<PAGE>
As filed with the Securities and Exchange Commission on September 5, 1996
Registration No. 333-
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
METROPOLITAN ASSET FUNDING, INC.
--------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware (Applied for)
- ------------------------------ ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
929 West Sprague Avenue, Suite 106, Spokane, Washington 99204, (509) 838-3111
- --------------------------------------------------------------------------------
(Address, including ZIP code, and telephone number,
including area code, of registrant's principal executive offices)
-----------------------
Lynn Ann Ciani, Esq.
Metropolitan Asset Funding, Inc.
929 West Sprague Avenue, Suite 106, Spokane, Washington 99204 (509) 838-3111
- --------------------------------------------------------------------------------
(Name, address, including ZIP code, and telephone number,
including area code, of agent for service)
--------------------
COPIES TO:
Robert J. Ahrenholz, Esq. Michael Braun, Esq.
Michael T. Lambert, Esq. Brown & Wood LLP
Kutak Rock One World Trade Center
717 Seventeenth Street, Suite 2900 New York, New York 10048
Denver, Colorado 80202 (212) 839-5300
(303) 297-2400
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, 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, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AMOUNT TO BE OFFERING PRICE PER UNIT(1) AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
REGISTERED
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Certificates $1,000,000 100% $1,000,000 $344.83
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
-------------------------------
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>
This Prospectus and the information contained herein are 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 ____________, 1996
PROSPECTUS
$___________
METROPOLITAN ASSET FUNDING, INC.
DEPOSITOR
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
SUMMIT SECURITIES, INC.
WESTERN UNITED LIFE ASSURANCE COMPANY
OLD STANDARD LIFE INSURANCE COMPANY
SELLERS
METWEST MORTGAGE SERVICES, INC.
MASTER SERVICER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1996-A
Distributions payable on the twentieth day of each month,
commencing on _______________, 1996
----------------------------------------------
The Mortgage Pass-Through Certificates, Series 1996-A (the "Certificates")
will represent the entire beneficial ownership interest in a trust fund (the
"Mortgage Pool") to be created pursuant to a Pooling and Servicing Agreement,
dated as of _______________, 1996 (the "Pooling Agreement"), among Metropolitan
Asset Funding, Inc. (the "Depositor"), MetWest Mortgage Services, Inc. (f/k/a
Spokane Mortgage Co.), as master servicer (the "Master Servicer"), each of the
sellers identified above (each, a "Seller" and collectively, the "Sellers") and
The Bank of New York, as trustee (the "Trustee"). The Mortgage Pool will
consist primarily of a pool of fixed rate mortgage loans (including Land Sale
Contracts for the sale of real estate) (the "Mortgage Loans"), substantially all
of which will have calculated remaining terms to maturity of not more than 360
months. The Mortgage Loans are secured by first liens on, or constitute Land
Sale Contracts for either the sale of, one- to four-family residential
properties or commercial properties as described herein involving Mortgage Loans
of less than $826,000. Only the Classes identified in the table below (the
"Offered Certificates") are offered hereby.
PROSPECTIVE INVESTORS IN THE OFFERED CERTIFICATES SHOULD REVIEW THE INFORMATION
SET FORTH UNDER "RISK FACTORS" ON PAGE 1 OF THIS PROSPECTUS.
(cover continued on next page)
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR,
THE SELLERS, THE MASTER SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE
AFFILIATES, EXCEPT AS SET FORTH HEREIN.
NEITHER THE CERTIFICATES NOR THE MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY THE UNITED STATES GOVERNMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY OR INSTRUMENTALITY.
------------------------------------
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.
-------------------------------------
On the twentieth day of each month or, if such twentieth day is not a
business day, on the first business day thereafter (each, a "Distribution
Date"), commencing in _______________ 1996, from and to the extent of funds
available therefor in the Distribution Account referred to herein, a
distribution will be made on the Offered Certificates in the amounts and in the
priorities set forth herein.
<TABLE>
<CAPTION>
Initial Last Scheduled
Class Certificate Principal Pass-Through Interest Distribution
Class Balance(1) Type(2) Rate Type(2) Date(3)
----- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
A(1)
A(2)
A(3)
A(4)
B(1)
B(2)
</TABLE>
_______________
(1) The aggregate initial Class Certificate Balance of the Offered
Certificates is subject to a permitted variance in the aggregate of
plus or minus 5%.
(2) See "Class Definitions and Abbreviations" included in Appendix A hereto.
(3) See "DESCRIPTION OF THE CERTIFICATES-Last Scheduled Distribution Date"
herein
The Offered Certificates offered hereby will be purchased by First
Southwest Company and Bear, Stearns & Co. Inc. (together, the "Underwriters")
from the Depositor and will be offered by the Underwriters from time to time in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale. Proceeds to the Depositor from the sale of the Offered
Certificates are expected to be approximately ______% of the aggregate principal
balance of the Mortgage Loans as of the Cutoff Date, plus accrued interest,
before deducting issuance expenses payable by the Depositor estimated to be
$_______________.
The Offered Certificates are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters and subject
to their right to reject orders in whole or in part. It is expected that
delivery of the Offered Certificates, other than the Class B-1 and Class B-2
Certificates, will be made in book-entry form only through the facilities of The
Depository Trust Company ("DTC") and that the Class B-1 and Class B-2
Certificates will be delivered at the offices of
___________________________________ in _______________________,
_________________, in each case on or about _______________, 1996.
STRUCTURED CAPITAL MANAGEMENT BEAR, STEARNS & CO. INC.
A DIVISION OF FIRST SOUTHWEST COMPANY
Date _______________, 1996
<PAGE>
(cover continued from prior page)
Except with respect to certain Mortgage Loans made by the Sellers to
facilitate the sale of their respective real estate acquired in foreclosure, the
Mortgage Loans were purchased by the Sellers, and will be sold by the Sellers to
Metropolitan Asset Funding, Inc. (the "Depositor") for deposit to the Mortgage
Pool prior to initial issuance of the Certificates.
The rights of the holders of the Subordinate Certificates to receive
distributions with respect to the Mortgage Loans are subordinated to the rights
of the holders of Senior Certificates, and the rights of the holders of each
Class of Class B Certificates and the Class R Certificates to receive such
distributions will be further subordinated to such rights of the holders of the
Class or Classes of Class B Certificates with lower numerical Class designations
and all Classes of Class B Certificates, respectively, in each case only to the
limited extent described herein. See "DESCRIPTION OF THE CERTIFICATES" herein.
THE YIELD TO INVESTORS ON EACH CLASS OF OFFERED CERTIFICATES WILL BE
SENSITIVE IN VARYING DEGREES TO, AMONG OTHER THINGS, THE RATE AND TIMING OF
PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) OF THE MORTGAGE LOANS. THE YIELD TO
MATURITY OF A CLASS OF OFFERED CERTIFICATES PURCHASED AT A DISCOUNT OR PREMIUM
WILL BE MORE SENSITIVE TO THE RATE AND TIMING OF PAYMENTS THEREON THAN A CLASS
PURCHASED AT PAR. HOLDERS OF CERTIFICATES SHOULD CONSIDER, IN THE CASE OF ANY
SUCH 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 ANY 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. THE YIELD TO INVESTORS IN THE OFFERED CERTIFICATES, AND
PARTICULARLY THE CLASS B-1 AND CLASS B-2 CERTIFICATES, ALSO WILL BE ADVERSELY
AFFECTED BY NET INTEREST SHORTFALLS AND BY REALIZED LOSSES. NO REPRESENTATION
IS MADE AS TO THE ANTICIPATED RATE OF PREPAYMENTS ON THE MORTGAGE LOANS, THE
AMOUNT AND TIMING OF NET INTEREST SHORTFALLS OR REALIZED LOSSES, OR THE
RESULTING YIELD TO MATURITY OF ANY CLASS OF CERTIFICATES.
An election will be made to treat the Mortgage Pool as a "real estate
mortgage investment conduit" (the "REMIC") for federal income tax purposes. As
described more fully herein, the Senior Certificates and the Class B
Certificates will constitute "regular interests" in the REMIC. See "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES" herein.
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.
(end of cover page)
----------------------------------------
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS, ALL DEALERS EFFECTING
TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE OFFERED
CERTIFICATES OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
<PAGE>
ADDITIONAL INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Certificates. This
Prospectus, which forms a part of the Registration Statement, contains
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, which may be inspected
without charge and copied at prescribed rates at the 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: Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and New York Regional Office, Seven World Trade Center, 13th
Floor, New York, New York 10048. In addition, the Commission maintains a World
Wide Web site that contains reports, proxy and information statements and other
information regarding registrants, such as the Issuer, that file electronically
with the Commission at the following address: (http://www.sec.gov).
REPORTS TO CERTIFICATEHOLDERS
Periodic and annual reports concerning the Certificates will be provided to
the Certificateholders. The Offered Certificates will be issued in book-entry
form and registered in the name of Cede & Co. ("Cede"), the nominee of The
Depository Trust Company. All reports will be provided to Cede, which in turn
will provide such reports to its Participants and Indirect Participants (as
defined herein). Such Participants and Indirect Participants will then forward
such reports to the beneficial owners of Offered Certificates. See "THE POOLING
AND SERVICING AGREEMENT--Book-Entry Certificates" herein.
NO PERSON HAS BEEN AUTHORIZED TO GIVE INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE CERTIFICATES OFFERED HEREBY OR AN OFFER OF THE
CERTIFICATES TO ANY PERSON IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH
OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT
IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE.
i
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by or on behalf of the Registrant 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"), subsequent to the date of this Prospectus
and prior to the termination of the offering of the Offered Certificates issued
by the Issuer shall be deemed to be incorporated by reference in this Prospectus
and to be a part of this Prospectus from the date of the filing of such
documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute part of this Prospectus. The
Depositor will provide without charge to each person to whom a copy of the
Prospectus is delivered, on the written or oral request of any such person, a
copy of any or all of the documents incorporated herein by reference, except the
exhibits to such documents (unless such exhibits are specifically incorporated
by reference in such documents). Requests for such copies should be directed to
Metropolitan Asset Funding, Inc., 929 West Sprague Avenue, Suite 106, Spokane,
Washington 99204, Attention: Lynn A. Ciani, telephone: (509) 838-3111.
ii
<PAGE>
SUMMARY OF THE OFFERING
THIS SUMMARY OF THE OFFERING IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. CERTAIN
CAPITALIZED TERMS USED IN THIS SUMMARY OF THE OFFERING ARE DEFINED ELSEWHERE IN
THIS PROSPECTUS. SEE "INDEX TO AND GLOSSARY OF CERTAIN TERMS" HEREIN.
TITLE OF SECURITIES Mortgage Pass-Through Certificates, Series 1996-A
(the "Certificates").
DESIGNATIONS
OFFERED CERTIFICATES Class A-1, Class A-2, Class A-3, Class A-4,
Class B-1 and Class B-2 Certificates. Only the
Offered Certificates are offered hereby.
NON-OFFERED CERTIFICATES Approximate
Initial Class Pass-Through
Class Certificate Balance Rate
----- -------------------- ----
B-3(1) $
B-4(1)
R(1) (2) (2)
_______________
(1) The Class B-3, Class B-4 and Class R
Certificates will provide limited credit support
for the Offered Certificates as described herein.
(2) The Class R Certificates will be comprised of
two payment components. See "DESCRIPTION OF THE
CERTIFICATES--Residual Certificates" herein. For a
description of the initial Component Balance
applicable to each Component and the distributions
applicable thereto, see "DESCRIPTION OF THE
CERTIFICATES--Residual Certificates" herein. With
respect to the Class Z/IO Component, on each
Distribution Date up to and including the
Accretion Termination Date, distributions of
interest allocable to the Class Z/IO Component
will be added to the Component Balance thereof
(the "Accretion Amount") and distributed as
principal to certain Classes of Offered
Certificates as described herein under "DESCRIPTION
OF THE CERTIFICATES--Distributions."
SENIOR CERTIFICATES Class A-1, Class A-2, Class A-3 and Class A-4
Certificates.
CLASS B CERTIFICATES Class B-1, Class B-2, Class B-3 and Class B-4
Certificates.
iii
<PAGE>
SUBORDINATE CERTIFICATES The Class B and Class R Certificates.
REGULAR CERTIFICATES All Classes of Certificates other than the Class R
Certificates.
RESIDUAL CERTIFICATES Class R Certificates.
FIXED RATE CERTIFICATES All Classes of Certificates other than the Class R
Certificates.
COMPONENT CERTIFICATES Class R Certificates.
ACCRETION CLASS Class Z/IO Component.
PRINCIPAL ONLY CLASS Class PO Component.
PHYSICAL CERTIFICATES All Classes of Subordinate Certificates.
BOOK-ENTRY CERTIFICATES All Classes of Certificates other than the
Physical Certificates.
DEPOSITOR Metropolitan Asset Funding, Inc., a Delaware
corporation (the "Depositor").
SELLERS Metropolitan Mortgage & Securities Co., Inc.
("Metropolitan"), a Washington corporation;
Summit Securities, Inc. ("Summit"), an Idaho
corporation; Western United Life Assurance
Company ("Western"), a Washington life insurance
and annuity company; and Old Standard Life
Insurance Company ("Old Standard"), an Idaho
life insurance and annuity company.
Metropolitan, Summit, Western and Old Standard
are sometimes referred to herein each as a
"Seller" and, collectively, as the "Sellers".
The Sellers are under common control. See
"DESCRIPTION OF THE SELLERS" herein.
MASTER SERVICER MetWest Mortgage Services, Inc. (formerly known as
Spokane Mortgage Co.) (the "Master Servicer"), a
Washington corporation and a wholly owned
subsidiary of Metropolitan. See "SERVICING OF
MORTGAGE LOANS" herein.
TRUSTEE The Bank of New York, a banking corporation
organized under the laws of the State of New York
(the "Trustee").
CUTOFF DATE _______________ 1, 1996.
CLOSING DATE _______________, 1996.
iv
<PAGE>
DISTRIBUTION DATE The twentieth day of each month, or, if such day
is not a Business Day, the next succeeding
Business Day, commencing in __________ 1996.
RECORD DATE The Record Date for each Distribution Date will be
the last day of the preceding month.
MORTGAGE POOL The Mortgage Pool will consist of fully amortizing
and balloon fixed-rate loans (including Land Sale
Contracts for the sale of real estate) having, as
of the Cutoff Date, an aggregate Scheduled
Principal Balance equal to approximately
$______________ (the "Cutoff Date Pool Principal
Balance"). See "THE MORTGAGE POOL" herein.
(a) MORTGAGE LOANS. The Mortgage Loans
will be secured primarily by first liens on (i)
one- to four-family residential properties (each
such Mortgage Loan, a "Single Family Mortgage
Loan"), and (ii) multi-family housing properties or
commercial real estate, including office
buildings, shopping centers, retail stores, hotels
and motels, nursing homes and other health-care
related facilities, mobile home and recreation
vehicle parks, warehouse facilities, mixed use and
other types of income-producing properties in an
amount with respect to any single such Mortgage
Loan of less than $826,000 (each such Mortgage
Loan, a "Commercial Mortgage Loan"). The Single
Family Mortgage Loans and the Commercial Mortgage
Loans (together with Land Sale Contracts for the
sale of real estate with respect to such Mortgage
Loans) are collectively referred to herein as the
"Mortgage Loans". The Mortgage Loans are
conventional loans (i.e., loans that are not
insured by any governmental agency) and, except
with respect to certain Mortgage Loans made by the
Sellers to facilitate the sale of their respective
real estate acquired upon foreclosure, all
Mortgage Loans will have been purchased by the
Sellers from individuals or in secondary market
transactions from financial institutions and sold
by the respective Seller to the Depositor.
The payment terms of the Mortgage Loans to be
included in the Mortgage Pool include the
following features or combinations thereof:
(A) With respect to ____% of the Single
Family Mortgage Loans, ____% of the
Commercial Mortgage Loans and ____% of the
Mortgage Loans (in each case, on the basis of
the Cutoff Date Pool
v
<PAGE>
Principal Balance), interest will be payable
at a fixed rate, and principal will be
payable, on a level debt service basis to
fully amortize the loan over its term, and,
with respect to ____% of the Single Family
Mortgage Loans, ____% of the Commercial
Mortgage Loans and ____% of the Mortgage
Loans (in each case, on the basis of the
Cutoff Date Pool Principal Balance), payment
of all or a substantial portion of the
principal will be deferred and will be
Balloon Loans as defined under "THE MORTGAGE
POOL--General."
(B) 1.53% of the Single Family Mortgage
Loans, 7.11% of the Commercial Mortgage Loans
and 2.85% of the Mortgage Loans (in each
case, on the basis of the Cutoff Date Pool
Principal Balance) are subject to a
prepayment penalty or fee for a prepayment in
full. Certain of the Mortgage Loans include
"due-on-sale" clauses which permit the
mortgagee to demand payment of the entire
Mortgage Loan in connection with the sale or
certain transfers of the related Mortgaged
Property; however, the Depositor has not
determined the percentage of Mortgage Loans
containing such clauses.
(C) The real property constituting
security for repayment of the Single Family
Mortgage Loans is located in _________ states
[and the District of Columbia] and the real
property constituting security for repayment
of the Commercial Mortgage Loans is located
in states [and the District of
Columbia]. The Mortgage Loans are covered by
standard hazard insurance policies insuring
against losses due to fire and various other
causes.
(b) COLLECTION ACCOUNT. All distributions
on any Mortgage Loans and all payments (including
prepayments, liquidation proceeds and certain
insurance proceeds and net of certain amounts)
received from the Master Servicer on any Mortgage
Loans included in the Mortgage Pool will be
remitted to an account (the "Collection Account"),
and, together with any other amounts as described
herein, will be available for distribution on the
Certificates as described herein. Such Collection
Account shall be an Eligible Account or Accounts
established and maintained by the Master Servicer
for the benefit of holders of the Certificates.
vi
<PAGE>
POOLING AND The Certificates will be issued pursuant to a
SERVICING AGREEMENT Pooling and Servicing Agreement, dated as of
__________ 1, 1996 ("the Pooling Agreement"), among
the Depositor, the Master Servicer, the Sellers
and the Trustee.
PRIORITY OF DISTRIBUTIONS As more fully described herein, distributions will
be made on the Certificates on each Distribution
Date from and to the extent of Available Funds in
the following order of priority:
(a) to interest on each Class of Senior
Certificates;
(b) to principal of the Classes of Senior
Certificates then entitled to receive
distributions of principal, in the order and
subject to the priorities set forth herein under
"DESCRIPTION OF THE CERTIFICATES--Distributions,"
up to the maximum amount of principal to be
distributed on such Classes on such Distribution
Date;
(c) to interest and then to principal of the
Class B-1 and Class B-2 Certificates, in that
order, up to the maximum amount of interest and
principal to be distributed on each such Class on
such Distribution Date;
(d) to interest on the Class B-3
Certificates;
(e) to interest on the Class B-4
Certificates;
(f) to interest on the Class Z/IO Component
of the Class R Certificates (except such interest
will be added to the Component Balance thereof up
to and including the Accretion Termination Date);
(g) after the Offered Certificates are paid
in full, sequentially, to principal of the
Class B-3, Class B-4 and the Class R Certificates,
in that order, up to the maximum amount of
principal to be distributed on each such Class on
such Distribution Date; and
(h) to the Class R Certificates, any
remaining Available Funds.
INTEREST On each Distribution Date, each Class of Offered
Certificates, to the extent Available Funds are
available for the distribution of interest on such
Class on such Distribution Date, as described
above under "Priority of Distributions," generally
will be entitled to receive an amount allocable to
interest equal
vii
<PAGE>
to the sum of (a) one month's interest at the
applicable Pass-Through Rate set forth on the
cover page hereof (as to each Class, the
"Pass-Through Rate") on the related Class
Certificate Balance, immediately prior to such
Distribution Date and (b) the sum of the amounts,
if any, by which the amount described in
clause (a) above on each prior Distribution Date
exceeded the amount actually distributed as
interest on such prior Distribution Dates and not
subsequently distributed ("Unpaid Interest
Shortfall"). The interest entitlement for each
Class of Offered Certificates described above
shall be reduced by the allocable share of Net
Interest Shortfalls for each such Class, as
described herein under "DESCRIPTION OF THE
CERTIFICATES--Distributions."
PRINCIPAL On each Distribution Date, to the extent Available
(INCLUDING PREPAYMENTS) Funds are available therefor, principal
distributions in reduction of the Class
Certificate Balance of each Class of Offered
Certificates will be made in the order and subject
to the priorities set forth herein under
"DESCRIPTION OF THE CERTIFICATES--Distributions" in
an aggregate amount equal to such Class' allocable
portion of the Senior Principal Distribution
Amount, the Class A-4 Principal Distribution
Amount or the Subordinate Principal Distribution
Amount, as applicable.
In addition, on each Distribution Date up to and
including the Accretion Termination Date, the
Accretion Amount will be distributed as set forth
herein under "DESCRIPTION OF THE
CERTIFICATES--Distributions--Accretion Amount."
The Class B-3, Class B-4 and Class R Certificates
are not entitled to distributions of principal
until the Class Certificate Balance of each Class
of Offered Certificates has been paid in full.
See "DESCRIPTION OF THE
CERTIFICATES--Distributions" herein.
CREDIT Credit enhancement for the Senior Certificates
ENHANCEMENT GENERAL will be provided by the Subordinate Certificates
as described below. Credit enhancement for each
Class of Subordinate Certificates (other than the
Class R Certificates) will be provided by the
Class or Classes of Class B Certificates with
higher numerical Class designations, as described
below.
viii
<PAGE>
SUBORDINATION The rights of holders of the Subordinate
Certificates to receive distributions with respect
to the Mortgage Loans in the Mortgage Pool will be
subordinated to such rights of holders of the
Senior Certificates, and the rights of the holders
of each Class of Subordinate Certificates (other
than the Class B-1 Certificates) to receive
distributions will be further subordinated to such
rights of the holders of the Class or Classes of
Subordinate Certificates with a higher priority of
payment as described above under "Priority of
Distributions," in each case only to the extent
described herein.
The subordination of the Subordinate Certificates
to the Senior Certificates and the further
subordination within the Subordinate Certificates
are each intended to increase the likelihood of
timely receipt by the holders of Certificates with
a higher relative payment priority of the maximum
amount to which they are entitled on any
Distribution Date and to provide such holders
protection against losses resulting from defaults
on Mortgage Loans to the extent described herein.
The Subordinate Certificates also provide
protection to a lesser extent against Special
Hazard Losses, Bankruptcy Losses and Fraud Losses.
However, in certain circumstances, the amount of
available subordination (including the limited
subordination provided for certain types of
losses) may be exhausted and shortfalls in
distributions on the Certificates could result as
a result of such losses. Holders of Senior
Certificates will bear their proportionate share
of any losses realized on the Mortgage Loans in
excess of the available subordination amount. See
"DESCRIPTION OF THE CERTIFICATES--Priority of
Distributions Among Classes of Certificates,"
--"Allocation of Losses" and "CREDIT
ENHANCEMENT--Subordination of Certain Classes"
herein.
WEIGHTED AVERAGE
LIVES (IN YEARS)*
CPR
---------------------------------------------------
Class 0.0% 5.0% 10.0% 15.0% 20.0%
----- ---- ---- ----- ----- -----
A-1
A-2
A-3
A-4
B-1
B-2
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<PAGE>
------------
*Determined as described under "MATURITY,
PREPAYMENT AND YIELD CONSIDERATIONS--Weighted
Average Lives of the Offered Certificates" herein.
Prepayments will not occur at any assumed rate
shown or any other constant rate, and the actual
weighted average lives of any or all of the
Classes of Offered Certificates are likely to
differ from those shown, perhaps significantly.
MASTER SERVICING FEE As compensation for its services, the Master
AND OTHER EXPENSES Servicer will be entitled to retain, from amounts
received in respect of the Mortgage Loans which
are allocable to interest, an amount equal to the
Master Servicing Fee.
In addition to the Master Servicing Fee, there
will be deducted from amounts received in respect
of the Mortgage Loans which are allocable to
interest an amount sufficient to provide for the
payment of the Trustee's fee. As to each Mortgage
Loan, the sum of the Master Servicing Fee Rate and
the rate at which the Trustee's fee is determined
is referred to as the "Expense Rate." The "Net
Mortgage Rate" for each Mortgage Loan will equal
the Mortgage Rate thereon less the Expense Rate.
See "THE POOLING AND SERVICING AGREEMENT--Servicing
Compensation and Payment of Expenses" herein.
ADVANCES The Master Servicer is obligated to make cash
advances ("Advances") with respect to delinquent
payments of principal and interest on any Mortgage
Loan to the extent that such Advances are
determined by the Master Servicer to be
recoverable. The Trustee will be obligated to
make such Advance if the Master Servicer fails in
its obligation to do so, to the extent provided in
the Pooling Agreement. See "THE POOLING AND
SERVICING AGREEMENT--Advances" herein.
With respect to any Mortgage Loan that is a
Balloon Loan, in the event of default in the
scheduled balloon principal payment (each, a
"Balloon Payment") due on the maturity of such
Mortgage Loan, the Master Servicer will advance
each month an amount equal to interest (subject to
the Master Servicer's determination as to
recoverability) on the Mortgage Loan deemed to be
due thereon and which is unpaid by the
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<PAGE>
Mortgagor after such default and, at the Master
Servicer's sole option, an amount of principal on
the Mortgage Loan equal to the principal portion
of the Monthly Payment due thereon.
Any Advance made by the Master Servicer with
respect to a Mortgage Loan is reimbursable to it
as described herein under "THE POOLING AND
SERVICING AGREEMENT--Advances." Under the limited
circumstances described herein, the Master
Servicer will be entitled to reimburse itself from
funds on deposit in the Collection Account before
distributions are made to holders of Certificates.
OPTIONAL TERMINATION At its option, the Master Servicer may purchase
from the Mortgage Pool all remaining Mortgage
Loans in the Mortgage Pool and thereby effect
early retirement of the Certificates on any
Distribution Date on which the Pool Scheduled
Principal Balance is less than 10% of the Cutoff
Date Pool Principal Balance. See "THE POOLING AND
SERVICING AGREEMENT Certificates--Termination;
Optional Termination" herein.
IF THE MASTER SERVICER EXERCISES ITS RIGHT TO
REPURCHASE ALL OF THE MORTGAGE LOANS, THE
CERTIFICATES OUTSTANDING AT THE TIME OF SUCH
REPURCHASE WILL BE RETIRED EARLIER THAN WOULD
OTHERWISE BE THE CASE. See "MATURITY, PREPAYMENT
AND YIELD CONSIDERATIONS" herein.
OPTIONAL PURCHASE OF Subject to certain conditions specified in the
MORTGAGE LOANS Pooling Agreement, the Master Servicer has the
option, but is not obligated, (a) to purchase from
the Mortgage Pool any Mortgage Loan 90 days or
more delinquent at the Repurchase Price for such
Mortgage Loan or (b) to sell any such Mortgage
Loan in a commercially reasonable manner if the
Master Servicer determines that such a sale would
produce a greater recovery on a present-value
basis than would liquidation of the related
Mortgaged Property. See "THE POOLING AND SERVICING
AGREEMENT--Optional Purchase of Defaulted Mortgage
Loans" herein.
CERTAIN FEDERAL An election will be made to treat the Mortgage
INCOME TAX CONSEQUENCES Pool as a "real estate mortgage investment conduit"
("REMIC") for federal income tax purposes. The
Regular Certificates will constitute "regular
interests" in the REMIC and will be treated as debt
instruments of the Mortgage Pool for federal
income tax purposes with payment terms equivalent
to the terms of such
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<PAGE>
Certificates. The Residual Certificates will
constitute the sole class of "residual interest" in
the REMIC.
Holders of the Offered Certificates will be
required to include in income interest on such
Certificates in accordance with the accrual method
of accounting. Certain Classes of the Offered
Certificates may, depending on their respective
issue prices, be treated as having been issued
with original issue discount for federal income
tax purposes. For further information regarding
the federal income tax consequences of investing
in the Certificates, see "CERTAIN FEDERAL INCOME
TAX CONSEQUENCES" herein.
LEGAL INVESTMENT The Offered Certificates will not constitute
"mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984
("SMMEA"), because the substantial majority of the
Mortgage Loans were originated by individuals and
not by financial institutions or mortgagees
approved by the Secretary of Housing and Urban
Development and, in the case of the Class B-2
Certificates, such Certificates will not be rated
in one of the two highest rating categories by a
nationally recognized statistical rating
organization. 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 CONSIDERATIONS" herein.
Certain Classes of Certificates may be deemed
"high-risk mortgage securities" as defined in the
supervisory policy statement on securities
activities approved by the Federal Financial
Institutions Examination Council on December 3,
1991 and adopted by the Comptroller of the
Currency, the Federal Deposit Insurance
Corporation, the Federal Reserve Board and the
Office of Thrift Supervision. See "LEGAL
INVESTMENT CONSIDERATIONS" herein.
ERISA CONSIDERATIONS A fiduciary of any employee benefit plan subject
to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or the Internal Revenue
Code of 1986, as amended ("the Code"), should
carefully review with its legal advisors whether
the purchase or holding of an Offered Certificate
could give rise to a transaction prohibited or not
otherwise permissible under ERISA or the Code.
The Class B-1 and Class B-2 Certificates may not
be transferred
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<PAGE>
except upon satisfaction of certain conditions.
See "ERISA CONSIDERATIONS" herein.
CERTIFICATE RATINGS It is a condition to the issuance of the Offered
Certificates that they be rated by Moody's
Investors Service ("Moody's") and by Duff & Phelps
Credit Rating Co. ("Duff & Phelps" and, together
with Moody's, the "Rating Agencies") at least as
follows:
CLASS MOODY'S DUFF & PHELPS
A-1
A-2
A-3
A-4
B-1
B-2
See "CERTIFICATE RATINGS" herein.
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<PAGE>
RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Offered Certificates.
INDIVIDUAL ORIGINATORS
Approximately 54% of the Mortgage Loans were originated by the individual
sellers of the related Mortgaged Property, who are generally inexperienced in
matters pertaining to mortgage banking, and subsequently acquired by a Seller.
Consequently, such Mortgage Loans were not originated pursuant to consistent
underwriting guidelines or similar mortgage loan documentation. Thus, it is
possible that this Prospectus does not contain information regarding such
Mortgage Loans which would have been available if such Mortgage Loans had been
originated by a financial institution. However, prior to any acquisition of a
Mortgage Loan by a Seller, such Mortgage Loan was subjected to the Seller's
acquisition underwriting criteria described herein under "THE MORTGAGE POOL--
Acquisition Underwriting Standards."
Because no more than approximately 39% of the Mortgage Loans (by Cutoff
Date Pool Principal Balance) were originated by savings and loan associations,
saving banks, commercial banks, credit unions, insurance companies or similar
institutions which are supervised and examined by a federal or state authority,
or by a mortgagee approved by the Secretary of Housing and Urban Development,
the Offered Certificates will not constitute "mortgage related securities" for
purposes of SMMEA.
Federal laws requiring that flood insurance be in effect on mortgaged
properties identified by the Federal Emergency Management Agency ("FEMA") as
having special flood hazards only apply to mortgage loans originated by
federally regulated or insured lenders or originated for sale to a federal
instrumentality, such as the Federal National Mortgage Association ("FNMA").
Consequently, this requirement is not applicable to ___% and ____% of the Single
Family Mortgage Loans and Commercial Mortgage Loans, respectively, (in each
case, by Cutoff Date Pool Principal Balance), and flood insurance has not been,
or will not be, so maintained whether or not the related Mortgaged Properties
are located in areas identified by FEMA as having special flood hazards.
REDUCED UNDERWRITING STANDARDS
As described herein, the Sellers' acquisition underwriting standards are
generally less stringent, with respect to Single Family Mortgage Loans, than
those of FNMA or the Federal Home Loan Mortgage Corporation ("FHLMC") with
respect to documentation, borrower's credit history, calculation of debt ratios,
employment and salary verification and certain other matters and, with respect
to Commercial Mortgage Loans, than those of institutional lenders with respect
to documentation, borrower's credit history, the calculation of debt service
coverage ratios, borrower business experience and in certain other respects. In
addition, because the Sellers do not originate mortgage loans, but rather
acquire mortgage loans some time after origination, the Sellers are not able to
calculate certain of the ratios employed in underwriting a mortgage loan, such
as income to debt ratios, in a manner similar to FNMA and FHLMC guidelines or
<PAGE>
guidelines used by institutional lenders, and the Sellers do not subject the
Mortgage Loans to the type of review that would typically be made in respect of
newly originated mortgage loans. As a result, the Mortgage Loans may experience
higher rates of delinquencies, defaults and foreclosures than mortgage loans
underwritten in a manner consistent with the FNMA and FHLMC guidelines or
guidelines of institutional lenders. See "THE MORTGAGE POOL--Certain
Information Regarding Commercial Mortgage Loans" and "--Acquisition Underwriting
Standards" herein.
In connection with the acquisition of the Mortgage Loans by the Sellers,
the related Seller calculated the Loan-to-Value Ratios thereof as discussed
under "THE MORTGAGE POOL-General" and "-Acquisition Underwriting Standards." No
assurance can be given that the value of any Mortgaged Property has remained or
will remain at the level that existed on the respective appraisal date or on the
date of valuation.
DELINQUENCY HISTORY
As of the Cutoff Date, no Mortgage Loan was more than 59 days delinquent
and approximately ___% of the Mortgage Loans (by Cutoff Date Pool Principal
Balance) were between 30 days and 59 days delinquent.
Certain of the Mortgage Loans have been delinquent one or more times since
origination. During the period commencing January 1, 1995 through ________,
1996, approximately ___% of the Mortgage Loans (by Cutoff Date Pool Principal
Balance) have been 30 days delinquent at least once. During such period, ___%,
___%, ___%, ___% and ___% of the Single Family Mortgage Loans (by Cutoff Date
Pool Principal Balance) have been 30 days delinquent two times, three times,
four times, five times and more than five times, respectively. Generally, the
majority of such 30-day delinquencies are corrected by the following Due Date
for a delinquent Mortgage Loan. During the period commencing January 1, 1995
through ________, 1996, approximately ___% of the Mortgage Loans (by Cutoff Date
Pool Principal Balance) have been 60 days delinquent at least once. During such
period, ___% and ___% of the Mortgage Loans (by Cutoff Date Pool Principal
Balance) have been 60 days delinquent two times and more than two times,
respectively. During the period commencing January 1, 1995 through ________,
1996, approximately ___% of the Mortgage Loans have been 90 days delinquent at
least once.
During the period commencing January 1, 1995 through ________, 1996,
approximately ___% of the Single Family Mortgage Loans (by Cutoff Date Pool
Principal Balance) have been 30 days delinquent at least once. During such
period, ___%, ___%, ___%, ___% and ___% of the Single Family Mortgage Loans (by
Cutoff Date Pool Principal Balance) have been 30 days delinquent two times,
three times, four times, five times and more than five times, respectively.
Generally, the majority of such 30-day delinquencies are corrected by the
following Due Date for a delinquent Mortgage Loan. During the period commencing
January 1, 1995 through ________, 1996, approximately ___% of the Single Family
Mortgage Loans (by Cutoff Date Pool Principal Balance) have been 60 days
delinquent at least once. During such period, ___% and ___% of the Single
Family Mortgage Loans (by Cutoff Date Pool Principal Balance) have been 60 days
delinquent two times and more than two times, respectively. During the period
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<PAGE>
commencing January 1, 1995 through ________, 1996, approximately ___% of the
Single Family Mortgage Loans have been 90 days delinquent at least once.
During the period commencing January 1, 1995 through ____________, 1996,
approximately ___% of the Commercial Mortgage Loans (by Cutoff Date Pool
Principal Balance) have been 30 days delinquent at least once. During such
period, ___% ___% ___% ___% and ___% of the Commercial Mortgage Loans (by Cutoff
Date Pool Principal Balance) have been 30 days delinquent two times, three
times, four times, five times and more than five times, respectively.
Generally, the majority of such 30-day delinquencies are corrected by the
following Due Date for a delinquent Commercial Mortgage Loan. During the period
commencing January 1, 1995 through ____________, 1996, approximately ___% of the
Commercial Mortgage Loans (by Cutoff Date Pool Principal Balance) have been 60
days delinquent at least once. During such period, ___% and ___% of the
Commercial Mortgage Loans (by Cutoff Date Pool Principal Balance) have been 60
days delinquent two times and more than two times, respectively. During the
period commencing January 1, 1995 through __________________, 1996,
approximately ___% of the Commercial Mortgage Loans have been 90 days delinquent
at least once.
Delinquency performance may be affected by, among other things, the lack of
and type of late payment penalty provisions included in the Mortgage Loans.
98.47% of the Single Family Mortgage Loans, 92.89% of the Commercial Mortgage
Loans and 97.15% of the Mortgage Loans (in each case, by Cutoff Date Pool
Principal Balance), do not contain any prepayment provisions. In addition, 0.57%
of the Single Family Mortgage Loans, 1.36% of the Commercial Mortgage Loans and
0.75% of the Mortgage Loans (in each case, by Cutoff Date Pool Principal
Balance), contain late payment penalties only when the payment is 30 days or
more delinquent. 73.87% of the Single Family Mortgage Loans, 66.90% of the
Commercial Mortgage Loans and 72.22% of the Mortgage Loans (in each case, by
Cutoff Date Pool Principal Balance) contain some type of late payment penalty.
No assurances can be given that the past delinquency performance of the
Mortgage Loans will be indicative of any delinquencies on the Mortgage Loans in
the future.
COMMERCIAL BORROWER DEFAULT
The repayment of Commercial Mortgage Loans is typically dependent upon the
successful operation of the related real estate project rather than on the
liquidation value of the underlying real estate. However, the Sellers'
underwriting criteria emphasize the value of the underlying collateral. As a
result, the debt service coverage ratios of the Commercial Mortgage Loans are
not set forth herein because the Sellers, in acquiring such Mortgage Loans,
receive operating statements (in those instances where operating statements are
received) only from the prior owner of the project and not those of the current
owner. In addition, most Commercial Mortgage Loans are not secured by an
assignment of leases and rents with respect to the tenants of such properties.
Thus, such dated operating statements, when obtained, are unreliable and largely
irrelevant. Moreover, even where any such statements indicate sufficient debt
service coverage on the related Mortgage Loans, there can be no assurance that
this will continue in the future. Net operating income from a real estate
project is subject to volatility and may be
3
<PAGE>
reduced, and the Mortgagor's ability to repay the loan impaired, as a result of
an increase in vacancy rates for the project; a decline in rental rates as
leases are renewed or entered into with new tenants; an increase in operating
expenses of the project (such as energy and utility costs); changes in general
or local economic conditions and/or specific industry segments such as plan and
closings, industry slowdowns, oversupply of housing, retail, office or storage
space, hotel rooms or nursing homes); increases in real estate and other tax
rates; changes in governmental rules, regulations and fiscal policies; changes
in zoning or tax laws; acts of God or an increase in capital expenditures needed
to maintain the project and make improvements required by tenants; in those
instances where operating statements are received, the availability of
refinancing and changes interest rate levels.
In addition, added risk may be presented by the type and use of a
particular Commercial Property (as hereinafter defined). For instance,
Commercial Properties that operate as nursing homes may present special risks to
lenders due to the significant governmental regulation of the ownership,
operation, maintenance and financing of health care institutions. 1.71% of the
Mortgage Loans and 0.40% of the Commercial Mortgage Loans (in each case, by
Cutoff Date Pool Principal Balances) are secured by nursing homes. Hotel and
motel properties are often operated pursuant to franchise, management or
operating agreements which may be terminable by the franchisor or operator. No
Mortgage Loan is a loan secured by a franchised hotel or motel. Moreover, the
transferability of the foregoing establishments' and of taverns' operating,
liquor and other licenses upon transfer, whether through purchase or
foreclosure, is subject to local law restrictions and requirements. 1.07% of
the Mortgage Loans and 4.52% of the Commercial Mortgage Loans (in each case, by
Cutoff Date Pool Principal Balance) are secured by property operated as
restaurants or taverns.
In the case of Commercial Mortgage Loans that are secured by owner-occupied
Commercial Properties or Commercial Properties leased to a single tenant, a
decline in the financial condition of the Mortgagor or single tenant, as the
case may be, may have a disproportionately greater effect on the net operating
income from such Commercial Properties than would be the case with respect to
Commercial Properties with multiple tenants. Substantially all of the
Commercial Mortgage Loans are nonrecourse loans or loans for which recourse may
be restricted or nonenforceable, as to which, in the event of Mortgagor default,
recourse may be available only against the specific Commercial Property and such
other assets, if any, as may have been pledged to secure the Commercial Mortgage
Loan. See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS--Anti-Deficiency
Legislation and Other Limitations." The liquidation value of any Mortgaged
Property, whether a Commercial Property or a Single Family Property, may be
adversely affected by risks generally incident to interests in real property,
including changes or continued weakness in general or local economic conditions
and/or specific industry segments; declines in real estate values; declines in
rental or occupancy rates; increases in interest rates, real estate and other
taxes, energy costs and other operating expenses; the availability of financing;
changes in governmental rules, regulations and fiscal policies; acts of God; and
other factors beyond the control of the Master Servicer.
4
<PAGE>
ENVIRONMENTAL RISKS
Contamination of real property may give rise to a lien on that property to
assure payment of the cost of clean-up or, in certain circumstances, may result
in liability to the lender for that cost. The Sellers, in connection with the
acquisition or origination of the Mortgage Loans, do not receive current
environmental assessments with respect to the Mortgaged Properties, and
generally have not determined whether environmental assessments have been
conducted with respect to the Mortgaged Properties, and it is likely that any
environmental assessments were conducted with respect to any of the Mortgaged
Properties. In the event that, following a default in payment on any Mortgage
Loan, the Master Servicer, in compliance with the servicing standard set forth
in the Pooling Agreement, at its option will either (i) obtain an environmental
assessment prior to any foreclosure (as described in the following paragraph) or
(ii) will not obtain an environmental assessment and allow the related Mortgaged
Property to be foreclosed upon.
The Pooling Agreement provides that the Master Servicer may, at the expense
of the Trust Fund, obtain an environmental assessment with respect to any
Mortgage Property prior to acquire thereto or assuming its operation. This
provision, if exercised by the Master Servicer, would effectively preclude
enforcement of the security for the related Mortgage Note until a satisfactory
environmental assessment is obtained (or any required remedial action is taken),
reducing the likelihood that the Trust Fund will become liable for any
Environmental Condition (as defined under "CERTAIN LEGAL ASPECTS OF THE MORTGAGE
LOANS-Environmental Risks") affecting a Mortgaged Property, but making it more
difficult to foreclose. There can be no assurance given that, if an
environmental assessment is obtained, such assessment will in fact insulate the
Trust Fund from liability for Environmental Conditions.
See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS--Environmental Risks" for
a more detailed discussion of the environmental risks involved with respect to
the ownership or use of, or lending with respect to, real property.
YIELD AND PREPAYMENT CONSIDERATIONS
The rate of principal payments on the Certificates, the amount of principal
and interest payments on the Certificates and the yield to maturity of the
Certificates will be directly related to the rate of payments of principal on
the Mortgage Loans. The rate of principal payments on the Mortgage Loans will
in turn be affected by the amortization schedules of the Mortgage Loans, the
rate of principal prepayments (including partial prepayments and those resulting
from refinancing) thereon by mortgagors, liquidations of defaulted Mortgage
Loans, optional purchases or sales by the Master Servicer of Mortgage Loans 90
days or more delinquent, repurchases by the Sellers of Mortgage Loans as a
result of defective documentation or breaches of representations or warranties
and optional purchase by the Master Servicer of all of the Mortgage Loans in
connection with the termination of the Mortgage Pool. Substantially all of the
Mortgage Loans may be prepaid in whole or in part at any time without penalty.
___% of the Mortgage Loans (by Cutoff Date Pool Principal Balance) require the
payment of a prepayment penalty in connection with any prepayment in full of
such Mortgage Loans. In addition, certain of the Mortgage Loans contain
"due-on-sale" provisions and the Master
5
<PAGE>
Servicer may enforce such provisions, unless (a) such enforcement is not
permitted by applicable law or (b) the Master Servicer, in its discretion,
waives its right to enforce such provision and permits the purchaser of the
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
MORTGAGE LOANS--Due-On-Sale Clauses" herein. The rate of prepayments may be
slower than expected due to, among other reasons, the inability of certain
Mortgagors to obtain conventional refinancing. See "THE MORTGAGE POOL--Certain
Information Regarding Commercial Mortgage Loans" and "--Acquisition Underwriting
Standards" herein.
The rate of payments (including prepayments) on mortgage loans is
influenced by a variety of economic, geographic, social and other factors. If
prevailing interest rates for similar mortgage loans fall below the Mortgage
Rates on the Mortgage Loans, the rate of prepayment would generally be expected
to increase. Conversely, if prevailing interest rates for similar mortgage
loans rise above the Mortgage Rates on the Mortgage Loans, the rate of
prepayment would generally be expected to decrease. An investor that purchases
an Offered Certificate at a discount should consider the risk that a slower than
anticipated rate of principal payments on the Mortgage Loans will result in an
actual yield that is lower than such investor's expected yield. An investor
that purchases an Offered Certificate at a premium should consider the risk that
a faster than anticipated rate of principal payments on the Mortgage Loans will
result in an actual yield that is lower than such investor's expected yield.
The timing of changes in the rate of prepayments may significantly affect
an investor's actual yield to maturity, even if the average rate of principal
prepayments is consistent with an investor's expectations. In general, the
earlier a prepayment of principal of the Mortgage Loans the greater the effect
on an investor's yield to maturity. The effect on an investor's yield as a
result of principal payments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the issuance
of the Offered Certificates will not be offset by a subsequent like reduction
(or increase) in the rate of principal prepayments.
The absence of uniformity among the terms of the Mortgage Loans may cause
the risk of prepayment and default to vary more significantly among the Mortgage
Loans than among mortgage loans based on standardized documentation.
SUBORDINATION OF CERTAIN
CLASSES OF OFFERED CERTIFICATES
The rights of the holders of the Subordinate Certificates to receive
distributions with respect to the Mortgage Loans will be subordinated to such
rights of the Senior Certificates and to the Subordinate Certificates with a
higher priority of payment as described herein under "DESCRIPTION OF THE
CERTIFICATES--Priority of Distributions Among Classes of Certificates."
Delinquencies that are not advanced by or on behalf of the Master Servicer
(because the amounts, if advanced, would be nonrecoverable), will adversely
affect the yield on the Certificates. Because of the priority of distributions,
shortfalls resulting from delinquencies not so advanced will be borne first by
the Subordinate Certificates, in reverse order of their priority of payment as
described herein under "DESCRIPTION OF THE
6
<PAGE>
CERTIFICATES--Priority of Distributions Among Classes of Certificates" and then
by the Senior Certificates.
The weighted average life of, and the yield to maturity on, the Subordinate
Certificates, in decreasing order of priority of payment, will be sensitive to
the rate and timing of Mortgagor defaults and the severity of ensuing losses on
the Mortgage Loans. If the actual rate and severity of losses on the Mortgage
Loans is higher than those assumed by a holder of such a Certificate, the actual
yield to maturity of such Certificate may be lower than the yield expected by
such holder based on such assumption. The timing of losses on the Mortgage
Loans will also affect an investor's actual yield to maturity, even if the rate
of defaults and severity of losses over the life of the Mortgage Loans are
consistent with such investor's expectations. In general, the earlier a loss
occurs the greater the effect on an investor's yield to maturity. Realized
Losses on the Mortgage Loans will reduce the Class Certificate Balance of the
applicable Class of Certificates to the extent of any losses allocated thereto
without the receipt of cash attributable to such reduction.
See "DESCRIPTION OF THE CERTIFICATES--Allocation of Losses" herein.
LIMITED OBLIGATIONS
The Mortgage Loans will be the sole source of payments on the Certificates.
The Certificates do not represent an interest in or obligation of the Depositor,
the Sellers, the Master Servicer, the Trustee or any of their affiliates, except
for limited obligations of each Seller for certain breaches of its
representations and warranties and defective documentation with respect to the
Mortgage Loans sold by it to the Depositor. In addition, Metropolitan will have
limited obligations with respect to such breaches and defective documentation
relating to the Mortgage Loans sold by Western to the Depositor if Western
should fail to perform its obligations with respect thereto and Summit will have
limited obligations with respect to such breaches and defective documentation
relating to the Mortgage Loans sold by Old Standard to the Depositor if Old
Standard should fail to perform its obligations with respect thereto. Neither
the Certificates nor the Mortgage Loans will be guaranteed by or insured by any
governmental agency or instrumentality, the Depositor, the Sellers, the Master
Servicer, the Trustee or any of their affiliates. Consequently, in the event
that payments on the Mortgage Loans are insufficient or otherwise unavailable to
make all payments required on the Certificates, there will be no recourse to the
Depositor, the Sellers, the Master Servicer, the Trustee or any of their
respective affiliates.
LIQUIDITY
The Underwriters intend to make a secondary market in the Offered
Certificates, but have no obligation to do so. There is currently no secondary
market in the Offered Certificates and there can be no assurance that such a
market will develop or, if it does develop, that it will provide
Certificateholders with liquidity of investment or that it will continue for the
life of the Certificates.
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<PAGE>
BALLOON LOANS
Approximately ___% of the Single Family Mortgage Loans, ___% of the
Commercial Mortgage Loans and ___% of the Mortgage Loans (in each case, by
Cutoff Date Pool Principal Balance) are Balloon Loans, as defined herein under
"THE MORTGAGE POOL--General." As a result, a borrower generally will be
required to pay the entire remaining principal amount of the Mortgage Loan at is
maturity. The ability of a borrower to make such a payment may depend on the
ability of the borrower to obtain refinancing of the balance due on the Mortgage
Loan. An increase in interest rates over the Mortgage Rate applicable at the
time the Mortgage Loan was originated may have an adverse effect on the
borrower's ability to obtain refinancing or to pay the required monthly payment.
With respect to Balloon Loans, general credit risk may also be greater to
Certificateholders than to holders of instruments representing interests in
level-payment, fully amortizing first mortgage loans. Pursuant to the Pooling
Agreement, the Master Servicer is permitted to extend the date on which a
Balloon Payment is due on a Balloon Loan for a period of up to six months if the
Mortgagor defaults on the Balloon Payment or a default in respect of such
payment is imminent and such extension is reasonably likely to produce a greater
recovery with respect thereto than would otherwise be the case. See "THE
POOLING AND SERVICING AGREEMENT--Modification of Mortgage Loans" herein.
GEOGRAPHIC CONCENTRATION
Approximately ___% of the Single Family Mortgage Loans, ___% of the
Commercial Mortgage Loans and ___% of the Mortgage Loans (in each case, by
Cutoff Date Pool Principal Balance) are secured by Mortgaged Properties located
in the State of California. Property values of real estate in California have
declined in recent years. If the California real estate market should continue
to experience an overall decline in property values after the dates of
origination of the Mortgage Loans, the rates of delinquency, foreclosure,
bankruptcy and loss on such Mortgage Loans may be expected to increase, and may
increase substantially, as compared to such rates in a stable or improving real
estate market.
BOOK-ENTRY SYSTEM
Since transactions in the Book-Entry Certificates generally can be effected
only through DTC, Participants and Indirect Participants, the ability of a
Beneficial Owner to pledge Book-Entry Certificates to persons or entities that
do not participate in the DTC system, or to otherwise act with respect to such
Book-Entry Certificates, may be limited due to the lack of a physical
certificate for such Book-Entry Certificates. In addition, under a book-entry
format, Beneficial Owners may experience delays in their receipt of payments,
since distributions will be made by the Trustee, or a paying agent on behalf of
the Trustee, to Cede & Co., as nominee for DTC. Also, issuance of Book-Entry
Certificates in book-entry form may reduce the liquidity thereof in any
secondary trading market that may develop therefor because investors may be
unwilling to purchase securities for which they cannot obtain delivery of
physical certificates. See "THE POOLING AND SERVICING AGREEMENT--Book-Entry
Certificates" herein.
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<PAGE>
RATINGS OF CERTIFICATES
It is a condition to the issuance of the Offered Certificates that they be
respectively rated as indicated under "SUMMARY OF THE OFFERING--Certificate
Ratings" herein. A rating is based primarily on the credit underlying the
Mortgage Loans, the level of subordination, the amount of credit enhancement and
the legal structure of the transaction. The rating is not a recommendation to
purchase, hold or sell any of the Offered Certificates, as the case may be,
inasmuch as such rating does not comment as to the market price or suitability
for a particular investor. There can be no assurance as to whether any
additional rating agency will rate any or all of the Offered Certificates, or if
it does, that the rating that would be assigned by any such other rating agency
would be equivalent to the respective initial ratings. There is no assurance
that the ratings will remain for any given period of time or that ratings will
not be lowered or withdrawn by one or both of the Rating Agencies if, in their
judgment, circumstances so warrant.
[Remainder of page intentionally left blank]
9
<PAGE>
THE MORTGAGE POOL
GENERAL
Certain information with respect to the Mortgage Loans included in the
Mortgage Pool is set forth below. Prior to the Closing Date, Mortgage Loans may
be removed from the Mortgage Pool and other Mortgage Loans may be substituted
therefor. The Depositor believes that the information set forth herein with
respect to the Mortgage Pool as presently constituted is representative of the
characteristics of the Mortgage Pool as it will be constituted at the Closing
Date, although the range of the Mortgage Rates and the maturities and certain
other characteristics of the Mortgage Loans in the Mortgage Pool may vary.
Unless otherwise indicated, information presented below expressed as a
percentage (other than rates of interest) are approximate percentages based on
the Cutoff Date Pool Principal Balance.
The Depositor will purchase the Mortgage Loans from each of the Sellers
pursuant to separate Mortgage Loan Purchase Agreements, each dated as of
_______, 1996 (each, a "Loan Purchase Agreement"), among such Seller and the
Depositor. Pursuant to the Pooling 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 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 Mortgage Pool, including all
principal and interest received by the Master Servicer on or with respect to the
Mortgage Loans after the Cutoff Date (to the extent not applied in computing the
Cutoff Date Pool Principal Balance), exclusive of interest accruing thereon on
or prior to the Cutoff Date.
Under the Pooling Agreement, each Seller will make certain representations
and warranties to the Trustee concerning, among other things, the due execution
and enforceability of the Pooling Agreement by it and certain characteristics of
the related Mortgage Loans as further described under "THE POOLING AND SERVICING
AGREEMENT--Representations and Warranties" below. Subject to the limitations
described below under "THE POOLING AND SERVICING AGREEMENT--Assignment of the
Mortgage Loans," the applicable Seller and any other Seller responsible for a
breach of another Seller's representation or warranty will only be obligated to
repurchase or substitute a conforming mortgage loan for any Mortgage Loan sold
to the Depositor by that Seller as to which there exists deficient documentation
or an uncured material breach of any such representation or warranty (each such
Mortgage Loan, a "Deleted Loan"). The Depositor generally will make no
representations or warranties with respect to the Mortgage Loans and will have
no obligation to repurchase or substitute for Mortgage Loans with deficient
documentation or which are otherwise defective. Each Seller is selling its
Mortgage Loans without recourse and, accordingly, will have no obligations with
respect to the Certificates other than pursuant to its representations,
warranties, covenants and substitution and repurchase obligations. See "THE
POOLING AND SERVICING AGREEMENT--Assignment of the Mortgage Loans" herein.
The Mortgage Loans were purchased by the Sellers in the ordinary course of
their respective businesses. Western, Summit and Old Standard acquired their
respective Mortgage Loans using the services of Metropolitan. Prior to its
acquisition, each Mortgage Loan was
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<PAGE>
re-underwritten by Metropolitan in accordance with its acquisition underwriting
standards. See "--Acquisition Underwriting Standards" and "RISK FACTORS--
Reduced Underwriting Standards" and "--Commercial Borrower Default." For its
services for re-underwriting a Mortgage Loan, Metropolitan received a fee from
Western, Summit or Old Standard, whichever entity was the purchaser. The
Sellers also originated certain of the Mortgage Loans to facilitate the sale of
their respective real estate acquired in foreclosure ("REO"). 7.29% of the
Mortgage Loans are loans to facilitate the sale of REO. Of the remaining
Mortgage Loans, all of which were purchased by a Seller, 53.94% of the Mortgage
Loans were originated by individuals in connection with the sale of their
property and 38.76% were originated by a financial institution and resold in the
secondary market.
Because approximately 53.94% of the Mortgage Notes, Mortgages and Land Sale
Contracts were prepared by individual sellers of the Mortgaged Properties (or
their representatives), the form of such Mortgage Notes, Mortgages and Land Sale
Contracts vary significantly among the Mortgage Loans. For example, certain of
the Mortgage Loans contain "due on sale" provisions and 2.85% of the Mortgage
Loans contain prepayment penalties. Provisions regarding defaults for reasons
other than non-payment, although the penalties vary. 72.22% of the Mortgage
Loans contain late payment penalty provisions which vary from 0 to 30 days'
grace periods and have penalties ranging from fixed fees of $1.00 to $665.23 or
to penalties based upon the percentage of the outstanding balance or the monthly
payment amount of the Mortgage Loan. See "RISK FACTORS-Delinquency History."
In addition, 1.43% of the Mortgage Loans contain provisions which require the
mandatory partial release of the related Mortgaged Properties when their
respective principal balances have been reduced to specified levels.
Approximately 31.02% of the Mortgage Loans contain provisions that require
monthly payments due under the Mortgage Loan to be held in escrow for the
payment of taxes and insurance. The absence of uniformity among the terms of
the Mortgage Loans may cause the risk of prepayment and default to vary more
significantly among the Mortgage Loans than among mortgage loans based on
standardized documentation. See "RISK FACTORS--Individual Originators" and "--
Reduced Underwriting Standards" herein.
The Mortgage Pool will consist of a total of approximately _____ fixed rate
Mortgage Loans with an aggregate Scheduled Principal Balance as of the Cutoff
Date expected to be approximately $______________ (the "Cutoff Date Pool
Principal Balance"), of which approximately $___________ will relate to Single
Family Mortgage Loans and approximately $____________ will relate to Commercial
Mortgage Loans. As of the Cutoff Date, the Scheduled Principal Balances of the
Single Family Mortgage Loans ranged from $__________ to $___________ and the
Scheduled Principal Balances of the Commercial Mortgage Loans ranged from
$____________ to $____________ (each individually, a "Cutoff Date Scheduled
Principal Balance"). The Single Family Mortgage Loans, the Commercial Mortgage
Loans and the Mortgage Loans will have an average Cutoff Date Scheduled
Principal Balance of $____________, $____________ and $__________, respectively.
Each of the Mortgage Loans is evidenced by a promissory note or, in the
case of a Land Sale Contract (as discussed in the following paragraph), a
promise to pay which is an integral part of the Land Sale Contract (each, a
"Mortgage Note").
11
<PAGE>
A sale of real estate pursuant to a Land Sale Contract differs in certain
respects from a sale in which title to the real estate is transferred to the
buyer and the buyer gives the seller a promissory note secured by real estate.
Generally, a "Land Sale Contract" is evidenced by a purchase agreement for the
sale of real estate that obligates the purchaser to make periodic payments to
the seller. The seller remains the record owner of and the holder of legal
title to the real estate until all required payments have been made by the
purchaser. Upon payment in full of the amounts due under the Land Sale
Contract, the purchaser receives a deed showing the purchaser as the owner of
the real estate. Procedures for clearing title to the real estate in the event
of a default by the purchaser differ from state to state and may be different
from the procedures required to foreclose under a deed of trust or mortgage.
See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS--Land Sale Contracts" herein.
Assignment of a Land Sale Contract includes a transfer of title by deed to the
assignee. Approximately ___% of the Mortgage Loans are evidenced by Land Sale
Contracts.
Each Mortgage Loan either is secured by a first lien mortgage, deed of
trust or other similar security instrument (each, a "Mortgage") on, or is a Land
Sale Contract for the sale of, (i) one- to four-family residential real estate,
including individual condominium units and manufactured housing ("Single Family
Properties") or (ii) multifamily housing properties or commercial real estate,
including office buildings, multifamily housing, shopping centers, retail
stores, hotels and motels, nursing homes and other health-care related
facilities, mobile home and recreational vehicle parks, warehouse facilities,
mixed use and other types of income-producing properties (collectively,
"Commercial Properties" and, together with Single Family Properties each, a
"Mortgaged Property" and, collectively, the "Mortgaged Properties").
Approximately ___% of the Mortgage Loans are secured by Single Family Properties
and ___% of the Mortgage Loans are secured by Commercial Properties.
Approximately 3.47% of the Single Family Mortgage Loans, none of the
Commercial Mortgage Loans and 2.65% of the Mortgage Loans are secured by
manufactured housing. Each manufactured home is secured by a separate security
instrument or by the related mortgage or Land Sale Contract which secures the
real property on which the manufactured home is located. Under the Pooling
Agreement, all manufactured homes are required to comply with the requirements
of certain federal statutes which require the manufactured homes to have a
minimum of 400 square feet of living space and a minimum width of 102 inches and
to be of a kind customarily used at a fixed location. Such statutes also
require the manufactured homes to be transportable in one or more sections,
built on a permanent chassis and designed to be used as dwellings, with or
without permanent foundations, when connected to the required utilities. The
manufactured homes are also required to include the plumbing, heating, air
conditioning and electrical systems therein.
Approximately 13.69% of the Single Family Mortgage Loans, 0.08% of the
Commercial Mortgage Loans and 10.47% of the Mortgage Loans are secured by
condominium units.
1.53% of the Mortgage Loans consist of dwellings situated on leasehold
estates. Under the Pooling Agreement, each Seller will represent as to the
Mortgage Loans sold by it that are situated on leasehold estates that such
leasehold estates contain certain standard provisions necessary to protect the
lien of the Trustee, including adequate time for the Trustee (as leasehold
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<PAGE>
mortgagee) to cure any default by the borrower, to assume the existing lease or
enter into a new lease on similar terms with respect to Mortgaged Property.
Except for the Balloon Loans, all of the Mortgage Loans provide for
substantially equal monthly installments of principal and interest resulting in
the full amortization of the principal amount thereof over the term of the
respective Mortgage Loan. The Mortgage Loans provide for monthly payments due
on various days each month (each, a "Due Date"). Scheduled monthly payments
made by the Mortgagors on the Mortgage Loans ("Scheduled Payments") either
earlier or later than the related Due Date will not affect the amortization
schedule or the relative application of such payments to principal and interest.
A "Mortgagor" is the obligor under either a Mortgage Note or a Land Sale
Contract.
Because certain of the Mortgage Loans do not have a maturity date stated on
the related Mortgage Note, the Master Servicer has calculated a maturity date
for each Mortgage Loan (each, a "Calculated Maturity Date"). With respect to
any Mortgage Loan, other than a Balloon Loan, the Calculated Maturity Date is
the date upon which the Scheduled Payment for such Mortgage Loan fully amortizes
the Scheduled Principal Balance of such Mortgage Loan as of the Cutoff Date and
with respect to any Balloon Loan, the date specified as the maturity date
therefor on the related Mortgage Note. The latest Calculated Maturity Date of
any Single Family Mortgage Loan is __________, _____ and the latest Calculated
Maturity Date and the earliest Calculated Maturity Date of any Commercial
Mortgage Loan is ___________, ___________ and _____________, ____________
respectively.
Approximately ___% of the Single Family Mortgage Loans, ___% of the
Commercial Mortgage Loans and ___% of the Mortgage Loans are Balloon Loans. A
"Balloon Loan" either (a) provides for a Scheduled Payment based on an
amortization term ending at least two months beyond the Calculated Maturity Date
for such Mortgage Loans and a Balloon Payment due on such Calculated Maturity
Date equal to or exceeding $2,500 (each calculated based on the Cutoff Date
Scheduled Principal Balances) or (b) provides for interest-only Scheduled
Payments on each Due Date prior to the Calculated Maturity Date for such
Mortgage Loan and a Balloon Payment due on such Calculated Maturity Date equal
to the entire principal balance of such Mortgage Loan. The latest Calculated
Maturity Date for any Balloon Loan which relates to a Single Family Mortgage
Loan and a Commercial Mortgage Loan is ____________, ____, and ____________,
____, respectively, and the earliest Calculated Maturity Date for any Balloon
Loan which relates to a Single Family Mortgage Loan and a Commercial Mortgage
Loan is __________, 199__ and ____________, 199_, respectively. The Balloon
Payments for the Balloon Loans which related to Single Family Mortgage Loans
range from $________ to $__________, and the average such Balloon Payment is
$_________. Balloon Payments for Balloon Loans which relate to Commercial
Mortgage Loans range from $____________ to $_____________, and the average such
Balloon Payment is $______________. The average Balloon Payment for Mortgage
Loans that are Balloon Loans is $__________.
Because no Mortgage Loan has been outstanding for less than 60 months,
modifications to the original terms of certain of the Mortgage Loans have been
made in the normal course of servicing the Mortgage Loans. Approximately 99.21%
of the of the Single Family Mortgage Loans, 18.74% of the Commercial Mortgage
Loans and 80.15% of the Mortgage Loans have
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<PAGE>
had modifications to their original terms. See "SERVICING OF THE MORTGAGE
LOANS--Mortgage Loan Servicing--Accelerations and Modifications Department" and
"RISK FACTORS--Reduced Underwriting Standards" herein. Such modifications may
include the conversion of adjustable-rate loans to fixed-rate loans, the
extension of the term on Balloon Loans or the elimination of the Balloon Payment
through conversion of such Mortgage Loan to a fully amortizing Mortgage Loan,
the modification of a Mortgage to include the manufactured home situated on the
related real property or the addition to principal for delinquent principal,
interest, taxes or insurance. Under the Pooling Agreement, each Seller will
represent as to the Mortgage Loans sold by it that any such modifications are
set forth in writing and contained in the related Mortgage Files transferred to
the Trustee. For a description of the type of modifications that are permitted
to be made to the Mortgage Loans by the Master Servicer pursuant to the Pooling
Agreement, see "THE POOLING AND SERVICING AGREEMENT--Modification of Mortgage
Loans."
The "Loan-to-Value Ratio" of the Mortgage Loan at any given time is a
fraction expressed as a percentage, the numerator of which is the Scheduled
Principal Balance of such Mortgage Loan as of such date of determination and
the denominator of which is the Appraised Value. The "Appraised Value" with
respect to a Mortgage Loan, is the value of the applicable Mortgaged Property
based upon the most recent valuation by an appraiser, which generally is an
exterior appraisal, which was obtained by the applicable Seller in connection
with the acquisition, modification or servicing of such Mortgage Loan. For
1.28% of the Single Family Mortgage Loans, 0.47% of the Commercial Mortgage
Loans and 1.09% of the Mortgage Loans, no appraisal was obtained and the
Loan-to-Value Ratio was based upon the sales prices for the related property.
For a description of the type of appraisal obtained in connection with the
acquisition, modification or servicing of a Mortgage Loan, see "--Acquisition
Underwriting Standards." No assurance can be given that the value of any
Mortgaged Property has remained or will remain at the level that existed on
the appraisal date. If residential or commercial real estate values
generally or in a particular geographic area decline, the Loan-to-Value
Ratios might not be a reliable indicator of the losses that could occur with
respect to such Mortgage Loans. See "RISK FACTORS--Geographic Concentration"
herein. No Single Family Mortgage Loan will have a Loan-to-Value Ratio as of
the Cutoff Date of more than ___% and no Commercial Mortgage Loan will have a
Loan-to-Value Ratio as of the Cutoff Date of more than ___%. The weighted
average of the Loan-to-Value Ratios for all Mortgage Loans as of the Cutoff
Date was approximately ___% and the weighted average of the Loan-to-Value
Ratios for the Single Family Mortgage Loans and the Commercial Mortgage Loans
was approximately ___% and ___%, respectively. None of the Mortgage Loans is
insured by any primary mortgage guarantee insurance policy.
No Mortgage Loan was more than 59 days delinquent as of the Cutoff Date.
As of the Cutoff Date, approximately ___% of the Single Family Mortgage Loans,
___% of the Commercial Mortgage Loans and ___% of the Mortgage Loans were
between 30 and 59 days delinquent. See "RISK FACTORS--Delinquency History"
herein.
As of the Cutoff Date, (a) no more than ___% of the Single Family Mortgage
Loans had taxes or other governmental assessments which were delinquent (such
amounts ranging from $___ to $________) and (b) no more than ___% of the Single
Family Mortgage Loans had
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<PAGE>
hazard insurance in effect that was force-placed by the Master Servicer. As of
the Cutoff Date, (a) no more than ___% and ___% of the Single Family Mortgage
Loans and Commercial Mortgage Loans, respectively, had taxes or other
governmental assessments which were delinquent (such amounts ranging from
$________ to $_______ for the Single Family Mortgage Loans and from $__________
to $__________ for the Commercial Mortgage Loans) and (b) no more than ___% and
___% of the Single Family Mortgage Loans and Commercial Mortgage Loans,
respectively, had hazard insurance in effect that was force-placed by the Master
Servicer. Any delinquent taxes with respect to a Mortgage Loan may be reflected
in a negative balance in the escrow account for which the Master Servicer is
reimbursed monthly by the borrower. Alternatively, the delinquent taxes may
have been capitalized as principal due on the Mortgage Loan, which in some cases
may have resulted in the creation of a Balloon Loan. Following the Closing
Date, the Master Servicer will not be permitted under the Pooling Agreement to
capitalize as principal due on a Mortgage Loan any taxes or hazard insurance
premiums that become delinquent.
Approximately ___%, ____% and ____% of the Single Family Mortgage Loans,
the Commercial Mortgage Loans and the Mortgage Loans, respectively, are not
required by federal law to have flood insurance on the related Mortgaged
Property whether or not such property is in an area identified by FEMA as having
special flood hazards. Consequently, such flood insurance has not been nor will
be maintained with respect to the related Mortgaged Properties. See "RISK
FACTORS--Individual Originators." For a description of the hazard insurance
required to be maintained on the Mortgaged Properties by the Master Servicer
under the Pooling Agreement, see "THE POOLING AND SERVICING AGREEMENT--Hazard
Insurance."
To the best of each Seller's knowledge, based upon its respective review of
the related Mortgage Files, approximately 95.23% of the Mortgage Loans were
originated for the purpose of purchasing the related Mortgaged Property.
None of the Mortgage Loans will be subject to a buy-down agreement. No
Mortgage Loan provides for deferred interest or negative amortization. The
title insurance policies for the Mortgage Loans assigned to the Trustee do not
contain environmental endorsements. For a description of the amount of title
insurance obtained in connection with the acquisition of a Mortgage Loan by a
Seller, see "--Acquisition Underwriting Standards."
CERTAIN INFORMATION REGARDING COMMERCIAL MORTGAGE LOANS
Mortgage loans secured by liens on income-producing properties are
substantially different from loans made on the security of owner-occupied single
family homes. The repayment of a loan secured by a lien on an income-producing
property is typically dependent upon the successful operation of such property
(that is, its ability to generate income). Moreover, substantially all of the
Commercial Mortgage Loans included in the Mortgage Pool are non-recourse loans,
which means that, absent special facts, recourse in the case of default will be
limited to the Mortgaged Property and such other assets, if any, that were
pledged to secure repayment of such Mortgage Loan. Generally, no additional
assets (such as an assignment of leases, rents or personal property) are pledged
to secure the Commercial Mortgage Loans.
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<PAGE>
Institutional lenders typically assess the debt service coverage ratio of a
loan secured by income-producing property as an important measure of the risk of
default on such a loan. The Commercial Mortgage Loans in the Mortgage Pool
generally have not been re-underwritten by the Sellers on such a basis because
such Mortgage Loans are generally acquired by the Sellers after they have been
originated. As a result, to the extent that operating income information is
obtained, only operating statements from the prior sellers of such properties
and not that of the current owner are obtained. In addition, even if obtained,
the operating income of a Commercial Property will fluctuate over time and may
or may not be sufficient to cover debt service on the related Mortgage Loan at
any given time.
As the primary source of the operating revenues of a non-owner occupied
income-producing property, rental income (and maintenance payments from tenant-
stockholders of a cooperative) may be affected by the condition of the
applicable real estate market and/or area economy. In addition, properties
typically leased, occupied or used on a short-term basis, such as certain health
care-related facilities, hotels and motels, and mini-warehouse and self-storage
facilities, tend to be affected more rapidly by changes in market or business
conditions than do properties typically leased for longer periods, such as
warehouses, retail stores, office buildings and industrial plants. Commercial
Properties may be owner-occupied or leased to a single tenant. Thus, the
operating income of such a Mortgaged Property may depend substantially on the
financial condition of the borrower or the single tenant, and Commercial
Mortgage Loans secured by liens on such properties may pose greater risks than
loans secured by liens on multifamily properties or on multi-tenant Commercial
Properties. Increases in operating expenses due to the general economic climate
or economic conditions in a locality or industry segment, such as increases in
interest rates, real estate tax rates, energy costs, labor costs and other
operating expenses, and/or to changes in governmental rules, regulations and
fiscal policies, may also affect the risk of default on a Commercial Mortgage
Loan. In some cases, leases of Commercial Properties may provide that the
lessee, rather than the borrower/landlord, is responsible for payment of
operating expenses. However, the existence of such "net of expense" provisions
will result in stable operating income to the borrower/landlord only to the
extent that the lessee is able to absorb operating expense increases while
continuing to make rent payments.
As discussed herein, the Sellers also assess the Loan-to-Value Ratio of a
Mortgage Loan as a measure of risk of loss if a Mortgaged Property must be
liquidated following a default. Appraised values of income-producing properties
are generally based on the market comparison method (recent resale value of
comparable properties at the date of the appraisal), the cost replacement method
(the cost of replacing the property at such date), the income capitalization
method (a projection of value based upon the property's projected net cash
flow), or upon a selection from or interpolation of the values derived from such
methods. Each of these appraisal methods can present analytical difficulties.
It is often difficult to find truly comparable commercial properties that have
recently been sold; the replacement cost of a property may have little to do
with its current market value; and income capitalization is inherently based on
inexact projections of income and expense and the selection of an appropriate
capitalization rate. Where more than one of these appraisal methods are used
and provide significantly different results, an accurate determination of value
and, correspondingly, a reliable analysis of default and loss risks, is even
more difficult. Notwithstanding the foregoing, however, the Sellers generally
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<PAGE>
conduct only a drive-by appraisal of the Mortgaged Properties which may be less
comprehensive than any method discussed above.
While the Depositor believes that the foregoing considerations are
important factors that generally distinguish loans secured by liens on income-
producing real estate from single family mortgage loans, there is no assurance
that all of such factors will in fact have been prudently considered by the
originators of the Commercial Mortgage Loans, or that, for a particular
Commercial Mortgage Loan, they are complete or relevant.
TABULAR DATA
The following tables set forth certain statistical information regarding
the Mortgage Loans as of the Cutoff Date. The balances and percentages may not
be exact due to rounding.
SOURCE OF MORTGAGE LOANS BY SELLER
Cutoff Date Percent of Cutoff
Number of Pool Principal Date Pool
Mortgage Loans Balance Principal Balance
-------------- ------- -----------------
Metropolitan
Summit
Western
Old Standard
Total
TYPE OF MORTGAGE LOANS
Cutoff Date Percent of Cutoff
Number of Pool Principal Date Pool
Mortgage Loans Balance Principal Balance
-------------- ------- -----------------
Single Family
Commercial
Total
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<PAGE>
SCHEDULED PRINCIPAL BALANCES
(SINGLE FAMILY MORTGAGE LOANS)
<TABLE>
<CAPTION>
Number of Percent of Cutoff
Range of Scheduled Single Family Cutoff Date Scheduled Date Pool
Principal Balances Mortgage Loans Principal Balance Principal Balance
- ------------------ -------------- ----------------- ------------------
<S> <C> <C> <C>
$ 1-$ 50,000
50,001- 100,000
100,001- 150,000
150,001- 200,000
200,001- 250,000
250,001- 300,000
300,001- 350,000
450,001- 500,000
500,001- 550,000
550,001- 600,000
600,001- 650,000
650,001- 700,000
Total
</TABLE>
The average Scheduled Principal Balance for the Single Family
Mortgage Loans as of the Cutoff Date was $_________.
SCHEDULED PRINCIPAL BALANCES
(COMMERCIAL MORTGAGE LOANS)
<TABLE>
<CAPTION>
Number of Percent of Cutoff
Range of Scheduled Commercial Cutoff Date Scheduled Date Pool
Principal Balances Mortgage Loans Principal Balance Principal Balance
- ------------------ -------------- ----------------- ------------------
<S> <C> <C> <C>
$ 1-$ 50,000 197 $6,081,530.86 15.65%
50,001- 100,000 134 9,605,227.06 24.71
100,001- 150,000 63 7,634,444.20 19.64
150,001- 200,000 28 4,840,680.07 12.45
200,001- 250,000 13 2,836,404.50 7.30
250,001- 300,000 10 2,742,547.76 7.06
300,001- 350,000 5 1,580,331.64 4.07
350,001- 450,000 2 827,455.18 2.13
450,001- 500,000 0 0 0
500,001- 826,000 4 2,717,521.44 6.99
---- -------------- -------
Total 456 $38,868,142.71 100.00%
---- -------------- -------
---- -------------- -------
</TABLE>
The average Scheduled Principal Balance for the Commercial
Mortgage Loans as of the Cutoff Date was $__________ and the average Scheduled
Principal Balance for the Mortgage Loans as of the Cutoff Date was $__________.
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<PAGE>
MORTGAGE RATES
(SINGLE FAMILY MORTGAGE LOANS)
<TABLE>
<CAPTION>
Number of Cutoff Date Percent of Cutoff
Range of Single Family Scheduled Date Pool
Mortgage Rates Mortgage Loans Principal Balance Principal Balance
- -------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
2.501- 3.000%
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
14.501-15.000
15.001-15.500
15.501-16.000
Total
</TABLE>
The weighted average Mortgage Rate for Single Family Mortgage Loans as of
the Cutoff Date was ___%.
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<PAGE>
MORTGAGE RATES
(COMMERCIAL MORTGAGE LOANS)
<TABLE>
<CAPTION>
Number of Cutoff Date Percent of Cutoff
Range of Commercial Scheduled Date Pool
Mortgage Rates Mortgage Loans Principal Balance Principal Balance
- -------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Less than 2.501 1 $ 84,033.60 0.22%
4.501- 5.000 1 12,000.69 0.03%
5.501- 6.000 7 215,844.82 0.58%
6.001- 6.500 2 97,347.56 0.25%
6.501- 7.000 8 471,573.69 1.21%
7.001- 7.500 10 928,424.68 2.39%
7.501- 8.000 32 2,598,147.21 6.68%
8.001- 8.500 15 2,216,834.45 5.70%
8.501- 9.000 83 4,793,835.23 12.33%
9.001- 9.500 43 4,258,339.25 10.95%
9.501-10.000 169 14,906,071.53 38.35%
10.001-10.500 23 1,731,133.70 4.45%
10.501-11.000 38 2,509,565.51 6.46%
11.001-11.500 8 607,233.72 1.56%
11.501-12.000 26 2,309,111.37 5.94%
12.001-12.500 4 222,272.60 0.57%
12.501-13.000 5 592,661.41 1.52%
13.001-13.500 0 0.00 0.00%
13.501-14.000 2 253,712.69 0.65%
15.501-16.000 1 60,000.00 0.15%
--- -------------- -------
Total 456 $38,866,142.71 100.00%
--- -------------- -------
--- -------------- -------
</TABLE>
The weighted average Mortgage Rate for Commercial Mortgage Loans as of the
Cutoff Date was ___%.
The weighted average Mortgage Rate for all Mortgage Loans as of the Cutoff
Date was _____%.
20
<PAGE>
NUMBER OF MONTHS SINCE ORIGINATION(1)
(SINGLE FAMILY MORTGAGE LOANS)
Range of Months
Since Origination Count Current Balance Percent of Balance
- ----------------- ----- --------------- ------------------
1- 12 0 $ 0.00 0.00%
13- 24 0 0.00 0.00%
25- 36 1 24,624.42 0.02%
37- 48 9 581,726.97 0.46%
49- 60 18 1,046,287.71 0.84%
61- 72 72 4,390,756.33 3.51%
73- 84 31 1,026,935.80 0.82%
85- 96 51 2,715,948.79 2.17%
97- 108 30 833,831.90 0.67%
109-120 78 2,481,239.63 1.98%
121-132 170 6,541,305.53 5.23%
133-144 43 1,160,180.44 0.93%
145-156 54 1,903,375.08 1.52%
157-168 36 1,242,041.40 0.99%
169-180 196 7,156,296.75 5.72%
181-192 315 13,511,043.98 10.80%
193-204 32 1,341,549.93 1.07%
205-216 37 1,281,105.83 1.02%
217-228 38 1,796,063.01 1.44%
229-240 119 5,335,525.84 4.26%
241-252 153 6,178,004.38 4.94%
253-264 32 1,238,583.71 0.99%
265-276 32 1,762,094.15 1.41%
277-288 26 945,833.73 0.76%
289-300 64 2,960,844.89 2.37%
301-312 96 3,744,956.34 2.99%
313-324 33 1,751,194.48 1.40%
325-336 43 1,901,374.68 1.52%
337-348 64 2,979,595.00 2.38%
349-360 255 14,887,322.63 11.80%
361-372 416 26,614,192.25 21.27%
373-384 25 1,474,071.69 1.18%
385-396 10 808,512.60 0.48%
397-408 7 799,965.61 0.64%
409-420 9 413,103.67 0.33%
421-432 8 680,636.32 0.54%
433-444 6 411,246.82 0.33%
445-456 6 700,145.94 0.56%
457-468 3 93,806.58 0.07%
469-480 5 212,543.38 0.17%
480 or greater 10 425,238.19 0.34%
----- --------------- -------
Total 2,633 $125,150,688.16 100.00%
----- --------------- -------
----- --------------- -------
- ------------------
(1) For purposes of this table, the month of origination is the month in which
the first Scheduled Payment is due.
The weighted average months since origination for the Single Family
Mortgage Loans as of the Cutoff Date was ___ months.
21
<PAGE>
NUMBER OF MONTHS SINCE ORIGINATION(1)
(COMMERCIAL MORTGAGE LOANS)
Range of Months
Since Origination Count Current Balance Percent of Balance
- ----------------- ----- --------------- ------------------
1- 12 0 $ 0.00 0.00%
13- 24 0 0.00 0.00%
25- 36 1 15,812.15 0.04%
37- 48 2 327,410.28 0.64%
49- 60 6 310,532.32 0.80%
61- 72 23 1,926,855.59 4.98%
73- 84 10 460,828.13 1.19%
85- 96 15 1,395,841.51 3.59%
97-108 9 378,706.85 0.97%
109-120 27 1,529,858.27 3.94%
121-132 50 3,926,409.34 10.10%
133-144 10 721,666.20 1.86%
145-156 12 690,299.69 1.78%
157-168 8 401,760.18 1.03%
169-180 36 3,017,451.11 7.76%
181-192 58 4,895,402.78 12.08%
193-204 12 1,383,168.75 3.56%
205-216 6 387,046.46 1.00%
217-228 13 863,585.50 2.22%
229-240 16 1,170,621.22 3.01%
241-252 42 3,360,527.47 8.85%
253-264 6 371,300.10 0.98%
265-276 10 1,159,118.33 2.98%
277-288 6 812,655.00 2.09%
289-300 12 1,173,927.05 3.02%
301-312 18 2,191,002.46 5.64%
313-324 3 258,976.68 0.67%
325-336 5 452,235.57 1.16%
337-348 6 778,581.01 2.00%
349-360 13 1,613,012.81 4.15%
361-372 15 2,327,779.78 5.99%
373-384 2 190,089.76 0.49%
385-396 1 268,507.64 0.69%
397-408 1 202,979.11 0.52%
409-420 2 102,215.61 0.26%
--- -------------- -------
Total 465 $38,856,142.71 100.00%
--- -------------- -------
--- -------------- -------
- ------------------
(1) For purposes of this table, the month of origination is the month in which
the first Scheduled Payment is due.
The weighted average months since origination for Commercial Mortgage Loans
as of the Cutoff Date was ___ months.
The weighted average months since origination for all Mortgage Loans as of
the Cutoff Date was ___ months.
22
<PAGE>
MONTHS REMAINING TO SCHEDULED MATURITY(1)
(SINGLE FAMILY MORTGAGE LOANS)
<TABLE>
<CAPTION>
Number of Cutoff Date Percent of Cutoff
Range of Remaining Single Family Scheduled Date Pool
Terms (in Months) Mortgage Loans Principal Balance Principal Balance
- ----------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
13- 24 30 $1,449,015.35 1.16%
25- 36 71 3,562,694.15 2.85%
37- 48 84 3,435,164.69 2.74%
49- 60 112 4,898,624.60 3.75%
61- 72 112 3,245,805.89 2.59%
73- 84 111 3,277,683.37 2.62%
85- 96 140 4,725,215.80 3.78%
97-108 117 3,800,127.09 2.88%
109-120 128 4,590,392.83 3.67%
121-132 112 4,129,399.20 3.30%
133-144 158 6,212,395.73 4.95%
145-156 158 6,209,795.64 4.95%
157-168 141 7,237,889.51 5.78%
169-180 126 5,900,849.73 4.71%
181-192 78 3,299,284.19 2.64%
193-204 52 2,477,111.59 1.98%
205-216 86 4,446,750.59 3.55%
217-228 86 4,792,204.24 3.83%
229-240 93 4,496,534.06 3.59%
241-252 69 3,942,231.06 3.15%
253-264 84 4,973,038.20 3.97%
265-276 61 4,077,400.82 3.28%
277-288 60 3,806,194.73 3.04%
289-300 40 2,746,439.15 2.19%
301-312 62 4,551,045.90 3.64%
313-324 52 3,301,664.78 2.64%
325-336 52 3,799,885.05 3.04%
337-348 126 10,310,409.52 8.24%
349-360 23 1,501,903.41 1.20%
445-456 1 24,604.42 0.02%
Other 8 331,174.85 0.26%
----- --------------- --------
Total 2,633 $125,150,588.16 100.00%
----- --------------- --------
----- --------------- --------
</TABLE>
- -------------------
(1) Calculated as the number of months from the Cutoff Date to the month of the
Calculated Maturity Date for a Single Family Mortgage Loan.
The weighted average months remaining to scheduled maturity for the Single
Family Mortgage Loans as of the Cutoff Date was ___ months.
23
<PAGE>
MONTHS REMAINING TO SCHEDULED MATURITY(1)
(COMMERCIAL MORTGAGE LOANS)
<TABLE>
<CAPTION>
Number of Cutoff Date Percent of Cutoff
Range of Remaining Commercial Scheduled Date Pool
Terms (in Months) Mortgage Loans Principal Balance Principal Balance
- ----------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
1- 12 1 $ 279,932.24 0.72%
13- 24 32 1,972,170.69 5.07%
25- 36 38 2,346,436.73 6.04%
37- 48 40 2,769,868.58 7.13%
49- 60 38 2,643,211.53 6.80%
61- 72 36 2,554,326.03 6.57%
73- 84 31 2,610,565.73 6.72%
85- 96 35 2,576,513.28 6.63%
97-108 27 2,445,040.99 6.29%
109-120 23 1,636,826.71 4.21%
121-132 28 1,864,400.84 4.80%
133-144 17 1,553,316.00 4.00%
145-156 17 1,485,067.30 3.82%
157-168 21 3,005,498.68 7.73%
169-180 11 974,321.19 2.51%
181-192 6 552,345.16 1.42%
193-204 4 206,110.50 0.53%
205-216 6 631,770.50 1.63%
217-228 4 451,498.33 1.16%
229-240 10 948,924.71 2.44%
241-252 3 1,425,188.96 3.67%
253-264 4 554,487.19 1.43%
265-276 2 247,601.95 0.64%
277-288 2 189,784.29 0.44%
289-300 5 989,559.67 2.55%
301-312 3 286,986.19 0.74%
313-324 5 617,757.80 1.59%
325-336 2 529,359.70 1.38%
337-348 4 473,231.97 1.22%
349-360 1 60,959.07 0.16%
--- -------------- -------
Total 456 $38,865,142.71 100.00%
--- -------------- -------
--- -------------- -------
</TABLE>
- --------------------
(1) Calculated as the number of months from the Cutoff Date to the month of the
Calculated Maturity Date for a Commercial Mortgage Loan.
The weighted average months remaining to scheduled maturity for the
Commercial Mortgage Loans as of the Cutoff Date was ___ months.
The weighted average months remaining to scheduled maturity for all
Mortgage Loans as of the Cutoff Date was ___ months.
24
<PAGE>
MORTGAGED PROPERTY GEOGRAPHICAL DISTRIBUTION BY STATE (1)
(ALL MORTGAGE LOANS)
<TABLE>
<CAPTION>
Single Family Loans Commercial Loans
--------------------------------------------------------- --------------------------------------------------------
Cutoff Date Percent of Cutoff Cutoff Date Percent of Cutoff
Number of Scheduled Date Pool Number of Scheduled Date Pool
State Mortgage Loans Principal Balance Principal Balance Mortgage Loans Principal Balance Principal Balance
----- -------------- ----------------- ------------------ -------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Alabama 1 47,436.90 0.12%
Alaska 1 768,422.85 1.98%
Arizona 11 700,333.56 1.80%
Arkansas 2 152,208.85 0.39%
California 50 5,027,750.21 12.94%
Colorado 6 621,215.34 1.60%
Connecticut 6 523,029.98 1.35%
Delaware
District of Columbia
Florida 35 2,953,937.59 7.60%
Georgia 4 368,896.47 0.95%
Hawaii 1 443,679.53 1.14%
Idaho 8 1,147,625.01 2.85%
Illinois 14 1,016,646.66 2.62%
Indiana 5 247,052.30 0.64%
Iowa 2 88,308.96 0.23%
Kansas 3 166,556.64 0.43%
Kentucky
Louisiana 1 29,236.43 0.08%
Maine 2 130,854.80 0.34%
Maryland 3 378,328.83 0.97%
Massachusetts 9 697,233.15 1.79%
Michigan 13 1,083,888.60 2.79%
Minnesota 7 710,581.9 1.83%
Mississippi
Missouri 7 228,691.41 0.59%
Montana 3 220,022.55 0.57%
Nebraska 2 89,261.72 0.23%
Nevada 4 277,777.31 0.71%
New Hampshire 6 330,383.92 0.85%
New Jersey 15 951,813.91 2.45%
New Mexico 5 1,024,833.233 2.64%
New York 66 3,899,061.85 10.03%
North Carolina 5 218,723.12 0.56%
Ohio 6 311,838.50 0.80%
Oklahoma 5 300,214.57 0.77%
Oregon 11 652,157.49 2.19%
Pennsylvania 15 647,097.63 1.66%
Rhode Island 1 21,306.14 0.05%
South Carolina 4 218,734.67 0.72%
South Dakota
Tennessee 2 60,416.55 0.16%
Texas 58 4,665,178.67 12.00%
Utah 3 417,708.99 1.07%
Vermont
Virginia 2 179,114.32 0.46%
Washington 62 6,528,494.11 16.80%
West Virginia
Wisconsin
Wyoming 2 57,188.50 0.15%
Total
- ----------------
Determined by property address designated as such in the related Mortgage File.
</TABLE>
All Loans
------------------------------------
Aggregate of Percent of Cutoff
all Mortgage Date Pool
Loans Principal Balance
-------------- ------------------
Alabama
Alaska
Arizona
Arkansas
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
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Total
- ----------------
Determined by property address designated as such in the related Mortgage File.
25
<PAGE>
LOAN-TO-VALUE RATIO AS OF THE CUTOFF DATE(1)
(SINGLE FAMILY MORTGAGE LOANS)
<TABLE>
<CAPTION>
Number of Cutoff Date Percent of Cutoff
Single Family Scheduled Date Pool
Loan-to-Value Ratio Mortgage Loans Principal Balance Principal Balance
------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
0.000- 5.000% 1 $ 110,812.88 0.09%
5.001- 10.000 9 782,456.12 0.83%
10.001- 15.000 3 41,424.01 0.03%
15.001- 20.000 10 254,125.87 0.20%
20.001- 25.000 15 377,134.21 0.30%
25.001- 30.000 32 1,302,823.13 1.04%
30.001- 35.000 37 918,357.97 0.73%
35.001- 40.000 76 2,302,025.67 1.84%
40.001- 45.000 86 2,133,506.65 1.70%
45.001- 50.000 81 2,542,852.81 2.03%
50.001- 55.000 89 2,988,867.38 2.40%
55.001- 60.000 140 5,662,036.48 4.52%
60.001- 65.000 147 4,936,090.01 3.94%
65.001- 70.000 195 8,032,300.82 6.42%
70.001- 75.000 228 9,779,988.57 7.81%
75.001- 80.000 384 18,175,832.66 14.52%
80.001- 85.000 274 12,156,266.86 9.71%
85.001- 90.000 317 16,971,124.48 13.58%
90.001- 95.000 303 17,053,748.66 13.63%
95.001-100.000 185 18,097,024.44 12.85%
100.001-105.000 13 843,036.11 0.67%
105.001-110.000 11 679,842.76 0.54%
110.001-115.000 6 400,885.42 0.32%
115.001-120.000 4 300,394.38 0.24%
120.001-125.000 2 45,162.82 0.04%
Other 5 252,556.29 0.26%
----- --------------- -------
Totals 2,633 $125,150,688.20 100.00%
----- --------------- -------
----- --------------- -------
</TABLE>
_______________
(1) For purposes of this table, the Loan-to-Value Ratio is calculated as
the fraction expressed as a percentage, the numerator of which is the
Cutoff Date Scheduled Principal Balance of the related Single Family
Mortgage Loan and the denominator of which is the Appraised Value of
the applicable Mortgaged Property. However, for ____% of the Single
Family Mortgage Loans ($__________ Cutoff Date Pool Principal Balance),
no Appraised Value was available and the Loan-to-Value Ratio was based
on a denominator equal to the sales price of the applicable Mortgage
Property.
26
<PAGE>
LOAN-TO-VALUE RATIO AS OF THE CUTOFF DATE(1)
(COMMERCIAL MORTGAGE LOANS)
<TABLE>
<CAPTION>
Number of Cutoff Date Percent of Cutoff
Commercial Scheduled Date Pool
Loan-to-Value Ratio Mortgage Loans Principal Balance Principal Balance
------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
5.001- 10.000% 2 $ 324,910.59 0.64%
10.001- 15.000 5 530,887.42 1.37%
15.001- 20.000 1 119,308.44 0.31%
20.001- 25.000 8 522,762.07 1.35%
25.001- 30.000 4 191,099.30 0.48%
30.001- 35.000 14 1,124,838.05 2.89%
35.001- 40.000 8 691,010.46 2.27%
40.001- 45.000 13 985,461.24 2.54%
45.001- 50.000 22 2,379,730.69 6.12%
50.001- 55.000 14 893,851.55 2.30%
55.001- 60.000 17 1,307,752.38 3.36%
60.001- 65.000 16 980,407.52 2.47%
65.001- 70.000 28 3,575,194.25 9.20%
70.001- 75.000 48 3,933,499.36 10.12%
75.001- 80.000 80 4,276,173.85 11.00%
80.001- 85.000 42 3,082,565.72 7.93%
85.001- 90.000 48 3,812,319.77 9.81%
90.001- 95.000 34 3,565,423.87 9.17%
95.001-100.000 55 4,707,717.08 12.11%
100.001-105.000 2 256,738.33 0.86%
105.001-110.000 2 233,790.08 0.60%
Other 16 1,200,702.36 3.09%
--- --------------- ------
Totals 456 $388,661,142.71 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
_______________
(1) For purposes of this table, the Loan-to-Value Ratio is calculated as the
fraction expressed as a percentage, the numerator of which is the Cutoff Date
Scheduled Principal Balance of the related Commercial Mortgage Loan and the
denominator of which is the Appraised Value of the applicable Mortgaged
Property. However, for ____% of the Commercial Mortgage Loans ($__________
Cutoff Date Pool Principal Balance), No appraised Value was available and the
Loan-to-Value Ratio was based on a denominator equal to the sales price of the
applicable Mortgaged Property.
The weighted average Loan-to-Value Ratio for the Single Family Mortgage
Loans, the Commercial Mortgage Loans and the Mortgage Loans was ___%, _____%
and _____%, respectively.
27
<PAGE>
OCCUPANCY TYPES(1)
(SINGLE FAMILY MORTGAGE LOANS)
Number of Cutoff Date Percent of Cutoff
Single Family Scheduled Date Pool
Occupancy Type Mortgage Loans Principal Balance Principal Balance
-------------- -------------- ----------------- -----------------
Non-Owner Occupied
Owner Occupied
Total
_______________
(1) Based upon a determination made by the applicable Seller based upon a
comparison of the Mortgaged Property street address and the borrower's mailing
address as of the Cutoff Date.
OCCUPANCY TYPES(1)
(COMMERCIAL MORTGAGE LOANS)
Number of Cutoff Date Percent of Cutoff
Commercial Scheduled Date Pool
Occupancy Type Mortgage Loans Principal Balance Principal Balance
-------------- -------------- ----------------- -----------------
Non-Owner Occupied
Owner Occupied
Total
_______________
(1) Based upon a determination made by the applicable Seller based upon a
comparison of the Mortgaged Property street address and the borrower's mailing
address as of the Cutoff Date.
28
<PAGE>
PROPERTY TYPE
(COMMERCIAL MORTGAGE LOANS)
Type of Number of Cutoff Date Percent of Cutoff
Mortgaged Commercial Scheduled Date Pool
Property Mortgage Loans Principal Balance Principal Balance
-------- -------------- ----------------- -----------------
Churches 12 1,010,857.06 2.60%
Industrial 38 2,383,202.11 6.13
Mixed Use 32 2,264,499.94 5.83
Mobile Homes Park 25 3,292,036.02 8.47
Motel/Hotel 27 3,649,187.49 9.39
Multifamily 96 90,435,582.83 23.27
Mixed Use 19 1,792,046.21 4.61
Professional 12 1,342,433.73 3.45
Retail 195 14,088,321.87 36.25
--- ------------- ------
Total 456 $38,866,142.71 100.00%
--- ------------- ------
--- ------------- ------
ACQUISITION UNDERWRITING STANDARDS
In general, approximately 80% of all real estate-secured loans purchased by
the Sellers, including residential, commercial and unimproved land loans, are
seller-financed loans and are acquired through independent brokers located
throughout the country. These brokers typically deal directly with private
individuals or organizations who own and wish to sell a loan. Approximately 5%
of all loans purchased result from direct inquiries by owners of loans. There
are many reasons a borrower may choose to obtain seller financing in the
purchase of a property (including attractive loan terms from the seller, the
location of the property in a rural area where financing opportunities are not
readily available or have unattractive terms or the borrower may be unable to
obtain conventional financing). Loans have also been acquired from banks,
savings and loan organizations, mortgage companies, the Resolution Trust
Corporation and the Federal Deposit Insurance Corporation.
Each mortgage loan secured by a first lien on a one- to four-family
residential property or a commercial property must satisfy Metropolitan's
underwriting guidelines before the mortgage loan can be acquired by a Seller.
See "RISK FACTORS--Reduced Underwriting Standards" herein. Metropolitan's
Underwriting Department reviews the demography reports, credit reports on the
mortgagor, the seasoning of the investments and the appraisal in making its
evaluation of a proposed investment. The underwriting guidelines are intended
to evaluate the adequacy of each mortgaged property as collateral for, and, to a
lesser extent, the ability of a borrower to repay, the related mortgage loan.
The members of Metropolitan's Underwriting Department, as a committee,
review all proposed acquisitions of loans secured by real estate if, based on
Metropolitan's internal classification procedures for the loan, the dollar
amount of the proposed investment is above the credit limit for an individual
underwriter's approval authority. In many instances, an underwriter will
present a mortgage loan to the Underwriting Committee for its review even
29
<PAGE>
though the dollar amount of the proposed investment is below that underwriter's
credit limit if the underwriter believes that the loan possesses characteristics
which the Underwriting Committee as a whole should discuss. The maximum
investment an individual underwriter may approve cannot exceed $100,000 with
respect to a single-family mortgage loan and $150,000 with respect to a
commercial mortgage loan. All single-family mortgage loans and commercial
mortgage loans that involve initial investments greater than $250,000 and
$150,000, respectively, also are evaluated and approved by a risk evaluation
committee, Metropolitan's Legal Department and Metropolitan's President. In
addition, mortgage loans of any nature that involve investments in excess of
$500,000 are approved by Metropolitan's Board of Directors.
The underwriting guidelines include a requirement that the ratio of the
Seller's proposed purchase price for a mortgage loan compared to the appraised
value of the related mortgaged property may not exceed 80% on mortgage loans
secured by single family residences and may not exceed 70% on mortgage loans
secured by commercial properties. Loan-to-value ratios based on the outstanding
balance of a mortgage loan and the value of related mortgaged property at the
date of origination are not computed and may be higher than the ratios computed
by Metropolitan at the time of acquisition by a Seller.
A current appraisal of the market value of each mortgaged property
generally is obtained within 60 days prior to the purchase of a mortgage loan.
However, in certain instances, Metropolitan may utilize a previous appraisal if
it was completed within six months prior to the purchase by a Seller. In such
cases, the appraisal reports are reviewed and certified by Metropolitan's
internal staff appraisers. Mortgage loans that have been acquired on the
secondary market generally have appraisals which were obtained at the time of,
and in connection with, the mortgage loan's origination.
The appraisals are made by licensed independent appraisers or an appraiser
on the staff of Metropolitan. Payments to appraisers are not contingent upon
either final approval of the acquisition of the mortgage loan or the appraised
value of the mortgaged property. Each appraisal by an independent appraiser is
reviewed by a licensed Metropolitan staff appraiser.
Generally, the appraisals for loans originated by individuals and
subsequently acquired by a Seller are based on drive-by exterior viewings of the
mortgaged property and comparative sales analysis. Appraisals involving
potential loan modifications and foreclosed property usually are conducted in
the same manner. However, in a limited number of cases, full appraisals are
obtained in which both the interior and exterior of the mortgaged property are
inspected. Mortgage loans that have been acquired on the secondary market
generally have full appraisals. A full appraisal is always obtained after a
property is obtained through foreclosure or otherwise. Regardless of the type
of appraisal requested, each appraisal report must contain photographs, a site
location map, plat map, photographs of sold properties comparable to the
mortgaged property and a map indicating the proximity of the comparable
properties to the mortgaged property.
Metropolitan's Demography Department provides a variety of information to
the Underwriting Department, including various reports regarding the
characteristics of the area in which the property that secures a proposed
mortgage loan acquisition is located. In preparing
30
<PAGE>
its reports, the Demography Department utilizes computerized databases and
identifies local trends in property values, personal income, population and
other social and economic factors.
Other underwriting procedures generally include (a) obtaining and
evaluating credit reports with respect to a borrower, (b) in certain cases,
obtaining and evaluating property inspection reports describing the mortgaged
property and the surrounding neighborhood, (c) evaluating potential
environmental risks, (d) verifying payment histories of the mortgage loan to be
acquired (when such payment histories are available) and the current payment
status of a borrower, and (e) evaluating a borrower's equity in the mortgaged
property. Additional re-underwriting procedures with respect to commercial
mortgage loans include (i) in some cases where such information is available,
evaluating operating statements of previous owners, (ii) in some cases where
such information is available, verifying the business experience of the
borrower, (iii) evaluating alternative uses of the property, (iv) reviewing
economic conditions in the area of the property, and (v) reviewing local
competitive conditions. For Mortgage loans acquired on the secondary market,
generally credit reports for each borrower are not obtained or evaluated.
With respect to evaluating the creditworthiness of the mortgagor for a
particular mortgage loan, the Underwriting Committee obtains and reviews a
credit report for such mortgagor and the payment history for such mortgage loan,
if available. Because a mortgage loan is acquired after origination,
Metropolitan is unable to obtain and consider information that is typically
obtained in the origination of a mortgage loan, such as income, current
employment and total assets of the mortgagor with respect to single family
loans, and current borrower operating statements with respect to commercial
loans. See "RISK FACTORS--Reduced Underwriting Standards" and "--Commercial
Borrower Default."
If a loan is approved for purchase by the Underwriting Department,
Metropolitan requires certain procedures to be followed to complete the
acquisition. In addition to requiring certain legal documentation regarding the
mortgage loan, Metropolitan may require other information, including the closing
statement used in the origination of the mortgage loan and payment records.
With respect to title insurance, if the purchase involves an interest in a land
sale contract, a title report from a title insurance company is ordered by
Metropolitan and a title policy is obtained in the amount of the outstanding
balance. If the purchase involves a mortgage loan, other than a land sale
contract, a copy of the lender's title insurance policy that was issued at the
origination of the loan is requested. If that policy shows clear title and the
endorsements on the related note establish a clear chain of title to the seller
of the loan, Metropolitan will not require an endorsement of such title policy.
Upon the occurrence of an event covered by the title policy, Metropolitan is
entitled to receive reimbursement from the related seller of the mortgage loan
as a result of a violation of certain representations made by such seller at the
time of acquisition by a Seller. In those instances where a title policy is not
available or the chain of title is not clear, Metropolitan obtains a title
policy generally in the amount of the outstanding principal balance of the loan.
In some instances for certain loans acquired prior to 1991 and for certain loans
secured by properties in certain counties and states, Metropolitan requires a
lesser amount of title insurance, generally in the amount of the Seller's
investment in the mortgage loan, but in no case less than a minimum amount of
$10,000. 50.46% of the Mortgage Loans
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are secured by title policies in amounts at least equal to the Cutoff Date
Scheduled Principal Balance.
THE DEPOSITOR
Metropolitan Asset Funding, Inc., a Delaware corporation (the "Depositor"),
was organized on August 23, 1996 for the limited purpose of acquiring, owning
and transferring Mortgage Loans and other assets and selling interests therein
or bonds secured thereby. The Depositor is a subsidiary of National Summit
Corp., a Delaware corporation, which is an affiliate of the Sellers. The
Depositor maintains its principal office at 929 West Sprague Avenue, Suite 106,
Spokane, Washington 99204. Its telephone number is (509) 838-3111.
The Depositor has taken steps in structuring the transaction contemplated
hereby that are intended to make it unlikely that the voluntary or involuntary
application for relief by any Seller under the United States Bankruptcy Code or
similar applicable state laws ("Insolvency Laws") will result in consolidation
of the assets and liabilities of the Depositor with those of any such Seller.
These steps include the creation of the Depositor as a separate, limited purpose
entity pursuant to a certificate of incorporation containing certain limitations
(including restrictions on the nature of the Depositor's business and a
restriction of the Depositor's ability to commence a voluntary case or
proceeding under any Insolvency Laws without the prior unanimous affirmative
vote of all of the directors). The Depositor's certificate of incorporation
includes a provision that requires the Depositor to have a director who
qualifies as an "independent director."
Neither the Depositor, the Sellers nor any affiliates thereof will ensure
or guarantee distributions on the Certificates.
DESCRIPTION OF THE SELLERS
Metropolitan, a Washington corporation, commenced business in January 1953.
It is primarily engaged in the business of investing in seller-financed real
estate loans and other receivables. Metropolitan has 15 branch offices located
in 12 states. At June 30, 1996, Metropolitan had total assets of approximately
$1.1 billion. Metropolitan's largest subsidiary, Western, a life insurance and
annuity company, was incorporated in the State of Washington in 1963 and had
total assets of approximately $967.8 million at June 30, 1996.
Summit was incorporated in the State of Idaho in 1990 and is a subsidiary
of its holding company, National Summit Corp., a Delaware corporation. At
June 30, 1996, Summit had total assets of approximately $108.8 million. Summit
Group Holding Company, a subsidiary of Summit, acquired its wholly owned life
insurance company subsidiary, Old Standard, from Metropolitan in 1995. Old
Standard was incorporated in Idaho in 1988 and at June 30, 1996 had total assets
of approximately $66.2 million.
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SERVICING OF MORTGAGE LOANS
GENERAL
The Master Servicer will service the Mortgage Loans in accordance with the
terms set forth in the Pooling Agreement. The Master Servicer may perform any
of its obligations under the Pooling 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
Agreement as if the Master Servicer alone were servicing the Mortgage Loans.
See "THE POOLING AND SERVICING AGREEMENT" herein.
MetWest Mortgage Services, Inc. (f/k/a Spokane Mortgage Co.) ("MetWest" or
the "Master Servicer"), a Washington corporation, is a subsidiary of
Metropolitan. MetWest has been in the business of servicing mortgage loans and
other assets, since its incorporation in 1960, for Metropolitan and the other
Sellers. At June 30, 1996, MetWest was servicing approximately _________
mortgage loans secured by properties located in all 50 states representing an
aggregate outstanding principal balance of approximately $___ million and was
servicing approximately _____ other receivables representing an aggregate
principal balance of approximately $___ million.
The principal executive offices of MetWest are located at 917 W. Sprague
Avenue, Spokane, Washington 99204.
MORTGAGE LOAN SERVICING
The following is a discussion of MetWest's servicing practices generally
applicable to the servicing of the Mortgage Loans by MetWest, as Master
Servicer. References to mortgage loans in the following discussion include land
sale contracts in all cases.
When a mortgage loan is acquired by a Seller, MetWest's computer system
automatically generates a welcome letter and two loan coupons. A payment coupon
book for 12 monthly payments is printed annually by an independent vendor and
mailed to the borrower. In the course of servicing the mortgage loans, MetWest
has access to a file containing copies of the original mortgage note or land
sale contract, security document, assignment of security interest and all other
information and reports that were accumulated as part of the acquisition,
underwriting and closing process for the mortgage loan.
LOAN SERVICING AND CASHIERING DEPARTMENT. MetWest's Cashiering Department
is responsible for receiving and applying payments on the mortgage loans
serviced by MetWest. MetWest's computer payment processing system allocates
payments first to accrued interest, then to scheduled principal, and finally to
any fees or miscellaneous charges due. The system is programmed to accept and
process the regular scheduled monthly payment first with any overages posted to
unallocated status. Curtailments are allocated to principal if so indicated by
the borrower, otherwise they will be posted to unallocated status.
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MetWest's Loan Servicing Department includes three separate groups:
Receivable Accounting, Customer Service and Escrow Servicing. The Receivable
Accounting group is responsible for maintaining accurate receivable account
histories and records, conducting periodic audits and making any on-line account
adjustments. It is also responsible for investor reporting and remittances.
Customer Service is responsible for processing and preparing various
documents related to full payment of the mortgage loans, such as reconveyance
and "paid-in-full" stamped promissory notes. It is also responsible for
responding to borrower inquiries, except those involving delinquency or
litigation. If a borrower inquiry involves a dispute, the borrower is
encouraged to write a letter to which MetWest will respond in writing. Borrower
inquiries regarding loan assumptions are referred to the Accelerations and
Modifications Department (described below) while those calls regarding
delinquencies are referred to the Default Control Department.
Escrow Servicing is primarily responsible for paying property taxes and
insurance out of escrowed funds for those mortgage loans with escrow accounts,
processing insurance claims, and otherwise monitoring the payment of property
taxes and insurance on all mortgage loans.
MetWest utilizes a hazard insurance monitoring program provided by Safeco
Select Insurance Services ("SSIS"), an affiliate of Safeco National Insurance
Company ("Safeco"). Hazard insurance is required in an amount equal to lesser
of the outstanding principal balance of the mortgage loan or the replacement
cost for all structures located on the mortgaged property. If the hazard
insurance lapses, SSIS sends a letter to the borrower informing the borrower
that the mortgage loan requires hazard insurance and providing the required
minimum amount, cost and a contact phone number. If no response from the
borrower is received within 30 days, SSIS sends an additional letter to the
borrower. If proof of hazard insurance is not provided within 60 days, hazard
insurance will be force-placed with Safeco; provided, that if the principal
balance is less than $10,000, no hazard insurance will be force-placed. The
owner of the mortgage loan is covered against loss during that 60 day period by
insurance underwritten by Safeco. Any hazard insurance that is force-placed
will be placed for a 12-month term with coverage in the lesser of the amount of
the replacement value of the improvements on the mortgaged property or the
outstanding principal balance subject to any limitations imposed by applicable
law.
The Escrow Servicing group is also responsible for monitoring hazard
insurance claims. If any insurance proceeds are less than $5,000 and the
mortgage loan is not in default, the proceeds generally will be endorsed to the
borrower. If insurance proceeds are greater than $5,000, MetWest orders an
inspection of the mortgaged property and obtains repair estimates and start-up
costs. MetWest prefers to disburse funds on an as-completed basis after funding
the initial start-up costs.
Escrow Servicing also utilizes a property tax service provided by First
American Tax Company to verify the payment of real estate taxes on a monthly
basis. If any property taxes are found to be delinquent, generally the borrower
is notified both verbally and in writing. If the amount of the delinquent tax
is less than $1,000 and overdue for no more than one year,
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Escrow Servicing will take no action other than notification. If the amount of
the delinquent tax is greater than $1,000 and remains outstanding for longer
than 45 days, or the property taxes are two or more years delinquent, the
mortgage loan will be treated as delinquent and referred to the Accelerations
and Modifications Department.
DEFAULT CONTROL DEPARTMENT AND PRE-FORECLOSURE COMMITTEE. MetWest's
Default Control Department is responsible for attempting to collect the amount
of any delinquency on a mortgage loan. Generally, if a payment becomes five
days delinquent, a late notice will automatically be sent to the borrower
notifying the borrower of the delinquency and the late charge. When 17 days
delinquent, the mortgage loan will be assigned to a collector in the Default
Control Department who will attempt to make verbal contact with the borrower no
later than the twentieth day following delinquency. Thereafter, contact will be
made by the collector as frequently as deemed necessary and permitted by law
until the delinquency is resolved. Generally, if a mortgage loan becomes
32 days delinquent, the borrower automatically receives a demand letter.
If a mortgage loan becomes 60 days delinquent, it is automatically
transferred to the Accelerations and Modifications Department which, as
described below, has significant discretion to make recommendations to work out
the delinquency with the borrower or to forward the mortgage loan to the Default
Control Department to commence foreclosure proceedings. If the Accelerations
and Modifications Department determines that a workout is in the best interests
of the owner of the loan, but is unsuccessful, the mortgage loan is returned to
the Default Control Department.
If a mortgage loan is returned, the pre-foreclosure committee will attempt
to determine whether sufficient equity exists in the mortgaged property to
warrant the commencement of foreclosure proceedings. That committee carefully
examines any such mortgage loan with an estimated loan-to-value ratio in excess
of 80% if the exposure to loss is greater than $5,000 and will review potential
environmental concerns. In addition, it may recommend further contact with the
borrower prior to initiating legal proceedings.
If further contact with the borrower does not resolve the delinquency, the
Default Control Department will commence foreclosure proceedings. Thirty days
prior to a scheduled foreclosure, MetWest will force-place insurance to reduce
the exposure of the mortgaged property to damage. If title to a mortgaged
property is acquired by MetWest on behalf of the holder of the mortgage loan,
responsibility will be transferred to the Property Management Department to
secure and protect the property and to commence efforts to sell the mortgaged
property.
ACCELERATIONS AND MODIFICATIONS DEPARTMENT. The Accelerations and
Modifications Department is responsible for handling all mortgage loan
assumptions and requests for release of liability. As a general rule, MetWest
will waive due-on-sale clauses, and permit assumptions of mortgage loans
provided that such actions are in the best interests of the holder of the loan
and MetWest receives reimbursement for all related costs and expenses. The
ability of the Master Servicer to make such waivers or to pertain such
assumptions is limited by the Pooling
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Agreement. See "MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS--Prepayment
Considerations and Risks" herein.
The Accelerations and Modifications Department also reviews the mortgage
loan file with respect to each mortgage loan referred to it by the Loan
Servicing Department or the Default Control Department. The Accelerations and
Modifications Department has significant discretion to modify and restructure
mortgage loans in a manner deemed to be in the holders' best interests taking
into consideration the need to preserve the value of the mortgaged properties.
Modifications to the mortgage loans may include extensions, reductions in the
interest rate, payment reductions, waiver of late charges or other adjustments.
Because the Accelerations and Modifications Department has significant
discretion with respect to restructuring the mortgage loans, MetWest has formed
a pre-foreclosure committee comprised of certain of MetWest's senior managers,
including the Accelerations and Modifications Department manager, the Default
Control Department manager and in-house legal counsel. The pre-foreclosure
committee is required to approve modifications to a mortgage loan for which
foreclosure proceedings have been commenced by the Accelerations and
Modifications Department. The Underwriting Committee reviews all proposed
modifications of mortgage loans for which foreclosure proceedings have not
commenced. The documents for any approved modifications, forbearance agreements
and similar arrangements are prepared by MetWest. The Accelerations and
Modifications Department will attempt to decide on a course of action within
72 hours and resolve any delinquency within two weeks. The borrower will be
contacted both verbally and by letter. The objective of the Accelerations and
Modifications Department is to return the mortgage loan to performing status.
With respect to mortgage loans having delinquent property tax payments, the
Accelerations and Modifications Department may require the borrower to establish
an escrow account funded by higher monthly payments by the borrower for the
payments of insurance and taxes.
A substantial majority of the modifications that are made by the
Accelerations and Modifications Department are made on current loans. In many
cases, borrowers are contacted by the Accelerations and Modifications Department
shortly after a mortgage loan's acquisition to, among other things, (i) convert
adjustable rate loans to fixed rate loans, (ii) extend the maturity of balloon
loans or convert such loans to fully amortizing loans, (iii) decrease the loan
term or (iv) make other modifications to create a fixed rate, first lien
product. The Pooling Agreement limits the Master Servicer from making
modifications of the Mortgage Loans. See "THE POOLING AND SERVICING AGREEMENT--
Modification of Mortgage Loans" herein.
FORECLOSURE AND DELINQUENCY EXPERIENCE
ON METWEST'S SERVICING PORTFOLIO
Historically, a variety of factors, including the appreciation of real
estate values, have limited MetWest's loss and delinquency experience on its
portfolio of serviced mortgage loans.
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The following tables summarize the foreclosure and delinquency experience,
respectively, at the dates indicated of all mortgage loans, of all single family
mortgage loans and of all commercial loans serviced by MetWest, including loans
obtained by the Sellers in a manner similar to that described herein under "THE
MORTGAGE POOL--Acquisition Underwriting Standards." There can be no assurance
that the foreclosure or delinquency experience on the Mortgage Loans will be
comparable. Furthermore, there can be no assurance that factors beyond
MetWest's control, such as national or local economic conditions or downturns in
the real estate markets of its servicing areas, will not result in increased
rates of delinquencies and foreclosures in the future. In addition, the
foregoing statistics are based on all of the loans secured by real estate in
MetWest's servicing portfolio, including unimproved land loans and loans with a
variety of payment and other characteristics that may not correspond to those of
the Mortgage Loans. The actual loss and delinquency experience on the Mortgage
Loans will depend, among other things, upon the value of the related Mortgaged
Properties and the ability of the borrowers to make required payments.
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ALL LOANS
---------
<TABLE>
<CAPTION>
At September 30, At September 30, At June 30,
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
TOTAL MORTGAGE LOAN PORTFOLIO:
Principal Balance (end of period)
Total Number of Mortgage Loans
31-60 DAYS DELINQUENT:
Principal Balance
Number of Mortgage Loans
Percent Delinquent by Number of Mortgage Loans
Percent Delinquent by Principal Balance
61-90 DAYS DELINQUENT:
Principal Balance
Number of Mortgage Loans
Percent Delinquent by Number of Mortgage Loans
Percent Delinquent by Principal Balance
91 DAYS OR MORE DELINQUENT:
Principal Balance
Number of Mortgage Loans
Percent Delinquent by Number of Mortgage Loans
Percent Delinquent by Principal Balance
IN FORECLOSURE:
Total Number of Foreclosures
Percent Foreclosed by Number of Mortgage Loans
TOTAL DELINQUENT AND IN FORECLOSURE:
Number of Mortgage Loans
Percent Delinquent and in Foreclosure by Number
of Mortgage Loans
SINGLE FAMILY LOANS
-------------------
At September 30, At September 30, At June 30,
1994 1995 1996
---- ---- ----
TOTAL SINGLE FAMILY PORTFOLIO:
Principal Balance (end of period)
Total Number of Single Family Loans
31-60 DAYS DELINQUENT:
Principal Balance
Number of Single Family Loans
Percent Delinquent by Number of Single Family Loans
Percent Delinquent by Principal Balance
61-90 DAYS DELINQUENT:
Principal Balance
Number of Single Family Loans
Percent Delinquent by Number of Single Family Loans
Percent Delinquent by Principal Balance
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91 DAYS OR MORE DELINQUENT:
Principal Balance
Number of Single Family Loans
Percent Delinquent by Number of Single Family Loans
Percent Delinquent by Principal Balance
IN FORECLOSURE:
Total Number of Foreclosures
Percent Foreclosed by Number of Single Family
Loans
TOTAL DELINQUENT AND IN FORECLOSURE:
Number of Single Family Loans
Percent Delinquent and in Foreclosure by Number of Single Family Loans
COMMERCIAL LOANS
----------------
At September 30, At September 30, At June 30,
1994 1995 1996
---- ---- ----
TOTAL COMMERCIAL LOAN PORTFOLIO:
Principal Balance (end of period)
Total Number of Commercial Loans
31-60 DAYS DELINQUENT:
Principal Balance
Number of Commercial Loans
Percent Delinquent by Number of Commercial
Loans
Percent Delinquent by Principal Balance
61-90 DAYS DELINQUENT:
Principal Balance
Number of Commercial Loans
Percent Delinquent by Number of Commercial
Loans
Percent Delinquent by Principal Balance
91 DAYS OR MORE DELINQUENT:
Principal Balance
Number of Commercial Loans
Percent Delinquent by Number of Commercial
Loans
Percent Delinquent by Principal Balance
IN FORECLOSURE:
Total Number of Foreclosures
Percent Foreclosed by Number of Commercial Loans
TOTAL DELINQUENT AND IN FORECLOSURE:
Number of Commercial Loans
Percent Delinquent and in Foreclosure by Number
of Commercial Loans
</TABLE>
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THE POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement, dated as of __________ 1, 1996 (the "Pooling Agreement"), among the
Depositor, the Sellers, the Master Servicer and the Trustee. The Pooling
Agreement has been filed with the Commission as an exhibit to the registration
statement of which this Prospectus is a part, and reference is made thereto for
important additional information regarding the terms and conditions of the
Pooling Agreement and the Certificates. The following summaries do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, the provisions of the Pooling Agreement. When particular
provisions or terms used in the Pooling Agreement are referred to, the actual
provisions (including definitions of terms) are incorporated by reference.
The Mortgage Pass-Through Certificates, Series 1996-A (the "Certificates")
will consist of the Class A-1, Class A-2, Class A-3 and Class A-4 Certificates
(collectively, the "Senior Certificates"), Class B-1, Class B-2, Class B-3 and
Class B-4 Certificates (collectively, the "Class B Certificates"), and the
Class R Certificates (the "Residual Certificates" and, together with the Class B
Certificates, the "Subordinate Certificates"). Only the Class A-1, Class A-2,
Class A-3, Class A-4, Class B-1 and Class B-2 Certificates (the "Offered
Certificates") are offered hereby. The Classes of Offered Certificates will
have the respective initial Class Certificate Balances (subject to the permitted
variance) and Pass-Through Rates set forth on the cover hereof.
The "Class Certificate Balance" of any Class of Certificates as of any
Distribution Date, other than the Class R Certificates, is the initial Class
Certificate Balance thereof reduced by the sum of (i) all amounts previously
distributed to holders of the Certificates of such Class as payments of
principal, and (ii) the amount of Realized Losses (including Excess Losses)
allocated to such Class. The Class Certificate Balance of the Class R
Certificates will be equal to the aggregate of the Component Balances of the
related Components as described in "DESCRIPTION OF THE CERTIFICATES--Residual
Certificates" herein.
The Senior Certificates, other than the Class A-4 Certificates, will have
an initial aggregate Class Certificate Balance of approximately $__________ and
will evidence in the aggregate an initial beneficial ownership interest of
approximately ___% in the Mortgage Pool. The Class A-4 Certificates will
evidence an initial beneficial ownership interest of approximately ___% in the
Mortgage Pool. The Class B-1, Class B-2, Class B-3, Class B-4 and Class R
Certificates will each evidence in the aggregate an initial beneficial ownership
interest of approximately ___%, ___%, ___%, ___% and ___%, respectively, in the
Mortgage Pool.
The "Percentage Interest" of an Offered Certificate as of any date of
determination will be equal to the percentage obtained by dividing the
denomination of such Certificate by the initial Class Certificate Balance of the
related Class.
The Book-Entry Certificates will be issuable in book-entry form only. The
Physical Certificates will be issued in fully registered certificated form. The
Physical Certificates offered
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hereby will be issued in minimum dollar denominations of $_______ and integral
multiples of $1.00 in excess thereof. A single Certificate of each Class may be
issued in an amount different than described above.
BOOK-ENTRY CERTIFICATES
The Book-Entry Certificates will be issued in one or more certificates
which equal the aggregate principal balance of each such Class of Certificates
which will be held by a nominee of The Depository Trust Company (together with
any successor depository selected by the Depositor, the "Depository").
Beneficial interests in the Book-Entry Certificates will be indirectly held by
investors through the book-entry facilities of the Depository, as described
herein. Investors may hold such beneficial interests in the Book-Entry
Certificates in minimum denominations of $_______ and in integral multiples of
$1.00 in excess thereof. The Depositor has been informed by the Depository that
its nominee will be Cede & Co. ("Cede"). Accordingly, Cede is expected to be
the holder of record of the Book-Entry Certificates. Except as described 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").
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 the Depository (or of a participating firm that acts as agent for the
Financial Intermediary, whose interests will in turn be recorded on the records
of the Depository, if the beneficial owner's Financial Intermediary is not a
Depository participant). Therefore, the beneficial owner must rely on the
foregoing procedures to evidence its beneficial ownership of a Book-Entry
Certificate. Beneficial ownership of a Book-Entry Certificate may only be
transferred by compliance with the procedures of such Financial Intermediaries
and Depository participants.
The Depository is a limited purpose trust company organized under the laws
of the State of New York, a member of the Federal Reserve System, a "Clearing
Corporation" within the meaning of the Uniform Commercial Code as in effect in
the State of New York and a "Clearing Agency" registered pursuant to Section 17A
of the Securities Exchange Act of 1934, as amended. The Depository performs
services for its participants, some of which (and/or their representatives) own
the Depository. In accordance with its normal procedures, the Depository is
expected to record the positions held by each Depository 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 the
Depository and Depository participants as in effect from time to time.
Distributions on the Book-Entry Certificates will be made on each
Distribution Date by the Trustee to the Depository. The Depository will be
responsible for crediting the amount of such payments to the accounts of the
applicable Depository participants in accordance with the Depository's normal
procedures. Each Depository participant will be responsible for disbursing
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<PAGE>
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. Because the Depository 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.
None of the Depositor, any Seller, the Master Servicer 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 Certificates
held by Cede, as nominee for DTC, or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests. In the event of
the insolvency of the Depository, a Depository participant or an indirect
Depository participant in whose name Book-Entry Certificates are registered, the
ability of the Beneficial Owners of such Book-Entry Certificates to obtain
timely payment may be impaired.
Unless and until Definitive Certificates are issued, it is anticipated that
the only "Certificateholder" of the Book-Entry Certificates will be Cede, as
nominee of the Depository. Beneficial Owner of the Book-Entry Certificates will
not be Certificateholders, as that term is used in the Pooling Agreement.
Beneficial owners are only permitted to exercise the rights of
Certificateholders indirectly through Financial Intermediaries and the
Depository. Monthly and annual reports on the Mortgage Pool provided by the
Master Servicer to Cede, as nominee of the Depository, may be made available to
beneficial owners upon request, in accordance with the rules, regulations and
procedures creating and affecting the Depository and to the Financial
Intermediaries to whose Depository accounts the Book-Entry Certificates of such
beneficial owners are credited.
The Depository has advised the Depositor and the Trustee that, unless and
until Definitive Certificates are issued, the Depository will take any action
permitted to be taken by the holders of the Book-Entry Certificates under the
Pooling Agreement only at the direction of one or more Financial Intermediaries
to whose Depository 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.
Definitive Certificates will be issued to beneficial owners of the
Book-Entry Certificates, or their nominees, rather than to the Depository, only
if (a) the Depository or the Depositor advises the Trustee in writing that the
Depository is no longer willing or able to discharge properly its
responsibilities as depository 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
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<PAGE>
option, advises the Trustee in writing that it elects to terminate the
book-entry system through the Depository; or (c) after the occurrence of an
Event of Default, beneficial owners having Percentage Interests aggregating at
least 51% of all Percentage Interests evidenced by all Classes of the Book-Entry
Certificates advise the Trustee and the Depository through the Depository
Participants in writing that the continuation of a book-entry system through the
Depository (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 the
Depository of Definitive Certificates. Upon surrender by the Depository of the
global certificate or certificates representing the Book-Entry Certificates and
instructions for re-registration, the Trustee will issue the Definitive
Certificates, and thereafter the Trustee will recognize the holders of such
Definitive Certificates as Certificateholders under the Pooling Agreement.
ASSIGNMENT OF THE MORTGAGE LOANS
In connection with the transfer and assignment of the Mortgage Loans to the
Trustee, the Depositor will deliver or cause to be delivered to the Trustee, or
a custodian for the Trustee, among other things, with respect to each Mortgage
Loan, other than a Land Sale Contract, the original Mortgage Note endorsed
without recourse to the order of the Trustee (or its nominee) or a certificate
signed by an officer of the applicable Seller certifying that the related
original Mortgage Note has been lost, the original or certified copy of the
Mortgage with evidence of recording indicated thereon (except for any Mortgage
not returned from the public recording office, which will be delivered to the
Trustee as soon as the same is available to the Depositor), an assignment in
recordable form of the Mortgage, an original or duplicate Title Insurance Policy
or a true and complete copy thereof and, if applicable, any riders or
modifications to such Mortgage Note and Mortgage and original recorded
intervening assignments or copies of such recorded intervening assignments and,
in the case of a Land Sale Contract, the Land Sale Contract with evidence of
recording indicated thereon, an assignment in recordable form of the Land Sale
Contract, an original Title Insurance Policy (as duplicate policy) or a true and
correct copy thereof, if applicable all assumption, modification and
substitution agreements and original recorded intervening assignments or copies
of such recorded intervening assignments in either case showing a complete chain
of assignment from the originator of the Land Contract to the applicable Seller
and the related deed to the property in the name of the Trustee (collectively,
the "Mortgage File"). Assignments of the Mortgage Loans to the Trustee (or its
nominee) will be recorded in the appropriate public office for real property
records, except in states where, in the opinion of counsel acceptable to the
Trustee, such recording is not required to protect the Trustee's interests in
the Mortgage Loan against the claim of any subsequent transferee or any
successor to or creditor of the Depositor or the applicable Seller.
The Trustee will review each Mortgage File within 90 days after the Closing
Date (or promptly after the Trustee's receipt of any document permitted to be
delivered after the Closing Date) and if any of the foregoing documents is found
to be missing or defective in any material respect and the applicable Seller
does not cure such omission or defect within 180 days of the Closing Date, such
Seller will by or on the Distribution Date in the month following the
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expiration of such 180-day period either (a) repurchase the related Mortgage
Loan (or any property acquired in respect thereof) at a price (the "Repurchase
Price") equal to 100% of the unpaid principal balance of such Mortgage Loan plus
accrued and unpaid interest on such principal balance at the related interest
rate paid on the Mortgage Loan ("Mortgage Rate"), or (b) substitute a
Replacement Loan; however, such substitution is permitted only within two years
of the Closing Date and may not be made unless an opinion of counsel is provided
to the effect that such substitution will not disqualify the Mortgage Pool as a
REMIC or result in a prohibited transaction tax under the Code. Any
"Replacement Loan" generally will, on the date of substitution, among other
characteristics set forth in the Pooling Agreement, (i) have a principal
balance, after deduction of all Scheduled Payments due in the month of
substitution, not in excess of, and not more than 10% less than, the Scheduled
Principal Balance of the Deleted Loan (the amount of any shortfall to be
deposited by the applicable Seller and held for distribution to the
Certificateholders on the related Distribution Date (a "Substitution Adjustment
Amount")), (ii) have a Mortgage Rate not lower than, and not more than 2% per
annum higher than, that of the Deleted Loan, (iii) have a Loan-to-Value Ratio
not higher than that of the Deleted Loan, (iv) have a remaining term to maturity
not greater than (and not more than one year less than) that of the Deleted
Loan, (v) comply with all of the representations and warranties set forth in the
Pooling Agreement as of the date of substitution, and (vi) be of the same type
of Mortgage Loan (Single Family Mortgage Loan or Commercial Mortgage Loan) as
the Deleted Loan. This cure, repurchase or substitution obligation constitutes
the sole remedy available to Certificateholders or the Trustee for omission of,
or a material defect in, a Mortgage Loan document. However, if Western should
default in its obligation to cure, repurchase or substitute for a Deleted Loan,
as discussed above, Metropolitan shall have such obligation and if Old Standard
should default in such obligation, Summit shall have such obligation.
REPRESENTATIONS AND WARRANTIES
The Depositor generally will not make any representations and warranties
regarding the Mortgage Loans, and its assignment of the Mortgage Loans to the
Trustee will be without recourse. As further described below, each Seller will
make certain representations and warranties concerning its respective Mortgage
Loans in the Pooling Agreement and under certain circumstances may be required
to repurchase or substitute a Mortgage Loan as a result of a breach of any such
representation or warranty. In addition, pursuant to the Pooling Agreement the
Depositor will assign to the Trustee its rights with respect to representations
and warranties made by each Seller in its respective Loan Purchase Agreement
pursuant to which the Mortgage Loans are sold to the Depositor.
In the Pooling Agreement, each Seller will represent and warrant to the
Trustee with respect to its respective Mortgage Loans, among other things, that:
(a) the information set forth in the schedule of Mortgage Loans is true and
correct in all material respects; (b) at the time of transfer the Seller had
good title to the Mortgage Loans and the Mortgage Notes were subject to no
offsets, defenses or counterclaims; (c) as of the Cutoff Date, no Mortgage Loan
was more than 59 days delinquent; (d) as of the Closing Date, each Mortgage Loan
is secured by a first lien Mortgage or by a Land Sale Contract on the related
Mortgaged Property free and clear of all liens, claims and encumbrances, other
than the Land Sale Contract, if applicable (subject only to (i) liens for
current real property taxes, special assessments and certain delinquent taxes
set
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forth in Pooling Agreement aggregating $__________ as of the Cutoff Date,
(ii) covenants, conditions and restrictions, rights of way, easements and other
matters of public record as of the date of recording of such Mortgage, such
exceptions appearing of record being acceptable to mortgage lending institutions
generally or specifically reflected in the mortgage originator's appraisal, and
(iii) other matters to which like properties are commonly subject which do not
materially interfere with the benefits of the security intended to be provided
by the Mortgage; (e) as of the time each Mortgage Loan was originated, the
Mortgage Loan complied in all material respects with all applicable state and
federal laws, including usury, equal credit opportunity and disclosure laws; (f)
as of the Cutoff Date, other than normal wear and tear, each Mortgaged Property
has not declined materially in value due to damage or lack of repair since
acquisition or origination by the related Seller; and (g) as of the Cutoff Date,
there are no delinquent tax or assessment liens against any Mortgaged Property
unless specifically set forth in a schedule attached to the Pooling Agreement
and the applicable Loan Purchase Agreement.
In the event of the discovery by a Seller of a breach of any of its
representations or warranties which materially and adversely affects the value
of the Mortgage Loans or the interest of Certificateholders in the related
Mortgage Loan, or the receipt of notice thereof from the Trustee, the respective
Seller will, with respect to a breach of its representations or warranties, cure
the breach within 60 days or substitute a Replacement Loan for such Mortgage
Loan or repurchase the related Mortgage Loan on the terms set forth above under
"--Assignment of the Mortgage Loans." The proceeds of any such repurchase will
be passed through to Certificateholders. This substitution/repurchase
obligation constitutes the sole remedy available to Certificateholders and the
Trustee for any such breach. See "RISK FACTORS--Limited Obligations" with
respect to the obligation of Metropolitan and Summit to repurchase such Mortgage
Loans if Western or Old Standard, respectively, fail to repurchase their
respective Mortgage Loans.
PAYMENTS ON MORTGAGE LOANS; ACCOUNTS
On or prior to the Closing Date, the Master Servicer will establish an
account (the "Collection Account") with SeaFirst National Bank, which shall be
maintained by the Master Servicer in trust for the benefit of
Certificateholders. Funds credited to the Collection Account may be invested
for the benefit and at the risk of the Master Servicer in Eligible Investments,
as defined in the Pooling Agreement, that are scheduled to mature on or prior to
the business day preceding the next Distribution Date. On or prior to the
business day immediately preceding each Distribution Date, the Master Servicer
shall withdraw from the Collection Account the amount of Available Funds and
shall deposit such Available Funds in an account established and maintained as a
separate trust account with the Trustee on behalf of Certificateholders (the
"Distribution Account").
Under the Pooling Agreement, the Master Servicer will be authorized to make
the following withdrawals from the Collection Account:
(a) as reimbursement for previously unreimbursed Monthly Advances,
the right to withdraw amounts pursuant to this subclause (a) being limited
to amounts received on particular Mortgage Loans (including, without
limitation, for this purpose,
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Insurance Proceeds, Liquidation Proceeds and proceeds from the repurchase
of a Mortgage Loan pursuant to Sections 2.02, 2.03 and 3.13(b) of the
Pooling Agreement) which, in accordance with the Master Servicer's
customary procedures, represent late recoveries of payments of principal
and/or interest with respect to which any such Monthly Advance was made;
(b) to pay as servicing compensation that portion of any amount due
to the Master Servicer pursuant to Section 3.12 of the Pooling Agreement
and to reimburse itself for unreimbursed Servicing Advances, the Master
Servicer's right to reimburse itself pursuant to this clause (b) with
respect to any Mortgage Loan being limited to related payments by
Mortgagors, Liquidation Proceeds, Insurance Proceeds and Repurchase Prices;
(c) to pay to a Seller with respect to each Mortgage Loan or property
acquired in respect thereof that has been purchased pursuant to Section
2.02 or 2.03 of the Pooling Agreement, all amounts received thereon
following such purchase and not taken into account in determining the
related Scheduled Principal Balance or Repurchase Price;
(d) as reimbursement for any unreimbursed Nonrecoverable Advance in
the manner and to the extent provided below or for the payment of taxes as
permitted by Section 3.10 of the Pooling Agreement;
(e) to pay, or reimburse itself for the payment of, the Trustee Fee;
(f) as reimbursement for unreimbursed expenses incurred by and
reimbursable to it or the Depositor pursuant to Section 7.03 of the Pooling
Agreement;
(g) to reverse a deposit of any amount deposited in the Collection
Account that is deposited therein in error (including amounts related to
checks returned due to insufficient funds);
(h) to make payments to the Trustee for deposit into the Distribution
Account of the Available Funds in accordance with Section 3.04(c) of the
Pooling Agreement;
(i) to pay Liquidation Expenses, made or incurred pursuant to Section
3.05 or Section 3.10 of the Pooling Agreement from related Liquidation
Proceeds; and
(j) to clear and terminate the Collection Account at the termination
of the Pooling Agreement.
The Master Servicer shall be entitled to reimburse itself for any Monthly
Advance made in respect of a Mortgage Loan that it determines to be a
Nonrecoverable Advance by withdrawal from the Collection Account of amounts on
deposit therein attributable to the Mortgage Loans on the Business Day preceding
any Determination Date first succeeding the date of such determination. The
Master Servicer's right of reimbursement in respect of a Nonrecoverable Advance
on any such Business Day shall be limited to an amount not exceeding the portion
of
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such Monthly Advance previously paid to Certificateholders (and not theretofore
reimbursed to the Master Servicer).
SERVICING
The Master Servicer will be responsible for diligently servicing and
managing the Mortgage Loans in accordance with the Pooling Agreement and
consistent with the ordinary practices of prudent mortgage lending institutions
or mortgages of the same type as the Mortgage Loans in those jurisdictions where
the related Mortgaged Properties are located. The Master Servicer may enter
into a subservicing agreement with a subservicer to perform servicing functions
for the Master Servicer. The Master Servicer, however, will remain liable for
servicing the Mortgage Loans notwithstanding any subservicing arrangement. A
subservicing agreement will not contain any terms or conditions that are
inconsistent with the Pooling Agreement and any fee payable to a subservicer
shall not be an obligation of the Mortgage Pool.
The Master Servicer is required to maintain a fidelity bond and errors and
omissions policy or their equivalent with respect to officers and employees
which generally provide coverage against losses which may be sustained as a
result of an officer's or employee's misappropriation of funds or certain errors
and omissions. The amount of the coverage will be at least equal to the
coverage required by FNMA or FHLMC (whichever is greater).
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Expense Fees generally will be 0.759% per annum of the Scheduled
Principal Balance of each Mortgage Loan and REO Loan. The Expense Fees consist
of (a) servicing compensation payable to the Master Servicer in respect of its
master servicing activities (the "Master Servicing Fee"), and (b) fees payable
to the Trustee. The Master Servicing Fee will be paid monthly at a rate of
0.75% per annum (the "Master Servicing Fee Rate") of the Scheduled Principal
Balance of each Mortgage Loan and REO Loan as of the first day of the month of
the related Distribution Date (without taking into account any unscheduled
receipts of principal during the preceding calendar month). The Master Servicer
is obligated to pay certain ongoing expenses associated with the Mortgage Pool
and incurred by the Master Servicer in connection with its responsibilities
under the Pooling Agreement for which it is not entitled to reimbursement under
the Pooling Agreement. The amount of the Master Servicing Fee is subject to
adjustment with respect to prepaid Mortgage Loans, as described below under "--
Adjustment to the Master Servicing Fee in Connection with Prepaid Mortgage
Loans." The Master Servicer is also entitled to receive all late payment fees,
prepayment penalties, assumption fees and other similar charges (including
forbearance fees) and all reinvestment income earned on amounts on deposit in
the Collection Account.
ADJUSTMENT TO MASTER SERVICING FEE IN
CONNECTION WITH PREPAID MORTGAGE LOANS
When a Mortgage Loan is prepaid between Due Dates, the borrower is required
to pay interest on the amount prepaid only to the date of prepayment and not
thereafter. Prepayments received during a Due Period will be distributed to
Certificateholders on the Distribution Date
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following such Due Period. Pursuant to the Pooling Agreement, the Master
Servicing Fee for any month will be reduced by an amount with respect to each
such Mortgage Loan sufficient to pass through to the Mortgage Pool on such
Distribution Date an amount equal to 30 days' interest at the Mortgage Rate (net
of the Master Servicing Fee Rate) for each such Mortgage Loan up to a maximum
amount equal to two-thirds of the Master Servicing Fee otherwise payable on such
Distribution Date. Any such shortfalls in interest as a result of prepayments
in excess of two-thirds of the amount of the Master Servicing Fee for a month
will reduce the amount of interest available to be distributed to
Certificateholders from what would have been the case in the absence of such
prepayments. See "DESCRIPTION OF THE CERTIFICATES--Distributions" herein.
ADVANCES
Subject to the following limitations, the Master Servicer will be required
to advance prior to each Distribution Date from its own funds or funds in the
Collection Account that generally do not constitute Available Funds for such
Distribution Date, an amount equal to the aggregate of payments of principal and
interest (at the applicable Mortgage Rate (net of the Master Servicing Fee
Rate)) which were due during the related Due Period and which were delinquent on
the related Determination Date, together with an amount equivalent to interest
on each Mortgaged Property acquired by the Master Servicer through foreclosure,
forfeiture or deed-in-lieu of foreclosure in connection with a defaulted
Mortgage Loan ("REO Property") (any such advance, an "Advance"). With respect
to any Distribution Date, the "Determination Date" is three Business Days prior
to such Distribution Date.
With respect to any Mortgage Loan that is a Balloon Loan, in the event of
default in the Balloon Payment due on the maturity of such Mortgage Loan, the
Master Servicer will continue to advance each month, an amount equal to interest
(subject to the Master Servicer's determination as to recoverability) on such
Mortgage Loan deemed to be due thereon after such default and, at the Master
Servicer's sole option, an amount of principal on the Mortgage Loan equal to the
principal portion of the Monthly Payment due thereon.
Advances are intended to maintain a regular flow of scheduled interest and
principal payments on the Certificates rather than to guarantee or insure
against losses. The Master Servicer is obligated to make Advances with respect
to delinquent payments of principal of or interest on each Mortgage Loan (with
such payments of interest adjusted as described above) to the extent that such
Advances are, in its judgment, reasonably recoverable from future payments and
collections or insurance payments or proceeds from liquidation of the related
Mortgage Loan. If the Master Servicer determines on any Determination Date to
make an Advance, such Advance will be included with the distribution to
Certificateholders on the related Distribution Date. Any failure by the Master
Servicer to make an Advance as required under the Pooling Agreement with respect
to the Certificates will constitute an Event of Default thereunder, in which
case the Trustee or the successor servicer will be obligated to make any such
Advance, in accordance with the terms of the Pooling Agreement.
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DUE-ON-SALE PROVISIONS AND ESCROW ACCOUNTS
Under the Pooling Agreement, the Master Servicer may enforce "due-on-sale"
clauses with respect to the Mortgage Loans containing such clauses unless
(i) such enforcement is not permitted by applicable law or (ii) the Master
Servicer, in its discretion, waives its rights to enforce such provision and
permits the purchaser of the Mortgage Property to assume the Mortgage Loan.
Where an assumption of, or substitution of liability with respect to, a Mortgage
Loan is required by law, the Master Servicer may permit the assumption of a
Mortgage Loan, pursuant to which the Mortgagor would remain liable on the
Mortgage Note, or a substitution of liability with respect to such Mortgage
Loan, pursuant to which the new Mortgagor would be substituted for the original
Mortgagor as being liable on the Mortgage Note. Any fees collected for entering
into an assumption or substitution of liability agreement may be retained by the
Master Servicer as additional servicing compensation. In connection with any
assumption or substitution, the Mortgage Rate borne by the related Mortgage Note
may not be changed.
CERTAIN MATTERS REGARDING THE
DEPOSITOR, THE SELLERS AND THE SERVICER
The Pooling Agreement provides that the Master Servicer may not resign from
its obligations and duties as Master Servicer thereunder, except upon
determination that its duties thereunder are no longer permissible under
applicable law. No such resignation will become effective until the Trustee or
a successor has assumed the Master Servicer's obligations and duties under such
Pooling Agreement.
The Pooling Agreement also provides that neither the Depositor, the Master
Servicer nor the Sellers, nor any directors, officers, employees or agents of
any of them (collectively, the "Indemnified Parties") will be under any
liability to the Mortgage Pool or Certificateholders or the Trustee, any
subservicer or others for any action taken (or not taken) by any Indemnified
Party, any subservicer or the Trustee in good faith pursuant to the Pooling
Agreement, or for errors in judgment; provided, however, that neither the
Depositor, the Sellers, the Master Servicer nor any such person will be
protected against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or gross negligence in the performance of duties
or by reason of reckless disregard of obligations and duties thereunder. The
Pooling Agreement further provides that each Indemnified Party is entitled to
indemnification by the Mortgage Pool and will be held harmless against any loss,
liability or expense incurred in connection with any legal action relating to
the Pooling Agreement or the Certificates, other than any loss, liability or
expense related to any specific Mortgage Loan or Mortgage Loans (except any such
loss, liability or expense otherwise reimbursable pursuant to the Pooling
Agreement) and any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or gross negligence in the performance of such
Indemnified Party's duties thereunder or by reason of reckless disregard by such
Indemnified Party of its obligations and duties thereunder. In addition, the
Pooling Agreement provides that neither the Depositor, the Sellers nor the
Master Servicer is under any obligation to appear in, prosecute or defend any
legal action which is not incident to, in the case of the Depositor, the Sellers
or the Master Servicer, its duties under the Pooling Agreement and which in its
opinion may involve it in any expense or liability. Each of the Depositor, the
Sellers and the Master Servicer may, however, in its discretion, undertake
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any such action which it may deem necessary or desirable with respect to the
Pooling Agreement and the rights and duties of the parties thereto and the
interests of Certificateholders thereunder. In such event, the legal expenses
and costs of such action and any liability resulting therefrom will be expenses,
costs and liabilities of the Mortgage Pool and the Depositor, the Sellers and
the Master Servicer will be entitled to be reimbursed therefor out of the
Collection Account.
EVENTS OF DEFAULT
Events of Default by the Master Servicer under the Pooling Agreement
consist of (a) any failure by the Master Servicer to make or cause to be made
any required payment pursuant to the terms of the Pooling Agreement (other than
an advance required thereunder) which continues unremedied for five days;
(b) any failure by the Master Servicer duly to observe or perform in any
material respects any other of its covenants or agreements in the Certificates
or in the Pooling Agreement which continues unremedied for 30 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 holders of Certificates evidencing
not less than 25% of the aggregate voting rights of the Certificates; and
(c) certain events of insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings and certain actions by the Master
Servicer indicating insolvency, reorganization or inability to pay its
obligations.
RIGHTS UPON EVENT OF DEFAULT
As long as an Event of Default under the Pooling Agreement remains
unremedied, the Trustee or holders of Certificates evidencing not less than 51%
of the aggregate voting rights of the Certificates may terminate all of the
rights and obligations of the Master Servicer under the Pooling Agreement,
whereupon the Trustee will succeed to all the responsibilities, duties and
liabilities of the Master Servicer under the Pooling Agreement and will be
entitled to similar compensation arrangements and limitations on liability. 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 housing and
home finance restitution with a net worth of at least $10,000,000 to act as
successor Servicer under the Pooling Agreement. Pending any such appointment,
the Trustee is obligated to act in such capacity unless it is prohibited by law
from so acting. The Trustee and such successor may agree upon the servicing
compensation to be paid, which in no event may be greater than the compensation
to the Master Servicer under such Pooling Agreement.
ENFORCEMENT
No Certificateholder will have any right under the Pooling Agreement to
institute any proceeding with respect to the Pooling Agreement unless the
Certificateholder previously has given to the Trustee written notice of default
and unless holders of Certificates evidencing not less than 25% of the aggregate
voting rights of the Certificates have made written requests to the Trustee to
institute such proceeding in its own name as Trustee thereunder and have offered
and provided to the Trustee indemnity and the Trustee for 60 days has neglected
or refused to institute any such proceeding. However, the Trustee is under no
obligation to exercise any of the trusts or powers vested in it by the Pooling
Agreement or to make any investigation of
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matters arising thereunder or to institute, conduct or defend any litigation
thereunder or in relation thereto at the request, order or direction of any
Certificateholders, unless such Certificateholders have offered and provided to
the Trustee reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby.
AMENDMENT
The Pooling Agreement may be amended by the Depositor, the Sellers, the
Master Servicer and the Trustee, without notice to or the consent of any
Certificateholder, (a) to cure any ambiguity, (b) to correct a defective
provision or correct or supplement any provision therein that may be
inconsistent with any other provision therein, (c) to make any other provisions
with respect to matters or questions arising under the Pooling Agreement which
are not inconsistent with the provisions of the Pooling Agreement, or (d) to
comply with any requirements necessary to maintain the status of the Mortgage
Pool as a REMIC; provided, however, that no such amendments (except those
pursuant to clause (d)) will adversely affect in any material respect the
interests of any Certificateholder. Any such amendment, except pursuant to
clause (d) of the preceding sentence, should be deemed not to adversely affect
in any material respect the interests of any Certificateholders if the Trustee
receives written confirmation from the Rating Agency rating such Certificates
that such amendment will not cause such Rating Agency to reduce the then current
rating thereof. The Pooling Agreement may also be amended by the Depositor, the
Sellers, the Master Servicer and the Trustee with the consent of holders of
Certificates evidencing not less than 66-2/3% of the aggregate voting rights 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 Agreement or of modifying in any manner the rights of holders of
Certificates; provided, however, that no such amendment may (i) reduce in any
manner the amount of, or delay the timing of, collections of payments received
on Mortgage Loans which are required to be distributed in respect to any such
Certificate without the consent of the Holder of such Certificate or (ii) reduce
the aforesaid percentages of Certificates the holders of which are required to
consent to any such amendment without the consent of the holders of all
Certificates then outstanding,
LIST OF CERTIFICATEHOLDERS
Upon written request of the Trustee, the Certificate Registrar will provide
to the Trustee within 15 days after the receipt of such request a list of the
names and addresses of all Certificateholders of record as of the most recent
Record Date for payment of distributions to Certificateholders. Upon written
request of three or more Certificateholders of record of the Certificates, for
purposes of communicating with other Certificateholders with respect to their
rights under the Pooling Agreement, the Trustee will afford such
Certificateholders access during business hours to the most recent list of
Certificateholders held by the Trustee within five Business Days of the request.
TERMINATION; OPTIONAL TERMINATION
The Master Servicer will have the option to purchase all remaining Mortgage
Loans and other assets in the Mortgage Pool, thereby effecting early retirement
of the Certificates and
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causing the termination of the Mortgage Pool's status as a REMIC, but such
option will not be exercisable until such time as the Mortgage Pool Principal
Balance as of the Distribution Date on which the purchase proceeds are to be
distributed to Certificateholders is less than 10% of the Cutoff Date Pool
Principal Balance. Distributions in respect of any such optional termination
will be paid to Certificateholders in order of their priority of distribution as
described herein under "DESCRIPTION OF THE CERTIFICATES--Priority of
Distributions Among Classes of Certificates." The proceeds from such a
distribution may not be sufficient to distribute the full amount to which each
Class is entitled if the purchase price is based in part on the fair market
value of the Mortgaged Property acquired upon foreclosure of a Mortgage Loan and
such fair market value is less than the Scheduled Principal Balance of the
related Mortgage Loan. In no event will the trust created by the Pooling
Agreement continue beyond the later of (a) the optional purchase described
above, (b) the expiration of 21 years from the death of the survivor of the
person named in the Pooling Agreement and (c) the Final Distribution Date
specified in the Pooling Agreement. The termination of the Mortgage Pool will
be effected in a manner consistent with applicable federal income tax
regulations and the status of the Mortgage Pool as a REMIC.
MODIFICATION OF MORTGAGE LOANS
The Pooling Agreement permits the Master Servicer, within certain
limitations set forth therein, to agree to any modification, waiver, forbearance
or amendment of any term of any Mortgage Loan without the consent of the Trustee
or any Certificateholder. Any such modification, waiver, forbearance or
amendment is permissible only if (a) such Mortgage Loan is 90 days or more past
due or (b) the Master Servicer delivers to the Trustee an opinion of counsel to
the effect that such modification, waiver, forbearance or amendment would not
affect the Mortgage Pool's status as a REMIC, and, in each case, such
modification, waiver, forbearance or amendment is likely to produce a greater
recovery with respect to such Mortgage Loan than would liquidation. In
addition, with respect to each Balloon Loan, the Master Servicer may extend the
date on which any Balloon Payment is due by up to six months, (i) if the
Mortgagor defaults on its obligation to pay the Balloon Payment when due, (ii)
if, within 90 days of the date on which the Balloon Payment is due, the Master
Servicer has received notice that the Mortgagor under such Balloon Loan intends
to default on such Balloon Payment or (iii) if the Master Servicer delivers to
the Trustee an opinion of counsel to the effect that such modification, waiver,
forbearance or amendment would not affect the Mortgage Pool's status as a REMIC,
and, in each case, such modification, waiver, forbearance or amendment is likely
to produce a greater recovery with respect to such Balloon Loan than would
liquidation. Additionally, the related Mortgagor shall be required to continue
to make monthly payments of principal and/or interest thereon in an amount at
least equal to the amount of the Monthly Payment due on the Scheduled Due Date
immediately preceding the rescheduled maturity date of the Balloon Loan. The
Master Servicer shall notify the Trustee in writing of any modification, waiver,
forbearance or amendment of any term of any Mortgage Loan and the date thereof
and shall deliver to the Trustee an original counterpart of the agreement
relating to such modification, waiver, forbearance or amendment within ten
Business Days of the execution thereof. In the event of any such arrangement,
the Master Servicer's obligation to make Advances on the related Mortgage Loan
shall continue during the scheduled period.
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OPTIONAL PURCHASE OF DEFAULTED MORTGAGE LOANS
Subject to certain conditions specified in the Pooling Agreement, the
Master Servicer has the option, but is not obligated, (a) to purchase from the
Mortgage Pool any Mortgage Loan 90 days or more delinquent at the Repurchase
Price for such Mortgage Loan or (b) to offer to sell any such Mortgage Loan in a
commercially reasonable manner if the Master Servicer determines that such a
sale would produce a greater recovery on a present value basis than would
liquidation of the related Mortgaged Property.
HAZARD AND OTHER INSURANCE
The Master Servicer will cause to be maintained with respect to each
Mortgage Loan a hazard insurance policy providing coverage against loss by fire
and other hazards as is required under the related Mortgage or Land Sale
Contract. If the Mortgage or Land Sale Contract permits the holder thereof to
dictate the amount of hazard insurance to be in place with respect thereto, then
the Master Servicer will assure that such amount of insurance would be
consistent with the ordinary practices of prudent institutional mortgage lenders
and loan servicers servicing mortgage loans comparable to such Mortgage Loan.
Notwithstanding the foregoing, the Pooling Agreement will require that the
Master Servicer cause to be maintained an amount of hazard insurance in an
amount equal to the lesser of the amount of the replacement value of the
improvements on the related Mortgaged Property or the Scheduled Principal
Balance of such Mortgage Loan subject to any limitations imposed by applicable
law. With respect to any Mortgage Loan with respect to which the related
Mortgaged Property has been acquired upon forfeiture, foreclosure or
deed-in-lieu of foreclosure, the Master Servicer shall cause to be maintained
hazard insurance coverage at least equal to the lesser of the amount of the
replacement value of the improvements on the related Mortgaged Property or the
Scheduled Principal Balance of the related Mortgage Loan at the time of such
acquisition.
Generally, unless otherwise specifically required by any Mortgage Loan, no
other insurance (such as rental or business interruption insurance) is required
to be maintained with respect to any Mortgaged Property.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Pooling Agreement among the
Depositor, the Sellers, the Trustee and the Master Servicer. The following
summaries describe certain provisions that appear in the Pooling Agreement. The
summaries do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, all of the provisions of the Pooling Agreement.
References herein to a Trustee or the Master Servicer include, unless otherwise
specified, any agents acting on behalf of such Trustee or any subcontractor of
the Master Servicer, any of which agents or subcontractors may be one of their
affiliates.
The Certificates evidence the entire ownership interest in the Mortgage
Pool of assets consisting primarily of the Mortgage Loans. The Certificates
will evidence the specified
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beneficial ownership interests in the Mortgage Pool created pursuant to the
Pooling Agreement and will not be entitled to payments in respect of the assets
included in any other Mortgage Pool established by the Depositor in any other
pooling agreement. The transfer of the Certificates may be registered, and the
Certificates may be exchanged, at the office or agency of the Trustee without
the payment of any service charge other than any tax or governmental charge
payable in connection with such registration of transfer or exchange. The
Certificates do not represent obligations of the Depositor or any affiliate of
the Depositor. The Mortgage Loans will not be insured or guaranteed by any
governmental entity or other person.
PRIORITY OF DISTRIBUTIONS
AMONG CLASSES OF CERTIFICATES
As more fully described herein, distributions will be made on the
Certificates on each Distribution Date from Available Funds in the following
order of priority: (a) to interest on each Class of Senior Certificates: (b) to
principal of the Classes of Senior Certificates then entitled to receive
distributions of principal, in the order and subject to the priorities set forth
herein under "DESCRIPTION OF THE CERTIFICATES--Principal," up to the maximum
amount of principal to be distributed on such Classes on such Distribution Date;
(c) to interest and then to principal of the Class B-1 and Class B-2
Certificates, in that order, up to the maximum amount of interest and principal
to be distributed on each such Class on such Distribution Date: (d) to interest
on the Class B-3 Certificates; (e) to interest on the Class B-4 Certificates:
(f) to interest on the Class Z/IO Component of the Class R Certificates (except
such interest will be added to the Component Balance thereof up to and including
the Accretion Termination Date); (g) after the Offered Certificates are paid in
full, sequentially, to principal of the Class B-3, Class B-4 and the Class R
Certificates, in that order, up to the maximum amount of principal to be
distributed on each such Class on such Distribution Date; and (h) to the Class R
Certificates, any remaining Available Funds.
DISTRIBUTIONS
Distributions of principal and interest to holders of the Offered
Certificates will be made on each Distribution Date to the extent of Available
Funds therefor as described above under "--Priority of Distributions Among
Classes of Certificates" to holders of record of such Offered Certificates on
the last day of the preceding month (the "Record Date"), except that the final
distribution in respect of any Class of Offered Certificates will be made only
upon presentation and surrender of such Certificates at the office or agency
appointed by the Trustee for that purpose in New York, New York.
Distributions on each Distribution Date will be made by check mailed to the
address of the person entitled thereto as it appears on the applicable
certificate register or, in the case of a Certificateholder who holds a Class of
Certificates with aggregate denominations of $1,000,000 or more and who has so
notified the Trustee in writing in accordance with the Pooling 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
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made only upon presentment and surrender of such Certificates at the Corporate
Trust Office of the Trustee.
The aggregate amount of funds available in the Distribution Account on a
Distribution Date for distribution on the Certificates is equal to "Available
Funds." "Available Funds" with respect to any Distribution Date is the sum of
(a) all scheduled installments of interest and principal collected in respect of
each Mortgage Loan due on the Scheduled Due Date in the month in which such
Distribution Date occurs and received as of the close of business on the
immediately preceding Determination Date, together with any Advances in respect
thereof, (b) the amount of any Advances made on the preceding Distribution
Account Deposit Date, (c) all proceeds of any insurance policies with respect to
the Mortgage Loans, to the extent such proceeds are not applied to the
restoration of the related Mortgaged Property or released to the Mortgagor in
accordance with the Master Servicer's normal servicing procedures (collectively,
"Insurance Proceeds") and all other cash amounts received and retained in
connection with the liquidation of defaulted Mortgage Loans, by foreclosure,
forfeiture or otherwise ("Liquidation Proceeds") during the related Due Period
(in each case, net of unreimbursed expenses incurred in connection with a
liquidation, forfeiture or foreclosure and unreimbursed Advances, if any),
(d) all partial or full prepayments on Mortgage Loans received during the
related Due Period and (e) the amount required to be paid in respect of a
Mortgage Loan that became required to be repurchased or any Substitution
Adjustment Amounts in connection with any substitution of a Mortgage Loan, in
either case during the related Due Period, reduced by amounts in reimbursement
for Advances previously made and other amounts as to which the Master Servicer
is entitled to be reimbursed from the Collection Account pursuant to the Pooling
Agreement.
The Trustee will forward with each distribution on a Distribution Date to
each Offered Certificateholder and the Master Servicer a statement or statements
setting forth, among other things, (a) the amount of such distribution allocable
to principal and (b) the amount of such distribution allocable to interest.
Such amounts will be expressed as a dollar amount per $1,000 of Class
Certificate Balance. See "--Reports to Certificateholders" herein for a
detailed description of the information to be included in such statements.
INTEREST. On each Distribution Date, each Class of Offered Certificates,
to the extent of Available Funds on such Distribution Date applied in the order
described above under "--Priority of Distributions Among Classes of
Certificates," will be entitled to receive an amount allocable to interest
equal to the sum of (a) one month's interest at the applicable Pass-Through Rate
on the respective Class Certificate Balance and (b) the sum of the amounts, if
any, by which the amount described in clause (a) above on each prior
Distribution Date exceeded the amount actually distributed as interest on such
prior Distribution Dates and not subsequently distributed ("Unpaid Interest
Amounts").
The interest entitlement for each Class of Certificates or Component
thereof will be reduced by the amount of "Net Interest Shortfalls" for such
Distribution Date. With respect to any Distribution Date, the "Net Interest
Shortfall" is equal to the sum of (a) the amount of interest which would
otherwise have been received with respect to any Mortgage Loan that was the
subject of (i) a Relief Act Reduction or (ii) after the coverage provided by the
Subordinate Certificates is exhausted for such type of loss, a Special Hazard
Loss, Fraud Loss or a
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Bankruptcy Loss and (b) any Net Prepayment Interest Shortfalls. Net Interest
Shortfalls on any Distribution Date will be allocated pro rata among all Classes
of Certificates or Component thereof entitled to receive distributions of
interest on such Distribution Date, based on the amount of interest each such
Class of Certificates or Component would otherwise be entitled to receive or
accrete on such Distribution Date, before taking into account any reduction in
such amounts resulting from such Net Interest Shortfalls. A "Relief Act
Reduction" is a reduction in the amount of monthly interest payment on Mortgage
Loan pursuant to the Soldiers' and Sailors' Civil Relief Act of 1940. See
"Certain Legal Aspects of Mortgage Loans--Soldiers' and Sailors' Civil Relief
Act" herein. With respect to any Distribution Date, "Net Prepayment Interest
Shortfall" is the amount by which the aggregate of Prepayment Interest
Shortfalls experienced by the Mortgage Loans during the related Due Period
exceeds two-thirds of the Master Servicing Fee for such period. A "Prepayment
Interest Shortfall" is the amount by which interest received in connection with
a prepayment of principal on a Mortgage Loan is less than one month's interest
at the related Mortgage Rate (net of the related Master Servicing Fee) on the
Scheduled Principal Balance of the related Mortgage Loan that is prepaid.
Accrued interest to be distributed on any Distribution Date will be
calculated, in the case of each Class of Offered Certificates, on the basis of
the related Class Certificate Balance immediately prior to such Distribution
Date. Interest on such Classes will be calculated and payable on the basis of a
360-day year divided into twelve 30-day months.
In the event that, on a particular Distribution Date, Available Funds on
such Distribution Date applied in the order described above under "--Priority of
Distributions Among Classes of Certificates," are not sufficient to make a full
distribution of the interest entitlement to holders of the Offered Certificates,
interest will be distributed on each Class of Offered Certificates of equal
priority in proportion to the amount of interest each such Class would otherwise
have been entitled to receive in the absence of such shortfall. The amount of
any resulting shortfall will be carried forward and added to the amount holders
of each such Class of Offered Certificates will be entitled to receive on the
next Distribution Date. Such a shortfall could occur, for example, if losses
realized on the Mortgage Loans were exceptionally high or were concentrated in a
particular month. Any such amount so carried forward will not bear interest.
ACCRETION AMOUNT. On each Distribution Date up to and including the
Accretion Termination Date, distributions of interest allocable to the
Class Z/IO Component (the "Accretion Amount") will be added to the Component
Balance thereof and the amount of such interest will be distributed on such
Distribution Date as principal of one or more Classes of Offered Certificates in
the following order of priority as set forth below:
(a) sequentially, to the Class A-1, Class A-2 and Class A-3
Certificates, in that order, until the respective Class Certificate
Balances have been reduced to zero; and
(b) concurrently, to the Class A-4, Class B-1 and Class B-2
Certificates, pro rata, based on the respective Class Certificate Balances
on such Distribution Date.
For a description of the amount of interest the Class Z/IO Component is
entitled to receive on any Distribution Date, see "--Residual Certificates."
Distributions of interest
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allocable to the Class Z/IO Component will cease to accrete on the Component
Balance thereof and be payable as a current distribution of interest thereon on
each Distribution Date after the Class Certificate Balance of each Class of
Offered Certificates has been reduced to zero (the "Accretion Termination
Date").
PRINCIPAL DISTRIBUTIONS. On each Distribution Date prior to the Senior
Credit Support Depletion Date, to the extent of Available Funds remaining after
distribution of interest on each Class of Senior Certificates, the Senior
Principal Distribution Amount and the Class A-4 Principal Distribution Amount
will be distributed concurrently as described below, any shortfall being
allocated pro rata based on such amounts in the absence of any shortfall.
However, on each Distribution Date on and after the Senior Credit Support
Depletion Date, Available Funds remaining after the distribution of interest on
the Senior Certificates will be distributed, concurrently, as principal of all
of the Classes of Senior Certificates then outstanding, pro rata, in accordance
with their respective Class Certificate Balances immediately prior to such
Distribution Date. The "Senior Credit Support Depletion Date" is the date on
which the Class Certificate Balance of each Class of Subordinate Certificates
has been reduced to zero.
SENIOR PRINCIPAL DISTRIBUTION AMOUNT. On each Distribution Date prior to
the Senior Credit Support Depletion Date, an amount up to the amount of the
Senior Principal Distribution Amount for such Distribution Date will be
distributed as principal, sequentially, to the Class A-1, Class A-2 and
Class A-3 Certificates, in that order, until the Class Certificate Balance
thereof has been reduced to zero.
The Senior Principal Distribution Amount for any Distribution Date will
equal the sum of (a) the Senior Percentage of (i) the principal portion of the
Scheduled Payment due on each Mortgage Loan on the Scheduled Due Date in the
month of such Distribution Date, (ii) the principal portion of the purchase
price of each Mortgage Loan that was repurchased by the Sellers or another
person pursuant to the Pooling Agreement with respect to such Distribution Date,
(iii) the Substitution Adjustment Amount in connection with any Deleted Loan
received with respect to such Distribution Date and (iv) any Insurance Proceeds
or Liquidation Proceeds allocable to recoveries of principal of Mortgage Loans
that are not yet Liquidated Mortgage Loans received during the related Due
Period, (b) with respect to each Mortgage Loan that became a Liquidated Mortgage
Loan during the related Due Period either (i) the Senior Prepayment Percentage,
if the Senior Prepayment Percentage is less than 100%, or, if the Senior
Prepayment Percentage equals 100%, the percentage obtained by dividing the
Senior Percentage by the sum of the Senior Percentage and the Class A-4
Percentage or (ii) if an Excess Loss was sustained with respect to such
Liquidated Mortgage Loan during such Due Period, the Senior Percentage, of the
Liquidation Proceeds allocable to principal received with respect to such
Mortgage Loan and (c) the Senior Prepayment Percentage of all partial and full
principal prepayments by borrowers (including Balloon Payments) received during
the related Due Period for such Distribution Date; provided, however, that if a
Bankruptcy Loss that is an Excess Loss is sustained with respect to a Mortgage
Loan that is not a Liquidated Mortgage Loan, the Senior Principal Distribution
Amount will be reduced on the related Distribution Date by the Senior Percentage
of the principal portion of such Bankruptcy Loss.
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"Scheduled Principal Balance" of a Mortgage Loan as of any Scheduled Due
Date is the unpaid principal balance of such Mortgage Loan as specified in the
amortization schedule (before any adjustment to such schedule by reason of
moratorium or similar waiver or grace period) for such Scheduled Due Date, after
giving effect to any previous partial principal payments and to the payment of
principal due on such Scheduled Due Date and irrespective of any delinquency in
payment by the Mortgagor. The "Pool Principal Balance" will equal the aggregate
of the Scheduled Principal Balances of all Mortgage Loans. With respect to any
Distribution Date, the "Due Date" for a Mortgage Loan is the day of the calendar
month in the related Due Period on which the Scheduled Payment with respect
thereto is due although the amortization schedules prepared for each Mortgage
Loan assumes that each related Scheduled Payment is due on the last day of the
Due Period in which such Due Date occurs (each, a "Scheduled Due Date"). With
respect to any Distribution Date, the "Due Period" is the period commencing on
the second day of the preceding calendar month and ending on the first day of
the calendar month of such Distribution Date.
The "Senior Percentage" for any Distribution Date is the percentage
equivalent of a fraction the numerator of which is the aggregate of the Class
Certificate Balances of each Class of Senior Certificates (other than the
Class A-4 Certificates) immediately prior to such date and the denominator of
which is the aggregate of the Class Certificate Balances of all Classes of
Certificates (other than the Class B-3, Class B-4 and Class R Certificates)
immediately prior to such date. The "Subordinate Percentage" for any
Distribution Date will be calculated as the difference between 100% and the sum
of the Senior Percentage and the Class A-4 Percentage for such Distribution
Date.
The Senior Prepayment Percentage for any Distribution Date occurring during
the five years beginning on the first Distribution Date will equal 100%.
Thereafter, the Senior Prepayment Percentage will, except as described below, be
subject to gradual reduction as described in the following paragraph. This
disproportionate allocation of certain unscheduled payments in respect of
principal (including Balloon Payments) will have the effect of accelerating the
amortization of the Senior Certificates (other than the Class A-4 Certificates)
while, in the absence of Realized Losses, increasing the interest in the Pool
Principal Balance evidenced by the Class A-4 Certificates and the Subordinate
Certificates. Increasing the respective interests of the Class A-4 Certificates
and the Subordinate Certificates tentative to that of the Senior Certificates is
intended to preserve the availability of the subordination provided by the
Subordinate Certificates.
The Senior Prepayment Percentage for any Distribution Date occurring on or
after the fifth anniversary of the first Distribution Date will be as follows:
for any Distribution Date in the first year thereafter, the Senior Percentage
plus 70% of the sum of the Class A-4 Percentage and the Subordinate Percentage
for such Distribution Date; for any Distribution Date in the second year
thereafter, the Senior Percentage plus 60% of the sum of the Class A-4
Percentage and the Subordinate Percentage for such Distribution Date; for any
Distribution Date in the third year thereafter, the Senior Percentage plus 40%
of the sum of the Class A-4 Percentage and the Subordinate Percentage for such
Distribution Date; for any Distribution Date in the fourth year thereafter, the
Senior Percentage plus 20% of the sum of the Class A-4 Percentage and the
Subordinate Percentage for such Distribution Date; and for any Distribution Date
thereafter, the
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Senior Percentage for such Distribution Date (unless on any of the foregoing
Distribution Dates the Senior Percentage exceeds the initial Senior Percentage,
in which case the Senior Prepayment Percentage for such Distribution Date will
once again equal 100%). Notwithstanding the foregoing, no decrease in the
Senior Prepayment Percentage will occur if as of the first Distribution Date as
to which any such decrease applies (a) the outstanding principal balance of all
Mortgage Loans delinquent 60 days or more, including Mortgage Loans in
foreclosure and REO (averaged over the preceding six month period), as a
percentage of the aggregate principal balance of the Subordinate Certificates
(averaged over the preceding six month period), is equal to or greater than 50%
or (b) cumulative Realized Losses with respect to the Mortgage Loans exceed
(i) with respect to the Distribution Date on the fifth anniversary of the first
Distribution Date, 30% of the aggregate of the Class Certificate Balances of the
Subordinate Certificates as of the Closing Date (the "Original Subordinate
Principal Balance"), (ii) with respect to the Distribution Date on the sixth
anniversary of the first Distribution Date, 35% of the Original Subordinate
Principal Balance, (iii) with respect to the Distribution Date on the seventh
anniversary of the first Distribution Date, 40% of the Original Subordinate
Principal Balance, (iv) with respect to the Distribution Date on the eighth
anniversary of the first Distribution Date, 45% of the Original Subordinate
Principal Balance, and (v) with respect to the Distribution Date on the ninth
anniversary of the first Distribution Date, 50% of the Original Subordinate
Principal Balance.
The "Combined Prepayment Percentage" as of any Distribution Date will be
calculated as the difference between 100% and the Senior Prepayment Percentage
for such date. The "Class A-4 Prepayment Percentage" as of any Distribution
Date will be calculated as the product of (a) a fraction, expressed as a
percentage, the numerator of which is the Class Certificate Balance of the
Class A-4 Certificates immediately prior to such Distribution Date and the
denominator of which is the aggregate of the Class Certificate Balances of the
Class A-4 Certificates and the Subordinate Certificates (other than the
Class B-3, Class B-4 and Class R Certificates) immediately prior to such
Distribution Date and (b) the Combined Prepayment Percentage. The "Subordinate
Prepayment Percentage" as of any Distribution Date will be calculated as the
difference between the Combined Prepayment Percentage and the Class A-4
Prepayment Percentage for such date.
If on any Distribution Date the allocation to any Class of Senior
Certificates (other than the Class A-4 Certificates) then entitled to
distributions of full and partial principal prepayments and other amounts in the
percentage required above would reduce the outstanding Class Certificate Balance
of such Class below zero, the distribution to such Class of Certificates of the
Senior Prepayment Percentage of such amounts for such Distribution Date will be
limited to the percentage necessary to reduce the related Class Certificate
Balance to zero.
CLASS A-4 PRINCIPAL DISTRIBUTION AMOUNT. On each Distribution Date prior
to the Senior Credit Support Depletion Date, to the extent of funds available
therefor, holders of the Class A-4 Certificates will be entitled to receive a
principal distribution up to the amount of the Class A-4 Principal Distribution
Amount for such Distribution Date.
The Class A-4 Principal Distribution Amount for any Distribution Date will
equal the sum of (a) the Class A-4 Percentage of (i) the principal portion of
the Scheduled Payment due
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on each Mortgage Loan on the Scheduled Due Date in the month of such
Distribution Date, (ii) the principal portion of the purchase price of each
Mortgage Loan that was repurchased by the Sellers or another person pursuant to
the Pooling Agreement with respect to such Distribution Date, (iii) the
Substitution Adjustment Amount in connection with any Deleted Loan received with
respect to such Distribution Date and (iv) any Insurance Proceeds or Liquidation
Proceeds allocable to recoveries of principal of Mortgage Loans that are not yet
Liquidated Mortgage Loans received during the related Due Period, (b) with
respect to each Mortgage Loan that became a Liquidated Mortgage Loan during the
calendar month preceding the month of such Distribution Date, either (i) the
Class A-4 Prepayment Percentage, if the Class A-4 Prepayment Percentage is
greater than 0%, or, if the Class A-4 Prepayment Percentage equals 0%, the
percentage obtained by dividing the Class A-4 Percentage by the sum of the
Senior Percentage and the Class A-4 Percentage or (ii) if any Excess Loss was
sustained with respect to such Liquidated Mortgage Loan during such Due Period,
the Class A-4 Percentage, of the Liquidation Proceeds allocable to principal
received with respect to such Mortgage Loan, and (c) the Class A-4 Prepayment
Percentage of all partial and full principal prepayments by borrowers (including
Balloon Payments) received during the related Due Period; provided, however,
that if a Bankruptcy Loss that is an Excess Loss is sustained with respect to a
Mortgage Loan that is not a Liquidated Mortgage Loan, the Class A-4 Principal
Distribution Amount will be reduced on the related Distribution Date by the
Class A-4 Percentage of the principal portion of such Bankruptcy Loss.
The "Class A-4 Percentage" for any Distribution Date is the percentage
equivalent of a fraction the numerator of which is the Class Certificate Balance
of the Class A-4 Certificates immediately prior to such date and the denominator
of which is the aggregate of the Class Certificate Balances of all Classes of
Certificates (other than the Class B-3, Class B-4 and Class R Certificate)
immediately prior to such Distribution Date.
If on any Distribution Date the allocation to the Class A-4 Certificates
would reduce the outstanding Class Certificate Balance of the Class A-4
Certificates below zero, the distribution to the Class A-4 Certificates of the
Class A-4 Prepayment Percentage of such amounts for such Distribution Date will
be limited to the percentage necessary to reduce the Class Certificate Balance
to zero.
SUBORDINATE PRINCIPAL DISTRIBUTION AMOUNT. On each Distribution Date, to
the extent of Available Funds therefor, the Subordinate Principal Distribution
Amount for such Distribution Date will be distributed as principal of the
Classes of Subordinate Certificates, other than the Class B-3, Class B-4 and
Class R Certificates. Each Class of Subordinate Certificates (other than the
Class B-3, Class B-4 and Class R Certificates) will be entitled to receive its
pro rata share of the Subordinate Principal Distribution Amount (based on its
respective Class Certificate Balance), in each case to the extent of the amount
available from Available Funds for distribution of principal on such Class.
Distributions of principal of the Subordinate Certificates (other than the
Class B-3, Class B-4 and Class R Certificates) will be made on each Distribution
Date sequentially first to the Class B-1 Certificates and then to the Class B-2
Certificates, until each such Class has received its respective pro rata share
for such Distribution Date. The Class B-3, Class B-4 and Class R Certificates
are not entitled to receive distributions of principal until the Offered
Certificates have been retired.
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The Subordinate Principal Distribution Amount for any Distribution Date
will equal the sum of (a) the Subordinate Percentage of (i) the principal
portion of the Scheduled Payment due on each Mortgage Loan on the Scheduled Due
Date in the month of such Distribution Date, (ii) the principal portion of the
purchase price of each Mortgage Loan that was repurchased by the Sellers or
another person pursuant to the Pooling Agreement with respect to such
Distribution Date, (iii) the Substitution Adjustment Amount in connection with
any Deleted Loan received with respect to such Distribution Date and (iv) any
Insurance Proceeds or Liquidation Proceeds allocable to recoveries of principal
of Mortgage Loans that are not yet Liquidated Mortgage Loans received during the
related Due Period, (b) with respect to each Mortgage Loan that became a
Liquidated Mortgage Loan during the related Due Period, Liquidation Proceeds
allocable to principal received with respect to such Mortgage Loan, after
application of amounts pursuant to clause (b) of the definition of Senior
Principal Distribution Amount and pursuant to clause (b) of the definition of
the Class A-4 Principal Distribution Amount, up to the Subordinate Percentage of
the Scheduled Principal Balance of such Mortgage Loan and (c) the Subordinate
Prepayment Percentage of all partial and full principal prepayments by borrowers
(including Balloon Payments) received during the related Due Period or such
Distribution Date.
CLASS B-3, CLASS B-4 AND CLASS R CERTIFICATES PRINCIPAL DISTRIBUTIONS. On
each Distribution Date after the Offered Certificates are paid in full, all
Available Funds, as calculated in the Pooling Agreement, remaining after the
distribution of interest to the Class B-3, Class B-4 Certificates and Class R
Certificates will be distributed sequentially to the Class B-3, Class B-4 and
Class R Certificates, in that order, as principal until the respective Class
Certificate Balance thereof has been reduced to zero.
RESIDUAL CERTIFICATES
Solely for purposes of calculating distributions, the Residual Certificates
will be made up of two components (each, a "Component") having the designations,
initial Component Balances and entitlements set forth below:
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Initial
Designation Component Balance Pass-Through Rate
----------- ----------------- -----------------
Class PO $_________ (1)
Class Z/IO (2) (3)
---------------
(1) The Class PO Component will be a principal only component and will not
bear interest.
(2) The initial Component Balance of the Class Z/IO Component will be zero.
However, up to and including the Accretion Termination Date, distributions
of interest allocable to the Class Z/IO Component will be added to the
Component Balance thereof. On each Distribution Date after the Accretion
Termination Date, distributions of interest allocable to the Class Z/IO
Component for the preceding month will be paid currently as a distribution
of interest to the holders of the related Class to the extent of Available
Funds available therefor.
(3) On each Distribution Date the holders of the Class Z/IO Component will
be entitled to receive or have accreted to their Component Balance, to the
extent of Available Funds therefor, an amount of interest equal to the sum
of (a) with respect to each Mortgage Loan with a Mortgage Rate in excess of
___%, the product of (i) the Scheduled Principal Balance for such Mortgage
Loan as of the Scheduled Due Date in the month of such Distribution Date
and (ii) the excess of such Mortgage Rate thereon over ___% and (b) with
respect to each Class of Offered Certificates, the product of (i) the Class
Certificate Balance of such Class for such Distribution Date and (ii) the
excess of ___% over the related Pass-Through Rate, (subject to reduction
for Net Interest Shortfalls as described herein under "Distributions") and
(c) the sum of the amounts, if any, by which the amount described in
clauses (a) and (b) above of each prior Distribution Date exceeded the
amount actually distributed or accreted as interest on such prior
Distribution Dates and not subsequently distributed or accreted.
The Class R Certificates will receive principal distributions as described
above after all other Classes of Certificates have been paid in full. See "--
Distributions--Class B-3, Class B-4 and Class R Certificates Principal
Distributions" herein.
The "Component Balance" with respect to any Component as of any
Distribution Date is the initial Component Balance thereof on the Closing Date,
(a) reduced by all amounts applied and losses allocated in reduction of the
principal balance of such Component on previous Distribution Dates, and (b) in
the case of the Class Z/IO Component, increased by all interest accrued and
added to the Component Balance thereof prior to such Distribution Date.
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The Components comprising the Class R Certificates will not be separately
transferable from such Class.
In addition to the principal and interest distributions described above for
the Components of the Class R Certificates, on each Distribution Date, the
holders of the Class R Certificates will be entitled to receive the Available
Funds remaining after all Classes of Certificates, including the Class R
Certificates, receive their respective interest and principal distributions, if
any, on such Distribution Date. See "DESCRIPTION OF THE CERTIFICATES--
Distributions" herein.
ALLOCATION OF LOSSES
On each Distribution Date, any Net Realized Loss, other than any Excess
Loss, will be allocated first to the Residual Certificates, until the Class
Certificate Balance of such Class has been reduced to zero, second, to the other
Classes of Subordinate Certificates, in the reverse order of their numerical
Class designations (beginning with such Class of Subordinate Certificates then
outstanding with the highest numerical Class designation), in each case until
the Class Certificate Balance of the respective Class of Certificates has been
reduced to zero, and then to the Senior Certificates, pro rata, based upon their
respective Class Certificates Balances.
On each Distribution Date, Excess Losses will be allocated pro rata among
the Classes of Senior Certificates and the Subordinate Certificates based upon
their respective Class Certificate Balances.
For purposes of allocating Realized Losses and Excess Losses to the Class R
Certificates, such losses shall be allocated to the Components thereof, pro
rata, based upon their respective Component Balances.
Because principal distributions are paid to certain Classes of Senior
Certificates before other Classes of Senior Certificates, holders of such Senior
Certificates that are entitled to receive principal later bear a greater risk of
being allocated Realized Losses on the Mortgage Loans than holders of Classes
that are entitled to receive principal earlier.
In general, a "Net Realized Loss" means, with respect to a Liquidated
Mortgage Loan, the amount by which the remaining unpaid principal balance of the
Mortgage Loan exceeds the amount of Liquidation Proceeds applied to the
principal balance of the Mortgage Loan. "Excess Losses" are (a) Special Hazard
Losses in excess of the Special Hazard Loss Coverage Amount, (b) Bankruptcy
Losses in excess of the Bankruptcy Loss Coverage Amount and (c) Fraud Losses in
excess of the Fraud Loss Coverage Amount. "Bankruptcy Losses" are losses that
are incurred as a result of Debt Service Reductions and Deficient Valuations.
"Special Hazard Losses" are Realized Losses in respect of Special Hazard
Mortgage Loans. "Fraud Losses" are Realized Losses sustained on a Liquidated
Mortgage Loan by reason of a default arising from fraud, dishonesty or
misrepresentation. See "CREDIT ENHANCEMENT--Subordination of Certain Classes"
herein. Any Net Realized Loss resulting from flood damage to a Mortgaged
Property, which, at the time of origination, was located in an area identified
by FEMA as a flood zone
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for which a federally regulated or an insured lender would be required to obtain
flood insurance, will not reduce the Special Hazard Loss Coverage Amount and
will be allocated as a Net Realized Loss (not as an Excess Loss) as described
above.
A "Liquidated Mortgage Loan" is a defaulted Mortgage Loan as to which the
Master Servicer has determined that all recoverable liquidation and insurance
proceeds have been received. A "Special Hazard Mortgage Loan" is a Liquidated
Mortgage Loan as to which the ability to recover the full amount due thereunder
was substantially impaired by a hazard not insured against under a standard
hazard insurance policy of the type described under "THE POOLING AND SERVICING
AGREEMENT--Hazard Insurance."
LAST SCHEDULED DISTRIBUTION DATE
The Last Scheduled Distribution Date for each Class of Offered Certificates
is the latest date on which the Class Certificate Balance is expected to be
reduced to zero, and has been calculated on the basis of the assumptions
described above under "MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS--
Assumptions Relating to Tables" except for the following additional assumption:
no prepayments occur on the Mortgage Loans. Since the rate of distributions in
reduction of the Class Certificate Balance on each Class of Offered Certificates
will depend on the rate of payment (including prepayments) of the Mortgage Loans
as well as the frequency and severity of losses experienced by the Mortgage
Pool, the Class Certificate Balance of any such Class could reach zero
significantly earlier or later than its Last Scheduled Distribution Date. The
rate of payments on the Mortgage Loans will depend on their particular
characteristics, as well as on prevailing interest rates from time to time and
other economic factors, and no assurance can be given as to the actual payment
experience of the Mortgage Loans. See "MATURITY, PREPAYMENT AND YIELD
CONSIDERATIONS" herein.
REPORTS TO CERTIFICATEHOLDERS
Prior to or concurrently with each distribution on a Distribution Date, the
Master Servicer or the Trustee will furnish to each Certificateholder of record
of the related Series a statement setting forth, among other things:
(a) the amount of such distribution allocable to principal,
separately identifying the aggregate amount of any Principal Prepayments
included therein;
(b) the amount of such distribution allocable to interest;
(c) the amount of any Advance;
(d) the Class Certificate Balance or notional amount of each class
after giving effect to the distribution of principal on such Distribution
Date;
(e) the percentage of principal payments on the Mortgage Loans
(excluding prepayments), if any, which each such class will be entitled to
receive on the following Distribution Date;
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<PAGE>
(f) the percentage of Principal Prepayments with respect to the
Mortgage Loans, if any, which each such class will be entitled to receive
on the following Distribution Date;
(g) the number and aggregate principal balances of Mortgage Loans
(A) delinquent (exclusive of Mortgage Loans in foreclosure) (i) 1 to 30
days, (ii) 30 to 59 days and (iii) 60 or more days, and (B) in foreclosure
and delinquent, as of the close of business on the last day of the calendar
month preceding such Distribution Date; and
(h) the book value of any "REO Property".
In addition, the Trustee will forward to each Certificateholder such
customary information as the Master Servicer deems necessary or appropriate for
Certificateholders to prepare their tax returns.
THE TRUSTEE
The Bank of New York will be the Trustee under the Pooling Agreement. The
Depositor and the Master Servicer may maintain other banking relationships in
the ordinary course of business with the Trustee. Offered Certificates may be
surrendered at the Corporate Trust Office of the Trustee located at 101 Barclay
Street, 12E, New York, New York 10286, Attention: Corporate Trust Administration
or at such other addresses as the Trustee may designate from time to time.
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
GENERAL
The weighted average life of the Certificates and the yield to investors
depend in part on the rate at which the Mortgage Loans or mortgage loans
underlying Mortgage Certificates are prepaid. Prepayments on mortgage loans are
commonly measured relative to a prepayment standard or model. The prepayment
model used with respect to the Certificates is described below.
The rate of principal prepayments on the Mortgage Loans is influenced by a
variety of economic, geographic, social and other factors. In general, however,
if prevailing interest rates fall significantly below the interest rates on the
Mortgage Loans included in the Mortgage Pool, such Mortgage Loans are likely to
be the subject of higher principal prepayments than if prevailing rates remain
at or above the rates borne by such Mortgage Loans. Conversely, if prevailing
interest rates rise appreciably above the interest rates on such Mortgage Rates
borne by the Mortgage Loans included in the Mortgage Pool, such Mortgage Loans
are likely to experience a lower prepayment rate than if prevailing rates remain
at or below the rates borne by such Mortgage Rates. Other factors affecting
prepayment of Mortgage Loans include changes in mortgagors, housing needs, job
transfers, unemployment, mortgagors' net equity in the properties securing the
Mortgage Loans and servicing decisions.
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<PAGE>
Prepayments may also result from the enforcement of any "due-on-sale"
provisions contained in a Mortgage Note permitting the holder of the Mortgage
Note to demand immediate repayment of the outstanding balance of the Mortgage
Loan upon conveyance by the Mortgagor of the underlying Mortgaged Property. The
Master Servicer may enforce any "due-on-sale" clause to the extent it has
knowledge of the conveyance or proposed conveyance of the underlying Mortgaged
Property unless (i) such enforcement is not permitted by applicable law or
(ii) the Master Servicer, in its discretion, waives its right to enforce such
provision and permits the purchasers of the Mortgaged Property to assume the
Mortgage Loan.
Delinquencies on the Mortgage Loans, which are not advanced by or on behalf
of the Master Servicer (because amounts, if advanced, would be nonrecoverable),
will adversely affect the yield on the Certificates. Because of the priority of
distributions, shortfalls resulting from delinquencies not so advanced will be
borne first by the Subordinate Certificates (in the reverse order of their
priority of payment as described herein under "DESCRIPTION OF THE CERTIFICATES--
Priority of Distributions Among Classes of Certificates"), and then by the
Senior Certificates.
Net Interest Shortfalls will adversely affect the yields on the Offered
Certificates. In addition, although all losses initially will be borne by the
Subordinate Certificates, as described herein under "DESCRIPTION OF THE
CERTIFICATES--Allocation of Losses," Excess Losses will be borne by all Classes
of Certificates in the manner set forth in such section. As a result, the
yields on the Offered Certificates will depend on the rate and timing of Net
Realized Losses, including Excess Losses. Excess Losses could occur at a time
when one or more Classes of Subordinate Certificates are still outstanding and
otherwise available to absorb other types of Net Realized Losses.
The effective yields to the holders of the Offered Certificates will be
lower than the yields otherwise produced by the applicable rate at which
interest is passed through to such holders and the purchase price of such
Certificates because monthly distributions will not be payable to such holders
until the twentieth day (or, if such day is not a business day, the following
business day) of the month following the month in which interest accrues on the
Mortgage Loans (without any additional distribution of interest or earnings
thereon in respect of such delay).
PREPAYMENT CONSIDERATIONS AND RISKS
The rate of principal payments on the Offered Certificates, the aggregate
amount of each interest payment on the Offered Certificates and the yield to
maturity of Offered Certificates purchased at a price other than par are
directly related to the rate and timing of payments of principal on the Mortgage
Loans. The principal payments on the Mortgage Loans may be in the form of
scheduled principal payments or principal prepayments (for this purpose, the
term "principal prepayment" includes prepayments and any other recovery of
principal in advance of its Scheduled Due Date, including liquidations due to
default, casualty, condemnation and the like). Any such prepayments will result
in distributions to holders of the Offered Certificates of amounts which would
otherwise be distributed over the remaining term of the Mortgage Loans. The
rate at which mortgage loans in general prepay may be influenced by a number of
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<PAGE>
factors, including general economic conditions, mortgage market interest rates,
availability of mortgage funds and homeowner mobility. In general, if
prevailing interest rates fall significantly below the Mortgage Rates on the
Mortgage Loans, the Mortgage Loans are likely to prepay at higher rates than if
prevailing rates remain at or above the interest rates on the Mortgage Loans.
Conversely, if interest rates rise above the interest rates on the Mortgage
Loans, the rate of prepayment would be expected to decrease.
The timing of changes in the rate of prepayments may significantly affect
the actual yield to investors, 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 Certificates will not be offset by a subsequent like reduction (or
increase) in the rate of principal prepayments.
As described herein under "DESCRIPTION OF THE CERTIFICATES--Distributions,"
the Senior Prepayment Percentage of principal prepayments (excluding for this
purpose, liquidations due to default, casualty, condemnation and the like, but
including Balloon Payments) will be initially distributed to the Classes of
Senior Certificates (other than the Class A-4 Certificates) then entitled to
receive principal distributions. This may result in all (or a disproportionate
percentage) of such principal prepayments (including Balloon Payments) being
distributed to holders of certain Classes of Senior Certificates (other than the
Class A-4 Certificates) and none (or less than their pro rata share) of such
principal prepayments being distributed to holders of the Class A-4 Certificates
and the Subordinate Certificates during the periods of time described in the
definition of "Senior Prepayment Percentage." Holders of the Class A-4
Certificates will generally only receive principal prepayments (including
Balloon Payments) if, as and when the Subordinate Certificates are entitled to
receive such principal prepayments.
Because the Class B-3, Class B-4 and Class R Certificates are not entitled
to principal distributions until the Offered Certificates are paid in full, the
Offered Certificates will receive a greater percentage of the principal payments
on the Mortgage Loans than would otherwise be the case if all Classes of
Certificate were entitled to a pro rata portion of such payments on each
Distribution Date. In addition, on each Distribution Date up to and including
the Accretion Termination Date, the Accretion Amount will be distributed as a
principal distribution to the Class or Classes of Offered Certificates entitled
thereto as set forth above in "DESCRIPTION OF THE CERTIFICATES--Distributions--
Accretion Amount." This feature will result in the acceleration of some or all
of the Classes of Offered Certificates relative to the amortization of the
Mortgage Loans. Both of these features will shorten the weighted average lives
of the Offered Certificates.
Approximately ____% of the Single Family Mortgage Loans, ____% of the
Commercial Mortgage Loans and ___% of the Mortgage Loans (in each case, by
Cutoff Date Pool Principal Balance) permit the Mortgagor to prepay the Mortgage
Loans, in whole or in part, at any time without penalty. The other Mortgage
Loans contain some form of prepayment penalty. The rate of payment of principal
may also be affected by any repurchase of the Mortgage Loans permitted
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<PAGE>
or required by the Pooling Agreement. See "THE POOLING AND SERVICING AGREEMENT
- --Assignment of Mortgage Loans" and "THE POOLING AND SERVICING AGREEMENT--
Termination; Optional Termination" herein.
Some of the Mortgage Loans include due-on-sale clauses which allow the
holder of the Mortgage Loan to demand payment in full of the remaining principal
balance upon sale or certain transfers of the property securing such Mortgage
Loan. The Master Servicer may enforce "due-on-sale" clauses to the extent
permitted by applicable law. The Master Servicer may, however, waive its right
to enforce such "due-on-sale" clauses as described above under "RISK FACTORS--
Yield and Prepayment Considerations." Acceleration of Mortgage Loans as a
result of enforcement of such "due-on-sale" provisions in connection with
transfers of the related Mortgaged Properties or the occurrence of certain other
events resulting in acceleration would affect the level of prepayments on the
Mortgage Loans, thereby affecting the weighted average lives of the Classes of
the Offered Certificates.
As further described in "THE POOLING AND SERVICING AGREEMENT--Optional
Purchase of Mortgage Loans," the Master Servicer has the option, but is not
obligated, to purchase from the Mortgage Pool any Mortgage Loan 90 days or more
delinquent at the Repurchase Price for such Mortgage Loan or to sell any such
Mortgage Loan in a commercially reasonable manner if the Master Servicer
determines that such a sale would produce a greater recovery on a present-value
basis than would liquidation of the related Mortgaged Property. Furthermore,
the Master Servicer is permitted under the Pooling Agreement to solicit
borrowers under the Balloon Loans to refinance such Mortgage Loan; provided that
any such solicitation is made not earlier than one year before maturity of any
such Mortgage Loan and such Mortgage Loan is refinanced no earlier than six
months before its maturity. See "THE POOLING AND SERVICING AGREEMENT--
Termination; Optional Termination" herein for a description of the Master
Servicer's option to repurchase the Mortgage Loans when the Pool Principal
Balance is less than 10% of the Cutoff Date Pool Principal Balance. The Sellers
may be required to repurchase Mortgage Loans because of defective documentation
or breaches of the representations and warranties with respect to the Mortgage
Loans. Any such repurchases or refinancings of Balloon Loans prior to maturity
may shorten the weighted average lives of the Classes of Offered Certificates.
Investors should also note that under the circumstances described above
under "THE POOLING AND SERVICING AGREEMENT--Modification of Mortgage Loans," the
Master Servicer may modify the date on which any Balloon Payment is due by up to
six months. Any such modification may extend the weighted average lives of the
Classes of Offered Certificates.
ASSUMPTIONS RELATING TO TABLES
The Decrement Tables have been prepared on the basis of the following
assumptions (the "Assumptions"): (a) the Mortgage Pool consists of ___
hypothetical mortgage loans having the characteristics set forth in Appendix B;
(b) the initial Class Certificate Balances and Pass-Through Rates for the
Certificates are set forth on the cover page hereto; (c) there are no Net
Prepayment Interest Shortfalls, delinquencies or Realized Losses on the Mortgage
Loans; (d) Scheduled Payments on the Mortgage Loans are timely received on their
respective
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Scheduled Due Dates in each month commencing in __________ 1996 and prepayments
representing prepayments in full of individual Mortgage Loans are received on
the last day of each month commencing in __________ 1996, and are made at the
indicated percentages of CPR set forth in the related tables herein and include
30 days' interest thereon; (e) the Master Servicer does not exercise its right
of optional termination described herein; (f) no Mortgage Loans are required to
be purchased from the Mortgage Pool and no Mortgage Loans are substituted for
other Mortgage Loans as required by the Pooling Agreement; (g) payments on the
Offered Certificates are received on the twentieth day of each month commencing
in __________ 1996; (h) the Offered Certificates will be issued on ____________,
1996; (i) the Offered Certificates are paid in accordance with the provisions
under "DESCRIPTION OF THE CERTIFICATES"; (j) the terms of all Balloon Loans are
extended by six months; and (k) the Accretion Amount for each Distribution Date
is calculated as set forth above under "DESCRIPTION OF THE CERTIFICATES--
Residual Certificates" herein. Although the characteristics of the mortgage
loans for the Decrement Tables have been prepared on the basis of the
characteristics of the Mortgage Loans which are expected to be in the Mortgage
Pool, there is no assurance that the Assumptions will reflect the actual
characteristics or performance of the Mortgage Loans or that the performance of
the Offered Certificates will conform to the results set forth in the tables.
ADDITIONAL INFORMATION
The Depositor may file on behalf of the Issuer, if used in connection with
the offering and sale of the Offered Certificates, certain additional yield
tables and other computational materials with respect to one or more Classes of
Offered Certificates with the Commission in a Current Report on Form 8-K. Such
tables and materials, if used, will be prepared by one or more of 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 Assumptions. Accordingly, such tables and other materials
may not be relevant to or appropriate for investors other than those
specifically requesting them.
WEIGHTED AVERAGE LIVES
OF THE OFFERED CERTIFICATES
Weighted average life refers to the average amount of time that will elapse
from the date of issuance of an Offered Certificate until each dollar in
reduction of the Class Certificate Balance thereof is distributed to the
investor. The weighted average lives of such Classes of Offered Certificates
will be influenced by, among other things, the rate at which principal of the
Mortgage Loans is paid, which may be in the form of scheduled amortization or
prepayments (for this purpose, the term "prepayments" includes prepayments and
liquidations due to default, casualty, condemnation and the like), the timing of
changes in such rate of payments and the priority sequence of distributions of
principal of such Offered Certificates. The interaction of the foregoing
factors may have different effects on each Class of Offered Certificates and the
effects on any such Class may vary at different times during the life of such
Class. Accordingly, no assurance can be given as to the weighted average life
of any such Class of Offered Certificates. For an example of how the weighted
average lives of the Offered
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Certificates are affected by the foregoing factors at various constant
percentages of CPR, see the Decrement Tables below.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus is the Constant
Prepayment Rate ("CPR"), which represents an assumed annualized rate of
prepayment relative to the then outstanding principal balance on a pool of new
mortgage loans. As used in the tables, 5% indicates prepayments at an annual
rate of 5%; 10% indicates prepayments at an annual rate of 10% and so on. CPR
does not purport to be a historical description of prepayment experience or a
prediction of the anticipated rate of prepayment of any pool of mortgage loans,
including the Mortgage Loans. The Depositor believes that no existing
statistics of which it is aware provide a reliable basis for holders of Offered
Certificates to predict the amount or the timing of receipt of prepayments on
the Mortgage Loans.
The Decrement Tables set forth below have been prepared on the basis of the
Assumptions described above under "--Assumptions Relating to Tables." There
will likely be discrepancies between the characteristics of the actual Mortgage
Loans included in the Mortgage Pool and the characteristics of the Mortgage
Loans assumed in preparing the Decrement Tables. Any such discrepancy may have
an effect upon the percentages of initial Class Certificate Balances outstanding
set forth in the Decrement Tables (and the weighted average lives of the Offered
Certificates). In addition, to the extent that the Mortgage Loans that actually
are included in the Mortgage Pool have characteristics that differ from those
assumed in preparing the following Decrement Tables, the Class Certificate
Balance of any such Class of Offered Certificates will be reduced to zero
earlier or later than indicated by such Decrement Tables.
Furthermore, the information contained in the Decrement Tables with respect
to the weighted average life of any Offered Certificate is not necessarily
indicative of the weighted average life of such Class of Offered Certificate
that might be calculated or projected under different or varying prepayment
assumptions.
It is not likely that (a) all of the Mortgage Loans will have the Mortgage
Rates or remaining terms to maturity assumed or (b) the Mortgage Loans will
prepay at the indicated percentage of CPR until maturity. In addition, the
diverse remaining terms to maturity of the Mortgage Loans could produce slower
or faster distributions in reduction of Class Certificate Balances than
indicated in the Decrement Table at the various percentages of CPR specified.
Based upon the foregoing assumptions, the following Decrement Tables
indicate the projected weighted average life of each Class of the Offered
Certificates and set forth the percentages of the initial Class Certificate
Balance of each such Class that would be outstanding after each of the dates
shown at various constant percentages of the CPR.
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<PAGE>
PERCENTAGE OF INITIAL CLASS CERTIFICATE BALANCE OUTSTANDING
FOR THE CLASS A-1 CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
SET FORTH BELOW:
Distribution Date 0.0% CPR 5.0% CPR 10.0% CPR 15.0% CPR 20.0% CPR
----------------- -------- -------- --------- --------- ---------
Initial Percent
__________ 20, 1997
__________ 20, 1998
__________ 20, 1999
__________ 20, 2000
__________ 20, 2001
__________ 20, 2002
__________ 20, 2003
__________ 20, 2004
__________ 20, 2005
__________ 20, 2006
__________ 20, 2007
__________ 20, 2008
__________ 20, 2009
__________ 20, 2010
__________ 20, 2011
__________ 20, 2012
__________ 20, 2013
__________ 20, 2014
__________ 20, 2015
__________ 20, 2016
__________ 20, 2017
__________ 20, 2018
__________ 20, 2019
__________ 20, 2020
Weighted Average Life (Years)(1)
- --------------------
(1) The weighted average life of an Offered Certificate is determined by (a)
multiplying the amount of each distribution in reduction of the Class
Certificate Balance thereof by the number of years from the date of the issuance
of the Offered Certificate to the related Distribution Date, (b) adding the
results and (c) dividing the sum by the initial Class Certificate Balance of the
Offered Certificates of such Class.
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<PAGE>
PERCENTAGE OF INITIAL CLASS CERTIFICATE BALANCE OUTSTANDING
FOR THE CLASS A-2 CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
SET FORTH BELOW:
Distribution Date 0.0% CPR 5.0% CPR 10.0% CPR 15.0% CPR 20.0% CPR
----------------- -------- -------- --------- --------- ---------
Initial Percent
__________ 20, 1997
__________ 20, 1998
__________ 20, 1999
__________ 20, 2000
__________ 20, 2001
__________ 20, 2002
__________ 20, 2003
__________ 20, 2004
__________ 20, 2005
__________ 20, 2006
__________ 20, 2007
__________ 20, 2008
__________ 20, 2009
__________ 20, 2010
__________ 20, 2011
__________ 20, 2012
__________ 20, 2013
__________ 20, 2014
__________ 20, 2015
__________ 20, 2016
__________ 20, 2017
__________ 20, 2018
__________ 20, 2019
__________ 20, 2020
Weighted Average Life (Years)(1)
- --------------------
(1) The weighted average life of an Offered Certificate is determined by (a)
multiplying the amount of each distribution in reduction of the Class
Certificate Balance thereof by the number of years from the date of the issuance
of the Offered Certificate to the related Distribution Date, (b) adding the
results and (c) dividing the sum by the initial Class Certificate Balance of the
Offered Certificates of such Class.
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PERCENTAGE OF INITIAL CLASS CERTIFICATE BALANCE OUTSTANDING
FOR THE CLASS A-3 CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
SET FORTH BELOW:
Distribution Date 0.0% CPR 5.0% CPR 10.0% CPR 15.0% CPR 20.0% CPR
----------------- -------- -------- --------- --------- ---------
Initial Percent
__________ 20, 1997
__________ 20, 1998
__________ 20, 1999
__________ 20, 2000
__________ 20, 2001
__________ 20, 2002
__________ 20, 2003
__________ 20, 2004
__________ 20, 2005
__________ 20, 2006
__________ 20, 2007
__________ 20, 2008
__________ 20, 2009
__________ 20, 2010
__________ 20, 2011
__________ 20, 2012
__________ 20, 2013
__________ 20, 2014
__________ 20, 2015
__________ 20, 2016
__________ 20, 2017
__________ 20, 2018
__________ 20, 2019
__________ 20, 2020
Weighted Average Life (Years)(1)
- --------------------
(1) The weighted average life of an Offered Certificate is determined by (a)
multiplying the amount of each distribution in reduction of the Class
Certificate Balance thereof by the number of years from the date of the issuance
of the Offered Certificate to the related Distribution Date, (b) adding the
results and (c) dividing the sum by the initial Class Certificate Balance of the
Offered Certificates of such Class.
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PERCENTAGE OF INITIAL CLASS CERTIFICATE BALANCE OUTSTANDING
FOR THE CLASS A-4 CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
SET FORTH BELOW:
Distribution Date 0.0% CPR 5.0% CPR 10.0% CPR 15.0% CPR 20.0% CPR
----------------- -------- -------- --------- --------- ---------
Initial Percent
__________ 20, 1997
__________ 20, 1998
__________ 20, 1999
__________ 20, 2000
__________ 20, 2001
__________ 20, 2002
__________ 20, 2003
__________ 20, 2004
__________ 20, 2005
__________ 20, 2006
__________ 20, 2007
__________ 20, 2008
__________ 20, 2009
__________ 20, 2010
__________ 20, 2011
__________ 20, 2012
__________ 20, 2013
__________ 20, 2014
__________ 20, 2015
__________ 20, 2016
__________ 20, 2017
__________ 20, 2018
__________ 20, 2019
__________ 20, 2020
Weighted Average Life (Years)(1)
- --------------------
(1) The weighted average life of an Offered Certificate is determined by (a)
multiplying the amount of each distribution in reduction of the Class
Certificate Balance thereof by the number of years from the date of the issuance
of the Offered Certificate to the related Distribution Date, (b) adding the
results and (c) dividing the sum by the initial Class Certificate Balance of the
Offered Certificates of such Class.
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PERCENTAGE OF INITIAL CLASS CERTIFICATE BALANCE OUTSTANDING
FOR THE CLASS B-1 CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
SET FORTH BELOW:
Distribution Date 0.0% CPR 5.0% CPR 10.0% CPR 15.0% CPR 20.0% CPR
----------------- -------- -------- --------- --------- ---------
Initial Percent
__________ 20, 1997
__________ 20, 1998
__________ 20, 1999
__________ 20, 2000
__________ 20, 2001
__________ 20, 2002
__________ 20, 2003
__________ 20, 2004
__________ 20, 2005
__________ 20, 2006
__________ 20, 2007
__________ 20, 2008
__________ 20, 2009
__________ 20, 2010
__________ 20, 2011
__________ 20, 2012
__________ 20, 2013
__________ 20, 2014
__________ 20, 2015
__________ 20, 2016
__________ 20, 2017
__________ 20, 2018
__________ 20, 2019
__________ 20, 2020
Weighted Average Life (Years)(1)
- --------------------
(1) The weighted average life of an Offered Certificate is determined by (a)
multiplying the amount of each distribution in reduction of the Class
Certificate Balance thereof by the number of years from the date of the issuance
of the Offered Certificate to the related Distribution Date, (b) adding the
results and (c) dividing the sum by the initial Class Certificate Balance of the
Offered Certificates of such Class.
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PERCENTAGE OF INITIAL CLASS CERTIFICATE BALANCE OUTSTANDING
FOR THE CLASS B-2 CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
SET FORTH BELOW:
Distribution Date 0.0% CPR 5.0% CPR 10.0% CPR 15.0% CPR 20.0% CPR
----------------- -------- -------- --------- --------- ---------
Initial Percent
__________ 20, 1997
__________ 20, 1998
__________ 20, 1999
__________ 20, 2000
__________ 20, 2001
__________ 20, 2002
__________ 20, 2003
__________ 20, 2004
__________ 20, 2005
__________ 20, 2006
__________ 20, 2007
__________ 20, 2008
__________ 20, 2009
__________ 20, 2010
__________ 20, 2011
__________ 20, 2012
__________ 20, 2013
__________ 20, 2014
__________ 20, 2015
__________ 20, 2016
__________ 20, 2017
__________ 20, 2018
__________ 20, 2019
__________ 20, 2020
Weighted Average Life (Years)(1)
- --------------------
(1) The weighted average life of an Offered Certificate is determined by (a)
multiplying the amount of each distribution in reduction of the Class
Certificate Balance thereof by the number of years from the date of the issuance
of the Offered Certificate to the related Distribution Date, (b) adding the
results and (c) dividing the sum by the initial Class Certificate Balance of the
Offered Certificates of such Class.
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CREDIT ENHANCEMENT
SUBORDINATION OF CERTAIN CLASSES
The rights of Subordinate Certificateholders to receive distributions with
respect to the Mortgage Loans will be subordinated to such rights of Senior
Certificateholders, and the rights of the holders of each Class of Subordinate
Certificates (other than the Class B-1 Certificates) to receive such
distributions will be further subordinated to such rights of the holders of the
Class or Classes of Subordinate Certificates with a higher priority of payment
as described herein under "DESCRIPTION OF THE CERTIFICATES--Priority of
Distributions Among Classes of Certificates." The subordination of the
Subordinate Certificates to the Senior Certificates and the further
subordination within the Subordinate Certificates is intended to increase the
likelihood of receipt by the Senior Certificateholders (to the extent of the
subordination provided by the Subordinate Certificates) and each Class of
Subordinate Certificates (to the extent of the combined subordination provided
by the Class or Classes of Subordinate Certificates with a lower priority of
payment) of the maximum amount to which they are entitled on any Distribution
Date and, to provide such holders protection against Realized Losses other than
Excess Losses. In addition, the Subordinate Certificates will provide limited
protection against Special Hazard Losses, Bankruptcy Losses and Fraud Losses up
to the Special Hazard Loss Coverage Amount, Bankruptcy Loss Coverage Amount and
Fraud Loss Coverage Amount, respectively, as described below. Realized Losses
will be allocated to the Classes of Certificates in the manner described herein
under "DESCRIPTION OF THE CERTIFICATES--Allocation of Losses."
The Subordinate Certificates will provide protection to the Classes of
Certificates of higher relative priority against (a) Special Hazard Losses in an
initial amount expected to be up to approximately $_________ (the "Special
Hazard Loss Coverage Amount"), (b) Bankruptcy Losses in an initial amount
expected to be up to approximately $_______ (the "Bankruptcy Loss Coverage
Amount") and (c) Fraud Losses in an initial amount expected to be up to
approximately $_________ (the "Fraud Loss Coverage Amount").
The Special Hazard Loss Coverage Amount will be reduced, from time to time,
to be an amount equal on any Distribution Date to the lesser of (a) the greatest
of (i) 1% of the aggregate of the aggregate Scheduled Principal Balances of the
Mortgage Loans, (ii) twice the Scheduled Principal Balance of the largest
Mortgage Loan and (iii) the aggregate principal balances of the Mortgage Loans
secured by Mortgaged Properties located in the single ______________ postal zip
code area having the highest aggregate principal balance of any such zip code
area, all principal balances being calculated as of the first day of the month
of such Distribution Date after giving effect to scheduled installments of
principal and interest on the Mortgage Loans then due, whether or not paid, and
(b) the Special Hazard Loss Coverage Amount as of the Closing Date less the
amount, if any, of losses attributable to Special Hazard Mortgage Loans incurred
from the Closing Date through the last day of the month preceding the month of
such Distribution Date.
The Fraud Loss Coverage Amount will be reduced, from time to time, by the
amount of Fraud Losses allocated to the Certificates. In addition, on each
anniversary of the Cutoff
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Date, the Fraud Loss Coverage Amount will be reduced as follows: (a) on the
first anniversary of the Cutoff Date, to an amount equal to the lesser of (i) 2%
of the then current Mortgage Pool Principal Balance and (ii) the excess of the
Initial Fraud Loss Coverage Amount over the cumulative amount of Fraud Losses
allocated to the Certificates prior to such Distribution Date, (b) on the
second, third and fourth anniversaries of the Cutoff Date, to an amount equal to
the lesser of (i) 1% of the then current Pool Scheduled Principal Balance and
(ii) the excess of the Fraud Loss Coverage Amount over the cumulative amount of
Initial Fraud Losses allocated to the Certificates prior to such Distribution
Date and (c) on the fifth anniversary of the Cutoff Date, to zero.
The Bankruptcy Loss Coverage Amount will be reduced, from time to time, by
the amount of Bankruptcy Losses allocated to the Certificates.
The amount of coverage provided by the Subordinate Certificates for Special
Hazard Losses, Bankruptcy Losses and Fraud Losses may be cancelled or reduced
from time to time for each of the risks covered, provided that the then current
ratings of the Certificates assigned by the Rating Agencies are not adversely
affected thereby. In addition, a reserve fund or other form of credit
enhancement may be substituted for the protection provided by the Subordinate
Certificates for Special Hazard Losses, Bankruptcy Losses and Fraud Losses.
As used herein, a "Deficient Valuation" is a bankruptcy proceeding whereby
the bankruptcy court may establish the value of the Mortgaged Property at an
amount less than the then outstanding principal balance of the Mortgage Loan
secured by such Mortgaged Property or may reduce the outstanding principal
balance of a Mortgage Loan. In the case of a reduction in the value of the
related Mortgaged Property, the amount of the secured debt could be reduced to
such value, and the holder of such Mortgage Loan thus would become an unsecured
creditor to the extent the outstanding principal balance of such Mortgage Loan
exceeds the value so assigned to the Mortgaged Property by the bankruptcy court.
In addition, certain other modifications of the terms of a Mortgage Loan can
result from a bankruptcy proceeding, including the reduction (a "Debt Service
Reduction") of the amount of the monthly payment on the related Mortgage Loan.
Notwithstanding the foregoing, no such occurrence shall be considered a Debt
Service Reduction or Deficient Valuation so long as the Master Servicer is
pursuing any other remedies that may be available with respect to the related
Mortgage Loan and (a) such Mortgage Loan is not in default with respect to
payment due thereunder or (b) scheduled monthly payments of principal and
interest are being advanced by the Master Servicer without giving effect to any
Debt Service Reduction.
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of the
Certificates will be used by the Depositor to purchase the Mortgage Loans and to
pay other expenses connected with pooling the Mortgage Loans and issuing the
Certificates. Any remaining proceeds will be used for the general corporate
purposes of the Depositor.
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CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
MORTGAGES
The Mortgages will be either deeds of trust, security deeds or mortgages,
depending upon the prevailing practice in the state in which the Mortgaged
Property is located. A mortgage creates a lien upon the real property
encumbered by the mortgage. It is not prior to the lien for real estate taxes
and assessments. Priority between mortgages as they affect the same property
depends on their terms and generally on the order of recording in a county or
municipal office. There are two parties to a mortgage: the mortgagor, who is
the borrower and homeowner, and the mortgagee who is the lender. Under the
mortgage instrument, the mortgagor delivers to the mortgagee a promissory 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-homeowner, called the
trustor or grantor (similar to a mortgagor), the lender, called the beneficiary
(similar to a mortgagee) and a third-party grantee, called the trustee. Under a
deed of trust, the trustor 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 evidenced by the promissory note or bond. The trustee's
authority under a deed of trust and the mortgagee's authority under a mortgage
are governed by law, by the express provisions of the deed of trust or mortgage
and, in some cases, by the directions of the beneficiary.
LAND SALE CONTRACTS
Under an installment land sale contract for the sale of real estate (a
"land sale contract") the contract seller (hereinafter referred to as the
"lender") retains legal title to the property and enters into an agreement with
the contract purchaser (hereinafter referred to as the "borrower") for the
payment of the purchase price, plus interest, over the term of the land sale
contract. Only after full performance by the borrower of the contract is the
lender obligated to convey title to the real estate to the purchaser. As with
mortgage or deed of trust financing, during the effective period of the land
sale contract, the borrower is 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 land sale contracts
generally provide that upon default by the borrower, the borrower loses his or
her right to occupy the property, the entire indebtedness is accelerated, and
the borrower'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 may be necessary in order
if the borrower has filed the land sale 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 a land sale
contract, the courts will permit ejectment of the borrower 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 land
sale contracts from the harsh consequences of forfeiture. Under such statutes,
a judicial
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or nonjudicial foreclosure may be required, the borrower may be granted some
grace period during which the 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 a land sale contract for the sale
of real estate to share 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 a land sale contract for the sale of real
estate in a given state are simpler and less time consuming and costly than are
the procedures for foreclosing and obtaining clear title to a mortgaged
property.
FORECLOSURE
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 defendant. Judicial foreclosure proceedings are generally not contested
by any of the parties defendant. However, 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 judicial foreclosure, the court
would issue a judgment of foreclosure and would generally appoint a referee or
other court officer to conduct the sale of the property.
Foreclosure of a deed of trust is generally accomplished by non-judicial
trustee's sale under a specific provision in the deed of trust which authorizes
the trustee to sell the property to a third party upon any default by the
trustor under the terms of the promissory note or deed of trust. In some
states, the trustee must record a notice of default and send a copy to the
borrower or any person who has recorded a request for a copy of a notice of
default and notice of sale. In addition, the trustee must provide notice in
some states to any other individual having an interest in the real property,
including any junior lienholders. The mortgagor, or any other person having a
junior encumbrance on, or interest in, the real estate, may, during a
reinstatement period, cure the default by paying the entire amount in arrears,
plus the costs and expenses incurred in enforcing the obligation. Generally,
state law controls the amount of foreclosure expenses and costs, including
limiting attorneys' fees, which may be recovered by a lender. If the deed of
trust is not reinstated, a notice of sale must be posted in a public place and,
in most states, published for a specified period of time in one or more local
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 in the
real property.
In case of foreclosure under either a mortgage or a deed of trust, the sale
by the receiver or other designated officer or by the trustee is a public sale.
However, because of the difficulty a potential buyer at the sale would have in
determining the exact status of title and because the physical condition of the
property may have deteriorated during the foreclosure proceedings, it is
uncommon for a third party to purchase the property at a foreclosure sale.
Rather, it is common for the lender to purchase the property from the trustee or
referee for an amount equal to the principal amount of the mortgage or deed of
trust, accrued and unpaid interest and the expenses of foreclosure. Thereafter,
the lender will assume the burdens of ownership, including obtaining casualty
insurance and making such repairs at its own expense as are necessary to
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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 mortgage insurance
proceeds.
Courts have usually imposed general equitable principles upon foreclosure
proceedings. These equitable principles are generally designed to relieve the
trustor from the legal effect of his defaults under the loan documents.
Examples of judicial remedies that have been fashioned include judicial
requirements that the lender undertake affirmative actions to determine the
causes for the mortgagors' default and the likelihood that the mortgagor will be
able to reinstate the loan. In some cases, courts have substituted their
judgment for the lender's judgment and have required that lenders reinstate
loans or recast payment schedules in order to accommodate mortgagors who are
suffering from a temporary financial disability. In other cases, courts have
limited the right of the lender to foreclose if the default under the mortgage
instrument is not monetary such as the mortgagor failing to adequately maintain
the property or the mortgagor executing a second mortgage or deed of trust
affecting the property. Finally, some courts have been faced with the issue of
whether or not federal or state constitutional provisions reflecting due process
concerns for adequate notice require that trustors under deeds of trust receive
notices in addition to the statutorily prescribed minimum. 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 protections to the trustor.
LEASEHOLD RISKS. ____% of the Mortgage Loans are secured by a mortgage on
a ground lessee's interest in a ground lease. Leasehold mortgages are subject
to certain risks not associated with mortgage loans secured by the fee estate of
the mortgagor. The most significant of these risks is that the ground lease
creating the leasehold estate could terminate, leaving the leasehold mortgagee
without its security. The ground lease may terminate, if among other reasons,
the ground lessee breaches or defaults in its obligations under the ground lease
or there is a bankruptcy of the ground lessee or the ground lessor. The terms
of the ground lease may also terminate prior to the maturity date of the
indebtedness secured by the mortgage. This risk may be minimized if the ground
lease contains certain provisions protective of the mortgagee, but the ground
leases that secure mortgage loans may not contain some of these protective
provisions, and mortgages may not contain the other protection discussed in the
next paragraph. Protective ground lease provisions include the right of the
leasehold mortgagee to receive notices from the ground lessor of any defaults by
the mortgagor; the right to cure such defaults, with adequate cure periods; if a
default is not susceptible of cure by the leasehold mortgagee, the right to
acquire the leasehold estate through foreclosure or otherwise; the ability of
the ground lease to be assigned to and by the leasehold mortgagee or purchaser
at a foreclosure sale and for the concomitant release of the ground lessee's
liabilities thereunder; and the right of the leasehold mortgagee to enter into a
new ground lease with the ground lessor on the same terms and conditions as the
old ground lease in the event of a termination thereof.
In addition to the foregoing protections, a leasehold mortgagee may require
that the ground lease or leasehold mortgage prohibit the ground lessee from
treating the ground lease as terminated in the event of the ground lessor's
bankruptcy and rejection of the ground lease by
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the trustee for the debtor-ground lessor. As further protection, a leasehold
mortgage may provide for the assignment of the debtor-ground lessee's right to
reject a lease pursuant to Section 365 of the Bankruptcy Reform Act of 1978, as
amended (11 U.S.C.) (the "Bankruptcy Code"), although the enforceability of such
clause has not been established. Without the protections described in the
foregoing paragraph, a leasehold mortgagee may lose the collateral securing its
leasehold mortgage. In addition, terms and conditions of a leasehold mortgage
are subject to the terms and conditions of the ground lease. Although certain
rights given to a ground lessee can be limited by the terms of a leasehold
mortgage, the rights of a ground lessee or a leasehold mortgagee with respect
to, among other things, insurance, casualty and condemnation will be governed by
the provisions of the ground lease.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure of
the mortgage, the mortgagor and foreclosed junior lienors are given a statutory
period in which to redeem the property from the foreclosure sale. The right of
redemption should be distinguished from the equity of redemption, which is a
nonstatutory right that must be exercised prior to the foreclosure sale. In
some states, redemption may occur only upon payment of the entire principal
balance of the loan, accrued interest and expenses of foreclosure. In other
states, redemption may be authorized if the former mortgagor 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 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 expired.
ANTI-DEFICIENCY LEGISLATION
AND OTHER LIMITATIONS
Certain states have imposed statutory prohibitions which restrict or
eliminate the remedies of a beneficiary under a deed of trust or a mortgagee
under a mortgage. In some states, statutes limit the right of the beneficiary
or mortgagee to obtain a deficiency judgment against the mortgagor following
foreclosure or sale under a deed of trust. A deficiency judgment would be a
personal judgment against the former mortgagor equal in most cases to the
difference between the net amount realized upon the public sale of the real
property and the amount due to the lender under the promissory note. Other
statutes may 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 mortgagor.
Finally, other statutory provisions may limit any deficiency judgment against
the former mortgagor following a judicial 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 to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former mortgagor as it results
from low or no bids at the judicial sale.
In addition to anti-deficiency and related legislation, numerous other
statutory provisions, including the federal bankruptcy laws and state laws
affording relief to debtors, may interfere
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with or affect the ability of the secured mortgage lender to realize upon its
security. The Internal Revenue Code of 1986, as amended, provides priority to
certain tax liens over the lien of the mortgage. Numerous federal and some
state consumer protection laws impose substantive requirements upon mortgage
lenders in connection with the origination and the servicing of mortgage loans.
These laws include the federal Truth-in-Lending Act, Real Estate Settlement
Procedures Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair
Credit Reporting Act and related statutes. These federal laws impose specific
statutory liabilities upon lenders who originate mortgage loans and who fail to
comply with the provisions of the law. In some cases, this liability may affect
assignees of the mortgage loans.
ENVIRONMENTAL RISKS
Real property pledged as security to a lender may be subject to unforeseen
environmental liabilities. Of particular concern may be those Commercial
Properties which are, or have been, the site of manufacturing, industrial or
disposal activities. Such environmental liabilities may give rise to (a) a
diminution in value of property securing any Mortgage Loan, (b) limitation on
the ability to foreclose against such property or (c) in certain circumstances,
as more fully described below, liability for clean up costs or other remedial
actions, which liability could exceed the value of the principal balance of the
related Mortgage Loan or of such Mortgaged Property.
Under the laws of many states, contamination on a property may give rise to
a lien on the property for cleanup costs. In several states, such a lien has
priority over all existing items (a "superlien") including those of existing
mortgages; in these states, the lien of a mortgage contemplated by this
transaction may lose its priority to such a superlien.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), a lender may be liable either to
the government or to private parties for cleanup costs on a property securing a
loan, even if the lender does not cause or contribute to the contamination.
CERCLA imposes strict, as well as joint and several, liability on several
classes of potentially responsible parties, including current owners and
operators of the property, regardless of whether they caused or contributed to
the contamination. Many states have laws similar to CERCLA.
Lenders may be held liable under CERCLA as owners or operators. Excluded
from CERCLA's definition of "owner or operator," however, is a person "who
without participating in the management of the facility, holds indicia of
ownership primarily to protect his security interest." This exemption for
holders of a security interest, such as a secured lender applies only in
circumstances where the lender acts to protect its security interest in the
contaminated facility or property. Thus, if a lender's activities encroach on
the actual management of such facility or property, the lender faces potential
liability as an "owner or operator" under CERCLA. Similarly, when a lender
forecloses and takes title to a contaminated facility or property (whether it
holds the facility or property as an investment or leases it to a third party),
the lender may incur potential CERCLA liability.
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A decision in May 1990 of the United States Court of Appeals for the
Eleventh Circuit in UNITED STATES V. FLEET FACTORS CORP. very narrowly construed
CERCLA's secured-creditor exemption. The court held that a lender need not have
involved itself in the day-to-day operations of the facility or participated in
decisions relating to hazardous waste to be liable under CERCLA; rather,
liability could attach to a lender if its involvement with the management of the
facility is broad enough to support the inference that the lender had the
capacity to influence the borrower's treatment of hazardous waste. The court
added that a lender's capacity to influence such decision could be inferred from
the extent of its involvement in the facility's financial management.
On April 29, 1992, in response to the decision in FLEET FACTORS CORP., the
United States Environmental Protection Agency (the "EPA") adopted a rule
interpreting and delineating CERCLA's secured-creditor exemption in EPA
enforcement proceedings. The rule attempted to define and specify the range of
permissible actions that may be undertaken by a foreclosing lender/holder of a
contaminated facility without exceeding the bounds of the secured-creditor
exemption. The rule also attempted to specify the circumstances under which
governmental or government-appointed entities that acquire possession or control
of contaminated facilities as conservators or receivers will be considered
"involuntary" owners for purposes of CERCLA's "innocent landowner" defense to
liability. Issuance of this rule by the EPA under CERCLA does not necessarily
affect the potential for liability in actions by either a state or a private
party under CERCLA or in actions under other federal or state laws which may
impose liability on "owners or operators" but do not incorporate the secured-
creditor exemption.
The validity of the EPA rule was challenged in the U.S. Court of Appeals
for the District of Columbia in KELLEY V. EPA. In an opinion issued on
February 4, 1994, the D.C. Circuit Court invalidated EPA's lender liability
rule, holding that EPA exceeded its authority in enacting the rule. The U.S.
Supreme Court denied certiorari on January 17, 1995. Legislation has been
proposed that would clarify, by statute, the range of activities a secured
creditor may undertake without being deemed to have participated in the
management of the facility, and thus losing the benefit of the secured-creditor
exemption.
Under the KELLEY case, the secured-creditor exemption under CERCLA will be
subject to existing case law interpretations. Some of those cases have
interpreted the exemption extremely narrowly, but most of the cases since
promulgation of the EPA rule have held that a lender is entitled to the
protection of the secured-creditor exemption provided that a lender complies
with the provisions set out in the EPA rule and does not itself (or through its
agents) cause or contribute to contamination. As a result of KELLEY, the cases
applying the EPA rule have little, if any, precedential value and, thus, lenders
should expect a return to the narrower interpretations of the exemption.
In September 1995, EPA issued a guidance document stating that, in its
enforcement of CERCLA, EPA would apply the protections afforded to secured
creditors under the lender liability rule that was invalidated in the KELLEY
decision. However, this EPA policy is not binding on the courts nor on states
or private parties.
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The secured-creditor exemption does not protect a lender from liability
under CERCLA in cases where the lender arranges for disposal of hazardous
substances or for transportation of hazardous substances. The definition of
"hazardous substances" under CERCLA specifically excludes petroleum products,
and the secured-creditor exemption 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 (other than heating oil) storage tanks. However, the EPA has adopted
a lender liability rule for underground storage tanks under Subtitle I of RCRA.
Under such rule, a holder of a security interest in an underground storage tank
is not considered an operator of the underground storage tank as long as
petroleum is not added to, stored in or dispensed from the tank. 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 protections for
secured creditors.
If a lender is or becomes liable, it may bring an action for contribution
against the owner or operator who created the environmental hazard, but that
person or entity may be bankrupt or otherwise judgment-proof. It is possible
that cleanup costs could become a liability of the Trust Fund and occasion a
loss to Certificateholders in certain circumstances described above if such
remedial costs were incurred.
The Pooling Agreement provides that the Master Servicer, acting on behalf
of the Trustee, may, at the expense of the Trust Fund and in accordance with the
servicing standard set forth in the Pooling Agreement, obtain an environmental
assessment with respect to any Mortgage Property prior to acquiring title to
such Mortgaged Property or take over its operation. Any such assessment will be
based on a report prepared by a person who regularly conducts environmental
assessments, that such Mortgaged Property is in compliance with applicable
environmental laws, or, if not, that taking such actions as are necessary to
bring the Mortgaged Property in compliance therewith is likely to produce a
greater recovery on a present value basis, after taking into account any risks
associated therewith, than not taking such actions. This provision, if
exercised by the Master Servicer, would requirement effectively precludes
enforcement of the security for the related Mortgage Note until a satisfactory
environmental inquiry is undertaken, or that, if any Hazardous Materials are
present for which such action could be required, taking such actions with
respect to the affected Mortgaged Property is reasonably likely to produce a
greater recovery on a present value basis, after taking into account any risks
associated therewith, than not taking such actions, reducing the likelihood that
the Trust Fund will become liable for any condition or circumstance that may
give rise to any environmental claim (an "Environmental Condition") affecting a
Mortgaged Property, but making it more difficult to realize on the security for
the Mortgage Loan. However, there can be no assurance that any such
environmental assessment obtained by the Master Servicer will detect all
possible Environmental Conditions, that any estimate of the costs of effecting
compliance at any Mortgaged Property and the recovery thereon will be correct,
or that the other requirements of the Pooling Agreement, even if fully observed
by the Master Servicer will in fact insulate the Trust Fund from liability for
Environmental Conditions.
The Depositor and the Sellers generally have not determined whether
environmental assessments have been conducted with respect to the Mortgaged
Properties relating to the Mortgage Loans included in the Mortgage Pool, and it
is likely that any environmental
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assessments which would have been conducted with respect to any of the Mortgaged
Properties would have been conducted at the time of the origination of the
related Mortgage Loans and not thereafter.
"Hazardous Materials" are generally defined under several federal and state
statutes, and include dangerous toxic or hazardous pollutants, chemicals, wastes
or substances, including, without limitation, those so identified pursuant to
CERCLA, and specifically including, asbestos and asbestos-containing materials,
polychlorinated biphenyls, radon gas, petroleum and petroleum products and urea
formaldehyde.
DUE-ON-SALE CLAUSES
Certain Mortgage Loans contains due-on-sale clauses which generally provide
that if the mortgagor or obligor sells, transfers or conveys the Mortgaged
Property, the loan may be accelerated by the mortgagee. In recent years, 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 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 Garn-St Germain 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 Mortgaged Property to an uncreditworthy person, which
could increase the likelihood of default or may result in a mortgage bearing an
interest rate below the current market rate being assumed by a new home buyer,
which may affect the average life of the mortgage loans and the number of
mortgage loans which may extend to maturity. However, the original mortgagor
may still be primarily liable for the indebtedness under the promissory note
notwithstanding the transfer of the Mortgaged Property. See "RISK FACTORS-Yield
and Prepayment Considerations" with respect to the Master Servicer's right to
waive the enforcement of any due-on-sale clauses.
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. 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 changes 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.
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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 Mortgage 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 Mortgage 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 Mortgage Loans. In addition,
the Relief Act imposes limitations which would impair the ability of the
Servicer to foreclose on an affected Mortgage Loan during the borrower's period
of active duty status. Thus, in the event that such a Mortgage Loan goes into
default there may be delays and losses occasioned by the inability to realize
upon the mortgaged property in a timely fashion. As used herein, a "Relief Act
Mortgage Loan" refers to any Mortgage Loan as to which the Relief Act has
limited the amount of interest the related Mortgagor is required to pay each
month.
ENVIRONMENTAL LEGISLATION
Certain states impose a statutory lien for associated costs on property
that is the subject of a cleanup action by the state on account of hazardous
wastes or hazardous substances released or disposed of on the property. Such a
lien will generally have priority over all subsequent liens on the property and,
in certain of these states, will have priority over prior recorded liens
including the lien of a mortgage. In addition, under federal environmental
legislation and possibly under state law or a number of states, a secured party
which takes a deed in lieu of foreclosure or acquires a mortgaged property at a
foreclosure sale or otherwise as deemed an "owner" or "operator" of the property
may be liable for the costs of cleaning up a contaminated site. Although such
costs could be substantial, it is unclear whether they would be imposed on a
secured lender.
CERTAIN LAWS AND REGULATIONS
The Mortgaged Properties are subject to compliance with various federal,
state and local statutes and regulations. Failure to comply (together with an
inability to remedy any such failure) could result in material diminution in the
value of a Mortgaged Property which could, together with the possibility of
limited alternative uses for a particular Mortgages Property (i.e., a nursing or
convalescent home), result in a failure to realize the full principal amount of
the Mortgage Loans.
TYPE OF MORTGAGED PROPERTY
Lenders may be subject to additional risk depending upon the type and use
of the Mortgaged Property in question. For instance, Mortgaged Properties which
are hospitals, nursing homes or convalescent homes may present special risks to
lenders in large part due to significant governmental regulation of the
operation, maintenance, control and financing of
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health care institutions. Mortgages on mortgaged properties which are owned by
the mortgagor under a condominium form of ownership are subject to the
declaration, by-laws, liens for homeowner association dues and other rules and
regulations of the condominium association. Mortgaged Properties which are
hotels or motels may present additional risk to the lender in that: (i) hotels
and motels are typically operated pursuant to franchise, management and
operating agreements which may be terminable by the operator, and (ii) the
transferability of the hotel's operating, liquor and other licenses to the
entity acquiring the hotel either through purchase or foreclosure is subject to
the vagaries of local law requirements. In addition, Mortgaged Properties which
are multifamily residential properties may be subject to rent control laws,
which could impact the future cash flows of such properties.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary, of the anticipated material federal income tax
consequences of the purchase, ownership and disposition of Certificates is based
on the advice of Kutak Rock, counsel to the Depositor. This summary is based on
laws, regulations, including the REMIC regulations promulgated by the Treasury
Department on December 23, 1992, and generally effective for REMICs with
start-up dates on or after November 12, 1991 (the "REMIC Regulations"), rulings
and decisions now in effect or (with respect to regulations) proposed, all of
which are subject to change either prospectively or retroactively. This summary
does not address the federal income tax consequences of an investment in
Certificates applicable to all categories of investors, some of which (for
example, banks and insurance companies) may be subject to special rules.
Prospective investors should consult their tax advisors regarding the federal,
state, local and any other tax consequences to them of the purchase, ownership
and disposition of Certificates.
GENERAL
The Mortgage Pool relating to the Certificates will elect to be treated as
a REMIC. Qualification as a REMIC requires ongoing compliance with certain
conditions. Although a REMIC is not generally subject to federal income tax, if
the Mortgage Pool fails to comply with one or more of the ongoing requirements
of the Code for REMIC status during any taxable year, the Code provides that a
Mortgage Pool will not be treated as a REMIC for such year and thereafter. In
that event, the Mortgage Pool may be taxable as a separate corporation under
Treasury regulations, and the REMIC Certificates may not be accorded the status
or given the tax treatment described below. While the Code authorizes the
Treasury Department to issue regulations providing relief in the event of an
inadvertent termination of REMIC status, no such regulations have been issued.
Any such relief moreover, may be accompanied by sanctions, such as the
imposition of a corporate tax on all or a portion of the REMIC's income for the
period in which the requirements for such status are not satisfied. With
respect to the Mortgage Pool, Kutak Rock will deliver its opinion generally to
the effect that, under then existing laws and assuming compliance with all
provisions of the Pooling Agreement, the Mortgage Pool will qualify as a REMIC
and the Certificates will be treated as regular interests ("Regular
Certificates") in the REMIC.
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In general, (a) Certificates held by a thrift institution taxed as a
"mutual savings bank" or "domestic building and loan association" will represent
interests in "qualifying real property loans" within the meaning of Code
Section 593(d)(1); (b) Certificates held by a thrift institution taxed as a
"domestic building and loan association" will constitute assets described in
Code Section 7701(a)(19)(C); (c) Certificates held by a real estate investment
trust will constitute "real estate assets" within the meaning of Code
Section 856(c)(5)(A); and (d) interest on Certificates will be considered
"interest on obligations secured by mortgages on real property" within the
meaning of Code Section 856(c)(3)(B). If less than 95% of the REMIC's assets
are assets qualifying under any of the foregoing Code sections, the Certificates
will be qualifying assets only to the extent that the REMIC's assets are
qualifying assets.
REGULAR CERTIFICATES
GENERAL. Except as otherwise stated in this discussion, Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC and not as ownership interests in the REMIC or its assets.
Moreover, holders of Regular Certificates that otherwise report income under a
cash method of accounting will be required to report income with respect to
Regular Certificates under an accrual method.
ORIGINAL ISSUE Original issue discount equals the difference between the
"stated redemption price at maturity" of a Regular Certificate and its "issue
price." Holders of any obligation issued with original issue discount will be
required to include such original issue discount in gross income for federal
income tax purposes as it accrues, in accordance with a constant interest method
based on the compounding of interest, rather than in accordance with receipt of
the interest payments. The following discussion is based in part on Treasury
regulations issued on January 27, 1994 under Code Sections 1271 through 1273 and
1275 (the "OID Regulations ") and in part on the provisions of the Tax Reform
Act of 1986 ( the "1986 Act"). The holder of a Regular Certificate should be
aware, however, that the OID Regulations do not adequately address certain
issues relevant to prepayable securities, such as the Regular Certificates. The
prepayment assumption used in calculating the estimated life of the Offered
Certificates is described under "MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS."
Rules governing original issue discount are set forth in Code Sections 1271
through 1273 and 1275. These rules require that the amount and rate of accrual
of original issue discount be calculated based on a prepayment assumption and
prescribe a method for adjusting the amount and rate of accrual of such discount
where the actual prepayment rate differs from the prepayment assumption. Under
the Code, such prepayment assumption must be determined in the manner prescribed
by regulations which have not yet been issued. The legislative history
provides, however, that Congress intended the regulations to require that the
prepayment assumption be the prepayment assumption that is used in determining
the initial offering price of such Regular Certificates.
The issue price of a Regular Certificate is the first price at which a
substantial amount of Regular Certificates are sold to the public (excluding
bond houses, brokers, underwriters or wholesalers). The stated redemption price
at maturity of a Regular Certificate includes the
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original principal amount of the Regular Certificate, 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 Regular Certificate. Interest is payable at a single fixed rate only if
the rate appropriately takes into account the length of the interval between
payments.
The OID Regulations permit a Certificateholder to elect to accrue all
interest or discount (including DE MINIMIS market or original issue discount) in
income as interest, based on a constant yield method. If such an election were
to be made with respect to a Regular Certificate with market discount, the
Certificateholder 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 Certificateholder acquires during the year of the
election or thereafter. The election to accrue interest, discount and premium
on constant yield method with respect to a Certificate cannot be revoked without
the consent of the IRS.
Under a DE MINIMIS rule, original issue discount on a Regular Certificate
will be considered to be zero if such original issue discount is less than 0.25%
of the stated redemption price at maturity of the Regular Certificate multiplied
by the weighted average maturity of the Regular Certificate. Holders generally
must report DE MINIMIS OID pro rata as principal payments are received, and such
income will be capital gain if the Regular Certificate is held as a capital
asset. Generally, a Regular Certificateholder must include in gross income the
"daily portions," as determined below, of the original issue discount that
accrues on a Regular Certificate for each day the Regular Certificateholder
holds the Regular Certificate, including the purchase date but excluding the
disposition date. The Issuer does [not] expect that the Regular Certificates
will be issued with greater than DE MINIMIS original issue discount. Each
purchaser of a Regular Certificate is urged to consult his own tax advisor
concerning the application of the original issue discount provisions to an
investment in Regular Certificates.
MARKET DISCOUNT. A purchaser of a Regular Certificate also may be subject
to the market discount provisions of Code Sections 1276 through 1278. Under
these provisions "market discount" equals the excess, if any, of (a) the Regular
Certificate's stated redemption price at maturity over (b) the price of such
Regular Certificate paid by the purchaser. In the case of any obligation issued
with original issue discount, the stated redemption price at maturity is treated
as equal to its revised issue price. A Certificateholder that purchases a REMIC
Regular Certificate at a market discount, will recognize gain upon receipt of
each distribution representing stated redemption price. In particular, under
Section 1276 of the Code such a holder generally will be required to allocate
each such principal distribution first to accrued market discount not previously
included in income, and to recognize ordinary income to that extent.
Market discount with respect to a Regular Certificate will be considered to
be zero if the amount allocable to the Regular Certificate is less than 0.25% of
the Regular Certificate's stated redemption price at maturity multiplied by the
Regular Certificate's weighted average maturity remaining after the date of
purchase. If market discount on a Regular Certificate is considered
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to be zero under this rule, the actual amount of market discount must be
allocated to the remaining principal payments on the Regular Certificate and
gain equal to such allocated amount will be recognized when the corresponding
principal payment is made. Treasury regulations implementing the market
discount rules have not yet been issued; therefore, investors should consult
their own tax advisors regarding the application of these rules and the
advisability making any of the elections allowed under Code Sections 1276
through 1278.
The Code provides that any principal payment (whether a scheduled payment
or a prepayment) or any gain on disposition of a market discount bond acquired
by the taxpayer after October 22, 1986, shall be treated as ordinary income to
the extent that it does not exceed the accrued market discount at the time of
such payment. The amount of accrued market discount for purposes of determining
the tax treatment of subsequent principal payments or dispositions of the market
discount bond is to be reduced by the amount so treated ordinary income. For
purposes of calculating market discount the case of instruments (such as the
Regular Certificates) which provide for payments which may be accelerated by
reason of prepayments of other obligations securing such instruments, the same
prepayment assumption applicable to calculating the accrual of original issue
discount will apply.
A holder of a Regular Certificate who acquires such Regular Certificate at
a market discount also may be required to defer, until the maturity date of such
Regular Certificate or its earlier disposition in a taxable transaction, the
deduction of a portion of the amount of interest that the holder paid or accrued
during the taxable year on indebtedness incurred or maintained to purchase or
carry the Regular Certificate in excess of the aggregate amount of interest
(including original issue discount) includible in such holder's gross income for
the taxable year with respect to such Regular Certificate. The amount of such
net interest expense deferred in a taxable year may not exceed the amount of
market discount accrued on the Regular Certificate for the days during the
taxable year on which the holder held the Regular Certificate and, in general,
would be deductible when such market discount is includible in income. The
amount of any remaining deferred deduction is to be taken into account in the
taxable year in which the Regular Certificate matures or is disposed of in a
taxable transaction. In the case of a disposition in which gain or loss is not
recognized in whole or in part any remaining deferred deduction will be allowed
to the extent of gain recognized on the disposition. This deferral rule does
not apply if the Regular Certificateholder elects to include such market
discount in income currently as it accrues on all market discount obligations
acquired by such Regular Certificateholder in that taxable year or thereafter.
PREMIUM. A purchaser of a Regular Certificate who purchases the Regular
Certificate at a cost greater than its remaining stated redemption price at
maturity will be considered to have purchased the Regular Certificate at a
premium, and may elect to amortize such premium under a constant yield method.
It is not clear whether a prepayment assumption would be taken into account in
determining the life of the Regular Certificate for this purpose. However, the
legislative history states that the same rules that apply to accrual of market
discount (which rules require use of a prepayment assumption in accruing market
discount with respect to Regular Certificates without regard to whether such
Certificates have original issue discount) will also apply in amortizing bond
premium under Code Section 171.
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SALE, EXCHANGE OR REDEMPTION OF REGULAR CERTIFICATES. If a Regular
Certificate is sold, exchanged, redeemed or retired, the seller will recognize
gain or loss equal to the difference between the amount realized on the sale,
exchange or redemption and the seller's adjusted basis in the Regular
Certificate. Such adjusted basis generally will equal the cost of the Regular
Certificate to the seller, increased by any original issue discount and market
discount included in the seller's gross income with respect to the Regular
Certificate, and reduced (but not below zero) by payments included in the stated
redemption price at maturity previously received by the seller and by any
amortized premium. Except as provided in the following paragraph and as
provided under "Market Discount" above, any such gain or loss will be capital
gain or loss, provided that the Regular Certificate is held as a "capital asset"
(generally, property held for investment) within the meaning of Code
Section 1221
Gain from the sale or other disposition of a Regular Certificate that might
otherwise be capital gain will be treated as ordinary income to the extent that
such gain does not exceed the excess, if any, of (a) the amount that would have
been includible in such holder's income with respect to the Regular Certificate
had income accrued thereon at a rate equal to 110% of the applicable Federal
rate as defined in Code Section 1274(d) determined as of the date of purchase of
such Regular Certificate, over (b) the amount actually includible in such
holder's income. Additionally, gain will be treated as ordinary income if the
Regular Certificates were issued with an intention to call prior to maturity.
The Regulations provide that the presence of a sinking fund or optional call
does not give rise to such an intention, and the Depositor does not believe such
an intention is otherwise present. In addition, these provisions do not apply
to certain public offers of debt instruments. However, each prospective holder
of Regular Certificates is urged to consult his or her own tax advisor
concerning the application of the foregoing provisions.
REMIC EXPENSES. As a general rule, all of the expenses of a REMIC will be
taken into account by holders of the Residual Interests. In the case of a
"single class REMIC," however, the expenses and a matching amount of additional
income will be allocated, under temporary Treasury regulations, among the
holders of the Regular Certificates and the holders of the Residual Interests on
a daily basis in proportion to the relative amounts of income accruing to each
Certificateholder on that day. In the case of individuals (or trusts, estates
or other persons who compute their income in the same manner as individuals) who
own an interest in a Regular Certificate directly or through a pass-through
entity which is required to pass miscellaneous itemized deductions through to
its owners or beneficiaries (e.g., a partnership, an S corporation, a grantor
trust or certain other entities), such expenses will be deductible only to the
extent that such expenses, plus other "miscellaneous itemized deductions" of the
individual, exceed 2% of such individual's adjusted gross income. In addition,
the personal exemptions and itemized deductions of individuals with adjusted
gross incomes above particular levels are subject to certain limitations which
reduce or eliminate the benefit of such items. The reduction or disallowance of
this deduction coupled with the allocation of additional income may have a
significant impact on the yield of the Regular Certificate to such a Holder.
Further, holders (other than corporations) subject to the alternative minimum
tax may not deduct miscellaneous itemized deductions in determining such
holders' alternative minimum taxable income. In general terms, a single class
REMIC is one that either (a) would qualify, under existing Treasury regulations,
as a grantor trust if it were not a REMIC (treating all interests as ownership
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interests, even if they would be classified as debt for federal income tax
purposes) or (b) is similar to such a trust and is structured with the principal
purpose of avoiding the single class REMIC rules. Although the Issuer does not
believe that the pool will be treated as a single class REMIC under these
provisions, there can be no assurance that the Internal Revenue Service will not
dispute such assertion.
REALIZED LOSSES
Under Section 166 of the Code, both corporate and non-corporate holders of
Certificates that acquire such Certificates in connection with a trade or
business should be allowed to deduct, as ordinary losses, any losses sustained
during a taxable year in which their Certificates become wholly or partially
worthless as the result of one or more realized losses on the Mortgage Loans.
However, it appears that a non-corporate holder that does not acquire a
Certificate in connection with its trade or business will not be entitled to
deduct a loss under Section 166 of the Code until such holder's Certificate
becomes wholly worthless, taking into account all of the facts and
circumstances, and that the loss will be characterized as a short-term capital
loss.
Each holder of a Certificate will be required to accrue interest and
original issue discount with respect to such Certificate, without giving effect
to any reductions in distributions attributable to a default or delinquency on
the Mortgage Loans until it can be established that any such reduction
ultimately will not be recoverable. As a result, the amount of taxable income
reported in any period by the holder of a Certificate could exceed the amount of
economic income actually realized by the holder in such period. Although the
holder of a Certificate eventually will recognize a loss or reduction in income
attributable to previously accrued and included income that as the result of a
realized loss ultimately will not be realized, the law is unclear with respect
to the timing and character of such loss or reduction in income.
NON-U.S. PERSONS. Generally, payments of interest (including any payment
with respect to accrued original issue discount) on the Regular Certificates to
a Regular Certificateholder who is a non-U.S. Person not engaged in a trade or
business within the United States, will not be subject to federal withholding
tax if (a) such Regular Certificateholder does not actually or constructively
own 10% or more of the combined voting power of all classes of equity in the
issuer (which for purposes of this discussion may be defined as the Mortgage
Pool or the beneficial owners of the related Residual Certificates (the
"Issuer")); (b) such Regular Certificateholder is not a controlled foreign
corporation (within the meaning of Code Section 957) related to the Issuer; and
(c) such Regular Certificateholder complies with certain identification
requirements (including delivery of a statement, signed by the Regular
Certificateholder under penalties of perjury, certifying that such Regular
Certificateholder is a foreign person and providing the name and address of such
Regular Certificate holder). The foregoing exemption does not apply to certain
contingent interest. In addition, market discount is not treated as interest
for purposes of this exclusion. If a Regular Certificateholder is not exempt
from withholding, distributions of interest, including distributions in respect
of accrued original issue discount, such holder may be subject to a 30%
withholding tax, subject to reduction under any applicable tax treaty.
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Regular Certificateholders who are non-U.S. Persons and persons related to
such holders should not acquire any Residual Certificates, and Residual
Certificateholders and persons related to Residual Certificateholders should not
acquire any Regular Certificates without consulting their tax advisors as to the
possible adverse tax consequences of such acquisition.
INFORMATION REPORTING AND BACKUP WITHHOLDING. The Servicer will furnish or
make available, within a reasonable time after the end of each calendar year, to
each Regular Certificateholder at any time during such year, such information as
may be deemed necessary or desirable to assist Regular Certificateholders in
preparing their federal income tax returns, or to enable holders to make such
information available to owners or other financial intermediaries of holders
that hold such Regular Certificates as nominees. If a holder, owner or other
recipient of a payment on behalf of an owner fails to supply a certified
taxpayer identification number or if the Secretary of the Treasury determines
that such person has not reported all interest and dividend income required to
be shown on its federal income tax return, 31% backup withholding may be
required with respect to any payments. Any amounts deducted and withheld from a
distribution to a recipient would be allowed as a credit against such
recipient's federal income tax liability.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "CERTAIN
FEDERAL INCOME TAX CONSIDERATIONS," potential investors should consider the
state income tax consequences of the acquisition, ownership and disposition of
the Certificates. State 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. Therefore, potential investors
should consult their own tax advisors with respect to the various tax
consequences of investments in the Certificates.
ERISA CONSIDERATIONS
ERISA and Section 4975 of the Code impose certain requirements on those
employee benefit plans and arrangements to which either ERISA or the Code
applies (each a "Plan") and on those persons who are fiduciaries with respect to
such Plans. In accordance with ERISA's general fiduciary standards, before
investing in a Certificate a Plan fiduciary should determine whether such an
investment is permitted under the governing Plan instruments and is appropriate
for the Plan in view of its overall investment policy and the composition and
diversification of its portfolio. Other provisions of ERISA and the Code
prohibit certain transactions involving the assets of a Plan and persons who
have certain specified relationships to the Plan (i.e., "parties in interest"
within the meaning of ERISA or "disqualified persons" within the meaning of the
Code). Thus, a Plan fiduciary considering an investment in Certificates should
also consider whether such an investment might constitute or give rise to a
prohibited transaction under ERISA or the Code.
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PLAN ASSETS REGULATIONS
If an investing Plan's assets were deemed to include an undivided ownership
interest in the assets included in a Mortgage Pool, a Plan's investment in the
Certificates might be deemed to constitute a delegation under ERISA of the duty
to manage Plan assets by the fiduciaries deciding to invest in the Certificates,
and certain transactions involved in the operation of the Mortgage Pool might be
deemed to constitute prohibited transactions under ERISA and the Code. ERISA
and the Code do not define "plan assets." The U.S. Department of Labor has
published regulations (the "Labor Regulations") concerning whether or not a
Plan's assets would be deemed to include an interest in the underlying assets of
an entity for purposes of the reporting, disclosure and fiduciary responsibility
provisions of ERISA, if the Plan acquires an "equity interest" in such entity
(such as by acquiring Certificates). The Labor Regulations state that the
underlying assets of an entity will not be considered "plan assets" if,
immediately after the most recent acquisition of any equity interest in the
entity, whether from the issuer or an underwriter less than twenty-five percent
(25%) of the value of each class of equity interest is held by "benefit plan
investors," individual retirement accounts, and other employee benefit plans not
subject to ERISA (for example, governmental plans). The Depositor cannot
predict whether under the Labor Regulations the assets of a Plan investing in
Certificates will be deemed to include an interest in the assets of the Mortgage
Pool.
In making its investment decision, the Plan fiduciary should consider the
possible availability of any prohibited transaction exemptions, in particular,
Prohibited Transaction Class Exemption 83-1 for Certain Transactions Involving
Mortgage Pool Investment Trusts ("PTE 83-1"). PTE 83-1 permits certain
transactions involving the creation, maintenance and termination of certain
residential mortgage pools and the acquisition and holding of certain
residential mortgage pool pass-through certificates by Plans, whether or not the
Plan's assets would be deemed to include an ownership interest in the mortgages
in the mortgage pool, and whether or not such transactions would otherwise be
prohibited under ERISA. The Depositor believes that the "general conditions"
set forth in Section II of PTE 83-1, which are required for its applicability,
would be met with respect to most classes of Certificates since they evidence
ownership interest in the Mortgage Pool consisting solely of Mortgage Loans
secured by first or second mortgages or deeds of trust on single-family
residential property. PTE 83-1 would not apply to Certificates which are part
of a class that is subordinate to one or more other classes of the same
Certificates. It is not clear whether PTE 83-1 applies to Residual
Certificates. Before purchasing any Certificates, a Plan fiduciary should
consult with its counsel and determine whether PTE 83-1 applies, including
whether the appropriate "specific conditions" set forth in Section 1 of
PTE 83-1, in addition to the "general conditions" set forth in Section II, would
be met, or whether any other ERISA prohibited transaction exemption is
applicable.
The Depositor, or certain affiliates of the Depositor, might be considered
or might become "parties in interest" (as defined under ERISA) or "disqualified
persons" (as defined under the Code) with respect to a Plan. If so, the
acquisition or holding of Certificates by or on behalf of such Plan could be
considered to give rise to a "prohibited transaction" within the meaning of
ERISA and the Code unless PTE 83-1, or some other exemption as available.
Special caution ought to be exercised before a Plan purchases a Certificate in
such circumstances.
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Employee benefit plans which are governmental plans (as defined in
Section 3(32) of ERISA), and certain church plans (as defined in Section 3(33)
of ERISA), are not subject to the ERISA fiduciary requirements. However, the
purchase of a Residual Certificate by some of such plans, or by most varieties
of ERISA Plans, may give rise to "unrelated business taxable income" as
described in Sections 511-515 and 860E of the Code. Prior to the purchase of
Residual Certificates, a prospective purchaser may be required to provide an
affidavit to the Trustee and the Depositor that it is not a "disqualified
organization," which term as defined herein includes certain tax-exempt
entities not subject to Section 511 of the Code, including certain governmental
plans. In addition, prior to the transfer of a Residual Certificate, the
Trustee or the Depositor may require an opinion of counsel to the effect that
such transfer will not result in a violation of the prohibited transactions
provisions of ERISA and the Code and will not subject the Trustee, the Depositor
or the Master Servicer to additional obligations.
A fiduciary of any employee benefit plan subject to "ERISA", or the Code,
should carefully review with its legal advisors whether the purchase or holding
of an Offered Certificate could give rise to a transaction prohibited or not
otherwise permissible under ERISA or the Code. No Class B-1 or Class B-2
Certificate may be transferred unless the transferor delivers to the Trustee
(a) a certificate satisfactory to the Trustee to the effect that such transferee
neither is nor is acting on behalf of a plan subject to ERISA or, if the
transferor is an insurance company that it is purchasing such Certificates with
funds from its general account and that such transfer is covered by PTCE 95-60;
or (b) an opinion of counsel satisfactory to the Trustee to the effect that such
transfer will not result in the assets of the Mortgage Pool being "plan assets."
LEGAL INVESTMENT CONSIDERATIONS
Institutions whose investment activities are subject to legal investment
laws and regulations or to review by certain regulatory authorities may be
subject to restrictions on investment in certain types of the Certificates. Any
financial institution that is subject to the jurisdiction of the Comptroller of
the Currency, the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, the Office of Thrift Supervision, the National
Credit Union Administration or other federal or state agencies with similar
authority should review any applicable rules, guidelines and regulations prior
to purchasing any Certificates. Financial institutions should review and
consider the applicability of the Federal Financial Institutions Examination
Council Supervisory Policy Statement on Securities Activities (to the extent
adopted by their respective federal regulators), which, among other things, set
forth guidelines for investing in certain types of mortgage-related securities.
including securities such as the Certificates. In addition, financial
institutions should consult their regulators concerning the risk-based capital
treatment of any Certificates. Investors should consult their own legal
advisors in determining whether and to what extent Certificates constitute legal
investments or are subject to restrictions on investment.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement, dated __________, 1996 (the "Underwriting Agreement"), among the
Depositor and the Underwriters,
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the Depositor has agreed to sell to the Underwriters, and the Underwriters have
agreed to purchase from the Depositor, all of the Offered Certificates as set
forth opposite their names below:
<TABLE>
<CAPTION>
Class A-1 Class A-2 Class A-3 Class A-4 Class B-1 Class B-2
Underwriter Certificates Certificates Certificates Certificates Certificates Certificates
----------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
$ $ $ $ $ $
First Southwest Company ------------ ------------ ------------ ------------ ------------ ------------
Bear, Stearns & Co. Inc. ------------ ------------ ------------ ------------ ------------ ------------
Total $ $ $ $ $ $
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
Distribution of the Offered Certificates will be made by the Underwriters
from time to time in negotiated transactions or otherwise at varying prices to
be determined at the time of sale. Proceeds to the Depositor from the sale of
the Offered Certificates will be ______.__% of the aggregate principal balance
of the Mortgage Loans, plus accrued interest at the weighted average of the
Pass-Through Rates from the Cutoff Date to the date of issuance of the Offered
Certificates but before deducting expenses payable by the Depositor. In
connection with the purchase and sale of the Offered Certificates, the
Underwriters may be deemed to have received compensation from the Depositor in
the form of underwriting discounts.
The Depositor has been advised by the Underwriters that they intend to make
a market in the Offered Certificates but have no obligation to do so. There can
be no assurance that a secondary market for the Offered Certificates will
develop or, if it does develop, that it will continue.
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.
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor by Kutak Rock,
Denver, Colorado, and for the Underwriters by Brown & Wood LLP, New York, New
York. Certain federal income tax and ERISA matters will be passed upon for the
Depositor by Kutak Rock.
CERTIFICATE RATINGS
It is a condition to the issuance of the Offered Certificates that the
Offered Certificates be rated by Moody's and Duff & Phelps at least as follows:
97
<PAGE>
Class Moody's Duff & Phelps
----- ------- -------------
A-1
A-2
A-3
A-4
B-1
B-2
Ratings on mortgage pass-through certificates address the likelihood of
receipt by Certificateholders of payments required under the Pooling Agreement.
Moody's ratings take into consideration the credit quality of the Mortgage
Pool including any credit support providers, structural and legal aspects
associated with the Offered Certificates, and the extent to which the payment
stream of the Mortgage Pool is adequate to make payments required under the
Offered Certificates. Moody's ratings on the Offered Certificates, do not,
however, constitute a statement regarding frequency of prepayments on the
Mortgage Loans. As a result, holders of the Offered Certificates might suffer a
lower than anticipated yield.
The ratings assigned by Duff & Phelps to mortgage pass-through certificates
address the likelihood of the receipt by certificateholders of all distributions
to which they are entitled under the transaction structure. Duff & Phelps'
ratings reflect its analysis of the riskiness of the Mortgage Loans and its
analysis of the structure of the transaction as set forth in the operative
documents. Duff & Phelps' ratings do not address the effect on the
certificates' yield attributable to prepayments or recoveries on the Mortgage
Loans.
The Depositor has not requested a rating of any Class of Offered
Certificates by any rating agency other than Moody's and Duff & Phelps.
However, there can be no assurance as to whether any other rating agency will
rate the Offered Certificates, or if it does, what rating would be assigned by
such other rating agency. The rating assigned by any such other rating agency
to a Class of Offered Certificates may be lower than the ratings assigned by
Moody's and Duff & Phelps.
The rating of the Offered Certificates should be evaluated independently
from similar ratings on other types of securities. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at any time by the assigning rating agency.
98
<PAGE>
INDEX TO AND GLOSSARY OF CERTAIN TERMS
1986 Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Accretion Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . .iii, 56
Accretion Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . iv
Accretion Termination Date. . . . . . . . . . . . . . . . . . . . . . . . 57
Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . x
Appraised Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Available Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Balloon Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . x
Bankruptcy Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Bankruptcy Loss Coverage Amount . . . . . . . . . . . . . . . . . . . . . 77
Bankruptcy Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Beneficial Owner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Book-Entry Certificates . . . . . . . . . . . . . . . . . . . . . . . . . iv
Calculated Maturity Date. . . . . . . . . . . . . . . . . . . . . . . . . 13
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Certificate Account . . . . . . . . . . . . . . . . . . . . . . . . . . . vi
Certificates. . . . . . . . . . . . . . . . . . . . . . . . . Cover 2, iii, 40
Class A-4 Prepayment Percentage . . . . . . . . . . . . . . . . . . . . . 59
Class A-4 Principal Distribution Amount . . . . . . . . . . . . . . . . . 59
Class B Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Class Certificate Balance . . . . . . . . . . . . . . . . . . . . . . . . 40
Closing Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xii
Collection Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Combined Prepayment Percentage. . . . . . . . . . . . . . . . . . . . . . 59
Commercial Mortgage Loan. . . . . . . . . . . . . . . . . . . . . . . . . v
Commercial Properties . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Commission. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Component . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Component Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Component Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . iv
CPR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Cutoff Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
Cutoff Date Pool Principal Balance. . . . . . . . . . . . . . . . . . . .v, 11
Cutoff Date Scheduled Principal Balance . . . . . . . . . . . . . . . . . 11
Debt Service Reduction. . . . . . . . . . . . . . . . . . . . . . . . . . 78
Deficient Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Definitive Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . 41
Deleted Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . Cover 2, iv, 32
Depository. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Distribution Account. . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . . . Cover 2
99
<PAGE>
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover 2
Due Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Duff & Phelps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xii
Excess Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Expense Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . x
FEMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
FHLMC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Financial Intermediary. . . . . . . . . . . . . . . . . . . . . . . . . . 41
Fixed Rate Certificates . . . . . . . . . . . . . . . . . . . . . . . . . iv
FNMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Fraud Loss Coverage Amount. . . . . . . . . . . . . . . . . . . . . . . . 77
Fraud Losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Insurance Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Issuer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Labor Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Land sale contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Liquidated Mortgage Loan. . . . . . . . . . . . . . . . . . . . . . . . . 64
Liquidation Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Loan Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 10
Market discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Master Servicer . . . . . . . . . . . . . . . . . . . . . . . Cover 2, iv, 33
Master Servicing Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Master Servicing Fee Rate . . . . . . . . . . . . . . . . . . . . . . . . 47
Metropolitan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
Moody's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii
Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Mortgage File . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . Cover 2, v
Mortgage Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Mortgage Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover 2
Mortgage Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Mortgaged Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Net Interest Shortfalls . . . . . . . . . . . . . . . . . . . . . . . . . 55
Net Mortgage Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . x
Net Prepayment Interest Shortfall . . . . . . . . . . . . . . . . . . . . 56
Net Realized Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Non-Offered Certificates. . . . . . . . . . . . . . . . . . . . . . . . . iii
Offered Certificates. . . . . . . . . . . . . . . . . . . . . . . . . .Cover 2
OID Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Old Standard. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
Original Subordinate Principal Balance. . . . . . . . . . . . . . . . . . 59
Pass-Through Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii
Percentage Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Physical Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . iv
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
100
<PAGE>
Pool Principal Balance. . . . . . . . . . . . . . . . . . . . . . . . . . 58
Pooling Agreement . . . . . . . . . . . . . . . . . . . . . . Cover 2, vii, 40
Prepayment Interest Shortfall . . . . . . . . . . . . . . . . . . . . . . 56
Principal Only Class. . . . . . . . . . . . . . . . . . . . . . . . . . . iv
PTE 83-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Qualified stated interest . . . . . . . . . . . . . . . . . . . . . . . . 90
Rating Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v, 54
Regular Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . iv, 88
Relief Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Relief Act Mortgage Loan. . . . . . . . . . . . . . . . . . . . . . . . . 87
Relief Act Reduction. . . . . . . . . . . . . . . . . . . . . . . . . . . 56
REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover 3, xi
REMIC Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
REO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
REO Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Replacement Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Repurchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Residual Certificates . . . . . . . . . . . . . . . . . . . . . . . . . iv, 40
Safeco. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Scheduled Due Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Scheduled Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Scheduled Principal Balance . . . . . . . . . . . . . . . . . . . . . . . 58
Securities Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover 2
Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover 2
Senior Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Senior Credit Support Depletion Date. . . . . . . . . . . . . . . . . . . 57
Senior Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Senior Prepayment Percentage. . . . . . . . . . . . . . . . . . . . . . . 67
Senior Principal Distribution Amount. . . . . . . . . . . . . . . . . . . 57
Single Family Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . v
Single Family Properties. . . . . . . . . . . . . . . . . . . . . . . . . 12
SMMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xii
Special Hazard Loss Coverage Amount . . . . . . . . . . . . . . . . . . . 77
Special Hazard Losses . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Special Hazard Mortgage Loan. . . . . . . . . . . . . . . . . . . . . . . 64
SSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Subordinate Certificates. . . . . . . . . . . . . . . . . . . . . . . . iv, 40
Subordinate Percentage. . . . . . . . . . . . . . . . . . . . . . . . . . 58
Subordinate Prepayment Percentage . . . . . . . . . . . . . . . . . . . . 59
Subordinate Principal Distribution Amount . . . . . . . . . . . . . . . . 61
Substitution Adjustment Amount. . . . . . . . . . . . . . . . . . . . . . 44
Summit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
Title V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Cover 2, iv
101
<PAGE>
Underwriters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Cover 2
Underwriting Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 96
Unpaid Interest Shortfall . . . . . . . . . . . . . . . . . . . . . . . . viii
Western . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
<PAGE>
DEFINITIONS
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the meanings specified in this
Article.
"BUSINESS DAY" means any day other than (a) a Saturday or Sunday or (b) a
day on which banking institutions in the State of New York, the State of
Washington or in the state where the principal office of the Trustee at which
its corporate business is administered or is located are required or authorized
by law or executive order to be closed.
"CERTIFICATEHOLDER" means the Person in whose name a Certificate is
registered in the Certificate Register, except that, solely for the purpose of
giving any consent pursuant to the Pooling Agreement, any Certificate registered
in the name of the Depositor, the Master Servicer or any affiliate thereof shall
be deemed not to be outstanding and the Percentage Interest evidenced thereby
shall not be taken into account in determining whether the requisite amount of
Percentage Interests necessary to effect any such consent has been obtained,
unless such entity is the registered owner of the entire Class of Certificates,
provided that the Trustee shall not be responsible for knowing that any
Certificate is registered in the name of such an affiliate unless one of its
Responsible Officers has actual knowledge.
"CLASS A-4 PERCENTAGE" means, as to any Distribution Dane, the percentage
equivalent of a fraction the numerator of which is the Class Certificate Balance
of the Class A-4 Certificates as of such date and the denominator of which is
the aggregate of the Class Certificate Balances of all Classes of Certificates
(other than the Private Certificates) as of such date.
"DISTRIBUTION ACCOUNT DEPOSIT DATE" means, as to any Distribution Date, the
Business Day preceding such Distribution Date.
"EXPENSE FEE" means, as to each Mortgage Loan and Distribution Date the sum
of one-twelfth of the Master Servicing Fee and Trustee Fee multiplied by the
Scheduled Principal Balance of such Mortgage Loan on the Due Date in the month
preceding such Distribution Date.
"LAND CONTRACTS" means a contract, together with all amendments and
modifications thereto, for the sale of real estate and the improvements thereon
pursuant to which the Mortgagor promises to pay the amount due thereon to the
holder thereof and pursuant to which fee title to the related Mortgaged Property
is held by such holder until the Mortgagor has made all of the payments required
pursuant to such contract, at which time fee title is conveyed to the Mortgagor.
"LOAN-TO-VALUE RATIO" means, with respect to any Mortgage Loan and as of
any date, the fraction, expressed as a percentage, the numerator of which is the
Scheduled Principal Balance of such Mortgage Loan as of such date and the
denominator of which is the Appraised Value.
"MORTGAGOR" means the obligor on a Mortgage Note or Land Contract.
103
<PAGE>
"NONRECOVERABLE ADVANCE" means any Advance or any portion of an Advance
previously made or proposed to be made in respect of a Mortgage Loan or REO Loan
which has not been previously reimbursed and which, in the good faith judgment
of the Master Servicer, will not or, in the case of a proposed Advance, would
not be ultimately recoverable from late payments, Insurance Proceeds or
Liquidation Proceeds or other recoveries in respect of the related Mortgage Loan
or REO Loan. The determination by the Master Servicer that it has made a
Nonrecoverable Advance or that any proposed Advance, if made, would constitute a
Nonrecoverable Advance, shall be evidenced by a certificate of a Servicing
Officer of the Master Servicer delivered to the Trustee and the Depositor and
detailing the reasons for such determination.
"POOL SCHEDULED PRINCIPAL BALANCE" means, as to any Distribution Date, the
aggregate Scheduled Principal Balances of each Mortgage Loan that was an
Outstanding Loan on the Scheduled Due Date in the applicable month as to which
such determination is being made.
"REQUIRED INSURANCE POLICY" means, with respect to any Mortgage Loan, any
insurance policy which is required to be maintained from time to time under the
Pooling Agreement in respect of such Mortgage Loan.
"REO LOAN" means any Mortgage Loan which is not a Liquidated Loan and as to
which the related Mortgaged Property is held as part of the Pool. Each REO Loan
relating to a Commercial Mortgage Loan shall be deemed to have an initial unpaid
principal balance and Scheduled Principal Balance equal to the unpaid principal
balance and Scheduled Principal Balance, respectively, of its predecessor
Commercial Mortgage Loan as of the date of the REO Acquisition. All amounts
payable or reimbursable to the Master Servicer or the Trustee in respect of the
predecessor Commercial Mortgage Loan as of the date of the related REO
Acquisition including, without limitation, any unpaid Master Servicing Fees,
Trustee Fees and any unreimbursed Advances, shall continue to be payable or
reimbursable to the Master Servicer or the Trustee, as the case may be, in
respect of an REO Loan.
"TITLE INSURANCE POLICY" means, with respect to each Mortgage Loan (other
than a Mortgage Loan which is a Land Contract), an owner's policy, a standard
mortgage lender's policy or an ALTA or CLTA (extended coverage) lender's title
insurance policy in an amount not less than $10,000, and, with respect to each
Mortgage Loan which is a Land Contract, an owner's policy, a standard mortgage
lender's policy or an ALTA or CLTA (extended coverage) lender's title insurance
policy in an amount not less than the outstanding principal balance of the Land
Contract at time of acquisition of the Land Contract by the respective Seller
and in each case which affirmatively insures ingress and egress and insures
against encroachments by or upon the Mortgaged Property.
"TRUSTEE FEE" means the amount payable to the Trustee which amount is
determined pursuant to an agreement between the Trustee and the Master Servicer.
104
<PAGE>
EXHIBIT A
CLASS DEFINITIONS AND ABBREVIATIONS
Each Class of Offered Certificates has been categorized by principal and
interest type. The cover page of this Prospectus identifies such categories for
each Class of Offered Certificates by means of one or more abbreviations. The
information presented below generally defines the categories by principal types
and interest types.
Standard Category
Abbreviation of Class Definition
- ------------ -------- ----------
PRINCIPAL TYPES
AD Accretion Directed A class that receives principal payments
from the accreted interest from
specified Classes.
SEN Senior Certificates Classes that are entitled to receive
payments of principal and interest on
each Distribution Date prior to the
Classes of Subordinate Certificates.
SEQ Sequential Pay Classes that receive principal payments
in a prescribed sequence, that do not
have predetermined schedules and that in
most cases receive payments of principal
continuously from the first Distribution
Date on which they receive principal
until they are retired. Sequential Pay
Classes may receive principal payments
concurrently with one or more other
Sequential Pay Classes or other Classes.
A single Class that receives principal
payments before or after all other
Classes or concurrently with one or more
of such Classes may be identified as a
Sequential Pay Class.
SUB Subordinate Certificates Classes that are entitled to receive
payments of principal and interest on
each Distribution Date only after the
Senior Certificates and certain Classes
of Subordinate Certificates with higher
priority of distributions have received
their full principal and interest
entitlements.
INTEREST TYPES
FIX Fixed Rate Classes with Pass-Through Rates that are
fixed throughout the life of the Class.
A-1
<PAGE>
EXHIBIT B
HYPOTHETICAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Remaining
Hypothetical Mortgage Scheduled Balance Remaining Term Amortization as
Mortgage Loan Interest Rate as of Cutoff Date as of Cutoff Date of Cutoff Date
- ------------- ------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C>
</TABLE>
B-1
<PAGE>
- --------------------------------------------------------------------------------
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and, if given or
made, such information or representations must not be relied upon. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any of the securities offered hereby, nor an offer of Offered Certificates
in any state or jurisdiction in which, or to any person to whom, such offer
would be unlawful. The delivery of this Prospectus at any time does not imply
that the information contained herein or therein is correct as of any time
subsequent to its date; however, if any material change occurs while this
Prospectus is required by law to be delivered, this Prospectus is required by
law to be delivered, this Prospectus will be amended or supplemented
accordingly.
--------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------
Page
----
SUMMARY OF THE OFFERING.................................................... iii
RISK FACTORS............................................................... 1
THE MORTGAGE POOL.......................................................... 10
THE DEPOSITOR.............................................................. 32
DESCRIPTION OF THE SELLERS................................................. 32
SERVICING OF MORTGAGE LOANS................................................ 33
THE POOLING AND SERVICING AGREEMENT........................................ 40
DESCRIPTION OF THE CERTIFICATES............................................ 53
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS.............................. 65
CREDIT ENHANCEMENT......................................................... 77
USE OF PROCEEDS............................................................ 78
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS................................ 79
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................... 88
STATE TAX CONSIDERATIONS................................................... 94
ERISA CONSIDERATIONS....................................................... 94
LEGAL INVESTMENT CONSIDERATIONS............................................ 96
METHOD OF DISTRIBUTION..................................................... 96
LEGAL MATTERS.............................................................. 97
CERTIFICATE RATINGS........................................................ 97
INDEX TO AND GLOSSARY OF CERTAIN TERMS..................................... 99
EXHIBIT A--Class Definitions and Abbreviations............................. A-1
EXHIBIT B--Hypothetical Mortgage Loans..................................... B-1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$_____________
Metropolitan Asset Funding, Inc.
DEPOSITOR
Mortgage Pass-Through Certificates
Series 1996-A
Metropolitan Mortgage
& Securities Co., Inc.
Summit Securities, Inc.
Western United Life
Assurance Company
Old Standard Life
Insurance Company
SELLERS
MetWest Mortgage Services, Inc.
MASTER SERVICER
------------------------------
PROSPECTUS
------------------------------
Structured Capital Management
A Division of First Southwest Company
Bear, Stearns & Co. Inc.
____________, 1996
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be borne by the registrant,
other than the underwriting discounts and commissions, in connection with the
issuance and distribution of the Notes hereunder.
SEC registration fee . . . . . . . . . . . . . . $344.83
Accounting fees and expenses . . . . . . . . . . (1)
Legal fees and expenses. . . . . . . . . . . . . (1)
Printing costs . . . . . . . . . . . . . . . . . (1)
Blue Sky fees and expenses . . . . . . . . . . . (1)
Trustee's fees . . . . . . . . . . . . . . . . . (1)
Rating Agency fees . . . . . . . . . . . . . . . (1)
Miscellaneous. . . . . . . . . . . . . . . . . . (1)
-------
Total . . . . . . . . . . . . . . . . . . . . $ (1)
-------
-------
- ------------------
(1) To be supplied by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law gives Delaware corporations broad
powers to indemnify their present and former directors and officers, and those
of affiliated corporations and other enterprises, against expenses incurred in
the defense or settlement of any legal proceeding to which they are made parties
by reason of being such directors or officers, subject to specified conditions
and exclusions. Such statute also gives a director or officer who successfully
defends an action the right to be so indemnified and authorizes a Delaware
corporation to buy directors' and officers' liability insurance.
The registrant has adopted a bylaw which makes indemnification mandatory
under certain circumstances for a 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, by reason of the fact that he is or was a director or officer of the
registrant or of affiliated corporations or other entities. Such persons must
be indemnified against reasonably incurred expenses (including attorneys' fees),
judgments, penalties, fines and amounts paid in settlement if it is determined
that such person conducted himself in good faith and that he reasonably believed
(a) in the case of conduct in his official capacity with the registrant, that
his conduct was in the registrant's best interest, or (b)
II-1
<PAGE>
in all other cases (except criminal cases), that his conduct was at least not
opposed to the registrant's best interests, or (c) in the case of any criminal
proceeding, that he had no reasonable cause to believe his conduct was unlawful.
The registrant must also indemnify any such person who was wholly successful in
defense of any action, suit, or proceeding as to which he was entitled to
indemnification against expenses (including attorneys' fees) reasonably incurred
by him in connection with the proceeding. No indemnification shall be made to
such persons with respect to any claim, issue or matter in connection with a
proceeding by or in the right of the registrant in which the person is adjudged
liable to the registrant, or in connection with any proceeding charging that the
person derived an improper personal benefit in which he was adjudged liable on
the basis that he derived an improper personal benefit.
Pursuant to the Underwriting Agreement (a form of which is included as an
exhibit to this Registration Statement), officers and directors of the
registrant, and affiliates thereof, may be entitled to indemnification by such
underwriters or agents against certain liabilities, including liabilities under
the Securities Act of 1933, as amended, arising from information which has been
furnished to the registrant by such underwriters or agents that appears in the
Registration Statement or any Prospectus. The Loan Sale Agreements will
indemnify the officers and directors of the Sellers against certain liabilities,
including liabilities under the Securities Act of 1933, as amended, in
connection with any action arising with respect to the offering of the
Certificates.
ITEM 16. EXHIBITS.
The following is a complete list of exhibits filed as part of the
Registration Statement. Exhibit numbers correspond to the numbers in the
Exhibit Table of Item 601 of Regulation S-K.
Exhibit No. Description
- ----------- -----------
1.1 Form of Underwriting Agreement
4.1 Form of Pooling and Servicing Agreement
5.1 Opinion of Kutak Rock as to the validity of the
Certificates*
8.1 Opinion of Kutak Rock Regarding Tax Matters*
23.1 Consent of Kutak Rock (included in Exhibits 5.1 and 8.1
hereto)*
24.1 Power of Attorney (included on page II-5 of the Registration
Statement)
*To be filed by amendment.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Spokane, State of Washington, on September 4, 1996.
METROPOLITAN ASSET FUNDING, INC.,
a Delaware corporation
By /s/ Tom Turner
-------------------------------------
Tom Turner, President
II-4
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Bruce J. Blohowiak, Tom Turner and Lynn A. Ciani,
and each of them, his true and lawful attorneys-in-fact and agents with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement on Form S-3 and file
the same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto such attorneys-in-
fact and agents 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, to all
intents and purposes and as full as they might or could do in person, hereby
ratifying and confirming all that such attorneys-in-fact and agents, or their
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.
Signature Title Date
--------- ----- ----
/s/ Tom Turner President and Director September 4, 1996
- ---------------------- (Principal Executive Officer)
Tom Turner
/s/ Greg Gordon Secretary, Treasurer and September 4, 1996
- ---------------------- Director (Principal Financial
Greg Gordon and Accounting Officer)
/s/ Philip Sandifur Vice President and Director September 4, 1996
- ----------------------
Philip Sandifur
/s/ Dave Gorton Vice President Director September 4, 1996
- ----------------------
Dave Gorton
/s/ Robert Ciani Director September 4, 1996
- ----------------------
Robert Ciani
II-5
<PAGE>
FORM OF
UNDERWRITING AGREEMENT
___________, 1996
First Southwest Company
Bear, Stearns & Co. Inc.
c/o First Southwest Company
557 Airport Boulevard, Suite 600
Burlingame, California 94010
$_______________ (APPROXIMATE)
MORTGAGE PASS-THROUGH CERTIFICATES,
SERIES 1996-A
Ladies and Gentlemen:
Section 1. INTRODUCTORY. Metropolitan Asset Funding, Inc., a Delaware
corporation (the "Company"), proposes to sell to the several Underwriters named
in Schedule I hereto (the "Underwriters"), $_______________ principal amount of
its Mortgage Pass-Through Certificates identified in Schedule I hereto (the
"Offered Certificates") having the aggregate Initial Class Certificate Balances
set forth in Schedule I (subject to an upward or downward variance, not to
exceed the percentage set forth in such Schedule I, the precise Initial Class
Certificate Balance within such range to be determined by the Company in its
sole discretion). The Offered Certificates, together with the two Classes of
subordinate certificates (the "Non-Offered Certificates") and the class of
residual certificates (the "Residual Certificates"), collectively referred to
herein as the "Certificates" evidence the entire ownership interest in the
assets of a trust fund (the "Pool") consisting primarily of fully amortizing and
balloon fixed interest rate mortgage loans, as described in Schedule I (the
"Mortgage Loans") acquired by the Company pursuant to the Mortgage Loan Purchase
Agreements (each, a "Loan Purchase Agreement"), dated as of ____________, 1996,
between the Company and one of the Sellers named in Schedule II hereto (the
"Sellers"), and having, as of the close of business on the date specified in
Schedule I as the cut-off date (the "Cut-Off Date"), the aggregate principal
balance set forth in Schedule I. An election will be made to treat the Pool as
a real estate mortgage investment conduit (a "REMIC") for purposes of federal
income taxation. The Certificates are to be issued
<PAGE>
pursuant to a pooling and servicing agreement (the "Pooling Agreement"),
dated as of ___________ 1, 1996, among the Company, as depositor, the
Sellers, Metwest Mortgage Services, Inc., as master servicer ("the Master
Servicer"), and The Bank of New York, as trustee (the "Trustee"). The Offered
Certificates will be issued in the denominations specified in Schedule I.
Capitalized terms used herein that are not otherwise defined herein have
the meanings assigned thereto in the Pooling Agreement.
Section 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the Underwriters as follows:
(a) A Registration Statement on Form S-3 (File No. 333-_____),
including a prospectus and such amendments thereto as may have been
required to the date hereof, relating to the certificates and the offering
thereof in accordance with the Securities Act of 1933, as amended (the
"Act"), has been filed with the Securities and Exchange Commission (the
"Commission"), and such registration statement, as amended, has become
effective. As used in this Agreement:
"EFFECTIVE DATE" means the date of the Effective Time.
"REGISTRATION STATEMENT" means such registration statement at the
Effective Time, including any documents incorporated by reference therein
at such time;
"EFFECTIVE TIME" means the date and the time as of which such
Registration Statement, or the most recent post-effective amendment
thereto, if any, was declared effective by the Commission;
"PRELIMINARY PROSPECTUS" means each prospectus included in such
Registration Statement, or amendments thereof, including a preliminary
prospectus which, as completed, is proposed to be used in connection with
the sale of the Offered Certificates; and
"PROSPECTUS" means such final prospectus (the "Prospectus") relating
to the Offered Certificates in the form first used to confirm sales of the
Offered Certificates.
Reference made herein to any Preliminary Prospectus or to the
Prospectus shall be deemed to refer to and include any documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under the
Act, as of the date of such Preliminary Prospectus or the Prospectus, as
the case may be, and any reference to any amendment or supplement to any
Preliminary Prospectus or the Prospectus shall be deemed to refer to and
include any document filed under the Securities Exchange Act of 1934 (the
"Exchange Act") after the date of such Preliminary Prospectus or the
Prospectus, as the case may be, and incorporated by reference in such
Preliminary Prospectus or the
2
<PAGE>
Prospectus, as the case may be; and any reference to any amendment to the
Registration Statement shall be deemed to include any report of the Company
filed with the Commission pursuant to Section 13(a) or 15(d) of the
Exchange Act after the Effective Time that is incorporated by reference in
the Registration Statement.
(b) Except with respect to Derived Information (other than Seller-
Provided Information) (in each case, as hereinafter defined), the documents
incorporated by reference in the Prospectus, when they became effective or
were filed with the Commission, as the case may be, conformed in all
material respects to the requirements of the Act or the Exchange Act, as
applicable, and the Rules and Regulations of the Commission (the "Rules and
Regulations"), and none of such documents contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and any
further documents so filed and incorporated by reference in the Prospectus,
when such documents become effective or are filed with the Commission, as
the case may be, will conform in all material respects to the requirements
of the Act or the Exchange Act, as applicable, and the Rules and
Regulations and will not contain an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(c) The Registration Statement at the Effective Date and at all times
subsequent thereto up to the Closing Date hereinafter mentioned and the
Prospectus as of the date thereof, and any amendments or supplements
thereto filed prior to the Closing Date, conformed or will conform in all
material respects with the requirements of the Act and the Exchange Act and
the Rules and Regulations of the Commission thereunder, and at the
Effective Time the Registration Statement does not include any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading, and the Prospectus, as amended or supplemented at the Closing
Date, if applicable, will not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements contained therein, in the light of the circumstances under which
they were made, not misleading; except that the foregoing does not apply to
statements or omissions in the Registration Statement or the Prospectus, as
amended or supplemented if applicable, based upon written information
furnished to the Company by any Underwriter through you specifically for
use therein.
(d) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated
therein, (i) there has been no material adverse change in the condition,
financial or otherwise, earnings, affairs or business prospects of the
Company, whether or not arising in the ordinary course of business and
(ii) there have been no material transactions entered into by the Company
other than those in the ordinary course of business.
3
<PAGE>
(e) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware with
corporate power and authority to execute, deliver and perform the
transactions contemplated by this Agreement, each Loan Purchase Agreement
and the Pooling Agreement.
(f) The Company is not in violation of its charter or in default in
the performance or observance of any obligation, agreement, covenant or
condition contained in any material contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which it is a party or by
which it or any of its properties may be bound; no consent, approval,
authorization or order of any court or governmental authority or agency is
required for the consummation by the Company of the transactions
contemplated by this Agreement, except such as may be required under the
Act, the Rules and Regulations or state securities or Blue Sky laws; and
the execution and delivery of this Agreement and the Pooling Agreement and
the consummation of the transactions contemplated herein and therein will
not conflict with or constitute a breach of, or default under, or result in
the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company pursuant to, any material contract,
indenture, mortgage, loan agreement, note, lease or other instrument to
which the Company is a party or by which it may be bound or to which any of
the property or assets of the Company is subject, nor will such action
result in any violation of the provisions of the charter or bylaws of the
Company or any law, administrative regulation or administrative or court
decree applicable to the Company.
(g) Except as set forth in the Prospectus, there is no action, suit
or proceeding before or by any court or governmental agency or body,
domestic or foreign, now pending or, to the knowledge of the Company,
threatened against or affecting the Company, which might result in any
material adverse change in the condition, financial or otherwise, earnings,
affairs or business prospects of the Company, or might materially and
adversely affect the properties or assets thereof or might materially and
adversely affect the offering of the Offered Certificates; and there are no
material contracts or other documents which are required to be filed as
exhibits to the Registration Statement by the Act or by the Rules and
Regulations which have not been so filed.
(h) This Agreement has been duly authorized, executed and delivered
by the Company and is a valid and binding agreement of the Company, except
as rights to indemnity hereunder may be limited by applicable law.
(i) Each of the Pooling Agreement and each Loan Purchase Agreement
has been duly authorized, and when executed and delivered by the Company,
will be a valid and binding agreement of the Company.
(j) The Certificates have been duly authorized, and, when executed
and authenticated in accordance with the provisions of the Pooling
Agreement and delivered to and, with respect to the Offered Certificates,
paid for by the Underwriters in
4
<PAGE>
accordance with this Agreement, will be validly issued and outstanding and
entitled to the benefits of the Pooling Agreement.
(k) The Company is not aware of (i) any request by the Commission for
any further amendment of the Registration Statement or the Prospectus or
for any additional information, (ii) the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or
the institution or threatening of any proceeding for that purpose or
(iii) any notification with respect to the suspension of the qualification
of the Offered Certificates for sale in any jurisdiction or the initiation
or threatening of any proceeding for such purpose.
Section 3. PURCHASE, SALE AND DELIVERY OF OFFERED CERTIFICATES. On the
basis of the representations, warranties and agreements herein contained, but
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to the Underwriters, and each Underwriter agrees, severally and
not jointly, to purchase from the Company at a purchase price set forth in
Schedule I hereto, the respective principal amount of Offered Certificates set
forth opposite such Underwriter's name in Schedule I hereto.
The Company will deliver the Offered Certificates to you for the accounts
of the Underwriters, against payment of the purchase price therefor in same day
funds wired to such bank as may be designated by the Company, or by such other
manner of payment as may agreed upon by the Company and you, at the offices of
_________________________ New York, New York at 10:00 a.m., New York time,
on ___________, 1996 or at such other place or time not later than seven full
business days thereafter as you and the Company determine, such time being
referred to herein as the "Closing Date."
The Offered Certificates so to be delivered will be in such denominations
and registered in such names as you request two full business days prior to the
Closing Date, as the case may be, and will be made available at the office of
_______________________, _________, ______________ or, upon your request,
through the facilities of The Depository Trust Company, for checking and
packaging at least one full business day prior to the Closing Date.
Section 4. OFFERING BY UNDERWRITERS. It is understood that the
Underwriters propose to offer the Offered Certificates subject to this Agreement
for sale to the public on the terms as set forth in the Prospectus.
Section 5. COVENANTS OF THE COMPANY. The Company hereby covenants and
agrees with the several Underwriters that:
(a) Immediately following the execution of this Agreement, the
Company will prepare the Prospectus setting forth the amount of Offered
Certificates covered thereby and the terms thereof not otherwise specified
in the Prospectus, the price at which the Offered Certificates are to be
purchased by the Underwriters from the Company, either the initial public
offering price or the method by which the price at which the Offered
5
<PAGE>
Certificates are to be sold will be determined, the selling concessions
and allowances, if any, and such other information as the Company deems
appropriate in connection with the offering of such Offered Certificates,
but the Company will not file any amendments to the Registration Statement
as in effect with respect to the Offered Certificates, or any amendments or
supplements to the Prospectus, without your consent, which will not be
unreasonably withheld; the Company will also advise you promptly of the
filing or effectiveness of any amendment or supplement to the Registration
Statement or the Prospectus, and of receipt of notification of the
institution by the Commission of any stop order proceedings in respect of
the Registration Statement or the initiation or threatening of any
proceeding for such purpose, and will use every reasonable effort to
prevent the issuance of any such stop order and to obtain as soon as
possible its lifting, if issued.
(b) If, during such period of time after the first date of the public
offering of the Offered Certificates as in the opinion of counsel for the
Underwriters a prospectus relating to the Offered Certificates is required
by law to be delivered in connection with sales by an Underwriter or
dealer, any event occurs as a result of which the Prospectus as then
amended or supplemented would, in the judgment of the Underwriters and
their counsel, include any untrue statement of a material fact, or omit to
state a material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, or if it is
necessary at any time to amend or supplement the Prospectus to comply with
the Act or any other law, the Company will promptly prepare and file with
the Commission, an amendment or supplement which will correct such
statement or omission or an amendment that will effect such compliance and
will notify you and, upon your request, prepare and furnish without charge
to each Underwriter and to any dealer in securities as many copies as you
may from time to time reasonably request of an amended Prospectus or a
supplement to the Prospectus which will correct such statement or omission
or effect such compliance.
(c) The Company will make generally available to the holders of the
Offered Certificates (the "Certificateholders") (the Certificateholders
being the applicable Clearing Agency in the case of Book-Entry
Certificates), as soon as practicable an earnings statement which will
satisfy the provisions of Section 11(a) of the Act and Rule 158 of the
Commission with respect to the Offered Certificates (which may be the
annual report filed with the Commission and delivered to Certificateholders
pursuant to the Pooling Agreement).
(d) The Company will deliver to each of you as many signed and
conformed copies of the Registration Statement and of each amendment
thereto (including exhibits filed therewith) as you may reasonably request
and will also deliver to you a conformed copy of the Registration Statement
and each amendment thereto for each of the Underwriters.
(e) The Company will endeavor, in cooperation with you, to qualify
the Offered Certificates for offering and sale under the applicable
securities laws of such
6
<PAGE>
states and other jurisdictions of the United States as you may designate,
and will maintain such qualifications in effect for as long as may be
required for the distribution of the Offered Certificates; provided,
however, that the Company shall not be required to qualify to do business
in any jurisdiction where it is now not qualified or to take any action
which would subject it to general or unlimited service of process in any
jurisdiction in which it is now subject to service of process. The Company
will file such statements and reports as may be required by the laws of
each jurisdiction in which the Offered Certificates have been qualified as
above provided.
(f) To the extent that any Underwriter (i) has provided to the
Company Collateral term sheets (as hereinafter defined) that such
Underwriter has provided to a prospective investor, the Company has filed
such Collateral term sheets as an exhibit to a current report on Form 8-K
within two business days of its receipt thereof, or (ii) has provided to
the Company Structural term sheets or Computational Materials (each as
defined below) that such Underwriter has provided to a prospective
investor, the Company will file or cause to be filed with the Commission a
current report on Form 8-K containing such Structural term sheet and
Computational Materials, as soon as reasonably practicable after the date
of this Agreement, but in any event, not later than the date on which the
Prospectus is filed with the Commission pursuant to Rule 424 of the Rules
and Regulations.
Section 6. CONDITIONS TO THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Offered
Certificates on the Closing Date will be subject to the accuracy of the
representations and warranties on the part of the Company herein as of the date
hereof and as of the Closing Date with the same force and effect as if made as
of that date, to the performance by the Company of its obligations hereunder and
to the following additional conditions precedent:
(a) Prior to the Closing Date no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted, or to the
knowledge of the Company or you, shall have been contemplated by the
Commission.
(b) Each Class of Offered Certificates shall have been rated not less
than as set forth on Schedule I hereto by Moody's Investors Service and
Duff & Phelps Credit Rating Co., respectively, (each a "Rating Agency") and
such ratings shall not have been rescinded.
(c) You shall have received an opinion of Kutak Rock, special counsel
to the Company, dated the Closing Date, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of Delaware
with corporate
7
<PAGE>
power and authority to execute, deliver and perform the transactions
contemplated by this Agreement, each Loan Purchase Agreement and the
Pooling Agreement;
(ii) Assuming each of the Loan Purchase Agreements and the
Pooling Agreement has been duly authorized, executed and delivered by
the parties thereto, each of such documents constitutes a legal, valid
and binding obligation of the Company, enforceable against the Company
in accordance with its terms, subject, as to enforceability, to
bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and to general principles
of equity regardless of whether enforcement is sought in a proceeding
in equity or at law;
(iii) The Certificates have been duly authorized, executed
and delivered by the Company and assuming that the Certificates have
been duly authenticated by the Trustee, when delivered and paid for by
you as provided in this Agreement, the Certificates purchased by you
will be validly issued and outstanding and entitled to the benefits of
the Pooling Agreement;
(iv) No consent, approval, authorization or order of any
court or governmental authority or agency is required in connection
with the transactions contemplated by this Agreement, any Loan
Purchase Agreement or the Pooling Agreement, except such as may be
required under the state securities or Blue Sky laws and such other
approvals as have been obtained; and, to the best of such counsel's
knowledge and information, the execution and delivery of this
Agreement, each Loan Purchase Agreement and the Pooling Agreement and
the consummation of the transactions contemplated herein will not
conflict with or constitute a breach of, or default under, or result
in the creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Company pursuant to any material
contract, indenture, mortgage, loan agreement, note, lease or other
instrument to which the Company is a party or by which it may be bound
or to which any of the property or assets of the Company is subject,
nor will such action result in any violation of the provisions of the
charter or bylaws of the Company, or any law, administrative
regulation or administrative or court decree applicable to the
Company;
(v) After due inquiry, such counsel does not know of any legal
or governmental proceeding pending or threatened to which the Company
is a party or to which any of the properties of the Company is subject
that is required to be described in the Registration Statement or the
Prospectus and is not so described or of any material contract or
other document that is required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement that is not so described or filed as required;
8
<PAGE>
(vi) The Registration Statement has become effective under
the Act; to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been instituted or
threatened under the Act; and the Registration Statement and the
Prospectus (other than the financial and statistical information
therein as to which such counsel need express no opinion) as of their
respective effective or issue dates complied as to form in all
material respects with the requirements of the Act and the Rules and
Regulations;
(vii) The Pooling Agreement and the Certificates conform
in all material respects to the descriptions thereof contained in the
Registration Statement and the Prospectus;
(viii) The Pooling Agreement will not be required to be
qualified under the Trust Indenture Act of 1939, as amended, and the
Pool is not required to be registered under the Investment Company Act
of 1940, as amended;
(ix) The statements in the Prospectus under the headings
"Certain Federal Income Tax Consequences" and "ERISA Considerations"
and the summaries thereof under the headings "Summary of Terms--
Certain Federal Income Tax Consequences" and "Summary of Terms--ERISA
Considerations," to the extent they constitute matters of Federal law
or legal conclusions with respect thereto, have been reviewed by such
counsel and are correct in all material respects;
(x) The Pool described in the Prospectus and the Pooling
Agreement will qualify as a "real estate investment conduit" ("REMIC")
within the meaning of Section 860D of the Internal Revenue Code
of 1986, as amended (the "Code"), assuming: (A) an election is made
to treat the Pool as a REMIC, (B) compliance with the Pooling
Agreement and (C) compliance with changes in the law, including any
amendments to the Code or applicable Treasury regulations thereunder;
(xi) Assuming that the Loan Purchase Agreements and the
Pooling and Servicing Agreement have each been duly authorized,
executed and delivered by the other parties thereto, each constitutes
a valid, legal and binding agreement of each Seller enforceable
against each such Seller in accordance with its terms, subject, as to
enforceability to bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors' rights generally and to
general principles of equity regardless of whether enforcement is
sought in a proceeding in equity or at law; and
(xii) Assuming that the Pooling Agreement has been duly
authorized, executed and delivered by the other parties thereto, the
Pooling Agreement
9
<PAGE>
constitutes a valid, legal and binding agreement of the Master
Servicer, enforceable against the Master Servicer in accordance with
its terms, subject, as to enforceability to bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors'
rights generally and to general principles of equity regardless of
whether enforcement is sought in a proceeding in equity or at law.
Such counsel also shall state that it has no reason to believe that at its
effective date the Registration Statement contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus on the Closing Date includes any untrue statement of a material fact
or omits to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading (other
than the financial and statistical information contained therein as to which
such counsel need express no opinion);
(d) [RESERVED]
(e) You shall have received an opinion of Witherspoon, Kelley,
Davenport & Toole, counsel to the Sellers, dated the Closing Date, to the
effect that:
(i) Each Seller has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the state
of its incorporation and is duly qualified to do business in, and is
in good standing as a foreign corporation in each jurisdiction in
which such Seller owns or leases property or in which the conduct of
its business requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
material adverse effect on such Seller;
(ii) Each of the Pooling Agreement and the Loan Purchase
Agreements has been duly authorized, executed and delivered by each
Seller;
(iii) No consent, approval, authorization or order of any
court or governmental authority or agency is required for the
consummation by any Seller of the transactions contemplated by the
terms of Loan Purchase Agreements or the Pooling Agreement except
such as may be required under the "Blue Sky" or state securities
laws of any jurisdiction in connection with the offering, sale or
acquisition of the Certificates and such other approvals as have been
obtained;
(iv) The sale of the Mortgage Loans to the Purchaser pursuant
to each Loan Purchase Agreement and the consummation of any of the
transactions contemplated by the terms of the Pooling Agreement or any
Loan Purchase Agreement do not conflict with or constitute a breach
of, or default under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of any Seller
pursuant to, any material contract, indenture,
10
<PAGE>
mortgage, loan agreement, note, lease or other instrument to which
any such Seller is a party or by which it may be bound or to which
any property or assets of any such Seller is subject, nor will such
action result in any violation of the provisions of the charter or
bylaws of any such Seller, or any law, administrative regulation or
administrative or court decree; and
(v) There are no legal or governmental actions,
investigations or proceedings pending to which any Seller is a party,
or, to the best knowledge of such counsel, threatened against any
Seller, (A) asserting the invalidity of this Agreement, the Pooling
and Servicing Agreement or Loan Purchase Agreement, (B) seeking to
prevent the sale of the Mortgage Loans to the Company or the
consummation of any of the transactions contemplated by this
Agreement, the Loan Purchase Agreement or the Pooling and Servicing
Agreement or (C) which might materially and adversely affect the
performance by any Seller of its obligations under, or the validity or
enforceability of, any Loan Purchase Agreement, the Pooling Agreement
or the Mortgage Loans.
(f) You shall have received an opinion of Witherspoon, Kelley,
Davenport & Toole, counsel to the Master Servicer, dated the Closing Date,
to the effect that:
(i) The Master Servicer has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the state
of its incorporation and is duly qualified to do business in, and is
in good standing as a foreign corporation in each jurisdiction in
which the Master Servicer owns or leases property or in which the
conduct of its business requires such qualification, except to the
extent that the failure to be so qualified or be in good standing
would not have a material adverse effect on the Master Servicer;
(ii) The Pooling Agreement has been duly authorized, executed
and delivered by the Master Servicer;
(iii) No consent, approval, authorization or order of any
court or governmental authority or agency is required for the
consummation by the Master Servicer of the transactions contemplated
by the terms of the Pooling Agreement except such as may be required
under the "Blue Sky" or state securities laws of any jurisdiction in
connection with the offering, sale or acquisition of the Certificates
and such other approvals as have been obtained;
(iv) The servicing of the Mortgage Loans pursuant to the
Pooling Agreement and the consummation of any of the transactions
contemplated by the terms of the Pooling Agreement do not conflict
with or constitute a breach of, or default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Master Servicer, pursuant to, any material
contract, indenture, mortgage, loan agreement, note, lease or other
11
<PAGE>
instrument to which the Master Servicer is a party or by which it may
be bound or to which any property or assets of the Master Servicer is
subject, nor will such action result in any violation of the
provisions of the charter or bylaws of the Master Servicer or any law,
administrative regulation or administrative or court decree; and
(v) There are no legal or governmental actions,
investigations or proceedings pending to which the Master Servicer is
a party, or, to the best knowledge of such counsel, threatened against
the Master Servicer, (A) asserting the invalidity of the Pooling
Agreement, (B) seeking to prevent the sale consummation of any of the
transactions contemplated by the Pooling Agreement or (C) which might
materially and adversely affect the performance by the Master Servicer
of its obligations under, or the validity or enforceability of, the
Pooling Agreement or the Mortgage Loans.
(g) You shall have received copies of any opinions of counsel for
the Company that the Company is required to deliver to the Rating Agency.
Any such opinions shall be dated the Closing Date and addressed to the
Underwriters or accompanied by reliance letters addressed to the
Underwriters.
(h) You shall have received from Brown & Wood, LLP, special counsel
for the Underwriters, such opinion or opinions, dated the Closing Date, in
form and substance satisfactory to you, with respect to such matters as
you may reasonably require.
(i) At the Closing Date you shall have received a certificate of an
executive officer of the Company, dated as of the Closing Date, to the
effect that the representations and warranties of the Company contained
in Section 2 are true and correct with the same force and effect as though
made on and as of the Closing Date.
(j) You shall have received from Coopers & Lybrand, independent
public accountants, two letters, the first delivered the day of but prior
to the execution of, and dated the date of, this Agreement and the other
dated the Closing Date, addressed to the Underwriters (with conformed
copies for each of the Underwriters), in the form heretofore agreed (and
in the case of the second such letter consistent with the first such
letter) with such variations as are reasonably acceptable to you.
(k) You shall have received an opinion of _______________________,
counsel to the Trustee, dated the Closing Date, in form and substance
satisfactory to you and your counsel, to the effect that:
(i) the Trustee has been duly incorporated and is validly
existing as a banking corporation under the laws of the State of
New York and has the power
12
<PAGE>
and authority to enter into and to perform all actions required of
it under the Pooling Agreement;
(ii) the Pooling Agreement has been duly authorized, executed
and delivered by the Trustee and constitutes a legal, valid and
binding obligation of the Trustee, enforceable against the Trustee
in accordance with its terms, except as such enforceability may be
limited by (A) bankruptcy, insolvency, liquidation, reorganization,
moratorium, conservatorship, receivership or other similar laws now
or hereafter in effect relating to the enforcement of creditors'
rights in general, and (B) general principles of equity (regardless
of whether such enforceability is considered in a proceeding in
equity or at law) as well as concepts of reasonableness, good faith
and fair dealing;
(iii) the Certificates have been duly authenticated and
delivered by the Trustee;
(iv) the execution and delivery of the Pooling Agreement by
the Trustee and the performance by the Trustee of the terms thereof
do not conflict with or result in a violation of (A) any law or
regulation of the United States of America or the State of New York
governing the banking or trust powers of the Trustee, or (B) the
certificate of incorporation or articles of association or bylaws
of the Trustee; and
(v) no approval, authorization or other action by, or filing
with, any governmental authority of the United States of America or
the State of New York having jurisdiction over the banking or trust
powers of the Trustee is required in connection with the execution
and delivery by the Trustee of the Pooling Agreement or the
performance by the Trustee thereunder.
(l) At the Closing Date counsel for the Underwriters shall have been
furnished with such other documents and opinions as they may reasonably
require.
If any condition specified in this Section 6 shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be
terminated by the Underwriters by notice to the Company at any time at or
prior to the Closing Date, and such termination shall be without liability of
any party to any other party except as provided in Section 7.
Section 7. PAYMENT OF EXPENSES. The Company will pay all costs,
expenses, fees and taxes incident to the preparation by the Company,
including, printing, filing and distribution under the Act of the
Registration Statement (including financial statements and exhibits), of the
Prospectus, each Preliminary Prospectus and all amendments and supplements to
any of them prior to or during the period specified in Section 5(b), the
preparation, printing (including word processing and duplication costs) and
delivery of this Agreement, the Pooling Agreement, Preliminary and
Supplemental Blue Sky Memoranda and all other agreements, memoranda,
13
<PAGE>
correspondence and other documents printed and delivered in connection with
the offering of the Offered Certificates, the registration with the
Commission, and the issuance by the Company of the Offered Certificates, the
registration or qualification of the Offered Certificates for offer and sale
under the securities or Blue Sky laws of the several states as described in
Section 5(e) (including the reasonable fees and disbursements of your counsel
relating to such registration or qualification), the fees and expenses of the
Rating Agencies, filings and clearance with the National Association of
Securities Dealers, Inc. in connection with the offering, if applicable, and
the performance by the Company of its other obligations under this Agreement;
provided, that the Company shall not be liable for the costs, expenses and
fees relating to the preparation or delivery of any Derived Information other
than Seller-Provided Information.
If this Agreement is terminated by you in accordance with the provisions
of Section 6 or Section 10(i), the Company shall reimburse you for all of
your out-of-pocket expenses, including the reasonable fees and disbursements
of counsel for the Underwriters.
Section 8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
from and against any and all losses, claims, damages, liabilities or
judgments (including without limiting the foregoing, the reasonable
legal and other expenses incurred in connection with any action, suit or
proceeding or any claim asserted) arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement or the Prospectus or any Preliminary Prospectus,
or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses,
claims, damages, liabilities or expenses are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information furnished in writing to the Company by any Underwriter
through you expressly for use therein or any such untrue statement or
omission made in Derived Information (as hereinafter defined)
incorporated therein as a result of any filing pursuant to Section 5(f),
assuming all Seller-Provided Information (as hereinafter defined) is
accurate and complete in all material respects. This indemnity agreement
will be in addition to any liability which the Company may otherwise
have to the persons referred to above in this Section 8(a).
(b) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, the directors of the Company,
the officers of the Company who sign the Registration Statement and each
person, if any, who controls the Company within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act from
and against any and all losses, claims, damages and liabilities caused
by any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto) or any Preliminary
14
<PAGE>
Prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, but only with reference to
information relating to such Underwriter furnished to the Company in
writing by such Underwriter through you expressly for use in the
Registration Statement, the Prospectus, any amendment or supplement
thereto, or any preliminary prospectus or any such untrue statement or
omission made in Derived Information incorporated therein as a result of
any filing pursuant to Section 5(f), assuming all Seller-Provided
Information is accurate and complete in all material respects. This
indemnity agreement will be in addition to any liability which the
Underwriters may have to the persons referred to above in this Section
8(b).
(c) In case any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be instituted involving
any person in respect of which indemnity may be sought pursuant to
either of the two preceding paragraphs, such person (hereinafter called
the indemnified party) shall promptly notify the person against whom
such indemnity may be sought (hereinafter called the indemnifying party)
in writing and the indemnifying party, upon request of the indemnified
party, shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the indemnified party to represent
the indemnified party and any others the indemnifying party may
designate and shall pay the fees and disbursements of such counsel
related to such proceeding. In any such action or proceeding, any
indemnified party shall have the right to retain its own counsel, but
the fees and expenses of such counsel shall be at the expense of such
indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or
(ii) the named parties to any such proceeding (including any impleaded
parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between
them. It is understood that the indemnifying party shall not, in
connection with any proceeding or related proceedings in the same
jurisdiction, be liable for (A) the reasonable fees and expenses of more
than one separate firm (in addition to any local counsel) for all
Underwriters and all persons, if any, who control Underwriters within
the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act and (B) the reasonable fees and expenses of more than
one separate firm (in addition to any local counsel) for the Company,
its directors, its officers who sign the Registration Statement and each
person, if any, who controls the Company within the meaning of either
such Section and that all such fees and expenses shall be reimbursed as
they are incurred. In the case of any such separate firm for the
Underwriters and such control persons of Underwriters, such firm shall
be designated in writing by First Southwest Company. In the case of any
such separate firm for the Company, and such directors, officers and
control persons of the Company, such firm shall be designated in writing
by the Company. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent, but
if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified
party from and against any loss or liability by reason of such
settlement or
15
<PAGE>
judgment. No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement of any pending or
threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder
by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on
claims that are the subject matter of such proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities and expenses
(i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Underwriters on
the other from the offering of the Offered Certificates or (ii) if the
allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the Underwriters on the other
in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be
deemed to be in the same proportions as the total net proceeds from the
offering (before deducting expenses) received by the Company bear to the
total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page
of the Prospectus. The relative fault of the Company on the one hand and
the Underwriters on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to
information supplied by the Company or by the Underwriters and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
(e) The Company and the Underwriters agree that it would not be
just and equitable if contribution pursuant to Section 8(d) were
determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to
in the immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages,
liabilities or judgments referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of Section 8(d), in no
event shall any Underwriter be required to contribute any amount in
excess of the amount by which the total price at which the Offered
Certificates underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which each
Underwriter has otherwise been required to pay by reason of such untrue
or alleged
16
<PAGE>
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to Section 8(d) are several in
proportion to the respective principal amount of Offered Certificates
set forth opposite their names in Schedule I hereto.
(f) Each Underwriter agrees to provide the Company (y) all Collateral
term sheets (as hereinafter defined), immediately upon distribution to any
potential investor and (z) any other Derived Information no later than two
Business Days prior to which the Prospectus is required to be filed
pursuant to Rule 424 under the Act. For purposes of this Agreement, the
term "Derived Information" means such portion, if any, of the information
delivered to the Company by an Underwriter pursuant to this Section for
filing with the Commission on Form 8-K as:
(i) is not contained in the Prospectus without taking into
account information incorporated therein by reference;
(ii) does not constitute Seller-Provided Information; and
(iii) is of the type of information defined as Collateral
term sheets, Structural term sheets or Computational Materials (as
such terms are interpreted in the No-Action Letters (as defined
below).
"SELLER-PROVIDED INFORMATION" means any information contained on any
computer tape furnished to the Underwriters by a Seller concerning the assets
comprising the Trust Fund.
"COLLATERAL TERM SHEET" and "STRUCTURAL TERM SHEET" shall have the
respective meanings assigned to them in the February 13, 1995 letter (the
"PSA Letter") of Cleary, Gottlieb, Steen & Hamilton on behalf of the Public
Securities Association (which letter, and the SEC staff's response thereto,
were publicly available February 17, 1995). The term "Collateral term sheet"
as used herein includes any subsequent Collateral term sheet that reflects a
substantive change in the information presented.
"COMPUTATIONAL MATERIALS" has the meaning assigned to it in the May 17,
1994 letter (the "Kidder letter" and together with the PSA Letter, the
"No-Action Letters") of Brown & Wood on behalf of Kidder, Peabody Acceptance
Corp. I (which letter, and the SEC staff's response thereto, were publicly
available May 20, 1994).
(g) The Underwriters confirm that the information set forth (i) in
the last paragraph on the first cover page and (ii) in the second, third
and fourth paragraphs under the caption "Method of Distribution" in the
Prospectus is correct and constitutes
17
<PAGE>
the only information furnished in writing to the Company by or on behalf
of the Underwriters specifically for inclusion in the Registration
Statement and the Prospectus.
Section 9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement, or contained in certificates of officers of the Company submitted
hereto, including indemnity and contribution agreements, shall remain
operative and in full force and effect, regardless of any termination of this
Agreement, or any investigation made by or on behalf of any Underwriter or
any person controlling any Underwriter by or on behalf of the Company, its
officers or directors, and shall survive acceptance and payment for the
Offered Certificates hereunder.
Section 10. EFFECTIVENESS OF AGREEMENT AND TERMINATION. This Agreement
shall become effective upon the execution and delivery hereof by the parties
hereto.
This Agreement may be terminated for any reason at any time prior to the
Closing Date by First Southwest Company upon the giving of written notice of
such termination to the Company, if prior to the Closing Date (a) there has
been, since the respective dates as of which information is given in the
Registration Statement, any material adverse change in the condition,
financial or otherwise, earnings, business affairs or business prospects of
the Company, whether or not arising in the ordinary course of business, or
(b) there has occurred any outbreak or escalation of hostilities or other
calamity or crisis or material change in existing financial, political,
economic or securities market conditions, the effect of which is such as to
make it, in the judgment of First Southwest Company, impracticable or
inadvisable to market the Offered Certificates in the manner contemplated in
the Prospectus or enforce contracts for the sale of the Offered Certificates,
or (c) trading generally on either the American Stock Exchange or the New
York Stock Exchange has been suspended, or minimum or maximum prices for
trading have been fixed, or maximum ranges for prices for securities have
been required, by either of said exchanges or by order of the Commission or
any other governmental authority, or if a banking moratorium has been
declared by either Federal or New York authorities. In the event of any such
termination, the provisions of Section 7, the indemnity agreement and
contribution provisions set forth in Section 8, and the provisions of
Sections 9 and 14 shall remain in effect.
Section 11. DEFAULT. If, on the Closing Date any one or more of the
Underwriters shall fail or refuse to purchase Offered Certificates that it or
they have agreed to purchase hereunder on such date, and the aggregate
principal amount of Offered Certificates which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than
one-tenth of the aggregate principal amount of the Offered Certificates to be
purchased on such date, the other Underwriters shall be obligated severally
in the proportions that the principal amount of Offered Certificates set
forth opposite their respective names in Schedule I bears to the aggregate
principal amount of Offered Certificates set forth opposite the names of all
such non-defaulting Underwriters, or in such other proportions as you may
specify, to purchase the Offered Certificates which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date; provided that in no event shall the principal amount of Offered
Certificates that any Underwriter has agreed to purchase pursuant to Section
3 be increased
18
<PAGE>
pursuant to this Section 11 by an amount in excess of one-ninth of such
principal amount of Offered Certificates without the written consent of such
Underwriter. If, on the Closing Date any Underwriter or Underwriters shall
fail or refuse to purchase Offered Certificates and the aggregate principal
amount of Offered Certificates with respect to which such default occurs is
more than one-tenth of the aggregate principal amount of Offered Certificates
to be purchased on such date, and arrangements satisfactory to you and the
Company for the purchase of such Offered Certificates are not made within 36
hours after such default, this Agreement shall terminate without liability on
the part of any non-defaulting Underwriter or the Company. In any such case
either you or the Company shall have the right to postpone the Closing Date
but in no event for longer than seven days, in order that the required
changes, if any, in the Registration Statement and in the Prospectus or in
any other documents or arrangements may be effected. Any action taken under
this paragraph shall not relieve any defaulting Underwriter from liability in
respect of any default of such Underwriter under this Agreement.
Section 12. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to you c/o Structured Capital Management, a
division of First Southwest Company, 557 Airport Boulevard, Suite 600,
Burlingame, California 94010, Attention: Syndicate; notices to the Company
shall be directed to it at Metropolitan Asset Funding, Inc., 929 West Sprague
Avenue, Spokane, Washington 99204, attention of the Secretary.
Section 13. PARTIES. This Agreement shall inure to the benefit of and
be binding upon the Company, the Underwriters, any controlling persons
referred to herein and their respective successors and assigns. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any other person, firm or corporation any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision herein
contained. No purchaser of Offered Certificates from any Underwriter shall be
deemed to be a successor by reason merely of such purchase.
Section 14. GOVERNING LAW. This Agreement shall be governed by the
laws of the State of New York.
This Agreement may be signed in two or more counterparts each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument.
19
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign this Agreement and return it to us.
Very truly yours,
METROPOLITAN ASSET FUNDING, INC.
By
-----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Confirmed and Accepted, as of the
date first above written:
FIRST SOUTHWEST COMPANY
BEAR, STEARNS & CO. INC.
Acting severally on behalf of
themselves and the several
Underwriters named herein.
By
------------------------------
Name:
---------------------------
Title:
--------------------------
By
------------------------------
Name:
---------------------------
Title:
--------------------------
20
<PAGE>
SCHEDULE I
OFFERED CERTIFICATES: Mortgage Pass Through Certificates, Series 1996-A,
Class A-1, Class A-2, Class A-3, Class A-4, Class B-1 and Class B-2
INITIAL PRINCIPAL AMOUNT OF OFFERED CERTIFICATES:
Class Initial Class Certificate Balance
----- ---------------------------------
Class A-1 $__________
Class A-2 __________
Class A-3 __________
Class A-4 __________
Class B-1 __________
Class B-2 __________
UNDERWRITER'S COMMITMENTS:
<TABLE>
Principal Amount of Offered
Underwriter Certificates to be Purchased
----------- -----------------------------------------------------------------
Class A-1 Class A-2 Class A-3 Class A-4 Class B-1 Class B-2
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ $ $ $ $ $
First Southwest Company
Bear, Stearns & Co. Inc.
Total
</TABLE>
PURCHASE PRICE:
Class Purchase Price*
----- ---------------
Class A-1 %
Class A-2
Class A-3
Class A-4
Class B-1
Class B-2
____________________
* Plus accrued interest at the applicable Pass-Through Rate from the Cut-off
Date to, but not including, the Closing Date.
I-1
<PAGE>
CLASSES OF BOOK-ENTRY CERTIFICATES:
DESCRIPTION OF MORTGAGE LOANS: Fully amortizing and balloon fixed
rate, first mortgage loans having an
aggregate principal balance as of the
Cut-off Date of approximately
$______________. The Mortgage Loans are
fixed interest rate mortgage loans
secured primarily by (i) one- to
four-family residential properties and
(ii) multi-family housing properties or
commercial real estate, including office
buildings, shopping centers, retail
stores, hotels and motels, nursing homes
and other health-care related
facilities, mobile home and recreation
vehicle parks, warehouse facilities,
mixed use and other types of income
producing properties.
DENOMINATIONS: The Offered Certificates will be
issued in book-entry form. Each such Class of
Certificates will be evidenced by one or more
certificates registered in the name of CEDE &
Co. ("CEDE") in the aggregate amount equal to
the Initial Class Certificate Balance of such
Class. Interests in such Classes of Offered
Certificates issued in the name of CEDE may be
purchased by investors in minimum
denominations of $____________ and integral
multiples of $1.
CUT-OFF DATE: ____________, 1996
PASS-THROUGH RATE:
Class Rate
Class A-1 __.__% per annum
Class A-2 __.__% per annum
Class A-3 __.__% per annum
Class A-4 __.__% per annum
Class B-1 __.__% per annum
Class B-2 __.__% per annum
I-2
<PAGE>
CERTIFICATE RATINGS:
Class Moody's Duff & Phelps
----- ------- -------------
A-1
A-2
A-3
A-4
B-1
B-2
I-3
<PAGE>
SCHEDULE II
Metropolitan Mortgage & Securities Co., Inc.
Summit Securities, Inc.
Western United Life Assurance Company
Old Standard Life Insurance Company
II-1
<PAGE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
POOLING AND SERVICING AGREEMENT
BY AND AMONG
METROPOLITAN ASSET FUNDING, INC.,
AS DEPOSITOR
METROPOLITAN MORTGAGE & SECURITIES CO., INC.,
SUMMIT SECURITIES, INC.,
WESTERN UNITED LIFE ASSURANCE COMPANY,
OLD STANDARD LIFE INSURANCE COMPANY,
AS SELLERS
METWEST MORTGAGE SERVICES, INC.,
AS MASTER SERVICER,
AND
THE BANK OF NEW YORK,
AS TRUSTEE
------------------------
DATED AS OF _____________, 1996
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MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1996-A
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TABLE OF CONTENTS
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Page
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ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
Section 2.01. Conveyance of Mortgage Loans . . . . . . . . . . . . . 31
Section 2.02. Acceptance by Trustee . . . . . . . . . . . . . . . . . 33
Section 2.03. Representations and Warranties of Each Seller, the
Depositor and the Trustee . . . . . . . . . . . . . . . 34
Section 2.04. Substitution of Mortgage Loans . . . . . . . . . . . . 35
Section 2.05. Designation of Interests in REMIC . . . . . . . . . . . 37
Section 2.06. Designation of Start-up Day . . . . . . . . . . . . . . 37
Section 2.07. Designation of "latest possible maturity date." . . . . 37
ARTICLE III
ADMINISTRATION AND SERVICING OF LOANS
Section 3.01. The Master Servicer to Act as Servicer . . . . . . . . 37
Section 3.02. Subservicing Arrangements; Enforcement of Servicer's
and Sellers' Obligations . . . . . . . . . . . . . . . 39
Section 3.03. Liability of the Master Servicer . . . . . . . . . . . 39
Section 3.04. Collection of Certain Loan Payments; Collection
Account . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 3.05. Collection of Taxes, Assessments and Similar Items . . 42
Section 3.06. Permitted Withdrawals from the Collection Account . . . 43
Section 3.07. Modifications, Waivers, Amendments and Consents . . . . 44
Section 3.08. Maintenance of Hazard Insurance and Errors and
Omissions and Fidelity Coverage . . . . . . . . . . . . 46
Section 3.09. Enforcement of Due-On-Sale Clauses; Assumption
Agreements . . . . . . . . . . . . . . . . . . . . . . 48
Section 3.10. Realization upon Defaulted Loans . . . . . . . . . . . 50
Section 3.11. Trustee to Cooperate; Release of Files . . . . . . . . 53
Section 3.12. Servicing and Other Compensation; Payment of Certain
Expenses by the Master Servicer . . . . . . . . . . . . 53
Section 3.13. Sale of Defaulted Mortgage Loans . . . . . . . . . . . 54
Section 3.14. Annual Statement as to Compliance . . . . . . . . . . . 56
Section 3.15. Annual Independent Public Accountants' Servicing
Report . . . . . . . . . . . . . . . . . . . . . . . . 56
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Section 3.16. Access to Certain Documentation and Information
Regarding the Mortgage Loans . . . . . . . . . . . . . 57
Section 3.17. Rights of the Depositor in Respect of the Master
Servicer . . . . . . . . . . . . . . . . . . . . . . . 57
Section 3.18. Conversion of Land Sale Contracts . . . . . . . . . . . 57
Section 3.19. Regarding Commercial Mortgage Loans . . . . . . . . . . 58
ARTICLE IV
MASTER SERVICER'S CERTIFICATE; MONTHLY ADVANCES
Section 4.01. Master Servicer's Certificate . . . . . . . . . . . . . 60
Section 4.02. Monthly Advances . . . . . . . . . . . . . . . . . . . 60
ARTICLE V
PAYMENTS AND STATEMENTS TO
CERTIFICATEHOLDERS; REMIC SERVICING
Section 5.01. Distributions . . . . . . . . . . . . . . . . . . . . . 61
Section 5.02. Priorities of Distribution . . . . . . . . . . . . . . 62
Section 5.03. Allocation of Net Realized Losses . . . . . . . . . . . 64
Section 5.04. Statements to Certificateholders . . . . . . . . . . . 65
Section 5.05. Tax Returns and Reports to Certificateholders . . . . . 69
Section 5.06. Tax Matters Person . . . . . . . . . . . . . . . . . . 70
Section 5.07. Rights of the Tax Matters Person in Respect of the
Trustee . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 5.08. REMIC-Related Covenants . . . . . . . . . . . . . . . . 70
ARTICLE VI
THE CERTIFICATES
Section 6.01. The Certificates . . . . . . . . . . . . . . . . . . . 71
Section 6.02. Registration of Transfer and Exchange of Certificates . 72
Section 6.03. Mutilated, Destroyed, Lost or Stolen Certificates . . . 77
Section 6.04. Persons Deemed Owners . . . . . . . . . . . . . . . . . 77
ARTICLE VII
THE DEPOSITOR, THE SELLERS AND THE MASTER SERVICER
Section 7.01. Respective Liabilities of the Depositor, the Sellers
and the Master Servicer . . . . . . . . . . . . . . . . 77
Section 7.02. Merger or Consolidation of the Depositor or the Master
Servicer . . . . . . . . . . . . . . . . . . . . . . . 78
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Section 7.03. Limitation on Liability of the Depositor, the Seller,
the Master Servicer and Others . . . . . . . . . . . . 78
Section 7.04. Depositor and Master Servicer Not to Resign . . . . . . 79
ARTICLE VIII
DEFAULT
Section 8.01. Events of Default . . . . . . . . . . . . . . . . . . . 79
Section 8.02. Remedies of Trustee . . . . . . . . . . . . . . . . . . 80
Section 8.03. Directions by Certificateholders and Duties of Trustee
During Event of Default . . . . . . . . . . . . . . . . 81
Section 8.04. Action upon Certain Failures of the Master Servicer and
upon Event of Default . . . . . . . . . . . . . . . . . 81
Section 8.05. Trustee to Act; Appointment of Successor . . . . . . . 81
Section 8.06. Notification to Certificateholders . . . . . . . . . . 82
ARTICLE IX
THE TRUSTEE
Section 9.01. Duties of Trustee . . . . . . . . . . . . . . . . . . . 82
Section 9.02. Certain Matters Affecting the Trustee . . . . . . . . . 84
Section 9.03. Trustee Not Liable for Certificates . . . . . . . . . . 85
Section 9.04. Trustee May Own Certificates . . . . . . . . . . . . . 85
Section 9.05. Eligibility Requirements for Trustee . . . . . . . . . 85
Section 9.06. Resignation and Removal of Trustee . . . . . . . . . . 86
Section 9.07. Successor Trustee . . . . . . . . . . . . . . . . . . . 86
Section 9.08. Merger or Consolidation of Trustee . . . . . . . . . . 87
Section 9.09. Appointment of Co-Trustee or Separate Trustee . . . . . 87
Section 9.10. Trustee's Fees and Expenses . . . . . . . . . . . . . . 88
Section 9.11. Tax Returns . . . . . . . . . . . . . . . . . . . . . . 89
ARTICLE X
TERMINATION
Section 10.01. Termination upon Purchase by the Master Servicer or
Liquidation of All Loans . . . . . . . . . . . . . . . 89
Section 10.02. Additional Termination Requirements . . . . . . . . . . 91
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ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.01. Amendment . . . . . . . . . . . . . . . . . . . . . . . 91
Section 11.02. Recordation of Agreement . . . . . . . . . . . . . . . 92
Section 11.03. Limitation on Rights of Certificateholders . . . . . . 93
Section 11.04. Governing Law . . . . . . . . . . . . . . . . . . . . . 94
Section 11.05. Notices . . . . . . . . . . . . . . . . . . . . . . . . 94
Section 11.06. Severability of Provisions . . . . . . . . . . . . . . 94
Section 11.07. Certificates Nonassessable and Fully Paid . . . . . . . 94
Section 11.08. Access to List of Certificateholders . . . . . . . . . 94
EXHIBIT A-- Form of Face of Senior Certificates . . . . . . . . . . A-1
EXHIBIT B-- Form of Face of Residual Certificates . . . . . . . . . B-1
EXHIBIT C-- [Reserved] . . . . . . . . . . . . . . . . . . . . . . . C-1
EXHIBIT D-- Form of Face of Subordinate Certificates . . . . . . . . D-1
EXHIBIT E-- Form of Reverse of all Certificates . . . . . . . . . . . E-1
EXHIBIT F-- [Reserved] . . . . . . . . . . . . . . . . . . . . . . . F-1
EXHIBIT G-- [Reserved] . . . . . . . . . . . . . . . . . . . . . . . G-1
EXHIBIT H-- Request for Release of Documents . . . . . . . . . . . . H-1
EXHIBIT I-- Form of Affidavit regarding Transfer of Residual
Certificates Pursuant to Section 6.02 . . . . . . . . . . I-1
EXHIBIT J-- Form of Investment Letter . . . . . . . . . . . . . . . . J-1
EXHIBIT K-- Form of Master Servicer's Certificate . . . . . . . . . . K-1
EXHIBIT L-- Form of Opinion of Counsel Pursuant to Section 6.02 . . . L-1
EXHIBIT M-- Lost Note Affidavit . . . . . . . . . . . . . . . . . . . M-1
SCHEDULE 1-- Tax Delinquencies . . . . . . . . . . . . . . . . . . . .
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THIS POOLING AND SERVICING AGREEMENT, dated as of _______________, 1996,
among Metropolitan Asset Funding, Inc., as depositor (the "Depositor"),
Metropolitan Mortgage & Securities Co., Inc., Summit Securities, Inc., Western
United Life Assurance Company, and Old Standard Life Insurance Company, as
sellers (each, a "Seller"), MetWest Mortgage Services, Inc., as master servicer
(together with its permitted successors and assigns, the "Master Servicer") and
The Bank of New York, as trustee (together with its permitted successors and
assigns, the "Trustee").
WITNESSETH THAT:
In consideration of the mutual agreements herein contained, the Depositor,
the Master Servicer, the Sellers and the Trustee agree as follows:
PRELIMINARY STATEMENT
The Depositor is the owner of the Trust Fund that is hereby conveyed to the
Trustee in return for the Certificates. The Trust Fund for federal income tax
purposes will consist of a single REMIC. The Certificates will represent the
entire beneficial ownership interest in the Trust Fund. The Regular
Certificates will represent the "regular interests" in the REMIC and the
Residual Certificates will represent the single "residual interest" in the
REMIC. The "latest possible maturity date" for federal income tax purposes of
all interests created hereby will be the Latest Possible Maturity Date.
The following table sets forth characteristics of the Certificates,
together with the minimum denominations and integral multiples in excess thereof
in which such Classes shall be issuable (except that one Residual Certificate
representing the Tax Matters Person Certificate may be issued in a different
amount):
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Integral Multiples
Initial Class in Excess of
Certificate Pass-Through Minimum Minimum
Balance Rate Denomination Denomination
------- ---- ------------ ------------
Class A-1 $ % $ 1
Class A-2 1
Class A-3 1
Class A-4 1
Class B-1 1
Class B-2 1
Class B-3 1
Class B-4 1
Class R (1) (2) 1
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(1) The Class R Certificates will be made up of two payment components,
the Class PO Component and the Class Z/IO Component. The Class Certificate
Balance of the Class R Certificates for any Distribution Date will be the
sum of the Component Balances of each of the Class PO Component and the
Class Z/IO Component for such Distribution Date. The Class PO Component
will have an Initial Component Balance of $____________ and the Class PO
Component will have an Initial Component Balance of $0. The Class R
Certificates will have an Initial Class Certificate Balance of
$_____________.
(2) On each Distribution Date to and including the Accretion Termination
Date interest will accrete to the Class Z/IO Component in an amount equal
to the Class Z/IO Component Interest Amount.
Set forth below are designations of Classes of Certificates to the
categories used herein:
ACCRETION DIRECTED CERTIFICATES Class A-1, Class A-2, Class A-3,
Class A-4, Class B-1 and Class B-2
Certificates.
ACCRETION CERTIFICATES Class Z/IO Component.
BOOK-ENTRY CERTIFICATES All Classes of Certificates other than
the Physical Certificates.
COMPONENT CERTIFICATES Class R Certificates.
COMPONENTS For purposes of calculating distributions,
the Component Certificates will be comprised
of two payment components having the
designations, Initial Component Balances
and entitlements set forth below:
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Initial
Component Pass-Through
Designation Balance Rate
----------- ------- -----
Class PO $ (1)
-----------
Class Z/IO (2) (3)
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(1) The Class PO Component is a "principal
only" Component and will not bear interest.
(2) The initial Component Balance of the
Class Z/IO Component will be zero. However,
up to and including the Accretion Termination
Date, distributions of interest allocable to
the Class Z/IO Component will be added to
the Component Balance thereof. On each
Distribution Date beginning with the
Accretion Termination Date, distributions of
interest allocable to the Class Z/IO
Component for the preceding month will be
paid currently as a distribution of
interest to the holders of the related
Class to the extent of Available Funds
available therefor.
(3) On each Distribution Date, the holders
of the Class Z/IO Component will be entitled
to the Class Z/IO Component Interest Amount
(except that up to and including the
Accretion Termination Date, such amount
will accrete on the Component Balance
thereof).
DELAY CERTIFICATES All Classes of Certificates.
ERISA-RESTRICTED CERTIFICATES The Subordinate Certificates.
OFFERED CERTIFICATES All Classes of Certificates other than the
Private Certificates.
PHYSICAL CERTIFICATES The Class R and Subordinate Certificates.
PRIVATE CERTIFICATES Class B-3, Class B-4 and Class R
Certificates.
RATING AGENCIES Moody's Investors Service, Inc. and Duff &
Phelps Credit Rating Co.
REGULAR CERTIFICATES All Classes of Certificates other than the
Class R Certificates.
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RESIDUAL CERTIFICATES Class R Certificates.
SENIOR CERTIFICATES Class A-1, Class A-2, Class A-3 and
Class A-4 Certificates.
SUBORDINATE CERTIFICATES Class B-2, Class B-2, Class B-3,
Class B-4 and Class R Certificates.
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the meanings specified in this
Article.
"ACCRETION AMOUNT" means, with respect to the Class of Accretion
Certificates and any Distribution Date up to and including the Accretion
Termination Date, the amount distributable as interest on the Accretion
Certificates with respect to such Distribution Date pursuant to Section
5.02(a)(x).
"ACCRETION CERTIFICATES" has the meaning specified in the Preliminary
Statement.
"ACCRETION DIRECTED CERTIFICATES" has the meaning specified in the
Preliminary Statement.
"ACCRETION TERMINATION DATE" means the Distribution Date following the
Distribution Date when the Class Certificate Balance of each Class of Offered
Certificates has been reduced to zero.
"ADVANCE" means any Monthly Advance or Servicing Advance.
"AGREEMENT" means this Pooling and Servicing Agreement and all amendments
hereof and supplements hereto.
"AMORTIZATION PAYMENT" means, as to any REO Loan and any month, the payment
of principal and accrued interest due in such month in accordance with the
terms of the related Mortgage Note as contemplated by the third paragraph of
Section 3.10.
"AMOUNT HELD FOR FUTURE DISTRIBUTION" means, as to any Distribution Date,
the total of the amounts held in the Collection Account at the close of business
on the preceding Determination Date on account of (a) Principal Prepayments and
Liquidation Proceeds received or made after the first day of the month of such
Distribution Date and (b) all Monthly Payments due after the related Scheduled
Due Date.
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"APPRAISAL" means the valuation by an appraiser of a Mortgaged Property
which may be based either on a drive by, exterior viewing of the Mortgaged
Property or an exterior and interior viewing of the Mortgaged Property, as
applicable.
"APPRAISED VALUE" means, with respect to any Mortgage Loan, the value of
the applicable Mortgaged Property, based upon the most recent Appraisal obtained
in connection with the acquisition, modification or servicing of the Mortgage
Loan by the applicable Seller.
"ASSIGNMENT OF LAND SALE CONTRACT" means, with respect to each Land Sale
Contract, an assignment of the Land Sale Contract and the Seller's interest in
the related Mortgaged Property, which may include a Warranty Deed to such
Mortgaged Property, in recordable form.
"ASSIGNMENT OF MORTGAGE" means, with respect to each Mortgage Loan, other
than a Land Sale Contract, an assignment of the Mortgage, notice of transfer or
equivalent instrument, in recordable form, prepared in a manner directed by the
Depositor, which Assignment of the Mortgage may be in the form of one or more
blanket assignments covering mortgages secured by Mortgaged Properties located
in the same county, if permitted by law and acceptable for recording.
"AVAILABLE FUNDS" means, as to any Distribution Date, an amount equal to
(a) the sum of (i) the scheduled installments of interest and principal
collected in respect of the Mortgage Loans due on the Scheduled Due Date in the
month in which such Distribution Date occurs and received as of the close of
business on the immediately preceding Determination Date, (ii) the amount of any
Monthly Advance made on the preceding Distribution Account Deposit Date, (iii)
the aggregate of Insurance Proceeds and Liquidation Proceeds received during the
related Due Period, (iv) the aggregate of the Repurchase Prices for Deleted
Loans repurchased on such Distribution Date pursuant to Section 2.02 or 2.03,
(v) the aggregate of the Substitution Adjustment Amounts on such Distribution
Date pursuant to Section 2.04, (vi) any amount required to be deposited in the
Distribution Account on the immediately preceding Distribution Account Deposit
Date pursuant to Section 3.03(a), (vii) all partial and full prepayments on
Mortgage Loans received during the related Due Period, reduced by (b) the sum as
of the close of business on such Determination Date of (A) the Amount Held for
Future Distribution, (B) amounts permitted to be withdrawn by the Master
Servicer from the Collection Account in respect of the Mortgage Loans pursuant
to clauses (a) through (f), inclusive, and (i) of Section 3.06 and (C) all
income from Permitted Investments that are held in the Collection Account for
the account of the Master Servicer.
"BALLOON LOAN" means, any Mortgage Loan that either (a) provides for
Monthly Payments based on an amortization term ending at least two months beyond
the Calculated Maturity Date for such Mortgage Loan and a final scheduled
payment equal to or exceeding $2,500 (each calculated based on ________ 1, 1996
Scheduled Principal Balances) or (b) provides for interest only Monthly Payments
on each Due Date prior to the Calculated Maturity Date for such Mortgage Loan
and a final scheduled payment equal to the entire principal balance of such
Mortgage Loan.
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"BALLOON PAYMENT" means the principal component of a payment due on a
Balloon Loan on its maturity date.
"BANKRUPTCY COVERAGE TERMINATION DATE" means the point of time at which the
Current Bankruptcy Amount is reduced to zero.
"BANKRUPTCY LOSS" means any Deficient Valuation or Debt Service Reduction.
"BOOK-ENTRY CERTIFICATE" has the meaning specified in the Preliminary
Statement.
"BUSINESS DAY" means any day other than (a) a Saturday or a Sunday or (b) a
day on which banking institutions in the State of New York or Washington or in
the state where the Corporate Trust Office is located are required or authorized
by law or executive order to be closed.
"CALCULATED MATURITY DATE" means, with respect to any Mortgage Loan, other
than a Balloon Loan, the date upon which the Monthly Payment or portion thereof
for such Mortgage Loan fully amortizes the Scheduled Principal Balance of such
Mortgage Loan as of _________ 1, 1996 and, with respect to any Balloon Loan, the
date specified as the maturity date therefor in the related Mortgage Note.
"CARRY FORWARD LOSS AMOUNT" means, as to any Distribution Date and Class of
Regular Certificates, the amount, if any, of any Net Realized Loss (other than
an Excess Loss) allocated to such Class of Regular Certificates on a previous
Distribution Date which has not been previously added to the Class Certificate
Balance thereof pursuant to Section 5.03(d).
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
"CERTIFICATE" means any Regular Certificate or Residual Certificate.
"CERTIFICATEHOLDER OR HOLDER" means the Person in whose name a Certificate
is registered in the Certificate Register, except that, solely for the purpose
of giving any consent pursuant to this Agreement, any Certificate registered in
the name of the Depositor, the Master Servicer or any affiliate thereof shall be
deemed not to be outstanding and the Percentage Interest evidenced thereby shall
not be taken into account in determining whether the requisite amount of
Percentage Interests necessary to effect any such consent has been obtained,
unless such entity is the registered owner of the entire Class of Certificates;
provided, that the Trustee shall not be responsible for knowing that any
Certificate is registered in the name of such an affiliate unless one of its
Responsible Officers has actual knowledge.
"CERTIFICATE OWNER" means, with respect to a Book-Entry Certificate, the
person who is the beneficial owner of a Book-Entry Certificate.
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"CERTIFICATE REGISTER AND CERTIFICATE REGISTRAR" means the register
maintained and the registrar appointed pursuant to Section 6.02.
"CLASS" means, as to the Certificates, the Class A-1, Class A-2, Class A-3,
Class A-4, Class B-1, Class B-2, Class B-3, Class B-4 Certificates or the
Residual Certificates, as the case may be.
"CLASS A-4 PERCENTAGE" means, as to any Distribution Dane, the percentage
equivalent of a fraction the numerator of which is the Class Certificate Balance
of the Class A-4 Certificates as of such date and the denominator of which is
the aggregate of the Class Certificate Balances of all Classes of Certificates
(other than the Private Certificates) as of such date.
"CLASS A-4 PREPAYMENT PERCENTAGE" means, as to any Distribution Date, the
product of (a) a fraction, expressed as a percentage, the numerator of which is
the Class Certificate Balance of the Class A-4 Certificates immediately prior to
such Distribution Date and the denominator of which is the aggregate of the
Class Certificate Balances of the Class A-4 Certificates and the Subordinate
Certificates (other than the Private Certificates) immediately prior to such
Distribution Date and (b) the Combined Prepayment Percentage.
"CLASS A-4 PRINCIPAL DISTRIBUTION AMOUNT" means, as to any Distribution
Date, the sum of (a) the Class A-4 Percentage of (i) the principal portion of
each Monthly Payment (without giving effect, prior to the Bankruptcy Coverage
Termination Date, to any reductions thereof caused by any Debt Service
Reductions or Deficient Valuations) due on each Mortgage Loan on the related
Scheduled Due Date, (ii) the Scheduled Principal Balance of each Mortgage Loan
that was repurchased by a Seller or the Master Servicer pursuant to this
Agreement as of such Distribution Date, (iii) the Substitution Adjustment Amount
in connection with any Deleted Loan received with respect to such Distribution
Date and (iv) any Insurance Proceeds or Liquidation Proceeds allocable to
recoveries of principal of Mortgage Loans that are not yet Liquidated Loans
received during the related Due Period, (b) with respect to any Mortgage Loan
that became a Liquidated Loan during the Due Period related to such Distribution
Date, either (A) the Class A-4 Prepayment Percentage of the amount of the
Liquidation Proceeds allocable to principal received with respect to such
Mortgage Loan during the related Due Period, if the Class A-4 Prepayment
Percentage greater than 0%, or if the Class A-4 Prepayment Percentage equals 0%,
the percentage obtained by dividing the Class A-4 Percentage by the sum of the
Senior Percentage and the Class A-4 Percentage of the amount of the Liquidation
Proceeds allocable to principal received with respect to such Mortgage Loan
during the related Due Period or (B) if any Excess Loss was sustained with
respect to such Liquidated Loan during such Due Period, the Class A-4
Percentage, of the amount of the Liquidation Proceeds allocable to principal
received with respect to such Mortgage Loan, and (c) the Class A-4 Prepayment
Percentage of all Curtailments and Principal Prepayments (including Balloon
Payments) received during the related Due Period.
"CLASS CERTIFICATE BALANCE" means, as to any Distribution Date and any
Class of Regular Certificates, the related Initial Class Certificate Balance,
reduced by the sum of (a) the amount distributed to Holders of such Class of
Certificates on prior Distribution Dates and allocable to principal and (b) the
amount of the related Net Realized Losses previously applied in reduction
7
<PAGE>
of the Class Certificate Balance of such Class pursuant to Section 5.03 hereof,
and increased by the amount of any Accretion Amount added to the Class
Certificate Balance of such Class pursuant to Section 5.03(d) hereof. As to
any Distribution Date and the Class R Certificates, the sum of the Component
Balances of the Class R Certificates as of such Distribution Date.
"CLASS INTEREST SHORTFALL" means, as to any Distribution Date and each
Class of Regular Certificates, the amount by which the amount described in
clause (a) of the definition of Class Optimum Interest Distribution Amount for
the related Class of Certificates exceeds the amount of interest actually
distributed with respect to such Class of Certificates on such Distribution
Date.
"CLASS OPTIMUM INTEREST DISTRIBUTION AMOUNT" means, as to any Distribution
Date and each Class of Regular Certificates, the sum of (a) one month's interest
accrued during the related Interest Accrual Period at the related Pass-Through
Rate on the applicable Class Certificate Balance outstanding immediately prior
to such Distribution Date, subject to reduction pursuant to Section 5.02(b), and
(b) any Class Unpaid Interest Shortfall for such Class.
"CLASS PO COMPONENT" has the same meaning given in the Preliminary
Statement.
"CLASS UNPAID INTEREST SHORTFALL" means, as to any Distribution Date and
each Class of Regular Certificates, the amount by which the aggregate Class
Interest Shortfalls for such Class on prior Distribution Dates exceeds the
amount of interest actually distributed on such Class on such prior Distribution
Dates as described in clause (ii) of the definition of Class Optimum Interest
Distribution Amount.
"CLASS Z/IO COMPONENT" has the same meaning given in the Preliminary
Statement.
"CLASS Z/IO COMPONENT INTEREST AMOUNT" means, as to any Distribution Date,
the sum of, (a) with respect to each Mortgage Loan with a Mortgage Rate in
excess of _______%, the product of (i) the Scheduled Principal Balance for such
Mortgage Loan as of the Scheduled Due Date in the month for such Distribution
Date and (ii) the excess of such Mortgage Rate thereon over ______%, (b) with
respect to each Class of Offered Certificates, the product of (i) the Class
Certificate Balance of such Class for such Distribution Date and (ii) the excess
of ____% over the related Pass-Through Rate, subject to reduction pursuant to
Section 5.02(b), and (c) the sum of the amounts, if any, by which the amount
described in clauses (a) and (b) above on each prior Distribution Date exceeded
the amount actually distributed or accreted as interest on such prior
Distribution Dates and not subsequently distributed or accreted.
"CLOSING DATE" means ___________, 1996.
"CODE" means the Internal Revenue Code of 1986, as the same may be amended
from time to time.
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"COLLECTION ACCOUNT" means the segregated account or accounts established
and maintained by the Master Servicer pursuant to Section 3.04(b). Such
accounts shall be titled "The Bank of New York, as Trustee, for the benefit of
Certificateholders of Metropolitan Asset Funding, Inc. Mortgage Pass-Through
Certificates, Series 1996-A Collection Account" and shall each be an Eligible
Account. Funds deposited in the Collection Account (other than any income on
Permitted Investments included therein) shall be held in trust for
Certificateholders.
"COMBINED PREPAYMENT PERCENTAGE" means, as to any Distribution Date, the
difference between 100% and the Senior Prepayment Percentage for such date.
"COMMERCIAL MORTGAGE LOAN" shall mean a Mortgage Loan secured by a
multifamily residential property or a commercial property including an office
building, shopping center, retail store, hotel or motel, nursing home or other
health-care related facility, mobile home or recreational vehicle park,
warehouse facility, mixed use or other type of income-producing property.
"COMMERCIAL PROPERTY" means, with respect to a Commercial Mortgage Loan,
the real property securing such Mortgage Loan.
"COMPONENT" has the meaning specified in the Preliminary Statement.
"COMPONENT BALANCE" means, with respect to any Component and any
Distribution Date, the Initial Component Balance thereof on the Closing Date,
(a) less the sum of all amounts applied in reduction of the principal balance of
such Component and Net Realized Losses allocated thereto on previous
Distribution Dates and (b) in the case of the Accretion Certificates, increased
by all Accretion Amounts added to the Component Balance thereof prior to such
Distribution Date.
"COMPONENT CERTIFICATES" has the meaning specified in the Preliminary
Statement.
"CORPORATE TRUST OFFICE" means the principal office of the Trustee at which
at any particular time its corporate business shall be administered, which
office at the date of the execution of this instrument is located at 101 Barclay
Street, 12E, New York, New York 10286 Attention: Mortgage-Backed Securities
Group , Facsimile Number: (212) 815-4135).
"CREDIT SUPPORT TERMINATION DATE" means the date at which the Class
Certificate Balances of all of the Subordinate Certificates are reduced to zero.
"CURRENT BANKRUPTCY AMOUNT" means, as of any Determination Date, the
Current Bankruptcy Amount shall equal the Initial Bankruptcy Coverage Amount as
reduced by the aggregate amount of Bankruptcy Losses previously incurred during
the period from the Cutoff Date through the last day of the month immediately
preceding the Due Period related to such Distribution Date; provided, however,
that such amount may be reduced from time to time
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with the written consent of the Rating Agencies without resulting in a
downgrading of the then current rating of the Certificates.
"CURTAILMENT" means, with respect to any Mortgage Loan, any payment of
principal received in advance of its Scheduled Due Date other than a Principal
Prepayment in Full.
"CUSTODIAN" means The Bank of New York, having an office at 101 Barclay
Street, 12E, New York, New York 10286, Attention: Mortgage-Backed Securities
Group, Facsimile Number: (212) 815-4135.
"CUTOFF DATE" means ___________ 1, 1996.
"CUTOFF DATE POOL PRINCIPAL BALANCE" means the aggregate of the Cutoff Date
Principal Balances of the Mortgage Loans which is $___________________.
"CUTOFF DATE PRINCIPAL BALANCE" means, as to any Mortgage Loan, the
Scheduled Principal Balance thereof on the Cutoff Date.
"DEBT SERVICE REDUCTION" means, as to any Mortgage Loan and any
Determination Date, the excess of (a) the installment of principal and interest
due on the related Scheduled Due Date under the terms of such Mortgage Loan over
(b) the amount of the monthly payment of principal and/or interest required to
be paid with respect to such Scheduled Due Date by the Mortgagor as established
by a court of competent jurisdiction (pursuant to an order which has become
final and nonappealable) as a result of a proceeding initiated by or against the
related Mortgagor under the Bankruptcy Code, as amended from time to time (11
U.S.C.); provided that no such occurrence shall be considered a Debt Service
Reduction so long as the Master Servicer is pursuing an appeal of the court
order giving rise to any such modification and (i) such Mortgage Loan is not in
default with respect to payment due thereunder in accordance with the terms of
such Mortgage Loan as in effect on the Cutoff Date or (ii) scheduled monthly
payments of principal and interest are being advanced by the Master Servicer in
accordance with the terms of such Mortgage Loan as in effect on the Cutoff Date.
"DEBT SERVICE REDUCTION LOAN" means any Mortgage Loan that became the
subject of a Debt Service Reduction.
"DEFICIENT VALUATION" means, as to any Mortgage Loan and any Determination
Date, the excess of (a) the then outstanding indebtedness under such Mortgage
Loan over (b) the secured valuation thereof established by a court of competent
jurisdiction (pursuant to an order which has become final and nonappealable) as
a result of a proceeding initiated by or against the related Mortgagor under the
Bankruptcy Code, as amended from time to time (11 U.S.C.), pursuant to which
such Mortgagor retained such Mortgaged Property; provided that no such
occurrence shall be considered a Deficient Valuation so long as the Master
Servicer is pursuing an appeal of the court order giving rise to any such
modification and (i) such Mortgage Loan is not in default with respect to
payments due thereunder in accordance with the terms of such Mortgage Loan
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as in effect on the Cutoff Date or (ii) scheduled monthly payments of principal
and interest are being advanced by the Master Servicer in accordance with the
terms of such Mortgage Loan as in effect on the Cutoff Date.
"DEFICIENT VALUATION LOAN" means any Mortgage Loan that became the subject
of a Deficient Valuation.
"DEFINITIVE CERTIFICATES" has the meaning given in Section 6.02.
"DELETED LOAN" means any Mortgage Loan which is required to be repurchased
pursuant to Section 2.02 or 2.03.
"DELINQUENT INSTALLMENTS" means, with respect to a Distribution Date, the
aggregate of interest installments at the related Mortgage Interest Rate (net of
the Master Servicing Fee Rate for such Mortgage Loan), together with the
aggregate of principal installments on the Mortgage Loans due from and payable
by Mortgagors on the related Scheduled Due Date, but not paid as of the close of
business on the related Determination Date, regardless of whether the unpaid
installments are a result of a bankruptcy court's reduction of the principal
balance of or the interest rate on a Mortgage Loan, including a reduction in
interest payable as a result of a principal reduction during the pendency of a
proceeding under the Bankruptcy Code, or a reduction resulting from the
extension of the term of a Mortgage Loan by the bankruptcy court.
"DENOMINATION" means, with respect to each Certificate, the amount set
forth on the face thereof as the "Initial Class Certificate Balance of this
Certificate."
"DEPOSITOR" means Metropolitan Asset Funding, Inc., and its successors or
assigns.
"DEPOSITORY" means, initially, The Depository Trust Company, the nominee of
which is CEDE & Co., as the registered Holder of the Book-Entry Certificates.
The Depository shall at all times be a "clearing corporation" as defined in
Section 8-102(3) of the Uniform Commercial Code of the State of New York.
"DEPOSITORY PARTICIPANT" means a broker, dealer, bank or other financial
institution or other Person for whom from time to time a Depository effects
book-entry transfers and pledges of securities deposited with the Depository.
"DETERMINATION DATE" means, as to any Distribution Date, the third Business
Day preceding such Distribution Date.
"DISTRIBUTION ACCOUNT" means the segregated account or accounts established
and maintained by the Master Servicer pursuant to Section 3.04(c). Such
accounts shall be titled "The Bank of New York, as Trustee, for the benefit of
Certificateholders of Metropolitan Asset Funding, Inc. Mortgage Pass-Through
Certificates, Series 1996-A Distribution Account" and
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shall each be an Eligible Account. Funds deposited in the Distribution Account
(other than any income on Permitted Investments included therein) shall be
held in trust for Certificateholders.
"DISTRIBUTION ACCOUNT DEPOSIT DATE" means, as to any Distribution Date, the
Business Day preceding such Distribution Date.
"DISTRIBUTION DATE" means the twentieth day of each month beginning
__________ 1996 or, if such twentieth day is not a Business Day, the Business
Day immediately following.
"DUE DATE" means, as to any Mortgage Loan, the date in each calendar month
specified in the related Mortgage Note on which the Monthly Payment is due.
"DUE PERIOD" means, with respect to any Distribution Date, the period from
and including the second day of the month preceding the month of such
Distribution Date through and including the first day of the month of such
Distribution Date.
"DUFF & PHELPS" means Duff & Phelps Credit Rating Company, or any successor
thereto.
"ELIGIBLE ACCOUNT" means either (a) a segregated account or accounts
maintained at the Trustee, provided that the short-term unsecured debt
obligations of the Trustee are rated at least "P-1" by Moody's and "D-1" by
Duff & Phelps, or (b) a segregated account or accounts maintained with an
institution whose deposits are insured by the Bank Insurance Fund or the Savings
Association Insurance Fund of the FDIC, the unsecured and uncollateralized debt
obligations of which shall be rated at least "A1" by Moody's and "A" by Duff &
Phelps, and which has a short-term rating of at least "P-1" by Moody's and "D-1"
by Duff & Phelps, and which is either (i) a federal savings and loan association
duly organized, validly existing and in good standing under the federal banking
laws, (ii) an institution duly organized, validly existing and in good standing
under the applicable banking laws of any state, (iii) a national banking
association duly organized, validly existing and in good standing under the
federal banking laws and (iv) a principal subsidiary of a bank holding company
or (c) a trust account maintained with the trust department of a federal or
state chartered depository institution or of a trust company, having capital and
surplus of not less than $50,000,000, acting in its fiduciary capacity.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA-RESTRICTED CERTIFICATES" has the meaning given in the Preliminary
Statement.
"ESCROW ACCOUNT" means the Escrow Account or Accounts established and
maintained pursuant to terms of the Mortgage Loans.
"EVENT OF DEFAULT" has the meaning given in Section 8.01.
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"EXCESS LOSS" means the amount of any (a) Fraud Loss realized after the
Fraud Loss Coverage Termination Date, (b) Special Hazard Loss after the Special
Hazard Coverage Termination Date or (c) Bankruptcy Loss after the Bankruptcy
Coverage Termination Date.
"EXPENSES" means, as to each Mortgage Loan, the sum of the Master Servicing
Fee and Trustee Fee.
"EXPENSE FEE" means, as to each Mortgage Loan and Distribution Date the sum
of one-twelfth of the Master Servicing Fee and Trustee Fee multiplied by the
Scheduled Principal Balance of such Mortgage Loan on the Due Date in the month
preceding such Distribution Date.
"EXPENSE RATE" means, as to each Mortgage Loan, the sum of the Master
Servicing Fee Rate and the Trustee Fee Rate.
"FDIC" means the Federal Deposit Insurance Corporation, or any successor
thereto.
"FHLMC" means the Federal Home Loan Mortgage Corporation, or any successor
thereto.
"FILE" means either a Mortgage File or Land Sale Contract File, as
applicable.
"FINAL DISTRIBUTION DATE" means the Distribution Date on which the final
distribution in respect of the Certificates will be made pursuant to Section
10.01.
"FNMA" means the Federal National Mortgage Association, or any successor
thereto.
"FRAUD COVERAGE TERMINATION DATE" means the point of time at which the
Fraud Loss Coverage Amount is reduced to zero.
"FRAUD LOAN" means any Liquidated Loan as to which a loss is sustained
because of fraud, dishonesty or misrepresentation.
"FRAUD LOSS" means, as to any Fraud Loan, the Net Realized Loss with
respect thereto.
"FRAUD LOSS COVERAGE AMOUNT" means, as of any Distribution Date an amount
equal to, (a) during the period from the Cutoff Date to the first anniversary
thereof, the Initial Fraud Loss Coverage Amount, reduced by Fraud Losses
allocated to the Certificates since the Closing Date, (b) during the period from
the first anniversary to the second anniversary of the Cutoff Date, an amount
equal to the lesser of (i) 2% of the Pool Scheduled Principal Balance
immediately prior to each such anniversary reduced by Fraud Losses allocated to
the Certificates since such anniversary and (ii) the excess of the Initial Fraud
Loss Coverage Amount over the cumulative amount of Fraud Losses allocated to the
Certificates prior to such Distribution Date, (c) during the period from the
second anniversary to the fifth anniversary of the Cutoff Date, an amount equal
to the lesser of (i) 1% of the Pool Scheduled Principal Balance immediately
prior to each
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such anniversary reduced by Fraud Losses allocated to the Certificates since
such anniversary and (ii) the excess of the Initial Fraud Loss Coverage
Amount over the cumulative amount of Fraud Losses allocated to the Certificates
prior to such Distribution Date, and (d) after the fifth anniversary of the
Closing Date, zero. The Fraud Loss Coverage Amount may be further reduced
from time to time below the amounts specified above with the written consent
of the Rating Agencies and without resulting in a downgrading of the then
current rating of the Certificates.
"FRAUD LOSS COVERAGE TERMINATION DATE" means the point in time at which the
Fraud Loss Coverage Amount is reduced to zero.
"Hazardous Materials" means any dangerous, toxic or hazardous pollutants,
chemicals, wastes or substances, including, without limitation, those so
identified pursuant to CERCLA or any other federal, state or local environmental
related laws and regulations now existing or hereafter enacted, and specifically
including, without limitation, asbestos and asbestos-containing materials,
polychlorinated biphenyls ("PCBs"), radon gas, petroleum and petroleum products,
urea formaldehyde and any substances classified as being "in inventory", "usable
work in process" or similar classification which would, if classified as
unusable, be included in the foregoing definition.
"INDEPENDENT," when used with respect to any specified Person, means such a
Person who (a) is in fact independent of the Depositor or the Master Servicer,
(b) does not have any direct financial interest or any material indirect
financial interest in the Depositor or the Master Servicer or in an affiliate of
either, and (c) is not connected with the Depositor or the Master Servicer as an
officer, employee, promoter, underwriter, trustee, partner, director or person
performing similar functions.
"INITIAL BANKRUPTCY COVERAGE AMOUNT" means $__________________.
"INITIAL CLASS CERTIFICATE BALANCE" means, as to each Class of
Certificates, the aggregate of the Initial Class Certificate Balances of all
Certificates of the same Class, which is as set forth in the Preliminary
Statement. As to each Certificate of the same Class of Certificates, "INITIAL
CLASS CERTIFICATE BALANCE" means the Initial Class Certificate Balance set forth
on the face thereof.
"INITIAL COMPONENT BALANCE" has the meaning specified in the Preliminary
Statement.
"INITIAL FRAUD LOSS COVERAGE AMOUNT" means $__________________.
"INITIAL SPECIAL HAZARD COVERAGE AMOUNT" means $_____________.
"IMPROVEMENT LOAN" has the meaning given defined in Section 3.18.
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"INSURANCE PROCEEDS" means proceeds paid by any insurer pursuant to any
insurance policy covering a Mortgaged Property, including any amounts required
to be paid pursuant to Section 3.08, in each case other than any amount included
in such Insurance Proceeds in respect of Insured Expenses.
"INSURED EXPENSES" means expenses in connection with a Mortgage Loan
covered by any insurance policy.
"INTEREST ACCRUAL PERIOD" means, as to any Distribution Date and each Class
of Certificates, the calendar month preceding the month of such Distribution
Date (for purposes of calculating interest, such calendar month shall be deemed
to consist of 30 days).
"LAND SALE CONTRACT" means a contract, together with all amendments and
modifications thereto, for the sale of real estate and the improvements thereon
pursuant to which the Mortgagor promises to pay the amount due thereon to the
holder thereof and pursuant to which fee title to the related Mortgaged Property
is held by such holder until the Mortgagor has made all of the payments required
pursuant to such contract, at which time fee title is conveyed to the Mortgagor.
"LAND SALE CONTRACT FILE" means, with respect to each Land Sale Contract,
each of the following items:
(a) the original Land Sale Contract with evidence of recording
indicated thereon or if the evidence of recording is not indicated on such
Land Sale Contract, a Memorandum of Land Sale Contract with evidence of
recording indicated thereon;
(b) assignment of Land Sale Contract in recordable form to the
Trustee;
(c) original Title Insurance Policy (or duplicate policy) or a true
and correct copy thereof;
(d) all assumption, modification and substitution agreements in those
instances where the terms or provisions of the Land Sale Contract have been
modified or assumed;
(e) Warranty Deed in the name of the Trustee, if not included in the
Assignment of Land Sale Contract; and
(f) all original recorded intervening assignments, if any, of the
Land Sale Contract, if available, and if not available, a copy of such
recorded intervening assignments of the Land Sale Contract, with recording
information thereon, in either case showing a complete chain of assignment
from the originator of the Land Sale Contract to the applicable Seller.
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"LATEST POSSIBLE MATURITY DATE" means the Distribution Date following the
third anniversary of the Calculated Maturity Date of the Mortgage Loans having
the latest Calculated Maturity Date as of the Cutoff Date.
"LIEN" means a security interest, lien, charge, pledge, equity or
encumbrance of any kind.
"LIQUIDATED DEFICIENT VALUATION LOAN" means any Mortgage Loan that became
the subject of a Deficient Valuation after the Bankruptcy Coverage Termination
Date and subsequently became a Liquidated Loan.
"LIQUIDATED DEFICIENT VALUATION LOSS" means, as to any Liquidated Deficient
Valuation Loan, the Net Realized Loss with respect thereto.
"LIQUIDATED LOAN" means any Mortgage Loan as to which a default has
occurred and is continuing and the Master Servicer has determined that all
amounts which it expects to recover from or on account of such Mortgage Loan
have been recovered.
"LIQUIDATION EXPENSES" means any expenses which are incurred by the Master
Servicer in connection with the liquidation or foreclosure (or attempted
liquidation or foreclosure) of any defaulted Mortgage Loan and not recovered by
the Master Servicer under any insurance policy, such expenses including, without
limitation, legal fees and expenses, any unreimbursed amount expended by the
Master Servicer pursuant to Section 3.10 (to the extent such amount is
reimbursable under the terms of Section 3.10) respecting the related Mortgage
Loan and any related and unreimbursed expenditures for real estate property
taxes or for property restoration or preservation.
"LIQUIDATION PERIOD" means the period beginning on the date of adoption by
the Residual Certificateholders of a plan of complete liquidation of the Pool
and ending on the day that is 90 days after the date such plan is adopted
pursuant to Section 10.02.
"LIQUIDATION PROCEEDS" means cash amounts (including Insurance Proceeds and
REO Proceeds) received or paid by the Master Servicer in connection with: (a)
the taking of all or a part of a Mortgaged Property by exercise of the power of
eminent domain or condemnation; (b) the liquidation of a Mortgaged Property or
other collateral constituting security for a defaulted Mortgage Loan, through
trustee's sale, foreclosure sale, REO Disposition or otherwise, exclusive of any
portion thereof required to be released to the related Mortgagor in accordance
with applicable law and the terms and conditions of the related Mortgage Note
and Mortgage; and (c) the realization upon any deficiency judgment obtained
against a Mortgagor.
"LOAN PURCHASE AGREEMENT" means each mortgage loan purchase agreement dated
as of _____________, 1996, between a Seller and Metropolitan Asset Funding, Inc.
as purchaser with respect to the sale of the related Mortgage Loans.
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"LOAN-TO-VALUE RATIO" means, with respect to any Mortgage Loan and as of
any date, the fraction, expressed as a percentage, the numerator of which is the
Scheduled Principal Balance of such Mortgage Loan as of such date and the
denominator of which is the Appraised Value.
"LOST NOTE AFFIDAVIT" means the Lost Note Affidavit signed by the Seller, a
form of which is attached hereto as Exhibit M, or in the case of a Lost Note
Affidavit received by the applicable Seller prior to the Closing Date, a Lost
Note Affidavit signed by the seller of the related Mortgage Note to the Seller
in the form received by such Seller.
"MAJORITY CERTIFICATEHOLDER" means, with respect to any Class of
Certificates and as of any date of determination, any single Holder of
Certificates or such Class entitled to more than 50% of the Voting Rights
allocated to such Class.
"MASTER SERVICER" means MetWest Mortgage Services, Inc., or its successor
in interest, or any successor master servicer appointed as herein provided.
"MASTER SERVICER'S CERTIFICATE" means a certificate completed by and
executed on behalf of the Master Servicer in accordance with Section 4.01.
"MASTER SERVICING FEE" means the amount payable to the Master Servicer
pursuant to the first sentence of Section 3.12 hereof.
"MASTER SERVICING FEE RATE" means, as to any Mortgage Loan and REO Loan,
.75% per annum.
"MEMORANDUM OF LAND SALE CONTRACT" means the written summary of certain
terms of a Land Sale Contract that is acceptable for recording with the
applicable public recording office under the laws of the jurisdiction in which
the Mortgaged Property is situated.
"METROPOLITAN" means Metropolitan Mortgage & Securities Co., Inc., or any
successor thereto.
"MONTHLY ADVANCE" means, as to any Distribution Date, the aggregate of the
advances made by the Master Servicer pursuant to Section 4.02, the amount of any
such Monthly Advance being equal to the sum of (a) the Delinquent Installments
on the Mortgage Loans for the Scheduled Due Date in the month of such
Distribution Date and (b) in certain limited circumstances, the amount described
in the last sentence of Section 4.02, to the extent that the Master Servicer
determines that such Monthly Advance will not be a Nonrecoverable Advance
(except with respect to the principal portion of the Monthly Payment described
in the last sentence of Section 4.02).
"MONTHLY PAYMENT" means the scheduled monthly payment of principal and/or
interest on a Mortgage Loan which is payable by a Mortgagor under the applicable
Mortgage Note.
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"MOODY'S" means Moody's Investors Service, Inc., or any successor thereto.
"MORTGAGE" means either the mortgage, deed of trust or other security
instrument creating a first lien on a Mortgaged Property (other than a Mortgaged
Property that is the subject of a Land Sale Contract) securing a Mortgage Loan
(other than a Mortgage Loan that is a Land Sale Contract) including all required
riders, or creating a first lien on a leasehold interest.
"MORTGAGE FILE" means, with respect to each Mortgage Loan, other than a
Land Sale Contract, each of the following items:
(a) the Mortgage Note, endorsed in the following form: "Pay to the
order of The Bank of New York, as Trustee, under the Pooling and Servicing
Agreement, dated as of _____________, 1996 for Mortgage Pass-Through
Certificates, Series 1996-A, without recourse," and showing an unbroken
chain of endorsements from the originator thereof to the Person endorsing
it to the Trustee or a Lost Note Affidavit;
(b) the original Mortgage with evidence of recording indicated
thereon or a copy of the Mortgage, with recording information thereon,
certified by the applicable public recording office to be a true and
complete copy of the original Mortgage submitted for recording;
(c) assignment of Mortgage in recordable form (which may be included
in a blanket assignment or assignments) to the Trustee;
(d) original Title Insurance Policy (or duplicate policy) or a true
and correct copy thereof;
(e) all assumption, modification and substitution agreements in those
instances where the terms or provisions of the Mortgage or Mortgage Note
have been modified or the Mortgage or the Mortgage Note have been assumed;
and
(f) all original recorded intervening assignments, if any, of the
Mortgage, if available, and if not available, a copy of such recorded
intervening assignments of Mortgage, with recording information thereon, in
either case showing a complete chain of assignment from the originator of
the Mortgage Loan to the applicable Seller.
"MORTGAGE INTEREST RATE" means the fixed annual rate at which interest
accrues on any Mortgage Loan in accordance with the provisions of the applicable
Mortgage Note.
"MORTGAGE LOAN" means any of the fixed-rate, first-lien Single Family
Mortgage Loans, Commercial Mortgage Loans and Land Sale Contracts transferred
and assigned to the Trustee pursuant to Section 2.01 (including REO Loans),
including, without limitations, any mortgage loans and Land Sale Contracts that
are Replacement Loans, all such Mortgage Loans being identified in the Mortgage
Loan Schedule.
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"MORTGAGE LOAN SCHEDULE" means, as of any date of determination, the
schedule of Mortgage Loans included in the Pool. The initial schedule of such
Mortgage Loans with respect to each Seller as of the Cutoff Date is attached as
Exhibit A to the respective Loan Purchase Agreement and together they constitute
the Mortgage Loan Schedule hereunder:
"MORTGAGE NOTE" means, with respect to each Mortgage Loan, the original
executed note or other evidence of indebtedness, including, in the case of a
Land Sale Contract, a promise to pay which is the integral part of a Land Sale
Contract, evidencing the indebtedness of a Mortgagor under such Mortgage Loan
together with any loan riders, if applicable, and as amended or modified.
"MORTGAGED PROPERTY" means the residential, multifamily or commercial
property securing or the subject of a Mortgage Loan.
"MORTGAGOR" means the obligor on a Mortgage Note or Land Sale Contract.
"NET LIQUIDATION PROCEEDS" means, as to any Liquidated Loan, Liquidation
Proceeds net of Liquidation Expenses.
"NET MORTGAGE INTEREST RATE" means, as to any Mortgage Loan, such Mortgage
Loan's Mortgage Interest Rate reduced by the Expense Rate.
"NET PREPAYMENT INTEREST SHORTFALLS" means, as to any Distribution Date,
the amount by which the aggregate of Prepayment Interest Shortfalls during the
Due Period immediately preceding the month of such Distribution Date exceeds
two-thirds of the Master Servicing Fee for such period before any reduction in
the Master Servicing Fee in respect of Prepayment Interest Shortfalls.
"NET REALIZED LOSS" means any of the following:
(a) as to any Liquidated Loan, the amount, if any, by which (i) the
Scheduled Principal Balance of such Liquidated Loan or the Reduced
Scheduled Principal Balance if such Liquidated Loan is a Liquidated
Deficient Valuation Loan exceeds (ii) the portion of Net Liquidation
Proceeds realized thereon that is applied to a reduction of the principal
balance of such Mortgage Loan;
(b) as to any Mortgage Loan that is subject to a Debt Service
Reduction and as to any Determination Date, the lesser of (i) the excess,
if any, of (i) the principal component of the monthly installment of
principal and interest (without giving effect to the Debt Service
Reduction) over (ii) the amount applied in reduction of the principal
balance of such Mortgage Loan on the related Due Date (from Insurance
Proceeds, Liquidation Proceeds or payments by the Mortgagor) and (iii) the
principal component of such Debt Service Reduction for such Due Date; and
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(c) (i) as to any Mortgage Loan that is a Liquidated Deficient
Valuation Loan, the amount of the related Deficient Valuation and (ii) as
to any Mortgage Loan that experiences a Deficient Valuation prior to the
Bankruptcy Coverage Termination Date, the Deficient Valuation with respect
thereto.
"NET SPECIAL HAZARD LOSSES" means, as to any Special Hazard Loan, the Net
Realized Loss with respect thereto.
"NONRECOVERABLE ADVANCE" means any Advance or any portion of an Advance
previously made or proposed to be made in respect of a Mortgage Loan or REO Loan
which has not been previously reimbursed and which, in the good faith judgment
of the Master Servicer, will not or, in the case of a proposed Advance, would
not be ultimately recoverable from late payments, Insurance Proceeds or
Liquidation Proceeds or other recoveries in respect of the related Mortgage Loan
or REO Loan. The determination by the Master Servicer that it has made a
Nonrecoverable Advance or that any proposed Advance, if made, would constitute a
Nonrecoverable Advance, shall be evidenced by a certificate of a Servicing
Officer of the Master Servicer delivered to the Trustee and the Depositor and
detailing the reasons for such determination.
"NON-U.S. PERSON" means an individual, corporation, partnership or other
person other than a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, or an estate or trust that
is subject to U.S. federal income tax regardless of the source of its income.
"OFFERED CERTIFICATES" has the meaning specified in the Preliminary
Statement.
"OFFICERS' CERTIFICATE" means a certificate signed by the Chairman of the
Board, Vice Chairman of the Board, President, a Vice President and by the
Treasurer, the Secretary or one of the Assistant Treasurers or Assistant
Secretaries, or any other duly authorized officer of the Depositor or the Master
Servicer, as the case may be, and delivered to the Trustee.
"OLD STANDARD" means Old Standard Life Insurance Company, or any successor
thereto.
"OPINION OF COUNSEL" means a written opinion of counsel, who may be counsel
for the Depositor, the Sellers or the Master Servicer, including in-house
counsel, acceptable to the Trustee; provided, however, that with respect to the
interpretation or application of the REMIC Provisions, such counsel must (a) in
fact be independent of the Depositor, the Sellers and the Master Servicer, (b)
not have any direct financial interest in the Depositor, the Sellers or the
Master Servicer or in any of their affiliates, and (c) not be connected with the
Depositor, the Sellers or the Master Servicer as an officer, employee, promoter,
underwriter, trustee, partner or director or person performing similar
functions.
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"ORIGINAL LOANS" means the Mortgage Loans identified in the Mortgage
Loan Schedule, and conveyed, transferred, sold and assigned to, and deposited
with, the Trustee pursuant to Section 2.01 hereof on the Closing Date.
"ORIGINAL SUBORDINATE CERTIFICATE BALANCE" means $___________________.
"ORIGINAL TERM" means, with respect to any Mortgage Loan, the period
commencing on the date that the first Monthly Payment was due as specified in
the related Mortgage Note and ending on the Calculated Maturity Date for such
Mortgage Loan.
"OUTSTANDING LOAN" means, as to any Due Date, a Mortgage Loan which was
not the subject of a Principal Prepayment in Full prior to such Scheduled Due
Date, which did not become a Liquidated Loan prior to such Scheduled Due Date
and which was not purchased prior to such Scheduled Due Date pursuant to
Section 2.02 or 2.03.
"OWNERSHIP INTEREST" means, as to any Certificate, any ownership or
security interest in such Certificate, including any interest in such
Certificate as the Holder thereof and any other interest therein, whether
direct or indirect, legal or beneficial, as owner or as pledgee.
"PASS-THROUGH RATE" means, as to each Class of Regular Certificates, the
per annum rate set forth or described in the Preliminary Statement.
"PAYING AGENT" means The Bank of New York, or such other successor
paying agent appointed by the Trustee which is authorized to make
distributions with respect to the Certificates on behalf of the Trustee.
"PERCENTAGE INTEREST" means, as to any Certificate, the percentage
interest evidenced thereby in distributions required to be made on the
related Class, such percentage interest equal to the percentage obtained by
dividing the Denomination of such Certificate by the aggregate of the
Denominations of all Certificates of the same Class.
"PERMITTED INVESTMENTS" means one or more of the following:
(a) direct obligations of, and obligations fully guaranteed as to
timely payment of principal and interest by, the United States, FHLMC,
FNMA, the Farm Credit Banks (but only if acceptable to the Rating
Agencies), the Student Loan Marketing Association (but only with respect
to obligations backed by letters of credit or senior obligations) or any
agency or instrumentality of the United States the obligations of which
are backed by the full faith and credit of the United States; provided,
however, that no instrument or security evidences a right to receive
only interest payments or the right to receive principal and interest
payments derived from the underlying investment which provides a yield
to maturity in excess of 120% of the yield to maturity at par of such
underlying instrument;
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(b) repurchase agreements with an entity whose unsecured
obligations are rated not less than "A1" by Moody's and "A" by Duff &
Phelps with respect to any security described in clause (a) above or any
other security issued or guaranteed by an agency or instrumentality of
the United States, the obligations of which are backed by the full faith
and credit of the United States;
(c) federal funds, certificates of deposit, time deposit and
bankers' acceptances of any U.S. bank or trust company incorporated
under the laws of the United States or any state, provided that the
unsecured short-term debt obligations of such bank or trust company at
the date of acquisition thereof have a rating of not less than "P-1"
from Moody's and "D-1" from Duff & Phelps; and money market funds which
receive the highest rating from Moody's and Duff & Phelps;
(d) any demand or time deposit or certificate of deposit which is
fully insured by the FDIC; and
(e) commercial paper of any corporation incorporated under the laws
of the United States or any state thereof which on the date of
acquisition has a rating of not less than "P-1" from Moody's and "D-1"
from Duff & Phelps.
"PERMITTED TRANSFEREE" means any Person other than (a) the United
States, or any State or any political subdivision thereof, or any agency or
instrumentality of any of the foregoing, (b) a foreign government,
international organization or any agency or instrumentality of either of the
foregoing, (c) an organization which is exempt from tax imposed by Chapter 1
of the Code (including the tax imposed by section 511 of the Code on
unrelated business taxable income) (except certain farmers' cooperatives
described in Code section 521), (d) rural electric and telephone cooperatives
described in Code section 1381(a)(2)(C), (v) any Non-U.S. Person and (e) any
other Person so designated by the Master Servicer based on an Opinion of
Counsel to the effect that any transfer to such Person may cause the Pool or
any other Holder of a Residual Certificate to incur tax liability that would
not be imposed other than on account of such transfer. The terms "United
States," "State" and "international organization" shall have the meanings
set forth in Code section 7701 or successor provisions.
"PERSON" means any individual, corporation, partnership, joint venture,
limited liability corporation, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"PHYSICAL CERTIFICATES" has the meaning specified in the Preliminary
Statement.
"POOL" or "TRUST FUND" means the corpus of the trust created by this
Agreement, to the extent described herein, consisting of the Mortgage Loans,
such assets as shall from time to time be identified as deposited in the
Collection Account, in accordance with this Agreement, property which secured
a Mortgage Loan and which has been acquired by foreclosure or deed
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in lieu of foreclosure or otherwise, the Depositor's rights under each Loan
Purchase Agreement, the Distribution Account and any Required Insurance
Policy.
"POOL SCHEDULED PRINCIPAL BALANCE" means, as to any Distribution Date,
the aggregate Scheduled Principal Balances of each Mortgage Loan that was an
Outstanding Loan on the Scheduled Due Date in the applicable month as to
which such determination is being made.
"PREPAYMENT INTEREST SHORTFALL" means, as to any Mortgage Loan and
Principal Prepayment, and as to any Liquidated Loan, the amount by which one
month's interest at the related Mortgage Interest Rate (net of the related
Master Servicing Fee) on such Principal Prepayment or the Scheduled Principal
Balance of such Liquidated Loan, as the case may be, exceeds the amount of
interest paid in connection with such Principal Prepayments or interest for
the number of days in the month such Liquidated Loan was liquidated, as the
case may be.
"PRINCIPAL PREPAYMENT" means any payment or other recovery of principal
on a Mortgage Loan (other than Liquidation Proceeds) which is received in
advance of its Scheduled Due Date and is not accompanied by an amount as to
interest representing scheduled interest due on any date or dates in any
month or months subsequent to the month of prepayment.
"PRINCIPAL PREPAYMENT IN FULL" means any Principal Prepayment of the
entire principal balance of a Mortgage Loan.
"PRIVATE CERTIFICATES" has the meaning specified in the Preliminary
Statement.
"PRO RATA SHARE" means, as to any Distribution Date, the Subordinate
Principal Distribution Amount and the Class B-1 or Class B-2 Certificates,
the portion of the Subordinate Principal Distribution Amount allocable to
such Class, equal to the product of the Subordinate Principal Distribution
Amount on such Distribution Date and a fraction, the numerator of which is
the related Class Certificate Balance thereof and the denominator of which is
the aggregate of the Class Certificate Balances of the Class B-1 and Class
B-2 Certificates.
"PROSPECTUS" means the Prospectus dated ___________________, 1996
relating to the offering of the Offered Certificates.
"RATING AGENCY" means each of the Rating Agencies specified in the
Preliminary Statement. If either such organization or a successor is no
longer in existence, "Rating Agency" shall be such nationally recognized
statistical rating organization, or other comparable Person, as is designated
by the Depositor, notice of which designation shall be given to the Trustee.
References herein to a given rating or rating category of a Rating Agency
shall mean such rating category without giving effect to any modifiers.
"RECORD DATE" means the last day of the month (or if such last day is
not a Business Day, the Business Day immediately preceding such last day)
next preceding the month of the related Distribution Date.
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"REDUCED SCHEDULED PRINCIPAL BALANCE" means, as to any Liquidated
Deficient Valuation Loan, the Scheduled Principal Balance thereof reduced by
any Deficient Valuation at the time of the related Deficient Valuation.
"REGULAR CERTIFICATE" has the meaning specified in the Preliminary
Statement.
"RELIEF ACT" means the Soldiers' and Sailors' Civil Relief Act of 1940,
as amended.
"RELIEF ACT REDUCTIONS" means, with respect to any Distribution Date,
for any Mortgage Loan as to which there has been a reduction in the amount of
interest collectible thereon for the most recently ended Due Period as a
result of the application of the Relief Act, the amount, if any, by which (a)
interest collectible on such Mortgage Loan for the most recently ended Due
Period is less than (b) interest accrued pursuant to the Mortgage Note on the
same principal amount and for the same period as the interest collectible on
such Mortgage Loan for the most recently ended Due Period.
"REMAINING TERM" means, with respect to any Mortgage Loan, the period
commencing on the Cutoff Date and ending on the Calculated Maturity Date for
such Mortgage Loan.
"REMIC" means a "real estate mortgage investment conduit" within the
meaning of Section 860D of the Code.
"REMIC CERTIFICATE MATURITY DATE" means the "latest possible maturity
date" of the Regular Certificates as that term is defined in Section 2.07.
"REMIC CHANGE OF LAW" means any proposed, temporary or final regulation,
revenue ruling, revenue procedure or other official announcement or
interpretation relating to the REMIC and the REMIC Provisions issued after
the Closing Date.
"REMIC PROVISIONS" means provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at Section
860A through 860G of Subchapter M of Chapter 1 of the Code, and related
provisions, and regulations promulgated thereunder, as the foregoing may be
in effect from time to time.
"REO ACQUISITION" means the acquisition of REO Property.
"REO DISPOSITION" means the sale or other disposition of the REO
Property pursuant to Section 3.13(d).
"REO LOAN" means any Mortgage Loan which is not a Liquidated Loan and as
to which the related Mortgaged Property is held as part of the Pool. Each REO
Loan relating to a Commercial Mortgage Loan shall be deemed to have an
initial unpaid principal balance and Scheduled Principal Balance equal to the
unpaid principal balance and Scheduled Principal Balance, respectively, of
its predecessor Commercial Mortgage Loan as of the date of the REO
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Acquisition. All amounts payable or reimbursable to the Master Servicer or
the Trustee in respect of the predecessor Commercial Mortgage Loan as of the
date of the related REO Acquisition including, without limitation, any unpaid
Master Servicing Fees, Trustee Fees and any unreimbursed Advances, shall
continue to be payable or reimbursable to the Master Servicer or the Trustee,
as the case may be, in respect of an REO Loan.
"REO PROCEEDS" means proceeds, net of any related expenses of the Master
Servicer, received in respect of any REO Loan (including, without limitation,
proceeds from the rental of the related Mortgaged Property) which are
received prior to the final liquidation of such Mortgaged Property.
"REO PROPERTY" means a Mortgaged Property acquired by the Master
Servicer on behalf and in the name of the Trustee for the benefit of the
Certificateholders through foreclosure, acceptance of a deed-in-lieu of
foreclosure or otherwise in accordance with applicable law in connection with
the default of a Mortgage Loan.
"REPLACEMENT LOAN" means a Mortgage Loan substituted by a Seller for a
Deleted Loan which must, on the date of such substitution, as confirmed in an
Officers' Certificate delivered to the Trustee by such Seller: (a) have an
outstanding principal balance, after deduction of the principal payments due
in the month of substitution, not in excess of, and not less than [90]% of,
the principal balance of the Deleted Loan; (b) have a Mortgage Interest Rate
no lower than the Mortgage Interest Rate for the Deleted Loan, and not more
than [2]% per annum higher than the Mortgage Interest Rate of the Deleted
Loan; (c) have a Loan-to-Value Ratio as of the date of substitution no higher
than that of the Deleted Loan on such date; (d) have a Remaining Term no
greater than, and not more than one year less than, the Deleted Loan; (e)
comply with and not cause a breach of each of the representations and
warranties referred to in Sections 2.02 and 2.03 hereof; and (f) be the same
type of Mortgage Loan (Single Family Mortgage Loan or Commercial Mortgage
Loan) as the Deleted Loan.
"REPURCHASE PRICE" means, as to any Deleted Loan repurchased on any date
pursuant to Section 2.02 or 2.03 or any Mortgage Loan repurchased on any date
pursuant to Section 3.13(b), an amount equal to the sum of (i) the unpaid
principal balance thereof, (ii) the unpaid accrued interest thereon at the
applicable Mortgage Interest Rate from the Due Date on which interest was
last paid by the Mortgagor to the first day of the month following the month
in which such Mortgage Loan became subject to repurchase and any unpaid
Servicing Advances.
"REQUIRED INSURANCE POLICY" means, with respect to any Mortgage Loan,
any insurance policy which is required to be maintained from time to time
under this Agreement in respect of such Mortgage Loan.
"RESIDUAL CERTIFICATE" means the Class R Certificates.
"RESPONSIBLE OFFICER" means, with respect to the Trustee, any officer in
its corporate trust department or successor group.
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"SCHEDULED DUE DATE" means, as to any Distribution Date and Mortgage
Loan with a Due Date occurring on or after the second day of the calendar
month preceding the month of such Distribution Date and on or before the
first day of the month of such Distribution Date, the first day of the month
of such Distribution Date.
"SCHEDULED PRINCIPAL BALANCE" means, as to any Mortgage Loan and
Scheduled Due Date, the unpaid principal balance of such Mortgage Loan as
specified in the amortization schedule (before any adjustment to such
amortization schedule by reason of any moratorium or similar waiver or grace
period) for such Scheduled Due Date, after giving effect to any previous
Curtailments or other unscheduled payments of principal and to the payment of
principal due on such Scheduled Due Date and irrespective of any delinquency
in payment by the related Mortgagor. The Scheduled Principal Balance of a
Mortgage Loan shall be zero immediately following the Scheduled Due Date in
the month such Loan becomes a Liquidated Loan or is required to be
repurchased pursuant to Section 2.02 or 2.03.
"SELLER" means each of Metropolitan, Summit, Western United and Old
Standard, as seller of certain of the Mortgage Loans under the related Loan
Purchase Agreement as the context requires.
"SELLER'S ACQUISITION PROCEDURES" means the acquisition procedures used
by the applicable Seller in connection with the purchase of the Mortgage
Loans by such Seller.
"SENIOR CERTIFICATE" has the meaning specified in the Preliminary
Statement.
"SENIOR PERCENTAGE" means, with respect to any Distribution Date, the
percentage carried six places rounded up, obtained by dividing (i) the
aggregate of the Class Certificate Balance of the Senior Certificates (other
than the Class A-4 Certificates), immediately prior to such Distribution Date
by (ii) the aggregate of the Class Certificate Balances of all Classes of
Certificates (other than the Private Certificates) immediately prior to the
Due Date.
"SENIOR PREPAYMENT PERCENTAGE" means, for any Distribution Date
occurring during the first five years beginning on the first Distribution
Date, shall be, except as provided herein, equal to 100%. The Senior
Prepayment Percentage for any Distribution Date occurring on or after the
fifth anniversary of the first Distribution Date will be as follows: for any
Distribution Date in the first year thereafter the Senior Percentage for such
Distribution Date plus 70% of the sum of the Class A-4 Percentage and the
Subordinate Percentage for such Distribution Date; for any Distribution Date
in the second year thereafter, the Senior Percentage for such Distribution
Date plus 60% of the sum of the Class A-4 Percentage and the Subordinate
Percentage for such Distribution Date; for any Distribution Date in the third
year thereafter, the Senior Percentage for such Distribution Date plus 40% of
the Subordinate Percentage for such Distribution Date; for any Distribution
Date in the fourth year thereafter, the Senior Percentage for such
Distribution Date plus 20% of the sum of the Class A-4 Percentage and the
Subordinate Percentage for such Distribution Date; and for any Distribution
Date thereafter, the Senior Percentage for such Distribution Date (unless on
any of the foregoing Distribution Dates the
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Senior Percentage exceeds the initial Senior Percentage, in which case the
Senior Prepayment Percentage for such Distribution Date will once again equal
100%). Notwithstanding the foregoing, no reduction to the Senior Prepayment
Percentage will occur if as of the first Distribution Date as to which any
such decrease applies, (a) the outstanding principal balance of all Loans
delinquent 60 days or more including Mortgage Loans in foreclosure and REO
Loans (averaged over the preceding six-month period), as a percentage of the
aggregate principal balance of the Subordinate Certificates (averaged over
the preceding six-month period), is equal to or greater than 50% or (b)
cumulative Realized Losses with respect to the Mortgage Loans exceed (i) with
respect to the Distribution Date on the fifth anniversary of the first
Distribution Date, 30% of the Original Subordinate Certificate Balance, (ii)
with respect to the Distribution Date on the sixth anniversary of the first
Distribution Date, 35% of the Original Subordinate Certificate Balance, (iii)
with respect to the Distribution Date on the seventh anniversary of the first
Distribution Date, 40% of the Original Subordinate Certificate Balance, (iv)
with respect to the Distribution Date on the eighth anniversary of the first
Distribution Date, 45% of the Original Subordinate Certificate Balance, and
(v) with respect to the Distribution Date on the ninth anniversary of the
first Distribution Date, 50% of the Original Subordinate Certificate Balance.
"SENIOR PRINCIPAL DISTRIBUTION AMOUNT" means, as to any Distribution
Date and the Senior Certificates (other than the Class A-4 Certificates), the
sum of (a) the Senior Percentage of (i) all scheduled payments of principal
(without giving effect, prior to the Bankruptcy Coverage Termination Date, to
any reductions thereof caused by any Debt Service Reductions or Deficient
Valuations) due on each Outstanding Loan on the Scheduled Due Date for such
Mortgage Loan in the month in which such Distribution Date occurs, (ii) the
Scheduled Principal Balance of each Mortgage Loan that was repurchased by the
Seller or another person on the related Distribution Account Deposit Date
pursuant to Sections 2.02 or 2.03, (iii) the Substitution Adjustment Amount
in connection with any substitution of the Mortgage Loans on the related
Distribution Account Deposit Date pursuant to Section 2.04, and (iv) any
Insurance Proceeds or Liquidation Proceeds received during the Due Period
related to such Distribution Date and allocable to recoveries of principal of
Mortgage Loans that are not yet Liquidated Loans, (b) with respect to any
Mortgage Loan that became a Liquidated Loan during the preceding Due Period,
either (A) the Senior Prepayment Percentage if the Senior Prepayment
Percentage is less than 100%, or, if the Senior Prepayment Percentage equals
100%, the percentage obtained by dividing the Senior Percentage by the sum of
the Senior Percentage and the Class A-4 Percentage of the amount of the
Liquidation Proceeds allocable to principal or (B), if an Excess Loss was
sustained with respect to such Liquidated Loan during such Due Period, the
Senior Percentage of the amount of the Liquidation Proceeds allocable to
principal and (c) the Senior Prepayment Percentage of all Curtailments and
Principal Prepayments (including Balloon Payments) received during the
related Due Period.
"SERVICER" means any Person with which the Master Servicer has entered
into a servicing agreement and which satisfies the requirements set forth
therein.
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"SERVICING ADVANCES" means all customary, reasonable and necessary
"out-of-pocket" costs and expenses (including attorneys' fees and expenses
and fees of real estate brokers) incurred by the Master Servicer and amounts
advanced in the performance of its servicing obligations, including, but not
limited to, the cost of or amounts advanced with respect to (a) compliance
with the Master Servicer's obligations set forth in Sections 3.05(b), 3.08
and 3.10 (to the extent reimbursable thereunder), including such costs and
expenses incurred by the Master Servicer on or before the Cutoff Date with
respect to any Mortgage Loan, (b) the preservation, restoration and
protection of a Mortgaged Property, (c) obtaining any Insurance Proceeds or
any Liquidation Proceeds, including, without limitation, Liquidation Expenses
but excluding amounts not reimbursable under the terms of Section 3.10, (d)
any enforcement or judicial proceedings with respect to a Mortgaged Property,
including foreclosures, and (v) the operation, management, maintenance and
liquidation of any REO Property, to the extent that the Master Servicer
determines that any such Servicing Advance will not be a Nonrecoverable
Advance.
"SERVICING OFFICER" means any officer of the Master Servicer involved
in, or responsible for, the administration and servicing of the Mortgage
Loans whose name appears on a list of servicing officers furnished to the
Trustee by the Master Servicer, as such list may from time to time be amended.
"SINGLE FAMILY MORTGAGE LOAN" means a Mortgage Loan secured by a
one-to-four-family residential property.
"SPECIAL HAZARD COVERAGE TERMINATION DATE" means the point of time at
which the Special Hazard Loss Coverage Amount is reduced to zero.
"SPECIAL HAZARD LOAN" means any Liquidated Loan as to which the ability
to recover thereon was substantially impaired by reason of a Special Hazard
Loss.
"SPECIAL HAZARD LOSS" means as to a Mortgaged Property, any loss on
account of direct physical loss, exclusive of (y) any loss covered by a
hazard policy or a flood insurance policy maintained in respect of such
Mortgaged Property pursuant to Section 3.08 and (z) any loss caused by or
resulting from:
(a) (i) wear and tear, deterioration, rust or corrosion, mold, wet
or dry rot; inherent vice or latent defect; animals, birds, vermin,
insects;
(ii) settling, subsidence, cracking, shrinkage, building or
expansion of pavements, foundations, walls, floors, roofs or ceilings;
(b) errors in design, faulty workmanship or faulty materials, unless
the collapse of the property or a part thereof ensues and then only for the
ensuing loss;
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(c) nuclear or chemical reaction or nuclear radiation or radioactive
or chemical contamination, all whether controlled or uncontrolled, and
whether such loss is direct or indirect, proximate or remote or be in whole
or in part caused by, contributed to or aggravated by a peril insured
against in a special hazard insurance policy; and
(d) (i) hostile or warlike action in time of peace or war, including
action in hindering, combating or defending against an actual,
impending or expected attack (A) by any government or sovereign power
(de jure or de facto), or by any authority maintaining or using
military, naval or air forces; or (B) by military, naval or air
forces; or (C) by an agent of any such government, power, authority or
forces;
(ii) any weapon or war or facility for producing same employing
atomic fission, radioactive force or chemical or biological
contaminants, whether in time of peace or war; or
(iii) insurrection, rebellion, revolution, civil war, usurped
power or action taken by governmental authority in hindering,
combating or defending against such an occurrence, seizure or
destruction under quarantine or customs regulations, confiscation by
order of any government or public authority, or risks of contraband or
illegal transportation or trade.
"SPECIAL HAZARD LOSS COVERAGE AMOUNT" means, as to any Distribution
Date, the lesser of (a) the greatest of (i) 1% of the aggregate principal
balance of the Mortgage Loans, (ii) twice the principal balance of the
largest Mortgage Loan, and (iii) the aggregate principal balance of all
Mortgage Loans secured by the Mortgaged Properties located in the single
California five-digit postal zip code having the highest aggregate principal
balance of any zip code area, all principal balances to be calculated as of
the first day of the month preceding such Distribution Date after giving
effect to scheduled installments of principal and interest on the Mortgage
Loans then due, whether or not paid and (b) the Initial Special Hazard Loss
Coverage Amount, reduced (but not below zero) by the amount of Net Realized
Losses in respect of Special Hazard Loans previously incurred during the
period from the Cutoff Date through the last day of the month preceding the
month of such Distribution Date. The Special Hazard Loss Coverage Amount may
be further reduced from time to time below the amounts specified above with
the written consent of the Rating Agencies and without resulting in a
downgrading to the then current rating of the Certificates.
"SUBORDINATE CERTIFICATE" has the meaning specified in the Preliminary
Statement.
"SUBORDINATE PERCENTAGE" means, as of any Distribution Date, 100% minus
the sum of the Senior Percentage and the Class A-4 Percentage for such
Distribution Date.
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"SUBORDINATE PREPAYMENT PERCENTAGE" means, as to any Distribution Date,
100% minus the sum of the Senior Prepayment Percentage and the Class A-4
Prepayment Percentage for such Distribution Date.
"SUBORDINATE PRINCIPAL DISTRIBUTION AMOUNT" means, as to any
Distribution Date and the Class B-1 and Class B-2 Certificates, the sum of
(a) the Subordinate Percentage of (i) all scheduled payments of principal due
on each Outstanding Loan on the Scheduled Due Date for such Mortgage Loan in
the month in which such Distribution Date occurs, (ii) the Scheduled
Principal Balance of each Mortgage Loan that was repurchased by the Seller or
another person on the related Distribution Account Deposit Date pursuant to
Section 2.02 or 2.03, (iii) the Substitution Adjustment Amount in connection
with any substitution of Mortgage Loans on the related Distribution Account
Deposit Date pursuant to Section 2.04, (iv) any Insurance Proceeds or
Liquidation Proceeds received during such Due Period and allocable to
recoveries of principal of Mortgage Loans that are not yet Liquidated Loans,
and (v) the Scheduled Principal Balance of each Mortgage Loan that became a
Liquidated Loan during the month preceding the month of such Distribution
Date and (b) the Subordinate Prepayment Percentage of all Curtailments and
all Principal Pre-payments (including Balloon Payments) received during the
related Due Period.
"SUBSTITUTION ADJUSTMENT AMOUNT" has the meaning ascribed to such term
pursuant to Section 2.04(b).
"SUBSTITUTION DATE" has the meaning ascribed to such term pursuant
Section 2.04(b).
"SUMMIT" means Summit Securities, Inc., or any successor thereto.
"SUPPLEMENTAL MORTGAGE LOAN SCHEDULE" has the meaning given in Section
2.04(b).
"TAX MATTERS PERSON" means the person designated as "tax matters person"
in the manner provided under Treasury regulations Section 1.860F-4(d) and
temporary Treasury regulation Section 301.6231(a)(7)-IT. Initially, the Tax
Matters Person shall be the Trustee.
"TAX MATTERS PERSON CERTIFICATE" means the Class R Certificate with a
denomination of $1.
"TITLE INSURANCE POLICY" means, with respect to each Mortgage Loan
(other than a Mortgage Loan which is a Land Sale Contract), an owner's
policy, a standard mortgage lender's policy or an ALTA or CLTA (extended
coverage) lender's title insurance policy in an amount not less than $10,000,
and, with respect to each Mortgage Loan which is a Land Sale Contract, an
owner's policy, a standard mortgage lender's policy or an ALTA or CLTA
(extended coverage) lender's title insurance policy in an amount not less
than the outstanding principal balance of the Land Sale Contract at time of
acquisition of the Land Sale Contract by the respective Seller and in each
case which affirmatively insures ingress and egress and insures against
encroachments by or upon the Mortgaged Property.
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"TRUST FUND" has the meaning given under the definition of "POOL."
"TRUSTEE" means The Bank of New York, as trustee for the benefit of the
holders of the Certificates pursuant to the terms of this Agreement.
"TRUSTEE FEE" means the amount payable to the Trustee hereunder which
amount is determined pursuant to an agreement between the Trustee and the
Depositor.
"TRUSTEE FEE RATE" means, with respect to any Mortgage Loan, the rate
per annum specified in the agreement between the Trustee and the Depositor.
"UNDERWRITERS" means First Southwest Company and Bear, Stearns & Co.
Inc., as underwriters of the public offering of the Offered Certificates.
"VOTING RIGHTS" means, with respect to any Regular Certificate, the
portion of the voting rights of all of the Certificates which is allocated to
any such Certificate. As of any date of determination, all of the Voting
Rights shall be allocated among Holders of the Regular Certificates in
proportion to the Class Certificate Balances of their respective Certificates
on such date. Voting Rights allocated to a Class of Certificates shall be
allocated among the Certificates of each such Class in accordance with their
respective Percentage Interests. The Holders of the Residual Certificates
shall have no Voting Rights.
"WARRANTY DEED" means, with respect to each Land Sale Contract, the
instrument of title to the related Mortgaged Property in which the grantor
warrants good clear title (including warranties of seisin, quiet enjoyment,
right to convey, freedom from encumbrances and defense of title as to all
claims).
"WESTERN UNITED" means Western United Life Assurance Company, or any
successor thereto.
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
Section 2.01. CONVEYANCE OF MORTGAGE LOANS. The Depositor,
concurrently with the execution and delivery of this Agreement, does hereby
sell, transfer, assign, set over and otherwise convey to the Trustee without
recourse all the right, title and interest of the Depositor in and to the
Mortgage Loans and the Mortgage Notes, including all interest and principal
received on or with respect to the Mortgage Loans after the Cutoff Date
(other than payments of principal and interest due and payable on the
Mortgage Loans on or before the Cutoff Date and late charges, prepayment
penalties, assumption fees, and other miscellaneous fees and charges to the
extent accrued prior to the Cutoff Date) together with the Depositor's
rights under each Loan Purchase Agreement, and the representations and
warranties of each Seller thereunder
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together with all rights of the Depositor to require the applicable Seller to
cure any breach thereof or to repurchase or substitute for any affected
Mortgage Loan sold by it to the Depositor in accordance with the related Loan
Purchase Agreement.
In connection with such transfer and assignment, the Depositor has
instructed each Seller to deliver on its behalf, and each such Seller does
hereby deliver on behalf of the Depositor to the Trustee for the benefit of
the Certificateholders, each document or instrument set forth in the
definition of "File" with respect to each Mortgage Loan so transferred and
assigned.
In instances where the original recorded Mortgage cannot be delivered by
a Seller to the Trustee on or before five (5) days prior to the Closing Date,
due to a delay in connection with recording, such Seller may in lieu of
delivering such original recorded Mortgage, deliver to the Trustee a copy
thereof, provided that such Seller certifies that the original Mortgage has
been delivered to a title insurance company for recordation after receipt of
its policy of title insurance or binder therefor. In all such instances, such
Seller will deliver or cause to be delivered the original recorded Mortgage
to the Trustee promptly upon receipt of the original recorded Mortgage. Each
Seller shall exercise its best efforts to deliver or cause to be delivered to
the Trustee within 180 days of the execution and delivery of this Agreement
the original title insurance policy with respect to each Mortgage Loan
assigned to the Trustee pursuant to this Section 2.01.
In the case of Mortgage Loans which have been prepaid in full after the
Cutoff Date and prior to the date of execution and delivery of this
Agreement, the Depositor, in lieu of delivering the documents referred to
above to the Trustee, herewith shall deliver to the Trustee a certification
of a Servicing Officer of the nature set forth in and the deposit required by
Section 3.11.
As promptly as practicable subsequent to such transfer and assignment,
and in any event, within thirty (30) Business Days thereafter, the Master
Servicer, at its expense, shall cause to be recorded in the appropriate
public office for real property records the Assignment of Mortgages to the
Trustee, except that the Master Servicer need not cause to be recorded any
assignment which relates to a Mortgage Loan in a jurisdiction under the laws
of which, on the basis of an Opinion of Counsel delivered by the Depositor,
at the expense of the related Seller, to the Trustee which is reasonably
satisfactory to the Trustee, recordation of such assignment is not necessary
to protect the Trustee and the Certificateholders, interest in the related
Mortgage Loan.
The parties hereto intend that the transaction set forth herein be a
sale by the Depositor to the Trust Fund of all the Depositor's right, title
and interest in and to the Mortgage Loans and other property described above.
In the event the transaction set forth herein is deemed not to be a sale,
the Depositor hereby grants to the Trust Fund a security interest in all of
the Depositor's right, title and interest in, to and under the Mortgage Loans
whether now existing or hereafter created, all moneys due or to become due on
the Mortgage Loans and all proceeds of any thereof; and this Agreement shall
constitute a security agreement under applicable law.
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Section 2.02. ACCEPTANCE BY TRUSTEE. The Trustee acknowledges receipt
of the documents referred to in Section 2.01 subject to the examination
referred to below, and declares that the Trustee holds and will hold such
documents in trust, upon the terms herein set forth, for the use and benefit
of all present and future Certificateholders. The Trustee agrees, for the
benefit of Certificateholders, to review each File within 90 days after
execution and delivery of this Agreement, to ascertain that all required
documents have been executed, received and recorded, if applicable, and that
such documents relate to the Mortgage Loans identified in the Mortgage Loan
Schedule. In performing such review, the Trustee may rely upon the purported
genuineness and due execution of any such document and on the purported
genuineness of any signature thereon. The Trustee shall be under no duty or
obligation to inspect, review or examine said documents or Files to determine
that the same are genuine, enforceable or appropriate for the represented
purpose or that they have actually been recorded in the real estate records
or that they are other than that which they purport on their face to be. If
in the course of such review the Trustee finds any document or documents
constituting a part of a File to have been omitted or that any document
contained in a File fails to be regular on its face, the Trustee shall
promptly so notify the Master Servicer, the applicable Seller and the
Depositor. The Master Servicer shall promptly request that the applicable
Seller correct or cure such omission or material irregularity within 90 days
from the date the Trustee's 90-day review period ended and, if such Seller
does not correct or cure such omission or material irregularity within such
period, such Seller shall purchase such Mortgage Loan from the Trustee (a) on
the Distribution Account Deposit Date in the month following the month in
which such 180-day period expired at the Repurchase Price of such Mortgage
Loan or (b) upon the expiration of such 180-day period if the omission or
defect would result in the related Mortgage Loan not being a Qualified Loan
for purposes of Section 860G(a)(3) of the Code. In such event, the Repurchase
Price for the purchased Mortgage Loan shall be deposited in the Collection
Account no later than the Business Day preceding the related Distribution
Account Deposit Date in the case of clause (a) above, and, in the case of
clause (b) above, upon receipt by the Trustee of written notification of such
deposit and request signed by an officer of the applicable Seller, and the
Trustee shall release to the applicable Seller the related File and the
Trustee shall execute and deliver such instruments of transfer or assignment,
in each case without recourse, as shall be requested to vest in such Seller
or its designee any Mortgage Loan released pursuant hereto. In lieu of any
purchase, the Seller may substitute a Replacement Loan or Loans for such
Mortgage Loan in accordance with Section 2.04. It is understood and agreed
that the obligation of the respective Seller to purchase any Mortgage Loan,
or substitute a Replacement Loan therefor, as to which a material defect in
or omission of a constituent document exists shall constitute the sole remedy
against such Seller respecting such defect or omission available to
Certificateholders or the Trustee on behalf of Certificateholders. With
respect to any Mortgage Loan with respect to which there is a material defect
in or omission of a constituent document which Old Standard has not cured or
for which Old Standard fails to repurchase or substitute within the above
mentioned time period, Summit shall be obligated to cure such defect,
repurchase the related Mortgage Loan or substitute for the related Mortgage
Loan in accordance with this Section 2.02 within five Business Days following
the conclusion of such cure period. With respect to any Mortgage Loan with
respect to which there is a material defect in or omission of a constituent
document which Western United has not cured or for which Western United fails
to repurchase
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or substitute within the above mentioned time period, Metropolitan shall be
obligated to cure such defect, repurchase the related Mortgage Loan or
substitute for the related Mortgage Loan in accordance with this Section 2.02
within five Business Days following the conclusion of such cure period.
Section 2.03. REPRESENTATIONS AND WARRANTIES OF EACH SELLER, THE DEPOSITOR
AND THE TRUSTEE.
(a) Each Seller hereby makes the representations and warranties, as
to the Mortgage Loans sold by it to the Depositor, set forth in Article
III(b) of its respective Loan Purchase Agreement (and by this reference is
incorporated herein), to the Depositor and the Trustee, as of the Closing
Date, or if so specified therein, as of the Cutoff Date.
It is understood and agreed that the representations and warranties
referred to in this Section 2.03(a) shall survive delivery of the
respective Files to the Trustee.
Upon discovery by any of the Depositor, the Master Servicer or the
Trustee of a breach of any of the representations and warranties referred
to in this Section 2.03(a) which materially and adversely affects the value
of the Mortgage Loans or the interests of the Certificateholders in the
related Mortgage Loan, the party discovering such breach shall give prompt
written notice to the other parties. Within 60 days of its discovery or
its receipt of notice of breach from the Trustee, the applicable Seller
shall cure such breach in all material respects or shall purchase the
Mortgage Loan from the Trustee. Any such purchase by a Seller shall, in
the case of a breach of a representation or warranty, be at the Repurchase
Price, and in each case shall be accomplished in the manner set forth in
Section 2.02. In lieu of any purchase, the Seller may substitute a
Replacement Loan or Loans for such Mortgage Loans in accordance with
Section 2.04. It is understood and agreed that the obligation of a Seller
to purchase any Mortgage Loan or substitute a Replacement Loan therefore
sold by it to the Depositor as to which such a breach has occurred and is
continuing shall constitute the sole remedy against such Seller respecting
such breach available to Certificateholders or the Trustee on behalf of
Certificateholders. With respect to the breach of any representation or
warranty made by Old Standard which is not cured, or for which Old Standard
fails to repurchase, within the above mentioned time period, Summit shall
be obligated to cure such breach, repurchase the related Mortgage Loan or
substitute for the related Mortgage Loan in accordance with this Section
2.02 within five days following the conclusion of such 60-day period. With
respect to the breach of any representation or warranty made by Western
United which is not cured, or for which Western United fails to repurchase,
within the above mentioned time period, Metropolitan shall be obligated to
cure such breach, repurchase the related Mortgage Loan or substitute for
the related Mortgage Loan within five days following the conclusion of such
60-day period.
(b) Pursuant to Section 2.01, the Depositor has hereby assigned,
transferred and conveyed to the Trustee its rights under each Loan Purchase
Agreement, including
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without limitation, the representations, warranties and covenants of the
respective Seller therein and set forth in Section 2.03(a), together with
all rights of the Depositor to require the applicable Seller or other
Seller as specified therein to cure any breach thereof or to repurchase or
substitute for any affected Mortgage Loan sold by it to the Depositor in
accordance with the Loan Purchase Agreements and the Trustee hereby accepts
such assignment. It is understood and agreed that the representations,
warranties and covenants so assigned shall survive delivery of the
respective Files to the Trustee.
(c) The Depositor hereby represents and warrants to the Trustee as
follows:
(i) This Agreement constitutes a legal, valid and binding
obligation of the Depositor, enforceable against the Depositor in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter effect affecting the enforcement of
creditors' rights general and except as such enforceability may be
limited by general principles of equity (whether considered in a
proceeding at law or in equity);
(ii) Immediately prior to the sale and assignment by the
Depositor to the Trustee of each Mortgage Loan, the Depositor was the
sole beneficial owner of each Mortgage Loan (insofar as such title was
conveyed to it by the related Seller) subject to no prior lien, claim,
participation interest, mortgage, security interest, pledge, charge or
other encumbrance or other interest of any nature, except for those
listed on Schedule 1 hereto;
(iii) As of the Closing Date, the Depositor has transferred all of
its right, title and interest in the Mortgage Loans to the Trustee;
and
(iv) The Depositor has not transferred the Mortgage Loans to the
Trustee with any intent to hinder, delay or defraud any of its
creditors.
Section 2.04. SUBSTITUTION OF MORTGAGE LOANS.
(a) On a Distribution Date within two years following the Closing
Date and which is on or before the date on which a Seller would otherwise
be required to repurchase a Mortgage Loan sold by it to the Depositor, the
applicable Seller may deliver to the Trustee one or more Replacement Loans
in substitution for any one or more of the Original Loans which such Seller
would otherwise be required to repurchase pursuant to Sections 2.02 and
2.03;
(b) The applicable Seller shall notify the Master Servicer and the
Trustee in writing not less than five Business Days before the related
Distribution Date which is on or before the date of which such Seller would
otherwise be required to repurchase such Mortgage Loan pursuant to Section
2.02 or 2.03 of its intention to effect a substitution
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under this Section. On such Distribution Date (the "Substitution Date"),
the applicable Seller shall deliver to the Trustee (i) the Replacement
Loans to be substituted for the Original Loans, (ii) a list of the Original
Loans to be substituted for by such Replacement Loans, (iii) an Officers'
Certificate (A) stating that no Event of Default shall have occurred and be
continuing, (B) stating that the aggregate principal balance of all
Replacement Loans (determined with respect to each Replacement Loan as of
the Distribution Date on which it was substituted) including the principal
balance of Replacement Loans being substituted on such Distribution Date
does not exceed an amount equal to 5% of the Cutoff Date Principal Pool
Balance, (C) stating that all conditions precedent to such substitution
specified in subsection (a) have been satisfied and attaching as an exhibit
to the applicable Loan Purchase Agreement a supplemental Mortgage Loan
schedule (the "Supplemental Mortgage Loan Schedule") setting forth the same
type of information as appears on the Mortgage Loan Schedule relating
thereto and representing as to the accuracy thereof and (D) confirming that
the representations and warranties contained in Section 2.03 are true and
correct in all material respects with respect to the Replacement Loans on
and as of such Distribution Date, (iv) an Opinion of Counsel, at the
expense of such Seller, to the effect set forth below and (v) a certificate
stating that cash in the amount by which the aggregate unpaid principal
balance of the Replacement Loans is less than the Scheduled Principal
Balance of the Mortgage Loans for which they are being substituted (which
amount cannot be more than 10% of the Scheduled Principal Balance of the
Mortgage Loans for which they are being substituted) has been deposited in
the Distribution Account no later than the related Distribution Account
Deposit Date (such amount, the "Substitution Adjustment Amount"). Upon
receipt of the foregoing, the Trustee shall release such Original Loans to
the applicable Seller.
(c) Concurrently with the satisfaction of the conditions set forth in
Section 2.04(a) and (b) above and the grant of such Replacement Loans to
the Trustee pursuant to Section 2.04(a) above, the Mortgage Loan Schedule
shall be deemed to be amended to exclude all Mortgage Loans being replaced
by such Replacement Loans and to include, the information set forth on the
Supplemental Mortgage Loan Schedule with respect to such Replacement Loans,
and all references in this Agreement to Mortgage Loans shall include such
Replacement Loans.
(d) In connection with substitution of a Replacement Loan or Loans in
place of a Deleted Loan or Loans, the Seller shall, at the expense of the
Seller, deliver to the Trustee an Opinion of Counsel to the effect that
such purchase or substitution will not cause (i) any federal tax to be
imposed on the REMIC, including without limitation, any Federal tax imposed
on "prohibited transactions" under Section 860F(a)(1) of the Code or on
"contributions after the start-up day" under Section 860G(d)(1) of the Code
or (ii) any portion of the Trust Fund to fail to qualify as a REMIC at any
time that any Certificate is outstanding.
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Section 2.05. DESIGNATION OF INTERESTS IN REMIC. The Trustee is hereby
designated as "tax matters person" with respect to the REMIC for purposes of the
REMIC Provisions.
Section 2.06. DESIGNATION OF START-UP DAY. The Closing Date is hereby
designated as the "start-up day" of the REMIC within the meaning of Section
860G(a)(9) of the Code.
Section 2.07. DESIGNATION OF "LATEST POSSIBLE MATURITY DATE." The "latest
possible maturity date" for federal income tax purposes is the Latest Possible
Maturity Date.
ARTICLE III
ADMINISTRATION AND SERVICING OF LOANS
Section 3.01. THE MASTER SERVICER TO ACT AS SERVICER.
(a) The Master Servicer shall diligently manage, service, make
collections on, and otherwise administer the Mortgage Loans on behalf of
the Trustee and in the best interests of and for the benefit of the
Certificateholders (as determined by the Master Servicer in its good faith
and reasonable judgment) in accordance with applicable law, the terms of
this Agreement and the terms of the respective Mortgage Loans and, to the
extent consistent with the foregoing, in a manner consistent with the
ordinary practices of prudent institutional mortgage lenders and loan
servicers servicing mortgage loans comparable to the Mortgage Loans in the
jurisdictions where the Mortgaged Properties are located, and with a view
to the maximization of timely recovery of principal and interest on the
Mortgage Notes, but without regard to: (a) any relationship that the Master
Servicer or any affiliate of the Master Servicer may have with the related
Mortgagor; (b) the ownership of any Certificate by the Master Servicer or
any affiliate of the Master Servicer; (c) the Master Servicer's obligation
to make Monthly Advances and Servicing Advances; and (d) the Master
Servicer's right to receive compensation for its services hereunder or with
respect to any particular transaction.
(b) Subject only to the above-described servicing standards and the
terms of this Agreement and of the respective Mortgage Loans, the Master
Servicer shall have full power and authority, acting alone and/or through
one or more subservicers, to do or cause to be done any and all things in
connection with such servicing and administration which it may deem
necessary or desirable, without the consent or approval of the Trustee,
unless any such consent or approval is expressly required hereunder or
under applicable law. Without limiting the generality of the foregoing,
the Master Servicer, in its own name, is hereby authorized and empowered by
the Trustee and obligated to execute and deliver, on behalf of the
Certificateholders and the Trustee or any of them, any and all financing
statements, continuation statements and other documents or instruments
necessary to maintain the lien created by any Mortgage, certificates of
title, or other security document in the related File on the related
Mortgaged Property and related collateral (it being herein acknowledged
that the Master Servicer's obligation to
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file financing statements and continuation statements is limited to those
Mortgage Loans for which an effective financing statement or continuation
statement is on file in the appropriate public filing office as determined
by the Master Servicer based solely upon a review of the Mortgage Files and
related documents in its possession); subject to Sections 3.07 and 3.09,
any and all modifications, waivers, amendments or consents to or with
respect to any documents contained in the related File; and any and all
instruments of satisfaction or cancellation, or of partial or full release
or discharge, and all other comparable instruments, with respect to the
Mortgage Loans and the Mortgaged Properties. Subject to Section 3.13, the
Trustee shall furnish, or cause to be furnished, to the Master Servicer
within five Business Days of the request therefor any powers of attorney
and other documents necessary or appropriate to enable the Master Servicer
to carry out its servicing and administrative duties hereunder; provided,
however, that the Trustee shall not be held liable for any negligence with
respect to, or misuse of, any such power of attorney by the Master
Servicer. The forms of any such powers of attorney or documents may be
appended by the Master Servicer to such requests.
(c) The relationship of the Master Servicer to the Trustee under this
Agreement is intended by the parties to be that of an independent
contractor and not that of a joint venturer, partner or agent.
(d) Nothing in this Agreement shall preclude the Master Servicer, in
its individual capacity, from entering into other loans or other financial
transactions with any Mortgagor; provided that the Master Servicer may not
solicit a Mortgagor to refinance any Mortgage Loan through the Master
Servicer or an affiliate of the Master Servicer unless (i) the Mortgage
Loan is a Balloon Loan, (ii) such solicitation occurs no earlier than one
year prior to such Calculated Maturity Date of such Balloon Loan, and (iii)
any such refinancing of the Balloon Loan by the Master Servicer or an
affiliate of the Master Servicer occurs no earlier than six calendar months
prior to the Calculated Maturity Date of such Balloon Loan.
(e) All costs incurred by the Master Servicer or by any subservicer
in effecting the timely payment of taxes, assessments and Required
Insurance Policies on the properties subject to the Mortgage Loans shall
not, for the purpose of calculating monthly distributions to
Certificateholders, be added to the amount owing under the related Mortgage
Loans, notwithstanding that the terms of such Mortgage Loans so permit, and
such costs shall be recoverable by the Master Servicer to the extent
permitted by Section 3.05.
(f) In the event that any tax is imposed on "prohibited transactions"
on the REMIC as defined in Section 860F of the Code, such tax shall be
charged against amounts otherwise distributable to the Holders of the
Residual Certificates on a pro rata basis to the extent hereinafter
provided. Notwithstanding anything to the contrary contained herein, the
Trustee is hereby authorized to retain from amounts otherwise distributable
to the Holders of the Regular Certificates on any Distribution Date
sufficient
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funds to reimburse itself or the Master Servicer for the payment of such
tax (to the extent that it or the Master Servicer, as the case may be, has
not been previously reimbursed or indemnified therefor and the amounts
otherwise distributable to the Holders of the Residual Certificates are
insufficient to pay any such tax).
Section 3.02. SUBSERVICING ARRANGEMENTS; ENFORCEMENT OF SERVICER'S AND
SELLERS' OBLIGATIONS. The Master Servicer may enter into subservicing
agreements for the servicing and administration of all or a part of the
Mortgage Loans, provided that, in each case, the subservicing agreement: (a)
is consistent with this Agreement in all material respects and requires the
subservicer to comply with all of the applicable conditions of this
Agreement; (b) provides that if the Master Servicer shall for any reason no
longer be the Master Servicer hereunder, the Trustee or its designee may
thereupon assume all of the rights and, except to the extent they arose prior
to the date of assumption, obligations of the Master Servicer under such
agreement; and (c) provides that the Trustee for the benefit of the
Certificateholders shall be a third-party beneficiary under such subservicing
agreement, but that (except to the extent the Trustee or its designee assumes
the obligations of the Master Servicer thereunder as contemplated by the
immediately preceding clause (b)) none of the Trustee, any successor Master
Servicer or any Certificateholder shall have any duties under such agreement
or any liabilities arising therefrom. The Master Servicer shall deliver to
the Trustee or its designee copies of all subservicing agreements, and any
amendments thereto and modifications thereof, promptly upon the Master
Servicer's execution and delivery of such instruments. References in this
Agreement to actions taken or to be taken by the Master Servicer include
actions taken or to be taken by a subservicer on behalf of the Master
Servicer; and, in connection therewith, all amounts advanced by any
subservicer to satisfy the obligations of the Master Servicer hereunder to
make Advances shall be deemed to have been advanced by the Master Servicer
out of its own funds and, accordingly, such Advances shall be recoverable by
such subservicer in the same manner and out of the same funds as if such
subservicer were the Master Servicer. The Master Servicer shall notify the
Trustee and the Depositor in writing promptly of the appointment of any
subservicer. In the event that the Trustee becomes a successor Master
Servicer, it shall have the right to terminate upon notice all such
subservicing agreements.
Section 3.03. LIABILITY OF THE MASTER SERVICER. Notwithstanding any
servicing arrangement referred to in Section 3.02, any other provisions of
this Agreement relating to agreements or arrangements between the Master
Servicer or a subservicer or reference to actions taken through a subservicer
or otherwise, the Master Servicer shall remain obligated and liable to the
Trustee and Certificateholders for the servicing and administering of the
Mortgage Loans in accordance with the provisions of Section 3.01 without
diminution of such obligation or liability by virtue of such arrangements or
by virtue of indemnification from the Master Servicer and to the same extent
and under the same terms and conditions as if the Master Servicer alone were
servicing and administering the Mortgage Loans. For purposes of making
distributions to Certificateholders and for all other purposes of this
Agreement all amounts received by a subservicer in connection with the
Mortgage Loans shall be deemed to have been received by the Master Servicer,
and with respect to any successor Master Servicer from the time such
successor Master Servicer becomes the Master Servicer, whether or not such
amounts are
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actually remitted by the subservicer no the Master Servicer. In the event a
subservicer fails to remit any amounts required hereunder, the Master
Servicer shall be obligated to transmit the required amounts to the Trustee
regardless of the failure of the subservicer. The Master Servicer shall be
entitled to enter into any agreement with a subservicer or a Seller for
indemnification of the Master Servicer and nothing contained in this
Agreement shall be deemed to limit or modify such indemnification.
Section 3.04. COLLECTION OF CERTAIN LOAN PAYMENTS; COLLECTION ACCOUNT.
(a) The Master Servicer shall make reasonable efforts to collect all
payments called for under the terms and provisions of the Mortgage Loans,
and shall, to the extent such procedures shall be consistent with this
Agreement, follow such collection and payment allocation procedures as it
follows with respect to mortgage loans comparable to the Mortgage Loans in
its own servicing portfolio.
(b) The Master Servicer shall establish and maintain one or more
accounts (collectively, the "Collection Account"), in trust for the benefit
of the Certificateholders. The Collection Account shall be an Eligible
Account. Subject to this Section 3.04(b), the Master Servicer shall
deposit or cause to be deposited into the Collection Account within one
Business Day of receipt or as otherwise required hereunder all amounts
received by it which are related to the Mortgage Loans except amounts
required to be deposited in an Escrow Account pursuant to Section 3.05
hereof or amounts not conveyed to the Trustee hereunder. Proceeds received
with respect to individual Mortgage Loans from any title or other insurance
policy shall be deposited in the Collection Account; provided that, in the
discretion of the Master Servicer exercised in accordance with the
servicing standards set forth in Section 3.01, the Master Servicer may
endorse to the Mortgagor any such proceeds with respect to a Mortgage Loan.
The Master Servicer shall keep and maintain separate accounting on a
Mortgage Loan by Mortgage Loan basis, for any remittances to or payments
from the Collection Account.
The respective Seller shall deposit in the Collection Account, on
the date of repurchase or substitution, as the case may be, all
Substitution Adjustment Amounts in connection with Replacement Loans being
substituted by such Seller and the Repurchase Price paid by such Seller in
respect of any Mortgage Loan or property acquired in respect thereof.
The Master Servicer shall instruct Seafirst National Bank to invest
the funds in the Collection Account in Permitted Investments which shall
mature not later than the Business Day next preceding the next Distribution
Date (except that if such Permitted Investments are held at The Bank of
New York, such Permitted Investment shall mature not later than such
Distribution Date) and shall not be sold or disposed of prior to maturity.
Regarding investments, instructions will be delivered to Seafirst National
Bank
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on the Closing Date and may be changed at any time upon notice to
Seafirst National Bank. All such Permitted Investments shall be made in
the name of the Trustee (in its capacity as such) or its nominee. All
income and gain realized from any such investment shall be for the benefit
of the Master Servicer and shall be subject to its withdrawal from the
Collection Account or order from time to time. The amount of any realized
losses incurred in respect of any such investments shall be deposited in
the Collection Account by the Master Servicer out of its own funds
immediately as realized.
The foregoing requirements respecting deposits by the Master Servicer
into the Collection Account are exclusive, it being understood that,
without limiting the generality of the foregoing, the Master Servicer need
not deposit into the Collection Account amounts representing fees, charges
for beneficiary statements or demands, assumption fees, prepayment
penalties, amounts collected for Mortgagor checks returned for insufficient
funds, or late charge penalties payable by Mortgagors, or amounts received
by the Master Servicer for the account of Mortgagors for application toward
the payment of taxes, insurance premiums, assessments and similar items.
All amounts collected on any Mortgage Loan in the form of payments
from Mortgagors or Liquidation Proceeds of the nature described in clauses
(i) through (iii) of the definition thereof shall be applied to amounts due
and owing under the related Land Sale Contract or Mortgage Note and
Mortgage (including, without limitation, for principal and accrued and
unpaid interest) in accordance with the express provisions of the related
Land Sale Contract or Mortgage Note and Mortgage and, in the absence of
such express provisions, shall be applied (after reimbursement to the
Master Servicer for any related Servicing Advances): FIRST, as a recovery
of accrued and unpaid interest on such Mortgage Loan at the related
Mortgage Interest Rate; SECOND, as a recovery of principal of such Mortgage
Loan then due and owing, including, without limitation, by reason of
acceleration of the Mortgage Loan following a default thereunder; THIRD, in
accordance with the normal servicing practices of the Master Servicer, as a
recovery of any other amounts then due and owing under such Mortgage Loan,
including, without limitation, prepayment premiums and penalty charges; and
FOURTH, as a recovery of any remaining principal of such Mortgage Loan to
the extent of its entire remaining unpaid principal balance. No such
amounts shall be applied to the items constituting additional servicing
compensation as described in the first sentence of the second paragraph of
Section 3.12 unless and until all principal and interest then due and
payable on such Mortgage Loan has been collected.
No later than the Determination Date, the Master Servicer shall
calculate and report to the Trustee the Available Funds for the related
Distribution Date. In accordance with such report, the Master Servicer
shall transfer an amount equal to the Available Funds to the Trustee for
deposit into the Distribution Account by wire transfer in immediately
available funds on the Distribution Account Deposit Date.
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(c) On or before the Closing Date, the Trustee shall establish the
Distribution Account. The Distribution Account shall at all times be a
non-interest bearing Eligible Account, it shall relate solely to the
Certificates and the Trustee shall have the exclusive right to withdraw
funds therefrom. In connection with each Distribution Date, the Master
Servicer shall withdraw on the Distribution Account Deposit Date for such
Distribution Date in accordance with Section 3.06(viii) related Available
Funds and deposit such Available Funds into the Distribution Account. The
Trustee shall deposit into the Distribution Account on the Business Day
received all moneys remitted by the Master Servicer pursuant to Section
3.04(b). The Trustee shall make withdrawals from the Distribution Account
only for the following purposes:
(i) to withdraw amounts deposited in the Distribution Account in
error;
(ii) to make distributions to the Certificateholders pursuant to
Section 5.01; and
(iii) to clear and terminate the Distribution Account pursuant to
Section 10.01.
Section 3.05. COLLECTION OF TAXES, ASSESSMENTS AND SIMILAR ITEMS.
(a) In accordance with the servicing standards set forth in Section
3.01, the Master Servicer shall establish and maintain one or more escrow
accounts (each an "Escrow Account") with respect to each Mortgage Loan into
which the Master Servicer shall deposit all payments received by the Master
Servicer for the account of any Mortgagor for application toward the
payment of real estate taxes, assessments, insurance premiums, and similar
items in respect of the related Mortgaged Property, in all cases, only as
such payments are required to be deposited into an escrow account in
accordance with such Mortgage Loan. Such amounts deposited into an Escrow
Account shall be retained therein until withdrawn as permitted in this
Section 3.05. Each Escrow Account shall be held in the custody of the
Master Servicer for the benefit of each related Mortgagor as required by
applicable law. With respect to a Mortgage Loan, withdrawals of amounts so
collected from the related Escrow Account may be made only to effect timely
payment of taxes, assessments, hazard insurance premiums (if such amounts
are required to be deposited into such Escrow Account) to repair, restore
or otherwise protect the Mortgaged Property or comparable items, to
reimburse the Master Servicer out of related collections for any payment of
taxes or assessments by the Master Servicer or any payments made pursuant
to Section 3.08 (with respect to hazard insurance), to reimburse the Master
Servicer for any advances made by the Master Servicer pursuant to this
Section 3.05, to refund to any Mortgagors any sums as may be determined to
be overages, to pay interest, if required, to Mortgagors on balances in an
Escrow Account, to withdraw any amounts deposited therein in error or to
clear and terminate the Escrow
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Accounts at the termination of this Agreement in accordance with Section
10.01 to the extent permitted by applicable law and the related Mortgage
Note.
(b) In accordance with the servicing standard of Section 3.01, the
Master Servicer shall advance the payment of property taxes, ground rents,
if applicable, and insurance premiums, and other similar payments that are
not timely paid by the Mortgagors on the date when such tax, ground rents,
premium or other cost for which such payment is intended is due, in each
instance if and to the extent amounts deposited into any related Escrow
Account are insufficient to pay such item when due and the related
Mortgagor has failed to pay such item on a timely basis, but the Master
Servicer shall be required to so advance only to the extent that such
Servicing Advances, in the good faith judgment of the Master Servicer, will
be recoverable by the Master Servicer out of Liquidation Proceeds or
otherwise. If there is no Escrow Account, the Master Servicer will be
required to advance such amounts necessary to protect the Trustee's
interest in such Mortgaged Properties in accordance with the servicing
standard set forth in Section 3.01. All such Servicing Advances shall be
reimbursable to the Master Servicer as provided in Section 3.06. No costs
incurred by the Master Servicer in effecting the payment of real estate
taxes, assessments and, if applicable, ground rents on or in respect of the
Mortgaged Properties shall be, for purposes hereof, including, without
limitation, calculating monthly distributions to Certificateholders, added
to the unpaid principal balances of the related Mortgage Loans,
notwithstanding that the terms of such Mortgage Loans so permit.
Section 3.06. PERMITTED WITHDRAWALS FROM THE COLLECTION ACCOUNT. The
Master Servicer may, from time to time as provided herein, make withdrawals
from the Collection Account of amounts on deposit therein attributable to the
Mortgage Loans for the following purposes:
(a) as reimbursement for previously unreimbursed Monthly Advances
made pursuant to Section 4.02, the right to withdraw amounts pursuant to
this subclause (a) being limited to amounts received on particular Mortgage
Loans (including, without limitation, for this purpose, Insurance Proceeds,
Liquidation Proceeds and proceeds from the repurchase of a Mortgage Loan
pursuant to Sections 2.02, 2.03 and 3.13(b)) which, in accordance with the
Master Servicer's customary procedures, represent late recoveries of
payments of principal and/or interest with respect to which any such
Monthly Advance was made;
(b) to pay as servicing compensation that portion of any amount due
to the Master Servicer pursuant to Section 3.12 and to reimburse itself for
unreimbursed Servicing Advances, the Master Servicer's right to reimburse
itself pursuant to this clause (b) with respect to any Mortgage Loan being
limited to related payments by Mortgagors, Liquidation Proceeds, Insurance
Proceeds and Repurchase Prices;
(c) to pay to a Seller with respect to each Mortgage Loan or property
acquired in respect thereof that has been purchased pursuant to Section
2.02 or 2.03, all amounts
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received thereon following such purchase and not taken into account in
determining the related Scheduled Principal Balance or Repurchase Price;
(d) as reimbursement for any unreimbursed Nonrecoverable Advance in
the manner and to the extent provided below or for the payment of taxes as
permitted by Section 3.10;
(e) to pay, or reimburse itself for the payment of, the Trustee Fee;
(f) as reimbursement for unreimbursed expenses incurred by and
reimbursable to it or the Depositor pursuant to Sections 7.03 and 3.19;
(g) to reverse a deposit of any amount deposited in the Collection
Account that is deposited therein in error (including amounts related to
checks returned due to insufficient funds);
(h) to make payments to the Trustee for deposit into the Distribution
Account of the Available Funds in accordance with Section 3.04(c);
(i) to pay Liquidation Expenses, made or incurred pursuant to Section
3.05 or Section 3.10 from related Liquidation Proceeds; and
(j) to clear and terminate the Collection Account at the termination
of this Agreement pursuant to Section 10.01.
Since, in connection with withdrawals pursuant to subclauses (a) through
(c), inclusive, the Master Servicer's entitlement thereto is limited to
collections or other recoveries on the related Mortgage Loan, the Master
Servicer shall keep and maintain separate accounting, on a Mortgage Loan by
Mortgage Loan basis, for the purpose of justifying any withdrawal from the
Collection Account pursuant to such subclauses (a) through (c), inclusive.
The Master Servicer shall be entitled to reimburse itself for any
Monthly Advance made in respect of a Mortgage Loan that it determines to be a
Nonrecoverable Advance by withdrawal from the Collection Account of amounts
on deposit therein attributable to the Mortgage Loans on the Business Day
preceding any Determination Date first succeeding the date of such
determination. The Master Servicer's right of reimbursement in respect of a
Nonrecoverable Advance on any such Business Day shall be limited to an amount
not exceeding the portion of such Monthly Advance previously paid to
Certificateholders (and not theretofore reimbursed to the Master Servicer).
Section 3.07. MODIFICATIONS, WAIVERS, AMENDMENTS AND CONSENTS.
(a) Subject to this Section 3.07, the Master Servicer may agree to
any modification, waiver, forbearance, or amendment of any term of any
Mortgage Loan
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without the consent of the Trustee or any Certificateholder. All
modifications, waivers, forbearance or amendments of any Mortgage Loan
shall be in writing and shall be consistent with the servicing standard set
forth in Section 3.01.
(b) The Master Servicer shall not agree to enter into, and shall not
enter into, any modification, waiver (other than a waiver referred to in
Section 3.09 or subsection (f) below, which waiver, if any, shall be
governed by Section 3.09 or subsection (f) below, as applicable),
forbearance, or amendment of any term of any Mortgage Loan if such
modification, waiver, forbearance, or amendment would:
(i) affect the amount or timing of any related payment of
principal, interest or other amount payable thereunder; or
(ii) in the Master Servicer's judgment, materially impair the
security for such Mortgage Loan or reduce the likelihood of timely
payment of amounts due thereon, unless, in either case, (A) such
Mortgage Loan is 90 days or more past due or (B) the Master Servicer
delivers to the Trustee an Opinion of Counsel to the effect that such
modification, waiver, forbearance or amendment would not affect the
Trust Fund's status as a REMIC and, in either case, such modification,
waiver, forbearance or amendment is reasonably likely to produce a
greater recovery with respect to such Mortgage Loan than would
liquidation. Subject to the servicing standard in Section 3.01, the
Master Servicer may permit a forbearance for a Mortgage Loan which is
subject to imminent default.
(c) The Master Servicer may extend the date on which any Balloon
Payment is scheduled to be due, without the consent of the Trustee or any
Certificateholder, for a period of not more than six months, but only if:
(i) The related Mortgagor shall be required to continue to make
monthly payments of principal and/or interest thereon in an amount at
least equal to the amount of the Monthly Payment due on the Scheduled
Due Date immediately preceding the scheduled maturity date of the
Balloon Loan;
(ii) (A) The Mortgagor defaults on its obligation to pay the
Balloon Payment when due, (B) within 90 days of the date on which the
related Balloon Payment is due, the related Mortgagor has notified the
Master Servicer that he intends to default on such Balloon Payment, or
(C) the Master Servicer delivers to the Trustee an Opinion of Counsel
to the effect that such modification, waiver, forbearance or amendment
would not affect the Trust Fund's status as a REMIC; and
(iii) The Master Servicer has previously determined in its good
faith judgment that such extension is reasonably likely to produce a
greater recovery than liquidation of the related Mortgage Loan.
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(d) [Reserved]
(e) Any payment of interest, which is deferred pursuant to any
modification, waiver, forbearance or amendment permitted hereunder, shall
not, for purposes hereof, including, without limitation, calculating
monthly distributions to Certificateholders, be added to the unpaid
principal balance of the related Mortgage Loan, notwithstanding that the
terms of such Mortgage Loan or such modification, waiver or amendment so
permit.
(f) Notwithstanding anything to the contrary herein, the Master
Servicer may, in accordance with the servicing standard set forth in
Section 3.01, modify, waive, forbear or amend any term of a Mortgage Loan
that requires the payment of a prepayment premium or penalty in connection
with any Principal Prepayment thereon.
(g) The Master Servicer may, as a condition to granting any request
by a Mortgagor for consent, modification, waiver, forbearance or amendment,
the granting of which is within the Master Servicer's discretion pursuant
to the Mortgage or Land Sale Contract and is permitted by the terms of this
Agreement, require that such Mortgagor pay to the Master Servicer, as
additional servicing compensation, a reasonable or customary fee for the
additional services performed in connection with such request, together
with any related costs and expenses incurred by the Master Servicer, which
amount shall be retained by the Master Servicer as additional servicing
compensation.
(h) The Master Servicer shall notify the Trustee, in writing, of any
modification, waiver, forbearance or amendment of any term of any Mortgage
Loan and the date thereof, and shall deliver no the Trustee for deposit in
the related File, an original counterpart of the agreement relating to such
modification, waiver, forbearance or amendment, promptly (and in any event
within 10 Business Days) following the execution thereof.
Section 3.08. MAINTENANCE OF HAZARD INSURANCE AND ERRORS AND OMISSIONS AND
FIDELITY COVERAGE.
(a) The Master Servicer shall cause to be maintained for each
Mortgage Loan all hazard insurance coverage as is required under the
related Mortgage or Land Sale Contract; provided that if any Mortgage or
Land Sale Contract permits the holder thereof to dictate to the Mortgagor
the hazard insurance coverage to be maintained on such Mortgaged Property,
the Master Servicer shall impose such hazard insurance requirements as are
consistent with the servicing standard set forth in Section 3.01; provided,
however, that such coverage may not be less than the lesser of the amount
of the replacement value of the improvements on the Mortgaged Property or
the Scheduled Principal Balance of the Mortgage Loan. Subject to Section
3.10, the Master Servicer shall also cause to be maintained for each
Mortgaged Property acquired upon forfeiture, foreclosure, or deed-in-lieu
of foreclosure, no less hazard insurance coverage than the lesser of the
amount of the replacement value of the improvements on the Mortgaged
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Property or the Scheduled Principal Balance of the Mortgage Loan. All such
hazard insurance policies shall contain a "standard" mortgagee clause, with
loss payable to the Master Servicer on behalf of the Trustee, and shall be
issued by an insurer authorized under applicable law to issue such
insurance. Pursuant to Section 3.04, any amounts collected by the Master
Servicer under any such policies (other than amounts to be applied to the
restoration or repair of the related Mortgaged Property or property thus
acquired or amounts released to the Mortgagor in accordance with the Master
Servicer's normal servicing procedures) shall be deposited in the
Collection Account. Any cost incurred by the Master Servicer in
maintaining any such insurance shall not, for the purpose of calculating
monthly distributions to Certificateholders, be added to the amount owing
under the Mortgage Loan, notwithstanding that the terms of the Mortgage
Loan so permit. Such costs shall be recoverable by the Master Servicer in
the manner and at the times provided by Section 3.06. It is understood and
agreed that no earthquake or other additional insurance is to be required
of any Mortgagor or maintained on property acquired in respect of a
Mortgage or Land Sale Contract other than pursuant to such applicable laws
and regulations as shall at any time be in force and as shall require such
additional insurance. In the event that the Master Servicer shall obtain
and maintain a blanket policy insuring against hazard losses on all of the
Mortgage Loans, it shall conclusively be deemed to have satisfied its
obligations as set forth in the first sentence of this Section 3.08(a), it
being understood and agreed that such policy may contain a deductible
clause, in which case the Master Servicer shall, in the event that there
shall not have been maintained on the related Mortgaged Property a policy
complying with the first sentence of this Section 3.08(a) and there shall
have been a loss which would have been covered by such policy, deposit in
the Collection Account prior to the Distribution Account Deposit Date as a
component of Insurance Proceeds the amount not otherwise payable under the
blanket policy because of such deductible clause; provided, that the Master
Servicer shall not be required to maintain insurance under the blanket
policy with respect to any Mortgage Loan that has a Scheduled Principal
Balance of less than $10,000. Any such deposit by the Master Servicer
shall be made on the Business Day next preceding the Distribution Date upon
which the proceeds represented by such deposit are required to be
distributed to Certificateholders. In connection with its activities as
administrator and servicer of the Mortgage Loans, the Master Servicer
agrees to present, on behalf of itself, the Trustee and Certificateholders,
claims under any such blanket policy.
To the extent required by federal law, for any Mortgaged Property
located at the time of origination of the Mortgage Loan in a federally
designated flood hazard area and such area is participating in the national
flood insurance program, the Master Servicer shall cause flood insurance to
be maintained with respect to such Mortgage Loan. Such flood insurance
shall be in an amount equal to the least of (i) the original principal
balance of the related Mortgage Loan, (ii) the replacement value of the
improvements which are part of such Mortgaged Property, and (iii) the
maximum amount of such insurance available for the related Mortgage
Property under the national flood insurance program.
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(b) The Master Servicer shall obtain and maintain at its own expense
and keep in full force and effect throughout the term of this Agreement a
blanket fidelity bond having an errors and omissions rider covering the
Master Servicer's officers and employees and other persons acting on behalf
of the Master Servicer in connection with its activities under this
Agreement. The amount of coverage shall be at least equal to the coverage
that would be required by FNMA or FHLMC, whichever is greater, with respect
to the Master Servicer if the Master Servicer were servicing and
administering the Mortgage Loans for FNMA or FHLMC in addition to other
mortgage loans being serviced and administered by the Master Servicer. In
the event that any such bond or policy ceases to be in effect, the Master
Servicer shall obtain a comparable replacement bond or policy from an
issuer or insurer, as the case may be, reasonably acceptable to the
Depositor and the Trustee. Coverage of the Master Servicer under a policy
or bond obtained by an affiliate of the Master Servicer and providing the
coverage required by this Section 3.08(b) shall satisfy the requirements of
this Section 3.08(b).
Section 3.09. ENFORCEMENT OF DUE-ON-SALE CLAUSES; ASSUMPTION AGREEMENTS.
(a) As to each Mortgage Loan which contains a provision in the
nature of a "due-on-sale" clause, which by its terms:
(i) provides that such Mortgage Loan shall (or may at the
mortgagee's option) become due and payable upon the sale or other
transfer of an interest in the related Mortgaged Property; or
(ii) provides that such Mortgage Loan may not be assumed without
the consent of the mortgagee in connection with any such sale or other
transfer,
then, for so long as such Mortgage Loan is included in the Trust Fund,
the Master Servicer, on behalf of the Trustee as the mortgagee of
record, shall exercise any right it may have with respect to such
Mortgage Loan unless (A) enforcement of such right is not permitted by
applicable law, or (B) the Master Servicer, in its discretion, waives
its right to enforce such provision, in a manner consistent with the
servicing standard set forth in Section 3.01(a).
(b) As to each Mortgage Loan which contains a provision in the
nature of a "due-on-encumbrance" clause, which by its terms:
(i) provides that such Mortgage Loan shall (or may at the
mortgagee's option) become due and payable upon the creation of any
additional lien or other encumbrance on the related Mortgaged
Property; or
(ii) requires the consent of the mortgagee to the creation of any
such additional lien or other encumbrance on the related Mortgaged
Property,
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then, for so long as such Mortgage Loan is included in the Trust Fund,
the Master Servicer, on behalf of the Trustee as the mortgagee of
record, shall exercise (or waive its right to exercise) any right it may
have with respect to such Mortgage Loan (A) to accelerate the payments
thereon, or (B) to withhold its consent to the creation of any such
additional lien or other encumbrance, in a manner consistent with the
servicing standard set forth in Section 3.01(a).
(c) If the Master Servicer waives the "due-on-sale" clause, the
Person to whom the related Mortgaged Property has been conveyed or is
proposed to be conveyed must satisfy the terms and conditions contained
in the Mortgage Note and Mortgage or Land Sale Contract, as applicable,
related thereto. In the event that the Master Servicer is prohibited by
law from enforcing any such due-on-sale clause, or if coverage under any
Required Insurance Policy would be adversely affected, or if
nonenforcement is otherwise permitted hereunder, the Master Servicer is
authorized, subject to Section 3.09(d), to take or enter into an
assumption and modification agreement from or with the person to whom
such property has been or is about to be conveyed, pursuant to which
such person becomes liable under the Mortgage Note and, unless
prohibited by applicable state law, the Mortgagor remains liable
thereon, provided that the Mortgage Loan shall continue to be covered
(if so covered before the Master Servicer enters such agreement) by the
applicable Required Insurance Policies. The Master Servicer, subject to
Section 3.09(d), is also authorized with the prior approval of the
insurers under any Required Insurance Policies to enter into a
substitution of liability agreement with such Person, pursuant to which
the original Mortgagor is released from liability and such Person is
substituted as Mortgagor and becomes liable under the Mortgage Note.
Notwithstanding the foregoing, the Master Servicer shall not be deemed
to be in default under this Section by reason of any transfer or
assumption which the Master Servicer reasonably believes it is
restricted by law from preventing, for any reason whatsoever.
(d) Subject to the Master Servicer's duty to enforce any
due-on-sale clause to the extent set forth in Section 3.09(a) hereof, in
any case in which a Mortgaged Property has been conveyed to a Person by
a Mortgagor, and such Person is to enter into an assumption agreement or
modification agreement or supplement to the Mortgage Note or Mortgage or
Land Sale Contract, as applicable, that requires the signature of the
Trustee, or if an instrument of release signed by the Trustee is
required releasing the Mortgagor from liability on the Mortgage Loan,
the Master Servicer shall prepare and deliver or cause to be prepared
and delivered to the Trustee for signature and shall direct, in writing,
the Trustee to execute the assumption agreement with the Person to whom
the Mortgaged Property is to be conveyed and such modification agreement
or supplement to the Mortgage Note or Mortgage or Land Sale Contract, as
applicable or other instruments as are reasonable or necessary to carry
out the terms of the Mortgage Note or Mortgage or otherwise to comply
with any applicable laws regarding assumptions or the transfer of the
Mortgaged Property to such Person. Except as provided by Section 3.07,
in connection with any such assumption, no material term of the Mortgage
Note may be changed. In addition, the substitute Mortgagor and the
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Mortgaged Property must be acceptable to the Master Servicer in
accordance with its underwriting standards as then in effect. Together
with each such substitution, assumption or other agreement or instrument
delivered to the Trustee for execution by it, the Master Servicer shall
deliver an Officers' Certificate signed by a Servicing Officer stating
that the requirements of this subsection have been met in connection
therewith. The Master Servicer shall notify the Trustee that any such
substitution or assumption agreement has been completed by forwarding to
the Trustee the original of such substitution or assumption agreement,
which in the case of the original shall be added to the related File and
shall, for all purposes, be considered a part of such Mortgage File to
the same extent as all other documents and instruments constituting a
part thereof. Any fee collected by the Master Servicer for entering into
an assumption or substitution of liability agreement will be retained by
the Master Servicer as additional servicing compensation.
(e) Nothing in this Section 3.09 shall constitute a waiver of the
Trustee's right, as the mortgagee of record, to receive notice of any
assumption of a Mortgage Loan, any sale or other transfer of the related
Mortgaged Property or the creation of any additional lien or other
encumbrance with respect to such Mortgaged Property.
(f) Except as otherwise permitted by Section 3.07, the Master
Servicer shall not agree to modify, waive, forbear or amend any material
term of any Mortgage Loan in connection with the taking of, or the
failure to take, any action pursuant to this Section 3.09.
Section 3.10. REALIZATION UPON DEFAULTED LOANS. The Master Servicer
shall foreclose upon or otherwise comparably convert to ownership properties
securing such of the Mortgage Loans as come into and continue in default and
as to which no satisfactory arrangements can be made for collection of
delinquent payments as permitted under this Agreement. In connection with
such foreclosure or other conversion, the Master Servicer shall follow such
practices and procedures as it shall deem necessary or advisable and as shall
be normal and usual in its general mortgage servicing activities. The Master
Servicer shall be responsible for all other costs and expenses incurred by it
in any such proceedings; provided, however, that the Master Servicer shall be
entitled to reimbursement thereof in the manner and at the times provided in
Section 3.06 including, without limitation, legal and other expenses incurred
in connection with foreclosure proceedings where the Mortgage Loan is
reinstated and such foreclosure proceedings be terminated prior to
completion. Notwithstanding the foregoing, in any case in which Mortgaged
Property shall have suffered damage, the Master Servicer shall not be
required to expend its own funds in connection with any foreclosure or toward
the restoration of such Mortgaged Property unless it shall determine (a) that
such restoration and/or foreclosure will increase the proceeds of liquidation
of the related Mortgage Loan to Certificateholders after reimbursement to
itself for such expenses and (b) that such expenses will be recoverable by
the Master Servicer as permitted in Section 3.06.
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Nothing contained in this Section 3.10 shall be construed so as to
require the Master Servicer, on behalf of the Trust Fund, to make a bid on
any Mortgaged Property at a foreclosure sale or similar proceeding that is in
excess of the fair market value of such property, as determined by the Master
Servicer in its reasonable and good faith judgment taking into account the
factors described in Section 3.13 and the results of any appraisal obtained
pursuant to the following sentence, all such bids to be made in a manner
consistent with the servicing standard set forth in Section 3.01. If and
when the Master Servicer deems it necessary and prudent for purposes of
establishing the fair market value of any Mortgaged Property securing a
defaulted Mortgage Loan, whether for purposes of bidding at foreclosure or
otherwise, the Master Servicer is authorized at the expense of the Trust Fund
to have an appraisal performed with respect to such property by an
independent MIA-designated appraiser, an in-house appraiser of the Master
Servicer or other expert in real estate matters.
In the event that title to any Mortgaged Property is acquired by the
Pool in foreclosure or by deed in lieu of foreclosure, the deed or
certificate of sale shall be issued to the Trustee or to its nominee on
behalf of Certificateholders. Notwithstanding any such acquisition of
title and cancellation of the related Mortgage Loan, such Mortgage Loan shall
(except for purposes of Section 10.01) be considered to be a Mortgage Loan
held in the Pool until such time as the Mortgaged Property shall be sold and
such Mortgage Loan becomes a Liquidated Loan. Consistent with the foregoing
for purposes of all calculations hereunder, so long as such Mortgage Loan,
other than a Balloon Loan, shall be considered to remain in the Pool. It
shall be assumed that the related Mortgage Note and an amortization schedule
in effect at the time of any such acquisition of title (after giving effect
to any previous Curtailments and before any adjustment thereto by reason of
any moratorium or similar waiver or grace period) remain in effect
(notwithstanding the indebtedness evidenced by such Mortgage Note shall have
been discharged), subject to adjustment to reflect the application of REO
Proceeds received in any month. REO Proceeds received in any month shall be
applied to the payment of the installments of principal due and interest
accrued on the related REO Loan in accordance with the terms of such Mortgage
Note. REO Proceeds received in any month in excess of the Amortization
Payment for such month due on an REO Loan shall be treated as a Curtailment
received in respect of such Mortgage Loan.
In the event that the Pool acquires any Mortgaged Property as aforesaid
or otherwise in connection with a default or imminent default on a Mortgage
Loan, the Master Servicer shall dispose of such Mortgaged Property within two
years after its acquisition by the Pool unless the Trustee shall have
received an Opinion of Counsel (which opinion of counsel shall not be at the
Trustee's expense) to the effect that the holding by the Pool of such
Mortgaged Property subsequent to two years after its acquisition will not
result in the imposition of taxes on "prohibited transactions" of the Pool as
defined in section 860F of the Code or cause the Trust Fund to fail to
qualify as a REMIC at any time that any Certificates are outstanding, in
which case the Pool may continue to hold such Mortgaged Property (subject to
any conditions contained in such Opinion of Counsel). Consistent with the
servicing standard set forth in Section 3.01, the Master Servicer shall use
its reasonable best efforts to prevent any Mortgaged Property acquired by the
Pool from being rented (or allowed to continue to be rented) or otherwise
used
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for the production of income by or on behalf of the Pool in such a manner or
pursuant to any terms that would (a) cause such Mortgaged Property to fail to
qualify as "foreclosure property" within the meaning of section 860G(a)(8) of
the Code or (b) subject the Pool to the imposition of any federal income
taxes on the income earned from such Mortgaged Property.
Subject to the foregoing, however, the Master Servicer shall have full
power and authority to do any and all things in connection herewith as are
consistent with the servicing standard set forth in Section 3.01 and shall be
authorized to incur costs and expenses necessary for the proper operation,
management and maintenance of such Mortgaged Property, including, without
limitation:
(a) all insurance premiums due and payable in respect of such
Mortgaged Property;
(b) all real estate taxes and assessments in respect of such
Mortgaged Property that may result in the imposition of a lien thereon;
(c) any ground rents in respect of such Mortgaged Property; and
(d) all costs and expenses necessary to maintain such Mortgaged
Property and any management fees and expenses of Independent Persons.
To the extent that amounts then on deposit in the Escrow Account and
Collection Account in respect of such Mortgaged Property are insufficient for
the purposes set forth in clauses (a) through (d) above with respect to such
Mortgaged Property, the Master Servicer shall advance from its own funds such
amount as is necessary for such purposes unless in the Master Servicer's
reasonable and good faith judgment, the payment of such amounts will not be
recoverable from the operation or sale of such Mortgaged Property and
reimbursable to it pursuant to Section 3.06 hereof.
The Master Servicer shall prepare or cause to be prepared, and the
Trustee shall execute and file or cause to be filed with the Internal Revenue
Service a report which shall contain the information required to be reported
regarding any Mortgaged Property which is abandoned or which has been
foreclosed. In order to facilitate this reporting process, the Master
Servicer shall provide to the Trustee such information reasonably requested
by the Trustee relating to each instance occurring during the previous
calendar year in which the Master Servicer (i) on behalf of the Trustee
acquired an interest in a Mortgaged Property through foreclosure or other
comparable conversion in full or partial satisfaction of a Mortgage Loan, or
(ii) knew or had reason to know that a Mortgaged Property had been abandoned.
The Trustee shall provide a copy of any such report to the Master Servicer
and the Master Servicer shall deliver such report to the Mortgagor in the
manner required by applicable law. In connection with any Mortgage Loan as to
which the Master Servicer has accepted a deed in lieu of foreclosure, the
Master Servicer shall use its reasonable best efforts to insure that, at all
times, the related property constitutes "foreclosure property" within the
meaning of Code Section 860G(a)(8) and that such
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property is administered so that no tax on "net income from foreclosure
property" within the meaning of Code Section 860G(c) is imposed on the Trust
Fund.
Section 3.11. TRUSTEE TO COOPERATE; RELEASE OF FILES. Upon becoming
aware of the payment in full of any Mortgage Loan, or upon the receipt by the
Master Servicer of a notification that payment in full will be escrowed in a
manner customary for such purposes, the Master Servicer will immediately
notify the Trustee by a certificate (which certification shall include a
statement to the effect that all amounts received in connection with such
payment which are required to be deposited in the Collection Account pursuant
to Section 3.04 have been or will be so deposited) of a Servicing Officer in
the form of Exhibit H hereto and shall request delivery to it of the File.
Upon receipt of such certification and request, the Trustee shall promptly
release the related File to the Master Servicer. Upon any such payment in
full, the Master Servicer is authorized to execute, pursuant to the
authorization contained in Section 3.01, an instrument of satisfaction
regarding such Mortgage or instrument to transfer title regarding such Land
Sale Contract, which instrument of satisfaction shall be recorded by the
Master Servicer if required by applicable law and be delivered to the Person
entitled thereto, it being understood and agreed that no expenses incurred in
connection with such instrument of satisfaction shall be reimbursed from
amounts deposited in the Collection Account. From time to time and as
appropriate for the servicing or foreclosure of any Mortgage Loan, the
Trustee shall, upon request of the Master Servicer and delivery to the
Trustee of a receipt signed by a Servicing Officer in the form of Exhibit H
hereto, release the related File to the Master Servicer. Such receipt shall
obligate the Master Servicer to return the File to the Trustee when the need
therefor by the Master Servicer no longer exists unless the Mortgage Loan
shall be liquidated, in which case, upon receipt of a certificate of a
Servicing Officer similar to that hereinabove specified, the receipt shall be
released by the Trustee to the Master Servicer. Upon request from the Master
Servicer, the Trustee shall execute and deliver to the Master Servicer any
court pleadings, requests for trustee's sale or other documents necessary to
the forfeiture, foreclosure or trustee's sale in respect of a Mortgaged
Property or to any legal action brought to obtain judgment against any
Mortgagor on the Mortgage or Land Sale Contract or to obtain a deficiency
judgment, or to enforce any other remedies or rights provided by the Mortgage
Note, Mortgage or Land Sale Contract or otherwise available at law or in
equity.
Section 3.12. SERVICING AND OTHER COMPENSATION; PAYMENT OF CERTAIN
EXPENSES BY THE MASTER SERVICER. The Master Servicer, as compensation for
its activities hereunder, shall be entitled to receive on each Distribution
Date an amount (the "Master Servicing Fee") with respect to each Mortgage
Loan and REO Loan held in the Pool equal to one-twelfth of the Master
Servicing Fee Rate for such Mortgage Loan or REO Loan multiplied by the
Scheduled Principal Balance of such Mortgage Loan or REO Loan, as the case
may be, as of the first day of the [month in which] [Due Period preceding]
such Distribution Date occurs (without taking into account any unscheduled
receipts of principal during the preceding Due Period) (or the Cutoff Date,
in the case of the first Distribution Date), which shall be payable on a
loan-by-loan basis, from payments of interest on each Mortgage Loan and REO
Proceeds on each REO Loan. The Master Servicer shall be entitled to recover
its due and unpaid Master Servicing Fee in respect of any Mortgage Loan or
REO Loan, as permitted by Section 3.06. The right to receive
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such servicing compensation may not be transferred in whole or in part except
in connection with the transfer of all of the Master Servicer's
responsibilities and obligations under this Agreement. The Master Servicer is
also entitled to retain as additional servicing compensation, interest or
other amounts earned with respect to Permitted Investments in the Collection
Account. The Master Servicer shall be required to pay all expenses incurred
by it in connection with its activities hereunder (including payment of the
fees of its counsel and all other fees and expenses not expressly stated
hereunder to be for the account of the Holders of Certificates) and shall not
be entitled to reimbursement therefor except as specifically provided herein.
Additional servicing compensation in the form of beneficiary statements
or demands, assumption fees, prepayment penalties, late charges, amounts
collected for Mortgagor checks returned for insufficient funds, in each case
to the extent actually paid by a Mortgagor or otherwise received, shall be
retained by the Master Servicer as additional servicing compensation and
shall not be required to be deposited in the Collection Account.
The aggregate Master Servicing Fee for any month shall be reduced to the
extent described as follows. Not later than each Distribution Account Deposit
Date, the Master Servicer shall deposit in the Distribution Account from its
own funds the amount of the Prepayment Interest Shortfall for each Mortgage
Loan with respect to which a Prepayment Interest Shortfall occurred in the
Preceding Due Period, but only to the extent of (and in reduction of
two-thirds of the aggregate Master Servicing Fee pursuant to this Section
3.12 for the related Distribution Date.
Section 3.13. SALE OF DEFAULTED MORTGAGE LOANS.
(a) The Master Servicer may sell or purchase, or permit the sale or
purchase of, a Mortgage Loan or Mortgaged Property acquired in
connection with the default of a Mortgage Loan only on the terms and
subject to the conditions set forth in this Section 3.13, or as
otherwise expressly provided in or contemplated by Sections 2.02, 2.03,
and 10.01.
(b) In the event that a default has occurred and is continuing with
respect to any Mortgage Loan and the Master Servicer has determined in
good faith that such Mortgage Loan will become subject to foreclosure
proceedings in the event that a deed-in-lieu is not received from the
Mortgagor, the Master Servicer shall promptly so notify in writing the
Trustee. The Master Servicer may, at its option, purchase from the
Trust Fund, at a price equal to the Repurchase Price, any such defaulted
Mortgage Loan provided that the delinquency with respect to the Mortgage
Loan has continued for at least 90 consecutive days. The Repurchase
Price for any such Mortgage Loan purchased hereunder shall be deposited
into the Collection Account, and the Trustee, upon receipt of an
Officers' Certificate from the Master Servicer to the effect that such
deposit has been made, shall release or cause to be released to the
Master Servicer the related File, and shall execute and deliver such
instruments of transfer or assignment, in each case
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without recourse, as shall be necessary to vest in the Master Servicer
title to such Mortgage Loan.
(c) The Master Servicer may offer to sell any Mortgage Loan as to
which a default has occurred and is continuing for at least 90
consecutive days that is not otherwise purchased by the Master Servicer
pursuant to subsection (b) above, if and when the Master Servicer
determines, consistent with the servicing standard set forth in Section
3.01, that such a sale would produce a greater recovery on a present
value basis than would liquidation of the related Mortgaged Property.
Such offering shall be made in a commercially reasonable manner for a
period of not less than 10 days or more than 90 days. The Master
Servicer shall accept the highest cash bid received from any person that
constitutes a fair price for such Mortgage Loan. In the absence of any
bid determined as provided below to be fair, the Master Servicer shall
proceed with respect to such Mortgage Loan in accordance with Section
3.10.
(d) The Master Servicer shall use its best efforts to solicit bids
for each Mortgaged Property acquired from the Mortgagor in such manner
as will be reasonably likely to realize a fair price within the time
period provided for by Section 3.10. The Master Servicer shall accept
the first (and, if multiple bids are contemporaneously received, the
highest) cash bid received from any Person that constitutes a fair price
for such Mortgaged Property provided that such price represents a
greater recovery on a present value basis than would liquidation of the
related Mortgaged Project. If the Master Servicer reasonably believes
that it will be unable to realize a fair price for any such Mortgaged
Property within the time constraints imposed by Section 3.10, then the
Master Servicer shall dispose of such Mortgaged Property upon such terms
and conditions as the Master Servicer shall deem necessary and desirable
to maximize the recovery thereon under the circumstances and, in
connection therewith, shall accept the highest outstanding cash bid,
regardless of from whom received.
(e) With respect to the preceding subsections (c) and (d), neither
the Sellers, the Depositor, the Master Servicer, any Certificateholder,
nor any affiliate of any such Person shall be obligated to submit a bid
to purchase any such Mortgage Loan or Mortgaged Property, and
notwithstanding anything to the contrary herein, neither the Trustee, in
its individual capacity, nor any of its affiliates may bid for or
purchase any such Mortgage Loan or Mortgaged Property pursuant hereto.
(f) Whether any cash bid constitutes a fair price for any Mortgage
Loan or Mortgaged Property, as the case may be, for purposes of this
Section 3.13, shall be determined in good faith by the Master Servicer.
In determining whether any bid constitutes a fair price for any Mortgage
Loan or any Mortgaged Property, the Master Servicer shall take into
account (in addition to the results of any appraisal that it may have
had performed pursuant to Section 3.01(c), and any appraiser or other
expert in real estate matters shall be instructed to take into account,
as applicable, among other factors), the period and amount of any
delinquency on the affected Mortgage Loan, the
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occupancy level and physical condition of the Mortgaged Property, the
state of the local economy and the obligation to dispose of any
Mortgaged Property within the time period specified in Section 3.10.
The Repurchase Price for any Mortgage Loan or the related Mortgaged
Property acquired from the Mortgagor shall in all cases be deemed a fair
price.
(g) Subject to subsections (a) through (f) above, the Master
Servicer shall act on behalf of the Trustee in negotiating and taking
any other action necessary or appropriate in connection with the sale of
any Mortgage Loan or Mortgaged Property, and the collection of all
amounts payable in connection therewith. Any sale of a Mortgage Loan or
Mortgaged Property shall be final and without recourse to the Trustee or
the Trust Fund, and if such sale is consummated in accordance with the
terms of this Agreement, neither the Master Servicer nor the Trustee
shall have any liability to any Certificateholder with respect to the
purchase price therefor accepted by the Master Servicer.
Section 3.14. ANNUAL STATEMENT AS TO COMPLIANCE. The Master Servicer
will deliver to each Rating Agency, the Trustee and the Depositor, on or
before March 31 of each year, beginning with March 31 in the year that begins
not less than three months after the Cutoff Date, an Officers' Certificate
stating that (a) a review of the activities of the Master Servicer during the
preceding calendar year and of its performance under this Agreement has been
made under the supervision of the officer signing such Officers' Certificate,
and (b) to the best of such officers' knowledge, based on such review, the
Master Servicer has fulfilled all its obligations under this Agreement
throughout such year, or, there has been a default in the fulfillment of any
such obligation, specifying each such default known to such officer and the
nature and status thereof. Copies of such statements shall be provided, at
the expense of the Master Servicer, by the Trustee to Holders of Certificates
upon request.
Section 3.15. ANNUAL INDEPENDENT PUBLIC ACCOUNTANTS' SERVICING REPORT.
On or before December 31 of each year, beginning with the first December 31
that occurs at least three months after the Cutoff Date, the Master Servicer
at its expense shall cause a firm of independent public accountants which is
a member of the American Institute of Certified Public Accountants to furnish
a statement to each Rating Agency, the Depositor and the Trustee to the
effect that such firm has examined certain documents and records relating to
the servicing of the loans (during the preceding fiscal year) under pooling
and servicing agreements substantially similar one to another and to this
Agreement and that, on the basis of such examination conducted substantially
in compliance with the Uniform Single Attestation Program for Mortgage
Bankers or the Audit Program for Mortgages serviced for FHLMC, such servicing
has been conducted in compliance with such pooling and servicing agreements
except for such significant exceptions or errors in records that, in the
opinion of such firm, the Uniform Single Attestation Program for Mortgage
Bankers or the Audit Program for Mortgages serviced for FHLMC requires it to
report and which are set forth in such report. Copies of the statement shall
be provided, at the expense of the Master Servicer, by the Trustee to
Certificateholders, upon request.
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Section 3.16. ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION REGARDING
THE MORTGAGE LOANS. The Master Servicer shall provide to the Trustee, and to
the Office of Thrift Supervision, the FDIC, and any other federal or state
banking or insurance regulatory authority that may exercise authority over
any Certificateholder or the Trustee, access to any documentation regarding
the Mortgage Loans which may be required by this Agreement or by applicable
law, such access being afforded without charge but only upon reasonable
request and during normal business hours at the offices of the Master
Servicer. Nothing in this Section 3.16 shall derogate from the obligation of
the Master Servicer to observe any applicable law prohibiting disclosure of
information regarding the Mortgagors and the failure of the Master Servicer
to provide access as provided in this Section 3.16 as a result of such
obligation shall not constitute a breach of this Section 3.16.
Section 3.17. RIGHTS OF THE DEPOSITOR IN RESPECT OF THE MASTER
SERVICER. The Master Servicer shall afford the Depositor, upon reasonable
notice, during normal business hours access to all records maintained by the
Master Servicer in respect of its rights and obligations hereunder and access
to officers of the Master Servicer responsible for such obligations. Upon
request, the Master Servicer shall furnish the Depositor with its most recent
financial statements and such other information reasonably requested by the
Depositor as the Master Servicer possesses regarding its business, affairs,
property and condition, financial or otherwise. The Depositor may, but is not
obligated to, enforce the obligations of the Master Servicer hereunder and
may, but is not obligated to, perform, or cause a designee to perform, any
defaulted obligation of the Master Servicer hereunder or exercise the rights
of the Master Servicer hereunder; provided that the Master Servicer shall not
be relieved of any of its obligations hereunder by virtue of such performance
by the Depositor or its designee. The Depositor shall not have any
responsibility or liability for any action or failure to act by the Master
Servicer and is not obligated to supervise the performance of the Master
Servicer under this Agreement or otherwise.
Section 3.18. CONVERSION OF LAND SALE CONTRACTS. If a Mortgagor elects
to convert a Land Sale Contract to a mortgage or deed of trust and mortgage
note, the Master Servicer shall, (a) if the terms of the Land Sale Contract
provide for such conversion or if local law requires such conversion or (b)
if the conditions set forth in the succeeding paragraph are met, prepare and
direct the Trustee to execute a special warranty deed, mortgage note and
mortgage or deed of trust, in each case containing the same basic terms as
the Land Sale Contract to be converted and in recordable form in the
appropriate jurisdiction and complying with any terms specified in the Land
Sale Contract, along with a mortgage note; provided that the Master Servicer
and the Trustee shall receive an Opinion of Counsel, which opinion shall be
at the expense of the Mortgagor, to the effect that the proposed conversion
will not cause (i) any federal tax to be imposed on the Trust Fund, including
without limitation, any federal tax imposed on "prohibited transactions"
under Section 860F(a)(1) of the Code or (ii) any portion of the Trust fund to
fail to qualify as a REMIC at any time that any Certificate is Outstanding.
If a Mortgagor under a Land Sale Contract that does not specifically provide
for conversion requests that such Land Sale Contract be converted to a
mortgage or deed of trust, the Master Servicer shall notify the Mortgagor
promptly of the preconditions of the Master Servicer's obligation to convert
such Land Sale Contract, and shall promptly undertake any investigation
necessary on its part to
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determine whether such preconditions have been met, which preconditions shall
include the following:
(a) the Master Servicer shall have received documentation showing
that (i) the Mortgagor has requested such conversion in order to obtain
a loan for the sole purpose of financing improvements or repairs to the
related Mortgaged Property (an "Improvement Loan") and (ii) the
Mortgagor has obtained all necessary credit approval for the Improvement
Loan from a lender, and the sole reason the Mortgagor has not obtained
the Improvement Loan is that such Mortgagor is an obligor under a Land
Sale Contract rather than a mortgage note and Mortgage or deed of trust;
(b) the Master Servicer or its agent shall have checked the
applicable title records and shall have determined that, after
conversion of the Land Sale Contract and recordation of the resulting
mortgage or deed of trust, such mortgage or deed of trust will evidence
a first priority perfected security interest on the Mortgaged Property;
and
(c) the Master Servicer shall have determined, in its sole
discretion and pursuant to any means it deems appropriate, that it will
be able to collect all expenses and any processing fees relating to the
conversion of the Land Sale Contract from the Mortgagor.
Prior to the execution of the mortgage or deed of trust, the Trustee
shall confirm that the Mortgagor, the amount of the debt secured by the
mortgage or deed of trust, the interest rate on the mortgage note, the
schedule of payments and the maturity date of the mortgage note are identical
to the corresponding terms of the related Land Sale Contract at the time of
conversion. After conducting such review, the Trustee, at the Master
Servicer's direction, shall execute the special warranty deed, mortgage note
and mortgage or deed of trust prepared by the Master Servicer and, upon
execution of the mortgage note and mortgage or deed of trust by the related
Mortgagor, delivery of the mortgage note to the Trustee, and recording by the
Master Servicer of the deed and mortgage or deed of trust in the appropriate
recording office, the Land Sale Contract shall be terminated and such
mortgage note and mortgage or deed of trust shall be a Mortgage Note,
Mortgage and Mortgage Loan hereunder.
Section 3.19. REGARDING COMMERCIAL MORTGAGE LOANS.
(a) The Master Servicer shall not acquire any personal property on
behalf of the Trust Fund pursuant to Section 3.10 unless either:
(i) such personal property is incident to real property (within
the meaning of Section 856(e)(1) of the Code) so acquired by the
Master Servicer; or
(ii) the Master Servicer shall have obtained an Opinion of
Counsel (the cost of which may be withdrawn from the Collection
Account pursuant to
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Section 3.06(f)) to the effect that the holding of such personal
property as part of the Trust Fund will not cause the imposition of
a tax on the Trust Fund under the REMIC Provisions or cause the Trust
Fund to fail to qualify as a REMIC at any time that any Certificate is
outstanding.
(b) Notwithstanding the provisions of Section 3.10, the Master
Servicer shall not, on behalf of the Trustee, obtain title to a
Commercial Property by deed in lieu of foreclosure or otherwise, or take
any other action with respect to any Commercial Property, if, as a
result of any such action, the Trustee, on behalf of the
Certificateholders, could, in the reasonable judgment of the Master
Servicer made in accordance with the servicing standard set forth in
Section 3.01(a), be considered to hold title to, to be a
"mortgagee-in-possession" of, or to be an "owner" or "operator" of such
Commercial Property within the meaning of CERCLA or any comparable law,
unless the Master Servicer, in accordance with such servicing standard,
has determined whether to obtain and, if such determination has been
made, has obtained a Phase I Environmental Assessment (and any
additional environmental testing that the Master Servicer deems
necessary and prudent) of such Commercial Property conducted by an
Independent Person who regularly conducts Phase I Environmental
Assessments and performed during the 12-month period preceding any such
acquisition of title or other action, that:
(i) the Commercial Property is in compliance with applicable
environmental laws and regulations or, if not, that it would
maximize the recovery to the Certificateholders on a present value
basis (the relevant discounting of anticipated collections that
will be distributable to Certificateholders to be performed at the
related Pass-Through Rate) to acquire title to or possession of the
Commercial Property and to effect such compliance; and
(ii) there are no circumstances or conditions present at the
Commercial Property relating to the use, management or disposal of
Hazardous Materials for which investigation, testing, monitoring,
containment, clean-up or remediation could be required under any
applicable environmental laws and regulations or, if such
circumstances or conditions are present for which any such action
could reasonably be expected to be required, that it would maximize
the recovery to the Certificateholders on a present value basis
(the relevant discounting of anticipated collections that will
be distributable to Certificateholders to be performed at the
related Pass-Through Rate) to acquire title to or possession of the
Commercial Property and to take such actions.
Any such determination by the Master Servicer shall be evidenced by
an Officer's Certificate to such effect delivered to the Trustee, the
Master Servicer and the Majority Certificateholder of the Residual
Certificates and specifying all of the bases for such determination,
such Officer's Certificate to be accompanied by all related
environmental reports. The cost of any such Phase I Environmental
Assessment, additional
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environmental testing and remedial, corrective or other further action
contemplated by clause (i) and/or clause (ii) of the second preceding
sentence, may be reimbursed to the Master Servicer from the Collection
Account as an expense of the Trust Fund pursuant to Section 3.06(f).
(c) If the environmental testing contemplated by Section 3.19(b)
above establishes that any of the conditions set forth in clauses (i)
and (ii) of the first sentence thereof has not been satisfied with
respect to any Mortgaged Property securing a defaulted Commercial
Mortgage Loan, the Master Servicer shall take such action as is in
accordance with the servicing standard set forth in Section 3.01(a)
(other than proceeding against the Mortgaged Property) and, at such time
as it deems appropriate, may, on behalf of the Trustee, release all or a
portion of such Mortgaged Property from the lien of the related
Mortgage; provided that prior to the release of all or a portion of the
related Mortgaged Property from the lien of the related Mortgage, the
Master Servicer shall have notified the Trustee in writing of its
intention to so release all or a portion of such Mortgaged Property.
(d) The Master Servicer shall report to the Trustee and the
Majority Certificateholder of the Residual Certificates monthly in
writing as to any actions taken by the Master Servicer with respect to
any Commercial Property as to which the environmental testing
contemplated in Section 3.19(b) above has revealed that any of the
conditions set forth in clauses (i) and (ii) of the first sentence
thereof has not been satisfied, in each case until the earliest to occur
of satisfaction of all such conditions and release of the lien of the
related Mortgage on such Mortgaged Property.
(e) Notwithstanding the foregoing, the Master Servicer, in
accordance with the servicing standard set forth in Section 3.01(a),
shall not be obligated to obtain a Phase I Environmental Assessment, if
in its judgment it is not necessary for the reasonable protection of the
Trust Fund.
ARTICLE IV
MASTER SERVICER'S CERTIFICATE; MONTHLY ADVANCES
Section 4.01. MASTER SERVICER'S CERTIFICATE. Each month, not later than
the close of business on each Determination Date, the Master Servicer shall
deliver to the Trustee, a Master Servicer's Certificate substantially in the
form of Exhibit K, certified by a Servicing Officer.
In addition, the Master Servicer shall provide all information required
by the Trustee to perform its duties under Sections 5.04 and 5.05.
Section 4.02. MONTHLY ADVANCES. On or before 3:00 p.m. New York time on
the Business Day preceding each Distribution Account Deposit Date, the Master
Servicer shall (a) either (i) deposit in the Distribution Account from its
own funds an amount equal to the
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Monthly Advance, if any, or (ii) cause to be made an appropriate entry in the
records of the Distribution Account that all or a portion of the Amount Held
for Future Distribution has been, as permitted by this Section 4.02, used by
the Master Servicer in discharge of any such Monthly Advance or (iii) make
advances in the form of any combination of clauses (i) and (ii) above
aggregating the amount of such Monthly Advance or (b) in the event that the
Master Servicer is unable to make such Monthly Advance, notify the Trustee in
order to enable the Trustee to exercise its remedies hereunder, including,
but not limited to, Section 8.01. The obligation of the Master Servicer or
any successor Master Servicer to make the Monthly Advance required by this
Section 4.02 is not a guaranty of payment on the Certificates and is
contingent upon the Master Servicer's determination that such Monthly
Advances are recoverable in accordance herewith. Any portion of the Amount
Held for Future Distribution so used shall be replaced by the Master Servicer
by deposit in the Distribution Account on or before 3:00 p.m. New York time
on any future Distribution Account Deposit Date to the extent that funds
attributable to the Mortgage Loans that are available in the Distribution
Account on such Distribution Account Deposit Date shall be less than
payments to Certificateholders required to be made on the following
Distribution Date. With respect to any Balloon Loan as to which the related
Mortgagor fails to make the Balloon Payment when due, the Master Servicer
shall not be obligated to advance any such Balloon Payment, but shall advance
from any combination of (i) or (ii) above an amount equal to up to one
month's interest on such Balloon Payment (to the extent such amount is not
received from or on behalf of the related Mortgagor), on each Distribution
Account Deposit Date until such Balloon Payment is made, subject to the
Master Servicer's determination as to recoverability and, at the option of
the Master Servicer, an amount equal to the principal portion of the Monthly
Payment due with respect to the related Mortgage Loan.
ARTICLE V
PAYMENTS AND STATEMENTS TO
CERTIFICATEHOLDERS; REMIC SERVICING
Section 5.01. DISTRIBUTIONS. On each Distribution Date, the Trustee
shall distribute out of the Distribution Account (a) to each
Certificateholder of record on the related Record Date (other than as
provided in Section 10.01 respecting the final distribution) by check mailed
to such Certificateholder entitled to receive a distribution on such
Distribution Date at the address appearing in the Certificate Register, or
upon written request by a Certificateholder (in the event such
Certificateholder owns of record Regular Certificates of any Class having
denominations aggregating at least $1,000,000), by wire transfer or by such
other means of payment as such Certificateholder and the Trustee shall agree
upon, such Certificateholder's Percentage Interest in, the amount to which
the related Class of Certificates is entitled in accordance with the
priorities set forth below in Section 5.02; provided that distribution to the
Depository will be made by wire transfer in same day funds.
Neither the Holders of any Class of Regular Certificates or the Residual
Certificates, the Master Servicer, the Sellers nor the Trustee shall in any
way be responsible or liable to Holders
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of any Class of Certificates in respect of amounts properly previously
distributed on any Class of Regular Certificates.
Section 5.02. PRIORITIES OF DISTRIBUTION.
(a) On each Distribution Date, the Trustee shall withdraw the
Available Funds from the Distribution Account and apply such funds to
distributions on the Certificates in the following order of priority and to
the extent of Available Funds:
(i) to each Class of Senior Certificates, an amount allocable to
interest equal to the related Class Optimum Interest Distribution
Amount, any shortfall being allocated pro rata among such Classes in
proportion to the amount of the class Optimum Interest Distribution
Amount that would have been distributed in the absence of such
shortfall;
(ii) to principal of each Class of Senior Certificates
concurrently as follows (any shortfalls being allocated between (A)
and (B) pro rata in proportion to the amount that would have been
distributed to such Classes in the absence of such shortfall):
(A) on each Distribution Date prior to the Credit Support
Termination Date, an amount up to the Senior Principal
Distribution Amount will be distributed as principal
sequentially, to the Class A-1, Class A-2 and Class A-3
Certificates, in that order, until the Class Certificate
Balances thereof have been reduced to zero; and
(B) on each Distribution Date prior to the Credit Support
Termination Date, an amount up to the Class A-4 Principal
Distribution Amount for such Distribution Date will be
distributed as principal to the Class A-4 Certificates until the
Class Certificate Balance thereof has been reduced to zero;
(iii) an amount allocable to interest equal to the Class Optimum
Interest Distribution Amount for the Class B-1 Certificates;
(iv) to the Class B-1 Certificates, an amount allocable to
principal equal to its Pro Rata Share for such Distribution Date until
the Class Certificate Balance has been reduced to zero;
(v) an amount allocable to interest equal to the Class Optimum
Interest Distribution Amount for the Class B-2 Certificates;
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(vi) to the Class B-2 Certificates, an amount allocable to
principal equal to its Pro Rata Share for such Distribution Date until
the Class Certificate Balance has been reduced to zero;
(vii) to the Class B-3 Certificates, an amount allocable to
interest equal to the Class Optimum Interest Distribution Amount for
the Class B-3 Certificates;
(viii) to the Class B-4 Certificates, an amount allocable to
interest equal to the Class Optimum Interest Distribution Amount for
the Class B-4 Certificates;
(ix) to the following Classes of Certificates, on each
Distribution Date until the Accretion Termination Date, the Accretion
Amount, as principal, in the following order of priority:
(A) sequentially, to the Class A-1, Class A-2 and Class A-3
Certificates, in that order, until the respective Class
Certificate Balances thereof have been reduced to zero; and
(B) concurrently, to the Class A-4, Class B-1 and Class B-2
Certificates, pro rata, based on the respective Class Certificate
Balances on such Distribution Date;
(x) to the Class Z/IO Component, an amount equal to the Class
Z/IO Component Interest Amount; provided, however, that up to and
including the Accretion Termination Date, such amount shall be
distributed to the Accretion Directed Certificates as set forth in
Section 5.02(a)(ix), subject to Section 5.03(d), and added to the
Component Balance of the Class Z/IO Component Balance;
(xi) after the Class Certificates Balances of the Offered
Certificates have been reduced to zero, sequentially to the Class B-3,
Class B-4 and Class R Certificates, in that order, all Available Funds
remaining until their respective Class Certificate Balances are
reduced to zero; and
(xii) to the Class R Certificates, any remaining Available Funds.
(b) On each Distribution Date, the Class Optimum Interest Distribution
Amount and the Class Z/IO Component Interest Amount for such Distribution
Date for each Class of Regular Certificates and the Class Z/IO Component,
respectively, shall be reduced by such Class' or Components' pro rata share
(based on such Class' or Components' Class Optimum Interest Distribution
Amount or Class Z/IO Component Interest Amount, as applicable), of (i) Net
Prepayment Interest Shortfalls, (ii) after the Special Hazard Coverage
Termination Date, with respect to each Mortgage Loan that became a Special
Hazard Mortgage Loan during the Due Period relating to such Distribution
Date, the excess of one month's interest at the related Net Mortgage
Interest
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Rate on the Scheduled Principal Balance of such Mortgage Loan as of the
Scheduled Due Date over the amount of Liquidation Proceeds applied as
interest on such Mortgage Loan with respect to such Due Period, (iii)
after the Bankruptcy Coverage Termination Date, with respect to each
Mortgage Loan that became subject to a Bankruptcy Loss during the Due
Period relating to such Distribution Date, the interest portion of the
related Debt Service Reduction or Deficient Valuation, (iv) each Relief
Act Reduction incurred during the Due Period relating to such Distribution
Date and (v) after the Fraud Loss Coverage Termination Date, with respect
to each Mortgage Loan that became a Fraud Loan during the Due Period
relating to such Distribution Date the excess of one month's interest at
the related Net Mortgage Interest Rate on the Scheduled Principal Balance
of such Mortgage Loan as of the Scheduled Due Date over the amount of
Liquidation Proceeds applied as interest on such Mortgage Loan with respect
to such Due Period.
(c) Subject to Section 5.03(d) below, on each Distribution Date up to
and including the Accretion Termination Date, the Accretion Amount for such
Distribution Date shall not be distributed as interest with respect to the
Class Z/IO Component but shall instead be added to the Component Balance of
such Component on the related Distribution Date.
(d) On each Distribution Date on or after the Credit Support
Termination Date, notwithstanding the allocation and priority set forth in
Section 5.02(a)(ii), the portion of Available Funds available to be
distributed to the Senior Certificates specified in such Section will be
distributed among such Classes, pro rata, on the basis of their respective
Class Certificate Balances prior to making any distributions on such
Distribution Date and until the Class Certificate Balances thereof are
reduced to zero;
(e) On each Distribution Date, any distribution made to the holders
of the Class R Certificates in respect of principal pursuant to
Section 5.02(a)(xi) will be applied sequentially, to the Class PO Component
and the Class Z/IO Component, in that order, until their respective
Component Balances have been reduced to zero.
Section 5.03. ALLOCATION OF NET REALIZED LOSSES.
(a) On or prior to each Determination Date, the Master Servicer shall
determine the total amount of Net Realized Losses, if any, that occurred
during the preceding Due Period.
(b) Net Realized Losses shall be allocated as follows:
(i) Net Realized Losses (other than Excess Losses), first,
sequentially, to the Class R, Class B-4, Class B-3, Class B-2, Class
B-1 Certificates in that order, until the Class Certificate Balance of
each such Class is reduced to zero, second, to the Class A-4, Class
A-3, Class A-2 and Class A-1 Certificates, pro rata, based on their
respective Class Certificate Balances; and
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(ii) Net Realized Losses that are Excess Losses, to the Senior
Certificates and the Subordinate Certificates then Outstanding, pro
rata, on the basis of their respective Class Certificate Balances
immediately prior to such Distribution Date.
Any Net Realized Losses allocated to a Class of Certificates shall be
allocated among the Certificates of such Class in proportion to the
respective portion of the Initial Class Certificate Balance represented by
such Class of Certificates. Any allocation of Net Realized Losses to the
Class R Certificates shall be allocated pro rata between the Class PO
Component and the Class Z/IO Component.
(c) Any allocation of Net Realized Losses to a Class of Certificates
shall be accomplished by reducing the Class Certificate Balance thereof
immediately following the related Distribution Date in accordance with the
definition of "Class Certificate Balance."
(d) On any Distribution Date on which a Carry Forward Loss Amount
exists with respect to any Class of Regular Certificates, the amount of any
Accretion Amount to be added to the Component Balance of the Class Z/IO
Component pursuant to Section 5.01(c) hereto shall instead be added to the
Class Certificate Balances of the Class or Classes of Certificates then
entitled to distributions in respect of principal on such Distribution Date
up to the Carry Forward Loss Amount with respect to each such Class and the
Carry Forward Loss Amount with respect to any such Class shall be reduced
by the amount added to the Class Certificate Balance thereof. If, on any
Distribution Date, the Accretion Amount is less than the amount necessary
to reduce each such Class' Carry Forward Loss Amount to zero, such amount
shall be added to the Class Certificate Balances of the Classes of
Certificates with Carry Forward Loss Amounts in the order of their priority
of payment with respect to principal. If any Accretion Amount remains after
reducing each Class' Carry Forward Loss Amount to zero, then such amount
shall be added to the Component Balance of the Class Z/IO Components.
Section 5.04. STATEMENTS TO CERTIFICATEHOLDERS.
(a) Prior to the Distribution Date in each month, based upon, and
subject to timely receipt of, the information provided to the Trustee on
the Master Servicer's Certificate delivered to the Trustee pursuant to
Section 4.01, the Trustee shall determine the following information with
respect to the following Distribution Date:
(i) the amount received or deemed to have been received by the
Master Servicer as of the close of business on the preceding
Determination Date in respect of the Mortgage Loans, reduced by the
sum of the amounts specified in clauses (A) through (C), inclusive, of
the definition of Available Funds;
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(ii) the aggregate Repurchase Prices for any Deleted Loans to be
purchased on the immediately succeeding Distribution Account Deposit
Date pursuant to Section 2.02 or 2.03 and (b) the amount to be
deposited in the Distribution Account on or prior to the related
Distribution Account Deposit Date pursuant to Section 2.04 in respect
of Replacement Loans;
(iii) the Available Funds for the following Distribution Date;
(iv) the Class Optimum Interest Distribution Amount for each
Class of Regular Certificates for the following Distribution Date and
the amount to be distributed on account of interest on each Class of
Regular Certificates for the following Distribution Date, the Class
Z/IO Component Interest Amount and the Accretion Amount to be
distributed to the Class B Certificates as principal for the following
Distribution Date;
(v) the amount to be distributed and allocable to principal for
each Class of Certificates for the following Distribution Date;
(vi) the aggregate amount of Net Realized Losses indicating
separately the amount of Net Special Hazard Losses, Fraud Losses and
Bankruptcy Losses during the preceding calendar month;
(vii) the amount of Bankruptcy Coverage Amount, Special Hazard
Loss Coverage and the Fraud Loss Coverage Amount for the related
Distribution Date;
(viii) the Senior Percentage and the Class A-4 Percentage for the
following Distribution Date;
(ix) the Senior Prepayment Percentage and the Class A-4
Prepayment Percentage for the following Distribution Date;
(x) the Subordinate Percentage on a Class by Class basis for
the following Distribution Date;
(xi) the Subordinate Prepayment Percentage on a Class by Class
basis for the following Distribution Date;
(xii) the Pool Scheduled Principal Balance for the second
following Distribution Date;
(xiii) the Class Certificate Balance for each Class of
Certificates after giving effect to the distribution to be made on
the following Distribution Date and any adjustments to the Class
Certificate Balances of such Certificates on such following
Distribution Date as a result of Net Realized Losses;
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(xiv) the number and aggregate principal balances of Mortgage
Loans delinquent as of the end of the Scheduled Due Date (a) one
month, (b) two months and (c) three or more months and loans in
foreclosure;
(xv) the book value (within the meaning of 12 C.F.R. Section
571.13 or comparable provision) of any real estate acquired through
foreclosure or grant of a deed in lieu of foreclosures; and
(xvi) the amount of each Class' Carry Forward Loss Amount with
respect to such Distribution Date.
(b) No later than each Distribution Date, the Trustee, based upon
information supplied to it on, and subject to timely receipt of, the Master
Servicer's Certificate pursuant to Section 4.01, shall prepare and mail to
each Holder of a Certificate, each Rating Agency and the Master Servicer a
statement setting forth:
(i) (A) the amount of such distribution to Holders of each Class
of Certificates allocable to interest, any Class Unpaid Interest
Shortfall for such Class included in such distribution and any
remaining Class Unpaid Interest Shortfall for such Class after giving
effect to such distribution and (B) the amounts of (1) Net Prepayment
Interest Shortfall; (2) the amount of Prepayment Interest Shortfalls
offset by the Master Servicing Fee; (3) the interest portion of Net
Special Hazard Losses and Fraud Losses; (4) the interest portion of
Debt Service Reductions and Deficient Valuations; and (5) Relief Act
Reductions, in each case allocated to each Class on such Distribution
Date;
(ii) the amount of such distribution to Holders of each Class of
Certificates allocable to principal, separately identifying the
aggregate amount of any Principal Prepayments included therein;
(iii) the amount of any Monthly Advance pursuant to Section 4.02
and the amount of any Servicing Advances made pursuant to Article III
during the preceding Due Period;
(iv) the Class Certificate Balance of each Class of Certificates
on such Distribution Date after giving effect to the distribution of
principal and any adjustments to the Class Certificate Balances of
such Certificates as a result of Net Realized Losses resulting from
(A) Special Hazard Losses, (B) Deficient Valuations or Debt Service
Reductions, (C) Fraud Losses and (D) Net Realized Losses not included
in clauses (A) through (C) above, separately listing the amounts of
adjustments resulting from each such category;
(v) the Pool Scheduled Principal Balance of the Mortgage Loans
for the following Distribution Date;
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(vi) the aggregate amount of Net Special Hazard Losses,
Bankruptcy Losses and Fraud Losses during the preceding calendar month
(separately stating the amount of principal reduction and interest
reduction pursuant to Sections 5.02(b) and 5.02(c)) and the Special
Hazard Loss Coverage Amount, Bankruptcy Coverage Amount and the Fraud
Loss Coverage Amount for the following Distribution Date;
(vii) the number and aggregate principal balances of Mortgage
Loans delinquent as of the end of the previous month (A) one month,
(B) two months and (C) three or more months and loans in foreclosure;
(viii) the book value (within the meaning of 12 C.F.R. Section
571.13 or comparable provision) of any real estate acquired through
foreclosure or grant of a deed in lieu of foreclosure;
(ix) the amount of Net Realized Losses allocated to each such
Class;
(x) the Senior Percentage and the Class A-4 Percentage for the
following Distribution Date;
(xi) the Senior Prepayment Percentage and the Class A-4
Prepayment Percentage for the following Distribution Date; and
(xii) the Subordinate Percentage on a Class-by-Class basis for
the following Distribution Date; and
(xiii) the Subordinate Prepayment Percentage on a Class-by-Class
basis for the following Distribution Date.
In the case of information furnished pursuant to subclauses (ii) and (ix)
above, the amounts shall be expressed as a dollar amount per Certificate with a
$1,000 denomination.
Within a reasonable period of time after the end of each calendar year, the
Trustee shall forward to each Person who at any time during the calendar year
was the Holder of a Regular Certificate, or Residual Certificate a statement
containing the information set forth in subclauses (i) and (ii) above in the
case of a Certificateholder, in each case aggregated for such calendar year or
applicable portion thereof during which such Person was a Certificateholder.
Such obligation of the Trustee shall be deemed to have been satisfied to the
extent that substantially comparable information shall be provided by the
Trustee pursuant to any requirements of the Code as from time to time in force.
The Trustee shall deliver to the Holders of Certificates any reports or
information the Trustee is required by this Agreement or the Code, Treasury
Regulations or REMIC Provisions to deliver to the Holders of Certificates, and
the Master Servicer shall prepare and provide to
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the Trustee, and the Trustee shall forward to Certificateholders in the form
so provided (by mail, telephone or publication as may be permitted by
applicable Treasury Regulations), the foregoing information and such other
reasonable information as the Master Servicer deems necessary or appropriate
or is required by the Code, Treasury Regulations, and the REMIC Provisions
including, but not limited to, (i) information to be reported to the Holders
of the Residual Certificates for quarterly notices on Schedule Q (Form 1066)
(which information shall be forwarded to the Holders of the Certificates by
the Trustee), (ii) information to be provided to the Holders of Certificates
with respect to amounts which should be included as interest and original
issue discount in such Holders' gross income and (iii) information to be
provided to all Holders of Certificates setting forth the percentage of the
Trust Fund's assets, determined in accordance with Treasury Regulations using
a convention, not inconsistent with Treasury Regulations, selected by the
Trustee in its absolute discretion, that constitute qualifying real property
loans under Section 593 of the Code, real estate assets under Section 856 of
the Code, and assets described in Section 7701(a)(19)(C) of the Code;
provided, however, that in setting forth the percentage of such assets of the
REMIC, nothing contained in this Agreement, including without limitation
Section 7.03 hereof, shall be interpreted to require the Master Servicer
periodically to appraise the fair market values of the assets of the Pool or
to indemnify the Pool or any Certificateholders from any adverse federal,
state or local tax consequences associated with a change subsequently required
to be made in the Master Servicer's initial good faith determinations of such
fair market values (if subsequent determinations are required pursuant to the
REMIC Provisions) made from time to time.
Section 5.05. TAX RETURNS AND REPORTS TO CERTIFICATEHOLDERS.
(a) For federal income tax purposes, the Trust Fund shall have a
calendar year taxable year and shall maintain its books on the accrual
method of accounting.
(b) The Trustee shall prepare or cause to be prepared and shall
execute and file or cause to be filed with the Internal Revenue Service and
applicable state or local tax authorities income tax information returns
for each taxable year with respect to the Trust Fund containing such
information at the times and in the manner as may be required by the Code
or state or local tax laws, regulations, or rules, and shall furnish or
cause to be furnished to the Trust Fund and the Certificateholders the
schedules, statements or information at such times and in such manner as
may be required thereby. Within thirty (30) days of the Closing Date, the
Trustee shall furnish or cause to be furnished to the Internal Revenue
Service, on Form 8811 or as otherwise required by the Code, the name,
title, address and telephone number of the person that Holders of the
Certificates may contact for tax information relating thereto, together
with such additional information at the time or times and in the manner
required by the Code. Such federal, state, or local income tax or
information returns shall be signed by the Trustee, or such other Person as
may be required to sign such returns by the Code or state or local tax
laws, regulations or rules.
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(c) In the first federal income tax return of the Trust Fund for its
short taxable year ending December 31, 1996, REMIC status shall be elected
for such taxable year and all succeeding taxable years.
(d) The Trustee will maintain or cause to be maintained such records
relating to the Trust Fund, including but not limited to the income,
expenses, assets and liabilities of the Pool, and the fair market value and
adjusted basis of the Pool property and assets determined at such intervals
as may be required by the Code, as may be necessary to prepare the
foregoing returns, schedules, statements or information.
Section 5.06. TAX MATTERS PERSON. The Tax Matters Person shall have the
same duties with respect to the Trust Fund as those of a "tax matters partner"
under Subchapter C of Chapter 63 of Subtitle F of the Code.
Section 5.07. RIGHTS OF THE TAX MATTERS PERSON IN RESPECT OF THE TRUSTEE.
The Trustee, if the Trustee is not the Tax Matters Person, shall afford the Tax
Matters Person, upon reasonable notice during normal business hours, access to
all records maintained by the Trustee in respect of its duties hereunder and
access to officers of the Trustee responsible for performing such duties. Upon
request, the Trustee shall furnish the Tax Matters Person with its most recent
statement of condition publicly available. The Trustee shall make available to
the Tax Matters Person such books, documents or records relating to the
Trustee's services hereunder. The Tax Matters Person shall not have any
responsibility or liability for any action or failure to act by the Trustee and
is not obligated to supervise the performance of the Trustee under this
Agreement or otherwise.
Section 5.08. REMIC-RELATED COVENANTS. For as long as the Pool shall
exist, the Trustee shall act in accordance herewith to assure continuing
treatment of the Trust Fund as a REMIC and avoid the imposition of tax on the
Trust Fund. In particular:
(a) The Trustee shall not create, or permit the creation of, any
"interests" in the Trust Fund within the meaning of Code Section 860D(a)(2)
other than the interests represented by the Trust Fund, Regular
Certificates and the Residual Certificates, respectively.
(b) Except as otherwise provided in the Code, the Depositor and the
Master Servicer shall not grant and the Trustee shall not accept property
unless (i) substantially all of the property held in the Trust Fund
constitutes either "qualified mortgages" or "permitted investments" as
defined in Code Sections 860G(a)(3) and (5), respectively, and (ii) no
property shall be contributed to the Trust Fund after the start-up day
unless such grant would not subject the Pool to the 100% tax on
contributions to a REMIC after the start-up day of the REMIC imposed by
Code Section 860G(d).
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(c) The Trustee shall not accept on behalf of the Trust Fund any fee
or other compensation for services and shall not accept on behalf of the
Pool any income from assets other than those permitted to be held by a
REMIC.
(d) The Trustee shall not sell or permit the sale of all or any
portion of the Mortgage Loans (other than in accordance with Section 2.02
or 3.13), unless the Trustee has been provided with an Opinion of Counsel
concluding that such sale is pursuant to a "qualified liquidation" as
defined in Code Section 860F(a)(4)(A) and in accordance with Article X,
which Opinion of Counsel shall not be an expense of the Trustee.
(e) The Trustee shall maintain books with respect to the Trust Fund
on a calendar year taxable year and on an accrual basis.
Neither the Master Servicer nor the Trustee shall engage in a "prohibited
transaction" (as defined in Code Section 860F(a)(2)), except that, with the
prior written consent of the Master Servicer and the Depositor, the Trustee may
engage in the activities otherwise prohibited by the foregoing clauses (b),
(c) and (d), provided that the Master Servicer shall have delivered to the
Trustee an Opinion of Counsel to the effect that such transaction will not
result in the imposition of a tax on the Trust Fund and will not disqualify the
Trust Fund from treatment as a REMIC; and provided that the Master Servicer
shall have demonstrated to the satisfaction of the Trustee that such action will
not adversely affect the rights of the holders of the Certificates and the
Trustee and that such action will not adversely impact the rating of the
Certificates.
ARTICLE VI
THE CERTIFICATES
Section 6.01. THE CERTIFICATES. The Classes of Senior Certificates, the
Residual Certificates and the Subordinate Certificates shall be substantially in
the forms set forth in Exhibits A, B, D and E (reverse of all Certificates) and
shall, on original issue, be executed and countersigned by the Trustee to or
upon the order of the Depositor upon receipt by the Trustee of the documents
specified in Section 2.01. The Senior Certificates shall be available to
investors in interests representing minimum dollar Class Certificate Balances,
as the case may be, of $_____________ and integral multiples of $1 in excess
thereof. The Subordinate Certificates (other than the Class R Certificates)
shall be available to investors in fully registered form in interests
representing minimum dollar Certificate Balances of $___________ and integral
dollar multiples of $1 in excess thereof (except one Certificate of such class
may be issued with a Class Certificate Balance other than in such amounts).
The Residual Certificates shall be in fully registered form in minimum
dollar Class Certificate Balances of $1,000 and integral multiples of in excess
thereof (except one Residual Certificate may be available in a different Class
Certificate Balance).
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The Certificates shall be executed by manual or facsimile signature on
behalf of the Trustee by an authorized officer or signatory. Certificates
bearing the manual or facsimile signatures of individuals who were, at the time
when such signatures were affixed, authorized to sign on behalf of the Trustee
shall bind the Depositor, notwithstanding that such individuals or any of them
have ceased to be so authorized prior to the execution and delivery of such
Certificates or did not hold such offices or positions at the date of such
Certificate. No Certificate shall be entitled to any benefit under this
Agreement, or be valid for any purpose, unless such Certificate shall have been
countersigned by the Trustee substantially in the form provided for herein, and
such countersignature upon any Certificate shall be conclusive evidence, and the
only evidence, that such Certificate has been duly authenticated and delivered
hereunder. All Certificates shall be dated the date of their countersignature.
On the Closing Date, the Trustee shall countersign the Certificates to be issued
at the direction of the Depositor, or any affiliate thereof.
Section 6.02. REGISTRATION OF TRANSFER AND EXCHANGE OF CERTIFICATES. The
Trustee shall cause to be kept at an office or agency in the city in which the
Corporate Trust Office of the Trustee is located a Certificate Register in
which, subject to such reasonable regulations as it may prescribe, the Trustee
shall provide for the registration of Certificates and of transfers and
exchanges of Certificates as herein provided. The Trustee shall initially serve
as Certificate Registrar for the purpose of registering Certificates and
transfers and exchanges of Certificates as herein provided.
At the option of the Certificateholders, Certificates may be exchanged for
other Certificates of authorized denominations of a like Class, tenor and
aggregate Percentage Interest, upon surrender of the Certificates to be
exchanged at any such office or agency. Whenever any Certificates are so
surrendered for exchange the Depositor shall execute and the Trustee shall
authenticate, countersign and deliver the Certificates which the
Certificateholder making the exchange is entitled to receive. Every Certificate
presented or surrendered for transfer or exchange shall (if so required by the
Trustee or the Certificate Registrar) be duly endorsed by, or be accompanied by
a written instrument of transfer in form satisfactory to the Trustee and the
Certificate Registrar duly executed by, the Holder thereof or his attorney duly
authorized in writing.
No transfer of a Private Certificate shall be made unless such transfer is
exempt from the registration requirements of the Securities Act of 1933, as
amended, and any applicable state securities laws or is made in accordance with
said Act and laws. In the event of any such transfer, (a) unless such transfer
is made in reliance upon Rule 144A under the 1933 Act, the Trustee or the
Depositor may require a written Opinion of Counsel (which may be in-house
counsel) acceptable to and in form and substance reasonably satisfactory to the
Trustee and the Depositor that such transfer may be made pursuant to an
exemption, describing the applicable exemption and the basis therefor, from said
Act and laws or is being made pursuant to said Act and laws, which Opinion of
Counsel shall not be an expense of the Trustee, the Sellers or the Depositor and
(b) the Trustee shall require the transferee to execute an investment letter (in
substantially the form attached hereto as Exhibit J-1 (with respect to
accredited investors) or
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Exhibit J-2 (with respect to Qualified Institutional Buyers)) acceptable to
and in form and substance reasonably satisfactory to the Depositor and the
Trustee certifying to the Depositor and the Trustee the facts surrounding
such transfer, which investment letter shall not be an expense of the
Trustee, the Sellers or the Depositor; provided that the foregoing
requirements under clauses (a) and (b) shall not apply to a transfer of a
Private Certificate between or among the Seller, their affiliates or both.
The Depositor shall provide to any Holder of a Private Certificate and any
prospective transferee designated by any such Holder, information regarding
the related Certificates and the Mortgage Loans and such other information as
shall be necessary to satisfy the condition to eligibility set forth in Rule
144A(d)(4) for transfer of any such certificate without registration thereof
under the Securities Act pursuant to the registration exemption provided by
Rule 144A. The Holder of a Private Certificate desiring to effect such
transfer shall, and does hereby agree to, indemnify the Trustee, the Sellers
and the Depositor against any liability that may result if the transfer is
not so exempt or is not made in accordance with such federal and state laws.
Except as provided below, the Book-Entry Certificates shall at all times
remain registered in the name of the Depository or its nominee and at all times:
(a) registration of the Certificates may not be transferred by the Trustee
except to another Depository; (b) the Depository shall maintain book-entry
records with respect to the Certificate Holders and with respect to ownership
and transfers of such Book-Entry Certificates; (c) ownership and transfers of
registration of the Book-Entry Certificates on the books of the Depository shall
be governed by applicable rules established by the Depository; (d) the
Depository may collect its usual and customary fees, charges and expenses from
its Depository Participants; (e) the Trustee shall deal with the Depository,
Depository Participants and indirect participating firms as representatives of
the Certificate Holders of the Book-Entry Certificates for purposes of
exercising the rights of Holders under this Agreement, and requests and
directions for and votes of such representatives shall not be deemed to be
inconsistent if they are made with respect to different Certificate Holders; and
(f) the Trustee may rely and shall be fully protected in relying upon
information furnished by the Depository with respect to its Depository
Participants and furnished by the Depository Participants with respect to
indirect participating firms and persons shown on the books of such indirect
participating firms as direct or indirect Certificate Owners.
All transfers by Certificate Holders of Book-Entry Certificates shall be
made in accordance with the procedures established by the Depository Participant
or brokerage firm representing such Certificate Owner. Each Depository
Participant shall only transfer Book-Entry Certificates of Certificate Owners it
represents or of brokerage firms for which it acts as agent in accordance with
the Depository's normal procedures.
If (a) (i) the Depository or the Depositor advises the Trustee in writing
that the Depository is no longer willing or able to properly discharge its
responsibilities as Depository, and (ii) the Trustee or the Depositor is unable
to locate a qualified successor, (b) the Depositor at its option advises the
Trustee in writing that it elects to terminate the book-entry system through the
Depository or (c) after the occurrence of an Event of Default, Certificate
Holders representing at least 51% of the Class Certificate Balance of the
Book-Entry Certificates together
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advise the Trustee and the Depository through the Depository Participants in
writing that the continuation of a book-entry system through the Depository
is no longer in the best interests of the Certificate Holders, the Trustee
shall notify all Certificate Holders, through the Depository, of the
occurrence of any such event and of the availability of definitive, fully
registered Certificates (the "Definitive Certificates") to Certificate Owners
requesting the same. Upon surrender to the Trustee of the related Class of
Certificates by the Depository, accompanied by the instructions from the
Depository for registration, the Trustee shall issue the Definitive
Certificates. Neither the Master Servicer, the Depositor nor the Trustee
shall be liable for any delay in delivery of such instruction and may
conclusively rely on, and shall be protected in relying on, such
instructions. The Master Servicer shall provide the Trustee with an adequate
inventory of certificates to facilitate the issuance and transfer of
Definitive Certificates. Upon the issuance of Definitive Certificates all
references herein to obligations imposed upon or to be performed by the
Depository shall be deemed to be imposed upon and performed by the Trustee, to
the extent applicable with respect to such Definitive Certificates and the
Trustee shall recognize the Holders of the Definitive Certificates as
Certificateholders hereunder.
No transfer of an ERISA-Restricted Certificate shall be made unless the
Trustee shall have received either (a) a representation letter from the
transferee of such Certificate, acceptable to and in form and substance
satisfactory to the Trustee and the Master Servicer (in the event such
Certificate is a Private Certificate or a Residual Certificate, such requirement
is satisfied only by the Trustee's receipt of a representation letter from the
transferee substantially in the form of Exhibit J), to the effect that such
transferee is not an employee benefit plan subject to Section 406 of ERISA, nor
a person acting on behalf of any such plan, which representation letter shall
not be an expense of the Trustee or the Master Servicer, (b) if the purchaser is
an insurance company, a representation that the purchaser is an insurance
company which is purchasing such ERISA-Restricted 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 ERISA-Restricted Certificates are covered
under Section III of PTCE 95-60, or (c) in the case of any ERISA-Restricted
Certificate presented for registration in the name of an employee benefit plan
subject to ERISA, and Section 4975 of the Code (or comparable provisions of any
subsequent enactments), or a trustee of any such plan, an Opinion of Counsel
satisfactory to the Trustee and the Master Servicer to the effect that the
purchase or holding of such ERISA--Restricted Certificate will not result in the
assets of the Trust Fund being deemed to be "plan assets" and subject to the
prohibited transaction provisions of ERISA and the Code and will not subject the
Trustee or the Master Servicer to any obligation in addition to those undertaken
in this Agreement, which opinion of counsel shall not be an expense of the
Trustee or the Master Servicer. For purposes of the preceding sentence, with
respect to an ERISA-Restricted Certificate that is not a Private Certificate or
a Residual Certificate, in the event the representation letter referred to in
the preceding sentence is not furnished, such representation shall be deemed to
have been made to the Trustee by the transferee's (including an initial
acquiror's) acceptance of the ERISA-Restricted Certificates. Notwithstanding
anything else to the contrary herein, any purported transfer of an
ERISA-Restricted Certificate to or on behalf of an employee benefit plan subject
to ERISA or to the Code without the delivery to the Trustee
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of an Opinion of Counsel satisfactory to the Trustee as described above shall
be void and of no effect.
To the extent permitted under applicable law (including, but not limited
to, ERISA), the Trustee shall be under no liability to any Person for any
registration of transfer of any ERISA-Restricted Certificate that is in fact not
permitted by this Section 6.01 or for making any payments due on such
Certificate to the Holder thereof or taking any other action with respect to
such Holder under the provisions of this Agreement so long as the transfer was
registered by the Trustee in accordance with the foregoing requirements.
Each Person who has or who acquires any Ownership Interest in a Residual
Certificate shall be deemed by the acceptance or acquisition of such Ownership
Interest to have agreed to be bound by the following provisions and to have
irrevocably appointed the Depositor or its designee as its attorney-in-fact to
negotiate the terms of any mandatory sale under clause (v) below and to execute
all instruments of transfer and to do all other things necessary in connection
with any such sale, and the rights of each Person acquiring any Ownership
Interest in a Residual Certificate are expressly subject to the following
provisions:
(a) Each Person holding or acquiring any Ownership Interest in a
Residual Certificate shall be a Permitted Transferee and shall promptly
notify the Trustee of any change or impending change in its status as a
Permitted Transferee.
(b) No Person shall acquire an Ownership Interest in a Residual
Certificate unless such Ownership Interest is a pro rata undivided
interest.
(c) No Ownership Interest in a Residual Certificate may be
transferred without delivery to the Trustee of each of the following in
form and substance satisfactory to it:
(i) an affidavit in the form of Exhibit I hereto from the
proposed transferee to the effect that such transferee is a Permitted
Transferee and that it is not acquiring its Ownership Interest in the
Residual Certificate that is the subject of the proposed transfer as a
nominee, trustee or agent for any Person who is not a Permitted
Transferee; and
(ii) a covenant of the proposed transferee to the effect that the
proposed transferee agrees to be bound by and to abide by the transfer
restrictions applicable to the Residual Certificates.
(d) Any attempted or purported transfer of any Ownership Interest in
a Residual Certificate in violation of the provisions of this Section 6.02
shall be absolutely null and void and shall vest no rights in the purported
transferee. If any purported transferee shall, in violation of the
provisions of this Section 6.02, become a Holder of a Residual Certificate,
then the prior Holder of such Residual Certificate that is a Permitted
Transferee shall, upon discovery that the registration of transfer of such
Residual Certificate was not in fact permitted by this Section 6.02, be
restored to all rights as Holder thereof retroactive to the date of
registration of transfer of such
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Residual Certificate. The Trustee shall be under no liability to any
Person for any registration of transfer of a Residual Certificate that
is in fact not permitted by this Section 6.02 or for making any
distributions due on such Residual Certificate to the Holder thereof or
taking any other action with respect to such Holder under the provisions
of the Agreement so long as the transfer was not registered upon the
express written consent of the Trustee. The Trustee shall be entitled
to recover from any Holder of a Residual Certificate that was in fact not
a Permitted Transferee at the time such distributions were made all
distributions made on such Residual Certificate. Any such distributions so
recovered by the Trustee shall be distributed and delivered by the Trustee
to the prior Holder of such Residual Certificate that is a Permitted
Transferee.
(e) If any Person other than a Permitted Transferee acquires any
Ownership Interest in a Residual Certificate in violation of the
restrictions in this Section 6.02, then the Trustee shall have the
obligation, without notice to the Holder of such Residual Certificate or
any other Person having an Ownership Interest therein, to notify the
Underwriter to arrange for the sale of such Residual Certificate. The
proceeds of such sale, net of commissions (which may include commissions
payable to the Trustee or its affiliates), expenses and taxes due, if any,
will be remitted by the Trustee to the previous Holder of such Residual
Certificate that is a Permitted Transferee, except that in the event that
the Trustee determines that the Holder of such Residual Certificate may be
liable for any amount due under this Section 6.02 or any other provisions
of this Agreement, the Trustee may withhold a corresponding amount from
such remittance as security for such claim. The terms and conditions of
any sale under this clause (v) shall be determined in the sole discretion
of the Trustee, and it shall not be liable to any Person having an
Ownership Interest in a Residual Certificate as a result of its exercise of
such discretion.
(f) If any Person other than a Permitted Transferee acquires any
Ownership Interest in a Residual Certificate in violation of the
restrictions in this Section 6.02, then the Trustee, based on information
provided to the Trustee by the Master Servicer will provide to the Internal
Revenue Service, and to the persons specified in Section 860E(e)(3) and (6)
of the Code, information needed to compute the tax imposed under
Section 860E(e)(5) of the Code on transfers of residual interests to
disqualified organizations.
The foregoing provisions of Section 6.02 shall cease to apply to transfers
occurring on or after the date on which there shall have been delivered to the
Trustee, in form and substance satisfactory to the Trustee, (i) written
notification from each Rating Agency that the removal of the restrictions on
Transfer set forth in this Section 6.02 will not cause such Rating Agency to
downgrade its rating of the Certificates and (ii) an Opinion of Counsel to the
effect that such removal will not cause the Trust Fund to fail to qualify as a
REMIC.
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No service charge shall be imposed for any transfer or exchange of
Certificates of any Class, but the Trustee may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates.
All Certificates surrendered for transfer and exchange shall be
destroyed by the Certificate Registrar.
Section 6.03. MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES. If
(a) any mutilated Certificate is surrendered to the Certificate Registrar or
the Certificate Registrar receives evidence to its satisfaction of the
destruction, loss or theft of any Certificate, and (b) there is delivered to
the Trustee, the Depositor and the Certificate Registrar such security or
indemnity as may be required by each, to save each of them harmless, then, in
the absence of actual notice to the Trustee or the Certificate Registrar that
such Certificate has been acquired by a bona fide purchaser, the Trustee
shall countersign and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Certificate, a new Certificate of like
tenor, Class and Percentage interest but bearing a number not
contemporaneously outstanding. Upon the issuance of any new Certificate
under this Section, the Trustee may require the payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of the
Trustee and the Certificate Registrar) connected therewith. Any duplicate
Certificate issued pursuant to this Section shall constitute complete and
indefeasible evidence of ownership in the Pool, as if originally issued,
whether or not the lost, stolen or destroyed Certificate shall be found at
any time.
Section 6.04. PERSONS DEEMED OWNERS. Prior to due presentation of a
Certificate for registration of transfer, the Depositor, the Master Servicer,
the Trustee, the Certificate Registrar and any agent of the Depositor, the
Master Servicer, the Trustee or the Certificate Registrar may treat the
Person in whose name any Certificate is registered as the owner of such
Certificate for the purpose of receiving distributions pursuant to Section
5.01 and for all other purposes whatsoever, and neither the Depositor, the
Master Servicer, the Trustee, the Certificate Registrar nor any agent of the
Master Servicer, the Trustee or the Certificate Registrar shall be affected
by notice to the contrary.
ARTICLE VII
THE DEPOSITOR, THE SELLERS AND THE MASTER SERVICER
Section 7.01. RESPECTIVE LIABILITIES OF THE DEPOSITOR, THE SELLERS AND
THE MASTER SERVICER. The Depositor, the Sellers and the Master Servicer
shall each be liable in accordance herewith only to the extent of the
obligations specifically and respectively imposed upon and undertaken by the
Depositor, the Sellers and the Master Servicer herein. By way of
illustration and not limitation, the Depositor is not liable for the
servicing and administration of the Mortgage Loans, nor is it obligated by
Section 3.17 or Section 8.01 to assume any obligations of the Master Servicer
or to appoint a designee to assume such obligations, nor is it liable for
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any other obligation hereunder that it may, but is not obligated to, assume
unless it elects to assume such obligation in accordance herewith.
Section 7.02. MERGER OR CONSOLIDATION OF THE DEPOSITOR OR THE MASTER
SERVICER. The Depositor and the Master Servicer will each keep in full effect
its existence, rights and franchises as a corporation under the laws of the
state of its incorporation, and will each obtain and preserve its
qualification to do business as a foreign corporation in each jurisdiction in
which such qualification is or shall be necessary to protect the validity
and enforceability of this Agreement, the Certificates or any of the Mortgage
Loans and to perform its respective duties under this Agreement.
Any Person into which the Depositor or the Master Servicer may be merged
or consolidated, or any corporation resulting from any merger or
consolidation to which the Depositor or the Master Servicer shall be a party,
or any Person succeeding to the business of the Depositor or the Master
Servicer, shall be the successor of the Depositor or the Master Servicer, as
the case may be, hereunder, without the execution or filing of any paper or
any further act on the part of any of the parties hereto, anything herein to
the contrary notwithstanding; provided, however, that the successor or
surviving Person to the Master Servicer shall be qualified to service
mortgage loans on behalf of FNMA or FHLMC.
Section 7.03. LIMITATION ON LIABILITY OF THE DEPOSITOR, THE SELLER, THE
MASTER SERVICER AND OTHERS. Neither the Depositor, the Sellers, the Master
Servicer nor any of the directors, officers, employees or agents of the
Depositor or of the Master Servicer shall be under any liability to the Pool
or the Certificateholders for any action taken or for refraining from the
taking of any action in good faith pursuant to this Agreement, or for errors
in judgment; provided, however, that this provision shall not protect the
Depositor, the Sellers, the Master Servicer or any such person against any
breach of warranties or representations made herein or any liability which
would otherwise be imposed by reason of willful misfeasance, bad faith or
gross negligence in the performance of duties or by reason of reckless
disregard of obligations and duties hereunder. The Depositor, the Master
Servicer, the Sellers and any director, officer, employee or agent of the
Depositor or the Master Servicer may rely in good faith on any document of
any kind prima facie properly executed and submitted by any Person respecting
any matters arising hereunder. The Depositor, the Master Servicer, the
Sellers and any director, officer, employee or agent of the Depositor or the
Master Servicer shall be indemnified by the Pool and held harmless against
any loss, liability or expense incurred in connection with any legal action
relating to this Agreement or the Certificates, other than any loss,
liability or expense related to any specific Mortgage Loan or Mortgage Loans
(except as any such loss, liability or expense shall be otherwise
reimbursable pursuant to this Agreement) and any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or gross negligence in
the performance of duties hereunder or by reason of reckless disregard of
obligations and duties hereunder. Neither the Depositor, the Sellers nor the
Master Servicer shall be under any obligation to appear in, prosecute or
defend any legal action which is not incidental to its respective duties
under this Agreement and which in its opinion may involve it in any expense
or liability; provided, however, that the Depositor, the Sellers or the
Master Servicer may in its
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discretion undertake any such action which it may deem necessary or desirable
in respect to this Agreement and the rights and duties of the parties hereto
and the interests of the Certificateholders hereunder. In such event, the
legal expenses and costs of such action and any liability resulting therefrom
shall be expenses, costs and liabilities of the Pool, and the Depositor, the
Sellers and the Master Servicer shall be entitled to be reimbursed therefor
out of amounts attributable to the Mortgage Loans on deposit in the
Collection Account as provided by Section 3.06.
Section 7.04. DEPOSITOR AND MASTER SERVICER NOT TO RESIGN. Subject to
the provisions of Section 7.02, neither the Depositor nor the Master Servicer
shall resign from its respective obligations and duties hereby imposed on it
except upon determination that its duties hereunder are no longer permissible
under applicable law. Any such determination permitting the resignation of
the Depositor or the Master Servicer shall be evidenced by an Opinion of
Counsel to such effect delivered to the Trustee. No such resignation by the
Master Servicer shall become effective until the Trustee or a successor
servicer shall have assumed the Master Servicer's responsibilities and
obligations in accordance with Section 8.05 hereof.
ARTICLE VIII
DEFAULT
Section 8.01. EVENTS OF DEFAULT. If any one of the following events
("Events of Default") shall occur and be continuing:
(a) Any failure by the Master Servicer to deposit in the Collection
Account or remit to the Trustee any payment (other than a payment
required to be made under Section 4.02) which continues unremedied for a
period of five (5) Business Days;
(b) Failure on the part of the Master Servicer duly to observe or
perform in any material respect any other covenants or agreements of the
Master Servicer set forth in the Certificates or in this Agreement,
which covenants and agreements continue unremedied for a period of 30
days after the date on which written notice of such failure, requiring
the same to be remedied, shall have been given to the Master Servicer by
the Trustee or the Depositor, or to the Master Servicer, the Depositor
and the Trustee by the Holders of Certificates evidencing, Voting Rights
aggregating not less than 25% of all Certificates affected thereby;
(c) The entry of a decree or order by a court or agency or
supervisory authority having jurisdiction in the premises for the
appointment of a conservator, receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings against the Master Servicer, or for the winding up or
liquidation of the Master Servicer's affairs, and the continuance of any
such decree or order unstayed and in effect for a period of 60
consecutive days;
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(d) The consent by the Master Servicer to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceedings of or
relating to the Master Servicer or of or relating to substantially all
of its property; or the Master Servicer shall admit in writing its
inability to pay its debts generally as they become due, file a petition
to take advantage of any applicable insolvency or reorganization
statute, make an assignment for the benefit of its creditors, or
voluntarily suspend payment of its obligations; or
(e) The failure of the Master Servicer to remit the Monthly Advance
required to be remitted pursuant to Section 4.02 which failure continues
unremedied for a period of one Business Day after the date upon which
notice of such failure shall have been given to the Master Servicer by
the Trustee. Then, and in each and every such case, so long as an Event
of Default shall not have been remedied by the Master Servicer, either
the Trustee or the Depositor may, and at the direction of the Holders of
Certificates evidencing Voting Rights aggregating not less than 51% of
all Certificates affected thereby, shall by notice then given in writing
to the Master Servicer (and to the Trustee if given by the Depositor and
to the Depositor if given by the Trustee), terminate all of the rights
and obligations of the Master Servicer as servicer under this Agreement.
If an Event of Default specified in clause (e) shall occur, the Trustee
shall, by notice to the Master Servicer, terminate all of the rights and
obligations of the Master Servicer under this Agreement and in and to
the Mortgage Loans and proceeds thereof and shall, as successor Master
Servicer, shall make the Monthly Advance which the Master Servicer
failed to make. On or after the receipt by the Master Servicer of such
written notice, all authority and power of the Master Servicer under
this Agreement, whether with respect to the Certificates or the Mortgage
Loans or otherwise, shall pass to and be vested in the Trustee pursuant
to and under this Section 8.01, and, without limitation, the Trustee is
hereby authorized and empowered to execute and deliver, on behalf of the
Master Servicer, as attorney-in-fact or otherwise, any and all documents
and other instruments, and to do or accomplish all other acts or things
necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement of the
Mortgage Loans and related documents, or otherwise, including, without
limitation, the recordation of the assignments of the Mortgage Loans to
it. The Master Servicer agrees to cooperate with the Trustee in
effecting the termination of the responsibilities and rights of the
Master Servicer hereunder, including, without limitation, the transfer
to the Trustee for the administration by it of all cash amounts that
have been deposited by the Master Servicer in the Collection Account or
thereafter received by the Master Servicer with respect to the Mortgage
Loans. Upon obtaining notice or knowledge of the occurrence of any Event
of Default, the Person obtaining such notice or knowledge shall give
prompt written notice thereof to Certificateholders at their respective
addresses appearing in the Certificate Register and to the Rating Agency.
Section 8.02. REMEDIES OF TRUSTEE. During the continuance of any Event
of Default, so long as such Event of Default shall not have been remedied,
the Trustee, in addition to the rights specified in Section 8.01, shall have
the right, in its own name as trustee of an express
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trust, to take all actions now or hereafter existing at law, in equity or by
statute to enforce its rights and remedies and to protect the interests, and
enforce its rights and remedies, of the Certificateholders (including the
institution and prosecution of all judicial, administrative and other
proceedings and the filing of proofs of claim and debt in connection
therewith). Except as otherwise expressly provided in this Agreement, no
remedy provided for by this Agreement shall be exclusive of any other remedy,
and each and every remedy shall be cumulative and in addition to any other
remedy and no delay or omission to exercise any right or remedy shall impair
any such right or remedy or shall be deemed to be a waiver of any Event of
Default.
Section 8.03. DIRECTIONS BY CERTIFICATEHOLDERS AND DUTIES OF TRUSTEE
DURING EVENT OF DEFAULT. During the continuance of any Event of Default,
Holders of Certificates evidencing Voting Rights aggregating not less than
25% of each Class of Certificates affected thereby may direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee under
this Agreement, provided, however, that the Trustee shall be under no
obligation to pursue any such remedy, or to exercise any of the trusts or
powers vested in it by this Agreement (including, without limitation, (a) the
conducting or defending of any administrative action or litigation hereunder
or in relation hereto, and (b) the terminating of the Master Servicer or any
successor servicer from its rights and duties as servicer hereunder) at the
request, order or direction of any of the Certificateholders, unless such
Certificateholders shall have offered to the Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities which may be
incurred therein or thereby and, provided further that, subject to the
provisions of Section 9.01, the Trustee shall have the right to decline to
follow any such direction if the Trustee, in accordance with an Opinion of
Counsel (at the expense of such Holders), determines that the action or
proceeding so directed may not lawfully be taken or if the Trustee in good
faith determines that the action or proceeding so directed would involve it
in personal liability or be unjustly prejudicial to the non-assenting
Certificateholders.
Section 8.04. ACTION UPON CERTAIN FAILURES OF THE MASTER SERVICER AND
UPON EVENT OF DEFAULT. In the event that the Trustee shall have knowledge of
any failure of the Master Servicer specified in Section 8.01(a), (b) or (e)
which would become an Event of Default upon the Master Servicer's failure to
remedy the same after notice, the Trustee shall give notice thereof to the
Master Servicer. In the event that the Trustee shall have knowledge of an
Event of Default, the Trustee shall give prompt written notice thereof to
the Certificateholders.
Section 8.05. TRUSTEE TO ACT; APPOINTMENT OF SUCCESSOR.
(a) On and after the time the Master Servicer receives a notice of
termination pursuant to Section 8.01, the Trustee shall be the successor
in all respects to the Master Servicer in its capacity as servicer under
this Agreement and the transactions set forth or provided for herein and
shall be subject to all the responsibilities, duties and liabilities
relating thereto placed on the Master Servicer by the terms and
provisions hereof. Notwithstanding anything provided herein to the
contrary, under no circumstances shall any provision of this Agreement,
including but not limited to Section 4.02 herein, be
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construed to require the Trustee, acting in its capacity as successor to
the Master Servicer in its obligation to make Monthly Advances, to
advance, expend or risk its own funds or otherwise incur any financial
liability in the performance of its duties hereunder if it shall have
reasonable grounds for believing that such funds are non-recoverable.
As compensation therefor, the Trustee shall be entitled to such
compensation as the Master Servicer would have been entitled to
hereunder if no such notice of termination had been given.
Notwithstanding the above, the Trustee may, if it shall be unwilling so
to act, or shall, if it is legally unable so to act, appoint, or
petition a court of competent jurisdiction to appoint, any established
housing and home finance institution having a net worth of not less than
$10,000,000 as the successor to the Master Servicer hereunder in the
assumption of all or any part of the responsibilities, duties or
liabilities of the Master Servicer hereunder; provided, however, that
any such institution appointed as successor Master Servicer shall not as
evidenced in writing by the Rating Agency adversely affect the then
current rating of any Class of Certificates immediately prior to the
termination of the Master Servicer. Pending appointment of a successor
to the Master Servicer hereunder, unless the Trustee is prohibited by
law from so acting, the Trustee shall act in such capacity as
hereinabove provided. In connection with such appointment and
assumption, the Trustee may make such arrangements for the compensation
of such successor out of payments on Mortgage Loans as it and such
successor shall agree; provided, however, that no such compensation
shall be in excess of that permitted the Master Servicer hereunder. The
Trustee and such successor shall take such action, consistent with this
Agreement, as shall be necessary to effectuate any such succession.
(b) Any successor, including the Trustee, to the Master Servicer as
servicer shall during the term of its service as servicer maintain in
force (i) a policy or policies of insurance covering errors and
omissions in the performance of its obligations as servicer hereunder
and (ii) a fidelity bond in respect of its officers, employees and
agents to the same extent as the Master Servicer is so required pursuant
to Section 3.08.
Section 8.06. NOTIFICATION TO CERTIFICATEHOLDERS. Upon any termination
or appointment of a successor to the Master Servicer pursuant to this Article
VIII, the Trustee shall give prompt written notice thereof to
Certificateholders at their respective addresses appearing in the Certificate
Register and to each Rating Agency.
ARTICLE IX
THE TRUSTEE
Section 9.01. DUTIES OF TRUSTEE.
(a) The Trustee, except during an Event of Default undertakes to
perform such duties and only such duties as are specifically set forth
in this Agreement. In case of default or the occurrence of any such
event as specified above, the Trustee shall exercise such of the rights
and powers vested in it by this Agreement and use the same degree of
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care and skill in their exercise as a prudent investor would exercise or
use under the circumstances in the conduct of such investor's own
affairs.
The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments
furnished to the Trustee which are specifically required to be furnished
pursuant to any provision of this Agreement, shall examine them to
determine whether they are in the form required by this Agreement;
provided, however, that the Trustee shall not be responsible for the
accuracy or content of any such certificate, statement, opinion, report
or other order or instrument to the Trustee pursuant to this Agreement.
(b) No provision of this Agreement shall be construed to relieve
the Trustee from liability for its own negligent action, its own
negligent failure to act or its own willful misconduct; provided,
however, that:
(i) This paragraph shall not be construed to limit the effect of
paragraph (a) of this Section 9.01;
(ii) The Trustee shall not be personally liable with respect
to any action taken, suffered or omitted to be taken by it in good
faith in accordance with the direction of Certificateholders as
provided in Section 8.03 hereof;
(iii) For all purposes under this Agreement, the Trustee shall
not be deemed to have notice of any event described in
Section 8.01(ii) through (v) unless a Responsible Officer assigned
to and working in the Trustee's corporate trust division has
written notice of any event is received at the Corporate Trust
Office, and such notice references the Certificates and this
Agreement;
(iv) No provision of this Agreement shall require the Trustee
to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in
the exercise of any of its rights or powers, if it shall have
grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not assured to it;
(v) the Trustee shall not be liable with respect to any
action taken, suffered or omitted to be taken by it in good faith
in accordance with the direction of Holders of Certificates
evidencing not less than 25% of the Voting Rights of Certificates
relating to the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or
power conferred upon the Trustee under this Agreement; and
(vi) It is expressly understood and agreed that all Mortgaged
Property held by the Trustee at any time hereunder is so held as a
trustee in trust for the benefit of Certificateholders and not in
the Trustee's individual capacity and the
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Trustee shall have no individual liability for any claim, cost or
expense arising out of the existence of any dangerous, toxic or
hazardous pollutants, chemicals, contaminants, wastes, medical
wastes, materials or substances on such Mortgaged Properties or
under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended from time to time, or any other
federal, state or local environmental law now or hereafter
existing. The indemnification provided to the Trustee under Section
9.10 hereof shall include indemnification for all such claims,
costs and expenses.
Section 9.02. CERTAIN MATTERS AFFECTING THE TRUSTEE. Except as otherwise
provided in Section 9.01:
(a) The Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officer's Certificate,
certificate of auditor or any other certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond or
other paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties and the Trustee shall
have no responsibility to ascertain or confirm the genuineness of any
signature of any such party or parties;
(b) The Trustee may consult with counsel and any Opinion of Counsel
shall be full and complete authorization and protection in respect of
any action taken or suffered or omitted by it hereunder in good faith
and in accordance with such Opinion of Counsel;
(c) The Trustee shall not be personally liable for any action
taken, suffered or omitted by it in good faith and reasonably believed
by it to be authorized or within the discretion or rights or powers
conferred upon it by this Agreement;
(d) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval,
bond or other paper or document, unless requested in writing so to do by
Holders of Certificates evidencing not less than 25% of the Voting
Rights allocated to each Class of Certificates;
The Trustee shall be under no obligation to exercise any of the
trusts, rights or powers vested in it by this Agreement or to institute,
conduct or defend any litigation hereunder or in relation hereto at the
request, order or direction of any of the Certificateholders, pursuant
to the provisions of this Agreement, unless such Certificateholders
shall have offered to the Trustee security or indemnity satisfactory to
the Trustee against the costs, expenses and liabilities which may be
incurred therein or thereby.
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(e) The Trustee and any co-trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by
or through agents or attorneys and the Trustee and any co-trustee shall
not be responsible for any willful misconduct or gross negligence on the
part of any agent or attorney appointed with due care by it hereunder.
Section 9.03. TRUSTEE NOT LIABLE FOR CERTIFICATES. The Trustee makes no
representations as to the validity or sufficiency of this Agreement or of the
Certificates save that the Trustee represents that, assuming due execution
and delivery by the other parties hereto, this Agreement has been duly
authorized, executed and delivered by it and constitutes its legal, valid and
binding obligation, enforceable against it in accordance with its terms,
subject, as to enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium and other laws affecting the rights of
creditors generally, and to general principles of equity and the discretion
of the court (regardless of whether enforcement of such remedies is
considered in a proceeding in equity or at law). The Trustee shall not be
accountable for the use or application by the Depositor of funds paid to the
Depositor in consideration of the assignment of the Mortgage Loans hereunder
by the Depositor, or for the use or application of any funds paid to
Servicers or the Master Servicer in respect of the Mortgage Loans or
deposited into the Collection Account by the Master Servicer.
Section 9.04. TRUSTEE MAY OWN CERTIFICATES. The Trustee in its
individual or any other capacity may become the owner or pledgee of
Certificates with the same rights it would have if it were not Trustee and
may otherwise deal with the Master Servicer, any Servicer or any of their
respective affiliates with the same right it would have if it were not the
Trustee.
Section 9.05. ELIGIBILITY REQUIREMENTS FOR TRUSTEE. The Trustee
hereunder shall at all times be (a) an institution the deposits of which are
fully insured by the FDIC and (b) a corporation or national banking
association organized and doing business under the laws of the United States
of America or of any State, authorized under such laws to exercise corporate
trust powers, having a combined capital and surplus of not less than
$30,000,000 and subject to supervision or examination by federal or State
authority and, with respect to every successor trustee hereunder except as
pursuant to Section 9.08(c) either an institution (i) the long-term unsecured
debt obligations of which are rated at least "A1" by Moody's and "A" by Duff
& Phelps, respectively, or (ii) whose serving as Trustee hereunder would not
result in the lowering of the ratings originally assigned to any Class of
Certificates. The Trustee shall not be an affiliate of the Depositor or the
Master Servicer. If such corporation or national banking association
publishes reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for
the purposes of this Section 9.05, the combined capital and surplus of such
corporation or national banking association shall be deemed to be its
combined capital and surplus as set forth in its most recent report of
condition so published. In case at any time the Trustee shall cease to be
eligible in accordance with the provision of this Section 9.05, the Trustee
shall resign immediately in the manner and with the effect specified in
Section 9.06.
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Section 9.06. RESIGNATION AND REMOVAL OF TRUSTEE. The Trustee may at
any time resign and be discharged from the trust hereby created by giving
written notice thereof to the Master Servicer and mailing a copy of such
notice to all Holders of record. The Trustee shall also mail a copy of such
notice of resignation to each Rating Agency. Upon receiving such notice of
resignation, the Master Servicer shall use its best efforts to promptly
appoint a successor trustee by written instrument, in duplicate, one copy of
which instrument shall be delivered to the resigning Trustee and one copy to
the successor trustee. If no successor trustee shall have been so appointed
and shall have accepted appointment within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor trustee.
If at any time the Trustee shall cease to be eligible in accordance with
the provision of Section 9.05 and shall fail to resign after written request
therefor by the Master Servicer, or if at any time the Trustee shall become
incapable of acting, or shall be adjudged a bankrupt or insolvent, or a
receiver of the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its property, or
any public officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Master Servicer may remove the Trustee and appoint a
successor trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the Trustee so removed and one copy to the
successor.
The Holders of Certificates evidencing Percentage Interests aggregating
not less than 50% of all Certificates may at any time remove the Trustee by
written instrument or instruments delivered to the Master Servicer and the
Trustee; the Master Servicer shall thereupon use its best efforts to appoint
a successor trustee in accordance with this Section.
Any resignation or removal of the Trustee and appointment of a successor
trustee pursuant to any of the provisions of this Section 9.06 shall become
effective upon acceptance of appointment by the successor trustee as provided
in Section 9.07.
Section 9.07. SUCCESSOR TRUSTEE. Any successor trustee appointed as
provided in Section 9.06 shall execute, acknowledge and deliver to the Master
Servicer and to its predecessor trustee an instrument accepting such
appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee,
without any further act, deed or conveyance, shall become fully vested with
all the rights, powers, duties and obligations of its predecessor hereunder,
with like effect as if originally named as Trustee herein. The predecessor
trustee shall duly assign, transfer, deliver and pay over to the successor
trustee the whole of the Files and related documents and statements held by
it hereunder, together with all necessary instruments of transfer and
assignment or other documents properly executed necessary to effect such
transfer and such of the records or copies thereof maintained by the
predecessor trustee in the administration hereof as may be requested by the
successor trustee and shall thereupon be discharged from all duties and
responsibilities under this Agreement.
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No successor trustee shall accept appointment as provided in this
Section 9.07 unless at the time of such appointment such successor trustee
shall be eligible under the provisions of Section 9.05.
Upon acceptance of appointment by a successor trustee as provided in
this Section 9.07, the Master Servicer shall mail notice of the succession of
such trustee hereunder to all Holders of Certificates at their addresses as
shown in the Certificate Register and to the Rating Agency. If the Master
Servicer fails to mail such notice within 10 days after acceptance of
appointment by the successor trustee, the successor trustee shall cause such
notice to be mailed at the expense of the Master Servicer.
Section 9.08. MERGER OR CONSOLIDATION OF TRUSTEE. Any corporation or
national banking association into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation or
national banking association resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation or
national banking association succeeding to all or substantially all of the
corporate trust business of the Trustee, shall be the successor of the
Trustee hereunder, provided such corporation or national banking association
shall be eligible under the provisions of Section 9.05, without the execution
or filing of any paper or any further act on the part of any of the parties
hereto, anything herein to the contrary notwithstanding.
Section 9.09. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE.
Notwithstanding any of the provisions hereof, at any time, for the purpose of
meeting any legal requirements of any jurisdiction in which any Mortgaged
Property may at the time be located or for any other reason, the Master
Servicer and the Trustee acting jointly shall have the power and shall
execute and deliver all instruments to appoint one or more Persons approved
by the Trustee, or separate trustee or separate trustees, of all or any part
of the Pool, and to vest in such Person or Persons, in such capacity, such
title to the Pool, or any part thereof, and, subject to the other provision
of this Section 9.09, such powers, duties, obligations, rights and trusts as
the Master Servicer and the Trustee may consider necessary or desirable. If
the Master Servicer shall not have joined in such appointment within 10 days
after the receipt by it of a request to do so, the Trustee alone shall have
the power to make such appointment. No co-trustee or separate trustee
hereunder shall be required to meet the terms of eligibility as a successor
trustee under Section 9.05 hereunder and no notice to Holders of Certificates
of the appointment of co-trustee(s) or separate trustee(s) shall be required
under Section 9.07 hereof.
In the case of any appointment of a co-trustee or separate trustee
pursuant to this Section 9.09, all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or co-trustee
jointly, except to the extent that under any law of any jurisdiction in which
any particular act or acts are to be performed (whether as Trustee hereunder
or as successor to the Master Servicer hereunder), the Trustee shall be
incompetent or unqualified to perform such act or acts, in which event such
rights, powers, duties and obligations (including the holding of
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title to the Pool or any portion thereof in any such jurisdiction) shall be
exercised and performed by such separate trustee or co-trustee at the
direction of the Trustee.
Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustee and
co-trustee, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement
and the conditions of this Article IX. Each separate trustee and co-trustee,
upon its acceptance of the trusts conferred, shall be vested with the estates
or property specified in its instrument of appointment, either jointly with
the Trustee or separately, as may be provided therein, subject to all the
provisions of this Agreement, specifically including every provision of this
Agreement relating to the conduct of, affecting the liability of, or
affording protection to, the Trustee. Every such instrument shall be filed
with the Trustee.
Any separate trustee or co-trustee may, at any time, constitute the
Trustee, its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall become incapable of acting, resign or be removed, or shall
be adjudged a bankrupt or insolvent, or a receiver of its property shall be
appointed, or any public officer shall take charge or control of such trustee
or co-trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, all of its estates, properties,
rights, remedies and trusts shall vest in and be exercised by the Trustee, to
the extent permitted by law, without the appointment of a new or successor
trustee.
Section 9.10. TRUSTEE'S FEES AND EXPENSES. The Trustee, as
compensation for its activities hereunder, shall be entitled to receive on
each Distribution Date an amount equal to the Trustee Fee for such
Distribution Date. The Trustee and any director, officer, employee or agent
of the Trustee shall be indemnified by the Master Servicer and held harmless
against any loss, liability or expense (including reasonable attorney's fees)
(a) incurred in connection with any claim or legal action relating to (i)
this Agreement, (ii) the Certificates, or (iii) the performance of any of the
Trustee's duties hereunder, other than any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or negligence in the
performance of any of the Trustee's duties hereunder and (b) resulting from
any error in any tax or information return prepared by the Master Servicer.
Such indemnity shall survive the termination of this Agreement or the
resignation or removal of the Trustee hereunder. Without limiting the
foregoing, the Master Servicer covenants and agrees, except as otherwise
agreed upon in writing by the Depositor and the Trustee, and except for any
such expense, disbursement or advance as may arise from the Trustee's
negligence, bad faith or willful misconduct, to pay or reimburse the Trustee,
for all reasonable expenses, disbursements and advances incurred or made by
the Trustee in accordance with any of the provisions of this Agreement with
respect to (A) the reasonable compensation and the expenses and disbursements
of its counsel not associated with the closing of the issuance of the
Certificates, (B) the reasonable compensation, expenses and disbursements of
any accountant, engineer or appraiser that is not regularly employed by the
Trustee, to the extent that the Trustee must engage such persons to perform
acts or services hereunder, (C) printing and engraving expenses in connection
with preparing any Definitive
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Certificates, and (D) or any other reasonable expenses that the Trustee may
incur in connection with its duties under this Agreement. Except as otherwise
provided herein, the Trustee shall not be entitled to payment or
reimbursement for any routine ongoing expenses incurred by the Trustee in the
ordinary course of its duties as Trustee, Certificate Registrar, Tax Matters
Person or Paying Agent hereunder or for any other expenses.
Section 9.11. TAX RETURNS. The Trustee will prepare any federal, state
and local income tax or information returns of the Pool and shall furnish
such documents to the Trustee and the Trustee shall file or cause to be filed
such returns.
ARTICLE X
TERMINATION
Section 10.01. TERMINATION UPON PURCHASE BY THE MASTER SERVICER OR
LIQUIDATION OF ALL LOANS. Subject to Section 10.02, the respective
obligations and responsibilities of the Sellers, the Depositor, the Master
Servicer and the Trustee created hereby (other than the obligation of Trustee
to make certain payments to Certificateholders after the Final Distribution
Date, the obligations of the Master Servicer to send certain notices as
hereinafter set forth and the obligation of the Trustee pursuant to Section
5.05) shall terminate upon the last action required to be taken by the
Trustee on the Final Distribution Date pursuant to this Article X following
the earlier of (a) the purchase by the Master Servicer of all Mortgage Loans
and all property acquired in respect of any Mortgage Loan remaining in the
Pool at a price equal to the sum of (i) 100% of the Scheduled Principal
Balance of each Mortgage Loan (other than any Mortgage Loan as to which title
to the underlying Mortgaged Property has been acquired and whose fair market
value is included pursuant to clause (ii) below) and (ii) the fair market
value of such acquired property (as determined by the Master Servicer as of
the close of business on the third Business Day next preceding the date upon
which notice of any such termination is furnished to Certificateholders
pursuant to the third paragraph of this Article X), plus any accrued and
unpaid interest at the related Mortgage Interest Rate (net of the related
Master Servicing Fee Rate) on the Scheduled Principal Balance of each
Mortgage Loan (including any Mortgage Loan as to which title to the
underlying Mortgaged Property has been acquired) and the amount of any
unreimbursed Advances which are due and owing to the Master Servicer or (b)
the final payment or other liquidation (or any advance with respect thereto)
of the last Mortgage Loan remaining in the Pool or the disposition of all
property acquired upon foreclosure or deed in lieu of foreclosure of any
Mortgage Loan; provided, however, that in no event shall the trust created
hereby continue beyond the earlier of (i) the expiration of 21 years from the
death of the last survivor of the descendants of Joseph P. Kennedy, the late
ambassador of the United States to the Court of St. James, living on the date
hereof and (ii) the Distribution Date in July 2066.
The right of the Master Servicer to repurchase all Mortgage Loans
pursuant to (a) above is conditioned upon the Pool Scheduled Principal
Balance as of the Final Distribution Date being less than 10% of the Cutoff
Date Pool Principal Balance and the delivery to the Trustee of an
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Opinion of Counsel (at the Master Servicer's expense) to the effect that such
termination will not affect the Pool's status as a REMIC. If such right is
exercised, the Trustee shall, promptly following payment of the purchase
price, release to the purchaser the Files pertaining to the Mortgage Loans
being purchased.
Notice of any termination, specifying the Final Distribution Date (which
shall be a date that would otherwise be a Distribution Date) upon which the
Certificateholders may surrender their Certificates to the Trustee for
payment of the final distribution and for cancellation, shall be given
promptly by the Master Servicer (if exercising its right to purchase the
assets of the Pool) or by the Trustee (in any other case) by letter to
Certificateholders mailed not earlier than the fifteenth day and not later
than the twenty-fifth day of the month next preceding the month of such final
distribution specifying (a) the Final Distribution Date upon which final
payment of the Certificates will be made upon presentation and surrender of
Certificates at the office or agency of the Trustee therein designated, (b)
the amount of any such final payment and (c) that the Record Date otherwise
applicable to such Distribution Date is not applicable, payments being made
only upon presentation and surrender of the Certificates at the office or
agency of the Trustee therein specified. If the Master Servicer is obligated
to give notice to Certificateholders as aforesaid, it shall give such notice
to the Trustee and the Certificate Registrar at the time such notice is given
to Certificateholders. In the event such notice is given by the Master
Servicer, the Master Servicer shall deposit in the Distribution Account on or
before the Final Distribution Date in immediately available funds an amount
equal to the amount necessary to make the amount, if any, on deposit in the
Distribution Account on the Final Distribution Date equal to the purchase
price for the assets of the Pool computed as above provided together with a
statement as to the amount to be distributed on each Class of Certificates
pursuant to the next succeeding paragraph.
Upon presentation and surrender of the Certificates, the Trustee shall
cause to be distributed to Certificateholders of each Class, in the order set
forth in Section 5.02 hereof, on the final Distribution Date and in
proportion to their respective Percentage Interests, with respect to
Certificateholders of the same Class, an amount equal to, (a) as to each
Class of Certificates, the Class Certificate Balance thereof plus accrued
interest thereon in the case of an interest bearing Certificate and (b) as to
the Residual Certificates, the amount, if any, which remains on deposit in
the Distribution Account (other than the amounts retained to meet claims)
after application pursuant to clause (a) above.
In the event that all of the Certificateholders shall not surrender
their Certificates for final payment cancellation on or before the Final
Distribution Date, the Trustee shall on such date cause all funds in the
Distribution Account not distributed in final distribution to
Certificateholders to continue to be held by the Trustee in an Eligible
Account for the benefit of such Certificateholders and the Master Servicer
(if it exercised its right to purchase the assets of the Pool) or the Trustee
(in any other case) shall give a second written notice to the remaining
Certificateholders to surrender their Certificates for cancellation and
receive the final distribution with respect thereto. If within one year
after the second notice all the Certificates shall not have been surrendered
for cancellation, the Trustee may take appropriate steps, or may appoint an
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agent to take appropriate steps, to contact the remaining Certificateholders
concerning surrender of their Certificates, and the cost thereof shall be
paid out of the funds on deposit in such Eligible Account.
Section 10.02. ADDITIONAL TERMINATION REQUIREMENTS.
(a) In the event the Master Servicer exercises its purchase option
as provided in Section 10.01 the Trust Fund shall be terminated in
accordance with the following additional requirements, unless the
Trustee has received an Opinion of Counsel to the effect that the
failure of the Trust Fund to comply with the requirements of this
Section 10.02 will not (1) result in the imposition of taxes on
"prohibited transactions" on any REMIC as defined in Section 860F of the
Code, or (2) cause any REMIC to fail to qualify as a REMIC at any time
that any Certificates are outstanding:
(i) within 90 days prior to the Final Distribution Date set
forth in the notice given by the Master Servicer under Section 10.01,
the holders of 100% of the aggregate Percentage Interests evidenced by
the Residual Certificates shall adopt a plan of complete liquidation
of the Trust Fund; and
(ii) at or after the time of adoption of such a plan of complete
liquidation and at or prior to the Final Distribution Date, the
Trustee shall sell all of the assets of the Trust Fund to the Master
Servicer for cash.
(b) By their acceptance of the Residual Certificates, the Holders
thereof hereby agree to adopt such a plan of complete liquidation upon
the written request of the Master Servicer and to take such other action
in connection therewith as may be reasonably requested by the Master
Servicer.
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.01. AMENDMENT. This Agreement may be amended from time
to time by the Depositor, each Seller, the Master Servicer and the
Trustee, without the consent of any of the Certificateholders, (a) to
cure any ambiguity, (b) to correct or supplement any provisions herein
or therein which may be defective or inconsistent with any other
provisions herein or therein, as the case may be, (c) to modify,
eliminate or add to any of its provisions to such extent as shall be
necessary to maintain the qualification of the Trust Fund as a REMIC or
(d) to add any other provisions with respect to matters or questions
arising under this Agreement which shall not be inconsistent with the
provisions of this Agreement; provided, however, that (i) as evidenced
by an Opinion of Counsel, such action shall not adversely affect in any
material respect the interests of any Certificateholder; provided that
the amendment shall not be deemed to adversely affect in any material
respect the interests of the Certificateholders and no Opinion of
Counsel to that effect shall be required if the Person requesting the
amendment obtains a letter
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from the Rating Agency stating that the amendment would not result in the
downgrading or withdrawal of the respective ratings then assigned to the
Certificates and (ii) as evidenced by an Opinion of Counsel, such action is
necessary or desirable to maintain the qualification of any REMIC as a REMIC
or shall not adversely affect such qualification; provided that if the
opinion called for in clause (i) cannot be delivered with regard to an
amendment pursuant to clause (c) above, such amendment is necessary to
maintain the qualification of any REMIC as a REMIC.
This Agreement may also be amended from time to time by the Depositor,
each Seller, the Master Servicer and the Trustee, with the consent of the
Holders of Certificates of each Class of Certificates which is affected by
such amendment, evidencing, as to each such Class of Certificates, Percentage
Interests aggregating not less than 66-2/3%, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
of this Agreement or of modifying in any manner the rights of the Holders of
such Certificates; provided, however, that no such amendment shall (a) reduce
in any manner the amount of, or delay the timing of, collections of payments
on Loans or distributions which are required to be made on any Certificate
without the consent of the Holder of such Certificate or (b) reduce the
aforesaid percentage required to consent to any such amendment, without the
consent of the Holders of all Certificates then Outstanding.
Prior to the solicitation of consent of Certificateholders in connection
with any such amendment, the party seeking such amendment shall furnish the
Trustee with an Opinion of Counsel, which Opinion of Counsel shall not be an
expense of the Trustee, stating whether such amendment would adversely affect
the qualification of the Trust Fund as a REMIC and notice of the conclusion
expressed in such Opinion of Counsel shall be included with any such
solicitation. An amendment made with the consent of all Certificateholders
and executed in accordance with this Section 11.01 shall be permitted or
authorized by this Agreement notwithstanding that such Opinion of Counsel may
conclude that such amendment would adversely affect the qualification of the
Trust Fund as a REMIC.
Promptly after the execution of any such amendment or consent the
Trustee shall furnish written notification of the substance of or a copy of
such amendment to each Certificateholder and to the Rating Agency.
It shall not be necessary for the consent of Certificateholders under
this Section 11.01 to approve the particular form of any proposed amendment,
but it shall be sufficient if such consent shall approve the substance
thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Certificateholders shall be subject
to such reasonable requirements as the Trustee may prescribe.
Section 11.02. RECORDATION OF AGREEMENT. This Agreement is subject to
recordation in all appropriate public offices for real property records in
all the counties or other comparable jurisdictions in which any or all of the
properties subject to the Mortgages are situated, and in any other
appropriate public recording office or elsewhere, such recordation to be
effected by
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the Master Servicer and at its expense on direction by the Trustee, who will
act at the direction of Holders of Certificates evidencing Percentage
Interests aggregating not less than 50% of all Certificates but only upon
direction of the Trustee accompanied by an Opinion of Counsel, which Opinion
of Counsel shall be an expense of such Holders and not the Trustee, to the
effect that such recordation materially and beneficially affects the
interests of Certificateholders.
For the purpose of facilitating the recordation of this Agreement as
herein provided and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts
shall be deemed to be an original, and such counterparts shall constitute but
one and the same instrument.
Section 11.03. LIMITATION ON RIGHTS OF CERTIFICATEHOLDERS. The death
or incapacity of any Certificateholder shall not operate to terminate this
Agreement or the Pool, nor entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
commence any proceeding in any court for a partition or winding up of the
Pool, nor otherwise affect the rights, obligations and liabilities of the
parties hereto or any of them.
No Certificateholder shall have any right to vote (except as provided
herein) or in any manner otherwise control the operation and management of
the Pool, or the obligations of the parties hereto, nor shall anything herein
set forth, or contained in the terms of the Certificates, be construed so as
to constitute the Certificateholders from time to time as partners or members
of an association; nor shall any Certificateholder be under any liability to
any third person by reason of any action taken by the parties to this
Agreement pursuant to any provision hereof.
No Certificateholder shall have any right by virtue or by availing
itself of any provisions of this Agreement to institute any suit, action or
proceeding in equity or at law upon or under or with respect to this
Agreement, unless such Holder previously shall have given to the Trustee a
written notice of default and of the continuance thereof, as hereinbefore
provided, and unless also the Holders of Certificates evidencing Percentage
Interests aggregating not less than 25% of each Class of Certificates
affected thereby shall have made written request upon the Trustee to
institute such action, suit or proceeding in its own name as Trustee
hereunder and shall have offered to the Trustee such indemnity as it may
require against the costs, expenses and liabilities to be incurred therein or
thereby, and the Trustee, for 60 days after its receipt of such notice,
request and offer of indemnity, shall have neglected or refused to institute
any such action, suit or proceeding; it being understood and intended, and
being expressly covenanted by each Certificateholder with every other
Certificateholder and the Trustee, that no one or more Holders of
Certificates shall have any right in any manner whatever by virtue or by
availing itself or themselves of any provisions of this Agreement to affect,
disturb or prejudice the rights of the Holders of any other of the
Certificates, or to obtain or seek to obtain priority over or preference to
any other such Holder, or to enforce any right under this Agreement, except
in the manner herein provided and for the equal, ratable and common benefit
of all Certificateholders. For the protection and enforcement of the
provisions of this Section 11.03, each and every Certificateholder and the
Trustee shall be entitled to such relief as can be given either at law or in
equity.
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Section 11.04. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of New York and the obligations, rights
and remedies of the parties hereunder shall be determined in accordance with
such laws.
Section 11.05. NOTICES. All demands, notices and communications
required to be delivered hereunder shall be in writing and shall be deemed to
have been duly given if personally delivered at or mailed by certified mail,
return receipt requested, (provided, however, that notices to the Trustee
shall be deemed effective upon receipt) to (a) in the case of the Depositor,
Metropolitan Asset Funding, Inc., Attention: Lynn A. Ciani, (b) in the case
of the Master Servicer, 929 West Sprague Avenue, Spokane, Washington 99204,
Attention: Bruce J. Blohowiak, (c) in the case of any Seller, 929 West
Sprague Avenue, Spokane, Washington 99204, Attention: Bruce J. Blohowiak, (d)
in the case of the Trustee, at the Corporate Trust Office or, as to each
party, at such other address as shall be designated by such party in a
written notice to each other party, [(e) in the case of Moody's, Moody's
Investors Service, Inc., 99 Church Street, New York, New York 10007, Attention:
Residential Pass-Through Monitoring,] [and (f) in the case of Duff & Phelps,
Duff & Phelps Credit Rating Co., 55 East Monroe Street, 35th Floor, Chicago,
Illinois 60603, Attention: MBS Monitoring]. Any notice required or permitted to
be mailed to a Certificateholder shall be given by first-class mail, postage
prepaid, at the address of such Holder as shown in the Certificate Register. Any
notice so mailed within the time prescribed in this Agreement shall be
conclusively presumed to have been duly given, whether or not the
Certificateholder receives such notice.
Section 11.06. SEVERABILITY OF PROVISIONS. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity
or enforceability of the other provisions of this Agreement or of the
Certificates or the rights of the Holders thereof.
Section 11.07. CERTIFICATES NONASSESSABLE AND FULLY PAID. It is the
intention of the Trustee that Certificateholders shall not be personally
liable for obligations of the Pool, that the beneficial ownership interests
represented by the Certificates shall be nonassessable for any losses or
expenses of the Pool or for any reason whatsoever, and that Certificates upon
execution, countersignature and delivery thereof by the Trustee pursuant to
Section 6.01 are and shall be deemed fully paid.
Section 11.08. ACCESS TO LIST OF CERTIFICATEHOLDERS. The Certificate
Registrar will furnish or cause to be furnished to the Trustee, within 15
days after the receipt of a request by the Trustee in writing, a list, in
such form as the Trustee may reasonably require, of the names and addresses
of the Certificateholders as of the most recent Record Date for payment of
distributions to Certificateholders.
If three or more Certificateholders (hereinafter referred to as
"applicants") apply in writing to the Trustee, and such application states
that the applicants desire to communicate with
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other Certificateholders with respect to their rights under this Agreement or
under the Certificates and is accompanied by a copy of the communication
which such applicants propose to transmit, then the Trustee shall, within
five Business Days after the receipt of such application, afford such
applicants access during normal business hours to the most recent list of
Certificateholders held by the Trustee. If such a list is as of a date more
than 90 days prior to the date of receipt of such applicants' request, the
Trustee shall promptly request from the Certificate Registrar a current list
as provided above, and shall afford such applicants access to such list
promptly upon receipt.
Every Certificateholder, by receiving and holding such list, agrees with
the Certificate Registrar and the Trustee that neither the Certificate
Registrar nor the Trustee shall be held accountable by reason of the
disclosure of any such information as to the names and addresses of the
Certificateholders hereunder, regardless of the source from which such
information was derived.
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IN WITNESS WHEREOF, the Depositor, the Master Servicer, the Sellers and the
Trustee have caused this Agreement to be duly executed by their respective
officers thereunto duly authorized to be hereunto affixed, all as of the day and
year first above written.
METROPOLITAN ASSET FUNDING, INC. as Depositor
By
---------------------------------------------
Vice President
METROPOLITAN MORTGAGE & SECURITIES CO., INC.,
as a Seller
By
---------------------------------------------
C. Paul Sandifur, Jr., President and Chief
Executive Officer
SUMMIT SECURITIES, INC., as a Seller
By
---------------------------------------------
Tom Turner, President
WESTERN UNITED LIFE ASSURANCE COMPANY, as a
Seller
By
---------------------------------------------
John Van Engelen, President
OLD STANDARD LIFE INSURANCE COMPANY, as a Seller
By
---------------------------------------------
M. David Gorton, Vice President
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METWEST MORTGAGE SERVICES, INC., as Master
Servicer
By
---------------------------------------------
Bruce J. Blohowiak, Vice President
THE BANK OF NEW YORK, as Trustee
By
---------------------------------------------
Name:
-----------------------------------------
Title:
-----------------------------------------
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STATE OF __________ )
) ss.
COUNTY OF __________ )
On the _______ day of ______________ 1996, before me, a notary public in
and for the State of ________________, personally appeared __________________,
known to me who, being by me duly sworn, did depose and say that he is the
Vice President of Metropolitan Asset Funding, Inc., a _______________________
corporation, one of the parties that executed the foregoing instrument; and
that he signed his name thereto by order of the Board of Directors of such
corporation.
-----------------------------------------------
[SEAL] Notary Public
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STATE OF __________ )
) ss.
COUNTY OF __________ )
On the ___________ day of ________________ 1996, before me, a notary
public in and for the State of ___________________, personally appeared
____________________, known to me who, being by me duly sworn, did depose and
say that he is the Authorized Signatory of ____________________, one of the
parties that executed the foregoing instrument; and that he signed his name
thereto by order of the Board of Directors of said New York banking
corporation.
-----------------------------------------------
[SEAL] Notary Public
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STATE OF __________ )
) ss.
COUNTY OF __________ )
On the ______ day of ___________ 1996, before me, a notary public in and
for the State of __________, personally appeared C. Paul Sandifur, Jr., known
to me who, being by me duly sworn, did depose and say that he is the
President and Chief Executive Officer of Metropolitan Mortgage & Securities
Co., Inc., one of the parties that executed the foregoing instrument; and
that he signed his name thereto by order of the Board of Directors of said
corporation.
-----------------------------------------------
[SEAL] Notary Public
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STATE OF __________ )
) ss.
COUNTY OF __________ )
On the _________ day of _____________ 1996, before me, a notary public
in and for the State of __________, personally appeared Tom Turner, known to
me who, being by me duly sworn, did depose and say that he is the President
of Summit Securities, Inc., one of the parties that executed the foregoing
instrument; and that he signed his name thereto by order of the Board of
Directors of said corporation.
-----------------------------------------------
[SEAL] Notary Public
101
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STATE OF __________ )
) ss.
COUNTY OF __________ )
On the __________ day of ___________ 1996, before me, a notary public in
and for the State of __________, personally appeared John Van Engelen, known
to me who, being by me duly sworn, did depose and say that he is the
President of Western United Life Assurance Company, one of the parties that
executed the foregoing instrument; and that he signed his name thereto by
order of the Board of Directors of said Company.
-----------------------------------------------
[SEAL] Notary Public
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STATE OF __________ )
) ss.
COUNTY OF __________ )
On the __________ day of __________ 1996, before me, a notary public in
and for the State of __________, personally appeared M. David Gorton, known
to me who, being by me duly sworn, did depose and say that he is a Vice
President of Old Standard Life Insurance Company, one of the parties that
executed the foregoing instrument; and that he signed his name thereto by
order of the Board of Directors of said company.
-----------------------------------------------
[SEAL] Notary Public
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STATE OF __________ )
) ss.
COUNTY OF __________ )
On the _______ day of ____________ 1996, before me, a notary public in
and for the State of __________, personally appeared Bruce J. Blohowiak,
known to me who, being by me duly sworn, did depose and say that he is a Vice
President of MetWest Mortgage Services, Inc., one of the parties that
executed the foregoing instrument; and that he signed his name thereto by
order of the Board of Directors of said corporation.
-----------------------------------------------
[SEAL] Notary Public
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EXHIBIT A
[FORM OF FACE OF SENIOR CERTIFICATES]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "REGULAR
INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT," AS THOSE TERMS ARE
DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE").
CERTIFICATE NO.:
CUT-OFF DATE: 1, 1996
-------
FIRST DISTRIBUTION DATE: 20, 1996
---------
INITIAL CLASS CERTIFICATE BALANCE OF THIS
CERTIFICATE ("DENOMINATION"): $
INITIAL CLASS CERTIFICATE BALANCES OF ALL
CERTIFICATES OF THIS CLASS: $
CUSIP:
<PAGE>
METROPOLITAN ASSET FUNDING, INC.
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1996-A
CLASS [ ]
--------
evidencing a percentage interest in the distributions allocable to the
Certificates of the above-referenced Class with respect to a Trust Fund
consisting primarily of a pool of mortgage loans (the "Mortgage Loans")
secured by first liens on, or constituting Land Sale Contracts for the sale
of, (i) one- to four-family residential properties and (ii) multi-family
housing properties or commercial real estate, including office buildings,
shopping centers, retail stores, hotels and motels, nursing homes and other
health-care related facilities, mobile home and recreation vehicle parks,
warehouse facilities, mixed use and other types of income producing
properties deposited by
Metropolitan Asset Funding, Inc., as Depositor
Principal in respect of this Certificate is distributable monthly as set
forth herein. Accordingly, the Class Certificate Balance at any time may be
less than the Class Certificate Balance as set forth herein. This Certificate
does not evidence an obligation of, or an interest in, and is not guaranteed by
the Depositor, the Sellers, the Master Servicer or the Trustee referred to below
or any of their respective affiliates. Neither this Certificate nor the
Mortgage Loans are guaranteed or insured by any governmental agency or
instrumentality.
This certifies that ________________________________ is the registered
owner of the Percentage Interest evidenced by this Certificate (obtained by
dividing the Denomination of this Certificate by the aggregate Initial Class
Certificate Balances of all Certificates of the Class to which this Certificate
belongs) in certain monthly distributions with respect to a Trust Fund
consisting primarily of the Mortgage Loans deposited by Metropolitan Asset
Funding, Inc. (the "Depositor"). The Trust Fund was created pursuant to a
Pooling and Servicing Agreement dated as of _____________ 1, 1996 (the
"Agreement") among the Depositor, Metropolitan Mortgage & Securities Co., Inc.
("Metropolitan"), Old Standard Life Insurance Company ("Old Standard"), Summit
Securities, Inc. ("Summit"), Western United Life Assurance Company ("Western
United" and, together with Metropolitan, Old Standard and Summit, the
"Sellers"), Metwest Mortgage Services, Inc. (the "Master Servicer"), and
[TRUSTEE], as trustee (the "Trustee"). To the extent not defined herein, the
capitalized terms used herein have the meanings assigned in the Agreement. This
Certificate is issued under and is subject to the terms, provisions and
conditions of the Agreement, to which Agreement the Holder of this Certificate
by virtue of the acceptance hereof assents and by which such Holder is bound.
Reference is hereby made to the further provisions of this Certificate set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
A-2
<PAGE>
This Certificate shall not be entitled to any benefit under the Agreement
or be valid for any purpose unless manually countersigned by an authorized
signatory of the Trustee.
A-3
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.
Dated: , 1996
------------
[TRUSTEE], as Trustee
By
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
Countersigned:
By
---------------------------
Authorized Signatory of
[TRUSTEE],
as Trustee
A-4
<PAGE>
EXHIBIT B
[FORM OF FACE OF RESIDUAL CERTIFICATES]
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A
"RESIDUAL INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT," AS THOSE
TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE "CODE").
NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED UNLESS
THE PROPOSED TRANSFEREE DELIVERS TO THE TRUSTEE A TRANSFER AFFIDAVIT IN
ACCORDANCE WITH THE PROVISIONS OF THE AGREEMENT REFERRED TO HEREIN.
[THIS CERTIFICATE REPRESENTS THE "TAX MATTERS PERSON RESIDUAL INTEREST"
ISSUED UNDER THE POOLING AND SERVICING AGREEMENT REFERRED TO BELOW AND MAY NOT
BE TRANSFERRED TO ANY PERSON EXCEPT IN CONNECTION WITH THE ASSUMPTION BY THE
TRANSFEREE OF THE DUTIES OF THE SERVICER UNDER SUCH AGREEMENT.]
NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED UNLESS
THE TRANSFEREE DELIVERS TO THE TRUSTEE EITHER A REPRESENTATION LETTER TO THE
EFFECT THAT SUCH TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO THE
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, OR A PLAN SUBJECT
TO SECTION 4975 OF THE CODE, OR, IF THE PURCHASER IS AN INSURANCE COMPANY, A
REPRESENTATION IN ACCORDANCE WITH THE PROVISIONS OF THE AGREEMENT REFERRED TO
HEREIN OR AN OPINION OF COUNSEL IN ACCORDANCE WITH THE PROVISIONS OF THE
AGREEMENT REFERRED TO HEREIN. NOTWITHSTANDING ANYTHING ELSE TO THE CONTRARY
HEREIN, ANY PURPORTED TRANSFER OF THIS CERTIFICATE TO OR ON BEHALF OF AN
EMPLOYEE BENEFIT PLAN SUBJECT TO ERISA OR TO THE CODE WITHOUT THE OPINION OF
COUNSEL SATISFACTORY TO THE TRUSTEE AS DESCRIBED ABOVE SHALL BE VOID AND OF NO
EFFECT.
B-1
<PAGE>
CERTIFICATE NO.:
CUT-OFF DATE: 1, 1996
-------
INITIAL CLASS CERTIFICATE BALANCE OF THIS $
CERTIFICATE ("DENOMINATION"):
INITIAL CLASS CERTIFICATE BALANCES OF ALL $
CERTIFICATES OF THIS CLASS:
CUSIP:
METROPOLITAN ASSET FUNDING, INC.
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1996-A
evidencing the distributions allocable to the Class R Certificates with
respect to a Trust Fund consisting primarily of a pool of loans (the
"Mortgage Loans") secured by first liens on, or constituting Land Sale
Contracts for the sale of, (i) one- to four-family residential properties
and (ii) multi-family housing properties or commercial real estate,
including office buildings, shopping centers, retail stores, hotels and
motels, nursing homes and other health-care related facilities, mobile home
and recreation vehicle parks, warehouse facilities, mixed use and other
types of income producing properties deposited by
Metropolitan Asset Funding, Inc., as Depositor
Principal in respect of this Certificate is distributable monthly as set
forth herein. Accordingly, the Class Certificate Balance at any time may be
less than the Class Certificate Balance as set forth herein. This Certificate
does not evidence an obligation of, or an interest in, and is not guaranteed by
the Depositor, the Sellers, the Master Servicer or the Trustee referred to below
or any of their respective affiliates. Neither this Certificate nor the
Mortgage Loans are guaranteed or insured by any governmental agency or
instrumentality.
This certifies that _____________________________ is the registered owner
of the Percentage Interest (obtained by dividing the denomination of this
Certificate by the aggregate Initial Class Certificate Balances of the
Denominations of all Certificates of the Class to which this Certificate
belongs) in certain monthly distributions with respect to a Trust Fund
consisting of the Mortgage Loans deposited by Metropolitan Asset Funding, Inc.
(the "Depositor"). The Trust Fund was created pursuant to a Pooling and
Servicing Agreement dated as of _____________ 1, 1996 (the "Agreement") among
the Depositor, Metropolitan Mortgage & Securities Co., Inc. ("Metropolitan"),
Old Standard Life Insurance Company ("Old Standard"), Summit Securities, Inc.
("Summit"), Western United Life Assurance Company ("Western United" and,
together with Metropolitan, Old Standard and Summit, the "Sellers"), Metwest
Mortgage Services, Inc. (the "Master Servicer"), and [TRUSTEE], as trustee (the
"Trustee").
B-2
<PAGE>
To the extent not defined herein, the capitalized terms used herein have the
meanings assigned in the Agreement. This Certificate is issued under and is
subject to the terms, provisions and conditions of the Agreement, to which
Agreement the Holder of this Certificate by virtue of the acceptance hereof
assents and by which such Holder is bound.
Any distribution of the proceeds of any remaining assets of the Trust Fund
will be made only upon presentment and surrender of this Class R Certificate at
the Corporate Trust Office or the office or agency maintained by the Trustee in
New York, New York.
No transfer of a Class R Certificate shall be made unless the Trustee shall
have received (a) an affidavit to the effect that such transferee is a Permitted
Transferee and that it is not acquiring its Ownership Interest in the Class R
Certificate that is the subject of the proposed transfer as a nominee, trustee
or agent for any Person who is not a Permitted Transferee, (b) a covenant of the
proposed transferee to the effect that the proposed transferee agrees to be
bound by and to abide by the transfer restrictions applicable to the Class R
Certificates and (c) either (i) a representation letter from the transferee of
such Certificate, acceptable to and in form and substance satisfactory to the
Trustee and the Master Servicer to the effect that such transferee is not an
employee benefit plan subject to Section 406 of ERISA, nor a person acting on
behalf of any such plan, which representation letter shall not be an expense of
the Trustee or the Master Servicer, (ii) if the purchaser is an insurance
company, a representation that the purchaser is an insurance company which is
purchasing such ERISA-Restricted 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 ERISA-Restricted Certificates are covered under
PTCE 95-60, or (iii) in the case of any ERISA-Restricted Certificate presented
for registration in the name of an employee benefit plan subject to ERISA, and
Section 4975 of the Code (or comparable provisions of any subsequent
enactments), or a trustee of any such plan, an Opinion of Counsel satisfactory
to the Trustee and the Master Servicer to the effect that the purchase or
holding of such ERISA-Restricted Certificate will not result in the assets of
the Trust Fund being deemed to be "plan assets" and subject to the prohibited
transaction provisions of ERISA and the Code and will not subject the Trustee or
the Master Servicer to any obligation in addition to those undertaken in this
Agreement, which opinion of counsel shall not be an expense of the Trustee or
the Master Servicer.
Each Person who has or who acquires any Ownership Interest in a Class R
Certificate shall be deemed by the acceptance or acquisition of such Ownership
Interest to have agreed to be bound by the following provisions and to have
irrevocably appointed the Depositor or its designee as its attorney-in-fact to
negotiate the terms of any mandatory sale under clause (e) below and to execute
all instruments of transfer and to do all other things necessary in connection
with any such sale, and the rights of each Person acquiring any Ownership
Interest in a Class R Certificate are expressly subject to the following
provisions: (a) each Person holding or acquiring any Ownership Interest in a
Class R Certificate shall be a Permitted Transferee and shall promptly notify
the Trustee of any change or impending change in its status as a Permitted
Transferee; (b) no Person shall acquire an Ownership Interest in a Class R
B-3
<PAGE>
Certificate unless such Ownership Interest is a pro rata undivided interest;
(c) no Ownership Interest in a Class R Certificate may be transferred without
the express written consent of the Trustee. In connection with any proposed
transfer of any Ownership Interest in a Class R Certificate, the Trustee
shall as a condition to such consent, require delivery to it, in form and
substance satisfactory to it, of (i) an affidavit to the effect that such
transferee is a Permitted Transferee and that it is not acquiring its
Ownership Interest in the Class R Certificate that is the subject of the
proposed transfer as a nominee, trustee or agent for any Person who is not a
Permitted Transferee, and (ii) a covenant of the proposed transferee to the
effect that the proposed transferee agrees to be bound by and to abide by the
transfer restrictions applicable to the Class R Certificates; (d) any
attempted or purported transfer of any Ownership Interest in a Class R
Certificate in violation of the provisions of such restrictions shall be
absolutely null and void and shall vest no rights in the purported
transferee; (e) if any Person other than a Permitted Transferee acquires any
Ownership Interest in a Class R Certificate in violation of such
restrictions, then the Trustee shall have the right but not the obligation,
without notice to the Holder of such Class R Certificate or any other Person
having an Ownership Interest therein, to notify the Underwriter to arrange
for the sale of such Class R Certificate. The proceeds of such sale, net of
commissions (which may include commissions payable to the Trustee or its
affiliates), expenses and taxes due, if any, will be remitted by the Trustee
to the previous Holder of such Class R Certificate that is a Permitted
Transferee, except that in the event that the Trustee determines that the
Holder of such Class R Certificate may be liable for any amount due under
Section 6.02 of the Agreement or any other provisions of the Agreement, the
Trustee may withhold a corresponding amount from such remittance as security
for such claim. The terms and conditions of any sale under this clause (e)
shall be determined in the sole discretion of the Trustee, and it shall not
be liable to any Person having an Ownership Interest in a Class R Certificate
as a result of its exercise of such discretion; and (f) if any Person other
than a Permitted Transferee acquires any Ownership Interest in a Class R
Certificate in violation of such restrictions, then the Trustee, based on
information provided to the Trustee by the Master Servicer will provide to
the Internal Revenue Service, and to the persons specified in Section
860E(e)(3) and (6) of the Code, information needed to compute the tax imposed
under Section 860E(e)(5) of the Code on transfers of residual interests to
disqualified organizations.
Reference is hereby made to the further provisions of this Certificate set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
This Certificate shall not be entitled to any benefit under the Agreement
or be valid for any purpose unless manually countersigned by an authorized
signatory of the Trustee.
B-4
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.
Dated: , 1996
------------
[TRUSTEE], as Trustee
By
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
Countersigned:
By
---------------------------
Authorized Signatory of
[TRUSTEE],
as Trustee
B-5
<PAGE>
EXHIBIT C
[RESERVED]
C-1
<PAGE>
EXHIBIT D
[FORM OF FACE OF SUBORDINATE CERTIFICATES]
[UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "REGULAR
INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT," AS THOSE TERMS ARE
DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE").
THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO CERTAIN
CERTIFICATES AS DESCRIBED IN THE AGREEMENT REFERRED TO HEREIN.
[THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR THE PURPOSE OF APPLYING
THE U.S. FEDERAL INCOME TAX ORIGINAL ISSUE DISCOUNT ("OID") RULES UNDER THE CODE
TO THIS CERTIFICATE. THE ISSUE DATE OF THIS CERTIFICATE IS _______________,
199_. THE INITIAL PER ANNUM RATE OF INTEREST ON THIS CERTIFICATE IS ____%.
ASSUMING THAT THE MORTGAGE LOANS PREPAY AT AN ASSUMED RATE OF PREPAYMENT OF
____% PER ANNUM (THE "PREPAYMENT ASSUMPTION"), THIS CERTIFICATE HAS BEEN ISSUED
WITH $_______________ OF OID PER $1,000 OF THE ORIGINAL PRINCIPAL AMOUNT OF THIS
CERTIFICATE; THE ANNUAL YIELD TO MATURITY OF THIS CERTIFICATE FOR PURPOSES OF
COMPUTING THE ACCRUAL OF OID IS APPROXIMATELY ____% (COMPOUNDED MONTHLY); THE
AMOUNT OF OID ALLOCABLE TO THE SHORT FIRST ACCRUAL PERIOD IS $_______________
PER $1,000 OF THE ORIGINAL PRINCIPAL AMOUNT OF THIS CERTIFICATE COMPUTED USING
THE MONTHLY YIELD AND DAILY COMPOUNDING DURING THE SHORT ACCRUAL PERIOD. NO
REPRESENTATION IS MADE THAT THE MORTGAGE LOANS WILL PREPAY AT A RATE BASED ON
THE PREPAYMENT ASSUMPTION OR AT ANY OTHER RATE. THE ACTUAL YIELD TO MATURITY
MAY DIFFER FROM THAT SET FORTH ABOVE, AND THE ACCRUAL OF OID WILL BE ADJUSTED,
IN ACCORDANCE WITH SECTION 1272(a)(6) OF THE CODE, TO TAKE INTO ACCOUNT EVENTS
WHICH HAVE
D-1
<PAGE>
OCCURRED DURING ANY ACCRUAL PERIOD. THE PREPAYMENT ASSUMPTION IS INTENDED TO BE
THE PREPAYMENT ASSUMPTION REFERRED TO IN SECTION 1272(a)(6)(B)(iii) OF THE
CODE.]
[THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"). ANY RESALE OR TRANSFER OF THIS CERTIFICATE WITHOUT
REGISTRATION THEREOF UNDER THE ACT MAY ONLY BE MADE IN A TRANSACTION EXEMPTED
FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND IN ACCORDANCE WITH THE
PROVISIONS OF THE AGREEMENT REFERRED TO HEREIN.]
NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED UNLESS
THE TRANSFEREE REPRESENTS TO THE TRUSTEE THAT SUCH TRANSFEREE IS NOT AN EMPLOYEE
BENEFIT PLAN SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS
AMENDED, OR A PLAN SUBJECT TO SECTION 4975 OF THE CODE, OR, IF SUCH TRANSFEROR
IS AN INSURANCE COMPANY, A REPRESENTATION IN ACCORDANCE WITH THE PROVISIONS OF
THE AGREEMENT REFERRED TO HEREIN, OR DELIVERS TO THE TRUSTEE AN OPINION OF
COUNSEL IN ACCORDANCE WITH THE PROVISIONS OF THE AGREEMENT REFERRED TO HEREIN.
[SUCH REPRESENTATION SHALL BE DEEMED TO HAVE BEEN MADE TO THE TRUSTEE BY THE
TRANSFEREE'S ACCEPTANCE OF A CERTIFICATE OF THIS CLASS AND BY A BENEFICIAL
OWNER'S ACCEPTANCE OF ITS INTEREST IN A CERTIFICATE OF THIS CLASS.]
NOTWITHSTANDING ANYTHING ELSE TO THE CONTRARY HEREIN, ANY PURPORTED TRANSFER OF
THIS CERTIFICATE TO OR ON BEHALF OF AN EMPLOYEE BENEFIT PLAN SUBJECT TO ERISA OR
TO THE CODE WITHOUT THE OPINION OF COUNSEL SATISFACTORY TO THE TRUSTEE AS
DESCRIBED ABOVE SHALL BE VOID AND OF NO EFFECT.
D-2
<PAGE>
CERTIFICATE NO.:
CUT-OFF DATE: 1, 1996
--------
FIRST DISTRIBUTION DATE: 20, 1996
---------
INITIAL CLASS CERTIFICATE BALANCE OF THIS
CERTIFICATE ("DENOMINATION"): $
INITIAL CLASS CERTIFICATE BALANCES OF ALL
CERTIFICATES OF THIS CLASS: $
CUSIP:
METROPOLITAN ASSET FUNDING, INC.
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1996-A
CLASS [ ]
---
evidencing a percentage interest in the distributions allocable to the
Certificates of the above-referenced Class with respect to a Trust Fund
consisting primarily of a pool of loans (the "Mortgage Loans") secured by
first liens on, or constituting Land Sale Contracts for the sale of, (i)
one- to four-family residential properties and (ii) multi-family housing
properties or commercial real estate, including office buildings,
shopping centers, retail stores, hotels and motels, nursing homes and
other health-care related facilities, mobile home and recreation vehicle
parks, warehouse facilities, mixed use and other types of income
producing properties deposited by
Metropolitan Asset Funding, Inc., as Depositor
Principal in respect of this Certificate is distributable monthly as set
forth herein. Accordingly, the Class Certificate Balance at any time may be
less than the Class Certificate Balance as set forth herein. This Certificate
does not evidence an obligation of, or an interest in, and is not guaranteed by
the Depositor, the Sellers, the Master Servicer or the Trustee referred to below
or any of their respective affiliates. Neither this Certificate nor the
Mortgage Loans are guaranteed or insured by any governmental agency or
instrumentality.
This certifies that ________________________________ is the registered
owner of the Percentage Interest evidenced by this Certificate (obtained by
dividing the denomination of this Certificate by the aggregate Initial Class
Certificate Balances of the denominations of all Certificates of the Class to
which this Certificate belongs) in certain monthly distributions with respect to
a Trust Fund consisting primarily of the Mortgage Loans deposited by
Metropolitan Asset Funding, Inc. (the "Depositor"). The Trust Fund was created
pursuant to a Pooling and Servicing Agreement dated as of _____________ 1, 1996
(the "Agreement") among the
D-3
<PAGE>
Depositor, Metropolitan Mortgage & Securities Co., Inc. ("Metropolitan"), Old
Standard Life Insurance Company ("Old Standard"), Summit Securities, Inc.
("Summit"), Western United Life Assurance Company ("Western United" and,
together with Metropolitan, Old Standard and Summit, the "Sellers"), Metwest
Mortgage Services, Inc. (the "Master Servicer"), and [TRUSTEE], as trustee (the
"Trustee"). To the extent not defined herein, the capitalized terms used herein
have the meanings assigned in the Agreement. This Certificate is issued under
and is subject to the terms, provisions and conditions of the Agreement, to
which Agreement the Holder of this Certificate by virtue of the acceptance
hereof assents and by which such Holder is bound.
[No transfer of a Certificate of this Class shall be made unless such
transfer is exempt from the registration requirements of the Securities Act of
1933, as amended, and any applicable state securities laws or is made in
accordance with said Act and laws. In the event of any such transfer, (a)
unless such transfer is made in reliance upon Rule 144A under the 1933 Act, the
Trustee or the Depositor may require a written Opinion of Counsel (which may be
in-house counsel) acceptable to and in form and substance reasonably
satisfactory to the Trustee and the Depositor that such transfer may be made
pursuant to an exemption, describing the applicable exemption and the basis
therefor, from said Act and laws or is being made pursuant to said Act and laws,
which Opinion of Counsel shall not be an expense of the Trustee or the Depositor
and (b) the Trustee shall require the transferee to execute an investment letter
acceptable to and in form and substance reasonably satisfactory to the Depositor
and the Trustee certifying to the Depositor and the Trustee the facts
surrounding such transfer, which investment letter shall not be an expense of
the Trustee or the Depositor. The Holder of a Private Certificate desiring to
effect such transfer shall, and does hereby agree to, indemnify the Trustee and
the Depositor against any liability that may result if the transfer is not so
exempt or is not made in accordance with such federal and state laws.]
No transfer of a Certificate of this Class shall be made unless the Trustee
shall have received either (a) a representation letter from the transferee of
such Certificate, acceptable to and in form and substance satisfactory to the
Trustee and the Master Servicer to the effect that such transferee is not an
employee benefit plan subject to Section 406 of ERISA, nor a person acting on
behalf of any such plan, which representation letter shall not be an expense of
the Trustee or the Master Servicer, (b) if the purchaser is an insurance
company, a representation that the purchaser is an insurance company which is
purchasing such ERISA-Restricted 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 ERISA-Restricted Certificates are covered under
PTCE 95-60, or (c) in the case of any ERISA-Restricted Certificate presented for
registration in the name of an employee benefit plan subject to ERISA, and
Section 4975 of the Code (or comparable provisions of any subsequent
enactments), or a trustee of any such plan, an Opinion of Counsel satisfactory
to the Trustee and the Master Servicer to the effect that the purchase or
holding of such ERISA-Restricted Certificate will not result in the assets of
the Trust Fund being deemed to be "plan assets" and subject to the prohibited
transaction provisions of ERISA and the Code and will not subject the Trustee or
the Master Servicer to any obligation in addition
D-4
<PAGE>
to those undertaken in this Agreement, which opinion of counsel shall not be an
expense of the Trustee or the Master Servicer. For purposes of the preceding
sentence, with respect to an ERISA-Restricted Certificate that is not a Private
Certificate or a Residual Certificate, in the event the representation letter
referred to in the preceding sentence is not furnished, such representation
shall be deemed to have been made to the Trustee by the transferee's (including
an initial acquiror's) acceptance of the ERISA-Restricted Certificates.
Reference is hereby made to the further provisions of this Certificate set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
This Certificate shall not be entitled to any benefit under the Agreement
or be valid for any purpose unless manually countersigned by an authorized
signatory of the Trustee.
D-5
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.
Dated: , 1996
------------
[TRUSTEE], as Trustee
By
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
Countersigned:
By
---------------------------
Authorized Signatory of
[TRUSTEE],
as Trustee
D-6
<PAGE>
EXHIBIT E
[FORM OF REVERSE OF ALL CERTIFICATES]
METROPOLITAN ASSET FUNDING, INC.
MORTGAGE PASS-THROUGH CERTIFICATES
This Certificate is one of a duly authorized issue of Certificates
designated as Metropolitan Asset Funding, Inc. Mortgage Pass-Through
Certificates, of the Series specified on the face hereof (herein collectively
called the "Certificates"), and representing a beneficial ownership interest in
the Trust Fund created by the Agreement.
The Certificateholder, by its acceptance of this Certificate, agrees that
it will look solely to the funds on deposit in the Distribution Account for
payment hereunder and that the Trustee is not liable to the Certificateholders
for any amount payable under this Certificate or the Agreement or, except as
expressly provided in the Agreement, subject to any liability under the
Agreement.
This Certificate does not purport to summarize the Agreement and reference
is made to the Agreement for the interests, rights and limitations of rights,
benefits, obligations and duties evidenced thereby, and the rights, duties and
immunities of the Trustee.
Pursuant to the terms of the Agreement, a distribution will be made on the
20th day of each month or, if such 20th day is not a Business Day, the Business
Day immediately following such 20th day (the "Distribution Date"), commencing on
the first Distribution Date specified on the face hereof, to the Person in whose
name this Certificate is registered at the close of business on the applicable
Record Date in an amount equal to the product of the Percentage Interest
evidenced by this Certificate and the amount required to be distributed to
Holders of Certificates of the Class to which this Certificate belongs on such
Distribution Date pursuant to the Agreement. The Record Date applicable to each
Distribution Date is the last Business Day of the month next preceding the month
of such Distribution Date.
Distributions on this Certificate shall be made by wire transfer of
immediately available funds to the account of the Holder hereof at a bank or
other entity having appropriate facilities therefor, if such Certificateholder
shall have so notified the Trustee in writing at least five Business Days prior
to the related Record Date and such Certificateholder shall satisfy the
conditions to receive such form of payment set forth in the Agreement, or, if
not, by check mailed by first class mail to the address of such
Certificateholder appearing in the Certificate Register. The final distribution
on each Certificate will be made in like manner, but only upon presentment and
surrender of such Certificate at the Corporate Trust Office or such other
location specified in the notice to Certificateholders of such final
distribution.
E-1
<PAGE>
The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Trustee and the rights of the Certificateholders under the Agreement at any time
by the Depositor, the Sellers, the Master Servicer and the Trustee with the
consent of the Holders of Certificates affected by such amendment evidencing the
requisite Percentage Interest, as provided in the Agreement. Any such consent
by the Holder of this Certificate shall be conclusive and binding on such Holder
and upon all future Holders of this Certificate and of any Certificate issued
upon the transfer hereof or in exchange therefor or in lieu hereof whether or
not notation of such consent is made upon this Certificate. The Agreement also
permits the amendment thereof, in certain limited circumstances, without the
consent of the Holders of any of the Certificates.
As provided in the Agreement and subject to certain limitations therein set
forth, the transfer of this Certificate is registrable in the Certificate
Register of the Trustee upon surrender of this Certificate for registration of
transfer at the Corporate Trust Office or the office or agency maintained by the
Trustee in New York, New York, accompanied by a written instrument of transfer
in form satisfactory to the Trustee and the Certificate Registrar duly executed
by the holder hereof or such holder's attorney duly authorized in writing, and
thereupon one or more new Certificates of the same Class in authorized
denominations and evidencing the same aggregate Percentage Interest in the Trust
Fund will be issued to the designated transferee or transferees.
The Certificates are issuable only as registered Certificates without
coupons in denominations specified in the Agreement. As provided in the
Agreement and subject to certain limitations therein set forth, Certificates are
exchangeable for new Certificates of the same Class in authorized denominations
and evidencing the same aggregate Percentage Interest, as requested by the
Holder surrendering the same.
No service charge will be made for any such registration of transfer or
exchange, but the Trustee may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
The Depositor, the Master Servicer, the Sellers and the Trustee and any
agent of the Depositor or the Trustee may treat the Person in whose name this
Certificate is registered as the owner hereof for all purposes, and neither the
Depositor, the Trustee, nor any such agent shall be affected by any notice to
the contrary.
On any Distribution Date on which the Pool Stated Principal Balance is less
than 10% of the Cut-off Date Pool Principal Balance, the Master Servicer will
have the option to repurchase, in whole, from the Trust Fund all remaining
Mortgage Loans and all property acquired in respect of the Mortgage Loans at a
purchase price determined as provided in the Agreement. In the event that no
such optional termination occurs, the obligations and responsibilities created
by the Agreement will terminate upon the later of the maturity or other
liquidation (or any advance with respect thereto) of the last Mortgage Loan
remaining in the Trust Fund or the disposition of all property in respect
thereof and the distribution to
E-2
<PAGE>
Certificateholders of all amounts required to be distributed pursuant to the
Agreement. In no event, however, will the trust created by the Agreement
continue beyond (a) the optional purchase described above, (b) the expiration of
21 years from the death of the last survivor of the descendants living at the
date of the Agreement of a certain person named in the Agreement, and (c) the
Distribution Date in [ ].
--------------
Any term used herein that is defined in the Agreement shall have the
meaning assigned in the Agreement, and nothing herein shall be deemed
inconsistent with that meaning.
E-3
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please print or typewrite name and address including postal zip code of
assignee)
the Percentage Interest evidenced by the within Certificate and hereby
authorizes the transfer of registration of such Percentage Interest to assignee
on the Certificate Register of the Trust Fund.
I (We) further direct the Trustee to issue a new Certificate of a like
denomination and Class, to the above named assignee and deliver such Certificate
to the following address:
________________________________________
Dated:
________________________________________
Signature by or on behalf of assignor
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for purposes of distribution:
Distributions shall be made, by wire transfer or otherwise, in immediately
available funds to _____________________________________________________________
_______________________________________________________________________________,
_______________________________________________________________________________,
for the account of ____________________________________________________________,
account number ___________, or, if mailed by check, to _________________________
_________________________. Applicable statements should be mailed to __________
_______________________________________________________________________________,
_______________________________________________________________________________,
This information is provided by ___________________________________________,
the assignee named above, or __________________________________________________,
as its agent.
E-4
<PAGE>
EXHIBIT F
[RESERVED]
F-1
<PAGE>
EXHIBIT G
[RESERVED]
G-1
<PAGE>
EXHIBIT H
REQUEST FOR RELEASE OF DOCUMENTS
To: [TRUSTEE]
-----------------------------------
-----------------------------------
Attn: Mortgage Custody Services
RE: The Pooling & Servicing Agreement dated as of _____________ 1, 1996,
among Metropolitan Asset Funding, Inc., as Depositor, Metropolitan
Mortgage & Securities Co., Inc. as a Seller, Western United Life
Assurance Company, as a Seller, Old Standard Life Insurance Company,
as a Seller, Summit Securities, Inc., as a Seller, Metwest Mortgage
Services, Inc., as Master Servicer, and [TRUSTEE], as Trustee
Ladies and Gentlemen:
In connection with the administration of the Mortgage Loans held by you as
Trustee for Metropolitan Asset Funding, Inc., we request the release of the
Mortgage Loan File for the Mortgage Loan(s) described below, for the reason
indicated.
FT Account#: Pool #:
----------- ----------
MORTGAGOR'S NAME, ADDRESS AND ZIP CODE:
MORTGAGE LOAN NUMBER:
REASON FOR REQUESTING DOCUMENTS (CHECK ONE)
1. Mortgage Loan paid in full (Metwest Mortgage Services, Inc.
- ------- hereby certifies that all amounts have been received.)
2. Mortgage Loan Liquidated (Metwest Mortgage Services, Inc. hereby
- ------- certifies that all proceeds of foreclosure, insurance, or other
liquidation have been finally received.)
3. Mortgage Loan in Foreclosure.
- -------
4. Other (explain):
- ------- -------------------------------------------------
H-1
<PAGE>
If item 1 or 2 above is checked, and if all or part of the Mortgage File was
previously released to us, please release to us our previous receipt on file
with you, as well as an additional documents in your possession relating to the
above-specified Mortgage Loan. If item 3 or 4 is checked, upon return of all of
the above documents to you as Trustee, please acknowledge your receipt by
signing in the space indicated below, and returning this form.
Metwest Mortgage Services, Inc. [ADDRESS]
[ADDRESS]
By
----------------------------
Name:
-------------------------
Title:
------------------------
Date:
-------------------------
TRUSTEE CONSENT TO RELEASE AND
ACKNOWLEDGEMENT OF RECEIPT
By
----------------------------
Name:
-------------------------
Title:
------------------------
Date:
-------------------------
H-2
<PAGE>
EXHIBIT I
FORM OF AFFIDAVIT REGARDING TRANSFER OF
RESIDUAL CERTIFICATES PURSUANT TO SECTION 6.02
METROPOLITAN ASSET FUNDING, INC.
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1996-A
STATE OF ]
] ss.
COUNTY OF ]
The undersigned, being first duly sworn, deposes and says as follows:
1. The undersigned is an officer of __________________________, the
proposed Transferee of an Ownership Interest in a Class R Certificate (the
"Certificate") issued pursuant to the Pooling and Servicing Agreement, (the
"Agreement"), relating to the above-referenced Series, by and among Metropolitan
Asset Funding, Inc., as Depositor (the "Depositor"), Metropolitan Mortgage &
Securities Co., Inc. ("Metropolitan"), Old Standard Life Insurance Company ("Old
Standard"), Summit Securities, Inc. ("Summit"), Western United Life Assurance
Company ("Western United" and, together with Metropolitan, Old Standard and
Summit, the "Sellers"), Metwest Mortgage Services, Inc. (the "Master Servicer"),
and [TRUSTEE], as Trustee. Capitalized terms used, but not defined herein or in
Exhibit 1 hereto, shall have the meanings ascribed to such terms in the
Agreement. The Transferee has authorized the undersigned to make this affidavit
on behalf of the Transferee.
2. The Transferee is, as of the date hereof, and will be, as of the date
of the Transfer, a Permitted Transferee. The Transferee is acquiring its
Ownership Interest in the Certificate either (a) for its own account or (b) as
nominee, trustee or agent for another Person who is a Permitted Transferee and
has attached hereto an affidavit from such Person in substantially the same form
as this affidavit. The Transferee has no knowledge that any such affidavit is
false.
3. The Transferee has been advised of, and understands that (a) a tax
will be imposed on Transfers of the Certificate to Persons that are not
Permitted Transferees; (b) such tax will be imposed on the transferor, or, if
such Transfer is through an agent (which includes a broker, nominee or
middleman) for a Person that is not a Permitted Transferee, on the agent; and
(c) the Person otherwise liable for the tax shall be relieved of liability for
the tax if the subsequent Transferee furnished to such Person an affidavit that
such subsequent Transferee is a Permitted Transferee and, at the time of
Transfer, such Person does not have actual knowledge that the affidavit is
false.
I-1
<PAGE>
4. The Transferee has been advised of, and understands that a tax will be
imposed on a "pass-through entity" holding the Certificate if at any time during
the taxable year of the pass-through entity a Person that is not a Permitted
Transferee is the record holder of an interest in such entity. The Transferee
understands that such tax will not be imposed for any period with respect to
which the record holder furnishes to the pass-through entity an affidavit that
such record holder is a Permitted Transferee and the pass-through entity does
not have actual knowledge that such affidavit is false. (For this purpose, a
"pass-through entity" includes a regulated investment company, a real estate
investment trust or common trust fund, a partnership, trust or estate, and
certain cooperatives and, except as may be provided in Treasury Regulations,
persons holding interests in pass-through entities as a nominee for another
Person.)
5. The Transferee has reviewed the provisions of Section 6.02 of the
Agreement (attached hereto as Exhibit 2 and incorporated herein by reference)
and understands the legal consequences of the acquisition of an Ownership
Interest in the Certificate including, without limitation, the restrictions on
subsequent Transfers and the provisions regarding voiding the Transfer and
mandatory sales. The Transferee expressly agrees to be bound by and to abide by
the provisions of Section 6.02 of the Agreement and the restrictions noted on
the face of the Certificate. The Transferee understands and agrees that any
breach of any of the representations included herein shall render the Transfer
to the Transferee contemplated hereby null and void.
6. The Transferee agrees to require a Transfer Affidavit from any Person
to whom the Transferee attempts to Transfer its Ownership Interest in the
Certificate, and in connection with any Transfer by a Person for whom the
Transferee is acting as nominee, trustee or agent, and the Transferee will not
Transfer its Ownership Interest or cause any Ownership Interest to be
Transferred to any Person that the Transferee knows is not a Permitted
Transferee.
7. The Transferee does not have the intention to impede the assessment or
collection of any tax legally required to be paid with respect to the
Certificate.
8. The Transferee's taxpayer identification number is .
-------------------
9. The Transferee is a U.S. Person as defined in Code Section
7701(a)(30).
10. The Transferee is aware that the Certificate may be a "noneconomic
residual interest" within the meaning of proposed Treasury regulations
promulgated pursuant to the Code and that the transferor of a noneconomic
residual interest will remain liable for any taxes due with respect to the
income on such residual interest, unless no significant purpose of the transfer
was to impede the assessment or collection of tax.
11. The Transferee is not an employee benefit plan that is subject to
ERISA or a plan that is subject to Section 4975 of the Code, and the Transferee
is not acting on behalf of such a plan.
I-2
<PAGE>
IN WITNESS WHEREOF, the Transferee has caused this instrument to be
executed on its behalf, pursuant to authority of its Board of Directors, by its
duly authorized officer and its corporate seal to be hereunto affixed, duly
attested, this day of , 19 .
----- --------------- --
----------------------------------------
Print Name of Transferee
By
----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
[Corporate Seal]
ATTEST:
By
---------------------------
[Assistant] Secretary
Personally appeared before me the above-named ______________________, known
or proved to me to be the same person who executed the foregoing instrument and
to be the _________________________________________ of the Transferee, and
acknowledged that he executed the same as his free act and deed and the free act
and deed of the Transferee.
Subscribed and sworn before me this day of , 19 .
----- --------------- --
---------------------------------------------
Notary Public
My Commission Expires:
- ------------------------------
I-3
<PAGE>
EXHIBIT 1 TO EXHIBIT I
CERTAIN DEFINITIONS FROM ARTICLE I OF THE AGREEMENT
"OWNERSHIP INTEREST" means as to any Certificate, any ownership or security
interest in such Certificate, including any interest in such Certificate as the
Holder thereof and any other interest therein, whether direct or indirect, legal
or beneficial, as owner or as pledgee.
"PERMITTED TRANSFEREE" means any Person other than (a) the United States,
or any State or any political subdivision thereof, or any agency or
instrumentality of any of the foregoing, (b) a foreign government, international
organization or any agency or instrumentality of either of the foregoing, (c) an
organization which is exempt from tax imposed by Chapter 1 of the Code
(including the tax imposed by section 511 of the Code on unrelated business
taxable income) (except certain farmers' cooperatives described in Code section
521), (d) rural electric and telephone cooperatives described in Code section
1381(a)(2)(C), (e) any Non-U.S. Person and (f) any other Person so designated by
the Master Servicer based on an Opinion of Counsel to the effect that any
transfer to such Person may cause the Pool or any other Holder of a Residual
Certificate to incur tax liability that would not be imposed other than on
account of such transfer. The terms "United States," "State" and "international
organization" shall have the meanings set forth in Code section 7701 or
successor provisions.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
I-1-1
<PAGE>
EXHIBIT 2 TO EXHIBIT I
EXCERPT FROM SECTION 6.02 OF THE AGREEMENT
Each Person who has or who acquires any Ownership Interest in a Residual
Certificate shall be deemed by the acceptance or acquisition of such Ownership
Interest to have agreed to be bound by the following provisions and to have
irrevocably appointed the Depositor or its designee as its attorney-in-fact to
negotiate the terms of any mandatory sale under clause (e) below and to execute
all instruments of transfer and to do all other things necessary in connection
with any such sale, and the rights of each Person acquiring any Ownership
Interest in a Residual Certificate are expressly subject to the following
provisions:
(a) Each Person holding or acquiring any Ownership Interest in a
Residual Certificate shall be a Permitted Transferee and shall promptly
notify the Trustee of any change or impending change in its status as a
Permitted Transferee.
(b) No Person shall acquire an Ownership Interest in a Residual
Certificate unless such Ownership Interest is a pro rata undivided
interest.
(c) No Ownership Interest in a Residual Certificate may be
transferred without the express written consent of the Trustee. In
connection with any proposed transfer of any Ownership Interest in a
Residual Certificate, the Trustee shall as a condition to such consent,
require delivery to it, in form and substance satisfactory to it, of each
of the following:
(i) an affidavit in the form of Exhibit I hereto from the
proposed transferee to the effect that such transferee is a Permitted
Transferee and that it is not acquiring its Ownership Interest in the
Residual Certificate that is the subject of the proposed transfer as a
nominee, trustee or agent for any Person who is not a Permitted
Transferee; and
(ii) a covenant of the proposed transferee to the effect that the
proposed transferee agrees to be bound by and to abide by the transfer
restrictions applicable to the Residual Certificates.
(d) Any attempted or purported transfer of any Ownership Interest in
a Residual Certificate in violation of the provisions of this Section 6.02
shall be absolutely null and void and shall vest no rights in the purported
transferee. If any purported transferee shall, in violation of the
provisions of this Section 6.02, become a Holder of a Residual Certificate,
then the prior Holder of such Residual Certificate that is a Permitted
Transferee shall, upon discovery that the registration of transfer of such
Residual Certificate was not in fact permitted by this Section 6.02, be
restored to all rights as Holder thereof retroactive to the date of
registration of transfer of such Residual
I-2-1
<PAGE>
Certificate. The Trustee shall be under no liability to any Person for any
registration of transfer of a Residual Certificate that is in fact not
permitted by this Section 6.02 or for making any distributions due on such
Residual Certificate to the Holder thereof or taking any other action with
respect to such Holder under the provisions of the Agreement so long as the
transfer was not registered upon the express written consent of the
Trustee. The Trustee shall be entitled to recover from any Holder of a
Residual Certificate that was in fact not a Permitted Transferee at the
time such distributions were made all distributions made on such Residual
Certificate. Any such distributions so recovered by the Trustee shall be
distributed and delivered by the Trustee to the prior Holder of such
Residual Certificate that is a Permitted Transferee.
(e) If any Person other than a Permitted Transferee acquires any
Ownership Interest in a Residual Certificate in violation of the
restrictions in this Section 6.02, then the Trustee shall have the right
but not the obligation, without notice to the Holder of such Residual
Certificate or any other Person having an Ownership Interest therein, to
notify the Underwriter to arrange for the sale of such Residual
Certificate. The proceeds of such sale, net of commissions (which may
include commissions payable to the Trustee or its affiliates), expenses and
taxes due, if any, will be remitted by the Trustee to the previous Holder
of such Residual Certificate that is a Permitted Transferee, except that in
the event that the Trustee determines that the Holder of such Residual
Certificate may be liable for any amount due under this Section 6.02 or any
other provisions of this Agreement, the Trustee may withhold a
corresponding amount from such remittance as security for such claim. The
terms and conditions of any sale under this clause (e) shall be determined
in the sole discretion of the Trustee, and it shall not be liable to any
Person having an Ownership Interest in a Residual Certificate as a result
of its exercise of such discretion.
(f) If any Person other than a Permitted Transferee acquires any
Ownership Interest in a Residual Certificate in violation of the
restrictions in this Section 6.02, then the Trustee, based on information
provided to the Trustee by the Master Servicer will provide to the Internal
Revenue Service, and to the persons specified in Section 860E(e)(3) and (6)
of the Code, information needed to compute the tax imposed under Section
860E(e)(5) of the Code on transfers of residual interests to disqualified
organizations.
I-2-2
<PAGE>
EXHIBIT J-1
[FORM OF INVESTMENT LETTER (NON-RULE 144A)]
__________, 199__
Metropolitan Asset Funding, Inc.
929 West Sprague Avenue
Spokane, Washington 99204
Attention:
[TRUSTEE]
_______________________
___________________
Attention: ________________
METROPOLITAN ASSET FUNDING, INC.
MORTGAGE PASS-THROUGH CERTIFICATES,
SERIES 1996-A, CLASS _____
Ladies and Gentlemen:
In connection with our acquisition of the above Certificates we certify
that (a) we understand that the Certificates are not being registered under the
Securities Act of 1933, as amended (the "Act"), or any state securities laws and
are being transferred to us in a transaction that is exempt from the
registration requirements of the Act and any such laws, (b) we are an
"accredited investor," as defined in Regulation D under the Act, and have such
knowledge and experience in financial and business matters that we are capable
of evaluating the merits and risks of investments in the Certificates, (c) we
have had the opportunity to ask questions of and receive answers from the
Depositor concerning the purchase of the Certificates and all matters relating
thereto or any additional information deemed necessary to our decision to
purchase the Certificates, (d) we are not an employee benefit plan that is
subject to the Employee Retirement Income Security Act of 1974, as amended, or a
plan or arrangement that is subject to Section 4975 of the Internal Revenue Code
of 1986, as amended, nor are we acting on behalf of any such plan or arrangement
nor are we using the assets of any such plan or arrangement to effect such
acquisition, (e) we are acquiring the Certificates for investment for our own
account and not with a view to any distribution of such Certificates (but
without prejudice to our right at all times to sell or otherwise dispose of the
Certificates in accordance with clause (g) below), (f) we have not offered or
sold any Certificates to, or solicited offers to buy any Certificates from, any
person, or otherwise approached or negotiated with any person with respect
thereto, or taken any other action which would result in a violation of Section
5 of the Act, and (g) we will not
J-1-1
<PAGE>
sell, transfer or otherwise dispose of any Certificates unless (i) such sale,
transfer or other disposition is made pursuant to an effective registration
statement under the Act or is exempt from such registration requirements, and if
requested, we will at our expense provide an opinion of counsel satisfactory to
the addressees of this Certificate that such sale, transfer or other disposition
may be made pursuant to an exemption from the Act, (ii) the purchaser or
transferee of such Certificate has executed and delivered to you a certificate
to substantially the same effect as this certificate, and (iii) the purchaser or
transferee has otherwise complied with any conditions for transfer set forth in
the Pooling and Servicing Agreement.
Very truly yours,
____________________________________
Print Name of Transferee
By _________________________________
Authorized Officer
J-1-2
<PAGE>
EXHIBIT J-2
FORM OF RULE 144A LETTER
____________, 199__
Metropolitan Asset Funding, Inc.
929 West Sprague Avenue
Spokane, Washington 99204
Attention:
[TRUSTEE]
_______________________
___________________
Attention: ________________
METROPOLITAN ASSET FUNDING, INC.
MORTGAGE PASS-THROUGH CERTIFICATES,
SERIES 1996-A, CLASS
Ladies and Gentlemen:
In connection with our acquisition of the above Certificates we certify
that (a) we understand that the Certificates are not being registered under the
Securities Act of 1933, as amended (the "Act"), or any state securities laws and
are being transferred to us in a transaction that is exempt from the
registration requirements of the Act and any such laws, (b) we have such
knowledge and experience in financial and business matters that we are capable
of evaluating the merits and risks of investments in the Certificates, (c) we
have had the opportunity to ask questions of and receive answers from the
Depositor concerning the purchase of the Certificates and all matters relating
thereto or any additional information deemed necessary to our decision to
purchase the Certificates, (d) we are not an employee benefit plan that is
subject to the Employee Retirement Income Security Act of 1974, as amended, or a
plan or arrangement that is subject to Section 4975 of the Internal Revenue Code
of 1986, as amended, nor are we acting on behalf of any such plan or arrangement
nor using the assets of any such plan or arrangement to effect such acquisition,
(e) we have not, nor has anyone acting on our behalf offered, transferred,
pledged, sold or otherwise disposed of the Certificates, any interest in the
Certificates or any other similar security to, or solicited any offer to buy or
accept a transfer, pledge or other disposition of the Certificates, any interest
in the Certificates or any other similar security from, or otherwise approached
or negotiated with respect to the Certificates, any interest in the Certificates
or any other similar security with, any person in any manner, or made any
general solicitation by means of general advertising or in any other manner, or
taken any other
J-2-1
<PAGE>
action, that would constitute a distribution of the Certificates under the
Securities Act or that would render the disposition of the Certificates a
violation of Section 5 of the Securities Act or require registration pursuant
thereto, nor will act, nor has authorized or will authorize any person to act,
in such manner with respect to the Certificates, (f) we are a "qualified
institutional buyer" as that term is defined in Rule 144A under the Securities
Act and have completed either of the forms of certification to that effect
attached hereto as Annex 1 or Annex 2. We are aware that the sale to us is
being made in reliance on Rule 144A. We are acquiring the Certificates for our
own account or for resale pursuant to Rule 144A and further, understand that
such Certificates may be resold, pledged or transferred only (i) to a person
reasonably believed to be a qualified institutional buyer that purchases for its
own account or for the account of a qualified institutional buyer to whom notice
is given that the resale, pledge or transfer is being made in reliance on Rule
144A, or (ii) pursuant to another exemption from registration under the
Securities Act.
J-2-2
<PAGE>
ANNEX 1 TO EXHIBIT J
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Transferees Other Than Registered Investment Companies]
The undersigned (the "Buyer") hereby certifies as follows to the parties
listed in the Rule 144A Transferee Certificate to which this certification
relates with respect to the Certificates described therein:
1. As indicated below, the undersigned is the President, Chief Financial
Officer, Senior Vice President or other executive officer of the Buyer.
2. In connection with purchases by the Buyer, the Buyer is a "qualified
institutional buyer" as that term is defined in Rule 144A under the Securities
Act of 1933, as amended ("Rule 144A") because (a) the Buyer owned and/or
invested on a discretionary basis $_________________(1) in securities (except
for the excluded securities referred to below) as of the end of the Buyer's most
recent fiscal year (such amount being calculated in accordance with Rule 144A
and (b) the Buyer satisfies the criteria in the category marked below.
CORPORATION, ETC. The Buyer is a corporation (other than a bank, savings
and loan association or similar institution), Massachusetts or similar business
trust, partnership, or charitable organization described in Section 501(c)(3) of
the Internal Revenue Code of 1986, as amended.
BANK. The Buyer (a) is a national bank or banking institution organized
under the laws of any State, territory or the District of Columbia, the business
of which is substantially confined to banking and is supervised by the State or
territorial banking commission or similar official or is a foreign bank or
equivalent institution, and (b) has an audited net worth of at least $25,000,000
as demonstrated in its latest annual financial statements, A COPY OF WHICH IS
ATTACHED HERETO.
SAVINGS AND LOAN. The Buyer (a) is a savings and loan association,
building and loan association, cooperative bank, homestead association or
similar institution, which is supervised and examined by a State or Federal
authority having supervision over any such institutions or is a foreign savings
and loan association or equivalent institution and (b) has an audited net
__________________________
(1) Buyer must own and/or invest on a discretionary basis at least $100,000,000
in securities unless Buyer is a dealer, and, in that case, Buyer must own/or
invest on a discretionary basis at least $10,000,000 in securities.
J-AN1-1
<PAGE>
worth of at least $25,000,000 as demonstrated in its latest annual financial
statements, A COPY OF WHICH IS ATTACHED HERETO.
BROKER-DEALER. The Buyer is a dealer registered pursuant to Section 15 of
the Securities Exchange Act of 1934.
INSURANCE COMPANY. The Buyer is an insurance company whose primary and
predominant business activity is the writing of insurance or the reinsuring of
risks underwritten by insurance companies and which is subject to supervision by
the insurance commissioner or a similar official or agency of a State, territory
or the District of Columbia.
STATE OR LOCAL PLAN. The Buyer is a plan established and maintained by a
State, its political subdivisions, or any agency or instrumentality of the State
or its political subdivisions, for the benefit of its employees.
ERISA PLAN. The Buyer is an employee benefit plan within the meaning of
Title I of the Employee Retirement Income Security Act of 1974.
INVESTMENT ADVISOR. The Buyer is an investment advisor registered under
the Investment Advisors Act of 1940.
SMALL BUSINESS INVESTMENT COMPANY. Buyer is a small business investment
company licensed by the U.S. Small Business Administration under Section 301(c)
or (d) of the Small Business Investment Act of 1958.
BUSINESS DEVELOPMENT COMPANY. Buyer is a business development company as
defined in Section 202(a)(22) of the Investment Advisors Act of 1940.
3. The term "SECURITIES" as used herein DOES NOT INCLUDE (a) securities
of issuers that are affiliated with the Buyer, (b) securities that are part of
an unsold allotment to or subscription by the Buyer, if the Buyer is a dealer,
(c) securities issued or guaranteed by the U.S. or any instrumentality thereof,
(d) bank deposit notes and certificates of deposit, (e) loan participations, (f)
repurchase agreements, (g) securities owned but subject to a repurchase
agreement and (h) currency, interest rate and commodity swaps.
4. For purposes of determining the aggregate amount of securities owned
and/or invested on a discretionary basis by the Buyer, the Buyer used the cost
of such securities to the Buyer and did not include any of the securities
referred to in the preceding paragraph, except (a) where the Buyer reports its
securities holdings in its financial statements on the basis of their market
value, and (b) no current information with respect to the cost of those
securities has been published. If clause (b) in the preceding sentence applies,
the securities may be valued at market. Further, in determining such aggregate
amount, the Buyer may have included securities owned by subsidiaries of the
Buyer, but only if such subsidiaries are consolidated with the Buyer in its
financial statements prepared in accordance with generally accepted accounting
principles
J-AN1-2
<PAGE>
and if the investments of such subsidiaries are managed under the Buyer's
direction. However, such securities were not included if the Buyer is a
majority-owned, consolidated subsidiary of another enterprise and the Buyer is
not itself a reporting company under the Securities Exchange Act of 1934, as
amended.
5. The Buyer acknowledges that it is familiar with Rule 144A and
understands that the seller to it and other parties related to the Certificates
are relying and will continue to rely on the statements made herein because one
or more sales to the Buyer may be in reliance on Rule 144A.
6. Until the date of purchase of the Rule 144A Securities, the Buyer will
notify each of the parties to which this certification is made of any changes in
the information and conclusions herein. Until such notice is given, the Buyer's
purchase of the Certificates will constitute a reaffirmation of this
certification as of the date of such purchase. In addition, if the Buyer is a
bank or savings and loan is provided above, the Buyer agrees that it will
furnish to such parties updated annual financial statements promptly after they
become available.
_________________________________________
Print Name of Buyer
By ______________________________________
Name:____________________________________
Title:___________________________________
Date:____________________________________
J-AN1-3
<PAGE>
ANNEX 2 TO EXHIBIT J
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Transferees That are Registered Investment Companies]
The undersigned (the "Buyer") hereby certifies as follows to the
parties listed in the Rule 144A Transferee Certificate to which this
certification relates with respect to the Certificates described therein:
1. As indicated below, the undersigned is the President, Chief Financial
Officer or Senior Vice President of the Buyer or, if the Buyer is a "qualified
institutional buyer" as that term is defined in Rule 144A under the Securities
Act of 1933, as amended ("Rule 144A") because Buyer is part of a Family of
Investment Companies (as defined below), is such an officer of the Adviser.
2. In connection with purchases by Buyer, the Buyer is a "qualified
institutional buyer" as defined in SEC Rule 144A because (a) the Buyer is an
investment company registered under the Investment Company Act of 1940, as
amended and (b) as marked below, the Buyer alone, or the Buyer's Family of
Investment Companies, owned at least $100,000,000 in securities (other than the
excluded securities referred to below) as of the end of the Buyer's most recent
fiscal year. For purposes of determining the amount of securities owned by the
Buyer or the Buyer's Family of Investment Companies, the cost of such securities
was used, except (i) where the Buyer or the Buyer's Family of Investment
Companies reports its securities holdings in its financial statements on the
basis of their market value, and (ii) no current information with respect to the
cost of those securities has been published. If clause (b) in the preceding
sentence applies, the securities may be valued at market.
The Buyer owned $_______________ in securities (other than the
excluded securities referred to below) as of the end of the Buyer's most
recent fiscal year (such amount being calculated in accordance with Rule
144A).
The Buyer is part of a Family of Investment Companies which owned in
the aggregate $_______________ in securities (other than the excluded
securities referred to below) as of the end of the Buyer's most recent
fiscal year (such amount being calculated in accordance with Rule 144A).
3. The term "FAMILY OF INVESTMENT COMPANIES," as used herein means two or
more registered investment companies (or series thereof) that have the same
investment adviser or investment advisers that are affiliated (by virtue of
being majority owned subsidiaries of the same parent or because one investment
adviser is a majority owned subsidiary of the other).
J-AN2-1
<PAGE>
4. The term "SECURITIES" as used herein does not include (a) securities
of issuers that are affiliated with the Buyer or are part of the Buyer's Family
of Investment Companies, (b) securities issued or guaranteed by the U.S. or any
instrumentality thereof, (c) bank deposit notes and certificates of deposit, (d)
loan participations, (e) repurchase agreements, (f) securities owned but subject
to a repurchase agreement and (g) currency, interest rate and commodity swaps.
5. The Buyer is familiar with Rule 144A and understands that the parties
listed in the Rule 144A Transferee Certificate to which this certification
relates are relying and will continue to rely on the statements made herein
because one or more sales to the Buyer will be in reliance on Rule 144A. In
addition, the Buyer will only purchase for the Buyer's own account.
6. Until the date of purchase of the Certificates, the undersigned will
notify the parties listed in the Rule 144A Transferee Certificate to which this
certification relates of any changes in the information and conclusions herein.
Until such notice is given, the Buyer's purchase of the Certificates will
constitute a reaffirmation of this certification by the undersigned as of the
date of such purchase.
___________________________________
Print Name of Buyer or Adviser
By ________________________________
Name:______________________________
Title:_____________________________
IF AN ADVISER:
___________________________________
Print Name of Buyer
Date:______________________________
J-AN2-2
<PAGE>
EXHIBIT K
MASTER SERVICER'S CERTIFICATE
In addition to the information being provided in electronic format, the
Master Servicer shall provide an Officer's Certificate setting forth:
1. Repurchase Prices;
2. Net Realized Losses;
3. Net Special Hazard Losses;
4. Fraud Losses;
5. Bankruptcy Losses; and
6. Book Value of any real estate acquired.
K-1
<PAGE>
EXHIBIT L
[FORM OF OPINION OF COUNSEL PURSUANT TO SECTION 6.02]
Such counsel is of the opinion that the transfer of the Certificates
from _____ to _____ [under the circumstances to be described in such
opinion] is not a transaction requiring registration of the
Certificates under the Securities Act of 1933, as amended, or under
any applicable state securities laws.
or
The Certificates have been registered under the Securities Act of
1933, as amended, and no action is required to be taken under
applicable state securities laws or that such action has been taken.
L-1
<PAGE>
EXHIBIT M
LOST NOTE AFFIDAVIT
L-2
