortgage Index. Changes in One-Month
LIBOR may not correlate with changes in the Mortgage Index and also may not
correlate with prevailing interest rates. It is possible that an increased level
of One-Month LIBOR could occur simultaneously with a lower level of prevailing
interest rates which would be expected to result in faster prepayments, thereby
reducing the weighted average life of the Offered Adjustable Rate Certificates.
The Mortgage Rate applicable to all or substantially all of the Mortgage Loans
in the Adjustable Rate Mortgage Loan Group and any Adjustment Date will be based
on the Mortgage Index value most recently announced generally as of a date 45
days prior to such Adjustment Date. Thus, if the Mortgage Index value with
respect to a Mortgage Loan in the Adjustable Rate Mortgage Loan Group rises, the
lag in time before the corresponding Mortgage Rate increases will, all other
things being equal, slow the upward adjustment of the Available Funds Cap on the
Offered Adjustable Rate Certificates. In addition, a majority of the Adjustable
Rate Mortgage Loans are 2/28 Mortgage Loans, the Mortgage Rates on which will
not adjust for a substantial period of time. See 'The Mortgage Pool' herein.
Although amounts deposited in the Carryover Reserve Fund will be available
to pay any Adjustable Rate Carryover, there is no assurance that funds will be
available to pay such amount. The ratings assigned to the Offered Adjustable
Rate Certificates do not address the likelihood of the payment of any such
amount.
The extent to which the yield to maturity of the Offered Certificates may
vary from the anticipated yield will depend upon the degree to which it is
purchased at a discount or premium and, correspondingly, the degree to which the
timing of payments thereon is sensitive to prepayments, liquidations and
purchases of the Mortgage Loans in the related Loan Group. In particular, in the
case of an Offered Certificate purchased at a discount, an investor should
consider the risk that a slower than anticipated rate of principal payments,
liquidations and purchases of the Mortgage Loans in the related Loan Group could
result in an actual yield to such investor that is lower than the anticipated
yield and, in the case of an Offered Certificate purchased at a premium, the
risk that a faster than anticipated rate of principal payments, liquidations and
purchases of such Mortgage Loans in the related Loan Group could result in an
actual yield to such investor that is lower than the anticipated yield.
The Last Scheduled Distribution Date for each Class of the Offered
Certificates is the date on which the Certificate Principal Balance thereof
would be reduced to zero assuming, among other things, that no prepayments are
received on the Mortgage Loans in the related Loan Group and that scheduled
monthly payments of principal of and interest on each of such Mortgage Loans are
timely received and that Excess Cashflow and any Remainder Excess Cashflow is
not used to make accelerated payments of principal. The actual final
Distribution Date with respect to each Class of Offered Certificates could occur
significantly earlier than its Last Scheduled Distribution Date because (i)
prepayments are likely to occur which will be applied to the payment of the
Certificate Principal Balances thereof, (ii) Excess Cashflow and any Remainder
Excess Cashflow to the extent available will be applied as an accelerated
payment of principal on the Offered Certificates as described herein and (iii)
the Master Servicer may purchase all the Mortgage Loans in a Loan Group when
outstanding Stated Principal Balances thereof has declined to 10% or less of the
Cut-off Date Principal Balance of such Loan Group.
Prepayments on mortgage loans are commonly measured relative to a
prepayment model or standard. The models used in this Prospectus Supplement
('Prepayment Models') are based on an assumed rate of prepayment each month of
the then unpaid principal balance of a pool of mortgage loans similar to the
Mortgage Loans in each Loan Group. For the Fixed Rate Mortgage Loan Group, the
Prepayment Model used in
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this Prospectus Supplement (the 'Prepayment Vector' or 'PV') is a prepayment
assumption which represents an assumed rate of prepayment each month relative to
the then outstanding principal balance of a pool of mortgage loans for the life
of such mortgage loans. % of the Prepayment Vector for the Fixed Rate
Mortgage Loan Group, assumes prepayment rates of % per annum of the then
outstanding principal balance of the related Mortgage Loans in the first month
of the life of such Mortgage Loans and an additional % per annum in each month
thereafter up to and including the tenth month. Beginning in the eleventh month
and in each month thereafter during the life of such Mortgage Loans, %
Prepayment Vector assumes a constant prepayment rate of % per annum. For the
Adjustable Rate Mortgage Loan Group, the Prepayment Model used in this
Prospectus Supplement ('Constant Prepayment Rate' or 'CPR') is a prepayment
assumption which represents a constant assumed rate of prepayment each month
relative of the then outstanding principal balance of a pool of mortgage loans
for the life of such mortgage loans. % CPR, assumes a constant prepayment rate
of % per annum.
As used in the following tables ' % of the Prepayment Vector' assumes the
Mortgage Loans will prepay at rates equal to % of the related Prepayment
Vector; ' % of the Prepayment Vector' assumes the Mortgage Loans will prepay
at rates equal to % of the related Prepayment Vector; ' % of the Prepayment
Vector' assumes the Mortgage Loans will prepay at rates equal to % of the
related Prepayment Vector; and the other percentages of the Prepayment Vector
identified therein assume that the Mortgage Loans will prepay at rates equal to
such respective percentages of the related Prepayment Vector.
There is no assurance, however, that prepayments on the Mortgage Loans will
conform to any level of the Prepayment Model, and no representation is made that
the Mortgage Loans will prepay at the prepayment rates shown or any other
prepayment rate. The rate of principal payments on pools of mortgage loans is
influenced by a variety of economic, geographic, social and other factors,
including the level of interest rates. Other factors affecting prepayment of
mortgage loans include changes in obligors' housing needs, job transfers and
unemployment. In the case of mortgage loans in general, if prevailing interest
rates fall significantly below the interest rates on such mortgage loans, the
mortgage loans are likely to be subject to higher prepayment rates than if
prevailing interest rates remain at or above the rates borne by such mortgage
loans. Conversely, if prevailing interest rates rise above the interest on such
mortgage loans, the rate of prepayment would be expected to decrease.
The following tables have been prepared on the basis of the following
assumptions (collectively, the 'Modeling Assumptions'): (i) the Mortgage Loans
of the related Loan Group prepay at the indicated percentage of the related
Prepayment Model; (ii) distributions on the Offered Certificates are received,
in cash, on the 25th day of each month, commencing , , in
accordance with the payment priorities defined herein; (iii) no defaults or
delinquencies in, or modifications, waivers or amendments respecting, the
payment by the Mortgagors of principal and interest on the Mortgage Loans occur;
(iv) scheduled payments are assumed to be received on the first day of each
month commencing in , and prepayments represent payment in full of
individual Mortgage Loans and are assumed to be received on the last day of each
month, commencing in , and include 30 days' interest thereon; (v)
the level of the six-month Libor Mortgage Index remains constant at % per
annum, the level of the One-Year CMT mortgage index (based on the monthly
average yield on U.S. Treasury securities adjusted to a constant maturity of one
year) remains constant at % per annum and the level of One-Month LIBOR
remains constant at % per annum; (vi) the Pass-Through Margin for the
Offered Adjustable Rate Certificates remains constant at the rates applicable
prior to the related Optional Termination Date and the Pass-Through Margin for
the Offered Adjustable Rate Certificates is adjusted accordingly on any
Distribution Date following the related Optional Termination Date; (vii) the
Closing Date for the Certificates is , ; (viii) the Mortgage
Interest Rate for each Mortgage Loan in the Adjustable Rate Mortgage Loan Group
is adjusted on its next Mortgage Interest Rate Adjustment Date (and on
subsequent Mortgage Rate Adjustment Date, if necessary) to equal the sum of (a)
the assumed level of the Mortgage Index and (b) the respective Gross Margin
(such sum being subject to the applicable periodic adjustment caps and floors);
(ix) except as indicated with respect to the weighted average lives, no optional
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<PAGE>
<PAGE>
termination is exercised with respect to either Loan Group on the respective
Optional Termination Date; and (x) each Loan Group consists of Mortgage Loans
having the approximate characteristics described below:
FIXED RATE MORTGAGE LOAN GROUP
<TABLE>
<CAPTION>
ORIGINAL REMAINING
AMORTIZATION AMORTIZATION REMAINING TERM
CURRENT NET TERM TERM TO MATURITY
BALANCE MORTGAGE RATE MORTGAGE RATE (IN MONTHS) (IN MONTHS) (IN MONTHS)
- -------------- ------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
$ % %
$ % %
$ % %
$ % %
</TABLE>
ADJUSTABLE RATE MORTGAGE LOAN GROUP
Mortgage Loans With a Six-Month LIBOR Mortgage Index(1)
<TABLE>
<CAPTION>
ORIGINAL REMAINING INITIAL RESET
CURRENT NET TERM TERM GROSS PERIODIC PERIODIC CHANGE
BALANCE MORTGAGE RATE MORTGAGE RATE (IN MONTHS) (IN MONTHS) MARGIN CAP CAP FREQUENCY
- -------------- ------------- ------------- ----------- ----------- ------ -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ % % % % %
$ % % % % %
$ % % % % %
$ % % % % %
$ % % % % %
$ % % % % %
$ % % % % %
$ % % % % %
$ % % % % %
$ % % % % %
$ % % % % %
<CAPTION>
NUMBER OF
MONTHS UNTIL
NEXT RATE
CURRENT ADJUSTMENT
BALANCE DATE
- -------------- ------------
<S> <C>
$
</TABLE>
- ------------
(1) FOR A DESCRIPTION OF THE SIX-MONTH LIBOR MORTGAGE INDEX SEE 'THE MORTGAGE
POOL -- GENERAL' HEREIN.
Mortgage Loans With a One-Year CMT Mortgage Index(1)
<TABLE>
<CAPTION>
ORIGINAL REMAINING INITIAL RESET
CURRENT NET TERM TERM GROSS PERIODIC PERIODIC CHANGE
BALANCE MORTGAGE RATE MORTGAGE RATE (IN MONTHS) (IN MONTHS) MARGIN CAP CAP FREQUENCY
- -------------- ------------- ------------- ----------- ----------- ------ -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ % % % % %
<CAPTION>
NUMBER OF
MONTHS UNTIL
NEXT RATE
CURRENT ADJUSTMENT
BALANCE DATE
- -------------- ------------
<S> <C>
$
</TABLE>
- ------------
(1) THE ONE-YEAR CMT MORTGAGE INDEX IS CALCULATED BASED ON THE MONTHLY AVERAGE
YIELD ON U.S. TREASURY SECURITIES ADJUSTED TO A CONSTANT MATURITY OF ONE
YEAR.
S-52
<PAGE>
<PAGE>
PERCENT OF THE INITIAL CLASS CERTIFICATE PRINCIPAL BALANCE
AT THE RESPECTIVE PERCENTAGES OF THE
PREPAYMENT MODEL
<TABLE>
<CAPTION>
CLASS AF-1 CLASS AF-2
----------------------------- -----------------------------
% % % % % % % % % %
FIXED RATE MORTGAGE LOAN GROUP (PV) ----- ---- ---- ---- ---- ----- ---- ---- ---- ----
ADJUSTABLE RATE MORTGAGE LOAN GROUP (CPR)
PAYMENT DATE % % % % % % % % % %
- --------------------------------------------- ----- ---- ---- ---- ---- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
CLASS AF-3
-----------------------------
% % % % %
FIXED RATE MORTGAGE LOAN GROUP (PV) ----- ---- ---- ---- ----
ADJUSTABLE RATE MORTGAGE LOAN GROUP (CPR)
PAYMENT DATE % % % % %
- --------------------------------------------- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Weighted Average Life (in years)(1)..........
Weighted Average Life (in years)(1)(2).......
</TABLE>
- ------------
(1) THE WEIGHTED AVERAGE LIFE OF THE OFFERED CERTIFICATES IS DETERMINED BY (i)
MULTIPLYING THE AMOUNT OF EACH PRINCIPAL PAYMENT BY THE NUMBER OF YEARS FROM
THE DATE OF ISSUANCE TO THE RELATED DISTRIBUTION DATE, (ii) ADDING THE
RESULTS, AND (iii) DIVIDING THE SUM BY THE INITIAL RESPECTIVE CERTIFICATE
PRINCIPAL BALANCE FOR SUCH CLASS OF OFFERED CERTIFICATES.
(2) TO THE RESPECTIVE OPTIONAL TERMINATION DATE.
(Table continued on next page.)
S-53
<PAGE>
<PAGE>
PERCENT OF THE INITIAL CLASS CERTIFICATE PRINCIPAL BALANCE
AT THE RESPECTIVE PERCENTAGES OF THE
PREPAYMENT MODEL
<TABLE>
<CAPTION>
CLASS AF-4 CLASS MF-1
----------------------------- -----------------------------
FIXED RATE MORTGAGE LOAN GROUP (PV) % % % % % % % % % %
ADJUSTABLE RATE MORTGAGE LOAN GROUP (CPR) ----- ---- ---- ---- ---- ----- ---- ---- ---- ----
PAYMENT DATE % % % % % % % % % %
- --------------------------------------------- ----- ---- ---- ---- ---- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
CLASS MF-2
-----------------------------
FIXED RATE MORTGAGE LOAN GROUP (PV) % % % % %
ADJUSTABLE RATE MORTGAGE LOAN GROUP (CPR) ----- ---- ---- ---- ----
PAYMENT DATE % % % % %
- --------------------------------------------- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Weighted Average Life (in years)(1)..........
Weighted Average Life in (years)(1)(2).......
</TABLE>
- ------------
(1) THE WEIGHTED AVERAGE LIFE OF THE OFFERED CERTIFICATES IS DETERMINED BY (i)
MULTIPLYING THE AMOUNT OF EACH PRINCIPAL PAYMENT BY THE NUMBER OF YEARS FROM
THE DATE OF ISSUANCE TO THE RELATED DISTRIBUTION DATE, (ii) ADDING THE
RESULTS, AND (iii) DIVIDING THE SUM BY THE INITIAL RESPECTIVE CERTIFICATE
PRINCIPAL BALANCE FOR SUCH CLASS OF OFFERED CERTIFICATES.
(2) TO THE RESPECTIVE OPTIONAL TERMINATION DATE.
(Table continued from previous page and continued on next page.)
S-54
<PAGE>
<PAGE>
PERCENT OF THE INITIAL CLASS CERTIFICATE PRINCIPAL BALANCE
AT THE RESPECTIVE PERCENTAGES OF THE
PREPAYMENT MODEL
<TABLE>
<CAPTION>
CLASS BF CLASS AV-1
FIXED RATE MORTGAGE LOAN GROUP (PV) ----------------------------- -----------------------------
ADJUSTABLE RATE MORTGAGE LOAN GROUP (CPR)
- --------------------------------------------- % % % % % % % % % %
----- ---- ---- ---- ---- ----- ---- ---- ---- ----
PAYMENT DATE % % % % % % % % % %
- --------------------------------------------- ----- ---- ---- ---- ---- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
CLASS MV-1
FIXED RATE MORTGAGE LOAN GROUP (PV) -----------------------------
ADJUSTABLE RATE MORTGAGE LOAN GROUP (CPR)
- --------------------------------------------- % % % % %
----- ---- ---- ---- ----
PAYMENT DATE % % % % %
- --------------------------------------------- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Weighted Average Life (in years)(1)..........
Weighted Average Life (in years)(1)(2).......
</TABLE>
- ------------
(1) THE WEIGHTED AVERAGE LIFE OF THE OFFERED CERTIFICATES IS DETERMINED BY (i)
MULTIPLYING THE AMOUNT OF EACH PRINCIPAL PAYMENT BY THE NUMBER OF YEARS FROM
THE DATE OF ISSUANCE TO THE RELATED DISTRIBUTION DATE, (ii) ADDING THE
RESULTS, AND (iii) DIVIDING THE SUM BY THE INITIAL RESPECTIVE CERTIFICATE
PRINCIPAL BALANCE FOR SUCH CLASS OF OFFERED CERTIFICATES.
(2) TO THE RESPECTIVE OPTIONAL TERMINATION DATE.
(Table continued from previous page and continued on next page.)
S-55
<PAGE>
<PAGE>
PERCENT OF THE INITIAL CLASS CERTIFICATE PRINCIPAL BALANCE
AT THE RESPECTIVE PERCENTAGES OF THE
PREPAYMENT MODEL
<TABLE>
<CAPTION>
CLASS MV-2 CLASS BV
FIXED RATE MORTGAGE LOAN GROUP (PV) ----------------------------- -----------------------------
ADJUSTABLE RATE MORTGAGE LOAN GROUP (CPR)
- --------------------------------------------- % % % % % % % % % %
----- ---- ---- ---- ---- ----- ---- ---- ---- ----
PAYMENT DATE % % % % % % % % % %
- --------------------------------------------- ----- ---- ---- ---- ---- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted Average
Life (in Year)(1)..........................
Weighted Average Life (in years)(1)(2).......
</TABLE>
- ------------
(1) THE WEIGHTED AVERAGE LIFE OF THE OFFERED CERTIFICATES IS DETERMINED BY (i)
MULTIPLYING THE AMOUNT OF EACH PRINCIPAL PAYMENT BY THE NUMBER OF YEARS FROM
THE DATE OF ISSUANCE TO THE RELATED DISTRIBUTION DATE, (ii) ADDING THE
RESULTS, AND (iii) DIVIDING THE SUM BY THE INITIAL RESPECTIVE CERTIFICATE
PRINCIPAL BALANCE FOR SUCH CLASS OF OFFERED CERTIFICATES.
(2) TO THE RESPECTIVE OPTIONAL TERMINATION DATE.
(Table continued from previous page.)
S-56
<PAGE>
<PAGE>
ADDITIONAL INFORMATION
The Depositor intends to file certain additional yield tables and other
computational materials with respect to the Class A Certificates with the
Securities and Exchange Commission in a report on Form 8-K to be dated
, . Such tables and materials were prepared by the Underwriters
at the request of certain prospective investors, based on assumptions provided
by, and satisfying the special requirements of, such prospective investors. Such
tables and assumptions may be based on assumptions that differ from the
Structuring Assumptions. Accordingly, such tables and other materials may not be
relevant to or appropriate for investors other than those specifically
requesting them.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the sale of the Offered
Certificates against the purchase price of the Mortgage Loans.
FEDERAL INCOME TAX CONSEQUENCES
The Pooling and Servicing Agreement provides that the Trust Fund, exclusive
of the assets held in the Carryover Reserve Fund, will comprise several Lower
Tier REMICs (as defined in the Pooling and Servicing Agreement) and an Upper
Tier REMIC (as defined in the Pooling and Servicing Agreement) organized in a
tiered REMIC structure. Each Lower Tier REMIC will issue uncertificated regular
interests and those interests will be held entirely by the REMIC immediately
above it in the tiered structure. Each of the Lower Tier REMICs and the Upper
Tier REMIC will designate a single class of interests as the residual interest
in that REMIC. The Residual Certificate will represent ownership of the residual
interests in each of the REMICs. Elections will be made to treat each Lower Tier
REMIC and the Upper Tier REMIC as a REMIC for federal income tax purposes.
The Upper Tier REMIC will issue 13 classes of regular interests. Each class
of Offered Certificates and the Class B-IO Certificates will represent
beneficial ownership of regular interests issued by the Upper Tier REMIC. In
addition, each of the Adjustable Rate Offered Certificates will represent a
beneficial interest in the right to receive payments from the Carryover Reserve
Fund pursuant to an interest rate cap agreement included in the Pooling and
Servicing Agreement (the 'Interest Rate Cap Agreement').
Upon the issuance of the Offered Certificates, Brown & Wood LLP ('Tax
Counsel'), will deliver its opinion concluding, assuming compliance with the
Pooling and Servicing Agrement, for federal income tax purposes, each Lower Tier
REMIC and the Upper Tier REMIC will qualify as a REMIC within the meaning of
Section 860D of the Internal Revenue Code of 1986, as amended (the 'Code') and
the Offered Certificates represent regular interests in a REMIC. In addition,
Tax Counsel will deliver an opinion concluding that the Carryover Reserve Fund
is an 'outside reserve fund' that is beneficially owned by the holders of the
Class B-IO Cerfificates. Moreover, Tax Counsel will deliver an opinion
concluding that the rights of the holders of the Adjustable Rate Offered
Certificates to receive payments from the Carryover Reserve Fund pursuant to the
Interest Rate Cap Agreement represent, for federal income tax purposes,
interests in an interest rate cap agreement.
TAXATION OF REGULAR INTERESTS
A holder of an Offered Certificate of any Class of Offered Certificates
will be treated for federal income tax purposes as owning an interest in regular
interests in the Upper Tier REMIC. The Adjustable Rate Offered Certificates will
also represent beneficial ownership of an interest in a limited recourse
interest rate cap agreement. A holder of an Adjustable Rate Offered Certificate
must allocate its purchase price for the Adjustable Rate Offered Certificate
between its two components -- the REMIC regular interest component and the
Interest Rate Cap Agreement component. For information reporting purposes, the
Trustee will assume that, with respect to any Adjustable Rate Offered
Certificate, the Interest Rate Cap Agreement component will have only nominal
value relative to the value of the regular interest component. The IRS could,
however, argue that the Interest Rate Cap Agreement component has significant
value, and if that argument were to be sustained, the regular interest component
could be viewed as having been issued with an additional amount of original
issue discount ('OID') (which could cause the total amount of discount to exceed
a statutorily defined de minimis amount). See 'Federal Income Tax
Considerations -- Taxation of Regular Interest Certificates' in the Prospectus.
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<PAGE>
<PAGE>
Upon the sale, exchange, or other disposition of an Adjustable Rate Offered
Certificate, the holder must allocate the amount realized between the two
components of the Adjustable Rate Offered Certificate based on the relative fair
market values of those components at the time of sale. Assuming that an
Adjustable Rate Offered Certificate is held as a 'capital asset' within the
meaning of section 1221 of the Code, gain or loss on the disposition of an
interest in the Interest Rate Cap Agreement component should be capital gain or
loss, and, gain or loss on the disposition of the regular interest component
should, subject to the limitation described below, be capital gain or loss. Gain
attributable to the regular interest component of an Adjustable Rate Offered
Certificate will be treated as ordinary income, however, to the extent such gain
does not exceed the excess, if any, of (i) the amount that would have been
includable in the holder's gross income with respect to the regular interest
component had income thereon accrued at a rate equal to 110% of the applicable
federal rate as defined in section 1274(d) of the Code determined as of the date
of purchase of the Offered Certficate over (ii) the amount actually included in
such holder's income.
The maximum tax rate on noncorporate taxpayer's on capital gain realized
upon the disposition of Offered Certificates is 20 percent if the Offered
Certificates are held for at least 18 months, and 28 percent if the Offered
Certificates are held for more than one year but not more than 18 months.
Interest on a regular interest must be included in income by a holder under
the accrual method of accounting, regardless of the holder's regular method of
accounting. In addition, a Regular interest could be considered to have been
issued with OID. See 'Certain Federal Income Tax Considerations -- Taxation of
Regular Interest Certificates' in the Prospectus. The prepayment assumption that
will be used to in determining the accrual of any OID, market discount, or bond
premium, if any, will be a rate equal to 100% of the applicable Prepayment Model
as described above. No representation is made that the Mortgage Loans will
prepay at such a rate or at any other rate. OID must be included in income as it
accrues on a constant yield method, regardless of whether the holder receives
currently the cash attributable to such OID.
STATUS OF THE OFFERED CERTIFICATES
The Regular Interest component of the Offered Certificates will be treated
as assets described in Section 7701(a)(19)(C) of the Code, and as 'real estate
assets' under Section 856(c)(5)(B) of the Code, generally, in the same
proportion that the assets of the Trust Fund, exclusive of the Carryover Reserve
Fund, would be so treated. In addition, to the extent a regular interest
represents real estate assets under section 856(c)(5)(B) of the Code, the
interest derived from that component would be interest on obligations secured by
interests in real property for purposes of section 856(c)(3) of the Code. The
Interest Rate Cap Agreement component of an Offered Certificate will not,
however, qualify as an asset described in Section 7701(a)(19)(C) of the Code or
as a real estate asset under Section 856(c)(5)(B) of the Code.
[THE CARRYOVER RESERVE FUND
As indicated above, a portion of the purchase price paid by a holder to
acquire an Adjustable Rate Offered Certificate will be attributable to the
Interest Rate Cap Agreement component of the Offered Certificate. The portion of
the overall purchase price attributable to the Interest Rate Cap Agreement
component must be amortized over the life of the Adjustable Rate Offered
Certificate, taking into account the declining balance of the related Regular
Interest component. Treasury regulations concerning notional principal contracts
provide alternative methods for amortizing the purchase price of an interest
rate cap contract. Under one method -- the level yield constant interest
method -- the price paid for an interest rate cap agreement is amortized over
the life of the cap as though it were the principal amount of a loan bearing
interest at a reasonable rate. Holders are urged to consult their tax advisors
concerning the methods that can be employed to amortize the portion of the
purchase price paid for the Interest Rate Cap Agreement component of an
Adjustable Rate Offered Certificate.
Any payments made to a holder from the Carryover Reserve Fund will be
treated as periodic payments on an interest rate cap agreement. To the extent
the sum of such periodic payments for any year exceed that year's amortized cost
of the Interest Rate Cap Agreement component, such excess is ordinary income. If
for any year the amount of that year's amortized cost exceeds the sum of the
periodic payments, such excess is allowable as an ordinary deduction.]
S-58
<PAGE>
<PAGE>
PROHIBITED TRANSACTIONS TAX AND OTHER TAXES
The Code imposes a tax on REMICs equal to 100% of the net income derived
from 'prohibited transactions' (the 'Prohibited Transactions Tax'). In general,
subject to certain specified exceptions, a prohibited transaction means the
disposition of a Mortgage Loan, the receipt of income from a source other than a
Mortgage Loan or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the Mortgage Loans for temporary investment pending
distribution on the Certificates. It is not anticipated that the Trust Fund will
engage in any prohibited transactions in which it would recognize a material
amount of net income.
In addition, certain contributions to a trust fund that elects to be
treated as a REMIC made after the day on which such trust fund issues all of its
interests could result in the imposition of a tax on the trust fund equal to
100% of the value of the contributed property (the 'Contributions Tax'). The
Trust Fund will not accept contributions that would subject it to such tax.
In addition, a trust fund that elects to be treated as a REMIC may also be
subject to federal income tax at the highest corporate rate on 'net income from
foreclosure property,' determined by reference to the rules applicable to real
estate investment trusts. 'Net income from foreclosure property' generally means
gain from the sale of a foreclosure property other than qualifying rents and
other qualifying income for a real estate investment trust. It is not
anticipated that the Trust Fund will recognize net income from foreclosure
property subject to federal income tax.
Where any Prohibited Transactions Tax, Contributions Tax, tax on net income
from foreclosure property or state or local income or franchise tax that may be
imposed on the REMIC arises out of a breach of the Master Servicer's or the
Trustee's obligations, as the case may be, under the Pooling and Servicing
Agreement and in respect of compliance with then applicable law, such tax will
be borne by the Master Servicer or Trustee in either case out of its own funds.
In the event that either the Master Servicer or the Trustee, as the case may be,
fails to pay or is not required to pay any such tax as provided above, such tax
will be paid by the Trust Fund first with amounts otherwise distributable to the
holders of Certificates in the manner provided in the Pooling and Servicing
Agreement. It is not anticipated that any material state or local income or
franchise tax will be imposed on the Trust Fund.
For further information regarding the federal income tax consequences of
investing in the Class Certificates, see 'Federal Income Tax
Consequences -- REMIC Certificates' in the Prospectus.
STATE TAXES
The Depositor makes no representations regarding the tax consequences of
purchase, ownership or disposition of the Offered Certificates under the tax
laws of any state. Investors considering an investment in the Offered
Certificates should consult their own tax advisors regarding such tax
consequences.
All investors should consult their own tax advisors regarding the federal,
state, local or foreign income tax consequences of the purchase, ownership and
disposition of the Offered Certificates.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ('ERISA'), prohibits 'parties in interest' with respect to an employee
benefit plan subject to ERISA and/or a plan or other arrangement subject to the
excise tax provisions set forth under Section 4975 of the Code (each of the
foregoing, a 'Plan') from engaging in certain transactions involving such Plan
and its assets unless a statutory or administrative exemption applies to the
transaction. Section 4975 of the Code imposes certain excise taxes on prohibited
transactions involving plans described under that Section; ERISA authorizes the
imposition of civil penalties for prohibited transactions involving plans not
covered under Section 4975 of the Code. Any Plan fiduciary which proposes to
cause a Plan to acquire the Offered Certificates should consult with its counsel
with respect to the potential consequences under ERISA and the Code of the
Plan's acquisition and ownership of such Certificates. See 'ERISA
Considerations' in the Prospectus.
Certain employee benefit plans, including governmental plans and certain
church plans, are not subject to ERISA's requirements. Accordingly, assets of
such plans may be invested in the Class A Certificates without regard to the
ERISA considerations described herein and in the Prospectus, subject to the
provisions of other
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<PAGE>
<PAGE>
applicable federal and state law. Any such plan which is qualified and exempt
from taxation under Sections 401(a) and 501(a) of the Code may nonetheless be
subject to the prohibited transaction rules set forth in Section 503 of the
Code.
Except as noted above, investments by Plans are subject to ERISA's general
fiduciary requirements, including the requirement of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan. A fiduciary which decides to
invest the assets of a Plan in the Class A Certificates should consider, among
other factors, the extreme sensitivity of the investments to the rate of
principal payments (including prepayments) on the Mortgage Loans.
The U.S. Department of Labor has granted to Merrill Lynch, Pierce, Fenner &
Smith Incorporated an administrative exemption (Prohibited Transaction Exemption
90-32; Exemption Application No. D-8145, 55 Fed. Reg. 23147 (1990)) (the
'Exemption') from certain of the prohibited transaction rules of ERISA and the
related excise tax provisions of Section 4975 of the Code with respect to the
initial purchase, the holding and the subsequent resale by Plans of certificates
in pass-through trusts that consist of certain receivables, loans and other
obligations that meet the conditions and requirements of the Exemption. The
Exemption applies to mortgage loans such as the Mortgage Loans in the Trust
Fund.
Among the conditions that must be satisfied for the Exemption to apply are
the following:
(1) the acquisition of the certificates by a Plan is on terms
(including the price for the certificates) that are at least as favorable
to the Plan as they would be in an arm's length transaction with an
unrelated party;
(2) the rights and interest evidenced by the certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by
other certificates of the trust fund;
(3) the certificates acquired by the Plan have received a rating at
the time of such acquisition that is one of the three highest generic
rating categories from Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. ('S&P'), Moody's Investors Service, Inc. ('Moody's'), Duff
& Phelps Credit Rating Co. ('DCR') or Fitch IBCA, 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.
The trust fund must also meet the following requirements:
(i) the corpus of the trust fund must consist solely of assets of the
type that have been included in other investment pools;
(ii) certificates in such other investment pools must have been rated
in one of the three highest rating categories of S&P, Moody's, Fitch or DCR
for at least one year prior to the Plan's acquisition of certificates; and
(iii) certificates evidencing interests in such other investment pools
must have been purchased by investors other than Plans for at least one
year prior to any Plan's acquisition of certificates.
Moreover, the Exemption provides relief from certain self-dealing/conflict
of interest prohibited transactions that may occur when the Plan fiduciary
causes a Plan to acquire certificates in a trust as to which the fiduciary (or
its affiliate) is an obligor on the receivables held in the trust provided that,
among other requirement, (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
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<PAGE>
<PAGE>
class does not exceed twenty-five percent (25%) of all of the certificates of
that class outstanding at the time of the acquisition; and (iv) immediately
after the acquisition, no more than twenty-five percent (25%) of the assets of
the Plan with respect to which such person is a fiduciary are invested in
certificates representing an interest in one or more trusts containing assets
sold or serviced by the same entity. The Exemption does not apply to Plans
sponsored by either Underwriter, the Trustee, the Master Servicer, any obligor
with respect to Mortgage Loans included in the Trust Fund constituting more than
five percent of the aggregate unamortized principal balance of the assets in the
Trust Fund, or any affiliate of such parties (the 'Restricted Group').
It is expected that the Exemption will apply to the acquisition and holding
of the Class A Certificates by Plans and that all conditions of the Exemption
other than those within the control of the investors will be met. In addition,
as of the date hereof, there is no single Mortgagor that is the obligor on five
percent (5%) of the Mortgage Loans included in the Trust Fund by aggregate
unamortized principal balance of the assets of the Trust Fund.
The Exemption does not apply to the initial purchase, the holding or the
subsequent resale of the Subordinated Offered Certificates because the
Subordinated Offered Certificates are subordinate to certain other Classes of
Certificates. Consequently, transfers of the Subordinated Offered 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 Pooling and Servicing Agreement. Such representation as
described above shall be deemed to have been made to the Trustee by the
transferee's acceptance of a Subordinated Offered 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 the Offered
Certificates. Moreover, each Plan fiduciary should determine whether under the
general fiduciary standards of investment prudence and diversification, an
investment in the Offered Certificates is appropriate for the Plan, taking into
account the overall investment policy of the Plan and the composition of the
Plan's investment portfolio.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting Agreement
between the Depositor, Merrill Lynch, Pierce, Fenner & Smith Incorporated and
and, together with
the 'Underwriters'), the Depositor has agreed to
sell the Offered Certificates to the Underwriters, and the Underwriters have
respectively agreed to purchase from the Depositor the initial Certificate
Principal Balance of each Class of the Offered Certificates from the Depositor
set forth below.
S-61
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
CLASS
- -------------------------------------------------------------------
<S> <C> <C>
AF-1............................................................... $ $
AF-2...............................................................
AF-3...............................................................
AF-4...............................................................
MF-1...............................................................
MF-2...............................................................
BF.................................................................
AV-1...............................................................
MV-1...............................................................
MV-2...............................................................
BV.................................................................
------------------ ------------
Total.................................................... $131,000,000 $
------------------ ------------
------------------ ------------
</TABLE>
The Depositor has been advised that the Underwriters propose initially to
offer the Offered Certificates to certain dealers at such price less a selling
concession not to exceed the percentage of the Certificate denomination set
forth below, and that the Underwriters may allow and such dealers may reallow a
reallowance discount not to exceed the percentage of the Certificate
denomination set forth below:
<TABLE>
<CAPTION>
SELLING REALLOWANCE
CLASS OF CERTIFICATE CONCESSION DISCOUNT
- ------------------------------------------------------------------------------ ---------- -----------
<S> <C> <C>
Class AF-1 Certificates....................................................... % %
Class AF-2 Certificates....................................................... % %
Class AF-3 Certificates....................................................... % %
Class AF-4 Certificates....................................................... % %
Class MF-1 Certificates....................................................... % %
Class MF-2 Certificates....................................................... % %
Class BF Certificates......................................................... % %
Class AV-1 Certificates....................................................... % %
Class MV-1 Certificates....................................................... % %
Class MV-2 Certificates....................................................... % %
Class BF Certificates......................................................... % %
</TABLE>
After the initial public offering, the public offering price, such
concessions and such discounts may be changed.
The Depositor has been advised by each Underwriter that it intends to make
a market in the Offered Certificates, but neither Underwriter has any obligation
to do so. There can be no assurance that a secondary market for the Offered
Certificates (or any particular Class thereof) will develop or, if it does
develop, that it will continue or that such market will provide sufficient
liquidity to Certificateholders.
Until the distribution of the Offered Certificates is completed, rules of
the Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase the Offered
Certificates. As an exception to these rules, the Underwriters are permitted to
engage in certain transactions that stabilize the price of the Offered
Certificates. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Offered Certificates.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
Neither the Depositor nor any of the Underwriters makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the prices of the Offered Certificates.
In addition, neither the Depositor nor any of the Underwriters makes any
representation that the Underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
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.
S-62
<PAGE>
<PAGE>
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.
, will pass upon certain legal matters on behalf
of the Underwriters.
RATINGS
It is a condition of the issuance of the Offered Certificates that each
Class of Offered Certificates be assigned the ratings designated below by
[Moody's and Fitch].
<TABLE>
<CAPTION>
CLASS [MOODY'S RATING] [FITCH RATING]
- ----- ----------------- --------------
<S> <C> <C>
AF-1
AF-2
AF-3
AF-4
MF-1
MF-2
BF
AV-1
MV-1
MV-2
BV
</TABLE>
[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
ratings on the Offered Certificates do not, however, constitute statements
regarding the likelihood or frequency of prepayments on the Mortgage Loans, the
payment of the Adjustable Rate Certificate Carryover or the anticipated yields
in light of prepayments.
The ratings assigned by Fitch 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. Fitch'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. Fitch ratings on such certificates do
not, however, constitute a statement regarding frequency of prepayments of the
mortgage loans.
The ratings assigned by Moody's to mortgage pass-through certificates
address the likelihood of the receipt by certificateholders of all distributions
to which such certificateholders are entitled. Moody's ratings on mortgage
pass-through certificates do not represent any assessment of the likelihood or
rate of principal prepayments. The ratings do not address the possibility that
certificateholders might suffer a lower than anticipated yield as a result of
prepayments.
The Depositor has not requested a rating of the Offered Certificates by any
rating agency other than Fitch and Moody's. However, there can be no assurance
as to whether any other rating agency will rate the Offered Certificates or, if
it does, what ratings would be assigned by such other rating agency. The ratings
assigned by such other rating agency to the Offered Certificates could be lower
than the respective ratings assigned by the Rating Agencies.]
S-63
<PAGE>
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
---------------------
<S> <C>
2/28 Mortgage Loans........... S-13, S-21
Accrual Period................ S-9
Adjustable Rate Cut-off Date
Principal Balance........... S-20
Adjustable Rate Certificate
Carryover................... S-6
Adjustable Rate Certificates.. S-4, S-34
Adjustable Rate Minimum
Mortgage Rate............... S-21
Adjustable Rate Mortgage Loan
Group....................... S-2, S-5
Adjustment Date............... S-20
Advance....................... S-33
Advances...................... S-13
Applied Realized Loss
Amount...................... S-11, S-45, S-44
ARMs.......................... S-3
Available Funds Cap........... S-6
B&C........................... S-20
beneficial owner.............. S-35
Book-Entry Certificates....... S-7, S-34
Cap Premium................... S-54
Carryover Reserve Fund........ S-6, S-46
Carryover Reserve Fund
Deposit..................... S-46
Cede.......................... S-7
CEDEL......................... S-7
CEDEL Participants............ S-35, S-36
Certificate Account........... S-38
Certificate Group............. S-2, S-4, S-34
Certificate Owners............ S-7, S-34
Certificates.................. S-2, S-4, S-34
Chase......................... S-7
Citibank...................... S-7
Class A....................... S-4
Class A Adjustable Rate
Certificates................ S-2, S-4, S-34
Class A Certificates.......... S-34
Class A Fixed Rate
Certificates................ S-1, S-4, S-34
Class A Principal Distribution
Amount...................... S-41
Class AF-4 Distribution
Amount...................... S-41
Class B....................... S-4
Class B Certificates.......... S-34
Class B Principal Distribution
Amount...................... S-42
Class B-IO.................... S-4
Class B-IO Certificates....... S-2, S-34
Class BF Certificates......... S-2, S-4, S-34
Class BF-IO Certificates...... S-2, S-4, S-34
Class BV Certificates......... S-2, S-4, S-34
Class BV-IO Certificates...... S-2, S-4, S-34
<CAPTION>
PAGE
---------------------
<S> <C>
Class M-1..................... S-4
Class M-1 Certificates........ S-34
Class M-1 Principal
Distribution Amount......... S-42
Class M-2..................... S-4
Class M-2 Certificates........ S-34
Class M-2 Principal
Distribution Amount......... S-42
Class MF-1 Certificates....... S-34
Class MF-2 Certificates....... S-34
Class MV-1 Certificates....... S-34
Class MV-2 Certificates....... S-34
Closing Date.................. S-1
Code.......................... S-57
Collateral Value.............. S-21
Compensating Interest......... S-33
Constant Prepayment Rate...... S-51
Contributions Tax............. S-59
Cooperative................... S-36
Countrywide................... S-2, S-4, S-20, S-31
CPR........................... S-51
crosscollateralization........ S-10
Current Interest.............. S-40
Cut-off Date Pool Principal
Balance..................... S-20
Cut-off Date Principal
Balance..................... S-20
DCR........................... S-60
Debt-to-income ratio.......... S-30
Definitive Certificate........ S-7, S-35
Deleted Mortgage Loan......... S-28
Depositor..................... S-2, S-4
Detailed Description.......... S-20
Distribution Account.......... S-39
Distribution Date............. S-2, S-7, S-40
DTC........................... S-7, S-34
Due Dates..................... S-33
Due Period.................... S-39
ERISA......................... S-14, S-59
Euroclear..................... S-7
Euroclear Operator............ S-36
Euroclear Participants........ S-35, S-36
European Depositaries......... S-7, S-34
Event of Default.............. S-37
Excess Cash Flow.............. S-43
Excess Overcollateralization
Amount...................... S-45
Exemption..................... S-60
Extra Master Servicing Fee.... S-44
Extra Principal Distribution
Amount...................... S-43
FHLMC......................... S-30
Financial Intermediary........ S-35
</TABLE>
S-64
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------------------
<S> <C>
Fitch......................... S-15, S-60
Fixed Rate Cut-off Date
Principal Balance........... S-20
Fixed Rate Certificates....... S-4, S-34
Fixed Rate Mortgage Loan
Group....................... S-2, S-5
FNMA.......................... S-30
Full Doc Program.............. S-30
Gross Margin.................. S-20
HEP........................... S-48
Home Equity Prepayment........ S-48
Indirect Participants......... S-35
Insurance Proceeds............ S-38
Interest Carry Forward
Amount...................... S-41
Interest Determination Date... S-45
Interest Funds................ S-39
Interest Rate Cap Agreement... S-14, S-46, S-57
LIBOR Business Day............ S-45, S-46
Liquidation Proceeds.......... S-38
Loan Group.................... S-2, S-5, S-11
Loan-to-Value Ratio........... S-22
Master REMIC.................. S-54
Master Servicer............... S-2, S-4
Master Servicer Advance
Date........................ S-33
Maximum Mortgage Rate......... S-21
Mezzanine Adjustable Rate
Certificates................ S-2, S-4, S-34
Mezzanine Certificates........ S-4, S-34
Mezzanine Fixed Rate
Certificates................ S-2, S-4, S-34
Modeling Assumptions.......... S-51
Moody's....................... S-15, S-60
Mortgage Index................ S-20
Mortgage Loans................ S-2, S-5, S-11
Mortgage Pool................. S-2, S-5
Mortgaged Property............ S-2, S-5, S-11
net income from foreclosure
property.................... S-59
Net Mortgage Rate............. S-28
Offered Adjustable Rate
Certificates................ S-2, S-4, S-34
Offered Adjustable Rate
Regular Interests...........
Offered Certificates.......... S-2, S-4, S-34
Offered Fixed Rate
Certificates................ S-2, S-4, S-34
OID........................... S-14, S-57
One-Month LIBOR............... S-3, S-6, S-45
Optional Termination Date..... S-14, S-47
overcollateralization......... S-10
Overcollateralization
Amount...................... S-43
<CAPTION>
PAGE
---------------------
<S> <C>
Participants.................. S-17, S-35
Pass-Through Margin........... S-6
Percentage Interest........... S-40
Periodic Rate Cap............. S-20
Plan.......................... S-14, S-59
Pooling and Servicing
Agreement................... S-5, S-34
Prepayment Interest Excess.... S-33
Prepayment Interest
Shortfall................... S-33
Prepayment Models............. S-50
Prepayment Period............. S-33
Prepayment Vector............. S-51
Principal Distribution
Amount...................... S-41
Principal Funds............... S-39
Principal Prepayments......... S-33
Prohibited Transactions Tax... S-59
Prospectus.................... S-3
PTCE 95-60.................... S-61
Purchase Price................ S-28
PV............................ S-51
Rating Agencies............... S-15
Realized Loss................. S-45
Record Date................... S-7, S-40
Reference Banks............... S-46
Reference Bank Rate........... S-44
Relevant Depositary........... S-34
Remainder Excess Cash Flow.... S-43
REMIC......................... S-2, S-14
REO Property.................. S-14, S-33
Replacement Mortgage Loan..... S-28
Required Percentage........... S-43
Reserve Interest Rate......... S-43
Residual Certificates......... S-2, S-4, S-34
Restricted Group.............. S-61
Rules......................... S-35
Scheduled Payments............ S-20
Seller........................ S-2, S-4
Servicing Fee................. S-13, S-32
Servicing Fee Rate............ S-34
Simple Doc Program............ S-30
SMMEA......................... S-15
S&P........................... S-60
Specified
Overcollateralization
Amount...................... S-10, S-43
Stated Income Program......... S-30
Statistic Calculation
Adjustable Rate Mortgage
Loans....................... S-11
Statistic Calculation Date.... S-11
</TABLE>
S-65
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------------------
<S> <C>
Statistic Calculation Date
Adjustable Rate Principal
Balance..................... S-11
Statistic Calculation Date
Fixed Rate Principal
Balance..................... S-11
Statistic Calculation Date
Principal Balance........... S-11
Statistic Calculation Date
Pool Balance................ S-21
Statistic Calculation Fixed
Rate Mortgage Loans......... S-11
Statistic Calculation Pool.... S-11
Statistic Calculation Pool
Mortgage Loan............... S-11
Stepdown Date................. S-9, S-43
Subordinated Offered
Certificates................ S-4, S-34
<CAPTION>
PAGE
---------------------
<S> <C>
Subordinated Offered
Adjustable Rate
Certificates................ S-2, S-4, S-34
Subordinated Offered Fixed
Rate Certificates........... S-2, S-4, S-34
Subsidiary REMIC.............. S-54
Subsidiary REMIC Regular
Interests................... S-54
Swap Regulations.............. S-54
Tax Counsel................... S-57
Terms and Conditions.......... S-36
Trigger Event................. S-43
Trust Fund.................... S-2, S-5
Trustee....................... S-2, S-4
Trustee's Mortgage File....... S-28
Underwriter................... S-3
Underwriters.................. S-61
Unpaid Realized Loss Amount... S-45
</TABLE>
S-66
<PAGE>
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered CWABS, Inc.
Asset-Backed Certificates, Series - (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 mortgage pass-through 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 prior mortgage pass-through 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 mortgage
pass-through 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
A-1
<PAGE>
<PAGE>
excluding the settlement date, on the basis of either the actual number of days
in such accrual period and a year assumed to consist of 360 days or a 360-day
year of twelve 30-day months, as applicable to the related Class of Global
Securities. 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 either the
actual number of days in such accrual period and a year assumed to consist of
360 days or a 360-day year of twelve 30-day months, as applicable to the related
Class of Global Securities. 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-2
<PAGE>
<PAGE>
(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 the income
of which is includible in gross income for United States tax purposes,
regardless of its source 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.
A-3
<PAGE>
<PAGE>
_____________________________ _____________________________
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. 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 IN ANY STATE TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH STATE. THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF.
------------------------------
TABLE OF CONTENTS
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PROSPECTUS SUPPLEMENT
Summary of Terms........................................................................................... S-4
Risk Factors............................................................................................... S-17
The Mortgage Pool.......................................................................................... S-20
Servicing of the Mortgage Loans............................................................................ S-31
Description of the Certificates............................................................................ S-34
Yield, Prepayment and Maturity Considerations.............................................................. S-49
Use of Proceeds............................................................................................ S-57
Federal Income Tax Consequences............................................................................ S-57
State Taxes................................................................................................ S-59
ERISA Considerations....................................................................................... S-59
Method of Distribution..................................................................................... S-61
Legal Matters.............................................................................................. S-63
Ratings.................................................................................................... S-63
Index of Defined Terms..................................................................................... S-64
Annex I.................................................................................................... A-1
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............................................................................................. 21
Use of Proceeds............................................................................................ 25
The Depositor.............................................................................................. 25
Loan Program............................................................................................... 25
Description of the Securities.............................................................................. 29
Credit Enhancement......................................................................................... 41
Yield and Prepayment Considerations........................................................................ 46
The Agreements............................................................................................. 48
Certain Legal Aspects of the Loans......................................................................... 60
Federal Income Tax Consequences............................................................................ 73
State Tax Considerations................................................................................... 91
ERISA Considerations....................................................................................... 91
Legal Investment........................................................................................... 95
Method of Distribution..................................................................................... 96
Legal Matters.............................................................................................. 96
Financial Information...................................................................................... 96
Rating..................................................................................................... 97
Index of Defined Terms..................................................................................... 98
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_____________________________ _____________________________
_____________________________ _____________________________
CWABS, INC.
DEPOSITOR
[LOGO]
SELLER AND MASTER SERVICER
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$ CLASS AF-1
$ CLASS AF-2
$ CLASS AF-3
$ CLASS AF-4
$ CLASS MF-1
$ CLASS MF-2
$ CLASS BF
$ CLASS AV-1
$ CLASS MV-1
$ CLASS MV-2
$ CLASS BV
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ASSET-BACKED CERTIFICATES,
SERIES -
-----------------------------------------
PROSPECTUS SUPPLEMENT
-----------------------------------------
[UNDERWRITER]
,
_____________________________ _____________________________
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS 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 ,
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED AUGUST , 1998)
$
(Approximate)
COUNTRYWIDE HOME EQUITY LOAN TRUST -
REVOLVING HOME EQUITY LOAN ASSET BACKED CERTIFICATES, SERIES -
CWABS, INC.
DEPOSITOR
[LOGO]
SPONSOR AND MASTER SERVICER
----------------------
Each Revolving Home Equity Loan Asset Backed Certificate, Series -
(collectively, the 'Certificates'), will represent an undivided interest in the
Countrywide Home Equity Loan Trust - (the 'Trust Fund') to be formed
pursuant to a Pooling and Servicing Agreement among [Countrywide Home Loans,
Inc. ('Countrywide')], as Sponsor 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
(cover continued on next page)
------------------------
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.
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ORIGINAL CERTIFICATE PRICE TO UNDERWRITING PROCEEDS TO
PRINCIPAL BALANCE(1) PUBLIC(2) DISCOUNT(3) THE DEPOSITOR(4)
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Certificates................................... $ % % %
Total.......................................... $ $ $ $
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(1) Subject to the permitted variance described herein.
(2) Plus accrued interest, if any, from , .
(3) The Depositor has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(4) Before deducting expenses, estimated to be $ .
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 Bank, societe anonyme, and the
Euroclear System on or about , (the 'Closing Date'). The
Certificates will be offered in Europe and the United States of America.
[UNDERWRITER]
,
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(cover page continued)
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-55 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 is expected to represent, as of , (the 'Cut-off
Date'), approximately % 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 % 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 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 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 have the benefit of an irrevocable and
unconditional certificate guaranty insurance policy (the 'Policy') issued by
Capital Markets Assurance Corporation (the 'Certificate Insurer') pursuant to
which the Certificate Insurer will guarantee certain payments to
Certificateholders as described herein. See 'Description of the
Certificates -- The Policy' herein.]
------------------------
Certain persons participating in this offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the Certificates
offered hereby. Such transactions may include stabilizing and the purchase of
the Certificates to cover syndicate short positions. For a description of these
activities, see 'Underwriting' herein.
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 August , 1998. 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
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 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: , attention:
[Corporate Trust Services Division].
S-2
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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-55 of this Prospectus
Supplement and on page 98 of the Prospectus for the location of the definitions
of certain capitalized terms.
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Trust Fund.......................... Countrywide Home Equity Loan Trust, Series - (the 'Trust Fund')
will be formed pursuant to a pooling and servicing agreement (the
'Agreement') to be dated as of , (the 'Cut-off Date')
among [Countrywide Home Loans, Inc. ('Countrywide')], as sponsor and master
servicer (together with any successor in such capacity, the 'Sponsor' 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 deeds of trust or 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 certificate 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 $ (the 'Cut-off
Date Pool Balance'), subject to the permitted variance described herein.
See 'Description of the Mortgage Loans' herein. The 'Principal Balance' of
a Mortgage Loan (other than a Liquidated Mortgage Loan (as defined herein))
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 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
- , offered hereby (the 'Certificates') represents an undivided
interest in the Trust Fund. Each Certificate represents the right to
receive
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S-3
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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 is
expected to equal $ (the 'Original Invested Amount'), which
represents approximately % of the Cut-off Date Pool Balance. The
'Original Certificate Principal Balance' is expected to 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. The 'Original Transferor Interest' is expected to initially equal
approximately % of the Cut-off Date Pool Balance. [The Original Invested
Amount, the Original Certificate Principal Balance and the Original
Transferor Interest will be subject to a permitted variance of plus or
minus 10%. 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)
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S-4
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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 under the Credit Line Agreements 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 in the final pool on the Closing Date. The Statistic
Calculation Pool reflects the Mortgage Loans originated by the Sponsor
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 aggregate principal balance of the Statistic Calculation Pool
Mortgage Loans is $ (the 'Statistic Calculation Date Principal
Balance'). The Depositor expects that the actual pool as of the Closing
Date will represent approximately $ aggregate Principal Balance
of Mortgage Loans. The additional Mortgage Loans to be included in the
final pool will represent Mortgage Loans originated by the Sponsor on or
prior to the Cut-off Date and sold by the Sponsor 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 and some Additional Balances may
be created, in each case on or prior to the Cut-off 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 in the
final Mortgage Loan pool as of the Cut-off Date 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 Sponsor does not, as
of the Cut-off Date, have the full amount of Mortgage Loans which the
Depositor expects to purchase from the Sponsor and sell to the Trust Fund
on such date (i.e., approximately $ aggregate Principal
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S-5
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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 decrease by more than 5% as a result of such non-
delivery.
Unless otherwise noted, all statistical percentages in this Prospectus
Supplement are measured by the aggregate Statistic Calculation Date
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 48 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 ,
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 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 %.
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 as of the first
business day of each calendar month and (ii) a Margin within the range of
% to % as of the Statistic Calculation Date. As of the Statistic
Calculation Date, the weighted average Margin of the Statistic Calculation
Pool Mortgage Loans 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 Statistic Calculation Date Principal Balances of the Statistic
Calculation Pool Mortgage Loans ranged from $ to $ and averaged
approximately $ . Credit Limits under the Statistic Calculation
Pool Mortgage Loans as of the Statistic Calculation Date ranged from
$ to $ and averaged approximately $ . Each
Statistic Calculation Pool Mortgage Loan was originated in the period from
to . As of the Statistic Calculation
Date, the maximum Credit Limit Utilization Rate (as defined herein) of the
Statistic Calculation Pool Mortgage Loans was % and the average Credit
Limit
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S-6
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Utilization Rate was approximately %. As of the Statistic Calculation
Date, approximately % by Statistic Calculation Date Principal Balance
of the Statistic Calculation Pool Mortgage Loans represented first liens on
the related Mortgaged Properties, while approximately % of such
Mortgage Loans represented second liens. As of the Statistic Calculation
Date, the Statistic Calculation Pool Mortgage Loans had remaining terms to
scheduled maturity ranging from months to months and had a weighted
average remaining term to scheduled maturity 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 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 Cedel Bank,
societe anonyme ('CEDEL') or the Euroclear System ('Euroclear'), in Europe.
Transfers within DTC, CEDEL or Euroclear, as the case may be, will be in
accordance with the usual rules and operating procedures of the relevant
system. So long as the 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 4500 Park
Granada, Calabasas, California 91302 (Telephone: (818) 225-3240). See 'The
Depositor' in the Prospectus.
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S-7
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Master Servicer of the Mortgage
Loans............................. [Countrywide Home Loans, Inc., a New York corporation headquartered in
Calabasas, California. The principal executive offices of the Master
Servicer are located at 4500 Park Granada, Calabasas, California 91302
(Telephone: (818) 225-3300). 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 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 Interest Collections and
Principal Collections allocable to the Transferor Interest
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up to the Available Transferor Subordinated Amount ('Subordinated
Transferor Collections') as described under ' -- Limited Subordination of
Transferor Interest' below 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 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 and Subordinated Transferor Collections 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) above 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 % and % (each, a 'Fixed
Allocation Percentage'), respectively, as of the Closing Date without
giving effect to any collections received on or in respect thereof after
the Cut-off Date, 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
approximately %.
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
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'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 (or, in the case of the first
Collection Period, the period beginning on , through the
last day of ).
Interest............................ Interest on the Certificates will be distributed monthly on the 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
, , 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 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 (assuming that each Mortgage Loan is fully indexed and net
of the Servicing Fee Rate, the rate at which the fee payable to the Trustee
is calculated and the rate at which the premium payable to the Certificate
Insurer is calculated) 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, Subordinated Transferor Collections and, if necessary, 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, through
and including the Distribution Date in (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
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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 (such period, the 'Rapid 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
Certificateholders will be entitled to receive as payment of principal an
amount equal to the outstanding Certificate Principal Balance.
If on any Distribution Date the Required Overcollateralization Amount is
reduced below the then existing Overcollaterialization Amount, the amount
of Principal Collections payable to Certificateholders on such Distribution
Date will be correspondingly reduced by the amount of such reduction.
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............ , a New York monoline stock insurance company (the 'Certificate
Insurer'). 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'), Duff & Phelps Credit Rating Co. and Nippon Investors
Service, Inc. 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 Reimbursement
Agreement (the 'Insurance Agreement') to be dated as of ,
, among the Sponsor, the Depositor, the Master Servicer and the
Certificate Insurer.
The Policy will irrevocably and unconditionally guarantee 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.
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The 'Guaranteed Principal Distribution Amount' for any Distribution Date on
which the Available Transferor Subordinated Amount has been reduced to or
equals zero 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 (after giving effect to all other
amounts distributable and allocable to principal on such Distribution
Date).
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.]
Limited Subordination of Transferor
Interest.......................... If Investor Interest Collections on any Distribution Date are insufficient
to pay (i) accrued interest due and any overdue accrued interest (with
interest thereon to the extent permitted by applicable law) on the
Certificates, and (ii) the Investor Loss Amount relating to such
Distribution Date (such insufficiency being the 'Required Amount'),
Subordinated Transferor Collections will be applied to cover the Required
Amount. The portion of the Required Amount in respect of clause (ii) above
not covered by such Subordinated Transferor Collections (up to the
remaining Available Transferor Subordinated Amount and not in excess of the
Investor Loss Amounts) will be reallocated to the Transferor Interest,
thereby reducing the Transferor Interest. If such Investor Interest
Collections plus the Subordinated Transferor Collections which have been so
applied to cover the Required Amount are together insufficient to pay the
amounts set forth in item (i) of the definition of Required Amount, then a
draw will be made on the Policy for such Distribution Date to cover the
amount of such shortfall. In addition, if on any Distribution Date on which
the Available Transferor Subordinated Amount is reduced to zero, the
Certificate Principal Balance exceeds the Invested Amount (after giving
effect to all allocations and distributions with respect to principal to be
made on the Certificates on such Distribution Date), a draw will be made on
the Policy for such Distribution Date in the amount by which the
Certificate Principal Balance exceeds the Invested Amount.
With respect to any Distribution Date, the 'Available Transferor
Subordinated Amount' shall equal the lesser of the Transferor Interest and
the Required Transferor Subordinated Amount for such Distribution Date.
With respect to any Distribution Date, the 'Required Transferor
Subordinated Amount' shall be an amount determined as set forth in the
Insurance Agreement (as defined 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, Subordinated Transferor Collections or Inves-
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S-12
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tor 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 % 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
transfer to the Transferor of the Mortgage Loans, as described below and
(iv) the Distribution Date in , . The Mortgage Loans 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 [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. See 'Description of the Certificates --
Termination; Retirement of the Certificates' herein and 'The Agree-
ments -- Termination; Optional Termination' in the Prospectus.
Trustee............................. , a (the 'Trustee'), will act
as Trustee on behalf of the Certificateholders.
Mandatory Retransfer of Certain
Mortgage Loans.................... The Sponsor will make certain representations and warranties in the
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Agreement with respect to the Mortgage Loans. If the Sponsor 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
Sponsor becomes aware or receives notice of such breach and will be
reassigned to the Sponsor. See 'Description of the Certificates --
Assignment of Mortgage Loans' herein.
Federal Income Tax
Consequences...................... Subject to the qualifications set forth in 'Federal Income Tax Conse-
quences' herein, Brown & Wood LLP, 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 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 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 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 [Standard & Poor's] and ' ' 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.
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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 required monthly payments on
the Mortgage Loans will at least equal and may exceed accrued interest thereon.
Monthly payments and the creation of Additional Balances may vary significantly
from Collection Period to Collection Period. 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. 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,
the creation and amount, if any, of Additional Balances and the realization of
Liquidation Loss Amounts. 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
S-15
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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 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, if any, against the borrower is sought and (ii) the risk of
loss if the deficiency judgment cannot be obtained or is not realized upon. See
'Certain Legal Aspects of the Loans' in the Prospectus.
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 Standard & Poor's and ' ' 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 Cut-off 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 trustee in bankruptcy of Countrywide may attempt to
recharacterize the sale of the Mortgage Loans as a borrowing by Countrywide,
secured by a pledge of the applicable Mortgage Loans. If the trustee in
bankruptcy decided to challenge such transfer, (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.
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. Approximately % (by Statistic Calculation
Date Principal Balance of the Statistic Calculation Pool Mortgage Loans) of the
Mortgaged Properties were located in the State of . After the
Statistic Calculation Date, the degree of geographic concentration could change
as a result of the addition or removal of Mortgage Loans, prepayments and/or the
creation of Additional Balances. An overall decline in the 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
S-16
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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 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 Limit of a Mortgage Loan would increase the Combined 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 may include Mortgage Loans which
are 59 or fewer days delinquent as of the Cut-off Date. It is expected that the
Cut-off Date Principal Balance of Mortgage Loans which are between 30 days and
59 days delinquent as of the Cut-off Date will not exceed $ . If (i)
there are not sufficient funds from the Investor Interest Collections to cover
the Investor Loss Amounts for any Distribution Date, (ii) the
Overcollateralization Amount, if any, has been reduced to zero, (iii) the
Available Transferor Subordinated Amount has been reduced to zero and (iv) 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, none of the Depositor, the Master Servicer
or the Underwriters makes any representation as to the accuracy and completeness
of such information.
(' ') is a
company which engages only in the business of financial guarantee and surety
insurance. [certificate insurer information to be inserted.]
The audited financial statements of prepared in accordance with
generally accepted accounting principles as of and and
for each of the years in the three-year period ended
and the unaudited financial statements of
as of and and for each of the three- and
nine-month periods then ended are attached hereto as Annex II. Copies of
financial statements prepared in accordance with
statutory accounting standards, which differ from generally accepted accounting
principles, are filed with the
and are available upon
request. is located at , and its telephone
number is .]
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.
S-17
<PAGE>
<PAGE>
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 , Countrywide provided servicing for approximately
$ billion aggregate principal amount of mortgage loans, substantially all of
which are being serviced for unaffiliated persons. At ,
Countrywide provided servicing for approximately $ billion 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 4500 Park
Granada, Calabasas, California 91302. Its telephone number is (818) 225-3300.
Countrywide conducts operations from its headquarters in Calabasas 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 Sponsor 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 Sponsor'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
Sponsor will conduct a further credit investigation of the applicant. This
investigation includes obtaining and reviewing an independent credit bureau
report on the credit history of the applicant in order to evaluate the
applicant's ability to repay. The credit report typically contains information
relating to such matters as credit history with local merchants and lenders,
installment and revolving debt payments and any record of delinquencies,
defaults, bankruptcy, collateral repossessions, suits or judgments.
The Sponsor 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 Credit Limit greater than $100,000. Such appraisals are
determined on the basis of a Sponsor-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 Credit Limit 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 improvements and generally is required to have been made
not earlier than 180 days prior to the date of
S-18
<PAGE>
<PAGE>
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 Sponsor 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 credit obligations (assuming the
Mortgage Loan interest rate is based on the applicable fully indexed interest
rate) to the borrower's gross monthly income. Based on the foregoing, the
maximum monthly debt-to-income ratio is 45%. Variations in the monthly debt-to-
income ratios limits are permitted based on compensating factors. The Sponsor
currently offers home equity loan products that allow maximum Combined
Loan-to-Value Ratios of 70%, 80%, 90% and 100%.
It is generally the Sponsor'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 Sponsor 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 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 60
days or more delinquent and satisfactory arrangements cannot be made with the
Mortgagor; or (ii) if a notice of default on a senior lien is received by 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.]
S-19
<PAGE>
<PAGE>
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 AS OF AS OF
----------------------------- ----------------------------- -------------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
BALANCE PERCENTAGE BALANCE PERCENTAGE BALANCE PERCENTAGE
--------------- ---------- --------------- ---------- ----------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Portfolio................. $ -- $ -- $ --
Delinquency percentage(1)
30-59 Days............ % % %
60-89 Days............
90+ Days..............
--------------- --- --------------- --- ----------------- ---
Total(2).......... $ % $ % $ %
--------------- --- --------------- --- ----------------- ---
--------------- --- --------------- --- ----------------- ---
Foreclosure Rate(3)....... $ % $ % $ %
Bankruptcy Rate(4)........ $ % $ % $ %
--------------- --- --------------- --- ----------------- ---
--------------- --- --------------- --- ----------------- ---
</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.
(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 (the 'Detailed Description') 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
Detailed Description will specify the aggregate of the Principal Balances of the
Mortgage Loans included in the Trust Fund as of the Cut-off Date (the 'Cut-off
Date Pool Balance') and will also include, among other things, the following
information regarding such Mortgage Loans: the outstanding Principal Balances of
such Mortgage Loans as of the Cut-off Date, the lien priorities of such Mortgage
Loans, the Loan Rates borne by such Mortgage Loans as of the Cut-off Date, the
Combined Loan-to-Value Ratios of such Mortgage Loans, the remaining term to
scheduled maturity of such Mortgage Loans, the type of properties securing such
Mortgage Loans, the geographical distribution of such Mortgage Loans by state
and the Credit Limits and Credit Limit Utilization Rates of such Mortgage Loans
as of the Cut-off Date. The Mortgage Loans will have been originated pursuant to
loan agreements and disclosure statements (the 'Credit Line Agreements') and
will be secured by mortgages or deeds of trust, which are either first or second
mortgages or deeds of trust, on Mortgaged Properties expected to be located in
states [and the District of Columbia] as of the Cut-off Date. The Mortgaged
Properties securing the Mortgage Loans will consist of residential properties
that are one- to four-family properties. See ' -- Mortgage Loan Terms' below.
S-20
<PAGE>
<PAGE>
The Statistic Calculation Date Pool Balance is $ , which is
equal to the aggregate Principal Balance of the Statistic Calculation Pool
Mortgage Loans as of the Statistic Calculation Date. As of the Statistic
Calculation Date, none of the Statistic Calculation Pool Mortgage Loans were
more than 59 days delinquent. The average Statistic Calculation Date Principal
Balance of the Statistic Calculation Pool Mortgage Loans was approximately
$ , the minimum Statistic Calculation Date Principal Balance was $ ,
the maximum Statistic Calculation Date Principal Balance was $ , the
minimum Loan Rate and the maximum Loan Rate as of the Statistic Calculation Date
were % and % per annum, respectively, and the weighted average Loan
Rate as of the Statistic Calculation Date was approximately % per annum. As
of the Statistic Calculation Date, the average Credit Limit Utilization Rate of
the Statistic Calculation Pool Mortgage Loans was approximately %. 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 months to months and the weighted average remaining term to
scheduled maturity was approximately months. As of the Statistic Calculation
Date, the weighted average Combined Loan-to-Value Ratio of the Statistic
Calculation Pool Mortgage Loans 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 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 Mortgaged Property purchased within year[s] 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 $ 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 as of the date of the related loan application) was approximately
%. As of the Statistic Calculation Date, approximately % by Statistic
Calculation Date Principal Balance of the Statistic Calculation Pool Mortgage
Loans represented first liens on the related Mortgaged Properties, while
approximately % of such Mortgage Loans represented second liens. As of the
Statistic Calculation Date, approximately % of the Statistic Calculation
Pool Mortgage Loans are secured by Mortgaged Properties which are single-family
residences and % of the Statistic Calculation Pool Mortgage Loans are
secured by Mortgaged Properties which were owner-occupied. As of the Statistic
Calculation Date, approximately %, % and % of the Statistic
Calculation Pool Mortgage Loans by Statistic Calculation Date Principal Balance
are secured by Mortgaged Properties located in , and ,
respectively.
MORTGAGE LOAN TERMS
General. A borrower may access a Mortgage Loan by writing a check in a
minimum amount of $ . 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 % to % per annum, subject to applicable usury
limitations. As of the Statistic Calculation Date, the weighted average Maximum
Rate for the Mortgage Loans 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'), divided by 365 days. The Margin generally
ranges between - % and % and has a weighted average, with respect to
the Statistic Calculation Pool Mortgage Loans as of the Statistic Calculation
Date, of approximately %. 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 generally offers introductory loan rates on its home equity
lines of credit. The introductory rate applies to payments made during the
[first three months or first six months] after origination. After such
introductory period, the Loan Rate will adjust to the Index Rate plus the
applicable Margin. As of the Statistic Calculation Date, approximately % of
the Statistic Calculation Pool Mortgage Loans by Statistic Calculation Date
Principal Balance were subject to an introductory rate of % per annum and
% of the
S-21
<PAGE>
<PAGE>
Statistic Calculation Pool Mortgage Loans by Statistic Calculation 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 generally may be extendible for an
additional five years, upon Countrywide's approval), three years or fifteen
years]. Home equity loans with an initial Draw Period of five years which may be
extended [an additional five years] constitute approximately % of the
Statistic Calculation Pool Mortgage Loans by Statistic Calculation Date
Principal Balance, are generally subject to a repayment period (the 'Repayment
Period') of fifteen years 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. Home equity loans with an initial Draw Period of fifteen years, which
constitute approximately % of the Statistic Calculation Pool Mortgage Loans
by Statistic Calculation Date Principal Balance, are generally subject to a
Repayment Period of [ten years] following the end of the Draw Period during
which the outstanding principal balance of the loan will be repaid in monthly
installments equal to 1/120 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 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, any such amounts past due and any other
charges owed. 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, any amounts past due,
any other charges owed 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 Sponsor 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 $ 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 Sponsor on or prior to the Cut-off Date
and sold by the Sponsor 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 and some Additional Balances may
be created prior to the Cut-off 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
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 Sponsor does not, as of the
Cut-off Date, have the full amount of Mortgage Loans which the Depositor expects
to purchase from the Sponsor and sell to the Trust Fund on such date (i.e.,
approximately $ 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 decrease by more
than 5% as a result of such non-delivery.
The sum of the columns below may not equal the total indicated due to
rounding. 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:
S-22
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL BALANCES
- ----------------------------------------------------------------------------
PERCENTAGE OF
STATISTIC
CALCULATION
AGGREGATE DATE
NUMBER OF UNPAID AGGREGATE
RANGE OF PRINCIPAL MORTGAGE PRINCIPAL PRINCIPAL
BALANCES LOANS BALANCE BALANCE
- -------------------- ---------- --------------- -------------
<S> <C> <C> <C>
$ 0.00.......................... $ %
0.01 to $ 5,000.00............
5,000.01 to 10,000.00............
10,000.01 to 15,000.00............
15,000.01 to 20,000.00............
20,000.01 to 25,000.00............
25,000.01 to 30,000.00............
30,000.01 to 35,000.00............
35,000.01 to 40,000.00............
40,000.01 to 45,000.00............
45,000.01 to 50,000.00............
50,000.01 to 55,000.00............
55,000.01 to 60,000.00............
60,000.01 to 65,000.00............
65,000.01 to 70,000.00............
70,000.01 to 75,000.00............
75,000.01 to 80,000.00............
80,000.01 to 85,000.00............
85,000.01 to 90,000.00............
90,000.01 to 95,000.00............
95,000.01 to 100,000.00...........
100,000.01 to 105,000.00...........
105,000.01 to 110,000.00...........
110,000.01 to 115,000.00...........
115,000.01 to 120,000.00...........
120,000.01 to 125,000.00...........
125,000.01 to 130,000.00...........
130,000.01 to 135,000.00...........
135,000.01 to 140,000.00...........
140,000.01 to 145,000.00...........
145,000.01 to 150,000.00...........
150,000.01 to 200,000.00...........
200,000.01 to 250,000.00...........
250,000.01 to 300,000.00...........
300,000.01 and up...................
--------- --------------- ------
Total............................ $ 100.00%
--------- --------------- ------
--------- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION(1)
- ---------------------------------------------------------------
PERCENTAGE OF
STATISTIC
CALCULATION
AGGREGATE DATE
NUMBER OF UNPAID AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
STATE LOANS BALANCE BALANCE
- --------------------- --------- --------------- -------------
<S> <C> <C> <C>
Alabama.............. $ %
Alaska...............
Arizona..............
California...........
Colorado.............
Connecticut..........
Delaware.............
District of
Columbia............
Florida..............
Georgia..............
Hawaii...............
Idaho................
Illinois.............
Indiana..............
Iowa.................
Kansas...............
Kentucky.............
Louisiana............
Maine................
Maryland.............
Massachusetts........
Michigan.............
Minnesota............
Mississippi..........
Missouri.............
Montana..............
Nebraska.............
Nevada...............
New Hampshire........
New Jersey...........
New Mexico...........
New York.............
North Carolina.......
North Dakota.........
Ohio.................
Oklahoma.............
Oregon...............
Pennsylvania.........
Rhode Island.........
South Carolina.......
South Dakota.........
Tennessee............
Texas................
Utah.................
Vermont..............
Virginia.............
Washington...........
Wisconsin............
Wyoming..............
--------- --------------- ------
Total............. $ 100.00%
--------- --------------- ------
--------- --------------- ------
</TABLE>
- ------------
(1) Geographic location is determined by the address of the Mortgaged Property
securing the related Mortgage Loan.
S-23
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
COMBINED LOAN-TO-VALUE RATIOS(1)
- ------------------------------------------------------------------------
PERCENTAGE OF
STATISTIC
CALCULATION
AGGREGATE DATE
COMBINED NUMBER OF UNPAID AGGREGATE
LOAN-TO-VALUE MORTGAGE PRINCIPAL PRINCIPAL
RATIOS LOANS BALANCE BALANCE
- ------------------- --------- --------------- -------------
<S> <C> <C> <C>
0.01% to 5.00%........... $ %
5.01% to 10.00%...........
10.01% to 15.00%...........
15.01% to 20.00%...........
20.01% to 25.00%...........
25.01% to 30.00%...........
30.01% to 35.00%...........
35.01% to 40.00%...........
40.01% to 45.00%...........
45.01% to 50.00%...........
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%...........
95.01% to 100.00%...........
--------- --------------- ------
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 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
- ---------------------------------------------------------------
PERCENTAGE OF
STATISTIC
CALCULATION
AGGREGATE DATE
NUMBER OF UNPAID AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
PROPERTY TYPE LOANS BALANCE BALANCE
- ------------------- --------- --------------- -------------
<S> <C> <C> <C>
Single-family...... $ %
Low-Rise Condo.....
PUD................
2-4 Family.........
--------- --------------- ------
Total........... $ 100.00%
--------- --------------- ------
--------- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
LIEN PRIORITY
- ---------------------------------------------------------------
PERCENTAGE OF
STATISTIC
CALCULATION
AGGREGATE DATE
NUMBER OF UNPAID AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
LIEN PRIORITY LOANS BALANCE BALANCE
- ------------------- --------- --------------- -------------
<S> <C> <C> <C>
First Lien......... $ %
Second Lien........
--------- --------------- ------
Total........... $ 100.00%
--------- --------------- ------
--------- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
LOAN RATES(1)
- ------------------------------------------------------------------------
PERCENTAGE OF
STATISTIC
CALCULATION
AGGREGATE DATE
NUMBER OF UNPAID AGGREGATE
RANGE OF MORTGAGE PRINCIPAL PRINCIPAL
LOAN RATES LOANS BALANCE BALANCE
- ------------------- --------- --------------- -------------
<S> <C> <C> <C>
5.500% to 6.000%........... $ %
6.501% to 7.000%...........
7.001% to 7.500%...........
7.751% to 8.000%...........
8.251% to 8.500%...........
8.501% to 8.750%...........
8.751% to 9.000%...........
9.001% to 9.250%...........
9.251% to 9.500%...........
9.501% to 9.750%...........
9.751% to 10.000%...........
10.001% to 10.250%...........
10.251% to 10.500%...........
10.501% to 10.750%...........
10.751% to 11.000%...........
11.001% to 11.250%...........
11.251% to 11.500%...........
12.001% to 12.250%...........
12.251% to 12.500%...........
12.751% to 13.000%...........
13.001% to 13.250%...........
--------- --------------- ------
Total..................... $ 100.00%
--------- --------------- ------
--------- --------------- ------
</TABLE>
- ------------
(1) Approximately % of the Statistic Calculation Pool Mortgage Loans by
Statistic Calculation Date Principal Balance are subject to an introductory
rate of % per annum and % of the Statistic Calculation Date Principal
Balance are subject to an introductory rate of % per annum.
<TABLE>
<CAPTION>
MARGIN
- ------------------------------------------------------------------------------------
PERCENTAGE OF
STATISTIC
CALCULATION
AGGREGATE DATE
NUMBER OF UNPAID AGGREGATE
RANGE OF MORTGAGE PRINCIPAL PRINCIPAL
MARGINS LOANS BALANCE BALANCE
- ------------------- --------- --------------- -------------
<S> <C> <C> <C>
- -0.500%...................... $ %
0.000%......................
0.001% to 0.500%............
0.501% to 1.000%............
1.001% to 1.500%............
1.501% to 2.000%............
2.001% to 2.500%............
2.501% to 3.000%............
3.001% to 3.500%............
3.501% to 4.000%............
4.001% to 4.500%............
4.501% to 5.000%............
5.001% to 5.500%............
5.501% to 6.000%............
6.001% to 6.500%............
--------- --------------- ------
Total..................... $ 100.00%
--------- --------------- ------
--------- --------------- ------
</TABLE>
S-24
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
CREDIT LIMIT UTILIZATION RATES
- -------------------------------------------------------------------------
PERCENTAGE OF
STATISTIC
CALCULATION
AGGREGATE DATE
RANGE OF CREDIT NUMBER OF UNPAID AGGREGATE
LIMIT MORTGAGE PRINCIPAL PRINCIPAL
UTILIZATION RATES LOANS BALANCE BALANCE
- ------------------- --------- --------------- -------------
<S> <C> <C> <C>
0.00%...................... $ %
0.01% to 5.00%............
5.01% to 10.00%...........
10.01% to 15.00%...........
15.01% to 20.00%...........
20.01% to 25.00%...........
25.01% to 30.00%...........
30.01% to 35.00%...........
35.01% to 40.00%...........
40.01% to 45.00%...........
45.01% to 50.00%...........
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%...........
95.01% to 100.00%...........
--------- --------------- ------
Total.................... $ 100.00%
--------- --------------- ------
--------- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
CREDIT LIMITS
- ----------------------------------------------------------------------------
PERCENTAGE OF
STATISTIC
CALCULATION
AGGREGATE DATE
NUMBER OF UNPAID AGGREGATE
RANGE OF CREDIT MORTGAGE PRINCIPAL PRINCIPAL
LIMITS LOANS BALANCE BALANCE
- --------------------- --------- --------------- -------------
<S> <C> <C> <C>
$ 5,000.01 to $10,000.00.......... $ %
10,000.01 to 15,000.00..........
15,000.01 to 20,000.00..........
20,000.01 to 25,000.00..........
25,000.01 to 30,000.00..........
30,000.01 to 35,000.00..........
35,000.01 to 40,000.00..........
40,000.01 to 45,000.00..........
45,000.01 to 50,000.00..........
50,000.01 to 55,000.00..........
55,000.01 to 60,000.00..........
60,000.01 to 65,000.00..........
65,000.01 to 70,000.00..........
70,000.01 to 75,000.00..........
75,000.01 to 80,000.00..........
80,000.01 to 85,000.00..........
85,000.01 to 90,000.00..........
90,000.01 to 95,000.00..........
95,000.01 to 100,000.00.........
100,000.01 to 105,000.00.........
105,000.01 to 110,000.00.........
110,000.01 to 115,000.00.........
115,000.01 to 120,000.00.........
120,000.01 to 125,000.00.........
125,000.01 to 130,000.00.........
130,000.01 to 135,000.00.........
135,000.01 to 140,000.00.........
140,000.01 to 145,000.00.........
145,000.01 to 150,000.00.........
150,000.01 to 200,000.00.........
200,000.01 to 250,000.00.........
250,000.01 to 300,000.00.........
300,000.01 to 350,000.00.........
350,000.01 to 400,000.00.........
400,000.01 and up.................
--------- --------------- ------
Total.......................... $ 100.00%
--------- --------------- ------
--------- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
MAXIMUM RATES
- -------------------------------------------------------------------------
PERCENTAGE OF
STATISTIC
CALCULATION
AGGREGATE DATE
NUMBER OF UNPAID AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
MAXIMUM RATES LOANS BALANCE BALANCE
- ------------------- --------- --------------- -------------
<S> <C> <C> <C>
12.001% to 12.500%........... $ %
14.501% to 15.000%...........
15.501% to 16.000%...........
16.501% to 17.000%...........
17.501% to 18.000%...........
--------- --------------- ------
Total..................... $ 100.00%
--------- --------------- ------
--------- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
MONTHS REMAINING TO SCHEDULED MATURITY(1)
- ---------------------------------------------------------------
PERCENTAGE OF
STATISTIC
CALCULATION
RANGE OF MONTHS AGGREGATE DATE
REMAINING TO NUMBER OF UNPAID AGGREGATE
SCHEDULED MORTGAGE PRINCIPAL PRINCIPAL
MATURITY LOANS BALANCE BALANCE
- ------------------- --------- --------------- -------------
<S> <C> <C> <C>
145 - 156.......... $ %
169 - 180..........
229 - 240..........
289 - 300..........
301 - 302..........
--------- --------------- ------
Total........... $ 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 years.
<TABLE>
<CAPTION>
ORIGINATION YEAR
- ---------------------------------------------------------------
PERCENTAGE OF
STATISTIC
CALCULATION
AGGREGATE DATE
NUMBER OF UNPAID AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
ORIGINATION YEAR LOANS BALANCE BALANCE
- ------------------- --------- --------------- -------------
<S> <C> <C> <C>
1997............... $ %
1998...............
--------- --------------- ------
Total........... $ 100.00%
--------- --------------- ------
--------- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
DELINQUENCY STATUS
- ---------------------------------------------------------------
PERCENTAGE OF
STATISTIC
CALCULATION
AGGREGATE DATE
NUMBER OF UNPAID AGGREGATE
NUMBER OF DAYS MORTGAGE PRINCIPAL PRINCIPAL
DELINQUENT LOANS BALANCE BALANCE
- ------------------- --------- --------------- -------------
<S> <C> <C> <C>
30 - 59............ $ %
Current............
--------- --------------- ------
Total........... $ 100.00%
--------- --------------- ------
--------- --------------- ------
</TABLE>
S-25
<PAGE>
<PAGE>
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 59 or more days delinquent as of the Closing Date;
(ii) the remaining term to stated maturity of such Mortgage Loan will not exceed
months; (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 %; (v) such Mortgage Loan will be otherwise acceptable to the
Certificate Insurer; (vi) following the purchase of such Mortgage Loan by the
Trust Fund, the Mortgage Loans as of the Closing Date (a) will have a weighted
average Loan Rate of at least %; (b) will have a weighted average remaining
term to stated maturity of not more than months; (c) will have a weighted
average Combined Loan-to-Value Ratio of not more than %; (d) will have no
Mortgage Loan with a Principal Balance in excess of $ ; (e) will have a
concentration in any one state not in excess of %; and (f) will have not
more than % 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 %; (viii) such Mortgage Loan will have
a Credit Limit between $ and $ ; (ix) such Mortgage Loan will have a
Margin between - % and %; 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
the Investor Fixed Allocation Percentage, subject to reduction as described
below. During the Rapid Amortization Period, Certificateholders will receive
amounts from Principal Collections based solely upon the Investor Fixed
Allocation Percentage. Because prior distributions of Principal Collections to
Certificateholders serve to reduce the Investor Floating Allocation Percentage
but do not change the Investor Fixed Allocation Percentage, allocations of
Principal Collections based on the Investor 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, Subordinated Transferor 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. An increase in the Transferor Interest due to
additional draws may also result in Certificateholders receiving principal at a
greater rate during the Rapid Amortization Period because the
Certificateholders' share of Principal Collections is based upon the Investor
Fixed Allocation Percentage (without reduction). 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 [$ or six months
interest on the amount prepaid], to the extent the prepaid amount exceeds % 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
S-26
<PAGE>
<PAGE>
extent permitted by law. In general, such account termination fees do not exceed
$ and do not apply to accounts terminated subsequent to a date designated in
the related Mortgage Note which, depending on the jurisdiction, ranges between
[ months and 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 payments 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 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.
S-27
<PAGE>
<PAGE>
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) the Cut-off Date Principal Balance of each
Mortgage Loan plus any Additional Balances created in respect thereof during the
life of the Trust Fund; (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; and (vi) 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 approximately
$ (the 'Original Invested Amount'), which represents approximately
% of the Cut-off Date Pool Balance. The 'Original Certificate Principal
Balance' is expected to equal approximately $ . 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 approximately $ , which will represent approximately
% of the Cut-off Date Pool Balance. The Transferor as of any date is the
owner of the Transferor Interest and initially will be the Sponsor. 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 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 without
regard to the Policy, 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.
S-28
<PAGE>
<PAGE>
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.
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
S-29
<PAGE>
<PAGE>
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 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.
S-30
<PAGE>
<PAGE>
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 & Co., 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-
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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). 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 ' ' by Standard & Poor's and ' ' 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 Sponsor and the Depositor
by the Trustee, the Sponsor 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 Sponsor 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, no such transfer shall be considered to
have occurred unless and until all required deposits to the Collection Account
are actually made. The obligation of the Sponsor to accept a transfer of a
Defective Mortgage Loan and to make any required deposits are the sole remedies
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 Sponsor 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)
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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) 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 Sponsor will be required to make a
deposit to the Collection Account equal to such difference.
The Sponsor 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 Sponsor will represent and warrant on the
Closing Date that at the time of transfer to the Depositor, the Sponsor has
transferred or assigned all of its rights, title and interest in each Mortgage
Loan and the Related Documents, free of any lien. 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 Sponsor 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 Sponsor 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 Sponsor 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 and to certain limitations described in the
Agreement, 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
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Mortgage Loans; (vi) in connection with the first such retransfer of Mortgage
Loans, the Rating Agencies and the Certificate Insurer shall have been notified
of the proposed transfer and prior to the Transfer Date shall not have notified
the Transferor or the Certificate Insurer 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 Master Servicer shall establish and maintain an account (the
'Collection Account') in trust for the Certificateholders, the Transferor and
the Certificate Insurer, 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 and except under the
circumstances described below, within 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. Notwithstanding the foregoing, such amounts
in respect of the Mortgage Loans may be remitted to the Collection Account by
the Master Servicer on a monthly basis not later than the Business Day
immediately preceding the related Distribution Date so long as Countrywide is
the Master Servicer and (i) Countrywide's long-term unsecured debt obligations
are rated at least equal to ' ' by Moody's and ' ' by Standard & Poor's
and (ii) the Certificate Insurer's claims-paying ability is rated ' ' by
Moody's and ' ' by Standard & Poor's.
Amounts so deposited may be invested in Eligible Investments (as described
in the Agreement) maturing no later than one Business Day prior to the next
Distribution Date 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' by
Standard & Poor's and 'P-2' by Moody's 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
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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 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 (i) Servicing Fees for the related Collection Period
and (ii) amounts payable to the Master Servicer pursuant to the Agreement as
reimbursement of optional advances of the interest component of any delinquent
monthly payments on the Mortgage Loans.
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.
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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 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 ,
), 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
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 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 Subordinated
Transferor Collections as described below 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');
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(viii) in respect of any other amounts 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. 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. The
'Required Overcollateralization Amount' shall be an amount set forth in the
Insurance Agreement (as defined herein).
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 exists after the Available
Transferor Subordinated Amount has been reduced to zero and 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.
'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 (or, in the case of the first Collection
Period, the period beginning on , through the last day of
, ).
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
(assuming that each Mortgage Loan is fully indexed and net of the Servicing Fee
Rate, the rate at which the fee payable to the Trustee is calculated and the
rate at which the premium payable to the Certificate Insurer is calculated)
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,
Subordinated Transferor Collections 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 for the first
Interest Period will be determined on the second LIBOR Business Day preceding
the Closing Date. LIBOR will equal the rate for United States dollar deposits
for one month which appears on the
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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 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 or the Available Transferor Subordinated Amount.
Distributions of Principal Collections. For the period beginning on the
Closing Date and, unless a Rapid Amortization Event shall have earlier occurred,
through and including the Distribution Date in , (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 and (ii) the Alternative Principal Payment. 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 (such period, the 'Rapid Amortization Period'), the amount
of Principal Collections payable to Certificateholders on each Distribution Date
will be equal to the Maximum Principal Payment.
If on any Distribution Date the Required Overcollateralization Amount is
reduced below the then existing Overcollateralization Amount, the amount of
Principal Collections payable to Certificateholders on such Distribution Date
will be correspondingly reduced by the amount of such reduction.
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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 on
, through the last day of , .
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 , ,
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.
LIMITED SUBORDINATION OF TRANSFEROR INTEREST
If Investor Interest Collections on any Distribution Date are insufficient
to pay (i) accrued interest due and any overdue accrued interest (with interest
thereon to the extent permitted by applicable law) on the Certificates and (ii)
the Investor Loss Amount on such Distribution Date (such insufficiency being the
'Required Amount'), a portion of the Interest Collections and Principal
Collections allocable to the Transferor Interest (but not in excess of the
Available Transferor Subordinated Amount)(the 'Subordinated Transferor
Collections') will be applied to cover the Required Amount. The portion of the
Required Amount in respect of clause (ii) above not covered by such Subordinated
Transferor Collections will be reallocated to the Transferor Interest, thereby
reducing the Transferor Interest (up to the remaining Available Transferor
Subordinated Amount and not in excess of the Investor Loss Amounts). If such
Investor Interest Collections plus the amount of Subordinated Transferor
Collections which have been so applied to cover the Required Amount are together
insufficient to pay the amounts set forth in item (i) of the definition of
Required Amount, then a draw will be made on the Policy to cover the amount of
such shortfall. In addition, if on any Distribution Date on which the Available
Transferor Subordinated Amount is reduced to zero the Certificate Principal
Balance exceeds the Invested Amount (after giving effect to all allocations and
distributions with respect to principal to be made on the Certificates on such
Distribution Date), a draw will be made on the Policy in the amount of such
excess for such Distribution Date. See ' -- The Policy.'
With respect to any Distribution Date, the 'Available Transferor
Subordinated Amount' shall equal the lesser of the Transferor Interest and the
Required Transferor Subordinated Amount for such Distribution Date. With respect
to any Distribution Date, the 'Required Transferor Subordinated Amount' shall be
an amount determined as set forth in the Insurance Agreement (as defined
herein).
RAPID AMORTIZATION EVENTS
As described above, the Managed Amortization Period will continue through
and including the Distribution Date in , , unless a Rapid
Amortization Event occurs prior to such date. 'Rapid Amortization Event' refers
to any of the following events:
(a) failure on the part of the Sponsor (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
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 Sponsor 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 Sponsor 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
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the Certificate Insurer are materially and adversely affected; provided,
however, that a Rapid Amortization Event shall not be deemed to occur if
the Sponsor 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 exceeds % 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
aggregate principal amount of the Certificates 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.
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.
[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
Reimbursement Agreement (the 'Insurance Agreement') to be dated as of
, , among the Sponsor, the Depositor, the Master Servicer, the
Trustee and the Certificate Insurer.
The Policy will irrevocably and unconditionally guarantee payment (a) 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 and (b) of any Preference Amount (as
defined herein). 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 on
which the Available Transferor Subordinated Amount has been reduced to or equals
zero 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 , (after giving
effect to all other amounts distributable and allocable to principal on such
Distribution Date).
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.
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If payment of any amount guaranteed by the Certificate Insurer pursuant to
the Policy is avoided as a preference payment (the 'Preference Amount') 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 Trustee 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 with respect to which Order
the appeal period has expired without an appeal having been filed 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.
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 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 Sponsor. 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.
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.
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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;
(xii) 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 , 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.
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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, 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.
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SERVICING COMPENSATION AND PAYMENT OF EXPENSES
With respect to each Collection Period, the Master Servicer will receive
from interest received on the Mortgage Loans 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 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 , , 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 , , 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 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
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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 (or, if the Master Servicer is permitted to remit collections in respect of
the Mortgage Loans to the Collection Account on a monthly basis as described
under ' -- Payments on Mortgage Loans; Deposits to Collection Account', three
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 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 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, with the
consent of the Certificate Insurer, 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
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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 Sponsor, 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 Sponsor, 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 Sponsor, 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 Certificates
without regard to the Policy. The Agreement may also be amended from time to
time by the Sponsor, 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 Mortgage Loans, as described below and (iv) the Distribution
Date in , .
[The Mortgage Loans 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 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
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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.]
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 Sponsor 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.
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 the Sponsor pursuant to the Purchase
Agreement to be entered into between the Depositor, as purchaser of the Mortgage
Loans, and the Sponsor, as transferor of the Mortgage Loans. Under the Purchase
Agreement, the Sponsor 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 Sponsor 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.
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REPRESENTATIONS AND WARRANTIES
The Sponsor 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 Sponsor 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 Sponsor was the sole owner and holder of the Mortgage Loans
free and clear of any and all liens and security interests. The Sponsor will
make similar representations and warranties in the Agreement. The Sponsor 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 Sponsor and (b) the Purchase Agreement constitutes a valid
sale to the Depositor of all right, title and interest of the Sponsor in and to
the Mortgage Loans and the proceeds thereof.
ASSIGNMENT TO TRUST FUND
The Sponsor 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 Sponsor 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.
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 Principal Balances of the Mortgage
Loans for financial accounting purposes.
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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 -- 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
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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. 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.
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.
Interest paid (or accrued) to a Certificateholder who is a non-U.S. Person
will be considered 'portfolio interest,' and generally will not be subject to
United States federal income tax and withholding tax, provided, that (i) the
interest is not effectively connected with the conduct of a trade or business
within the United States by the non-U.S. Person, (ii) the non-U.S. Person
provides the Trust Fund or other person who is otherwise required to withhold
U.S. tax with respect to the Mortgage Loans with an appropriate statement (on
Form W-8 or other similar form), signed under penalties of perjury, certifying
that the beneficial owner of the Mortgage Loan is a foreign person and providing
that non-U.S. person's name and address. If a Certificate 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; in that case, however, the signed statement must be
accompanied by a Form W-8 or substitute form provided by the non-U.S. Person
that owns that interest in the Mortgage Loan. If such interest does not
constitute portfolio interest, then it will be subject to U.S. federal income
and withholding tax at a rate of 30%, unless reduced or eliminated pursuant to
an applicable tax treaty and the non-U.S. Person provides the Trust Fund, or an
organization or financial institution described above, with an appropriate
statement (e.g., a Form 1001), signed under penalties of perjury, to that
effect.
Final regulations dealing with backup withholding and information reporting
on income paid to foreign person and related matters (the 'New Withholding
Regulations') were published in the Federal Register on October 14, 1997. In
general, the New Withholding Regulations do not significantly alter the
substantive withholding and information reporting requirements, but do unify
current certification procedures and forms and clarify reliance standards. The
New Withholding Regulations generally will be effective for payments made after
December 31, 1998, subject to certain transition rules. THE DISCUSSION SET FORTH
ABOVE DOES NOT TAKE THE NEW WITHHOLDING REGULATIONS INTO ACCOUNT. PROSPECTIVE
NON-U.S. PERSONS WHO OWN INTERESTS IN MORTGAGE LOANS ARE STRONGLY URGED TO
CONSULT THEIR OWN TAX ADVISOR WITH RESPECT TO THE NEW WITHHOLDING REGULATIONS.
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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.
In addition, the interest paid on Certificates could be subject to a 30%
withholding tax (or lower treaty rate) either because the interest on the
Mortgage Loans does not appear to satisfy the requirements to be treated as
'portfolio interest' under the Code, or because, even if such Mortgage Loan
interest were to be treated as portfolio interest, interest payments on the
Certificates could be treated as 'guaranteed payments' within the meaning of the
partnership provisions of the Code.
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.
As previously mentioned, the New Withholding Regulations were published in
the Federal Register on October 14, 1997 and generally will be effective for
payments made after December 31, 1998, subject to certain transition rules. THE
DISCUSSION SET FORTH ABOVE DOES NOT TAKE THE NEW WITHHOLDING REGULATIONS INTO
ACCOUNT. PROSPECTIVE NON-U.S. PERSONS WHO OWN REGULAR CERTIFICATES ARE STRONGLY
URGED TO CONSULT THEIR OWN TAX ADVISOR WITH RESPECT TO THE NEW WITHHOLDING
REGULATIONS.
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.
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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.
The U.S. Department of Labor has granted to
an administrative exemption (Prohibited
Transaction Exemption 90-32; Exemption Application No. D- , 55 Fed. Reg.
23147 (1990)) (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
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
Sponsor, 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.
It is believed 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
S-52
<PAGE>
<PAGE>
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 , (the 'Underwriting Agreement'), among the
Depositor, and [(an
affiliate of the Depositor, the Sponsor and the Master Servicer and,] together
with , the 'Underwriters'), the Depositor has
agreed to sell to the Underwriters, and and
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.
Until the distribution of the Certificates is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase the Certificates. As an
exception to these rules, the Underwriters are permitted to engage in certain
transactions that stabilize the price of the Certificates. Such transactions
consist of bids or purchases for the purposes of pegging, fixing or maintaining
the price of the Certificates.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
Neither the Depositor nor either Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the prices of the Certificates. In addition, neither
the Depositor nor either Underwriter makes any representation that the
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
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 by Brown & Wood LLP, New York, New York.
, , will pass upon certain
legal matters on behalf of the Underwriters.
EXPERTS
[The financial statements of as of
[December 31, and and for each of the years in the three-year period
ended , and the unaudited financial statements of as
of and and for each of] the three- and nine-month
periods] then ended have been included in this Prospectus Supplement in Annex II
and in the Registration Statement in reliance upon the report of ,
independent certified public accountants, appearing in Annex II and in the
Registration Statement, and upon the authority of such firm as experts in
accounting and auditing.]
RATINGS
It is a condition to issuance that the Certificates be rated ' ' by
[Standard & Poor's] and ' ' 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,
S-53
<PAGE>
<PAGE>
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-54
<PAGE>
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----------------
<S> <C>
Accelerated Principal Distribution
Amount.......................... S-9, S-37
Additional Balances............... S-3
Agreement......................... S-3
ALTA.............................. S-19
Alternative Documentation
Program......................... S-19
Alternative Principal Payment..... S-10, S-39
Assignment Event.................. S-33
Available Transferor Subordinated
Amount.......................... S-12, S-40
Bankruptcy Rate................... S-21
Beneficial Owner.................. S-30
BIF............................... S-35
Book-Entry Certificates........... S-29
Business Day...................... S-37, S-42
CapMAC............................ S-17
Cede.............................. S-7
CEDEL............................. S-7
CEDEL Participants................ S-31
Certificate Insurer............... S-2, S-11
Certificate Owners................ S-7, S-29
Certificate Principal Balance..... S-4, S-29
Certificate Rate.................. S-3, S-10, 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-18
Credit Limit...................... S-6
Credit Limit Utilization Rate..... S-21
Credit Line Agreements............ S-3, S-21
Cut-off Date...................... S-1, S-3
Cut-off Date Pool Balance......... S-3, S-21
Cut-off Date Principal Balance.... S-3
Defective Mortgage Loans.......... S-34
Definitive Certificate............ S-30
Depositor......................... S-3
Detailed Description.............. S-21
Determination Date................ S-13, S-35
Distribution Date................. S-2, S-10, S-37
Draw Period....................... S-22
DTC............................... S-7, S-29, A-I-1
Due Date.......................... S-6
Duff & Phelps..................... S-17
Eligible Account.................. S-35
<CAPTION>
PAGE
----------------
<S> <C>
Eligible Substitute Mortgage
Loan............................ S-33
ERISA............................. S-14, S-53
Euroclear......................... S-7
Euroclear Operator................ S-31
Euroclear Participants............ S-31
European Depositaries............. S-7, S-30
Events of Servicing Termination... S-46
Exemption......................... S-53
FHLMC............................. S-19
Financial Intermediary............ S-30
Fixed Allocation Percentage....... S-9
Foreclosure Rate.................. S-21
FNMA.............................. S-19
Global Securities................. A-I-1
Guaranteed Distributions.......... S-11, S-41
Guaranteed Principal Distribution
Amount.......................... S-11, S-41
Holdings.......................... S-17
Index............................. S-22
Index Rate........................ S-22
Indirect Participants............. S-30
Insurance Agreement............... S-11, S-41
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-37
Investor Interest Collections..... S-8, S-37
Investor Loss Amount.............. S-9, S-38
Investor Principal Collections.... S-9, S-37
IRS............................... S-50
LIBOR............................. S-10
LIBOR Business Day................ S-39
Liquidated Mortgage Loan.......... S-38
Liquidation Loss Amount........... S-9, S-38
Liquidation Proceeds.............. S-36
Loan Rate......................... S-6, S-22
Managed Amortization Period....... S-10, S-39
Margin............................ S-22
Master Servicer................... S-3
Maximum Principal Payment......... S-10, S-39
Maximum Rate...................... S-22
Minimum Transferor Interest....... S-5, S-35
Money Rates....................... S-6, S-22
Moody's........................... S-11, S-17
Mortgage Files.................... S-33
Mortgage Loan Schedule............ S-4, S-33, S-34
Mortgage Loans.................... S-1, S-3
Mortgaged Properties.............. S-3
</TABLE>
S-55
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----------------
<S> <C>
Net Liquidation Proceeds.......... S-8, S-36
New Withholding Regulations....... S-51
Non-U.S. Person................... A-I-3
OID............................... S-50
OID Regulations................... S-50
Order............................. S-42
Original Certificate Principal
Balance......................... S-4, S-29
Original Invested Amount.......... S-4, S-29
Original Transferor Interest...... S-4
Overcollateralization Amount...... S-9, S-38
Participants...................... S-30
Paying Agent...................... S-40
Percentage Interest............... S-7
Plan.............................. S-14
Policy............................ S-2, S-3
Pool Balance...................... S-3, S-37
Pool Factor....................... S-28
Preference Amount................. S-42
Principal Balance................. S-3
Principal Collections............. S-8, S-36
Purchase Agreement................ S-6
Rapid Amortization Event.......... S-40
Rapid Amortization Period......... S-10, S-39
Rating Agency..................... S-14
Receipt........................... S-42
Received.......................... S-42
Record Date....................... S-37
Reduced Documentation Program..... S-19
Reference Bank Rate............... S-39
Related Documents................. S-33
Relevant Depositary............... S-30
Repayment Period.................. S-22
Required Amount................... S-12, S-40
<CAPTION>
PAGE
----------------
<S> <C>
Required Transferor Subordinated
Amount.......................... S-12, S-40
Required Overcollateralization
Amount.......................... S-38
Restricted Group.................. S-53
Rules............................. S-30
SAIF.............................. S-35
Scheduled Principal Collections
Distribution Amount............. S-10, S-39
Servicing Fee..................... S-13
Servicing Fee Rate................ S-13, S-45
SMMEA............................. S-14, S-53
Sponsor........................... S-3
Standard & Poor's................. S-11, S-17
Statistic Calculation Date........ S-5
Statistic Calculation Date
Principal Balance............... S-5
Statistic Calculation Pool........ S-5
Statistic Calculation Pool
Mortgage Loan................... S-5
Subordinated Transferor
Collections..................... S-8, S-40
Tax Counsel....................... S-49
Telerate Screen Page 3750......... S-39
Terms and Conditions.............. S-32
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-37
Trust Fund........................ S-1, S-3
Trustee........................... S-3, S-13
Underwriters...................... S-54
Underwriting Agreement............ S-54
</TABLE>
S-56
<PAGE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<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 - (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
A-I-1
<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;
A-I-2
<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.
'Non-U.S. Person' means (i) a person other than a citizen or resident of
the United States, (ii) a partnership, corporation, or entity treated as a
partnership or corporation for United States federal income tax purposes not
formed under the laws of the United States, any State thereof, or the District
of Columbia (unless in the case of a partnership Treasury regulations provide
otherwise), (iii) any estate the income of which is not subject to United States
income taxation regardless of sources, and (iv) any trust other than a trust
that a court within the United States is able to exercise primary supervsision
over the administration of the trust and one or more United States persons have
the authority to control all substantial decisions of the trust. In addition,
certain trusts that would otherwise not qualify as U.S. Persons under the
foregoing definition can elect to be treated as U.S. Persons.
A-I-3
<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
Incorporation of Certain Documents by Reference........................................................... S-2
Summary................................................................................................... S-3
Risk Factors.............................................................................................. S-15
The Certificate Insurer................................................................................... S-17
The Master Servicer....................................................................................... S-17
The Home Equity Loan Program.............................................................................. S-18
Description of the Mortgage Loans......................................................................... S-20
Maturity and Prepayment Considerations.................................................................... S-26
Pool Factor and Trading Information....................................................................... S-27
Description of the Certificates........................................................................... S-28
Description of the Purchase Agreement..................................................................... S-47
Use of Proceeds........................................................................................... S-48
Federal Income Tax Consequences........................................................................... S-48
State Taxes............................................................................................... S-51
ERISA Considerations...................................................................................... S-52
Legal Investment Considerations........................................................................... S-52
Underwriting.............................................................................................. S-53
Legal Matters............................................................................................. S-53
Experts................................................................................................... S-53
Ratings................................................................................................... S-53
Index of Defined Terms.................................................................................... S-55
Annex I................................................................................................... A-I-1
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............................................................................................ 21
Use of Proceeds........................................................................................... 25
The Depositor............................................................................................. 25
Loan Program.............................................................................................. 25
Description of the Securities............................................................................. 29
Credit Enhancement........................................................................................ 41
Yield and Prepayment Considerations....................................................................... 46
The Agreements............................................................................................ 48
Certain Legal Aspects of the Loans........................................................................ 60
Federal Income Tax Consequences........................................................................... 73
State Tax Considerations.................................................................................. 91
ERISA Considerations...................................................................................... 91
Legal Investment.......................................................................................... 95
Method of Distribution.................................................................................... 96
Legal Matters............................................................................................. 96
Financial Information..................................................................................... 96
Rating.................................................................................................... 97
Index of Defined Terms.................................................................................... 98
</TABLE>
_____________________________ _____________________________
_____________________________ _____________________________
$
(Approximate)
COUNTRYWIDE HOME
EQUITY LOAN
TRUST -
CWABS, INC.
DEPOSITOR
[LOGO]
SPONSOR AND MASTER SERVICER
REVOLVING HOME
EQUITY LOAN ASSET
BACKED CERTIFICATES,
SERIES -
---------------------------
PROSPECTUS SUPPLEMENT
---------------------------
[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 ,
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , )
$
[COUNTRYWIDE] HOME EQUITY LOAN TRUST
$ HOME EQUITY LOAN ASSET BACKED NOTES, SERIES -
$ HOME EQUITY LOAN ASSET BACKED CERTIFICATES, SERIES -
The [Countrywide] Home Equity Loan Trust (the 'Trust Fund') will be
formed pursuant to a trust agreement to be dated as of , (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 ,
(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
- (the 'Certificates' and, together with the Notes, the 'Securities'). See
'Index of Defined Terms' on Page S-38 of this Prospectus Supplement and on Page
97 of the Prospectus for the location of the definitions of certain capitalized
terms.
(cover continued on next page)
------------------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER 'RISK
FACTORS' ON PAGE S-11 HEREIN AND ON PAGE 14 IN THE ACCOMPANYING PROSPECTUS.
------------------------
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
, . 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 , . 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]
<PAGE>
<PAGE>
(continued from cover page)
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 ,
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.
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-38 of this Prospectus
Supplement and on Page 98 of the Prospectus for the location of the definitions
of certain capitalized terms.
<TABLE>
<S> <C>
Title of Securities.......................... Home Equity Loan Asset Backed Notes, Series - (the 'Notes')
and Home Equity Loan Asset Backed Certificates, Series - (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 - (the 'Trust Fund' or
the 'Issuer'), a Delaware business trust established pursuant to
the Trust Agreement (as defined herein), dated as of ,
(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' 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
</TABLE>
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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
, (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, (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, between the
Issuer and the Master Servicer.
Indenture Trustee............................ (the 'Indenture Trustee').
Owner Trustee................................ (the 'Owner Trustee').
Cut-off Date................................. 1, .
Closing Date................................. On or about , .
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').
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
</TABLE>
S-4
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<TABLE>
<S> <C>
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 , to ,
. As of the Cut-off Date, the maximum Credit Limit
Utilization Rate (as defined herein) was % 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 '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 ,
. 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
, . 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
</TABLE>
S-5
<PAGE>
<PAGE>
<TABLE>
<S> <C>
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:
(i) to the Master Servicer, the Servicing Fee;
(ii) as payment for the accrued interest 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
Distribution Date and thereafter interest will accrue on the
Certificates for each Interest Accrual Period at [a floating rate
</TABLE>
S-6
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<PAGE>
<TABLE>
<S> <C>
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.
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 (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. See
'Description of the Securities -- Optional Termination'
</TABLE>
S-7
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<S> <C>
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
Date occurring in such preceding Collection Period up to the
amount 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
</TABLE>
S-8
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<S> <C>
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
transaction under ERISA or Section 4975 of the Code.] See 'ERISA
Considerations' herein and in the Prospectus.
</TABLE>
S-9
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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-11 herein and on Page
14 in the Prospectus.
</TABLE>
S-10
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<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 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.
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<PAGE>
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 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
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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.
THE TRUST FUND
GENERAL
The Issuer, [Countrywide] Home Equity Loan Trust , 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.
S-13
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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. 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
, .
At , , 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 , , 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 4500 Park
Granada, Calabasas, California 91302. Its telephone number is (818) 225-3000.
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
S-14
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<PAGE>
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.
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
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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
, , 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 , ,*
<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 , , 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
, , charge off of $ . In addition to this charge
off, there is an anticipated charge off of approximately $ which may
also be realized in , .]
S-16
<PAGE>
<PAGE>
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 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
% ofthe 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
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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:
<TABLE>
<CAPTION>
PRINCIPAL BALANCES
- ---------------------------------------------------------------
PERCENT OF
POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF PRINCIPAL MORTGAGE PRINCIPAL PRINCIPAL
BALANCES LOANS BALANCE BALANCE
- ---------------------------------------------------------------
<S> <C> <C> <C>
$ - $ ......... $ %
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
--------- -------------- ------
Total................ $ 100.00%
--------- -------------- ------
--------- -------------- ------
</TABLE>
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION(1)
- ---------------------------------------------------------------
PERCENT OF
POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
MORTGAGE PRINCIPAL PRINCIPAL
STATE LOANS BALANCE 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-18
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
COMBINED LOAN-TO-VALUE RATIOS(1)
- ---------------------------------------------------------------
PERCENT OF
POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF COMBINED MORTGAGE PRINCIPAL PRINCIPAL
LOAN-TO-VALUE RATIOS LOANS BALANCE BALANCE
- ---------------------------------------------------------------
<S> <C> <C> <C>
% - %............. $ %
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
--------- -------------- ------
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.
<TABLE>
<CAPTION>
PROPERTY TYPE
- ---------------------------------------------------------------
PERCENT OF
POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
MORTGAGE PRINCIPAL PRINCIPAL
PROPERTY TYPE LOANS BALANCE BALANCE
- ---------------------------------------------------------------
<S> <C> <C> <C>
Single Family........... $ %
Two- to Four-Family.....
Condominium.............
PUD.....................
--------- -------------- ------
Total................ $ 100.00%
--------- -------------- ------
--------- -------------- ------
</TABLE>
<TABLE>
<CAPTION>
LIEN PRIORITY
- ---------------------------------------------------------------
PERCENT OF
POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
MORTGAGE PRINCIPAL PRINCIPAL
LIEN PRIORITY LOANS BALANCE BALANCE
- ---------------------------------------------------------------
<S> <C> <C> <C>
First Lien.............. $ %
Second Lien.............
--------- -------------- ------
Total................ $ 100.00%
--------- -------------- ------
--------- -------------- ------
</TABLE>
<TABLE>
<CAPTION>
LOAN RATES(1)
- ---------------------------------------------------------------
PERCENT OF
POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
MORTGAGE PRINCIPAL PRINCIPAL
RANGE OF LOAN RATES LOANS BALANCE BALANCE
- ---------------------------------------------------------------
<S> <C> <C> <C>
% - %............. $ %
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
--------- -------------- ------
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.
<TABLE>
<CAPTION>
MARGIN
- ---------------------------------------------------------------
PERCENT OF
POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
MORTGAGE PRINCIPAL PRINCIPAL
RANGE OF MARGINS LOANS BALANCE BALANCE
- ---------------------------------------------------------------
<S> <C> <C> <C>
% - %............. $ %
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
--------- -------------- ------
Total................ $ 100.00%
--------- -------------- ------
--------- -------------- ------
</TABLE>
S-19
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
CREDIT LIMIT UTILIZATION RATES
- ---------------------------------------------------------------
PERCENT OF
POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF CREDIT LIMIT MORTGAGE PRINCIPAL PRINCIPAL
UTILIZATION RATES LOANS BALANCE BALANCE
- ---------------------------------------------------------------
<S> <C> <C> <C>
% - %............. $ %
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
% - %.............
--------- -------------- ------
Total................ $ 100.00%
--------- -------------- ------
--------- -------------- ------
</TABLE>
<TABLE>
<CAPTION>
CREDIT LIMITS
- ---------------------------------------------------------------
PERCENT OF
POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
MORTGAGE PRINCIPAL PRINCIPAL
RANGE OF CREDIT LIMITS LOANS BALANCE BALANCE
- ---------------------------------------------------------------
<S> <C> <C> <C>
$ - $ ......... $ %
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
$ - $ .........
--------- -------------- ------
Total................ $ 100.00%
--------- -------------- ------
--------- -------------- ------
</TABLE>
<TABLE>
<CAPTION>
MAXIMUM RATES
- ---------------------------------------------------------------
PERCENT OF
POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
MORTGAGE PRINCIPAL PRINCIPAL
MAXIMUM RATES LOANS BALANCE BALANCE
- ---------------------------------------------------------------
<S> <C> <C> <C>
%.................... $ %
%....................
%....................
%....................
--------- -------------- ------
Total................ $ 100.00%
--------- -------------- ------
--------- -------------- ------
</TABLE>
<TABLE>
<CAPTION>
MONTHS REMAINING TO SCHEDULED MATURITY(1)
- ---------------------------------------------------------------
PERCENT OF
POOL BY
RANGE OF MONTHS NUMBER OF CUT-OFF DATE CUT-OFF DATE
REMAINING TO MORTGAGE PRINCIPAL PRINCIPAL
SCHEDULED MATURITY LOANS BALANCE BALANCE
- ---------------------------------------------------------------
<S> <C> <C> <C>
- ............... $ %
- ...............
- ...............
- ...............
- ...............
- ...............
- ...............
- ...............
- ...............
- ...............
- ...............
--------- -------------- ------
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.
<TABLE>
<CAPTION>
ORIGINATION YEAR
- ---------------------------------------------------------------
PERCENT OF
POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
MORTGAGE PRINCIPAL PRINCIPAL
ORIGINATION YEAR LOANS BALANCE BALANCE
- ---------------------------------------------------------------
<S> <C> <C> <C>
..................... $ %
.....................
--------- -------------- ------
Total................ $ 100.00%
--------- -------------- ------
--------- -------------- ------
</TABLE>
<TABLE>
<CAPTION>
DELINQUENCY STATUS
- ---------------------------------------------------------------
PERCENT OF
POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
NUMBER OF DAYS MORTGAGE PRINCIPAL PRINCIPAL
DELINQUENT LOANS BALANCE BALANCE
- ---------------------------------------------------------------
<S> <C> <C> <C>
0 - 29................. $ %
30 - 59.................
60 - 89.................
--------- -------------- ------
Total................ $ 100.00%
--------- -------------- ------
--------- -------------- ------
</TABLE>
S-20
<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 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
S-21
<PAGE>
<PAGE>
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' 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.
S-22
<PAGE>
<PAGE>
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
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
S-23
<PAGE>
<PAGE>
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 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
S-24
<PAGE>
<PAGE>
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
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.
S-25
<PAGE>
<PAGE>
DESCRIPTION OF THE SECURITIES
GENERAL
The Notes will be issued pursuant to the Indenture dated as of ,
, between the Trust Fund and , as Indenture
Trustee. The Certificates will be issued pursuant to the Trust Agreement dated
as of , , 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 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.
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'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.
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 4500 Park Granada,
Calabasas, California 91302. Its telephone number is (818) 225-3000.]
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
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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 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
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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 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 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
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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 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
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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 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.
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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
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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.
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
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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 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.
S-34
<PAGE>
<PAGE>
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
(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.
S-35
<PAGE>
<PAGE>
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.
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.
S-36
<PAGE>
<PAGE>
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 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-37
<PAGE>
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----------------
<S> <C>
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
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
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
</TABLE>
S-38
<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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Summary of Terms........................................................................................... S-3
Risk Factors............................................................................................... S-11
The Trust Fund............................................................................................. S-13
The [Letter of Credit] [Surety Bond] Issuer................................................................ S-14
The Master Servicer........................................................................................ S-14
The Home Equity Loan Program............................................................................... S-14
Description of the Mortgage Loans.......................................................................... S-17
Maturity and Prepayment Considerations..................................................................... S-22
Description of the Master Servicing Agreement.............................................................. S-23
Description of the Securities.............................................................................. S-26
The Depositor.............................................................................................. S-27
The Indenture.............................................................................................. S-27
The Trust Agreement........................................................................................ S-30
Administration Agreement................................................................................... S-31
The Indenture Trustee...................................................................................... S-32
The Owner Trustee.......................................................................................... S-32
Use of Proceeds............................................................................................ S-32
Federal Income Tax Consequences............................................................................ S-32
State Tax Consequences..................................................................................... S-33
ERISA Considerations....................................................................................... S-33
Legal Investment Considerations............................................................................ S-35
Underwriting............................................................................................... S-36
Legal Matters.............................................................................................. S-36
Ratings.................................................................................................... S-36
Index of Defined Terms..................................................................................... S-38
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............................................................................................. 21
Use of Proceeds............................................................................................ 25
The Depositor.............................................................................................. 25
Loan Program............................................................................................... 25
Description of the Securities.............................................................................. 29
Credit Enhancement......................................................................................... 41
Yield and Prepayment Considerations........................................................................ 46
The Agreements............................................................................................. 48
Certain Legal Aspects of the Loans......................................................................... 60
Federal Income Tax Consequences............................................................................ 73
State Tax Considerations................................................................................... 91
ERISA Considerations....................................................................................... 91
Legal Investment........................................................................................... 95
Method of Distribution..................................................................................... 96
Legal Matters.............................................................................................. 96
Financial Information...................................................................................... 96
Rating..................................................................................................... 97
Index of Defined Terms..................................................................................... 98
</TABLE>
$
[COUNTRYWIDE] HOME EQUITY LOAN
TRUST 199
$ [FIXED] [FLOATING] RATE
ASSET BACKED NOTES
$ [FIXED] [FLOATING] RATE
ASSET BACKED CERTIFICATES,
CWABS, INC.
DEPOSITOR
[LOGO]
-----------------------------------------
PROSPECTUS SUPPLEMENT
[ , ]
-----------------------------------------
[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 AUGUST , 1998
PROSPECTUS
CWABS, INC.
Depositor
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
mortgage loans (the 'Loans'): (i) mortgage loans secured by first and/or
subordinate liens on one- to four-family residential properties, including
manufactured housing that is permanently affixed and treated as real property
under local law, or security interests in shares issued by cooperative housing
corporations (the 'Single Family Loans'), (ii) mortgage loans secured by first
and/or subordinate liens on small multifamily residential properties, such as
rental apartment buildings or projects containing five to fifty residential
units (the 'Multifamily Loans'), (iii) closed-end and/or revolving home equity
loans (the 'Home Equity Loans'), secured in whole or in part by first and/or
subordinate liens on one- to four-family residential properties and (iv) 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 97 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 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.
(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.
,
<PAGE>
<PAGE>
(continued from cover page)
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
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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'.
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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 97 of this Prospectus for the
location of the definitions of certain capitalized terms.
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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,
including manufactured housing that is permanently affixed and
treated as real property under local law, or security interests in
shares issued by cooperative housing corporations (the 'Single Family
Loans'), (ii) mortgage loans secured by first and/or subordinate
liens on small multifamily residential properties, such as rental
apartment buildings or projects containing five to fifty residential
units (the 'Multifamily Loans'), (iii) 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'),
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and (iv) 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.
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. If so specified in the related Prospectus
Supplement, the Home Equity Loans may include Loans (primarily for
home improvement or debt consolidation purposes) that are in amounts
in excess of the value of the related Mortgaged Properties at the
time of origination. 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
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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
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.'
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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 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
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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
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
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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 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
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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
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.
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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 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
election is 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 under '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'.
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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 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>
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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
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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
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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 generally 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, if a junior
mortgagee forecloses on the property securing a junior mortgage, it forecloses
subject to any senior mortgage and 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 in order to protect the junior
mortgagee's interest in the property. 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 effectively be prevented from foreclosing on the
related property.
Certain states have imposed statutory and judicial restrictions that limit
the remedies of a secured lender in the event that the proceeds of any sale
under a deed of trust or other foreclosure proceedings are insufficient to pay
amounts owed to such secured lender. In certain states, including California, if
a lender simultaneously originates a loan secured by a senior lien on a
particular property and a loan secured by a junior lien on the same property,
such a lender as the holder of the junior lien may be precluded from obtaining a
deficiency judgment with respect to the excess of the aggregate amount owed
under both such loans over the proceeds of any sale under a deed of trust or
other foreclosure proceedings. See 'Certain Legal Aspects of the Loans --
Anti-Deficiency Legislation; Bankruptcy Laws; Tax Liens.'
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'.
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MULTIFAMILY LOANS
Multifamily lending may be viewed as exposing the lender to a greater risk
of loss than single family residential lending. Owners of multifamily
residential properties rely on monthly lease payments from tenants to pay for
maintenance and other operating expenses of such properties, to fund capital
improvements and to service any mortgage loan and any other debt that may be
secured by such properties. Various factors, many of which are beyond the
control of the owner or operator of such a property, may affect the economic
viability of that property.
Changes in payment patterns by tenants may result from a variety of social,
legal and economic factors. Economic factors including the rate of inflation,
unemployment levels and relative rates offered for various types of housing may
be reflected in changes in payment patterns including increased risks of
defaults by tenants and higher vacancy rates. Adverse economic conditions,
either local or national, may limit the amount of rent that can be charged and
may result in a reduction in timely lease payments or a reduction in occupancy
levels. Occupancy and rent levels may also be affected by construction of
additional housing units, competition and local politics, including rent
stabilization or rent control laws and policies. In addition, the level of
mortgage interest rates may encourage tenants to purchase single family housing.
The Depositor is unable to determine and has no basis to predict whether, or to
what extent, economic, legal or social factors will affect future rental or
payment patterns.
The location and construction quality of a particular building may affect
the occupancy level as well as the rents that may be charged for individual
units. The characteristics of a neighborhood may change over time or in relation
to newer developments. The effects of poor construction quality will increase
over time in the form of increased maintenance and capital improvements. Even
good construction will deteriorate over time if adequate maintenance is not
performed in a timely fashion.
UNSECURED HOME IMPROVEMENT AND OTHER LOANS
The Trust Fund for any Series may include Home Improvement Loans that are
not secured by an interest in real estate or otherwise. The Trust Fund for any
Series may also include Home Equity Loans that were originated with
Loan-to-Value Ratios or Combined Loan-to-Value Ratios in excess of the value of
the related Mortgaged Property pledged as security therefor. Under such
circumstances, the Trust Fund for the related Series could be treated as a
general unsecured creditor as to any unsecured portion of any such Loan. In the
event of a default under a Loan that is unsecured in whole or in part, the
related Trust Fund will have recourse only against the borrower's assets
generally for the unsecured portion of the Loan, along with all other general
unsecured creditors of the borrower. In a bankruptcy or insolvency proceeding
relating to a borrower on any such Loan, the unsecured obligations of the
borrower with respect to such Loan may be discharged, even though the value of
the borrower's assets made available to the related Trust Fund as a general
unsecured creditor is insufficient to pay amounts due and owing under the
related Loan.
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 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;
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(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 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.
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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 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
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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.
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.
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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.
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
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* 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.
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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 Single Family Loans, Multifamily Loans,
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 or fifteenth 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
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.
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(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. If so specified in the related
Prospectus Supplement, the Home Equity Loans may include Loans (primarily for
home improvement or debt consolidation purposes) that are in amounts in excess
of the value of the related Mortgaged Properties at the time of origination. The
Mortgaged Properties and the Home Improvements are collectively referred to
herein as the 'Properties'. 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.
Single Family Loans. The Mortgaged Properties relating to Single Family
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, manufactured housing that is permanently affixed and
treated as real property under local law, and certain other dwelling units
('Single Family Properties'). Single Family 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.
Multifamily Loans. Mortgaged Properties which secure Multifamily Loans may
include small multifamily residential properties such as rental apartment
buildings or projects containing five to fifty residential units, including
mid-rise and garden apartments. Certain of the Multifamily Loans may be secured
by apartment buildings owned by Cooperatives. In such cases, the Cooperative
owns all the apartment units in the building and all common areas. The
Cooperative is owned by tenant-stockholders who, through ownership of stock,
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shares or membership certificates in the corporation, receive proprietary leases
or occupancy agreements which confer exclusive rights to occupy specific
apartments or 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 mortgage loan, real property
taxes, maintenance expenses and other capital or ordinary expenses. Those
payments are in addition to any payments of principal and interest the tenant-
stockholder must make on any loans to the tenant-stockholder secured by its
shares in the Cooperative. The Cooperative will be directly responsible for
building management and, in most cases, payment of real estate taxes and hazard
and liability insurance. A Cooperative's ability to meet debt service
obligations on a Multifamily Loan, as well as all other operating expenses, will
be dependent in large part on the receipt of maintenance payments from the
tenant-stockholders, as well as any rental income from units the Cooperative
might control. Unanticipated expenditures may in some cases have to be paid by
special assessments on the tenant-stockholders.
Home Equity Loans. The Mortgaged Properties relating to Home Equity Loans
will consist of Single Family Properties. As more fully described in the related
Prospectus Supplement, interest on each Revolving Credit Line Loan, excluding
introductory 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, small multi-
family properties, 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.
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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 generally the appraised value thereof determined in an appraisal
obtained at the time of refinancing.
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 4500 Park Granada, Calabasas, California 91302. Its telephone number
is (818) 225-3000.
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'.
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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 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 generally 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. If so specified in the related Prospectus Supplement, a
Seller's underwriting criteria may permit loans with loan-to-value ratios at
origination in excess of 100%, such as for debt consolidation or home
improvement purposes. Loan-to-value ratios may not be 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,
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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 of 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 generally not available, an attorney's certificate of title)
and any required hazard insurance policy were effective at origination of each
Loan, other than Cooperative Loans and certain Home Equity Loans, 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
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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'.
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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., 4500 Park Granada, Calabasas, California 91302,
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.
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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
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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
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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
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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:
<TABLE>
<S> <C>
(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.
</TABLE>
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.
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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>
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<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:
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(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
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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.
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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
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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,
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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
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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.
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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.
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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
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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
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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.
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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
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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 generally 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'.
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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 Single Family Loan, Multifamily
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
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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
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Supplement, must be either (i) maintained with a depository institution the debt
obligations of which (or in the 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:
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(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
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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 shortfalls 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
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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 and hurricanes. 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
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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.
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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
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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
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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
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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
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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
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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 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 the 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
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obligations. A 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
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
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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 most part, these
cases have upheld the notice provisions as being reasonable or have found that
the sale by a trustee under a deed of trust 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
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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 rise 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. This
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 include
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'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). 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, or alternatively, may
not impose liability on secured creditors at all.
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. In certain states, including
California, if a lender simultaneously originates a loan secured by a senior
lien on a particular property and a loan secured by a junior lien on the same
property, such a lender as the holder of the junior lien may be precluded from
obtaining a deficiency judgment with respect to the excess of the aggregate
amount owed under both such loans over the proceeds of any sale under a deed of
trust or other foreclosure proceedings. 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
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exercising remedies with respect to the security. Consequently, the practical
effect of the election requirement, 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
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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.
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
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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 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
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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
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.
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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 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
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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 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 scheduled 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 on a simple interest basis. 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 maturity
of 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 borrower
is required to submit to the lender, promptly upon completion of the
improvements but not later than six months after disbursement of the loan
proceeds with one six month
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extension if necessary, a completion certificate, signed by the borrower. The
lender or its agent 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.
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 the insurance premium, but will
abate any insurance charges falling due after such prepayment.
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. 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 loan
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
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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 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.
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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
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 February 2, 1994, as amended on June 11, 1996, (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
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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 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
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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 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.
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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 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
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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
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.
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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 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
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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 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
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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.
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
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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 can 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.
The Taxpayer Relief Act of 1997 adds provisions to the Code that will apply to
an 'electing large partnership'. If an electing large partnership holds a
Residual Interest Security, all interests in the electing large partnership are
treated as held by disqualified organizations for purposes of the tax imposed
upon a pass-through entity under section 860E(e) of the Code. An exception to
this tax, otherwise available to a pass-through entity that is furnished certain
affidavits by record holders of interests in the entity and that does not know
such affidavits are false, is not available to an electing large partnership.
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 a REMIC Residual Interest Security acquired after
January 3, 1995 cannot be marked-to-market.
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, '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
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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 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
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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. For tax years beginning after
August 5, 1997 the Taxpayer Relief Act of 1997 may allow use of the Cash Flow
Bond Method with respect to Stripped Securities and other Pass-Through
Securities because it provides that such method applies to any pool of debt
instruments the yield on which may be affected by prepayments. 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 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)(5)(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
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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. In general, the maximum tax rate on ordinary income for individual
taxpayers is 39.6% and the maximum tax rate on long-term capital gains for such
taxpayers is 20%. 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 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
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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 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 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
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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;
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.
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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 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.
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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. Pursuant to final regulations issued on May 9,
1997 under Code Section 708, a sale or exchange of 50% or more of the capital
and profits in a partnership would cause a deemed contribution of assets of the
partnership (the 'old partnership') to a new partnership (the 'new partnership')
in exchange for interests in the new partnership. Such interests would be deemed
distributed to the partners of the old partnership in liquidation thereof, which
would not constitute a sale or exchange. Accordingly under these new
regulations, if the Trust Fund were characterized as a partnership and a sale of
Certificates terminated the partnership under Code Section 708, the purchaser's
basis in its ownership interest would not change.
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.
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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 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
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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, as calculated for this purpose which may exceed the distributions to
Certificateholders, 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 (other than a
partnership that is not treated as a United States person under any applicable
Treasury regulations), 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 persons have the authority to control
all substantial decisions of the trust. Notwithstanding the preceding sentence,
to the extent provided in regulations, certain trusts in existence on August 20,
1996 and treated as United States persons prior to such date that elect to
continue to be so treated also shall be considered U.S. Persons.
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
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certain identification procedures, unless the holder is an exempt recipient
under applicable provisions of the Code.
NEW WITHHOLDING REGULATIONS
Final regulations dealing with withholding tax on income paid to foreign
persons, backup withholding and related matters (the 'New Withholding
Regulations') were issued by the Treasury Department on October 6, 1997. The New
Withholding Regulations generally attempt to unify certification requirements
and modify reliance standards. The New Withholding Regulations generally will be
effective for payments made after December 31, 1999, subject to certain
transition rules. Prospective investors are strongly urged to consult their own
tax advisors with respect to the New Withholding Regulations.
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 generally provides that, in addition to certain other
technical exceptions, 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
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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 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 of 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, 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. In any event, the
Trustee will not be affiliated with the Depositor.
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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.
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 identical, and include the
following:
(1) the acquisition of the certificates by a Plan is on terms
(including the price for the certificates) that are at least as favorable
to the Plan as they would be in an arm's-length transaction with an
unrelated party;
(2) the rights and interest evidenced by the certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by
other certificates of the trust fund;
(3) the certificates acquired by the Plan have received a rating at
the time of such acquisition that is one of the three highest generic
rating categories from Standard & Poor's 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:
<TABLE>
<C> <S>
(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.
</TABLE>
Moreover, the Underwriter Exemptions generally provide relief from certain
self-dealing/conflict of interest prohibited transactions that may occur when a
Plan fiduciary causes such 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
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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').
On July 21, 1997, the DOL published in the Federal Register an amendment to
the Underwriter Exemptions, which extends exemptive relief to certain
mortgage-backed and asset-backed securities transactions using pre-funding
accounts for trusts issuing pass-through certificates. The amendment generally
allows mortgage loans or other secured receivables (the 'Obligations')
supporting payments to certificateholders, and having a value equal to no more
than twenty-five percent (25%) of the total principal amount of the certificates
being offered by the trust, to be transferred to the trust within a 90-day or
three-month period following the closing date (the 'Pre-Funding Period'),
instead of requiring that all such Obligations be either identified or
transferred on or before the Closing Date. The relief is available when the
following conditions are met:
(1) The ratio of the amount allocated to the pre-funding account to
the total principal amount of the certificates being offered (the
'Pre-Funding Limit') must not exceed twenty-five percent (25%).
(2) All Obligations transferred after the Closing Date (the
'Additional Obligations') must meet the same terms and conditions for
eligibility as the original Obligations used to create the trust, which
terms and conditions have been approved by a Rating Agency.
(3) The transfer of such Additional Obligations to the trust during
the Pre-Funding Period must not result in the certificates to be covered by
the Exemption receiving a lower credit rating from a Rating Agency upon
termination of the Pre-Funding Period than the rating that was obtained at
the time of the initial issuance of the certificates by the trust.
(4) Solely as a result of the use of pre-funding, the weighted average
annual percentage interest rate for all of the Obligations in the trust at
the end of the Pre-Funding Period must not be more than 100 basis points
lower than the average interest rate for the Obligations transferred to the
trust on the Closing Date.
(5) In order to insure that the characteristics of the Additional
Obligations are substantially similar to the original Obligations which
were transferred to the Trust Fund:
(i) the characteristics of the Additional Obligations must be
monitored by an insurer or other credit support provider that is
independent of the depositor; or
(ii) an independent accountant retained by the depositor must
provide the depositor with a letter (with copies provided to each Rating
Agency rating the certificates, the related underwriter and the related
trustee) stating whether or not the characteristics of the Additional
Obligations conform to the characteristics described in the related
prospectus or prospectus supplement and/or pooling and servicing
agreement. In preparing such letter, the independent accountant must use
the same type of procedures as were applicable to the Obligations
transferred to the trust as of the Closing Date.
(6) The Pre-Funding Period must end no later than three months or 90
days after the Closing Date or earlier in certain circumstances if the
pre-funding account falls below the minimum level specified in the pooling
and servicing agreement or an Event of Default occurs.
(7) Amounts transferred to any pre-funding account and/or capitalized
interest account used in connection with the pre-funding may be invested
only in certain permitted investments ('Certain Investments').
(8) The related prospectus or prospectus supplement must describe:
(i) any pre-funding account and/or capitalized interest account
used in connection with a pre-funding account;
(ii) the duration of the Pre-Funding Period;
(iii) the percentage and/or dollar amount of the Pre-Funding Limit
for the trust; and
(iv) that the amounts remaining in the pre-funding account at the
end of the Pre-Funding Period will be remitted to certificateholders as
repayments of principal.
(9) The related pooling and servicing agreement must describe the
Certain Investments for the pre-funding account and/or capitalized
interest account and, if not disclosed in the related prospectus or
prospectus supplement, the terms and conditions for eligibility of
Additional Obligations.
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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.
Any Plan fiduciary which proposes to cause a Plan to purchase Securities
should consult with its counsel concerning the impact of ERISA and the Code, the
applicability of PTE 83-1 and the Underwriter Exemptions, 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 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.
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 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'). The NCUA issued final regulations effective December 2, 1991
that restrict and in some instances prohibit the investment by Federal Credit
Unions in certain types of mortgage related securities.
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.
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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, percentage-of-assets limits and provisions
which may restrict or prohibit investment in securities which are not 'interest
bearing' or 'income paying,' or in securities which are issued in book-entry
form.
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.
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.
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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.
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INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM PAGE
- ------------------------------------------ ---------
<S> <C>
Accretion Directed........................ 34
Accrual................................... 35
Accrual Securities........................ 31
Additional Obligations.................... 94
Advance................................... 10
Agreement................................. 21
Amortizable Bond Premium Regulations...... 77
APR....................................... 24
Available Funds........................... 31
Balloon payment........................... 22
Belgian Cooperative....................... 40
BIF....................................... 50
Book-Entry Securities..................... 38
Buydown Fund.............................. 23
Buydown Loans............................. 23
Calculation Agent......................... 35
Capitalized Interest Account.............. 51
Cash Flow Bond Method..................... 83
CEDEL Participants........................ 39
CERCLA.................................... 17, 63
Certain Investments....................... 94
Certificates.............................. 1, 5, 21
Claimable Amount.......................... 72
Class Security Balance.................... 31
Closed-End Loans.......................... 5
Code...................................... 11, 73
COFI Securities........................... 37
Collateral Value.......................... 25
Combined Loan-to-Value Ratio.............. 25
Commission................................ 3
Component Securities...................... 34
Contingent Regulations.................... 74
Cooperative Loans......................... 22
Cooperatives.............................. 22
Cut-off Date.............................. 5, 21
Cut-off Date Principal Balance............ 29
DCR....................................... 93
Debt Securities........................... 73
Definitive Security....................... 38
Depositor................................. 1, 25
Detailed Description...................... 22
Distribution Date......................... 7
DOL....................................... 91
DTC....................................... 19, 38
Eleventh District......................... 36
EPA....................................... 63
ERISA..................................... 13
Euroclear Operator........................ 40
Euroclear Participants.................... 40
European Depositaries..................... 38
Exchange Act.............................. 3
FDIC...................................... 27
FHA....................................... 9
FHLBSF.................................... 36
FHLMC..................................... 27
Financial Intermediary.................... 38
Fitch..................................... 93
Fixed Rate................................ 35
Floating Rate............................. 35
FNMA...................................... 27
Foreign person............................ 86
Funding Period............................ 19
Garn-St Germain Act....................... 65
Holder in Due Course Rules................ 18
Home Equity Loans......................... 1, 6
Home Improvement Contracts................ 1, 6
Home Improvements......................... 1
Indenture................................. 29
Installment Contract...................... 67
Insurance Proceeds........................ 50
Insured Expenses.......................... 50
Interest Only............................. 35
Interest Weighted Securities.............. 76
Inverse Floating Rate..................... 35
IRS....................................... 74
L/C Bank.................................. 9, 42
L/C Percentage............................ 9, 42
Liquidation Expenses...................... 50
Liquidation Proceeds...................... 50
Loan Rate................................. 7, 22
Loans..................................... 1
Loan-to-Value Ratio....................... 25
Lockout periods........................... 23
Master Servicer........................... 5
Master Servicing Agreement................ 21
Master Servicing Fee...................... 55
Moody's................................... 43, 93
Morgan.................................... 40
Mortgage.................................. 48
Mortgaged Properties...................... 23
Multifamily Loan.......................... 1, 5
National Cost of Funds Index.............. 37
NCUA...................................... 94
New Withholding Regulations............... 91
Nonresidents.............................. 84
Notes..................................... 1, 5, 21
Notional Amount Securities................ 34
Obligations............................... 94
OID....................................... 11, 73
OID Regulations........................... 73
OTS....................................... 37
PACs...................................... 34
Partial Accrual........................... 35
Parties in Interest....................... 91
Pass-Through Rate......................... 7, 21
Pass-Through Securities................... 81
Pay-Through Security...................... 75
Pre-Funding Limit......................... 94
Pre-Funding Period........................ 94
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ------------------------------------------ ---------
<S> <C>
Percentage Interests...................... 57
Permitted Investments..................... 43
Planned Principal Class................... 34
Plans..................................... 91
Policy Statement.......................... 95
Pool...................................... 5, 21
Pool Insurance Policy..................... 44
Pool Insurer.............................. 44
Pooling and Servicing Agreement........... 29
Pre-Funded Amount......................... 19
Pre-Funding Account....................... 5, 19
Prepayment Assumption..................... 75
Primary Mortgage Insurance Policy......... 23
Prime Rate................................ 38
Principal Only............................ 35
Principal Prepayments..................... 32
Properties................................ 6, 23
Property Improvement Loans................ 69
Proposed Mark-to-Market Regulations....... 81
PTE 83-1.................................. 91
Purchase Price............................ 27
Rating Agency............................. 96
Ratio Strip Securities.................... 82
RCRA...................................... 64
Record Date............................... 30
Reference Banks........................... 35
Refinance Loan............................ 25
Regular Interest Securities............... 73
Relevant Depositary....................... 38
Relief Act................................ 68
REMIC..................................... 2, 73
Reserve Account........................... 8, 30
Reserve Interest Rate..................... 36
Residual Interest Security................ 79
Restricted Group.......................... 93
Retained Interest......................... 29
Revolving Credit Line Loans............... 5
Riegle Act................................ 18
Rules..................................... 39
S&P....................................... 93
SAIF...................................... 50
Scheduled Principal Class................. 34
Securities................................ 1, 5, 21
Security Account.......................... 49
Security Owners........................... 38
Security Register......................... 30
Securityholders........................... 38
Seller.................................... 1
Sellers................................... 21
Senior Securities......................... 6, 41
Sequential Pay............................ 34
Series.................................... 1
Servicing Fee............................. 81
Short-Term Note........................... 86
Single Family Loan........................ 1, 5
Single Family Properties.................. 23
Single Family Securities.................. 91
SMMEA..................................... 11, 94
Strip..................................... 34
Stripped Securities....................... 81
Sub-Servicer.............................. 10, 21
Sub-Servicing Agreement................... 52
Subordinated Securities................... 6
Subsequent Loans.......................... 19
Support Class............................. 34
TACs...................................... 35
Targeted Principal Class.................. 35
Terms and Conditions...................... 40
TIN....................................... 84
Title I Loans............................. 69
Title I Program........................... 69
Title V................................... 66, 67
Trust Agreement........................... 21, 29
Trust Fund................................ 1, 21
Trust Fund Assets......................... 1, 5, 21
Trustee................................... 5, 29
UCC....................................... 63
Underwriter Exemptions.................... 92
U.S. Person............................... 90
VA........................................ 9
VA Guaranty............................... 55
Variable Rate............................. 35
</TABLE>
99
<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:
<TABLE>
<S> <C>
SEC registration fee......................................................... $ 914,264.11
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.............................................................. $1,189,264.11
-------------
-------------
</TABLE>
- ------------
* 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 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 reasonable cause to believe his or her conduct was unlawful.
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 upon application 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 of Chancery or such other court may deem proper. Section 145
further provides that to the extent a director or officer of a corporation has
been successful on the merits or otherwise in 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 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.
II-1
<PAGE>
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<S> <C>
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 certain 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 (included in the signature page hereto).
</TABLE>
- ------------
** Incorporated by reference from the Registrant's Registration Statement (No.
333-37539).
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.
(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, as amended, 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.
II-2
<PAGE>
<PAGE>
(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 it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Calabasas, state of California on the 5th day of
August, 1998.
CWABS, INC.
By /s/ STANFORD L. KURLAND
....................................
NAME: STANFORD L. KURLAND
TITLE: CHAIRMAN OF THE BOARD,
PRESIDENT AND DIRECTOR
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Stanford L. Kurland and Carlos Garcia, or
either of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and his name, place and stead,
in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ --------------------------------------------- -------------------
<C> <S> <C>
/s/ STANFORD L. KURLAND Chairman of the Board, President (Principal August 5, 1998
......................................... Executive Officer) and Director
(STANFORD L. KURLAND)
/s/ CARLOS M. GARCIA Executive Vice President and Chief Financial August 5, 1998
......................................... Officer (Principal Accounting Officer) and
(CARLOS M. GARCIA) Director
/s/ KEVIN W. BARTLETT Director August 5, 1998
.........................................
(KEVIN W. BARTLETT)
/s/ THOMAS H. BOONE Director August 5, 1998
.........................................
(THOMAS H. BOONE)
/s/ JEFFREY P. GROGIN Director August 5, 1998
.........................................
(JEFFREY P. GROGIN)
</TABLE>
II-4
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NO. DESCRIPTION OF EXHIBIT NUMBER
- ------- --------------------------------------------------------------------------------------------- ----------
<C> <S> <C>
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 certain 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)............................
24.1 -- Power of Attorney (included in the signature page hereto).................................
</TABLE>
- ------------
**Incorporated by reference from the Registrant's Registration Statement (No.
333-37539).
<PAGE>
<PAGE>
August 5, 1998
CWABS, Inc.
4500 Park Granada
Calabasas, CA 91302
Re: CWABS, Inc.
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel for CWABS, Inc., a Delaware corporation (the
'Company'), in connection with the preparation of a registration statement on
Form S-3 (the 'Registration Statement') under the Securities Act of 1933, as
amended (the '1933 Act') relating to the issuance from time to time of up to
$3,099,200,373 aggregate principal amount of Asset Backed Securities (the
'Securities'), issuable in series (each, a 'Series'). The Registration Statement
is being filed with the Securities and Exchange Commission pursuant to Rule 429
under the 1933 Act and the Prospectus included in the Registration Statement is
a combined prospectus relating to the prospectus included in the registration
statement No. 333-37539 previously filed by the Company and declared effective
by the Securities and Exchange Commission on November 7, 1997. As set forth in
the Registration Statement, each Series of Securities will be issued under and
pursuant to the conditions of a separate pooling and servicing agreement, trust
agreement or indenture (each, an 'Agreement') among the Company, a trustee (the
'Trustee') and, where appropriate, a master servicer (the 'Master Servicer'),
each to be identified (together with any other relevant parties) in the
prospectus supplement for such Series of Securities.
We have examined copies of the Company's Certificate of Incorporation, the
Company's By-laws and forms of each Agreement, as incorporated by reference as
Exhibits 4.1, 4.2, 4.3, 4.4 and 4.5 to the Registration Statement, and the forms
of Securities included in any Agreement so incorporated by reference to the
Registration Statement and such other records, documents and statutes as we have
deemed necessary for purposes of this opinion.
Based upon the foregoing, we are of the opinion that:
i. When any Agreement relating to a Series of Securities has been duly
and validly authorized by all necessary action on the part of the Company
and has been duly executed and delivered by the Company, the Master
Servicer, if any, the Trustee and any other party thereto, such Agreement
will constitute a legal, valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy, insolvency or other laws
relating to or affecting creditors' rights generally or by general equity
principles.
ii. When a Series of Securities has been duly authorized by all
necessary action on the part of the Company (subject to the terms thereof
being otherwise in compliance with applicable law at such time), duly
executed and authenticated by the Trustee for such Series in accordance
with the terms of the related Agreement and issued and delivered against
payment therefor as described in the Registration Statement, such Series of
Securities will be legally and validly issued, fully paid and
nonassessable, and the holders thereof will be entitled to the benefits of
the related Agreement.
iii. The information set forth in the Prospectus under the caption
'Federal Income Tax Consequences,' to the extent it constitutes matters of
law or legal conclusions, is correct in all material respects. The opinions
set forth in the Prospectus under the heading 'Federal Income Tax
Consequences' are hereby confirmed.
In rendering the foregoing opinions, we express no opinion as to the laws
of any jurisdiction other than the laws of the State of New York (excluding
choice of law principles therein) and the federal laws of the United States of
America.
<PAGE>
<PAGE>
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the references to this firm under the heading
'Legal Matters' in each prospectus supplement and the prospectus forming a part
of the Registration Statement, without admitting that we are 'experts' within
the meaning of the 1933 Act or the Rules and Regulations of the Commission
issued thereunder, with respect to any part of the Registration Statement,
including this exhibit.
Very truly yours,
BROWN & WOOD LLP
New York, New York
August 5, 1998
<PAGE>
