<PAGE>
As filed with the Securities and Exchange Commission on October 23, 1996
Registration No. 333-11447
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
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
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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- ------------------------------------------------------------------------------------------------------------------------------------
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(2)
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Previously paid.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
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 pool of loans securing
the Certificates will consist of a pool of fixed rate mortgage loans and fixed
rate contracts for the sale of real estate in which the holder of such contracts
retains title to such property ("Land Sale Contracts" and collectively with the
fixed rate mortgage loans, 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 (including multifamily, retail, motel/hotel and mobile
home park properties) as described more fully herein under "THE MORTGAGE
POOL--General" with principal balances 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, THE UNDERWRITERS
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.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class Price to Public(1) Underwriting Discount Proceeds to Depositor(2)
<S> <C> <C> <C>
Per Class A-1 Certificate
Per Class A-2 Certificate
Per Class A-3 Certificate
Per Class A-4 Certificate
Per Class B-1 Certificate
Per Class B-2 Certificate
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from ____________, 1996.
(2) Before deduction of expenses estimated to be $____________ payable by
the Depositor.
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)
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
Except with respect to certain Mortgage Loans made by the Sellers to
facilitate the sale of their respective real estate that was previously acquired
in foreclosure, the Mortgage Loans were purchased and not originated 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 Class B and Class R Certificates (the
"Subordinate Certificates") to receive distributions with respect to the
Mortgage Loans are subordinated to the rights of the holders of Class A
Certificates (the "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 under "DESCRIPTION OF THE CERTIFICATES."
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 pool of Mortgage Loans (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. It is not expected that the Offered
Certificates will be listed on a national securities exchange.
(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 Northeast Regional Office, Seven World Trade Center, Suite
1300, 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 pursuant to the Pooling Agreement. 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. The Depositor will file with the
Commission such periodic reports as are required under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations of
the Commission thereunder, and will suspend the filing of such reports at its
option if not so required. If reports are required to be filed under the
Exchange Act, the Depositor may seek certain relief from the Commission with
respect to such reports and, if granted, such reports would include monthly
reports providing information otherwise set forth under "DESCRIPTION OF THE
CERTIFICATES--Reports to Certificateholders" and an annual report setting forth,
among other things, an aggregate of such monthly information together with (i) a
report of the Master Servicer concerning a review of its activities under the
Pooling Agreement and whether any default with respect thereto exists and (ii) a
statement from a firm of independent public accountants that such firm has
examined certain documents and records relating to the servicing of the Mortgage
Loans and that such servicing has been conducted in compliance with the Pooling
Agreement except for any significant exceptions that are required to be reported
under the Pooling Agreement.
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
i
<PAGE>
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.
ii
<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 Depositor 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.
iii
<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" BEGINNING ON
PAGE 106.
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.
iv
<PAGE>
CLASS B CERTIFICATES Class B-1, Class B-2, Class B-3 and Class B-4
Certificates.
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 controlled by the
same individual, C. Paul Sandifur, Jr. See "THE
DEPOSITOR" and "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").
v
<PAGE>
CUTOFF DATE _______________ 1, 1996.
CLOSING DATE _______________, 1996.
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
$164,016,830.86 (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 and mixed use
properties with a principal balance 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." Approximately ____% and ____% of the
Mortgage Loans are Single Family Mortgage Loans
and Commercial Mortgage Loans, respectively. 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.
vi
<PAGE>
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
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 such Mortgage Loans will be
Balloon Loans as defined under "THE MORTGAGE
POOL--General."
(B) Approximately 1.5% of the Single Family
Mortgage Loans, 7.1% of the Commercial Mortgage
Loans and 2.9% 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.
The real property constituting security for
repayment of the Single Family Mortgage Loans is
located in 49 states and the real property constituting
security for repayment of the Commercial Mortgage Loans
is located in 42 states. 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,
net of certain amounts as described under "THE POOLING
AND SERVICING AGREEMENT") received from the Master
Servicer on any
vii
<PAGE>
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.
POOLING AND
SERVICING AGREEMENT The Certificates will be issued pursuant to a 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
viii
<PAGE>
(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 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
(INCLUDING PREPAYMENTS) On each Distribution Date, to the extent Available
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.
ix
<PAGE>
CREDIT
ENHANCEMENT GENERAL Credit enhancement for the Senior Certificates 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.
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.
x
<PAGE>
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
----------------
*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
AND OTHER EXPENSES As compensation for its services, the Master 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
xi
<PAGE>
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 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
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 sell
any such
xii
<PAGE>
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.
RISK FACTORS Prospective investors in the Offered Certificates
should review and consider various risk factors in
connection therewith described under "RISK FACTORS"
beginning on page 1.
NO EXCHANGE LISTING It is not expected that the Offered Certificates will
be listed on a national securities exchange or that the
Offered Certificates will be quoted on an automated
quotation system of a registered securities
association.
CERTAIN FEDERAL
INCOME TAX CONSEQUENCES An election will be made to treat the Mortgage 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
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 material federal income tax consequences
of investing in the Certificates, which are covered by
an opinion of counsel, see "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES" herein. Prospective investors should
consult their individual tax advisors for individual
tax advice regarding the federal, state, local and
other tax consequences to them of the purchase,
ownership and disposition of the Offered Certificates.
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
xiii
<PAGE>
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 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
xiv
<PAGE>
Ratings on the Offered Certificates address the
likelihood of receipt by such Certificateholders of
payments required under the Pooling Agreement, and are
not a recommendation to buy, sell or hold securities.
See "CERTIFICATE RATINGS" herein.
xv
<PAGE>
RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Offered Certificates.
INCONSISTENT DOCUMENTATION,
UNAVAILABILITY OF CERTAIN INFORMATION
Approximately 54% of the Mortgage Loans were originated by the individual
sellers of the related Mortgaged Property who generally are inexperienced in
matters pertaining to mortgage banking. Subsequently, such Mortgage Loans were
acquired by the Sellers from such individual sellers or from intermediary
independent dealers in such Mortgage Loans. 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
or other institutional lender. However, prior to any acquisition of a Mortgage
Loan by a Seller, each Mortgage Loan was subjected to the Seller's acquisition
underwriting criteria described herein under "THE MORTGAGE POOL--Acquisition
Underwriting Standards."
REDUCED UNDERWRITING STANDARDS
Because the Sellers do not originate mortgage loans, except to facilitate
the sale of real estate owned, but rather acquire mortgage loans some time
after origination, the Sellers have less stringent underwriting standards
compared to those of the Federal National Mortgage Association ("FNMA" or
"Fannie Mae") or the Federal Home Loan Mortgage Corporation ("FHLMC" or
"Freddie Mac") with respect to the Single Family Mortgage Loans and those of
institutional lenders with respect to the Commercial Mortgage Loans. For
example, the Sellers do not obtain borrower applications, verify income or
employment or, with respect to Commercial Mortgage Loans, obtain information
regarding the borrower's business experience. Thus, the Sellers are not able
to calculate debt ratios as would be employed in underwriting a mortgage loan
at origination consistent with the guidelines imposed by FNMA, FHLMC or
institutional lenders. Furthermore, many of the mortgage loans acquired by
the Sellers do not contain the documentation which would be typical in a
mortgage loan originated in accordance with those guidelines. Such
documentation includes mortgage loan applications, verifications of
employment and income, and verifications of deposit. The Sellers do obtain
and review the credit history of a borrower for each mortgage loan acquired.
As a result, the Depositor does not possess certain information concerning
the Mortgage Loans that may be of interest to a potential investor in the
Offered Certificates. See "THE MORTGAGE POOL--Certain Information Regarding
Commercial Mortgage Loans" and "--Acquisition Underwriting Standards" herein.
<PAGE>
APPRAISAL RISKS
NON-CURRENT APPRAISALS. In connection with the acquisition of the
Mortgage Loans by the Sellers, the related Seller calculated such Seller's
investment in the loan to the appraised value of the underlying property.
The Sellers, in connection with their reunderwriting of a Mortgage Loan, also
calculate the Loan-to-Value Ratio of the Mortgage Loan at acquisition for
underwriting purposes to determine the borrower's equity in the related
Mortgaged Property. See "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.
DRIVE BY APPRAISALS. Prior to acquisition of a Mortgage Loan by a Seller,
such Seller generally obtains a drive by appraisal of that property. A drive by
appraisal is identical in all respects to a full real estate appraisal except
that the appraiser does not have access to the interior of the property or in
some cases the rear of the property. As a result, the appraisal may reflect
assumptions made by the appraiser regarding the interior or the rear of the
property which may not be accurate.
DELINQUENCY HISTORY OF MORTGAGE LOANS
GENERAL. 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.
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
2
<PAGE>
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 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. 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.
The delinquency performance of the Mortgage Loans may be affected by
various factors including the creditworthiness of the borrower at
origination, the lack of late payment penalties and the lack of escrow
accounts for taxes and insurance. In this regard, approximately ____% of the
Mortgage Loans do not have escrow accounts for the payment of taxes and
insurance. This may increase the delinquency rate as borrowers may fail to
pay their taxes or insurance when they become due resulting in a default
under the terms of the related loan documents. The lack of late payment
penalties is discussed in the following risk factor.
For a description of the foreclosure and delinquency experience of the
loans serviced by the Master Servicer on behalf of the Sellers, see "SERVICING
OF THE MORTGAGE LOANS--Foreclosure and Delinquency Experience of MetWest's
Servicing Portfolio." The Master Servicer services approximately ____% of the
Sellers' total mortgage loan portfolio. Past foreclosure and delinquency
experience may not necessarily reflect the foreclosure and delinquency
experience of the Mortgage Pool, and the actual loss and delinquency experience
on the Mortgage Loans will depend, among other things, upon the value of related
Mortgaged Properties and the ability of the borrowers to make required payments.
LACK OF LATE PAYMENT PENALTIES. Delinquency performance may be affected
by, among other things, the lack of and type of late payment penalty provisions
included in the Mortgage Loans. For example, approximately 73.9% of the Single
Family Mortgage Loans, 66.9% of the Commercial Mortgage Loans and 72.2% of the
Mortgage Loans (in each case, by Cutoff Date Pool Principal Balance) contain
some type of late payment penalty. However, 0.6% of the Single Family Mortgage
Loans, 1.4% of the Commercial Mortgage Loans and 0.8% of the
3
<PAGE>
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.
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 generally do not receive operating
statements in acquiring such Mortgage Loans, and in those instances where such
statements are obtained, only operating statements from the prior owner of the
project are obtained and not those of the current owner. 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. In addition, most Commercial Mortgage Loans are not
secured by an assignment of leases and rents with respect to the tenants of such
properties. Net operating income from a real estate project is subject to
volatility and may be 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 plant 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 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.
Approximately 1.7% of the Mortgage Loans and 0.4% of the Commercial Mortgage
Loans (in each case, by Cutoff Date Pool Principal Balances) are secured by
nursing homes. Mortgages on mortgaged properties that 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. Hotel and motel properties are often operated
pursuant to franchise, management or operating agreements which may be
terminable by the franchisor or operator. However, no Mortgage Loan is 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. Approximately 1.1% of the Mortgage Loans and
4.5% of the Commercial Mortgage Loans (in each case, by Cutoff Date Pool
Principal Balance) are secured
4
<PAGE>
by property operated as restaurants, healthcare facilities or taverns. In
addition, Mortgage Properties which are multifamily residential properties may
be subject to rent control laws, which could impact on the future cash flows of
such properties.
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. Approximately ___% of the
Commercial Mortgage Loans and ___% of the Mortgage Loans are owner occupied or
occupied by a single tenant. 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.
REO LOANS
From time to time each of the Sellers originates loans to facilitate the
sale of real estate acquired in foreclosure or a similar method ("loans to
facilitate"). These loans typically have higher loan-to-value ratios than loans
acquired by the Sellers. Approximately ____%, ___% and ___% of the Single
Family Mortgage Loans, Commercial Mortgage Loans and the Mortgage Loans,
respectively, consist of loans to facilitate the sale of real estate owned. The
average Loan-to-Value Ratios at origination for Single Family Mortgage Loans,
Commercial Mortgage Loans and Mortgage Loans which are loans to facilitate was
[86.79%], [80.15%] and [86.11%], respectively, while the average Loan-to-Value
Ratios at origination for the Single Family Loans, Commercial Mortgage Loans and
Mortgage Loans other than loans to facilitate was [80.11%], [67.11%] and
[78.07%], respectively. Inside appraisals are typically conducted in connection
with the origination of a loan to facilitate while drive-by appraisals are
obtained in connection with the acquisition of mortgage loans. Approximately
7.3% of the Mortgage Loans are loans which facilitated the sale of real estate
acquired in foreclosure ("REO").
ENVIRONMENTAL RISKS
5
<PAGE>
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 unlikely that any
environmental assessments were conducted with respect to any of the Mortgaged
Properties.
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, at its expense (subject to recoupment from any liquidation proceeds
with respect to such Mortgage Loan), or (ii) will not obtain an environmental
assessment and allow the related Mortgaged Property to be foreclosed upon. If
the Master Servicer chose to obtain an environmental assessment with respect to
any Mortgaged Property prior to acquisition or assuming its operation,
enforcement of the security for the related Mortgage Note would be effectively
precluded 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. However, there can be no
assurance that, if an environmental assessment is obtained, such assessment will
in fact insulate the Trust Fund from liability for Environmental Conditions (as
defined under "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS--Environmental
Risks").
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.
INSURANCE RISKS
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 FNMA. In addition, certain institutional
lenders require flood insurance, if applicable, as part of their loan
underwriting process. 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, and may not be, so maintained whether or
not the related Mortgaged Properties are located in areas identified by FEMA
as having special flood hazards.
Approximately ___% of the Mortgage Loans (by Cutoff Date Pool Principal
Balance) do not have title insurance policies in an amount at least equal to
their Cutoff Date Principal Balance. However, in almost all cases title
insurance in an amount of the respective Seller's investment in the Mortgage
Loans is obtained, but in no case in an amount of less than $10,000, and, in the
case of Land Sale Contracts, a title policy is obtained in the amount of the
6
<PAGE>
outstanding balance of such Mortgage Loan. In the event of a title defect
relating to a Mortgaged Property regarding a Mortgage Loan not fully protected
by title insurance, a loss could occur and be charged to the Trust Fund. "See
"THE MORTGAGE POOL--Acquisition Underwriting Standards."
MORTGAGE LOAN ENFORCEMENT RISKS
The enforcement of Mortgage Loans, whether secured by mortgages, deeds of
trust, ground leases or land sale contracts, are generally subject to equitable
principles under foreclosure or other proceedings. These equitable principles
are generally designed to relieve the obligor from the legal effect of his or
her default under loan documents or land sale contracts. In other situations,
statutes limit the right of a mortgagee to obtain a deficiency judgment against
the mortgagor following foreclosure of sale under a deed of trust. The
application of such principles or statutes with respect to any Mortgage Loan may
result in a loss to the Trust Fund or a delay in the receipt of funds to which
it is otherwise entitled. See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE
LOANS--Land Sale Contracts," "--Foreclosure" and "--Anti-Deficiency Legislation
and Other Limitations."
YIELD AND PREPAYMENT CONSIDERATIONS AND UNCERTAINTIES
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.
2.85% 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 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.
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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 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
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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 OF CERTIFICATES
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, the Underwriters 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. See "THE POOLING AND SERVICING AGREEMENT--Representations and
Warranties." 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. Moreover, the Pooling
Agreement limits the amount of liability of certain persons with respect to the
Mortgage Pool and provides for certain indemnification to certain persons for
losses, liability or expenses in connection with legal action involving the
Mortgage Pool or the Certificates. Any loss or expense resulting to the
Mortgage Pool as a result of such limitations or indemnification shall be an
expense of the Trust Fund.
LIMITED 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. It is not expected that the Offered Certificates will
be listed on a national securities exchange or that the Offered Certificates
will be quoted on an automated quotation system of a registered securities
association.
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BALLOON LOAN RISKS
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." With respect to each Balloon Loan, a borrower
generally will be required to pay the entire remaining principal amount of the
Mortgage Loan at its 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.
LEASEHOLD RISKS
Approximately ___% 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 under
"CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS--Leasehold Risks." Absent certain
of these protections, a leasehold mortgagee may lose the collateral securing its
mortgage loan.
GEOGRAPHIC MORTGAGE LOAN CONCENTRATION
Approximately 12.65% of the Single Family Mortgage Loans, 12.94% of the
Commercial Mortgage Loans and 12.72% 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
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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.
NON-SMMEA CERTIFICATES
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. Therefore, certain entities may be unable legally to invest
in the Offered Certificates because of applicable investment guidelines, policy
statement or other restrictions.
BOOK-ENTRY SYSTEM; NO PHYSICAL CERTIFICATES
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.
CERTIFICATE RATING LIMITATIONS
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. See "CERTIFICATE RATINGS."
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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, 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.
REPRESENTATIONS AND WARRANTIES
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.
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SELLER ACQUISITION OF MORTGAGE LOANS
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 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 REO. Approximately
7.3% of the Mortgage Loans are loans which facilitated the sale of REO. Of the
remaining Mortgage Loans, all of which were purchased by a Seller, approximately
53.9% of the Mortgage Loans were originated by individuals in connection with
the sale of their property and approximately 38.8% were originated by a
financial institution and resold in the secondary market.
MORTGAGE LOAN DATA
Because approximately 53.9% 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 approximately 2.9% of
the Mortgage Loans contain prepayment penalties. Provisions regarding defaults
for reasons other than non-payment vary. Approximately 72.2% 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 of
Mortgage Loans." In addition, approximately 1.4% 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 31.0% 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--Inconsistent Documentation;
Unavailability of Certain Information" and "--Reduced Underwriting Standards"
herein.
The Mortgage Pool will consist of a total of approximately 3,089 fixed rate
Mortgage Loans with an aggregate Scheduled Principal Balance as of the Cutoff
Date expected to be approximately $164,016,830.87 (the "Cutoff Date Pool
Principal Balance"), of which approximately $125,150,688.16 will relate to
Single Family Mortgage Loans and approximately $38,866,142.71 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
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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 $47,531.59, $85,232.76 and $53,097.06, respectively.
Each of the Mortgage Loans is evidenced by a promissory note secured by a
deed of trust, security deed or mortgage 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"). See "CERTAIN
LEGAL ASPECTS OF THE MORTGAGE LOANS--Mortgages" and "--Land Sale Contracts" for
a more complete description of Mortgages and Land Sale Contracts.
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 ___%, ___% and ___% of the Single Family Mortgage
Loans, Commercial Mortgage Loans and Mortgage Loans, respectively, 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"). One to
four-family residential real estate securing Single Family Mortgage Loans
consists of detached homes, attached homes (single family units having a common
wall), manufactured homes and units located in condominiums. Attached homes
consist of duplexes, triplexes and fourplexes and townhouses. The Commercial
Properties are more fully described herein under "--Certain Information
Regarding Commercial Mortgage Loans." Approximately 76.30% of the Mortgage
Loans are secured by Single Family Properties and 23.70% of the Mortgage Loans
are secured by Commercial Properties.
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Approximately 3.5% of the Single Family Mortgage Loans, none of the
Commercial Mortgage Loans and 2.7% 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 13.7% of the Single Family Mortgage Loans, 0.1% of the
Commercial Mortgage Loans and 10.5% of the Mortgage Loans are secured by
condominium units.
Approximately 1.5% 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
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 earliest
Calculated Maturity Date of any Single Family Mortgage Loan is _____. The
latest Calculated Maturity Date and the earliest Calculated Maturity Date of any
Commercial Mortgage Loan is ___________, ___________ and _____________,
____________ respectively.
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Approximately ___% of the Single Family Mortgage Loans, ___% of the
Commercial Mortgage Loans and ___% of the Mortgage Loans are Balloon Loans. The
Calculated Maturity Date for a Balloon Loan is the maturity date stated on the
related Mortgage Note. 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 _____%
of the of the Single Family Mortgage Loans, _____% of the Commercial Mortgage
Loans and _____% of the Mortgage Loans have 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
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acquisition, modification or servicing of such Mortgage Loan. For less than
1.3% of the Single Family Mortgage Loans, 0.5% of the Commercial Mortgage Loans
and 1.1% of the Mortgage Loans, no appraisal was obtained at acquisition or
thereafter and the Loan-to-Value Ratio was based upon the sales prices for the
related Mortgaged Property or upon an inspection of the related Mortgaged
Property conducted by an independent real estate inspection company at the
expense of the related Seller. 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. Approximately ___% of the
Mortgage Loans is insured by a 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 of
Mortgage Loans" herein.
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 and may
not be maintained with respect to the related Mortgaged Properties. See "RISK
FACTORS--Insurance Risks." For a description of the hazard
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<PAGE>
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 ___%, ___% and 95.2% of the Single
Family Mortgage Loans, Commercial Mortgage Loans and Mortgage Loans,
respectively, 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
GENERAL. 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.
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
18
<PAGE>
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
conduct only a drive-by appraisal of the Mortgaged Properties in connection with
the acquisition of Commercial Mortgage Loans which may be less comprehensive
than any method discussed above, and any such appraisal may not currently
reflect the actual value of the related Mortgaged Property. See "RISK
FACTORS--Appraisal Risks."
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.
BORROWER AND COMMERCIAL PROPERTY TYPES. The Commercial Mortgage Loans
relate to income-producing properties constituting, among others, retail
properties, multifamily properties, motel/hotel properties, mobile home parks
and industrial and mixed use properties. In addition, to a limited extent such
income-producing properties also relate to professional buildings and churches.
See "--Tabular Data--Property Type (Commercial Mortgage Loans)." In most
19
<PAGE>
cases, the Commercial Mortgage Loans are each secured by the underlying
Mortgaged Property and not by an assignment of leases or other income associated
with such Mortgaged Property. Approximately 86.6% of Commercial Mortgage Loan
borrowers are individuals and 13.4% are corporations, partnerships or other
organizations.
Approximately ___% of the Mortgage Loans are secured by retail properties,
such as ____________ which are located in _____ states. The retail properties
are situated on real estate ranging in size from approximately __________ to
__________.
Approximately ___% of the Mortgage Loans are secured by multifamily
properties ranging in size from _____ to _____ units located in _____ states.
The multifamily properties are situated on real estate ranging in size from
__________ to __________.
Approximately ___% of the Mortgage Loans are secured by motel or hotel
properties which are not franchised and which are located in _____ states.
The motel or hotel properties are situated on real estate ranging in size from
__________ to __________.
Approximately ___% of the Mortgage Loans are secured by mobile home parks
located in _____ states. Such loans have been made to the owners of mobile home
parks and are secured by the property constituting such parks and not by any
leases to tenants of mobile homes on such parks. The mobile home parks range in
size from five to 80 site pads on from approximately 1/2 to 26 acres.
Approximately ___% of the Mortgage Loans are secured by industrial
properties. Such properties are located in _____ states and are designated for
multi-tenant space that is suitable for a range of light industrial and related
office uses, including light manufacturing, warehouse and distribution centers.
Approximately ___% of the Mortgage Loans are secured by mixed use
properties located in _____ states. Such properties consist of facilities for
use by a combination of multifamily, single family, mobile home and commercial
operations, ranging in size from approximately 7,100 sq. ft. to 2.5 acres.
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.
20
<PAGE>
SOURCE OF MORTGAGE LOANS BY SELLER
<TABLE>
<CAPTION>
Cutoff Date Percent of Cutoff
Number of Pool Principal Date Pool
Mortgage Loans Balance Principal Balance
-------------- --------- -----------------
<S> <C> <C> <C>
Metropolitan $ %
Summit
Western
Old Standard
----------- -------------
Total $ %
----------- -------------
----------- -------------
</TABLE>
TYPE OF MORTGAGE LOANS
<TABLE>
<CAPTION>
Cutoff Date Percent of Cutoff
Number of Pool Principal Date Pool
Mortgage Loans Balance Principal Balance
-------------- ------- -----------------
<S> <C> <C> <C>
Single Family 2,633 $125,150,688.16 76.30%
Commercial 456 38,866,142.70 23.70
----- -------------- ------
Total 3,089 $164,016,830.86 100.00%
----- -------------- ------
----- -------------- ------
</TABLE>
21
<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>
$ 0-25,000 707 $ 12,808,821.78 10.23%
25,001-50,000 1,110 40,079,581.47 32.03
50,001-75,000 417 25,127,709.45 20.08
75,001-100,000 175 14,975,417.38 11.97
100,001-125,000 99 10,994,222.82 8.78
125,001-150,000 57 7,703,471.89 6.16
150,001-175,000 29 4,668,735.53 3.73
175,001-200,000 19 3,498,976.68 2.80
Greater than 200,000 20 5,293,751.16 4.23
----- -------------- ------
Total 2,633 $125,150,688.16 100.00%
----- -------------- ------
----- -------------- ------
</TABLE>
The average Scheduled Principal Balance for the Single Family Mortgage
Loans as of the Cutoff Date was $47,531.59.
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
----- ------------- -------
Total 456 $38,866,142.71 100.00%
----- ------------- -------
----- ------------- -------
</TABLE>
The average Scheduled Principal Balance for the Commercial Mortgage Loans
as of the Cutoff Date was $85,232.76 and the average Scheduled Principal Balance
for the Mortgage Loans as of the Cutoff Date was $53,097.06.
22
<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>
0-2.500% 12 $403,255.46 0.32%
2.501-3.000 1 36,076.22 0.03
3.001-3.500 0 0.00 0.00
3.501-4.000 2 64,313.85 0.05
4.001-4.500 1 33,891.12 0.03
4.501-5.000 6 254,885.02 0.20
5.001-5.500 2 91,571.26 0.07
5.501-6.000 11 671,976.58 0.54
6.001-6.500 10 958,811.14 0.77
6.501-7.000 65 3,162,111.34 2.53
7.001-7.500 61 3,682,154.04 2.94
7.501-8.000 317 15,286,655.32 12.21
8.001-8.500 176 8,974,007.08 7.17
8.501-9.000 375 17,511,748.28 13.99
9.001-9.500 290 15,329,406.31 12.25
9.501-10.000 646 28,332,748.17 22.64
10.001-10.500 173 10,280,326.71 8.21
10.501-11.000 199 8,809,143.42 7.04
11.001-11.500 76 3,250,890.87 2.60
11.501-12.000 118 5,111,355.46 4.08
12.001-12.500 22 719,479.02 0.57
12.501-13.000 29 927,107.81 0.74
13.001-13.500 7 330,393.42 0.26
13.501-14.000 17 541,197 .54 0.43
14.001-14.500 6 179,728.78 0.14
14.501-15.000 5 99,905.61 0.08
15.001-15.500 0 0.00 0.00
15.501-16.000 0 0.00 0.00
greater than 16.000 6 107,548.33 0.09
--- ------------ -----
Total 2,633 $125,150,688.16 100.00%
----- -------------- ------
----- -------------- ------
</TABLE>
The weighted average Mortgage Rate for Single Family Mortgage Loans as of
the Cutoff Date was 9.45%.
23
<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 0.56
6.001-6.500 2 97,347.56 0.25
6.501-7.000 6 471,573.69 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 63 4,793,835.23 12.33
9.001-9.500 43 4,256,339.25 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 2,509,564.51 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 9.75%.
The weighted average Mortgage Rate for all Mortgage Loans as of the Cutoff
Date was 9.52%.
24
<PAGE>
NUMBER OF MONTHS SINCE ORIGINATION(1)
(SINGLE FAMILY MORTGAGE LOANS)
<TABLE>
<CAPTION>
Range of Months
Since Origination Count Current Balance Percent of Balance
------------------ ----- --------------- ------------------
<S> <C> <C> <C>
1-24 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 1,903,375.06 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 1,238,563.71 0.99
265-276 32 1,762,094.15 1.41
277-288 26 945,633.73 0.76
289-300 64 2,960,844.69 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 11.90
361-372 416 26,614,192.25 21.27
373-384 25 1,474,071.69 1.18
385-396 10 606,512.60 0.48
397-408 7 799,965 .61 0.64
409-420 9 413,103.67 0.33
421-432 8 680,638.32 0.54
433-444 6 411,246.82 0.33
445-456 6 700,145.94 0.56
457-468 3 93,606.58 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%
------ -------------- -------
------ -------------- -------
</TABLE>
- ------------
(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 69.801 months.
25
<PAGE>
NUMBER OF MONTHS SINCE ORIGINATION(1)
(COMMERCIAL MORTGAGE LOANS)
<TABLE>
<CAPTION>
Range of Months
Since Origination Count Current Balance Percent of Balance
----------------- ----- --------------- ------------------
<S> <C> <C> <C>
1-24 0 $ 0.00 0.00%
25-36 1 15,812.15 0.04
37-48 2 327,410.28 0.84
49-60 6 310,532.32 0.80
61-72 23 1,926,855.59 4.96
73-84 10 460,826.13 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 4,695,402.78 12.08
193-204 12 1,383,168.75 3.56
205-216 6 387,046.46 1.00
217-228 13 863,565.50 2.22
229-240 16 1,170,621.22 3.01
241-252 42 3,360,527.47 8.65
253-264 6 371,300.10 0.96
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 456 $38,866,142.71 100.00%
---- -------------- ------
</TABLE>
- --------------
(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 79.482 months.
The weighted average months since origination for all Mortgage
Loans as of the Cutoff Date was 72.095 months.
26
<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 $125,150,688 .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.
27
<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 $38,866,142.71 100.00%
---- ------------- ------
---- ------------- ------
</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.
28
<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 25 $ 695,724.91 0.56% 1 47,436.90 0.12%
Alaska 12 627,238.25 0.50 1 768,422.85 1.98
Arizona 145 5,801,661.13 4.64 11 700,333.56 1.80
Arkansas 19 485,867.73 0.39 2 152,208.85 0.39
California 232 15,837,435.16 12.65 50 5,027,750.21 12.94
Colorado 24 1,259,118.25 1.01 5 621,215.34 1.60
Connecticut 25 2,385,171.99 1.91 6 523,029.98 1.35
Delaware 3 235,394.14 0.19 0 0.00 0.00
Florida 224 10,571,022.24 8.45 35 2,953,937.59 7.60
Georgia 49 2,702,825.23 2.16 4 368,896.47 0.95
Hawaii 13 571,255.08 0.46 1 443,678.53 1.14
Idaho 23 988,209.12 0.79 8 1,147,525.01 2.85
Illinois 22 737,959.10 0.59 14 1,016,646.66 2.62
Indiana 21 414,043.33 0.33 5 247,052.30 0.64
Iowa 63 2,128,832.48 1.70 2 88,308.96 0.23
Kansas 18 716,045.86 0.57 3 166,556.64 0.43
Kentucky 4 116,155.24 0.09 0 0.00 0.00
Louisiana 17 905,236.79 0.72 1 29,236.43 0.08
Maine 7 299,332.75 0.24 2 130,854.80 0.34
Maryland 20 1,204,315.20 0.96 3 378,328.80 0.97
Massachusetts 49 3,651,883.64 2.92 9 697,233.15 1.79
Michigan 77 2,606,015.71 2.08 13 1,083,888.60 2.79
Minnesota 37 1,605,834.61 1.28 7 710,581.90 1.83
Mississippi 8 433,543.70 0.35 0 0.00 0.00
Missouri 25 724,941.62 0.58 7 228,691.41 0.59
Montana 9 273,663.50 0.22 3 220,022.55 0.57
Nebraska 10 398,407.11 0.32 2 89,261.72 0.23
Nevada 17 983,067.67 0.79 4 277,777.31 0.71
New Hampshire 19 882,717.86 0.71 6 330,383.92 0.85
New Jersey 37 3,432,636.95 2.74 15 951,813.91 2.45
New Mexico 28 1,411,114.85 1.13 5 1,024,833.23 2.64
New York 119 7,978,703.71 6.38 55 3,899,061.85 10.03
North Carolina 22 821,670.07 0.66 5 218,723.12 0.56
Ohio 24 728,216.27 0.58 6 311,838.50 0.80
Oklahoma 50 1,667,438.95 1.33 5 300,214.57 0.77
Oregon 72 3,072,481.04 2.45 11 852,157.49 2.19
Pennsylvania 45 2,630,064.97 2.10 15 647,097.63 1.66
Rhode Island 2 160,571.30 0.13 1 21,306.14 0.05
South Carolina 18 583,256.54 0.47 4 281,734.67 0.72
South Dakota 2 66,141.85 0.05 0 0.00 0.00
Tennessee 13 840,710.67 0.67 2 60,416.55 0.16
Texas 684 28,087,283.04 22.44 58 4,665,178.67 12.00
Utah 19 747,672.33 0.60 3 417,708.99 1.07
Vermont 2 150,253.48 0.12 0 0.00 0.00
Virginia 25 1,507,435.28 1.20 2 179,114.32 0.46
Washington 239 10,249,312.83 8.19 62 6,528,494.11 16.80
West Virginia 4 105,234.90 0.08 0.00 0.00
Wisconsin 7 411,682.72 0.33 0 0.00 0.00
Wyoming 6 255,887.11 0.20 2 57,188.50 0.15
----- --------------- ------- --- ------------- -------
Total 2,633 $125,150,688.16 100.00% 456 38,866,142.71 100.00%
----- --------------- ------- --- ------------- -------
----- --------------- ------- --- ------------- -------
</TABLE>
<TABLE>
<CAPTION>
ALL LOANS
------------------------------------------------------
Cutoff Date Percent of Cutoff
Number of Scheduled Date Pool
State Mortgage Loans Principal Balance Principal Balance
- ----- -------------- ----------------- -----------------
<S> <C> <C> <C>
Alabama 26 $ 743,161.81 0.45%
Alaska 13 1,395,661.10 0.65
Arizona 158 6,501,994.69 3.96
Arkansas 21 638,076.53 0.39
California 262 20,865,185.37 12.72
Colorado 29 1,880,333.59 1.15
Connecticut 31 2,908,201.97 1.77
Delaware 3 235,394.14 0.14
Florida 259 13,524,959.63 6.25
Georgia 53 3,071,721.70 1.67
Hawaii 14 1,014,933.61 0.52
Idaho 31 2,135,734.13 1.30
Illinois 36 1,754,605.76 1.07
Indiana 26 661,095.63 0.40
Iowa 65 2,217,141.44 1.35
Kansas 21 882,602.50 0.54
Kentucky 4 116,155.24 0.07
Louisiana 18 934,473.22 0.57
Maine 9 430,167.55 0.26
Maryland 23 1,582,644.00 0.96
Massachusetts 58 4,349,116.79 2.65
Michigan 90 3,689,904.31 2.25
Minnesota 44 2,316,416.51 1.41
Mississippi 6 433,543.70 0.26
Missouri 32 953,633.03 0.58
Montana 12 493,686.05 0.30
Nebraska 12 487,668.83 0.30
Nevada 21 1,260,844.98 0.77
New Hampshire 25 1,213,101.78 0.74
New Jersey 52 4,384,450.86 2.67
New Mexico 33 2,435,946.08 1.49
New York 174 11,877,765.56 7.24
North Carolina 27 1,040,393.19 0.63
Ohio 30 1,040,054.77 0.63
Oklahoma 55 1,967,653.52 1.20
Oregon 63 3,924,638.53 2.39
Pennsylvania 60 3,277,162.60 2.00
Rhode Island 3 181,877.44 0.11
South Carolina 22 864,991.21 0.53
South Dakota 2 66,141.85 0.04
Tennessee 15 901,127.12 0.55
Texas 742 32,752,451.71 19.97
Utah 22 1,165,381.31 0.71
Vermont 2 150,253.48 0.09
Virginia 27 1,686,549.60 1.03
Washington 301 16,777,806.94 10.23
West Virginia 4 105,234.90 0.06
Wisconsin 7 411,682.72 0.25
Wyoming 8 313,075.61 0.19
----- --------------- ------
Total 3,089 $164,016,830.86 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
- ------------
(1) Determined by property address designated as such in the related Mortgage
File.
29
<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>
0.00- 5.00% 1 $ 110,812.88 0.09%
5.01- 10.00 9 782,466.12 0.63
10.01- 15.00 3 41,424.01 0.03
15.01- 20.00 10 254,125.67 0.20
20.01- 25.00 15 377,134.21 0.30
25.01- 30.00 32 1,302,823.13 1.04
30.01- 35.00 37 918,357.97 0.73
35.01- 40.00 76 2,302,025.67 1.84
40.01- 45.00 66 2,133,506.65 1.70
45.01- 50.00 81 2,542,852.81 2.03
50.01- 55.00 89 2,998,867.38 2.40
55.01- 60.00 140 5,662,036.48 4.52
60.01- 65.00 147 4,936,090.01 3.94
65.01- 70.00 195 8,032,300.62 6.42
70.01- 75.00 228 9,779,988.57 7.81
75.01- 80.00 384 18,175,832.66 14.52
80.01- 85.00 274 12,156,266.86 9.71
85 .01- 90.00 317 16,971,124.48 13.56
90.01- 95.00 303 17,053,748.66 13.63
95.01-100.00 185 16,097,024.44 12.86
100.01-105.00 13 843,036.11 0.67
105.01-110.00 11 679,842.76 0.54
110.01-115.00 6 400,885.42 0.32
115.01-120.00 4 300,394.38 0.24
120.01-125.00 2 45,163.92 0.04
Other 5 252,556.29 0.20
----- --------------- ------
Totals 2,633 $125,150,688.16 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
- ------------
(1) For purposes of this table, the Loan-to-Value Ratio is calculated as the
fraction expressed as a percentage, the numerator of which is the Cutoff
Date Scheduled Principal Balance of the related Single Family Mortgage
Loan and the denominator of which is the Appraised Value of the applicable
Mortgaged Property. However, for ____% of the Single Family Mortgage
Loans ($__________ 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 Mortgaged Property.
30
<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 0.84%
10.001- 15.000 5 530,887.42 1.37
15.001- 20.000 1 119,306.44 0.31
20.001- 25.000 8 522,762.07 1.35
25.001- 30.000 4 191,099.30 0.49
30.001- 35.000 14 1,124,838.05 2.89
35.001- 40.000 8 881,010.46 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 16 960,407.52 2.47
65.001- 70.000 29 3,575,194.25 9.20
70.001- 75.000 46 3,933,499.36 10.12
75.001- 80.000 60 4,276,173.88 11.00
80.001- 85.000 42 3,082,565.72 7.93
85.001- 90.000 46 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 0.66
105.001-110.000 2 233,790.08 0.60
Other 16 1,200,702.36 3.09
--- ------------- ------
Totals 456 $38,866,142.71 100.00%
--- ------------- ------
--- ------------- ------
</TABLE>
- ------------
(1) For purposes of this table, the Loan-to-Value Ratio is calculated as the
fraction expressed as a percentage, the numerator of which is the Cutoff
Date Scheduled Principal Balance of the related Commercial Mortgage Loan
and the denominator of which is the Appraised Value of the applicable
Mortgaged Property. However, for ____% of the Commercial Mortgage Loans
($__________ 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 73.129%, 56.515%
and 69.192%, respectively.
31
<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.
32
<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 51 4,056,546.15 10.44
Mobile Homes Park 25 3,292,036.02 8.47
Motel/Hotel 27 3,649,187.49 9.39
Multifamily 96 9,043,558.28 23.27
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.
Brokers receive a commission from Metropolitan equal to the difference
between the price at which Metropolitan acquired the mortgage loan and the
price at which the seller of the mortgage loan agreed to sell it to the
broker. No other material arrangement exists between the brokers and
Metropolitan. 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 are also 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.
33
<PAGE>
The members of Metropolitan's Underwriting Department, as a committee,
review all proposed acquisitions of loans secured by real estate if the
dollar amount of the proposed investment is above the credit limit for an
individual underwriter's approval authority or the loan is secured by
commercial real estate. In many instances, an underwriter will present a
mortgage loan to the Underwriting Committee for its review even 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, such mortgage loan's
origination.
The appraisals are made by licensed independent appraisers or an
appraiser on the staff of Metropolitan. Internal staff appraisers generally
are used when the mortgaged property lies within a 50-mile radius of Spokane,
Washington and the staff appraisers are available to do so. Less than 1% of
the appraisals obtained in connection with mortgage loan acquisitions during
the fiscal year ended September 30, 1996 were conducted by a Metropolitan
staff appraiser. 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.
34
<PAGE>
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 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
35
<PAGE>
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. Over 50.4% of
the Mortgage Loans 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 maintains
its principal office at 929 West Sprague Avenue, Suite 106, Spokane,
Washington 99204. Its telephone number is (509) 838-3111.
The Depositor is a subsidiary of National Summit Corp., a Delaware
corporation ("NSC"), which is an affiliate of the Sellers. NSC is a holding
company for Summit and Old Standard which is controlled by C. Paul Sandifur,
Jr. who also individually controls Metropolitan and Western.
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."
These steps also include the receipt of "true sale" opinions with respect to
the sale by the Sellers to the Depositor of the Mortgage Loans and a
"non-consolidation" opinion with respect to the bankruptcy of any Seller and
the assets of the Depositor.
Neither the Depositor, the Sellers nor any affiliates thereof will ensure
or guarantee distributions on the Certificates.
36
<PAGE>
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.
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. The
Master Servicer will receive fees for servicing the Mortgage Loans as
specified under "THE POOLING AND SERVICING AGREEMENT--Servicing Compensation
and Payment of Expenses."
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.
37
<PAGE>
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, scheduled
escrow payments, if any, 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.
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 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
38
<PAGE>
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
outstanding 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 of the mortgage loans
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 $500 and overdue for no more than one year, Escrow Servicing will
take no action other than notification. If the amount of the delinquent tax is
greater than $500 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 Modifications Department. The
Modifications Department will then contact the borrower to establish an escrow
account and work out the payment of delinquent taxes.
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.
Generally, 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
Modifications Department determines that a workout is in the best interests
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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.
MODIFICATIONS DEPARTMENT. The 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 Agreement. See
"MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS--Prepayment Considerations and
Risks" herein.
The 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 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 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 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 Default Control 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 Modifications Department will attempt to decide on a course of
action within 72 hours and resolve any
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delinquency within two weeks. The borrower will be contacted both verbally and
by letter. The objective of the Modifications Department is to return the
mortgage loan to performing status.
With respect to mortgage loans having delinquent property tax payments, the
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
Modifications Department are made on current loans. In many cases, borrowers
are contacted by the 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 and,
therefore, the Pooling Agreement may not permit many of the modifications
described above. See "THE POOLING AND SERVICING AGREEMENT--Modification of
Mortgage Loans" herein.
FORECLOSURE, DELINQUENCY AND LOSS 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.
The following tables summarize the foreclosure, delinquency and loss
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, delinquency or
loss 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,
foreclosures and losses 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 foreclosure, delinquency and loss 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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FORECLOSURE AND DELINQUENCY EXPERIENCE
ALL LOANS
<TABLE>
<CAPTION>
At December 31, At December 31, At September 30,
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
TOTAL MORTGAGE LOAN PORTFOLIO:
Principal Balance (end of period)
ONE MONTH DELINQUENT:
Principal Balance
Percent Delinquent by Principal Balance
TWO MONTHS DELINQUENT:
Principal Balance
Percent Delinquent by Principal Balance
THREE OR MORE MONTHS DELINQUENT:
Principal Balance
Percent Delinquent by Principal Balance
IN FORECLOSURE:
Principal Balance
Percent Foreclosed by Principal Balance
TOTAL DELINQUENT AND IN FORECLOSURE:
Principal Balance
Percent Delinquent and in Foreclosure by Principal Balance
SINGLE FAMILY LOANS
At December 31, At December 31, At September 30,
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
TOTAL SINGLE FAMILY PORTFOLIO:
Principal Balance (end of period)
ONE MONTH DELINQUENT:
Principal Balance
Percent Delinquent by Principal Balance
TWO MONTHS DELINQUENT:
Principal Balance
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<PAGE>
Percent Delinquent by Principal Balance
THREE OR MORE MONTHS DELINQUENT:
Principal Balance
Percent Delinquent by Principal Balance
TOTAL DELINQUENT:
Principal Balance
Percent Delinquent by Principal Balance
COMMERCIAL LOANS
At December 31, At December 31, At September 30,
1994 1995 1996
---- ---- ----
TOTAL COMMERCIAL LOAN PORTFOLIO:
Principal Balance (end of period)
ONE MONTH DELINQUENT:
Principal Balance
Percent Delinquent by Principal Balance
TWO MONTHS DELINQUENT:
Principal Balance
Percent Delinquent by Principal Balance
THREE OR MORE MONTHS DELINQUENT:
Principal Balance
Percent Delinquent by Principal Balance
TOTAL DELINQUENT:
Principal Balance
Percent Delinquent by Principal Balance
</TABLE>
LOSS EXPERIENCE
ALL LOANS
<TABLE>
Years Ended December 31,
--------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year $ 9,583 $ 10,598 $ 9,109
Charge offs:
Mortgage loan receivable 1,082 (421) 733
Real estate held for sale 4,499 7,444 4,434
-------- -------- --------
Total charge offs 5,581 7,023 5,167
Additions 6,596 5,533 4,175
-------- -------- --------
Balance, end of year 10,598 9,108 8,116
-------- -------- --------
-------- -------- --------
Average real estate assets outstanding during
the year 608,178 641,365 661,310
Ratio of total charge offs during the period to
the average real estate asset outstanding 0.92% 1.10% 0.78%
-------- -------- --------
-------- -------- --------
</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, while they
(together with the summaries under "DESCRIPTION OF THE SECURITIES") discuss all
material provisions of the Pooling Agreement, 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.
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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 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,
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<PAGE>
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 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,
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<PAGE>
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 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 \\(or 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
\\(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,
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<PAGE>
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 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.
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<PAGE>
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 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
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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, 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;
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(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 such Monthly Advance previously paid to Certificateholders (and not
theretofore reimbursed to the Master Servicer). See "--Collection Account
Exceptions and Escrow Accounts" below with respect to certain amounts not
required to be deposited into the Collection Account.
COLLECTION ACCOUNT EXCEPTIONS AND ESCROW ACCOUNTS
Generally, pursuant to the Pooling Agreement, all amounts received by the
Master Servicer related to the Mortgage Loans are required to be deposited into
the Collection Account. The Master Servicer, however, is not required to
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. Additionally, the Master Servicer is
not required to deposit in the Collection Account payments received by the
Master Servicer which are required to be deposited in an Escrow Account with
respect to each Mortgage Loan (each an "Escrow Account"). Payments required by
the Pooling Agreement to be deposited in an Escrow Account include payments for
application toward real estate taxes, assessments, insurance premiums and
similar items in respect of the Mortgaged Property as such payments are required
to be deposited into an escrow account in accordance with the related Mortgage
Loan. Such amounts deposited into an Escrow Account shall be retained therein
until withdrawn as permitted by the Pooling Agreement. Permitted withdrawals
include amounts required: for timely payments of taxes, assessments and hazard
insurance premiums (if such amounts are required to be deposited into an 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 a payment
made by the Master Servicer with respect to hazard insurance; to reimburse the
Master Servicer for advances made by the Master Servicer for similar items
pursuant to the Pooling Agreement; to refund to any Mortgagors any sums
determined to be overages; to pay interest, if required, to Mortgagors on
balances in an Escrow Account; to withdraw any amounts deposited in an Escrow
Account in error; or to clear and terminate the Escrow Accounts.
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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 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
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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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CERTAIN MATTERS CONCERNING COMMERCIAL PROPERTIES
Pursuant to the Pooling Agreement, the Master Servicer shall not acquire
any personal property on behalf of the Trust Fund in connection with
realization on a defaulted Commercial Mortgage Loan unless either: (i) the
personal property so acquired is incident to real property within the meaning
of Section 856(e)(1) of the Code or (ii) the Master Servicer obtains an
opinion of counsel stating that holding the personal property as part of the
Trust Fund will not cause the imposition of a tax on the Trust Fund or cause
the Trust Fund to fail to qualify as a REMIC at any time that any Certificate
is outstanding.
Additionally, as more fully described in the Pooling Agreement, the
Master Servicer shall not obtain title to, or take any other action with
respect to, a Commercial Property without obtaining within the 12-months
preceding such action a Phase I Environmental Assessment, or other
environmental testing deemed necessary and prudent by the Master Servicer,
if, in the Master Servicer's reasonable judgment made in accordance with the
servicing standard, such action could result in the Trustee, on behalf of the
Certificate Holders, being considered to hold title to, to be a
"mortgagee-in-possession" of, or to be an "owner" or "operator" of such
property within the meaning of CERCLA or any comparable law.
If it is determined pursuant to such assessment that (i) the Commercial
Property is in compliance with applicable environmental laws and regulations
and (ii) there are not 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 either of the preceding conditions is not met, the Master
Servicer determines that it would maximize the recovery to the
Certificateholders on a present value basis (determined by performing the
relevant discounting of anticipated collections to be distributed to the
Certificateholders at the related Pass-Through Rate) to acquire title to or
possession of the Commercial Property and effect such compliance (with (i)
and (ii) above, collectively the "Conditions"), title to the Commercial
Property may be obtained or other action taken. The cost of any assessment
and remedial, corrective or other action contemplated by this paragraph may
be reimbursed to the Master Servicer from the Collection Account to the
extent of Liquidation Proceeds with respect to such Commercial Property as an
expense of the Trust Fund.
If a Commercial Property does not meet the Conditions, the Master
Servicer shall take such action as is in accordance with the servicing
standard and may, on behalf of the Trustee, release all or a portion of such
Commercial Property from the lien of the related Mortgage. Before such
release, however, the Master Servicer shall have notified the Trustee in
writing of its intention to release the property from the lien. Further, the
Master Servicer shall provide monthly written reports to the Trustee with
respect to Commercial Properties which do not meet the Conditions until the
lien is released or the Conditions are satisfied.
Notwithstanding the foregoing, the Master Servicer, in accordance with
the servicing standard set forth in the Pooling Agreement, shall not be
obligated to obtain a Phase I Environmental Assessment, if in its judgment it
is not necessary for the reasonable protection
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of the Trust Estate. See "--Servicing" herein for a discussion of the
Master Servicer's servicing standard.
DUE-ON-SALE PROVISIONS
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
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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 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
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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 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
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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 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. Notwithstanding, the Master Servicer may agree to forbear with
respect to any Mortgage Loan which is subject to imminent default. 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
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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.
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
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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, while they (together with the summaries under "THE
POOLING AND SERVICING AGREEMENT") discuss all material provisions relating to
the Certificates, 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 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.
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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 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
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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 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
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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 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
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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.
"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.
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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 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
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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 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.
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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.
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
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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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<TABLE>
<CAPTION>
Initial
Designation Component Balance Pass-Through Rate
----------- ----------------- -----------------
<S> <C> <C>
Class PO $_________ (1)
Class Z/IO (2) (3)
</TABLE>
- ------------
(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
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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.
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
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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 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;
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(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;
(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)
one month, (ii) two months and (iii) three or more months, 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,
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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.
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).
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<PAGE>
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 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
74
<PAGE>
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 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 and Uncertainties."
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.
75
<PAGE>
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.
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 Certificates are affected by the foregoing
factors at various constant percentages of CPR, see the Decrement Tables
below.
THE DECREMENT TABLES
GENERAL. 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
76
<PAGE>
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.
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
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, 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
77
<PAGE>
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.
TABLES. 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.
PERCENTAGE OF INITIAL CLASS CERTIFICATE BALANCE OUTSTANDING
FOR THE CLASS A-1 CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
SET FORTH BELOW:
<TABLE>
<CAPTION>
Distribution Date 0.0% CPR 5.0% CPR 10.0% CPR 15.0% CPR 20.0% CPR
----------------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
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)
</TABLE>
- --------------------
(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.
78
<PAGE>
PERCENTAGE OF INITIAL CLASS CERTIFICATE BALANCE OUTSTANDING
FOR THE CLASS A-2 CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
SET FORTH BELOW:
<TABLE>
<CAPTION>
Distribution Date 0.0% CPR 5.0% CPR 10.0% CPR 15.0% CPR 20.0% CPR
----------------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
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)
</TABLE>
- --------------------
(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.
79
<PAGE>
PERCENTAGE OF INITIAL CLASS CERTIFICATE BALANCE OUTSTANDING
FOR THE CLASS A-3 CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
SET FORTH BELOW:
<TABLE>
<CAPTION>
Distribution Date 0.0% CPR 5.0% CPR 10.0% CPR 15.0% CPR 20.0% CPR
----------------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
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)
</TABLE>
- --------------------
(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.
80
<PAGE>
PERCENTAGE OF INITIAL CLASS CERTIFICATE BALANCE OUTSTANDING
FOR THE CLASS A-4 CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
SET FORTH BELOW:
<TABLE>
<CAPTION>
Distribution Date 0.0% CPR 5.0% CPR 10.0% CPR 15.0% CPR 20.0% CPR
----------------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
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)
</TABLE>
- --------------------
(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 B-1 CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
SET FORTH BELOW:
<TABLE>
<CAPTION>
Distribution Date 0.0% CPR 5.0% CPR 10.0% CPR 15.0% CPR 20.0% CPR
----------------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
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)
</TABLE>
- --------------------
(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 B-2 CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
SET FORTH BELOW:
<TABLE>
<CAPTION>
Distribution Date 0.0% CPR 5.0% CPR 10.0% CPR 15.0% CPR 20.0% CPR
----------------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
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)
</TABLE>
- --------------------
(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>
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.
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<PAGE>
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 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.
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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
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land sale contracts from the harsh consequences of forfeiture. Under such
statutes, a judicial 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
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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 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. Approximately ____% 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.
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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 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
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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 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
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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.
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.
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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.
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 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
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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 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.
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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.
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.,
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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 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
Counsel to the Depositor, Kutak Rock, has rendered its opinion that the
following is a summary of all material federal income tax consequences of the
purchase, ownership and disposition of Certificates for the investors
described below. 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. Counsel to the
Depositor will render its tax opinion solely with respect to the opinions
referred to in the first sentence of this and the following paragraph and,
except with respect to such opinions, information presented under this
section is not covered by an opinion of counsel to the Depositor. 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 and 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. Qualification as a REMIC requires ongoing compliance with
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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.
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 DISCOUNT. 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."
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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 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
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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 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
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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.
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
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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 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
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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.
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.
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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.
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
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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.
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."
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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, 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> <S> <S> <S> <S>
$ $ $ $ $ $
First Southwest Company
------ ------ ------ ------ ------
Bear, Stearns & Co. Inc.
------ ------ ------ ------ ------ ------
Total $ $ $ $ $ $
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
</TABLE>
The Underwriters propose initially to offer the Offered
Certificates to the public at the public offering price set forth on the
cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of ___% of the principal amount of the Offered
Certificates. The Underwriters may allow, and such dealers may reallow to
other dealers, a concession not in excess of ___% of such principal amount.
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.
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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:
<TABLE>
<CAPTION>
Class Moody's Duff & Phelps
----- ------- -------------
<S> <C> <C>
A-1
A-2
A-3
A-4
B-1
B-2
</TABLE>
Ratings on mortgage pass-through certificates address the
likelihood of receipt, but not timing, by Certificateholders of payments
required under the Pooling Agreement, and ratings are based primarily upon
the credit underlying the Mortgage Loans, the level of subordination and
the legal structure of the transaction.
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.
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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. In addition, a securities rating does not address the
market price of the securities rated or the suitability for any particular
investor.
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INDEX TO AND GLOSSARY OF CERTAIN TERMS
<TABLE>
<S> <C>
1986 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95
Accretion Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . .iv, 62
Accretion Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . v
Accretion Termination Date . . . . . . . . . . . . . . . . . . . . . . . . .63
Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xi
Appraised Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Assumptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76
Available Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
Balloon Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xii
Bankruptcy Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .88
Bankruptcy Loss Coverage Amount. . . . . . . . . . . . . . . . . . . . . . .83
Bankruptcy Losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69
Beneficial Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Book-Entry Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . v
Calculated Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . . .15
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .89
Certificate Account. . . . . . . . . . . . . . . . . . . . . . . . . . . .viii
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . Cover, iv, 44
Class A-4 Prepayment Percentage. . . . . . . . . . . . . . . . . . . . . . .65
Class A-4 Principal Distribution Amount. . . . . . . . . . . . . . . . . . .66
Class B Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Class Certificate Balance. . . . . . . . . . . . . . . . . . . . . . . . . .44
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .vi
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiv
Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
Combined Prepayment Percentage . . . . . . . . . . . . . . . . . . . . . . .65
Commercial Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . . . .vi
Commercial Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Component. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67
Component Balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
Component Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . v
CPR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
Cutoff Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .vi
Cutoff Date Pool Principal Balance . . . . . . . . . . . . . . . . . . .vi, 13
Cutoff Date Scheduled Principal Balance. . . . . . . . . . . . . . . . . . .14
Debt Service Reduction . . . . . . . . . . . . . . . . . . . . . . . . . . .84
Deficient Valuation. . . . . . . . . . . . . . . . . . . . . . . . . . . . .84
Definitive Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Deleted Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Depositor. . . . . . . . . . . . . . . . . . . . . . . . . . . . .Cover, v, 36
Depository . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
</TABLE>
107
<PAGE>
<TABLE>
<S> <C>
Distribution Account . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
Distribution Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
DTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Due Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Duff & Phelps. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiv
ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiv
Excess Losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69
Expense Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xi
FEMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Financial Intermediary . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Fixed Rate Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . v
FNMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Fraud Loss Coverage Amount . . . . . . . . . . . . . . . . . . . . . . . . .83
Fraud Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69
Hazardous Materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . .92
Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Labor Regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Land sale contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85
Liquidated Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . . . .70
Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
Loan Purchase Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . .12
Market discount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .96
Master Servicer. . . . . . . . . . . . . . . . . . . . . . . . . .Cover, v, 37
Master Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
Master Servicing Fee Rate. . . . . . . . . . . . . . . . . . . . . . . . . .52
Metropolitan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
Moody's. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiv
Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Mortgage File. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover, vi
Mortgage Note. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Mortgage Pool. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Mortgage Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
Mortgaged Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Net Interest Shortfalls. . . . . . . . . . . . . . . . . . . . . . . . . . .61
Net Mortgage Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xi
Net Prepayment Interest Shortfall. . . . . . . . . . . . . . . . . . . . . .62
Net Realized Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69
Non-Offered Certificates . . . . . . . . . . . . . . . . . . . . . . . . . .iv
Offered Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
OID Regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95
Old Standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
Original Subordinate Principal Balance . . . . . . . . . . . . . . . . . . .65
Pass-Through Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ix
</TABLE>
108
<PAGE>
<TABLE>
<S> <C>
Percentage Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Physical Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . v
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Pool Principal Balance . . . . . . . . . . . . . . . . . . . . . . . . . . .64
Pooling Agreement. . . . . . . . . . . . . . . . . . . . . . . Cover, viii, 44
Prepayment Interest Shortfall. . . . . . . . . . . . . . . . . . . . . . . .62
Principal Only Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
PTE 83-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Qualified stated interest. . . . . . . . . . . . . . . . . . . . . . . . . .96
Rating Agencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiv
Record Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .vi, 60
Regular Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . v, 94
Relief Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .93
Relief Act Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . . . .93
REMIC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover, xiii
REMIC Regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .94
REO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
REO Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
Replacement Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
Repurchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
Residual Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . v, 44
Safeco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Scheduled Due Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
Scheduled Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Scheduled Principal Balance. . . . . . . . . . . . . . . . . . . . . . . . .64
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Sellers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Senior Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Senior Credit Support Depletion Date . . . . . . . . . . . . . . . . . . . .63
Senior Percentage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
Senior Prepayment Percentage . . . . . . . . . . . . . . . . . . . . . . . .73
Senior Principal Distribution Amount . . . . . . . . . . . . . . . . . . . .63
Single Family Mortgage Loan. . . . . . . . . . . . . . . . . . . . . . . . .vi
Single Family Properties . . . . . . . . . . . . . . . . . . . . . . . . . .14
SMMEA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xiii
Special Hazard Loss Coverage Amount. . . . . . . . . . . . . . . . . . . . .83
Special Hazard Losses. . . . . . . . . . . . . . . . . . . . . . . . . . . .69
Special Hazard Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . .70
SSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Subordinate Certificates . . . . . . . . . . . . . . . . . . . . . . . . v, 44
Subordinate Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . .64
Subordinate Prepayment Percentage. . . . . . . . . . . . . . . . . . . . . .65
Subordinate Principal Distribution Amount. . . . . . . . . . . . . . . . . .67
Substitution Adjustment Amount . . . . . . . . . . . . . . . . . . . . . . .48
</TABLE>
109
<PAGE>
<TABLE>
<S> <C>
Summit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
Title V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92
Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Cover, v
Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Unpaid Interest Shortfall. . . . . . . . . . . . . . . . . . . . . . . . . .ix
Western. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
</TABLE>
110
<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 SALE 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.
111
<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.
112
<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>
<S> <C> <C> <C> <C>
Remaining
Hypothetical Mortgage Scheduled Balance Remaining Term Amortization as
Mortgage Loan Interest Rate as of Cutoff Date as of Cutoff Date of Cutoff Date
- ------------- ------------- ----------------- ----------------- ---------------
</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
--------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY OF THE OFFERING. . . . . . . . . . . . . . . . . . . . . . . . . iv
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
THE MORTGAGE POOL. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
THE DEPOSITOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
DESCRIPTION OF THE SELLERS . . . . . . . . . . . . . . . . . . . . . . . 36
SERVICING OF MORTAGE LOANS . . . . . . . . . . . . . . . . . . . . . . . 37
THE POOLING AND SERVICING AGREEMENT. . . . . . . . . . . . . . . . . . . 44
DESCRIPTION OF THE CERTIFICATES. . . . . . . . . . . . . . . . . . . . . 59
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS. . . . . . . . . . . . . . 71
CREDIT ENHANCEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS. . . . . . . . . . . . . . . 85
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. . . . . . . . . . . . . . . . . 94
STATE TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . 100
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 101
LEGAL INVESTMENT CONSIDERATIONS. . . . . . . . . . . . . . . . . . . . . 102
METHOD OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . 103
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
CERTIFICATE RATINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . 104
INDEX TO AND GLOSSARY OF CERTAIN TERMS . . . . . . . . . . . . . . . . . 106
EXHIBIT A-Class Definitions
and Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
EXHIBIT B-Hypothetical Mortgage Loans. . . . . . . . . . . . . . . . . . B-1
</TABLE>
$_____________
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 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.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
1.1 Form of Underwriting Agreement*
4.1 Form of Pooling and Servicing Agreement*
4.2 Form of Mortgage Loan Purchase Agreement**
5.1 Opinion of Kutak Rock as to the validity of the Certificates**
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
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*
</TABLE>
- ------------
*Previously filed.
**Filed herewith.
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.
The undersigned registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this registration statement as of the time it was declared
effective.
(b) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the
II-2
<PAGE>
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
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 Pre-Effective Amendment
No. 1 to this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Spokane, State of
Washington, on October 22, 1996.
METROPOLITAN ASSET FUNDING, INC.,
a Delaware corporation
By /s/ Tom Turner
--------------------------------
Tom Turner, President
II-4
<PAGE>
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, Pre-Effective
Amendment No. 1 to this registration statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
** President and Director October 22, 1996
--------------------
Tom Turner (Principal Executive Officer)
** Secretary, Treasurer and October 22, 1996
--------------------
Greg Gordon Director (Principal Financial
and Accounting Officer)
** Vice President and Director October 22, 1996
--------------------
Philip Sandifur
** Vice President Director October 22, 1996
--------------------
Dave Gorton
** Director October 22, 1996
--------------------
Robert Ciani
</TABLE>
/s/ Bruce J. Blohowiak
** Bruce J. Blohowiak, by signing his name hereto, signs this document on
behalf of Messrs. Turner, Gordon, Sandifur, Gorton and Ciani, indicated
above, pursuant to a power of attorney duly executed by such persons and
previously filed with the Securities and Exchange Commission with this
Registration Statement.
II-5
<PAGE>
INDEX TO 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.
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
1.1 Form of Underwriting Agreement*
4.1 Form of Pooling and Servicing Agreement*
4.2 Form of Mortgage Loan Purchase 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*
* Previously filed.
** Filed herewith.
</TABLE>
II-6
<PAGE>
MORTGAGE LOAN PURCHASE AGREEMENT
between
METROPOLITAN MORTGAGE & SECURITIES CO., INC.,
as Seller,
and
METROPOLITAN ASSET FUNDING, INC.,
as Purchaser
Dated as of __________ 1, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS................................................................. 1
ARTICLE II
AGREEMENT TO PURCHASE; PURCHASE PRICE;
CONVEYANCE OF MORTGAGE LOANS
Section 2.01. Agreement to Purchase; Purchase Price......................... 9
Section 2.02. Underwriting Review........................................... 10
Section 2.03. Obligations of Seller Upon Sale; Characterization............. 10
Section 2.04. Delivery of Mortgage Loan Documents........................... 11
Section 2.05. Survival of Representations and Warranties; Repurchase
Obligations of the Seller..................................... 11
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLER..................... 12
ARTICLE IV
SELLER COVENANTS AND CLOSING CONDITIONS
Section 4.01. Covenants of the Seller....................................... 23
Section 4.02. Closing Conditions............................................ 24
ARTICLE V
SERVICING................................................................... 28
ARTICLE VI
INDEMNIFICATION BY THE SELLER WITH RESPECT
TO THE MORTGAGE LOANS
Section 6.01. Indemnification with Respect to the Mortgage Loans............ 28
Section 6.02. Limitation on Liability....................................... 28
i
<PAGE>
ARTICLE VII
ISSUANCE OF THE CERTIFICATES
Section 7.01. Information to Be Provided by the Seller in Connection with
the Issuance of the Certificates.............................. 29
ARTICLE VIII
NON-SOLICITATION............................................................ 29
ARTICLE IX
MISCELLANEOUS
Section 9.01. Notices....................................................... 30
Section 9.02. Severability Clause........................................... 30
Section 9.03. GOVERNING LAW................................................. 30
Section 9.04. Further Agreements............................................ 31
Section 9.05. Successors and Assigns; Assignment of Mortgage Loan Purchase
Agreement..................................................... 31
Section 9.06. Waivers; Other Agreements..................................... 31
Section 9.07. Exhibits...................................................... 31
Section 9.08. General Interpretive Principles............................... 31
Section 9.09. Counterparts.................................................. 32
EXHIBIT A--Mortgage Loan Schedule...........................................A-1
Schedule 1--Delinquent Tax Schedule............................................
Schedule 2--Seller Materials...................................................
Schedule 3--High LTV Mortgage Loans............................................
ii
<PAGE>
MORTGAGE LOAN PURCHASE AGREEMENT
THIS MORTGAGE LOAN PURCHASE AGREEMENT (the "Agreement"), dated as of
__________ 1, 1996, by and between Metropolitan Asset Funding, Inc., a Delaware
corporation, having its principal office at 929 West Sprague Avenue, Spokane,
Washington 99204 (the "Purchaser") and Metropolitan Mortgage & Securities Co.,
Inc., a Washington corporation, having its principal office at 929 West Sprague
Avenue, Spokane, Washington 99204 (the "Seller").
WITNESSETH THAT:
In consideration of the mutual agreements herein contained, and of other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:
PRELIMINARY STATEMENT
The Seller has agreed to sell, and the Purchaser has agreed to purchase,
the Mortgage Loans identified on the Mortgage Loan Schedule attached hereto as
Exhibit A and having an aggregate Scheduled Principal Balance as of the opening
of business on the Cut-off Date (defined below), of $__________ (the "Seller
Cut-off Date Aggregate Principal Balance").
ARTICLE I
DEFINITIONS
Capitalized and defined terms contained in this Mortgage Loan Purchase
Agreement without definitions shall have the respective meanings assigned
thereto in the Pooling and Servicing Agreement. Otherwise, whenever used in
this Agreement, the following words and phrases shall have the following
meanings:
"AGREEMENT" shall mean this Mortgage Loan Purchase Agreement.
"DELETED LOAN" shall mean a Mortgage Loan replaced or to be replaced by a
Replacement Loan.
"INTERESTED PERSON" shall have the meaning as defined in Section 2.04
hereof.
"MORTGAGE LOAN SCHEDULE" shall mean, with respect to this Agreement, the
list of Mortgage Loans delivered in connection with this Agreement, attached
hereto as Exhibit A. Such list shall set forth the following information with
respect to each such Mortgage Loan:
(a) the loan number;
<PAGE>
(b) the Mortgagor's name;
(c) the street address of the Mortgaged Property, including the state
and zip code;
(d) the Mortgage Interest Rate;
(e) the Calculated Maturity Date;
(f) the Original Term;
(g) the original principal balance;
(h) the Remaining Term;
(i) the Cut-off Date Principal Balance of the Mortgage Loan;
(j) the first date on which a Monthly Payment was due under the
Mortgage Note;
(k) the Loan-to-Value Ratio as of the Cut-off Date;
(l) a code indicating the occupancy status;
(m) the property type of the related Mortgaged Property;
(n) the Appraised Value of the Mortgaged Property;
(o) the Monthly Payment;
(p) indication as to whether such Mortgage Loan is a Land Sale
Contract;
(q) indication as to whether such Mortgage Loan is a Balloon Loan;
and
(r) indication as to whether such Mortgage Loan is a Commercial
Mortgage Loan or a Single Family Mortgage Loan.
"OFFICERS' CERTIFICATE" shall mean a certificate signed by the President or
a Vice President and by the Secretary or one of the Assistant Secretaries of the
Seller and delivered to the Purchaser.
"OPINION OF COUNSEL" shall mean a written opinion of counsel, who may be
counsel for the Seller, 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
2
<PAGE>
fact be independent of the Seller, (b) not have any direct financial interest in
the Seller or in any affiliate of the Seller, and (c) not be connected with the
Seller as an officer, employee, promoter, underwriter, trustee, partner or
director or person performing similar functions.
"POOLING AND SERVICING AGREEMENT" shall mean the pooling and servicing
agreement, dated as of __________ 1, 1996, among the Seller, Old Standard Life
Insurance Company, Summit Securities, Inc. and Western United Life Assurance
Company, as sellers, the Purchaser, the Master Servicer and the Trustee,
pursuant to which the Certificates are issued.
"PURCHASE PRICE" shall mean $_____________________.
"SELLER/SERVICER INFORMATION" shall have the meaning as defined in Section
4.01 hereof.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SELLER CUT-OFF DATE AGGREGATE PRINCIPAL BALANCE" shall mean $__________.
"SELLER MATERIALS" shall mean the information, certificates, statements,
reports and computer tapes, if any, listed on Schedule 2 hereto.
"UNDERWRITING AGREEMENT" shall mean the underwriting agreement, dated
__________, 1996, among the Purchaser and the Underwriters.
ARTICLE II
AGREEMENT TO PURCHASE; PURCHASE PRICE;
CONVEYANCE OF MORTGAGE LOANS
Section 2.01. AGREEMENT TO PURCHASE; PURCHASE PRICE.
(a) The Seller concurrently with the execution and delivery of this
Agreement, does hereby sell, transfer, assign, set over and otherwise
convey to the Purchaser, without recourse, all its right, title and
interest of the Seller in and to the Mortgage Loans, the Mortgage Notes,
including all interest and principal received on or with respect to the
Mortgage Loans after the Cut-off Date and the documents and instruments
contained in the Files.
(b) In consideration of the sale of the Mortgage Loans from the
Seller to the Purchaser, the Purchaser agrees (i) to pay to the Seller on
the Closing Date by transfer of immediately available funds an amount (the
"Purchase Price") equal to the sum of (A) (1) a percentage multiplied by
(2) the Seller Cut-off Date Aggregate Principal Balance of the Mortgage
Loans and (B) all accrued and unpaid interest with respect to such Mortgage
Loans from the Cut-off Date up to and including the day immediately prior
to the applicable Closing Date and (ii) to transfer to the Seller the
portion of
3
<PAGE>
the Class B-3, Class B-4 and Class R Certificates relating to the Mortgage
Loans sold hereunder. [The Purchase Price payable to the Seller on the
Closing Date shall be reduced by all expenses incurred by the Purchaser in
connection with the issuance of the Certificates, including, without
limitation, the fees and expenses of Purchaser's own counsel, the
Securities and Exchange Commission registration statement fees, printing
and shipping fees incurred in connection with the Prospectus, blue sky
registration fees and expenses, fees of the Rating Agencies, accountant's
fees and expenses and the fees and expenses of the Trustee and other
out-of-pocket costs.]
Section 2.02. OBLIGATIONS OF SELLER UPON SALE; CHARACTERIZATION. In
connection with the transfer pursuant to Section 2.01 hereof, the Seller further
agrees, at its own expense, on or prior to the Closing Date (a) to indicate in
its books and records that the Mortgage Loans have been sold to the Purchaser
pursuant to this Agreement and (b) to deliver to the Purchaser a computer file
containing the Mortgage Loan Schedule.
The Seller hereby acknowledges and agrees that the Trustee, at the Seller's
expense, shall cause to be recorded in the appropriate public office for real
property records for each Mortgage Loan, either the Assignment of Mortgage, or
the Assignment of Land Sale Contract or Warranty Deed, as applicable, except
that the Trustee need not cause to be recorded any such Assignment of Mortgage
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 Seller, at its expense, to
the Trustee which is satisfactory to the Trustee, to the effect that 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 transfer of Mortgage Loans set forth
herein be for all purposes a sale by the Seller to the Purchaser of all the
Seller's right, title and interest in and to the Mortgage Loans and other
property described above. It is, further, not the intent of the parties hereto
that such transfer be deemed a pledge by the Seller of the rights, titles and
interests in and to such Mortgage Loans. However, in the event the transaction
set forth herein is deemed not to be a sale, the Seller hereby grants to the
Purchaser a first priority security interest in all of the Seller's right, title
and interest in, to and under the Mortgage Loans and other property described
above, whether now existing or hereafter created, to secure all of the Seller's
obligations hereunder; and this Agreement shall constitute a security agreement
under applicable law.
Section 2.03. DELIVERY OF MORTGAGE LOAN DOCUMENTS. No later than five (5)
days prior to the Closing Date, the Seller shall, on behalf and at the direction
of the Purchaser, use its best efforts to deliver the documents listed in the
definition of File to the Trustee for each Mortgage Loan. If the Seller cannot
deliver any required original or certified copies of recorded documents
constituting the File on or before five (5) days prior to the Closing Date, the
Seller shall, promptly upon receipt thereof and in any case not later than the
date specified in the Pooling and Servicing Agreement, deliver such original or
certified recorded documents to the Trustee. Notwithstanding anything to the
contrary contained in this Section 2.03, in those instances where the public
recording office retains the original Mortgage, any assignment
4
<PAGE>
thereof, Land Sale Contract, Memorandum of Land Sale Contract or any assignment
thereof after it has been recorded, the Seller shall be deemed to have satisfied
its obligations hereunder upon delivery to the Trustee of a copy of the recorded
original of such document, accompanied by an Officer's Certificate stating that
such copy is a true and complete copy of such document.
In the event that the Seller does not deliver the documents constituting
the File as provided in this Section 2.03, the related Mortgage Loan shall be
repurchased at the Repurchase Price for such Mortgage Loan or substituted by the
Seller, in either case at the time and in the manner provided in the Pooling and
Servicing Agreement.
Section 2.04. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; REPURCHASE
OBLIGATIONS OF THE SELLER. With respect to any particular Mortgage Loan, it is
understood and agreed that the representations and warranties set forth in
Article III hereof are continuing representations and warranties and shall inure
to the benefit of the Purchaser, the Trustee and each Certificateholder (each,
an "Interested Person"). The Seller hereby agrees to restate the
representations and warranties set forth in Article III hereof with respect to
the Mortgage Loans in the Pooling and Servicing Agreement to the Trustee, as of
the Closing Date, or if so specified therein, as of the Cut-off Date and to be
bound by the provisions in the Pooling and Servicing Agreement relating to the
breach of any such representation and warranty. Within sixty (60) days of the
Seller's discovery, or its receipt of written notice from any Interested Person
or any other Person specified in Section 2.03 of the Pooling and Servicing
Agreement, of the breach of any such representation and warranty set forth in
Section 3.01 hereof which materially and adversely affects the value of a
Mortgage Loan or Mortgage Loans or the interest of any Interested Person in any
Mortgage Loan or Mortgage Loans, it shall, subject to the provisions of the next
following paragraphs, cure such breach in all material respects or shall either
(a) remove such Deleted Loan and substitute in its place a Replacement Loan or
Loans and pay to the Purchaser or the Trustee (as assignee of the Purchaser) the
amount, if any, by which the unpaid aggregate principal balance of the
Replacement Loan or Loans is less than the unpaid principal balance of the
Deleted Loan or (b) repurchase such Deleted Loan at the Repurchase Price. Any
substitution or repurchase of a Mortgage Loan shall be accomplished in the
manner provided in the Pooling and Servicing Agreement.
No substitution of a Deleted Loan with a Replacement Loan or Loans shall
occur at any time after the second anniversary of the Closing Date. Any
repurchase or substitution shall not be effected prior to the delivery to the
Trustee by the Seller of an Opinion of Counsel to the effect that such purchase
or substitution 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 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. In the event that such opinion indicates that a repurchase or
substitution will result in the imposition of a prohibited transaction tax, give
rise to net taxable income or be deemed a contribution to the REMIC after the
"start-up day," the Seller shall not be required to repurchase or replace any
such Mortgage Loan unless and until the Purchaser or its designee has determined
there is an actual or imminent default with
5
<PAGE>
respect thereto or that such defect or breach adversely affects the
enforceability of such Mortgage Loan.
In the event that a Deleted Loan is replaced by a Replacement Loan or
Loans, the Seller shall amend the applicable Mortgage Loan Schedule in order to
reflect the removal of such Deleted Loan and the substitution of the Replacement
Loan or Loans and the Seller shall deliver such amended Mortgage Loan Schedule
to the Trustee and the Purchaser. Upon such substitution, the Replacement Loan
or Loans shall be subject to the terms of this Agreement in all respects, and
the Seller shall be deemed to have made with respect to such Replacement Loan or
Loans, as of the date of substitution the representations and warranties set
forth in Section 3.01(b) hereof.
It is understood and agreed that the obligation under this Agreement of the
Seller to cure, repurchase or substitute any Mortgage Loan as to which a breach
has occurred and is continuing shall constitute the sole and exclusive remedy of
any Interested Person against the Seller.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLER
The Seller, as seller of the Mortgage Loans to the Purchaser, hereby makes
the following representations and warranties, as of the date hereof:
(a) As to the Seller:
(i) the Seller is a corporation, duly organized, validly
existing and in good standing under the laws of the State of
Washington and is duly authorized and qualified to transact any and
all business contemplated by this Agreement in any State in which a
Mortgaged Property is located or is otherwise not required under
applicable law to effect such qualification and, in any event, is in
compliance with the doing business laws of any such State, to the
extent necessary to ensure the enforceability of each Mortgage Loan;
(ii) the Seller has the full corporate power and authority to
execute, deliver and perform, and to enter into and consummate the
transactions contemplated by this Agreement and has duly authorized by
all necessary corporate action on the part of the Seller the
execution, delivery and performance of this Agreement; and this
Agreement, assuming the due authorization, execution and delivery
thereof by the Purchaser, constitutes a legal, valid and binding
obligation of the Seller, enforceable against the Seller in accordance
with its terms, except that (A) the enforceability thereof may be
limited by bankruptcy, insolvency, moratorium, receivership and other
similar laws relating to creditors' rights generally and (B) the
remedy of specific performance and injunctive and other forms of
equitable relief may be subject to the equitable defenses and such
6
<PAGE>
remedies may be subject to the discretion of the court before which
any proceeding therefor may be brought;
(iii) the execution and delivery of this Agreement by the
Seller, the consummation of any other of the transactions herein
contemplated, and the fulfillment of or compliance with the terms
hereof do not (A) result in a material breach of any term or provision
of the charter or bylaws of the Seller or (B) materially conflict
with, result in a material breach, violation or acceleration of, or
result in a material default under, the terms of any other material
agreement or instrument to which the Seller is a party or by which it
may be bound, or a material violation of any statute, order or
regulation applicable to the Seller of any court, regulatory body,
administrative agency or governmental body having jurisdiction over
the Seller; and the Seller is not a party to, bound by, or in breach
or violation of any material indenture or other material agreement or
instrument, or subject to or in violation of any statute, order or
regulation of any court, regulatory body, administrative agency or
governmental body having jurisdiction over it, which materially and
adversely affects, or, to the Seller's knowledge would in the future
materially and adversely affect, (1) the ability of the Seller to
perform its obligations under this Agreement or (2) the business,
operations, financial condition, properties or assets of the Seller
taken as a whole;
(iv) the Seller is subject to supervision and examination by such
state or federal authority as may be applicable and is in good
standing and qualified to do business where so required by applicable
law;
(v) no litigation is pending or, to the best of the Seller's
knowledge, threatened, against the Seller that would materially and
adversely affect the execution, delivery or enforceability of this
Agreement or the performance of any of the Seller's obligations
hereunder in accordance with the terms hereof;
(vi) the Seller Materials delivered by or on behalf of the Seller
to the Purchaser, any affiliate of the Purchaser or the Trustee in
connection with the transactions contemplated by this Agreement and
the Pooling and Servicing Agreement do not contain, as of the date
such information, certificate, statement, report or computer tape is
delivered, any untrue statement of a material fact or omit to state a
material fact necessary to make the information, certificate,
statement, report or computer tape not misleading; and
(vii) no consent, approval, authorization or order of any
court or governmental agency or body is required for the execution,
delivery and performance by the Seller of, or compliance by the Seller
with, this Agreement or the consummation of the transactions
contemplated hereby, or if any such consent, approval, authorization
or order is required, the Seller has obtained the same.
7
<PAGE>
(b) As to the Mortgage Loans as of the Cut-off Date (unless another
date is specified):
(i) The information set forth on the Mortgage Loan Schedule with
respect to each Mortgage Loan is true and correct in all material
respects as of the Closing Date;
(ii) No more than ___% of the Single Family Mortgage Loans, ___%
of the Commercial Mortgage Loans and ____% of all Mortgage Loans,
based on the Cut-off Date Pool Principal Balance, are located in any
one zip code area;
(iii) No more than ___% of the Single Family Mortgage Loans,
___% of the Commercial Mortgage Loans and ____% of all Mortgaged
Properties, based on the Cut-off Date Pool Principal Balance, are
located in the State of ______________________;
(iv) No Commercial Mortgage Loan and no more than ____% of the
Single Family Mortgage Loans, based on the Cut-off Date Pool Principal
Balance, are secured by or subject to condominium units;
(v) At least ____% of the Single Family Mortgage Loans, based on
the Cut-off Date Pool Principal Balance, are secured by a first lien
on a parcel of real property improved by a one- to four-family
residence; no more than ____% of the Single Family Mortgage Loans,
based on the Cut-off Date Pool Principal Balance, are Land Sale
Contracts; and no Commercial Mortgage Loans are Land Sale Contracts;
(vi) No Single Family Mortgage Loan or Commercial Mortgage Loan
at origination or at the date of each modification had a principal
balance in excess of $__________ and $__________, respectively; the
average Cut-off Date Principal Balance of the Single Family Mortgage
Loans and the Commercial Mortgage Loans was $__________ and
$__________, respectively;
(vii) At least ____% of the Single Family Mortgage Loans, by
Cut-off Date Pool Principal Balance, are secured by or subject to
owner-occupied primary residences; no more than ____% and _____% of
the Single Family Mortgage Loans and the Commercial Mortgage Loans,
respectively, by Cut-off Date Pool Principal Balance, are non-owner
occupied;
(viii) Each Mortgage Loan will have a first payment due date
on or before the Cut-off Date. Approximately ____% and ____% of the
Single Family Mortgage Loans and Commercial Mortgage Loans,
respectively, based on the Cut-off Date Pool Principal Balance, are
Balloon Loans;
8
<PAGE>
(ix) The Mortgage Interest Rates borne by the Mortgage Loans as
of the Cut-off Date range from ____% per annum to ____% per annum for
Single Family Mortgage Loans and from ____% per annum to ____% per
annum for Commercial Mortgage Loans, and the weighted average Mortgage
Interest Rate, based on the Cut-off Date Pool Principal Balance, is
____% per annum for Single Family Mortgage Loans and is ____% per
annum for Commercial Mortgage Loans;
(x) No more than ____% and ____% of the Single Family Mortgage
Loans and Commercial Mortgage Loans, respectively, based on the
Cut-off Date Pool Principal Balance, were acquired by the Seller in
bulk purchase from financial institutions, including the Resolution
Trust Corporation; no more than ____% and ____% of the Single Family
Mortgage Loans and Commercial Mortgage Loans, respectively, based on
the Cut-off Date Pool Principal Balance, are loans made by the Seller
to facilitate the sale of real estate owned (reo);
(xi) No Single Family Mortgage Loan or Commercial Mortgage Loan
shall have had an LTV as of the Cut-off Date in excess of ____% and
____%, respectively; the weighted average LTV of the Single Family
Mortgage Loans and the Commercial Mortgage Loans as of the Cut-off
Date, based on the Cut-off Date Pool Principal Balance, is ____% and
____%, respectively;
(xii) No more than ____% and ____% of the Single Family
Mortgage Loans and Commercial Mortgage Loans, respectively, contain
provisions requiring the holder thereof to release a portion of the
Mortgaged Property at the request of the Mortgagor prior to full
payment of amounts due under the related Mortgage Note; no more than
____% and ____% of the Single Family Mortgage Loans and Commercial
Mortgage Loans, respectively, based on the Cut-off Date Pool Principal
Balance, are secured by or subject to leasehold estates;
(xiii) As of the Closing Date, and immediately prior to the
transfer of the Mortgage Loans to the Purchaser, the Seller has good
title to the Mortgage Loans and the Mortgage Notes are subject to no
offsets, defenses or counterclaims;
(xiv) Except as set forth on Schedule 1 hereto, as of the
Closing Date, there are no delinquent tax or assessment liens against
any Mortgaged Property;
(xv) The Mortgage Note relating to each Mortgage Loan (other than
a Land Sale Contract) has been endorsed to the Trustee in a form and
in a manner sufficient to convey to the Trustee all right, title and
interest therein of the Seller in all relevant jurisdictions;
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(xvi) There are no mechanics' liens or claims for work, labor
or material affecting any Mortgaged Property, except those (A) which
are insured against by a title insurance policy referred to in (xxii)
or (xxiv) below or (B) are subordinate to the Lien of the related
Mortgage, if applicable;
(xvii) Other than normal wear and tear, each Mortgaged
Property has not declined materially in value due to damage or lack of
repair since the Seller's acquisition of the related Mortgage Loan;
(xviii) Each Mortgage is a valid and enforceable first lien on
the related Mortgaged Property subject only to (A) the Lien of
nondelinquent current real property taxes and assessments and
delinquent property taxes and assessments as set forth in Schedule 1
hereto, (B) 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 Appraisal made in connection with the acquisition by
the Seller of the related Mortgage Loan, and (C) other matters to
which like properties are commonly subject that do not materially
interfere with the benefits of the security intended to be provided by
such Mortgage;
(xix) Each Mortgage Loan at origination and at the date of
each modification complied in all material respects with applicable
state and federal laws, including, without limitation, usury, equal
credit opportunity, real estate settlement procedures,
truth-in-lending and disclosure laws; and consummation of the
transactions contemplated hereby will not involve the violation of any
such laws;
(xx) Neither the Seller nor any prior holder of any Mortgage has
modified the Mortgage in any material respect (except that a Mortgage
Loan may have been modified by a written instrument which is contained
in the File and which has been delivered to the Trustee on or before
the Closing Date); waived, canceled or subordinated such Mortgage in
whole or in part; released the applicable Mortgaged Property in whole
or in part from the lien of such Mortgage (except as set forth in
writing contained in the File); or executed any instrument of release,
cancellation or satisfaction with respect thereto. No more than ____%
of the Mortgage Loans, based on the Cut-off Date Pool Principal
Balance, have been modified by a written instrument which is contained
in the File;
(xxi) With respect to each Land Sale Contract and immediately
prior to the transfer thereof to the Purchaser, the Seller holds the
fee simple interest in the related Mortgaged Property, free and clear
of all liens, claims and encumbrances other than (A) the lien of
nondelinquent current real property taxes and assessments and
delinquent property taxes and assessments as set forth in
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<PAGE>
Schedule 1 hereto, (B) covenants, conditions and restrictions, rights
of way, easements and other matters of public record as of the date of
recording such Land Sale Contract, such exceptions appearing of record
being acceptable to mortgage lending institutions generally or
specifically reflected in the Appraisal made in connection with the
acquisition by the Seller of such Land Sale Contract, (C) the rights
of the buyer of the Mortgaged Property subject to the Land Sale
Contract and (D) other matters to which like properties are commonly
subject that do not materially interfere with the benefits of the
security intended to be provided by such Land Sale Contract;
(xxii) With respect to each Mortgage Loan, other than a Land
Sale Contract, a Title Insurance Policy insuring the first lien
priority of the Mortgage Loan, together with a condominium
endorsement, if applicable, in an amount at least equal to $10,000, or
a commitment binder, commitment to issue the same or preliminary
policy affirmatively insuring ingress and egress and insuring against
encroachments by or upon the Mortgaged Property, was effective on the
date of the Seller's acquisition of such Mortgage Loan, such policy is
valid and remains in full force and effect, and each such policy was
issued by a title insurer qualified to do business in the jurisdiction
where the Mortgaged Property is located, which policy insures either
the Seller or the original holder of the Mortgage and successor owners
of indebtedness secured by the insured Mortgage, as to the first
priority lien of the Mortgage; no claims have been made under such
Title Insurance Policy and no prior holder of the applicable Mortgage,
including the Seller, has done, by act or omission, anything which
would impair the coverage of such mortgage title insurance policy;
(xxiii) Except with respect to any Balloon Loan, each Mortgage
Loan is payable in substantially equal monthly installments of
principal and interest which will be sufficient to fully amortize such
Mortgage Loan within the term thereof, and bears a fixed interest rate
for the term of such Mortgage Loan. Interest accrues on each Mortgage
Loan on an actuarial basis, such that each Monthly Payment contains a
predetermined amount of principal and interest unaffected by whether
such Monthly Payment is made earlier or later than its Due Date;
(xxiv) With respect to each Land Sale Contract, a Title
Insurance Policy insuring the Seller's marketable title to the related
Mortgaged Property, together with a condominium endorsement, if
applicable, in an amount at least equal to the principal balance of
such Land Sale Contract at the time of acquisition by the Seller, or a
commitment binder, commitment to issue the same or preliminary policy
affirmatively insuring ingress and egress and insuring against
encroachments by or upon the Mortgaged Property, was effective on the
date of such acquisition of such Land Sale Contract, such policy is
valid and remains in full force and effect, and each such policy was
issued by a title insurer qualified to do business in the jurisdiction
where the Mortgaged Property is located, which
11
<PAGE>
policy insures the Seller and successor owners of the Mortgaged
Property, as to the marketable title of such Mortgaged Property;
no claims have been made under such Title Insurance Policy and no
prior holder of the Mortgaged Property, including the Seller,
has done, by act or omission, anything which would impair the
coverage of such title insurance policy;
(xxv) All of the improvements which were included for the
purpose of determining the Appraised Value of the Mortgaged Property
lie wholly within the boundaries and building restriction lines of
such property, and no improvements on adjoining properties encroach
upon the Mortgaged Property;
(xxvi) To the best of Seller's knowledge, no improvement
located on or being part of the Mortgaged Property is in violation of
any applicable zoning law or regulation. To the best of Seller's
knowledge, all inspections, licenses and certificates required to be
made or issued with respect to all occupied portions of the Mortgaged
Property and, with respect to the use and occupancy of the same,
including, but not limited to, certificates of occupancy and fire
underwriting certificates, have been made or obtained from the
appropriate authorities and the Mortgaged Property is lawfully
occupied under applicable law;
(xxvii) Each Mortgage Note and the related Mortgage, if
applicable, are genuine, and each is the legal, valid and binding
obligation of the maker thereof, enforceable in accordance with its
terms, except as limited by bankruptcy, insolvency, moratorium,
receivership and other similar laws relating to creditors' rights
generally or by equitable principles. All parties to the Mortgage
Note and the related Mortgage, if applicable, had legal capacity to
execute the Mortgage Note and the related Mortgage, if applicable, and
each Mortgage Note and related Mortgage, if applicable, has been duly
and properly executed by such parties;
(xxviii) The proceeds of the Mortgage Loans have been fully
disbursed, there is no requirement for future advances thereunder and
any and all requirements as to disbursement of any escrow funds
therefor have been complied with. The accounts in which escrow
deposits, if any, are made with respect to each Mortgage Loan, contain
all amounts required to be on deposit therein under the terms of the
related Mortgage Loan subject to applicable laws;
(xxix) Each Mortgage contains customary and enforceable
provisions that render the rights and remedies of the holder thereof
adequate for the realization against the Mortgaged Property of the
benefits of the security, including, but not limited to, (A) in the
case of a Mortgage designated as a deed of trust, by trustee's sale,
and (B) otherwise by judicial foreclosure. There is no homestead or
other exemption available to the Mortgagor which would interfere with
the right to sell the Mortgaged Property at a trustee's sale or the
right to foreclose the Mortgage. Each Land Sale Contract contains
customary and enforceable
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<PAGE>
provisions that render the rights and remedies of the holder thereof
adequate for the forfeiture of the Mortgaged Property by the
Mortgagor;
(xxx) With respect to each Mortgage constituting a deed of
trust, a trustee, duly qualified under applicable law to serve as
such, has been properly designated and currently so serves and is
named in such Mortgage, and no fees or expenses are or will become
payable by the Trustee to the trustee under the deed of trust, except
in connection with a trustee's sale after default by the Mortgagor;
(xxxi) Each Mortgage Loan is secured primarily by an
enforceable first priority mortgage, deed of trust or similar security
instrument or is an installment contract for the sale of real property
and the improvements thereon;
(xxxii) No Mortgage Loan has a shared appreciation feature, or
other contingent interest feature;
(xxxiii) With respect to each Mortgage Loan secured by or
subject to a leasehold estate:
(A) The leasehold created by direct lease of the freehold
estate, the ground lease or memorandum thereof has been recorded,
and by its terms permits the leasehold estate to be mortgaged.
The ground lease grants any leasehold mortgagee standard
protections necessary to protect the security of a leasehold
mortgagee including the right of the leasehold mortgagee to
receive notice of the lessee's default under the ground lease;
the right of the leasehold mortgagee, with adequate time, to cure
such default; and, an the case of incurable defaults of the
lessee, the right of the leasehold mortgagee to assume the ground
lease or enter into a new ground lease with the lessor on terms
financially identical to the existing ground lease;
(B) The ground lease was at the origination of the Mortgage
Loan, and is in full force and effect without any outstanding
defaults, and was and is not subject to liens and encumbrances;
(C) The ground lease extends beyond the date scheduled for
the final payment on the Mortgage Loan secured by such leasehold
interest; and
(D) The fee estate of the lessor under the ground lease is
encumbered by the ground lease, and any lien of any present or
future fee mortgagee is and will be subject to and subordinate to
the ground lease. The foreclosure of the fee mortgage will not
terminate the leasehold estate
13
<PAGE>
or the rights of the sub-tenants, and the fee mortgage is subject
to the ground lease;
(xxxiv) The improvements upon each Mortgaged Property are
covered by a valid and existing hazard insurance policy with a
generally acceptable carrier which policy provides for fire extended
coverage and such other hazards as are customary in the area where the
Mortgaged Property is located representing coverage not less than the
outstanding principal balance of the Mortgage Loan as of the Cut-off
Date. Such insurance policies contain a standard mortgagee clause
naming in the case of a Mortgage Loan, the Seller and its successors
in interest, as mortgagee, and the Seller has received no notice that
any premiums due and payable thereon have not been paid; the Mortgage
or Land Sale Contract, as applicable, obligates the related Mortgagor
to maintain all such insurance at the Mortgagor's cost and expense,
and upon the Mortgagor's failure to do so, authorizes the holder of
the Mortgage or Land Sale Contract, as applicable, to obtain and
maintain such insurance at the Mortgagor's cost and expense and to
seek reimbursement therefor from the Mortgagor;
(xxxv) If the Mortgaged Property is in an area identified in
the Federal Register by the Federal Emergency Management Agency as
having special flood hazards and if required by law, a flood insurance
policy in a form meeting the requirements of the current guidelines of
the Flood Insurance Administration is in effect with respect to such
Mortgaged Property with a generally acceptable carrier in an amount
representing coverage not less than the least of (A) the outstanding
principal balance of the Mortgage Loan, (B) the minimum amount
required to compensate for damage or loss on a replacement cost basis
or (C) the maximum amount of insurance that is available under the
Flood Disaster Protection Act of 1973;
(xxxvi) There is no proceeding pending or currently occurring
or, to the best of the Seller's knowledge, threatened for the total or
partial condemnation for any Mortgaged Property;
(xxxvii) Subject to (xli) and except with respect to Mortgage
Loans set forth on Schedules 1 and 2, there is no default, breach,
violation or event of acceleration existing under the Mortgage or the
related Mortgage Note; and the Seller has not waived any default,
breach, violation or event of acceleration except as set forth in
writing contained in the File, and all governmental assessments,
insurance premiums, water, sewer and municipal charges, leasehold
payments or ground rents which previously became due and owing have
been paid;
(xxxviii) Prior to the approval of the purchase of the Mortgage
Loan by the Seller, an Appraisal of the related Mortgaged Property was
obtained by a
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<PAGE>
qualified appraiser, duly appointed or accepted by the Seller, who had
no interest, direct or indirect, in the Mortgaged Property or in any
loan made on the Security thereof, and whose compensation was not
affected by the approval or disapproval of the purchase of such
Mortgage Loan;
(xxxix) None of the Mortgage Loans is a graduated payment loan;
(xl) In selecting the Mortgage Loans for sale pursuant hereto, no
selection procedure was employed by the Seller which was intended to
adversely affect the interest of the Purchaser;
(xli) (A) as of the Cut-off Date, no Mortgage Loan is more
than 59 days delinquent, (B) as of the Cut-off Date, approximately
____% of the Single Family Mortgage Loans were between 30 days and 59
days delinquent, (C) approximately ____% of the Single Family Mortgage
Loans have been 30 days delinquent at least once during the period
commencing January 1, 1995 through __________, 1996, (D) during the
period from January 1, 1995 through __________, 1996, ____%, ____%,
____%, ____% and ____% of the Single Family Mortgage Loans have been
30 days delinquent two times, three times, four times, five times and
more than five times, respectively, (E) during the period from
January 1, 1995 through __________, 1996, approximately ____% of the
Single Family Mortgage Loans have been 60 days delinquent at least
once, (F) during the period from January 1, 1995 through __________,
1996, approximately ____% and ____% of the Single Family Mortgage
Loans have been 60 days delinquent two times and more than two times
and (G) during the period from January 1, 1995 through __________,
1996, approximately ____% of the Single Family Mortgage Loans have
been 90 days delinquent at least once;
(xlii) (A) as of the Cut-off Date, approximately ____% of the
Commercial Mortgage Loans were between 30 days and 59 days delinquent,
(B) approximately ____% of the Commercial Mortgage Loans have been 30
days delinquent at least once during the period commencing January 1,
1995 through __________, 1996, (C) during the period from January 1,
1995 through __________, 1996, ____%, ____%, ____%, ____% and ____% of
the Commercial Mortgage Loans have been 30 days delinquent two times,
three times, four times, five times and more than five times,
respectively, (D) during the period from January 1, 1995 through
__________, 1996, approximately ____% of the Commercial Mortgage Loans
have been 60 days delinquent at least once, (E) during the period from
January 1, 1995 through __________, 1996, approximately ____% and
____% of the Commercial Mortgage Loans have been 60 days delinquent
two times and more than two times and (F) during the period from
January 1, 1995 through __________, 1996, approximately ____% of the
Commercial Mortgage Loans have been 90 days delinquent at least once;
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(xliii) No material misrepresentation, fraud or similar
occurrence with respect to a Mortgage Loan has taken place on the part
of any person involved in the origination of the Mortgage Loan or in
the application of any insurance in relation to such Mortgage Loan;
(xliv) Upon payment of the purchase price for the Mortgage
Loan by the Purchaser, the Seller has transferred to the Purchaser
good and indefeasible title to, with respect to each Mortgage Loan,
each Mortgage Note and related Mortgage, if applicable, free and clear
of any and all liens, claims, encumbrances, participation interests,
equities, pledges, charges or security interests of any nature and has
full right and authority, subject to no participation of or agreement
with any other person, to sell and assign the same;
(xlv) The Seller has not assigned any interest or
participation in any Mortgage Loan other than pursuant to this
Agreement;
(xlvi) Each Mortgage Loan constitutes a "qualified mortgage"
within the meaning of Section 860G(a)(3) of the Code;
(xlvii) Each Mortgage Loan was acquired by the Seller in
accordance with the Seller's Acquisition Procedures; and
(xlviii) Substantially all proceeds of each Mortgage Loan listed
on Schedule 3 were used to acquire, improve or protect an interest in
real property which, at the origination date, was the only security
for each such Mortgage Loan.
(c) Upon discovery by any Interested Person of a breach of a
representation or warranty set forth in Section 3.01(a) or 3.01(b) hereof
that materially and adversely affects the value of a Mortgage Loan or
Mortgage Loans or the interests of any Interested Person in any Mortgage
Loan or Mortgage Loans, the party discovering such breach shall give prompt
notice thereof to the other parties. In such event, the Seller shall cure
such breach or repurchase or substitute such Mortgage Loan or Mortgage
Loans in accordance with Section 2.05 hereof.
(d) The Seller hereby agrees to make in the Pooling and Servicing
Agreement such other representations and warranties with respect to the
Mortgage Loans as are customary, usual and requested by any Rating Agency
in connection with the rating of any Class of the Certificates.
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ARTICLE IV
ISSUANCE OF THE CERTIFICATES
Section 4.01. INFORMATION TO BE PROVIDED BY THE SELLER IN CONNECTION WITH
THE ISSUANCE OF THE CERTIFICATES. The Seller agrees to provide the Purchaser
with any and all information and appropriate verification of information,
whether through letters of its auditors and counsel or otherwise, and will
provide to the Purchaser such additional representations and warranties,
covenants, opinions of counsel, letters from auditors, and certificates of
public officials or officers of the Seller as may be reasonably requested by the
Purchaser in order to effect the issuance of Certificates, which Certificates
shall bear a rating selected by the Purchaser and acceptable to the Seller. Any
such information or verification of information shall be requested by the
Purchaser in a manner which shall provide the Seller with adequate time to
respond to such request. The Purchaser and Seller acknowledge that the issue
and sale of the Certificates will require the disclosure of the Seller and
Master Servicer's underwriting criteria, delinquency, foreclosure and loss
experience of the Master Servicer's loan portfolio, certain financial
information of the Seller and the Master Servicer, the characteristics of the
Mortgage Loans and the collection and other servicing practices of the Master
Servicer as part of the Prospectus (the information furnished in writing to the
Purchaser for use in the Prospectus or any preliminary prospectus or any
amendment or supplement thereto referred to in this sentence being the
"Seller/Servicer Information"). The Seller agrees to cooperate with the
Purchaser and promptly supply any information concerning the Seller, the Master
Servicer and/or the Mortgage Loans which the Purchaser determines is required to
be disclosed in the Prospectus and shall deliver to the Purchaser a comfort
letter from a nationally recognized public accounting firm as to the usual and
customary financial and statistical information concerning the Mortgage Loans
and the Seller that is acceptable to the Purchaser. The Seller shall provide an
initial draft of the Seller/Servicer Information to the Purchaser which the
Purchaser shall be entitled to revise with the consent of the Seller. In
addition, the Seller hereby agrees to execute and deliver the Pooling and
Servicing Agreement in its capacity as Seller.
ARTICLE V
NON-SOLICITATION
Except as provided herein and in the Pooling Agreement, the Seller hereby
agrees that it will not take any action or cause any action to be taken by any
of its agents, employees, affiliates or any Person, broker or correspondent on
behalf of the Seller or directed by the Seller to solicit personally, by
telephone or by mail the prepayment in whole or in part of any Mortgage Loan
without the prior written consent of the Purchaser. The Seller agrees that it
will not prepare or distribute or cause to be prepared or distributed, for
compensation or otherwise, any mailing list consisting only of the Mortgagors or
the Mortgage Loans to parties or Persons other than the Purchaser.
Notwithstanding the foregoing, the Seller, its agents, employees, affiliates or
any Person, broker or correspondent on behalf of the Seller shall be permitted
to solicit any Mortgagor of a Balloon Loan within one year of such Balloon
Loan's maturity date
17
<PAGE>
for purposes of offering refinancing of such Balloon Loan; provided, however,
any such refinancing shall not accelerate the Calculated Maturity Date of such
Balloon Loan by more than six months.
ARTICLE VI
MISCELLANEOUS
Section 6.01. NOTICES. All demands, notices and communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed by
registered or certified mail, return receipt requested, or, if by other means,
when received by the other party at the address shown below, or such other
address as may hereafter be furnished to the other party by like notice. Any
such demand, notice or communication hereunder shall be deemed to have been
received on the date delivered to or received at the premises of the addressee
(as evidenced, in the case of registered or certified mail, by the date noted on
the return receipt).
If to the Purchaser to: Metropolitan Asset Funding, Inc.
929 West Sprague Avenue
Spokane, Washington 99204
Attention: __________
If to the Seller to: Metropolitan Mortgage & Securities Co., Inc.
929 West Sprague Avenue
Spokane, Washington 99204
Attention: Bruce J. Blohowiak
Section 6.02. SEVERABILITY CLAUSE. Any part, provision, representation or
warranty of this Agreement which is prohibited or which is held to be void or
unenforceable shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions thereof. Any
part, provision, representation or warranty of this Agreement which is
prohibited or unenforceable or is held to be void or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such provisions thereof, and any such prohibition or unenforceability in any
jurisdiction as to any Mortgage Loan shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by applicable law, the parties hereto waive any provision of law which prohibits
or renders void or unenforceable any provision hereof. If the invalidity of any
part, provision, representation or warranty of this Agreement shall deprive any
party of the economic benefit intended to be conferred by this Agreement, the
parties shall negotiate in good faith to develop a structure the economic effect
of which is as nearly as possible the same as the economic effect of this
Agreement without regard to such invalidity.
Section 6.03. GOVERNING LAW. THE AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF WASHINGTON, AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
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DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK EXCEPT TO THE
EXTENT PREEMPTED BY FEDERAL LAW.
Section 6.04. FURTHER AGREEMENTS. The Purchaser and the Seller each agree
to execute and deliver to the other such additional documents, instruments or
agreements as may be necessary or appropriate to effectuate the purposes of this
Agreement and the issuance of the Certificates.
Section 6.05. SUCCESSORS AND ASSIGNS; ASSIGNMENT OF MORTGAGE LOAN PURCHASE
AGREEMENT. This Agreement shall bind and inure to the benefit of and be
enforceable by the Seller, Purchaser and the Trustee. This Agreement cannot be
assigned, pledged or hypothecated by the Seller to a third party without the
consent of the Purchaser. The parties hereto acknowledge that the Purchaser is
acquiring the Mortgage Loans for the purpose of contributing them to the Trust
Fund that will issue Certificates. As an inducement to the Purchaser to
purchase the Mortgage Loans, the Seller acknowledges and consents to the
assignment by the Purchaser to the Trustee of all of the Purchaser's rights
against the Seller pursuant to this Agreement and to the enforcement or exercise
of any right or remedy against the Seller pursuant to this Agreement by the
Trustee, any successor to the duties and obligations of the Trustee under the
Pooling and Servicing Agreement or by any holder of a Certificate to the extent
permitted under the Pooling and Servicing Agreement. Such enforcement of a
right or remedy by the Trustee, such successor or such holder of a Certificate
shall have the same force and effect as if the right or remedy had been enforced
or exercised by the Purchaser directly.
Section 6.06. WAIVERS; OTHER AGREEMENTS. No term or provision of this
Agreement may be waived or modified unless such waiver or modification is in
writing and signed by the party against whom such waiver or modification is
sought to be enforced.
Section 6.07. EXHIBITS. The exhibits and schedules to this Agreement are
hereby incorporated and made a part hereof and are an integral part of this
Agreement.
Section 6.08. GENERAL INTERPRETIVE PRINCIPLES. For purposes of this
Agreement, except as otherwise expressly provided or unless the context
otherwise requires:
(a) the terms defined in this Agreement have the meanings assigned to
them in this Agreement and include the plural as well as the singular, and
the use of any gender herein shall be deemed to include the other gender;
(b) accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting
principles;
(c) references herein to "Articles," "Sections," "Subsections,"
"Paragraphs," and other subdivisions without reference to a document are to
designated Articles, Sections, Subsections, Paragraphs and other
subdivisions of this Agreement;
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(d) a reference to a Subsection without further reference to a
Section is a reference to such Subsection as contained in the same Section
in which the reference appears, and this rule shall also apply to
Paragraphs and other subdivisions;
(e) the words "herein," "hereof," "hereunder," and other words of
similar import, refer to this Agreement as a whole and not to any
particular provision; and
(f) the term "include" or "including" shall mean without limitation
by reason of enumeration.
Section 6.09. COUNTERPARTS. This Agreement may be executed simultaneously
in any number of counterparts. Each counterpart shall be deemed to be an
original, and all such counterparts shall constitute one and the same
instrument.
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IN WITNESS WHEREOF, the Seller and the Purchaser have caused their names to
be signed by their respective officers thereunto duly authorized as of the date
first above written.
METROPOLITAN ASSET FUNDING, INC., as Purchaser
By
-----------------------------
Name:
--------------------------
Title:
-------------------------
METROPOLITAN MORTGAGE & SECURITIES CO., INC., as
Seller
By
-----------------------------
Name:
--------------------------
Title:
-------------------------
21
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EXHIBIT A
MORTGAGE LOAN SCHEDULE
A-1
<PAGE>
SCHEDULE 1
DELINQUENT TAX SCHEDULE
<PAGE>
SCHEDULE 2
SELLER MATERIALS
<PAGE>
SCHEDULE 3
HIGH LTV MORTGAGE LOANS
<PAGE>
EXHIBIT 5.1
[LETTERHEAD]
KUTAK ROCK ATLANTA
A PARTNERSHIP KANSAS CITY
INCLUDING PROFESSIONAL CORPORATIONS LITTLE ROCK
SUITE 2900 NEW YORK
717 SEVENTEENTH STREET OKLAHOMA CITY
DENVER, COLORADO 80202-3329 OMAHA
(303) 297-2400 PHOENIX
FACSIMILE (303) 292-7799 PITTSBURGH
WASHINGTON
October 21, 1996
Metropolitan Asset Funding, Inc.
929 West Sprague Avenue, Suite 106
Spokane, Washington 99204
Ladies and Gentlemen:
We have acted as counsel to Metropolitan Asset Funding, Inc. (the
"Registrant") in connection with the preparation of (i) the Registration
Statement on Form S-3 (Registration No. 333-11447) filed with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"), including the form of Prospectus forming a part thereof
(the "Prospectus") and (ii) Pre-Effective Amendments thereto (together, the
"Registration Statement"). The Registration Statement and the Prospectus relate
to the registration of Mortgage Pass-Through Certificates (the "Offered
Certificates"). The Offered Certificates will be created and issued pursuant to
a Pooling and Servicing Agreement entered into between you, MetWest Mortgage
Services, Inc. and The Bank of New York, as trustee (the "Trustee") (the
"Pooling Agreement"), as described in the Registration Statement. Except as
otherwise indicated herein, all terms defined in the Prospectus are used herein
as so defined.
We have made such investigations of law as we deemed appropriate and have
examined the proceedings heretofore taken and are familiar with the procedures
proposed to be taken by the Registrant in connection with the authorization,
issuance and sale of such Offered Certificates. We have examined the
Registration Statement, the Prospectus and such other documents as we have
deemed necessary or advisable for purposes of rendering this opinion.
<PAGE>
Metrpolitan Asset Funding, Inc.
October 22, 1996
Page 2
In rendering the following opinions, we have assumed the accuracy and
truthfulness of all public records of the Registrant and of all certifications,
documents and other proceedings examined by us that have been executed or
certified by officials of the Registrant acting within the scope of their
official capacities and have not verified the accuracy or truthfulness thereof.
We have further assumed that the Trust will be organized and operated as
described in the Prospectus. We also have assumed the genuineness of the
signatures appearing upon such public records, certifications, documents and
proceedings.
We have assumed for the purposes of the opinions set forth below that
(i) the Pooling Agreement has been duly authorized by all necessary action and
duly executed and delivered by the parties thereto substantially in the form
filed in the Exhibits to the Registration Statement, (ii) the Offered
Certificates will be created and issued substantially in the form set forth in
the Pooling Agreement, all as described in the Registration Statement, (iii) the
Offered Certificates will be duly authorized by all necessary action, duly
executed, authenticated by the Trustee and delivered in accordance with the
provisions of the Pooling Agreement, and (iv) such Offered Certificates will be
sold by you for reasonably equivalent consideration. In addition, we have
assumed that the parties to the Pooling Agreement will satisfy their respective
obligations thereunder.
In rendering this opinion herein, we do not express any opinion concerning
the laws of any jurisdiction other than the substantive laws of the State of
Colorado and the State of New York (without regard to conflict of law
principles), and to present judicial interpretations thereof and to facts as
they presently exist. We do not express any opinion, either implicitly or
otherwise, on any issue not expressly addressed below.
On the basis of the foregoing examination and assumptions, and upon
consideration of applicable law, it is our opinion that:
1. The Pooling Agreement constitutes a valid and binding obligation of
the Registrant enforceable in accordance with its terms, subject to applicable
bankruptcy, reorganization, insolvency and similar laws affecting creditors'
rights generally and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding in equity or
at law); and
2. The Offered Certificates offered pursuant to the Registration
Statement will be legally and validly issued, fully paid and nonassessable,
and the holders thereof will be entitled to the benefits of the Pooling
Agreement pursuant to which the Offered Certificates were issued;
<PAGE>
Metropolitan Asset Funding, Inc.
October 22, 1996
Page 3
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the references to this firm under the headings
"Certain Federal Income Tax Consequences", "Legal Matters" and other references
thereto in the Prospectus forming a part of the Registration Statement, without
admitting that we are "experts" within the meaning of the Act or the rules and
regulations or the Commission issued thereunder, with respect to any part of the
Registration Statement, including this exhibit.
Respectfully submitted,
/s/ Kutak Rock
Kutak Rock
<PAGE>
EXHIBIT 8.1
[LETTERHEAD]
KUTAK ROCK ATLANTA
A PARTNERSHIP KANSAS CITY
INCLUDING PROFESSIONAL CORPORATIONS LITTLE ROCK
SUITE 2900 NEW YORK
717 SEVENTEENTH STREET OKLAHOMA CITY
DENVER, COLORADO 80202-3329 OMAHA
(303) 297-2400 PHOENIX
FACSIMILE (303) 292-7799 PITTSBURGH
WASHINGTON
October 21, 1996
Metropolitan Asset Funding, Inc.
929 West Sprague Avenue, Suite 106
Spokane, Washington 99204
Ladies and Gentlemen:
We have acted as counsel to Metropolitan Asset Funding, Inc. (the
"Registrant") in connection with the preparation of (i) the Registration
Statement on Form S-3 (Registration No. 333-11447) filed with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"), including the form of Prospectus forming a part thereof
(collectively, the "Prospectus") and (ii) Pre-Effective Amendments thereto
(together, the "Registration Statement"). The Registration Statement and the
Prospectus relate to the registration of Mortgage Pass-Through Certificates (the
"Offered Certificates"). The Offered Certificates will be created and issued
pursuant to a Pooling and Servicing Agreement entered into among The Bank of New
York, as trustee, (the "Trustee"), MetWest Mortgage Services, Inc, the Sellers
and you (the "Pooling Agreement"), as described in the Registration Statement.
Except as otherwise indicated herein, all terms defined in the Prospectus are
used herein as so defined.
We have examined the Registration Statement, the Prospectus and such other
documents as we have deemed necessary or advisable for purposes of rendering
these opinions. In rendering the following opinions, we have assumed the
accuracy and truthfulness of all public records of the Registrant and of all
certifications, documents and other proceedings examined by us that have been
executed or certified by officials of the Registrant acting within the scope
<PAGE>
Metropolitan Asset Funding, Inc.
October 21, 1996
Page 2
of their official capacities and have not verified the accuracy or truthfulness
thereof. We have further assumed that the Trust will be organized and operated
as described in the Prospectus. We moreover have assumed the genuineness of the
signatures appearing upon such public records, certifications, documents and
proceedings.
Further, we have assumed for the purposes of the opinions set forth below
that (i) the Pooling Agreement has been duly authorized by all necessary action
and duly executed and delivered by the parties thereto substantially in the form
filed in the Exhibits to the Registration Statement, (ii) the Offered
Certificates will be created and issued substantially in the form set forth in
the Pooling Agreement, all as described in the Registration Statement, and
(iii) the Offered Certificates will be duly authorized by all necessary action,
duly executed, authenticated by the Trustee and delivered in accordance with the
provisions of the Pooling Agreement. In addition, we have assumed that the
parties to the Pooling Agreement will satisfy their respective obligations
thereunder. We hereby do not intend to render any opinion concerning the
transactions described in the Prospectus, other than as expressly set forth
herein.
The opinions set forth herein are based upon the applicable provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations
promulgated and proposed thereunder, current administrative positions of the
Internal Revenue Service (the"IRS") and existing judicial decisions. Changes in
the Code, the Regulation, or interpretation thereof could preclude us from
rendering a similar opinion in the future.
On the basis of the foregoing examination and assumptions, and upon
consideration of applicable law, it is our opinion that:
(i) the Mortgage Pool will be characterized as a REMIC within the meaning
of Section 860D of the Code, and the Offered Certificates will be characterized
as regular interests in such REMIC;
(ii) the description of selected federal income tax consequences of the
ownership of the Offered Certificates under the heading of "Certain Federal
Income Tax Consequences" in the Prospectus discusses all material federal income
tax consequences of the purchase, ownership and disposition of the Offered
Certificates, to the purchasers described in such description subject to special
rules under the Internal Revenue Code of 1986, as amended, and the description
is accurate in all material respects with respect to those tax consequences that
are discussed.
<PAGE>
Metropolitan Asset Funding, Inc.
October 21, 1996
Page 3
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the references to this firm under the headings
"Certain Federal Income Tax Consequences", "Legal Matters" and other references
thereto in the Prospectus forming a part of the Registration Statement, without
admitting that we are "experts" within the meaning of the Act or the rules and
regulations or the Commission issued thereunder, with respect to any part of the
Registration Statement, including this Exhibit. This opinion is intended solely
for your use in connection with the transactions contemplated in the
Registration Statement and may not be relied upon by any other person without
our prior written consent.
Respectfully submitted,
/s/ Kutak Rock
Kutak Rock
