As filed with the Securities Exchange Commission on September 30, 1998
Registration No. 333-__________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------------------
BLOCK MORTGAGE FINANCE, INC.
Delaware 43-1758633
(State or other jurisdiction (I.R.S. Employer of
incorporation or organization) Identification Number)
One Main Plaza
4435 Main Street, Suite 500
Kansas City, Missouri 64111
---------------
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Bret G. Wilson
Block Financial Corporation
4435 Main Street, Suite 500
Kansas City, Missouri 64111
(816) 932-4921
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
--------------------------------------
Copy to:
Paul M. Hoffmann
Patrick J. Respeliers
Morrison & Hecker L.L.P.
2600 Grand Avenue
Kansas City, Missouri 64108
================================================================================
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement as determined by
market conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, please check the following box. |X|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933, please check the following box. |_|
<PAGE>
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
- - - -------------------------- ------------------------ ------------------------- ------------------------ ------------------------
Title of securities to Amount to be Proposed maximum Proposed maximum Amount of
be registered registered offering price aggregate registration fee
per security<F1> offering price<F1>
- - - -------------------------- ------------------------ ------------------------- ------------------------ ------------------------
<S> <C> <C> <C> <C>
Mortgage Pass-Through
Certificates, issued in $1,800,000,000 100% $1,800,000,000 $531,000<F2>
series
- - - -------------------------- ------------------------ ------------------------- ------------------------ ------------------------
<FN>
<F1> Estimated solely for the purpose of calculating the registration
fee.
<F2>$247,489,000 aggregate principal amount of Mortgage Pass-Through
Certificates registered by the Registrant under Registration Statement No.
333-14041 and not previously sold are consolidated in this Registration
Statement pursuant to Rule 429. The filing fee has been previously paid by
the Registrant under the foregoing Registration Statements in connection with
such unsold amount of Mortgage Pass-Through Certificates.
</FN>
</TABLE>
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS SUPPLEMENT
(To Prospectus dated __________, 199_)
$___________
(Approximate)
Block Mortgage Finance, Inc.
Depositor
Block Financial Corporation
Master Servicer
Companion Mortgage Corporation
Seller
ASSET BACKED CERTIFICATES, SERIES 199_-_
------------------------
The Block Mortgage Finance Asset Backed Certificates, Series 199_-_ (the
"Certificates"), will consist of (i) the Class A-1, Class A-2, Class A-3, Class
A-4, Class A-5 and Class A-6 Certificates (the "Group 1 Certificates"), (ii) the
Class A-7 Certificates and the Class A-8 Certificates (the "Group 2
Certificates"; the Group 2 Certificates and the Group 1 Certificates are
collectively referred to as the "Class A Certificates") and (iii) the residual
certificates (the "Class R Certificates"). Only the Class A Certificates are
offered hereby.
------------------------
On or before the issuance of the Certificates, the Master Servicer will
obtain from __________________________ (the "Certificate Insurer") two
certificate guaranty insurance policies relating to the Class A Certificates
(the "Certificate Insurance Policies") in favor of the Trustee. The Certificate
Insurance Policies will provide coverage of the ultimate principal amount of,
and interest due on, the Group 1 Certificates and the Group 2 Certificates
pursuant to the terms of the Certificate Insurance Policies.
------------------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON
THE CERTIFICATES. THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR
OBLIGATION OF THE DEPOSITOR, THE SELLER, THE MASTER SERVICER, THE TRUSTEE,
THE CERTIFICATE INSURER OR ANY OF THEIR AFFILIATES. NEITHER THE CERTIFICATES
NOR THE MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY
OR INSTRUMENTALITY OR BY THE DEPOSITOR, THE SELLER, THE MASTER SERVICER, THE
TRUSTEE OR ANY OF THEIR AFFILIATES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
PROSPECTIVE INVESTORS SHOULD CONSIDER THE RISK FACTORS SET FORTH UNDER "RISK
FACTORS" IN THIS PROSPECTUS SUPPLEMENT COMMENCING ON PAGE S-17 HEREIN AND IN
THE PROSPECTUS COMMENCING ON PAGE 12 THEREIN.
------------------------
<TABLE>
<CAPTION>
||
Initial Class
Certificate Pass-Through Price to Underwriting Proceeds to
Balance(1) Rate Public Discount Depositor<F3>
----------- ------------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Per Class A-1 Certificate.................$__________ _____% __________ <F2> ______% __________%<F2>
Per Class A-2 Certificate.................$__________ _____% __________ <F2> ______% __________%<F2>
Per Class A-3 Certificate.................$__________ _____% __________ <F2> ______% __________%<F2>
Per Class A-4 Certificate.................$__________ _____% __________ <F2> ______% __________%<F2>
Per Class A-5 Certificate.................$__________ _____%<F4> __________ <F2> ______% __________%<F2>
Per Class A-6 Certificate.................$__________ _____%<F4> __________ <F2> ______% __________%<F2>
Per Class A-7 Certificate.................$__________ <F5> __________ <F6> ______% __________%<F6>
Per Class A-8 Certificate.................$__________ _____% __________ <F2> ______% __________%<F2>
Total .................................$__________ $____________ $______ $__________
<FN>
<F1> Subject to the permitted variance described herein.
<F2> Plus accrued interest from ______, 199_.
<F3> Before deducting expenses payable by the Depositor.
<F4> On each Distribution Date that occurs on and after the Optional
Termination Date, the Pass-Through Rate on the Class A-5 and Class A-6
Certificates will be increased _.__% per annum.
<F5> The Pass-Through Rate of the Class A-7 Certificates is adjustable
based on One-Month LIBOR, as described herein.
<F6> Plus accrued interest, if any, from _________, 199_.
</FN>
</TABLE>
The Class A Certificates are offered by
_________________________________ and ____________________ (each, an
"Underwriter") subject to prior sale, when, as and if issued and accepted by
each Underwriter and subject to each Underwriter's right to reject orders in
whole or in part and to approval of certain legal matters by its counsel. It
is expected that the Class A Certificates will be delivered in book-entry
form through the facilities of The Depository Trust Company, Cedel Bank,
societe anonyme and the Euroclear System against payment therefor in immediately
available funds on or about _______, 199_.
-------------------------------
--------------------------
--------------------
_________, 199_
<PAGE>
(continuation of cover page)
The Certificates will represent the entire undivided ownership interest in
a trust fund (the "Trust Fund") to be created pursuant to a Pooling and
Servicing Agreement, dated as of ______, 199_ (the "Pooling and Servicing
Agreement") among the Depositor, the Seller, the Master Servicer and
__________________________________ as trustee (the "Trustee"). The Trust Fund
will consist primarily of a pool (the "Mortgage Pool") of mortgage loans (the
"Mortgage Loans") secured by mortgages, deeds of trust or other instruments
(each, a "Mortgage") creating a first or second lien on one- to four-family
dwellings (each, a "Mortgaged Property") and certain other assets described
herein. The Mortgage Pool will be divided into two separate groups of Mortgage
Loans (each, a "Loan Group") based on whether the interest rate for the related
Mortgage Loans is fixed or adjustable. The Group 1 Certificates will represent
an undivided ownership interest in a Loan Group of fixed-rate Mortgage Loans
(the "Fixed Rate Group"). The Group 2 Certificates will represent an undivided
ownership interest in a Loan Group of adjustable-rate Mortgage Loans (the
"Adjustable Rate Group"). The Class A Certificates will also represent undivided
ownership interests in (i) all monies received on the Mortgage Loans after the
Cut-off Date (as defined herein), other than amounts due on or before the
Cut-off Date with respect to the Actuarial Loans, (ii) the Certificate Insurance
Policies, (iii) amounts on deposit in the Distribution Account and the
Collection Account and (iv) certain other property. The Mortgage Loans will be
purchased by the Depositor from Companion Mortgage Corporation (the "Seller")
and will be master serviced by Block Financial Corporation (the "Master
Servicer").
Distributions on the Class A Certificates will be made, to the extent of
funds available therefor, on the 25th day of each month, or, if such day is not
a Business Day, then on the next Business Day, commencing in ______ 199_ (each,
a "Distribution Date"). Interest will be passed through on each Distribution
Date to the holders of the Class A Certificates (the "Class A
Certificateholders") based on the related Class Certificate Balance (as defined
herein) at the rate applicable to each Class of the Class A Certificates (each,
a "Pass-Through Rate"). The Pass-Through Rate for each Class of Group 1
Certificates and the Class A-8 Certificates is set forth on the cover hereof.
The Pass-Through Rate for the Class A-7 Certificates adjusts monthly based,
subject to certain limitations described herein, upon One-Month LIBOR (as
defined herein) or as otherwise described herein. Distributions of principal in
reduction of the Class Certificate Balance of the Class A Certificates will be
made on each Distribution Date in the manner and the amounts described herein.
The yield to investors on the Class A Certificates will be sensitive in
varying degrees to, among other things, the rate and timing of principal
payments (including prepayments) of, and losses on, the Mortgage Loans in the
Related Loan Group (as defined herein) and, in certain circumstances, the rate
and timing of principal payments (including prepayments) of, and losses on, the
Mortgage Loans in the other Loan Group. The yield to investors on the Class A-7
Certificates will also be sensitive to the level of the London interbank offered
rate for one-month United States dollar deposits ("One-Month LIBOR"), the level
of the Mortgage Indices (as defined herein) and the additional limitations on
the Pass-Through Rate for the Class A-7 Certificates, as described herein.
Although all of the Mortgage Loans in the Adjustable Rate Group ("ARMs") will
bear interest at adjustable rates, the Mortgage Rates on approximately _____%
and ____% (by aggregate Loan Balance as of the Cut-off Date) of the ARMs in the
Adjustable Rate Group as of the Cut-off Date will not adjust for two and three
years, respectively, following origination. In addition, the yield to maturity
of the Class A Certificates purchased at a discount or premium will be more
sensitive to the rate and timing of principal payments thereon. Class A
Certificateholders should consider, in the case of any Class A Certificate
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 Class A Certificate 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
Mortgage Loans generally may be prepaid in whole or in part at any time;
however, because certain of the Mortgage Loans will provide for prepayment
penalties, the rate of principal payments may be less than the rate of principal
payments for mortgage loans which do not provide for prepayment penalties. No
representation is made as to the anticipated rate of prepayments on the Mortgage
Loans, the amount and timing of losses thereon, the level of One-Month LIBOR or
the Mortgage Indices or the resulting yield to maturity of any Class of
Certificates.
S-ii
<PAGE>
The Trust Fund is subject to optional termination and a termination
auction under the limited circumstances described herein. Any such optional
termination or termination auction, if exercised, will result in an early
retirement of the Certificates.
There is currently no secondary market for the Class A Certificates. The
Underwriters intend to make a secondary market in the Class A Certificates, but
neither is obligated to do so. There can be no assurance that a secondary market
for the Class A Certificates will develop or, if one does develop, that it will
continue. The Class A Certificates will not be listed on any securities
exchange.
As described herein, an election will be made to treat the Trust Fund as a
"real estate mortgage investment conduit" (a "REMIC") for federal income tax
purposes. The Class A Certificates will constitute "regular interests" in the
REMIC as described herein. For a description of certain tax consequences of
owning the Class A Certificates, including, without limitation, original issue
discount, see "FEDERAL INCOME TAX CONSEQUENCES" herein and in the Prospectus.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
CLASS A CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN THE PROSPECTUS
DATED __________, 199_, OF WHICH THIS PROSPECTUS SUPPLEMENT IS A PART AND WHICH
ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. PURCHASERS ARE URGED TO READ BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE CLASS A
CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Depositor, the Seller, the Master Servicer, the Certificate Insurer or the
Underwriters. This Prospectus Supplement and the Prospectus do not constitute an
offer to sell, or a solicitation of an offer to buy, the securities offered
hereby by anyone in any jurisdiction in which the person making such offer or
solicitation is not qualified to do so or to anyone to whom it is unlawful to
make any such offer or solicitation. Neither the delivery of this Prospectus
Supplement or the Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information herein is correct as
of any date since the date of this Prospectus Supplement.
Certain persons participating in the offering of the Class A Certificates
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Class A Certificates. Such transactions may include stabilizing and
the purchase of Class A Certificates to cover syndicate short positions. For a
description of these activities, see "UNDERWRITING" herein.
Until ____________, 199_, all dealers effecting transactions in the Class
A Certificates, whether or not participating in this distribution, may be
required to deliver a Prospectus and a Prospectus Supplement. This delivery
requirement is in addition to the obligation of dealers to deliver a Prospectus
and a Prospectus Supplement when acting as an underwriter and with respect to
their unsold allotments or subscriptions.
S-iii
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
In addition to the documents described under "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE" in the Prospectus, the consolidated financial statements
of the Certificate Insurer, a wholly owned subsidiary of _________, and its
subsidiaries as of December 31, 199_ and December 31, 199_ and for each of the
three years in the period ended December 31, 199_, prepared in accordance with
generally accepted accounting principles ("GAAP"), included in the Annual Report
on Form 10-K of _________ for the year ended December 31, 199_ and the
consolidated financial statements for the Certificate Insurer and its
subsidiaries as of March 31, 199_ and for each of the three month periods ended
March 31, 199_ and March 31, 199_, included in the Quarterly Report on Form 10-Q
of _________ for the period ended March 31, 199_, are hereby incorporated by
reference into this Prospectus Supplement and shall be deemed to be a part
hereof. Any statement contained in a document incorporated by reference herein
shall be modified or superseded for purposes of this Prospectus Supplement to
the extent that a statement contained herein or in any other subsequently filed
document which also is incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus
Supplement.
All financial statements of the Certificate Insurer and its subsidiaries
included in documents filed by _________ pursuant to Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act"),
subsequent to the date of this Prospectus Supplement and prior to the
termination of the offering of the Class A Certificates shall be deemed to be
incorporated by reference into this Prospectus Supplement and to be a part
hereof from the respective dates of filing such documents.
The Depositor hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, as amended, each filing of the
financial statements of the Certificate Insurer included in or as an exhibit to
the documents of _________ referred to above and filed pursuant to Section
13(a), 13(c), 14 or 15(d) of the 1934 Act that is incorporated by reference in
the Registration Statement of which this Prospectus Supplement and the
accompanying Prospectus are a part shall be deemed to be a new registration
statement relating to the Class A Certificates offered hereby, and the offering
of such Class A Certificates at that time shall be deemed to be the initial bona
fide offering thereof.
The Depositor on behalf of the Trust Fund will provide without charge to
each person to whom this Prospectus Supplement is delivered, on the written or
oral request of such person, a copy of any or all of the documents referred to
above and in the Prospectus under "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE" that have been or may be incorporated by reference herein or in the
Prospectus (not including exhibits to the information that is incorporated by
reference unless such exhibits are specifically incorporated by reference into
the information that this Prospectus Supplement or the Prospectus incorporates).
Such requests should be directed to the address of the Depositor at One Main
Plaza, 4435 Main Street, Suite 500, Kansas City, Missouri 64111, telephone:
(816) 932-4960, facsimile number: (816) 561-0673, Attention: Mark Keller.
S-iv
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
Incorporation Of Certain Documents By Reference......................S-iv
Summary Of Terms.....................................................S-1
Risk Factors.........................................................S-17
Description Of The Mortgage Pool.....................................S-20
Certain Yield And Prepayment Considerations..........................S-35
The Depositor, The Seller And The Master Servicer....................S-48
Companion Servicing Company, L.L.C...................................S-48
Formation Of The Trust Fund And Trust Property.......................S-50
Description Of The Certificates......................................S-51
Credit Enhancement...................................................S-59
The Pooling And Servicing Agreement..................................S-65
The Trustee..........................................................S-72
Federal Income Tax Consequences......................................S-73
State Taxes..........................................................S-75
Erisa Considerations.................................................S-76
Legal Investment Considerations......................................S-76
Underwriting.........................................................S-77
Use Of Proceeds......................................................S-78
Report Of Experts....................................................S-78
Legal Matters........................................................S-78
Ratings..............................................................S-78
Index Of Definitions.................................................S-80
Prospectus
Available Information...................................................2
Reports to Holders......................................................2
Incorporation of Certain Documents By Reference.........................2
Summary of Prospectus...................................................3
Risk Factors...........................................................12
Description of the Primary Assets......................................18
Certain Yield and Prepayment Considerations............................22
The Trusts.............................................................23
The Depositor..........................................................29
The Seller.............................................................30
The Master Servicer....................................................30
Use of Proceeds........................................................30
The Primary Asset Program..............................................30
Description of the Certificates........................................34
Certain Legal Aspects of the Primary Assets............................51
Legal Investment Matters...............................................60
Federal Income Tax Consequences........................................60
State and Other Tax Consequences.......................................79
ERISA Considerations...................................................79
Plan of Distribution...................................................82
Ratings................................................................83
Legal Matters..........................................................83
Index of Definitions...................................................84
S-v
<PAGE>
SUMMARY OF TERMS
The following Summary of Terms is qualified in its entirety by reference
to the detailed information appearing elsewhere in this Prospectus Supplement
and in the Prospectus. The Index of Definitions included in this Prospectus
Supplement beginning on page S-84 hereof sets forth the pages on which the
definitions of certain capitalized terms appear. Capitalized terms used but not
otherwise defined herein shall have the meanings ascribed to such terms in the
Prospectus.
Title of
Certificates....... Block Mortgage Finance Asset Backed Certificates, Series
199_-_ (the "Certificates").
Certificates....... Offered $___________ (approximate) Block Mortgage Finance
Asset Backed Certificates, Series 199_-_, to be issued in
the following Classes (each, a "Class"):
Initial Class
Certificate Pass-Through
Balance<F1> Rate Class
----------- ------------ -----
$__________ ____% A-1
$__________ ____% A-2
$__________ ____% A-3
$__________ ____% A-4
$__________ ____%<F2> A-5
$__________ ____%<F2> A-6
$__________ <F3> A-7
$__________ ____% A-8
<F1>The aggregate Initial Class Certificate Balances of the
Class A Certificates will be subject to a permitted
variance in the aggregate of plus or minus 5%.
<F2> On each Distribution Date that occurs after the
Optional Termination Date, the Pass-Through Rate on the
Class A-5 and Class A-6 Certificates will be increased by
____% per annum.
<F3>On each Distribution Date, the Pass-Through Rate on the
Class A-7 Certificates will be equal to the lesser of (i)
the London interbank offered rate for one-month United
States dollar deposits ("One-Month LIBOR") (calculated as
described under "DESCRIPTION OF THE
CERTIFICATES--Calculation of One-Month LIBOR" herein) plus
(a) ____% per annum on or prior to the Optional Termination
Date, or (b) ____% per annum after the Optional Termination
Date (such percentage, the "Adjustable Rate Margin"), and
(ii) the weighted average of the Mortgage Rates on the
Mortgage Loans in the Adjustable Rate Group as of the first
day of the related Due Period (taking into account
Curtailments, Net Liquidation Proceeds and Prepayments
received during the immediately preceding Prepayment Period
and, with respect to the Actuarial Loans in the Adjustable
Rate Group, scheduled monthly payments due during the prior
Due Period and in the Collection Account as of the prior
Determination Date), less the sum of (a) the Servicing Fee
Rate, (b) the Trustee Fee Rate, (c) the Insurance Premium
Rate and (d) commencing on the seventh Distribution Date,
____% per annum (such net weighted average, the "Available
Funds Cap"). With respect to either Loan Group, the sum of
the Servicing Fee Rate, the Trustee Fee Rate and the
Insurance Premium Rate will be approximately ____% per
annum. The Class A-1, Class A-2, Class A-3, Class A-4,
Class A-5 and Class A-6 Certificates are collectively
referred to herein as the "Group 1 Certificates". The Class
A-7 Certificates and the Class A-8
S-1
<PAGE>
Certificates are referred to herein as the "Group 2
Certificates". The Group 1 Certificates and Group 2
Certificates are collectively referred to herein as the
"Class A Certificates". Only the Class A Certificates are
offered hereby. On any date after the Closing Date, the
"Class Certificate Balance" of a specific Class is the
"Initial Class Certificate Balance" for such Class as set
forth on the cover page hereof, less all amounts previously
distributed to such Class of Class A Certificates on account
of principal.
Depositor......... Block Mortgage Finance, Inc., a Delaware corporation (the
"Depositor)" and a wholly-owned, limited purpose subsidiary
of the Seller.
Seller............ Companion Mortgage Corporation, a Delaware corporation (the
"Seller") and a wholly-owned subsidiary of the Master
Servicer.
Master Servicer.... Block Financial Corporation, a Delaware corporation (the
"Master Servicer").
Trustee........... _________________________________, a national banking
association having its principal place of business in
_________________, not in its individual capacity but solely
as trustee on behalf of the Certificateholders and the
Certificate Insurer (the "Trustee"). See "THE TRUSTEE"
herein.
Certificate
Insurer............ __________________________ (the "Certificate Insurer"). See
"CREDIT ENHANCEMENT--The Certificate Insurer" herein.
Cut-off Date....... As of the close of business on ______, 199_ (the "Cut-off
Date").
Closing Date....... On or about _______, 199_ (the "Closing Date" or "Start-up
Day").
Distribution Date.. The 25th calendar day of each month or, if such day is not a
Business Day, the first Business Day following such 25th
calendar day, commencing in ______ 199_ (each, a
"Distribution Date").
The Mortgage
Loans.............. The Mortgage Loans deposited into the Trust Fund (the
"Mortgage Loans") consist of mortgage loans which bear
interest at either a fixed rate or an adjustable rate (each,
a "Mortgage Rate"), were purchased by the Seller and are
evidenced by promissory notes or other evidence of
indebtedness (each, a "Note") secured by mortgages, deeds of
trust or other instruments (each, a "Mortgage") creating a
first or second lien on one- to four-family dwellings (each,
a "Mortgaged Property").
The Seller acquired (i) _________ Mortgage Loans,
representing _____% of the Loan Balance of all Mortgage
Loans, from NCS Mortgage Services, L.L.C. ("NCS"), (ii)
__________ Mortgage Loans, representing _____% of the Loan
Balance of all Mortgage Loans, from NF Investments, Inc.
("NFI"), and (iii) __________ Mortgage Loans, representing
_____% of the Loan Balance of all Mortgage Loans, from
Cimarron Mortgage Company, d/b/a The Mortgage Warehouse
("Cimarron").
Unless otherwise noted, all numeric information in this
Prospectus Supplement is based on the Mortgage Pool as of
the Cut-off Date and all statistical percentages in this
Prospectus Supplement are approximate and measured by the
aggregate outstanding Loan Balance of the Mortgage Loans in
the Mortgage Pool as of the Cut-off Date (the "Original Pool
Principal Balance") or in the respective Loan Groups as of
the Cut-off Date (as to each Loan Group, the "Original Loan
Group Balance"), in each case taking into account with
respect to Actuarial Loans scheduled monthly payments due,
but not received, on or prior to the Cut-off Date. With
respect to the Actuarial Loans, payments due other than on
the first day of a month are deemed to be due on the first
day of
S-2
<PAGE>
the month for all purposes, including determining the
Original Pool Principal Balance and servicing such Mortgage
Loans.
The Mortgaged Properties securing the Mortgage Loans are
located in 34 states. The Mortgaged Properties may be
owner-occupied and non-owner occupied investment properties.
None of the Mortgage Loans in the Fixed Rate Group and none
of the Mortgage Loans in the Adjustable Rate Group had a
Combined Loan-to-Value Ratio (generally based upon
appraisals made at or within six months before the time of
origination) in excess of 100% as of the Cut-off Date.
Generally, the Mortgage Loans will not be insured by either
primary mortgage insurance policies or pool mortgage
insurance policies; however, certain distributions due the
holders of the Class A Certificates (the "Class A
Certificateholders") are insured by the Certificate Insurer
pursuant to the Certificate Insurance Policies. The Mortgage
Loans will not be guaranteed by the Depositor, the Master
Servicer, the Trustee, the Certificate Insurer, the Seller
or any affiliate thereof. The Mortgage Loans are required to
be serviced generally in accordance with the standards and
procedures specified in the Pooling and Servicing Agreement.
All of the Mortgage Loans were originated in accordance with
the underwriting standards as described in the Prospectus
under "THE PRIMARY ASSET PROGRAM". See "DESCRIPTION OF THE
MORTGAGE POOL" herein.
Fixed Rate Group. As of the Cut-off Date, the average Loan
Balance of the Mortgage Loans in the Fixed Rate Group was
$______; the Mortgage Rates ranged from _____% per annum to
______% per annum; the weighted average Combined
Loan-to-Value Ratio at origination was _____%; the weighted
average Mortgage Rate was ______% per annum; and the
weighted average remaining term to maturity was
approximately ___ months. The remaining terms to maturity as
of the Cut-off Date of the Mortgage Loans in the Fixed Rate
Group ranged from __ months to ___ months. The maximum Loan
Balance of the Mortgage Loans in the Fixed Rate Group as of
the Cut-off Date was $_______. The aggregate Loan Balance of
the Mortgage Loans in the Fixed Rate Group containing
"balloon" payments as of the Cut-off Date represented not
more than _____% of the Original Loan Group Balance of the
Fixed Rate Group. No Mortgage Loan in the Fixed Rate Group
is scheduled to mature later than ______, ____. As of the
Cut-off Date, $___________ in aggregate Loan Balance of the
Mortgage Loans in the Fixed Rate Group are secured by first
mortgages representing in the aggregate _____% of the
Original Loan Group Balance of the Fixed Rate Group and
$__________ in aggregate Loan Balance of the Mortgage Loans
in the Fixed Rate Group are secured by second lien mortgages
representing in the aggregate _____% of the Original Loan
Group Balance of the Fixed Rate Group. See "DESCRIPTION OF
THE MORTGAGE POOL--Mortgage Loans--Fixed Rate Group" herein.
Adjustable Rate Group. In general, the Mortgage Loans in the
Adjustable Rate Group bear interest at rates that adjust
(each such date, an "Adjustment Date") (a) annually based
upon One-Month LIBOR, as set forth in The Wall Street
Journal as of the first Business Day of the month in which
the related Adjustment Date occurs, (b) semi-annually based
upon the average of the London interbank offered rates for
six-month U.S. dollar deposits in the London Market, as set
forth in The Wall Street Journal ("Six-Month LIBOR") as of
the first Business Day of the month in which the related
Adjustment Date occurs, (c) annually based upon the weekly
average yield on United States treasury securities adjusted
to a constant maturity of one year, as made available by the
Federal Reserve Board ("One-Year CMT") or (d) annually or
every three years based upon the weekly average yield on
United States treasury securities adjusted to a constant
maturity of three years, as made available by the Federal
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Reserve Board ("Three-Year CMT" and together with One-Month
LIBOR, Six-Month LIBOR and One-Year CMT, the "Mortgage
Indices"). The Mortgage Rates with respect to all of the
Mortgage Loans in the Adjustable Rate Group are subject to
periodic and lifetime interest rate adjustment caps. See
"DESCRIPTION OF THE MORTGAGE POOL--Mortgage
Loans--Adjustable Rate Group" herein.
As of the Cut-off Date, the average Loan Balance of the
Mortgage Loans in the Adjustable Rate Group was $______; the
Mortgage Rates ranged from _____% per annum to ______% per
annum; the weighted average Loan-to-Value Ratio at
origination was _____%; the weighted average Mortgage Rate
was ______% per annum; and the weighted average remaining
term to maturity was approximately ___ months. The remaining
terms to maturity as of the Cut-off Date of the Mortgage
Loans in the Adjustable Rate Group ranged from ___ months to
___ months. The maximum Loan Balance of the Mortgage Loans
in the Adjustable Rate Group as of the Cut-off Date was
$_______. The aggregate Loan Balance of the Mortgage Loans
in the Adjustable Rate Group containing "balloon" payments
as of the Cut-off Date represented not more than _____% of
the Original Loan Group Balance of the Adjustable Rate
Group. No Mortgage Loan in the Adjustable Rate Group is
scheduled to mature later than ______, ____. All of the
Mortgage Loans in the Adjustable Rate Group are secured by
first mortgages. See "DESCRIPTION OF THE MORTGAGE
POOL--Mortgage Loans--Adjustable Rate Group" herein.
All of the Mortgage Loans in the Adjustable Rate Group have
maximum Mortgage Rates. The weighted average maximum
Mortgage Rate of the Mortgage Loans in the Adjustable Rate
Group as of the Cut-off Date was ______% per annum, with
maximum Mortgage Rates that ranged from approximately
______% per annum to ______% per annum. The Mortgage Loans
in the Adjustable Rate Group had a weighted average gross
margin as of the Cut-off Date of _____% per annum with gross
margins that ranged from _____% per annum to _____% per
annum. Although all the Mortgage Loans in the Adjustable
Rate Group bear interest at adjustable rates, the Mortgage
Rates with respect to _____% and ____% of such Mortgage
Loans (by aggregate Loan Balance as of the Cut-off Date)
will not adjust for two and three years, respectively,
following origination.
Registration of
the Class A
Certificates.... Class A Certificates will initially be issued in book-entry
form. Persons acquiring beneficial ownership interests in
the Class A Certificates ("Certificate Owners") may elect to
hold their Class A Certificate interests through The
Depository Trust Company ("DTC"), in the United States, or
Cedel Bank, societe anonyme ("CEDEL") or the Euroclear
System ("Euroclear"), in Europe. Transfers within DTC, CEDEL
or Euroclear, as the case may be, will be in accordance with
the usual rules and operating procedures of the relevant
system. So long as the Class A Certificates are Book-Entry
Certificates (as defined herein), each Class of such
Certificates will be evidenced by one or more Certificates
registered in the name of Cede & Co. ("Cede"), as the
nominee of DTC or one of the relevant depositaries
(collectively, the "European Depositaries"). Cross-market
transfers between persons holding directly or indirectly
through DTC, on the one hand, and counterparties holding
directly or indirectly through CEDEL or Euroclear, on the
other, will be effected in DTC through Citibank N.A.
("Citibank") or The Chase Manhattan Bank ("Chase"), the
relevant depositaries of CEDEL or Euroclear, respectively,
and each a participating member of DTC. The Class A
Certificates will initially be registered in the name of
Cede. The interests of the Class A Certificate Owners will
be represented by book entries on the records of DTC and
participating members thereof. No Certificate Owner will be
entitled to receive a definitive
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certificate representing such person's interest, except in
the event that Definitive Certificates (as defined herein)
are issued under the limited circumstances described under
"DESCRIPTION OF THE CERTIFICATES--Book-Entry Certificates"
herein. All references in this Prospectus Supplement to any
Class A Certificates reflect the rights of Certificate
Owners only as such rights may be exercised through DTC and
its participating organizations for so long as such Class A
Certificates are held by DTC.
Final Scheduled
Distribution
Dates......... The Final Scheduled Distribution Date for each Class of
Class A Certificates is set forth below, although it is
anticipated that the actual final Distribution Date for each
Class may occur earlier than its Final Scheduled
Distribution. See "CERTAIN YIELD AND PREPAYMENT
CONSIDERATIONS" herein.
Final
Scheduled
Distribution
Date
------------
Class A-1 Certificates --------------
Class A-2 Certificates --------------
Class A-3 Certificates --------------
Class A-4 Certificates --------------
Class A-5 Certificates --------------
Class A-6 Certificates --------------
Class A-7 Certificates --------------
Class A-8 Certificates --------------
The Certificates
A. General ...... The Certificates will be issued pursuant to a Pooling and
Servicing Agreement to be dated as of the Cut-off Date among
the Master Servicer, the Depositor, the Seller and the
Trustee (the "Pooling and Servicing Agreement").
The Certificates will consist of (i) the Class A-1, Class
A-2, Class A-3, Class A-4, Class A-5 and Class A-6
Certificates (the "Group 1 Certificates"), (ii) the Class
A-7 Certificates and the Class A-8 Certificates (the "Group
2 Certificates", and together with the Group 1 Certificates,
the "Class A Certificates") and (iii) the Class R
Certificates (the "Class R Certificates"). Only the Class A
Certificates are offered hereby.
Distributions on the Class R Certificates will be
subordinate to distributions on the Class A Certificates to
the extent described herein and in the Pooling and Servicing
Agreement.
B. Distributions--
General...... On the 25th day of each month or, if such day is not a
Business Day, then the next succeeding Business Day,
commencing in ______ 199_ (each such day, a "Distribution
Date"), the Trustee will be required to distribute to the
holders of
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the Group 1 Certificates and the Class A-8 Certificates of
record as of the last day of the calendar month immediately
preceding the calendar month in which such Distribution Date
occurs and to the holders of the Class A-7 Certificates of
record as of the calendar day immediately preceding such
Distribution Date (or, if Definitive Certificates are
issued, the first calendar day of the month in which such
Distribution Date occurs) (each such date, the "Record
Date"), to the extent of funds available, the "Class A
Distribution Amount", which shall be the sum of (x) Current
Interest and (y) the Principal Distribution Amount (each as
defined below).
For each Distribution Date, interest due with respect to the
Group 1 Certificates and the Class A-8 Certificates will be
interest which has accrued on the related Class Certificate
Balance during the calendar month immediately preceding the
month in which such Distribution Date occurs. The interest
due with respect to the Class A-7 Certificates will be the
interest which has accrued on the related Class Certificate
Balance from the preceding Distribution Date (or from the
Closing Date in the case of the first Distribution Date) to
and including the day prior to the current Distribution
Date. Each such period relating to the accrual of interest
is an "Accrual Period" for the related Class of Class A
Certificates. All calculations of interest on the Group 1
Certificates and the Class A-8 Certificates will be made on
the basis of a 360-day year assumed to consist of twelve
30-day months. Calculations of interest on the Class A-7
Certificates will be made on the basis of the actual number
of days elapsed in the related Accrual Period and a year of
360 days. A "Business Day" is any day other than a Saturday,
Sunday or a day on which commercial banking institutions in
New York City, the States of Georgia or Missouri or in the
cities in which the corporate trust office of the Trustee is
located or the principal offices of the Certificate Insurer
are located, are authorized or obligated by law or executive
order to close.
C. Allocations of
Interest and
Principal....... The Class A Distribution Amount relating to each of the
Group 1 Certificates and the Group 2 Certificates (each, a
"Certificate Group") for each Distribution Date (to the
extent funds are available therefor) shall be allocated
among the Class A Certificates for such Certificate Group in
the following amounts and in the following order of
priority:
(i) First, with respect to each Certificate Group, to the
holders of the Class A Certificates of such Certificate
Group, the related Current Interest for such Class or
Classes of Certificates on a pro rata basis without any
priority among such Class A Certificates;
(ii) Second, with respect to each Certificate Group, to the
holders of the Class A Certificates of such Certificate
Group, the Principal Distribution Amount. The Principal
Distribution Amount (A) applicable to the Group 1
Certificates shall be distributed as follows: first, to the
holders of the Class A-6 Certificates, the Class A-6 Lockout
Distribution Amount until the Class Certificate Balance
thereof is reduced to zero; and second, to the holders of
the Group 1 Certificates in sequential order beginning with
the Class A-1 Certificates, until the Class Certificate
Balance of each Class of the Group 1 Certificates has been
reduced to zero; and (B) applicable to the Group 2
Certificates shall be distributed as follows: first, to the
holders of the Class A-8 Certificates, the Class A-8 Lockout
Distribution Amount until the Class Certificate Balance
thereof is reduced to zero; and second, to the holders of
the Group 2 Certificates in sequential order beginning with
the Class A-7 Certificates, until the Class Certificate
Balance of each Class of Group 2 Certificates has been
reduced to zero; and
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(iii) Third, with respect to the Group 2 Certificates, to
the holders of the Class A-7 Certificates, the Basis Risk
Carryover Amount (as defined below), if any.
"Current Interest" with respect to each Class of Class A
Certificates means, with respect to any Distribution Date,
(i) the aggregate amount of interest accrued at the related
Pass-Through Rate during the preceding Accrual Period on the
Class Certificate Balance of the related Class A
Certificates immediately prior to such Distribution Date
(net of Net Prepayment Interest Shortfalls and the interest
portion of reductions due to the Relief Act) plus (ii) the
interest portion of any Preference Amount previously paid on
such Class of the Class A Certificates prior to such
Distribution Date plus (iii) the portion of the Carry
Forward Amount relating to interest, if any, with respect to
such Class of Class A Certificates (net of Net Prepayment
Interest Shortfalls and the interest portion of reductions
due to the Relief Act).
The "Carry Forward Amount" with respect to any Class of the
Class A Certificates for any Distribution Date is the sum of
(x) the amount, if any, by which (i) the Class A
Distribution Amount allocable to such Class as of the
immediately preceding Distribution Date exceeded (ii) the
amount of the actual distribution made to the holders of
such Class of Class A Certificates on such immediately
preceding Distribution Date plus (y) 30 days' interest on
such amount, calculated at the related Pass-Through Rate in
effect with respect to such Class of Class A Certificates.
If on any Distribution Date, the Pass-Through Rate for the
Class A-7 Certificates is based on the Available Funds Cap,
the excess (the "Basis Risk Excess") of (i) the amount of
interest the Class A-7 Certificates would be entitled to
receive on such Distribution Date at the lesser of (a) the
Net Lifetime Cap for such Distribution Date and (b) the
then-applicable Pass-Through Rate on the Class A-7
Certificates without reference to the Available Funds Cap,
over (ii) the amount of interest such Class A-7 Certificates
will receive on such Distribution Date at the Available
Funds Cap shall not be paid on such date to the holders of
the Class A-7 Certificates. If, on any Distribution Date,
the Available Funds Cap equals the Net Lifetime Cap, the
Basis Risk Excess for such Distribution Date will equal
zero. The Basis Risk Excess for such Distribution Date,
together with any Basis Risk Excess from prior Distribution
Dates, is referred to herein as the "Basis Risk Carryover
Amount". Any Basis Risk Carryover Amount will be paid, to
the extent of funds, if any, available to make such payment,
on any Distribution Date, as set forth under "DESCRIPTION OF
THE CERTIFICATES--Distributions" herein. No interest will
accrue on the Basis Risk Carryover Amount; however, the
Class A-7 Certificates will be entitled to recover any Basis
Risk Carryover Amount outstanding after the Class
Certificate Balance thereof has been reduced to zero. The
Certificate Insurance Policies will not cover the payment
of, and the ratings assigned to the Class A-7 Certificates
do not address the likelihood of the payment of, any Basis
Risk Carryover Amount. The "Net Lifetime Cap" on any
Distribution Date is equal to the weighted average of the
maximum Mortgage Rates on the Mortgage Loans in the
Adjustable Rate Group as of the first day of the related Due
Period (taking into account Curtailments, Net Liquidation
Proceeds and Prepayments collected during the immediately
preceding Prepayment Period and, with respect to Actuarial
Loans in the Adjustable Rate Group, any scheduled monthly
payments due on or before the last day of the immediately
preceding Due Period and in the Collection Account as of the
Determination Date for such immediately preceding Due
Period) less the sum of (a) the Servicing Fee Rate, (b) the
Trustee Fee Rate, (c) the Insurance Premium Rate and (d)
commencing on the seventh Distribution Date, ____% per
annum.
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<PAGE>
The credit enhancement provisions of the Trust Fund result
in a limited acceleration of principal payments to the Class
A Certificateholders; such provisions are more fully
described under "CREDIT ENHANCEMENT--Overcollateralization
Provisions" and "--Crosscollateralization Provisions"
herein. Such credit enhancement provisions also have an
effect on the weighted average lives of the Class A
Certificates; see "CERTAIN YIELD AND PREPAYMENT
CONSIDERATIONS" herein. In addition, the following
discussion makes use of a number of defined terms which are
defined under "CREDIT ENHANCEMENT--Overcollateralization
Provisions" and "CREDIT ENHANCEMENT--Crosscollateralization
Provisions" herein.
D. Principal....... The Group 1 Certificates (other than the Class A-6
Certificates) are "sequential pay" Classes such that the
holders of the Class A-5 Certificates will receive no
payments of principal until the Class Certificate Balance of
the Class A-4 Certificates has been reduced to zero, the
holders of the Class A-4 Certificates will receive no
payments of principal until the Class Certificate Balance of
the Class A-3 Certificates has been reduced to zero, the
holders of the Class A-3 Certificates will receive no
payments of principal until the Class Certificate Balance of
the Class A-2 Certificates has been reduced to zero, and the
holders of the Class A-2 Certificates will receive no
payments of principal until the Class Certificate Balance of
the Class A-1 Certificates has been reduced to zero;
provided, however, that in the event of a Certificate
Insurer Default (as defined in the Pooling and Servicing
Agreement), if there is a Subordination Deficit with respect
to the Group 1 Certificates, the Principal Distribution
Amount for the Group 1 Certificates shall be distributed pro
rata to the holders of the Group 1 Certificates then
outstanding.
The holders of the Class A-6 Certificates are entitled to
receive payments of the Class A-6 Lockout Distribution
Amount specified herein; provided, that if on any
Distribution Date the Class A-5 Certificate Balance is zero,
the holders of the Class A-6 Certificates will be entitled
to receive the entire Principal Distribution Amount for the
Group 1 Certificates for such Distribution Date. The "Class
A-6 Lockout Distribution Amount" for any Distribution Date
will be the product of (i) the applicable Class A-6 Lockout
Percentage for such Distribution Date and (ii) the Class A-6
Lockout Pro Rata Distribution Amount for such Distribution
Date. The "Class A-6 Lockout Percentage" for each
Distribution Date shall be as follows:
Distribution Dates Lockout Percentage
__________-___________ ---%
__________-___________ ---%
__________-___________ ---%
__________-___________ ---%
___________ and thereafter ___%
The "Class A-6 Lockout Pro Rata Distribution Amount" for any
Distribution Date will be an amount equal to the product of
(x) a fraction, the numerator of which is the Class
Certificate Balance of the Class A-6 Certificates
immediately prior to such Distribution Date and the
denominator of which is the aggregate Class Certificate
Balance of all Classes of the Group 1 Certificates
immediately prior to such Distribution Date and (y) the
Principal Distribution Amount for the Group 1 Certificates
for such Distribution Date.
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The holders of the Class A-8 Certificates are entitled to
receive payments of the Class A-8 Lockout Distribution
Amount specified herein; provided, however, that if on any
Distribution Date the Class A-7 Certificate Balance is zero,
the holders of the Class A-8 Certificates will be entitled
to receive the entire Principal Distribution Amount for the
Group 2 Certificates for such Distribution Date.
The "Class A-8 Lockout Distribution Amount" for any
Distribution Date will be the product of (i) the applicable
Class A-8 Lockout Percentage for such Distribution Date and
(ii) the Class A-8 Lockout Pro Rata Distribution Amount for
such Distribution Date.
The "Class A-8 Lockout Percentage" for each Distribution
Date shall be as follows:
Distribution Dates Lockout Percentage
__________-___________ ---%
__________-___________ ---%
___________ and thereafter ---%
The "Class A-8 Lockout Pro Rata Distribution Amount" for any
Distribution Date will be an amount equal to the product of
(x) a fraction, the numerator of which is the Class
Certificate Balance of the Class A-8 Certificates
immediately prior to such Distribution Date and the
denominator of which is the aggregate Class Certificate
Balance of all Classes of the Group 2 Certificates
immediately prior to such Distribution Date and (y) the
Principal Distribution Amount for the Group 2 Certificates
for such Distribution Date.
On each Distribution Date, distributions in reduction of the
Class Certificate Balance of the Class A Certificates will
be made in the amounts described herein. The "Principal
Distribution Amount" for each of the Group 1 Certificates
and the Group 2 Certificates on each Distribution Date shall
be the lesser of:
(a) the Total Available Funds (as defined below) for the
related Certificate Group plus any related Insured Payments
minus the related Current Interest with respect to such
Certificate Group; and
(b) the excess, if any, of (i) the sum of (A) through (J)
(without duplication):
(A) the Preference Amount with respect to principal owed to
the Class A Certificates for the Related Loan Group that
remains unpaid as of such Distribution Date;
(B) the principal (other than the principal portion of
Curtailments, Net Liquidation Proceeds or Prepayments)
collected by the Master Servicer with respect to Simple
Interest Loans during the related Due Period;
(C) the principal portion of Curtailments, Net Liquidation
Proceeds and Prepayments collected by the Master Servicer
during the related Prepayment Period;
(D) the principal portion of scheduled monthly payments due
on the Actuarial Loans after the Cut-off Date and on or
before the end of the related Due Period to the extent such
scheduled monthly payments are in the Collection Account as
of the related Determination Date;
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<PAGE>
(E) the principal portion of any Loan Purchase Price for
each Mortgage Loan in the Related Loan Group that was
repurchased by the Seller or purchased by the Master
Servicer on or prior to the related Monthly Remittance Date,
to the extent such Loan Purchase Price is actually received
by the Trustee on or prior to the related Monthly Remittance
Date;
(F) the principal portion of any Substitution Adjustments
(i.e., the excess, if any, of the Loan Balance of a Mortgage
Loan being replaced over the outstanding Loan Balance of a
replacement Mortgage Loan) delivered by the Seller on or
prior to the related Monthly Remittance Date in connection
with a substitution of a Mortgage Loan in the Related Loan
Group, to the extent such Substitution Adjustments are
actually received by the Trustee on or prior to the related
Monthly Remittance Date;
(G) the amount of any Subordination Deficit with respect to
the Related Loan Group for such Distribution Date;
(H) the portion of the proceeds received by the Trustee with
respect to the Related Loan Group upon termination of the
Trust Fund (to the extent such proceeds relate to
principal);
(I) the amount of any Subordination Increase Amount with
respect to the Related Loan Group for such Distribution Date
to the extent of any Net Monthly Excess Cash Flow available
for such purpose; and
(J) the portion of any Carry Forward Amount relating to
principal with respect to the Related Loan Group for such
Distribution Date; over
(ii) the amount of any Subordination Reduction Amount with
respect to the Related Loan Group for such Distribution
Date.
The "Due Period" with respect to any Monthly Remittance Date
is (a) with respect to Simple Interest Loans (other than
Prepayments, Curtailments and Net Liquidation Proceeds), the
calendar month immediately preceding the calendar month in
which the Monthly Remittance Date occurs; provided that with
respect to the first Monthly Remittance Date, the initial
Due Period will be from ______ to _______, 199_, and (b)
with respect to scheduled monthly payments on Actuarial
Loans, the period from the second day of the preceding
calendar month to the first day of the month in which the
Monthly Remittance Date occurs. A "Monthly Remittance Date"
is any date on which funds on deposit in the Collection
Account are remitted by the Master Servicer to the Trustee
for deposit into the Distribution Account, which is the
fourth Business Day following the related Determination Date
commencing in ______ 199_.
With respect to any Distribution Date, the "Determination
Date" is the 13th day of the month of such Distribution
Date, or if such day is not a Business Day, the Business Day
immediately preceding such 13th day of the month, commencing
in ______ 199_.
With respect to any Distribution Date, the "Prepayment
Period" is the period commencing on the calendar day after
the prior Determination Date and ending on the related
Determination Date; provided, however, that with respect to
the first Distribution Date, the Prepayment Period will be
from ______, 199_ to _________, 199_.
A "Liquidated Mortgage Loan" is, in general, a defaulted
Mortgage Loan as to which the Master Servicer has determined
that all amounts that it expects to recover on such Mortgage
Loan have been recovered (exclusive of any
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possibility of a deficiency judgment). The Class A
Certificateholders are entitled to receive ultimate recovery
of Realized Losses which occur in the Related Loan Group to
the extent such Realized Losses create a Subordination
Deficit in the Related Loan Group, and payment in recovery
of such losses will be in the form of an Insured Payment
payable in accordance with the terms of the applicable
Certificate Insurance Policy if not covered through Net
Monthly Excess Cashflow from the Related Loan Group or
crosscollateralization from the other Loan Group.
A "Subordination Deficit" with respect to a Loan Group and a
Distribution Date is the amount, if any, by which (x) the
aggregate of the Class Certificate Balances relating to such
Loan Group, after taking into account all distributions to
be made on such Distribution Date, exceeds (y) the aggregate
Loan Balances of the Mortgage Loans in the Related Loan
Group as of the close of business on the last day of the
related Due Period (taking into account Curtailments, Net
Liquidation Proceeds and Prepayments collected during the
related Prepayment Period, and with respect to Actuarial
Loans in the related Mortgage Loan Group, the principal
portion of all scheduled monthly payments due on or before
the last day of the related Due Period and in the Collection
Account as of the related Determination Date).
A "Subordination Increase Amount" with respect to a Loan
Group and Distribution Date is the amount, if any, of Net
Monthly Excess Cashflow (as defined herein) actually applied
as an accelerated payment of principal on the Class A
Certificates relating to the applicable Loan Group. A
"Subordination Reduction Amount" with respect to a Loan
Group and Distribution Date is the amount, if any,
distributed to the Class R Certificates in an amount equal
to the lesser of (x) the Excess Subordinated Amount (as
defined herein) and (y) the amount available for
distribution on account of principal with respect to the
Class A Certificates relating to the applicable Loan Group
on such Distribution Date. See "CREDIT
ENHANCEMENT--Overcollateralization Provisions" herein.
"Preference Amount" means any amount previously distributed
to a Class A Certificateholder that is recoverable and
sought to be recovered as a voidable preference by a trustee
in bankruptcy under the United States Bankruptcy Code, as
amended from time to time, in accordance with a final,
nonappealable order of a court having competent
jurisdiction.
Servicing.......... The Master Servicer will be responsible for servicing,
managing and making collections on the Mortgage Loans. The
Master Servicer will be permitted to service the Mortgage
Loans through sub-servicers, and will initially do so
through Companion Servicing Company, L.L.C. ("CSC") as
sub-servicer. See "THE POOLING AND SERVICING
AGREEMENT--Servicing and Sub-Servicing" herein. The Master
Servicer will receive a monthly servicing fee (the
"Servicing Fee"), payable out of the interest amounts
collected by the Master Servicer on each Mortgage Loan, as
compensation for acting as Master Servicer, and will be
responsible for all fees payable to CSC and any subsequent
sub-servicers. The Servicing Fee for each Mortgage Loan will
be paid on each Distribution Date for the related Due
Period, and will be equal to ____% per annum (the "Servicing
Fee Rate") of the then outstanding Loan Balance of each such
Mortgage Loan as of the first day of the related Due Period
(taking into account Curtailments, Net Liquidation Proceeds
and Prepayments received during the immediately preceding
Prepayment Period and, with respect to Actuarial Loans, any
scheduled monthly payment due on or before the last day of
the immediately preceding Due Period and in the Collection
Account as of the Determination Date for such immediately
preceding Due Period). The amount of the Servicing Fee is
subject to adjustment with respect to prepaid Mortgage
Loans, as described herein under "THE POOLING AND SERVICING
AGREEMENT--Servicing and Sub-Servicing". As part of its
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servicing responsibilities, the Master Servicer will be
required to cause to be deposited, in the manner and at the
times described herein, into an account or accounts (the
"Collection Account"), which must be an Eligible Account,
all payments received with respect to the Mortgage Loans
after the Cut-off Date (other than, with respect to
Actuarial Loans, amounts due on or before the Cut-off Date),
but net of (i) the Servicing Fee with respect to each
Mortgage Loan and other servicing compensation, (ii) Net
Liquidation Proceeds to the extent that such Net Liquidation
Proceeds exceed the sum of (I) the Loan Balance of the
related Mortgage Loan, plus (II) accrued and unpaid interest
on such Mortgage Loan (net of the Servicing Fee) to the date
of such liquidation, (iii) reimbursements for Delinquency
Advances from late collections or Liquidation Proceeds on
the Mortgage Loans which gave rise to such Delinquency
Advances and from Excess Interest and (iv) reimbursement for
amounts deposited in the Collection Account representing
payments of principal and/or interest on a Mortgage Loan by
a Mortgagor which are subsequently returned by a depository
institution as unpaid. The Master Servicer is entitled to
receive investment earnings on amounts in the Collection
Account and shall be responsible for investment losses
thereon without the right to reimbursement thereof. See
"DESCRIPTION OF THE CERTIFICATES--Investment of Amounts on
Deposit in the Collection Account" and "THE POOLING AND
SERVICING AGREEMENT--Servicing and Sub-Servicing" herein.
Delinquency Advances
and Compensating
Interest.......... The Master Servicer will be obligated to make Delinquency
Advances no later than the fourth Business Day following the
Determination Date to the extent that such Delinquency
Advances, in the Master Servicer's judgment, are reasonably
recoverable from the related Mortgage Loan. Delinquency
Advances are recoverable from (i) late collections on the
Mortgage Loan which gave rise to the Delinquency Advance,
(ii) Liquidation Proceeds for the Mortgage Loan which gave
rise to the Delinquency Advance, (iii) with respect to
Simple Interest Loans, aggregate interest collected on such
Simple Interest Loans during the related Due Period in
excess of the aggregate interest deemed due on such Simple
Interest Loans during such Due Period ("Excess Interest"),
and (iv) from certain excess cash flows not applied for any
other purpose. "Delinquency Advances" will equal, on any
Distribution Date, interest on the Mortgage Loans due during
the related Due Period (net of the Servicing Fee) but
uncollected (i) with respect to Simple Interest Loans, as of
the end of the related Due Period, and (ii) with respect to
Actuarial Loans, as of the related Determination Date. For
purposes of calculating the amount of Delinquency Advances
for the Simple Interest Loans or Excess Interest for
reimbursement of such Delinquency Advances, the amount "due"
during the Due Period will be deemed to be 30 days' interest
at the weighted average Mortgage Rate for the Simple
Interest Loans. The Master Servicer will not be obligated to
make advances for principal due on a Mortgage Loan for any
Due Period. In addition, the Master Servicer will also be
required to pay Compensating Interest with respect to any
Prepayment received on a Mortgage Loan during the related
Prepayment Period as and to the extent described herein
under "THE POOLING AND SERVICING AGREEMENT--Servicing and
Sub-Servicing". The Master Servicer will not be required to
pay Compensating Interest with respect to any Distribution
Date in an amount in excess of one-half of the Servicing Fee
received by the Master Servicer for such Mortgage Loan on
such Distribution Date.
Credit
Enhancement...... The credit enhancement provided for the benefit of the Class
A Certificateholders consists of (x) the
overcollateralization and crosscollateralization mechanisms,
which utilize the internal cash flows of the Trust Fund, and
(y) the Certificate Insurance Policies.
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Overcollateralization. The credit enhancement provisions of
the Trust Fund result in a limited acceleration of the
Classes of Class A Certificates then entitled to receive
distributions of principal relative to the amortization of
the Mortgage Loans in the Related Loan Group in the early
months of the transaction. The accelerated amortization is
achieved by the application of certain excess interest to
the payment of principal on the Group 1 Certificates and
Group 2 Certificates. This acceleration feature creates,
with respect to each Loan Group, overcollateralization
(i.e., the excess of the aggregate Loan Balance of the
Mortgage Loans in the Related Loan Group over the aggregate
Class Certificate Balance of the Class A Certificates in the
related Certificate Group. Once the required level of
overcollateralization is reached, and subject to the
provisions described in the next paragraph, the acceleration
feature will cease, until necessary to maintain the required
level of overcollateralization.
The Pooling and Servicing Agreement provides that, subject
to certain floors, caps and triggers, the required level of
overcollateralization with respect to a Loan Group may
increase or decrease over time. An increase would result in
a temporary period of accelerated amortization of the
Classes of Class A Certificates then entitled to receive
distributions of principal to increase the actual level of
overcollateralization to its required level; a decrease
would result in a temporary period of decelerated
amortization to reduce the actual level of
overcollateralization to its required level.
As a result of the "sequential pay" feature of the Group 1
Certificates, any such accelerated principal will be paid to
that Class of the Group 1 Certificates then entitled to
receive distributions of principal on the related
Distribution Date.
Crosscollateralization. In addition to the foregoing, the
Pooling and Servicing Agreement provides for
crosscollateralization through the application of excess
amounts generated by one Loan Group to fund shortfalls in
Available Funds and the required overcollateralization level
in the other Loan Group, subject to certain prior debt
service and credit enhancement requirements of such Loan
Group.
See "CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS", "CREDIT
ENHANCEMENT--Overcollateralization Provisions" and
"--Crosscollateralization Provisions" herein and
"DESCRIPTION OF THE CERTIFICATES--Description of Credit
Enhancement" in the Prospectus.
Certificate Insurance Policies. __________________________
(the "Certificate Insurer") will provide two Certificate
Insurance Policies with respect to the Class A Certificates,
one with respect to the Group 1 Certificates and the other
with respect to the Group 2 Certificates.
Subject to the terms thereof, each Certificate Insurance
Policy unconditionally and irrevocably guarantees the
obligation of the Trust Fund to pay Current Interest (net of
any Prepayment Interest Shortfalls and the interest portion
of reductions due to the Relief Act) and any Subordination
Deficit with respect to the related Certificate Group in
accordance with the terms of such Certificate Insurance
Policy.
The Certificate Insurance Policies are not cancelable for
any reason.
"Insured Payments" means, with respect to the Related Loan
Group and any Distribution Date, without duplication, (A)
the excess, if any, of (i) the sum of (a) the aggregate
amount of interest accrued at the related Pass-Through Rate
during the preceding Accrual Period on the Class A
Certificate Principal Balance of the related Class A
Certificates (net of any Prepayment Interest
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Shortfall and the interest portion of reductions due to the
Relief Act), (b) the Preference Amount as it relates to
interest previously paid on each Class of the related Class
A Certificates prior to such Distribution Date, (c) the
portion of the Carry Forward Amount related to interest with
respect to each Class of the related Class A Certificates
(net of any Prepayment Interest Shortfall and the interest
portion of reductions due to the Relief Act) and (d) the
then existing Subordination Deficit for the Related Loan
Group, if any, over (ii) Total Available Funds (net of the
Insurance Premium Amount for the Related Loan Group) after
taking into account any Principal Distribution Amount to be
actually distributed on such Distribution Date and the
crosscollateralization provisions of the Trust Fund plus (B)
an amount equal to the principal portion of the Preference
Amount with respect to the Related Loan Group.
"Certificate Principal Balance" means, as of the Start-up
Day as to each Class of the Class A Certificates, the
principal balance thereof.
"Class A Certificate Principal Balance" means, as of any
time of determination, the Certificate Principal Balance as
of the Start-up Day of all Class A Certificates less any
amounts actually distributed on the Class A Certificates
with respect to the Class A Distribution Amount pursuant to
clause (iii)(D) under "DESCRIPTION OF THE
CERTIFICATES--Distributions" herein with respect to
principal thereof on all prior Distribution Dates (except,
for purposes of effecting the Certificate Insurer's
subrogation rights, that portion of Insured Payments made in
respect of principal).
Insured Payments do not cover Realized Losses except to the
extent that a Subordination Deficit exists. Insured Payments
do not cover the Master Servicer's failure to make
Delinquency Advances, except to the extent that a
Subordination Deficit would otherwise result therefrom.
Nevertheless, the effect of each Certificate Insurance
Policy is to guarantee the timely payment of Current
Interest (net of Prepayment Shortfalls and the interest
portion of reductions due to the Relief Act) on all Classes
of the Class A Certificates and the ultimate payment of the
principal amount of the Class A Certificates.
The Certificate Insurance Policies do not guarantee any
specified rate of prepayments, nor do the Certificate
Insurance Policies provide funds to redeem the Class A
Certificates on any specified date. The Certificate
Insurer's obligation under the Certificate Insurance
Policies will be discharged to the extent that funds are
received by the Trustee for distribution to the Class A
Certificateholders. See "CREDIT ENHANCEMENT--Certificate
Insurance Policies" herein.
Ratings............ It is a condition to the issuance of the Class A
Certificates that each be rated ___ by
___________________________________________________________.
("___"), and ___ by _______________________________
("______"), and each of ___ and _______, a "Rating Agency").
A security rating is not a recommendation to buy, sell or
hold securities and may be subject to revision or withdrawal
at any time. No person is obligated to maintain any rating
on any Class of Class A Certificates and, accordingly, there
can be no assurance that the rating assigned to any Class of
Class A Certificates upon initial issuance thereof will not
be lowered or withdrawn by a Rating Agency at any time
thereafter. In the event any rating is revised or withdrawn,
the liquidity of the related Class of Class A Certificates
may be adversely affected. In general, the ratings address
credit risk and do not represent any assessment of the
likelihood or rate of principal prepayments. In addition,
the ratings do not address the likelihood of payment of any
Basis Risk Carryover Amount. See "RISK FACTORS--Limited
Liquidity" in the Prospectus and "RATINGS" herein and in the
Prospectus.
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Optional
Termination...... On any Distribution Date on or after the first Distribution
Date on which the aggregate Loan Balance of the Mortgage
Loans in the Trust Fund has declined to less than 10% of the
Original Pool Principal Balance (such first Distribution
Date, the "Optional Termination Date"), the holder of the
99.999% Percentage Interest in the Class R Certificates (the
"Class R Optionholder") will have the option, subject to
certain conditions set forth in the Pooling and Servicing
Agreement, to purchase all, but not less than all, of the
Mortgage Loans and other assets of the Trust Fund, at the
purchase price described herein. The payment of such
purchase price will effect retirement of the Certificates
which are outstanding on the date of purchase and may have
an effect on an investor's yield on such Certificates.
On any Distribution Date on or after the date on which the
aggregate Loan Balance of the Mortgage Loans in the Trust
Fund has declined to less than 5% of the Original Pool
Principal Balance, the Master Servicer will also have the
option, subject to certain conditions set forth in the
Pooling and Servicing Agreement, to purchase all, but not
less than all, of the Mortgage Loans and other assets of the
Trust Fund, at the purchase price described herein. The
payment of such purchase price will effect retirement of the
Certificates which are outstanding on the date of purchase
and may have an effect on an investor's yield on such
Certificates.
See "THE POOLING AND SERVICING AGREEMENT--Termination;
Retirement of the Certificates" herein.
Termination
Auction......... Within 90 days following the Optional Termination Date, the
Trustee shall solicit bids for the Mortgage Loans remaining
in the Trust Fund. In the event that satisfactory bids are
received as described in the Pooling and Servicing
Agreement, the net sales proceeds will be distributed to the
holders of the outstanding Certificates, in the same order
of priority as collections received in respect of the
Mortgage Loans. If bids which meet the requirements set
forth in the Pooling and Servicing Agreement are not
received, the Trustee shall decline to sell the Mortgage
Loans and shall not be under any obligation to solicit any
further bids or otherwise negotiate any further sale of the
Mortgage Loans. Such sale and consequent termination of the
Trust Fund must constitute a "qualified liquidation" of the
Trust Fund under Section 860F of the Code, including the
requirement that the qualified liquidation take place over a
period not to exceed 90 days. See "THE POOLING AND SERVICING
AGREEMENT--Termination Auction" herein and "THE
TRUSTS--Mandatory Disposition of Primary Assets" in the
Prospectus. Any early termination of the Trust Fund and
early retirement of the Certificates that results from a
successful termination auction may have an effect on an
investor's yield on such Certificates. See "CERTAIN YIELD
AND PREPAYMENT CONSIDERATIONS" herein and in the Prospectus.
Certain Legal
Aspects of the
Mortgage Loans.... _____% of the Mortgage Loans in the Fixed Rate Group (by
Original Loan Group Balance of the Fixed Rate Group) and
none of the Mortgage Loans in the Adjustable Rate Group as
of the Cut-off Date are secured by second lien Mortgages
which are subordinate to a mortgage lien on the related
Mortgaged Property prior to the lien of such Mortgage Loan
(such senior lien, if any, a "Senior Lien"). A primary risk
with respect to second lien Mortgages is that foreclosure
funds received in connection therewith may not be sufficient
to fully satisfy both the Senior Lien and the Mortgage
relating to the Mortgage Loan. See "RISK FACTORS" herein and
in the Prospectus and "CERTAIN LEGAL ASPECTS OF THE PRIMARY
ASSETS" in the Prospectus.
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Federal Income Tax
Consequences...... For federal income tax purposes, an election will be made to
treat the Trust Fund as a "real estate mortgage investment
conduit" ("REMIC"). The Class A Certificates will constitute
"regular interests" in the REMIC. The Class R Certificates
will represent the sole class of "residual interest" in the
REMIC.
Upon the issuance of the Certificates, ________________,
special tax counsel to the Depositor ("Tax Counsel") and
counsel to the Underwriters, will deliver its opinion
generally to the effect that, assuming compliance with all
provisions of the Pooling and Servicing Agreement, for
federal income tax purposes, the Trust Fund will qualify as
a REMIC under Sections 860A through 860G of the Internal
Revenue Code of 1986, as amended (the "Code").
For further information regarding the federal income tax
consequences of investing in the Class A Certificates, see
"FEDERAL INCOME TAX CONSEQUENCES" herein and in the
Prospectus.
ERISA
Considerations... See "ERISA CONSIDERATIONS" herein and in the Prospectus.
Legal Investment... Although upon their initial issuance each Class of the Class
A Certificates will be rated ___ by ___ and ___ by _______,
the Class A Certificates will not constitute "mortgage
related securities" under the Secondary Mortgage Market
Enhancement Act of 1984. Investors should consult their own
legal advisers in determining whether and to what extent the
Class A Certificates constitute legal investments for such
investors.
Use of Proceeds.... The Depositor will apply the net proceeds of the sale of the
Class A Certificates to purchase the Mortgage Loans from the
Seller.
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<PAGE>
RISK FACTORS
Investors should consider, among other things, the risk factors discussed
under "RISK FACTORS" in the Prospectus and the following risk factors in
connection with the purchase of the Class A Certificates:
Risks of the Mortgage Loans
Underwriting Standards. The Mortgage Loans have been originated using
underwriting standards that are less stringent than the underwriting standards
applied by mortgage loan purchase programs such as those administered by the
Federal National Mortgage Association ("FNMA") or by the Federal Home Loan
Mortgage Corporation ("FHLMC"). For example, the Mortgage Loans may have been
made to Mortgagors having credit histories with incidents ranging from minor
delinquencies to bankruptcies, or Mortgagors with higher ratios of monthly
mortgage payments to income or higher ratios of total monthly credit payments to
income. As a result, the Mortgage Loans are likely to experience rates of
delinquency, foreclosure and bankruptcy that are higher, and that may be
substantially higher, than those experienced by mortgage loans underwritten in a
more traditional manner. As of the Cut-off Date, none of the Mortgage Loans was
more than 59 days delinquent in payment of principal or interest and no more
than ____% of the Mortgage Loans were more than 30 days delinquent in payment of
principal or interest. The Mortgage Loans with higher Loan-to-Value Ratios and
Combined Loan-to-Value Ratios may also present a greater risk of loss. See
"DESCRIPTION OF THE MORTGAGE POOL" herein.
Second Liens. Approximately _____% of the Mortgage Loans in the Fixed Rate
Group (by Original Loan Group Balance of the Fixed Rate Group) and none of the
Mortgage Loans in the Adjustable Rate Group are secured by second lien
Mortgages. Although little data is available, the rate of loss and delinquency
of junior mortgage loans may be greater than that of mortgage loans secured by
Senior Liens on comparable properties. See "RISK FACTORS--Nature of Security" in
the Prospectus.
Geographic Concentration. Certain geographic regions of the United States
from time to time will experience weaker regional economic conditions and
housing markets, and, consequently, will experience higher rates of loss and
delinquency on mortgage loans generally. Any concentration of the Mortgage Loans
in such a region may present risk considerations in addition to those generally
present for similar mortgage-backed securities without such concentration. In
particular, approximately _____%, _____%, ____% and ____% of the Mortgage Loans
in the Fixed Rate Group (by Original Loan Group Balance of the Fixed Rate Group)
are secured by Mortgaged Properties located in the States of _________, _______,
_______ and ________, respectively, and ____%, ____%, ____% and ____% of the
Mortgage Loans in the Adjustable Rate Group (by Original Loan Group Balance of
the Adjustable Rate Group) are secured by Mortgaged Properties located in the
States of _______, _______, ____ and __________, respectively. In addition, any
deterioration of the real estate market or weakening of the economy in a region
of the country could result in decreases in the financial strength of borrowers
and decreases in the value of collateral serving as security for loans, which
may be reflected in increases in delinquencies of loans secured by real estate,
slower absorption rates of real estate into the market and lower sales prices
for real estate. See "DESCRIPTION OF THE MORTGAGE POOL" herein for further
information regarding the geographic concentration of the Mortgage Loans.
Occupancy Types. As of the Cut-off Date, _____% of the Mortgage Loans in
the Fixed Rate Group (by Original Loan Group Balance of the Fixed Rate Group)
and _____% of the Mortgage Loans in the Adjustable Rate Group (by Original Loan
Group Balance of the Adjustable Rate Group) were secured by Mortgaged Properties
that were represented to be the primary residences of the related Mortgagors,
and ____% of the Mortgage Loans in the Fixed Rate Group (by Original Loan Group
Balance of the Fixed Rate Group) and ____% of such Mortgage Loans in the
Adjustable Rate Group (by Original Loan Group Balance of the Adjustable Rate
Group) were secured by Mortgaged Properties that were represented to be
vacation, second home or investor-owned properties. It is possible that the rate
of delinquencies, foreclosures and losses on mortgage loans secured by non-owner
occupied or investor properties could be higher than that on mortgage loans
secured by the primary residence of the borrower.
Risk of Early Defaults. Approximately _____% of the Mortgage Loans in the
Fixed Rate Group (by Original Loan Group Balance of the Fixed Rate Group) and
_____% of the Mortgage Loans in the Adjustable Rate Group were originated after
December 31, 1997. The weighted average remaining term to maturity of the
Mortgage Loans in the Fixed Rate Group and the Adjustable Rate Group as of the
Cut-off Date was approximately ___ and
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___ months, respectively. Although little data is available, defaults on
mortgage loans are generally expected to occur with greater frequency in their
early years.
Risk of Higher Default Rates for Mortgage Loans with Balloon Payments.
_____% of the Mortgage Loans in the Fixed Rate Group (by Original Loan Group
Balance of the Fixed Rate Group) are "balloon loans" that provide for the
payment of the unamortized loan balance of such Mortgage Loan in a single
payment at maturity ("Balloon Loans"). _____% of the Mortgage Loans in the
Adjustable Rate Group (by Original Loan Group Balance of the Adjustable Rate
Group) are Balloon Loans. Such Balloon Loans provide for equal monthly payments,
consisting of principal and interest, generally based on a 30-year amortization
schedule, and a single payment of the remaining balance of the Balloon Loan 15
years after origination. Amortization of a Balloon Loan based on a scheduled
period that is longer than the term of the loan results in a remaining principal
balance at maturity that is substantially larger than the regularly scheduled
monthly payments. The Depositor does not have any information regarding the
default history or prepayment history of payments on Balloon Loans. Because
borrowers of Balloon Loans are required to make substantial single payments upon
maturity, it is possible that the default risk associated with the Balloon Loans
is greater than that associated with fully-amortizing Mortgage Loans.
Legal Considerations
State law generally regulates interest rates and other charges, requires
certain disclosures, and, unless an exemption is available, requires licensing
of originators of mortgage loans. In addition, other state laws, public policy
and general principles of equity relating to the protection of consumers, unfair
and deceptive practices and debt collection practices may apply to the
origination, servicing and collection of the Mortgage Loans.
The Mortgage Loans are also subject to federal laws, including: (i) the
Truth in Lending Act and Regulation Z promulgated thereunder, which require
certain disclosures to mortgagors regarding the terms of the notes or other
documents or agreements evidencing the mortgagors' indebtedness in respect of
mortgage loans; (ii) the Equal Credit Opportunity Act and Regulation B
promulgated thereunder, which prohibit discrimination in the extension of credit
on the basis of age, race, color, sex, religion, marital status, national
origin, receipt of public assistance or the exercise of any right under the
Consumer Credit Protection Act; (iii) the Fair Credit Reporting Act, which
regulates the use and reporting of information related to a borrower's credit
experience; and (iv) the Fair Debt Collection Practices Act and the Federal
Trade Commission rule on Credit Practices, which regulate practices used to
effect collections on consumer loans. Certain of the Mortgage Loans may be
subject to the Riegle Community Development and Regulatory Improvement Act of
1994 (the "Riegle Act"), which incorporates the Home Ownership and Equity
Protection Act of 1994. These provisions impose additional disclosure and other
requirements on creditors with respect to non-purchase money mortgage loans with
high interest rates or high up-front fees and charges. The provisions of the
Riegle Act apply on a mandatory basis to all mortgage loans originated on or
after October 1, 1995. These provisions can impose specific statutory
liabilities upon creditors who fail to comply therewith and may affect the
enforceability of the related mortgage loans. In addition, any assignee of the
creditor would generally be subject to all claims and defenses that the consumer
could assert against the creditor, including, without limitation, the right to
rescind the mortgage loan.
The application of state and federal consumer protection laws to
particular circumstances is not always certain and in some cases courts and
regulatory authorities have shown a willingness to adopt novel interpretations
of these laws. Depending on the provisions of the applicable law and the
specific facts and circumstances involved, violations of these laws may limit
the ability of an assignee (including the Trust Fund) to collect all or part of
the principal of or interest on the Mortgage Loans, may entitle the Mortgagor to
a refund of amounts previously paid and, in addition, could subject the assignee
to damages and administrative sanctions. In some instances, particularly in
actions involving fraud or deceptive practices, damage awards have been large.
If the Trust Fund were obligated to pay any such damages, its assets would be
reduced, resulting in a possible loss to Certificateholders.
The Seller will represent and warrant in the Pooling and Servicing
Agreement that each Mortgage Loan was originated in compliance with applicable
law in all material respects. See "RISK FACTORS--Legal Considerations" and
"CERTAIN LEGAL ASPECTS OF THE PRIMARY ASSETS" in the Prospectus.
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Yield and Prepayment Considerations
Although all of the Mortgage Loans may be prepaid in whole or in part at
any time, generally the Mortgage Loans provide for prepayment penalties during
the first three years following origination, to the extent permitted by law. In
addition, a substantial portion of the Mortgage Loans contain due-on-sale
provisions which, to the extent enforced, will result in prepayment of such
Mortgage Loans. Mortgage Loans in the Mortgage Pool may also be repurchased or
substituted as a result of a breach of a representation or warranty, as provided
in the Pooling and Servicing Agreement. The rate of prepayments on fixed-rate
mortgage loans (and to a lesser extent, adjustable-rate mortgage loans) is
sensitive to prevailing interest rates. Generally, if prevailing interest rates
fall significantly below the Mortgage Rates on the Mortgage Loans, the Mortgage
Loans are likely to be subject to higher prepayment rates than if prevailing
rates remain at or above the Mortgage Rates on the Mortgage Loans,
notwithstanding any prepayment penalty on such Mortgage Loans. Conversely, if
prevailing interest rates rise significantly above the Mortgage Rates on the
Mortgage Loans, the rate of prepayments is likely to decrease. The average life
of the Class A Certificates and, if purchased at other than par, the yields
realized by Class A Certificateholders will be sensitive to levels of payment on
the Mortgage Loans (including prepayments in full relating to the Mortgage Loans
("Prepayments") and partial prepayments relating to the Mortgage Loans
("Curtailments")). In general, the yield on a Class A Certificate that is
purchased at a premium over the Class Certificate Balance thereof will be
adversely affected by a higher than anticipated level of Prepayments and
Curtailments of the Mortgage Loans and enhanced by a lower than anticipated
level. Conversely, the yield on a Class A Certificate that is purchased at a
discount from the Class Certificate Balance thereof will be enhanced by a higher
than anticipated level of Prepayments and Curtailments and adversely affected by
a lower than anticipated level.
In addition to the foregoing, the Class R Optionholder and the Master
Servicer have the right to purchase, and the Trustee has the obligation to
conduct an auction for, all, but not less than all, of the Mortgage Loans then
outstanding, at the purchase price described herein, on any Distribution Date on
or after the date on which the aggregate Loan Balances of the Mortgage Loans in
the Trust Fund have declined to less than a certain percentage of the Original
Pool Principal Balance. The payment of such purchase price or sale price will
effect retirement of the Certificates which are outstanding on the date of
purchase or sale. Any reinvestment risk resulting from the optional termination
or termination auction will be borne entirely by the Certificateholders
remaining at the time of such termination. See "THE POOLING AND SERVICING
AGREEMENT--Termination; Retirement of the Certificates" and "--Termination
Auction" herein.
In addition to the foregoing factors affecting the weighted average life
of each Class of the Class A Certificates, the overcollateralization provisions
of the Trust Fund may result in a limited acceleration of the Class A
Certificates relative to the amortization of the Mortgage Loans in the early
months of the transaction. The accelerated amortization is achieved by the
application of certain excess interest and principal to the payment of the Class
Certificate Balance of the Class A Certificates. Once the required level of
overcollateralization is reached, the acceleration feature will cease, unless
necessary to maintain the required level of overcollateralization. See "CREDIT
ENHANCEMENT--Overcollateralization Provisions" herein.
Risk of Mortgage Rates Reducing the Available Funds with Respect to the
Adjustable Rate Group
The calculation of the Pass-Through Rate of the Group 2 Certificates is
based upon (i) either a fixed rate, in the case of the Class A-8 Certificates,
or, with respect to the Class A-7 Certificates, the value of One-Month LIBOR,
which may be different from the value of the Mortgage Indices applicable to the
Mortgage Loans in the Adjustable Rate Group (either as a result of the use of a
different index, a different rate determination date or a different rate
adjustment date), and (ii) the weighted average of the Mortgage Rates of the
Mortgage Loans in the Adjustable Rate Group, which are subject to periodic
adjustment caps, maximum rate caps and minimum rate floors. In general, the
Mortgage Loans in the Adjustable Rate Group adjust based upon One-Month LIBOR,
Six-Month LIBOR, One-Year CMT or Three-Year CMT, as applicable, whereas the
Pass-Through Rates on the Group 2 Certificates either remain fixed, in the case
of the Class A-8 Certificates, or, with respect to the Class A-7 Certificates,
adjust monthly based upon One-Month LIBOR, as described under "DESCRIPTION OF
THE CERTIFICATES--Calculation of One-Month LIBOR" herein, subject (except with
respect to the Class A-8 Certificates) to the Available Funds Cap. Consequently,
the interest which becomes due on the Mortgage Loans in the Adjustable Rate
Group (net of the Servicing Fee, the Insurance Premium Amount, the Trustee Fee
and certain reductions required by the Certificate Insurer during any Due
Period) may not equal the amount of interest that would accrue at the fixed rate
of interest
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applicable to the Class A-8 Certificates or, with respect to the Class A-7
Certificates, at One-Month LIBOR plus the Adjustable Rate Margin on the Class
A-7 Certificates during the related Accrual Period. In particular, the Class A-6
Pass-Through Rate adjusts monthly, while the Mortgage Rates of most of the
Mortgage Loans in the Adjustable Rate Group adjust less frequently, with the
result that the Available Funds Cap may limit increases in the Class A-7
Pass-Through Rate for extended periods in a rising interest rate environment.
The Mortgage Rates on _____% and ____% of the Mortgage Loans in the Adjustable
Rate Group (by Original Loan Group Balance of the Adjustable Rate Group) will
not adjust for two and three years, respectively, following origination. In
addition, the Mortgage Rates on certain of the Mortgage Loans in the Adjustable
Rate Group may respond to different economic and market factors than the Class
A-7 Pass-Through Rate and there is not necessarily a correlation between them.
Thus, it is possible, for example, that the Mortgage Rates on certain of the
Mortgage Loans in the Adjustable Rate Group may fall during periods in which
One-Month LIBOR is stable or is rising or that, even if both the Mortgage Rates
on the Mortgage Loans in the Adjustable Rate Group and One-Month LIBOR fall
during the same period, the Mortgage Rates on certain of the Mortgage Loans in
the Adjustable Rate Group may fall more rapidly than One-Month LIBOR.
Furthermore, if the Available Funds Cap is used to determine the Class A-7
Pass-Through Rate for a Distribution Date, the value of the Class A-7
Certificates may be temporarily or permanently reduced.
If, with respect to any Distribution Date, the amount of interest that
would accrue during the related Accrual Period on the Class A-7 Certificates
based on the applicable level of One-Month LIBOR plus the Adjustable Rate Margin
is less than the weighted average (calculated as described herein) of the
Mortgage Rates on the Mortgage Loans in the Adjustable Rate Group as of the
first day of the related Due Period (taking into account Curtailments, Net
Liquidation Proceeds and Prepayments collected during the immediately preceding
Prepayment Period and, with respect to Actuarial Loans in the Adjustable Rate
Group, any scheduled monthly payment due on or before the last day of the
immediately preceding Due Period and in the Collection Account as of the
Determination Date for such immediately preceding Due Period), less the sum of
(a) the Servicing Fee Rate, (b) the Trustee Fee Rate, (c) the combined rate at
which the premiums payable with respect to the Certificate Insurance Policies
are calculated (the "Insurance Premium Rate") and (d) commencing on the seventh
Distribution Date, ____% per annum, and the Pass-Through Rate on the Class A-7
Certificates is therefore based on the Available Funds Cap, a Basis Risk Excess
will, except as provided below, arise. However, no assurance can be given that
there will be sufficient Net Monthly Excess Cashflow generated from the Mortgage
Loans in the Adjustable Rate Group (or, with respect to any
crosscollateralization provisions, from the Mortgage Loans in the Fixed Rate
Group) to pay the Basis Risk Carryover Amount on any given Distribution Date.
Interest will not accrue on or be paid on the Basis Risk Carryover Amount and
the Certificate Insurance Policies will not cover any Basis Risk Carryover
Amount. Moreover, to the extent that the Available Funds Cap for any
Distribution Date equals the Net Lifetime Cap, the Basis Risk Excess for such
Distribution Date will equal zero.
DESCRIPTION OF THE MORTGAGE POOL
General
The Mortgage Loans will consist of fixed-rate and adjustable-rate Mortgage
Loans with remaining terms to maturity as of the Cut-off Date of not more than
360 months (including both fully amortizing Mortgage Loans and Balloon Loans).
The Mortgage Loans have the characteristics set forth below as of the Cut-off
Date.
The Seller acquired (i) _________ Mortgage Loans, representing _____% of
the Loan Balance of all Mortgage Loans, from NCS Mortgage Services, L.L.C.
("NCS"), (ii) __________ Mortgage Loans, representing _____% of the Loan Balance
of all Mortgage Loans, from NF Investments, Inc. ("NFI"), and (iii) __________
Mortgage Loans, representing _____% of the Loan Balance of all Mortgage Loans,
from Cimarron Mortgage Company, d/b/a The Mortgage Warehouse ("Cimarron").
Each Mortgage Loan in the Trust Fund will be assigned to one of two Loan
Groups comprised of Mortgage Loans which bear fixed interest rates only, in the
case of the Fixed Rate Group, and Mortgage Loans which bear adjustable interest
rates only, in the case of the Adjustable Rate Group. The Group 1 Certificates
represent undivided ownership interests in all Mortgage Loans contained in the
Fixed Rate Group, and distributions on the Group 1 Certificates will be based
primarily on amounts available for distribution in respect of Mortgage Loans in
the Fixed Rate Group. The Group 2 Certificates represent undivided ownership
interests in all Mortgage Loans contained in
S-20
<PAGE>
the Adjustable Rate Group, and distributions on the Group 2 Certificates will be
based primarily on amounts available for distribution in respect of Mortgage
Loans in the Adjustable Rate Group. On the Closing Date, the aggregate Class
Certificate Balances of the Group 1 Certificates will equal approximately 100%
of the Original Loan Group Balance of the Fixed Rate Group and the aggregate
Class Certificate Balances of the Group 2 Certificates will equal approximately
100% of the Original Loan Group Balance of the Adjustable Rate Group.
If the residential real estate market should experience an overall decline
in property values such that the outstanding balance of any Mortgage Loan,
together with the outstanding balance of any related senior liens becomes equal
to or greater than the value of the Mortgaged Property, the actual rates of
delinquencies, foreclosures and losses could be higher than those now generally
experienced in the mortgage lending industry.
Most of the Mortgage Loans with Loan-to-Value Ratios at origination
greater than 80% will not be covered by a primary mortgage guaranty insurance
policy issued by a mortgage insurance company. Such policies generally provide
coverage of a portion of the original principal balance of the related mortgage
loan equal to the product of the original principal balance thereof and a
fraction, the numerator of which is the excess of the original principal balance
of such mortgage loan over 75% of the lesser of the appraised value and selling
price of the related mortgage property and the denominator of which is the
original principal balance of the related mortgage loan, plus accrued interest
thereon and related foreclosure expenses.
The Loan-to-Value Ratios and Combined Loan-to-Value Ratios shown below
were calculated based upon (i) the appraisal, if any, drive-by evaluation or
other method made at or within six months before the time of origination of the
Mortgage Loan or (ii) in the case of a Mortgage Loan which is a purchase money
mortgage, the sale price of the Mortgaged Property at such time of origination,
if such sale price is less than such appraised value (the "Appraised Values").
No assurance can be given that the values of the Mortgaged Properties have
remained or will remain at their Appraised Values on the dates of origination of
the related Mortgage Loans.
The statistical information presented in this Prospectus Supplement
concerning the Mortgage Pool is based on the Mortgage Pool as of the Cut-off
Date, taking into account with respect to Actuarial Loans scheduled monthly
payments due, but not received, on or prior to the Cut-off Date. Certain
Mortgage Loans included in the Trust Fund as of the Cut-off Date may prepay in
full, or may be determined not to meet eligibility requirements, and accordingly
will not be included in the Trust Fund on the Closing Date. As a result of the
foregoing, the statistical distribution of characteristics as of the Closing
Date for the Trust Fund may vary from the statistical distribution of such
characteristics as of the Cut-off Date as presented in this Prospectus
Supplement. The Depositor believes that the information set forth herein with
respect to the Mortgage Pool as currently constituted is representative of the
characteristics of the Mortgage Pool as it will be constituted at the Closing
Date, although certain characteristics of the Mortgage Loans in the Mortgage
Pool may vary. Unless otherwise indicated, information presented herein
expressed as a percentage (other than rates of interest) are approximate
percentages based on the Original Pool Principal Balance or Original Loan Group
Balance, as applicable, as of the Cut-off Date.
Mortgage Loans--Fixed Rate Group
As of the Cut-off Date, the average loan balance of the Mortgage Loans in
the Fixed Rate Group was $______; the Mortgage Rates ranged from _____% per
annum to ______% per annum; the weighted average Combined Loan-to-Value Ratio at
origination was _____%; the weighted average Mortgage Rate was ______% per
annum; the weighted average remaining term to maturity was approximately ___
months; and the weighted average original term to maturity was approximately ___
months. The remaining terms to maturity as of the Cut-off Date of the Mortgage
Loans in the Fixed Rate Group ranged from __ months to ___ months. The minimum
and maximum Loan Balances of the Mortgage Loans in the Fixed Rate Group as of
the Cut-off Date were $_____ and $_______, respectively. As of the Cut-off Date,
Mortgage Loans in the Fixed Rate Group containing "balloon" payments represented
not more than _____% of the Original Loan Group Balance of the Fixed Rate Group.
No Mortgage Loan in the Fixed Rate Group is scheduled to mature later than
______, ____. As of the Cut-off Date, none of the Mortgage Loans in the Fixed
Rate Group was more than 59 days delinquent and no more than ____% of the
Mortgage Loans in the Fixed Rate Group were more than 30 days delinquent.
S-21
<PAGE>
Set forth below is a description of certain additional characteristics
of the Mortgage Loans in the Fixed Rate Group as of the Cut-off Date. The
percentages set forth in the tables below may not always add to 100% due to
rounding.
Remaining Principal Balances
% of Fixed
Rate Group by
by Aggregate
Aggregate Principal Number of
Remaining Principal Balances Principal Balance Balance Mortgage Loans
- - - ---------------------------- ----------------- ------- --------------
$ %
------- ---- -------
Total..................... $ %
======= ==== =======
S-22
<PAGE>
Mortgage Rates
% of Fixed
Rate Group by
by Aggregate
Aggregate Principal Number of
Range of Mortgage Rates (%) Principal Balance Balance Mortgage Loans
- - - --------------------------- ----------------- ------- --------------
$ %
------- ---- -------
Total..................... $ %
======= ==== =======
S-23
<PAGE>
Months Remaining To Scheduled Maturity
% of Fixed
Rate Group by
by Aggregate
Range of Months Remaining Aggregate Principal Number of
to Scheduled Maturity Principal Balance Balance Mortgage Loans
- - - ------------------------- ----------------- ------- --------------
$ %
------- ---- -------
Total..................... $ %
======= ==== =======
S-24
<PAGE>
Distribution of Loan Purpose
% of Fixed
Rate Group by
by Aggregate
Aggregate Principal Number of
Loan Purpose Principal Balance Balance Mortgage Loans
------------ ----------------- ------- --------------
Refinance--Cashout............ $ %
Purchase......................
------- ---- -------
Total..................... $ %
======= ==== =======
Distribution of Occupancy Status
% of Fixed
Rate Group by
by Aggregate
Aggregate Principal Number of
Owner Occupancy Principal Balance Balance Mortgage Loans
--------------- ----------------- ------- --------------
Owner Occupied................ $ %
Non-Owner Occupied............
------- ---- -------
Total..................... $ %
======= ==== =======
Distribution of Property Types
% of Fixed
Rate Group by
by Aggregate
Aggregate Principal Number of
Property Type Principal Balance Balance Mortgage Loans
------------- ----------------- ------- --------------
Single Family Residence....... $ %
2 to 4 Family ................
Condominium...................
Planned Unit Development......
------- ---- -------
Total..................... $ %
======= ==== =======
S-25
<PAGE>
Geographical Distribution
% of Fixed
Rate Group by
by Aggregate
Aggregate Principal Number of
Geographical Distribution Principal Balance Balance Mortgage Loans
------------------------- ----------------- ------- --------------
$ %
------- ---- -------
Total..................... $ %
======= ==== =======
S-26
<PAGE>
Calendar Year of Origination
% of Fixed
Rate Group by
by Aggregate
Aggregate Principal Number of
Calendar Year Principal Balance Balance Mortgage Loans
------------- ----------------- ------- --------------
$ %
------- ---- -------
Total..................... $ %
======= ==== =======
Combined Loan-to-Value Ratios at Origination
% of Fixed
Rate Group by
by Aggregate
Range of Combined Aggregate Principal Number of
Loan-to-Value Ratios(%) Principal Balance Balance Mortgage Loans
- - - ----------------------- ----------------- ------- --------------
$ %
------- ---- -------
Total..................... $ %
======= ==== =======
S-27
<PAGE>
Junior Loan Ratios(1)
% of Fixed
Rate Group by
by Aggregate
Aggregate Principal Number of
Range of Junior Loan Ratios Principal Balance Balance Mortgage Loans
- - - --------------------------- ----------------- ------- --------------
$ %
------- ---- -------
Total..................... $ %
======= ==== =======
- - - ----------------
(1) Excludes first liens. Defined as the ratio of the original principal
balance of the second lien Mortgage Loan to the sum of (i) the original
principal balance of the second lien Mortgage Loan and (ii) the unpaid
principal balance of any senior lien mortgage loan at the time of
origination of the second lien Mortgage Loan.
S-28
<PAGE>
Mortgage Loans--Adjustable Rate Group
As of the Cut-off Date, the average Loan Balance of the Mortgage Loans
in the Adjustable Rate Group was $______; the Mortgage Rates ranged from _____%
per annum to ______% per annum; the weighted average Loan-to-Value Ratio at
origination was _____%; the weighted average Mortgage Rate was ______% per
annum; the weighted average remaining term to maturity was approximately ___
months; and the weighted average original term to maturity was approximately ___
months. The remaining terms to maturity as of the Cut-off Date of the Mortgage
Loans in the Adjustable Rate Group ranged from ___ months to ___ months. The
minimum and maximum Loan Balances of the Mortgage Loans in the Adjustable Rate
Group as of the Cut-off Date were $______ and $_______, respectively. As of the
Cut-off Date, Mortgage Loans in the Adjustable Rate Group containing "balloon"
payments represented not more than _____% of the Original Loan Group Balance of
the Adjustable Rate Group. No Mortgage Loan in the Adjustable Rate Group will
mature later than ______, ____. As of the Cut-off Date, none of the Mortgage
Loans in the Adjustable Rate Group were more than 59 days delinquent in payment
of principal and interest and no more than ____% of the Mortgage Loans in the
Adjustable Rate Group were more than 30 days delinquent in payment of principal
and interest.
All of the Mortgage Loans in the Adjustable Rate Group have maximum
Mortgage Rates. As of the Cut-off Date, the weighted average maximum Mortgage
Rate of the Mortgage Loans in the Adjustable Rate Group was ______% per annum,
with maximum Mortgage Rates that ranged from ______% to ______% per annum. The
Mortgage Loans in the Adjustable Rate Group had a weighted average gross margin
as of the Cut-off Date of _____% per annum. As of the Cut-off Date, the gross
margin for the Mortgage Loans in the Adjustable Rate Group ranged from _____%
per annum to _____% per annum. The Mortgage Loans in the Adjustable Rate Group
bear interest at rates that adjust based on One-Month LIBOR, Six-Month LIBOR,
One-Year CMT or Three-Year CMT.
All of the Mortgage Loans in the Adjustable Rate Group have periodic
rate adjustment caps. _____%, ____%, ____% and ____% of the Original Loan Group
Balance of the Mortgage Loans in the Adjustable Rate Group as of the Cut-off
Date had a rate adjustment cap of ____% per annum for the first adjustment and
____%, ____%, ____% and ____% per annum, respectively, thereafter. _____% and
_____% of the Original Loan Group Balance of the Mortgage Loans in the
Adjustable Rate Group as of the Cut-off Date had a rate adjustment cap of ____%
per annum for the first adjustment and ____% and ____% per annum, respectively,
thereafter. The remaining Mortgage Loans in the Adjustable Rate Group have
periodic rate adjustment caps that range from ____% per annum to ____% per annum
for the first adjustment and range from ____% per annum to ____% per annum
thereafter. Notwithstanding the foregoing, the Mortgage Rates on _____% and
____% of the Mortgage Loans in the Adjustable Rate Group (by Original Loan Group
Balance of the Adjustable Rate Group) will not adjust for two and three years,
respectively, following origination.
Set forth below is a description of certain additional characteristics
of the Mortgage Loans in the Adjustable Rate Group as of the Cut-off Date. The
percentages set forth in the table below may not always add to 100% due to
rounding.
S-29
<PAGE>
Remaining Principal Balances
% of Adjustable
Rate Group
by Aggregate
Aggregate Principal Number of
Remaining Principal Balances Principal Balance Balance Mortgage Loans
- - - ---------------------------- ----------------- ------- --------------
$ %
------- ---- -------
Total..................... $ %
======= ==== =======
S-30
<PAGE>
Mortgage Rates
% of Adjustable
Rate Group
by Aggregate
Aggregate Principal Number of
Mortgage Rates Principal Balance Balance Mortgage Loans
- - - -------------- ----------------- ------- --------------
$ %
------- ---- -------
Total..................... $ %
======= ==== =======
S-31
<PAGE>
Months Remaining to Scheduled Maturity
% of Adjustable
Rate Group
by Aggregate
Range of Months Remaining Aggregate Principal Number of
to Scheduled Maturity Principal Balance Balance Mortgage Loans
- - - --------------------- ----------------- ------- --------------
$ %
------- ---- -------
Total..................... $ %
======= ==== =======
Distribution of Loan Purpose
% of Adjustable
Rate Group
by Aggregate
Aggregate Principal Number of
Loan Purpose Principal Balance Balance Mortgage Loans
- - - ------------ ----------------- ------- --------------
$ %
------- ---- -------
Total..................... $ %
======= ==== =======
Distribution of Occupancy Status
% of Adjustable
Rate Group
by Aggregate
Aggregate Principal Number of
Owner Occupancy Principal Balance Balance Mortgage Loans
- - - --------------- ----------------- ------- --------------
$ %
------- ---- -------
Total..................... $ %
======= ==== =======
S-32
<PAGE>
Distribution of Property Types
% of Adjustable
Rate Group
by Aggregate
Aggregate Principal Number of
Property Type Principal Balance Balance Mortgage Loans
- - - ------------- ----------------- ------- --------------
Single Family Residence....... $ %
2 to 4 Family.................
Planned Unit Development......
Condominium ------- ---- -------
Total..................... $ %
======= ==== =======
S-33
<PAGE>
Geographical Distribution
% of Adjustable
Rate Group
by Aggregate
Aggregate Principal Number of
Geographical Distribution Principal Balance Balance Mortgage Loans
- - - ------------------------- ----------------- ------- --------------
$ %
------- ---- -------
Total..................... $ %
======= ==== =======
S-34
<PAGE>
Calendar Year of Origination
% of Adjustable
Rate Group
by Aggregate
Aggregate Principal Number of
Calendar Year Principal Balance Balance Mortgage Loans
- - - ------------- ----------------- ------- --------------
$ %
------- ---- -------
Total..................... $ %
======= ==== =======
Loan-to-Value Ratios at Origination
% of Adjustable
Rate Group
by Aggregate
Aggregate Principal Number of
Combined Loan-to Value Ratios Principal Balance Balance Mortgage Loans
- - - ----------------------------- ----------------- ------- --------------
$ %
------- ---- -------
Total..................... $ %
======= ==== =======
S-35
<PAGE>
Margins
% of Adjustable
Rate Group
by Aggregate
Aggregate Principal Number of
Distribution of Margins Principal Balance Balance Mortgage Loans
- - - ----------------------- ----------------- ------- --------------
$ %
------- ---- -------
Total..................... $ %
======= ==== =======
S-36
<PAGE>
Maximum Mortgage Rates
% of Adjustable
Rate Group
by Aggregate
Distribution of Aggregate Principal Number of
Maximum Mortgage Rates Principal Balance Balance Mortgage Loans
- - - ---------------------- ----------------- ------- --------------
$ %
------- ---- -------
Total..................... $ %
======= ==== =======
S-37
<PAGE>
Next Rate Change Dates
% of Adjustable
Rate Group
by Aggregate
Aggregate Principal Number of
Next Mortgage Rate Change Principal Balance Balance Mortgage Loans
- - - ------------------------- ----------------- ------- --------------
$ %
------- ---- -------
Total..................... $ %
======= ==== =======
S-38
<PAGE>
Interest Payments on the Mortgage Loans
_____% and _____% of the Mortgage Loans in the Fixed Rate Group and the
Adjustable Rate Group, respectively, are mortgage loans on which interest is
charged to the obligor (the "Mortgagor") at the interest rate on the outstanding
principal balance calculated based on the number of days elapsed between receipt
of the Mortgagor's last payment through receipt of the Mortgagor's most current
payment (such Mortgage Loans, "Simple Interest Loans"). Such interest is
deducted from the Mortgagor's payment amount and the remainder, if any, of the
payment is applied as a reduction to the outstanding principal balance of such
Note. Although the Mortgagors of these Simple Interest Loans generally are
required to remit equal monthly payments on a specified monthly payment date
that would reduce the outstanding principal balance of such Note to zero at such
Note's maturity date (or with respect to Mortgage Loans containing "balloon"
payments, reduce the principal balance of such Mortgage Loan to a pre-determined
remaining principal balance), payments that are made by the Mortgagors after the
due date therefor would cause the outstanding principal balance of such Note not
to be reduced to zero on its maturity date. In such a case, the Mortgagor would
be required to make an additional principal payment at the maturity date for
such Note. If it were assumed that all the Mortgagors on the Simple Interest
Loans were to pay on the latest date possible without the Simple Interest Loans
being in default, the amount of such additional principal payment would be a de
minimis amount of the aggregate Loan Balance of the Mortgage Loans. On the other
hand, if a Mortgagor makes a payment (other than a Prepayment) before the due
date therefor, the reduction in the outstanding principal balance of such
Mortgage Note would occur over a shorter period of time than would have occurred
had it been based on the schedule of amortization in effect on the Cut-off Date.
Accordingly, the timing of principal payments to the Class A Certificates may be
affected by the fact that actual Mortgagor payments may not be made on the due
date therefor.
_____% and _____% of the Mortgage Loans in the Fixed Rate Group and the
Adjustable Rate Group, respectively, are not Simple Interest Loans (such
Mortgage Loans, the "Actuarial Loans"). The Actuarial Loans provide that
interest is charged to the Mortgagors thereunder, and payments are due from such
Mortgagors, as of a scheduled day of each month which is fixed at the time of
origination. Scheduled monthly payments made by the Mortgagors on the Actuarial
Loans either earlier or later than the scheduled due dates thereof will not
affect the amortization schedule or the relative application of such payments to
principal and interest. With respect to the Actuarial Loans, payments due other
than on the first day of a month are deemed to be due on the first day of the
month for all purposes herein, including determining the Original Pool Principal
Balance and servicing of such Mortgage Loans.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
The rate of principal payments on the Class A Certificates, the
aggregate amount of each interest payment on the Class A Certificates and the
yield to maturity of the Class A Certificates are related to the rate and timing
of payments of principal on the Mortgage Loans, which may be in the form of
scheduled and unscheduled payments. In general, when the level of prevailing
interest rates for similar loans significantly declines, the rate of prepayment
is likely to increase, although the prepayment rate is influenced by a number of
other factors, including those discussed below. Generally, defaults on mortgage
loans are expected to occur with greater frequency in their early years. The
rate of default on second mortgage loans may be greater than that of mortgage
loans secured by first liens on comparable properties. Prepayments, liquidations
and purchases of the Mortgage Loans will result in distributions to the related
Class A Certificateholders of amounts of principal which would otherwise be
distributed over the remaining terms of the Mortgage Loans in the Trust Fund.
The Class R Optionholder may purchase from the Trust Fund, and the Trustee has
the obligation to conduct an auction for, all of the outstanding Mortgage Loans,
and thus effect the early retirement of the Class A Certificates, following the
Optional Termination Date. In addition, the Master Servicer may purchase from
the Trust Fund all of the outstanding Mortgage Loans, and thus effect the early
retirement of the Class A Certificates, after the aggregate Loan Balance of the
Mortgage Loans in the Trust Fund has declined to less than 5% of the Original
Pool Principal Balance. See "THE POOLING AND SERVICING AGREEMENT--Termination;
Retirement of the Certificates" and "--Termination Auction" herein.
The actual rate of principal prepayments on pools of mortgage loans is
influenced by a variety of economic, tax, geographic, demographic, social, legal
and other factors and has fluctuated considerably in recent years. In addition,
the rate of principal prepayments may differ among pools of mortgage loans at
any time because of specific factors relating to the mortgage loans in the
particular pool, including, among other things, the age of the
S-39
<PAGE>
mortgage loans, the geographic locations of the properties securing the loans
and the extent of the mortgagors' equity in such properties, and changes in the
mortgagors' housing needs, job transfers and unemployment.
As with fixed rate obligations generally, the rate of prepayment on a
pool of mortgage loans with fixed rates such as the Mortgage Loans in the Fixed
Rate Group is affected by prevailing market rates for mortgage loans of a
comparable term and risk level. When the market interest rate is below the
mortgage coupon, mortgagors may have an increased incentive to refinance their
mortgage loans. Depending on prevailing market rates, the future outlook for
market rates and economic conditions generally, some mortgagors may sell or
refinance mortgaged properties in order to realize their equity in the mortgaged
properties, to meet cash flow needs or to make other investments. As of the
Cut-off Date, _____% of the Mortgage Loans in the Fixed Rate Group (by Original
Loan Group Balance of the Fixed Rate Group) provided for prepayment penalties.
All of the Mortgage Loans in the Adjustable Rate Group will be
adjustable-rate mortgage loans. As is the case with conventional fixed-rate
mortgage loans, adjustable-rate mortgage loans may be subject to a greater rate
of principal prepayments in a declining interest rate environment. For example,
if prevailing interest rates fall significantly, adjustable-rate mortgage loans
could be subject to higher prepayment rates than if prevailing interest rates
remain constant, because the availability of fixed-rate mortgage loans at
competitive interest rates may encourage mortgagors to refinance their
adjustable-rate mortgage loan to "lock in" a lower fixed interest rate. However,
no assurance can be given as to the level of prepayments that the Mortgage Loans
will experience. _____% of the Mortgage Loans in the Adjustable Rate Group (by
Original Loan Group Balance of the Adjustable Rate Group) provided for
prepayment penalties.
In addition to the foregoing factors affecting the weighted average life
of each Class of the Class A Certificates, the overcollateralization provisions
and crosscollateralization provisions of the Trust Fund will result in a limited
acceleration of the Class A Certificates relative to the amortization of the
Mortgage Loans in the early months of the transaction. The accelerated
amortization is achieved by the application of certain excess interest and
principal to the payment of the Class A Certificate Principal Balance. Once the
required level of overcollateralization is reached, the acceleration feature
will cease, unless necessary to maintain the required level of
overcollateralization.
The Final Scheduled Distribution Dates for the Class A Certificates are
as follows:
Final Scheduled
Distribution Date
-----------------
Class A-1 Certificates............... _____________
Class A-2 Certificates............... _____________
Class A-3 Certificates............... _____________
Class A-4 Certificates............... _____________
Class A-5 Certificates............... _____________
Class A-6 Certificates............... _____________
Class A-7 Certificates............... _____________
Class A-8 Certificates............... _____________
The Final Scheduled Distribution Date for each Class of Class A
Certificates is the date on which the Initial Class Certificate Balance set
forth on the cover page hereof for such Class would be reduced to zero on
account of distribution of principal, assuming that no prepayments are received
on the Mortgage Loans, that monthly payments of principal and interest on each
of the Mortgage Loans are timely received in order to amortize each such
Mortgage Loan in accordance with its terms, using the mortgage loan
characteristics set forth on page S-__ and that no Net Monthly Excess Cashflow
will be used to make accelerated payments of principal (i.e., Subordination
Increase Amounts) to the holders of the Class A Certificates.
The weighted average life of each Class of the Class A Certificates is
likely to be shorter than would be the case if payments actually made on the
Mortgage Loans conformed to the foregoing assumptions and the date on which the
final payment on any Class of Class A Certificates could occur is significantly
earlier than its respective
S-40
<PAGE>
Final Scheduled Distribution Date, because, among other things, (i) prepayments
are likely to occur, (ii) defective Mortgage Loans may be purchased or
substituted from the Trust Fund under certain circumstances described herein,
(iii) Net Monthly Excess Cash Flow may be used to make accelerated payments of
principal to holders of the Class A Certificates and (iv) the Class R
Optionholder, the Master Servicer or the Trustee may cause the early termination
of the Trust Fund on or after the dates specified herein.
The "weighted average life" of a Class A Certificate refers to the
average amount of time that will elapse from the date of issuance to the date
each dollar in respect of principal of such Class A Certificate is repaid. The
weighted average life of the Class A Certificates will be influenced by, among
other factors, the rate at which principal payments are made on the Mortgage
Loans in the Related Loan Group.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model for the Fixed Rate Loans used in this
Prospectus Supplement is the prepayment assumption (the "Prepayment
Assumption"), which represents an assumed rate of prepayment each month relative
to the then outstanding loan balance of the pool of Mortgage Loans for the life
of such Mortgage Loans. For the Group 1 Certificates, a 100% Prepayment
Assumption assumes a constant prepayment rate ("CPR") of 3% per annum of the
outstanding Loan Balance of the Mortgage Loans in the Fixed Rate Group in the
first month of the life of such Mortgage Loans, an additional 1.55% per annum
(precisely 17/11% per annum) in each month thereafter until the twelfth month
and beginning in the twelfth month and in each month thereafter during the life
of such Mortgage Loans, a CPR of 20% per annum. For the Group 2 Certificates,
prepayments on the Mortgage Loans in the Adjustable Rate Group are modeled
assuming a specified CPR percentage. As used in the table below, 0% Prepayment
Assumption assumes a prepayment rate equal to 0% of the Prepayment Assumption
(i.e., no prepayments). Correspondingly, 150% Prepayment Assumption assumes
prepayment rates equal to 150% of the Prepayment Assumption, and so forth. The
Prepayment Assumption does not purport to be a historical description of
prepayment experience or a prediction of the anticipated rate of prepayment of
any pool of mortgage loans, including the Mortgage Loans. The Depositor believes
that no existing statistics of which it is aware provide a reliable basis for
holders of the Class A Certificates to predict the amount or the timing of
receipt of prepayments on the Mortgage Loans.
Since the tables were prepared on the basis of the assumptions in the
following paragraph, there are discrepancies between characteristics of the
actual Mortgage Loans and the characteristics of the Mortgage Loans assumed in
preparing the tables. Any such discrepancy may have an effect upon the
percentages of the Class Certificate Balances outstanding and weighted average
lives of the Class A Certificates set forth in the tables. In addition, since
the actual Mortgage Loans in the Trust Fund will have characteristics which
differ from those assumed in preparing the tables set forth below, distributions
of principal on the Class A Certificates may be made earlier or later than as
indicated in the tables. For example, it is very unlikely that the Mortgage
Loans in the Fixed Rate Group will prepay at the rates assumed by any level of
the Prepayment Assumption until maturity or that all of the Mortgage Loans in
the Adjustable Rate Group will prepay at a constant rate until maturity.
Moreover, the diverse remaining terms to maturity of the Mortgage Loans could
produce slower or faster principal distributions than indicated in the tables
relating to the percentage of the Initial Class Certificate Balance outstanding
for each of the Class A Certificates at the various constant percentages of the
Prepayment Assumption specified therein, even if the weighted average remaining
term to maturity of the Mortgage Loans is as assumed. Any difference between
such assumptions and the actual characteristics and performance of the Mortgage
Loans, or actual prepayment or loss experience, will affect the percentages of
original Class Certificate Balances outstanding over time and the weighted
average lives of the Class A Certificates.
The tables set forth below have been prepared on the basis of certain
assumptions, including the assumptions that:
(i) the Mortgage Loans consist of synthetic mortgage loans having the
characteristics set forth in the second and third tables below,
(ii) the Closing Date is _______, ____,
(iii) distributions on the Certificates are made on the 25th day of
each month regardless of the day on which the Distribution Date
actually occurs, commencing in ______ 199_, in accordance with
the priorities described herein,
S-41
<PAGE>
(iv) all prepayments are prepayments in full and include 30 days'
interest thereon,
(v) no early termination of the Trust Fund occurs, unless specifically
stated therein,
(vi) the "Specified Subordinated Amounts" (as defined under "CREDIT
ENHANCEMENT--Overcollateralization Provisions") are set initially
as specified by the Certificate Insurer, and thereafter decrease
as permitted by the Certificate Insurer,
(vii) no Mortgage Loan is ever delinquent,
(viii) the assumed levels of One-Month LIBOR, Six-Month LIBOR, One-Year
CMT and Three-Year CMT are _____% per annum, _____% per annum,
_____% per annum and _____% per annum, respectively,
(ix) the initial Class Certificate Balance and Pass-Through Rate of
each Class of Certificates are as set forth on the cover page
hereof or described herein,
(x) the Mortgage Rate for each Mortgage Loan in the Adjustable Rate
Group is adjusted on its next rate adjustment date (and on
subsequent rate adjustment dates, if necessary) to equal the sum
of (a) the assumed constant level of the applicable Mortgage
Index and (b) the respective gross margin (such sum being subject
to the applicable periodic adjustment cap, maximum interest rate
and minimum interest rate (which minimum interest rate will
generally equal the initial coupon)), and
(xi) all Mortgage Loans pay on their respective due dates in
accordance with their respective terms.
Prepayment Scenarios
<TABLE>
<CAPTION>
Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5 Scenario 6
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Fixed Rate Group(1)......... ___% ___% ___% ___% ___% ___%
Adjustable Rate Group(2).... ___% ___% ___% ___% ___% ___%
- - - -----------------
<FN>
(1) As a percentage of the Prepayment Assumption.
(2) CPR.
</FN>
</TABLE>
Fixed Rate Group
Remaining Original Balloon
Outstanding Gross Term Term Term
Balance ($) Coupon (%) (in months) (in months) (in months)
----------- ---------- ----------- ----------- -----------
S-42
<PAGE>
Adjustable Rate Group
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial
Gross Periodic Periodic
Gross Remaining Original Balloon Gross Lifetime Adjustment Adjustment Months to
Outstanding Coupon Term Term Term Margin Cap Cap Cap Next Rate Reset
Balance ($) (%) (in months) (in months) (in months) Index (%) (%) (%) (%) Adjustment Frequency
- - - ----------- --- ----------- ----------- ----------- ----- --- --- --- --- ---------- ---------
</TABLE>
S-43
<PAGE>
The following tables set forth the percentages of the initial principal
amount of the Class A Certificates that would be outstanding after each of the
dates shown, based on prepayment scenarios described in the table entitled
"Prepayment Scenarios". The percentages have been rounded to the nearest 1%.
Percentage of Initial Class A-1 Certificate Balance Outstanding
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Dates Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5 Scenario 6
- - - ----- ---------- ---------- ---------- ---------- ---------- ----------
Weighted Average Life (years):(1)
Weighted Average Life (years):(2)
- - - -----------------
<FN>
(1) To maturity.
(2) This assumes that the optional termination is exercised by the Class R
Optionholder on the Optional Termination Date.
</FN>
</TABLE>
The weighted average life of each indicated Class of Class A
Certificates has been determined by (i) multiplying the amount of each principal
payment by the number of years from the date of issuance to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
initial respective Class Certificate Balance for the related Class A
Certificates as of the Closing Date.
S-44
<PAGE>
Percentage of Initial Class A-2 Certificate Balance Outstanding
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Dates Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5 Scenario 6
- - - ----- ---------- ---------- ---------- ---------- ---------- ----------
Weighted Average Life (years):(1)
Weighted Average Life (years):(2)
- - - -----------------
<FN>
(1) To maturity.
(2) This assumes that either the optional termination is exercised by the
Class R Optionholder on the Optional Termination Date.
</FN>
</TABLE>
The weighted average life of each indicated Class of Class A
Certificates has been determined by (i) multiplying the amount of each principal
payment by the number of years from the date of issuance to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
initial respective Class Certificate Balance for the related Class A
Certificates as of the Closing Date.
S-45
<PAGE>
Percentage of Initial Class A-3 Certificate Balance Outstanding
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Dates Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5 Scenario 6
- - - ----- ---------- ---------- ---------- ---------- ---------- ----------
Weighted Average Life (years):(1)
Weighted Average Life (years):(2)
- - - ---------------
<FN>
(1) To maturity.
(2) This assumes that the optional termination is exercised by the Class R
Optionholder on the Optional Termination Date.
</FN>
</TABLE>
The weighted average life of each indicated Class of Class A
Certificates has been determined by (i) multiplying the amount of each principal
payment by the number of years from the date of issuance to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
initial respective Class Certificate Balance for the related Class A
Certificates as of the Closing Date.
S-46
<PAGE>
Percentage of Initial Class A-4 Certificate Balance Outstanding
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Dates Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5 Scenario 6
- - - ----- ---------- ---------- ---------- ---------- ---------- ----------
Weighted Average Life (years):(1)
Weighted Average Life (years):(2)
- - - ---------------
<FN>
(1) To maturity.
(2) This assumes that the optional termination is exercised by the Class R
Optionholder on the Optional Termination Date.
</FN>
</TABLE>
The weighted average life of each indicated Class of Class A
Certificates has been determined by (i) multiplying the amount of each principal
payment by the number of years from the date of issuance to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
initial respective Class Certificate Balance for the related Class A
Certificates as of the Closing Date.
S-47
<PAGE>
Percentage of Initial Class A-5 Certificate Balance Outstanding
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Dates Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5 Scenario 6
- - - ----- ---------- ---------- ---------- ---------- ---------- ----------
Weighted Average Life (years):(1)
Weighted Average Life (years):(2)
- - - ---------------
<FN>
(1) To maturity.
(2) This assumes that the optional termination is exercised by the Class R
Optionholder on the Optional Termination Date.
</FN>
</TABLE>
The weighted average life of each indicated Class of Class A
Certificates has been determined by (i) multiplying the amount of each principal
payment by the number of years from the date of issuance to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
initial respective Class Certificate Balance for the related Class A
Certificates as of the Closing Date.
S-49
<PAGE>
Percentage of Initial Class A-6 Certificate Balance Outstanding
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Dates Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5 Scenario 6
- - - ----- ---------- ---------- ---------- ---------- ---------- ----------
Weighted Average Life (years):(1)
Weighted Average Life (years):(2)
- - - ---------------
<FN>
(1) To maturity.
(2) This assumes that the optional termination is exercised by the Class R
Optionholder on the Optional Termination Date.
</FN>
</TABLE>
The weighted average life of each indicated Class of Class A
Certificates has been determined by (i) multiplying the amount of each principal
payment by the number of years from the date of issuance to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
initial respective Class Certificate Balance for the related Class A
Certificates as of the Closing Date.
S-49
<PAGE>
Percentage of Initial Class A-7 Certificate Balance Outstanding
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Dates Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5 Scenario 6
- - - ----- ---------- ---------- ---------- ---------- ---------- ----------
Weighted Average Life (years):(1)
Weighted Average Life (years):(2)
- - - ---------------
<FN>
(1) To maturity.
(2) This assumes that the optional termination is exercised by the Class R
Optionholder on the Optional Termination Date.
</FN>
</TABLE>
The weighted average life of each indicated Class of Class A
Certificates has been determined by (i) multiplying the amount of each principal
payment by the number of years from the date of issuance to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
initial respective Class Certificate Balance for the related Class A
Certificates as of the Closing Date.
S-50
<PAGE>
Percentage of Initial Class A-8 Certificate Balance Outstanding
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Dates Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5 Scenario 6
- - - ----- ---------- ---------- ---------- ---------- ---------- ----------
Weighted Average Life (years):(1)
Weighted Average Life (years):(2)
- - - ---------------
<FN>
(1) To maturity.
(2) This assumes that the optional termination is exercised by the Class R
Optionholder on the Optional Termination Date.
</FN>
</TABLE>
The weighted average life of each indicated Class of Class A
Certificates has been determined by (i) multiplying the amount of each principal
payment by the number of years from the date of issuance to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by the
initial respective Class Certificate Balance for the related Class A
Certificates as of the Closing Date.
S-51
<PAGE>
Payment Lag Feature of Certain Certificates
Pursuant to the Pooling and Servicing Agreement, interest on the Group 1
Certificates and the Class A-8 Certificates accrues during the calendar month
immediately preceding the month in which the related Distribution Date occurs.
Distribution Dates occur on the 25th day of each month (or, if such day is not a
Business Day, on the next Business Day) commencing in ______ 199_. Thus, the
effective yield to the holders of such Certificates will be below that otherwise
produced by the related Pass-Through Rate because distributions to holders of
such Certificates in respect of any given month will not be made until on or
after the 25th day of the following month.
THE DEPOSITOR, THE SELLER AND THE MASTER SERVICER
For a general discussion of the Depositor, the Seller and the Master
Servicer, see "THE DEPOSITOR", "THE SELLER" and "THE MASTER SERVICER" in the
Prospectus. The Master Servicer does not currently perform primary servicing for
mortgage loans. Initially, primary servicing of the Mortgage Loans will be
provided by CSC pursuant to a sub-servicing agreement with the Master Servicer.
See "COMPANION SERVICING COMPANY, L.L.C." herein.
COMPANION SERVICING COMPANY, L.L.C.
General
Companion Servicing Company, L.L.C. ("CSC"), a Georgia limited liability
company, was formed on August 14, 1996 under the laws of the State of Georgia.
CSC was formed essentially from the servicing fixed assets and servicing
employees of NF Investments, Inc. CSC is 50% owned by NCS Mortgage Services,
L.L.C. and 50% by W.D. Everitt, Jr., a Georgia resident. H&R Block, Inc., the
parent of the Master Servicer, owns 40% of NCS Mortgage Services, L.L.C. CSC
will subservice the Mortgage Loans pursuant to a sub-servicing agreement with
the Master Servicer. CSC is a FNMA/FHLMC approved seller/servicer which is
actively engaged in the servicing of various financial instruments, including
first and second lien mortgage loans. CSC services several securitized and whole
loan portfolios comprised of single-family mortgage products. CSC's corporate
offices are located at 1669 Phoenix Parkway, Suite 100, Atlanta, Georgia 30349.
CSC commenced mortgage servicing operations in 1996 and since then has managed
and serviced third-party mortgage loan portfolios.
The information contained herein with regard to CSC has been provided to
the Depositor or compiled from information provided to the Depositor by CSC.
None of the Depositor, the Trustee, the Master Servicer, the Certificate Insurer
or any of their respective affiliates has made any independent investigation of
such information or has made or will make any representation as to the accuracy
or completeness of such information.
Delinquency and Loss Experience
The following tables set forth, as of December 31, 199_ and 199_ and as
of _________, 199_ and 199_, certain information relating to the delinquency
experience (including foreclosures in progress and bankruptcies) of one- to
four-family residential mortgage loans included in CSC's servicing portfolio of
non-conforming mortgage loans originated under the guidelines described in "THE
PRIMARY ASSET PROGRAM--Underwriting Procedures" in the Prospectus (which
portfolio does not include mortgage loans that are subserviced for persons other
than the Master Servicer) at the end of the indicated periods. CSC did not
service any such mortgage loans prior to 1996. Prior to mid-1997, CSC serviced
loans in the name of NF Investments, Inc. Accordingly, previously reported
statistics for NF Investments, Inc. have been presented as historical data for
CSC. The indicated periods of delinquency are based on the number of days past
due on a contractual basis. No mortgage loan is considered delinquent for these
purposes until it is one month past due on a contractual basis.
S-52
<PAGE>
<TABLE>
<CAPTION>
Delinquencies and Foreclosures
(Dollars in thousands)
At December 31, 199_ At December 31, 199_
-------------------------------------- --------------------------------------
By Percent Percent By Percent Percent
By No. Dollar by No. by Dollar By No. Dollar by No. by Dollar
Of Loans Amount of Loans Amount Of Loans Amount of Loans Amount
-------- ------ -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Portfolio... $ N/A N/A $ N/A N/A
===== ======== === === ===== ======== === ===
Period of
Delinquency
31-59 Days...... % % % %
60-89 Days......
90 Days or more.
-- --- ---- ---- --- ------- ---- ----
Total Delinquent
Loans ............ $ % % $ % %
== ======== ===== ===== === ======== ===== =====
Loans in
Foreclosure (1)... $ % % $ % %
== ======== ===== ===== === ======== ===== =====
At ________, 199_ At ________, 199_
-------------------------------------- --------------------------------------
By Percent Percent By Percent Percent
By No. Dollar by No. by Dollar By No. Dollar by No. by Dollar
Of Loans Amount of Loans Amount Of Loans Amount of Loans Amount
-------- ------ -------- ------ -------- ------ -------- ------
Total Portfolio...
======== ====== ======== ====== ======== ====== ======== ======
Period of
Delinquency
31-59 Days......
60-89 Days......
90 Days or more. -------- ------ -------- ------ -------- ------ -------- ------
Total Delinquent
Loans............ ======== ====== ======== ====== ======== ====== ======== ======
Loans in
Foreclosure (1).. ======== ====== ======== ====== ======== ====== ======== ======
- - - ---------------
<FN>
(1) Loans in Foreclosure are also included under the heading "Total Delinquent Loans".
</FN>
</TABLE>
Real Estate Owned
(Dollars in Thousands)
At December 31, 1996 At December 31, 1997
-------------------- --------------------
By No. By By No. By
of Loans Dollar Amount of Loans Dollar Amount
-------- ------------- -------- -------------
Total Portfolio $ $
Foreclosed Loans(1) $ $
Foreclosure Ratio(2) % % % %
Real Estate Owned
(Dollars in Thousands)
At ________, 199_ At ________, 199_
-------------------- --------------------
By No. By By No. By
of Loans Dollar Amount of Loans Dollar Amount
-------- ------------- -------- -------------
Total Portfolio
Foreclosed Loans(1)
Foreclosure Ratio(2)
- - - ---------------
(1) For the purposes of these tables, Foreclosed Loans means the principal
balance of mortgage loans secured by mortgaged properties the title to
which has been acquired by CSC, by investors or by an insurer following
foreclosure or delivery of a deed in lieu of foreclosure.
(2) The Foreclosure Ratio is equal to the aggregate principal balance or
number of Foreclosed Loans divided by the aggregate principal balance or
number, as applicable, of mortgage loans in the Total Portfolio at the
end of the indicated period.
S-53
<PAGE>
Loan Loss Experience on CSC's
Servicing Portfolio of Mortgage Loans
(Dollars in thousands)
Year Ended Year Ended
December 31, 199_ December 31, 199_
----------------- -----------------
Total Portfolio(1) $ $
Gross Losses(2)
Recoveries(3)
------ --------
Net Losses(4) $ $
====== ========
Net Losses as a Percentage of
Total Portfolio
Three Months Ended Three Months Ended
At ________, 199_ At ________, 199_
----------------- -----------------
Total Portfolio(1)
Gross Losses(2)
Recoveries(3)
Net Losses(4)
Net Losses as a Percentage of
Total Portfolio
- - - ---------------
(1) "Total Portfolio" on the date stated above is the aggregate principal
balance of the mortgage loans outstanding on the last day of the period.
(2) "Gross Losses" are actual losses incurred on liquidated properties for
each respective period. Losses are calculated after repayment of all
principal, foreclosure costs and accrued interest to the date of
liquidation.
(3) "Recoveries" are recoveries from liquidation proceeds and deficiency
judgments.
(4) "Net Losses" means Gross Losses minus Recoveries.
It is unlikely that the delinquency experience of the Mortgage Loans
comprising the Mortgage Pool will correspond to the delinquency experience of
CSC's mortgage portfolio set forth in the foregoing tables. The statistics shown
above represent the delinquency experience for CSC's mortgage servicing
portfolio only for the periods presented, whereas the aggregate delinquency
experience on the Mortgage Loans comprising the Mortgage Pool will depend on the
results obtained over the life of the Mortgage Pool. There can be no assurance
that the Mortgage Loans comprising the Mortgage Pool will perform in a manner
consistent with the delinquency or foreclosure experience described herein. It
should be noted that if the residential real estate market should experience an
overall decline in property values, the actual rates of delinquencies and
foreclosures could be higher than those previously experienced by CSC. In
addition, adverse economic conditions may affect the timely payment by
Mortgagors of scheduled payments of principal and interest on the Mortgage Loans
and, accordingly, the actual rates of delinquencies and foreclosures with
respect to the Mortgage Pool.
FORMATION OF THE TRUST FUND AND TRUST PROPERTY
The Trust Fund will be created and established pursuant to the Pooling
and Servicing Agreement on the Closing Date. On such date, the Seller will
convey the Mortgage Loans to the Depositor without recourse (except as otherwise
provided herein), the Depositor will convey the Mortgage Loans to the Trust Fund
without recourse and the Trust Fund will issue the Class A Certificates and the
Class R Certificates.
The property of the Trust Fund will include (a) the Mortgage Loans
(other than scheduled monthly payments due on the Actuarial Loans on or before
the Cut-off Date) together with the related Mortgage Loan documents and the
Seller's and Depositor's interest in any Mortgaged Property which secures a
Mortgage Loan and all payments thereon and proceeds of the conversion, voluntary
or involuntary, of the foregoing, (b) such amounts as may be held by the Trustee
in the Distribution Account and such amounts as may be held by the Master
Servicer in
S-54
<PAGE>
the name of the Trustee in the Collection Account, in each case exclusive of
investment earnings thereon (except as otherwise provided) whether in the form
of cash, instruments, securities or other properties, (c) the Certificate
Insurance Policies and (d) proceeds of all the foregoing (including, but not by
way of limitation, all proceeds of any hazard insurance and title insurance
policies relating to the Mortgage Loans, cash proceeds, accounts, accounts
receivable, notes, drafts, acceptances, chattel paper, checks, deposit accounts,
rights to payment of any and every kind, and other forms of obligations and
receivables which at any time constitute all, part of or are included in the
proceeds of, any of the foregoing) to pay the Certificates as specified in the
Pooling and Servicing Agreement (collectively, the "Trust Fund").
The Class A Certificates will not represent an interest in or an
obligation of, nor will the Mortgage Loans be guaranteed or insured by, the
Depositor, the Seller, the Master Servicer, the Trustee or any of their
affiliates.
For federal income tax purposes, an election will be made to treat the
Trust as a REMIC. The assets of the REMIC will generally consist of the Mortgage
Loans.
Prior to its formation the Trust Fund will have had no assets or
obligations. Upon formation, the Trust Fund will not engage in any business
activity other than acquiring, holding and collecting payments on the Mortgage
Loans and other property of the Trust Fund, issuing the Certificates and
distributing payments thereon. To the extent that borrowers make scheduled
payments under the Mortgage Loans, the Trust Fund will have sufficient liquidity
to make distributions on the Certificates. As the Trust Fund does not have any
operating history and will not engage in any business activity other than
issuing the Certificates and making distributions thereon, there has not been
included any historical or pro forma ratio of earnings to fixed charges with
respect to the Trust Fund.
DESCRIPTION OF THE CERTIFICATES
General
The Block Mortgage Finance Asset Backed Certificates, Series 199_-_ (the
"Certificates") will consist of (i) the Class A-1, Class A-2, Class A-3, Class
A-4, Class A-5, and Class A-6 Certificates (the "Group 1 Certificates"), (ii)
the Class A-7 Certificates and Class A-8 Certificates (the "Group 2
Certificates"; the Group 2 Certificates and the Group 1 Certificates
collectively are referred to as the "Class A Certificates") and (iii) the Class
R Certificates (the "Class R Certificates"). Only the Class A Certificates are
offered hereby.
The following summary describes certain terms of the Class A
Certificates and the Pooling and Servicing Agreement. Reference is made to the
accompanying Prospectus for important additional information regarding the terms
of the Class A Certificates and the underlying documents. A form of the Pooling
and Servicing Agreement has been filed as an exhibit to the Registration
Statement of which the Prospectus forms a part. The summary does not purport to
be complete and is subject to, and is qualified in its entirety by reference to,
the provisions of the Certificates and the Pooling and Servicing Agreement.
Where particular provisions or terms used in any of such documents are referred
to, the actual provisions (including definitions of terms) are incorporated by
reference as part of such summary.
Investment of Amounts on Deposit in the Collection Account
The Master Servicer will establish and maintain on behalf of the Trustee
an account (the "Collection Account") for the benefit of the holders of the
Certificates (the "Certificateholders") and the Certificate Insurer. The
Collection Account will be an Eligible Account. Amounts deposited in the
Collection Account may be invested in Permitted Investments maturing no later
than one Business Day prior to the related Monthly Remittance Date. "Permitted
Investments" are
(a) Direct general obligations of, or obligations fully and
unconditionally guaranteed as to the timely payment of principal and
interest by, the United States or any agency or instrumentality thereof,
provided such obligations are backed by the full faith and credit of the
United States, Federal Housing Administration debentures, FHLMC senior
debt obligations and FNMA senior debt obligations, but
S-55
<PAGE>
excluding any of such securities whose terms do not provide for payment
of a fixed dollar amount upon maturity or call for redemption;
(b) Consolidated senior debt obligations of any Federal Home Loan
Banks;
(c) Federal funds, certificates of deposit, time deposits and
bankers' acceptances (having original maturities of not more than 365
days) of any domestic bank, the short-term debt obligations of which
have been rated ___ or better by ___ and ___ or better by _______;
(d) Deposits of any bank or savings and loan association (the
long-term deposit rating of which is_____ or better by _______ and ___
or better by ___) which has combined capital, surplus and undivided
profits of at least $50,000,000 and which deposits are insured by the
Federal Deposit Insurance Corporation ("FDIC") and held up to the limits
insured by the FDIC;
(e) Investment agreements approved by the Certificate Insurer,
subject to the limitations set forth in the Pooling and Servicing
Agreement;
(f) Repurchase agreements collateralized by securities described
in (a) above with any registered broker/dealer subject to the Securities
Investors Protection Corporation's jurisdiction and subject to
applicable limits therein promulgated by the Securities Investors
Protection Corporation or any commercial bank, if such broker/dealer or
bank has an uninsured, unsecured and unguaranteed short-term or
long-term obligation rated ___ or ___, respectively, or better by
_______ and ____ or __, respectively, or better by ___, subject to the
limitations set forth in the Pooling and Servicing Agreement;
(g) Commercial paper (having original maturities of not more than
270 days) rated in the highest short-term rating categories of ___ and
_______; and
(h) Investments in no load money market or common trust funds
rated ____ or ______ by ___ and ___ by _______;
provided that no instrument described above shall be a Permitted Investment if
(a) such instrument evidences the right to receive only interest with respect to
the obligations underlying such instrument or (b) both principal and interest
payments derived from obligations underlying such instrument and the interest
and principal payments with respect to such instrument provide a yield to
maturity greater than 120% of the yield to maturity at par of the underlying
obligations; and provided, further, that all Permitted Investments in the
Collection Account shall mature or demand or at par one Business Day prior to
the next succeeding Monthly Remittance Date and all Permitted Investments in the
Distribution Account shall mature at par one Business Day prior to the next
succeeding Distribution Date unless otherwise provided in the Pooling and
Servicing Agreement and that no instrument described hereunder may be purchased
at a price greater than par if such instrument may be prepaid or called at a
price less than its purchase price prior to stated maturity.
An "Eligible Account" is an account that is (i) maintained with a
federal or state chartered depository institution or trust company whose
short-term unsecured debt obligations at the time of any deposit therein have
the highest short-term rating by the Rating Agencies, (ii) one or more accounts
with a depository institution or trust company which accounts are fully insured
by either the Savings Association Insurance Fund ("SAIF") or the Bank Insurance
Fund ("BIF") of the FDIC and the uninsured deposits in which accounts are
otherwise secured such that, as evidenced by an opinion of counsel delivered to
the Trustee, the Certificate Insurer and to each Rating Agency, the holders of
the Certificates have a claim with respect to the funds in such account or a
perfected first priority security interest against any collateral (which shall
be limited to Permitted Investments) securing such funds that is superior to
claims of any other depositors or creditors of the depository institution or
trust company in which such account is maintained, (iii) a segregated trust
account maintained with the Trustee or an affiliate of the Trustee in its
fiduciary capacity or (iv) otherwise acceptable to the Certificate Insurer and
each Rating Agency as evidenced by a letter from the Certificate Insurer and
each Rating Agency to the Trustee, without reduction or withdrawal of their then
current ratings of the Certificates.
S-56
<PAGE>
Distribution Dates
On each Distribution Date, the holders of each Class of the Class A
Certificates will be entitled to receive, from amounts then on deposit in the
distribution account established and maintained by the Trustee in accordance
with the Pooling and Servicing Agreement (the "Distribution Account") and until
the Class Certificate Balance of such Class of Class A Certificates is reduced
to zero, the aggregate Class A Distribution Amount as of such Distribution Date,
allocated among the Classes of the Class A Certificates as described below.
Distributions will be made in immediately available funds to holders of Class A
Certificates by wire transfer, or otherwise as provided in the Pooling and
Servicing Agreement, to the account of such holders at a domestic bank or other
entity having appropriate facilities therefor, if such holders have so notified
the Trustee, or by check mailed to the address of the person entitled thereto as
it appears on the register (the "Register") maintained by the Trustee as
registrar (the "Registrar"). Certificate Owners may experience some delay in the
receipt of their payments due to the operations of DTC.
The Pooling and Servicing Agreement will provide that a
Certificateholder, upon receiving the final distribution to such
Certificateholder, will be required to send such Certificate to the Trustee. The
Pooling and Servicing Agreement additionally will provide that, in any event,
any Certificate as to which the final distribution thereon has been made shall
be deemed canceled for all purposes under or pursuant to the Pooling and
Servicing Agreement and the related Certificate Insurance Policies, except to
the extent of a Reimbursement Amount on such Certificate, in which case the
Certificate Insurer will be subrogated to the rights of such Certificateholder
and the Certificate will not be deemed canceled.
Each holder of record of the related Class of the Class A Certificates
will be entitled to receive such holder's Percentage Interest in the amounts due
such Class on such Distribution Date. The "Percentage Interest" of a Class A
Certificate as of any Distribution Date will be equal to the percentage obtained
by dividing the principal balance of such Certificate as of the related
Distribution Date (prior to giving effect to distribution of principal on such
date) by the Class Certificate Balance for the related Class of the Class A
Certificates as of the related Distribution Date (prior to giving effect to
distribution of principal on such date).
Distributions
Upon receipt, the Trustee will be required to deposit into the
Distribution Account from funds remitted by the Master Servicer (i) (a) all
payments on Simple Interest Loans (other than all Curtailments, Net Liquidation
Proceeds and Prepayments) collected during the related Due Period, (b) scheduled
monthly payments on Actuarial Loans due after the Cut-off Date, or Replacement
Cut-off Date, as applicable, and on or before the end of the related Due Period
and in the Collection Account as of the related Determination Date, (c)
Curtailments, Net Liquidation Proceeds and Prepayments collected during the
related Prepayment Period and (d) Delinquency Advances and Compensating Interest
payments made by the Master Servicer, in each case, as remitted by the Master
Servicer on the Monthly Remittance Date, but excluding in each case any amounts
that are not required to be deposited in the Collection Account pursuant to the
second paragraph under "THE POOLING AND SERVICING AGREEMENT--Servicing and
Sub-Servicing" herein together with any Substitution Adjustment and any Loan
Purchase Price amount received by the Master Servicer on the Monthly Remittance
Date (the "Monthly Remittance Amount"), (ii) any Insured Payment and (iii) the
proceeds of any liquidation of the Trust Fund.
The Pooling and Servicing Agreement establishes a pass-through rate for
each Class of the Class A Certificates (each, a "Pass-Through Rate") as set
forth herein.
On each Distribution Date, the Trustee is required to make the following
disbursements and transfers from moneys then on deposit in the Distribution
Account as specified below in the following order of priority for each such
transfer and disbursement:
(i) first, the Trustee shall allocate an amount equal to the sum of
(x) the Total Monthly Excess Spread with respect to such Loan
Group and Distribution Date plus (y) any Subordination Reduction
Amount with respect to such Loan Group and Distribution Date
(such sum being the "Total
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Monthly Excess Cashflow" with respect to such Loan Group and
Distribution Date) in the following order of priority:
(A) first, such Total Monthly Excess Cashflow shall be allocated
to the payment of the Class A Distribution Amount pursuant
to clauses (iii)(C) and (D) below on such Distribution Date
with respect to the Related Loan Group in an amount equal to
the amount, if any, by which (x) the Class A Distribution
Amount with respect to the Related Loan Group (determined
for this purpose only by reference to clause (b) of the
definition of Principal Distribution Amount and without any
Subordination Increase Amount) for such Distribution Date
exceeds (y) the Available Funds with respect to such Loan
Group for such Distribution Date (the amount of such
difference with respect to a Loan Group being an "Available
Funds Shortfall" for such Loan Group);
(B) second, any portion of the Total Monthly Excess Cashflow
with respect to such Loan Group remaining after the
application described in clause (A) above shall be allocated
against any Available Funds Shortfall with respect to the
other Loan Group;
(C) third, any portion of the Total Monthly Excess Cashflow with
respect to such Loan Group remaining after the allocations
described in clauses (A) and (B) above shall be paid to the
Certificate Insurer in respect of amounts owed on account of
any Reimbursement Amount owed to the Certificate Insurer
with respect to the Related Loan Group; and
(D) fourth, any portion of the Total Monthly Excess Cashflow
with respect to such Loan Group remaining after the
allocations described in clauses (A), (B) and (C) above
shall be paid to the Certificate Insurer in respect of any
Reimbursement Amount with respect to the other Loan Group;
(ii) second, the Trustee shall apply the amount, if any, of the Total
Monthly Excess Cashflow with respect to such Loan Group remaining
after the allocations described in clause (i) above (the "Net
Monthly Excess Cashflow") with respect to such Loan Group for
such Distribution Date in the following order of priority:
(A) first, such Net Monthly Excess Cashflow shall be used to
reduce to zero, through the allocation of a Subordination
Increase Amount to the payment of the Class A Distribution
Amount pursuant to clause (iii)(D) below, any Subordination
Deficiency Amount (as defined in the Pooling and Servicing
Agreement) with respect to such Loan Group as of such
Distribution Date;
(B) second, any Net Monthly Excess Cashflow remaining after the
application described in clause (A) above shall be used to
reduce to zero, through the allocation of a Subordination
Increase Amount pursuant to clause (iii)(D) below, the
Subordination Deficiency Amount, if any, with respect to the
other Loan Group; and
(C) third, any Net Monthly Excess Cashflow remaining after the
applications described in clauses (A) and (B) above shall be
paid to the Master Servicer to the extent of any
unreimbursed Delinquency Advances and unreimbursed Servicing
Advances; and
(iii) third, following the making by the Trustee of all allocations,
transfers and disbursements described above from amounts
(including any related Insured Payment, the proceeds of which
will be applied solely to the payment of the amount specified in
clauses (C) and (D) below) then on deposit in the Distribution
Account with respect to the Related Loan Group, the Trustee shall
distribute:
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(A) to the Certificate Insurer, for the related Certificate
Group, the prorated Insurance Premium Amount determined by
the relative Class Certificate Balance of the related
Classes of Class A Certificates for such Distribution Date;
(B) to the Trustee, the Trustee Fees (as set forth in the
Pooling and Servicing Agreement) with respect to such Loan
Group then due;
(C) to the holders of the Class A Certificates of the related
Certificate Group, the related Current Interest, on a pro
rata basis without any priority among such Class A
Certificates;
(D) to the holders of the related Class of Class A Certificates,
(I) the Principal Distribution Amount applicable to the
Fixed Rate Group shall be distributed as follows: first, to
the holders of the Class A-6 Certificates, in an amount
equal to the Class A-6 Lockout Distribution Amount, until
the Class Certificate Balance thereof is reduced to zero;
and second, to the holders of the Group 1 Certificates, in
sequential order beginning with the Class A-1 Certificates,
until the Class Certificate Balance of each Class of Group 1
Certificates is reduced to zero; and (II) the Principal
Distribution Amount applicable to the Adjustable Rate Group
shall be distributed as follows: first, to the holders of
the Class A-8 Certificates, the Class A-8 Lockout
Distribution Amount, until the Class Certificate Balance
thereof is reduced to zero; and second, to the holders of
the Group 2 Certificates in sequential order beginning with
the Class A-7 Certificates, until the Class Certificate
Balance of each Class of Group 2 Certificates is reduced to
zero;
(E) to the Class A-7 Certificates, the Basis Risk Carryover
Amount outstanding on such Distribution Date;
(F) to the holders of the related Class or Classes of Class A
Certificates, any Net Prepayment Interest Shortfalls or the
interest portion of reductions due to the Relief Act
incurred by such Class or Classes of Certificates which
remain outstanding on such Distribution Date, on a pro rata
basis among such Classes of Certificates;
(G) to the Depositor and the Master Servicer to the extent of
costs, expenses and liabilities incurred with respect to
certain legal actions, subject to the limitations set forth
in the Pooling and Servicing Agreement; and
(H) to the holders of the Class R Certificates, all remaining
distributable amounts as specified in the Pooling and
Servicing Agreement;
provided, however, that in the event of the continuance of a Certificate Insurer
Default on any Distribution Date, (i) any amounts otherwise payable to the
Certificate Insurer as Insurance Premium Amounts or Reimbursement Amounts shall
be retained in the Distribution Account as Total Available Funds, (ii) if there
is a Subordination Deficit with respect to the Fixed Rate Group, the Principal
Distribution Amount for the Group 1 Certificates will be distributed pro rata to
the holders of the Group 1 Certificates then outstanding and (iii) if there is a
Subordination Deficit with respect to the Adjustable Rate Group, the Principal
Distribution Amount for the Group 2 Certificates will be distributed pro rata to
the holders of the Group 2 Certificates then outstanding.
"Available Funds" as to any Loan Group and Distribution Date is the
amount on deposit in the Distribution Account with respect to such Loan Group on
such Distribution Date (net of Total Monthly Excess Cashflow with respect to
such Loan Group) and disregarding the amounts of any Insured Payments with
respect to such Loan Group to be made on such Distribution Date and any amounts
that cannot distributed to the holders of the Class A Certificates, if any, by
the Trustee as a result of proceedings under the United States Bankruptcy Code.
"Total Available Funds" as to any Loan Group and Distribution Date is
(x) the amount on deposit in the Distribution Account with respect to such Loan
Group (net of Total Monthly Excess Cashflow with respect to such Loan Group) on
such Distribution Date plus (y) any amounts of Total Monthly Excess Cashflow
with respect to
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either Loan Group to be applied on such Distribution Date to such Loan Group,
disregarding, in either case, the amount of any Insured Payment with respect to
either Loan Group to be made on such Distribution Date.
The Trustee shall (i) receive as attorney-in-fact of each holder of
Class A Certificates any Insured Payment from the Certificate Insurer and (ii)
disburse the same to each holder of Class A Certificates. The Pooling and
Servicing Agreement will provide that to the extent the Certificate Insurer
makes Insured Payments, either directly or indirectly (as by paying through the
Trustee), to the holders of such Class A Certificates, if any, the Certificate
Insurer will be subrogated to the rights of such holders of Class A Certificates
with respect to such Insured Payments, and shall receive reimbursement for such
Insured Payments plus any amounts due and owing the Certificate Insurer pursuant
to the terms of the Pooling and Servicing Agreement (the "Reimbursement Amount")
to the extent provided in the Pooling and Servicing Agreement, but only from the
sources and in the manner provided in the Pooling and Servicing Agreement for
the payment of the Class A Distribution Amount to holders of Class A
Certificates, if any; such subrogation and reimbursement will have no effect on
the Certificate Insurer's obligations under the related Certificate Insurance
Policies.
Each holder of a Class A Certificate will be required promptly to
notify the Trustee in writing upon the receipt of a court order relating to a
Preference Amount and will be required to enclose a copy of such order with such
notice to the Trustee.
Calculation of One-Month LIBOR
On the second LIBOR Business Day (as defined below) preceding the
commencement of each Accrual Period for the Class A-7 Certificates (each such
date, a "LIBOR Determination Date"), the Trustee will determine the London
interbank offered rate for one-month United States dollar deposits ("One-Month
LIBOR") for such Accrual Period for the Class A-7 Certificates as described
under "DESCRIPTION OF THE CERTIFICATES--Indices Applicable to Floating Rate and
Inverse Floating Rate Classes" in the Prospectus. As used herein, "LIBOR
Business Day" means any day other than (i) a Saturday or a Sunday, or (ii) a day
on which banking institutions in the City of New York, New York, or the City of
London, England are authorized or obligated by law or executive order to be
closed.
Book-Entry Certificates
The Class A Certificates will be book-entry Certificates (the
"Book-Entry Certificates"). Persons acquiring beneficial ownership interests in
the Class A Certificates ("Certificate Owners") may elect to hold their Class A
Certificates through DTC in the United States, or CEDEL or Euroclear in Europe
if they are participants of such systems, or indirectly through organizations
which are participants in such systems. The Book-Entry Certificates will be
issued in one or more certificates which equal the aggregate principal balance
of each Class of Class A Certificates and will initially be registered in the
name of Cede & Co., the nominee of DTC. CEDEL and Euroclear will hold omnibus
positions on behalf of their participants through customers' securities accounts
in CEDEL's and Euroclear's names on the books of their respective depositaries
which in turn will hold such positions in customers securities accounts in the
depositaries' names on the books of DTC. Citibank will act as depositary for
CEDEL and Chase will act as depositary for Euroclear (in such capacities,
individually the "Relevant Depositary" and collectively the "European
Depositaries"). Investors may hold such beneficial interests in the Book-Entry
certificates in minimum denominations representing Class Certificate Balances of
$25,000 and in multiples of $1,000 in excess thereof. Except as described below,
no person acquiring a Book-Entry Certificate (each, a "beneficial owner") will
be entitled to receive a physical certificate representing such Class A
Certificate (a "Definitive Certificate"). Unless and until Definitive
Certificates are issued, it is anticipated that the only "Certificateholder" of
the Class A Certificates will be Cede, as nominee of DTC. Certificate Owners
will not be Certificateholders as that term is used in the Pooling and Servicing
Agreement. Certificate Owners are only permitted to exercise their rights
indirectly through the participating organizations that utilize the services of
DTC, including securities brokers and dealers, banks and trust companies and
clearing corporations and certain other organizations ("Participants") and DTC.
See "DESCRIPTION OF THE CERTIFICATES--Registration and Transfer of the
Certificates" in the Prospectus.
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Definitive Certificates will be issued to beneficial owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if (a) DTC
or the Depositor advises the Trustee in writing that DTC is no longer willing,
qualified or able to discharge properly its responsibilities as nominee and
depositary with respect to the Book-Entry Certificates and the Depositor or the
Trustee is unable to locate a qualified successor, (b) the Depositor, at its
sole option, elects to terminate a book-entry system through DTC or (c) after
the occurrence of an Event of Default (as defined in the Pooling and Servicing
Agreement) beneficial owners having not less than 51% of the Voting Rights (as
defined in the Pooling and Servicing Agreement) evidenced by the Class A
Certificates advise the Trustee and DTC through the Participants in writing that
the continuation of a book-entry system through DTC (or a successor thereto) is
no longer in the best interests of beneficial owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and thereafter
the Trustee will recognize the holders of such Definitive Certificates as
holders of Class A Certificates under the Pooling and Servicing Agreement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures and those outlined in the Prospectus under "DESCRIPTION OF THE
CERTIFICATES--Registration and Transfer of the Certificates", in order to
facilitate transfers of Certificates among participants of DTC, CEDEL and
Euroclear, they are under no obligation to perform or continue to perform such
procedures and such procedures may be discontinued at any time.
Reports to Class A Certificateholders
On each Determination Date, the Master Servicer shall provide to the
Trustee such information as the Trustee will require, in a format as previously
specified by the Trustee, in order for the Trustee to prepare the statement
referred to below and to prepare a Notice for the Certificate Insurer, if
necessary, for the related Determination Date.
On each Distribution Date, the Trustee will forward to each Class A
Certificateholder and to the Certificate Insurer a statement generally setting
forth as to each Loan Group and as to the Trust Fund, as applicable:
(i) the amount of the related distribution to Class A
Certificateholders of such Class of Certificates allocable to
principal, separately identifying the aggregate amount of any
Prepayments included therein, any principal portion of any Carry
Forward Amount included in such distribution and any remaining
principal portion of any Carry Forward Amount after giving effect
to such distribution;
(ii) the amount of such distribution to Class A Certificateholders of
each Class of Certificates allocable to interest, any
Compensating Interest, any interest portion of any Carry Forward
Amount included in such distribution, any remaining interest
portion of any Carry Forward Amount after giving effect to such
distribution, any amount paid on account of any outstanding Basis
Risk Carryover Amount and any remaining Basis Risk Carryover
Amount after giving effect to such distribution;
(iii) the Class Certificate Balance of each Class of Class A
Certificates after giving effect to the distribution of principal
on such Distribution Date;
(iv) the aggregate Loan Balance of the Mortgage Loans in each Loan
Group for the following Distribution Date;
(v) the related amount of the Servicing Fees, Insurance Premium
Amount and Trustee Fee paid to or retained by the Master Servicer
or paid to the Certificate Insurer or the Trustee;
(vi) the Pass-Through Rate for each Class of Class A Certificates with
respect to the current Accrual Period;
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(vii) the amount of Delinquency Advances and Servicing Advances, stated
separately, included in the distribution on such Distribution
Date and the aggregate amount of Delinquency Advances and
Servicing Advances, stated separately, outstanding as of the
close of business on such Distribution Date;
(viii) the number and aggregate Loan Balance of Mortgage Loans (A)
delinquent (exclusive of Mortgage Loans in foreclosure) (1) 1 to
30 days, (2) 31 to 59 days, (3) 60 to 89 days and (4) 90 or more
days and (B) in foreclosure and delinquent (1) 1 to 30 days, (2)
31 to 59 days, (3) 60 to 89 days and (4) 90 or more days, as of
the close of business on the last day of the related Due Period
and, with respect to Actuarial Loans, not collected by the
related Determination Date;
(ix) with respect to any Mortgaged Property that became an REO
Property during the related Due Period, the loan number and Loan
Balance of the related Mortgage Loan as of the last day of the
related Due Period preceding such Distribution Date (taking into
account Curtailments, Net Liquidation Proceeds and Prepayments
collected during the related Prepayment Period, and with respect
to Actuarial Loans, amounts due on or before the last day of the
related Due Period and in the Collection Account as of the
related Determination Date);
(x) the total number and principal balance of any REO Properties as
of the last day of the related Due Period preceding such
Distribution Date (taking into account Net Liquidation Proceeds
received during the related Prepayment Period, and with respect
to Actuarial Loans, amounts due on or before the last day of the
related Due Period and in the Collection Account as of the
related Determination Date);
(xi) the amount of any Insured Payment included in the amounts
distributed to the holders of each Class of the Class A
Certificates on such Distribution Date;
(xii) the aggregate Loan Balance of all Mortgage Loans and the
aggregate Loan Balance of the Mortgage Loans in each Loan Group
after giving effect to any payment of principal on such
Distribution Date;
(xiii) the Subordinated Amount and Subordination Deficit for each Loan
Group, if any, remaining after giving effect to all distributions
and transfers on such Distribution Date;
(xiv) the total of any Substitution Adjustment or Loan Purchase Price
amounts included in such distribution with respect to each
Certificate Group;
(xv) the weighted average Mortgage Rate of the Mortgage Loans with
respect to each Loan Group;
(xvi) the largest Loan Balance outstanding in each Loan Group; and
(xvii) such other information as the Certificate Insurer may reasonably
request with respect to delinquent Mortgage Loans.
In addition, Class A Certificateholders may, by faxing a request to the
Trustee at (312) 407-1708, obtain on a quarterly basis such information as may
be required by Section 6049(d)(7)(C) of the Code and the regulations promulgated
thereunder to assist the holders of the Class A Certificates in computing their
market discount.
Certain obligations of the Trustee to provide information to the Class A
Certificateholders and the Certificate Insurer are conditioned upon such
information being received from the Master Servicer.
In addition, within a reasonable period of time after the end of each
calendar year, the Trustee will prepare and deliver to each Certificateholder of
record during the previous calendar year and the Certificate Insurer a statement
containing information necessary to enable Certificateholders to prepare their
tax returns. Such statements will not have been examined and reported upon by an
independent public accountant.
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CREDIT ENHANCEMENT
Certificate Insurance Policies
The following information and the information under "CREDIT
ENHANCEMENT--The Certificate Insurer" herein have been supplied by
__________________________ (the "Insurer") for inclusion in this Prospectus
Supplement. No representation is made by the Underwriters, the Seller, the
Master Servicer, the Depositor or any of their affiliates as to the accuracy or
completeness of such information. Terms defined herein are exclusive to this
section and "CREDIT ENHANCEMENT--The Certificate Insurer" herein.
The Insurer, in consideration of the payment of the premium and subject
to the terms of each of the Certificate Insurance Policies (each, a "Policy"),
thereby unconditionally and irrevocably guarantees to any Owner (as defined
below) that an amount equal to each full and complete Insured Payment will be
received by _________, or its successor, as trustee for the Owners (the
"Trustee") on behalf of the Owners from the Insurer, for distribution by the
Trustee to each Owner of each Owner's proportionate share of the Insured
Payment. The Insurer's obligations under the related Policy with respect to a
particular Insured Payment shall be discharged to the extent funds equal to the
applicable Insured Payment are received by the Trustee, whether or not such
funds are properly applied by the Trustee. Insured Payments shall be made only
at the time set forth in such Policy, and no accelerated Insured Payments shall
be made regardless of any acceleration of the Class A Certificates, unless such
acceleration is at the sole option of the Insurer.
Notwithstanding the foregoing paragraph, the Policies do not cover
shortfalls, if any, attributable to the liability of the Trust Fund, the REMIC
or the Trustee for withholding taxes, if any (including interest and penalties
in respect of any such liability).
The Insurer will pay any Insured Payment that is a Preference Amount on
the Business Day following receipt on a Business Day by the Fiscal Agent (as
described below) of (i) a certified copy of the order requiring the return of a
preference payment, (ii) an opinion of counsel satisfactory to the Insurer that
such order is final and not subject to appeal, (iii) an assignment in such form
as is reasonably required by the Insurer, irrevocably assigning to the Insurer
all rights and claims of the Owner relating to or arising under the Class A
Certificates against the debtor which made such preference payment or otherwise
with respect to such preference payment and (iv) appropriate instruments to
effect the appointment of the Insurer as agent for such Owner in any legal
proceeding related to such preference payment, such instruments being in a form
satisfactory to the Insurer, provided that if such documents are received after
12:00 noon New York City time on such Business Day, they will be deemed to be
received on the following Business Day. Such payments shall be disbursed to the
receiver or trustee in bankruptcy named in the final order of the court
exercising jurisdiction on behalf of the Owner and not to any Owner directly
unless such Owner has returned principal or interest paid on the Class A
Certificates to such receiver or trustee in bankruptcy, in which case such
payment shall be disbursed to such Owner.
The Insurer will pay any other amount payable under a Policy no later
than 12:00 noon, New York City time, on the later of the Distribution Date on
which the related Insured Payment is due or the second Business Day following
receipt in New York, New York on a Business Day by
___________________________________, as the Fiscal Agent for the Insurer or any
successor fiscal agent appointed by the Insurer (the "Fiscal Agent"), of a
Notice (as described below); provided that if such Notice is received after
12:00 noon, New York City time, on such Business Day, it will be deemed to be
received on the following Business Day. If any such Notice received by the
Fiscal Agent is not in proper form or is otherwise insufficient for the purpose
of making a claim under such Policy it shall be deemed not to have been received
by the Fiscal Agent for purposes of this paragraph, and the Insurer or the
Insurer's Fiscal Agent, as the case may be, shall promptly so advise the Trustee
and the Trustee may submit an amended Notice.
Insured Payments due under a Policy unless otherwise stated therein will
be disbursed by the Fiscal Agent to the Trustee on behalf of the Owners by wire
transfer of immediately available funds in the amount of the Insured Payment
less, in respect of Insured Payments related to Preference Amounts, any amount
held by the Trustee for the payment of such Insured Payment and legally
available therefor.
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The Fiscal Agent is the agent of the Insurer only and the Fiscal Agent
shall in no event be liable to Owners for any acts of the Fiscal Agent or any
failure of the Insurer to deposit, or cause to be deposited, sufficient funds to
make payments due under the Policies.
As used in the Policies, the following terms shall have the following
meanings:
"Agreement" means the Pooling and Servicing Agreement dated as of
______, 199_, among the Depositor, the Seller, the Master Servicer and the
Trustee, without regard to any amendment or supplement thereto, unless such
amendment or supplement has been approved in writing by the Insurer.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which the Insurer or banking institutions in New York City or in the city in
which the corporate trust office of the Trustee is located are authorized or
obligated by law or executive order to close.
"Insured Payments" means, with respect to the Related Loan Group and any
Distribution Date, without duplication, (A) the excess, if any, of (i) the sum
of (a) the aggregate amount of interest accrued at the related Pass-Through Rate
during the preceding Accrual Period on the Class A Certificate Principal Balance
of the related Class A Certificates (net of any Prepayment Interest Shortfall
and the interest portion of reductions due to the Relief Act), (b) the
Preference Amount as it relates to interest previously paid on each Class of the
related Class A Certificates prior to such Distribution Date, (c) the portion of
the Carry Forward Amount related to interest with respect to each Class of the
related Class A Certificates (net of any Prepayment Interest Shortfall and the
interest portion of reductions due to the Relief Act) and (d) the then existing
Subordination Deficit for the Related Loan Group, if any, over (ii) Total
Available Funds (net of the Insurance Premium Amount for the Related Loan Group)
after taking into account any Principal Distribution Amount to be actually
distributed on such Distribution Date and the cross-collateralization provisions
of the Trust Fund plus (B) an amount equal to the principal portion of the
Preference Amount with respect to the Related Loan Group.
"Notice" means the telephonic or telegraphic notice, promptly confirmed
in writing by telecopy substantially in the form of Exhibit A attached to each
Policy, the original of which is subsequently delivered by registered or
certified mail, from the Trustee specifying the Insured Payment which shall be
due and owing on the applicable Distribution Date.
"Owner" means each Owner (as defined in the Agreement) of any Class A
Certificate who, on the applicable Distribution Date, is entitled under the
terms of the Class A Certificates to payment thereunder.
"Preference Amount" means any amount previously distributed to an Owner
on the Class A Certificates that is recoverable and sought to be recovered as a
voidable preference by a trustee in bankruptcy pursuant to the United States
Bankruptcy Code (11 U.S.C.), as amended from time to time in accordance with a
final nonappealable order of a court having competent jurisdiction.
"Related Loan Group" means the Fixed Rate Group or the Adjustable Rate
Group, as the case may be.
Capitalized terms used in each Policy and not otherwise defined in the
Policy shall have the respective meanings set forth in the Agreement as of the
date of execution of the Policy, without giving effect to any subsequent
amendment or modification to the Agreement, unless such amendment or
modification has been approved in writing by the Insurer.
Any notice under each Policy or service of process on the Fiscal Agent
may be made at the address listed below for the Fiscal Agent or such other
address as the Insurer shall specify in writing to the Trustee.
The notice address of the Fiscal Agent is
__________________________________________________, Attention: Municipal
Registrar and Paying Agency, or such other address as the Fiscal Agent shall
specify in writing to the Trustee.
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Each Policy is being issued under and pursuant to and shall be construed
under, the laws of the State of New York, without giving effect to the conflict
of laws principles thereof.
The insurance provided by each Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.
Neither Policy is cancelable for any reason. The premium on each Policy
is not refundable for any reason including payment, or provision being made for
payment, prior to maturity of the Class A Certificates.
The Certificate Insurer
The Insurer is the principal operating subsidiary of _________, a
________________________________. _________ is not obligated to pay the debts of
or claims against the Insurer. The Insurer is domiciled in the State of ________
and licensed to do business in and is subject to regulation under the laws of
all 50 states, the District of Columbia, and ______________________. New York
has laws prescribing minimum capital requirements, limiting classes and
concentrations of investments and requiring approval of policy rates and forms.
State laws also regulate the amount of both the aggregate and individual risks
that may be insured, the payment of dividends by the Insurer, changes in control
and transactions among affiliates. Additionally, the Insurer is required to
maintain contingency reserves on its liabilities in certain amounts and for
certain periods of time.
The consolidated financial statements of the Insurer, a wholly owned
subsidiary of _________, and its subsidiaries as of December 31, 199_ and
December 31, 199_ and for each of the three years in the period ended December
31, 199_, prepared in accordance with generally accepted accounting principles,
included in the Annual Report on Form 10-K of _________ for the year ended
December 31, 199_ and the consolidated financial statements of the Insurer and
its subsidiaries as of ________, 199_ and for each of the three-month periods
ended ________, 199_ and ________, 199_ included in the Quarterly Report on Form
10-Q of _________ for the period ended ________, 199_, are hereby incorporated
by reference into this Prospectus Supplement and shall be deemed to be a part
hereof. Any statement contained in a document incorporated by reference herein
shall be modified or superseded for purposes of this Prospectus Supplement to
the extent that a statement contained herein or in any other subsequently filed
document which also is incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus
Supplement.
All financial statements of the Insurer and its subsidiaries included in
documents filed by _________ pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended, subsequent to the date of this
Prospectus Supplement and prior to the termination of the offering of the Class
A Certificates shall be deemed to be incorporated by reference into this
Prospectus Supplement and to be a part hereof from the respective dates of
filing such documents.
The tables below present selected financial information of the Insurer
determined in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities ("SAP") and generally accepted
accounting principles ("GAAP").
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SAP
December 31, 199_ ________, 199_
----------------- --------------
(Audited) (Unaudited)
(In millions)
Admitted Assets.................. $ $
Liabilities......................
Capital and Surplus..............
GAAP
December 31, 199_ ________, 199_
----------------- --------------
(Audited) (Unaudited)
(In millions)
Assets............................. $ $
Liabilities........................
Shareholder's Equity...............
Copies of the financial statements of the Insurer incorporated by
reference herein and copies of the Insurer's 199_ year-end audited financial
statements prepared in accordance with statutory accounting practices are
available, without charge, from the Insurer. The address of the Insurer is
__________________________________. The telephone number of the Insurer is
______________.
The Insurer does not accept any responsibility for the accuracy or
completeness of this Prospectus Supplement or any information or disclosure
contained herein, or omitted herefrom, other than with respect to the accuracy
of the information regarding the Policies and the Insurer set forth under
"CREDIT ENHANCEMENT-- Certificate Insurance Policies" and "--The Certificate
Insurer" herein. Additionally, the Insurer makes no representation regarding the
Class A Certificates or the advisability of investing in the Class A
Certificates.
_______ rates the claims paying ability of the Insurer "___".
___ rates the claims paying ability of the Insurer "___".
________________ rates the claims paying ability of the Insurer "___".
Each rating of the Insurer should be evaluated independently. The
ratings reflect the respective rating agency's current assessment of the
creditworthiness of the Insurer and its ability to pay claims on its policies of
insurance. Any further explanation as to the significance of the above ratings
may be obtained only from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the Class
A Certificates and such ratings may be subject to revision or withdrawal at any
time by the rating agencies. Any downward revision or withdrawal of any of the
above ratings may have an adverse effect on the market price of the Class A
Certificates. The Insurer does not guaranty the market price of the Class A
Certificates nor does it guaranty that the ratings on the Class A Certificates
will not be reversed or withdrawn.
Overcollateralization Provisions
Overcollateralization Resulting from Cash Flow Structure. The Pooling and
Servicing Agreement requires that, on each Distribution Date, Net Monthly Excess
Cashflow with respect to a Loan Group be applied on such Distribution Date as an
accelerated payment of principal on the related Classes of Class A Certificates
then entitled to receive distributions of principal but only to the limited
extent hereafter described. Net Monthly Excess Cashflow
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with respect to a Loan Group equals the excess of (i) the sum of (I) the excess,
if any, of (x) the sum of (a) interest (other than the interest portion of
Curtailments, Net Liquidation Proceeds and Prepayments and other than that
portion, if any, of Excess Interest required to be allocated to reimbursement of
unreimbursed Delinquency Advances with respect to Simple Interest Loans)
collected on the Simple Interest Loans in such Loan Group during the related Due
Period, plus (b) the interest portion of any Curtailments, Net Liquidation
Proceeds and Prepayments collected during the related Prepayment Period in
connection with such Loan Group, plus (c) the interest portion of scheduled
monthly payments due on the Actuarial Loans in such Loan Group after the Cut-off
Date and on or before the end of the related Due Period to the extent in the
Collection Account as of the related Determination Date, less (d) the Servicing
Fee, the Trustee Fee and the Insurance Premium Amount with respect to such Loan
Group, plus (e) any Delinquency Advances and Compensating Interest in connection
with such Loan Group over (y) the sum of the interest which accrues on the
related Classes of Class A Certificates during the related Accrual Period (such
difference, the "Total Monthly Excess Spread" with respect to such Loan Group)
and (II) the Subordination Reduction Amount with respect to such Loan Group and
such Distribution Date, over (ii) the portion of the Total Monthly Excess
Cashflow that is used to cover the amounts described in subparagraph (i) under
"DESCRIPTION OF THE CERTIFICATES--Distributions".
This has the effect of accelerating the amortization of the related
Classes of Class A Certificates then entitled to receive distributions of
principal relative to the amortization of the Mortgage Loans in the Related Loan
Group. To the extent that any Net Monthly Excess Cashflow is not so used (and is
not required to satisfy requirements with respect to the other Loan Group), the
Pooling and Servicing Agreement provides that it will be used to reimburse the
Master Servicer with respect to any amounts owing to it, or paid to the holders
of the Class R Certificates.
Pursuant to the Pooling and Servicing Agreement, each Loan Group's Net
Monthly Excess Cashflow will be applied as an accelerated payment of principal
on the Classes of Class A Certificates then entitled to receive distributions of
principal until the Subordinated Amount has increased to the level required.
"Subordinated Amount" means, with respect to each Loan Group and Distribution
Date, the excess, if any, of (x) the aggregate Loan Balances of the Mortgage
Loans in such Loan Group as of the close of business on the last day of the
related Due Period (taking into account Curtailments, Net Liquidation Proceeds
and Prepayments collected during the related Prepayment Period and, with respect
to Actuarial Loans, any scheduled monthly payments due on or before the last day
of the related Due Period and in the Collection Account as of the related
Determination Date) over (y) the related Class Certificate Balance of the Class
A Certificates as of such Distribution Date after taking into account the
payment of the Class A Distribution Amount (except for any Subordination Deficit
or Subordination Increase Amount with respect to such Loan Group, on such
Distribution Date. With respect to each Loan Group, any amount of Net Monthly
Excess Cashflow actually applied as an accelerated payment of principal is a
"Subordination Increase Amount". The required level of the Subordinated Amount
for each Loan Group with respect to a Distribution Date is the "Specified
Subordinated Amount". The Pooling and Servicing Agreement generally provides
that the Specified Subordinated Amount may, over time, decrease or increase,
subject to certain floors, caps and triggers.
In the event that the required level of the Specified Subordinated
Amount with respect to a Loan Group is permitted to decrease or "step down" on a
Distribution Date in the future, the Pooling and Servicing Agreement provides
that a portion of the principal which would otherwise be distributed to the
Class A Certificateholders on such Distribution Date may be distributed to the
holders of the Class R Certificates on such Distribution Date. This has the
effect of decelerating the amortization of Class A Certificates relative to the
amortization of the Mortgage Loans and of reducing the related Subordinated
Amount. With respect to any Loan Group and Distribution Date, the excess, if
any, of (x) the Subordinated Amount on such Distribution Date after taking into
account all distributions to be made on such Distribution Date (except for any
distributions of Subordination Reduction Amounts as described in this paragraph)
over (y) the Specified Subordinated Amount is the "Excess Subordinated Amount"
for such Loan Group and Distribution Date. If, on any Distribution Date, the
Excess Subordinated Amount is, or, after taking into account all other
distributions to be made on such Distribution Date, would be, greater than zero
(i.e., the Subordinated Amount is or would be greater than the related Specified
Subordinated Amount), then any amounts relating to principal which would
otherwise be distributed to the holders of the related Class A Certificates on
such Distribution Date may instead be distributed to the holders of the Class R
Certificates (subject to certain other prior applications as described below
under "--Crosscollateralization Provisions") in an amount equal to the lesser of
(x) the Excess Subordinated Amount and (y) the amount available for distribution
on
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account of principal with respect to the Class A Certificates relating to the
applicable Loan Group on such Distribution Date; such amount being the
"Subordination Reduction Amount" with respect to the Related Loan Group for such
Distribution Date. As a result of the cash flow structure of the Trust Fund,
Subordination Reduction Amounts may result even prior to the occurrence of any
decrease or "step down" in the Specified Subordinated Amount. That is because
the holders of the Class A Certificates generally will, except for the
provisions relating to the Subordination Reduction Amount, be entitled to
receive 100% of collected principal with respect to the Related Loan Group even
though the Class A Class Certificate Balance, following the accelerated
amortization resulting from the application of the Net Monthly Excess Cashflow,
will be less than 100% of the Related Loan Group's aggregate Loan Balance.
Accordingly, in the absence of the provisions relating to Subordination
Reduction Amounts, the Subordinated Amount would increase above the Specified
Subordinated Amount requirements even without the further application of any Net
Monthly Excess Cashflow.
The Pooling and Servicing Agreement provides generally that, on any
Distribution Date, all amounts collected on account of principal (other than any
such amount applied to the payment of a Subordination Reduction Amount and
excluding any amounts not required to be deposited into the Collection Account
pursuant to the second paragraph under "THE POOLING AND SERVICING
AGREEMENT--Servicing and Sub-Servicing") during the related Due Period (taking
into account Curtailments, Net Liquidation Proceeds and Prepayments collected
during the related Prepayment Period, and with respect to Actuarial Loans, any
scheduled monthly payments due on or before the last day of the related Due
Period and in the Collection Account as of the related Determination Date), will
be distributed to the Class A Certificateholders then entitled to receive
distributions of principal on such Distribution Date. If any Mortgage Loan
became a Liquidated Mortgage Loan during the related Prepayment Period, the Net
Liquidation Proceeds related thereto and allocated to principal may be less than
the principal balance of the related Mortgage Loan; the amount of any such
insufficiency is a "Realized Loss". In addition, the Pooling and Servicing
Agreement provides that the Loan Balance of any Mortgage Loan which becomes a
Liquidated Mortgage Loan shall thenceforth equal zero. The Pooling and Servicing
Agreement does not contain any provisions which require that the amount of any
Realized Loss be distributed to the Class A Certificateholders on the
Distribution Date which immediately follows the event of loss; i.e., the Pooling
and Servicing Agreement does not require the current recovery of losses.
However, the occurrence of a Realized Loss will reduce the Subordinated Amount
with respect to the Related Loan Group, which, to the extent that such reduction
causes the Subordinated Amount to be less than the Specified Subordinated Amount
applicable to the related Distribution Date, will require the payment of a
Subordination Increase Amount on such Distribution Date (or, if insufficient
funds are available on such Distribution Date, on subsequent Distribution Dates,
until the Subordinated Amount equals the related Specified Subordinated Amount).
The effect of the foregoing is to allocate losses to the holders of the Class R
Certificates by reducing, or eliminating entirely, payments of Net Monthly
Excess Cashflow and of Subordination Reduction Amounts which such holders would
otherwise receive.
Overcollateralization and the Certificate Insurance Policies. The
Pooling and Servicing Agreement defines a "Subordination Deficit" with respect
to a Loan Group and Distribution Date to be the amount, if any, by which (x) the
aggregate of the Class Certificate Balances relating to such Loan Group (after
taking into account all distributions to be made on such Distribution Date)
exceeds (y) the aggregate Loan Balances of the Mortgage Loans in the Related
Loan Group as of the close of business on the last day of the related Due Period
(taking into account Curtailments, Net Liquidation Proceeds and Prepayments
collected during the related Prepayment Period, and with respect to Actuarial
Loans, any scheduled monthly payments due on or before the last day of the
related Due Period and in the Collection Account as of the related Determination
Date). The Pooling and Servicing Agreement requires the Trustee to make a claim
for an Insured Payment under the related Certificate Insurance Policy not later
than the third Business Day prior to any Distribution Date as to which the
Trustee has determined that a Subordination Deficit will occur for the purpose
of applying the proceeds of such Insured Payment as a payment of principal to
the holders of the Class A Certificates entitled to such Insured Payment on such
Distribution Date. Each Certificate Insurance Policy is similar to the
overcollateralization provisions described above insofar as each Certificate
Insurance Policy guarantees ultimate, rather than current, payment of the
amounts of any Realized Losses (to the extent of a Subordination Deficit) to the
holders of the Class A Certificates. Investors in the Class A Certificates
should realize that, under extreme loss or delinquency scenarios applicable to
the Mortgage Loans, they may temporarily receive no distributions of principal
when they would otherwise be entitled thereto under the principal allocation
provisions described herein. Nevertheless, the exposure to risk of loss of
principal of the holders of the Class A Certificates depends in part on the
ability of the Certificate Insurer to satisfy its obligations under the relevant
Certificate Insurance Policy. In that respect and to the extent that the
Certificate Insurer satisfies such
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obligations, the holders of the Class A Certificates are insulated from
shortfalls in Available Funds (to the extent such shortfall results in a
Subordination Deficit) that may arise.
Crosscollateralization Provisions
In addition to the use of Total Monthly Excess Cashflow with respect to
a Loan Group to cover related Subordination Increase Amounts, Available Funds
Shortfalls and Subordination Deficits, such Total Monthly Excess Cashflow will
be available to cover such requirements for the other Loan Group as described
under the caption "DESCRIPTION OF THE CERTIFICATES--Distributions" herein.
THE POOLING AND SERVICING AGREEMENT
Representations and Warranties of the Seller
The Seller will make the representations, among others, as to each
Mortgage Loan conveyed by the Seller to the Depositor as of the Closing Date
described under "THE TRUSTS--Assignment of the Primary Assets" in the Prospectus
and such other representations as are set forth in the Pooling and Servicing
Agreement.
Pursuant to the Pooling and Servicing Agreement, upon the discovery by
the Depositor, the Seller, the Master Servicer, the Certificate Insurer or the
Trustee that any representations and warranties with respect to the Mortgage
Loans were untrue in any material respect as of the Closing Date with the result
that the interests of the holders of the Certificates or of the Certificate
Insurer are materially and adversely affected, the party discovering such breach
is required to give prompt written notice to the other parties.
Upon the earlier to occur of the Seller's discovery or its receipt of
notice of breach from any of the other parties, the Seller will be required
promptly to cure such breach in all material respects or, on the second Monthly
Remittance Date next succeeding such discovery or receipt of notice, the Seller
shall (i) substitute in lieu of each Mortgage Loan which has given rise to the
requirement for action by the Seller a Qualified Replacement Mortgage Loan (as
such term is defined in the Pooling and Servicing Agreement) and deliver the
Substitution Adjustment to the Master Servicer for deposit in the Collection
Account on behalf of the Trust Fund on such Monthly Remittance Date or (ii)
purchase such Mortgage Loan from the Trust Fund at a purchase price equal to the
Loan Purchase Price (as defined below) thereof. Notwithstanding any provision of
the Pooling and Servicing Agreement to the contrary, with respect to any
Mortgage Loan which is not in default or as to which no default is imminent, no
such repurchase or substitution will be made unless the Seller obtains for the
Trustee and the Certificate Insurer an opinion of counsel experienced in federal
income tax matters and acceptable to the Certificate Insurer to the effect that
such a repurchase or substitution would not give rise to a Prohibited
Transaction Tax for the Trust Fund or otherwise subject the Trust Fund to tax
and would not jeopardize the status of the Trust Fund as a REMIC (a "REMIC
Opinion") addressed to the Trustee and the Certificate Insurer and acceptable to
the Trustee and the Certificate Insurer. Any Mortgage Loan as to which
repurchase or substitution was delayed pursuant to the Pooling and Servicing
Agreement shall be repurchased or substituted for (subject to compliance with
the provisions of the Pooling and Servicing Agreement) upon the earlier of (a)
the occurrence of a default or imminent default with respect to such Mortgage
Loan and (b) receipt by the Trustee and the Certificate Insurer of a REMIC
Opinion. The obligation of the Seller so to substitute for or purchase any
Mortgage Loan constitutes the sole remedy available to the holders of the
Certificates, the Trustee and the Certificate Insurer respecting a discovery of
any such representation or warranty which is untrue in any material respect,
except as provided below.
Notwithstanding the foregoing, pursuant to the Pooling and Servicing
Agreement, the Seller agrees to indemnify the Trust Fund for any breach of a
representation or warranty relating to the legality of the Mortgage Loans
(including, without limitation, the origination of such Mortgage Loans) and the
mortgage loan documents relating thereto.
"Loan Purchase Price" means the outstanding loan balance of the related
Mortgage Loan as of the beginning of the Due Period immediately preceding the
date of purchase (taking into account Curtailments, Net Liquidation Proceeds and
Prepayments collected during the immediately preceding Prepayment Period, and
with respect to Actuarial Loans, any scheduled monthly principal payment due on
or before the last day of the
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immediately preceding Due Period and in the Collection Account as of the
Determination Date for such immediately preceding Due Period) (such amount, the
"Loan Balance" of such Mortgage Loan) (assuming that the Master Servicer has
already remitted to the Trustee all amounts in the Collection Account on the
related Monthly Remittance Date), plus one month's interest at the related
Mortgage Rate on the outstanding Loan Balance thereof as of the beginning of the
related Due Period, taking into account Curtailments, Net Liquidation Proceeds
and Prepayments collected during the immediately preceding Prepayment Period,
and with respect to Actuarial Loans, any scheduled monthly principal payment due
on or before the last day of the immediately preceding Due Period and in the
Collection Account as of the Determination Date for such immediately preceding
Due Period together (without duplication) with the aggregate amount of all
unreimbursed Delinquency Advances and Servicing Advances theretofore made with
respect to such Mortgage Loan, all Delinquency Advances and Servicing Advances
which the Master Servicer has theretofore failed to remit with respect to such
Mortgage Loan and all reimbursed Delinquency Advances to the extent that the
reimbursement is not made from the Mortgagor or from proceeds with respect to a
Liquidated Loan.
"Replacement Cut-off Date" means, with respect to any Qualified
Replacement Mortgage Loan, the first day of the calendar month in which such
Qualified Replacement Mortgage Loan is conveyed to the Trust Fund.
"Substitution Adjustment" means, with respect to a Qualified Replacement
Mortgage Loan with an outstanding principal amount as of the applicable
Replacement Cut-off Date less than the Loan Balance of the replaced Mortgage
Loan as of such Replacement Cut-off Date, an amount equal to such difference
together with the aggregate amount of (A) all Delinquency Advances and Servicing
Advances theretofore made with respect to such Mortgage Loan, to the extent
unreimbursed to the Master Servicer and (B) all Delinquency Advances which the
Master Servicer has theretofore failed to remit with respect to such Mortgage
Loan.
Sale and Assignment of the Mortgage Loans
On the Closing Date, the Seller will, pursuant to the Pooling and
Servicing Agreement, sell and assign to the Depositor without recourse (except
as otherwise provided herein) its entire interest in and to the Mortgage Loans,
including the Mortgages on the Mortgaged Properties securing the Mortgage Loans
and the right to receive all payments on, and proceeds with respect to, the
Mortgage Loans after the Cut-off Date (other than, with respect to Actuarial
Loans, amounts due on or prior to the Cut-off Date). On the Closing Date,
simultaneously with the sale from the Seller to the Depositor, the Depositor
will, pursuant to the Pooling and Servicing Agreement, sell and assign to the
Trust Fund, without recourse (except as otherwise provided herein), its entire
interest in and to the Mortgage Loans, including the Mortgages on the Mortgaged
Properties securing the Mortgage Loans and the right to receive all payments on,
and proceeds with respect to, the Mortgage Loans after the Cut-off Date (other
than, with respect to Actuarial Loans, amounts due on or prior to the Cut-off
Date). Each Mortgage Loan will be identified in a schedule appearing as an
exhibit to the Pooling and Servicing Agreement. The Trustee will, concurrently
with the sale and assignment of the Mortgage Loans pursuant to the Pooling and
Servicing Agreement as described above, countersign and deliver the Certificates
to or upon the order of the Depositor.
Under the terms of the Pooling and Servicing Agreement, the Master
Servicer will, within six months of the Closing Date, cause to be recorded with
respect to each Mortgage Loan the original assignment of Mortgage, except in the
states for which a legal opinion is delivered to the Trustee and the Certificate
Insurer (and is approved by the Certificate Insurer) to the effect that the
recordation of the Assignment of Mortgage in such states is not necessary under
state law to transfer the related Mortgage Loan to the Trust Fund; provided that
no more than one such legal opinion will be required with respect to each state.
All assignments of Mortgages shall be prepared and caused to be recorded
by, and shall be at the expense of, the Master Servicer.
The Loan Files (as defined in the Pooling and Servicing Agreement) will
be delivered to the Trustee on the Closing Date. Thereafter, the Trustee will
review the Loan Files and if any document required to be included in any Loan
File is found to be defective in any material respect and such defect is not
cured within 30 days following notification thereof to the Master Servicer by
the Trustee, the Seller will be required to repurchase or substitute for the
related Mortgage Loan.
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The Trustee is authorized to appoint a custodian, which custodian shall
not be an affiliate of the Master Servicer and shall meet certain other criteria
set forth in the Pooling and Servicing Agreement (the "Custodian"), to maintain
possession of and review the documents with respect to the Mortgage Loans, as
the agent of the Trustee. Any such Custodian will be required to release the
Loan Files to the Master Servicer or to any sub-servicers in connection with its
servicing activities or for review by licensing authorities. Any such Custodial
Agreement will be on such terms as the Trustee, the Master Servicer and the
Custodian shall agree.
Servicing and Sub-Servicing
The Master Servicer is required to service, either directly or through a
sub-servicer, the Mortgage Loans in accordance with the Pooling and Servicing
Agreement.
The Master Servicer is required to deposit into the Collection Account,
within two Business Days following receipt, all principal and interest
collections on the Mortgage Loans received after the Cut-off Date (other than,
with respect to Actuarial Loans, amounts due on or prior to the Cut-off Date),
including any Prepayments, the proceeds of any liquidation of a Mortgage Loan
net of expenses and unreimbursed Delinquency Advances ("Net Liquidation
Proceeds") and any income from REO Properties, but net of (i) the Servicing Fee
with respect to each Mortgage Loan and other servicing compensation, (ii) Net
Liquidation Proceeds to the extent that such Net Liquidation Proceeds exceed the
sum of (I) the Loan Balance of the related Mortgage Loan, plus (II) accrued and
unpaid interest on such Mortgage Loan (net of the Servicing Fee) to the date of
such liquidation, (iii) reimbursements for Delinquency Advances from late
collections or Liquidation Proceeds on the Mortgage Loans which gave rise to
such Delinquency Advances, (iv) reimbursements for unreimbursed Delinquency
Advances with respect to Simple Interest Loans from Excess Interest and (v)
reimbursement for amounts deposited into the Collection Account representing
payments of principal and/or interest on a Mortgage Loan by a Mortgagor which
are subsequently returned by a depository institution as unpaid.
The Master Servicer may make withdrawals for its own account from the
amounts on deposit in the Collection Account with respect to each Loan Group,
for the following purposes:
(i) to withdraw investment earnings on amounts on deposit in the
Collection Account;
(ii) to reimburse or pay the Master Servicer, the Trustee and/or the
Depositor certain amounts owed to such entity pursuant to the
Pooling and Servicing Agreement;
(iii) to withdraw amounts that have been deposited into the Collection
Account in error; and
(iv) to clear and terminate the Collection Account following the
termination of the Trust Fund.
The Master Servicer will remit to the Trustee for deposit into the
Distribution Account the Monthly Remittance Amount not later than the related
Monthly Remittance Date and Loan Purchase Prices and Substitution Adjustments
two Business Days following the related purchase or substitution, as the case
may be.
The Master Servicer will be obligated to make Delinquency Advances no
later than the fourth Business Day following the Determination Date to the
extent that such Delinquency Advances, in the Master Servicer's reasonable
judgment, are reasonably recoverable from the related Mortgage Loan. Delinquency
Advances are recoverable from (i) late collections on the Mortgage Loan which
gave rise to the Delinquency Advance, (ii) Liquidation Proceeds of the Mortgage
Loan which gave rise to such Delinquency Advance, (iii) with respect to Simple
Interest Loans, the aggregate interest collected on such Simple Interest Loans
during the related Due Period in excess of the interest deemed due on such
Simple Interest Loans during such Due Period ("Excess Interest"), and (iv)
certain excess cash flows not applied for any other purpose. "Delinquency
Advances" will equal, on any Distribution Date, interest on the Mortgage Loans
due during the related Due Period (net of the Servicing Fee) but uncollected (i)
with respect to Simple Interest Loans, as of the end of the related Due Period,
and (ii) with respect to Actuarial Loans, as of the related Determination Date.
For purposes of calculating the amount of Delinquency Advances for the Simple
Interest Loans or Excess Interest for reimbursement of such Delinquency
Advances, the amount "due" during the Due Period will be deemed to be 30 days'
interest at the weighted average Mortgage Rate for the Simple Interest Loans.
The Master Servicer is only obligated to make a Delinquency Advance if it
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reasonably believes that such Delinquency Advance will ultimately be recoverable
from the related Mortgage Loan. The Master Servicer shall give written notice of
such determination to the Trustee and the Certificate Insurer. The Trustee shall
promptly furnish a copy of such notice to the holders of the Certificates.
The Master Servicer will be required to pay all "out of pocket" costs
and expenses incurred in the performance of its servicing obligations,
including, but not limited to, (i) expenditures in connection with a foreclosed
Mortgage Loan prior to the liquidation thereof, including, without limitation,
expenditures for real estate property taxes, hazard insurance premiums, certain
amounts due with respect to Senior Liens, property restoration or preservation,
(ii) the cost of any enforcement or judicial proceedings, including
foreclosures, and (iii) the cost of the management and liquidation of Mortgaged
Property acquired in satisfaction of the related Mortgage. Such costs will
constitute "Servicing Advances". The Master Servicer may reimburse itself for a
Servicing Advance (x) from the Mortgagors to the extent permitted by the
Mortgage Loans or, if not theretofore recovered from the Mortgagor on whose
behalf such Servicing Advance was made, from Liquidation Proceeds realized upon
the liquidation of the related Mortgage Loan or (y) from Net Monthly Excess
Cashflow as specified in the Pooling and Servicing Agreement.
Subject to the terms of the Pooling and Servicing Agreement, the Master
Servicer, and in the absence of the exercise thereof by the Master Servicer, the
Certificate Insurer, will have the right and the option, but not the obligation,
to purchase for its own account any Mortgage Loan which becomes delinquent, in
whole or in part, as to four consecutive monthly installments or any Mortgage
Loan as to which enforcement proceedings have been brought by the Master
Servicer. The purchase price for any such Mortgage Loan is equal to the Loan
Purchase Price thereof, which purchase price shall be deposited into the
Collection Account.
The Master Servicer is required to cause to be liquidated any Mortgage
Loan relating to a Mortgaged Property as to which ownership has been effected in
the name of the Master Servicer or sub-servicer on behalf of the Trust Fund and
which has not been liquidated within 35 months of such effecting of ownership at
such price as the Master Servicer deems necessary to comply with this
requirement, or within such period of time as may, in the opinion of counsel
experienced in federal income tax matters, be permitted under the Code.
If so required by the terms of any Mortgage Loan, the Master Servicer
will be required to cause hazard insurance to be maintained with respect to the
related Mortgaged Property and to advance sums on account of the premiums
therefor if not paid by the Mortgagor if permitted by the terms of such Mortgage
Loan to the extent the Trustee as mortgagee has an insurable interest in the
related Mortgaged Property.
The Master Servicer will be permitted under the Pooling and Servicing
Agreement to enter into sub-servicing agreements for any servicing and
administration of Mortgage Loans with (i) any institution which is a FHLMC or
FNMA approved seller-servicer for mortgage loans and has equity of at least
$1,500,000, (ii) any institution which is an affiliate of the Master Servicer or
(iii) CSC. The Master Servicer has initially entered into a sub-servicing
agreement with CSC for the servicing and administration of the Mortgage Loans.
The Certificate Insurer will have the right to remove a sub-servicer as and to
the extent provided in the related sub-servicing agreement.
Notwithstanding any sub-servicing agreement, the Master Servicer will
not be relieved of its obligations under the Pooling and Servicing Agreement and
the Master Servicer will be obligated to the same extent and under the same
terms and conditions as if it alone were servicing and administering the
Mortgage Loans. The Master Servicer shall be entitled to enter into any
agreement with a sub-servicer for indemnification of the Master Servicer by such
sub-servicer and nothing contained in such sub-servicing agreement shall be
deemed to limit or modify the Pooling and Servicing Agreement.
The Master Servicer will be required to deliver to the Trustee, the
Certificate Insurer, and the Rating Agencies: (1) on or before March 31 of each
year, commencing in 199_, an officers' certificate stating, as to each signer
thereof, that (i) a review of the activities of the Master Servicer during such
preceding calendar year and of performance under the Pooling and Servicing
Agreement has been made under such officers' supervision, and (ii) to the best
of such officers' knowledge, based on such review, the Master Servicer has
fulfilled all its obligations under the Pooling and Servicing Agreement for such
year, or, if there has been a default in the fulfillment of all such
obligations, specifying each such default known to such officers and the nature
and status thereof including the steps
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being taken by the Master Servicer to remedy such default; and (2) on or before
March 31 of each year commencing in 199_, a letter or letters of a firm of
independent, nationally recognized certified public accountants reasonably
acceptable to the Certificate Insurer and dated as of the date of the audit for
the Master Servicer's or such sub-servicer's most recent fiscal year stating
that such firm has examined the Master Servicer's or such sub-servicer's overall
servicing operations in accordance with the requirements of the Uniform Single
Attestation Program for Mortgage Bankers, and stating such firm's conclusions
relating thereto.
The Master Servicer will be entitled to receive a fee on each Mortgage
Loan for each Due Period (the "Servicing Fee") equal to one-twelfth of the
product of ____% (the "Servicing Fee Rate") and the Loan Balance of such
Mortgage Loan as of the beginning of such Due Period (taking into account
Curtailments, Net Liquidation Proceeds and Prepayments collected during the
immediately preceding Prepayment Period and, with respect to Actuarial Loans,
any scheduled monthly payment due on or before the last day of the immediately
preceding Due Period and in the Collection Account as of the Determination Date
for such immediately preceding Due Period), or, with respect to the first Due
Period, the principal balance of such Mortgage Loan as of the Cut-off Date. In
addition, the Master Servicer will retain any benefit from the investment of
funds in the Collection Account and the Distribution Account and will collect
and retain, as additional servicing compensation, any late fees, penalty
charges, prepayment premiums, bad check fees, extension, modification or
extension fees and other administrative fees or similar charges allowed by
applicable laws with respect to the Mortgage Loans.
The Servicing Fee will compensate the Master Servicer for performing the
functions of a third-party servicer of the Mortgage Loans, including collecting
and posting all payments, responding to inquiries of Mortgagors, investigating
delinquencies, sending coupon books or past due notices to Mortgagers, and
monitoring the collateral. The Servicing Fee also will compensate the Master
Servicer for all fees and expenses payable to any sub-servicer and for
administering the Mortgage Loans, including accounting for collections and
furnishing monthly and annual statements to the Trustee with respect to
distributions. The Master Servicer will be required to pay certain taxes,
accounting fees, outside auditor fees, data processing costs and other costs
incurred in connection with administering the Mortgage Loans.
When a Mortgagor prepays a Mortgage Loan in full (a "Prepayment")
between due dates, the Mortgagor is required to pay interest on the amount
prepaid only to the date of prepayment and not thereafter. Prepayments by
Mortgagors received during a Prepayment Period will be distributed to holders of
the Certificates on the related Distribution Date. Pursuant to the Pooling and
Servicing Agreement, with respect to any shortfall in an interest payment which
arises from such Prepayment (a "Prepayment Interest Shortfall"), the Servicing
Fee for the related month will be reduced by an amount (but in any event not
more than one-half of the Servicing Fee for such Mortgage Loan) sufficient to
pass through to holders of the Certificates the full amount of interest to which
they would be entitled in respect of such Mortgage Loan on the related
Distribution Date to the extent not otherwise covered by amounts otherwise
described in the Pooling and Servicing Agreement (such amount is herein referred
to as "Compensating Interest"). To the extent the Compensating Interest does not
cover a Prepayment Interest Shortfall, such amount (a "Net Prepayment Interest
Shortfall") shall not, unless covered by distributions discussed in "DESCRIPTION
OF THE CERTIFICATES--Distributions", be paid to Certificateholders. If
shortfalls in interest as a result of Prepayments in any month exceed the
Compensating Interest for such month, the amount of interest available to be
distributed to holders of the Certificates will be reduced by the amount of such
excess.
Removal and Resignation of Master Servicer
The Certificate Insurer, or the holders of the Class A Certificates as
provided in the Pooling and Servicing Agreement with the consent of the
Certificate Insurer, will have the right pursuant to the Pooling and Servicing
Agreement to remove the Master Servicer upon the occurrence of: (a) certain acts
of bankruptcy or insolvency on the part of the Master Servicer; (b) certain
failures on the part of the Master Servicer to perform its obligations under the
Pooling and Servicing Agreement; (c) the failure to cure material breaches of
the Master Servicer's representations in the Pooling and Servicing Agreement; or
(d) the failure of the Seller, so long as the Seller is an affiliate of the
Master Servicer, following the breach of a representation or warranty with
respect to the Mortgage Loans to either (i) substitute a Qualified Replacement
Mortgage Loan and deliver the Substitution Adjustment or (ii) repurchase such
Mortgage Loan, as discussed above under "--Representations and Warranties of the
Seller".
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The Pooling and Servicing Agreement also provides that the Certificate
Insurer may remove the Master Servicer upon the occurrence of certain additional
events.
The Master Servicer is not permitted to resign from the obligations and
duties imposed on it under the Pooling and Servicing Agreement except upon
determination that its duties thereunder are no longer permissible under
applicable law or are in material conflict by reason of applicable law with any
other activities carried on by it, the other activities of the Master Servicer
so causing such conflict being of a type and nature carried on by the Master
Servicer on the date of the Pooling and Servicing Agreement. Any such
determination permitting the resignation of the Master Servicer is required to
be evidenced by an opinion of counsel to such effect which shall be delivered to
the Trustee and the Certificate Insurer.
Upon removal or resignation of the Master Servicer, the Trustee (x) may
solicit bids for a successor Master Servicer and (y) pending the appointment of
a successor Master Servicer as a result of soliciting such bids, shall serve as
Master Servicer. The Trustee, it if is unable to obtain a qualifying bid and is
prevented by law from acting as Master Servicer, will be required to appoint, or
petition a court of competent jurisdiction to appoint, any housing and home
finance institution, bank or mortgage servicing institution designated as an
approved seller-servicer by the FHLMC or the FNMA having equity of not less than
$1,500,000 and acceptable to the Certificate Insurer and the holders of the
Class R Certificates (provided that, if the Certificate Insurer and such holders
cannot agree as to the acceptability of such successor Master Servicer, the
decision of the Certificate Insurer shall control) as the successor to the
Master Servicer in the assumption of all or any part of the responsibilities,
duties or liabilities of the Master Servicer.
No removal or resignation of the Master Servicer will become effective
until the Trustee or a successor servicer shall have assumed the Master
Servicer's responsibilities and obligations in accordance with the Pooling and
Servicing Agreement.
Amendment
The Pooling and Servicing Agreement may be amended from time to time by
the Depositor, the Seller, the Master Servicer and the Trustee, with the consent
of the Certificate Insurer and without the consent of the holders of the
Certificates, to cure any ambiguity or error, to correct or supplement any
provision therein which may be inconsistent with any other provision therein, to
evidence a succession to the Master Servicer, or to add any other provisions
with respect to matters or questions arising thereunder which are not
inconsistent with the provisions of the Pooling and Servicing Agreement;
provided that such action will not, in the opinion of counsel satisfactory to
the Trustee, adversely affect in any material respect the interest of any holder
of the Certificates. The Pooling and Servicing Agreement may also be amended by
the Depositor, the Seller, the Master Servicer and the Trustee, with the consent
of the Certificate Insurer and the consent of the holders of Certificates
evidencing not less than a majority of the aggregate Class Certificate Balance
of the Class of Certificates affected by such amendment, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of the Pooling and Servicing Agreement or of modifying in any manner
the rights of holders of the Certificates or the terms of the Certificate
Insurance Policies; provided, however, that no such amendment may (i) increase
or reduce in any manner the amount of, or accelerate or delay the timing of,
distributions that are required to be made on any Certificate without the
consent of the holder of such Certificate or (ii) reduce the aforesaid
percentage required to consent to any such amendment, without the consent of the
holders of all Certificates then outstanding.
The Pooling and Servicing Agreement may also be amended, from time to
time, by the Master Servicer, the Depositor, the Seller and the Trustee, with
the consent of the Certificate Insurer and without consent of the holders of the
Certificates, to modify, eliminate or add to the provisions of the Pooling and
Servicing Agreement to the extent necessary to (i) maintain the qualification of
the Trust Fund as a REMIC under the Code or avoid, or minimize the risk of, the
imposition of any tax on the Trust Fund under the Code that would be a claim
against the Trust Fund's assets, or (ii) prevent the Trust Fund from entering
into any "prohibited transaction" as defined in the Code.
Notwithstanding the foregoing, no amendment may be made unless the
Trustee shall have received an opinion of counsel to the effect that such
amendment will not cause the Trust Fund to be disqualified as a REMIC, or
subject the Trust to "prohibited transaction" or "prohibited contribution"
taxes.
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Class A Certificates held by either the Depositor or any affiliate
thereof will not be counted as outstanding for purposes of the approval of any
amendment, waiver or other consent or vote required by the Pooling and Servicing
Agreement.
List of Certificateholders
Upon written request of the Master Servicer, the Trustee will provide to
the Master Servicer, within 15 days after receipt of such request, a list of the
names and addresses of all holders of the Certificates of record as of the most
recent Record Date. Upon written request by three or more holders of the Class A
Certificates who in the aggregate hold Certificates that evidence not less than
25% of the aggregate Class Certificate Balance of the Class A Certificates and
provided such request is accompanied by a copy of the communication that such
holders propose to transmit, the Trustee or the Certificate Registrar will
provide the holders of the Class A Certificates with a list of the names and
addresses of all of the holders of the Class A Certificates as of the most
recent Record Date.
The Pooling and Servicing Agreement will not provide for the holding of
any annual or other meetings of holders of the Certificates.
Termination; Retirement of the Certificates
The obligations created by the Pooling and Servicing Agreement will
terminate upon the last action required to be taken by the Trustee upon the
latest to occur of (i) the final payment or other liquidation of the last
Mortgage Loan remaining in the Trust Fund and the disposition of all property
acquired by foreclosure or deed in lieu of foreclosure of any Mortgage Loan,
(ii) the purchase by the Class R Optionholder or the Master Servicer from the
Trust Fund, or the sale pursuant to an auction conducted by the Trustee, of all
remaining Mortgage Loans and all property acquired in respect of any Mortgage
Loan remaining in the Trust Fund or (iii) the final payment to the Certificate
Insurer of all amounts then owing to it. In no event, however, will the trust
created by the Pooling and Servicing Agreement continue beyond the expiration of
21 years from the death of the last survivor of certain persons named in the
Pooling and Servicing Agreement. Written notice of termination of the Pooling
and Servicing Agreement will be given to each holder of a Certificate by the
Trustee.
At its option, the Class R Optionholder or the Master Servicer may
purchase on any Distribution Date on which such a purchase is permitted as
described below, all (but not fewer than all) remaining Mortgage Loans, in whole
only, and other property acquired by foreclosure, deed in lieu of foreclosure,
or otherwise then constituting the Trust Fund on terms agreed upon between the
Certificate Insurer and such Class R Optionholder or the Master Servicer, as
applicable, but in no event less than at a price equal to the greater of (i) the
sum of 100% of the aggregate Loan Balance of the related Mortgage Loans as of
the day of purchase and any Reimbursement Amounts not otherwise paid to the
Certificate Insurer minus amounts remitted from the Collection Account to the
Distribution Account representing collections of principal on the Mortgage Loans
during the current Due Period (taking into account Curtailments, Net Liquidation
Proceeds and Prepayments collected during the immediately preceding Prepayment
Period, and with respect to Actuarial Loans, any scheduled monthly principal
payment due on or before the last day of the Due Period and in the Collection
Account as of the related Determination Date), plus one month's interest on such
amount computed at the weighted average Mortgage Rate, plus all accrued and
unpaid Servicing Fees plus the aggregate amount of any unreimbursed Delinquency
Advances and Servicing Advances plus Delinquency Advances which the Master
Servicer has theretofore failed to remit and (ii) the aggregate Class
Certificate Balances of the Class A Certificates on such date of purchase, any
shortfall in interest due on the Class A Certificates in respect of prior
Distribution Dates, one month's interest at the Pass-Through Rate for each of
the outstanding Class A Certificates on the date of purchase and any
Reimbursement Amounts not otherwise paid to the Certificate Insurer. The right
of the Class R Optionholder or the Master Servicer to make any such purchase is
not exercisable until the Distribution Date on which, after giving effect to
principal distributions on the Certificates that would otherwise be made on such
Distribution Date, the aggregate Loan Balance of the Mortgage Loans has declined
to less than 10% (the "Optional Termination Date") for the Class R Optionholder
or 5% for the Master Servicer, respectively, of the sum of the Original Loan
Group Balances. The termination of the Trust Fund is required to be effected in
a manner consistent with applicable federal income tax regulations and its
status as a REMIC.
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In addition to the foregoing, following a final determination by the
Internal Revenue Service or by a court of competent jurisdiction, in either case
from which no appeal is taken within the permitted time for such appeal, or if
any appeal is taken, following a final determination of such appeal from which
no further appeal can be taken, to the effect that the Trust Fund does not and
will no longer qualify as a "REMIC" pursuant to Section 860D of the Code (the
"Final Determination"), at any time on or after the date which is 30 calendar
days following such Final Determination, the Certificate Insurer or the holders
of a majority in Percentage Interests represented by the Class A Certificates
then outstanding with the consent of the Certificate Insurer may direct the
Trustee on behalf of the Trust to adopt a plan of complete liquidation, as
contemplated by Section 860F(a)(4) of the Code.
Termination Auction
The Pooling and Servicing Agreement provides that within 90 days
following the Optional Termination Date, the Trustee shall solicit bids for the
purchase of the Mortgage Loans remaining in the Trust Fund. In the event that
satisfactory bids are received as described in the Pooling and Servicing
Agreement, the net sales proceeds will be distributed to holders of Certificates
in the same order of priority as collections received in respect of the Mortgage
Loans. If satisfactory bids are not received, the Trustee shall decline to sell
the Mortgage Loans and shall not be under any obligation to solicit any further
bids or otherwise negotiate any further sale of the Mortgage Loans. Under the
Pooling and Servicing Agreement, a satisfactory bid is one in which the purchase
price of the Mortgage Loans then outstanding is at least equal to the greater of
(i) the sum of 100% of the aggregate Loan Balance of the related Mortgage Loans
as of the day of purchase and any Reimbursement Amounts not otherwise paid to
the Certificate Insurer minus amounts remitted from the Collection Account to
the Distribution Account representing collections of principal on the Mortgage
Loans during the current Due Period (taking into account Curtailments, Net
Liquidation Proceeds and Prepayments collected during related Prepayment Period,
and with respect to Actuarial Loans, any scheduled monthly principal payment due
on or before the last day of the Due Period and in the Collection Account as of
the related Determination Date), plus one month's interest on such amount
computed at the weighted average Mortgage Rate, plus all accrued and unpaid
Servicing Fees plus the aggregate amount of any unreimbursed Delinquency
Advances and Servicing Advances plus Delinquency Advances which the Master
Servicer has theretofore failed to remit and (ii) the aggregate Class
Certificate Balances of the Class A Certificates on such date of purchase, any
shortfall in interest due on the Class A Certificates in respect of prior
Distribution Dates, one month's interest at the Pass-Through Rate for each of
the outstanding Class A Certificates on the date of purchase and any
Reimbursement Amounts not otherwise paid to the Certificate Insurer. Such a bid
must be made in accordance with auction procedures set forth in the Pooling and
Servicing Agreement, which include a requirement that the Trustee receive good
faith bids for the Mortgage Loans by at least two prospective purchasers (at
least one of whom is not the Seller or an affiliate thereof) that are considered
by the Trustee, in its sole discretion, to be (i) competitive participants in
the market for like mortgage loans and (ii) willing and able purchasers of the
Mortgage Loans. Any sale and consequent termination of the Trust Fund pursuant
to a Termination Auction must constitute a "qualified liquidation" of the Trust
Fund under Section 860F of the Code, including the requirement that the
qualified liquidation takes place over a period not to exceed 90 days.
THE TRUSTEE
__________________________________, a national banking association
organized under the laws of the United States of America with its principal
place of business in the State of ________, will be named Trustee pursuant to
the Pooling and Servicing Agreement. The Trustee will initially serve as
custodian for the mortgage files relating to the Mortgage Loans as provided in
the Pooling and Servicing Agreement.
Pursuant to the Pooling and Servicing Agreement, the Trustee is required
at all times to be a corporation or association organized and doing business
under the laws of the United States of America or of any state, authorized under
such laws to exercise corporate trust powers and subject to supervision or
examination by federal or state authority. If at any time the Trustee shall
cease to be eligible in accordance with the provisions described in this
paragraph, the Trustee shall give notice of such ineligibility to the Master
Servicer, the Certificate Insurer and holders of the Certificates and shall
resign in the manner and with the effect specified in the Pooling and Servicing
Agreement.
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The Trustee will receive a monthly fee payable out of the interest
amounts collected by the Master Servicer on each Mortgage Loan, as compensation
for acting as Trustee. The Trustee's fee will be paid on each Distribution Date
for the related Due Period, and will be equal to a percentage per annum (the
"Trustee Fee Rate") of the then outstanding Loan Balance.
The Trustee may be removed upon the occurrence of any one of the
following events (whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body) on the part of the Trustee: (1) failure to
make distributions of available amounts; (2) certain breaches of covenants and
representations by the Trustee; (3) certain acts of bankruptcy or insolvency on
the part of the Trustee; (4) the Trustee shall have (A) delegated or assigned
the execution of its trusts and powers or the performance of its duties under
the Pooling and Servicing Agreement, or (B) resumed the execution of its trusts
or powers or the performance of its duties under the Pooling and Servicing
Agreement after having previously delegated or assigned such execution or
performance, in either case without the prior written consent of the Master
Servicer, and (5) failure to meet the standards of Trustee eligibility as set
forth in the Pooling and Servicing Agreement.
If any such event occurs and is continuing, then and in every such case
(i) the Certificate Insurer or (ii) with the prior written consent of the
Certificate Insurer (which is required not to be unreasonably withheld), (x) the
Master Servicer or (y) the holders of a majority of the percentage interests
represented by the Class A Certificates or, if there are no Class A Certificates
then outstanding, a majority of the percentage interests represented by the
Class R Certificates, may appoint a successor trustee.
The Trustee, or any successor trustee or trustees, may resign at any
time by giving written notice to the Master Servicer, the Certificate Insurer
and the holders of the Certificates. Upon receiving notice of resignation, the
Master Servicer is required to appoint promptly a successor trustee or trustees,
with the consent of the Certificate Insurer, meeting the eligibility
requirements set forth above in the manner set forth in the Pooling and
Servicing Agreement. If no successor trustee shall have been appointed and have
accepted appointment within 30 days after the giving of such notice of
resignation, the resigning trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee. Such court may
thereupon, after such notice, if any, as it may deem proper and prescribe,
appoint a successor trustee.
Any resignation or removal of the Trustee and appointment of a successor
trustee shall become effective upon the acceptance of appointment by such
successor trustee.
At any time, for the purpose of meeting any legal requirements of any
jurisdiction in which any part of the Trust Fund or property securing the same
may at the time be located, the Master Servicer and the Trustee acting jointly
shall have the power and shall execute and deliver all instruments to appoint
one or more persons approved by the Trustee to act as co-trustee or co-trustees,
jointly with the Trustee, or separate trustee or separate trustees, of all or
any part of the Trust Fund, and to vest in such person or persons, in such
capacity, such title to the Trust Fund, or any part thereof, and, subject to the
provisions of the Pooling and Servicing Agreement, such powers, duties,
obligations, rights and trusts as the Master Servicer and the Trustee may
consider necessary or desirable.
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, an election will be made to treat the
Trust Fund as a REMIC. The Class A Certificates will constitute the regular
interests in the REMIC. The Class R Certificates will constitute the sole class
of "residual interest" in the REMIC.
The Class A Certificates generally will be treated as debt instruments
issued by the REMIC for federal income tax purposes. Income on the Class A
Certificates must be reported under an accrual method of accounting.
The Classes of Class A Certificates, depending on their respective issue
prices (as described in the Prospectus under "FEDERAL INCOME TAX CONSEQUENCES"),
may be treated as having been issued with original issue discount ("OID") for
federal income tax purposes. For purposes of determining the amount and rate of
accrual of OID and market discount, the Trust Fund intends to assume that there
will be prepayments on the
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Mortgage Loans in the Fixed Rate Group and the Adjustable Rate Group at a rate
equal to 100% of the Prepayment Assumption and 25% CPR, respectively. No
representation is made as to whether the Mortgage Loans will prepay at the
foregoing rates or any other rate. See "CERTAIN YIELD AND PREPAYMENT
CONSIDERATIONS" herein and in the Prospectus and "FEDERAL INCOME TAX
CONSEQUENCES" in the Prospectus. Computing accruals of OID in the manner
described in the Prospectus may (depending on the actual rate of prepayments
during the accrual period) result in the accrual of negative amounts of OID on
the Certificates issued with OID in an accrual period. Holders will be entitled
to offset negative accruals of OID only against future OID accruals on such
Certificates.
A reasonable application of the principles of the OID Regulations (as
defined below) to the Class A-7 Certificates generally would be to report all
income with respect to such Certificates as OID for each period, computing such
OID (i) by assuming that the value of One-Month LIBOR will remain constant for
purposes of determining the original yield to maturity of such Class of
Certificates and projecting future distributions on such Class A-7 Certificates,
thereby treating such Class A-7 Certificates as fixed rate instruments to which
the OID computation rules described in the Prospectus can be applied, and (ii)
by accounting for any positive or negative variation in the actual value of the
applicable index in any period from its assumed value as a current adjustment to
OID with respect to such period.
The Internal Revenue Service (the "IRS") recently issued final
regulations governing the calculation of OID on instruments having contingent
interest payments. The regulations specifically do not apply for purposes of
calculating OID on debt instruments subject to Code Section 1272(a)(6), such as
the Regular Certificates. Additionally, Treasury regulations issued on January
27, 1994, as amended June 11, 1996, which provide rules for calculating OID (the
"OID Regulations"), do not contain provisions specifically interpreting Code
Section 1272(a)(6). The Trustee intends to base its computations on Code Section
1272(a)(6) and the OID Regulations as described in the Prospectus and this
Prospectus Supplement. However, because no regulatory guidance currently exists
under Code Section 1272(a)(6), there can be no assurance that such methodology
represents the correct manner of calculating OID.
If the holders of any Class A Certificates are treated as holding such
Certificates at a premium, such holders should consult their tax advisors
regarding the election to amortize bond premium and the method to be employed.
As is described more fully under "FEDERAL INCOME TAX CONSEQUENCES" in
the Prospectus, the Class A Certificates will represent qualifying assets under
Sections 856(c)(4)(A) and 7701(a)(19)(C) of the Code, and net interest income
attributable to the Class A Certificates will be "interest on obligations
secured by mortgages on real property" within the meaning of Section
856(c)(3)(B) of the Code, to the extent the assets of the Trust Fund are assets
described in such sections. The Class A Certificates will represent qualifying
assets under Section 860G(a)(3) if acquired by a REMIC within the prescribed
time periods of the Code.
Backup Withholding
Certain holders of the Class A Certificates may be subject to backup
withholding at the rate of 31% with respect to interest paid on the Class A
Certificates if the holders of the Class A Certificates, upon issuance, fail to
supply the Trustee or their broker with their taxpayer identification number,
furnish an incorrect taxpayer identification number, fail to report interest,
dividends, or other "reportable payments" (as defined in the Code) properly, or,
under certain circumstances, fail to provide the Trustee or their broker with a
certified statement, under penalty of perjury, that they are not subject to
backup withholding.
The Trustee will be required to report annually to the IRS, and to each
holder of the Class A Certificates of record, the amount of interest paid (and
OID accrued, if any) on the Class A Certificates (and the amount of interest
withheld for federal income taxes, if any) for each calendar year, except as to
exempt holders (generally, holders that are corporations, certain tax-exempt
organizations or nonresident aliens who provide certification as to their status
as nonresidents). As long as the only holder of the "Class A Certificates" of
record is Cede, as nominee for DTC, holders of the Class A Certificates and the
IRS will receive tax and other information including the amount of interest paid
on such Class A Certificates owned from Participants and indirect participants
rather than from the Trustee. (The Trustee, however, will respond to requests
for necessary information to enable Participants, indirect
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participants and certain other persons to complete their reports.) Each
non-exempt holder of the Class A Certificates will be required to provide, under
penalty of perjury, a certificate on IRS Form W-9 containing his or her name,
address, correct federal taxpayer identification number and a statement that he
or she is not subject to backup withholding. Should a nonexempt holder of the
Class A Certificates fail to provide the required certification, the
Participants or indirect participants (or the Paying Agent) will be required to
withhold 31% of the interest (and principal) otherwise payable to the holder,
and remit the withheld amount to the IRS as a credit against the holder's
federal income tax liability.
Final regulations dealing with withholding tax on income paid to foreign
persons, backup withholding and related matters (the "New Withholding
Regulations") were issued by the Treasury Department on October 6, 1997. The New
Withholding Regulations generally will be effective for payments made after
December 31, 1998, subject to certain transition rules. Prospective U.S. holders
are strongly urged to consult their own tax advisors with respect to the New
Withholding Regulations.
Such amounts will be deemed distributed to the affected holders of the
Class A Certificates for all purposes of the Class A Certificates, the Pooling
and Servicing Agreement and the Certificate Insurance Policies.
Federal Income Tax Consequences to Foreign Investors
The following information describes the United States federal income tax
treatment of holders that are Foreign Investors. The term "Foreign Investor"
means any person other than (i) a citizen or resident of the United States, (ii)
a corporation, partnership or other entity organized in or under the laws of the
United States or any state or political subdivision thereof (unless in the case
of a partnership Treasury regulations provide otherwise), (iii) an estate the
income of which is includible in gross income for United States federal income
tax purposes, regardless of its source, or (iv) a trust if a court within the
United States is able to exercise primary supervision over the administration of
the trust and one or more United States persons have authority to control all
substantial decisions of the trust. In addition, the term "Foreign Investors"
excludes certain trusts that elect to be treated as United States persons.
The Code and Treasury regulations generally subject interest paid to a
Foreign Investor to a withholding tax at a rate of 30% (unless such rate is
changed by an applicable treaty). The withholding tax, however, is eliminated
with respect to certain "portfolio debt investments" issued to Foreign
Investors. Portfolio debt investments include debt instruments issued in
registered form for which the United States payer receives a statement that the
beneficial owner of the instrument is a Foreign Investor. Since the Class A
Certificates will be issued in registered form, no withholding tax will apply to
the Class A Certificates if the information required by the Code is furnished
(as described below) and no other exceptions to the withholding tax exemption
are applicable.
For the Class A Certificates to constitute portfolio debt investments
exempt from the United States federal withholding tax, the withholding agent
must receive from the holder of a Class A Certificate an executed IRS Form W-8
signed under penalty of perjury by the holder of a Class A Certificate stating
that the holder of the Class A Certificate is a Foreign Investor and providing
such holder's name and address. The statement must be received by the
withholding agent in the calendar year in which the interest payment is made or
in either of the two preceding calendar years. A holder of a Class A Certificate
that is a nonresident alien or foreign corporation will not be subject to United
States federal income tax on gain realized on the sale, exchange or redemption
of such Class A Certificate, provided that (i) such gain is not effectively
connected with a trade or business carried on by the holder of a Class A
Certificate in the United States, (ii) in the case of a holder of a Class A
Certificate that is an individual, such holder is not present in the United
States for 183 days or more during the taxable year in which such sale, exchange
or redemption occurs and (iii) in the case of gain representing accrued
interest, the conditions described in the immediately preceding paragraph are
satisfied.
In addition, prospective Foreign Investors are strongly urged to consult
their own tax advisors with respect to the New Withholding Regulations.
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STATE TAXES
The Depositor makes no representations regarding the tax consequences of
purchase, ownership or disposition of the Class A Certificates under the tax
laws of any state. Investors considering an investment in the Class A
Certificates should consult their own tax advisors regarding such tax
consequences.
All investors should consult their own tax advisors regarding the
federal, state, local or foreign income tax consequences of the purchase,
ownership and disposition of the Class A Certificates.
ERISA CONSIDERATIONS
Any Plan fiduciary which proposes to cause a Plan to acquire any of the
Class A Certificates should consult with its counsel with respect to the
potential consequences under the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and the Code, of the Plan's acquisition and
ownership of such Certificates. See "ERISA CONSIDERATIONS" in the Prospectus.
Section 406 of ERISA prohibits "parties in interest" with respect to an employee
benefit plan subject to ERISA and the excise tax provisions set forth under
Section 4975 of the Code (a "Plan") from engaging in certain transactions
involving such Plan and its assets unless a statutory or administrative
exemption applies to the transaction. Section 4975 of the Code imposes certain
excise taxes on prohibited transactions involving plans described under that
Section; ERISA authorizes the imposition of civil penalties for prohibited
transactions involving Plans, subject to ERISA.
Certain employee benefit plans, including governmental plans and certain
church plans, are not subject to ERISA's requirements. Accordingly, assets of
such plans may be invested in the Class A Certificates without regard to the
ERISA considerations described herein and in the Prospectus, subject to the
provisions of other applicable federal and state law. Any such plan which is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code
may nonetheless be subject to the prohibited transaction rules set forth in
Section 503 of the Code.
Except as noted above, investments by Plans are subject to ERISA's
general fiduciary requirements, including the requirement of investment prudence
and diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan. A fiduciary which decides to
invest the assets of a Plan in the Class A Certificates should consider, among
other factors, the extreme sensitivity of the investments to the rate of
principal payments (including prepayments) on the Mortgage Loans.
The U.S. Department of Labor has granted to
_________________________________ an administrative exemption (Prohibited
Transaction Exemption _____, Exemption Application No. ______, __ Fed. Reg.
_____ (199_)) (the "Exemption") from certain of the prohibited transaction rules
of ERISA and the related excise tax provisions of Section 4975 of the Code with
respect to the initial purchase, the holding and the subsequent resale by Plans
of certificates in pass-through trusts that consist of certain receivables,
loans and other obligations that meet the conditions and requirements of the
Exemption. The Exemption applies to mortgage loans such as the Mortgage Loans in
the Trust Fund. For a general description of the Exemption and the conditions
that must be satisfied for the Exemption to apply, see "ERISA CONSIDERATIONS" in
the Prospectus. It is expected that the Exemption will apply to the acquisition
and holding by Plans of the Class A Certificates and that all conditions of the
Exemption other than those within the control of the investors will be met. In
addition, as of the date hereof, there is no single Mortgagor that is the
obligor on 5% of the Mortgage Loans included in the Trust Fund by aggregate
unamortized principal balance of the assets of the Trust Fund. Prospective Plan
investors should consult with their legal advisors concerning the impact of
ERISA and the Code, the applicability of PTCE 83-1 described in the Prospectus
and the Exemption, and the potential consequences in their specific
circumstances, prior to making an investment in any of the Class A Certificates.
Moreover, each Plan fiduciary should determine whether, under the general
fiduciary standards of investment prudence and diversification, an investment in
any of the Class A Certificates is appropriate for the Plan, taking into account
the overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
S-80
<PAGE>
LEGAL INVESTMENT CONSIDERATIONS
Although upon their initial issuance all Classes of Class A Certificates
are expected to be rated ___ by ___ and ___ by _______, no Class of the Class A
Certificates will constitute "mortgage related securities" for purposes of
SMMEA.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement with the Depositor, the Master Servicer and the Seller (the
"Underwriting Agreement"), the Underwriters have severally agreed to purchase
the respective aggregate principal amount of each Class of Class A Certificates,
in each case as set forth opposite its name below:
Class A-1 Class A-2 Class A-3 Class A-4
Underwriter Certificates Certificates Certificates Certificates
----------- ------------ ------------ ------------ ------------
------------ $ $ $ $
------------ $ $ $ $
Total..... $ $ $ $
Class A-5 Class A-6 Class A-7 Class A-8
Underwriter Certificates Certificates Certificates Certificates
----------- ------------ ------------ ------------ ------------
------------ $ $ $ $
------------ $ $ $ $
Total..... $ $ $ $
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the Class A Certificates are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all of the
Class A Certificates to be purchased by them if any are taken.
The Underwriters initially propose to offer all or part of the Class A
Certificates directly to the public at the public offering prices for each
series set forth on the cover page of this Prospectus Supplement and may offer a
portion of the Class A Certificates to dealers at a price which represents a
concession not in excess of the amounts (approximate) set forth below for the
respective Class of the Class A Certificates. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of the amounts set forth
below for the respective Class of the Class A Certificates for certain dealers.
After the initial public offering, the public offering prices and such
concessions may from time to time be varied by the Underwriters.
S-81
<PAGE>
Concession to Reallowance
Dealers Concession
------- ----------
Class A-1................... % %
Class A-2................... % %
Class A-3................... % %
Class A-4................... % %
Class A-5................... % %
Class A-6................... % %
Class A-7................... % %
Class A-8................... % %
After the initial public offering, the public offering price, such
concessions and such discounts may be changed.
Block Financial Corporation has agreed to indemnify the Underwriters
against certain liabilities including liabilities under the Securities Act of
1933, as amended.
The Underwriters intend to make a secondary market in the Class A
Certificates, but neither has any obligation to do so. There can be no assurance
that a secondary market for the Class A Certificates will develop or, if it does
develop, that it will continue or that it will provide holders of the Class A
Certificates with a sufficient level of liquidity of, or trading markets for,
the Class A Certificates.
Until the distribution of the Class A Certificates is completed, rules
of the Commission may limit the ability of the Underwriters and certain selling
group members to bid for and purchase the Class A Certificates. As an exception
to these rules, the Underwriters are permitted to engage in certain transactions
that stabilize the price of the Class A Certificates. Such transactions consist
of bids or purchases for the purpose of pegging, fixing or maintaining the price
of the Class A Certificates.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases.
None of Block Financial Corporation, the Depositor or either of the
Underwriters makes any representation or prediction as to the direction or
magnitude of any effect that the transactions described above may have on the
prices of the Class A Certificates. In addition, none of Block Financial
Corporation, the Depositor or either of the Underwriters makes any
representation that the Underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the sale of the Class A
Certificates to purchase the Mortgage Loans from the Seller.
REPORT OF EXPERTS
The consolidated financial statements of __________________________ and
its subsidiaries as of December 31, 199_ and 199_ and for each of the three
years in the period ended December 31, 199_ incorporated by reference into this
Prospectus Supplement have been audited by ________________________, independent
accountants, as set forth in their report thereon incorporated by reference
herein in reliance upon the authority of such firm as experts in accounting and
auditing.
S-82
<PAGE>
LEGAL MATTERS
The validity of the Certificates will be passed upon for the Depositor
by Morrison & Hecker L.L.P., Kansas City, Missouri.
____________________________________, will pass upon certain legal matters on
behalf of the Underwriters. In addition, ________________, as special tax
counsel to the Depositor, will pass upon certain federal income tax matters for
the Depositor.
RATINGS
It is a condition to the issuance of the Class A Certificates that they
be rated ___ by ___ and ___ by _______. The ratings assigned by each of the
Rating Agencies to mortgage pass-through certificates address the likelihood of
the receipt of all distributions on the mortgage loans by the related
certificateholders under the agreements pursuant to which such certificates are
issued. The ratings of each Rating Agency take into consideration the credit
quality of the related mortgage pool, including any credit support providers,
structural and legal aspects associated with such certificates, and the extent
to which the payment stream on the mortgage pool is adequate to make the
payments required by such certificates. The ratings of each of the Rating
Agencies on such certificates do not, however, constitute a statement regarding
frequency of prepayments of the related mortgage loans.
The ratings of the Rating Agencies do not address (i) the possibility
that, as a result of principal prepayments, Certificateholders may receive a
lower than anticipated yield or (ii) the ability of the Trust Fund to pay any
Basis Risk Carryover Amount.
The ratings assigned to the Class A Certificates should be evaluated
independently from similar ratings on other types of securities. A rating is not
a recommendation to buy, sell or hold securities and may be subject to revision
or withdrawal at any time by the Rating Agencies.
The Depositor has not requested a rating of the Class A Certificates by
any rating agency other than the Rating Agencies; there can be no assurance,
however, as to whether any other rating agency will rate the Class A
Certificates or, if it does, what rating would be assigned by such other rating
agency. The rating assigned by such other rating agency to the Class A
Certificates could be lower than the respective ratings assigned by the Rating
Agencies.
S-83
<PAGE>
INDEX OF DEFINITIONS
Term Page
- - - ---- ----
1934 Act.................................................................S-iv
Accrual Period............................................................S-6
Actuarial Loans..........................................................S-39
Adjustable Rate Group....................................................S-ii
Adjustable Rate Margin....................................................S-1
Adjustment Date...........................................................S-3
Agreement................................................................S-64
Appraised Values.........................................................S-21
ARMs.....................................................................S-ii
Available Funds..........................................................S-59
Available Funds Cap.......................................................S-1
Available Funds Shortfall................................................S-58
Balloon Loans............................................................S-18
Basis Risk Carryover Amount...............................................S-7
Basis Risk Excess.........................................................S-7
BIF......................................................................S-56
Book-Entry Certificates..................................................S-60
Business Day........................................................S-6, S-64
Carry Forward Amount................................................S-7, S-10
Cede................................................................S-4, S-60
CEDEL.....................................................................S-4
Certificate Group.........................................................S-6
Certificate Insurance Policies............................................S-i
Certificate Insurer............................................S-i, S-2, S-13
Certificate Owners..................................................S-4, S-60
Certificate Principal Balance............................................S-14
Certificateholders.................................................S-55, S-60
Certificates........................................................S-i, S-55
Chase...............................................................S-4, S-60
Cimarron............................................................S-2, S-20
Citibank............................................................S-4, S-60
Class.....................................................................S-1
Class A Certificate Principal Balance....................................S-14
Class A Certificateholders..........................................S-ii, S-3
Class A Certificates......................................S-i, S-2, S-5, S-55
Class A Distribution Amount...............................................S-6
Class A-5 Lockout Distribution Amount.....................................S-8
Class A-5 Lockout Percentage..............................................S-8
Class A-5 Lockout Pro Rata Distribution Amount............................S-8
Class A-8 Lockout Distribution Amount.....................................S-9
Class A-8 Lockout Percentage..............................................S-9
Class A-8 Lockout Pro Rata Distribution Amount............................S-9
Class Certificate Balance.................................................S-2
Class R Certificates...........................................S-i, S-5, S-55
Class R Optionholder.....................................................S-15
Closing Date..............................................................S-2
Code.....................................................................S-16
Collection Account.................................................S-12, S-55
Compensating Interest....................................................S-73
CPR......................................................................S-41
CSC................................................................S-11, S-52
S-84
<PAGE>
Current Interest..........................................................S-7
Curtailments.............................................................S-19
Custodian................................................................S-71
Cut-off Date..............................................................S-2
Definitive Certificate...................................................S-60
Delinquency Advances...............................................S-12, S-71
Depositor.................................................................S-2
Determination Date.......................................................S-10
Distribution Account.....................................................S-57
Distribution Date...................................................S-ii, S-5
DTC.......................................................................S-4
Due Period...............................................................S-10
Eligible Account.........................................................S-56
ERISA....................................................................S-80
Euroclear.................................................................S-4
European Depositaries...............................................S-4, S-60
Excess Interest....................................................S-12, S-71
Excess Subordinated Amount...............................................S-67
Exemption................................................................S-80
FDIC.....................................................................S-56
FHLMC....................................................................S-17
Final Determination......................................................S-76
Fiscal Agent.............................................................S-63
Fixed Rate Group.........................................................S-ii
FNMA.....................................................................S-17
Foreign Investors........................................................S-79
GAAP...............................................................S-iv, S-65
Group 1 Certificates...........................................S-i, S-5, S-55
Group 2 Certificates......................................S-i, S-2, S-5, S-55
Initial Class Certificate Balance.........................................S-2
Insurance Premium Rate...................................................S-20
Insured Payments...................................................S-13, S-64
Insurer..................................................................S-63
IRS......................................................................S-78
LIBOR Business Day.......................................................S-60
LIBOR Determination Date.................................................S-60
Liquidated Mortgage Loan.................................................S-10
Loan Balance.............................................................S-70
Loan Group...............................................................S-ii
Loan Purchase Price......................................................S-69
Master Servicer..........................................................S-ii
Monthly Remittance Amount................................................S-57
Monthly Remittance Date..................................................S-10
Moody's..................................................................S-14
Mortgage.................................................................S-ii
Mortgage Indices..........................................................S-4
Mortgage Loans...........................................................S-ii
Mortgage Pool............................................................S-ii
Mortgage Rate.............................................................S-2
Mortgaged Property.......................................................S-ii
Mortgagor................................................................S-39
NCS.................................................................S-2, S-20
Net Lifetime Cap..........................................................S-7
Net Liquidation Proceeds.................................................S-71
Net Monthly Excess Cashflow..............................................S-58
Net Prepayment Interest Shortfall........................................S-73
S-85
<PAGE>
New Withholding Regulations..............................................S-79
NFI.................................................................S-2, S-20
Note......................................................................S-2
Notice...................................................................S-64
OID......................................................................S-77
OID Regulations..........................................................S-78
One-Month LIBOR...............................................S-ii, S-1, S-60
One-Year CMT..............................................................S-3
Optional Termination Date..........................................S-15, S-75
Original Loan Group Balance...............................................S-2
Original Pool Principal Balance...........................................S-2
Owner....................................................................S-64
Participants.............................................................S-60
Pass-Through Rate..................................................S-ii, S-57
Percentage Interest......................................................S-57
Permitted Investments....................................................S-55
Plan.....................................................................S-80
Policy...................................................................S-63
Pooling and Servicing Agreement.....................................S-ii, S-5
Preference Amount..................................................S-11, S-64
Prepayment...............................................................S-73
Prepayment Assumption....................................................S-41
Prepayment Interest Shortfall............................................S-73
Prepayment Period........................................................S-10
Prepayments..............................................................S-19
Principal Distribution Amount.............................................S-9
Rating Agency............................................................S-14
Realized Loss............................................................S-68
Record Date...............................................................S-6
Register.................................................................S-57
Registrar................................................................S-57
Reimbursement Amount.....................................................S-60
Related Loan Group.......................................................S-64
Relevant Depositary......................................................S-60
REMIC.......................................................S-iii, S-16, S-76
REMIC Opinion............................................................S-69
Replacement Cut-off Date.................................................S-70
Riegle Act...............................................................S-18
S&P......................................................................S-14
SAIF.....................................................................S-56
SAP......................................................................S-65
Seller...................................................................S-ii
Senior Lien..............................................................S-15
Servicing Advances.......................................................S-72
Servicing Fee......................................................S-11, S-73
Servicing Fee Rate.................................................S-11, S-73
Simple Interest Loans....................................................S-39
Six-Month LIBOR...........................................................S-3
Specified Subordinated Amount............................................S-67
Start-up Day..............................................................S-2
Subordinated Amount......................................................S-67
Subordination Deficit..............................................S-11, S-68
Subordination Increase Amount......................................S-11, S-67
Subordination Reduction Amount.....................................S-11, S-68
Substitution Adjustment..................................................S-70
Tax Counsel..............................................................S-16
S-86
<PAGE>
Three-Year CMT............................................................S-4
Total Available Funds....................................................S-59
Total Monthly Excess Cashflow............................................S-58
Total Monthly Excess Spread..............................................S-67
Trust Fund.........................................................S-ii, S-55
Trustee............................................................S-ii, S-63
Trustee Fee Rate.........................................................S-77
Underwriter...............................................................S-i
Underwriting Agreement...................................................S-81
S-87
<PAGE>
PROSPECTUS
Block Mortgage Finance, Inc.
Depositor
ASSET BACKED CERTIFICATES
(Issuable in Series)
Block Financial Corporation
Master Servicer
Companion Mortgage Corporation
Seller
------------------------
The Asset Backed Certificates (the "Certificates") offered hereby may be
sold from time to time in series (each, a "Series") as described in the related
Prospectus Supplement. Each Series of Certificates will be issued by a separate
trust (each, a "Trust"). The assets of each Trust (the "Trust Assets") will
consist primarily of (i) (a) first lien and junior lien mortgage loans secured
by one- to four-family residential properties, including Title I Loans and other
types of home improvement loans (each, a "Single Family Loan"); and/or (b) first
lien and junior lien mortgage loans secured by residential real property,
together with the manufactured housing unit located thereon (each, a "Contract",
and together with the Single Family Loans, the "Primary Assets"), (ii) monies
due or received on the Primary Assets after the related Cut-off Date to the
extent provided in the related Prospectus Supplement, and (iii) certain other
property, each as described herein and in the related Prospectus Supplement. In
addition to the foregoing, a Trust may contain a Prefunding Account to be
applied to acquire additional Primary Assets after the related Closing Date. The
amount initially deposited into a Prefunding Account for a Series of
Certificates will not exceed twenty-five percent (25%) of the aggregate
principal amount of such Series of Certificates. The Primary Assets will be
acquired by Block Mortgage Finance, Inc. (the "Depositor") from Companion
Mortgage Corporation (the "Seller") and/or other institutions as set forth in
the related Prospectus Supplement and conveyed by the Depositor to the related
Trust. The Primary Assets will be master serviced by Block Financial Corporation
(the "Master Servicer"). The Primary Assets and other assets of each Trust as
described herein and in the related Prospectus Supplement will be held for the
benefit of the holders of the related Series of Certificates.
Each Series of Certificates will be issuable in one or more classes
(each, a "Class"), each of which will represent beneficial ownership interests
in the Trust Assets of the related Trust. A Series may include one or more
Classes of Certificates entitled to principal distributions and
disproportionate, nominal or no interest distributions, or to interest
distributions and disproportionate, nominal or no principal distributions. The
rights of one or more Classes of Certificates of a Series may be senior or
subordinate to the rights of one or more of the other Classes of Certificates of
such Series. A Series may include two or more Classes of Certificates which
differ as to the timing, sequential order, priority of payment, interest rate or
amount of distributions of principal or interest or both.
If specified in the related Prospectus Supplement, one or more Classes
of Certificates of a Series may have the benefit of one or more of a letter
<PAGE>
of credit, financial guaranty insurance policy, reserve fund, spread account,
cash collateral account, overcollateralization, cross-collateralization or other
form of credit enhancement. If specified in the related Prospectus Supplement,
the Primary Assets underlying a Series of Certificates may be insured under one
or more of a mortgage pool insurance policy, special hazard insurance policy,
bankruptcy bond or similar credit enhancement. In addition to or in lieu of any
or all of the foregoing, credit enhancement with respect to one or more Classes
of Certificates of a Series may be provided through subordination. See
"Description of the Certificates--Description of Credit Enhancement" herein.
The yield on each Class of Certificates of a Series will be affected by,
among other things, the rate of payment of principal (including prepayments) on
the Primary Assets in the related Trust and the timing of receipt of such
payments. See "Certain Yield and Prepayment Considerations" herein and in the
related Prospectus Supplement. A Trust may be subject to early termination under
the circumstances described herein or in the related Prospectus Supplement.
None of the Certificates of any Series will represent an interest in or
obligation of the Depositor, the Seller, the Master Servicer, the Trustee or any
of their respective affiliates. None of the Certificates of any Series or the
underlying Primary Assets will be insured or guaranteed by any governmental
agency or instrumentality or by the Depositor, the Seller, the Master Servicer,
the Trustee or any of their affiliates, except as set forth in the related
Prospectus Supplement.
THESE CERTIFICATES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE RELATED PROSPECTUS
SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE RISK FACTORS SET FORTH UNDER "RISK
FACTORS" COMMENCING ON PAGE 17 HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT.
Prospective investors should refer to the "Index of Definitions" on page
117 herein for the location of the definitions of capitalized terms that appear
in this Prospectus.
(continued on following page)
September ___, 1998
<PAGE>
(continued from Prospectus cover)
Offers of the Certificates of a Series may be made through one or more
different methods, including offerings through underwriters, as described under
"Plan of Distribution" herein and "Underwriting" in the related Prospectus
Supplement. There will have been no secondary market for the Certificates of any
Series prior to the offering thereof. There can be no assurance that a secondary
market for any Class of Certificates of any Series will develop or, if one does
develop, that it will continue. None of the Certificates will be listed on any
securities exchange.
If specified in the related Prospectus Supplement, one or more elections
will be made to treat the related Trust or a designated portion of the assets of
the related Trust as one or more "real estate mortgage investment conduits"
(each, a "REMIC") for federal income tax purposes. For a description of certain
tax consequences of owning the Certificates, including, without limitation,
original issue discount, see "Federal Income Tax Consequences" herein and in the
related Prospectus Supplement.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Certificates. This Prospectus, which forms a part
of the Registration Statement, omits certain information contained in such
Registration Statement pursuant to the Rules and Regulations of the Commission.
The Registration Statement and the exhibits thereto may be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at its Regional Offices located as
follows: Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511; and New York Regional Office, 7 World Trade Center, 3rd
Floor, New York, New York 10007. Copies of such material may also be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains an
Internet Web site that contains reports, information statements and other
information regarding the registrants that file electronically with the
Commission. The address of such Internet Web site is http://www.sec.gov.
REPORTS TO HOLDERS
Periodic reports in such frequency as set forth in the related
Prospectus Supplement concerning the Trust Assets of each Trust are required to
be forwarded to holders of the Certificates of the related Series. See
"Description of the Certificates--Reports to Holders" herein for the listing of
the types of information that will be included in such report. Any reports
forwarded to holders will not contain financial information that has been
examined and reported upon by, with an opinion expressed by, an independent
public or certified public accountant.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the Depositor pursuant to
Section 13(a), Section 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended, with respect to the Trust for each Series subsequent to the
date of this Prospectus and prior to the termination of the offering of the
2
<PAGE>
Certificates evidencing an interest in such Trust shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof. 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 a part of this Prospectus.
The Depositor will provide without charge to each person to whom a copy
of this Prospectus is delivered, on the written or oral request of any such
person, a copy of any of or all the documents incorporated herein by reference
(other than exhibits to such documents). Requests for such copies should be
directed to the Depositor at 4435 Main Street, Suite 500, Kansas City, Missouri
64111, Attention: Corporate Counsel.
3
<PAGE>
SUMMARY OF PROSPECTUS
The following Summary of Prospectus is qualified in its entirety by
reference to the detailed information appearing elsewhere in this Prospectus and
by reference to the information with respect to each Series of Certificates
contained in the related Prospectus Supplement. Capitalized terms used but not
defined in this Summary of Prospectus shall have the meanings ascribed to such
terms elsewhere in this Prospectus. The Index of Definitions included in this
Prospectus on page 116 hereof sets forth the pages on which the definitions of
capitalized terms appear.
Title of Certificates...............Block Mortgage Finance Asset Backed Certifi-
cates, issuable in series (the "Certifi-
cates").
Depositor ..........................Block Mortgage Finance, Inc., a Delaware
corporation (the "Depositor") and a wholly
owned, limited purpose subsidiary of the
Seller.
Seller..............................Companion Mortgage Corporation, a Delaware
corporation (the "Seller") and a wholly
owned subsidiary of Block Financial
Corporation and/or other institutions as set
forth in the related Prospectus Supplement.
Master Servicer.....................Block Financial Corporation, a Delaware
corporation (the "Master Servicer") and an
indirect, wholly owned subsidiary of H&R
Block, Inc.
Trustee.............................The entity or entities named as trustee
in the related Prospectus Supplement (the
"Trustee").
Cut-off Date........................The date specified in the related Prospectus
Supplement after which payments due or
received on the related Primary Assets, as
specified in the related Prospectus Supple-
ment, are transferred to the related Trust
and available for payment to the holders of
the related Certificates (each, a "Cut-off
Date").
Closing.............................Date The date on which the Certificates of
any Series are initially issued (each, a
"Closing Date") as specified in the related
Prospectus Supplement.
Description of
Certificates..................... The Certificates of each Series may be
issued in one or more classes (each, a
"Class") and will represent "Description
of the Primary Assets" herein. Series of
Certificates may include one or more Classes
entitled to distributions of principal and
disproportionate, nominal interest and
4
<PAGE>
disproportionate, nominal or no principal
distributions. The principal amount of any
Certificate may be zero or may be a notional
amount as specified in the related
Prospectus Supplement. A Class of
Certificates of a Series entitled to
payments of interest may receive interest at
a specified rate (a "Pass-Through Rate")
which may be fixed or adjustable and may
differ from other Classes of the same
Series, may receive interest. Based on the
weighted average interest rate on the
underlying Primary Assets or may receive
interest as otherwise determined, all as
described in the related Prospectus
Supplement. One or more Classes of a Series
may be Certificates upon which interest will
accrue but not be currently paid until
certain other Classes have received
principal payments due to them in full or
until the happening of certain events, as
set forth in the related Prospectus
Supplement. One or more Classes of
Certificates of a Series may be entitled to
receive principal payments pursuant to a
planned amortization schedule or may be
entitled to receive interest payments based
on a notional principal amount which reduces
in accordance with a planned amortization
schedule. A Series may also include one or
more Classes of Certificates entitled to
payments derived from a specified group or
groups of Primary Assets held by the related
Trust. The rights of one or more Classes of
Certificates may be senior or subordinate to
the rights of one or more of the other
Classes of Certificates. A Series may
include two or more Classes of Certificates
which differ as to the timing, sequential
order, priority of payment or amount of
distributions of principal or interest or
both.
Distribution Date................. The date specified in the related Prospectus
Supplement on which payments will be made to
holders of Certificates (each, a "Distribu-
tion Date").
Determination Date................ With respect to each Distribution Date, the
business day (each, a "Determination Date")
specified in the related Prospectus Supple-
ment.
Record Date....................... The calendar day (each, a "Record Date")
specified in the related Prospectus Supple-
ment.
Distributions of
Interest on the
Certificates.................... Interest on each Class of Certificates of a
Series (other than a Class of Certificates
entitled to receive only principal) will
accrue during each period specified in the
related Prospectus Supplement (each, an
"Accrual
5
<PAGE>
Period") at the Pass-Through Rate for such
Class specified in the related Prospectus
Supplement. Interest accrued on each Class
of Certificates at the applicable
Pass-Through Rate during each Accrual Period
will be paid, to the extent monies are
available therefor, on each Distribution
Date, commencing on the day specified in the
related Prospectus Supplement, and will be
distributed in the manner specified in such
Prospectus Supplement, except for any Class
of Certificates ("Accrual Certificates") on
which interest is to accrue and not be paid
until the principal of certain other Classes
has been paid in full or until the
occurrence of certain events as specified in
such Prospectus Supplement. If so described
in the related Prospectus Supplement,
interest that has accrued but is not yet
payable on any Accrual Certificates will be
added to the principal balance thereof on
each Distribution Date and will thereafter
bear interest at the applicable Pass-Through
Rate. Payments of interest with respect to
any Class of Certificates entitled to
receive interest only or a disproportionate
amount of interest and principal will be
paid in the manner set forth in the related
Prospectus Supplement. Payments of interest
(or accruals of interest, in the case of
Accrual Certificates) with respect to any
Series of Certificates or one or more
Classes of Certificates of such Series, may
be reduced to the extent of interest
shortfalls not covered by Advances, if any,
or by any applicable credit enhancement.
Distribution of
Principal of the
Certificates.................... On each Distribution Date, commencing
with the Distribution Date specified in
the related Prospectus Supplement, principal
received or advanced with respect to the
related Primary Assets during the period
specified in the related Prospectus Supple-
ment (each such period, a "Due Period") will
be paid to holders of the Certificates of
the related Series (other than a Class of
Certificates of such Series entitled to
receive interest only) in the priority,
manner and amount specified in such Pros-
pectus Supplement, to the extent funds are
available therefor. Payments of principal
with respect to a Series of Certificates
or one or more Classes of such Series may
be reduced to the extent of delinquencies or
losses not covered by Advances, if any, or
any applicable credit enhancement.
6
<PAGE>
Denominations..................... Each Class of Certificates of a Series will
be issued in the minimum denominations set
forth in the related Prospectus Supplement.
Each individual Certificate of a Class of
Certificates will represent a percentage
interest (a "Percentage Interest") in the
related Class determined by dividing the
original principal balance (or original
Notional Principal Amount, in the case of
Certificates entitled to interest only and
assigned a Notional Principal Amount) repre-
sented by such individual Certificate by
the original aggregate principal balance of
all Certificates of the related Class (or
original aggregate Notional Principal Amount
of the related Class, if applicable). The
"Notional Principal Amount" with respect to
any Certificate having a Notional Principal
Amount will be calculated as set forth in
the related Prospectus Supplement.
Registration of the
Certificates.................... Each or any Class of Certificates of a
Series may be issued in definitive form or
may initially be represented by one or more
certificates ("Book-Entry Certificates")
registered in the name of Cede & Co.
("Cede"), the nominee of The Depository
Trust Company ("DTC"), and available only
in the form of book-entries on the records
of DTC, participating members thereof
("Participants") and other entities, such as
banks, brokers, dealers and trust companies,
that clear through or maintain custodial
relationships with a Participant, either
directly or indirectly ("Indirect Partici-
pants"). Certificateholders may also hold
Certificates of a Series through CEDEL or
Euroclear (in Europe), if they are partici-
pants in such systems or indirectly through
organizations that are participants in such
systems. Certificates representing Book-
Entry Certificates will be issued in defini-
tive form only under the limited circum-
stances described herein and in the related
Prospectus Supplement. With respect to
Book-Entry Certificates, all references
herein and in the Prospectus Supplement to
"holders" shall reflect the rights of owners
of the Book-Entry Certificates as they may
indirectly exercise such rights through
DTC and Participants, except as otherwise
specified herein. See "Risk Factors" and
"Description of the Certificates--Registra-
tion and Transfer of the Certificates"
herein.
The Trusts........................ The Trust for a Series of Certificates
will include certain mortgage related assets
(the "Primary Assets") consisting of Single
Family
7
<PAGE>
Loans and/or Contracts, together with pay-
ments in respect of such assets and certain
other accounts, obligations or agreements,
in each case as specified in the related
Prospectus Supplement. All of the Primary
Assets will have been purchased by the
Depositor from the Seller and/or from other
institutions as set forth in the related
Prospectus Supplement.
A. Single Family
Loans........................... Single Family Loans will be secured by
first, second or more junior liens on resi-
dential properties. Such Single Family Loans
may be conventional loans (i.e., loans that
are not insured or guaranteed by any
governmental agency), insured by the Federal
Housing Authority ("FHA") or partially
guaranteed by the Veterans' Administration
("VA"), as specified in the related
Prospectus Supplement. If specified in the
related Prospectus Supplement, the Single
Family Loans may include (i) closed-end home
equity loans ("Home Equity Loans") and/or
(ii) Title I Loans and other types of home
improvement loans each of which will be
secured by first, second or more junior
liens on fee simple or leasehold interests
in one- to four-family residential
properties. See "Description of the Primary
Assets--Single Family Loans" herein.
B. Contracts.................... Contracts will consist of first lien or
junior lien mortgage loans secured by
residential real property, together with
the Manufactured Homes located thereon.
Contracts may be conventional, insured by
the FHA or partially guaranteed by the VA,
as specified in the related Prospectus Sup-
plement. See "Description of the Primary
Assets--Contracts" herein.
C. Terms of the
Primary......................... Assets The payment terms of the Primary
Assets to be included in a Trust will be
described in the related Prospectus
Supplement and may include any of the
following features or combinations thereof
or other features described in the related
Prospectus Supplement:
(a) Interest may be payable at a fixed rate,
a rate adjustable from time to time in
relation to an index (which will be
specified in the related Prospectus
Supplement), a rate that is fixed for a
period oftime or under certain circumstances
and is followed by an adjustable rate, a
rate that otherwise varies from time to
time, or a rate that is convertible from an
adjustable rate to a fixed rate (the
"Mortgage Rate"). Changes to an adjustable
rate may be
8
<PAGE>
subject to periodic limitations, maximum
rates, minimum rates or a combination of
such limitations. Accrued interest may be
deferred and added to the principal of a
loan for such periods and under such
circumstances as may be specified in the
related Prospectus Supplement. The Primary
Assets may provide for the payment of
interest at a rate lower than the specified
Mortgage Rate for a period of time or for
the life of the loan, and the amount of any
difference may be contributed from funds
supplied by the seller of the Mortgaged
Property or another source.
(b) Principal may be payable on a level debt
service basis to fully amortize the loan
over its term, may be calculated on the
basis of an assumed amortization schedule
that is significantly longer than the
original term to maturity or on an interest
rate that is different from the interest
rate on the Primary Asset or may not be
amortized during all or a portion of the
original term. Payment of all or a
substantial portion of the principal may be
due on maturity ("balloon payments").
Principal may include interest that has been
deferred and added to the principal balance
of the Primary Asset.
(c) Monthly payments of principal and
interest on the Primary Assets (the "Monthly
Payments") may be fixed for the life of the
loan, may increase over a specified period
of time or may change from period to period.
Primary Assets may include limits on
periodic increases or decreases in the
amount of Monthly Payments and may include
maximum or minimum amounts of Monthly
Payments.
(d) Prepayments of principal may be subject
to a prepayment fee, which may be fixed for
the life of the Primary Asset or may decline
over time, and may be prohibited for the
life of the Primary Asset or for certain
periods ("lockout periods"). Certain Primary
Assets may permit prepayments after
expiration of the applicable lockout period
and may require the payment of a prepayment
fee in connection with any such subsequent
prepayment. Other Primary Assets may permit
prepayments without payment of a fee unless
the prepayment occurs during specified time
periods. The Primary Assets may include
"due-on-sale" clauses which permit the
mortgagee to demand payment of the entire
Primary Asset in connection with the sale or
certain transfers of the related Mortgaged
Property. Other Primary Assets may be
assumable
9
<PAGE>
by persons meeting the then applicable
underwriting standards for such Primary
Asset.
(e) The real property constituting security
for repayment of a Primary Asset (the
"Mortgaged Property") may be located in any
one of the fifty states, the District of
Columbia, Guam, Puerto Rico or any other
territory of the United States. The Primary
Assets will be required to be covered by
standard hazard insurance policies insuring
against losses due to fire and various other
causes as discussed herein and, to the
extent not covered herein, in the related
Prospectus Supplement. The Primary Assets
will be covered by primary mortgage
insurance policies to the extent provided in
the related Prospectus Supplement. The
Prospectus Supplement for each Series of
Certificates will specify certain
information with respect to the related
Primary Assets initially deposited into the
related Trust including, without limitation,
the aggregate original principal balance of
the Primary Assets initially deposited into
the related Trust, the respective
percentages of such Primary Assets which are
secured by first mortgages, second mortgages
and more junior mortgages, the minimum and
maximum outstanding principal balances of
such Primary Assets, the Mortgage Rate
(fixed or adjustable) together with, with
respect to such adjustable rate Primary
Assets initially deposited into the related
Trust, the index upon which the interest
rate is based, the weighted average original
term to maturity, the weighted average
remaining term to maturity, the minimum and
maximum remaining terms to maturity and the
range of origination dates. If so specified
in the related Prospectus Supplement, such
information may be approximate, based on the
expected Primary Assets to be included in
the related Trust, in which case the final
information, to the extent of any variances,
will be contained in the Form 8-K referred
to below. See "Description of the Primary
Assets" herein and "Description of the
Mortgage Pool" in the related Prospectus
Supplement. A Current Report on Form 8-K
(each, a "Form 8-K") will be available to
purchasers or underwriters of the related
Series of Certificates and will be filed,
together with the related primary documents,
with the Commission within fifteen days
after the related Closing Date.
Forward Commitments;
Prefunding...................... If so specified in the related Prospectus
Supplement, a portion of the proceeds of the
10
<PAGE>
sale of one or more Classes of Certificates
of a Series may be deposited in a segregated
account (a "Prefunding Account") to be
applied to acquire additional Primary
Assets. The times and requirements for the
acquisition of such Primary Assets will be
set forth in the related Pooling and
Servicing Agreement or other agreement with
the Depositor and/or Seller and will be
disclosed in the related Prospectus
Supplement. Monies on deposit in the
Prefunding Account and not applied to
acquire such additional Primary Assets
within the time set forth in the related
Pooling and Servicing Agreement or other
applicable agreement, which shall in no
event exceed six months, shall be used in
the manner set forth in related Prospectus
Supplement, including being treated as a
principal prepayment and applied in the
manner described in the related Prospectus
Supplement. The amount initially deposited
into a Prefunding Account for a Series of
Certificates will not exceed twenty- five
percent (25%) of the aggregate principal
amount of such Series of Certificates.
Optional Termination.............. The Master Servicer, the Depositor and/or
any other entity specified in the related
Prospectus Supplement may have the option to
effect the early termination of a Series of
Certificates through the purchase of the
Primary Assets and other assets in the
related Trust under the circumstances and
in the manner described in "The Trusts--
Optional Disposition of Primary Assets"
herein and in the related Prospectus
Supplement.
Mandatory Termination............. If so specified in the related Prospectus
Supplement, the Trustee, the Master Servic-
er, the Seller, the Depositor and/or any
other entity as may be specified in such
Prospectus Supplement may be required to
effect early retirement of a Series of
Certificates by soliciting competitive bids
for the purchase of the Primary Assets and
other assets in the related Trust or other-
wise, under the circumstances and in the
manner specified under "The Trusts--Manda-
tory Disposition of Primary Assets" herein.
Yield and Prepayment
Considerations.................. The yield on each Class of Certificates of a
Series will be affected by, among other
things, the rate of payment of principal
(including prepayments) on the Primary
Assets in the related Trust and the timing
of receipt of such payments. See "Certain
Yield and Prepayment Considerations" herein
and in the related
11
<PAGE>
Prospectus Supplement. The Prospectus
Supplement for a Series may specify certain
yield calculations for Classes receiving
disproportionate allocations of principal
and interest based upon an assumed rate or
range of prepayment assumptions on the
related Primary Assets. A higher level of
principal prepayments on the related Primary
Assets than anticipated is likely to have an
adverse effect on the yield of any Class of
Certificates that is purchased at a premium
(including Certificates entitled to receive
interest only) and a lower level of
principal prepayments on the related Primary
Assets than anticipated is likely to have an
adverse effect on the yield of any Class of
Certificates that is purchased at a
discount. In either case, those
Certificateholders may fail to recoup fully
their initial investment. See "Certain Yield
and Prepayment Considerations" herein and in
the related Prospectus Supplement.
Credit Enhancement................ If so specified in the related Prospectus
Supplement, credit enhancement may be pro-
vided by any one or a combination of a
letter of credit, financial guaranty insur-
ance policy, reserve fund, spread account,
cash collateral account, overcollateraliza-
tion, cross-collateralization or other type
of credit enhancement to provide full or
partial coverage for certain defaults and
losses relating to the underlying Primary
Assets. In addition, if specified in the
related Prospectus Supplement, the Primary
Assets underlying a Series of Certificates
may be insured under one or more of a mort-
gage pool insurance policy, special hazard
insurance policy, bankruptcy bond or similar
credit enhancement. Credit support may also
be provided by subordination. The amount of
any credit enhancement may be limited or
have exclusions from coverage and may
decline or be reduced over time or under
certain circumstances, all as specified in
the related Prospectus Supplement. See
"Description of the Certificates--Descrip-
tion of Credit Enhancement" herein.
A. Subordination................ A Series of Certificates may consist of
one or more classes of Senior Certificates
and one or more classes of Subordinated
Certificates. The rights of the holders of
the Subordinated Certificates of a Series
to receive distributions with respect to
the Trust Assets will be subordinated to
such rights of the holders of the Senior
Certificates of the same Series to the
extent described in the related Prospectus
Supplement. This subordination is
12
<PAGE>
intended to enhance the likelihood of
regular receipt by holders of Senior
Certificates of the full amount of monthly
payments of principal and interest due them.
The protection afforded to the holders of
Senior Certificates of a Series by means of
the subordination feature will be
accomplished by: (i) the preferential right
of such holders to receive, prior to any
distribution being made in respect of the
related Subordinated Certificates, the
amounts of interest and/or principal due
them on each Distribution Date out of the
funds available for distribution on such
date and, to the extent described in the
related Prospectus Supplement, by the right
of such holders to receive future
distributions on the assets in the related
Trust that would otherwise have been payable
to the holders of Subordinated Certificates;
(ii) reducing the ownership interest (if
applicable) or principal balance of the
related Subordinated Certificates through
the allocation of losses on the related
Primary Assets; (iii) a combination of
clauses (i) and (ii) above; or (iv) as
otherwise described in the related
Prospectus Supplement. If so specified in
the related Prospectus Supplement,
subordination may apply only in the event of
certain types of losses not covered by other
forms of credit enhancement, such as hazard
losses not covered by standard hazard
insurance policies or losses due to the
bankruptcy or fraud of the Mortgagor. The
related Prospectus Supplement will set forth
information concerning, among other things,
the amount of subordination of a Class or
Classes of Subordinated Certificates in a
Series, the circumstances in which such
subordination will be applicable, and the
manner, if any, in which the amount of
subordination will decrease over time.
B. Reserve Account.............. One or more reserve accounts (each, a
"Reserve Account") may be established and
maintained for each Series of Certificates.
The related Prospectus Supplement will
specify whether such Reserve Accounts will
be included in the corpus of the Trust for
such Series and will also specify the manner
of funding such Reserve Accounts and the
conditions under which the amounts in any
such Reserve Accounts will be used to make
distributions to holders of Certificates
of a particular Class or released from
such Reserve Accounts.
C. Overcollateralization........ If specified in the related Prospectus
Supplement, credit support may consist of
overcollateralization whereby the aggregate
13
<PAGE>
principal amount of the Primary Assets
exceeds the aggregate principal balance of
the Certificates of such Series. Such
overcollateralization may exist on the
Closing Date or develop thereafter as a
result of the application of certain
interest collections or other collections
received in connection with the Trust Assets
in excess of amounts necessary to pay the
Pass-Through Rate on the Certificates. The
existence of any overcollateralization and
the manner, if any, by which it increases or
decreases, will be set forth in the related
Prospectus Supplement.
D. Special Hazard
Insurance Policy............. If so pecified in the related Prospectus
Supplement, certain classes of Certificates
of a Series may have the benefit of a
special hazard insurance policy or policies
(each, a "Special Hazard Policy") covering
certain physical risks that are not other-
wise insured against by standard hazard
insurance policies. Each Special Hazard
Policy will be limited in scope and will
cover losses pursuant to the provisions of
each such Special Hazard Policy as described
in the related Prospectus Supplement.
E. Bankruptcy Bond.............. One or more bankruptcy bonds (each, a "Bank-
ruptcy Bond") may be obtained covering
certain losses resulting from action which
may be taken by a bankruptcy court in
connection with a Primary Asset. The level
of coverage and the limitations in scope
of each Bankruptcy Bond will be specified
in the related Prospectus Supplement.
F. Pool Insurance
Policy....................... A mortgage pool insurance policy or policies
(each, a "Pool Insurance Policy") may be
obtained and maintained for Primary Assets
relating to any Series of Certificates,
which shall be limited in scope, covering
defaults on the related Primary Assets in
an amount equal to a specified percentage
of the aggregate principal balance of all
Primary Assets included in the Trust.
G. Cross-collateralization...... If specified in the related Prospectus Supp-
lement, separate Classes of a Series of
Certificates may evidence the beneficial
ownership of, or be secured by, separate
groups of assets included in a Trust. In
such case, credit support may be provided
by a cross-collateralization feature which
requires that distributions be made with
respect to
14
<PAGE>
Certificates evidencing beneficial ownership
of, or secured by, one or more asset groups
prior to distributions to other Classes of
Certificates evidencing a beneficial
ownership interest in, or secured by, other
asset groups within the same Trust. If
specified in the related Prospectus
Supplement, the coverage provided by one or
more forms of credit support may apply
concurrently to two or more separate Trusts.
If applicable, the related Prospectus
Supplement will identify the Trusts to which
such credit support relates and the manner
of determining the amount of the coverage
provided thereby and of the application of
such coverage to the identified Trusts.
H. Other Arrangements........... Other arrangements as described in the
related Prospectus Supplement including, but
not limited to, one or more letters of
credit, surety bonds, other insurance or
third-party guarantees may be used to
provide coverage for certain risks of
defaults or various types of losses.
Advances.......................... If so specified in the related Prospectus
Supplement, the Master Servicer may be
required (i) to make advances (each, a "P&I
Advance"), to the extent deemed recoverable,
or (ii) to withdraw from any Collection
Account specified in the related Prospectus
Supplement amounts on deposit therein and
held for future distribution, in each case
in respect of (A) interest on the Primary
Assets due during the related Due Period but
uncollected as of the related Determination
Date (net of the Servicing Fee) and/or (B)
principal on the Primary Assets scheduled
to be paid during the related Due Period
but uncollected as of the related Determina-
tion Date, other than a balloon payment. See
"The Trusts--Advances; Servicing Advances"
herein.
Servicing Fee..................... The Master Servicer will be entitled to
receive a fee for its servicing duties in
the amount specified in the related Prospec-
tus Supplement (the "Servicing Fee"), pay-
able from payments on the related Primary
Assets (as specified in the related Prospec-
tus Supplement), Liquidation Proceeds,
Released Mortgaged Property Proceeds and
certain other sources as provided in the
related Pooling and Servicing Agreement.
Ratings........................... It is a condition to the issuance of each
Series of Certificates that each Class of
the Certificates of such Series offered
pursuant to this Prospectus and the related
Prospectus Supplement be rated by one or
more of Moody's
15
<PAGE>
Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc.
("S&P"), Fitch IBCA, Inc. ("Fitch") and Duff
& Phelps Credit Rating Co. ("D&P"; and each
of D&P, Fitch, Moody's and S&P, a "Rating
Agency") in one of their four highest rating
categories. A security rating is not a
recommendation to buy, sell or hold
securities and may be subject to revision or
withdrawal at any time. No person is
obligated to maintain any rating on any
Certificate, and, accordingly, there can be
no assurance that the ratings assigned to
any Class of Certificates upon initial
issuance thereof will not be lowered or
withdrawn by a Rating Agency at any time
thereafter. If a rating of any Class of
Certificates of a Series is revised or
withdrawn, the liquidity of such Class of
Certificates may be adversely affected. In
general, the ratings address credit risk and
do not represent any assessment of the
likelihood or rate of principal prepayments.
See "Risk Factors--Limited Liquidity" and
"Ratings" herein.
Federal Income Tax..................The federal income tax consequences of each
Trust will depend upon, among other
factors, whether one or more elections are
made to treat a Trust or specific portion
thereof as a "real estate mortgage invest-
ment conduit" ("REMIC") under the Internal
Revenue Code of 1986, as amended (the
"Code"), or, if no REMIC election is made,
whether the Certificates are considered to
be Pass-Through Securities or Stripped
Securities. The related Prospectus Supple-
ment will specify whether a REMIC election
will be made. See "Federal Income Tax
Consequences" herein and in the related
Prospectus Supplement.
Legal Investment.................. Unless otherwise specified in the related
Prospectus Supplement, no Class of Certifi-
cates will constitute "mortgage related
securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984
("SMMEA") because, among other things, the
related Trust will include Primary Assets
that are secured by second mortgages.
Investors should consult their own legal
advisors in determining whether and to what
extent a Class of Certificates constitutes
legal investments for such investors. See
"Legal Investment Matters" herein.
ERISA Considerations.............. A fiduciary of any employee benefit plan
or other retirement plan or arrangement
subject to the Employee Retirement Income
Security Act of
16
<PAGE>
1974, as amended ("ERISA"), or the Code
should carefully review with its legal
advisors whether the purchase or holding of
Certificates could give rise to a
transaction prohibited or not otherwise
permissible under ERISA or the Code. Certain
Classes of Certificates may not be acquired
or transferred unless the Trustee and the
Depositor are furnished with a letter of
representation or an opinion of counsel to
the effect that such acquisition or transfer
will not result in a violation of the
prohibited transaction provisions of ERISA
and the Code and will not subject the
Trustee, the Depositor or the Master
Servicer to additional obligations. See
"ERISA Considerations" herein and in the
related Prospectus Supplement.
17
<PAGE>
RISK FACTORS
Investors should consider the following material risks in connection
with the purchase of Certificates:
Limited Liquidity. There will be no market for the Certificates of any
Series prior to the issuance thereof, and there is no assurance that a secondary
market for any of the Certificates will develop or, if one does develop, that it
will provide Certificateholders with liquidity of investment or that it will
continue for the life of such Certificates.
Limited Source of Payments, Limited Obligations of Seller, Depositor or
Master Servicer. The Depositor does not have, nor is it expected to have, any
significant assets. Unless otherwise specified in the related Prospectus
Supplement, the Certificates of a Series will be payable solely from the Trust
Assets in the related Trust and will not have any claim against or security
interest in the Trust for any other Series. There will be no recourse to the
Depositor or any other person for any failure to receive distributions on the
Certificates. Consequently, Certificateholders of each Series must rely solely
upon payments with respect to the Trust Assets for a Series of Certificates,
including, if applicable, any amounts available pursuant to any credit
enhancement for such Series, for the payment of principal of and interest on the
Certificates of such Series.
The Certificates of any Series will not represent an interest in or
obligation of the Depositor, the Seller, the Master Servicer, the Trustee or any
of their respective affiliates. In addition, if the Seller fails to repurchase
any Primary Asset with respect to which it has a repurchase obligation as a
result of a breach of a representation or warranty, the Depositor will have no
obligation to purchase such Primary Asset from the Trust. The Master Servicer's
servicing obligations under the related Pooling and Servicing Agreement may
include its limited obligation to make certain Advances, but only to the extent
deemed recoverable.
Yield and Prepayment Considerations. The yield to maturity of each Class
of Certificates of a Series will depend on the rate and timing of payment of
principal on the related Primary Assets, including prepayments, liquidations due
to defaults, repurchases due to defective documentation and breaches of
representations and warranties or early termination of the Trust. Such yield may
be adversely affected by a higher or lower than anticipated rate of prepayments
on the Primary Assets. Prepayments are influenced by a number of factors,
including prevailing mortgage market interest rates, local and regional economic
conditions and homeowner mobility. The yield to maturity of certain Classes of
Certificates identified in the related Prospectus Supplement may be particularly
sensitive to the rate and timing of principal payments (including prepayments,
liquidations and repurchases) of the related Primary Assets, which may fluctuate
significantly from time to time. Generally, mortgage loans with rates which are
higher, and especially if they are significantly higher, than prevailing
mortgage market interest rates will prepay faster than mortgage loans which have
rates set closer to the then prevailing mortgage market interest rates.
Therefore, in a declining interest rate environment, Primary Assets with higher
Mortgage Rates may prepay faster than anticipated. Investors in a Class of
Certificates offered at a discount from the principal amount thereof or with no
stated principal amount should fully consider the associated risks, including
the risk that a rapid rate of principal payments could result in the failure of
such investors to recoup their initial investments. See
18
<PAGE>
"Certain Yield and Prepayment Considerations" herein and in the related
Prospectus Supplement.
Lower Credit Quality Primary Assets. Certain of the Primary Assets
underlying a Series of Certificates may have been made to lower credit quality
borrowers who have marginal credit and fall into one of two categories:
customers with moderate income, limited assets and other income characteristics
which cause difficulty in borrowing from banks and other traditional sources of
lenders, and customers with a derogatory credit report including a history of
irregular employment, previous bankruptcy filings, repossession of property,
charged-off loans and garnishment of wages. The average Mortgage Rate on Primary
Assets made to these types of borrowers is generally higher than that charged by
lenders that typically impose more stringent credit requirements. The payment
experience on loans made to these types of borrowers is likely to be different
(i.e., greater likelihood of late payments or defaults, less likelihood of
prepayments) from that on loans made to borrowers with higher credit quality,
and is likely to be more sensitive to changes in the economic climate in the
areas in which such borrowers reside. See "Description of the Primary Assets"
herein and "Description of the Mortgage Pool" in the related Prospectus
Supplement.
Nature of Security. Certain of the Primary Assets underlying the
Certificates of a Series may be secured by Mortgages junior or subordinate to
one or more other mortgages ("Senior Liens"), and the related Senior Liens will
not be included in the Primary Assets. Although little data is available, the
rate of default of second or more junior mortgage loans may be greater than that
of mortgage loans secured by Senior Liens on comparable properties. A primary
risk to holders of Primary Assets secured by junior Mortgages is the possibility
that adequate funds will not be received in connection with a foreclosure of the
related Senior Lien to satisfy fully both the Senior Lien and the Primary Asset.
If a holder of the Senior Lien forecloses on a Mortgaged Property, the proceeds
of the foreclosure or similar sale generally will be applied first to the
payment of court costs and fees in connection with the foreclosure, second to
real estate taxes, and third to satisfaction of all principal, interest,
prepayment or acceleration penalties, if any, and any other sums due and owing
to the holder of the Senior Lien. The claims of the holder of the Senior Lien
will be satisfied in full out of proceeds of the liquidation of the Primary
Asset, if such proceeds are sufficient, before the related Trust, as holder of
the junior Mortgage, receives any payments in respect of such Primary Asset. If
the Master Servicer were to foreclose on any Primary Asset which is a junior
mortgage loan, it would do so subject to any related Senior Lien. The debt
related to such Primary Asset would not be paid in full at such sale unless a
bidder at the foreclosure sale of such Primary Asset bids an amount sufficient
to pay off all sums due under such Primary Asset and the Senior Lien or
purchases the Mortgaged Property subject to the Senior Lien. If such proceeds
from a foreclosure or similar sale of the related Mortgaged Property are
insufficient to satisfy such loans in the aggregate, the related Trust, as the
holder of the junior Mortgage, and, accordingly, holders of the Certificates
would bear (i) the risk of delay in distributions while a deficiency judgment
against the Mortgagor is obtained and (ii) the risk of loss if the deficiency
judgment is not realized upon. Moreover, deficiency judgments may not be
available in certain jurisdictions. In addition, a junior mortgagee may not
foreclose on the property securing a junior Mortgage unless it forecloses
subject to the Senior Lien. In servicing second Mortgages, the Master Servicer
may, but is not obligated to, advance funds to keep the related Senior Lien
current in the event the Mortgagor is in default
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thereunder until such time as the Master Servicer satisfies the Senior Lien by
sale of the Mortgaged Property, if it determines such Advances will be
recoverable from future payments and collections on that Primary Asset or
otherwise. The related Trust will have no source of funds to satisfy any Senior
Lien or make payments due to any senior mortgagee. The junior Mortgages securing
the Primary Assets are subject and subordinate to any Senior Liens affecting the
related Mortgaged Property.
In addition to the foregoing, certain of the Primary Assets underlying
the Certificates of a Series may have Loan-to-Value Ratios or Combined
Loan-to-Value Ratios in excess of 100%. As a result, the Mortgaged Property may
not provide adequate security for the related Primary Asset. In the event the
Mortgaged Property fails to provide adequate security for the related Primary
Asset, the Certificateholders of the related Trust could, absent credit
enhancement features, experience a loss.
Balloon Payments. Certain of the Primary Assets underlying a Series of
Certificates may provide for the payment of the unamortized principal balance of
the Primary Asset in a single payment at the maturity of the Primary Asset that
is greater than the preceding monthly payment ("Balloon Loans"). See
"Description of the Primary Assets" herein and "Description of the Mortgage
Pool" in the related Prospectus Supplement. Because Mortgagors under Balloon
Loans are required to make a relatively large single payment upon maturity, it
is possible that the default risk associated with Balloon Loans is greater than
that associated with fully-amortizing mortgage loans. The ability of a Mortgagor
on a Balloon Loan to repay the Primary Asset upon maturity frequently depends
upon, among other things, the Mortgagor's ability to refinance the Primary
Asset, which will be affected by a number of factors, including, without
limitation, the level of mortgage rates available in the primary mortgage market
at the time, the Mortgagor's equity in the related Mortgaged Property, the
financial condition of the Mortgagor, the condition of the Mortgaged Property,
tax law, general economic conditions and the general willingness of financial
institutions and primary mortgage bankers to extend credit.
Although a low interest rate environment may facilitate the refinancing
of a balloon payment, the receipt and reinvestment by holders of the
Certificates of the proceeds in such an environment may produce a lower return
than that previously received in respect of the related Primary Asset.
Conversely, a high interest rate environment may make it more difficult for the
Mortgagor to accomplish a refinancing and may result in delinquencies or
defaults.
Prefunding Accounts May Adversely Affect Investment. If a Trust includes
a Prefunding Account and the principal balance of additional Primary Assets
delivered to the Trust after the Closing Date is less than the amount initially
deposited into the Prefunding Account, the holders of the Certificates of the
related Series will receive a prepayment of principal as and to the extent
described in the related Prospectus Supplement. Any such principal prepayment
may adversely affect the yield to maturity of the applicable Certificates. Since
prevailing interest rates are subject to fluctuation, there can be no assurance
that investors will be able to reinvest such prepayments at yields equaling or
exceeding the yields on the related Certificates. It is possible that the yield
on any such reinvestment will be lower, and may be substantially lower, than the
yield on the related Certificates.
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The ability of a Trust to invest in additional Primary Assets during the
Prefunding Period (as defined in the related Prospectus Supplement) will be
dependent upon the ability of the Depositor to acquire Primary Assets that
satisfy the requirements for transfer to the Trust. Although such additional
Primary Assets must satisfy the characteristics described in the related
Prospectus Supplement, such Primary Assets may have certain different
characteristics, including, without limitation, a more recent origination date
than the Primary Assets originally transferred to the Trust or a lesser credit
quality. As a result, the addition of such additional Primary Assets pursuant to
the Prefunding Account may adversely affect the performance of the related
Certificates.
Limitations, Reduction and Substitution of Credit Enhancement. Credit
enhancement may be provided with respect to one or more Classes of Certificates
of a Series to cover certain types of losses on the underlying Primary Assets.
Credit enhancement may be provided by one or more forms, including but not
limited to subordination of one or more Classes of Certificates of such Series,
letter of credit, financial guaranty insurance policy, mortgage pool insurance
policy, special hazard insurance policy, bankruptcy bond, reserve fund, spread
account, cash collateral account, overcollateralization, cross-collateralization
or other type of credit enhancement. The coverage of any credit enhancement may
be limited or have exclusions from coverage and may decline over time or under
certain circumstances, all as specified in the related Prospectus Supplement.
See "Description of the Certificates--Description of Credit Enhancement" herein.
Basis Risk. The Primary Assets in a Trust may accrue interest at
variable rates based on changes in specified indexes (as set forth in the
related Prospectus Supplement) which may adjust monthly, quarterly, annually or
otherwise. The Certificates, however, may accrue interest at Pass-Through Rates
that are variable rates based on different indexes and which may adjust at
different periods. Consequently, the weighted average rate on the Primary Assets
may not equal the weighted average of the Pass-Through Rates on the
Certificates. The difference between the interest rates on the Primary Assets
and the Pass-Through Rates may limit the Pass-Through Rates and the amount paid
to Certificateholders accordingly.
General Economic Conditions. General economic conditions have an impact
on the ability of borrowers to repay mortgage loans. Loss of earnings, illness
and other similar factors may lead to an increase in delinquencies and
bankruptcy filings by borrowers. In the event of personal bankruptcy of a
borrower under a Primary Asset (a "Mortgagor"), it is possible that the holders
of the related Certificates could experience a loss with respect to such
Mortgagor's Primary Asset. In conjunction with a Mortgagor's bankruptcy, a
bankruptcy court may suspend, reduce or reschedule the payments of principal and
interest to be paid with respect to such Primary Asset, thus delaying or
reducing the amount received by the holders of the related Certificates with
respect to such Primary Asset. Moreover, if a bankruptcy court prevents or
avoids the transfer of the related Mortgaged Property to the related Trust, any
remaining balance on such Primary Asset may not be recoverable.
Real Estate Market Conditions. An investment in securities such as the
Certificates which are secured by or represent interests, either directly or
indirectly, in mortgage loans or similar assets may be affected by, among other
things, a decline in real estate values. No assurance can be given that values
of the Mortgaged Properties will remain at the levels existing on
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the dates of origination of the related Primary Asset. If the residential real
estate market should experience an overall decline in property values such that
the outstanding balances of the Primary Assets, together with loans secured by
Senior Liens, if any, on the Mortgaged Properties, become equal to or greater
than the value of the Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry.
Geographic Concentration. Certain geographic regions of the United
States from time to time will experience weaker regional economic conditions and
housing markets, and, consequently, will experience higher rates of loss and
delinquency on mortgage loans generally. Any concentration of the Primary Assets
relating to any Series of Certificates in such a region may present risk
considerations in addition to those generally present for similar
mortgage-backed securities without such concentration. See the related
Prospectus Supplement for further information regarding the geographic
concentration of the Primary Assets underlying the Certificates of any Series.
Delays in Liquidating Defaulted Primary Assets. Even assuming that the
Mortgaged Properties provide adequate security for the Primary Assets underlying
a Series of Certificates, substantial delays could be encountered in connection
with the liquidation of defaulted Primary Assets and corresponding delays in the
receipt of related proceeds by the related Trust could occur. An action to
foreclose on a Mortgaged Property securing a Primary Asset is regulated by state
statutes and rules and is subject to many of the delays and expenses of other
lawsuits if defenses or counterclaims are interposed, sometimes requiring
several years to complete. Furthermore, in some states an action to obtain a
deficiency judgment is not permitted following a nonjudicial sale of a Mortgaged
Property. In the event of a default by a Mortgagor, these restrictions, among
other things, may impede the ability of the Master Servicer to foreclose on or
sell the Mortgaged Property or to obtain Net Liquidation Proceeds sufficient to
repay all amounts due on the related Primary Assets. In addition, the Master
Servicer will be entitled to deduct from the Collection Account to the extent
specified in the related Prospectus Supplement all previously made Advances for
all expenses reasonably incurred in attempting to recover amounts due and not
yet repaid on Liquidated Primary Assets, including payments to senior
lienholders, legal fees and costs of legal action, real estate taxes and
maintenance and preservation expenses, thereby reducing collections available to
the related Trust. See "Certain Legal Aspects of the Primary
Assets---Foreclosure of Single Family Loans" and "--Rights of Redemption"
herein.
Likelihood of Disproportionate Liquidation Expenses. Liquidation
expenses with respect to defaulted Primary Assets do not vary directly with the
outstanding principal balance of the loan at the time of default. Therefore,
assuming that the Master Servicer took the same steps in realizing upon a
defaulted Primary Asset having a small remaining principal balance as it would
in the case of a defaulted Primary Asset having a large remaining principal
balance, the amount realized after expenses of liquidation would be smaller as a
percentage of the outstanding principal balance of the defaulted Primary Asset
having a small remaining principal balance than would be the case with the
defaulted Primary Asset having a large remaining principal balance. Because the
average outstanding principal balance of the Primary Assets is small relative to
the size of the average outstanding principal balance of the loans in a typical
pool consisting only of conventional purchase-money mortgage loans, Net
Liquidation Proceeds on Liquidated Primary
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Assets may also be smaller as a percentage of the principal balance of a Primary
Asset than would be the case in a typical pool consisting only of conventional
purchase-money mortgage loans.
Legal Considerations. Applicable state laws generally regulate interest
rates and other charges, require certain disclosures and, unless an exemption is
available, require licensing of the originators of certain Primary Assets. In
addition, most states have other laws, public policies and general principles of
equity relating to the protection of consumers, unfair and deceptive practices
and practices which may apply to the origination, servicing and collection of
the Primary Assets.
The Primary Assets are also subject to federal laws, including, without
limitation: (i) the Federal Truth in Lending Act and Regulation Z promulgated
thereunder, which require certain disclosures to the Mortgagors regarding the
terms of the Primary Assets; (ii) the Equal Credit Opportunity Act and
Regulation B promulgated thereunder, which prohibit discrimination on the basis
of age, race, color, sex, religion, marital status, national origin, receipt of
public assistance or the exercise of any right under the Consumer Credit
Protection Act, in the extension of credit; (iii) the Fair Credit Reporting Act,
which regulates the use and reporting of information related to the Mortgagor's
credit experience; (iv) the Real Estate Settlement Procedures Act, which
regulates closing and servicing practices relating to first mortgage loans for
one- to four-family residential properties; and (v) certain other laws and
regulations. The Contracts are also subject to general equitable principles and
other rules in consumer credit transactions. See "Certain Legal Aspects of the
Primary Assets--The Contracts" herein.
Certain of the Primary Assets may be subject to the Riegle Community
Development and Regulatory Improvement Act of 1994 (the "Riegle Act"), which
incorporates the Home Ownership and Equity Protection Act of 1994. These
provisions impose additional disclosure and other requirements on creditors with
respect to non-purchase money mortgage loans with high interest rates or high
up-front fees and charges. The provisions of the Riegle Act apply on a mandatory
basis to all mortgage loans originated on or after October 1, 1995. These
provisions can impose specific statutory liabilities upon creditors who fail to
comply with their provisions and may affect the enforceability of the related
mortgage loans. In addition, any assignee of the creditor would generally be
subject to all claims and defenses that the consumer could assert against the
creditor, including, without limitation, the right to rescind the mortgage loan.
The application of State and Federal consumer protection laws to
particular circumstances is not always certain and in some cases courts and
regulatory authorities have shown a willingness to adopt novel interpretations
of these laws. Depending on the provisions of the applicable law and the
specific facts and circumstances involved, violations of these laws, policies
and principles may limit the ability of an assignee (including a Trust) to
collect all or part of the principal of or interest on the Primary Assets, may
entitle the Mortgagor to a refund of amounts previously paid and, in addition,
could subject the assignee to damages and administrative sanctions. In some
instances, particularly in actions involving fraud or deceptive practices,
damage awards have been large. If a Trust were obligated to pay any such
damages, its assets would be reduced, resulting in a possible loss to
Certificateholders. See "Certain Legal Aspects of the Primary Assets" herein.
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Generally, under the terms of the Soldiers' and Sailors' Civil Relief
Act of 1940, as amended (the "Relief Act"), a Mortgagor who enters military
service after the origination of such Mortgagor's Primary Asset (including a
Mortgagor who is a member of the National Guard or is in reserve status at the
time of the origination of the Primary Asset and is later called to active duty)
may not be charged interest (including fees and charges) above an annual rate of
6% during the period of such Mortgagor's active duty status, unless a court
orders otherwise upon application of the lender. It is possible that such action
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 Primary
Assets underlying a Series of Certificates. In addition, the Relief Act imposes
limitations which would impair the ability of the Master Servicer to foreclose
on an affected Primary Asset during the Mortgagor's period of active duty
status. Thus, in the event that such a Primary Asset goes into default, there
may be delays and losses occasioned by the inability to realize upon the related
Mortgaged Property in a timely fashion.
Under environmental legislation and case law applicable in certain
states, it is possible that liability for environmental hazards in respect of
real property may be imposed on a holder of a mortgage note (such as the Trust)
secured by real property. See "Certain Legal Aspects of the Primary
Assets--Environmental Legislation" herein.
Insolvency Related Matters. Counsel to the Depositor and the Seller will
render an opinion to the Trustee that in the event that the Seller became a
debtor under the United States Bankruptcy Code, the transfer of the Primary
Assets from the Seller to the Depositor in accordance with the Pooling and
Servicing Agreement would be treated as a true sale and not as a pledge to
secure borrowings and that the Depositor would not be substantively consolidated
with the Seller as a single entity or that the assets and/or liabilities of the
Depositor and Seller would not be consolidated. If, however, the transfer of the
Primary Assets from the Seller to the Depositor were treated as a pledge to
secure borrowings by the Seller or if the Depositor were ordered substantively
consolidated with the Seller as a single entity or if the Depositor were to
become bankrupt for any reason, the distribution of proceeds from the Primary
Assets to the Trust might be subject to the automatic stay provisions of the
United States Bankruptcy Code, which would delay the distribution of such
proceeds for an uncertain period of time. In addition, a bankruptcy trustee
would have the power to sell the Primary Assets, or the bankruptcy trustee could
substitute other collateral in lieu of the Primary Assets to secure such debt,
or such debt could be subject to reduction or adjustment by the bankruptcy court
if the Seller were to become the subject of a case for reorganization under
Chapter 11 of the United States Bankruptcy Code.
In addition, the case of Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d
948 (10th Cir. 1993) contains language to the effect that accounts sold by an
entity which subsequently became a debtor in bankruptcy remained property of
such debtor's bankruptcy estate. Although the Contracts constitute chattel paper
rather than accounts under the UCC, sales of chattel paper, like sales of
accounts, are governed by Article 9 of the UCC. If the Depositor or the Seller
were to become a debtor under the United States Bankruptcy Code and a court were
to follow the reasoning of the Tenth Circuit and apply such reasoning to chattel
paper, holders of the Certificates in the related Trust could experience a delay
or reduction in distributions.
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Additionally, because the Seller may have purchased the Primary Assets
from other originators or sellers, it is possible that (as a result of recourse
retained against such other originators or sellers or otherwise) the transfer of
the Primary Assets from such originators or sellers to the Seller could be
treated as a pledge rather than a sale and the corresponding negative
implications for delay and reduction of payments by a Trust could apply.
Original Issue Discount. Certain Classes of Certificates of a Series may
be treated as having been issued with original issue discount for federal income
tax purposes. As a result, holders of such Certificates will be required to
include amounts in income without the receipt of cash corresponding to that
income. See "Federal Income Tax Consequences--Original Issue Discount" herein
and, if applicable, in the related Prospectus Supplement.
ERISA Considerations. An investment in a Class of Certificates of any
Series by an employee benefit plan or other plan or arrangement subject to ERISA
or Section 4975 of the Code (a "Plan") may give rise to a prohibited transaction
under Section 406 of ERISA and/or be subject to tax under Section 4975 of the
Code, unless a statutory or administrative exemption is available. Accordingly,
fiduciaries of any Plan or any insurance company (whether through its general or
separate accounts) or other person investing "plan assets" of any Plan, should
consult their counsel before purchasing any Class of Certificates. Certain
Classes of Certificates will not be eligible for purchase by, on behalf of or
with "plan assets" of Plans. See "ERISA Considerations" herein and in the
related Prospectus Supplement.
Ratings Not a Recommendation. It is a condition to the issuance of the
Certificates offered pursuant to this Prospectus and the related Prospectus
Supplement that each such Class of Certificates be rated in one of the four
highest rating categories by one or more of Moody's, S&P, Fitch or D&P. See
"Ratings" herein. A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time. No person
is obligated to maintain the rating on any Certificate and, accordingly, there
can be no assurance that the ratings assigned to any Class of Certificates on
the date on which such Certificates are initially issued will not be lowered or
withdrawn by a Rating Agency at any time thereafter. In the event any rating is
revised or withdrawn, the liquidity of the related Certificates may be adversely
affected.
Book-Entry Certificates. Issuance of any of the Certificates in
book-entry form may reduce the liquidity of such Certificates in the secondary
trading market because investors may be unwilling to purchase Certificates for
which they cannot obtain physical certificates. See "Description of the
Certificates--Registration and Transfer of the Certificates" herein.
Difficulty in Pledging. Because transactions in Certificates of a Series
in book-entry form may be effected only through DTC, Participants and Indirect
Participants, the ability of an Owner to pledge such a Certificate to persons or
entities that do not participate in the DTC system, or otherwise to take actions
in respect of such Certificates, may be limited due to the lack of a physical
certificate representing such Certificate. See "Description of the
Certificates--Registration and Transfer of the Certificates" herein.
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Potential Delays in Receipt of Payments. Owners of Certificates issued
in book-entry form may experience some delay in their receipt of payments of
interest and principal on the Certificates because such payments will be
forwarded to DTC and DTC will credit such payments to the accounts of its
Participants which will thereafter credit them to the accounts of Owners either
directly or indirectly through Indirect Participants. See "Description of the
Certificates--Registration and Transfer of the Certificates" herein.
DESCRIPTION OF THE PRIMARY ASSETS
General
The property of each Trust will consist of: (i) the Primary Assets
(subject, if specified in the Prospectus Supplement, to certain exclusions)
having the aggregate principal balance outstanding as of the related Cut-off
Date, after giving effect to payments due or received on or prior to such date,
as specified in the related Prospectus Supplement (the "Original Pool Principal
Balance"); (ii) all payments (subject, if specified in the Prospectus
Supplement, to certain exclusions) in respect of such Primary Assets; (iii) if
specified in the Prospectus Supplement, reinvestment income on such payments;
(iv) all property acquired by foreclosure or deed in lieu of foreclosure with
respect to any such Primary Asset; (v) certain rights of the Trustee, the
Depositor and the Master Servicer under any insurance policies required to be
maintained in respect of the related Primary Assets; and (vi) if so specified in
the Prospectus Supplement, one or more forms of credit enhancement (together,
the "Trust Assets").
While it is expected that the Primary Assets will be acquired by the
Depositor from the Seller, if so specified in the related Prospectus Supplement,
Primary Assets may be acquired by the Depositor from affiliated or unaffiliated
originators. The following is a brief description of the Primary Assets expected
to be included in the Trusts. If specific information respecting the Primary
Assets is not known at the time the related Series of Certificates initially are
offered, more general information of the nature described below will be provided
in the related Prospectus Supplement, and specific information may, in certain
instances as set forth in the related Prospectus Supplement, be set forth in a
report on Form 8-K to be filed with the Commission within fifteen days after the
initial issuance of such Certificates. A copy of the Pooling and Servicing
Agreement with respect to each Series of Certificates will be attached to the
Form 8-K and will be available for inspection at the corporate trust office of
the Trustee specified in the related Prospectus Supplement. Unless so specified
in the related Prospectus Supplement, no Form 8-K will be filed with respect to
additional Primary Assets acquired by a Trust with funds from a Prefunding
Account. A schedule of the Primary Assets relating to each Series of
Certificates, will be attached to the related Pooling and Servicing Agreement
delivered to the Trustee upon delivery of such Certificates.
Single Family Loans
Each Single Family Loan will be evidenced by a promissory note (the
"Mortgage Note") secured by a mortgage or deed of trust (the "Mortgage")
creating a first, second or more junior lien in one- to four-family residential
properties (the "Mortgaged Properties"). If specified in the Prospectus
Supplement, the Primary Assets may include cooperative apartment loans
("Cooperative Loans") secured by security interests in shares issued by
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Cooperatives and in the related proprietary leases or occupancy agreements
granting exclusive rights to occupy specific dwelling units in such
Cooperatives' buildings. The Mortgaged Properties securing the Single Family
Loans may include investment properties, vacation and second homes and leasehold
interests. Each Single Family Loan will be selected by the Depositor for
inclusion in the Trust from among those acquired by the Depositor from the
Seller or from one or more affiliated or unaffiliated originators, including
newly originated loans. In the case of leasehold interests, the term of the
leasehold will exceed the scheduled maturity of the Primary Asset by at least
five years, unless a shorter period is specified in the related Prospectus
Supplement.
The Single Family Loans may be (i) "conventional" mortgage loans, that
is, they will not be insured or guaranteed by any governmental agency, (ii)
insured by the Federal Housing Authority ("FHA") or (iii) partially guaranteed
by the Veteran's Administration ("VA"), as specified in the related Prospectus
Supplement. If specified in the related Prospectus Supplement, the Single Family
Loans may include closed-end home equity loans ("Home Equity Loans"). Such Home
Equity Loans will be secured by first, second or more junior liens on fee simple
or leasehold interests in one- to four-family residential properties. See
"Description of the Primary Assets--Single Family Loans." The principal and
interest on the Single Family Loans included in the Trust for a Series of
Certificates will be payable either on the first day of each month or on
different scheduled days throughout each month, and the interest will be
calculated either on a simple interest, actuarial method or "Rule of 78s"
method, as described herein and in the related Prospectus Supplement. When a
full principal prepayment is paid on a Single Family Loan during a month, the
Mortgagor is generally charged interest only on the days of the month actually
elapsed up to the date of such prepayment, at a daily interest rate that is
applied to the principal amount of the Single Family Loan so prepaid.
The payment terms of the Single Family Loans to be included in a Trust
for a Series will be described in the related Prospectus Supplement and may
include any of the following features or combinations thereof or other features
described in the related Prospectus Supplement:
(a) Interest may be payable at a fixed rate, a rate adjustable
from time to time in relation to an index (which will be specified in
the related Prospectus Supplement), a rate that is fixed for a period of
time or under certain circumstances and is followed by an adjustable
rate, a rate that otherwise varies from time to time, or a rate that is
convertible from an adjustable rate to a fixed rate. Changes to an
adjustable rate may be subject to periodic limitations, maximum rates,
minimum rates or a combination of such limitations. Accrued interest may
be deferred and added to the principal of a Single Family Loan for such
periods and under such circumstances as may be specified in the related
Prospectus Supplement. Single Family Loans may provide for the payment
of interest at a rate lower than the specified Mortgage Rate for a
period of time or for the life of the Single Family Loan, and the amount
of any difference may be contributed from funds supplied by the seller
of the Mortgaged Property or another source.
(b) Principal may be payable on a level debt service basis to
fully amortize the Single Family Loan over its term, may be calculated
on the basis of an assumed amortization schedule that is significantly
longer than the original term to maturity or on an interest rate that
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is different from the Mortgage Rate or may not be amortized during all
or a portion of the original term. Payment of all or a substantial
portion of the principal may be due on maturity ("balloon payment").
Principal may include interest that has been deferred and added to the
principal balance of the Single Family Loan.
(c) Monthly Payments of principal and interest may be fixed for
the life of the Single Family Loan, may increase over a specified period
of time or may change from period to period. Single Family Loans may
include limits on periodic increases or decreases in the amount of
Monthly Payments and may include maximum or minimum amounts of Monthly
Payments.
(d) Prepayments of principal may be subject to a prepayment fee,
which may be fixed for the life of the Single Family Loan or may decline
over time, and may be prohibited for the life of the Single Family Loan
or for certain periods ("lockout periods"). Certain Single Family Loans
may permit prepayments after expiration of the applicable lockout period
and may require the payment of a prepayment fee in connection with any
such subsequent prepayment. Other Single Family Loans may permit
prepayments without payment of a fee unless the prepayment occurs during
specified time periods. The Single Family Loans may include "due on
sale" clauses which permit the mortgagee to demand payment of the entire
Single Family Loan in connection with the sale or certain transfers of
the related Mortgaged Property. Other Single Family Loans may be
assumable by persons meeting the then applicable underwriting standards
of the Seller.
Contracts
Each Contract included as a Primary Asset in the Trust with respect to a
Series of Certificates will be secured by a Manufactured Home and a mortgage or
deed of trust relating to the real estate to which the Manufactured Home is
permanently affixed. Contracts are similar to Single Family Loans, and the
description herein to Single Family Loans is generally applicable to Contracts,
except as otherwise noted. The Prospectus Supplement will specify whether the
Contracts will be fully amortizing or have a balloon payment, whether they will
bear interest at a fixed, adjustable or variable rate and other pertinent
information with respect to the Contracts. As used herein, Mortgaged Property
includes Manufactured Homes, unless otherwise noted.
The "Manufactured Homes" securing the Contracts consist of manufactured
homes within the meaning of Section 5402(6) of title 42 of the United States
Code which defines a "manufactured home" as "a structure, transportable in one
or more sections, which, in the traveling mode, is eight body feet or more in
width or forty body feet or more in length, or, when erected on site, is three
hundred twenty or more square feet, and which is built on a permanent chassis
and designed to be used as a dwelling with or without permanent foundation when
connected to the required utilities, and includes the plumbing, heating,
air-conditioning, and electrical systems contained therein; except that such
term shall include any structure which meets all the requirements of this
paragraph except the size requirements and with respect to which the
manufacturer voluntarily files a certification required by the [Secretary of
Housing and Urban Development] and complies with the standards established under
[Chapter 70 of title 42 of the United States Code]." Moreover, if an election is
made to treat the Trust as a REMIC as
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described in "Federal Income Tax Consequences" herein, Manufactured Homes will
have a minimum of 400 square feet of living space and a minimum width in excess
of 102 inches.
Certain of the Single Family Loans or Contracts contained in a Trust may
be loans insured under the FHA Title I credit insurance program created pursuant
to Sections 1 and 2(a) of the National Housing Act of 1934 (the "Title I
Program"). Under the Title I Program, the FHA is authorized and empowered to
insure qualified lending institutions against losses on eligible loans. The
Title I Program operates as a coinsurance program in which the FHA insures up to
90% of certain losses incurred on an individual insured loan, including the
unpaid principal balance of the loan, but only to the extent of the insurance
coverage available in the lender's FHA insurance coverage reserve account. The
owner of the loan bears the uninsured loss on each loan. The types of loans
which are eligible for insurance by the FHA under the Title I Program include
property improvement loans ("Title I Loans"). Title I Loan means a loan made to
finance actions or items that substantially protect or improve the basic
livability or utility of a property and includes: (1) single family, multifamily
and nonresidential property improvement loans; (2) manufactured home improvement
loans, where the home is classified as personalty; (3) historic preservation
loans; and (4) fire safety equipment loans in existing health care facilities.
Certain Characteristics of the Primary Assets
The related Prospectus Supplement will describe certain characteristics
of the related Primary Assets initially included in the Trust, which may
include, without limitation (i) the range of dates of origination and the latest
scheduled maturity date, (ii) the minimum remaining term to maturity, the
weighted average original term to maturity and the weighted average remaining
term to maturity, (iii) the range of Mortgage Rates, the weighted average
Mortgage Rate and, with respect to adjustable-rate Primary Assets, the index
upon which the Mortgage Rate is based, (iv) the range of principal balances
outstanding and the weighted average outstanding principal balance, (v) the
percentages of Primary Assets secured by first Mortgages, second Mortgages and
more junior Mortgages, respectively, (vi) the range of Combined Loan-to-Value
Ratios at origination, the weighted average Combined Loan-to-Value Ratio, the
range of Loan-to-Value Ratios at origination and the weighted average
Loan-to-Value Ratio, (vii) the percentage of Primary Assets secured by fee
simple interests in single-family dwelling units, investor properties, units in
planned unit developments and condominiums, respectively, the percentage of
Primary Assets secured by leasehold interests and the percentage of Primary
Assets secured by units in Cooperatives, (viii) the percentage of Primary Assets
as to which the related Mortgagor represented at the time of origination that
the related Mortgaged Property would be occupied by such Mortgagor as a primary
or secondary residence, (ix) the percentage of Primary Assets that are
Contracts, (x) certain summary information relating to the geographic
concentration of the Mortgaged Properties securing the Primary Assets, (xi) the
percentage of Primary Assets which are Balloon Loans, and (xii) the percentage
of Primary Assets which are Bankruptcy Loans, the percentage of Bankruptcy Loans
which are 30 days or more contractually delinquent and the percentages of
Primary Assets other than Bankruptcy Loans which are 30 days and 60 days or more
contractually delinquent, respectively. If so specified in the related
Prospectus Supplement, the characteristics of the Primary Assets may be
approximate, based on the expected characteristics of the Primary Assets to be
included in
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the related Trust and any significant variations therefrom will be provided on
the related Form 8-K.
For purposes of the foregoing, the "Combined Loan-to-Value Ratio" of any
Primary Asset is the ratio (expressed as a percentage) of (i) the sum of (a) the
original principal balance of such Primary Asset at the date of origination
(which, if specified in the related Prospectus Supplement, may include certain
financed fees and insurance premiums) plus (b) the outstanding balance of the
Senior Lien, if any, divided by (ii) the lesser of (a) the value of the related
Mortgaged Property, based upon the appraisal, if any, or drive-by evaluation or
other method made at the time of origination of the Primary Asset and (b) the
purchase price of the Mortgaged Property if the Primary Asset proceeds were used
to purchase the Mortgaged Property. See "The Primary Asset Program--Underwriting
Procedures" herein. The "Loan-to-Value Ratio" of any Primary Asset is the ratio
(expressed as a percentage) of (i) the original principal balance of such
Primary Asset at the date of origination (which, if specified in the related
Prospectus Supplement, may include certain financed fees and insurance premiums)
divided by (ii) the lesser of (a) the value of the related Mortgaged Property,
based upon the appraisal, if any, or drive-by evaluation or other method made at
the time of origination of the Primary Asset and (b) the purchase price of the
Mortgaged Property if the Primary Asset proceeds were used to purchase the
Mortgaged Property. For purposes of calculating the Loan-to-Value Ratio of a
Contract relating to a Manufactured Home, the "value" is the appraised value of
the Manufactured Home, based upon the age and condition of the Manufactured Home
and the quality and condition of the community in which it is situated, if
applicable. For Primary Assets secured by a first Mortgage, the Combined
Loan-to-Value Ratio and the Loan-to-Value Ratio will be the same.
In the event that title to any Primary Asset is acquired in foreclosure
or by deed in lieu of foreclosure (or, in the case of Contracts in certain
states, by repossession of the related Manufactured Home), the deed or
certificate of sale will be issued to the Trustee or to its nominee on behalf of
Certificateholders. Notwithstanding any such acquisition of title and
cancellation of the related Primary Asset, such Primary Asset (an "REO
Property") will be considered for most purposes to be an outstanding Primary
Asset held in the Trust until such time as the Primary Asset is sold and all
recoverable proceeds have been received with respect to such defaulted Primary
Asset.
A "Bankruptcy Loan" is a Primary Asset on which the related Mortgagor is
making payments pursuant to a personal bankruptcy plan or proceeding (each, a
"Bankruptcy Plan"). The entire principal balance and the right to receive
interest accrued after the Cut-off Date with respect to each Bankruptcy Loan
will generally be included in the assets of the related Trust, while the right
to interest accrued but unpaid prior to the related Cut-off Date under each
Bankruptcy Loan will generally be retained by the Seller. The Seller's right to
collect interest accrued on a Bankruptcy Loan prior to the date of the related
Bankruptcy Plan filing will generally be subordinate to the related Trust's
right to receive timely payments of principal and interest with respect to such
Bankruptcy Loan.
Payments on the Primary Assets
The Primary Asset underlying a Series of Certificates will provide for
payments that are allocated to principal and interest according to either the
actuarial method (an "Actuarial Primary Asset"), the simple interest method
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(a "Simple Interest Primary Asset") or the "Rule of 78s" method (a "Rule of 78s
Primary Asset"), as set forth in the related Prospectus Supplement. The related
Prospectus Supplement will set forth whether any of the Primary Assets will
provide for deferred interest or negative amortization.
An Actuarial Primary Asset provides for payments in level monthly
installments (except, in the case of a Balloon Loan, the final payment)
consisting of interest equal to one-twelfth of the applicable Mortgage Rate
times the unpaid principal balance, with the remainder of such payment applied
to principal.
A Simple Interest Primary Asset provides for the amortization of the
amount financed under such Primary Asset over a series of equal Monthly Payments
(except, in the case of a Balloon Loan, the final payment). Each Monthly Payment
consists of an installment of interest which is calculated on the basis of the
outstanding principal balance of the Primary Asset being multiplied by the
stated Mortgage Rate and further multiplied by a fraction, the numerator of
which is the number of days in the period elapsed since the preceding payment of
interest was made and the denominator of which is the number of days in the
annual period for which interest accrues on such Primary Asset. As payments are
received under a Simple Interest Primary Asset, the amount received is applied
first to interest accrued to the date of payment and the balance is applied to
reduce the unpaid principal balance. Accordingly, if a borrower pays a fixed
monthly installment on a Simple Interest Primary Asset before its scheduled due
date, the portion of the payment allocable to interest for the period since the
preceding payment was made will be less than it would have been had the payment
been made as scheduled, and the portion of the payment applied to reduce the
unpaid principal balance will be correspondingly greater. However, the next
succeeding payment will result in an allocation of a greater amount to interest
if such payment is made on its scheduled due date.
Conversely, if a borrower pays a fixed monthly installment after its
scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be greater than it would have
been had the payment been made as scheduled, and the remaining portion, if any,
of the payment applied to reduce the unpaid principal balance will be
correspondingly less. If each scheduled payment under a Simple Interest Primary
Asset is made on or prior to its scheduled due date, the principal balance of
the Primary Asset will amortize in the manner described in the preceding
paragraph. However, if the borrower consistently makes scheduled payments after
the scheduled due date, the Primary Asset will amortize more slowly than
scheduled. If a Simple Interest Primary Asset is prepaid, the borrower is
required to pay interest only to the date of prepayment.
A Rule of 78s Primary Asset provides for the payment by the borrower of
a specified total amount of payments, payable in equal monthly installments on
each due date, which total represents the amount financed and add-on interest in
an amount calculated on the basis of the stated note rate for the term of the
Primary Asset. The rate at which such amount of add-on interest is earned and,
correspondingly, the portion of each fixed monthly payment allocated to
reduction of the outstanding principal balance are calculated in accordance with
the "sum of the digits" or "Rule of 78s". Under a Rule of 78s Primary Asset, the
portion of a payment allocable to interest is determined by multiplying the
total amount of add-on interest payable over the term of the Primary Asset by a
fraction derived as described herein. The fraction used in the calculation of
add-on interest earned each month under a
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Rule of 78s Primary Asset has as its denominator a number equal to the sum of a
series of numbers beginning with one and ending with the number of monthly
payments due under the Primary Asset. For example, for a Primary Asset providing
for twelve scheduled payments, the denominator of each month's fraction would be
78, the sum of the series of numbers from one to twelve. The numerator of the
fraction for a given month would be the number of payments remaining before
giving effect to the payment to which the fraction is being applied.
Accordingly, in the case of such Primary Asset, the fraction for the first
payment would be 12/78, for the second payment, 11/78, for the third payment,
10/78, and so on through the final payment, for which the fraction would be
1/78. The applicable fraction is then multiplied by the total add-on interest
payable over the term of the Primary Asset to determine the amount of interest
"earned" that month. The difference between the amount of the monthly payment
made by the borrower and the amount of earned add-on interest calculated for the
month is applied to principal reduction. As a result, the rate at which interest
is earned in the initial months of a Rule of 78s Primary Asset is somewhat
higher than the interest computed for a Primary Asset computed on an actuarial
basis, and the rate at which interest is earned at the end of a Rule of 78s
Primary Asset is somewhat less than that computed for a Primary Asset under an
actuarial basis.
Payments to holders of the related Certificates and the Servicing Fee
with respect to Rule of 78s Primary Assets will be computed as if such Primary
Assets were Simple Interest Primary Assets. Unless otherwise specified in the
related Prospectus Supplement, amounts received upon prepayment in full of a
Rule of 78s Primary Asset in excess of (i) the then outstanding principal
balance of such Primary Asset (computed on a daily simple interest amortization
basis) and (ii) accrued interest computed on a daily simple interest basis at
the Mortgage Rate, plus servicing compensation exclusive of Servicing Fees, will
not be available to make required payments of principal and interest to holders
of the related Certificates and will not be treated as collected principal for
purposes of computing the amount to be distributed.
In the event of the prepayment in full (voluntarily or by acceleration)
of a Rule of 78s Primary Asset, under the terms of such Primary Asset the entire
remaining amount of payments will be due but a "refund" or "rebate" will be made
to the Mortgagor of the portion of the total amount of the scheduled payments
remaining under such Primary Asset immediately prior to such prepayment which is
allocable to "unearned" add-on interest. Such rebate will be calculated in
accordance with the Rule of 78s method.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
The rate of principal payments on each Class of Certificates of a Series
entitled to principal, the aggregate amount of each interest payment on each
Class of Certificates of a Series entitled to interest and the yield to maturity
of each Class of Certificates of a Series will be related to the rate and timing
of payments of principal on the related Primary Assets, which may be in the form
of scheduled and unscheduled payments. The rate of prepayment on a pool of
mortgage loans is affected by prevailing market rates for mortgage loans of a
comparable term and risk level. In general, when the level of prevailing
interest rates for similar loans significantly declines, the rate of prepayment
is likely to increase, although the prepayment rate is influenced by a number of
other factors, including general economic conditions and homeowner mobility.
Defaults on mortgage loans are expected to occur with greater frequency in their
early years. The rate of default on
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second or more junior mortgage loans may be greater than that of mortgage loans
secured by first liens on comparable properties. Prepayments, liquidations and
purchases of the Primary Assets will result in distributions to the holders of
amounts of principal which would otherwise be distributed over the remaining
terms of the Primary Assets.
In addition, as specified in the related Prospectus Supplement, the
Master Servicer, the Seller, the Depositor and/or another party specified in the
related Prospectus Supplement, may have the option to effect the early
termination of a Series of Certificates through the purchase of the Primary
Assets and other assets in the related Trust under the circumstances and in the
manner described in "The Trusts--Optional Disposition of Primary Assets" herein.
Further, if so specified in the related Prospectus Supplement, the Trustee, the
Master Servicer, the Seller, the Depositor and/or such other entities as may be
specified in such Prospectus Supplement may be required to effect early
retirement of a Series of Certificates by soliciting competitive bids for the
purchase of the assets of the related Trust or otherwise. See "The
Trusts--Mandatory Disposition of Primary Assets" herein.
If the Pooling and Servicing Agreement for a Series of Certificates
provides for a Prefunding Account or other means of funding the transfer of
additional Primary Assets to the related Trust and the Trust is unable to
acquire such additional Primary Assets within any applicable time limit, the
amounts set aside for such purpose may be required to be applied to effect the
retirement of all or a portion of one or more Classes of Certificates of such
Series.
As described above, the rate of prepayment on a pool of mortgage loans
is affected by prevailing market rates for comparable mortgage loans. When the
market interest rate is below the Mortgage Rate for a Primary Asset, Mortgagors
may have an increased incentive to refinance such Primary Asset. Depending on
prevailing market rates, the future outlook for market rates and economic
conditions generally, some Mortgagors may sell or refinance Mortgaged Properties
in order to realize their equity in such Mortgaged Properties, to meet cash flow
needs or to make other investments. No representation is made as to the
particular factors that will affect the prepayment of the Primary Assets
underlying any Series of Certificates, as to the relative importance of such
factors, as to the percentage of the principal balance of the Primary Assets
that will be paid as of any date or as to the overall rate of prepayment on the
related Primary Assets.
The yield to maturity of certain Classes of Certificates of a Series may
be particularly sensitive to the rate and timing of principal payments
(including prepayments) of the Primary Assets, which may fluctuate significantly
from time to time. The Prospectus Supplement relating to such Certificates may
provide certain additional information with respect to the effect of such
payments on the yield to maturity of such Certificates under varying rates of
prepayment, including the rate of prepayment, if any, which would reduce the
holder's yield to zero.
Greater than anticipated prepayments of principal will increase the
yield on Certificates purchased at a price less than par. Conversely, greater
than anticipated prepayments of principal will decrease the yield on
Certificates purchased at a price greater than par. The effect on an investor's
yield due to principal prepayments on the Primary Assets occurring at a rate
that is faster (or slower) than the rate anticipated by the investor in the
period immediately following the issuance of the Certificates
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will not be entirely offset by a subsequent like reduction (or increase) in the
rate of principal payments. The weighted average life of each Class of
Certificates of a Series will also be affected by the amount and timing of
delinquencies and defaults on the related Primary Assets and the recoveries, if
any, on defaulted Primary Assets and foreclosed properties in the related Trust
Assets.
The "weighted average life" of a Certificate refers to the average
amount of time that will elapse from the date of issuance to the date each
dollar in respect of principal of such Certificate is repaid. The weighted
average life of each Class of Certificates of a Series will be influenced by,
among other factors, the rate at which principal payments are made on the
Primary Assets, including final payments made upon the maturity of Balloon
Loans.
THE TRUSTS
General
Each Trust will be formed under a pooling and servicing agreement among
the Depositor, the Master Servicer and the Trustee named therein (a "Trustee")
or another agreement to be specified in the related Prospectus Supplement (a
"Pooling and Servicing Agreement"). The property of each Trust will consist of:
(i) the Primary Assets (subject, if specified in the Prospectus Supplement, to
certain exclusions) as from time to time are subject to the related Pooling and
Servicing Agreement; (ii) all payments (subject, if specified in the Prospectus
Supplement, to certain exclusions) in respect of such Primary Assets; (iii) if
specified in the Prospectus Supplement, reinvestment income on such payments;
(iv) all property acquired by foreclosure or deed in lieu of foreclosure with
respect to any such Primary Assets; (v) certain rights of the Trustee, the
Depositor and the Master Servicer under any insurance policies required to be
maintained in respect of the related Primary Assets; and (vi) if so specified in
the Prospectus Supplement, one or more forms of credit enhancement (together,
the "Trust Assets").
Assignment of the Primary Assets
Assignment of the Single Family Loans. At the time of issuance of the
Certificates, the Depositor will assign the Single Family Loans to the Trustee,
including all security interests created thereby and any related mortgages or
deeds of trust, together with principal and interest due or received on or after
the Cut-off Date, as specified in the related Prospectus Supplement. The Trustee
will, concurrently with such assignment, execute, countersign and deliver the
Certificates to the Depositor in exchange for the Single Family Loans. Each
Single Family Loan will be identified in a schedule appearing as an exhibit to
the Pooling and Servicing Agreement. Such schedule may include information as to
the principal balance of each Single Family Loan as of the Cut-off Date, as well
as information respecting the Mortgage Rate, the scheduled Monthly Payment of
principal and interest as of the Cut-off Date and the maturity date of each
Mortgage Note.
In addition, as to each Single Family Loan, the Depositor will cause to
be delivered to the Trustee the Mortgage Note and Mortgage, any assumption and
modification agreement, an assignment of the Mortgage in recordable form (but
not necessarily recorded), evidence of title insurance, if obtained, and, if
applicable, the certificate of private mortgage insurance. In instances where
recorded documents cannot be delivered due to delays in
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connection with recording, the Depositor may deliver copies thereof and deliver
the original recorded documents promptly upon receipt.
With respect to any Single Family Loans which are Cooperative Loans, the
Depositor will cause to be delivered to the Trustee the Mortgage Note, the
original security agreement, the proprietary lease or occupancy agreement, the
recognition agreement, an executed financing agreement and the relevant stock
certificate and related blank stock powers. The Depositor will file in the
appropriate office an assignment and a financing statement evidencing the
Trustee's security interest in each Cooperative Loan upon demand by the Trustee.
The Seller will represent and warrant to the Depositor with respect to
the Single Family Loans sold by it that (i) the information set forth in the
schedule of Single Family Loans attached thereto is correct in all material
respects; (ii) a lender's title insurance policy or binder for each Single
Family Loan subject to the Pooling and Servicing Agreement was issued on the
date of origination thereof and each such policy or binder assurance is valid
and remains in full force and effect or a legal opinion concerning title or
title search was obtained or conducted in connection with the origination of the
Single Family Loans; (iii) at the date of assignment to the Depositor, the
Seller has good title to the Single Family Loans and the Single Family Loans are
free of offsets, defenses or counterclaims; (iv) at the date of initial issuance
of the Certificates, each Mortgage is either a valid first lien on the property
securing the Mortgage Note (subject only to (a) the lien of current real
property taxes and assessments, (b) covenants, conditions, restrictions, rights
of way, easements and other matters of public record as of the date of the
recording of such Mortgage, such exceptions appearing of record being acceptable
to mortgage lending institutions generally in the area wherein the property
subject to the Mortgage is located or specifically reflected in the appraisal
obtained by the originator, (c) 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 such Mortgage, (d) leases and subleases
pertaining to such Mortgaged Property and to Seller's knowledge such property is
free of material damage and is in good repair or, with respect to a junior lien
Single Family Loan, that such Mortgage is a valid junior lien Mortgage (subject
only to (a) the lien of current real property taxes and assessments, (b)
covenants, conditions, restrictions, rights of way, easements and other matters
of public record as of the date of the recording of such Mortgage, such
exceptions appearing of record being acceptable to mortgage lending institutions
generally in the area wherein the property subject to the Mortgage is located or
specifically reflected in the appraisal obtained by the originator, (c) 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 such
Mortgage, (d) leases and subleases pertaining to such Mortgaged Property and (e)
any existing Senior Lien), as the case may be, and specifying the percentage of
the Primary Assets and Single Family Loans comprised of junior lien Single
Family Loans; (v) at the Cut-off Date, no Single Family Loan is 31 or more days
delinquent (with such exceptions as may be specified in the related Prospectus
Supplement) and to Seller's knowledge there are no delinquent tax or assessment
liens against the Mortgaged Property covered by the related Mortgage; (vi) at
the date of assignment to the Depositor, the portion of each Single Family Loan,
if any, which, pursuant to the terms set forth in the related Prospectus
Supplement should be insured with a private mortgage insurer is so insured; and
(vii) each Single Family Loan at the time it was made complied in all material
respects with applicable state and federal
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laws, including, without limitation, usury, equal credit opportunity and
disclosure laws. The Prospectus Supplement may set forth additional
representations and warranties made by the Seller to the Depositor. The
Depositor's rights against the Seller in the event of a breach of its
representations will be assigned to the Trustee for the benefit of the holders
of the Certificates of such Series.
Assignment of Contracts. The Depositor will cause the Contracts to be
assigned to the Trustee, including all security interests created thereby and
any related mortgages or deeds of trust, together with principal and interest
due or received on or after the Cut-off Date, as specified in the related
Prospectus Supplement. Each Contract will be identified in a loan schedule
("Contract Loan Schedule") appearing as an exhibit to the related Pooling and
Servicing Agreement. Such Contract Loan Schedule may specify, with respect to
each Contract, among other things: the original principal balance and the
outstanding principal balance as of the Cut-off Date, the Mortgage Rate, the
current scheduled payment of principal and interest and the maturity date.
In addition, with respect to each Contract, the Depositor will deliver
or cause to be delivered to the Trustee, the original Contract and copies of
documents and instruments related to each Contract and the security interest in
the Manufactured Home securing each Contract. To give notice of the right, title
and interest of the Trust to the Contracts, the Depositor will cause the Seller
to file a UCC-1 financing statement identifying the Trustee as the secured party
and identifying all Contracts as collateral. See "Risk Factors" and "Certain
Legal Aspects of the Primary Assets" herein.
The Seller will provide representations and warranties to the Depositor
concerning the Contracts. Such representations and warranties generally will
include the same types of representations and warranties made with respect to
Single Family Loans, plus the following additional representations and
warranties: (i) no contract was originated in or is subject to the laws of any
jurisdiction whose laws would make the transfer of the Contract or an interest
therein to the Depositor or from the Depositor to the Trustee pursuant to the
related Pooling and Servicing Agreement unlawful; (ii) no Contract has been
satisfied, subordinated in whole or in part or rescinded and the Manufactured
Home securing the Contract has not been released from the lien of the Contract
in whole or in part; (iii) each Contract creates a valid and enforceable
security interest in favor of the Seller in the Manufactured Home and real
estate covered thereby and the lien created thereby has been recorded and such
security interest or lien has been assigned by the Seller to the Depositor; (iv)
the related Manufactured Home is a "manufactured home" within the meaning of 42
United States Code, Section 5402(6); and (v) each Contract is a "qualified
mortgage" under Section 860G(a)(3) of the Code and each Manufactured Home is
"manufactured housing" within the meaning of Section 25(3)(10) of the Code. The
Prospectus Supplement may set forth additional representations and warranties
made by the Seller to the Depositor. The Depositor's rights against the Seller
in the event of a breach of its representations will be assigned to the Trustee
for the benefit of the holders of the Certificates of such Series.
Forward Commitments; Prefunding. If so specified in the related
Prospectus Supplement, a Pooling and Servicing Agreement or other agreement may
provide for the transfer by the Seller to the Depositor and from the Depositor
to the related Trust of additional Primary Assets after the Closing Date for the
related Certificates. Such additional Primary Assets will be required to conform
to the requirements set forth in the related Pooling and
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Servicing Agreement or other agreement providing for such transfer. As specified
in the related Prospectus Supplement, such transfer may be funded by the
establishment of a Prefunding Account (a "Prefunding Account"). The amount
initially deposited into a Prefunding Account for a Series of Certificates will
not exceed twenty-five percent (25%) of the aggregate principal amount of such
Series of Certificates. If a Prefunding Account is established, all or a portion
of the proceeds of the sale of one or more Classes of Certificates of the
related Series will be deposited in such account to be released as additional
Primary Assets are transferred. A Prefunding Account will be required to be
maintained as an Eligible Account. The related Pooling and Servicing Agreement
or other agreement providing for the transfer of additional Primary Assets will
generally establish a specified period of time within which such transfers must
be made, which in no event shall exceed six months from the initial deposit of
funds into the Prefunding Account. Amounts set aside to fund such transfers
(whether in a Prefunding Account or otherwise) and not so applied within the
required period of time will be used in the manner set forth in the related
Prospectus Supplement, including being treated as a principal prepayment and
applied in the manner set forth in such Prospectus Supplement.
Repurchase or Substitution of Primary Assets. The Trustee will review
the documents delivered to it with respect to the Primary Assets included in the
related Trust. If any document is not delivered or is found to be defective in
any material respect and the Depositor or the Seller, if so required, cannot
deliver such document or cure such defect within the period specified in the
related Prospectus Supplement after notice thereof (which the Trustee will
undertake to give within the period specified in the related Prospectus
Supplement), and if any other party obligated to deliver such document or cure
such defect has not done so and has not substituted or repurchased the affected
Primary Asset then, if the failure to deliver such document or to cure such
defect materially and adversely affects the interest of the Owners of the
Certificates in a Primary Asset, the Depositor will cause the Seller, not later
than the first date designated for the deposit of payments into the Collection
Account (a "Deposit Date") which is more than a specified number of days after
such period, (a) if so provided in the Prospectus Supplement to remove the
affected Primary Asset from the Trust and substitute one or more other Primary
Assets therefor or (b) repurchase the Primary Asset from the Trustee for a price
equal to 100% of its principal balance of such repurchased Mortgage Loan plus
all accrued and unpaid interest thereon together with all Servicing Advances, as
set forth in the related Pooling and Servicing Agreement. This repurchase and,
if applicable, substitution obligation will, unless otherwise set forth in the
related Prospectus Supplement, generally constitute the sole remedy available to
the Trustee for a material defect in a document relating to a Primary Asset.
The Depositor is required to cause the Seller to do either of the
following: (a) cure any breach of any representation or warranty that materially
and adversely affects the interest of the holders of the Certificates in a
Primary Asset (each, a "Defective Primary Asset") within a specified number of
days of its discovery by the Depositor or its receipt of notice thereof from the
Trustee, (b) repurchase such Defective Primary Asset not later than the first
Deposit Date which is more than a specified number of days after such period for
a price equal to 100% of its principal balance plus all accrued and unpaid
interest thereon together with all Servicing Advances, as set forth in the
related Pooling and Servicing Agreement, or (c) if so specified in the
Prospectus Supplement, remove the affected Primary Asset from the Trust, and
substitute one or more other Primary Assets
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therefor. This repurchase and, if applicable, substitution obligation will
generally constitute the sole remedies available to the Trustee for any such
breach.
If a REMIC election is to be made with respect to all or a portion of a
Trust, there may be federal income tax limitations on the right to substitute
Primary Assets, which limitations will be disclosed in the applicable Prospectus
Supplement.
Payments on the Primary Assets
Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement will require the Master Servicer to cause to be
established and maintained an account (the "Collection Account", but which may
have such designation as is set forth in the related Prospectus Supplement) at
an institution meeting certain ratings and other criteria set forth in the
Pooling and Servicing Agreement (an "Eligible Account"), into which it is
required to deposit certain payments received in respect of the Primary Assets,
as more fully described below. All funds in the Collection Account are required
to be held (i) uninvested or (ii) invested in certain permitted investments,
which will include, but will not be limited to, United States government
securities, Federal funds, certificates of deposits and bankers' acceptance of
domestic banks with acceptable credit ratings, commercial paper with original
maturities of not more than 270 days rated in the highest short term rating
categories and other high-quality investments and repurchase agreements or
similar arrangements with respect to such investments (collectively, "Permitted
Investments"). Any investment earnings on funds held in the Collection Account
will be for the account of the Master Servicer.
The Master Servicer is required to deposit into the Collection Account
within one business day of receipt all Monthly Payments received after the
related Cut-off Date (other than amounts received after the Cut-off Date in
respect of interest accrued, or principal due, on the Primary Assets prior to
the Cut-off Date, unless the related Prospectus Supplement provides that such
amounts are part of the Trust) and all Principal Prepayments and Curtailments
collected after the Cut-off Date (net of the Servicing Fee with respect to each
Primary Asset and other servicing compensation payable to the Master Servicer as
permitted by the Pooling and Servicing Agreement), all Net Liquidation Proceeds,
Insurance Proceeds, Released Mortgaged Property Proceeds, any amounts paid in
connection with the repurchase of any Primary Asset, the amount of any deposit
made by the Seller when substituting a Defective Primary Asset in order to equal
the balance of the deleted Primary Asset (a "Substitution Adjustment"), the
amount of any losses incurred in connection with investments in Permitted
Investments and certain amounts relating to insufficient insurance policies and
REO Property. If the related Prospectus Supplement provides that there will be
no Collection Account, all of such payments will be deposited directly in the
Distribution Account, as specified therein.
The Master Servicer may make withdrawals from the Collection Account for
the following purposes:
(i) for deposit to the Distribution Account no later than the
business day preceding each Distribution Date, the Available Payment
Amount for the related Due Period;
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(ii) to reimburse itself for any unreimbursed Advances. The
Master Servicer's right to reimburse itself for unreimbursed Advances
will be limited to collections on the related Primary Asset, including
late collections, Liquidation Proceeds, Released Mortgaged Property
Proceeds, Insurance Proceeds and such other amounts as may be collected
by the Master Servicer from the related Mortgagor or otherwise relating
to the Primary Asset in respect of which such unreimbursed amounts are
owed;
(iii) to withdraw any amount received from a Mortgagor that is
recoverable and sought to be recovered as a voidable preference pursuant
to the United States Bankruptcy Code in accordance with a final,
nonappealable order of a court having competent jurisdiction;
(iv) to make investments in Permitted Investments and to pay
itself interest or other income earned in respect of Permitted
Investments or on funds deposited in the Collection Account;
(v) to withdraw any funds deposited in the Collection Account
that were not required to be deposited therein (such as servicing
compensation) or were deposited therein in error;
(vi) to pay itself the accrued unpaid Servicing Fee and any other
permitted servicing compensation to the extent not previously retained
or paid;
(vii) to withdraw funds necessary for the conservation and
disposition of REO Property;
(viii) to make Advances out of excess amounts on deposit in the
Collection Account and held for future distribution, as more fully
described below;
(ix) with respect to a Bankruptcy Loan, to remit to the Seller
certain payments, as provided in the Pooling and Servicing Agreement;
(x) to reimburse itself for any Nonrecoverable Advances
previously made and unreimbursed; and
(xi) to clear and terminate the Collection Account upon the
termination of the Pooling and Servicing Agreement.
The Master Servicer is required to wire transfer to the Distribution
Account the amount described in clause (i) above no later than the business day
preceding each Distribution Date or such other date as provided in the related
Prospectus Supplement.
Advances; Servicing Advances
If so specified in the related Prospectus Supplement, not later than the
close of business on the business day prior to each Distribution Date or such
other date as provided in the related Prospectus Supplement, the Master Servicer
may be required to withdraw from amounts on deposit in any Collection Account
and held for future distribution or, if so specified in the related Prospectus
Supplement, to pay from its own funds, and remit for deposit in the Distribution
Account an amount (each, a "P&I Advance"), to be distributed on the related
Distribution Date, equal to (x) the sum of the
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interest portions of the aggregate amount of Monthly Payments (net of the
Servicing Fee) due during the related Due Period, but uncollected as of the
close of business on the related Determination Date and/or (y) the principal
portion of the aggregate amount of Monthly Payments (other than balloon
payments) due during the related Due Period but uncollected as of the close of
business on the related Determination Date. Unless so specified in the related
Prospectus Supplement, the Master Servicer shall not be required to make such
P&I Advance from its own funds or be liable for the recovery thereof from
collections on the related Primary Assets or otherwise.
In the course of performing its servicing obligations, the Master
Servicer will pay all reasonable and customary "out-of-pocket" costs and
expenses incurred in the performance of its servicing obligations ("Servicing
Advances" and together with P&I Advances, "Advances"), including, but not
limited to, the cost of (i) maintaining REO Properties; (ii) any enforcement or
judicial proceedings, including foreclosures; and (iii) the management and
liquidation of Mortgaged Property acquired in full or partial satisfaction of
the related Primary Asset To the extent provided in the related Pooling and
Servicing Agreement, the Master Servicer may pay all or a portion of any
Servicing Advance out of excess amounts on deposit in the Collection Account and
held for future distribution on the date on which such Servicing Advance is
made. Any such excess amounts so used will be required to be replaced by the
Master Servicer by deposit to the Collection Account no later than the date
specified in the related Pooling and Servicing Agreement.
The Master Servicer may recover Advances to the extent permitted by the
Pooling and Servicing Agreement or, if not theretofore recovered from the
Mortgagor on whose behalf such Advance was made, from collections on the related
Primary Asset, including late collections, Liquidation Proceeds, Released
Mortgaged Property Proceeds, Insurance Proceeds and such other amounts as may be
collected by the Master Servicer from the Mortgagor or otherwise relating to the
Primary Asset. If so provided in the related Pooling and Servicing Agreement, to
the extent the Master Servicer, in its good faith business judgment, determines
that certain Advances will not be ultimately recoverable from late collections,
Liquidation Proceeds, Released Mortgaged Property Proceeds, Insurance Proceeds
or otherwise on the related Primary Assets ("Nonrecoverable Advances"), the
Master Servicer may reimburse itself from the amounts on deposit in the
Collection Account.
The Master Servicer is not required to make any Advance which it
determines would be a Nonrecoverable Advance.
Distributions
The Trustee is required to establish a trust account (referred to herein
as the "Distribution Account", but which may have such other designation as is
set forth in the related Prospectus Supplement) into which there shall be
deposited amounts transferred by the Master Servicer from the Collection Account
or, if so specified in the related Prospectus Supplement, collections on or with
respect to Primary Assets deposited by the Master Servicer into the Distribution
Account directly. The Distribution Account is required to be maintained as an
Eligible Account. Amounts on deposit in the Distribution Account may be invested
in Permitted Investments and other investments specified in the related
Prospectus Supplement.
On each Distribution Date the Trustee is required to withdraw from the
Distribution Account and distribute the amounts set forth in the related
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Prospectus Supplement, to the extent available, in the priority set forth
therein, which generally will include (in no particular order of priority):
(i) deposits into any account established for the purpose of
paying credit enhancement fees and premiums;
(ii) if a Spread Account, Reserve Account or similar account is
established with respect to a Series of Certificates, deposits into such
fund or account of the amounts required to be deposited therein;
(iii) payments to the holders of the Certificates on account of
interest and principal, in the order and manner set forth in the related
Prospectus Supplement;
(iv) reimbursement of the Master Servicer for amounts expended by
the Master Servicer and reimbursable thereto under the related Pooling
and Servicing Agreement but not previously reimbursed; and
(v) after the payments and deposits described above and in the
related Prospectus Supplement, the balance, if any, to the persons
specified in the related Prospectus Supplement.
The amount available to make the payments described above will generally
equal (a) the sum of (i) the Available Payment Amount for the related Due Period
and (ii) the amount available under any credit enhancement, including amounts
withdrawn from any Spread Account or Reserve Account, less (b) the amount of the
premiums or fees payable to the Credit Provider, if any, for the related Due
Period.
Generally, to the extent a Credit Provider makes payments to holders of
Certificates, such Credit Provider will be subrogated to the rights of such
holders with respect to such payments and shall be deemed, to the extent of the
payments so made, to be a registered holder of such Certificates.
For purposes of the provisions described above, the following terms have
the respective meanings ascribed to them below, each determined as of any
Distribution Date.
"Available Payment Amount" generally means the result of (a) collections
on or with respect to the Primary Assets due during the related Due Period, net
of the Servicing Fee paid to the Master Servicer for the related Due Period and
reimbursements for accrued unpaid Servicing Fees and other servicing
compensation, unreimbursed Advances and for certain expenses paid by the Master
Servicer, plus (b) the amount of Advances, if any.
"Realized Losses" means, for Primary Assets that become Liquidated
Primary Assets during the related Due Period, the amount, if any, by which (i)
the sum of the outstanding principal balance of each such Primary Asset
(determined immediately before such Primary Asset became a Liquidated Primary
Asset) and accrued and unpaid interest thereon at the Mortgage Rate to the date
on which such Primary Asset became a Liquidated Primary Asset exceeds (ii) the
Net Liquidation Proceeds received during such Due Period in connection with the
liquidation of such Primary Asset which have not theretofore been used to reduce
the principal balance of such Primary Asset.
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"Distribution Date" means the monthly date specified in the related
Prospectus Supplement on which payments will be made to holders of the related
Certificates.
Optional Disposition of Primary Assets
The Master Servicer, the Seller, the Depositor and/or any other entities
specified in the related Prospectus Supplement may have the option to effect the
early termination of a Series of Certificates through the purchase of the
Primary Assets and other assets in the related Trust when the outstanding
principal balance of such Series of Certificates declines to the percentage of
the original principal balance of such Series specified in the related
Prospectus Supplement or at such other time as is specified in the related
Prospectus Supplement. The related Pooling and Servicing Agreement will
establish a minimum price at which such Primary Assets and other assets in the
related Trust may be sold, which price will be sufficient to pay all accrued but
unpaid interest on the Certificates, the outstanding Certificate Balance of the
Certificate, any outstanding Advances plus all expenses of the Trust Fund
incurred in connection with such sale. Any such sale will be made without
recourse to the Trust or the Certificateholders. The proceeds of any such sale
will be distributed to Certificateholders on the Distribution Date next
following the date of disposition or at such other time as set forth in the
related Prospectus Supplement.
Mandatory Disposition of Primary Assets
If so specified in the related Prospectus Supplement, the Trustee or
such other entity as may be specified in such Prospectus Supplement may be
required to effect early retirement of a Series of Certificates by soliciting
competitive bids for the purchase of the Primary Assets and other assets in the
related Trust or otherwise, under the circumstances set forth in such Prospectus
Supplement. The procedures for the solicitation of such bids will be described
in the related Prospectus Supplement. The Master Servicer and any Underwriter
will be permitted to submit bids unless the Prospectus Supplement specifically
states otherwise. The related Pooling and Servicing Agreement will establish a
minimum price at which such Primary Assets and other assets in the related Trust
may be sold, which price will be sufficient to pay all accrued but unpaid
interest on the Certificates, the outstanding Certificate Balance of the
Certificate, any outstanding Advances plus all expenses of the Trust Fund
incurred in connection with such sale. If so specified in the related Prospectus
Supplement, the Underwriter or such other entity specified in such Prospectus
Supplement will be required to confirm that the accepted bid will result in the
sale of the Primary Assets and other assets of the Trust at their fair market
value. Any such sale will be made without recourse to the Trust or the
Certificateholders.
THE DEPOSITOR
Block Mortgage Finance, Inc., a Delaware corporation, was incorporated
in October, 1996 for the limited purpose of acquiring, owning and transferring
the Primary Assets and selling interests therein. The Depositor is a wholly
owned subsidiary of the Seller. The principal executive offices of the Depositor
are located at 4435 Main Street, Suite 500, Kansas City, Missouri 64111. Its
telephone number is (816) 932-4960.
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Neither the Depositor nor any of the Depositor's affiliates will insure
or guarantee distributions on the Certificates of any Series, unless otherwise
set forth in the related Prospectus Supplement.
THE SELLER
Companion Mortgage Corporation, a Delaware corporation, is a wholly
owned subsidiary of the Master Servicer. Its sole business activity consists of
purchasing, investing in and selling mortgage loans. The Seller's principal
executive offices are located at 4435 Main Street, Suite 500, Kansas City,
Missouri 64111. Its telephone number is (816) 932-4940.
The Seller is licensed, to the extent required, to purchase, invest in
and sell mortgage loans in the states in which the Mortgaged Properties are
located. If so specified in the related Prospectus Supplement, the term "Seller"
may include another or additional institutions. The Seller will sell and assign
the Primary Assets to the Depositor pursuant to the Pooling and Servicing
Agreement. Each Primary Asset will be serviced by the Master Servicer. The
Master Servicer will be entitled to receive the Servicing Fees and certain other
servicing compensation. Neither the Master Servicer or the Seller nor any of
their affiliates will insure or guarantee the Certificates of any Series.
THE MASTER SERVICER
The Master Servicer is an indirect wholly owned subsidiary of H&R Block,
Inc. ("Block"). The Master Servicer and its subsidiaries are engaged in various
financial businesses, including consumer finance, commercial finance and
personal productivity computer software products. Block is a diversified
services company engaged primarily in income tax return preparation services
and financial services.
USE OF PROCEEDS
The Depositor will apply all or substantially all of the net proceeds
from the sale of each Series of Certificates for one or more of the following
purposes: (i) to purchase the related Primary Assets, (ii) to repay indebtedness
which has been incurred to obtain funds to acquire such Primary Assets, (iii) to
establish a Reserve Account described in the related Prospectus Supplement and
(iv) to pay costs of structuring and issuing such Certificates, including the
costs of obtaining credit enhancements, if any. If so specified in the related
Prospectus Supplement, the purchase of the Primary Assets for a Series may be
effected in whole or in part by an exchange of Certificates with the Seller for
such Primary Assets.
THE PRIMARY ASSET PROGRAM
The Seller will acquire, directly or indirectly, the Primary Assets
either (i) from NCS Mortgage Services, L.L.C. ("NCS"), NF Investments, Inc.
("NFI") or Cimarron Mortgage Company, d/b/a The Mortgage Warehouse ("Cimarron")
pursuant to wholesale or correspondent lending programs or from H&R Block
Mortgage Company, L.L.C. ("HRBMC") pursuant to a retail lending program through
which BMC originates mortgage loans through a loan underwriting and processing
arrangement with NCS or (ii) from other mortgage
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loan originators as set forth in the related Prospectus Supplement. The Master
Servicer owns 40% of the equity interests in NCS.
NCS Mortgage Services, L.L.C.
NCS was formed in September 1995 to originate nonconforming mortgage
loans through wholesale broker channels, to purchase closed loans originated
through correspondent lenders, and to underwrite, process and purchase
nonconforming mortgage loans originated through mortgage lenders owned by
franchisees of H&R Block Tax Services, Inc. ("HRB Tax Services"), an indirect
wholly owned subsidiary of Block. NCS began originating broker loans in November
1995 and began in January 1996 underwriting, processing and purchasing mortgage
loans originated by mortgage loan companies owned by franchisees of HRB Tax
Services. The correspondent division commenced operations in the fall of 1997.
NCS originates closed-end, fixed-rate and adjustable-rate mortgages,
targeted primarily at B and C credit quality customers, although NCS's mortgage
loan program also competes for A credit quality customers. As of September 1998,
NCS acquires mortgage loans through the following means:
o Wholesale originations through a network of approximately
650 active brokers located in 21 states. These brokers
are managed by an in-house sales force of approximately
45 sales representatives.
o Correspondent lender programs through approximately 100
lenders located in 18 states.
o Retail originations through mortgage loan companies owned
by franchisees of HRB Tax Services.
o Bulk purchases from other lenders identified by state
sales representatives.
NF Investments, Inc.
NFI was formed in March 1986 under the name National Mortgage
Investments Co., Inc. In October 1995, NFI changed its name to NF Investments,
Inc. From inception until October 2, 1995, NFI engaged in the business of
originating, selling and servicing mortgage loans secured by liens on
one-to-four-family residential properties and had become one of the prominent
mortgage banking firms in Atlanta, Georgia.
On October 2, 1995, NFI sold its conforming mortgage loan origination
business to The Dime Savings Bank of New York, FSB. NFI retained the rights to
offer second mortgages and nonconforming first mortgages and retained its
servicing business. Since the sale of its conforming mortgage loan origination
business, NFI has focused primarily on servicing residential mortgage loans and
originating nonconforming residential mortgage loans. NFI originates and
purchases fixed- and adjustable-rate first mortgages for A through D credit
quality borrowers. As of September 1998, NFI obtains mortgage loans through a
network of approximately 1,200 brokers and 200 correspondents in 40 states.
Cimarron Mortgage Company
Cimarron was founded in January 1998 as the subprime lending operation of
Cimarron Mortgage Company, a Mississippi corporation. Cimarron orignates first
and second lien fixed and adjustable mortgage loans for A through D credit
quality customers. Cimarron is based in Clearwater, Florida and has processing
centers in Clearwater, Florida and Phoenix, Arizona. Cimarron originates
mortgage loans through a network of approximately 240 brokers in six states as
of September 1998.
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H&R Block Mortgage Company, L.L.C.
Block Mortgage Company was formed as a mortgage loan lender in August
1995 by Bay Colony, Ltd. ("Bay Colony"), a former franchisee of HRB Tax
Services. Block acquired Bay Colony in June 1996 and changed the name of Block
Mortgage Company to H&R Block Mortgage Company in August 1997. NCS underwrites
and processes mortgage loans originated by HRBMC utilizing similar underwriting
criteria and procedures utilized by NCS for mortgage loans originated by
NCS. These mortgage loans are purchased by the Seller.
Primary Assets
The Primary Assets consist primarily of purchase money loans,
refinancings and home equity borrowings. The Primary Assets are originated
through retail, wholesale and correspondent lending programs conducted through
NCS, NFI, HRBMC and Cimarron. Primary Assets originated through retail programs
("Retail Loans") are originated through H&R Block tax preparation offices by
HRBMC or mortgage lenders owned by franchisees of HRB Tax Services or through
NCS or NFI. Primary Assets originated through wholesale programs ("Wholesale
Loans") are generally originated through mortgage brokers eligible to refer
Primary Asset applications to NCS, NFI or Cimarron. Wholesale Loans are
generally underwritten by NCS, NFI or Cimarron, processed primarily by the
mortgage broker and closed by NCS, NFI or Cimarron in its name. Primary Assets
acquired pursuant to correspondent programs ("Correspondent Loans") are
purchased from approved correspondent lenders in negotiated transactions.
Correspondent Loans generally are closed in the name of the applicable
correspondent lenders and are subsequently sold and ultimately assigned to the
Seller. Correspondent lenders are generally required to follow the Seller's loan
underwriting policies, as described below, with respect to Correspondent Loans.
Underwriting Procedures
The underwriting procedures pertaining to the Primary Assets evaluate
the prospective mortgagor's credit standing and ability to repay the Primary
Asset, as well as the value and adequacy of the underlying Mortgaged Property
that serves as collateral for the Primary Asset.
All Primary Asset applications received by NCS, NFI or Cimarron (NCS,
NFI and Cimarron may hereinafter be referred to as a "Primary Asset
Underwriter") are subject to a credit investigation. As part of such
investigation, the Primary Asset Underwriter (i) reviews at least two
independent credit bureau reports (which may consist of a merged report), (ii)
obtains verification of income and employment, which generally includes at least
one current pay stub, and either the borrower's most recent W-2 form or
verification of employment (verbal or written), (iii) conducts a title search
and (iv) obtains an independent appraisal of the property, as described further
below. In addition, in the case of a junior Primary Asset, the Primary Asset
Underwriter may obtain a written or telephone verification of the current
principal balance and payment history for the mortgage loan secured by the
Senior Lien.
After the investigation is completed, the Primary Asset Underwriter
decides whether to accept or reject the loan application and assigns a loan
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class based upon the borrower's credit history and ability to repay the loan.
Generally, borrowers must have a debt-to-income ratio not greater than 55%. For
purposes of this calculation, "debt" is defined as the sum of all deed of trust
or mortgage payments, including escrow payments for hazard insurance premiums,
real estate taxes, mortgage insurance premiums and any owner's association dues,
plus payments on any installment debt, and alimony or child support payments and
"income" is defined as stable monthly gross income from the borrower's primary
source of employment plus acceptable secondary income.
The Seller generally has not acquired first-priority Primary Assets when
the Combined Loan-to-Value Ratio exceeded 90% and generally has not acquired
junior Primary Assets when the Combined Loan-to-Value Ratio has exceeded 90%,
except in connection with its "High LTV" program, under which the Seller has
acquired Primary Assets with Combined Loan-to-Value Ratios of generally up to
100%. Under the High LTV program, certain borrowers with high credit ratings
have been permitted to borrow varying amounts under Primary Assets with Combined
Loan-to-Value Ratios generally not exceeding 100%. Borrowers under the High LTV
program must also meet minimum credit score levels to qualify. A Primary Asset
Underwriter's determination of an acceptable Combined Loan-to-Value Ratio for a
particular Primary Asset application is based on the quality, condition and
appreciation history of the related Mortgaged Property and prospective market
conditions with regard to such Mortgaged Property. If the related Mortgaged
Property constitutes rural property, the Combined Loan-to-Value Ratio generally
will not exceed 85%.
Certain Primary Assets may be acquired under the Seller's No Income
Verification ("NIV") program. To qualify for the NIV program, a borrower
generally must have a debt-to-income ratio of no greater than 45% and a Combined
Loan-to-Value Ratio of no greater than 85%. The credit investigation of an
applicant for a loan under the NIV program is generally the same as described
above except that the income of the borrower will not be verified.
An appraisal satisfying either FNMA/FHLMC or state guidelines is
required for all Primary Assets acquired by the Seller, except for the High LTV
program where the stronger credit quality of the borrowers warrants a more
limited appraisal. In addition to the appraisal evaluation which each Mortgaged
Property undergoes, the Primary Asset Underwriter has established a system for
conducting periodic reviews of each appraiser using internal and third party
appraisers.
Terms
The Primary Assets include fixed- and variable-rate, closed-end Single
Family Loans and Contracts. The fixed-rate Primary Assets are predominantly
Simple Interest Primary Assets that provide for the amortization of the amount
financed under the Primary Asset over a series of equal Monthly Payments. The
fixed-rate Primary Assets acquired by the Seller typically have original terms
to maturity ranging from 120 to 360 months and, except for Balloon Loans,
provide for Monthly Payments of principal and interest in substantially equal
installments for the contractual term of the related Mortgage Note in sufficient
amounts to fully amortize the principal thereof by maturity. Generally, the
fixed-rate Balloon Loans will have an amortization schedule based upon a
360-month term and have a term to maturity of 180 months.
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The variable-rate Primary Assets are predominantly Simple Interest
Primary Assets which amortize over 180 to 360 months as explained above, or are
Actuarial Primary Assets or Rule of 78s Primary Assets which amortize over 180
to 360 months with the monthly principal and interest amounts computed as of the
first of the month, regardless of when the Monthly Payment is actually received.
The variable-rate Primary Assets may fully amortize over the original term of
the loan or may become due in a balloon payment, generally in 180 months. The
variable rate Primary Assets are indexed to short term base rates (such as
Six-Month LIBOR) and may adjust every six to 12 months.
Payments on the Primary Assets in the form of late payment charges,
prepayment premiums or other miscellaneous administrative charges, to the extent
collected from Mortgagors, will be retained by the Master Servicer as additional
servicing compensation and may be passed on to the sub-servicer.
Unless specified in the related Prospectus Supplement, none of the
Primary Assets will be insured by the FHA, guaranteed by the VA or otherwise
insured or guaranteed in any manner (except in some cases for title and hazard
insurance, which insurance is required to be obtained by the Mortgagor).
Servicing
The Master Servicer has established policies for servicing Primary
Assets. The Master Servicer retains the right to service the Primary Assets and
will generally assign subservicing rights to servicers who are FNMA/FHLMC
approved servicers. Servicing includes but is not limited to customer service,
collections and loss mitigation, remittance processing, investor reporting,
foreclosure and REO Properties.
The Master Servicer or its subservicers (collectively, "Servicer")
utilize a batch mode servicing system. It provides payment processing and
cashiering functions, automated payoff statements, on-line collections, hazard
insurance and tax monitoring, and a full range of investor reporting
requirements for both fixed-rate and adjustable-rate loans. The servicing
standards applied by the Servicer shall be comparable to those used in the
industry as a whole for assets similar to the Primary Assets.
The Pooling and Servicing Agreement for a Series of Certificates, which
will govern the distribution of cash flows within the related Trust, may require
that the Servicer advance interest and principal on any delinquent Primary Asset
until satisfaction of the Mortgage Note, liquidation of the Mortgaged Property
or charge-off of the Primary Asset to the extent the Servicer deems such
Advances of interest and/or principal to be ultimately recoverable. Realized
losses on Primary Assets are paid out of the related credit enhancement or
similar account or, if necessary, from the related monoline insurance company to
the extent such coverage exists and is otherwise disclosed in the related
Prospectus Supplement.
Once a Primary Asset becomes 30 days delinquent, the Servicer will take
additional steps to evaluate the Mortgagor's ability to repay the Primary Asset
and may also inspect the Mortgaged Property. Collection activity on accounts 60
days delinquent typically emphasize curing the delinquency, including the use of
formal forbearance, refinance and voluntary liquidation, and other means
directed at curing the delinquency. Depending on the circumstances surrounding
the delinquent account, a temporary suspension of
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payments or a repayment plan to return the account to an up-to-date status may
be authorized by the collection supervisor. In any event, it is the Servicer's
policy to work with the delinquent customer to resolve the past due balance
before legal action is initiated.
In most cases, accounts that cannot be cured by reasonable means will be
moved to foreclosure as soon as all legal documentation permits. Foreclosures
are initiated by the collections manager after performing a pre-foreclosure loan
analysis and require the approval of the Master Servicer. When foreclosure
proceedings are initiated, a third-party appraiser inspects the Mortgaged
Property or completes a drive-by evaluation and obtains comparable sales prices
and listings in the area. In addition, the Servicer checks the status of the
homeowner's insurance, Senior Liens, and property taxes. Subject to applicable
state law, all legal expenses are assessed to the account and become the
responsibility of the Mortgagor.
Delinquency and Loss Experience
The related Prospectus Supplement will set forth certain information
relating to the delinquency and loan loss experience for mortgage loans or
subservicers in the related Prospectus Supplement. The data presented is
unlikely to be indicative of the delinquency and loss experience that will be
experienced on the Primary Assets in a specific Trust, in light of the fact that
such portfolio may include Primary Assets which were originated by different
originators under different underwriting standards and which have a different
geographic distribution from the Primary Assets for a specific Trust. There is
no assurance that future delinquency or loss experience of the related Primary
Assets will be similar to that set forth in the related Prospectus Supplement.
DESCRIPTION OF THE CERTIFICATES
General
The following summary describes certain terms of the Certificates,
common to each Pooling and Servicing Agreement. A form of the Pooling and
Servicing Agreement has been filed as an Exhibit to the Registration Statement
of which this Prospectus forms a part. The summary does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the provisions of the Certificates, the Pooling and Servicing Agreement and the
related Prospectus Supplement. Where particular provisions or terms used in any
of such documents are referred to, the actual provisions (including definitions
of terms) are incorporated by reference as part of such summaries.
The Certificates will represent beneficial interests in the assets of
the related Trust, including (i) the Primary Assets and all proceeds thereof,
(ii) REO Property, (iii) amounts on deposit in the funds and accounts
established with respect to the related Trust, including all investments of
amounts on deposit therein, and (iv) certain other property, as described in the
related Prospectus Supplement. If specified in the related Prospectus
Supplement, one or more Classes of Certificates of a Series may have the benefit
of one or more of a letter of credit, financial guaranty insurance policy,
reserve fund, spread account, cash collateral account, overcollateralization,
cross-collateralization or other form of credit enhancement. If so specified in
the related Prospectus Supplement, the Primary Assets underlying a Series of
Certificates may be insured under one
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or more of a mortgage pool insurance policy, special hazard insurance policy,
bankruptcy bond or similar credit enhancement. In addition to, or in lieu of any
or all of the foregoing, credit enhancement with respect to one or more Classes
of Certificates of a Series may be provided through subordination. Any such
credit enhancement may be included in the assets of the related Trust. See
"--Description of Credit Enhancement" herein.
A Series of Certificates may include one or more Classes entitled to
distributions of principal and disproportionate, nominal or no interest
distributions or distributions of interest and disproportionate, nominal or no
principal distributions. The principal amount of any Certificate may be zero or
may be a notional amount as specified in the related Prospectus Supplement. A
Class of Certificates of a Series entitled to payments of interest may receive
interest at a specified rate (a "Pass-Through Rate") which may be fixed,
variable or adjustable and may differ from other Classes of the same Series, may
receive interest based on the weighted average Mortgage Rate on the related
Primary Assets, or may receive interest as otherwise determined, all as
described in the related Prospectus Supplement. One or more Classes of a Series
may be Certificates upon which interest will accrue but not be currently paid
until certain other Classes have received principal payments due to them in full
or until the occurrence of certain events, as set forth in the related
Prospectus Supplement. One or more Classes of Certificates of a Series may be
entitled to receive principal payments pursuant to a planned amortization
schedule or may be entitled to receive interest payments based on a notional
principal amount which reduces in accordance with a planned amortization
schedule. A Series may also include one or more Classes of Certificates entitled
to payments derived from a specified group or groups of Primary Assets held by
the related Trust. The rights of one or more Classes of Certificates may be
senior or subordinate to the rights of one or more of the other Classes of
Certificates. A Series may include two or more Classes of Certificates which
differ as to the timing, sequential order, priority of payment or amount of
distributions of principal or interest or both.
Each Class of Certificates of a Series will be issued in the
denominations specified in the related Prospectus Supplement. Each Certificate
will represent a percentage interest (a "Percentage Interest") in the
Certificates of the respective Class, determined by dividing the original
principal balance (or Notional Principal Amount, in the case of certain
Certificates entitled to receive interest only) represented by such Certificate
by the original principal balance (or Notional Principal Amount) of such Class.
The related Prospectus Supplement will set forth the amount or method of
calculating the Notional Principal Amount with respect to any Certificate.
One or more Classes of Certificates of a Series may be issuable in the
form of fully registered definitive certificates or, if so specified in the
related Prospectus Supplement, one or more Classes of Certificates of a Series
(the "Book-Entry Certificates" may initially be represented by one or more
certificates registered in the name of Cede & Co. ("Cede"), the nominee of The
Depository Trust Company ("DTC"), and available only in the form of book-entries
on the records of DTC, participating members thereof ("Participants") and other
entities, such as banks, brokers, dealers and trust companies, that clear
through or maintain custodial relationships with a Participant, either directly
or indirectly ("Indirect Participants"). Certificateholders may also hold
Certificates of a Series through CEDEL or Euroclear (in Europe), if they are
participants in such systems or indirectly
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through organizations that are participants in such systems. Certificates
representing the Book-Entry Certificates will be issued in definitive form only
under the limited circumstances described herein and in the related Prospectus
Supplement. With respect to Book-Entry Certificates, all references herein to
"holders" of Certificates shall reflect the rights of owners ("Owners") of the
Book-Entry Certificates, as they may indirectly exercise such rights through DTC
and Participants, except as otherwise specified herein. See "--Registration and
Transfer of Certificates" herein.
On each Distribution Date there shall be paid to each person in whose
name a Certificate is registered on the related Record Date (which in case of
the Book-Entry Certificates initially will be only Cede, as nominee of DTC), the
portion of the aggregate payment to be made to holders of such Class to which
such holder is entitled, if any, based on the Percentage Interest, held by such
holder of such Class, as further described in the related Prospectus Supplement.
Interest
Interest will accrue on each Class of Certificates of a Series (other
than a Class of Certificates entitled to receive only principal) during each
period specified in the related Prospectus Supplement (each, an "Accrual
Period") at the Pass-Through Rate for such Class specified in the related
Prospectus Supplement. Interest accrued on each Class of Certificates at the
applicable Pass-Through Rate during each Accrual Period will be paid, to the
extent monies are available therefor, on each Distribution Date, commencing on
the day specified in the related Prospectus Supplement and will be distributed
in the manner specified in such Prospectus Supplement, except for any Class of
Certificates ("Accrual Certificates") on which interest is to accrue and not be
paid until the principal of certain other Classes has been paid in full or the
occurrence of certain events as specified in such Prospectus Supplement. If so
described in the related Prospectus Supplement, interest that has accrued but is
not yet payable on any Accrual Certificates will be added to the principal
balance thereof on each Distribution Date and will thereafter bear interest at
the applicable Pass-Through Rate. Payments of interest with respect to any Class
of Certificates entitled to receive interest only or a disproportionate amount
of interest and principal will be paid in the manner set forth in the related
Prospectus Supplement. Payments of interest (or accruals of interest, in the
case of Accrual Certificates) with respect to any Series of Certificates or one
or more Classes of Certificates of such Series, may be reduced to the extent of
interest shortfalls not covered by Advances, if any, or by any applicable credit
enhancement.
Indices Applicable to Floating Rate and Inverse Floating Rate Classes
LIBOR
On the LIBOR Determination Date (as such term is defined in the related
Prospectus Supplement) for each class of Certificates of a Series as to which
the applicable interest rate is determined by reference to an index denominated
as LIBOR, the person designated in the related Pooling and Servicing Agreement
(the "Calculation Agent") will determine LIBOR by reference to the quotations,
as set forth on the Telerate Screen Page 3750 offered by the principal London
office of each of the designated reference banks meeting the criteria set forth
herein (the "Reference Banks") for making one-month United States dollar
deposits in leading banks in the London
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Interbank market, as of 11:00 a.m. (London time) on such LIBOR Determination
Date. In lieu of relying on the quotations for those Reference Banks that appear
at such time on the Telerate Screen Page, the Calculation Agent will request
each of the Reference Banks to provide such offered quotations at such time.
LIBOR will be established by the Calculation Agent on each LIBOR
Determination Date as follows:
(a) If on any LIBOR Determination Date two or more Reference
Banks provide such offered quotations, LIBOR for the next Interest
Accrual Period shall be the arithmetic mean of such offered quotations
(rounded upwards if necessary to the nearest whole multiple of 1/32%).
(b) If on any LIBOR Determination Date only one or none of the
Reference Banks provides such offered quotations, LIBOR for the next
Interest Accrual Period (as such term is defined in the related
Prospectus Supplement) shall be whichever is the higher of (i) LIBOR as
determined on the previous LIBOR Determination Date or (ii) the Reserve
Interest Rate. The "Reserve Interest Rate" shall be the rate per annum
which the Calculation Agent determines to be either (i) the arithmetic
mean (rounded upwards if necessary to the nearest whole multiple of
1/32%) of the one-month United States dollar lending rates that New York
City banks selected by the Calculation Agent are quoting, on the
relevant LIBOR Determination Date, to the principal London offices of at
least two of the Reference Banks to which such quotations are, in the
opinion of the Calculation Agent, being so made, or (ii) in the event
that the Calculation Agent can determine no such arithmetic mean, the
lowest one-month United States dollar lending rate which New York City
banks selected by the Calculation Agent are quoting on such LIBOR
Determination Date to leading European banks.
(c) If on any LIBOR Determination Date for a Class specified in
the related Prospectus Supplement, the Calculation Agent is required but
is unable to determine the Reserve Interest Rate in the manner provided
in paragraph (b) above, LIBOR for the next Accrual Period shall be LIBOR
as determined on the preceding LIBOR Determination Date, or, in the case
of the first LIBOR Determination Date, LIBOR shall be deemed to be the
per annum rate specified as such in the related Prospectus Supplement.
Each Reference Bank (i) shall be a leading bank engaged in transactions
in Eurodollar deposits in the international Eurocurrency market; (ii) shall not
control, be controlled by, or be under common control with the Calculation
Agent; and (iii) shall have an established place of business in London. If any
such Reference Bank should be unwilling or unable to act as such or if
appointment of any such Reference Bank is terminated, another leading bank
meeting the criteria specified above will be appointed.
The establishment of LIBOR on each LIBOR Determination Date by the
Calculation Agent and its calculation of the rate of interest for the applicable
classes for the related Accrual Period shall (in the absence of manifest error)
be final and binding.
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COFI
The Eleventh District Cost of Funds Index is designed to represent the
monthly weighted average cost of funds for savings institutions in Arizona,
California and Nevada that are member institutions of the Eleventh Federal Home
Loan Bank District (the "Eleventh District"). The Eleventh District Cost of
Funds Index for a particular month reflects the interest costs paid on all types
of funds held by Eleventh District member institutions and is calculated by
dividing the cost of funds by the average of the total amount of those funds
outstanding at the end of that month and of the prior month and annualizing and
adjusting the result to reflect the actual number of days in the particular
month. If necessary, before these calculations are made, the component figures
are adjusted by the Federal Home Loan Bank of San Francisco ("FHLBSF") to
neutralize the effect of events such as member institutions leaving the Eleventh
District or acquiring institutions outside the Eleventh District. The Eleventh
District Cost of Funds Index is weighted to reflect the relative amount of each
type of funds held at the end of the relevant month. The major components of
funds of Eleventh District member institutions are: (i) savings deposits, (ii)
time deposits, (iii) FHLBSF advances, (iv) repurchase agreements and (v) all
other borrowings. Because the component funds represent a variety of maturities
whose costs may react in different ways to changing conditions, the Eleventh
District Cost of Funds Index does not necessarily reflect current market rates.
A number of factors affect the performance of the Eleventh District Cost
of Funds Index, which may cause it to move in a manner different from indices
tied to specific interest rates, such as United States Treasury bills or LIBOR.
Because the liabilities upon which the Eleventh District Cost of Funds Index is
based were issued at various times under various market conditions and with
various maturities, the Eleventh District Cost of Funds Index may not
necessarily reflect the prevailing market interest rates on new liabilities of
similar maturities. Moreover, as stated above, the Eleventh District Cost of
Funds Index is designed to represent the average cost of funds for Eleventh
District savings institutions for the month prior to the month in which it is
due to be published. Additionally, the Eleventh District Cost of Funds Index may
not necessarily move in the same direction as market interest rates at all
times, since as longer term deposits or borrowings mature and are renewed at
prevailing market interest rates, the Eleventh District Cost of Funds Index is
influenced by the differential between the prior and the new rates on those
deposits or borrowings. In addition, movements of the Eleventh District Cost of
Funds Index, as compared to other indices tied to specific interest rates, may
be affected by changes instituted by the FHLBSF in the method used to calculate
the Eleventh District Cost of Funds Index.
The FHLBSF publishes the Eleventh District Cost of Funds Index in its
monthly Information Bulletin. Any individual may request regular receipt by mail
of Information Bulletins by writing the Federal Home Loan Bank of San Francisco,
P.O. Box 7948, 600 California Street, San Francisco, California 94120, or by
calling (415) 616-1000. The Eleventh District Cost of Funds Index may also be
obtained by calling the FHLBSF at (415) 616-2600.
The FHLBSF has stated in its Information Bulletin that the Eleventh
District Cost of Funds Index for a month "will be announced on or near the last
working day" of the following month and also has stated that it "cannot
guarantee the announcement" of such index on an exact date. So long as such
index for a month is announced on or before the tenth day of the second
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following month, the interest rate for each Class of Certificates of a Series as
to which the applicable interest rate is determined by reference to an index
denominated as COFI (each, a Class of "COFI Certificates") for the Accrual
Period commencing in such second following month will be based on the Eleventh
District Cost of Funds Index for the second preceding month. If publication is
delayed beyond such tenth day, such interest rate will be based on the Eleventh
District Cost of Funds Index for the third preceding month.
If on the tenth day of the month in which any Accrual Period commences
for a Class of COFI Certificates the most recently published Eleventh District
Cost of Funds Index relates to a month prior to the third preceding month, the
index for such current Accrual Period and for each succeeding Accrual Period
will, except as described in the next to last sentence of this paragraph, be
based on the National Monthly Median Cost of Funds Ratio to SAIF-Insured
Institutions (the "National Cost of Funds Index") published by the Office of
Thrift Supervision (the "OTS") for the third preceding month (or the fourth
preceding month if the National Cost of Funds Index for the third preceding
month has not been published on such tenth day of an Interest Accrual Period).
Information on the National Cost of Funds Index may be obtained by writing the
OTS at 1700 G Street, N.W., Washington, D.C. 20552 or calling (202) 906-6677,
and the current National Cost of Funds Index may be obtained by calling (202)
906-6988. If on any such tenth day of the month in which an Interest Accrual
Period commences the most recently published National Cost of Funds Index
relates to a month prior to the fourth preceding month, the applicable index for
such Accrual Period and each succeeding Accrual Period will be based on LIBOR,
as determined by the Calculation Agent in accordance with the Pooling and
Servicing Agreement relating to such Series of Certificates. A change of index
from the Eleventh District Cost of Funds Index to an alternative index will
result in a change in the index level, and, particularly if LIBOR is the
alternative index, could increase its volatility.
The establishment of COFI by the Calculation Agent and its calculation
of the rates of interest for the applicable Classes for the related Accrual
Period shall (in the absence of manifest error) be final and binding.
Treasury Index
On the Treasury Index Determination Date (as such term is defined in the
related Prospectus Supplement) for each Class of Certificates of a Series as to
which the applicable interest rate is determined by reference to an index
denominated as a Treasury Index, the Calculation Agent will ascertain the
Treasury Index for Treasury securities of the maturity and for the period (or,
if applicable, date) specified in the related Prospectus Supplement. Unless
otherwise specified in the related Prospectus Supplement, the Treasury Index for
any period means the average of the yield for each business day during the
period specified therein (and for any date means the yield for such date),
expressed as a per annum percentage rate, on (i) U.S. Treasury securities
adjusted to the "constant maturity" (as further described below) specified in
such Prospectus Supplement or (ii) if no "constant maturity" is so specified,
U.S. Treasury securities trading on the secondary market having the maturity
specified in such Prospectus Supplement, in each case as published by the
Federal Reserve Board in its Statistical Release No. H.15(519). Statistical
Release No. H.15(519) is published on Monday or Tuesday of each week and may be
obtained by writing or calling the Publications Department at the Board of
Governors of the Federal Reserve
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System, 21st and C Streets, Washington, D.C. 20551, (202) 452-3244. If the
Calculation Agent has not yet received Statistical Release No. H.15(519) for
such week, then it will use such Statistical Release from the immediately
preceding week.
Yields on U.S. Treasury securities at "constant maturity" are derived
from the U.S. Treasury's daily yield curve. This curve, which relates the yield
on a security to its time to maturity, is based on the closing market bid yields
on actively traded Treasury securities in the over-the-counter market. These
market yields are calculated from composites of quotations reported by five
leading U.S. Government securities dealers to the Federal Reserve Bank of New
York. This method provides a yield for a given maturity even if no security with
that exact maturity is outstanding. In the event that the Treasury Index is no
longer published, a new index based upon comparable data and methodology will be
designated in accordance with the Pooling and Servicing Agreement relating to
the particular Series of Certificates. The Calculation Agent's determination of
the Treasury Index, and its calculation of the rates of interest for the
applicable Classes for the related Accrual Period shall (in the absence of
manifest error) be final and binding.
Prime Rate
On the Prime Rate Determination Date (as such term is defined in the
related Prospectus Supplement) for each Class of Certificates of a Series as to
which the applicable interest rate is determined by reference to an index
denominated as the Prime Rate, the Calculation Agent will ascertain the Prime
Rate for the related Accrual Period. Unless otherwise specified in the related
Prospectus Supplement, the "Prime Rate" for an Accrual Period will be the "prime
rate" as published in the "Money Rates" section of The Wall Street Journal (or
if not so published, the "prime rate" as published in a newspaper of general
circulation selected by the Calculation Agent in its sole discretion) on the
related Prime Rate Determination Date. If a prime rate range is given, then the
average of such range will be used. In the event that the "prime rate" is no
longer published, a new index based upon comparable data and methodology will be
designated in accordance with the Pooling and Servicing Agreement relating to
the particular Series of Certificates. The Calculation Agent's determination of
the Prime Rate and its calculation of the rates of interest for the related
Accrual Period shall (in the absence of manifest error) be final and binding.
Principal
On each Distribution Date, commencing with the Distribution Date
specified in the related Prospectus Supplement, principal with respect to the
related Primary Assets due during the period specified in the related Prospectus
Supplement (each such period, a "Due Period") will be paid to holders of the
Certificates of the related Series (other than a Class of Certificates of such
Series entitled to receive interest only) in the priority, manner and amount
specified in such Prospectus Supplement, to the extent funds are available
therefor. Such principal payments will generally include to the extent of funds
available (i) the principal portion of all Monthly Payments on the related
Primary Assets which are received or advanced, (ii) any principal prepayments of
any such Primary Assets in full ("Principal Prepayments") and in part
("Curtailments") received during the related Due Period or such other period
(each, a "Prepayment Period") specified in the related Prospectus Supplement,
(iii) the principal portion
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received during the related Due Period or such other period as specified in the
related Prospectus Supplement of (A) the proceeds of any insurance policy
relating to a Primary Asset, a Mortgaged Property or a REO Property net of any
amounts applied to the repair of the Mortgaged Property or released to the
Mortgagor and net of reimbursable expenses ("Insurance Proceeds"), (B) proceeds
received in connection with the liquidation of any defaulted Primary Assets or
REO Properties ("Liquidation Proceeds"), net of fees and advances reimbursable
therefrom ("Net Liquidation Proceeds") and (C) net proceeds received in
connection with a taking of a related Mortgaged Property by condemnation or the
exercise of eminent domain or in connection with any partial release of any such
Mortgaged Property from the related lien ("Released Mortgaged Property
Proceeds"), (iv) the principal portion of all amounts paid by the Seller in
connection with the purchase of a Primary Asset as to which there is defective
documentation or a breach of a representation or warranty contained in the
related Pooling and Servicing Agreement that materially and adversely affects
the interests of the Certificateholders and (v) the principal portion of amounts
received on each defaulted Primary Asset or REO Property as to which the Master
Servicer has determined that all amounts expected to be recovered have been
recovered (each, a "Liquidated Primary Asset"), to the extent not included in
the amounts described in clauses (i) through (iv) above. Payments of principal
with respect to a Series of Certificates or one or more Classes of such Series
may be reduced to the extent of delinquencies or losses not covered by Advances
or any applicable credit enhancement.
Reports to Holders
On each Distribution Date, there will be forwarded to each holder a
statement prepared by the Trustee setting forth, among other things, the
information as to such Distribution Date required by the related Pooling and
Servicing Agreement, which generally will include, except as otherwise provided
therein or the related Prospectus Supplement, if applicable:
(i) the Available Payment Amount (and any portion of the
Available Payment Amount that has been deposited in the Distribution
Account but may not be withdrawn therefrom pursuant to an order of a
court of competent jurisdiction imposing a stay pursuant to Section 362
of the United States Bankruptcy Code);
(ii) the principal balance of each Class of Certificates as
reported in the report for the immediately preceding Distribution Date,
or, with respect to the first Distribution Date for a Series of
Certificates, the original principal balance of such Class;
(iii) the principal portion of all Monthly Payments received
during the related Due Period;
(iv) the amount of interest received on the Primary Assets during
the related Due Period;
(v) the aggregate amount of the Advances, if any, to be made with
respect to the Distribution Date;
(vi) certain delinquency and foreclosure information as described
more fully in the related Pooling and Servicing Agreement, and the
amount of Realized Losses during the related Due Period;
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(vii) the amount of interest and principal due to the holders of
each Class of Certificates of such Series on such Distribution Date;
(viii) the amount then available in any Spread Account, Reserve
Account or Prefunding Account;
(ix) the amount of the payments, if any, to be made from any
credit enhancement on the Distribution Date;
(x) the amount to be distributed on the Distribution Date to the
holders of any subordinated or residual Certificates issued pursuant to
the related Pooling and Servicing Agreement and not otherwise offered
pursuant to this Prospectus or the related Prospectus Supplement;
(xi) the principal balance of each Class of Certificates of such
Series after giving effect to the payments to be made on the
Distribution Date;
(xii) with respect to the Trust, the weighted average maturity
and the weighted average Mortgage Rate of the Primary Assets as of the
last day of the related Due Period;
(xiii)the amount of all payments or reimbursements to the Master
Servicer for accrued unpaid Servicing Fees, unreimbursed Advances, and
interest in respect of Permitted Investments or funds on deposit in the
Collection Account and certain other amounts during the related Due
Period;
(xiv) the Pool Principal Balance as of the immediately preceding
Distribution Date, the Pool Principal Balance after giving effect to
payments received prior to the related Determination Date or during the
related Due Period, as specified in the related Prospectus Supplement
and Realized Losses incurred during the related Due Period and the ratio
of the Pool Principal Balance to the Original Pool Principal Balance. As
of any Distribution Date, the "Pool Principal Balance" equals the
aggregate outstanding principal balance of all Primary Assets, together
with all amounts in any Prefunding Account not otherwise distributed
pursuant to the terms of the Pooling and Servicing Agreement, as reduced
by the aggregate Realized Losses, at the end of the related Due Period;
(xv) certain information with respect to the funding,
availability and release of monies from any Spread Account, Reserve
Account or Prefunding Account;
(xvi) the number of Primary Assets outstanding at the beginning
and at the end of the related Due Period;
(xvii) the amounts that are reimbursable to the Master Servicer,
the Trustee or the Depositor, as appropriate; and
(xviii) such other information as the Depositor reasonably deter-
mines to be necessary or appropriate.
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Description of Credit Enhancement
To the extent specified in the related Prospectus Supplement, credit
enhancement for one or more Classes of a Series of Certificates may be provided
by one or more of a letter of credit, financial guaranty insurance policy,
mortgage pool insurance policy, special hazard insurance policy, bankruptcy
bond, reserve fund, spread account, cash collateral account,
overcollateralization, cross-collateralization subordination or other type of
credit enhancement to cover one or more risks with respect to the Primary Assets
or the Certificates, as specified in the related Prospectus Supplement. Credit
enhancement may also be provided by subordination of one or more Classes of
Certificates of a Series to one or more other Classes of Certificates of such
Series. Any credit enhancement will be limited in amount and scope of coverage.
Unless otherwise specified in the related Prospectus Supplement, credit
enhancement for a Series of Certificates will not be available for losses
incurred with respect to any other Series of Certificates. To the extent credit
enhancement for any Series of Certificates is exhausted, or losses are incurred
which are not covered by such credit enhancement, the holders of the
Certificates will bear all further risk of loss.
The amounts and types of credit enhancement, as well as the provider
thereof (the "Credit Provider"), if applicable, with respect to each Series of
Certificates will be set forth in the related Prospectus Supplement. To the
extent provided in the applicable Prospectus Supplement and the related Pooling
and Servicing Agreement, any credit enhancement may be periodically modified,
reduced or substituted, either as the aggregate principal balance of the
Certificates decreases, upon the occurrence of certain events or otherwise. To
the extent permitted by the applicable Rating Agencies and provided that the
then current rating of the affected Certificates is not reduced or withdrawn as
a result thereof, any credit enhancement may be cancelled, reduced or modified
in amount or scope of coverage or both, as provided in the related Prospectus
Supplement.
The descriptions of credit enhancement arrangements included in this
Prospectus or any Prospectus Supplement and the coverage thereunder do not
purport to be complete and are qualified in their entirety by reference to the
actual forms of governing documents, copies of which will be filed with the
related Form 8-K.
Financial Guaranty Insurance Policy. If so specified in the related
Prospectus Supplement, a financial guaranty insurance policy or surety bond (a
"Certificate Insurance Policy") may be obtained and maintained for a Class or
Series of Certificates. The issuer of the Certificate Insurance Policy (the
"Insurer") will be described in the related Prospectus Supplement and a copy of
the form of Certificate Insurance Policy will be filed with the related Form
8-K.
A Certificate Insurance Policy will be described in the related
Prospectus Supplement and will generally be unconditional and irrevocable and
will guarantee to holders of the applicable Certificates that an amount equal to
the full amount of distributions due to such holders will be received by the
Trustee or its agent on behalf of such holders for distribution on each
Distribution Date. The specific terms of any Certificate Insurance Policy will
be set forth in the related Prospectus Supplement. A Certificate Insurance
Policy may have limitations and generally will not insure the obligation of the
Seller to purchase or substitute for a defective Primary
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Asset and will not guarantee any specific rate of principal prepayments. The
Insurer will, to the extent described in the related Prospectus Supplement, be
subrogated to the rights of each holder to the extent the Insurer makes payments
under the Certificate Insurance Policy.
Letter of Credit. If so specified in the related Prospectus Supplement,
all or a component of credit enhancement for a Class or a Series of Certificates
may be provided by a letter of credit (a "Letter of Credit") issued by a bank or
other financial institution (a "Letter of Credit Issuer") identified in the
related Prospectus Supplement. Each Letter of Credit will be described in the
related Prospectus Supplement and will generally be irrevocable. A Letter of
Credit may provide coverage with respect to one or more Classes of Certificates
or the underlying Primary Assets or, if specified in the related Prospectus
Supplement, may support a specified obligation or be provided in lieu of the
funding with cash of a Reserve Account or Spread Account. The amount available,
conditions to drawing, if any, and right to reimbursement with respect to a
Letter of Credit will be specified in the related Prospectus Supplement. A
Letter of Credit will expire on the date specified in the related Prospectus
Supplement, unless earlier terminated or extended in accordance with its terms.
Mortgage Pool Insurance Policy. If so specified in the related
Prospectus Supplement, credit enhancement with respect to a Series of
Certificates may be provided by a mortgage pool insurance policy (a "Pool
Insurance Policy") issued by the insurer (a "Pool Insurer") specified in the
related Prospectus Supplement. Each Pool Insurance Policy will, subject to
limitations described in such Prospectus Supplement, insure against losses due
to defaults in the payment of principal or interest on the underlying Primary
Assets up to the amount specified in such Prospectus Supplement (or in the
related Form 8-K). The Pooling and Servicing Agreement with respect to any
Series of Certificates for which a Pool Insurance Policy is provided will
require the Master Servicer or other party specified therein to use reasonable
efforts to maintain at the expense of the Trust the Pool Insurance Policy and to
present claims to the Pool Insurer in the manner required thereby. No Pool
Insurance Policy will be a blanket policy against loss and each such policy will
be subject to the limitations and conditions precedent described in the related
Prospectus Supplement.
Special Hazard Insurance Policy. If so specified in the related
Prospectus Supplement, credit enhancement with respect to a Series of
Certificates may be provided in part by an insurance policy (a "Special Hazard
Policy") covering losses due to physical damage to a Mortgaged Property other
than a loss of the type covered by a standard hazard insurance policy or flood
insurance policy or losses resulting from the application of co-insurance
clauses contained in standard hazard insurance policies. The Prospectus
Supplement relating to a Series of Certificates for which a Special Hazard
Policy is provided will identify the issuer of such policy and any limitations
on coverage. No Special Hazard Policy will cover extraordinary losses such as
those due to war, civil insurrection, governmental action, errors in design or
workmanship, chemical contamination or similar causes. Each Special Hazard
Policy will contain an aggregate limit on claims specified in the related
Prospectus Supplement. No claim will be paid under any Special Hazard Policy
unless hazard insurance on the Mortgaged Property is in force and protection and
preservation expenses have been paid.
Spread Account and Reserve Account. If so specified in the related
Prospectus Supplement, all or any component of credit enhancement for a
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Series of Certificates may be provided by a reserve account (a "Reserve
Account") or a spread account (a "Spread Account"). A Reserve Account or Spread
Account may be funded by a combination of cash, one or more letters of credit or
one or more Permitted Investments provided by the Depositor or other party
identified in the related Prospectus Supplement, amounts otherwise distributable
to one or more Classes of Certificates subordinated to one or more other Classes
of Certificates or all or any portion of the interest accrued on the Primary
Assets in excess of that accrued on the related Certificates ("Excess Spread").
If so specified in the related Prospectus Supplement, a Reserve Account for a
Series of Certificates may be funded in whole or in part on the applicable
Closing Date. If so specified in the related Prospectus Supplement, cash
deposited in a Reserve Account or a Spread Account may be withdrawn and replaced
with one or more letters of credit or Permitted Investments. A Reserve Account
or Spread Account may be pledged or otherwise made available to a Credit
Provider. If so specified in the related Prospectus Supplement, a Reserve
Account or Spread Account may not be deemed part of the assets of the related
Trust or the related REMIC or may be deemed to be pledged or provided by one or
more of the Depositor, the holders of the Class of Certificates otherwise
entitled to the amounts deposited in such account or such other party as is
identified in such Prospectus Supplement. If so specified in the related
Prospectus Supplement, a Spread Account, Prefunding Account or Reserve Account
may also require the establishment of an account (a "Yield Supplement Account")
to cover interest shortfalls, as more fully described in the related Prospectus
Supplement. Funds on deposit in the Yield Supplement Account for any Series may
be applied to supplement interest payable on the related Primary Assets if
necessary to pay interest to holders of one or more Classes of Certificates of
such Series at the applicable Pass-Through Rate.
Cash Collateral Account. If so specified in the related Prospectus
Supplement, all or any portion of credit enhancement for a Series of
Certificates may be provided by the establishment of a cash collateral account
(a "Cash Collateral Account"). A Cash Collateral Account will be similar to a
Reserve Account or Spread Account except that generally a Cash Collateral
Account is funded initially by a loan from a cash collateral lender (the "Cash
Collateral Lender"), the proceeds of which are invested with the Cash Collateral
Lender or other eligible institution. Unless otherwise specified in the related
Prospectus Supplement, the Cash Collateral Account will be required to be
maintained as an Eligible Account. The loan from the Cash Collateral Lender will
be repaid from Excess Spread, if any, or such other amounts as are specified in
the related Prospectus Supplement. Amounts on deposit in the Cash Collateral
Account will be available in generally the same manner described above with
respect to a Spread Account or Reserve Account. As specified in the related
Prospectus Supplement, a Cash Collateral Account may be deemed to be part of the
assets of the related Trust, may be deemed to be part of the assets of a
separate cash collateral trust or may be deemed to be property of the party
specified in the related Prospectus Supplement and pledged for the benefit of
the holders of one or more Classes of Certificates of a Series.
Subordination. If so specified in the related Prospectus Supplement,
distributions of scheduled principal, Principal Prepayments, Curtailments,
interest or any combination thereof otherwise payable to one or more Classes of
Certificates of a Series ("Subordinated Certificates") may instead be payable to
holders of one or more other Classes of Certificates of such Series ("Senior
Certificates") under the circumstances and to the extent specified in such
Prospectus Supplement. If so specified in the related
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Prospectus Supplement, delays in receipt of scheduled payments on the Primary
Assets and losses on defaulted Primary Assets will be borne first by the various
Classes of Subordinated Certificates and thereafter by the various Classes of
Senior Certificates, in each case under the circumstances and subject to the
limitations specified in such Prospectus Supplement. A Series of Certificates
may include one or more Classes of Subordinated Certificates entitled to receive
cash flows remaining after distributions are made to all other Classes
designated as being senior thereto. Such right to receive payments will
effectively be subordinate to the rights of holders of such senior designated
Classes of Certificates. A Series may also include one or more Classes of
Subordinated Certificates that will be allocated losses prior to any losses
being allocated to Classes of Subordinated Certificates designated as being
senior thereto. The aggregate losses in respect of defaulted Primary Assets
which must be borne by the Subordinated Certificates by virtue of subordination
and the amount of the distributions otherwise distributable to the Subordinated
Certificates that will be distributable to Senior Certificates on any
Distribution Date may be limited as specified in the related Prospectus
Supplement or the availability of subordination may otherwise be limited as
specified in the related Prospectus Supplement. If losses or delinquencies were
to exceed the amounts payable and available to holders of Subordinated
Certificates of a Series or if such amounts were to exceed any limitation on the
amount of subordination available, holders of Senior Certificates of such Series
could experience losses.
In addition, if so specified in the related Prospectus Supplement,
amounts otherwise payable to holders of Subordinated Certificates on any
Distribution Date may be deposited in a Reserve Account or Spread Account, as
described above. Such deposits may be made on each Distribution Date, on each
Distribution Date for a specified period or to the extent necessary to cause the
balance in such account to reach or maintain a specified amount, as specified in
the related Prospectus Supplement, and thereafter, amounts may be released from
such Reserve Account or Spread Account in the amounts and under the
circumstances specified in such Prospectus Supplement.
Distributions may be allocated as among Classes of Senior Certificates
and as among Classes of Subordinated Certificates in order of their final
scheduled payment dates, in accordance with a schedule or formula or otherwise,
as specified in the related Prospectus Supplement. As between Classes of
Subordinated Certificates, payments to holders of Senior Certificates on account
of delinquencies or losses and deposits to any Reserve Account or Spread Account
will be allocated as specified in the related Prospectus Supplement. Principal
Prepayments and Curtailments may be paid disproportionately to Classes of Senior
Certificates pursuant to a "shifting interest" structure or otherwise, as
specified in the related Prospectus Supplement.
Overcollateralization. If specified in the Prospectus Supplement,
subordination provisions of a Trust may be used to accelerate to a limited
extent the amortization of one or more Classes of Certificates relative to the
amortization of the related Primary Assets. The accelerated amortization is
achieved by the application of certain excess interest to the payment of
principal of one or more Classes of Certificates. This acceleration feature
creates, with respect to the Primary Assets or groups thereof,
overcollateralization which results from the excess of the aggregate principal
balance of the related Primary Assets, or a group thereof, over the principal
balance of the related Class of Certificates. Such acceleration may continue for
the life of the related Certificates, or may be limited. In the
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case of limited acceleration, once the required level of overcollateralization
is reached, and subject to certain provisions specified in the related
Prospectus Supplement, such limited acceleration feature may cease, unless
necessary to maintain the required level of overcollateralization.
Cross-Collateralization. If specified in the related Prospectus
Supplement, the beneficial ownership of separate groups of Primary Assets
included in the Trust for a Series may be evidenced by separate Classes of
Certificates. In such case, credit enhancement may be provided by a
cross-support feature which may require that distributions be made with respect
to Certificates evidencing beneficial ownership of one or more groups of Primary
Assets prior to distribution to Subordinated Certificates evidencing a
beneficial ownership interest in other groups of Primary Assets within the same
Trust. The Prospectus Supplement for a Series which includes a cross-support
feature will describe the manner and conditions for applying such cross-support
feature.
Payment of Certain Expenses
If so specified in the related Prospectus Supplement, in order to
provide for the payment of the fees of the Credit Provider, if any, the Trustee
may be required to establish a credit enhancement account and to deposit therein
on the dates specified in the related Prospectus Supplement, from amounts on
deposit in the Distribution Account, in the priority indicated, an amount that
is sufficient to pay the premiums or fees due to the Credit Provider.
Each Pooling and Servicing Agreement will set forth the terms of the
payment to the Trustee from time to time of its fees and the reasonable
expenses, disbursements and advances incurred or made by the Trustee, either
from amounts on deposit in the Distribution Account or as otherwise described
therein.
Servicing Compensation
As compensation for servicing and administering the Primary Assets, the
Master Servicer is entitled to a fee in the amount specified in the related
Prospectus Supplement (the "Servicing Fee"), payable from all or a portion of
payments on the related Primary Assets, Liquidation Proceeds, Released Mortgaged
Property Proceeds, Insurance Proceeds and certain other collections on the
related Primary Assets, as specified in the related Prospectus Supplement. In
addition to the Servicing Fee, the Master Servicer will generally be entitled
under the related Pooling and Servicing Agreement to retain as additional
servicing compensation any assumption, modification and other administrative
fees (including bad check charges, prepayment premiums, late payment fees and
similar fees), the excess of any Net Liquidation Proceeds over the outstanding
principal balance of a Liquidated Primary Asset, to the extent not otherwise
required to be remitted to the Trustee for deposit into the Distribution
Account, and interest paid on funds on deposit in the Collection Account.
Servicing Standards
General Servicing Standards. The Master Servicer will agree to service
the Primary Assets in accordance with the Pooling and Servicing Agreement,
and, in servicing and administering the Primary Assets, to employ or cause to
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be employed procedures, including collection, foreclosure and REO Property
management procedures, and exercise the same care it customarily employs and
exercises in servicing and administering assets similar to the Primary Assets
for other third party portfolios or its own account, in accordance with accepted
servicing practices of prudent servicing institutions that service assets
similar to the Primary Assets and giving due consideration to the holders of the
related Certificates, and any Credit Provider's interests. The interests of the
holders of each Class of Certificates of any Series and the Credit Provider, if
any, may differ with respect to servicing decisions which may affect the rate at
which prepayments are received. No holder of a Certificate will have the right
to make any decisions with respect to the underlying Primary Assets. The Master
Servicer will have the right and obligation to make such decisions in accordance
with its normal servicing procedures and the standards set forth in the related
Pooling and Servicing Agreement, and, in certain cases, the consent or approval
of the Credit Provider, if any, may be permitted or required.
Hazard Insurance. The Master Servicer will exercise its best reasonable
efforts to cause to be maintained fire and hazard insurance with extended
coverage (sometimes referred to as "standard hazard insurance") customary in the
area where the Mortgaged Property is located, to the extent required or
permitted under the related Mortgage, in an amount which is at least equal to
that of the standard form of fire insurance policy with extended coverage
customary in the state in which the property is located. Such coverage generally
will be in an amount equal to the lesser of the principal balance of such
Primary Asset or 100% of the insurable value of the improvements securing the
Primary Asset. Generally, if the Mortgaged Property is in an area identified in
the Federal Register by the Flood Emergency Management Agency as Flood Zone "A",
the Mortgage will require the Mortgagor to maintain a flood insurance policy
with a generally acceptable insurance carrier in an amount representing coverage
not less than that required under guidelines promulgated by the Federal National
Mortgage Association. The Master Servicer will also be required to maintain on
REO Property, to the extent such insurance is available at commercially
reasonable rates, fire and hazard insurance in the applicable amounts described
above, liability insurance and, to the extent required and available under the
National Flood Insurance Act of 1968, as amended, and the Master Servicer
determines that such insurance is necessary in accordance with accepted
servicing practices of prudent servicing institutions for assets similar to the
Primary Assets, flood insurance in an amount equal to that required above. Any
amounts collected by the Master Servicer under any such policies (other than
amounts to be applied to the restoration or repair of the Mortgaged Property, or
to be released to the Mortgagor in accordance with the related Mortgage or
customary mortgage servicing procedures) will be deposited in the Collection
Account, subject to retention by the Master Servicer to the extent such amounts
constitute servicing compensation or to withdrawal pursuant to the related
Pooling and Servicing Agreement.
If the Master Servicer obtains and maintains a blanket policy or master
forced placed insurance policy insuring all of the Primary Assets against some
or all of the risks described above, then, to the extent such policy names the
Master Servicer as loss payee and provides coverage in an amount equal to the
aggregate outstanding principal balance on the Primary Assets without
co-insurance, the Master Servicer will be deemed conclusively to have satisfied
its obligations with respect to such insurance coverage.
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In general, the standard hazard insurance policy covers physical damage
to or destruction of the improvements on the property by fire, lightning,
explosion, smoke, windstorm and hail, and riot, strike and civil commotion,
subject to the conditions and exclusions specified in each policy. Although the
policies relating to Primary Assets will be underwritten by different insurers
under different state laws in accordance with different applicable state forms
and therefore will not contain identical terms and conditions, the basic terms
thereof are dictated by respective state laws, and most such policies typically
do not cover any physical damage resulting from war, revolution, governmental
actions, floods and other water related causes, earth movement (including
earthquakes, landslides and mudflows), nuclear reactions, wet or dry rot,
rodents, insects or domestic animals, theft and, in certain cases, vandalism.
The foregoing list is merely indicative of certain kinds of uninsured risks and
is not intended to be all-inclusive. No other insurance coverage (other than
title insurance as specified herein) is required under the Primary Assets or the
Pooling and Servicing Agreement.
The Mortgagors under some of the Primary Assets may obtain credit life
or disability insurance policies. Such policies require the insurers to make
payments on the related Primary Assets in the event of death or certain events
of disability of the Mortgagor. To the extent such policies are obtained, the
proceeds thereof will constitute assets of the related Trust. No Mortgagor is
required to obtain credit life or disability insurance.
Since, as a general matter, the cost of construction of residential
properties has increased in recent years, if the amount of hazard insurance
maintained on the improvements securing a Primary Asset were to decline as its
principal balance decreased, hazard insurance proceeds could be insufficient to
restore fully the damaged property in the event of a loss.
Enforcement of "Due-on-Sale" Clauses. When a Mortgaged Property has been
or is about to be conveyed by the Mortgagor, the Master Servicer, on behalf of
the Trustee, is required, to the extent it has knowledge of such conveyance or
prospective conveyance to enforce the rights of the Trustee as the mortgagee of
record to accelerate the maturity of the related Primary Asset under any
"due-on-sale" clause contained in the related Mortgage or Mortgage Note;
provided, however, that the Master Servicer will not be permitted to exercise
any such right if the "due-on-sale" clause, in the reasonable belief of the
Master Servicer, is not enforceable under applicable law or unless, in the
Master Servicer's reasonable judgment, doing so would materially increase the
risk of default or delinquency on, or materially impair the security for, such
Primary Asset. See "Certain Legal Aspects of the Primary Assets--Enforceability
of Certain Provisions." In such event, the Master Servicer will be required to
enter into an assumption and modification agreement with the person to whom such
property has been or is about to be conveyed, pursuant to which such person
becomes liable under the Mortgage Note and, unless prohibited by applicable law
or the Mortgage Note or Mortgage, the Mortgagor remains liable thereon. The
Master Servicer will also be authorized (with the prior approval of any Credit
Provider, if required) to enter into a substitution of liability agreement with
such person, pursuant to which the original Mortgagor is released from liability
and such person is substituted as Mortgagor and becomes liable under the
Mortgage Note.
Realization Upon Defaulted Primary Assets. The Master Servicer is
required to use its best reasonable efforts to foreclose upon or otherwise
comparably effect the ownership in the name of the Trustee on behalf of the
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holders of the related Certificates of Mortgaged Properties relating to
defaulted Mortgage Loans as to which no satisfactory arrangements can be made
for collection of delinquent payments; provided, however, that the Master
Servicer will not be required to foreclose if it determines that foreclosure
would not be in the best interests of the holders or any Credit Provider. In
connection with such foreclosure or other conversion, the Master Servicer is
required to exercise collection and foreclosure procedures which are consistent
with accepted servicing practices of prudent servicing institutions for assets
similar to the Primary Assets.
Collection of Primary Asset Payments. Each Pooling and Servicing
Agreement will require the Master Servicer to make reasonable efforts to collect
all payments called for under the terms and provisions of the Primary Assets.
Consistent with the foregoing, the Master Servicer may, based upon its
reasonable determination of what is necessary or desirable, waive any late
payment charge, prepayment premiums, assumption fee or any penalty interest in
connection with the prepayment of a Primary Asset or any other fee or charge
which the Master Servicer would be entitled to retain as servicing compensation.
The Pooling and Servicing Agreement for each Series will provide the Master
Servicer with the discretion to modify, waive or amend certain of the terms of
any Primary Asset without the consent of the Trustee or any Certificateholder
subject to certain conditions set forth therein, including the condition that
such modification, waiver or amendment will not result in such Primary Asset
ceasing to be a "qualified mortgage" under the REMIC Regulations.
Use of Subservicers
The Master Servicer will be permitted under each Pooling and Servicing
Agreement to enter into subservicing agreements ("Subservicing Agreements") for
any servicing and administration of Primary Assets with any institution (each, a
"Subservicer") which meets the requirements set forth in the related Pooling and
Servicing Agreement. Such Subservicer shall have all the rights and powers of
the Master Servicer with respect to such Primary Assets under the Pooling and
Servicing Agreement. The related Prospectus Supplement shall set forth whether a
Subservicer is required to be designated by Federal National Mortgage
Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC") as
an approved Seller-Servicer for first and second mortgage loans or the standards
under which a Subservicer may service the Primary Assets.
Notwithstanding any Subservicing Agreement, the Master Servicer will not
be relieved of its obligations under a Pooling and Servicing Agreement, and the
Master Servicer shall be obligated to the same extent and under the same terms
and conditions as if it alone were servicing and administering the Primary
Assets. The Master Servicer will be entitled to enter into any agreement with a
Subservicer for indemnification of the Master Servicer by such Subservicer and
nothing contained in any Pooling and Servicing Agreement shall be deemed to
limit or modify such indemnification.
Servicing Certificates and Audits
The Pooling and Servicing Agreement for each Series will generally
provide that on or before a specified date in each year, beginning the first
such date that is at least a specified number of months after the Cut-off Date,
there will be furnished to the related Trustee a report of a firm of independent
certified public accountants stating that (i) it has obtained a
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letter of representation regarding certain matters from the management of the
Master Servicer which includes an assertion that the Master Servicer has
complied with certain minimum mortgage loan servicing standards, identified in
the Uniform Single Attestation Program for Mortgage Bankers established by the
Mortgage Bankers Association of America, with respect to the Master Servicer's
servicing of mortgage loans during the most recently completed calendar year and
(ii) on the basis of an examination conducted by such firm in accordance with
standards established by the American Institute of Certified Public Accountants,
such representation is fairly stated in all material respects, subject to such
exceptions and other qualifications that, in the opinion of such firm, such
standards require it to report. In rendering its report, such firm may rely, as
to the matters relating to the direct servicing of mortgage loans by
sub-servicers, upon comparable reports of firms of independent public
accountants rendered on the basis of examinations conducted in accordance with
the same standards (rendered within one year of such report) with respect to
those sub-servicers. The Prospectus Supplement may provide that additional
reports of independent certified public accountants relating to the servicing of
mortgage loans may be required to be delivered to the Trustee.
In addition, the Pooling and Servicing Agreement for each Series will
generally provide that the Master Servicer will each deliver to the Trustee, the
Depositor and each Rating Agency, annually on or before a date specified in the
Pooling and Servicing Agreement, a statement signed by an officer of the Master
Servicer to the effect that, based on a review of its activities during the
preceding calendar year, to the best of such officer's knowledge, the Master
Servicer has fulfilled in all material respects its obligations under the
Pooling and Servicing Agreement throughout such year or, if there has been a
default in the fulfillment of any such obligation, specifying each default known
to such officer.
Limitations on Liability of the Master Servicer and Its Agents
Each Pooling and Servicing Agreement will provide that the Master
Servicer and any director, officer, employee or agent of the Master Servicer may
rely on any document of any kind that is reasonably and in good faith believed
to be genuine and adopted or signed by the proper authorities respecting any
matters arising under the Pooling and Servicing Agreement. In addition, the
Master Servicer will not be required to appear with respect to, prosecute or
defend any legal action that is not incidental to the Master Servicer's duty to
service the Primary Assets in accordance with the related Pooling and Servicing
Agreement, other than certain claims made by third parties with respect to such
Pooling and Servicing Agreement. In such event, the legal expenses and costs of
such action and any liability resulting therefrom will be expenses, costs and
liabilities of the related Trust and the Master Servicer will be entitled to
reimbursement therefor out of funds otherwise distributable to the
Certificateholders. The Pooling and Servicing Agreement for each Series will
also provide that none of the Depositor, the Master Servicer or the Seller or
any director, officer, employee or agent of the Depositor, the Master Servicer
or the Seller will be under any liability to the Trust Fund or the
Certificateholders for any action taken, or for refraining from the taking of
any action, in good faith pursuant to the Pooling and Servicing Agreement, or
for errors in judgment; provided, however, that neither the Depositor, the
Master Servicer, the Seller nor any such person will be protected against any
liability for a breach of any representations or warranties under the Pooling
and Servicing Agreement or that would otherwise be imposed by reason of willful
misfeasance, bad faith
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or negligence (or, in the case of the Master Servicer a breach of the servicing
standards set forth in the Pooling and Servicing Agreement) in the performance
of its duties or by reason of negligent disregard of its obligations and duties
thereunder. The Pooling and Servicing Agreement will further provide that the
Depositor, the Master Servicer, the Seller and any director, officer, employee
or agent of the Depositor, the Master Servicer or the Seller will be entitled to
indemnification by the Trust Fund for any loss, liability or expense incurred in
connection with any legal action relating to the Pooling and Servicing Agreement
or the Certificates, other than any loss, liability or expense incurred by
reason of its respective willful misfeasance, bad faith, fraud or negligence
(or, in the case of the Master Servicer a breach of the servicing standard set
forth in the Pooling and Servicing Agreement) in the performance of duties
thereunder or by reason of negligent disregard of its respective obligations and
duties thereunder. Any loss resulting from such indemnification will reduce
amounts distributable to Certificateholders. The Prospectus Supplement will
specify any variations to the foregoing required by the Rating Agencies rating
Certificates of a Series. Additional information with respect to the limitation
on liabilities of the Master Servicer will be provided in the related Prospectus
Supplement.
Removal and Resignation of Master Servicer
Unless otherwise specified in the related Prospectus Supplement, any
Credit Provider or either the Trustee or the holders of Certificates of a Series
representing a majority in principal amount of Certificates of such Series,
voting as a single class (a "Majority in Aggregate Voting Interest"), with the
consent of any Credit Provider, may, pursuant to the related Pooling and
Servicing Agreement, remove the Master Servicer upon the occurrence and
continuation of any of the following events (each a "Master Servicer Termination
Event"):
(i) Any failure by the Master Servicer to deliver to the Trustee
for distribution to Certificateholders any proceeds or payment required
to be so delivered under the terms of the Certificates and the Pooling
and Servicing Agreement that shall continue unremedied for a period of
five Business Days (an "Event of Nonpayment"); or
(ii) Failure of the Seller, so long as it is an affiliate of the
Master Servicer, to repurchase or substitute a Primary Asset pursuant to
the terms of the related Pooling and Servicing Agreement; or
(iii) Failure on the part of the Master Servicer duly to observe
or to perform in any material respect any other covenants or agreements
of the Master Servicer set forth in the Certificates or in the Pooling
and Servicing Agreement which failure materially and adversely affects
the rights of Certificateholders and which failure shall continue
unremedied for a period of 60 days after the date on which written
notice of such failure requiring the same to be remedied shall have been
given to the Master Servicer by the Trustee, or to the Master Servicer
and to the Trustee by the Holders of Certificates evidencing not less
than a majority of the aggregate principal amount of Certificates of
such Series; or
(iv) The Master Servicer shall file a petition commencing a
voluntary case under any chapter of the federal bankruptcy laws, or the
Master Servicer shall file a petition or answer or consent seeking
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reorganization, arrangement, adjustment or composition under any other
similar applicable federal law, or shall consent to the filing of any
such petition, answer or consent, or the Master Servicer shall appoint,
or consent to the appointment of, a custodian, receiver, liquidator,
trustee, assignee, sequestrator or other similar official in bankruptcy
or insolvency, of it or of any substantial part of its property, or
shall make an assignment for the benefit of creditors, or shall admit in
writing its inability to pay its debts generally as they become due; or
(v) Any order for relief against the Master Servicer shall have
been entered by a court having jurisdiction in the premises under any
chapter of the federal bankruptcy laws, and such order shall have
continued undischarged or unstayed for a period of 120 days, or a decree
or order by a court having jurisdiction in the premises shall have been
entered, approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of the Master Servicer under any
other similar applicable federal law, and such decree or order shall
have continued undischarged or unstayed for a period of 120 days, or a
decree or order of a court having jurisdiction in the premises for the
appointment of a custodian, receiver, liquidator, trustee, assignee,
sequestrator or other similar official in bankruptcy or insolvency of
the Master Servicer or of any substantial part of its property, or for
the winding up or liquidation of its affairs, shall have been entered,
and such decree or order shall have remained in force undischarged or
unstayed for a period of 120 days.
To the extent specified in the related Prospectus Supplement, the
Depositor may, with the consent of any Credit Provider and holders representing
a majority in aggregate Percentage Interest of each Class of Certificates of a
Series, remove the Master Servicer upon 90 days' prior written notice. No such
removal shall be effective until the appointment and acceptance of a successor
Master Servicer other than the Trustee (unless the Trustee agrees to serve)
meeting the requirements described below and otherwise acceptable to any Credit
Provider and majority in Percentage Interest of each Class of Certificates of
such Series.
The Master Servicer may not assign the related Pooling and Servicing
Agreement nor resign from the obligations and duties thereby imposed on it
except by mutual consent of the Master Servicer, any Credit Provider, the
Trustee, the Depositor and the Majority in Aggregate Voting Interest or upon the
determination that the Master Servicer's duties thereunder are no longer
permissible under applicable law and such incapacity cannot be cured by the
Master Servicer. No such resignation shall become effective until a successor
has assumed the Master Servicer's responsibilities and obligations in accordance
with the Pooling and Servicing Agreement.
Upon removal or resignation of the Master Servicer other than as
described in the second preceding paragraph, the Trustee will be the successor
servicer (the "Successor Master Servicer"). Unless otherwise provided in the
Prospectus Supplement, the Trustee, as Successor Master Servicer, is obligated
to make any Servicing Advances and certain other Advances, unless it determines
reasonably and in good faith that such Advances would not be recoverable. If,
however, the Trustee is unwilling or unable to act as Successor Master Servicer,
the Trustee may appoint, or petition a court of competent jurisdiction to
appoint any housing and home
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finance institution, bank or mortgage servicing institution which has been
designated as an approved Seller-Servicer by FNMA or FHLMC for first and second
mortgage loans and having equity of not less than the amount set forth in the
related Pooling and Servicing Agreement as the Successor Master Servicer in the
assumption of all or any part of the responsibilities, duties or liabilities of
the Master Servicer.
The Trustee and any other Successor Master Servicer in such capacity is
entitled to the same reimbursement for Advances and other Servicing Compensation
as the Master Servicer. See "--Servicing Compensation" above.
Registration and Transfer of the Certificates
If so specified in the related Prospectus Supplement, one or more
Classes of Certificates of a Series will be issued in definitive certificated
form and will be transferable and exchangeable at the office of the registrar
identified in the related Prospectus Supplement. The related Prospectus
Supplement will set forth whether a service charge will be made for any such
registration or transfer of such Certificates. Whether or not there is a service
charge, the owner may be required to pay a sum sufficient to cover any tax or
other governmental charge.
If so specified in the related Prospectus Supplement, one or more
Classes of Certificates of a Series ("Book-Entry Certificates") may be initially
represented by one or more certificates registered in the name of The Depository
Trust Company ("DTC") or other securities depository and be available only in
the form of book-entries. Any Book-Entry Certificates will initially be
registered in the name of Cede, the nominee of DTC. Certificateholders may also
hold Certificates of a Series through CEDEL or Euroclear (in Europe), if they
are participants in such systems or indirectly through organizations that are
participants in such systems. CEDEL and Euroclear will hold omnibus positions on
behalf of their participants through customers' certificates accounts in CEDEL's
and Euroclear's names on the books of their respective Depositaries which in
turn will hold such positions in customers' certificates accounts in the
Depositaries' names on the books of DTC. Citibank, N.A. ("Citibank"), will act
as depositary for CEDEL and The Chase Manhattan Bank ("Chase"), will act as
depositary for Euroclear (in such capacities, the "Depositaries").
Transfers between DTC participants will occur in the ordinary way in
accordance with DTC rules. Transfers between CEDEL Participants and Euroclear
Participants will occur in the ordinary way in accordance with their applicable
rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL or
Euroclear Participants, on the other, will be effected in DTC in accordance with
DTC rules on behalf of the relevant European international clearing system by
its Depositary; however, such cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in such system in accordance with its rules and procedures and
within its established deadlines (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its Depositary to take action to effect
final settlement on its behalf by delivering or receiving certificates through
DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to
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DTC. CEDEL Participants and Euroclear Participants may not deliver instructions
directly to the Depositaries.
Because of time-zone differences, credits of certificates received in
CEDEL or Euroclear as a result of a transaction with a DTC participant will be
made during subsequent certificates settlement processing and dated the business
day following the DTC settlement date. Such credits or any transactions in such
certificates settled during such processing will be reported to the relevant
Euroclear or CEDEL Participant on such business day. Cash received in CEDEL or
Euroclear as a result of sales of certificates by or through a CEDEL Participant
or a Euroclear Participant to a DTC Participant will be received with value on
the DTC settlement date but will be available in the relevant CEDEL or Euroclear
cash account only as of the business day following settlement in DTC. For
information with respect to tax documentation procedures relating to the
Certificates, see "Federal Income Tax Consequences" herein.
DTC 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 New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC accepts securities for deposit
from its participating organizations ("Participants") and facilitates the
clearance and settlement of securities transactions between Participants in such
securities through electronic book-entry changes in accounts of Participants,
thereby eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks and trust companies and clearing
corporations and may include certain other organizations. Indirect access to the
DTC system is also available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants").
Beneficial owners ("Owners") that are not Participants but desire to
purchase, sell or otherwise transfer ownership of Book-Entry Certificates may do
so only through Participants (unless and until Definitive Certificates are
issued). In addition, Owners will receive all distributions of principal of, and
interest on, the Book-Entry Certificates from the Trustee through DTC and
Participants. Owners will not receive or be entitled to receive certificates
representing their respective interests in the Book-Entry Certificates, except
under the limited circumstances described below.
Unless and until Definitive Certificates are issued, it is anticipated
that the only "holder" of Book-Entry Certificates of any Series will be Cede, as
nominee of DTC. Owners will only be permitted to exercise the rights of holders
indirectly through Participants and DTC.
While any Book-Entry Certificates of a Series are outstanding (except
under the circumstances described below), under the rules, regulations and
procedures creating and affecting DTC and its operations (the "Rules"), DTC is
required to make book-entry transfers among Participants on whose behalf it acts
with respect to the Book-Entry Certificates and is required to receive and
transmit distributions of principal of, and interest on, the Book-Entry
Certificates. Participants with whom Owners have accounts with respect to Book
Entry Certificates are similarly required to make book-entry transfers and
receive and transmit such distributions on behalf of their respective Owners.
Accordingly, although Owners will not possess
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certificates, the Rules provide a mechanism by which Owners will receive
distributions and will be able to transfer their interests.
Unless and until Definitive Certificates are issued, Owners who are not
Participants may transfer ownership of Book-Entry Certificates of a Series only
through Participants by instructing such Participants to transfer Book-Entry
Certificates, by book-entry transfer, through DTC for the account of the
purchasers of such Book-Entry Certificates, which account is maintained with
their respective Participants. Under the Rules and in accordance with DTC's
normal procedures, transfers of ownership of Book-Entry Certificates will be
executed through DTC and the accounts of the respective Participants at DTC will
be debited and credited. Similarly, the respective Participants will make debits
or credits, as the case may be, on their records on behalf of the selling and
purchasing Owners.
Book-Entry Certificates of a Series will be issued in registered form to
Owners, or their nominees, rather than to DTC (such Book-Entry Certificates
being referred to herein as "Definitive Certificates") only under the
circumstances provided in the related Pooling and Servicing Agreement, which
generally will include, except if otherwise provided therein, if (i) DTC or the
Master Servicer advises the Trustee in writing that DTC is no longer willing or
able to discharge properly its responsibilities as nominee and depository with
respect to the Book-Entry Certificates of such Series and the Master Servicer is
unable to locate a qualified successor, (ii) the Master Servicer, at its sole
option, elects to terminate the book-entry system through DTC or (iii) after the
occurrence of a Master Servicer Termination Event, a majority of the aggregate
Percentage Interest of any Class of Certificates of such Series advises DTC in
writing that the continuation of a book-entry system through DTC (or a successor
thereto) to the exclusion of any physical certificates being issued to Owners is
no longer in the best interests of Owners of such Class of Certificates. Upon
issuance of Definitive Certificates of a Series to Owners, such Book-Entry
Certificates will be transferable directly (and not exclusively on a book-entry
basis) and registered holders will deal directly with the Trustee with respect
to transfers, notices and distributions.
DTC has advised the Master Servicer and the Depositor that, unless and
until Definitive Certificates are issued, DTC will take any action permitted to
be taken by a holder only at the direction of one or more Participants to whose
DTC accounts the Certificates are credited. DTC has advised the Master Servicer
and the Depositor that DTC will take such action with respect to any Percentage
Interests of the Book-Entry Certificates of a Series only at the direction of
and on behalf of such Participants with respect to such Percentage Interests of
the Book-Entry Certificates. DTC may take actions, at the direction of the
related Participants, with respect to some Book-Entry Certificates which
conflict with actions taken with respect to other Book-Entry Certificates.
Cedel Bank, societe anonyme ("CEDEL") is incorporated under the laws of
Luxembourg as a professional depository. CEDEL holds securities for its
participating organizations ("CEDEL Participants") and facilitates the clearance
and settlement of securities transactions between CEDEL Participants through
electronic book-entry changes in accounts of CEDEL Participants, thereby
eliminating the need for physical movement of securities. Transactions may be
settled in CEDEL in any of 28 currencies, including United States dollars. CEDEL
provides to its Participants, among other things, services for safekeeping,
administration, clearance and
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settlement of internationally traded securities and securities lending and
borrowing. CEDEL interfaces with domestic markets in several countries. As a
professional depository, CEDEL is subject to regulation by the Luxembourg
Monetary Institute. CEDEL Participants are recognized financial institutions
around the world, including underwriters, securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations and may
include any underwriters, agents or dealers with respect to a Series of
Certificates offered hereby. Indirect access to CEDEL is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a CEDEL Participant, either directly
or indirectly.
The Euroclear System ("Euroclear") was created in 1968 to hold
securities for participants of the Euroclear System ("Euroclear Participants")
and to clear and settle transactions between Euroclear Participants through
simultaneous electronic book-entry delivery against payment, thereby eliminating
the need for physical movement of certificates and any risk from lack of
simultaneous transfers of securities and cash. Transactions may now be settled
in any of 27 currencies, including United States dollars. The Euroclear System
includes various other services, including securities lending and borrowing, and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. The Euroclear
System is operated by Morgan Guaranty Trust Company of New York, Brussels,
Belgium office (the "Euroclear Operator"), under contract with Euroclear
Clearance System S.C., a Belgian cooperative corporation (the "Cooperative").
All operations are conducted by the Euroclear Operator, and all Euroclear
securities clearance accounts and Euroclear cash accounts are accounts with the
Euroclear Operator, not the Cooperative. The Cooperative establishes policy for
Euroclear on behalf of Euroclear Participants. Euroclear Participants include
banks (including central banks), securities brokers and dealers with respect to
a Series of Certificates offered hereby. Indirect access to Euroclear is also
available to other firms that clear through or maintain a custodial relationship
with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation that is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Certificates clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of Euroclear and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions with respect to Certificates held through CEDEL or
Euroclear will be credited to the cash accounts of CEDEL Participants or
Euroclear Participants in accordance with the relevant systems' rules and
procedures, to the extent received by its Depositary. Such distributions
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will be subject to tax reporting in accordance with relevant United States
tax laws and regulations. See "Federal Income Tax Consequences."
CEDEL or the Euroclear Operator, as the case may be, will take any other
action permitted to be taken by a Certificateholder under the Pooling and
Servicing Agreement or the relevant Supplement on behalf of a CEDEL Participant
or Euroclear Participant only in accordance with its relevant rules and
procedures and subject to its Depositary's ability to effect such actions on its
behalf through DTC.
CERTAIN LEGAL ASPECTS OF THE PRIMARY ASSETS
The following discussion contains summaries of certain legal aspects of
mortgage loans and manufactured housing contracts that are general in nature.
Because such legal aspects are governed in part by applicable state laws (which
laws may differ substantially from one another), the summaries do not purport to
be complete nor to reflect the laws of any particular state nor to encompass the
laws of all states in which the Single Family Loans and Contracts may be
situated. The summaries are qualified in their entirety by reference to the
applicable federal and state laws governing the Single Family Loans and
Contracts.
Single Family Loans
The Single Family Loans will be secured by either deeds of trust or
mortgages, depending upon the prevailing practice in the state in which the
Mortgaged Property subject to a Single Family Loan is located. A mortgage
conveys legal title to or creates a lien upon the property to the mortgagee
subject to a condition subsequent, i.e., the payment of the indebtedness secured
thereby. 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 note or bond and the
mortgage. Although a deed of trust is similar to a mortgage, a deed of trust has
three parties, the borrower-homeowner called the trustor (similar to a
mortgagor), a lender called the beneficiary (similar to a mortgagee), and a
third-party grantee called the trustee. Under a deed of trust, the borrower
grants the property, irrevocably until the debt is paid, in trust, generally
with a power of sale, to the trustee to secure payment of the obligation. The
trustee's authority under a deed of trust and the mortgagee's authority under a
mortgage are governed by law, the express provisions of the deed of trust or
mortgage, and, in some cases, the directions of the beneficiary. Some states use
a security deed or deed to secure debt which is similar to a deed of trust
except that it has only two parties: a grantor (similar to a mortgagor) and a
grantee (similar to a mortgagee). Mortgages, deeds of trust and deeds to secure
debt are not prior to liens for real estate taxes and assessments and other
charges imposed under governmental police powers. Priority between mortgages,
deeds of trust and deeds to secure debt and other encumbrances depends on their
terms in some cases and generally on the order of recordation of the mortgage,
deed of trust or the deed to secure debt in the appropriate recording office.
If so specified in the related Prospectus Supplement, Primary Assets may
include loans on units in cooperatives ("Cooperative Loans"). Cooperative Loans
are evidenced by notes secured by security interests in shares issued by
cooperatives, which are corporations entitled to be treated as housing
cooperatives under federal tax law, and in the related proprietary leases or
occupancy agreements granting rights to occupy specific dwelling
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units within the cooperative buildings. The security agreement will create a
lien upon or grant a title interest in the property which it covers, the
priority of which lien will depend on the terms of the agreement and the order
of recordation in the appropriate recording office. Ownership of a unit in a
cooperative is held through the ownership of stock in the corporation, together
with the related proprietary lease or occupancy agreement. Such ownership
interest is generally financed through a cooperative share loan evidenced by a
promissory note and secured by an assignment of and a security interest in the
proprietary lease or occupancy agreement and a security interest in the related
cooperative shares.
Each cooperative owns in fee or has a leasehold interest in the real
property and improvements, including all separate dwelling units therein. The
cooperative is responsible for property management and generally for the payment
of real estate taxes, insurance and similar charges, the cost of which is shared
by the owners. The cooperative building or underlying land may be subject to one
or more mortgages (generally incurred in connection with the construction or
purchase of the building) for which the cooperative is responsible. The interest
of an occupant under proprietary leases or occupancy agreements is generally
subordinate to that of the holder of such a mortgage or land lease. If the
cooperative is unable to meet the payment obligations under such mortgage or any
land lease, the holder of such mortgage or land lease could foreclose the
mortgage or terminate the land lease, which may have the effect of terminating
all proprietary leases or occupancy agreements. In the event of such foreclosure
or termination, the value of any collateral held by a lender which financed the
purchase by a tenant/shareholder of cooperative shares or, in the case of the
Primary Assets, the collateral securing the Cooperative Loans could be
eliminated or significantly reduced.
Foreclosure of Single Family Loans
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. Although judicial foreclosure proceedings are often not contested by
any of the parties defendant, any activity by any one defendant may materially
delay completion of a foreclosure.
Foreclosure of a deed of trust or a security deed is generally
accomplished by a non-judicial trustee's sale under a specific provision in the
deed of trust or security deed which authorizes the sale of the property to a
third party upon any default by the borrower under the terms of the note, deed
of trust or security deed. In some states, the trustee must record a notice of
default and send a copy to the borrower-trustor and to 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
borrower, or any other person having a junior encumbrance on the real estate,
may, during a specified period, cure the default by paying the entire amount in
arrears plus the costs and expenses incurred in enforcing the obligations.
Generally, 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.
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In case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated officer or by the trustee is often a
public sale. Because of the difficulty a potential buyer at the sale would have
in determining the exact status of title and because the physical condition of
the property subject to the lien of the mortgage or the deed of trust may have
deteriorated during the foreclosure proceedings, a third party may be unwilling
to purchase the property at a foreclosure sale. Potential buyers may further
question the prudence of purchasing property at a foreclosure sale as a result
of several court decisions permitting such a sale to be rescinded as a
fraudulent conveyance, including the 1980 decision of the United States Court of
Appeals for the Fifth Circuit in Durrett v. Washington National Insurance
Company. The court in Durrett held that even a non-collusive, regularly
conducted foreclosure sale was a fraudulent transfer under section 67d of the
former Bankruptcy Act (which is analogous to section 548 of the current United
States Bankruptcy Code) and, therefore, could be rescinded in favor of the
bankrupt's estate, if (i) the foreclosure sale was held while the debtor was
insolvent and not more than one year prior to the filing of the bankruptcy
petition, and (ii) the price paid for the foreclosed property did not represent
"fair consideration" (which is analogous to "reasonably equivalent value" under
the United States Bankruptcy Code). However, on May 23, 1994, Durrett was
effectively overruled by the United States Supreme Court in BFP v. Resolution
Trust Corporation, as Receiver for Imperial Federal Savings and Loan
Association, et al., in which the Court held, in relevant part, "that
`reasonable equivalent value', for the foreclosed property, is the price in fact
received at foreclosure sale, so long as all the requirements of the State's
foreclosure law have been complied with."
For these reasons, it is common for the lender to purchase the property
from the trustee or referee for an amount equal to some or all of the principal
amount of the indebtedness secured by the mortgage or deed of trust, accrued and
unpaid interest and the expenses of foreclosure. The lender thereby assumes the
burdens of ownership, including the obligation to pay taxes, obtain casualty
insurance and to make such repairs at its own expense as are necessary to render
the property suitable for sale. In some states there is a statutory minimum
purchase price which the lender may offer for the property. 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 from the sale of the property may be
substantially less than the loan balance.
A second mortgagee may not foreclose on the property securing a second
mortgage unless it forecloses subject to the first mortgage, in which case it
must either pay the entire amount due on the first mortgage to the first
mortgagee prior to or at the time of the foreclosure sale or undertake the
obligation to make payments on the first mortgage in the event the mortgagor is
in default thereunder, in either event adding the amounts expended to the
balance due on the second loan, and may be subrogated to the rights of the first
mortgagee. In addition, in the event that the foreclosure of a second mortgage
triggers the enforcement of a "due-on-sale" clause, the second mortgagee may be
required to pay the full amount of the first mortgage to the first mortgagee.
Accordingly, with respect to those Single Family Loans which are second mortgage
loans, if the lender purchases the property, the lender's title will be subject
to all senior liens and claims and certain governmental liens.
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The proceeds received by the referee or trustee from the sale generally
are applied first to the costs, fees and expenses of sale and then in
satisfaction of the indebtedness secured by the mortgage or deed of trust under
which the sale was conducted. Any remaining proceeds are generally payable to
the holders of junior mortgages or deeds or trust and other liens and claims in
order of their priority, whether or not the borrower is in default. Any
additional proceeds are generally payable to the mortgagor or trustor. The
payment of the proceeds to the holders of junior mortgages may occur in the
foreclosure action of the senior mortgagee or may require the institution of
separate legal proceedings.
Under the Pooling and Servicing Agreement (and the REMIC Provisions of
the Code), the Master Servicer may hire an independent contractor to operate any
REO Property. The costs of such operation may be significantly greater than the
cost of direct operation by the Master Servicer.
Some states impose prohibitions or limitations on remedies available to
the mortgagee, including the right to recover the debt from the mortgagor. See
"--Anti-Deficiency Legislation and Other Limitations on Lenders" herein.
Junior Mortgages
Some of the Single Family Loans may be secured by second or more junior
mortgages or deeds of trust, which are subordinate to first or more senior
mortgages or deeds of trust held by other lenders. The rights of the holders, as
the holders of a junior deed of trust or a junior mortgage, are subordinate in
lien and in payment to those of the holder of the senior mortgage or deed of
trust, including the prior rights of the senior mortgagee or beneficiary to
receive and apply hazard insurance and condemnation proceeds and, upon default
of the mortgagor, to cause a foreclosure on the property. Upon completion of the
foreclosure proceedings by the holder of the senior mortgage, the junior
mortgagee's or junior beneficiary's lien will be extinguished unless the junior
mortgagee satisfies the defaulted senior loan or asserts its subordinate
interest in a property in foreclosure proceedings. See "--Foreclosure of Single
Family Loans" herein.
Furthermore, the terms of the second or more junior mortgage or deed of
trust are subordinate to the terms of the first or senior mortgage or deed of
trust. In the event of a conflict between the terms of the senior mortgage or
deed of trust and the junior mortgage or deed of trust, the terms of the senior
mortgage or deed of trust will govern generally. Upon a failure of the mortgagor
or trustor to perform any of its obligations, the senior mortgagee or
beneficiary, subject to the terms of the senior mortgage or deed of trust, may
have the right to perform the obligation itself. Generally, all sums so expended
by the mortgagee or beneficiary become part of the indebtedness secured by the
mortgage or deed of trust. To the extent a senior mortgagee expends such sums,
such sums will generally have priority over all sums due under the junior
mortgage. See "Risk Factors--Nature of Security" for a further discussion of
certain risks associated with junior mortgage loans.
Rights of Redemption
In some states, after sale pursuant to a deed of trust or foreclosure of
a mortgage, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property from the foreclosure sale. In some
states, redemption may occur only upon payment of the entire
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principal balance of the loan, accrued interest and expenses of foreclosure. In
other states, redemption may be authorized if the former borrower pays only a
portion of the sums due. The effect of a statutory right of redemption is to
diminish the ability of the lender to sell the foreclosed property. The rights
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 on Lenders
Certain states have imposed statutory prohibitions which limit 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 borrower following foreclosure or sale
under a deed of trust. A deficiency judgment would be a personal judgment
against the former borrower 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. Other statutes require the beneficiary or mortgagee to exhaust
the security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against the
borrower. Finally, other statutory provisions limit any deficiency judgment
against the former borrower 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 generally to prevent a beneficiary
or a mortgagee from obtaining a large deficiency judgment against the former
borrower as a result of low or no bids at the judicial sale.
In addition to laws limiting or prohibiting deficiency judgments,
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 collateral and/or enforce a
deficiency judgment. For example, with respect to federal bankruptcy law, a
court with federal bankruptcy jurisdiction may permit a debtor through a Chapter
11 or Chapter 13 plan to cure a monetary default in respect of a mortgage loan
on a debtor's residence by paying arrearages within a reasonable time period and
reinstating the original mortgage loan payment schedule even though the lender
accelerated the mortgage loan and final judgment of foreclosure had been entered
in state court provided no sale of the residence had yet occurred prior to the
filing of the debtor's petition. Some courts with federal bankruptcy
jurisdiction have approved plans, based on the particular facts of the
reorganization case, that effected the curing of a mortgage loan default by
paying arrearages over a number of years. Also, if the last payment on the
original payment schedule for a loan secured only by a security interest in real
property that is the debtor's principal residence is due before the date on
which the final payment on a Chapter 13 plan is due, the Chapter 13 plan may
provide for the payment of the claim as modified pursuant to the Chapter 13
plan. If a Chapter 13 plan proposes to cure a default, the amount necessary to
cure the default is determined in accordance with the underlying agreement and
applicable nonbankruptcy law.
Courts with federal bankruptcy jurisdiction have also indicated that the
terms of a mortgage loan secured by property of the debtor may be modified.
These courts have allowed modifications that include reducing the
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amount of each monthly payment, changing the rate of interest, altering the
repayment schedule, forgiving all or a portion of the debt and reducing the
lender's security interest to the value of the residence, thus leaving the
lender a general unsecured creditor for the difference between the value of the
residence and the outstanding balance of the loan. Generally, however, the terms
of a mortgage loan secured only by a mortgage on real property that is the
debtor's principal residence may not be modified pursuant to a plan confirmed
pursuant to Chapter 13 except with respect to mortgage payment arrearages, which
may be cured within a reasonable time period.
Courts with federal bankruptcy jurisdiction have also approved full or
partial surrender of collateral in full or partial satisfaction of the debt
based on appraisal evidence that may or may not reflect the amount ultimately
received from a sale of the collateral. Courts with federal bankruptcy
jurisdiction have also approved full or partial substitution of new collateral
for the existing collateral, including but not limited to stock and partnership
interests, based on appraisal evidence that may or may not reflect the amount
ultimately received from a sale of the substitute collateral.
The United States Bankruptcy Code provides priority to certain tax liens
over the lien of a mortgage. In addition, substantive requirements are imposed
upon mortgage lenders in connection with the origination and the servicing of
mortgage loans by numerous federal and some state consumer protection laws.
These laws include the federal Truth-in-Lending Act, Real Estate Settlement
Procedures Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair
Credit Reporting Act, and related statutes. These federal laws impose specific
statutory liabilities upon lenders who originate mortgage loans and who fail to
comply with the provisions of the applicable laws. In some cases, this liability
may affect assignees of the Primary Assets.
Enforceability of Certain Provisions
The Primary Assets will generally include a debt-acceleration clause,
which permits the lender to accelerate the debt upon a monetary default of the
borrower, after the applicable cure period. The courts of all states will
enforce clauses providing for acceleration in the event of a material payment
default. However, courts of any state, exercising equity jurisdiction, may
refuse to allow a lender to foreclose a mortgage or deed of trust when an
acceleration of the indebtedness would be inequitable or unjust and the
circumstances would render the acceleration unconscionable.
Some courts have imposed general equitable principles to limit the
remedies available in connection with foreclosure. These equitable principles
are generally designed to relieve the borrower from the legal effect of his
defaults under the loan documents. For example, some courts have required that
the lender undertake affirmative and expensive actions to determine the causes
for the borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lenders' judgment and have required that lenders reinstate loans or recast
payment schedules in order to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have limited the right of
the lenders to foreclose if the default under the mortgage instrument or deed of
trust is not monetary, such as the borrower's failure to maintain adequately the
property or the borrower's execution of a second mortgage or deed of trust
affecting the
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property. Finally, some courts have been willing to relieve a borrower from the
consequences of the default if the borrower has not received adequate notice of
the default.
The Primary Assets will generally contain due-on-sale clauses, which
permit the lender to accelerate the maturity of the Primary Asset if the
borrower sells, transfers, or conveys the related Mortgaged Property. The
enforceability of these clauses has been the subject of legislation or
litigation in many states. Some jurisdictions automatically enforce such
clauses, while others require a showing of reasonableness and hold, on a
case-by-case basis, that a "due-on-sale" clause may be invoked only where a sale
threatens the legitimate security interests of the lender.
The Garn-St. Germain Depository Institutions Act of 1982 purports to
preempt state laws which prohibit the enforcement of "due-on-sale" provisions in
certain loans made after October 15, 1982. The Master Servicer may thus be able
to accelerate the Primary Assets that were originated after that date and
contain a "due-on-sale" provision, upon transfer of an interest in the related
Mortgaged Property, regardless of its ability to demonstrate that a sale
threatens its legitimate security interest. Each Pooling and Servicing Agreement
will provide that the Master Servicer, on behalf of the Trustee, will enforce
any right of the Trustee as the mortgagee of record to accelerate a Mortgage
Loan in the event of a sale or other transfer of the related Mortgaged Property
unless, in the Master Servicer's reasonable judgment, doing so would materially
increase the risk of default or delinquency on, or materially impair the
security for, such Primary Asset.
Applicability of Certain Regulatory Requirements
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. A similar federal statute
was in effect with respect to mortgage loans made during the first three months
of 1980. The statute authorized any state to reimpose interest rate limits by
adopting, before April 1, 1983, a law or constitutional provision which
expressly rejects 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.
Applicable state laws generally regulate interest rates and other
charges, require certain disclosures and, unless an exemption is available,
require certain disclosures and, unless an exemption is available, require
licensing of the originators of certain Primary Assets. In addition, most states
have other laws, public policies and general principles of equity relating to
the protection of consumers, unfair and deceptive practices and practices which
may apply to the origination, servicing and collection of the Primary Assets.
The Primary Assets are also subject to federal laws, including, without
limitation: (i) the Federal Truth in Lending Act and Regulation Z promulgated
thereunder, which require certain disclosures to the Mortgagors regarding the
terms of the Primary Assets; (ii) the Equal Credit Opportunity Act and
Regulation B promulgated thereunder, which prohibit discrimination on
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the basis of age, race, color, sex, religion, marital status, national origin,
receipt of public assistance or the exercise of any right under the Consumer
Credit Protection Act, in the extension of credit; (iii) the Fair Credit
Reporting Act, which regulates the use and reporting of information related to
the Mortgagor's credit experience; (iv) the Real Estate Settlement Procedures
Act, which regulates closing and servicing practices relating to first mortgage
loans for one- to four-family residential properties; and (v) certain other laws
and regulations.
Certain of the Primary Assets may be subject to the Riegle Community
Development and Regulatory Improvement Act of 1994 (the "Riegle Act"), which
incorporates the Home Ownership and Equity Protection Act of 1994. These
provisions impose additional disclosure and other requirements on creditors with
respect of non-purchase money mortgage loans with high interest rates or high
up-front fees and charges. The provisions of the Riegle Act apply on a mandatory
basis to all mortgage loans originated on or after October 1, 1995. These
provisions can impose specific statutory liabilities upon creditors who fail to
comply with their provisions and may affect the enforceability of the related
mortgage loans. In addition, any assignee of the creditor would generally be
subject to all claims and defenses that the consumer could assert against the
creditor, including, without limitation, the right to rescind the mortgage loan.
The application of State and Federal consumer protection laws to
particular circumstances is not always certain and in some cases courts and
regulatory authorities have shown a willingness to adopt novel interpretations
of these laws. Depending on the provisions of the applicable law and the
specific facts and circumstances involved, violations of these laws, policies
and principles may limit the ability of an assignee (including a Trust) to
collect all or part of the principal of or interest on the Primary Assets, may
entitle the Mortgagor to a refund of amounts previously paid and, in addition,
could subject the assignee to damages and administrative sanctions. In some
instances, particularly in actions involving fraud or deceptive practices,
damage awards have been large. If a Trust were obligated to pay any such
damages, its assets would be reduced, resulting in a possible loss to
Certificateholders.
The Seller will represent and warrant in the related Pooling and
Servicing Agreement that each related Primary Asset was originated in compliance
with applicable state law in all material respects.
Environmental Legislation
Certain states impose a statutory lien for associated costs on property
that is the subject of a cleanup action by the state on account of hazardous
wastes or hazardous substances released or disposed of on the property. Such a
lien will generally have priority over all subsequent liens on the property and,
in certain of these states, will have priority over prior recorded liens
including the lien of a mortgage. In addition, under federal environmental
legislation and possibly under state law in a number of states, a secured party
which takes a deed in lieu of foreclosure, acquires a mortgaged property at a
foreclosure sale or which has been involved in decisions which may lead to
contamination of a property, may be liable for the costs of cleaning up a
contaminated site. Although such costs could be substantial, it is unclear
whether they would be imposed on a secured lender (such as the related Trust).
The Pooling and Servicing Agreement requires that the Master Servicer, in making
a determination to foreclose on or otherwise acquire a
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Mortgaged Property, take into account (and the Master Servicer is not required
to foreclose or otherwise acquire a Mortgaged Property in the case of) the
existence of hazardous wastes or hazardous substances on such Mortgaged
Property. If title to a Mortgaged Property securing a Primary Asset is acquired
by a Trust and cleanup costs are incurred in respect of the Mortgaged Property,
the holders of the Certificates might incur a loss if such costs were required
to be paid by the Trust and sufficient funds were not available from any Reserve
Account, Spread Account or similar account or from collections on the Primary
Assets.
Forfeitures in Drug and RICO Proceedings
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984, the
government may seize the property even before conviction. The government must
publish notice of the forfeiture proceeding and may give notice to all parties
"known to have an alleged interest in the property," including the holders of
mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that (i) its mortgage was executed and recorded before commission of
the crime upon which the forfeiture is based, or (ii) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
The Contracts
General. As a result of the Depositor's assignment of the Contracts to
the Trustee, the holders of Certificates will succeed collectively to all the
rights (including the right to receive payment on the Contracts) and will assume
certain obligations of the Depositor. Each Contract evidences both (a) the
obligation of the obligor to repay the loan evidenced thereby, and (b) the grant
of a security interest in the Manufactured Home to secure repayment of such
loan. Certain aspects of both features of the Contracts are described more fully
below.
The Contracts generally are "chattel paper" as defined in the UCC in
effect in the states in which the Manufactured Homes initially were registered.
Pursuant to the UCC, the sale of chattel paper is treated in a manner similar to
perfection of a security interest in chattel paper. Under the Pooling and
Servicing Agreement, the Depositor will transfer physical possession of the
Contracts to the Trustee or its custodians. In addition, the Depositor will
cause to be made an appropriate filing of a UCC-1 financing statement in the
appropriate states to give notice of the Trustee's ownership of the Contracts.
Security Interests in the Manufactured Homes. The Manufactured Homes
securing the Contracts may be located in all 50 states. Security interests in
manufactured homes may be perfected either by notation of the secured party's
lien on the certificate of title or by delivery of the required documents and
payment of a fee to the state motor vehicle authority, depending on state law.
In some nontitle states, perfection pursuant to the provisions of the UCC is
required. The Depositor may effect such notation or
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delivery of the required documents and fees, and obtain possession of the
certificate of title, as appropriate under the laws of the state in which any
Manufactured Home securing a Contract is registered. In the event the Depositor
fails, due to clerical errors, to effect such notation or delivery, or files the
security interest under the wrong law (for example, under a motor vehicle title
statute rather than under the UCC, in a few states), the Trustee may not have a
first priority security interest in the Manufactured Home securing a Contract.
As manufactured homes have become larger and often have been attached to their
sites without any apparent intention to move them, courts in many states have
held that manufactured homes, under certain circumstances, may become subject to
real estate title and recording laws. As a result, a security interest in a
manufactured home could be rendered subordinate to the interests of other
parties claiming an interest in the manufactured home under applicable state
real estate law. In order to perfect a security interest in a manufactured home
under real estate law, the holder of the security interest must file either a
"fixture filing" under the provisions of the UCC or a real estate mortgage under
the real estate laws of the state where the manufactured home is located. These
filings must be made in the real estate records office of the county where the
manufactured home is located. So long as the Mortgagor does not violate this
agreement, a security interest in the Manufactured Home will be governed by the
certificate of title laws or the UCC, and the notation of the security interest
on the certificate of title or the filing of a UCC financing statement will be
effective to maintain the priority of the security interest in the Manufactured
Home. If, however, a Manufactured Home is permanently attached to a site, other
parties could obtain an interest in the Manufactured Home which is prior to the
security interest transferred to the Trustee. With respect to a Series of
Certificates and as described in the related Prospectus Supplement, the
Depositor may be required to perfect a security interest in the Manufactured
Home under applicable real estate laws. If such real estate filings are not
required and if any of the foregoing events were to occur, the only recourse
would be to pursue the Trust's rights to require the Seller to repurchase for
breach of warranties.
The Depositor will assign its security interest in the Manufactured
Homes to the Trustee. Neither the Depositor nor the Trustee will amend the
certificates of title to identify the Trust as the new secured party.
Accordingly, the Depositor will continue to be named as the secured party on the
certificates of title relating to the Manufactured Homes. In most states, such
assignment is an effective conveyance of such security interest without
amendment of any lien noted on the related certificate of title and the new
secured party succeeds to the Depositor's rights as the secured party. However,
in some states there exists a risk that, in the absence of an amendment to the
certificate of title, such assignment of the security interest might not be held
effective against creditors of the Depositor.
In the absence of fraud, forgery or permanent affixation of the
Manufactured Home to its site by the Manufactured Home owner, or administrative
error by state recording officials, the notation of the lien of the Depositor on
the certificate of title or delivery of the required documents and fees will be
sufficient to protect the Trust against the rights of subsequent purchasers of a
Manufactured Home or subsequent lenders who take a security interest in the
Manufactured Home. If there are any Manufactured Homes as to which the security
interest is not perfected, such security interest would be subordinate to, among
others, subsequent purchasers for value of Manufactured Homes and holders of
perfected security interests. There also exists a risk in not identifying the
Trust as the new
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secured party on the certificate of title that, through fraud or negligence, the
security interest of the Trust could be released.
Enforcement of Security Interests in Manufactured Homes. The Master
Servicer on behalf of the Trustee, to the extent required by the related Pooling
and Servicing Agreement, may take action to enforce the Trustee's security
interest with respect to Contracts in default by repossession and resale of the
Manufactured Homes securing such Contracts in default. So long as the
Manufactured Home has not become subject to the real estate law, a creditor can
repossess a Manufactured Home securing a Contract by voluntary surrender, by
"self-help" repossession that is "peaceful" (i.e., without breach of the
peace)or in the absence of voluntary surrender and the ability to repossess
without breach of the peace, by judicial process. The holder of a Contract must
give the debtor a certain number of days' notice, which varies from 10 to 30
days depending on the state, prior to commencement of any repossession. The UCC
and consumer protection laws in most states place restrictions on repossession
sales, including requiring prior notice to the debtor and commercial
reasonableness in effecting such a sale. The law in most states also requires
that the debtor be given notice of any sale prior to resale of the unit so that
the debtor may redeem at or before such resale. In the event of such
repossession and resale of a Manufactured Home, the Trustee would be entitled to
be paid out of the sale proceeds before such proceeds could be applied to the
payment of the claims of unsecured creditors or the holders of subsequently
perfected security interests or, thereafter, to the debtor.
If the owner of a Manufactured Home moves it to a state other than the
state in which such Manufactured Home initially is registered, under the laws of
most states the perfected security interest in the Manufactured Home would
continue for four months after such relocation and thereafter only if and after
the owner registers the Manufactured Home in such state. If the owner were to
relocate a Manufactured Home to another state and not re-register the
Manufactured Home in such state, and if steps are not taken to re-perfect the
Trustee's security interest in such state, the security interest in the
Manufactured Home would cease to be perfected. A majority of states generally
require surrender of a certificate of title to re-register a Manufactured Home;
accordingly, the Trustee must surrender possession if it holds the certificate
of title to such Manufactured Home, or, in the case of a Manufactured Home
registered in a state which provides for notation of lien, the Trustee would
receive notice of surrender if the security interest in the Manufactured Home is
noted on the certificate of title. Accordingly, the Trustee would have the
opportunity to re-perfect its security interest in the Manufactured Home in the
state of relocation. In states which do not require a certificate of title for
registration of a Manufactured Home, re-registration could defeat perfection. In
the ordinary course of servicing the Contracts, the Master Servicer will be
required to take steps to effect such re-perfection upon receipt of notice of
reregistration or information from the obligor as to relocation. Similarly, when
an obligor under a Contract sells a Manufactured Home, the Trustee must
surrender possession of the certificate of title and accordingly will have an
opportunity to require satisfaction of the related Contract before release of
the lien. Under each Pooling and Servicing Agreement, the Master Servicer is
obligated to take such steps, at the Master Servicer's expense, as are necessary
to maintain perfection of security interests in the Manufactured Homes.
Under the laws of most states, liens for repairs performed on a
Manufactured Home take priority even over a perfected security interest. The
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Seller will represent in the related Pooling and Servicing Agreement that there
are no such liens with respect to any Manufactured Home securing payment on any
Contract. However, such liens could arise at any time during the term of a
Contract. No notice will be given to the Trustee in the event such a lien
arises.
Under the laws of most states, a creditor is entitled to obtain a
deficiency judgment from a debtor for any deficiency on repossession and resale
of the manufactured home securing such debtor's loan. However, some states
impose prohibitions or limitations on deficiency judgments.
Certain other statutory provisions, including federal and state
bankruptcy and insolvency laws and general equitable principles, may limit or
delay the ability of a lender to repossess and resell collateral or enforce a
deficiency judgment.
Consumer Protection Laws. Numerous federal and state consumer protection
laws impose requirements applicable to the origination of and lending pursuant
to the Contracts, including the Truth-in-Lending Act, the Federal Trade
Commission Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, the
Equal Credit Opportunity Act, the Fair Debt Collection Practices Act and the
Uniform Consumer Credit Code. In the case of some of these laws, the failure to
comply with their provisions may affect the enforceability of the related
Contract.
Transfer of Manufactured Homes; Enforceability of "Due-on-Sale" Clauses.
The Contracts, in general, prohibit the sale or transfer of the related
Manufactured Homes without the consent of the lender and permit the acceleration
of the maturity of the Contracts by the lender upon any such sale or transfer
for which consent has not been granted. In certain cases, the transfer may be
made by a delinquent obligor in order to avoid a repossession proceeding with
respect to a Manufactured Home.
In the case of a transfer of a Manufactured Home after which the Master
Servicer desires to accelerate the maturity of the related Contract, the Master
Servicer's ability to do so will depend on the enforceability under state law of
the "due-on-sale" clause. The Garn-St. Germain Act preempts, subject to certain
exceptions and conditions, state laws prohibiting enforcement of "due-on-sale"
clauses applicable to the Manufactured Homes.
LEGAL INVESTMENT MATTERS
Unless otherwise specified in the related Prospectus Supplement, no
Class of Certificates will constitute "mortgage related securities" for purposes
of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") because,
among other things, the related Trust will include Primary Assets that are
secured by second mortgages. Investors should consult their own legal advisors
in determining whether and to what extent a Class of Certificates constitutes
legal investments for such investors.
FEDERAL INCOME TAX CONSEQUENCES
General
The following is a summary of the anticipated material federal income
tax consequences of the purchase, ownership and disposition of the Certificates
offered hereunder. This discussion is directed solely to
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Certificateholders that hold the Certificates as capital assets within the
meaning of Section 1221 of the Internal Revenue Code of 1986 (the "Code") and
does not purport to discuss all federal income tax consequences that may be
applicable to particular categories of investors, some of which (such as banks,
insurance companies and foreign investors) may be subject to special rules.
Further, the authorities on which this discussion, and the opinion referred to
below, are based are subject to change or differing interpretations, which could
apply retroactively. Taxpayers and preparers of tax returns (including those
filed by any REMIC or other issuer) should be aware that under applicable
Treasury regulations a provider of advice on specific issues of law is not
considered an income tax return preparer unless the advice (i) is given with
respect to events that have occurred at the time the advice is rendered and is
not given with respect to the consequences of contemplated actions, and (ii) is
directly relevant to the determination of an entry on a tax return. Accordingly,
taxpayers should consult their own tax advisors and tax return preparers
regarding the preparation of any item on a tax return, even where the
anticipated tax treatment has been discussed herein. In addition to the federal
income tax consequences described herein, potential investors should consider
the state and local tax consequences, if any, of the purchase, ownership and
disposition of the Certificates. See "State and Other Tax Consequences."
Certificateholders are advised to consult their own tax advisors concerning the
federal, state, local or other tax consequences to them of the purchase,
ownership and disposition of the Certificates offered hereunder. References
herein to "Tax Counsel" shall mean Morrison & Hecker L.L.P.
The following discussion addresses securities ("REMIC Certificates")
representing interests in a Trust, or a portion thereof, which the Trustee will
covenant to elect to have treated as a REMIC under Sections 860A through 860G
(the "REMIC Provisions") of the Code. The Prospectus Supplement for each series
of Certificates will indicate whether a REMIC election (or elections) will be
made for the related Trust and, if such an election is to be made, will identify
all "regular interests" and "residual interests" in the REMIC. For purposes of
this tax discussion, references to a "Certificateholder" or a "holder" are to
the beneficial owner of a Certificate.
The following discussion is based in part upon the rules governing
original issue discount that are set forth in Sections 1271-1273 and 1275 of the
Code and in the Treasury regulations issued thereunder (the "OID Regulations"),
and in part upon the REMIC Provisions and the Treasury regulations issued
thereunder (the "REMIC Regulations"). The OID Regulations, which are effective
with respect to debt instruments issued on or after April 4, 1994, do not
adequately address certain issues relevant to, and in some instances provide
that they are not applicable to, securities such as the Certificates.
REMICS
Classification of REMICs
The special tax counsel to the Depositor identified in the related
Prospectus Supplement ("Tax Counsel") shall file with the Commission on the
related Form 8-K prior to the Closing Date for each Series an opinion with
respect to the validity of the information set forth under "Federal Income Tax
Consequences" herein and in the related Prospectus Supplement. In the opinion of
Tax Counsel, assuming compliance with all provisions of the related Pooling and
Servicing Agreement, the related Trust (or each
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applicable portion thereof) will qualify as a REMIC and the REMIC Certificates
offered with respect thereto will be considered to evidence ownership of
"regular interests" ("REMIC Regular Certificates") or "residual
interests"("REMIC Residual Certificates") in that REMIC within the meaning of
the REMIC Provisions.
If an entity electing to be treated as a REMIC fails to comply with one
or more of the ongoing requirements of the Code for such status during any
taxable year, the Code provides that the entity will not be treated as a REMIC
for such year and thereafter. In that event, such entity may be taxable as a
separate corporation under Treasury regulations, and the related REMIC
Certificates may not be accorded the status or given the tax treatment described
below. Although 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 Trust's income for the period in which the requirements for such status are
not satisfied. The Pooling and Servicing Agreement with respect to each REMIC
will include provisions designed to maintain the Trust's status as a REMIC under
the REMIC Provisions. It is not anticipated that the status of any Trust as a
REMIC will be terminated.
Characterization of Investments in REMIC Certificates
In the opinion of Tax Counsel, the REMIC Certificates will be "real
estate assets" within the meaning of Section 856(c)(4)(A) of the Code and assets
described in Section 7701(a)(19)(C) of the Code in the same proportion that the
assets of the REMIC underlying such Certificates would be so treated. Moreover,
in the opinion of Tax Counsel, if 95% or more of the assets of the REMIC qualify
for any of the foregoing treatments at all times during a calendar year, the
REMIC Certificates will qualify for the corresponding status in their entirety
for that calendar year. Interest (including original issue discount) on the
REMIC Regular Certificates and income allocated to the class of REMIC Residual
Certificates will be interest described in Section 856(c)(3)(B) of the Code to
the extent that such Certificates are treated as "real estate assets" within the
meaning of Section 856(c)(4)(A) of the Code. In addition, in the opinion of Tax
Counsel, the REMIC Regular Certificates will be "qualified mortgages" within the
meaning of Section 860G(a)(3)(C) of the Code if transferred to another REMIC on
its startup day in exchange for regular or residual interests therein. The
determination as to the percentage of the REMIC's assets that constitute assets
described in the foregoing sections of the Code will be made with respect to
each calendar quarter based on the average adjusted basis of each category of
the assets held by the REMIC during such calendar quarter. The Trustee will
report those determinations to Certificateholders in the manner and at the times
required by applicable Treasury regulations.
The assets of the REMIC will include, in addition to Primary Assets,
payments on Primary Assets held pending distribution on the REMIC Certificates
and property acquired by foreclosure held pending sale, and may include amounts
in reserve accounts. It is unclear whether property acquired by foreclosure held
pending sale and amounts in reserve accounts would be considered to be part of
the Primary Assets, or whether such assets (to the extent not invested in assets
described in the foregoing sections) otherwise would receive the same treatment
as the Primary Assets for purposes of all of the foregoing sections. In
addition, in some instances Primary Assets may
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not be treated entirely as assets described in the foregoing sections. If so,
the related Prospectus Supplement will describe the Primary Assets that may not
be so treated. The REMIC Regulations do provide, however, that payments on
Primary Assets held pending distribution are considered part of the Primary
Assets for purposes of Section 856(c)(4)(A) of the Code.
Tiered REMIC Structures
For certain series of REMIC Certificates, two or more separate elections
may be made to treat designated portions of the related Trust as REMICs ("Tiered
REMICs") for federal income tax purposes. Upon the issuance of any such series
of REMIC Certificates, Tax Counsel will deliver their opinion to the effect
that, assuming compliance with all provisions of the related Pooling and
Servicing Agreement, the Tiered REMICs will each qualify as a REMIC and the
REMIC Certificates issued by the Tiered REMICs, respectively, will be considered
to evidence ownership of REMIC Regular Certificates or REMIC Residual
Certificates in the related REMIC within the meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will
be "real estate assets" within the meaning of Section 856(c)(4)(A) of the Code,
and "loans secured by an interest in real property" under Section 7701
(a)(19)(C) of the Code, and whether the income on such Certificates is interest
described in Section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated
as one REMIC.
Taxation of Owners of REMIC Regular Certificates
General
Except as otherwise stated in this discussion, in the opinion of Tax
Counsel, REMIC 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 REMIC Regular Certificates that
otherwise report income under a cash method of accounting will be required to
report income with respect to REMIC Regular Certificates under an accrual
method.
Original Issue Discount
In the opinion of Tax Counsel, certain REMIC Regular Certificates may be
issued with "original issue discount" within the meaning of Section 1273(a) of
the Code. Any holders of REMIC Regular Certificates issued with original issue
discount generally will be required to include original issue discount in income
as it accrues, in accordance with the method described below, in advance of the
receipt of the cash attributable to such income. In addition, Section 1272(a)
(6) of the Code provides special rules applicable to REMIC Regular Certificates
and certain other debt instruments issued with original issue discount.
Regulations have not been issued under that section.
The Code requires that a prepayment assumption be used with respect to
Primary Assets held by a REMIC in computing the accrual of original issue
discount on REMIC Regular Certificates issued by that REMIC, and that
adjustments be made in the amount and rate of accrual of such discount to
reflect differences between the actual prepayment rate and the prepayment
assumption. The prepayment assumption is to be determined in a manner
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prescribed in Treasury regulations; as noted above, those regulations have not
been issued. The Committee Report indicates that the regulations will provide
that the prepayment assumption used with respect to a REMIC Regular Certificate
must be the same as that used in pricing the initial offering of such REMIC
Regular Certificate. The prepayment assumption used by the Trustee in reporting
original issue discount for each series of REMIC Regular Certificates (the
"Prepayment Assumption") will be consistent with this standard and will be
disclosed in the related Prospectus Supplement. However, neither the Depositor,
the Trustee nor the Master Servicer will make any representation that the
Primary Assets will in fact prepay at a rate conforming to the Prepayment
Assumption or at any other rate.
In the opinion of Tax Counsel, the original issue discount, if any, on a
REMIC Regular Certificate will be the excess of its stated redemption price at
maturity over its issue price. The issue price of a particular class of REMIC
Regular Certificates will be the first cash price at which a substantial amount
of REMIC Regular Certificates of that class is sold (excluding sales to bond
houses, brokers and underwriters). If less than a substantial amount of a
particular class of REMIC Regular Certificates is sold for cash on or prior to
the date of their initial issuance (the "Closing Date"), the issue price for
such class will be treated as the fair market value of such class on the Closing
Date. Under the OID Regulations, the stated redemption price of a REMIC Regular
Certificate is equal to the total of all payments to be made on such Certificate
other than "qualified stated interest." "Qualified stated interest" includes
interest that is unconditionally payable at least annually at a single fixed
rate, or in the case of a variable rate debt instrument, at a "qualified
floating rate," an "objective rate," a combination of a single fixed rate and
one or more "qualified floating rates" or one "qualified inverse floating rate,"
or a combination of "qualified floating rates" that generally does not operate
in a manner that accelerates or defers interest payments on such REMIC Regular
Certificate.
In the case of REMIC Regular Certificates bearing adjustable interest
rates, the determination of the total amount of original issue discount and the
timing of the inclusion thereof will vary according to the characteristics of
such REMIC Regular Certificates. Generally, an adjustable rate instrument that
is determined to have original issue discount is converted to a fixed rate
instrument for which a schedule of hypothetical accruals is determined. Original
issue discount on the adjustable rate instrument is accrued in accordance with
that schedule with adjustments in each period to account for the divergence of
the actual interest rate on the instrument from the interest rate for that
period assumed in the preparation of the hypothetical schedule.
In addition, if the accrued interest to be paid on the first
Distribution Date is computed with respect to a period that begins prior to the
Closing Date, a portion of the purchase price paid for a REMIC Regular
Certificate will reflect such accrued interest. In such cases, information
returns to the Certificateholders and the IRS will be based on the position that
the portion of the purchase price paid for the interest accrued with respect to
periods prior to the Closing Date is treated as part of the overall cost of such
REMIC Regular Certificate (and not as a separate asset the cost of which is
recovered entirely out of interest received on the next Distribution Date) and
that portion of the interest paid on the first Distribution Date in excess of
interest accrued for a number of days corresponding to the number of days from
the Closing Date to the first
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Distribution Date should be included in the stated redemption price of such
REMIC Regular Certificate. However, the OID Regulations state that all or some
portion of such accrued interest may be treated as a separate asset the cost of
which is recovered entirely out of interest paid on the first Distribution Date.
It is unclear how an election to do so would be made under the OID Regulations
and whether such an election could be made unilaterally by a Certificateholder.
Notwithstanding the general definition of original issue discount, in
the opinion of Tax Counsel, original issue discount on a REMIC Regular
Certificate will be considered to be de minimis if it is less than 0.25% of the
stated redemption price of the REMIC Regular Certificate multiplied by its
weighted average life. For this purpose, the weighted average life of the REMIC
Regular Certificate is computed as the sum of the amounts determined, as to each
payment included in the stated redemption price of such REMIC Regular
Certificate, by multiplying (i) the number of complete years (rounding down for
partial years) from the issue date until such payment is expected to be made
(presumably taking into account the Prepayment Assumption) by (ii) a fraction,
the numerator of which is the amount of the payment, and the denominator of
which is the stated redemption price at maturity of such REMIC Regular
Certificate. Under the OID Regulations, original issue discount of only a de
minimis amount (other than de minimis original issue discount attributable to a
so-called "teaser" interest rate or an initial interest holiday) will be
included in income as each payment of stated principal is made, based on the
product of the total amount of such de minimis original issue discount and a
fraction, the numerator of which is the amount of such principal payment and the
denominator of which is the outstanding stated principal amount of the REMIC
Regular Certificate. The OID Regulations also would permit a Certificateholder
to elect to accrue de minimis original issue discount into income currently
based on a constant yield method. See "--Taxation of Owners of REMIC Regular
Certificates--Market Discount" for a description of such election under the OID
Regulations.
If original issue discount on a REMIC Regular Certificate is in excess
of a de minimis amount, in the opinion of Tax Counsel, the holder of such
Certificate must include in ordinary gross income the sum of the "daily
portions" of original issue discount for each day during its taxable year on
which it held such REMIC Regular Certificate, including the purchase date but
excluding the disposition date. In the case of an original holder of a REMIC
Regular Certificate, the daily portions of original issue discount will be
determined as follows.
As to each "accrual period," that is, unless each period that ends on a
date that corresponds to a Distribution Date and begins on the first day
following the immediately preceding accrual period (or in the case of the first
such period, begins on the Closing Date), or such other "accrued period" as
defined in the related Prospectus Supplement, a calculation will be made of the
portion of the original issue discount that accrued during such accrual period.
The portion of original issue discount that accrues in any accrual period will
equal the excess, if any, of (i) the sum of (A) the present value, as of the end
of the accrual period, of all of the distributions remaining to be made on the
REMIC Regular Certificate, if any, in future periods and (B) the distributions
made on such REMIC Regular Certificate during the accrual period of amounts
included in the stated redemption price, over (ii) the adjusted issue price of
such REMIC Regular Certificate at the beginning of the accrual period. The
present value of the remaining distributions referred to in the preceding
sentence will be
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calculated (i) assuming that distributions on the REMIC Regular Certificate will
be received in future periods based on the Primary Assets being prepaid at a
rate equal to the Prepayment Assumption and (ii) using a discount rate equal to
the original yield to maturity of the Certificate. For these purposes, the
original yield to maturity of the Certificate will be calculated based on its
issue price and assuming that distributions on the Certificate will be made in
all accrual periods based on the Primary Assets being prepaid at a rate equal to
the Prepayment Assumption. The adjusted issue price of a REMIC Regular
Certificate at the beginning of any accrual period will equal the issue price of
such Certificate, increased by the aggregate amount of original issue discount
that accrued with respect to such Certificate in prior accrual periods, and
reduced by the amount of any distributions made on such REMIC Regular
Certificate in prior accrual periods of amounts included in its stated
redemption price. The original issue discount accruing during any accrual
period, computed as described above, will be allocated ratably to each day
during the accrual period to determine the daily portion of original issue
discount for such day.
In the opinion of Tax Counsel, a subsequent purchaser of a REMIC Regular
Certificate that purchases such Certificate at a cost (excluding any portion of
such cost attributable to accrued qualified stated interest) less than its
remaining stated redemption price will also be required to include in gross
income the daily portions of any original issue discount with respect to such
Certificate. However, each such daily portion will be reduced, if such cost is
in excess of its "adjusted issue price," in proportion to the ratio such excess
bears to the aggregate original issue discount remaining to be accrued on such
REMIC Regular Certificate. The adjusted issue price of a REMIC Regular
Certificate on any given day equals the sum of (i) the adjusted issue price (or,
in the case of the first accrual period, the issue price) of such Certificate at
the beginning of the accrual period which includes such day and (ii) the daily
portions of original issue discount for all days during such accrual period
prior to such day.
The Internal Revenue Service (the "IRS") recently issued final
regulations (the "Contingent Regulations") governing the calculation of OID on
instruments having contingent interest payments. The Contingent Regulations
specifically do not apply for purposes of calculating OID on debt instruments
subject to Code Section 1272(a)(6), such as the Regular Certificates.
Additionally, Treasury regulations issued on January 27, 1994 which provide
rules for calculating OID (the "OID Regulations") do not contain provisions
specifically interpreting Code Section 1272(a)(6). The Trustee intends to base
its computations on Code Section 1272(a)(6) and the OID Regulations as described
in the Prospectus and this Prospectus Supplement. However, because no regulatory
guidance currently exists under Code Section 1272(a)(6), there can be no
assurance that such methodology represents the correct manner of calculating
OID.
Market Discount
In the opinion of Tax Counsel, a Certificateholder that purchases a
REMIC Regular Certificate at a market discount, that is, in the case of a REMIC
Regular Certificate issued without original issue discount, at a purchase price
less than its remaining stated principal amount, or in the case of a REMIC
Regular Certificate issued with original issue discount, at a purchase price
less than its adjusted issue price, will recognize income upon receipt of each
distribution representing stated redemption price. In particular, under Section
1276 of the Code such a Certificateholder generally
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will be required to allocate the portion of each such distribution representing
stated redemption price first to accrued market discount not previously included
in income, and to recognize ordinary income to that extent. A Certificateholder
may elect to include market discount in income currently as it accrues rather
than including it on a deferred basis in accordance with the foregoing. If made,
such election will apply to all market discount bonds acquired by such
Certificateholder on or after the first day of the first taxable year to which
such election applies. In addition, the OID Regulations permit a
Certificateholder to elect to accrue all interest, discount (including de
minimis market or original issue discount) and premium in income as interest,
based on a constant yield method. If such an election were made with respect to
a REMIC Regular Certificate with market discount, the Certificateholder would be
deemed to have made an election to include currently market discount in income
with respect to all other debt instruments having market discount that such
Certificateholder acquires during the taxable year of the election or
thereafter, and possibly previously acquired instruments. Similarly, a
Certificateholder that made this election for a Certificate that is acquired at
a premium would be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
Certificateholder owns or acquires. See "--Taxation of Owners of REMIC Regular
Certificates--Premium." Each of these elections to accrue interest, discount and
premium with respect to a Certificate on a constant yield method or as interest
would be irrevocable.
However, in the opinion of Tax Counsel, market discount with respect to
a REMIC Regular Certificate will be considered to be de minimis for purposes of
Section 1276 of the Code if such market discount is less than 0.25% of the
remaining stated redemption price of such REMIC Regular Certificate multiplied
by the number of complete years to maturity remaining after the date of its
purchase. In interpreting a similar rule with respect to original issue discount
on obligations payable in installments, the OID Regulations refer to the
weighted average maturity of obligations, and it is likely that the same rule
will be applied with respect to market discount, presumably taking into account
the Prepayment Assumption. If market discount is treated as de minimis under
this rule, it appears that the actual discount would be treated in a manner
similar to original issue discount of a de minimis amount. See "--Taxation of
Owners of REMIC Regular Certificates--Original Issue Discount." Such treatment
would result in discount being included in income at a slower rate than discount
would be required to be included in income using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department, certain
rules described in the Conference Committee Report (the "Committee Report")
apply. The Committee Report indicates that in each accrual period market
discount on REMIC Regular Certificates should accrue, at the Certificateholder's
option: (i) on the basis of a constant yield method, (ii) in the case of a REMIC
Regular Certificate issued without original issue discount, in an amount that
bears the same ratio to the total remaining market discount as the stated
interest paid in the accrual period bears to the total amount of stated interest
remaining to be paid on the REMIC Regular Certificate as of the beginning of the
accrual period, or (iii) in the case of a REMIC Regular Certificate issued with
original issue discount, in an amount that bears the same ratio to the total
remaining market discount as
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the original issue discount accrued in the accrual period bears to the total
original issue discount remaining on the REMIC Regular Certificate at the
beginning of the accrual period. Moreover, the Prepayment Assumption used in
calculating the accrual of original issue discount is to be used in calculating
the accrual of market discount. Because the regulations referred to in this
paragraph have not been issued, it is not possible to predict what effect such
regulations might have on the tax treatment of a REMIC Regular Certificate
purchased at a discount in the secondary market.
To the extent that REMIC Regular Certificates provide for monthly or
other periodic distributions throughout their term, the effect of these rules
may be to require market discount to be includable in income at a rate that is
not significantly slower than the rate at which such discount would accrue if it
were original issue discount. Moreover, in any event a holder of a REMIC Regular
Certificate generally will be required to treat a portion of any gain on the
sale or exchange of such Certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary
income.
Further, under Section 1277 of the Code a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry a REMIC Regular Certificate purchased with market discount.
For these purposes, the de minimis rule referred to above applies. Any such
deferred interest expense would not exceed the market discount that accrues
during such taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includable in income. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
Premium
In the opinion of Tax Counsel, a REMIC Regular Certificate purchased at
a cost (excluding any portion of such cost attributable to accrued qualified
stated interest) greater than its remaining stated redemption price will be
considered to be purchased at a premium. The holder of such a REMIC Regular
Certificate may elect under Section 171 of the Code to amortize such premium
under the constant yield method over the life of the Certificate. If made, such
an election will apply to all debt instruments having amortizable bond premium
that the holder owns or subsequently acquires. Amortizable premium will be
treated as an offset to interest income on the related REMIC Regular
Certificate, rather than as a separate interest deduction. The OID Regulations
also permit Certificateholders to elect to include all interest, discount and
premium in income based on a constant yield method, further treating the
Certificateholder as having made the election to amortize premium generally. See
"--Taxation of Owners of REMIC Regular Certificates--Market Discount." The
Committee Report states that the same rules that apply to accrual of market
discount (which rules will require use of a Prepayment Assumption in accruing
market discount with respect to REMIC Regular Certificates without regard to
whether such Certificates have original issue discount) will also apply in
amortizing bond premium under Section 171 of the Code.
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Realized Losses
In the opinion of Tax Counsel, under Section 166 of the Code, both
corporate holders of the REMIC Regular Certificates and noncorporate holders of
the REMIC Regular 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 Primary
Assets. However, it appears that a noncorporate holder that does not acquire a
REMIC Regular Certificate in connection with a trade or business will not be
entitled to deduct a loss under Section 166 of the Code until such holder's
Certificate becomes wholly worthless (i.e., until its outstanding principal
balance has been reduced to zero) and that the loss will be characterized as a
short-term capital loss.
Each holder of a REMIC Regular 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 defaults or
delinquencies on the Primary Assets 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 REMIC Regular Certificate could
exceed the amount of economic income actually realized by the holder in such
period. Although the holder of a REMIC Regular 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.
Taxation of Owners of REMIC Residual Certificates
General
As residual interests, the REMIC Residual Certificates will be subject
to tax rules that differ significantly from those that would apply if the REMIC
Residual Certificates were treated for federal income tax purposes as direct
ownership interests in the Primary Assets or as debt instruments issued by the
REMIC.
In the opinion of Tax Counsel, a holder of a REMIC Residual Certificate
generally will be required to report its daily portion of the taxable income or,
subject to the limitations noted in this discussion, the net loss of the REMIC
for each day during a calendar quarter that such holder owned such REMIC
Residual Certificate. For this purpose, the taxable income or net loss of the
REMIC will be allocated to each day in the calendar quarter ratably using a "30
days per month/90 days per quarter/360 days per year" convention unless
otherwise disclosed in the related Prospectus Supplement. The daily amounts will
then be allocated among the REMIC Residual Certificateholders in proportion to
their respective ownership interests on such day. Any amount included in the
gross income or allowed as a loss of any REMIC Residual Certificateholder by
virtue of this allocation will be treated as ordinary income or loss. The
taxable income of the REMIC will be determined under the rules described below
in "--Taxable Income of the REMIC" and will be taxable to the REMIC Residual
Certificateholders without regard to the timing or amount of cash distributions
by the REMIC. Ordinary income derived from REMIC Residual Certificates will be
"portfolio income" for purposes of the taxation of taxpayers subject to
limitations under Section 469 of the Code on the deductibility of "passive
losses."
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In the opinion of Tax Counsel, a holder of a REMIC Residual Certificate
that purchased such Certificate from a prior holder of such Certificate also
will be required to report on its federal income tax return amounts representing
its daily portion of the taxable income (or net loss) of the REMIC for each day
that it holds such REMIC Residual Certificate. These daily portions generally
will equal the amounts of taxable income or net loss determined as described
above. The Committee Report indicates that certain modifications of the general
rules may be made, by regulations, legislation or otherwise, to reduce (or
increase) the income or loss of a holder of a REMIC Residual Certificateholder
that purchased such REMIC Residual Certificate from a prior holder of such
Certificate at a price greater than (or less than) the adjusted basis such REMIC
Residual Certificate would have had in the hands of an original holder of such
Certificate. The REMIC Regulations, however, do not provide for any such
modifications.
Any payments received by a holder of a REMIC Residual Certificate in
connection with the acquisition of such REMIC Residual Certificate will be taken
into account in determining the income of such holder for federal income tax
purposes. Although it appears likely that any such payment would be includable
in income immediately upon its receipt, the IRS might assert that such payment
should be included in income over time according to an amortization schedule or
according to some other method. Because of the uncertainty concerning the
treatment of such payments, holders of REMIC Residual Certificates should
consult their tax advisors concerning the treatment of such payments for income
tax purposes.
The amount of income REMIC Residual Certificateholders will be required
to report (or the tax liability associated with such income) may exceed the
amount of cash distributions received from the REMIC for the corresponding
period. Consequently, REMIC Residual Certificateholders should have other
sources of funds sufficient to pay any federal income taxes due as a result of
their ownership of REMIC Residual Certificates, because it is unlikely that
unrelated deductions will be available to offset such income due to the rules
relating to "excess inclusions," and "noneconomic" residual interests discussed
below. The fact that the tax liability associated with the income allocated to
REMIC Residual Certificateholders may exceed the cash distributions received by
such REMIC Residual Certificateholders for the corresponding period may
significantly adversely affect such REMIC Residual Certificateholders' after-tax
rate of return.
Taxable Income of the REMIC
In the opinion of Tax Counsel, the taxable income of the REMIC will
equal the income from the Primary Assets, including stated interest and any OID
or market discount on the Primary Assets, and other assets of the REMIC plus any
cancellation of indebtedness income due to the allocation of realized losses to
REMIC Regular Certificates, less the deductions allowed to the REMIC for
interest (including original issue discount and reduced by the amortization of
any premium received on issuance) on the REMIC Regular Certificates (and any
other class of REMIC Certificates constituting "regular interests" in the REMIC
not offered hereby), amortization of any premium on the Primary Assets, bad debt
deductions with respect to the Primary Assets and, except as described below,
for servicing, administrative and other expenses.
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For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to their fair market value
immediately after their transfer to the REMIC. For this purpose, the Trustee
intends to treat the fair market value of the Primary Assets as being equal to
the aggregate issue prices of the REMIC Regular Certificates and REMIC Residual
Certificates. Such aggregate basis will be allocated among the Primary Assets
collectively and the other assets of the REMIC in proportion to their respective
fair market values. The issue price of any REMIC Certificates offered hereby
will be determined in the manner described above under "--Taxation of Owners of
REMIC Regular Certificates--Original Issue Discount." Accordingly, if one or
more classes of REMIC Certificates are retained initially rather than sold, the
Trustee may be required to estimate the fair market value of such interests in
order to determine the basis of the REMIC in the Primary Assets and other
property held by the REMIC.
Subject to the possible application of the de minimis rules, the method
of accrual by the REMIC of original issue discount income and market discount
income with respect to Primary Assets that it holds will be equivalent to the
method of accruing original issue discount income for REMIC Regular
Certificateholders (that is, under the constant yield method taking into account
the Prepayment Assumption). However, a REMIC that acquires loans at a market
discount must include such discount in income currently, as it accrues, on a
constant interest basis. See "--Taxation of Owners of REMIC Regular
Certificates" above, which describes a method of accruing discount income that
is analogous to that required to be used by a REMIC as to Primary Assets with
market discount that it holds.
In the opinion of Tax Counsel, Primary Assets will be deemed to have
been acquired with discount (or premium) to the extent that the REMIC's basis
therein, determined as described in the preceding paragraph, is less than (or
greater than) its stated redemption price. Any such discount will be includable
in the income of the REMIC as it accrues, in advance of receipt of the cash
attributable to such income, under a method similar to the method described
above for accruing original issue discount on the REMIC Regular Certificates. It
is anticipated that each REMIC will elect under Section 171 of the Code to
amortize any premium on the Primary Assets. Premiums on Primary Assets to which
such election applies may be amortized under a constant yield method, presumably
taking into account a Prepayment Assumption.
In the opinion of Tax Counsel, the REMIC will be allowed deductions for
interest (including original issue discount) on the REMIC Regular Certificates
(including any other class of REMIC Certificates constituting "regular
interests" in the REMIC not offered hereby) equal to the deductions that would
be allowed if the REMIC Regular Certificates (including any other class of REMIC
Certificates constituting "regular interests" in the REMIC not offered hereby)
were indebtedness of the REMIC. Original issue discount will be considered to
accrue for this purpose as described above under "--Taxation of Owners of REMIC
Regular Certificates-- Original Issue Discount," except that the de minimis rule
and the adjustments for subsequent holders of REMIC Regular Certificates
(including any other Class of Certificates constituting "regular interests" in
the REMIC not offered hereby) described therein will not apply.
In the opinion of Tax Counsel, if a class of REMIC Regular Certificates
is issued at a price in excess of the stated redemption price of such class
(such excess, "Issue Premium"), the REMIC will have an additional item of
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income in each taxable year in an amount equal to the portion of the Issue
Premium that is considered to be amortized or repaid in that year. Although the
matter is not entirely certain, it is likely that Issue Premium would be
amortized under a constant yield method in a manner analogous to the method of
accruing original issue discount described above under "--Taxation of Owners of
REMIC Regular Certificates--Original Issue Discount."
As a general rule, the taxable income of the REMIC will be determined in
the same manner as if the REMIC were an individual having the calendar year as
its taxable year and using the accrual method of accounting. However, no item of
income, gain, loss or deduction allocable to a prohibited transaction will be
taken into account. See "--Prohibited Transactions and Other Possible REMIC
Taxes" below. Further, the limitation on miscellaneous itemized deductions
imposed on individuals by Section 67 of the Code (which allows such deductions
only to the extent they exceed in the aggregate two percent of the taxpayer's
adjusted gross income) will not be applied at the REMIC level so that the REMIC
will be allowed deductions for servicing, administrative and other non-interest
expenses in determining its taxable income. All such expenses will be allocated
as a separate item to the holders of REMIC Certificates, subject to the
limitation of Section 67 of the Code. See "--Possible Pass-Through of
Miscellaneous Itemized Deductions." If the deductions allowed to the REMIC
exceed its gross income for a calendar quarter, such excess will be the net loss
for the REMIC for that calendar quarter.
Basis Rules, Net Losses and Distributions
In the opinion of Tax Counsel, the adjusted basis of a REMIC Residual
Certificate will be equal to the amount paid for such REMIC Residual
Certificate, increased by amounts included in the income of the REMIC Residual
Certificateholder and decreased (but not below zero) by distributions made, and
by net losses allocated, to such REMIC Residual Certificateholder.
In the opinion of Tax Counsel, a REMIC Residual Certificateholder is not
allowed to take into account any net loss for any calendar quarter to the extent
such net loss exceeds such REMIC Residual Certificateholder's adjusted basis in
its REMIC Residual Certificate as of the close of such calendar quarter
(determined without regard to such net loss). Any loss that is not currently
deductible by reason of this limitation may be carried forward indefinitely to
future calendar quarters and, subject to the same limitation, may be used only
to offset income from the REMIC Residual Certificate. The ability of REMIC
Residual Certificateholders to deduct net losses may be subject to additional
limitations under the Code, as to which REMIC Residual Certificateholders should
consult their tax advisors.
In the opinion of Tax Counsel any distribution on a REMIC Residual
Certificate will be treated as a non-taxable return of capital to the extent it
does not exceed the holder's adjusted basis in such REMIC Residual Certificate.
To the extent a distribution on a REMIC Residual Certificate exceeds such
adjusted basis, it will be treated as gain from the sale of such REMIC Residual
Certificate. Holders of certain REMIC Residual Certificates may be entitled to
distributions early in the term of the related REMIC under circumstances in
which their bases in such REMIC Residual Certificates will not be sufficiently
large that such distributions will be treated as nontaxable returns of capital.
Their bases in such REMIC Residual Certificates will initially equal the amount
paid for such REMIC Residual
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Certificates and will be increased by their allocable shares of taxable income
of the Trust. However, such basis increases may not occur until the end of the
calendar quarter, or perhaps the end of the calendar year, with respect to which
such REMIC taxable income is allocated to the REMIC Residual Certificateholders.
To the extent such REMIC Residual Certificateholders' initial bases are less
than the distributions to such REMIC Residual Certificateholders, and increases
in such initial bases either occur after such distributions or (together with
their initial bases) are less than the amount of such distributions, gain will
be recognized to such REMIC Residual Certificateholders on such distributions
and will be treated as gain from the sale of their REMIC Residual Certificates.
The effect of these rules is that a REMIC Residual Certificateholder may
not amortize its basis in a REMIC Residual Certificate, but may only recover its
basis through distributions, through the deduction of its share of any net
losses of the REMIC or upon the sale of its REMIC Residual Certificate. See
"--Sales of REMIC Certificates." For a discussion of possible modifications of
these rules that may require adjustments to income of a holder of a REMIC
Residual Certificate other than an original holder in order to reflect any
difference between the cost of such REMIC Residual Certificate to such holder
and the adjusted basis such REMIC Residual Certificate would have had in the
hands of the original holder, see "--Taxation of Owners of REMIC Residual
Certificates--General."
Excess Inclusions
In the opinion of Tax Counsel, any "excess inclusions" with respect to a
REMIC Residual Certificate will be subject to federal income tax in all events.
In general, the "excess inclusions" with respect to a REMIC Residual
Certificate for any calendar quarter will be the excess, if any, of (i) the sum
of the daily portions of REMIC taxable income allocable to such REMIC Residual
Certificate over (ii) the sum of the " daily accruals" for each day during such
quarter that such REMIC Residual Certificate was held by such REMIC Residual
Certificateholder. The "daily accruals" of a REMIC Residual Certificateholder
will be determined by allocating to each day during a calendar quarter its
ratable portion of the product of the "adjusted issue price" of the REMIC
Residual Certificate at the beginning of the calendar quarter and 120% of the
"long-term federal rate" in effect on the Closing Date. For this purpose, the
adjusted issue price of a REMIC Residual Certificate as of the beginning of any
calendar quarter will be equal to the issue price of the REMIC Residual
Certificate, increased by the sum of the daily accruals for all prior quarters
and decreased (but not below zero) by all distributions made with respect to
such REMIC Residual Certificate before the beginning of such quarter. The issue
price of a REMIC Residual Certificate is the initial offering price to the
public (excluding bond houses and brokers) at which a substantial amount of the
REMIC Residual Certificates were sold. The "long-term federal rate" is an
average of current yields on Treasury securities with a remaining term of
greater than nine years, computed and published monthly by the IRS.
For REMIC Residual Certificateholders, an excess inclusion (i) will not
be permitted to be offset by deductions, losses or loss carryovers from other
activities, (ii) will be treated as "unrelated business taxable income" to an
otherwise tax-exempt organization and (iii) will not be eligible for any rate
reduction or exemption under any applicable tax treaty with respect to the
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30% United States withholding tax imposed on distributions to REMIC Residual
Certificateholders that are foreign investors. See, however, "--Foreign
Investors in REMIC Certificates" below.
The Small Business Job Protection Act of 1996 has eliminated the special
rule permitting Section 593 institutions ("thrift institutions") to use net
operating losses and other allowable deductions to offset their excess inclusion
income from REMIC residual certificates that have "significant value" within the
meaning of the REMIC Regulations, effective for taxable years beginning after
December 31, 1995, except with respect to residual certificates continuously
held by a thrift institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides
three rules for determining the effect on excess inclusions on the alternative
minimum taxable income of a residual holder. First, alternative minimum taxable
income for such residual holder is determined without regard to the special rule
that taxable income cannot be less than excess inclusions. Second, a residual
holder's alternative minimum taxable income for a tax year cannot be less than
excess inclusions for the year. Third, the amount of any alternative minimum tax
net operating loss deductions must be computed without regard to any excess
inclusions. These rules are effective for tax years beginning after December 31,
1986, unless a residual holder elects to have such rules apply only to tax years
beginning after August 20, 1996.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Section 857(b)(2) of the
Code, excluding any net capital gain), will be allocated among the shareholders
of such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Treasury regulations yet to be issued could apply a similar rule to
regulated investment companies, common trust funds and certain cooperatives; the
REMIC Regulations currently do not address this subject.
Noneconomic REMIC Residual Certificates
Under the REMIC Regulations, transfers of "noneconomic" REMIC Residual
Certificates will be disregarded for all federal income tax purposes if "a
significant purpose of the transfer was to enable the transferor to impede the
assessment or collection of tax." If such transfer is disregarded, the purported
transferor will continue to remain liable for any taxes due with respect to the
income on such "noneconomic" REMIC Residual Certificate. The REMIC Regulations
provide that a REMIC Residual Certificate is noneconomic unless, based on the
Prepayment Assumption and on any required or permitted clean up calls, or
required qualified liquidation provided for in the REMIC's organizational
documents, (1) the present value of the expected future distributions
(discounted using the "applicable federal rate" for obligations whose term ends
on the close of the last quarter in which excess inclusions are expected to
accrue with respect to the REMIC Residual Certificate, which rate is computed
and published monthly by the IRS) on the REMIC Residual Certificate equals at
least the present value of the expected tax on the anticipated excess
inclusions, and (2) the transferor reasonably expects that
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the transferee will receive distributions with respect to the REMIC Residual
Certificate at or after the time the taxes accrue on the anticipated excess
inclusions in an amount sufficient to satisfy the accrued taxes. Accordingly,
all transfers of REMIC Residual Certificates that may constitute noneconomic
residual interests will be subject to certain restrictions under the terms of
the related Pooling and Servicing Agreement that are intended to reduce the
possibility of any such transfer being disregarded. Such restrictions will
require each party to a transfer to provide an affidavit that no purpose of such
transfer is to impede the assessment or collection of tax, including certain
representations as to the financial condition of the prospective transferee, as
to which the transferor also is required to make a reasonable investigation to
determine such transferee's historic payment of its debts and ability to
continue to pay its debts as they come due in the future. Prior to purchasing a
REMIC Residual Certificate, prospective purchasers should consider the
possibility that a purported transfer of such REMIC Residual Certificate by such
a purchaser to another purchaser at some future date may be disregarded in
accordance with the above-described rules which would result in the retention of
tax liability by such purchaser.
The related Prospectus Supplement will disclose whether offered REMIC
Residual Certificates may be considered "noneconomic" residual interests under
the REMIC Regulations; provided, however, that any disclosure that a REMIC
Residual Certificate will not be considered "noneconomic" will be based upon
certain assumptions, and the Depositor will make no representation that a REMIC
Residual Certificate will not be considered "noneconomic" for purposes of the
above-described rules. See "--Foreign Investors in REMIC Certificates--REMIC
Residual Certificates" below for additional restrictions applicable to transfers
of certain REMIC Residual Certificates to foreign persons.
Mark-to-Market Rules
On January 4, 1995, the IRS released proposed regulations (the
"Mark-to-Market Regulations") relating to the requirement that a securities
dealer mark to market securities held for sale to customers. This mark-to-market
requirement applies to all securities owned by a dealer, except to the extent
that the dealer has specifically identified a security as held for investment.
The Mark-to-Market Regulations provide that for purposes of this mark-to-market
requirement, a REMIC Residual Certificate issued after January 4, 1995 would not
be treated as a security and thus generally could not be marked to market.
Prospective purchasers of a REMIC Residual Certificate should consult their tax
advisors regarding the possible application of the mark-to-market requirement to
REMIC Residual Certificates.
Possible Pass-Through of Miscellaneous Itemized Deductions
Fees and expenses of a REMIC generally will be allocated to the holders
of the related REMIC Residual Certificates. The applicable Treasury regulations
indicate, however, that in the case of a REMIC that is similar to a single class
grantor trust, all or a portion of such fees and expenses should be allocated to
the holders of the related REMIC Regular Certificates. Unless otherwise stated
in the related Prospectus Supplement, such fees and expenses will be allocated
to holders of the related REMIC Residual Certificates in their entirety and not
to the holders of the related REMIC Regular Certificates.
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With respect to REMIC Residual Certificates or REMIC Regular
Certificates the holders of which receive an allocation of fees and expenses in
accordance with the preceding discussion, if any holder thereof is an
individual, estate or trust, or a "pass-through entity" beneficially owned by
one or more individuals, estates or trusts, (i) an amount equal to such
individual's, estate's or trust's share of such fees and expenses will be added
to the gross income of such holder and (ii) such individual's, estate's or
trust's share of such fees and expenses will be treated as a miscellaneous
itemized deduction allowable subject to the limitation of Section 67 of the
Code, which permits such deductions only to the extent they exceed in the
aggregate 2% of a taxpayer's adjusted gross income. In addition, Section 68 of
the Code provides that the amount of itemized deductions otherwise allowable for
an individual whose adjusted gross income exceeds a specified amount will be
reduced by the lesser of (i) 3% of the excess of the individual's adjusted gross
income over such amount or (ii) 80% of the amount of itemized deductions
otherwise allowable for the taxable year. The amount of additional taxable
income reportable by REMIC Certificateholders that are subject to the
limitations of either Section 67 or Section 68 of the Code may be substantial.
Furthermore, in determining the alternative minimum taxable income of such a
holder of a REMIC Certificate that is an individual, estate or trust, or a
"pass-through entity" beneficially owned by one or more individuals, estates or
trusts, no deduction will be allowed for such holder's allocable portion of
servicing fees and other miscellaneous itemized deductions of the REMIC, even
though an amount equal to the amount of such fees and other deductions will be
included in such holder's gross income. Accordingly, such REMIC Certificates may
not be appropriate investments for individuals, estates or trusts, or
pass-through entities beneficially owned by one or more individuals, estates or
trusts. Such prospective investors should consult carefully with their tax
advisors prior to making an investment in such Certificates.
Sales of REMIC Certificates
If a REMIC Certificate is sold, the selling Certificateholder will
recognize gain or loss equal to the difference between the amount realized on
the sale and its adjusted basis in the REMIC Certificate. The adjusted basis of
a REMIC Regular Certificate generally will equal the cost of such REMIC Regular
Certificate to such Certificateholder, increased by income reported by such
Certificateholder with respect to such REMIC Regular Certificate (including
original issue discount and market discount income) and reduced (but not below
zero) by distributions on such REMIC Regular Certificate received by such
Certificateholder and by any amortized premium. The adjusted basis of a REMIC
Residual Certificate will be determined as described under "--Taxation of Owners
of REMIC Residual Certificates--Basis Rules, Net Losses and Distributions."
Except as described below, any such gain or loss generally will be capital gain
or loss. The Code as of the date of this Prospectus provides for a top marginal
tax rate of 39.6% for individuals and a maximum marginal rate for long-term
capital gains of individuals of 28%. No such rate differential exists for
corporations. In addition, the distinction between a capital gain or loss and
ordinary income or loss remains relevant for other purposes.
The Taxpayer Relief Act of 1997 reduces the maximum rates on long-term
capital gains recognized on capital assets held by individual taxpayers for more
than eighteen months as of the date of disposition (and would further reduce the
maximum rates on such gains in the year 2001 and thereafter for certain
individual taxpayers who meet specified conditions). Prospective
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investors should consult their own tax advisors concerning these tax law
changes. Gain from the sale of a REMIC Regular Certificate that might otherwise
be capital gain will be treated as ordinary income to the extent such gain does
not exceed the excess, if any, of (i) the amount that would have been includable
in the seller's income with respect to such REMIC Regular Certificate had income
accrued thereon at a rate equal to 110% of the "applicable federal rate"
(generally, a rate based on an average of current yields on Treasury securities
having a maturity comparable to that of the Certificate, which rate is computed
and published monthly by the IRS), determined as of the date of purchase of such
REMIC Regular Certificate, over (ii) the amount of ordinary income actually
includable in the seller's income prior to such sale. In addition, gain
recognized on the sale of a REMIC Regular Certificate by a seller who purchased
such REMIC Regular Certificate at a market discount will be taxable as ordinary
income to the extent of any accrued and previously unrecognized market discount
that accrued during the period the Certificate was held. See "--Taxation of
Owners of REMIC Regular Certificates--Market Discount" herein.
REMIC Certificates will be "evidences of indebtedness" within the
meaning of Section 582(c) (1) of the Code, so that gain or loss recognized from
the sale of a REMIC Certificate by a bank or thrift institution to which such
section applies will be ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular Certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that such Certificate is held as part of a "conversion transaction" within the
meaning of Section 1258 of the Code. A conversion transaction generally is one
in which the taxpayer has taken two or more positions in Certificates or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain so realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable federal rate" (which rate is computed and
published monthly by the IRS) at the time the taxpayer enters into the
conversion transaction, subject to appropriate reduction for prior inclusion of
interest and other ordinary income items from the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include such net
capital gain in total net investment income for the taxable year, for purposes
of the limitation on the deduction of interest on indebtedness incurred to
purchase or carry property held for investment to a taxpayer's net investment
income.
Except as may be provided in Treasury regulations yet to be issued, if a
person who sells or otherwise disposes of a REMIC Residual Certificate
reacquires the Certificate, any other residual interest in a REMIC or any
similar interest in a "taxable mortgage pool" (as defined in Section 7701 (i) of
the Code) within six months of the date of such sale, the sale will be subject
to the "wash sale" rules of Section 1091 of the Code. In that event, any loss
realized by the REMIC Residual Certificateholder on the sale will not be
deductible, but instead will be added to such REMIC Residual Certificateholder's
adjusted basis in the newly-acquired asset.
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Prohibited Transactions and Other Possible REMIC Taxes
The Code imposes a tax on REMICs equal to 100% of the net income derived
from "prohibited transactions" (a "Prohibited Transactions Tax"). In general,
subject to certain specified exceptions a prohibited transaction means the
disposition of a Primary Asset, the receipt of income from a source other than a
Primary Asset or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the Primary Assets for temporary investment pending
distribution on the REMIC Certificates. It is not anticipated that any REMIC
will engage in any prohibited transactions in which it would recognize a
material amount of net income.
In addition, certain contributions to a REMIC made after the day on
which the REMIC issues all of its interests could result in the imposition of a
tax on the REMIC equal to 100% of the value of the contributed property (a
"Contributions Tax"). Each Pooling and Servicing Agreement will include
provisions designed to prevent the acceptance of any contributions that would be
subject to such tax.
REMICs also are subject to federal income tax at the highest corporate
rate on "net income from foreclosure property," determined by reference to the
rules applicable to real estate investment trusts. "Net income from foreclosure
property" generally means gain from the sale of a foreclosure property that is
inventory property and gross income from foreclosure property other than
qualifying rents and other qualifying income for a real estate investment trust.
Unless otherwise disclosed in the related Prospectus Supplement, it is not
anticipated that any REMIC will recognize "net income from foreclosure property"
subject to federal income tax.
Unless otherwise stated in the related Prospectus Supplement, and to the
extent permitted by then applicable laws, any Prohibited Transactions Tax,
Contributions Tax, tax on "net income from foreclosure property" or state or
local income or franchise tax that may be imposed on the REMIC will be borne by
the related Master Servicer or Trustee in either case out of its own funds,
provided that the Master Servicer or the Trustee, as the case may be, has
sufficient assets to do so, and provided further that such tax arises out of the
negligence, bad faith or willful misconduct of the Master Servicer or the
Trustee. Any such tax not borne by the Master Servicer or the Trustee will be
payable out of the related Trust resulting in a reduction in amounts payable to
holders of the related REMIC Certificates.
Tax and Restrictions on Transfers of REMIC Residual Certificates
to Certain Organizations
If a REMIC Residual Certificate is transferred to a "disqualified
organization," a tax would be imposed in an amount (determined under the REMIC
Regulations) equal to the product of (i) the present value (discounted using the
"applicable federal rate" for obligations whose term ends on the close of the
last quarter in which excess inclusions are expected to accrue with respect to
the Certificate, which rate is computed and published monthly by the IRS) of the
total anticipated excess inclusions with respect to such REMIC Residual
Certificate for periods after the transfer and (ii) the highest marginal federal
income tax rate applicable to corporations. The anticipated excess inclusions
must be determined as of the date that the REMIC Residual Certificate is
transferred and must be based on events that have occurred up to the time of
such transfer, the Prepayment Assumption and
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any required or permitted clean up calls or required liquidation provided for in
the REMIC's organizational documents. Such a tax generally would be imposed on
the transferor of the REMIC Residual Certificate, except that where such
transfer is through an agent for a disqualified organization, the tax would
instead be imposed on such agent. However, a transferor of a REMIC Residual
Certificate would in no event be liable for such tax with respect to a transfer
if the transferee furnishes to the transferor an affidavit that the transferee
is not a disqualified organization and, as of the time of the transfer, the
transferor does not have actual knowledge that such affidavit is false.
Moreover, an entity will not qualify as a REMIC unless there are reasonable
arrangements designed to ensure that (i) residual interests in such entity are
not held by disqualified organizations and (ii) information necessary for the
application of the tax described herein will be made available. Restrictions on
the transfer of REMIC Residual Certificates and certain other provisions that
are intended to meet this requirement will be included in the Pooling and
Servicing Agreement, and will be discussed more fully in any Prospectus
Supplement relating to the offering of any REMIC Residual Certificate.
In addition, if a "pass-through entity" includes in income excess
inclusions with respect to a REMIC Residual Certificate, and a disqualified
organization is the record holder of an interest in such entity, then a tax will
be imposed on such entity equal to the product of (i) the amount of excess
inclusions on the REMIC Residual Certificate that are allocable to the interest
in the pass-through entity held by such disqualified organization and (ii) the
highest marginal federal income tax rate imposed on corporations. A pass-through
entity will not be subject to this tax for any period, however, if each record
holder of an interest in such pass-through entity furnishes to such pass-through
entity (i) such holder's social security number and a statement under penalties
of perjury that such social security number is that of the record holder or (ii)
a statement under penalties of perjury that such record holder is not a
disqualified organization.
For these purposes, a "disqualified organization" means (i) the United
States, any state or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing
(but would not include instrumentalities described in Section 168(h)(2)(D) of
the Code or the Federal Home Loan Mortgage Corporation), (ii) any organization
(other than a cooperative described in Section 521 of the Code) that is exempt
from federal income tax, unless it is subject to the tax imposed by Section 511
of the Code or (iii) any organization described in Section 1381(a)(2)(C) of the
Code. For these purposes, a "pass-through entity" means any regulated investment
company, real estate investment trust, trust, partnership or certain other
entities described in Section 860E(e)(6) of the Code. In addition, a person
holding an interest in a pass-through entity as a nominee for another person
will, with respect to such interest, be treated as a pass-through entity.
The Taxpayer Relief Act of 1997 adds provisions to the Code that will
apply to an "electing large partnership." If an electing large partnership holds
a Residual Certificate, all interests in the electing large partnership held by
any partner are treated as held by disqualified organizations for purposes of
the tax imposed upon a pass-through entity by Section 860E(e) of the Code. An
exception to this tax, otherwise available to a pass-through entity that is
furnished certain affidavits by record holders of interests in
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the entity and that does not know such affidavits are false, is not available to
an electing large partnership.
Termination
A REMIC will terminate immediately after the Distribution Date following
receipt by the REMIC of the final payment in respect of the Mortgage Loans or
upon a sale of the REMIC's assets following the adoption by the REMIC of a plan
of complete liquidation. The last distribution on a REMIC Regular Certificate
will be treated as a payment in retirement of a debt instrument. In the case of
a REMIC Residual Certificate, if the last distribution on such REMIC Residual
Certificate is less than the REMIC Residual Certificateholder's adjusted basis
in such Certificate, such REMIC Residual Certificateholder should be treated as
realizing a loss equal to the amount of such difference. The character of any
such loss as ordinary or capital is uncertain. Further, any such loss may be
subject to the "wash sale" rules of Section 1091 of the Code. See "--Sales of
REMIC Certificates" herein.
Reporting and Other Administrative Matters
Solely for purposes of the administrative provisions of the Code, the
REMIC will be treated as a partnership and Residual Certificateholders will be
treated as partners. Unless otherwise stated in the related Prospectus
Supplement, the Trustee will file REMIC federal income tax returns on behalf of
the related REMIC, will be designated as and will act as the "tax matters
person" with respect to the REMIC in all respects, and generally will hold at
least a nominal amount of REMIC Residual Certificates.
As the tax matters person, the Trustee will, subject to certain notice
requirements and various restrictions and limitations, generally have the
authority to act on behalf of the REMIC and the REMIC Residual
Certificateholders in connection with the administrative and judicial review of
items of income, deduction, gain or loss of the REMIC, as well as the REMIC's
classification. REMIC Residual Certificateholders will generally be required to
report such REMIC items consistently with their treatment on the related REMIC's
tax return and may in some circumstances be bound by a settlement agreement
between the Trustee as tax matters person, and the IRS concerning any such REMIC
item. Adjustments made to the REMIC tax return may require a REMIC Residual
Certificateholder to make corresponding adjustments on its return, and an audit
of the REMIC's tax return, or the adjustments resulting from such an audit,
could result in an audit of a REMIC Residual Certificateholder's return. No
REMIC will be registered as a tax shelter pursuant to Section 6111 of the Code
because it is not anticipated that any REMIC will have a net loss for any of the
first five taxable years of its existence. Any person that holds a REMIC
Residual Certificate as a nominee for another person may be required to furnish
to the related REMIC, in a manner to be provided in Treasury regulations, the
name and address of such person and other information.
Reporting of interest income, including any original issue discount,
with respect to REMIC Regular Certificates is required annually, and may be
required more frequently under Treasury regulations. These information reports
generally are required to be sent to individual holders of REMIC Regular
Interests and the IRS; holders of REMIC Regular Certificates that are
corporations, trusts, securities dealers and certain other non-individuals will
be provided interest and original issue discount income information and
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the information set forth in the following paragraph upon request in accordance
with the requirements of the applicable regulations. The information must be
provided by the later of 30 days after the end of the quarter for which the
information was requested, or two weeks after the receipt of the request. The
REMIC must also comply with rules requiring a REMIC Regular Certificate issued
with original issue discount to disclose on its face certain information
including the amount of original issue discount and the issue date, and
requiring such information to be reported to the IRS. Reporting with respect to
the REMIC Residual Certificates, including income, excess inclusions, investment
expenses and relevant information regarding qualification of the REMIC's assets
will be made as required under the Treasury regulations, generally on a
quarterly basis.
As applicable, the REMIC Regular Certificate information reports will
include a statement of the adjusted issue price of the REMIC Regular Certificate
at the beginning of each accrual period. In addition, the reports will include
information required by regulations with respect to computing the accrual of any
market discount. Because exact computation of the accrual of market discount on
a constant yield method requires information relating to the holder's purchase
price that the Master Servicer will not have, such regulations only require that
information pertaining to the appropriate proportionate method of accruing
market discount be provided. See "--Taxation of Owners of REMIC Regular
Certificates--Market Discount."
The responsibility for complying with the foregoing reporting rules will
be borne by the Trustee. Certificateholders may request any information with
respect to the returns described in Section 1.6049-7(e)(2) of the Treasury
regulations. Such request should be directed to the Trustee at the address
specified in the related Prospectus Supplement.
Backup Withholding with Respect to REMIC Certificates
Payments of interest and principal, as well as payments of proceeds from
the sale of REMIC Certificates, may be subject to the "backup withholding tax"
under Section 3406 of the Code at a rate of 31% if recipients of such payments
fail to furnish to the payor certain information, including their taxpayer
identification numbers, or otherwise fail to establish an exemption from such
tax. Any amounts deducted and withheld from a distribution to a recipient would
be allowed as a credit against such recipient's federal income tax.
Furthermore, certain penalties may be imposed by the IRS on a recipient
of payments that is required to supply information but that does not do so in
the proper manner.
Final regulations dealing with withholding tax on income paid to foreign
persons, backup withholding and related matters (the "New Withholding
Regulations") were issued by the Treasury Department on October 6, 1997. The New
Withholding Regulations generally will be effective for payments made after
December 31, 1998, subject to certain transition rules. Prospective U.S. Holders
are strongly urged to consult their own tax advisors with respect to the New
Withholding Regulations.
Foreign Investors in REMIC Certificates
A REMIC Regular Certificateholder that is not a "United States person"
and is not subject to federal income tax as a result of any direct or
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indirect connection to the United States in addition to its ownership of a REMIC
Regular Certificate will not be subject to United States federal income or
withholding tax in respect of a distribution on a REMIC Regular Certificate,
provided that the holder complies to the extent necessary with certain
identification requirements (including delivery of a statement, signed by the
Certificateholder under penalties of perjury, certifying that such
Certificateholder is not a United States person and providing the name and
address of such Certificateholder). For these purposes, "United States 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, an estate whose income from sources without
the United States is includable in gross income for United States federal income
tax purposes regardless of its connection with the conduct of a trade or
business within the United States or a trust if a court within the United States
is able to exercise primary supervision over the administration of the trust and
one or more United States trustees have authority to control all substantial
decisions of the trust. It is possible that the IRS may assert that the
foregoing tax exemption should not apply with respect to a REMIC Regular
Certificate held by a REMIC Residual Certificateholder that owns directly or
indirectly a 10% or greater interest in the REMIC Residual Certificates. If the
holder does not qualify for exemption, distributions of interest, including
distributions in respect of accrued original issue discount, to such holder may
be subject to a tax rate of 30%, subject to reduction under any applicable tax
treaty.
In addition, prospective Foreign Investors are strongly urged to consult
their own tax advisors with respect to the New Withholding Regulations.
See"--Backup Withholding with Respect to REMIC Certificates" herein.
In addition, the foregoing rules will not apply to exempt a United
States shareholder of a controlled foreign corporation from taxation on such
United States shareholder's allocable portion of the interest income received by
such controlled foreign corporation.
Further, it appears that a REMIC Regular Certificate would not be
included in the estate of a non-resident alien individual and would not be
subject to United States estate taxes. However, Certificateholders who are
non-resident alien individuals should consult their tax advisors concerning this
question.
Transfers of REMIC Residual Certificates to investors that are not
United States persons will be prohibited under the related Pooling and Servicing
Agreement unless specific exclusions are set forth in the related Prospectus
Supplement.
Tax Status as a Grantor Trust
General. As specified in the related Prospectus Supplement if a REMIC
election is not made, in the opinion of the Tax Counsel the Trust will be
classified for federal income tax purposes as a grantor trust under Subpart E,
Part I of the Subchapter J of the Code and not as an association taxable as a
corporation (securities in the Trust shall hereinafter be referred as the
"Pass-Through Securities"). In some Series there will be no separation of the
principal and interest payments on the Primary Assets. In such circumstances, a
holder of such securities (the "Holder") will be considered to have purchased a
pro rata undivided interest in each of the Loans. In
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other cases ("Stripped Securities"), sale of the securities (the "Securities")
will produce a separation in the ownership of all or a portion of the principal
payments from all or a portion of the interest payments on the Primary Assets.
Each Holder must report on its federal income tax return its share of
the gross income derived from the Primary Assets (not reduced by the amount
payable as fees to the Trustee and the Master Servicer and similar fees
(collectively, the "Servicing Fee")), at the same time and in the same manner as
such items would have been reported under the Holder's tax accounting method had
it held its interest in the Primary Assets directly, received directly its share
of the amounts received with respect to the Primary Assets, and paid directly
its share of the Servicing Fees. In the case of Pass-Through Securities other
than Stripped Securities, such income will consist of a pro rata share of all of
the income derived from all of the Primary Assets and, in the case of Stripped
Securities, such income will consist of a pro rata share of the income derived
from each stripped bond or stripped coupon in which the Holder owns an interest.
The holder of a Pass-Through Security will generally be entitled to deduct such
Servicing Fees under Section 162 or Section 212 of the Code to the extent that
such Servicing Fees represent "reasonable" compensation for the services
rendered by the Trustee and the Master Servicer (or third parties that are
compensated for the performance of services). In the case of a noncorporate
holder, however, Servicing Fees (to the extent not otherwise disallowed, e.g.,
because they exceed reasonable compensation) will be deductible in computing
such holder's regular tax liability only to the extent that such fees, when
added to other miscellaneous itemized deductions, exceed 2% of adjusted gross
income and may not be deductible to any extent in computing such holder's
alternative minimum tax liability. In addition, the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the applicable amount (which amount will be
adjusted for inflation) will be reduced by the lesser of (i) 3% of the excess of
adjusted gross income over the applicable amount or (ii) 80% of the amount of
itemized deductions otherwise allowable for such taxable year.
Discount or Premium on Pass-Through Securities. The holder's purchase
price of a Pass-Through Security is to be allocated among the Primary Assets in
proportion to their fair market values, determined as of the time of purchase of
the Securities. In the typical case, the Trustee (to the extent necessary to
fulfill its reporting obligations) will treat each Primary Assets as having a
fair market value proportional to the share of the aggregated principal balances
of all of the Primary Assets that it represents, since the Securities, unless
otherwise specified in the related Prospectus Supplement, will have a relatively
uniform interest rate and other common characteristics. To the extent that the
portion of the purchase price of a Pass-Through Security allocated to a Primary
Assets (other than to a right to receive any accrued interest thereon and any
undistributed principal payments) is less than or greater than the portion of
the principal balance of the Primary Assets allocable to the Security, the
interest in the Primary Assets allocable to the Pass-Through Security will be
deemed to have been acquired at a discount or premium, respectively.
The treatment of any discount will depend on whether the discount
represents OID or market discount. In the case of a Primary Assets with OID in
excess of a prescribed de minimis amount or a Stripped Security, a holder of a
Security will be required to report as interest income in each taxable year its
share of the amount of OID that accrues during that year in the
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manner described above. OID with respect to a Primary Assets could arise, for
example, by virtue of the financing of points by the originator of the Loan, or
by virtue of the charging of points by the originator of the Primary Assets in
an amount greater than a statutory de minimis exception, in circumstances under
which the points are not currently deductible pursuant to applicable Code
provisions. Any market discount or premium on a Loan will be includible in
income, generally in the manner described above, except that in the case of
Pass-Through Securities, market discount is calculated with respect to the
Primary Assets underlying the Certificate, rather than with respect to the
Security. A Holder that acquires an interest in a Loan originated after July 18,
1984 with more than a de minimis amount of market discount (generally, the
excess of the principal amount of the Primary Assets over the purchaser's
allocable purchase price) will be required to include accrued market discount in
income in the manner set forth above. See "--Taxation of Owners of REMIC Regular
Certificates; Market Discount" and "--Premium" above.
In the case of market discount on a Pass-Through Security attributable
to Primary Assets originated on or before July 18, 1984, the holder generally
will be required to allocate the portion of such discount that is allocable to a
loan among the principal payments on the Primary Assets and to include the
discount allocable to each principal payment in ordinary income at the time such
principal payment is made. Such treatment would generally result in discount
being included in income at a slower rate than discount would be required to be
included in income using the method described in the preceding paragraph.
Stripped Securities. A Stripped Security may represent a right to
receive only a portion of the interest payments on the Primary Assets, a right
to receive only principal payments on the Primary Assets, or a right to receive
certain payments of both interest and principal. Certain Stripped Securities
("Ratio Strip Securities") may represent a right to receive differing
percentages of both the interest and principal on the Primary Assets. Pursuant
to Section 1286 of the Code, the separation of ownership of the right to receive
some or all of the interest payments on an obligation from ownership of the
right to receive some or all of the principal payments results in the creation
of "stripped bonds" with respect to principal payments and "stripped coupons"
with respect to interest payments. Section 1286 of the Code applies the OID
rules to stripped bonds and stripped coupons. For purposes of computing original
issue discount, a stripped bond or a stripped coupon is treated as a debt
instrument issued on the date that such stripped interest is purchased with an
issue price equal to its purchase price or, if more than one stripped interest
is purchased, the ratable share of the purchase price allocable to such stripped
interest.
Servicing fees in excess of reasonable servicing fees ("excess
servicing") will be treated under the stripped bond rules. If the excess
servicing fee is less than 100 basis points (i.e., 1% interest on the Primary
Assets principal balance) or the Securities are initially sold with a de minimis
discount (assuming no prepayment assumption is required), any non-de minimis
discount arising from a subsequent transfer of the Securities should be treated
as market discount. The IRS appears to require that reasonable servicing fees be
calculated on a Primary Asset by Primary Asset basis, which could result in some
Primary Assets being treated as having more than 100 basis points of interest
stripped off.
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The Code, OID Regulations and judicial decisions provide no direct
guidance as to how the interest and original issue discount rules are to apply
to Stripped Securities and other Pass-Through Securities. Under the method
described above for Pass-Through Securities (the "Cash Flow Bond Method"), a
prepayment assumption is used and periodic recalculations are made which take
into account with respect to each accrual period the effect of prepayments
during such period. However, the 1986 Act does not, absent Treasury regulations,
appear specifically to cover instruments such as the Stripped Securities which
technically represent ownership interests in the underlying Primary Assets,
rather than being debt instruments "secured by" those loans. Nevertheless, it is
believed that the Cash Flow Bond Method is a reasonable method of reporting
income for such Securities, and it is expected that OID will be reported on that
basis unless otherwise specified in the related Prospectus Supplement. In
applying the calculation to Pass-Through Securities, the Trustee will treat all
payments to be received by a holder with respect to the underlying Primary
Assets as payments on a single installment obligation. The IRS could, however,
assert that original issue discount must be calculated separately for each
Primary Asset underlying a Security.
Under certain circumstances, if the Primary Assets prepay at a rate
faster than the Prepayment Assumption, the use of the Cash Flow Bond Method may
accelerate a Holder's recognition of income. If, however, the Primary Assets
prepay at a rate slower than the Prepayment Assumption, in some circumstances
the use of this method may decelerate a Holder's recognition of income.
Character as Qualifying Loans. In the case of Stripped Securities, there
is no specific legal authority existing regarding whether the character of the
Securities, for federal income tax purposes, will be the same as the Loans. The
IRS could take the position that the Primary Assets' character is not carried
over to the Securities in such circumstances. Pass-Through Securities will be,
and, although the matter is not free from doubt, Stripped Securities should be
considered to represent "real estate assets" within the meaning of Section
856(c)(5)(B) of the Code and "loans secured by an interest in real property"
within the meaning of Section 7701(a)(19)(C)(v) of the Code; and interest income
attributable to the Securities should be considered to represent "interest on
obligations secured by mortgages on real property or on interests in real
property", within the meaning of Section 856(c)(3)(B) of the Code. Reserves or
funds underlying the Securities may cause a proportionate reduction in the
above-described qualifying status categories of Securities.
Sale or Exchange
Subject to the discussion below with respect to a Trust as to which a
partnership election is made, a Holder's tax basis in its Security is the price
such holder pays for a Security, plus amounts of original issue or market
discount included in income and reduced by any payments received (other than
qualified stated interest payments) and any amortized premium. Gain or loss
recognized on a sale, exchange, or redemption of a Security, measured by the
difference between the amount realized and the Security's basis as so adjusted,
will generally be capital gain or loss, assuming that the Security is held as a
capital asset. In the case of a Security held by a bank, thrift, or similar
institution described in Section 582 of the Code, however, gain or loss realized
on the sale or exchange of a Security will be taxable as ordinary income or
loss. In addition, gain from the disposition of
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a Security that might otherwise be capital gain will be treated as ordinary
income to the extent of the excess, if any, of (i) the amount that would have
been includible in the holder's income if the yield on such Security had equaled
110% of the applicable federal rate as of the beginning of such holder's holding
period, over the amount of ordinary income actually recognized by the holder
with respect to such Security. For taxable years beginning after December 31,
1993, the maximum tax rate on ordinary income for individual taxpayers is 39.6%
and the maximum tax rate on long-term capital gains reported after December 31,
1990 for such taxpayers is 28%. The maximum tax rate on both ordinary income and
long-term capital gains of corporate taxpayers is 35%. Tax rates for individuals
were modified by the Taxpayer Relief Act of 1997. See "--Sales of REMIC
Certificates" herein.
Miscellaneous Tax Aspects
Backup Withholding. Subject to the discussion below with respect to a
Trust as to which a partnership election is made, a Holder, other than a holder
or a REMIC Residual Certificate, may, under certain circumstances, be subject to
"backup withholding" at a rate of 31% with respect to distributions or the
proceeds of a sale of certificates to or through brokers that represent interest
or original issue discount on the Securities. This withholding generally applies
if the holder of a Security (i) fails to furnish the Trustee with its taxpayer
identification number ("TIN"); (ii) furnishes the Trustee an incorrect TIN;
(iii) fails to report properly interest, dividends or other "reportable
payments" as defined in the Code; or (iv) under certain circumstances, fails to
provide the Trustee or such holder's securities broker with a certified
statement, signed under penalty of perjury, that the TIN provided is its correct
number and that the holder is not subject to backup withholding. Backup
withholding will not apply, however, with respect to certain payments made to
Holders, including payments to certain exempt recipients (such as exempt
organizations) and to certain Nonresidents (as defined below). Holders should
consult their tax advisers as to their qualification for exemption from backup
withholding and the procedure for obtaining the exemption. In addition,
prospective investors are strongly urged to consult their tax advisors with
respect to the New Withholding Regulations. See "--Backup Withholding with
Respect to REMIC Certificates" herein.
The Trustee will report to the Holders and to the Master Servicer for
each calendar year the amount of any "reportable payments" during such year and
the amount of tax withheld, if any, with respect to payments on the Securities.
Tax Treatment of Foreign Investors
Subject to the discussion below with respect to a Trust as to which a
partnership election is made, under the Code, unless interest (including OID)
paid on a Security (other than a REMIC Residual Certificate) is considered to be
"effectively connected" with a trade or business conducted in the United States
by a nonresident alien individual, foreign partnership or foreign corporation
("Nonresidents"), such interest will normally qualify as portfolio interest
(except where (i) the recipient is a holder, directly or by attribution, of 10%
or more of the capital or profits interest in the issuer, or (ii) the recipient
is a controlled foreign corporation to which the issuer is a related person) and
will be exempt from federal income tax. Upon receipt of appropriate ownership
statements, the issuer normally will be relieved of obligations to withhold tax
from such interest payments. These
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provisions supersede the generally applicable provisions of the United States
law that would otherwise require the issuer to withhold at a 30% rate (unless
such rate were reduced or eliminated by an applicable tax treaty) on, among
other things, interest and other fixed or determinable, annual or periodic
income paid to Nonresidents. Holders of Pass-Through Securities and Stripped
Securities, including Ratio Strip Securities, however, may be subject to
withholding to the extent that the Primary Assets were originated on or before
July 18, 1984.
Interest and OID Holders who are foreign persons are not subject to
withholding if they are effectively connected with a United States business
conducted by the Holder. They will, however, generally be subject to the regular
United States income tax. In addition, prospective Foreign Investors are
strongly urged to consult their own tax advisors with respect to the New
Withholding Regulations. See "--Backup Withholding with Respect to Certain REMIC
Certificates" herein.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Federal
Income Tax Consequences," potential investors should consider the state and
local tax consequences of the acquisition, ownership, and disposition of the
Certificates offered hereunder. State tax law may differ substantially from the
corresponding federal tax law, and the discussion above does not purport to
describe any aspect of the tax laws of any state or other jurisdiction.
Therefore, prospective investors should consult their own tax advisors with
respect to the various tax consequences of investments in the certificates
offered hereunder.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain fiduciary and prohibited transaction restrictions on
employee pension and welfare benefit plans subject to ERISA ("ERISA Plans").
Section 4975 of the Code imposes similar prohibited transaction restrictions on
tax-qualified retirement or annuity plans described in Section 401(a) or 403(a)
of the Code ("Qualified Plans") and on individual retirement accounts ("IRAs")
described in Section 408 of the Code (collectively, "Tax-Favored Plans").
Generally, any person who has discretionary authority or control respecting the
management or disposition of "plan assets" of any ERISA Plan or Tax-Favored Plan
(collectively, "Plans"), and any person who provides investment advice with
respect to such assets for a fee, is a fiduciary of the Plan involved.
Any fiduciary or other Plan investor considering whether to purchase any
Certificates on behalf of or with "plan assets" of any Plan should consult with
its counsel and refer to the applicable Prospectus Supplement for guidance
regarding the ERISA considerations applicable to the Certificates offered
thereby.
Certain employee benefit plans, such as 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 requirements of ERISA or Section 4975 of the
Code. Accordingly, assets of such plans may be invested in the Certificates
without regard to the ERISA considerations described herein and in the
applicable Prospectus Supplement, subject to the provisions of other applicable
federal and state law. However, any such plan that is a Qualified
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Plan and exempt from taxation under Section 501(a) of the Code is subject to the
prohibited transaction rules set forth in Section 503(b) of the Code.
In addition to imposing general fiduciary requirements, including those
of investment prudence and diversification and the requirement that an ERISA
Plan's investments be made in accordance with the documents governing the Plan,
Section 406 of ERISA and Section 4975 of the Code prohibit a broad range of
transactions involving "plan assets" of Plans and persons (referred to as
"parties in interest" in ERISA or "disqualified persons" in Section 4975 of the
Code) who have certain specified relationships to the Plans, unless a statutory
or administrative exemption is available. Certain "parties in interest" (or
"disqualified persons") that participate in a prohibited transaction may be
subject to a penalty or an excise tax imposed pursuant to Section 502 of ERISA
or Section 4975 of the Code, unless a statutory or administrative exemption is
available.
Plan Asset Regulation
An investment of Plan Assets in Certificates may cause the Primary
Assets and other assets of the related Trust to be deemed "plan assets" of all
Plans involved. Section 2510.3-101 of the U.S. Department of Labor (the "DOL")
regulations (the "DOL Regulation") addresses whether a Plan's assets would be
deemed to include an interest in the underlying assets of an entity (such as a
Trust), for purposes of applying the general fiduciary responsibility provisions
of ERISA and the prohibited transaction provisions of ERISA and Section 4975 of
the Code, when a Plan acquires an "equity interest" (such as a Certificate) in
such entity. Because of the factual nature of certain of the rules set forth in
the DOL Regulation, the assets of a Plan which acquires Certificates of any
Class may be deemed to include merely its interest in the Certificates or both
such interest and an undivided interest in the assets of the related Trust. For
example, one of the exceptions in the DOL Regulation states that the underlying
assets of an entity (such as any Class of Certificates) will not be considered
to be "plan assets" if less than 25% of the value of each class of equity
interests (in such Class of Certificates) is held by "benefit plan investors,"
which are defined to include not only ERISA Plans and Tax-Favored Plans, but
also individual retirement accounts and other employee benefit plans not subject
to ERISA (such as governmental, foreign or church plans). This exception is
tested immediately after each acquisition of the equity interest in the entity
(or Certificates), whether upon initial issuance or in the secondary market.
Therefore, certain Classes of Certificates may not be acquired or transferred
unless the Trustee and the Depositor are furnished with a letter of
representation or an opinion of counsel to the effect that such an acquisition
or transfer will not result in a violation of the prohibited transaction
provisions of ERISA and the Code and will not subject the Trustee, the Depositor
or the Master Servicer to additional obligations. Therefore, it may not be
appropriate to use Plan Assets to acquire or hold Certificates in reliance upon
the availability of any exception under the DOL Regulation because of the
factual nature of these exceptions. For purposes of the sections of this
Prospectus and any Prospectus Supplement headed "ERISA Considerations," the
terms "Plan Assets" and "assets of a Plan" have the meaning specified in the DOL
Regulation and include an undivided interest in the underlying assets of certain
entities in which a Plan invests.
The prohibited transaction provisions of Section 406 of ERISA and
Section 4975 of the Code may apply to a Trust and cause the Depositor, the
Master Servicer, any Subservicer, the Trustee, any Credit Provider and
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certain affiliates thereof, to be considered or become "parties in interest" (or
"disqualified persons") with respect to the assets of any Plan that are invested
in Certificates issued by the Trust. If so, the acquisition or holding of
Certificates by or on behalf of a Plan or with Plan Assets could also give rise
to a prohibited transaction under ERISA and Section 4975 of the Code, unless a
statutory or administrative exemption is available. Certificates acquired by a
Plan would be assets of that Plan. Under the DOL Regulation, the Trust,
including the Primary Assets and other assets held in the Trust, may also be
deemed to be assets of each Plan that acquires Certificates. Special caution
should be exercised before Plan Assets are used to acquire a Certificate in such
circumstances, especially if, with respect to such Plan Assets, a Depositor, the
Master Servicer, a Subservicer, the Trustee, any Credit Provider or an affiliate
thereof either (1) has investment discretion with respect to the investment of
Plan Assets, or (2) has authority or responsibility to give (or regularly gives)
investment advice with respect to Plan Assets for a fee pursuant to an agreement
or understanding that such advice will serve as a primary basis for investment
decisions with respect thereto.
Any person who has discretionary authority or control with respect to
the management or disposition of the assets of a Plan, and any person who
provides investment advice with respect to such assets for a fee (in the manner
described above), is a fiduciary with respect to such Plan. If the Primary
Assets and other Trust assets were deemed to be Plan Assets, any party
exercising management or discretionary control regarding those assets may be
deemed to be a "fiduciary" with respect to all Plans involved and, therefore,
subject to the fiduciary requirements of ERISA and the prohibited transaction
provisions of ERISA and Section 4975 of the Code with respect to such Plans. In
addition, if the Primary Assets and other Trust assets were deemed to be Plan
Assets, the acquisition or holding of Certificates by or on behalf of a Plan or
with Plan Assets, as well as the normal operations of the Trust, may constitute
or result in a prohibited transaction under ERISA and Section 4975 of the Code.
Prohibited Transaction Exemptions
Underwriters' Exemptions. The DOL has issued individual exemptions
(each, an "Exemption"), to a large number of investment banking firms,
broker-dealers and banks or their affiliates (each, an "Underwriter"), which
generally exempt from the application of the prohibited transaction provisions
of Section 406 of ERISA, and the excise taxes imposed on prohibited transactions
pursuant to Section 4975(a) and (b) of the Code, certain transactions (among
others) relating to the servicing and operation of mortgage pools and the
purchase, sale and holding of mortgage pass-through certificates issued by a
trust as to which an Underwriter to whom the DOL has issued an Exemption (or any
of its affiliates) is the sole underwriter or the manager or co-manager of the
underwriting syndicate, or a selling or placement agent, with respect to such
certificates, provided that certain conditions set forth in the applicable
Exemption are satisfied. The Prospectus Supplement for each Series will state
(in the section headed "ERISA Considerations") whether the DOL has issued an
Exemption to an Underwriter with respect to that Series and identify the Classes
of Certificates of that Series to which any such Exemption may apply.
General Conditions. Each Exemption sets forth six general conditions
which must be satisfied for a transaction involving the purchase, sale and
holding of Certificates to be eligible for exemptive relief thereunder.
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First, the acquisition of Certificates with Plan Assets must be on terms that
are at least as favorable to the Plans involved as they would be in an
arm's-length transaction with an unrelated party. Second, an Exemption only
applies to Certificates evidencing rights and interests that are not
subordinated to the rights and interests evidenced by the other Certificates of
the same Trust. Third, the Certificates, at the time of their acquisition with
Plan Assets, must be rated in one of the three highest generic rating categories
by S&P, Moody's, D&P or Fitch. Fourth, the Trustee cannot be an affiliate of any
member of the "Restricted Group," which consists of any Underwriter, the
Depositor, the Master Servicer, any Subservicer and any Mortgagor with respect
to Primary Assets constituting more than 5% of the aggregate unamortized
principal balance of the Primary Assets held in the related Trust as of the date
of initial issuance of the Certificates. Fifth, the sum of all payments made to
and retained by the Underwriters must represent not more than reasonable
compensation for underwriting or placing the Certificates; the sum of all
payments made to and retained by the Depositor pursuant to the assignment of the
Primary Assets and other Trust assets to the related Trust must represent not
more than the fair market value of such obligations; and the sum of all payments
made to and retained by the Master Servicer and any Subservicers must represent
not more than reasonable compensation for such persons' services under the
related Pooling and Servicing Agreement and reimbursement of such persons'
reasonable expenses in connection therewith. Sixth, each Exemption states that
the investing Plan must be an accredited investor as defined in Rule 501 (a) (1)
of Regulation D of the Securities and Exchange Commission under the Securities
Act of 1933, as amended.
A Plan fiduciary or other investor of Plan Assets contemplating
purchasing a Certificate must make its own determination that the general
conditions described above will be satisfied with respect to such Certificate.
If the general conditions of an applicable Exemption are satisfied, the
Exemption may provide exemptive relief from the restrictions imposed by Section
406(a) of ERISA, and the excise taxes imposed by Section 4975 (a) and (b) by
reason of Section 4975(c)(1)(A) through (D) of the Code, in connection with the
direct or indirect sale, exchange, transfer, holding or the direct or indirect
acquisition or disposition in the secondary market of Certificates by a Plan or
with Plan Assets. However, no exemption is provided from the restrictions of
Section 406(a)(1)(E) and (2) of ERISA for the acquisition or holding of a
Certificate by or with Plan Assets of an Excluded Plan by any person who has
discretionary authority or renders investment advice with respect to Plan Assets
of such Excluded Plan. For purposes of the sections of this Prospectus and any
Prospectus Supplement headed "ERISA Considerations," the term "Excluded Plan"
means a Plan sponsored by any member of the Restricted Group.
Specific Conditions. If certain specific conditions of an applicable
Exemption are also satisfied, the Exemption may provide exemptive relief from
the restrictions imposed by Section 406(b)(1) and (2) of ERISA, and the excise
taxes imposed by Section 4975 (a) and (b) by reason of Section 4975(c)(1)(E) of
the Code, in connection with (1) the direct or indirect sale, exchange or
transfer of Certificates, in the initial issuance of Certificates between a
Depositor or an Underwriter and an investor of Plan Assets, when the person who
has discretionary authority or renders investment advice with respect to the
investment of the relevant Plan Assets in the Certificates is a Mortgagor with
respect to 5% or less of the fair market value of the Primary Assets or other
assets held in the Trust (or an
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affiliate of such a person), and (2) the direct or indirect acquisition or
disposition in the secondary market and holding of Certificates by a Plan or
with Plan Assets.
Further, if certain specific conditions of an applicable Exemption are
satisfied, the Exemption may provide exemptive relief from the restrictions
imposed by Section 406(a) and (b) of ERISA, and the excise taxes imposed by
Section 4975(a) and (b) by reason of Section 4975(c) of the Code, for
transactions in connection with the servicing, management and operation of the
Mortgage Pools. The Depositor expects that those specific conditions of an
applicable Exemption will be satisfied with respect to the Certificates so that
the Exemption would provide exemptive relief from those restrictions and excise
taxes for transactions in connection with the servicing, management and
operation of the Mortgage Pools, provided that the general conditions of the
Exemption are satisfied.
An applicable Exemption also may provide exemptive relief from the
restrictions imposed by Section 406(a) of ERISA, and the excise taxes imposed by
Section 4975(a) and (b) by reason of Section 4975(e)(1)(A) through (D) of the
Code, if such restrictions are otherwise deemed to apply because a person is
deemed to be a "party in interest" (within the meaning of Section 3(14) of
ERISA) or a "disqualified person" (within the meaning of Section 4975(e) (2) of
the Code) with respect to a Plan by virtue of providing services to the Plan(s)
involved, or by virtue of having certain specified relationships to such a
person, solely as a result of the ownership of Certificates by a Plan or with
Plan Assets.
Advance Determinations. Before purchasing any Class of Certificates of
any Series, a Plan fiduciary or other investor of Plan Assets should itself
determine that (1) the DOL has issued an Exemption to an Underwriter with
respect to that Series which will be disclosed in the related Prospectus
Supplement, (2) the Exemption applies to Certificates of that Class, (3) the
Certificates constitute "certificates" as defined in the Exemption, and (4) the
specific and general conditions and any other requirements set forth in the
Exemption would be satisfied. In addition to making its own determination as to
the availability of the exemptive relief provided by an applicable Exemption,
the Plan fiduciary or other investor of Plan Assets should consider its general
fiduciary obligations under ERISA in determining whether to purchase any
Certificates with Plan Assets, and should especially consider the ERISA
requirements of investment prudence and whether such a purchase 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.
Any Plan fiduciary or other investor of Plan Assets who proposes to
purchase Certificates with Plan Assets should consult with its counsel with
respect to the potential applicability of ERISA and Section 4975 of the Code to
such investment and the availability of exemptive relief under an Exemption or
any other prohibited transaction exemption in connection therewith. Depending on
the relevant facts and circumstances, other prohibited transaction exemptions
may apply to the purchase, sale or holding of Certificates of any Series or
Class by a Plan, for example. Prohibited Transaction Class Exemption ("PTCE")
95-60, which exempts certain transactions between insurance company general
accounts and parties in interest; PTCE 91-38, which exempts certain transactions
between bank collective investment funds and parties in interest; PTCE 90-1,
which exempts certain transactions between insurance company pooled separate
accounts and
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parties in interest; or PTCE 84-14, which exempts certain transactions effected
on behalf of a plan by a "qualified professional asset manager." In particular,
in connection with a contemplated purchase of Certificates representing a
beneficial ownership interest in a pool of single-family residential mortgage
loans, any fiduciary or other Plan investor should consider the availability of
an Exemption or PTCE 83-1 for certain transactions involving mortgage pool
investment trusts. The Prospectus Supplement for any Series of Certificates may
contain additional information regarding the application of an Exemption, PTCE
83-1 or any other prohibited transaction exemption with respect to the
Certificates offered thereby. However, PTCE 83-1 does not provide exemptive
relief with respect to Certificates evidencing interests in Trusts which include
Cooperative Loans, and there can be no assurance that any of these exemptions
will apply with respect to any Plan's investment in any Certificates or, even if
an exemption were deemed to apply, that any exemption would apply to all
prohibited transactions that may occur in connection with such investment.
Tax Exempt Investors
A Plan that is exempt from federal income taxation pursuant to Section
501(a) of the Code (a "Tax Exempt Investor") nonetheless will be subject to
federal income taxation to the extent that its income is "unrelated business
taxable income" ("UBTI") (within the meaning of Section 512 of the Code). All
"excess inclusions" of a REMIC allocated to a REMIC Residual Certificate held by
a Tax-Exempt Investor will be considered UBTI and, therefore, will be subject to
federal income tax. See "Federal Income Tax Consequences--Taxation of Owners of
REMIC Residual Interests."
Consultation With Counsel
Any Plan fiduciary or other investor of Plan Assets who proposes to
acquire or hold Certificates on behalf of or with Plan Assets of any Plan should
consult with its counsel with respect to the potential applicability of the
fiduciary responsibility provisions of ERISA and the prohibited transaction
provisions of ERISA and Section 4975 of the Code to the proposed investment and
the availability of exemptive relief under an Exemption, such as PTCE 83-1 (for
a pool of single family residential mortgage loans) or any other prohibited
transaction exemption.
PLAN OF DISTRIBUTION
The Certificates of each Series may be sold to or through Underwriters
by a negotiated firm commitment underwriting and public reoffering by the
Underwriters or such other underwriting arrangement as may be specified in the
related Prospectus Supplement or may be offered or placed either directly or
through agents. The Depositor intends that Certificates will be offered through
such various methods from time to time and that offerings may be made
concurrently through more than one of such methods or that an offering of a
particular Series of Certificates may be made through a combination of such
methods.
The distribution of Certificates may be effected from time to time in
one or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or in negotiated transactions or otherwise at varying
prices to be determined at the time of sale.
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In connection with the sale of the Certificates, Underwriters or agents
may receive compensation in the form of discounts, concessions or commissions.
Underwriters may sell Certificates to certain dealers at prices less a
concession. Underwriters may allow and such dealers may reallow a concession to
certain other dealers. Underwriters, dealers and agents that participate in the
distribution of the Certificates of a Series may be deemed to be underwriters
and any discounts or commissions received by them from the Depositor or the
related Trust and any profit on the resale of the Certificates by them may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933. Any such Underwriters or agents will be identified, and any such
compensation received from the Depositor or the related Trust will be described,
in the related Prospectus Supplement.
Under agreements which may be entered into by the Depositor, Underwriters
and agents who participate in the distribution of the Certificates may be
entitled to indemnification by the Depositor against certain liabilities,
including liabilities under the Securities Act of 1933.
The Underwriters may, from time to time, buy and sell Certificates, but
there can be no assurance that an active secondary market will develop and there
is no assurance that any such market, if established, will continue.
RATINGS
Each Class of Certificates of a Series offered pursuant hereto will be
rated at their initial issuance in one of the four highest categories by at
least one Rating Agency.
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. No person is obligated to maintain the rating on any
Certificate, and, accordingly, there can be no assurance that the ratings
assigned to a Certificate upon initial issuance will not be lowered or withdrawn
by a Rating Agency at any time thereafter. In general, ratings address credit
risk and do not represent any assessment of the likelihood or rate of principal
prepayments.
LEGAL MATTERS
The legality of the Certificates of each Series and certain federal
income tax consequences of the issuance of the Certificates will be passed upon
by Morrison & Hecker, L.L.P., Brown & Wood LLP or other legal counsel, as
specified in the related Prospectus Supplement.
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INDEX OF DEFINITIONS
Term Page
------------------------------------ ----------
Accrual Certificates......................6, 50
Accrual Period............................5, 50
Actuarial Primary Asset......................30
Advances.....................................40
Available Payment Amount.....................41
Balloon Loans................................20
balloon payment..............................28
balloon payments............................. 9
Bankruptcy Bond..............................14
Bankruptcy Loan..............................30
Bankruptcy Plan..............................30
Bay Colony...................................45
Block........................................43
Book-Entry Certificates...............7, 49, 68
Calculation Agent............................50
Cash Collateral Account......................59
Cash Collateral Lender.......................89
Cash Flow Bond Method.......................108
Cede......................................7, 99
CEDEL........................................70
CEDEL Participants...........................70
Certificate Insurance Policy.................57
Certificateholder............................84
Certificates......................Cover Page, 4
Chase........................................68
Cimmaron.....................................43
Citibank.....................................68
Class.............................Cover Page, 4
Closing Date..............................4, 87
Code.....................................16, 84
COFI Certificates............................53
Collection Account...........................38
Combined Loan-to-Value Ratio.................30
Commission................................... 2
Committee Report.............................90
Contingent Regulations.......................89
Contract.............................Cover Page
Contract Loan Schedule.......................36
Contributions Tax...........................101
Cooperative..................................71
Cooperative Loans........................26, 72
Correspondent Loans..........................45
Credit Provider..............................57
Curtailments.................................54
Cut-off Date................................. 4
D&P..........................................16
Defective Primary Asset......................37
Definitive Certificates......................70
Deposit Date.................................37
Depositaries.................................68
Depositor.........................Cover Page, 4
Determination Date........................... 5
117
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Term Page
------------------------------------ ----------
Disqualified Organization...................102
Distribution Account.........................40
Distribution Date.........................5, 42
DOL.........................................111
DOL Regulation..............................111
DTC...................................7, 49, 68
Due Period................................6, 84
Eleventh District............................52
Eligible Account.............................38
ERISA.................................. 17, 110
ERISA Plans.................................110
Euroclear....................................71
Euroclear Operator...........................71
Euroclear Participants.......................71
Event of Nonpayment..........................66
excess servicing............................107
Excess Spread................................89
Excluded Plan...............................113
Exemption...................................112
FHA.......................................8, 27
FHLBSF.......................................52
FHLMC........................................64
Fitch........................................16
FNMA.........................................64
Form 8-K.....................................10
Holder......................................105
Home Equity Loans.........................8, 27
HRBMC........................................43
HRB Tax Services.............................44
Indirect Participants.................7, 49, 69
Insurance Proceeds...........................55
Insurer......................................57
IRAs........................................110
IRS..........................................89
Issue Premium................................94
Letter of Credit.............................58
Letter of Credit Issuer......................58
Liquidated Primary Asset.....................55
Liquidation Proceeds.........................55
Loan-to-Value Ratio..........................30
lockout periods...........................9, 28
Majority in Aggregate Voting Interest........66
Manufactured Homes...........................28
Mark-to-Market Regulations...................98
Master Servicer...................Cover Page, 4
Master Servicer Termination Event............66
Monthly Payments............................. 9
Moody's......................................16
Mortgage.....................................26
Mortgage Note................................26
Mortgage Rate................................ 8
Mortgaged Properties.........................26
118
<PAGE>
Term Page
------------------------------------ ----------
Mortgaged Property...........................10
Mortgagor....................................21
National Cost of Funds Index.................53
NCS..........................................43
Net Liquidation Proceeds.....................55
New Withholding Regulations.................104
NFI..........................................43
NIV..........................................46
Nonrecoverable Advances......................40
Nonresidents................................109
Notional Principal Amount.................... 7
OID Regulations..........................84, 89
Original Pool Principal Balance..............26
OTS..........................................53
Owners...................................50, 69
P&I Advance..............................15, 39
Participants........................ 7, 49, 69
Pass-Through Rate.........................5, 49
Pass-Through Securities.....................105
Percentage Interest.......................7, 49
Permitted Investments........................38
Plan.........................................25
Plan Assets.................................105
Plans.......................................110
Pool Insurance Policy....................14, 58
Pool Insurer.................................58
Pool Principal Balance.......................56
Pooling and Servicing Agreement..............34
Prefunding Account.......................11, 37
Prepayment Assumption........................87
Prepayment Period............................54
Primary Asset Underwriter....................48
Primary Assets....................Cover Page, 7
Prime Rate...................................54
Principal Prepayments........................54
Prohibited Transactions Tax.................101
PTCE........................................114
Qualified Plans.............................110
Rating Agency................................16
Ratio Strip Securities......................107
Realized Losses..............................41
Record Date.................................. 5
Reference Banks..............................50
Released Mortgaged Property Proceeds.........55
Relief Act...................................24
REMIC.....................................2, 16
REMIC Certificates...........................84
REMIC Provisions.............................84
REMIC Regular Certificates...................85
REMIC Regulations............................84
REMIC Residual Certificates..................85
REO Property.................................30
Reserve Account..........................13, 59
Reserve Interest Rate........................51
Restricted Group............................113
119
<PAGE>
Term Page
------------------------------------ ----------
Retail Loans.................................45
RICO.........................................86
Riegle Act...............................23, 79
Rule of 78s Primary Asset....................31
Rules........................................69
S&P..........................................16
Securities..................................106
Seller........................Cover Page, 4, 43
Senior Certificates..........................59
Senior Liens.................................19
Series...............................Cover Page
Servicer.....................................47
Servicing Advances...........................40
Servicing Fee.......................15, 61, 106
Simple Interest Primary Asset................31
Single Family Loan...................Cover Page
SMMEA....................................16, 83
Special Hazard Policy....................14, 58
Spread Account...............................59
Stripped Securities.........................106
Subordinated Certificates....................59
Subservicer..................................64
Subservicing Agreements......................64
Substitution Adjustment......................38
Successor Master Servicer....................67
Tax Counsel................................. 84
Tax Exempt Investor.........................115
Tax Favored Plans...........................110
Terms and Conditions.........................71
thrift institutions..........................97
Tiered REMICs................................86
TIN.........................................109
Title I Loans................................29
Title I Program..............................29
Title V......................................78
Trust................................Cover Page
Trust Assets.................Cover Page, 26, 34
Trustee...................................4, 34
UBTI........................................115
Underwriter.................................112
United States person........................105
VA........................................8, 27
Wholesale Loans..............................45
Yield Supplement Account.....................59
120
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The expenses expected to be incurred in connection with the issuance
and distribution of the securities being registered, other than underwriting
compensation, are as set forth below. All such expenses, except for the SEC
registration and filing fees, are estimated*:
SEC Registration Fee.........................................$ 540,000
NASD Filing Fee......................................................N/A
Legal Fees and Expenses......................................$ 270,000
Accounting Fees and Expenses.................................$ 125,000
Trustee's Fees and Expenses (including counsel fees).........$ 160,000
Blue Sky Qualification Fees and Expenses.....................$ 10,000
Printing and Engraving Fees..................................$ 150,000
Rating Agency Fees...........................................$ 540,000
Surety Loan Reviews..........................................$ 140,000
Miscellaneous................................................$ 20,000
Total $ 1,955,000
* Estimated expenses are based upon the assumption that the securities being
registered will be issued and distributed in four transactions.
Item 15. Indemnification of Directors and Officers
Section 145 of the General Corporation Law of Delaware empowers a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending, or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation), by reason of the fact that he
or she is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise. Depending on the character of the proceeding, a corporation
may indemnify against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
such action, suit or proceeding if the person indemnified acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interest of the corporation, and, with respect to any criminal action or
proceeding, had no cause to believe his or her conduct was unlawful. In the case
of an action by or in the right of the corporation, no indemnification may be
made in respect to any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper. Section 145
further provides that to the extent a director or officer of a corporation has
been successful in the defense of any action, suit or proceeding referred to
above or in the defense of any claim, issue or matter therein, he or she shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection therewith.
The Bylaws of the Registrant provide, in effect, that, to the
extent and under the circumstances permitted by Section 145 of the General
Corporation Law of Delaware, the Registrant shall
II-1
<PAGE>
indemnify any person who was or is a party or is threatened to be made a party
to any action, suit or proceeding of the type described above by reason of the
fact that he or she is or was a director, officer, employee or agent of the
Registrant.
Item 16. Exhibits and Financial Statements
(a) Exhibit
1.1* Form of Underwriting Agreement.
4.1* Form of Pooling and Servicing Agreement.
5.1* Opinion of Morrison & Hecker L.L.P. as to legality (including
consent of such firm).
8.1* Opinion of Morrison & Hecker L.L.P. as to certain tax matters
(including consent of such firm).
23.1* Consent of Morrison & Hecker L.L.P. (included in Exhibits 5.1
and 8.1).
24.1* Power of Attorney (included on signature page).
- - - ------------------
* Filed herewith.
(b) Financial Statements
All financial statements, schedules and historical financial information
have been omitted as they are not applicable.
Item 17. Undertakings
A. Undertaking pursuant to rule 415.
---------------------------------
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price
II-2
<PAGE>
represent no more than 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
B. Undertaking Concerning Filings Incorporating
Subsequent Exchange Act Documents by Reference.
-----------------------------------------------
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. Undertaking in Respect of Indemnification.
------------------------------------------
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 (including that the security rating
requirement will be met by the time of sale of any securities registered
hereunder) and has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Kansas
City, State of Missouri, on the 30th day of September, 1998.
COMMERCIAL MORTGAGE ACCEPTANCE CORP.
By: /s/ Bret G. Wilson
Bret G. Wilson, President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Bret G. Wilson and Mark A. Keller, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign and file (i) any or all amendments (including post-effective
amendments) to this Registration Statement and any and all other documents in
connection therewith, with all exhibits thereto, and (ii) a registration
statement, and any and all amendments thereto, relating to any offering covered
hereby filed pursuant to Rule 462(b) under the Securities Act, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as might or could be done in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
Signature Position Date
/s/ Bret G. Wilson Director, President September 30, 1998
Bret G. Wilson and Treasurer
/s/ Mark A. Keller Vice President September 30, 1998
Mark A. Keller
/s/ Richard E. Skaggs Director September 30, 1998
Richard E. Skaggs
BLOCK MORTGAGE FINANCE, INC.
Block Mortgage Finance
Asset Backed Certificates, Series _________,
Class A-1
Class A-2
Class A-3
Class A-4
Class A-6
Class A-7
Class A-8
UNDERWRITING AGREEMENT
----------------------
- - - ----------------------------
- - - ----------------------------
- - - ----------------------------
- - - ----------------------------
Ladies and Gentlemen:
Block Mortgage Finance, Inc. (the "Depositor"), a wholly-owned, limited
purpose subsidiary of Companion Mortgage Corporation ("Companion"), has
authorized the issuance and sale of Block Mortgage Finance Asset Backed
Certificates, Series 1998-2, Class A-1, Class A-2, Class A-3, Class A-4, Class
A-5 and Class A-6 Certificates (collectively, the "Group 1 Certificates") and
Class A-7 and Class A-8 Certificates (the "Group 2 Certificates" and, together
with the Group 1 Certificates, the "Class A Certificates"), and the Class R
Certificates (the "Class R Certificates"). The Class A Certificates and the
Class R Certificates are herein collectively referred to as the "Certificates".
The Certificates evidence in the aggregate the beneficial ownership interest in
a pool of fixed- and adjustable-rate mortgage loans (the "Mortgage Loans"). The
Group 1 Certificates will represent an undivided ownership interest in the group
of Mortgage Loans (the "Fixed Rate Group") which are secured by fixed-rate first
and second mortgages primarily on one- to four-family residential dwellings. The
Group 2 Certificates will represent an undivided ownership interest in the group
of Mortgage Loans (the "Adjustable Rate Group" and, together with the Fixed Rate
Group, the "Loan Groups") which
<PAGE>
are secured by adjustable-rate first mortgages primarily on one- to four-family
residential dwellings.
Only the Class A Certificates are being purchased by the several
underwriters named in Schedule A hereto (collectively, the "Underwriters"), at
the prices set forth in Schedule A.
The Certificates will be issued under a pooling and servicing agreement
(the "Pooling and Servicing Agreement"), dated as of __________________________
among the Depositor, Companion, as seller (in such capacity, the "Seller"),
Block Financial Corporation, as master servicer (the "Master Servicer"),
and______________________________________________, as trustee (the "Trustee").
The Master Servicer will enter into a subservicing agreement, dated as of
__________________________ (the "Sub-Servicing Agreement"), with
___________________________ (the "Sub-Servicer") to provide for the
sub-servicing of the Mortgage Loans. The Seller, pursuant to the terms of the
Pooling and Servicing Agreement, will transfer to the Depositor and the
Depositor, pursuant to the Pooling and Servicing Agreement, will transfer to the
Trustee, all of its right, title and interest in and to the Mortgage Loans as of
the Cut-Off Date (except for (i) principal (including Prepayments) and interest
collected on each Mortgage Loan on or prior to the Cut-Off Date (other than,
with respect to Actuarial Loans, scheduled monthly payments collected on or
prior to the Cut-Off Date and due after the Cut-Off Date) and (ii) with respect
to Actuarial Loans, scheduled monthly payments due on or prior to the Cut-Off
Date) and the collateral securing each Mortgage Loan. The Certificates will
evidence fractional undivided interests in the property held in trust for the
holders of such Certificates (the "Trust"). The assets of the Trust will
include, among other things: the Mortgage Loans to be conveyed by the Depositor
to the Trust on the Closing Date; such amounts as may be held by the Master
Servicer in the Collection Account (other than investment earnings thereon) and
any other accounts held by or maintained by the Master Servicer with respect to
the servicing of the Mortgage Loans and the other assets of the Trust; and such
amounts as may be held by the Trustee in the Distribution Account (other than
investment earnings thereon) and any other accounts held by the Trustee for the
Trust. The aggregate undivided interest in the Trust represented by the Class A
Certificates initially will be equal to $_________________ of principal (subject
to a variance of plus or minus 5%), which will represent 100% of the outstanding
principal balances of the Mortgage Loans as of __________________________ (the
"Cut-Off Date"). The Class A Certificates will have the benefit of two
certificate guaranty insurance policies (each, a "Policy") issued by
____________________________(the "Certificate Insurer"), the principal operating
subsidiary of __________________________, pursuant to an Insurance Agreement
(the "Insurance Agreement") dated as of __________________________ among the
Seller, the Master Servicer, the Depositor, H&R Block, Inc., the Trustee and the
Certificate Insurer. In addition to the Insurance Agreement, the Seller, the
Master Servicer, the Underwriters and the Certificate Insurer will enter into an
Indemnification Agreement (the "Indemnification Agreement") dated as of
_________________. A form of the Pooling and Servicing Agreement has been filed
as an exhibit to the Registration Statement (hereinafter defined).
An election will be made to treat the assets of the Trust as a "real
estate mortgage investment conduit" (a "REMIC") for federal income tax purposes.
The Class A Certificates will represent beneficial ownership of "regular
interests" in the REMIC and the Class R Certificates will represent beneficial
ownership of "residual interests" in the REMIC.
2
<PAGE>
Capitalized terms used but not defined herein shall have the meanings
given to them in the Pooling and Servicing Agreement.
This Underwriting Agreement, the Pooling and Servicing Agreement, the
Sub-Servicing Agreement, the Insurance Agreement and the Indemnification
Agreement are referred to collectively herein as the "Agreements". The Master
Servicer, the Seller and the Depositor are referred to collectively herein as
the "Transaction Parties".
The Depositor filed with the Securities and Exchange Commission (the
"Commission") on September ____, 1998, a registration statement on Form S-3 (No.
333-_________), including a form of prospectus and prospectus supplement
relating to the Class A Certificates, and pursuant to the provisions hereof
shall file such post-effective amendments thereto as may hereafter be required
pursuant to the Securities Act of 1933, as amended (the "1933 Act"), and the
rules and regulations of the Commission thereunder (the "Rules and
Regulations"). Such registration statement (as amended) is referred to herein as
the "Registration Statement"; the prospectus and prospectus supplement relating
to the offering of the Class A Certificates constituting a part of the
Registration Statement filed or to be filed by the Depositor are collectively
referred to herein as the "Prospectus" and each of the prospectus and prospectus
supplement is referred to as the "Base Prospectus" and the "Prospectus
Supplement," respectively; and any reference herein to any amendment or
supplement with respect to the Registration Statement or the Prospectus shall be
deemed to refer to and include any information deemed to be a part thereof
pursuant to Rule 430A under the 1933 Act.
Section 1. Representations and Warranties of the Master Servicer, the
Seller and the Depositor. Each of the Master Servicer, the Seller and the
Depositor, as to itself, and the Master Servicer, individually, with respect to
(a), (b), (o), (q), (r) and (s) below, represents and warrants to, and agrees
with the Underwriters that:
(a) The Registration Statement has become effective under the 1933 Act. The
Registration Statement complies, and all amendments to the Registration
Statement at the time such amended Registration Statement becomes effective will
comply, in all material respects with the requirements of the 1933 Act and the
Rules and Regulations. The Registration Statement at the time such Registration
Statement became effective did not, and any amendment to the Registration
Statement at the time such amended Registration Statement becomes effective will
not, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading. The Prospectus as of the date hereof does, and the
Prospectus as amended or supplemented as of the Closing Date will, comply in all
material respects with the requirements of the 1933 Act and the Rules and
Regulations. The Prospectus as of the date hereof did not, and the Prospectus as
amended or supplemented as of the Closing Date will not, contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that the representations and
warranties in this subsection shall not apply to statements in, or omissions
from, the Registration Statement or the Prospectus made in reliance upon and in
conformity with information furnished to the Depositor in writing by the
Underwriters or the Certificate Insurer expressly for use in the Registration
Statement or Prospectus. The Seller and the Depositor acknowledge that the
statements set forth in the last paragraph of the first cover page of the
3
<PAGE>
Prospectus Supplement, in the second full paragraph and the next to last
paragraph of page S-_____ of the Prospectus Supplement and under the caption
"UNDERWRITING" in the Prospectus Supplement constitute the only information
furnished in writing by the Underwriters for inclusion in the Prospectus. The
conditions to the use by the Depositor of a registration statement on Form S-3
under the 1933 Act, as set forth in the General Instructions to Form S-3, have
been satisfied with respect to the Registration Statement and the Prospectus.
There are no contracts or documents of the Depositor or its affiliates that are
required to be filed as exhibits to the Registration Statement pursuant to the
1933 Act or the Rules and Regulations that have not been so filed on or prior to
the effective date of the Registration Statement.
(b) Since the respective dates as of which information is given in the
Prospectus, or the Prospectus as amended and supplemented at the Closing Date,
there has not been any material adverse change in the general affairs,
management, financial condition or results of operations of any of the
Transaction Parties or of their subsidiaries or affiliates, otherwise than as
set forth in the Prospectus or the Prospectus as amended and supplemented at the
Closing Date.
(c) Such Transaction Party has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its respective
jurisdiction of incorporation, with the full right, power and authority
(corporate and other) to own, lease and operate its properties and conduct its
business as described in the Prospectus and to enter into and perform its
obligations under the Agreements to which it is a signatory, and, with respect
to the Depositor, to cause the Certificates to be issued; such Transaction Party
is duly qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction which requires such qualification, except where
failure to be so qualified would not have a material adverse effect on (A) its
business or financial condition, (B) its obligations under the Agreements to
which it is a signatory or (C) the Owners of the Certificates; such Transaction
Party is duly authorized and licensed under applicable law, including, without
limitation, those that regulate the business of originating, purchasing, selling
or servicing first and second lien mortgage loans, to conduct, in the various
jurisdictions in which it does business, the business it currently conducts
therein and to perform its obligations as contemplated by the Agreements, except
where failure to be so qualified or licensed would not have a material adverse
effect on (A) its business or financial condition, (B) its obligations under the
Agreements to which it is a signatory or (C) the Owners of the Certificates.
(d) There are no legal or governmental proceedings pending to which such
Transaction Party is a party, or of which any property of such Transaction Party
is the subject, which could reasonably be expected to materially and adversely
affect (A) its financial position, shareholders' equity or results of
operations, (B) its obligations under the Agreements to which it is a signatory
or (C) the Owners of the Certificates; and to the best knowledge of such
Transaction Party, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others.
(e) This Underwriting Agreement has been and, prior to the Closing Date,
the Agreements (other than this Underwriting Agreement) will have been, duly
authorized, executed and delivered by each Transaction Party which is a party to
such Agreements and, when duly executed and delivered by the other parties
thereto, will constitute legal, valid and binding instruments enforceable
against such Transaction Party, in accordance with their respective
4
<PAGE>
terms, subject as to enforceability (i) to applicable bankruptcy,
reorganization, insolvency, moratorium or other similar laws affecting
creditors' rights generally, (ii) to general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law) and (iii)
with respect to rights of indemnity under this Underwriting Agreement and the
Indemnification Agreement, to limitations of public policy under applicable
securities laws.
(f) The issuance and delivery of the Certificates, the consummation of any
other of the transactions contemplated in the Agreements and the fulfillment of
the terms of the Agreements do not and will not conflict with or violate any
term or provision of the Certificate or Articles of Incorporation or Bylaws of
such Transaction Party; any statute, order or regulation applicable to such
Transaction Party of any court, regulatory body, administrative agency or
governmental body having jurisdiction over such Transaction Party; and do not
and will not conflict with, or result in a breach or violation or the
acceleration of, or constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any of the property or assets
of such Transaction Party pursuant to the terms of, any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument to which such
Transaction Party is a party or by which such Transaction Party may be bound or
to which any of the property or assets of such Transaction Party may be subject,
except for conflicts, violations, breaches, accelerations and defaults which
would not be, individually or in the aggregate, materially adverse to such
Transaction Party or the Owners of the Certificates or materially adverse to the
transactions contemplated by the Agreements.
(g) _________________________________ is an independent public accountant
with respect to the Master Servicer, the Seller and the Depositor as required by
the 1933 Act and the Rules and Regulations.
(h) The direction by the Depositor to the Trustee to execute, countersign,
issue and deliver the Certificates will, as of the Closing Date, be duly
authorized by the Depositor, and assuming the Trustee has been duly authorized
to do so, when executed, countersigned, issued and delivered by the Trustee in
accordance with the Pooling and Servicing Agreement, the Certificates will be
validly issued and outstanding and will be entitled to the benefits provided by
the Pooling and Servicing Agreement.
(i) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body is required
for the issuance or sale of the Class A Certificates, or the consummation by
such Transaction Party of the other transactions contemplated by the Agreements,
except the registration under the 1933 Act of the Class A Certificates and such
consents, approvals, authorizations, registrations or qualifications as may be
required under state securities or "blue sky" laws in connection with the
issuance of the Class A Certificates and the purchase and distribution of the
Class A Certificates by the Underwriters.
(j) Such Transaction Party possesses all material licenses, certificates,
authorities or permits issued by the appropriate state, federal or foreign
regulatory agencies or bodies necessary to conduct the business now conducted by
it and as described in the Prospectus, and such Transaction Party has not
received any notice of proceedings relating to the revocation or modification of
any such license, certificate, authority or permit which, singly or in the
5
<PAGE>
aggregate, if the subject of an unfavorable decision, ruling or finding, would
materially and adversely affect the conduct of its business, operations or
financial condition.
(k) At the time of execution and delivery of the Pooling and Servicing
Agreement, the Seller (i) will have good and marketable title to each Mortgage
Loan being transferred by it to the Depositor, free and clear of any liens, (ii)
will not have assigned to any Person, other than the Depositor, any of its
right, title or interest in or to such Mortgage Loans and (iii) will have the
power and authority to sell such Mortgage Loans to the Depositor.
(l) At the time of execution and delivery of the Pooling and Servicing
Agreement, after giving effect to the sale of the Mortgage Loans from the Seller
to the Depositor pursuant to the Pooling and Servicing Agreement, the Depositor
(i) will have good and marketable title to each Mortgage Loan being transferred
by it to the Trustee pursuant to the Pooling and Servicing Agreement, free and
clear of any liens, (ii) will not have assigned to any person, other than the
Trustee, any of its right, title or interest in or to such Mortgage Loans and
(iii) will have the power and authority to sell such Mortgage Loans to the
Trustee.
(m) Upon execution and delivery of the Pooling and Servicing Agreement by
all of the parties thereto, the Depositor will have acquired beneficial
ownership of all of the Seller's right, title and interest in and to the
Mortgage Loans (except for (i) principal (including Prepayments) and interest
collected on each Mortgage Loan on or prior to the Cut-Off Date (other than,
with respect to Actuarial Loans, scheduled monthly payments collected on or
prior to the Cut-Off Date and due after the Cut-Off Date) and (ii) with respect
to Actuarial Loans, scheduled monthly payments due on or prior to the Cut-Off
Date), free of all liens.
(n) Upon execution and delivery of the Pooling and Servicing Agreement by
all of the parties thereto, the Trustee will have acquired beneficial ownership
of all of the Depositor's right, title and interest in and to the Mortgage
Loans, and upon delivery to the Underwriters of the Class A Certificates and
payment of the purchase price therefor, the Underwriters will have good and
marketable title to the Class A Certificates, in each case free of all liens.
(o) As of the Closing Date, each of the Mortgage Loans will meet the
eligibility criteria described in the Prospectus and set forth in the Pooling
and Servicing Agreement.
(p) Such Transaction Party will not conduct its operations while any of the
Class A Certificates are outstanding in a manner that would require such
Transaction Party or the Trust to be registered as an "investment company" under
the Investment Company Act of 1940, as amended (the "1940 Act"), as in effect on
the date hereof or require the Trust to be registered under the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"), as in effect on the date
hereof.
(q) On the Closing Date, the Certificates and the Pooling and Servicing
Agreement will conform in all material respects to the descriptions thereof
contained in the Prospectus.
(r) On the Closing Date, the Class A Certificates shall have been rated
"______" by _______ ("________________"), and "_______" by
_______________________ ("____________").
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(s) Any taxes, fees and other governmental charges in connection with the
execution, delivery and issuance of the Agreements and the Certificates have
been paid or will be paid at or prior to the Closing Date.
(t) On the Closing Date, each of the representations and warranties of the
Master Servicer, the Seller and the Depositor set forth in the Pooling and
Servicing Agreement and the Insurance Agreement will be true and correct in all
material respects.
Section 2. Purchase and Sale. The commitment of the Underwriters to
purchase the Class A Certificates pursuant to this Underwriting Agreement shall
be deemed to have been made on the basis of the representations and warranties
of the Master Servicer, the Seller and the Depositor herein contained and shall
be subject to the terms and conditions herein set forth. The Depositor agrees to
instruct the Trustee to issue, and agrees to sell to the Underwriters, and the
Underwriters agree, severally and not jointly (except as provided in Section 12
hereof), to purchase from the Depositor, at the purchase price for each Class A
Certificate set forth on Schedule A hereto, the respective principal amount of
Class A Certificates set forth opposite the name of such Underwriter on Schedule
A hereto.
Section 3. Delivery and Payment. Payment of the purchase price for, and
delivery of, any Class A Certificates to be purchased by the Underwriters shall
be made at the office of ______________________________________________ or at
such other place as shall be agreed upon by you and the Depositor, at 10:00 a.m.
(New York City time) on _____________________ or at such other time or date as
shall be agreed upon in writing by you and the Depositor (the "Closing Date").
The Class A Certificates will be delivered in book-entry form through the
facilities of The Depository Trust Company, Cedel Bank, societe anonyme, and the
Euroclear System. Payment shall be made to the Depositor by wire transfer of
same day funds payable to the account of the Depositor. Delivery of the Class A
Certificates shall be made to you for the respective accounts of the
Underwriters against payment of the purchase price thereof. Such Class A
Certificates shall be in such denominations and registered in such names as you
may request in writing at least one Business Day prior to the Closing Date. Such
Class A Certificates, which may be in temporary form, will be made available for
examination and packaging by you no later than 3:00 p.m. (New York City time) on
the first Business Day prior to the Closing Date.
Section 4. Offering by the Underwriters. It is understood that the
Underwriters propose to offer the Class A Certificates for sale to the public as
set forth in the Prospectus.
Section 5. Covenants of the Seller, the Depositor and the Master Servicer.
Each of the Master Servicer, the Seller and the Depositor covenants, as to
itself, with each of the Underwriters for so long as the Class A Certificates
are outstanding as follows:
(a) If, at any time when the Prospectus, as amended or supplemented, is
required by the 1933 Act to be delivered in connection with sales of the Class A
Certificates by the Underwriters, any event shall occur or condition exist as a
result of which it is necessary, in the opinion of counsel to the Underwriters
or counsel for the Depositor, to further amend or supplement the Prospectus as
then amended or supplemented in order that the Prospectus as amended or
supplemented will not include an untrue statement of a material fact or omit to
state
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any material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or if it shall be
necessary, in the opinion of any such counsel at any such time, to amend or
supplement the Registration Statement or the Prospectus as then amended or
supplemented in order to comply with the requirements of the 1933 Act or the
Rules and Regulations thereunder, or if required by such Rules and Regulations,
including Rule 430A thereunder, to file a post-effective amendment to such
Registration Statement (including an amended Prospectus), the Depositor will
promptly prepare and file with the Commission such amendment or supplement as
may be necessary to correct such untrue statement or omission or to make the
Registration Statement or Prospectus comply with such requirements, and within
two Business Days will furnish to the Underwriters as many copies of the
Prospectus, as amended or supplemented, as reasonably requested.
(b) The Depositor will give you reasonable notice of its intention to file
any amendment to the Registration Statement or the Prospectus, as amended or
supplemented, pursuant to the 1933 Act relating to the Class A Certificates,
will furnish you with copies of any such amendment or supplement proposed to be
filed a reasonable time in advance of filing, and will not file any such
amendment or supplement to which you or your counsel shall reasonably object.
(c) The Depositor will notify you immediately, and confirm the notice in
writing, (i) of the effectiveness of any amendment to the Registration
Statement, (ii) of the mailing or the delivery to the Commission for filing of
any supplement to the Prospectus or the Prospectus as amended or supplemented,
(iii) of the receipt of any comments from the Commission with respect to the
Registration Statement or the Prospectus or the Prospectus as amended or
supplemented, (iv) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or for
additional information and (v) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose. The Depositor will make every
reasonable effort to prevent the issuance of any stop order and, if any stop
order is issued, to obtain the lifting thereof at the earliest possible moment.
(d) The Depositor will deliver to you as many signed and as many conformed
copies of the Registration Statement (as originally filed) and of each amendment
thereto (including exhibits filed therewith or incorporated by reference therein
and documents incorporated by reference in the Prospectus) as you may reasonably
request.
(e) The Depositor will make generally available to holders of the Class A
Certificates as soon as practicable, but in any event not later than 120 days
after the close of the period covered thereby, an earnings statement of the
Trust (which need not be audited) complying with Section 11(a) of the 1933 Act
and the Rules and Regulations (including, at the option of the Seller, Rule 158)
and covering a period of at least twelve consecutive months beginning not later
than the first day of the first fiscal quarter following the Closing Date.
(f) The Depositor will endeavor, in cooperation with you, to qualify the
Class A Certificates for offering and sale under the applicable securities laws
of such states and other jurisdictions of the United States as you may
designate, and will maintain or cause to be maintained such qualifications in
effect for as long as may be required for the distribution of the
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Class A Certificates. The Depositor will file or cause the filing of such
statements and reports as may be reasonably required by the laws of each
jurisdiction in which the Class A Certificates have been qualified as above
provided.
(g) None of the Master Servicer, the Seller or the Depositor will, without
your prior written consent, publicly offer or sell or contract to sell any
mortgage pass-through certificates, mortgage pass-through notes or
collateralized mortgage obligations or other similar securities representing
interests in or secured by other mortgage-related assets originated or owned by
any of them for a period of 30 days following the commencement of the offering
of the Class A Certificates to the public.
(h) So long as the Class A Certificates shall be outstanding, the Depositor
will deliver to the Underwriters the annual statement as to compliance delivered
to the Trustee pursuant to the Pooling and Servicing Agreement and the annual
statement of a firm of independent public accountants furnished to the Trustee
pursuant to the Pooling and Servicing Agreement, as soon as such statements are
furnished to the Trustee.
(i) The Depositor will apply the net proceeds from the sale of the Class A
Certificates in the manner set forth in the Prospectus.
(j) If, between the date hereof and the Closing Date, to the knowledge of
the Master Servicer, the Seller or the Depositor, there are any legal or
governmental proceedings instituted or threatened against such Transaction Party
which could reasonably be expected to materially and adversely affect the
financial condition, shareholders' equity or results of operations of such
Transaction Party, or its ability to perform its obligations under the
Agreements, the Master Servicer, the Seller or the Depositor, as applicable,
will give prompt written notice thereof to the Underwriters.
Section 6. Conditions to the Underwriters' Obligations. The obligations of
the Underwriters to purchase the Class A Certificates pursuant to this
Underwriting Agreement are subject to the accuracy, on and as of the Closing
Date, of the representations and warranties on the part of the Master Servicer,
the Seller and the Depositor herein contained, to the material accuracy of the
statements of officers of the Master Servicer, the Seller and the Depositor,
respectively, made pursuant hereto, to the performance by the Master Servicer,
the Seller and the Depositor of all of their respective obligations hereunder
and to the following conditions at the Closing Date:
(a) (i) The Registration Statement shall have been declared effective under
the 1933 Act and no stop order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act or proceedings therefor
initiated or threatened by the Commission; any price-related information
previously omitted from the effective Registration Statement pursuant to Rule
430A under the 1933 Act shall have been transmitted to the Commission for filing
pursuant to Rule 424(b) under the 1933 Act within the prescribed time period,
and the Depositor shall have provided evidence satisfactory to the Underwriters
of such timely filing, or a post-effective amendment to the Registration
Statement providing such information shall have been promptly filed with the
Commission and declared effective in accordance with the requirements of Rule
430A under the 1933 Act, and prior to the Closing Date the Depositor shall
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have provided evidence satisfactory to the Underwriters of such effectiveness;
and (ii) there shall not have come to your attention any facts that would cause
you to believe that the Prospectus, at the time it was required to be delivered
to a purchaser of the Class A Certificates, contained any untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(b) The Underwriters shall have received the favorable opinion or opinions,
dated the Closing Date, of Morrison & Hecker L.L.P., as special counsel to the
Master Servicer, the Seller and the Depositor (collectively, the "Block
Transaction Parties"), in form and substance satisfactory to the Underwriters,
to the effect that:
(i) The Depositor is a duly incorporated, validly existing corporation
and in good standing under the laws of the State of Delaware. The Master
Servicer is a duly incorporated, validly existing corporation and in good
standing under the laws of the State of Delaware. The Seller is a duly
incorporated, validly existing corporation and in good standing under the
laws of the State of Delaware.
(ii) The Depositor has all requisite power and authority under the
General Corporation Law of the State of Delaware to execute, deliver and
perform its obligations under each of the Pooling and Servicing Agreement,
the Insurance Agreement and the Underwriting Agreement. The Master Servicer
has all requisite power and authority under the General Corporation Law of
the State of Delaware to execute, deliver and perform its obligations under
each of the Agreements. The Seller has all requisite power and authority
under the General Corporation Law of the State of Delaware to execute,
deliver and perform its obligations under the Agreements to which it is a
party.
(iii) The execution, delivery and performance of the Underwriting
Agreement have been duly authorized by all requisite corporate action on
the part of the Depositor, and the Underwriting Agreement has been duly
executed and delivered by the Depositor. The execution, delivery and
performance of the Pooling and Servicing Agreement and the Insurance
Agreement have been duly authorized by all requisite corporate action on
the part of the Depositor, and each of the Pooling and Servicing Agreement
and the Insurance Agreement has been duly executed and delivered by the
Depositor and is the legal, valid and binding obligation of the Depositor
enforceable against the Depositor in accordance with its terms. The
execution, delivery and performance of each of the Underwriting Agreement
and the Indemnification Agreement have been duly authorized by all
requisite corporate action on the part of the Master Servicer, and the
Underwriting Agreement and the Indemnification Agreement have been duly
executed and delivered by the Master Servicer. The execution, delivery and
performance of the Pooling and Servicing Agreement, the Insurance Agreement
and the Sub-Servicing Agreement have been duly authorized by all requisite
corporate action on the part of the Master Servicer, and each of the
Pooling and Servicing Agreement, the Insurance Agreement and the
Sub-Servicing Agreement has been duly executed and delivered by the Master
Servicer and is the legal, valid and binding obligation of the Master
Servicer enforceable against the Master Servicer in accordance with its
terms. The execution, delivery and performance of each of the Underwriting
Agreement and the Indemnification Agreement have been
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duly authorized by all requisite corporate action on the part of the
Seller, and each of the Underwriting Agreement and the Indemnification
Agreement has been duly executed and delivered by the Seller. The
execution, delivery and performance of the Pooling and Servicing Agreement
and the Insurance Agreement have been duly authorized by all requisite
corporate action on the part of the Seller and each of the Pooling and
Servicing Agreement and the Insurance Agreement has been duly executed and
delivered by the Seller and is the legal, valid and binding obligation of
the Seller enforceable against the Seller in accordance with its terms.
Such opinions with respect to the enforceability of such agreements will be
subject to bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights generally, to
general principles of equity and to the qualifications previously provided
by Morrison & Hecker L.L.P. and approved by the counsel to the
Underwriters.
(iv) The Depositor's execution, delivery and performance of its
obligations under the Pooling and Servicing Agreement, the Insurance
Agreement and the Underwriting Agreement will not (A) conflict with the
Certificate of Incorporation or By-laws of the Depositor or (B) violate
applicable provisions of federal, Missouri or New York statutory law or
regulation or the General Corporation Law of the State of Delaware, the
violation of which would have a material adverse effect on the ability of
the Depositor to perform its obligations under any of such agreements. The
Master Servicer's execution, delivery and performance of its obligations
under the Agreements will not (A) conflict with the Certificate of
Incorporation or Bylaws of the Master Servicer or (B) violate applicable
provisions of federal, Missouri or New York statutory law or regulation or
the General Corporation Law of the State of Delaware, the violation of
which would have a material adverse effect on the ability of the Master
Servicer to perform its obligations under the Agreements. The Seller's
execution, delivery and performance of its obligations under the Pooling
and Servicing Agreement, the Insurance Agreement or the Underwriting
Agreement will not (A) conflict with the Certificate of Incorporation or
Bylaws of the Seller or (B) violate applicable provisions of federal,
Missouri or New York statutory law or regulation or the General Corporation
Law of the State of Delaware, the violation of which would have a material
adverse effect on the ability of the Seller to perform its obligations
under the Pooling and Servicing Agreement, the Insurance Agreement or the
Underwriting Agreement.
(v) To such counsel's knowledge, and based in part upon the
Depositor's written representations to such counsel, the Depositor's
execution and delivery of, and its performance of its obligations under,
the Pooling and Servicing Agreement, the Insurance Agreement and the
Underwriting Agreement will not conflict with, result in a breach or
violation of, constitute a default or an event of acceleration under, or
result in the creation or imposition of any lien, charge or encumbrance
upon the property or assets of the Depositor pursuant to the terms of, (A)
any indenture, mortgage, deed of trust, loan agreement or other material
agreement or instrument known to such counsel to which the Depositor is a
party or by which it or its property is bound or (B) any order, judgment or
decree of any State of Delaware, State of Missouri, State of New York or
United States court, administrative agency or governmental instrumentality
applicable to the Depositor which is known to such counsel, the conflict
with which, or the breach, violation, default, acceleration or creation or
imposition of which, would have a material adverse effect on
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the ability of the Depositor to perform its obligations under any of such
agreements. To such counsel's knowledge, and based in part upon the Master
Servicer's written representations to such counsel, the Master Servicer's
execution and delivery of, and its performance of its obligations under,
the Agreements will not conflict with, result in a breach or violation of,
constitute a default or an event of acceleration under, or result in the
creation or imposition of any lien, charge or encumbrance upon the property
or assets of the Master Servicer pursuant to the terms of, (A) any
indenture, mortgage, deed of trust, loan agreement or other material
agreement or instrument known to such counsel to which the Master Servicer
is a party or by which it or its property is bound or (B) any order,
judgment or decree of any State of Delaware, State of Missouri, State of
New York or United States court, administrative agency or governmental
instrumentality applicable to the Master Servicer which is known to such
counsel, the conflict with which, or the breach, violation, default,
acceleration or creation or imposition of which, would have a material
adverse effect on the ability of the Master Servicer to perform its
obligations under the Agreements. To such counsel's knowledge, and based in
part upon the Seller's representations to such counsel, the Seller's
execution and delivery of, and its performance of its obligations under,
the Pooling and Servicing Agreement, the Insurance Agreement and the
Underwriting Agreement will not conflict with, result in a breach or
violation of, constitute a default or an event of acceleration under, or
result in the creation or imposition of any lien, charge or encumbrance
upon the property or assets of the Seller pursuant to the terms of, (A) any
indenture, mortgage, deed of trust, loan agreement or other material
agreement or instrument known to such counsel to which the Seller is a
party or by which it or its property is bound or (B) any order, judgment or
decree of any State of Delaware, State of Missouri, State of New York or
United States court, administrative agency or governmental instrumentality
applicable to the Seller which is known to such counsel, the conflict with
which, or the breach, violation, default, acceleration or creation or
imposition of which, would have a material adverse effect on the ability of
the Seller to perform its obligations under the Pooling and Servicing
Agreement, the Insurance Agreement or the Underwriting Agreement.
(vi) The direction by the Depositor to the Trustee to authenticate,
issue and deliver the Certificates has been duly authorized by the
Depositor, and the Certificates, when duly authorized, authenticated,
issued and delivered by the Trustee and paid for by the Underwriters in
accordance with the Pooling and Servicing Agreement and the Underwriting
Agreement, will be validly issued and outstanding and will be entitled to
the benefits provided by the Pooling and Servicing Agreement.
(vii) To such counsel's knowledge, and based in part upon the
Depositor's written representations to such counsel, the Depositor is not
required to obtain the consent, approval, authorization or order of, or to
register or file with, or to give notice to, any court or governmental
agency or body of the State of Delaware (under the General Corporation Law
thereof), the State of Missouri, the State of New York or the United States
of America in order to execute, deliver, perform and comply with the terms
of, or for the consummation of the transactions of the Depositor
contemplated by, the Pooling and Servicing Agreement, the Insurance
Agreement or the Underwriting Agreement except any consent, approval,
authorization, order, registration, filing or notice (A) as may be required
under state securities, real estate syndication or "blue sky" laws in
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connection with the offering and sale of the Class A Certificates (as to
which such counsel need express no opinion whatsoever) or (B) which is a
future obligation of the Depositor pursuant to the terms of the Pooling and
Servicing Agreement, the Insurance Agreement or the Underwriting Agreement,
such as, by way of illustration, but not in limitation of the generality of
the foregoing, filing or recording a Uniform Commercial Code assignment of
a financing statement or an assignment of Mortgage with respect to a
Mortgage Loan; or if any such consent, approval, authorization, order,
registration, filing or notice (not described in the exception to the
immediately preceding clause) is required, the Depositor has obtained, made
or given the same. To such counsel's knowledge, and based in part upon the
Master Servicer's written representations to such counsel, the Master
Servicer is not required to obtain the consent, approval, authorization or
order of, to register or file with, or to give notice to, any court or
governmental agency or body of the State of Delaware (under the General
Corporation Law thereof), the State of Missouri, the State of New York or
the United States of America in order to execute, deliver, perform and
comply with the terms of, or for the consummation of the transactions of
the Master Servicer contemplated by, the Agreements except any consent,
approval, authorization, order, registration, filing or notice (A) as may
be required under state securities, real estate syndication or "blue sky"
laws in connection with the offering and sale of the Class A Certificates
(as to which such counsel need express no opinion whatsoever) or (B) which
is a future obligation of the Master Servicer pursuant to the terms of an
Agreement, such as, by way of illustration, but not in limitation of the
generality of the foregoing, filing or recording a Uniform Commercial Code
assignment of a financing statement or an assignment of Mortgage with
respect to a Mortgage Loan or obtaining a consent, approval or order in
connection with a foreclosure; or if any such consent, approval,
authorization, order, registration, filing or notice (not described in the
exception to the immediately preceding clause) is required, the Master
Servicer has obtained, made or given the same. To such counsel's knowledge,
and based in part upon the Seller's written representations to such
counsel, the Seller is not required to obtain the consent, approval,
authorization or order of, to register or file with, or to give notice to,
any court or governmental agency or body of the State of Delaware (under
the General Corporation Law thereof), the State of Missouri, the State of
New York or the United States of America in order to execute, deliver,
perform and comply with the terms of, or for the consummation of the
transactions of the Seller contemplated by, the Pooling and Servicing
Agreement, the Insurance Agreement or the Underwriting Agreement except any
consent, approval, authorization, order, registration, filing or notice (A)
as may be required under state securities, real estate syndication or "blue
sky" laws in connection with the offering and sale of the Class A
Certificates (as to which such counsel need express no opinion whatsoever)
or (B) which is a future obligation of the Seller pursuant to the terms of
Pooling and Servicing Agreement, the Insurance Agreement or the
Underwriting Agreement, such as, by way of illustration, but not in
limitation of the generality of the foregoing, filing or recording a
Uniform Commercial Code assignment of a financing statement or an
assignment of Mortgage with respect to a Mortgage Loan; or if any such
consent, approval, authorization, order, registration, filing or notice
(not described in the exception to the immediately preceding clause) is
required, the Seller has obtained, made or given the same.
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(viii) The Registration Statement is effective under the 1933 Act, and
to such counsel's knowledge, no stop order suspending the effectiveness of
the Registration Statement has been issued under the 1933 Act or
proceedings therefor initiated or threatened by the Commission.
(ix) The conditions to the use by the Depositor of a registration
statement on Form S-3 under the 1933 Act, as set forth in the General
Instructions to Form S-3, have been satisfied with respect to the
Registration Statement. To such counsel's knowledge, and based in part upon
the Depositor's representations to such counsel, there are no contracts or
documents of any of the Transaction Parties which are required to be filed
as exhibits to the Registration Statement pursuant to the 1933 Act or the
Rules and Regulations thereunder which have not been so filed. The
statements set forth in each of the Base Prospectus and the Prospectus
Supplement under the captions "RISK FACTORS --Legal Considerations" and
"ERISA CONSIDERATIONS" and the statements set forth in the Base Prospectus
under the caption "CERTAIN LEGAL ASPECTS OF THE PRIMARY ASSETS", in each
case insofar as such statements purport to summarize matters of state or
federal law or legal conclusions with respect thereto, have been prepared
or reviewed by such counsel and provide a fair summary of such law or
conclusions.
(x) To such counsel's knowledge, and based in part upon the
Depositor's representations to such counsel, there are no actions, suits or
proceedings against the Depositor (or to which the property of the
Depositor is subject) pending or overtly threatened in writing before any
court, governmental agency or arbitrator which (A) question, directly or
indirectly, the validity or enforceability of any of the Pooling and
Servicing Agreement, the Insurance Agreement or the Underwriting Agreement,
(B) could reasonably be expected to materially and adversely affect the
Depositor's financial condition, business or properties taken as a whole or
the validity or enforceability of any of such agreements or the
Certificates or (C) could reasonably be expected to materially and
adversely affect the ability of the Depositor to perform its obligations
under any of such agreements. To such counsel's knowledge, and based in
part upon the Master Servicer's representations to such counsel, there are
no actions, suits or proceedings against the Master Servicer (or to which
the property of the Master Servicer is subject) pending or overtly
threatened in writing before any court, governmental agency or arbitrator
which (A) question, directly or indirectly, the validity or enforceability
of any of the Agreements, (B) could reasonably be expected to materially
and adversely affect the Master Servicer's financial condition, business or
properties taken as a whole or the validity or enforceability of any of the
Agreements or the Certificates or (C) could reasonably be expected to
materially and adversely affect the ability of the Master Servicer to
perform its obligations under the Agreements. To such counsel's knowledge,
and based in part upon the Seller's representations to such counsel, there
are no actions, suits or proceedings against the Seller (or to which the
property of the Seller is subject) pending or overtly threatened in writing
before any court, governmental agency or arbitrator which (A) question,
directly or indirectly, the validity or enforceability of any of the
Pooling and Servicing Agreement, the Insurance Agreement or the
Underwriting Agreement, (B) could reasonably be expected to materially and
adversely affect the Seller's financial condition, business or properties
taken as a whole or the validity or
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enforceability of any of such agreements or the Certificates or (C) could
reasonably be expected to materially and adversely affect the ability of
the Seller to perform its obligations under such agreements.
(xi) The Pooling and Servicing Agreement is not required to be
qualified under the Trust Indenture Act, and neither the Depositor nor the
Trust is required to be registered under the 1940 Act.
(xii) In connection with such counsel's participation in the
preparation of the Registration Statement and the Prospectus, such counsel
need not independently verify the accuracy, completeness or fairness of the
statements contained therein, and, without limiting the generality of the
foregoing, such counsel need not, with the opinion recipients' consent,
review any loan files relating to the Mortgage Loans. The limitations
inherent in such counsel's participation in the preparation of the
Registration Statement and the Prospectus and the knowledge available to
such counsel are such that such counsel need not assume any responsibility
for the accuracy, completeness or fairness of the statements contained in
the Registration Statement or the Prospectus. On the basis of such
counsel's participation in the preparation of the Registration Statement
and the Prospectus as described above and such counsel's participation in
conferences and telephone conversations with representatives of the
Depositor, the Seller, the Master Servicer, the Underwriters and others at
which the contents of the Registration Statement and the Prospectus were
discussed, and relying as to facts necessary to the determination of
materiality, to the extent such counsel may do so in the exercise of such
counsel's professional responsibility, upon the certificates and statements
of officers and other representatives of the Depositor, the Seller, the
Master Servicer and others, such opinion letter will state that no facts
have come to such counsel's attention that lead such counsel to believe
that, as of the date of the Prospectus and the Closing Date, either the
Registration Statement or the Prospectus (excluding any financial or
statistical data contained therein, the sections of the Base Prospectus and
the Prospectus Supplement captioned "FEDERAL INCOME TAX CONSEQUENCES", the
section of the Base Prospectus captioned "PLAN OF DISTRIBUTION" and the
sections of the Prospectus Supplement captioned "COMPANION SERVICING
COMPANY, L.L.C.", "CREDIT ENHANCEMENT -- Certificate Insurance Policies",
"CREDIT ENHANCEMENT -- The Certificate Insurer", "UNDERWRITING" and "REPORT
OF EXPERTS", as to which such counsel need not comment) contains any untrue
statement of a material fact or omits to state a material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
Such counsel's opinion letters may express their reliance as to factual
matters upon the representations and warranties made by the Block Transaction
Parties and on certificates or other documents furnished by officers of the
Block Transaction Parties. In addition to the qualifications with respect to the
enforceability opinions under paragraph (iii) above, the other opinions set
forth in such opinion letters will be subject to such qualifications as Morrison
& Hecker L.L.P. customarily makes with respect to such opinions in the manner
that Morrison & Hecker L.L.P. customarily makes such qualifications.
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(c) The Underwriters shall have received the favorable opinion, dated the
Closing Date, of _____________________________________, counsel to the
Sub-Servicer, addressed to the Underwriters and in form and scope satisfactory
to counsel to the Underwriters, to the effect that:
(i) The Sub-Servicer has been organized and is subsisting and in good
standing as a limited liability company under the laws of the State of
________________, with the corporate power to conduct its business as
described in the Prospectus.
(ii) The Sub-Servicer has the corporate power to enter into the
Sub-Servicing Agreement with the Master Servicer.
(iii) The Sub-Servicer is duly authorized under relevant statutes,
laws and court decisions to conduct business in the various jurisdictions
in which management has certified that it currently conducts business,
except where failure to be so permitted or failure to be so authorized will
not have a material adverse effect on its business or financial condition.
(iv) The Sub-Servicing Agreement has been duly authorized and, when
duly executed and delivered by the Sub-Servicer and the other parties
thereto and when the other parties thereto have duly authorized and
executed the Sub-Servicing Agreement, will be enforceable against the
Sub-Servicer in accordance with its terms.
(v) Except as may be disclosed in the Sub-Servicing Agreement, the
execution and delivery of the Sub-Servicing Agreement by the Sub-Servicer
will not violate any provision of its governing documents, or to such
counsel's knowledge, any statute, order or regulation applicable to the
Sub-Servicer of any court or regulatory body, administrative agency or
governmental body having jurisdiction over the Sub-Servicer.
(vi) To such counsel's knowledge, there are no actions, proceedings or
investigations pending before, or threatened by, any court, administrative
agency or other tribunal to which the Sub-Servicer is a party or of which
any of its property is the subject which, if determined adversely to the
Sub-Servicer, (A) would have a material adverse effect on the business or
financial condition of the Sub-Servicer, (B) asserts the invalidity of the
Sub-Servicing Agreement, (C) seeks to prevent the consummation by the
Sub-Servicer of any of the transactions contemplated by the Sub-Servicing
Agreement, or (D) might materially and adversely affect the performance by
the Sub-Servicer of its obligations under, or the validity or
enforceability of, the Sub-Servicing Agreement.
Such counsel's opinion letter may express their reliance as to factual
matters upon the representations and warranties made by the Sub-Servicer and on
certificates or other documents furnished by officers of the Sub-Servicer.
(d) The Underwriters shall have received the favorable opinion, dated the
Closing Date, of in-house counsel to the Trustee, addressed to the Underwriters
and in form and scope satisfactory to counsel to the Underwriters, to the effect
that:
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(i) The Trustee has duly authorized, executed and delivered the
Pooling and Servicing Agreement and the Insurance Agreement, which
constitute the valid and legally binding agreements of the Trustee and are
enforceable against the Trustee in accordance with their terms, subject, as
to enforcement of remedies, (A) to applicable bankruptcy, insolvency,
reorganization and other similar laws affecting the rights of creditors
generally and (B) to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
(ii) The Trustee has duly executed and countersigned the Certificates
issued on the date thereof on behalf of the Trust.
(iii) The execution and delivery by the Trustee of the Pooling and
Servicing Agreement and the Insurance Agreement and the performance by the
Trustee of its obligations thereunder do not conflict with or result in a
violation of the Articles of Association or Bylaws of the Trustee.
(iv) The Trustee has full power and authority to execute and deliver
the Pooling and Servicing Agreement and the Insurance Agreement and to
perform its obligations thereunder.
(v) To the best of such counsel's knowledge, there are no actions,
proceedings or investigations pending or threatened against or affecting
the Trustee before or by any court, arbitrator, administrative agency or
other governmental authority which, if adversely decided, would materially
and adversely affect the ability of the Trustee to carry out the
transactions contemplated in the Pooling and Servicing Agreement and the
Insurance Agreement.
(vi) No consent, approval or authorization of, or registration,
declaration or filing with, any court or governmental agency or body of the
United States of America or any state thereof is required for the
execution, delivery or performance by the Trustee of the Pooling and
Servicing Agreement and the Insurance Agreement.
(e) The Underwriters shall have received the favorable opinion or opinions,
dated the Closing Date, of _____________________, as counsel for the
Underwriters, with respect to the issuance of the Class A Certificates and the
sale of the Class A Certificates to the Underwriters, the Registration
Statement, this Underwriting Agreement, the Prospectus and such other related
matters as the Underwriters may require.
(f) The Underwriters shall have received the favorable opinion, dated the
Closing Date, of_________________________, special counsel for the Certificate
Insurer, in form and scope satisfactory to counsel for the Underwriters, to the
effect that:
(i) The Certificate Insurer is a stock insurance corporation, duly
incorporated and validly existing under the laws of the State of
________________________. The Certificate Insurer is validly licensed and
authorized to issue each of the Policies and perform its obligations under
each of the Policies in accordance with the terms thereof, under the laws
of the State of ________________________.
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(ii) The execution and delivery by the Certificate Insurer of each of
the Policies, the Insurance Agreement and the Indemnification Agreement are
within the corporate powers of the Certificate Insurer and have been
authorized by all necessary corporate action on the part of the Certificate
Insurer; each of the Policies has been duly executed and is the valid and
binding obligation of the Certificate Insurer enforceable in accordance
with its terms except that the enforcement of the Policies may be limited
by laws relating to bankruptcy, insolvency, reorganization, moratorium,
receivership and other similar laws affecting creditors' rights generally
and by general principles of equity.
(iii) The Certificate Insurer is authorized to deliver the Insurance
Agreement and the Indemnification Agreement and each of the Insurance
Agreement and the Indemnification Agreement has been duly executed and is a
valid and binding obligation of the Certificate Insurer enforceable in
accordance with its terms except that the enforcement of the Insurance
Agreement and the Indemnification Agreement may be limited by laws relating
to bankruptcy, insolvency, reorganization, moratorium, receivership and
other similar laws affecting creditors' rights generally and by general
principles of equity and, in the case of the Insurance Indemnification
Agreement, public policy considerations as to rights of indemnification for
violations of federal and state securities laws.
(iv) No consent, approval, authorization or order of any state or
federal court or governmental agency or body is required on the part of the
Certificate Insurer, the lack of which would adversely affect the validity
or enforceability of any of the Policies, the Insurance Agreement or the
Indemnification Agreement; to the extent required by applicable legal
requirements that would adversely affect the validity or enforceability of
either of the Policies, the form of each of the Policies has been filed
with, and approved by, all governmental authorities having jurisdiction
over the Certificate Insurer in connection with the Policies. (v) To the
extent that either of the Policies constitutes a security within the
meaning of Section 2(1) of the 1933 Act, it is a security that is exempt
from the registration requirements of the 1933 Act. (vi) The information
set forth under the caption "CREDIT ENHANCEMENT--Certificate Insurance
Policies" in the Prospectus Supplement, insofar as such statements
constitute a description of the Policies, accurately summarizes the
Policies.
(v) To the extent that either of the Policies constitutes a security
within the meaning of Section 2(l) of the 1933 Act, it is a security that
is exempt from the registration requirements of the 1933 Act.
(vi) The information set forth under the caption "CREDIT ENHANCEMENT--
Certificate Insurance Policies" in the Prospectus Supplement, insofar as
such statements constitute a description of the Policies, accurately sum-
marizes the Policies.
(g) The Underwriters shall have received an opinion, dated the Closing
Date, of Morrison & Hecker L.L.P. as counsel to the Master Servicer, the Seller
and the Depositor, addressed to the Certificate Insurer, the Trustee,
____________________________ and the Underwriters, relating to the true sale of
the Mortgage Loans (i) by the Seller to the Depositor and (ii) by the Depositor
to the Trustee.
(h) Each of the Transaction Parties shall have furnished to the
Underwriters a certificate signed on behalf of such Transaction Party by an
accounting or financial officer thereof, dated the Closing Date, as to (i) the
accuracy of the representations and warranties
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herein of such Transaction Party at and as of the Closing Date; (ii) there being
no legal or governmental proceedings pending, other than those, if any, referred
to in the Prospectus or the Prospectus as amended or supplemented, as the case
may be, to which such Transaction Party is a party or of which any property of
such Transaction Party is the subject, which, in the judgment of such
Transaction Party, have a reasonable likelihood of resulting in a material
adverse change in the financial condition, shareholders' equity or results of
operations of such Transaction Party or having a material adverse effect on the
ability to perform its obligations under the Agreements; and to the best
knowledge of each such Transaction Party, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others; (iii) the
performance by such Transaction Party of all of its respective obligations
hereunder to be performed at or prior to the Closing Date; and (iv) such other
matters as you may reasonably request.
(i) The Trustee shall have furnished to the Underwriters a certificate of
the Trustee, signed by one or more duly authorized officers of the Trustee,
dated the Closing Date, as to the due authorization, execution and delivery of
the Pooling and Servicing Agreement by the Trustee and the acceptance by the
Trustee of the trust created by the Pooling and Servicing Agreement and the due
execution and delivery of the Certificates by the Trustee thereunder and such
other matters as you shall reasonably request.
(j) The Indemnification Agreement shall have been entered into by the
Certificate Insurer, the Seller, the Master Servicer and the Underwriters, in
which the Certificate Insurer will represent to the Underwriters, among other
representations, that (i) the information under the captions "CREDIT
ENHANCEMENT--Certificate Insurance Policies" and "CREDIT ENHANCEMENT--The
Certificate Insurer" (the "Insurer Information") in the Prospectus Supplement
was approved by the Certificate Insurer and is limited and does not purport to
provide the scope of disclosure required to be included in a prospectus for a
registrant under the 1933 Act, in connection with the public offer and sale of
securities of such registrant. Within such limited scope of disclosure, the
Insurer Information does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading; and (ii) there
has been no change in the financial condition of the Certificate Insurer since
___________________which would have a material adverse effect on the Certificate
Insurer's ability to meet its obligations under the Policies; and the
Indemnification Agreement shall contain provisions, reasonably satisfactory to
the Underwriters, for the indemnification of the Underwriters.
(k) The Policies shall have been issued by the Certificate Insurer pursuant
to the Insurance Agreement and shall have been duly countersigned by an
authorized agent of the Certificate Insurer, if so required under applicable
state law or regulation.
(l) The Class A Certificates shall have been rated "___________" by
_____________________________and "______________" by __________________________.
(m) Counsel to the Transaction Parties shall have furnished to the
Underwriters any opinions supplied to ____________________________ or the
Certificate Insurer relating to the Class A Certificates and such opinions shall
state that the Underwriters may rely thereon.
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(n) The Underwriters shall have received from each of ________________ and
________________________________, certified public accountants, a letter, dated
as of the date of the Prospectus Supplement, in the form heretofore agreed to.
(o) Prior to the Closing Date, __________________, as counsel for the
Underwriters, shall have been furnished with such documents and opinions as they
may reasonably require for the purpose of enabling them to pass upon the
issuance of the Class A Certificates and the sale of the Class A Certificates to
the Underwriters as herein contemplated and related proceedings or in order to
evidence the accuracy and completeness of any of the representations and
warranties, or the fulfillment of any of the conditions, herein contained; and
all proceedings taken by the Transaction Parties in connection with the issuance
of the Class A Certificates and the sale of the Class A Certificates to the
Underwriters as herein contemplated shall be satisfactory in form and substance
to the Underwriters and __________________.
(p) Since the respective dates as of which information is given in the
Prospectus, there shall not have been any change, or any development involving a
prospective change, in or affecting the general affairs, management, financial
condition, stockholders' equity or results of operations of any of the
Transaction Parties or the Certificate Insurer otherwise than as set forth or
contemplated in the Prospectus, the effect of which is, in the judgment of the
Underwriters, so material and adverse as to make it impracticable or inadvisable
to proceed with the public offering or the delivery of the Class A Certificates
on the terms and in the manner contemplated in the Prospectus.
(q) Subsequent to the execution and delivery of this Underwriting
Agreement, there shall not have occurred any downgrading in the rating of any
securities of the Transaction Parties or the Certificate Insurer, or any public
announcement that any rating organization has under surveillance or review its
rating of any securities of any of the Transaction Parties or the Certificate
Insurer (other than an announcement with positive implications of a possible
upgrade, and no implication of a possible downgrade, of such rating).
(r) Prior to the Closing Date, each of the Transaction Parties shall have
furnished to you such further information, certificates and documents as you may
reasonably request.
If any condition specified in this Section 6 shall not have been fulfilled
when and as required to be fulfilled, this Underwriting Agreement may be
terminated by you by notice to the Depositor at any time at or prior to the
Closing Date, and such termination shall be without liability of any party to
any other party except as provided in Section 7.
Section 7. Payment of Expenses. Block Financial Corporation agrees to pay
all expenses incident to the performance of its obligations under this
Agreement, including without limitation those related to (i) the filing of the
Registration Statement and all amendments thereto, (ii) the preparation,
issuance and delivery of the Certificates, (iii) the fees and disbursements of
Morrison & Hecker L.L.P., as special counsel for the Transaction Parties, of
__________________________, accountants of the Master Servicer, the Seller and
the Depositor, and of ___________________________, accountants of the
Sub-Servicer, (iv) the first $10,000 of fees and expenses, of
_____________________, as special tax counsel for the Depositor, (v) the
qualification of the Class A Certificates under state securities and "blue sky"
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laws and the determination of the eligibility of the Class A Certificates for
investment in accordance with the provisions of subsection 5(f) of this
Underwriting Agreement, including filing fees, (vi) the printing and delivery to
the Underwriters, in such quantities as you may reasonably request, of copies of
the Registration Statement and the Prospectus and all amendments and supplements
thereto, and of any Blue Sky Survey, (vii) the delivery to the Underwriters, in
such quantities as you may reasonably request, of copies of the Agreements,
(viii) the fees charged by nationally recognized statistical rating agencies for
rating the Class A Certificates, (ix) the reasonable fees and expenses of the
Trustee and its counsel and (x) the reasonable fees and expenses of the
Certificate Insurer and its counsel.
If this Underwriting Agreement is terminated by you in accordance with the
provisions of Section 6, the Master Servicer, the Seller and the Depositor shall
reimburse you for all reasonable out-of-pocket expenses, including the fees and
disbursements of ________________________ as counsel for the Underwriters.
Section 8. Indemnification. (a) Block Financial Corporation and the
Depositor jointly and severally agree to indemnify and hold harmless the
Underwriters and each Person, if any, that controls the Underwriters within the
meaning of Section 15 of the 1933 Act or Section 20 of the Securities Exchange
Act of 1934, as amended (the "1934 Act"), as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the information deemed to be a part
of the Registration Statement pursuant to Rule 430A under the 1933 Act, if
applicable, or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements
therein not misleading or arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Prospectus (or any
amendment or supplement thereto) or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, unless (a) such untrue statement or omission or alleged untrue
statement or omission was made in reliance upon and in conformity with
written information furnished to the Depositor by the Underwriters or the
Certificate Insurer expressly for use in the Registration Statement (or any
amendment thereto), or (b) such untrue statement or omission or alleged
untrue statement or omission was made in any preliminary prospectus and
corrected in the Prospectus and (A) any such loss, claim, damage or
liability suffered or incurred by an Underwriter resulted from an action,
claim or suit by any person who purchased the Class A Certificates from
such Underwriter in the offering and (B) such Underwriter failed to deliver
or provide a copy of the Prospectus dated July 21, 1998 to such person at
or prior to the confirmation of the sale of such Class A Certificates in
any case where such delivery is required by the 1933 Act;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or
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omission, or any such alleged untrue statement or omission, if such
settlement is effected with the written consent of the Depositor; and
(iii) against any and all reasonable expense whatsoever (including the
reasonable fees and disbursements of counsel chosen by you) as reasonably
incurred in investigating, preparing to defend or defending against or
appearing as a third party witness with respect to any litigation or
investigation or proceeding by any governmental agency or body, commenced
or threatened, or any claim whatsoever based upon any such untrue statement
or omission, or any such alleged untrue statement or omission, as such
expense is incurred and to the extent that any such expense is not paid
under (i) or (ii) above.
This indemnity will be in addition to any liability which any of the Master
Servicer, the Seller or the Depositor may otherwise have.
(b) (i) Each of the Underwriters severally and not jointly agrees to
indemnify and hold harmless Block Financial Corporation and the Depositor, each
of their directors, each of their officers who signed the Registration
Statement, and each Person, if any, that controls Block Financial Corporation
and/or the Depositor within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act against any and all loss, liability, claim, damage and
expense, as incurred, described in the indemnity contained in subsection (a)(i)
of this Section 8, arising out of any untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto) or the Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the Seller
and/or to the Depositor by such Underwriter expressly for use in the
Registration Statement (or any amendment thereto) or the Prospectus (or any
amendment or supplement thereto). The parties acknowledge that the statements
set forth in the last paragraph of the first cover page of the Prospectus
Supplement, in the next to last paragraph of page S-iii of the Prospectus
Supplement and under the caption "UNDERWRITING" in the Prospectus Supplement
constitute the only information furnished in writing by the Underwriters for
inclusion in the Registration Statement or the Prospectus.
(ii) Each Underwriter individually agrees to indemnify and hold
harmless each indemnified party against any and all loss, liability, claim,
damage and expense, as incurred, described in the indemnity contained in
subsection (a)(ii) of this Section 8, arising out of any untrue statements
or omissions, or alleged untrue statements or omissions, made in the
Computational Materials (as defined below) prepared and used by such
Underwriter; provided, however, that such -------- ------- Computational
Materials shall not include any Mortgage Loan Information (as defined
below) or any errors in the mathematical calculations reflected in such
Computational Materials to the extent such errors result from such Mortgage
Loan Information; and provided, further, that any -------- ------- such
omission or alleged omission relating to the Computational Materials shall
be determined by reading such Computational Materials in conjunction with
the Prospectus as an integral document and in light of the circumstances
under which such statements in the Computational Materials and the
Prospectus were made. "Computational Materials" shall mean the
"Computational Materials" as defined in the No-Action Letter of May 20,
1994 issued by the Commission to Kidder, Peabody Acceptance Corporation I,
Kidder,
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Peabody & Co. Incorporated and Kidder Structured Asset Corporation, the
No-Action Letter of May 27, 1994 issued by the Commission to the Public
Securities Association and the No-Action Letter of March 9, 1995 issued by
the Commission to the Public Securities Association (the "SEC No-Action
Letters"). "Computational Materials" shall include only those Computational
Materials that have been prepared or delivered to prospective investors by
or at the direction of the Underwriters. In connection with the use of
Computational Materials, the Underwriters shall comply with all applicable
requirements of the SEC No-Action Letters. "Mortgage Loan Information"
shall mean information relating to the Mortgage Loans furnished by Block
Financial Corporation, the Depositor, the Master Servicer or the Seller to
either of the Underwriters upon which the mathematical calculations
reflected in the Computational Materials of the Underwriters are based. All
information included in the Computational Materials shall be generated
based on substantially the same methodology and assumptions that are used
to generate the information in the Prospectus Supplement as set forth
therein; provided, however, that the Computational Materials may include
information based on alternative methodologies or assumptions if specified
therein. The Depositor will timely file with the Commission in current
reports on Form 8-K under the 1934 Act all information with respect to the
Certificates which constitutes Computational Materials, in accordance with
and in the time frames set forth in the SEC No-Action Letters; and
provided, further, that the Depositor shall not be obligated to file any
Computational Materials with the Commission that (i) in the reasonable
determination of the Depositor and the Underwriters are not required to be
filed pursuant to the SEC No-Action Letters or (ii) have been determined to
contain any material error or omission, provided that, at the request of an
Underwriter, the Depositor will file Computational Materials that contain a
material error or omission if clearly marked "superseded by materials dated
[________]" and accompanied by corrected Computational Materials that are
marked "material previously dated [_________], as corrected".
(c) Each indemnified party shall give prompt notice to each indemnifying
party of any action commenced against it with respect to which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve it from any liability which it may have hereunder unless it has been
materially prejudiced by such failure to notify or from any liability which it
may have otherwise than on account of this indemnity agreement. An indemnifying
party may participate at its own expense in the defense of such action. In no
event shall the indemnifying parties be liable for the fees and expenses of more
than one counsel for all indemnified parties in connection with any one action
or separate but similar or related actions in the same jurisdiction arising out
of the same general allegations or circumstances, unless (i) if the defendants
in any such action include one or more of the indemnified parties and the
indemnifying party, and one or more of the indemnified parties shall have
employed separate counsel after having reasonably concluded that there may be
legal defenses available to it or them that are different from or additional to
those available to the indemnifying party or to one or more of the other
indemnified parties or (ii) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of the commencement of
the action.
Section 9. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Section 8 is for any reason held
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to be unenforceable by the indemnified parties although applicable in accordance
with its terms, Block Financial Corporation and the Depositor, on the one hand,
and the Underwriters, on the other, shall contribute to the aggregate losses,
liabilities, claims, damages and expenses of the nature contemplated by said
indemnity agreement incurred by Block Financial Corporation and/or the Depositor
and one or more of the Underwriters (i) in such proportion as shall be
appropriate to reflect the relative benefits to Block Financial Corporation and
the Depositor, on the one hand, and the Underwriters, on the other, in
connection with the matter to which the indemnification relates, which relative
benefits shall be deemed to be such that the Underwriters shall be responsible
for that portion represented by the percentage that the underwriting discount on
the cover of the Prospectus on the Closing Date bears to the initial public
offering price for the Class A Certificates as set forth thereon, and Block
Financial Corporation and the Depositor shall be jointly and severally
responsible for the balance or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law or otherwise prohibited hereby, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of Block Financial
Corporation and the Depositor, on the one hand, and the Underwriters or
Underwriter, as applicable, on the other, in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, or
actions in respect thereof, as well as any other relevant equitable
considerations; provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. Relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by Block Financial Corporation or the Depositor, on the one
hand, or the Underwriters, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. Block Financial Corporation, the Depositor and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section 9 were to be determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take into account the equitable
considerations referred to in the first sentence of this Section 9. The amount
paid by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to in the first sentence of
this Section 9 shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating, preparing
to defend or defending against any action or claim that is the subject of this
Section 9. Notwithstanding the provisions of this Section 9, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total underwriting commission received by such Underwriter for the sale of the
Class A Certificates underwritten by such Underwriter and distributed to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay in respect of such losses, liabilities, claims, damages and
expenses. The Underwriters' obligations in this Section 9 to contribute are
several in proportion to their respective underwriting obligations and not
joint. Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect to which contribution may be sought, it shall promptly give
written notice of such service to the party or parties from whom contribution
may be sought, but the omission so to notify such party or parties of any such
service shall not relieve the party from whom contribution may be sought for any
obligation it may have hereunder or otherwise (except as specifically provided
in Section 8 hereof). For
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purposes of this Section 9, each Person, if any, that controls any Underwriter
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
shall have the same rights to contribution as such Underwriter, and each
respective director of Block Financial Corporation and/or the Depositor, each
respective officer of Block Financial Corporation and/or the Depositor who
signed the Registration Statement, and each Person, if any, that controls Block
Financial Corporation and/or the Depositor within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act shall have the same rights to
contribution as Block Financial Corporation and/or the Depositor.
Section 10. Representations, Warranties and Agreements to Survive Delivery.
All representations, warranties and agreements contained in this Underwriting
Agreement or any statement set forth in any of the certificates of officers of
the Master Servicer, the Seller or the Depositor submitted pursuant hereto shall
remain operative and in full force and effect, regardless of any investigation
made by or on behalf of the Underwriters or controlling Person thereof, or by or
on behalf of the Master Servicer, the Seller or the Depositor and shall survive
delivery of any Class A Certificates to the Underwriters.
Section 11. Termination of Agreement. This Underwriting Agreement shall be
subject to termination by notice given by you to the Depositor if (i) any
change, or any development involving a prospective change, in or affecting
particularly the business or properties of the Trust, any of the Transaction
Parties or the Certificate Insurer which, in your judgment, materially impairs
the investment quality of the Class A Certificates or makes it impractical or
inadvisable to market the Class A Certificates; (ii) any downgrading in the
rating of any securities of the Trust, any of the Transaction Parties or the
Certificate Insurer by any "nationally recognized statistical rating
organization" (as defined for purposes of Rule 436(g) under the 1933 Act), or
any public announcement that any such organization has under surveillance or
review its rating of any securities of the Trust, any of the Transaction Parties
or the Certificate Insurer (other than an announcement with positive
implications of a possible upgrading, and no implication of a possible
downgrading, of such rating); (iii) any suspension or limitation of trading in
securities generally on the New York Stock Exchange, or any setting of minimum
prices for trading on such exchange; (iv) any suspension of trading of any
securities of the Trust, any of the Transaction Parties or the Certificate
Insurer on any exchange or in the over-the-counter market; (v) any banking
moratorium declared by federal or New York authorities; or (vi) any outbreak or
escalation of major hostilities in which the United States is involved, any
declaration of war by Congress, or any other substantial national or
international calamity or emergency if, in your judgment, the effect of any such
outbreak, escalation, declaration, calamity or emergency makes it impractical or
inadvisable to proceed with completion of the sale of and payment for the Class
A Certificates. In the event of any such termination, the covenant set forth in
subsection 5(b), the provisions of Section 7, the indemnity agreement set forth
in Section 8, and the provisions of Sections 9 and 14 shall remain in effect.
Section 12. Default by One of the Underwriters. If one of the Underwriters
participating in the public offering of the Class A Certificates shall fail on
the Closing Date to purchase the Class A Certificates which it is obligated to
purchase hereunder (the "Defaulted Certificates"), then the non-defaulting
Underwriter shall have the right, within 24 hours thereafter, to make
arrangements for it, or any other underwriter, to purchase all, but not fewer
than all, of the
25
<PAGE>
Defaulted Certificates in such amounts as may be agreed upon and upon the terms
herein set forth. If, however, you have not completed such arrangements within
such 24-hour period, then:
(i) if the aggregate principal amount of the Defaulted Certificates
does not exceed 10% of the aggregate principal amount of the Class A
Certificates to be purchased pursuant to this Underwriting Agreement, the
non-defaulting Underwriter named in this Underwriting Agreement shall be
obligated to purchase the full amount thereof, or
(ii) if the aggregate principal amount of the Defaulted Certificates
exceeds 10% of the aggregate principal amount of the Class A Certificates
to be purchased pursuant to this Underwriting Agreement, this Underwriting
Agreement shall terminate, without any liability on the part of the
non-defaulting Underwriter.
No action taken pursuant to this Section 12 shall relieve the defaulting
Underwriter from the liability with respect to any default of such Underwriter
under this Underwriting Agreement.
In the event of a default by any Underwriters as set forth in this Section
12, either you or the Seller shall have the right to postpone the Closing Date
for a period not exceeding five Business Days in order that any required changes
in the Registration Statement or Prospectus or in any other documents or
arrangements may be effected.
Notices. All notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given if mailed or transmitted by any
standard form of telecommunication. Notices to the Underwriters shall be
directed to _________________________________________, and to
______________________________. Notices to the Master Servicer, the Seller or
the Depositor shall be directed to Block Mortgage Finance, Inc., 4435 Main
Street, Suite 500, Kansas City, Missouri 64111, to the attention of the Vice
President, with a copy to the Treasurer.
Section 13. Parties. This Underwriting Agreement shall inure to the benefit
of and be binding upon the Underwriters, the Master Servicer, the Seller and the
Depositor, and their respective successors. Nothing expressed or mentioned in
this Underwriting Agreement is intended nor shall it be construed to give any
person, firm or corporation, other than the parties hereto and their respective
successors and the controlling persons and officers and directors referred to in
Sections 8 and 9 and their heirs and legal representatives, any legal or
equitable right, remedy or claim under or with respect to this Underwriting
Agreement or any provision herein contained. This Underwriting Agreement and all
conditions and provisions hereof are intended to be for the sole and exclusive
benefit of the parties and their respective successors and said controlling
persons and officers and directors and their heirs and legal representatives (to
the extent of their rights as specified herein) and except as provided above for
the benefit of no other person, firm or corporation. No purchaser of the Class A
Certificates from the Underwriters shall be deemed to be a successor by reason
merely of such purchase.
Section 14. Governing Law and Time. This Underwriting Agreement shall be
governed by the law of the State of New York and shall be construed in
accordance with such law applicable to agreements made and to be performed
therein, without giving effect to the conflicts of laws principles thereof.
Specified times of day refer to New York City time.
26
<PAGE>
Section 15. Counterparts. This Underwriting Agreement may be executed in
counterparts, each of which shall constitute an original of any party whose
signature appears on it, and all of which shall together constitute a single
instrument.
If the foregoing is in accordance with the Underwriters' understanding of
our agreement, please sign and return to us a counterpart hereof, whereupon this
instrument along with all counterparts will become a binding agreement among the
Underwriters, the Master Servicer, the Seller and the Depositor in accordance
with its terms.
Very truly yours,
BLOCK MORTGAGE FINANCE, INC. as
Depositor
By:
-------------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
COMPANION MORTGAGE CORPORATION, as
Seller
By:
-------------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
BLOCK FINANCIAL CORPORATION, as
Master Servicer
By:
-------------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
27
<PAGE>
CONFIRMED AND ACCEPTED, as of
the date first above written:
- - - ------------------------------------------
as Representative of the Underwriters
By:
-------------------------------------
Name:
Title:
28
<PAGE>
<TABLE>
<CAPTION>
Schedule A
Underwriting
<S> <C> <C> <C> <C> <C> <C>
Underwriter Class Class Class Class
----------- A-1 A-2 A-3 A-4
Certificate Certificate Certificate Certificate
----------- ----------- ----------- -----------
Certificate
Balance (1)...... $__________ $___________ $__________ $__________
Price to
Public........... __________% ___________% __________% __________%
Underwriting
Discount......... __________% ___________% __________% __________%
Purchase
Price............ $__________ $___________ $__________ $__________
- - - --------------------------------
Certificate
Balance (1)...... $__________ $___________ $__________ $__________
Price to
Public .......... __________% ___________% __________% __________%
Underwriting
Discount......... __________% ___________% __________% __________%
Purchase
Price............ $__________ $___________ $__________ $__________
Underwriter Class Class Class Class
----------- A-5 A-6 A-7 A-8
Certificate Certificates Certificate Certificates
----------- ------------ ----------- ------------
Certificate $__________ $___________ $__________ $____________
Balance (1)......
Price to
Public........... __________% ___________% __________% ____________%
Underwriting
Discount......... __________% ___________% __________% ____________%
Purchase
Price............ $__________ $___________ $___________ $___________
- - - --------------------------------
Certificate
Balance (1)...... $__________ $___________ $___________ $___________
Price to
Public .......... __________% ___________% __________% ____________%
Underwriting
Discount......... __________% ___________% __________% ____________%
Purchase
Price............ $__________ $___________ $___________ $___________
- - - -------------------
(1) Subject to a permitted variance of plus or minus 5%, dependent upon the
principal balance of the Mortgage Loans as of the Cut-Off Date in the Trust
Fund on the Closing Date.
29
</TABLE>
POOLING AND SERVICING AGREEMENT
Relating to
BLOCK MORTGAGE FINANCE ASSET BACKED CERTIFICATES, SERIES _______
Among
BLOCK MORTGAGE FINANCE, INC.,
as Depositor
BLOCK FINANCIAL CORPORATION,
as Master Servicer
COMPANION MORTGAGE CORPORATION,
as Seller
and
---------------------------------------------------,
as Trustee
Dated as of ______________
<PAGE>
CONTENTS
Page
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
Section 1.01 Definitions.....................................................3
ARTICLE II
ESTABLISHMENT AND ORGANIZATION OF THE TRUST
Section 2.01 Establishment of the Trust.....................................38
Section 2.02 Office.........................................................38
Section 2.03 Purposes and Powers............................................38
Section 2.04 Appointment of the Trustee; Declaration of Trust...............39
Section 2.05 Expenses of the Trust..........................................39
Section 2.06 Ownership of the Trust.........................................39
Section 2.07 Situs of the Trust.............................................39
Section 2.08 Miscellaneous REMIC Provisions.................................40
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 3.01 Representations and Warranties of the Depositor................41
Section 3.02 Representations and Warranties of the Master Servicer..........43
Section 3.03 Representations and Warranties of the Seller...................46
Section 3.04 Covenants of Seller to Take Certain Actions with Respect
to the Mortgage Loans in Certain Situations....................49
Section 3.05 Conveyance of the Mortgage Loans and Qualified Replacement
Mortgage Loans.................................................50
Section 3.06 Acceptance by Trustee; Certain Substitutions of Mortgage
Loans; Certification by Trustee................................54
ARTICLE IV
ISSUANCE AND SALE OF CERTIFICATES
Section 4.01 Issuance of Certificates.......................................55
Section 4.02 Sale of Certificates...........................................55
ARTICLE V
CERTIFICATES AND TRANSFER OF INTERESTS
Section 5.01 Terms..........................................................56
Section 5.02 Forms..........................................................56
Section 5.03 Execution, Authentication and Delivery.........................57
Section 5.04 Registration and Transfer of Certificates......................57
Section 5.05 Mutilated, Destroyed, Lost or Stolen Certificates..............59
<PAGE>
Section 5.06 Persons Deemed Owners..........................................60
Section 5.07 Cancellation...................................................60
Section 5.08 Limitation on Transfer of Ownership Rights.....................60
Section 5.09 Assignment of Rights...........................................62
ARTICLE VI
COVENANTS
Section 6.01 Distributions..................................................62
Section 6.02 Money for Distributions to Be Held in Trust; Withholding.......63
Section 6.03 Protection of Trust Estate.....................................64
Section 6.04 Performance of Obligations.....................................65
Section 6.05 Negative Covenants.............................................65
Section 6.06 No Other Powers................................................65
Section 6.07 Limitation of Suits............................................66
Section 6.08 Unconditional Rights of Owners to Receive Distributions........67
Section 6.09 Rights and Remedies Cumulative.................................67
Section 6.10 Delay or Omission Not Waiver...................................67
Section 6.11 Control by Owners..............................................67
Section 6.12 Indemnification................................................68
Section 6.13 Access to Owners' Names and Addresses..........................68
ARTICLE VII
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 7.01 Collection of Money............................................69
Section 7.02 Establishment of Accounts;.....................................69
Section 7.03 Flow of Funds..................................................70
Section 7.04 [Reserved].....................................................75
Section 7.05 Investment of Accounts.........................................75
Section 7.06 Payment of Trust Expenses......................................76
Section 7.07 Permitted Investments..........................................76
Section 7.08 Accounting and Directions by Trustee...........................78
Section 7.09 Reports by Trustee to Owners and Certificate Insurer...........78
Section 7.10 Reports by Trustee.............................................81
Section 7.11 Preference Payments............................................81
ARTICLE VIII
SERVICING AND ADMINISTRATION
Section 8.01 Master Servicer and Sub-Servicers..............................82
Section 8.02 Collection of Certain Mortgage Loan Payments...................83
Section 8.03 Sub-Servicing Agreements Between Master Servicer and Sub-
Servicers......................................................84
ii
<PAGE>
Section 8.04 Successor Sub-Servicers........................................84
Section 8.05 Liability of Master Servicer; Indemnification..................85
Section 8.06 No Contractual Relationship Between Sub-Servicer, Trustee
or the Owners..................................................86
Section 8.07 Assumption or Termination of Sub-Servicing Agreement by
Trustee........................................................86
Section 8.08 Collection Account.............................................87
Section 8.09 Delinquency Advances and Servicing Advances....................88
Section 8.10 Compensating Interest; Repurchase of Mortgage Loans............89
Section 8.11 Maintenance of Insurance.......................................90
Section 8.12 Due-on-Sale Clauses; Assumption and Substitution Agreement.....92
Section 8.13 Realization upon Defaulted Mortgage Loans; Inspection..........93
Section 8.14 Trustee to Cooperate; Release of Files.........................95
Section 8.15 Servicing Compensation.........................................96
Section 8.16 Annual Statement as to Compliance..............................96
Section 8.17 Annual Independent Certified Public Accountants' Reports.......97
Section 8.18 Access to Certain Documentation and Information Regarding the
Mortgage Loans.................................................97
Section 8.19 Merger or consolidation of the Master Servicer; Assignment.....97
Section 8.20 Removal of Master Servicer; Resignation of Master Servicer.....98
Section 8.21 Inspections by Certificate Insurer; Errors and Omissions
Insurance.....................................................103
ARTICLE IX
TERMINATION OF TRUST
Section 9.01 Termination of Trust..........................................103
Section 9.02 Termination upon Option of Owners of Class R Certificates and
Master Servicer...............................................104
Section 9.03 Termination Auction...........................................105
Section 9.04 Termination upon Loss of REMIC Status.........................106
Section 9.05 Disposition of Proceeds.......................................108
ARTICLE X
THE TRUSTEE
Section 10.01 Certain Duties and Responsibilities...........................108
Section 10.02 Removal of Trustee for Cause..................................110
Section 10.03 Certain Rights of the Trustee.................................112
Section 10.04 Not Responsible for Recitals or Issuance of Certificates......113
Section 10.05 May Hold Certificates.........................................114
Section 10.06 Money Held in Trust...........................................114
Section 10.07 Compensation and Reimbursement; No Lien for Fees..............114
Section 10.08 Corporate Trustee Required; Eligibility.......................114
Section 10.09 Resignation and Removal; Appointment of Successor.............115
Section 10.10 Acceptance of Appointment by Successor Trustee................116
iii
<PAGE>
Section 10.11 Merger, Conversion, Consolidation or Succession to Business
of the Trustee................................................117
Section 10.12 Reporting; Withholding........................................117
Section 10.13 Liability of the Trustee......................................117
Section 10.14 Appointment of Co-Trustee or Separate Trustee.................118
ARTICLE XI
MISCELLANEOUS
Section 11.01 Compliance Certificates and Opinions..........................119
Section 11.02 Form of Documents Delivered to the Trustee....................120
Section 11.03 Acts of Owners................................................121
Section 11.04 Notices, etc. to Trustee......................................121
Section 11.05 Notices and Reports to Owners; Waiver of Notices..............122
Section 11.06 Rules by Trustee..............................................122
Section 11.07 Successors and Assigns........................................122
Section 11.08 Severability..................................................123
Section 11.09 Benefits of Agreement.........................................123
Section 11.10 Legal Holidays................................................123
Section 11.11 Governing Law; Submission to Jurisdiction.....................123
Section 11.12 Counterparts..................................................124
Section 11.13 Usury.........................................................124
Section 11.14 Amendment.....................................................125
Section 11.15 Paying Agent; Appointment and Acceptance of Duties............125
Section 11.16 REMIC Status..................................................126
Section 11.17 Additional Limitation on Action and Imposition of Tax.........128
Section 11.18 Appointment of Tax Matters Person.............................128
Section 11.19 The Certificate Insurer.......................................129
Section 11.20 [Reserved]....................................................129
Section 11.21 Third-Party Rights............................................129
Section 11.22 Notices.......................................................129
iv
<PAGE>
SCHEDULE I REPRESENTATIONS AND WARRANTIES AS TO THE MORTGAGE
LOANS
SCHEDULE I-A SCHEDULE OF FIXED RATE GROUP MORTGAGE LOANS
SCHEDULE I-B SCHEDULE OF ADJUSTABLE RATE GROUP MORTGAGE LOANS
EXHIBIT A FORM OF CLASS A CERTIFICATE
EXHIBIT B RESERVED
EXHIBIT C FORM OF CLASS R CERTIFICATE
EXHIBIT D PAYOFF CERTIFICATION
EXHIBIT E FORM OF TRUSTEE'S ACKNOWLEDGEMENT OF RECEIPT
EXHIBIT F FORM OF POOL CERTIFICATION
EXHIBIT G FORM OF DELIVERY ORDER
EXHIBIT H FORM OF AFFIDAVIT FOR CLASS R TRANSFER
EXHIBIT I FORM OF LOST NOTE AFFIDAVIT
EXHIBIT J RESERVED
EXHIBIT K TERMINATION AUCTION PROCEDURES
EXHIBIT L FORM OF LIQUIDATION REPORT
EXHIBIT M FORM OF REQUEST FOR RELEASE OF DOCUMENTS
v
<PAGE>
POOLING AND SERVICING AGREEMENT, relating to BLOCK MORTGAGE FINANCE ASSET
BACKED CERTIFICATES, SERIES ________, dated as of ___________ by and among BLOCK
MORTGAGE FINANCE, INC., a Delaware corporation, in its capacity as Depositor
(the "Depositor"), BLOCK FINANCIAL CORPORATION, a Delaware corporation, in its
capacity as Master Servicer (the "Master Servicer"), COMPANION MORTGAGE
CORPORATION, a Delaware corporation, in its capacity as Seller (the "Seller"),
and_____________________________, a national banking association, in its
capacity as the trustee (the "Trustee").
WHEREAS, the Depositor wishes to establish a trust and provide for the
allocation and sale of the beneficial interests therein and the maintenance and
distribution thereof;
WHEREAS, the Master Servicer has agreed to service the Mortgage Loans,
which constitute the principal assets of the trust estate;
WHEREAS, all things necessary to make the Certificates, when executed and
authenticated by the Trustee, valid instruments, and to make this Agreement a
valid agreement, in accordance with their and its terms, have been done;
WHEREAS, _________________________ is willing to serve in the capacity
of Trustee hereunder; and
WHEREAS, _____________________ is intended to be a third-party beneficiary
with the right to enforce this Agreement as if it were a party to this Agreement
and is hereby recognized by the parties hereto to be a third-party beneficiary
with the right to enforce this Agreement as if it were a party to this Agreement
so long as no Certificate Insurer Default has occurred and is continuing.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the Depositor, the Seller, the Master Servicer and the Trustee
hereby agree as follows:
CONVEYANCE
To provide for the distribution of the principal of and/or interest on the
Class A Certificates and the Class R Certificates in accordance with their
terms, all of the sums distributable under this Agreement with respect to the
Certificates and the performance of the covenants contained in this Agreement,
the Seller hereby bargains, sells, conveys, assigns and transfers to the
Depositor and the Depositor hereby bargains, sells, conveys, assigns and
transfers to the Trustee, in trust, without recourse (except as provided herein)
and for the exclusive benefit of the Owners of the Certificates and the
Certificate Insurer, all of its respective right, title and interest in and to
any and all benefits accruing to it from (a) the Mortgage Loans (other than any
principal and interest payments received or, with respect to an Actuarial Loan,
due thereon on or prior to the Cut-Off Date) listed in Schedules I-A and I-B to
this Agreement which the Seller is causing to be delivered to the Depositor and
the Depositor is causing to be delivered to the Trustee herewith (and all
substitutions therefor as provided by Sections 3.03, 3.04 and 3.06), together
with the related Mortgage Loan documents and the Seller's and Depositor's
interest in any Mortgaged Property which secures a Mortgage Loan but which has
been acquired by foreclosure or deed in lieu of foreclosure, and all payments
thereon and
<PAGE>
proceeds of the conversion, voluntary or involuntary, of the foregoing; (b) such
amounts as may be held by the Trustee in the Distribution Account, exclusive of
investment earnings on such amounts (except as otherwise provided herein) and
such amounts as may be held by the Master Servicer in the name of the Trustee in
the Collection Account, if any, exclusive of investment earnings thereon (except
as otherwise provided herein), whether in the form of cash, instruments,
securities or other properties (including any Permitted Investments held by the
Master Servicer); (c) with respect to the Class A Certificates, the Certificate
Insurance Policies and (d) proceeds of all the foregoing (including, but not by
way of limitation, all proceeds of any mortgage insurance, hazard insurance and
title insurance policy relating to the Mortgage Loans, cash proceeds, accounts,
accounts receivable, notes, drafts, acceptances, chattel paper, checks, deposit
accounts, rights to payment of any and every kind, and other forms of
obligations and receivables which at any time constitute all or part of or are
included in the proceeds of any of the foregoing) to pay the Certificates as
specified herein ((a)-(d) above shall be collectively referred to herein as the
"Trust Estate"), excluding the proceeds of the Certificate Insurance Policies
except with respect to the Class A Certificates.
The Trustee acknowledges such sale, accepts the Trust hereunder in
accordance with the provisions hereof and agrees to perform the duties according
to their terms.
2
<PAGE>
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
Section 1.01 Definitions.
For all purposes of this Agreement, the following terms shall have the
meanings set forth below, unless the context clearly indicates otherwise:
"Account": Any account established in accordance with Section 7.02 or
8.08 hereof.
"Accrual Period": With respect to the Group 1 Certificates and the Class
A-8 Certificates and any Distribution Date, the calendar month immediately
preceding the month in which the Distribution Date occurs; a "calendar month"
shall be deemed to be 30 days. With respect to the Class A-7 Certificates and
any Distribution Date, the period commencing on the immediately preceding
Distribution Date (or the Start-up Date in the case of the first Distribution
Date) and ending on the day immediately preceding the current Distribution Date.
All calculations of interest on the Group 1 Certificates and the Class A-8
Certificates will be made on the basis of a 360-day year assumed to consist of
twelve 30-day months and calculations of interest on the Class A-7 Certificates
will be made on the basis of the actual number of days elapsed in the related
Accrual Period and a year of 360 days.
"Actuarial Loan": Any Mortgage Loan as to which, pursuant to the Note
related thereto, interest is computed and charged to the Mortgagor at the
Mortgage Rate on the outstanding principal balance of such Note as of a
scheduled day of each month which is fixed at the time of origination, with the
effect that Scheduled Payments made by the related Mortgagor on such Mortgage
Loan either earlier or later than the scheduled due dates thereof will not
affect the amortization schedule or the relative application of such payments to
principal and interest.
"Adjustable Rate Group": The pool of Mortgage Loans identified in the
related Schedule of Mortgage Loans as having been assigned to the Adjustable
Rate Group in Schedule I-B hereto, including any Qualified Replacement Mortgage
Loans delivered in replacement thereof.
"Adjustable Rate Group Specified Subordinated Amount": As defined in the
Insurance Agreement.
"Adjustable Rate Group Subordinated Amount": As of any Distribution Date,
the excess, if any, of (x) the aggregate Loan Balances of the Mortgage Loans in
the Adjustable Rate Group as of the close of business on the last day of the
related Due Period (taking into account Curtailments with respect to Actuarial
Loans, Net Liquidation Proceeds and Prepayments collected during the related
Prepayment Period and, with respect to Actuarial Loans in the Adjustable Rate
Group, any Scheduled Payments due on or before the last day of the related Due
Period and in the Collection Account as of the related Determination Date) over
(y) the sum of the Class A-7 Certificate Principal Balance and the Class A-8
Certificate Principal Balance as of such Distribution Date after
3
<PAGE>
taking into account the payment of the Group 2 Principal Distribution Amount
thereon (except for any Subordination Deficit with respect to the Adjustable
Rate Group and Subordination Increase Amount with respect to the Adjustable Rate
Group on such Distribution Date).
"Adjusted Pass-Through Rate": A rate equal to the sum of (a) the Weighted
Average Pass-Through Rate plus (b) any portion of the Insurance Premium Amount
and the Trustee Fee (calculated as a percentage of the outstanding principal
amount of the Certificates) then accrued and outstanding.
"Advisor": As defined in Section 9.03 hereof.
"Agreement": This Pooling and Servicing Agreement, as it may be amended
from time to time, including the Exhibits and Schedules hereto.
"Annual Loss Percentage (Rolling Twelve Month)": As of any date of
determination thereof commencing _______________, a fraction, expressed as a
percentage, the numerator of which is the aggregate Realized Losses that
occurred during the twelve immediately preceding Due Periods and the denominator
of which is the aggregate Loan Balance of the Mortgage Loans on the twelfth
Determination Date preceding such date.
"Appraised Value": The appraised value of any Mortgaged Property based upon
the appraisal or other valuation made at or within six months of the origination
of the related Mortgage Loan, or, in the case of a Mortgage Loan which is a
purchase money mortgage (or a "lease option purchase" in which the sale price
was set less than 12 months prior to origination), the sale price of the
Mortgaged Property at such time of origination, if such sale price is less than
such appraised value.
"Auction Date": As defined in Section 9.03 hereof.
"Auction Procedures": As defined in Section 9.03 hereof.
"Authorized Officer": With respect to any Person, any officer or employee
of such Person who is authorized to act for such Person in matters relating to
this Agreement, and whose action is binding upon such Person; with respect to
the Depositor, the Seller, the Master Servicer or any Sub-Servicer, initially
including those individuals whose names appear on the lists of Authorized
Officers delivered at the Closing; with respect to the Trustee, any Vice
President, any Assistant Vice President, any Assistant Secretary or any
Assistant Treasurer.
"Available Funds": The Group 1 Available Funds or the Group 2
Available Funds, as the case may be.
"Available Funds Shortfall": A Group 1 Available Funds Shortfall or Group 2
Available Funds Shortfall, as the case may be.
4
<PAGE>
"Basis Risk Carryover Amount": With respect to any Distribution Date, the
sum of the Basis Risk Excess for such Distribution Date and any Basis Risk
Excess which remains unpaid from prior Distribution Dates.
"Basis Risk Excess": With respect to any Distribution Date as to which the
Class A-7 Pass-Through Rate is the Class A-7 Available Funds Cap Rate, the
excess of (i) the amount of interest the Class A-7 Certificates would be
entitled to receive on such Distribution Date at the lesser of (a) the Net
Lifetime Cap for such Distribution Date and (b) the then-applicable Class A-7
Pass-Through Rate without reference to the Class A-7 Available Funds Cap Rate
over (ii) the amount of interest the Class A-7 Certificates will receive on such
Distribution Date at the Class A-7 Available Funds Cap Rate.
"BFC Investor Guide": The BFC Investor Guide, as may be amended by the
Master Servicer from time to time.
"Business Day": Any day that is not a Saturday, Sunday or other day on
which commercial banking institutions in The City of New York, the States of
California, Illinois, Georgia, or Missouri or in the cities in which the
principal Corporate Trust Office of the Trustee or the principal offices of the
Certificate Insurer are located, are authorized or obligated by law or executive
order to be closed.
"Carry Forward Amount": With respect to any Class of the Class A
Certificates for any Distribution Date, the sum of (x) the amount, if any, by
which (i) the Class A Distribution Amount allocable to such Class as of the
immediately preceding Distribution Date exceeded (ii) the amount of the actual
distribution made to the Owners of such Class of the Class A Certificates on
such immediately preceding Distribution Date plus (y) 30 days' interest on such
amount at the Pass-Through Rate in effect with respect to such Class of Class A
Certificates.
"Cashout Refinance Mortgage Loan": Any Mortgage Loan that is not a
Rate/Term Refinance Mortgage Loan or a Purchase Mortgage Loan.
"Certificate": Any one of the Class A Certificates or Class R Certificates,
each representing the interests and the rights described in this Agreement.
"Certificate Insurance Policies": The Group 1 Certificate Insurance Policy
and the Group 2 Certificate Insurance Policy.
"Certificate Insurer": _________________________________, or any successor
thereto, as issuer of the Certificate Insurance Policies.
"Certificate Insurer Default": The existence and continuance of any of the
following:
(a) the Certificate Insurer fails to make a payment required under a
Certificate Insurance Policy in accordance with its terms; or
5
<PAGE>
(b)(i) the entry by a court having jurisdiction in the premises of
(A) a decree or order for relief in respect of the Certificate Insurer in an
involuntary case or proceeding under any applicable United States federal or
state bankruptcy, insolvency, rehabilitation, reorganization or other similar
law or (B) a decree or order adjudging the Certificate Insurer as bankrupt or
insolvent, or approving as properly filed a petition seeking reorganization,
rehabilitation, arrangement, adjustment or composition of or in respect of the
Certificate Insurer under any applicable United States federal or state law, or
appointing a custodian, receiver, liquidator, rehabilitator, assignee, trustee,
sequestrator or other similar official of the Certificate Insurer or of any
substantial part of its property, or ordering the winding-up or liquidation of
its affairs, and the continuance of any such decree or order for relief or any
such other decree or order unstayed and in effect for a period of 90 consecutive
days; or
(ii) the commencement by the Certificate Insurer of a voluntary case
or proceeding under any applicable United States federal or state bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated as bankrupt or insolvent, or the consent of the
Certificate Insurer to the entry of a decree or order for relief in respect of
the Certificate Insurer in an involuntary case or proceeding under any
applicable United States federal or state bankruptcy, insolvency case or
proceeding against the Certificate Insurer, or the acquiescence by the
Certificate Insurer to the filing of such petition or to the appointment of or
the taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Certificate Insurer or of any
substantial part of its property, or the failure of the Certificate Insurer to
pay debts generally as they become due, or the admission by the Certificate
Insurer in writing of its inability to pay its debts generally as they become
due.
"Certificate Principal Balance": As of the Start-up Day as to each of the
following Classes of Class A Certificates, the principal balances thereof, as
follows:
Class A-1 Certificates - $___________
Class A-2 Certificates - $___________
Class A-3 Certificates - $___________
Class A-4 Certificates - $___________
Class A-5 Certificates - $___________
Class A-6 Certificates - $___________
Class A-7 Certificates - $___________
Class A-8 Certificates - $___________
The Class R Certificates do not have a Certificate Principal Balance.
6
<PAGE>
"Class": Any class of the Class A Certificates or the Class R Certificates.
"Class A Certificate": Any one of the Class A-1 Certificates, Class A-2
Certificates, Class A-3 Certificates, Class A-4 Certificates, Class A-5
Certificates, Class A-6 Certificates, Class A-7 Certificates or Class A-8
Certificates.
"Class A Certificate Principal Balance": As of any time of determination,
the Certificate Principal Balance as of the Start-up Day of all Class A
Certificates less any amounts actually distributed on such Class A Certificates
with respect to the Class A Distribution Amount pursuant to Section
7.03(c)(iii)(D) with respect to principal thereon on all prior Distribution
Dates (except, for purposes of effecting the Certificate Insurer's subrogation
rights, that portion of Insured Payments made in respect of principal).
"Class A Certificate Termination Date": With respect to the Class A-1
Certificates, the Class A-1 Certificate Termination Date, with respect to the
Class A-2 Certificates, the Class A-2 Certificate Termination Date, with respect
to the Class A-3 Certificates, the Class A-3 Certificate Termination Date, with
respect to the Class A-4 Certificates, the Class A-4 Certificate Termination
Date, with respect to the Class A-5 Certificates, the Class A-5 Certificate
Termination Date, with respect to the Class A-6 Certificates, the Class A-6
Certificate Termination Date, with respect to the Class A-7 Certificates, the
Class A-7 Certificate Termination Date and with respect to the Class A-8
Certificates, the Class A-8 Certificate Termination Date.
"Class A Distribution Amount": The sum of the Class A-1 Distribution
Amount, Class A-2 Distribution Amount, Class A-3 Distribution Amount, and Class
A-4 Distribution Amount, Class A-5 Distribution Amount, the Class A-6
Distribution Amount, the Class A-7 Distribution Amount and the Class A-8
Distribution Amount.
"Class A-1 Certificate": Any one of the Certificates designated on the face
thereof as a Class A-1 Certificate, substantially in the form annexed hereto as
Exhibit A, authenticated and delivered by the Trustee, representing the right to
distributions as set forth herein.
"Class A-1 Certificate Principal Balance": As of any time of determination,
the Certificate Principal Balance as of the Start-up Day of all Class A-1
Certificates less any amounts actually distributed with respect to the Class A-1
Distribution Amount pursuant to Section 7.03(c)(iii)(D) hereof with respect to
principal thereon on all prior Distribution Dates (except, for purposes of
effecting the Certificate Insurer's subrogation rights, that portion of Insured
Payments made in respect of principal).
"Class A-1 Certificate Termination Date": The Distribution Date on which
the Class A-1 Certificate Principal Balance is reduced to zero.
"Class A-1 Current Interest": With respect to any Distribution Date, the
amount of interest accrued on the Class A-1 Certificate Principal Balance
immediately prior to such Distribution Date during the related Accrual Period at
the Class A-1 Pass-Through Rate (net of Net Prepayment
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Interest Shortfalls and the interest portion of reductions due to the Relief
Act) plus the Preference Amount owed to the Owners of the Class A-1 Certificates
as it relates to interest previously paid on the Class A-1 Certificates plus the
portion of the Carry Forward Amount, if any, with respect to the Class A-1
Certificates relating to interest (net of Net Prepayment Interest Shortfalls and
the interest portion of reductions due to the Relief Act).
"Class A-1 Distribution Amount": The sum of (x) Class A-1 Current Interest
and (y) the Group 1 Principal Distribution Amount payable to the Owners of the
Class A-1 Certificates pursuant to Section 7.03(c)(iii)(D) hereof.
"Class A-1 Pass-Through Rate": ________% per annum.
"Class A-2 Certificate": Any one of the Certificates designated on the face
thereof as a Class A-2 Certificate, substantially in the form annexed hereto as
Exhibit A, authenticated and delivered by the Trustee, representing the right to
distributions as set forth herein.
"Class A-2 Certificate Principal Balance": As of any time of determination,
the Certificate Principal Balance as of the Start-up Day of all Class A-2
Certificates less any amounts actually distributed with respect to the Class A-2
Distribution Amount pursuant to Section 7.03(c)(iii)(D) hereof with respect to
principal thereon on all prior Distribution Dates (except, for purposes of
effecting the Certificate Insurer's subrogation rights, that portion of Insured
Payments made in respect of principal).
"Class A-2 Certificate Termination Date": The Distribution Date on which
the Class A-2 Certificate Principal Balance is reduced to zero.
"Class A-2 Current Interest": With respect to any Distribution Date, the
amount of interest accrued on the Class A-2 Certificate Principal Balance
immediately prior to such Distribution Date during the related Accrual Period at
the Class A-2 Pass-Through Rate (net of Net Prepayment Interest Shortfalls and
the interest portion of reductions due to the Relief Act) plus the Preference
Amount owed to the Owners of the Class A-2 Certificates as it relates to
interest previously paid on the Class A-2 Certificates plus the portion of the
Carry Forward Amount, if any, with respect to the Class A-2 Certificates
relating to interest (net of Net Prepayment Interest Shortfalls and the interest
portion of reductions due to the Relief Act).
"Class A-2 Distribution Amount": The sum of (x) Class A-2 Current Interest
and (y) the Group 1 Principal Distribution Amount payable to the Owners of the
Class A-2 Certificates pursuant to Section 7.03(c)(iii)(D) hereof.
"Class A-2 Pass-Through Rate": ________% per annum.
"Class A-3 Certificate": Any one of the Certificates designated on the face
thereof as a Class A-3 Certificate, substantially in the form annexed hereto as
Exhibit A, authenticated and delivered by the Trustee, representing the right to
distributions as set forth herein.
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"Class A-3 Certificate Principal Balance": As of any time of determination,
the Certificate Principal Balance as of the Start-up Day of all Class A-3
Certificates less any amounts actually distributed with respect to the Class A-3
Distribution Amount pursuant to Section 7.03(c)(iii)(D) hereof with respect to
principal thereon on all prior Distribution Dates (except, for purposes of
effecting the Certificate Insurer's subrogation rights, that portion of Insured
Payments made in respect of principal).
"Class A-3 Certificate Termination Date": The Distribution Date on which
the Class A-3 Certificate Principal Balance is reduced to zero.
"Class A-3 Current Interest": With respect to any Distribution Date, the
amount of interest accrued on the Class A-3 Certificate Principal Balance
immediately prior to such Distribution Date during the related Accrual Period at
the Class A-3 Pass-Through Rate (net of Net Prepayment Interest Shortfalls and
the interest portion of reductions due to the Relief Act) plus the Preference
Amount owed to the Owners of the Class A-3 Certificates as it relates to
interest previously paid on the Class A-3 Certificates plus the portion of the
Carry Forward Amount, if any, with respect to the Class A-3 Certificates
relating to interest (net of Net Prepayment Interest Shortfalls and the interest
portion of reductions due to the Relief Act).
"Class A-3 Distribution Amount": The sum of (x) Class A-3 Current Interest
and (y) the Group 1 Principal Distribution Amount payable to the Owners of the
Class A-3 Certificates pursuant to Section 7.03(c)(iii)(D) hereof.
"Class A-3 Pass-Through Rate": ________% per annum.
"Class A-4 Certificate": Any one of the Certificates designated on the face
thereof as a Class A-4 Certificate, substantially in the form annexed hereto as
Exhibit A, authenticated and delivered by the Trustee, representing the right to
distributions as set forth herein.
"Class A-4 Certificate Principal Balance": As of any time of determination,
the Certificate Principal Balance as of the Start-up Day of all Class A-4
Certificates less any amounts actually distributed with respect to the Class A-4
Distribution Amount pursuant to Section 7.03(c)(iii)(D) hereof with respect to
principal thereon on all prior Distribution Dates (except, for purposes of
effecting the Certificate Insurer's subrogation rights, that portion of Insured
Payments made in respect of principal).
"Class A-4 Certificate Termination Date": The Distribution Date on which
the Class A-4 Certificate Principal Balance is reduced to zero.
"Class A-4 Current Interest": With respect to any Distribution Date, the
amount of interest accrued on the Class A-4 Certificate Principal Balance
immediately prior to such Distribution Date during the related Accrual Period at
the Class A-4 Pass-Through Rate (net of Net Prepayment Interest Shortfalls and
the interest portion of reductions due to the Relief Act) plus the Preference
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Amount owed to the Owners of the Class A-4 Certificates as it relates to
interest previously paid on the Class A-4 Certificates plus the portion of the
Carry Forward Amount, if any, with respect to the Class A-4 Certificates
relating to interest (net of Net Prepayment Interest Shortfalls and the interest
portion of reductions due to the Relief Act).
"Class A-4 Distribution Amount": The sum of (x) Class A-4 Current Interest
and (y) the Group 1 Principal Distribution Amount payable to the Owners of the
Class A-4 Certificates pursuant to Section 7.03(c)(iii)(D) hereof.
"Class A-4 Pass-Through Rate": ________% per annum.
"Class A-5 Certificate": Any one of the Certificates designated on the face
thereof as a Class A-5 Certificate, substantially in the form annexed hereto as
Exhibit A, authenticated and delivered by the Trustee, representing the right to
distributions as set forth herein.
"Class A-5 Certificate Principal Balance": As of any time of determination,
the Certificate Principal Balance as of the Start-up Day of all Class A-5
Certificates less any amounts actually distributed with respect to the Class A-5
Distribution Amount pursuant to Section 7.03(c)(iii)(D) hereof with respect to
principal thereon on all prior Distribution Dates (except, for purposes of
effecting the Certificate Insurer's subrogation rights, that portion of Insured
Payments made in respect of principal).
"Class A-5 Certificate Termination Date": The Distribution Date on which
the Class A-5 Certificate Principal Balance is reduced to zero.
"Class A-5 Current Interest": With respect to any Distribution Date, the
amount of interest accrued on the Class A-5 Certificate Principal Balance
immediately prior to such Distribution Date during the related Accrual Period at
the Class A-5 Pass-Through Rate (net of Net Prepayment Interest Shortfalls and
the interest portion of reductions due to the Relief Act) plus the Preference
Amount owed to the Owners of the Class A-5 Certificates as it relates to
interest previously paid on the Class A-5 Certificates plus the portion of the
Carry Forward Amount, if any, with respect to the Class A-5 Certificates
relating to interest (net of Net Prepayment Interest Shortfalls and the interest
portion of reductions due to the Relief Act).
"Class A-5 Distribution Amount": The sum of (x) Class A-5 Current Interest
and (y) the Group 1 Principal Distribution Amount payable to the Owners of the
Class A-5 Certificates pursuant to Section 7.03(c)(iii)(D) hereof.
"Class A-5 Pass-Through Rate": Prior to the Optional Termination Date
______% per annum and on and after the Optional Termination Date, _______% per
annum.
"Class A-6 Certificate": Any one of the Certificates designated on the face
thereof as a Class A-6 Certificate, substantially in the form annexed hereto as
Exhibit A, authenticated and delivered by the Trustee, representing the right to
distributions as set forth herein.
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"Class A-6 Certificate Principal Balance": As of any time of determination,
the Certificate Principal Balance as of the Start-up Day of all Class A-6
Certificates less any amounts actually distributed with respect to the Class A-6
Distribution Amount pursuant to Section 7.03(c)(iii)(D) hereof with respect to
principal thereon on all prior Distribution Dates (except, for purposes of
effecting the Certificate Insurer's subrogation rights, that portion of Insured
Payments made in respect of principal).
"Class A-6 Certificate Termination Date": The Distribution Date on which
the Class A-6 Certificate Principal Balance is reduced to zero.
"Class A-6 Current Interest": With respect to any Distribution Date, the
amount of interest accrued on the Class A-6 Certificate Principal Balance
immediately prior to such Distribution Date during the related Accrual Period at
the Class A-6 Pass-Through Rate (net of Net Prepayment Interest Shortfalls and
the interest portion of reductions due to the Relief Act) plus the Preference
Amount owed to the Owners of the Class A-6 Certificates as it relates to
interest previously paid on the Class A-6 Certificates plus the portion of the
Carry Forward Amount, if any, with respect to the Class A-6 Certificates
relating to interest (net of Net Prepayment Interest Shortfalls and the interest
portion of reductions due to the Relief Act).
"Class A-6 Distribution Amount": The sum of (x) Class A-6 Current Interest
and (y) the Group 1 Principal Distribution Amount payable to the Owners of the
Class A-6 Certificates pursuant to Section 7.03(c)(iii)(D) hereof.
"Class A-6 Lockout Distribution Amount": For any Distribution Date, the
lesser of (a) the product of (i) the applicable Class A-6 Lockout Percentage for
such Distribution Date and (ii) the Class A-6 Lockout Pro Rata Distribution
Amount for such Distribution Date and (b) the Class A-6 Certificates Principal
Balance.
"Class A-6 Lockout Percentage": For each Payment Date is as follows:
Payment Dates Lockout Percentage
___________-__________ %
___________-__________ %
___________-__________ %
___________-__________ %
___________ and thereafter %
"Class A-6 Lockout Pro Rata Distribution Amount": For any Distribution
Date, an amount equal to the product of (x) a fraction, the numerator of which
is the Certificate Principal Balance of the Class A-6 Certificates immediately
prior to such Distribution Date and the denominator of which is the aggregate
Certificate Principal Balance of all Classes of the Group 1 Certificates
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immediately prior to such Distribution Date and (y) the Group 1 Principal
Distribution Amount for such Distribution Date.
"Class A-6 Pass-Through Rate": Prior to the Optional Termination Date
_____% per annum and on and after the Optional Termination Date, ______% per
annum.
"Class A-7 Available Funds Cap Rate": On any Distribution Date prior to the
seventh Distribution Date, the weighted average of the Mortgage Rates of the
Mortgage Loans in the Adjustable Rate Group as of the first day of the related
Due Period (taking into account Curtailments with respect to Actuarial Loans,
Net Liquidation Proceeds and Prepayments received during the immediately
preceding Prepayment Period and with respect to the Actuarial Loans in the
Adjustable Rate Group, Scheduled Payments due during the prior Due Period and in
the Collection Account as of the prior Determination Date), less the Expense
Rate and, on any Distribution Date on and after the seventh Distribution Date,
_______% per annum.
"Class A-7 Certificate": Any one of the Certificates designated on the face
thereof as a Class A-7 Certificate, substantially in the form annexed hereto as
Exhibit A, authenticated and delivered by the Trustee, representing the right to
distributions as set forth herein.
"Class A-7 Certificate Principal Balance": As of any time of determination,
the Certificate Principal Balance as of the Start-up Day of all Class A-7
Certificates less any amounts actually distributed with respect to the Class A-7
Distribution Amount pursuant to Section 7.03(c)(iii)(D) hereof with respect to
principal thereon on all prior Distribution Dates (except, for purposes of
effecting the Certificate Insurer's subrogation rights, that portion of Insured
Payments made in respect of principal).
"Class A-7 Certificate Termination Date": The Distribution Date on which
the Class A-7 Certificate Principal Balance is reduced to zero.
"Class A-7 Current Interest": With respect to any Distribution Date, the
amount of interest accrued on the Class A-7 Certificate Principal Balance
immediately prior to such Distribution Date during the related Accrual Period at
the Class A-7 Pass-Through Rate (net of Net Prepayment Interest Shortfalls and
the interest portion of reductions due to the Relief Act) plus the Preference
Amount owed to the Owners of the Class A-7 Certificates as it relates to
interest previously paid on the Class A-7 Certificates plus the portion of the
Carry Forward Amount, if any, with respect to the Class A-7 Certificates
relating to interest (net of Net Prepayment Interest Shortfalls and the interest
portion of reductions due to the Relief Act).
"Class A-7 Distribution Amount": The sum of (x) Class A-7 Current Interest
and (y) the Group 2 Principal Distribution Amount payable to the Owners of Class
A-7 Certificates pursuant to Section 7.03(c)(iii)(D) hereof.
"Class A-7 Pass-Through Rate": For any Distribution Date in any month prior
to the month in which the Optional Termination Date occurs, the lesser of (i)
LIBOR plus _____% per annum
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and (ii) the Class A-7 Available Funds Cap Rate for such Distribution Date, and
for any Distribution Date in any month commencing with the month in which the
Optional Termination Date occurs, the lesser of (i) LIBOR plus ______% per annum
and (ii) the Class A-7 Available Funds Cap Rate for such Distribution Date.
"Class A-8 Certificate": Any one of the Certificates designated on the face
thereof as a Class A-8 Certificate, substantially in the form annexed hereto as
Exhibit A, authenticated and delivered by the Trustee, representing the right to
distributions as set forth herein.
"Class A-8 Certificate Principal Balance": As of any time of determination,
the Certificate Principal Balance as of the Start-up Day of all Class A-8
Certificates less any amounts actually distributed with respect to the Class A-8
Distribution Amount pursuant to Section 7.03(c)(iii)(D) hereof with respect to
principal thereon on all prior Distribution Dates (except, for purposes of
effecting the Certificate Insurer's subrogation rights, that portion of Insured
Payments made in respect of principal).
"Class A-8 Certificate Termination Date": The Distribution Date on which
the Class A-8 Certificate Principal Balance is reduced to zero.
"Class A-8 Current Interest": With respect to any Distribution Date, the
amount of interest accrued on the Class A-8 Certificate Principal Balance
immediately prior to such Distribution Date during the related Accrual Period at
the Class A-8 Pass-Through Rate (net of Net Prepayment Interest Shortfalls and
the interest portion of reductions due to the Relief Act) plus the Preference
Amount owed to the Owners of the Class A-8 Certificates as it relates to
interest previously paid on the Class A-8 Certificates plus the portion of the
Carry Forward Amount, if any, with respect to the Class A-8 Certificates
relating to interest (net of Net Prepayment Interest Shortfalls and the interest
portion of reductions due to the Relief Act).
"Class A-8 Distribution Amount": The sum of (x) Class A-8 Current Interest
and (y) the Group 2 Principal Distribution Amount payable to the Owners of the
Class A-8 Certificates pursuant to Section 7.03(c)(iii)(D) hereof.
"Class A-8 Lockout Distribution Amount": For any Distribution Date, the
lesser of (a) the product of (i) the applicable Class A-8 Lockout Percentage for
such Distribution Date and (ii) the Class A-8 Lockout Pro Rata Distribution
Amount for such Distribution Date and (b) the Class A-8 Certificate Principal
Balance.
"Class A-8 Lockout Percentage": For each Payment Date is as follows:
Payment Dates Lockout Percentage
__________-_________ %
__________-_________ %
__________ and thereafter %
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"Class A-8 Lockout Pro Rata Distribution Amount": For any Distribution Date
(A) occurring prior to ______________, an amount equal to the product of (x) a
fraction, the numerator of which is the Class A-8 Certificate Principal Balance
immediately prior to such Distribution Date and the denominator of which is the
aggregate Certificate Principal Balance of all Classes of the Group 2
Certificates immediately prior to such Distribution Date and (y) the Group 2
Principal Distribution Amount for such Distribution Date, and (B) occurring in
or after ___________, the Group 2 Principal Distribution Amount for such
Distribution Date.
"Class A-8 Pass-Through Rate": ______% per annum.
"Class R Certificate": Any one of the Certificates designated on the face
thereof as a Class R Certificate, substantially in the form annexed hereto as
Exhibit C, authenticated and delivered by the Trustee, representing the right to
distributions as set forth herein, and evidencing an interest designated as the
"residual interest" in the Trust Fund for the purposes of the REMIC Provisions.
"Class R Optionholder": Any Owner of the Class R Certificates which
represent a Percentage Interest of 99.999% or greater.
"Closing": As defined in Section 4.02 hereof.
"Code": The Internal Revenue Code of 1986, as amended.
"Collection Account": One or more collection accounts created or caused to
be created by the Master Servicer pursuant to Section 8.08(a) hereof.
"Compensating Interest": As defined in Section 8.10(a) hereof.
"Corporate Trust Office": The principal office of the Trustee at
__________________________.
"Cram Down Losses": With respect to a Mortgage Loan, if a court of
appropriate jurisdiction in an insolvency proceeding shall have issued an order
reducing the Loan Balance or the Mortgage Rate of such Mortgage Loan, the amount
of such reduction in principal balance or reduction in accrued interest. A "Cram
Down Loss" shall be deemed to have occurred on the date of issuance of such
order.
"_____": _____, as the initial Sub-Servicer.
"Cumulative Loss Percentage": As of any date of determination thereof, the
Cumulative Realized Losses as a percentage of the Original Aggregate Loan
Balance of the Mortgage Loans.
"Cumulative Realized Losses": As of any date of determination, the
aggregate amount of Realized Losses with respect to the Mortgage Loans since the
Cut-Off Date.
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"Current Interest": With respect to any Distribution Date, the sum of the
Class A-1 Current Interest, Class A-2 Current Interest, Class A-3 Current
Interest, Class A-4 Current Interest, Class A-5 Current Interest, Class A-6
Current Interest, Class A-7 Current Interest and Class A-8 Current Interest.
"Curtailments": Any partial prepayment of principal of a Mortgage Loan
which is received by the Master Servicer in advance of the scheduled due date
for the payment of such principal (other than the principal portion of any
Prepaid Installment or any Prepayment).
"Cut-Off Date": With respect to Actuarial Loans, as of the close of
business on __________ and with respect to Simple Interest Loans, as of the
beginning of business on ___________.
"Delinquency Advance": As defined in Section 8.09(a) hereof.
"Delinquent": A Mortgage Loan is "Delinquent" if any payment due thereon is
not made by the close of business on the day such payment is scheduled to be due
(without regard to grace periods). A Mortgage Loan is "30 days Delinquent" if
such payment has not been received by the close of business on the corresponding
day of the month immediately succeeding the month in which such payment was due,
or, if there is no such corresponding day (e.g., as when a 30-day month follows
a 31-day month in which a payment was due on the 31st day of such month) then on
the last day of such immediately succeeding month. Similarly for "60 days
Delinquent," "90 days Delinquent" and so on.
"Delivery Order": The delivery order in the form set forth as Exhibit G
hereto and delivered by the Depositor to the Trustee on the Startup Day pursuant
to Section 4.01 hereof.
"Depositor": Block Mortgage Finance, Inc., a Delaware corporation, or any
successor thereto.
"Depository": The Depository Trust Company, 7 Hanover Square, New York, New
York 10004, and any successor Depository hereafter named.
"Determination Date": The 13th day of any month, or if such 13th day is not
a Business Day, the Business Day immediately preceding such 13th day, commencing
in the month following the Startup Day.
"Direct Participant" or "DTC Participant": Any broker-dealer, bank or other
financial institution for which the Depository holds Class A Certificates from
time to time as a securities depository
"Disqualified Organization": Shall have the meaning set forth from time to
time in the definition thereof at Section 860E(e)(5) of the Code (or any
successor statute thereto) and applicable to the Trust.
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"Distribution Account": The distribution account established in accordance
with Section 7.02(a) hereof and maintained in the corporate trust department of
the Trustee; provided that the funds in such account shall not be commingled
with other funds held by the Trustee.
"Distribution Date": Any date on which the Trustee is required to make
distributions to the Owners, which shall be the 25th day of each month or if
such day is not a Business Day, the next Business Day thereafter, commencing in
the month following the Startup Day.
"Due Period": With respect to any Monthly Remittance Date, and (a) with
respect to Simple Interest Loans (other than Net Liquidation Proceeds and
Prepayments), the calendar month immediately preceding the calendar month in
which such Monthly Remittance Date occurs, and (b) with respect to Scheduled
Payments on Actuarial Loans, the period from the second day of the calendar
month preceding the Monthly Remittance Date to and including the first day of
the calendar month in which such Monthly Remittance Date occurs.
"Eligible Account": Either an account that is (i) maintained with a federal
or state chartered depository institution or trust company whose short-term
unsecured debt obligations at the time of any deposit therein have the highest
short-term rating by the Rating Agencies, (ii) one or more accounts with a
depository institution or trust company which accounts are fully insured by
either the Savings Association Insurance Fund or the Bank Insurance Fund of the
FDIC and the uninsured deposits in which accounts are otherwise secured such
that, as evidenced by an opinion of counsel delivered to the Trustee, the
Certificate Insurer and each Rating Agency, the holders of the Certificates have
a claim with respect to the funds in such account or a perfected first priority
security interest against any collateral (which shall be limited to Permitted
Investments) securing such funds that is superior to claims of any other
depositors or creditors of the depository institution or trust company in which
such account is maintained, (iii) a segregated trust account maintained with the
Trustee or an affiliate of the Trustee in its fiduciary capacity or (iv)
otherwise acceptable to the Certificate Insurer and each Rating Agency as
evidenced by a letter from the Certificate Insurer and each Rating Agency to the
Trustee, without reduction or withdrawal of their then current ratings of the
Class A Certificates. Eligible Accounts may bear interest.
"Event of Default": Any one of the events described in Section 8.20(a) or
8.20(b).
"Excess Interest": With respect to Simple Interest Loans in a Mortgage Loan
Group, the aggregate interest collected on the Simple Interest Loans in such
Mortgage Loan Group during the related Due Period in excess of the aggregate
interest deemed due on such Simple Interest Loans in such Mortgage Loan Group
during such Due Period.
"Excess Subordinated Amount": With respect to any Mortgage Loan Group and
Distribution Date, the excess, if any, of (x) the Subordinated Amount that would
apply to the related Mortgage Loan Group on such Distribution Date after taking
into account the payment of the related Class A Distribution Amounts on such
Distribution Date (except for any distributions of
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related Subordination Reduction Amounts on such Distribution Date), over (y)
the related Specified Subordinated Amount for such Distribution Date.
"Expense Rate": For any Distribution Date and each of the Fixed Rate Group
and the Adjustable Rate Group, the sum of the rates at which the Servicing Fee,
the Insurance Premium Amount and the Trustee Fee applicable to each of the Fixed
Rate Group and the Adjustable Rate Group are calculated.
"FDIC": The Federal Deposit Insurance Corporation, a corporate
instrumentality of the United States, or any successor thereto.
"FHLMC": The Federal Home Loan Mortgage Corporation, a corporate
instrumentality of the United States created pursuant to the Emergency Home
Finance Act of 1970, as amended, or any successor thereof.
"File": The documents delivered to the Trustee pursuant to Section 3.05
hereof pertaining to a particular Mortgage Loan and any additional documents
required to be added to the File pursuant to this Agreement.
"Final Certification": As defined in Section 3.06(c) hereof.
"Final Determination": As defined in Section 9.04(a) hereof.
"Final Scheduled Distribution Date": For each Class of Class A
Certificates, as set forth in Section 2.08(e).
"First Mortgage Loan": A Mortgage Loan which constitutes a first priority
mortgage lien with respect to the related Mortgaged Property.
"Fixed Rate Group": The pool of Mortgage Loans identified in the related
Schedule of Mortgage Loans as having been assigned to the Fixed Rate Group in
Schedule l-A hereto, including any Qualified Replacement Mortgage Loans
delivered in replacement thereof.
"Fixed Rate Group Specified Subordinated Amount": As defined in the
Insurance Agreement.
"Fixed Rate Group Subordinated Amount": As of any Distribution Date, the
excess, if any, of (x) the aggregate Loan Balances of the Mortgage Loans in the
Fixed Rate Group as of the close of business on the last day of the related Due
Period (taking into account Curtailments with respect to Actuarial Loans, Net
Liquidation Proceeds and Prepayments collected during the related Prepayment
Period and, with respect to Actuarial Loans in the Fixed Rate Group, any
Scheduled Payments due on or before the last day of the related Due Period and
in the Collection Account as of the related Determination Date) over (y) the sum
of the Class A-1 Certificate Principal Balance, Class A-2 Certificate Principal
Balance, Class A-3 Certificate Principal Balance, Class A-4
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Certificate Principal Balance, Class A-5 Certificate Principal Balance and Class
A-6 Certificate Principal Balance as of such Distribution Date after taking into
account the payment of the Group 1 Principal Distribution Amount thereon (except
for any Subordination Deficit with respect to the Fixed Rate Group and
Subordination Increase Amount with respect to the Fixed Rate Group on such
Distribution Date).
"FNMA": The Federal National Mortgage Association, a federally-chartered
and privately-owned corporation existing under the Federal National Mortgage
Association Charter Act, as amended, or any successor thereof.
"FNMA Guide": FNMA's Servicing Guide, as the same may be amended by FNMA
from time to time, and the Master Servicer shall elect to apply such amendments
in accordance with Section 8.01 hereof.
"Group 1 Available Funds": As defined in Section 7.02(c) hereof.
"Group 1 Available Funds Shortfall": As defined in Section 7.03(c)(i)(A)
hereof.
"Group 1 Certificate": Any one of the Class A-1 Certificates, Class A-2
Certificates, Class A-3 Certificates, Class A-4 Certificates, Class A-5
Certificates and Class A-6 Certificates.
"Group 1 Certificate Insurance Policy": The certificate guaranty insurance
policy (number ________) dated _____________ issued by the Certificate Insurer
for the benefit of the owners of the Group 1 Certificates pursuant to which the
Certificate Insurer guarantees Insured Payments.
"Group 1 Current Interest": With respect to any Distribution Date, the sum
of the Class A-1 Current Interest, Class A-2 Current Interest, Class A-3 Current
Interest, Class A-4 Current Interest, Class A-5 Current Interest and Class A-6
Current Interest.
"Group 1 Monthly Remittance Amount": As of any Monthly Remittance Date,
with respect to the Fixed Rate Group, (a) all payments on Simple Interest Loans
in the Fixed Rate Group, other than Net Liquidation Proceeds and Prepayments
collected during the related Due Period, (b) Scheduled Payments on Actuarial
Loans in the Fixed Rate Group due after the Cut-Off Date, or Replacement Cut-Off
Date, as applicable, and on or before the end of the related Due Period and in
the Collection Account as of the related Determination Date, and (c)
Curtailments with respect to Actuarial Loans, Net Liquidation Proceeds and
Prepayments on the Mortgage Loans in the Fixed Rate Group collected during the
related Prepayment Period and (d) Delinquency Advances made by the Master
Servicer with respect to the Fixed Rate Group, in each case, as remitted by the
Master Servicer on the Monthly Remittance Date, together with any Substitution
Adjustment and any Loan Purchase Price amount received by the Master Servicer on
such Monthly Remittance Date, but in each case excluding any amounts not
required to be deposited into the Collection Account pursuant to Section
8.08(c).
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"Group 1 Principal Distribution Amount": With respect to the Group 1
Certificates for any Distribution Date, the lesser of:
(a) the Group 1 Total Available Funds plus any Insured Payment with
respect to the Group 1 Certificates minus the Group 1 Current Interest; and
(b) the excess, if any, of (i) the sum of (without duplication):
(A) the Preference Amount with respect to principal owed to
the Owners of the Group 1 Certificates that remains unpaid as of
such Distribution Date,
(B) the principal (other than the principal portion of Net
Liquidation Proceeds and Prepayments) collected by the Master
Servicer with respect to Simple Interest Loans in the Fixed Rate
Group during the related Due Period,
(C) the principal portion of Curtailments with respect to
Actuarial Loans, Net Liquidation Proceeds and Prepayments collected
by the Master Servicer with respect to Mortgage Loans in the Fixed
Rate Group during the related Prepayment Period,
(D) the principal portion of Scheduled Payments due on the
Actuarial Loans in the Fixed Rate Group after the Cut-Off Date or
Replacement Cut-Off Date, as applicable, and on or before the end of
the related Due Period to the extent such Scheduled Payments are in
the Collection Account as of the related Determination Date,
(E) the principal portion of any Loan Purchase Price of each
Mortgage Loan in the Fixed Rate Group that was repurchased by the
Seller or purchased by the Master Servicer on or prior to the
related Monthly Remittance Date, to the extent such Loan Purchase
Price is actually received by the Trustee on or prior to the related
Monthly Remittance Date,
(F) the principal portion of any Substitution Adjustments
delivered by the Seller on or prior to the related Monthly
Remittance Date in connection with a substitution of a Mortgage Loan
in the Fixed Rate Group, to the extent such Substitution Adjustments
are actually received by the Trustee on or prior to the related
Monthly Remittance Date,
(G) the amount of any Subordination Deficit with respect to
the Fixed Rate Group for such Distribution Date,
(H) the portion of the proceeds received by the Trustee with
respect to the Fixed Rate Group from any termination of the Trust
(to the extent such proceeds related to principal),
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(I) the amount of any Subordination Increase Amount with
respect to the Fixed Rate Group for such Distribution Date, to the
extent of any Net Monthly Excess Cashflow available for such
purpose, and
(J) the portion of any Carry Forward Amount relating to
principal with respect to the Fixed Rate Group for such Distribution
Date;
over
(ii) the amount of any Subordination Reduction Amount with respect
to the Fixed Rate Group for such Distribution Date.
"Group 1 Total Available Funds": As defined in Section 7.02(c) hereof.
"Group 1 Total Monthly Excess Spread": With respect to the Fixed Rate Group
and any Distribution Date, the excess, if any, of (i) the sum of (a) interest
(other than the interest portion of Net Liquidation Proceeds or Prepayments and
other than that portion, if any, of Excess Interest required to be allocated to
reimbursement of unreimbursed Delinquency Advances with respect to Simple
Interest Loans in the Fixed Rate Group pursuant to Section 8.09(a)) collected on
the Simple Interest Loans in the Fixed Rate Group during the related Due Period,
plus (b) the interest portion of Curtailments with respect to Actuarial Loans,
Net Liquidation Proceeds and Prepayments collected by the Master Servicer with
respect to Mortgage Loans in the Fixed Rate Group during the related Prepayment
Period, plus (c) the interest portion of Scheduled Payments due on the Actuarial
Loans in the Fixed Rate Group after the Cut-Off Date or Replacement Cut-Off
Date, as applicable, and on or before the end of the related Due Period to the
extent such Scheduled Payments are in the Collection Account as of the
Determination Date, less (d) the amount which is equal to the product of the
Expense Rate and the aggregate Loan Balance of the Mortgage Loans in the Fixed
Rate Group and any amounts not required to be deposited into the Collection
Account pursuant to Section 8.08(c), plus (e) any Delinquency Advances and
Compensating Interest paid by the Master Servicer with respect to the Fixed Rate
Group for such Due Period over (ii) the interest accrued on the Group 1
Certificates during the Accrual Period for such Distribution Date.
"Group 2 Available Funds": As defined in Section 7.02(d) hereof.
"Group 2 Available Funds Shortfall": As defined in Section 7.03(c)(i)(A)
hereof.
" Group 2 Certificate": Any one of the Class A-7 Certificates and Class A-8
Certificates.
"Group 2 Certificate Insurance Policy": The certificate guaranty insurance
policy (number_______) dated ___________ issued by the Certificate Insurer for
the benefit of the Owners of the Group 2 Certificates pursuant to which the
Certificate Insurer guarantees Insured Payments.
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"Group 2 Current Interest": With respect to any Distribution Date, the sum
of the Class A-7 Current Interest and Class A-8 Current Interest.
"Group 2 Monthly Remittance Amount": As of any Monthly Remittance Date,
with respect to the Adjustable Rate Group, (a) all payments on Simple Interest
Loans in the Adjustable Rate Group, other than Net Liquidation Proceeds and
Prepayments collected during the related Due Period, (b) Scheduled Payments on
Actuarial Loans in the Adjustable Rate Group due after the Cut-Off Date, or
Replacement Cut-Off Date, as applicable, and on or before the end of the related
Due Period and in the Collection Account as of the related Determination Date,
(c) Curtailments with respect to Actuarial Loans, Net Liquidation Proceeds and
Prepayments on Mortgage Loans in the Adjustable Rate Group collected during the
related Prepayment Period and (d) Delinquency Advances made by the Master
Servicer with respect to the Adjustable Rate Group, in each case, as remitted by
the Master Servicer on the Monthly Remittance Date, together with any
Substitution Adjustment and any Loan Purchase Price amount received by the
Master Servicer on such Monthly Remittance Date, but in each case excluding any
amounts not required to be deposited into the Collection Account pursuant to
Section 8.08(c).
"Group 2 Principal Distribution Amount": With respect to the Group 2
Certificates for any Distribution Date, the lesser of:
(a) the Group 2 Total Available Funds plus any Insured Payment with respect
to the Group 2 Certificates minus the Group 2 Current Interest; and
(b) the excess, if any, of (i) the sum of (A) through (J) (without
duplication):
(A) the Preference Amount with respect to principal owed to
the Owners of the Group 2 Certificates that remains unpaid as of
such Distribution Date,
(B) the principal (other than the principal portion of Net
Liquidation Proceeds and Prepayments) collected by the Master
Servicer with respect to Simple Interest Loans in the Adjustable
Rate Group during the related Due Period,
(C) the principal portion of Curtailments with respect to
Actuarial Loans, Net Liquidation Proceeds and Prepayments collected
by the Master Servicer with respect to Mortgage Loans in the
Adjustable Rate Group during the related Prepayment Period,
(D) the principal portion of Scheduled Payments due on the
Actuarial Loans in the Adjustable Rate Group after the Cut-Off Date
or Replacement Cut-Off Date, as applicable, and on or before the end
of the related Due Period to the extent such Scheduled Payments are
in the Collection Account as of the related Determination Date,
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(E) the principal portion of any Loan Purchase Price of each
Mortgage Loan in the Adjustable Rate Group that was repurchased by
the Seller or purchased by the Master Servicer on or prior to the
related Monthly Remittance Date, to the extent such Loan Purchase
Price is actually received by the Trustee on or prior to the related
Monthly Remittance Date,
(F) the principal portion of any Substitution Adjustments
delivered by the Seller on or prior to the related Monthly
Remittance Date in connection with a substitution of a Mortgage Loan
in the Adjustable Rate Group, to the extent such Substitution
Adjustments are actually received by the Trustee on or prior to the
related Monthly Remittance Date,
(G) the amount of any Subordination Deficit with respect to
the Adjustable Rate Group for such Distribution Date,
(H) the portion of the proceeds received by the Trustee with
respect to the Adjustable Rate Group from any termination of the
Trust (to the extent such proceeds relate to principal),
(I) the amount of any Subordination Increase Amount with
respect to the Adjustable Rate Group for such Distribution Date, to
the extent of any Net Monthly Excess Cashflow available for such
purpose, and
(J) the portion of any Carry Forward Amount relating to
principal with respect to the Adjustable Rate Group for such
Distribution Date;
over
(ii) the amount of any Subordination Reduction Amount with respect
to the Adjustable Rate Group for such Distribution Date.
"Group 2 Total Available Funds": As defined in Section 7.02(d) hereof.
"Group 2 Total Monthly Excess Spread": With respect to the Adjustable Rate
Group and any Distribution Date, the excess, if any, of (i) the sum of (a)
interest (other than the interest portion of Net Liquidation Proceeds or
Prepayments and other than that portion, if any, of Excess Interest required to
be allocated to reimbursement of unreimbursed Delinquency Advances with respect
to Simple Interest Loans in the Adjustable Rate Group pursuant to Section 8.09
(a)) collected on the Simple Interest Loans in the Adjustable Rate Group during
the related Due Period, plus (b) the interest portion of any Curtailments with
respect to Actuarial Loans, Net Liquidation Proceeds and Prepayments collected
by the Master Servicer with respect to Mortgage Loans in the Adjustable Rate
Group during the related Prepayment Period, plus (c) the interest portion of
Scheduled Payments due on the Actuarial Loans in the Adjustable Rate Group after
the Cut-Off Date or Replacement Cut-Off Date, as applicable, and on or before
the end of the related Due Period to the
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extent such Scheduled Payments are in the Collection Account as of the related
Determination Date, less (d) the amount which is equal to the product of the
Expense Rate and the aggregate Loan Balance of the Mortgage Loans in the
Adjustable Rate Group and any amounts not required to be deposited into the
Collection Account pursuant to Section 8.08(c), plus (e) any Delinquency
Advances and Compensating Interest paid by the Master Servicer with respect to
the Adjustable Rate Group for such Due Period over (ii) the interest accrued on
the Group 2 Certificates during the Accrual Period for such Distribution Date.
"Highest Lawful Rate": As defined in Section 11.13.
"Indemnification Agreement": The Indemnification Agreement dated as of
___________, among the Certificate Insurer, the Seller and the Underwriters.
"Indirect Participant": Any financial institution for whom any Direct
Participant holds an interest in a Class A Certificate.
"Insurance Agreement": The Insurance Agreement dated as of __________,
among the Depositor, H&R Block, Inc., the Seller, the Master Servicer, the
Certificate Insurer and the Trustee, as it may be amended from time to time.
"Insurance Policy": Any hazard, flood, title or primary mortgage insurance
policy relating to a Mortgage Loan plus any obligation of the Master Servicer to
make payment out of its own funds pursuant to Section 8.11 hereof.
"Insurance Premium Amount": As defined in the Insurance Agreement.
"Insurance Proceeds": Proceeds of any Insurance Policy or other insurance
policy relating to a Mortgage Loan and/or the Mortgaged Property securing any
Mortgage Loan, to the extent proceeds are not to be applied to the restoration
of the related Mortgaged Property in accordance with the express requirements of
the related Mortgage or Note or other documents included in the related File or
in accordance with prudent and customary servicing practices.
"Insured Payments": With respect to the Related Loan Group and any
Distribution Date, without duplication, (A) the excess, if any, of (i) the sum
of (a) the aggregate amount of interest accrued at the related Pass-Through Rate
during the preceding Accrual Period on the Class A Certificate Principal Balance
of the related Class A Certificates (net of any Prepayment Interest Shortfall
and the interest portion of reductions due to the Relief Act), (b) the
Preference Amount as it relates to interest previously paid on each Class of the
related Class A Certificates prior to the Distribution Date, (c) the portion of
the Carry Forward Amount related to interest with respect to each Class of the
related Class A Certificates (net of any Prepayment Interest Shortfall and the
interest portion of reductions due to the Relief Act) and (d) the then existing
Subordination Deficit for the Related Loan Group, if any, over (ii) Total
Available Funds (net of the Insurance Premium Amount for the Related Loan Group)
after taking into account any Principal Distribution Amount to be actually
distributed on such Distribution Date and the cross-collateralization provisions
of the
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Trust plus (B) an amount equal to the principal portion of the Preference Amount
with respect to the Related Loan Group.
"Late Payment Rate": For any Distribution Date, the fluctuating rate of
interest, as it is published from time to time in the New York, New York edition
of The Wall Street Journal under the caption "Money Rates" as the "prime rate,"
to change when and as such published prime rate changes plus _____%. The Late
Payment Rate shall be computed on the basis of a year of 360 days calculating
the actual number of days elapsed. In no event shall the Late Payment Rate
exceed the Highest Lawful Rate.
"Latest Possible Maturity Date": The Distribution Date following the second
anniversary of the last payment with respect to the Mortgage Loan with the
latest scheduled maturity date included in the Trust as of the Startup Date. The
prepayment of such Mortgage Loan, or the removal of such Mortgage Loan, or the
addition of any Qualified Replacement Mortgage Loan shall not affect the Latest
Possible Maturity Date.
"LIBOR": With respect to any Accrual Period for the Class A-7 Certificates,
the rate determined by the Trustee on the related LIBOR Determination Date on
the basis of the quotations, as set forth on the Telerate Screen Page 3750,
offered by the principal London office of each of the Reference Banks for making
one-month United States dollar deposits in leading banks in the London interbank
market, as of 11:00 a.m. (London time) on such LIBOR Determination Date.
"LIBOR Business Day": Any day other than (i) a Saturday or a Sunday, or
(ii) a day on which banking institutions in the City of New York, New York, or
the City of London, England are authorized or obligated by law or executive
order to be closed.
"LIBOR Determination Date": With respect to any Accrual Period for the
Class A-7 Certificates, the second LIBOR Business Day preceding the commencement
of such Accrual Period.
"Liquidated Loan": As defined in Section 8.13(b) hereof.
"Liquidation Expenses": Expenses, not to exceed the Liquidation Proceeds,
which are incurred by the Master Servicer in connection with the liquidation of
any defaulted Mortgage Loan or property acquired in respect thereof, such
expenses including, without limitation, legal fees and expenses, committee or
referee fees, and, if applicable, brokerage commissions and conveyance taxes,
and any Servicing Advances expended by the Master Servicer pursuant to this
Agreement with respect to such Mortgage Loan on such property not previously
reimbursed from collections or other proceeds therefrom.
"Liquidation Proceeds": Any amounts (including Insurance Proceeds)
recovered by the Master Servicer in connection with (i) the taking of a
Mortgaged Property by exercise of the power of eminent domain or condemnation,
(ii) any Liquidated Loan, whether through trustee's sale, foreclosure sale or
otherwise, (iii) the sale of a defaulted Mortgage Loan or an REO Property in
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accordance with Section 8.13, or (iv) the sale of all of the Mortgage Loans in
accordance with Article IX.
"Loan Balance": With respect to each Mortgage Loan and as of any date of
determination, the outstanding principal balance thereof as of the beginning of
the related Due Period (taking into account Curtailments with respect to
Actuarial Loans, Net Liquidation Proceeds and Prepayments collected during the
immediately preceding Prepayment Period, and with respect to Actuarial Loans,
the principal portion of any Scheduled Payment due on or before the last day of
the immediately preceding Due Period and in the Collection Account as of the
Determination Date for such immediately preceding Due Period); provided,
however, that the Loan Balance for any Mortgage Loan that has become a
Liquidated Loan shall be zero as of the first day of the Due Period following
the Due Period in which such Mortgage Loan becomes a Liquidated Loan, and at all
times thereafter.
"Loan Purchase Price": With respect to any Mortgage Loan purchased from the
Trust on a Monthly Remittance Date pursuant to Section 3.03, 3.04, 3.06(b),
8.10(b) or 8.13(a) hereof, an amount equal to the Loan Balance of such Mortgage
Loan as of the date of purchase (assuming that the Monthly Remittance Amount
remitted by the Master Servicer on such Monthly Remittance Date has already been
remitted), plus one month's interest on the outstanding Loan Balance thereof as
of the beginning of the related Due Period (taking into account Curtailments
with respect to Actuarial Loans, Net Liquidation Proceeds and Prepayments
collected during the immediately preceding Prepayment Period, and with respect
to Actuarial Loans, the principal portion of any Scheduled Payment due on or
before the last day of the immediately preceding Due Period and in the
Collection Account as of the Determination Date for such immediately preceding
Due Period) computed at the then applicable Mortgage Rate, together with
(without duplication) the aggregate amounts of (i) all unreimbursed Delinquency
Advances and Servicing Advances theretofore made with respect to such Mortgage
Loan, (ii) all Delinquency Advances and Servicing Advances which the Master
Servicer has theretofore failed to remit with respect to such Mortgage Loan and
(iii) all reimbursed Delinquency Advances to the extent that reimbursement is
not made from the Mortgagor or from Liquidation Proceeds from the respective
Mortgage Loan.
"Loan-to-Value Ratio": As of any particular date (i) with respect to any
First Mortgage Loan, the percentage obtained by dividing the Appraised Value
into the original principal balance of the Note relating to such First Mortgage
Loan and (ii) with respect to any Second Mortgage Loan, the percentage obtained
by dividing the Appraised Value as of the date of origination of such Second
Mortgage Loan into an amount equal to the sum of (a) the remaining principal
balance of the note relating to the related Senior Lien as of the date of
origination of the related Second Mortgage Loan and (b) the original principal
balance of the Note relating to such Second Mortgage Loan.
"Master Servicer": Block Financial Corporation, a Delaware corporation, and
its permitted successors and assigns.
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"Master Servicer Affiliate": A Person (i) controlling, controlled by or
under common control with the Master Servicer or which is 50% or more owned by
the Master Servicer and (ii) which is qualified to service residential mortgage
loans.
"Minimum Termination Amount": As of any time after the Optional Termination
Date, an amount equal to the greater of (i) the sum of (a) the Class A-1
Certificate Principal Balance, (b) any shortfall in interest due to the Owners
of the Class A-1 Certificates in respect of prior Distribution Dates, (c) one
month's interest on the Class A-1 Certificate Principal Balance at the Class A-1
Pass-Through Rate, (d) the Class A-2 Certificate Principal Balance, (e) any
shortfall in interest due to the Owners of the Class A-2 Certificates in respect
of prior Distribution Dates, (f) one month's interest on the Class A-2
Certificate Principal Balance at the Class A-2 Pass-Through Rate, (g) the Class
A-3 Certificate Principal Balance, (h) any shortfall in interest due to the
Owners of the Class A-3 Certificates in respect of prior Distribution Dates, (i)
one month's interest on the Class A-3 Certificate Principal Balance at the Class
A-3 Pass-Through Rate, (j) the Class A-4 Certificate Principal Balance, (k) any
shortfall in interest due to the Owners of the Class A-4 Certificates in respect
of prior Distribution Dates, (l) one month's interest on the Class A-4
Certificate Principal Balance at the Class A-4 Pass-Through Rate, (m) the Class
A-5 Certificate Principal Balance, (n) any shortfall in interest due to the
Owners of the Class A-5 Certificates in respect of prior Distribution Dates, (o)
one month's interest on the Class A-5 Certificate Principal Balance at the Class
A-5 Pass-Through Rate, (p) the Class A-6 Certificate Principal Balance, (q) any
shortfall in interest due to the Owners of the Class A-6 Certificates in respect
of prior Distribution Dates, (r) one month's interest on the Class A-6
Certificate Principal Balance at the Class A-6 Pass-Through Rate, (s) the Class
A-7 Certificate Principal Balance, (t) any shortfall in interest due to the
Owners of the Class A-7 Certificates in respect of prior Distribution Dates, (u)
one month's interest on the Class A-7 Certificate Principal Balance at the Class
A-7 Pass-Through Rate, (v) the Class A-8 Certificate Principal Balance, (w) any
shortfall in interest due to the Owners of the Class A-8 Certificates in respect
of prior Distribution Dates, (x) one month's interest on the Class A-8
Certificate Principal Balance at the Class A-8 Pass Through Rate and (y) any
Reimbursement Amounts due the Certificate Insurer and (ii) the sum of 100% of
the aggregate Loan Balance of the related Mortgage Loans as of the day of
purchase and any Reimbursement Amounts not otherwise paid to the Certificate
Insurer minus amounts remitted from the Collection Account to the Distribution
Account representing collections of principal on the Mortgage Loans during the
current Due Period (taking into account, with respect to Actuarial Loans, the
principal portion of any Scheduled Payment due on or before the last day of the
Due Period and collected on or before the related Determination Date), plus one
month's interest on such amount computed at the weighted average Mortgage Rate,
plus all accrued and unpaid Servicing Fees plus the aggregate amount of any
unreimbursed Delinquency Advances and Servicing Advances plus Delinquency
Advances which the Master Servicer has theretofore failed to remit (taking into
account, with respect to Actuarial Loans, the principal portion of any Scheduled
Payment due on or before the last day of the Due Period and collected on or
before the related Determination Date).
"Monthly Remittance Amount": The sum of the Group 1 Monthly Remittance
Amount and the Group 2 Monthly Remittance Amount.
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"Monthly Remittance Date": With respect to any Distribution Date, no later
than noon, New York time, on the fourth Business Day following the related
Determination Date.
"--------": -------------------------------------------------.
"Mortgage": The mortgage, deed of trust or other instrument creating a
first or second lien on an estate in fee simple or leasehold interest in real
property securing a Note.
"Mortgage Loan Group" or "Group": The Fixed Rate Group or the Adjustable
Rate Group, as the case may be. References herein to the related Class of Class
A Certificates, when used with respect to a Mortgage Loan Group, shall mean (A)
in the case of the Fixed Rate Group, the Group 1 Certificates and (B) in the
case of the Adjustable Rate Group, the Group 2 Certificates.
"Mortgage Loans": Such of the mortgage loans transferred and assigned to
the Trust pursuant to Section 3.05(a) hereof, together with any Qualified
Replacement Mortgage Loans substituted therefor in accordance with this
Agreement, as from time to time are held as a part of the Trust Estate, the
mortgage loans originally so held being identified in the Schedules of Mortgage
Loans. The term "Mortgage Loan" includes the terms "First Mortgage Loan" and
"Second Mortgage Loan". The term "Mortgage Loan" includes any Mortgage Loan
which is Delinquent, which relates to a foreclosure or which relates to a
Mortgaged Property which is REO Property prior to such Mortgaged Property's
disposition by the Trust. Any mortgage loan which, although intended by the
parties hereto to have been, and which purportedly was, transferred and assigned
to the Trust by the Depositor, in fact was not transferred and assigned to the
Trust for any reason whatsoever, including, without limitation, the
incorrectness of the statement set forth in item (x) of Schedule I hereto with
respect to such mortgage loan, shall nevertheless be considered a "Mortgage
Loan" for all purposes of this Agreement.
"Mortgage Rate": The rate of interest borne by each Note.
"Mortgaged Property": The underlying property securing a Mortgage Loan.
"Mortgagor": The obligor on a Note.
"Net Lifetime Cap": With respect to any Distribution Date, the weighted
average of the maximum Mortgage Rates on the Mortgage Loans in the Adjustable
Rate Group as of the first day of the related Due Period (taking into account,
with respect to Actuarial Loans in the Adjustable Rate Group, any Scheduled
Payments due on or before the last day of the immediately preceding Due Period
and collected on or before the Determination Date for such immediately preceding
Due Period), minus the sum of (a) the Expense Rate and (b) commencing on the
seventh Distribution Date, ______% per annum.
"Net Liquidation Proceeds": As to any Liquidated Loan, Liquidation Proceeds
net of Liquidation Expenses and unreimbursed Delinquency Advances relating to
such Mortgage Loan. In no event shall Net Liquidation Proceeds with respect to
any Liquidated Loan be less than zero.
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"Net Monthly Excess Cashflow": As defined in Section 7.03(c)(ii) hereof.
"Net Prepayment Interest Shortfall": As of any Distribution Date, the
aggregate Prepayment Interest Shortfalls less the sum of the aggregate
Prepayment Interest Excesses and Compensating Interest.
"90+ Delinquency Percentage (Rolling Three Month)": With respect to each
Mortgage Loan and any Determination Date commencing with the Determination Date
in _____________, the average of the percentage equivalents of the fractions
determined for each of three immediately preceding Due Periods the numerator of
each of which is equal to the aggregate Loan Balance of all of the Mortgage
Loans which are 90 days Delinquent (including any Mortgage Loans which have gone
into foreclosure or have been discharged by reason of bankruptcy) as of such
Determination Date and the denominator of which is the aggregate Loan Balance of
all of the Mortgage Loans as of such Determination Date.
"Nonrecoverable Advance": Any portion of a Delinquency Advance or a
Servicing Advance proposed to be made or previously made which has not been
previously reimbursed to the Master Servicer, and which the Master Servicer has
determined in its good faith business judgment will not or, in the case of a
proposed Delinquency Advance or Servicing Advance, would not be ultimately
recoverable by the Master Servicer from the sources of funds specified in
Section 8.09. The determination by the Master Servicer that it has made a
Nonrecoverable Advance or that any proposed Delinquency Advance or Servicing
Advance, if made, would constitute a Nonrecoverable Advance shall be evidenced
by an Officer's Certificate delivered to the Trustee, the Certificate Insurer
and the Depositor setting forth such determination and the procedures and
considerations of the Master Servicer forming the basis of such determination,
which shall include a copy of any information or reports obtained by the Master
Servicer which may support such determinations. Notwithstanding the above, the
Trustee shall be entitled to rely upon any determination of the Master Servicer
that any Delinquency Advance or Servicing Advance previously made is a
Nonrecoverable Advance or that any proposed Delinquency Advance or Servicing
Advance, if made, would constitute a Nonrecoverable Advance.
"Note": The note or other evidence of indebtedness evidencing the
indebtedness of a Mortgagor under a Mortgage Loan.
"Officer's Certificate": A certificate signed by any Authorized Officer of
any Person delivering such certificate.
"Operative Documents": Collectively, this Agreement, the Certificate
Insurance Policies, the Certificates, the Indemnification Agreement, the
Insurance Agreement and the Sub-Servicing Agreement.
"Optional Termination Date": The first Distribution Date on which the
aggregate of the Loan Balances of the Mortgage Loans is less than 10% of the
Original Aggregate Loan Balance.
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"Original Aggregate Loan Balance": The aggregate Loan Balances of all
Mortgage Loans as of the Cut-Off Date, i.e., $_______________.
"Outstanding": With respect to all Certificates of a Class, as of any date
of determination, all such Certificates theretofore executed and delivered
hereunder except:
(i) Certificates theretofore cancelled by the Registrar or delivered
to the Registrar for cancellation;
(ii) Certificates or portions thereof for which full and final payment
of money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent in trust for the Owners of such Certificates;
(iii) Certificates in exchange for or in lieu of which other
Certificates have been executed and delivered pursuant to this Agreement,
unless proof satisfactory to the Trustee is presented that any such
Certificates are held by a bona fide purchaser;
(iv) Certificates alleged to have been destroyed, lost or stolen for
which replacement Certificates have been issued as provided for in Section
5.05 hereof; and
(v) Certificates as to which the Trustee has made the final
distribution thereon, whether or not such certificate is ever returned to
the Trustee.
"Owner": The Person in whose name a Certificate is registered in the
Register, and the Certificate Insurer, to the extent described in Section 5.06
and Section 7.03(g) hereof, respectively; provided that solely for the purposes
of determining the exercise of any voting rights hereunder, if Class A
Certificates are beneficially owned by the Depositor, the Seller or any
affiliate thereof, none of the Depositor, the Seller or such affiliate shall be
considered an Owner hereunder.
"Pass-Through Rate": Any of the Class A-1 Pass-Through Rate, the Class A-2
Pass-Through Rate, the Class A-3 Pass-Through Rate, the Class A-4 Pass-Through
Rate, the Class A-5 Pass-Through Rate, the Class A-6 Pass-Through Rate, the
Class A-7 Pass-Through Rate or the Class A-8 Pass-Through Rate.
"Paying Agent": Initially, the Trustee, and thereafter, the Trustee or any
other Person that meets the eligibility standards for the Paying Agent specified
in Section 11.15 hereof and is authorized by the Trustee and the Depositor to
make payments on the Certificates on behalf of the Trustee.
"Percentage Interest": With respect to a Class A Certificate, a fraction,
expressed as a percentage, the numerator of which is the portion of the Class A
Certificate Principal Balance represented by such Class A Certificate on such
date of determination (prior to giving effect to any distribution of principal
on such date) and the denominator of which is the Certificate Principal
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Balance attributable to the related Class of Class A Certificates as of such
date of determination (prior to giving effect to any distribution of principal
on such date). With respect to a Class R Certificate, the portion of the Class
evidenced thereby, expressed as a percentage, as stated on the face of such
Certificate, all of which shall total 100% with respect to the related Class.
"Permitted Investments": Those investments so designated pursuant to
Section 7.07 hereof.
"Person": Any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Pool Certification": As defined in Section 3.06(a) hereof.
"Preference Amount": With respect to the Class A Certificates, any amount
previously distributed to an Owner on the Class A Certificates that is
recoverable and sought to be recovered as a voidable preference by a trustee in
bankruptcy pursuant to the United States Bankruptcy Code in accordance with a
final, nonappealable order of a court having competent jurisdiction.
"Prepaid Installment": With respect to any Mortgage Loan, any installment
of principal thereof and interest thereon received by the Master Servicer prior
to the scheduled due date for such installment, intended by the Mortgagor as an
early payment thereof and not as a Prepayment (or, in the case of an Actuarial
Loan, a Curtailment) with respect to such Mortgage Loan.
"Prepayment": Any payment in full of principal of a Mortgage Loan which is
received by the Master Servicer in advance of the scheduled due date for the
payment of such principal (other than the principal portion of any Prepaid
Installment), and the Insurance Proceeds which are to be applied as a payment of
principal on the related Mortgage Loan shall be deemed to be Prepayments for all
purposes of this Agreement.
"Prepayment Interest Excess": With respect to any Distribution Date and any
Mortgage Loan that was subject to a Prepayment after its scheduled monthly due
date during the related Prepayment Period, the amount of interest collected on
such Mortgage Loan for such Distribution Date less (a) with respect to an
Actuarial Loan, the amount of interest accrued on such Mortgage Loan through the
due date of such Mortgage Loan occurring during such Prepayment Period or (b)
with respect to a Simple Interest Loan, 30 days interest on the Loan Balance for
such Mortgage Loan as of the first day of the related Due Period (in each case
net of the Servicing Fee on the related Mortgage Loan).
"Prepayment Interest Shortfall": With respect to any Distribution Date and
any Mortgage Loan that was subject to a Prepayment prior to its scheduled
monthly due date during the related Prepayment Period, the amount of interest
that would have accrued on such Mortgage Loan absent such Prepayment (net of the
Servicing Fee on the related Mortgage Loan) less the amount of interest
collected on such Mortgage Loan by the Master Servicer for such Distribution
Date.
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"Prepayment Period": With respect to any Distribution Date, the period
commencing on the calendar day after the prior Determination Date and ending on
the related Determination Date; provided, however, that with respect to the
first Distribution Date, with respect to Actuarial Loans the Prepayment Period
will be from ______________to _____________ and with respect to Simple Interest
Loans, the Prepayment Period will be from _____________to -----------.
"Preservation Expenses": Expenditures made by the Master Servicer in
connection with a foreclosed Mortgage Loan prior to the liquidation thereof,
including, without limitation, expenditures for real estate property taxes,
hazard insurance premiums, certain amounts due with respect to Senior Liens,
property restoration or preservation.
"Principal Distribution Amount": The Group 1 Principal Distribution Amount
or the Group 2 Principal Distribution Amount, as the case may be.
"Prohibited Transaction": The meaning set forth from time to time in the
definition thereof at Section 860F(a)(2) of the Code (or any successor statute
thereto) and applicable to the Trust.
"Prospectus": The Prospectus dated ___________________ ____, 1998
constituting part of the Registration Statement.
"Prospectus Supplement": The Block Mortgage Finance Asset Backed
Certificates, Series _________ Prospectus Supplement dated ______________ to the
Prospectus.
"Purchase Mortgage Loan": A Mortgage Loan the proceeds of which were used
by the related Mortgagor to obtain the related Mortgaged Property.
"Purchase Option Period": As defined in Section 9.04(a) hereof.
"Qualified Insurer": An insurance company or security or bonding company
qualified to write the related insurance policy in the relevant jurisdiction,
which shall have a claims paying ability of "___" or better by _________________
and "___" or better by __________, unless each of the Rating Agencies has
confirmed in writing that an insurance company with a lower claims paying
ability shall not result, in and of itself, in a downgrading, withdrawal or
qualification of the rating then assigned by such Rating Agency to any Class of
Certificates and such insurance company or security or bonding company is
acceptable to the Certificate Insurer.
"Qualified Liquidation": The meaning set forth from time to time in the
definition thereof at Section 860F(a)(4) of the Code (or any successor statute
thereto) and applicable to the Trust.
"Qualified Mortgage": The meaning set forth from time to time in the
definition thereof at Section 860G(a)(3) of the Code (or any successor statute
thereto) and applicable to the Trust.
"Qualified Replacement Mortgage Loan": A Mortgage Loan substituted for
another pursuant to Section 3.03, 3.04 or 3.06(b) hereof, which (i) has a
Mortgage Rate at least equal to the
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Mortgage Rate of the Mortgage Loan being replaced, (ii) is of the same property
type (or is a single family dwelling) and the same occupancy status (or is a
primary residence) as the replaced Mortgage Loan, (iii) shall have an original
term to maturity that is no later than one month following the maturity of the
Mortgage Loan for which it was substituted, (iv) has a Loan-to-Value Ratio as of
the Replacement Cut-Off Date no higher than the Loan-to-Value Ratio of the
replaced Mortgage Loan as of such date, (v) shall be of the same or higher
credit quality classification (determined in accordance with (a) the credit
underwriting guidelines pursuant to which the replaced Mortgage Loan was
underwritten at the time the replaced Mortgage Loan was underwritten, or (b) the
standards acceptable to the Rating Agencies, which would not cause a downgrade
or removal of the ratings assigned to the Class A Certificates (without giving
effect to any Certificate Insurance Policy)) as the Mortgage Loan which such
Qualified Replacement Mortgage Loan replaces, (vi) has a Loan Balance as of the
related Replacement Cut-Off Date equal to or less than the Loan Balance of the
replaced Mortgage Loan as of such Replacement Cut-Off Date, (vii) shall not
provide for a "balloon" payment if the related Mortgage Loan did not provide for
a "balloon" payment (and if such related Mortgage Loan provided for a "balloon"
payment, such Qualified Replacement Mortgage Loan shall have an original
maturity of not greater than (and not more than one year less than) the original
maturity of such related Mortgage Loan), (viii) shall be a fixed rate Mortgage
Loan with the same lien priority as the replaced Mortgage Loan if the Mortgage
Loan being replaced is in the Fixed Rate Group and shall be a first lien
adjustable rate Mortgage Loan if the Mortgage Loan being replaced is in the
Adjustable Rate Group, (ix) satisfies the criteria set forth from time to time
in the definition thereof at Section 860G(a)(4) of the Code (or any successor
statute hereto) and applicable to the Trust and (x) satisfies the
representations and warranties made pursuant to Schedule I hereof as of the date
of substitution.
"Rate/Term Refinance Mortgage Loan": A Mortgage Loan which is not a
Purchase Mortgage Loan where less than $1,000 of the proceeds of such Mortgage
Loan were applied by the related Mortgagor toward debt consolidation or
otherwise disbursed to the related Mortgagor.
"Rating Agencies": Collectively, _________ and _______________ or any
successors thereto.
"Realized Loss": As to any Liquidated Loan, the amount, if any, by which
the Loan Balance thereof as of the date of liquidation is in excess of Net
Liquidation Proceeds realized thereon applied in reduction of such Loan Balance.
"Record Date": With respect to the Group 1 Certificates and the Class A-8
Certificates and each Distribution Date, the last day of the calendar month
immediately preceding the calendar month in which such Distribution Date occurs
and with respect to the Class A-7 Certificates, the day immediately preceding
such Distribution Date.
"Reference Banks": Any leading banks which are engaged in transactions in
Eurodollar deposits in the international Eurocurrency market (i) with an
established place of business in London, (ii) not controlling, under the control
of or under common control with the Seller or any
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affiliate thereof and (iii) whose quotations appear on Telerate Page 3745 on the
relevant LIBOR Determination Date.
"Register": The register maintained by the Registrar in accordance with
Section 5.04 hereof, in which the names of the Owners are set forth.
"Registrar": The Trustee, acting in its capacity as Registrar appointed
pursuant to Section 5.04 hereof, or any duly appointed and eligible successor
thereto.
"Registration Statement": The Registration Statement filed by the Depositor
with the Securities and Exchange Commission (Registration Number 333-________),
including all amendments thereto and including the Prospectus Supplement
relating to the Class A Certificates constituting a part thereof.
"Reimbursement Amount": As of any Distribution Date, the sum, without
duplication, of (x)(i) all Insured Payments previously paid to the Trustee by
the Certificate Insurer and not previously repaid to the Certificate Insurer
pursuant to Section 7.03(c)(i)(C) and (D) hereof or pursuant to the Insurance
Agreement plus (ii) interest accrued on each such Insured Payment not previously
repaid calculated at the Reimbursement Late Payment Rate and (y)(i) any amounts
then due and owing to the Certificate Insurer under the Insurance Agreement plus
(ii) interest on such amounts to the extent provided in the Insurance Agreement.
The Certificate Insurer shall notify the Trustee, the Depositor and the Seller
of the amount of any Reimbursement Amount.
"Reimbursement Late Payment Rate": Means for any Distribution Date, the
rate of interest as it is publicly announced by Citibank, N.A., or any successor
thereto, at its principal office in New York, New York as its prime rate (any
change in such prime rate of interest to be effective on the date such change is
announced by Citibank, N.A.) plus _____%. The Reimbursement Late Payment Rate
shall be computed on the basis of a year of 365 days and the actual number of
days elapsed. In no event shall the Reimbursement Late Payment Rate exceed the
maximum rate permissible under any applicable law limiting interest rates.
"Related Loan Group": The Fixed Rate Group or the Adjustable Rate Group, as
the case may be.
"Relief Act": The Soldiers' and Sailors' Civil Relief Act of 1940, as
amended.
"REMIC": A "real estate mortgage investment conduit" within the meaning of
Section 860D of the Code.
"REMIC Opinion": As defined in Section 3.03 hereof.
"REMIC Provisions": Provisions of the federal income tax law relating to
real estate mortgage investment conduits, which appear at Section 860A through
860G of Subchapter M of
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Chapter 1 of the Code, and related provisions, and regulations and revenue
rulings promulgated thereunder, as the foregoing may be in effect from time to
time.
"REO Property": A Mortgaged Property acquired by the Master Servicer on
behalf of the Trust through foreclosure or deed-in-lieu of foreclosure in
connection with a defaulted Mortgage Loan.
"Replacement Cut-Off Date": With respect to any Qualified Replacement
Mortgage Loan, the first day of the calendar month in which such Qualified
Replacement Mortgage Loan is conveyed to the Trust.
"Representation Letter": Letters to, or agreements with, the Depository to
effectuate a book entry system with respect to the Class A Certificates
registered in the Register under the nominee name of the Depository.
"Residual Net Monthly Excess Cashflow": With respect to any Distribution
Date, the aggregate Net Monthly Excess Cashflow, if any, remaining after the
making of all applications, transfers and disbursements described in Sections
7.03(c)(i), 7.03(c)(ii) and 7.03(c)(iii)(A) through (G) hereof.
"Schedules of Mortgage Loans": The schedules of Mortgage Loans attached
hereto as Schedule I-A and Schedule I-B, separated by Mortgage Loan Group
listing each Mortgage Loan in the related Mortgage Loan Group to be conveyed on
the Startup Day. Such Schedules of Mortgage Loans shall set forth as to each
Mortgage Loan (i) the Master Servicer's loan number, (ii) the Mortgagor's name
and address (including the state) of the Mortgaged Property, (iii) the lien
priority thereof, (iv) the combined Loan-to-Value Ratio at origination, (v) the
Loan Balance as of the Cut-Off Date or Replacement Cut-Off Date, (vi) the
Mortgage Rate thereof (and, with respect to the Mortgage Loans in the Adjustable
Rate Group, the margin and the applicable index), (vii) the current Scheduled
Payment, (viii) the maturity of the related Note, (ix) the property type, (x)
occupancy status, (xi) Appraised Value and (xii) original term-to-maturity.
"Scheduled Payment": As of any date of calculation, with respect to a
Mortgage Loan, the then stated scheduled monthly installment of principal and
interest payable thereunder which, if timely paid, would result in the full
amortization of principal over the term thereof (or, in the case of a "balloon"
Note, the term to the nominal maturity date for amortization purposes, without
regard to the actual maturity date).
"Second Mortgage Loan": A Mortgage Loan which constitutes a second priority
mortgage lien with respect to the related Mortgaged Property.
"Securities Act": The Securities Act of 1933, as amended.
"Seller": Companion Mortgage Corporation, a Delaware corporation.
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"Senior Lien": With respect to any Second Mortgage Loan, the mortgage loan
relating to the corresponding Mortgaged Property having a first priority lien.
"Servicer Loss Test": The Servicer Loss Test is satisfied if the Cumulative
Loss Percentage for such period does not exceed the percentage set out for such
period below (provided, that for purposes of the calculation of the Servicer
Loss Test, Realized Losses attributable solely to Cram Down Losses are excluded
from the calculation of Cumulative Loss Percentage).
Period Cumulative Loss Percentage
_____________-____________ %
_____________-____________ %
_____________-____________ %
_____________-____________ %
_____________-____________ %
"Servicer Termination Test": The Servicer Termination Test is satisfied for
any date of determination thereof if (a) the 90+ Delinquency Percentage (Rolling
Three Month) with respect to the Mortgage Loans is less than ____%, (b) the
Servicer Loss Test is satisfied and (c) the Annual Loss Percentage (Rolling
Twelve Month) as it relates to the Mortgage Loans for the twelve month period
immediately preceding the date of determination is not greater than _____%.
"Servicing Advance": As defined in Section 8.09(b) and Section 8.13(a)
hereof.
"Servicing Fee": With respect to any Mortgage Loan, an amount retained by
the Master Servicer as compensation for servicing and administration duties
relating to such Mortgage Loan pursuant to Section 8.15 and equal to _____% per
annum of the then outstanding Loan Balance of such Mortgage Loan as of the first
day of the related Due Period payable on a monthly basis (taking into account
Curtailments with respect to Actuarial Loans, Net Liquidation Proceeds and
Prepayments received during the immediately preceding Prepayment Period and,
with respect to Actuarial Loans, any Scheduled Payment due on or before the last
day of the immediately preceding Due Period and in the Collection Account as of
the Determination Date for such immediately preceding Due Period).
"Servicing Standard": As defined in Section 8.01 hereof.
"Simple Interest Loans": Any Mortgage Loan as to which, pursuant to the
Note relating thereto, interest is computed and charged to the Mortgagor at the
Mortgage Rate on the outstanding principal balance of such Note based on the
number of days elapsed between receipt of the Mortgagor's last payment through
receipt of the Mortgagor's most current payment.
"Specified Subordinated Amount": As applicable, the Fixed Rate Group
Specified Subordinated Amount or the Adjustable Rate Group Specified
Subordinated Amount.
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"-----------------": ---------------------------------------------.
"Startup Day": ___________________.
"Subordinate Certificates": Collectively, the Class R Certificates.
"Subordinated Amount": The Fixed Rate Group Subordinated Amount or the
Adjustable Rate Group Subordinated Amount, as the case may be.
"Subordination Deficiency Amount": With respect to any Mortgage Loan Group
and Distribution Date, the excess, if any, of (i) the Specified Subordinated
Amount applicable to such Mortgage Loan Group and Distribution Date over (ii)
the Subordinated Amount applicable to such Mortgage Loan Group and Distribution
Date prior to taking into account the payment of any related Subordination
Increase Amounts on such Distribution Date.
"Subordination Deficit": With respect to any Mortgage Loan Group and
Distribution Date, the amount, if any, by which (x) the aggregate of the related
Class A Certificate Principal Balances relating to such Mortgage Loan Group,
after taking into account all distributions to be made on such Distribution Date
exceeds (y) the aggregate Loan Balances of the Mortgage Loans in the related
Mortgage Loan Group as of the close of business on the last day of the related
Due Period (taking into account Curtailments with respect to Actuarial Loans,
Net Liquidation Proceeds and Prepayments collected during the related Prepayment
Period, and with respect to Actuarial Loans in the related Mortgage Loan Group,
the principal portion of all Scheduled Payments due on or before the last day of
the related Due Period and in the Collection Account as of the related
Determination Date).
"Subordination Increase Amount": With respect to any Mortgage Loan Group
and Distribution Date, the aggregate amount of Net Monthly Excess Cashflow
allocated to such Mortgage Loan Group pursuant to Sections 7.03(c)(ii)(A) and
(B) on such Distribution Date.
"Subordination Reduction Amount": With respect to any Mortgage Loan Group
and Distribution Date, an amount equal to the lesser of (x) the Excess
Subordinated Amount for such Mortgage Loan Group and Distribution Date and (y)
the amount available for distribution on account of principal with respect to
the Class A Certificates relating to such Mortgage Loan Group on such
Distribution Date.
"Sub-Servicer": Any Person with whom the Master Servicer has entered into a
Sub-Servicing Agreement and who satisfies any requirements set forth in Section
8.03 hereof in respect of the qualification of a Sub-Servicer, which initially
will be ___________.
"Sub-Servicing Agreement": The sub-servicing agreement between the Master
Servicer and ___________ relating to servicing and/or administration of certain
Mortgage Loans as permitted by Section 8.03, or any successor agreement.
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"Substitution Adjustment": As defined in Section 3.03 hereof.
"Tax Matters Certificate": The Certificate representing the Tax Matters
Person Residual Interest, initially issued to the Trustee as the initial Tax
Matters Person.
"Tax Matters Person": The Person appointed for the Trust pursuant to
Section 11.18 hereof to act as the Tax Matters Person under the Code.
"Tax Matters Person Residual Interest": The 0.001% interest in the
"residual interest" in the Trust Fund, which shall be issued to and held by the
Trustee throughout the term hereof unless another Person shall accept an
assignment of such interest and the designation of Tax Matters Person pursuant
to Section 11.18 hereof.
"Termination Auction": As defined in Section 9.03 hereof.
"Termination Notice": As defined in Section 9.04(a) hereof.
"Total Available Funds": As defined in Section 7.02(d) hereof.
"Total Monthly Excess Cashflow": As defined in Section 7.03(c)(i) hereof.
"Total Monthly Excess Spread": The Group 1 Total Monthly Excess Spread or
the Group 2 Total Monthly Excess Spread, as the case may be.
"Trust": Block Mortgage Finance Asset Backed Certificates, Series
_________, the trust created under this Agreement.
"Trust Estate": As defined in the conveyance clause under this Agreement.
"Trustee": __________________________, a _____________________, the
Corporate Trust Office of which is located on the date of execution of this
Agreement at ________________, ________________________________, not in its
individual capacity but solely as Trustee under this Agreement, and any
successor hereunder.
"Trustee Fee": The fee payable monthly on each Distribution Date in an
amount equal to one-twelfth of ________% multiplied by the then-outstanding Loan
Balance.
"Underwriters": _______________________________________.
"Voting Rights": The portion of the voting rights of all of the
Certificates that is allocated to any Certificate or Class of Certificates. At
all times during the term of this Agreement, the percentage of the Voting Rights
assigned to each Class shall be a fraction, the numerator of which is equal to
the aggregate outstanding Certificate Principal Balance of such Class of
Certificates and the
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denominator of which is equal to the aggregate outstanding Certificate Principal
Balances of all Classes of Certificates. The Voting Rights of any Class of
Certificates shall be allocated among Owners of Certificates of such Class in
proportion to their respective Percentage Interests. The aggregate Voting Rights
of Owners of more than one Class of Certificates shall be equal to the sum of
the products of each such Owner's Voting Rights and the percentage of Voting
Rights allocated to the related Class of Certificates. At all times during the
term of this Agreement, 99% and 1% of all Voting Rights shall be allocated to
the Owners of the Class A Certificates (for such time as any Class A Certificate
is outstanding) and the Owners of the Class R Certificates, respectively.
"Weighted Average Pass-Through Rate": As to the Class A Certificates and
any Distribution Date, the weighted average of the Class A-1 Pass-Through Rate,
Class A-2 Pass-Through Rate, Class A-3 Pass-Through Rate, Class A-4 Pass-Through
Rate, Class A-5 Pass Through Rate, Class A-6 Pass Through Rate, Class A-7
Pass-Through Rate and Class A-8 Pass-Through Rate (such rate calculated for this
purpose on the basis of a 360-day year assumed to consist of twelve 30 day
months) weighted by the respective Certificate Principal Balances of the related
Class, as of such Distribution Date prior to taking into account any
distributions to be made on such Distribution Date.
ARTICLE II
ESTABLISHMENT AND ORGANIZATION OF THE TRUST
Section 2.01 Establishment of the Trust.
The parties hereto do hereby create and establish, pursuant to the laws of
the State of New York and this Agreement, the Trust, which, for convenience,
shall be known as "Block Mortgage Finance Asset Backed Certificates, Series
________," which shall contain two separate pools of Mortgage Loans.
Section 2.02 Office.
The office of the Trust shall be in care of the Trustee, addressed
to________________, _______________________, Attention: Block Mortgage Finance
Asset Backed Certificates, Series _______, or at such other address as the
Trustee may designate by notice to the Depositor, the Seller, the Master
Servicer, the Owners and the Certificate Insurer.
Section 2.03 Purposes and Powers.
The purpose of the Trust is to engage in the following activities and only
such activities: (i) the issuance of the Certificates and the acquiring, owning
and holding of Mortgage Loans and the Trust Estate in connection therewith; (ii)
activities that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith, including the
investment
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of moneys in accordance with this Agreement; and (iii) such other activities as
may be required in connection with conservation of the Trust Estate and
distributions to the Owners; provided, however, that nothing contained herein
shall permit the Trustee to take any action which would adversely affect the
Trust Fund's status as a REMIC.
Section 2.04 Appointment of the Trustee; Declaration of Trust.
The Depositor hereby appoints the Trustee as trustee of the Trust
effective as of the Startup Day, to have all the rights, powers and duties set
forth herein. The Trustee hereby acknowledges and accepts such appointment,
represents and warrants its eligibility as of the Startup Day to serve as
Trustee pursuant to Section 10.08 hereof and declares that it will hold the
Trust Estate in trust upon and subject to the conditions set forth herein for
the benefit of the Owners.
Section 2.05 Expenses of the Trust.
The expenses of the Trust, including (i) any portion of the Trustee Fee
not paid pursuant to Section 7.03(c)(iii)(B) hereof, (ii) any reasonable
expenses of the Trustee, and (iii) any other reasonable expenses of the Trust
(provided that the reasonable expenses of the Trust set forth in this clause
(iii) have been reviewed and approved by the Master Servicer, which review and
approval shall not be required in connection with the enforcement of a remedy by
the Trustee resulting from a default under this Agreement), shall be paid
directly by the Master Servicer. The Master Servicer shall pay directly the
reasonable fees and expenses of counsel to the Trustee. The reasonable fees and
expenses of the Trustee's counsel in connection with the review and delivery of
this Agreement and related documentation shall be paid by the Master Servicer on
the Startup Day. In addition, if any assignment of Mortgage is required to be
filed pursuant to the terms of this Agreement, the Master Servicer shall pay for
all costs and expenses associated with filing such assignment in the appropriate
recording office.
Section 2.06 Ownership of the Trust.
On the Startup Day, the ownership interests in the Trust shall be
transferred as set forth in Section 4.02 hereof, such transfer to be evidenced
by sale of the Certificates as described therein. Thereafter, transfer of any
ownership interest shall be governed by Sections 5.04 and 5.08 hereof.
Section 2.07 Situs of the Trust.
It is the intention of the parties hereto that the Trust constitute a
trust under the laws of the State of New York. The Trust will be administered in
the State of __________. The Trust will not have any employees and will not have
any real or personal property (other than property acquired pursuant to Section
8.13 hereof) located in any state other than in the State of __________
(provided, however, that the Trustee may maintain the Files in ___________).
Payments will be received by the Trustee only in the State of ___________ and
payments from the Trustee will be made only from the State of ________________.
The Trust's only office will be at the office of the Trustee as set forth in
Section 2.02 hereof.
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Section 2.08 Miscellaneous REMIC Provisions.
(a) The Trust Fund for federal income tax purposes will consist of a
single REMIC. The Certificates will represent the entire beneficial ownership
interest in the Trust Fund. The Class A-1, Class A-2, Class A-3, Class A-4,
Class A-5, Class A-6, Class A-7 and Class A-8 Certificates will represent the
"regular interests" in the Trust Fund and the Class R Certificates will
represent the single "residual interest" in the Trust Fund. The Owner of the Tax
Matters Person Residual Interest is hereby designated as "tax matters person" as
defined in the REMIC Provisions with respect to the Trust.
(b) The Trust shall, for federal income tax purposes, maintain books on a
calendar year basis and report income on an accrual basis.
(c) The Trustee shall cause the Trust to elect to be treated as a REMIC
under Section 860D of the Code. Any inconsistencies or ambiguities in this
Agreement or in the administration of the Trust shall be resolved in a manner
that preserves the validity of such election to be treated as a REMIC.
(d) The Trustee shall provide to the Internal Revenue Service and to the
Person described in Section 860(E)(e)(3) and (6) of the Code the information
described in Treasury Regulation Section 1.860D-l(b)(5)(ii), or any successor
regulation thereto with respect to the Trust. Such information will be provided
in the manner described in Treasury Regulation Section 1.860E-2(a)(5), or any
successor regulation thereto.
(e) For federal income tax purposes, the Final Scheduled Distribution Date
for each Class of Certificates is hereby set to be the Distribution Date
indicated below:
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Class Final Scheduled
----- Distribution Date
-----------------
Class A-1 Certificates ___________
Class A-2 Certificates ___________
Class A-3 Certificates ___________
Class A-4 Certificates ___________
Class A-5 Certificates ___________
Class A-6 Certificates ___________
Class A-7 Certificates ___________
Class A-8 Certificates ___________
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE DEPOSITOR, THE MASTER SERVICER AND THE SELLER;
COVENANT OF SELLER TO CONVEY MORTGAGE LOANS
Section 3.01 Representations and Warranties of the Depositor.
The Depositor hereby represents, warrants and covenants to the Trustee,
the Certificate Insurer and the Owners that as of the Startup Day:
(a) The Depositor is a corporation duly organized, validly existing and in
good standing under the laws governing its creation and existence and is in good
standing as a foreign corporation in each jurisdiction in which the nature of
its business, or the properties owned or leased by it, make such qualification
necessary, except where the failure to so qualify would not have a material
adverse effect on the Depositor, the Owners or the Certificate Insurer. The
Depositor has all requisite corporate power and authority to own and operate its
properties, to carry out its business as currently conducted and as proposed to
be conducted and to enter into and discharge its obligations under this
Agreement and the other Operative Documents to which it is a party.
(b) The execution and delivery of this Agreement by the Depositor and its
performance and compliance with the terms of this Agreement and the other
Operative Documents to which it is a party have been duly authorized by all
necessary corporate action on the part of the Depositor and will not (i) violate
the Depositor's Certificate of Incorporation or Bylaws, (ii) constitute a
default (or
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an event which, with notice or lapse of time, or both, would constitute a
default) under, or result in a breach of, any material contract, agreement or
other instrument to which the Depositor is a party or by which the Depositor is
bound or (iii) violate any statute or any order, rule or regulation of any
court, governmental agency or body or other tribunal having jurisdiction over
the Depositor or any of its properties, except where the failure to so comply
would not have a material adverse effect on the Depositor, the Owners or the
Certificate Insurer.
(c) This Agreement and the other Operative Documents to which the
Depositor is a party, assuming due authorization, execution and delivery by the
other parties hereto and thereto, each constitutes a valid, legal and binding
obligation of the Depositor, enforceable against it in accordance with the terms
hereof and thereof, except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and by general principles of equity
(whether considered in a proceeding or action in equity or at law).
(d) The Depositor is not in default with respect to any order or decree of
any court or any order, regulation or demand of any federal, state, municipal or
other governmental agency, which default would materially and adversely affect
the condition (financial or other) or operations of the Depositor or its
properties or the consequences of which would materially and adversely affect
its performance hereunder or under the other Operative Documents to which the
Depositor is a party.
(e) No litigation is pending or, to the best of the Depositor's knowledge,
threatened against the Depositor which litigation is likely to have consequences
that would prohibit its entering into this Agreement or that would materially
and adversely affect the condition (financial or otherwise) or operations of the
Depositor or its properties or is likely to have consequences that would
materially and adversely affect its performance hereunder.
(f) No certificate of an officer, statement furnished in writing or report
delivered pursuant to the terms hereof by the Depositor contains any untrue
statement of a material fact or omits to state any material fact necessary to
make the certificate, statement or report not misleading.
(g) The statements contained in the Registration Statement which describe
the Depositor or matters or activities for which the Depositor is responsible in
accordance with the Operative Documents or which are attributable to the
Depositor therein are true and correct in all material respects, and the
Registration Statement does not contain any untrue statement of a material fact
with respect to the Depositor required to be stated therein or necessary to make
the statements contained therein with respect to the Depositor, in light of the
circumstances under which they were made, not misleading. The Registration
Statement does not contain any untrue statement of a material fact required to
be stated therein or omit to state any material fact necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.
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(h) All actions, approvals, consents, waivers, exemptions, variances,
franchises, orders, permits, authorizations, rights and licenses required to be
taken, given or obtained to or by the Depositor, as the case may be, by or from
any federal, state or other governmental authority or agency (other than any
such actions, approvals, etc. under any state securities laws, real estate
syndication or "Blue Sky" statutes, as to which the Depositor makes no such
representation or warranty), that are necessary or advisable in connection with
the purchase and sale of the Certificates and the execution and delivery by the
Depositor of the Operative Documents to which it is a party, have been duly
taken, given or obtained, as the case may be, are in full force and effect on
the date hereof, are not subject to any pending proceedings or appeals
(administrative, judicial or otherwise) and either the time within which any
appeal therefrom may be taken or review thereof may be obtained has expired or
no review thereof may be obtained or appeal therefrom taken, and are adequate to
authorize the consummation of the transactions contemplated by this Agreement
and the other Operative Documents on the part of the Depositor and the
performance by the Depositor of its obligations under this Agreement and such of
the other Operative Documents to which it is a party.
(i) The Depositor is not insolvent, nor will it be made insolvent by the
transfer of the Mortgage Loans, nor is the Depositor aware of any pending
insolvency of the Depositor, the Seller or the Master Servicer.
(j) The transactions contemplated by this Agreement are in the ordinary
course of business of the Depositor.
(k) The transfer, assignment and conveyance of the Notes and the Mortgages
by the Depositor hereunder are not subject to the bulk transfer laws or any
similar statutory provisions in effect in any applicable jurisdiction.
It is understood and agreed that the representations and warranties set
forth in this Section 3.01 shall survive delivery of the respective Mortgage
Loans to the Trustee.
Section 3.02 Representations and Warranties of the Master Servicer
The Master Servicer hereby represents, warrants and covenants to the
Trustee, the Certificate Insurer and the Owners that as of the Startup Day:
(a) The Master Servicer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, is, and each
Sub-Servicer is, in compliance with the laws of each state in which any
Mortgaged Property is located to the extent necessary to enable it to perform
its obligations hereunder and is in good standing as a foreign corporation in
each jurisdiction in which the nature of its business, or the properties owned
or leased by it make such qualification necessary, except where the failure to
so qualify would not have a material adverse effect on the Master Servicer, the
Sub-Servicer, if applicable, the Owners, the Trust or the Certificate Insurer.
The Master Servicer and each Sub-Servicer has all requisite corporate power and
authority to own and operate its properties, to carry out its business as
currently conducted and
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as proposed to be conducted and to enter into and discharge its obligations
under this Agreement and the other Operative Documents to which it is a party.
Either the Master Servicer or a Sub-Servicer is designated as an approved
seller-servicer by FNMA for first and second mortgage loans and has combined
equity and subordinated debt of at least $1,500,000, as determined in accordance
with generally accepted accounting principles.
(b) The execution and delivery of this Agreement by the Master Servicer
and its performance and compliance with the terms of this Agreement have been
duly authorized by all necessary corporate action on the part of the Master
Servicer and will not (i) violate the Master Servicer's Certificate of
Incorporation or Bylaws, (ii) constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, or result
in the breach of, any material contract, agreement or other instrument to which
the Master Servicer is a party or by which the Master Servicer is bound or (iii)
violate any statute or any order, rule or regulation of any court, governmental
agency or body or other tribunal having jurisdiction over the Master Servicer or
any of its properties, except where the failure to so comply would not have a
material adverse effect on the Master Servicer, the Owners, the Trust or the
Certificate Insurer.
(c) This Agreement and the Operative Documents to which the Master
Servicer is a party, assuming due authorization, execution and delivery by the
other parties hereto and thereto, each constitutes a valid, legal and binding
obligation of the Master Servicer, enforceable against it in accordance with the
terms hereof and thereof, except as the enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and by general principles of equity
(whether considered in a proceeding or action in equity or at law).
(d) The Master Servicer is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal, state,
municipal or governmental agency, which default might have consequences that
would materially and adversely affect the condition (financial or otherwise) or
operations of the Master Servicer or its properties or might have consequences
that would materially and adversely affect its performance hereunder or under
the other Operative Documents to which the Master Servicer is a party.
(e) No litigation is pending or, to the best of the Master Servicer's
knowledge, threatened against the Master Servicer which litigation is likely to
have consequences that would prohibit its entering into this Agreement or that
would materially and adversely affect the condition (financial or otherwise) or
operations of the Master Servicer or its properties or is likely to have
consequences that would materially and adversely affect its performance
hereunder.
(f) No certificate of an officer, statement furnished in writing or report
delivered pursuant to the terms hereof by the Master Servicer contains any
untrue statement of a material fact or omits to state any material fact
necessary to make the certificate, statement or report not misleading.
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(g) The statements contained in the Registration Statement which describe
the Master Servicer or matters or activities for which the Master Servicer is
responsible in accordance with the Operative Documents or which are attributed
to the Master Servicer therein are true and correct in all material respects,
and the Registration Statement does not contain any untrue statement of a
material fact with respect to the Master Servicer or omit to state a material
fact required to be stated therein or necessary to make the statements contained
therein with respect to the Master Servicer, in light of the circumstances under
which they were made, not misleading.
(h) The Master Servicer will account for any servicing fee rights in
accordance with Statement of Financial Accounting Standards No. 125 issued by
the Financial Accounting Standards Board.
(i) All actions, approvals, consents, waivers, exemptions, variances,
franchises, orders, permits, authorizations, rights and licenses required to be
taken, given or obtained to or by the Master Servicer, as the case may be, by or
from any federal, state or other governmental authority or agency (other than
any such actions, approvals, etc. under any state securities laws, real estate
syndication or "Blue Sky" statutes, as to which the Master Servicer makes no
such representation or warranty), that are necessary or advisable in connection
with the execution and delivery by the Master Servicer of the Operative
Documents to which it is a party, have been duly taken, given or obtained, as
the case may be, are in full force and effect on the date hereof, are not
subject to any pending proceedings or appeals (administrative, judicial or
otherwise) and either the time within which any appeal therefrom may be taken or
review thereof may be obtained has expired or no review thereof may be obtained
or appeal therefrom taken, and are adequate to authorize the consummation of the
transactions contemplated by this Agreement and the other Operative Documents on
the part of the Master Servicer and the performance by the Master Servicer of
its obligations under this Agreement and such of the other Operative Documents
to which it is a party.
(j) The collection practices used by the Master Servicer and each
Sub-Servicer with respect to the Mortgage Loans have been, in all material
respects, legal, proper, prudent and customary in the mortgage servicing
business for comparable mortgage loans.
(k) The transactions contemplated by this Agreement are in the ordinary
course of business of the Master Servicer.
It is understood and agreed that the representations and warranties set
forth in this Section 3.02 shall survive delivery of the Mortgage Loans to the
Trustee.
Upon discovery by any of the Depositor, the Seller, the Master Servicer,
the Certificate Insurer, any Owner or the Trustee (each, for purposes of this
paragraph, a party) of a breach of any of the representations and warranties set
forth in this Section 3.02 which materially and adversely affects the interests
of the Owners or of the Certificate Insurer, the party discovering such breach
shall give prompt written notice to the other parties. Within 60 days of its
discovery or its receipt of notice of breach, the Master Servicer shall cure
such breach in all material respects and, upon the Master Servicer's continued
failure to cure such breach, may thereafter be removed by the Trustee
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pursuant to Section 8.20 hereof; provided, however, that if any party can
establish to the reasonable satisfaction of the Certificate Insurer that it is
diligently pursuing remedial action, then the cure period may be extended with
the written approval of the Certificate Insurer.
Section 3.03 Representations and Warranties of the Seller.
The Seller hereby represents, warrants and covenants to the Trustee, the
Certificate Insurer and the Owners that as of the Startup Day:
(a) The Seller is a corporation duly organized, validly existing and in
good standing under the laws governing its creation and existence and is in good
standing as a foreign corporation in each jurisdiction in which the nature of
its business, or the properties owned or leased by it, make such qualification
necessary, except where the failure to so qualify would not have a material
adverse effect on the Seller, the Owners, the Trust and the Certificate Insurer.
The Seller has all requisite corporate power and authority to own and operate
its properties, to carry out its business as currently conducted and as proposed
to be conducted and to enter into and discharge its obligations under this
Agreement and the other Operative Documents to which it is a party.
(b) The execution and delivery of this Agreement by the Seller and its
performance and compliance with the terms of this Agreement and the other
Operative Documents to which it is a party have been duly authorized by all
necessary corporate action on the part of the Seller and will not (i) violate
the Seller's Certificate of Incorporation or Bylaws, (ii) constitute a default
(or an event which, with notice or lapse of time, or both, would constitute a
default) under, or result in a breach of, any material contract, agreement or
other instrument to which the Seller is a party or by which the Seller is bound
or (iii) violate any statute or any order, rule or regulation of any court,
governmental agency or body or other tribunal having jurisdiction over the
Seller or any of its properties, except where the failure to so comply would not
have a material adverse effect on the Seller, the Owners, the Trust and the
Certificate Insurer.
(c) This Agreement and the other Operative Documents to which the Seller
is a party, assuming due authorization, execution and delivery by the other
parties hereto and thereto, each constitutes a valid, legal and binding
obligation of the Seller, enforceable against it in accordance with the terms
hereof and thereof, except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and by general principles of equity
(whether considered in a proceeding or action in equity or at law).
(d) The Seller is not in default with respect to any order or decree of
any court or any order, regulation or demand of any federal, state, municipal or
other governmental agency, which default would materially and adversely affect
the condition (financial or other) or operations of the Seller or its properties
or the consequences of which would materially and adversely affect its
performance hereunder and under the other Operative Documents to which the
Seller is a party.
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(e) No litigation is pending or, to the best of the Seller's knowledge,
threatened against the Seller which litigation is likely to have consequences
that would prohibit its entering into this Agreement or that would materially
and adversely affect the condition (financial or otherwise) or operations of the
Seller or its properties or is likely to have consequences that would materially
and adversely affect its performance hereunder.
(f) No certificate of an officer, statement furnished in writing or report
delivered pursuant to the terms hereof by the Seller contains any untrue
statement of a material fact or omits to state any material fact necessary to
make the certificate, statement or report not misleading.
(g) The statements contained in the Registration Statement which describe
the Seller or matters or activities for which the Seller is responsible in
accordance with the Operative Documents or which are attributable to the Seller
therein are true and correct in all material respects. The Registration
Statement does not contain any untrue statement of a material fact with respect
to the Seller, or omit to state any material fact necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.
(h) Upon the receipt of each Mortgage Loan (including the related Note)
and other items of the Trust Estate by the Trustee under this Agreement, the
Trust will have good title to such Mortgage Loan (including the related Note)
and such other items of the Trust Estate free and clear of any lien, charge,
mortgage, encumbrance or rights of others, except as set forth in item (ix) of
Schedule I (other than liens which will be simultaneously released).
(i) Neither the Seller nor any affiliate thereof will report on any
financial statement any part of the Servicing Fee as an adjustment to the sales
price of the Mortgage Loans.
(j) All actions, approvals, consents, waivers, exemptions, variances,
franchises, orders, permits, authorizations, rights and licenses required to be
taken, given or obtained to or by the Seller, as the case may be, by or from any
federal, state or other governmental authority or agency (other than any such
actions, approvals, etc., under any state securities laws, real estate
syndication or "Blue Sky" statutes, as to which the Seller makes no such
representation or warranty), that are necessary or advisable in connection with
the purchase and sale of the Certificates and the execution and delivery by the
Seller of the Operative Documents to which it is a party, have been duly taken,
given or obtained, as the case may be, are in full force and effect on the date
hereof, are not subject to any pending proceedings or appeals (administrative,
judicial or otherwise) and either the time within which any appeal therefrom may
be taken or review thereof may be obtained has expired or no review thereof may
be obtained or appeal therefrom taken, and are adequate to authorize the
consummation of the transactions contemplated by this Agreement and the other
Operative Documents on the part of the Seller and the performance by the Seller
of its obligations under this Agreement and such of the other Operative
Documents to which it is a party.
(k) The origination practices used by the Seller or, to the Seller's
knowledge, the respective originators of the Mortgage Loans with respect to such
Mortgage Loans have been in all
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material respects, legal, proper, prudent and customary in the mortgage lending
business in the jurisdiction in which the related Mortgaged Properties are
located.
(l) The Seller is not insolvent, nor will it be made insolvent by the
transfer of the Mortgage Loans, nor is the Seller aware of any pending
insolvency of the Seller, the Depositor or the Master Servicer.
(m) The transfer, assignment and conveyance of the Notes and the Mortgages
by the Seller hereunder are not subject to the bulk transfer laws or any similar
statutory provisions in effect in any applicable jurisdiction.
(n) The transactions contemplated by this Agreement are in the ordinary
course of business of the Seller.
It is understood and agreed that the representations and warranties set
forth in this Section 3.03 shall survive delivery of the respective Mortgage
Loans to the Trustee.
Upon discovery by any of the Master Servicer, the Seller, the Depositor,
the Certificate Insurer or the Trustee (each, for purposes of this paragraph, a
"party") of a breach of any of the representations and warranties set forth in
this Section 3.03 which materially and adversely affects the interests of the
Owners or the Certificate Insurer, the party discovering such breach shall give
prompt written notice to the other parties. The Seller hereby covenants and
agrees that within 60 days of its discovery or its receipt of notice of breach,
it shall cure such breach in all material respects or, with respect to a breach
of clause (h) above, the Seller may (or may cause an affiliate of the Seller to)
on the Monthly Remittance Date next succeeding such discovery or receipt of
notice (i) substitute in lieu of any Mortgage Loan not in compliance with clause
(h) a Qualified Replacement Mortgage Loan and, if the outstanding principal
amount of such Qualified Replacement Mortgage Loan as of the applicable
Replacement Cut-Off Date is less than the Loan Balance of such Mortgage Loan as
of such Replacement Cut-Off Date, deliver an amount equal to such difference
together with the aggregate amount of (A) all Delinquency Advances and Servicing
Advances theretofore made with respect to such Mortgage Loan, to the extent
unreimbursed to the Master Servicer and (B) all Delinquency Advances and
Servicing Advances which the Master Servicer has theretofore failed to remit
with respect to such Mortgage Loan (a "Substitution Adjustment") to the Master
Servicer for deposit in the Collection Account or (ii) purchase such Mortgage
Loan from the Trust at the Loan Purchase Price, which purchase price shall be
delivered to the Master Servicer for deposit in the Collection Account.
Notwithstanding any provision of this Agreement to the contrary, with respect to
any Mortgage Loan which is not in default or as to which no default is imminent,
no repurchase or substitution pursuant to Section 3.03, 3.04 or 3.06 shall be
made unless the Seller obtains for the Trustee and the Certificate Insurer an
opinion of counsel experienced in federal income tax matters to the effect that
such a repurchase or substitution would not constitute a Prohibited Transaction
for the Trust or otherwise subject the Trust to tax and would not jeopardize the
status of the Trust as a REMIC (a "REMIC Opinion") addressed to the Trustee and
the Certificate Insurer and acceptable to the Certificate Insurer and the
Trustee. Any Mortgage Loan as to which repurchase or substitution was delayed
pursuant to this Section shall be
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repurchased or substituted for (subject to compliance with Sections 3.03, 3.04
or 3.06, as the case may be) upon the earlier of (a) the occurrence of a default
or imminent default with respect to such Mortgage Loan and (b) receipt by the
Trustee and the Certificate Insurer of a REMIC Opinion.
Section 3.04 Covenants of Seller to Take Certain Actions with
Respect to the Mortgage Loans in Certain Situations.
(a) The Seller hereby makes the representations set forth on Schedule I
hereto with respect to the Mortgage Loans.
(b) Upon the discovery by the Seller, the Master Servicer, the Certificate
Insurer, or the Trustee (i) that any of the statements set forth in Schedule I
hereto were untrue as of the Startup Day with the result that the interests of
the Owners or the Certificate Insurer are materially and adversely affected or
(ii) that statements set forth in clauses (ix), (x), (xiii), (xxxvi), (xl), or
(xli) of Schedule I hereto were untrue in any material respect as of the Startup
Day, the party discovering such breach shall give prompt written notice to the
other parties. Upon the earlier to occur of the Seller's discovery or its
receipt of notice of breach from any one of the other parties, the Seller hereby
covenants and warrants that it shall promptly cure such breach in all material
respects or, subject to the last two sentences of Section 3.03, it shall on the
second Monthly Remittance Date next succeeding such discovery or receipt of
notice (i) substitute in lieu of each Mortgage Loan which has given rise to the
requirement for action by the Seller a Qualified Replacement Mortgage Loan and
deliver the Substitution Adjustment to the Master Servicer for deposit in the
Collection Account or (ii) purchase such Mortgage Loan from the Trust at a
purchase price equal to the Loan Purchase Price thereof, which purchase price
shall be delivered to the Master Servicer for deposit in the Collection Account.
Other than as specified in Section 6.12 hereof, it is understood and agreed that
the foregoing obligation of the Seller so to substitute for or purchase any
Mortgage Loan shall constitute the sole remedy respecting a discovery of any
such statement which is untrue in any material respect in this Section 3.04
available to the Owners, the Trustee and the Certificate Insurer.
(c) In the event that any such repurchase results in a prohibited
transaction tax, the Trustee shall (upon its actual knowledge of such event)
promptly notify the Seller in writing thereof and the Seller will, within 10
days of receiving notice thereof from the Trustee, deposit the amount due from
the Trust with the Trustee for the payment thereof, including any interest and
penalties, in immediately available funds. In the event that any Qualified
Replacement Mortgage Loan is delivered by the Seller to the Trust pursuant to
Section 3.03, Section 3.04 or Section 3.06 hereof, the Seller shall be obligated
to take the actions described in Section 3.04(b) with respect to such Qualified
Replacement Mortgage Loan upon the discovery by any of the Owners, the Seller,
the Master Servicer, the Certificate Insurer, or the Trustee that the statements
set forth in clause (ix), (x), (xiii), (xxxvi), (xl) or (xli) of Schedule I
hereto are untrue in any material respect on the date such Qualified Replacement
Mortgage Loan is conveyed to the Trust or that any of the other statements set
forth in Schedule I hereto are untrue on the date such Qualified Replacement
Mortgage Loan is conveyed to the Trust such that the interests of the Owners or
the Certificate Insurer in the related Qualified Replacement Mortgage Loan are
materially and adversely affected; provided, however, that for the purposes of
this subsection (c) the statements in Schedule I hereto referring to items "as
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of the Cut-Off Date" or "as of the Startup Day" shall be deemed to refer to such
items as of the date such Qualified Replacement Mortgage Loan is conveyed to the
Trust or the related Replacement Cut-Off Date, as appropriate.
(d) It is understood and agreed that the covenants set forth in this
Section 3.04 shall survive delivery of the respective Mortgage Loans (including
Qualified Replacement Mortgage Loans) to the Trustee.
(e) The Trustee shall have no duty to conduct any affirmative
investigation other than as specifically set forth in this Agreement as to the
occurrence of any condition requiring the purchase or repurchase of, or
substitution for, any Mortgage Loan pursuant to this Article III or the
eligibility of any Mortgage Loan for the purpose of this Agreement.
Notwithstanding the fact that a representation contained in Schedule I
hereto may be limited to the Seller's knowledge, such limitation shall not
relieve the Seller of its purchase obligation under the terms of this Section
3.04, or its obligations under Section 6.12 hereof.
Section 3.05 Conveyance of the Mortgage Loans and Qualified
Replacement Mortgage Loans.
(a) On the Startup Day the Seller, concurrently with the execution and
delivery hereof, hereby transfers, assigns, sets over and otherwise conveys to
the Depositor and the Depositor, concurrently with the execution and delivery
hereof, transfers, assigns, sets over and otherwise conveys, without recourse,
to the Trustee for the benefit of the Owners all of their respective right,
title and interest in and to the Trust Estate; provided, however, that the
Seller reserves and retains all of its right, title and interest in and to (i)
principal (including Prepayments) and interest collected on each Mortgage Loan
on or prior to the Cut-Off Date (other than, with respect to Actuarial Loans,
Scheduled Payments collected on or prior to the Cut-Off Date and due after the
Cut-Off Date) and (ii) with respect to Actuarial Loans, Scheduled Payments due
on or prior to the Cut-Off Date. The transfer by the Depositor of the Mortgage
Loans set forth on the Schedules of Mortgage Loans to the Trustee is absolute
and is intended by the Owners and all parties hereto to be treated as a sale by
the Depositor.
It is intended that the sale, transfer, assignment and conveyance herein
contemplated constitute a sale of the Mortgage Loans conveying good title
thereto free and clear of any liens and encumbrances from the Seller to the
Depositor and from the Depositor to the Trust and that the Mortgage Loans not be
part of the Depositor's or the Seller's estate in the event of insolvency. In
the event that such conveyance is deemed to be a loan, the parties intend that
the Seller shall be deemed to have granted to the Depositor and the Depositor
shall be deemed to have granted to the Trustee a first priority perfected
security interest in the Trust Estate, and that this Agreement shall constitute
a security agreement under applicable law.
In connection with such sale, transfer, assignment, and conveyance from
the Seller to the Depositor, the Seller has filed, in the appropriate office or
offices in the States of New York,
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California, Illinois, Georgia and Missouri, a UCC-1 financing statement executed
by the Seller as debtor, naming the Depositor as secured party and the Trustee
as assignee and listing the Mortgage Loans and the other property described
above as collateral. The characterization of the Seller as debtor and the
Depositor as secured party on such financing statements is solely for protective
purposes and shall in no way be construed as being contrary to the intent of the
parties that this transaction be treated as a sale of the Seller's entire right,
title and interest in and to the Trust Estate. In connection with such filing,
the Seller agrees that it shall cause to be filed all necessary continuation
statements and amendments thereof and to take or cause to be taken such actions
and execute such documents as are necessary to perfect and protect the
Trustee's, the Owners' and the Certificate Insurer's interest in the Trust
Estate.
In connection with such sale, transfer, assignment, and conveyance from
the Depositor to the Trustee, the Depositor has filed, in the appropriate office
or offices in the States of New York, California, Illinois, Georgia and
Missouri, a UCC-1 financing statement executed by the Depositor as debtor,
naming the Trustee as secured party and listing the Mortgage Loans and the other
property described above as collateral. The characterization of the Depositor as
debtor and the Trustee as secured party in such financing statements is solely
for protective purposes and shall in no way be construed as being contrary to
the intent of the parties that this transaction be treated as a sale of the
Depositor's entire right, title and interest in and to the Trust Estate. In
connection with such filing, the Depositor agrees that it shall cause to be
filed all necessary continuation statements thereof and to take or cause to be
taken such actions and execute such documents as are necessary to perfect and
protect the Trustee's, the Owners' and the Certificate Insurer's interest in the
Trust Estate.
(b) In connection with the transfer and assignment of the Mortgage Loans,
the Depositor agrees to:
(i) deliver without recourse to the Trustee on the Startup Day with
respect to each Mortgage Loan, (A) the original Mortgage Note, endorsed by
the Seller or the last endorsee of such Mortgage Loan, without recourse,
in the following form: "Pay to the order of ________________________
without recourse", with all intervening endorsements necessary to show a
complete chain of endorsement from the originator to the Seller or last
endorsee (or a lost note affidavit in the form of Exhibit I); (B) the
original recorded Mortgage; (C) a duly executed assignment of the Mortgage
in blank (each such assignment, when duly and validly completed, to be in
recordable form and sufficient to effect the assignment of, and transfer
to the assignee thereof under, the Mortgage to which such assignment
relates); (D) the original recorded assignment or assignments of the
Mortgage together with all interim recorded assignments of such Mortgage
from the originator to the Seller or last endorsee; (E) the original or
copies of each assumption, modification, written assurance or substitution
agreement, if any; (F) the original or duplicate original lender's title
policy and all riders thereto or, in the event such original title policy
has not been received from the insurer, any one of an original title
binder, an original preliminary title report or an original title
commitment, or a copy thereof certified by the title company, with the
original policy of title insurance to be delivered within one year of the
Startup Day; and (G) the
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original certificate of title to each manufactured home, noting the
Trustee as lienholder thereon; and
(ii) deliver the title insurance policy or title searches, the
original Mortgages and such recorded assignments, together with originals
or duly certified copies of any and all prior assignments, to the Trustee
within 15 days of receipt thereof by the Depositor (but in any event, with
respect to any Mortgage as to which original recording information has
been made available to the Depositor, within one year after the Startup
Day).
With respect to each Mortgage Loan, the Master Servicer shall, within six
(6) months of the Startup Day, cause to be recorded with respect to each
Mortgage Loan the original assignment of Mortgage referred to in clause (i)(C)
above and shall, within five Business Days after receipt thereof, deliver or
cause to be delivered to the Trustee such original recorded assignment of
Mortgage, except in the states for which a legal opinion is delivered to the
Trustee and the Certificate Insurer as provided below and is approved by the
Certificate Insurer. In regard to those states in which Mortgaged Properties are
located, the Master Servicer shall have the right to deliver to the Trustee and
the Certificate Insurer a legal opinion providing that the recordation of the
assignment of Mortgage in one or more of such states is not necessary under
applicable state law to transfer the related Mortgage Loan to the Trust;
provided such legal opinion is made and delivered within six (6) months of the
Startup Day, and is in form and substance reasonably acceptable to the
Certificate Insurer. Upon approval of such opinion by the Certificate Insurer,
the Master Servicer will not be required to record the related assignments of
Mortgages. All assignments of Mortgages shall be delivered to the Trustee in
recordable form at the time of closing, and in such states where no opinion is
so rendered, or is rendered and is deemed to be unacceptable to the Certificate
Insurer, recording of such assignments of Mortgages will be required.
Notwithstanding the preceding provisions allowing for nonrecordation of
assignments of Mortgage in certain states, if an Event of Default has occurred
as to a party other than the Certificate Insurer as provided in Article 5 of the
Insurance Agreement, or an event set forth in Section 8.20 of this Agreement has
occurred, the Master Servicer shall be required to record all assignments of
Mortgage in those states where an opinion has not been previously delivered and
approved.
Notwithstanding anything to the contrary contained in this Section 3.05,
in those instances where the public recording office retains the original
Mortgage, the assignment of a Mortgage or the intervening assignments of the
Mortgage after it has been recorded, the Depositor shall be deemed to have
satisfied its obligations hereunder upon delivery to the Trustee of a copy of
such Mortgage, such assignment or assignments of Mortgage certified by the
public recording office to be a true copy of the recorded original thereof.
The Depositor hereby appoints the Master Servicer its attorney-in-fact for
the purpose of, and with full power in, preparing, executing and recording, on
its behalf, all assignments of Mortgages in the event that the Depositor fails
to do so on a timely basis.
Copies of all Mortgage assignments received by the Trustee shall be
retained in the related File.
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All recordings required pursuant to this Section 3.05 shall be prepared
and recorded by the Master Servicer and shall be accomplished at the expense of
the Master Servicer.
(c) In the case of Mortgage Loans which have been prepaid in full after
the Cut-Off Date and prior to the Startup Day, the Depositor, in lieu of the
foregoing, will deliver within six (6) days after the Startup Day to the Trustee
a certification of an Authorized Officer of the Depositor in the form set forth
in Exhibit D.
(d) The Seller shall transfer, assign, set over and otherwise convey,
without recourse, to the Trustee all right, title and interest of the Seller in
and to any Qualified Replacement Mortgage Loan delivered to the Trustee on
behalf of the Trust by the Seller pursuant to Section 3.03, 3.04 or 3.06 hereof
and all its right, title and interest to principal and interest on such
Qualified Replacement Mortgage Loan after the applicable Replacement Cut-Off
Date; provided, however, that the Seller shall reserve and retain all right,
title and interest in and to (i) payments of principal and interest received on
such Qualified Replacement Mortgage Loan on or prior to the applicable
Replacement Cut-Off Date (other than, with respect to Actuarial Loans, Scheduled
Payments collected on or prior to the applicable Replacement Cut-Off Date and
due after the applicable Replacement Cut-Off Date) and (ii) with respect to
Actuarial Loans, Scheduled Payments due on or prior to the applicable
Replacement Cut-Off Date.
(e) As to each Mortgage Loan released from the Trust in connection with
the conveyance of a Qualified Replacement Mortgage Loan therefor, the Trustee
will transfer, assign, set over and otherwise convey without recourse or
representation, on the Seller's order, all of its right, title and interest in
and to such released Mortgage Loan and all the Trust's right, title and interest
in and to principal and interest on such released Mortgage Loan after the
applicable Replacement Cut-Off Date; provided, however, that the Trust shall
reserve and retain all right, title and interest in and to payments of principal
and interest on such released Mortgage Loan on or prior to the applicable
Replacement Cut-Off Date.
(f) In connection with any transfer and assignment of a Qualified
Replacement Mortgage Loan to the Trustee on behalf of the Trust, the Seller
agrees to (i) deliver without recourse to the Trustee on the date of delivery of
such Qualified Replacement Mortgage Loan the documents set forth in Section
3.05(b)(i) and (ii) deliver the original Qualified Replacement Mortgage Loan,
together with original or duly certified copies of any and all prior
assignments, to the Trustee within 15 days of receipt thereof by the Seller (but
in any event within 120 days after the date of conveyance of such Qualified
Replacement Mortgage Loan).
(g) As to each Mortgage Loan released from the Trust in connection with
the conveyance of a Qualified Replacement Mortgage Loan, the Trustee shall
deliver on the date of conveyance of such Qualified Replacement Mortgage Loan
and on the order of the Seller (i) the original Note relating thereto, endorsed
in blank, (ii) the original Mortgage so released and all assignments relating
thereto, including an assignment of such Mortgage to the Seller and (iii) such
other documents as constituted the File with respect thereto.
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(h) If a Mortgage assignment is lost or is returned from the recorder's
office unrecorded due to a defect therein, the Seller shall prepare a substitute
assignment or cure such defect, as the case may be, and thereafter cause such
substitute or cured assignment to be duly recorded.
Section 3.06 Acceptance by Trustee; Certain Substitutions of
Mortgage Loans; Certification by Trustee.
(a) The Trustee agrees to execute and deliver on the Startup Day an
acknowledgment of receipt of the items delivered by the Seller or the Depositor
in the form attached as Exhibit E hereto, and declares that it will hold such
documents and any amendments, replacement or supplements thereto, as well as any
other assets included in the definition of Trust Estate and delivered to the
Trustee, as Trustee in trust upon and subject to the conditions set forth herein
for the benefit of the Owners. The Trustee agrees, for the benefit of the Owners
and the Certificate Insurer, to review such items within 45 days after the
Startup Day (or, with respect to any document delivered after the Startup Day,
within 45 days of receipt and with respect to any Qualified Replacement Mortgage
Loan, within 45 days after the assignment thereof) and to deliver to the
Depositor, the Seller, the Master Servicer and the Certificate Insurer a
certification in the form attached hereto as Exhibit F (a "Pool Certification")
to the effect that, as to each Mortgage Loan listed in the Schedules of Mortgage
Loans (other than any Mortgage Loan paid in full or any Mortgage Loan
specifically identified in such Pool Certification as not covered by such Pool
Certification), (i) all documents required to be delivered to it pursuant to
Section 3.05(b)(i) of this Agreement are in its possession, (ii) such documents
have been reviewed by it and have not been mutilated, damaged or torn and relate
to such Mortgage Loan and (iii) based on its examination and only as to the
foregoing documents, the information set forth in (i), (ii) and (viii) of the
definition of the Schedules of Mortgage Loans, accurately reflects the
information set forth in the File, subject, in each case, to such exceptions as
provided in Section 3.06(b). The Trustee shall have no responsibility for
reviewing any File except as expressly provided in this Section 3.06(a). Without
limiting the effect of the preceding sentence, in reviewing any File, the
Trustee shall have no responsibility for determining whether any document is
valid and binding, whether the text of any assignment is in proper form, whether
any document has been recorded in accordance with the requirements of any
applicable jurisdiction or whether a blanket assignment is permitted in any
applicable jurisdiction, but shall only be required to determine whether a
document has been executed, that it appears to be what it purports to be and,
where applicable, that it purports to be recorded. The Trustee shall be under no
duty or obligation to inspect, review or examine any such documents,
instruments, certificates or other papers to determine that they are genuine,
enforceable, or appropriate for the represented purpose or that they are other
than what they purport to be on their face, nor shall the Trustee be under any
duty to determine independently whether there are any intervening assignments or
assumption or modification agreements with respect to any Mortgage Loan.
(b) If the Trustee during such 45-day period finds any document
constituting a part of a File which is not executed, has not been received, or
is unrelated to the Mortgage Loans identified in the Schedules of Mortgage
Loans, or that any Mortgage Loan does not conform to the description thereof as
set forth in the Schedules of Mortgage Loans, the Trustee shall promptly so
notify the
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Depositor, the Seller, the Certificate Insurer and the Owners. In performing any
such review, the Trustee may conclusively rely on the Seller as to the purported
genuineness of any such document and any signature thereon. It is understood
that the scope of the Trustee's review of the items delivered by the Seller
pursuant to Section 3.05(b)(i) is limited solely to confirming that the
documents listed in Section 3.05(b)(i) have been executed and received, relate
to the Files identified in the Schedules of Mortgage Loans and conform to the
description thereof in the Schedules of Mortgage Loans. The Seller agrees to use
reasonable efforts to remedy a material defect in a document constituting part
of a File of which it is so notified by the Trustee. If, however, within 30 days
after the Trustee's notice to it respecting such defect the Seller has not
remedied the defect and the defect materially and adversely affects the interest
in the related Mortgage Loan of the Owners or of the Certificate Insurer, the
Seller will (or will cause an affiliate of the Seller to) on the next succeeding
Monthly Remittance Date (i) substitute in lieu of such Mortgage Loan a Qualified
Replacement Mortgage Loan and deliver the Substitution Adjustment to the Master
Servicer for deposit in the Collection Account or (ii) purchase such Mortgage
Loan at a purchase price equal to the Loan Purchase Price thereof, which
purchase price shall be delivered to the Master Servicer for deposit in the
Collection Account.
(c) In addition to the foregoing, the Trustee also agrees to make a review
during the 12th month after the Startup Day indicating the current status of the
exceptions previously indicated on the Pool Certification (the "Final
Certification"). After delivery of the Final Certification, the Trustee shall
provide to the Certificate Insurer no less frequently than monthly updated
certifications indicating the then current status of exceptions, until all such
exceptions have been eliminated.
ARTICLE IV
ISSUANCE AND SALE OF CERTIFICATES
Section 4.01 Issuance of Certificates.
On the Startup Day, upon the Trustee's receipt from the Depositor of an
executed Delivery Order in the form set forth as Exhibit G hereto, the Trustee
shall authenticate and deliver the Certificates on behalf of the Trust.
Section 4.02 Sale of Certificates.
At 11:00 a.m. New York City time on the Startup Day (the "Closing"), at
the offices of _________________________ (or at such other location acceptable
to the Seller), the Seller will sell and convey the Mortgage Loans and the
money, instruments and other property related thereto to the Depositor and the
Depositor will sell and convey the Mortgage Loans and the money, instruments and
other property related thereto to the Trustee, and in payment therefor, the
Trustee will deliver (i) to the Depositor the Class A Certificates with an
aggregate Percentage Interest in each Class equal to 100%, registered in the
name of Cede & Co., or in such other names as the
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Underwriters shall direct and (ii) to the respective registered owners thereof,
a Class R Certificate with a Percentage Interest equal to 99.999%, registered in
the name of the Seller, and a Class R Certificate with a Percentage Interest
equal to .001%, registered in the name of the Trustee. The Depositor will
deliver to the Underwriters the Class A Certificates against payment of the
purchase price thereof by wire transfer of immediately available funds to the
Depositor.
ARTICLE V
CERTIFICATES AND TRANSFER OF INTERESTS
Section 5.01 Terms.
(a) The Certificates are pass-through securities having the rights
described therein and herein. Notwithstanding references herein or therein with
respect to the Certificates to "principal" and "interest", no debt of any Person
is represented thereby, nor are the Certificates or the underlying Notes
guaranteed by any Person (except that the Notes may be recourse to the
Mortgagors thereof to the extent permitted by law and except for the rights of
the Trustee on behalf of the Owners of the Class A Certificates with respect to
the Certificate Insurance Policies). Subject to Section 8.09, the Certificates
are payable solely from payments received on or with respect to the Mortgage
Loans, moneys in the Collection Account, earnings on moneys and the proceeds of
property held as a part of the Trust Estate and, with respect to the Class A
Certificates upon the occurrence of certain events, from Insured Payments. Each
Certificate entitles the Owner thereof to receive monthly on each Distribution
Date, in order of priority of distributions with respect to such Class of
Certificates as set forth in Section 7.03, a specified portion of such payments
with respect to the Mortgage Loans (and, with respect to the Owners of the Class
A Certificates, Insured Payments deposited in the Distribution Account), pro
rata in accordance with such Owner's Percentage Interest.
(b) Each Owner is required, and hereby agrees, to return to the Trustee
any Certificate with respect to which the Trustee has made the final
distribution due thereon. Any such Certificate as to which the Trustee has made
the final distribution thereon shall be deemed cancelled and shall no longer be
Outstanding for any purpose of this Agreement and the related Certificate
Insurance Policy, whether or not such Certificate is ever returned to the
Trustee, except to the extent of a Reimbursement Amount on such Class of
Certificates, in which case the Certificate Insurer will be subrogated to the
rights of such Owner and the Class of Certificate will not be deemed cancelled.
Section 5.02 Forms.
The Class A-1 Certificates, Class A-2 Certificates, Class A-3
Certificates, Class A-4 Certificates, Class A-5 Certificates, Class A-6
Certificates, Class A-7 Certificates, Class A-8 Certificates and the Class R
Certificates shall be in substantially the forms set forth in Exhibits A and C
hereof, respectively, with such appropriate insertions, omissions, substitutions
and other variations as are required or permitted by this Agreement or as may in
the Trustee's judgment be
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necessary, appropriate or convenient to comply, or facilitate compliance, with
applicable laws, and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any applicable securities laws or as may,
consistently herewith, be determined by the Authorized Officer of the Trustee
executing such Certificates, as evidenced by his execution thereof.
Section 5.03 Execution, Authentication and Delivery.
Each Certificate shall be executed on behalf of the Trust, by the manual
or facsimile signature of one of the Trustee's Authorized Officers and shall be
authenticated by the manual or facsimile signature of one of the Trustee's
Authorized Officers.
Certificates bearing the manual signature of individuals who were at any
time the proper officers of the Trustee shall, upon proper authentication by the
Trustee, bind the Trust, notwithstanding that such individuals or any of them
have ceased to hold such offices prior to the execution and delivery of such
Certificates or did not hold such offices at the date of authentication of such
Certificates.
The initial Certificates shall be dated as of the Startup Day and
delivered at the Closing to the parties specified in Section 4.02 hereof.
Subsequently issued Certificates will be dated as of the issuance of the
Certificate.
No Certificate shall be valid until executed and authenticated as set
forth above.
Section 5.04 Registration and Transfer of Certificates.
(a) The Trustee shall cause to be kept a register (the "Register") in
which, subject to such reasonable regulations as it may prescribe, the Trustee
shall provide for the registration of Certificates and the registration of
transfer of Certificates. The Trustee is hereby initially appointed Registrar
for the purpose of registering Certificates and transfers of Certificates as
herein provided. The Certificate Insurer, the Owners and the Trustee shall have
the right to inspect the Register during the Trustee's normal hours and to
obtain copies thereof, and the Trustee shall have the right to rely upon a
certificate executed on behalf of the Registrar by an Authorized Officer thereof
as to the names and addresses of the Owners of the Certificates and the
principal amounts and numbers of such Certificates.
(b) Subject to the provisions of Section 5.08 hereof, upon surrender for
registration of transfer of any Certificate at the office designated as the
location of the Register, upon the direction of the Registrar the Trustee shall
execute, authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Certificates of a like Class and in the aggregate
principal amount or Percentage Interest of the Certificate so surrendered.
(c) At the option of any Owner, Certificates of any Class owned by such
Owner may be exchanged for other Certificates authorized of like Class and tenor
and a like aggregate original
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principal amount or percentage interest and bearing numbers not
contemporaneously outstanding, upon surrender of the Certificates to be
exchanged at the office designated as the location of the Register. Whenever any
Certificate is so surrendered for exchange, upon the direction of the Registrar,
the Trustee shall execute, authenticate and deliver the Certificate or
Certificates which the Owner making the exchange is entitled to receive.
(d) All Certificates issued upon any registration of transfer or exchange
of Certificates shall be valid evidence of the same ownership interests in the
Trust and entitled to the same benefits under this Agreement as the Certificates
surrendered upon such registration of transfer or exchange.
(e) Every Certificate presented or surrendered for registration of
transfer or exchange shall be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Registrar duly executed, by
the Owner thereof or his attorney duly authorized in writing.
(f) No service charge shall be made to an Owner for any registration of
transfer or exchange of Certificates, but the Registrar or Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Certificates; any other expenses in connection with such transfer or exchange
shall be an expense of the Trust.
(g) It is intended that the Class A Certificates be registered so as to
participate in a global book-entry system with the Depository, as set forth
herein. Each Class of Class A Certificates shall, except as otherwise provided
in Subsection (h), be initially issued in the form of a single fully registered
Class A Certificate of such Class. Upon initial issuance, the ownership of each
such Class A Certificate shall be registered in the Register in the name of Cede
& Co., or any successor thereto, as nominee for the Depository.
On the Startup Day, the Class A-1 Certificates, Class A-2 Certificates,
Class A-3 Certificates, Class A-4 Certificates, Class A-5 Certificates, Class
A-6 Certificates, Class A-7 Certificates and Class A-8 Certificates shall be
issued in denominations of no less than $25,000 and multiples of $1,000 in
excess thereof (except that one certificate in each class may be issued in an
amount less than $25,000 or in an integral multiple other than $1,000).
The Depositor and the Trustee are hereby authorized to execute and deliver
the Representation Letter with the Depository.
With respect to the Class A Certificates registered in the Register in the
name of Cede & Co., as nominee of the Depository, the Certificate Insurer, the
Depositor, the Master Servicer, the Seller and the Trustee shall have no
responsibility or obligation to Direct or Indirect Participants or beneficial
owners for which the Depository holds Class A Certificates from time to time as
a Depository. Without limiting the immediately preceding sentence, the
Depositor, the Certificate Insurer, the Master Servicer, the Seller and the
Trustee shall have no responsibility or obligation with respect to (i) the
accuracy of the records of the Depository, Cede & Co., or any Direct or Indirect
Participant with respect to the ownership interest in the Class A Certificates,
(ii) the
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delivery to any Direct or Indirect Participant or any other Person, other than a
registered Owner of a Class A Certificate as shown in the Register, of any
notice with respect to the Class A Certificates or (iii) the payment to any
Direct or Indirect Participant or any other Person, other than a registered
Owner of a Class A Certificate as shown in the Register, of any amount with
respect to any distribution of principal or interest on the Class A
Certificates. No Person other than a registered Owner of a Class A Certificate
as shown in the Register shall receive a certificate evidencing such Class A
Certificate.
Upon delivery by the Depository to the Trustee of written notice to the
effect that the Depository has determined to substitute a new nominee in place
of Cede & Co., and subject to the provisions hereof with respect to the payment
of principal and interest by the mailing of checks or drafts to the registered
Owners of Class A Certificates appearing as registered Owners in the
registration books maintained by the Trustee at the close of business on a
Record Date, the name "Cede & Co." in this Agreement shall refer to such new
nominee of the Depository.
(h) In the event that (i) the Depository or the Depositor advises the
Trustee in writing that the Depository is no longer willing, qualified or able
to discharge properly its responsibilities as nominee and depository with
respect to the Class A Certificates and the Depositor or the Trustee is unable
to locate a qualified successor, (ii) the Depositor at its sole option elects to
terminate the book-entry system through the Depository or (iii) after the
occurrence of an Event of Default, beneficial owners having not less than 51% of
the Voting Rights evidenced by the Class A Certificates advise the Trustee and
the Depository through the Direct Participants in writing that the continuation
of a book-entry system through the Depository is no longer in the best interests
of beneficial owners, the Class A Certificates shall no longer be restricted to
being registered in the Register in the name of Cede & Co. (or a successor
nominee) as nominee of the Depository. At that time, the Depositor may determine
that the Class A Certificates shall be registered in the name of and deposited
with a successor depository operating a global book-entry system, as may be
acceptable to the Depositor and at the Depositor's expense, or such depository's
agent or designee but, if the Depositor does not select such alternative global
book-entry system, then the Class A Certificates may be registered in whatever
name or names registered Owners of Class A Certificates transferring Class A
Certificates shall designate, in accordance with the provisions hereof.
(i) Notwithstanding any other provision of this Agreement to the contrary,
so long as any Class A Certificate is registered in the name of Cede & Co., as
nominee of the Depository, all distributions of principal or interest on such
Class A Certificates and all notices with respect to such Class A Certificates
shall be made and given, respectively, in the manner provided in the
Representation Letter.
Section 5.05 Mutilated, Destroyed, Lost or Stolen Certificates.
If (i) any mutilated Certificate is surrendered to the Trustee, or the
Trustee receives evidence to its satisfaction of the destruction, loss or theft
of any Certificate, and (ii) in the case of any mutilated Certificate, such
mutilated Certificate shall first be surrendered to the Trustee, and in the case
of any destroyed, lost or stolen Certificate, there shall be first delivered to
the Trustee such
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security or indemnity as may be reasonably required by it to hold the Trustee
and the Certificate Insurer harmless, then, in the absence of notice to the
Trustee or the Registrar that such Certificate has been acquired by a bona fide
purchaser, the Trustee shall execute, authenticate and deliver, in exchange for
or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new
Certificate of like Class, tenor and aggregate principal amount, bearing a
number not contemporaneously outstanding.
Upon the issuance of any new Certificate under this Section, the Registrar
or Trustee may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto; any other expenses
in connection with such issuance shall be an expense of the Trust.
Every new Certificate issued pursuant to this Section in exchange for or
in lieu of any mutilated, destroyed, lost or stolen Certificate shall constitute
evidence of a substitute interest in the Trust, and shall be entitled to all the
benefits of this Agreement equally and proportionately with any and all other
Certificates of the same Class duly issued hereunder and such mutilated,
destroyed, lost or stolen Certificate shall not be valid for any purpose.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Certificates.
Section 5.06 Persons Deemed Owners.
The Certificate Insurer, the Trustee and any agent of the Trustee may
treat the Person in whose name any Certificate is registered as the Owner of
such Certificate for the purpose of receiving distributions with respect to such
Certificate and for all other purposes whatsoever, and none of the Certificate
Issuer, the Trustee or any agent of the Trustee shall be affected by notice to
the contrary.
Section 5.07 Cancellation.
All Certificates surrendered for registration of transfer or exchange
shall, if surrendered to any Person other than the Trustee, be delivered to the
Trustee and shall be promptly cancelled by it. No Certificate shall be
authenticated in lieu of or in exchange for any Certificate cancelled as
provided in this Section, except as expressly permitted by this Agreement. All
cancelled Certificates may be held by the Trustee in accordance with its
standard retention policy.
Section 5.08. Limitation on Transfer of Ownership Rights.
(a) No sale or other transfer of record or beneficial ownership of a Class
R Certificate (whether pursuant to a purchase, a transfer resulting from a
default under a secured lending agreement or otherwise) shall be made to a
Disqualified Organization or an agent of a Disqualified Organization. The
transfer, sale or other disposition of a Class R Certificate (whether pursuant
to a
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purchase, a transfer resulting from a default under a secured lending agreement
or otherwise) to a Disqualified Organization shall be deemed to be of no legal
force or effect whatsoever and such transferee shall not be deemed to be an
Owner for any purpose hereunder, including, but not limited to, the receipt of
distributions on such Class R Certificate. Furthermore, in no event shall the
Trustee accept surrender for transfer or registration of transfer, or register
the transfer, of any Class R Certificate or authenticate and make available any
new Class R Certificate unless the Trustee has received an affidavit from the
proposed transferee in the form attached hereto as Exhibit H. Each holder of a
Class R Certificate, by his acceptance thereof, shall be deemed for all purposes
to have consented to the provisions of this Section 5.08(a).
(b) No other sale or other transfer of record or beneficial ownership of a
Class R Certificate shall be made unless such transfer is exempt from the
registration requirements of the Securities Act and any applicable state
securities laws or is made in accordance with said Act and laws. In the event
such a transfer is to be made within three years from the Startup Day, (i) the
Trustee shall require a written opinion of counsel acceptable to and in form and
substance satisfactory to the Depositor, the Registrar, the Trustee and the
Certificate Insurer in the event that such transfer may be made pursuant to an
exemption, describing the applicable exemption and the basis therefor, from said
Act and laws or is being made pursuant to said Act and laws, which opinion of
counsel shall not be an expense of the Trustee, the Trust Estate, the Registrar,
the Master Servicer, the Seller, the Depositor or the Certificate Insurer, and
(ii) the Trustee shall require the transferee to execute an investment letter
acceptable to and in form and substance satisfactory to the Depositor, the
Registrar, the Trustee and the Certificate Insurer certifying to the Trustee,
the Certificate Insurer, the Registrar and the Depositor the facts surrounding
such transfer, which investment letter shall not be an expense of the Trustee,
the Trust Estate, the Certificate Insurer, the Registrar, the Master Servicer,
the Seller or the Depositor. The Owner of a Class R Certificate desiring to
effect such transfer shall, and does hereby agree to, indemnify the Trustee, the
Certificate Insurer, the Depositor, the Servicer, the Registrar and the Seller
against any liability that may result if the transfer is not so exempt or is not
made in accordance with such federal and state laws.
(c) No transfer of a Class R Certificate shall be made unless the
Registrar and Trustee shall have received either: (i) a representation letter
from the transferee of such Class R Certificate, acceptable to and in form and
substance satisfactory to the Registrar, to the effect that such transferee is
not an employee benefit plan subject to Section 406 of ERISA or a plan or other
arrangement subject to Section 406 of ERISA or a plan or other arrangement
subject to Section 4975 of the Code (collectively, a "Plan"), or is not acting
on behalf of any Plan and is not using the assets of any Plan to effect such
transfer or in the case of an insurance company purchasing such Certificates,
with funds from its general account, the transfer is covered by the Prohibited
Transaction Class Exemption 95-60 or (ii) in the event that any Class R
Certificate is purchased by a Plan, or by a person or entity acting on behalf of
any Plan or using the assets of any Plan to effect such transfer, an opinion of
counsel, acceptable to and in form and substance satisfactory to the Depositor,
the Trustee, the Certificate Insurer and the Registrar, which opinion of counsel
shall not be at the expense of the Trustee or the Trust, to the effect that the
purchase or holding of any Class R Certificates will not result in the assets of
the Trust being deemed to be "plan assets," will not cause the Trust to be
subject to the fiduciary requirements and prohibited transaction provisions of
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ERISA and the Code, and will not subject the Depositor, Seller, Registrar,
Master Servicer, Certificate Insurer or the Trustee to any obligation or
liability in addition to those expressly undertaken under this Agreement.
Notwithstanding anything else to the contrary herein, any purported transfer of
a Certificate to or on behalf of any Plan without the delivery to the Trustee
and the Certificate Insurer of an opinion of counsel as described above shall be
null and void and of no effect.
(d) No sale or other transfer of any Class A Certificate may be made to an
affiliate of the Seller unless the Trustee and the Certificate Insurer shall
have been furnished with an opinion of counsel, at the expense of the Seller
acceptable to the Certificate Insurer and the Trustee experienced in federal
bankruptcy matters to the effect that such sale or transfer would not adversely
affect the character of the conveyance of the Mortgage Loans to the Trust as a
sale. To the extent any payment to an Owner of a Class A Certificate constitutes
an Insured Payment, such payment will not be made to the Seller, the Depositor
or the Master Servicer or any Sub-Servicer. The Class R Certificate issued to
the Trustee on the Startup Day may not be transferred or sold to any Person,
except to a Person who accepts the appointment of Tax Matters Person pursuant to
Section 11.18 hereof.
Section 5.09 Assignment of Rights.
An Owner may pledge, encumber, hypothecate or assign all or any part of
its right to receive distributions hereunder, but such pledge, encumbrance,
hypothecation or assignment shall not constitute a transfer of an ownership
interest sufficient to render the transferee an Owner of the Trust without
compliance with the provisions of Section 5.04 and Section 5.08 hereof.
ARTICLE VI
COVENANTS
Section 6.01 Distributions.
On each Distribution Date, the Trustee will withdraw amounts from the
Distribution Account and make the distributions with respect to the Certificates
in accordance with the terms of the Certificates and this Agreement. Such
distributions shall be made (i) by check or draft mailed on each Distribution
Date or (ii) if requested by any Owner of (A) a Class A-1, Class A-2, Class A-3,
Class A-4, Class A-5, Class A-6, Class A-7 or Class A-8 Certificate having an
original principal balance of not less than $1,000,000 or (B) a Class R
Certificate having a Percentage Interest of not less than 10% in writing not
later than five Business Days prior to the applicable Record Date (which request
does not have to be repeated unless it has been withdrawn), to such Owner by
wire transfer to an account within the United States designated no later than
five Business Days prior to the related Record Date, made on each Distribution
Date, in each case to each Owner of record on the immediately preceding Record
Date.
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Section 6.02 Money for Distributions to Be Held in Trust;
Withholding.
(a) All payments of amounts due and payable with respect to any
Certificate that are to be made from amounts withdrawn from the Distribution
Account or from Insured Payments shall be made by and on behalf of the Trustee,
and no amounts so withdrawn from the Distribution Account for payments of
Certificates and no Insured Payment shall be paid over to the Trustee except as
provided in this Section.
(b) Whenever the Trustee has appointed one or more Paying Agents pursuant
to Section 11.15 hereof, the Trustee will, on the Business Day immediately
preceding each Distribution Date, cause to be deposited with such Paying Agents
in immediately available funds an aggregate sum sufficient to pay the amounts
then becoming due (to the extent funds are then available for such purpose in
the Distribution Account for the Class to which such amounts are due) such sum
to be held in trust for the benefit of the Owners entitled thereto.
(c) The Trustee may at any time direct any Paying Agent to pay to the
Trustee all sums held in trust by such Paying Agent, such sums to be held by the
Trustee upon the same trusts as those upon which the sums were held by such
Paying Agent; and upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
(d) Each Paying Agent, including the Trustee on behalf of the Trust, shall
comply with all requirements of the Code and applicable state and local law with
respect to the withholding from any distributions made by it to any Owner of any
applicable withholding taxes imposed thereon and with respect to any applicable
reporting requirements in connection therewith.
(e) Any money held by the Trustee or any Paying Agent in trust for the
payment of any amount due with respect to any Class A Certificate and remaining
unclaimed by the Owner of such Class A Certificate for the period then specified
in the escheat laws of the State of New York after such amount has become due
and payable shall be discharged from such trust and be paid to the Owners of the
Class R Certificates; and the Owner of such Class A Certificate shall
thereafter, as an unsecured general creditor, look only to the Owners of the
Class R Certificates for payment thereof (but only to the extent of the amounts
so paid to the Owners of the Class R Certificates) and all liability of the
Trustee or such Paying Agent with respect to such trust money shall thereupon
cease; provided, however, that the Trustee or such Paying Agent before being
required to make any such payment, may, at the expense of the Trust, cause to be
published once, in the eastern edition of The Wall Street Journal, notice that
such money remains unclaimed and that, after a date specified therein, which
shall be not fewer than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be paid to the Owners of the Class R
Certificates. The Trustee shall, at the direction of the Owners of a majority of
the Percentage Interest in the Class R Certificates also adopt and employ, at
the expense of the Trust, any other reasonable means of notification of such
payment (including but not limited to mailing notice of such payment to Owners
whose right to or interest in moneys due and payable but not claimed is
determinable from
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the records of the Registrar, the Trustee or any Paying Agent, at the last
address of record for each such Owner).
Section 6.03 Protection of Trust Estate.
(a) The Trustee will hold the Trust Estate in trust for the benefit of the
Owners and the Certificate Insurer and, upon request of the Certificate Insurer
or, with the consent of the Certificate Insurer, at the request of the
Depositor, will from time to time execute and deliver all such supplements and
amendments hereto pursuant to Section 11.14 hereof and all instruments of
further assurance and other instruments, and will take such other action upon
such request from the Depositor or the Certificate Insurer, to:
(i) more effectively hold in trust all or any portion of the
Trust Estate;
(ii) perfect, publish notice of, or protect the validity of any grant
made or to be made by this Agreement;
(iii) enforce any of the Mortgage Loans; or
(iv) preserve and defend title to the Trust Estate and the rights of the
Trustee, and the ownership interests of the Owners and the Certificate
Insurer represented thereby, in such Trust Estate against the claims of
all Persons and parties.
The Trustee shall send copies of any request received from the Certificate
Insurer or the Depositor to take any action pursuant to this Section 6.03 to the
other parties hereto.
(b) The Trustee shall have the power to enforce, and shall enforce, the
obligations and rights of the other parties to this Agreement, and of the
Certificate Insurer or the Owners, by action, suit or proceeding at law or in
equity, and shall also have the power to enjoin, by action or suit in equity,
any acts or occurrences which may be unlawful or in violation of the rights of
the Certificate Insurer as such rights are set forth in this Agreement;
provided, however, that nothing in this Section shall require any action by the
Trustee unless the Trustee shall first (i) have been furnished indemnity
satisfactory to it and (ii) when required by this Agreement, have been requested
by the Certificate Insurer or the Owners of a majority of the Percentage
Interests represented by the Class A Certificates then Outstanding with the
consent of the Certificate Insurer or, if there are no longer any Class A
Certificates then Outstanding, by such majority of the Percentage Interests
represented by the Class R Certificates; provided, further, however, that if
there is a dispute with respect to payments under the Certificate Insurance
Policies, the Trustee's sole responsibility is to the Owners.
(c) The Trustee shall execute any instrument required pursuant to this
Section so long as such instrument does not conflict with this Agreement or with
the Trustee's fiduciary duties hereunder, or adversely affect its rights and
immunities hereunder.
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Section 6.04 Performance of Obligations.
The Trustee will not take any action that would release any Person from
any of such Person's covenants or obligations under any instrument or document
relating to the Certificates or which would result in the amendment,
hypothecation, subordination, termination or discharge of, or impair the
validity or effectiveness of, any such instrument or document, except as
expressly provided in this Agreement or such other instrument or document.
The Trustee may contract with other Persons to assist it in performing its
duties hereunder pursuant to Section 10.03(g).
Section 6.05 Negative Covenants.
The Trustee will not permit the Trust to:
(i) sell, transfer, exchange or otherwise dispose of any of
the Trust Estate except as expressly permitted by this Agreement;
(ii) claim any credit on, or make any deduction from the distributions
payable in respect of, the Certificates (other than amounts properly
withheld from such payments under the Code) or assert any claim against
any present or former Owner by reason of the payment of any taxes levied
or assessed upon any of the Trust Estate;
(iii) incur, assume or guaranty any indebtedness of any Person except
pursuant to this Agreement;
(iv) dissolve or liquidate in whole or in part, except pursuant to
Article IX hereof; or
(v) (A) permit the validity or effectiveness of this Agreement to be
impaired, or permit any Person to be released from any covenants or
obligations with respect to the Trust or to the Certificates under this
Agreement, except as may be expressly permitted hereby or (B) permit any
lien, charge, adverse claim, security interest, mortgage or other
encumbrance to be created on or extend to or otherwise arise upon or
burden the Trust Estate or any part thereof or any interest therein or the
proceeds thereof.
Section 6.06 No Other Powers.
The Trustee will not permit the Trust to engage in any business activity
or transaction other than those activities permitted by Section 2.03 hereof.
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Section 6.07 Limitation of Suits.
No Owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to this Agreement or the Certificate Insurance Policies,
or for the appointment of a receiver or trustee of the Trust, or for any other
remedy with respect to an event of default hereunder, unless:
(1) such Owner has previously given written notice to the Depositor, the
Certificate Insurer and the Trustee of such Owner's intention to
institute such proceeding;
(2) the Owners of not less than 25% of the Percentage Interests
represented by the Class A Certificates then Outstanding or, if
there are no Class A Certificates then Outstanding, by such
percentage of the Percentage Interests represented by the Class R
Certificates, shall have made written request to the Trustee to
institute such Proceeding in its own name as Trustee establishing
the Trust;
(3) such Owner or Owners have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred
in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute such proceeding;
(5) as long as any Class A Certificates are Outstanding, the Certificate
Insurer consented in writing thereto (unless the Certificate Insurer
is the party against whom the proceeding is directed); and
(6) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Owners of a majority
of the Percentage Interests represented by the Class A Certificates
or, if there are no Class A Certificates then Outstanding, by such
majority of the Percentage Interests represented by the Class R
Certificates;
it being understood and intended that no one or more Owners shall have any right
in any manner whatever by virtue of, or by availing themselves of, any provision
of this Agreement to affect, disturb or prejudice the rights of any other Owner
of the same Class or to obtain or to seek to obtain priority or preference over
any other Owner of the same Class or to enforce any right under this Agreement,
except in the manner herein provided and for the equal and ratable benefit of
all the Owners of the same Class.
In the event the Trustee shall receive conflicting or inconsistent
requests and indemnity from two or more groups of Owners, each representing less
than a majority of the applicable Class of Certificates and each conforming to
clauses (1)-(6) of this Section 6.07, the Certificate Insurer in its sole
discretion may determine what action, if any, shall be taken, notwithstanding
any other
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provision of this Agreement (unless the Certificate Insurer is the party against
whom the proceeding is directed).
Section 6.08 Unconditional Rights of Owners to Receive
Distributions.
Notwithstanding any other provision in this Agreement, the Owner of any
Certificate shall have the right, which is absolute and unconditional, to
receive distributions to the extent provided herein and therein with respect to
such Certificate or, subject to Section 6.07, to institute suit for the
enforcement of any such distribution, and such right shall not be impaired
without the consent of such Owner.
Section 6.09 Rights and Remedies Cumulative.
Except as otherwise provided herein, no right or remedy herein conferred
upon or reserved to the Trustee, the Certificate Insurer or the Owners is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. Except as otherwise provided herein, the assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
Section 6.10 Delay or Omission Not Waiver.
No delay of the Trustee, the Certificate Insurer or any Owner of any
Certificate to exercise any right or remedy under this Agreement with respect to
any event described in Section 8.20(a) or (b) shall impair any such right or
remedy or constitute a waiver of any such event or an acquiescence therein.
Every right and remedy given by this Article VI or by law to the Trustee, the
Certificate Insurer or the Owners may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee, the Certificate Insurer or the
Owners, as the case may be.
Section 6.11 Control by Owners.
The Certificate Insurer or the Owners of a majority of the Percentage
Interests represented by the Class A Certificates then Outstanding with the
consent of the Certificate Insurer or, if there are no longer any Class A
Certificates then Outstanding, by such majority of the Percentage Interests
represented by the Class R Certificates then Outstanding may direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee with respect to the Certificates or exercising any trust or power
conferred on the Trustee with respect to the Certificates or the Trust Estate,
including, but not limited to, those powers set forth in Section 6.03 and
Section 8.20 hereof, provided that:
(i) such direction shall not be in conflict with any rule of law or
with this Agreement;
(ii) the Trustee shall have been provided with indemnity satisfactory to
it; and
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(iii) the Trustee may take any other action deemed proper by the Trustee,
as the case may be, which is not inconsistent with such direction;
provided, however, that the Trustee need not take any action which
it determines might involve it in liability or may be unjustly
prejudicial to the Owners not so directing.
Section 6.12 Indemnification.
The Depositor agrees to indemnify and hold the Trustee, the Certificate
Insurer and each Owner harmless against any and all claims, losses, penalties,
fines, forfeitures, legal fees and related costs, judgments, and any other
costs, fees and expenses that the Trustee, the Certificate Insurer and any Owner
may sustain in any way related to the negligent or willful failure of the
Depositor to perform its duties in compliance with the terms of this Agreement.
The Depositor shall immediately notify the Trustee, the Certificate Insurer and
each Owner if such a claim is made by a third party with respect to this
Agreement, and the Depositor shall assume (with the consent of the Trustee) the
defense of any such claim and pay all expenses in connection therewith,
including reasonable counsel fees, and promptly pay, discharge and satisfy any
judgment or decree which may be entered against the Master Servicer, the Seller,
the Trustee, the Certificate Insurer and/or any Owner in respect of such claim.
The Trustee shall reimburse the Depositor from amounts distributable pursuant to
Section 7.03(c)(iii)(G) for all amounts advanced by it pursuant to the preceding
sentence, except when the claim relates directly to the failure of the Depositor
to perform its duties in compliance with the terms of this Agreement based upon
an opinion of counsel (at the expense of the Depositor) delivered to the Trustee
and the Certificate Insurer. In addition to the foregoing, the Seller agrees to
indemnify and hold the Trustee, the Certificate Insurer and each Owner harmless
against any and all claims, losses, penalties, fines, forfeitures, legal fees
and related costs, judgments, and other costs, fees and expenses that the
Trustee, the Certificate Insurer and any Owner may sustain in any way related to
the breach by the Seller of its representations and warranties set forth in
Section 3.04(a) hereof with respect to a Mortgage Loan if such Mortgage Loan
qualifies as a "high cost mortgage" pursuant to Section 226.32 of the Truth in
Lending Act, as amended. The provisions of this Section 6.12 shall survive the
termination of this Agreement and the resignation or removal of the Trustee
hereunder and the payment of the outstanding Certificates.
(a) Upon written request of the Master Servicer, the Trustee will provide
to the Master Servicer, within 15 days after receipt of such request, a list of
the names and addresses of all Owners of record as of the most recent Record
Date. Upon written request by three or more Owners of the Class A Certificates
who in aggregate hold Certificates that evidence not less than 25% of the
aggregate Class A Certificate Principal Balance and such request is accompanied
by a copy of the communication that such Owners propose to transmit, the Trustee
or the Certificate Registrar will provide such Owners with a list of the names
and addresses of all Owners of record as of the most recent Record Date.
(b) Every Owner, by receiving and holding such list, agrees with the
Trustee that the Trustee shall not be held accountable in any way by reason of
the disclosure of any information as
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to the names and addresses of the Owners hereunder, regardless of the source
from which such information was derived.
ARTICLE VII
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 7.01 Collection of Money.
Except as otherwise expressly provided herein, the Trustee shall demand
payment or delivery of all money and other property payable to or receivable by
the Trustee pursuant to this Agreement or the Certificate Insurance Policies,
including (a) all payments due on the Mortgage Loans in accordance with the
respective terms and conditions of such Mortgage Loans and required to be paid
over to the Trustee by the Master Servicer or by any Sub-Servicer and (b)
Insured Payments. The Trustee shall hold all such money and property received by
it, other than pursuant to or as contemplated by Section 6.02(e) hereof, as part
of the Trust Estate and shall apply it as provided in this Agreement.
Section 7.02 Establishment of Accounts.
(a) The Depositor shall cause to be established on the Startup Day, and
the Trustee shall maintain the Distribution Account, which is to be held as an
Eligible Account by the Trustee on behalf of the Owners, the Trustee and the
Certificate Insurer, as their interests may appear.
(b) [Reserved.]
(c) On the Monthly Remittance Date the Trustee shall determine (subject to
the terms of Section 10.03(j) hereof, based solely on information provided to it
by the Master Servicer), with respect to the related Distribution Date, the
amount that is to be on deposit in the Distribution Account as of such
Distribution Date for the Fixed Rate Group (disregarding the amount of any
Insured Payments as well as any amounts that cannot be distributed to the Owners
of the Class A Certificates, if any, by the Trustee as a result of a proceeding
under the United States Bankruptcy Code), which amount will be equal to the sum
of (x) the amount on deposit therein with respect to the Fixed Rate Group
excluding the amount of any Total Monthly Excess Cashflow from the Fixed Rate
Group included in such amount plus (y) any amount of Total Monthly Excess
Cashflow from either Loan Group to be applied on such Distribution Date to the
Group 1 Certificates. The amount described in clause (x) of the preceding
sentence with respect to each Distribution Date is the " Group 1 Available
Funds"; the sum of the amounts described in clauses (x) and (y) of the preceding
sentence with respect to each Distribution Date is the " Group 1 Total Available
Funds."
(d) On the Monthly Remittance Date the Trustee shall determine (subject to
the terms of Section 10.03(j) hereof, based solely on information provided to it
by the Master Servicer), with respect to the related Distribution Date, the
amount that is to be on deposit in the Distribution
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Account as of such Distribution Date for the Adjustable Rate Group (disregarding
the amount of any Insured Payments as well as any amounts that cannot be
distributed to the Owners of the Class A Certificates, if any, by the Trustee as
a result of a proceeding under the United States Bankruptcy Code), which amount
will be equal to the sum of (x) the amount on deposit therein with respect to
the Adjustable Rate Group excluding the amount of any Total Monthly Excess
Cashflow from the Adjustable Rate Group included in such amount plus (y) any
amount of Total Monthly Excess Cashflow from either Loan Group to be applied on
such Distribution Date to the Group 2 Certificates. The amount described in
clause (x) of the preceding sentence with respect to each Distribution Date is
the "Group 2 Available Funds"; the sum of the amounts described in clauses (x)
and (y) of the preceding sentence with respect to each Distribution Date is the
"Group 2 Total Available Funds." Collectively, the Group 1 Total Available Funds
and the Group 2 Total Available Funds are the "Total Available Funds."
Section 7.03 Flow of Funds.
(a) With respect to the Fixed Rate Group, the Trustee shall deposit into
the Distribution Account, without duplication, upon receipt, any Insured
Payments relating to such Group, the proceeds of any liquidation of the assets
of the Trust insofar as such assets relate to the Fixed Rate Group, all
remittances made to the Trustee pursuant to Section 8.08(d)(ii) insofar as such
assets relate to the Fixed Rate Group, and the Group 1 Monthly Remittance
Amount, to the extent remitted by the Master Servicer.
(b) With respect to the Adjustable Rate Group, the Trustee shall deposit
to the Distribution Account, without duplication, upon receipt, any Insured
Payments relating to such Group, the proceeds of any liquidation of the assets
of the Trust insofar as such assets relate to the Adjustable Rate Group, all
remittances made to the Trustee pursuant to Section 8.08(d)(ii) insofar as such
assets relate to the Adjustable Rate Group and the Group 2 Monthly Remittance
Amount, to the extent remitted by the Master Servicer.
(c) With respect to the Distribution Account, on each Distribution Date,
the Trustee shall make the following allocations, disbursements and transfers
for each Mortgage Loan Group from amounts deposited therein pursuant to
subsections (a) and (b), respectively, in the following order of priority, and
each such allocation, transfer and disbursement shall be treated as having
occurred only after all preceding allocations, transfers and disbursements have
occurred:
(i) first, on each Distribution Date, the Trustee shall allocate an amount
equal to the sum of (x) the Total Monthly Excess Spread with respect to such
Mortgage Loan Group and Distribution Date plus (y) any Subordination Reduction
Amount with respect to such Mortgage Loan Group and Distribution Date (such sum
being the "Total Monthly Excess Cashflow" with respect to such Mortgage Loan
Group and Distribution Date) with respect to such Mortgage Loan Group in the
following order of priority:
(A) first, such Total Monthly Excess Cashflow with respect to each
Mortgage Loan Group shall be allocated to the payment of the
related Class A
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Distribution Amount pursuant to clauses (iii)(C) or (iii)(D),
as applicable, below on such Distribution Date with respect to
the related Mortgage Loan Group in an amount equal to the
amount, if any, by which (x) the related Class A Distribution
Amount (calculated for this purpose only by reference to
clause (b) of the definition of the Group 1 Principal
Distribution Amount or Group 2 Principal Distribution Amount,
as the case may be, and without any Subordination Increase
Amount with respect to the related Mortgage Loan Group) for
such Distribution Date exceeds (y) the Available Funds with
respect to such Mortgage Loan Group for such Distribution Date
(the amount of such difference being the " Group 1 Available
Funds Shortfall" with respect to the Fixed Rate Group, and the
"Group 2 Available Funds Shortfall" with respect to the
Adjustable Rate Group);
(B) second, any portion of the Total Monthly Excess Cashflow with
respect to such Mortgage Loan Group remaining after the
allocation described in clause (A) above shall be allocated
against any Available Funds Shortfall with respect to the
other Mortgage Loan Group;
(C) third, any portion of the Total Monthly Excess Cashflow with
respect to such Mortgage Loan Group remaining after the
allocations described in clauses (A) and (B) above shall be
disbursed to the Certificate Insurer in respect of amounts
owed on account of any Reimbursement Amount with respect to
the related Mortgage Loan Group; and
(D) fourth, any portion of the Total Monthly Excess Cashflow with
respect to such Mortgage Loan Group remaining after the
allocations described in clauses (A), (B) and (C) above shall
be disbursed to the Certificate Insurer in respect of any
Reimbursement Amount with respect to the other Mortgage Loan
Group;
(ii) second, on each Distribution Date, the Trustee shall apply the
amount, if any, of the Total Monthly Excess Cashflow with respect to
a Mortgage Loan Group on a Distribution Date remaining after the
allocations described in clause (i) above (the "Net Monthly Excess
Cashflow") for such Mortgage Loan Group and Distribution Date in the
following order of priority:
(A) first, such Net Monthly Excess Cashflow shall be used to
reduce to zero, through the allocation of a Subordination
Increase Amount to the payment of the related Class A
Distribution Amount pursuant to clause (iii)(D) below, any
Subordination Deficiency Amount with respect to the related
Mortgage Loan Group as of such Distribution Date;
(B) second, any Net Monthly Excess Cashflow remaining after the
application described in clause (A) above shall be used to
reduce to zero, through the
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allocation of a Subordination Increase Amount to the payment
of the related Class A Distribution Amount pursuant to clause
(iii)(D) below, the Subordination Deficiency Amount, if any,
with respect to the other Mortgage Loan Group; and
(C) third, any Net Monthly Excess Cashflow remaining after the
applications described in clauses (A) and (B) above shall be
paid to the Master Servicer to the extent of any unreimbursed
Delinquency Advances and unreimbursed
Servicing Advances;
(iii) third, following the making by the Trustee of all allocations,
transfers and disbursements described above under this subsection
(c), from amounts (including any related Insured Payment, the
proceeds of which will be applied solely to the payment of the
amount specified in clauses (C) and (D) below) then on deposit in
the Distribution Account with respect to the related Mortgage Loan
Group, the Trustee shall distribute:
(A) to the Certificate Insurer, on each Distribution Date for the
related Mortgage Loan Group, beginning with the Distribution
Date which occurs in ________, the prorated Insurance Premium
Amount determined by the relative Certificate Principal
Balance of the related Classes of Class A Certificates for
such Distribution Date;
(B) to the Trustee, the Trustee Fees with respect to such Mortgage
Loan Group then due;
(C) to the Owners of the Class A Certificates of the related
Mortgage Loan Group, the Group 1 Current Interest or Group 2
Current Interest, as applicable, on a pro rata basis without
any priority among such Class A Certificates, until the
applicable Class A Certificate Termination Date;
(D) to the Owners of the related Class of Class A Certificates,
(I) the Group 1 Principal Distribution Amount shall be
distributed as follows: (a) first, to Owners of Class A-6
Certificates, in an amount equal to the Class A-6 Lockout
Distribution Amount, (b) second, to the Owners of the Class
A-1 Certificates until the Class A-1 Certificate
Termination Date, (c) third, to the Owners of the Class A-2
Certificates until the Class A-2 Certificate Termination
Date, (d) fourth, to the Owners of the Class A-3
Certificates until the Class A-3 Certificate Termination
Date, (e) fifth, to the Owners of the Class A-4
Certificates until the Class A-4 Certificate Termination
Date, (f) sixth, to the Owners of the Class A-5
Certificates until the Class A-5 Certificate Termination
Date and (g) seventh, to the Owners of the Class A-6
Certificates until the Class A-6 Certificate Termination
Date and (II) the Group 2 Principal Distribution Amount
shall be distributed as follows: (a)
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first, to the Owners of the Class A-8 Certificates, in an
amount equal to the Class A-8 Lockout Distribution Amount, (b)
second, to the Owners of the Class A-7 Certificates until the
Class A-7 Certificate Termination Date and (c) third, to the
Owners of the Class A-8 Certificates until the Class A-8
Certificate Termination Date;
(E) to the Owners of the Class A-7 Certificates, the Basis Risk
Carryover Amount outstanding on such Distribution Date;
(F) to the Owners of the related Class of Class A Certificates,
any Net Prepayment Interest Shortfalls or the interest portion
of reductions due to the Relief Act incurred by such Class of
Certificates which remain outstanding on such Distribution
Date, on a pro rata basis among such Classes of Certificates;
(G) to the Depositor and the Master Servicer to the extent of
costs, expenses and liabilities incurred pursuant to Sections
6.12 and 8.05, respectively;
(H) to the Owners of the Class R Certificates, any amounts
remaining in the Distribution Account.
(d) Notwithstanding Section 7.03(c) above, on any Distribution Date during
the continuance of any Certificate Insurer Default:
(i) Any amounts otherwise payable to the Certificate Insurer as
Insurance Premium Amounts or Reimbursement Amounts shall be
retained in the Distribution Account as Total Available
Funds;
(ii) If there is a Subordination Deficit for the Fixed Rate Group,
then the Group 1 Principal Distribution Amount for such
Distribution Date shall be distributed pro rata to the Owners
of any Outstanding Group 1 Certificates on such Distribution
Date; and
(iii) If there is a Subordination Deficit for the Adjustable Rate
Group, then the Group 2 Principal Distribution Amount for such
Distribution Date shall be distributed pro rata to the Owners
of any Outstanding Group 2 Certificates on such Distribution
Date
(e) Notwithstanding clause (c)(iii) above, the aggregate amounts
distributed on all Distribution Dates to the Owners of the Class A Certificates
on account of principal pursuant to clause (c)(iii)(D) shall not exceed the
original Certificate Principal Balance of the related Certificates.
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(f) Upon receipt of Insured Payments from the Certificate Insurer on
behalf of the Owners of the Class A Certificates, the Trustee shall deposit such
Insured Payments in the Distribution Account and shall distribute such Insured
Payments, or the proceeds thereof, (i) in the case of the Group 1 Certificates,
through the Distribution Account to the Owners of such Certificates and (ii) in
the case of the Group 2 Certificates, through the Distribution Account to the
Owners of such Certificates.
(g) Anything herein to the contrary notwithstanding, any payment with
respect to principal of or interest on any of the Class A Certificates which is
made with moneys received pursuant to the terms of a Certificate Insurance
Policy shall not be considered payment of such Certificates from the Trust and
shall not result in the payment of or the provision for the payment of the
principal of or interest on such Certificates within the meaning of Section
7.03. The Depositor, the Master Servicer and the Trustee acknowledge, and each
Owner by its acceptance of a Certificate agrees, that without the need for any
further action on the part of the Certificate Insurer, the Depositor, the Master
Servicer, the Trustee or the Registrar (a) to the extent the Certificate Insurer
makes payments, directly or indirectly, on account of principal of or interest
on any Class A Certificates to the Owners of such Certificates, the Certificate
Insurer will be fully subrogated to the rights of such Owners and (b) the
Certificate Insurer shall be paid such principal and interest only from the
sources and in the manner provided herein for the payment of such principal and
interest. In the event that the Owners of the Class A Certificates shall have
received the full amount of the Class A Distribution Amount for such
Distribution Date, the Certificate Insurer shall be entitled to receive the
related Reimbursement Amount pursuant to Section 7.03(c)(i) hereof. The Trustee
or Paying Agent shall (i) receive as attorney-in-fact of each Owner of Class A
Certificates any Insured Payment from the Certificate Insurer and (ii) disburse
the same to the Owners of the related Class A Certificates as set forth in
Section 7.03(c)(iii).
It is understood and agreed that the intention of the parties is that the
Certificate Insurer shall not be entitled to receive all or any portion of
Reimbursement Amounts unless on such Distribution Date the Owners of the Class A
Certificates shall also have received the full amount of the Class A
Distribution Amount for such Distribution Date.
The rights of the Owners to receive distributions from the proceeds of the
Trust Estate, and all ownership interests of the Owners in such distributions,
shall be as set forth in this Agreement. In this regard, all rights of the
Owners of the Class R Certificates to receive distributions in respect of the
Class R Certificates, and all ownership interests of the Owners of the Class R
Certificates in and to such distributions, shall be subject and subordinate to
the preferential rights of the holders of the Class A Certificates to receive
distributions thereon and the ownership interests of such Owners in such
distributions, as described herein. In accordance with the foregoing, the
ownership interests of the Owners of the Class R Certificates in amounts
deposited in the Accounts from time to time shall not vest unless and until such
amounts are distributed in respect of the Class R Certificates in accordance
with the terms of this Agreement. Notwithstanding anything contained in this
Agreement to the contrary, the Owners of the Class R Certificates shall not be
required to refund any amount properly distributed on the Class R Certificates
pursuant to this Section 7.03.
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Section 7.04 [Reserved]
Section 7.05 Investment of Accounts.
(a) Consistent with any requirements of the Code, all or a portion of the
Distribution Account held by the Trustee for the benefit of the Owners shall be
invested and reinvested by the Trustee in the name of the Trustee for the
benefit of the Owners and the Certificate Insurer, as directed in writing by the
Master Servicer, in one or more Permitted Investments bearing interest or sold
at a discount. If the Master Servicer shall have failed to give investment
directions to the Trustee then the Trustee shall invest in money market or
common trust funds described in Section 7.07(h) to be redeemable without penalty
no later than the Business Day immediately preceding the next Distribution Date.
The bank serving as Trustee or any affiliate thereof may be the obligor on or
investment manager of any investment which otherwise qualifies as an Permitted
Investment. No investment in any Account shall mature later than the Business
Day immediately preceding the next Distribution Date.
(b) If any amounts are needed for disbursement from any Account held by
the Trustee and sufficient uninvested funds are not available to make such
disbursement, the Trustee shall cause to be sold or otherwise converted to cash
a sufficient amount of the investments in such Account. No investments will be
liquidated prior to maturity unless the proceeds thereof are needed for
disbursement.
(c) Subject to Section 10.01 hereof, the Trustee shall not in any way be
held liable by reason of any insufficiency in any Account held by the Trustee
resulting from any loss on any Permitted Investment included therein (except to
the extent that the bank serving as Trustee is the obligor thereon).
(d) All income or other gain from investments in any Account held by the
Trustee shall be deposited in such Account immediately on receipt, and any loss
resulting from such investments shall be charged to such Account, as
appropriate, subject to the provisions of Section 7.05(e) and Section 8.08(b)
requiring that the Master Servicer contribute funds in an amount equal to such
loss on the Collection Account or the Distribution Account, as applicable, and
permitting the Master Servicer to retain or receive all income or gain with
respect to investments of funds on the Collection Account or the Distribution
Account, as applicable.
(e) Any investment earnings on funds held in the Distribution Account
shall be for the account of the Master Servicer and may only be disbursed by the
Trustee from the Distribution Account to the Master Servicer following maturity
of the related investments. Prior to each Distribution Date, the Master Servicer
shall deposit into the Distribution Account the net amount of any investment
losses on such funds during the period from and after the related Monthly
Remittance Date to but not including such Distribution Date. Any references
herein to amounts on deposit in the Distribution Account shall refer to amounts
net of such investment earnings.
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Section 7.06 Payment of Trust Expenses.
(a) The Trustee shall make demand on the Master Servicer to pay the amount
of the reasonable expenses of the Trust (other than payments of premiums to the
Certificate Insurer) (including Trustee's fees and expenses not covered by
Section 7.03(c)(iii)(B)) and the Master Servicer shall promptly pay such
reasonable expenses directly to the Persons to whom such amounts are due.
(b) The Master Servicer shall pay directly the reasonable fees and
expenses of counsel to the Trustee.
Section 7.07 Permitted Investments.
The following are Permitted Investments:
(a) direct general obligations of, or obligations fully and
unconditionally guaranteed as to the timely payment of principal and interest
by, the United States or any agency or instrumentality thereof, provided such
obligations are backed by the full faith and credit of the United States,
Federal Housing Administration debentures, FHLMC senior debt obligations and
FNMA senior debt obligations, but excluding any of such securities whose terms
do not provide for payment of a fixed dollar amount upon maturity or call for
redemption;
(b) Consolidated senior debt obligations of any Federal Home Loan Banks;
(c) Federal funds, certificates of deposit, time deposits, and bankers'
acceptances (having original maturities of not more than 365 days) of any
domestic bank, the short-term debt obligations of which have been rated _______
or better by _______________ and _____ or better by _________.
(d) Deposits of any bank or savings and loan association (the long-term
deposit rating of which is _______ or better by ____________ and _______ or
better by ________________) which has combined capital, surplus and undivided
profits of at least $50,000,000 and which deposits are insured by the FDIC and
held up to the limits insured by the FDIC;
(e) Investment agreements approved by the Certificate Insurer provided:
1. The agreement is with a bank or insurance company which has an
unsecured, uninsured and unguaranteed senior debt obligation rated ______
or better by _________ and _______ or better by ____________, or is the
lead bank of a parent bank holding company with an uninsured, unsecured
and unguaranteed senior debt obligation meeting such rating requirements,
and
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2. Moneys invested thereunder may be withdrawn without any penalty,
premium or charge upon not more than one day's notice (provided such
notice may be amended or canceled at any time prior to the withdrawal
date), and
3. The agreement is not subordinated to any other obligations of
such insurance company or bank, and
4. The same guaranteed interest rate will be paid on any future
deposits made pursuant to such agreement, and
5. The Trustee receives an opinion of counsel that such agreement is
an enforceable obligation of such insurance company or bank;
(f) Repurchase agreements collateralized by securities described in (a)
above with any registered broker/dealer subject to the Securities Investors
Protection Corporation's jurisdiction and subject to applicable limits therein
promulgated by Securities Investors Protection Corporation or any commercial
bank, if such broker/dealer or bank has an uninsured, unsecured and unguaranteed
short-term or long-term obligation rated _____ or ______, respectively, or
better by __________ and _____ or ______ , respectively, or better by
_______________, provided:
1. A master repurchase agreement or specific written
repurchase agreement governs the transaction, and
2. The securities are held free and clear of any lien by the Trustee
or an independent third party acting solely as agent for the Trustee, and
such third party is (a) a Federal Reserve Bank, (b) a bank which is a
member of the FDIC and which has combined capital, surplus and undivided
profits of not less than $125 million, or (c) a bank approved in writing
for such purpose by the Certificate Insurer, and the Trustee shall have
received written confirmation from such third party that it holds such
securities, free and clear of any lien, as agent for the Trustee, and
3. A perfected first security interest under the Uniform Commercial
Code, or book entry procedures prescribed at 31 CFR 306.1 et seq. or 31
CFR 350.0 et seq., in such securities is created for the benefit of the
Trustee, and
4. The repurchase agreement has a term of thirty days or less and
such broker/dealer or bank will value the collateral securities, and
notify the Trustee of such valuation, no less frequently than weekly and
will liquidate the collateral securities if any deficiency in the required
collateral percentage is not restored within two business days of such
valuation, and
5. The fair market value of the collateral securities (as determined
by such broker/dealer or bank, with notice thereof to the Trustee) in
relation to the amount of the repurchase obligation, including principal
and interest, is equal to at least 106%;
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(g) Commercial paper (having original maturities of not more than 270
days) rated in the highest short-term rating categories of _______________ and
__________; and
(h) Investments in no load money market or common trust funds rated
_________ or __________by ____________ and _____ by ____________; provided that
no instrument described above shall be a Permitted Investment if (a) such
instrument evidences the right to receive only interest with respect to the
obligations underlying such instrument or (b) both principal and interest
payments derived from obligations underlying such instrument and the interest
and principal payments with respect to such instrument provide a yield to
maturity greater than 120% of the yield to maturity at par of the underlying
obligations; and provided, further, that all Permitted Investments in the
Collection Account shall mature at par no later than one Business Day prior to
the next succeeding Monthly Remittance Date and all Permitted Investments in the
Distribution Account shall mature at par no later than one Business Day prior to
the next succeeding Distribution Date unless otherwise provided in this
Agreement and that no instrument described hereunder may be purchased at a price
greater than par if such instrument may be prepaid or called at a price less
than its purchase price prior to stated maturity.
Section 7.08 Accounting and Directions by Trustee.
On the second Business Day prior to each Distribution Date occurring on or
prior to the latest to occur of the Class A-1 Certificate Termination Date,
Class A-2 Certificate Termination Date, Class A-3 Certificate Termination Date,
Class A-4 Certificate Termination Date, Class A-5 Certificate Termination Date,
Class A-6 Certificate Termination Date, Class A-7 Certificate Termination Date
and the Class A-8 Certificate Termination Date, the Trustee shall determine, no
later than 12:00 noon New York time on such date, whether an Insured Payment
will be required to be made by the Certificate Insurer on the following
Distribution Date. If the Trustee determines that an Insured Payment will be
required to be made by the Certificate Insurer on the following Distribution
Date, then no later than 12:00 noon on the second Business Day immediately
preceding the related Distribution Date the Trustee shall furnish the
Certificate Insurer and the Depositor with a completed Notice in the form set
forth as Exhibit A to the applicable Certificate Insurance Policy. The Notice
shall specify the amount of Insured Payment and shall constitute a claim for an
Insured Payment pursuant to such Certificate Insurance Policy.
Section 7.09 Reports by Trustee to Owners and Certificate Insurer.
(a) On each Distribution Date the Trustee shall report in writing to the
Depositor, each Owner, the Certificate Insurer, the Underwriters,
_______________ and ____________:
(i) the amount of the related distribution to Owners of each Class of
Certificates allocable to principal, separately identifying by Mortgage
Loan Group the amount of any Prepayments included therein, any principal
portion of any Carry Forward Amount included in such distribution and any
remaining principal portion of any Carry Forward Amount after giving
effect to such distribution;
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(ii) the amount of such distribution to Owners of each Class of
Certificates allocable to interest, any Compensating Interest, any
interest portion of any Carry Forward Amount included in such
distribution, any remaining interest portion of any Carry Forward Amount
after giving effect to such distribution, any amount paid on account of
any outstanding Basis Risk Carryover Amount and any remaining Basis Risk
Carryover Amount after giving effect to such distribution;
(iii) the Certificate Principal Balance of each Class of Class A
Certificates after giving effect to the distribution of principal on such
Distribution Date;
(iv) the aggregate Loan Balance of the Mortgage Loans in each Mortgage
Loan Group for the following Distribution Date;
(v) the related amount of the Servicing Fees, Insurance Premium Amount
and Trustee Fee paid to or retained by the Master Servicer or paid to the
Certificate Insurer or the Trustee;
(vi) the Pass-Through Rate for each Class of Class A Certificates with
respect to the current Accrual Period;
(vii) the amount of Delinquency Advances included in the distribution on
such Distribution Date, the amount of Servicing Advances made during the
related Prepayment Period and the aggregate amount of Delinquency Advances
and Servicing Advances, stated separately, outstanding as of the close of
business of such Distribution Date;
(viii) the number and aggregate Loan Balance of Mortgage Loans by Mortgage
Loan Group (A) delinquent (exclusive of Mortgage Loans in foreclosure) (1)
1 to 30 days, (2) 31 to 59 days, (3) 60 to 89 days and (4) 90 or more days
and (B) in foreclosure and delinquent (1) 1 to 30 days, (2) 31 to 59 days,
(3) 60 to 89 days and (4) 90 or more days, as of the close of business on
the last day of the related Due Period and, with respect to the Actuarial
Loans, not collected by the related Determination Date;
(ix) with respect to any Mortgaged Property that became an REO Property
during the related Due Period, the loan number and principal balance of
the related Mortgage Loan as of the last day of the related Due Period
preceding such Distribution Date (taking into account, with respect to
Actuarial Loans, amounts due on or before the last day of the related Due
Period and in the Collection Account as of the related Determination
Date);
(x) the total number and principal balance of any REO Properties as of
the last day of the related Due Period preceding such Distribution Date
(taking into account Net Liquidation Proceeds and, with respect to the
Actuarial Loans, amounts due on or before the
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last day of the related Due Period and in the Collection Account as of
the related Determination Date);
(xi) the amount of any Insured Payment included in the amounts
distributed to the holders of each Class of the Class A Certificates on
such Distribution Date;
(xii) the aggregate Loan Balance of all Mortgage Loans and the aggregate
Loan Balance of the Mortgage Loans in each Mortgage Loan Group after
giving effect to any payment of principal on such Distribution Date;
(xiii) the Subordinated Amount and Subordination Deficit for each Mortgage
Loan Group, if any, remaining after giving effect to all distributions and
transfers on such Distribution Date and the Specified Subordinated Amount
for each Mortgage Loan Group;
(xiv) the total of any Substitution Adjustments or Loan Purchase Price
amounts included in such distribution with respect to each Mortgage Loan
Group;
(xv) the weighted average Mortgage Rate and the weighted average
remaining term to maturity of the Mortgage Loans with respect to each
Mortgage Loan Group;
(xvi) the largest Loan Balance outstanding with respect to each Mortgage
Loan Group;
(xvii) the Group 1 Available Funds, the Group 1 Total Available
Funds, the Group 2 Available Funds and the Group 2 Total Available
Funds; and
(xviii) such other information as the Certificate Insurer may reasonably
request with respect to delinquent Mortgage Loans.
In addition, an Owner may, by facsimile to the Trustee at _______________,
request on a quarterly basis such information as may be required by Section
6049(d)(7)(C) of the Code and the regulations promulgated thereunder to assist
the holders of the Class A Certificates in computing their market discount.
The Master Servicer shall provide to the Trustee the information described
in Section 8.08(d)(ii) and in clause (b) below no later than 12:00 noon, New
York time, on the second Business Day following the Determination Date to enable
the Trustee to perform its reporting obligations under this Section, and such
obligations of the Trustee under this Section are conditioned upon such
information being received and the information provided shall be based solely
upon information contained in the monthly servicing report provided by the
Master Servicer to the Trustee pursuant to Section 8.08(d)(ii) hereof.
(b) The Master Servicer shall furnish to the Trustee and to the
Certificate Insurer, during the term of this Agreement, such periodic, special,
or other reports or information not specifically
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provided for herein, as may be necessary, reasonable, or appropriate with
respect to the Trustee or the Certificate Insurer, as the case may be, or
otherwise with respect to the purposes of this Agreement, all such reports or
information to be provided by and in accordance with such applicable
instructions and directions as the Trustee or the Certificate Insurer may
reasonably require.
Section 7.10 Reports by Trustee.
(a) The Trustee shall, at the request of the Depositor, the Seller or the
Certificate Insurer, transmit promptly to the Depositor, the Seller and the
Certificate Insurer copies of all accountings of receipts in respect of the
Mortgage Loans furnished to it by the Master Servicer and shall notify the
Depositor, the Seller and the Certificate Insurer if any Monthly Remittance
Amount has not been received by the Trustee when due.
(b) The Trustee shall report to the Certificate Insurer and each Owner
with respect to any written notices it may from time to time receive which
provide an Authorized Officer with actual knowledge that any of the statements
set forth in Section 3.04(b) hereof are inaccurate.
Section 7.11 Preference Payments.
The Certificate Insurer will pay any Insured Payment that is a Preference
Amount on the Business Day following receipt on a Business Day by the
Certificate Insurer of (i) a certified copy of such order, (ii) an opinion of
counsel satisfactory to the Certificate Insurer that such order is final and not
subject to appeal, (iii) an assignment in such form as is reasonably required by
the Certificate Insurer, irrevocably assigning to the Certificate Insurer all
rights and claims of the Owners relating to or arising under the Class A
Certificates against the debtor which made such Preference Amount or otherwise
with respect to such Preference Amount and (iv) appropriate instruments to
effect the appointment of the Certificate Insurer as agent for such Owner in any
legal proceeding related to such Preference Amount, such instruments being in a
form satisfactory to the Certificate Insurer, provided that if such documents
are received after 12:00 noon New York City time on such Business Day, they will
be deemed to be received on the following Business Day. Such payment shall be
disbursed to the receiver, conservator, debtor-in-possession or trustee in
bankruptcy named in the order and not to the Trustee or any Owner of Class A
Certificate directly (unless an Owner of a Class A Certificate has previously
paid such amount to the receiver, conservator, debtor-in-possession or trustee
in bankruptcy named in the order, in which case such payment shall be disbursed
to the Trustee for distribution to such Owner upon proof of such payment
reasonably satisfactory to the Certificate Insurer).
Each Owner of a Class A Certificate, by its purchase of Class A
Certificates, the Master Servicer and the Trustee hereby agree that the
Certificate Insurer may at any time during the continuation of any proceeding
relating to a preference claim direct all matters relating to such preference
claim, including, without limitation, the direction of any appeal of any order
relating to such preference claim and the posting of any surety or performance
bond pending any such appeal. In addition and without limitation of the
foregoing, the Certificate Insurer shall be subrogated to the
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rights of the Master Servicer, the Trustee and the Owner of each Class A
Certificate in the conduct of any such preference claim, including, without
limitation, all rights of any party to an adversary proceeding action with
respect to any court order issued in connection with any such preference claim.
Each Owner of a Class A Certificate will promptly notify the Trustee in
writing upon the receipt of a court order relating to a Preference Amount and
will be required to enclose a copy of such order with such notice to the
Trustee.
ARTICLE VIII
SERVICING AND ADMINISTRATION
OF MORTGAGE LOANS
Section 8.01 Master Servicer and Sub-Servicers.
Acting directly or through one or more Sub-Servicers as provided in
Section 8.03, the Master Servicer shall service and administer the Mortgage
Loans as described below and with reasonable care, and using that degree of
skill and attention that the Master Servicer exercises with respect to
comparable mortgage loans that it services for itself or others (the "Servicing
Standard"), and shall have full power and authority, acting alone, to do or
cause to be done any and all things in connection with such servicing and
administration which it may deem necessary or desirable. In performing such
servicing functions the Master Servicer shall (i) take into account the
mortgagor non-conforming credit quality of the Mortgagors under the Mortgage
Loans, (ii) follow the policies and procedures that it would apply to similar
loans held for its own account, unless such policies and procedures are not
generally in accordance with standard industry practices, in which case the
Master Servicer shall service the loans generally in accordance with standard
industry practices applicable to servicing similar loans, and (iii) comply with
all applicable laws and follow collection practices with respect to the related
Mortgage Loans that are in all material respects legal, proper and prudent.
___________ currently uses the FNMA Guide and the BFC Investor Guide as its
servicing manual. To the extent the Master Servicer enters into a Sub-Servicing
Agreement with any additional servicer pursuant to Section 8.03 of this
Agreement, the Master Servicer shall provide the Certificate Insurer with a copy
of the servicing manual or procedures for each additional Sub-Servicer within
thirty days from the date of such Sub-Servicing Agreement.
Subject to Section 8.03 hereof, the Master Servicer may, and is hereby
authorized to, perform any of its servicing responsibilities with respect to all
or certain of the Mortgage Loans through a Sub-Servicer as it may from time to
time designate, but no such designation of a Sub-Servicer shall serve to release
the Master Servicer from any of its obligations under this Agreement. Subject to
the related Sub-Servicing Agreement, such Sub-Servicer shall have all the rights
and powers of the Master Servicer with respect to such Mortgage Loans under this
Agreement.
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Without limiting the generality of the foregoing, but subject to Sections
8.13 and 8.14, the Master Servicer in its own name or in the name of a
Sub-Servicer may be authorized and empowered pursuant to a power of attorney
executed and delivered by the Trustee to execute and deliver, and may be
authorized and empowered by the Trustee, to execute and deliver, on behalf of
itself, the Owners and the Trustee or any of them, (i) any and all instruments
of satisfaction or cancellation or of partial or full release or discharge and
all other comparable instruments with respect to the Mortgage Loans and with
respect to the Mortgaged Properties, and (ii) to institute foreclosure
proceedings or obtain a deed in lieu of foreclosure so as to effect ownership of
any Mortgaged Property in the name of the Trustee; provided, however, that to
the extent any instrument described in clause (i) preceding would be delivered
by the Master Servicer outside of its usual procedures for mortgage loans held
in its own portfolio, the Master Servicer shall, prior to executing and
delivering such instrument, obtain the prior written consent of the Certificate
Insurer, and provided further, that Section 8.14(a) shall constitute an
authorization from the Trustee to the Master Servicer to execute an instrument
of satisfaction (or assignment of mortgage without recourse) with respect to any
Mortgage Loan paid in full (or with respect to which payment in full has been
escrowed). The Trustee shall execute any documentation furnished to it by the
Master Servicer for recordation by the Master Servicer in the appropriate
jurisdictions as shall be necessary to effectuate the foregoing. Subject to
Sections 8.13 and 8.14, the Trustee shall execute any authorizations and other
documents as the Master Servicer or such Sub-Servicer shall reasonably request
that are furnished to the Trustee to enable the Master Servicer and such
Sub-Servicer to carry out their respective servicing and administrative duties
hereunder.
The Master Servicer shall give prompt notice to the Trustee and the
Certificate Insurer of any action, of which the Master Servicer has actual
knowledge, to (i) assert a claim against the Trust or (ii) assert jurisdiction
over the Trust.
Servicing Advances incurred by the Master Servicer or any Sub-Servicer in
connection with the servicing of the Mortgage Loans (including any penalties in
connection with the payment of any taxes and assessments or other charges) on
any Mortgaged Property shall be recoverable by the Master Servicer or such
Sub-Servicer to the extent described in Section 8.09(b) hereof.
Notwithstanding any other provision contained herein, with respect to the
Actuarial Loans, payments due other than on the first day of a month are deemed
to be due on the first day of the month for all purposes hereunder.
Section 8.02 Collection of Certain Mortgage Loan Payments.
The Master Servicer shall use reasonable efforts to collect or caused to
be collected all payments called for under the terms and provisions of the
Mortgage Loans, and shall, to the extent such procedures shall be consistent
with this Agreement and the terms and provisions of any applicable Insurance
Policy, follow collection procedures for all Mortgage Loans in accordance with
the Servicing Standard. Consistent with the foregoing, the Master Servicer may
in its discretion waive or permit to be waived any late payment charge,
prepayment charge, assumption fee or any penalty interest in connection with the
prepayment of a Mortgage Loan or any other fee
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or charge which the Master Servicer would be entitled to retain hereunder as
servicing compensation. In the event the Master Servicer shall consent to the
deferment of the due dates for payments due on a Note, the Master Servicer shall
nonetheless make payment of any required Delinquency Advance with respect to the
payments so extended to the same extent as if such installment were due, owing
and Delinquent and had not been deferred, and shall be entitled to reimbursement
therefor in accordance with Section 8.09(a) hereof. The Master Servicer may
waive, modify or vary the terms of the Mortgage Loans in accordance with the
Servicing Standard; provided, however, that the Master Servicer may not waive,
modify or vary the terms of any Mortgage Loan to (A) decrease the interest rate
on the Mortgage Loan, (B) forgive the payment of principal or interest (except
with respect to liquidation of such Mortgage Loan) or (C) extend the maturity
date of such Mortgage Loan, unless, (i) the related Mortgagor is in default
under such Mortgage Loan or such default is, in the reasonable judgment of the
Master Servicer, reasonably foreseeable, (ii) the amendment, modification or
waiver is recorded with the appropriate recording office with proof of such
recording provided to the Certificate Insurer by the Master Servicer promptly
upon receipt by the Master Servicer, and (iii) all costs and expenses associated
with such amendment, modification or waiver, including any recording costs, are
paid by the Master Servicer out of its own funds. In addition, if the aggregate
principal balance of the Mortgage Loans with respect to such waivers,
modifications or variations which have been granted equals or exceeds 2% of the
Original Aggregate Loan Balance of the Mortgage Loans, any further waivers,
modifications or variations shall require the Certificate Insurer's prior
written consent. The Certificate Insurer shall respond to any written request of
the Master Servicer for a waiver, modification or variation of a Mortgage Loan
within two weeks of the date of such written request.
Section 8.03 Sub-Servicing Agreements Between Master Servicer and
Sub-Servicers.
The Master Servicer may enter into Sub-Servicing Agreements for any
servicing and administration of Mortgage Loans with one or more institutions
that are in compliance with the laws of each state necessary to enable each of
them to perform their obligations under such Sub-Servicing Agreements and (x) is
___________ or (y)(i) has been designated an approved seller-servicer by FHLMC
or FNMA and (ii) has equity of at least $1,500,000, as determined in accordance
with generally accepted accounting principles or (z) is a Master Servicer
Affiliate. The Master Servicer shall give notice to the Trustee, the Certificate
Insurer and the Rating Agencies of the appointment of any Sub-Servicer. For
purposes of this Agreement, the Master Servicer shall be deemed to have received
payments on Mortgage Loans when any Sub-Servicer has received such payments.
Each Sub-Servicer shall be required to service the Mortgage Loans in accordance
with this Agreement and any such Sub-Servicing Agreement shall be consistent
with and not violate the provisions of this Agreement. Each Sub-Servicing
Agreement shall provide that a successor Master Servicer shall have the option
to terminate such agreement without payment of any termination fees if the
original Master Servicer is terminated or resigns.
Section 8.04 Successor Sub-Servicers.
The Master Servicer shall be entitled to terminate any Sub-Servicing
Agreement in accordance with the terms and conditions of such Sub-Servicing
Agreement and to either itself
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directly service the related Mortgage Loans or enter into a Sub-Servicing
Agreement with a successor Sub-Servicer which qualifies under Section 8.03.
Section 8.05 Liability of Master Servicer; Indemnification.
(a) The Master Servicer shall not be relieved of its obligations under
this Agreement notwithstanding any Sub-Servicing Agreement or any of the
provisions of this Agreement relating to agreements or arrangements between the
Master Servicer and a Sub-Servicer and the Master Servicer shall be obligated to
the same extent and under the same terms and conditions as if it alone were
servicing and administering the Mortgage Loans. The Master Servicer shall be
entitled to enter into any agreement with a Sub-Servicer for indemnification of
the Master Servicer by such Sub-Servicer and nothing contained in such
Sub-Servicing Agreement shall be deemed to limit or modify this Agreement.
(b) The Master Servicer (except the Trustee if it is required to succeed
the Master Servicer hereunder) agrees to indemnify and hold the Trustee
(including its directors, officers, employees, agents and affiliates), the
Certificate Insurer and each Owner harmless against any and all claims, losses,
penalties, fines, forfeitures, legal fees and related costs, judgments, and any
other costs, fees and expenses that the Trustee, the Certificate Insurer and any
Owner may sustain in any way related to the failure of the Master Servicer to
perform its duties and service the Mortgage Loans in compliance with the terms
of this Agreement. The Master Servicer shall immediately notify the Trustee, the
Certificate Insurer and each Owner if a claim is made by a third party with
respect to this Agreement, and the Master Servicer shall assume (with the
consent of the Trustee and the Certificate Insurer) the defense of any such
claim and pay all expenses in connection therewith, including reasonable counsel
fees, and promptly pay, discharge and satisfy any judgment or decree which may
be entered against the Master Servicer, the Trustee, the Certificate Insurer
and/or Owner in respect of such claim. The Trustee shall reimburse the Master
Servicer from amounts distributable pursuant to Section 7.03(c)(iii)(G) for all
amounts advanced by it pursuant to the preceding sentence except when the claim
relates directly to the failure of the Master Servicer to service and administer
the Mortgage Loans in compliance with the terms of this Agreement based upon an
opinion of counsel (at the expense of the Master Servicer) delivered to the
Trustee and the Certificate Insurer. The provisions of this Section 8.05 shall
survive the resignation or removal of the Trustee, the termination of this
Agreement, the resignation or removal of the Master Servicer and the payment of
the outstanding Certificates.
(c) None of the Depositor, the Master Servicer, or any of the directors,
officers, employees or agents of the Depositor or the Master Servicer shall be
under any liability to the Trust Estate or the Owners for any action taken, or
for refraining from the taking of any action, in good faith pursuant to this
Agreement, or for errors in judgment; provided, however, that this provision
shall not protect the Depositor or Master Servicer or any such Person against
any breach of warranties or representations made herein, or against any specific
liability imposed on the Master Servicer for a breach of the Servicing Standard,
or against any liability which would otherwise be imposed by reason of its
respective willful misfeasance, bad faith, fraud or negligence in the
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performance of its duties or by reasons of negligent disregard of its
respective obligations or duties hereunder.
The Depositor, the Master Servicer, and any director, officer, employee or
agent of the Depositor or the Master Servicer, may rely in good faith on any
document of any kind which, prima facie, is properly executed and submitted by
any appropriate Person with respect to any matters arising hereunder. Pursuant
to Section 7.03(c)(iii)(G), the Depositor, the Master Servicer and any director,
officer, employee or agent of the Depositor or the Master Servicer shall be
indemnified and held harmless by the Trust Estate against any loss, liability or
expense incurred in connection with any legal action relating to this Agreement
or the Certificates, other than any loss, liability or expense incurred in
connection with any legal action incurred by reason of its respective
misfeasance, bad faith, fraud or negligence, a breach of a representation or
warranty hereunder or (in the case of the Master Servicer) a breach of the
Servicing Standard in the performance of its respective duties or by reason of
negligent disregard or its respective obligations or duties hereunder. Neither
the Depositor nor the Master Servicer shall be under any obligation to appear
in, prosecute or defend any legal action unless such action is related to its
respective duties under this Agreement and in its opinion does not expose it to
any expense or liability; provided, however, that the Depositor or the Master
Servicer may in its discretion undertake any action related to its obligations
hereunder which it may deem necessary or desirable with respect to this
Agreement and the rights and duties of the parties hereto and the interests of
the Owners hereunder.
Section 8.06 No Contractual Relationship Between Sub-Servicer,
Trustee or the Owners.
Any Sub-Servicing Agreement and any other transactions or services
relating to the Mortgage Loans involving a Sub-Servicer shall be deemed to be
between the Sub-Servicer and the Master Servicer alone and the Trustee and the
Owners shall not be deemed parties thereto and shall have no claims, rights,
obligations, duties or liabilities with respect to any Sub-Servicer except as
set forth in Section 8.07.
Section 8.07 Assumption or Termination of Sub-Servicing Agreement
by Trustee.
In connection with the assumption of the responsibilities, duties and
liabilities and of the authority, power and rights of the Master Servicer
hereunder by the Trustee pursuant to Section 8.20, it is understood and agreed
that the Master Servicer's rights and obligations under any Sub-Servicing
Agreement then in force between the Master Servicer and a Sub-Servicer shall be
assumed simultaneously by the Trustee without act or deed on the part of the
Trustee; provided, however, that the successor Master Servicer may terminate the
Sub-Servicer as provided in Section 8.03.
The terminated Master Servicer shall, upon the reasonable request of the
Trustee, but at the expense of the Master Servicer, deliver to the assuming
party documents and records relating to each Sub-Servicing Agreement and an
accounting of amounts collected and held by it and otherwise use its best
reasonable efforts to effect the orderly and efficient transfer of the
Sub-Servicing Agreements to the assuming party.
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Section 8.08 Collection Account.
(a) The Master Servicer shall establish and maintain or cause to be
established and maintained the Collection Account to be held as an Eligible
Account on behalf of the Trustee for the benefit of the Owners and the
Certificate Insurer. The Collection Account shall be entitled
"_________________________, as Trustee under the Pooling and Servicing Agreement
dated as of _________________" and shall be initially established at
_____________________. The Master Servicer shall notify the Trustee (who will in
turn notify the Owners) and the Certificate Insurer if there is a change in the
name, account number or institution holding the Collection Account.
Subject to subsection (c) below, the Master Servicer shall deposit or
cause to be deposited all receipts pursuant to subsection (c) below and related
to the Mortgage Loans to the Collection Account on a daily basis (but no later
than the second Business Day after receipt).
(b) All funds in the Collection Account shall be held (i) uninvested or
(ii) invested in Permitted Investments. Any investments of funds in the
Collection Account shall mature or be withdrawable at par no later than one
Business Day prior to the immediately succeeding Monthly Remittance Date. The
Collection Account shall be held in trust in the name of the Trustee for the
benefit of the Owners. Any investment earnings on funds held in the Collection
Account shall be for the account of the Master Servicer and may only be
withdrawn from the Collection Account by the Master Servicer immediately
following the remittance of the Monthly Remittance Amount (and the Total Monthly
Excess Spread included therein) by the Master Servicer. Prior to each Monthly
Remittance Date, the Master Servicer shall deposit into the Collection Account
the net amount of any investment losses on such funds during the related Due
Period. Any references herein to amounts on deposit in the Collection Account
shall refer to amounts net of such investment earnings.
(c) The Master Servicer shall deposit into the Collection Account no later
than the second Business Day after receipt all principal and interest
collections on the Mortgage Loans received after the Cut-Off Date (other than
Scheduled Payments on Actuarial Loans due on or prior to the Cut-Off Date)
including any Prepayments, Curtailments and Net Liquidation Proceeds, other
recoveries or amounts related to the Mortgage Loans received by the Master
Servicer and any income from REO Properties, but net of (i) the Servicing Fee
with respect to each Mortgage Loan and other servicing compensation to the
Master Servicer as permitted by Section 8.15 hereof, (ii) Net Liquidation
Proceeds to the extent such Net Liquidation Proceeds exceed the sum of (I) the
Loan Balance of the related Mortgage Loan immediately prior to liquidation, plus
(II) accrued and unpaid interest on such Mortgage Loan (net of the Servicing
Fee) to the date of such liquidation, (iii) reimbursements for Delinquency
Advances from late collections or Liquidation Proceeds on the Mortgage Loans
which gave rise to such Delinquency Advances, and (iv) reimbursements for
amounts deposited in the Collection Account representing payments of principal
and/or interest on a Note by a Mortgagor which are subsequently returned by a
depository institution as unpaid.
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(d) (i) The Master Servicer may make withdrawals for its own account from
the amounts on deposit in the Collection Account, with respect to each Mortgage
Loan Group, for the following purposes:
(A) to withdraw investment earnings on amounts on deposit in the
Collection Account:
(B) to the extent not reimbursed or paid pursuant to any other clause
of this Section 8.08(d)(i), to reimburse or pay the Master
Servicer, the Trustee and/or the Depositor for unpaid items
incurred by or on behalf of such Person pursuant to any provision
of this Agreement pursuant to which such Person is entitled to
reimbursement or payment from the Trust Estate, in each case only
to the extent reimbursable under such Section, it being
acknowledged that this clause (B) shall not be deemed to modify
the substance of any such Section, including the provisions of
such Section that set forth the extent to which one of the
foregoing Persons is or is not entitled to payment or
reimbursement;
(C) to withdraw amounts that have been deposited to the Collection
Account in error;
(D) to reimburse itself for unreimbursed Delinquency Advances with
respect to Simple Interest Loans from Excess Interest pursuant to
Section 8.09(a); and
(E) to clear and terminate the Collection Account following the
termination of the Trust pursuant to Article IX.
(ii) The Master Servicer shall (a) remit to the Trustee for deposit in the
Distribution Account by wire transfer, or otherwise make funds available in
immediately available funds, without duplication, the Monthly Remittance Amount
allocable to a Due Period not later than the related Monthly Remittance Date and
Loan Purchase Prices and Substitution Adjustments two Business Days following
the related purchase or substitution, and (b) no later than by 12:00 noon, New
York time on the second Business Day after the Determination Date immediately
preceding the related Distribution Date, deliver to the Trustee and the
Certificate Insurer a monthly servicing report via electronic medium, with
respect to each Mortgage Loan Group, containing the following information: (i)
principal and interest collected, Liquidated Loans, summary and detailed
delinquency reports, Liquidation Proceeds and other similar information
concerning the servicing of the Mortgage Loans and (ii) the information
described in Section 7.09(b). In addition, the Master Servicer shall inform the
Trustee and the Certificate Insurer on each Monthly Remittance Date, with
respect to each Mortgage Loan Group, of the amounts of any Loan Purchase Prices
or Substitution Adjustments so remitted during the related Due Period.
Section 8.09 Delinquency Advances and Servicing Advances.
(a) Subject to the second paragraph of this subsection (a), the Master
Servicer will be obligated on each Monthly Remittance Date to remit to the
Trustee from its own funds for deposit into the Distribution Account an amount
equal to interest on the Mortgage Loans due during the
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related Due Period (net of the Servicing Fee) but uncollected (i) with respect
to Simple Interest Loans, as of the end of the related Due Period, and (ii) with
respect to Actuarial Loans, as of the related Determination Date (such amount, a
"Delinquency Advance"). For purposes of calculating the amount of Delinquency
Advances for the Simple Interest Loans or Excess Interest for reimbursement of
such Delinquency Advances for a Mortgage Loan Group, the amount "due" during the
Due Period will be deemed to be 30 days' interest at the weighted average
Mortgage Rate for the Simple Interest Loans in such Mortgage Loan Group.
Delinquency Advances are recoverable from (i) late collections on the Mortgage
Loan which gave rise to the Delinquency Advance, (ii) Liquidation Proceeds for
the Mortgage Loan which gave rise to such Delinquency Advance, (iii) with
respect to Simple Interest Loans, Excess Interest for the related Mortgage Loan
Group and (iv) pursuant to Section 7.03(c)(ii)(C).
Notwithstanding the foregoing, the Master Servicer shall not be obligated
to make a Delinquency Advance as to any Mortgage Loan if the Master Servicer
determines that such Delinquency Advance, if made, would be a Nonrecoverable
Advance. The Master Servicer shall give written notice of such determination to
the Trustee and the Certificate Insurer; and the Trustee shall promptly furnish
a copy of such notice to the Owners; provided, that the Master Servicer shall be
entitled to recover any unreimbursed Delinquency Advances from the aforesaid
Liquidation Proceeds prior to the payment of the Liquidation Proceeds to any
other party to this Agreement.
(b) The Master Servicer will pay all "out-of-pocket" costs and expenses
incurred in the performance of its servicing obligations (each such expenditure,
a "Servicing Advance") including, but not limited to, the cost of (i)
Preservation Expenses, (ii) any enforcement or judicial proceedings, including
foreclosures, (iii) the management and liquidation of REO Property and (iv)
advances required by Section 8.13(a), but the Master Servicer shall not be
obligated to make any such Servicing Advance if the Master Servicer determines
that such Servicing Advance, if made, would be a Nonrecoverable Advance. The
Master Servicer may recover Servicing Advances (x) from the Mortgagors to the
extent permitted by the Mortgage Loans or, if not recovered from the Mortgagor
on whose behalf such Servicing Advance was made, from Liquidation Proceeds
realized upon the liquidation of the related Mortgage Loan and (y) as provided
in Section 7.03(c)(ii)(C). The Master Servicer shall be entitled to recover the
Servicing Advances from the aforesaid Liquidation Proceeds prior to the payment
of the Liquidation Proceeds to any other party to this Agreement. Except as
provided in the previous sentence, in no case may the Master Servicer recover
Servicing Advances from the principal and interest payments on any Mortgage Loan
or from any amounts relating to any other Mortgage Loan except as provided in
Section 7.03(c)(ii)(C).
Section 8.10 Compensating Interest; Repurchase of Mortgage Loans.
(a) If, during any Prepayment Period, the aggregate Prepayment Interest
Shortfalls exceed the aggregate Prepayment Interest Excesses, the Master
Servicer shall deposit into the Collection Account on the related Monthly
Remittance Date an amount equal to such difference but not in excess of one-half
of the Servicing Fee for the related Due Period on the Mortgage Loans giving
rise to such Prepayment Interest Shortfalls ("Compensating Interest"). Such
amount shall be
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included in the Monthly Remittance to be made available to the Trustee on such
Monthly Remittance Date.
(b) The Master Servicer, and in the absence of the exercise thereof by
the Master Servicer, the Certificate Insurer, has the right and the option, but
not the obligation, to purchase for its own account any Mortgage Loan which
becomes Delinquent, in whole or in part, as to four consecutive monthly
installments or any Mortgage Loan as to which enforcement proceedings have been
brought by the Master Servicer pursuant to Section 8.13; provided, however, that
(i) the Master Servicer or the Certificate Insurer, as the case may be, may not
purchase any such Mortgage Loan unless the Master Servicer or the Certificate
Insurer, as the case may be, has delivered to the Trustee an opinion of counsel
experienced in federal income tax matters acceptable to the Master Servicer or
the Certificate Insurer, as the case may be, and the Trustee to the effect that
such a purchase would not constitute a Prohibited Transaction for the Trust or
otherwise subject the Trust to tax and would not jeopardize the status of the
Trust as a REMIC. Any such Mortgage Loan so purchased shall be purchased by the
Master Servicer or the Certificate Insurer as the case may be on a Monthly
Remittance Date at a purchase price equal to the Loan Purchase Price thereof,
which purchase price shall be deposited in the Collection Account and the Master
Servicer shall provide the Certificate Insurer and the Trustee with a
Liquidation Report in the form of Exhibit L hereto with respect to each such
Mortgage Loan.
(c) The Net Liquidation Proceeds from the disposition of any REO Property
shall be deposited in the Collection Account and remitted to the Trustee as part
of the Monthly Remittance Amount remitted by the Master Servicer to the Trustee
for the Prepayment Period in which such liquidation occurred.
Section 8.11 Maintenance of Insurance.
(a) The Master Servicer on behalf of the Trustee, as mortgagee, shall use
its reasonable efforts in accordance with the Servicing Standard to cause the
related Mortgagor to maintain for each Mortgage Loan (other than any Mortgage
Loan as to which the related Mortgaged Property has become an REO Property), and
if the Mortgagor does not so maintain, shall itself maintain (subject to the
provisions of this Agreement concerning Nonrecoverable Advances), to the extent
the Trustee as mortgagee has an insurable interest, (A) fire and hazard
insurance with extended coverage on the related Mortgaged Property in an amount
which is at least equal to the least of (i) 100% of the then "full replacement
cost" of the improvements and equipment (excluding foundations, footings and
excavation costs), without deduction for physical depreciation, (ii) the
outstanding principal balance of the related Mortgage Loan (together, in the
case of a Second Mortgage Loan, with the outstanding principal balance of the
Senior Lien) or such other amount as is necessary to prevent any reduction in
such policy by reason of the application of co-insurance and to prevent the
Trustee thereunder from being deemed to be a co-insurer and (iii) the full
insurable value of such Mortgaged Property, and (B) such other insurance as
provided in the related Mortgage Loan. The Master Servicer shall maintain fire
and hazard insurance with extended coverage from a Qualified Insurer on each REO
Property in an amount which is at least equal to 100% of the then "full
replacement cost" of the improvements and equipment (excluding foundations,
footings and excavation costs),
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without deduction for physical depreciation. The Master Servicer shall maintain,
from a Qualified Insurer, with respect to each REO Property, such other
insurance as provided in the related Mortgage Loan. Any amounts collected by the
Master Servicer under any such policies (other than amounts to be applied to the
restoration and repair of the related Mortgaged Property or amounts to be
released to the Mortgagor in accordance with the terms of the related Mortgage)
shall be deposited into the Collection Account pursuant to Section 8.08(c),
subject to withdrawal pursuant to Section 8.08(d). Any cost incurred by the
Master Servicer in maintaining any such insurance shall not, for the purpose of
calculating distributions to Owners, be added to the unpaid principal balance of
the related Mortgage Loan, notwithstanding that the terms of such Mortgage Loan
so permit. It is understood and agreed that no earthquake or other additional
insurance other than flood insurance is to be required of any Mortgagor or to be
maintained by the Master Servicer other than pursuant to the terms of the
related Mortgage, Note or other Mortgage Loan documents and pursuant to such
applicable laws and regulations as shall at any time be in force and as shall
require such additional insurance. If the Mortgaged Property is located in a
federally designated special flood hazard area, the Master Servicer will use its
reasonable efforts in accordance with the Servicing Standard to cause the
related Mortgagor to maintain or will itself obtain (subject to the provisions
of this Agreement concerning Nonrecoverable Advances) flood insurance in respect
thereof. Such flood insurance shall be in an amount equal to the least of (i)
the outstanding principal balance of the related Mortgage Loan (together, in the
case of a Second Mortgage Loan, with the outstanding principal balance of the
Senior Lien), (ii) the maximum amount of such insurance required by the terms of
the related Mortgage and as is available for the related property under the
Flood Disaster Protection Act of 1973 (assuming that the area in which such
property is located is participating in such program) and (iii) the minimum
amount required to compensate for damage or loss on a replacement cost basis. If
an REO Property is located in a federally designated special flood hazard area,
the Master Servicer will obtain flood insurance in respect thereof providing
substantially the same coverage as described in the preceding sentences. If at
any time during the term of this Agreement a recovery under a flood or fire and
hazard insurance policy in respect of an REO Property is not available but would
have been available if such insurance were maintained thereon in accordance with
the standards applied to Mortgaged Properties described herein, the Master
Servicer shall either (i) immediately deposit into the Collection Account from
its own funds the amount that would have been recovered or (ii) apply to the
restoration and repair of the property from its own funds the amount that would
have been recovered, if such application would be consistent with the servicing
standard set forth in Section 8.01; provided, however, that the Master Servicer
shall not be responsible for any shortfall in insurance proceeds resulting from
an insurer's refusal or inability to pay a claim. Costs of the Master Servicer
of maintaining insurance policies pursuant to this Section 8.11 shall be paid by
the Master Servicer as a Servicing Advance and shall be reimbursable to the
Master Servicer.
The Master Servicer agrees to prepare and present, on behalf of itself,
the Trustee and the Owners, claims under each related insurance policy
maintained pursuant to this Section 8.11 in a timely fashion in accordance with
the terms of such policy and to take such reasonable steps as are necessary to
receive payment or to permit recovery thereunder.
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The Master Servicer shall require that all insurance policies required
hereunder shall name the Trustee, the Master Servicer or the Sub-Servicer as
loss payee and that all such insurance policies require that 30 days' notice be
given to the Master Servicer before termination to the extent required by the
related Mortgage, Note, or other Mortgage Loan documents.
(b) (i) If the Master Servicer obtains and maintains a blanket insurance
policy with a Qualified Insurer at its own expense insuring against fire and
hazard losses or other required insurance on all of the Mortgage Loans, it shall
conclusively be deemed to have satisfied its obligations concerning the
maintenance of such insurance coverage set forth in Section 8.11(a), it being
understood and agreed that such policy may contain a deductible clause, in which
case the Master Servicer shall, in the event that (A) there shall not have been
maintained on one or more of the related Mortgaged Properties a policy otherwise
complying with the provisions of Section 8.11(a), and (B) there shall have been
one or more losses which would have been covered by such a policy had it been
maintained, immediately deposit into the Collection Account from its own funds
the amount not otherwise payable under the blanket policy because of such
deductible clause. In connection with its activities as Master Servicer
hereunder, the Master Servicer agrees to prepare and present, in a timely
fashion in accordance with the terms of such policy, on behalf of itself, the
Trustee and Owners, claims under any such blanket policy which it maintains and
to take such reasonable steps as are necessary to receive payment or permit
recovery thereunder.
(ii) If the Master Servicer causes any Mortgaged Property or REO Property
to be covered by a master force placed insurance policy, which policy is issued
by a Qualified Insurer and provides no less coverage in scope and amount for
such Mortgaged Property or REO Mortgaged Property than the insurance required to
be maintained pursuant to Section 8.11(a), the Master Servicer shall
conclusively be deemed to have satisfied its obligations to maintain insurance
pursuant to Section 8.11(a). Such policy may contain a deductible clause, in
which case the Master Servicer shall, in the event that (A) there shall not have
been maintained on the related Mortgaged Property or REO Property a policy
otherwise complying with the provisions of Section 8.11(a), and (B) there shall
have been one or more losses which would have been covered by such a policy had
it been maintained, immediately deposit into the Collection Account from its own
funds the amount not otherwise payable under such policy because of such
deductible.
Section 8.12 Due-on-Sale Clauses; Assumption and Substitution
Agreements.
When a Mortgaged Property has been or is about to be conveyed by the
Mortgagor, the Master Servicer shall, to the extent an Authorized Officer
thereof has actual knowledge of such conveyance or prospective conveyance,
exercise its rights to accelerate the maturity of the related Mortgage Loan
under any "due-on-sale" clause contained in the related Mortgage or Note;
provided, however, that the Master Servicer shall not exercise any such right if
the "due-on-sale" clause, in the reasonable belief of the Master Servicer, is
not enforceable under applicable law or if the Master Servicer reasonably
believes in good faith it is not in the best interests of the Trust. An opinion
of counsel at the expense of the Master Servicer delivered to the Trustee, the
Depositor and the Certificate Insurer to the foregoing effect shall conclusively
establish the reasonableness of such belief. In such event, the Master Servicer
shall make reasonable efforts to enter into an assumption
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and modification agreement with the person to whom such property has been or is
about to be conveyed, pursuant to which such person becomes liable under the
Note and, unless prohibited by applicable law or the Mortgage Documents, the
Mortgagor remains liable thereon. If the foregoing is not permitted under
applicable law, the Master Servicer is authorized to enter into a substitution
of liability agreement with such person, pursuant to which the original
Mortgagor is released from liability and such person is substituted as Mortgagor
and becomes liable under the Note; provided, however, that to the extent any
such substitution of liability agreement would be delivered by the Master
Servicer outside of its usual procedures for mortgage loans held in its own
portfolio the Master Servicer shall, prior to executing and delivering such
agreement, obtain the prior written consent of the Certificate Insurer. The
Trustee shall execute any agreements presented to it by, and at the request of,
the Master Servicer to effectuate the foregoing. The Mortgage Loan, as assumed,
shall conform in all respects to the requirements, representations and
warranties of this Agreement. The Master Servicer shall notify the Trustee that
any such assumption or substitution agreement has been completed by forwarding
to the Trustee the original copy of such assumption or substitution agreement
(indicating the File to which it relates) which copy shall be added by the
Trustee to the related File and which shall, for all purposes, be considered a
part of such File to the same extent as all other documents and instruments
constituting a part thereof. The Master Servicer shall be responsible for
recording any such assumption or substitution agreements. In connection with any
such assumption or substitution agreement, the required monthly payment on the
related Mortgage Loan shall not be changed but shall remain as in effect
immediately prior to the assumption or substitution, the stated maturity or
outstanding principal amount of such Mortgage Loan shall not be changed nor
shall any required monthly payments of principal or interest be deferred or
forgiven, except to the extent permitted by Section 8.02. Any fee collected by
the Master Servicer or the Sub-Servicer for consenting to any such conveyance or
entering into an assumption or substitution agreement shall be retained by or
paid to the Master Servicer as additional servicing compensation.
Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Master Servicer shall not be deemed to be in default, breach or
any other violation of its obligations hereunder by reason of any assumption of
a Mortgage Loan by operation of law or any assumption which the Master Servicer
may be restricted by law from preventing, for any reason whatsoever.
Section 8.13 Realization upon Defaulted Mortgage Loans; Inspection.
(a) The Master Servicer shall foreclose upon or otherwise comparably
effect the ownership in the name of the Trustee on behalf of the Trust of
Mortgaged Properties relating to defaulted Mortgage Loans as to which no
satisfactory arrangements can be made for collection of Delinquent payments and
which the Master Servicer has not purchased pursuant to Section 8.10(b). Subject
to Section 8.09, in connection with such foreclosure or other conversion, the
Master Servicer shall exercise such of the rights and powers vested in it
hereunder, and use the same degree of care and skill in their exercise or use,
as prudent mortgage lenders would exercise or use under the circumstances in the
conduct of their own affairs and consistent with the Servicing Standard,
including, but not limited to, advancing funds for the payment of taxes, amounts
due with respect to Senior Liens, and insurance premiums. Any amounts so
advanced shall constitute "Servicing Advances" within the meaning of Section
8.09(b) hereof. The Master Servicer shall sell any REO
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Property by the close of the third taxable year following the taxable year in
which it is acquired by the Trust (the "REO Sale Deadline"), at such price as
the Master Servicer deems necessary to comply with this covenant unless, either
(i) at least 61 days prior to the REO Sale Deadline, the Trustee has requested
an extension of time from the IRS in which to dispose of such property (an "REO
Extension"), or (ii) the Master Servicer obtains for the Certificate Insurer,
Trustee and the Master Servicer an opinion of counsel experienced in federal
income tax matters acceptable to the Certificate Insurer and the Trustee,
addressed to the Certificate Insurer, the Trustee and the Master Servicer, to
the effect that the holding by the Trust of such REO Property for any longer
period will not result in the imposition of taxes on "Prohibited Transactions"
of the Trust or any REMIC therein as defined in Section 860F of the Code or
cause the Trust or any REMIC therein to fail to qualify as a REMIC under the
REMIC Provisions at any time that any Certificates are outstanding.
Notwithstanding the generality of the foregoing provisions, the Master
Servicer shall manage, conserve, protect and operate each REO Property for the
Owners solely for the purpose of its prompt disposition and sale in a manner
which does not cause such REO Property to fail to qualify as "foreclosure
property" within the meaning of Section 860G(a)(8) of the Code or result in the
receipt by the Trust of any income from "non-permitted assets" within the
meaning of Section 860F(a)(2)(B) of the Code or any "net income from foreclosure
property" which is subject to taxation under the REMIC Provisions. Pursuant to
its efforts to sell such REO Property, the Master Servicer shall either itself
or through an agent selected by the Master Servicer protect and conserve such
REO Property in the same manner and to such extent as is customary in the
locality where such REO Property is located and may, incident to its
conservation and protection of the interests of the Owners, rent the same, or
any part thereof, as the Master Servicer deems to be in the best interest of the
Owners for the period prior to the sale of such REO Property. The Master
Servicer shall take into account the existence of any hazardous substances,
hazardous wastes or solid wastes, as such terms are defined in the Comprehensive
Environmental Response Compensation and Liability Act, the Resource Conservation
and Recovery Act of 1976, or other federal, state or local environmental
legislation, on or under a Mortgaged Property in determining whether to
foreclose upon or otherwise comparably convert the ownership of such Mortgaged
Property. The Master Servicer shall not take any such action with respect to any
Mortgaged Property known by the Master Servicer to contain such wastes or
substances or to be within one mile of the site of such wastes or substances,
without the prior written consent of the Certificate Insurer.
(b) The Master Servicer shall determine, with respect to each defaulted
Mortgage Loan and in accordance with the Servicing Standard, when it has
recovered, whether through trustee's sale, foreclosure sale or otherwise, all
amounts it expects to recover from or on account of such defaulted Mortgage Loan
(exclusive of any possibility of a deficiency judgment), whereupon such Mortgage
Loan shall become a "Liquidated Loan". After a Mortgage Loan has become a
Liquidated Loan, the Master Servicer shall promptly prepare and forward to the
Depositor, the Trustee and the Certificate Insurer a report detailing the
Liquidation Proceeds received from the Liquidated Loan, expenses incurred with
respect thereto, and any loss incurred in connection therewith, such report in
the form attached hereto as Exhibit L.
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(c) The Master Servicer shall not acquire any personal property pursuant
to this Section 8.13 unless either: (i) such personal property is incident to
real property (within the meaning of Section 856(e)(1) of the Code) so acquired
by the Master Servicer; or (ii) the Master Servicer shall have obtained an
opinion of counsel experienced in federal income tax matters acceptable to the
Certificate Insurer and the Trustee addressed to the Certificate Insurer, the
Trustee and the Master Servicer, to the effect that the holding of such personal
property as part of the Trust will not cause the imposition of taxes on a
Prohibited Transaction or cause the Trust Fund to fail to qualify as a REMIC
under the REMIC provisions.
Section 8.14 Trustee to Cooperate; Release of Files.
(a) Upon the payment in full of any Mortgage Loan (including any
liquidation of such Mortgage Loan through foreclosure or otherwise), or the
receipt by the Master Servicer of a notification that payment in full will be
escrowed in a manner customary for such purposes, the Master Servicer shall
deliver to the Trustee a completed "Request for Release of Documents" which
shall be attached hereto as Exhibit M. Upon receipt of such Request for Release
of Documents, the Trustee shall promptly release the related File, in trust to
(i) the Master Servicer or (ii) such other party identified in the related
Request for Release. Upon any such payment in full, or the receipt of such
notification that such funds have been placed in escrow, the Master Servicer is
authorized to give, as attorney-in-fact for the Trustee as the mortgagee under
the Mortgage which secured the Note, an instrument of satisfaction (or
assignment of Mortgage without recourse) regarding the Mortgaged Property
relating to such Mortgage, which instrument of satisfaction or assignment, as
the case may be, shall be delivered to the Person or Persons entitled thereto
against receipt therefor of payment in full, it being understood and agreed that
no expense incurred in connection with such instrument of satisfaction or
assignment, as the case may be, shall be chargeable to the Collection Account.
In lieu of executing any such satisfaction or assignment, as the case may be,
the Master Servicer may prepare and submit to the Trustee a satisfaction (or
assignment without recourse, if requested by the Person or Persons entitled
thereto) in form for execution by the Trustee with all requisite information
completed by the Master Servicer; in such event, the Trustee shall execute and
acknowledge such satisfaction or assignment, as the case may be, and deliver the
same with the related File, as aforesaid.
(b) From time to time and as appropriate in the servicing of any Mortgage
Loan, including, without limitation, foreclosure or other comparable conversion
of a Mortgage Loan or collection under any applicable Insurance Policy, the
Trustee shall (except in the case of the payment or liquidation pursuant to
which the related File is released to an escrow agent or an employee, agent or
attorney of the Trustee), upon request of the Master Servicer and delivery to
the Trustee of a Request for Release signed by an Authorized Officer of the
Master Servicer, release the related File to the Master Servicer and shall
execute such documents as shall be necessary to the prosecution of any such
proceedings, including, without limitation, an assignment without recourse of
the related Mortgage to the Master Servicer; provided that there shall not be
released and unreturned at any one time more than 10% of the entire number of
Files. Such receipt shall obligate the Master Servicer to return the File to the
Trustee when the need therefor by the Master Servicer no longer exists unless
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the Mortgage Loan shall be liquidated, in which case, upon receipt of a Request
for Release evidencing such liquidation, the receipt shall be released by the
Trustee to the Master Servicer.
(c) The Master Servicer shall have the right to accept applications of
Mortgagors for consent to (i) partial releases of Mortgages, (ii) alterations,
(iii) removal, demolition or division of properties subject to Mortgages and
(iv) second mortgage subordination agreements. No application for approval shall
be considered by the Master Servicer unless: (x) the provisions of the related
Note and Mortgage have been complied with; (y) the Loan-to-Value Ratio and
debt-to-income ratio after any release does not exceed the maximum Loan-to-Value
Ratio and debt-to-income ratio established in accordance with the underwriting
standards of the Mortgage Loans and any increase in the Loan-to-Value Ratio
shall not exceed ____% unless approved in writing by the Certificate Insurer;
and (z) the lien priority of the related Mortgage is not affected. Upon receipt
by the Trustee of an Officer's Certificate executed on behalf of the Master
Servicer setting forth the action proposed to be taken in respect of a
particular Mortgage Loan and certifying that the criteria set forth in the
immediately preceding sentence have been satisfied, the Trustee shall execute
and deliver to the Master Servicer the consent or partial release so requested
by the Master Servicer. A proposed form of consent or partial release, as the
case may be, shall accompany any Officer's Certificate delivered by the Master
Servicer pursuant to this paragraph. The Master Servicer shall notify the
Certificate Insurer and the Rating Agencies if an application is approved under
clause (y) above without approval in writing by the Certificate Insurer.
Section 8.15 Servicing Compensation.
As compensation for its activities hereunder, the Master Servicer shall be
entitled to retain the amount of the Servicing Fee with respect to each Mortgage
Loan from payments received with respect to the Mortgage Loans. The Master
Servicer shall be entitled to retain additional servicing compensation in the
form of prepayment charges, release fees, bad check charges, assumption fees,
late payment charges, prepayment penalties, or any other servicing-related fees,
Prepayment Interest Excess (to the extent not used to offset Prepayment Interest
Shortfalls), Net Liquidation Proceeds not required to be deposited in the
Collection Account pursuant to Section 8.08(c)(ii) (to the extent not required
to be paid to the related Mortgagor under the related Mortgage Loan or
applicable law) and similar items, to the extent collected from Mortgagors.
Section 8.16 Annual Statement as to Compliance.
The Master Servicer, at its own expense, will deliver to the Trustee, the
Certificate Insurer and the Rating Agencies, on or before March 31 of each year,
commencing in _______, an Officer's Certificate stating, as to each signer
thereof, that (i) a review of the activities of the Master Servicer during such
preceding calendar year and of performance under this Agreement has been made
under such officers' supervision, (ii) to the best of such officers' knowledge,
based on such review, the Master Servicer has fulfilled all its obligations
under this Agreement for such year, or, if there has been a default in the
fulfillment of all such obligations, specifying each such default known to such
officers and the nature and status thereof including the steps being taken by
the Master Servicer to remedy such default, and (iii) the Master Servicer's
short-term commercial paper rating.
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Section 8.17 Annual Independent Certified Public Accountants'
Reports.
(a) On or before March 31 of each year, commencing in _______, the Master
Servicer, at its own expense (or if the Trustee is then acting as Master
Servicer, at the expense of the Depositor, which in no event shall exceed $1,000
per annum), shall cause to be delivered to the Trustee, the Certificate Insurer
and the Rating Agencies a letter or letters of a firm of independent, nationally
recognized certified public accountants reasonably acceptable to the Certificate
Insurer and dated as of the date of the Master Servicer's audit for its most
recent fiscal year, stating that such firm has examined the Master Servicer's
overall servicing operations in accordance with the requirements of the Uniform
Single Attestation Program for Mortgage Bankers, and stating such firm's
conclusions relating thereto.
(b) As long as Block Financial Corporation is acting as Master Servicer,
all references in subsection (a) above to the "Master Servicer" shall be deemed
to be references to each Sub-Servicer.
(c) The Master Servicer shall, on behalf of the Trust, prepare, sign and
file with the Securities and Exchange Commission any and all reports, statements
and information respecting the Trust which the Master Servicer or the Trustee
determines are required to be filed with the Securities and Exchange Commission
pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended, each such report, statement and information to be filed on or prior to
the required filing date for such report, statement or information.
Notwithstanding the foregoing, the Depositor shall file with the Securities and
Exchange Commission, within fifteen days of the Startup Day, a Current Report on
Form 8-K together with this Agreement.
Section 8.18 Access to Certain Documentation and Information
Regarding the Mortgage Loans.
The Master Servicer shall provide to the Trustee, the Certificate Insurer
and the supervisory agents and examiners of each of the foregoing (which, in the
case of supervisory agents and examiners, may be required by applicable state
and federal regulations) access to the documentation regarding the Mortgage
Loans, such access being afforded without charge but only upon reasonable
request and during normal business hours at the offices of the Master Servicer
designated by it.
Section 8.19 Merger or Consolidation of the Master Servicer;
Assignment.
Subject to the following paragraph, the Master Servicer will keep in full
effect its existence, rights and good standing as a corporation under the laws
of the State of Delaware and will not jeopardize its ability to do business in
each jurisdiction in which one or more of the Mortgaged Properties are located
or to protect the validity and enforceability of this Agreement, the
Certificates or any of the Mortgage Loans and to perform its respective duties
under this Agreement.
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The Master Servicer may be merged or consolidated with or into any Person,
or transfer all or substantially all of its assets to any Person, in which case
any Person resulting from any merger or consolidation to which it shall be a
party, or any Person succeeding to its business, shall be the successor of the
Master Servicer and shall be deemed to have assumed all of the liabilities of
the Master Servicer hereunder, if each of the Rating Agencies has confirmed in
writing that such merger, consolidation or transfer and succession shall not
result, in and of itself, in a downgrading, withdrawal or qualification of the
rating then assigned by such Rating Agency to any Class of Certificates.
Section 8.20 Removal of Master Servicer; Resignation of Master
Servicer.
(a) The Certificate Insurer (or the Owners, with the consent of the
Certificate Insurer pursuant to Section 6.11 hereof) may direct the Trustee to
remove the Master Servicer upon the occurrence of any of the following events:
(i) The Master Servicer shall (A) apply for or consent to the
appointment of a receiver, trustee, liquidator or custodian or similar
entity with respect to itself or its property, (B) admit in writing its
inability to pay its debts generally as they become due, (C) make a
general assignment for the benefit of creditors, (D) be adjudicated a
bankrupt or insolvent, (E) commence a voluntary case under the federal
bankruptcy laws of the United States of America or file a voluntary
petition or answer seeking reorganization, an arrangement with creditors
or an order for relief or seeking to take advantage of any insolvency law
or file an answer admitting the material allegations of a petition filed
against it in any bankruptcy, reorganization or insolvency proceeding or
(F) take corporate action for the purpose of effecting any of the
foregoing; or
(ii) If without the application, approval or consent of the Master
Servicer, a proceeding shall be instituted in any court of competent
jurisdiction, under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking in respect of the Master
Servicer an order for relief or an adjudication in bankruptcy,
reorganization, dissolution, winding up, liquidation, a composition or
arrangement with creditors, a readjustment of debts, the appointment of a
trustee, receiver, liquidator or custodian or similar entity with respect
to the Master Servicer or of all or any substantial part of its assets, or
other like relief in respect thereof under any bankruptcy or insolvency
law, and, if such proceeding is being contested by the Master Servicer in
good faith, the same shall (A) result in the entry of an order for relief
or any such adjudication or appointment or (B) continue undismissed or
pending and unstayed for any period of seventy-five (75) consecutive days;
or
(iii) The Master Servicer shall fail to perform in any material respect
any one or more of its obligations hereunder and shall continue in default
thereof for a period of thirty (30) days (or with respect to a failure by
the Master Servicer to remit the Monthly Remittance Amount to the Trustee
as provided in Section 8.08(d)(ii)(a)) which failure continues unremedied
for two Business Days following the receipt of written notice by an
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Authorized Officer of such servicer from the Trustee or from any Owner
after the earlier of (A) actual knowledge of an officer of the Master
Servicer or (B) receipt of notice from the Trustee or the Certificate
Insurer of said failure; provided, however, that if the Master Servicer
can demonstrate to the reasonable satisfaction of the Certificate Insurer
that it is diligently pursuing remedial action, then the cure period may
be extended with the written approval of the Certificate Insurer; or
(iv) The Master Servicer shall fail to cure any breach of any of its
representations and warranties set forth in Section 3.02 which materially
and adversely affects the interests of the Owners or the Certificate
Insurer for a period of sixty (60) days after the earlier of the Master
Servicer's discovery or receipt of notice thereof; provided, however, that
if the Master Servicer can demonstrate to the reasonable satisfaction of
the Certificate Insurer that it is diligently pursuing remedial action,
then the cure period may be extended with the written approval of the
Certificate Insurer; or
(v) The merger, consolidation or other combination of the Master
Servicer with or into any other entity, unless such merger, consolidation
or other combination is in accordance with Section 8.19; or
(vi) The breach by the Seller, as long as the Seller is an affiliate of
the Master Servicer, of the covenant to (A) substitute a Qualified
Replacement Mortgage Loan and deliver the Substitution Adjustment to the
Master Servicer for deposit in the Collection Account or (B) purchase a
Mortgage Loan, pursuant to Section 3.04(b).
(b) The Certificate Insurer may instruct the Trustee to remove the Master
Servicer upon (i) the failure by the Master Servicer to make any required
Servicing Advance when due or (ii) the failure of the Master Servicer to make
any required Delinquency Advance or to pay any Compensating Interest when due.
The Certificate Insurer may also remove the Master Servicer upon the
failure of the Master Servicer to satisfy the Servicer Termination Test.
(c) If any event described in subsection (b) above occurs and is
continuing, the Certificate Insurer may terminate the Master Servicer in
accordance with this Section and the Trustee shall act as successor Master
Servicer.
The Certificate Insurer agrees to use its best efforts to inform the
Trustee of any materially adverse information regarding the Master Servicer's
servicing activities that comes to the attention of the Certificate Insurer from
time to time.
(d) If any event described in sections (a) and (b) above occurs and is
continuing, the Certificate Insurer shall notify the Owners of the Class R
Certificates in writing if the Certificate Insurer intends to terminate the
Master Servicer in its capacity as Master Servicer under this Agreement.
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(e) The Master Servicer may assign its rights and delegate its duties and
obligations under this Agreement in connection with the sale or transfer of a
substantial portion of its mortgage servicing or asset management portfolio,
provided that: (i) the purchaser or transferee accepting such assignment and
delegation (A) shall be satisfactory to the Trustee and the Certificate Insurer,
(B) shall be (I) an established mortgage finance institution, bank or mortgage
servicing institution, organized and doing business under the laws of the United
States, any state thereof or the District of Columbia, authorized under such
laws to perform the duties of a servicer of mortgage loans or (II) a Person
resulting from a merger, consolidation or succession that is permitted under
Section 8.19, and (C) shall execute and deliver to the Trustee and the
Certificate Insurer an agreement, in form and substance reasonably satisfactory
to the Trustee and the Certificate Insurer, which contains an assumption by such
Person of the due and punctual performance and observance of each covenant and
condition to be performed or observed by the Master Servicer under this
Agreement from and after the date of such agreement; (ii) as evidenced by a
letter from each Rating Agency delivered to the Trustee and the Certificate
Insurer, each Rating Agency's rating or ratings of the Certificates in effect
immediately prior to such assignment and delegation will not be qualified,
downgraded or withdrawn as a result of such assignment and delegation; (iii) the
Master Servicer shall not be released from its obligations under this Agreement
that arose prior to the effective date of such assignment and delegation under
this Section 8.20(e); and (iv) the rate at which the Servicing Fee (or any
component thereof) is calculated shall not exceed the rate in effect prior to
such assignment and delegation. Upon acceptance of such assignment and
delegation, the purchaser or transferee shall be the successor Master Servicer
hereunder. The Master Servicer shall not resign from the obligations and duties
imposed on it pursuant to this Agreement, except upon determination that its
duties hereunder are no longer permissible under applicable law or are in
material conflict by reason of applicable law with any other activities carried
on by it, the other activities of the Master Servicer so causing such a conflict
being of a type and nature carried on by the Master Servicer at the date of this
Agreement. Any such determination permitting the resignation of the Master
Servicer shall be evidenced by an independent opinion of counsel to such effect
which shall be delivered to the Trustee and the Certificate Insurer.
(f) No removal or resignation of the Master Servicer shall become
effective until the Trustee or a successor Master Servicer (such successor
Master Servicer to be reasonably approved by the Certificate Insurer) shall have
assumed the Master Servicer's responsibilities and obligations in accordance
with this Section.
(g) Upon removal or resignation of the Master Servicer, the Master
Servicer at its own expense also shall promptly deliver or cause to be delivered
to a successor servicer or the Trustee all the books and records (including,
without limitation, records kept in electronic form) that the Master Servicer
has maintained for the Mortgage Loans, including all tax bills, assessment
notices, insurance premium notices and all other documents as well as all
original documents then in the Master Servicer's possession.
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(h) Any collections then being held by the Master Servicer prior to its
removal and any collections received by the Master Servicer after removal or
resignation shall be endorsed by it to the Trustee and remitted directly and
immediately to the successor Master Servicer.
(i) Upon removal or resignation of the Master Servicer, the Trustee (x)
may solicit bids for a successor servicer as described below, and (y) pending
the appointment of a successor servicer as a result of soliciting such bids,
shall serve as Master Servicer. The Trustee shall, if it is unable to obtain a
qualifying bid and is prevented by law from acting as Master Servicer, appoint,
or petition a court of competent jurisdiction to appoint, any housing and home
finance institution, bank or mortgage servicing institution which has been
designated as an approved seller-servicer by FNMA or FHLMC for first and second
mortgage loans and having equity of not less than $1,500,000 (or such lower
level as may be acceptable to the Certificate Insurer), as determined in
accordance with generally accepted accounting principles and acceptable to the
Certificate Insurer and the Owners of the Class R Certificates (provided that if
the Certificate Insurer and such Owners cannot agree within a reasonable period
of time as to the acceptability of such successor Master Servicer, the decision
of the Certificate Insurer shall control) as the successor to the Master
Servicer hereunder in the assumption of all or any part of the responsibilities,
duties or liabilities of the Master Servicer hereunder. The compensation of any
successor Master Servicer (including, without limitation, the Trustee) so
appointed shall be the aggregate Servicing Fee, together with the other
servicing compensation in the form of assumption fees, late payment charges or
otherwise as provided in Sections 8.08 and 8.15; provided, however, that if the
Trustee acts as successor Master Servicer then the Seller agrees to pay to the
Trustee at such time that the Trustee becomes such successor Master Servicer a
set-up fee of ____________ dollars ($________) for each Mortgage Loan then
included in the Trust Estate. The Trustee shall be obligated to serve as
successor Master Servicer whether or not the fee described in the preceding
sentence is paid by the Seller, but shall in any event be entitled to receive,
and to enforce payment of, such fee from the Seller.
(j) In the event the Trustee solicits bids as provided above, the Trustee
shall solicit, by public announcement, bids from housing and home finance
institutions, banks and mortgage servicing institutions meeting the
qualifications set forth above. Such public announcement shall specify that the
successor Master Servicer shall be entitled to the full amount of the aggregate
Servicing Fees as servicing compensation, together with the other servicing
compensation in the form of assumption fees, late payment charges or otherwise
as provided in Sections 8.08 and 8.15. Within thirty days after any such public
announcement, the Trustee shall negotiate and effect the sale, transfer and
assignment of the servicing rights and responsibilities hereunder to the
qualified party submitting the highest satisfactory bid as to the price they
will pay to obtain servicing. The Trustee shall deduct from any sum received by
the Trustee from the successor Master Servicer in respect of such sale, transfer
and assignment all costs and expenses of any public announcement and of any
sale, transfer and assignment of the servicing rights and responsibilities
hereunder. After such deductions, the remainder of such sum less any amounts due
the Trustee or the Trust from the Master Servicer shall be paid by the Trustee
to the removed Master Servicer at the time of such sale, transfer and assignment
to the successor Master Servicer.
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(k) The Trustee and such successor Master Servicer shall take such action,
consistent with this Agreement, as shall be necessary to effectuate any such
succession, including the notification to all Mortgagors of the transfer of
servicing. The Master Servicer agrees to cooperate with the Trustee and any
successor Master Servicer in effecting the termination of the Master Servicer's
servicing responsibilities and rights hereunder and shall promptly provide the
Trustee or such successor Master Servicer, as applicable, all documents and
records reasonably requested by it to enable it to assume the Master Servicer's
functions hereunder and shall promptly also transfer to the Trustee or such
successor Master Servicer, as applicable, all amounts which then have been or
should have been deposited in the Collection Account by the Master Servicer or
which are thereafter received with respect to the Mortgage Loans. Neither the
Trustee nor any other successor Master Servicer shall be held liable by reason
of any failure to make, or any delay in making, any distribution hereunder or
any portion thereof caused by (i) the failure of the Master Servicer to deliver,
or any delay in delivering, cash, documents or records to it, or (ii)
restrictions imposed by any regulatory authority having jurisdiction over the
Master Servicer. Subject to subsection (j), if the Master Servicer resigns or is
replaced hereunder, the Master Servicer agrees to reimburse the Trust, the
Owners and the Certificate Insurer for the costs and expenses associated with
the transfer of servicing to the replacement Master Servicer; provided, however,
that the Master Servicer shall be responsible for making such reimbursement in
an amount not to exceed the first $________ of such reimbursement for each
Mortgage Loan then included in the Trust Estate; provided, further, that any
reimbursement amount in excess of such first $________ for each such Mortgage
Loan shall be paid 50% by the Master Servicer and 50% by the successor Master
Servicer.
(l) The Trustee or any other successor Master Servicer, upon assuming the
duties of Master Servicer hereunder, shall immediately make all required
Delinquency Advances and deposit them to the Collection Account which the Master
Servicer has theretofore failed to remit with respect to the Mortgage Loans;
provided, however, that if the Trustee is acting as successor Master Servicer,
the Trustee shall only be required to make Delinquency Advances (including the
Delinquency Advances described in this clause (l)) if, in the Trustee's
reasonable good faith judgment, such Delinquency Advances will ultimately be
recoverable from the Mortgage Loans. Notwithstanding the above, or anything in
this Section to the contrary, the Trustee, if it becomes Master Servicer
pursuant to this Section, shall have no responsibility or obligation (i) to
repurchase or substitute any Mortgage Loan, (ii) for any representation or
warranty of the Master Servicer hereunder, (iii) for any unsatisfied liability
of the Master Servicer pursuant to Section 8.11, (iv) for losses on Permitted
Investments directed by any other Master Servicer and (v) for any act or
omission of either a predecessor or successor Master Servicer other than the
Trustee.
(m) The Trustee shall give notice to the Certificate Insurer, to the
Mortgagors, to Moody's and to Standard & Poor's of the transfer of the servicing
to the successor Master Servicer.
(n) The Trustee shall give notice to the Certificate Insurer, the Owners,
the Trustee, the Seller, Moody's and Standard & Poor's of the occurrence of any
event described in paragraphs (a) or (b) above of which the Trustee is aware.
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Section 8.21 Inspections by Certificate Insurer; Errors and
(a) Upon reasonable notice, the Trustee, the Certificate Insurer or any
agents thereof may inspect the Master Servicer's servicing operations and
discuss the servicing operations of the Master Servicer during the Master
Servicer's normal business hours with any of its officers or directors;
provided, however, that the costs and expenses incurred by the Master Servicer
or its agents or representatives in connection with any such examinations or
discussions shall be paid by the Master Servicer.
(b) The Master Servicer agrees to maintain errors and omissions coverage
and a fidelity bond, each at least to the extent required by Section 305 of Part
I of the FNMA Guide or any successor provision thereof; provided, however, that
if the Trustee shall become the Master Servicer, any customary insurance
coverage that the Trustee maintains shall be deemed sufficient hereunder;
provided, further, that in the event that the fidelity bond or the errors and
omissions coverage is no longer in effect, the Trustee shall promptly give such
notice to the Certificate Insurer and the Owners. Upon the request of the
Trustee or the Certificate Insurer, the Master Servicer shall cause to be
delivered to such requesting Person a certified true copy of such fidelity bond
or errors and omissions policy.
ARTICLE IX
TERMINATION OF TRUST
Section 9.01 Termination of Trust.
The Trust created hereunder and all obligations created by this Agreement
will terminate upon the payment to the Owners of all Certificates, from amounts
other than those available under the Certificate Insurance Policy, of all
amounts held by the Trustee and required to be paid to such Owners pursuant to
this Agreement upon the latest to occur of (a) the final payment or other
liquidation of the last Mortgage Loan in the Trust Estate, (b) the disposition
of all property acquired in respect of any Mortgage Loan remaining in the Trust
Estate, (c) at any time when a Qualified Liquidation of both Mortgage Loan
Groups included within the Trust is effected as described below and (d) the
final payment to the Certificate Insurer of all amounts then owing to it. To
effect a termination of this Agreement pursuant to clause (c) above, the Owners
of a majority in Percentage Interest represented by the Class A Certificates
then Outstanding shall (i) direct the Trustee on behalf of the Trust to adopt a
plan of complete liquidation for each of the Mortgage Loan Groups, as
contemplated by Section 860F(a)(4) of the Code and (ii) provide to the Trustee
an opinion of counsel experienced in federal income tax matters acceptable to
the Certificate Insurer and the Trustee to the effect that each such liquidation
constitutes a Qualified Liquidation, and the Trustee either shall sell the
Mortgage Loans and distribute the proceeds of the liquidation of the Trust
Estate, or shall distribute equitably in kind all of the assets of the Trust
Estate to the remaining Owners of the Certificates each in accordance with such
plan, so that the liquidation or distribution of the Trust Estate, the
distribution of any proceeds of the liquidation and the termination of this
Agreement occur no later than the close of the 90th day after the date of
adoption of the plan of liquidation and such liquidation qualifies as a
Qualified Liquidation. In no event, however, will the
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Trust created by this Agreement continue beyond the earlier of (i) the
expiration of twenty-one (21) years from the death of the last survivor of the
descendants of Joseph P. Kennedy, the late Ambassador of the United States to
the Court of Saint James's, living on the date hereof and (ii) the Latest
Possible Maturity Date. The Trustee shall give written notice of termination of
this Agreement to each Owner in the manner set forth in Section 11.05.
Section 9.02 Termination upon Option of Owners of Class R
Certificates and Master Servicer.
(a) On any Monthly Remittance Date on or after the Optional Termination
Date, the Class R Optionholder may determine to purchase and may cause the
purchase from the Trust of all (but not fewer than all) Mortgage Loans and all
property theretofore acquired in respect of any Mortgage Loan by foreclosure,
deed in lieu of foreclosure, or otherwise then remaining in the Trust Estate on
terms agreed upon between the Certificate Insurer and the Class R Optionholder
at a price no less than the Minimum Termination Amount. In connection with such
purchase, the Master Servicer shall remit to the Trustee all amounts then on
deposit in the Collection Account for deposit to the Distribution Account, which
deposit shall be deemed to have occurred immediately preceding such purchase.
The Master Servicer shall indemnify the Certificate Insurer for any claims under
the Certificate Insurance Policies for the exercise of such option.
(b) In addition to the foregoing, following the Optional Termination Date,
on or after the first Monthly Remittance Date on which the aggregate of the Loan
Balances of the Mortgage Loans is less than 5% of the Original Aggregate Loan
Balance, the Master Servicer may determine to purchase and may cause the
purchase from the Trust of all (but not fewer than all) Mortgage Loans and all
property theretofore acquired in respect of any Mortgage Loan by foreclosure,
deed in lieu of foreclosure, or otherwise then remaining in the Trust Estate at
terms agreed upon between the Certificate Insurer and the Master Servicer, at a
price no less than the Minimum Termination Amount. The Master Servicer shall
indemnify the Certificate Insurer for any claims under the Certificate Insurance
Policies for the exercise of such option.
(c) In connection with any such purchase, such Class R Optionholder or the
Master Servicer, as applicable, shall adopt and the Trustee shall adopt, as to
the Trust, a plan of complete liquidation for both of the Mortgage Loan Groups
as contemplated by Section 860F(a)(4) of the Code and shall provide to the
Trustee an opinion of counsel experienced in federal income tax matters
acceptable to the Trustee to the effect that such purchase and liquidation
constitutes, as to the Trust, a Qualified Liquidation. In addition, such Class R
Optionholder, the Master Servicer or the Certificate Insurer, as applicable,
shall provide to the Trustee an opinion of counsel acceptable to the Trustee to
the effect that such purchase and liquidation does not constitute a preference
payment pursuant to the United States Bankruptcy Code.
(d) Promptly following any purchase described in this Section 9.02, the
Trustee will release the Files to the Owners of such Class R Certificates or the
Master Servicer, as the case may be, or otherwise upon their order, in a manner
similar to that described in Section 8.14 hereof.
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Section 9.03 Termination Auction.
The Trustee shall, in accordance with the procedures and schedule set
forth in Exhibit K hereto (the "Auction Procedures") and upon written notice
from the Master Servicer, make a commercially reasonable effort to sell at fair
market value in a commercially reasonable manner and upon commercially
reasonable terms, by conducting an auction (the "Termination Auction") of the
Mortgage Loans remaining in the Trust in order to effect a termination of the
Trust on a date selected by the Trustee (the "Auction Date"), but in any case
within ninety days following the Optional Termination Date. The Seller and the
Master Servicer may, but shall not be required to, bid at the Termination
Auction. The Trustee shall be entitled to retain counsel of its choice to
represent it in the Termination Auction, and the fees and expenses of such
counsel shall be paid by the Seller. The Trustee shall sell and transfer the
Mortgage Loans to the highest bidder therefor at the Termination Auction
provided that:
(1) the Termination Auction has been conducted in accordance
with the Auction Procedures;
(2) the Trustee has received good faith bids for the Mortgage Loans
from at least two prospective purchasers that are considered by the
Trustee, in its sole discretion, to be competitive participants in the
market for mortgage loans similar to the Mortgage Loans and willing and
able purchasers of the Mortgage Loans; provided, that at least one of such
prospective purchasers shall not be the Seller or an affiliate of the
Seller;
(3) a financial advisor selected by the Trustee, the fees of whom
shall be an expense of the Seller, as advisor to the Trustee (in such
capacity, the "Advisor"), shall have advised the Trustee in writing that
at least two of such bidders are participants in the market for mortgage
loans and are willing and able to purchase the Mortgage Loans (the Trustee
may in its discretion select itself or an affiliate thereof as Advisor);
(4) the highest bid in respect of the Mortgage Loans is not less
than the aggregate fair market value of the Mortgage Loans (as determined
by the Trustee in its sole discretion);
(5) any bid submitted by the Seller or any affiliate thereof shall
be independently verified and represented in writing by a qualified
independent third party evaluator (which may include the Advisor or an
investment banking firm) selected by the Trustee and may only be
considered if such evaluator determines that the bid reasonably represents
the fair market value of the Mortgage Loans;
(6) the highest bid would result in proceeds from the sale of the
Mortgage Loans which will be at least equal to the Minimum Termination
Amount;
(7) such sale and consequent termination of the Trust must
constitute a "qualified liquidation" of the Trust under Section 860F of
the Code, including the
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requirement that such qualified liquidation take place over a period not
to exceed 90 days (the Trustee may, in its discretion, require that the
purchaser of such Mortgage Loans provide an opinion of counsel to that
effect); and
(8) the terms of the Termination Auction must be made available to
all bidders and must stipulate that the Master Servicer be retained to
service the Mortgage Loans on terms substantially similar to those in this
Agreement.
Provided that all of the conditions set forth in clauses (1) through (8)
have been met, the Trustee shall sell and transfer the Mortgage Loans, without
representation, warranty or recourse of any kind whatsoever, to such highest
bidder in accordance with and upon completion of the Auction Procedures. The
Trustee shall deposit the purchase price for the Mortgage Loans in the
Distribution Account at least one Business Day prior to the fourth Distribution
Date following the Optional Termination Date. In the event that any of such
conditions are not met or such highest bidder fails or refuses to comply with
any of the Auction Procedures, the Trustee shall decline to consummate such sale
and transfer. In such case, the Termination Auction shall be concluded and the
Trustee shall be under no further duty to solicit bids for or otherwise to
attempt to sell the Mortgage Loans. The Master Servicer shall indemnify the
Certificate Insurer for any claim under the Certificate Insurance Policies due
to the exercise of this sale right.
Section 9.04 Termination upon Loss of REMIC Status.
(a) Following a final determination by the Internal Revenue Service or by
a court of competent jurisdiction, in either case from which no appeal is taken
within the permitted time for such appeal or, if any appeal is taken, following
a final determination of such appeal from which no further appeal can be taken,
to the effect that the Trust does not and will no longer qualify as a REMIC
pursuant to Section 860D of the Code (the "Final Determination"), at any time on
or after the date which is 30 calendar days following such Final Determination
(i) the Certificate Insurer or the Owners of a majority in Percentage Interests
represented by the Class A Certificates then Outstanding with the consent of the
Certificate Insurer may direct the Trustee on behalf of the Trust to adopt a
plan of complete liquidation, as contemplated by Section 860F(a)(4) of the Code
or (ii) the Master Servicer or the Certificate Insurer may notify the Trustee of
the Master Servicer's or the Certificate Insurer's, as applicable, determination
to purchase from the Trust all (but not fewer than all) Mortgage Loans and all
property theretofore acquired by foreclosure, deed in lieu of foreclosure, or
otherwise then remaining in the Trust Estate at a price equal to the sum of (w)
the greater of (I) 100% of the aggregate Loan Balances of the Mortgage Loans as
of the day of purchase minus amounts remitted from the Collection Account
representing collections of principal on the Mortgage Loans during the current
Due Period, and (II) the fair market value of such Mortgage Loans (disregarding
accrued interest), (x) one month's interest on such amount computed at the
Adjusted Pass-Through Rate, (y) the aggregate amount of any unreimbursed
Delinquency Advances and Servicing Advances and the interest portion of any
Delinquency Advances which the Master Servicer has theretofore failed to remit
and (z) any Reimbursement Amounts due and owing to the Certificate Insurer.
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Upon receipt of such direction or notice, the Trustee shall notify the
Owners of the Class R Certificates of such election to liquidate or such
determination to purchase, as the case may be (the "Termination Notice"). The
Owners of a majority of the Percentage Interests of the Class R Certificates
then Outstanding may, within 60 days from the date of receipt of the Termination
Notice (the "Purchase Option Period"), at their option, purchase from the Trust
all (but not fewer than all) Mortgage Loans and all property theretofore
acquired by foreclosure, deed in lieu of foreclosure, or otherwise then
remaining in the Trust Estate at a purchase price equal to the aggregate Loan
Balances of all Mortgage Loans as of the date of such purchase, plus (a) one
month's interest on such amount at the Adjusted Pass-Through Rate, (b) the
aggregate amount of any unreimbursed Delinquency Advances and Servicing Advances
and (c) the interest portion of any Delinquency Advances which the Master
Servicer has theretofore failed to remit. If, during the Purchase Option Period,
the Owners of the Class R Certificates have not exercised the option described
in the immediately preceding sentence, then upon the expiration of the Purchase
Option Period (i) in the event that neither the Master Servicer nor the
Certificate Insurer have elected to purchase the Mortgage Loans, the Trustee
shall sell the Mortgage Loans and distribute the proceeds of the liquidation of
the Trust Estate, each in accordance with the plan of complete liquidation, such
that, if so directed, the liquidation of the Trust Estate, the distribution of
the proceeds of the liquidation and the termination of this Agreement occur no
later than the close of the 60th day, or such later day as the Certificate
Insurer or the Owners of the Class A Certificates with the consent of the
Certificate Insurer shall permit or direct in writing, after the expiration of
the Purchase Option Period and (ii) in the event that the Master Servicer or the
Certificate Insurer, as applicable, has given the Trustee notice of the Master
Servicer's or the Certificate Insurer's determination to purchase the Trust
Estate, the Master Servicer or the Certificate Insurer shall, within 60 days,
purchase all (but not fewer than all) Mortgage Loans and all property
theretofore acquired by foreclosure, deed in lieu of foreclosure or otherwise
then remaining in the Trust Estate for the price calculated as described in
clause (ii) of the first paragraph of this Section 9.04(a). In connection with
such purchase, the Master Servicer shall remit to the Trustee all amounts then
on deposit in the Collection Account for deposit to the Distribution Account,
which deposit shall be deemed to have occurred immediately preceding such
purchase.
(b) Following a Final Determination, the Owners of a majority of the
Percentage Interests of the Class R Certificates then Outstanding may, at their
option and upon delivery to the Certificate Insurer of an opinion of counsel
experienced in federal income tax matters acceptable to the Certificate Insurer
selected by the Owners of the Class R Certificates, which opinion shall be
reasonably satisfactory in form and substance to the Certificate Insurer, to the
effect that the effect of the Final Determination is to increase substantially
the probability that the gross income of the Trust will be subject to federal
taxation, purchase from the Trust all (but not fewer than all) Mortgage Loans
and all property theretofore acquired by foreclosure, deed in lieu of
foreclosure, or otherwise then remaining in the Trust Estate at a purchase price
equal to the aggregate Loan Balances of all Mortgage Loans as of the date of
such purchase, plus (a) one month's interest on such amount computed at the
Adjusted Pass-Through Rate, (b) the aggregate amount of unreimbursed Delinquency
Advances and (c) any Delinquency Advances which the Master Servicer has
theretofore failed to remit and any Reimbursement Amounts due the Certificate
Insurer. In connection with such purchase, the Master Servicer shall remit to
the Trustee all amounts then on
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deposit in the Collection Account for deposit to the Distribution Account, which
deposit shall be deemed to have occurred immediately preceding such purchase.
The foregoing opinion shall be deemed satisfactory unless the Certificate
Insurer gives the Owners of a majority of the Percentage Interests of the Class
R Certificates notice that such opinion is not satisfactory within thirty days
after receipt of such opinion. In connection with any such purchase, such Owners
shall direct the Trustee to adopt a plan of complete liquidation as contemplated
by Section 860F(a)(4) of the Code and shall provide to the Trustee an opinion of
counsel experienced in federal income tax matters to the effect that such
purchase constitutes a Qualified Liquidation.
Section 9.05 Disposition of Proceeds.
The Trustee shall, upon receipt thereof, deposit the proceeds of any
liquidation of the Trust Estate pursuant to this Article IX to the Distribution
Account; provided, however, that any amounts representing unreimbursed
Delinquency Advances and Servicing Advances theretofore funded by the Master
Servicer from the Master Servicer's own funds shall be paid by the Trustee to
the Master Servicer from the proceeds of the Trust Estate.
ARTICLE X
THE TRUSTEE
Section 10.01 Certain Duties and Responsibilities.
(a) The Trustee (i) undertakes to perform such duties and only such duties
as are specifically set forth in this Agreement, and no implied covenants or
obligations shall be read into this Agreement against the Trustee, and (ii) in
the absence of bad faith on its part, may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished pursuant to and conforming to the
requirements of this Agreement; but in the case of any such certificates or
opinions which by any provision hereof are specifically required to be furnished
to the Trustee, shall be under a duty to examine the same to determine whether
or not they conform to the requirements of this Agreement.
(b) Notwithstanding the appointment of the Master Servicer hereunder, the
Trustee is hereby empowered to perform the duties of the Master Servicer, it
being expressly understood, however, that the foregoing describes a power and
not an obligation of the Trustee, and that all parties hereto agree that, prior
to any termination of the Master Servicer, the Master Servicer and, thereafter,
the Trustee or any other successor Master Servicer shall perform such duties.
Specifically, and not in limitation of the foregoing, the Trustee shall, upon
termination or resignation of the Master Servicer and pending the appointment of
any other Person as successor Master Servicer, have the power and duty during
its performance as successor Master Servicer:
(i) to collect Mortgagor payments;
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(ii) to foreclose on defaulted Mortgage Loans;
(iii) to enforce due-on-sale clauses and to enter into assumption and
substitution agreements as permitted by Section 8.12 hereof;
(iv) to deliver instruments of satisfaction pursuant to Section 8.14;
(v) to enforce the Mortgage Loans; and
(vi) to make Delinquency Advances and Servicing Advances and to pay
Compensating Interest.
(c) No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that:
(i) this subsection shall not be construed to limit the effect of
subsection (a) of this Section;
(ii) the Trustee shall not be personally liable for any error of
judgment made in good faith by an Authorized Officer of the
Trustee, unless it shall be proved that the Trustee was negligent
in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with any
direction given pursuant to Section 6.11.
(d) Whether or not therein expressly so provided, every provision of this
Agreement relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
(e) No provision of this Agreement shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder, or in the exercise of any of its rights or
powers, if it shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not reasonably
assured to it. None of the provisions contained in this Agreement shall in any
event require the Trustee to perform, or be responsible for the manner of
performance of, any of the obligations of the Master Servicer under this
Agreement, except during such time, if any, as the Trustee shall be the
successor to, and be vested with the rights, duties, powers and privileges of,
the Master Servicer in accordance with the terms of this Agreement.
(f) The permissive right of the Trustee to take actions enumerated in this
Agreement shall not be construed as a duty and the Trustee shall not be
answerable for other than its own negligence or willful misconduct.
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(g) The Trustee shall be under no obligation to institute any suit, or to
take any remedial proceeding under this Agreement, or to take any steps in the
execution of the trusts hereby created or in the enforcement of any rights and
powers hereunder until it shall be indemnified to its satisfaction against any
and all costs and expenses, outlays and counsel fees and other reasonable
disbursements and against all liability, except liability which is adjudicated
to have resulted from its negligence or willful misconduct, in connection with
any action so taken.
(h) Upon the direction of the Certificate Insurer, the Trustee hereby
agrees to oppose any attempt to treat the Mortgage Loans as the property of the
estate of Companion Mortgage Corporation, the Master Servicer or the Depositor.
(i) In connection with any offset defenses, or affirmative claim for
recovery, asserted in legal actions brought by Mortgagors under one or more
Mortgage Loans based upon provisions therein or upon other rights or remedies
arising from any requirements of law applicable to the Mortgage Loans:
(i) the Trustee is the holder of the Mortgage Loans only as trustee
on behalf of the holders of the Certificates, and not as a principal or in
any individual or personal capacity;
(ii) subject to the other provisions of this Section 10.01, the
Trustee shall not be personally liable for, or obligated to pay
Mortgagors, any affirmative claims asserted thereby, or responsible to
holders of the Certificates for any offset defense amounts applied against
Mortgage Loan payments, pursuant to such legal actions;
(iii) the Trustee will pay, solely from available Trust Estate
money, affirmative claims for recovery by Mortgagors only pursuant to
final judicial orders or judgments, or judicially-approved settlement
agreements, resulting from such legal actions.
(iv) the Trustee will comply with judicial orders and judgments
which require its actions or cooperation in connection with Mortgagors'
legal actions to recover affirmative claims against holders of the
Certificates; and
(v) subject to Section 10.01(e), the Trustee will cooperate with and
assist the Depositor, the Master Servicer, the Seller or holders of the
Certificates in their defense of legal actions by third parties to recover
affirmative claims if such cooperation and assistance is not contrary to
the interests of the Trustee as a party to such legal actions.
Section 10.02 Removal of Trustee for Cause.
(a) The Trustee may be removed pursuant to paragraph (b) hereof upon the
occurrence of any of the following events (whatever the reason for such event
and whether it shall be voluntary or
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involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) the Trustee shall fail to distribute to the Owners entitled
hereto on any Distribution Date amounts available for distribution in
accordance with the terms hereof; provided, however, that any such failure
which is due to circumstances beyond the control of the Trustee shall not
be a cause for removal hereunder; or
(2) the Trustee shall breach or fail in the performance of any
covenant or agreement of the Trustee in this Agreement, or if any
representation or warranty of the Trustee made in this Agreement or in any
certificate or other writing delivered pursuant hereto or in connection
herewith shall prove to be incorrect in any material respect as of the
time when the same shall have been made, and such failure or breach shall
continue or not be cured for a period of 30 days after there shall have
been given, by registered or certified mail, to the Trustee by the Seller,
the Certificate Insurer, or by the Owners of at least 25% of the aggregate
Percentage Interests in the Trust Estate represented by the Class A
Certificates then Outstanding, or, if there are no Class A Certificates
then Outstanding, by the Owners of such Percentage Interests represented
by Class R Certificates, a written notice specifying such failure or
breach and requiring it to be remedied; or
(3) a decree or order of a court or agency or supervisory authority
having jurisdiction for the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the Trustee,
and such decree or order shall have remained in force undischarged or
unstayed for a period of 75 days; or
(4) a conservator or receiver or liquidator or sequestrator or
custodian of the property of the Trustee is appointed in any insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings of or relating to the Trustee or relating to all or
substantially all of its property; or
(5) the Trustee shall become insolvent (however insolvency is
evidenced), generally fail to pay its debts as they come due, file or
consent to the filing of a petition to take advantage of any applicable
insolvency or reorganization statute, make an assignment for the benefit
of its creditors, voluntarily suspend payment of its obligations, or take
corporate action for the purpose of any of the foregoing; or
(6) the Trustee shall (i) delegate or assign the execution of its
trusts or powers or the performance of its duties under Sections 7.02(c),
7.02(d), 7.03(c), 7.09 or 11.16 of this Agreement, or (ii) resume the
execution of its trusts or powers or the performance of its duties under
Sections 7.02(c), 7.02(d), 7.03(c), 7.09 or 11.16 of this Agreement after
having previously delegated or assigned such execution or performance, in
either case without the prior written consent of the Master Servicer.
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The Depositor shall give to the Certificate Insurer, ___________ and
____________ notice of the occurrence of any such event of which the Depositor
is aware.
(b) If any event described in paragraph (a) occurs and is continuing, then
and in every such case (i) the Certificate Insurer or (ii) with the prior
written consent (which shall not be unreasonably withheld) of the Certificate
Insurer, the Master Servicer and the Owners of a majority of the Percentage
Interests represented by the Class A Certificates or if there are no Class A
Certificates then Outstanding by the Owners of a majority of the Percentage
Interests represented by the Class R Certificates, may, whether or not the
Trustee resigns pursuant to Section 10.09(b) hereof, concurrently with the
giving of notice to the Trustee, and without delaying the 30 days required for
notice therein, appoint a successor Trustee pursuant to the terms of Section
10.09 hereof.
(c) To the extent of any costs incurred in removing the Trustee which are
not recovered from the former Trustee, such costs will be payable pursuant to
Section 2.05 hereof.
Section 10.03 Certain Rights of the Trustee.
Except as otherwise provided in Section 10.01 hereof:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting based upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, note or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) any request or direction of the Depositor, the Seller, the Certificate
Insurer, or the Owners of any Class of Certificates mentioned herein shall be
sufficiently evidenced in writing;
(c) whenever in the administration of this Agreement the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officer's Certificate;
(d) the Trustee may consult with counsel, and the written advice of such
counsel (selected in good faith by the Trustee) or any opinion of counsel
delivered to the Trustee hereunder shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reasonable reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Agreement at the request or direction of any of
the Certificate Insurer or the Owners pursuant to this Agreement, unless the
Certificate Insurer or such Owners shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
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(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, note or other
paper or document, but the Trustee in its discretion may make such further
inquiry or investigation into such facts or matters as it may see fit;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents,
affiliates, attorneys or custodians; provided, however, that the Trustee shall
not (i) delegate or assign the execution of any of its trusts or powers or the
performance of its duties under Sections 7.02(c), 7.02(d), 7.03(c), 7.09 or
11.16 of this Agreement or (ii) resume the execution of any of its trusts or
powers or the performance of its duties under Sections 7.02(c), 7.02(d),
7.03(c), 7.09 or 11.16 of this Agreement after having previously delegated or
assigned such execution or performance, in either case without the prior written
consent of the Master Servicer;
(h) the Trustee shall not be liable for any action it takes or omits to
take in good faith which it reasonably believes to be authorized by the
Authorized Officer of any Person or within its rights or powers under this
Agreement other than as to validity and sufficiency of its authentication of the
Certificates;
(i) the right of the Trustee to perform any discretionary act enumerated
in this Agreement shall not be construed as a duty, and the Trustee shall not be
answerable for other than its negligence or willful misconduct in the
performance of such act;
(j) pursuant to the terms of this Agreement, the Master Servicer is
required to furnish to the Trustee from time to time certain information and to
make various calculations which are relevant to the performance of the Trustee's
duties under this Agreement. The Trustee shall be entitled to rely in good faith
on any such information and calculations in the performance of its duties
hereunder, (i) unless and until an Authorized Officer of the Trustee has actual
knowledge, or is advised by the Certificate Insurer or any Owner of a
Certificate (either in writing or orally with prompt written or facsimile
confirmation), that such information or calculations is or are incorrect, or
(ii) unless there is a manifest error in any such information; and
(k) the Trustee shall not be required to give any bond or surety in
respect of the execution of the Trust Estate created hereby or the powers
granted hereunder.
Section 10.04 Not Responsible for Recitals or Issuance of
Certificates.
The recitals and representations contained herein and in the Certificates,
except any such recitals and representations relating to the Trustee, shall be
taken as the statements of the Depositor and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representation as to
the validity or sufficiency of this Agreement, of the Certificates, or any
Mortgage Loan or document related thereto other than as to validity and
sufficiency of its authentication of the Certificates. The Trustee shall not be
accountable for the use or application by the Depositor of any of the
Certificates or of the proceeds of such Certificates, or for the use or
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application of any funds paid to the Depositor, the Seller or the Master
Servicer in respect of the Mortgage Loans or deposited into or withdrawn from
the Collection Account by the Depositor, the Master Servicer or the Seller, and
shall have no responsibility for filing any financing or continuation statement
in any public office at any time or otherwise to perfect or maintain the
perfection of any security interest or lien or to prepare or file any Securities
and Exchange Commission filings for the Trust or to record this Agreement. The
Trustee shall not be required to take notice or be deemed to have notice or
knowledge of any default unless an Authorized Officer of the Trustee shall have
received written notice thereof or an Authorized Officer has actual knowledge
thereof. In the absence of receipt of such notice, the Trustee may conclusively
assume that no default has occurred.
Section 10.05 May Hold Certificates.
The Trustee, any Paying Agent, Registrar or any other agent of the Trust,
in its individual or any other capacity, may become an Owner or pledgee of
Certificates and may otherwise deal with the Trust, the Certificate Insurer, the
Underwriters, the Seller, the Master Servicer and their affiliates with the same
rights it would have if it were not Trustee, any Paying Agent, Registrar or such
other agent.
Section 10.06 Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from
other trust funds except to the extent required herein or required by law. The
Trustee shall be under no liability for interest on any money received by it
hereunder except as otherwise agreed in writing with the Seller and except to
the extent of income or other gain on investments which are deposits in or
certificates of deposit of the Trustee in its commercial capacity.
Section 10.07 Compensation and Reimbursement; No Lien for Fees.
The Trustee shall receive compensation for fees and reimbursement for
expenses pursuant to Section 2.05, Section 7.03(c)(iii)(B) and Section 7.06
hereof. The Trustee shall have no lien on the Trust Estate for the payment of
such fees and expenses.
Section 10.08 Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a
corporation or association, organized and doing business under the laws of the
United States of America or of any State, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
$50,000,000, subject to supervision or examination by the United States of
America or of such State of organization, acceptable to the Certificate Insurer
and having a deposit rating of at least ____ from _____________________ (or such
lower rating as may be acceptable to ________________) and ____ by
______________ (or such lower rating as may be acceptable to _______________).
If such Trustee publishes reports of condition at least annually, pursuant to
law or to the requirements of the aforesaid supervising or examining authority,
then for the purposes
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of this Section, the combined capital and surplus of such corporation or
association shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section, it
shall, upon the request of the Master Servicer with the consent of the
Certificate Insurer (which consent shall not be unreasonably withheld) or of the
Certificate Insurer, resign promptly in the manner and with the effect
hereinafter specified in this Article X.
Section 10.09 Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor trustee pursuant to this Article X shall become effective until the
acceptance of appointment by the successor trustee under Section 10.10 hereof.
(b) The Trustee, or any trustee or trustees hereafter appointed, may
resign at any time by giving written notice of resignation to the Master
Servicer and by mailing notice of resignation by first-class mail, postage
prepaid, to the Certificate Insurer and the Owners at their addresses appearing
on the Register. A copy of such notice shall be sent by the resigning Trustee to
the Rating Agencies. Upon receiving notice of resignation, the Master Servicer
shall promptly appoint a successor trustee or trustees acceptable to the
Certificate Insurer by written instrument, in duplicate, executed on behalf of
the Trust by an Authorized Officer of the Seller, one copy of which instrument
shall be delivered to the Trustee so resigning, one copy to the successor
trustee or trustees. If no successor trustee shall have been appointed and have
accepted appointment within 30 days after the giving of such notice of
resignation, the resigning trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee, or any Owner may, on
behalf of himself and all others similarly situated, petition any such court for
the appointment of a successor trustee. A copy of any such petition shall be
promptly delivered to the Master Servicer. Such court may thereupon, after such
notice, if any, as it may deem proper and appropriate, appoint a successor
trustee.
(c) If at any time the Trustee shall cease to be eligible under Section
10.08 hereof and shall fail to resign after written request therefor by the
Master Servicer or by the Certificate Insurer, the Certificate Insurer or the
Master Servicer with the written consent of the Certificate Insurer may remove
the Trustee and appoint a successor trustee acceptable to the Certificate
Insurer by written instrument, in duplicate, executed on behalf of the Trust by
an Authorized Officer of the Depositor, one copy of which instrument shall be
delivered to the Trustee so removed and one copy to the successor trustee.
(d) The Owners of a majority of the Percentage Interests represented by
the Class A Certificates with the consent of the Certificate Insurer, or, if
there are no Class A Certificates then Outstanding, by the Owners of a majority
of the Percentage Interests represented by the Class R Certificates, may at any
time remove the Trustee and appoint a successor trustee acceptable to the
Certificate Insurer by delivering to the Trustee to be removed, to the successor
trustee so appointed, to the Depositor, to the Master Servicer and to the
Certificate Insurer, copies of the record of the act taken by the Owners, as
provided for in Section 11.03 hereof.
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(e) If the Trustee fails to perform its duties in accordance with the
terms of this Agreement, or becomes ineligible pursuant to Section 10.08 to
serve as Trustee, the Certificate Insurer may remove the Trustee and appoint a
successor trustee by written instrument, in triplicate, signed by the
Certificate Insurer duly authorized, one complete set of which instruments shall
be delivered to the Depositor, one complete set to the Trustee so removed, one
complete set to the successor Trustee so appointed.
(f) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of the Trustee for any cause, the
Master Servicer shall promptly appoint a successor trustee acceptable to the
Certificate Insurer. If within one year after such resignation, removal or
incapability or the occurrence of such vacancy, a successor trustee shall be
appointed by act of the Certificate Insurer or the Owners of a majority of the
Percentage Interests represented by the Class A Certificates then Outstanding
with the consent of the Certificate Insurer, the successor trustee so appointed
shall forthwith upon its acceptance of such appointment become the successor
trustee and supersede the successor trustee appointed by the Master Servicer. If
no successor trustee shall have been so appointed by the Master Servicer or the
Owners and shall have accepted appointment in the manner hereinafter provided,
any Owner may, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor trustee.
Such court may thereupon, after such notice, if any, as it may deem proper and
prescribe, appoint a successor trustee.
(g) The Depositor shall give notice of any removal of the Trustee by
mailing notice of such event by first-class mail, postage prepaid, to the
Certificate Insurer, to the Rating Agencies and to the Owners as their names and
addresses appear in the Register. Each notice shall include the name of the
successor Trustee and the address of its corporate trust office.
Section 10.10 Acceptance of Appointment by Successor Trustee.
Every successor trustee appointed hereunder shall execute, acknowledge and
deliver to the Depositor on behalf of the Trust and to its predecessor Trustee
an instrument accepting such appointment hereunder and stating its eligibility
to serve as Trustee hereunder, and thereupon the resignation or removal of the
predecessor Trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, trusts, duties and obligations of its predecessor hereunder; but, on
request of the Depositor or the successor Trustee, such predecessor Trustee
shall, upon payment of its charges then unpaid, execute and deliver an
instrument transferring to such successor trustee all of the rights, powers and
trusts of the Trustee so ceasing to act, and shall duly assign, transfer and
deliver to such successor trustee all property and money held by such Trustee so
ceasing to act hereunder. Upon request of any such successor trustee, the
Depositor on behalf of the Trust shall execute any and all instruments for more
fully and certainly vesting in and confirming to such successor trustee all such
rights, powers and trusts.
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Upon acceptance of appointment by a successor Trustee as provided in this
Section, the Successor Trustee shall mail notice thereof by first-class mail,
postage prepaid, to the Owners at their last addresses appearing upon the
Register.
No successor trustee shall accept its appointment unless at the time of
such acceptance such successor shall be qualified and eligible under this
Article X.
Section 10.11 Merger, Conversion, Consolidation or Succession to
Business of the Trustee.
Any corporation or association into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation or
association resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any corporation or association succeeding to all or
substantially all of the corporate trust business of the Trustee, shall be the
successor of the Trustee hereunder, without the execution or filing of any paper
or any further act on the part of any of the parties hereto; provided, however,
that such corporation or association shall be otherwise qualified and eligible
under Section 10.08. In case any Certificates have been executed, but not
delivered, by the Trustee then in office, any successor by merger, conversion or
consolidation to such Trustee may adopt such execution and deliver the
Certificates so executed with the same effect as if such successor Trustee had
itself executed such Certificates.
Section 10.12 Reporting; Withholding.
(a) The Trustee shall timely provide to the Owners the Internal Revenue
Service's Form 1099 and any other statement required by applicable Treasury
regulations as determined by the Tax Matters Person, and shall withhold, as
required by applicable law, federal, state or local taxes, if any, applicable to
distributions to the Owners, including but not limited to backup withholding
under Section 3406 of the Code and the withholding tax on distributions to
foreign investors under Sections 1441 and 1442 of the Code.
(b) As required by law or upon request of the Tax Matters Person and
except as otherwise specifically set forth in subsection (a) above, the Trustee
shall prepare and timely file all reports required to be filed by the Trust with
any federal, state or local governmental authority having jurisdiction over the
Trust, including other reports that must be filed with the Owners, such as the
Internal Revenue Service's Form 1066 and Schedule Q and the form required under
Section 6050K of the Code, if applicable to REMICs. Furthermore, the Trustee
shall report to Owners, if required, with respect to the allocation of expenses
pursuant to Section 212 of the Code. The Trustee shall collect any forms or
reports from the Owners it determines to be required under applicable federal,
state and local tax laws.
Section 10.13 Liability of the Trustee.
The Trustee shall be liable in accordance herewith only to the extent of
the obligations specifically imposed upon and undertaken by the Trustee herein.
Neither the Trustee nor any of the directors, officers, employees, affiliates or
agents of the Trustee shall be under any liability on any
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Certificate or otherwise to the Certificate Insurer, the Depositor, the Seller,
the Master Servicer or any Owner for any action taken or for refraining from the
taking of any action in good faith pursuant to this Agreement, or for errors in
judgment; provided, however, that this provision shall not protect the Trustee,
its directors, officers, employees, affiliates or agents or any such Person
against any liability which would otherwise be imposed by reason of negligent
action, negligent failure to act or willful misconduct in the performance of
duties or by reason of reckless disregard of obligations and duties hereunder.
Subject to the foregoing sentence, the Trustee shall not be liable for losses on
investments of amounts in the Distribution Account (except for any losses on
obligations on which the bank serving as Trustee is the obligor). In addition,
the Depositor, the Seller and the Master Servicer covenant and agree to
indemnify the Trustee (and its directors, officers, employees, affiliates or
agents), and when the Trustee is acting as Master Servicer, the Master Servicer,
from, and hold it harmless against, any and all losses, liabilities, damages,
claims or expenses (including legal fees and expenses) of whatsoever kind
arising out of or in connection with the performance of its duties hereunder
other than those resulting from the negligence or bad faith of the Trustee and
the Depositor shall pay all amounts not otherwise paid pursuant to Sections 2.05
and 7.06 hereof. The Trustee and any director, officer, employee, affiliate or
agent of the Trustee may rely and shall be protected in acting or refraining
from acting in good faith on any certificate, notice or other document of any
kind prima facie properly executed and submitted by the Authorized Officer of
any Person respecting any matters arising hereunder.
Section 10.14 Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which any
part of the Trust Estate or Mortgaged Property may at the time be located, the
Master Servicer and the Trustee acting jointly shall have the power and shall
execute and deliver all instruments to appoint one or more Persons approved by
the Trustee and reasonably acceptable to the Certificate Insurer to act as
co-Trustee or co-Trustees, jointly with the Trustee, of all or any part of the
Trust Estate or separate Trustee or separate Trustees of any part of the Trust
Estate, and to vest in such Person or Persons, in such capacity and for the
benefit of the Owners, such title to the Trust Estate, or any part thereof, and,
subject to the other provisions of this Section 10.14, such powers, duties,
obligations, rights and trusts as the Master Servicer and the Trustee may
consider necessary or desirable. If the Master Servicer shall not have joined in
such appointment within 15 days after the receipt by it of a request so to do,
or in the case any event indicated in Section 8.20(a) shall have occurred and be
continuing, the Trustee, subject to reasonable approval of the Certificate
Insurer, alone shall have the power to make such appointment. No co-Trustee or
separate Trustee hereunder shall be required to meet the terms of eligibility as
a successor trustee under Section 10.08 and no notice to Owners of the
appointment of any co-Trustee or separate Trustee shall be required under
Section 10.09.
Every separate Trustee and co-Trustee shall, to the extent permitted, be
appointed and act subject to the following provisions and conditions:
(i) All rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and exercised
or performed by the
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Trustee and such separate Trustee or co-Trustee jointly (it being
understood that such separate Trustee or co-Trustee is not authorized to
act separately without the Trustee joining in such act), except to the
extent that, under any law of any jurisdiction in which any particular act
or acts are to be performed (whether as Trustee hereunder or as successor
to the Master Servicer hereunder), the Trustee shall be incompetent or
unqualified to perform such act or acts, in which event such rights,
powers, duties and obligations (including the holding of title to the
Trust Estate or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate Trustee or co-Trustee, but
solely at the direction of the Trustee;
(ii) No co-Trustee hereunder shall be held personally liable by
reason of any act or omission of any other co-Trustee hereunder; and
(iii) The Master Servicer, the Certificate Insurer and the Trustee
acting jointly may at any time accept the resignation of or remove any
separate Trustee or co-Trustee.
Any notice, request or other writing given to the Trustee shall be deemed
to have been given to each of the then separate Trustees and co-Trustees, as
effectively as if given to each of them. Every instrument appointing any
separate Trustee or co-Trustee shall refer to this Agreement and the conditions
of this Section 10.14. Each separate Trustee and co-Trustee, upon its acceptance
of the trusts conferred, shall be vested with the estates or property specified
in its instrument of appointment, either jointly with the Trustee or separately,
as may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Every
such instrument shall be filed with the Trustee and a copy thereof given to the
Master Servicer.
Any separate Trustee or co-Trustee may, at any time, constitute the
Trustee, its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate Trustee or co-Trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor Trustee.
ARTICLE XI
MISCELLANEOUS
Section 11.01 Compliance Certificates and Opinions.
Upon any application or request by the Depositor, the Seller, the
Certificate Insurer or the Owners to the Trustee to take any action under any
provision of this Agreement, the Depositor, the Seller, the Certificate Insurer
or the Owners, as the case may be, shall furnish to the Trustee a
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certificate stating that all conditions precedent, if any, provided for in this
Agreement relating to the proposed action have been complied with, except that
in the case of any such application or request as to which the furnishing of
such documents is specifically required by any provision of this Agreement
relating to such particular application or request, no additional certificate
need be furnished.
Except as otherwise specifically provided herein, each certificate or
opinion with respect to compliance with a condition or covenant provided for in
this Agreement (including one furnished pursuant to specific requirements of
this Agreement relating to a particular application or request) shall include:
(a) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based; and
(c) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with in all
material respects.
Section 11.02 Form of Documents Delivered to the Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Trustee may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such Authorized Officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate or opinion of an Authorized
Officer of the Trustee or any opinion of counsel may be based, insofar as it
relates to factual matters upon a certificate or opinion of, or representations
by, one or more Authorized Officers of the Depositor, the Seller or the Master
Servicer, stating that the information with respect to such factual matters is
in the possession of the Depositor, the Seller or the Master Servicer, unless
such Authorized Officer or counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous. Any opinion of counsel may also be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an Authorized Officer of the Trustee, stating that the
information with respect to such matters is in the possession of the Trustee,
unless such counsel knows, or in the exercise of reasonable care should know,
that
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the certificate or opinion or representations with respect to such matters are
erroneous. Any opinion of counsel may be based on the written opinion of other
counsel, in which event such opinion of counsel shall be accompanied by a copy
of such other counsel's opinion and shall include a statement to the effect that
such counsel believes that such counsel and the Trustee may reasonably rely upon
the opinion of such other counsel.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Agreement, they may, but need not, be consolidated and
form one instrument.
Section 11.03 Acts of Owners.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Agreement to be given or taken by the Owners
may be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Owners in person or by agent duly appointed in
writing; and, except as herein otherwise expressly provided, such action shall
become effective when such instrument or instruments are delivered to the
Trustee, and, where it is hereby expressly required, to the Depositor. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "act" of the Owners signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Agreement and conclusive in favor of the Trustee and the Trust, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of any notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Whenever
such execution is by an officer of a corporation or a member of a partnership on
behalf of such corporation or partnership, such certificate or affidavit shall
also constitute sufficient proof of his authority.
(c) The ownership of Certificates shall be proved by the Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver
or other action by the Owner of any Certificate shall bind the Owner of every
Certificate issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof, in respect of anything done, omitted or suffered to
be done by the Trustee or the Trust in reliance thereon, whether or not notation
of such action is made upon such Certificates.
Section 11.04 Notices, etc. to Trustee.
Any request, demand, authorization, direction, notice, consent, waiver or
act of the Owners or other documents provided or permitted by this Agreement to
be made upon, given or furnished to, or filed with the Trustee by any Owner, the
Certificate Insurer, the Depositor or the Seller shall
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be sufficient for every purpose hereunder if made, given, furnished or filed in
writing to or with and received by the Trustee at the Corporate Trust Office.
Section 11.05 Notices and Reports to Owners; Waiver of Notices.
Where this Agreement provides for notice to Owners of any event or the
mailing of any report to Owners, such notice or report shall be sufficiently
given (unless otherwise herein expressly provided) if mailed, first-class
postage prepaid, to each Owner affected by such event or to whom such report is
required to be mailed, at the address of such Owner as it appears on the
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice or the mailing of such report. In
any case where a notice or report to Owners is mailed in the manner provided
above, neither the failure to mail such notice or report nor any defect in any
notice or report so mailed to any particular Owner shall affect the sufficiency
of such notice or report with respect to other Owners, and any notice or report
which is mailed in the manner herein provided shall be conclusively presumed to
have been duly given or provided. Notwithstanding the foregoing, if the Master
Servicer is removed or resigns or the Trust is terminated, notice of any such
events shall be made by overnight courier, registered mail or telecopy followed
by a telephone call.
Where this Agreement provides for notice in any manner, such notice may be
waived in writing by any Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Owners shall be filed with the Trustee, but such filing
shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
In case, by reason of the suspension of regular mail service as a result
of a strike, work stoppage or similar activity, it shall be impractical to mail
notice of any event to Owners when such notice is required to be given pursuant
to any provision of this Agreement, then any manner of giving such notice as
shall be satisfactory to the Trustee shall be deemed to be a sufficient giving
of such notice.
Where this Agreement provides for notice to any Rating Agency that rated
any Certificates, failure to give such notice shall not affect any other rights
or obligations created hereunder.
Section 11.06 Rules by Trustee.
The Trustee may make reasonable rules for any meeting of Owners.
Section 11.07 Successors and Assigns
All covenants and agreements in this Agreement by any party hereto shall
bind its successors and assigns, whether so expressed or not.
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Section 11.08 Severability.
In case any provision in this Agreement or in the Certificates shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 11.09 Benefits of Agreement.
Nothing in this Agreement or in the Certificates, expressed or implied,
shall give to any Person, other than the Owners, the Certificate Insurer and the
parties hereto and their successors hereunder, any benefit or any legal or
equitable right, remedy or claim under this Agreement.
Section 11.10 Legal Holidays.
In any case where the date of any Monthly Remittance Date, any
Distribution Date, any other date on which any distribution to any Owner is
proposed to be paid, or any date on which a notice is required to be sent to any
Person pursuant to the terms of this Agreement shall not be a Business Day, then
(notwithstanding any other provision of the Certificates or this Agreement)
payment or mailing need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made or mailed on
the nominal date of any such Monthly Remittance Date, such Distribution Date, or
such other date for the payment of any distribution to any Owner or the mailing
of such notice, as the case may be, and no interest shall accrue for the period
from and after any such nominal date, provided such payment is made in full on
such next succeeding Business Day.
Section 11.11 Governing Law; Submission to Jurisdiction.
(a) In view of the fact that Owners are expected to reside in many states
and outside the United States and the desire to establish with certainty that
this Agreement will be governed by and construed and interpreted in accordance
with the law of a state having a well-developed body of commercial and financial
law relevant to transactions of the type contemplated herein, this Agreement and
each Certificate shall be construed in accordance with and governed by the laws
of the State of New York applicable to agreements made and to be performed
therein, without giving effect to the conflicts of law principles thereof.
(b) The parties hereto hereby irrevocably submit to the jurisdiction of
the United States District Court for the Southern District of New York and any
court in the State of New York located in the City and County of New York, and
any appellate court from any thereof, in any action, suit or proceeding brought
against them or in connection with this Agreement or any of the related
documents or the transactions contemplated hereunder or for recognition or
enforcement of any judgment, and the parties hereto hereby irrevocably and
unconditionally agree that all claims in respect of any such action or
proceeding may be heard or determined in such New York State court or, to the
extent permitted by law, in such federal court. The parties hereto agree that a
final judgment in any such action, suit or proceeding shall be conclusive and
may be enforced in other
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jurisdictions by suit on the judgment or in any other manner provided by law. To
the extent permitted by applicable law, the parties hereto hereby waive and
agree not to assert by way of motion, as a defense or otherwise in any such
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of such courts, that the suit, action or proceeding is brought in
an inconvenient forum, that the venue of the suit, action or proceeding is
improper or that the related documents or the subject matter thereof may not be
litigated in or by such courts.
(c) Each of the Depositor, the Seller and the Master Servicer hereby
irrevocably appoints and designates the Trustee as its true and lawful attorney
and duly authorized agent for acceptance of service of legal process with
respect to any action, suit or proceeding set forth in paragraph (b) hereof.
Each of the Seller and the Master Servicer agrees that service of such process
upon the Trustee shall constitute personal service of such process upon it.
(d) Nothing contained in this Agreement shall limit or affect the right of
the Depositor, the Seller, the Master Servicer or the Certificate Insurer or any
third-party beneficiary hereunder, as the case may be, to serve process in any
other manner permitted by law or to start legal proceedings relating to any of
the Mortgage Loans against any Mortgagor in the courts of any jurisdiction.
Section 11.12 Counterparts.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
Section 11.13 Usury.
The amount of interest payable or paid on any Certificate under the terms
of this Agreement shall be limited to an amount which shall not exceed the
maximum nonusurious rate of interest allowed by the applicable laws of the State
of New York or any applicable law of the United States permitting a higher
maximum nonusurious rate that preempts such applicable New York laws, which
could lawfully be contracted for, charged or received (the "Highest Lawful
Rate"). In the event any payment of interest on any Certificate exceeds the
Highest Lawful Rate, the Trust stipulates that such excess amount will be deemed
to have been paid to the Owner of such Certificate as a result of an error on
the part of the Trustee acting on behalf of the Trust and the Owner receiving
such excess payment shall promptly, upon discovery of such error or upon notice
thereof from the Trustee on behalf of the Trust, refund the amount of such
excess or, at the option of such Owner, apply the excess to the payment of
principal of such Certificate, if any, remaining unpaid. In addition, all sums
paid or agreed to be paid to the Trustee for the benefit of Owners of
Certificates for the use, forbearance or detention of money shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such Certificates.
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Section 11.14 Amendment.
(a) The Trustee, the Depositor, the Seller and the Master Servicer may, at
any time and from time to time, and without notice to or the consent of the
Owners but with the consent of the Certificate Insurer, amend this Agreement,
subject to the provisions of Sections 11.16 and 11.17, and the Trustee shall
consent to such amendment, for the purpose of (i) curing any ambiguity or error,
correcting or supplementing any provision hereof which may be inconsistent with
any other provision hereof, to evidence a succession to the Master Servicer, or
adding provisions hereto which are not inconsistent with the provisions hereof;
(ii) upon receipt of an opinion of counsel experienced in federal income tax
matters to the effect that no entity-level tax will be imposed on the Trust or
upon the transferor of a Class R Certificate as a result of the ownership of any
Class R Certificate by a Disqualified Organization, removing the restriction on
transfer set forth in Section 5.08(b) hereof, or (iii) to the extent necessary,
complying with the requirements of the Code and the regulations proposed or
promulgated thereunder including any amendments necessary to maintain REMIC
status or avoiding, or minimizing the risk of, the imposition of any tax on the
Trust Estate under the Code that would be a claim against the assets in the
Trust Estate; or (iv) for any other purpose, provided that in the case of this
clause (iv) the Person requesting such amendment delivers (A) an opinion of
counsel acceptable to the Trustee and the Certificate Insurer that such
amendment will not adversely affect in any material respect the interest of the
Owners and (B) such amendment will not result in a withdrawal or reduction of
the rating of the Class A Certificates without regard to the Certificate
Insurance Policies. Notwithstanding anything to the contrary herein, no such
amendment shall (a) change in any manner the amount of, or change the timing of,
payments which are required to be distributed to any Owner without the consent
of the Owner of such Certificate, or (b) which affects in any the manner the
terms or provisions of the Certificate Insurance Policy without the consent of
not less than a majority of the aggregate Class Certificate Balance of the
Classes of Certificates affected by such amendment, or (c) reduce the aforesaid
percentages required to consent to any such amendments without the consent of
the Owners of all Certificates then outstanding.
(b) Promptly after the execution of any such amendment, the Trustee shall
furnish written notification of the substance of such amendment to each Owner in
the manner set forth in Section 11.05, and to the Rating Agencies.
(c) The Certificate Insurer and the Rating Agencies shall be provided with
copies of any amendments to this Agreement, together with copies of any opinions
or other documents or instruments executed in connection therewith.
Section 11.15 Paying Agent; Appointment and Acceptance of Duties.
The Trustee is hereby appointed Paying Agent. The Trustee may, subject to
the eligibility requirements for the Trustee set forth in Section 10.08 hereof,
appoint one or more other Paying Agents or successor Paying Agents.
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Each Paying Agent, immediately upon such appointment, shall signify its
acceptance of the duties and obligations imposed upon it by this Agreement by
written instrument of acceptance deposited with the Trustee.
Each such Paying Agent other than the Trustee shall execute and deliver to
the Trustee an instrument in which such Paying Agent shall agree with the
Trustee, subject to the provisions of Section 6.02, that such Paying Agent will:
(a) allocate all sums received for distribution to the Owners of
Certificates of each Class for which it is acting as Paying Agent on each
Distribution Date among such Owners in the proportion specified by the Trustee;
and
(b) hold all sums held by it for the distribution of amounts due with
respect to the Certificates in trust for the benefit of the Owners entitled
thereto until such sums shall be paid to such Owners or otherwise disposed of as
herein provided and pay such sums to such Persons as herein provided.
Any Paying Agent other than the Trustee may at any time resign and be
discharged of the duties and obligations created by this Agreement by giving at
least sixty (60) days, written notice to the Trustee. Any such Paying Agent may
be removed at any time by an instrument filed with such Paying Agent and signed
by the Trustee.
In the event of the resignation or removal of any Paying Agent other than
the Trustee, such Paying Agent shall pay over, assign and deliver any moneys
held by it as Paying Agent to its successor or, if there be no successor, to the
Trustee.
Upon the appointment, removal or notice of resignation of any Paying
Agent, the Trustee shall notify the Certificate Insurer and the Owners by
mailing notice thereof at their addresses appearing on the Register.
Section 11.16 REMIC Status.
(a) The parties hereto intend that the Trust constitute, and that the
affairs of the Trust shall be conducted so as to qualify as, a REMIC in
accordance with the REMIC Provisions. In furtherance of such intention, the
Trustee or such other person designated pursuant to Section 11.18 hereof shall
act as agent for the Trust and as "tax matters person" (as defined in the REMIC
Provisions) for the Trust and in such capacity it shall: (i) prepare or cause to
be prepared and filed, in a timely manner, annual tax returns and any other tax
return required to be filed by the Trust established hereunder using a calendar
year as the taxable year for the Trust established hereunder; (ii) in the first
such tax return, make (or cause to be made) an election satisfying the
requirements of the REMIC Provisions, on behalf of the Trust, for it to be
treated as a REMIC; (iii) prepare and forward, or cause to be prepared and
forwarded, to the Owners all information, reports or tax returns required with
respect to the Trust as, when and in the form required to be provided to the
Owners, and to the Internal Revenue Service and any other relevant governmental
taxing authority in
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accordance with the REMIC Provisions and any other applicable federal, state or
local laws, including without limitation information reports relating to
"original issue discount" as defined in the Code based upon the prepayment
assumption and calculated by using the "Issue Price" (within the meaning of
Section 1273 of the Code) of the Certificates of the related Class; (iv) not
take any action or omit to take any action that would cause the termination of
the REMIC status of the Trust, except as provided under this Agreement; (v)
represent the Trust in any administrative or judicial proceedings relating to an
examination or audit by any governmental taxing authority (the costs and
expenses of such representation to be borne by (A) the Trustee, in the event
such proceedings, examination or audit were initiated due to the negligence,
negligent omission, willful misfeasance or reckless disregard of the Trustee in
the performance of its duties hereunder, or (B) the Trust, in any other event),
request an administrative adjustment as to a taxable year of the Trust, enter
into settlement agreements with any governmental taxing agency, extend any
statute of limitations relating to any tax item of the Trust, and otherwise act
on behalf of the Trust or any REMIC therein in relation to any tax matter
involving the Trust or any REMIC therein; (vi) comply with all statutory or
regulatory requirements with regard to its conduct of activities pursuant to the
foregoing clauses of this Section 11.16, including, without limitation,
providing all notices and other information to the Internal Revenue Service and
Owners of Class R Certificates required of a "tax matters person" pursuant to
subtitle F of the Code and the Treasury regulations thereunder; (vii) make
available information necessary for the computation of any tax imposed (A) on
transferors of residual interests to certain Disqualified Organizations or (B)
on pass-through entities, any interest in which is held by a Disqualified
Organization; and (viii) acquire and hold the Tax Matters Person Residual
Interest. The obligations of the Trustee or such other designated Tax Matters
Person pursuant to this Section 11.16 shall survive the termination or discharge
of this Agreement.
(b) The Seller, the Depositor, the Trustee and the Master Servicer
covenant and agree for the benefit of the Owners and the Certificate Insurer (i)
to take no action which would result in the termination of "REMIC" status for
the Trust, (ii) not to engage in any "prohibited transaction", as such term is
defined in Section 860F(a)(2) of the Code, subject to the exceptions set forth
in Section 860F(a)(5) of the Code, and (iii) not to engage in any other action
which may result in the imposition on the Trust of any other taxes under the
Code.
(c) The Trust shall, for federal income tax purposes, maintain books on a
calendar year basis and report income on an accrual basis.
(d) Except as otherwise permitted by Section 7.05(b), no Permitted
Investment shall be sold prior to its stated maturity (unless sold pursuant to a
plan of liquidation in accordance with Article IX hereof).
(e) None of the Depositor, the Seller or the Trustee shall enter into any
arrangement by which the Trustee will receive a fee or other compensation for
services rendered pursuant to this Agreement, other than as expressly
contemplated by this Agreement.
(f) Notwithstanding the foregoing clauses (d) and (e), the Trustee,
Depositor, Master Servicer or the Seller may engage in any of the transactions
prohibited by such clauses, provided
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that the Trustee shall have received an opinion of counsel experienced in
federal income tax matters acceptable to the Certificate Insurer to the effect
that such transaction does not result in a tax imposed on the Trustee or cause a
termination of REMIC status for the Trust; provided, however, that such
transaction is otherwise permitted under this Agreement.
(g) Each of the Master Servicer, Trustee and Tax Matters Person agrees to
indemnify the Trust for any tax, penalties, interest and any costs or expenses
associated with any administrative or judicial proceedings relating to an
examination or audit by any governmental taxing authority imposed on, or
incurred by or on behalf of, the Trust as a result of its negligence.
Section 11.17 Additional Limitation on Action and Imposition of Tax.
Any provision of this Agreement to the contrary notwithstanding, the
Trustee shall not, without having obtained an opinion of counsel experienced in
federal income tax matters acceptable to the Certificate Insurer to the effect
that such transaction does not result in a tax imposed on the Trust or cause a
termination of REMIC status for the Trust, (i) sell any assets in the Trust
Estate (notwithstanding the repurchase pursuant to a breach of representation
and warranty), (ii) accept any contribution of assets after the Startup Day or
(iii) agree to any modification of this Agreement. To the extent that sufficient
amounts cannot be so retained to pay or provide for the payment of such tax, the
Trustee is hereby authorized to and shall segregate, into a separate
non-interest bearing account, the net income from any such Prohibited
Transactions of the Trust and use such income, to the extent necessary, to pay
such tax; provided that, to the extent that any such income is paid to the
Internal Revenue Service, the Trustee shall retain an equal amount from future
amounts otherwise distributable to the Owners of Class R Certificates and shall
distribute such retained amounts to the Owners of Class A Certificates to the
extent they are fully reimbursed and then to the Owners of the Class R
Certificates. If any tax, including interest, penalties or assessments,
additional amounts or additions to tax, is imposed on the Trust, such tax shall
be charged against amounts otherwise distributable to the Owners of the Class R
Certificates on a pro rata basis unless otherwise paid pursuant to Section
11.16(g) hereof. The Trustee is hereby authorized to and shall retain from
amounts otherwise distributable to the Owners of the Class R Certificates
sufficient funds to pay or provide for the payment of, and to actually pay, such
tax as is legally owed by the Trust unless otherwise paid pursuant to Section
11.16(g) hereof (but such authorization shall not prevent the Trustee from
contesting any such tax in appropriate proceedings, and withholding payment of
such tax, if permitted by law, pending the outcome of such proceedings).
Section 11.18 Appointment of Tax Matters Person.
A Tax Matters Person will be appointed for the Trust for all purposes of
the Code and such Tax Matters Person will perform, or cause to be performed,
such duties and take, or cause to be taken, such actions as are required to be
performed or taken by the Tax Matters Person under the Code. The Tax Matters
Person for the Trust shall be the Trustee as long as it owns a Class R
Certificate. If the Trustee does not own a Class R Certificate, the Tax Matters
Person may be any other entity that owns a Class R Certificate and accepts a
designation hereunder as Tax Matters Person by delivering an affidavit in the
form of Exhibit H. The Trustee shall notify any subsequent
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Trustee and the Master Servicer in writing of the name and address of another
Person who accepts a designation as Tax Matters Person hereunder.
Section 11.19 The Certificate Insurer.
Any right conferred to the Certificate Insurer hereunder shall be
suspended and shall run to the benefit of the Owners during any period in which
the Certificate Insurer is in default in its payment obligations under the
Certificate Insurance Policy. At such time as the Class A Certificates are no
longer Outstanding hereunder and all Reimbursement Amounts due the Certificate
Insurer have been paid in full, the Certificate Insurer's rights hereunder shall
terminate.
Section 11.20 [Reserved].
Section 11.21 Third-Party Rights.
The Trustee, the Seller, the Depositor, the Master Servicer and the Owners
agree that the Certificate Insurer shall be deemed a third-party beneficiary as
if it were a party hereto with the right to enforce the provisions hereof.
Section 11.22 Notices.
All notices hereunder shall be given as follows, until any superseding
instructions are given to all other Persons listed below:
The Trustee: ____________________________
Attention: Corporate Trust Administration, Block
Mortgage Finance Asset Backed Certificates,
Series _______
Tel: _________________
Fax: _________________
The Depositor: Block Mortgage Finance, Inc.
One Main Plaza
4435 Main Street, Suite 500
Kansas City, Missouri 64111
Attention: Vice President
Tel: 816-932-4960
Fax: 816-561-0673
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The Master
Servicer: Block Financial Corporation
One Main Plaza
4435 Main Street, Suite 500
Kansas City, Missouri 64111
Attention: Mark Keller
Tel: 816-932-4913
Fax: 816-561-0673
The Seller: Companion Mortgage Corporation
One Main Plaza
4435 Main Street, Suite 500
Kansas City, Missouri 64111
Attention: Vice President
Tel: 816-932-4940
Fax: 816-561-0673
The Rating
Agencies: ________________________
________________________
________________________
Tel: __________________
Fax: __________________
________________________
________________________
________________________
Tel: ___________________
Fax: __________________
Owners: As set forth in the Register.
The Certificate
Insurer: ________________________
Attention: __________________
__________________
Block Mortgage Finance Asset
Backed Certificates, Series _______
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IN WITNESS WHEREOF, the Depositor, the Seller, the Master Servicer and the
Trustee have caused this Agreement to be duly executed by their respective
officers thereunto duly authorized, all as of the day and year first above
written.
BLOCK MORTGAGE FINANCE, INC.,
as Depositor
By:_________________________________________
Title:______________________________________
BLOCK FINANCIAL CORPORATION,
as Master Servicer
By:_________________________________________
Title:______________________________________
COMPANION MORTGAGE CORPORATION,
as Seller
By:_________________________________________
Title:______________________________________
___________________________________________,
as Trustee
By:_________________________________________
Title:______________________________________
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<PAGE>
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On the _____ day of ___________, 19__, before me personally came
_________________________, to me known, who, being by me duly sworn, did depose
and say that he is a _____ President of Block Mortgage Finance, Inc., a Delaware
corporation; and that he signed his name thereto by order of the Board of
Directors of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
NOTARIAL SEAL
<PAGE>
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On the _____ day of __________, 19__, before me personally came
_________________________, to me known, who, being by me duly sworn, did depose
and say that he is a ______ President of Block Financial Corporation, a Delaware
corporation; and that he signed his name thereto by order of the Board of
Directors of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
NOTARIAL SEAL
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the _____ day of ________, 19__, before me personally came
_________________________, to me known, who, being by me duly sworn, did depose
and say that he is a ______ President of Companion Mortgage Corporation, a
Delaware corporation; and that he signed his name thereto by order of the Board
of Directors of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
NOTARIAL SEAL
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the ______ day of ______________, 19__, before me personally came
_____________________, to me known, who, being by me duly sworn, did depose and
say that he is a ______ President of ______________________, a
____________________________, and that he signed his name thereto by order of
the Board of Directors of said _______________________________.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
NOTARIAL SEAL
<PAGE>
SCHEDULE I
REPRESENTATIONS AND WARRANTIES AS TO THE MORTGAGE LOANS
All percentages herein reflect the Mortgage Pool disclosed in the
Prospectus Supplement. The actual percentages will vary based on the actual
Mortgage Loans transferred to the Trust.
(i) The information with respect to each Mortgage Loan set forth in
the related Schedule of Mortgage Loans is true and correct as of the
Cut-Off Date;
(ii) All the original or certified documentation set forth in
Section 3.05 (including all material documents related thereto) with
respect to each Mortgage Loan has been or will be delivered to the Trustee
on the Startup Day or as otherwise provided in Section 3.05 and is true and
accurate in all material respects and does not omit to state a fact
necessary to make the statements contained therein not misleading and the
documents, instruments and agreements submitted by each Mortgagor for loan
underwriting were not falsified and contain no untrue statement of a
material fact and do not omit to state a material fact required to be
stated therein or necessary to make the information and statements therein
not misleading;
(iii) Each Mortgage Loan being transferred to the Trust is a
Qualified Mortgage;
(iv) Each Mortgaged Property consists of a fee simple or leasehold
estate in real property and is improved by a single (1 to 4) family
residential dwelling, which may include condominiums and townhouses, small
multifamily or mixed-use property or manufactured homes (provided that such
manufactured home is attached to the property and the manufactured home is
encumbered by and secured by a Mortgage) but shall not include
co-operatives; provided, however, that as of the Cut-Off Date not more than
_____% and _______% of the aggregate Loan Balance of the Mortgage Loans in
the Fixed Rate Group and Adjustable Rate Group, respectively, are secured
by condominiums, not more than _____% and _____% of the aggregate Loan
Balance of the Mortgage Loans in the Fixed Rate Group and the Adjustable
Rate Group, respectively, are secured by manufactured homes and all of the
Mortgage Loans secured in part by manufactured homes are "land and home
contracts" (and the certificate of title for each manufactured home, noting
the Trustee as lienholder, will be delivered to the Trustee), not more than
______% and ______% of the aggregate Loan Balance of the Mortgage Loans in
the Fixed Rate Group and the Adjustable Rate Group, respectively, are
secured by 2 to 4 family residential dwellings, not more than _____% and
_____% of the aggregate Loan Balance of the Mortgage Loans in the Fixed
Rate Group and the Adjustable Rate Group, respectively, are secured by
units in planned unit developments.
(v) As of the Cut-Off Date no Mortgage Loan in the Adjustable Rate
Group has a Loan-to-Value Ratio greater than ____%. Each Mortgage Loan
which is not a First Mortgage Loan has a combined Loan-to-Value Ratio not
greater than _____%.
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(vi) Each Mortgage Loan is being master serviced by the Master
Servicer and serviced by a Sub-Servicer;
(vii) The Note related to each Mortgage Loan in the Fixed Rate Group
bears a fixed Mortgage Rate of at least _____% per annum, and the Note
related to each Mortgage Loan in the Adjustable Rate Group bears a current
Mortgage Rate of at least _____% per annum. The weighted average Mortgage
Rate of the Mortgage Loans in the Fixed Rate Group is at least _________%
and the current weighted average Mortgage Rate of the Mortgage Loans in the
Adjustable Rate Group is at least ________%;
(viii) Each Note with respect to the Mortgage Loans will provide for
a schedule of substantially level and equal monthly Scheduled Payments
which are sufficient to amortize fully the principal balance of such Note
on or before its maturity date (other than Notes representing not more than
______% and _______% of the aggregate Loan Balance as of the Cut-Off Date
of the Mortgage Loans in the Fixed Rate Group and the Adjustable Rate
Group, respectively, which may provide for a "balloon" payment due at
maturity, which maturity date is not more than 15 years from the date of
origination);
(ix) As of the Startup Day, each Mortgage is a valid, enforceable,
perfected and subsisting first or second lien of record on the Mortgaged
Property subject in the case of any Second Mortgage Loan only to a Senior
Lien on such Mortgaged Property and subject in all cases to the exceptions
to title set forth in the title insurance policy or attorney's opinion of
title with respect to the related Mortgage Loan, which exceptions are
generally acceptable to banking institutions in connection with their
regular mortgage lending activities, and such other exceptions to which
similar properties are commonly subject and which do not individually, or
in the aggregate, materially and adversely affect the benefits of the
security intended to be provided by such Mortgage;
(x) Immediately prior to the transfer and assignment of the Mortgage
Loans by the Seller to the Depositor and by the Depositor to the Trust
herein contemplated, the Seller and the Depositor, as the case may be, held
good, indefeasible and marketable title to, and was the sole owner of
record and holder of, each Mortgage Loan (including the related Note)
conveyed by the Seller subject to no liens, charges, mortgages,
encumbrances or rights of others except liens which will be released
simultaneously with such transfer and assignment; and immediately upon the
transfer and assignment herein contemplated, the Trustee will hold good,
indefeasible and marketable title to, and be the sole owner of, each
Mortgage Loan subject to no liens, charges, mortgages, encumbrances or
rights of others, except liens which will be released simultaneously with
such transfer and assignment;
(xi) As of the Cut-off Date, (a) none of the Mortgage Loans is more
than ____ days Delinquent, (b) no more than _____% of the aggregate Loan
Balance of Mortgage Loans as of the Cut-Off Date have been 30 days or more
Delinquent more than once during the 12 months immediately preceding the
Startup Day and (c) no more than _____% of the aggregate Loan Balance of
Mortgage Loans as of the Cut-off Date have been 90 or more days Delinquent
during the 12 months immediately preceding the Startup Day.
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<PAGE>
(xii) There is no delinquent tax or assessment lien on any Mortgaged
Property, and each Mortgaged Property is free of substantial damage and is
in good repair;
(xiii) There is no valid and enforceable offset, defense or
counterclaim to any Note or Mortgage, including the obligation of the
related Mortgagor to pay the unpaid principal of or interest on such Note;
(xiv) There is no mechanics' lien or claim for work, labor or
material affecting any Mortgaged Property which is or may be a lien prior
to, or equal with, the lien of the related Mortgage (and no rights are
outstanding as of the Cut-Off Date which could give rise to such liens)
except those which are insured against by any title insurance policy
referred to in paragraph (xvi) below;
(xv) Each Mortgage Loan at the time it was made complied in all
material respects with applicable state, federal or local laws and
regulations, including, without limitation, the federal Truth in Lending
Act and other consumer protection laws, usury, equal credit opportunity,
disclosure, real estate settlement procedures and recording laws;
(xvi) With respect to each Mortgage Loan either (a) an attorney's
opinion of title has been obtained but no title policy has been obtained
(provided that no title policy has been obtained with respect to not more
than _____% of the aggregate Loan Balance of the Mortgage Loans as of the
Cut-Off Date), or (b) a lender's title insurance policy, issued in standard
American Land Title Association form (or other state approved form) by a
title insurance company authorized to transact business in the state in
which the related Mortgaged Property is situated, in an amount at least
equal to the original balance of such Mortgage Loan together, in the case
of a Second Mortgage Loan, with the then-current principal balance of the
mortgage note relating to the Senior Lien, insuring the mortgagee's
interest (and any successors or assignees of such mortgagee) under the
related Mortgage Loan as the holder of a valid first or second mortgage
lien of record on the real property described in the related Mortgage, as
the case may be, subject only to exceptions of the character referred to in
paragraph (ix) above, was effective on the date of the origination of such
Mortgage Loan, and, as of the Startup Day, such policy is valid and
thereafter such policy shall continue in full force and effect;
(xvii) Each Sub-Servicer, if any, is a qualified servicer as defined
in Section 8.03 with respect to the Mortgage Loans serviced by it;
(xviii) The improvements upon each Mortgaged Property are covered by
a valid and existing hazard insurance policy with a generally acceptable
carrier that provides for fire and extended coverage representing coverage
not less than the least of (a) the outstanding principal balance of the
related Mortgage Loan (together, in the case of a Second Mortgage Loan,
with the outstanding principal balance of the Senior Lien), (b) the minimum
amount required to compensate for damage or loss on a replacement cost
basis or (c) the full insurable value of the Mortgaged Property. All such
insurance policies meet the originator's
I-3
<PAGE>
underwriting requirements and are of standard type and quality for the
locale where the related property is located. All acts required to be
performed to preserve the rights and remedies of the Trustee in any such
insurance policies have been performed, including, without limitation, any
necessary information of insurers and assignments of policies or interests
therein;
(xix) If any Mortgaged Property is in an area identified in the
Federal Register by the Federal Emergency Management Agency as having
special flood hazards, a flood insurance policy in a form meeting the
requirements of the current guidelines of the Flood Insurance
Administration is in effect with respect to such Mortgaged Property with a
generally acceptable carrier in an amount representing coverage not less
than the least of (a) the outstanding principal balance of the related
Mortgage Loan (together, in the case of a Second Mortgage Loan, with the
outstanding principal balance of the Senior Lien), (b) the minimum amount
required to compensate for damage or loss on a replacement cost basis or
(c) the maximum amount of insurance that is available under the Flood
Disaster Protection Act of 1973;
(xx) Each Mortgage and Note and any other agreement, if any,
executed and delivered by the applicable Mortgagor in connection with each
Mortgage Loan is the legal, valid and binding obligation of the maker
thereof and is enforceable in accordance with its terms, except only as
such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors'
rights generally and by general principles of equity (whether considered in
a proceeding or action in equity or at law), and, to the best of the
Seller's knowledge, all parties to each Mortgage Loan had full legal
capacity to execute all documents relating to such Mortgage Loan and convey
the estate therein purported to be conveyed;
(xxi) As of the Cut-Off Day, no more than _____% and _____ % of the
aggregate Loan Balance of the Mortgage Loans in the Fixed Rate Group and
the Adjustable Rate Group, respectively, will be secured by Properties
located within any single ZIP code area;
(xxii) Each original Mortgage was recorded or is in the process of
being recorded. There is only one originally executed Note or Lost Note
Affidavit attached to a duplicate Note for each Mortgage Loan and each
Mortgage and assignment of Mortgage is in recordable form and is acceptable
for recording under the laws of the jurisdiction where the property
securing the Mortgage Loan is located;
(xxiii) The terms of each Note and each Mortgage have not been
impaired, altered or modified in any respect, except by a written
instrument which has been recorded, if necessary, to protect the interest
of the Owners and the Certificate Insurer and which has been delivered to
the Trustee. The substance of any such alteration or modification has been
approved by the applicable title insurer, to the extent required on the
applicable title insurance policy, and is reflected on the related Schedule
of Mortgage Loans;
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<PAGE>
(xxiv) The proceeds of each Mortgage Loan have been fully disbursed,
and there is no obligation on the part of the mortgagee to make future
advances thereunder. Any and all requirements as to completion of any
on-site or off-site improvements and as to disbursements of any escrow
funds therefor have been complied with. All costs, fees and expenses
incurred in making or closing or recording such Mortgage Loans were paid;
(xxv) The related Note is not and has not been secured by any
collateral, pledged account or other security except the lien of the
corresponding Mortgage;
(xxvi) No Mortgage Loan has a graduated payment feature, a buydown
provision, shared appreciation feature, or other contingent interest
feature;
(xxvii) Each Mortgaged Property is located in the state identified
in the respective Schedule of Mortgage Loans and consists of one or more
parcels of real property with a residential dwelling, as that term is
defined in item (iv) of this Schedule I, erected thereon;
(xxviii) Each Mortgage contains a provision for the acceleration,
subject to federal law, of the payment of the unpaid principal balance of
the related Mortgage Loan in the event the related Mortgaged Property is
sold without the prior consent of the mortgagee thereunder;
(xxix) Any advances made after the date of origination of a Mortgage
Loan but prior to the Cut-Off Date have been consolidated with the
outstanding principal amount secured by the related Mortgage, and the
secured principal amount, as consolidated, bears a single interest rate and
single repayment term reflected on the respective Schedule of Mortgage
Loans. The consolidated principal amount does not exceed the original
principal amount of the related Mortgage Loan. No Note permits or obligates
the Master Servicer to make future advances to the related Mortgagor at the
option of the Mortgagor;
(xxx) There is no proceeding pending or threatened for the total or
partial condemnation of any Mortgaged Property, nor is such a proceeding
currently occurring, and each Mortgaged Property is undamaged by waste,
fire, water, flood, earthquake or earth movement.
(xxxi) All of the improvements which were included for the purposes
of determining the Appraised Value of any Mortgaged Property lie wholly
within the boundaries and building restriction lines of such Mortgaged
Property, and no improvements on adjoining properties encroach upon such
Mortgaged Property, and are stated in the title insurance policy and
affirmatively insured;
(xxxii) No improvement located on or being part of any Mortgaged
Property is in violation of any applicable zoning law or regulation. All
inspections, licenses and certificates required to be made or issued with
respect to all occupied portions of each Mortgaged Property and, with
respect to the use and occupancy of the same, including but not limited to
certificates of occupancy and fire underwriting certificates, have been
made or obtained from
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<PAGE>
the appropriate authorities and such Mortgaged Property is lawfully
occupied under the applicable law;
(xxxiii) With respect to each Mortgage constituting a deed of trust,
a trustee, duly qualified under applicable law to serve as such, has been
properly designated and currently so serves and is named in such Mortgage,
and no fees or expenses are or will become payable by the Owners or the
Trust to the trustee under the deed of trust, except in connection with a
trustee's sale after default by the related Mortgagor;
(xxxiv) Each Mortgage contains customary and enforceable provisions
which render the rights and remedies of the holder thereof adequate for the
realization against the related Mortgaged Property of the benefits of the
security, including (A) in the case of a Mortgage designated as a deed of
trust, by trustee's sale and (B) otherwise by judicial foreclosure. There
is no homestead or other exemption available to the related Mortgagor which
would materially interfere with the right to sell all the related Mortgaged
Property at a trustee's sale or the right to foreclose the related
Mortgage;
(xxxv) There is no default, breach, violation or event of
acceleration existing under any Mortgage or the related Note and, to the
best of the Seller's knowledge, no event which, with the passage of time or
with notice and the expiration of any grace or cure period, would
constitute a default, breach, violation or event of acceleration; and
neither the Master Servicer nor the Seller has waived any default, breach,
violation or event of acceleration;
(xxxvi) No instrument of release or waiver has been executed in
connection with any Mortgage Loan, and no Mortgagor has been released, in
whole or in part, except in connection with an assumption agreement which
has been approved by the primary mortgage guaranty insurer, if any, and
which has been delivered to the Trustee;
(xxxvii) The maturity date of each Second Mortgage Loan is prior to
the maturity date of the related first mortgage loan if such first mortgage
loan provides for a balloon payment;
(xxxviii) Each Mortgage Loan conforms, and all such Mortgage Loans
in the aggregate conform, in all material respects to the description
thereof set forth in the Prospectus Supplement;
(xxxix) Each Mortgage Loan was originated in accordance with the
credit underwriting guidelines of the originator of such Mortgage Loan
(except for certain exceptions to such credit underwriting guidelines
approved by the originator in accordance with its established corporate
policies), which credit underwriting guidelines conform in all material
respects to the descriptions thereof set forth in the Prospectus or the
Prospectus Supplement, as applicable;
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(xl) Each Mortgage Loan (other than the Mortgage Loans originated in
connection with the Seller's "high LTV program") was originated based upon
a full appraisal, which included an interior inspection of the subject
property;
(xli) The Mortgage Loans are representative of the Seller's
portfolio of fixed and variable rate mortgage loans and the Mortgage Loans
were not selected for inclusion in the Trust by the Seller on any basis
intended to adversely affect the Trust or the Certificate Insurer;
(xlii) As of the Cut-Off Date, no more than ____% and ____% of the
aggregate Loan Balances of the Mortgage Loans in the Fixed Rate Group and
the Adjustable Rate Group, respectively, are secured by Mortgaged
Properties that are non-owner occupied Mortgage Properties (investor-owned
and vacation);
(xliii) As of the Cut-Off Date, no more than _____% and _____% of
the aggregate Loan Balances of the Mortgage Loans in the Fixed Rate Group
and the Adjustable Rate Group, respectively, were originated under programs
requiring less than full documentation;
(xliv) The Seller has no actual knowledge that there exist any
hazardous substances, hazardous wastes or solid wastes, as such terms are
defined in the Comprehensive Environmental Response Compensation and
Liability Act, the Resource Conservation and Recovery Act of 1976, or other
federal, state or local environmental legislation, on any Mortgaged
Property;
(xlv) The Seller was properly licensed or otherwise authorized, to
the extent required by applicable law, to originate or purchase each
Mortgage Loan and the consummation of the transactions herein contemplated,
including, without limitation, the receipt of interest by the Owners and
the ownership of the Mortgage Loans by the Trustee as trustee of the Trust
will not involve the violation of such laws and Companion Mortgage
Corporation was in compliance with any and all applicable licensing
requirements of the laws of the state wherein the Mortgaged Property
securing the Mortgage Loan is located;
(xlvi) With respect to each Mortgaged Property subject to a ground
lease (a) the current ground lessor has been identified and all ground
rents which have previously become due and owing have been paid; (b) the
ground lease term extends, or is automatically renewable, for at least five
years beyond the maturity date of the related Mortgage Loan; (c) the ground
lease has been duly executed and recorded; (d) the amount of the ground
rent and any increases therein are clearly identified in the lease and are
for predetermined amounts at predetermined times; (e) the ground rent
payment is included in the borrower's monthly payment as an expense item;
(f) the Trust has the right to cure defaults on the ground lease; and (g)
the terms and conditions of the leasehold do not prevent the free and
absolute marketability of the Mortgaged Property. As of the Cut-Off Date,
the aggregate Loan Balance of the Mortgage Loans with related Mortgage
Properties subject to ground leases does not exceed ____% of the aggregate
Loan Balance of all of the Mortgage Loans;
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(xlvii) All taxes, governmental assessments, insurance premiums,
water, sewer and municipal charges, leasehold payments or ground rents
which previously became due and owing have been paid or are not yet
delinquent, or an escrow of funds has been established in an amount
sufficient to pay for every such item which remains unpaid and which has
been assessed but is not yet delinquent. No one other than the applicable
Mortgagor has advanced funds, directly or indirectly, for the payment of
any amount required under any Mortgage Loan;
(xlviii) With respect to any Second Mortgage Loan, as of the Startup
Day, the Seller has not received a notice of default of any first mortgage
loan secured by any Mortgaged Property which has not been cured by a party
other than the Seller;
(xlix) All of the Mortgage Loans in the Adjustable Rate Group
are in a first lien position;
(l) As of the Cut-Off Date, each Mortgage Loan has an outstanding
balance of less than $____________;
(li) Each Mortgage Loan is secured by a Mortgage on Mortgaged
Property which, at the time of origination of the related Mortgage Loan,
had an appraised value of less than $__________;
(lii) No more than ________% of the aggregate Loan Balances of the
Fixed Rate Group Mortgage Loans are in a second priority position;
(liii) The weighted average margin of the Adjustable Rate Group
Mortgage Loans is _______% and with respect to each Adjustable Rate Group
Mortgage Loan, the applicable interest rate is adjusted in accordance with
the terms of the Note and all required notices of interest rate adjustments
have been sent to the Mortgagor on a timely basis, the computations of such
adjustments were properly calculated and all interest rate adjustments have
been made in accordance with all applicable law;
(liv) The aggregate Loan Balance of all Mortgage Loans in the Fixed
Rate Group as of the Cut-Off Date is $____________ and the aggregate Loan
Balance of all Mortgage Loans in the Adjustable Rate Group as of the
Cut-Off Date is $_____________;
(lv) Each Mortgage Loan is a "qualified mortgage" within the
meaning of Section 860G(a)(3) of the Code;
(lvi) No more than ____% of the Original Aggregate Loan Balance
consists of Simple Interest Loans and no more than ____% of the Original
Aggregate Loan Balance consists of Actuarial Loans;
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(lvii) With respect to Second Mortgage Loans, either (a) no consent
for the Second Mortgage Loan is required by the holder of the related first
mortgage loan or (b) such consent has been obtained and delivered to the
Trustee;
(lviii) With respect to Second Mortgage Loans, the related first
mortgage loan does not provide for negative amortization;
(lix) As of the Cut-Off Date, no more than _____% of the aggregate
Loan Balance of the Mortgage Loans in the Adjustable Rate Group as of the
Cut-Off Date had interest rates that were within ______% of the fully
indexed rate;
(lx) The margins for the Mortgage Loans in the Adjustable Rate Group
(which margins, when added to the applicable current indices, establish the
interest rates applicable to such Mortgage Loans) ranges from _____% to
______%;
(lxi) No Mortgage Loan has a term in excess of 360 months;
(lxii) No property securing a Mortgage Loan is damaged by water,
fire, earthquake or earth movement, windstorm, flood, other types of water
damage, tornado or other casualty so as to affect adversely the value of
such property as security for such Mortgage Loan or the use for which the
premises were intended. Each property securing a Mortgage Loan is in good
repair;
(lxiii) With respect to no more than _____% of the Original
Aggregate Loan Balance, the first date upon which the applicable Mortgagor
must make a payment on each Mortgage Loan is no later than 60 days after
the Cut-Off Date;
(lxiv) All information regarding a Mortgage Loan of which the Seller
has knowledge that could reasonably be expected to affect adversely the
value or marketability of any property securing such Mortgage Loan has been
disclosed to the Certificate Insurer;
(lxv) As of the Cut-Off Date, none of the Mortgage Loans is a retail
installment contract for goods or services, which loans are either
"consumer credit contracts" or "purchase money loans" as such terms are
defined in 16 C.F.R. ss. 433.1; and
(lxvi) As of the Cut-Off Date, no more than _____% of the aggregate
Loan Balance of the Mortgage Loans in the Fixed Rate Group and _____% of
the aggregate Loan Balance of the Mortgage Loans in the Adjustable Rate
Group are Purchase Mortgage Loans, at least _____% of the aggregate Loan
Balance of the Mortgage Loans in the Fixed Rate Group and at least ____% of
the aggregate Loan Balance of the Mortgage Loans in the Adjustable Rate
Group are Rate/Term Refinance Mortgage Loans and no more than _____% of the
aggregate Loan Balance of the Mortgage Loans in the Fixed Rate Group and no
more than ______% of the aggregate Loan Balance of the Mortgage Loans in
the Adjustable Rate Group are Cashout/Refinance Mortgage Loans.
I-9
<PAGE>
SCHEDULE I-A
SCHEDULE OF FIXED RATE GROUP MORTGAGE LOANS
I-A-1
<PAGE>
SCHEDULE I-B
SCHEDULE OF ADJUSTABLE RATE GROUP MORTGAGE LOANS
I-B-1
<PAGE>
EXHIBIT A
FORM OF CERTIFICATE
SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS A CLASS
OF "REGULAR INTERESTS" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT" ("REMIC")
AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTION 860G AND 860D OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), ASSUMING COMPLIANCE WITH
THE REMIC PROVISIONS OF THE CODE.
BLOCK MORTGAGE FINANCE
ASSET BACKED CERTIFICATES, SERIES ________
CLASS A-[ ]
( % Pass-Through Rate)
Representing Certain Interests in a Pool of [Fixed] [Adjustable] Rate Group
Mortgage Loans Formed by Block Mortgage Finance, Inc.
and Serviced by
BLOCK FINANCIAL CORPORATION
This Certificate does not represent an interest in, or an obligation of,
nor are the underlying Mortgage Loans insured or guaranteed by, Block Mortgage
Finance, Inc., Block Financial Corporation or Companion Mortgage Corporation,
_________________________or any of their affiliates. This Certificate represents
a fractional ownership interest in the [Fixed] [Adjustable] Rate Group Mortgage
Loans and certain other property held by the Trust.
Unless this Certificate is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to the Depositor or
its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and any payment is made
to Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.
No: A-[ ]-[ ] CUSIP
$ -------------------- --------------------
Original Date Final Scheduled
Certificate Distribution Date
Principal Balance
CEDE & Co.
Registered Owner
A-1
<PAGE>
Trustee Execution
_____________________________________________,
not personally but solely as Trustee for Block
Mortgage Finance Asset Backed Certificates,
Series ______
By:__________________________________________
Name: _______________________________________
Title: ______________________________________
Date of Execution ______________
Trustee Authentication
_____________________________________________,
not personally but solely as Trustee for Block
Mortgage Finance Asset Backed Certificates,
Series ________
By:__________________________________________
Name: _______________________________________
Title: ______________________________________
Date of Authentication ______________
A-2
<PAGE>
The registered Owner named above is the registered beneficial Owner of a
fractional interest in (a) the Mortgage Loans in the [Fixed] [Adjustable] Rate
Group (other than any principal and interest payments received or, with respect
to an Actuarial Loan, due thereon on or prior to the Cut-Off Date) listed in
Schedule I-[A][B] to the Pooling and Servicing Agreement which the Seller has
caused to be delivered to the Depositor and the Depositor has caused to be
delivered to the Trustee (and all substitutions therefor as provided by Sections
3.03, 3.04 and 3.06 of the Pooling and Servicing Agreement), together with the
related Mortgage Loan documents and the Seller's and Depositor's interest in any
Mortgaged Property which secured a Mortgage Loan in the [Fixed] [Adjustable]
Rate Group but which has been acquired by foreclosure or deed in lieu of
foreclosure, and all payments thereon and proceeds of the conversion, voluntary
or involuntary, of the foregoing; (b) such amounts as may be held by the Trustee
in the Distribution Account, exclusive of investment earnings on such amounts
(except as otherwise provided in the Pooling and Servicing Agreement), and such
amounts as may be held by the Master Servicer in the name of the Trustee in the
Collection Account, if any, exclusive of investment earnings thereon (except as
otherwise provided in the Pooling and Servicing Agreement), whether in the form
of cash, instruments, securities or other properties (including any Permitted
Investments held by the Master Servicer); (c) the Group [1] [2] Certificate
Insurance Policy; and (d) proceeds of all the foregoing (including, but not by
way of limitation, all proceeds of any mortgage insurance, hazard insurance and
title insurance policy relating to the Mortgage Loans in the [Fixed]
[Adjustable] Rate Group, cash proceeds, accounts, accounts receivable, notes,
drafts, acceptances, chattel paper, checks, deposit accounts, rights to payment
of any and every kind, and other forms of obligations and receivables which at
any time constitute all or part of or are included in the proceeds of any of the
foregoing) to pay the Certificates as specified in the Pooling and Servicing
Agreement.
THE OWNER HEREOF IS ENTITLED TO PRINCIPAL PAYMENTS ON EACH DISTRIBUTION
DATE, AS HEREINAFTER DESCRIBED, WHICH WILL FULLY AMORTIZE SUCH ORIGINAL
CERTIFICATE PRINCIPAL BALANCE OVER THE PERIOD FROM THE DATE OF INITIAL ISSUANCE
OF THE CERTIFICATES TO THE FINAL DISTRIBUTION DATE FOR THE CLASS A-[ ]
CERTIFICATES. THEREFORE, THE ACTUAL OUTSTANDING PRINCIPAL AMOUNT OF THIS
CERTIFICATE MAY, ON ANY DATE SUBSEQUENT TO ____________ (THE FIRST DISTRIBUTION
DATE), BE LESS THAN THE ORIGINAL CERTIFICATE PRINCIPAL BALANCE SET FORTH ABOVE.
Upon receiving the final distribution hereon, the Owner hereof is required
to send this Certificate to the Trustee. The Pooling and Servicing Agreement (as
defined below) provides that, in any event, upon the making of the final
distribution due on this Certificate, this Certificate shall be deemed cancelled
for all purposes under the Pooling and Servicing Agreement.
NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.
A-3
<PAGE>
THIS CERTIFICATE IS A PASS-THROUGH CERTIFICATE ONLY AND, NOTWITHSTANDING
REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF ANY PERSON IS
REPRESENTED HEREBY.
This Certificate is one of a Class of duly-authorized Certificates
designated as Block Mortgage Finance Asset Backed Certificates, Series ________,
Class A-[ ] (the "Class A-[ ] Certificates") and issued under and subject to the
terms, provisions and conditions of that certain Pooling and Servicing Agreement
dated as of _________ (the "Pooling and Servicing Agreement") by and among Block
Mortgage Finance, Inc., in its capacity as the Depositor (the "Depositor"),
Companion Mortgage Corporation, in its capacity as the Seller (the "Seller"),
Block Financial Corporation, in its capacity as the Master Servicer (the "Master
Servicer"), and _____________, in its capacity as the Trustee (the "Trustee"),
to which Pooling and Servicing Agreement the Owner of this Certificate by virtue
of acceptance hereof assents and by which such Owner is bound. Also issued under
the Pooling and Servicing Agreement are Certificates designated as Block
Mortgage Finance Asset Backed Certificates, Series _________, Class A-[ ] (the
"Class A-[ ] Certificates"), Class A-[ ] (the "Class A-[ ] Certificates"), Class
A-[ ] (the "Class A-[ ] Certificates"), Class A-[ ] (the "Class A-[ ]
Certificates"), Class A-[ ] (the "Class A-[ ] Certificates"), Class A-[ ] (the
"Class A-[ ] Certificates"), Class A-[ ] (the "Class A-[ ] Certificates") and
Class R (Residual Interest) (the "Class R Certificates"). The Class A-1
Certificates, the Class A-2 Certificates, the Class A-3 Certificates, the Class
A-4 Certificates, the Class A-5 Certificates, the Class A-6 Certificates, the
Class A-7 Certificates and the Class A-8 Certificates are together referred to
as the "Class A Certificates" and the Class A Certificates and the Class R
Certificates are together referred to herein as the "Certificates." Terms
capitalized herein and not otherwise defined herein shall have the respective
meanings set forth in the Pooling and Servicing Agreement.
On the 25th day of each month, or, if such day is not a Business Day, then
the next succeeding Business Day (each such day being a "Distribution Date")
commencing __________, the Owners of the Class A-[ ] Certificates as of the
close of business on the [last day of the calendar month immediately preceding
the calendar month in which a Distribution Date occurs] [day immediately
preceding such Distribution Date] (the "Record Date") will be entitled to
receive the Class A-[ ] Distribution Amount relating to such Certificate on such
Distribution Date. Distributions will be made in immediately available funds to
Owners of Certificates having an aggregate original Class A-[ ] Certificate
Principal Balance of at least $1,000,000 (by wire transfer or otherwise) to the
account of an Owner at a domestic bank or other entity having appropriate
facilities therefor, if such Owner has so notified the Trustee, or by check
mailed to the address of the Person entitled thereto as it appears on the
Register.
Each Owner of record of a Class A-[ ] Certificate will be entitled to
receive such Owner's Percentage Interest in the amounts due on such Distribution
Date to the Owners of the Class A-[ ] Certificates. The Percentage Interest of
each Class A-[ ] Certificate as of any date of determination will be equal to
the percentage obtained by dividing the original Certificate Principal Balance
of such Class A-[ ] Certificate on the Startup Day by the aggregate Class A-[ ]
Certificate Principal Balance on the Startup Day.
A-4
<PAGE>
The Certificate Insurer is required, subject to the terms of the
Certificate Insurance Policies, to make Insured Payments available to the
Trustee on the related Distribution Date for distribution to the Owners.
"Insured Payment" means with respect to either Mortgage Loan Group and any
Distribution Date, without duplication, (A) the excess, if any, of (i) the sum
of (a) the aggregate amount of interest accrued at the related Pass-Through Rate
during the preceding Accrual Period on the Class A Certificate Principal Balance
of the related Class A Certificates (net of any Prepayment Interest Shortfall
and the interest portion of reductions due to the Relief Act), (b) the
Preference Amount as it relates to interest previously paid on each Class of the
related Class A Certificates prior to the Distribution Date, (c) the portion of
the Carry Forward Amount related to interest with respect to each Class of the
related Class A Certificates (net of any Prepayment Interest Shortfall and the
interest portion of reductions due to the Relief Act) and (d) the then existing
Subordination Deficit for the Related Loan Group, if any, over (ii) Total
Available Funds (net of the Insurance Premium Amount for the Related Loan Group)
after taking into account any Principal Distribution Amount to be actually
distributed on such Distribution Date and the cross-collateralization provisions
of the Trust plus (B) an amount equal to the principal portion of the Preference
Amount with respect to the Related Loan Group.
Upon receipt of amounts under the Certificate Insurance Policies on behalf
of the Owners of the Class A Certificates, the Trustee shall distribute in
accordance with the Pooling and Servicing Agreement such amounts (directly or
through a Paying Agent) to the Owners of the appropriate Class of the Class A
Certificates.
The Trustee or any duly-appointed Paying Agent will duly and punctually pay
distributions with respect to this Certificate in accordance with the terms
hereof and the Pooling and Servicing Agreement. Amounts properly withheld under
the Code by any Person from a distribution to any Owner shall be considered as
having been paid by the Trustee to such Owner for all purposes of the Pooling
and Servicing Agreement.
The Mortgage Loans will be serviced by the Master Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Master Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Mortgage Loans. No appointment of any Sub-Servicer shall release the
Master Servicer from any of its obligations under the Pooling and Servicing
Agreement.
This Certificate does not represent a deposit or other obligation of, or an
interest in, nor are the underlying Mortgage Loans insured or guaranteed by,
Block Mortgage Finance, Inc., Block Financial Corporation, Companion Mortgage
Corporation, _______________________or any of their affiliates. This Certificate
is limited in right of payment to certain collections and recoveries relating to
the Mortgage Loans and amounts on deposit in the Distribution Account and the
Collection Account (except as otherwise provided in the Pooling and Servicing
Agreement) and payments received by the Trustee pursuant to the Group [1] [2]
Certificate Insurance Policy, all as more specifically set forth hereinabove and
in the Pooling and Servicing Agreement.
A-5
<PAGE>
No Owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement, or for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.
Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the Owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such Certificate or to institute suit
for the enforcement of any such distribution, and such right shall not be
impaired without the consent of such Owner. The Owner of this Certificate, by
its acceptance hereof, agrees, however, that to the extent the Certificate
Insurer makes Insured Payments, either directly or indirectly (as by paying
through the Trustee or Paying Agent), to the Owners of such Class A-[ ]
Certificates, the Certificate Insurer will be subrogated to the rights of such
Owners of Class A-[ ] Certificates with respect to such Insured Payment, shall
be deemed to the extent of the payments so made to be a registered Owner of such
Class A-[ ] Certificates and shall receive all future distributions of the Class
A-[ ] Distribution Amount until all such Insured Payments by the Certificate
Insurer have been fully reimbursed.
The Pooling and Servicing Agreement provides that the obligations created
thereby will terminate upon the payment to the Owners of all Certificates from
amounts other than those available under the Certificate Insurance Policies of
all amounts held by the Trustee and required to be paid to such Owners pursuant
to the Pooling and Servicing Agreement upon the latest to occur of (a) the final
payment or other liquidation (or any advance made with respect thereto) of the
last Mortgage Loan in the Trust Estate, (b) the disposition of all property
acquired in respect of any Mortgage Loan remaining in the Trust Estate, (c) at
any time when a Qualified Liquidation of the Trust Estate is effected as
described below, and (d) the final payment to the Certificate Insurer of all
amounts then owing to it. To effect a termination of the Pooling and Servicing
Agreement pursuant to clause (c) above, the Owners of a majority in Percentage
Interest represented by the Class A Certificates then Outstanding shall direct
the Trustee on behalf of the Trust to adopt a plan of complete liquidation, as
contemplated by Section 860F(a)(4) of the Code, and the Trustee shall either
sell the Mortgage Loans and distribute the proceeds of the liquidation of the
Trust, or shall distribute equitably in kind all of the assets of the Trust
Estate to the remaining Owners of the Certificates, each in accordance with such
plan, so that the liquidation or distribution of the Trust Estate, the
distribution of any proceeds of the liquidation and the termination of the
Pooling and Servicing Agreement occur no later than the close of the 90th day
after the date of adoption of the plan of liquidation and such liquidation
qualifies as a Qualified Liquidation.
The Pooling and Servicing Agreement additionally provides that (i) certain
Owners of the Class R Certificates and the Master Servicer may, at their option,
purchase, and the Trustee may sell at auction, from the Trust all remaining
Mortgage Loans and other property then constituting the Trust Estate, and
thereby effect early retirement of the Certificates, on any Monthly Remittance
Date on or after the Optional Termination Date and (ii) under certain
circumstances relating to the qualification of the Trust Estate as a REMIC under
the Code the Mortgage Loans may be sold, thereby effecting the early retirement
of the Certificates.
A-6
<PAGE>
The Trustee shall give written notice of termination of the Pooling and
Servicing Agreement to each Owner in the manner set forth therein.
The Certificate Insurer or the Owners of the majority of the Percentage
Interests represented by the Class A Certificates with the prior written consent
of the Certificate Insurer have the right to exercise any trust or power set
forth in Section 6.11 of the Pooling and Servicing Agreement.
As provided in the Pooling and Servicing Agreement and subject to certain
limitations therein set forth and referred to on the face hereof, the transfer
of this Certificate is registrable in the Register upon surrender of this
Certificate for registration of transfer at the office designated as the
location of the Register duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Registrar duly executed by,
the Owner hereof or his attorney duly authorized in writing, and thereupon one
or more new Certificates of the like Class, tenor and a like Percentage Interest
will be issued to the designated transferee or transferees.
The Pooling and Servicing Agreement permits, with certain exceptions as
therein provided, the amendment thereof and the modifications of rights and
obligations of the parties provided therein by the Depositor, the Trustee, the
Seller and the Master Servicer at any time and from time to time, with the prior
written approval of the Certificate Insurer and without the consent of the
Owners; provided, that in certain circumstances provided for in the Pooling and
Servicing Agreement, such consent of the Owners will be required prior to
amendments. Any such consent by the Owner, at the time of the giving thereof, of
this Certificate shall be conclusive and binding upon such Owner and upon all
future Owners of the Certificate and of any Certificate issued upon the
registration of Transfer hereof or in exchange hereof or in lieu hereof whether
or not notation of such consent or waiver is made upon this Certificate.
The Trustee is required to furnish certain information on each Distribution
Date to the Owner of this certificate as more fully described in the Pooling and
Servicing Agreement.
The Class A-[ ] Certificates are issuable only as registered Certificates
in minimum denominations of $25,000 original Certificate Principal Balance and
multiples of $1,000 in excess thereof (except that one Class A-[__] Certificate
may be issued in an amount less than $25,000 or in an integral multiple other
than $1,000). As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth, Class A-[ ] Certificates are exchangeable
for new Class A-[ ] Certificates of authorized denominations evidencing the same
aggregate principal amount.
No service charge will be made for any such registration of transfer or
exchange, but the Registrar or Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
The Trustee and any agent of the Trustee may treat the Person in whose name
this Certificate is registered as the owner hereof for all purposes, and neither
the Trustee or any such agent shall be
A-7
<PAGE>
affected by notice to the contrary, except as may otherwise be specifically
provided in the Pooling and Servicing Agreement with respect to the Certificate
Insurer.
A-8
<PAGE>
EXHIBIT B
[RESERVED]
B-1
<PAGE>
EXHIBIT C
FORM OF CLASS R CERTIFICATE
SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS AN
INTEREST IN ONE CLASS OF "RESIDUAL INTERESTS" IN ONE "REAL ESTATE MORTGAGE
INVESTMENT CONDUIT" (A "REMIC") AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN
SECTION 860G AND 860D OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE"), ASSUMING COMPLIANCE WITH THE REMIC PROVISIONS OF THE CODE.
THIS CERTIFICATE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE. ANY
RESALE OR TRANSFER OF THIS CERTIFICATE WITHOUT SUCH REGISTRATION OR
QUALIFICATION MAY BE MADE ONLY IN A TRANSACTION WHICH DOES NOT REQUIRE SUCH
REGISTRATION OR QUALIFICATION AND IN ACCORDANCE WITH THE PROVISIONS OF SECTION
5.08 OF THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN.
TRANSFER OF THIS CLASS R CERTIFICATE IS RESTRICTED AS SET FORTH IN THE
POOLING AND SERVICING AGREEMENT. NO TRANSFER OF THIS CLASS R CERTIFICATE MAY BE
MADE TO A "DISQUALIFIED ORGANIZATION" AS DEFINED IN SECTION 860E(e)(5) OF THE
CODE. SUCH TERM INCLUDES THE UNITED STATES, ANY STATE OR POLITICAL SUBDIVISION
THEREOF, ANY FOREIGN GOVERNMENT, ANY INTERNATIONAL ORGANIZATION, ANY AGENCY OR
INSTRUMENTALITY OF ANY OF THE FOREGOING (OTHER THAN CERTAIN TAXABLE
INSTRUMENTALITIES), ANY COOPERATIVE ORGANIZATION FURNISHING ELECTRIC ENERGY OR
PROVIDING TELEPHONE SERVICE TO PERSONS IN RURAL AREAS, OR ANY ORGANIZATION
(OTHER THAN A FARMERS' COOPERATIVE) THAT IS EXEMPT FROM FEDERAL INCOME TAX
UNLESS SUCH ORGANIZATION IS SUBJECT TO THE TAX ON UNRELATED BUSINESS INCOME. NO
TRANSFER OF THIS CLASS R CERTIFICATE WILL BE REGISTERED BY THE REGISTRAR UNLESS
THE PROPOSED TRANSFEREE HAS DELIVERED AN AFFIDAVIT AFFIRMING, AMONG OTHER
THINGS, THAT THE PROPOSED TRANSFEREE IS NOT A DISQUALIFIED ORGANIZATION AND IS
NOT ACQUIRING THE CLASS R CERTIFICATE FOR THE ACCOUNT OF A DISQUALIFIED
ORGANIZATION. A COPY OF THE FORM OF AFFIDAVIT REQUIRED OF EACH PROPOSED
TRANSFEREE IS ON FILE AND AVAILABLE FROM THE TRUSTEE.
C-1
<PAGE>
A TRANSFER IN VIOLATION OF THE APPLICABLE RESTRICTIONS MAY GIVE RISE TO A
SUBSTANTIAL TAX UPON THE TRANSFEROR OR, IN CERTAIN CASES, UPON AN AGENT ACTING
FOR THE TRANSFEREE. A PASS-THROUGH ENTITY THAT HOLDS THIS CLASS R CERTIFICATE
AND THAT HAS A DISQUALIFIED ORGANIZATION AS A RECORD OWNER IN ANY TAXABLE YEAR
GENERALLY WILL BE SUBJECT TO A TAX FOR EACH SUCH YEAR EQUAL TO THE PRODUCT OF
(A) THE AMOUNT OF EXCESS INCLUSIONS WITH RESPECT TO THE PORTION OF THIS
CERTIFICATE OWNED THROUGH SUCH PASS-THROUGH ENTITY BY SUCH DISQUALIFIED
ORGANIZATION, AND (B) THE HIGHEST MARGINAL FEDERAL TAX RATE ON CORPORATIONS. FOR
PURPOSES OF THE PRECEDING SENTENCE, THE TERM "PASS-THROUGH" ENTITY INCLUDES
REGULATED INVESTMENT COMPANIES, REAL ESTATE INVESTMENT TRUSTS, COMMON TRUST
FUNDS, PARTNERSHIPS, TRUSTS, ESTATES, COOPERATIVES TO WHICH PART I OF SUBCHAPTER
1T OF THE CODE APPLIES AND, EXCEPT AS PROVIDED IN REGULATIONS, NOMINEES.
NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.
BLOCK MORTGAGE FINANCE
ASSET BACKED CERTIFICATES, SERIES _______
CLASS R
(Residual Interest)
Representing Certain Interests Relating to a Pool of
Mortgage Loans formed by Block Mortgage Finance, Inc.
and Serviced by
BLOCK FINANCIAL CORPORATION
(This Certificate does not represent an interest in, or an obligation of,
nor are the underlying Mortgage Loans insured or guaranteed by, Block Mortgage
Finance, Inc., Block Financial Corporation or Companion Mortgage Corporation,
________________________or any of their affiliates. This Certificate represents
a fractional residual ownership interest in the Trust
Estate as defined below.)
_____________________
No: R-__ Date
Percentage Interest ________% _____________________
Registered Owner
C-2
<PAGE>
Trustee Execution
_______________________________________________,
not personally liable but solely as Trustee for
Block Mortgage Finance Asset Backed Certificates,
Series ______________
By:_________________________________
Name:_______________________________
Title:______________________________
Date of Execution:__________________
Trustee Authentication
_______________________________________________,
not personally but solely as Trustee for Block
Mortgage Finance Asset Backed Certificates,
Series _______________
By:_________________________________
Name:_______________________________
Title:______________________________
Date of Authentication______________
C-3
<PAGE>
The registered Owner named above is the registered Owner of a fractional
interest in (a) the Mortgage Loans (other than any principal and interest
payments received or, with respect to Actuarial Loans, due thereon on or prior
to the Cut-Off Date) listed in Schedule I-A and Schedule I-B to the Pooling and
Servicing Agreement which the Seller has caused to be delivered to the Depositor
and the Depositor has caused to be delivered to the Trustee (and all
substitutions therefor as provided by Sections 3.03, 3.04 and 3.06 of the
Pooling and Servicing Agreement), together with the related Mortgage Loan
documents and the Seller's and Depositor's interest in any Property which
secured a Mortgage Loan but which has been acquired by foreclosure or deed in
lieu of foreclosure, and all payments thereon and proceeds of the conversion,
voluntary or involuntary, of the foregoing; (b) such amounts as may be held by
the Trustee in the Distribution Account, exclusive of investment earnings on
such amounts (except as otherwise provided in the Pooling and Servicing
Agreement) and such amounts may be held by the Master Servicer in the name of
the Trustee in the Collection Account, if any, exclusive of investment earnings
thereon (except as otherwise provided in the Pooling and Servicing Agreement),
whether in the form of cash, instruments, securities or other properties
(including any Permitted Investments held by the Master Servicer); and (c)
proceeds of all the foregoing (including, but not by way of limitation, all
proceeds of any mortgage insurance, hazard insurance and title insurance policy
relating to the Mortgage Loans, cash proceeds, accounts, accounts receivable,
notes, drafts, acceptances, chattel paper, checks, deposit accounts, rights to
payment of any and every kind, and other forms of obligations and receivables
which at any time constitute all or part of or are included in the proceeds of
any of the foregoing) to pay the Certificates as specified in the Pooling and
Servicing Agreement.
This Certificate is one of a Class of duly-authorized Certificates
designated as Block Mortgage Finance Asset Backed Certificates, Series _______,
Class R (Residual Interest) (the "Class R Certificates") and issued under and
subject to the terms, provisions and conditions of that certain Pooling and
Servicing Agreement dated as of _________ (the "Pooling and Servicing
Agreement") by and among Block Mortgage Finance, Inc., in its capacity as the
Depositor (the "Depositor"), Companion Mortgage Corporation, in its capacity as
the Seller (the "Seller"), Block Financial Corporation, in its capacity as the
Master Servicer (the "Master Servicer"), and__________________, in its capacity
as the Trustee (the "Trustee"), to which Pooling and Servicing Agreement the
Owner of this Certificate by virtue of acceptance hereof assents and by which
such Owner is bound. Also issued under the Pooling and Servicing Agreement are
Certificates designated as Block Mortgage Finance, Inc., Asset Backed
Certificates, Series _______, Class A-1, Class A-2, Class A-3, Class A-4, Class
A-5, Class A-6, Class A-7 and Class A-8 Certificates (collectively, the "Class A
Certificates"). The Class A Certificates and the Class R Certificates are
together referred to herein as the "Certificate." Terms capitalized herein and
not otherwise defined herein shall have the respective meanings set forth in the
Pooling and Servicing Agreement.
On the 25th day of each month, or, if such day is not a Business Day, then
the next succeeding Business Day (each such day being a "Distribution Date")
commencing ______________, each Owner of a Class R Certificate as of the close
of business on the last day of the calendar month
C-4
<PAGE>
immediately preceding the calendar month in which a Distribution Date occurs
(the "Record Date") will be entitled to receive the Residual Net Monthly Excess
Cashflow relating to such Certificate on such Distribution Date.
Distributions will be made in immediately available funds to Owners of
Class R Certificates having an aggregate Percentage Interest of at least 10% by
wire transfer to the account of such Owner at a domestic bank or other entity
having appropriate facilities therefor, if such Owner has so notified the
Trustee, or otherwise by check mailed to the address of the person entitled
thereto as it appears on the Register.
The Trustee or any duly-appointed Paying Agent will duly and punctually pay
distributions with respect to this Certificate in accordance with the terms
hereof and the Pooling and Servicing Agreement.
Amounts properly withheld under the Code by any Person from a distribution
to any Owner shall be considered as having been paid by the Trustee to such
Owner for all purposes of the Pooling and Servicing Agreement.
The Mortgage Loans will be serviced by the Master Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Master Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Mortgage Loans. No appointment of any Sub-Servicer shall release the
Master Servicer from any of its obligations under the Pooling and Servicing
Agreement.
This Certificate does not represent a deposit or other obligation of, or an
interest in, nor are the underlying Mortgage Loans insured or guaranteed by,
Block Mortgage Finance, Inc., Block Financial Corporation, Companion Mortgage
Corporation, ________________________or any of their affiliates. This
Certificate is limited in right of payment to certain collections and recoveries
relating to the Mortgage Loans and amounts on deposit in the Distribution
Account and the Collection Account, all as more specifically set forth
hereinabove and in the Pooling and Servicing Agreement.
No Owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement, or for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.
Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the Owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such Certificate or to
C-5
<PAGE>
institute suit for the enforcement of any such distribution, and such right
shall not be impaired without the consent of such Owner.
The Pooling and Servicing Agreement provides that the obligations created
thereby will terminate upon the payment to the Owners of all Certificates from
amounts other than those available under the Certificate Insurance Policies of
all amounts held by the Trustee and required to be paid to such Owners pursuant
to the Pooling and Servicing Agreement upon the latest to occur of (a) the final
payment or other liquidation (or any advance made with respect thereto) of the
last Mortgage Loan in the Trust Estate, (b) the disposition of all property
acquired in respect of any Mortgage Loan remaining in the Trust Estate, (c) at
any time when a Qualified Liquidation of the Trust Estate is effected as
described below, and (d) the final payment to the Certificate Insurer of all
amounts owing to it. To effect a termination of the Pooling and Servicing
Agreement pursuant to clause (c) above, the Owners of a majority in Percentage
Interest represented by the Class A Certificates then Outstanding shall direct
the Trustee on behalf of the Trust to adopt a plan of complete liquidation, as
contemplated by Section 860F(a)(4) of the Code, and the Trustee shall either
sell the Mortgage Loans and distribute the proceeds of the liquidation of the
Trust, or shall distribute equitably in kind all of the assets of the Trust
Estate to the remaining Owners of the Certificates, each in accordance with such
plan, so that the liquidation or distribution of the Trust Estate, the
distribution of any proceeds of the liquidation and the termination of the
Pooling and Servicing Agreement occur no later than the close of the 90th day
after the date of adoption of the plan of liquidation and such liquidation
qualifies as a Qualified Liquidation.
The Pooling and Servicing Agreement additionally provides that (i) certain
Owners of the Class R Certificates or the Master Servicer may at their option,
purchase, and the Trustee may sell at auction, from the Trust all remaining
Mortgage Loans and other property then constituting the Trust Estate, and
thereby effect early retirement of the Certificates, on any Monthly Remittance
Date on or after the Optional Termination Date and (ii) under certain
circumstances relating to the qualification of Trust Estate as a REMIC under the
Code the Mortgage Loans may be sold, thereby effecting the early retirement of
the Certificates.
The Trustee shall give written notice of termination of the Pooling and
Servicing Agreement to each Owner in the manner set forth therein.
The Certificate Insurer or the Owners of a majority of the Percentage
Interests represented by the Class A Certificates then Outstanding with the
prior written consent of the Certificate Insurer, or, if there are no longer any
Class A Certificates then Outstanding, by such majority of the Percentage
Interests represented by the Class R Certificates then outstanding, have the
right to exercise any trust or power set forth in Section 6.11 of the Pooling
and Servicing Agreement.
As provided in the Pooling and Servicing Agreement and subject to certain
limitations therein set forth and referred to on the face hereof, the transfer
of this Certificate is registrable in the
C-6
<PAGE>
Register upon surrender of this Certificate for registration of transfer at the
office designated as the location of the Register duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Registrar duly executed by, the Owner hereof or his attorney duly authorized in
writing, and thereupon one or more new Certificates of the like Class, tenor and
a like Percentage Interest will be issued to the designated transferee or
transferees.
The Pooling and Servicing Agreement permits, with certain exceptions as
therein provided, the amendment thereof and the modifications of rights and
obligations of the parties provided therein by the Depositor, the Trustee, the
Seller and the Master Servicer at any time and from time to time, with the prior
written approval of the Certificate Insurer and not less than a majority of the
Percentage Interest represented by each affected Class of Certificates then
Outstanding, and in certain other circumstances provided for in the Pooling and
Servicing Agreement may be amended without the consent of the Owners. Any such
consent by the Owner, at the time of the giving thereof, of this Certificate
shall be conclusive and binding upon such Owner and upon all future Owners of
the Certificate and of any Certificate issued upon the registration of Transfer
hereof or in exchange hereof or in lieu hereof whether or not notation of such
consent or waiver is made upon this Certificate.
The Trustee is required to furnish certain information on each Distribution
Date to the Owner of this Certificates as more fully described in the Pooling
and Servicing Agreement.
The Class R Certificates are issuable only as registered Certificates. As
provided in the Pooling and Servicing Agreement and subject to certain
limitations therein set forth, Class R Certificates are exchangeable for new
Class R Certificates evidencing the same Percentage Interest as the Class R
Certificates exchanged.
No service charge will be made for any such registration of transfer or
exchange, but the Registrar or Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
The Trustee and any agent of the Trustee may treat the Person in whose name
this Certificate is registered as the owner hereof for all purposes, and neither
the Trustee nor any such agent shall be affected by notice to the contrary,
except as may otherwise be specifically provided in the Pooling and Servicing
Agreement with respect to the Certificate Insurer.
C-7
<PAGE>
EXHIBIT D
PAYOFF CERTIFICATION
--------------------
WHEREAS, the undersigned is an Authorized Officer of Block Mortgage
Finance, Inc., a Delaware corporation, in its capacity as Depositor (the
"Depositor") of a certain pool of mortgage loans heretofore conveyed in trust to
_________________________, a national banking association (the "Trustee"),
pursuant to that certain Pooling and Servicing Agreement dated as of
_______________, (the "Pooling and Servicing Agreement") among the Depositor,
Block Financial Corporation, as Master Servicer, Companion Mortgage Corporation,
as Seller, and the Trustee; and
WHEREAS, the Depositor is required, pursuant to Section 3.05(c) of the
Pooling and Servicing Agreement to deliver this Payoff Certification to the
Trustee with respect to all Mortgage Loans which have been prepaid in full after
the Cut-Off Date and prior to the Startup Day (as those terms are defined in the
Pooling and Servicing Agreement).
NOW, THEREFORE, the Depositor hereby certifies that each Mortgage Loan
identified on the attached Schedule I has been prepaid in full after the Cut-Off
Date and prior to the Startup Day (as those terms are defined in the Pooling and
Servicing Agreement).
BLOCK MORTGAGE FINANCE, INC.,
as Depositor
By:
Name:
Title:
Dated _________________
D-1
<PAGE>
SCHEDULE I
D-2
<PAGE>
EXHIBIT E
FORM OF TRUSTEE'S RECEIPT
TRUSTEE'S ACKNOWLEDGEMENT OF RECEIPT
____________________________, a national banking association, in its
capacity as trustee (the "Trustee") under that certain Pooling and Servicing
Agreement dated as of ____________ (the "Pooling and Servicing Agreement") among
Block Mortgage Finance, Inc., as Depositor, Block Financial Corporation, as
Master Servicer, Companion Mortgage Corporation, as Seller, and the Trustee,
hereby acknowledges receipt (subject to review as required by Section 3.06(a) of
the Pooling and Servicing Agreement) of the items delivered to it by the Seller
and the Depositor with respect to the Mortgage Loans pursuant to Section
3.05(b)(i) (A) and (B) of the Pooling and Servicing Agreement.
The Schedules of Mortgage Loans are attached to this Receipt.
The Trustee hereby additionally acknowledges that it shall review such
items as required by Section 3.06(a) of the Pooling and Servicing Agreement and
shall otherwise comply with Section 3.06(b) of the Pooling and Servicing
Agreement as required thereby.
________________________________________________,
as Trustee
By:_____________________________________________
Title:__________________________________________
Dated: _________________
E-1
<PAGE>
EXHIBIT F
FORM OF POOL CERTIFICATION
POOL CERTIFICATION
WHEREAS, the undersigned is an Authorized Officer of
_______________________, a national banking association, acting in its capacity
as trustee (the "Trustee") of a certain pool of mortgage loans (the "Pool")
heretofore conveyed in trust to the Trustee, pursuant to that certain Pooling
and Servicing Agreement dated as of ______________ (the "Pooling and Servicing
Agreement") among Block Mortgage Finance, Inc., as Depositor (the "Depositor"),
Block Financial Corporation, as Master Servicer, Companion Mortgage Corporation,
as Seller, and the Trustee; and
WHEREAS, the Trustee is required, pursuant to Section 3.06(a) of the
Pooling and Servicing Agreement, to review the Files relating to the Pool within
a specified period following the Startup Day and to notify the Seller promptly
of any defects with respect to the Pool, and the Seller is required to remedy
such defects or take certain other action, all as set forth in Section 3.06(b)
of the Pooling and Servicing Agreement; and
WHEREAS, Section 3.06(a) of the Pooling and Servicing Agreement requires
the Trustee to deliver this Pool Certification upon the satisfaction of certain
conditions set forth therein.
NOW, THEREFORE, the Trustee hereby certifies that it has determined that
all required documents (or certified copies of documents listed in Section
3.05(b) of the Pooling and Servicing Agreement) have been executed or received,
and that such documents relate to the Mortgage Loans identified in (i), (ii) and
(viii) of the definition of the Schedules of Mortgage Loans pursuant to Section
3.06(a) of the Pooling and Servicing Agreement or, in the event that such
documents have not been executed and received or do not so relate to such
Mortgage Loans, other than as set forth on Schedule I hereto. The Trustee makes
no certification hereby, however, with respect to any intervening assignments or
assumption and modification agreements.
________________________________________,
as Trustee
By:______________________________________
Title:___________________________________
Dated: _________________
F-1
<PAGE>
EXHIBIT G
FORM OF DELIVERY ORDER
DELIVERY ORDER
BLOCK MORTGAGE FINANCE
Asset Backed Certificates,
Series _______
Depositor's Order to the Trustee for
Execution and Delivery of the Certificates
Dated: __________
_____________________________________________
Pursuant to Section 4.01 of the Pooling and Servicing Agreement (the
"Pooling and Servicing Agreement"), dated as of ______________, among the
Depositor, Block Financial Corporation, as Master Servicer, Companion Mortgage
Corporation, as Seller and the Trustee (each as defined in the Pooling and
Servicing Agreement), the Depositor hereby requests that the Trustee execute and
authenticate the Block Mortgage Finance Asset Backed Certificates, Series
________ (the "Certificates"), and register said Certificates in the
denominations or percentages, as applicable, as set forth on Exhibit A hereto.
The Depositor further requests that the Trustee deliver all of the Class
A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-6, Class A-7 and Class
A-8 Certificates to The Depository Trust Company in New York, New York, on
behalf of __________________ and ___________________ (the "Underwriters") or at
such other location as ________________, on behalf of the Underwriters, advises
the Trustee.
BLOCK MORTGAGE FINANCE, INC.
By: _____________________________________
Name:
Title:
G-1
<PAGE>
EXHIBIT H
FORM OF AFFIDAVIT FOR CLASS R TRANSFER
AFFIDAVIT PURSUANT TO SECTION
860E(e) OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED
STATE OF )
) ss:
COUNTY OF )
[NAME OF OFFICER], being first duly sworn, deposes and says:
1. That he is [Title of Officer] of [Name of Investor] (the
"Investor"), a [savings institution] [corporation] duly organized and existing
under the laws of [the State of __________] [the United States], on behalf of
which he makes this affidavit.
2. That (i) the Investor is not a "disqualified organization" and
will not be a "disqualified organization" as of [date of transfer] (For this
purpose, a "disqualified organization" means the United States, any state or
political subdivision thereof, any foreign government, any international
organization, any agency or instrumentality of any of the foregoing (other than
certain taxable instrumentalities), any cooperative organization furnishing
electric energy or providing telephone service to persons in rural areas, or any
organization (other than a farmers' cooperative) that is exempt from federal
income tax unless such organization is subject to the tax on unrelated business
income); (ii) it is not acquiring the Class R Certificate for the account of a
disqualified organization; (iii) it consents to any amendment of the Pooling and
Servicing Agreement that shall be deemed necessary by the Trustee (upon advice
of counsel) to constitute a reasonable arrangement to ensure that the Class R
Certificates will not be owned directly or indirectly by a disqualified
organization; and (iv) it will not transfer such Class R Certificate unless (a)
it has received from the transferee an affidavit in substantially the same form
as this affidavit containing these same four representations and (b) as of the
time of the transfer, it does not have actual knowledge that such affidavit is
false.
H-1
<PAGE>
IN WITNESS WHEREOF, the Investor has caused this instrument to be
executed on its behalf, pursuant to authority of its Board of Directors, by its
[Title of Officer] and its corporate seal to be hereunto attached, attested by
its [Assistant] Secretary, this ___ day of _______, _______.
[NAME OF INVESTOR]
By:___________________________
[Name of Officer]
[Title of Officer]
H-2
<PAGE>
EXHIBIT I
FORM OF LOST NOTE AFFIDAVIT
LOST NOTE AFFIDAVIT
We, as _____________________ (title) of Companion Mortgage Corporation
(the "Seller") and as _____________________ (title) of Block Financial
Corporation (the "Master Servicer"), are authorized to make this Affidavit.
Capitalized terms used but not otherwise defined herein shall have the meanings
assigned to such terms in that certain Pooling and Servicing Agreement (the
"Pooling and Servicing Agreement"), dated as of _____________, by and among
Block Mortgage Finance, Inc., Block Financial Corporation, Companion Mortgage
Corporation and ________________________. In connection with (i) the
administration of the Mortgage Loans held by ____________________________, as
Trustee on behalf of the Owners (the "Trustee") and (ii) issuance of the
Certificate Insurance Policies by ___________________, ___________________ and
__________________ (hereinafter called "Deponents"), being duly sworn, depose
and say that:
(a) Seller previously delivered to the Trustee a signed Initial
Certification with respect to a certain Note;
(b) Such Note was assigned or sold to the Trustee pursuant to the terms
and provisions of the Pooling and Servicing Agreement;
(c) Such Note is not outstanding pursuant to a request for release of
documents;
(d) The aforesaid Note (hereinafter called the "Original") has been lost;
(e) The Seller has made or caused to be made diligent search for the
Original and has been unable to find or recover the same;
(f) The Seller was the owner of the Original at the time of loss and has
good title to the Original and has the right to convey good title thereto;
(g) The Original has not been cancelled or assigned or pledged to anyone
other than the Depositor and Trustee;
I-1
<PAGE>
(h) The Seller has assigned all of its interest in the Original to the
Depositor pursuant to the Pooling and Servicing Agreement and the Depositor has
assigned all of its interest in the Original to the Trustee pursuant to the
Pooling and Servicing Agreement;
(i) Following the assignment of the Original to the Depositor and the
assignment of the Original by the Depositor to the Trustee, the Trustee will be
the party entitled to enforce the Original pursuant to Section 3-309 of the
Uniform Commercial Code;
(j) Deponents agree that, if said Original should ever come into the
possession, custody or power of either Seller or the Master Servicer, such party
will immediately and without consideration surrender said Original to the
Trustee;
(k) Attached hereto is a true and correct copy of the Original, endorsed
in blank by the mortgagee;
(l) Deponents hereby agree that the Seller and the Master Servicer (a)
shall indemnify and hold harmless the Trustee and _______________________, their
successors and assigns, against any loss, liability or damage, including
reasonable attorney's fees, resulting from the unavailability of any Originals,
including but not limited to any loss, liability or damage arising from (i) any
false statement contained in this Affidavit, (ii) any claim of any party that
has already purchased the Mortgage Loan evidenced by the lost Original or any
interest in such Mortgage Loan, (iii) any claim of any borrower with respect to
the existence of terms of a Mortgage Loan evidenced by the lost Original, (iv)
the issuance of a new instrument in lieu thereof and (v) any claim whether or
not based upon or arising from honoring or refusing to honor the Original when
presented by any person (items (i) through (iv) above are hereinafter referred
to as the "Losses");
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
I-2
<PAGE>
(m) This Affidavit is intended to be relied on by the Trustee, its
successors and assigns and each of the Seller and the Master Servicer represent
and warrant that it has the authority to perform its respective obligations
under this Affidavit.
Executed this ______ day of _______, 199__,
on behalf of the Seller
By:
Name:
Title:
Executed this ______ day of _______, 199__,
on behalf of the Master Servicer
By:
Name:
Title:
I-3
<PAGE>
State of __________ )
) ss.
County of ________ )
On this ____ day of ________, 199__, before me appeared
___________________, to me personally know, who being duly sworn did say that
he/she is the ____________________ of Companion Mortgage Corporation, and the
above Affidavit was signed and sealed on behalf of such corporation and said
_________________________ acknowledged this instrument to be the free act and
deed of said corporation.
Notary Public
in and for the State of
My Commission Expires:
State of __________ )
) ss.
County of ________ )
On this ____ day of ________, 199__, before me appeared
___________________, to me personally know, who being duly sworn did say that
he/she is the ____________________ of Block Financial Corporation, and the above
Affidavit was signed and sealed on behalf of such corporation and said
_________________________ acknowledged this instrument to be the free act and
deed of said corporation.
Notary Public
in and for the State of
My Commission Expires:
I-4
<PAGE>
EXHIBIT J
[RESERVED]
J-1
<PAGE>
EXHIBIT K
TERMINATION AUCTION PROCEDURES
The following sets forth the auction procedures to be followed in
connection with a sale effected pursuant to Section 9.03 of the Pooling and
Servicing Agreement (the "Agreement"), dated as of ____________ among Block
Mortgage Finance, Inc., as Depositor, Block Financial Corporation, as Master
Servicer, Companion Mortgage Corporation, as Seller, and_________
________________, as Trustee. Capitalized terms used herein that are not
otherwise defined shall have the meanings described thereto in the Agreement.
1. Pre-Auction Process
(a) Upon receiving notice of the Auction Date, the Advisor will
initiate its general Termination Auction procedures consisting of
the following: (i) with the assistance of the Master Servicer,
prepare a general solicitation package along with a
confidentiality agreement; (ii) develop a list of qualified
bidders, in a commercially reasonable manner; (iii) initiate
contact with all qualified bidders; (iv) send a confidentiality
agreement to all qualified bidders; (v) upon receipt of a signed
confidentiality agreement, send solicitation packages to all
interested bidders on behalf of the Trustee; and (vi) notify the
Master Servicer and Trustee of all potential bidders and
anticipated timetable.
(b) The general solicitation package will include: (i) the prospectus
supplement and prospectus from the initial public offering of any
of the Class A Certificates; (ii) copies of the prior year's
monthly servicing reports; (i) a form of a Sale and Servicing
Agreement prepared by the Trustee and the Master Servicer (or
prepared by the Advisor and approved by the Trustee and the
Master Servicer) which Agreement shall provide that the Mortgage
Loans are being sold without recourse to the Trustee and the
Owners; (ii) a description of the minimum purchase price required
to cause the Trustee to sell the Mortgage Loans as set forth in
Section 9.03 of the Agreement; (iii) a formal bidsheet; (iv) a
detailed timetable; and (v) a preliminary data tape of the
aggregate Loan Balance of the Mortgage Loans as of a recent
Distribution Date reflecting the same data attributes used to
create the Cut-Off Date tables for the prospectus supplement
dated ______________ relating to the public offering of the Class
A Certificates. None of the Trustee, the Master Servicer, the
Depositor or the Seller shall be required to produce an updated
prospectus or prospectus supplement, and the
K-1
<PAGE>
auction procedures shall be carried out in a manner that does not
constitute a public offering of securities.
(c) The Trustee, with the assistance of the Master Servicer and the
Advisor, will maintain an auction package beginning at the time
of closing of the transaction, which will contain the documents
listed under clauses (i)-(ii) of the preceding paragraph.
(d) The Advisor will send solicitation packages to all bidders at
least 15 Business Days before the Auction Date. Bidders will be
required to submit any due diligence questions in writing to the
Advisor for determination of their relevancy, no later than 10
Business Days before the Auction Date. The Master Servicer and
the Advisor will be required to satisfy all relevant questions at
least five Business Days prior to the Auction Date and distribute
the questions and answers to all bidders.
2. Auction Process
(a) The Advisor, any underwriter, the Certificate Insurer or any
Owner will be allowed to bid in the Auction, but will not be
required to do so.
(b) The Seller and the Master Servicer will also be allowed to bid in
the Termination Auction if it deems appropriate, but will not be
required to do so.
(c) On the Auction Date, all bids will be due by facsimile to the
offices of the Trustee by 1:00 p.m. New York City time, with the
winning bidder to be notified by 2:00 p.m. New York City time.
All acceptable bids (as described in Section 9.03 of the
Agreement) will be due on a conforming basis on the bid sheet
contained in the solicitation package.
(d) If the Trustee receives fewer than two market value bids from
participants in the market for mortgage loans willing and able to
purchase the Mortgage Loans, the Trustee shall decline to
consummate the sale.
(e) Upon notification to the winning bidder, a good faith deposit
equal to one percent (1%) of the aggregate Loan Balance of the
Mortgage Loans will be required to be wired to the Trustee upon
acceptance of the bid. This deposit, along with any interest
income attributable to it, will be credited to the purchase price
but will not be refundable. The Trustee will establish a separate
account for the acceptance of the good faith deposit, until such
time as the account is fully funded and all
K-2
<PAGE>
monies are transferred into the Collection Account, such time not
to be later than one Business Day before the related Distribution
Date (as described above).
(f) The winning bidder will receive on the Auction Date a copy of the
draft Sale and Servicing Agreement.
(g) The Advisor will provide to the Trustee a letter concluding
whether or not the winning bid is a fair market value bid. The
Advisor will also provide such letter if it is the winning
bidder. In the case where the Advisor or the Master Servicer is
the winning bidder it will provide for market comparables and
valuations in its letter.
(h) The Auction will stipulate that the Master Servicer be retained
to service the Mortgage Loans sold pursuant to the terms of the
Sale and Servicing Agreement.
(i) The Auction will stipulate that such sale and consequent
termination of the Trust must constitute a "qualified
liquidation" of the Trust under Section 860F of the Code,
including the requirement that such liquidation take place over a
period not to exceed 90 days. The Trustee may, in its discretion,
require that the purchaser of the Mortgage Loans provide the
Trustee and the Certificate Insurer with an opinion of counsel to
that effect.
K-3
<PAGE>
EXHIBIT L
FORM OF LIQUIDATION REPORT
Customer Name:
Account Number:
Original Principal Balance:
1. Type of Liquidation (REO disposition/charge-off/short pay-off)
- Date last paid
- Date of foreclosure
- Date of REO
- Date of REO Disposition
- Property Sale Price/Estimated Market Value at disposition
2. Liquidation Proceeds
Principal Prepayment $____________
Property Sale Proceeds ____________
Insurance Proceeds ____________
Other (itemize) ____________
Total Proceeds $____________
3. Liquidation Expenses
Servicing Advances $____________
Monthly Advances ____________
Contingency Fees ____________
Excess Servicing Fees ____________
Servicing Fees ____________
Annual Expense Escrow Amount ____________
Supplemental Fee (if any) ____________
Additional Interest (if any) ____________
Total Advances $____________
4. Net Liquidation Proceeds $____________ (Item 2 minus Item 3)
5. Principal Balance of Mortgage Loan $____________
6. Loss, if any (Item 5 minus Item 4) $____________
L-1
<PAGE>
EXHIBIT M
FORM OF REQUEST FOR RELEASE/RETURN OF DOCUMENTS
____________________________ ____________, 19__
____________________________
____________________________
Attention: Corporate Trust Administration,
Block Mortgage Finance Asset Backed Certificates, Series _______
In connection with the administration of the pool of mortgages held by you in
custody pursuant to the Pooling and Servicing Agreement, dated as of
____________, by and among Block Mortgage Finance, Inc., Block Financial
Corporation, Companion Mortgage Corporation and _____________________________,
the undersigned requests the release of the mortgage documents for the mortgage
described below for the reason indicated.
Property Address, City, State and Zip Code Lender Loan No.:
Original Mortgage Amount....................................$________________
Date of Original Mortgage...................................$________________
Interest Rate...............................................$________________
Monthly Fixed Installment (P&I).............................$________________
Paid Through Date...........................................$________________
Reason for Requesting Documents:
Amount Settlement Date
[_] Mortgage Paid in Full/Repurchased $_______________ _______________
[_] Foreclosure/Deed-in-lieu/Assignment $_______________ _______________
[_] Third Party Sale $_______________ _______________
[_] Other: (explain) $_______________ _______________
______________________________________
______________________________________
Block Financial Corporation
____________________________________
Authorized Signature
_______________ __________________
Date Telephone Number
Please acknowledge release of the documents by your signature.
Acknowledged:
_______________________________
<PAGE>
________________________________________
Authorized Signature
________________________________________
Date
Please acknowledge return of the documents by your signature.
Acknowledged:
________________________________ Reason for Returning Documents:
[_] The loan was reinstated.
________________________________
Authorized Signature [_] Other: (explain)____________
________________________________ ______________________________________
Date
______________________________________
MORRISON & HECKER L.L.P.
ATTORNEYS AT LAW
2600 Grand Avenue
Kansas City, Missouri 64108-4606
Telephone (816) 691-2600
Telefax (816) 474-4208
September 30, 1998
Block Mortgage Finance, Inc.
One Main Plaza
4425 Main Street, Suite 500
Kansas City, Missouri 64111
Re: Asset Backed Certificates
Ladies and Gentlemen:
We have acted as your counsel in connection with the preparation of a
Registration Statement on Form S-3 (Registration Statement No. 333-______) (the
"Registration Statement") to be filed with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended (the "Act"). The
Registration Statement covers Asset Backed Certificates ("Certificates") to be
sold by Block Mortgage Finance, Inc. ("Depositor") in one or more series (each,
a "Series") of Certificates. Each Series of Certificates will be issued under a
pooling and servicing agreement ("Pooling and Servicing Agreement") between
Depositor and a servicer (the "Servicer"), a trustee (the "Trustee") and
possibly a certificate insurer (the "Certificate Insurer"), a seller (the
"Seller") and a fiscal agent (the "Fiscal Agent") to be identified in the
Prospectus Supplement for such Series of Certificates. A form of Pooling and
Servicing Agreement is included as an exhibit to the Registration Statement.
Capitalized terms used and not otherwise defined herein have the respective
meanings given them in the Registration Statement or the Accord identified in
the following paragraph.
This Opinion Letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of
Business Law (1991). As a consequence, it is subject to a number of
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, and this Opinion
Letter should be read in conjunction therewith. The opinions expressed herein
are given only with respect to the present status of the substantive laws of the
state of Missouri (not including the choice-of-law rules under Missouri law). We
express no opinion as to any matter arising under the laws of any other
jurisdiction.
In rendering the opinions set forth below, we have examined and relied
on the following: (1) the Registration Statement and the Prospectus and the form
of Prospectus Supplement included therein; (2) the form of the Pooling and
Servicing Agreement included as an exhibit to the Registration Statement; and
(3) such other documents, materials, and authorities as we have deemed necessary
in order to enable us to render our opinions set forth below.
Washington, D.C. / Phoenix, Arizona / Overland Park, Kansas / Wichita, Kansas
<PAGE>
Block Mortgage Finance, Inc.
September 30, 1998
Page 2
Based on and subject to the foregoing and other qualifications set
forth below, we are of the opinion that:
1. When a Pooling and Servicing Agreement for a Series of Certificates
has been duly and validly authorized, executed and delivered by the Depositor,
the Servicer, the Trustee and, if applicable, the Certificate Insurer, the
Seller and the Fiscal Agent, such Pooling and Servicing Agreement will
constitute a valid and legally binding agreement of Depositor, enforceable
against Depositor in accordance with its terms.
2. When (a) a Pooling and Servicing Agreement for a Series of
Certificates has been duly and validly authorized, executed and delivered by the
Depositor, the Servicer, the Trustee and, if applicable, the Certificate
Insurer, the Seller and the Fiscal Agent, (b) the Mortgage Loans and other
consideration constituting the Trust Fund for the Series have been deposited
with the Trustee, (c) the Certificates of such Series have been duly executed,
authenticated, delivered and sold as contemplated in the Registration Statement
and (d) the consideration for the sale of such Certificates has been fully paid
to the Depositor, such Certificates will be legally and validly issued, fully
paid and nonassessable, and the duly registered holders of such Certificates
will be entitled to the benefits of such Pooling and Servicing Agreement.
The General Qualifications apply to the opinions set forth in
paragraphs 1 and 2 above, and in addition, such opinions are subject to the
qualification that certain remedial, waiver and other similar provisions of a
Pooling and Servicing Agreement for a Series of Certificates or of the
Certificates of such Series may be rendered unenforceable or limited by
applicable laws, regulations or judicial decisions, but such laws, regulations
and judicial decisions will not render such Pooling and Servicing Agreement or
such Certificates invalid as a whole and will not make the remedies available
thereunder inadequate for the practical realization of the principal benefits
intended to be provided thereby, except for the economic consequences of any
judicial, administrative or other delay or procedure which may be imposed by
applicable law.
We hereby consent to the filing of this letter as an Exhibit to the
Registration Statement and to the reference to this firm under the headings
"FEDERAL INCOME TAX CONSEQUENCES" and "LEGAL MATTERS" in the Prospectus forming
a part of the Registration Statement. We also consent to the incorporation by
reference of this letter in a registration statement, if any, relating to the
Registration Statement filed by the Company pursuant to Rule 462(b) of the
Securities Act of 1933, as amended (the "Act"). This consent is not to be
construed as an admission that we are a person whose consent is required to be
filed with the Registration Statement under the provisions of the Act.
Very truly yours,
MORRISON & HECKER L.L.P.
/s/ Morrison & Hecker L.L.P.
MORRISON & HECKER L.L.P.
ATTORNEYS AT LAW
2600 Grand Avenue
Kansas City, Missouri 64108-4606
Telephone (816) 691-2600
Telefax (816) 474-4208
September 30, 1998
Block Mortgage Finance, Inc.
One Main Plaza
4435 Main Street, Suite 500
Kansas City, Missouri 64111
Re: Asset Backed Certificates
Ladies and Gentlemen:
We have acted as your counsel in connection with the proposed issuance
of Asset Backed Certificates pursuant to the Registration Statement on Form S-3
(Registration No. 333-__________) (the "Registration Statement") and the
Prospectus and form of Prospectus Supplement forming a part thereof
(collectively the "Prospectus") filed with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended (the "Act"). The
Registration Statement covers Asset Backed Certificates ("Certificates") to be
sold by Block Mortgage Finance, Inc. ("Depositor") in one or more series (each,
a "Series") of Certificates. Each series of Certificates will be more
particularly described in a supplement to the Prospectus (each a "Supplement").
Each Series of Certificates will be issued under a pooling and servicing
agreement ("Pooling and Servicing Agreement") between the Depositor, a servicer,
a trustee and possibly a certificate insurer, a seller and a fiscal agent to be
identified in the Supplement for such Series of Certificates. Capitalized terms
used and not otherwise defined herein have the respective meanings given them in
the Registration Statement.
In rendering the opinion set forth below, we have examined and relied
on the following: (1) the Registration Statement and the Prospectus and (2) such
other documents, materials, and authorities as we have deemed necessary or
advisable in order to enable us to render our opinion set forth below. Each
Supplement and Pooling and Servicing Agreement pertaining to a specific series
is to be completed subsequent to the date of this opinion. Accordingly, we have
not examined any Supplement or Pooling or Servicing Agreement relating to any
series to be issued, and our opinion does not address their contents except as
and to the extent that the provisions of same may be described in the
Prospectus. We understand that each Supplement will contain a discussion of any
material federal income tax consequences pertaining to the Series to be offered
thereunder which are not addressed in the Prospectus.
The opinion set forth in this letter is based upon the applicable
provisions of the Internal Revenue Code of 1986, as amended, Treasury
regulations promulgated and proposed thereunder, current positions of the
Internal Revenue Service (the "IRS") contained in published Revenue Rulings and
Revenue Procedures, current administrative positions of the IRS and existing
judicial decisions. This opinion is subject to the explanations and
qualifications set forth under
Washington, D.C. / Phoenix, Arizona / Overland Park, Kansas / Wichita, Kansas
<PAGE>
Block Mortgage Finance, Inc.
September 30, 1998
Page 2
the caption "Federal Income Tax Consequences" in the Prospectus. No tax rulings
will be sought from the IRS with respect to any of the matters discussed herein.
Although it does not discuss all possible federal income tax
consequences or those that may be applicable to the individual circumstances of
particular investors (some of which may be subject to special treatment under
the Internal Revenue Code of 1986), we are of the opinion that, with respect to
those tax consequences that are discussed in the description set forth under the
caption "Federal Income Tax Consequences" in the Prospectus included as a part
of the Registration Statement, the description is accurate in all material
respects as to the federal income tax treatment of an investment in the
Certificates commonly applicable to investors that are U.S. Persons (as defined
in the Prospectus), as of the date hereof, and, where expressly indicated
therein, to investors that are not U.S. Persons. There can be no assurance,
however, that the tax conclusions presented therein will not be successfully
challenged by the IRS, or significantly altered by new legislation, changes in
IRS positions or judicial decisions, any of which challenges or alterations may
be applied retroactively with respect to completed transactions. We note,
however, that the form of Prospectus Supplement filed herewith does not relate
to a specific transaction. As the Registration Statement contemplates multiple
Series of Certificates with numerous different characteristics, the particular
characteristics of a Series of Certificates must be considered in evaluating
whether such opinion would be relevant under the circumstances. Accordingly, the
above-referenced description of the selected Federal income tax consequences
may, under certain circumstances, require modification when an actual
transaction is undertaken.
This opinion is based on the facts and circumstances set forth in the
Prospectus and the form of Prospectus Supplement and in the other documents
reviewed by us. Our opinion as to the matters set forth herein could change with
respect to a particular Series of Certificates as a result of changes in facts
and circumstances, changes in the terms of the documents reviewed by us, or
changes in the law subsequent to the date hereof. Consequently, we express no
such opinion with respect to any particular Series of Certificates.
We hereby consent to the filing of this letter as an exhibit to
the Registration Statement and to the references to our firm under the heading
"FEDERAL INCOME TAX CONSEQUENCES" in the Prospectus. We also consent to the
incorporation by reference of this letter in a registration statement, if any,
relating to the Registration Statement filed by the Company pursuant to Rule
462(b) of the Securities Act of 1933, as amended (the "Act"). This consent is
not to be construed as an admission that we are a person whose consent is
required to be filed with the Registration Statement under the provisions of the
Act.
Very truly yours,
MORRISON & HECKER L.L.P.
/s/ Morrison & Hecker L.L.P.
