<PAGE>
Filed Pursuant to Rule 424(b)(4)
Registration No. 333-11447
PROSPECTUS
$113,416,650 (APPROXIMATE)
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 December
20, 1996
------------------------
The Mortgage Pass-Through Certificates, Series 1996-A (the "Certificates")
will represent the entire beneficial ownership interest in a trust fund (the
"Trust Fund") to be created pursuant to a Pooling and Servicing Agreement, dated
as of November 1, 1996 (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 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 until any such contract is paid in full ("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, mobile home park, industrial and mixed use properties) as described
more fully herein under "THE MORTGAGE POOL--General" and have principal balances
as of the Cutoff Date of less than $822,050. Only the Classes identified in the
tables 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>
PRICE TO PROCEEDS TO
CLASS PUBLIC(1) UNDERWRITING DISCOUNT DEPOSITOR(2)(3)
- ------------------------ ------------ --------------------- ------------
<S> <C> <C> <C>
Per Class A-1
Certificate 99.7086% 0.625% $42,071,360
Per Class A-2
Certificate 99.8495% 0.625% 24,323,023
Per Class A-3
Certificate 99.9231% 0.625% 9,177,102
Per Class A-4
Certificate 99.8516% 0.625% 25,596,554
Per Class B-1
Certificate 99.8674% 0.625% 6,916,935
Per Class B-2
Certificate 99.8872% 0.625% 4,402,564
------------ -------- ------------
Total $113,196,392 $ 708,854 $112,487,538
------------ -------- ------------
------------ -------- ------------
- ------------------------------
(1) Plus accrued interest from November 1, 1996.
(2) Before deduction of expenses estimated to be $479,600 payable by the
Depositor.
(3) Approximate. Before deduction of additional compensation payable to the
Underwriters in an amount equal to approximately $316,806.
</TABLE>
The Offered Certificates are offered by First Southwest Company and Bear,
Stearns & Co. Inc. (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, will be made in book-entry form only through the facilities of The
Depository Trust Company ("DTC") on or about November 26, 1996.
<TABLE>
<S> <C>
STRUCTURED CAPITAL MANAGEMENT BEAR, STEARNS & CO. INC.
A DIVISION OF FIRST SOUTHWEST
COMPANY
</TABLE>
November 20, 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 on December 20, 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
CLASS LAST SCHEDULED
CERTIFICATE PRINCIPAL INTEREST DISTRIBUTION
CLASS BALANCE(1) TYPE(2) PASS-THROUGH RATE TYPE(2) DATE(3)
- --------- --------------- -------------- ----------------- --------- -------------------
<S> <C> <C> <C> <C> <C>
A-1 $42,460,468 SEN/AD/SEQ 6.05% Fix October 20, 2001
A-2 24,513,122 SEN/AD/SEQ 6.85 Fix August 20, 2005
A-3 9,241,971 SEN/AD/SEQ 7.15 Fix September 20, 2007
A-4 25,796,061 SEN/AD 6.95 Fix April 20, 2008
B-1 6,969,738 SUB/AD 7.20 Fix April 20, 2008
B-2 4,435,288 SUB/AD 7.50 Fix April 20, 2008
- ------------------------------
(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 Exhibit A hereto.
(3) See "DESCRIPTION OF THE CERTIFICATES--Last Scheduled Distribution Date" herein.
</TABLE>
Except with respect to certain Mortgage Loans originated 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
"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 on behalf of
the Trust Fund 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 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.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by or on behalf of the Trust Fund with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of 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.
i
<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
86.
<TABLE>
<S> <C>
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.
</TABLE>
<TABLE>
<CAPTION>
NON-OFFERED CERTIFICATES........
APPROXIMATE
INITIAL CLASS
CERTIFICATE PASS-THROUGH
CLASS BALANCE(1) RATE
-------------------------- ---------------- -------------
B-3(2) ................... $ 3,801,675 8.25%
<S> <C> <C> <C>
B-4(2) ................... 4,118,481 8.25
B-5(2) ................... 2,851,256 8.25
R(2) ..................... 2,534,450(3) (3)
------------------------
(1) Approximate; subject to a variance of plus or minus
5%.
(2) The Class B-3, Class B-4, Class B-5 and Class R
Certificates will provide limited credit support for the
Offered Certificates as described herein.
(3) The Class R Certificates will be comprised of two
payment components. See "DESCRIPTION OF THE CERTIFI-
CATES--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."
</TABLE>
<TABLE>
<S> <C>
SENIOR CERTIFICATES............. Class A-1, Class A-2, Class A-3 and Class A-4
Certificates.
CLASS B CERTIFICATES............ Class B-1, Class B-2, Class B-3, Class B-4 and Class B-5
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.
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
PRINCIPAL ONLY CLASS............ Class PO Component.
PHYSICAL CERTIFICATES........... All Classes of Certificates other than the Offered
Certificates.
BOOK-ENTRY CERTIFICATES......... All Classes of Offered 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").
CUTOFF DATE....................... November 1, 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 December 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 $126,722,514.68 (the "Cutoff Date Pool
Principal Balance"). See "THE MORTGAGE POOL" herein.
(a) MORTGAGE LOANS. The Mortgage Loans will be secured
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 retail
properties, hotels and motels, industrial properties,
mobile home and recreation vehicle parks, and mixed use
properties having a principal balance as of the Cutoff
Date with respect to any single such Mortgage Loan of
less than $822,050 (each such Mortgage Loan, a "Com-
mercial 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
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Loans." Approximately 75.95% and 24.05% of the Mortgage
Loans (by Cutoff Date Pool Principal Balance) 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.
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 80.34% of the Single Family
Mortgage Loans, 76.44% of the Commercial Mortgage
Loans and 79.41% of the Mortgage Loans (in each
case, expressed as Pool Percentages (as hereinafter
defined)) and principal will be payable, on a level
debt service basis to fully amortize the loan over
its term, and, with respect to 19.66% of the Single
Family Mortgage Loans, 23.56% of the Commercial
Mortgage Loans and 20.59% of the Mortgage Loans (in
each case, expressed as Pool Percentages), 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." All of the Mortgage Loans accrue interest
at fixed Mortgage Rates.
(B) Approximately 1.82% of the Single Family
Mortgage Loans, 7.14% of the Commercial Mortgage
Loans and 3.10% of the Mortgage Loans (in each case,
expressed as Pool Percentages) 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
41 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 Mort-
gage 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
</TABLE>
iv
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<TABLE>
<S> <C>
any Mortgage Loans included in the Mortgage Pool will be
remitted to an account (the "Collection Account"), and,
together with any other amounts as described herein,
will be available for distribution on the Certificates
as described herein. Such Collection Account shall be an
Eligible Account or Accounts established and maintained
by the Master Servicer for the benefit of holders of the
Certificates.
POOLING AND SERVICING AGREEMENT... The Certificates will be issued pursuant to a Pooling
and Servicing Agreement, dated as of November 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 B-5 Certificates;
(g) 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);
(h) after the Offered Certificates are paid in full,
sequentially, to principal of the Class B-3, Class B-4,
Class B-5 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
(i) 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-
</TABLE>
v
<PAGE>
<TABLE>
<S> <C>
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, Class B-5 and Class R
Certificates are not entitled to distributions of
principal until the Class Certificate Balance of each
Class of Offered Certificates has been paid in full.
See "DESCRIPTION OF THE CERTIFICATES--Distributions"
herein.
CREDIT 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
</TABLE>
vi
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<TABLE>
<S> <C>
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.
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE LIVES (IN
YEARS)*.........................
CPR
------------------------------------------------------------------
CLASS 0.0% 5.0% 10.0% 15.0% 20.0%
----- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
A-1 2.637 1.684 1.198 0.907 0.718
A-2 6.696 4.502 3.310 2.563 2.063
A-3 9.681 6.780 4.755 3.711 2.976
A-4 6.874 6.032 5.217 4.457 3.839
B-1 6.874 6.032 5.217 4.457 3.839
B-2 6.874 6.032 5.217 4.457 3.839
-------------------------
*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.
</TABLE>
<TABLE>
<S> <C>
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.
</TABLE>
vii
<PAGE>
<TABLE>
<S> <C>
See "THE POOLING AND SERVICING AGREEMENT-- Servicing
Compensation and Payment of Expenses" herein.
ADVANCES.......................... The Master Servicer is obligated to make cash advances
("Advances") with respect to delinquent payments of
principal and interest on any Mortgage Loan to the
extent that such Advances are determined by the Master
Servicer to be recoverable. The Trustee will be
obligated to make such Advance if the Master Servicer
fails in its obligation to do so, to the extent provided
in the Pooling Agreement. See "THE POOLING AND SERVICING
AGREEMENT--Advances" herein.
With respect to any Mortgage Loan that is a Balloon
Loan, in the event of default in the scheduled balloon
principal payment (each, a "Balloon Payment") due on the
maturity of such Mortgage Loan, the Master Servicer will
advance each month an amount equal to interest (subject
to the Master Servicer's determination as to
recoverability) on the Mortgage Loan deemed to be due
thereon and which is unpaid by the 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 that would
otherwise be required to be made if such Mortgage Loan
were not a Balloon Loan.
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 Mortgage Loan in a commercially reasonable
manner if the Master
</TABLE>
viii
<PAGE>
<TABLE>
<S> <C>
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, including risks relating to inconsistent loan
documentation, reduced loan underwriting standards,
environmental risks, balloon loans, and appraisal risks
involving the method and timing of appraisals, 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 "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 approved by the Secretary of
Housing and Urban Development and certain 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
</TABLE>
ix
<PAGE>
<TABLE>
<S> <C>
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:
</TABLE>
<TABLE>
<CAPTION>
CLASS MOODY'S DUFF & PHELPS
----------------------------------- ----------------- -------------
<S> <C> <C> <C>
A-1 Aaa AAA
A-2 Aaa AAA
A-3 Aaa AAA
A-4 Aaa AAA
B-1 Aa2 AA
B-2 A2 A
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.
</TABLE>
x
<PAGE>
RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Offered Certificates. Unless otherwise
indicated, information presented below in this section expressed as a percentage
(other than rates of interest) with respect to Single Family Mortgage Loans,
Commercial Mortgage Loans and Mortgage Loans are approximate percentages based
on the aggregate Cutoff Date Scheduled Principal Balance of the Single Family
Mortgage Loans, aggregate Cutoff Date Scheduled Principal Balance of the
Commercial Mortgage Loans and the Cutoff Date Pool Principal Balance,
respectively (each a "Pool Percentage" and collectively, the "Pool
Percentages").
INCONSISTENT DOCUMENTATION;
UNAVAILABILITY OF CERTAIN INFORMATION
Approximately 53.68% 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 related Seller 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 that are
typically 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 for 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.
APPRAISAL RISKS
NON-CURRENT APPRAISALS. The Sellers, in connection with their
reunderwriting of a Mortgage Loan, calculated 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. A drive-by appraisal of the
market value of each Mortgaged Property generally was obtained within 60 days
prior to the purchase by the related Seller of the Mortgage Loan. However, in
certain instances, Metropolitan may have utilized a previous appraisal if it was
completed within six months prior to the purchase by such Seller. Mortgage Loans
that have been acquired on the secondary market from institutional investors
generally have appraisals which were obtained at the time of, and in connection
with, such Mortgage Loans' originations. In no event, however, are any such
appraisals now current. 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
<PAGE>
or on the date of valuation. See "THE MORTGAGE POOL--General" and "--Acquisition
Underwriting Standards."
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. In addition, as of the close of business on the Business Day
immediately preceding the Cutoff Date, approximately 1.36% of the Mortgage Loans
(by principal balance) were at least one month but less than 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 November 1,
1996, approximately 40.78% of the Mortgage Loans have been one month delinquent
at least once. During such period, 9.56%, 6.47%, 6.00%, 4.19% and 5.69% of the
Mortgage Loans have been one month delinquent two times, three times, four
times, five times and more than five times, respectively. Generally, the
majority of such one month delinquencies are corrected by the following Due Date
for a delinquent Mortgage Loan. During the period commencing January 1, 1995
through November 1, 1996, approximately 14.21% of the Mortgage Loans have been
two months delinquent at least once, and 4.52% and 2.04% of the Mortgage Loans
have been two months delinquent two times and more than two times, respectively.
During such period, approximately 6.41% of the Mortgage Loans have been three
months delinquent at least once.
During the period commencing January 1, 1995 through November 1, 1996,
approximately 44.36% of the Single Family Mortgage Loans have been one month
delinquent at least once. During such period, 10.82%, 7.58%, 6.66%, 4.66% and
6.88% of the Single Family Mortgage Loans have been one month delinquent two
times, three times, four times, five times and more than five times,
respectively. During that same period, approximately 16.15% of the Single Family
Mortgage Loans have been two months delinquent at least once and, 5.33% and
2.47% of the Single Family Mortgage Loans have been two months delinquent two
times and more than two times, respectively. In addition, during such period,
approximately 7.43% of the Single Family Mortgage Loans have been three months
delinquent at least once.
During the period commencing January 1, 1995 through November 1, 1996,
approximately 29.45% of the Commercial Mortgage Loans have been one month
delinquent at least once. During such period, 5.60%, 2.97%, 3.92%, 2.72% and
1.91% of the Commercial Mortgage Loans have been one month delinquent two times,
three times, four times, five times and more than five times, respectively.
During the period commencing January 1, 1995 through November 1, 1996,
approximately 8.09% of the Commercial Mortgage Loans have been two months
delinquent at least once and, 1.99% and 0.70% of the Commercial Mortgage Loans
have been two months delinquent two times and more than two times, respectively.
During such period, approximately 3.17% of the Commercial Mortgage Loans have
been three months 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 66.76% of the Mortgage Loans do not
have escrow accounts for the payment of taxes and insurance. This may increase
the default 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." As of September 30, 1996, the Master Servicer
2
<PAGE>
serviced approximately 84.82% (by principal balance) of the Sellers' total
residential and commercial 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.
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.
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, only approximately 73.17% of the
Single Family Mortgage Loans, 64.41% of the Commercial Mortgage Loans and 71.06%
of the Mortgage Loans contain some type of late payment penalty and of these,
less than 1% of the Mortgage Loans, contain late payment penalties when the
payment is 30 days or more delinquent.
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 and
considers the liquidation value of the underlying collateral assuming the
existing business is not a going concern. 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 0.51% of
the Mortgage Loans and 2.12% of the Commercial Mortgage Loans 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. Approximately 0.09% of the Commercial Mortgage Loans
are secured by condominiums. 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 1.14% of the Mortgage Loans and
4.74% of the Commercial Mortgage Loans are secured by property operated as
restaurants,
3
<PAGE>
healthcare facilities or taverns. In addition, Mortgage Properties which are
multifamily residential properties may be subject to rent control laws, which
could negatively impact 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 35.31% of the
Commercial Mortgage Loans are owner occupied. 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; changes in
environmental conditions; 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 5.64%, 5.32% and 5.56% of the Single
Family Mortgage Loans, Commercial Mortgage Loans and the Mortgage Loans,
respectively, consist of loans which were made to facilitate the sale of real
estate owned ("REO"). 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 87.12%, 81.71% and 86.54%, respectively, while the
average Loan-to-Value Ratios at origination for the Single Family Mortgage
Loans, Commercial Mortgage Loans and Mortgage Loans other than loans to
facilitate was 80.20%, 68.88% and 78.42%, 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. See "THE MORTGAGE POOL-- Mortgage Loan Data" for a discussion of
the method used to calculate Loan-to-Value Ratios.
ENVIRONMENTAL RISKS
Contamination of real property may give rise to a lien on that property to
assure payment of the cost of clean-up or, in certain circumstances, may result
in liability to the lender for that cost. In several states, such a lien has
priority over the lien of an existing mortgage against such property. 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. In addition, the possibility exists that if the
Master Servicer obtains an environmental assessment, an environmental condition
so severe may exist as to make it unlikely that the Mortgaged Property would be
foreclosed upon.
Following a default in payment on any Mortgage Loan, the Master Servicer, in
compliance with the servicing standard set forth in the Pooling Agreement, may
obtain an environmental assessment prior to any foreclosure, at its expense
(subject to recoupment from any liquidation proceeds with respect to such
4
<PAGE>
Mortgage Loan). If the Master Servicer chooses to obtain an environmental
assessment with respect to any Commercial Property prior to acquisition or
assuming its operation, enforcement of the security for the related Mortgage
Note may be effectively delayed unless and until a satisfactory environmental
assessment is obtained (or any required remedial action is taken). 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"). In addition, the Sellers have not made any
representations or warranties with respect to the environmental condition of any
Mortgaged Property and, therefore, the related Seller will have no repurchase
obligation with respect thereto.
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 FNMA. In addition, certain institutional lenders
require flood insurance, if applicable, as part of their loan underwriting
process. However, this requirement is not applicable to 55.04%, 72.50% and
59.24% of the Single Family Mortgage Loans, Commercial Mortgage Loans and the
Mortgage Loans, respectively, 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 19.56% of the Mortgage Loans do not have title insurance
policies in an amount at least equal to their Cutoff Date Principal Balance.
Although it is the Sellers' general policy to obtain title insurance in an
amount of the respective Seller's purchase price of the Mortgage Loan in some
cases a lesser amount of coverage is obtained, but in no case in an amount of
less than $10,000. In the case of Land Sale Contracts, a title policy is
obtained in the amount of the outstanding principal balance of such Mortgage
Loan at the time of acquisition by the related Seller. 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 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 or 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
5
<PAGE>
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. Approximately 3.10% of the Mortgage Loans 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.
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
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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 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. See "THE POOLING AND SERVICING AGREEMENT--Certain Matters
Regarding the Depositor, the Sellers and the Master Servicer."
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 19.66% of the Single Family Mortgage Loans, 23.56% of the
Commercial Mortgage Loans and 20.59% of the Mortgage Loans 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
No Commercial Mortgage Loan and four Single Family Mortgage Loans,
representing approximately 0.15% 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. However, the terms of the ground leases for three of such four
Mortgage Loans expire 7 years, 11 years and 22 years after the stated maturity
date of such Mortgage Loans and the remaining ground lease continues for
perpetuity. 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 12.54% and 23.30% of the Single Family Mortgage Loans, 15.95%
and 11.42% of the Commercial Mortgage Loans and 13.36% and 20.44% of the
Mortgage Loans are secured by Mortgaged Properties located in the States of
California and Texas, respectively. Property values of real estate in California
have declined in recent years. If the California real estate market or the Texas
real estate market should experience an overall decline in property values after
the dates of origination of the Mortgage Loans, the rates of delinquency,
foreclosure, bankruptcy and loss on such Mortgage Loans may be expected to
increase, and may increase substantially, as compared to such rates in a stable
or improving real estate market.
NON-SMMEA CERTIFICATES
Because no more than approximately 40.76% of the Mortgage Loans 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
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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 statements 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."
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 expressed as Pool Percentages.
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.
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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.
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
5.56% 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
53.68% of the Mortgage Loans were originated by individuals in connection with
the sale of their property and approximately 40.76% were originated by a
financial institution, mortgage company or other institution and resold in the
secondary market.
MORTGAGE LOAN DATA
Because approximately 53.68% 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 3.10% of
the Mortgage Loans contain some form of prepayment penalty. Provisions regarding
defaults for reasons other than non-payment vary. Approximately 71.06% of the
Mortgage Loans contain late payment penalty provisions which have fixed fee
penalties or 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 1.05% 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 33.24% 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.
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The Mortgage Pool will consist of a total of approximately 2,371 fixed rate
Mortgage Loans with an aggregate Scheduled Principal Balance as of the Cutoff
Date expected to be $126,722,514.68 (the "Cutoff Date Pool Principal Balance"),
of which $96,248,903.37 will relate to Single Family Mortgage Loans and
$30,473,611.31 will relate to Commercial Mortgage Loans. As of the Cutoff Date,
the Scheduled Principal Balances of the Single Family Mortgage Loans ranged from
$1,570.06 to $379,754.25 and the Scheduled Principal Balances of the Commercial
Mortgage Loans ranged from $9,119.02 to $822,047.26 (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 $47,956.60, $83,718.71 and $53,446.86,
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 12.59%, 16.53% and 13.53% 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
("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 housing 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 75.95% of the
Mortgage Loans are secured by Single Family Properties and 24.05% of the
Mortgage Loans are secured by Commercial Properties.
Approximately 3.90% of the Single Family Mortgage Loans, none of the
Commercial Mortgage Loans and 2.96% of the Mortgage Loans are secured by
manufactured housing. Such loans are secured by a security interest in the
related manufactured home and/or by a mortgage on the real property on which the
manufactured home is located or by a Land Sale Contract. 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
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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 13.35% of the Single Family Mortgage Loans, 0.09% of the
Commercial Mortgage Loans and 10.16% of the Mortgage Loans are secured by
condominium units.
Approximately 0.15% 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. See
"RISK FACTORS--Leasehold Risks."
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 April 15, 2034, and the earliest Calculated Maturity
Date of any Single Family Mortgage Loan is June 17, 1997. The latest Calculated
Maturity Date and the earliest Calculated Maturity Date of any Commercial
Mortgage Loan is August 15, 2026 and October 1, 1997,
respectively.
Approximately 19.66% of the Single Family Mortgage Loans, 23.56% of the
Commercial Mortgage Loans and 20.59% of the Mortgage Loans are Balloon Loans. A
"Balloon Loan" either (a) provides for a Scheduled Payment based on an
amortization term ending at least two months beyond the Calculated Maturity Date
for such Mortgage Loans and a Balloon Payment due on such Calculated Maturity
Date equal to or exceeding $2,500 (each calculated based on the Cutoff Date
Scheduled Principal Balances) or (b) provides for interest-only Scheduled
Payments on each Due Date prior to the Calculated Maturity Date for such
Mortgage Loan and a Balloon Payment due on such Calculated Maturity Date equal
to the entire principal balance of such Mortgage Loan. The latest Calculated
Maturity Date for any Balloon Loan which relates to a Single Family Mortgage
Loan and a Commercial Mortgage Loan is September 1, 2025, and May 1, 2016,
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
June 17, 1997 and October 30, 1997, respectively. The Balloon Payments for the
Balloon Loans which related to Single Family Mortgage Loans range from $2,650.80
to $272,362.82, and the average such Balloon Payment is $45,753.43. Balloon
Payments for Balloon Loans which relate to Commercial Mortgage Loans range from
$2,545.35 to $270,204.29, and the average such Balloon Payment is $78,961.14.
The average Balloon Payment for Mortgage Loans that are Balloon Loans is
$51,783.47.
Because no Mortgage Loan has been outstanding for less than three 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 16.54%
of the of the Single Family Mortgage Loans, 6.46% of the Commercial Mortgage
Loans and 14.12% of the Mortgage Loans have had modifications to their original
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terms. See "SERVICING OF THE MORTGAGE LOANS--Mortgage Loan
Servicing--Accelerations and Modifications Department" and "RISK
FACTORS--Reduced Underwriting Standards" herein. Such modifications may include
the conversion of adjustable-rate loans to fixed-rate loans, the extension of
the term on Balloon Loans or the elimination of the Balloon Payment through
conversion of such Mortgage Loan to a fully amortizing Mortgage Loan, the
modification of a Mortgage to include the manufactured home situated on the
related real property or the addition to principal for delinquent principal,
interest, taxes or insurance. Under the Pooling Agreement, each Seller will
represent as to the Mortgage Loans sold by it that any such modifications are
set forth in writing and contained in the related Mortgage Files transferred to
the Trustee. For a description of the type of modifications that are permitted
to be made to the Mortgage Loans by the Master Servicer pursuant to the Pooling
Agreement, see "THE POOLING AND SERVICING AGREEMENT--Modification of Mortgage
Loans."
The "Loan-to-Value Ratio" of the Mortgage Loan at any given time is a
fraction expressed as a percentage, the numerator of which is the Scheduled
Principal Balance of such Mortgage Loan as of such date of determination and the
denominator of which is the Appraised Value. The "Appraised Value" with respect
to a Mortgage Loan, is the value of the applicable Mortgaged Property based upon
the most recent valuation by an appraiser, which generally is an exterior
appraisal, which was obtained by the applicable Seller in connection with the
acquisition, modification or servicing of such Mortgage Loan. For less than
0.57% of the Single Family Mortgage Loans, 0.39% of the Commercial Mortgage
Loans and 0.53% of the Mortgage Loans, no appraisal was obtained at acquisition
or thereafter and the determination for purposes of calculating the
Loan-to-Value Ratio was based upon the sales prices for the related Mortgaged
Property or, in some cases, upon the value thereof determined during 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 Mortgage Loan Concentration" herein. No
Single Family Mortgage Loan will have a Loan-to-Value Ratio as of the Cutoff
Date of more than 146.54% and no Commercial Mortgage Loan will have a
Loan-to-Value Ratio as of the Cutoff Date of more than 110.67%. The weighted
average of the Loan-to-Value Ratios for all Mortgage Loans as of the Cutoff Date
was approximately 68.45% and the weighted average of the Loan-to-Value Ratios
for the Single Family Mortgage Loans and the Commercial Mortgage Loans was
approximately 75.21% and 55.65%, respectively. Approximately 2.84% of the
Mortgage Loans are 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 close of business on the Business Day immediately preceding the Cutoff
Date, approximately 1.46% of the Single Family Mortgage Loans, 1.04% of the
Commercial Mortgage Loans and 1.36% of the Mortgage Loans were one month but
less than 59 days delinquent. See "RISK FACTORS--Delinquency History of Mortgage
Loans" herein.
As of the Cutoff Date, (a) no more than 12.24% and 10.17% of the Single
Family Mortgage Loans and Commercial Mortgage Loans, respectively, had taxes or
other governmental assessments which were delinquent (such amounts ranging from
$0.69 to $3,820.90 for the Single Family Mortgage Loans and from $6.56 to
$3,880.35 for the Commercial Mortgage Loans) and (b) no more than 14.99% and
21.56% 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
13
<PAGE>
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 55.04%, 72.50% and 59.24% of the Single Family Mortgage Loans,
the Commercial Mortgage Loans and the Mortgage Loans, respectively, were
originated by individuals or the Sellers and consequently 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. As a result, 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 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 93.68%, 98.82% and 94.92% 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). However, the Sellers' re-underwriting
criteria emphasizes the value of the underlying collateral. 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 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
14
<PAGE>
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 one
or more 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 cases,
the Commercial Mortgage Loans are each secured only by the underlying Mortgaged
Property and, unless such Mortgaged Property is foreclosed upon, not by an
assignment of leases or other rent associated with such Mortgaged Property.
Approximately 83.93% of Commercial Mortgage Loan borrowers are individuals and
16.07% are corporations, partnerships or other organizations.
Approximately 39.89% of the Commercial Mortgage Loans are secured by retail
properties which are located in 33 states. The square footage of the retail
properties ranges in size from approximately 128 to 21,614; however, square
footage information is unavailable for 15 of the 166 retail properties.
Approximately 17.64% of the Commercial Mortgage Loans are secured by
multifamily properties ranging in size from 5 to 30 units located in 26 states.
The square footage of the multifamily properties ranges in size from 1,990 to
31,584; however square footage information is unavailable for 8 of the 60
multifamily properties.
15
<PAGE>
Approximately 9.49% of the Commercial Mortgage Loans are secured by motel or
hotel properties which are not franchised and which are located in 14 states.
The square footage of the motel/hotel properties ranges in size from 2,400 to
18,256. Square footage information is unavailable for 4 of the 20 motel/hotel
properties.
Approximately 7.64% of the Commercial Mortgage Loans are secured by mobile
home parks located in 12 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 six to 80 site pads on from approximately 0.33 to 18.3
acres.
Approximately 6.04% of the Commercial Mortgage Loans are secured by
industrial properties. Such properties are located in 14 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 10.60% of the Commercial Mortgage Loans are secured by mixed
use properties located in 21 states. Such properties consist of facilities for
use by a combination of multifamily, single family, manufactured housing and
commercial operations, and are situated on real estate ranging in size from
approximately 846 square feet to 22,352 square feet. Square footage information
is unavailable for 3 of the 44 mixed use properties.
TABULAR DATA
The following tables set forth certain statistical information regarding the
Mortgage Loans as of the Cutoff Date. The balances and percentages may not be
exact due to rounding.
SOURCE OF MORTGAGE LOANS BY SELLER
<TABLE>
<CAPTION>
CUTOFF DATE PERCENT OF CUTOFF
NUMBER OF POOL PRINCIPAL DATE POOL
MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
----------------- ----------------- -----------------
<S> <C> <C> <C>
Metropolitan............................................... 172 $ 8,147,159.09 6.43%
Summit..................................................... 23 774,095.03 0.61
Western.................................................... 2,000 107,326,778.01 84.69
Old Standard............................................... 176 10,474,482.55 8.27
----- ----------------- ------
Total.................................................. 2,371 $ 126,722,514.68 100.00%
----- ----------------- ------
----- ----------------- ------
</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.............................................. 2,007 $ 96,248,903.37 75.95%
Commercial................................................. 364 30,473,611.31 24.05
----- ----------------- ------
Total.................................................. 2,371 $ 126,722,514.68 100.00%
----- ----------------- ------
----- ----------------- ------
</TABLE>
16
<PAGE>
SCHEDULED PRINCIPAL BALANCES
(SINGLE FAMILY MORTGAGE LOANS)
<TABLE>
<CAPTION>
POOL PERCENTAGE
NUMBER OF SINGLE CUTOFF DATE OF SINGLE
RANGE OF SCHEDULED FAMILY MORTGAGE SCHEDULED PRINCIPAL FAMILY MORTGAGE
PRINCIPAL BALANCES LOANS BALANCE LOANS
- ---------------------------------------------------------- ----------------- -------------------- ---------------
<S> <C> <C> <C>
$0-25,000................................................. 531 $ 9,502,079.21 9.87%
25,001-50,000............................................. 837 30,497,177.20 31.69
50,001-75,000............................................. 334 20,152,929.59 20.94
75,001-100,000............................................ 129 11,081,534.20 11.51
100,001-125,000........................................... 80 8,889,841.74 9.24
125,001-150,000........................................... 46 6,200,913.61 6.44
150,001-175,000........................................... 20 3,229,183.22 3.36
175,001-200,000........................................... 15 2,770,027.01 2.88
Greater than 200,000...................................... 15 3,925,217.59 4.08
----- -------------------- ------
Total................................................... 2,007 $ 96,248,903.37 100.00%
----- -------------------- ------
----- -------------------- ------
</TABLE>
The average Scheduled Principal Balance for the Single Family Mortgage Loans
as of the Cutoff Date was $47,956.60.
SCHEDULED PRINCIPAL BALANCES
(COMMERCIAL MORTGAGE LOANS)
<TABLE>
<CAPTION>
NUMBER OF CUTOFF DATE POOL PERCENTAGE
RANGE OF SCHEDULED COMMERCIAL MORTGAGE SCHEDULED PRINCIPAL OF COMMERCIAL
PRINCIPAL BALANCES LOANS BALANCE MORTGAGE LOANS
- ---------------------------------------------------------- ------------------- -------------------- ---------------
<S> <C> <C> <C>
$1-$50,000................................................ 156 $ 4,825,187.42 15.83%
50,001-100,000............................................ 106 7,582,388.16 24.88
100,001-150,000........................................... 56 6,745,521.26 22.14
150,001-200,000........................................... 21 3,692,243.58 12.12
200,001-250,000........................................... 12 2,579,227.09 8.46
250,001-300,000........................................... 6 1,659,655.88 5.45
300,001-350,000........................................... 2 634,995.15 2.08
350,001-450,000........................................... 2 824,893.22 2.71
450,001-500,000........................................... 0 0.00 0.00
500,001-822,050........................................... 3 1,929,499.55 6.33
--- -------------------- ------
Total................................................... 364 $ 30,473,611.31 100.00%
--- -------------------- ------
--- -------------------- ------
</TABLE>
The average Scheduled Principal Balance for the Commercial Mortgage Loans as
of the Cutoff Date was $83,718.71 and the average Scheduled Principal Balance
for the Mortgage Loans as of the Cutoff Date was $53,446.86.
17
<PAGE>
MORTGAGE RATES
(SINGLE FAMILY MORTGAGE LOANS)
<TABLE>
<CAPTION>
POOL PERCENTAGE
NUMBER OF SINGLE CUTOFF DATE OF SINGLE
FAMILY MORTGAGE SCHEDULED PRINCIPAL FAMILY MORTGAGE
RANGE OF MORTGAGE RATES LOANS BALANCE LOANS
- ---------------------------------------------------------- ----------------- -------------------- ---------------
<S> <C> <C> <C>
0-2.500%.................................................. 6 $ 165,511.20 0.17%
2.501-3.000............................................... 1 35,555.95 0.04
3.001-3.500............................................... 0 0.00 0.00
3.501-4.000............................................... 2 62,994.07 0.07
4.001-4.500............................................... 0 0.00 0.00
4.501-5.000............................................... 5 240,637.29 0.25
5.001-5.500............................................... 2 90,711.50 0.09
5.501-6.000............................................... 6 456,135.40 0.47
6.001-6.500............................................... 10 949,304.97 0.99
6.501-7.000............................................... 56 2,667,911.81 2.77
7.001-7.500............................................... 52 3,116,281.06 3.24
7.501-8.000............................................... 247 12,719,961.03 13.22
8.001-8.500............................................... 132 6,980,786.42 7.25
8.501-9.000............................................... 265 12,304,101.79 12.78
9.001-9.500............................................... 180 10,228,388.02 10.63
9.501-10.000.............................................. 491 21,330,840.52 22.16
10.001-10.500............................................. 149 8,797,430.98 9.14
10.501-11.000............................................. 162 7,047,549.95 7.32
11.001-11.500............................................. 65 2,859,168.61 2.97
11.501-12.000............................................. 95 3,570,658.80 3.71
12.001-12.500............................................. 20 627,314.48 0.65
12.501-13.000............................................. 26 886,784.12 0.92
13.001-13.500............................................. 7 351,978.95 0.37
13.501-14.000............................................. 16 477,124.11 0.50
14.001-14.500............................................. 5 153,404.68 0.16
14.501-15.000............................................. 4 72,881.66 0.08
15.001-15.500............................................. 0 0.00 0.00
15.501-16.000............................................. 1 20,005.13 0.02
Greater than 16.000....................................... 2 35,480.87 0.04
----- -------------------- ------
Total................................................... 2,007 $ 96,248,903.37 100.00%
----- -------------------- ------
----- -------------------- ------
</TABLE>
The weighted average Mortgage Rate for Single Family Mortgage Loans as of
the Cutoff Date was 9.46%.
18
<PAGE>
MORTGAGE RATES
(COMMERCIAL MORTGAGE LOANS)
<TABLE>
<CAPTION>
NUMBER OF CUTOFF DATE POOL PERCENTAGE
COMMERCIAL MORTGAGE SCHEDULED PRINCIPAL OF COMMERCIAL
RANGE OF MORTGAGE RATES LOANS BALANCE MORTGAGE LOANS
- ---------------------------------------------------------- ------------------- -------------------- ---------------
<S> <C> <C> <C>
Less than 2.501........................................... 1 $ 77,728.83 0.26%
4.501-5.000............................................... 0 0.00 0.00
5.501-6.000............................................... 4 164,273.79 0.54
6.001-6.500............................................... 2 92,790.49 0.30
6.501-7.000............................................... 6 462,672.42 1.52
7.001-7.500............................................... 9 607,812.48 1.99
7.501-8.000............................................... 27 2,129,666.83 6.99
8.001-8.500............................................... 12 1,859,545.10 6.10
8.501-9.000............................................... 50 3,769,668.79 12.37
9.001-9.500............................................... 28 3,301,860.41 10.84
9.501-10.000.............................................. 130 10,599,025.49 34.78
10.001-10.500............................................. 18 1,215,709.79 3.99
10.501-11.000............................................. 36 2,436,567.13 8.00
11.001-11.500............................................. 8 602,598.76 1.98
11.501-12.000............................................. 22 2,049,104.94 6.72
12.001-12.500............................................. 4 217,945.19 0.72
12.501-13.000............................................. 4 574,229.70 1.88
13.001-13.500............................................. 0 0.00 0.00
13.501-14.000............................................. 2 252,411.17 0.83
15.501-16.000............................................. 1 60,000.00 0.20
--- -------------------- ------
Total................................................... 364 $ 30,473,611.31 100.00%
--- -------------------- ------
--- -------------------- ------
</TABLE>
The weighted average Mortgage Rate for Commercial Mortgage Loans as of the
Cutoff Date was 9.80%.
The weighted average Mortgage Rate for all Mortgage Loans as of the Cutoff
Date was 9.54%.
19
<PAGE>
NUMBER OF MONTHS SINCE ORIGINATION(1)
(SINGLE FAMILY MORTGAGE LOANS)
<TABLE>
<CAPTION>
CUTOFF DATE POOL PERCENTAGE
NUMBER OF SCHEDULED OF SINGLE
RANGE OF MONTHS SINGLE FAMILY PRINCIPAL FAMILY MORTGAGE
SINCE ORIGINATION MORTGAGE LOANS BALANCE LOANS
- --------------------------------------------------------------- --------------- ---------------- ---------------
<S> <C> <C> <C>
1-12........................................................... 100 $ 5,567,348.27 5.78%
13-24.......................................................... 275 17,289,084.06 17.96
25-36.......................................................... 275 13,101,439.09 13.61
37-48.......................................................... 222 10,103,586.17 10.50
49-60.......................................................... 154 7,461,690.14 7.75
61-72.......................................................... 127 6,564,029.35 6.82
73-84.......................................................... 117 5,288,431.74 5.49
85-96.......................................................... 123 6,448,396.87 6.70
97-108......................................................... 141 6,243,581.11 6.49
109-120........................................................ 90 4,283,337.14 4.45
121-132........................................................ 76 3,080,519.61 3.20
133-144........................................................ 51 2,114,960.35 2.20
145-156........................................................ 34 1,527,180.15 1.59
157-168........................................................ 25 1,038,347.75 1.08
169-180........................................................ 30 1,263,824.02 1.31
181-192........................................................ 62 2,180,938.36 2.27
193-204........................................................ 35 1,151,880.27 1.20
205-216........................................................ 33 829,801.48 0.86
217-228........................................................ 18 403,301.22 0.42
229-240........................................................ 12 213,733.14 0.22
241-252........................................................ 3 36,478.84 0.04
253-264........................................................ 2 41,492.05 0.04
265 or greater................................................. 2 15,522.19 0.02
----- ---------------- ------
Total........................................................ 2,007 $ 96,248,903.37 100.00%
----- ---------------- ------
----- ---------------- ------
</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 66.91 months.
20
<PAGE>
NUMBER OF MONTHS SINCE ORIGINATION(1)
(COMMERCIAL MORTGAGE LOANS)
<TABLE>
<CAPTION>
CUTOFF DATE
NUMBER OF SCHEDULED POOL PERCENTAGE
RANGE OF MONTHS COMMERCIAL MORTGAGE PRINCIPAL OF COMMERCIAL
SINCE ORIGINATION LOANS BALANCE MORTGAGE LOANS
- -------------------------------------------------------------- ------------------- ---------------- ---------------
<S> <C> <C> <C>
1-12.......................................................... 11 $ 935,114.24 3.07%
13-24......................................................... 35 4,088,044.81 13.42
25-36......................................................... 35 2,954,479.05 9.70
37-48......................................................... 40 3,145,798.36 10.32
49-60......................................................... 42 3,893,394.35 12.78
61-72......................................................... 19 1,431,212.75 4.70
73-84......................................................... 33 2,699,627.14 8.86
85-96......................................................... 31 2,747,863.85 9.02
97-108........................................................ 19 1,208,894.29 3.97
109-120....................................................... 11 968,107.45 3.18
121-132....................................................... 16 1,200,620.07 3.94
133-144....................................................... 8 551,063.22 1.81
145-156....................................................... 10 634,387.24 2.08
157-168....................................................... 8 533,711.93 1.75
169-180....................................................... 5 267,191.66 0.88
181-192....................................................... 5 239,106.96 0.78
193-204....................................................... 6 724,264.25 2.38
205-216....................................................... 8 436,918.15 1.43
217-228....................................................... 13 1,103,542.33 3.62
229-240....................................................... 1 52,624.10 0.17
241-252....................................................... 7 588,901.01 1.93
253 or greater................................................ 1 68,744.10 0.23
--- ---------------- ------
Total....................................................... 364 $ 30,473,611.31 100.00%
--- ---------------- ------
--- ---------------- ------
</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 80.75 months.
The weighted average months since origination for all Mortgage Loans as of
the Cutoff Date was 70.24 months.
21
<PAGE>
MONTHS REMAINING TO SCHEDULED MATURITY(1)
(SINGLE FAMILY MORTGAGE LOANS)
<TABLE>
<CAPTION>
CUTOFF DATE POOL PERCENTAGE
NUMBER OF SINGLE SCHEDULED OF SINGLE
RANGE OF REMAINING FAMILY MORTGAGE PRINCIPAL FAMILY MORTGAGE
TERMS (IN MONTHS) LOANS BALANCE LOANS
- -------------------------------------------------------------- ----------------- ---------------- ---------------
<S> <C> <C> <C>
1-12.......................................................... 5 $ 185,256.02 0.19%
13-24......................................................... 26 1,432,463.49 1.49
25-36......................................................... 62 2,482,964.69 2.58
37-48......................................................... 69 2,907,797.33 3.02
49-60......................................................... 83 3,266,604.45 3.39
61-72......................................................... 70 2,274,455.79 2.36
73-84......................................................... 91 3,285,612.72 3.41
85-96......................................................... 111 3,410,303.84 3.54
97-108........................................................ 93 2,986,994.81 3.10
109-120....................................................... 88 3,448,647.40 3.58
121-132....................................................... 88 3,404,031.04 3.54
133-144....................................................... 126 5,005,700.72 5.20
145-156....................................................... 120 5,046,882.51 5.24
157-168....................................................... 103 5,638,747.73 5.86
169-180....................................................... 109 4,783,140.43 4.97
181-192....................................................... 53 2,651,373.15 2.75
193-204....................................................... 49 2,293,165.81 2.38
205-216....................................................... 61 3,192,765.07 3.32
217-228....................................................... 62 3,390,321.31 3.52
229-240....................................................... 61 2,915,589.89 3.03
241-252....................................................... 59 3,761,510.52 3.91
253-264....................................................... 64 3,900,569.56 4.05
265-276....................................................... 51 3,111,875.54 3.23
277-288....................................................... 27 1,711,720.99 1.78
289-300....................................................... 30 1,999,518.77 2.08
301-312....................................................... 52 3,812,841.32 3.96
313-324....................................................... 46 3,581,694.41 3.72
325-336....................................................... 59 3,916,023.38 4.07
337-348....................................................... 72 5,548,270.19 5.76
349-360....................................................... 11 635,631.35 0.66
373-384....................................................... 2 162,855.49 0.17
385-396....................................................... 2 55,968.11 0.06
409-420....................................................... 1 23,016.14 0.02
445-449....................................................... 1 24,589.41 0.03
----- ---------------- ------
Total....................................................... 2,007 $ 96,248,903.37 100.00%
----- ---------------- ------
----- ---------------- ------
</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 189.05 months.
22
<PAGE>
MONTHS REMAINING TO SCHEDULED MATURITY(1)
(COMMERCIAL MORTGAGE LOANS)
<TABLE>
<CAPTION>
CUTOFF DATE
NUMBER OF SCHEDULED POOL PERCENTAGE
RANGE OF REMAINING COMMERCIAL MORTGAGE PRINCIPAL OF COMMERCIAL
TERMS (IN MONTHS) LOANS BALANCE MORTGAGE LOANS
- -------------------------------------------------------------- ------------------- ---------------- ---------------
<S> <C> <C> <C>
1-12.......................................................... 4 $ 140,279.25 0.46%
13-24......................................................... 32 2,069,169.73 6.79
25-36......................................................... 31 1,953,969.47 6.41
37-48......................................................... 41 2,746,559.94 9.01
49-60......................................................... 31 1,718,321.28 5.64
61-72......................................................... 22 1,888,321.87 6.20
73-84......................................................... 25 2,417,948.10 7.93
85-96......................................................... 22 1,232,886.57 4.05
97-108........................................................ 24 1,992,660.12 6.54
109-120....................................................... 19 1,593,246.97 5.23
121-132....................................................... 19 1,591,300.83 5.22
133-144....................................................... 12 1,157,847.77 3.80
145-156....................................................... 9 656,679.30 2.15
157-168....................................................... 19 2,859,173.99 9.38
169-180....................................................... 4 678,869.03 2.23
181-192....................................................... 8 389,729.92 1.28
193-204....................................................... 1 21,829.96 0.07
205-216....................................................... 8 791,660.14 2.60
217-228....................................................... 3 418,895.84 1.37
229-240....................................................... 7 612,597.29 2.01
241-252....................................................... 2 945,315.13 3.10
253-264....................................................... 3 360,934.81 1.18
265-276....................................................... 1 123,240.69 0.40
277-288....................................................... 2 127,183.94 0.42
289-300....................................................... 2 268,335.59 0.88
301-312....................................................... 2 86,473.73 0.28
313-324....................................................... 5 653,699.99 2.15
325-336....................................................... 3 678,352.89 2.23
337-348....................................................... 2 237,250.79 0.78
349-360....................................................... 1 60,876.38 0.20
--- ---------------- ------
Total....................................................... 364 $ 30,473,611.31 100.00%
--- ---------------- ------
--- ---------------- ------
</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 120.92 months.
The weighted average months remaining to scheduled maturity for all Mortgage
Loans as of the Cutoff Date was 172.66 months.
23
<PAGE>
MORTGAGED PROPERTY GEOGRAPHICAL DISTRIBUTION BY STATE(1)
(ALL MORTGAGE LOANS)
<TABLE>
<CAPTION>
SINGLE FAMILY MORTGAGE LOANS COMMERCIAL MORTGAGE LOANS
---------------------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C>
CUTOFF DATE POOL PERCENTAGE CUTOFF DATE
NUMBER OF SINGLE SCHEDULED OF SINGLE NUMBER OF SCHEDULED
FAMILY MORTGAGE PRINCIPAL FAMILY MORTGAGE COMMERCIAL MORTGAGE PRINCIPAL
STATE LOANS BALANCE LOANS LOANS BALANCE
- ------------------------- ----------------- ---------------- --------------- ------------------- ----------------
Alabama.................. 18 $ 484,225.04 0.50% 1 $ 47,218.88
Alaska................... 8 382,938.31 0.40 0 0.00
Arizona.................. 114 4,550,376.23 4.73 11 690,279.72
Arkansas................. 16 435,399.86 0.45 1 27,250.79
California............... 171 12,069,886.09 12.54 47 4,859,417.76
Colorado................. 22 1,149,206.18 1.19 5 616,047.11
Connecticut.............. 20 1,990,405.50 2.07 5 205,921.09
Delaware................. 2 63,253.25 0.07 0 0.00
Florida.................. 159 7,650,038.23 7.95 29 2,408,854.85
Georgia.................. 36 1,981,019.13 2.06 4 360,663.37
Hawaii................... 8 459,607.63 0.48 1 443,112.32
Idaho.................... 18 833,386.77 0.87 6 1,094,465.24
Illinois................. 20 624,095.01 0.65 5 440,141.28
Indiana.................. 19 379,733.01 0.39 4 220,171.50
Iowa..................... 50 1,783,382.34 1.85 2 82,964.77
Kansas................... 11 414,665.33 0.43 2 127,963.08
Kentucky................. 3 78,851.03 0.08 0 0.00
Louisiana................ 9 451,187.12 0.47 1 29,179.71
Maine.................... 4 127,128.80 0.13 2 128,276.49
Maryland................. 16 1,037,699.88 1.08 3 373,941.54
Massachusetts............ 34 2,534,162.93 2.63 7 487,276.32
Michigan................. 66 2,222,701.64 2.31 13 1,063,861.43
<CAPTION>
ALL MORTGAGE LOANS
-----------------------------------------------------
<S> <C> <C> <C> <C>
POOL PERCENTAGE CUTOFF DATE POOL PERCENTAGE
OF COMMERCIAL NUMBER OF ALL SCHEDULED OF MORTGAGE
STATE MORTGAGE LOANS MORTGAGE LOANS PRINCIPAL BALANCE LOANS
- ------------------------- --------------- ----------------- ----------------- ---------------
Alabama.................. 0.15 19 $ 531,443.92 0.42%
Alaska................... 0.00 8 382,938.31 0.30
Arizona.................. 2.27 125 5,240,655.95 4.14
Arkansas................. 0.09 17 462,650.65 0.37
California............... 15.95 218 16,929,303.85 13.36
Colorado................. 2.02 27 1,765,253.29 1.39
Connecticut.............. 0.68 25 2,196,326.59 1.73
Delaware................. 0.00 2 63,253.25 0.05
Florida.................. 7.90 188 10,058,893.08 7.94
Georgia.................. 1.18 40 2,341,682.50 1.85
Hawaii................... 1.45 9 902,719.95 0.71
Idaho.................... 3.59 24 1,927,852.01 1.52
Illinois................. 1.44 25 1,064,236.29 0.84
Indiana.................. 0.72 23 599,904.51 0.47
Iowa..................... 0.27 52 1,866,347.11 1.47
Kansas................... 0.42 13 542,628.41 0.43
Kentucky................. 0.00 3 78,851.03 0.06
Louisiana................ 0.10 10 480,366.83 0.38
Maine.................... 0.42 6 255,405.29 0.20
Maryland................. 1.23 19 1,411,641.42 1.11
Massachusetts............ 1.60 41 3,021,439.25 2.38
Michigan................. 3.49 79 3,286,563.07 2.59
</TABLE>
(Table continues on following page)
24
<PAGE>
MORTGAGED PROPERTY GEOGRAPHICAL DISTRIBUTION BY STATE(1) (CONTINUED)
(ALL MORTGAGE LOANS)
<TABLE>
<CAPTION>
SINGLE FAMILY MORTGAGE LOANS COMMERCIAL MORTGAGE LOANS
---------------------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C>
CUTOFF DATE POOL PERCENTAGE CUTOFF DATE
NUMBER OF SINGLE SCHEDULED OF SINGLE NUMBER OF SCHEDULED
FAMILY MORTGAGE PRINCIPAL FAMILY MORTGAGE COMMERCIAL MORTGAGE PRINCIPAL
STATE LOANS BALANCE LOANS LOANS BALANCE
- ------------------------- ----------------- ---------------- --------------- ------------------- ----------------
Minnesota................ 27 1,277,779.92 1.33 5 547,339.02
Mississippi.............. 2 293,465.42 0.30 0 0.00
Missouri................. 20 572,519.74 0.59 5 169,257.68
Montana.................. 9 271,074.68 0.28 1 142,935.99
Nebraska................. 7 315,052.26 0.33 2 88,760.94
Nevada................... 12 756,316.01 0.79 4 261,452.38
New Hampshire............ 12 537,298.14 0.56 5 311,240.02
New Jersey............... 28 2,818,697.18 2.93 15 932,230.23
New Mexico............... 19 901,452.55 0.94 3 827,538.86
New York................. 91 5,816,391.82 6.04 49 3,293,908.20
North Carolina........... 21 793,943.94 0.82 4 145,223.57
Ohio..................... 21 650,264.13 0.68 5 293,191.33
Oklahoma................. 32 1,154,157.21 1.20 4 156,949.04
Oregon................... 55 2,440,938.40 2.54 9 660,928.22
Pennsylvania............. 31 1,530,875.01 1.59 11 503,125.70
Rhode Island............. 1 68,942.17 0.07 1 20,427.65
South Carolina........... 12 426,723.96 0.44 3 200,783.90
South Dakota............. 2 65,697.53 0.07 0 0.00
Tennessee................ 10 694,800.17 0.72 2 60,240.79
Texas.................... 534 22,426,443.79 23.30 43 3,481,359.80
Utah..................... 17 680,745.85 0.71 3 407,942.04
Vermont.................. 1 18,496.78 0.02 0 0.00
Virginia................. 16 1,035,137.74 1.08 2 178,002.11
Washington............... 190 8,379,039.09 8.71 37 4,026,898.20
West Virginia............ 4 106,357.36 0.11 0 0.00
Wisconsin................ 5 304,630.74 0.32 0 0.00
Wyoming.................. 4 208,312.47 0.22 2 56,868.39
----- ---------------- ------ --- ----------------
Total.................. 2,007 $96,248,903.37 100.00% 364 $30,473,611.31
----- ---------------- ------ --- ----------------
----- ---------------- ------ --- ----------------
<CAPTION>
ALL MORTGAGE LOANS
-----------------------------------------------------
<S> <C> <C> <C> <C>
POOL PERCENTAGE CUTOFF DATE POOL PERCENTAGE
OF COMMERCIAL NUMBER OF ALL SCHEDULED OF MORTGAGE
STATE MORTGAGE LOANS MORTGAGE LOANS PRINCIPAL BALANCE LOANS
- ------------------------- --------------- ----------------- ----------------- ---------------
Minnesota................ 1.80 32 1,825,118.94 1.44
Mississippi.............. 0.00 2 293,465.42 0.23
Missouri................. 0.56 25 741,777.42 0.59
Montana.................. 0.47 10 414,010.67 0.33
Nebraska................. 0.29 9 403,813.20 0.32
Nevada................... 0.86 16 1,017,768.39 0.80
New Hampshire............ 1.02 17 848,538.16 0.67
New Jersey............... 3.06 43 3,750,927.41 2.96
New Mexico............... 2.72 22 1,728,991.41 1.36
New York................. 10.81 140 9,110,300.02 7.19
North Carolina........... 0.48 25 939,167.51 0.74
Ohio..................... 0.96 26 943,455.46 0.74
Oklahoma................. 0.52 36 1,311,106.25 1.03
Oregon................... 2.17 64 3,101,866.62 2.45
Pennsylvania............. 1.65 42 2,034,000.71 1.61
Rhode Island............. 0.07 2 89,369.82 0.07
South Carolina........... 0.66 15 627,507.86 0.50
South Dakota............. 0.00 2 65,697.53 0.05
Tennessee................ 0.20 12 755,040.96 0.60
Texas.................... 11.42 577 25,907,803.59 20.44
Utah..................... 1.34 20 1,088,687.89 0.86
Vermont.................. 0.00 1 18,496.78 0.01
Virginia................. 0.58 18 1,213,139.85 0.96
Washington............... 13.21 227 12,405,937.29 9.79
West Virginia............ 0.00 4 106,357.36 0.08
Wisconsin................ 0.00 5 304,630.74 0.24
Wyoming.................. 0.19 6 265,180.86 0.21
------ ----- ----------------- ------
Total.................. 100.00% 2,371 $ 126,722,514.68 100.00%
------ ----- ----------------- ------
------ ----- ----------------- ------
</TABLE>
- ------------------------------
(1) Determined by property address designated as such in the related Mortgage
File.
25
<PAGE>
LOAN-TO-VALUE RATIO AS OF THE CUTOFF DATE(1)
(SINGLE FAMILY MORTGAGE LOANS)
<TABLE>
<CAPTION>
CUTOFF DATE POOL PERCENTAGE
NUMBER OF SINGLE SCHEDULED OF SINGLE
FAMILY MORTGAGE PRINCIPAL FAMILY MORTGAGE
LOAN-TO-VALUE RATIO LOANS BALANCE LOANS
- -------------------------------------------------------------- ----------------- ---------------- ---------------
<S> <C> <C> <C>
0-5.000%...................................................... 0 $ 0.00 0.00%
5.001-10.000.................................................. 4 62,331.80 0.06
10.001-15.000................................................. 10 194,059.88 0.20
15.001-20.000................................................. 16 355,397.23 0.37
20.001-25.000................................................. 20 484,108.74 0.50
25.001-30.000................................................. 37 1,016,469.32 1.06
30.001-35.000................................................. 46 1,507,318.80 1.57
35.001-40.000................................................. 57 1,547,146.57 1.61
40.001-45.000................................................. 81 3,144,999.85 3.27
45.001-50.000................................................. 89 4,096,006.47 4.26
50.001-55.000................................................. 119 5,240,567.38 5.44
55.001-60.000................................................. 131 6,011,363.33 6.25
60.001-65.000................................................. 157 6,477,180.79 6.73
65.001-70.000................................................. 176 9,029,848.34 9.38
70.001-75.000................................................. 199 9,428,894.95 9.80
75.001-80.000................................................. 210 11,332,022.00 11.77
80.001-85.000................................................. 200 10,524,785.79 10.93
85.001-90.000................................................. 182 10,023,442.15 10.41
90.001-95.000................................................. 126 7,645,009.54 7.94
95.001-100.000................................................ 65 4,240,823.50 4.41
100.001-105.000............................................... 26 1,276,055.90 1.33
105.001-110.000............................................... 20 802,221.16 0.83
110.001-115.000............................................... 18 875,247.23 0.91
115.001-120.000............................................... 9 489,328.94 0.51
120.001-125.000............................................... 5 325,352.10 0.34
Over 125.000.................................................. 4 118,921.61 0.12
----- ---------------- ------
Total....................................................... 2,007 $ 96,248,903.37 100.00%
----- ---------------- ------
----- ---------------- ------
</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 0.57% of the Single Family Mortgage Loans
($550,893.02 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 or, in some cases, upon
an inspection of the applicable Mortgaged Property.
26
<PAGE>
LOAN-TO-VALUE RATIO AS OF THE CUTOFF DATE(1)
(COMMERCIAL MORTGAGE LOANS)
<TABLE>
<CAPTION>
CUTOFF DATE
NUMBER OF SCHEDULED POOL PERCENTAGE
COMMERCIAL PRINCIPAL OF COMMERCIAL
LOAN-TO-VALUE RATIO MORTGAGE LOANS BALANCE MORTGAGE LOANS
- -------------------------------------------------------------- ----------------- ---------------- ---------------
<S> <C> <C> <C>
0-5.000%...................................................... 1 $ 36,188.77 0.12
5.001-10.000.................................................. 14 408,331.52 1.34
10.001-15.000................................................. 12 519,634.73 1.71
15.001-20.000................................................. 23 1,068,672.52 3.51
20.001-25.000................................................. 14 738,464.79 2.42
25.001-30.000................................................. 16 814,059.09 2.67
30.001-35.000................................................. 26 1,752,347.84 5.75
35.001-40.000................................................. 19 1,944,321.89 6.38
40.001-45.000................................................. 22 1,908,238.43 6.26
45.001-50.000................................................. 27 2,423,190.42 7.95
50.001-55.000................................................. 30 2,777,214.46 9.11
55.001-60.000................................................. 36 3,541,881.31 11.62
60.001-65.000................................................. 31 2,445,268.41 8.02
65.001-70.000................................................. 22 2,307,257.62 7.57
70.001-75.000................................................. 23 2,361,417.81 7.75
75.001-80.000................................................. 15 1,527,473.89 5.01
80.001-85.000................................................. 14 1,603,049.85 5.26
85.001-90.000................................................. 8 907,853.85 2.98
90.001-95.000................................................. 3 300,116.94 0.98
95.001-100.000................................................ 4 349,120.05 1.15
100.001-105.000............................................... 2 349,716.46 1.15
105.001-110.000............................................... 1 85,456.17 0.28
110.001-111.000............................................... 1 304,334.49 1.00
----- ---------------- ------
Totals...................................................... 364 $ 30,473,611.31 100.00%
----- ---------------- ------
----- ---------------- ------
</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 0.39% of the Commercial Mortgage Loans ($118,285.93
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 or, in some cases, upon an inspection
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 72.51%, 55.65%
and 68.45%, respectively.
27
<PAGE>
OCCUPANCY TYPES(1)
(SINGLE FAMILY MORTGAGE LOANS)
<TABLE>
<CAPTION>
CUTOFF DATE POOL PERCENTAGE
NUMBER OF SINGLE SCHEDULED OF SINGLE
FAMILY MORTGAGE PRINCIPAL FAMILY MORTGAGE
OCCUPANCY TYPE LOANS BALANCE LOANS
- -------------------------------------------------------------- ----------------- ---------------- ---------------
<S> <C> <C> <C>
Non-Owner Occupied............................................ 692 $ 30,207,213.84 31.38%
Owner Occupied................................................ 1,315 66,041,689.53 68.62
----- ---------------- ------
Total....................................................... 2,007 $ 96,248,903.37 100.00%
----- ---------------- ------
----- ---------------- ------
</TABLE>
- ------------------------
(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)
<TABLE>
<CAPTION>
CUTOFF DATE
NUMBER OF SCHEDULED POOL PERCENTAGE
COMMERCIAL PRINCIPAL OF COMMERCIAL
OCCUPANCY TYPE MORTGAGE LOANS BALANCE MORTGAGE LOANS
- -------------------------------------------------------------- ----------------- ---------------- ---------------
<S> <C> <C> <C>
Non-Owner Occupied............................................ 238 $ 19,714,257.93 64.69%
Owner Occupied................................................ 126 10,759,353.38 35.31
----- ---------------- ------
Total....................................................... 364 $ 30,473,611.31 100.00%
----- ---------------- ------
----- ---------------- ------
</TABLE>
- ------------------------
(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.
PROPERTY TYPE
(COMMERCIAL MORTGAGE LOANS)
<TABLE>
<CAPTION>
CUTOFF DATE
NUMBER OF SCHEDULED POOL PERCENTAGE
COMMERCIAL PRINCIPAL OF COMMERCIAL
TYPE OF MORTGAGED PROPERTY MORTGAGE LOANS BALANCE MORTGAGE LOANS
- -------------------------------------------------------------- ------------------- ---------------- ---------------
<S> <C> <C> <C>
Churches...................................................... 10 $ 952,148.71 3.12%
Industrial.................................................... 28 1,839,934.47 6.04
Mixed Use..................................................... 44 3,230,282.18 10.60
Mobile Homes Park............................................. 19 2,329,643.02 7.64
Motel/Hotel................................................... 20 2,890,989.93 9.49
Multifamily................................................... 60 5,374,789.93 17.64
Professional.................................................. 11 1,053,359.86 3.46
Retail........................................................ 166 12,155,218.10 39.89
Retirement/Day Care........................................... 6 647,245.11 2.12
--- ---------------- ------
Total................................................... 364 $ 30,473,611.31 100.00%
--- ---------------- ------
--- ---------------- ------
</TABLE>
28
<PAGE>
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 generally
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.
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. 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. No information regarding the frequency with
which the Single Family Mortgage Loans or the Commercial Mortgage Loans exceeded
the percentages in the preceding sentence is available. 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.
Approximately 44.5% of the Mortgage Loans, other than Mortgage Loans to
facilitate the repurchase of foreclosed properties, had loan-to-value ratios at
origination of greater than 80%. The loan-to-value ratios at origination were
determined by comparing the original loan amount to the Appraised Value.
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
29
<PAGE>
that have been acquired on the secondary market from institutional investors
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
staff appraisers are available. 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. 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) 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 (d) evaluating a borrower's equity in the
mortgaged property. Moreover, while phase I environmental assessments are not
obtained, the Sellers consider potential environmental risks and generally will
not acquire any mortgaged property if they determine that obtaining such an
assessment is warranted. 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.
Other than Mortgage Loans acquired from institutions in the secondary
market, 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
30
<PAGE>
insurance, if the purchase involves an interest in a land sale contract, a title
report from a title insurance company is ordered by Metropolitan and a title
policy is obtained in the amount of the outstanding balance. If the purchase
involves a mortgage loan, other than a land sale contract, a copy of the
lender's title insurance policy that was issued at the origination of the loan
is requested. If that policy shows clear title and the endorsements on the
related note establish a clear chain of title to the seller of the loan,
Metropolitan will not require an endorsement of such title policy. Upon the
occurrence of an event covered by the title policy, Metropolitan is entitled to
receive reimbursement from the related seller of the mortgage loan as a result
of a violation of certain representations made by such seller at the time of
acquisition by a Seller. In those instances where a title policy is not
available or the chain of title is not clear, Metropolitan obtains a title
policy generally in the amount of the outstanding principal balance of the loan.
In some instances for certain loans acquired prior to 1991 and for certain loans
secured by properties in certain counties and states, Metropolitan required 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 80.44% of the Mortgage Loans (by Cutoff Date Pool Principal
Balance) 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." The Depositor will also obtain from
counsel a "true sale" legal opinion with respect to the sale by the Sellers to
the Depositor and by the Depositor to the Trust Fund of the Mortgage Loans and
may obtain a "non-consolidation" legal 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.
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.
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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 19,014 mortgage
loans secured by properties located in all 50 states representing an aggregate
outstanding principal balance of approximately $737 million and was servicing
approximately 928 other receivables representing an aggregate principal balance
of approximately $214 million.
The principal executive offices of Metwest are located at 917 W. Sprague
Avenue, Spokane, Washington 99204.
MORTGAGE LOAN SERVICING
The following is a discussion of Metwest's servicing practices generally
applicable to the servicing of the Mortgage Loans by Metwest, as Master
Servicer. References to mortgage loans in the following discussion include land
sale contracts in all cases.
When a mortgage loan is acquired by a Seller, Metwest's computer system
automatically generates a welcome letter and two loan coupons. A payment coupon
book for 12 monthly payments is printed annually by an independent vendor and
mailed to the borrower. In the course of servicing the mortgage loans, Metwest
has access to a file containing copies of the original mortgage note or land
sale contract, security document, assignment of security interest and all other
information and reports that were accumulated as part of the acquisition,
underwriting and closing process for the mortgage loan.
LOAN SERVICING AND CASHIERING DEPARTMENT. Metwest's Cashiering Department
is responsible for receiving and applying payments on the mortgage loans
serviced by Metwest. Metwest's computer payment processing system allocates
payments first to accrued interest, then to scheduled principal, 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.
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<PAGE>
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 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 90 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 90 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 in default 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 and is continually evaluating its collection
procedures with a view toward improved collections. The procedures described in
this section are currently in effect but are expected to be revised in the
future to shorten the number of days in each collection phase. 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.
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<PAGE>
Generally, if a mortgage loan becomes 60 days delinquent, it is
automatically transferred to the 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 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, while phase I
environmental assessments generally are not obtained, will consider whether
there are any 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 either refer the loan to the Modifications
Department or 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 complex mortgage loan assumptions, requests for release of liability
and restructuring of delinquent loans that are not foreclosed. 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 permit 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 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
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<PAGE>
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 loss experience 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, while the delinquency and foreclosure
statistics are based on Metwest's experience on its residential and commercial
mortgage loan servicing portfolio. 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.
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)....................... $ 556,481,772 $ 617,044,992 $ 743,337,295
ONE MONTH DELINQUENT:
Principal Balance....................................... 16,511,737 16,592,297 23,584,801
Percent Delinquent by Principal Balance................. 3.0% 2.7% 3.2%
TWO MONTHS DELINQUENT:
Principal Balance....................................... 7,071,379 6,935,588 8,214,630
Percent Delinquent by Principal Balance................. 1.3% 1.1% 1.1%
THREE OR MORE MONTHS DELINQUENT:
Principal Balance....................................... 3,782,821 6,826,451 16,119,987
Percent Delinquent by Principal Balance................. 0.7% 1.1% 2.2%
IN FORECLOSURE:
Principal Balance....................................... 10,986,517 14,378,847 9,710,997
Percent Foreclosed by Principal Balance................. 2.0% 2.3% 1.3%
TOTAL DELINQUENT AND IN FORECLOSURE:
Principal Balance....................................... 38,352,454 44,733,183 57,630,415
Percent Delinquent and in Foreclosure by Principal
Balance............................................... 6.9% 7.2% 7.8%
</TABLE>
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<PAGE>
SINGLE FAMILY LOANS
<TABLE>
<CAPTION>
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)....................... $ 469,985,227 $ 523,521,583 $ 617,101,202
ONE MONTH DELINQUENT:
Principal Balance....................................... 14,996,559 15,307,131 21,683,692
Percent Delinquent by Principal Balance................. 3.2% 2.9% 3.5%
TWO MONTHS DELINQUENT:
Principal Balance....................................... 6,653,122 6,422,385 7,778,406
Percent Delinquent by Principal Balance................. 1.4% 1.2% 1.3%
THREE OR MORE MONTHS DELINQUENT AND LOANS IN
FORECLOSURE:
Principal Balance....................................... 14,196,409 18,156 014 23,107,038
Percent Delinquent by Principal Balance................. 3.0% 3.5% 3.7%
TOTAL DELINQUENT AND IN FORECLOSURE:
Principal Balance....................................... 35,846,090 39,885,530 52,569,135
Percent Delinquent and in Foreclosure by Principal
Balance............................................... 7.6% 7.6% 8.5%
</TABLE>
COMMERCIAL LOANS
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31, AT SEPTEMBER 30,
1994 1995 1996
--------------- --------------- ----------------
<S> <C> <C> <C>
TOTAL COMMERCIAL LOAN PORTFOLIO:
Principal Balance (end of period)....................... $ 86,496,544 $ 93,523,410 $ 126,236,093
ONE MONTH DELINQUENT:
Principal Balance....................................... 1,515,177 1,645,166 1,901,109
Percent Delinquent by Principal Balance................. 1.8% 1.8% 1.5%
TWO MONTHS DELINQUENT:
Principal Balance....................................... 418,257 513,203 436,224
Percent Delinquent by Principal Balance................. 0.5% 0.5% 3.5%
THREE OR MORE MONTHS DELINQUENT AND LOANS IN
FORECLOSURE:
Principal Balance....................................... 572,929 2,689,284 2,723,946
Percent Delinquent by Principal Balance................. 0.7% 2.9% 2.2%
TOTAL DELINQUENT AND IN FORECLOSURE:
Principal Balance....................................... 2,506,363 4,847,653 5,061,280
Percent Delinquent and in Foreclosure by Principal
Balance............................................... 2.9% 5.2% 4.0%
</TABLE>
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<PAGE>
LOSS EXPERIENCE
ALL LOANS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Allowance for Losses on Real Estate Assets, beginning of year................ $ 9,583 $ 10,598 $ 9,108
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
---------- ---------- ----------
Allowance for Losses on Real Estate Assets, 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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<PAGE>
THE POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement, dated as of November 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 "Class A Certificates" or the "Senior Certificates"), Class
B-1, Class B-2, Class B-3, Class B-4 and Class B-5 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 $76,215,561 and
will evidence in the aggregate an initial beneficial ownership interest of
approximately 60.14% in the Mortgage Pool. The Class A-4 Certificates will
evidence an initial beneficial ownership interest of approximately 20.36% in the
Mortgage Pool. The Class B-1, Class B-2, Class B-3, Class B-4, Class B-5 and
Class R Certificates will each evidence in the aggregate an initial beneficial
ownership interest of approximately 5.50%, 3.50%, 3.00%, 3.25%, 2.25% and 2.00%,
respectively, in the Mortgage Pool.
The "Percentage Interest" of an Offered Certificate as of any date of
determination will be equal to the percentage obtained by dividing the
denomination of such Certificate by the initial Class Certificate Balance of the
related Class.
The Book-Entry Certificates will be issuable in book-entry form only.
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 $100,000 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.
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<PAGE>
("Cede"). Accordingly, Cede is expected to be the holder of record of the
Book-Entry Certificates. Except as described below, no person acquiring a
Book-Entry Certificate (each, a "beneficial owner") will be entitled to receive
a physical certificate representing such Certificate (a "Definitive
Certificate").
The beneficial owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on the
records of the Depository (or of a participating firm that acts as agent for the
Financial Intermediary, whose interests will in turn be recorded on the records
of the Depository, if the beneficial owner's Financial Intermediary is not a
Depository participant). Therefore, the beneficial owner must rely on the
foregoing procedures to evidence its beneficial ownership of a Book-Entry
Certificate. Beneficial ownership of a Book-Entry Certificate may only be
transferred by compliance with the procedures of such Financial Intermediaries
and Depository participants.
The Depository is a limited purpose trust company organized under the laws
of the State of New York, a member of the Federal Reserve System, a "Clearing
Corporation" within the meaning of the Uniform Commercial Code as in effect in
the State of New York and a "Clearing Agency" registered pursuant to Section 17A
of the Securities Exchange Act of 1934, as amended. The Depository performs
services for its participants, some of which (and/or their representatives) own
the Depository. In accordance with its normal procedures, the Depository is
expected to record the positions held by each Depository participant in the
Book-Entry Certificates, whether held for its own account or as a nominee for
another person. In general, beneficial ownership of Book-Entry Certificates will
be subject to the rules, regulations and procedures governing the Depository and
Depository participants as in effect from time to time.
Distributions on the Book-Entry Certificates will be made on each
Distribution Date by the Trustee to the Depository. The Depository will be
responsible for crediting the amount of such payments to the accounts of the
applicable Depository participants in accordance with the Depository's normal
procedures. Each Depository participant will be responsible for disbursing 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 owners of the Book-Entry Certificates will
not be Certificateholders, as that term is used in the Pooling Agreement.
Beneficial
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<PAGE>
owners are only permitted to exercise the rights of Certificateholders
indirectly through Financial Intermediaries and the Depository. Monthly and
annual reports on the Mortgage Pool provided by the Master Servicer to Cede, as
nominee of the Depository, may be made available to beneficial owners upon
request, in accordance with the rules, regulations and procedures creating and
affecting the Depository and to the Financial Intermediaries to whose Depository
accounts the Book-Entry Certificates of such beneficial owners are credited.
The Depository has advised the Depositor and the Trustee that, unless and
until Definitive Certificates are issued, the Depository will take any action
permitted to be taken by the holders of the Book-Entry Certificates under the
Pooling Agreement only at the direction of one or more Financial Intermediaries
to whose Depository accounts the Book-Entry Certificates are credited, to the
extent that such actions are taken on behalf of Financial Intermediaries whose
holdings include such Book-Entry Certificates.
Definitive Certificates will be issued to beneficial owners of the
Book-Entry Certificates, or their nominees, rather than to the Depository, only
if (a) the Depository or the Depositor advises the Trustee in writing that the
Depository is no longer willing or able to discharge properly its
responsibilities as depository with respect to the Book-Entry Certificates and
the Depositor or the Trustee is unable to locate a qualified successor; (b) the
Depositor, at its 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,
if applicable, an assignment of any leases, rents, or personal property, and any
related UCC financing statement and any guaranties relating to the Mortgage Loan
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,
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in the opinion of counsel acceptable to the Trustee, such recording is not
required to protect the Trustee's interests in the Mortgage Loan against the
claim of any subsequent transferee or any successor to or creditor of the
Depositor or the applicable Seller.
The Trustee will review each Mortgage File within 90 days after the Closing
Date (or promptly after the Trustee's receipt of any document permitted to be
delivered after the Closing Date) and if any of the foregoing documents is found
to be missing or defective in any material respect and the applicable Seller
does not cure such omission or defect within 180 days of the Closing Date, such
Seller will by or on the Distribution Date in the month following the expiration
of such 180-day period either (a) repurchase the related Mortgage Loan (or any
property acquired in respect thereof) at a price (the "Repurchase Price") equal
to 100% of the unpaid principal balance of such Mortgage Loan plus accrued and
unpaid interest on such principal balance at the related interest rate paid on
the Mortgage Loan ("Mortgage Rate"), or (b) substitute a Replacement Loan;
however, such substitution is permitted only within two years of the Closing
Date and may not be made unless an opinion of counsel is provided to the effect
that such substitution will not disqualify the Mortgage Pool as a REMIC or
result in a prohibited transaction tax under the Code. Any "Replacement Loan"
generally will, on the date of substitution, among other characteristics set
forth in the Pooling Agreement, (i) have a principal balance, after deduction of
all Scheduled Payments due in the month of substitution, not in excess of, and
not more than 10% less than, the Scheduled Principal Balance of the Deleted Loan
(the amount of any shortfall to be deposited by the applicable Seller and held
for distribution to the Certificateholders on the related Distribution Date (a
"Substitution Adjustment Amount")), (ii) have a Mortgage Rate not lower than,
and not more than 2% per annum higher than, that of the Deleted Loan, (iii) have
a Loan-to-Value Ratio not higher than that of the Deleted Loan, (iv) have a
remaining term to maturity not greater than (and not more than one year less
than) that of the Deleted Loan, (v) comply with all of the representations and
warranties set forth in the Pooling Agreement as of the date of substitution,
and (vi) be of the same type of Mortgage Loan (Single Family Mortgage Loan or
Commercial Mortgage Loan) as the Deleted Loan. This cure, repurchase or
substitution obligation constitutes the sole remedy available to
Certificateholders or the Trustee for omission of, or a material defect in, a
Mortgage Loan document. However, if Western should default in its obligation to
cure, repurchase or substitute for a Deleted Loan, as discussed above,
Metropolitan shall have such obligation and if Old Standard should default in
such obligation, Summit shall have such obligation.
REPRESENTATIONS AND WARRANTIES
The Depositor generally will not make any representations and warranties
regarding the Mortgage Loans, and its assignment of the Mortgage Loans to the
Trustee will be without recourse. As further described below, each Seller will
make certain representations and warranties concerning its respective Mortgage
Loans in the Pooling Agreement and under certain circumstances may be required
to repurchase or substitute a Mortgage Loan as a result of a breach of any such
representation or warranty. In addition, pursuant to the Pooling Agreement the
Depositor will assign to the Trustee its rights with respect to representations
and warranties made by each Seller in its respective Loan Purchase Agreement
pursuant to which the Mortgage Loans are sold to the Depositor.
In the Pooling Agreement, each Seller will represent and warrant to the
Trustee with respect to its respective Mortgage Loans, among other things, that:
(a) the information set forth in the schedule of Mortgage Loans is true and
correct in all material respects; (b) at the time of transfer the Seller had
good title to the Mortgage Loans and the Mortgage Notes were subject to no
offsets, defenses or counterclaims; (c) as of the Cutoff Date, no Mortgage Loan
was more than 59 days delinquent; (d) as of the Closing Date, each Mortgage Loan
is secured by a first lien Mortgage or by a Land Sale Contract on the related
Mortgaged Property free and clear of all liens, claims and encumbrances, other
than the Land Sale Contract, if applicable (subject only to (i) liens for
current real property taxes, special assessments and certain delinquent taxes
set forth in Pooling Agreement aggregating $341,062.26 as of the Cutoff Date,
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(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 of Certificates" with
respect to the obligation of Metropolitan and Summit to repurchase such Mortgage
Loans if Western or Old Standard, respectively, fail to repurchase their
respective Mortgage Loans.
PAYMENTS ON MORTGAGE LOANS; ACCOUNTS
On or prior to the Closing Date, the Master Servicer will establish an
account (the "Collection Account") with SeaFirst National Bank, which shall be
maintained by the Master Servicer in trust for the benefit of
Certificateholders. Funds credited to the Collection Account may be invested for
the benefit and at the risk of the Master Servicer in Eligible Investments, as
defined in the Pooling Agreement, that are scheduled to mature on or prior to
the business day preceding the next Distribution Date. On or prior to the
business day immediately preceding each Distribution Date, the Master Servicer
shall withdraw from the Collection Account the amount of Available Funds and
shall deposit such Available Funds in an account established and maintained as a
separate trust account with the Trustee on behalf of Certificateholders (the
"Distribution Account").
Under the Pooling Agreement, the Master Servicer will be authorized to make
the following withdrawals from the Collection Account:
(a) as reimbursement for previously unreimbursed Monthly Advances, the
right to withdraw amounts pursuant to this subclause (a) being limited to
amounts received on particular Mortgage Loans (including, without
limitation, for this purpose, 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;
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(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, the Depositor or the Sellers pursuant to Section 7.03 of
the Pooling Agreement relating to certain liability or indemnification
expenses of the Trust Fund;
(g) to reverse a deposit of any amount deposited in the Collection
Account that is deposited therein in error (including amounts related to
checks returned due to insufficient funds);
(h) to make payments to the Trustee for deposit into the Distribution
Account of the Available Funds in accordance with Section 3.04(c) of the
Pooling Agreement;
(i) to pay Liquidation Expenses, made or incurred pursuant to Section
3.05, Section 3.10 or Section 3.19 (relating to certain foreclosure expenses
involving Commercial Mortgage Loans) 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
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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.
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
for 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 0.758% 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 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
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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 sufficient to
equal one month's interest on the unpaid principal balance thereof at the
related Mortgage Rate (net of the Master Servicing Fee Rate) (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 that would otherwise be required to be made if
such Mortgage Loan were not a Balloon Loan.
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.
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 Certificateholders, 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.
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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 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 Mortgaged 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 MASTER 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
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pursuant to the Pooling Agreement, or for errors in judgment; provided, however,
that neither the Depositor, the Sellers, the Master Servicer nor any such person
will be protected against any liability which would otherwise be imposed by
reason of willful misfeasance, bad faith or gross negligence in the performance
of duties or by reason of reckless disregard of obligations and duties
thereunder. The Pooling Agreement further provides that each Indemnified Party
is entitled to indemnification by the Mortgage Pool and will be held harmless
against any loss, liability or expense incurred in connection with any legal
action relating to the Pooling Agreement or the Certificates, other than any
loss, liability or expense related to any specific Mortgage Loan or Mortgage
Loans (except any such loss, liability or expense otherwise reimbursable
pursuant to the Pooling Agreement) and any loss, liability or expense incurred
by reason of willful misfeasance, bad faith or gross negligence in the
performance of such Indemnified Party's duties thereunder or by reason of
reckless disregard by such Indemnified Party of its obligations and duties
thereunder. In addition, the Pooling Agreement provides that neither the
Depositor, the Sellers nor the Master Servicer is under any obligation to appear
in, prosecute or defend any legal action which is not incident to, in the case
of the Depositor, the Sellers or the Master Servicer, its duties under the
Pooling Agreement and which in its opinion may involve it in any expense or
liability. Each of the Depositor, the Sellers and the Master Servicer may,
however, in its discretion, undertake 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 Business 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; (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; and
(d) any failure of the Master Servicer to remit the Monthly Advance pursuant to
the Pooling Agreement which continues unremedied for one Business Day.
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 institution with a net worth of at least $10,000,000 to act as
successor Master 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.
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ENFORCEMENT
No Certificateholder will have any right under the Pooling Agreement to
institute any proceeding with respect to the Pooling Agreement unless the
Certificateholder previously has given to the Trustee written notice of default
and unless holders of Certificates evidencing not less than 25% of the aggregate
voting rights of the Certificates have made written requests to the Trustee to
institute such proceeding in its own name as Trustee thereunder and have offered
and provided to the Trustee indemnity and the Trustee for 60 days has neglected
or refused to institute any such proceeding. However, the Trustee is under no
obligation to exercise any of the trusts or powers vested in it by the Pooling
Agreement or to make any investigation of 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 or supplement any
provision therein that may be defective or inconsistent with any other provision
therein, (c) to make any other provisions with respect to matters or questions
arising under the Pooling Agreement which are not inconsistent with the
provisions of the Pooling Agreement, or (d) to comply with any requirements
necessary to maintain the status of the Mortgage Pool as a REMIC; provided,
however, that no such amendments (except those pursuant to clause (d)) will
adversely affect in any material respect the interests of any Certificateholder.
Any such amendment, except pursuant to clause (d) of the preceding sentence,
should be deemed not to adversely affect in any material respect the interests
of any Certificateholders if the Trustee receives written confirmation from the
Rating Agency rating such Certificates that such amendment will not cause such
Rating Agency to reduce the then current rating thereof. The Pooling Agreement
may also be amended by the Depositor, the Sellers, the Master Servicer and the
Trustee with the consent of holders of Certificates evidencing not less than
66 2/3% of the aggregate voting rights of each class of Certificates affected
thereby for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Pooling Agreement or of modifying in
any manner the rights of holders of Certificates; provided, however, that no
such amendment may (i) reduce in any manner the amount of, or delay the timing
of, collections of payments received on Mortgage Loans which are required to be
distributed in respect to any such Certificate without the consent of the Holder
of such Certificate or (ii) reduce the aforesaid percentages of Certificates the
holders of which are required to consent to any such amendment without the
consent of the holders of all Certificates then outstanding,
LIST OF CERTIFICATEHOLDERS
Upon written request of the Trustee, the Certificate Registrar will provide
to the Trustee within 15 days after the receipt of such request a list of the
names and addresses of all Certificateholders of record as of the most recent
Record Date for payment of distributions to Certificateholders. Upon written
request of three or more Certificateholders of record of the Certificates, for
purposes of communicating with other Certificateholders with respect to their
rights under the Pooling Agreement, the Trustee will afford such
Certificateholders access during business hours to the most recent list of
Certificateholders held by the Trustee within five Business Days of the request.
TERMINATION; OPTIONAL TERMINATION
The Master Servicer will have the option to purchase all remaining Mortgage
Loans and other assets in the Mortgage Pool, thereby effecting early retirement
of the Certificates and 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
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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. Except in certain cases involving due-on-sale
provisions, any such modification, waiver, forbearance or amendment to a
Mortgage Loan 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 foregoing, the Master Servicer may enter into a forbearance
agreement provided that such agreement would not adversely affect the Mortgage
Pool's status as a REMIC. The Master Servicer will continue in its obligation to
make Advances (subject to recoverability as described under "THE POOLING AND
SERVICING AGREEMENT--Advances") with respect to any Mortgage Loan relating to a
forebearance agreement. In addition, with respect to each Balloon Loan, the
Master Servicer may extend the date on which any Balloon Payment is due by up to
six months, (i) if the Mortgagor defaults on its obligation to pay the Balloon
Payment when due, (ii) if, within 90 days of the date on which the Balloon
Payment is due, the Master Servicer has received notice that the Mortgagor under
such Balloon Loan intends to default on such Balloon Payment or (iii) if the
Master Servicer delivers to the Trustee an opinion of counsel to the effect that
such modification, waiver, forbearance or amendment would not affect the
Mortgage Pool's status as a REMIC, and, in each case, such modification, waiver,
forbearance or amendment is likely to produce a greater recovery with respect to
such Balloon Loan than would liquidation. Additionally, the related Mortgagor
shall be required to continue to make monthly payments of principal and/or
interest thereon in an amount at least equal to the amount of the Monthly
Payment due on the Scheduled Due Date immediately preceding the rescheduled
maturity date of the Balloon Loan. The Master Servicer shall notify the Trustee
in writing of any modification, waiver, forbearance or amendment of any term of
any Mortgage Loan and the date thereof and shall deliver to the Trustee an
original counterpart of the agreement relating to such modification, waiver,
forbearance or amendment within ten Business Days of the execution thereof. In
the event of any such arrangement, the Master Servicer's obligation to make
Advances on the related Mortgage Loan shall continue during the scheduled
period.
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.
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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.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Pooling Agreement among the
Depositor, the Sellers, the Trustee and the Master Servicer. The following
summaries describe certain provisions that appear in the Pooling Agreement. The
summaries, 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 will
be registered and 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 "--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 on the Class B-1 Certificates and then to interest and then to
principal on the 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 B-5
Certificates; (g) 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); (h) after the
Offered Certificates are paid in full, sequentially, to principal of the Class
B-3, Class B-4, Class B-5 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 (i) to the Class R Certificates, any remaining Available
Funds.
DISTRIBUTIONS
Distributions of principal and interest to holders of the Offered
Certificates will be made on each Distribution Date to the extent of Available
Funds therefor as described above under "--Priority of Distributions Among
Classes of Certificates" to holders of record of such Offered Certificates on
the last day of the preceding month (the "Record Date"), except that the final
distribution in respect of any Class of Offered Certificates will be made only
upon presentation and surrender of such Certificates at the office or agency
appointed by the Trustee for that purpose in New York, New York.
Distributions on each Distribution Date will be made by check mailed to the
address of the person entitled thereto as it appears on the applicable
certificate register or, in the case of a Certificateholder who holds a Class of
Certificates with aggregate denominations of $1,000,000 or more and who has so
notified the Trustee in writing in accordance with the Pooling Agreement, by
wire transfer in immediately available
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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, (b) the amount of any Advances made on
the preceding Distribution Account Deposit Date, (c) all proceeds of any
insurance policies with respect to the Mortgage Loans, to the extent such
proceeds are not applied to the restoration of the related Mortgaged Property or
released to the Mortgagor in accordance with the Master Servicer's normal
servicing procedures (collectively, "Insurance Proceeds") and all other cash
amounts received and retained in connection with the liquidation of defaulted
Mortgage Loans, by foreclosure, forfeiture or otherwise ("Liquidation Proceeds")
during the related Due Period (in each case, net of unreimbursed expenses
incurred in connection with a liquidation, forfeiture or foreclosure and
unreimbursed Advances, if any), (d) all partial or full prepayments on Mortgage
Loans received during the related Due Period and (e) the amount required to be
paid in respect of a Mortgage Loan that became required to be repurchased or any
Substitution Adjustment Amounts in connection with any substitution of a
Mortgage Loan, in either case during the related Due Period, reduced by amounts
in reimbursement for Advances previously made and other amounts as to which the
Master Servicer is entitled to be reimbursed from the Collection Account
pursuant to the Pooling Agreement.
The Trustee will forward with each distribution on a Distribution Date to
each Offered Certificateholder and the Master Servicer a statement or statements
setting forth, among other things, (a) the amount of such distribution allocable
to principal and (b) the amount of such distribution allocable to interest. Such
amounts will be expressed as a dollar amount per $1,000 of Class Certificate
Balance. See "--Reports to Certificateholders" herein for a detailed description
of the information to be included in such statements.
INTEREST. On each Distribution Date, each Class of Offered Certificates, to
the extent of Available Funds on such Distribution Date applied in the order
described above under "--Priority of Distributions Among Classes of
Certificates," will be entitled to receive an amount allocable to interest equal
to the sum of (a) one month's interest at the applicable Pass-Through Rate on
the respective Class Certificate Balance and (b) the sum of the amounts, if any,
by which the amount described in clause (a) above on each prior Distribution
Date exceeded the amount actually distributed as interest on such prior
Distribution Dates and not subsequently distributed ("Unpaid Interest Amounts").
The interest entitlement for each Class of Certificates or, with respect to
the Class R Certificates, the Class Z/IO Component 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 a 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
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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
Principal Prepayment relating to the related Mortgage Loan that is prepaid.
Accrued interest to be distributed on any Distribution Date will be
calculated, in the case of each Class of Offered Certificates, on the basis of
the related Class Certificate Balance immediately prior to such Distribution
Date. Interest on such Classes will be calculated and payable on the basis of a
360-day year divided into twelve 30-day months.
In the event that, on a particular Distribution Date, Available Funds on
such Distribution Date applied in the order described above under "--Priority of
Distributions Among Classes of Certificates," are not sufficient to make a full
distribution of the interest entitlement to holders of the Offered Certificates,
interest will be distributed on each Class of Offered Certificates of equal
priority in proportion to the amount of interest each such Class would otherwise
have been entitled to receive in the absence of such shortfall. The amount of
any resulting shortfall will be carried forward and added to the amount holders
of each such Class of Offered Certificates will be entitled to receive on the
next Distribution Date. Such a shortfall could occur, for example, if losses
realized on the Mortgage Loans were exceptionally high or were concentrated in a
particular month. Any such amount so carried forward will not bear interest.
ACCRETION AMOUNT. On each Distribution Date up to and including the
Accretion Termination Date, distributions of interest allocable to the Class
Z/IO Component (the "Accretion Amount") will be added to the Component Balance
thereof and the amount of such interest will be distributed on such Distribution
Date as principal of one or more Classes of Offered Certificates in the
following order of priority as set forth below:
(a) sequentially, to the Class A-1, Class A-2 and Class A-3 Certificates, in
that order, until the respective Class Certificate Balances have been reduced to
zero; and
(b) concurrently, to the Class A-4, Class B-1 and Class B-2 Certificates,
pro rata, based on the respective Class Certificate Balances on such
Distribution Date.
For a description of the amount of interest the Class Z/IO Component is
entitled to receive on any Distribution Date, see "--Residual Certificates."
Distributions of interest 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
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Distribution Date will be distributed as principal, sequentially, to the Class
A-1, Class A-2 and Class A-3 Certificates, in that order, until the Class
Certificate Balance thereof has been reduced to zero.
The Senior Principal Distribution Amount for any Distribution Date will
equal the sum of (a) the Senior Percentage of (i) the principal portion of the
Scheduled Payment due on each Mortgage Loan on the Scheduled Due Date in the
month of such Distribution Date, (ii) the principal portion of the purchase
price of each Mortgage Loan that was repurchased by the Sellers or another
person pursuant to the Pooling Agreement with respect to such Distribution Date,
(iii) the Substitution Adjustment Amount in connection with any Deleted Loan
received with respect to such Distribution Date and (iv) any Insurance Proceeds
or Liquidation Proceeds allocable to recoveries of principal of Mortgage Loans
that are not yet Liquidated Mortgage Loans received during the related Due
Period, (b) with respect to each Mortgage Loan that became a Liquidated Mortgage
Loan during the related Due Period either (i) the Senior Prepayment Percentage,
if the Senior Prepayment Percentage is less than 100%, or, if the Senior
Prepayment Percentage equals 100%, the percentage obtained by dividing the
Senior Percentage by the sum of the Senior Percentage and the Class A-4
Percentage or (ii) if an Excess Loss was sustained with respect to such
Liquidated Mortgage Loan during such Due Period, the Senior Percentage, of the
Liquidation Proceeds allocable to principal received with respect to such
Mortgage Loan and (c) the Senior Prepayment Percentage of all partial and full
principal prepayments by borrowers (including Balloon Payments) received during
the related Due Period for such Distribution Date; provided, however, that if a
Bankruptcy Loss that is an Excess Loss is sustained with respect to a Mortgage
Loan that is not a Liquidated Mortgage Loan, the Senior Principal Distribution
Amount will be reduced on the related Distribution Date by the Senior Percentage
of the principal portion of such Bankruptcy Loss.
"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, Class B-5 and Class R Certificates)
immediately prior to such date. The "Subordinate Percentage" for any
Distribution Date will be calculated as the difference between 100% and the sum
of the Senior Percentage and the Class A-4 Percentage for such Distribution
Date.
The Senior Prepayment Percentage for any Distribution Date occurring during
the five years beginning on the first Distribution Date will equal 100%.
Thereafter, the Senior Prepayment Percentage will, except as described below, be
subject to gradual reduction as described in the following paragraph. This
disproportionate allocation of certain unscheduled payments in respect of
principal (including Balloon Payments) will have the effect of accelerating the
amortization of the Senior Certificates (other than the Class A-4 Certificates)
while, in the absence of Realized Losses, increasing the interest in the Pool
Principal Balance evidenced by the Class A-4 Certificates and the Subordinate
Certificates. Increasing the respective interests of the Class A-4 Certificates
and the Subordinate Certificates tentative to that of the
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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 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, Class B-5 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.
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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.
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, Class B-5 and Class R
Certificates) 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, Class
B-5 and Class R Certificates. Each Class of Subordinate Certificates (other than
the Class B-3, Class B-4, Class B-5 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, Class B-5 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,
Class B-5 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
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<PAGE>
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, CLASS B-5 AND CLASS R CERTIFICATES PRINCIPAL
DISTRIBUTIONS. On each Distribution Date after the Offered Certificates are
paid in full, all Available Funds, as calculated in the Pooling Agreement,
remaining after the distribution of interest to the Class B-3, Class B-4, Class
B-5 Certificates and Class R Certificates will be distributed sequentially to
the Class B-3, Class B-4, Class B-5 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:
<TABLE>
<CAPTION>
INITIAL
DESIGNATION COMPONENT BALANCE PASS-THROUGH RATE
- -------------------------------------------------- ------------------ -----------------
<S> <C> <C>
Class PO.......................................... $ 2,534,450 (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
9.008%, 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 9.008% 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 8.25% 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 on each prior Distribution Date exceeded the amount
actually distributed or accreted as interest on such prior Distribution
Dates and not subsequently distributed or accreted.
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, Class B-5 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
57
<PAGE>
in reduction of the principal balance of such Component on previous Distribution
Dates, and (b) in the case of the Class Z/IO Component, increased by all
interest accrued and added to the Component Balance thereof prior to such
Distribution Date.
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 Net Realized Losses and Excess Losses to the
Class R Certificates, such losses shall be allocated to the Components thereof,
pro rata, based upon their respective Component Balances.
Because principal distributions are paid to certain Classes of Senior
Certificates before other Classes of Senior Certificates, holders of such Senior
Certificates that are entitled to receive principal later bear a greater risk of
being allocated Realized Losses on the Mortgage Loans than holders of Classes
that are entitled to receive principal earlier.
In general, a "Net Realized Loss" means, with respect to a Liquidated
Mortgage Loan, the amount by which the remaining unpaid principal balance of the
Mortgage Loan exceeds the amount of Liquidation Proceeds applied to the
principal balance of the Mortgage Loan. "Excess Losses" are (a) Special Hazard
Losses in excess of the Special Hazard Loss Coverage Amount, (b) Bankruptcy
Losses in excess of the Bankruptcy Loss Coverage Amount and (c) Fraud Losses in
excess of the Fraud Loss Coverage Amount. "Bankruptcy Losses" are losses that
are incurred as a result of Debt Service Reductions and Deficient Valuations.
"Special Hazard Losses" are Realized Losses in respect of Special Hazard
Mortgage Loans. "Fraud Losses" are Realized Losses sustained on a Liquidated
Mortgage Loan by reason of a default arising from fraud, dishonesty or
misrepresentation. See "CREDIT ENHANCEMENT--Subordination of Certain Classes"
herein.
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." However, 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
58
<PAGE>
Hazard Loss Coverage Amount and will be allocated as a Net Realized Loss (not as
an Excess Loss) as described above.
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 each distribution on a Distribution Date, the Trustee will furnish
to each Certificateholder of record a statement setting forth, among other
things:
(a) the amount of such distribution allocable to principal, separately
identifying the aggregate amount of any Principal Prepayments included
therein;
(b) the amount of such distribution allocable to interest;
(c) the amount of any Advance;
(d) the Class Certificate Balance 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.
59
<PAGE>
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
GENERAL
The weighted average life of the Certificates and the yield to investors
depend in part on the rate at which the Mortgage Loans or mortgage loans
underlying Mortgage Certificates are prepaid. Prepayments on mortgage loans are
commonly measured relative to a prepayment standard or model. The prepayment
model used with respect to the Certificates is described below.
The rate of principal prepayments on the Mortgage Loans is influenced by a
variety of economic, geographic, social and other factors. In general, however,
if prevailing interest rates fall significantly below the interest rates on the
Mortgage Loans included in the Mortgage Pool, such Mortgage Loans are likely to
be the subject of higher principal prepayments than if prevailing rates remain
at or above the rates borne by such Mortgage Loans. Conversely, if prevailing
interest rates rise appreciably above the interest rates on such Mortgage Rates
borne by the Mortgage Loans included in the Mortgage Pool, such Mortgage Loans
are likely to experience a lower prepayment rate than if prevailing rates remain
at or below the rates borne by such Mortgage Rates. Other factors affecting
prepayment of Mortgage Loans include changes in mortgagors' housing needs, job
transfers, unemployment, mortgagors' net equity in the properties securing the
Mortgage Loans and servicing decisions.
Prepayments may also result from the enforcement of any "due-on-sale"
provisions contained in a Mortgage Note permitting the holder of the Mortgage
Note to demand immediate repayment of the outstanding balance of the Mortgage
Loan upon conveyance by the Mortgagor of the underlying Mortgaged Property. The
Master Servicer may enforce any "due-on-sale" clause to the extent it has
knowledge of the conveyance or proposed conveyance of the underlying Mortgaged
Property unless (i) such enforcement is not permitted by applicable law or (ii)
the Master Servicer, in its discretion, waives its right to enforce such
provision and permits the purchasers of the Mortgaged Property to assume the
Mortgage Loan.
Delinquencies on the Mortgage Loans, which are not advanced by or on behalf
of the Master Servicer (because amounts, if advanced, would be nonrecoverable),
will adversely affect the yield on the Certificates. Because of the priority of
distributions, shortfalls resulting from delinquencies not so advanced will be
borne first by the Subordinate Certificates (in the reverse order of their
priority of payment as described herein under "DESCRIPTION OF THE
CERTIFICATES--Priority of Distributions Among Classes of Certificates"), and
then by the Senior Certificates.
Net Interest Shortfalls will adversely affect the yields on the Offered
Certificates. In addition, although all losses initially will be borne by the
Subordinate Certificates, as described herein under "DESCRIPTION OF THE
CERTIFICATES--Allocation of Losses," Excess Losses will be borne by all Classes
of Certificates in the manner set forth in such section. As a result, the yields
on the Offered Certificates will depend on the rate and timing of Net Realized
Losses, including Excess Losses. Excess Losses could occur at a time when one or
more Classes of Subordinate Certificates are still outstanding and otherwise
available to absorb other types of Net Realized Losses.
The effective yields to the holders of the Offered Certificates will be
lower than the yields otherwise produced by the applicable rate at which
interest is passed through to such holders and the purchase price of such
Certificates because monthly distributions will not be payable to such holders
until the twentieth day (or, if such day is not a business day, the following
business day) of the month following the month in which interest accrues on the
Mortgage Loans (without any additional distribution of interest or earnings
thereon in respect of such delay).
PREPAYMENT CONSIDERATIONS AND RISKS
The rate of principal payments on the Offered Certificates, the aggregate
amount of each interest payment on the Offered Certificates and the yield to
maturity of Offered Certificates purchased at a price
60
<PAGE>
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, Class B-5 and Class R Certificates are not
entitled to principal distributions until the Offered Certificates are paid in
full, the Offered Certificates will receive a greater percentage of the
principal payments on the Mortgage Loans than would otherwise be the case if all
Classes of Certificate were entitled to a pro rata portion of such payments on
each Distribution Date. In addition, on each Distribution Date up to and
including the Accretion Termination Date, the Accretion Amount will be
distributed as a principal distribution to the Class or Classes of Offered
Certificates entitled thereto as set forth above in "DESCRIPTION OF THE
CERTIFICATES--Distributions-- Accretion Amount." This feature will result in the
acceleration of some or all of the Classes of Offered Certificates relative to
the amortization of the Mortgage Loans. Both of these features will shorten the
weighted average lives of the Offered Certificates.
Approximately 98.18% of the Single Family Mortgage Loans, 92.86% of the
Commercial Mortgage Loans and 96.90% of the Mortgage Loans (in each case,
expressed as Pool Percentages) 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 and, thus, may decrease the rate
of prepayments with respect thereto. See "THE POOLING AND SERVICING
AGREEMENT--Assignment of Mortgage Loans" and "THE POOLING AND SERVICING
AGREEMENT--Termination; Optional Termination" herein.
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<PAGE>
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.
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
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<PAGE>
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 below under "--Assumptions Relating to Tables." There will
likely be discrepancies between the characteristics of the actual Mortgage Loans
included in the Mortgage Pool and the characteristics of the Mortgage Loans
assumed in preparing the Decrement Tables. Any such discrepancy may have an
effect upon the percentages of initial Class Certificate Balances outstanding
set forth in the Decrement Tables (and the weighted average lives of the Offered
Certificates). In addition, to the extent that the Mortgage Loans that actually
are included in the Mortgage Pool have characteristics that differ from those
assumed in preparing the following Decrement Tables, the Class Certificate
Balance of any such Class of Offered Certificates will be reduced to zero
earlier or later than indicated by such Decrement Tables.
Furthermore, the information contained in the Decrement Tables with respect
to the weighted average life of any Offered Certificate is not necessarily
indicative of the weighted average life of such Class of Offered Certificate
that might be calculated or projected under different or varying prepayment
assumptions.
It is not likely that (a) all of the Mortgage Loans will have the Mortgage
Rates or remaining terms to maturity assumed or (b) the Mortgage Loans will
prepay at the indicated percentage of CPR until maturity. In addition, the
diverse remaining terms to maturity of the Mortgage Loans could produce slower
or faster distributions in reduction of Class Certificate Balances than
indicated in the Decrement Table at the various percentages of CPR specified.
ASSUMPTIONS RELATING TO TABLES. The Decrement Tables have been prepared on
the basis of the characteristics of the Mortgage Loans included in the Trust
Fund as of the Cutoff Date and the following assumptions (the "Assumptions"):
(a) the Pass-Through Rates for the Classes are set forth on the cover page
hereto and in "SUMMARY OF THE OFFERING"; (b) the initial Class Certificate
Balances 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
December 1996 and prepayments representing prepayments in full of individual
Mortgage Loans are received on the last day of each month commencing in November
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 Loan is required to be purchased from the Mortgage Pool and no Mortgage
Loans are substituted for another Mortgage Loan as required by the Pooling
Agreement; (g) payments on the Offered Certificates are received on the
twentieth day of each month commencing in December 1996; (h) the Offered
Certificates will be issued on November 26, 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;
(k) the Accretion Amount for each Distribution Date is calculated as set forth
above under "DESCRIPTION OF THE CERTIFICATES--Residual Certificates" herein; and
(l) final Balloon Payments are treated as a prepayment of such Mortgage Loans.
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 an Underwriter at the request
of certain prospective
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<PAGE>
investors, based on assumptions provided by, and satisfying the special
requirements of, such prospective investors. Such tables and assumptions may be
based on assumptions that differ from the Assumptions. Accordingly, such tables
and other materials may not be relevant to or appropriate for investors other
than those specifically requesting them.
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..................................... 100.00% 100.00% 100.00% 100.00% 100.00%
November 20, 1997................................... 84.39 70.36 56.33 42.31 28.29
November 20, 1998................................... 65.48 40.25 16.36 0.00 0.00
November 20, 1999................................... 41.59 8.65 0.00 0.00 0.00
November 20, 2000................................... 20.40 0.00 0.00 0.00 0.00
November 20, 2001................................... 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (Years)(1).................... 2.637 1.684 1.198 0.907 0.718
</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 certificate
balance of such Offered Certificate.
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..................................... 100.00% 100.00% 100.00% 100.00% 100.00%
November 20, 1997................................... 100.00 100.00 100.00 100.00 100.00
November 20, 1998................................... 100.00 100.00 100.00 89.27 52.45
November 20, 1999................................... 100.00 100.00 63.81 18.11 0.00
November 20, 2000................................... 100.00 69.20 13.00 0.00 0.00
November 20, 2001................................... 94.95 25.05 0.00 0.00 0.00
November 20, 2002................................... 68.23 0.00 0.00 0.00 0.00
November 20, 2003................................... 39.76 0.00 0.00 0.00 0.00
November 20, 2004................................... 14.80 0.00 0.00 0.00 0.00
November 20, 2005................................... 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (Years)(1).................... 6.696 4.502 3.310 2.563 2.063
</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 certificate
balance of such Offered Certificate.
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<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..................................... 100.00% 100.00% 100.00% 100.00% 100.00%
November 20, 1997................................... 100.00 100.00 100.00 100.00 100.00
November 20, 1998................................... 100.00 100.00 100.00 100.00 100.00
November 20, 1999................................... 100.00 100.00 100.00 100.00 40.89
November 20, 2000................................... 100.00 100.00 100.00 9.85 0.00
November 20, 2001................................... 100.00 100.00 18.89 0.00 0.00
November 20, 2002................................... 100.00 95.15 0.00 0.00 0.00
November 20, 2003................................... 100.00 33.32 0.00 0.00 0.00
November 20, 2004................................... 100.00 0.00 0.00 0.00 0.00
November 20, 2005................................... 82.64 0.00 0.00 0.00 0.00
November 20, 2006................................... 31.61 0.00 0.00 0.00 0.00
November 20, 2007................................... 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (Years)(1).................... 9.681 6.780 4.755 3.711 2.976
</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 certificate
balance of such Offered Certificate.
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..................................... 100.00% 100.00% 100.00% 100.00% 100.00%
November 20, 1997................................... 94.78 94.76 94.75 94.73 94.70
November 20, 1998................................... 89.12 89.04 88.94 88.83 88.70
November 20, 1999................................... 82.68 82.45 82.16 81.80 81.34
November 20, 2000................................... 76.10 75.60 74.93 74.00 49.77
November 20, 2001................................... 68.98 67.99 66.52 40.81 16.97
November 20, 2002................................... 61.36 57.93 43.60 15.14 0.00
November 20, 2003................................... 52.72 45.91 18.38 0.00 0.00
November 20, 2004................................... 43.65 29.90 0.00 0.00 0.00
November 20, 2005................................... 34.30 8.52 0.00 0.00 0.00
November 20, 2006................................... 23.26 0.00 0.00 0.00 0.00
November 20, 2007................................... 9.42 0.00 0.00 0.00 0.00
November 20, 2008................................... 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (Years)(1).................... 6.874 6.032 5.217 4.457 3.839
</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 certificate
balance of such Offered Certificate.
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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..................................... 100.00% 100.00% 100.00% 100.00% 100.00%
November 20, 1997................................... 94.78 94.76 94.75 94.73 94.70
November 20, 1998................................... 89.12 89.04 88.94 88.83 88.70
November 20, 1999................................... 82.68 82.45 82.16 81.80 81.34
November 20, 2000................................... 76.10 75.60 74.93 74.00 49.77
November 20, 2001................................... 68.98 67.99 66.52 40.81 16.97
November 20, 2002................................... 61.36 57.93 43.60 15.14 0.00
November 20, 2003................................... 52.72 45.91 18.38 0.00 0.00
November 20, 2004................................... 43.65 29.90 0.00 0.00 0.00
November 20, 2005................................... 34.30 8.52 0.00 0.00 0.00
November 20, 2006................................... 23.26 0.00 0.00 0.00 0.00
November 20, 2007................................... 9.42 0.00 0.00 0.00 0.00
November 20, 2008................................... 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (Years)(1).................... 6.874 6.032 5.217 4.457 3.839
</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 certificate
balance of such Offered Certificate.
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..................................... 100.00% 100.00% 100.00% 100.00% 100.00%
November 20, 1997................................... 94.78 94.76 94.75 94.73 94.70
November 20, 1998................................... 89.12 89.04 88.94 88.83 88.70
November 20, 1999................................... 82.68 82.45 82.16 81.80 81.34
November 20, 2000................................... 76.10 75.60 74.93 74.00 49.77
November 20, 2001................................... 68.98 67.99 66.52 40.81 16.97
November 20, 2002................................... 61.36 57.93 43.60 15.14 0.00
November 20, 2003................................... 52.72 45.91 18.38 0.00 0.00
November 20, 2004................................... 43.65 29.90 0.00 0.00 0.00
November 20, 2005................................... 34.30 8.52 0.00 0.00 0.00
November 20, 2006................................... 23.26 0.00 0.00 0.00 0.00
November 20, 2007................................... 9.42 0.00 0.00 0.00 0.00
November 20, 2008................................... 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (Years)(1).................... 6.874 6.032 5.217 4.457 3.839
</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 certificate
balance of such Offered Certificate.
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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 $1,645,000 (the "Special
Hazard Loss Coverage Amount"), (b) Bankruptcy Losses in an initial amount
expected to be up to approximately $130,000 (the "Bankruptcy Loss Coverage
Amount") and (c) Fraud Losses in an initial amount expected to be up to
approximately $3,800,000 (the "Fraud Loss Coverage Amount").
The Special Hazard Loss Coverage Amount will be reduced, on each anniversary
of the Cutoff Date, to equal 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 California postal zip code area
having the highest aggregate principal balance of any such zip code area, all
principal balances being calculated as of the first day of the month of such
Distribution Date after giving effect to scheduled installments of principal and
interest on the Mortgage Loans then due, whether or not paid, and (b) the
Special Hazard Loss Coverage Amount as of the Closing Date less the amount, if
any, of losses attributable to Special Hazard Mortgage Loans incurred from the
Closing Date through the last day of the month preceding the month of such
Distribution Date.
The Fraud Loss Coverage Amount will be reduced, from time to time, by the
amount of Fraud Losses allocated to the Certificates. In addition, on each
anniversary of the Cutoff 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 as of
the preceding anniversary of the Cutoff Date over the cumulative amount of Fraud
Losses allocated to the Certificates since such preceding anniversary 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.
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<PAGE>
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.
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 normally 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
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<PAGE>
borrower of the contract is the lender obligated to convey title to the real
estate to the purchaser. As with mortgage or deed of trust financing, during the
effective period of the land sale contract, the borrower is responsible for
maintaining the property in good condition and for paying real estate taxes,
assessments and hazard insurance premiums associated with the property.
The method of enforcing the rights of the lender under an installment
contract varies on a state-by-state basis depending upon the extent to which
state courts are willing, or able pursuant to state statute, to enforce the
contract strictly according to its terms. The terms of land sale contracts
generally provide that upon default by the borrower, the borrower loses his or
her right to occupy the property, the entire indebtedness is accelerated, and
the borrower's equitable interest in the property is forfeited. The lender in
such a situation does not have to foreclose in order to obtain title to the
property; although in some cases a quiet title action may be necessary in order
if the borrower has filed the land sale contract in local land records and an
ejectment action may be necessary to recover possession. In a few states,
particularly in cases of borrower default during the early years of a land sale
contract, the courts will permit ejectment of the borrower and a forfeiture of
his or her interest in the property. However, most state legislatures have
enacted provisions by analogy to mortgage law protecting borrowers under land
sale contracts from the harsh consequences of forfeiture. Under such statutes, a
judicial 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
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<PAGE>
the sale would have in determining the exact status of title and because the
physical condition of the property may have deteriorated during the foreclosure
proceedings, it is uncommon for a third party to purchase the property at a
foreclosure sale. Rather, it is common for the lender to purchase the property
from the trustee or referee for an amount equal to the principal amount of the
mortgage or deed of trust, accrued and unpaid interest and the expenses of
foreclosure. Thereafter, the lender will assume the burdens of ownership,
including obtaining casualty insurance and making such repairs at its own
expense as are necessary to 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
mortgagor 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.
PERSONALTY. Certain Commercial Properties, such as hotels, motels and
industrial plants, are likely to derive a part of their value from personal
property which does not constitute "fixtures" under applicable state real
property law and, hence, would not be subject to the lien of a mortgage. Such
property is pledged or assigned with respect to such properties as security
under the UCC. In order to perfect its security interest therein, the Depositor
on behalf of the Trustee generally must file UCC financing statements and, to
maintain perfection of such security interest, file continuation statements
generally every five years.
LEASEHOLD RISKS. Four Single Family Mortgage Loans, representing
approximately 0.15% 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. The terms of the ground
leases for three of such
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<PAGE>
four Mortgage Loans expire 7 years, 11 years and 22 years after the stated
maturity date of such Mortgage Loans and the remaining ground lease continues
for perpetuity.
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 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
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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 directly 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 if their
activities fall outside the provisions of a recent amendment to CERCLA, which is
described in more detail below. CERCLA's definition of "owner or operator,"
excludes 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 rise to
the level of participating in the day-to-day management of such facility or
property, the lender faces potential liability as an "owner or operator" under
CERCLA. Similarly, when a lender forecloses and takes title to a contaminated
facility or property (whether it holds the facility or property as an investment
or leases it to a third party), the lender may incur potential CERCLA liability.
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 a
lender could interact with and advise the borrower with regard to the security
interest without participating in its management. 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
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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.
On October 1, 1996, the Asset Conservation, Lender Liability and Deposit
Insurance Protection Act (the "Conservation Act"), which codifies EPA's lender
liability rule and amends CERCLA, was signed into law. The Conservation Act
amends the definition of "owner or operator" to further clarify the range of
activities a secured creditor may undertake without being deemed to have
"participated in management" of the facility and thereby, losing the benefit of
the secured creditor exemption. The lender may protect its security interest by
monitoring or enforcing the security interest terms, conducting inspections of
the facility, requiring the borrower to conduct an environmental response
action, providing financial or other advice to protect the security interest
and/or renegotiating loan terms to protect the security interest. The
Conservation Act also articulates the conditions under which a security interest
in a contaminated facility may be foreclosed upon without making the lender
liable as an owner or operator under CERCLA. This amendment not only provides a
lender that abides by its terms certain protection from an EPA claim, it also
governs, and thereby limits, such claims brought by states and private parties
under CERCLA.
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 its option, 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 Mortgaged 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 preclude
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
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any such environmental assessment obtained by the Master Servicer will detect
all possible Environmental Conditions, that any estimate of the costs of
effecting compliance at any Mortgaged Property and the recovery thereon will be
correct, or that the other requirements of the Pooling Agreement, even if fully
observed by the Master Servicer will in fact insulate the Trust Fund from
liability for Environmental Conditions.
The Depositor and the Sellers generally have not determined whether
environmental assessments have been conducted with respect to the Mortgaged
Properties relating to the Mortgage Loans included in the Mortgage Pool, and it
is likely that any environmental 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 and Uncertainties" with respect to the Master
Servicer's right to waive the enforcement of any due-on-sale clauses.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control Act
of 1980, enacted in March 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of residential first mortgage loans
originated by certain lenders after March 31, 1980. The Office of Thrift
Supervision, as successor to the Federal Home Loan Bank Board, is authorized to
issue rules and regulations and to publish interpretations governing
implementation of Title V. The statute authorized the states to reimpose
interest rate limits by adopting, before April 1, 1983, a law or constitutional
provision which expressly rejects an application of the federal law. In
addition, even where Title V is not so rejected, any state is authorized by the
law to adopt a provision limiting discount points or other charges on mortgage
loans covered by Title V. Certain states have taken action to reimpose interest
rate limits and/or to limit discount points or other charges.
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SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act of
1940, as amended (the "Relief Act"), a borrower who enters military service
after the origination of such borrower's Mortgage Loan (including a borrower who
is a member of the National Guard or is in reserve status at the time of the
origination of the Mortgage Loan and is later called to active duty) may not be
charged interest above an annual rate of 6% during the period of such borrower's
active duty status, unless a court orders otherwise upon application of the
lender. It is possible that such interest rate limitation could have an effect,
for an indeterminate period of time, on the ability of the Master Servicer to
collect full amounts of interest on certain of the Mortgage Loans. In addition,
the Relief Act imposes limitations which would impair the ability of the
Servicer to foreclose on an affected Mortgage Loan during the borrower's period
of active duty status. Thus, in the event that such a Mortgage Loan goes into
default there may be delays and losses occasioned by the inability to realize
upon the mortgaged property in a timely fashion. As used herein, a "Relief Act
Mortgage Loan" refers to any Mortgage Loan as to which the Relief Act has
limited the amount of interest the related Mortgagor is required to pay each
month.
AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers which are
structural in nature from existing places of public accommodation to the extent
"readily achievable." In addition, under the ADA, alterations to a place of
public accommodation or a commercial facility are to be made so that, to the
maximum extent feasible, such altered portions are readily accessible to and
usable by disabled individuals. The "readily achievable" standard takes into
account, among other factors, the financial resources of the affected site,
owner, landlord or other applicable person. In addition to imposing a possible
financial burden on the Mortgagor in its capacity as owner or landlord, the ADA
may also impose such requirements on a foreclosing lender who succeeds to the
interest of the Mortgagor as owner of landlord. Furthermore, since the "readily
achievable" standard may vary depending on the financial condition of the owner
or landlord, a foreclosing lender who is financially more capable than the
Mortgagor of complying with the requirements of the ADA may be subject to more
stringent requirements than those to which the Mortgagor is subject.
CERTAIN LAWS AND REGULATIONS
The Mortgaged Properties are subject to compliance with various federal,
state and local statutes and regulations. Failure to comply (together with an
inability to remedy any such failure) could result in material diminution in the
value of a Mortgaged Property which could, together with the possibility of
limited alternative uses for a particular Mortgages Property (i.e., a nursing or
convalescent home), result in a failure to realize the full principal amount of
the Mortgage Loans.
TYPE OF MORTGAGED PROPERTY
Lenders may be subject to additional risk depending upon the type and use of
the Mortgaged Property in question. For instance, Mortgaged Properties which are
hospitals, nursing homes or convalescent homes may present special risks to
lenders in large part due to significant governmental regulation of the
operation, maintenance, control and financing of 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
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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.
FEDERAL INCOME TAX CONSEQUENCES
Counsel to the Depositor, Kutak Rock, has rendered its opinion that the
following includes 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 has opined generally to the effect that, under existing
laws and assuming compliance with all provisions of the Pooling Agreement, the
Mortgage Pool qualifies as a REMIC and the Certificates qualify as regular
interests ("Regular Certificates") in the REMIC. Qualification as a REMIC
requires ongoing compliance with certain conditions. Although a REMIC is not
generally subject to federal income tax, if the Mortgage Pool fails to comply
with one or more of the ongoing requirements of the Code for REMIC status during
any taxable year, the Code provides that a Mortgage Pool will not be treated as
a REMIC for such year and thereafter. In that event, the Mortgage Pool may be
taxable as a separate corporation under Treasury regulations, and the REMIC
Certificates may not be accorded the status or given the tax treatment described
below. While the Code authorizes the Treasury Department to issue regulations
providing relief in the event of an inadvertent termination of REMIC status, no
such regulations have been issued. Any such relief moreover, may be accompanied
by sanctions, such as the imposition of a corporate tax on all or a portion of
the REMIC's income for the period in which the requirements for such status are
not satisfied.
In general, (a) 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); (b) Certificates held by a real estate investment
trust will constitute "real estate assets" within the meaning of Code Section
856(c)(5)(A); and (c) 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.
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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."
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 discount" equals the
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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 deduction will be allowed
to the extent of gain recognized on the disposition. This deferral rule does not
apply if the Regular Certificateholder elects to include such market discount in
income currently as it accrues on all market discount obligations acquired by
such Regular Certificateholder in that taxable year or thereafter.
PREMIUM. A purchaser of a Regular Certificate who purchases the Regular
Certificate at a cost greater than its remaining stated redemption price at
maturity will be considered to have purchased the Regular Certificate at a
premium, and may elect to amortize such premium under a constant yield method.
It is not clear whether a prepayment assumption would be taken into account in
determining the life of the Regular Certificate for this purpose. However, the
legislative history states that the same rules that apply to accrual of market
discount (which rules require use of a prepayment assumption in accruing market
discount with respect to Regular Certificates without regard to whether such
Certificates have original issue discount) will also apply in amortizing bond
premium under Code Section 171.
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SALE, EXCHANGE OR REDEMPTION OF REGULAR CERTIFICATES. If a Regular
Certificate is sold, exchanged, redeemed or retired, the seller will recognize
gain or loss equal to the difference between the amount realized on the sale,
exchange or redemption and the seller's adjusted basis in the Regular
Certificate. Such adjusted basis generally will equal the cost of the Regular
Certificate to the seller, increased by any original issue discount and market
discount included in the seller's gross income with respect to the Regular
Certificate, and reduced (but not below zero) by payments included in the stated
redemption price at maturity previously received by the seller and by any
amortized premium. Except as provided in the following paragraph and as provided
under "Market Discount" above, any such gain or loss will be capital gain or
loss, provided that the Regular Certificate is held as a "capital asset"
(generally, property held for investment) within the meaning of Code Section
1221.
Gain from the sale or other disposition of a Regular Certificate that might
otherwise be capital gain will be treated as ordinary income to the extent that
such gain does not exceed the excess, if any, of (a) the amount that would have
been includible in such holder's income with respect to the Regular Certificate
had income accrued thereon at a rate equal to 110% of the applicable Federal
rate as defined in Code Section 1274(d) determined as of the date of purchase of
such Regular Certificate, over (b) the amount actually includible in such
holder's income. Additionally, gain will be treated as ordinary income if the
Regular Certificates were issued with an intention to call prior to maturity.
The Regulations provide that the presence of a sinking fund or optional call
does not give rise to such an intention, and the Depositor does not believe such
an intention is otherwise present. In addition, these provisions do not apply to
certain public offers of debt instruments. However, each prospective holder of
Regular Certificates is urged to consult his or her own tax advisor concerning
the application of the foregoing provisions.
REMIC EXPENSES. As a general rule, all of the expenses of a REMIC will be
taken into account by holders of the Residual Interests. In the case of a
"single class REMIC," however, the expenses and a matching amount of additional
income will be allocated, under temporary Treasury regulations, among the
holders of the Regular Certificates and the holders of the Residual Interests on
a daily basis in proportion to the relative amounts of income accruing to each
Certificateholder on that day. In the case of individuals (or trusts, estates or
other persons who compute their income in the same manner as individuals) who
own an interest in a Regular Certificate directly or through a pass-through
entity which is required to pass miscellaneous itemized deductions through to
its owners or beneficiaries (e.g., a partnership, an S corporation, a grantor
trust or certain other entities), such expenses will be deductible only to the
extent that such expenses, plus other "miscellaneous itemized deductions" of the
individual, exceed 2% of such individual's adjusted gross income. In addition,
the personal exemptions and itemized deductions of individuals with adjusted
gross incomes above particular levels are subject to certain limitations which
reduce or eliminate the benefit of such items. The reduction or disallowance of
this deduction coupled with the allocation of additional income may have a
significant impact on the yield of the Regular Certificate to such a Holder.
Further, holders (other than corporations) subject to the alternative minimum
tax may not deduct miscellaneous itemized deductions in determining such
holders' alternative minimum taxable income. In general terms, a single class
REMIC is one that either (a) would qualify, under existing Treasury regulations,
as a grantor trust if it were not a REMIC (treating all interests as ownership
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
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deduct a loss under Section 166 of the Code until such holder's Certificate
becomes wholly worthless, taking into account all of the facts and
circumstances, and that the loss will be characterized as a short-term capital
loss.
Each holder of a Certificate will be required to accrue interest and
original issue discount with respect to such Certificate, without giving effect
to any reductions in distributions attributable to a default or delinquency on
the Mortgage Loans until it can be established that any such reduction
ultimately will not be recoverable. As a result, the amount of taxable income
reported in any period by the holder of a Certificate could exceed the amount of
economic income actually realized by the holder in such period. Although the
holder of a Certificate eventually will recognize a loss or reduction in income
attributable to previously accrued and included income that as the result of a
realized loss ultimately will not be realized, the law is unclear with respect
to the timing and character of such loss or reduction in income.
NON-U.S. PERSONS. Generally, payments of interest (including any payment
with respect to accrued original issue discount) on the Regular Certificates to
a Regular Certificateholder who is a non-U.S. Person not engaged in a trade or
business within the United States, will not be subject to federal withholding
tax if (a) such Regular Certificateholder does not actually or constructively
own 10% or more of the combined voting power of all classes of equity in the
issuer (which for purposes of this discussion may be defined as the Mortgage
Pool or the beneficial owners of the related Residual Certificates (the
"Issuer")); (b) such Regular Certificateholder is not a controlled foreign
corporation (within the meaning of Code Section 957) related to the Issuer; and
(c) such Regular Certificateholder complies with certain identification
requirements (including delivery of a statement, signed by the Regular
Certificateholder under penalties of perjury, certifying that such Regular
Certificateholder is a foreign person and providing the name and address of such
Regular Certificate holder). The foregoing exemption does not apply to certain
contingent interest. In addition, market discount is not treated as interest for
purposes of this exclusion. If a Regular Certificateholder is not exempt from
withholding, distributions of interest, including distributions in respect of
accrued original issue discount, such holder may be subject to a 30% withholding
tax, subject to reduction under any applicable tax treaty.
The term "U.S. Person" means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, or an estate
whose income is subject to U.S. federal income tax regardless of its source of
income, or a trust if a court within the United States is able to exercise
primary supervision of the administration of the trust and one or more United
States fiduciaries have the authority to control all substantial decisions of
the trust.
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.
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STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "FEDERAL
INCOME TAX CONSIDERATIONS," potential investors should consider the state income
tax consequences of the acquisition, ownership and disposition of the
Certificates. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisors with respect to the various tax
consequences of investments in the Certificates.
ERISA CONSIDERATIONS
ERISA and Section 4975 of the Code impose certain requirements on those
employee benefit plans and arrangements to which either ERISA or the Code
applies (each a "Plan") and on those persons who are fiduciaries with respect to
such Plans. In accordance with ERISA's general fiduciary standards, before
investing in a Certificate a Plan fiduciary should determine whether such an
investment is permitted under the governing Plan instruments and is appropriate
for the Plan in view of its overall investment policy and the composition and
diversification of its portfolio. Other provisions of ERISA and the Code
prohibit certain transactions involving the assets of a Plan and persons who
have certain specified relationships to the Plan (i.e., "parties in interest"
within the meaning of ERISA or "disqualified persons" within the meaning of the
Code). Thus, a Plan fiduciary considering an investment in Certificates should
also consider whether such an investment might constitute or give rise to a
prohibited transaction under ERISA or the Code.
PLAN ASSETS REGULATIONS
If an investing Plan's assets were deemed to include an undivided ownership
interest in the assets included in a Mortgage Pool, a Plan's investment in the
Certificates might be deemed to constitute a delegation under ERISA of the duty
to manage Plan assets by the fiduciaries deciding to invest in the Certificates,
and certain transactions involved in the operation of the Mortgage Pool might be
deemed to constitute prohibited transactions under ERISA and the Code. ERISA and
the Code do not define "plan assets." The U.S. Department of Labor has published
regulations (the "Labor Regulations") concerning whether or not a Plan's assets
would be deemed to include an interest in the underlying assets of an entity for
purposes of the reporting, disclosure and fiduciary responsibility provisions of
ERISA, if the Plan acquires an "equity interest" in such entity (such as by
acquiring Certificates). The Labor Regulations state that the underlying assets
of an entity will not be considered "plan assets" if, immediately after the most
recent acquisition of any equity interest in the entity, whether from the issuer
or an underwriter less than twenty-five percent (25%) of the value of each class
of equity interest is held by "benefit plan investors," individual retirement
accounts, and other employee benefit plans not subject to ERISA (for example,
governmental plans). The Depositor cannot predict whether under the Labor
Regulations the assets of a Plan investing in Certificates will be deemed to
include an interest in the assets of the Mortgage Pool.
In making its investment decision, the Plan fiduciary should consider the
possible availability of any prohibited transaction exemptions, in particular,
Prohibited Transaction Class Exemption 83-1 for Certain Transactions Involving
Mortgage Pool Investment Trusts ("PTE 83-1"). PTE 83-1 permits certain
transactions involving the creation, maintenance and termination of certain
residential mortgage pools and the acquisition and holding of certain
residential mortgage pool pass-through certificates by Plans, whether or not the
Plan's assets would be deemed to include an ownership interest in the mortgages
in the mortgage pool, and whether or not such transactions would otherwise be
prohibited under ERISA. The Depositor believes that the "general conditions" set
forth in Section II of PTE 83-1, which are required for its applicability, would
be met with respect to most classes of Certificates since they evidence
ownership interest in the Mortgage Pool consisting solely of Mortgage Loans
secured by first or second mortgages or deeds of trust on single-family
residential property. PTE 83-1 would not apply to Certificates which are part of
a class that is subordinate to one or more other classes of the same
Certificates. It is not clear
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<PAGE>
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, Class B-2 or Class
B-3 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."
UNDERWRITER'S EXEMPTION
The U.S. Department of Labor has granted to Bear, Stearns & Co. Inc. an
administrative exemption (Prohibited Transaction Exemption 90-30; Exemption
Application No. D-8207, 55 Fed. Reg. 21461 (1990)) (the "Exemption") from
certain of the prohibited transaction rules of ERISA and the related excise tax
provisions of Section 4975 of the Code with respect to the initial purchase, the
holding and the subsequent resale by Plans of certificates in pass-through
trusts that consist of certain receivables, loans and other obligations that
meet the conditions and requirements of the Exemption. The Exemption applies to
mortgage loans such as the Mortgage Loans in the Trust Fund.
The Exemption contains terms and conditions including the following:
(1) the acquisition of the Certificates by a Plan must be on terms
(including the price for the Certificates) that are at least as favorable to
the Plan as they would be in an arm's-length transaction with an unrelated
party;
(2) the rights and interest evidenced by the Certificates acquired by
the Plan must not be subordinated to the rights and interests evidenced by
other Certificates of the Trust Fund;
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<PAGE>
(3) The Certificates acquired by the Plan must have received a rating at
the time of such acquisition that is one of the three highest generic rating
categories from Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies ("S&P"), Moody's Investors Service, Inc. ("Moody's"),
Duff & Phelps Credit Rating Co. ("D&P") or Fitch Investors Service, L.P.
("Fitch");
(4) The Trustee must not be an affiliate of any other member of the
Restricted Group (as defined below);
(5) the sum of all payments made to and retained by the Underwriters in
connection with the distribution of the Certificates must represent not more
than reasonable compensation for underwriting the Certificates; the sum of
all payments made to and retained by the Seller(s) pursuant to the
assignment of the Mortgage Loans to the Trust Fund must represent not more
than the fair market value of such loans; the sum of all payments made to
and retained by the Master Servicer and any other servicer must represent
not more than reasonable compensation for such person's services under the
Pooling Agreement pursuant to which the Mortgage Loans are pooled and
reimbursements of such person's reasonable expenses in connection therewith;
and
(6) the Plan investing in the Certificates must be an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Securities and
Exchange Commission under the Securities Act.
The Trust Fund must also meet the following requirements:
(1) the corpus of the Trust Fund must consist solely of assets of the
type that have been included in other investment pools;
(ii) certificates in such other investment pools must have been rated in
one of the three highest rating categories of S&P, Moody's, Fitch or D&P for
at least one year prior to the Plan's acquisition of certificates; and
(iii) certificates evidencing interests in such other investment pools
must have been purchased by investors other than Plans for at least one year
prior to any Plan's acquisition of certificates.
Moreover, the Exemption generally provides relief from certain
self-dealing/conflict of interest prohibited transactions that may occur when
the Plan fiduciary causes a Plan to acquire Certificates in a trust as to which
the fiduciary (or its affiliate) is an obligor on the receivables held in the
trust provided that, among other requirements: (1) in the case of an acquisition
in connection with the initial issuance of Certificates, at least fifty percent
(50%) of each Class of Certificates in which Plans have invested is acquired by
persons independent of the Restricted Group; (ii) such fiduciary (or its
affiliate) is an obligor with respect to five percent (5%) or less of the fair
market value of the obligations contained in the Trust Fund; (iii) the Plan's
investment in Certificates of any Class does not exceed twenty-five percent
(25%) of all of the Certificates of that Class outstanding at the time of the
acquisition; and (iv) immediately after the acquisition, no more than
twenty-five percent (25%) of the assets of the Plan with respect to which such
person is a fiduciary is invested in Certificates representing an interest in
one or more trusts containing assets sold or serviced by the same entity. The
Exemption does not apply to Plans sponsored by one or more of the Sellers, the
Underwriters, the Trustee, the Master Servicer, any obligor with respect to
Mortgage Loans included in the Trust Fund constituting more than five percent
(5%) of the aggregate unamortized principal balance of the assets in the Trust
Fund or any affiliate of such parties (the "Restricted Group").
The Underwriters believe that the Exemption will apply to the acquisition
and holding of the Offered Certificates, other than the Class B-1 and Class B-2
Certificates, by Plans and that all conditions of the Exemption other than those
within the control of the investors will be met. In addition, as of the date
hereof, there is no single Mortgagor that is the obligor on 5% of the Mortgage
Loans included in the Trust Fund by aggregate unamortized principal balance of
the assets of the Trust Fund.
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<PAGE>
LEGAL INVESTMENT CONSIDERATIONS
The Offered Certificates will not constitute "mortgage related securities"
for purposes of SMMEA because the substantial majority of Mortgage Loans were
originated by individuals and not by financial institutions or mortgagees
approved by the Secretary of Housing and Urban Development and, in the case of
certain 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 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
(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> <C> <C> <C> <C>
First Southwest Company.................. $ 21,230,234 $ 12,256,561 $ 4,620,986 $ 12,898,030 $ 3,484,869 $ 2,217,644
Bear, Stearns & Co. Inc.................. 21,230,234 12,256,561 4,620,985 12,898,031 3,484,869 2,217,644
------------ ------------ ----------- ------------ ----------- -----------
Total.................................... $ 42,460,468 $ 24,513,122 $ 9,241,971 $ 25,796,061 $ 6,969,738 $ 4,435,288
------------ ------------ ----------- ------------ ----------- -----------
------------ ------------ ----------- ------------ ----------- -----------
</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. 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 Underwriters do not
plan to sell to dealers and, as a result, it is not anticipated that any dealer
concessions or reallowances will be paid.
The Depositor has been advised by the Underwriters that they intend to make
a market in the Offered Certificates but have no obligation to do so. There can
be no assurance that a secondary market for the Offered Certificates will
develop or, if it does develop, that it will continue.
The Depositor has agreed to indemnify the Underwriters against, or make
contributions to the Underwriters with respect to, certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor by Kutak Rock,
Denver, Colorado, and for the Underwriters by Brown & Wood LLP, New York, New
York. Certain federal income tax and ERISA matters will be passed upon for the
Depositor by Kutak Rock.
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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 Aaa AAA
A-2 Aaa AAA
A-3 Aaa AAA
A-4 Aaa AAA
B-1 Aa2 AA
B-2 A2 A
</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.
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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<PAGE>
INDEX TO AND GLOSSARY OF CERTAIN TERMS
<TABLE>
<CAPTION>
PAGE
-------------------
<S> <C>
INDEX TO CERTAIN TERMS
1986 Act..................................................................................... 77
Accretion Amount............................................................................. ii, 53
Accretion Certificates....................................................................... ii
Accretion Termination Date................................................................... 53
ADA.......................................................................................... 75
Advances..................................................................................... viii, 45
Appraised Value.............................................................................. 13
Assumptions.................................................................................. 63
Available Funds.............................................................................. 52
Balloon Loan................................................................................. 12
Balloon Payment.............................................................................. viii
Bankruptcy Code.............................................................................. 71
Bankruptcy Loss Coverage Amount.............................................................. 67
Bankruptcy Losses............................................................................ 58
Beneficial owner............................................................................. 39
Book-Entry Certificates...................................................................... iii
Calculated Maturity Date..................................................................... 12
Cede......................................................................................... i, 39
CERCLA....................................................................................... 72
Certificates................................................................................. Cover 1, ii, 38
Class A Certificates......................................................................... 38
Class A-4 Percentage......................................................................... 56
Class A-4 Prepayment Percentage.............................................................. 55
Class A-4 Principal Distribution Amount...................................................... 56
Class B Certificates......................................................................... ii, 38
Class Certificate Balance.................................................................... 38
Class R Certificates......................................................................... 38
Code......................................................................................... x
Collection Account........................................................................... v, 42
Combined Prepayment Percentage............................................................... 55
Commercial Mortgage Loan..................................................................... iii
Commercial Properties........................................................................ 11
Commission................................................................................... i
Component.................................................................................... 57
Component Balance............................................................................ 57
Component Certificates....................................................................... ii
Conditions................................................................................... 46
Conservation Act............................................................................. 73
CPR.......................................................................................... 62
Cutoff Date.................................................................................. iii
Cutoff Date Pool Principal Balance........................................................... iii, 11
Cutoff Date Scheduled Principal Balance...................................................... 11
Debt Service Reduction....................................................................... 68
Deficient Valuation.......................................................................... 68
Definitive Certificate....................................................................... 39
Deleted Loan................................................................................. 10
Depositor.................................................................................... Cover 1, iii, 31
Depository................................................................................... 38
Determination Date........................................................................... 45
</TABLE>
86
<PAGE>
<TABLE>
<CAPTION>
PAGE
-------------------
<S> <C>
Distribution Account......................................................................... 42
Distribution Date............................................................................ Cover 2, iii
DTC.......................................................................................... Cover 1
Due Date..................................................................................... 12
Due Period................................................................................... 54
Duff & Phelps................................................................................ x
Environmental Condition...................................................................... 73
EPA.......................................................................................... 72
ERISA........................................................................................ xix
Escrow Account............................................................................... 43
Excess Losses................................................................................ 58
Exchange Act................................................................................. i
Exemption.................................................................................... 82
Expense Fee.................................................................................. 44
Expense Rate................................................................................. vii
FEMA......................................................................................... 5
FHLMC........................................................................................ 1
Financial Intermediary....................................................................... 39
Fixed Rate Certificates...................................................................... ii
FNMA......................................................................................... 1
Fraud Loss Coverage Amount................................................................... 67
Fraud Losses................................................................................. 58
Garn-St. Germain Act......................................................................... 74
Hazardous Materials.......................................................................... 74
Indemified Parties........................................................................... 46
Insolvency Laws.............................................................................. 31
Insurance Proceeds........................................................................... 52
Issuer....................................................................................... 80
Labor Regulations............................................................................ 81
Land Sale Contract........................................................................... Cover 1, 11
Liquidated Mortgage Loan..................................................................... 58
Liquidation Proceeds......................................................................... 52
Loan Purchase Agreement...................................................................... 9
Loans to Facilitate.......................................................................... 4
Loan-to-Value Ratio.......................................................................... 13
Market Discount.............................................................................. 77
Master Servicer.............................................................................. Cover 1, iii, 32
Master Servicing Fee......................................................................... 44
Master Servicing Fee Rate.................................................................... 44
Metropolitan................................................................................. iii
Moody's...................................................................................... x
Mortgage..................................................................................... 11
Mortgagor.................................................................................... 12
Mortgage File................................................................................ 41
Mortgage Loans............................................................................... Cover 1, iii
Mortgage Note................................................................................ 11
Mortgage Pool................................................................................ Cover 2, iii
Mortgage Rate................................................................................ 41
Mortgaged Property........................................................................... 11
Net Interest Shortfalls...................................................................... 52
Net Mortgage Rate............................................................................ vii
Net Prepayment Interest Shortfall............................................................ 52
</TABLE>
87
<PAGE>
<TABLE>
<CAPTION>
PAGE
-------------------
<S> <C>
Net Realized Loss............................................................................ 58
Non-Offered Certificates..................................................................... ii
NSC.......................................................................................... 31
Offered Certificates......................................................................... Cover 1, ii, 38
OID Regulations.............................................................................. 77
Old Standard................................................................................. iii
Original Subordinate Principal Balance....................................................... 55
Pass-Through Rate............................................................................ v
Percentage Interest.......................................................................... 38
Physical Certificates........................................................................ iii
Plan......................................................................................... 81
Pool Percentages............................................................................. 1
Pool Principal Balance....................................................................... 54
Pooling Agreement............................................................................ Cover 1, v, 38
Prepayment Interest Shortfall................................................................ 53
Principal Only Class......................................................................... iii
PTE 83-1..................................................................................... 81
Qualified stated interest.................................................................... 77
Rating Agencies.............................................................................. x
RCRA......................................................................................... 73
Record Date.................................................................................. iii, 51
Regular Certificates......................................................................... ii
Relief Act................................................................................... 75
Relief Act Mortgage Loan..................................................................... 76
REMIC........................................................................................ Cover 2, ix
REMIC Regulations............................................................................ 76
REO.......................................................................................... 4
REO Property................................................................................. 45
Relief Act................................................................................... 75
Relief Act Mortgage Loan..................................................................... 75
Relief Act Reduction......................................................................... 52
Replacement Loan............................................................................. 41
Repurchase Price............................................................................. 41
Residual Certificates........................................................................ ii, 38
Restricted Group............................................................................. 83
Safeco....................................................................................... 33
Scheduled Due Date........................................................................... 54
Scheduled Payments........................................................................... 12
Scheduled Principal Balance.................................................................. 54
Securities Act............................................................................... i
Seller....................................................................................... Cover 1
Sellers...................................................................................... Cover 1, iii
Senior Certificates.......................................................................... Cover 2, ii, 38
Senior Credit Support Depletion Date......................................................... 53
Senior Percentage............................................................................ 54
Senior Prepayment Percentage................................................................. 54
Senior Principal Distribution Amount......................................................... 53
Single Family Mortgage Loan.................................................................. iii
Single Family Properties..................................................................... 11
SMMEA........................................................................................ ix
Special Hazard Loss Coverage Amount.......................................................... 67
Special Hazard Losses........................................................................ 58
</TABLE>
88
<PAGE>
<TABLE>
<CAPTION>
PAGE
-------------------
<S> <C>
Special Hazard Mortgage Loan................................................................. 58
SSIS......................................................................................... 33
Subordinate Certificates..................................................................... Cover 2, ii, 38
Subordinate Percentage....................................................................... 54
Subordinate Prepayment Percentage............................................................ 55
Subordinate Principal Distribution Amount.................................................... 56
Substitution Adjustment Amount............................................................... 41
Summit....................................................................................... iii
Title V...................................................................................... 74
Trustee...................................................................................... Cover 1, iii
Trust Fund................................................................................... Cover 1
Underwriting Agreement....................................................................... 85
Underwriters................................................................................. Cover 1
Unpaid Interest Amounts...................................................................... 52
Unpaid Interest Shortfall.................................................................... vi
U.S. Person.................................................................................. 80
Western...................................................................................... iii
</TABLE>
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GLOSSARY OF CERTAIN TERMS
Whenever used in this Prospectus, the following words and phrases, unless
the context otherwise requires, shall have the meanings specified in this
section.
"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.
"DISTRIBUTION ACCOUNT DEPOSIT DATE" means, as to any Distribution Date, the
Business Day preceding such Distribution Date.
"ELIGIBLE ACCOUNT" means either (a) a segregated account or accounts
maintained at the Trustee, provided that the short-term unsecured debt
obligations of the Trustee are rated at least "P-1" by Moody's and "D-1" by Duff
& Phelps, or (b) a segregated account or accounts maintained with an institution
whose deposits are insured by the Bank Insurance Fund or the Savings Association
Insurance Fund of the FDIC, the unsecured and uncollateralized debt obligations
of which shall be rated at least "A1" by Moody's and "A" by Duff & Phelps, and
which has a short-term rating of at least "P-1" by Moody's and "D-1" by Duff &
Phelps, and which is either (i) a federal savings and loan association duly
organized, validly existing and in good standing under the federal banking laws,
(ii) an institution duly organized, validly existing and in good standing under
the applicable banking laws of any state, (iii) a national banking association
duly organized, validly existing and in good standing under the federal banking
laws and (iv) a principal subsidiary of a bank holding company or (c) a trust
account maintained with the trust department of a federal or state chartered
depository institution or of a trust company, having capital and surplus of not
less than $50,000,000, acting in its fiduciary capacity.
"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.
"LIQUIDATED LOAN" means any Mortgage Loan as to which a default has occurred
and is continuing and the Master Servicer has determined that all amounts which
it expects to recover from or on account of such Mortgage Loan have been
recovered.
"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
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<PAGE>
Servicing Officer of the Master Servicer delivered to the Trustee and the
Depositor and detailing the reasons for such determination.
"PRINCIPAL PREPAYMENT" means any payment or other recovery of principal on a
Mortgage Loan (other than Liquidation Proceeds) which is received in advance of
its Scheduled Due Date and is not accompanied by an amount as to interest
representing scheduled interest due on any date or dates in any month or months
subsequent to the month of prepayment.
"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 ACQUISITION" means the acquisition of REO Property.
"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 Mortgage 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 Sale Contract), an owner's policy, a
standard mortgage lender's policy or an ALTA or CLTA (extended coverage)
lender's title insurance policy in an amount not less than $10,000, and, with
respect to each Mortgage Loan which is a Land Sale Contract, an owner's policy,
a standard mortgage lender's policy or an ALTA or CLTA (extended coverage)
lender's title insurance policy in an amount not less than the outstanding
principal balance of the Land Sale Contract at time of acquisition of the Land
Sale Contract by the respective Seller and in each case which affirmatively
insures ingress and egress and insures against encroachments by or upon the
Mortgaged Property.
"TRUSTEE FEE" means the amount payable to the Trustee which amount is
determined pursuant to an agreement between the Trustee and the Master Servicer.
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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.
<TABLE>
<CAPTION>
STANDARD
ABBREVIATION CATEGORY OF CLASS DEFINITION
- ------------ --------------------------- -----------------------------------------------------------------------
<C> <S> <C>
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.
</TABLE>
A-1
<PAGE>
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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 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 WILL BE AMENDED OR SUPPLEMENTED
ACCORDINGLY.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF THE OFFERING................................................... ii
RISK FACTORS.............................................................. 1
THE MORTGAGE POOL......................................................... 9
THE DEPOSITOR............................................................. 31
DESCRIPTION OF THE SELLERS................................................ 31
SERVICING OF MORTGAGE LOANS............................................... 32
THE POOLING AND SERVICING AGREEMENT....................................... 38
DESCRIPTION OF THE CERTIFICATES........................................... 51
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS............................. 60
CREDIT ENHANCEMENT........................................................ 67
USE OF PROCEEDS........................................................... 68
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS............................... 68
FEDERAL INCOME TAX CONSEQUENCES........................................... 76
STATE TAX CONSIDERATIONS.................................................. 81
ERISA CONSIDERATIONS...................................................... 81
LEGAL INVESTMENT CONSIDERATIONS........................................... 84
METHOD OF DISTRIBUTION.................................................... 84
LEGAL MATTERS............................................................. 84
CERTIFICATE RATINGS....................................................... 85
INDEX TO AND GLOSSARY OF CERTAIN TERMS.................................... 86
EXHIBIT A--Class Definitions and Abbreviations............................ A-1
</TABLE>
$113,416,650
(APPROXIMATE)
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.
NOVEMBER 20, 1996
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