Registration No. ________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------
OPTION ONE MORTGAGE ACCEPTANCE CORPORATION
(Exact name of Registrant as specified in its Charter)
Delaware
(State of Incorporation)
(I.R.S. Employer Identification Number)
2020 East First Street, Suite 100
Santa Ana, California 92705
714-558-7700
(Address and telephone number of Registrant's principal executive offices)
William O'Neill
Option One Mortgage Acceptance Corporation
2020 East First Street, Suite 100
Santa Ana, California 92705
714-558-7700
(Name, address and telephone number of agent for service)
----------------
Copies to:
Richard M. Horowitz, Esq.
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Approximate date of commencement of proposed sale to the public: From
time to time on or 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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
AMOUNT PRICE OFFERING REGISTRATION
TITLE OF SECURITIES BEING REGISTERED TO BE REGISTERED PER UNIT (1) PRICE (1) FEE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pass-Through Certificates, issued in series $1,000,000 100% $1,000,000 $303.03
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</TABLE>
<PAGE>
Estimated solely for the purpose of calculating the registration fee.
--------------------------
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>
EXPLANATORY NOTE
This Registration Statement includes (i) a basic prospectus, (ii) an
illustrative form of prospectus supplement for use in an offering of Mortgage
Pass-Through Certificates consisting of senior and subordinate certificate
classes ("Version 1") and (iii) an illustrative form of prospectus supplement
for use in an offering of Mortgage Pass-Through Certificates which provides for
credit support in the form of a letter of credit ("Version 2").
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PRELIMINARY PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF
THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.
VERSION 1
=========
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED OCTOBER 22, 1996
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED ____________, 19__)
$----------------
OPTION ONE MORTGAGE ACCEPTANCE CORPORATION
COMPANY
[NAME OF MASTER SERVICER]
MASTER SERVICER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 19__-__
$__________ ____% Class A-1 Certificates
$__________ ____% Class A-2 Certificates
$__________ ____% Class A-3 Certificates
$__________ ____% Class A-4 Certificates
$ 0 ____%* Class A-5 Certificates
$__________ ____% Class A-6 Certificates
$ 0 Variable Rate* Class A-7 Certificates
*Accrual of interest based on the related Notional Amount as described herein.
The Series 19__-__ Mortgage Pass-Through Certificates will include the
following seven classes (the "Senior Certificates"): (i) Class A-1 Certificates,
Class A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, (ii)
Class A-5 Certificates (the "Fixed Strip Certificates"), (iii) Class A-6
Certificates and (iv) Class A-7 Certificates (the "Variable Strip
Certificates"). In addition to the Senior Certificates, the Series 19__-__
Mortgage Pass-Through Certificates will also consist of one class of subordinate
certificates which is designated as the Class B Certificates (the "Subordinate
Certificates") and one class of residual certificates which is designated as the
Class R Certificates (the "Residual Certificates" and, collectively with the
Senior Certificates and the Subordinate Certificates, the "Certificates"). Only
the Senior Certificates (the "Offered Certificates") are offered hereby.
The Senior Certificates in the aggregate will evidence an initial
undivided interest of approximately _____% in a trust fund (the "Trust Fund")
consisting primarily of a pool of certain conventional fixed-rate one- to
four-family first lien mortgage loans (the "Mortgage Loans") to be deposited by
Option One Mortgage Acceptance Corporation (the "Company") into the Trust Fund
for the benefit of the Certificateholders. Certain characteristics of the
Mortgage Loans are described herein under "Description of the Mortgage Pool."
<PAGE>
-2-
Distributions on the Senior Certificates will be made on the 25th day
of each month or, if such day is not a business day, then on the next business
day, commencing on ____________, 19__ (each, a "Distribution Date"). As more
fully described herein, interest distributions on the Senior Certificates will
be based on the Certificate Principal Balance thereof (or the Notional Amount
(as defined herein) in the case of the Fixed Strip Certificates and Variable
Strip Certificates) and the then applicable Pass-Through Rate thereof, which
will be variable for the Variable Strip Certificates and fixed for all other
classes of Certificates. Distributions in respect of principal of the Senior
Certificates will be allocated among the various classes of the Senior
Certificates as described herein under "Description of the
Certificates--Principal Distributions." The rights of the holders of the
Subordinate Certificates to receive distributions with respect to the Mortgage
Loans will be subordinate to the rights of the holders of the Senior
Certificates. Certain losses incurred due to defaults on the Mortgage Loans and
not covered by the Subordinate Certificates will be allocated on a pro rata
basis between the Class A-1, Class A-5 and Class A-6 Certificates (collectively,
the "Tiered Certificates"), on the one hand, and the Class A-2, Class A-3, Class
A-4 and Variable Strip Certificates, on the other, as more particularly
described herein. Any such losses so allocated to the Tiered Certificates will
be allocated first to the Class A-6 Certificates until the Certificate Principal
Balance thereof is reduced to zero, and then on a pro rata basis to the Class
A-1 Certificates and Class A-5 Certificates, as more particularly described
herein.
There is currently no secondary market for the Senior Certificates.
__________________________________ (the "Underwriter") intends to make a
secondary market in the Senior Certificates, but is not obligated to do so.
There can be no assurance that a secondary market for the Senior Certificates
will develop or, if it does develop, that it will continue. The Senior
Certificates will not be listed on any securities exchange.
It is a condition of the issuance of the Senior Certificates that they
be rated "___" by _____________________________ and "____" by
____________________________________.
As described herein, a "real estate mortgage investment conduit"
("REMIC") election will be made in connection with the Trust Fund for federal
income tax purposes. Each class of Senior Certificates will constitute "regular
interests" in the REMIC. See "Federal Income Tax Consequences" herein and in the
Prospectus.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER
"RISK FACTORS" ON PAGE S-__ OF THE PROSPECTUS SUPPLEMENT AND THE INFORMATION SET
FORTH UNDER "RISK FACTORS" ON PAGE __ OF THE PROSPECTUS BEFORE PURCHASING ANY OF
THE CLASS A CERTIFICATES.
THE YIELD TO MATURITY ON THE SENIOR CERTIFICATES WILL DEPEND ON THE
RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING AS A RESULT OF PREPAYMENTS,
DEFAULTS AND LIQUIDATIONS) ON THE MORTGAGE LOANS. THE MORTGAGE LOANS GENERALLY
MAY BE PREPAID IN FULL OR IN PART AT ANY TIME WITHOUT PENALTY. THE YIELD TO
INVESTORS ON THE SENIOR CERTIFICATES MAY BE ADVERSELY AFFECTED BY ANY SHORTFALLS
IN INTEREST COLLECTED ON THE MORTGAGE LOANS DUE TO PREPAYMENTS, LIQUIDATIONS OR
OTHERWISE. THE YIELD TO INVESTORS ON THE FIXED STRIP CERTIFICATES AND THE
VARIABLE STRIP CERTIFICATES WILL BE EXTREMELY SENSITIVE TO THE RATE AND TIMING
OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) AND DEFAULTS ON THE MORTGAGE
LOANS,
<PAGE>
-3-
WHICH RATE MAY FLUCTUATE SIGNIFICANTLY OVER TIME. A RAPID RATE OF PRINCIPAL
PAYMENTS ON THE MORTGAGE LOANS COULD RESULT IN THE FAILURE OF INVESTORS IN SUCH
CERTIFICATES TO RECOVER THEIR INITIAL INVESTMENTS. SEE "CERTAIN YIELD AND
PREPAYMENT CONSIDERATIONS" HEREIN AND "YIELD CONSIDERATIONS" IN THE PROSPECTUS.
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF
PAYMENTS ON THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES DO NOT REPRESENT
AN INTEREST IN OR OBLIGATION OF THE COMPANY, THE MASTER SERVICER OR ANY OF THEIR
AFFILIATES. NEITHER THE OFFERED CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS
ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY
THE COMPANY, THE MASTER SERVICER OFFERED 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 PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
The Offered Certificates will be purchased from the Company by the
Underwriter and will be offered by the Underwriter from time to time to the
public in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. The proceeds to the Company from the sale of the
Offered Certificates will be equal to _________% of the initial aggregate
principal balance of the Offered Certificates, plus accrued interest thereon
from ___________ 1, 19__ (the "Cut-off Date"), net of any expenses payable by
the Company.
The Offered Certificates are offered by the Underwriter subject to
prior sale, when, as and if delivered to and accepted by the Underwriter and
subject to certain other conditions. The Underwriter reserves the right to
withdraw, cancel or modify such offer and to reject any order in whole or in
part. It is expected that delivery of the Offered Certificates will be made on
or about ____________, 19__ at the office of __________________________________,
_______________, _____________________ against payment therefor in immediately
available funds.
[Name of Underwriter]
[Date of Prospectus Supplement]
<PAGE>
-4-
THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE PART
OF A SEPARATE SERIES OF CERTIFICATES BEING OFFERED BY THE COMPANY PURSUANT TO
ITS PROSPECTUS DATED ____________, 19__, OF WHICH THIS PROSPECTUS SUPPLEMENT IS
A PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING WHICH IS NOT CONTAINED HEREIN, AND
PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT IN FULL. SALES OF THE OFFERED CERTIFICATES MAY NOT BE CONSUMMATED
UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS.
UNTIL __________, 19__, ALL DEALERS EFFECTING TRANSACTIONS IN THE
OFFERED CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT
RELATES. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS
TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
-5-
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus.
Capitalized terms used herein and not otherwise defined herein have the meanings
assigned in the Prospectus.
Title of Securities.................... Mortgage Pass-Through Certificates,
Series 19__-__.
Company................................ Option One Mortgage Acceptance
Corporation (the "Company"), a
wholly-owned subsidiary of Option One
Mortgage Corporation ("OOMC"). See "The
Company" in the Prospectus.
Seller[s].............................. [Names of Sellers] (the "Seller[s]").
See [Names of Sellers] herein.
Master Servicer........................ [Name of Master Servicer] (the "Master
Servicer"), [an affiliate of the
Company]. See "Pooling and Servicing
Agreement--The Master Servicer" herein.
Trustee................................ _______________, ___________________
___________________ (the "Trustee").
Cut-off Date........................... ____________ 1, 19__ (the "Cut-off
Date").
Delivery Date.......................... On or about ____________, 19__ (the
"Delivery Date").
Denominations.......................... The Senior Certificates will be issued
in registered, certificated form, in
minimum denominations of $______ (or in
minimum Notional Amounts of $_____ in
the case of the Fixed Strip
Certificates or Variable Strip
Certificates) and integral multiples of
$_____ in excess thereof.
The Mortgage Pool...................... The Mortgage Pool will consist of a
pool of conventional, fixed-rate, fully
amortizing mortgage loans (the
"Mortgage Loans") with an aggregate
principal balance as of the
<PAGE>
-6-
Cut-off Date of approximately
$___________. The Mortgage Loans are
secured by first liens on one- to
four-family residential real properties
(each, a "Mortgaged Property"). The
Mortgage Loans have individual
principal balances at origination of at
least $______ but not more than
$_________ with an average principal
balance at origination of approximately
$_________. The Mortgage Loans have
terms to maturity from the date of
origination or modification of not more
than __ years, and a weighted average
remaining term to stated maturity of
approximately ___ months as of the
Cut-off Date. The Mortgage Loans will
bear interest at Mortgage Rates of at
least ____% per annum but not more than
_____% per annum, with a weighted
average Mortgage Rate of approximately
_______% per annum as of the Cut-off
Date. For a further description of the
Mortgage Loans, see "Description of the
Mortgage Pool" herein.
The Senior Certificates................ The Senior Certificates in the
aggregate evidence an initial interest
of approximately _____% in a trust fund
(the "Trust Fund") consisting primarily
of the Mortgage Pool. The Senior
Certificates will be issued pursuant to
a Pooling and Servicing Agreement, to
be dated as of the Cut-off Date, among
the Company, the Master Servicer, and
the Trustee (the "Pooling and Servicing
Agreement"). The Senior Certificates
will have the following Pass-Through
Rates and Certificate Principal
Balances as of the Cut-off Date:
Class A-1 Certificates ____% $__________
Class A-2 Certificates ____% $__________
Class A-3 Certificates ____% $__________
Class A-4 Certificates ____% $__________
Class A-5 Certificates ____% $ 0
Class A-6 Certificates ____% $__________
Class A-7 Certificates Variable Rate $ 0
<PAGE>
-7-
The Offered Certificates are subject to
various priorities for payment of
interest and principal as described
herein. For a description of the
allocation of interest and principal
distributions among the Senior
Certificates, see "Summary--Interest
Distributions," "--Principal
Distributions," "Description of the
Certificates--Interest Distributions"
and "--Principal Distributions on the
Senior Certificates" herein.
Interest Distributions................. The Pass-Through Rates on the Senior
Certificates (other than the Variable
Strip Certificates) are fixed and set
forth on the cover hereof. The
Pass-Through Rate on the Variable Strip
Certificates on each Distribution Date
will equal the weighted average, as
determined on the Due Date in the month
preceding the month in which such
Distribution Date occurs, of the Pool
Strip Rates on each of the Mortgage
Loans. The Pool Strip Rate on each
Mortgage Loan is equal to the Net
Mortgage Rate thereon minus ____%. The
Net Mortgage Rate on each Mortgage Loan
is equal to the Mortgage Rate thereon
minus the rate per annum at which the
related master servicing fees accrue
(the "Servicing Fee Rate"). The Pool
Strip Rates on the Mortgage Loans range
between _____% and _____%. The initial
Pass- Through Rate on the Variable
Strip Certificates is approximately
_____%. The Fixed Strip Certificates
and Variable Strip Certificates have no
Certificate Principal Balance and will
accrue interest at the then applicable
Pass-Through Rate on the Notional
Amount (as defined herein).
Holders of the Senior Certificates will
be entitled to receive on each
Distribution Date, to the extent of the
Available Distribution
<PAGE>
-8-
Amount (as defined herein) for such
Distribution Date, interest
distributions in an amount equal to the
aggregate of all Accrued Certificate
Interest (as defined below) with
respect to such Certificates for such
Distribution Date and, to the extent
not previously paid, for all prior
Distribution Dates (the "Senior
Interest Distribution Amount").
With respect to any Distribution Date,
the Accrued Certificate Interest in
respect of each class of Senior
Certificates will be equal to one
month's interest accrued at the
applicable Pass-Through Rate on the
Certificate Principal Balance (or, in
the case of the Fixed Strip
Certificates and Variable Strip
Certificates, the Notional Amount (as
defined below)) of the Certificates of
such class immediately prior to such
Distribution Date, less any interest
shortfalls not covered by Subordination
(as defined herein) and allocated to
the Certificates of such class as
described herein, including any
Prepayment Interest Shortfall (as
defined herein), if any, for such
Distribution Date.
If the Senior Interest Distribution
Amount for any Distribution Date is
less than the Available Distribution
Amount for such date, then such
shortfall shall be allocated among the
respective classes of Senior
Certificates as described herein, and
the unpaid Accrued Certificate Interest
in respect of the Certificates of each
such class will be payable to the
holders thereof on subsequent
Distribution Dates, to the extent of
available funds.
The Notional Amount of the Fixed Strip
Certificates and Variable Strip
Certificates as of any date of
determination is equal to the aggregate
Certificate Principal Balance of the
<PAGE>
-9-
Certificates of all classes, including
the Subordinate Certificates, as of
such date. See "Description of the
Certificates--Interest Distributions"
herein.
References herein to the Notional
Amount of the Fixed Strip Certificates
and Variable Strip Certificates are
used solely for certain calculations
and do not represent the right of the
holders of the Fixed Strip Certificates
and Variable Strip Certificates to
receive distributions of such amount.
Principal Distributions................ Holders of the Senior Certificates will
be entitled to receive on each
Distribution Date, in the manner and
priority set forth herein, to the
extent of the portion of the Available
Distribution Amount remaining after the
Senior Interest Distribution Amount is
distributed to the holders of the
Senior Certificates, a distribution
allocable to principal which will, as
more fully described herein, include
(i) the Senior Percentage (as defined
herein) of scheduled principal payments
due on the Mortgage Loans and of the
principal portion of any unscheduled
collections of principal (other than
mortgagor prepayments and amounts
received in connection with a Final
Disposition (as defined herein) of a
Mortgage Loan described in clause (ii)
below), including repurchases of the
Mortgage Loans, (ii) in connection with
the Final Disposition of a Mortgage
Loan that did not incur any Excess
Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or
Extraordinary Losses (each as defined
herein), an amount equal to the lesser
of (a) the Senior Percentage of the
Stated Principal Balance (as defined
herein) of such Mortgage Loan and (b)
the Senior Accelerated Distribution
Percentage (as defined herein) of the
related collections, including any
Insurance Proceeds and
<PAGE>
-10-
Liquidation Proceeds, to the extent
applied as recoveries of principal and
(iii) the Senior Accelerated
Distribution Percentage (as defined
below) of mortgagor prepayments on each
Mortgage Loan.
Distributions in respect of principal
of the Senior Certificates on any
Distribution Date will be allocated
among the classes then entitled to such
distributions, as described herein. See
"Summary--Special Prepayment
Considerations" and "--Special Yield
Considerations" and "Certain Yield and
Prepayment Considerations" herein. The
Fixed Strip Certificates and Variable
Strip Certificates will not be entitled
to receive any principal distributions.
The Senior Percentage initially will be
approximately _____% and will be
recalculated after each Distribution
Date as described herein to reflect the
entitlement of the holders of the
Senior Certificates to subsequent
distributions allocable to principal.
For each Distribution Date occurring
prior to the Distribution Date in
________, ________, the Senior
Accelerated Distribution Percentage
will equal 100%. Thereafter, as further
described herein, during certain
periods, subject to certain loss and
delinquency criteria described herein,
the Senior Accelerated Distribution
Percentage may be 100% or otherwise
disproportionately large relative to
the Senior Percentage. See "Description
of the Certificates--Principal
Distributions on the Senior
Certificates" herein.
Advances............................... The Master Servicer is required to make
advances ("Advances") in respect of
delinquent payments of principal and
interest on the Mortgage Loans, subject
to the limitations described herein.
See "Description
<PAGE>
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of the Certificates--Advances" herein
and in the Prospectus.
Allocation of Losses;
Subordination........................ Subject to the limitations set forth
below, Realized Losses (as more
particularly described herein) on the
Mortgage Loans will be allocated first
to the Subordinate Certificates and
then to the Senior Certificates. The
subordination provided by the
Subordinate Certificates will cover
Realized Losses on the Mortgage Loans
that constitute Defaulted Mortgage
Losses, Special Hazard Losses, Fraud
Losses and Bankruptcy Losses (each as
defined in the Prospectus) to the
extent described herein. The aggregate
amounts of Special Hazard Losses, Fraud
Losses and Bankruptcy Losses which may
be allocated to the Subordinate
Certificates are initially limited to
$__________, $_________ and $_______,
respectively. All of the foregoing
amounts are subject to periodic
reduction as described herein. In the
event the Certificate Principal Balance
of the Subordinate Certificates is
reduced to zero, all additional losses
will be borne by the Senior
Certificateholders. In addition, any
Special Hazard Losses, Fraud Losses and
Bankruptcy Losses, in excess of the
respective amounts of coverage therefor
will be borne by the holders of Senior
Certificates and Subordinate
Certificates on a pro rata basis. Any
Default Losses (as defined herein)
incurred on the Mortgage Loans and not
covered by the Subordinate Certificates
will be allocated on a pro rata basis
between the Class A-1, Class A- 5 and
Class A-6 Certificates (the "Tiered
Certificates"), on the one hand, and
the Class A-2, Class A-3, Class A-4 and
Variable Strip Certificates, on the
other, as more particularly described
herein. Any such losses so allocated to
the Tiered Certificates will be
allocated first to the Class A-6
Certificates
<PAGE>
-12-
until the Certificate Principal Balance
thereof is reduced to zero and then on
a pro rata basis between the Class A-1
Certificates and the Class A-5
Certificates, as more particularly
described herein. Because principal
distributions are paid to certain
classes of Senior Certificates before
other classes, holders of classes of
Senior Certificates having a later
priority of payment bear a greater risk
of such losses than holders of classes
of Senior Certificates having earlier
priorities for distribution of
principal. See "Description of the
Certificates--Allocation of Losses;
Subordination" herein.
Subordinate Certificates............... The Class B Certificates (the
"Subordinate Certificates") have an
aggregate initial Certificate Principal
Balance of approximately $__________,
evidencing an initial Subordinate
Percentage of approximately ____%, and
a Pass-Through Rate of ____%. The
Subordinate Certificates are not being
offered hereby.
Optional Termination................... At its option, on any Distribution Date
when the aggregate principal balance of
the Mortgage Loans is less than [__]%
of the aggregate principal balance of
the Mortgage Loans as of the Cut-off
Date, the Master Servicer or the
Company may (i) purchase from the Trust
Fund all remaining Mortgage Loans and
other assets thereof, and thereby
effect early retirement of the
Certificates or (ii) purchase in whole,
but not in part, the Certificates. See
"Pooling and Servicing
Agreement--Termination" herein and "The
Pooling Agreement--Termination;
Retirement of Certificates" in the
Prospectus.
Special Prepayment
Considerations....................... The rate and timing of principal
payments on the Senior Certificates
will depend on the rate
<PAGE>
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and timing of principal payments
(including by reason of prepayments,
defaults and liquidations) on the
Mortgage Loans. As is the case with
mortgage-backed securities generally,
the Senior Certificates are subject to
substantial inherent cash-flow
uncertainties because the Mortgage
Loans may be prepaid at any time.
Generally, when prevailing interest
rates increase, prepayment rates on
mortgage loans tend to decrease,
resulting in a slower return of
principal to investors at a time when
reinvestment at such higher prevailing
rates would be desirable. Conversely,
when prevailing interest rates decline,
prepayment rates on mortgage loans tend
to increase, resulting in a faster
return of principal to investors at a
time when reinvestment at comparable
yields may not be possible.
[The multiple class structure of the
Senior Certificates results in the
allocation of prepayments among certain
classes as follows [TO BE INCLUDED AS
APPROPRIATE]:]
[SEQUENTIALLY PAYING CLASSES: [All]
classes of the Senior Certificates are
subject to various priorities for
payment of principal as described
herein. Distributions of principal on
classes having an earlier priority of
payment will be affected by the rates
of prepayments of the Mortgage Loans
early in the life of the Mortgage Pool.
The timing of commencement of principal
distributions and the weighted average
lives of classes of Certificates with a
later priority of payment will be
affected by the rates of prepayments
experienced both before and after the
commencement of principal distributions
on such classes.]
[PAC CERTIFICATES: Principal
distributions on the PAC Certificates
generally will be payable
<PAGE>
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in amounts determined based on
schedules as described herein, assuming
that the prepayments on the Mortgage
Loans occur each month at a constant
level between approximately ___% SPA
and approximately ___% SPA and based on
certain other assumptions. However, as
discussed herein, actual principal
distributions may be greater or less
than the described amounts. If the
prepayments on the Mortgage Loans occur
at a level below or above the PAC
Targeted Range, the amount of principal
distributions may deviate from the
described amounts and the weighted
average lives of the remaining PAC
Certificates may be extended or
shortened. The classes of PAC
Certificates with later priorities of
payment are less likely to benefit from
the stabilization of principal
distributions provided by the Companion
Certificates as described herein) than
the PAC Certificates with earlier
priorities of payment. Investors in the
PAC Certificates should be aware that
the stabilization provided by the
Companion Certificates is limited.]
[TAC CERTIFICATES: Principal
distributions on the TAC Certificates
generally will be payable thereon in
the amounts determined by using the
schedules described herein, assuming
that prepayments on the Mortgage Loans
occur each month at a constant level of
approximately ___% SPA, and based on
certain other assumption. However, as
discussed herein, actual principal
distributions may be greater or less
than the described amounts, because it
is highly unlikely that the actual
prepayment speed of the Mortgage Loans
each month will remain at or near ___%
SPA. If the Companion Certificates are
retired before all of the TAC
Certificates are retired, the rate of
principal distributions and the
weighted average lives of the remaining
TAC Certificates will become
<PAGE>
-15-
significantly more sensitive to changes
in the prepayment speed of the Mortgage
Loans, and principal distributions
thereon will be more likely to deviate
from the described amounts.]
[COMPANION CERTIFICATES: Because all
amounts available for principal
distributions among the Senior
Certificates in any given month will be
applied first to the [PAC] [TAC]
Certificates up to the described
amounts and any excess other such
amounts will be applied to the
Companion Certificates, the rate of
principal distributions on, and the
weighted average lives of the Companion
Certificates will be more sensitive to
changes in the rates of prepayment of
the Mortgage Loans than the rate of
principal distributions on and the
weighted average lives of the [PAC]
[TAC] Certificates.
See "Description of the
Certificates--Principal Distributions
on the Senior Certificates," and
"Certain Yield and Prepayment
Considerations" herein, and "Maturity
and Prepayment Considerations" in the
Prospectus.
Special Yield
Considerations....................... The yield to maturity on each class of
the Senior Certificates will depend on
the rate and timing of principal
payments (including by reason of
prepayments, defaults and liquidations)
on the Mortgage Loans and the
allocation thereof to reduce the
Certificate Principal Balance or
Notional Amount of such class. The
yield to maturity on each class of the
Senior Certificates will also depend on
the Pass-Through Rate and any
adjustments thereto (as applicable) and
the purchase price for such
Certificates. The yield to investors on
any class of Senior Certificates will
be adversely affected by any allocation
thereto of Prepayment Interest
Shortfalls on the
<PAGE>
-16-
Mortgage Loans, which are expected to
result from the distribution of
interest only to the date of prepayment
(rather than a full month's interest)
in connection with prepayments in full
and the lack of any distribution of
interest on the amount of any partial
prepayments. Prepayment Interest
Shortfalls resulting from principal
prepayments in full in any calendar
month will not adversely affect the
yield to investors in the Offered
Certificates to the extent such
prepayment interest shortfalls are
covered by the Master Servicer as
discussed herein.
In general, if a class of Senior
Certificates is purchased at a premium
and principal distributions thereon
occur at a rate faster than anticipated
at the time of purchase, the investor's
actual yield to maturity will be lower
than that assumed at the time of
purchase. Conversely, if a class of
Senior Certificates is purchased at a
discount and principal distributions
thereon occur at a rate slower than
that assumed at the time of purchase,
the investor's actual yield to maturity
will be lower than that assumed at the
time of purchase.
The Senior Certificates were structured
based on a number of assumptions,
including a prepayment assumption of
___% SPA and corresponding weighted
average lives as set forth herein under
"Special Prepayment Considerations."
The prepayment, yield and other
assumptions for the respective classes
that are to be offered hereunder will
vary as determined at the time of sale.
[The multiple class structure of the
Senior Certificates causes the yield of
certain classes to be particularly
sensitive to changes in the prepayment
speed of the Mortgage Loans and
<PAGE>
-17-
other factors, as follows [TO BE
INCLUDED AS APPROPRIATE]:]
[INTEREST STRIP AND INVERSE FLOATER
CLASSES: The yield to investors on the
[identify classes] will be extremely
sensitive to the rate and timing of
principal payments on the Mortgage
Loans (including by reason of
prepayments, defaults and
liquidations), which may fluctuate
significantly over time. A rapid rate
of principal payments on the Mortgage
Loans could result in the failure of
investors in the [identify interest
strip and inverse floater strip
classes] to recover their initial
investments, and a slower than
anticipated rate of principal payments
on the Mortgage Loans could adversely
affect the yield to investors on the
[identify non-strip inverse floater
classes].]
[VARIABLE STRIP CERTIFICATES: In
addition to the foregoing, the yield on
the Variable Strip Certificates will be
materially adversely affected to a
greater extent than the yields on the
other Senior Certificates if the
Mortgage Loans with higher Mortgage
Rates prepay faster than the Mortgage
Loans with lower Mortgage Rates,
because holders of the Variable Strip
Certificates generally have rights to
relatively larger portions of interest
payments on the Mortgage Loans with
higher Mortgage Rates than on Mortgage
Loans with lower Mortgage Rates.]
[ADJUSTABLE RATE (INCLUDING INVERSE
FLOATER) CLASSES: The yield to
investors on the [identify floating
rate classes] will be sensitive, and
the yield to investors on the [identify
inverse floater classes] will be
extremely sensitive, to fluctuations in
the level of [the Index]. THE
PASS-THROUGH RATE ON THE [IDENTIFY
INVERSE FLOATER CLASSES] WILL VARY
INVERSELY WITH, AND AT A MULTIPLE OF,
[THE INDEX].]
<PAGE>
-18-
[INVERSE FLOATER COMPANION CLASSES: In
addition to the foregoing, in the event
of relatively low prevailing interest
rates (including [the Index]) and
relatively high rates of principal
prepayments over an extended period,
while investors in the [identify
inverse floater companion classes] may
then be experiencing a high current
yield on such Certificates, such yield
may be realized only over a relatively
short period, and it is unlikely that
such investors would be able to
reinvest such principal prepayments on
such Certificates at a comparable
yield.]
[RESIDUAL CERTIFICATES: Holders of the
Residual Certificates are entitled to
receive distributions of principal and
interest as described herein; however,
holders of such Certificates may have
tax liabilities with respect to their
Certificates during the early years of
the term of the REMIC that
substantially exceed the principal and
interest payable thereon during such
periods. See "Certain Yield and
Prepayment Considerations," especially
"--Additional Yield Considerations
Applicable Solely to the Residual
Certificates" herein, "Federal Income
Tax Consequences" herein and in the
Prospectus and "Yield Considerations"
in the Prospectus.]
See "Certain Yield and Prepayment
Considerations" [, especially "--Yield
Considerations," "--Additional Yield
Considerations Applicable Solely to the
Residual Certificates" and "Federal
Income Tax Consequences"] herein, and
"Yield Considerations" in the
Prospectus.
Federal Income
Tax Consequences..................... An election will be made to treat the
Trust Fund as a real estate mortgage
investment conduit ("REMIC") for
federal income tax
<PAGE>
-19-
purposes. Upon the issuance of the
Offered Certificates, __________
___________, counsel to the Company,
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 within the meaning
of Sections 860A through 860G of the
Internal Revenue Code of 1986 (the
"Code").
For federal income tax purposes, the
Class R Certificates will be the sole
Class of "residual interests" in the
Trust Fund and the Senior Certificates
and the Subordinate Certificates will
constitute the "regular interests" in
the Trust Fund and will generally be
treated as representing ownership of
debt instruments in the Trust Fund.
For federal income tax reporting
purposes, the _______ Certificates will
not, and the ___________________
Certificates will, be treated as having
been issued with original issue
discount. The prepayment assumption
that will be used in determining the
rate of accrual of original issue
discount, market discount and premium,
if any, for federal income tax purposes
will be ___% SPA (as defined herein).
No representation is made that the
Mortgage Loans will prepay at that rate
or at any other rate.
For further information regarding the
federal income tax consequences of
investing in the Offered Certificates
see "Federal Income Tax Consequences"
herein and in the Prospectus.
Ratings................................ It is a condition of the issuance of
the Senior Certificates that they be
rated "___" by ________
________________ and "___" by
_________________________. A security
rating is not a recommendation to buy,
sell or
<PAGE>
-20-
hold securities and may be subject to
revision or withdrawal at any time by
the assigning rating organization. A
security rating does not address the
frequency of prepayments of Mortgage
Loans, or the corresponding effect on
yield to investors. The ratings of the
Fixed Strip Certificates and Variable
Strip Certificates do not address the
possibility that the holders of such
Certificates may fail to fully recover
their initial investments. See "Certain
Yield and Prepayment Considerations"
and "Ratings" herein and "Yield
Considerations" in the Prospectus.
Legal Investment....................... The Senior Certificates will constitute
"mortgage related securities" for
purposes of the Secondary Mortgage
Market Enhancement Act of 1984
("SMMEA") for so long as they are rated
in at least the second highest rating
category by one or more nationally
recognized statistical rating agencies.
Institutions whose investment
activities are subject to legal
investment laws and regulations,
regulatory capital requirements or
review by regulatory authorities may be
subject to restrictions on investment
in the Offered Certificates and should
consult with their legal advisors. See
"Legal Investment" herein and "Legal
Investment Matters" in the Prospectus.
<PAGE>
-21-
[RISK FACTORS]
[Prospective Certificateholders should consider, among other things,
the items discussed under "Risk Factors" in the Prospectus and the following
factors in connection with the purchase of the Certificates:]
[Appropriate Risk Factors as necessary.]
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Mortgage Pool will consist of Mortgage Loans with an aggregate
principal balance outstanding as of the Cut-off Date of $____________. The
Mortgage Loans will consist of conventional, fixed-rate, fully-amortizing, level
monthly payment first lien Mortgage Loans with terms to maturity of not more
than ___ years from the due date of the first monthly payment. On or before the
Delivery Date, the Company will acquire the Mortgage Loans to be included in the
Mortgage Pool from Option One Mortgage Corporation ("OOMC"), an affiliate of the
Company [, which in turn acquired them pursuant to various mortgage loan
purchase agreements between OOMC and [Names of Sellers] (the "Sellers")]. The
Seller[s] will make certain representations and warranties with respect to the
Mortgage Loans and, as more particularly described in the Prospectus, will have
certain repurchase or substitution obligations in connection with a breach of
any such representation and warranty, as well as in connection with an omission
or defect in respect of certain constituent documents required to be delivered
with respect to the Mortgage Loans, in any event if such breach, omission or
defect cannot be cured and it materially and adversely affects the interests of
Certificateholders. Neither the Company nor any other entity or person will have
any responsibility to purchase or replace any Mortgage Loan if a Seller is
obligated but fails to do so. See "Description of the Mortgage
Pool--Representations by Sellers" and "Description of the
Certificates--Assignment of Trust Fund Assets" in the Prospectus and "--The
Seller" below. The Mortgage Loans will have been originated or acquired by the
[Sellers] in accordance with the underwriting criteria described herein. See
"--Underwriting" below. All percentages of the Mortgage Loans described herein
are approximate percentages (except as otherwise indicated) by aggregate
principal balance as of the Cut-off Date.
None of the Mortgage Loans will have been originated prior to
__________________ or will have a maturity date later than __________________.
No Mortgage Loan will have a remaining term to maturity as of the Cut-off Date
of less than ____ months. The weighted average remaining term to maturity of the
Mortgage Loans as of the Cut-off Date will be approximately ____ months. The
weighted average original term to maturity of the Mortgage Loans as of the
Cut-off Date will be approximately ____ months.
<PAGE>
-22-
As of the Cut-off Date, no Mortgage Loan will be one month or more
delinquent in payment of principal and interest.
Approximately _____% of the Mortgage Loans in the Mortgage Pool will
have been purchased from ______________, and each of _______ other Sellers sold
more than ____% but less than ____% of the Mortgage Loans to OOMC. Except as
indicated in the preceding sentence, no Seller sold more than ____% of the
Mortgage Loans to OOMC.
No Mortgage Loan provides for deferred interest or negative
amortization.
None of the Mortgage Loans in the Mortgage Pool will be Buydown
Mortgage Loans.
Set forth below is a description of certain additional characteristics
of the Mortgage Loans as of the Cut-off Date (except as otherwise indicated).
All percentages of the Mortgage Loans are approximate percentages by aggregate
principal balance as of the Cut-off Date.
<TABLE>
<CAPTION>
MORTGAGE RATES
NUMBER OF AGGREGATE PERCENTAGE
MORTGAGE RATES (%) MORTGAGE LOANS PRINCIPAL BALANCE OF MORTGAGE POOL
- ------------------ -------------- ----------------- ----------------
<S> <C> <C> <C>
.................................... $ %
....................................
....................................
....................................
....................................
....................................
....................................
....................................
....................................
....................................
....................................
....................................
.................................... ____ _____________
Total..................... $ . %
=== ============ ======
</TABLE>
As of the Cut-off Date, the weighted average Mortgage Rate of the Mortgage Loans
was approximately ______% per annum.
<PAGE>
-23-
<TABLE>
<CAPTION>
CUT-OFF DATE MORTGAGE LOAN PRINCIPAL BALANCES
NUMBER OF AGGREGATE PERCENTAGE OF
PRINCIPAL BALANCE MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
----------------- -------------- ----------------- -------------
<S> <C> <C> <C>
$................................... $ %
....................................
....................................
....................................
....................................
....................................
....................................
....................................
- -...................................
- -...................................
- -................................... .
---- -------------- -----
Total.................... $ . %
=== ============ ======
</TABLE>
As of the Cut-off Date, the average unpaid principal balance of the
Mortgage Loans will be approximately $_______.
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-VALUE RATIOS
NUMBER OF AGGREGATE PERCENTAGE OF
LOAN-TO-VALUE RATIO MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
- ------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
.................................... $ %
....................................
....................................
....................................
....................................
....................................
....................................
....................................
.................................... .
Total.......................... $ . %
=== ============ =======
</TABLE>
The weighted average Loan-to-Value Ratio at origination of the Mortgage
Loans will have been approximately ____%.
<PAGE>
-24-
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTIONS OF MORTGAGED PROPERTIES
NUMBER OF AGGREGATE PERCENTAGE OF
STATE MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
- ----- -------------- ----------------- -------------
<S> <C> <C> <C>
[NAME OF STATE]..................... $ %
[NAME OF STATE].....................
[NAME OF STATE].....................
[NAME OF STATE].....................
[NAME OF STATE].....................
Other (1)........................... .
--- ------------- ----
Total..................... $ . %
=== ============ ======
</TABLE>
(1) "Other" includes states and the District of Columbia with less than __%
concentrations individually.
[No more than ____% of the Mortgage Loans will be secured by Mortgaged
Properties located in any one zip code area].
<TABLE>
<CAPTION>
MORTGAGED PROPERTY TYPES
NUMBER OF AGGREGATE PERCENTAGE OF
PROPERTY MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
- -------- -------------- ----------------- -------------
<S> <C> <C> <C>
Single-family detached............... $ %
Planned Unit Developments (detached).
Two- to four-family units............
Condo Low-Rise (less than 5 stories).
Condo Mid-Rise (5 to 8 stories)......
Condo High-Rise (9 stories or more)..
Townhouse............................
Planned Unit Developments (attached).
Leasehold............................ .
---- -------------- ----
Total..................... $ . %
=== ============ =======
</TABLE>
<PAGE>
-25-
<TABLE>
<CAPTION>
MORTGAGE LOAN PURPOSES
NUMBER OF AGGREGATE PERCENTAGE OF
LOAN PURPOSE MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
- ------------ -------------- ----------------- -------------
<S> <C> <C> <C>
Purchase............................ $ %
Rate/Term Refinance.................
Equity Refinance.................... .
--- ------------- ----
Total...................... $ . %
=== ============ ======
</TABLE>
The weighted average Loan-to-Value Ratio at origination of equity
refinance Mortgage Loans will have been ____%. The weighted average
Loan-to-Value Ratio at origination of rate and term refinance Mortgage Loans
will have been ____%.
<TABLE>
<CAPTION>
MORTGAGE LOAN DOCUMENTATION
NUMBER OF AGGREGATE PERCENTAGE OF
TYPE OF PROGRAM MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
- --------------- -------------- ----------------- -------------
<S> <C> <C>
Full................................ $ %
Reduced............................. .
--- ------------- ----
Total...................... $ . %
=== ============ =====
</TABLE>
The weighted average Loan-to-Value Ratio at origination of the Mortgage
Loans which were underwritten under a reduced loan documentation program will
have been ____%. No more than ____% of such reduced loan documentation Mortgage
Loans will be secured by Mortgaged Properties located in California.
<TABLE>
<CAPTION>
OCCUPANCY TYPES
NUMBER AGGREGATE PERCENTAGE OF
OCCUPANCY MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
- --------- -------------- ----------------- -------------
<S> <C> <C> <C>
Primary Residence................................... $ %
Second/Vacation.....................................
Non Owner-occupied.................................. .
---- ---------------- ----
Total..................................... $ . %
=== ============ ======
</TABLE>
<PAGE>
-26-
[Specific information with respect to the Mortgage Loans will be
available to purchasers of the Certificates on or before the time of issuance of
such Certificates. If not included in the Prospectus Supplement, such
information will be included in the Form 8-K.]
UNDERWRITING
[Underwriting standards as appropriate. The following underwriting
standards are those presently applicable for Option One Mortgage Corporation
("Option One") for mortgage loans.]
The Option One Mortgage Loans will have been originated generally in
accordance with Option One's Guidelines (the "Option One Guidelines"). On a
case-by-case basis, exceptions to the Option One Guidelines are made where
compensating factors exist.
The Option One Guidelines are primarily intended to assess the value of
the mortgaged property and to evaluate the adequacy of such property as
collateral for the mortgage loan. The Option One Mortgage Loans were also
generally underwritten with a view toward the resale thereof in the secondary
market. All the Option One Mortgage Loans generally bear higher rates of
interest than mortgage loans that are originated in accordance with FNMA and
FHLMC standards.
Each applicant completes an application which includes information with
respect to the applicant's liabilities, income, credit history, employment
history and personal information. The Option One Guidelines require a credit
report on each applicant from a credit reporting company. The report typically
contains information relating to such matters as credit history with local and
national merchants and lenders, installment debt payments and any record of
defaults, bankruptcies, repossessions, or judgments. Mortgaged properties that
are to secure mortgage loans generally are appraised by qualified independent
appraisers. Such appraisers inspect and appraise the subject property and verify
that such property is in acceptable condition. Following each appraisal, the
appraiser prepares a report which includes a market value analysis based on
recent sales of comparable homes in the area and, when deemed appropriate,
replacement cost analysis based the current cost of constructing a similar home.
All appraisals are required to conform to the Uniform Standards of Professional
Appraisal Practice adopted by the Appraisal Standards Board of the Appraisal
Foundation and are generally on forms acceptable to FNMA and FHLMC. The Option
One Guidelines require a review of the appraisal by a qualified appraiser
employed or retained by Option One.
The Option One Mortgage Loans were originated consistent with and
generally conform to the Option One Guidelines' "Full Documentation", "Limited
Documentation", and "Stated Income Documentation" residential loan programs.
Under each of the programs, Option One reviews the applicant's source of income,
calculates the amount of income from sources indicated on the loan application
or similar documentation, reviews the credit history of the
<PAGE>
-27-
applicant, calculates the debt service-to-income ration to determine the
applicant's ability to repay the loan, reviews the type and use of the property
being financed, and reviews the property. In determining the ability of the
applicant to repay the loan, a rate (the "Qualifying Rate") has been created
under the Option One Guidelines that generally is equal to the lesser of the
fully indexed interest rate on the loan being applied for or one percent above
the initial interest rate on such loan. The Option One Guidelines require that
mortgage loans be underwritten in a standardized procedure which complies with
applicable federal and state laws and regulations and requires Option One's
underwriters to be satisfied that the value of the property being financed, as
indicated by an appraisal and a review of the appraisal, currently supports the
outstanding loan balance. In general, the maximum loan amount for mortgage loans
originated under the programs is $325,000. Mortgage loans may, however, be
originated generally up to $400,000 ($500,000 in Hawaii), provided the LTV is at
least 15% below the applicable residential loan program maximum that would
otherwise apply. The Option One Guidelines permit one-to-four-family loans to
have LTV's at origination of generally up to 80%, depending on, among other
things, the purpose of the mortgage loan, a mortgagor's credit history,
repayment ability and debt service-to-income ratio, as well as the type and use
of the property. With respect to Option One originated mortgage loans secured by
mortgaged properties acquired by a mortgagor under a "lease option purchase,"
the LTV of the related mortgage loan is based on the lower of the appraised
value at the time of origination of such mortgage loan or the sale price of the
related mortgaged property if the "lease option purchase price" was set less
than 12 months prior to origination and is based on the appraised value at the
time of origination if the "lease option purchase price" was set 12 months or
more prior to origination.
The Option One Guidelines require that income be verified for each
applicant and that the source of funds (if any) required to be deposited by the
applicant into escrow under its various programs as follows: Under the Full
Documentation program, applicants generally are required to submit two written
forms of verification of stable income for 24 months (or, if the LTV is less
than or equal to 65%, for 12 months). Under the Limited Documentation programs,
one such form of verification is required for 12 months. Under the Stated Income
Documentation program, an applicant may be qualified based upon monthly income
as stated on the mortgage loan application if the applicant meets certain
criteria. All the foregoing programs require that with respect to salaried
employees there be a telephone verification of the applicant's employment.
Verification of the source of funds (if any) required to be deposited by the
applicant into escrow in the case of a purchase money loan is generally required
under the Full Documentation program guidelines. No such verification is
required under the other programs.
The Option One Guidelines have the following categories and criteria
for grading the potential likelihood that an applicant will satisfy the
repayment obligations of a mortgage loan:
<PAGE>
-28-
"AA" RISK. Under the "AA" risk category, the applicant must
have generally repaid installment or revolving debt according to its
terms. A maximum of one 30-day late payment, and no 60-day late
payments, within the last 12 months is acceptable on an existing
mortgage loan. An existing mortgage loan is not required to be current
at the time the application is submitted. No open collection accounts
or open charge-offs may remain open after the funding of the loan. No
bankruptcy or notice of default filings may have occurred during the
preceding three years; provided, however, that if the borrower's
bankruptcy has been discharged during the past three years and the
borrower has established a credit history otherwise complying with the
credit parameters set forth in this paragraph, then the borrower may
qualify for a mortgage loan. The mortgaged property must be in at least
average condition. A maximum LTV of 80% is permitted for a mortgage
loan on a single family owner-occupied property. A maximum LTV of 75%
is permitted for a mortgage loan on an owner-occupied condominium or a
two-tofour-family residential property. In certain instances, a maximum
LTV of 90% is permitted for a mortgage loan secured by a single family
owner-occupied property originated under the Full Documentation
program. Loans originated under the "AA" risk category must be
owner-occupied and originated under the Full Documentation program. The
debt service-to-income ratio generally ranges from 45% or less to 55%
or less depending on the Qualifying Rate and the LTV.
"A" RISK. Under the "A" risk category, an applicant must have
generally repaid installment or revolving debt according to its terms.
A maximum of two 30-day late payments, and no 60-day late payments,
within the last 12 months is acceptable on an existing mortgage loan.
An existing mortgage loan is not required to be current at the time the
application is submitted. Minor derogatory items are allowed as to
non-mortgage credit, and a letter of explanation may be required under
the Full Documentation program. No open collection accounts or open
charge-offs affecting title may remain open after funding of the loan;
except that under the Option One Guidelines for the Stated Income
Documentation program up to $500 may remain open after funding of the
loan. No bankruptcy or notice of default filings may have occurred
during the preceding three years; provided, however, that if the
borrower's bankruptcy has been discharged during the past three years
and the borrower has re-established a credit history otherwise
complying with the credit parameters set forth in this paragraph, then
the borrower may qualify for a mortgage loan. The mortgaged property
must be in at least average condition. A maximum LTV of 80% (or 75% and
65% for mortgage loans originated under the Limited Documentation and
Stated Income Documentation programs, respectively) is permitted for a
mortgage loan on a single family owner-occupied property. A maximum LTV
of 75% (or 65% and 60% for mortgage loans originated under the Limited
Documentation and Stated Income Documentation programs, respectively)
is permitted for a mortgage loan on a non-owner-occupied property.
However, for most refinance mortgage loans under the Option One
Guidelines' Full
<PAGE>
-29-
Documentation program, a maximum LTV of 80% is permitted for a mortgage
loan on an owner-occupied property, and a maximum LTV of 70% is
permitted only for a mortgage loan on a non- owner-occupied property.
In certain instances, a maximum LTV of 90% is permitted for a mortgage
loan secured by a single family owner-occupied property originated
under the Full Documentation program. The debt service-to-income ratio
generally ranges from 45% or less to 55% or less depending on the
Qualifying Rate and the LTV.
"B" RISK. Under the "B" risk category, an applicant must have
generally repaid installment or revolving debt according to its terms.
A maximum of four 30-day late payments, and no 60-day late payments,
within the last 12 months is acceptable on an existing mortgage loan.
An existing mortgage loan is not required to be current at the time the
application is submitted. As to non-mortgage credit, some prior
defaults may have occurred, and a letter of explanation may be required
under the Full Documentation program. Generally, no more than $500
($2,500 for mortgage loans originated under the Stated income
documentation program) in open charge-offs or collection accounts may
remain open after the funding of the loan. No bankruptcy or notice of
default filings by the applicant may have occurred during the preceding
18 months; provided, however, that if the borrower's bankruptcy has
been discharged during the past 18 months and the borrower has
re-established a credit history otherwise complying with the credit
parameters set forth in this paragraph, then the borrower may qualify
for a mortgage loan. The mortgaged property must be in at least average
condition. A maximum LTV of 80% (or 75% and 65% for mortgage loans
originated under the Limited Documentation and Stated Income
Documentation programs, respectively) is permitted for a mortgage loan
on an owner-occupied detached property for a Full Documentation
program. A maximum LTV of 70%, or 75% for a purchase (or 65% and 60%
for mortgage loans originated under the Limited Documentation and
Stated Income Documentation programs, respectively) is permitted for a
mortgage loan on a non-owner-occupied property. In certain instances, a
maximum LTV of 90% is permitted for a mortgage loan secured by a single
family owner-occupied property originated under the Full Documentation
program. The debt service-to-income ratio generally ranges from 50% or
less to 55% or less depending on the Qualifying Rate and the LTV.
"C" RISK. Under the "C" risk category, an applicant may have
experienced significant credit problems in the past. A maximum of six
30-day late payments, including one 60-day late payment and one 90-day
late payment, within the last 12 months is acceptable on an existing
mortgage loan. However, more than six 30-day late payments within the
last 12 moths are acceptable if there are no 60-day or 90-day late
payments within the last 12 months. An existing mortgage loan is not
required to be current at the time the application is submitted. As to
non-mortgage credit, significant prior defaults may have occurred. No
more than $2,500 (or $5,000 per account for
<PAGE>
-30-
mortgage loans originated under the Stated Income Documentation
program) in open charge-offs or collection accounts may remain open
after the funding of the loan. Allowances will be made, however, for
numerous open medical accounts with individual balances equal to or
less than $2,500. No bankruptcy or notice of default filings by the
applicant may have occurred during the preceding 18 months; provided,
however, that if the borrower's bankruptcy has been discharged during
the past 18 months and the borrower has established a credit history
otherwise complying with the credit parameters set forth in this
paragraph, then the borrower may qualify for a mortgage loan. The
mortgaged property must be in adequate condition. Generally, a maximum
LTV of 70% for a mortgage loan on a single family, owner occupied
property for a Full Documentation program (or 65% for mortgage loans
originated under the Limited Documentation and Stated Income
Documentation programs) is permitted. A maximum LTV of 75% is permitted
on a case by case basis. A maximum LTV of 70% (or 65% and 60% for
mortgage loans originated under the Limited Documentation and the
Stated Income Documentation programs, respectively) is permitted for a
mortgage loan on an own-owner-occupied property or a non-owner-occupied
property. The debt service-toincome ratio generally ranges from 55% or
less to 60% or less depending on the Qualifying Rate and the LTV.
"CC" RISK. Under the "CC" risk category, an applicant may have
experienced significant credit problems in the past. As to mortgage
credit, the applicant may have had a history of being generally 30 to
60 days delinquent, and a maximum of two 90-day late payments within
the last 12 months is acceptable on an existing mortgage loan. An
existing mortgage loan is not required to be current at the time the
application is submitted. As to non-mortgage credit, significant prior
defaults may have occurred. Open charge-offs or collection accounts may
remain open after the funding of the loan. A bankruptcy, notice of sale
filing, notice of default filing or foreclosure may be permitted, on a
case-by-case basis. The mortgaged property may exhibit some deferred
maintenance. A maximum LTV of 65% (or 60% non-owner-occupied for
mortgage loans originated under the Stated Income Documentation
program) is permitted for a mortgage loan on either an owner-occupied
property or a non-owner-occupied property. The debt service-to-income
ratio generally is 60% or less depending on the Qualifying Rate and the
LTV.
EXCEPTIONS. As described above, the foregoing categories and
criteria are guidelines only. On a case-by-case basis, it may be
determined that an applicant warrants a risk category upgrade, a debt
service-to-income ratio exception, a pricing exception, a loan-to-value
exception or an exception from certain requirements of a particular
risk category (collectively called an "upgrade" or an "exception"). An
upgrade or exception may generally be allowed if the application
reflects certain compensating factors, among others: low LTV; pride of
ownership; a maximum of one 30-day late
<PAGE>
-31-
payment on all mortgage loans during the last 12 months; stable
employment or ownership of current residence of five or more years. An
upgrade or exception may also be allowed if the applicant places a down
payment through escrow of at least 20% of the purchase price of the
mortgaged property, or if the new loan reduces the applicant's monthly
aggregate mortgage payment by 25% or more. Accordingly, certain
mortgagors may qualify in a more favorable risk category that, in the
absence of such compensating factors, would satisfy only the criteria
of a less favorable risk category.
See "The Mortgage Pools--Underwriting Standards" in the Prospectus.
[The following table sets forth the number and dollar value of Option
One's mortgage loan production using the standards described herein for the
periods indicated.
<TABLE>
<CAPTION>
MORTGAGE LOAN PRODUCTION
_____ Months Ended _____ Months Ended
____________, 19__ ____________, 19__
------------------------------ --------------------------------
<S> <C> <C>
Total Loans
Number of Loans.........................
Volume of Loans......................... $ $
Average Loan Balance $ $
</TABLE>
DELINQUENCY AND FORECLOSURE EXPERIENCE
[Delinquency and foreclosure experience as appropriate. The following disclosure
is presently applicable for Option One Mortgage Corporation ("Option One").]
The following tables set forth, as of December 31, 1993, 1994, 1995 and
June 30, 1996, certain information relating to the delinquency experience
(including imminent foreclosures in progress and bankruptcies) of one- to
four-family residential mortgage loans included in Option One's servicing
portfolio of mortgage loans originated under the Option One Guidelines (which
portfolio does not include mortgage loans that are subserviced for others) at
the end of the indicated periods. 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. Such tables restate PHMC's (as defined herein) performance
statistics relating only to the non-conforming mortgage loans previously
subserviced by Option One. Such servicing was subsequently transferred to Option
One.
<PAGE>
-32-
<TABLE>
<CAPTION>
DELINQUENCIES AND FORECLOSURES
(DOLLARS IN THOUSANDS)
At December 31, 1993 At December 31, 1994
--------------------------------------------------------------------------------------------
Percent Percent Percent Percent
By No. By Dollar By No. By Dollar By No. By 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........ 1,233 $146,352 N/A N/A 6,115 $615,488 N/A N/A
Period of Delinquency
31-59 Days.......... 2 251 .10 .17 32 3,247 .52 .53
60-89 Days.......... 3 265 .24 .18 17 1,637 .28 .27
90 days or more..... 2 282 .16 .19 28 3,556 .46 .58
- --- -- -- -- ----- -- --
Total Delinquent
Loans................. 7 798 .56 .54 77 8,440 1.26 1.38
Loans in
Foreclosure(1)........ 4 415 .32 .28 50 5,328 .82 .87
(1) Loans in foreclosure are also included under the heading "Total Delinquent Loans."
</TABLE>
<TABLE>
<CAPTION>
DELINQUENCIES AND FORECLOSURES
(DOLLARS IN THOUSANDS)
At December 31, 1995 At June 30, 1996
--------------------------------------------------------------------------------------------
Percent Percent Percent Percent
By No. By Dollar By No. By Dollar By No. By 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........ 12,686 $1,153,199 N/A N/A 14,460 $1,286,548 N/A N/A
Period of Delinquency
31-59 Days.......... 126 11,364 .99 .99 205 17,091 1.42 1.33
60-89 Days.......... 87 8,138 .69 .71 118 10,464 .82 .81
90 days or more..... 294 28,982 2.32 2.51 425 38,466 2.94 2.99
--- ------ ---- ---- --- ------ ---- ----
Total Delinquent
Loans................. 507 48,484 4.00 4.21 748 66,021 5.18 5.13
Loans in
Foreclosure(1)........ 301 28,874 2.37 2.50 383 33,338 2.65 2.59
(1) Loans in foreclosure are also included under the heading "Total Delinquent Loans."
----------------------------
</TABLE>
<TABLE>
<CAPTION>
REAL ESTATE OWNED
(DOLLARS IN THOUSANDS)
At December 31, At December 31, At December 31, At June 30,
1993 1994 1995 1996
--------------------------------------------------------------------------------------------------------------
By Dollar By Dollar By Dollar By Dollar
By No. Amount By No. Amount By No. Amount By No. Amount
of Loans of Loans of Loans of Loans of Loans of Loans of Loans of Loans
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Portfolio 1,233 $146,352 6,115 $615,488 12,686 $1,153,199 14,460 $1,286,548
Foreclosed Loans(1) 0 0 12 1,512 80 7,634 149 14,616
Foreclosed Ratio(2) 0 .00 .20 .25 .63 .66 1.03 1.14
(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 Option One, 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.
</TABLE>
----------------------------
<PAGE>
-33-
<TABLE>
<CAPTION>
LOAN LOSS EXPERIENCE ON OPTION ONE'S
SERVICING PORTFOLIO OF MORTGAGE LOANS
(DOLLARS IN THOUSANDS)
Year Ended December 31, Six Months Ended
June 30,
-----------------------------------------------------------------------------------------------------
1993 1994 1995 1996
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Portfolio(1) $146,352 $615,488 $1,153,199 $1,286,548
Gross Losses(2) $0 $17 $1,291 $1,684
Recoveries(3) $0 $0 $0 $0
Net Losses(4) $0 $17 $1,291 $1,684
Net Losses as a Percentage of
Total
Portfolio(5) 0.00% 0.00% 0.11% 0.26%
(1) "Total Portfolio" on the date stated above is the principal balances 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 liquidated proceeds and deficiency judgments.
(4) "Net Losses" means "Gross Losses" minus "Recoveries."
(5) For the Six Months Ending June 30, 1996, "Net Losses as a Percentage of Total Portfolio" was annualized by multiplying "Net
Losses: by 2.0 before calculating the Percentage of "Net Losses as a Percentage of Total Portfolio."
</TABLE>
<PAGE>
-34-
The following tables set forth, as of December 31, 1993, 1994, 1995 and
June 30, 1996 certain information relating to the delinquency experience
(including imminent foreclosures, foreclosures in progress and bankruptcies) of
one- to four-family residential mortgage loans included in Option One's entire
servicing portfolio (which portfolio includes mortgage loans originated under
Option One's Guidelines and mortgage loans that are subserviced for others) at
the end of the indicated periods. 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. Such tables restate PHMC's (as defined herein) performance
statistics relating only to the non-conforming mortgage loans previously
subserviced by Option One.
Such servicing was subsequently transferred to Option One.
----------------------------
<TABLE>
<CAPTION>
DELINQUENCIES AND FORECLOSURES
(DOLLARS IN THOUSANDS)
At December 31, 1993 At December 31, 1994
--------------------------------------------------------------------------------------------
Percent Percent Percent Percent
By No. By Dollar By No. By Dollar By No. By 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........ 1,233 $146,352 N/A N/A 6,115 $615,488 N/A N/A
Period of Delinquency
31-59 Days.......... 2 251 .16 .17 32 3,247 .52 .53
60-89 Days.......... 3 265 .24 .18 17 1,637 .28 .27
90 days or more..... 2 282 .16 .19 28 3,556 .46 .58
- --- -- -- -- ----- -- --
Total Delinquent
Loans................. 7 798 .56 .54 77 8,440 1.26 1.38
Loans in
Foreclosure(1)........ 4 415 .32 .28 50 5,328 .82 .87
(1) Loans in foreclosure are also included under the heading "Total Delinquent Loans."
</TABLE>
<TABLE>
<CAPTION>
DELINQUENCIES AND FORECLOSURES
(DOLLARS IN THOUSANDS)
At December 31, 1995 At June 30, 1996
--------------------------------------------------------------------------------------------
Percent Percent Percent Percent
By No. By Dollar By No. By Dollar By No. By 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........ 14,625 $1,367,031 N/A N/A 16,238 $1,482,965 N/A N/A
Period of Delinquency
31-59 Days.......... 161 16,501 1.10 1.21 242 22,682 1.49 1.53
60-89 Days.......... 104 10,117 .71 .74 144 13,954 .89 .94
90 days or more..... 388 40,275 2.65 2.95 533 52,355 3.28 3.53
--- ------ ---- ---- --- ------ ---- ----
Total Delinquent
Loans................. 653 66,893 4.46 4.90 919 88,991 5.66 6.00
Loans in
Foreclosure(1)........ 388 38,985 2.65 2.85 483 46,187 2.97 3.11
(1) Loans in foreclosure are also included under the heading "Total Delinquent Loans."
</TABLE>
----------------------------
<TABLE>
<CAPTION>
REAL ESTATE OWNED
(DOLLARS IN THOUSANDS)
At December 31, At December 31, At December 31, At June 30,
1993 1994 1995 1996
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
-35-
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
By Dollar By Dollar By Dollar By Dollar
By No. Amount By No. Amount By No. Amount By No. Amount
of Loans of Loans of Loans of Loans of Loans of Loans of Loans of Loans
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Portfolio 1,233 $146,352 6,115 $615,488 14,625 $1,367,031 16,238 $1,482,965
Foreclosed Loans(1) 0 0 12 1,512 100 9,632 218 21,846
Loans in Foreclosure(2) 0 .00 .20 .25 .68 .70 1.34 1.47
(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 Option One, 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.
</TABLE>
<PAGE>
-36-
<TABLE>
<CAPTION>
LOAN LOSS EXPERIENCE ON OPTION ONE'S
SERVICING PORTFOLIO OF MORTGAGE LOANS
(DOLLARS IN THOUSANDS)
Six Months Ended
Year Ended December 31, June 30,
------------------------------------------------------------------------------------------------------------
1993 1994 1995 1996
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Portfolio(1) $146,352 $615,488 $1,367,031 $1,482,965
Gross Losses(2) $0 $17 $1,506 $2,303
Recoveries(3) $0 $0 $0 $0
Net Losses(4) $0 $17 $1,506 $2,303
Net Losses as a
Percentage of Total
Portfolio(5) 0.00% 0.00% 0.11% 0.31%
</TABLE>
(1) "Total Portfolio" on the date stated above is the principal balances 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 liquidated proceeds and deficiency
judgments.
(4) "Net Losses" means "Gross Losses" minus "Recoveries."
(5) For the Six Months Ending June 30, 1996, "Net Losses" as a Percentage of
Total Portfolio" was annualized by multiplying "Net Losses: by 2.0 before
calculating the Percentage of "Net Losses as a Percentage of Total
Portfolio."
----------------------------
It is unlikely that the delinquency experience of the Mortgage Loans
comprising the Mortgage Pool will correspond to the delinquency experience of
the Seller's mortgage portfolio set forth in the foregoing tables. The
statistics shown above represent the delinquency experience for the Seller'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. The
Seller commenced receiving applications for mortgage loans under in February
1993, and therefore its experience in originating, acquiring and servicing
mortgage loans has been recently gained. There can be no assurance that the
Mortgage Loans comprising the Mortgage Pool will perform 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 the Seller. 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.
<PAGE>
-37-
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as constituted at the close
of business on the Cut-off Date, as adjusted for the scheduled principal
payments due on or before such date. Prior to the issuance of the Senior
Certificates, Mortgage Loans may be removed from the Mortgage Pool as a result
of incomplete documentation or otherwise, if the Company deems such removal
necessary or appropriate. A limited number of other mortgage loans may be added
to the Mortgage Pool prior to the issuance of the Senior Certificates. The
Company believes that the information set forth herein will be substantially
representative of the characteristics of the Mortgage Pool as it will be
constituted at the time the Senior Certificates are issued although the range of
Mortgage Rates and maturities and certain other characteristics of the Mortgage
Loans in the Mortgage Pool may vary.
A Current Report on Form 8-K will be available to purchasers of the Senior
Certificates and will be filed, together with the Pooling and Servicing
Agreement, with the Securities and Exchange Commission within fifteen days after
the initial issuance of the Senior Certificates. In the event Mortgage Loans are
removed from or added to the Mortgage Pool as set forth in the preceding
paragraph, such removal or addition will be noted in the Current Report on Form
8-K.
See "The Mortgage Pools" and "Certain Legal Aspects of Mortgage Loans" in
the Prospectus.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Series 19__-_ Mortgage Pass-Through Certificates will include the
following seven classes (the "Senior Certificates"): (i) Class A-1 Certificates,
Class A-2 Certificates, Class A-3 Certificates and Class A-4 Certificates, (ii)
Class A-5 Certificates (the "Fixed Strip Certificates"), (iii) Class A-6
Certificates and (iv) Class A-7 Certificates (the "Variable Strip
Certificates"). In addition to the Senior Certificates, the Series 19__-_
Mortgage Pass-Through Certificates will also consist of one class of subordinate
certificates which is designated as the Class B Certificates (the "Subordinate
Certificates") and one class of residual certificates which is designated as the
Class R Certificates (the "Residual Certificates"). Only the Senior Certificates
(the "Offered Certificates") are offered hereby.
The Senior Certificates (together with the Subordinate Certificates and
Residual Certificates) will evidence the entire beneficial ownership interest in
the Trust Fund. The Trust Fund will consist of (i) the Mortgage Loans; (ii) such
assets as from time to time are identified as deposited in respect
<PAGE>
-38-
of the Mortgage Loans in the Certificate Account (as described in the
Prospectus) and belonging to the Trust Fund; (iii) property acquired by
foreclosure of such Mortgage Loans or deed in lieu of foreclosure; and (iv) any
applicable insurance policies and all proceeds thereof.
AVAILABLE DISTRIBUTION AMOUNT
The "Available Distribution Amount" for any Distribution Date will
generally consist of (i) the aggregate amount of scheduled payments on the
Mortgage Loans due on the related Due Date and received on or prior to the
related Determination Date, after deduction of the related master servicing fees
(the "Servicing Fees"), (ii) certain unscheduled payments, including Mortgagor
prepayments on the Mortgage Loans, Insurance Proceeds, Liquidation Proceeds and
proceeds from repurchases of and substitutions for the Mortgage Loans occurring
during the preceding calendar month and (iii) all Advances made for such
Distribution Date, in each case net of amounts reimbursable therefrom to the
Master Servicer. In addition to the foregoing amounts, with respect to
unscheduled collections, not including Mortgagor prepayments, the Master
Servicer may elect to treat such amounts as included in the Available
Distribution Amount for the Distribution Date in the month of receipt, but is
not obligated to do so. With respect to any Distribution Date, (i) the "Due
Date" is the first day of the month in which such Distribution Date occurs and
(ii) the "Determination Date" is the [__th] day of the month in which such
Distribution Date occurs or, if such day is not a business day, the immediately
succeeding business day. See "Description of the Certificates--Distributions" in
the Prospectus.
INTEREST DISTRIBUTIONS
Holders of the Senior Certificates will be entitled to receive on each
Distribution Date, to the extent of the Available Distribution Amount for such
Distribution Date, interest distributions in an amount equal to the aggregate of
all Accrued Certificate Interest with respect to such Certificates for such
Distribution Date and, to the extent not previously paid, for all prior
Distribution Dates (the "Senior Interest Distribution Amount"). On each
Distribution Date, the Available Distribution Amount for such Distribution Date
will be applied to make interest distributions on the various classes of Senior
Certificates pro rata in accordance with the respective amounts of Accrued
Certificate Interest then payable with respect thereto, provided, however, that,
in the case of the Tiered Certificates, following the Credit Support Depletion
Date, such distributions shall be made in the priority set forth in the _____th
paragraph under the heading "Principal Distributions". With respect to any
Distribution Date, the Accrued Certificate Interest in respect of each class of
Senior Certificates will be equal to one month's interest accrued at the
applicable Pass-Through Rate on the Certificate Principal Balance (or, in the
case of the Fixed Strip Certificates and Variable Strip Certificates, the
Notional Amount) of the Certificates of such class immediately prior to such
Distribution Date; in each case less interest shortfalls, if any, for such
Distribution Date not covered by the Subordination provided by the Subordinate
Certificates, including in each case (i) any Prepayment Interest Shortfall (as
defined below), (ii) the interest portions (in each case, adjusted
<PAGE>
-39-
to the related Net Mortgage Rate) of Realized Losses (including Special Hazard
Losses, in excess of the Special Hazard Amount ("Excess Special Hazard Losses"),
Fraud Losses in excess of the Fraud Loss Amount ("Excess Fraud Losses"),
Bankruptcy Losses in excess of the Bankruptcy Amount ("Excess Bankruptcy
Losses") and losses occasioned by war, civil insurrection, certain governmental
actions, nuclear reaction and certain other risks ("Extraordinary Losses")) not
covered by the Subordination (which, with respect to the pro rata portion
thereof allocated to the Tiered Certificates, to the extent such losses are
Default Losses, will be allocated first to the Class A-6 Certificates and second
to the Class A-1 Certificates and Class A-5 Certificates), (iii) the interest
portion of any Advances that were made with respect to delinquencies that were
ultimately determined to be Excess Special Hazard Losses, Excess Fraud Losses,
Excess Bankruptcy Losses or Extraordinary Losses and (iv) any other interest
shortfalls not covered by Subordination, including interest shortfalls relating
to the Relief Act (as defined in the Prospectus) or similar legislating on or
regulations, all allocated as described below. Accrued Certificate Interest is
calculated on the basis of a 360-day year consisting of twelve 30-day months.
The Prepayment Interest Shortfall for any Distribution Date is equal to the
aggregate shortfall, if any, in collections of interest (adjusted to the related
Net Mortgage Rates) resulting from mortgagor prepayments on the Mortgage Loans
during the preceding calendar month, to the extent not offset by the Master
Servicer's application of servicing compensation as described below. Such
shortfalls will result because interest on prepayments in full is collected only
to the date of prepayment, and because no interest is collected on prepayments
in part, as such prepayments are applied to reduce the outstanding principal
balance of the related Mortgage Loan as of the Due Date in the month of
prepayment.
If the Available Distribution Amount for any Distribution Date is less than
the Accrued Certificate Interest payable on the Senior Certificates for such
Distribution Date, the shortfall will be allocated among the holders of all
classes of Senior Certificates in proportion to the respective amounts of
Accrued Certificate Interest for such Distribution Date on each such class, and
will be distributable to holders of the Certificates of such classes, on
subsequent Distribution Dates, to the extent of available funds, provided,
however, that following the Credit Support Depletion Date, distributions will be
made to the Tiered Certificates in the priority set forth in the _____ paragraph
under the heading "--Principal Distributions on the Senior Certificates" and
therefore the pro rata portion of such shortfall that is allocated to the Tiered
Certificates will be allocated first to the Class A-6 Certificates. Any such
amounts so carried forward will not bear interest.
The Pass-Through Rates on each class of Senior Certificates, other than the
Variable Strip Certificates, are fixed and are set forth on the cover hereof.
The Pass-Through Rate on the Variable Strip Certificates for each Distribution
Date will equal the weighted average, as determined as of the Due Date in the
month preceding the month in which such Distribution Date occurs, of the Pool
Strip Rates on each of the Mortgage Loans in the Mortgage Pool. The "Pool Strip
Rate" on any Mortgage Loan is equal to the Net Mortgage Rate thereon minus ___%.
The "Net Mortgage Rate"
<PAGE>
-40-
on each Mortgage Loan is equal to the Mortgage Rate thereon minus the Servicing
Fee Rate. The initial Pass-Through Rate on the Variable Strip Certificates is
approximately _____% per annum.
As described herein, the Accrued Certificate Interest allocable to each
class of Senior Certificates is based on the Certificate Principal Balance
thereof or, in the case of the Variable Strip Certificates, on the Notional
Amount. The Certificate Principal Balance of any Senior Certificate as of any
date of determination is equal to the initial Certificate Principal Balance
thereof reduced by the aggregate of (a) all amounts allocable to principal
previously distributed with respect to such Certificate and (b) any reductions
in the Certificate Principal Balance thereof deemed to have occurred in
connection with allocations of Realized Losses (as defined herein) in the manner
described herein. The Notional Amount of the Fixed Strip Certificates and
Variable Strip Certificates as of any date of determination is equal to the
aggregate Certificate Principal Balance of the Certificates of all classes
(including the Subordinate Certificates) as of such date. Reference to the
Notional Amount of the Fixed Strip Certificates or Variable Strip Certificates
is solely for convenience in certain calculations and does not represent the
right to receive any distributions allocable to principal.
PRINCIPAL DISTRIBUTIONS ON THE SENIOR CERTIFICATES
Holders of the Senior Certificates will be entitled to receive on each
Distribution Date, to the extent of the portion of the Available Distribution
Amount remaining after the Senior Interest Distribution Amount is distributed to
such holders, a distribution allocable to principal in the following amount (the
"Senior Principal Distribution Amount"):
(i) the product of (A) the then applicable Senior Percentage and (B)
the aggregate of the following amounts:
(1) the principal portion of all scheduled monthly payments on the
Mortgage Loans due on the related Due Date, whether or not received
on or prior to the related Determination Date, less the principal
portion of Debt Service Reductions (as defined below) which together
with other Bankruptcy Losses are in excess of the Bankruptcy Amount;
(2) the principal portion of all proceeds of the repurchase of any
Mortgage Loan (or, in the case of a substitution, certain amounts
representing a principal adjustment) as required by the Pooling and
Servicing Agreement during the preceding calendar month;
(3) the principal portion of all other unscheduled collections
received during the preceding calendar month (other than full and
partial principal prepayments made by the respective mortgagors and
any amounts received in connection with a Final Disposition (as
defined below) of a Mortgage Loan described in clause (ii) below),
to the extent applied as recoveries of principal;
<PAGE>
-41-
(ii) in connection with the Final Disposition of a Mortgage Loan (x)
that occurred in the preceding calendar month and (y) that did not result
in any Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy
Losses or Extraordinary Losses, an amount equal to the lesser of (a) the
then-applicable Senior Percentage of the Stated Principal Balance of such
Mortgage Loan immediately prior to such Distribution Date and (b) the
then-applicable Senior Accelerated Distribution Percentage (as defined
below) of the related collections, including Insurance Proceeds and
Liquidation Proceeds, to the extent applied as recoveries of principal;
(iii) the then applicable Senior Accelerated Distribution Percentage of
the aggregate of all full and partial principal prepayments made by the
respective mortgagors during the preceding calendar month; and
(iv) any amounts allocable to principal for any previous Distribution
Date (calculated pursuant to clauses (i) through (iii) above) that remain
undistributed to the extent that any such amounts are not attributable to
Realized Losses which were allocated to the Subordinate Certificates.
A "Final Disposition" of a defaulted Mortgage Loan is deemed to have
occurred upon a determination by the Master Servicer that it has received all
Insurance Proceeds, Liquidation Proceeds and other payments or cash recoveries
which the Master Servicer reasonably and in good faith expects to be finally
recoverable with respect to such Mortgage Loan.
The "Stated Principal Balance" of any Mortgage Loan as of any date of
determination is equal to the principal balance thereof as of the Cut-off Date,
after application of all scheduled principal payments due on or before the
Cut-off Date, whether or not received, reduced by all amounts allocable to
principal that have been distributed to Certificateholders with respect to such
Mortgage Loan on or before such date, and as further reduced to the extent that
the principal portion of any Realized Loss thereon has been allocated to one or
more classes of Certificates on or before the date of determination.
The Senior Percentage, which initially will equal approximately _____% and
will in no event exceed 100%, will be adjusted for each Distribution Date to be
the percentage equal to the aggregate Certificate Principal Balance of the
Senior Certificates immediately prior to such Distribution Date divided by the
aggregate Stated Principal Balance of all of the Mortgage Loans immediately
prior to such Distribution Date. The Subordinate Percentage as of any date of
determination is equal to 100% minus the Senior Percentage as of such date.
The Senior Accelerated Distribution Percentage for any Distribution Date
occurring prior to the Distribution Date in _________, _________ will be 100%.
The Senior Accelerated Distribution Percentage for any Distribution Date
occurring after _____, ____ will be as follows: for any Distribution Date during
in the sixth year after the Delivery Date, the Senior Percentage for such
Distribution Date plus 70% of the Subordinate Percentage for such Distribution
Date; for any
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Distribution Date during the seventh year after the Delivery Date, the Senior
Percentage for such Distribution Date plus 60% of the Subordinate Percentage for
such Distribution Date; for any Distribution Date during the eighth year after
the Delivery Date, the Senior Percentage for such Distribution Date plus 40% of
the Subordinate Percentage for such Distribution Date; for any Distribution Date
during the ninth year after the Delivery Date, the Senior Percentage for such
Distribution Date plus 20% of the Subordinate Percentage for such Distribution
Date; and for any Distribution Date thereafter, the Senior Percentage for such
Distribution Date (unless on any such Distribution Date the Senior Percentage
exceeds the initial Senior Percentage, in which case the Senior Accelerated
Distribution Percentage for such Distribution Date will once again equal 100%).
Any scheduled reduction to the Senior Prepayment Percentage described above
shall not be made as of any Distribution Date unless either (a)(i) the
outstanding principal balance of the Mortgage Loans delinquent __ days or more
(including foreclosure and REO Property) averaged over the last ___ months, as a
percentage of the aggregate outstanding principal balance of all Mortgage Loans
averaged over the last ___ months, does not exceed _% and (ii) Realized Losses
on the Mortgage Loans to date for such Distribution Date, if occurring during
the sixth, seventh, eighth, ninth or tenth year (or any year thereafter) after
__________ 19__, are less than __%, __%, __%, __% or __%, respectively, of the
initial Certificate Principal Balance of the Subordinate Certificates or (b)(i)
the aggregate outstanding principal balance of the Mortgage Loans delinquent __
days or more (including foreclosure and REO Property) averaged over the last ___
months, as a percentage of the aggregate outstanding principal balance of all
Mortgage Loans averaged over the last ___ months, does not exceed __% and (ii)
Realized Losses on the Mortgage Loans to date are less than __% of the initial
Certificate Principal Balance of the Subordinate Certificates.]
Distributions of the Senior Principal Distribution Amount to the Senior
Certificates (other than the Fixed Strip Certificates and Variable Strip
Certificates) will be made (to the extent of the Available Distribution Amount
remaining after distributions of the Senior Interest Distribution Amount as
described under "--Interest Distributions"), as follows:
(a) prior to the occurrence of the Credit Support Depletion Date
(as defined below):
(i) first, concurrently, to the Class A-1 and Class A-6
Certificates, with the amount to be distributed allocated as between
such classes on a pro rata basis in proportion to the respective
Certificate Principal Balances thereof, until the Certificate
Principal Balance of each such class is reduced to zero;
(ii) second, to the Class A-2 Certificates until the Certificate
Principal Balance thereof is reduced to zero;
(iii) third, to the Class A-3 Certificates until the Certificate
Principal Balance thereof is reduced to zero; and
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(iv) fourth, to the Class A-4 Certificates until the Certificate
Principal Balance thereof is reduced to zero.
(b) On each Distribution Date occurring on or after the Credit
Support Depletion Date, all priorities relating to sequential distributions
in respect of principal among the various classes of Senior Certificates
will be disregarded, and the Senior Principal Distribution Amount will be
distributed to all classes of Senior Certificates pro rata in accordance
with their respective outstanding Certificate Principal Balances; provided,
that the aggregate amount distributable to the Class A-1, Class A-5 and
Class A-6 Certificates (the "Tiered Certificates") in respect of Accrued
Certificate Interest thereon and in respect of their pro rata portion of
the Senior Principal Distribution Amount shall be distributed among the
Tiered Certificates in the amounts and priority as follows: first, to the
Class A-1 Certificates and the Class A-5 Certificates, up to an amount
equal to, and pro rata based on, the Accrued Certificate Interest thereon;
second to the Class A-1 Certificates, up to an amount equal to the Optimal
Principal Distribution Amount thereof (as defined below), in reduction of
the Certificate Principal Balances thereof; third to the Class A-6
Certificates, up to an amount equal to the Accrued Certificate Interest
thereon; and fourth to the Class A-6 Certificates the remainder of the
amount so distributable among the Tiered Certificates.
(c) The "Optimal Principal Distribution Amount" is equal to the
product of (i) the then applicable Optimal Percentage and (ii) the Senior
Principal Distribution Amount. The "Optimal Percentage" is equal to a
fraction, expressed as a percentage, the numerator of which is the
aggregate Certificate Principal Balance of the Class A-1 Certificates
immediately prior to the applicable Distribution Date and the denominator
of which is the aggregate Certificate Principal Balance of all of the
Senior Certificates immediately prior to such Distribution Date.
The "Credit Support Depletion Date" is the first Distribution Date on which
the Senior Percentage equals 100%.
The Master Servicer may elect to treat Insurance Proceeds, Liquidation
Proceeds and other unscheduled collections (not including prepayments by the
Mortgagors) received in any calendar month as included in the Available
Distribution Amount and the Senior Principal Distribution Amount for the
Distribution Date in the month of receipt, but is not obligated to do so. If the
Master Servicer so elects, such amounts will be deemed to have been received
(and any related Realized Loss shall be deemed to have occurred) on the last day
of the month prior to the receipt thereof.
ALLOCATION OF LOSSES; SUBORDINATION
The Subordination provided to the Senior Certificates by the Subordinate
Certificates will cover Realized Losses on the Mortgage Loans that are Defaulted
Mortgage Losses, Fraud Losses,
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Bankruptcy Losses (each as defined in the Prospectus) and Special Hazard Losses
(as defined herein) to the extent described herein. Any such Realized Losses
which do not constitute Excess Special Hazard Losses, Excess Fraud Losses,
Excess Bankruptcy Losses or Extraordinary Losses will be allocated first to the
Subordinate Certificates until the Certificate Principal Balance of the
Subordinate Certificates has been reduced to zero, and then except as provided
below on a pro rata basis to the Senior Certificates based on their then
outstanding Certificate Principal Balance or the Accrued Certificate Interest
thereon, as applicable. Any allocation of a Realized Loss (other than a Debt
Service Reduction) to a Senior Certificate will be made by reducing the
Certificate Principal Balance thereof, in the case of the principal portion of
such Realized Loss, and the Accrued Certificate Interest thereon, in the case of
the interest portion of such Realized Loss, by the amount so allocated as of the
Distribution Date occurring in the month following the calendar month in which
such Realized Loss was incurred. Allocations of Realized Losses which are
Default Losses (as defined below) to Senior Certificates will be made on a pro
rata basis, based on their then outstanding Certificate Principal Balances, or
the Accrued Certificate Interest thereon, as applicable, between the Tiered
Certificates, on the one hand, and the Class A-2, Class A-3, Class A-4 and
Variable Strip Certificates, on the other. Any such Realized Losses so allocated
to the Tiered Certificates will be allocated first to the Class A-6 Certificates
until the Certificate Principal Balance thereof or the Accrued Certificate
Interest thereon, as appropriate, is reduced to zero and then to the Class A-1
Certificates and Class A-5 Certificates on a pro rata basis. "Default Losses"
are Realized Losses that are attributable to the mortgagor's failure to make any
payment of principal or interest as required under the Mortgage Note, and do not
include Special Hazard Losses (or any other loss resulting from damage to a
Mortgaged Property), Bankruptcy Losses, Fraud Losses, or other losses of a type
not covered by the Subordination. Allocations of Debt Service Reductions to the
Subordinate Certificates will result from the priority of distributions to the
Senior Certificateholders of the Available Distribution Amount as described
under the captions "--Interest Distributions" and "--Principal Distributions on
the Senior Certificates" herein. Any Excess Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or Extraordinary Losses will be allocated on a
pro rata basis between the Senior Certificates and the Subordinate Certificates
(any such Realized Losses so allocated to the Senior Certificates, as well as
any Realized Losses that are not Default Losses which are allocated to the
Senior Certificates, will be allocated without priority among the various
classes of Senior Certificates).
With respect to any defaulted Mortgage Loan that is finally liquidated,
through foreclosure sale, disposition of the related Mortgaged Property if
acquired on behalf of the Certificateholders by deed in lieu of foreclosure, or
otherwise, the amount of loss realized, if any, will generally equal the portion
of the unpaid principal balance remaining, if any, plus interest thereon through
the last day of the month in which such Mortgage Loan was finally liquidated,
after application of all amounts recovered (net of amounts reimbursable to the
Master Servicer for Advances and certain expenses, including attorneys' fees)
towards interest and principal owing on the Mortgage Loan. Such amount of loss
realized and any Special Hazard Losses, Fraud Losses and Bankruptcy Losses are
referred to herein as "Realized Losses." As used herein, "Debt Service
Reductions" means reductions in the
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amount of monthly payments due to certain bankruptcy proceedings, but does not
include any forgiveness of principal.
In order to maximize the likelihood of distribution in full of the Senior
Interest Distribution Amount and the Senior Principal Distribution Amount,
holders of Senior Certificates will have a prior right, on each Distribution
Date, to the Available Distribution Amount, to the extent necessary to satisfy
the Senior Interest Distribution Amount and the Senior Principal Distribution
Amount. The Senior Principal Distribution Amount is subject to adjustment on
each Distribution Date to reflect the then applicable Senior Percentage and the
Senior Accelerated Distribution Percentage, as described herein under
"--Principal Distributions" on the Senior Certificates, each of which may be
increased (to not more than 100%) in the event of delinquencies or Realized
Losses on the Mortgage Loans. The application of the Senior Accelerated
Distribution Percentage (when it exceeds the Senior Percentage) to determine the
Senior Principal Distribution Amount will accelerate the amortization of the
Senior Certificates relative to the actual amortization of the Mortgage Loans.
To the extent that the Senior Certificates are amortized faster than the
Mortgage Loans, the percentage interest evidenced by the Senior Certificates in
the Trust Fund will be decreased (with a corresponding increase in the interest
in the Trust Fund evidenced by the Subordinate Certificates), thereby
increasing, as a relative matter, the Subordination afforded by the Subordinate
Certificates. Similarly, holders of Class A-1 Certificates and Class A-5
Certificates will have a prior right, on each Distribution Date occurring on or
after the Credit Support Depletion Date, to that portion of the Available
Distribution Amount allocated to the Tiered Certificates, to the extent
necessary to satisfy the Accrued Certificate Interest on the Class A-1
Certificates and Class A-5 Certificates. Therefore, any shortfalls in the
amounts that would otherwise be distributable to Class A-1 Certificateholders
and Class A-5 Certificateholders, whether resulting from Mortgage Loan
delinquencies or Realized Losses, will be borne by the holders of the Class A-6
Certificates for so long as the Class A-6 Certificates are outstanding.
The aggregate amount of Realized Losses which may be allocated in
connection with Special Hazard Losses (the "Special Hazard Amount") through
Subordination shall initially be equal to $_________. As of any date of
determination following the Cut-off Date, the Special Hazard Amount shall equal
$_________ less the sum of (i) any amounts allocated through Subordination in
respect of Special Hazard Losses and (ii) the Adjustment Amount. The Adjustment
Amount will be equal to an amount calculated pursuant to the terms of the
Pooling and Servicing Agreement. As used in this Prospectus Supplement, "Special
Hazard Losses" has the same meaning set forth in the Prospectus, except that
Special Hazard Losses will not include and the Subordination will not cover
Extraordinary Losses, and Special Hazard Losses will not exceed the lesser of
the cost of repair or replacement of the related Mortgaged Properties.
The aggregate amount of Realized Losses which may be allocated to the
Subordinate Certificates in connection with Fraud Losses (the "Fraud Loss
Amount") through Subordination shall initially be equal to $_________. As of any
date of determination after the Cut-off Date the Fraud Loss
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Amount shall equal (i) up to and including the [first] anniversary of the
Cut-off Date, an amount equal to ____% of the aggregate principal balance of all
of the Mortgage Loans as of the Cut-off Date minus the aggregate amounts
allocated solely to the Subordinate Certificates through Subordination with
respect to Fraud Losses up to such date of determination, and (ii) from the
[first] through [fifth] anniversary of the Cut-off Date, an amount equal to (a)
the lesser of (1) the Fraud Loss Amount as of the most recent anniversary of the
Cut-off Date and (2) ____% of the aggregate principal balance of all of the
Mortgage Loans as of the most recent anniversary of the Cut-off Date minus (b)
the aggregate amounts allocated solely to the Subordinate Certificates through
Subordination with respect to Fraud Losses since the most recent anniversary of
the Cut-off Date up to such date of determination. On or after the fifth
anniversary of the Cut-off Date, the Fraud Loss Amount shall be zero and Fraud
Losses shall not be allocated through Subordination.
The aggregate amount of Realized Losses which may be allocated solely to
the Subordinate Certificates in connection with Bankruptcy Losses (the
"Bankruptcy Amount") Subordination will initially be equal to $_________. As of
any day of determination on or after the [first] anniversary of the Cut-off
Date, the Bankruptcy Amount will equal the excess, if any, of (i) the lesser of
(a) the Bankruptcy Amount as of the business day next preceding the most recent
anniversary of the Cut-off Date (the "Relevant Anniversary") and (b) an amount
calculated pursuant to the terms of the Pooling and Servicing Agreement, which
amount as calculated will provide for a reduction in the Bankruptcy Amount, over
(ii) the aggregate amount of Bankruptcy Losses allocated solely to the
Subordinate Certificates through Subordination since the Relevant Anniversary.
Notwithstanding the foregoing, the provisions relating to Subordination
will not be applicable in connection with a Bankruptcy Loss so long as the
Master Servicer has notified the Trustee in writing that the Master Servicer is
diligently pursuing any remedies that may exist in connection with the
representations and warranties made regarding the related Mortgage Loan and
either (i) the related Mortgage Loan is not in default with regard to payments
due thereunder or (ii) delinquent payments of principal and interest under the
related Mortgage Loan and any premiums on any applicable Primary Hazard
Insurance Policy and any related escrow payments in respect of such Mortgage
Loan are being advanced on a current basis by the Master Servicer, in either
case without giving effect to the particular Bankruptcy Loss.
The Special Hazard Amount, Fraud Amount and Bankruptcy Amount are subject
to further reduction with the consent of the Rating Agencies.
ADVANCES
Prior to each Distribution Date, the Master Servicer is required to make
advances (each an "Advance") for the benefit of Certificateholders (out of its
own funds or funds held in the Certificate Account (as described in the
Prospectus) for future distribution or withdrawal) with respect to any payments
of principal and interest (net of the related Servicing Fees) which were due on
the
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Mortgage Loans on the immediately preceding Due Date and delinquent on the
business day next preceding the related Determination Date.
Such Advances are required to be made only to the extent they are deemed by
the Master Servicer to be recoverable from related late collections, Insurance
Proceeds, Liquidation Proceeds or amounts otherwise payable to the holders of
the Subordinate Certificates as described below. The purpose of making such
Advances is to maintain a regular cash flow to the Certificateholders, rather
than to guarantee or insure against losses. The Master Servicer will not be
required to make any Advances with respect to reductions in the amount of the
monthly payments on the Mortgage Loans due to Debt Service Reductions or the
application of the Relief Act or similar legislation or regulations. Any failure
by the Master Servicer to make an Advance as required under the Pooling and
Servicing Agreement will constitute an Event of Default thereunder, in which
case the Trustee, as successor Master Servicer, will be obligated to make any
such Advance, in accordance with the terms of the Pooling and Servicing
Agreement.
All Advances will be reimbursable to the Master Servicer on a first
priority basis from either (a) late collections, Insurance Proceeds and
Liquidation Proceeds from the Mortgage Loan as to which such unreimbursed
Advance was made or (b) as to any Advance that remains unreimbursed in whole or
in part following the final liquidation of the related Mortgage Loan, from any
amounts otherwise distributable on the Subordinate Certificates; provided,
however, that only the Subordinate Percentage of such Advances are reimbursable
from amounts otherwise distributable on the Subordinate Certificates in the
event that such Advances were made with respect to delinquencies which
ultimately were determined to be Excess Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or Extraordinary Losses and the Senior
Percentage of such Advances which may not be so reimbursed from amounts
otherwise distributable on the Subordinate Certificates may be reimbursed to the
Master Servicer out of any funds in the related Certificate Account prior to
distributions on the Senior Certificates. In the latter event, the aggregate
amount otherwise distributable on the Senior Certificates will be reduced by an
amount equal to the Senior Percentage of such Advances. In addition, if the
Certificate Principal Balance of the Subordinate Certificates has been reduced
to zero, any Advances previously made which are deemed by the Master Servicer to
be nonrecoverable from related late collections, Insurance Proceeds and
Liquidation Proceeds may be reimbursed to the Master Servicer out of any funds
in the related Certificate Account prior to distributions on the Senior
Certificates.
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CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
GENERAL
The effective yield to the holders of the Offered Certificates will be
lower than the yield otherwise produced by the applicable Pass-Through Rate and
purchase price because monthly distributions will not be made to such holders
until the 25th day (or if such day is not a business day, then on the next
succeeding business day) of the month following the month in which interest
accrues on the Mortgage Loans (without any additional distributions of interest
or earnings thereon in respect of such delay). See "Yield Considerations" in the
Prospectus.
The yields to maturity and the aggregate amount of distributions on the
Offered Certificates will be affected by the rate and timing of principal
payments on the Mortgage Loans and the amount and timing of mortgagor defaults
resulting in Realized Losses. Such yields may be adversely affected by a higher
or lower than anticipated rate of principal payments on the Mortgage Loans in
the Trust Fund. The rate of principal payments on such Mortgage Loans will in
turn be affected by the amortization schedules of the Mortgage Loans, the rate
and timing of principal prepayments thereon by the mortgagors, liquidations of
defaulted Mortgage Loans and purchases of Mortgage Loans due to certain breaches
of representations and warranties. The timing of changes in the rate of
prepayments, liquidations and purchases of the Mortgage Loans may, and the
timing of Realized Losses will, significantly affect the yield to an investor,
even if the average rate of principal payments experienced over time is
consistent with an investor's expectation. Since the rate and timing of
principal payments on the Mortgage Loans will depend on future events and on a
variety of factors (as described herein and in the Prospectus under "Yield
Considerations" and "Maturity and Prepayment Considerations"), no assurance can
be given as to such rate or the timing of principal payments on the Offered
Certificates.
The Mortgage Loans generally may be prepaid by the Mortgagors at any time
without payment of any prepayment fee or penalty. The Mortgage Loans generally
contain due-on-sale clauses. As described under "Description of the
Certificates--Principal Distributions on the Senior Certificates" herein, during
certain periods all or a disproportionately large percentage of principal
prepayments on the Mortgage Loans will be allocated among the Senior
Certificates. Prepayments, liquidations and purchases of the Mortgage Loans will
result in distributions to holders of the Offered Certificates of principal
amounts which would otherwise be distributed over the remaining terms of the
Mortgage Loans. Factors affecting prepayment (including defaults and
liquidations) of mortgage loans include changes in mortgagors' housing needs,
job transfers, unemployment, mortgagors' net equity in the mortgaged properties,
changes in the value of the mortgaged properties, mortgage market interest
rates, solicitations and servicing decisions. In addition, if prevailing
mortgage rates fell significantly below the Mortgage Rates on the Mortgage
Loans, the rate of prepayments (including refinancings) would be expected to
increase. Conversely, if prevailing mortgage rates rose
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significantly above the Mortgage Rates on the Mortgage Loans, the rate of
prepayments on the Mortgage Loans would be expected to decrease.
The rate of defaults on the Mortgage Loans will also affect the rate and
timing of principal payments on the Mortgage Loans. In general, defaults on
mortgage loans are expected to occur with greater frequency in their early
years. The rate of default on Mortgage Loans which are refinance or limited
documentation mortgage loans, and on Mortgage Loans with high Loan-to-Value
Ratios, may be higher than for other types of Mortgage Loans. Furthermore, the
rate and timing of prepayments, defaults and liquidations on the Mortgage Loans
will be affected by the general economic condition of the region of the country
in which the related Mortgaged Properties are located. The risk of delinquencies
and loss is greater and prepayments are less likely in regions where a weak or
deteriorating economy exists, as may be evidenced by, among other factors,
increasing unemployment or falling property values. See "Maturity and Prepayment
Considerations" in the Prospectus.
Because the Mortgage Rates on the Mortgage Loans and the Pass-Through Rates
on the Senior Certificates (other than the Variable Strip Certificates) are
fixed, such rates will not change in response to changes in market interest
rates. The Pass-Through Rate on the Variable Strip Certificates is based on the
weighted average of the Pool Strip Rates on the Mortgage Loans, and such rates
will also not change in response to changes in market interest rates.
Accordingly, if market interest rates or market yields for securities similar to
the Senior Certificates were to rise, the market value of the Senior
Certificates may decline. In addition, if prevailing mortgage rates fell
significantly below the Mortgage Rates on the Mortgage Loans, the rate of
prepayments (including refinancings) would be expected to increase. Conversely,
if prevailing mortgage rates rose significantly above the Mortgage Rates on the
Mortgage Loans, the rate of prepayment on the Mortgage Loans would be expected
to decrease.
The amount of interest otherwise payable to holders of the Senior
Certificates will be reduced by any interest shortfalls not covered by
Subordination, including Prepayment Interest Shortfalls. Such shortfalls will
not be offset by a reduction in the Servicing Fees payable to the Master
Servicer or otherwise. See "Yield Considerations" in the Prospectus and
"Description of the Certificates--Interest Distributions" herein for a
discussion of the effect that principal prepayments on the Mortgage Loans may
have on the yield to maturity of the Senior Certificates and certain possible
shortfalls in the collection of interest.
The timing of changes in the rate of prepayments, liquidations and
repurchases of the Mortgage Loans may significantly affect an investor's actual
yield to maturity, even if the average rate of principal payments experienced
over time is consistent with an investor's expectation. Because all or a
disproportionate percentage of principal prepayments will be allocated to the
Senior Certificates during not less than the first nine years after the Delivery
Date, the rate of prepayments on the
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Mortgage Loans during this period may significantly affect the yield to maturity
of the Senior Certificates.
In addition, the yield to maturity of the Senior Certificates will depend
on the price paid by the holders of the Senior Certificates and the related
Pass-Through Rate. The extent to which the yield to maturity of a Senior
Certificate may vary from the anticipated yield thereon will depend upon the
degree to which it is purchased at a discount or premium and the degree to which
the timing of payments thereon is sensitive to prepayments.
Because principal distributions are paid to certain classes of Senior
Certificates before other classes, holders of classes of Senior Certificates
having a later priority of payment bear a greater risk of losses than holders of
classes of Senior Certificates having earlier priorities for distribution of
principal. In addition, the Class A-6 Certificates bear a greater risk of losses
than the other Tiered Certificates because Default Losses on the Mortgage Loans
not covered by the Subordination which are allocated to the Tiered Certificates
are allocated first to the Class A-6 Certificates prior to allocation to the
Class A-1 and Class A-5 Certificates to the extent described herein. For
additional considerations relating to the yield on the Certificates, see "Yield
Considerations" and "Maturity and Prepayment Considerations" in the Prospectus.
The assumed final Distribution Date with respect to each class of Senior
Certificates is _____ __, 20__. The assumed final Distribution Date is the
Distribution Date immediately following the latest scheduled maturity date of
any Mortgage Loan in the Mortgage Pool.
Weighted average life refers to the average amount of time that will elapse
from the date of issuance of a security until a dollar amount in payment of
principal equal to the original principal balance of such security (less losses)
is distributed to the investor. The weighted average life of the Senior
Certificates will be influenced by among other things, the rate at which
principal of the Mortgage Loans is paid, which may be in the form of scheduled
amortization, prepayments or liquidations.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement, the
standard prepayment assumption ("SPA"), represents an assumed rate of prepayment
each month relative to the then outstanding principal balance of a pool of new
mortgage loans. A prepayment assumption of 100% SPA assumes constant prepayment
rates of 0.2% per annum of the then outstanding principal balance of such
mortgage loans in the first month of the life of the mortgage loans and an
additional 0.2% per annum in each month thereafter until the thirtieth month.
Beginning in the thirtieth month and in each month thereafter during the life of
the mortgage loans, 100% SPA assumes a constant prepayment rate of 6% per annum
each month. As used in the table below, "0% SPA" assumes prepayment rates equal
to 0% of SPA (no prepayments). Correspondingly, "___% SPA" assumes prepayment
rates equal to ___% of SPA, and so forth. SPA does not purport to be a
historical
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description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of mortgage loans, including the Mortgage Loans.
The table set forth below has been prepared on the basis of certain
assumptions as described below regarding the weighted average characteristics of
the Mortgage Loans that are expected to be included in the Trust Fund as
described under "Description of the Mortgage Pool" herein and the performance
thereof. The table assumes, among other things, that: (i) as of the date of
issuance of the Senior Certificates, the aggregate principal balance of the
Mortgage Loans is approximately $____________ and each Mortgage Loan has a
Mortgage Rate of _____% per annum, an original term of ___ months, a remaining
term to maturity of ___ months and a related Servicing Fee calculated at ___%
per annum, (ii) the scheduled monthly payment for each Mortgage Loan has been
based on its outstanding balance, Mortgage Rate and remaining term to maturity,
such that the Mortgage Loan will amortize in amounts sufficient for repayment
thereof over its remaining term to maturity, (iii) none of the Sellers, the
Master Servicer or the Company will repurchase any Mortgage Loan, as described
under "The Mortgage Loan Pools--Representations by Sellers" and "Description of
the Certificates--Assignment of the Trust Fund Assets" in the Prospectus, and
the Master Servicer will not exercise its option to purchase the Mortgage Loans
and thereby cause a termination of the Trust Fund, (iv) there are no
delinquencies or Realized Losses on the Mortgage Loans, and scheduled monthly
payments on the Mortgage Loans will be timely received together with
prepayments, if any, at the respective constant percentages of SPA set forth in
the table, (v) there is no Prepayment Interest Shortfall or any other interest
shortfall in any month, (vi) payments on the Mortgage Loans earn no reinvestment
return; (vii) there are no additional ongoing Trust Fund expenses payable out of
the Trust Fund; and (viii) the Certificates will be purchased on _____________
__, 199_.
The actual characteristics and performance of the Mortgage Loans will
differ from the assumptions used in constructing the table set forth below,
which is hypothetical in nature and is provided only to give a general sense of
how the principal cash flows might behave under varying prepayment scenarios.
For example, it is very unlikely that the Mortgage Loans will prepay at a
constant level of SPA until maturity or that all of the Mortgage Loans will
prepay at the same level of SPA. Moreover, the diverse remaining terms to
maturity of the Mortgage Loans could produce slower or faster principal
distributions than indicated in the table at the various constant percentages of
SPA specified, 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 initial
Certificate Principal Balances outstanding over time and the weighted average
lives of the classes of Offered Certificates.
Subject to the foregoing discussion and assumptions, the following table
indicates the weighted average life of each class of Offered Certificates (other
than the Fixed Strip Certificates and Variable Strip Certificates), and sets
forth the percentages of the initial Certificate Principal Balance of each
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such class of Offered Certificates that would be outstanding after each of the
dates shown at various percentages of SPA.
<PAGE>
-53-
<TABLE>
<CAPTION>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF SPA
Class A-1 Class A-2 Class A-3
------------------------------------------------------------------------------------------
DISTRIBUTION DATE % % % % % % % % % % % % % % %
----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage
</TABLE>
Weighted Average Life in Years (**)....
* Indicates a number that is greater than zero but less than .5%.
** The weighted average life of a Certificate of any class is determined
by (i) multiplying the amount of each net distribution in reduction of
Certificate Principal Balance by the number of years from the date of
issuance of the Certificate to the related Distribution Date, (ii)
adding the results, and (iii) dividing the sum by the aggregate of the
net distributions described in (i) above.
THIS TABLE HAS BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED IN THE
THIRD PARAGRAPH PRECEDING THIS TABLE (INCLUDING THE ASSUMPTIONS REGARDING THE
CHARACTERISTICS AND PERFORMANCE OF THE MORTGAGE LOANS WHICH DIFFER FROM THE
ACTUAL CHARACTERISTICS AND PERFORMANCE THEREOF) AND SHOULD BE READ IN
CONJUNCTION THEREWITH.
<PAGE>
-54-
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF SPA
Class A-4 Class A-6
----------------------------- ----------------------------
DISTRIBUTION DATE % % % % % % % % % %
----------------------------- ----------------------------
Initial Percentage
Weighted Avg. Life in Years (**)
* Indicates a number that is greater than zero but less than .5%.
** The weighted average life of a Certificate of any class is determined
by (i) multiplying the amount of each net distribution in reduction of
Certificate Principal Balance by the number of years from the date of
issuance of the Certificate to the related Distribution Date, (ii)
adding the results, and (iii) dividing the sum by the aggregate of the
net distributions described in (i) above.
THIS TABLE HAS BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED IN THE
THIRD PARAGRAPH PRECEDING THIS TABLE (INCLUDING THE ASSUMPTIONS REGARDING THE
CHARACTERISTICS AND PERFORMANCE OF THE MORTGAGE LOANS WHICH DIFFER FROM THE
ACTUAL CHARACTERISTICS AND PERFORMANCE THEREOF) AND SHOULD BE READ IN
CONJUNCTION THEREWITH.
(TABLE CONTINUED FROM PREVIOUS PAGE.)
<PAGE>
-55-
FIXED STRIP CERTIFICATES AND VARIABLE STRIP CERTIFICATES YIELD CONSIDERATIONS
The following tables indicate the sensitivity of the pre-tax yield to
maturity on the Fixed Strip Certificates and Variable Strip Certificates to
various rates of prepayment on the Mortgage Loans by projecting the monthly
aggregate payments of interest on the Fixed Strip Certificates and Variable
Strip Certificates and the corresponding pre-tax yields on a corporate bond
equivalent basis, based on distributions being made with respect to the Mortgage
Loans that are assumed to be included in the Trust Fund, as described in the
assumptions stated in clauses (i) through (viii) of the third paragraph
preceding the table entitled "Percent of Initial Certificate Principal Balance
Outstanding at the Following Percentages of SPA" under the heading "Certain
Yield and Prepayment Considerations--General" herein, including the assumptions
regarding the characteristics and performance of the Mortgage Loans which differ
from the actual characteristics and performance thereof and assuming the
aggregate purchase prices set forth below and assuming further that the
Pass-Through Rate and Notional Amount of the Fixed Strip Certificates and
Variable Strip Certificates are as set forth herein. Any differences between
such assumptions and the actual characteristics and performance of the Mortgage
Loans and of the Certificates may result in yields being different from those
shown in such tables. Discrepancies between assumed and actual characteristics
and performance underscore the hypothetical nature of the tables, which are
provided only to give a general sense of the sensitivity of yields in varying
prepayment scenarios.
PRE-TAX YIELD TO MATURITY ON THE FIXED
STRIP CERTIFICATES AND THE VARIABLE STRIP CERTIFICATES
AT THE FOLLOWING PERCENTAGES OF SPA
FIXED STRIP CERTIFICATES
------------------------------
Assumed
Purchase
PRICE* % % % % %
- -------------- ----- ---- ---- -------------
*Expressed as a percentage of the Initial Notional Amount
<PAGE>
-56-
VARIABLE STRIP CERTIFICATES
------------------------------
Assumed
Purchase
PRICE* % % % % %
- -------------- ----- ---- ---- -------------
*Expressed as a percentage of the Initial Notional Amount
The pre-tax yields set forth in the preceding tables were calculated by
determining the monthly discount rates which, when applied to the assumed
streams of cash flows to be paid on the Fixed Strip Certificates and Variable
Strip Certificates, would cause the discounted present value of such assumed
streams of cash flows to equal the assumed purchase prices listed as percentages
of the initial Notional Amounts in the table for the Fixed Strip Certificates
and Variable Strip Certificates, respectively. Yields shown are corporate bond
equivalent and are based on the assumed prices given in the tables. The prices
shown do not include accrued interest but an amount of accrued interest
consistent with the assumptions was computed and was used to arrive at these
yields. Implicit in the use of any discounted present value or internal rate of
return calculation such as these is the assumption that cash flows are
reinvested at the discount rate or internal rate of return. Thus these
calculations do not take into account the different interest rates at which
investors may be able to reinvest funds received by them as distributed on the
Fixed Strip Certificates or Variable Strip Certificates. Consequently these
yields do not purport to reflect the return on any investment in the Fixed Strip
Certificates or Variable Strip Certificates when such reinvestment rates are
considered.
The preceding tables are based on a set of assumptions that vary from
other information provided herein. The differences between such assumptions and
the actual characteristics of the Mortgage Loans and of the Certificates may
result in actual yields being different from those shown in such tables. For
example, the Pass-Through Rate on the Variable Strip Certificates, which is
assumed to be fixed throughout the life of the Certificates, will actually be
likely to change from one period to the next, and the rate assumed may be
different from the actual initial Pass-Through Rate on the Variable Strip
Certificates. Such discrepancies between assumed and actual characteristics
underscore the hypothetical nature of the tables, which are provided to give a
general sense of the sensitivity of yields in varying prepayment scenarios.
Notwithstanding the assumed prepayment rates reflected in the preceding
tables, it is highly unlikely that the Mortgage Loans will prepay at a constant
rate until maturity or that all of the Mortgage Loans will be prepaid according
to one particular pattern. For this reason, and because the timing of cash flows
is critical to determining yields, the pre-tax yields on the Fixed Strip
Certificates and Variable Strip Certificates are likely to differ from those
shown in such
<PAGE>
-57-
table, even if all of the Mortgage Loans prepay at the indicated percentages of
SPA over any given time period or over the entire life of the Certificates. No
representation is made as to the actual rate of principal payment on the
Mortgage Loans for any period or over the life of the Senior Certificates or as
to the yield on the Senior Certificates. In addition, the various remaining
terms to maturity of the Mortgage Loans could produce slower or faster principal
distributions than indicated in the preceding tables at the various constant
percentages of SPA specified, even if the weighted average remaining term to
maturity of the Mortgage Loans is ___ months. Investors are urged to make their
investment decisions based on their determinations as to anticipated rates of
prepayment under a variety of scenarios.
For additional considerations relating to the yield on the
Certificates, see "Yield Considerations" and "Maturity and Prepayment
Considerations" in the Prospectus.
POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued, and the Mortgage Loans serviced and
administered, pursuant to a Pooling and Servicing Agreement (the "Pooling and
Servicing Agreement") dated as of __________ 1, 19__, among the Company, the
Master Servicer, and _____________________, as trustee (the "Trustee").
Reference is made to the Prospectus for important information in addition to
that set forth herein regarding the terms and conditions of the Pooling and
Servicing Agreement and the Senior Certificates. The Trustee will appoint
____________________ to serve as Custodian in connection with the Certificates.
The Senior Certificates will be transferable and exchangeable at the corporate
trust office of the Trustee, which will serve as Certificate Registrar and will
be responsible for making distributions on the Senior Certificates and
forwarding monthly reports with respect thereto to the holders of such
Certificates. In addition to the circumstances described in the Prospectus, the
Company may terminate the Trustee for cause under certain circumstances. The
fees payable to the Trustee will be payable directly from the Certificate
Account. The Company will provide a prospective or actual Certificateholder
without charge, on written request, a copy (without exhibits) of the Pooling and
Servicing Agreement. Requests should be addressed to the President, Option One
Mortgage Acceptance Corporation, 2020 East First Street, Suite 100, Santa Ana,
California 92705. See "Description of the Certificates," "Servicing of Mortgage
Loans" and "The Pooling Agreement" in the Prospectus.
THE MASTER SERVICER
[Name of Master Servicer], will act as master servicer (in such
capacity, the "Master Servicer") for the Certificates pursuant to the Pooling
and Servicing Agreement.
<PAGE>
-58-
[Further disclosure as appropriate. The following disclosure is for
Option One Mortgage Corporation only, but will be similar to the disclosure if
the Master Servicer is a different entity.]
The information set forth in the following paragraphs has been provided
by the Master Servicer. None of Option One Mortgage Acceptance Corporation, the
Seller, the Trustee or any of their respective affiliates has made or will make
any representation as to the accuracy or completeness of such information.
Option One Mortgage Corporation, a California corporation,
headquartered in Santa Ana, California ("Option One"), will serve as the Master
Servicer for the Mortgage Loans pursuant to the Agreement (in such capacity, the
"Master Servicer").
Option One was incorporated in 1992, commenced receiving applications
for mortgage loans under its regular lending program in February 1993 and began
funding such mortgage loans indirectly in the same month. The principal business
of Option One is the origination, sale and servicing of non-conforming mortgage
loans.
As of December 31, 1994, Option One was a wholly-owned subsidiary of
Plaza Home Mortgage Bank, which was in turn a wholly-owned subsidiary of Plaza
Home Mortgage Corporation ("PHMC"). On March 3, 1995, Fleet National Bank, Rhode
Island acquired 100% of the outstanding stock of PHMC. Following such
acquisition, Option One became a subsidiary of Fleet National Bank, Rhode
Island, which is in turn a subsidiary of Fleet Financial Group, Inc. As of
December 31, 1995, Option One had three loan origination centers in California
and one loan origination center in each of Florida, Georgia, Illinois, Ohio,
Texas and Virginia.
Option One operates as a stand-alone mortgage banking company with
functional reporting responsibility to Fleet Financial Group, Inc. Option One is
a FNMA approved servicer. Option One assumed full servicing responsibilities for
the non-conforming credit servicing portfolio of PHMC on May 4, 1995, all of
which portfolio had been originated by Option One. Prior to such acquisition,
Option One acted as subservicer on such portfolio performing the functions of
delinquency advancing, investor reporting, remitting cash collected, preparing
pertinent reports and making collections on delinquent mortgage loans,
foreclosures and real estate owned.
<PAGE>
-59-
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------------- -----------
1990 1991 1992 1993 1994
------ ------ ------ ------ -----
(DOLLARS IN MILLIONS, EXCEPT AVERAGE LOAN SIZE)
<S> <C> <C> <C> <C> <C>
Beginning servicing portfolio(1)......... $ $ $ $ $
Add:
Loans originated or acquired....
Bulk purchase of servicing......
Deduct:
Sale of servicing rights........
Loans sold, servicing released..
Run-off(2)......................
Ending servicing portfolio(1)............ $ $ $ $ $
========== ========== ========== ========== ======
Number of loans serviced.................
Average loan size........................ $ $ $ $ $
</TABLE>
- --------------------
(1) Includes mortgage loans held for investment originated or acquired as
part of the Servicer's mortgage banking operations which totalled $____
million, $____ million, $____ million, $____ million and $_____ million
at ________ __, 1990, 1991, 1992, 1993, and June 30, 1994,
respectively.
(2) Includes amortization, prepayments and foreclosures.
The information set forth in this section concerning the Master
Servicer has been provided by the Master Servicer.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The Servicing Fees for each Mortgage Loan are payable out of the
interest payments on such Mortgage Loan. The Servicing Fees in respect of each
Mortgage Loan will accrue at _____% per annum (the "Servicing Fee Rate") on the
outstanding principal balance of each Mortgage Loan. The Master Servicer is
obligated to pay certain ongoing expenses associated with the Trust Fund and
incurred by the Master Servicer in connection with its responsibilities under
the Pooling and Servicing Agreement. See "Servicing of Mortgage Loans--Servicing
and Other Compensation and Payment of Expenses; Spread" in the Prospectus for
information
<PAGE>
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regarding other possible compensation to the Master Servicer and for information
regarding expenses payable by the Master Servicer.
VOTING RIGHTS
Certain actions specified in the Prospectus that may be taken by
holders of Certificates evidencing a specified percentage of all undivided
interests in the Trust Fund may be taken by holders of Certificates entitled in
the aggregate to such percentage of the Voting Rights. __% of all Voting Rights
will be allocated among all holders of the Certificates (other than the Fixed
Strip Certificates, Variable Strip Certificates and Residual Certificates) in
proportion to their then outstanding Certificate Principal Balances, and _%, _%
and _% of all Voting Rights will be allocated among holders of the Fixed Strip
Certificates, Variable Strip Certificates and Class R Certificates,
respectively, in proportion to the percentage interests evidenced by their
respective Certificates. The Pooling and Servicing Agreement will be subject to
amendment without the consent of the holders of the Residual Certificates in
certain circumstances.
TERMINATION
The circumstances under which the obligations created by the Pooling
and Servicing Agreement will terminate in respect of the Senior Certificates are
described in "The Pooling Agreement--Termination; Retirement of Certificates" in
the Prospectus. The Master Servicer or the Company will have the option on any
Distribution Date on which the aggregate principal balance of the Mortgage Loans
is less than ___% of the aggregate principal balance of the Mortgage Loans as of
the Cut-off Date either (i) to purchase all remaining Mortgage Loans and other
assets in the Trust Fund, thereby effecting early retirement of the Senior
Certificates or (ii) purchase in whole, but not in part, the Certificates other
than the Residual Certificates. Any such purchase of Mortgage Loans and other
assets of the Trust Fund shall be made at a price equal to the sum of (a) 100%
of the unpaid principal balance of each Mortgage Loan (or, the fair market value
of the related underlying Mortgaged Properties with respect to defaulted
Mortgage Loans as to which title to such underlying Mortgaged Properties has
been acquired if such fair market value is less than such unpaid principal
balance) (net of any unreimbursed Advance attributable to principal) as of the
Distribution Date on which the purchase proceeds are to be distributed plus (b)
accrued interest thereon at the Net Mortgage Rate to, but not including, the
first day of the month of repurchase.
Upon presentation and surrender of the Senior Certificates in
connection with the termination of the Trust Fund or a purchase of Certificates
under the circumstances described above, the holders of the Senior Certificates
will receive an amount equal to the Certificate Principal Balance of such class
plus one month's interest thereon (or with respect to the Variable Strip
Certificates, one month's interest on the Notional Amount) at the applicable
Pass-Through Rate plus any previously unpaid Accrued Certificate Interest
subject to the priority in
<PAGE>
-61-
"Description of the Certificates--Interest Distributions" and "--Principal
Distributions on the Senior Certificates".
FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Offered Certificates, Thacher Proffitt & Wood,
counsel to the Depositor, delivered 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 (the "REMIC Provisions") of the Internal Revenue Code
of 1986 (the "Code"). For federal income tax purposes, (i) the Residual
Certificates are the sole Class of "residual interests" in the Trust Fund; and
(ii) the Certificates constitute the "regular interests" in the Trust Fund. See
"Federal Income Tax Consequences--REMICs" in the Prospectus.
For federal income tax reporting purposes, the ________ Certificates
will not and the _________ Certificates will be treated as having been issued
with original issue discount. The prepayment assumption that will be used in
determining the rate of accrual of original issue discount, market discount and
premium, if any, for federal income tax purposes will be based on the assumption
that subsequent to the date of any determination the Mortgage Loans will prepay
at a rate equal to % SPA. No representation is made that the Mortgage Loans will
prepay at that rate or at any other rate. See "Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Regular Certificates--Original
Issue Discount," "--Market Discount" and "--Premium" in the Prospectus.
The Internal Revenue Service (the "IRS") has issued regulations (the
"OID Regulations") under Sections 1271 to 1275 of the Code generally addressing
the treatment of debt instruments issued with original issue discount.
Purchasers of the Offered Certificates should be aware that the OID Regulations
and Section 1272(a)(6) of the Code do not adequately address certain issues
relevant to, or are not applicable to, securities such as the Offered
Certificates. In addition, there is considerable uncertainty concerning the
application of the OID Regulations to REMIC Regular Certificates that provide
for payments based on an adjustable rate such as the Offered Certificates.
Because of the uncertainties concerning the application of Section 1272(a)(6) of
the Code to such Certificates and because the rules of the OID Regulations
relating to debt instruments having an adjustable rate of interest are limited
in their application in ways that could preclude their application to such
Certificates even in the absence of Section 1272(a)(6) of the Code, the IRS
could assert that the Certificates should be treated as having been issued with
original issue discount or that one or more of such Class of Certificates should
be governed by the rules applicable to debt instruments having contingent
payments or by some other method not yet set forth in regulations. Prospective
purchasers of the Offered Certificates are advised to consult their tax advisors
concerning the tax treatment of such Certificates.
<PAGE>
-62-
It appears that a reasonable method of reporting original issue
discount with respect to the Offered Certificates generally would be to report
all income with respect to such Certificates as original issue discount for each
period, computing such original issue discount (i) by assuming that the value of
the Index will remain constant for purposes of determining the original yield to
maturity of, and projecting future distributions on, each class of such
Certificates, thereby treating such Certificates as fixed rate instruments to
which the original issue discount computation rules described herein can be
applied, and (ii) by accounting for any positive or negative variation in the
actual value of the Index in any period from its assumed value as a current
adjustment to original issue discount with respect to such period.
If the rules of the OID Regulations were applied literally to the
Offered Certificates, it appears that such rules would (i) require that the
weighted average interest rate paid on such Certificates be modified and treated
as if it were an adjustable rate based on the Index (plus or minus a fixed
number of basis points) rather than a fixed rate prior to the first adjustment
date of each Mortgage Loan, with the adjustable rate being such that the fair
market value of such Certificates would not be affected by the substitution of
the adjustable rate for the fixed rate, (ii) accrue original discount, if any,
on the Certificates as so modified by assuming that the Index will remain
constant for purposes of determining the constant yield to maturity of, and the
cash flow projections on, the Certificates as so modified and (iii) make a
positive (or negative) adjustment to interest income in any period in which the
actual interest paid on such Certificates (including interest paid at a fixed
rate prior to the first adjustment date of each Mortgage Loan) were greater or
less than the interest assumed to be paid thereon (including the interest
assumed to be paid thereon at an adjustable rate prior to the first adjustment
date).
The OID Regulations appear to permit in some circumstances the holder
of a debt instrument to recognize original issue discount under a method that
differs from that of the issuer. Accordingly, it is possible that holders of the
Offered Certificates may be able to select a method for recognizing original
issue discount that differs from that used in preparing reports to holders of
Offered Certificates and the IRS. Prospective purchasers of Offered Certificates
issued with original issue discount are advised to consult their tax advisors
concerning the tax treatment of such Certificates in this regard.
Under Section 166 of the Code, both corporate holders of the Offered
Certificates and noncorporate holders of the Offered 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 or distribution shortfalls on the Mortgage Loans that are
allocable to such Offered Certificates. However, it appears that a noncorporate
holder that does not acquire an Offered Certificate in connection with its trade
or business will not be entitled to deduct a loss under Section 166 of the Code
until such holder's Certificate becomes
<PAGE>
-63-
demonstrably wholly worthless and that the loss will be characterized as a
short-term capital loss.
Each holder of an Offered Certificate will be required to accrue
original issue discount with respect to such Certificate without giving effect
to any reductions in distributions attributable to a default or delinquency on
the Mortgage Loans until it can be established that any such reduction
ultimately will not be recoverable. As a result, the amount of income required
to be reported for tax purposes in any period by the holder of such a
Certificate could exceed the amount of economic income actually realized by the
holder in such period. Although the holder of such a Certificate eventually will
recognize a loss or a 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.
The Offered Certificates will be treated as "qualifying real property
loans" within the meaning of Section 593(d) of the Code, assets described in
Section 7701(a)(19)(C) of the Code and "real estate assets" within the meaning
of Section 856(c)(5)(A) of the Code. In addition, interest (including original
issue discount, if any) on the Offered 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)(5)(A) of
the Code. Moreover, the Offered Certificates (other than the Residual
Certificates) will be "qualified mortgages" within the meaning of Section
860G(a)(3) of the Code. See "Federal Income Tax
Consequences-REMICs-Characterization of Investments in REMIC Certificates" in
the Prospectus.
To the extent permitted by then applicable law, 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
Trust Fund will be borne by the 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 a breach of the Master Servicer's or the Trustee's obligations, as the
case may be, under the Pooling and Servicing Agreement and in respect of
compliance with then applicable law. Any such tax not borne by the Master
Servicer or the Trustee will be payable out of the Trust Fund which may reduce
the amounts otherwise payable to holders of the Offered Certificates. See
"Federal Income Tax Considerations-REMICs-Prohibited Transactions Tax and Other
Taxes" in the Prospectus.
For further information regarding the federal income tax consequences
of investing in the Subordinate Certificates, see "Federal Income Tax
Consequences--REMICs" in the Prospectus.
<PAGE>
-64-
[SPECIAL TAX CONSIDERATIONS APPLICABLE TO RESIDUAL CERTIFICATES
The Residual Certificates will be subject to tax rules that differ
significantly from those that would apply if the Residual Certificates were
treated for federal income tax purposes as direct ownership interest in the
Mortgage Loans or as debt instruments issued by the Trust Fund. For further
information regarding the federal income tax consequences of investing in the
Residual Certificates, see "Federal Income Tax Consequences--REMICS--Taxation of
Owners of REMIC Residual Certificates" in the Prospectus.
The IRS has issued regulations under the provisions of the Code related
to REMICs (the "REMIC Regulations") that significantly affect holders of the
Residual Certificates. The REMIC Regulations impose restrictions on the transfer
or acquisition of certain residual interests, including the Residual
Certificates. The REMIC Regulations include restrictions that apply to: (i)
thrift institutions holding residual interests lacking "significant value" and
(ii) the transfer of "noneconomic" residual interests to United States persons.
Pursuant to the Pooling and Servicing Agreement, the Residual Certificates may
not be transferred to non-United States persons.
The REMIC Regulations provide for the determination of whether a
residual interest has "significant value" for purposes of applying the rules
relating to "excess inclusions" with respect to residual interests. Based on the
REMIC Regulations, the Residual Certificates do not have significant value and,
accordingly, thrift institutions and their affiliates will be prevented from
using their unrelated losses or loss carryovers to offset any excess inclusions
with respect to the Residual Certificates, which will be in an amount equal to
all or virtually all of the taxable income includible by holders of the Residual
Certificates. See "Federal Income Tax Consequences--Taxation of Owners of REMIC
Residual Certificates--Excess Inclusions" in the Prospectus.
The REMIC Regulations also provide that a transfer to a United States
person of "noneconomic" residual interests will be disregarded for all federal
income tax purposes, and that the purported transferor of "noneconomic" residual
interests will continue to remain liable for any taxes due with respect to the
taxable income on such residual interests, if "a significant purpose of the
transfer was to enable the transferor to impede the assessment or collection of
tax." Based on the REMIC Regulations, the Residual Certificates will constitute
"noneconomic" residual interests during some or all of their term for purposes
of the REMIC Regulations and, accordingly, unless no significant purpose of a
transfer is to enable the transferor to impede the assessment or collection of
tax, transfers of the Residual Certificates may be disregarded and purported
transferors may remain liable for any taxes due with respect to the income on
the Residual Certificates. All transfers of the Residual Certificates will be
subject to certain restrictions under the terms of the Pooling and Servicing
Agreement that are intended to reduce
<PAGE>
-65-
the possibility of any such transfer being disregarded to the extent that the
Residual Certificates constitute noneconomic residual interests. Such transfers
are prohibited under the Pooling and Servicing Agreement. See "Federal Income
Tax Consequences--Taxation of Owners of REMIC Residual Certificates--Noneconomic
REMIC Residual Certificates" in the Prospectus.
As discussed above and in the Prospectus, the rules for accrual of
original issue discount with respect to the Senior and Subordinate Certificates
are subject to significant complexity and uncertainty. See "Federal Income Tax
Consequences" in the Prospectus. Because original issue discount on such classes
of Certificates will be deducted by the Trust Fund in determining its taxable
income, any changes required by the IRS in the application of those rules to
such Certificates may significantly affect the timing of original issue discount
deductions to the Trust Fund and therefore the amount of the Trust Fund's
taxable income allocable to holders of the Residual Certificates.
The Residual Certificateholders will be required to report an amount of
taxable income with respect to the earlier accrual periods of the term of the
REMIC that significantly exceeds the amount of cash distributions received by
such Residual Certificateholders from the REMIC with respect to such periods.
Furthermore, the tax on such income will exceed the cash distributions with
respect to such periods. Consequently, Residual Certificateholders should have
other sources of funds sufficient to pay any federal income taxes due as a
result of their ownership of Residual Certificates. In addition, the required
inclusion of this amount of income during the REMIC's earlier accrual periods
and the deferral of corresponding tax losses or deductions until later accrual
periods or until the ultimate sale or disposition of a Residual Certificate (or
possibly later under the "wash sale" rules of Section 1091 of the Code) may
cause the Residual Certificateholders' after-tax rate of return to be zero or
negative even if the Residual Certificateholder's pre-tax rate of return is
positive. That is, on a present value basis, the Residual Certificateholders'
resulting tax liabilities could substantially exceed the sum of any tax benefits
and the amount of any cash distributions on such Residual Certificates over
their life.
An individual, trust or estate that holds (whether directly or
indirectly through certain pass-through entities) a Residual Certificate,
particularly a Residual Certificate, may have significant additional gross
income with respect to, but may be subject to limitations on the deductibility
of, servicing and trustee's fees and other administrative expenses properly
allocable to the REMIC in computing such Certificateholder's regular tax
liability and will not be able to deduct such fees or expenses to any extent in
computing such Certificateholder's alternative minimum tax liability. Such
expenses will be allocated for federal income tax information reporting purposes
entirely to the Residual Certificates. However, it is possible that the IRS may
require all or some portion of such fees and expense to be allocable to the
Residual Certificates. See "Federal Income Tax Consequences--REMICs--Taxation of
Owners of
<PAGE>
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REMIC Residual Certificates--Possible Pass-Through of Miscellaneous Itemized
Deductions" in the Prospectus.
The Trustee will be designated as the "tax matters person" as defined
in Treasury Regulation Section 301.6231(a)(7)-1T with respect to the Trust Fund,
and in connection therewith will be required to hold not less than a 0.01%
Percentage Interest of the Residual Certificates.
Purchasers of the Residual Certificates are strongly advised to consult
their own tax advisors as to the economic and tax consequences of investment in
such Residual Certificates.
For further information regarding the federal income tax consequences
of investing in the Residual Certificates, see "Yield Considerations--Additional
Yield Considerations Applicable
Solely to the Residual Certificates" herein and "Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Residual Certificates" in the
Prospectus.]
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement dated __________, 19__, the Underwriter has agreed to purchase and the
Company has agreed to sell to the Underwriter each class of Senior Certificates.
The Underwriting Agreement provides that the obligation of the
Underwriter to pay for and accept delivery of the Senior Certificates is subject
to, among other things, the receipt of certain legal opinions and to the
conditions, among others, that no stop order suspending the effectiveness of the
Company's Registration Statement shall be in effect, and that no proceedings for
such purpose shall be pending before or threatened by the Securities and
Exchange Commission.
The distribution of the Senior Certificates by the Underwriter may be
effected from time to time in one or more negotiated transactions, or otherwise,
at varying prices to be determined at the time of sale. Proceeds to the Company
from the sale of the Senior Certificates, before deducting expenses payable by
the Company, will be _________% of the aggregate Certificate Principal Balance
of the Senior Certificates plus accrued interest thereon from the Cut-off Date.
The Underwriter may effect such transactions by selling the Senior Certificates
to or through dealers, and such dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Underwriter for whom
they act as agent. In connection with the sale of the Senior Certificates, the
Underwriter may be deemed to have received compensation from the Company in the
form of underwriting compensation. The Underwriter and any dealers that
participate with the Underwriter in the distribution of the Senior Certificates
<PAGE>
-67-
may be deemed to be underwriters and any profit on the resale of the Senior
Certificates positioned by them may be deemed to be underwriting discounts and
commissions under the Securities Act of 1933.
The Underwriting Agreement provides that the Company will indemnify the
Underwriter, and that under limited circumstances the Underwriter will indemnify
the Company, against certain civil liabilities under the Securities Act of 1933,
or contribute to payments required to be made in respect thereof.
There can be no assurance that a secondary market for the Senior
Certificates will develop or, if it does develop, that it will continue. The
primary source of information available to investors concerning the Senior
Certificates will be the monthly statements discussed in the Prospectus under
"Description of the Certificates - Reports to Certificateholders," which will
include information as to the outstanding principal balance of the Senior
Certificates and the status of the applicable form of credit enhancement. There
can be no assurance that any additional information regarding the Senior
Certificates will be available through any other source. In addition, the
Company is not aware of any source through which price information about the
Senior Certificates will be generally available on an ongoing basis. The limited
nature of such information regarding the Senior Certificates may adversely
affect the liquidity of the Senior Certificates, even if a secondary market for
the Senior Certificates becomes available.
LEGAL OPINIONS
Certain legal matters relating to the Certificates will be passed upon
for the Company by _________________________________, ________ and for the
Underwriter by ___________________________.
RATINGS
It is a condition to the issuance of the Senior Certificates that they
be rated not lower than "___" by _________________ ___________ ("_____________")
and "___" by ____________________ ("________").
The ratings of _______ on mortgage pass-through certificates address
the likelihood of the receipt by Certificateholders of all distributions on the
underlying mortgage loans to which they are entitled. _______ ratings on
pass-through certificates do not represent any assessment of the likelihood that
principal prepayments will be made by mortgagors or the degree to which such
prepayments might differ from that originally anticipated. The rating does not
address the possibility that Certificateholders might suffer a lower than
anticipated yield.
<PAGE>
-68-
_________________ ratings on mortgage pass-through certificates also
address the likelihood of the receipt by Certificateholders of payments required
under the Pooling and Servicing Agreement. _________________ ratings take into
consideration the credit quality of the mortgage pool, structural and legal
aspects associated with the Certificates, and the extent to which the payment
stream in the mortgage pool is adequate to make payments required under the
Certificates. _________________ rating on the Certificates does not, however,
constitute a statement regarding frequency of prepayments on the mortgages. See
"Certain Yield and Prepayment Considerations" herein.
The Company has not requested a rating on the Senior Certificates by
any rating agency other than _______ and ________. However, there can be no
assurance as to whether any other rating agency will rate the Senior
Certificates, or, if it does, what rating would be assigned by any such other
rating agency. A rating on the Certificates by another rating agency, if
assigned at all, may be lower than the ratings assigned to the Senior
Certificates by _______ and
- ---------.
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 organization. Each security rating should be evaluated
independently of any other security rating. The rating of the Fixed Strip
Certificates or Variable Strip Certificates does not address the possibility
that the holders of such Certificates may fail to fully recover their initial
investment. In the event that the rating initially assigned to the Senior
Certificates is subsequently lowered for any reason, no person or entity is
obligated to provide any additional support or credit enhancement with respect
to the Senior Certificates.
LEGAL INVESTMENT
The Senior Certificates will constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA")
so long as they are rated in at least the second highest rating category by one
of the Rating Agencies, and, as such, are legal investments for certain entities
to the extent provided in SMMEA. SMMEA provides, however, that states could
override its provisions on legal investment and restrict or condition investment
in mortgage related securities by taking statutory action on or prior to October
3, 1991. Certain states have enacted legislation which overrides the preemption
provisions of SMMEA.
The Company makes no representations as to the proper characterization
of any class of the Offered Certificates for legal investment or other purposes,
or as to the ability of particular investors to purchase any class of the
Offered Certificates under applicable legal investment restrictions. These
uncertainties may adversely affect the liquidity of any class of Offered
Certificates. Accordingly, all institutions whose investment activities are
subject to legal
<PAGE>
-69-
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their legal advisors in determining
whether and to what extent any class of the Offered Certificates constitutes a
legal investment or is subject to investment, capital or other restrictions.
See "Legal Investment Matters" in the Prospectus.
<PAGE>
================================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement and the Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or by the Underwriter. 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 to 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 and the Prospectus nor any sale made hereunder shall,
under any circumstances, create an implication that information herein or
therein is correct as of any time since the date of this Prospectus Supplement
or the Prospectus.
------------------
TABLE OF CONTENTS
PAGE
Prospectus Supplement
Summary S-
Description of the Mortgage Pool..................... S-
Description of the Certificates...................... S-
Certain Yield and Prepayment
Considerations.................................. S-
Pooling and Servicing Agreement...................... S-
Federal Income Tax
Consequences.................................... S-
Method of Distribution............................... S-
Legal Opinions....................................... S-
Ratings.............................................. S-
Legal Investment..................................... S-
Prospectus
Summary of Prospectus................................
Risk Factors.........................................
The Mortgage Pools...................................
Servicing of Mortgage Loans..........................
Description of the Certificates......................
Subordination........................................
Description of Credit Enhancement....................
Purchase Obligations.................................
Primary Mortgage Insurance, Hazard
Insurance; Claims Thereunder....................
The Company..........................................
The Pooling Agreement................................
Yield Considerations.................................
Maturity and Prepayment
Considerations..................................
Certain Legal Aspects of Mortgage
Loans...........................................
Federal Income Tax
Consequences....................................
State and Other Tax Consequences.....................
ERISA Considerations.................................
Legal Investment Matters.............................
Use of Proceeds......................................
Methods of Distribution..............................
Legal Matters........................................
Financial Information................................
Rating...............................................
Index of Principal Definitions.......................
================================================================================
OPTION ONE MORTGAGE ACCEPTANCE
CORPORATION
$________________
Mortgage Pass-Through
Certificates
Series 199_-__
$ ____% Class A-1 Certificates
$ ____% Class A-2 Certificates
$ ____% Class A-3 Certificates
$ ____% Class A-4 Certificates
$ ____% Class A-5 Certificates
$ ____% Class A-6 Certificates
$ Variable Rate Class A-7 Certificates
-------------------
PROSPECTUS SUPPLEMENT
-------------------
---------------------------------
____________, 19__
================================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This preliminary prospectus supplement shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale of
these securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
VERSION 2
=========
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED OCTOBER 22, 1996
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED ______________, 19__)
$_______________
OPTION ONE MORTGAGE ACCEPTANCE CORPORATION
COMPANY
[NAME OF MASTER SERVICER]
MASTER SERVICER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 19__-__
WEIGHTED AVERAGE ADJUSTABLE PASS-THROUGH RATE
The Series 19__-__ Mortgage Pass-Through Certificates (the
"Certificates") will evidence the entire beneficial ownership interest in a
trust fund (the "Trust Fund") consisting primarily of a pool of conventional
adjustable-rate one- to four-family first lien mortgage loans (the "Mortgage
Loans"), exclusive of the Spread (as defined herein), to be deposited by Option
One Mortgage Acceptance Corporation (the "Company") into the Trust Fund for the
benefit of the Certificateholders. Certain characteristics of the Mortgage Loans
are described herein under "Description of the Mortgage Pool."
A limited amount of losses on the Mortgage Loans will initially be
covered by an irrevocable letter of credit (the "Letter of Credit") to be issued
by ________________ (the "Letter of Credit Bank"). The maximum amount available
to be drawn under the Letter of Credit will initially be equal to approximately
_____% of the aggregate principal balance of the Mortgage Loans as of
_______________, 19__ (the "Cut-off Date").
The interest rates on the Mortgage Loans (each, a "Mortgage Rate") will
change semi-annually based on the Index (as defined herein) and the respective
Note Margins described herein, subject to certain periodic and lifetime
limitations as described more fully herein.
Distributions on the Certificates will be made on the 25th day of each
month or, if such day is not a business day, then on the next succeeding
business day commencing on ____________, 19__ (each, a "Distribution Date"). As
more fully described herein, interest distributions on the Certificates will be
based on the principal balance of the Mortgage Loans and the then applicable
Weighted Average Adjustable Pass-Through Rate, which will equal the weighted
average of the Net Mortgage Rates on the Mortgage Loans for the month preceding
such Distribution Date, as described more fully herein. The "Net Mortgage Rate"
for each Mortgage Loan is generally equal the Mortgage Rate thereon from time to
time, net of the per annum rates applicable to the calculation of the related
servicing fee and Spread. The initial
<PAGE>
Weighted Average Adjustable Pass-Through Rate for the Certificates will be
_______% per annum. The Weighted Average Adjustable Pass-Through Rate on the
Certificates may increase or decrease from month to month. Distributions in
respect of principal of the Certificates will be made as described herein under
"Description of the Certificates--Distributions."
Certain Mortgage Loans provide that, at the option of the related
Mortgagors, the adjustable rate on such Mortgage Loans may be converted to a
fixed rate (the "Convertible Mortgage Loans"), provided that certain conditions
have been satisfied. Upon notification from a Mortgagor of such Mortgagor's
intent to convert from an adjustable rate to a fixed rate and prior to the
conversion of any such Mortgage Loan (a "Converting Mortgage Loan"), the Master
Servicer [or the related Subservicer] will be obligated to purchase the
Converting Mortgage Loan at a net price of par plus accrued interest thereon
(the "Conversion Price"). [In the event of a failure by a Subservicer to
purchase a Converting Mortgage Loan, the Master Servicer shall use its best
efforts to purchase any Converted Mortgage Loan (as defined herein) from the
Mortgage Pool at the Conversion Price during the one month period following the
date of conversion to a Converted Mortgage Loan.] In the event that neither the
Master Servicer [nor the related Subservicer] purchases a Converting or
Converted Mortgage Loan, the Mortgage Pool will thereafter include both fixed
rate and adjustable rate Mortgage Loans. See "Certain Yield and Prepayment
Considerations" herein. Except as set forth herein, the Master Servicer's only
obligations with respect to the Certificates are its contractual obligations as
Master Servicer under the terms of the Pooling and Servicing Agreement (as
defined herein).
As described herein, the Trust Fund will be treated as a grantor trust
for federal income tax purposes.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER
"RISK FACTORS" ON PAGE S-__ OF THE PROSPECTUS SUPPLEMENT AND THE INFORMATION SET
FORTH UNDER "RISK FACTORS" ON PAGE __ OF THE PROSPECTUS BEFORE PURCHASING ANY OF
THE CLASS A CERTIFICATES.
THE YIELD TO MATURITY ON THE CERTIFICATES WILL DEPEND ON THE RATE OF
PAYMENT OF PRINCIPAL (INCLUDING AS A RESULT OF PREPAYMENTS, DEFAULTS,
LIQUIDATIONS AND PURCHASES OF CONVERTING MORTGAGE LOANS AND CONVERTED MORTGAGE
LOANS) ON THE MORTGAGE LOANS. THE MORTGAGE LOANS MAY BE PREPAID IN FULL OR IN
PART AT ANY TIME WITHOUT PENALTY. THE YIELD TO INVESTORS ON THE CERTIFICATES
WILL BE ADVERSELY AFFECTED BY ANY SHORTFALLS IN INTEREST COLLECTED ON THE
MORTGAGE LOANS DUE TO PREPAYMENTS, LIQUIDATIONS OR OTHERWISE. SEE "CERTAIN YIELD
AND PREPAYMENT CONSIDERATIONS" HEREIN AND "YIELD CONSIDERATIONS" IN THE
PROSPECTUS.
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 COMPANY, THE MASTER SERVICER OR ANY OF THEIR AFFILIATES.
NEITHER THE CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE COMPANY, THE
MASTER SERVICER OFFERED OR ANY OF THEIR AFFILIATES.
-2-
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT
PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The Certificates will be purchased from the Company by the Underwriter
and will be offered by the Underwriter from time to time to the public in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale. The proceeds to the Company from the sale of the Certificates will
be equal to _________% of the initial aggregate principal balance of the
Certificates, plus accrued interest thereon from ___________ 1, 19__ (the
"Cutoff Date"), net of any expenses payable by the Company.
The Certificates are offered by the Underwriter subject to prior sale,
when, as and if delivered to and accepted by the Underwriter and subject to
certain other conditions. The Underwriter reserves the right to withdraw, cancel
or modify such offer and to reject any order in whole or in part. It is expected
that delivery of the Certificates will be made on or about ____________, 19__ at
the office of __________________________________, _______________,
_____________________ against payment therefor in immediately available funds.
[Name of Underwriter]
[Date of Prospectus Supplement]
-3-
<PAGE>
THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE A
SEPARATE SERIES OF CERTIFICATES BEING OFFERED BY THE COMPANY PURSUANT TO ITS
PROSPECTUS DATED _____________, 19__, OF WHICH THIS PROSPECTUS SUPPLEMENT IS A
PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING WHICH IS NOT CONTAINED HEREIN, AND
PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT IN FULL. SALES OF THE CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
UNTIL _____________, 19__, ALL DEALERS EFFECTING TRANSACTIONS IN THE
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT RELATES. THIS
DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
-4-
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus.
Capitalized terms used herein and not otherwise defined herein have the meanings
assigned in the Prospectus.
Title of Securities.............. Mortgage Pass-Through Certificates, Weighted
Average Adjustable Pass-Through Rate, Series
19__-__.
Company.......................... Option One Mortgage Acceptance Corporation
(the "Company"), a wholly-owned subsidiary
of Option One Mortgage Company ("OOMC"). See
"The Company" in the Prospectus.
Master Servicer.................. [Name of Master Servicer] (the "Master
Servicer"), [an affiliate of the Company].
See "Pooling and Servicing Agreement--The
Master Servicer" herein.
Trustee.......................... ________________, ______________ (the
"Trustee").
Cut-off Date..................... ___________, 19__ (the "Cut-off Date").
Delivery Date.................... On or about __________, 19__ (the "Delivery
Date").
Denominations.................... The Certificates will be issued in
registered, certificated form, in minimum
denominations of $______ and integral
multiples of $_____ in excess thereof.
The Mortgage Pool................ The Mortgage Pool will consist of a pool of
adjustable rate, fully-amortizing mortgage
loans (the "Mortgage Loans"), exclusive of
the Spread (as defined herein). The
aggregate principal balance of the Mortgage
Loans as of the Cut-off Date will be
approximately $______________.
The Mortgage Loans are secured by first
liens on one- to four-family residential
real properties (each, a "Mortgaged
Property"). The Mortgage Loans have
individual principal balances at origination
of at least $______ but not more than
$_________ with an average principal balance
at origination of approximately $_________.
The Mortgage Loans have terms to maturity of
__ years from the date of origination and a
weighted average remaining term to stated
maturity of approximately ____ years and __
months as of the Cut-off Date. The Mortgage
Rate on each Mortgage Loan will adjust
semi-annually on its Adjustment Date (as
defined herein), with corresponding
adjustments in the
-5-
<PAGE>
amount of monthly payments, to equal the sum
(rounded as described herein) of the Index
described below and a fixed percentage set
forth in the related Mortgage Note (the
"Note Margin"). However, (i) on any
Adjustment Date such Mortgage Rate may not
increase or decrease by more than 1% (the
"Periodic Rate Cap"), (ii) over the life of
such Mortgage Loan, such Mortgage Rate may
not exceed the related maximum Mortgage Rate
(such maximum Mortgage Rate is equal to the
Mortgage Rate at origination plus a lifetime
rate cap (the "Lifetime Rate Cap")), which
maximum Mortgage Rates will range from
______% to ______% and (iii) with respect to
approximately ____% of the Mortgage Loans,
by aggregate principal balance as of the
Cut-off Date, over the life of such Mortgage
Loan, such Mortgage Rate may not be lower
than the minimum Mortgage Rate. The
difference between the Mortgage Rate on each
Mortgage Loan at origination and the minimum
Mortgage Rate on such Mortgage Loan will
equal the lifetime rate floor (the "Lifetime
Rate Floor"). The minimum Mortgage Rates
will range from _____% to ______% per annum.
Accordingly, changes in the Weighted Average
Adjustable Pass-Through Rate will not
necessarily correspond to changes in the
Index or other prevailing interest rates.
Additionally, the initial Mortgage Rates in
effect on the Mortgage Loans will likely be
lower than the sum of the Index and related
Note Margin that would have been applicable
at origination. Because the maximum Mortgage
Rate on any Mortgage Loan is determined by
adding the Lifetime Rate Cap to the Mortgage
Rate at origination, the maximum rate on a
Mortgage Loan will likely be less than the
sum of the Index and the Note Margin that
would have been applicable at origination
plus the Lifetime Rate Cap. No Mortgage Loan
provides for payment caps on any Adjustment
Date which would result in deferred interest
or negative amortization. The Mortgage Loans
will bear interest at Mortgage Rates of at
least _____% per annum but not more than
______% per annum, as of the Cut-off Date.
For a further description of the Mortgage
Loans, see "Description of the Mortgage
Pool" herein.
The Index...................... As of any Adjustment Date with respect to
any Mortgage Loan, the Index applicable to
the determination of the related Mortgage
Rate will be a rate equal to the monthly
weighted average cost of funds for members
of the Federal
-6-
<PAGE>
Home Loan Bank of San Francisco as most
recently available 45 days prior to the
Adjustment Date (the "Cost of Funds Index"
or "Index").
Conversion of Mortgage Loans... Approximately _____% of the Mortgage Loans,
by aggregate principal balance as of the
Cut-off Date, are Convertible Mortgage
Loans. Upon notification from a Mortgagor of
such Mortgagor's intent to convert from an
adjustable rate to a fixed rate and prior to
the conversion thereof, the Master Servicer
[or the related Subservicer] will be
obligated to purchase the Converting
Mortgage Loan at a net price of par plus
accrued interest thereon (the "Conversion
Price"). [In the event of a failure by a
Subservicer to purchase a Converting
Mortgage Loan, the Master Servicer shall use
its best efforts to purchase any Converted
Mortgage Loan (as defined herein) from the
Mortgage Pool at the Conversion Price during
the one- month period following the date of
conversion to a Converted Mortgage Loan.] In
the event that neither the Master Servicer
[nor the related Subservicer] purchases a
Converting or Converted Mortgage Loan, the
Mortgage Pool will thereafter include both
fixed-rate and adjustable- rate Mortgage
Loans. See "Certain Yield and Prepayment
Considerations" herein.
The Certificates............... The Certificates evidence the entire
beneficial ownership interest in a trust
fund (the "Trust Fund") consisting primarily
of the Mortgage Pool, exclusive of the
Spread. The Certificates will be issued
pursuant to a Pooling and Servicing
Agreement, to be dated as of the Cut-off
Date, among the Company, the Master
Servicer, and the Trustee (the "Pooling and
Servicing Agreement").
Interest Distributions......... The Weighted Average Adjustable Pass-Through
Rate applicable to the Certificates in
respect of each Distribution Date will equal
the weighted average of the Net Mortgage
Rates on the Mortgage Loans for the month
preceding such Distribution Date. The
initial Weighted Average Adjustable
Pass-Through Rate will be ______% per annum.
The Net Mortgage Rate on each Mortgage Loan
is generally equal to the Mortgage Rate
thereon minus the rate per annum at which
the related servicing fee accrues (the
"Servicing Fee Rate") and the per annum rate
at which the Spread referred to below under
"Pooling and Servicing Agreement--Servicing
and Other Compensation and Payment of
Expenses; Spread" accrues.
-7-
<PAGE>
Holders of the Certificates will be entitled
to receive distributions allocable to
interest in proportion to their respective
Percentage Interests (as defined herein) on
each Distribution Date, to the extent of
available funds, in an aggregate amount
equal to one month's interest, at the then
applicable Weighted Average Adjustable
Pass-Through Rate, on the principal balance
of the Certificates outstanding as of the
close of business on the immediately
preceding Distribution Date, subject to
reduction in the event of any full and
partial prepayments or any interest
shortfalls not covered by the Letter of
Credit (as defined herein) as well as
certain losses and delinquencies on the
Mortgage Loans as described herein. See
"Description of the
Certificates--Distributions" herein and in
the Prospectus.
Principal Distributions........ Principal payments (including prepayments)
received on the Mortgage Loans will be
passed through on each Distribution Date to
holders of the Certificates in proportion to
their respective Percentage Interests. See
"Description of the
Certificates--Distributions" herein and in
the Prospectus.
Advances....................... The Master Servicer is required to make
advances ("Advances") to holders of the
Certificates in respect of delinquent
payments of principal and interest on the
Mortgage Loans, subject to the limitations
described herein. See "Description of the
Certificates--Advances" herein and in the
Prospectus.
Credit Enhancement............. Neither the Certificates nor the Mortgage
Loans are insured or guaranteed by any
governmental agency or instrumentality or by
the Company, the Master Servicer or any
affiliate thereof. However, a limited amount
of losses on the Mortgage Loans will be
covered initially by an irrevocable letter
of credit (the "Letter of Credit") to be
issued by ________________ (the "Letter of
Credit Bank") in favor of the Trustee for
the benefit of the holders of the
Certificates. The maximum amount available
under the Letter of Credit to cover losses
with respect to the Mortgage Loans will
initially equal $_________ (the initial
"Available Amount") which is equal to
approximately _____% of the aggregate
principal balance of the Mortgage Loans as
of the Cut-off Date. The Available Amount is
subject to periodic reduction as described
herein.
-8-
<PAGE>
The Letter of Credit will cover losses on
the Mortgage Loans that constitute Defaulted
Mortgage Losses, Special Hazard Losses,
Fraud Losses and Bankruptcy Losses (each as
defined in the Prospectus), to the extent
described herein. Amounts that may be drawn
under the Letter of Credit to cover Special
Hazard Losses, Fraud Losses and Bankruptcy
Losses are initially limited to
$___________, $___________ and
$______________, respectively. All of the
foregoing amounts are subject to periodic
reduction as described herein. Any draws
under the Letter of Credit, including draws
for Special Hazard Losses, Fraud Losses and
Bankruptcy Losses, will reduce the Available
Amount. The Letter of Credit will expire on
______________, 19__, unless earlier
terminated or extended in accordance with
its terms or replaced in a manner as herein
described.
In the event losses on Mortgage Loans occur
which are not covered by the Letter of
Credit or any replacement credit
enhancement, such losses will be borne by
the Certificateholders. See "Description of
Credit Enhancement" herein.
Optional Termination........... At its option, on any Distribution Date when
the principal balance of the Mortgage Loans
is less than [___]% of the aggregate
principal balance of the Mortgage Loans as
of the Cut-off Date, the Master Servicer or
the Company may (i) purchase from the Trust
Fund all remaining Mortgage Loans and other
assets thereof and thereby effect early
retirement of the Certificates or (ii)
purchase in whole, but not in part, the
Certificates. See "Pooling and Servicing
Agreement--Termination" herein and "The
Pooling Agreement--Termination; Retirement
of Certificates" in the Prospectus.
Special Prepayment
Considerations.............. The rate of principal payments on the
Certificates collectively will depend on the
rate and timing of principal payments
(including by reason of prepayments,
defaults and liquidations) on the Mortgage
Loans. As is the case with mortgage-backed
securities generally, the Certificates are
subject to substantial inherent cash-flow
uncertainties because the Mortgage Loans may
be prepaid at any time. Generally, when
prevailing interest rates are increasing,
prepayment rates on mortgage loans tend to
decrease, resulting in a reduced return of
principal to investors at a time when
reinvestment at such higher prevailing rates
-9-
<PAGE>
would be desirable. Conversely, when
prevailing interest rates are declining,
prepayment rates on mortgage loans tend to
increase, resulting in a greater return of
principal to investors at a time when
reinvestment at comparable yields may not be
possible.
See "Description of the
Certificates--Distributions" and "Certain
Yield and Prepayment Considerations" herein,
and "Maturity and Prepayment Considerations"
in the Prospectus.
Special Yield
Considerations.............. The yield to maturity on the Certificates
will depend on the rate and timing of
principal payments (including by reason of
prepayments, defaults, liquidations [and
purchases of Mortgage Loans converting to a
fixed rate]) on the Mortgage Loans, as well
as other factors such as changes in the
Index, provisions of the Mortgage Loans
limiting changes in the Mortgage Rates and
the purchase price for such Certificates, as
described herein. The Weighted Average
Adjustable Pass-Through Rate will be reduced
to the extent that prepayments, liquidations
and purchases occur at a faster rate for
Mortgage Loans having higher Net Mortgage
Rates than for Mortgage Loans having lower
Net Mortgage Rates. The yield to investors
on the Certificates will be adversely
affected by any allocation thereto of
prepayment interest shortfalls on the
Mortgage Loans, which are expected to result
from the distribution of interest only to
the date of prepayment (rather than a full
month's interest) in connection with
prepayments in full, and the lack of any
distribution of interest on the amount of
any partial prepayments.
See "Certain Yield and Prepayment
Considerations" herein, and "Yield
Considerations" in the Prospectus.
Federal Income Tax
Consequences.................. No election will be made to treat the Trust
Fund as a real estate mortgage investment
conduit for federal income tax purposes.
_______________________, counsel to the
Depositor, 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 be
classified as a grantor trust under the
Internal Revenue Code of 1986 (the "Code"),
and
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<PAGE>
not as a partnership or an association
taxable as a corporation.
For further information regarding the
federal income tax consequences of investing
in the Certificates see "Federal Income Tax
Consequences" herein.
Rating......................... It is a condition of the issuance of the
Certificates that they be rated at least
"___" by __________________. _________
RATING OF THE CERTIFICATES WILL NOT
REPRESENT ANY ASSESSMENT OF THE MASTER
SERVICER'S [NOR THE RELATED SUBSERVICER'S]
ABILITY TO PURCHASE CONVERTING MORTGAGE
LOANS, OR THE REMARKETING AGENT'S ABILITY TO
ARRANGE FOR THE PURCHASE OF CONVERTED
MORTGAGE LOANS. In the event that neither
the Master Servicer [nor the related
Subservicer] purchases a Converting or
Converted Mortgage Loan, investors in the
Certificates might suffer a lower than
anticipated yield. 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 organization. A security rating does
not address the frequency of prepayments of
Mortgage Loans, or the corresponding effect
on yield to investors. See "Certain Yield
and Prepayment Considerations" and "Rating"
herein and "Yield Considerations" in the
Prospectus.
Legal Investment............... The Certificates will constitute "mortgage
related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA") for so long as they are rated
in at least the second highest rating
category by one or more nationally
recognized statistical rating agencies.
Institutions whose investment activities are
subject to legal investment laws and
regulations, regulatory capital requirements
or review by regulatory authorities may be
subject to restrictions on investment in the
Certificates and should consult with their
legal advisors. See "Legal Investment"
herein and "Legal Investment Matters" in the
Prospectus.
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<PAGE>
[RISK FACTORS]
[Prospective Certificateholders should consider, among other things,
the items discussed under "Risk Factors" in the Prospectus and the following
factors in connection with the purchase of the Certificates:]
[Appropriate Risk Factors as necessary.]
DESCRIPTION OF THE MORTGAGE POOL
General
The Mortgage Pool will consist of Mortgage Loans with an aggregate
principal balance outstanding as of the Cut-off Date of approximately
$___________. The Mortgage Pool will consist of conventional, adjustable-rate,
fully-amortizing Mortgage Loans with terms to maturity of not more than 30 years
from the due date of the first monthly payment. On or before the Delivery Date,
the Company will acquire the Mortgage Loans to be included in Mortgage Pool from
Option One Mortgage Corporation ("OOMC"), an affiliate of the Company [, which
in turn acquired them pursuant to various mortgage loan purchase agreements
between OOMC and [Names of Sellers] (the "Sellers")]. The Seller[s] will make
certain representations and warranties with respect to the Mortgage Loans and,
as more particularly described in the Prospectus, will have certain repurchase
or substitution obligations in connection with a breach of any such
representation and warranty, as well as in connection with an omission or defect
in respect of certain constituent documents required to be delivered with
respect to the Mortgage Loans, in any event if such breach, omission or defect
cannot be cured and it materially and adversely affects the interests of
Certificateholders. Neither the Company nor any other entity or person will have
any responsibility to purchase or replace any Mortgage Loan if a Seller is
obligated but fails to do so. See "Description of the Mortgage
Pool--Representations by Sellers" and "Description of the
Certificates--Assignment of Trust Fund Assets" in the Prospectus and "--The
Seller" below. The Mortgage Loans will have been originated or acquired by the
[Sellers] in accordance with the underwriting criteria described herein. See
"--Underwriting" below. All percentages of the Mortgage Loans described herein
are approximate percentages (except as otherwise indicated) by aggregate
principal balance as of the Cut-off Date.
The Mortgage Rate on each Mortgage Loan will adjust semi-annually on a
date specified in the related Mortgage Note (the "Adjustment Date"). For
approximately ____% of the Mortgage Loans, by aggregate principal balance as of
the Cut-off Date, the first Adjustment Date occurred prior to the Cut-off Date.
On each Adjustment Date, the Mortgage Rate on a Mortgage Loan will be
adjusted to equal the sum (rounded to either the nearest or next highest
multiple of _____%) of (a) a rate per annum equal to the monthly weighted
average cost of funds for members of the Federal Home Loan Bank of San Francisco
(the "FHLB of San Francisco") as published by the FHLB of San Francisco (the
"Cost of Funds Index" or "Index") and as most recently available as of
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<PAGE>
the day 45 days prior to such Adjustment Date or, in the event that such Index
is no longer available, an index selected by the Master Servicer and reasonably
acceptable to the Trustee that is based on comparable information, and (b) the
related Note Margin, subject to the following limitations. The Mortgage Rate on
the Mortgage Loan on any Adjustment Date may not increase or decrease by more
than the Periodic Rate Cap applicable to such Mortgage Loan and, over the life
of such Mortgage Loan, generally may not exceed the Mortgage Rate at origination
plus the Lifetime Rate Cap, or be less than the Mortgage Rate at origination
minus any Lifetime Rate Floor, applicable to such Mortgage Loan. No Mortgage
Loan provides for payment caps on any Adjustment Date which would result in
deferred interest or negative amortization. Effective with the first payment due
date on a Mortgage Loan after an Adjustment Date therefor, the monthly principal
and interest payment will be adjusted to an amount that will fully amortize the
then outstanding principal balance of such Mortgage Loan at its stated maturity
and pay interest at the adjusted Mortgage Rate. Because the amortization
schedule of each Mortgage Loan will be recalculated semi-annually, any partial
prepayments thereof will not reduce the term to maturity of such Mortgage Loan.
An increase in the Mortgage Rate on a Mortgage Loan will result in a larger
monthly payment and in a larger percentage of such monthly payment being
allocated to interest and a smaller percentage being allocated to principal, and
conversely, a decrease in the Mortgage Rate on the Mortgage Loan will result in
a lower monthly payment and in a larger percentage of each monthly payment being
allocated to principal and a smaller percentage being allocated to interest.
The Cost of Funds Index reflects the monthly weighted average cost of
funds of savings and loan associations and savings banks, the home offices of
which are located in Arizona, California and Nevada, that are member
institutions of the FHLB of San Francisco, as computed from statistics tabulated
and published by the FHLB of San Francisco. The FHLB of San Francisco normally
announces the Cost of Funds Index on or near the last working day of the month
following the month in which the cost of funds was incurred. The Index is
available through a variety of sources, including, without limitation, Telerate,
THE WALL STREET JOURNAL and USA TODAY.
Listed below are the historical values of the Cost of Funds Index since
1988. Such values may fluctuate significantly over time and may not increase or
decrease in a constant pattern from period to period. The following does not
purport to be representative of future values of the Index. No assurance can be
given as to the Index value to be applied on any future Adjustment Date.
COST OF FUNDS INDEX
Month 1990 1991 1992 1993 1994 1995
===== ===== ===== ====== ====== ====== =====
January.........
February........
March...........
April...........
May.............
June............
July............
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<PAGE>
August..........
September.......
October.........
November........
December........
The initial Mortgage Rate in effect on a Mortgage Loan generally will
be lower than the sum of the Index that would have been applicable at
origination and the Note Margin. Absent a decline in the Index subsequent to
origination of a Mortgage Loan, the related Mortgage Rate will generally
increase on the first Adjustment Date following origination of such Mortgage
Loan. The repayment of such Mortgage Loans will be dependent on the ability of
the Mortgagor to make larger Monthly Payments following adjustments of the
Mortgage Rate. Moreover, because the maximum Mortgage Rate on any Mortgage Loan
is determined by adding the Lifetime Rate Cap to the Mortgage Rate at
origination, irrespective of the Index that would have been applicable at
origination, the maximum Mortgage Rate on a Mortgage Loan will generally be less
than the sum of the Index and the Note Margin that would have been applicable at
origination plus the Lifetime Rate Cap. Mortgage Loans that have the same
initial Mortgage Rate may not always bear interest at the same Mortgage Rate
because the Mortgage Loans may have different Adjustment Dates (and the Mortgage
Rate therefore may reflect different Index values), different Note Margins,
different Lifetime Rate Caps and different Lifetime Rate Floors, if any.
Approximately ____% of the Mortgage Loans, by aggregate principal
balance as of the Cut-off Date, are Convertible Mortgage Loans. The first month
in which any of the Mortgage Loans could convert is _______, 19__ and the last
month in which any of the Mortgage Loans may convert is ________ 1, 19__. Upon
conversion, the monthly payments of principal and interest will be adjusted to
provide for full amortization at scheduled maturity. Upon notification from a
Mortgagor of such Mortgagor's intent to convert from an adjustable rate to a
fixed rate and prior to the conversion thereof, the Master Servicer [or the
related Subservicer] will be obligated to purchase the Converting Mortgage Loan
at the Conversion Price. [In the event of a failure by a Subservicer to purchase
a Converting Mortgage Loan, the Master Servicer shall use its best efforts to
purchase such Mortgage Loan following its conversion (a "Converted Mortgage
Loan") at the Conversion Price during the one-month period following the date of
conversion to a Converted Mortgage Loan.]
In the event that the Master Servicer [nor the related Subservicer]
fails to purchase a Converting Mortgage Loan and the Master Servicer does not
purchase a Converted Mortgage Loan, neither the Company nor any of its
affiliates nor any other entity is obligated to purchase or arrange for the
purchase of any Converted Mortgage Loan. Any such Converted Mortgage Loan will
remain in the Mortgage Pool as a fixed-rate Mortgage Loan and will result in the
Mortgage Pool having both fixed rate and adjustable rate Mortgage Loans. See
"Certain Yield and Prepayment Considerations" herein.
Following the purchase of any Converted Mortgage Loan as described
above, the purchaser will be entitled to receive an assignment from the Trustee
of such Mortgage Loan and
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<PAGE>
the purchaser will thereafter own such Mortgage Loan free of any further
obligation to the Trustee or the Certificateholders with respect thereto.
The Principal Balance of any Mortgage Loan as of any time of
determination is the principal balance of such Mortgage Loan remaining to be
paid by the Mortgagor at the close of business on the Cut-off Date, after
deduction of all payments due on or before the Cut-off Date whether or not paid,
reduced by all amounts distributed to Certificateholders with respect to such
Mortgage Loan and reported to them as allocable to principal, including the
principal components of any Advances (as described below under "Description of
the Certificates--Advances").
The Mortgage Loans will have approximately the following
characteristics as of the Cutoff Date:
Number of Mortgage Loans.........................
Weighted Average Adjustable Pass-Through Rate(1).
Mortgage Rates:
Weighted Average.............................
Range........................................
Range of Net Mortgage Rates.......................
Note Margins:
Weighted Average.............................
Range........................................
Net Note Margin(2)................................
Maximum Mortgage Rates:
Weighted Average.............................
Range........................................
Maximum Net Mortgage Rates (3):
Weighted Average.............................
Range........................................
Weighted Average Months to Next
Adjustment Date after ____________, 19__ (4)......
(1) The Weighted Average Adjustable Pass-Through Rate is equal to the
weighted average of the Net Mortgage Rates on the Mortgage Loans.
(2) The Net Note Margin is the Note Margin on each Mortgage Loan minus the
Servicing Fee Rate and the rate at which the Spread accrues.
(3) The difference between the maximum Net Mortgage Rate and the Net
Mortgage Rate as of the Cut-off Date may be less than the Lifetime Rate
Cap.
(4) The Weighted Average Months to the next Adjustment Date is equal to the
weighted average of the number of months until the Adjustment Date next
following _____________, 19__.
The Mortgage Loans in the Mortgage Pool will have the following
characteristics as of the Cut-off Date (expressed as a percentage of the
aggregate principal balance of the Mortgage
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<PAGE>
Loans having such characteristics relative to the aggregate principal balance of
all Mortgage Loans in the Mortgage Pool):
The Mortgage Loans will have had individual principal balances
at origination of at least $__________ but not more than $__________.
None of the Mortgage Loans in the Mortgage Pool will have been
originated prior to _____________, 19__ or will have a scheduled
maturity later than ____________, ____. No Mortgage Loan in the
Mortgage Pool will have an unexpired term to stated maturity as of the
Cut-off Date of less than __ years and __ months. The weighted average
remaining term to stated maturity of the Mortgage Loans in the Mortgage
Pool as of the Cut-off Date will be approximately ____ years and __
months. The weighted average Adjustment Date of the Mortgage Loans in
the Mortgage Pool next following the Cut-off Date is ____________,
19__.
Approximately _____% of the Mortgage Loans will have
Loan-to-Value Ratios at origination exceeding 80% but less than or
equal to 90%, and approximately ____% of the Mortgage Loans will have
Loan-to-Value Ratios exceeding 90%. The weighted average Loan-to-Value
Ratio at origination, as of the Cut-off Date, is approximately
_____%.
At least _____% of such Mortgage Loans will be secured by fee
simple interests in detached one- to four-family dwelling units with
the remaining units being secured by fee simple interests in attached
planned unit developments, condominiums or townhouses.
Approximately _____% of the Mortgage Loans in the Mortgage
Pool will be secured by Mortgaged Properties located in California.
No more than _____% of the Mortgage Loans in the Mortgage Pool
will be secured by Mortgaged Properties located in any one zip code
area in California, and no more than ____% will be secured by Mortgaged
Properties located in any one zip code area outside California.
No more than _____% of the Mortgage Loans were equity
refinance mortgage loans made to mortgagors who used less than the
entire amount of the proceeds to refinance an existing mortgage loan.
The weighted average Loan-to-Value Ratio at origination of such
Mortgage Loans, as of the Cut-off Date, is approximately ______%.
Approximately ____% of the Mortgage Loans were made to Mortgagors who
used the entire proceeds to refinance an existing Mortgage Loan.
No Mortgage Loan provides for deferred interest or negative
amortization.
Approximately ____% of the Mortgage Loans in the Mortgage Pool
will have been underwritten under a reduced loan documentation program.
The weighted average Loan-to-Value Ratio at origination of the Mortgage
Loans in the Mortgage Pool which were underwritten under such reduced
loan documentation program will be approximately
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<PAGE>
____% and no more than approximately ____% of such Mortgage Loans will
be secured by Mortgaged Properties located in California. See "Pooling
and Servicing Agreement--The Master Servicer" herein.
No more than ____% of the Mortgage Loans will be secured by
vacation or second homes. No more than ____% of the Mortgage Loans will
be secured by one- to four-story condominium units. No Mortgage Loans
will be secured by condominium units in buildings of five or more
stories.
None of the Mortgage Loans in the Mortgage Pool will be
Buydown Mortgage Loans.
The following table sets forth the number and aggregate principal
balance as of the Cut-off Date of Mortgage Loans having their next Adjustment
Dates in the month described therein. The table also indicates the approximate
percentage of Mortgage Loans in the Mortgage Pool with an Adjustment Date in
each such month.
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<PAGE>
MONTH OF NUMBER OF AGGREGATE PERCENTAGE OF
ADJUSTMENT DATE MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
=============== ============== ================= =============
Total..........
The following table sets forth the number and aggregate principal
balance of Mortgage Loans having unpaid principal balances in the ranges
described therein as of the Cut-off Date. The table also indicates the
approximate weighted average Mortgage Rate and the approximate weighted average
Loan-to-Value Ratio at origination of the Mortgage Loans in each given range, as
of the Cut-off Date.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER WEIGHTED ORIGINAL
OF AGGREGATE AVERAGE LOAN-TO-
MORTGAGE PRINCIPAL MORTGAGE VALUE
PRINCIPAL BALANCE LOANS BALANCE RATE RATIO
- ----------------- ----- ------- ---- -----
<S> <C> <C> <C> <C>
Total, Average or Weighted Average................. _______ $____________ ________% _______%
</TABLE>
UNDERWRITING STANDARDS
[Additional disclosure as necessary. See Version 1 for
underwriting disclosure for Option One Mortgage Corporation.]
DELINQUENCY AND FORECLOSURE EXPERIENCE
[Additional disclosure as necessary. See Version 1 for sample
disclosure for this section.]
The information set forth in the preceding paragraphs concerning
Option One Mortgage Corporation has been provided by Option One Mortgage
Corporation.
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<PAGE>
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Pool
and the Mortgaged Properties is based upon the Mortgage Pool as constituted at
the close of business on the Cut-off Date, as adjusted for the scheduled
principal payments due before such date. Prior to the issuance of the
Certificates, Mortgage Loans may be removed from the Mortgage Pool as a result
of incomplete documentation or otherwise, if the Company deems such removal
necessary or appropriate. A limited number of other mortgage loans may be
included in the Mortgage Pool prior to the issuance of the Certificates. The
Company believes that the information set forth herein will be substantially
representative of the characteristics of the Mortgage Pool as they will be
constituted at the time the Certificates are issued although the range of
Mortgage Rates and maturities and certain other characteristics of the Mortgage
Loans in the Mortgage Pool may vary.
A Current Report on Form 8-K containing a detailed description of
the Mortgage Loans will be available to purchasers of the Certificates and will
be filed, together with the Pooling and Servicing Agreement, with the Securities
and Exchange Commission within fifteen days after initial issuance. The Current
Report on Form 8-K will specify the aggregate principal balance of the Mortgage
Loans in the Mortgage Pool outstanding as of the Cut-off Date and will set forth
the other approximate information presented in this Prospectus Supplement.
See also "The Mortgage Pools" and "Certain Legal Aspects of
Mortgage Loans" in the Prospectus.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates evidence in the aggregate the entire beneficial
ownership of the Trust Fund. The Trust Fund will consist of (i) the Mortgage
Loans, exclusive of the Company's rights in and to the Spread with respect to
each Mortgage Loan; (ii) such assets as from time to time are identified as
deposited in respect of the Mortgage Loans in the Certificate Account (as
described in the Prospectus) and belonging to the Trust Fund; (iii) property
acquired by foreclosure of such Mortgage Loans or deed in lieu of foreclosure;
(iv) any applicable insurance policies and all proceeds thereof; and (v) the
Letter of Credit (or any alternate form of credit support substituted therefor)
and all proceeds thereof, other than any amount drawn thereunder and deposited
in a reserve fund.
DISTRIBUTIONS
Distributions to holders of Certificates will be made on each
Distribution Date based on their respective Percentage Interests. The undivided
Percentage Interest of a Certificate will be equal to the percentage obtained by
dividing the initial principal balance of such Certificate by the aggregate
initial principal balance of all Certificates, which will equal the aggregate
principal balance of the Mortgage Loans as of the Cut-off Date.
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<PAGE>
The "Available Distribution Amount" for any Distribution Date will
generally consist of (i) the aggregate amount of scheduled payments on the
Mortgage Loans due on the related Due Date and received on or prior to the
related Determination Date, after deduction of the related master servicing fees
(the "Servicing Fees"), (ii) certain unscheduled payments, including Mortgagor
prepayments on the Mortgage Loans, Insurance Proceeds, Liquidation Proceeds and
proceeds from repurchases of and substitutions for the Mortgage Loans occurring
during the preceding calendar month and (iii) all Advances made for such
Distribution Date, in each case net of amounts reimbursable therefrom to the
Master Servicer. In addition to the foregoing amounts, with respect to
unscheduled collections, not including Mortgagor prepayments, the Master
Servicer may elect to treat such amounts as included in the Available
Distribution Amount for the Distribution Date in the month of receipt, but is
not obligated to do so. With respect to any Distribution Date, (i) the "Due
Date" is the first day of the month in which such Distribution Date occurs and
(ii) the "Determination Date" is the [__th] day of the month in which such
Distribution Date occurs or, if such day is not a business day, the immediately
succeeding business day. See "Description of the Certificates--Distributions" in
the Prospectus.
Holders of Certificates will be entitled to receive distributions
of interest on each Distribution Date, to the extent of the Available
Distribution Amount for such Distribution Date, in an aggregate amount equal to
one month's interest, at the then applicable Weighted Average Adjustable
Pass-Through Rate on the principal balance of the Mortgage Loans outstanding as
of the close of business on the immediately preceding Distribution Date (or, in
the case of the first Distribution Date, outstanding as of the Delivery Date),
subject to reduction in the event of any interest shortfalls not covered by the
Letter of Credit, including any Prepayment Interest Shortfalls (as defined
below) resulting from full and partial prepayments, as well as certain losses
and delinquencies on the Mortgage Loans as described below. The Weighted Average
Adjustable Pass-Through Rate for any Distribution Date will equal the average of
the Net Mortgage Rates on the Mortgage Loans (weighted by the principal balances
of such Mortgage Loans as of the Due Date occurring in the preceding month).
Subject to the following limitations, for each period beginning on the related
Adjustment Date therefor, the Net Mortgage Rate on a Mortgage Loan will equal
the sum of the Cost of Funds Index (rounded to the nearest multiple of ______%)
and the Net Note Margin. The Net Note Margin for each Mortgage Loan will be
______%. The Net Mortgage Rate on any Mortgage Loan on any Adjustment Date may
not increase or decrease by more than the Periodic Rate Cap, and the Net
Mortgage Rate on any Mortgage Loan will not exceed the maximum Net Mortgage Rate
(the "Maximum Net Mortgage Rate") applicable to such Mortgage Loan as specified
in the Pooling and Servicing Agreement. The difference between the Net Mortgage
Rate as of the Cut-off Date and the Maximum Net Mortgage Rate will not exceed,
and may be less than, the Lifetime Rate Cap. With respect to each Mortgage Loan,
the Net Mortgage Rate is the rate per annum equal to the Mortgage Rate for such
Mortgage Loan, net of the Servicing Fee Rate and the per annum rate at which the
Spread accrues. See "Description of the Mortgage Pool" and "Pooling and
Servicing Agreement--Servicing and Other Compensation and Payment of Expenses;
Spread" herein.
Holders of the Certificates will be entitled to receive on each
Distribution Date, to the extent of the Available Distribution Amount for such
Distribution Date after distributions of interest as set forth above, an amount
equal to the "Principal Distribution Amount" for such
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Distribution Date, which will equal the sum of: (a) the principal portion of any
Advances for such Distribution Date; (b) any amount required to be paid by the
Master Servicer due to the operation of a deductible clause in any blanket
policy maintained by it to cover hazard losses on the Mortgage Loans as
described in the Prospectus under "Primary Mortgage Insurance, Hazard Insurance;
Claims Thereunder"; (c) all payments in respect of the Mortgage Loans on account
of principal (including, without limitation, principal prepayments, the
principal portion of any Liquidation Proceeds and Insurance Proceeds, the
principal portion of proceeds from repurchased Mortgage Loans and the principal
portion of proceeds from the purchase of Converting Mortgage Loans and the sale
of Converted Mortgage Loans) on deposit in the Certificate Account on the
Determination Date immediately preceding such Distribution Date, exclusive or
net of (i) Liquidation Proceeds, Insurance Proceeds and principal prepayments
received during the month in which such Distribution Date occurs (unless such
amounts are deemed to have been received in the prior month pursuant to the
Pooling and Servicing Agreement as described below), (ii) scheduled payments of
principal due on a date or dates subsequent to the first day of the month in
which such Distribution Date occurs, (iii) late payments of principal which have
been the subject of a previous Advance or Advances that have not been reimbursed
to the Master Servicer and (iv) an amount equal to liquidation expenses incurred
by the Master Servicer to the extent not reimbursed from related Liquidation
Proceeds; and (d) all amounts required to be deposited in the Certificate
Account on the Business Day immediately preceding such Distribution Date, with
respect to draws or payments under the Letter of Credit which are allocable to
payments on account of principal of the Mortgage Loans, except for payments of
principal which have been the subject of a previous Advance or Advances and
which are eligible for withdrawal in reimbursement to the Master Servicer.
The Prepayment Interest Shortfall for any Distribution Date is
equal to the aggregate shortfall, if any, in collections of interest (adjusted
to the related Net Mortgage Rates) resulting from mortgagor prepayments on the
Mortgage Loans during the preceding calendar month. Such shortfalls will result
because interest on prepayments in full is collected only to the date of
prepayment, and no interest is collected on prepayments in part, as such
prepayments are applied to reduce the outstanding principal balance of the
related Mortgage Loan as of the Due Date in the month of prepayment. The
Prepayment Interest Shortfall and other interest shortfalls (such as those
resulting from the application of the Relief Act (as defined herein)) not
covered by the Letter of Credit on any Distribution Date will be allocated to
the holders of the Certificates pro rata based on distributions of interest to
be made on such Distribution Date, before taking into account any such
reduction. Prepayment Interest Shortfalls and other interest shortfalls will not
be offset by a reduction of the servicing compensation of the Master Servicer or
otherwise.
Distributions for any Distribution Date will also be reduced if
net Liquidation Proceeds or net Insurance Proceeds (together with any net
amounts payable as described below under "Description of Credit Enhancement")
received on a defaulted Mortgage Loan liquidated during the month preceding the
month in which such Distribution Date occurs are less than the outstanding
principal balance of such Mortgage Loan, plus interest thereon at the related
Net Mortgage Rate. If an Advance by the Master Servicer was previously made in
respect thereof, late payments of principal and interest, if any, remitted to
the Master Servicer for deposit into the Certificate Account will not be passed
through to Certificateholders but rather will be subject
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to withdrawal by the Master Servicer from the Certificate Account in
reimbursement to itself for such Advance. To the extent that an Advance is not
made, the distributions for such Distribution Date will be reduced accordingly.
Reimbursement of the Master Servicer or the Company for any other advances or
expenses reimbursable to either as described in the Prospectus, out of amounts
otherwise distributable to the Certificateholders, will also reduce the
distributions for the related Distribution Date. Distributions for any
Distribution Date will be reduced to the extent that losses on any Mortgage
Loans in the Mortgage Pool are not covered by the Letter of Credit or any
substitute form of credit enhancement.
With respect to Insurance Proceeds, Liquidation Proceeds and other
unscheduled collections (not including prepayments by the mortgagors) received
in any calendar month, the Master Servicer may elect to treat such amounts as
part of the distribution to be made on the Distribution Date in the month of
receipt, but is not obligated to do so. If the Master Servicer so elects, such
amounts will be deemed to have been received (and any related loss which
requires a draw on the Letter of Credit shall be deemed to have occurred) on the
last day of the month prior to the receipt thereof.
ADVANCES
Prior to each Distribution Date, the Master Servicer is required
to make Advances for the benefit of the Certificateholders (out of its own funds
or funds held in the Custodial Account (as described in the Prospectus) for
future distribution or withdrawal) with respect to any payments of principal and
interest (net of the related Servicing Fees and the Spread) which were due on
the Mortgage Loans on the immediately preceding Due Date and delinquent on the
business day next preceding the related Determination Date.
Such Advances are required to be made only to the extent they are
deemed by the Master Servicer to be recoverable from related late collections,
Insurance Proceeds, Liquidation Proceeds or draws on the Letter of Credit. The
purpose of making such Advances is to maintain a regular cash flow to the
Certificateholders, rather than to guarantee or insure against losses. The
Master Servicer will not be required to make any Advances with respect to
reductions in the amount of the monthly payments on the Mortgage Loans due to
bankruptcy proceedings or the application of the Relief Act or similar
legislation or regulations.
All Advances will be reimbursable to the Master Servicer on a
first priority basis from late collections, Insurance Proceeds, Liquidation
Proceeds and draws on the Letter of Credit on or in respect of the Mortgage Loan
as to which such unreimbursed Advance was made. In addition, any Advances
previously made which are deemed by the Master Servicer to be nonrecoverable
from related late collections, Insurance Proceeds, Liquidation Proceeds or draws
on the Letter of Credit may be reimbursed to the Master Servicer out of any
funds in the Custodial Account or Certificate Account prior to distributions on
the Certificates.
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CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
The effective yield to the holders of Certificates will be lower
than the yield otherwise produced by the applicable Weighted Average Adjustable
Pass-Through Rate and purchase price because monthly distributions will not be
made to such holders until the 25th day (or if such day is not a business day,
then on the next succeeding business day) of the month following the month in
which interest accrues on the Mortgage Loans (without any additional
distributions of interest or earnings thereon in respect of such delay). See
"Yield Considerations" in the Prospectus.
The yield to maturity and the aggregate amount of distributions on
the Certificates will be directly related to the rate of payment of principal on
the Mortgage Loans. Such yield may be adversely affected by a higher or lower
than anticipated rate of payment of principal on the Mortgage Loans in the Trust
Fund. The rate of payment of principal on such Mortgage Loans will in turn be
affected by the amortization schedules of the Mortgage Loans (which will change
periodically as described above), the rate of principal prepayments thereon by
the Mortgagors, liquidations of defaulted Mortgage Loans and purchases of
Mortgage Loans due to certain breaches of representations or the conversion of
Convertible Mortgage Loans. The principal component of the monthly payments on
the Mortgage Loans may change on each related Adjustment Date. In addition, the
amortization schedule of a Mortgage Loan may be changed in connection with the
receipt of a partial prepayment thereon, provided however that such changes will
not include a change in the maturity date of the related Mortgage Loan. See
"Description of the Mortgage Pool--General" herein.
Other factors affecting prepayment of mortgage loans include
changes in mortgagors' housing needs, job transfers, mortgage market interest
rates, unemployment, mortgagors' net equity in the mortgaged properties, changes
in the value of the mortgaged properties and servicing decisions. If prevailing
mortgage rates fell significantly below the Mortgage Rates on the Mortgage
Loans, the rate of prepayment (and refinancing) would be expected to increase.
Conversely, if prevailing mortgage rates rose significantly above the Mortgage
Rates on the Mortgage Loans, the rate of prepayment on the Mortgage Loans would
be expected to decrease. There can be no certainty as to the rate of prepayments
on, or conversions of, the Mortgage Loans during any period or over the life of
the Certificates. However, in the event that substantial numbers of Mortgagors
exercise their conversion rights, and [the related Subservicers and] the Master
Servicer purchase the Converting and Converted Mortgage Loans, the Mortgage Pool
will experience substantial prepayment of principal.
The Mortgage Loans may be prepaid by the Mortgagors at any time
without payment of any prepayment fee or penalty. In addition, certain of the
Mortgage Loans provide that the Mortgagors may, during a specified period of
time, convert the adjustable rate of such Mortgage Loans to a fixed rate. The
Company is not aware of any publicly available statistics that set forth
principal prepayment or conversion experience or prepayment or conversion
forecasts of comparable adjustable rate mortgage loans over an extended period
of time, and its experience with respect to comparable adjustable rate mortgages
is insufficient to draw any conclusions with respect to the expected prepayment
or conversion rates on the Mortgage Loans included in the Mortgage Pool. The
rate of payments (including prepayments) on pools of mortgage loans is
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influenced by a variety of economic, geographic, social and other factors. As is
the case with conventional fixed rate mortgage loans, adjustable rate mortgage
loans may be subject to a greater rate of principal prepayments or purchases due
to their conversion to fixed interest rate loans in a low interest rate
environment. For example, if prevailing interest rates fall significantly,
adjustable rate mortgage loans could be subject to higher prepayment and
conversion rates than if prevailing interest rates remain constant because the
availability of fixed rate or other adjustable rate mortgage loans at
competitive interest rates may encourage Mortgagors to refinance their
adjustable rate mortgages to "lock in" a lower fixed interest rate or take
advantage of the availability of such other adjustable rate mortgage loans, or,
in the case of convertible adjustable rate mortgage loans, to exercise their
option to convert the adjustable interest rates to fixed interest rates. The
conversion feature may also be exercised in a rising interest rate environment
as Mortgagors attempt to limit their risk of higher rates. Such a rising
interest rate environment may also result in an increase in the rate of defaults
on the Mortgage Loans. In the event that [the Subservicers or] the Master
Servicer purchases Converting or Converted Mortgage Loans, a Mortgagor's
exercise of the conversion option will result in a pro rata distribution of the
principal portion thereof to the Certificateholders, as described herein.
Alternatively, to the extent Subservicers fail in their obligation to purchase
Converting Mortgage Loans and the Master Servicer does not purchase Converted
Mortgage Loans, as described herein, the Mortgage Pool will include fixed rate
Mortgage Loans, which will have the effect of limiting the extent to which the
Weighted Average Adjustable Pass-Through Rate can increase or decrease in
accordance with changes in the Index and accordingly may affect the yield to
Certificateholders.
The existence of Periodic Rate Caps, Lifetime Rate Caps and any
Lifetime Rate Floors also will affect the likelihood of prepayments resulting
from refinancing and the exercise of the conversion option. Although the
Mortgage Rates on the Mortgage Loans will adjust periodically, such increases
and decreases will be limited by the Periodic Rate Caps, Lifetime Rate Caps and
any Lifetime Rate Floors on each Mortgage Loan and will be based on the Index
(which may not rise and fall consistently with mortgage interest rates) plus the
related Note Margins (which may be different from the prevailing margins on
other mortgage loans). As a result, the Mortgage Rates on the Mortgage Loans at
any time may not equal the prevailing rates for other adjustable rate loans and
accordingly, the rate of prepayment may be lower or higher than would otherwise
be anticipated.
With respect to those Mortgage Loans having Lifetime Rate Floors,
if prevailing mortgage rates were to fall below the minimum Mortgage Rates, the
rate of prepayment on such Mortgage Loans may be expected to increase and such
Mortgage Loans may prepay at a rate higher than would otherwise be anticipated
for adjustable rate mortgage loans.
All of the Mortgage Loans are assumable under certain
circumstances if, in the sole judgment of the Master Servicer, the prospective
purchaser of a Mortgaged Property is creditworthy and the security for such
Mortgage Loan is not impaired by the assumption. The extent to which the
Mortgage Loans are assumed by purchasers of the Mortgaged Properties rather than
prepaid by the related mortgagors in connection with the sales of the Mortgaged
Properties will affect the weighted average life of the Certificates and may
result in a
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prepayment experience on the Mortgage Loans that differs from that on other
conventional mortgage loans.
The yield to maturity of the Certificates will depend on the rate
of payment of principal (including by reason of principal prepayments, purchases
of Mortgage Loans in the Mortgage Pool which are Converting Mortgage Loans or
Converted Mortgage Loans or in respect of which a breach of a representation or
warranty has occurred, and liquidation of defaulted Mortgage Loans) on the
Mortgage Loans, the price paid by the holders of Certificates and the Weighted
Average Adjustable Pass-Through Rate in effect from time to time. Such yield may
be adversely affected by a higher or lower than anticipated rate of prepayments
on the Mortgage Loans. Because the Weighted Average Adjustable Pass-Through Rate
at any time is the weighted average of the Net Mortgage Rates on the Mortgage
Loans, the Weighted Average Adjustable Pass Through Rate (and the yield on the
Certificates) will be reduced as a result of prepayments, liquidations and
purchases at a faster rate for Mortgage Loans having higher Net Mortgage Rates
as opposed to Mortgage Loans having lower Net Mortgage Rates. Because Mortgage
Loans having higher Net Mortgage Rates generally have higher Mortgage Rates,
such Mortgage Loans are generally more likely to be prepaid at a faster rate
under most circumstances than are Mortgage Loans having lower Net Mortgage
Rates.
The rate of default on the Mortgage Loans will also affect the
rate of payment of principal on the Mortgage Loans. In general, defaults on
mortgage loans are expected to occur with greater frequency in their early
years, although little data is available with respect to the rate of default on
adjustable rate mortgage loans. Increases in the monthly payments to an amount
in excess of the preceding monthly payment required at the time of origination
may result in a default rate higher than that on level payment mortgage loans.
Furthermore, the Mortgagor under each Mortgage Loan was qualified on the basis
of the Mortgage Rate in effect at origination. The repayment of such Mortgage
Loans will be dependent on the ability of the Mortgagor to make larger monthly
payments following adjustments of the Mortgage Rate. The rate of default on
Mortgage Loans which are equity refinance or limited documentation mortgage
loans may be higher than for other types of Mortgage Loans.
Prepayments, liquidations and purchases of the Mortgage Loans will
result in distributions to Certificateholders of principal amounts which would
otherwise be distributed over the remaining terms of the Mortgage Loans.
Furthermore, the rate of prepayments, defaults and liquidations on, or
conversions of, the Mortgage Loans will be affected by the general economic
condition of the region of the country where the related Mortgaged Properties
are located. The risk of delinquencies and loss is greater and prepayments are
less likely in regions where a weak or deteriorating economy exists, as may be
evidenced by increasing unemployment or falling property values. See "Maturity
and Prepayment Considerations" in the Prospectus. Since the rates of payment of
principal on the Mortgage Loans will depend on future events and a variety of
factors (as described more fully herein and in the Prospectus under "Yield
Considerations" and "Maturity and Prepayment Considerations"), no assurance can
be given as to such rate or the rate of principal prepayments on the
Certificates.
The amount of interest passed through to holders of the
Certificates will be reduced by shortfalls in collections of interest resulting
from full or partial principal prepayments or
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otherwise, which will not be offset by a reduction in the Servicing Fees payable
to the Master Servicer or otherwise. See "Yield Considerations" in the
Prospectus and "Description of the Certificates--Distributions" herein for a
discussion of the effect of principal prepayments on the Mortgage Loans on the
yield to maturity of the Certificates.
The timing of changes in the rate of prepayments, liquidations and
purchases of the Mortgage Loans may significantly affect an investor's actual
yield to maturity, even if the average rate of principal payments experienced
over time is consistent with an investor's expectation.
In addition, the yield to maturity of the Certificates will depend
on the price paid by holders of the Certificates. If any Certificate is
purchased at initial issuance at a discount and the rate of prepayments on the
Mortgage Loans is lower than that originally anticipated, the purchaser's yield
to maturity will be lower than that assumed at the time of purchase. Conversely,
if any Certificate is purchased at initial issuance at a premium and the rate of
prepayments on the Mortgage Loans is higher than that originally anticipated,
the purchaser's yield to maturity will be lower than that assumed at the time of
purchase.
The first distribution on the Certificates reflecting an
adjustment to the scheduled monthly payments on a related Mortgage Loan will be
passed through to holders of Certificates on the second Distribution Date
following the date on which the adjustment to such Mortgage Rate was made.
Furthermore, adjustments in the Net Mortgage Rates are based on the Index as
reported 45 days prior to the Adjustment Date. Accordingly, the yield to
Certificateholders will be adjusted on a delayed basis relative to movements in
the Index. Although the Net Mortgage Rate of each Mortgage Loan will be adjusted
pursuant to the Index, such rate is subject to the Periodic Rate Cap and is also
limited by the Lifetime Rate Cap and any Lifetime Rate Floor applicable to such
Mortgage Loan. With respect to certain Mortgage Loans the difference between the
Net Mortgage Rate as of the Cut-off Date and the maximum Net Mortgage Rate will
be less than the Lifetime Rate Cap. Therefore, if the Index changes
substantially between Adjustment Dates, the Net Mortgage Rate may be lower than
if the Net Mortgage Rate could be adjusted based on the Index without such caps.
A number of factors affect the performance of the Index and may
cause the Index to move in a manner different from other indices. To the extent
that the Index may reflect changes in the general level of interest rates less
quickly than other indices, in a period of rising interest rates, increases in
the yield to Certificateholders due to such rising interest rates may occur
later than that which would be produced by other indices, and in a period of
declining rates, the Index may remain higher than other market interest rates
which may result in a higher level of prepayments of Mortgage Loans which adjust
in accordance with the Index than mortgage loans which adjust in accordance with
other indices.
For additional considerations relating to the yield on the
Certificates, see "Yield Considerations" and "Maturity and Prepayment
Considerations" in the Prospectus.
POOLING AND SERVICING AGREEMENT
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GENERAL
The Certificates will be issued, and the Mortgage Loans serviced
and administered, pursuant to a Pooling and Servicing Agreement (the "Pooling
and Servicing Agreement") dated as of __________ 1, 19__, among the Company, the
Master Servicer, and _____________________, as trustee (the "Trustee").
Reference is made to the Prospectus for important information in addition to
that set forth herein regarding the terms and conditions of the Pooling and
Servicing Agreement and the Certificates. The Trustee will appoint
____________________ to serve as Custodian in connection with the Certificates.
The Certificates will be transferable and exchangeable at the corporate trust
office of the Trustee, which will serve as Certificate Registrar and will be
responsible for making distributions on the Certificates and forwarding monthly
reports with respect thereto to the holders thereof. In addition to the
circumstances described in the Prospectus, the Company may terminate the Trustee
for cause under certain circumstances. The Company will provide a prospective or
actual Certificateholder without charge, on written request, a copy (without
exhibits) of the Pooling and Servicing Agreement. Requests should be addressed
to the President, Option One Mortgage Acceptance Corporation, 2020 East First
Street, Suite 100, Santa Ana, California 92705. See "Description of the
Certificates," "Servicing of Mortgage Loans" and "The Pooling Agreement" in the
Prospectus.
THE MASTER SERVICER
[Name of Master Servicer] will act as master servicer (in such
capacity, the "Master Servicer") for the Certificates pursuant to the Pooling
and Servicing Agreement.
[Further disclosure as appropriate. See Version 1 for disclosure
for [Name of Master Servicer]].
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES; SPREAD
The Servicing Fees for each Mortgage Loan are payable out of the
interest payments on such Mortgage Loan. The Servicing Fees in respect of each
Mortgage Loan will accrue at ____% per annum (the "Servicing Fee Rate") on the
outstanding principal balance of each Mortgage Loan. The Master Servicer is
obligated to pay certain ongoing expenses associated with the Trust Fund and
incurred by the Master Servicer in connection with its responsibilities under
the Pooling and Servicing Agreement, including the expenses of the Letter of
Credit and any substitute credit support and the fees of the Trustee. See
"Servicing of Mortgage Loans -Servicing and Other Compensation and Payment of
Expenses; Spread" in the Prospectus for information regarding other possible
compensation to the Master Servicer and for information regarding expenses
payable by the Master Servicer.
Pursuant to the terms of the Pooling and Servicing Agreement, the
Master Servicer will be obligated to remit to the Company or its designee, a
portion of the interest collected on each Mortgage Loan (the "Spread"). The rate
at which the Spread on each Mortgage Loan accrues will be equal to ____% per
annum.
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TERMINATION
The circumstances under which the obligations created by the
Pooling and Servicing Agreement will terminate in respect of the Certificates
are described in "Description of the Certificates--Termination; Retirement of
Certificates" in the Prospectus. The Master Servicer or the Company will have
the option (i) to purchase all remaining Mortgage Loans and other assets in the
Trust Fund, thereby effecting early retirement of the Certificates or (ii) to
purchase in whole, but not in part, the Certificates, but either such option
will not be exercisable until such time as the aggregate principal balance of
the Mortgage Loans as of the Distribution Date on which the purchase proceeds
are to be distributed to the Certificateholders is less than __% of the
aggregate principal balance of the Mortgage Loans as of the Cut-off Date. Any
such purchase of Mortgage Loans and other assets of the Trust Fund shall be made
at a price equal to the aggregate principal balance of all the Mortgage Loans
(or the fair market value of the related underlying Mortgaged Properties with
respect to defaulted Mortgage Loans as to which title to such Mortgaged
Properties has been acquired if such fair market value is less than such unpaid
principal balance) (net of any unreimbursed Advance attributable to principal),
together with one month's interest on such aggregate amount at the then
applicable Weighted Average Adjustable Pass-Through Rate.
Upon presentation and surrender of the Certificates in connection
with the termination of the Trust Fund or a purchase of Certificates under the
circumstances described above, the holders of the Certificates will receive, in
proportion to their respective Percentage Interests, an amount equal to the sum
of the principal balances of the Mortgage Loans plus one month's accrued
interest thereon at the then applicable Weighted Average Adjustable Pass-Through
Rate.
DESCRIPTION OF CREDIT ENHANCEMENT
GENERAL
All of the Mortgage Loans are the subject of credit support
coverage provided by the Letter of Credit. In addition, each Mortgage Loan is
covered by a Primary Hazard Insurance Policy as described under "Primary
Mortgage Insurance, Hazard Insurance; Claims Thereunder" in the Prospectus. See
also "Description of the Mortgage Pool--Primary Mortgage Insurance" herein.
LETTER OF CREDIT
The Letter of Credit Bank will issue the Letter of Credit to the
Trustee for the benefit of the holders of the Certificates. Subject to the
limitations described below, the Letter of Credit will be available to cover
Defaulted Mortgage Losses, Special Hazard Losses, Fraud Losses and Bankruptcy
Losses. The maximum amount available to be drawn under the Letter of Credit with
respect to all losses will initially be equal to $_________ (the initial
"Available Amount") which is equal to approximately ____% of the aggregate
principal balance of the Mortgage Loans as of the Cut-off Date. The Available
Amount at any time will be reduced by any amounts previously drawn under the
Letter of Credit (net of any amounts received or collected by the
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Master Servicer following each respective draw as subsequent recoveries on the
Mortgage Loans with respect to which such draws were made and, if appropriate,
such draws were reimbursed to the Letter of Credit Bank). The Available Amount
will be reinstated with respect to the subsequent recoveries described in the
preceding sentence, however in no event will the Available Amount be reinstated
to an amount in excess of the initial Available Amount. The Available Amount
under the Letter of Credit (if the Letter of Credit is extended in accordance
with its terms) is also subject to reduction pursuant to the terms of the
Pooling and Servicing Agreement annually beginning on the tenth anniversary of
the Cut-off Date and each anniversary thereafter, such that, beginning with the
fourteenth anniversary of the Cut-off Date and on each anniversary thereafter,
the Available Amount will not exceed ____% of the aggregate outstanding
principal balance of the Mortgage Loans, provided that such scheduled reductions
will not reduce the Available Amount below three times the principal balance of
the largest single Mortgage Loan outstanding on such anniversary, and further
provided that the Available Amount will not be reduced in accordance with the
preceding sentence if delinquency rates and losses on the Mortgage Loans exceed
certain levels as specified by the Rating Agency as set forth in the Pooling and
Servicing Agreement. The Amount Available may be further reduced from time to
time by such amounts as the Master Servicer may determine and direct the
Trustee, provided the then current rating of the Certificates is not adversely
affected.
Notwithstanding the foregoing, the maximum amount available under
the Letter of Credit in connection with Fraud Losses (the "Fraud Loss Amount")
shall initially be equal to $___________. As of any date of determination after
the Cut-off Date the Fraud Loss Amount shall equal (X) prior to the first
anniversary of the Cut-off Date an amount equal to ____% of the aggregate
principal balance of all of the Mortgage Loans as of the Cut-off Date minus the
aggregate amount of draws made under the Letter of Credit with respect to Fraud
Losses up to such date of determination, and (Y) from the first through fifth
anniversary of the Cut-off Date, an amount equal to (1) the lesser of (a) the
Fraud Loss Amount as of the most recent anniversary of the Cut-off Date and (b)
____% of the aggregate principal balance of all of the Mortgage Loans as of the
most recent anniversary of the Cut-off Date minus (2) the aggregate amount of
draws made under the Letter of Credit with respect to Fraud Losses since the
most recent anniversary of the Cut-off Date up to such date of determination.
After the fifth anniversary of the Cut-off Date the Fraud Loss Amount shall be
zero and no draws shall be made under the Letter of Credit with respect to Fraud
Losses.
The maximum amount available under the Letter of Credit in respect
of Special Hazard Losses (the "Special Hazard Amount") will equal $__________
less the sum of (A) any amounts drawn under the Letter of Credit in respect of
Special Hazard Losses (to the extent that such amounts do not exceed the lesser
of the cost of repair or replacement of the related Mortgaged Properties) and
(B) the Adjustment Amount. The Adjustment Amount on each anniversary of the
Cut-off Date will be equal to the amount, if any, by which the Special Hazard
Amount, without giving effect to the deduction of the Adjustment Amount for such
anniversary, exceeds the greater of (i) 1% (or, if greater than 1%, the highest
percentage of Mortgage Loans by principal balance in any California zip code
area) times the aggregate principal balance of all of the Mortgage Loans in the
Mortgage Pool on such anniversary and (ii) twice the principal balance of the
single Mortgage Loan in the Mortgage Pool having the largest principal balance.
As used in this Prospectus Supplement, "Special Hazard Losses" has the same
meaning set forth
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in the Prospectus except that Special Hazard Losses will not include and the
Letter of Credit will not cover losses occasioned by war, civil insurrection,
certain governmental actions, nuclear reaction and certain other risks.
As of any date of determination prior to the first anniversary of
the Cut-off Date, the maximum amount available under the Letter of Credit in
respect of Bankruptcy Losses (the "Bankruptcy Amount") will equal $__________
less the sum of any amounts drawn under the Letter of Credit for such losses up
to such date of determination. As of any day of determination on or after the
first anniversary of the Cut-off Date, the Bankruptcy Amount will equal the
excess, if any, of (1) the lesser of (a) the Bankruptcy Amount as of the
business day next preceding the most recent anniversary of the Cut-off Date (the
"Relevant Anniversary") and (b) an amount calculated pursuant to the terms of
the Pooling and Servicing Agreement, which amount as calculated will provide for
a reduction in the Bankruptcy Amount, provided that delinquency rates and losses
on all of the Mortgage Loans do not exceed certain levels as set forth in the
Pooling and Servicing Agreement, over (2) the aggregate amount of draws made
under the Letter of Credit since the Relevant Anniversary in connection with
Bankruptcy Losses. The Bankruptcy Amount and the related automatic reductions
described above may be reduced or modified upon written confirmation from the
Rating Agency that such reduction or modification will not adversely affect the
then current rating assigned to the Certificates by such Rating Agency. Such a
reduction or modification may adversely affect the coverage provided by the
Letter of Credit with respect to Bankruptcy Losses.
[Described manner in which payments will be made under the Letter
of Credit.] See "Description of Credit Enhancement--Letter of Credit" in the
Prospectus. However, the Trustee shall not make such draws under the Letter of
Credit in connection with a Bankruptcy Loss so long as the Master Servicer has
notified the Trustee in writing that the Master Servicer is diligently pursuing
any remedies that may exist in connection with the representations and
warranties made regarding the related Mortgage Loan and either (A) the related
Mortgage Loan is not in default with regard to payments due thereunder or (B)
delinquent payments of principal and interest under the related Mortgage Loan
and any premiums on any applicable Primary Hazard Insurance Policy and any
related escrow payments in respect of such Mortgage Loan are being advanced on a
current basis by the Master Servicer [or a Subservicer].
Any Mortgage Loan the unpaid principal balance of which is paid
pursuant to a draw under the Letter of Credit will be assigned to the Company
and will no longer be subject to the Pooling and Servicing Agreement. Any
subsequent recoveries with respect to such Mortgage Loans will be paid to the
Company and, following notice and, if appropriate, reimbursement of such draw to
the Letter of Credit Bank, the Available Amount under the Letter of Credit (and
the Special Hazard Amount, Fraud Loss Amount or Bankruptcy Amount, if
applicable) will be reinstated to the extent of such recovery.
The Master Servicer, in lieu of maintaining the Letter of Credit,
may reduce the coverage thereunder (including accelerating the manner in which
such coverage is reduced pursuant to the related automatic reductions),
terminate such coverage or obtain and maintain alternate forms of credit support
(including, but not limited to, other letters of credit, insurance policies,
surety bonds, reserve funds, and secured or unsecured corporate guaranties),
with
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respect to Defaulted Mortgage Losses, Special Hazard Losses, Fraud Losses and
Bankruptcy Losses, provided that prior to any such reduction, termination or
substitution the Master Servicer shall have obtained written confirmation from
the Rating Agency that such reduction, termination or substitution will not
adversely affect the then current rating assigned to the Certificates by such
Rating Agency and shall provide a copy of each confirmation to the Trustee. In
the event that the long-term debt obligations of the Letter of Credit Bank are
at any time downgraded by the Rating Agency, the Company may request the Master
Servicer to obtain alternate forms of credit support, in accordance with the
preceding sentence, but the Master Servicer is under no obligation to do so. In
lieu of making a draw under the Letter of Credit for Defaulted Mortgage Losses,
Special Hazard Losses, Fraud Losses or Bankruptcy Losses as provided above, the
Master Servicer, at its sole option, may pay the amount otherwise required to be
drawn, in which case the amount so paid will reduce the related coverage under
the Letter of Credit.
As to any Mortgage Loan which is delinquent in payment by 90 days
or more, the Master Servicer may, at its sole option, purchase such Mortgage
Loan at a price equal to 100% of the unpaid principal balance thereof plus all
accrued and unpaid interest thereon through the last day of the month in which
such purchase occurs. To the extent that the Master Servicer subsequently
experiences losses with respect to such purchased Mortgage Loans which would
have been covered by the Letter of Credit had such Mortgage Loans remained in
the Trust Fund, the Available Amount (and the Special Hazard Amount, Fraud Loss
Amount or Bankruptcy Amount, to the extent that such losses constitute Special
Hazard Losses, Fraud Losses or Bankruptcy Losses) will be reduced by an amount
equal to the entire amount of such losses.
The Letter of Credit will expire on ___________, 19__ unless
earlier terminated or extended in accordance with its terms. The Letter of
Credit contains provisions to the effect that on or before the first day of the
sixth month immediately preceding the expiration date a request may be made to
extend the expiration date. It is within the Letter of Credit Bank's sole
discretion whether to agree to such an extension. If, as of the date 30 days
prior to the expiration date, or the expiration date thereof as so extended, a
replacement Letter of Credit or alternate form of credit support has not been
delivered to the Trustee, then, pursuant to the terms of the Pooling and
Servicing Agreement, the entire remaining amount of the Letter of Credit will be
drawn by the Trustee prior to such expiration date. In that event, the amount so
paid will be held by the Trustee in the form of a reserve fund held outside of
the Trust Fund (but pledged to the Trustee and held by it in trust for the
benefit of the Certificateholders), pending the substitution of any other form
of credit support therefor, and will be applied in the same manner as described
herein regarding draws under the Letter of Credit.
LETTER OF CREDIT BANK
The Letter of Credit will be issued by the Letter of Credit Bank,
which will be the ________________________________, a
____________________________________. _______________ principal executive
offices are located at ________________________________.
____________________ is engaged in a broad range of banking and
financial services activities, including deposit-taking, lending and leasing,
securities brokerage services, investment
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management, investment banking, capital markets activities and foreign exchange
transactions.
[Additional disclosure as appropriate.]
The information set forth in the preceding paragraphs concerning
the Letter of Credit Bank has been provided by the Letter of Credit Bank as of
the date hereof.
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FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of certain
anticipated material federal income tax consequences of the purchase, ownership
and disposition of Certificates. This discussion is directed solely to a holder
of a Certificate as a capital asset 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 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. A holder of a Certificate
is advised to consult its own tax advisors concerning the federal, state, local
or other tax consequences to it of the purchase, ownership and disposition of a
Certificate.
GRANTOR TRUST
CLASSIFICATION OF THE TRUST FUND
Upon issuance of the Certificates, Thacher Proffitt &
Wood, counsel to the Depositor, will deliver its opinion to the effect that,
assuming compliance with all provisions of the Pooling and Servicing Agreement,
the Trust Fund will be classified as a grantor trust under subpart E, part I of
subchapter J of the Code and not as an association taxable as a corporation or
as a partnership. Accordingly, a holder of a Certificate generally will be
treated as the owner of an undivided interest in the Mortgage Loans and other
assets held as part of the trust fund in which the Certificates evidence an
undivided interest.
CHARACTERIZATION OF THE INVESTMENT IN THE CERTIFICATES
The Certificates will represent interests in (i)
"qualifying real property loans" within the meaning of Section 593(d) of the
Code; (ii) "loans secured by an interest in real property" within the meaning of
Section 7701(a)(19)(C) of the Code; (iii) "obligations (including
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any participation or certificate of beneficial ownership therein) which . . .
are principally secured by an interest in real property" within the meaning of
Section 860G(a)(3)(A) of the Code; and (iv) "real estate assets" within the
meaning of Section 856(c)(5)(A) of the Code generally in the same proportion
that the assets of the Trust Fund would be so treated. In addition, interest on
the Certificates will to the same extent be considered "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.
TAXATION OF OWNERS OF THE CERTIFICATES
A holder of a Certificate generally will be required to
report on its federal income tax returns its share of the entire income from the
Mortgage Loans (including amounts used to pay reasonable servicing fees and
other expenses) in accordance with the holder's normal method of accounting and
will be entitled to deduct its share of any such reasonable servicing fees and
other expenses. Because of market discount or premium, the amount includible in
income on account of the Certificate may differ significantly from the amount
distributable thereon representing interest on the Mortgage Loans. Under Section
67 of the Code, an individual, estate or trust holding a Certificate directly or
through certain pass-through entities will be allowed a deduction for such
reasonable servicing fees and expenses only to the extent that the aggregate of
such holder's miscellaneous itemized deductions exceeds two percent of such
holder'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 a
holder of a Certificate that is subject to the limitations of either Section 67
or Section 68 of the Code may be substantial. Further, a holder of a Certificate
(other than corporations) subject to the alternative minimum tax may not deduct
miscellaneous itemized deductions in determining such holder's alternative
minimum taxable income.
MARKET DISCOUNT. A holder of a Certificate may be subject
to the market discount rules of Sections 1276 through 1278 of the Code to the
extent an interest in the Mortgage Loans is considered to have been purchased at
a "market discount", that is, at a purchase price less than its adjusted issue
price. If market discount is in excess of a DE MINIMIS amount (as described
below), the holder generally will be required to include in income in each month
the amount of such discount that has accrued through such month that has not
previously been included in income, but limited, in the case of the portion of
such discount that is allocable to any Mortgage Loan, to the payment of stated
redemption price on the Mortgage Loans that is received by (or, in the case of
an accrual basis holder of a Certificate, due to) the Trust Fund in that month.
A holder of a Certificate may elect to include market discount in income
currently as it accrues (under a constant yield method based on the yield of the
Certificate to such holder) 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 holder during or after the first taxable year to
which such election applies. In the absence of such an election, it may be
necessary to accrue such discount under a proportionate method. In addition,
Sections 1271 to 1275 of the Code addressing the treatment of debt instruments
issued with
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<PAGE>
original issue discount (the "OID Regulations") would permit a holder of a
Certificate 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 the
Mortgage Loans with market discount, such holder 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 holder acquires during
the taxable year of the election or thereafter, and possibly previously acquired
instruments. Similarly, a holder that made this election for a Certificate
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 holder owns or acquires. Each of these elections to accrue interest,
discount and premium with respect to a Certificate on a constant yield method or
as interest is irrevocable.
Section 1276(b)(3) of the Code authorized 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 such time as regulations are issued by the Treasury
Department, certain rules described in the Conference Committee Report (the
"Committee Report") accompanying the Tax Reform Act of 1986 will apply. Under
those rules, in each accrual period market discount on the Mortgage Loans should
accrue, at the holder's option: (i) on the basis of a constant yield method, or
(ii) in an amount that bears the same ratio to the total remaining market
discount as the original issue discount accrued in the accrual period bears to
the total original issue discount remaining at the beginning of the accrual
period. 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 the Mortgage Loans purchased at a discount in the secondary
market.
Market discount with respect to the Mortgage Loans
generally will be considered to exceed a DE MINIMIS amount if it is greater than
0.25% of the stated redemption price of the Mortgage Loans multiplied by the
number of complete years to maturity remaining after the date of their 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 used, if any. If market discount is treated as DE MINIMIS
under the foregoing rule, it appears that such market discount 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 market 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 Mortgage Loans.
Further, any discount that is not original issue discount
and exceeds a DE MINIMIS amount may require the deferral of interest expense
deductions attributable to accrued market discount not yet includible in income,
unless an election has been made to report market discount currently as it
accrues.
PREMIUM. If a holder of a Certificate is treated as
acquiring the Mortgage Loans at a premium, that is, at a price in excess of
their principal amount, such holder may elect
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under Section 171 of the Code to amortize using a constant yield method the
portion of such premium allocable to the Mortgage Loans that were originated
after September 27, 1985. Amortizable premium is treated as an offset to
interest income on the related debt instrument, rather than as a separate
interest deduction. However, premium allocable to Mortgage Loans originated
before September 28, 1985 or to the Mortgage Loans if an amortization election
is not made should be allowed as a deduction when a principal payment is made
(or, for a holder using the accrual method of accounting, when such payments of
stated redemption price are due). A significant portion of the Mortgage Loans
were originated prior to September 28, 1985. Accordingly, such an election shall
not be available for premium attributable to such Mortgage Loans.
SALES OF CERTIFICATES
Except as described below, any gain or loss, recognized
on the sale or exchange of a Certificate, generally will be capital gain or
loss, and will be equal to the difference between the amount realized on the
sale of a Certificate and its adjusted basis. The adjusted basis of a
Certificate generally will equal its cost, increased by any income (including
original issue discount and market discount income) recognized by the seller and
reduced (but not below zero) by any previously reported losses, amortized
premium and distributions with respect to the Certificate. The Code as of the
date of this Private Placement Memorandum provides for a top marginal tax rate
applicable to ordinary income of individuals of 39.6% while maintaining a
maximum marginal rate for the long-term gains of individuals of 28%. There is no
such rate differential for corporations. In addition, the distinction between a
capital gain or loss and ordinary income or loss may be relevant for other
purposes.
Gain or loss from the sale of a Certificate may be
partially or wholly ordinary and not capital in certain circumstances. Gain
attributable to accrued and unrecognized market discount will be treated as
ordinary income, as will gain or loss recognized by banks and other financial
institutions subject to Section 582(c) of the Code. Furthermore, a portion of
any gain that might otherwise be capital gain may be treated as ordinary income
to the extent that any 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 any
Certificate 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 Internal Revenue Service
(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 rates rather than capital gains rates in order to include such
net capital gain in total net investment income for that 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.
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GRANTOR TRUST REPORTING
The Trustee will furnish to the holders of the
Certificates with each distribution a statement setting forth the amount of such
distribution allocable to principal on the Mortgage Loans and to interest
thereon at the Pass-Through Rate. In addition, the Trustee will furnish, within
a reasonable time after the end of each calendar year, to each person who was a
holder of a Certificate at any time during such year, information regarding the
amount of servicing compensation received by the Master Servicer and Trustee and
such other customary factual information as it deems necessary or desirable to
enable each such person to prepare its tax returns and will furnish comparable
information to the IRS as and when required by law to do so. There is no
assurance the IRS will agree with the Trustee's information reports of such
items of income and expense. Neither the Depositor nor its affiliates will have
any responsibility with respect to the foregoing.
BACKUP WITHHOLDING
Payments of interest and principal, as well as payments
of proceeds from the sale of a Certificate, 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.
FOREIGN INVESTORS
A holder of a Certificate that is not a "United States
person" (as defined below) and is not subject to federal income tax as a result
of any direct or indirect connection to the United States in addition to its
ownership of a Certificate will not be subject to United States federal income
or withholding tax in respect of a distribution on the Certificate attributable
to Mortgage Loans originated after July 18, 1984, provided that such holder
complies to the extent necessary with certain identification requirements
(including delivery of a statement, signed by such holder under penalties of
perjury, certifying that such holder is not a United States person and providing
the name and address of such holder). However, such a holder of a Certificate
will be subject to United States federal income or withholding tax in respect of
distributions of interest on the Certificate attributable to Mortgage Loans were
originated prior to July 18, 1984. A significant portion of the Mortgage Loans
were originated prior to that date and will be subject generally to United
States withholding tax in the absence of an applicable tax treaty exemption.
Accordingly, an investment in Certificates may not be suitable for certain
foreign investors.
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, or an estate or trust whose income from sources
without the United States is includible in gross income for United States
federal
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<PAGE>
income tax purposes regardless of its connection with the conduct of a trade or
business within the United States. To the extent such 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, 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.
To the extent that interest on the Certificates would be
exempt under Section 871(h)(1) of the Code from U.S. withholding tax, and a
Certificate is not held in connection with a holder's trade or business in the
United States, a Certificate will not be subject to U.S. estate taxes in the
estate of non-resident alien individual.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement dated ______________, 19__ the Underwriter has agreed to purchase and
the Company has agreed to sell to the Underwriter the Certificates.
The Underwriting Agreement provides that the obligation of the
Underwriter to pay for and accept delivery of the Certificates is subject to,
among other things, the receipt of certain legal opinions and to the conditions,
among others, that no stop order suspending the effectiveness of the Company's
Registration Statement shall be in effect, and that no proceedings for such
purpose shall be pending before or threatened by the Securities and Exchange
Commission.
The distribution of the Certificates by the Underwriter may be
effected from time to time in one or more negotiated transactions, or otherwise,
at varying prices to be determined at the time of sale. Proceeds to the Company
from the sale of the Certificates, before deducting expenses payable by the
Company, will be _____% of the aggregate principal balance of the Certificates
plus accrued interest thereon from the Cut-off Date. The Underwriter may effect
such transactions by selling the Certificates to or through dealers, and such
dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Underwriter for whom they act as agent. In
connection with the sale of the Certificates, the Underwriter may be deemed to
have received compensation from the Company in the form of underwriting
compensation. The Underwriter and any dealers that participate with the
Underwriter in the distribution of the Certificates may be deemed to be
underwriters and any profit on the resale of the Certificates positioned by them
may be deemed to be underwriting discounts and commissions under the Securities
Act of 1933.
The Underwriting Agreement provides that the Company will
indemnify the Underwriter, and under limited circumstances the Underwriter will
indemnify the Company, against certain civil liabilities under the Securities
Act of 1933, or contribute to payments required to be made in respect thereof.
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<PAGE>
There can be no assurance that a secondary market for the
Certificates will develop or, if it does develop, that it will continue. The
primary source of information available to investors concerning the Certificates
will be the monthly statements discussed in the Prospectus under "Description of
the Certificates--Reports to Certificateholders," which will include information
as to the outstanding principal balance of the Certificates and the status of
the applicable form of credit enhancement. There can be no assurance that any
additional information regarding the Certificates will be available through any
other source. In addition, the Company is not aware of any source through which
price information about the Certificates will be generally available on an
ongoing basis. The limited nature of such information regarding the Certificates
may adversely affect the liquidity of the Certificates, even if a secondary
market for the Certificates becomes available.
LEGAL OPINIONS
Certain legal matters relating to the Certificates will be passed
upon for the Company by _____________________ and for the Underwriter by
_________________________.
RATING
It is a condition to the issuance of the Certificates that they be
rated not lower than "___" by _________________________ ___________.
The ratings of _______ on mortgage pass-through certificates
address the likelihood of the receipt by certificateholders of all distributions
on the underlying mortgage loans to which they are entitled. _______ ratings on
pass-through certificates do not represent any assessment of the likelihood that
principal prepayments will be made by mortgagors or the degree to which such
prepayments might differ from that originally anticipated. _______ ratings on
pass-through certificates do not represent any assessment of the Master
Servicer's [or the related Subservicer's] ability to purchase Converting
Mortgage Loans, or the Master Servicer's ability to purchase Converted Mortgage
Loans. In the event that neither the related Subservicer nor the Master Servicer
purchases a Converting or Converted Mortgage Loan, investors might suffer a
lower than anticipated yield. The rating does not address the possibility that
Certificateholders might suffer a lower than anticipated yield.
The Company has not requested a rating on the Certificates by any
rating agency other than _______. However, there can be no assurance as to
whether any other rating agency will rate the Certificates, or, if it does, what
rating would be assigned by any such other rating agency. A rating on the
Certificates by another rating agency, if assigned at all, may be lower than the
rating assigned to the Certificates by _______.
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 organization. Each security rating should be evaluated
independently of any other security rating. In the event that the rating
initially assigned to the Certificates is subsequently lowered for any reason,
no person or entity
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<PAGE>
is obligated to provide any additional support or credit enhancement with
respect to the Certificates.
LEGAL INVESTMENT
The Certificates will constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA") so long as they are rated in at least the second highest rating
category by one of the Rating Agencies, and, as such, are legal investments for
certain entities to the extent provided in SMMEA. SMMEA provides, however, that
states could override its provisions on legal investment and restrict or
condition investment in mortgage related securities by taking statutory action
on or prior to October 3, 1991. Certain states have enacted legislation which
overrides the preemption provisions of SMMEA.
The Company makes no representations as to the proper
characterization of the Certificates for legal investment or other purposes, or
as to the ability of particular investors to purchase the Certificates under
applicable legal investment restrictions. These uncertainties may adversely
affect the liquidity of the Certificates. Accordingly, all institutions whose
investment activities are subject to legal investment laws and regulations,
regulatory capital requirements or review by regulatory authorities should
consult with their legal advisors in determining whether and to what extent the
Certificates constitutes a legal investment or is subject to investment, capital
or other restrictions.
See "Legal Investment Matters" in the Prospectus.
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<PAGE>
======================================== ====================================
No dealer, salesman or
other person has been authorized to give
any information or to make any OPTION ONE MORTGAGE ACCEPTANCE
representations not contained in this CORPORATION
Prospectus Supplement and the Prospectus
and, if given or made, such information $_________________
or representations must not be relied
upon as having been authorized by the MORTGAGE PASS-THROUGH
Company or by the Underwriter. This CERTIFICATES
Prospectus Supplement and the Prospectus
do not constitute an offer to sell, or a SERIES 199_-__
solicitation of an offer to buy, the
securities offered hereby to 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 and the
Prospectus nor any sale made hereunder
shall, under any circumstances, create
an implication that information herein
or therein is correct as of any time
since the date of this Prospectus
Supplement or the Prospectus.
TABLE OF CONTENTS
PAGE
Prospectus Supplement
Summary............................... S-
Description of the Mortgage Pool...... S-
Description of the Certificates....... S-
Certain Yield and Prepayment
Considerations................... S- ________________
Pooling and Servicing Agreement....... S-
Federal Income Tax PROSPECTUS SUPPLEMENT
Consequences..................... S- _________________
Method of Distribution................ S-
Legal Opinions........................ S-
Rating................................ S-
Legal Investment...................... S- ____________________________
Prospectus
Summary of Prospectus.................
Risk Factors..........................
The Mortgage Pools....................
Servicing of Mortgage Loans...........
Description of the Certificates.......
Subordination......................... ________, 19__
Description of Credit Enhancement.....
Purchase Obligations..................
Primary Mortgage Insurance, Hazard
Insurance; Claims Thereunder.....
The Company...........................
The Pooling Agreement.................
Yield Considerations..................
Maturity and Prepayment
Considerations...................
Certain Legal Aspects of Mortgage
Loans ...........................
Federal Income Tax
Consequences.....................
State and Other Tax Consequences......
ERISA Considerations..................
Legal Investment Matters..............
Use of Proceeds.......................
Methods of Distribution...............
Legal Matters.........................
Financial Information.................
Rating................................
Index of Principal Definitions........
======================================== ====================================
<PAGE>
Subject to Completion Dated October 22, 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PRELIMINARY PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.
PROSPECTUS
MORTGAGE PASS-THROUGH CERTIFICATES
OPTION ONE MORTGAGE ACCEPTANCE CORPORATION
The mortgage pass-through certificates (the "Offered Certificates") offered
hereby and by the supplements hereto (each, a "Prospectus Supplement") will be
offered from time to time in series. The Offered Certificates of each series,
together with any other mortgage pass-through certificates of such series, are
collectively referred to herein as the "Certificates."
Each series of Certificates will represent in the aggregate the entire
beneficial ownership interest in a trust fund (with respect to any series, the
"Trust Fund") to be established by Option One Mortgage Acceptance Corporation
(the "Company"). Each Trust Fund will consist primarily of a segregated pool (a
"Mortgage Pool") of one- to four-family and/or multifamily residential first
and/or junior mortgage loans or manufactured housing conditional sales contracts
and installment loan agreements (collectively, the "Mortgage Loans") or
interests therein (which may include Mortgage Securities as defined herein),
acquired by the Company from one or more affiliated or unaffiliated institutions
(the "Sellers"). See "The Company" and "The Mortgage Pools." The Mortgage Loans
and other assets in each Trust Fund, which may only include, if applicable,
reinvestment income, reserve funds, cash accounts and various forms of credit
enhancement as described herein (collectively, the "Trust Fund Assets") will be
held in trust for the benefit of the holders of the related series of
Certificates (the "Certificateholders") pursuant to a pooling and servicing
agreement or other agreement (in either case, a "Pooling Agreement") as more
fully described herein under "The Pooling Agreement" and in the related
Prospectus Supplement. Information regarding the Offered Certificates of a
series, and the general characteristics of the Mortgage Loans and other Trust
Fund Assets in the related Trust Fund, will be set forth in the related
Prospectus Supplement.
Each series of Certificates will include one or more classes. Each class of
Certificates of any series will represent the right, which right may be senior
or subordinate to the rights of one or more of the other classes of the
Certificates, to receive a specified portion of payments of principal or
interest (or both) on the Mortgage Loans and the other Trust Fund Assets in the
related Trust Fund in the manner described herein under "Description of the
Certificates" and in the related Prospectus Supplement. A series may include one
or more classes of Certificates entitled to principal distributions, with
disproportionate, nominal or no interest distributions, or to interest
distributions, with disproportionate, nominal or no principal distributions. A
series may include two or more classes of Certificates which differ as to the
timing, sequential order, priority of payment, pass-through rate or amount of
distributions of principal or interest or both.
THE COMPANY'S ONLY OBLIGATIONS WITH RESPECT TO A SERIES OF CERTIFICATES WILL BE
PURSUANT TO CERTAIN REPRESENTATIONS AND WARRANTIES MADE BY THE COMPANY, EXCEPT
AS PROVIDED IN THE RELATED PROSPECTUS SUPPLEMENT. THE MASTER SERVICER (THE
"MASTER SERVICER") FOR ANY SERIES OF CERTIFICATES WILL BE NAMED IN THE RELATED
PROSPECTUS SUPPLEMENT. THE PRINCIPAL OBLIGATIONS OF THE MASTER SERVICER WILL BE
PURSUANT TO ITS CONTRACTUAL SERVICING OBLIGATIONS (WHICH INCLUDE ITS LIMITED
OBLIGATION TO MAKE CERTAIN ADVANCES IN THE EVENT OF DELINQUENCIES IN PAYMENTS ON
THE RELATED MORTGAGE LOANS). SEE "DESCRIPTION OF THE CERTIFICATES."
If so specified in the related Prospectus Supplement, the Trust Fund for a
series of Certificates may include any one or any combination of a financial
guaranty insurance policy, mortgage pool insurance policy, letter of credit,
bankruptcy bond, special hazard insurance policy or reserve fund. In addition to
or in lieu of the foregoing, credit enhancement may be provided by means of
subordination of one or more classes of Certificates or by Overcollateralization
(as defined herein). See "Description of Credit Enhancement."
The rate of payment of principal of each class of Certificates entitled to a
portion of principal payments on the Mortgage Loans in the related Mortgage Pool
and the Trust Fund Assets will depend on the priority of payment of such class
and the rate and timing of principal payments (including by reason of
prepayments, defaults, liquidations and repurchases of Mortgage Loans) on such
Mortgage Loans and other Trust Fund Assets. A rate of principal payment slower
or faster than that anticipated may affect the yield on a class of Certificates
in the manner described herein and in the related Prospectus Supplement. See
"Yield Considerations."
One or more separate elections may be made to treat a Trust Fund or a designated
portion thereof as a real estate mortgage investment conduit ("REMIC") for
federal income tax purposes. If applicable, the Prospectus Supplement for a
series of Certificates will specify which class or classes of the related series
of Certificates will be considered to be regular interests in the related REMIC
and which class of Certificates or other interests will be designated as the
residual interest in the related REMIC. See "Federal Income Tax Consequences"
herein.
SEE "RISK FACTORS" BEGINNING ON PAGE __ HEREIN AND ON PAGE S-__ IN THE RELATED
PROSPECTUS SUPPLEMENT FOR A DISCUSSION OF SIGNIFICANT MATTERS AFFECTING
INVESTMENTS IN THE CERTIFICATES.
PROCEEDS OF THE ASSETS IN THE RELATED TRUST FUND AND PAYMENTS UNDER ANY
CERTIFICATE INSURANCE POLICY ARE THE SOLE SOURCE OF PAYMENTS ON THE
CERTIFICATES. THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF
THE COMPANY, THE MASTER SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER
THE CERTIFICATES OF ANY SERIES NOR THE UNDERLYING MORTGAGE LOANS OR MORTGAGE
SECURITIES WILL BE GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY THE COMPANY, THE MASTER SERVICER OR ANY OF THEIR
RESPECTIVE AFFILIATES, UNLESS OTHERWISE SPECIFIED IN THE RELATED PROSPECTUS
SUPPLEMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Offered Certificates may be offered through one or more different methods,
including offerings through underwriters, as more fully described under "Methods
of Distribution" and in the related Prospectus Supplement.
There will be no secondary market for the Offered Certificates of any series
prior to the offering thereof. There can be no assurance that a secondary market
for any of the Offered Certificates will develop or, if it does develop, that it
will continue. The Offered Certificates will not be listed on any securities
exchange.
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<PAGE>
Retain this Prospectus for future reference. This Prospectus may not be used to
consummate sales of securities offered hereby unless accompanied by a Prospectus
Supplement.
The date of this Prospectus is October __, 1996.
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<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND ANY PROSPECTUS
SUPPLEMENT WITH RESPECT HERETO AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON. THIS PROSPECTUS AND ANY PROSPECTUS
SUPPLEMENT WITH RESPECT HERETO DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE CERTIFICATES
OFFERED HEREBY AND THEREBY OR AN OFFER OF SUCH CERTIFICATES TO ANY PERSON IN ANY
STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY
OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE; HOWEVER, IF ANY MATERIAL CHANGE OCCURS
WHILE THIS PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED, THIS PROSPECTUS WILL
BE AMENDED OR SUPPLEMENTED ACCORDINGLY.
TABLE OF CONTENTS
Caption Page
- ------- ----
SUMMARY OF PROSPECTUS........................................................ 5
RISK FACTORS................................................................. 15
THE MORTGAGE POOLS........................................................... 20
General............................................................. 20
The Mortgage Loans.................................................. 21
Underwriting Standards.............................................. 26
Qualifications of Originators and Sellers........................... 27
Representations by Sellers.......................................... 27
SERVICING OF MORTGAGE LOANS.................................................. 30
General............................................................. 30
The Master Servicer................................................. 30
Collection and Other Servicing Procedures;
Mortgage Loan Modifications......................................... 31
Subservicers........................................................ 32
Special Servicers................................................... 33
Servicing and Other Compensation and
Payment of Expenses; Spread......................................... 35
Evidence as to Compliance........................................... 36
DESCRIPTION OF THE CERTIFICATES.............................................. 37
General............................................................. 37
Form of Certificates................................................ 38
Assignment of Trust Fund Assets..................................... 39
Certificate Account................................................. 41
Distributions....................................................... 45
Distributions of Interest and Principal on the
Certificates........................................................ 46
Pre-Funding Account................................................. 47
Distributions on the Certificates in Respect of
Prepayment Premiums................................................. 48
Allocation of Losses and Shortfalls................................. 48
Advances............................................................ 48
Reports to Certificateholders....................................... 49
DESCRIPTION OF CREDIT ENHANCEMENT............................................ 50
General............................................................. 50
Subordinate Certificates............................................ 52
Overcollateralization............................................... 52
Financial Guaranty Insurance Policy................................. 52
Mortgage Pool Insurance Policies.................................... 53
Letter of Credit.................................................... 54
Special Hazard Insurance Policies................................... 55
Bankruptcy Bonds.................................................... 56
Reserve Funds....................................................... 56
Maintenance of Credit Enhancement................................... 57
Reduction or Substitution of Credit
Enhancement......................................................... 59
PURCHASE OBLIGATIONS......................................................... 60
PRIMARY MORTGAGE INSURANCE, HAZARD
INSURANCE;
CLAIMS THEREUNDER............................................................ 60
General............................................................. 60
Primary Mortgage Insurance Policies................................. 60
Hazard Insurance Policies........................................... 62
FHA Insurance....................................................... 63
THE COMPANY.................................................................. 64
THE POOLING AGREEMENT........................................................ 64
General............................................................. 64
Certain Matters Regarding the Master
Servicer and the Company............................................ 65
Events of Default................................................... 66
Rights Upon Event of Default........................................ 66
Amendment........................................................... 67
Termination; Retirement of Certificates............................. 68
The Trustee......................................................... 68
Duties of the Trustee............................................... 69
Certain Matters Regarding the Trustee............................... 69
Resignation and Removal of the Trustee.............................. 69
YIELD CONSIDERATIONS......................................................... 69
MATURITY AND PREPAYMENT
CONSIDERATIONS............................................................... 72
CERTAIN LEGAL ASPECTS OF MORTGAGE
LOANS........................................................................ 74
Single Family Loans................................................. 74
Contracts........................................................... 75
Foreclosure on Mortgages............................................ 76
Repossession with respect to Contracts.............................. 78
Rights of Redemption................................................ 79
Anti-Deficiency Legislation and Other
Limitations on Lenders.............................................. 80
Junior Mortgages.................................................... 81
Consumer Protection Laws with respect to
Contracts........................................................... 82
Environmental Legislation........................................... 82
Enforceability of Certain Provisions................................ 83
Subordinate Financing............................................... 84
Applicability of Usury Laws......................................... 84
Alternative Mortgage Instruments.................................... 85
Formaldehyde Litigation with respect to
Contracts........................................................... 85
Soldiers' and Sailors' Civil Relief Act of
1940................................................................ 86
FEDERAL INCOME TAX CONSEQUENCES.............................................. 86
General............................................................. 86
REMICS.............................................................. 87
Grantor Trust Funds.................................................104
STATE AND OTHER TAX CONSEQUENCES.............................................114
ERISA CONSIDERATIONS.........................................................114
Tax-Exempt Investors................................................115
LEGAL INVESTMENT MATTERS.....................................................115
USE OF PROCEEDS..............................................................116
METHODS OF DISTRIBUTION......................................................117
LEGAL MATTERS................................................................118
FINANCIAL INFORMATION........................................................118
RATING.......................................................................118
INDEX OF PRINCIPAL DEFINITIONS...............................................119
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UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE RELATED OFFERED CERTIFICATES, WHETHER OR NOT
PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE REQUIRED TO DELIVER THIS
PROSPECTUS AND THE RELATED PROSPECTUS SUPPLEMENT. THIS DELIVERY REQUIREMENT IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith
files reports and other information with the Securities and Exchange Commission
(the "Commission"). Such reports and other information filed by the Company can
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and its Regional
Offices located as follows: Chicago Regional Office, 500 West Madison, 14th
Floor, Chicago, Illinois 60661; New York Regional Office, Seven World Trade
Center, New York, New York 10048. Copies of such material can also be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates and electronically through the
Commission's Electronic Data Gathering, Analysis and Retrieval system at the
Commission's Web site (http:\\www.sec.gov). The Company does not intend to send
any financial reports to Certificateholders.
This Prospectus does not contain all of the information set forth in
the Registration Statement (of which this Prospectus forms a part) and exhibits
thereto which the Company has filed with the Commission under the Securities Act
of 1933 (the "Securities Act") and to which reference is hereby made.
REPORTS TO CERTIFICATEHOLDERS
The Master Servicer or other designated person will be required to
provide periodic unaudited reports concerning each Trust Fund to all registered
holders of Offered Certificates of the related series as are required under the
Exchange Act and the rules and regulations of the Commission thereunder. See
"Description of the Certificates--Reports to Certificateholders."
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein and in the related Prospectus Supplement
by reference all documents and reports filed or caused to be filed by the
Company with respect to a Trust Fund pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act, prior to the termination of the offering of the
Offered Certificates of the related series. The Company will provide or cause to
be provided without charge to each person to whom this Prospectus is delivered
in connection with the offering of one or more classes of Offered Certificates,
upon written or oral request of such person, a copy of any or all such reports
incorporated herein by reference, in each case to the extent such reports relate
to one or more of such classes of such Offered Certificates, other than the
exhibits to such documents, unless such exhibits are specifically incorporated
by reference in such documents. Requests should be directed in writing to Option
One Mortgage Acceptance Corporation, 2020 East First Street, Suite 100, Santa
Ana Heights, California 92705, or by telephone at (714) 558-7700. The Company
has determined that its financial statements will not be material to the
offering of any Offered Certificates.
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SUMMARY OF PROSPECTUS
The following summary 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
Prospectus Supplement to be prepared and delivered in connection with the
offering of Offered Certificates of such series. Capitalized terms used in this
summary that are not otherwise defined shall have the meanings ascribed thereto
elsewhere in this Prospectus. An index indicating where certain capitalized
terms used herein are defined appears at the end of this Prospectus.
Securities Offered.................. Mortgage pass-through certificates. The
mortgage pass-through certificates (the
"Offered Certificates") offered hereby
and by the various Prospectus
Supplements with respect hereto will be
offered from time to time in series. The
Offered Certificates of each series,
together with any other mortgage
pass-through certificates of such
series, are collectively referred to
herein as the "Certificates."
Company............................. Option One Mortgage Acceptance
Corporation (the "Company"), a
wholly-owned subsidiary of Option One
Mortgage Corporation ("OOMC"). See "The
Company."
Master Servicer..................... The master servicer (the "Master
Servicer"), if any, for a series of
Certificates will be specified in the
related Prospectus Supplement and may be
OOMC or another affiliate of the
Company. See "Servicing of Mortgage
Loans--The Master Servicer."
Special Servicer.................... The special servicer (the "Special
Servicer"), if any, for a series of
Certificates will be specified, or the
circumstances under which a Special
Servicer will be appointed will be
described, in the related Prospectus
Supplement. Any Special Servicer may be
an affiliate of the Company. See
"Servicing of Mortgage Loans--Special
Servicers."
Trustee............................. The trustee (the "Trustee") for each
series of Certificates will be specified
in the related Prospectus Supplement.
See "The Pooling Agreement--The
Trustee."
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<PAGE>
The Certificates.................... Each series of Certificates will include
one or more classes of Certificates
which will represent in the aggregate
the entire beneficial ownership interest
in a segregated pool of Mortgage Loans
(exclusive of any portion of interest
payments (the "Spread") relating to each
Mortgage Loan retained by the Company or
any of its affiliates) or interests
therein (which may include Mortgage
Securities as defined herein), and
certain other assets, which may only
include, if applicable, reinvestment
income, reserve funds, cash accounts and
various forms of credit enhancement as
described herein (collectively, the
"Trust Fund Assets," and the related
trust fund, the "Trust Fund") and will
be issued pursuant to a pooling and
servicing agreement or other agreement
specified in the related Prospectus
Supplement (in either case, a "Pooling
Agreement"). Except for certain Strip
Certificates and REMIC Residual
Certificates (each as hereinafter
described), each series of Certificates,
or class of Certificates in the case of
a series consisting of two or more
classes, will have a stated principal
balance and will be entitled to
distributions of interest based on a
specified interest rate or rates (each,
a "Pass-Through Rate"). Each series or
class of Certificates may have a
different Pass-Through Rate, which may
be a fixed, variable or adjustable
Pass-Through Rate, or any combination of
two or more such Pass-Through Rates. The
related Prospectus Supplement will
specify the Pass-Through Rate or Rates
for each series or class of
Certificates, or the initial
Pass-Through Rate or Rates and the
method for determining subsequent
changes to the Pass-Through Rate or
Rates.
.................................... A series may include one or more classes
of Certificates ("Strip Certificates")
entitled (i) to principal distributions,
with disproportionate, nominal or no
interest distributions, or (ii) to
interest distributions, with
disproportionate, nominal or no
principal distributions. In addition, a
series may include two or more classes
of Certificates which differ as to
timing, sequential order, priority of
payment, pass-through rate or
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<PAGE>
amount of distributions of principal or
interest or both, or as to which
distributions of principal or interest
or both on any class may be made upon
the occurrence of specified events, in
accordance with a schedule or formula,
or on the basis of collections from
designated portions of the Mortgage
Pool, which series may include one or
more classes of Certificates ("Accrual
Certificates"), as to which certain
accrued interest will not be distributed
but rather will be added to the
principal balance thereof on each
Distribution Date, as hereinafter
defined, in the manner described in the
related Prospectus Supplement.
If so provided in the related Prospectus
Supplement, a series of Certificates may
include one or more classes of
Certificates (collectively, the "Senior
Certificates") which are senior to one
or more classes of Certificates
(collectively, the "Subordinate
Certificates") in respect of certain
distributions of principal and interest
and allocations of losses on Mortgage
Loans. In addition, certain classes of
Senior (or Subordinate) Certificates may
be senior to other classes of Senior (or
Subordinate) Certificates in respect of
such distributions or losses. As to each
series, one or more elections may be
made to treat the related Trust Fund or
a designated portion thereof as a "real
estate mortgage investment conduit" or
"REMIC" as defined in the Internal
Revenue Code of 1986, as amended (the
"Code"). See "Description of the
Certificates."
The Certificates will not be guaranteed
or insured by any governmental agency or
instrumentality, by the Company, the
Master Servicer or any of their
respective affiliates or by any other
person, unless otherwise specified in
the related Prospectus Supplement.
Certificates of one or more classes of a
series may be issued in book-entry form.
See "Description of the
Certificates--Form of Certificates."
The Mortgage Pools.................. Unless otherwise specified in the
related Prospectus Supplement, each
Trust Fund will
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<PAGE>
consist primarily of a segregated pool
(a "Mortgage Pool") of mortgage loans
and/or manufactured housing conditional
sales and installment loan agreements
(collectively, the "Mortgage Loans") or
interests therein. Unless otherwise
specified in the related Prospectus
Supplement, each Mortgage Loan will be
secured by a first or junior lien on or
security interest in (i) a one- to
four-family residential property or (ii)
a new or used manufactured home (each, a
"Mortgaged Property"). The Mortgaged
Properties may be located in any one of
the 50 states, the District of Columbia
or the Commonwealth of Puerto Rico. For
a description of the types of Mortgage
Loans that may be included in the
Mortgage Pools, see "The Mortgage
Pools--The Mortgage Loans." The Mortgage
Loans will not be guaranteed or insured
by the Company, any of its affiliates
or, unless otherwise specified in the
related Prospectus Supplement, by any
governmental agency or instrumentality
or any other person.
If specified in the related Prospectus
Supplement, Mortgage Loans which are
converting or converted from an
adjustable-rate to a fixed-rate or
certain Mortgage Loans for which the
Mortgage Rate has been reset may be
repurchased by the Company or purchased
by the related Master Servicer, the
applicable Seller or another party, or a
designated remarketing agent will use
its best efforts to arrange the sale
thereof as further described herein
under "The Mortgage Pool--The Mortgage
Loans."
If so specified in the related
Prospectus Supplement, some Mortgage
Loans may be delinquent or
non-performing as of the date of their
deposit in the related Trust Fund.
If specified in the related Prospectus
Supplement, a Trust Fund may include or
consist solely of mortgage
participations or pass-through
certificates evidencing interests in
Mortgage Loans ("Mortgage Securities"),
as described herein. See "The Mortgage
Pools--General" herein.
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<PAGE>
Unless otherwise specified in the
related Prospectus Supplement, each
Mortgage Loan and Mortgage Security
included in a Trust Fund will have been
selected by the Company from among those
purchased, either directly or
indirectly, from a prior holder thereof
(a "Seller"), which prior holder may or
may not be the originator of such
Mortgage Loan or the issuer of such
Mortgage Security and may be an
affiliate of the Company. A Mortgage
Security included in a Trust Fund,
however, may also have been issued
previously by the Company or an
affiliate thereof.
A Current Report on Form 8-K will be
available upon request to purchasers of
the Offered Certificates of the related
series and will be filed, together with
the related Pooling Agreement, with the
Securities and Exchange Commission
within fifteen days after such initial
issuance.
Interest Distributions.............. Except as otherwise specified herein or
in the related Prospectus Supplement,
interest on each class of Offered
Certificates of each series, other than
Strip Certificates or Accrual
Certificates (prior to the time when
accrued interest becomes payable
thereon), will accrue at the applicable
Pass-Through Rate (which may be a fixed,
variable or adjustable rate or any
combination thereof) on such class's
principal balance outstanding from time
to time and will be remitted on the 25th
day (or, if such day is not a business
day, on the next succeeding business
day) of each month, commencing with the
month following the month in which the
Cut-off Date (as defined in the
applicable Prospectus Supplement) occurs
(each, a "Distribution Date").
Distributions, if any, with respect to
interest on Strip Certificates will be
calculated and made on each Distribution
Date as described herein under
"Description of the
Certificates--Distribution of Interest
and Principal on the Certificates" and
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 of
such class on each Distribution Date,
and will thereafter bear interest at the
applicable Pass-Through Rate.
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<PAGE>
Distributions of interest with respect
to one or more classes of Offered
Certificates (or, in the case of a class
of Accrual Certificates, accrued
interest to be added to the principal
balance thereof) may be reduced as a
result of the occurrence of certain
delinquencies not covered by advances,
losses, prepayments and other
contingencies described herein and in
the related Prospectus Supplement. See
"Yield Considerations" and "Description
of the Certificates--Distribution of
Interest and Principal on the
Certificates."
Principal Distributions............. Except as otherwise specified in the
related Prospectus Supplement, principal
distributions on the Certificates of
each series will be payable on each
Distribution Date, commencing with the
Distribution Date in the month following
the month in which the Cut-off Date
occurs, to the holders of the
Certificates of such series, or of the
class or classes of Certificates then
entitled there- to, on a pro rata basis
among all such Certificates or among the
Certificates of any such class, in
proportion to their respective
outstanding principal balances, or in
the priority and manner otherwise
specified in the related Prospectus
Supplement. Strip Certificates with no
principal balance will not receive
distributions in respect of principal.
Distributions of principal with respect
to any series of Certificates, or with
respect to one or more classes included
therein, may be reduced to the extent of
certain delinquencies not covered by
advances or losses not covered by the
applicable form of credit enhancement.
See "The Mortgage Pools," "Maturity and
Prepayment Considera- tions" and
"Description of the Certificates."
Pre-Funding Account................. If so specified in the related
Prospectus Supplement, a portion of the
proceeds of the sale of one or more
Classes of Certificates of a series may
be deposited in a segregated account to
be applied to acquire additional
Mortgage Loans from the Sellers, subject
to the limitations set forth herein
under "Description of the
Certificates-Pre- Funding Account."
Monies on deposit in the Pre- Funding
Account and not applied to acquire such
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additional Mortgage Loans within the
time set forth in the related Pooling
Agreement or other applicable agreement
may be treated as principal and applied
in the manner described in the related
Prospectus Supplement.
Credit Enhancement.................. If so specified in the Prospectus
Supplement, the Trust Fund with respect
to any series of Certificates may
include any one or any combination of a
financial guaranty insurance policy,
mortgage pool insurance policy, letter
of credit, special hazard insurance
policy, bankruptcy bond or reserve fund
to provide full or partial coverage for
certain defaults and losses relating to
the Mortgage Loans. Credit support also
may be provided in the form of
subordination of one or more classes of
Certificates in a series under which
losses are first allocated to any
Subordinate Certificates up to a
specified limit or in the form of
Overcollateralization . Unless otherwise
specified in the related Prospectus
Supplement, any form of credit
enhancement will have certain
limitations and exclusions from coverage
thereunder, which will be described in
the related Prospectus Supplement.
Losses not covered by any form of credit
enhancement will be borne by the holders
of the related Certificates (or certain
classes thereof). To the extent not set
forth herein, the amount and types of
coverage, the identification of any
entity providing the coverage, the terms
of any subordination and related
information will be set forth in the
Prospectus Supplement relating to a
series of Certificates. See "Description
of Credit Enhancement" and
"Subordination."
Advances............................ If and to the extent described in the
related Prospectus Supplement, and
subject to any limitations specified
therein, the Master Servicer for any
Trust Fund will be obligated to make, or
have the option of making, certain
advances with respect to delinquent
scheduled payments on the Mortgage Loans
in such Trust Fund. Any such advance
made by the Master Servicer with respect
to a Mortgage Loan is recoverable by it
as described herein under "Description
of the
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<PAGE>
Certificates--Advances" either from
recoveries on or in respect of the
specific Mortgage Loan or, with respect
to any advance subsequently determined
to be nonrecoverable from recoveries on
or in respect of the specific Mortgage
Loan, out of funds otherwise
distributable to the holders of the
related series of Certificates, which
may include the holders of any Senior
Certificates of such series. If and to
the extent provided in the Prospectus
Supplement for a series of Certificates,
the Master Servicer will be entitled to
receive interest on its advances for the
period that they are outstanding payable
from amounts in the related Trust Fund.
As specified in the Prospectus
Supplement with respect to any series of
Certificates as to which the Trust Fund
includes Mortgage Securities, the
advancing obligations in respect of the
underlying Mortgage Loans will be
pursuant to the terms of such Mortgage
Securities, as may be supplemented by
the terms of the applicable Pooling
Agreement, and may differ from the
provisions described herein.
Optional Termination................ The Master Servicer, the Company or a
person specified in the related
Prospectus Supplement (other than the
holder of any Class of Certificates,
other than the REMIC Residual
Certificates) may at its option either
(i) effect early retirement of a series
of Certificates through the purchase of
the assets in the related Trust Fund or
(ii) purchase, in whole but not in part,
the Certificates specified in the
related Prospectus Supplement; in each
case under the circumstances and in the
manner set forth herein under "The
Pooling Agreement--Termination;
Retirement of Certifi- cates" and in the
related Prospectus Supplement.
Legal Investment................... At the date of issuance, as to each
series, each class of Offered
Certificates will be rated at the
request of the Company in one of the
four highest rating categories by one or
more nationally recognized statistical
rating agencies (each, a "Rating
Agency"). Unless otherwise specified in
the related Prospectus Supplement, each
class of Offered Certificates that is
rated in one of the two highest rating
categories by at least one Rating
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<PAGE>
Agency will constitute "mortgage related
securities" for purposes of the
Secondary Mortgage Market Enhancement
Act of 1984, as amended ("SMMEA").
Investors whose investment authority is
subject to legal restrictions should
consult their own legal advisors to
determine whether and to what extent the
Offered Certificates of any series
constitute legal investments for them.
See "Legal Investment Matters."
ERISA Considerations................ A fiduciary of an employee benefit plan
and certain other retirement plans and
arrangements, including individual
retirement accounts and annuities, Keogh
plans, and collective investment funds
and separate accounts in which such
plans, accounts, annuities or
arrangements are invested, that is
subject to the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code
(each, a "Plan") should carefully review
with its legal advisors whether the
purchase or holding of Offered
Certificates could give rise to a
transaction that is prohibited or is not
otherwise permissible either under ERISA
or Section 4975 of the Code. Investors
are advised to consult their counsel and
to review "ERISA Considerations" herein
and in the related Prospectus
Supplement.
Federal Income
Tax Consequences.................. Offered Certificates of each series will
constitute either (i) interests
("Grantor Trust Certificates") in a
Trust Fund treated as a grantor trust
under applicable provisions of the Code,
or (ii) "regular interests" ("REMIC
Regular Certificates") or "residual
interests" ("REMIC Residual
Certificates") in a Trust Fund, or a
portion thereof, treated as a REMIC
under Sections 860A through 860G of the
Code.
.................................... Investors are advised to consult their
tax advisors as to the tax consequences
of an investment in the Certificates in
light of investors' individual
circumstances and to review "Federal
Income Tax Consequences" herein and in
the related Prospec- tus Supplement for
a more general discussion of
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<PAGE>
material tax matters related to the
Certificates. See "Federal Income Tax
Consequences."
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<PAGE>
RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Offered Certificates:
LIMITED LIQUIDITY. There can be no assurance that a secondary market
for the Offered Certificates of any series will develop or, if it does develop,
that it will provide Certificateholders with liquidity of investment or that it
will continue for the life of the Offered Certificates of any series. The
Prospectus Supplement for any series of Offered Certificates may indicate that
an underwriter specified therein intends to establish a secondary market in such
Certificates, however no underwriter will be obligated to do so. As a result,
any resale prices that may be available for any Certificate in any market that
may develop may be at a discount from the initial offering price or the fair
market value thereof. The Offered Certificates will not be listed on any
securities exchange.
LIMITED OBLIGATIONS. The Offered Certificates will not represent an
interest in or obligation of the Company, the Master Servicer or any of their
respective affiliates. The only obligations of the foregoing entities with
respect to the Certificates, the Mortgage Loans or any Mortgage Securities will
be the obligations (if any) of the Company pursuant to certain limited
representations and warranties made with respect to the Mortgage Loans or
Mortgage Securities, the Master Servicer's servicing obligations under the
related Pooling Agreement (including, if and to the extent described in the
related Prospectus Supplement, its limited obligation to make certain advances
in the event of delinquencies on the Mortgage Loans) and pursuant to the terms
of any Mortgage Securities, and, if and to the extent expressly described in the
related Prospectus Supplement, certain limited obligations of the Master
Servicer in connection with a Purchase Obligation or an agreement to purchase or
act as remarketing agent with respect to a Convertible Mortgage Loan upon
conversion to a fixed rate. Unless otherwise specified in the related Prospectus
Supplement, neither the Certificates nor the underlying Mortgage Loans or
Mortgage Securities will be guaranteed or insured by any governmental agency or
instrumentality, by the Company, the Master Servicer or any of their respective
affiliates or by any other person. Proceeds of the assets included in the
related Trust Fund for each series of Certificates (including the Mortgage Loans
or Mortgage Securities and any form of credit enhancement) will be the sole
source of payments on the Certificates, and there will be no recourse to the
Company, the Master Servicer or any other entity in the event that such proceeds
are insufficient or otherwise unavailable to make all payments provided for
under the Certificates.
LIMITATIONS, REDUCTION AND SUBSTITUTION OF CREDIT ENHANCEMENT. With
respect to each series of Certificates, credit enhancement will be provided in
limited amounts to cover certain types of losses on the underlying Mortgage
Loans. Credit enhancement will be provided in one or more of the forms referred
to herein, including, but not limited to: subordination of other classes of
Certificates of the same series; a Financial Guaranty Insurance Policy; a
Mortgage Pool Insurance Policy; a Letter of Credit; a Purchase Obligation; a
Special Hazard Insurance Policy; a Bankruptcy Bond; a Reserve Fund;
Overcollateralization; or any combination thereof. See "Subordination" and
"Description of Credit Enhancement" herein. Regardless of the form of credit
enhancement provided, the amount of coverage will be limited in amount and in
most cases will be subject to periodic reduction in accordance with a schedule
or formula. Furthermore, such credit enhancements may provide only very limited
coverage as to certain types of losses or risks, and may provide no coverage as
to certain other types of losses or risks. In the event losses exceed the amount
of coverage provided by any credit enhancement or losses of a type not covered
by any credit enhancement occur, such losses will be borne by the holders of the
related Certificates (or certain classes thereof). The Company, the Master
Servicer or other specified person will generally be permitted to reduce,
terminate or substitute all or a portion of the credit enhancement for any
series of Certificates, if each applicable Rating Agency indicates that the
then-current rating(s) thereof will not be adversely affected. The rating(s) of
any series of Certificates by any applicable Rating Agency may be lowered
following the initial issuance thereof as a result of the
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<PAGE>
downgrading of the obligations of any applicable credit support provider, or as
a result of losses on the related Mortgage Loans in excess of the levels
contemplated by such Rating Agency at the time of its initial rating analysis.
Neither the Company, the Master Servicer nor any of their respective affiliates
will have any obligation to replace or supplement any credit enhancement, or to
take any other action to maintain any rating(s) of any series of Certificates.
See "Description of Credit Enhancement--Reduction of Credit Enhancement."
LIMITED NATURE OF RATINGS. It is a condition to the issuance of the
Certificates that each class of Certificates be rated in one of the four highest
rating categories by a nationally recognized statistical 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 the rating on any Certificate, and, accordingly, there can be no
assurance that the ratings assigned to any Certificate 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 or the market value of the related Certificates may be adversely
affected. See "Rating" herein.
FORECLOSURE RISKS OF THE MORTGAGE LOANS. Statutory and judicial
limitations on foreclosure procedures may delay recovery in respect of the
mortgaged property and, in some instances, limit the amount that may be
recovered by the foreclosing lender. Foreclosure procedures may vary from state
to state. Two primary methods of foreclosing a mortgage instrument are judicial
foreclosure, involving court proceedings, and non-judicial foreclosure pursuant
to a power of sale granted in the mortgage instrument. A foreclosure action is
subject to most of the delays and expenses of other lawsuits if defenses are
raised or counterclaims are asserted. Delays may also result from difficulties
in locating necessary defendants. Non-judicial foreclosures may be subject to
delays resulting from state laws mandating the recording of notice of default
and notice of sale and, in certain states, notice to any party having an
interest of record in the real property, including junior lienholders. Certain
states have adopted "anti-deficiency" statutes that limit the ability of a
lender to realize upon assets securing a mortgage loan. In addition, United
States courts have traditionally imposed general equitable principles to limit
the remedies available to lenders in foreclosure actions that are perceived by
the court as harsh or unfair. The effect of such statutes and judicial
principles may be to delay and/or reduce distributions in respect of the
Certificates. See "Certain Legal Aspects of Mortgage Loans--Foreclosure on
Mortgage Loans."
RISKS OF MORTGAGE LOANS AND PROPERTY VALUE. An investment in securities
such as the Certificates that are secured by mortgage loans and/or manufactured
housing conditional sales contracts and installment loan agreements may be
affected by, among other things, a decline in real estate values and changes in
the borrowers' financial condition. No assurance can be given that values of the
Mortgaged Properties have remained or will remain at their levels on the dates
of origination of the related Mortgage Loans. If the residential real estate
market should experience an overall decline in property values such that the
outstanding balances of the Mortgage Loans, and any secondary financing on the
Mortgaged Properties, in a particular Mortgage Pool 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. In particular, Mortgage Loans with high
Loanto-Value Ratios will be affected by any decline in real estate values. Any
decrease in the value of such Mortgage Loans may result in the allocation of
losses which are not covered by credit enhancement to the Certificates.
RISKS OF NON-CONFORMING MORTGAGE LOANS. Certain Mortgage Loans may be
underwritten in accordance with underwriting standards which are primarily
intended to provide single family mortgage loans for non-conforming credits. A
"non-conforming credit" means a mortgage loan which is ineligible for purchase
by FNMA or FHLMC due to credit characteristics that do not meet the FNMA or
FHLMC underwriting guidelines, including mortgagors whose creditworthiness and
repayment ability do not satisfy such FNMA or FHLMC underwriting guidelines and
mortgagors who may have a record of credit write-
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offs, outstanding judgments, prior bankruptcies and other credit items that do
not satisfy such FNMA or FHLMC underwriting guidelines. Accordingly, Mortgage
Loans underwritten under the Originators' non-conforming credit underwriting
standards are likely to experience rates of delinquency, foreclosure and loss
that are higher, and may be substantially higher, than mortgage loans originated
in accordance with the FNMA or FHLMC underwriting guidelines. Any such losses,
to the extent not covered by credit enhancement, may affect the yield to
maturity of the Certificates.
RISKS OF MORTGAGE LOANS WITH VARIABLE PAYMENTS. Certain of the types of
loans which may be included in the Mortgage Pools may involve additional
uncertainties not present in traditional types of loans. In the case of Mortgage
Loans that are subject to negative amortization, due to the addition to
principal balance of Deferred Interest, the principal balances of such Mortgage
Loans could be increased to an amount equal to or in excess of the value of the
underlying Mortgaged Properties, thereby increasing the likelihood of default.
In the case of Buydown Loans, the increase in the Monthly Payment by the
Mortgagor during and following the Buydown Period may result in an increased
risk of default on such Buydown Loan. Certain of the Mortgage Loans provide for
escalating or variable payments by the borrower under the Mortgage Loan (the
"Mortgagor"), as to which the Mortgagor is generally qualified on the basis of
the initial payment amount. In some instances, Mortgagors may not be able to
make their loan payments as such payments increase and thus the likelihood of
default will increase. Any risks associated with the variable payments of such
Mortgage Loans may affect the yield to maturity of the Certificates to the
extent losses caused by such risks which are not covered by credit enhancement
are allocated to the Certificates.
RISKS OF MORTGAGE LOANS WITH JUNIOR LIENS. Certain Mortgage Loans may
be secured by second liens on the related Mortgaged Properties. As to Mortgage
Loans secured by second mortgages, the proceeds from any liquidation, insurance
or condemnation proceedings will be available to satisfy the outstanding balance
of such Mortgage Loans only to the extent that the claims of such senior
mortgages have been satisfied in full, including any related foreclosure costs.
In addition, the holder of a Mortgage Loan secured by a junior mortgage may not
foreclose on the Mortgaged Property unless it forecloses subject to the senior
mortgages, in which case it must either pay the entire amount due on the senior
mortgages to the senior mortgagees at or prior to the foreclosure sale or
undertake the obligation to make payments on the senior mortgages in the event
the mortgagor is in default thereunder. The Trust Fund will not have any source
of funds to satisfy the senior mortgages or make payments due to the senior
mortgagees, although the Master Servicer or Subservicer may, at its option,
advance such amounts to the extent deemed recoverable and prudent. In the event
that such proceeds from a foreclosure or similar sale of the related Mortgaged
Property are insufficient to satisfy all senior liens and the Mortgage Loan in
the aggregate, the Trust Fund, as the holder of the junior lien, and,
accordingly, Holders of one or more classes of the Certificates, to the extent
not covered by credit enhancement, are likely to (i) incur losses in
jurisdictions in which a deficiency judgment against the borrower is not
available, and (ii) incur losses if any deficiency judgment obtained is not
realized upon. In addition, the rate of default of second mortgage loans may be
greater than that of mortgage loans secured by first liens on comparable
properties.
RISKS OF MORTGAGE LOAN 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 than will be experienced on mortgage loans generally.
For example, a region's economic condition and housing market may be directly,
or indirectly, adversely affected by natural disasters or civil disturbances
such as earthquakes, hurricanes, floods, eruptions or riots. The economic impact
of any of these types of events may also be felt in areas beyond the region
immediately affected by the disaster or disturbance. The Mortgage Loans securing
certain series of Certificates may be concentrated in these regions, and such
concentration may present risk considerations in addition to those generally
present for similar mortgage-backed securities without such concentration.
Moreover, as described below, any Mortgage Loan for which a breach of a
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representation or warranty exists will remain in the related Trust Fund in the
event that a Seller is unable, or disputes its obligation, to repurchase such
Mortgage Loan and such a breach does not also constitute a breach of any
representation made by any other person. In such event, any resulting losses
will be borne by the related form of credit enhancement, to the extent
available. Any risks associated with Mortgage Loan concentration may affect the
yield to maturity of the Certificates to the extent losses caused by such risks
which are not covered by credit enhancement are allocated to the Certificates.
RISKS ASSOCIATED WITH BALLOON LOANS. Certain of the Mortgage Loans
included in a Trust Fund may not be fully amortizing (or may not amortize at
all) over their terms to maturity and, thus, will require substantial payments
of principal and interest (that is, balloon payments) at their stated maturity.
Mortgage Loans of this type involve a greater degree of risk than
self-amortizing loans because the ability of a Mortgagor to make a balloon
payment typically will depend upon its ability either to fully refinance the
loan or to sell the related Mortgaged Property at a price sufficient to permit
the Mortgagor to make the balloon payment. The ability of a Mortgagor to
accomplish either of these goals will be affected by a number of factors,
including the value of the related Mortgaged Property, the level of available
mortgage rates at the time of sale or refinancing, the Mortgagor's equity in the
related Mortgaged Property, prevailing general economic conditions and the
availability of credit for loans secured by comparable real properties. Any
risks associated with the Balloon Loans may affect the yield to maturity of the
Certificates to the extent losses caused by such risks which are not covered by
credit enhancement are allocated to the Certificates.
RISKS WITH RESPECT TO MORTGAGE LOANS WITH LIMITED RECOURSE. It is
anticipated that some or all of the Mortgage Loans included in any Trust Fund
will be nonrecourse loans or loans for which recourse may be restricted or
unenforceable. As to those Mortgage Loans, recourse in the event of Mortgagor
default will be limited to the specific real property and other assets, if any,
that were pledged to secure the Mortgage Loan. However, even with respect to
those Mortgage Loans that provide for recourse against the Mortgagor and its
assets generally, there can be no assurance that enforcement of such recourse
provisions will be practicable, or that the other assets of the Mortgagor will
be sufficient to permit a recovery in respect of a defaulted Mortgage Loan in
excess of the liquidation value of the related Mortgaged Property. Any risks
associated with Mortgage Loans with no or limited recourse may affect the yield
to maturity of the Certificates to the extent losses caused by such risks which
are not covered by credit enhancement are allocated to the Certificates.
RISKS OF UNDERWRITING STANDARDS OF UNAFFILIATED SELLERS. Mortgage Loans
to be included in a Mortgage Pool will have been purchased by the Company,
either directly or indirectly from Sellers. Such Mortgage Loans will generally
have been originated in accordance with underwriting standards acceptable to the
Company and generally described herein under "The Mortgage Pools--Underwriting
Standards" or such alternative underwriting criteria as may be described in the
related Prospectus Supplement. However, in some cases, particularly those
involving Unaffiliated Sellers, the Company may not be able to establish the
underwriting standards used in the origination of the related Mortgage Loans. In
those cases, the related Prospectus Supplement will include a statement to such
effect and will reflect what, if any, reunderwriting of the related Mortgage
Loans was done by the Company or any of its affiliates. To the extent the
Mortgage Loans cannot be reunderwritten or the underwriting criteria cannot be
verified, the Mortgage Loans may suffer losses greater than they would had they
been directly underwritten by the Company or an affiliate thereof. Any such
losses, to the extent not covered by credit enhancement, may affect the yield to
maturity of the Certificates.
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LEGAL AND REGULATORY RISKS. Applicable federal and state laws generally
regulate interest rates and other charges, require certain disclosures, prohibit
unfair and deceptive practices, regulate debt collection, and require licensing
of the originators of the mortgage loans and contracts. Depending on the
provisions of the applicable law and the specified facts and circumstances
involved, violations of those laws, policies and principles may limit the
ability to collect all or part of the principal of or interest on the Mortgage
Loans and may entitle the borrower to a refund of amounts previously paid. See
"Certain Legal Aspects of Mortgage Loans" herein. To the extent such laws and
regulations result in losses on the mortgage loans, the yield to maturity of the
Certificates, to the extent not covered by credit enhancement, may be affected.
YIELD AND PREPAYMENT CONSIDERATIONS. The yield to maturity of the
Offered Certificates of each series will depend on, among other things, the rate
and timing of principal payments (including prepayments, liquidations due to
defaults, and repurchases due to conversion of ARM Loans to fixed interest rate
loans or breaches of representations and warranties) on the related Mortgage
Loans and the price paid by Certificateholders. Such yield may be adversely
affected by a higher or lower than anticipated rate of prepayments on the
related Mortgage Loans. The yield to maturity on Strip Certificates will be
extremely sensitive to the rate of prepayments on the related Mortgage Loans. In
addition, the yield to maturity on certain other types of classes of
Certificates, including Accrual Certificates, Certificates with a Pass-Through
Rate which fluctuates inversely with an index or certain other classes in a
series including more than one class of Certificates, may be relatively more
sensitive to the rate of prepayment on the related Mortgage Loans than other
classes of Certificates. In addition, to the extent amounts in any Pre-Funding
Account have not been used to purchase additional Mortgage Loans, holders of the
Certificates may receive an additional prepayment. Prepayments are influenced by
a number of factors, including prevailing mortgage market interest rates, local
and regional economic conditions and homeowner mobility. See "Yield
Considerations" and "Maturity and Prepayment Considerations" herein.
ENVIRONMENTAL RISKS OF THE MORTGAGE LOANS. To the extent the Master
Servicer acquires title to any Mortgaged Property with contaminated with or
affected by hazardous wastes or hazardous substances, the Mortgage Loans may
incur losses. See "Servicing of Mortgage Loans--Realization Upon or Sale of
Defaulted Mortgage Loans" and "Certain Legal Aspects of Mortgage
Loans--Environmental Legislation." To the extent such environmental risks result
in losses on the mortgage loans, the yield to maturity of the Certificates, to
the extent not covered by credit enhancement, may be affected.
ERISA CONSIDERATIONS. Generally, ERISA applies to investments made by
employee benefit plans and transactions involving the assets of such plans. Due
to the complexity of regulations that govern such plans, prospective investors
that are subject to ERISA are urged to consult their own counsel regarding
consequences under ERISA of acquisition, ownership and disposition of the
Offered Certificates of any series. See "ERISA Considerations".
FEDERAL TAX CONSIDERATIONS REGARDING REMIC RESIDUAL CERTIFICATES.
Holders of REMIC Residual Certificates will be required to report on their
federal income tax returns as ordinary income their PRO RATA share of the
taxable income of the REMIC, regardless of the amount or timing of their receipt
of cash payments, as described under "Federal Income Tax Consequences--REMICs".
Accordingly, under certain circumstances, holders of Offered Certificates that
constitute REMIC Residual Certificates may have taxable income and tax
liabilities arising from such investment during a taxable year in excess of the
cash received during such period. The requirement that holders of REMIC Residual
Certificates report their PRO RATA share of the taxable income and net loss of
the REMIC will continue until the principal balances of all classes of
Certificates of the related series have been reduced to zero, even though
holders of REMIC Residual Certificates have received full payment of their
stated interest and principal. A portion (or, in certain circumstances, all) of
such Certificateholder's share of the REMIC taxable income may be treated as
"excess inclusion" income to such holder, which (i) generally
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will not be subject to offset by losses from other activities, (ii) for a
tax-exempt holder, will be treated as unrelated business taxable income and
(iii) for a foreign holder, will not qualify for exemption from withholding tax.
Individual holders of REMIC Residual Certificates may be limited in their
ability to deduct servicing fees and other expenses of the REMIC. In addition,
REMIC Residual Certificates are subject to certain restrictions on transfer.
Because of the special tax treatment of REMIC Residual Certificates, the taxable
income arising in a given year on a REMIC Residual Certificate will not be equal
to the taxable income associated with investment in a corporate bond or stripped
instrument having similar cash flow characteristics and pre-tax yield.
Therefore, the after-tax yield on a REMIC Residual Certificate may be
significantly less than that of a corporate bond or stripped instrument having
similar cash flow characteristics.
THE MORTGAGE POOLS
GENERAL
Unless otherwise specified in the related Prospectus Supplement, each
Mortgage Pool will consist primarily of Mortgage Loans, minus the Spread, if
any, or any other interest retained by the Company or any affiliate of the
Company. The Mortgage Loans may consist of Single Family Loans and Contracts,
each as described below.
The Mortgage Loans (other than the Contracts) will be evidenced by
promissory notes ("Mortgage Notes") and secured by mortgages, deeds of trust or
other similar security instruments ("Mortgages") that, in each case, create a
first or junior lien on the related Mortgagor's fee or leasehold interest in the
related Mortgaged Property. The Mortgaged Properties for such loans may consist
of attached or detached one-family dwelling units, two- to four-family dwelling
units, condominiums, townhouses, row houses, individual units in planned-unit
developments and certain other individual dwelling units (a "Single Family
Property" and the related loans, "Single Family Loans"), which in each case may
be owner-occupied or may be a vacation, second or non-owner-occupied home.
The "Contracts" will consist of manufactured housing conditional sales
contracts and installment loan agreements each secured by a Manufactured Home.
The "Manufactured Homes" securing the Contracts will consist of manufactured
homes within the meaning of 42 United States Code, Section 5402(6), 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 a 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 this chapter."
Mortgaged Properties may be located in any one of the 50 states, the
District of Columbia or the Commonwealth of Puerto Rico.
The Mortgage Loans will not be guaranteed or insured by the Company,
any of its affiliates or, unless otherwise specified in the related Prospectus
Supplement, by any governmental agency or instrumentality or other person.
However, if so specified in the related Prospectus Supplement, the Mortgage
Loans may be insured by the Federal Housing Administration (the "FHA" and such
loans, "FHA Loans"). See "Description of Primary Insurance Policies--FHA
Insurance."
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A Mortgage Pool may include Mortgage Loans that are delinquent or
non-performing as of the date the related series of Certificates is issued. In
that case, the related Prospectus Supplement will set forth, as to each such
Mortgage Loan, available information as to the period of such delinquency or
non-performance and any other information relevant for a prospective purchaser
to make an investment decision.
Each Mortgage Loan will be selected by the Company for inclusion in a
Mortgage Pool from among those purchased by the Company, either directly or
through its affiliates, from banks, savings and loan associations, mortgage
bankers, investment banking firms, the Resolution Trust Corporation (the "RTC"),
the Federal Deposit Insurance Corporation (the "FDIC") and other mortgage loan
originators or sellers not affiliated with the Company ("Unaffiliated Sellers")
or from OOMC, the parent of the Company, and its affiliates ("Affiliated
Sellers"; Unaffiliated Sellers and Affiliated Sellers are collectively referred
to herein as "Sellers"). If a Mortgage Pool is composed of Mortgage Loans
acquired by the Company directly from Unaffiliated Sellers, the related
Prospectus Supplement will specify the extent of Mortgage Loans so acquired. The
characteristics of the Mortgage Loans are as described in the related Prospectus
Supplement. Other mortgage loans available for purchase by the Company may have
characteristics which would make them eligible for inclusion in a Mortgage Pool
but were not selected for inclusion in such Mortgage Pool.
Under certain circumstances, the Mortgage Loans to be included in a
Mortgage Pool will be delivered either directly or indirectly to the Company by
one or more Sellers identified in the related Prospectus Supplement,
concurrently with the issuance of the related series of Certificates (a
"Designated Seller Transaction"). Such Certificates may be sold in whole or in
part to any such Seller in exchange for the related Mortgage Loans, or may be
offered under any of the other methods described herein under "Methods of
Distribution." The related Prospectus Supplement for a Mortgage Pool composed of
Mortgage Loans acquired by the Company pursuant to a Designated Seller
Transaction will generally include information, provided by the related Seller,
about the Seller, the Mortgage Loans and the underwriting standards applicable
to the Mortgage Loans. None of the Company or, unless it is the Seller, OOMC or
any of their affiliates will make any representation or warranty with respect to
such Mortgage Loans, or any representation as to the accuracy or completeness of
such information provided by the Seller.
If specified in the related Prospectus Supplement, the Trust Fund for a
series of Certificates may include mortgage participations and pass-through
certificates evidencing interests in Mortgage Loans ("Mortgage Securities"), as
described herein. The Mortgage Securities may have been issued previously by the
Company or an affiliate thereof, a financial institution or other entity engaged
generally in the business of mortgage lending or a limited purpose corporation
organized for the purpose of, among other things, acquiring and depositing
mortgage loans into such trusts, and selling beneficial interests in such
trusts. Except as otherwise set forth in the related Prospectus Supplement, such
Mortgage Securities will be generally similar to Certificates offered hereunder.
As to any such series of Certificates, the related Prospectus Supplement will
include a description of such Mortgage Securities and any related credit
enhancement, and the Mortgage Loans underlying such Mortgage Securities will be
described together with any other Mortgage Loans included in the Mortgage Pool
relating to such series.
THE MORTGAGE LOANS
Each of the Mortgage Loans will be a type of mortgage loan described or
referred to in paragraphs numbered (1) through (7) below, with any variations
described in the Prospectus Supplement:
(1) Fixed-rate, fully-amortizing mortgage loans (which may
include mortgage loans converted from adjustable-rate mortgage loans or
otherwise modified) providing for level monthly
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payments of principal and interest and terms at origination or
modification of not more than approximately 15 years;
(2) Fixed-rate, fully-amortizing mortgage loans (which may
include mortgage loans converted from adjustable-rate mortgage loans or
otherwise modified) providing for level monthly payments of principal
and interest and terms at origination or modification of more than 15
years, but not more than approximately 25 or 30 years;
(3) Fully-amortizing adjustable-rate mortgage loans ("ARM
Loans") having an original or modified term to maturity of not more
than approximately 25 or 30 years with a related interest rate (a
"Mortgage Rate") which generally adjusts initially either three months,
six months or one, three, five or seven years subsequent to the initial
payment date, and thereafter at either three-month, six-month, one-year
or other intervals (with corresponding adjustments in the amount of
monthly payments) over the term of the mortgage loan to equal the sum
of a fixed percentage set forth in the related Mortgage Note (the "Note
Margin") and an index*. The related Prospectus Supplement will set
forth the relevant index and the highest, lowest and weighted average
Note Margin with respect to the ARM Loans in the related Mortgage Pool.
The related Prospectus Supplement will also indicate any periodic or
lifetime limitations on changes in any per annum Mortgage Rate at the
time of any adjustment. If specified in the related Prospectus
Supplement, an ARM Loan may include a provision that allows the
Mortgagor to convert the adjustable Mortgage Rate to a fixed rate at
some point during the term of such ARM Loan generally not later than
six to ten years subsequent to the initial payment date;
(4) Negatively-amortizing ARM Loans having original or
modified terms to maturity of not more than approximately 25 or 30
years with Mortgage Rates which generally adjust initially on the
payment date referred to in the related Prospectus Supplement, and on
each of certain periodic payment dates thereafter, to equal the sum of
the Note Margin and the index. The scheduled monthly payment will be
adjusted as and when described in the related Prospectus Supplement to
an amount that would fully amortize the Mortgage Loan over its
remaining term on a level debt service basis; provided that increases
in the scheduled monthly payment may be subject to certain limitations
as specified in the related Prospectus Supplement. If an adjustment to
the Mortgage Rate on a Mortgage Loan causes the amount of interest
accrued thereon in any month to exceed the scheduled monthly payment on
such mortgage loan, the resulting amount of interest that has accrued
but is not then payable ("Deferred Interest") will be added to the
principal balance of such Mortgage Loan;
(5) Fixed-rate, graduated payment mortgage loans having
original or modified terms to maturity of not more than approximately
15 years with monthly payments during the first year calculated on the
basis of an assumed interest rate which is a specified percentage below
the Mortgage Rate on such mortgage loan. Such monthly payments increase
at the beginning of the second year by a specified percentage of the
monthly payment during the preceding year and each
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* The index (the "Index") for a particular Mortgage Pool will be
specified in the related Prospectus Supplement and may include one of
the following indexes: (i) the weekly average yield on U.S. Treasury
securities adjusted to a constant maturity of either six months or one
year, (ii) the weekly auction average investment yield of U.S. Treasury
bills of six months, (iii) the daily Bank Prime Loan rate made
available by the Federal Reserve Board, (iv) the cost of funds of
member institutions for the Federal Home Loan Bank of San Francisco,
(v) the interbank offered rates for U.S. dollar deposits in the London
market, each calculated as of a date prior to each scheduled interest
rate adjustment date which will be specified in the related Prospectus
Supplement or (vi) any other index described in the related Prospectus
Supplement.
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year thereafter to the extent necessary to amortize the mortgage loan
over the remainder of its approximately 15-year term. Deferred
Interest, if any, will be added to the principal balance of such
mortgage loans;
(6) Fixed-rate, graduated payment mortgage loans having
original or modified terms to maturity of not more than approximately
25 or 30 years with monthly payments during the first year calculated
on the basis of an assumed interest rate which is a specified
percentage below the Mortgage Rate. Such monthly payments increase at
the beginning of the second year by a specified percentage of the
monthly payment during the preceding year and each year thereafter to
the extent necessary to fully amortize the mortgage loan within its
approximately 25- or 30-year term. Deferred Interest, if any, will be
added to the principal balance of such mortgage loan; or
(7) Mortgage loans ("Balloon Loans") having payment terms
similar to those described in one of the preceding paragraphs numbered
(1) through (6), calculated on the basis of an assumed amortization
term, but providing for a payment (a "Balloon Payment") of all
outstanding principal and interest to be made at the end of a specified
term that is shorter than such assumed amortization term.
If provided in the related Prospectus Supplement, certain of the
Mortgage Pools may contain Single Family Loans secured by junior liens, and the
related senior liens ("Senior Liens") may not be included in the Mortgage Pool.
The primary risk to holders of such Mortgage Loans secured by junior liens is
the possibility that adequate funds will not be received in connection with a
foreclosure of the related Senior Liens to satisfy fully both the Senior Liens
and the Mortgage Loan. In the event that a holder of a Senior Lien forecloses on
a Mortgaged Property, the proceeds of the foreclosure or similar sale will be
applied first to the payment of court costs and fees in connection with the
foreclosure, second to real estate taxes, third in satisfaction of all
principal, interest, prepayment or acceleration penalties, if any, and any other
sums due and owing to the holder of the Senior Liens. The claims of the holders
of the Senior Liens will be satisfied in full out of proceeds of the liquidation
of the related Mortgaged Property, if such proceeds are sufficient, before the
Trust Fund as holder of the junior lien receives any payments in respect of the
Mortgage Loan. If the Master Servicer were to foreclose on any such Mortgage
Loan, it would do so subject to any related Senior Liens. In order for the debt
related to the Mortgage Loan to be paid in full at such sale, a bidder at the
foreclosure sale of such Mortgage Loan would have to bid an amount sufficient to
pay off all sums due under the Mortgage Loan and the Senior Liens or purchase
the Mortgaged Property subject to the Senior Liens. In the event that such
proceeds from a foreclosure or similar sale of the related Mortgaged Property
are insufficient to satisfy all Senior Liens and the Mortgage Loan in the
aggregate, the Trust Fund, as the holder of the junior lien, and, accordingly,
holders of one or more classes of the Certificates of the related series bear
(i) the risk of delay in distributions while a deficiency judgment against the
borrower is obtained and (ii) the risk of loss if the deficiency judgment is not
realized upon. Moreover, deficiency judgments may not be available in certain
jurisdictions or the Mortgage Loan may be nonrecourse. In addition, a junior
mortgagee may not foreclose on the property securing a junior mortgage unless it
forecloses subject to the senior mortgages.
If so specified in the related Prospectus Supplement, a Mortgage Loan
may contain a prohibition on prepayment (the period of such prohibition, a
"Lock-out Period" and its date of expiration, a "Lockout Expiration Date") or
require payment of a premium or a yield maintenance penalty (a "Prepayment
Penalty").
Certain information, including information regarding loan-to-value
ratios (each, a "Loan-to-Value Ratio") at origination (unless otherwise
specified in the related Prospectus Supplement) of the Mortgage Loans underlying
each series of Certificates, will be supplied in the related Prospectus
Supplement. In
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the case of most Mortgage Loans, the "Loan-to-Value Ratio" at origination is
defined generally as the ratio, expressed as a percentage, of the principal
amount of the Mortgage Loan at origination (or, if appropriate, at the time of
an appraisal subsequent to origination), plus, in the case of a Mortgage Loan
secured by a junior lien, the outstanding principal balance of the related
Senior Liens, to the Value of the related Mortgaged Property. Unless otherwise
specified in the related Prospectus Supplement, the "Value" of a Mortgaged
Property securing a Single Family Loan will generally be equal to the lesser of
(x) the appraised value determined in an appraisal obtained at origination of
such Mortgage Loan, if any, or, if the related Mortgaged Property has been
appraised subsequent to origination, the value determined in such subsequent
appraisal and (y) the sales price for the related Mortgaged Property (except in
certain circumstances in which there has been a subsequent appraisal). In the
case of certain refinanced, modified or converted Single Family Loans, unless
otherwise specified in the related Prospectus Supplement, the "Value" of the
related Mortgaged Property will be equal to the lesser of (x) the appraised
value of the related Mortgaged Property determined at origination or in an
appraisal, if any, obtained at the time of refinancing, modification or
conversion and (y) the sales price of the related Mortgage Property or, if the
Mortgage Loan is not a rate and term refinance Mortgage Loan and if the
Mortgaged Property was owned for a relatively short period of time prior to
refinancing, modification or conversion, the sum of the sales price of the
related Mortgaged Property plus the added value of any improvements. Certain
Mortgage Loans which are subject to negative amortization will have
Loan-to-Value Ratios which will increase after origination as a result of such
negative amortization. Unless otherwise specified in the related Prospectus
Supplement, for purposes of calculating the Loan-to-Value Ratio of a Contract
relating to a new Manufactured Home, the "Value" is no greater than the sum of a
fixed percentage of the list price of the unit actually billed by the
manufacturer to the dealer (exclusive of freight to the dealer site), including
"accessories" identified in the invoice (the "Manufacturer's Invoice Price"),
plus the actual cost of any accessories purchased from the dealer, a delivery
and set-up allowance, depending on the size of the unit, and the cost of state
and local taxes, filing fees and up to three years prepaid hazard insurance
premiums. Unless otherwise specified in the related Prospectus Supplement, with
respect to a used Manufactured Home, the "Value" is the least of the sale price,
the appraised value, and the National Automobile Dealer's Association book value
plus prepaid taxes and hazard insurance premiums. The appraised value of a
Manufactured Home is based upon the age and condition of the manufactured
housing unit and the quality and condition of the mobile home park in which it
is situated, if applicable. Manufactured Homes are less likely than other types
of housing to experience appreciation in value and more likely to experience
depreciation in value over time.
The Mortgage Loans may be "equity refinance" Mortgage Loans, as to
which a portion of the proceeds are used to refinance an existing mortgage loan,
and the remaining proceeds may be retained by the Mortgagor or used for purposes
unrelated to the Mortgaged Property. Alternatively, the Mortgage Loans may be
"rate and term refinance" Mortgage Loans, as to which substantially all of the
proceeds (net of related costs incurred by the Mortgagor) are used to refinance
an existing mortgage loan or loans (which may include a junior lien) primarily
in order to change the interest rate or other terms thereof. The Mortgage Loans
may be mortgage loans which have been consolidated and/or have had various terms
changed, mortgage loans which have been converted from adjustable rate mortgage
loans to fixed rate mortgage loans, or construction loans which have been
converted to permanent mortgage loans. In addition, a Mortgaged Property may be
subject to secondary financing at the time of origination of the Mortgage Loan
or thereafter.
If provided for in the related Prospectus Supplement, a Mortgage Pool
may contain ARM Loans which allow the Mortgagors to convert the adjustable rates
on such Mortgage Loans to a fixed rate at some point during the life of such
Mortgage Loans (each such Mortgage Loan, a "Convertible Mortgage Loan"),
generally not later than six to ten years subsequent to the date of origination,
depending upon the length of the initial adjustment period. If specified in the
related Prospectus Supplement, upon any conversion, the Company, the related
Master Servicer, the applicable Seller or a third party will purchase the
converted Mortgage Loan as and to the extent set forth in the related Prospectus
Supplement.
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Alternatively, if specified in the related Prospectus Supplement, the Company or
the related Master Servicer (or another party specified therein) may agree to
act as remarketing agent with respect to such converted Mortgage Loans and, in
such capacity, to use its best efforts to arrange for the sale of converted
Mortgage Loans under specified conditions. Upon the failure of any party so
obligated to purchase any such converted Mortgage Loan, the inability of any
remarketing agent to arrange for the sale of the converted Mortgage Loan and the
unwillingness of such remarketing agent to exercise any election to purchase the
converted Mortgage Loan for its own account, the related Mortgage Pool will
thereafter include both fixed rate and adjustable rate Mortgage Loans.
If provided for in the related Prospectus Supplement, certain of the
Mortgage Loans may be subject to temporary buydown plans ("Buydown Mortgage
Loans") pursuant to which the monthly payments made by the Mortgagor during the
early years of the Mortgage Loan (the "Buydown Period") will be less than the
scheduled monthly payments on the Mortgage Loan, the resulting difference to be
made up from (i) an amount (such amount, exclusive of investment earnings
thereon, being hereinafter referred to as "Buydown Funds") contributed by the
seller of the Mortgaged Property or another source and placed in a custodial
account (the "Buydown Account"), (ii) if the Buydown Funds are contributed on a
present value basis, investment earnings on such Buydown Funds or (iii)
additional buydown funds to be contributed over time by the Mortgagor's employer
or another source. See "Description of the Certificates--Payments on Mortgage
Loans; Deposits to Certificate Account." Generally, the Mortgagor under each
Buydown Mortgage Loan will be qualified at the applicable lower monthly payment.
Accordingly, the repayment of a Buydown Mortgage Loan is dependent on the
ability of the Mortgagor to make larger level monthly payments after the Buydown
Funds have been depleted and, for certain Buydown Mortgage Loans, during the
Buydown Period.
The Prospectus Supplement for each series of Certificates will contain
information as to the type of Mortgage Loans that will be included in the
related Mortgage Pool. Each Prospectus Supplement applicable to a series of
Certificates will include certain information, generally as of the Cut-off Date
and to the extent then available to the Company, on an approximate basis, as to
(i) the aggregate principal balance of the Mortgage Loans, (ii) the type of
property securing the Mortgage Loans, (iii) the original or modified terms to
maturity of the Mortgage Loans, (iv) the range of principal balances of the
Mortgage Loans at origination or modification, (v) the earliest origination or
modification date and latest maturity date of the Mortgage Loans, (vi) the
Loan-to-Value Ratios of the Mortgage Loans, (vii) the Mortgage Rate or range of
Mortgage Rates borne by the Mortgage Loans, (viii) if any of the Mortgage Loans
are ARM Loans, the applicable Index, the range of Note Margins and the weighted
average Note Margin, (ix) the geographical distribution of the Mortgage Loans,
(x) the number of Buydown Mortgage Loans, if applicable, and (xi) the percent of
ARM Loans which are convertible to fixed-rate mortgage loans, if applicable. A
Current Report on Form 8-K will be available upon request to holders of the
related series of Certificates and will be filed, together with the related
Pooling Agreement, with the Securities and Exchange Commission within fifteen
days after the initial issuance of such Certificates. In the event that Mortgage
Loans are added to or deleted from the Trust Fund after the date of the related
Prospectus Supplement, such addition or deletion will be noted in the Current
Report on Form 8-K.
The Company will cause the Mortgage Loans constituting each Mortgage
Pool (or Mortgage Securities evidencing interests therein) to be assigned,
without recourse, to the Trustee named in the related Prospectus Supplement, for
the benefit of the holders of all of the Certificates of a series. Except to the
extent that servicing of any Mortgage Loan is to be transferred to a Special
Servicer, the Master Servicer named in the related Prospectus Supplement will
service the Mortgage Loans, directly or through other mortgage servicing
institutions ("Subservicers"), pursuant to a Pooling Agreement and will receive
a fee for such services. See "Servicing of Mortgage Loans," "Description of the
Certificates" and "The Pooling Agreement." With respect to those Mortgage Loans
serviced by the Master Servicer through a Subservicer, the Master Servicer will
remain liable for its servicing obligations under the related Pooling Agreement
as if the Master Servicer alone were servicing such Mortgage Loans. The Master
Servicer's
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obligations with respect to the Mortgage Loans will consist principally of its
contractual servicing obligations under the related Pooling Agreement (including
its obligation to enforce certain purchase and other obligations of Subservicers
and Sellers, as more fully described herein under "--Representations by Sellers"
below, "Servicing of Mortgage Loans--Subservicers," and "Description of the
Certificates--Assignment of Trust Fund Assets," and, if and to the extent set
forth in the related Prospectus Supplement, its obligation to make certain cash
advances in the event of delinquencies in payments on or with respect to the
Mortgage Loans as described herein under "Description of the
Certificates--Advances") or pursuant to the terms of any Mortgage Securities.
UNDERWRITING STANDARDS
Mortgage Loans to be included in a Mortgage Pool will have been
purchased by the Company, either directly or indirectly from Sellers. Such
Mortgage Loans, as well as Mortgage Loans underlying Mortgage Securities, will
generally have been originated in accordance with underwriting standards
acceptable to the Company and generally described below or such alternative
underwriting criteria as may be described in the related Prospectus Supplement.
However, in some cases, particularly those involving Unaffiliated Sellers, the
Company may not be able to establish the underwriting standards used in the
origination of the related Mortgage Loans. In those cases, the related
Prospectus Supplement will include a statement to such effect and will reflect
what, if any, re-underwriting of the related Mortgage Loans was done by the
Company or any of its affiliates.
Unless otherwise specified in the related Prospectus Supplement, the
underwriting standards to be used in originating the Mortgage Loans are
primarily intended to assess the creditworthiness of the Mortgagor, the value of
the Mortgaged Property and the adequacy of such property as collateral for the
Mortgage Loan.
The primary considerations in underwriting a Single Family Loan or
Contract are the Mortgagor's employment stability and whether the Mortgagor has
sufficient monthly income available (i) to meet the Mortgagor's monthly
obligations on the proposed Mortgage Loan (generally determined on the basis of
the monthly payments due in the year of origination) and other expenses related
to the home (such as property taxes and hazard insurance) and (ii) to meet
monthly housing expenses and other financial obligations and monthly living
expenses. However, the Loan-to-Value Ratio of the Mortgage Loan is another
critical factor. In addition, a Mortgagor's credit history and repayment
ability, as well as the type and use of the Mortgaged Property, are also
considerations.
It is expected that each prospective Mortgagor will complete a mortgage
loan application that includes information with respect to the applicant's
liabilities, income, credit history, employment history and personal
information. One or more credit reports on each applicant from national credit
reporting companies will generally be required. The report typically contains
information relating to such matters as credit history with local and national
merchants and lenders, installment debt payments and any record of defaults,
bankruptcies, repossessions, or judgments.
Unless otherwise specified in the related Prospectus Supplement,
Mortgaged Properties will be appraised by licensed appraisers. The appraiser
will generally address neighborhood conditions, site and zoning status and
condition and valuation of improvements. In the case of Single Family
Properties, the appraisal report will generally include a reproduction cost
analysis (when appropriate) based on the current cost of constructing a similar
home and a market value analysis based on recent sales of comparable homes in
the area. An appraisal employing the income approach to value analyzes a
property's projected net cash flow, capitalization and other operational
information in determining the property's value. The market approach to value
analyzes the prices paid for the purchase of similar properties in the
property's area, with adjustments made for variations between those other
properties and the property being appraised. The cost approach to value requires
the appraiser to make an estimate of
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land value and then determine the current cost of reproducing the improvements
less any accrued depreciation. In any case, the value of the property being
financed, as indicated by the appraisal, must be such that it currently
supports, and is anticipated to support in the future, the outstanding loan
balance. Unless otherwise specified in the related Prospectus Supplement, all
appraisals are required to conform to the Uniform Standards of Professional
Appraisal Practice and the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") and must be on forms acceptable to the
Federal National Mortgage Association ("FNMA") and/or the Federal Home Loan
Mortgage Corporation ("FHLMC").
Notwithstanding the foregoing, Loan-to-Value Ratios will not
necessarily constitute an accurate measure of the risk of liquidation loss in a
pool of Mortgage Loans. For example, the value of a Mortgaged Property as of the
date of initial issuance of the related series of Certificates may be less than
the Value determined at loan origination, and will likely continue to fluctuate
from time to time based upon changes in economic conditions and the real estate
market.
With respect to any FHA Loan the Mortgage Loan Seller will be required
to represent that it has complied with the applicable underwriting policies of
the FHA. See "Description of Primary Insurance Policies--FHA Insurance".
To the extent relevant and available, the related Prospectus Supplement
will include delinquency and foreclosure experience for the applicable
Seller(s).
QUALIFICATIONS OF ORIGINATORS AND SELLERS
Unless otherwise specified in the related Prospectus Supplement, each
Mortgage Loan will be originated, directly or through mortgage brokers and
correspondents, by a savings and loan association, savings bank, commercial
bank, credit union, insurance company, or similar institution which is
supervised and examined by a federal or state authority, or by a mortgagee
approved by the Secretary of Housing and Urban Development pursuant to sections
203 and 211 of the National Housing Act of 1934, as amended (the "Housing Act").
Except with respect to Designated Seller Transactions or unless otherwise
specified in the related Prospectus Supplement, each Seller must satisfy certain
criteria as to financial stability evaluated on a case-by-case basis by the
Company.
REPRESENTATIONS BY SELLERS
Unless otherwise specified in the related Prospectus Supplement, each
Seller will have made representations and warranties in respect of the Mortgage
Loans and/or Mortgage Securities sold by such Seller and evidenced by a series
of Certificates. In the case of Mortgage Loans, such representations and
warranties will generally include, among other things, that as to each such
Mortgage Loan: (i) any required hazard and primary mortgage insurance policies
were effective at the origination of such Mortgage Loan, and each such policy
remained in effect on the date of purchase of such Mortgage Loan from the Seller
by or on behalf of the Company; (ii) with respect to each Mortgage Loan other
than a Contract, either (A) a title insurance policy insuring (subject only to
permissible title insurance exceptions) the lien status of the Mortgage was
effective at the origination of such Mortgage Loan and such policy remained in
effect on the date of purchase of the Mortgage Loan from the Seller by or on
behalf of the Company or (B) if the Mortgaged Property securing such Mortgage
Loan is located in an area where such policies are generally not available,
there is in the related mortgage file an attorney's certificate of title
indicating (subject to such permissible exceptions set forth therein) the first
lien status of the mortgage; (iii) the Seller has good title to such Mortgage
Loan and such Mortgage Loan was subject to no offsets, defenses or counterclaims
except as may be provided under the Relief Act and except to the extent that any
buydown agreement exists for a Buydown Mortgage Loan; (iv) there are no
mechanics' liens or claims for work, labor or material affecting the related
Mortgaged Property which
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are, or may be a lien prior to, or equal with, the lien of the related Mortgage
(subject only to permissible title insurance exceptions); (v) the related
Mortgaged Property is free from damage and in good repair; (vi) there are no
delinquent tax or assessment liens against the related Mortgaged Property; (vii)
such Mortgage Loan is not more than 60 days' delinquent as to any scheduled
payment of principal and/or interest; (viii) if a Primary Insurance Policy is
required with respect to such Mortgage Loan, such Mortgage Loan is the subject
of such a policy; and (ix) such Mortgage Loan was made in compliance with, and
is enforceable under, all applicable local, state and federal laws in all
material respects. In the case of Mortgage Securities, such representations and
warranties will generally include, among other things, that as to each such
Mortgage Security: (i) such Mortgage Security is validly issued and outstanding
and entitled to the benefits of the agreement pursuant to which it was issued;
and (ii) the Seller has good title to such Mortgage Security. In the event of a
breach of a Seller's representation or warranty that materially adversely
affects the interests of the Certificateholders in a Mortgage Loan or Mortgage
Security, unless otherwise specified in the related Prospectus Supplement, the
related Seller will be obligated to cure the breach or repurchase or, if
permitted, replace such Mortgage Loan or Mortgage Security as described below.
However, there can be no assurance that a Seller will honor its obligation to
repurchase or, if permitted, replace any Mortgage Loan or Mortgage Security as
to which such a breach of a representation or warranty arises.
All of the representations and warranties of a Seller in respect of a
Mortgage Loan or Mortgage Security will have been made as of the date on which
such Mortgage Loan or Mortgage Security was purchased from the Seller by or on
behalf of the Company; the date as of which such representations and warranties
were made will be a date prior to the date of initial issuance of the related
series of Certificates or, in the case of a Designated Seller Transaction, will
be the date of closing of the related sale by the applicable Seller. A
substantial period of time may have elapsed between the date as of which the
representations and warranties were made and the later date of initial issuance
of the related series of Certificates. Accordingly, the Seller's purchase
obligation (or, if specified in the related Prospectus Supplement, limited
replacement option) described below will not arise if, during the period
commencing on the date of sale of a Mortgage Loan or Mortgage Security by the
Seller, an event occurs that would have given rise to such an obligation had the
event occurred prior to sale of the affected Mortgage Loan or Mortgage Security,
as the case may be. Unless otherwise specified in the related Prospectus
Supplement, the only representations and warranties to be made for the benefit
of holders of Certificates in respect of any related Mortgage Loan or Mortgage
Security relating to the period commencing on the date of sale of such Mortgage
Loan or Mortgage Security by the Seller to or on behalf of the Company will be
certain limited representations of the Company and the Master Servicer described
under "Description of the Certificates--Assignment of Trust Fund Assets" below.
The Company will assign to the Trustee for the benefit of the holders
of the related series of Certificates all of its right, title and interest in
each agreement by which it purchased a Mortgage Loan or Mortgage Security from a
Seller insofar as such agreement relates to the representations and warranties
made by such Seller in respect of such Mortgage Loan or Mortgage Security and
any remedies provided for with respect to any breach of such representations and
warranties. If a Seller cannot cure a breach of any representation or warranty
made by it in respect of a Mortgage Loan or Mortgage Security which materially
and adversely affects the interests of the Certificateholders therein within a
specified period after having discovered or received notice of such breach,
then, unless otherwise specified in the related Prospectus Supplement, such
Seller will be obligated to purchase such Mortgage Loan or Mortgage Security at
a price (the "Purchase Price") set forth in the related Pooling Agreement which
Purchase Price will generally be equal to the principal balance thereof as of
the date of purchase plus accrued and unpaid interest through or about the date
of purchase at the related Mortgage Rate or pass-through rate, as applicable
(net of any portion of such interest payable to such Seller in respect of master
servicing compensation, special servicing compensation or subservicing
compensation, as applicable, and the Spread, if any).
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Unless otherwise specified in the related Prospectus Supplement, as to
any Mortgage Loan required to be purchased by an Affiliated Seller as provided
above, rather than repurchase the Mortgage Loan, the Seller will be entitled, at
its sole option, to remove such Mortgage Loan (a "Deleted Mortgage Loan") from
the Trust Fund and substitute in its place another Mortgage Loan of like kind (a
"Qualified Substitute Mortgage Loan"); however, such substitution must be
effected within 120 days of the date of the initial issuance of the related
series of Certificates with respect to a Trust Fund for which no REMIC election
is to be made. With respect to a Trust Fund for which a REMIC election is to be
made, except as otherwise provided in the related Prospectus Supplement, such
substitution of a defective Mortgage Loan must be effected within two years of
the date of the initial issuance of the related series of Certificates, and may
not be made if such substitution would cause the Trust Fund, or any portion
thereof, to fail to qualify as a REMIC or result in a prohibited transaction tax
under the Code. Except as otherwise provided in the related Prospectus
Supplement, any Qualified Substitute Mortgage Loan generally will, on the date
of substitution, (i) have an outstanding principal balance, after deduction of
the principal portion of the monthly payment due in the month of substitution,
not in excess of the outstanding principal balance of the Deleted Mortgage Loan
(the amount of any shortfall to be deposited in the Certificate Account by the
Master Servicer in the month of substitution for distribution to the
Certificateholders), (ii) have a Mortgage Rate and a Net Mortgage Rate not less
than (and not more than one percentage point greater than) the Mortgage Rate and
Net Mortgage Rate, respectively, of the Deleted Mortgage Loan as of the date of
substitution, (iii) have a Loan-to-Value Ratio at the time of substitution no
higher than that of the Deleted Mortgage Loan at the time of substitution, (iv)
have a remaining term to maturity not greater than (and not more than one year
less than) that of the Deleted Mortgage Loan, (v) comply with all of the
representations and warranties made by such Affiliated Seller as of the date of
substitution, and (vi) be covered under a primary insurance policy if such
Mortgage Loan has a Loanto-Value Ratio greater than 80%. The related purchase
agreement may include additional requirements relating to ARM Loans or other
specific types of Mortgage Loans, or additional provisions relating to meeting
the foregoing requirements on an aggregate basis where a number of substitutions
occur contemporaneously. Unless otherwise specified in the related Prospectus
Supplement, an Unaffiliated Seller will have no option to substitute for a
Mortgage Loan that it is obligated to repurchase in connection with a breach of
a representation and warranty, and neither an Affiliated Seller nor an
Unaffiliated Seller will have any option to substitute for a Mortgage Security
that it is obligated to repurchase in connection with a breach of a
representation and warranty.
The Master Servicer will be required under the applicable Pooling
Agreement to use reasonable efforts to enforce this purchase or substitution
obligation for the benefit of the Trustee and the Certificateholders, following
such practices it would employ in its good faith business judgment and which are
normal and usual in its general mortgage servicing activities; provided,
however, that this purchase or substitution obligation will not become an
obligation of the Master Servicer in the event the applicable Seller fails to
honor such obligation. In instances where a Seller is unable, or disputes its
obligation, to purchase affected Mortgage Loans and/or Mortgage Securities, the
Master Servicer, employing the standards set forth in the preceding sentence,
may negotiate and enter into one or more settlement agreements with such Seller
that could provide for, among other things, the purchase of only a portion of
the affected Mortgage Loans and/or Mortgage Securities. Any such settlement
could lead to losses on the Mortgage Loans and/or Mortgage Securities which
would be borne by the related Certificates. In accordance with the above
described practices, the Master Servicer will not be required to enforce any
purchase obligation of a Seller arising from any misrepresentation by the
Seller, if the Master Servicer determines in the reasonable exercise of its
business judgment that the matters related to such misrepresentation did not
directly cause or are not likely to directly cause a loss on the related
Mortgage Loan or Mortgage Security. If the Seller fails to repurchase and no
breach of any other party's representations has occurred, the Seller's purchase
obligation will not become an obligation of the Company or any other party. In
the case of a Designated Seller Transaction where the Seller fails to repurchase
a Mortgage Loan or Mortgage Security and neither the Company nor any other
entity has assumed the representations and warranties, such repurchase
obligation of the Seller will not become an
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obligation of the Company or any other party. Unless otherwise specified in the
related Prospectus Supplement, the foregoing obligations will constitute the
sole remedies available to Certificateholders or the Trustee for a breach of any
representation by a Seller or for any other event giving rise to such
obligations as described above.
Neither the Company nor the Master Servicer will be obligated to
purchase a Mortgage Loan or Mortgage Security if a Seller defaults on its
obligation to do so, and no assurance can be given that the Sellers will carry
out such purchase obligations. Such a default by a Seller is not a default by
the Company or by the Master Servicer. However, to the extent that a breach of
the representations and warranties of a Seller also constitutes a breach of a
representation made by the Company or the Master Servicer, as described below
under "Description of the Certificates--Assignment of Trust Fund Assets," the
Company or the Master Servicer may have a purchase or substitution obligation.
Any Mortgage Loan or Mortgage Security not so purchased or substituted for shall
remain in the related Trust Fund and any losses related thereto shall be
allocated to the related credit enhancement, to the extent available, and
otherwise to one or more classes of the related series of Certificates.
If a person other than a Seller makes the representations and
warranties referred to in the first paragraph of this "--Representations by
Sellers" section, or a person other than a Seller is responsible for
repurchasing or replacing any Mortgage Loan or Mortgage Security in connection
with a breach of such representations and warranties, the identity of such
person will be specified in the related Prospectus Supplement.
SERVICING OF MORTGAGE LOANS
GENERAL
The Mortgage Loans and Mortgage Securities included in each Mortgage
Pool will be serviced and administered pursuant to a Pooling Agreement. Forms of
Pooling Agreements have been filed as an exhibit to the Registration Statement
of which this Prospectus is a part. However, the provisions of each Pooling
Agreement will vary depending upon the nature of the related Mortgage Pool. The
following summaries describe certain servicing-related provisions that may
appear in a Pooling Agreement for a Mortgage Pool that includes Mortgage Loans.
The related Prospectus Supplement will describe any servicing-related provision
of such a Pooling Agreement that materially differs from the description thereof
contained in this Prospectus and, if the related Mortgage Pool includes Mortgage
Securities, will summarize all of the material provisions of the related Pooling
Agreement that govern the administration of such Mortgage Securities and
identify the party responsible for such administration. The summaries herein do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions of the related Pooling Agreement
and the description of such provisions in the related Prospectus Supplement.
With respect to any series of Certificates as to which the related
Mortgage Pool includes Mortgage Securities, the servicing and administration of
the Mortgage Loans underlying such Mortgage Securities will be pursuant to the
terms of such Mortgage Securities. It is expected that Mortgage Loans underlying
any Mortgage Securities in a Mortgage Pool would be serviced and administered
generally in the same manner as Mortgage Loans included in a Mortgage Pool,
however, there can be no assurance that such will be the case, particularly if
such Mortgage Securities are issued by an entity other than the Company or any
of its affiliates. The related Prospectus Supplement will describe any material
differences between the servicing described below and the servicing of Mortgage
Loans underlying the Mortgage Securities in any Mortgage Pool.
THE MASTER SERVICER
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The master servicer (the "Master Servicer"), if any, for a series of
Certificates will be named in the related Prospectus Supplement and may be OOMC
or another affiliate of the Company. The Master Servicer is required to maintain
a fidelity bond and errors and omissions policy with respect to its officers and
employees and other persons acting on behalf of the Master Servicer in
connection with its activities under a Pooling Agreement.
COLLECTION AND OTHER SERVICING PROCEDURES; MORTGAGE LOAN MODIFICATIONS
Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer for any Mortgage Pool, directly or through Subservicers, will be
obligated under the Pooling Agreement to service and administer the Mortgage
Loans in such Mortgage Pool for the benefit of the related Certificateholders,
in accordance with applicable law and the terms of such Pooling Agreement, such
Mortgage Loans and any instrument of credit enhancement included in the related
Trust Fund, and, to the extent consistent with the foregoing, in the same manner
as would prudent institutional mortgage lenders servicing comparable mortgage
loans for their own account in the jurisdictions where the related Mortgaged
Properties are located. Subject to the foregoing, the Master Servicer will have
full power and authority to do any and all things in connection with such
servicing and administration that it may deem necessary and desirable.
As part of its servicing duties, a Master Servicer will be required to
make reasonable efforts to collect all payments called for under the terms and
provisions of the Mortgage Loans that it services and will be obligated to
follow such collection procedures as it would follow with respect to mortgage
loans that are comparable to such Mortgage Loans and held for its own account,
provided such procedures are consistent with the terms of the related Pooling
Agreement, including the servicing standard specified therein and generally
described in the preceding paragraph (as such may be more particularly described
in the related Prospectus Supplement, the "Servicing Standard"), and do not
impair recovery under any instrument of credit enhancement included in the
related Trust Fund. Consistent with the foregoing, the Master Servicer will be
permitted, in its discretion, to waive any Prepayment Premium, late payment
charge or other charge in connection with any Mortgage Loan.
Under a Pooling Agreement, a Master Servicer will be granted certain
discretion to extend relief to Mortgagors whose payments become delinquent. In
the case of Single Family Loans and Contracts, a Master Servicer may, among
other things, grant a period of temporary indulgence (generally up to four
months) to a Mortgagor or may enter into a liquidating plan providing for
repayment by such Mortgagor of delinquent amounts within a specified period
(generally up to one year) from the date of execution of the plan. However,
unless otherwise specified in the related Prospectus Supplement, the Master
Servicer must first determine that any such waiver or extension will not impair
the coverage of any related insurance policy or materially adversely affect the
security for such Mortgage Loan.
Certain of the Mortgage Loans in a Mortgage Pool may contain a
due-on-sale clause that entitles the lender to accelerate payment of the
Mortgage Loan upon any sale or other transfer of the related Mortgaged Property
made without the lender's consent. In any case in which property subject to a
Single Family Loan or Contract is being conveyed by the Mortgagor, unless the
related Prospectus Supplement provides otherwise, the Master Servicer will in
general be obligated, to the extent it has knowledge of such conveyance, to
exercise its rights to accelerate the maturity of such Mortgage Loan under any
due-on-sale clause applicable thereto, but only if the exercise of such rights
is permitted by applicable law and only to the extent it would not adversely
affect or jeopardize coverage under any Primary Insurance Policy or applicable
credit enhancement arrangements. If the Master Servicer is prevented from
enforcing such due-on-sale clause under applicable law or if the Master Servicer
determines that it is reasonably likely that a legal action would be instituted
by the related Mortgagor to avoid enforcement of such due-on-sale clause, the
Master Servicer will 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
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person becomes liable under the Mortgage Loan subject to certain specified
conditions. The original Mortgagor may be released from liability on a Single
Family Loan or Contract if the Master Servicer shall have determined in good
faith that such release will not adversely affect the collectability of the
Mortgage Loan. Unless otherwise specified in the related Prospectus Supplement,
the Master Servicer will be entitled to retain as additional servicing
compensation any fee collected in connection with the permitted transfer of a
Mortgaged Property. See "Certain Legal Aspects of Mortgage Loans--Enforceability
of Certain Provisions." FHA Loans contain no such clause and may be assumed by
the purchaser of the mortgaged property.
Mortgagors may, from time to time, request partial releases of the
Mortgaged Properties, easements, consents to alteration or demolition and other
similar matters. The Master Servicer may approve such a request if it has
determined, exercising its good faith business judgment in the same manner as it
would if it were the owner of the related Mortgage Loan, that such approval will
not adversely affect the security for, or the timely and full collectability of,
the related Mortgage Loan. Any fee collected by the Master Servicer for
processing such request will be retained by the Master Servicer as additional
servicing compensation.
In the case of Single Family Loans secured by junior liens on the
related Mortgaged Properties, unless otherwise provided in the related
Prospectus Supplement, the Master Servicer will be required to file (or cause to
be filed) of record a request for notice of any action by a superior lienholder
under the Senior Lien for the protection of the related Trustee's interest,
where permitted by local law and whenever applicable state law does not require
that a junior lienholder be named as a party defendant in foreclosure
proceedings in order to foreclose such junior lienholder's equity of redemption.
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer also will be required to notify any superior lienholder in writing of
the existence of the Mortgage Loan and request notification of any action (as
described below) to be taken against the Mortgagor or the Mortgaged Property by
the superior lienholder. If the Master Servicer is notified that any superior
lienholder has accelerated or intends to accelerate the obligations secured by
the related Senior Lien, or has declared or intends to declare a default under
the mortgage or the promissory note secured thereby, or has filed or intends to
file an election to have the related Mortgaged Property sold or foreclosed,
then, unless otherwise specified in the related Prospectus Supplement, the
Master Servicer will be required to take, on behalf of the related Trust Fund,
whatever actions are necessary to protect the interests of the related
Certificateholders, and/or to preserve the security of the related Mortgage
Loan, subject to the application of the REMIC Provisions. Unless otherwise
specified in the related Prospectus Supplement, the Master Servicer will be
required to advance the necessary funds to cure the default or reinstate the
superior lien, if such advance is in the best interests of the related
Certificateholders and the Master Servicer determines such advances are
recoverable out of payments on or proceeds of the related Mortgage Loan.
The Master Servicer for any Mortgage Pool will also be required to
perform other customary functions of a servicer of comparable loans, including
maintaining escrow or impound accounts for payment of taxes, insurance premiums
and similar items, or otherwise monitoring the timely payment of those items;
adjusting Mortgage Rates on ARM Loans; maintaining Buydown Accounts; supervising
foreclosures and similar proceedings; managing Mortgage Properties acquired
through or in lieu of foreclosure (each, an "REO Property"); and maintaining
servicing records relating to the Mortgage Loans in such Mortgage Pool. Unless
otherwise specified in the related Prospectus Supplement, the Master Servicer
will be responsible for filing and settling claims in respect of particular
Mortgage Loans under any applicable instrument of credit enhancement. See
"Description of Credit Enhancement."
SUBSERVICERS
A Master Servicer may delegate its servicing obligations in respect of
the Mortgage Loans serviced by it to one or more third-party servicers (each, a
"Subservicer"), but the Master Servicer will
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remain liable for such obligations under the related Pooling Agreement unless
otherwise provided in the related Prospectus Supplement. Unless otherwise
provided in the related Prospectus Supplement, the Master Servicer will be
solely liable for all fees owed by it to any Subservicer, irrespective of
whether the Master Servicer's compensation pursuant to the related Pooling
Agreement is sufficient to pay such fees. Each Subservicer will be entitled to
reimbursement for certain expenditures which it makes, generally to the same
extent as would the Master Servicer for making the same expenditures. See
"--Servicing and Other Compensation and Payment of Expenses; Spread" below and
"Description of the Certificates--The Certificate Account."
SPECIAL SERVICERS
If and to the extent specified in the related Prospectus Supplement, a
special servicer (a "Special Servicer") may be a party to the related Pooling
Agreement or may be appointed by the Master Servicer or another specified party
to perform certain specified duties in respect of servicing the related Mortgage
Loans that would otherwise be performed by the Master Servicer (for example, the
workout and/or foreclosure of defaulted Mortgage Loans). The rights and
obligations of any Special Servicer will be specified in the related Prospectus
Supplement, and the Master Servicer will be liable for the performance of a
Special Servicer only if, and to the extent, set forth in such Prospectus
Supplement.
REALIZATION UPON OR SALE OF DEFAULTED MORTGAGE LOANS
Except as described below or in the related Prospectus Supplement, the
Master Servicer will be required, in a manner consistent with the Servicing
Standard, to foreclose upon or otherwise comparably convert the ownership of
properties securing such of the Mortgage Loans in the related Mortgage Pool as
come into and continue in default and as to which no satisfactory arrangements
can be made for collection of delinquent payments. In connection therewith, the
Master Servicer will be authorized to institute foreclosure proceedings,
exercise any power of sale contained in the related Mortgage, obtain a deed in
lieu of foreclosure, or otherwise acquire title to the related Mortgaged
Property, by operation of law or otherwise, if such action is consistent with
the Servicing Standard. The Master Servicer's actions in this regard must be
conducted, however, in a manner that will permit recovery under any instrument
of credit enhancement included in the related Trust Fund. In addition, the
Master Servicer will not be required to expend its own funds in connection with
any foreclosure or to restore any damaged property unless it shall determine
that (i) such foreclosure and/or restoration will increase the proceeds of
liquidation of the Mortgage Loan to the related Certificateholders after
reimbursement to itself for such expenses and (ii) such expenses will be
recoverable to it from related Insurance Proceeds, Liquidation Proceeds or
amounts drawn out of any fund or under any instrument constituting credit
enhancement (respecting which it shall have priority for purposes of withdrawal
from the Certificate Account in accordance with the Pooling Agreement).
Notwithstanding the foregoing, unless otherwise specified in
the related Prospectus Supplement, the Master Servicer will not be obligated to
foreclose upon or otherwise convert the ownership of any Single Family Property
securing a Mortgage Loan if it has received notice or has actual knowledge that
such property may be contaminated with or affected by hazardous wastes or
hazardous substances; however, no environmental testing will generally be
required. The Master Servicer will not be liable to the Certificateholders of
the related series if, based on its belief that no such contamination or effect
exists, the Master Servicer forecloses on a Mortgaged Property and takes title
to such Mortgaged Property, and thereafter such Mortgaged Property is determined
to be so contaminated or affected.
With respect to a Mortgage Loan in default, the Master Servicer may
pursue foreclosure (or similar remedies) concurrently with pursuing any remedy
for a breach of a representation and warranty. However, the Master Servicer is
not required to continue to pursue both such remedies if it determines that one
such remedy is more likely to result in a greater recovery. Upon the first to
occur of final
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liquidation (by foreclosure or otherwise) and a repurchase or substitution
pursuant to a breach of a representation and warranty, such Mortgage Loan will
be removed from the related Trust Fund if it has not been removed previously.
The Master Servicer may elect to treat a defaulted Mortgage Loan as having been
finally liquidated if substantially all amounts expected to be received in
connection therewith have been received. Any additional liquidation expenses
relating to such Mortgage Loan thereafter incurred will be reimbursable to the
Master Servicer (or any Subservicer) from any amounts otherwise distributable to
holders of Certificates of the related series, or may be offset by any
subsequent recovery related to such Mortgage Loan. Alternatively, for purposes
of determining the amount of related Liquidation Proceeds to be distributed to
Certificateholders, the amount of any Realized Loss or the amount required to be
drawn under any applicable form of credit support, the Master Servicer may take
into account minimal amounts of additional receipts expected to be received, as
well as estimated additional liquidation expenses expected to be incurred in
connection with such defaulted Mortgage Loan. With respect to certain series of
Certificates, if so provided in the related Prospectus Supplement, the
applicable form of credit enhancement may provide, to the extent of coverage
thereunder, that a defaulted Mortgage Loan will be removed from the Trust Fund
prior to the final liquidation thereof. In addition, a Pooling Agreement may
grant to the Master Servicer, a Special Servicer, a provider of credit
enhancement and/or the holder or holders of certain classes of Certificates of
the related series a right of first refusal to purchase from the Trust Fund, at
a predetermined purchase price (which, if insufficient to fully fund the
entitlements of Certificateholders to principal and interest thereon, will be
specified in the related Prospectus Supplement), any Mortgage Loan as to which a
specified number of scheduled payments are delinquent. Furthermore, a Pooling
Agreement may authorize the Master Servicer to sell any defaulted Mortgage Loan
if and when the Master Servicer determines, consistent with the Servicing
Standard, that such a sale would produce a greater recovery to
Certificateholders on a present value basis than would liquidation of the
related Mortgaged Property.
In the event that title to any Mortgaged Property is acquired in
foreclosure, deed in lieu of foreclosure or otherwise, the deed or certificate
of sale will be issued to the Trustee or to its nominee on behalf of
Certificateholders of the related series. Notwithstanding any such acquisition
of title and cancellation of the related Mortgage Loan, such Mortgage Loan (an
"REO Mortgage Loan") will be considered for most purposes to be an outstanding
Mortgage Loan held in the Trust Fund until such time as the Mortgaged Property
is sold and all recoverable Liquidation Proceeds and Insurance Proceeds have
been received with respect to such defaulted Mortgage Loan (a "Liquidated
Mortgage Loan"). For purposes of calculations of amounts distributable to
Certificateholders in respect of an REO Mortgage Loan, unless otherwise
specified in the related Prospectus Supplement, the amortization schedule in
effect at the time of any such acquisition of title (before any adjustment
thereto by reason of any bankruptcy or any similar proceeding or any moratorium
or similar waiver or grace period) will be deemed to have continued in effect
(and, in the case of an ARM Loan, such amortization schedule will be deemed to
have adjusted in accordance with any interest rate changes occurring on any
adjustment date therefor) so long as such REO Mortgage Loan is considered to
remain in the Trust Fund.
Unless otherwise provided in the related Prospectus Supplement, if
title to any Mortgaged Property is acquired by a Trust Fund as to which a REMIC
election has been made, the Master Servicer, on behalf of the Trust Fund, will
be required to sell the Mortgaged Property within two years of acquisition,
unless (i) the Internal Revenue Service grants an extension of time to sell such
property or (ii) the Trustee receives an opinion of independent counsel to the
effect that the holding of the property by the Trust Fund for more than two
years after its acquisition will not result in the imposition of a tax on the
Trust Fund or cause the Trust Fund to fail to qualify as a REMIC under the Code
at any time that any Certificate is outstanding. Subject to the foregoing and
any other tax-related constraints, the Master Servicer will generally be
required to solicit bids for any Mortgaged Property so acquired in such a manner
as will be reasonably likely to realize a fair price for such property. Unless
otherwise provided in the related Prospectus Supplement, if title to any
Mortgaged Property is acquired by a Trust Fund as to which a REMIC election has
been made, the Master Servicer will also be required to ensure that the
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Mortgaged Property is administered so that it constitutes "foreclosure property"
within the meaning of Code Section 860G(a)(8) at all times, that the sale of
such property does not result in the receipt by the Trust Fund of any income
from non-permitted assets as described in Code Section 860F(a)(2)(B), and that
the Trust Fund does not derive any "net income from foreclosure property" within
the meaning of Code Section 860G(c)(2), with respect to such property.
If Liquidation Proceeds collected with respect to a defaulted Mortgage
Loan are less than the outstanding principal balance of the defaulted Mortgage
Loan plus interest accrued thereon plus the aggregate amount of reimbursable
expenses incurred by the Master Servicer with respect to such Mortgage Loan, and
the shortfall is not covered under any applicable instrument or fund
constituting credit enhancement, the Trust Fund will realize a loss in the
amount of such difference. The Master Servicer will be entitled to reimburse
itself from the Liquidation Proceeds recovered on any defaulted Mortgage Loan,
prior to the distribution of such Liquidation Proceeds to Certificateholders,
amounts that represent unpaid servicing compensation in respect of the Mortgage
Loan, unreimbursed servicing expenses incurred with respect to the Mortgage Loan
and any unreimbursed advances of delinquent payments made with respect to the
Mortgage Loan. If so provided in the related Prospectus Supplement, the
applicable form of credit enhancement may provide for reinstatement subject to
certain conditions in the event that, following the final liquidation of a
Mortgage Loan and a draw under such credit enhancement, subsequent recoveries
are received. In addition, if a gain results from the final liquidation of a
defaulted Mortgage Loan or an REO Mortgage Loan which is not required by law to
be remitted to the related Mortgagor, the Master Servicer will be entitled to
retain such gain as additional servicing compensation unless the related
Prospectus Supplement provides otherwise. For a description of the Master
Servicer's (or other specified person's) obligations to maintain and make claims
under applicable forms of credit enhancement and insurance relating to the
Mortgage Loans, see "Description of Credit Enhancement" and "Primary Mortgage
Insurance, Hazard Insurance; Claims Thereunder."
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES; SPREAD
The principal servicing compensation to be paid to the Master Servicer
in respect of its master servicing activities for a series of Certificates will
be equal to the percentage per annum described in the related Prospectus
Supplement (which may vary under certain circumstances) of the outstanding
principal balance of each Mortgage Loan, and such compensation will be retained
by it on a monthly or other periodic basis from collections of interest on such
Mortgage Loan in the related Trust Fund at the time such collections are
deposited into the applicable Certificate Account. This portion of the servicing
fee will be calculated with respect to each Mortgage Loan by multiplying such
fee by the principal balance of such Mortgage Loan. In addition, unless
otherwise specified in the related Prospectus Supplement, the Master Servicer
will retain all Prepayment Premiums, assumption fees and late payment charges,
to the extent collected from Mortgagors, and any benefit which may accrue as a
result of the investment of funds in the applicable Certificate Account. Any
additional servicing compensation will be described in the related Prospectus
Supplement. Any Subservicer will receive a portion of the Master Servicer's
compensation as its sub-servicing compensation.
In addition to amounts payable to any Subservicer, the Master Servicer
will pay or cause to be paid certain ongoing expenses associated with each Trust
Fund and incurred by it in connection with its responsibilities under the
Pooling Agreement, including, if so specified in the related Prospectus
Supplement, payment of any fee or other amount payable in respect of any
alternative credit enhancement arrangements, payment of the fees and
disbursements of the Trustee, any custodian appointed by the Trustee and the
Certificate Registrar, and payment of expenses incurred in enforcing the
obligations of Subservicers and Sellers. The Master Servicer will be entitled to
reimbursement of expenses incurred in enforcing the obligations of Subservicers
and Sellers under certain limited circumstances. In addition, the Master
Servicer will be entitled to reimbursements for certain expenses incurred by it
in connection with Liquidated Mortgage Loans and in connection with the
restoration of Mortgaged Properties, such
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right of reimbursement being prior to the rights of Certificateholders to
receive any related Liquidation Proceeds or Insurance Proceeds. If and to the
extent so provided in the related Prospectus Supplement, the Master Servicer
will be entitled to receive interest on amounts advanced to cover such
reimbursable expenses for the period that such advances are outstanding at the
rate specified in such Prospectus Supplement, and the Master Servicer will be
entitled to payment of such interest periodically from general collections on
the Mortgage Loans in the related Trust Fund prior to any payment to
Certificateholders or as otherwise provided in the related Pooling Agreement and
described in such Prospectus Supplement.
The Prospectus Supplement for a series of Certificates will specify
whether there will be any Spread retained. Any such Spread will be a specified
portion of the interest payable on each Mortgage Loan in a Mortgage Pool and
will not be part of the related Trust Fund. Any such Spread will be established
on a loan-by-loan basis and the amount thereof with respect to each Mortgage
Loan in a Mortgage Pool will be specified on an exhibit to the related Pooling
Agreement. Any partial recovery of interest in respect of a Mortgage Loan will
be allocated between the owners of any Spread and the holders of classes of
Certificates entitled to payments of interest as provided in the related
Prospectus Supplement and the applicable Pooling Agreement.
If and to the extent provided in the related Prospectus Supplement, the
Master Servicer may be required to apply a portion of the servicing compensation
otherwise payable to it in respect of any period to any Prepayment Interest
Shortfalls resulting from Mortgagor prepayments during such period. See "Yield
Considerations."
EVIDENCE AS TO COMPLIANCE
Each Pooling Agreement will 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, a firm of independent public accountants will
furnish a statement to the Company and the Trustee to the effect that, on the
basis of an examination by such firm conducted substantially in compliance with
the Uniform Single Attestation Program for Mortgage Bankers or the Audit Program
for Mortgages serviced for FHLMC, the servicing of mortgage loans under
agreements (including the related Pooling Agreement) substantially similar to
each other was conducted in compliance with such agreements except for such
significant exceptions or errors in records that, in the opinion of the firm,
the Uniform Single Attestation Program for Mortgage Bankers or the Audit Program
for Mortgages serviced for FHLMC requires it to report. In rendering its
statement such firm may rely, as to the matters relating to the direct servicing
of mortgage loans by Subservicers, upon comparable statements for examinations
conducted substantially in compliance with the Uniform Single Attestation
Program for Mortgage Bankers or the Audit Program for Mortgages serviced for
FHLMC (rendered within one year of such statement) of firms of independent
public accountants with respect to those Subservicers which also have been the
subject of such an examination.
Each Pooling Agreement will also provide for delivery to the Trustee,
on or before a specified date in each year, of an annual statement signed by one
or more officers of the Master Servicer to the effect that, to the best
knowledge of each such officer, the Master Servicer has fulfilled in all
material respects its obligations under the Pooling Agreement throughout the
preceding year or, if there has been a material default in the fulfillment of
any such obligation, such statement shall specify each such known default and
the nature and status thereof. Such statement may be provided as a single form
making the required statements as to more than one Pooling Agreement.
Unless otherwise specified in the related Prospectus Supplement, copies
of the annual accountants' statement and the annual statement of officers of a
Master Servicer may be obtained by Certificateholders without charge upon
written request to the Master Servicer or Trustee.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued in series. Each series of Certificates
(or, in certain instances, two or more series of Certificates) will be issued
pursuant to a Pooling Agreement, similar to one of the forms filed as an exhibit
to the Registration Statement of which this Prospectus is a part. Each Pooling
Agreement will be filed with the Securities and Exchange Commission as an
exhibit to a Current Report on Form 8-K. The following summaries (together with
additional summaries under "The Pooling Agreement" below) describe certain
provisions relating to the Certificates common to each Pooling Agreement. The
summaries do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, all of the provisions of the Pooling Agreement
for each Trust Fund and the related Prospectus Supplement. Wherever particular
sections or defined terms of the Pooling Agreement are referred to herein, such
sections or defined terms are thereby incorporated herein by reference.
Unless otherwise specified in the related Prospectus Supplement,
Certificates of each series covered by a particular Pooling Agreement will
evidence specified beneficial ownership interests in a separate Trust Fund
created pursuant to such Pooling Agreement. A Trust Fund will consist of, to the
extent provided in the Pooling Agreement: (i) such Mortgage Loans (and the
related mortgage documents) or interests therein (including any Mortgage
Securities) underlying a particular series of Certificates as from time to time
are subject to the Pooling Agreement, exclusive of, if specified in the related
Prospectus Supplement, any Spread or other interest retained by the Company or
any of its affiliates with respect to each such Mortgage Loan; (ii) such assets
including, without limitation, all payments and collections in respect of the
Mortgage Loans or Mortgage Securities due after the related Cut-off Date, as
from time to time are identified as deposited in respect thereof in the related
Certificate Account as described below; (iii) any property acquired in respect
of Mortgage Loans in the Trust Fund, whether through foreclosure of such
Mortgage Loans or by deed in lieu of foreclosure or otherwise; (iv) hazard
insurance policies, Primary Insurance Policies and FHA insurance policies, if
any, maintained in respect of Mortgage Loans in the Trust Fund and certain
proceeds of such policies; (v) certain rights of the Company under any Mortgage
Loan Purchase Agreement, including in respect of any representations and
warranties therein; and (vi) any combination, as and to the extent specified in
the related Prospectus Supplement, of a Financial Guaranty Insurance Policy,
Mortgage Pool Insurance Policy, Letter of Credit, Purchase Obligation, Special
Hazard Insurance Policy or Bankruptcy Bond as described under "Description of
Credit Enhancement." To the extent that any Trust Fund includes certificates of
interest or participations in Mortgage Loans, the related Prospectus Supplement
will describe the material terms and conditions of such certificates or
participations.
Each series of Certificates may consist of any one or a combination of
the following: (i) a single class of Certificates; (ii) two or more classes of
Certificates, one or more classes of which will be senior ("Senior
Certificates") in right of payment to one or more of the other classes
("Subordinate Certificates"), and as to which certain classes of Senior (or
Subordinate) Certificates may be senior to other classes of Senior (or
Subordinate) Certificates, as described in the respective Prospectus Supplement
(any such series, a "Senior/Subordinate Series"); (iii) two or more classes of
Certificates, one or more classes ("Strip Certificates") of which will be
entitled to (a) principal distributions, with disproportionate, nominal or no
interest distributions or (b) interest distributions, with disproportionate,
nominal or no principal distributions; (iv) two or more classes of Certificates
which differ as to the timing, sequential order, rate, pass-through rate or
amount of distributions of principal or interest or both, or as to which
distributions of principal or interest or both on any such class may be made
upon the occurrence of specified events, in accordance with a schedule or
formula (including "planned amortization classes" and "targeted amortization
classes"), or on the basis of collections from designated portions of the
Mortgage Pool, and which classes may include one or more classes of Certificates
("Accrual Certificates") with respect to which certain accrued interest will not
be distributed but rather will be added to the principal
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balance thereof on each Distribution Date for the period described in the
related Prospectus Supplement; or (v) other types of classes of Certificates, as
described in the related Prospectus Supplement. As to each series, all
Certificates offered hereby (the "Offered Certificates") will be rated in one of
the four highest rating categories by one or more Rating Agencies. Credit
support for the Offered Certificates of each series may be provided by a
Financial Guaranty Insurance Policy, Mortgage Pool Insurance Policy, Letter of
Credit, Special Hazard Insurance Policy, Bankruptcy Bond, Purchase Obligation,
Reserve Fund or Overcollateralization, as described under "Description of Credit
Enhancement," by the subordination of one or more other classes of Certificates
as described under "Subordination" or by any combination of the foregoing.
If so specified in the Prospectus Supplement relating to a series of
Certificates, one or more elections may be made to treat the related Trust Fund,
or a designated portion thereof, as a REMIC. If such an election is made with
respect to a series of Certificates, one of the classes of Certificates in such
series will be designated as evidencing the sole class of "residual interests"
in each related REMIC, as defined in the Code; alternatively, a separate class
of ownership interests will evidence such residual interests. All other classes
of Certificates in such series will constitute "regular interests" in the
related REMIC, as defined in the Code and will be designated as such. As to each
series of Certificates as to which a REMIC election is to be made, the Master
Servicer, Trustee or other specified person will be obligated to take certain
specified actions required in order to comply with applicable laws and
regulations.
FORM OF CERTIFICATES
Unless otherwise specified in the related Prospectus Supplement, the
Offered Certificates of each series will be issued as physical certificates in
fully registered form only in the denominations specified in the related
Prospectus Supplement, and will be transferrable and exchangeable at the
corporate trust office of the registrar (the "Certificate Registrar") named in
the related Prospectus Supplement. No service charge will be made for any
registration of exchange or transfer of Offered Certificates, but the Trustee
may require payment of a sum sufficient to cover any tax or other governmental
charge. The term "Certificateholder" or "Holder" as used herein refers to the
entity whose name appears on the records of the Certificate Registrar
(consisting of or including the "Certificate Register") as the registered holder
of a Certificate, except as otherwise indicated in the related Prospectus
Supplement.
If so specified in the related Prospectus Supplement, specified classes
of a series of Certificates will be initially issued through the book-entry
facilities of The Depository Trust Company ("DTC"). As to any such class of
Certificates ("DTC Registered Certificates"), the record Holder of such
Certificates will be DTC's nominee. DTC is a limited-purpose trust company
organized under the laws of the State of New York, which holds securities for
its participating organizations ("Participants") and facilitates the clearance
and settlement of securities transactions between Participants through
electronic book-entry changes in the accounts of Participants. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. Other institutions
that are not Participants but clear through or maintain a custodial relationship
with Participants (such institutions, "Intermediaries") have indirect access to
DTC's clearance system.
Unless otherwise specified in the related Prospectus Supplement, no
person acquiring an interest in any DTC Registered Certificates (each such
person, a "Beneficial Owner") will be entitled to receive a Certificate
representing such interest in registered, certificated form, unless either (i)
DTC ceases to act as depository in respect thereof and a successor depository is
not obtained, or (ii) the Company elects in its sole discretion to discontinue
the registration of such Certificates through DTC. Prior to any such event,
Beneficial Owners will not be recognized by the Trustee or the Master Servicer
as Holders of the related Certificates for purposes of the related Pooling
Agreement, and Beneficial Owners will be able to exercise their rights as owners
of such Certificates only indirectly through DTC, Participants and
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Intermediaries. Any Beneficial Owner that desires to purchase, sell or otherwise
transfer any interest in DTC Registered Certificates may do so only through DTC,
either directly if such Beneficial Owner is a Participant or indirectly through
Participants and, if applicable, Intermediaries. Pursuant to the procedures of
DTC, transfers of the beneficial ownership of any DTC Registered Certificates
will be required to be made in minimum denominations specified in the related
Prospectus Supplement. The ability of a Beneficial Owner to pledge DTC
Registered Certificates to persons or entities that are not Participants in the
DTC system, or to otherwise act with respect to such Certificates, may be
limited because of the lack of physical certificates evidencing such
Certificates and because DTC may act only on behalf of Participants.
Distributions in respect of the DTC Registered Certificates will be
forwarded by the Trustee or other specified person to DTC, and DTC will be
responsible for forwarding such payments to Participants, each of which will be
responsible for disbursing such payments to the Beneficial Owners it represents
or, if applicable, to Intermediaries. Accordingly, Beneficial Owners may
experience delays in the receipt of payments in respect of their Certificates.
Under DTC's procedures, DTC will take actions permitted to be taken by Holders
of any class of DTC Registered Certificates under the Pooling Agreement only at
the direction of one or more Participants to whose account the DTC Registered
Certificates are credited and whose aggregate holdings represent no less than
any minimum amount of Percentage Interests or voting rights required therefor.
DTC may take conflicting actions with respect to any action of Holders of
Certificates of any Class to the extent that Participants authorize such
actions. None of the Master Servicer, the Company, the Trustee or any of their
respective affiliates will have any liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in the
DTC Registered Certificates, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
ASSIGNMENT OF TRUST FUND ASSETS
At the time of issuance of a series of Certificates, the Company will
assign, or cause to be assigned, to the related Trustee (or its nominee),
without recourse, the Mortgage Loans or Mortgage Securities being included in
the related Trust Fund, together with, unless otherwise specified in the related
Prospectus Supplement, all principal and interest received on or with respect to
such Mortgage Loans or Mortgage Securities after the Cut-off Date, other than
principal and interest due on or before the Cut-off Date. If specified in the
related Prospectus Supplement, the Company or any of its affiliates may retain
the Spread, if any, for itself or transfer the same to others. The Trustee will,
concurrently with such assignment, deliver the Certificates of such series to or
at the direction of the Company in exchange for the Mortgage Loans and/or
Mortgage Securities in the related Trust Fund. Each Mortgage Loan will be
identified in a schedule appearing as an exhibit to the related Pooling
Agreement. Such schedule will include, among other things, information as to the
principal balance of each Mortgage Loan in the related Trust Fund as of the
Cut-off Date, as well as information respecting the Mortgage Rate, the currently
scheduled monthly payment of principal and interest, the maturity of the
Mortgage Note and the Loan-to-Value Ratio at origination or modification
(without regard to any secondary financing).
In addition, unless otherwise specified in the related Prospectus
Supplement, the Company will, as to each Mortgage Loan (other than Mortgage
Loans underlying any Mortgage Securities and other than Contracts), deliver, or
cause to be delivered, to the related Trustee (or to the custodian described
below) the Mortgage Note endorsed, without recourse, either in blank or to the
order of such Trustee (or its nominee), the Mortgage with evidence of recording
indicated thereon (except for any Mortgage not returned from the public
recording office), an assignment of the Mortgage in blank or to the Trustee (or
its nominee) in recordable form, together with any intervening assignments of
the Mortgage with evidence of recording thereon (except for any such assignment
not returned from the public recording office), and, if applicable, any riders
or modifications to such Mortgage Note and Mortgage, together with certain other
documents at such times as set forth in the related Pooling Agreement. Such
assignments may be
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blanket assignments covering Mortgages on Mortgaged Properties located in the
same county, if permitted by law. Notwithstanding the foregoing, a Trust Fund
may include Mortgage Loans where the original Mortgage Note is not delivered to
the Trustee if the Company delivers, or causes to be delivered, to the related
Trustee (or the custodian) a copy or a duplicate original of the Mortgage Note,
together with an affidavit certifying that the original thereof has been lost or
destroyed. In addition, if the Company cannot deliver, with respect to any
Mortgage Loan, the Mortgage or any intervening assignment with evidence of
recording thereon concurrently with the execution and delivery of the related
Pooling Agreement because of a delay caused by the public recording office, the
Company will deliver, or cause to be delivered, to the related Trustee (or the
custodian) a true and correct photocopy of such Mortgage or assignment as
submitted for recording. The Company will deliver, or cause to be delivered, to
the related Trustee (or the custodian) such Mortgage or assignment with evidence
of recording indicated thereon after receipt thereof from the public recording
office. If the Company cannot deliver, with respect to any Mortgage Loan, the
Mortgage or any intervening assignment with evidence of recording thereon
concurrently with the execution and delivery of the related Pooling Agreement
because such Mortgage or assignment has been lost, the Company will deliver, or
cause to be delivered, to the related Trustee (or the custodian) a true and
correct photocopy of such Mortgage or assignment with evidence of recording
thereon. Assignments of the Mortgage Loans to the Trustee (or its nominee) will
be recorded in the appropriate public recording office, except in states where,
in the opinion of counsel acceptable to the Trustee, such recording is not
required to protect the Trustee's interests in the Mortgage Loan against the
claim of any subsequent transferee or any successor to or creditor of the
Company or the originator of such Mortgage Loan, or except as otherwise
specified in the related Prospectus Supplement as to any series of Certificates.
In addition, unless specified in the related Prospectus Supplement, the Company
will, as to each Contract, deliver, or cause to be delivered, the original
Contract endorsed, without recourse, to the order of the Trustee and copies of
documents and instruments related to the Contract and the security interest in
the Manufactured Home securing the Contract, together with a blanket assignment
to the Trustee of all Contracts in the related Trust Fund and such documents and
instruments. In order to give notice of the right, title and interest of the
Certificateholders to the Contracts, the Company will cause to be executed and
delivered to the Trustee a UCC-1 financing statement identifying the Trustee as
the secured party and identifying all Contracts as collateral. Unless otherwise
specified in the related Prospectus Supplement, the Company will, as to each
Mortgage Security included in a Mortgage Pool, deliver, or cause to be
delivered, to the related Trustee (or the custodian) a physical certificate
evidencing such Mortgage Security, registered in the name of the related Trustee
(or its nominee), or endorsed in blank or to the related Trustee (or its
nominee), or accompanied by transfer documents sufficient to effect a transfer
to the Trustee (or its nominee).
The Trustee (or the custodian hereinafter referred to) will hold such
documents in trust for the benefit of the related Certificateholders, and
generally will review such documents within 90 days after receipt thereof in the
case of documents delivered concurrently with the execution and delivery of the
related Pooling Agreement, and within the time period specified in the related
Pooling Agreement in the case of all other documents delivered. Unless otherwise
specified in the related Prospectus Supplement, if any such document is found to
be missing or defective in any material respect, the Trustee (or such custodian)
will be required to promptly so notify the Master Servicer, the Company, and the
related Seller. If the related Seller does not cure the omission or defect
within a specified period after notice is given thereto by the Trustee, and such
omission or defect materially and adversely affects the interests of
Certificateholders in the affected Mortgage Loan or Mortgage Security, then,
unless otherwise specified in the related Prospectus Supplement, the related
Seller will be obligated to purchase such Mortgage Loan or Mortgage Security
from the Trustee at its Purchase Price (or, if and to the extent it would
otherwise be permitted to do so for a breach of representation and warranty as
described under "The Mortgage Pools--Representations of Sellers," to substitute
for such Mortgage Loan or Mortgage Security). The Trustee will be obligated to
enforce this obligation of the Seller to the extent described above under "The
Mortgage Pools--Representations by Sellers," but there can be no assurance that
the applicable Seller will fulfill its obligation to purchase (or substitute
for) the affected Mortgage Loan or
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Mortgage Security as described above. Unless otherwise specified in the related
Prospectus Supplement, neither the Master Servicer nor the Company will be
obligated to purchase or substitute for such Mortgage Loan or Mortgage Security
if the Seller defaults on its obligation to do so. Unless otherwise specified in
the related Prospectus Supplement, this purchase or substitution obligation
constitutes the sole remedy available to the related Certificateholders and the
related Trustee for omission of, or a material defect in, a constituent
document. Any affected Mortgage Loan or Mortgage Security not so purchased or
substituted for shall remain in the related Trust Fund.
The Trustee will be authorized at any time to appoint one or more
custodians pursuant to a custodial agreement to hold title to the Mortgage Loans
and/or Mortgage Securities in any Mortgage Pool, and to maintain possession of
and, if applicable, to review, the documents relating to such Mortgage Loans
and/or Mortgage Securities, in any case as the agent of the Trustee. The
identity of any such custodian to be appointed on the date of initial issuance
of the Certificates will be set forth in the related Prospectus Supplement. Any
such custodian may be an affiliate of the Company or the Master Servicer.
With respect to the Mortgage Loans in a Mortgage Pool, except in the
case of a Designated Seller Transaction or as to Mortgage Loans underlying any
Mortgage Securities or unless otherwise specified in the related Prospectus
Supplement, the Company will make certain representations and warranties as to
the types and geographical concentrations of such Mortgage Loans and as to the
accuracy, in all material respects, of certain identifying information furnished
to the related Trustee in respect of each such Mortgage Loan (E.G., original
Loan-to-Value Ratio, principal balance as of the Cut-off Date, Mortgage Rate and
maturity). Upon a breach of any such representation which materially and
adversely affects the interests of the Certificateholders in a Mortgage Loan,
the Company will be obligated to cure the breach in all material respects, to
purchase the Mortgage Loan at its Purchase Price or, unless otherwise specified
in the related Prospectus Supplement, to substitute for such Mortgage Loan a
Qualified Substitute Mortgage Loan in accordance with the provisions for such
substitution by Affiliated Sellers as described above under "The Mortgage
Pools--Representations by Sellers." However, the Company will not be required to
repurchase or substitute for any Mortgage Loan in connection with a breach of a
representation and warranty if the substance of any such breach also constitutes
fraud in the origination of the related Mortgage Loan. Unless otherwise
specified in the related Prospectus Supplement, this purchase or substitution
obligation constitutes the sole remedy available to Certificateholders or the
Trustee for such a breach of representation by the Company. Any Mortgage Loan
not so purchased or substituted for shall remain in the related Trust Fund.
Pursuant to the related Pooling Agreement, the Master Servicer for any
Mortgage Pool, either directly or through Subservicers, will service and
administer the Mortgage Loans included in such Mortgage Pool and assigned to the
related Trustee as more fully set forth under "Servicing of Mortgage Loans." The
Master Servicer will make certain representations and warranties regarding its
authority to enter into, and its ability to perform its obligations under, the
Pooling Agreement.
CERTIFICATE ACCOUNT
GENERAL. The Master Servicer and/or the Trustee will, as to each Trust
Fund, establish and maintain or cause to be established and maintained one or
more separate accounts for the collection of payments on the related Mortgage
Loans and/or Mortgage Securities constituting such Trust Fund (collectively, the
"Certificate Account"), which will be established so as to comply with the
standards of each Rating Agency that has rated any one or more classes of
Certificates of the related series. A Certificate Account may be maintained
either as an interest-bearing or a non-interest-bearing account, and the funds
held therein may be held as cash or invested in United States government
securities and other investment grade obligations specified in the related
Pooling Agreement ("Permitted Investments"). Unless otherwise provided in the
related Prospectus Supplement, any interest or other income earned on
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funds in the Certificate Account will be paid to the related Master Servicer or
Trustee as additional compensation. If permitted by such Rating Agency or
Agencies and so specified in the related Prospectus Supplement, a Certificate
Account may contain funds relating to more than one series of mortgage
pass-through certificates and may contain other funds representing payments on
mortgage loans owned by the related Master Servicer or serviced by it on behalf
of others.
DEPOSITS. Unless otherwise provided in the related Pooling Agreement
and described in the related Prospectus Supplement, the related Master Servicer,
Trustee or Special Servicer will be required to deposit or cause to be deposited
in the Certificate Account for each Trust Fund within a certain period following
receipt (in the case of collections and payments), the following payments and
collections received, or advances made, by the Master Servicer, the Trustee or
any Special Servicer subsequent to the Cut-off Date with respect to the Mortgage
Loans and/or Mortgage Securities in such Trust Fund (other than payments due on
or before the Cut-off Date):
(i) all payments on account of principal, including principal
prepayments, on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage
Loans, including any default interest collected, in each case net of
any portion thereof retained by the Master Servicer, any Special
Servicer or Sub-Servicer as its servicing compensation or as
compensation to the Trustee, and further net of any Spread;
(iii) all payments on the Mortgage Securities;
(iv) all proceeds received under any hazard, title, primary
mortgage, FHA or other insurance policy that provides coverage with
respect to a particular Mortgaged Property or the related Mortgage Loan
(other than proceeds applied to the restoration of the property or
released to the related borrower in accordance with the customary
servicing practices of the Master Servicer (or, if applicable, a
Special Servicer) and/or the terms and conditions of the related
Mortgage (collectively, "Insurance Proceeds") and all other amounts
received and retained in connection with the liquidation of defaulted
Mortgage Loans or property acquired in respect thereof, by foreclosure
or otherwise ("Liquidation Proceeds"), together with the net operating
income (less reasonable reserves for future expenses) derived from the
operation of any Mortgaged Properties acquired by the Trust Fund
through foreclosure or otherwise;
(v) any amounts paid under any instrument or drawn from any
fund that constitutes credit enhancement for the related series of
Certificates as described under "Description of Credit Enhancement";
(vi) any advances made as described under "--Advances" below;
(vii) any Buydown Funds (and, if applicable, investment
earnings thereon) required to be paid to Certificateholders, as
described below;
(viii) all proceeds of any Mortgage Loan or Mortgage Security
purchased (or, in the case of a substitution, certain amounts
representing a principal adjustment) by the Master Servicer, the
Company, a Seller or any other person pursuant to the terms of the
related Pooling Agreement as described under "The Mortgage
Pools--Representations by Sellers," "Servicing of Mortgage
Loans--Realization Upon and Sale of Defaulted Mortgage Loans,"
"--Assignment of Trust Fund Assets" above, "The Pooling
Agreement--Termination" and "Purchase Obligations" (all of the
foregoing, also "Liquidation Proceeds");
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(ix) any amounts paid by the Master Servicer to cover
Prepayment Interest Shortfalls arising out of the prepayment of
Mortgage Loans as described under "Servicing of Mortgage
Loans--Servicing and Other Compensation and Payment of Expenses;
Spread";
(x) to the extent that any such item does not constitute
additional servicing compensation to the Master Servicer or a Special
Servicer, any payments on account of modification or assumption fees,
late payment charges or Prepayment Premiums on the Mortgage Loans;
(xi) any amount required to be deposited by the Master
Servicer or the Trustee in connection with losses realized on
investments for the benefit of the Master Servicer or the Trustee, as
the case may be, of funds held in the Certificate Account; and
(xii) any other amounts required to be deposited in the
Certificate Account as provided in the related Pooling Agreement and
described herein or in the related Prospectus Supplement.
With respect to each Buydown Mortgage Loan, the Master Servicer will be
required to deposit the related Buydown Funds provided to it in a Buydown
Account which will comply with the requirements set forth herein with respect to
the Certificate Account. Unless otherwise specified in the related Prospectus
Supplement, the terms of all Buydown Mortgage Loans provide for the contribution
of Buydown Funds in an amount equal to or exceeding either (i) the total
payments to be made from such funds pursuant to the related buydown plan or (ii)
if such Buydown Funds are to be deposited on a discounted basis, that amount of
Buydown Funds which, together with investment earnings thereon at a rate as will
support the scheduled level of payments due under the Buydown Mortgage Loan.
Neither the Master Servicer nor the Company will be obligated to add to any such
discounted Buydown Funds any of its own funds should investment earnings prove
insufficient to maintain the scheduled level of payments. To the extent that any
such insufficiency is not recoverable from the Mortgagor or, in an appropriate
case, from the Seller, distributions to Certificateholders may be affected. With
respect to each Buydown Mortgage Loan, the Master Servicer will be required
monthly to withdraw from the Buydown Account and deposit in the Certificate
Account as described above the amount, if any, of the Buydown Funds (and, if
applicable, investment earnings thereon) for each Buydown Mortgage Loan that,
when added to the amount due from the Mortgagor on such Buydown Mortgage Loan,
equals the full monthly payment which would be due on the Buydown Mortgage Loan
if it were not subject to the buydown plan. The Buydown Funds will in no event
be a part of the related Trust Fund.
If the Mortgagor on a Buydown Mortgage Loan prepays such Mortgage Loan
in its entirety during the Buydown Period, the Master Servicer will be required
to withdraw from the Buydown Account and remit to the Mortgagor or such other
designated party in accordance with the related buydown plan any Buydown Funds
remaining in the Buydown Account. If a prepayment by a Mortgagor during the
Buydown Period together with Buydown Funds will result in full prepayment of a
Buydown Mortgage Loan, the Master Servicer will generally be required to
withdraw from the Buydown Account and deposit in the Certificate Account the
Buydown Funds and investment earnings thereon, if any, which together with such
prepayment will result in a prepayment in full; provided that Buydown Funds may
not be available to cover a prepayment under certain Mortgage Loan programs. Any
Buydown Funds so remitted to the Master Servicer in connection with a prepayment
described in the preceding sentence will be deemed to reduce the amount that
would be required to be paid by the Mortgagor to repay fully the related
Mortgage Loan if the Mortgage Loan were not subject to the buydown plan. Any
investment earnings remaining in the Buydown Account after prepayment or after
termination of the Buydown Period will be remitted to the related Mortgagor or
such other designated party pursuant to the agreement relating to each Buydown
Mortgage Loan (the "Buydown Agreement"). If the Mortgagor defaults during the
Buydown Period with respect to a Buydown Mortgage Loan and the property securing
such Buydown Mortgage Loan is sold in liquidation (either by the Master
Servicer, the Primary Insurer, the insurer
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under the Mortgage Pool Insurance Policy (the "Pool Insurer") or any other
insurer), the Master Servicer will be required to withdraw from the Buydown
Account the Buydown Funds and all investment earnings thereon, if any, and
either deposit the same in the Certificate Account or, alternatively, pay the
same to the Primary Insurer or the Pool Insurer, as the case may be, if the
Mortgaged Property is transferred to such insurer and such insurer pays all of
the loss incurred in respect of such default.
WITHDRAWALS. Unless otherwise provided in the related Pooling Agreement
and described in the related Prospectus Supplement, a Master Servicer, Trustee
or Special Servicer may make withdrawals from the Certificate Account for each
Trust Fund for any of the following purposes:
(i) to make distributions to the related Certificateholders
on each Distribution Date;
(ii) to reimburse the Master Servicer or any other specified
person for unreimbursed amounts advanced by it as described under
"--Advances" below in respect of Mortgage Loans in the Trust Fund, such
reimbursement to be made out of amounts received which were identified
and applied by the Master Servicer as late collections of interest (net
of related servicing fees) on and principal of the particular Mortgage
Loans with respect to which the advances were made or out of amounts
drawn under any form of credit enhancement with respect to such
Mortgage Loans;
(iii) to reimburse the Master Servicer or a Special Servicer
for unpaid servicing fees earned by it and certain unreimbursed
servicing expenses incurred by it with respect to Mortgage Loans in the
Trust Fund and properties acquired in respect thereof, such
reimbursement to be made out of amounts that represent Liquidation
Proceeds and Insurance Proceeds collected on the particular Mortgage
Loans and properties, and net income collected on the particular
properties, with respect to which such fees were earned or such
expenses were incurred or out of amounts drawn under any form of credit
enhancement with respect to such Mortgage Loans and properties;
(iv) to reimburse the Master Servicer or any other specified
person for any advances described in clause (ii) above made by it and
any servicing expenses referred to in clause (iii) above incurred by it
which, in the good faith judgment of the Master Servicer or such other
person, will not be recoverable from the amounts described in clauses
(ii) and (iii), respectively, such reimbursement to be made from
amounts collected on other Mortgage Loans in the Trust Fund or, if and
to the extent so provided by the related Pooling Agreement and
described in the related Prospectus Supplement, only from that portion
of amounts collected on such other Mortgage Loans that is otherwise
distributable on one or more classes of Subordinate Certificates of the
related series;
(v) if and to the extent described in the related
Prospectus Supplement, to pay the Master Servicer, a Special Servicer
or another specified entity (including a provider of credit
enhancement) interest accrued on the advances described in clause (ii)
above made by it and the servicing expenses described in clause (iii)
above incurred by it while such remain outstanding and unreimbursed;
(vi) to reimburse the Master Servicer, the Company, or any
of their respective directors, officers, employees and agents, as the
case may be, for certain expenses, costs and liabilities incurred
thereby, as and to the extent described under "The Pooling
Agreement--Certain Matters Regarding the Master Servicer and the
Company";
(vii) if and to the extent described in the related
Prospectus Supplement, to pay the fees of the Trustee;
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(viii) to reimburse the Trustee or any of its directors,
officers, employees and agents, as the case may be, for certain
expenses, costs and liabilities incurred thereby, as and to the extent
described under "The Pooling Agreement--Certain Matters Regarding the
Trustee";
(ix) to pay the Master Servicer or the Trustee, as
additional compensation, interest and investment income earned in
respect of amounts held in the Certificate Account;
(x) to pay (generally from related income) for costs
incurred in connection with the operation, management and maintenance
of any Mortgaged Property acquired by the Trust Fund by foreclosure or
otherwise;
(xi) if one or more elections have been made to treat the
Trust Fund or designated portions thereof as a REMIC, to pay any
federal, state or local taxes imposed on the Trust Fund or its assets
or transactions, as and to the extent described under "Federal Income
Tax Consequences--REMICS--Prohibited Transactions and Other Possible
REMIC Taxes";
(xii) to pay for the cost of an independent appraiser or
other expert in real estate matters retained to determine a fair sale
price for a defaulted Mortgage Loan or a property acquired in respect
thereof in connection with the liquidation of such Mortgage Loan or
property;
(xiii) to pay for the cost of various opinions of counsel
obtained pursuant to the related Pooling Agreement for the benefit of
the related Certificateholders;
(xiv) to pay to itself, the Company, a Seller or any other
appropriate person all amounts received with respect to each Mortgage
Loan purchased, repurchased or removed from the Trust Fund pursuant to
the terms of the related Pooling Agreement and not required to be
distributed as of the date on which the related Purchase Price is
determined;
(xv) to make any other withdrawals permitted by the related
Pooling Agreement and described in the related Prospectus Supplement;
and
(xvi) to clear and terminate the Certificate Account upon
the termination of the Trust Fund.
DISTRIBUTIONS
Distributions on the Certificates of each series will be made by or on
behalf of the related Trustee or Master Servicer on each Distribution Date as
specified in the related Prospectus Supplement from the Available Distribution
Amount for such series and such Distribution Date. Unless otherwise provided in
the related Prospectus Supplement, the "Available Distribution Amount" for any
series of Certificates and any Distribution Date will refer to the total of all
payments or other collections (or advances in lieu thereof) on, under or in
respect of the Mortgage Loans and/or Mortgage Securities and any other assets
included in the related Trust Fund that are available for distribution to the
Certificateholders of such series on such date. The particular components of the
Available Distribution Amount for any series on each Distribution Date will be
more specifically described in the related Prospectus Supplement.
Except as otherwise specified in the related Prospectus Supplement,
distributions on the Certificates of each series (other than the final
distribution in retirement of any such Certificate) will be made to the persons
in whose names such Certificates are registered at the close of business on the
last business day of the month preceding the month in which the applicable
Distribution Date occurs (the "Record Date"), and the amount of each
distribution will be determined as of the close of business on the date (the
"Determination Date") specified in the related Prospectus Supplement. All
distributions with
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respect to each class of Certificates on each Distribution Date will be
allocated PRO RATA among the outstanding Certificates in such class. Payments
will be made either by wire transfer in immediately available funds to the
account of a Certificateholder at a bank or other entity having appropriate
facilities therefor, if such Certificateholder has provided the Trustee or other
person required to make such payments with wiring instructions no later than
five business days prior to the related Record Date or such other date specified
in the related Prospectus Supplement (and, if so provided in the related
Prospectus Supplement, such Certificateholder holds Certificates in the
requisite amount or denomination specified therein), or by check mailed to the
address of such Certificateholder as it appears on the Certificate Register;
provided, however, that the final distribution in retirement of any class of
Certificates will be made only upon presentation and surrender of such
Certificates at the location specified in the notice to Certificateholders of
such final distribution. Payments will be made to each Certificateholder in
accordance with such holder's Percentage Interest in a particular class. The
("Percentage Interest") represented by a Certificate of a particular class will
be equal to the percentage obtained by dividing the initial principal balance or
notional amount of such Certificate by the aggregate initial amount or notional
balance of all the Certificates of such class.
DISTRIBUTIONS OF INTEREST AND PRINCIPAL ON THE CERTIFICATES
Each class of Certificates of each series (other than certain classes
of Strip Certificates and certain REMIC Residual Certificates that have no
Pass-Through Rate) may have a different Pass-Through Rate, which may be fixed,
variable or adjustable, or any combination of two or more such rates. The
related Prospectus Supplement will specify the Pass-Through Rate or, in the case
of a variable or adjustable PassThrough Rate, the method for determining the
Pass-Through Rate, for each class. Unless otherwise specified in the related
Prospectus Supplement, interest on the Certificates of each series will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
Distributions of interest in respect of the Certificates of any class
(other than any class of Certificates that will be entitled to distributions of
accrued interest commencing only on the Distribution Date, or under the
circumstances, specified in the related Prospectus Supplement ("Accrual
Certificates"), and other than any class of Strip Certificates or REMIC Residual
Certificates that is not entitled to any distributions of interest) will be made
on each Distribution Date based on the Accrued Certificate Interest for such
class and such Distribution Date, subject to the sufficiency of the portion of
the Available Distribution Amount allocable to such class on such Distribution
Date. Prior to the time interest is distributable on any class of Accrual
Certificates, the amount of Accrued Certificate Interest otherwise distributable
on such class will be added to the principal balance thereof on each
Distribution Date. With respect to each class of Certificates (other than
certain classes of Strip Certificates and REMIC Residual Certificates), "Accrued
Certificate Interest" for each Distribution Date will be equal to interest at
the applicable Pass-Through Rate accrued for a specified period (generally one
month) on the outstanding principal balance thereof immediately prior to such
Distribution Date. Unless otherwise provided in the related Prospectus
Supplement, Accrued Certificate Interest for each Distribution Date on Strip
Certificates entitled to distributions of interest will be similarly calculated
except that it will accrue on a notional amount that is either (i) based on the
principal balances of some or all of the Mortgage Loans and/or Mortgage
Securities in the related Trust Fund or (ii) equal to the principal balances of
one or more other classes of Certificates of the same series. Reference to such
a notional amount with respect to a class of Strip Certificates is solely for
convenience in making certain calculations and does not represent the right to
receive any distribution of principal. If so specified in the related Prospectus
Supplement, the amount of Accrued Certificate Interest that is otherwise
distributable on (or, in the case of Accrual Certificates, that may otherwise be
added to the principal balance of) one or more classes of the Certificates of a
series will be reduced to the extent that any Prepayment Interest Shortfalls, as
described under "Yield Considerations", exceed the amount of any sums
(including, if and to the extent specified in the related Prospectus Supplement,
the Master Servicer's servicing compensation) that are applied to offset such
shortfalls. The particular manner in which such shortfalls will be allocated
among some or
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all of the classes of Certificates of that series will be specified in the
related Prospectus Supplement. The related Prospectus Supplement will also
describe the extent to which the amount of Accrued Certificate Interest that is
otherwise distributable on (or, in the case of Accrual Certificates, that may
otherwise be added to the principal balance of) a class of Offered Certificates
may be reduced as a result of any other contingencies, including delinquencies,
losses and Deferred Interest on or in respect of the related Mortgage Loans or
application of the Relief Act with respect to such Mortgage Loans. Unless
otherwise provided in the related Prospectus Supplement, any reduction in the
amount of Accrued Certificate Interest otherwise distributable on a class of
Certificates by reason of the allocation to such class of a portion of any
Deferred Interest on or in respect of the related Mortgage Loans will result in
a corresponding increase in the principal balance of such class.
As and to the extent described in the related Prospectus Supplement,
distributions of principal with respect to a series of Certificates will be made
on each Distribution Date to the holders of the class or classes of Certificates
of such series entitled thereto until the principal balance(s) of such
Certificates have been reduced to zero. In the case of a series of Certificates
which includes two or more classes of Certificates, the timing, sequential
order, priority of payment or amount of distributions in respect of principal,
and any schedule or formula or other provisions applicable to the determination
thereof (including distributions among multiple classes of Senior Certificates
or Subordinate Certificates), shall be as set forth in the related Prospectus
Supplement. Distributions of principal with respect to one or more classes of
Certificates may be made at a rate that is faster (and, in some cases,
substantially faster) than the rate at which payments or other collections of
principal are received on the Mortgage Loans and/or Mortgage Securities in the
related Trust Fund, may not commence until the occurrence of certain events,
such as the retirement of one or more other classes of Certificates of the same
series, or may be made at a rate that is slower (and, in some cases,
substantially slower) than the rate at which payments or other collections of
principal are received on such Mortgage Loans and/or Mortgage Securities. In
addition, distributions of principal with respect to one or more classes of
Certificates may be made, subject to available funds, based on a specified
principal payment schedule and, with respect to one or more classes of
Certificates, may be contingent on the specified principal payment schedule for
another class of the same series and the rate at which payments and other
collections of principal on the Mortgage Loans and/or Mortgage Securities in the
related Trust Fund are received.
PRE-FUNDING ACCOUNT
If so specified in the related Prospectus Supplement, the Pooling
Agreement or other agreement may provide for the transfer by the Sellers of
additional Mortgage Loans to the related Trust after the Closing Date. Such
additional Mortgage Loans will be required to conform to the requirements set
forth in the related Agreement or other agreement providing for such transfer,
and will generally be underwritten to the same standards as the Mortgage Loans
initially included in the Trust Fund. As specified in the related Prospectus
Supplement, such transfer may be funded by the establishment of a Pre-Funding
Account (a "Pre-Funding Account"). If a Pre-Funding 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 Mortgage Loans are transferred. A Pre-Funding Account will be
required to be maintained as an Eligible Account, all amounts therein will be
required to be invested in Permitted Investments and the amount held therein
shall at no time exceed 25% of the aggregate outstanding principal balance of
the Certificates. The related Agreement or other agreement providing for the
transfer of additional Mortgage Loans will generally provide that all such
transfers must be made within 3 months after the Closing Date, and that amounts
set aside to fund such transfers (whether in a Pre-Funding Account or otherwise)
and not so applied within the required period of time will be deemed to be
principal prepayments and applied in the manner set forth in such Prospectus
Supplement.
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The Company will be required to provide data regarding the additional
Mortgage Loans to the Rating Agencies and the Insurer, if any, sufficiently in
advance of the scheduled transfer to permit review by such parties. Transfer of
the additional Mortgage Loans will be further conditioned upon confirmation by
the Rating Agencies that the addition of such Mortgage Loans to the Trust Fund
will not result in the downgrading of the Certificates or, in the case of a
series guaranteed or supported by an Insurer, will not adversely affect the
capital requirements of such Insurer. Finally, a legal opinion to the effect
that the conditions to the transfer of the additional Mortgage Loans have been
satisfied.
DISTRIBUTIONS ON THE CERTIFICATES IN RESPECT OF PREPAYMENT PREMIUMS
If so provided in the related Prospectus Supplement, Prepayment
Premiums received on or in connection with the Mortgage Assets in any Trust Fund
will be distributed on each Distribution Date to the holders of the class of
Certificates of the related series entitled thereto in accordance with the
provisions described in such Prospectus Supplement.
ALLOCATION OF LOSSES AND SHORTFALLS
The amount of any losses or shortfalls in collections on the Mortgage
Loans and/or Mortgage Securities in any Trust Fund (to the extent not covered or
offset by credit enhancement) will be allocated among the respective classes of
Certificates of the related series in the priority and manner, and subject to
the limitations, specified in the related Prospectus Supplement. As described in
the related Prospectus Supplement, such allocations may result in reductions in
the entitlements to interest and/or principal balances of one or more such
classes of Certificates, or may be effected simply by a prioritization of
payments among such classes of Certificates.
ADVANCES
If and to the extent provided in the related Prospectus Supplement, and
subject to any limitations specified therein, the related Master Servicer may be
obligated to advance, or have the option of advancing, on or before each
Distribution Date, from its or their own funds or from excess funds held in the
related Certificate Account that are not part of the Available Distribution
Amount for the related series of Certificates for such Distribution Date, an
amount up to the aggregate of any payments of principal (other than the
principal portion of any Balloon Payments) and interest that were due on or in
respect of such Mortgage Loans during the related Due Period and were delinquent
on the related Determination Date. Unless otherwise provided in the related
Prospectus Supplement, a "Due Period" is the period between Distribution Dates,
and scheduled payments on the Mortgage Loans in any Trust Fund that became due
during a given Due Period will, to the extent received by the related
Determination Date or advanced by the related Master Servicer or other specified
person, be distributed on the Distribution Date next succeeding such
Determination Date.
Advances are intended to maintain a regular flow of scheduled interest
and principal payments to holders of the class or classes of Certificates
entitled thereto, rather than to guarantee or insure against losses.
Accordingly, all advances made from the Master Servicer's own funds will be
reimbursable out of related recoveries on the Mortgage Loans (including amounts
received under any fund or instrument constituting credit enhancement)
respecting which such advances were made (as to any Mortgage Loan, "Related
Proceeds") and such other specific sources as may be identified in the related
Prospectus Supplement, including in the case of a series that includes one or
more classes of Subordinate Certificates, collections on other Mortgage Loans in
the related Trust Fund that would otherwise be distributable to the holders of
one or more classes of such Subordinate Certificates. No advance will be
required to be made by the Master Servicer if, in the good faith judgment of the
Master Servicer, such advance would not be recoverable from Related Proceeds or
another specifically identified source (any such advance, a "Nonrecoverable
Advance"); and, if previously made by a Master Servicer, a Nonrecoverable
Advance
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will be reimbursable from any amounts in the related Certificate Account prior
to any distributions being made to the related series of Certificateholders.
If advances have been made from excess funds in a Certificate Account,
the Master Servicer that advanced such funds will be required to replace such
funds in the Certificate Account on any future Distribution Date to the extent
that funds then in the Certificate Account are insufficient to permit full
distributions to Certificateholders on such date. If so specified in the related
Prospectus Supplement, the obligation of a Master Servicer to make advances may
be secured by a cash advance reserve fund or a surety bond. If applicable,
information regarding the characteristics of, and the identity of any obligor
on, any such surety bond, will be set forth in the related Prospectus
Supplement.
If any person other than the Master Servicer has any obligation to make
advances as described above, the related Prospectus Supplement will identify
such person.
If and to the extent so provided in the related Prospectus Supplement,
any entity making advances will be entitled to receive interest thereon for the
period that such advances are outstanding at the rate specified in such
Prospectus Supplement, and such entity will be entitled to payment of such
interest periodically from general collections on the Mortgage Loans in the
related Trust Fund prior to any payment to Certificateholders or as otherwise
provided in the related Pooling Agreement and described in such Prospectus
Supplement.
As specified in the related Prospectus Supplement with respect to any
series of Certificates as to which the Trust Fund includes Mortgage Securities,
the advancing obligations with respect to the underlying Mortgage Loans will be
pursuant to the terms of such Mortgage Securities, as may be supplemented by the
terms of the applicable Pooling Agreement, and may differ from the provisions
described above.
REPORTS TO CERTIFICATEHOLDERS
With each distribution to Certificateholders of a particular class of
Offered Certificates, the related Master Servicer or Trustee will forward or
cause to be forwarded to each holder of record of such class of Certificates a
statement or statements with respect to the related Trust Fund setting forth the
information specifically described in the related Pooling Agreement, which
generally will include the following as applicable except as otherwise provided
therein:
(i) the amount, if any, of such distribution allocable to
principal;
(ii) the amount, if any, of such distribution allocable to
interest;
(iii) the amount, if any, of such distribution allocable to
Prepayment Premiums;
(iv) with respect to a series consisting of two or more
classes, the outstanding principal balance or notional amount of each
class after giving effect to the distribution of principal on such
Distribution Date;
(v) the amount of servicing compensation received by the
related Master Servicer (and, if payable directly out of the related
Trust Fund, by any Special Servicer and any Sub-Servicer);
(vi) the aggregate amount of advances included in the
distributions on such Distribution Date, and the aggregate amount of
unreimbursed advances at the close of business on such Distribution
Date;
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(vii) the aggregate principal balance of the Mortgage Loans in
the related Mortgage Pool on, or as of a specified date shortly prior
to, such Distribution Date;
(viii) the number and aggregate principal balance of any
Mortgage Loans in the related Mortgage Pool in respect of which (A) one
scheduled payment is delinquent, (B) two scheduled payments are
delinquent, (C) three or more scheduled payments are delinquent and (D)
foreclosure proceedings have been commenced;
(ix) the book value of any real estate acquired by such Trust
Fund through foreclosure or grant of a deed in lieu of foreclosure;
(x) the balance of the Reserve Fund, if any, at the close of
business on such Distribution Date;
(xi) the amount of coverage under any Financial Guaranty
Insurance Policy, Mortgage Pool Insurance Policy or Letter of Credit
covering default risk as of the close of business on the applicable
Determination Date and a description of any credit enhancement
substituted therefor;
(xii) the Special Hazard Amount, Fraud Loss Amount and
Bankruptcy Amount as of the close of business on the applicable
Distribution Date and a description of any change in the calculation of
such amounts;
(xiii) in the case of Certificates benefiting from alternative
credit enhancement arrangements described in a Prospectus Supplement,
the amount of coverage under such alternative arrangements as of the
close of business on the applicable Determination Date; and
(xiv) with respect to any series of Certificates as to which
the Trust Fund includes Mortgage Securities, certain additional
information as required under the related Pooling Agreement and
specified in the related Prospectus Supplement.
In the case of information furnished pursuant to subclauses (i)-(iii)
above, the amounts will be expressed as a dollar amount per minimum denomination
of the relevant class of Offered Certificates or per a specified portion of such
minimum denomination. In addition to the information described above, reports to
Certificateholders will contain such other information as is set forth in the
applicable Pooling Agreement, which may include, without limitation,
prepayments, reimbursements to Subservicers and the Master Servicer and losses
borne by the related Trust Fund.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer or Trustee will furnish a report to each
holder of record of a class of Offered Certificates at any time during such
calendar year which, among other things, will include information as to the
aggregate of amounts reported pursuant to subclauses (i)-(iii) above for such
calendar year or, in the event such person was a holder of record of a class of
Certificates during a portion of such calendar year, for the applicable portion
of such a year.
DESCRIPTION OF CREDIT ENHANCEMENT
GENERAL
Unless otherwise provided in the applicable Prospectus Supplement,
credit support with respect to the Offered Certificates of each series may be
comprised of one or more of the following components. Each component will have a
dollar limit and, unless otherwise specified in the related Prospectus
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Supplement, will provide coverage with respect to certain losses on the related
Mortgage Loans (as more particularly described in the related Prospectus
Supplement, "Realized Losses") that are (i) attributable to the Mortgagor's
failure to make any payment of principal or interest as required under the
Mortgage Note, but not including Special Hazard Losses, Extraordinary Losses or
other losses resulting from damage to a Mortgaged Property, Bankruptcy Losses or
Fraud Losses (any such loss, a "Defaulted Mortgage Loss"); (ii) of a type
generally covered by a Special Hazard Insurance Policy (as defined below) (any
such loss, a "Special Hazard Loss"); (iii) attributable to certain actions which
may be taken by a bankruptcy court in connection with a Mortgage Loan, including
a reduction by a bankruptcy court of the principal balance of or the Mortgage
Rate on a Mortgage Loan or an extension of its maturity (any such loss, a
"Bankruptcy Loss"); and (iv) incurred on defaulted Mortgage Loans as to which
there was fraud in the origination of such Mortgage Loans (any such loss, a
"Fraud Loss"). Unless otherwise specified in the related Prospectus Supplement,
Defaulted Mortgage Losses, Special Hazard Losses, Bankruptcy Losses and Fraud
Losses in excess of the amount of coverage provided therefor and losses
occasioned by war, civil insurrection, certain governmental actions, nuclear
reaction and certain other risks ("Extraordinary Losses") will not be covered.
To the extent that the credit support for the Offered Certificates of any series
is exhausted, the holders thereof will bear all further risks of loss not
otherwise insured against.
As set forth below and in the applicable Prospectus Supplement, (i)
coverage with respect to Defaulted Mortgage Losses may be provided by one or
more of a Financial Guaranty Insurance Policy, Mortgage Pool Insurance Policy or
a Letter of Credit, (ii) coverage with respect to Special Hazard Losses may be
provided by one or more of a Financial Guaranty Insurance Policy, Letter of
Credit or a Special Hazard Insurance Policy (any instrument, to the extent
providing such coverage, a "Special Hazard Instrument"), (iii) coverage with
respect to Bankruptcy Losses may be provided by one or more of a Financial
Guaranty Insurance Policy, Letter of Credit or a Bankruptcy Bond and (iv)
coverage with respect to Fraud Losses may be provided by one or more of a
Financial Guaranty Insurance Policy, Mortgage Pool Insurance Policy, Letter of
Credit or mortgage repurchase bond. In addition, if provided in the applicable
Prospectus Supplement, in lieu of or in addition to any or all of the foregoing
arrangements, credit enhancement may be in the form of a Reserve Fund to cover
such losses, in the form of subordination of one or more classes of Subordinate
Certificates to provide credit support to one or more classes of Senior
Certificates, or in the form of Overcollateralization, or in the form of a
specified entity's agreement to repurchase certain Mortgage Loans or fund
certain losses pursuant to a Purchase Obligation, which obligations may be
supported by a Letter of Credit, surety bonds or other types of insurance
policies, certain other secured or unsecured corporate guarantees or in such
other form as may be described in the related Prospectus Supplement, or in the
form of a combination of two or more of the foregoing. The credit support may be
provided by an assignment of the right to receive certain cash amounts, a
deposit of cash into a Reserve Fund or other pledged assets, or by banks,
insurance companies, guarantees or any combination thereof identified in the
applicable Prospectus Supplement.
The amounts and type of credit enhancement arrangement as well as the
provider thereof, if applicable, with respect to the Offered Certificates of
each series will be set forth in the related Prospectus Supplement. To the
extent provided in the applicable Prospectus Supplement and the Pooling
Agreement, the credit enhancement arrangements may be periodically modified,
reduced and substituted for based on the aggregate outstanding principal balance
of the Mortgage Loans covered thereby. See "Description of Credit
Enhancement--Reduction or Substitution of Credit Enhancement." If specified in
the applicable Prospectus Supplement, credit support for the Offered
Certificates of one series may cover the Offered Certificates of one or more
other series.
The descriptions of any insurance policies or bonds described 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 such policies, copies of which are available upon request.
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In general, references to "Mortgage Loans" under this "Description of
Credit Enhancement" section are to Mortgage Loans in a Trust Fund. However, if
so provided in the Prospectus Supplement for a series of Certificates, any
Mortgage Securities included in the related Trust Fund and/or the related
underlying Mortgage Loans may be covered by one or more of the types of credit
support described herein. The related Prospectus Supplement will specify, as to
each such form of credit support, the information indicated below with respect
thereto, to the extent such information is material and available.
SUBORDINATE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more
classes of Certificates of a series may be Subordinate Certificates. To the
extent specified in the related Prospectus Supplement, the rights of the holders
of Subordinate Certificates to receive distributions from the Certificate
Account on any Distribution Date will be subordinated to the corresponding
rights of the holders of Senior Certificates. If so provided in the related
Prospectus Supplement, the subordination of a class may apply only in the event
of (or may be limited to) certain types of losses or shortfalls. The related
prospectus Supplement will set forth information concerning the manner and
amount of subordination provided by a class or classes of Subordinate
Certificates in a series and the circumstances under which such subordination
will be available. The Offered Certificates of any series may include one or
more classes of Subordinate Certificates.
If the Mortgage Loans and/or Mortgage Securities in any Trust Fund are
divided into separate groups, each supporting a separate class or classes of
Certificates of the related series, credit enhancement may be provided by
cross-support provisions requiring that distributions be made on Senior
Certificates evidencing interests in one group of Mortgage Loans and/or Mortgage
Securities prior to distributions on Subordinate Certificates evidencing
interests in a different group of Mortgage Loans and/or Mortgage Securities
within the Trust Fund. The Prospectus Supplement for a series that includes a
cross-support provision will describe the manner and conditions for applying
such provisions.
OVERCOLLATERALIZATION
If so specified in the related Prospectus Supplement, interest
collections on the Mortgage Loans may exceed interest payments on the
Certificates for the related Payment Date (such excess referred to as "Excess
Interest"). Such Excess Interest may be deposited into a Reserve Fund or applied
as a payment of principal on the Certificates. To the extent Excess Interest is
applied as principal payments on the Certificates, the effect will be to reduce
the principal balance of the Certificates relative to the outstanding balance of
the Mortgage Loans, thereby creating "Overcollateralization" and additional
protection to the Certificateholders, as specified in the related Prospectus
Supplement. If so provided in the related Prospectus Supplement,
Overcollateralization may also be provided as to any series of Certificates by
the issuance of Certificates in an initial aggregate principal amount which is
less than the aggregate principal amount of the related Mortgage Loans.
FINANCIAL GUARANTY INSURANCE POLICY
If so specified in the related Prospectus Supplement, a financial
guaranty insurance policy or surety bond (a "Financial Guaranty Insurance
Policy") may be obtained and maintained for a class or series of Certificates.
The issuer of the Financial Guaranty Insurance Policy (the "Insurer") will be
described in the related Prospectus Supplement and a copy of the form of
Financial Guaranty Insurance Policy will be filed with the related Current
Report on Form 8-K.
A Financial Guaranty Insurance Policy will be unconditional and
irrevocable and will guarantee to holders of the applicable Certificates that an
amount equal to the full amount of payments due to such holders will be received
by the Trustee or its agent on behalf of such holders for payment on each
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Payment Date. The specific terms of any Financial Guaranty Insurance Policy will
be set forth in the related Prospectus Supplement. A Financial Guaranty
Insurance Policy may have limitations and generally will not insure the
obligation of the Sellers or the Master Servicer to purchase or substitute for a
defective Mortgage Loan and will not guarantee any specific rate of principal
prepayments. The Insurer will be subrogated to the rights of each holder to the
extent the Insurer makes payments under the Financial Guaranty Insurance Policy.
MORTGAGE POOL INSURANCE POLICIES
Any Mortgage Pool Insurance Policy obtained by the Company for each
Trust Fund will be issued by the Pool Insurer named in the applicable Prospectus
Supplement. Each Mortgage Pool Insurance Policy will, subject to the limitations
described below, cover Defaulted Mortgage Losses in an amount equal to a
percentage specified in the applicable Prospectus Supplement of the aggregate
principal balance of the Mortgage Loans on the Cut-off Date. As set forth under
"Maintenance of Credit Enhancement," the Master Servicer will use reasonable
efforts to maintain the Mortgage Pool Insurance Policy and to present claims
thereunder to the Pool Insurer on behalf of itself, the related Trustee and the
related Certificateholders. The Mortgage Pool Insurance Policies, however, are
not blanket policies against loss, since claims thereunder may only be made
respecting particular defaulted Mortgage Loans and only upon satisfaction of
certain conditions precedent described below. Unless specified in the related
Prospectus Supplement, the Mortgage Pool Insurance Policies may not cover losses
due to a failure to pay or denial of a claim under a Primary Insurance Policy,
irrespective of the reason therefor.
Each Mortgage Pool Insurance Policy will generally provide that no
claims may be validly presented thereunder unless, among other things, (i) any
required Primary Insurance Policy is in effect for the defaulted Mortgage Loan
and a claim thereunder has been submitted and settled, (ii) hazard insurance on
the property securing such Mortgage Loan has been kept in force and real estate
taxes and other protection and preservation expenses have been paid by the
Master Servicer, (iii) if there has been physical loss or damage to the
Mortgaged Property, it has been restored to its condition (reasonable wear and
tear excepted) at the Cut-off Date and (iv) the insured has acquired good and
merchantable title to the Mortgaged Property free and clear of liens except
certain permitted encumbrances. Upon satisfaction of these conditions, the Pool
Insurer will have the option either (a) to purchase the property securing the
defaulted Mortgage Loan at a price equal to the principal balance thereof plus
accrued and unpaid interest at the applicable Mortgage Rate to the date of
purchase and certain expenses incurred by the Master Servicer, Special Servicer
or Subservicer on behalf of the related Trustee and Certificateholders, or (b)
to pay the amount by which the sum of the principal balance of the defaulted
Mortgage Loan plus accrued and unpaid interest at the Mortgage Rate to the date
of payment of the claim and the aforementioned expenses exceeds the proceeds
received from an approved sale of the Mortgaged Property, in either case net of
certain amounts paid or assumed to have been paid under any related Primary
Insurance Policy. Certificateholders will experience a shortfall in the amount
of interest payable on the related Certificates in connection with the payment
of claims under a Mortgage Pool Insurance Policy because the Pool Insurer is
only required to remit unpaid interest through the date a claim is paid rather
than through the end of the month in which such claim is paid. In addition, the
Certificateholders will also experience losses with respect to the related
Certificates in connection with payments made under a Mortgage Pool Insurance
Policy to the extent that the Master Servicer expends funds to cover unpaid real
estate taxes or to repair the related Mortgaged Property in order to make a
claim under a Mortgage Pool Insurance Policy, as those amounts will not be
covered by payments under such policy and will be reimbursable to the Master
Servicer from funds otherwise payable to the Certificateholders. If any
Mortgaged Property securing a defaulted Mortgage Loan is damaged and proceeds,
if any (see "Special Hazard Insurance Policies" below for risks which are not
covered by such policies), from the related hazard insurance policy or
applicable Special Hazard Instrument are insufficient to restore the damaged
property to a condition sufficient to permit recovery under the Mortgage Pool
Insurance Policy, the Master Servicer
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is not required to expend its own funds to restore the damaged property unless
it determines (x) that such restoration will increase the proceeds to one or
more classes of Certificateholders on liquidation of the Mortgage Loan after
reimbursement of the Master Servicer for its expenses and (y) that such expenses
will be recoverable by it through Liquidation Proceeds or Insurance Proceeds.
Unless otherwise specified in the related Prospectus Supplement, a
Mortgage Pool Insurance Policy (and certain Primary Insurance Policies) will
likely not insure against loss sustained by reason of a default arising from,
among other things, (i) fraud or negligence in the origination or servicing of a
Mortgage Loan, including misrepresentation by the Mortgagor, the Seller or other
persons involved in the origination thereof, or (ii) failure to construct a
Mortgaged Property in accordance with plans and specifications. Depending upon
the nature of the event, a breach of representation made by a Seller may also
have occurred. Such a breach, if it materially and adversely affects the
interests of Certificateholders and cannot be cured, would give rise to a
purchase obligation on the part of the Seller, as more fully described under
"The Mortgage Pools--Representations by Sellers." However, such an event would
not give rise to a breach of a representation and warranty or a purchase
obligation on the part of the Company or Master Servicer.
The original amount of coverage under each Mortgage Pool Insurance
Policy will be reduced over the life of the related series of Certificates by
the aggregate dollar amount of claims paid less the aggregate of the net amounts
realized by the Pool Insurer upon disposition of all foreclosed properties. The
amount of claims paid includes certain expenses incurred by the Master Servicer,
Special Servicer or Subservicer as well as accrued interest on delinquent
Mortgage Loans to the date of payment of the claim. Accordingly, if aggregate
net claims paid under any Mortgage Pool Insurance Policy reach the original
policy limit, coverage under that Mortgage Pool Insurance Policy will be
exhausted and any further losses will be borne by holders of the related series
of Certificates. In addition, unless the Master Servicer could determine that an
advance in respect of a delinquent Mortgage Loan would be recoverable to it from
the proceeds of the liquidation of such Mortgage Loan or otherwise, the Master
Servicer would not be obligated to make an advance respecting any such
delinquency since the advance would not be ultimately recoverable to it from
either the Mortgage Pool Insurance Policy or from any other related source. See
"Description of the Certificates--Advances."
Since each Mortgage Pool Insurance Policy will require that the
property subject to a defaulted Mortgage Loan be restored to its original
condition prior to claiming against the Pool Insurer, such policy will not
provide coverage against hazard losses. As set forth under "Primary Mortgage
Insurance, Hazard Insurance; Claims Thereunder," the hazard policies covering
the Mortgage Loans typically exclude from coverage physical damage resulting
from a number of causes and, even when the damage is covered, may afford
recoveries which are significantly less than full replacement cost of such
losses. Further, no coverage in respect of Special Hazard Losses, Fraud Losses
or Bankruptcy Losses will cover all risks, and the amount of any such coverage
will be limited. See "Special Hazard Insurance Policies" below. As a result,
certain hazard risks will not be insured against and will therefore be borne by
the related Certificateholders.
LETTER OF CREDIT
If any component of credit enhancement as to the Offered Certificates
of any series is to be provided by a letter of credit (the "Letter of Credit"),
a bank (the "Letter of Credit Bank") will deliver to the related Trustee an
irrevocable Letter of Credit. The Letter of Credit may provide direct coverage
with respect to the Mortgage Loans or, if specified in the related Prospectus
Supplement, support an entity's obligation pursuant to a Purchase Obligation to
make certain payments to the related Trustee with respect to one or more
components of credit enhancement. The Letter of Credit Bank, as well as the
amount available under the Letter of Credit with respect to each component of
credit enhancement, will be specified in the applicable Prospectus Supplement.
If so specified in the related Prospectus
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Supplement, the Letter of Credit may permit draws only in the event of certain
types of losses and shortfalls. The Letter of Credit may also provide for the
payment of advances which the Master Servicer would be obligated to make with
respect to delinquent monthly mortgage payments. The amount available under the
Letter of Credit will, in all cases, be reduced to the extent of the
unreimbursed payments thereunder and may otherwise be reduced as described in
the related Prospectus Supplement. The Letter of Credit will expire on the
expiration date set forth in the related Prospectus Supplement, unless earlier
terminated or extended in accordance with its terms.
SPECIAL HAZARD INSURANCE POLICIES
Any insurance policy covering Special Hazard Losses (a "Special Hazard
Insurance Policy") obtained by the Company for a Trust Fund will be issued by
the insurer named in the applicable Prospectus Supplement. Each Special Hazard
Insurance Policy will, subject to limitations described below, protect holders
of the related series of Certificates from (i) losses due to direct physical
damage to a Mortgaged Property other than any loss of a type covered by a hazard
insurance policy or a flood insurance policy, if applicable, and (ii) losses
from partial damage caused by reason of the application of the co-insurance
clauses contained in hazard insurance policies ("Special Hazard Losses"). See
"Primary Mortgage Insurance, Hazard Insurance; Claims Thereunder." However, a
Special Hazard Insurance Policy will not cover losses occasioned by war, civil
insurrection, certain governmental actions, errors in design, faulty workmanship
or materials (except under certain circumstances), nuclear reaction, chemical
contamination, waste by the Mortgagor and certain other risks. Aggregate claims
under a Special Hazard Insurance Policy will be limited to the amount set forth
in the related Prospectus Supplement and will be subject to reduction as
described in such related Prospectus Supplement. A Special Hazard Insurance
Policy will provide that no claim may be paid unless hazard and, if applicable,
flood insurance on the property securing the Mortgage Loan has been kept in
force and other protection and preservation expenses have been paid by the
Master Servicer.
Subject to the foregoing limitations, a Special Hazard Insurance Policy
will provide that, where there has been damage to property securing a foreclosed
Mortgage Loan (title to which has been acquired by the insured) and to the
extent such damage is not covered by the hazard insurance policy or flood
insurance policy, if any, maintained by the Mortgagor or the Master Servicer,
Special Servicer or the Subservicer, the insurer will pay the lesser of (i) the
cost of repair or replacement of such property or (ii) upon transfer of the
property to the insurer, the unpaid principal balance of such Mortgage Loan at
the time of acquisition of such property by foreclosure or deed in lieu of
foreclosure, plus accrued interest at the Mortgage Rate to the date of claim
settlement and certain expenses incurred by the Master Servicer, Special
Servicer or Subservicer with respect to such property. If the property is
transferred to a third party in a sale approved by the issuer of the Special
Hazard Insurance Policy (the "Special Hazard Insurer"), the amount that the
Special Hazard Insurer will pay will be the amount under (ii) above reduced by
the net proceeds of the sale of the property. No claim may be validly presented
under the Special Hazard Insurance Policy unless hazard insurance on the
property securing a defaulted Mortgage Loan has been kept in force and other
reimbursable protection, preservation and foreclosure expenses have been paid
(all of which must be approved in advance by the Special Hazard Insurer). If the
unpaid principal balance plus accrued interest and certain expenses is paid by
the insurer, the amount of further coverage under the related Special Hazard
Insurance Policy will be reduced by such amount less any net proceeds from the
sale of the property. Any amount paid as the cost of repair of the property will
further reduce coverage by such amount. Restoration of the property with the
proceeds described under (i) above will satisfy the condition under each
Mortgage Pool Insurance Policy that the property be restored before a claim
under such Mortgage Pool Insurance Policy may be validly presented with respect
to the defaulted Mortgage Loan secured by such property. The payment described
under (ii) above will render presentation of a claim in respect of such Mortgage
Loan under the related Mortgage Pool Insurance Policy unnecessary. Therefore, so
long as a Mortgage Pool Insurance Policy remains in effect, the payment by the
insurer under a Special Hazard Insurance Policy of the cost of repair or of the
unpaid
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principal balance of the related Mortgage Loan plus accrued interest and certain
expenses will not affect the total Insurance Proceeds paid to
Certificateholders, but will affect the relative amounts of coverage remaining
under the related Special Hazard Insurance Policy and Mortgage Pool Insurance
Policy.
As and to the extent set forth in the applicable Prospectus Supplement,
coverage in respect of Special Hazard Losses for a series of Certificates may be
provided, in whole or in part, by a type of Special Hazard Instrument other than
a Special Hazard Insurance Policy or by means of the special hazard
representation of the Company.
BANKRUPTCY BONDS
In the event of a personal bankruptcy of a Mortgagor, it is possible
that the bankruptcy court may establish the value of the Mortgaged Property of
such Mortgagor at an amount less than the then outstanding principal balance of
the Mortgage Loan secured by such Mortgaged Property (a "Deficient Valuation").
The amount of the secured debt could then be reduced to such value, and, thus,
the holder of such Mortgage Loan would become an unsecured creditor to the
extent the outstanding principal balance of such Mortgage Loan exceeds the value
assigned to the Mortgaged Property by the bankruptcy court. In addition, certain
other modifications of the terms of a Mortgage Loan can result from a bankruptcy
proceeding, including a reduction in the amount of the Monthly Payment on the
related Mortgage Loan (a "Debt Service Reduction"; Debt Service Reductions and
Deficient Valuations, collectively referred to herein as Bankruptcy Losses). See
"Certain Legal Aspects of Mortgage Loans and Related Matters--Anti-Deficiency
Legislation and Other Limitations on Lenders." Any Bankruptcy Bond to provide
coverage for Bankruptcy Losses for proceedings under the federal Bankruptcy Code
obtained by the Company for a Trust Fund will be issued by an insurer named in
the applicable Prospectus Supplement. The level of coverage under each
Bankruptcy Bond will be set forth in the applicable Prospectus Supplement.
RESERVE FUNDS
If so provided in the related Prospectus Supplement, the Company will
deposit or cause to be deposited in an account (a "Reserve Fund") any
combination of cash, one or more irrevocable letters of credit or one or more
Permitted Investments in specified amounts, or any other instrument satisfactory
to the relevant Rating Agency or Agencies, which will be applied and maintained
in the manner and under the conditions specified in such Prospectus Supplement.
In the alternative or in addition to such deposit, to the extent described in
the related Prospectus Supplement, a Reserve Fund may be funded through
application of all or a portion of amounts otherwise payable on any related
Subordinate Certificates, from the Spread or otherwise. To the extent that the
funding of the Reserve Fund is dependent on amounts otherwise payable on related
Subordinate Certificates, Spread or other cash flows attributable to the related
Mortgage Loans or on reinvestment income, the Reserve Fund may provide less
coverage than initially expected if the cash flows or reinvestment income on
which such funding is dependent are lower than anticipated. In addition, with
respect to any series of Certificates as to which credit enhancement includes a
Letter of Credit, if so specified in the related Prospectus Supplement, under
certain circumstances the remaining amount of the Letter of Credit may be drawn
by the Trustee and deposited in a Reserve Fund. Amounts in a Reserve Fund may be
distributed to Certificateholders, or applied to reimburse the Master Servicer
for outstanding advances, or may be used for other purposes, in the manner and
to the extent specified in the related Prospectus Supplement. Unless otherwise
provided in the related Prospectus Supplement, any such Reserve Fund will not be
deemed to be part of the related Trust Fund. If set forth in the related
Prospectus Supplement, a Reserve Fund may provide coverage to more than one
series of Certificates.
In connection with the establishment of any Reserve Fund, unless
otherwise specified in the related Prospectus Supplement, the Reserve Fund will
be structured so that the Trustee will have a
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perfected security interest for the benefit of the Certificateholders in the
assets in the Reserve Fund. However, to the extent that the Company, any
affiliate thereof or any other entity has an interest in any Reserve Fund, in
the event of the bankruptcy, receivership or insolvency of such entity, there
could be delays in withdrawals from the Reserve Fund and corresponding payments
to the Certificateholders which could adversely affect the yield to investors on
the related Certificates.
Amounts deposited in any Reserve Fund for a series will be invested in
Permitted Investments by, or at the direction of, and for the benefit of the
Master Servicer or any other person named in the related Prospectus Supplement.
MAINTENANCE OF CREDIT ENHANCEMENT
To the extent that the applicable Prospectus Supplement does not
expressly provide for alternative credit enhancement arrangements in lieu of
some or all of the arrangements mentioned below, the following paragraphs shall
apply.
If a Financial Guaranty Insurance Policy has been obtained for a series
of Certificates, the Master Servicer will be obligated to exercise reasonable
efforts to keep such Financial Guaranty Insurance Policy in full force and
effect throughout the term of the applicable Pooling Agreement, unless coverage
thereunder has been exhausted through payment of claims or until such Financial
Guaranty Insurance Policy is replaced in accordance with the terms of the
applicable Pooling Agreement. Unless otherwise provided in the Prospectus
Supplement, the Master Servicer will agree to pay the premiums for each
Financial Guaranty Insurance Policy on a timely basis. In the event the Insurer
ceases to be a qualified insurer as described in the related Prospectus
Supplement, or fails to make a required payment under the related Financial
Guaranty Insurance Policy, the Master Servicer will have no obligation to
replace the Insurer, unless otherwise described in the Prospectus Supplement.
Any losses associated with any reduction or withdrawal in rating by an
applicable Rating Agency shall be borne by the related Certificateholders.
If a Mortgage Pool Insurance Policy has been obtained for a series of
Certificates, the Master Servicer will be obligated to exercise reasonable
efforts to keep such Mortgage Pool Insurance Policy (or an alternate form of
credit support) in full force and effect throughout the term of the applicable
Pooling Agreement, unless coverage thereunder has been exhausted through payment
of claims or until such Mortgage Pool Insurance Policy is replaced in accordance
with the terms of the applicable Pooling Agreement. Unless otherwise provided in
the related Prospectus Supplement, the Master Servicer will agree to pay the
premiums for each Mortgage Pool Insurance Policy on a timely basis. In the event
the Pool Insurer ceases to be a Qualified Insurer (such term being defined to
mean a private mortgage guaranty insurance company duly qualified as such under
the laws of the state of its incorporation and each state having jurisdiction
over the insurer in connection with the Mortgage Pool Insurance Policy and
approved as an insurer by FHLMC, FNMA or any successor entity) because it ceases
to be qualified under any such law to transact such insurance business or
coverage is terminated for any reason other than exhaustion of such coverage,
the Master Servicer will use reasonable efforts to obtain from another Qualified
Insurer a replacement insurance policy comparable to the Mortgage Pool Insurance
Policy with a total coverage equal to the then outstanding coverage of such
Mortgage Pool Insurance Policy, provided that, if the cost of the replacement
policy is greater than the cost of such Mortgage Pool Insurance Policy, the
coverage of the replacement policy will, unless otherwise agreed to by the
Company, be reduced to a level such that its premium rate does not exceed the
premium rate on such Mortgage Pool Insurance Policy. In the event that the Pool
Insurer ceases to be a Qualified Insurer because it ceases to be approved as an
insurer by FHLMC, FNMA or any successor entity, the Master Servicer will be
obligated to review, not less often than monthly, the financial condition of the
Pool Insurer with a view toward determining whether recoveries under the
Mortgage Pool Insurance Policy are jeopardized for reasons related to the
financial condition of the Pool Insurer. If the Master Servicer determines that
recoveries
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are so jeopardized, it will be obligated to exercise its best reasonable efforts
to obtain from another Qualified Insurer a replacement insurance policy as
described above, subject to the same cost limit. Any losses associated with any
reduction or withdrawal in rating by an applicable Rating Agency shall be borne
by the related Certificateholders.
If a Letter of Credit has been obtained for a series of Certificates,
the Master Servicer will be obligated to exercise reasonable efforts to keep or
cause to be kept such Letter of Credit (or an alternate form of credit support)
in full force and effect throughout the term of the applicable Pooling
Agreement, unless coverage thereunder has been exhausted through payment of
claims or otherwise, or substitution therefor is made as described below under
"--Reduction or Substitution of Credit Enhancement." Unless otherwise specified
in the applicable Prospectus Supplement, if a Letter of Credit obtained for a
series of Certificates is scheduled to expire prior to the date the final
distribution on such Certificates is made and coverage under such Letter of
Credit has not been exhausted and no substitution has occurred, the Trustee will
draw the amount available under the Letter of Credit and maintain such amount in
trust for such Certificateholders.
In lieu of the Master Servicer's obligation to maintain a Financial
Guaranty Insurance Policy, Mortgage Pool Insurance Policy or Letter of Credit as
provided above, the Master Servicer may obtain a substitute Financial Guaranty
Insurance Policy, Mortgage Pool Insurance Policy or Letter of Credit. If the
Master Servicer obtains such a substitute Letter of Credit, Mortgage Pool
Insurance Policy or other form of credit enhancement, it will maintain and keep
such Financial Guaranty Insurance Policy, Mortgage Pool Insurance Policy or
Letter of Credit in full force and effect as provided herein. Prior to its
obtaining any substitute Financial Guaranty Insurance Policy, Mortgage Pool
Insurance Policy or Letter of Credit, the Master Servicer will obtain written
confirmation from the Rating Agency or Agencies that rated the related series of
Certificates that the substitution of such Financial Guaranty Insurance Policy,
Mortgage Pool Insurance Policy or Letter of Credit for the existing credit
enhancement will not adversely affect the then-current ratings assigned to such
Certificates by such Rating Agency or Agencies.
If a Special Hazard Instrument has been obtained for a series of
Certificates, the Master Servicer will also be obligated to exercise reasonable
efforts to maintain and keep such Special Hazard Instrument in full force and
effect throughout the term of the applicable Pooling Agreement, unless coverage
thereunder has been exhausted through payment of claims or otherwise or
substitution therefor is made as described below under "--Reduction or
Substitution of Credit Enhancement." If the Special Hazard Instrument takes the
form of a Special Hazard Insurance Policy, such policy will provide coverage
against risks of the type described herein under "Description of Credit
Enhancement--Special Hazard Insurance Policies." The Master Servicer may obtain
a substitute Special Hazard Instrument for the existing Special Hazard
Instrument if prior to such substitution the Master Servicer obtains written
confirmation from the Rating Agency or Agencies that rated the related
Certificates that such substitution shall not adversely affect the then-current
ratings assigned to such Certificates by such Rating Agency or Agencies.
If a Bankruptcy Bond has been obtained for a series of Certificates,
the Master Servicer will be obligated to exercise reasonable efforts to maintain
and keep such Bankruptcy Bond in full force and effect throughout the term of
the Pooling Agreement, unless coverage thereunder has been exhausted through
payment of claims or substitution therefor is made as described below under
"--Reduction or Substitution of Credit Enhancement." The Master Servicer may
obtain a substitute Bankruptcy Bond or other credit enhancement for the existing
Bankruptcy Bond if prior to such substitution the Master Servicer obtains
written confirmation from the Rating Agency or Agencies that rated the related
Certificates that such substitution shall not adversely affect the then-current
ratings assigned to such Certificates by such Rating Agency or Agencies. See
"--Bankruptcy Bonds" above.
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The Master Servicer, on behalf of itself, the Trustee and
Certificateholders, will provide the Trustee information required for the
Trustee to draw under the Letter of Credit and will present claims to the
provider of any Purchase Obligation, to each Pool Insurer, to the issuer of each
Special Hazard Insurance Policy or other Special Hazard Instrument, to the
issuer of each Bankruptcy Bond and, in respect of defaulted Mortgage Loans for
which there is no Subservicer, to each Primary Insurer and take such reasonable
steps as are necessary to permit recovery under such Letter of Credit, Purchase
Obligation, insurance policies or comparable coverage respecting defaulted
Mortgage Loans or Mortgage Loans which are the subject of a bankruptcy
proceeding. Additionally, the Master Servicer will present such claims and take
such steps as are reasonably necessary to provide for the performance by the
provider of the Purchase Obligation of its Purchase Obligation. As set forth
above, all collections by the Master Servicer under any Purchase Obligation, any
Mortgage Pool Insurance Policy, any Primary Insurance Policy or any Bankruptcy
Bond and, where the related property has not been restored, any Special Hazard
Instrument, are to be deposited in the related Certificate Account, subject to
withdrawal as described above. All draws under any Letter of Credit are also to
be deposited in the related Certificate Account. In those cases in which a
Mortgage Loan is serviced by a Subservicer, the Subservicer, on behalf of
itself, the Trustee and the Certificateholders will present claims to the
Primary Insurer, and all collections thereunder shall initially be deposited in
a subservicing account that generally meets the requirements for the Certificate
Account prior to being delivered to the Master Servicer for deposit in the
related Certificate Account.
If any property securing a defaulted Mortgage Loan is damaged and
proceeds, if any, from the related hazard insurance policy or any applicable
Special Hazard Instrument are insufficient to restore the damaged property to a
condition sufficient to permit recovery under any Financial Guaranty Insurance
Policy, Mortgage Pool Insurance Policy, Letter of Credit or any related Primary
Insurance Policy, the Master Servicer is not required to expend its own funds to
restore the damaged property unless it determines (i) that such restoration will
increase the proceeds to one or more classes of Certificateholders on
liquidation of the Mortgage Loan after reimbursement of the Master Servicer for
its expenses and (ii) that such expenses will be recoverable by it through
Liquidation Proceeds or Insurance Proceeds. If recovery under any Financial
Guaranty Insurance Policy, Mortgage Pool Insurance Policy, Letter of Credit or
any related Primary Insurance Policy is not available because the Master
Servicer has been unable to make the above determinations, has made such
determinations incorrectly or recovery is not available for any other reason,
the Master Servicer is nevertheless obligated to follow such normal practices
and procedures (subject to the preceding sentence) as it deems necessary or
advisable to realize upon the defaulted Mortgage Loan and in the event such
determination has been incorrectly made, is entitled to reimbursement of its
expenses in connection with such restoration.
REDUCTION OR SUBSTITUTION OF CREDIT ENHANCEMENT
Unless otherwise specified in the Prospectus Supplement, the amount of
credit support provided pursuant to any form of credit enhancement may be
reduced under certain specified circumstances. In most cases, the amount
available pursuant to any form of credit enhancement will be subject to periodic
reduction in accordance with a schedule or formula on a nondiscretionary basis
pursuant to the terms of the related Pooling Agreement. Additionally, in most
cases, such form of credit support (and any replacements therefor) may be
replaced, reduced or terminated, and the formula used in calculating the amount
of coverage with respect to Bankruptcy Losses, Special Hazard Losses or Fraud
Losses may be changed, without the consent of the Certificateholders, upon the
written assurance from each applicable Rating Agency that the then-current
rating of the related series of Certificates will not be adversely affected.
Furthermore, in the event that the credit rating of any obligor under any
applicable credit enhancement is downgraded, the credit rating(s) of the related
series of Certificates may be downgraded to a corresponding level, and, unless
otherwise specified in the related Prospectus Supplement, the Master Servicer
will not be obligated to obtain replacement credit support in order to restore
the rating(s) of the related series of Certificates. The Master Servicer will
also be permitted to replace such credit support
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with other credit enhancement instruments issued by obligors whose credit
ratings are equivalent to such downgraded level and in lower amounts which would
satisfy such downgraded level, provided that the then-current rating(s) of the
related series of Certificates are maintained. Where the credit support is in
the form of a Reserve Fund, a permitted reduction in the amount of credit
enhancement will result in a release of all or a portion of the assets in the
Reserve Fund to the Company, the Master Servicer or such other person that is
entitled thereto. Any assets so released will not be available for distributions
in future periods.
PURCHASE OBLIGATIONS
With respect to certain types of Mortgage Loans to be included in any
Mortgage Pool, if specified in the related Prospectus Supplement, the Mortgage
Loans may be sold subject to a Purchase Obligation as described below that would
become applicable on a specified date or upon the occurrence of a specified
event. For example, with respect to certain types of ARM Loans as to which the
Mortgage Rate is fixed for the first five years, a Purchase Obligation may apply
on the first date that the Mortgage Rate of such Mortgage Loan is adjusted, and
such obligation may apply to the Mortgage Loans or to the related Certificates
themselves, or to a corresponding Purchase Obligation of the Company or another
person as specified in the related Prospectus Supplement. With respect to any
Purchase Obligation, such obligation will be an obligation of an entity (which
may include a bank or other financial institution or an insurance company)
specified in the related Prospectus Supplement, and an instrument evidencing
such obligation (a "Purchase Obligation") shall be delivered to the related
Trustee for the benefit of the Certificateholders to the related series.
The specific terms and conditions applicable to any Purchase Obligation
will be described in the related Prospectus Supplement, including the purchase
price, the timing of and any limitations and conditions to any such purchase.
Any Purchase Obligation will be payable solely to the Trustee for the benefit of
the Certificateholders of the related series and will be nontransferable. Unless
otherwise provided in the related Prospectus Supplement, each Purchase
Obligation will be a general unsecured obligation of the provider thereof, and
prospective purchasers of Offered Certificates must look solely to the credit of
such entity for payment under the Purchase Obligation.
PRIMARY MORTGAGE INSURANCE, HAZARD INSURANCE;
CLAIMS THEREUNDER
GENERAL
Each Mortgage Loan will be required to be covered by a hazard insurance
policy (as described below) and, if required as described below, a Primary
Insurance Policy. The following is only a brief description of certain insurance
policies and does not purport to summarize or describe all of the provisions of
these policies. Such insurance is subject to underwriting and approval of
individual Mortgage Loans by the respective insurers. The descriptions of any
insurance policies described 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 such forms of policies, sample copies of which are
available upon request.
PRIMARY MORTGAGE INSURANCE POLICIES
Unless otherwise specified in the related Prospectus Supplement, (i)
each Single Family Loan having a Loan-to-Value Ratio at origination of over 80%
is required by the Company to be covered by a primary mortgage guaranty
insurance policy (a "Primary Insurance Policy") insuring against default on
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such Mortgage Loan as to at least the principal amount thereof exceeding 75% of
the Value of the related Mortgaged Property at origination of the Mortgage Loan,
unless and until the principal balance of the Mortgage Loan is reduced to a
level that would produce a Loan-to-Value Ratio equal to or less than at least
80%, and (ii) the Company will represent and warrant that, to the best of the
Company's knowledge, such Mortgage Loans are so covered. However, the foregoing
standard may vary significantly depending on the characteristics of the Mortgage
Loans and the applicable underwriting standards, and any variation will be
described in the related Prospectus Supplement. A Mortgage Loan will not be
considered to be an exception to the foregoing standard if no Primary Insurance
Policy was obtained at origination but the Mortgage Loan has amortized to below
an 80% Loan-to-Value Ratio level as of the applicable Cut-off Date. Mortgage
Loans which are subject to negative amortization will only be covered by a
Primary Insurance Policy if such coverage was so required upon their
origination, notwithstanding that subsequent negative amortization may cause
such Mortgage Loan's Loan-to-Value Ratio (based on the then-current balance) to
subsequently exceed the limits which would have required such coverage upon
their origination.
While the terms and conditions of the Primary Insurance Policies issued
by one primary mortgage guaranty insurer (a "Primary Insurer") will differ from
those in Primary Insurance Policies issued by other Primary Insurers, each
Primary Insurance Policy will in general provide substantially the following
coverage. The amount of the loss as calculated under a Primary Insurance Policy
covering a Mortgage Loan (herein referred to as the "Loss") will generally
consist of the unpaid principal amount of such Mortgage Loan and accrued and
unpaid interest thereon and reimbursement of certain expenses, less (i) rents or
other payments collected or received by the insured (other than the proceeds of
hazard insurance) that are derived from the related Mortgaged Property, (ii)
hazard insurance proceeds in excess of the amount required to restore such
Mortgaged Property and which have not been applied to the payment of the
Mortgage Loan, (iii) amounts expended but not approved by the Primary Insurer,
(iv) claim payments previously made on such Mortgage Loan and (v) unpaid
premiums and certain other amounts.
The Primary Insurer will generally be required to pay either: (i) the
insured percentage of the Loss; (ii) the entire amount of the Loss, after
receipt by the Primary Insurer of good and merchantable title to, and possession
of, the Mortgaged Property; or (iii) at the option of the Primary Insurer under
certain Primary Insurance Policies, the sum of the delinquent monthly payments
plus any advances made by the insured, both to the date of the claim payment
and, thereafter, monthly payments in the amount that would have become due under
the Mortgage Loan if it had not been discharged plus any advances made by the
insured until the earlier of (a) the date the Mortgage Loan would have been
discharged in full if the default had not occurred or (b) an approved sale.
As conditions precedent to the filing or payment of a claim under a
Primary Insurance Policy, in the event of default by the Mortgagor, the insured
will typically be required, among other things, to: (i) advance or discharge (a)
hazard insurance premiums and (b) as necessary and approved in advance by the
Primary Insurer, real estate taxes, protection and preservation expenses and
foreclosure and related costs; (ii) in the event of any physical loss or damage
to the Mortgaged Property, have the Mortgaged Property restored to at least its
condition at the effective date of the Primary Insurance Policy (ordinary wear
and tear excepted); and (iii) tender to the Primary Insurer good and
merchantable title to, and possession of, the Mortgaged Property.
For any Certificates offered hereunder, the Master Servicer will
maintain or cause each Subservicer to maintain, as the case may be, in full
force and effect and to the extent coverage is available a Primary Insurance
Policy with regard to each Single Family Loan for which such coverage is
required under the standard described above, provided that such Primary
Insurance Policy was in place as of the Cut-off Date and the Company had
knowledge of such Primary Insurance Policy. In the event that the Company gains
knowledge that as of the Closing Date, a Mortgage Loan had a Loan-to-Value Ratio
at origination in excess of 80% and was not the subject of a Primary Insurance
Policy (and was not
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included in any exception to such standard disclosed in the related Prospectus
Supplement) and that such Mortgage Loan has a then current Loan-to-Value Ratio
in excess of 80%, then the Master Servicer is required to use reasonable efforts
to obtain and maintain a Primary Insurance Policy to the extent that such a
policy is obtainable at a reasonable price. The Master Servicer or, in the case
of a Designated Seller Transaction, the Seller will not cancel or refuse to
renew any such Primary Insurance Policy in effect at the time of the initial
issuance of a series of Certificates that is required to be kept in force under
the applicable Pooling Agreement unless the replacement Primary Insurance Policy
for such cancelled or non-renewed policy is maintained with an insurer whose
claims-paying ability is acceptable to the Rating Agency or Agencies that rated
such series of Certificates for mortgage pass-through certificates having a
rating equal to or better than the highest then-current rating of any class of
such series of Certificates. For further information regarding the extent of
coverage under any Mortgage Pool Insurance Policy or Primary Insurance Policy,
see "Description of Credit Enhancement--Mortgage Pool Insurance Policies."
HAZARD INSURANCE POLICIES
The terms of the Mortgage Loans require each Mortgagor to maintain a
hazard insurance policy for their Mortgage Loan. Additionally, the Pooling
Agreement will require the Master Servicer to cause to be maintained for each
Mortgage Loan a hazard insurance policy providing for no less than the coverage
of the standard form of fire insurance policy with extended coverage customary
in the state in which the property is located. Unless otherwise specified in the
related Prospectus Supplement, such coverage generally will be in an amount
equal to the lesser of the principal balance owing on such Mortgage Loan or 100%
of the insurable value of the improvements securing the Mortgage Loan except
that, if generally available, such coverage must not be less than the minimum
amount required under the terms thereof to fully compensate for any damage or
loss on a replacement cost basis. The ability of the Master Servicer to ensure
that hazard insurance proceeds are appropriately applied may be dependent on its
being named as an additional insured under any hazard insurance policy and under
any flood insurance policy referred to below, or upon the extent to which
information in this regard is furnished to the Master Servicer by Mortgagors or
Subservicers.
As set forth above, all amounts collected by the Master Servicer under
any hazard policy (except for amounts to be applied to the restoration or repair
of the Mortgaged Property or released to the Mortgagor in accordance with the
Master Servicer's normal servicing procedures) will be deposited in the related
Certificate Account. The Pooling Agreement will provide that the Master Servicer
may satisfy its obligation to cause hazard policies to be maintained by
maintaining a blanket policy insuring against losses on the Mortgage Loans. If
such blanket policy contains a deductible clause, the Master Servicer will
deposit in the applicable Certificate Account all sums which would have been
deposited therein but for such clause.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements on the property by
fire, lightning, explosion, smoke, windstorm, hail, riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies relating to the Mortgage Loans will be underwritten by
different insurers 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 the
following: war, revolution, governmental actions, floods and other water-related
causes, earth movement (including earthquakes, landslides and mudflows), nuclear
reactions, wet or dry rot, vermin, rodents, insects or domestic animals, theft
and, in certain cases, vandalism. The foregoing list is merely indicative of
certain kinds of uninsured risks and is not intended to be all-inclusive. Where
the improvements securing a Mortgage Loan are located in a federally designated
flood area at the time of origination of such Mortgage Loan, the Pooling
Agreement requires the Master Servicer to cause to be maintained for each such
Mortgage Loan serviced, flood insurance (to the extent available) in an amount
equal in general to the lesser of the
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amount required to compensate for any loss or damage on a replacement cost basis
or the maximum insurance available under the federal flood insurance program.
The hazard insurance policies covering the Mortgaged Properties
typically contain a co-insurance clause which in effect requires the insured at
all times to carry insurance of a specified percentage (generally 80% to 90%) of
the full replacement value of the improvements on the property in order to
recover the full amount of any partial loss. If the insured's coverage falls
below this specified percentage, such clause generally provides that the
insurer's liability in the event of partial loss does not exceed the greater of
(i) the replacement cost of the improvements damaged or destroyed less physical
depreciation or (ii) such proportion of the loss as the amount of insurance
carried bears to the specified percentage of the full replacement cost of such
improvements.
Since the amount of hazard insurance that Mortgagors are required to
maintain on the improvements securing the Mortgage Loans may decline as the
principal balances owing thereon decrease, and since residential properties have
historically appreciated in value over time, hazard insurance proceeds could be
insufficient to restore fully the damaged property in the event of a partial
loss. See "Description of Credit Enhancement--Special Hazard Insurance Policies"
for a description of the limited protection afforded by any Special Hazard
Insurance Policy against losses occasioned by hazards which are otherwise
uninsured against (including losses caused by the application of the
co-insurance clause described in the preceding paragraph).
Under the terms of the Mortgage Loans, Mortgagors are generally
required to present claims to insurers under hazard insurance policies
maintained on the Mortgaged Properties. The Master Servicer, on behalf of the
Trustee and Certificateholders, is obligated to present claims under any Special
Hazard Insurance Policy or other Special Hazard Instrument and any blanket
insurance policy insuring against hazard losses on the Mortgaged Properties.
However, the ability of the Master Servicer to present such claims is dependent
upon the extent to which information in this regard is furnished to the Master
Servicer or the Subservicers by Mortgagors.
FHA INSURANCE
The FHA is responsible for administering various federal programs,
including mortgage insurance, authorized under The Housing Act and the United
States Housing Act of 1937, as amended.
There are two primary FHA insurance programs that are available for
multifamily mortgage loans. Sections 221(d)(3) and (d)(4) of the Housing Act
allow the Department of Housing and Urban Development ("HUD") to insure mortgage
loans that are secured by newly constructed and substantially rehabilitated
multifamily rental projects. Section 244 of the Housing Act provides for
co-insurance of such mortgage loans made under Sections 221(d)(3) and (d)(4) by
HUD/FHA and a HUD-approved co-insurer. Generally the term of such a mortgage
loan may be up to 40 years and the ratio of the loan amount to property
replacement cost can be up to 90%.
Section 223(f) of the Housing Act allows HUD to insure mortgage loans
made for the purchase or refinancing of existing apartment projects which are at
least three years old. Section 244 also provides for co-insurance of mortgage
loans made under Section 223(f). Under Section 223(f), the loan proceeds cannot
be used for substantial rehabilitation work, but repairs may be made for up to,
in general, the greater of 15% of the value of the project or a dollar amount
per apartment unit established from time to time by HUD. In general the loan
term may not exceed 35 years and a loan to value ratio of no more than 85% is
required for the purchase of a project and 70% for the refinancing of a project.
HUD has the option, in most cases, to pay insurance claims in cash or
in debentures issued by HUD. Presently, claims are being paid in cash, and
claims have not been paid in debentures since 1965.
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HUD debentures issued in satisfaction of FHA insurance claims bear interest at
the applicable HUD debenture interest rate. Unless otherwise provided in the
related Prospectus Supplement, the Master Servicer will be obligated to purchase
any such debenture issued in satisfaction of a defaulted FHA insured Mortgage
Loan serviced by it for an amount equal to the principal amount of any such
debenture.
The Master Servicer will be required to take such steps as are
reasonably necessary to keep FHA insurance in full force and effect.
THE COMPANY
The Company is a limited-purpose wholly-owned subsidiary of Option One
Mortgage Corporation. The Company was incorporated in the State of California on
September __, 1996. The Company was organized for the purpose of serving as a
private secondary mortgage market conduit. The Company does not have, nor is it
expected in the future to have, any significant assets.
The Company maintains its principal office at 2020 East First Street,
Suite 100, Santa Ana, California 92705. Its telephone number is (714) 571-____.
THE POOLING AGREEMENT
GENERAL
The Certificates of each series will be issued pursuant to a pooling
and servicing agreement or other agreement specified in the related Prospectus
Supplement (in either case, a "Pooling Agreement"). In general, the parties to a
Pooling Agreement will include the Company, the Trustee, the Master Servicer
and, in some cases, a Special Servicer. However, a Pooling Agreement that
relates to a Trust Fund that includes Mortgage Securities may include a party
solely responsible for the administration of such Mortgage Securities, and a
Pooling Agreement that relates to a Trust Fund that consists solely of Mortgage
Securities may not include a Master Servicer, Special Servicer or other servicer
as a party. All parties to each Pooling Agreement under which Certificates of a
series are issued will be identified in the related Prospectus Supplement.
Forms of Pooling Agreements have been filed as exhibits to the
Registration Statement of which this Prospectus is a part. However, the
provisions of each Pooling Agreement will vary depending upon the nature of the
Certificates to be issued thereunder and the nature of the related Trust Fund.
The following summaries describe certain provisions that may appear in a Pooling
Agreement. The Prospectus Supplement for a series of Certificates will describe
any provision of the related Pooling Agreement that materially differs from the
description thereof set forth below. The summaries herein do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all of the provisions of the Pooling Agreement for each series of
Certificates and the description of such provisions in the related Prospectus
Supplement. As used herein with respect to any series, the term "Certificate"
refers to all of the Certificates of that series, whether or not offered hereby
and by the related Prospectus Supplement, unless the context otherwise requires.
The Company will provide a copy of the Pooling Agreement (without exhibits) that
relates to any series of Certificates without charge upon written request of a
holder of a Certificate of such series addressed to it at its principal
executive offices specified herein under "The Company".
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CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE COMPANY
The Pooling Agreement for each series of Certificates will provide that
the Master Servicer may not resign from its obligations and duties thereunder
except upon a determination that performance of such duties is no longer
permissible under applicable law or except (a) in connection with a permitted
transfer of servicing or (b) upon appointment of a successor servicer reasonably
acceptable to the Trustee and upon receipt by the Trustee of a letter from each
Rating Agency generally to the effect that such resignation and appointment will
not, in and of itself, result in a downgrading of the Certificates. No such
resignation will become effective until the Trustee or a successor servicer has
assumed the Master Servicer's obligations and duties under the Pooling
Agreement.
Each Pooling Agreement will also provide that, except as set forth
below, neither the Master Servicer, the Company, nor any director, officer,
employee or agent of the Master Servicer or the Company 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 Agreement, or for errors in judgment; provided, however, that neither
the Master Servicer, the Company, nor any such person will be protected against
any liability which would otherwise be imposed by reason of willful misfeasance,
bad faith or gross negligence in the performance of duties or by reason of
reckless disregard of obligations and duties thereunder. Each Pooling Agreement
will further provide that the Master Servicer, the Company, and any director,
officer, employee or agent of the Master Servicer or the Company is entitled to
indemnification by the Trust Fund and will be held harmless against any loss,
liability or expense incurred in connection with any legal action relating to
the Pooling Agreement or the related series of Certificates, other than any
loss, liability or expense related to any specific Mortgage Loan or Mortgage
Loans (except any such loss, liability or expense otherwise reimbursable
pursuant to the Pooling Agreement) and any loss, liability or expense incurred
by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. In addition, each Pooling Agreement will
provide that neither the Master Servicer nor the Company will be under any
obligation to appear in, prosecute or defend any legal or administrative action
that is not incidental to its respective duties under the Pooling Agreement and
which in its opinion may involve it in any expense or liability. The Master
Servicer or the Company may, however, in its discretion undertake any such
action which it may deem necessary or desirable with respect to the Pooling
Agreement and the rights and duties of the parties thereto and the interests of
the Certificateholders thereunder. In such event, the legal expenses and costs
of such action and any liability resulting therefrom will be expenses, costs and
liabilities of the Trust Fund, and the Master Servicer or the Company, as the
case may be, will be entitled to be reimbursed therefor out of funds otherwise
distributable to Certificateholders.
Any person into which the Master Servicer may be merged or
consolidated, any person resulting from any merger or consolidation to which the
Master Servicer is a party or any person succeeding to the business of the
Master Servicer will be the successor of the Master Servicer under the Pooling
Agreement, provided that (i) such person is qualified to service mortgage loans
on behalf of FNMA or FHLMC and (ii) such merger, consolidation or succession
does not adversely affect the then-current ratings of the classes of
Certificates of the related series that have been rated. In addition,
notwithstanding the prohibition on its resignation, the Master Servicer may
assign its rights under a Pooling Agreement to any person to whom the Master
Servicer is transferring a substantial portion of its mortgage servicing
portfolio, provided clauses (i) and (ii) above are satisfied and such person is
reasonably satisfactory to the Company and the Trustee. In the case of any such
assignment, the Master Servicer will be released from its obligations under such
Pooling Agreement, exclusive of liabilities and obligations incurred by it prior
to the time of such assignment.
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EVENTS OF DEFAULT
Events of Default under the Pooling Agreement in respect of a series of
Certificates, unless otherwise specified in the Prospectus Supplement, will
include, without limitation, (i) any failure by the Master Servicer to make a
required deposit to the Certificate Account or, if the Master Servicer is so
required, to distribute to the holders of any class of Certificates of such
series any required payment which continues unremedied for 5 days after the
giving of written notice of such failure to the Master Servicer by the Trustee
or the Company, or to the Master Servicer, the Company and the Trustee by the
holders of Certificates evidencing not less than 25% of the aggregate undivided
interests (or, if applicable, voting rights) in the related Trust Fund; (ii) any
failure by the Master Servicer duly to observe or perform in any material
respect any other of its covenants or agreements in the Pooling Agreement with
respect to such series of Certificates which continues unremedied for 30 days
(15 days in the case of a failure to pay the premium for any insurance policy
which is required to be maintained under the Pooling Agreement) after the giving
of written notice of such failure to the Master Servicer by the Trustee or the
Company, or to the Master Servicer, the Company and the Trustee by the holders
of Certificates evidencing not less than 25% of the aggregate undivided
interests (or, if applicable, voting rights) in the related Trust Fund; and
(iii) certain events of insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings regarding the Master Servicer and certain
actions by the Master Servicer indicating its insolvency or inability to pay its
obligations. A default pursuant to the terms of any Mortgage Securities included
in any Trust Fund will not constitute an Event of Default under the related
Pooling Agreement.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default remains unremedied, either the Company
or the Trustee may, and at the direction of the holders of Certificates
evidencing not less than 51% of the aggregate undivided interests (or, if
applicable, voting rights) in the related Trust Fund the Trustee shall, by
written notification to the Master Servicer and to the Company or the Trustee,
as applicable, terminate all of the rights and obligations of the Master
Servicer under the Pooling Agreement (other than any rights of the Master
Servicer as Certificateholder) covering such Trust Fund and in and to the
Mortgage Loans and the proceeds thereof, whereupon the Trustee or, upon notice
to the Company and with the Company's consent, its designee will succeed to all
responsibilities, duties and liabilities of the Master Servicer under such
Pooling Agreement (other than the obligation to purchase Mortgage Loans under
certain circumstances) and will be entitled to similar compensation
arrangements. In the event that the Trustee would be obligated to succeed the
Master Servicer but is unwilling so to act, it may appoint (or if it is unable
so to act, it shall appoint) or petition a court of competent jurisdiction for
the appointment of, a FNMA- or FHLMC-approved mortgage servicing institution
with a net worth of at least $10,000,000 to act as successor to the Master
Servicer under the Pooling Agreement (unless otherwise set forth in the Pooling
Agreement). Pending such appointment, the Trustee is obligated to act in such
capacity. The Trustee and such successor may agree upon the servicing
compensation to be paid, which in no event may be greater than the compensation
to the initial Master Servicer under the Pooling Agreement.
No Certificateholder will have any right under a Pooling Agreement to
institute any proceeding with respect to such Pooling Agreement unless such
holder previously has given to the Trustee written notice of default and the
continuance thereof and unless the holders of Certificates evidencing not less
than 25% of the aggregate undivided interests (or, if applicable, voting rights)
in the related Trust Fund have made written request upon the Trustee to
institute such proceeding in its own name as Trustee thereunder and have offered
to the Trustee reasonable indemnity and the Trustee for 60 days after receipt of
such request and indemnity has neglected or refused to institute any such
proceeding. However, the Trustee will be under no obligation to exercise any of
the trusts or powers vested in it by the Pooling Agreement or to institute,
conduct or defend any litigation thereunder or in relation thereto at the
request, order or direction of any of the holders of Certificates covered by
such Pooling Agreement, unless such
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Certificateholders have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which may be incurred therein or
thereby.
The holders of Certificates representing at least 66% of the aggregate
undivided interests (or, if applicable, voting rights) evidenced by those
Certificates affected by a default or Event of Default may waive such default or
Event of Default (other than a failure by the Master Servicer to make an
advance); provided, however, that (a) a default or Event of Default under clause
(i) under "--Events of Default" above may be waived only by all of the holders
of Certificates affected by such default or Event of Default and (b) no waiver
shall reduce in any manner the amount of, or delay the timing of, payments
received on Mortgage Loans which are required to be distributed to, or otherwise
materially adversely affect, any non-consenting Certificateholder.
AMENDMENT
Each Pooling Agreement may be amended by the parties thereto, without
the consent of any of the holders of Certificates covered by such Pooling
Agreement, (i) to cure any ambiguity, (ii) to correct or supplement any
provision therein which may be inconsistent with any other provision therein or
to correct any error, (iii) to change the timing and/or nature of deposits in
the Certificate Account, provided that (A) such change would not adversely
affect in any material respect the interests of any Certificateholder, as
evidenced by an opinion of counsel, and (B) such change would not adversely
affect the then-current rating of any rated classes of Certificates, as
evidenced by a letter from each applicable Rating Agency, (iv) if a REMIC
election has been made with respect to the related Trust Fund, to modify,
eliminate or add to any of its provisions (A) to such extent as shall be
necessary to maintain the qualification of the Trust Fund as a REMIC or to avoid
or minimize the risk of imposition of any tax on the related Trust Fund,
provided that the Trustee has received an opinion of counsel to the effect that
(1) such action is necessary or desirable to maintain such qualification or to
avoid or minimize such risk, and (2) such action will not adversely affect in
any material respect the interests of any holder of Certificates covered by the
Pooling Agreement, or (B) to restrict the transfer of the REMIC Residual
Certificates, provided that the Company has determined that the then-current
ratings of the classes of the Certificates that have been rated will not be
adversely affected, as evidenced by a letter from each applicable Rating Agency,
and that any such amendment will not give rise to any tax with respect to the
transfer of the REMIC Residual Certificates to a non-Permitted Transferee, (v)
to make any other provisions with respect to matters or questions arising under
such Pooling Agreement which are not materially inconsistent with the provisions
thereof, provided that such action will not adversely affect in any material
respect the interests of any Certificateholder, or (vi) to amend specified
provisions that are not material to holders of any class of Certificates offered
hereunder.
The Pooling Agreement may also be amended by the parties thereto with
the consent of the holders of Certificates of each class affected thereby
evidencing, in each case, not less than 662/3% of the aggregate Percentage
Interests constituting such class for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of such Pooling
Agreement or of modifying in any manner the rights of the holders of
Certificates covered by such Pooling Agreement, except that no such amendment
may (i) reduce in any manner the amount of, or delay the timing of, payments
received on Mortgage Loans which are required to be distributed on a Certificate
of any class without the consent of the holder of such Certificate or (ii)
reduce the aforesaid percentage of Certificates of any class the holders of
which are required to consent to any such amendment without the consent of the
holders of all Certificates of such class covered by such Pooling Agreement then
outstanding.
Notwithstanding the foregoing, if a REMIC election has been made with
respect to the related Trust Fund, the Trustee will not be entitled to consent
to any amendment to a Pooling Agreement without having first received an opinion
of counsel to the effect that such amendment or the exercise of any power
granted to the Master Servicer, the Company, the Trustee or any other specified
person in accordance
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with such amendment will not result in the imposition of a tax on the related
Trust Fund or cause such Trust Fund to fail to qualify as a REMIC.
TERMINATION; RETIREMENT OF CERTIFICATES
The obligations created by the Pooling Agreement for each series of
Certificates (other than certain limited payment and notice obligations of the
Trustee and the Company, respectively) will terminate upon the payment to
Certificateholders of that series of all amounts held in the Certificate Account
or by the Master Servicer and required to be paid to them pursuant to such
Pooling Agreement following the earlier of (i) the final payment or other
liquidation or disposition (or any advance with respect thereto) of the last
Mortgage Loan, REO Property and/or Mortgage Security subject thereto and (ii)
the purchase by the Master Servicer or the Company or a Person (other than a
holder of any Certificates, other than the REMIC Residual Certificates (see
"Federal Income Tax Consequences" below)) specified in the related Prospectus
Supplement, from the Trust Fund for such series of all remaining Mortgage Loans,
REO Properties and/or Mortgage Securities. In addition to the foregoing, the
Master Servicer or the Company will have the option to purchase, in whole but
not in part, the Certificates specified in the related Prospectus Supplement in
the manner set forth in the related Prospectus Supplement. Upon the purchase of
such Certificates or at any time thereafter, at the option of the Master
Servicer or the Company, the assets of the Trust Fund may be sold, thereby
effecting a retirement of the Certificates and the termination of the Trust
Fund, or the Certificates so purchased may be held or resold by the Master
Servicer or the Company. In no event, however, will the trust created by the
Pooling Agreement continue beyond the expiration of 21 years from the death of
the survivor of certain persons named in such Pooling Agreement. Written notice
of termination of the Pooling Agreement will be given to each Certificateholder,
and the final distribution will be made only upon surrender and cancellation of
the Certificates at an office or agency appointed by the Trustee which will be
specified in the notice of termination. If the Certificateholders are permitted
to terminate the trust under the applicable Pooling Agreement, a penalty may be
imposed upon the Certificateholders based upon the fee that would be foregone by
the Master Servicer because of such termination.
Any such purchase of Mortgage Loans and property acquired in respect of
Mortgage Loans evidenced by a series of Certificates shall be made at the option
of the Master Servicer, the Company or, if applicable, the holder of the REMIC
Residual Certificates at the price specified in the related Prospectus
Supplement. The exercise of such right will effect early retirement of the
Certificates of that series, but the right of the Master Servicer, the Company
or, if applicable, such holder to so purchase is subject to the aggregate
principal balance of the Mortgage Loans and/or Mortgage Securities in the Trust
Fund for that series as of the Distribution Date on which the purchase proceeds
are to be distributed to Certificateholders being less than the percentage
specified in the related Prospectus Supplement of the aggregate principal
balance of such Mortgage Loans and/or Mortgage Securities at the Cut-off Date
for that series. The Prospectus Supplement for each series of Certificates will
set forth the amounts that the holders of such Certificates will be entitled to
receive upon such early retirement. Such early termination may adversely affect
the yield to holders of certain classes of such Certificates. If a REMIC
election has been made, the termination of the related Trust Fund will be
effected in a manner consistent with applicable federal income tax regulations
and its status as a REMIC.
THE TRUSTEE
The Trustee under each Pooling Agreement will be named in the related
Prospectus Supplement. The commercial bank, national banking association,
banking corporation or trust company that serves as Trustee may have typical
banking relationships with the Company and its affiliates.
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DUTIES OF THE TRUSTEE
The Trustee for each series of Certificates will make no representation
as to the validity or sufficiency of the related Pooling Agreement, the
Certificates or any underlying Mortgage Loan, Mortgage Security or related
document and will not be accountable for the use or application by or on behalf
of any Master Servicer or Special Servicer of any funds paid to the Master
Servicer or Special Servicer in respect of the Certificates or the underlying
Mortgage Loans or Mortgage Securities, or any funds deposited into or withdrawn
from the Certificate Account for such series or any other account by or on
behalf of the Master Servicer or Special Servicer. If no Event of Default has
occurred and is continuing, the Trustee for each series of Certificates will be
required to perform only those duties specifically required under the related
Pooling Agreement. However, upon receipt of any of the various certificates,
reports or other instruments required to be furnished to it pursuant to the
related Pooling Agreement, a Trustee will be required to examine such documents
and to determine whether they conform to the requirements of such agreement.
CERTAIN MATTERS REGARDING THE TRUSTEE
As and to the extent described in the related Prospectus Supplement,
the fees and normal disbursements of any Trustee may be the expense of the
related Master Servicer or other specified person or may be required to be borne
by the related Trust Fund.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee for each series of Certificates will be entitled to indemnification,
from amounts held in the Certificate Account for such series, for any loss,
liability or expense incurred by the Trustee in connection with the Trustee's
acceptance or administration of its trusts under the related Pooling Agreement;
provided, however, that such indemnification will not extend to any loss
liability or expense incurred by reason of willful misfeasance, bad faith or
gross negligence on the part of the Trustee in the performance of its
obligations and duties thereunder, or by reason of its reckless disregard of
such obligations or duties.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee for each series of Certificates will be entitled to execute any of its
trusts or powers under the related Pooling Agreement or perform any of this
duties thereunder either directly or by or through agents or attorneys, and the
Trustee will not be responsible for any willful misconduct or gross negligence
on the part of any such agent or attorney appointed by it with due care.
RESIGNATION AND REMOVAL OF THE TRUSTEE
The Trustee may resign at any time, in which event the Company will be
obligated to appoint a successor Trustee. The Company may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Pooling Agreement or if the Trustee becomes insolvent. Upon becoming aware of
such circumstances, the Company will be obligated to appoint a successor
Trustee. The Trustee may also be removed at any time by the holders of
Certificates evidencing not less than 51% of the aggregate undivided interests
(or, if applicable, voting rights) in the related Trust Fund. Any resignation or
removal of the Trustee and appointment of a successor Trustee will not become
effective until acceptance of the appointment by the successor Trustee.
YIELD CONSIDERATIONS
The yield to maturity of an Offered Certificate will depend on the
price paid by the holder for such Certificate, the Pass-Through Rate on any such
Certificate entitled to payments of interest (which
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Pass-Through Rate may vary if so specified in the related Prospectus Supplement)
and the rate and timing of principal payments (including prepayments, defaults,
liquidations and repurchases) on the Mortgage Loans and the allocation thereof
to reduce the principal balance of such Certificate (or notional amount thereof
if applicable) and other factors.
A class of Certificates may be entitled to payments of interest at a
fixed Pass-Through Rate, a variable Pass-Through Rate or adjustable Pass-Through
Rate, or any combination of such Pass-Through Rates, each as specified in the
related Prospectus Supplement. A variable Pass-Through Rate may be calculated
based on the weighted average of the Mortgage Rates (in each case, net of the
per annum rate or rates applicable to the calculation of servicing and
administrative fees and any Spread (each, a "Net Mortgage Rate")) of the related
Mortgage Loans for the month preceding the Distribution Date if so specified in
the related Prospectus Supplement. As will be described in the related
Prospectus Supplement, the aggregate payments of interest on a class of
Certificates, and the yield to maturity thereon, will be affected by the rate of
payment of principal on the Certificates (or the rate of reduction in the
notional balance of Certificates entitled only to payments of interest) and, in
the case of Certificates evidencing interests in ARM Loans, by changes in the
Net Mortgage Rates on the ARM Loans. See "Maturity and Prepayment
Considerations" below. The yield on the Certificates will also be affected by
liquidations of Mortgage Loans following Mortgagor defaults and by purchases of
Mortgage Loans in the event of breaches of representations made in respect of
such Mortgage Loans by the Company, the Master Servicer and others, or
conversions of ARM Loans to a fixed interest rate. See "The Mortgage
Pools--Representations by Sellers" and "Descriptions of the
Certificates--Assignment of Trust Fund Assets" above. Holders of certain Strip
Certificates or a class of Certificates having a Pass-Through Rate that varies
based on the weighted average Mortgage Rate of the underlying Mortgage Loans
will be affected by disproportionate prepayments and repurchases of Mortgage
Loans having higher Net Mortgage Rates or rates applicable to the Strip
Certificates, as applicable.
With respect to any series of Certificates, a period of time will
elapse between the date upon which payments on the related Mortgage Loans are
due and the Distribution Date on which such payments are passed through to
Certificateholders. That delay will effectively reduce the yield that would
otherwise be produced if payments on such Mortgage Loans were distributed to
Certificateholders on or near the date they were due.
In general, if a class of Certificates is purchased at initial issuance
at a premium and payments of principal on the related Mortgage Loans occur at a
rate faster than anticipated at the time of purchase, the purchaser's actual
yield to maturity will be lower than that assumed at the time of purchase.
Conversely, if a class of Certificates is purchased at initial issuance at a
discount and payments of principal on the related Mortgage Loans occur at a rate
slower than that assumed at the time of purchase, the purchaser's actual yield
to maturity will be lower than that originally anticipated. The effect of
principal prepayments, liquidations and purchases on yield will be particularly
significant in the case of a series of Certificates having a class entitled to
payments of interest only or to payments of interest that are disproportionately
high relative to the principal payments to which such class is entitled. Such a
class will likely be sold at a substantial premium to its principal balance and
any faster than anticipated rate of prepayments will adversely affect the yield
to holders thereof. In certain circumstances extremely rapid prepayments may
result in the failure of such holders to recoup their original investment. In
addition, the yield to maturity on certain other types of classes of
Certificates, including Accrual Certificates, Certificates with a Pass-Through
Rate which fluctuates inversely with or at a multiple of an index or certain
other classes in a series including more than one class of Certificates, may be
relatively more sensitive to the rate of prepayment on the related Mortgage
Loans than other classes of Certificates.
The timing of changes in the rate of principal payments on or
repurchases of the Mortgage Loans may significantly affect an investor's actual
yield to maturity, even if the average rate of principal payments experienced
over time is consistent with an investor's expectation. In general, the earlier
a
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prepayment of principal on the underlying Mortgage Loans or a repurchase
thereof, the greater will be the effect on an investor's yield to maturity. As a
result, the effect on an investor's yield of principal payments and repurchases
occurring at a rate higher (or lower) than the rate anticipated by the investor
during the period immediately following the issuance of a series of Certificates
would not be fully offset by a subsequent like reduction (or increase) in the
rate of principal payments.
When a principal prepayment in full is made on a Mortgage Loan, the
borrower is generally charged interest only for the period from the due date of
the preceding scheduled payment up to the date of such prepayment, instead of
for the full accrual period, that is, the period from the due date of the
preceding scheduled payment up to the due date for the next scheduled payment.
In addition, a partial principal prepayment may likewise be applied as of a date
prior to the next scheduled due date (and, accordingly, be accompanied by
interest thereon for less than the full accrual period). However, interest
accrued on any series of Certificates and distributable thereon on any
Distribution Date will generally correspond to interest accrued on the principal
balance of Mortgage Loans for their respective full accrual periods.
Consequently, if a prepayment on any Mortgage Loan is distributable to
Certificateholders on a particular Distribution Date, but such prepayment is not
accompanied by interest thereon for the full accrual period, the interest
charged to the borrower (net of servicing and administrative fees and any
Spread) may be less (such shortfall, a "Prepayment Interest Shortfall") than the
corresponding amount of interest accrued and otherwise payable on the
Certificates of the related series. If and to the extent that any such shortfall
is allocated to a class of Offered Certificates, the yield thereon will be
adversely affected. The Prospectus Supplement for a series of Certificates will
describe the manner in which any such shortfalls will be allocated among the
classes of such Certificates. If so specified in the related Prospectus
Supplement, the Master Servicer will be required to apply some or all of its
servicing compensation for the corresponding period to offset the amount of any
such shortfalls. The related Prospectus Supplement will also describe any other
amounts available to offset such shortfalls. See Servicing of Mortgage
Loans--Servicing and Other Compensation and Payment of Expenses; Spread".
The Trust Fund with respect to any series may include Convertible
Mortgage Loans. As is the case with conventional, fixed-rate mortgage loans
originated in a high interest rate environment which may be subject to a greater
rate of principal prepayments when interest rates decrease, Convertible Mortgage
Loans may be subject to a greater rate of principal prepayments (or purchases by
the related Subservicer or the Master Servicer) due to their refinancing or
conversion to fixed interest rate loans in a low interest rate environment. For
example, if prevailing interest rates fall significantly, Convertible Mortgage
Loans could be subject to higher prepayment and conversion rates than if
prevailing interest rates remain constant because the availability of fixed-rate
or other adjustable-rate mortgage loans at competitive interest rates may
encourage Mortgagors to refinance their adjustable-rate mortgages to "lock in" a
lower fixed interest rate or to take advantage of the availability of such other
adjustable-rate mortgage loans, or, in the case of convertible adjustable-rate
mortgage loans, to exercise their option to convert the adjustable interest
rates to fixed interest rates. The conversion feature may also be exercised in a
rising interest rate environment as Mortgagors attempt to limit their risk of
higher rates. Such a rising interest rate environment may also result in an
increase in the rate of defaults on the Mortgage Loans. If the related
Subservicer or the Master Servicer purchases Convertible Mortgage Loans, a
Mortgagor's exercise of the conversion option will result in a distribution of
the principal portion thereof to the Certificateholders, as described herein.
Alternatively, to the extent Subservicers or the Master Servicer fail to
purchase Converting Mortgage Loans, the Mortgage Pool will include fixed-rate
Mortgage Loans.
The rate of defaults on the Mortgage Loans will also affect the rate
and timing of principal payments on the Mortgage Loans and thus the yield on the
Certificates. In general, defaults on Single Family Loans are expected to occur
with greater frequency in their early years. However, there is a risk that
Mortgage Loans that require Balloon Payments may default at maturity, or that
the maturity of such a Mortgage Loan may be extended in connection with a
workout. The rate of default on Single Family Loans which are refinance or
limited documentation mortgage loans, and on Mortgage Loans with high
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Loan-to-Value Ratios, may be higher than for other types of Mortgage Loans.
Furthermore, the rate and timing of prepayments, defaults and liquidations on
the Mortgage Loans will be affected by the general economic condition of the
region of the country in which the related Mortgaged Properties are located. The
risk of delinquencies and loss is greater and prepayments are less likely in
regions where a weak or deteriorating economy exists, as may be evidenced by,
among other factors, increasing unemployment or falling property values. See
"Risk Factors."
With respect to certain Mortgage Loans including ARM Loans, the
Mortgage Rate at origination may be below the rate that would result if the
index and margin relating thereto were applied at origination. Under the
applicable underwriting standards, the Mortgagor under each Mortgage Loan
generally will be qualified, or the Mortgage Loan otherwise approved, on the
basis of the Mortgage Rate in effect at origination. The repayment of any such
Mortgage Loan may thus be dependent on the ability of the mortgagor to make
larger level monthly payments following the adjustment of the Mortgage Rate. In
addition, the periodic increase in the amount paid by the Mortgagor of a Buydown
Mortgage Loan during or at the end of the applicable Buydown Period may create a
greater financial burden for the Mortgagor, who might not have otherwise
qualified for a mortgage under applicable underwriting guidelines, and may
accordingly increase the risk of default with respect to the related Mortgage
Loan.
The Mortgage Rates on certain ARM Loans subject to negative
amortization generally adjust monthly and their amortization schedules adjust
less frequently. During a period of rising interest rates as well as immediately
after origination (initial Mortgage Rates are generally lower than the sum of
the Indices applicable at origination and the related Note Margins), the amount
of interest accruing on the principal balance of such Mortgage Loans may exceed
the amount of the minimum scheduled monthly payment thereon. As a result, a
portion of the accrued interest on negatively amortizing Mortgage Loans may
become Deferred Interest which will be added to the principal balance thereof
and will bear interest at the applicable Mortgage Rate. The addition of any such
Deferred Interest to the principal balance of any related class or classes of
Certificates will lengthen the weighted average life thereof and may adversely
affect yield to holders thereof, depending upon the price at which such
Certificates were purchased. In addition, with respect to certain ARM Loans
subject to negative amortization, during a period of declining interest rates,
it might be expected that each minimum scheduled monthly payment on such a
Mortgage Loan would exceed the amount of scheduled principal and accrued
interest on the principal balance thereof, and since such excess will be applied
to reduce the principal balance of the related class or classes of Certificates,
the weighted average life of such Certificates will be reduced and may adversely
affect yield to holders thereof, depending upon the price at which such
Certificates were purchased.
MATURITY AND PREPAYMENT CONSIDERATIONS
As indicated above under "The Mortgage Pools," the original terms to
maturity of the Mortgage Loans in a given Mortgage Pool will vary depending upon
the type of Mortgage Loans included in such Mortgage Pool. The Prospectus
Supplement for a series of Certificates will contain information with respect to
the types and maturities of the Mortgage Loans in the related Mortgage Pool.
Unless otherwise specified in the related Prospectus Supplement, all of the
Mortgage Loans may be prepaid without penalty in full or in part at any time.
The prepayment experience with respect to the Mortgage Loans in a Mortgage Pool
will affect the life and yield of the related series of Certificates.
With respect to Balloon Loans, payment of the Balloon Payment (which,
based on the amortization schedule of such Mortgage Loans, is expected to be a
substantial amount) will generally depend on the Mortgagor's ability to obtain
refinancing of such Mortgage Loans or to sell the Mortgaged Property prior to
the maturity of the Balloon Loan. The ability to obtain refinancing will depend
on a number of factors prevailing at the time refinancing or sale is required,
including, without limitation, real estate values, the Mortgagor's financial
situation, prevailing mortgage loan interest rates, the Mortgagor's
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equity in the related Mortgaged Property, tax laws and prevailing general
economic conditions. Unless otherwise specified in the related Prospectus
Supplement, none of the Company, the Master Servicer, or any of their affiliates
will be obligated to refinance or repurchase any Mortgage Loan or to sell the
Mortgaged Property.
The extent of prepayments of principal of the Mortgage Loans may be
affected by a number of factors, including, without limitation, solicitations
and the availability of mortgage credit, the relative economic vitality of the
area in which the Mortgaged Properties are located. In addition, the rate of
principal payments on the Mortgage Loans may be affected by the existence of
Lock-out Periods and requirements that principal prepayments be accompanied by
Prepayment Premiums, as well as due-on-sale and due-on-encumbrance provisions,
and by the extent to which such provisions may be practicably enforced. See
"Servicing of Mortgage Loans--Collection and Other Servicing Procedures" and
"Certain Legal Aspects of the Mortgage Loans--Enforceability of Certain
Provisions" for a description of certain provisions of the Pooling Agreement and
certain legal developments that may affect the prepayment experience on the
Mortgage Loans.
The rate of prepayment on a pool of mortgage loans is also affected by
prevailing market interest rates for mortgage loans of a comparable type, term
and risk level. When the prevailing market interest rate is below a mortgage
coupon, a borrower may have an increased incentive to refinance its mortgage
loan. In addition, as prevailing market interest rates decline, even borrowers
with ARM Loans that have experienced a corresponding interest rate decline may
have an increased incentive to refinance for purposes of either (i) converting
to a fixed rate loan and thereby "locking in" such rate or (ii) taking advantage
of the initial "teaser rate" (a mortgage interest rate below what it would
otherwise be if the applicable index and gross margin were applied) on another
adjustable rate mortgage loan. Moreover, although the Mortgage Rates on ARM
Loans will be subject to periodic adjustments, such adjustments generally will,
unless otherwise specified in the related Prospectus Supplement, (i) not
increase or decrease such Mortgage Rates by more than a fixed percentage amount
on each adjustment date, (ii) not increase such Mortgage Rates over a fixed
percentage amount during the life of any ARM Loan and (iii) be based on an index
(which may not rise and fall consistently with mortgage interest rates) plus the
related Note Margin (which may be different from margins being used at the time
for newly originated adjustable rate mortgage loans). As a result, the Mortgage
Rates on the ARM Loans at any time may not equal the prevailing rates for
similar, newly originated adjustable rate mortgage loans. In certain rate
environments, the prevailing rates on fixed-rate mortgage loans may be
sufficiently low in relation to the then-current Mortgage Rates on ARM Loans
that the rate of prepayment may increase as a result of refinancings. There can
be no certainty as to the rate of prepayments on the Mortgage Loans during any
period or over the life of any series of Certificates.
If the applicable Pooling Agreement for a series of Certificates
provides for a Pre-Funding Account or other means of funding the transfer of
additional Mortgage Loans to the related Trust Fund, as described under
"Description of the Certificates--Pre-Funding Account" herein, and the Trust
Fund is unable to acquire such additional Mortgage Loans within any applicable
time limit, the amounts set aside for such purpose may be applied as principal
payments on one or more classes of Certificates of such series. See "Risk
Factors--Yield and Prepayment Considerations."
There can be no assurance as to the rate of prepayment of the Mortgage
Loans. The Company is not aware of any publicly available statistics relating to
the principal prepayment experience of diverse portfolios of mortgage loans such
as the Mortgage Loans over an extended period of time. All statistics known to
the Company that have been compiled with respect to prepayment experience on
mortgage loans indicate that while some mortgage loans may remain outstanding
until their stated maturities, a substantial number will be paid prior to their
respective stated maturities. No representation is made as to the particular
factors that will affect the prepayment of the Mortgage Loans or as to the
relative importance of such factors.
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Under certain circumstances, the Master Servicer, the Company or a
person specified in the related Prospectus Supplement (other than the holders of
the Certificates, other than the holders of the REMIC Residual Certificates) may
have the option to purchase the assets in a Trust Fund and effect early
retirement of the related series of Certificates. See "The Pooling
Agreement--Termination; Retirement of Certificates."
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans that are general in nature. Because such legal aspects are
governed in part by applicable state law (which laws may differ substantially),
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 Mortgaged
Properties may be situated. The summaries are qualified in their entirety by
reference to the applicable federal and state laws governing the Mortgage Loans.
SINGLE FAMILY LOANS
GENERAL. Each Single Family Loan will be evidenced by a note or bond
and secured by an instrument granting a security interest in real property,
which may be a mortgage, deed of trust or a deed to secure debt, depending upon
the prevailing practice and law in the state in which the related Mortgaged
Property is located. Mortgages, deed of trust and deeds to secure debt are
herein collectively referred to as "mortgages". A mortgage creates a lien upon,
or grants a title interest in, the real property covered thereby, and represents
the security for the repayment of the indebtedness customarily evidenced by a
promissory note. The priority of the lien created or interest granted will
depend on the terms of the mortgage and, in some cases, on the terms of separate
subordination agreements or intercreditor agreements with others that hold
interests in the real property, the knowledge of the parties to the mortgage
and, generally, the order of recordation of the mortgage in the appropriate
public recording office. However, the lien of a recorded mortgage will generally
be subordinate to later-arising liens for real estate taxes and assessments and
other charges imposed under governmental police powers.
TYPES OF MORTGAGE INSTRUMENTS. There are two parties to a mortgage: a
mortgagor (the borrower and usually the owner of the subject property) and a
mortgagee (the lender). In contrast, a deed of trust is a three-party
instrument, among a trustor (the equivalent of a borrower), a trustee to whom
the real property is conveyed, and a beneficiary (the lender) for whose benefit
the conveyance is made. Under a deed of trust, the trustor grants the property,
irrevocably until the debt is paid, in trust and generally with a power of sale,
to the trustee to secure repayment of the indebtedness evidenced by the related
note. A deed to secure debt typically has two parties. The borrower, or grantor,
conveys title to the real property to the grantee, or lender, generally with a
power of sale, until such time as the debt is repaid. In a case where the
borrower is a land trust, there would be an additional party because legal title
to the property is held by a land trustee under a land trust agreement for the
benefit of the borrower. At origination of a mortgage loan involving a land
trust, the borrower executes a separate undertaking to make payments on the
mortgage note. The mortgagee's authority under a mortgage, the trustee's
authority under a deed of trust and the grantee's authority under a deed to
secure debt are governed by the express provisions of the related instrument,
the law of the state in which the real property is located, certain federal laws
(including, without limitation, the Relief Act) and, in some deed of trust
transactions, the directions of the beneficiary.
LEASES AND RENTS. Mortgages that encumber income-producing multifamily
properties often contain an assignment of rents and leases, pursuant to which
the borrower assigns to the lender the borrower's right, title and interest as
landlord under each lease and the income derived therefrom, while (unless rents
are to be paid directly to the lender) retaining a revocable license to collect
the rents for so
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long as there is no default. If the borrower defaults, the license terminates
and the lender is entitled to collect the rents. Local law may require that the
lender take possession of the property and/or obtain a court-appointed receiver
before becoming entitled to collect the rents.
CONTRACTS
Under the laws of most states, manufactured housing constitutes
personal property and is subject to the motor vehicle registration laws of the
state or other jurisdiction in which the unit is located. In a few states, where
certificates of title are not required for manufactured homes, security
interests are perfected by the filing of a financing statement under Article 9
of the UCC which has been adopted by all states. Such financing statements are
effective for five years and must be renewed at the end of each five years. The
certificate of title laws adopted by the majority of states provide that
ownership of motor vehicles and manufactured housing shall be evidenced by a
certificate of title issued by the motor vehicles department (or a similar
entity) of such state. In the states that have enacted certificate of title
laws, a security interest in a unit of manufactured housing, so long as it is
not attached to land in so permanent a fashion as to become a fixture, is
generally perfected by the recording of such interest on the certificate of
title to the unit in the appropriate motor vehicle registration office or by
delivery of the required documents and payment of a fee to such office,
depending on state law.
The Master Servicer will be required under the related Pooling
Agreement to effect such notation or delivery of the required documents and
fees, and to obtain possession of the certificate of title, as appropriate under
the laws of the state in which any Manufactured Home is registered. In the event
the Master Servicer fails, due to clerical errors or otherwise, 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 by
the borrowers to move them, courts in many states have held that manufactured
homes may, under certain circumstances, 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 home under applicable state real estate law. In order to perfect a security
interest in a manufactured home under real estate laws, 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 home is located. These filings must be made in the real estate records
office of the county where the home is located. Generally, Contracts will
contain provisions prohibiting the obligor from permanently attaching the
Manufactured Home to its site. So long as the obligor 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 its site,
other parties could obtain an interest in the Manufactured Home that is prior to
the security interest originally retained by the Seller and transferred to the
Company.
The Company will assign or cause to be assigned a security interest in
the Manufactured Homes to the Trustee, on behalf of the Certificateholders.
Unless otherwise specified in the related Prospectus Supplement, neither the
Company, the Master Servicer nor the Trustee will amend the certificates of
title to identify the Trustee, on behalf of the Certificateholders, as the new
secured party and, accordingly, the Company or the Seller 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 Company'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 Company
or Seller.
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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 Company on
the certificate of title or delivery of the required documents and fees will be
sufficient to protect the Trustee 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 Company
has failed to perfect or cause to be perfected the security interest assigned to
the Trust Fund, 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 Trustee, on
behalf of the Certificateholders, as the new secured party on the certificate of
title that, through fraud or negligence, the security interest of the Trustee
could be released.
In the event that 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 until the owner re-registers the Manufactured Home in such state. If
the owner were to relocate a Manufactured Home to another state and re-register
the Manufactured Home in such state, and if the Company did not take steps to
re-perfect its 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 Company must surrender possession if it holds the certificate
of title to such Manufactured Home or, in the case of Manufactured Homes
registered in states that provide for notation of lien, the Company would
receive notice of surrender if the security interest in the Manufactured Home is
noted on the certificate of title. Accordingly, the Company would have the
opportunity to re-perfect its security interest in the Manufactured Home in the
state of relocation. In states that do not require a certificate of title for
registration of a manufactured home, re-registration could defeat perfection.
Similarly, when an obligor under a manufactured housing conditional sales
contract sells a manufactured home, the obligee must surrender possession of the
certificate of title or it will receive notice as a result of its lien noted
thereon and accordingly will have an opportunity to require satisfaction of the
related manufactured housing conditional sales contract before release of the
lien. Under each related Pooling Agreement, the Master Servicer will be
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
Company will obtain the representation of the related Seller that it has no
knowledge of any such liens with respect to any Manufactured Home securing a
Contract. However, such liens could arise at any time during the term of a
Contract. No notice will be given to the Trustee or Certificateholders in the
event such a lien arises.
FORECLOSURE ON MORTGAGES
Foreclosure of a deed of trust is generally accomplished by a
non-judicial trustee's sale under a specific provision in the deed of trust
which authorizes the trustee to sell the property upon any default by the
borrower under the terms of the note or deed of trust. In addition to any notice
requirements contained in a deed of trust, 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 notice of default and notice of
sale. In addition, the trustee must provide notice in some states to any other
individual having an interest of record in the real property, including any
junior lienholders. If the deed of trust is not reinstated within a specified
period, a notice of sale must be posted in a public place and, in most states,
published for a specific period of time in one or more newspapers. In addition,
some state laws require that a copy of the notice of sale be posted on the
property and sent to all parties having an interest of record in the real
property.
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Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in completion
of the foreclosure may occasionally result from difficulties in locating
necessary parties. Judicial foreclosure proceedings are often not contested by
any of the applicable parties. If the mortgagee's right to foreclose is
contested, the legal proceedings necessary to resolve the issue can be
time-consuming.
In some states, the borrower-trustor has the right to reinstate the
loan at any time following default until shortly before the trustee's sale. In
general, in such states, the borrower, or any other person having a junior
encumbrance on the real estate, may, during a reinstatement period, cure the
default by paying the entire amount in arrears plus the costs and expenses
incurred in enforcing the obligation.
In the 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 a
public sale. However, because of the difficulty a potential buyer at the sale
would have in determining the exact status of title and because the physical
condition of the property may have deteriorated during the foreclosure
proceedings, it is uncommon for a third party to purchase the property at a
foreclosure sale. Rather, it is common for the lender to purchase the property
from the trustee or referee for a credit bid less than or equal to the unpaid
principal amount of the mortgage or deed of trust, accrued and unpaid interest
and the expense of foreclosure. Generally, state law controls the amount of
foreclosure costs and expenses, including attorneys' fees, which may be
recovered by a lender. Thereafter, subject to the right of the borrower in some
states to remain in possession during the redemption period, the lender will
assume the burdens of ownership, including obtaining hazard insurance and making
such repairs at its own expense as are necessary to render the property suitable
for sale. The lender will commonly obtain the services of a real estate broker
and pay the broker's commission in connection with the sale of the property.
Depending upon market conditions, the ultimate proceeds of the sale of the
property may not equal the lender's investment in the property and, in some
states, subject to the terms of the loan, the lender may be entitled to a
deficiency judgment. Any loss may be reduced by the receipt of any mortgage
insurance proceeds.
A junior mortgagee may not foreclose on the property securing a junior
mortgage unless it forecloses subject to the senior mortgages, in which case it
must either pay the entire amount due on the senior mortgages to the senior
mortgagees prior to or at the time of the foreclosure sale or undertake the
obligation to make payments on the senior mortgages in the event the mortgagor
is in default thereunder, in either event adding the amounts expended to the
balance due on the junior loan, and may be subrogated to the rights of the
senior mortgagees. In addition, in the event that the foreclosure of a junior
mortgage triggers the enforcement of a "due-on-sale" clause, the junior
mortgagee may be required to pay the full amount of the senior mortgages to the
senior mortgagees. Accordingly, with respect to those Single Family Loans which
are junior 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. The proceeds received by the referee or trustee from the sale 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 of 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 proceeds.
In foreclosure, courts have imposed general equitable principles. The
equitable principles are generally designed to relieve the borrower from the
legal effect of its defaults under the loan documents. Examples of judicial
remedies that have been fashioned include judicial requirements that the lender
undertake affirmative and expensive actions to determine the causes for the
borrower's default and the
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likelihood that the borrower will be able to reinstate the loan. In some cases,
courts have substituted their judgment for the lender's judgment and have
required that lenders reinstate loans or recast payment schedules in order to
accommodate borrowers who are suffering from temporary financial disability. In
other cases, courts have limited the right of a lender to foreclose if the
default under the mortgage instrument is not monetary, such as the borrower's
failure to adequately maintain the property or the borrower's execution of a
second mortgage or deed of trust affecting the property. Finally, some courts
have been faced with the issue of whether or not federal or state constitutional
provisions reflecting due process concerns for adequate notice require that
borrowers under deeds of trust or mortgages receive notices in addition to the
statutorily-prescribed minimums. For the most part, these cases have upheld the
notice provisions as being reasonable or have found that the sale by a trustee
under a deed of trust, or under a mortgage having a power of sale, does not
involve sufficient state action to afford constitutional protection to the
borrower.
REPOSSESSION WITH RESPECT TO CONTRACTS
GENERAL. Repossession of manufactured housing is governed by state law.
A few states have enacted legislation that requires that the debtor be given an
opportunity to cure its default (typically 30 days to bring the account current)
before repossession can commence. So long as a manufactured home has not become
so attached to real estate that it would be treated as a part of the real estate
under the law of the state where it is located, repossession of such home in the
event of a default by the obligor will generally be governed by the UCC (except
in Louisiana). Article 9 of the UCC provides the statutory framework for the
repossession of manufactured housing. While the UCC as adopted by the various
states may vary in certain small particulars, the general repossession procedure
established by the UCC is as follows:
(i) Except in those states where the debtor must receive
notice of the right to cure a default, repossession can commence
immediately upon default without prior notice. Repossession may be
effected either through self-help (peaceable retaking without court
order), voluntary repossession or through judicial process
(repossession pursuant to court-issued writ of replevin). The self-help
and/or voluntary repossession methods are more commonly employed, and
are accomplished simply by retaking possession of the manufactured
home. In cases in which the debtor objects or raises a defense to
repossession, a court order must be obtained from the appropriate state
court, and the manufactured home must then be repossessed in accordance
with that order. Whether the method employed is self-help, voluntary
repossession or judicial repossession, the repossession can be
accomplished either by an actual physical removal of the manufactured
home to a secure location for refurbishment and resale or by removing
the occupants and their belongings from the manufactured home and
maintaining possession of the manufactured home on the location where
the occupants were residing. Various factors may affect whether the
manufactured home is physically removed or left on location, such as
the nature and term of the lease of the site on which it is located and
the condition of the unit. In many cases, leaving the manufactured home
on location is preferable, in the event that the home is already set
up, because the expenses of retaking and redelivery will be saved.
However, in those cases where the home is left on location, expenses
for site rentals will usually be incurred.
(ii) Once repossession has been achieved, preparation for
the subsequent disposition of the manufactured home can commence. The
disposition may be by public or private sale provided the method,
manner, time, place and terms of the sale are commercially reasonable.
(iii) Sale proceeds are to be applied first to repossession
expenses (expenses incurred in retaking, storage, preparing for sale to
include refurbishing costs and selling) and then to satisfaction of the
indebtedness. While some states impose prohibitions or limitations on
deficiency judgments if the net proceeds from resale do not cover the
full amount of the
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indebtedness, the remainder may be sought from the debtor in the form
of a deficiency judgement in those states that do not prohibit or limit
such judgments. The deficiency judgment is a personal judgment against
the debtor for the shortfall. Occasionally, after resale of a
manufactured home and payment of all expenses and indebtedness, there
is a surplus of funds. In that case, the UCC requires the party suing
for the deficiency judgment to remit the surplus to the debtor. Because
the defaulting owner of a manufactured home generally has very little
capital or income available following repossession, a deficiency
judgment may not be sought in many cases or, if obtained, will be
settled at a significant discount in light of the defaulting owner's
strained financial condition.
LOUISIANA LAW. Any contract secured by a manufactured home located in
Louisiana will be governed by Louisiana law rather than Article 9 of the UCC.
Louisiana laws provide similar mechanisms for perfection and enforcement of
security interests in manufactured housing used as collateral for an installment
sale contract or installment loan agreement.
Under Louisiana law, a manufactured home that has been permanently
affixed to real estate will nevertheless remain subject to the motor vehicle
registration laws unless the obligor and any holder of a security interest in
the property execute and file in the real estate records for the parish in which
the property is located a document converting the unit into real property. A
manufactured home that is converted into real property but is then removed from
its site can be converted back to personal property governed by the motor
vehicle registration laws if the obligor executes and files various documents in
the appropriate real estate records and all mortgagees under real estate
mortgages on the property and the land to which it was affixed file releases
with the motor vehicle commission.
So long as a manufactured home remains subject to the Louisiana motor
vehicle laws, liens are recorded on the certificate of title by the motor
vehicle commissioner and repossession can be accomplished by voluntary consent
of the obligor, executory process (repossession proceedings which must be
initiated through the courts but which involve minimal court supervision) or a
civil suit for possession. In connection with a voluntary surrender, the obligor
must be given a full release from liability for all amounts due under the
contract. In executory process repossessions, a sheriff's sale (without court
supervision) is permitted, unless the obligor brings suit to enjoin the sale,
and the lender is prohibited from seeking a deficiency judgment against the
obligor unless the lender obtained an appraisal of the manufactured home prior
to the sale and the property was sold for at least two-thirds of its appraised
value.
RIGHTS OF REDEMPTION
SINGLE FAMILY PROPERTIES. The purposes of a foreclosure action in
respect of a Single Family Property are to enable the lender to realize upon its
security and to bar the borrower, and all persons who have interests in the
property that are subordinate to that of the foreclosing lender, from exercise
of their "equity of redemption". The doctrine of equity of redemption provides
that, until the property encumbered by a mortgage has been sold in accordance
with a properly conducted foreclosure and foreclosure sale, those having
interests that are subordinate to that of the foreclosing lender have an equity
of redemption and may redeem the property by paying the entire debt with
interest. Those having an equity of redemption must generally be made parties
and joined in the foreclosure proceeding in order for their equity of redemption
to be terminated.
The equity of redemption is a common-law (non-statutory) right which
should be distinguished from post-sale statutory 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. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
permitted if the former borrower pays only
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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 because the
exercise of a right of redemption would defeat the title of any purchase through
a foreclosure. Consequently, the practical effect of the redemption right is to
force the lender to maintain the property and pay the expenses of ownership
until the redemption period has expired. In some states, a post-sale statutory
right of redemption may exist following a judicial foreclosure, but not
following a trustee's sale under a deed of trust.
MANUFACTURED HOMES. While state laws do not usually require notice to
be given to debtors prior to repossession, many states do require delivery of a
notice of default and of the debtor's right to cure defaults before
repossession. The law in most states also requires that the debtor be given
notice of sale prior to the resale of the home so that the owner may redeem at
or before resale. In addition, the sale must comply with the requirements of the
UCC.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
SINGLE FAMILY LOANS. 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 including California, statutes limit the right
of the beneficiary or mortgagee to obtain a deficiency judgment against the
borrower following foreclosure. A deficiency judgment is 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. In the case of a Mortgage Loan secured by a property owned by a
trust where the Mortgage Note is executed on behalf of the trust, a deficiency
judgment against the trust following foreclosure or sale under a deed of trust,
even if obtainable under applicable law, may be of little value to the mortgagee
or beneficiary if there are no trust assets against which such deficiency
judgment may be executed. In the case of a Mortgage Loan secured by a property
owned by a trust where the Mortgage Note is executed on behalf of the trust, a
deficiency judgment against the trust following foreclosure or sale under a deed
of trust, even if obtainable under applicable law, may be of little value to the
mortgagee or beneficiary if there are no trust assets against which such
deficiency judgment may be executed. 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. In certain other states, the lender has the option
of bringing a personal action against the borrower on the debt without first
exhausting such security; however in some of these states, the lender, following
judgment on such personal action, may be deemed to have elected a remedy and may
be precluded from exercising remedies with respect to the security.
Consequently, the practical effect of the election requirement, in those states
permitting such election, is that lenders will usually proceed against the
security first rather than bringing a personal action against the borrower.
Finally, in certain other states, statutory provisions limit any deficiency
judgment against the former borrower following a foreclosure to the excess of
the outstanding debt over the fair value of the property at the time of the
public sale. The purpose of these statutes is generally to prevent a beneficiary
or 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 federal and state statutory provisions, including the federal
bankruptcy laws and state laws affording relief to debtors, may interfere with
or affect the ability of the secured mortgage lender to realize upon collateral
or enforce a deficiency judgment. For example, under the federal Bankruptcy
Code, as amended from time to time (Title 11 of the United States Code) (the
"Bankruptcy Code"), virtually all actions (including foreclosure actions and
deficiency judgment proceedings) to collect a debt are automatically stayed upon
the filing of the bankruptcy petition and, often, no interest or principal
payments are made during the course of the bankruptcy case. The delay and the
consequences thereof caused by such automatic stay can be significant. Also,
under the Bankruptcy Code, the filing of a petition in a bankruptcy by or on
behalf of a junior lienor may stay the senior lender from taking action to
foreclose out of such junior lien.
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Moreover, with respect to federal bankruptcy law, a court with federal
bankruptcy jurisdiction may permit a debtor through his or her Chapter 11 or
Chapter 13 rehabilitative plan to cure a monetary default in respect of a
mortgage loan on a debtor's residence by paying arrearage 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 arrearage over a number of years.
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 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.
In the case of income-producing multifamily properties, federal
bankruptcy law may also have the effect of interfering with or affecting the
ability of the secured lender to enforce the borrower's assignment of rents and
leases related to the mortgaged property. Under Section 362 of the Bankruptcy
Code, the lender will be stayed from enforcing the assignment, and the legal
proceedings necessary to resolve the issue could be time-consuming, with
resulting delays in the lender's receipt of the rents.
Certain tax liens arising under the Internal Revenue Code of 1986, as
amended, may in certain circumstances provide priority over the lien of a
mortgage or deed of trust. In addition, substantive requirements are imposed
upon mortgage lenders in connection with the origination and the servicing of
single family 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 law. In some cases, this
liability may affect assignees of the mortgage loans.
CONTRACTS. In addition to the laws limiting or prohibiting deficiency
judgments, numerous other statutory provisions, including federal bankruptcy
laws and related state laws, may interfere with or affect the ability of a
lender to realize upon collateral and/or enforce a deficiency judgment. For
example, in a Chapter 13 proceeding under the federal bankruptcy law, a court
may prevent a lender from repossessing a home, and, as part of the
rehabilitation plan, reduce the amount of the secured indebtedness to the market
value of the home at the time of bankruptcy (as determined by the court),
leaving the party providing financing as a general unsecured creditor for the
remainder of the indebtedness. A bankruptcy court may also reduce the monthly
payments due under a contract or change the rate of interest and time of
repayment of the indebtedness.
JUNIOR MORTGAGES
Some of the Mortgage Loans may be secured by junior mortgages or deeds
of trust, which are junior to senior mortgages or deeds of trust which are not
part of the Trust Fund. The rights of the Certificateholders as the holders of a
junior deed of trust or a junior mortgage are subordinate in lien priority and
in payment priority 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
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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 or the sale pursuant to the deed of trust, the junior
mortgagee's or junior beneficiary's lien will be extinguished unless the junior
lienholder satisfies the defaulted senior loan or asserts its subordinate
interest in a property in foreclosure proceedings. See "--Foreclosure on
Mortgages" above.
Furthermore, the terms of the junior mortgage or deed of trust are
subordinate to the terms of the 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.
CONSUMER PROTECTION LAWS WITH RESPECT TO CONTRACTS
Numerous federal and state consumer protection laws impose substantial
requirements upon creditors involved in consumer finance. These laws include the
federal Truth-in-Lending Act, Regulation "Z", the Equal Credit Opportunity Act,
Regulation "B", the Fair Credit Reporting Act, and related statutes. These laws
can impose specific statutory liabilities upon creditors who fail to comply with
their provisions. In some cases, this liability may affect an assignee's ability
to enforce a contract.
Manufactured housing contracts often contain provisions obligating the
obligor to pay late charges if payments are not timely made. In certain cases,
federal and state law may specifically limit the amount of late charges that may
be collected. Unless otherwise provided in the related Prospectus Supplement,
under the related Pooling Agreement, late charges will be retained by the Master
Servicer as additional servicing compensation, and any inability to collect
these amounts will not affect payments to Certificateholders.
Courts have imposed general equitable principles upon repossession and
litigation involving deficiency balances. These equitable principles are
generally designed to relieve a consumer from the legal consequences of a
default.
In several cases, consumers have asserted that the remedies provided to
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. For the most part, courts have upheld the notice provisions of the UCC
and related laws as reasonable or have found that the repossession and resale by
the creditor does not involve sufficient state action to afford constitutional
protection to consumers.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade
Commission (the "FTC Rule") has the effect of subjecting a seller (and certain
related creditors and their assignees) in a consumer credit transaction and any
assignee of the creditor to all claims and defenses which the debtor in the
transaction could assert against the seller of the goods. Liability under the
FTC Rule is limited to the amounts paid by a debtor on the contract, and the
holder of the contract may also be unable to collect amounts still due
thereunder. Most of the Contracts in a Trust Fund will be subject to the
requirements of the FTC Rule. Accordingly, the Trust Fund, as holder of the
Contracts, will be subject to any claims or defenses that the purchaser of the
related manufactured home may assert against the seller of the manufactured
home, subject to a maximum liability equal to the amounts paid by the obligor on
the Contract.
ENVIRONMENTAL LEGISLATION
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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 under state law in a number of states, a secured party which
takes a deed in lieu of foreclosure or acquires a mortgaged property at a
foreclosure sale or becomes involved in the operation or management of a
property so as to be deemed an "owner" or "operator" of the property may be
liable for the costs of cleaning up a contaminated site. Although such costs
could be substantial, it is unclear whether they would be imposed on a lender
(such as a Trust Fund) secured by residential real property. In the event that
title to a Mortgaged Property securing a Mortgage Loan in a Trust Fund was
acquired by the Trust Fund and cleanup costs were incurred in respect of the
Mortgaged Property, the holders of the Offered Certificates of the related
series might realize a loss if such costs were required to be paid by the Trust
Fund.
ENFORCEABILITY OF CERTAIN PROVISIONS
TRANSFER OF SINGLE FAMILY PROPERTIES. Unless the related Prospectus
Supplement indicates otherwise, the Single Family Loans generally contain
due-on-sale clauses. These clauses permit the lender to accelerate the maturity
of the loan if the borrower sells, transfers or conveys the property. The
enforceability of these clauses has been the subject of legislation or
litigation in many states, and in some cases the enforceability of these clauses
was limited or denied. However, the Garn-St Germain Depository Institutions Act
of 1982 (the "Garn-St Germain Act") preempts state constitutional, statutory and
case law that prohibits the enforcement of due-on-sale clauses and permits
lenders to enforce these clauses in accordance with their terms, subject to
certain limited exceptions. The Garn-St Germain Act does "encourage" lenders to
permit assumption of loans at the original rate of interest or at some other
rate less than the average of the original rate and the market rate.
The Garn-St Germain Act also sets forth nine specific instances in
which a mortgage lender covered by the Garn-St Germain Act may not exercise a
due-on-sale clause, notwithstanding the fact that a transfer of the property may
have occurred. These include intra-family transfers, certain transfers by
operation of law, leases of fewer than three years and the creation of a junior
encumbrance. Regulations promulgated under the Garn-St Germain Act also prohibit
the imposition of a prepayment penalty upon the acceleration of a loan pursuant
to a due-on-sale clause.
The inability to enforce a due-on-sale clause may result in a mortgage
loan bearing an interest rate below the current market rate being assumed by the
buyer rather than being paid off, which may have an impact upon the average life
of the Mortgage Loans and the number of Mortgage Loans which may be outstanding
until maturity.
TRANSFER OF MANUFACTURED HOMES. Generally, manufactured housing
contracts contain provisions prohibiting the sale or transfer of the related
manufactured homes without the consent of the obligee on the contract and
permitting the acceleration of the maturity of such contracts by the obligee on
the contract upon any such sale or transfer that is not consented to. Unless
otherwise provided in the related Prospectus Supplement, the Master Servicer
will, to the extent it has knowledge of such conveyance or proposed conveyance,
exercise or cause to be exercised its rights to accelerate the maturity of the
related Contracts through enforcement of due-on-sale clauses, subject to
applicable state law. 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 as to 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
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certain exceptions and conditions, state laws prohibiting enforcement of
due-on-sale clauses applicable to the Manufactured Homes. Consequently, in some
cases the Master Servicer may be prohibited from enforcing a due-on-sale clause
in respect of certain Manufactured Homes.
LATE PAYMENT CHARGES AND PREPAYMENT RESTRICTIONS. Mortgage notes and
mortgages, as well as manufactured housing conditional sales contracts and
installment loan agreements, may contain provisions that obligate the borrower
to pay a late charge or additional interest if payments are not timely made, and
in some circumstances, may prohibit prepayments for a specified period and/or
condition prepayments upon the borrower's payment of prepayment fees or yield
maintenance penalties. In certain states, there are or may be specific
limitations upon the late charges which a lender may collect from a borrower for
delinquent payments. Certain states also limit the amounts that a lender may
collect from a borrower as an additional charge if the loan is prepaid. In
addition, the enforceability of provisions that provide for prepayment fees or
penalties upon an involuntary prepayment is unclear under the laws of many
states.
SUBORDINATE FINANCING
When the mortgagor encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the mortgagor
may have difficulty servicing and repaying multiple loans. In addition, if the
junior loan permits recourse to the mortgagor (as junior loans often do) and the
senior loan does not, a mortgagor may be more likely to repay sums due on the
junior loan than those on the senior loan. Second, acts of the senior lender
that prejudice the junior lender or impair the junior lender's security may
create a superior equity in favor of the junior lender. For example, if the
mortgagor and the senior lender agree to an increase in the principal amount of
or the interest rate payable on the senior loan, the senior lender may lose its
priority to the extent an existing junior lender is harmed or the mortgagor is
additionally burdened. Third, if the mortgagor defaults on the senior loan
and/or any junior loan or loans, the existence of junior loans and actions taken
by junior lenders can impair the security available to the senior lender and can
interfere with or delay the taking of action by the senior lender. Moreover, the
bankruptcy of a junior lender may operate to stay foreclosure or similar
proceeds by the senior lender.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, enacted in March 1980 ("Title V"), provides that state
usury limitations shall not apply to certain types of residential first mortgage
loans originated by certain lenders after March 31, 1980. A similar federal
statute was in effect with respect to mortgage loans made during the first three
months of 1980. The Office of Thrift Supervision is authorized to issue rules
and regulations and to publish interpretations governing implementation of Title
V. 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 or to limit
discount points or other charges.
Title V also provides that, subject to the following conditions, state
usury limitations shall not apply to any loan that is secured by a first lien on
certain kinds of manufactured housing. The Contracts would be covered if they
satisfy certain conditions, among other things, governing the terms of any
prepayments, late charges and deferral fees and requiring a 30-day notice period
prior to instituting any action leading to repossession of or foreclosure with
respect to the related unit. Title V authorized any state to reimpose
limitations on interest rates and finance charges by adopting before April 1,
1983 a law or constitutional provision which expressly rejects application of
the federal law. Fifteen states adopted such a law prior to the April 1, 1983
deadline. In addition, even where Title V was not so rejected, any
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state is authorized by the law to adopt a provision limiting discount points or
other charges on loans covered by Title V. In any state in which application of
Title V was expressly rejected or a provision limiting discount points or other
charges has been adopted, no Contract which imposes finance charges or provides
for discount points or charges in excess of permitted levels has been included
in the Trust Fund.
As indicated above under "The Mortgage Pools--Representations by
Sellers," each Seller of a Mortgage Loan will have represented that such
Mortgage Loan was originated in compliance with then applicable state laws,
including usury laws, in all material respects. However, the Mortgage Rates on
the Mortgage Loans will be subject to applicable usury laws as in effect from
time to time.
ALTERNATIVE MORTGAGE INSTRUMENTS
Alternative mortgage instruments, including adjustable rate mortgage
loans and early ownership mortgage loans, originated by non-federally chartered
lenders have historically been subjected to a variety of restrictions. Such
restrictions differed from state to state, resulting in difficulties in
determining whether a particular alternative mortgage instrument originated by a
state-chartered lender was in compliance with applicable law. These difficulties
were alleviated substantially as a result of the enactment of Title VIII of the
Garn-St Germain Act ("Title VIII"). Title VIII provides that, notwithstanding
any state law to the contrary, state-chartered banks may originate alternative
mortgage instruments in accordance with regulations promulgated by the
Comptroller of the Currency with respect to origination of alternative mortgage
instruments by national banks, state-chartered credit unions may originate
alternative mortgage instruments in accordance with regulations promulgated by
the National Credit Union Administration with respect to origination of
alternative mortgage instruments by federal credit unions, and all other
non-federally chartered housing creditors, including state-chartered savings and
loan associations, state-chartered savings banks and mutual savings banks and
mortgage banking companies, may originate alternative mortgage instruments in
accordance with the regulations promulgated by the Federal Home Loan Bank Board,
predecessor to the Office of Thrift Supervision, with respect to origination of
alternative mortgage instruments by federal savings and loan associations. Title
VIII provides that any state may reject applicability of the provisions of Title
VIII by adopting, prior to October 15, 1985, a law or constitutional provision
expressly rejecting the applicability of such provisions. Certain states have
taken such action.
FORMALDEHYDE LITIGATION WITH RESPECT TO CONTRACTS
A number of lawsuits are pending in the United States alleging personal
injury from exposure to the chemical formaldehyde, which is present in many
building materials, including such components of manufactured housing as plywood
flooring and wall paneling. Some of these lawsuits are pending against
manufacturers of manufactured housing, suppliers of component parts, and related
persons in the distribution process. The Company is aware of a limited number of
cases in which plaintiffs have won judgments in these lawsuits.
Under the FTC Rule, which is described above under "Consumer Protection
Laws", the holder of any Contract secured by a Manufactured Home with respect to
which a formaldehyde claim has been successfully asserted may be liable to the
obligor for the amount paid by the obligor on the related Contract and may be
unable to collect amounts still due under the Contract. In the event an obligor
is successful in asserting such a claim, the related Certificateholders could
suffer a loss if (i) the related Seller fails or cannot be required to
repurchase the affected Contract for a breach of representation and warranty and
(ii) the Master Servicer or the Trustee were unsuccessful in asserting any claim
of contribution or subrogation on behalf of the Certificateholders against the
manufacturer or other persons who were directly liable to the plaintiff for the
damages. Typical products liability insurance policies held by manufacturers and
component suppliers of manufactured homes may not cover liabilities arising from
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formaldehyde in manufactured housing, with the result that recoveries from such
manufacturers, suppliers or other persons may be limited to their corporate
assets without the benefit of insurance.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
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 Mortgage Loan (including a Mortgagor who was in
reserve status and is called to active duty after origination of the Mortgage
Loan), 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. The Relief Act applies to
individuals who are members of the Army, Navy, Air Force, Marines, National
Guard, Reserves, Coast Guard, and officers of the U.S. Public Health Service
assigned to duty with the military. Because the Relief Act applies to Mortgagors
who enter military service (including reservists who are called to active duty)
after origination of the related Mortgage Loan, no information can be provided
as to the number of loans that may be affected by the Relief Act. Application of
the Relief Act would adversely affect, for an indeterminate period of time, the
ability of the Master Servicer to collect full amounts of interest on certain of
the Mortgage Loans. Any shortfall in interest collections resulting from the
application of the Relief Act or similar legislation or regulations, which would
not be recoverable from the related Mortgage Loans, would result in a reduction
of the amounts distributable to the holders of the related Certificates, and
would not be covered by advances or, unless otherwise specified in the related
Prospectus Supplement, by any Letter of Credit or any other form of credit
enhancement provided in connection with the related series of Certificates. In
addition, the Relief Act imposes limitations that would impair the ability of
the Master Servicer to foreclose on an affected Mortgage Loan or enforce rights
under a Contract during the Mortgagor's period of active duty status, and, under
certain circumstances, during an additional three month period thereafter. Thus,
in the event that the Relief Act or similar legislation or regulations applies
to any Mortgage Loan which goes into default, there may be delays in payment and
losses on the related Certificates in connection therewith. Any other interest
shortfalls, deferrals or forgiveness of payments on the Mortgage Loans resulting
from similar legislation or regulations may result in delays in payments or
losses to Certificateholders of the related series.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following general discussion 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
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,
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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.
The following discussion addresses securities of two general types: (i)
certificates ("REMIC Certificates") representing interests in a Trust Fund, or a
portion thereof, that the Trustee, the Master Servicer or another specified
party (the "REMIC Administrator") will elect to have treated as a real estate
mortgage investment conduit ("REMIC") under Sections 860A through 860G (the
"REMIC Provisions") of the Code and (ii) certificates ("Grantor Trust
Certificates") representing interests in a Trust Fund ("Grantor Trust Fund") as
to which no such election will be made. The Prospectus Supplement for each
series of Certificates will indicate whether a REMIC election (or elections)
will be made for the related Trust Fund 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 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. Upon the issuance of each series of REMIC
Certificates, Thacher Proffitt & Wood, counsel to the Company, will deliver its
opinion generally to the effect that, assuming compliance with all provisions of
the related Pooling and Servicing Agreement, the related Trust Fund (or each
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
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 Fund's income for the period in which the requirements for such status are
not satisfied. The Pooling Agreement with respect to each REMIC will include
provisions designed to maintain the Trust Fund's status as a REMIC under the
REMIC Provisions. It is not anticipated that the status of any Trust Fund as a
REMIC will be terminated.
CHARACTERIZATION OF INVESTMENTS IN REMIC CERTIFICATES. In general, the
REMIC Certificates will be "real estate assets" within the meaning of Section
856(c)(5)(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, 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
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as "real estate assets" within the meaning of Section 856(c)(5)(A) of the Code.
In addition, the REMIC Regular Certificates will be "qualified mortgages" within
the meaning of Section 860G(a)(3) 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 REMIC 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 Mortgage Loans,
payments on Mortgage Loans 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 Mortgage Loans, or whether such assets (to the extent not invested in assets
described in the foregoing sections) otherwise would receive the same treatment
as the Mortgage Loans for purposes of all of the foregoing sections. In
addition, in some instances Mortgage Loans may not be treated entirely as assets
described in the foregoing sections. If so, the related Prospectus Supplement
will describe the Mortgage Loans that may not be so treated. The REMIC
Regulations do provide, however, that payments on Mortgage Loans held pending
distribution are considered part of the Mortgage Loans for purposes of
856(c)(5)(A) of the Code. Furthermore, foreclosure property will qualify as
"real estate assets" under Section 856(C)(5)(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 Fund as REMICs ("Tiered REMICs") for federal income tax purposes.
Upon the issuance of any such series of REMIC Certificates, Thacher Proffitt &
Wood, counsel to the Company, will deliver its opinion generally to the effect
that, assuming compliance with all provisions of the related Pooling 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)(5)(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, 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. 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.
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The Code requires that a prepayment assumption be used with respect to
Mortgage Loans 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 prescribed
in Treasury regulations; as noted above, those regulations have not been issued.
The Conference Committee Report accompanying the Tax Reform Act of 1986 (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 (the "Prepayment Assumption") used in
reporting original issue discount for each series of REMIC Regular Certificates
will be consistent with this standard and will be disclosed in the related
Prospectus Supplement. However, neither the Company, the Master Servicer nor the
Trustee will make any representation that the Mortgage Loans will in fact prepay
at a rate conforming to the Prepayment Assumption or at any other rate.
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 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 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 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. If the original issue discount rules apply to
such Certificates, the related Prospectus Supplement will describe the manner in
which such rules will be applied with respect to those Certificates in preparing
information returns to the Certificateholders and the Internal Revenue Service
(the "IRS").
Certain classes of the REMIC Regular Certificates may provide for the
first interest payment with respect to such Certificates to be made more than
one month after the date of issuance, a period which is longer than the
subsequent monthly intervals between interest payments. Assuming the "accrual
period" (as defined below) for original issue discount is each monthly period
that ends on the day prior to each Distribution Date, in some cases, as a
consequence of this "long first accrual period," some or all interest payments
may be required to be included in the stated redemption price of the REMIC
Regular Certificate and accounted for as original issue discount. Because
interest on REMIC Regular Certificates must in any event be accounted for under
an accrual method, applying this analysis would result in only a slight
difference in the timing of the inclusion in income of the yield on the REMIC
Regular Certificates.
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
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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
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,
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, 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 otherwise stated in the
related Prospectus Supplement, each period that ends on a date that corresponds
to the day prior to each 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), 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 calculated (i) assuming that distributions on the REMIC Regular
Certificate will be received in future periods based on the Mortgage Loans 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 Mortgage Loans 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
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of any distributions made on such REMIC Regular Certificate in prior accrual
periods of amounts included in the 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.
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.
MARKET DISCOUNT. 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 gain upon receipt of each distribution
representing stated redemption price. In particular, under Section 1276 of the
Code such a Certificateholder generally 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" below. 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, 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" above. 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.
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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 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 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 also 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 includible 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 includible 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. 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 debt instrument, 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" above. 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. 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 Mortgage Loans.
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 Mortgage Loans or the Underlying Certificates 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 Mortgage Loans or as debt instruments issued
by the REMIC.
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 so allocated 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
paragraph 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."
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 share of
the taxable income (or net loss) of the REMIC for each day that it holds such
REMIC Residual Certificate. Those daily amounts 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 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 (as defined below) 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.
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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 includible
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 or unrelated deductions against
which income may be offset, subject to the rules relating to "excess
inclusions," residual interests without "significant value" 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. The taxable income of the REMIC will equal
the income from the Mortgage Loans 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 any premium 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 Mortgage Loans, bad debt losses with respect
to the Mortgage Loans and, except as described below, for servicing,
administrative and other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to the sum of the issue prices of
all REMIC Certificates (or, if a class of REMIC Certificates is not sold
initially, their fair market values). Such aggregate basis will be allocated
among the Mortgage Loans 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."
The issue price of a REMIC Certificate received in exchange for an interest in
the Mortgage Loans or other property will equal the fair market value of such
interests in the Mortgage Loans or other property. Accordingly, if one or more
classes of REMIC Certificates are retained initially rather than sold, the REMIC
Administrator may be required to estimate the fair market value of such
interests in order to determine the basis of the REMIC in the Mortgage Loans and
other property held by the REMIC.
Subject to 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 Mortgage Loans that it holds will be equivalent to the
method for accruing original issue discount income for holders of REMIC Regular
Certificates (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 market discount in income currently, as it accrues,
on a constant yield basis. See "--Taxation of Owners of REMIC Regular
Certificates" above, which describes a method for accruing such discount income
that is analogous to that required to be used by a REMIC as to Mortgage Loans
with market discount that it holds.
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A Mortgage Loan 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 includible 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 Mortgage
Loans. Premium on any Mortgage Loan to which such election applies may be
amortized under a constant yield method, presumably taking into account a
Prepayment Assumption. Further, such an election would not apply to any Mortgage
Loan originated on or before September 27, 1985. Instead, premium on such a
Mortgage Loan should be allocated among the principal payments thereon and be
deductible by the REMIC as those payments become due or upon the prepayment of
such Mortgage Loan.
A 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 REMIC Certificates constituting "regular interests" in the REMIC
not offered hereby) described therein will not apply.
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
net amount of interest deductions that are allowed the REMIC in each taxable
year with respect to the REMIC Regular Certificates of such class will be
reduced by 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 a 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 Tax and Other 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" below. 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. 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.
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
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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.
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 Certificates and will be increased by their allocable shares of taxable
income of the REMIC. However, such bases 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 any net losses of the
REMIC or upon the sale of its REMIC Residual Certificate. See "--Sales of REMIC
Certificates" below. 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 REMIC Residual
Certificateholder and the adjusted basis such REMIC Residual Certificate would
have in the hands of an original holder, see "--Taxation of Owners of REMIC
Residual Certificates--General" above.
EXCESS INCLUSIONS. 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
daily portions of REMIC taxable income allocable to such REMIC Residual
Certificate over (ii) the sum of the "daily accruals" (as defined below) 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 any 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. Although it
has not done so, the Treasury has authority to issue regulations that would
treat
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the entire amount of income accruing on a REMIC Residual Certificate as an
excess inclusion if the REMIC Residual Certificates are considered not to have
"significant value."
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 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 above-described exception for thrift institutions applies only to
those residual interests held directly by, and deductions, losses and loss
carryovers incurred by, such institutions (and not by other members of an
affiliated group of corporations filing a consolidated income tax return) or by
certain wholly owned direct subsidiaries of such institutions formed or operated
exclusively in connection with the organization and operation of one or more
REMICs.
Furthermore, for purposes of the alternative minimum tax, (i) excess
inclusions will not be permitted to be offset by the alternative tax net
operating loss deduction and (ii) alternative minimum taxable income may not be
less than the taxpayer's excess inclusions. The latter rule has the effect of
preventing nonrefundable tax credits from reducing the taxpayer's income tax to
an amount lower than the tentative minimum tax on excess inclusions.
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 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 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 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 is also required to make a reasonable
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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 Company 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 December 28, 1993, the IRS released temporary
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 "negative value" REMIC Residual Certificate is not
treated as a security and thus may not be marked to market. This exclusion from
the mark-to-market requirement is expanded to include all REMIC Residual
Certificates under proposed Treasury regulations published January 4, 1995 which
provide that any REMIC Residual Certificate issued after January 4, 1995 will
not be treated as a security and therefore generally may not be marked to
market.
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.
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 two percent 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
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individuals, estates, or trusts, or pass-through entities beneficially owned by
one or more individuals, estates or trusts. Such prospective investors should
carefully consult with their own 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 provided in the following four paragraphs,
any such gain or loss will be capital gain or loss, provided such REMIC
Certificate is held as a capital asset (generally, property held for investment)
within the meaning of Section 1221 of the Code. 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.
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 includible
in the seller's income with respect to such REMIC Regular Certificate assuming
that income had 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
based on the application of the Prepayment Assumption to such 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 includible 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 in an amount not exceeding the portion of such
discount that accrued during the period such REMIC Certificate was held by such
holder, reduced by any market discount included in income under the rules
described above under "--Taxation of Owners of REMIC Regular
Certificates--Market Discount" and "--Premium."
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 the same 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.
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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 rule that limits 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
the seller of a REMIC Residual Certificate reacquires such REMIC Residual
Certificate, or acquires 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) during the period beginning six months before, and ending six months
after, the date of such sale, such 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.
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
Mortgage Loan, the receipt of income from a source other than a Mortgage Loan or
certain other permitted investments, the receipt of compensation for services,
or gain from the disposition of an asset purchased with the payments on the
Mortgage Loans for temporary investment pending distribution on the 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 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 disclosed in the related Prospectus Supplement, it is
not anticipated that any material state or local income or franchise tax will be
imposed on any REMIC.
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 a
breach of the Master Servicer's or the Trustee's obligations, as the case may
be, under the related Pooling Agreement and in respect of compliance with
applicable laws and regulations. Any such tax not borne by the Master Servicer
or the Trustee will be charged against the related Trust Fund 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" (as defined below), a tax would be imposed in an
amount (determined under the REMIC Regulations) equal to the product of (i)
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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 REMIC Residual
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 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 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" (as defined below) 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.
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 (but may not) be treated as realizing a loss equal to
the amount of such difference, and such loss may be treated as a capital loss.
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REPORTING AND OTHER ADMINISTRATIVE MATTERS. Solely for purposes of the
administrative provisions of the Code, the REMIC will be treated as a
partnership and REMIC Residual Certificateholders will be treated as partners.
Unless otherwise stated in the related Prospectus Supplement, the REMIC
Administrator will file REMIC federal income tax returns on behalf of the
related REMIC, and under the terms of the related Pooling Agreement, will either
(i) be irrevocably appointed by the holders of the largest percentage interest
in the related REMIC Residual Certificates as their agent to perform all of the
duties of the "tax matters person" with respect to the REMIC in all respects or
(ii) will be designated as and will act as the "tax matters person" with respect
to the related REMIC in all respects and will hold at least a nominal amount of
REMIC Residual Certificates.
Unless otherwise disclosed in the related Prospectus Supplement the
REMIC Administrator, as the tax matters person or as agent for the tax matters
person, subject to certain notice requirements and various restrictions and
limitations, generally will 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 generally
will be required to report such REMIC items consistently with their treatment on
the REMIC's tax return and may in some circumstances be bound by a settlement
agreement between the REMIC Administrator, as either tax matters person or as
agent for the 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
the REMIC, in a manner to be provided in Treasury regulations, with 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 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 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 would require information relating to the holder's
purchase price that the REMIC may 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."
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Unless otherwise disclosed in the related Prospectus Supplement, the
responsibility for complying with the foregoing reporting rules will be borne by
the REMIC Administrator.
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.
FOREIGN INVESTORS IN REMIC CERTIFICATES. A REMIC Regular
Certificateholder that is not a "United States person" (as defined below) and is
not subject to federal income tax as a result of any direct or indirect
connection to the United States in addition to its ownership of a REMIC Regular
Certificate will not, unless otherwise disclosed in the related Prospectus
Supplement, 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, or an
estate whose income is subject to United States federal income tax regardless of
its source, 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 fiduciaries have the 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, 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.
Unless otherwise stated in the related Prospectus Supplement, transfers
of REMIC Residual Certificates to investors that are not United States persons
will be prohibited under the related Pooling Agreement.
GRANTOR TRUST FUNDS
CLASSIFICATION OF GRANTOR TRUST FUNDS. With respect to each series of
Grantor Trust Certificates, Thacher Proffitt & Wood, counsel to the Company,
will deliver their opinion to the effect that assuming compliance with all
provisions of the related Pooling Agreement, the related Grantor Trust Fund will
be classified as a grantor trust under subpart E, part I of subchapter J of the
Code and not as a partnership or an association taxable as a corporation.
Accordingly, each holder of a Grantor Trust Certificate
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generally will be treated as the owner of an interest in the Mortgage Loans
included in the Grantor Trust Fund.
For purposes of the following discussion, a Grantor Trust Certificate
representing an undivided equitable ownership interest in the principal of the
Mortgage Loans constituting the related Grantor Trust Fund, together with
interest thereon at a pass-through rate, will be referred to as a "Grantor Trust
Fractional Interest Certificate." A Grantor Trust Certificate representing
ownership of all or a portion of the difference between interest paid on the
Mortgage Loans constituting the related Grantor Trust Fund (net of normal
administration fees and any Spread) and interest paid to the holders of Grantor
Trust Fractional Interest Certificates issued with respect to such Grantor Trust
Fund will be referred to as a "Grantor Trust Strip Certificate." A Grantor Trust
Strip Certificate may also evidence a nominal ownership interest in the
principal of the Mortgage Loans constituting the related Grantor Trust Fund.
CHARACTERIZATION OF INVESTMENTS IN GRANTOR TRUST CERTIFICATES.
GRANTOR TRUST FRACTIONAL INTEREST CERTIFICATES. In the case of Grantor
Trust Fractional Interest Certificates, unless otherwise disclosed in the
related Prospectus Supplement and subject to the discussion below with respect
to Buydown Mortgage Loans, counsel to the Company will deliver an opinion that,
in general, Grantor Trust Fractional Interest Certificates will represent
interests in (i) "loans . . . secured by an interest in real property" within
the meaning of Section 7701(a)(19)(C)(v) of the Code; (ii) "obligation[s]
(including any participation or Certificate of beneficial ownership therein)
which . . .[are] principally secured by an interest in real property" within the
meaning of Section 860G(a)(3) of the Code; and (iii) "real estate assets" within
the meaning of Section 856(c)(5)(A) of the Code. In addition, counsel to the
Company will deliver an opinion that interest on Grantor Trust Fractional
Interest Certificates will to the same extent be considered "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.
The assets constituting certain Grantor Trust Funds may include Buydown
Mortgage Loans. The characterization of an investment in Buydown Mortgage Loans
will depend upon the precise terms of the related Buydown Agreement, but to the
extent that such Buydown Mortgage Loans are secured by a bank account or other
personal property, they may not be treated in their entirety as assets described
in the foregoing sections of the Code. No directly applicable precedents exist
with respect to the federal income tax treatment or the characterization of
investments in Buydown Mortgage Loans. Accordingly, holders of Grantor Trust
Certificates should consult their own tax advisors with respect to the
characterization of investments in Grantor Trust Certificates representing an
interest in a Grantor Trust Fund that includes Buydown Mortgage Loans.
GRANTOR TRUST STRIP CERTIFICATES. Even if Grantor Trust Strip
Certificates evidence an interest in a Grantor Trust Fund consisting of Mortgage
Loans that are "loans . . . secured by an interest in real property" within the
meaning of Section 7701(a)(19)(C)(v) of the Code, and "real estate assets"
within the meaning of Section 856(c)(5)(A) of the Code, and the interest on
which is "interest on obligations secured by mortgages on real property" within
the meaning of Section 856(c)(3)(B) of the Code, it is unclear whether the
Grantor Trust Strip Certificates, and the income therefrom, will be so
characterized. However, the policies underlying such sections (namely, to
encourage or require investments in mortgage loans by thrift institutions and
real estate investment trusts) may suggest that such characterization is
appropriate. Counsel to the Company will not deliver any opinion on these
questions. Prospective purchasers to which such characterization of an
investment in Grantor Trust Strip Certificates is material should consult their
tax advisors regarding whether the Grantor Trust Strip Certificates, and the
income therefrom, will be so characterized.
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The Grantor Trust Strip Certificates will be "obligation[s] (including
any participation or Certificate of beneficial ownership therein) which . .
.[are] principally secured by an interest in real property" within the meaning
of Section 860G(a)(3)(A) of the Code.
TAXATION OF OWNERS OF GRANTOR TRUST FRACTIONAL INTEREST CERTIFICATES.
Holders of a particular series of Grantor Trust Fractional Interest Certificates
generally will be required to report on their federal income tax returns their
shares of the entire income from the Mortgage Loans (including amounts used to
pay reasonable servicing fees and other expenses) and will be entitled to deduct
their shares of any such reasonable servicing fees and other expenses. Because
of stripped interests, market or original issue discount, or premium, the amount
includible in income on account of a Grantor Trust Fractional Interest
Certificate may differ significantly from the amount distributable thereon
representing interest on the Mortgage Loans. Under Section 67 of the Code, an
individual, estate or trust holding a Grantor Trust Fractional Interest
Certificate directly or through certain pass-through entities will be allowed a
deduction for such reasonable servicing fees and expenses only to the extent
that the aggregate of such holder's miscellaneous itemized deductions exceeds
two percent of such holder'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 holders of Grantor Trust Fractional Interest Certificates
who are subject to the limitations of either Section 67 or Section 68 of the
Code may be substantial. Further, Certificateholders (other than corporations)
subject to the alternative minimum tax may not deduct miscellaneous itemized
deductions in determining such holder's alternative minimum taxable income.
Although it is not entirely clear, it appears that in transactions in which
multiple classes of Grantor Trust Certificates (including Grantor Trust Strip
Certificates) are issued, such fees and expenses should be allocated among the
classes of Grantor Trust Certificates using a method that recognizes that each
such class benefits from the related services. In the absence of statutory or
administrative clarification as to the method to be used, it currently is
intended to base information returns or reports to the IRS and
Certificateholders on a method that allocates such expenses among classes of
Grantor Trust Certificates with respect to each period based on the
distributions made to each such class during that period.
The federal income tax treatment of Grantor Trust Fractional Interest
Certificates of any series will depend on whether they are subject to the
"stripped bond" rules of Section 1286 of the Code. Grantor Trust Fractional
Interest Certificates may be subject to those rules if (i) a class of Grantor
Trust Strip Certificates is issued as part of the same series of Certificates or
(ii) the Company or any of its affiliates retains (for its own account or for
purposes of resale) a right to receive a specified portion of the interest
payable on the Mortgage Loans. Further, the IRS has ruled that an unreasonably
high servicing fee retained by a seller or servicer will be treated as a
retained ownership interest in mortgages that constitutes a stripped coupon. For
purposes of determining what constitutes reasonable servicing fees for various
types of mortgages the IRS has established certain "safe harbors." The servicing
fees paid with respect to the Mortgage Loans for certain series of Grantor Trust
Certificates may be higher than the "safe harbors" and, accordingly, may not
constitute reasonable servicing compensation. The related Prospectus Supplement
will include information regarding servicing fees paid to the Master Servicer,
any subservicer or their respective affiliates necessary to determine whether
the preceding "safe harbor" rules apply.
IF STRIPPED BOND RULES APPLY. If the stripped bond rules apply, each
Grantor Trust Fractional Interest Certificate will be treated as having been
issued with "original issue discount" within the meaning of Section 1273(a) of
the Code, subject, however, to the discussion below regarding the treatment of
certain stripped bonds as market discount bonds and the discussion regarding de
minimis market discount. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--Market Discount" below. Under the stripped bond rules,
the holder of a Grantor Trust Fractional Interest Certificate (whether a
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cash or accrual method taxpayer) will be required to report interest income from
its Grantor Trust Fractional Interest Certificate for each month in an amount
equal to the income that accrues on such Certificate in that month calculated
under a constant yield method, in accordance with the rules of the Code relating
to original issue discount.
The original issue discount on a Grantor Trust Fractional Interest
Certificate will be the excess of such Certificate's stated redemption price
over its issue price. The issue price of a Grantor Trust Fractional Interest
Certificate as to any purchaser will be equal to the price paid by such
purchaser for the Grantor Trust Fractional Interest Certificate. The stated
redemption price of a Grantor Trust Fractional Interest Certificate will be the
sum of all payments to be made on such Certificate, other than "qualified stated
interest," if any, as well as such Certificate's share of reasonable servicing
fees and other expenses. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--If Stripped Bond Rules Do Not Apply" for a definition of
"qualified stated interest." In general, the amount of such income that accrues
in any month would equal the product of such holder's adjusted basis in such
Grantor Trust Fractional Interest Certificate at the beginning of such month
(see "Sales of Grantor Trust Certificates") and the yield of such Grantor Trust
Fractional Interest Certificate to such holder. Such yield would be computed at
the rate (compounded based on the regular interval between payment dates) that,
if used to discount the holder's share of future payments on the Mortgage Loans,
would cause the present value of those future payments to equal the price at
which the holder purchased such Certificate. In computing yield under the
stripped bond rules, a Certificateholder's share of future payments on the
Mortgage Loans will not include any payments made in respect of any ownership
interest in the Mortgage Loans retained by the Company, the Master Servicer, any
subservicer or their respective affiliates, but will include such
Certificateholder's share of any reasonable servicing fees and other expenses.
Section 1272(a)(6) of the Code requires (i) the use of a reasonable
prepayment assumption in accruing original issue discount and (ii) adjustments
in the accrual of original issue discount when prepayments do not conform to the
prepayment assumption, with respect to certain categories of debt instruments,
and regulations could be adopted applying those provisions to the Grantor Trust
Fractional Interest Certificates. It is unclear whether those provisions would
be applicable to the Grantor Trust Fractional Interest Certificates or whether
use of a reasonable prepayment assumption may be required or permitted without
reliance on these rules. It is also uncertain, if a prepayment assumption is
used, whether the assumed prepayment rate would be determined based on
conditions at the time of the first sale of the Grantor Trust Fractional
Interest Certificate or, with respect to any holder, at the time of purchase of
the Grantor Trust Fractional Interest Certificate by that holder.
Certificateholders are advised to consult their own tax advisors concerning
reporting original issue discount in general and, in particular, whether a
prepayment assumption should be used in reporting original issue discount with
respect to Grantor Trust Fractional Interest Certificates.
In the case of a Grantor Trust Fractional Interest Certificate acquired
at a price equal to the principal amount of the Mortgage Loans allocable to such
Certificate, the use of a prepayment assumption generally would not have any
significant effect on the yield used in calculating accruals of interest income.
In the case, however, of a Grantor Trust Fractional Interest Certificate
acquired at a discount or premium (that is, at a price less than or greater than
such principal amount, respectively), the use of a reasonable prepayment
assumption would increase or decrease such yield, and thus accelerate or
decelerate, respectively, the reporting of income.
If a prepayment assumption is not used, then when a Mortgage Loan
prepays in full, the holder of a Grantor Trust Fractional Interest Certificate
acquired at a discount or a premium generally will recognize ordinary income or
loss equal to the difference between the portion of the prepaid principal amount
of the Mortgage Loan that is allocable to such Certificate and the portion of
the adjusted basis of such Certificate that is allocable to such
Certificateholder's interest in the Mortgage Loan. If a prepayment assumption is
used, it appears that no separate item of income or loss should be recognized
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upon a prepayment. Instead, a prepayment should be treated as a partial payment
of the stated redemption price of the Grantor Trust Fractional Interest
Certificate and accounted for under a method similar to that described for
taking account of original issue discount on REMIC Regular Certificates. See
"--REMICs--Taxation of Owners of REMIC Regular Certificates--Original Issue
Discount." It is unclear whether any other adjustments would be required to
reflect differences between an assumed prepayment rate and the actual rate of
prepayments.
In the absence of statutory or administrative clarification, it is
currently intended to base information reports or returns to the IRS and
Certificateholders in transactions subject to the stripped bond rules on a
prepayment assumption (the "Prepayment Assumption") that will be disclosed in
the related Prospectus Supplement and on a constant yield computed using a
representative initial offering price for each class of Certificates. However,
neither the Company, the Master Servicer nor the Trustee will make any
representation that the Mortgage Loans will in fact prepay at a rate conforming
to such Prepayment Assumption or any other rate and Certificateholders should
bear in mind that the use of a representative initial offering price will mean
that such information returns or reports, even if otherwise accepted as accurate
by the IRS, will in any event be accurate only as to the initial
Certificateholders of each series who bought at that price.
Under Treasury regulation Section 1.1286-1, certain stripped bonds are
to be treated as market discount bonds and, accordingly, any purchaser of such a
bond is to account for any discount on the bond as market discount rather than
original issue discount. This treatment only applies, however, if immediately
after the most recent disposition of the bond by a person stripping one or more
coupons from the bond and disposing of the bond or coupon (i) there is no
original issue discount (or only a de minimis amount of original issue discount)
or (ii) the annual stated rate of interest payable on the original bond is no
more than one percentage point lower than the gross interest rate payable on the
original mortgage loan (before subtracting any servicing fee or any stripped
coupon). If interest payable on a Grantor Trust Fractional Interest Certificate
is more than one percentage point lower than the gross interest rate payable on
the Mortgage Loans, the related Prospectus Supplement will disclose that fact.
If the original issue discount or market discount on a Grantor Trust Fractional
Interest Certificate determined under the stripped bond rules is less than 0.25%
of the stated redemption price multiplied by the weighted average maturity of
the Mortgage Loans, then such original issue discount or market discount will be
considered to be de minimis. Original issue discount or market discount of only
a de minimis amount will be included in income in the same manner as de minimis
original issue and market discount described in "--Taxation of Owners of Grantor
Trust Fractional Interest Certificates--If Stripped Bond Rules Do Not Apply" and
"--Market Discount" below.
IF STRIPPED BOND RULES DO NOT APPLY. Subject to the discussion below on
original issue discount, if the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, the Certificateholder will be required to
report its share of the interest income on the Mortgage Loans in accordance with
such Certificateholder's normal method of accounting. The original issue
discount rules will apply to a Grantor Trust Fractional Interest Certificate to
the extent it evidences an interest in Mortgage Loans issued with original issue
discount.
The original issue discount, if any, on the Mortgage Loans will equal
the difference between the stated redemption price of such Mortgage Loans and
their issue price. Under the OID Regulations, the stated redemption price is
equal to the total of all payments to be made on such Mortgage Loan other than
"qualified stated interest." "Qualified stated interest" includes interest that
is unconditionally payable at least annually at a single fixed rate, or 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 does not
operate in a manner that accelerates or defers interest payments on such
Mortgage Loan. In general, the issue price of a Mortgage Loan will be the amount
received by the borrower from the lender under the terms of the Mortgage Loan,
less any
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"points" paid by the borrower, and the stated redemption price of a Mortgage
Loan will equal its principal amount, unless the Mortgage Loan provides for an
initial below-market rate of interest or the acceleration or the deferral of
interest payments.
In the case of Mortgage Loans bearing adjustable or variable interest
rates, the related Prospectus Supplement will describe the manner in which such
rules will be applied with respect to those Mortgage Loans by the Master
Servicer or the Trustee in preparing information returns to the
Certificateholders and the IRS.
Notwithstanding the general definition of original issue discount,
original issue discount will be considered to be de minimis if such original
issue discount is less than 0.25% of the stated redemption price multiplied by
the weighted average maturity of the Mortgage Loan. For this purpose, the
weighted average maturity of the Mortgage Loan will be computed as the sum of
the amounts determined, as to each payment included in the stated redemption
price of such Mortgage Loan, 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 by (ii) a fraction, the numerator of which is the amount of
the payment and the denominator of which is the stated redemption price of the
Mortgage Loan. 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" rate or 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 each such payment and the denominator of which is the
outstanding stated principal amount of the Mortgage Loan. The OID Regulations
also 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 Grantor Trust Fractional Interest Certificates--Market Discount"
below.
If original issue discount is in excess of a de minimis amount, all
original issue discount with respect to a Mortgage Loan will be required to be
accrued and reported in income each month, based on a constant yield. The OID
Regulations suggest that no prepayment assumption is appropriate in computing
the yield on prepayable obligations issued with original issue discount. In the
absence of statutory or administrative clarification, it currently is not
intended to base information reports or returns to the IRS and
Certificateholders on the use of a prepayment assumption for certificates backed
by whole mortgage loans and not subject to the stripped bond rules. However,
Section 1272(a)(6) of the Code may require that a prepayment assumption be made
in computing yield with respect to all mortgage-backed securities.
Certificateholders are advised to consult their own tax advisors concerning
whether a prepayment assumption should be used in reporting original issue
discount with respect to Grantor Trust Fractional Interest Certificates.
Certificateholders should refer to the related Prospectus Supplement with
respect to each series to determine whether and in what manner the original
issue discount rules will apply to Mortgage Loans in such series.
A purchaser of a Grantor Trust Fractional Interest Certificate that
purchases such Grantor Trust Fractional Interest Certificate at a cost less than
such Certificate's allocable portion of the aggregate remaining stated
redemption price of the Mortgage Loans held in the related Trust Fund will also
be required to include in gross income such Certificate's daily portions of any
original issue discount with respect to such Mortgage Loans. However, each such
daily portion will be reduced, if the cost of such Grantor Trust Fractional
Interest Certificate to such purchaser is in excess of such Certificate's
allocable portion of the aggregate "adjusted issue prices" of the Mortgage Loans
held in the related Trust Fund, approximately in proportion to the ratio such
excess bears to such Certificate's allocable portion of the aggregate original
issue discount remaining to be accrued on such Mortgage Loans. The adjusted
issue price of a Mortgage Loan 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 Mortgage Loan at the beginning of the accrual period that
includes such day and (ii) the daily portions of original issue discount for all
days during such accrual
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period prior to such day. The adjusted issue price of a Mortgage Loan at the
beginning of any accrual period will equal the issue price of such Mortgage
Loan, increased by the aggregate amount of original issue discount with respect
to such Mortgage Loan that accrued in prior accrual periods, and reduced by the
amount of any payments made on such Mortgage Loan in prior accrual periods of
amounts included in its stated redemption price.
In addition to its regular reports, the Master Servicer of the Trustee,
unless otherwise provided in the related Prospectus Supplement, will provide to
any holder of a Grantor Trust Fractional Interest Certificate such information
as such holder may reasonably request from time to time with respect to original
issue discount accruing on Grantor Trust Fractional Interest Certificates. See
"Grantor Trust Reporting" below.
MARKET DISCOUNT. If the stripped bond rules do not apply to the Grantor
Trust Fractional Interest Certificate, a Certificateholder may be subject to the
market discount rules of Sections 1276 through 1278 of the Code to the extent an
interest in a Mortgage Loan is considered to have been purchased at a "market
discount," that is, in the case of a Mortgage Loan issued without original issue
discount, at a purchase price less than its remaining stated redemption price
(as defined above, or in the case of a Mortgage Loan issued with original issue
discount, at a purchase price less than its adjusted issue price (as defined
above). If market discount is in excess of a de minimis amount (as described
below), the holder generally will be required to include in income in each month
the amount of such discount that has accrued (under the rules described in the
next paragraph) through such month that has not previously been included in
income, but limited, in the case of the portion of such discount that is
allocable to any Mortgage Loan, to the payment of stated redemption price on
such Mortgage Loan that is received by (or, in the case of accrual basis
Certificateholders, due to) the Trust Fund in that month. A Certificateholder
may elect to include market discount in income currently as it accrues (under a
constant yield method based on the yield of the Certificate to such holder)
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 during or after the first taxable year to which such election
applies. In addition, the OID Regulations would 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 Mortgage Loan 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 and thereafter, and possibly previously
acquired instruments. Similarly, a Certificateholder that made this election for
a Certificate 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
"--REMICs--Taxation of Owners of REMIC Regular Certificates--Premium" above.
Each of these elections to accrue interest, discount and premium with respect to
a Certificate on a constant yield method or as interest is irrevocable.
Section 1276(b)(3) of the Code authorized 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 such time as regulations are issued by the Treasury Department, certain
rules described in the Committee Report will apply. Under those rules, in each
accrual period market discount on the Mortgage Loans should accrue, at the
Certificateholder's option: (i) on the basis of a constant yield method, (ii) in
the case of a Mortgage Loan 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 stated interest remaining
to be paid on the Mortgage Loan as of the beginning of the accrual period, or
(iii) in the case of a Mortgage Loan issued with original issue discount, in an
amount that bears the same ratio to the total remaining market discount as the
original issue discount accrued in the accrual period bears to the total
original issue discount remaining at the
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beginning of the accrual period. The prepayment assumption, if any, used in
calculating the accrual of original issue discount is to be used in calculating
the accrual of market discount. The effect of using a prepayment assumption
could be to accelerate the reporting of such discount income. 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 Mortgage Loan purchased at a discount in the secondary market.
Because the Mortgage Loans will provide for periodic payments of stated
redemption price, such discount may be required to be included in income at a
rate that is not significantly slower than the rate at which such discount would
be included in income if it were original issue discount.
Market discount with respect to Mortgage Loans generally will be
considered to be de minimis if it is less than 0.25% of the stated redemption
price of the Mortgage Loans 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 used,
if any. The effect of using a prepayment assumption could be to accelerate the
reporting of such discount income. If market discount is treated as de minimis
under the foregoing rule, it appears that actual discount would be treated in a
manner similar to original issue discount of a de minimis amount. See
"--Taxation of Owners of Grantor Trust Fractional Interest Certificates--If
Stripped Bond Rules Do Not Apply."
Further, under the rules described in "--REMICs--Taxation of Owners of
REMIC Regular Certificates--Market Discount," above, any discount that is not
original issue discount and exceeds a de minimis amount may require the deferral
of interest expense deductions attributable to accrued market discount not yet
includible in income, unless an election has been made to report market discount
currently as it accrues. This rule applies without regard to the origination
dates of the Mortgage Loans.
PREMIUM. If a Certificateholder is treated as acquiring the underlying
Mortgage Loans at a premium, that is, at a price in excess of their remaining
stated redemption price, such Certificateholder may elect under Section 171 of
the Code to amortize using a constant yield method the portion of such premium
allocable to Mortgage Loans originated after September 27, 1985. Amortizable
premium is treated as an offset to interest income on the related debt
instrument, rather than as a separate interest deduction. However, premium
allocable to Mortgage Loans originated before September 28, 1985 or to Mortgage
Loans for which an amortization election is not made, should be allocated among
the payments of stated redemption price on the Mortgage Loan and be allowed as a
deduction as such payments are made (or, for a Certificateholder using the
accrual method of accounting, when such payments of stated redemption price are
due).
It is unclear whether a prepayment assumption should be used in
computing amortization of premium allowable under Section 171 of the Code. If
premium is not subject to amortization using a prepayment assumption and a
Mortgage Loan prepays in full, the holder of a Grantor Trust Fractional Interest
Certificate acquired at a premium should recognize a loss, equal to the
difference between the portion of the prepaid principal amount of the Mortgage
Loan that is allocable to the Certificate and the portion of the adjusted basis
of the Certificate that is allocable to the Mortgage Loan. If a prepayment
assumption is used to amortize such premium, it appears that such a loss would
be unavailable. Instead, if a prepayment assumption is used, a prepayment should
be treated as a partial payment of the stated redemption price of the Grantor
Trust Fractional Interest Certificate and accounted for under a method similar
to that described for taking account of original issue discount on REMIC Regular
Certificates. See "REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount." It is unclear whether any other
adjustments would be required to reflect differences between the prepayment
assumption used, and the actual rate of prepayments.
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TAXATION OF OWNERS OF GRANTOR TRUST STRIP CERTIFICATES. The "stripped
coupon" rules of Section 1286 of the Code will apply to the Grantor Trust Strip
Certificates. Except as described above in "--Taxation of Owners of Grantor
Trust Fractional Interest Certificates--If Stripped Bond Rules Apply," no
regulations or published rulings under Section 1286 of the Code have been issued
and some uncertainty exists as to how it will be applied to securities such as
the Grantor Trust Strip Certificates. Accordingly, holders of Grantor Trust
Strip Certificates should consult their own tax advisors concerning the method
to be used in reporting income or loss with respect to such Certificates.
The OID Regulations do not apply to "stripped coupons," although they
provide general guidance as to how the original issue discount sections of the
Code will be applied. In addition, the discussion below is subject to the
discussion under "Possible Application of Proposed Contingent Payment Rules" and
assumes that the holder of a Grantor Trust Strip Certificate will not own any
Grantor Trust Fractional Interest Certificates.
Under the stripped coupon rules, it appears that original issue
discount will be required to be accrued in each month on the Grantor Trust Strip
Certificates based on a constant yield method. In effect, each holder of Grantor
Trust Strip Certificates would include as interest income in each month an
amount equal to the product of such holder's adjusted basis in such Grantor
Trust Strip Certificate at the beginning of such month and the yield of such
Grantor Trust Strip Certificate to such holder. Such yield would be calculated
based on the price paid for that Grantor Trust Strip Certificate by its holder
and the payments remaining to be made thereon at the time of the purchase, plus
an allocable portion of the servicing fees and expenses to be paid with respect
to the Mortgage Loans. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--If Stripped Bond Rules Apply" above.
As noted above, Section 1272(a)(6) of the Code requires that a
prepayment assumption be used in computing the accrual of original issue
discount with respect to certain categories of debt instruments, and that
adjustments be made in the amount and rate of accrual of such discount when
prepayments do not conform to such prepayment assumption. Regulations could be
adopted applying those provisions to the Grantor Trust Strip Certificates. It is
unclear whether those provisions would be applicable to the Grantor Trust Strip
Certificates or whether use of a prepayment assumption may be required or
permitted in the absence of such regulations. It is also uncertain, if a
prepayment assumption is used, whether the assumed prepayment rate would be
determined based on conditions at the time of the first sale of the Grantor
Trust Strip Certificate or, with respect to any subsequent holder, at the time
of purchase of the Grantor Trust Strip Certificate by that holder.
The accrual of income on the Grantor Trust Strip Certificates will be
significantly slower if a prepayment assumption is permitted to be made than if
yield is computed assuming no prepayments. In the absence of statutory or
administrative clarification, it currently is intended to base information
returns or reports to the IRS and Certificateholders on the Prepayment
Assumption disclosed in the related Prospectus Supplement and on a constant
yield computed using a representative initial offering price for each class of
Certificates. However, neither the Company, the Master Servicer nor the Trustee
will make any representation that the Mortgage Loans will in fact prepay at a
rate conforming to the Prepayment Assumption or at any other rate and
Certificateholders should bear in mind that the use of a representative initial
offering price will mean that such information returns or reports, even if
otherwise accepted as accurate by the IRS, will in any event be accurate only as
to the initial Certificateholders of each series who bought at that price.
Prospective purchasers of the Grantor Trust Strip Certificates should consult
their own tax advisors regarding the use of the Prepayment Assumption.
It is unclear under what circumstances, if any, the prepayment of a
Mortgage Loan will give rise to a loss to the holder of a Grantor Trust Strip
Certificate. If a Grantor Trust Strip Certificate is treated as a single
instrument (rather than an interest in discrete mortgage loans) and the effect
of prepayments is taken into account in computing yield with respect to such
Grantor Trust Strip Certificate, it appears
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that no loss may be available as a result of any particular prepayment unless
prepayments occur at a rate faster than the Prepayment Assumption. However, if a
Grantor Trust Strip Certificate is treated as an interest in discrete Mortgage
Loans, or if the Prepayment Assumption is not used, then when a Mortgage Loan is
prepaid, the holder of a Grantor Trust Strip Certificate should be able to
recognize a loss equal to the portion of the adjusted issue price of the Grantor
Trust Strip Certificate that is allocable to such Mortgage Loan.
POSSIBLE APPLICATION OF PROPOSED CONTINGENT PAYMENT RULES. The coupon
stripping rules' general treatment of stripped coupons is to regard them as
newly issued debt instruments in the hands of each purchaser. To the extent that
payments on the Grantor Trust Strip Certificates would cease if the Mortgage
Loans were prepaid in full, the Grantor Trust Strip Certificates could be
considered to be debt instruments providing for contingent payments. Under the
OID Regulations, debt instruments providing for contingent payments are not
subject to the same rules as debt instruments providing for noncontingent
payments, but no final regulations have been promulgated with respect to
contingent payment debt instruments. Proposed regulations were promulgated on
December 16, 1994 regarding contingent payment debt instruments. As in the case
of but it appears that Grantor Trust Strip Certificates, due to their similarity
to other mortgage-backed securities (such as REMIC regular interests) that are
expressly excepted from the application of such proposed regulations, may be
excepted from such proposed regulations. Like the OID Regulations, such proposed
regulations do not specifically address securities, such as the Grantor Trust
Strip Certificates, that are subject to the stripped bond rules of Section 1286
of the Code.
If the contingent payment rules under the proposed regulations were to
apply, the holder of a Grantor Trust Strip Certificate would be required to
apply the "noncontingent bond method." Under the noncontingent bond method, the
issuer of a Grantor Trust Strip Certificate determines a projected payment
schedule on which interest will accrue. Holders of Grantor Trust Strip
Certificates are bound by the issuer's projected payment schedule. The projected
payment schedule consists of all noncontingent payments and a projected amount
for each contingent payment based on the projected yield (as described below) of
the Grantor Trust Strip Certificate. The projected amount of each payment is
determined so that the projected payment schedule reflects the projected yield.
The projected amount of each payment must reasonably reflect the relative
expected values of the payments to be received by the holder of a Grantor Trust
Strip Certificate. The projected yield referred to above is a reasonable rate,
not less than the "applicable Federal rate" that, as of the issue date, reflects
general market conditions, the credit quality of the issuer, and the terms and
conditions of the Mortgage Loans. The holder of a Grantor Trust Strip
Certificate would be required to include as interest income in each month the
adjusted issue price of the Grantor Trust Strip Certificate at the beginning of
the period multiplied by the projected yield.
Assuming that a prepayment assumption were used, if the proposed
regulations or their principles were applied to Grantor Trust Strip
Certificates, the amount of income reported with respect thereto would be
substantially similar to that described under "Taxation of Owners of Grantor
Trust Strip Certificates". Certificateholders should consult their tax advisors
concerning the possible application of the contingent payment rules to the
Grantor Trust Strip Certificates.
SALES OF GRANTOR TRUST CERTIFICATES. Any gain or loss equal to the
difference between the amount realized on the sale of a Grantor Trust
Certificate and its adjusted basis, recognized on the sale of a Grantor Trust
Certificate by an investor who holds such Grantor Trust Certificate as a capital
asset, will be capital gain or loss, except to the extent of accrued and
unrecognized market discount, which will be treated as ordinary income, and (in
the case of banks and other financial institutions) except as provided under
Section 582(c) of the Code. The adjusted basis of a Grantor Trust Certificate
generally will equal its cost, increased by any income reported by the seller
(including original issue discount and market discount income) and reduced (but
not below zero) by any previously reported losses, any amortized premium and by
any distributions with respect to such Grantor Trust Certificate. The Code as of
the date
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of this Prospectus provides 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.
Gain or loss from the sale of a Grantor Trust Certificate may be
partially or wholly ordinary and not capital in certain circumstances. Gain
attributable to accrued and unrecognized market discount will be treated as
ordinary income, as will gain or loss recognized by banks and other financial
institutions subject to Section 582(c) of the Code. Furthermore, a portion of
any gain that might otherwise be capital gain may be treated as ordinary income
to the extent that the Grantor Trust 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 the same 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
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 that taxable year, for
purposes of the rule that limits the deduction of interest on indebtedness
incurred to purchase or carry property held for investment to a taxpayer's net
investment income.
GRANTOR TRUST REPORTING. Unless otherwise provided in the related
Prospectus Supplement, the Master Servicer or the Trustee will furnish to each
holder of a Grantor Trust Fractional Interest Certificate with each distribution
a statement setting forth the amount of such distribution allocable to principal
on the underlying Mortgage Loans and to interest thereon at the related
Pass-Through Rate. In addition, the Trustee will furnish, within a reasonable
time after the end of each calendar year, to each holder of a Grantor Trust
Certificate who was such a holder at any time during such year, information
regarding the amount of servicing compensation received by the Master Servicer
and sub-servicer (if any) and such other customary factual information as the
Master Servicer or the Trustee deems necessary or desirable to enable holders of
Grantor Trust Certificates to prepare their tax returns and will furnish
comparable information to the IRS as and when required by law to do so. Because
the rules for accruing discount and amortizing premium with respect to the
Grantor Trust Certificates are uncertain in various respects, there is no
assurance the IRS will agree with the Trustee's information reports of such
items of income and expense. Moreover, such information reports, even if
otherwise accepted as accurate by the IRS, will in any event be accurate only as
to the initial Certificateholders that bought their Certificates at the
representative initial offering price used in preparing such reports.
Unless otherwise disclosed in the related Prospectus Supplement, the
responsibility for complying with the foregoing reporting rules will be borne by
the Master Servicer or the Trustee.
BACKUP WITHHOLDING. In general, the rules described in
"--REMICS--Backup Withholding with Respect to REMIC Certificates" will also
apply to Grantor Trust Certificates.
FOREIGN INVESTORS. In general, the discussion with respect to REMIC
Regular Certificates in "REMICS--Foreign Investors in REMIC Certificates--REMIC
Regular Certificates" applies to Grantor Trust Certificates except that Grantor
Trust Certificates will, unless otherwise disclosed in the related Prospectus
Supplement, be eligible for exemption from U.S. withholding tax, subject to the
conditions described in such discussion, only to the extent the related Mortgage
Loans were originated after July 18, 1984.
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To the extent that interest on a Grantor Trust Certificate would be
exempt under Sections 871(h)(1) and 881(c) of the Code from United States
withholding tax, and the Grantor Trust Certificate is not held in connection
with a Certificateholder's trade or business in the United States, such Grantor
Trust Certificate will not be subject to United States estate taxes in the
estate of a non-resident alien individual.
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"), and the Code impose certain requirements on employee benefit plans
and on certain other retirement plans and arrangements, including individual
retirement accounts and annuities, Keogh plans and collective investment funds
and separate accounts (and, as applicable, insurance company general accounts)
in which such plans, accounts or arrangements are invested that are subject to
the fiduciary responsibility provisions of ERISA and Section 4975 of the Code
("Plans") and on persons who are fiduciaries with respect to such Plans in
connection with the investment of Plan assets. Certain employee benefit plans,
such as governmental plans (as defined in ERISA Section 3(32)), and, if no
election has been made under Section 410(d) of the Code, church plans (as
defined in Section 3(33) of ERISA) are not subject to ERISA requirements.
Accordingly, assets of such plans may be invested in Offered Certificates
without regard to the ERISA considerations described below, 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,
however, is subject to the prohibited transaction rules set forth in Section 503
of the Code.
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan. In addition, Section 406 of ERISA and Section 4975 of the
Code prohibit a broad range of transactions involving assets of a Plan and
persons (parties in interest under ERISA and disqualified persons under the
Code, collectively, "Parties in Interest") who have certain specified
relationships to the Plan unless a statutory or administrative exemption is
available. Certain Parties in Interest that participate in a prohibited
transaction may be subject to an excise tax imposed pursuant to Section 4975 of
the Code or a penalty imposed pursuant to Section 502(i) of ERISA, unless a
statutory or administrative exemption is available. These prohibited
transactions generally are set forth in Section 406 of ERISA and Section 4975 of
the Code.
The Trust Fund, the Company, any underwriter, the Trustee, the Master
Servicer, any Servicer, any provider of credit support or any of their
affiliates may be considered to be or may become Parties in Interest (or
Disqualified Persons) with respect to certain Plans. Prohibited transactions
under Section 406 of ERISA and Section 4975 of the Code may arise if a
Certificate is acquired by a Plan with respect to which such persons are Parties
in Interest (or Disqualified Persons) unless such transactions are subject to
one or more statutory or administrative exemptions, such as: Prohibited
Transaction Class Exemption ("PTCE") 75-1, which exempts certain transactions
involving Plans and certain broker-dealers, reporting dealers and banks; PTCE
90-1, which exempts certain transactions between insurance company separate
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accounts and Parties in Interest (or Disqualified Persons); PTCE 91-38, which
exempts certain transactions between bank collective investment funds and
Parties in Interest (or Disqualified Persons); PTCE 95-60, which exempts certain
transactions between insurance company general accounts and Parties in Interest
(or Disqualified Persons); or PTCE 84-14, which exempts certain transactions
effected on behalf of a Plan by a "qualified professional asset manager". There
can be no assurance that any of these class exemptions will apply with respect
to any particular Plan investment in Certificates or, even if it were deemed to
apply, that any exemption would apply to all prohibited transactions that may
occur in connection with such investment. Accordingly, prior to making an
investment in the Certificates, investing Plans should determine whether the
Trust Fund, the Company, any underwriter, the Trustee, the Master Servicer, any
Servicer, any provider of credit support or any of their affiliates is a Party
in Interest (or Disqualified Person) with respect to such Plan and, if so,
whether such transaction is subject to one or more statutory or administrative
exemptions.
Any Plan fiduciary considering whether to invest in Certificates on
behalf of a Plan should consult with its counsel regarding the applicability of
the fiduciary responsibility and prohibited transaction provisions of ERISA and
the Code to such investment. Each Plan fiduciary also should determine whether,
under the general fiduciary standards of investment prudence and
diversification, an investment in the Certificates is appropriate for the Plan
considering the overall investment policy of the Plan and the composition of the
Plan's investment portfolio as well as whether such investment is permitted
under the governing Plan instruments.
TAX-EXEMPT INVESTORS
A Plan that is exempt from federal income taxation pursuant to Section
501 of the Code (a "TaxExempt 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.
LEGAL INVESTMENT MATTERS
Each class of Certificates offered hereby and by the related Prospectus
Supplement will be rated at the date of issuance in one of the four highest
rating categories by at least one Rating Agency. Unless otherwise specified in
the related Prospectus Supplement, each such class that is rated in one of the
two highest rating categories by at least one Rating Agency will constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"), and, as such, will be legal investments for
persons, trusts, corporations, partnerships, associations, business trusts and
business entities (including depository institutions, life insurance companies
and pension funds) created pursuant to or existing under the laws of the United
States or of any State whose authorized investments are subject to state
regulation to the same extent that, under applicable law, obligations issued by
or guaranteed as to principal and interest by the United States or any agency or
instrumentality thereof constitute legal investments for such entities. Under
SMMEA, if a State enacted legislation on or prior to October 3, 1991
specifically limiting the legal investment authority of any such entities with
respect to "mortgage related securities," such securities will constitute legal
investments for entities subject to such legislation only to the extent provided
therein. Certain States have enacted legislation which overrides the preemption
provisions of SMMEA. SMMEA provides, however, that in no event will the
enactment of any such legislation affect the validity of any contractual
commitment to purchase, hold or invest in "mortgage related securities," or
require the sale or other disposition of such securities, so long as such
contractual commitment was made or such securities acquired prior to the
enactment of such legislation.
SMMEA also amended the legal investment authority of
federally-chartered depository institutions as follows: federal savings and loan
associations and federal savings banks may invest in, sell or
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otherwise deal with "mortgage related securities" without limitation as to the
percentage of their assets represented thereby, federal credit unions may invest
in such securities, and national banks may purchase such securities for their
own account without regard to the limitations generally applicable to investment
securities set forth in 12 U.S.C. 24 (Seventh), subject in each case to such
regulations as the applicable federal regulatory authority may prescribe.
The Federal Financial Institutions Examination Council has issued a
supervisory policy statement (the "Policy Statement") applicable to all
depository institutions, setting forth guidelines for and significant
restrictions on investments in "high-risk mortgage securities." The Policy
Statement has been adopted by the Federal Reserve Board, the Office of the
Comptroller of the Currency, the FDIC and the OTS with an effective date of
February 10, 1992. The Policy Statement generally indicates that a mortgage
derivative product will be deemed to be high risk if it exhibits greater price
volatility than a standard fixed rate thirty-year mortgage security. According
to the Policy Statement, prior to purchase, a depository institution will be
required to determine whether a mortgage derivative product that it is
considering acquiring is high-risk, and if so that the proposed acquisition
would reduce the institution's overall interest rate risk. Reliance on analysis
and documentation obtained from a securities dealer or other outside party
without internal analysis by the institution would be unacceptable. There can be
no assurance as to which classes of Offered Certificates will be treated as
high-risk under the Policy Statement.
The predecessor to the Office of Thrift Supervision ("OTS") issued a
bulletin, entitled, "Mortgage Derivative Products and Mortgage Swaps", which is
applicable to thrift institutions regulated by the OTS. The bulletin established
guidelines for the investment by savings institutions in certain "high-risk"
mortgage derivative securities and limitations on the use of such securities by
insolvent, undercapitalized or otherwise "troubled" institutions. According to
the bulletin, such "high-risk" mortgage derivative securities include securities
having certain specified characteristics, which may include certain classes of
Offered Certificates. In addition, the National Credit Union Administration has
issued regulations governing federal credit union investments which prohibit
investment in certain specified types of securities, which may include certain
classes of Offered Certificates. Similar policy statements have been issued by
regulators having jurisdiction over other types of depository institutions.
Certain classes of Certificates offered hereby, including any class
that is not rated in one of the two highest rating categories by at least one
Rating Agency, will not constitute "mortgage related securities" for purposes of
SMMEA. Any such class of Certificates will be identified in the related
Prospectus Supplement. Prospective investors in such classes of Certificates, in
particular, should consider the matters discussed in the following paragraph.
There may be other restrictions on the ability of certain investors
either to purchase certain classes of Offered Certificates or to purchase any
class of Offered Certificates representing more than a specified percentage of
the investors' assets. The Company will make no representations as to the proper
characterization of any class of Offered Certificates for legal investment or
other purposes, or as to the ability of particular investors to purchase any
class of Certificates under applicable legal investment restrictions. These
uncertainties may adversely affect the liquidity of any class of Certificates.
Accordingly, all investors whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their own legal advisors in
determining whether and to what extent the Offered Certificates of any class
thereof constitute legal investments or are subject to investment, capital or
other restrictions, and, if applicable, whether SMMEA has been overridden in any
jurisdiction relevant to such investor.
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USE OF PROCEEDS
Unless otherwise specified in the related Prospectus Supplement,
substantially all of the net proceeds to be received from the sale of
Certificates will be applied by the Company to finance the purchase of, or to
repay short-term loans incurred to finance the purchase of, the Mortgage Loans
and/or Mortgage Securities in the respective Mortgage Pools and to pay other
expenses. The Company expects that it will make additional sales of securities
similar to the Offered Certificates from time to time, but the timing and amount
of any such additional offerings will be dependent upon a number of factors,
including the volume of mortgage loans purchased by the Company, prevailing
interest rates, availability of funds and general market conditions.
METHODS OF DISTRIBUTION
The Certificates offered hereby and by the related Prospectus
Supplements will be offered in series through one or more of the methods
described below. The Prospectus Supplement prepared for each series will
describe the method of offering being utilized for that series and will state
the net proceeds to the Company from such sale.
The Company intends that Offered Certificates will be offered through
the following methods from time to time and that offerings may be made
concurrently through more than one of these methods or that an offering of the
Offered Certificates of a particular series may be made through a combination of
two or more of these methods. Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting
and public re-offering by underwriters;
2. By placements by the Company with institutional investors
through dealers; and
3. By direct placements by the Company with institutional
investors.
If underwriters are used in a sale of any Offered Certificates (other
than in connection with an underwriting on a best efforts basis), such
Certificates will be acquired by the underwriters for their own account and may
be resold from time to time in one or more transactions, including negotiated
transactions, at fixed public offering prices or at varying prices to be
determined at the time of sale or at the time of commitment therefor. Such
underwriters may be broker-dealers affiliated with the Company whose identities
and relationships to the Company will be as set forth in the related Prospectus
Supplement. The managing underwriter or underwriters with respect to the offer
and sale of the Offered Certificates of a particular series will be set forth on
the cover of the Prospectus Supplement relating to such series and the members
of the underwriting syndicate, if any, will be named in such Prospectus
Supplement.
In connection with the sale of the Offered Certificates, underwriters
may receive compensation from the Company or from purchasers of such
Certificates in the form of discounts, concessions or commissions. Underwriters
and dealers participating in the distribution of the Offered Certificates may be
deemed to be underwriters in connection with such Certificates, and any
discounts or commissions received by them from the Company and any profit on the
resale of Offered Certificates by them may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933, as amended (the
"Securities Act").
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It is anticipated that the underwriting agreement pertaining to the
sale of Offered Certificates of any series will provide that the obligations of
the underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all such Certificates if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that, in limited circumstances, the Company will indemnify the
several underwriters and the underwriters will indemnify the Company against
certain civil liabilities, including liabilities under the Securities Act or
will contribute to payments required to be made in respect thereof.
The Prospectus Supplement with respect to any series offered by
placements through dealers will contain information regarding the nature of such
offering and any agreements to be entered into between the Company and
purchasers of Offered Certificates of such series.
The Company anticipates that the Certificates offered hereby will be
sold primarily to institutional investors or sophisticated non-institutional
investors. Purchasers of Offered Certificates, including dealers, may, depending
on the facts and circumstances of such purchases, be deemed to be "underwriters"
within the meaning of the Securities Act in connection with reoffers and sales
by them of such Certificates. Holders of Offered Certificates should consult
with their legal advisors in this regard prior to any such reoffer or sale.
LEGAL MATTERS
Unless otherwise specified in the related Prospectus Supplement,
certain legal matters, including certain federal income tax matters, in
connection with the Certificates of each series will be passed upon for the
Company by Thacher Proffitt & Wood, New York, New York.
FINANCIAL INFORMATION
A new Trust fund will be formed with respect to each series of
Certificates, and no Trust Fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related series of
Certificates. Accordingly, no financial statements with respect to any Trust
Fund will be included in this Prospectus or in the related Prospectus
Supplement.
RATING
It is a condition to the issuance of any class of Offered Certificates
that they shall have been rated not lower than investment grade, that is, in one
of the four highest rating categories, by at least one Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by the holders thereof of all collections on the underlying mortgage
assets to which such holders are entitled. These ratings address the structural,
legal and issuer-related aspects associated with such certificates, the nature
of the underlying mortgage assets and the credit quality of the guarantor, if
any. Ratings on mortgage pass-through certificates do not represent any
assessment of the likelihood of principal prepayments by borrowers or of the
degree by which such prepayments might differ from those originally anticipated.
As a result, Certificateholders might suffer a lower than anticipated yield,
and, in addition, holders of stripped interest certificates in extreme cases
might fail to recoup their initial investments.
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INDEX OF PRINCIPAL DEFINITIONS
PAGE
----
Accrual Certificates...................................................7, 37, 46
Accrued Certificate Interest..................................................46
Affiliated Sellers............................................................21
ARM Loans ............................................................22
Available Distribution Amount.................................................45
Balloon Loans ............................................................23
Balloon Payment ............................................................23
Bankruptcy Code ............................................................80
Bankruptcy Loss ............................................................51
Beneficial Owner ............................................................38
Buydown Account ............................................................25
Buydown Agreement ............................................................43
Buydown Funds ............................................................25
Buydown Mortgage Loans........................................................25
Buydown Period ............................................................25
Certificate ............................................................64
Certificate Account...........................................................41
Certificate Register..........................................................38
Certificate Registrar.........................................................38
Certificateholder ............................................................38
Certificateholders.............................................................1
Certificates ..........................................................1, 5
Closing Date ............................................................89
Code .........................................................7, 86
Commission .............................................................4
Committee Report ............................................................89
Company ..........................................................1, 5
Contracts ............................................................20
Contributions Tax ...........................................................100
Convertible Mortgage Loan.....................................................24
Debt Service Reduction........................................................56
Defaulted Mortgage Loss.......................................................51
Deferred Interest ............................................................22
Deficient Valuation...........................................................56
Deleted Mortgage Loan.........................................................29
Designated Seller Transaction.................................................21
Determination Date............................................................45
Distribution Date .............................................................9
DTC ............................................................38
DTC Registered Certificates...................................................38
Due Period ............................................................48
ERISA ............................................................13
Excess Interest ............................................................52
Exchange Act .............................................................4
Extraordinary Losses..........................................................51
FDIC ............................................................21
FHA ............................................................20
FHA Loans ............................................................20
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FHLMC ............................................................27
Financial Guaranty Insurance Policy...........................................52
FIRREA ............................................................27
FNMA ............................................................27
Fraud Loss ............................................................51
FTC Rule ............................................................82
Garn-St Germain Act...........................................................83
Grantor Trust Certificates................................................13, 87
Grantor Trust Fractional Interest Certificate................................104
Grantor Trust Fund............................................................87
Grantor Trust Strip Certificate..............................................104
Holder ............................................................38
Housing Act ............................................................27
HUD ............................................................63
Index ............................................................22
Insurance Proceeds............................................................42
Insurer ............................................................52
Intermediaries ............................................................38
IRS ............................................................89
Issue Premium ............................................................95
Letter of Credit ............................................................54
Letter of Credit Bank.........................................................54
Liquidated Mortgage Loan......................................................34
Liquidation Proceeds..........................................................42
Loan-to-Value Ratio.......................................................23, 24
Lock-out Expiration Date......................................................23
Lock-out Period ............................................................23
Loss ............................................................61
Manufactured Homes............................................................20
Manufacturer's Invoice Price..................................................24
Master Servicer ......................................................1, 5, 31
Mortgage Loans .......................................................1, 6, 8
Mortgage Notes ............................................................20
Mortgage Pool ..........................................................1, 8
Mortgage Rate ............................................................22
Mortgage Securities........................................................8, 21
Mortgaged Property.............................................................8
Mortgages ............................................................20
Mortgagor ............................................................17
Net Mortgage Rate ............................................................70
Non-conforming credit.........................................................16
Nonrecoverable Advance........................................................48
Note Margin ............................................................22
Offered Certificates....................................................1, 5, 38
OID Regulations ............................................................87
OOMC .............................................................5
OTS ...........................................................116
Overcollateralization.........................................................52
Participants ............................................................38
Parties in Interest..........................................................114
Pass-Through Rate .............................................................6
Percentage Interest...........................................................46
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Permitted Investments.........................................................41
Plan .......................................................13, 114
Policy Statement ...........................................................116
Pool Insurer ............................................................44
Pooling Agreement .........................................................1, 64
Pooling and Servicing Agreement................................................6
Pre-Funding Account...........................................................47
Prepayment Assumption....................................................89, 107
Prepayment Interest Shortfall.................................................71
Prepayment Penalty............................................................23
Primary Insurance Policy......................................................60
Primary Insurer ............................................................61
Prohibited Transactions Tax..................................................100
Proposed Mark-to-Market Regulations...........................................98
Prospectus Supplement..........................................................1
PTCE ...........................................................114
Purchase Obligation...........................................................60
Purchase Price ............................................................28
Qualified Substitute Mortgage Loan............................................29
Rating Agency ............................................................12
Realized Losses ............................................................51
Record Date ............................................................45
Related Proceeds ............................................................48
Relief Act ............................................................86
REMIC ......................................................1, 7, 87
REMIC Administrator...........................................................87
REMIC Certificates............................................................87
REMIC Provisions ............................................................87
REMIC Regular Certificates................................................13, 87
REMIC Regulations ............................................................87
REMIC Residual Certificates...............................................13, 87
REO Mortgage Loan ............................................................34
REO Property ............................................................32
Reserve Fund ............................................................56
RTC ............................................................21
Securities Act ........................................................4, 117
Seller .............................................................9
Sellers .........................................................1, 21
Senior Certificates........................................................7, 37
Senior Liens ............................................................23
Senior/Subordinate Series.....................................................37
Servicing Standard............................................................31
Single Family Loans...........................................................20
Single Family Property........................................................20
SMMEA .......................................................13, 115
Special Hazard Instrument.....................................................51
Special Hazard Insurance Policy...............................................55
Special Hazard Insurer........................................................55
Special Hazard Loss...........................................................51
Special Hazard Losses.........................................................55
Special Servicer .........................................................5, 33
Spread .............................................................6
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Strip Certificates.........................................................6, 37
Subordinate Certificates...................................................7, 37
Subservicer ............................................................32
Subservicers ............................................................25
Tiered REMICs ............................................................88
Title V ............................................................84
Title VIII ............................................................85
Trust Fund ..........................................................1, 6
Trust Fund Assets ..........................................................1, 6
Trustee .............................................................5
Unaffiliated Sellers..........................................................21
United States person.........................................................103
Value ............................................................24
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (ITEM 14 OF FORM S-3).
The expenses expected to be incurred in connection with the issuance
and distribution of the Certificates being registered, other than underwriting
compensation, are as set forth below.
All such expenses, except for the filing fee, are estimated.
Filing Fee for Registration Statement.................... $ 303.03
Legal Fees and Expenses.................................. *
Accounting Fees and Expenses............................. *
Trustee's Fees and Expenses
(including counsel fees).......................... *
Printing and Engraving Fees.............................. *
Rating Agency Fees....................................... *
Miscellaneous............................................ *
---------
Total .................................................. $ 303.03
=========
* To be provided by amendment.
INDEMNIFICATION OF DIRECTORS AND OFFICERS (ITEM 15 OF FORM S-3).
Subsection (a) of 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 is or was a director, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.
Subsection (b) of Section 145 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 or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification may be made
in respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that,
<PAGE>
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despite the adjudication of liability but in view of all circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 145 further provides that to the extent a director, officer,
employee or agent of a corporation has been successful on the merits or
otherwise in the defense of any action, suit or proceeding referred to in
subsections (a) and (b), or in the defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith; that
indemnification and advancement of expenses provided by, or granted pursuant to,
Section 145 shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; and empowers the corporation to purchase and
maintain insurance on behalf of a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liabilities under Section 145.
The By-laws of Option One Mortgage Acceptance Corporation (the
"Company") provide, in effect, that to the full extent permitted by law, the
Company shall indemnify and hold harmless each 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 and
whether or not by or in the right of the Company, by reason of the fact that he
is or was a director or officer, or his testator or intestate is or was a
director or officer of the Company, or by reason of the fact that such person is
or was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise of any type or kind, domestic or foreign, against expenses, including
attorneys' fees, judgments, fines and amounts paid in settlement, actually and
reasonably incurred as a result of such action, suit or proceeding.
Pursuant to Section 145 of the General Corporation Law of Delaware,
liability insurance is maintained covering directors and principal officers of
the Company.
Section 8(b) of the proposed form of Underwriting Agreement provides
that each Underwriter severally will indemnify and hold harmless the Company,
each of its directors, each of its officers who signs the Registration
Statement, and each person, if any, who controls the Company within the meaning
of the Securities Act of 1933, as amended, and the Securities Exchange of 1934,
as amended, against any losses, claims, damages or liabilities to which any of
them may become subject under the Securities Act of 1933, the Securities
Exchange Act of 1934 or other federal or state law or regulation, at common law
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or an
alleged untrue statement of a material fact contained in the registration
statement when it became effective, or in the Registration Statement, any
related preliminary prospectus or the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus supplement, or arise out of or
are based upon the omission or
<PAGE>
-3-
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made therein in reliance upon and
in conformity with written information furnished to the Company by such
Underwriter, specifically for use in the preparation thereof, and will reimburse
the Company for any legal or other expenses reasonably incurred by the Company
in connection with investigating or defending against such loss, claim, damage,
liability or action.
The Pooling and Servicing Agreements and the Trust Agreements will
provide that no director, officer, employee or agent of the Company is liable to
the Trust Fund or the Certificateholders, except for such person's own willful
misfeasance, bad faith or gross negligence in the performance of duties or
reckless disregard of obligations and duties. The Pooling and Servicing
Agreements and the Trust Agreements will further provide that, with the
exceptions stated above, a director, officer, employee or agent of the Company
is entitled to be indemnified against any loss, liability or expense incurred in
connection with legal action relating to such Pooling and Servicing Agreements,
Trust Agreements and related Certificates other than such expenses related to
particular Mortgage Loans.
EXHIBITS (ITEM 16 OF FORM S-3).
Exhibits--
1.1 -- Form of Underwriting Agreement.
3.1 -- Amended and Restated Articles of Incorporation.
3.2 -- Restated By-Laws.
4.1 -- Form of Pooling and Servicing Agreement for an offering of
Mortgage Pass-Through Certificates consisting of senior and
subordinate certificate classes.
4.2 -- Form of Pooling and Servicing Agreement for alternate forms of
credit support (single class).
5.1 -- Opinion of Thacher Proffitt & Wood with respect to legality.
8.1 -- Opinion of Thacher Proffitt & Wood with respect to certain tax
matters (included with Exhibit 5.1).
23.1 -- Consent of Thacher Proffitt & Wood (included as part of Exhibit
5.1 and Exhibit 8.1).
24.1 -- Power of Attorney.
- -----------------
<PAGE>
-4-
UNDERTAKINGS (ITEM 17 OF FORM S-3).
A. UNDERTAKINGS PURSUANT TO RULE 415.
The Registrant hereby undertakes:
(a)(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, and (iii) to include
any material information with respect to the plan of distribution not previously
disclosed in this Registration Statement or any material change to such
information in this Registration Statement; PROVIDED, HOWEVER, that subparts (i)
and (ii) do not apply if the information required to be included in the
post-effective amendment by those subparts is contained in periodic reports
filed by the Registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the 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) That, for the 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 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.
(f) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
B. 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
<PAGE>
-5-
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Option
One Mortgage Acceptance Corporation certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form S-3, reasonably
believes that the security rating requirement contained in Transaction
Requirement B.5 of Form S-3 will be met by the time of the sale of the
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 Santa Ana, State of California, on the 22 day of October, 1996.
OPTION ONE MORTGAGE ACCEPTANCE
CORPORATION
By /s/ Robert E. Dubrish
------------------------
Robert E. Dubrish
Director and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
/s/ Robert E. Dubrish Director and President October 22, 1996
- --------------------------
Robert E. Dubrish (Principal Executive Officer)
/s/ Steven L. Nadon Director and Secretary October 22, 1996
- --------------------------
Steven L. Nadon
/s/ William L. O'Neill Director and Treasurer October 22, 1996
- --------------------------
William L. O'Neill (Principal Financial Officer and
Principal Accounting Officer)
EXHIBIT 1.1
-----------
OPTION ONE MORTGAGE ACCEPTANCE CORPORATION
$____________ (Approximately)
Mortgage Pass-Through Certificates, Series 199_-_
Class R $____________ _____%
Class A $____________ _____%
UNDERWRITING AGREEMENT
________________, 199_
[UNDERWRITER]
___________________________
___________________________
___________________________
Ladies and Gentlemen:
Option One Mortgage Acceptance Corporation, a Delaware corporation (the
"Company"), proposes to sell to you (also referred to herein as the
"Underwriter") Mortgage Pass-Through Certificates, Series 199_-__, Class A and
Class R Certificates other than a de minimis portion thereof (collectively, the
"Certificates"), having the aggregate principal amounts and PassThrough Rates
set forth above. The Certificates, together with the Class M and Class B
Certificates of the same series, will evidence the entire beneficial interest in
the Trust Fund (as defined in the Pooling and Servicing Agreement referred to
below) consisting primarily of a pool (the "Pool") of conventional, fixed-rate,
one- to four-family residential mortgage loans (the "Mortgage Loans") as
described in the Prospectus Supplement (as hereinafter defined) to be sold by
the Company. A de minimis portion of the Class R Certificates will not be sold
hereunder and will be held by the Trustee.
The Certificates will be issued pursuant to a pooling and servicing
agreement (the "Pooling and Servicing Agreement") to be dated as of
__________________, 199_ (the "Cut-off Date") among the Company, as seller,
[Name of Master Servicer], as master servicer (the "Master Servicer"), and
___________________________________________, as trustee (the "Trustee"). The
Certificates are described more fully in the Basic Prospectus and the Prospectus
Supplement (each as hereinafter defined) which the Company has furnished to you.
<PAGE>
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1. REPRESENTATIONS, WARRANTIES AND COVENANTS.
1.1 The Company represents and warrants to, and agrees
with you that:
(a) The Company has filed with the Securities and
Exchange Commission (the "Commission") a registration statement (No.
33-_____) on Form S-3 for the registration under the Securities Act of
1933, as amended (the "Act"), of Mortgage Pass-Through Certificates
(issuable in series), including the Certificates, which registration
statement has become effective, and a copy of which, as amended to the
date hereof, has heretofore been delivered to you. The Company proposes
to file with the Commission pursuant to Rule 424(b) under the rules and
regulations of the Commission under the Act (the "1933 Act
Regulations") a supplement dated __________, 199_ (the "Prospectus
Supplement"), to the prospectus dated __________, 199_ (the "Basic
Prospectus"), relating to the Certificates and the method of
distribution thereof. Such registration statement (No. 33-_____)
including exhibits thereto and any information incorporated therein by
reference, as amended at the date hereof, is hereinafter called the
"Registration Statement"; and the Basic Prospectus and the Prospectus
Supplement and any information incorporated therein by reference,
together with any amendment thereof or supplement thereto authorized by
the Company on or prior to the Closing Date for use in connection with
the offering of the Certificates, are hereinafter called the
"Prospectus". Any preliminary form of the Prospectus Supplement which
has heretofore been filed pursuant to Rule 424, or prior to the
effective date of the Registration Statement pursuant to Rule 402(a),
or 424(a) is hereinafter called a "Preliminary Prospectus Supplement."
(b) The Registration Statement has become effective,
and the Registration Statement as of the effective date (the "Effective
Date"), and the Prospectus, as of the date of the Prospectus
Supplement, complied in all material respects with the applicable
requirements of the Act and the 1933 Act Regulations; and the
Registration Statement, as of the Effective Date, did not contain any
untrue statement of a material fact and did not omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading and the Prospectus, as of the date of
the Prospectus Supplement, did not, and as of the Closing Date will
not, contain an untrue statement of a material fact and did not and
will not 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 Company makes no
representations or warranties as to the information contained in or
omitted from the Registration Statement or the Prospectus or any
amendment thereof or supplement thereto relating to the information
identified by underlining or other highlighting as shown in Exhibit E
(the "Excluded Information"); and provided, further, that the Company
makes no representations or warranties as to either (i) any information
in any Computational Materials or ABS Term Sheets (each as hereinafter
defined) required to be provided by the Underwriter to the Company
pursuant to Section 4.2, except to the extent of any information set
forth therein that constitutes Pool Information (as defined below), or
(ii) as to any information contained in or omitted from the portions of
the Prospectus
<PAGE>
-3-
identified by underlining or other highlighting as shown in Exhibit F
(the "Underwriter Information"). As used herein, "Pool Information"
means information with respect to the characteristics of the Mortgage
Loans and administrative and servicing fees, as provided by or on
behalf of the Company to the Underwriter in final form and set forth in
the Prospectus Supplement. The Company acknowledges that, except for
any Computational Materials, the Underwriter Information constitutes
the only information furnished in writing by you or on your behalf for
use in connection with the preparation of the Registration Statement,
any preliminary prospectus or the Prospectus, and you confirm that the
Underwriter Information is correct.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware and has the requisite corporate power to own its properties
and to conduct its business as presently conducted by it.
(d) This Agreement has been duly authorized, executed and
delivered by the Company.
(e) As of the Closing Date (as defined herein) the
Certificates will conform in all material respects to the description
thereof contained in the Prospectus and the representations and
warranties of the Company in the Pooling and Servicing Agreement will
be true and correct in all material respects.
1.2 The Underwriter represents and warrants to and agrees with
the Company that:
(a) No purpose of the Underwriter relating to the
purchase of any of the Class R Certificates by the Underwriter is or
will be to enable the Company to impede the assessment or collection of
any tax.
(b) The Underwriter has no present knowledge or
expectation that it will be unable to pay any United States taxes owed
by it so long as any of the Certificates remain outstanding.
(c) The Underwriter has no present knowledge or
expectation that it will become insolvent or subject to a bankruptcy
proceeding for so long as any of the Certificates remain outstanding.
(d) No purpose of the Underwriter relating to any
sale of any of the Class R Certificates by the Underwriter will be to
enable it to impede the assessment or collection of tax. In this
regard, the Underwriter hereby represents to and for the benefit of the
Company that the Underwriter intends to pay taxes associated with
holding the Class R Certificates, as they become due, fully
understanding that it may incur tax liabilities in excess of any cash
flows generated by the Class R Certificates.
<PAGE>
-4-
(e) The Underwriter will, in connection with any
transfer it makes of any of the Class R Certificates, obtain from its
transferee the affidavit required by Section 5.02(g)(i)(B)(I) of the
Pooling and Servicing Agreement, will not consummate any such transfer
if it knows or believes that any representation contained in such
affidavit is false and will provide the Trustee with the Certificate
required by Section 5.02(g)(i)(B)(II) of the Pooling and Servicing
Agreement.
(f) The Underwriter hereby certifies that (i) with
respect to any classes of Certificates issued in authorized
denominations or Percentage Interests of less than $25,000 or 20%, as
the case may be, the fair market value of each such Certificate sold to
any person on the date of initial sale thereof by the Underwriter will
not be less than $100,000, and (ii) with respect to each class of
Certificates to be maintained on the book-entry records of The
Depository Trust Company ("DTC"), the interest in each such class of
Certificates sold to any person on the date of initial sale thereof by
the Underwriter will not be less than an initial Certificate Principal
Balance of $25,000.
(g) The Underwriter will use its best reasonable
efforts to cause Trepp & Co. to issue a commitment letter, prior to the
Closing Date, to DTC stating that Trepp & Co. will value the DTC
Registered Certificates (hereinafter defined) on an ongoing basis
subsequent to the Closing Date.
(h) The Underwriter will have funds available at
__________________ _______________, in the Underwriter's account at
such bank at the time all documents are executed and the closing of the
sale of the Certificates is completed, except for the transfer of funds
and the delivery of the Certificates. Such funds will be available for
immediate transfer into the account of the Company maintained at such
bank.
(i) As of the date hereof and as of the Closing Date,
the Underwriter has complied with all of its obligations hereunder
including Section 4.2, and, with respect to all Computational Materials
and ABS Term Sheets provided by the Underwriter to the Company pursuant
to Section 4.2, if any, such Computational Materials and ABS Term
Sheets are accurate in all material respects when read in conjunction
with the Prospectus Supplement (taking into account the assumptions
explicitly set forth in the Computational Materials, except to the
extent of any errors therein that are caused by errors in the Pool
Information). The Computational Materials and ABS Term Sheets provided
by the Underwriter to the Company constitute a complete set of all
Computational Materials and ABS Term Sheets that are required to be
filed with the Commission.
1.3 The Underwriter covenants and agrees to pay directly, or
reimburse the Company upon demand for (i) any and all taxes (including penalties
and interest) owed or asserted to be owed by the Company as a result of a claim
by the Internal Revenue Service that the transfer of any of the Class R
Certificates to the Underwriter hereunder or any transfer thereof by the
Underwriter may be disregarded for federal tax purposes and (ii) any and all
losses, claims, damages and liabilities, including attorney's fees and expenses,
arising out of any failure of the Underwriter to make payment or reimbursement
in connection with any such
<PAGE>
-5-
assertion as required in (i) above. In addition, the Underwriter acknowledges
that on the Closing Date immediately after the transactions described herein it
will be the owner of the Class R Certificates for federal tax purposes, and the
Underwriter covenants that it will not assert in any proceeding that the
transfer of the Class R Certificates from the Company to the Underwriter should
be disregarded for any purpose.
2. PURCHASE AND SALE. Subject to the terms and conditions and in
reliance upon the representations and warranties herein set forth, the Company
agrees to sell to you, and you agree to purchase from the Company, the
Certificates (other than for a de minimis portion of the Class R Certificates,
which shall be transferred by the Company to the Trustee) at a price equal to
__________% of the aggregate principal balance of the Certificates as of the
Closing Date. There will be added to the purchase price of the Certificates an
amount equal to interest accrued thereon from the Cut-off Date to but not
including the Closing Date. The purchase price for the Certificates was agreed
to by the Company in reliance upon the transfer from the Company to the
Underwriter of the tax liabilities associated with the ownership of the Class R
Certificates.
3. DELIVERY AND PAYMENT. Delivery of and payment for the Certificates
shall be made at the office of Thacher Proffitt & Wood at 10:00 a.m., New York
City time, on ______________, 199_ or such later date as you shall designate,
which date and time may be postponed by agreement between you and the Company
(such date and time of delivery and payment for the Certificates being herein
called the "Closing Date"). Delivery of the Certificates (except for the Class R
Certificates (the "Definitive Certificates")) shall be made to you through the
Depository Trust Company ("DTC") (such Certificates, the "DTC Registered
Certificates"), and delivery of the Definitive Certificates shall be made in
registered, certified form, in each case against payment by you of the purchase
price thereof to or upon the order of the Company by wire transfer in
immediately available funds. The Definitive Certificates shall be registered in
such names and in such denominations as you may request not less than two
business days in advance of the Closing Date. The Company agrees to have the
Definitive Certificates available for inspection, checking and packaging by you
in New York, New York not later than 1:00 p.m. on the business day prior to the
Closing Date.
4. OFFERING BY UNDERWRITER.
4.1 It is understood that you propose to offer the
Certificates for sale to the public as set forth in the Prospectus and you agree
that all such offers and sales by you shall be made in compliance with all
applicable laws and regulations.
4.2 It is understood that you may prepare and provide to
prospective investors certain Computational Materials (as defined below) in
connection with your offering of the Certificates, subject to the following
conditions:
(a) The Underwriter shall comply with all applicable
laws and regulations in connection with the use of Computational
Materials, including the No- Action Letter of May 20, 1994 issued by
the Commission to Kidder, Peabody Acceptance Corporation I, Kidder,
Peabody & Co. Incorporated and Kidder Structured
<PAGE>
-6-
Asset Corporation, as made applicable to other issuers and underwriters
by the Commission in response to the request of the Public Securities
Association dated May 24, 1994 (collectively, the "Kidder/PSA Letter")
as well as the PSA Letter referred to below. The Underwriter shall
comply with all applicable laws and regulations in connection with the
use of ABS Term Sheets, including the No-Action Letter of February 17,
1995 issued by the Commission to the Public Securities Association (the
"PSA Letter" and, together with the Kidder/PSA Letter, the "No-Action
Letters").
(b) For purposes hereof, "Computational Materials" as
used herein shall have the meaning given such term in the No-Action
Letters, but shall include only those Computational Materials that have
been prepared or delivered to prospective investors by or at the
direction of the Underwriter. For purposes hereof, "ABS Term Sheets"
and "Collateral Term Sheets" as used herein shall have the meanings
given such terms in the PSA Letter but shall include only those ABS
Term Sheets or Collateral Term Sheets that have been prepared or
delivered to prospective investors by or at the direction of the
Underwriter.
(c) All Computational Materials and ABS Term Sheets
provided to prospective investors that are required to be filed
pursuant to the No-Action Letters shall bear a legend on each page
including the following statement:
"THE INFORMATION HEREIN HAS BEEN PROVIDED
SOLELY BY [Underwriter]. NEITHER THE ISSUER
OF THE CERTIFICATES NOR ANY OF ITS AFFILIATES
MAKES ANY REPRESENTATION AS TO THE ACCURACY
OR COMPLETENESS OF THE INFORMATION HEREIN.
THE INFORMATION HEREIN IS PRELIMINARY, AND
WILL BE SUPERSEDED BY THE APPLICABLE
PROSPECTUS SUPPLEMENT AND BY ANY OTHER
INFORMATION SUBSEQUENTLY FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION.
In the case of Collateral Term Sheets, such legend shall also include
the following statement:
"THE INFORMATION CONTAINED HEREIN WILL BE
SUPERSEDED BY THE DESCRIPTION OF THE MORTGAGE
POOL CONTAINED IN THE PROSPECTUS SUPPLEMENT
RELATING TO THE CERTIFICATES AND [Except with
respect to the initial Collateral Term Sheet
prepared by the Underwriter] SUPERSEDES ALL
INFORMATION CONTAINED IN ANY COLLATERAL TERM
SHEETS RELATING TO THE MORTGAGE POOL
PREVIOUSLY PROVIDED BY [the Underwriter]."
<PAGE>
-7-
The Company shall have the right to require additional specific legends
or notations to appear on any Computational Materials or ABS Term
Sheets, the right to require changes regarding the use of terminology
and the right to determine the types of information appearing therein.
Notwithstanding the foregoing, this subsection (c) will be satisfied if
all such Computational Materials and ABS Term Sheets bear a legend in
the form set forth in Exhibit I hereto.
(d) The Underwriter shall provide the Company with
representative forms of all Computational Materials and ABS Term Sheets
prior to their first use, to the extent such forms have not previously
been approved by the Company for use by the Underwriter. The
Underwriter shall provide to the Company, for filing on Form 8-K as
provided in Section 5.9, copies (in such format as required by the
Company) of all Computational Materials that are required to be filed
with the Commission pursuant to the No-Action Letters. The Underwriter
may provide copies of the foregoing in a consolidated or aggregated
form including all information required to be filed. All Computational
Materials and ABS Term Sheets described in this subsection (d) must be
provided to the Company not later than 10:00 a.m. New York time one
business day before filing thereof is required pursuant to the terms of
this Agreement. The Underwriter agrees that it will not provide to any
investor or prospective investor in the Certificates any Computational
Materials or ABS Term Sheets on or after the day on which Computational
Materials and ABS Term Sheets are required to be provided to the
Company pursuant to this Section 4.2(d) (other than copies of
Computational Materials or ABS Term Sheets previously submitted to the
Company in accordance with this Section 4.2(d) for filing pursuant to
Section 5.9), unless such Computational Materials or ABS Term Sheets
are preceded or accompanied by the delivery of a Prospectus to such
investor or prospective investor.
(e) 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 that the
Computational Materials and ABS Term Sheets or ABS Term Sheets, as the
case may be, may include information based on alternative assumptions
if specified therein. If any Computational Materials or ABS Term Sheets
that are required to be filed were based on assumptions with respect to
the Pool that differ from the final Pool Information in any material
respect or on Certificate structuring terms that were revised prior to
the printing of the Prospectus, the Underwriter shall prepare revised
Computational Materials or ABS Term Sheets, as the case may be, based
on the final Pool Information and structuring assumptions, circulate
such revised Computational Materials and ABS Term Sheets to all
recipients of the preliminary versions thereof that indicated orally to
the Underwriter they would purchase all or any portion of the
Certificates and include such revised Computational Materials and ABS
Term Sheets (marked, "as revised") in the materials delivered to the
Company pursuant to subsection (d) above.
(f) The Company shall not be obligated to file any
Computational Materials that have been determined to contain any
material error or omission. In the
<PAGE>
-8-
event that any Computational Materials or ABS Terms Sheets are
determined, within the period which the Prospectus relating to the
Certificates is required to be delivered under the Act, to contain a
material error or omission, the Underwriter shall prepare a corrected
version of such Computational Materials or ABS Term Sheets, shall
circulate such corrected Computational Materials to all recipients of
the prior versions thereof that indicated orally to the Underwriter
they would purchase all or any portion of the Certificates and shall
deliver copies of such corrected Computational Materials and ABS Term
Sheets (marked, "as corrected") to the Company for filing with the
Commission in a subsequent Form 8-K submission (subject to the
Company's obtaining an accountant's comfort letter in respect of such
corrected Computational Materials, which shall be at the expense of the
Underwriter), provided that if any such letter is required to be
revised solely because of a change in the Pool Information, fifty
percent of any additional expenses for such letter resulting from the
change in Pool Information shall be paid by each of the Underwriter and
the Company.
(g) If the Underwriter does not provide any
Computational Materials or ABS Term Sheets to the Company pursuant to
subsection (d) above, the Underwriter shall be deemed to have
represented, as of the Closing Date, that it did not provide any
prospective investors with any information in written or electronic
form in connection with the offering of the Certificates that is
required to be filed with the Commission in accordance with the
No-Action Letters, and the Underwriter shall provide the Company with a
certification to that effect on the Closing Date.
(h) In the event of any delay in the delivery by the
Underwriter to the Company of all Computational Materials and ABS Term
Sheets required to be delivered in accordance with subsection (d)
above, or in the delivery of the accountant's comfort letter in respect
thereof pursuant to Section 5.9, the Company shall have the right to
delay the release of the Prospectus to investors or to the Underwriter,
to delay the Closing Date and to take other appropriate actions in each
case as necessary in order to allow the Company to comply with its
agreement set forth in Section 5.9 to file the Computational Materials
and ABS Term Sheets by the time specified therein.
(i) The Underwriter represents that it has in place,
and covenants that it shall maintain internal controls and procedures
which it reasonably believes to be sufficient to ensure full compliance
with all applicable legal requirements of the NoAction Letters with
respect to the generation and use of Computational Materials and ABS
Term Sheets in connection with the offering of the Certificates.
4.3 You further agree that on or prior to the sixth day after
the Closing Date, you shall provide the Company with a certificate,
substantially in the form of Exhibit G attached hereto, setting forth (i) in the
case of each class of Certificates, (a) if less than 10% of the aggregate
principal balance of such class of Certificates has been sold to the public as
of such date, the value calculated pursuant to clause (b)(iii) of Exhibit G
hereto, or, (b) if 10% or more of such class of Certificates has been sold to
the public as of such date but no single price is paid for at least 10% of the
aggregate principal balance of such class of Certificates, then the
<PAGE>
-9-
weighted average price at which the Certificates of such class were sold
expressed as a percentage of the principal balance of such class of Certificates
sold, or (c) the first single price at which at least 10% of the aggregate
principal balance of such class of Certificates was sold to the public, (ii) the
prepayment assumption used in pricing each class of Certificates, and (iii) such
other information as to matters of fact as the Company may reasonably request to
enable it to comply with its reporting requirements with respect to each class
of Certificates to the extent such information can in the good faith judgment of
the Underwriter be determined by it.
5. AGREEMENTS. The Company agrees with you that:
5.1 Before amending or supplementing the Registration
Statement or the Prospectus with respect to the Certificates, the Company will
furnish you with a copy of each such proposed amendment or supplement.
5.2 The Company will cause the Prospectus Supplement to be
transmitted to the Commission for filing pursuant to Rule 424(b) under the Act
by means reasonably calculated to result in filing with the Commission pursuant
to said rule.
5.3 If, during the period after the first date of the public
offering of the Certificates in which a prospectus relating to the Certificates
is required to be delivered under the Act, any event occurs as a result of which
it is necessary to amend or supplement the Prospectus, as then amended or
supplemented, in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not misleading,
or if it shall be necessary to amend or supplement the Prospectus to comply with
the Act or the 1933 Act Regulations, the Company promptly will prepare and
furnish, at its own expense, to you, either amendments or supplements to the
Prospectus so that the statements in the Prospectus as so amended or
supplemented will not, in the light of the circumstances when the Prospectus is
delivered to a purchaser, be misleading or so that the Prospectus will comply
with law.
5.4 The Company will furnish to you, without charge, a copy of
the Registration Statement (including exhibits thereto) and, so long as delivery
of a prospectus by an underwriter or dealer may be required by the Act, as many
copies of the Prospectus, any documents incorporated by reference therein and
any amendments and supplements thereto as you may reasonably request.
5.5 The Company agrees, so long as the Certificates shall be
outstanding, or until such time as you shall cease to maintain a secondary
market in the Certificates, whichever first occurs, to deliver to you the annual
statement as to compliance delivered to the Trustee pursuant to Section 3.18 of
the Pooling and Servicing Agreement and the annual statement of a firm of
independent public accountants furnished to the Trustee pursuant to Section 3.19
of the Pooling and Servicing Agreement, as soon as such statements are furnished
to the Company.
5.6 The Company will endeavor to arrange for the qualification
of the Certificates for sale under the laws of such jurisdictions as you may
reasonably designate and will maintain such qualification in effect so long as
required for the initial distribution of the
<PAGE>
-10-
Certificates; provided, however, that the Company shall not be required to
qualify to do business in any jurisdiction where it is not now so qualified or
to take any action that would subject it to general or unlimited service of
process in any jurisdiction where it is not now so subject.
5.7 If the transactions contemplated by this Agreement are
consummated, the Company will pay or cause to be paid all expenses incident to
the performance of the obligations of the Company under this Agreement, and will
reimburse you for any reasonable expenses (including reasonable fees and
disbursements of counsel) reasonably incurred by you in connection with
qualification of the Certificates for sale and determination of their
eligibility for investment under the laws of such jurisdictions as you have
reasonably requested pursuant to Section 5.6 above and the printing of memoranda
relating thereto, for any fees charged by investment rating agencies for the
rating of the Certificates, and for expenses incurred in distributing the
Prospectus (including any amendments and supplements thereto) to the
Underwriter. Except as herein provided, you shall be responsible for paying all
costs and expenses incurred by you, including the fees and disbursements of your
counsel, in connection with the purchase and sale of the Certificates.
5.8 If, during the period after the Closing Date in which a
prospectus relating to the Certificates is required to be delivered under the
Act, the Company receives notice that a stop order suspending the effectiveness
of the Registration Statement or preventing the offer and sale of the
Certificates is in effect, the Company will advise you of the issuance of such
stop order.
5.9 The Company shall file the Computational Materials and ABS
Term Sheets (if any) provided to it by the Underwriter under Section 4.2(d) with
the Commission pursuant to a Current Report on Form 8-K by 10:00 a.m. on the
morning the Prospectus is delivered to the Underwriter or, the case of any
Collateral Term Sheet required to be filed prior to such date, by 10:00 a.m. on
the second business day following the first day on which such Collateral Term
Sheet has been sent to a prospective investor; provided, however, that prior to
such filing of the Computational Materials and ABS Term Sheets (other than any
Collateral Term Sheets that are not based on the Pool Information) by the
Company, the Underwriter must comply with its obligations pursuant to Section
4.2 and the Company must receive a letter from ___________________________,
certified public accountants, satisfactory in form and substance to the Company
and its counsel, to the effect that such accountants have performed certain
specified procedures, all of which have been agreed to by the Company, as a
result of which they determined that all information that is included in the
Computational Materials (if any) provided by the Underwriter to the Company for
filing on Form 8-K, as provided in Section 4.2 and this Section 5.9, is accurate
without exception. The foregoing letter shall be at the sole expense of the
Underwriter. The Company shall file any corrected Computational Materials
described in Section 4.2(f) as soon as practicable following receipt thereof.
The Company also will file with the Commission within fifteen days of the
issuance of the Certificates a Current Report on Form 8-K (for purposes of
filing the Pooling and Servicing Agreement).
6. CONDITIONS TO THE OBLIGATIONS OF THE UNDERWRITER. The
Underwriter's obligation to purchase the Certificates shall be subject to the
following conditions:
<PAGE>
-11-
6.1 No stop order suspending the effectiveness of the
Registration Statement shall be in effect, and no proceedings for that purpose
shall be pending or, to the knowledge of the Company, threatened by the
Commission; and the Prospectus Supplement shall have been filed or transmitted
for filing, by means reasonably calculated to result in a filing with the
Commission pursuant to Rule 424(b) under the Act.
6.2 Since _________ 1, 199_ there shall have been no material
adverse change (not in the ordinary course of business) in the condition of the
Company.
6.3 The Company shall have delivered to you a certificate,
dated the Closing Date, of the President, a Senior Vice President or a Vice
President of the Company to the effect that the signer of such certificate has
examined this Agreement, the Prospectus, the Pooling and Servicing Agreement and
various other closing documents, and that, to the best of his or her knowledge
after reasonable investigation:
(a) the representations and warranties of the Company
in this Agreement and in the Pooling and Servicing Agreement are true
and correct in all material respects; and
(b) the Company has, in all material respects,
complied with all the agreements and satisfied all the conditions on
its part to be performed or satisfied hereunder at or prior to the
Closing Date.
6.4 You shall have received the opinions of Thacher Proffitt &
Wood, counsel for the Company and the Master Servicer, dated the Closing Date
and substantially to the effect set forth in Exhibit A-1 and Exhibit A-2, and
the opinion of [General Counsel to Master Servicer], dated the Closing Date and
substantially to the effect set forth in Exhibit B.
6.5 You shall have received from ________________________,
counsel for the Underwriter, an opinion dated the Closing Date in form and
substance satisfactory to the Underwriter.
6.6 The Underwriter shall have received from
________________________, certified public accountants, a letter dated the date
hereof and satisfactory in form and substance to the Underwriter and the
Underwriter's counsel, to the effect that they have performed certain specified
procedures, all of which have been agreed to by the Underwriter, as a result of
which they determined that certain information of an accounting, financial or
statistical nature set forth in the Prospectus Supplement under the captions
"Description of the Mortgage Pool", "Pooling and Servicing Agreement",
"Description of the Certificates" and "Certain Yield and Prepayment
Considerations" agrees with the records of the Company excluding any questions
of legal interpretation.
6.7 The Certificates shall have been rated "AAA" by [Standard
& Poor's Ratings Services] and [Fitch Investor's Service, L.P.]
<PAGE>
-12-
6.8 You shall have received the opinion of [Trustee's
Counsel], dated the Closing Date, substantially to the effect set forth in
Exhibit C.
6.9 You shall have received from Thacher Proffitt & Wood,
counsel to the Company, reliance letters with respect to any opinions delivered
to Standard & Poor's Ratings Services and Fitch Investor Services, L.P.
The Company will furnish you with conformed copies of the above opinions,
certificates, letters and documents as you reasonably request.
7. INDEMNIFICATION AND CONTRIBUTION.
7.1 The Company agrees to indemnify and hold harmless you and
each person, if any, who controls you within the meaning of either Section 15 of
the Act or Section 20 of the Securities Exchange Act of 1934, from and against
any and all losses, claims, damages and liabilities caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement for the registration of the Certificates as originally
filed or in any amendment thereof or other filing incorporated by reference
therein, or in the Prospectus or incorporated by reference therein (if used
within the period set forth in Section 5.3 hereof and as amended or supplemented
if the Company shall have furnished any amendments or supplements thereto), or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
insofar as such losses, claims, damages, or liabilities are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
any information with respect to which the Underwriter has agreed to indemnify
the Company pursuant to Section 7.2; provided, that neither the Company, or you
will be liable in any case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein relating to the
Excluded Information.
7.2 You agree to indemnify and hold harmless the Company, its
directors or officers and any person controlling the Company to the same extent
as the indemnity set forth in clause 7.1 above from the Company to you, but only
with respect to (i) the Underwriter Information and (ii) the Computational
Materials and ABS Term Sheets, except to the extent of any errors in the
Computational Materials or ABS Term Sheets that are caused by errors in the Pool
Information. In addition, you agree to indemnify and hold harmless the Company
its directors or officers and any person controlling the Company against any and
all losses, claims, damages, liabilities and expenses (including, without
limitation, reasonable attorneys' fees) caused by, resulting from, relating to,
or based upon any legend regarding original issue discount on any Certificate
resulting from incorrect information provided by the Underwriter in the
certificates described in Section 4.3 hereof.
7.3 In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to either clause 7.1 or 7.2, such person (the
"indemnified party") shall promptly notify the person
<PAGE>
-13-
against whom such indemnity may be sought (the "indemnifying party") in writing
and the indemnifying party, upon request of the indemnified party, shall retain
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party and any others the indemnifying party may designate in such
proceeding and shall pay the reasonable fees and disbursements of such counsel
related to such proceeding. In any such proceeding, any indemnified party shall
have the right to retain its own counsel, but the reasonable fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them. It
is understood that the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm for all such
indemnified parties. Such firm shall be designated in writing by you, in the
case of parties indemnified pursuant to clause 7.1 and by the Company, in the
case of parties indemnified pursuant to clause 7.2. The indemnifying party may,
at its option, at any time upon written notice to the indemnified party, assume
the defense of any proceeding and may designate counsel reasonably satisfactory
to the indemnified party in connection therewith provided that the counsel so
designated would have no actual or potential conflict of interest in connection
with such representation. Unless it shall assume the defense of any proceeding
the indemnifying party shall not be liable for any settlement of any proceeding,
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. If the indemnifying party assumes the defense of
any proceeding, it shall be entitled to settle such proceeding with the consent
of the indemnified party or, if such settlement provides for release of the
indemnified party in connection with all matters relating to the proceeding
which have been asserted against the indemnified party in such proceeding by the
other parties to such settlement, without the consent of the indemnified party.
7.4 If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under clause 7.1 or 7.2 hereof or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities, in
such proportion as is appropriate to reflect not only the relative benefits
received by the Company on the one hand and the Underwriter on the other from
the offering of the Certificates but also the relative fault of the Company on
the one hand and of the Underwriter, on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and of the Underwriter on the
other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or by the Underwriter, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
<PAGE>
-14-
7.5 The Company and the Underwriter agree that it would not be
just and equitable if contribution pursuant to this Section 7 were determined by
pro rata allocation or by any other method of allocation which does not take
account of the considerations referred to in clause 7.4, above. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages
and liabilities referred to in this Section 7 shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim except where the indemnified party is
required to bear such expenses pursuant to clause 7.4; which expenses the
indemnifying party shall pay as and when incurred, at the request of the
indemnified party, to the extent that the indemnifying party believes that it
will be ultimately obligated to pay such expenses. In the event that any
expenses so paid by the indemnifying party are subsequently determined to not be
required to be borne by the indemnifying party hereunder, the party which
received such payment shall promptly refund the amount so paid to the party
which made such payment. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
7.6 The indemnity and contribution agreements contained in
this Section 7 and the representations and warranties of the Company in this
Agreement shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by the
Underwriter or on behalf of the Underwriter or any person controlling the
Underwriter or by or on behalf of the Company and its respective directors or
officers or any person controlling the Company and (iii) acceptance of and
payment for any of the Certificates.
8. TERMINATION. This Agreement shall be subject to termination by
notice given to the Company, if the sale of the Certificates provided for herein
is not consummated because of any failure or refusal on the part of the Company
to comply with the terms or to fulfill any of the conditions of this Agreement,
or if for any reason the Company shall be unable to perform their respective
obligations under this Agreement. If you terminate this Agreement in accordance
with this Section 8, the Company will reimburse you for all reasonable
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
that shall have been reasonably incurred by the Underwriter in connection with
the proposed purchase and sale of the Certificates.
9. CERTAIN REPRESENTATIONS AND INDEMNITIES TO SURVIVE. The
respective agreements, representations, warranties, indemnities and other
statements of the Company or the officers of the Company, and you set forth in
or made pursuant to this Agreement will remain in full force and effect,
regardless of any investigation, or statement as to the results thereof, made by
you or on your behalf or made by or on behalf of the Company or any of its
officers, directors or controlling persons, and will survive delivery of and
payment for the Certificates.
10. NOTICES. All communications hereunder will be in writing and
effective only on receipt, and, if sent to the Underwriter will be mailed,
delivered or telegraphed and confirmed to you at
________________________________________________________________________,
Attention: ____________________________ or if sent to the Company, will be
mailed, delivered
<PAGE>
-15-
or telegraphed and confirmed to it at Option One Mortgage Acceptance
Corporation, 2020 East First Street, Suite 100, Santa Ana, California 92705.
11. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 7 hereof, and their
successors and assigns, and no other person will have any right or obligation
hereunder.
12. APPLICABLE LAW. This Agreement will be governed by and
construed in accordance with the laws of the State of New York.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, which taken together
shall constitute one and the same instrument.
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
letter and your acceptance shall represent a binding agreement between the
Company and you.
Very truly yours,
OPTION ONE MORTGAGE
ACCEPTANCE CORPORATION
By:____________________________
Name:
Title:
The foregoing Underwriting Agreement is
hereby confirmed and accepted as of the
date first above written.
________________________________________
By:_____________________________________
Name:
Title:
<PAGE>
EXHIBIT A-1
[Thacher Proffitt & Wood Letterhead]
_________________, 199_
Option One Mortgage Acceptance Corporation
2020 East First Street, Suite 100
Santa Ana, California 92705
[Name of Master Servicer]
[Address of Master Servicer]
[UNDERWRITER]
_____________________________
_____________________________
_____________________________
[TRUSTEE]
_____________________________
_____________________________
_____________________________
Re: Option One Mortgage Acceptance Corporation
Mortgage Pass-Through Certificates, Series 199_-____
----------------------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Option One Mortgage Acceptance
Corporation (the "Company") and [Name of Master Servicer] (the "Master
Servicer") in connection with the issuance and sale by the Company of Mortgage
Pass-Through Certificates, Series 199_- ____ (the "Certificates"), pursuant to a
Pooling and Servicing Agreement, dated as of _______________ 1, 199_ (the
"Pooling and Servicing Agreement"), among the Company, the Master Servicer and
___________________, as trustee (the "Trustee"). The Certificates consist of
____________ classes designated as Class A and Class R (collectively, the
"Senior Certificates") and ____________ classes of subordinated certificates
designated as Class M and Class B. Only the Senior Certificates and the Class M
Certificates (collectively, the "Offered Certificates") are offered under the
Prospectus.
<PAGE>
Option One Mortgage Acceptance Corporation
[Name of Master Servicer]
__________________, 199_ 2.
The Senior Certificates in the aggregate and the Class M Certificates
will evidence initial undivided interests of approximately _____% and _____%,
respectively, in a trust fund (the "Trust Fund") consisting primarily of a pool
of conventional, fixed-rate, one- to four-family first mortgage loans (the
"Mortgage Loans") held by ______________________________ ______________, as
custodian (the "Custodian"), pursuant to a Custodial Agreement, dated as of
_______________ 1, 199_, among the Company, the Master Servicer, the Custodian
and the Trustee (the "Custodial Agreement").
____________________________________ ("The Purchaser") acquired the Mortgage
Loans through its mortgage loan purchase program from various seller/servicers.
The Purchaser transferred the Mortgage Loans to the Company pursuant to an
Assignment and Assumption Agreement, dated ________, 199_ (the "Assignment and
Assumption Agreement"), in exchange for immediately available funds, the Class M
and Class B Certificates. The Company will sell the Class A and the Class R
Certificates other than a de minimis portion thereof (the "Underwritten
Certificates") to _______________________ (the "Underwriter"), pursuant to an
Underwriting Agreement, dated _______________, 199_, between the Company and the
Underwriter (the "Underwriting Agreement"; the Pooling and Servicing Agreement,
the Custodial Agreement, the Underwriting Agreement and the Assignment and
Assumption Agreement, collectively, the "Agreements"). Capitalized terms used
but not defined herein shall have the meanings set forth in the Agreements. This
opinion letter is rendered pursuant to Section 6.4 of the Underwriting
Agreement.
In connection with rendering this opinion letter, we have examined the
Agreements and such records and other documents as we have deemed necessary. As
to matters of fact, we have examined and relied upon representations of the
parties contained in the Agreements and, where we have deemed appropriate,
representations or certifications of officers of the Company, the Master
Servicer, the Trustee or public officials. We have assumed the authenticity of
all documents submitted to us as originals, the genuineness of all signatures,
the legal capacity of natural persons and the conformity to the originals of all
documents submitted to us as copies. We have assumed that all parties, except
for the Company and the Master Servicer, had the corporate power and authority
to enter into and perform all obligations under such documents. As to such
parties, we also have assumed the due authorization by all requisite corporate
action, the due execution and delivery and the enforceability of such documents.
We have assumed that there is not and will not be any other agreement that
materially supplements or otherwise modifies the agreements expressed in the
Agreements. We have further assumed the conformity of the Mortgage Loans and
related documents to the requirements of the Agreements.
In rendering this opinion letter, we do not express any opinion
concerning any law other than the law of the State of New York and the federal
law of the United States, nor do we express any opinion concerning the
application of the "doing business" laws or the securities laws of any
jurisdiction other than the federal securities laws of the United States. In
rendering the opinion set forth below, as to matters governed by the laws of the
State of California, we have relied without independent investigation on the
opinion letter of [Counsel to Master Servicer], general counsel to the Company
and the Master Servicer, dated the date hereof, a copy of which is annexed
hereto. To the extent that we have relied on the foregoing opinion
<PAGE>
Option One Mortgage Acceptance Corporation
[Name of Master Servicer]
__________________, 199_ 3.
letter, the opinions set forth below are subject to the same assumptions,
qualifications, exceptions and other limitations set forth therein. We do not
express any opinion on any issue not expressly addressed below.
Based upon the foregoing, it is our opinion that:
1. The Registration Statement has become effective under the
Securities Act of 1933, as amended (the "Act"), and, to the
best of our knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued
and not withdrawn, and no proceedings for that purpose have
been instituted or threatened under Section 8(d) of the Act.
2. The Registration Statement, at the Effective Date, and the
Prospectus, as of the date of the Prospectus Supplement, other
than any financial or statistical information or Computational
Materials contained or incorporated by reference therein,
complied as to form in all material respects with the
requirements of the Act and the applicable rules and
regulations thereunder.
3. To our knowledge, there are no material contracts, indentures,
or other documents (not including computational materials) of
a character required to be described or referred to in either
the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement other than those
described or referred to therein or filed or incorporated by
reference as exhibits thereto.
4. The Offered Certificates, when duly and validly executed,
authenticated and delivered in accordance with the Pooling and
Servicing Agreement, will be entitled to the benefits of the
Pooling and Servicing Agreement.
5. The statements made in the Prospectus under the heading
"Description of the Certificates", insofar as such statements
purport to summarize certain provisions of the Offered
Certificates and the Pooling and Servicing Agreement, provide
a fair summary of such provisions. The statements made in the
Basic Prospectus and the Prospectus Supplement, as the case
may be, under the headings "Certain Federal Income Tax
Consequences", "Certain Legal Aspects of Mortgage Loans and
Related Matters--Applicability of Usury Laws", and
"--Alternative Mortgage Instruments", and "ERISA
Considerations", to the extent that they constitute matters of
State of New York or federal law or legal conclusions with
respect thereto, while not purporting to discuss all possible
consequences of investment in the Offered Certificates are
correct in all material respects with respect to those
consequences or matters that are discussed therein.
6. Each class of the Senior Certificates and the Class M
Certificates will be "mortgage related securities", as defined
in Section 3(a)(41) of the Securities
<PAGE>
Option One Mortgage Acceptance Corporation
[Name of Master Servicer]
__________________, 199_ 4.
Exchange Act of 1934, as amended, so long as such class is
rated in one of the two highest rating categories by at least
one nationally recognized statistical rating organization.
7. The Pooling and Servicing Agreement is not required to be
qualified under the Trust Indenture Act of 1939, as amended,
and the Trust Fund created by the Pooling and Servicing
Agreement is not required to be registered under the
Investment Company Act of 1940, as amended.
8. No consent, approval, authorization or order of any federal or
State of New York court or governmental agency or body is
required for the consummation by the Company or the Master
Servicer of the transactions contemplated by the terms of the
Agreements, except (a) such as have been obtained under the
Act and (b) such as may be required under the blue sky laws of
any jurisdiction in connection with the purchase and the offer
and sale of the Underwritten Certificates by the Underwriter,
as to which we express no opinion.
9. Neither the sale of the Underwritten Certificates to the
Underwriter pursuant to the Underwriting Agreement, nor the
consummation of any other of the transactions contemplated by,
or the fulfillment by the Company or the Master Servicer of
the terms of the Agreements, will result in a breach of any
term or provision of any federal or State of New York statute
or regulation or, to the best of our knowledge, conflict with,
result in a breach, violation or acceleration of or constitute
a default under any order of any federal or State of New York
court, regulatory body, administrative agency or governmental
body having jurisdiction over the Company or the Master
Servicer.
10. Each of the Agreements has been duly authorized, executed and
delivered by the Company and the Master Servicer and, upon due
authorization, execution and delivery by the other parties
thereto, each will constitute a valid, legal and binding
agreement of the Company and the Master Servicer, enforceable
against the Company and the Master Servicer in accordance with
its terms, except as enforceability may be limited by (i)
bankruptcy, insolvency, liquidation, receivership, moratorium,
reorganization or other similar laws affecting the rights of
creditors, (ii) general principles of equity, whether
enforcement is sought in a proceeding in equity or at law, and
(iii) public policy considerations underlying the securities
laws, to the extent that such public policy considerations
limit the enforceability of the provisions of any of the
Agreements which purport to provide indemnification with
respect to securities law violations.
11. Assuming compliance with the provisions of the Pooling and
Servicing Agreement, for federal income tax purposes, the
Trust Fund will qualify as a real estate mortgage investment
conduit ("REMIC") within the meaning of Sections
<PAGE>
Option One Mortgage Acceptance Corporation
[Name of Master Servicer]
__________________, 199_ 5.
860A through 860G (the "REMIC Provisions") of the Internal
Revenue Code of 1986, the Offered Certificates (other than the
Class R Certificates) will be "regular interests" in the Trust
Fund and the Class R Certificates will be the sole class of
"residual interests" in the Trust Fund, within the meaning of
the REMIC Provisions in effect on the date hereof.
12. Assuming compliance with the provisions of the Pooling and
Servicing Agreement, for City and State of New York income and
corporation franchise tax purposes, the Trust Fund will be
classified as a REMIC and not as a corporation, partnership or
trust, in conformity with the federal income tax treatment of
the Trust Fund. Accordingly, the Trust Fund will be exempt
from all City and State of New York taxation imposed on its
income, franchise or capital stock, and its assets will not be
included in the calculation of any franchise tax liability.
This opinion letter is rendered for the sole benefit of each addressee
hereof, and no other person or entity is entitled to rely hereon without our
prior written consent. Copies of this opinion letter may not be furnished to any
other person or entity, nor may any portion of this opinion letter be quoted,
circulated or referred to in any other document, without our prior written
consent.
Very truly yours,
THACHER PROFFITT & WOOD
By
<PAGE>
EXHIBIT A-2
[Thacher Proffitt & Wood Letterhead]
_________________, 199_
Option One Mortgage Acceptance Corporation
2020 East First Street, Suite 100
Santa Ana, California 92705
[UNDERWRITER]
________________________________
________________________________
________________________________
[TRUSTEE]
________________________________
________________________________
________________________________
Re: Option One Mortgage Acceptance Corporation
Mortgage Pass-Through Certificates,
Series 199_-_____
------------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Option One Mortgage Acceptance
Corporation (the "Company") and [Name of Master Servicer] (the "Master
Servicer") in connection with the issuance and sale by the Company of Mortgage
Pass-Through Certificates, Series 199_-____ (the "Certificates"), pursuant to a
Pooling and Servicing Agreement, dated as of ________________ 1, 199_ (the
"Pooling and Servicing Agreement"), among the Company, the Master Servicer and
_____________________ as trustee (the "Trustee"). The Certificates consist of
____________ classes designated as Class A and Class R (collectively, the
"Senior Certificates") and ____________ classes of subordinated certificates
designated as Class M and Class B.
The Senior Certificates in the aggregate and the Class M Certificates
will evidence initial undivided interests of approximately _____% and _____%,
respectively, in a trust fund (the "Trust Fund") consisting primarily of a pool
of conventional, fixed-rate, one- to four-family first mortgage loans (the
"Mortgage Loans") held by ___________________
<PAGE>
Option One Mortgage Acceptance Corporation
[Underwriter]
[Trustee]
____________________, 199_ 2.
________________________, as custodian (the "Custodian"), pursuant to a
Custodial Agreement, dated as of ___________ 1, 199_, among the Company, the
Master Servicer, the Custodian and the Trustee (the "Custodial Agreement").
________________________________ ("The Purchaser") acquired the Mortgage Loans
through its mortgage loan purchase program from various seller/servicers. The
Purchaser transferred the Mortgage Loans to the Company pursuant to an
Assignment and Assumption Agreement, dated ______________, 199_ (the "Assignment
and Assumption Agreement"), in exchange for immediately available funds, the
Class M and Class B Certificates and a de minimis portion of the Class R
Certificates. The Company will sell the Class A Certificates and the Class R
Certificates other than a de minimis portion thereof (the "Underwritten
Certificates") to ______________________ (the "Underwriter"), pursuant to an
Underwriting Agreement, dated ______________, 199_, between the Company and the
Underwriter (the "Underwriting Agreement"; the Pooling and Servicing Agreement,
the Custodial Agreement, the Underwriting Agreement and the Assignment and
Assumption Agreement, collectively, the "Agreements"). Capitalized terms used
but not defined herein shall have the meanings set forth in the Agreements. This
letter is rendered pursuant to Section 6.4 of the Underwriting Agreement.
Because the primary purpose of our professional engagement was not to
establish factual matters and because of the wholly or partially non-legal
character of many determinations involved in the preparation of the Registration
Statement and the Prospectus, we are not passing upon and do not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus, except to the extent
expressly set forth in paragraph numbered 5 of our opinion letter relating to
certain securities matters, dated the date hereof and addressed to the Company,
the Master Servicer, the Underwriter and the Trustee (the "Closing Opinion"),
and make no representation that we have otherwise independently verified the
accuracy, completeness or fairness of such statements, except as aforesaid. In
particular and without limiting the foregoing, we have not examined any
accounting, financial or statistical records not included in either the
Registration Statement or the Prospectus from which the information and
statements included therein are derived, and we express no belief as to any such
accounting, financial or statistical information contained in either the
Registration Statement or the Prospectus or the information included under the
caption "Method of Distribution" contained in the Prospectus Supplement, or as
to any Computational Materials. We also note that we are not experts with
respect to any portion of the Registration Statement or the Prospectus,
including without limitation such accounting, financial or statistical
information, except to the extent we may be deemed to be "experts" within the
meaning of the Securities Act of 1933 or the rules and regulations thereunder
with respect to the matters specifically mentioned in paragraph numbered 5 of
the Closing Opinion.
However, in the course of our acting as counsel to the Company in
connection with its preparation of the Registration Statement or the Prospectus,
we met in conferences and participated in telephone conversations involving
representatives of the Company, representatives of the Master Servicer,
representatives of the Underwriter, representatives of the Trustee,
<PAGE>
Option One Mortgage Acceptance Corporation
[Underwriter]
[Trustee]
____________________, 199_ 3.
representatives of the Custodian, _______________ in their capacity as counsel
to the Underwriter, and _______________ in their capacity as counsel to the
Master Servicer, during which conferences and telephone conversations the
contents of the Registration Statement and the Prospectus and related matters
were discussed. In addition, we reviewed the minutes of the Board of Directors
of the Company and of the Master Servicer, which minutes were represented to us
by the Company or the Master Servicer, as applicable, to _________________,
199_, and certain documents furnished to us by the Company and the Master
Servicer or otherwise in our possession. We have not otherwise undertaken any
procedures that were intended or likely to elicit information concerning the
accuracy, completeness or fairness of the statements made in the Registration
Statement or the Prospectus.
Based on the foregoing, our understanding of applicable law and the
experience we have gained in our practice thereunder, we hereby advise the
Underwriter that no information has come to our attention that causes us to
believe that the Registration Statement, as of the Effective Date, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or that the Prospectus, as of the date of the Prospectus Supplement and as of
the Closing Date, contained an untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
This letter is rendered for the sole benefit of each addressee hereof,
and no other person or entity is entitled to rely hereon without our prior
written consent. Copies of this letter may not be furnished to any other person
or entity, nor may any portion of this letter be quoted, circulated or referred
to in any other document, without our prior written consent.
Very truly yours,
THACHER PROFFITT & WOOD
By
<PAGE>
EXHIBIT B
[Counsel to Master Servicer Letterhead]
_________________, 199_
[TRUSTEE]
____________________________
____________________________
____________________________
[UNDERWRITER]
____________________________
____________________________
____________________________
Re: Option One Mortgage Acceptance Corporation
Mortgage Pass-Through Certificates, Series 199_-____
----------------------------------------------------
Ladies and Gentlemen:
Our firm is General Counsel to Option One Mortgage Acceptance
Corporation (the "Company") and Option One Mortgage Corporation (the "Master
Servicer"). In that capacity, we are familiar with the issuance and sale by the
Company of Mortgage Pass-Through Certificates, Series 199_-____ (the
"Certificates"), pursuant to a Pooling and Servicing Agreement, dated as of
_______________ 1, 199_ (the "Pooling and Servicing Agreement"), among the
Company, the Master Servicer and _____________________, as trustee (the
"Trustee"). The Certificates consist of ____________ classes designated as Class
A and Class R (collectively, the "Senior Certificates") and ____________ classes
of subordinated certificates designated as Class M and Class B. Only the Senior
Certificates and the Class M Certificates (collectively, the "Offered
Certificates") are offered under the Prospectus.
The Senior Certificates in the aggregate and the Class M Certificates
will evidence initial undivided interests of approximately _____% and _____%,
respectively, in a trust fund (the "Trust Fund") consisting primarily of a pool
of conventional, fixed-rate, one- to four-family first mortgage loans (the
"Mortgage Loans") held by _________________________________ ___________, as
custodian (the "Custodian"), pursuant to a Custodial Agreement, dated as of
_____________ 1, 199_, among the Company, the Master Servicer, the Custodian and
the Trustee (the "Custodial Agreement"). The Master Servicer acquired the
Mortgage Loans through its mortgage loan purchase program from various
seller/servicers. The Master Servicer transferred the Mortgage Loans to the
Company pursuant to an Assignment and Assumption Agreement, dated
________________, 199_ (the "Assignment and Assumption Agreement") in exchange
for immediately available funds, the Class M and the Class B Certificates. The
Company will sell the Class A Certificates and the Class R Certificates other
than a de minimis portion thereof (the "Underwritten Certificates") to
_________________________ (the "Underwriter") pursuant to an Underwriting
Agreement, dated _________________, 199_,
<PAGE>
[Trustee]
[Underwriter]
____________________, 199_ 2.
between the Company and the Underwriter (the "Underwriting Agreement"; the
Pooling and Servicing Agreement, the Custodial Agreement, the Underwriting
Agreement and the Assignment and Assumption Agreement, collectively, the
"Agreements"). Capitalized terms used but not defined herein shall have the
meanings set forth in the Agreements. This opinion letter is rendered pursuant
to Section 6.4 of the Underwriting Agreement.
In connection with rendering this opinion letter, we have examined the
Agreements and such other records and other documents as we have deemed
necessary. As to matters of fact, we have examined and relied upon
representations of the parties contained in the Agreements and, where we have
deemed appropriate, representations and certifications of officers of the
Company, the Master Servicer, the Trustee or public officials. We have assumed
the authenticity of all documents submitted to me as originals, the genuineness
of all signatures, the legal capacity of natural persons and the conformity to
the original of all documents submitted to me as copies. We have assumed that
all parties, except for the Company and the Master Servicer, had the corporate
power and authority to enter into and perform all obligations thereunder. As to
such parties, we also have assumed the due authorization by all requisite
corporate action, the due execution and delivery and the enforceability of such
documents. We have further assumed the conformity of the Mortgage Loans and
related documents to the requirements of the Agreements.
In rendering this opinion letter, we do not express any opinion
concerning law other than the law of the State of California, the corporate law
of the State of Delaware and the federal law of the United States, and we do not
express any opinion concerning the application of the "doing business" laws or
the securities laws of any jurisdiction other than the federal securities laws
of the United States. We do not express any opinion on any issue not expressly
addressed below.
Based upon the foregoing, we are of the opinion that:
1. The Company and the Master Servicer are duly incorporated and are
validly existing as corporations in good standing under the laws of the State of
Delaware and the State of California, respectively, and each has the requisite
power and authority, corporate or other, to own its properties and conduct its
business, as presently conducted by it, and to enter into and perform its
obligations under the Agreements.
2. Each of the Agreements has been duly and validly authorized,
executed and delivered by the Company and the Master Servicer and, upon due
authorization, execution and delivery by other parties thereto, will constitute
the valid, legal and binding agreements of the Company and the Master Servicer,
enforceable against the Company and the Master Servicer in accordance with its
terms, except as enforceability may be limited by (i) bankruptcy, insolvency,
liquidation, receivership, moratorium, reorganization or other similar laws
affecting the rights of creditors, (ii) general principles of equity, whether
enforcement is sought in a proceeding in equity or at law, and (iii) public
policy considerations underlying the securities laws, to the extent that such
public policy considerations limit the enforceability of the provisions
<PAGE>
[Trustee]
[Underwriter]
____________________, 199_ 3.
of the Agreements which purport to provide indemnification with respect to
securities law violations.
3. The Offered Certificates, when duly and validly executed,
authenticated and delivered in accordance with the Pooling and Servicing
Agreement, will be entitled to the benefits of the Pooling and Servicing
Agreement.
4. No consent, approval, authorization or order of the State of
Minnesota or federal court or governmental agency or body is required for the
consummation by the Company or the Master Servicer of the transactions
contemplated by the terms of the Agreements, except for those consents,
approvals, authorizations or orders which previously have been obtained.
5. Neither the sale, issuance and delivery of the Underwritten
Certificates as provided in the Agreements, nor the consummation of any other of
the transactions contemplated by, or the fulfillment of any other of the terms
of, the Agreements, will result in a breach of any term or provision of the
charter or bylaws of the Company or the Master Servicer or any State of
Minnesota or federal statute or regulation or conflict with, result in a breach,
violation or acceleration of or constitute a default under the terms of any
indenture or other material agreement or instrument to which the Company or the
Master Servicer is a party or by which it is bound or any order or regulation of
any State of Minnesota or federal court, regulatory body, administrative agency
or governmental body having jurisdiction over the Company or the Master
Servicer.
This opinion letter is rendered for the sole benefit of each addressee
hereof, and no other person or entity, except Thacher Proffitt & Wood, is
entitled to rely hereon without my prior written consent. Copies of this opinion
letter may not be furnished to any other person or entity, nor may any portion
of this opinion letter be quoted, circulated or referred to in any other
document without my prior written consent.
Very truly yours,
COUNSEL TO MASTER SERVICER
<PAGE>
EXHIBIT C
[TRUSTEE'S COUNSEL'S LETTERHEAD]
________________, 199_
[UNDERWRITER]
____________________________ [Name of Master Servicer]
____________________________ [Address of Master Servicer]
____________________________
Option One Mortgage Acceptance [TRUSTEE]
Corporation _____________________________
2020 East First Street, Suite 100 _____________________________
Santa Ana, California 92705 _____________________________
Re: Option One Mortgage Acceptance Corporation
Mortgage Pass-Through Certificates, Series 199_-____
----------------------------------------------------
Ladies and Gentlemen:
In connection with the issuance of the above-referenced Certificates
pursuant to the Pooling and Servicing Agreement, dated as of ____________ 1,
199_ (the "Pooling and Servicing Agreement"), among Option One Mortgage
Acceptance Corporation, as Company, [Name of Master Servicer], as Master
Servicer and _____________________, as Trustee (the "Trustee"), we have been
asked to furnish this opinion. Capitalized terms used but not defined herein
shall have the meanings ascribed to such terms in the Pooling and Servicing
Agreement.
In arriving at the opinions expressed below, we have examined and
relied upon the originals or copies, certified or otherwise identified to our
satisfaction, of the Pooling and Servicing Agreement and of such documents,
instruments and certificates, and we have made such investigations of law, as we
have deemed appropriate as the basis for the opinions expressed below. We have
assumed but have not verified that the signatures on all documents that we have
examined are genuine and that each person signing each such document was duly
authorized to sign such document on behalf of the person or entity purported to
be bound thereby.
Based on the foregoing, we are of the opinion that:
1. The Trustee has full corporate power and authority to execute
and deliver the Pooling and Servicing Agreement, the Custodial
Agreement and the Certificates and to perform its obligations
under the Pooling and Servicing Agreement and the Custodial
Agreement.
2. Each of the Pooling and Servicing Agreement and the Custodial
Agreement has been duly authorized, executed and delivered by
the Trustee, and the Trustee has
<PAGE>
Option One Mortgage Acceptance Corporation
____________________, 199_ Page 2.
duly executed and delivered the Certificates as provided in
the Pooling and Servicing Agreement.
3. The Pooling and Servicing Agreement is a legal, valid and
binding obligation of the Trustee, enforceable against the
Trustee in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium,
receivership and similar laws affecting the rights of
creditors generally, and subject, as to enforceability, to
general principles of equity, regardless of whether such
enforcement is considered in a proceeding at law or in equity.
4. In the event that the Master Servicer defaults in its
obligation to make Advances pursuant to Section 4.03(b) of the
Pooling and Servicing Agreement, the Trustee is not, as of the
date hereof, prohibited by any provision of its Restated
Organization Certificate or By-Laws or by any provision of the
banking and trust laws of the State of New York from assuming,
pursuant to Section 7.02 of the Pooling and Servicing
Agreement, the obligation to make such Advances.
We express no opinion as to the laws of any jurisdiction other than the
laws of the State of New York.
We are furnishing this opinion to you solely for your benefit. This
opinion may not be used, circulated, quoted or otherwise referred to for any
other purpose.
Very truly yours,
_____________________________
<PAGE>
EXHIBIT D
<PAGE>
EXHIBIT E
Excluded Information
<PAGE>
EXHIBIT F
Underwriter Information
<PAGE>
EXHIBIT G
__________________, 199_
Option One Mortgage Acceptance Corporation
2020 East First Street, Suite 100
Santa Ana, California 92705
Re: Option One Mortgage Acceptance Corporation,
Mortgage Pass-Through Certificates,
Series 199_- __, Class A and Class R
-------------------------------------------
Pursuant to Section 4 of the Underwriting Agreement, dated
_______________, 199_, between Option One Mortgage Acceptance Corporation and
________________________ (the "Underwriter") relating to the Certificates
referenced above (the "Underwriting Agreement"), the undersigned does hereby
certify that:
(a) The prepayment assumption used in pricing the Certificates was
______% SPA.
(b) Set forth below is (i), the first price, as a percentage of the
principal balance of each class of Certificates, at which 10% of the aggregate
principal balance of each such class of Certificates was sold to the public at a
single price, if applicable, or (ii) if more than 10% of a class of Certificates
have been sold to the public but no single price is paid for at least 10% of the
aggregate principal balance of such class of Certificates, then the weighted
average price at which the Certificates of such class were sold expressed as a
percentage of the principal balance of such class of Certificates, or (iii) if
less than 10% of the aggregate principal balance of a class of Certificates has
been sold to the public, the purchase price for each such class of Certificates
paid by the Underwriter expressed as a percentage of the principal balance of
such class of Certificates calculated by: (1) estimating the fair market value
of each such class of Certificates as of __________________, 199_; (2) adding
such estimated fair market value to the aggregate purchase price of each class
of Certificates described in clause (i) or (ii) above; (3) dividing each of the
fair market values determined in clause (1) by the sum obtained in clause (2);
(4) multiplying the quotient obtained for each class of Certificates in clause
(3) by the purchase price paid by the Underwriter for all the Certificates; and
(5) for each class of Certificates, dividing the product obtained from such
class of Certificates in clause (4) by the original principal balance of such
class of Certificates:
Class A: __________________
Class R: __________________
[* less than 10% has been sold to the public]
<PAGE>
Option One Mortgage Acceptance Corporation
__________________, 199_ Page 2.
The prices set forth above do not include accrued interest with respect to
periods before closing.
_____________________________
By:__________________________
Name:________________________
Title:_______________________
<PAGE>
EXHIBIT I
[Form of Legend]
EXHIBIT 3.1
-----------
CERTIFICATE OF INCORPORATION
OF
OPTION ONE MORTGAGE ACCEPTANCE CORPORATION
1. The name of the corporation is
OPTION ONE MORTGAGE ACCEPTANCE CORPORATION
2. The address of the corporation's registered office in the
State of Delaware is Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of the corporation's registered agent
at such address is The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or
promoted by the corporation is limited to the following activities and none
other:
A. To acquire, own, hold, transfer, assign, pledge and
otherwise deal with the following (collectively, the
"Mortgage Collateral"):
(i)(A) mortgage-backed certificates, mortgage
participation certificates or mortgage
pass-through certificates guaranteed and/or
issued by the Government National Mortgage
Association, the Federal National Mortgage
Association or the Federal Home Loan
Mortgage Corporation (collectively, the
"Agency Certificates"); (B) securities
representing interests in Agency
Certificates; or (C) mortgage pass-through
certificates or mortgage-collateralized
bonds issued by any other entity with
respect to or secured by a pool of mortgage
loans (collectively, "Certificates") which
are either
<PAGE>
- 2 -
owned by the Company or granted by a
Borrower (as defined below) to secure
payment of Mortgage Backed Notes (as defined
below);
(ii) mortgage notes and related mortgages, or
interests therein (including, but not
limited to, participation certificates with
respect to such mortgage notes or related
mortgages) ("Pledged Mortgages"), which are
either owned by the Company or granted by a
Borrower to secure payment of a Mortgaged
Backed Note;
(iii) mortgage backed notes evidencing loans made
by the Company to commercial banks, saving
and loan associations and savings banks, the
deposits of which are insured by the FDIC,
affiliates of FDIC insured institutions, and
other entities which are not FDIC insured
institutions but are engaged directly, or
through the owners of such entities or their
affiliates, in mortgage financing,
origination or funding activities (e.g.,
mortgage bankers, home builders and state
agencies), or to any other entity
(collectively, the "Borrowers"), which loans
(collectively, "Mortgage Backed Notes") are
secured by Pledged Mortgages or
Certificates; and
(iv) real property and any improvements thereon,
including commercial, multifamily and
residential properties;
B. To authorize, issue, sell and deliver bonds or other
evidences of indebtedness ("Bonds") that are secured
by a pledge or other assignment of Mortgage
Collateral, manufactured housing conditional sales
contracts,
<PAGE>
- 3 -
loan agreements, reserve funds, guaranteed investment
contracts, letters of credit, insurance contracts,
surety bonds or any other credit enhancement device
(collectively, "Collateral");
C. To serve as depositor of one or more trusts that may
authorize, issue, sell and deliver Bonds, mortgage
pass-through certificates or other certificates of
interest that are secured by a pledge or other
assignment of, or represents an interest in,
Collateral; and
D. To do all such things as are reasonable or necessary
to enable the Company to carry out any of the above,
including without limitation entering into loan
agreements, insurance agreements, servicing
agreements, reimbursement agreements, issuing debt
(subject to the provisions of this Article 3 and
Article 9 hereof) and selling residual interests in
Collateral or selling certificates of participation
in any trust for which the Company serves as
depositor.
The Company shall have the authority to engage in any other
acts or activities and to exercise any power permitted to corporations under the
General Corporation Law of the State of Delaware so long as the same are
incidental to, or connected with, the foregoing or are necessary, suitable or
convenient to accomplish the foregoing. The Company exists only for the purposes
specified in this Article 3, and may not conduct any other business without the
unanimous consent of its Board of Directors.
4. The total number of shares of stock which the corporation
shall have authority to issue is one thousand (1,000), all of which shall be
without par value.
<PAGE>
- 4 -
5. A. The corporation shall at all times have
at least one director who shall not be a
director, officer or employee of any direct
or ultimate parent or affiliate of Option
One Mortgage Corporation; provided, however,
that such independent director may serve in
similar capacities for other "special
purpose corporations" formed by Option One
Mortgage Corporation or its affiliates.
B. With respect to a vote for the filing of a
bankruptcy petition or other such action as
described in Section 6(ii) hereof, the
independent director shall owe his fiduciary
duty to the corporation itself, including
the corporation's creditors.
C. No resignation or removal (as described in
Article 15 below) of the independent
director shall be effective until a
successor independent director has been
elected to replace such resigning
independent director.
6. The affirmative unanimous vote of the holders of all of the
corporation's outstanding common stock and the unanimous vote of the whole board
of directors at any meeting of the board of directors shall be necessary (i) for
the amendment of the Certificate of Incorporation of the corporation and for the
amendment of the by-laws of the corporation; or (ii) before the corporation may
take any action to institute proceedings to have itself adjudicated as bankrupt
or insolvent, or consent to the institution of bankruptcy or insolvency
proceedings against it, or seek or consent to the entry of any order for relief
or the appointment of a receiver, trustee, or other similar official for it or
for any substantial part of its property, or seek liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or
<PAGE>
- 5 -
composition of it or its debts under any law relating to bankruptcy, insolvency
or reorganization or relief of debtors, or make any general assignment for the
benefit of creditors, or take any corporate action in furtherance of any of the
actions set forth above in this paragraph; or (iii) to take any corporate action
in furtherance of any of the actions set forth above in this Article 6(ii).
7. A director of the corporation shall not be personally
liable to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived any
improper personal benefit. If the Delaware General Corporation Law is amended
after the filing of this Certificate of Incorporation to authorize corporate
action eliminating or further limiting the personal liability of directors, then
the liability of a director of the corporation shall be eliminated or limited to
the fullest extent permitted by the Delaware General Corporation Law, as so
amended. Any repeal or modification of the foregoing portion of this paragraph
by the stockholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
or modification.
8. Elections of directors need not be by written ballot unless
the by-laws of the corporation shall so provide.
9. Notwithstanding any other provision of this Certificate of
Incorporation and any provision of law which otherwise so empowers the
corporation, the corporation shall not perform any act in contravention of any
of the following:
<PAGE>
- 6 -
A. The corporation shall not (i) consolidate or merge
with or into any other entity or person or dissolve
or liquidate in whole or in part or transfer its
properties and assets substantially as an entirety to
any entity or (ii) engage in any other action that
bears on whether the separate legal identity of the
corporation and Option One Mortgage Corporation will
be respected, including, without limitation (a)
holding itself out as being liable for the debts of
any other party; (b) forming, or causing to be
formed, any subsidiaries or (c) acting other than in
its corporate name and through its duly authorized
officers or agents;
B. The corporation shall not engage in any joint
activity or transaction of any kind with or for the
benefit of any Related Company (as defined below),
including loans to or from any Related Company and
any guarantee of the indebtedness of any Related
Company, except for (i) entering into the agreements
referenced in Article 3, (ii) purchasing management
services and leasing office space or equipment, in
each case only to the extent necessary for the
conduct of the corporation's business, and (iii)
payment of lawful dividends and capital distributions
to its shareholder or shareholders;
C. The corporation shall not create, incur, assume,
guarantee or in any manner become liable in respect
of any indebtedness, except as stated in Article 3,
other than trade payables and expense accruals
incurred in the ordinary course of business and which
are incident to the business purpose of the
corporation as stated in Article 3 above; and
<PAGE>
- 7 -
D. The corporation shall not commingle its funds and
assets with those of any Related Company.
"Related Company" means the shareholder or shareholders of this
corporation or any entity other than this corporation now or hereafter
controlled directly or indirectly by, or under direct or indirect common control
with, the shareholders of this corporation.
10. The corporation (A) shall maintain its financial and
accounting books and records separate from those of any other entity or person,
(B) shall pay from its assets all obligations and indebtedness of any kind
incurred by it, and shall not pay from its assets any obligations or
indebtedness of any other entity or person, and (C) shall observe all corporate
formalities required by its Certificate of Incorporation, by-laws and the laws
of the State of Delaware.
11. The name and mailing address of the sole incorporator is
as follows:
____________________________
Thacher Proffitt & Wood
Two World Trade Center, 39th floor
New York, New York 10048
12. The corporation is to have perpetual existence.
13. Meetings of stockholders may be held within or without the
State of Delaware, as the by-laws may provide. The books of the corporation may
be kept outside the State of Delaware at such place or places as may be
designated from time to time by the Board of Directors or in the by-laws of the
corporation. 14. Except as otherwise provided by statute, any action which might
have been taken by a vote of the stockholders at a meeting thereof (including
any action under Articles 6, 15 and 17 hereof) may be taken with the written
consent of such of the holders of stock who
<PAGE>
- 8 -
would have been entitled to vote upon the action if a meeting were held as have
not less than the minimum percentage of the total vote required for the proposed
action by statute, this Certificate of Incorporation or the by-laws of the
corporation, as may be applicable (but in the case of the election of a director
or directors, not less than a majority of the stock of the corporation entitled
to vote); provided that prompt notice shall be given to all stockholders of the
taking of such corporate action without a meeting if less than unanimous written
consent is obtained.
15. Any director may be removed from office either with or
without cause at any time by the affirmative vote of stockholders of record
holding a majority of the outstanding shares of the stock of the corporation
entitled to vote, given at a meeting of the stockholders called for that purpose
(or as provided in Article 14 above).
16. Any action required or permitted to be taken at a meeting
of the Board of Directors, other than an action requiring shareholder approval,
may be taken by written action signed by the number of directors that would be
required to take the same action at a meeting of the Board of Directors at which
all directors were present.
17. In furtherance and not in limitation of the power
conferred upon the Board of Directors by law, the Board of Directors shall have
power to make, adopt, alter, amend and repeal from time to time by-laws of the
corporation, subject to the right of the stockholders entitled to vote with
respect thereto to alter, amend and repeal by-laws made by the Board of
Directors.
18. Subject to the limitations in Article 6 of this
Certificate of Incorporation, the corporation reserves the right to amend,
alter, change or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights
<PAGE>
- 9 -
and powers conferred upon stockholders, directors and officers herein are
granted subject to this reservation.
<PAGE>
- 10 -
THE UNDERSIGNED, being the incorporator, for the purpose of
forming a corporation pursuant to the provisions of the Delaware General
Corporation Law, does make this certificate, hereby declaring and further
certifying that this is the undersigned's act and deed and that the facts herein
stated are true, and, accordingly, have hereunto set the undersigned's hand this
7th day of October, 1996.
/s/ Susan T. Tice
-----------------
SUSAN T. TICE
--------------
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
EXHIBIT 3.2
BY-LAWS
OF
OPTION ONE MORTGAGE ACCEPTANCE CORPORATION
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
-------
SECTION 1. REGISTERED OFFICE. The registered office of the
Corporation shall be in the City of Wilmington, County of Newcastle, State of
Delaware.
SECTION 2. OTHER OFFICES. The Corporation may also have
offices at such other places both within and without the State of Delaware as
the Board of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders for
the election of directors or for any other purpose shall be held at such time
and place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
SECTION 2. ANNUAL MEETINGS. The Annual Meetings of
Stockholders shall be held on such date and at such time as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting, at which meeting the stockholders shall elect by a plurality vote a
Board of Directors, and transact such other business as may properly be brought
before the meeting. Written notice of the Annual Meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than ten nor more than sixty days before the date of the
meeting.
SECTION 3. SPECIAL MEETINGS. Unless otherwise prescribed by
law or by the Certificate of Incorporation, Special Meetings of Stockholders,
for any purpose or purposes, may be called by either (i) the Chairman, if there
be one, or (ii) the President, (iii) any Vice President, if there be one, (iv)
the Secretary or (v) any Assistant Secretary, if there be one, and shall be
called by any such officer at the request in writing of a majority of the Board
of Directors or at the request in writing of stockholders owning a majority of
the capital stock of the Corporation issued and outstanding and entitled to
vote. Such request shall state the purpose or purposes of the proposed meeting.
Written notice of a Special Meeting stating the place, date and hour of the
meeting and the purpose or purposes for which the meeting is called shall be
<PAGE>
given not less than ten nor more than sixty days before the date of the meeting
to each stockholder entitled to vote at such meeting.
SECTION 4. QUORUM. Except as otherwise provided by law or by
the Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder entitled to vote at
the meeting.
SECTION 5. VOTING. Unless otherwise required by law, the
Certificate of Incorporation or these By-Laws, any question brought before any
meeting of stockholders shall be decided by the vote of the holders of a
majority of the stock represented and entitled to vote thereat. Each stockholder
represented at a meeting of stockholders shall be entitled to cast one vote for
each share of the capital stock entitled to vote thereat held by such
stockholder. Such votes may be cast in person or by proxy but no proxy shall be
voted on or after three years from its date, unless such proxy provides for a
longer period. The Board of Directors, in its discretion, or the officer of the
Corporation presiding at a meeting of stockholders, in his discretion, may
require that any votes cast at such meeting shall be cast by written ballot.
SECTION 6. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless
otherwise provided in the Certificate of Incorporation, any action required or
permitted to be taken at any Annual or Special Meeting of Stockholders of the
Corporation, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
SECTION 7. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer
of the Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
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<PAGE>
SECTION 8. STOCK LEDGER. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Section 7 of this Article II or the books
of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
ARTICLE III
DIRECTORS
---------
SECTION 1. NUMBER ELECTION AND REMOVAL OF DIRECTORS. The Board
of Directors shall consist of not less than one nor more than five members the
exact number of which shall initially be fixed by the Incorporator and
thereafter from time to time by the Board of Directors. The Board of Directors
shall at all times include at least one independent director who is not a
director, officer or employee of the Corporation's direct or indirect parent.
Except as provided in Section 2 of this Article, directors shall be elected by a
plurality of the votes cast at Annual Meetings of Stockholders and each director
so elected shall hold office until the next Annual Meeting and until his
successor is duly elected and qualified or until his earlier resignation or
removal. Any director may resign at any time upon notice to the Corporation.
Directors need not be stockholders. At any time, directors may be removed and
their successors chosen by the unanimous written consent of the holders of the
outstanding stock of the Corporation entitled to vote on the election of
directors. No removal of the independent director shall be effective until a
successor independent director has been elected to replace such removed
independent director.
SECTION 2. VACANCIES. Subject to Section 1 of this Article,
vacancies and newly created directorships resulting from any increase in the
authorized number of directors may be filled by a majority of the directors then
in office, though less than a quorum, or by a sole remaining director, and the
directors so chosen shall hold office until the next annual election and until
their successors are duly elected and qualified, or until their earlier
resignation or removal.
SECTION 3. DUTIES AND POWERS. The business of the Corporation
shall be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
By-Laws directed or required to be exercised or done by the stockholders.
SECTION 4. MEETINGS. The Board of Directors of the Corporation
may hold meetings, both regular and special, either within or without the State
of Delaware. Regular meetings of the Board of Directors may be held without
notice at such time and at such place as may from time to time be determined by
the Board of Directors. Special meetings of the Board of Directors may be called
by the Chairman, if there be one, the President, or any two directors. Notice
thereof stating the place, date and hour of the meeting shall be given to each
director either by mail not less than forty-eight (48) hours before the date of
the meeting, by telephone or telegram on twenty-four (24) hours notice, or on
such shorter notice as the person or persons calling such meeting may deem
necessary or appropriate in the circumstances.
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<PAGE>
SECTION 5. QUORUM. Except as may be otherwise specifically
provided by law, the Certificate of Incorporation or these By-Laws, at all
meetings of the Board of Directors, a majority of the entire Board of Directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors. If a quorum shall not be present at
any meeting of the Board of Directors, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
SECTION 6. ACTIONS OF BOARD. Unless otherwise provided by the
Certificate of Incorporation or these ByLaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 7. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless
otherwise provided by the Certificate of Incorporation or these By-Laws, members
of the Board of Directors of the Corporation, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors or
such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 7 shall
constitute presence in person at such meeting.
SECTION 8. COMMITTEES. The Board of Directors may, by
resolution passed by a majority of the entire Board of Directors, designate one
or more committees, each committee to consist of one or more of the directors of
the Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any absent or disqualified member. Any committee, to the extent allowed by law
and provided in the resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation. Each committee shall
keep regular minutes and report to the Board of Directors when required.
SECTION 9. COMPENSATION. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
SECTION 10. INTERESTED DIRECTORS. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any
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<PAGE>
other corporation, partnership, association, or other organization in which one
or more of its directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the Board of Directors or committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose
if (i) the material facts as to his or their relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of Directors
or the committee, and the Board of Directors or committee in good faith
authorizes the contract or transaction by the affirmative votes of a majority of
the disinterested directors, even though the disinterested directors be less
than a quorum; or (ii) the material facts as to his or their relationship or
interest and as to the contract or transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the shareholders; or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board of Directors, a committee thereof
or the shareholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
--------
SECTION 1. GENERAL. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President, a Secretary and a
Treasurer. The Board of Directors, in its discretion, may also choose a Chairman
of the Board of Directors (who must be a director) and one or more
Vice-Presidents or Assistant Vice-Presidents, Assistant Secretaries, Assistant
Treasurers and other officers. The Corporation shall at all times have at least
one executive officer who is not a director, officer or employee of the direct
or indirect parent of the Corporation. Any number of offices may be held by the
same person, unless otherwise prohibited by law, the Certificate of
Incorporation or these By-Laws. The officers of the Corporation need not be
stockholders of the Corporation nor, except in the case of the Chairman of the
Board of Directors, need such officers be directors of the Corporation.
SECTION 2. ELECTION. The Board of Directors at its first
meeting held after each Annual Meeting of Stockholders shall elect the officers
of the Corporation who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors; and all officers of the Corporation shall hold
office until their successors are chosen and qualified, or until their earlier
resignation or removal. Any officer elected by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of the Corporation shall be
filled by the Board of Directors. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
SECTION 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers
of attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed in
the name of and on behalf of the Corporation by the President or any
Vice-President and any such officer may, in the name of and on behalf of the
Corporation, take all such action as any such officer may deem advisable to vote
in person
-5-
<PAGE>
or by proxy at any meeting of security holders of any corporation in which the
Corporation may own securities and at any such meeting shall possess and may
exercise any and all rights and power incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have exercised
and possessed if present. The Board of Directors may, by resolution, from time
to time confer like powers upon any other person or persons.
SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. He shall be the Chief Executive
Officer of the Corporation, and except where by law the signature of the
President is required, the Chairman of the Board of Directors shall possess the
same power as the President to sign all contracts, certificates and other
instruments of the Corporation which may be authorized by the Board of
Directors. During the absence or disability of the President, the Chairman of
the Board of Directors shall exercise all the powers and discharge all the
duties of the President. The Chairman of the Board of Directors shall also
perform such other duties and may exercise such other powers as from time to
time may be assigned to him by these By-Laws or by the Board of Directors.
SECTION 5. PRESIDENT. The President shall, subject to the
control of the Board of Directors and, if there be one, the Chairman of the
Board of Directors, have general supervision of the business of the Corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect. He shall execute all bonds, mortgages, contracts and other
instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign and
execute documents when so authorized by these By-Laws, the Board of Directors or
the President. In the absence or disability of the Chairman of the Board of
Directors, or if there be none, the President shall preside at all meetings of
the stockholders and the Board of Directors. If there be no Chairman of the
Board of Directors, the President shall be the Chief Executive Officer of the
Corporation. The President shall also perform such other duties and may exercise
such other powers as from time to time may be assigned to him by these By-Laws
or by the Board of Directors.
SECTION 6. VICE-PRESIDENTS. At the request of the President or
in his absence or in the event of his inability or refusal to act (and if there
be no Chairman of the Board of Directors), the Vice-President or the
Vice-Presidents if there is more than one (in the order designated by the Board
of Directors) shall perform the duties of the President, and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
President. Each Vice-President shall perform such other duties and have such
other powers as the Board of Directors from time to time may prescribe. If there
be no Chairman of the Board of Directors and no Vice-President, the Board of
Directors shall designate the officer of the Corporation who, in the absence of
the President or in the event of the inability or refusal of the President to
act, shall perform the duties of the President, and when so acting, shall have
all the powers of and be subject to all the restrictions upon the President.
SECTION 7. SECRETARY. The Secretary shall attend all meetings
of the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all
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<PAGE>
meetings of the stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or President, under whose supervision he shall be. If the Secretary shall be
unable or shall refuse to cause to be given notice of all meetings of the
stockholders and special meetings of the Board of Directors, and if there be no
Assistant Secretary, then either the Board of Directors or the President may
choose another officer to cause such notice to be given. The Secretary shall
have custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by his signature. The Secretary
shall see that all books, reports, statements, certificates and other documents
and records required by law to be kept or filed are properly kept or filed, as
the case may be.
SECTION 8. TREASURER. The Treasurer shall have the custody of
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, the Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
SECTION 9. ASSISTANT SECRETARIES. Except as may be otherwise
provided in these By-Laws, Assistant Secretaries, if there be any, shall perform
such duties and have such powers as from time to time may be assigned to them by
the Board of Directors, the President, any Vice-President, if there be one, or
the Secretary, and in the absence of the Secretary or in the event of his
disability or refusal to act, shall perform the duties of the Secretary, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Secretary.
SECTION 10. ASSISTANT TREASURERS. Assistant Treasurers, if
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors, the President, any
Vice-President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of his disability or refusal to act, shall perform the
duties of the Treasurer, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Treasurer. If required by the Board of
Directors, an Assistant Treasurer shall give the Corporation a bond in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
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<PAGE>
SECTION 11. OTHER OFFICERS. Such other officers as the Board
of Directors may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
-----
SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice-President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by him in the Corporation.
SECTION 2. SIGNATURES. Where a certificate is countersigned by
(i) a transfer agent other than the Corporation or its employee, or (ii) a
registrar other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
SECTION 3. LOST CERTIFICATES. The Board of Directors may
direct a new certificate to be issued in place of any certificate theretofore
issued by the Corporation alleged to have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming the certificate
of stock to be lost, stolen or destroyed. When authorizing such issue of a new
certificate, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or his legal representative, to advertise the same in
such manner as the Board of Directors shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
SECTION 4. TRANSFERS. Stock of the Corporation shall be
transferable in the manner prescribed by law and in these By-Laws. Transfers of
stock shall be made on the books of the Corporation only by the person named in
the certificate or by his attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be cancelled before a new
certificate shall be issued.
SECTION 5. RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record
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<PAGE>
date, which shall not be more than sixty days nor less than ten days before the
date of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
SECTION 6. BENEFICIAL OWNERS. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by law.
ARTICLE VI
NOTICES
-------
SECTION 1. NOTICES. Whenever written notice is required by
law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, such notice may be given by
mail, addressed to such director, member of a committee or stockholder, at his
address as it appears on the records of the Corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when the same
shall be deposited in the United States mail. Written notice may also be given
personally or by telegram, telex or cable.
SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required
by law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed, by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.
ARTICLE VII
GENERAL PROVISIONS
------------------
SECTION 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the capital
stock. Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
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<PAGE>
SECTION 2. DISBURSEMENTS. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation
shall be fixed by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
---------------
SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS
OTHER THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of
this Article VIII, the Corporation shall 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 is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS
BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article
VIII, the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or
-10-
<PAGE>
misconduct in the performance of his duty to the Corporation unless and only to
the extent that the Court of Chancery or the court in which such action or suit
wee brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person ia
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Any
indemnification under this Article VIII (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because he has met the applicable standard of
conduct set forth in Section 1 or Section 2 of this Article VIII, as the case
may be. Such determination shall be made (i) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (iii) by the stockholders. To the extent,
however, that a director, officer, employee or agent of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith, without the necessity of
authorization in the specific case.
SECTION 4. GOOD FAITH DEFINED. For purposes of any
determination under Section 3 of this Article VIII, a person shall be deemed to
have acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, or, with respect to any
criminal action or proceeding, to have had no reasonable cause to believe his
conduct was unlawful, if his action is based on the records or books of account
of the Corporation or another enterprise, or on information supplied to him by
the officers of the Corporation or another enterprise in the course of their
duties, or on the advice of legal counsel for the Corporation or another
enterprise or on information or records given or reports made to the Corporation
or another enterprise by an independent certified public accountant or by an
appraiser or other expert selected with reasonable care by the Corporation or
another enterprise. The term "another enterprise" as used in this Section 4
shall mean any other corporation or any partnership, Joint venture, trust or
other enterprise of which such person is or was serving at the request of the
Corporation as a director, officer, employee or agent. The provisions of this
Section 4 shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standard of conduct set forth in Sections 1 or 2 of this Article VIII, as the
case may be.
SECTION 5. INDEMNIFICATION BY A COURT. Not withstanding any
contrary determination in the specific case under Section 3 of this Article
VIII, and notwithstanding the absence of any determination thereunder, any
director, officer, employee or agent may apply to any court of competent
jurisdiction in the State of Delaware for indemnification to the extent
otherwise permissible under Sections 1 and 2 of this Article VIII. The basis of
such indemnification by a court shall be a determination by such court that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standards of conduct set forth
in Sections 1 or 2 of this Article VIII, as the case may
-11-
<PAGE>
be. Notice of any application for indemnification pursuant to this Section 5
shall be given to the Corporation promptly upon the filing of such application.
SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred in
defending or investigating a threatened or pending action, suit or proceeding
may be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding as authorized by the Board of Directors in the
specific case upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the Corporation as
authorized in this Article VIII.
SECTION 7. NON-EXCLUSIVITY AND SURVIVAL OF INDEMNIFICATION.
The indemnification provided by this Article VIII shall not be deemed exclusive
of any other rights to which those seeking indemnification may be entitled under
any By-Law, agreement, contract, vote of stockholders or disinterested directors
or pursuant to the direction (howsoever embodied) of any court of competent
jurisdiction or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, it being the policy of the
Corporation that indemnification of the persons specified in Sections 1 and 2 of
this Article VIII shall be made to the fullest extent permitted by law. The
provisions of this Article VIII shall not be deemed to preclude the
indemnification of any person who is not specified in Sections 1 or 2 of this
Article VIII but whom the Corporation has the power or obligation to indemnify
under the provisions of the General Corporation Law of the State of Delaware, or
otherwise. The indemnification provided by this Article VIII shall continue as
to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such
person.
SECTION 8. INSURANCE. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power or the
obligation to indemnify him against such liability under the provisions of this
Article VIII.
SECTION 9. MEANING OF "CORPORATION" FOR PURPOSES OF ARTICLE
VIII. For purposes of this Article VIII, references to "the Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the name
position under the provisions of this Article VIII with respect to the resulting
or surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
-12-
<PAGE>
ARTICLE IX
AMENDMENTS
----------
SECTION 1. These By-Laws may be altered, amended or repealed,
in whole or in part, or new By-Laws may be adopted by the stockholders or by the
Board of Directors, provided, however, that notice of such alteration,
amendment, repeal or adoption of new ByLaws be contained in the notice of such
meeting of stockholders or Board of Directors as the case may be. All such
amendments must be approved by either the holders of a majority of the
outstanding capital stock entitled to vote thereon or by a majority of the
entire Board of Directors then in office.
SECTION 2. ENTIRE BOARD OF DIRECTORS. As used in this Article
IX and in these By-Laws generally, the term "entire Board of Directors" means
the total number of directors that the Corporation would have if there were no
vacancies.
-13-
EXHIBIT 4.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OPTION ONE MORTGAGE ACCEPTANCE CORPORATION
Company,
[NAME OF MASTER SERVICER]
Master Servicer,
and
[NAME OF TRUSTEE],
Trustee
POOLING AND SERVICING AGREEMENT
Dated as of ____________ 1, 199_
Mortgage Pass-Through Certificates
Series 199_-____
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms
Accrued Certificate Interest ........................................... 2
Advance................................................................. 2
Agreement............................................................... 2
Anniversary ............................................................ 2
Assignment ............................................................. 3
Assignment Agreement ................................................... 3
Available Distribution Amount .......................................... 3
Bankruptcy Amount ...................................................... 3
Bankruptcy Code ........................................................ 3
Bankruptcy Loss ........................................................ 3
Business Day ........................................................... 4
Cash Liquidation ....................................................... 4
Certificate ............................................................ 4
Certificate Account .................................................... 4
Certificate Account Deposit Date ....................................... 4
Certificateholder" or "Holder .......................................... 4
Certificate Owner ...................................................... 4
Certificate Principal Balance .......................................... 4
Certificate Register ................................................... 5
Class .................................................................. 5
Class A Certificate .................................................... 5
Class B Certificate .................................................... 5
Class B Percentage ..................................................... 5
Class R Certificate .................................................... 5
Closing Date ........................................................... 5
Code ................................................................... 5
Collateral Value ....................................................... 5
Company ................................................................ 5
Corporate Trust Office ................................................. 6
Credit Support Depletion Date .......................................... 6
Custodial Account ...................................................... 6
Cut-off Date ........................................................... 6
Debt Service Reduction ................................................. 6
Default Loss ........................................................... 6
Deficient Valuation .................................................... 6
Definitive Certificate ................................................. 6
Deleted Mortgage Loan .................................................. 6
Determination Date ..................................................... 6
Disqualified Organization .............................................. 6
<PAGE>
PAGE
Distribution Date ...................................................... 7
Due Date ............................................................... 7
Due Period ............................................................. 7
Duff & Phelps .......................................................... 7
Eligible Account ....................................................... 7
Event of Default ....................................................... 8
Excess Bankruptcy Loss ................................................. 8
Excess Fraud Loss ...................................................... 8
Excess Special Hazard Loss ............................................. 8
Extraordinary Events ................................................... 8
Extraordinary Losses ................................................... 8
FDIC ................................................................... 8
FHLMC .................................................................. 9
FNMA ................................................................... 9
Fraud Losses ........................................................... 9
Fraud Loss Amount ...................................................... 9
Funding Date ........................................................... 9
Initial Certificate Principal Balance .................................. 9
Insurance Policy ....................................................... 9
Insurance Proceeds ..................................................... 9
Late Collections ....................................................... 10
Loan-to-Value Ratio .................................................... 10
Master Servicer ........................................................ 10
Monthly Payment ........................................................ 10
Moody's ................................................................ 10
Mortgage ............................................................... 10
Mortgage File .......................................................... 10
Mortgage Loan .......................................................... 10
Mortgage Loan Schedule ................................................. 10
Mortgage Note .......................................................... 11
Mortgage Rate .......................................................... 12
Mortgaged Property ..................................................... 12
Mortgagor .............................................................. 12
Net Mortgage Rate ...................................................... 12
Nonrecoverable Advance ................................................. 12
Non-United States Person ............................................... 12
Notional Amount ........................................................ 12
Officers' Certificate .................................................. 12
Opinion of Counsel ..................................................... 12
Optimal Percentage ..................................................... 12
Optimal Principal Distribution Amount .................................. 13
Original Senior Percentage ............................................. 13
OTS .................................................................... 13
Outstanding Mortgage Loan .............................................. 13
Ownership Interest ..................................................... 13
ii
<PAGE>
PAGE
Pass-Through Rate ...................................................... 13
Percentage Interest .................................................... 13
Permitted Instruments .................................................. 13
Permitted Transferee ................................................... 14
Person ................................................................. 14
Prepayment Assumption .................................................. 15
Prepayment Period ...................................................... 15
Primary Hazard Insurance Policy ........................................ 15
Primary Mortgage Insurance Policy ...................................... 15
Principal Prepayment ................................................... 15
Purchase Price ......................................................... 15
Qualified Insurer ...................................................... 16
Qualified Substitute Mortgage Loan ..................................... 16
Rating Agency .......................................................... 16
Realized Loss .......................................................... 17
Record Date ............................................................ 17
Regular Certificate .................................................... 17
Relief Act ............................................................. 17
Relief Act Interest Shortfall .......................................... 17
REMIC .................................................................. 17
REMIC Provisions ....................................................... 17
Remittance Report ...................................................... 17
REO Acquisition ........................................................ 17
REO Disposition ........................................................ 17
REO Imputed Interest ................................................... 18
REO Proceeds ........................................................... 18
REO Property ........................................................... 18
Request for Release .................................................... 18
Required Insurance Policy .............................................. 18
Residual Certificate ................................................... 18
Responsible Officer .................................................... 18
Seller ................................................................. 18
Seller's Warranty Certificate .......................................... 18
Senior Accelerated Distribution Percentage ............................. 18
Senior Percentage ...................................................... 19
Senior Principal Distribution Amount ................................... 19
Servicing Account ...................................................... 19
Servicing Advances ..................................................... 20
Servicing Fee .......................................................... 20
Servicing Fee Rate ..................................................... 20
Servicing Officer ...................................................... 20
Single Certificate ..................................................... 20
Special Hazard Amount .................................................. 20
Special Hazard Percentage .............................................. 20
Standard & Poor's ...................................................... 21
iii
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PAGE
Startup Day ............................................................ 21
Stated Principal Balance ............................................... 21
Subordinate Principal Distribution Amount .............................. 21
Sub-Servicer ........................................................... 21
Sub-Servicer Remittance Date ........................................... 21
Sub-Servicing Account .................................................. 21
Sub-Servicing Agreement ................................................ 21
Tax Returns ............................................................ 21
Transfer ............................................................... 22
Transferor ............................................................. 22
Trust Fund ............................................................. 22
Trustee ................................................................ 22
Trustee's Fee .......................................................... 22
Uninsured Cause ........................................................ 22
United States Person ................................................... 22
Voting Rights .......................................................... 22
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
2.01 Conveyance of Mortgage Loans ................................... 24
2.02 Acceptance of the Trust Fund by the Trustee .................... 26
2.03 Representations, Warranties and Covenants of the Master
Servicer and the Company ....................................... 28
2.04 Representations and Warranties of the Seller; Repurchase and
Substitution ................................................... 30
2.05 Issuance of Certificates Evidencing Interests in the Trust
Fund ........................................................... 32
ARTICLE III
ADMINISTRATION AND SERVICING
OF THE TRUST FUND
3.01 Master Servicer to Act as Master Servicer ...................... 33
3.02 Sub-Servicing Agreements Between Master Servicer and Sub-
Servicers ...................................................... 34
3.03 Successor Sub-Servicers ........................................ 35
3.04 Liability of the Master Servicer ............................... 35
3.05 No Contractual Relationship Between Sub-Servicers and Trustee or
Certificateholders ............................................. 35
3.06 Assumption or Termination of Sub-Servicing Agreements by Trustee 35
3.07 Collection of Certain Mortgage Loan Payments ................... 36
3.08 Sub-Servicing Accounts ......................................... 36
iv
<PAGE>
PAGE
3.09 Collection of Taxes, Assessments and Similar Items; Servicing
Accounts .................................................... 37
3.10 Custodial Account ........................................... 37
3.11 Permitted Withdrawals From the Custodial Account ............ 38
3.12 Permitted Instruments ....................................... 40
3.13 Maintenance of Primary Mortgage Insurance and Primary Hazard
Insurance ................................................... 40
3.14 Enforcement of Due-on-Sale Clauses; Assumption Agreements ... 41
3.15 Realization Upon Defaulted Mortgage Loans ................... 42
3.16 Trustee to Cooperate; Release of Mortgage Files ............. 43
3.17 Servicing Compensation ...................................... 44
3.18 Maintenance of Certain Servicing Policies ................... 45
3.19 Annual Statement as to Compliance ........................... 45
3.20 Annual Independent Public Accountants' Servicing Statement .. 46
3.21 Access to Certain Documentation ............................. 46
3.22 Title, Conservation and Disposition of REO Property ......... 47
3.23 Additional Obligations of the Master Servicer ............... 49
3.24 Additional Obligations of the Company ....................... 49
ARTICLE IV
PAYMENTS TO CERTIFICATEHOLDERS
4.01 Certificate Account; Distributions ......................... 50
4.02 Statements to Certificateholders ........................... 53
4.03 Remittance Reports; Advances by the Master Servicer ........ 55
4.04 Allocation of Realized Losses .............................. 56
4.05 Information Reports to be Filed by the Master Servicer...... 57
4.06 Compliance with Withholding Requirements ................... 57
ARTICLE V
THE CERTIFICATES
5.01 The Certificates ........................................... 59
5.02 Registration of Transfer and Exchange of Certificates....... 60
5.03 Mutilated, Destroyed, Lost or Stolen Certificates .......... 63
5.04 Persons Deemed Owners ...................................... 64
ARTICLE VI
THE COMPANY AND THE MASTER SERVICER
6.01 Liability of the Company and the Master Servicer ............... 65
6.02 Merger, Consolidation or Conversion of the Company or the Master
Servicer ....................................................... 65
v
<PAGE>
PAGE
6.03 Limitation on Liability of the Company, the Master Servicer and
Others ........................................................ 65
6.04 Limitation on Resignation of the Master Servicer .............. 66
ARTICLE VII
DEFAULT
7.01 Events of Default ............................................. 67
7.02 Trustee to Act; Appointment of Successor....................... 69
7.03 Notification to Certificateholders ............................ 69
7.04 Waiver of Events of Default ................................... 70
ARTICLE VIII
CONCERNING THE TRUSTEE
8.01 Duties of Trustee ............................................. 71
8.02 Certain Matters Affecting the Trustee ......................... 72
8.03 Trustee Not Liable for Certificates or Mortgage Loans.......... 73
8.04 Trustee May Own Certificates .................................. 73
8.05 Payment of Trustee's Fees ..................................... 73
8.06 Eligibility Requirements for Trustee .......................... 74
8.07 Resignation and Removal of the Trustee ........................ 74
8.08 Successor Trustee ............................................. 75
8.09 Merger or Consolidation of Trustee ............................ 75
8.10 Appointment of Co-Trustee or Separate Trustee ................. 76
ARTICLE IX
TERMINATION
9.01 Termination Upon Repurchase or Liquidation of All Mortgage
Loans ......................................................... 78
9.02 Additional Termination Requirements ........................... 79
ARTICLE X
REMIC PROVISIONS
10.01 REMIC Administration .......................................... 81
10.02 Prohibited Transactions and Activities ........................ 83
10.03 Master Servicer and Trustee Indemnification.................... 84
ARTICLE XI
vi
<PAGE>
PAGE
MISCELLANEOUS PROVISIONS
11.01 Amendment .................................................... 85
11.02 Recordation of Agreement; Counterparts ....................... 86
11.03 Limitation on Rights of Certificateholders ................... 86
11.04 Governing Law ................................................ 87
11.05 Notices ...................................................... 87
11.06 Severability of Provisions ................................... 88
11.07 Successors and Assigns; Third Party Beneficiary............... 88
11.08 Article and Section Headings ................................. 88
11.09 Notice to Rating Agencies and Certificateholder............... 88
vii
<PAGE>
Signatures
Acknowledgments
Exhibit A-1 Form of Class A Certificate
Exhibit A-2 Form of Class B Certificate
Exhibit B Form of Class R Certificate
Exhibit C Form of Trustee Initial Certification
Exhibit D Form of Trustee Final Certification
Exhibit E Form of Remittance Report
Exhibit F-1 Request for Release
Exhibit F-2 Request for Release for Mortgage Loans Paid in Full
Exhibit G-1 Form of Investor Representation Letter
Exhibit G-2 Form of Transferor Representation Letter
Exhibit G-3 Transferor Affidavit and Agreement in connection with transfer of
Residual Certificates
Exhibit G-4 Transferee Affidavit and Agreement in connection with transfer of
Residual Certificates
Exhibit G-5 Form of Investor Representation Letter for Insurance Companies
Exhibit H Mortgage Loan Schedule
Exhibit I Seller's Warranty Certificate
Exhibit J Form of Notice Under Section 3.24
viii
<PAGE>
This Pooling and Servicing Agreement, effective as of
__________ 1, 199_, among OPTION ONE MORTGAGE ACCEPTANCE CORPORATION, as the
company (together with its permitted successors and assigns, the "Company"),
[NAME OF MASTER SERVICER], as master servicer (together with its permitted
successors and assigns, the "Master Servicer"), and [NAME OF TRUSTEE], as
trustee (together with its permitted successors and assigns, the "Trustee"),
PRELIMINARY STATEMENT:
The Company intends to sell mortgage pass-through certificates
(collectively, the "Certificates"), to be issued hereunder in multiple classes
(each, a "Class"), which in the aggregate will evidence the entire beneficial
ownership interest in the Mortgage Loans (as defined herein). As provided
herein, the Master Servicer will make an election to treat the segregated pool
of assets described in the definition of Trust Fund (as defined herein), and
subject to this Agreement (including the Mortgage Loans but excluding the
Initial Monthly Payment Deposit), as a real estate mortgage investment conduit
(a "REMIC") for federal income tax purposes, and such segregated pool of assets
will be designated as 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 B Certificates will
represent ownership of "regular interests" in the Trust Fund, and the Class R
Certificates will be the sole class of "residual interests" therein, for
purposes of the REMIC Provisions (as defined herein) under federal income tax
law.
The following table sets forth the designation, type,
Pass-Through Rate, aggregate Initial Certificate Principal Balance, initial
ratings and certain features for each Class of Certificates comprising the
interests in the Trust Fund created hereunder.
<TABLE>
<CAPTION>
AGGREGATE
INITIAL
PASS- CERTIFICATE INITIAL RATINGS
THROUGH PRINCIPAL -----------------------
DESIGNATION TYPE RATE BALANCE FEATURES [ ] [ ]
- ----------------------------- ---------- --------------------------------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Class A-1 Senior ____% $____________ Senior ____ ____
Class A-2 Senior ____% $____________ Senior ____ ____
Class A-3 Senior ____% $____________ Senior ____ ____
Class A-4 Senior ____% $____________ Senior ____ ____
Class A-5 Senior/Fixed ____% $____________ Senior/Interest ____ ____
Strip Only
Class A-6 Senior ____% $____________ Senior ____ ____
Class A-7 Senior/Variable Variable $____________ Senior/Interest ____ ____
Strip Rate Only
Class R Residual ____% $____________ Residual ____ ____
Class B Subordinate ____% $____________ Subordinate ____ ____
</TABLE>
The Mortgage Loans have an aggregate Stated Principal Balance
as of the Cut-off Date equal to $______________. The Mortgage Loans are fixed
rate mortgage loans having terms to maturity at origination or modification of
not more than 30 years.
In consideration of the mutual agreements herein contained,
the Company, the Master Servicer and the Trustee agree as follows:
1
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms.
Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the meanings
specified in this Article.
"Accrued Certificate Interest": With respect to each
Distribution Date, as to any Class A Certificate (other than the Class A-5
Certificates and Class A-7 Certificates) or any Class B Certificate, one month's
interest accrued at the then applicable Pass-Through Rate on the Certificate
Principal Balance thereof immediately prior to such Distribution Date. With
respect to each Distribution Date, as to the Class A-5 Certificates and Class
A-7 Certificates, one month's interest accrued at the then applicable
Pass-Through Rate on the Notional Amount thereof immediately prior to such
Distribution Date. Accrued Certificate Interest will be calculated on the basis
of a 360-day year consisting of twelve 30-day months. In each case Accrued
Certificate Interest on any Class of Certificates will be reduced by the amount
of (i) Prepayment Interest Shortfalls, if any, which are not covered by payments
by the Master Servicer pursuant to Section 3.23 with respect to such
Distribution Date, (ii) the interest portion (adjusted to the related Net
Mortgage Rate) of any of Realized Losses (including Excess Special Hazard
Losses, Excess Fraud Losses, Excess Bankruptcy Losses and Extraordinary Losses)
not allocated solely to one or more specific Classes of Certificates pursuant to
Section 4.04 (which, with respect to the pro rata portion thereof allocated to
the Class A-1, Class A-5 and Class A-6 Certificates will be allocated first to
the Class A-6 Certificates and second to the Class A-1 and Class A-5
Certificates on a pro rata basis to the extent such Realized Losses are Default
Losses), (iii) the interest portion of Advances previously made with respect to
a Mortgage Loan or REO Property which remained unreimbursed following the Cash
Liquidation or REO Disposition of such Mortgage Loan or REO Property that was
made with respect to delinquencies that were ultimately determined to be Excess
Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or
Extraordinary Losses, and (iv) any other interest shortfalls not covered by the
subordination provided by the Class B Certificates pursuant to Section 4.04,
including interest that is not collectible from the Mortgagor pursuant to the
Relief Act or similar legislation or regulations as in effect from time to time;
with all such reductions allocated among the Classes of Certificates, in
proportion to their respective amounts of Accrued Certificate Interest which
would have resulted absent such reductions. In addition to that portion of the
reductions described in the preceding sentence, Accrued Certificate Interest on
the Class B Certificates will be reduced by the interest portion (adjusted to
the related Net Mortgage Rate) of Realized Losses that are allocated solely to
the Class B Certificates pursuant to Section 4.04.
"Advance": As to any Mortgage Loan, any advance made by the
Master Servicer on any Distribution Date pursuant to Section 4.03.
"Agreement": This Pooling and Servicing Agreement and all
amendments hereof.
"Anniversary": Each anniversary of ___________ 1, 19__.
2
<PAGE>
"Assignment": An assignment of Mortgage, notice of transfer or
equivalent instrument, in recordable form, which is sufficient under the laws of
the jurisdiction wherein the related Mortgaged Property is located to reflect of
record the sale of the Mortgage, which assignment, notice of transfer or
equivalent instrument may be in the form of one or more blanket assignments
covering Mortgages secured by Mortgaged Properties located in the same county,
if permitted by law.
"Assignment Agreement": The Assignment and Assumption
Agreement, dated as of ____________, 199_, between and the Company relating to
the transfer and assignment of the Mortgage Loans.
"Available Distribution Amount": With respect to each
Distribution Date, the Available Distribution Amount will be an amount equal to
(a) the sum of (i) the balance on deposit in the Custodial Account as of the
close of business on the related Determination Date and (ii) the aggregate
amount of any Advances made, all required amounts pursuant to Section 3.22 and
all amounts required to be paid by the Master Servicer pursuant to Sections 3.13
and 3.23 by deposits into the Certificate Account on the immediately preceding
Certificate Account Deposit Date, reduced by (b) the sum, as of the close of
business on the related Determination Date of (i) Monthly Payments collected but
due during a Due Period subsequent to the Due Period ending on the first day of
the month of the related Distribution Date, (ii) all interest or other income
earned on deposits in the Custodial Account, (iii) any other amounts
reimbursable or payable to the Master Servicer or any other Person pursuant to
Section 3.11, (iv) Insurance Proceeds, Liquidation Proceeds, Principal
Prepayments, REO Proceeds and the proceeds of Mortgage Loan purchases (or
amounts received in connection with substitutions) made pursuant to Section 2.02
and 2.04, in each case received or made in the month of such Distribution Date
and (v) the Trustee's Fee.
"Bankruptcy Amount": As of any date of determination, an
amount, equal to the excess, if any, of (A) $_______, over (B) the aggregate
amount of Bankruptcy Losses allocated solely to one or more specific Classes of
Certificates in accordance with Section 4.04.
The Bankruptcy Amount may be further reduced by the Master
Servicer (including accelerating the manner in which such coverage is reduced)
provided that prior to any such reduction, the Master Servicer shall (i) obtain
written confirmation from each Rating Agency that such reduction shall not
reduce the rating assigned to any Class of Certificates by such Rating Agency
below the lower of the then-current rating or the rating assigned to such
Certificates as of the Closing Date by such Rating Agency and (ii) provide a
copy of such written confirmation to the Trustee.
"Bankruptcy Code": The United States Bankruptcy Code of 1978,
as amended.
"Bankruptcy Loss": With respect to any Mortgage Loan, a
Deficient Valuation or Debt Service Reduction; provided, however, that a
Deficient Valuation or a Debt Service Reduction shall not be deemed a Bankruptcy
Loss hereunder so long as the Master Servicer has notified the Trustee in
writing that the Master Servicer is diligently pursuing any remedies that may
exist in connection with the related Mortgage Loan and either (A) the related
Mortgage Loan is not in default with regard to payments due thereunder or (B)
delinquent payments of
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principal and interest under the related Mortgage Loan and any related escrow
payments in respect of such Mortgage Loan are being advanced on a current basis
by the Master Servicer, in either case without giving effect to any Deficient
Valuation or Debt Service Reduction.
"Business Day": Any day other than (i) a Saturday or a Sunday
or (ii) a day on which banking institutions in the State of __________ or the
State of ________ (and such other state or states in which the Custodial Account
or the Certificate Account are at the time located) are required or authorized
by law or executive order to be closed.
"Cash Liquidation": As to any defaulted Mortgage Loan other
than a Mortgage Loan as to which an REO Acquisition occurred, the final receipt
by or on behalf of the Master Servicer of all Insurance Proceeds, Liquidation
Proceeds and other payments or cash recoveries which the Master Servicer
reasonably and in good faith expects to be finally recoverable with respect to
such Mortgage Loan.
"Certificate": Any Class A, Class B or Class R Certificate.
"Certificate Account": The account or accounts created and
maintained pursuant to Section 4.01, which shall be entitled
"________________________________, as trustee, in trust for the registered
holders of Option One Mortgage Acceptance Corporation, Mortgage PassThrough
Certificates, Series 199_-___" and which must be an Eligible Account.
"Certificate Account Deposit Date": The 20th day (or if such
20th day is not a Business Day, the Business Day immediately preceding such 20th
day) of the month.
"Certificateholder" or "Holder": The Person in whose name a
Certificate is registered in the Certificate Register, except that, neither a
Disqualified Organization nor a NonUnited States Person shall be a Holder of a
Class R Certificate for any purposes hereof and, solely for the purposes of
giving any consent pursuant to this Agreement, any Certificate registered in the
name of the Company or the Master Servicer or any affiliate thereof shall be
deemed not to be outstanding and the Voting Rights to which it is entitled shall
not be taken into account in determining whether the requisite percentage of
Voting Rights necessary to effect any such consent has been obtained, except as
otherwise provided in Section 11.01. The Trustee shall be entitled to rely upon
a certification of the Company or the Master Servicer in determining if any
Certificates are registered in the name of a respective affiliate.
"Certificate Owner": With respect to a Book-Entry Certificate,
the Person who is the beneficial owner of such Certificate, as reflected on the
books of an indirect participating brokerage firm for which a Company
Participant acts as agent, if any, and otherwise on the books of a Company
Participant, if any, and otherwise on the books of the Company.
"Certificate Principal Balance": With respect to each Class A
Certificate (other than a Class A-5 Certificate or Class A-7 Certificate), on
any date of determination, an amount equal to (i) the Initial Certificate
Principal Balance of such Certificate as specified on the face thereof, minus
(ii) the sum of (x) the aggregate of all amounts previously distributed with
respect to such Certificate (or any predecessor Certificate) and applied to
reduce the Certificate Principal Balance thereof pursuant to Section 4.02(b) and
(y) the aggregate of all reductions in Certificate
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Principal Balance deemed to have occurred in connection with Realized Losses
which were previously allocated to such Certificate (or any predecessor
Certificate) pursuant to Section 4.04. With respect to the Class B Certificates,
on any date of determination, an amount equal to the Percentage Interest
evidenced by such Certificate times the excess, if any, of (A) the then
aggregate Stated Principal Balance of the Mortgage Loans over (B) the then
aggregate Certificate Principal Balance of all other Classes of Certificates
then outstanding. The Class A-5 Certificates, Class A-7 Certificates and Class R
Certificates have no Certificate Principal Balance.
"Certificate Register": The register maintained pursuant to
Section 5.02.
"Class": Collectively, all of the Certificates bearing the
same designation.
"Class A Certificate": Any one of the Class A-1, Class A-2,
Class A-3, Class A-4, Class A-5, Class A-6 or Class A-7 Certificates, executed
by the Trustee and authenticated by the Certificate Registrar substantially in
the form annexed hereto as Exhibit A-1, each such Certificate evidencing an
interest designated as a "regular interest" in the Trust Fund for purposes of
the REMIC Provisions.
"Class B Certificate": The Class B Certificates executed by
the Trustee and authenticated by the Certificate Registrar substantially in the
form annexed hereto as Exhibit A-2 and evidencing an interest designated as a
"regular interest" in the Trust Fund for purposes of the REMIC Provisions.
"Class B Percentage": With respect to any Distribution Date,
the lesser of (i) 100% minus the Senior Percentage and (ii) a fraction,
expressed as a percentage, the numerator of which is the aggregate Certificate
Principal Balance of the Class B Certificates immediately prior to such date and
the denominator of which is the aggregate Stated Principal Balance of all of the
Mortgage Loans (or related REO Properties) immediately prior to such
Distribution Date.
"Class R Certificate": Any one of the Class R Certificates
executed and delivered by the Trustee substantially in the form annexed hereto
as Exhibit B and evidencing an interest designated as a "residual interest" in
the REMIC for purposes of the REMIC Provisions.
"Closing Date": _______ __, 19__.
"Code": The Internal Revenue Code of 1986.
"Collateral Value": The appraised value of a Mortgaged
Property based upon the lesser of (i) the appraisal made at the time of the
origination of the related Mortgage Loan, or (ii) the sales price of such
Mortgaged Property at such time of origination. With respect to a Mortgage Loan
the proceeds of which were used to refinance an existing mortgage loan, the
appraised value of the Mortgaged Property based upon the appraisal (as reviewed
and approved by the Seller) obtained at the time of refinancing.
"Company": Option One Mortgage Acceptance Corporation, or its
successor in interest.
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"Corporate Trust Office": The principal office of the Trustee
at which at any particular time its corporate trust business with respect to
this Agreement shall be administered, which office at the date of the execution
of this instrument is located at __________________
_______________________________________________, Attention:
_______________________ Series 199_-__.
"Credit Support Depletion Date": The first Distribution Date
on which the Senior Percentage equals 100%.
"Custodial Account": The custodial account or accounts created
and maintained pursuant to Section 3.10 in a depository institution, as
custodian for the holders of the Certificates, for the holders of certain other
interests in mortgage loans serviced or sold by the Master Servicer and for the
Master Servicer, into which the amounts set forth in Section 3.10 shall be
deposited directly. Any such account or accounts shall be an Eligible Account.
"Cut-off Date": __________ 1, 199_.
"Debt Service Reduction": With respect to any Mortgage Loan, a
reduction in the scheduled Monthly Payment for such Mortgage Loan by a court of
competent jurisdiction in a proceeding under the Bankruptcy Code, except such a
reduction constituting a Deficient Valuation or any reduction that results in a
permanent forgiveness of principal.
"Default Loss": Any Realized Loss that is attributable to the
related Mortgagor's failure to make any payment of principal or interest as
required under the Mortgage Note, excluding Special Hazard Losses (or any other
loss resulting from damage to a Mortgaged Property), Bankruptcy Losses, Fraud
Losses, or other losses of a type not covered by the subordination provided by
the Class B Certificates pursuant to Section 4.04.
"Deficient Valuation": With respect to any Mortgage Loan, a
valuation by a court of competent jurisdiction of the Mortgaged Property in an
amount less than the then outstanding indebtedness under the Mortgage Loan,
which valuation results from a proceeding initiated by the Mortgagor under the
Bankruptcy Code.
"Definitive Certificate": Any definitive, fully registered
Certificate.
"Deleted Mortgage Loan": A Mortgage Loan replaced or to be
replaced with a Qualified Substitute Mortgage Loan.
"Determination Date": The 15th day (or if such 15th day is not
a Business Day, the Business Day immediately preceding such 15th day) of the
month of the related Distribution Date.
"Disqualified Organization": Any of the following: (i) the
United States, any State or any political subdivision thereof, any possession of
the United States or any agency or instrumentality of any of the foregoing
(other than an instrumentality which is a corporation, if all of its activities
are subject to tax and, except for the FHLMC, a majority of its board of
directors is not selected by any such governmental unit), (ii) a foreign
government, international
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organization or any agency or instrumentality of either the foregoing, (iii) an
organization (except certain farmers' cooperatives described in Section 521 of
the Code) which is exempt from tax imposed by Chapter 1 of the Code (unless such
organization is subject to the tax imposed by Section 511 of the Code on
unrelated business taxable income), (iv) rural electric and telephone
cooperatives described in Section 1381 of the Code or (v) any other Person so
designated by the Trustee based on an Opinion of Counsel obtained by the
Trustee, at the expense of the Trust Fund, (which opinion shall be sought only
if the Trustee has actual knowledge that the holding of an Ownership Interest in
a Class R Certificate by such Person may cause the Trust Fund or any Person
having an Ownership Interest in any Class of Certificates, other than such
Person, to incur a liability for any federal tax imposed under the Code that
would not otherwise be imposed but for the Transfer of an Ownership Interest in
a Class R Certificate to such Person). The terms "United States," "State" and
"international organization" shall have the meanings set forth in Section 7701
of the Code or successor provisions.
"Distribution Date": The 25th day of any month, or if such
25th day is not a Business Day, the Business Day immediately following such 25th
day commencing on ________ 25, 19__.
"Due Date": The first day of the month of the related
Distribution Date.
"Due Period": With respect to any Distribution Date, the
period commencing on the second day of the month preceding the month of such
Distribution Date (or, with respect to the first Due Period, the day following
the Cut-off Date) and ending on the related Due Date.
["Duff & Phelps": Duff & Phelps Credit Rating Company or its
successor in interest.]
"Eligible Account": An account maintained with a federal or
state chartered depository institution (i) the short-term obligations of which
are rated by each of the Rating Agencies in its highest rating at the time of
any deposit therein, or (ii) insured by the FDIC (to the limits established by
such Corporation), the uninsured deposits in which account are otherwise secured
such that, as evidenced by an Opinion of Counsel (obtained by and at the expense
of the Person requesting that the account be held pursuant to this clause (ii))
delivered to the Trustee prior to the establishment of such account, the
Certificateholders will have a claim with respect to the funds in such account
and a perfected first priority security interest against any collateral (which
shall be limited to Permitted Instruments, each of which shall mature not later
than the Business Day immediately preceding the Distribution Date next following
the date of investment in such collateral or the Distribution Date if such
Permitted Instrument is an obligation of the institution that maintains the
Certificate Account or Custodial Account) securing such funds that is superior
to claims of any other depositors or general creditors of the depository
institution with which such account is maintained or (iii) a trust account or
accounts maintained with a federal or state chartered depository institution or
trust company with trust powers acting in its fiduciary capacity or (iv) an
account or accounts of a depository institution acceptable to the Rating
Agencies (as evidenced in writing by the Rating Agencies that use of any such
account as the Custodial Account or the Certificate Account will not have an
adverse effect on the then-current ratings assigned to the Classes of the
Certificates then rated by the Rating Agencies). Eligible Accounts may bear
interest.
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"Event of Default": One or more of the events described in
Section 7.01.
"Excess Bankruptcy Loss": Any Bankruptcy Loss, or portion
thereof, which exceeds the then applicable Bankruptcy Amount.
"Excess Fraud Loss": Any Fraud Loss, or portion thereof, which
exceeds the then applicable Fraud Loss Amount.
"Excess Special Hazard Loss": Any Special Hazard Loss, or
portion thereof, that exceeds the then applicable Special Hazard Amount.
"Extraordinary Events": Any of the following conditions with
respect to a Mortgaged Property or Mortgage Loan causing or resulting in a loss
which causes the liquidation of such Mortgage Loan:
(a) losses that are of a type that would be covered by the
fidelity bond and the errors and omissions insurance policy required to
be maintained pursuant to Section 3.18 but are in excess of the
coverage maintained thereunder;
(b) nuclear reaction or nuclear radiation or radioactive
contamination, all whether controlled or uncontrolled, and whether such
loss be direct or indirect, proximate or remote or be in whole or in
part caused by, contributed to or aggravated by a peril covered by the
definition of the term "Special Hazard Loss";
(c) hostile or warlike action in time of peace or war,
including action in hindering, combatting or defending against an
actual, impending or expected attack:
1. by any government or sovereign power, de jure or
de facto, or by any authority maintaining or using military,
naval or air forces; or
2. by military, naval or air forces; or
3. by an agent of any such government, power,
authority or forces;
(d) any weapon of war employing atomic fission or radioactive
force whether in time of peace or war; or
(e) insurrection, rebellion, revolution, civil war, usurped
power or action taken by governmental authority in hindering,
combatting or defending against such an occurrence, seizure or
destruction under quarantine or customs regulations, confiscation by
order of any government or public authority; or risks of contraband or
illegal transportation or trade.
"Extraordinary Losses": Any loss incurred on a Mortgage Loan
caused by or resulting from an Extraordinary Event.
"FDIC": Federal Deposit Insurance Corporation or any
successor.
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"FHLMC": Federal Home Loan Mortgage Corporation or any
successor.
["Fitch": Fitch Investors Service, Inc., or its successor in
interest.]
"FNMA": Federal National Mortgage Association or any
successor.
"Fraud Losses": Any Realized Loss sustained by reason of a
default arising from fraud, dishonesty or misrepresentation in
connection with the related Mortgage Loan.
"Fraud Loss Amount": As of any date of determination after the
Cut-off Date, an amount equal to: (X) up to and including the [first]
anniversary of the Cut-off Date an amount equal to ____% of the aggregate
outstanding principal balance of all of the Mortgage Loans as of the Cut-off
Date minus the aggregate amount of Fraud Losses allocated to the Class B
Certificates in accordance with Section 4.04 since the Cut-off Date up to such
date of determination, (Y) from the [first] to the fifth anniversary of the
Cut-off Date, an amount equal to (1) the lesser of (a) the Fraud Loss Amount as
of the most recent anniversary of the Cut-off Date and (b) ____% of the
aggregate outstanding principal balance of all of the Mortgage Loans as of the
most recent anniversary of the Cut-off Date minus (2) the Fraud Losses allocated
solely to the Class B Certificates in accordance with Section 4.04 since the
most recent anniversary of the Cut-off Date up to such date of determination. On
and after the fifth anniversary of the Cutoff Date the Fraud Loss Amount shall
be zero.
The Fraud Loss Amount may be further reduced by the Master
Servicer (including accelerating the manner in which such coverage is reduced)
provided that prior to any such reduction, the Master Servicer shall (i) obtain
written confirmation from each Rating Agency that such reduction shall not
reduce the rating assigned to any Class of Certificates by such Rating Agency
below the lower of the then-current rating or the rating assigned to such
Certificates as of the Closing Date by such Rating Agency and (ii) provide a
copy of such written confirmation to the Trustee.
"Funding Date": With respect to each Mortgage Loan, the date
on which funds were advanced by or on behalf of the Seller and interest
began to accrue thereunder.
"Initial Certificate Principal Balance": With respect to each
Class of Certificates, the Certificate Principal Balance of such Class
of Certificates as of the Cut-off Date as set forth in the Preliminary
Statement hereto.
"Insurance Policy": With respect to any Mortgage Loan, any
insurance policy which is required to be maintained from time to time
under this Agreement in respect of such Mortgage Loan.
"Insurance Proceeds": Proceeds paid by any insurer pursuant to
the Primary Mortgage Insurance Policy and any other insurance policy covering a
Mortgage Loan to the extent such proceeds are not applied to the restoration of
the related Mortgaged Property or released to the Mortgagor in accordance with
the procedures that the Master Servicer would follow in servicing mortgage loans
held for its own account.
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"Late Collections": With respect to any Mortgage Loan, all
amounts received during any Due Period, whether as late payments of Monthly
Payments or as Insurance Proceeds, Liquidation Proceeds or otherwise, which
represent late payments or collections of Monthly Payments due but delinquent
for a previous Due Period and not previously recovered.
"Liquidation Proceeds": Amounts (other than Insurance
Proceeds) received by the Master Servicer in connection with the taking of an
entire Mortgaged Property by exercise of the power of eminent domain or
condemnation or in connection with the liquidation of a defaulted Mortgage Loan
through trustee's sale, foreclosure sale or otherwise, other than amounts
received in respect of REO Property.
"Loan-to-Value Ratio": As of any date, the fraction, expressed
as a percentage, the numerator of which is the current principal balance of the
related Mortgage Loan at the date of determination and the denominator of which
is the Collateral Value of the related Mortgaged Property.
"Master Servicer": [Name of Master Servicer], or any successor
master servicer appointed as herein provided.
"Monthly Payment": With respect to any Mortgage Loan, the
scheduled monthly payment of principal and interest on such Mortgage Loan which
is payable by a Mortgagor from time to time under the related Mortgage Note as
originally executed (after adjustment, if any, for Principal Prepayments and for
Deficient Valuations occurring prior to such Due Date, and after any adjustment
by reason of any bankruptcy or similar proceeding or any moratorium or similar
waiver or grace period).
["Moody's": Moody's Investors Service, Inc. or its successor
in interest.]
"Mortgage": The mortgage, deed of trust or any other
instrument securing the Mortgage Loan.
"Mortgage File": The mortgage documents listed in Section 2.01
pertaining to a particular Mortgage Loan and any additional documents required
to be added to the Mortgage File pursuant to this Agreement; provided, that
whenever the term "Mortgage File" is used to refer to documents actually
received by the Trustee, such term shall not be deemed to include such
additional documents required to be added unless they are actually so added.
"Mortgage Loan": Each of the mortgage loans, transferred and
assigned to the Trustee pursuant to Section 2.01 or Section 2.03 and from time
to time held in the Trust Fund, the Mortgage Loans originally so transferred,
assigned and held being identified in the Mortgage Loan Schedule attached hereto
as Exhibit H (and any Qualified Substitute Mortgage Loans). As used herein, the
term "Mortgage Loan" includes the related Mortgage Note and Mortgage.
"Mortgage Loan Schedule": As of any date of determination, the
schedule of Mortgage Loans included in the Trust Fund. The initial schedule of
Mortgage Loans with accompanying information transferred on the Closing Date to
the Trustee as part of the Trust Fund for the Certificates, attached hereto as
Exhibit H (as amended from time to time to reflect
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the addition of Qualified Substitute Mortgage Loans) (and, for purposes of the
Trustee's review of the Mortgage Files pursuant to Section 2.02, in
computer-readable form as delivered to the Trustee), which list shall set forth
the following information, if applicable, with respect to each Mortgage Loan:
(i) the loan number and name of the Mortgagor;
(ii) the street address, city, state and zip code of the
Mortgaged Property;
(iii) the Mortgage Rate;
(iv) the maturity date;
(v) the original principal balance;
(vi) the first payment date;
(vii) the type of Mortgaged Property;
(viii) the Monthly Payment in effect as of the Cut-off Date;
(ix) the principal balance as of the Cut-off Date;
(x) the occupancy status;
(xi) the purpose of the Mortgage Loan;
(xii) the Collateral Value of the Mortgaged Property;
(xiii) the original term to maturity;
(xiv) the paid-through date of the Mortgage Loan;
(xv) the Loan-to-Value Ratio; and
(xvi) whether or not the Mortgage Loan was underwritten
pursuant to a limited documentation program.
The Mortgage Loan Schedule shall also set forth the total of
the amounts described under (ix) above for all of the Mortgage Loans. The
Mortgage Loan Schedule may be in the form of more than one schedule,
collectively setting forth all of the information required. With respect to any
Qualified Substitute Mortgage Loan, the item described in clauses (viii) shall
be set forth as the date of substitution.
"Mortgage Note": The note or other evidence of the
indebtedness of a Mortgagor under a Mortgage Loan.
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"Mortgage Rate": With respect to any Mortgage Loan, the annual
rate at which interest accrues on such Mortgage Loan.
"Mortgaged Property": The underlying property securing a
Mortgage Loan.
"Mortgagor": The obligor or obligors on a Mortgage Note.
"Net Mortgage Rate": As to each Mortgage Loan, a per annum
rate of interest equal to the related Mortgage Rate as in effect from time to
time minus the sum of the Servicing Fee Rate and the rate at which the Trustee's
Fee accrues.
"Nonrecoverable Advance": Any Advance previously made or
proposed to be made in respect of a Mortgage Loan which, in the good faith
judgment of the Master Servicer, will not or, in the case of a proposed Advance,
would not be ultimately recoverable from related Late Collections, Insurance
Proceeds, Liquidation Proceeds, REO Proceeds or amounts reimbursable to the
Master Servicer pursuant to Section 4.01(b). The determination by the Master
Servicer that it has made a Nonrecoverable Advance or that any proposed Advance
would constitute a Nonrecoverable Advance, shall be evidenced by an Officers'
Certificate delivered to the Company and the Trustee.
"Non-United States Person": Any Person other than a United
States Person.
"Notional Amount": As of any Distribution Date, with respect
to the Class A-5 Certificates and the Class A-7 Certificates, an amount equal to
the aggregate Certificate Principal Balance of all Classes of Certificates
immediately prior to such date.
"Officers' Certificate": A certificate signed by the Chairman
of the Board, the Vice Chairman of the Board, the President or a vice president
and by the Treasurer, the Secretary, or one of the assistant treasurers or
assistant secretaries of the Master Servicer or of the Sub-Servicer and
delivered to the Company and Trustee.
"Opinion of Counsel": A written opinion of counsel, who may be
counsel for the Company or the Master Servicer, reasonably acceptable to the
Trustee; except that any opinion of counsel relating to (a) the qualification of
any account required to be maintained pursuant to this Agreement as an Eligible
Account, (b) qualification of the Trust Fund as a REMIC, (c) compliance with the
REMIC Provisions or (d) resignation of the Master Servicer pursuant to Section
6.04 must be an opinion of counsel who (i) is in fact independent of the Company
and the Master Servicer, (ii) does not have any direct financial interest or any
material indirect financial interest in the Company or the Master Servicer or in
an affiliate of either and (iii) is not connected with the Company or the Master
Servicer as an officer, employee, director or person performing similar
functions.
"Optimal Percentage": A fraction, expressed as a percentage,
the numerator of which is the Certificate Principal Balance of the Class A-1
Certificates immediately prior to the applicable Distribution Date and the
denominator of which is the aggregate Certificate Principal Balance of all of
the Class A Certificates immediately prior to such Distribution Date.
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"Optimal Principal Distribution Amount": An amount equal to
the product of (i) the then applicable Optimal Percentage and (ii) the Senior
Principal Distribution Amount.
"Original Senior Percentage": _____%, which is the fraction,
expressed as a percentage, the numerator of which is the aggregate Initial
Certificate Principal Balance of the Class A Certificates and the denominator of
which is the aggregate Stated Principal Balance of the Mortgage Loans.
"OTS": Office of Thrift Supervision or any successor.
"Outstanding Mortgage Loan": As to any Due Date, a Mortgage
Loan (including an REO Property) which was not the subject of a Principal
Prepayment in full, Cash Liquidation or REO Disposition and which was not
purchased or substituted for prior to such Due Date pursuant to Sections 2.02 or
2.04.
"Ownership Interest": As to any Certificate, any ownership or
security interest in such Certificate, including any interest in such
Certificate as the Holder thereof and any other interest therein, whether direct
or indirect, legal or beneficial, as owner or as pledgee.
"Pass-Through Rate": With respect to the Class A Certificates
(other than the Class A-7 Certificates) and Class B Certificates and any
Distribution Date, the per annum rate set forth in the Preliminary Statement
hereto. With respect to the Class A-7 Certificates and any Distribution Date, a
rate equal to the weighted average, expressed as a percentage, of the Pool Strip
Rates of all Mortgage Loans in the Trust Fund as of the Due Date in the month
immediately preceding the month in which such Distribution Date occurs, weighted
on the basis of the respective Stated Principal Balances of such Mortgage Loans,
which Stated Principal Balances shall be the Stated Principal Balances of such
Mortgage Loans at the close of business on the immediately preceding
Distribution Date after giving effect to the distributions thereon allocable to
principal (or, in the case of the initial Distribution Date, at the close of
business on the Cut-off Date). With respect to the Class A-7 Certificates and
the initial Distribution Date, the Pass-Through Rate is equal to ______% per
annum.
"Percentage Interest": With respect to any Certificate (other
than a Class A-5, Class A-7 or Class R Certificate), the undivided percentage
ownership interest in the related Class evidenced by such Certificate, which
percentage ownership interest shall be equal to the initial Certificate
Principal Balance thereof divided by the aggregate Initial Certificate Principal
Balance of all of the Certificates of the same Class. With respect to a Class
A-5 or Class A-7 Certificate), the undivided percentage ownership interest in
the related Class evidenced by such Certificate, which percentage ownership
interest shall be equal to the initial Notional Amount thereof divided by the
aggregate initial Notional Amount of all of the Certificates of the same Class.
With respect to a Class R Certificate, the interest in distributions to be made
with respect to such Class evidenced thereby, expressed as a percentage, as
stated on the face of each such Certificate.
"Permitted Instruments": Any one or more of the following:
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(i)(a) direct obligations of, or obligations fully guaranteed as to
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 and (b) direct obligations
of, and obligations guaranteed as to timely payment by FHLMC or FNMA
if, at the time of investment, they are assigned the highest credit
rating by the Rating Agencies;
(ii) repurchase obligations (the collateral for which is held by
a third party or the Trustee) with respect to any security described in
clause (i) above, provided that the short-term unsecured obligations of
the party agreeing to repurchase such obligations are at the time rated
by each Rating Agency in one of its two highest long-term rating
categories;
(iii) certificates of deposit, time deposits, demand deposits and
bankers' acceptances of any bank or trust company incorporated under
the laws of the United States or any state thereof or the District of
Columbia, provided that the short-term commercial paper of such bank or
trust company (or, in the case of the principal depository institution
in a depository institution holding company, the long-term unsecured
debt obligations of the depository institution holding company) at the
date of acquisition thereof has been rated by each Rating Agency in its
highest short-term rating;
(iv) commercial paper (having original maturities of not more
than nine months) of any corporation incorporated under the laws of the
United States or any state thereof or the District of Columbia which on
the date of acquisition has been rated by each Rating Agency in its
highest short-term rating;
(v) a money market fund or a qualified investment fund rated by
each Rating Agency in its highest rating available; and
(vi) if previously confirmed in writing to the Trustee, any other
obligation or security acceptable to each Rating Agency in respect of
mortgage pass-through certificates rated in each Rating Agency's
highest rating category;
provided, that no such instrument shall be a Permitted Instrument if such
instrument evidences either (a) the right to receive interest only payments with
respect to the obligations underlying such instrument or (b) both principal and
interest payments derived from obligations underlying such instrument where the
principal and interest payments with respect to such instrument provide a yield
to maturity exceeding 120% of the yield to maturity at par of such underlying
obligation.
"Permitted Transferee": Any transferee of a Class R
Certificate other than a Disqualified Organization or a Non-United States
Person.
"Person": Any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
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"Pool Strip Rate": With respect to each Mortgage Loan, the
rate per annum equal to the Net Mortgage Rate thereon minus ____% per annum.
"Prepayment Assumption": A prepayment assumption of ___% of
the standard prepayment assumption, used for determining the accrual of original
issue discount and market discount and premium on the Certificates for federal
income tax purposes. The standard prepayment assumption assumes a constant rate
of prepayment of mortgage loans of 0.2% per annum of the then outstanding
principal balance of such mortgage loans in the first month of the life of the
mortgage loans, increasing by an additional 0.2% per annum in each succeeding
month until the thirtieth month, and a constant 6% per annum rate of prepayment
thereafter for the life of such mortgage loans.
"Prepayment Interest Shortfall": With respect to any
Distribution Date, for each Mortgage Loan that was the subject of a partial
Principal Prepayment, a Principal Prepayment in full, or of a Cash Liquidation
or an REO Disposition during the related Prepayment Period, an amount equal to
the amount of interest that would have accrued at the applicable Net Mortgage
Rate (i) in the case of a Principal Prepayment in full, Cash Liquidation or REO
Disposition on the principal balance of such Mortgage Loan immediately prior to
such prepayment (or liquidation), commencing on the date of prepayment (or
liquidation) and ending on the last day of the month of prepayment or
liquidation or (ii) in the case of a partial Principal Prepayment, on the amount
of such prepayment, commencing on the date as of which the prepayment is applied
and ending on the last day of the month of prepayment.
"Prepayment Period": As to any Distribution Date, the calendar
month preceding the month in which such Distribution Date occurs.
"Primary Hazard Insurance Policy": Each primary hazard
insurance policy required to be maintained pursuant to Section 3.13.
"Primary Mortgage Insurance Policy": Each primary mortgage
insurance policy required to be maintained pursuant to Section 3.13.
"Principal Prepayment": Any payment of principal made by the
Mortgagor on a Mortgage Loan which is received in advance of its scheduled Due
Date and which is not accompanied by an amount of interest representing
scheduled interest due on any date or dates in any month or months subsequent to
the month of prepayment.
"Purchase Price": With respect to any Mortgage Loan (or REO
Property) required to be purchased pursuant to Section 2.02 or 2.04, an amount
equal to the sum of (i) 100% of the Stated Principal Balance thereof, (ii)
unpaid accrued interest (or REO Imputed Interest) at the sum of the applicable
Net Mortgage Rate, the rate at which the Trustee's Fee accrues on the Stated
Principal Balance thereof outstanding during each Due Period that such interest
was not paid or advanced, from the date through which interest was last paid by
the Mortgagor or advanced and distributed to Certificateholders together with
unpaid related Servicing Fees from the date through which interest was last paid
by the Mortgagor, in each case to the first day of the month in which such
Purchase Price is to be distributed, plus (iii) the aggregate of all Advances
made in respect thereof that were not previously reimbursed.
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"Qualified Insurer": An insurance company duly qualified as
such under the laws of the state of its principal place of business and each
state having jurisdiction over such insurer in connection with the insurance
policy issued by such insurer, duly authorized and licensed in such states to
transact business in such states and to write the insurance provided by the
insurance policy issued by it, approved as an insurer by the Master Servicer, as
a FNMAapproved mortgage insurer and having a claims paying ability rating of at
least "AA" by ____________________ and which is acceptable to _____________. Any
replacement insurer with respect to a Mortgage Loan must have at least as high a
claims paying ability rating by _____________ and ___________________ as the
insurer it replaces had on the Closing Date.
"Qualified Substitute Mortgage Loan": A Mortgage Loan
substituted by the Company for a Deleted Mortgage Loan which must, on the date
of such substitution, as confirmed in an Officers' Certificate delivered to the
Trustee, (i) have an outstanding principal balance, after deduction of the
principal portion of the monthly payment due in the month of substitution (or in
the case of a substitution of more than one Mortgage Loan for a Deleted Mortgage
Loan, an aggregate outstanding principal balance, after such deduction), not in
excess of the Stated Principal Balance of the Deleted Mortgage Loan (the amount
of any shortfall to be deposited by the Master Servicer, in the Custodial
Account in the month of substitution); (ii) have a Mortgage Rate and a Net
Mortgage Rate no lower than and not more than 1% per annum higher than the
Mortgage Rate and Net Mortgage Rate, respectively, of the Deleted Mortgage Loan
as of the date of substitution; (iii) have a remaining term to stated maturity
not greater than (and not more than one year less than) that of the Deleted
Mortgage Loan; (iv) comply with each representation and warranty set forth in
Section 2 of the Seller's Warranty Certificate; (v) have a Loan-to-Value Ratio
as of the date of substitution equal to or lower than the Loan-to-Value Ratio of
the Deleted Mortgage Loan as of such date; and (vi) be covered under a Primary
Insurance Policy if such Qualified Substitute Mortgage Loan has a Loan-to-Value
Ratio in excess of 80%. In the event that one or more mortgage loans are
substituted for one or more Deleted Mortgage Loans, the amounts described in
clause (i) hereof shall be determined on the basis of aggregate principal
balances, the Mortgage Rates described in clause (ii) hereof shall be determined
on the basis of weighted average Mortgage Rates, the Net Mortgage Rates
described in clause (ii) hereof shall be satisfied as to each such mortgage
loan, the terms described in clause (iii) shall be determined on the basis of
weighted average remaining terms to maturity, the Loan-to-Value Ratios described
in clause (v) hereof shall be satisfied as to each such mortgage loan and,
except to the extent otherwise provided in this sentence, the representations
and warranties described in clause (iv) hereof must be satisfied as to each
Qualified Substitute Mortgage Loan or in the aggregate, as the case may be.
"Rating Agency": [Standard & Poor's] [Moody's] [Fitch] [Duff &
Phelps]. If either agency or a successor is no longer in existence, "Rating
Agency" shall be such statistical credit rating agency, or other comparable
Person, designated by the Company, notice of which designation shall be given to
the Trustee and the Master Servicer. References herein to the two highest long
term debt rating categories of a Rating Agency shall mean "AA" or better in the
case of [Standard & Poor's] [Fitch] [Duff & Phelps] and "Aa2" or better in the
case of Moody's and references herein to the highest short-term debt rating of a
Rating Agency shall mean "D-1" or better in the case of [Duff & Phelps] and
"A-1" in the case of [Standard & Poor's,] and in the case of any other Rating
Agency such references shall mean such rating categories without regard to any
plus or minus.
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"Realized Loss": With respect to any Mortgage Loan or related
REO Property as to which a Cash Liquidation or REO Disposition has occurred, an
amount (not less than zero) equal to (i) the Stated Principal Balance of the
Mortgage Loan as of the date of Cash Liquidation or REO Disposition, plus (ii)
interest (and REO Imputed Interest, if any) at the related Net Mortgage Rate
from the Due Date as to which interest was last paid or advanced to
Certificateholders up to the date of the Cash Liquidation or REO Disposition on
the Stated Principal Balance of such Mortgage Loan outstanding during each Due
Period that such interest was not paid or advanced, minus (iii) the proceeds, if
any, received during the month in which such Cash Liquidation or REO Disposition
occurred, to the extent applied as recoveries of interest at the related Net
Mortgage Rate and to principal of the Mortgage Loan, net of the portion thereof
reimbursable to the Master Servicer or any Sub-Servicer with respect to related
Advances not previously reimbursed. With respect to each Mortgage Loan which has
become the subject of a Deficient Valuation, the difference between the
principal balance of the Mortgage Loan outstanding immediately prior to such
Deficient Valuation and the principal balance of the Mortgage Loan as reduced by
the Deficient Valuation. With respect to each Mortgage Loan which has become the
subject of a Debt Service Reduction, the amount of such Debt Service Reduction.
"Record Date": The last Business Day of the month immediately
preceding the month of the related Distribution Date.
"Regular Certificate": Any of the Certificates other than the
Class R Certificates.
"Relief Act": The Soldiers' and Sailors' Civil Relief Act of
1940, as amended.
"Relief Act Interest Shortfall": With respect to any
Distribution Date and any Mortgage Loan, any reduction in the amount of interest
collectible on such Mortgage Loan for the most recently ended calendar month as
a result of the application of the Relief Act.
"REMIC": A "real estate mortgage investment conduit" within
the meaning of Section 860D of the Code.
"REMIC Provisions": Provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at Sections
860A through 860G of Subchapter M of Chapter 1 of the Code, and related
provisions, and proposed, temporary and final regulations and published rulings,
notices and announcements promulgated thereunder, as the foregoing may be in
effect from time to time.
"Remittance Report": A report prepared by the Master Servicer
providing the information set forth in Exhibit E attached hereto.
"REO Acquisition": The acquisition by the Master Servicer on
behalf of the Trustee for the benefit of the Certificateholders of any REO
Property pursuant to Section 3.15.
"REO Disposition": The receipt by the Master Servicer of
Insurance Proceeds, Liquidation Proceeds and other payments and recoveries
(including proceeds of a final sale)
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<PAGE>
which the Master Servicer expects to be finally recoverable from the sale or
other disposition of the REO Property.
"REO Imputed Interest": As to any REO Property, for any
period, an amount equivalent to interest (at the Mortgage Rate that would have
been applicable to the related Mortgage Loan had it been outstanding) on the
unpaid principal balance of the Mortgage Loan as of the date of acquisition
thereof (as such balance is reduced by any income from the REO Property treated
as a recovery of principal pursuant to Section 3.15).
"REO Proceeds": Proceeds, net of directly related expenses,
received in respect of any REO Property (including, without limitation, proceeds
from the rental of the related Mortgaged Property and of any REO Disposition),
which proceeds are required to be deposited into the Custodial Account as and
when received.
"REO Property": A Mortgaged Property acquired by the Master
Servicer through foreclosure or deed-in-lieu of foreclosure in connection with a
defaulted Mortgage Loan.
"Request for Release": A release signed by a Servicing
Officer, in the form of Exhibits F-1 or F-2 attached hereto.
"Required Insurance Policy": With respect to any Mortgage
Loan, any Insurance Policy or any other insurance policy that is required to be
maintained from time to time under this Agreement or pursuant to the provisions
of a Mortgage Loan.
"Residual Certificate": Any of the Class R Certificates.
"Responsible Officer": When used with respect to the Trustee,
the Chairman or Vice Chairman of the Board of Directors or Trustees, the
Chairman or Vice Chairman of the Executive or Standing Committee of the Board of
Directors or Trustees, the President, the Chairman of the Committee on Trust
Matters, any vice president, any assistant vice president, the Secretary, any
assistant secretary, the Treasurer, any assistant treasurer, the Cashier, any
assistant cashier, any trust officer or assistant trust officer, the Controller
and any assistant controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also, with respect to a particular matter, any other officer to
whom such matter is referred because of such officer's knowledge of and
familiarity with the particular subject.
"Seller": [Name of Seller], and its successors and assigns.
"Seller's Warranty Certificate": The Seller's Warranty
Certificate of the Seller, dated _____ __, 19__, in the form of Exhibit I
attached hereto.
"Senior Accelerated Distribution Percentage": With respect to
any Distribution Date, the percentage indicated below:
<TABLE>
<CAPTION>
DISTRIBUTION DATE SENIOR ACCELERATED DISTRIBUTION PERCENTAGE
- ------------------------------------------- ------------------------------------------------
18
<PAGE>
- ------------------------------------------- ------------------------------------------------
<S> <C>
_______ ____ through _________ ____ ..........100%
_______ ____ through _________ ____ ..........Senior Percentage, plus 70% of the difference
between 100% and the Senior Percentage
_______ ____ through _________ ____ ..........Senior Percentage, plus 60% of the difference
between 100% and the Senior Percentage
_______ ____ through _________ ____ ..........Senior Percentage, plus 40% of the difference
between 100% and the Senior Percentage
_______ ____ through _________ ____ ..........Senior Percentage, plus 20% of the difference
between 100% and the Senior Percentage
_______ ____ and thereafter..........................Senior Percentage;
</TABLE>
provided, however, (i) that any scheduled reduction to the Senior Accelerated
Distribution Percentage described above shall not occur as of any Distribution
Date unless either (a)(1) the outstanding principal balance of Mortgage Loans
delinquent [60] days or more averaged over the last six months, as a percentage
of the aggregate outstanding principal balance of all Mortgage Loans averaged
over the last [six] months, does not exceed [2%] and (2) Realized Losses on the
Mortgage Loans to date for such Distribution Date if occurring during the sixth,
seventh, eighth, ninth or tenth year (or any year thereafter) after the Closing
Date are less than [30%, 35%, 40%, 45% or 50%], respectively, of the Initial
Certificate Principal Balance of the Class B Certificates or (b)(1) the
outstanding principal balance of the Mortgage Loans delinquent [60] days or more
averaged over the last six months, as a percentage of the aggregate outstanding
principal balance of all Mortgage Loans averaged over the last [six] months,
does not exceed [4%] and (2) Realized Losses on the Mortgage Loans to date for
such Distribution Date are less than [10%] of the Initial Certificate Principal
Balance of the Class B Certificates and (ii) that for any Distribution Date on
which the Senior Percentage is greater than the Original Senior Percentage, the
Senior Accelerated Distribution Percentage for such Distribution Date shall be
100%. Notwithstanding the foregoing, upon the reduction of the aggregate
Certificate Principal Balance of the Class A Certificates to zero, the Senior
Accelerated Distribution Percentage shall thereafter be 0%.
"Senior Percentage": As of any Distribution Date, the lesser
of 100% and a fraction, expressed as a percentage, the numerator of which is the
aggregate Certificate Principal Balance of the Class A Certificates immediately
prior to such Distribution Date and the denominator of which is the aggregate
Stated Principal Balance of all of the Mortgage Loans (or related REO
Properties) immediately prior to such Distribution Date.
"Senior Principal Distribution Amount": As to any Distribution
Date, the lesser of (a) the balance of the Available Distribution Amount
remaining after the distribution of all amounts required to be distributed
pursuant to Section 4.02(b)(i) and (b) the sum of the amounts required to be
distributed to the Class A Certificateholders on such Distribution Date pursuant
to Section 4.02(b)(ii) and (vi).
"Servicing Account": The account or accounts created and
maintained pursuant to Section 3.09.
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<PAGE>
"Servicing Advances": All customary, reasonable and necessary
"out of pocket" costs and expenses incurred in connection with a default,
delinquency or other unanticipated event by the Master Servicer in the
performance of its servicing obligations, including, but not limited to, the
cost of (i) the preservation, restoration and protection of a Mortgaged
Property, (ii) any enforcement or judicial proceedings, including foreclosures,
(iii) the management and liquidation of any REO Property and (iv) compliance
with the obligations under the second paragraph of Section 3.01 and Section
3.09.
"Servicing Fee": As to each Mortgage Loan, an amount, payable
out of any payment of interest on the Mortgage Loan, equal to interest at the
related Servicing Fee Rate on the Stated Principal Balance of such Mortgage Loan
for the calendar month preceding the month in which the payment is due
(alternatively, in the event such payment of interest accompanies a Principal
Prepayment in full made by the Mortgagor, interest for the number of days
covered by such payment of interest).
"Servicing Fee Rate": With respect to each Mortgage Loan, the
per annum rate of _____%.
"Servicing Officer": Any officer of the Master Servicer
involved in, or responsible for, the administration and servicing of the
Mortgage Loans, whose name appears on a list of servicing officers furnished to
the Trustee by the Master Servicer, as such list may from time to time be
amended.
"Single Certificate": A Certificate of any Class evidencing
the minimum denomination for Certificates of such Class as set forth in Section
5.01.
"Special Hazard Amount": As of any Distribution Date, an
amount equal to $________ (the initial "Special Hazard Amount") minus the sum of
(i) the aggregate amount of Special Hazard Losses allocated solely to the Class
B Certificates pursuant to Section 4.04 and (ii) the Adjustment Amount (as
defined below) as most recently calculated. For each anniversary of the Cut-off
Date, the Adjustment Amount shall be calculated and shall be equal to the
amount, if any, by which the amount calculated in accordance with the preceding
sentence (without giving effect to the deduction of the Adjustment Amount for
such anniversary) exceeds the greater of (A) the product of the Special Hazard
Percentage for such anniversary multiplied by the outstanding principal balance
of all of the Mortgage Loans on such anniversary and (B) twice the outstanding
principal balance of the Mortgage Loan which has the largest outstanding
principal balance on such Anniversary.
"Special Hazard Percentage": As of each anniversary of the
Cut-off Date, the greater of (i) 1% and (ii) the largest percentage obtained by
dividing the aggregate outstanding principal balance on such anniversary of the
Mortgage Loans secured by Mortgaged Properties located in a single, five-digit
zip code area in the State of California by the outstanding principal balance of
all the Mortgage Loans on such anniversary.
"Standard & Poor's": Standard & Poor's Ratings Group, a
division of McGraw Hill, Inc. or its successor in interest.]
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<PAGE>
"Startup Day": The day designated as such pursuant to Article
X hereof.
"Stated Principal Balance": With respect to any Mortgage Loan
or related REO Property at any given time, (i) the principal balance of the
Mortgage Loan outstanding as of the Cut-off Date, after application of principal
payments due on or before such date, whether or not received, minus (ii) the sum
of (a) the principal portion of the Monthly Payments due with respect to such
Mortgage Loan or REO Property during each Due Period ending prior to the most
recent Distribution Date which were received or with respect to which an Advance
was made, (b) all Principal Prepayments with respect to such Mortgage Loan or
REO Property, and all Insurance Proceeds, Liquidation Proceeds and net income
from a REO Property to the extent applied by the Master Servicer as recoveries
of principal in accordance with Section 3.15 with respect to such Mortgage Loan
or REO Property, which were distributed pursuant to Section 4.01 on any previous
Distribution Date and (c) any Realized Loss with respect thereto allocated
pursuant to Section 4.04 for any previous Distribution Date.
"Subordinate Principal Distribution Amount": With respect to
any Distribution Date and the Class B Certificates, (a) the sum of (i) the
product of (x) the Class B Percentage and (y) the aggregate of the amounts
calculated for such Distribution Date under clauses (1), (2) and (3) of Section
4.01(b)(ii)(A); (ii) the principal collections described in Section
4.01(b)(ii)(B) to the extent such collections are not otherwise distributed to
the Senior Certificates; and (iii) the product of (x) 100% minus the Senior
Accelerated Distribution Percentage and (z) the aggregate of all Principal
Prepayments in Full and Curtailments received in the related Prepayment Period;
provided, however, that such amount shall in no event exceed the outstanding
Certificate Principal Balance of the Class B Certificates immediately prior to
such date.
"Sub-Servicer": Any Person with which the Master Servicer has
entered into a Sub-Servicing Agreement and which meets the qualifications of a
Sub-Servicer pursuant to Section 3.02.
"Sub-Servicer Remittance Date": The 18th day of each month, or
if such day is not a Business Day, the immediately preceding Business Day.
"Sub-Servicing Account": An account established by a
Sub-Servicer which meets the requirements set forth in Section 3.08 and is
otherwise acceptable to the Master Servicer.
"Sub-Servicing Agreement": The written contract between the
Master Servicer and a Sub-Servicer and any successor Sub-Servicer relating to
servicing and administration of certain Mortgage Loans as provided in Section
3.02.
"Tax Returns": The federal income tax return on Internal
Revenue Service Form 1066, U.S. Real Estate Mortgage Investment Conduit Income
Tax Return, including Schedule Q thereto, Quarterly Notice to Residual Interest
Holders of REMIC Taxable Income or Net Loss Allocation, or any successor forms,
to be filed on behalf of the Trust Fund due to its classification as a REMIC
under the REMIC Provisions, together with any and all other information, reports
or returns that may be required to be furnished to the Certificateholders or
21
<PAGE>
filed with the Internal Revenue Service or any other governmental taxing
authority under any applicable provisions of federal, state or local tax laws.
"Transfer": Any direct or indirect transfer, sale, pledge,
hypothecation or other form of assignment of any Ownership Interest in a
Certificate.
"Transferor": Any Person who is disposing by Transfer of any
Ownership Interest in a Certificate.
"Trust Fund": The segregated pool of assets subject hereto,
constituting the primary trust created hereby and to be administered hereunder,
with respect to which a REMIC election is to be made, consisting of: (i) the
Mortgage Loans (exclusive of payments of principal and interest due on or before
the Cut-off Date, if any) as from time to time are subject to this Agreement and
all payments under and proceeds of the Mortgage Loans, together with all
documents included in the related Mortgage File, subject to Section 2.01; (ii)
such funds or assets as from time to time are deposited in the Custodial Account
and the Certificate Account; (iii) any REO Property; (iv) the Primary Mortgage
Insurance Policies, if any, Primary Hazard Insurance Policies and all other
Insurance Policies with respect to the Mortgage Loans; and (v) the Company's
interest in respect of the representations and warranties made by the Seller in
the Seller's Warranty Certificate as assigned to the Trustee pursuant to Section
2.04 hereof.
"Trustee": [Name of Trustee], or its successor in interest, or
any successor trustee appointed as herein provided.
"Trustee's Fee": As to each Mortgage Loan and as the
Distribution Date, an amount, payable out of any payment of interest on the
Mortgage Loan, equal to interest at ____% per annum on the Stated Principal
Balance of such Mortgage Loan as of the Due Date immediately preceding the month
in which such Distribution Date occurs.
"Uninsured Cause": Any cause of damage to property subject to
a Mortgage such that the complete restoration of such property is not fully
reimbursable by the hazard insurance policies or flood insurance policies
required to be maintained pursuant to Section 3.13.
"United States Person": A citizen or resident of the United
States, a corporation, partnership or other entity created or organized in, or
under the laws of, the United States or any political subdivision thereof, or an
estate or trust 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. The term "United States" shall have the meaning set forth in
Section 7701 of the Code or successor provisions.
"Voting Rights": The portion of the voting rights of all of
the Certificates which is allocated to any Certificate. ___% of all of the
Voting Rights shall be allocated among Holders of the Certificates,
respectively, other than the Class A-5, Class A-7 and Class R Certificates, in
proportion to the outstanding Certificate Principal Balances of their respective
Certificates; and the Holders of the Class A-5, Class A-7 and Class R
Certificates shall be
22
<PAGE>
entitled to __%, __% and __% of all of the Voting Rights, respectively,
allocated among the Certificates of each such Class in accordance with their
respective Percentage Interests.
23
<PAGE>
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
SECTION 2.01. Conveyance of Mortgage Loans.
The Company, as of the Closing Date, and concurrently with the
execution and delivery hereof, does hereby assign, transfer, sell, set over and
otherwise convey to the Trustee without recourse all the right, title and
interest of the Company in and to the Mortgage Loans identified on the Mortgage
Loan Schedule and all other assets included or to be included in the Trust Fund
for the benefit of the Certificateholders. Such assignment includes all
principal and interest received by the Master Servicer on or with respect to the
Mortgage Loans (other than payment of principal and interest due on or before
the Cut-off Date).
In connection with such transfer and assignment, the Company
has requested the Seller to deliver to, and deposit with the Trustee, the
following documents or instruments:
(i) the original Mortgage Note, endorsed by the Seller "Pay to
the order of [Name of Trustee], as trustee without recourse" or to "Pay
to the order of [Name of Trustee], as trustee for holders of Option One
Mortgage Acceptance Corporation, Mortgage Pass-Through Certificates,
Series 199_-_, without recourse" with all intervening endorsements
showing a complete chain of endorsements from the originator to the
Person endorsing it to the Trustee;
(ii) the original recorded Mortgage or, if the original Mortgage
has not been returned from the applicable public recording office, a
copy of the Mortgage certified by the Seller to be a true and complete
copy of the original Mortgage submitted to the title insurance company
for recording;
(iii) a duly executed original Assignment of the Mortgage endorsed
by the Seller, without recourse, to "[Name of Trustee], as trustee" or
to "[Name of Trustee], as trustee for holders of Option One Mortgage
Acceptance Corporation, Mortgage PassThrough Certificates, Series
199_-_", with evidence of recording thereon;
(iv) the original recorded Assignment or Assignments of the
Mortgage showing a complete chain of assignment from the originator
thereof to the Person assigning it to the Trustee or, if any such
Assignment has not been returned from the applicable public recording
office, a copy of such Assignment certified by the Seller to be a true
and complete copy of the original Assignment submitted to the title
insurance company for recording;
(v) the original lender's title insurance policy, or, if such
policy has not been issued, any one of an original or a copy of the
preliminary title report, title binder or title commitment on the
Mortgaged Property with the original policy of the insurance to be
delivered promptly following the receipt thereof;
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<PAGE>
(vi) the original of any assumption, modification, extension or
guaranty agreement;
(vii) the original or a copy of the private mortgage insurance
policy or original certificate of private mortgage insurance, if
applicable; and
(viii) if any of the documents or instruments referred to above
were executed on behalf of the Mortgagor by another Person, the original power
of attorney or other instrument that authorized and empowered such Person to
sign, or a copy thereof certified by the Seller (or by an officer of the
applicable title insurance or escrow company) to be a true and correct copy of
the original.
The Seller is obligated pursuant to the Seller's Warranty
Certificate to deliver to the Trustee: (a) either the original recorded
Mortgage, or in the event such original cannot be delivered by the Seller, a
copy of such Mortgage certified as true and complete by the appropriate
recording office, in those instances where a copy thereof certified by the
Seller was delivered to the Trustee pursuant to clause (ii) above; and (b)
either the original Assignment or Assignments of the Mortgage, with evidence of
recording thereon, showing a complete chain of assignment from the originator to
the Seller, or in the event such original cannot be delivered by the Seller, a
copy of such Assignment or Assignments certified as true and complete by the
appropriate recording office, in those instances where copies thereof certified
by the Seller were delivered to the Trustee pursuant to clause (iv) above.
Notwithstanding anything to the contrary contained in this Section 2.01, in
those instances where the public recording office retains the original Mortgage
after it has been recorded, the Seller shall be deemed to have satisfied its
obligations hereunder upon delivery to the Trustee of a copy of such Mortgage
certified by the public recording office to be a true and complete copy of the
recorded original thereof.
If any Assignment is lost or returned unrecorded to the
Trustee because of any defect therein, the Seller is required to prepare a
substitute Assignment or cure such defect, as the case may be, and the Trustee
shall cause such Assignment to be recorded in accordance with this paragraph.
The Seller is required, as described in the Seller's Warranty
Certificate, to deliver to the Trustee the original of any documents assigned to
the Trustee pursuant to this Section 2.01 not later than 120 days after the
Closing Date.
All original documents relating to the Mortgage Loans which
are not delivered to the Trustee, to the extent delivered by the Seller to the
Master Servicer, are and shall be held by the Master Servicer in trust for the
benefit of the Trustee on behalf of the Certificateholders.
Except as may otherwise expressly be provided herein, neither
the Company, the Master Servicer nor the Trustee shall (and the Master Servicer
shall ensure that no Sub-Servicer shall) assign, sell, dispose of or transfer
any interest in the Trust Fund or any portion thereof, or permit the Trust Fund
or any portion thereof to be subject to any lien, claim, mortgage, security
interest, pledge or other encumbrance of, any other Person.
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<PAGE>
It is intended that the conveyance of the Mortgage Loans by
the Company to the Trustee as provided in this Section be, and be construed as,
a sale of the Mortgage Loans by the Company to the Trustee for the benefit of
the Certificateholders. It is, further, not intended that such conveyance be
deemed a pledge of the Mortgage Loans by the Company to the Trustee to secure a
debt or other obligation of the Company. However, in the event that the Mortgage
Loans are held to be property of the Company, or if for any reason this
Agreement is held or deemed to create a security interest in the Mortgage Loans,
then it is intended that, (a) this Agreement shall also be deemed to be a
security agreement within the meaning of Articles 8 and 9 of the New York
Uniform Commercial Code and the Uniform Commercial Code of any other applicable
jurisdiction; (b) the conveyance provided for in this Section shall be deemed to
be (1) a grant by the Company to the Trustee of a security interest in all of
the Company's right (including the power to convey title thereto), title and
interest, whether now owned or hereafter acquired, in and to (A) the Mortgage
Loans, including the Mortgage Notes, the Mortgages, any related insurance
policies and all other documents in the related Mortgage Files, (B) all amounts
payable to the holders of the Mortgage Loans in accordance with the terms
thereof and (C) all proceeds of the conversion, voluntary or involuntary, of the
foregoing into cash, instruments, securities or other property, including
without limitation all amounts from time to time held or invested in the
Certificate Account or the Custodial Account, whether in the form of cash,
instruments, securities or other property and (2) an assignment by the Company
to the Trustee of any security interest in any and all of the Seller's right
(including the power to convey title thereto), title and interest, whether now
owned or hereafter acquired, in and to the property described in the foregoing
clauses (1)(A) through (C) granted by the Seller to the Company pursuant to the
Assignment Agreement; (c) the possession by the Trustee or its agent of Mortgage
Notes and such other items of property as constitute instruments, money,
negotiable documents or chattel paper shall be deemed to be "possession by the
secured party" or possession by a purchaser or a person designated by such
secured party, for purposes of perfecting the security interest pursuant to the
New York Uniform Commercial Code and the Uniform Commercial Code of any other
applicable jurisdiction (including, without limitation, Sections 9-305, 8-313 or
8-321 thereof); and (d) notifications to persons holding such property, and
acknowledgments, receipts or confirmations from persons holding such property,
shall be deemed notifications to, or acknowledgments, receipts or confirmations
from, financial intermediaries, bailees or agents (as applicable) of the Trustee
for the purpose of perfecting such security interest under applicable law. The
Company and the Trustee shall, to the extent consistent with this Agreement,
take such actions as may be necessary to ensure that, if this Agreement were
deemed to create a security interest in the Mortgage Loans, such security
interest would be deemed to be a perfected security interest of first priority
under applicable law and will be maintained as such throughout the term of the
Agreement.
SECTION 2.02. Acceptance of the Trust Fund by the
Trustee.
The Trustee acknowledges receipt (subject to any exceptions
noted in the Initial Certification described below) of the documents referred to
in Section 2.01 above and all other assets included in the Trust Fund and
declares that it holds and will hold such documents and the other documents
delivered to it constituting the Mortgage Files, and that it holds or will hold
such other assets included in the Trust Fund (to the extent delivered or
assigned to the Trustee), in trust for the exclusive use and benefit of all
present and future Certificateholders.
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The Trustee agrees, for the benefit of the Certificateholders,
to review each Mortgage File on or before the Closing Date to ascertain that all
documents required to be delivered to it are in its possession, and the Trustee
agrees to execute and deliver to the Company and the Master Servicer on the
Closing Date an Initial Certification in the form annexed hereto as Exhibit C to
the effect that, as to each Mortgage Loan listed in the Mortgage Loan Schedule
(other than any Mortgage Loan paid in full or any Mortgage Loan specifically
identified in such certification as not covered by such certification), (i) all
documents required to be delivered to it pursuant to this Agreement with respect
to such Mortgage Loan are in its possession, (ii) such documents have been
reviewed by it and appear regular on their face and relate to such Mortgage Loan
and (iii) based on its examination and only as to the foregoing documents, the
information set forth in items (i) - (vi) and (xiii) of the definition of the
"Mortgage Loan Schedule" accurately reflects information set forth in the
Mortgage File. Neither the Trustee nor the Master Servicer shall be under any
duty to determine whether any Mortgage File should include any of the documents
specified in clause (vi) of Section 2.01. Neither the Trustee nor the Master
Servicer shall be under any duty or obligation to inspect, review or examine
said documents, instruments, certificates or other papers to determine that the
same are genuine, enforceable or appropriate for the represented purpose or that
they have actually been recorded or that they are other than what they purport
to be on their face.
Within 90 days of the Closing Date the Trustee shall deliver
to the Company and the Master Servicer a Final Certification in the form annexed
hereto as Exhibit D evidencing the completeness of the Mortgage Files, with any
applicable exceptions noted thereon.
If in the process of reviewing the Mortgage Files and
preparing the certifications referred to above the Trustee finds any document or
documents constituting a part of a Mortgage File to be missing or defective in
any material respect, the Trustee shall promptly notify the Seller, the Master
Servicer and the Company. The Trustee shall promptly notify the Seller of such
defect and request that the Seller cure any such defect within 60 days from the
date on which the Seller was notified of such defect, and if the Seller does not
cure such defect in all material respects during such period, request that the
Seller purchase such Mortgage Loan from the Trust Fund on behalf of the
Certificateholders at the Purchase Price within 90 days after the date on which
the Seller was notified of such defect. It is understood and agreed that the
obligation of the Seller to cure a material defect in, or purchase any Mortgage
Loan as to which a material defect in a constituent document exists shall
constitute the sole remedy respecting such defect available to
Certificateholders or the Trustee on behalf of Certificateholders. The Purchase
Price for the purchased Mortgage Loan shall be deposited or caused to be
deposited upon receipt by the Master Servicer in the Custodial Account and, upon
receipt by the Trustee of written notification of such deposit signed by a
Servicing Officer, the Trustee shall release or cause to be released to the
Seller the related Mortgage File and shall execute and deliver such instruments
of transfer or assignment, in each case without recourse, as the Seller shall
require as necessary to vest in the Seller ownership of any Mortgage Loan
released pursuant hereto and at such time the Trustee shall have no further
responsibility with respect to the related Mortgage File.
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SECTION 2.03. Representations, Warranties and
Covenants of the Master Servicer and
the Company.
(a) The Master Servicer hereby represents and warrants to and
covenants with the Company and the Trustee for the benefit of Certificateholders
that:
(i) The Master Servicer is, and throughout the term
hereof shall remain, a __________ duly organized, validly existing and
in good standing under the laws of the State of __________ (except as
otherwise permitted pursuant to Section 6.02), the Master Servicer is,
and shall remain, in compliance with the laws of each state in which
any Mortgaged Property is located to the extent necessary to perform
its obligations under this Agreement, and the Master Servicer is, and
shall remain, approved to sell mortgage loans to and service mortgage
loans for FNMA and FHLMC;
(ii) The execution and delivery of this Agreement by the
Master Servicer, and the performance and compliance with the terms of
this Agreement by the Master Servicer, will not violate the Master
Servicer's articles of incorporation or bylaws or 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
agreement or other instrument to which it is a party or which is
applicable to it or any of its assets;
(iii) The Master Servicer has the full power and authority
to enter into and consummate all transactions contemplated by this
Agreement, has duly authorized the execution, delivery and performance
of this Agreement, and has duly executed and delivered this Agreement;
(iv) This Agreement, assuming due authorization,
execution and delivery by the Company and the Trustee, constitutes a
valid, legal and binding obligation of the Master Servicer, enforceable
against the Master Servicer in accordance with the terms hereof,
subject to (A) applicable bankruptcy, insolvency, reorganization,
moratorium and other laws affecting the enforcement of creditors'
rights generally, and (B) general principles of equity, regardless of
whether such enforcement is considered in a proceeding in equity or at
law;
(v) The Master Servicer is not in violation of, and its
execution and delivery of this Agreement and its performance and
compliance with the terms of this Agreement will not constitute a
violation of, any law, any order or decree of any court or arbiter, or
any order, regulation or demand of any federal, state or local
governmental or regulatory authority, which violation is likely to
affect materially and adversely either the ability of the Master
Servicer to perform its obligations under this Agreement or the
financial condition of the Master Servicer;
(vi) No litigation is pending or, to the best of the
Master Servicer's knowledge, threatened against the Master Servicer
which would prohibit its entering into this Agreement or performing its
obligations under this Agreement or is likely to affect
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materially and adversely either the ability of the Master Servicer to
perform its obligations under this Agreement or the financial condition
of the Master Servicer;
(vii) The Master Servicer will comply in all material
respects in the performance of this Agreement and with all reasonable
rules and requirements of each insurer under each Insurance Instrument;
(viii) The execution of this Agreement and the performance
of the Master Servicer's obligations hereunder do not require any
license, consent or approval of any state or federal court, agency,
regulatory authority or other governmental body having jurisdiction
over the Master Servicer, other than such as have been obtained; and
(ix) No information, certificate of an officer, statement
furnished in writing or report delivered to the Company, any affiliate
of the Company or the Trustee by the Master Servicer will, to the
knowledge of the Master Servicer, contain any untrue statement of a
material fact or omit a material fact necessary to make the
information, certificate, statement or report not misleading; and
It is understood and agreed that the representations,
warranties and covenants set forth in this Section 2.03(a) shall survive the
execution and delivery of this Agreement, and shall inure to the benefit of the
Company, the Trustee and the Certificateholders. Upon discovery by the Company,
the Trustee or the Master Servicer of a breach of any of the foregoing
representations, warranties and covenants that materially and adversely affects
the interests of the Company or the Trustee, the party discovering such breach
shall give prompt written notice to the other parties.
(b) The Company hereby represents and warrants to the Master
Servicer and the Trustee for the benefit of Certificateholders that as of the
Closing Date (or, if otherwise specified below, as of the date so specified):
(i) Immediately prior to the assignment of the Mortgage
Loans to the Trustee, the Company had good title to, and was
the sole owner of, each Mortgage Loan free and clear of any
pledge, lien, encumbrance or security interest (other than
rights to servicing and related compensation) and such
assignment validly transfers ownership of the Mortgage Loans
to the Trustee free and clear of any pledge, lien, encumbrance
or security interest;
(ii) No Mortgage Loan is one month or more delinquent in
payment of principal and interest as of the Cut-off Date and
no Mortgage Loan has been so delinquent more than once in the
12-month period prior to the Cut-off Date;
(iii) The information set forth in the Mortgage Loan
Schedule with respect to each Mortgage Loan or the Mortgage
Loans, as the case may be, is true and correct in all material
respects at the date or dates respecting which such
information is furnished;
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(iv) The Mortgage Loans are fully-amortizing, fixed-rate
mortgage loans with level Monthly Payments due on the first
day of each month and terms to maturity at origination or
modification of not more than 30 years;
(v) Each Mortgage Loan secured by a Mortgaged Property
with a Loan-to-Value Ratio at origination in excess of 80% is
the subject of a Primary Mortgage Insurance Policy that
insures that portion of the principal balance thereof that
exceeds the amount equal to 75% of the appraised value of the
related Mortgaged Property. Each such Primary Mortgage
Insurance Policy is in full force and effect and the Trustee
is entitled to the benefits thereunder; and
(vi) The representations and warranties of the Seller
with respect to the Mortgage Loans and the remedies therefor
are as set forth in the Seller's Warranty Certificate.
[Other representations and warranties as applicable.]
It is understood and agreed that the representations and warranties set forth in
this Section 2.03(b) shall survive delivery of the respective Mortgage Files to
the Trustee.
Upon discovery by either the Company, the Master Servicer or
the Trustee of a breach of any representation or warranty set forth in this
Section 2.03 which materially and adversely affects the interests of the
Certificateholders in any Mortgage Loan, the party discovering such breach shall
give prompt written notice to the other parties.
SECTION 2.04. Representations and Warranties of
the Seller; Repurchase and
Substitution.
The Company hereby assigns to the Trustee for the benefit of
Certificateholders its interest in respect of the representations and warranties
made by the Seller in the Seller's Warranty Certificate or the exhibits thereto.
Insofar as the Seller's Warranty Certificate relates to such representations and
warranties and any remedies provided thereunder for any breach of such
representations and warranties, such right, title and interest may be enforced
by the Trustee on behalf of the Certificateholders. Upon the discovery by the
Company, the Master Servicer or the Trustee of a breach of any of the
representations and warranties made in the Seller's Warranty Certificate in
respect of any Mortgage Loan which materially and adversely affects the
interests of the Certificateholders in such Mortgage Loan, the party discovering
such breach shall give prompt written notice to the other parties. The Trustee
shall promptly notify the Seller of such breach and request that such Seller
shall, within 90 days from the date that the Company, the Seller or the Trustee
was notified of such breach, either (i) cure such breach in all material
respects or (ii) purchase such Mortgage Loan from the Trust Fund at the Purchase
Price and in the manner set forth in Section 2.02; provided that in the case of
such breach, the Seller shall have the option to substitute a Qualified
Substitute Mortgage Loan or Loans for such Mortgage Loan if such substitution
occurs within two years following the Closing Date. Any such substitution must
occur within 90 days from the date the Seller was notified of the breach if such
90 day period expires before two years following the Closing Date. In the event
that the Seller elects to substitute a Qualified Substitute Mortgage Loan or
Loans for a Deleted Mortgage Loan
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pursuant to this Section 2.04, the Seller shall deliver to the Trustee for the
benefit of the Certificateholders with respect to such Qualified Substitute
Mortgage Loan or Loans, the original Mortgage Note, the Mortgage, an Assignment
of the Mortgage in recordable form, and such other documents and agreements as
are required by Section 2.01, with the Mortgage Note endorsed as required by
Section 2.01. No substitution will be made in any calendar month after the
Determination Date for such month. Monthly Payments due with respect to
Qualified Substitute Mortgage Loans in the month of substitution shall not be
part of the Trust Fund and will be retained by the Master Servicer and remitted
by the Master Servicer to the Seller on the next succeeding Distribution Date.
For the month of substitution, distributions to Certificateholders will include
the Monthly Payment due on a Deleted Mortgage Loan for such month and thereafter
the Seller shall be entitled to retain all amounts received in respect of such
Deleted Mortgage Loan. The Company shall amend or cause to be amended the
Mortgage Loan Schedule for the benefit of the Certificateholders to reflect the
removal of such Deleted Mortgage Loan and the substitution of the Qualified
Substitute Mortgage Loan or Loans and the Company shall deliver the amended
Mortgage Loan Schedule, to the Trustee. Upon such substitution, the Qualified
Substitute Mortgage Loan or Loans shall be subject to the terms of this
Agreement in all respects, the Seller shall be deemed to have made the
representations and warranties with respect to the Qualified Substitute Mortgage
Loan contained in the Seller's Warranty Certificate as of the date of
substitution, and the Company shall be deemed to have made with respect to any
Qualified Substitute Mortgage Loan or Loans, as of the date of substitution, the
representations and warranties set forth in Section 2.03 hereof, and the Seller
shall be obligated to repurchase or substitute for any Qualified Substitute
Mortgage Loan as to which a repurchase or substitution obligation has occurred
pursuant to Section 3 of the Seller's Warranty Certificate.
In connection with the substitution of one or more Qualified
Substitute Mortgage Loans for one or more Deleted Mortgage Loans, the Master
Servicer will determine the amount (if any) by which the aggregate principal
balance of all such Qualified Substitute Mortgage Loans as of the date of
substitution is less than the aggregate Stated Principal Balance of all such
Deleted Mortgage Loans (in each case after application of the principal portion
of the Monthly Payments due in the month of substitution that are to be
distributed to Certificateholders in the month of substitution). The Seller
shall provide the Master Servicer on the day of substitution for immediate
deposit in to the Custodial Account the amount of such shortfall, without any
reimbursement therefor. The Seller shall give notice in writing to the Trustee
of such event, which notice shall be accompanied by an Officers' Certificate as
to the calculation of such shortfall and by an Opinion of Counsel to the effect
that such substitution will not cause (a) any federal tax to be imposed on the
Trust Fund, including without limitation, any federal tax imposed on "prohibited
transactions" under Section 860F(a)(1) of the Code or on "contributions after
the startup date" under Section 860G(d)(1) of the Code or (b) any portion of the
Trust Fund to fail to qualify as a REMIC at any time that any Certificate is
outstanding. The costs of any substitution as described above, including any
related assignments, opinions or other documentation in connection therewith
shall be borne by the Seller.
Except as expressly set forth herein neither the Trustee nor
the Master Servicer is under any obligation to discover any breach of the above
mentioned representations and warranties. It is understood and agreed that the
obligation of the Seller to cure such breach or to so purchase or substitute for
any Mortgage Loan as to which such a breach has occurred and
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is continuing shall constitute the sole remedy respecting such breach available
to Certificateholders or the Trustee on behalf of Certificateholders. In
addition, if the first scheduled Monthly Payment is due during the first month
after its closing date (as such term is used in the Seller's Warranties
Certificate) and such Monthly Payment is not received by the Master Servicer
within 30 days of the due date in accordance with the terms of the related
Mortgage Note, the Master Servicer shall promptly notify the Seller and the
Trustee and the Seller shall purchase such Mortgage Loan from the Trust Fund at
the Purchase Price or substitute a Qualified Substitute Mortgage Loan therefor
within 15 days from the date that the Seller was notified.
SECTION 2.05. Issuance of Certificates Evidencing
Interests in the Trust Fund.
The Trustee acknowledges the assignment to it of the Mortgage
Loans and the delivery of the Mortgage Files to it together with the assignment
to it of all other assets included in the Trust Fund, receipt of which is hereby
acknowledged. Concurrently with such delivery and in exchange therefor, the
Trustee, pursuant to the written request of the Company executed by an officer
of the Company, has executed and caused to be authenticated, and delivered to or
upon the order of the Company, the Certificates in authorized denominations
which evidence ownership of the entire Trust Fund.
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ARTICLE III
ADMINISTRATION AND SERVICING
OF THE TRUST FUND
SECTION 3.01. Master Servicer to Act as Master
Servicer.
The Master Servicer shall service and administer the Mortgage
Loans for the benefit of the Certificateholders, in accordance with this
Agreement and the customary and usual standards of practice of prudent
institutional mortgage lenders servicing comparable mortgage loans for their own
account in the respective states in which the Mortgaged Properties are located.
Subject to the foregoing, the Master Servicer shall have full power and
authority, acting alone and/or through Sub-Servicers as provided in Section
3.02, to do or cause to be done any and all things in connection with such
servicing and administration that it may deem necessary or desirable. Without
limiting the generality of the foregoing, the Master Servicer in its own name or
in the name of a Sub-Servicer is hereby authorized and empowered by the Trustee
when the Master Servicer believes it appropriate in its best judgment, to (i)
execute and deliver, on behalf of the Certificateholders and the Trustee or any
of them, any and all instruments of satisfaction or cancellation, or of partial
or full release or discharge, and all other comparable instruments, with respect
to the Mortgage Loans and the Mortgaged Properties, (ii) institute foreclosure
proceedings or obtain a deed-in-lieu of foreclosure so as to convert the
ownership of such properties, and (iii) hold or cause to be held title to such
properties, on behalf of the Trustee and Certificateholders. The Master Servicer
shall service and administer the Mortgage Loans in accordance with applicable
state and federal law and shall provide to the Mortgagors any reports required
to be provided to them thereby. Subject to Section 3.16, the Trustee shall
furnish to the Master Servicer and any Sub-Servicer any powers of attorney and
other documents necessary or appropriate to enable the Master Servicer and any
Sub-Servicer to carry out their servicing and administrative duties hereunder.
The Trustee shall not be responsible for any action taken by the Master Servicer
or any Sub-Servicer pursuant to the application of such powers of attorney.
In accordance with the standards of the preceding paragraph,
the Master Servicer shall advance or cause to be advanced funds as necessary for
the purpose of effecting the payment of taxes and assessments on the Mortgaged
Properties, which advances shall be reimbursable in the first instance from
related collections from the Mortgagors pursuant to Section 3.09, and further as
provided in Section 3.11. No costs incurred by the Master Servicer or by
Sub-Servicers in effecting the payment of taxes and assessments on the Mortgaged
Properties shall, for the purpose of calculating distributions to
Certificateholders, be added to the amount owing under the related Mortgage
Loans, notwithstanding that the terms of such Mortgage Loans so permit.
The Master Servicer shall not (unless the Mortgagor is in
default with respect to the Mortgage Loan or such default is, in the judgment of
the Master Servicer, reasonably foreseeable) make or permit any modification,
waiver or amendment of any term of any Mortgage Loan that would both (i) effect
an exchange or reissuance of such Mortgage Loan under Section 1001 of the Code
(or final, temporary or proposed Treasury regulations promulgated thereunder)
and (ii) cause the Trust Fund to fail to qualify as a REMIC under the
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Code or the imposition of any tax on "prohibited transactions" or
"contributions" after the startup date under the REMIC Provisions.
The Master Servicer may approve a request for a partial
release of the Mortgaged Property, easement, consent to alteration or demolition
and other similar matters if it has determined, exercising its good faith
business judgement in the same manner as it would if it were the owner of the
related Mortgage Loan, that such approval will not adversely affect the security
for, or the timely and full collectability of, the related Mortgage Loan. Any
fee collected by the Master Servicer for processing such request will be
retained by the Master Servicer as additional servicing compensation.
The relationship of the Master Servicer (and of any successor
to the Master Servicer under this Agreement) to the Trustee under this Agreement
is intended by the parties to be that of an independent contractor and not that
of a joint venturer, partner or agent.
SECTION 3.02. Sub-Servicing Agreements Between
Master Servicer and Sub-Servicers.
(a) The Master Servicer may enter into Sub-Servicing
Agreements with SubServicers for the servicing and administration of the
Mortgage Loans and for the performance of any and all other activities of the
Master Servicer hereunder. Each Sub-Servicer shall be either (i) an institution
the accounts of which are insured by the FDIC or (ii) another entity that
engages in the business of originating or servicing mortgage loans, and in
either case shall be authorized to transact business in the state or states in
which the related Mortgaged Properties it is to service are situated, if and to
the extent required by applicable law to enable the SubServicer to perform its
obligations hereunder and under the Sub-Servicing Agreement, and in either case
shall be a FHLMC or FNMA approved mortgage servicer. Each Sub-Servicing
Agreement must impose on the Sub-Servicer requirements conforming to the
provisions set forth in Section 3.08 and provide for servicing of the Mortgage
Loans consistent with the terms of this Agreement. With the consent of the
Trustee, which consent shall not be unreasonably withheld, the Master Servicer
and the Sub-Servicers may enter into Sub-Servicing Agreements and make
amendments to the Sub-Servicing Agreements or enter into different forms of
Sub-Servicing Agreements; provided, however, that any such amendments or
different forms shall be consistent with and not violate the provisions of this
Agreement.
(b) As part of its servicing activities hereunder, the Master
Servicer, for the benefit of the Trustee and the Certificateholders, shall
enforce the obligations of each SubServicer under the related Sub-Servicing
Agreement, including, without limitation, any obligation to make advances in
respect of delinquent payments as required by a Sub-Servicing Agreement, or to
purchase a Mortgage Loan on account of defective documentation or on account of
a breach of a representation or warranty, as described in Section 2.02. Such
enforcement, including, without limitation, the legal prosecution of claims,
termination of Sub-Servicing Agreements and the pursuit of other appropriate
remedies, shall be in such form and carried out to such an extent and at such
time as the Master Servicer, in its good faith business judgment, would require
were it the owner of the related Mortgage Loans. The Master Servicer shall pay
the costs of such enforcement at its own expense, but shall be reimbursed
therefor only (i) from a general recovery resulting from such enforcement only
to the extent, if any, that such recovery
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exceeds all amounts due in respect of the related Mortgage Loans or (ii) from a
specific recovery of costs, expenses or attorneys' fees against the party
against whom such enforcement is directed.
SECTION 3.03. Successor Sub-Servicers.
The Master Servicer shall be entitled to terminate any
Sub-Servicing Agreement and the rights and obligations of any Sub-Servicer
pursuant to any Sub-Servicing Agreement in accordance with the terms and
conditions of such Sub-Servicing Agreement. In the event of termination of any
Sub-Servicer, all servicing obligations of such Sub-Servicer shall be assumed
simultaneously by the Master Servicer without any act or deed on the part of
such Sub-Servicer or the Master Servicer, and the Master Servicer either shall
service directly the related Mortgage Loans or shall enter into a Sub-Servicing
Agreement with a successor Sub-Servicer which qualifies under Section 3.02.
SECTION 3.04. Liability of the Master Servicer.
Notwithstanding any Sub-Servicing Agreement, any of the
provisions of this Agreement relating to agreements or arrangements between the
Master Servicer and a SubServicer or reference to actions taken through a
Sub-Servicer or otherwise, the Master Servicer shall remain obligated and
primarily liable to the Trustee and Certificateholders for the servicing and
administering of the Mortgage Loans in accordance with the provisions of Section
3.01 without diminution of such obligation or liability by virtue of such
Sub-Servicing Agreements or arrangements or by virtue of indemnification from
the Sub-Servicer and to the same extent and under the same terms and conditions
as if the Master Servicer alone were servicing and administering the Mortgage
Loans. For purposes of this Agreement, the Master Servicer shall be deemed to
have received payments on Mortgage Loans when the Sub-Servicer has received such
payments. The Master Servicer shall be entitled to enter into any agreement with
a SubServicer for indemnification of the Master Servicer by such Sub-Servicer
and nothing contained in this Agreement shall be deemed to limit or modify such
indemnification.
SECTION 3.05. No Contractual Relationship Between
Sub-Servicers and Trustee or
Certificateholders.
Any Sub-Servicing Agreement that may be entered into and any
transactions or services relating to the Mortgage Loans involving a Sub-Servicer
in its capacity as such and not as an originator shall be deemed to be between
the Sub-Servicer and the Master Servicer alone, and the Trustee and
Certificateholders shall not be deemed parties thereto and shall have no claims,
rights, obligations, duties or liabilities with respect to the Sub-Servicer
except as set forth in Section 3.06.
SECTION 3.06. Assumption or Termination of
Sub-Servicing Agreements by Trustee.
In the event the Master Servicer shall for any reason no
longer be the master servicer (including by reason of an Event of Default), the
Trustee or its designee shall thereupon assume all of the rights and obligations
of the Master Servicer under each Sub-Servicing
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Agreement that the Master Servicer may have entered into, unless the Trustee is
then permitted and elects to terminate any Sub-Servicing Agreement in accordance
with its terms. The Trustee, its designee or the successor servicer for the
Trustee shall be deemed to have assumed all of the Master Servicer's interest
therein and to have replaced the Master Servicer as a party to each
Sub-Servicing Agreement to the same extent as if the Sub-Servicing Agreements
had been assigned to the assuming party, except that the Master Servicer shall
not thereby be relieved of any liability or obligations under the Sub-Servicing
Agreements, and the Master Servicer shall continue to be entitled to any rights
or benefits which arose prior to its termination as master servicer.
The Master Servicer at its expense shall, upon request of the
Trustee, deliver to the assuming party all documents and records relating to
each Sub-Servicing Agreement and the Mortgage Loans then being serviced and an
accounting of amounts collected and held by it and otherwise use its best
efforts to effect the orderly and efficient transfer of the Sub-Servicing
Agreements to the assuming party.
SECTION 3.07. Collection of Certain Mortgage Loan
Payments.
The Master Servicer shall make reasonable efforts to collect
all payments called for under the terms and provisions of the Mortgage Loans,
and shall, to the extent such procedures shall be consistent with this Agreement
and the terms and provisions of any related Insurance Policy, follow such
collection procedures as it would follow with respect to mortgage loans
comparable to the Mortgage Loans and held for its own account. The Master
Servicer shall not be required to institute or join in litigation with respect
to collection of any payment (whether under a Mortgage, Mortgage Note, Primary
Hazard Insurance Policy, Primary Mortgage Insurance Policy or otherwise or
against any public or governmental authority with respect to a taking or
condemnation) if it reasonably believes that it is prohibited by applicable law
from enforcing the provision of the Mortgage or other instrument pursuant to
which such payment is required. Consistent with the foregoing, the Master
Servicer may in its discretion waive any prepayment fees, late payment charge or
other charge, except as otherwise required under applicable law. The Master
Servicer shall be responsible for preparing and distributing all information
statements relating to payments on the Mortgage Loans, in accordance with all
applicable federal and state tax laws and regulations.
SECTION 3.08. Sub-Servicing Accounts.
In those cases where a Sub-Servicer is servicing a Mortgage
Loan pursuant to a Sub-Servicing Agreement, the Sub-Servicer will be required to
establish and maintain one or more accounts (collectively, the "Sub-Servicing
Account"). The Sub-Servicing Account shall be an Eligible Account and shall
otherwise be acceptable to the Master Servicer. All amounts held in a
Sub-Servicing Account shall be held in trust for the Trustee for the benefit of
the Certificateholders. The Sub-Servicer will be required to deposit into the
Sub-Servicing Account no later than the first Business Day after receipt all
proceeds of Mortgage Loans received by the Sub-Servicer, less its servicing
compensation and any unreimbursed expenses and advances, to the extent permitted
by the Sub-Servicing Agreement. On each Sub-Servicer Remittance Date the
Sub-Servicer will be required to remit to the Master Servicer for deposit into
the Custodial Account all funds held in the Sub-Servicing Account with respect
to any Mortgage Loan as of
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the Sub-Servicer Remittance Date, after deducting from such remittance an amount
equal to the servicing compensation and unreimbursed expenses and advances to
which it is then entitled pursuant to the related Sub-Servicing Agreement, to
the extent not previously paid to or retained by it. In addition, on each
Sub-Servicer Remittance Date the Sub-Servicer will be required to remit to the
Master Servicer any amounts required to be advanced pursuant to the related
SubServicing Agreement. The Sub-Servicer will also be required to remit to the
Master Servicer, within one Business Day of receipt, the proceeds of any
Principal Prepayment made by the Mortgagor and any Insurance Proceeds or
Liquidation Proceeds.
SECTION 3.09. Collection of Taxes, Assessments and
Similar Items; Servicing Accounts.
The Master Servicer and the Sub-Servicers shall establish and
maintain one or more accounts (the "Servicing Accounts"), and shall deposit and
retain therein all collections from the Mortgagors (or related advances from
Sub-Servicers) for the payment of taxes, assessments, Primary Hazard Insurance
Policy premiums, and comparable items for the account of the Mortgagors, to the
extent that the Master Servicer customarily escrows for such amounts.
Withdrawals of amounts so collected from a Servicing Account may be made only to
(i) effect payment of taxes, assessments, Primary Hazard Insurance Policy
premiums and comparable items; (ii) reimburse the Master Servicer (or a
Sub-Servicer to the extent provided in the related Sub-Servicing Agreement) out
of related collections for any payments made pursuant to Sections 3.01 (with
respect to taxes and assessments) and 3.13 (with respect to Primary Hazard
Insurance Policies); (iii) refund to Mortgagors any sums as may be determined to
be overages; or (iv) clear and terminate the Servicing Account at the
termination of this Agreement pursuant to Section 9.01. As part of its servicing
duties, the Master Servicer or Sub-Servicers shall, if and to the extent
required by law, pay to the Mortgagors interest on funds in Servicing Accounts
from its or their own funds, without any reimbursement therefor.
SECTION 3.10. Custodial Account.
(a) The Master Servicer shall establish and maintain one or
more accounts (collectively, the "Custodial Account") in which the Master
Servicer shall deposit or cause to be deposited no later than the first Business
Day after receipt or as and when received from the Sub-Servicers, the following
payments and collections received or made by or on behalf of it subsequent to
the Cut-off Date, or received by it prior to the Cut-off Date but allocable to a
period subsequent thereto (other than in respect of principal and interest on
the Mortgage Loans due on or before the Cut-off Date):
(i) all payments on account of principal, including Principal
Prepayments, on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage Loans,
not including any portion thereof representing interest on account of
the related Servicing Fee Rate;
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(iii) all Insurance Proceeds, other than proceeds that represent
reimbursement of costs and expenses incurred by the Master Servicer in
connection with presenting claims under the related Insurance Policies,
Liquidation Proceeds and REO Proceeds;
(iv) all proceeds of any Mortgage Loan or REO Property
repurchased or purchased in accordance with Sections 2.02, 2.04 or 9.01
and all amounts required to be deposited in connection with the
substitution of a Qualified Substitute Mortgage Loan pursuant to
Section 2.04;
(v) any amounts required to be deposited in the Custodial
Account pursuant to Section 3.12, 3.13 or 3.22; and
(vi) all amounts transferred from the Certificate Account to the
Custodial Account in accordance with Sections 4.01(b).
For purposes of the immediately preceding sentence, the
Cut-off Date with respect to any Qualified Substitute Mortgage Loan shall be
deemed to be the date of substitution.
The foregoing requirements for deposit in the Custodial
Account shall be exclusive. In the event the Master Servicer shall deposit in
the Custodial Account any amount not required to be deposited therein, it may
withdraw such amount from the Custodial Account, any provision herein to the
contrary notwithstanding. The Custodial Account shall be maintained as a
segregated account, separate and apart from trust funds created for mortgage
pass-through certificates of other series, and the other accounts of the Master
Servicer.
(b) Funds in the Custodial Account may be invested in
Permitted Instruments in accordance with the provisions set forth in Section
3.12. The Master Servicer shall give notice to the Trustee and the Company of
the location of the Custodial Account after any change thereof.
(c) Payments in the nature of late payment charges, prepayment
fees, assumption fees and reconveyance fees received on the Mortgage Loans shall
not be deposited in the Custodial Account, but rather shall be received and held
by the Master Servicer as additional servicing compensation.
SECTION 3.11. Permitted Withdrawals From the
Custodial Account.
The Master Servicer may, from time to time as provided herein,
make withdrawals from the Custodial Account of amounts on deposit therein
pursuant to Section 3.10 that are attributable to the Mortgage Loans for the
following purposes:
(i) to make deposits into the Certificate Account in
the amounts and in the manner provided for in Section 4.01, such
deposit to include interest collections on the Mortgage Loans at the
Net Mortgage Rate [and net of amounts reimbursed therefrom];
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(ii) to pay to itself, the Company, the Seller or any
other appropriate person, as the case may be, with respect to each
Mortgage Loan that has previously been purchased, repurchased or
replaced pursuant to Sections 2.02, 2.04 or 9.01 all amounts received
thereon and not yet distributed as of the date of purchase, repurchase
or substitution;
(iii) to reimburse itself or any Sub-Servicer for
Advances not previously reimbursed, the Master Servicer's or any
Sub-Servicer's right to reimbursement pursuant to this clause (iii)
being limited to amounts received which represent Late Collections (net
of the related Servicing Fees) of Monthly Payments on Mortgage Loans
with respect to which such Advances were made and as further provided
in Section 3.15;
(iv) to reimburse or pay itself, the Trustee or the
Company for expenses incurred by or reimbursable to the Master
Servicer, the Trustee or the Company pursuant to Sections 3.22, 6.03,
8.05, 10.01(c) or 10.01(g), except as otherwise provided in such
Sections;
(v) to reimburse itself or any Sub-Servicer for costs
and expenses incurred by or reimbursable to it relating to the
prosecution of any claims pursuant to Section 3.13 that are in excess
of the amounts so recovered;
(vi) to reimburse itself or any Sub-Servicer for unpaid
Servicing Fees and unreimbursed Servicing Advances, the Master
Servicer's or any Sub-Servicer's right to reimbursement pursuant to
this clause (vi) with respect to any Mortgage Loan being limited to
late recoveries of the payments for which such advances were made
pursuant to Section 3.01 or Section 3.09 and any other related Late
Collections;
(vii) to pay itself as servicing compensation (in
addition to the Servicing Fee), on or after each Distribution Date, any
interest or investment income earned on funds deposited in the
Custodial Account for the period ending on such Distribution Date,
subject to Section 8.05;
(viii) to reimburse itself or any Sub-Servicer for any
Advance previously made which itself has determined to be a
Nonrecoverable Advance, provided that either (a) such Advance was made
with respect to a delinquency that ultimately constituted an Excess
Special Hazard Loss, Excess Fraud Loss, Excess Bankruptcy Loss or
Extraordinary Loss, or (b) the Certificate Principal Balances of the
Class B Certificates have been reduced to zero; and
(ix) to clear and terminate the Custodial Account at the
termination of this Agreement pursuant to Section 9.01.
The Master Servicer shall keep and maintain separate
accounting records on a Mortgage Loan by Mortgage Loan basis, for the purpose of
justifying any withdrawal from the Custodial Account pursuant to such clauses
(ii), (iii), (iv), (v), (vi), (vii) and (viii).
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In connection with clause (viii) above, the Trustee shall
notify the Master Servicer if and when the Certificate Principal Balances of the
Class B Certificates have been reduced to zero.
SECTION 3.12. Permitted Instruments.
Any institution maintaining the Custodial Account shall at the
direction of the Master Servicer invest the funds in such account in Permitted
Instruments, each of which shall mature not later than the Business Day
immediately preceding the Distribution Date next following the date of such
investment (except that if such Permitted Instrument is an obligation of the
institution that maintains such account, then such Permitted Instrument shall
mature not later than such Distribution Date) and shall not be sold or disposed
of prior to its maturity. All income and gain realized from any such investment
as well as any interest earned on deposits in the Custodial Account shall be for
the benefit of the Master Servicer. The Master Servicer shall deposit in the
Custodial Account (with respect to investments made hereunder of funds held
therein) an amount equal to the amount of any loss incurred in respect of any
such investment immediately upon realization of such loss without right of
reimbursement.
SECTION 3.13. Maintenance of Primary Mortgage
Insurance and Primary Hazard
Insurance.
(a) The Master Servicer shall not take, or permit any
Sub-servicer to take, any action which would result in non-coverage under any
applicable Primary Mortgage Insurance Policy of any loss which, but for the
actions of the Master Servicer or Sub-servicer, would have been covered
thereunder. To the extent coverage is available, the Master Servicer shall keep
or cause to be kept in full force and effect each such Primary Mortgage
Insurance Policy until the principal balance of the related Mortgage Loan
secured by a Mortgaged Property is reduced to 75% or less of the Collateral
Value in the case of such a Mortgage Loan having a Loan-toValue Ratio at
origination in excess of 80%. The Master Servicer shall not cancel or refuse to
renew any such Primary Mortgage Insurance Policy, or consent to any Sub-servicer
canceling or refusing to renew any such Primary Mortgage Insurance Policy
applicable to a Mortgage Loan subserviced by it, that is in effect at the date
of the initial issuance of the Certificates and is required to be kept in force
hereunder unless the replacement Primary Mortgage Insurance Policy for such
canceled or non-renewed policy is maintained with a Qualified Insurer.
(b) In connection with its activities as administrator and
servicer of the Mortgage Loans, the Master Servicer agrees to present or to
cause the related Sub-servicer to present, on behalf of the Master Servicer, the
Sub-servicer, if any, the Trustee and Certificateholders, claims to the insurer
under any Primary Mortgage Insurance Policies, in a timely manner in accordance
with such policies, and, in this regard, to take or cause to be taken such
reasonable action as shall be necessary to permit recovery under any Primary
Mortgage Insurance Policies respecting defaulted Mortgage Loans. Pursuant to
Section 3.10, any Insurance Proceeds collected by or remitted to the Master
Servicer under any Primary Mortgage Insurance Policies shall be deposited in the
Custodial Account, subject to withdrawal pursuant to Section 3.11.
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(c) The Master Servicer shall cause to be maintained for each
Mortgage Loan primary hazard insurance with extended coverage on the related
Mortgaged Property in an amount equal to the lesser of 100% of the replacement
value of the improvements, as determined by the insurance company, on such
Mortgaged Property or the unpaid principal balance of the Mortgage Loan. The
Master Servicer shall also cause to be maintained on property acquired upon
foreclosure, or deed in lieu of foreclosure, of any Mortgage Loan, fire
insurance with extended coverage in an amount equal to the replacement value of
the improvements thereon. Pursuant to Section 3.10, any amounts collected by the
Master Servicer under any such policies (other than amounts to be applied to the
restoration or repair of the related Mortgaged Property or property thus
acquired or amounts released to the Mortgagor in accordance with the Master
Servicer's normal servicing procedures) shall be deposited in the Custodial
Account, subject to withdrawal pursuant to Section 3.11. Any cost incurred by
the Master Servicer in maintaining any such insurance shall not, for the purpose
of calculating monthly distributions to Certificateholders, be added to the
amount owing under the Mortgage Loan, notwithstanding that the terms of the
Mortgage Loan so permit. It is understood and agreed that no earthquake or other
additional insurance is to be required of any Mortgagor or maintained on
property acquired in respect of a Mortgage Loan other than pursuant to such
applicable laws and regulations as shall at any time be in force and as shall
require such additional insurance. When the improvements securing a Mortgage
Loan are located at the time of origination of such Mortgage Loan in a federally
designated special flood hazard area, the Master Servicer shall cause flood
insurance (to the extent available) to be maintained in respect thereof. Such
flood insurance shall be in an amount equal to the lesser of (i) the replacement
value of the improvements, which are part of such Mortgaged Property on a
replacement cost basis and (ii) the maximum amount of such insurance available
for the related Mortgaged Property under the national flood insurance program
(assuming that the area in which such Mortgaged Property is located is
participating in such program).
In the event that the Master Servicer shall obtain and
maintain a blanket fire insurance policy with extended coverage insuring against
hazard losses on all of the Mortgage Loans, it shall conclusively be deemed to
have satisfied its obligations as set forth in the first two sentences of this
Section 3.13, it being understood and agreed that such policy may contain a
deductible clause, in which case the Master Servicer shall, in the event that
there shall not have been maintained on the related Mortgaged Property a policy
complying with the first two sentences of this Section 3.13 and there shall have
been a loss which would have been covered by such policy, deposit in the
Certificate Account the amount not otherwise payable under the blanket policy
because of such deductible clause. Any such deposit by the Master Servicer shall
be made on the Certificate Account Deposit Date next preceding the Distribution
Date which occurs in the month following the month in which payments under any
such policy would have been deposited in the Custodial Account. In connection
with its activities as administrator and servicer of the Mortgage Loans, the
Master Servicer agrees to present, on behalf of itself, the Trustee and
Certificateholders, claims under any such blanket policy.
SECTION 3.14. Enforcement of Due-on-Sale Clauses;
Assumption Agreements.
The Master Servicer will, to the extent it has knowledge of
any conveyance or prospective conveyance by any Mortgagor of the Mortgaged
Property (whether by absolute
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conveyance or by contract of sale, and whether or not the Mortgagor remains or
is to remain liable under the Mortgage Note or the Mortgage), exercise or cause
to be exercised its rights to accelerate the maturity of such Mortgage Loan
under any "due-on-sale" clause applicable thereto; provided, however, that the
Master Servicer shall not exercise any such rights if it reasonably believes
that it is prohibited by law from doing so or if such enforcement will adversely
affect or jeopardize required coverage under the Insurance Instruments. If the
Master Servicer is unable to enforce such "due-on-sale" clause (as provided in
the previous sentence) or if no "due-on-sale" clause is applicable, the Master
Servicer or the Sub-Servicer will enter into an assumption and modification
agreement with the Person to whom such property has been conveyed or is proposed
to be conveyed, pursuant to which such Person becomes liable under the Mortgage
Note and, to the extent permitted by applicable state law, the Mortgagor remains
liable thereon; provided, however, that the Master Servicer shall not enter into
any assumption and modification agreement if the coverage provided under the
Primary Insurance Policy, if any, would be impaired by doing so. The Master
Servicer is also 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 the Mortgagor and becomes liable
under the Mortgage Note, if the Master Servicer shall have determined in good
faith that such substitution will not adversely affect the collectability of the
Mortgage Loan. Any fee collected by or on behalf of the Master Servicer for
entering into an assumption or substitution of liability agreement will be
retained by or on behalf of the Master Servicer as additional servicing
compensation. In connection with any such assumption, no material term of the
Mortgage Note (including but not limited to the Mortgage Rate, the amount of the
Monthly Payment and any other term affecting the amount or timing of payment on
the Mortgage Loan) may be changed. The Master Servicer shall not enter into any
substitution or assumption if such substitution or assumption would constitute a
"significant modification" effecting an exchange or reissuance of such Mortgage
Loan under the Code (or final, temporary or proposed Treasury regulations
promulgated thereunder) and cause the Trust Fund to fail to qualify as a REMIC
under the Code or the imposition of any tax on "prohibited transactions" or
"contributions" after the Startup Day under the REMIC Provisions. The Master
Servicer shall notify the Trustee that any such substitution or assumption
agreement has been completed by forwarding to the Trustee the original copy of
such substitution or assumption agreement, which copy shall be added to the
related Mortgage File and shall, for all purposes, be considered a part of such
Mortgage File to the same extent as all other documents and instruments
constituting a part thereof.
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 that the
Master Servicer may be restricted by law from preventing, for any reason
whatsoever. For purposes of this Section 3.14, the term "assumption" is deemed
to also include a sale of a Mortgaged Property that is not accompanied by an
assumption or substitution of liability agreement.
SECTION 3.15. Realization Upon Defaulted Mortgage
Loans.
The Master Servicer shall exercise reasonable efforts,
consistent with the procedures that the Master Servicer would use in servicing
loans for its own account, to foreclose upon or otherwise comparably convert
(which may include an REO Acquisition) the
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ownership of properties securing such of the Mortgage Loans as come into and
continue in default and as to which no satisfactory arrangements can be made for
collection of delinquent payments pursuant to Section 3.07, and which are not
released from the Trust Fund pursuant to any other provision hereof. The Master
Servicer shall use reasonable efforts to realize upon such defaulted Mortgage
Loans in such manner as will maximize the receipt of principal and interest by
Certificateholders, taking into account, among other things, the timing of
foreclosure proceedings. The foregoing is subject to the provisions that, in any
case in which Mortgaged Property shall have suffered damage from an Uninsured
Cause, the Master Servicer shall not be required to expend its own funds toward
the restoration of such property unless it shall determine in (i) that such
restoration will increase the net proceeds of liquidation of the related
Mortgage Loan to Certificateholders after reimbursement to itself for such
expenses, and (ii) that such expenses will be recoverable by the Master Servicer
through Insurance Proceeds or Liquidation Proceeds from the related Mortgaged
Property, as contemplated in Section 3.11. The Master Servicer shall be
responsible for all other costs and expenses incurred by it in any such
proceedings; provided, however, that it shall be entitled to reimbursement
thereof from the related Mortgaged Property, as contemplated in Section 3.11.
The proceeds of any Cash Liquidation or REO Disposition, as
well as any recovery resulting from a partial collection of Insurance Proceeds
or Liquidation Proceeds or any income from an REO Property, will be applied in
the following order of priority: first, to reimburse the Master Servicer or any
Sub-Servicer for any related unreimbursed Servicing Advances, pursuant to
Section 3.11(vi) or 3.22; second, to accrued and unpaid interest on the Mortgage
Loan or REO Imputed Interest, at the Mortgage Rate, to the date of the Cash
Liquidation or REO Disposition, or to the Due Date prior to the Distribution
Date on which such amounts are to be distributed if not in connection with a
Cash Liquidation or REO Disposition; and third, as a recovery of principal of
the Mortgage Loan. If the amount of the recovery so allocated to interest is
less than a full recovery thereof, that amount will be allocated as follows:
first, on a pro rata basis, to unpaid Servicing Fees; and second, to interest at
the related Net Mortgage Rate. The portion of the recovery so allocated to
unpaid Servicing Fees shall be reimbursed to the Master Servicer or any
Sub-Servicer pursuant to Section 3.11(vi). The portions of the recovery so
allocated to interest at the related Net Mortgage Rate and to principal of the
Mortgage Loan shall be applied as follows: first, to reimburse the Trustee for
any unpaid Trustee's Fees, second, to reimburse the Master Servicer or any
Sub-Servicer for any related unreimbursed Advances in accordance with Section
3.11(iii) or 3.22, and third, for distribution in accordance with the provisions
of Section 4.01(b) and 4.01(c).
SECTION 3.16. Trustee to Cooperate; Release of
Mortgage Files.
Upon the payment in full of any Mortgage Loan, or the receipt
by the Master Servicer of a notification that payment in full shall be escrowed
in a manner customary for such purposes, the Master Servicer will immediately
notify the Trustee by a certification (which certification shall include a
statement to the effect that all amounts received or to be received in
connection with such payment which are required to be deposited in the Custodial
Account pursuant to Section 3.10 have been or will be so deposited) of a
Servicing Officer and shall request delivery to it of the Mortgage File in the
form of the Request for Release attached hereto as Exhibit F-2. Upon receipt of
such certification and request, the Trustee shall promptly release the related
Mortgage File to the Master Servicer. Subject to the receipt by the Master
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Servicer of the proceeds of such payment in full and the payment of all related
fees and expenses, the Master Servicer shall arrange for the release to the
Mortgagor of the original cancelled Mortgage Note. The Master Servicer shall
provide for preparation of the appropriate instrument of satisfaction covering
any Mortgage Loan which pays in full and the Trustee shall cooperate in the
execution and return of such instrument to provide for its delivery or recording
as may be required. All other documents in the Mortgage File shall be retained
by the Master Servicer to the extent required by applicable law. No expenses
incurred in connection with any instrument of satisfaction or deed of
reconveyance shall be chargeable to the Custodial Account or the Certificate
Account.
From time to time and as appropriate for the servicing or
foreclosure of any Mortgage Loan, including, for this purpose, collection under
the Insurance Instruments or any other insurance policy relating to the Mortgage
Loan, the Trustee shall, upon request of the Master Servicer and delivery to the
Trustee of a Request for Release in the form attached hereto as Exhibit F-1,
release the related Mortgage File to the Master Servicer, and the Trustee shall
execute such documents as the Master Servicer shall prepare and request as being
necessary to the prosecution of any such proceedings. Such Request for Release
shall obligate the Master Servicer to return each document previously requested
from the Mortgage File to the Trustee when the need therefor by the Master
Servicer no longer exists, unless the Mortgage Loan has been liquidated and the
Liquidation Proceeds relating to the Mortgage Loan have been deposited in the
Custodial Account or the Mortgage File or such document has been delivered to an
attorney, or to a public trustee or other public official as required by law,
for purposes of initiating or pursuing legal action or other proceedings for the
foreclosure of the Mortgaged Property either judicially or non-judicially, and
the Master Servicer has delivered to the Trustee a certificate of a Servicing
Officer certifying as to the name and address of the Person to which such
Mortgage File or such document was delivered and the purpose or purposes of such
delivery. Upon receipt of a certificate of a Servicing Officer stating that such
Mortgage Loan was liquidated and that all amounts received or to be received in
connection with such liquidation which are required to be deposited into the
Custodial Account have been or will be so deposited, or that such Mortgage Loan
has become an REO Property, the servicing receipt shall be released by the
Trustee to the Master Servicer.
Upon written request of a Servicing Officer, the Trustee shall
execute and deliver to the Master Servicer any court pleadings, requests for
trustee's sale or other documents prepared by the Master Servicer that are
necessary to the foreclosure or trustee's sale in respect of a Mortgaged
Property or to any legal action brought to obtain judgment against any Mortgagor
on the Mortgage Note or Mortgage or to obtain a deficiency judgment, or to
enforce any other remedies or rights provided by the Mortgage Note or Mortgage
or otherwise available at law or in equity. Each such request that such
pleadings or documents be executed by the Trustee shall include a certification
as to the reason such documents or pleadings are required and that the execution
and delivery thereof by the Trustee will not invalidate or otherwise affect the
lien of the Mortgage, except for the termination of such a lien upon completion
of the foreclosure or trustee's sale.
SECTION 3.17. Servicing Compensation.
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As compensation for its activities hereunder, the Master
Servicer shall be entitled to retain, from deposits to the Custodial Account of
amounts representing payments or recoveries of interest, the Servicing Fees with
respect to each Mortgage Loan (less any portion of such amounts retained by any
Sub-Servicer). In addition, the Master Servicer shall be entitled to recover
unpaid Servicing Fees out of related Late Collections to the extent permitted in
Section 3.11.
The Master Servicer also shall be entitled pursuant to Section
3.11 to receive from the Custodial Account, as additional servicing compensation
interest or other income earned on deposits therein, as well as any prepayment
fees, assumption fees, late payment fees and reconveyance fees. The Master
Servicer shall be required to pay all expenses incurred by it in connection with
its servicing activities hereunder (including payment of the premiums for any
Primary Mortgage Insurance Policy or blanket policy insuring against hazard
losses pursuant to Section 3.13, payment of the servicing compensation of the
Sub-Servicer to the extent not retained by it), and shall not be entitled to
reimbursement therefor except as specifically provided in Section 3.11. The
Servicing Fee may not be transferred in whole or in part except in connection
with the transfer of all of the Master Servicer's responsibilities and
obligations under this Agreement.
SECTION 3.18. Maintenance of Certain Servicing
Policies.
During the term of its service as Master Servicer, the Master
Servicer shall maintain in force (i) a policy or policies of insurance covering
errors and omissions in the performance of its obligations as servicer hereunder
and (ii) a fidelity bond in respect of its officers, employees or agents. Each
such policy or policies and bond shall, together, comply with the requirements
from time to time of FNMA or FHLMC for persons performing servicing for mortgage
loans purchased by such corporation. The Master Servicer shall prepare and
present, on behalf of itself, the Trustee and Certificateholders, claims under
any such errors and omissions policy or policies or fidelity bond in a timely
fashion in accordance with the terms of such policy or bond, and upon the filing
of any claim on any policy or bond described in this Section, the Master
Servicer shall promptly notify the Trustee of any such claims and the Trustee
shall notify the Rating Agency of such claim.
SECTION 3.19. Annual Statement as to Compliance.
The Master Servicer will deliver to the Trustee and the
Company on or before _____ __ of each year, beginning with _____ __, 199_, an
Officers' Certificate stating, as to each signatory thereof, that (i) a review
of the activities of the Master Servicer during the preceding calendar year and
of its performance under this Agreement has been made under such officers'
supervision, and (ii) to the best of such officers' knowledge, based on such
review, the Master Servicer has fulfilled in all material respects its
obligations under this Agreement throughout such year, or, if there has been a
default in the fulfillment of any such obligation, specifying each such default
known to such officers and the nature and status thereof. Copies of such
certificate shall be provided by the Trustee to any Certificateholder upon
request at the Master Servicer's expense, provided such statement is delivered
by the Master Servicer to the Trustee.
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SECTION 3.20. Annual Independent Public
Accountants' Servicing Statement.
On or before March 31 of each year, beginning with March 31,
19__, the Master Servicer at its expense shall furnish to the Company and the
Trustee a statement from a firm of independent certified public accountants
(which is a member of the American Institute of Certified Public Accountants) to
the effect that, based on an examination by such firm conducted substantially in
compliance with the Uniform Single Attestation Program for Mortgage Bankers or
the Audit Program for Mortgages serviced for FHLMC, the servicing of mortgage
loans under agreements (including this Agreement) substantially similar to each
other was conducted in compliance with such agreements except for such
significant exceptions or errors in record that, in the opinion of the firm, the
Uniform Single Attestation Program for Mortgage Bankers or the Audit Program for
Mortgages serviced for FHLMC requires it to report. In rendering its statement
such firm may rely, as to the matters relating to the direct servicing of
mortgage loans by Sub-servicers, upon comparable statements for examinations
conducted substantially in compliance with the Uniform Single Attestation
Program for Mortgage Bankers or the Audit Program for Mortgages serviced for
FHLMC (rendered within one year of such statement) of firms of independent
public accountants with respect to those Sub-servicers which also have been the
subject of such an examination. Copies of such statement shall be provided by
the Trustee to any Certificateholder upon request at the Master Servicer's
expense, provided such statement is delivered by the Master Servicer to the
Trustee.
SECTION 3.21. Access to Certain Documentation.
(a) The Master Servicer shall provide to the OTS, the FDIC and
other federal banking regulatory agencies, and their respective examiners,
access to the documentation regarding the Mortgage Loans required by applicable
regulations of the OTS, the FDIC and such other agencies. Such access shall be
afforded without charge, but only upon reasonable and prior written request and
during normal business hours at the offices of the Master Servicer designated by
it. Nothing in this Section shall derogate from the obligation of the Master
Servicer to observe any applicable law prohibiting disclosure of information
regarding the Mortgagors and the failure of the Master Servicer to provide
access as provided in this Section as a result of such obligation shall not
constitute a breach of this section.
(b) The Master Servicer shall afford the Company and the
Trustee, upon reasonable notice, during normal business hours access to all
records maintained by the Master Servicer in respect of its rights and
obligations hereunder and access to officers of the Master Servicer responsible
for such obligations. Upon request, the Master Servicer shall furnish the
Company and the Trustee with its most recent financial statements and such other
information as the Master Servicer possesses regarding its business, affairs,
property and condition, financial or otherwise to the extent related to the
servicing of the Mortgage Loans. The Company may, but is not obligated to,
enforce the obligations of the Master Servicer hereunder and may, but is not
obligated to, perform, or cause a designee to perform, any defaulted obligation
of the Master Servicer hereunder or exercise the rights of the Master Servicer
hereunder; provided that the Master Servicer shall not be relieved of any of its
obligations hereunder by virtue of such performance by the Company or its
designee. The Company shall not have any responsibility
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or liability for any action or failure to act by the Master Servicer and is not
obligated to supervise the performance of the Master Servicer under this
Agreement or otherwise.
SECTION 3.22. Title, Conservation and Disposition
of REO Property.
This Section shall apply only to REO Properties acquired for
the account of the Trust Fund, and shall not apply to any REO Property relating
to a Mortgage Loan which was purchased or repurchased from the Trust Fund
pursuant to any provision hereof. In the event that title to any such REO
Property is acquired, the deed or certificate of sale shall be issued to the
Trustee, or to its nominee, on behalf of the Certificateholders. The Master
Servicer, on behalf of the Trust Fund, shall either sell any REO Property within
two years after the Trust Fund acquires ownership of such REO Property for
purposes of Section 860G(a)(8) of the Code or, at the expense of the Trust Fund,
request an extension of the two-year grace period, more than 60 days before the
day on which the two-year grace period would otherwise expire, unless the Master
Servicer has delivered to the Trustee an Opinion of Counsel, addressed to the
Trustee and the Master Servicer, to the effect that the holding by the Trust
Fund of such REO Property subsequent to two years after its acquisition will not
result in the imposition on the Trust Fund of taxes on "prohibited transactions"
thereof, as defined in Section 860F of the Code, or cause the Trust Fund to fail
to qualify as a REMIC under federal law at any time that any Certificates are
outstanding. The Master Servicer shall manage, conserve, protect and operate
each REO Property for the Certificateholders 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) or result in the receipt by the Trust Fund 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
Certificateholders, rent the same, or any part thereof, as the Master Servicer
deems to be in the best interest of the Certificateholders for the period prior
to the sale of such REO Property.
The Master Servicer shall segregate and hold all funds
collected and received in connection with the operation of any REO Property
separate and apart from its own funds and general assets. The Master Servicer
shall deposit, or cause to be deposited, on a daily basis in the Custodial
Account all revenues received with respect to the REO Properties, net of any
directly related expenses incurred or withdraw therefrom funds necessary for the
proper operation, management and maintenance of the REO Property.
If as of the date of acquisition of title to any REO Property
there remain outstanding unreimbursed Servicing Advances with respect to such
REO Property or any outstanding Advances allocated thereto the Master Servicer,
upon an REO Disposition, shall be entitled to reimbursement for any related
unreimbursed Servicing Advances and any unreimbursed related Advances as well as
any unpaid Servicing Fees from proceeds received in connection with the REO
Disposition, as further provided in Section 3.15.
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Subject to the first paragraph of this Section 3.22, the REO
Disposition shall be carried out by the Master Servicer at such price and upon
such terms and conditions as the Master Servicer shall determine to be in the
best economic interest of the Trust Fund.
Any REO Disposition shall be for cash only (unless changes in
the REMIC Provisions made subsequent to the Startup Day allow a sale for other
consideration).
The Master Servicer shall deposit the proceeds from the REO
Disposition, net of any payment to the Master Servicer as provided above, in the
Custodial Account upon receipt thereof for distribution in accordance with
Section 4.01, including any such net proceeds which are in excess of the
applicable Stated Principal Balance plus all unpaid REO Imputed Interest thereon
through the date of the REO Disposition.
Notwithstanding the foregoing provisions of this Section 3.22,
with respect to any Mortgage Loan as to which the Master Servicer has received
notice of, or has actual knowledge of, the presence of any toxic or hazardous
substance on the Mortgaged Property, the Master Servicer shall promptly request
the Trustee and the Company to provide directions and instructions with respect
to such Mortgage Loan and shall act in accordance with any such directions and
instructions jointly provided by the Trustee and the Company. Notwithstanding
the preceding sentence of this Section 3.22, with respect to any Mortgage Loan
described by such sentence, the Master Servicer shall not, on behalf of the
Trustee, either (i) obtain title to the related Mortgaged Property as a result
of or in lieu of foreclosure or otherwise, or (ii) otherwise acquire possession
of, the related Mortgaged Property, unless (i) the Company and the Trustee
jointly direct the Master Servicer to take such action and (ii) either (A) the
Master Servicer has, at least 30 days prior to taking such action, obtained and
delivered to the Company an environmental audit report prepared by a Person who
regularly conducts environmental audits using customary industry standards or
(B) the Company has directed the Master Servicer not to obtain an environmental
audit report. If the Trustee and the Company have not jointly provided
directions and instructions to the Master Servicer in connection with any such
Mortgage Loan within 30 days of a request by the Master Servicer for such
directions and instructions, then the Master Servicer shall take such action as
it deems to be in the best economic interest of the Trust Fund (other than
proceeding against the Mortgaged Property) and is hereby authorized at such time
as it deems appropriate to release such Mortgaged Property from the lien of the
related Mortgage.
The cost of the environmental audit report contemplated by
this Section 3.22 shall be advanced by the Master Servicer as an expense of the
Trust Fund, and the Master Servicer shall be reimbursed therefor from the
Custodial Account as provided in Section 3.11, any such right of reimbursement
being prior to the rights of the Certificateholders to receive any amount in the
Custodial Account.
If the Master Servicer determines, as described above, that it
is in the best economic interest of the Trust Fund to take such actions as are
necessary to bring any such Mortgaged Property in compliance with applicable
environmental laws, or to take such action with respect to the containment,
clean-up or remediation of hazardous substances, hazardous materials, hazardous
wastes, or petroleum-based materials affecting any such Mortgaged Property, then
the Master Servicer shall take such action as it deems to be in the best
economic
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interest of the Trust Fund. The cost of any such compliance, containment,
clean-up or remediation shall be advanced by the Master Servicer as an expense
of the Trust Fund, and the Master Servicer shall be entitled to be reimbursed
therefor from the Custodial Account as provided in Section 3.11, any such right
of reimbursement being prior to the rights of the Certificateholders to receive
any amount in the Custodial Account.
SECTION 3.23. Additional Obligations of the Master
Servicer.
On each Certificate Account Deposit Date, the Master Servicer
shall deliver to the Trustee for deposit in the Certificate Account from its own
funds and without any right of reimbursement therefor, a total amount equal to
the aggregate of the Prepayment Interest Shortfalls for such Distribution Date;
provided that the Master Servicer's obligations under this subsection on any
Distribution Date shall not be more than the total amount of its master
servicing compensation payable in such month.
SECTION 3.24. Additional Obligations of the
Company.
The Company agrees that on or prior to the tenth day after the
Closing Date, the Company shall provide the Trustee with a written notification,
substantially in the form of Exhibit J attached hereto, relating to each Class
of Certificates, setting forth (i) in the case of each Class of such
Certificates, (a) if less than 10% of the aggregate Certificate Principal
Balance of such Class of Certificates has been sold as of such date, the value
calculated pursuant to clause (b)(iii) of Exhibit J hereto, or, (b) if 10% or
more of such Class of Certificates has been sold as of such date but no single
price is paid for at least 10% of the aggregate Certificate Principal Balance of
such Class of Certificates, then the weighted average price at which the
Certificates of such Class were sold and the aggregate percentage of
Certificates of such Class sold, (c) the first single price at which at least
10% of the aggregate Certificate Principal Balance of such class of Certificates
was sold or, (d) if any Certificates of each Class of Certificates are retained
by the Company or an affiliated corporation, or are delivered to the Seller, the
fair market value of such Certificates as of the Closing Date, (ii) the
prepayment assumption used in pricing the Certificates, and (iii) such other
information as to matters of fact as the Trustee may reasonably request to
enable it to comply with its reporting requirements with respect to each Class
of such Certificates to the extent such information can in the good faith
judgment of the Company be determined by it.
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ARTICLE IV
PAYMENTS TO CERTIFICATEHOLDERS
SECTION 4.01. Certificate Account; Distributions.
(a) The Trustee shall establish and maintain a Certificate
Account, in which the Master Servicer shall cause to be deposited on behalf of
the Trustee on or before 3:00 P.M. New York time on each Certificate Account
Deposit Date by wire transfer of immediately available funds an amount equal to
the sum of (i) any Advance for the immediately succeeding Distribution Date,
(ii) any amount required to be deposited in the Certificate Account pursuant to
Sections 3.11, 3.13, 3.23 or 4.03(b) and (iii) all other amounts constituting
or, if not otherwise applicable to the payment of the Trustee's Fee, that would
constitute the Available Distribution Amount for the immediately succeeding
Distribution Date. The Trustee shall transfer from the Certificate Account to
itself, the Trustee's Fee on each Certificate Account Deposit Date. Such amounts
do not constitute part of the Available Distribution Amount.
(b) On each Distribution Date the Trustee shall, distribute to
the Master Servicer, in the case of a distribution pursuant to Section
4.01(b)(iii), and to each Certificateholder of record on the next preceding
Record Date (other than as provided in Section 9.01 respecting the final
distribution) either in immediately available funds (by wire transfer or
otherwise) to the account of such Certificateholder at a bank or other entity
having appropriate facilities therefor, if such Certificateholder has so
notified the Trustee at least 5 Business Days prior to the related Record Date
and such Certificateholder is the registered owner of Certificates the aggregate
Initial Certificate Principal Balance of which is not less than $2,500,000 (or,
with respect to the Class A-5 and Class A-7 Certificates, is the registered
owner of an initial Notional Amount of not less than $10,000,000 of each such
class), or otherwise by check mailed to such Certificateholder at the address of
such Holder appearing in the Certificate Register, such Certificateholder's
share (based on the aggregate of the Percentage Interests represented by
Certificates of the applicable Class held by such Holder) of the following
amounts, in the following order of priority, in each case to the extent of the
Available Distribution Amount:
(i) to the Class A Certificateholders on a pro rata basis
based on Accrued Certificate Interest payable thereon, Accrued
Certificate Interest on such Classes of Certificates for such
Distribution Date and to the extent not previously paid, for all prior
Distribution Dates;
(ii) to the Class A Certificateholders (other than the Class
A-5 Certificateholders and the Class A-7 Certificateholders), in the
priorities and amounts set forth in Sections 4.01(c) and (d), the sum
of the following (applied to reduce the Certificate Principal Balances
of such Class A Certificates, as applicable):
(A) the Senior Percentage for such Distribution Date
times the sum of the following:
(1) the principal portion of each
Monthly Payment due during the related Due Period on
each Outstanding Mortgage Loan, whether or
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not received on or prior to the related Determination
Date, minus the principal portion of any Debt Service
Reduction which together with other Bankruptcy Losses
exceeds the Bankruptcy Amount;
(2) the Stated Principal Balance of any
Mortgage Loan purchased during the related Prepayment
Period and the amount of any shortfall deposited in
the Custodial Account in connection with the
substitution of a Deleted Mortgage Loan pursuant to
Section 2.04 during the related Prepayment Period;
and
(3) the principal portion of all other
unscheduled collections (other than Principal
Prepayments and amounts received in connection with a
Cash Liquidation or REO Disposition) received during
the related Prepayment Period, including, without
limitation, Insurance Proceeds, Liquidation Proceeds
and REO Proceeds, to the extent applied by the Master
Servicer as recoveries of principal of the related
Mortgage Loan pursuant to Section 3.15;
(B) with respect to each Mortgage Loan for which a
Cash Liquidation or a REO Disposition occurred during the related
Prepayment Period and did not result in any Excess Special Hazard
Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary
Losses, an amount equal to the lesser of (a) the Senior Percentage for
such Distribution Date times the Stated Principal Balance of such
Mortgage Loan and (b) the Senior Accelerated Distribution Percentage
for such Distribution Date times the related unscheduled collections
(including without limitation Insurance Proceeds, Liquidation Proceeds
and REO Proceeds) to the extent applied by the Master Servicer as
recoveries of principal of the related Mortgage Loan pursuant to
Section 3.15;
(C) the Senior Accelerated Distribution Percentage
for such Distribution Date times the aggregate of all Principal
Prepayments in Full and Curtailments received in the related Prepayment
Period; and
(D) any amounts described in clauses (A), (B) and (C)
of this Section 4.01(b)(ii), as determined for any previous
Distribution Date, which remain unpaid after application of amounts
previously distributed pursuant to this clause (D) to the extent that
such amounts are not attributable to Realized Losses which have been
allocated to the Class B Certificates;
(iii) if the Certificate Principal Balances of the Class B
Certificates have not been reduced to zero, to the Master Servicer or a
Subservicer, to the extent of and in reimbursement for any Advances
previously made with respect to any Mortgage Loan or REO Property which
remain unreimbursed in whole or in part following the Cash Liquidation
or REO Disposition of such Mortgage Loan or REO Property, minus any
such Advances that were made with respect to delinquencies that
ultimately constituted Excess Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or Extraordinary Losses;
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(iv) to the Holders of the Class B Certificates, the Accrued
Certificate Interest thereon for such Distribution Date, plus any
Accrued Certificate Interest thereon remaining unpaid from any previous
Distribution Date, except as provided below;
(v) to the Holders of the Class B Certificates, an amount equal
to the Subordinate Principal Distribution Amount for such Class of
Certificates for such Distribution Date, applied in reduction of the
Certificate Principal Balance of the Class B Certificates;
(vi) to the Class A Certificateholders (other than the Class A-5
and Class A-7 Certificateholders) in the priority set forth in Section
4.01(c), the portion, if any, of the Available Distribution Amount
remaining after the foregoing distributions, applied to reduce the
Certificate Principal Balances of such Class A Certificates, but in no
event more than the sum of the outstanding Certificate Principal
Balances of the Class A Certificates (other than the Class A-5 and
Class A-7 Certificates) and thereafter applied to reduce the
Certificate Principal Balance of the Class B Certificates, but in no
event more than the outstanding Certificate Principal Balance of the
Class B Certificates; and
(vii) to the Class R Certificateholders, the balance, if any, of
the Available Distribution Amount.
(c) Distributions of principal on the Class A Certificates
(other than the Class A-5 and Class A-7 Certificates) on each Distribution Date
occurring prior to the occurrence of the Credit Support Depletion Date will be
made as follows:
(i) first, to the Class A-1 Certificates and Class A-6
Certificates, with the amount to be distributed allocated as between
such classes on a pro rata basis, until the Certificate Principal
Balance of each such Class has been reduced to zero;
(ii) second, to the Class A-2 Certificates, until the Certificate
Principal Balance thereof has been reduced to zero;
(iii) third, to the Class A-3 Certificates, until the Certificate
Principal Balance thereof has been reduced to zero; and
(iv) fourth, to the Class A-4 Certificates, until the Certificate
Principal Balance thereof has been reduced to zero.
(d) On each Distribution Date occurring on or after the Credit
Support Depletion Date, all priorities relating to sequential distributions in
respect of principal among the various classes of Senior Certificates will be
disregarded, and the Senior Principal Distribution Amount will be distributed to
all classes of Senior Certificates pro rata in accordance with their respective
outstanding Certificate Principal Balances; provided, that the aggregate amount
distributable to the Class A-1, Class A-5 and Class A-6 Certificates (the
"Tiered Certificates") in respect of Accrued Certificate Interest thereon and in
respect of their pro rata portion of the Senior Principal Distribution Amount
shall be distributed among the Tiered Certificates in the amounts and priority
as follows: first, to the Class A-1 Certificates and
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the Class A-5 Certificates, up to an amount equal to, and pro rata based on, the
Accrued Certificate Interest thereon; second to the Class A-1 Certificates, up
to an amount equal to the Optimal Principal Distribution Amount thereof, in
reduction of the Certificate Principal Balances thereof; third to the Class A-6
Certificates, up to an amount equal to the Accrued Certificate Interest thereon;
and fourth to the Class A-6 Certificates the remainder of the amount so
distributable among the Tiered Certificates.
(e) The Trustee shall, upon written request from the Master
Servicer, invest or cause the institution maintaining the Certificate Account to
invest the funds in the Certificate Account in Permitted Instruments designated
in the name of the Trustee for the benefit of the Certificateholders, which
shall mature not later than the Business Day next preceding the Distribution
Date next following the date of such investment (except that (i) any investment
in obligations of the institution with which the Certificate Account is
maintained may mature on such Distribution Date and (ii) any other investment
may mature on such Distribution Date if the Trustee shall agree to advance funds
on such Distribution Date to the Certificate Account in the amount payable on
such investment on such Distribution Date, pending receipt thereof to the extent
necessary to make distributions on the Certificates) and shall not be sold or
disposed of prior to maturity. All income and gain realized from any such
investment shall be for the benefit of the Master Servicer and shall be subject
to its withdrawal or order from time to time. The amount of any losses incurred
in respect of any such investments shall be deposited in the Certificate Account
by the Master Servicer out of its own funds immediately as realized without
right of reimbursement.
SECTION 4.02. Statements to Certificateholders.
On each Distribution Date the Trustee shall forward or cause
to be forwarded by mail to each Holder of a Certificate and to the Company and
the Master Servicer a statement as to such distribution setting forth the
following information as to each Class of Certificates to the extent applicable:
(i) (a) the amount of such distribution to the
Certificateholders of such Class applied to reduce the Certificate
Principal Balance thereof, and (b) the aggregate amount included
therein representing Principal Prepayments;
(ii) the amount of such distribution to the Certificateholders of
such Class allocable to interest;
(iii) if the distribution to the Certificateholders of such Class
is less than the full amount that would be distributable to such
Certificateholders if there were sufficient funds available therefor,
the amount of the shortfall;
(iv) the amount of any Advance by the Master Servicer pursuant to
Section 4.04;
(v) the number and aggregate Stated Principal Balance of the
Mortgage Loans after giving effect to the distribution of principal on
such Distribution Date;
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(vi) the aggregate Certificate Principal Balance of each Class of
Certificates, after giving effect to the amounts distributed on such
Distribution Date, separately identifying any reduction thereof due to
Realized Losses other than pursuant to an actual distribution of
principal;
(vii) the related Subordinate Principal Distribution Amount;
(viii) the amount of Servicing Fees paid to the Master Servicer;
(ix) on the basis of the most recent reports furnished to it by
Subservicers, the number and aggregate principal balances of Mortgage
Loans that are delinquent (A) one month, (B) two months and (C) three
months, and the number and aggregate principal balance of Mortgage
Loans that are in foreclosure;
(x) the number, aggregate principal balance and book value of any
REO Properties;
(xi) the aggregate Accrued Certificate Interest remaining unpaid,
if any, for each Class of Certificates, after giving effect to the
distribution made on such Distribution Date;
(xii) the Special Hazard Amount, Fraud Loss Amount and Bankruptcy
Amount as of the close of business on such Distribution Date and a
description of any change in the calculation of such amounts;
(xiii) the Pass-Through Rate on the Class A-7 Certificates for
such Distribution Date;
(xiv) the occurrence of the Credit Support Depletion Date;
(xv) the Senior Accelerated Distribution Percentage applicable to
such distribution;
(xvi) the Senior and Class B Percentages for such Distribution
Date;
(xvii) the aggregate amount of Realized Losses allocated to the
Certificates on such Distribution Date;
(xviii) the aggregate amount of any recoveries on previously
foreclosed loans from the Seller due to a breach of representation or
warranty;
(xix) the weighted average remaining term to maturity of the
Mortgage Loans after giving effect to the amounts distributed on such
Distribution Date; and
(xx) the weighted average Mortgage Rates of the Mortgage Loans
after giving effect to the amounts distributed on such Distribution
Date.
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In the case of information furnished pursuant to subclauses
(i) and (ii) above, the amounts shall also be expressed as a dollar amount per
Single Certificate.
Within a reasonable period of time after the end of each
calendar year, the Trustee shall prepare and forward to each Person who at any
time during the calendar year was a Holder of a Certificate, a statement
containing the information set forth in subclauses (i) and (ii) above,
aggregated for such calendar year or applicable portion thereof during which
such Person was a Certificateholder. Such obligation of the Trustee shall be
deemed to have been satisfied to the extent that substantially comparable
information shall be provided by the Trustee pursuant to any requirements of the
Code and regulations thereunder as from time to time are in force.
SECTION 4.03. Remittance Reports; Advances by the
Master Servicer.
(a) By 11:00 A.M. New York time the Business Day following
each Determination Date, the Master Servicer shall deliver to the Trustee a
report, prepared as of the close of business on the Determination Date (the
"Determination Date Report"), by telecopy or in a mutually agreeable electronic
format. The Determination Date Report and any written information supplemental
thereto shall include such information with respect to the Mortgage Loans that
is reasonably available to the Master Servicer and that is required by the
Trustee for purposes of making the calculations referred to in the following
paragraph, as set forth in written specifications or guidelines issued by the
Trustee from time to time. Not later than 2:00 P.M. New York time on the
Certificate Account Deposit Date, the Trustee shall furnish by telecopy to the
Master Servicer a statement (the information in such statement to be made
available to Certificateholders or the Company by the Master Servicer on
request) setting forth (i) the Available Distribution Amount, (ii) the amounts
required to be withdrawn from the Custodial Account and deposited into the
Certificate Account on the immediately succeeding Certificate Account Deposit
Date pursuant to clause (iii) of Section 4.01(a); and (iii) such other
information with respect to the Mortgage Loans as the Trustee may reasonably
require to perform the calculations necessary to make the distributions
contemplated by Section 4.01 and to prepare the statements to Certificateholders
contemplated by Section 4.02. The determination by the Trustee of such amounts
shall, in the absence of obvious error, be presumptively deemed to be correct
for all purposes hereunder.
(b) Not later than 2:00 P.M. New York time on the Certificate
Account Deposit Date, the Trustee shall notify the Master Servicer of the
aggregate amount of Advances required to be made for the related Distribution
Date, which shall be the aggregate amount of Monthly Payments (with each
interest portion thereof adjusted to be net of the related Servicing Fee Rate),
less the amount of any related Debt Service Reductions or reductions in the
amount of interest collectable from the Mortgagor pursuant to the Relief Act, on
the Outstanding Mortgage Loans as of the related Due Date, which Monthly
Payments were delinquent as of the close of business as of the related
Determination Date, provided that following the reduction of the Certificate
Principal Balances of the Class B Certificates to zero no Advance shall be made
if it would be a Nonrecoverable Advance. On or before 3:00 P.M. New York time on
each Certificate Account Deposit Date, the Master Servicer shall either (i)
deposit in the Certificate Account from its own funds, or funds received
therefor from the Sub-Servicers, an amount equal to the Advances to be made by
the Master Servicer in respect of the related Distribution Date, (ii) withdraw
from amounts on deposit in the Custodial Account and deposit in the Certificate
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Account all or a portion of the amounts held for future distribution in
discharge of any such Advance, or (iii) make advances in the form of any
combination of (i) and (ii) aggregating the amount of such Advance. Any portion
of the amounts held for future distribution so used shall be replaced by the
Master Servicer by deposit in the Custodial Account on or before 12:00 P.M. New
York time on any future Certificate Account Deposit Date to the extent that
funds attributable to the Mortgage Loans that are available in the Custodial
Account for deposit in the Certificate Account on such Certificate Account
Deposit Date shall be less than payments to Certificateholders required to be
made on the following Distribution Date. The amount of any reimbursement
pursuant to Section 4.01(b)(iii) in respect of outstanding Advances on any
Distribution Date shall be allocated to specific Monthly Payments due but
delinquent for previous Due Periods, which allocation shall be made, to the
extent practicable, to Monthly Payments which have been delinquent for the
longest period of time. Such allocations shall be conclusive for purposes of
reimbursement to the Master Servicer from recoveries on the Mortgage Loans
pursuant to Section 3.11. The determination by the Master Servicer that it has
made a Nonrecoverable Advance or that any proposed Advance, if made, would
constitute a Nonrecoverable Advance, shall be evidenced by a certificate of a
Servicing Officer delivered to the Seller and the Trustee. The Trustee shall
deposit all funds it receives pursuant to this Section 4.03 into the Certificate
Account.
(c) In the event that the Master Servicer determines on the
Certificate Account Deposit Date that it will be unable to deposit in the
Certificate Account an amount equal to the Advance required to be made for the
immediately succeeding Distribution Date in the amount determined by the Trustee
pursuant to paragraph (b) above, it shall give notice to the Trustee of its
inability to advance (such notice may be given by telecopy), not later than 3:00
P.M., New York time, on such Business Day, specifying the portion of such amount
that it will be unable to deposit. If the Master Servicer shall have determined
that it is not obligated to make the entire Advance because all or a lesser
portion of such Advance would not be recoverable from Insurance Proceeds,
Liquidation Proceeds or otherwise, the Master Servicer shall promptly deliver to
the Trustee for the benefit of the Certificateholders an Officer's Certificate
setting forth the reasons for the Master Servicer's determination. Not later
than 5:00 P.M., New York time, on the Certificate Account Deposit Date, unless
by such time the Master Servicer shall have directly or indirectly deposited in
the Certificate Account the entire amount of the Advances required to be made
for the related Distribution Date, pursuant to Section 7.01, the Trustee shall
(a) terminate all of the rights and obligations of the Master Servicer under
this Agreement in accordance with Section 7.01 and (b) assume the rights and
obligations of the Master Servicer hereunder, including the obligation to
deposit in the Certificate Account an amount equal to the Advance for the
immediately succeeding Distribution Date.
SECTION 4.04. Allocation of Realized Losses.
Prior to each Distribution Date, the Master Servicer shall
determine the total amount of Realized Losses, if any, that resulted from any
Cash Liquidation, Debt Service Reduction, Deficient Valuation or REO Disposition
that occurred during the related Prepayment Period. The amount of each Realized
Loss shall be evidenced by an Officers' Certificate by the Master Servicer.
Realized Losses shall be allocated among the various Classes of Certificates as
determined by the Trustee in accordance with the following provisions. All
Realized Losses, other than Excess Special Hazard Losses, Excess Bankruptcy
Losses, Excess Fraud Losses or
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Extraordinary Losses shall be allocated as follows: first, to the Class B
Certificates until the Certificate Principal Balance thereof has been reduced to
zero; and second, among all the Class A Certificates as described below. Any
Excess Special Hazard Losses, Excess Bankruptcy Losses, Excess Fraud Losses and
Extraordinary Losses on Mortgage Loans will be allocated among the Class A and
Class B Certificates on a pro rata basis, as described below. As used herein, an
allocation of a Realized Loss on a "pro rata basis" among two or more specified
Classes of Certificates means an allocation on a pro rata basis, without
priority among the various Classes so specified, to each such Class of
Certificates on the basis of the then outstanding Certificate Principal Balances
thereof in the case of the principal portion of a Realized Loss or based on the
Accrued Certificate Interest thereon in the case of an interest portion of a
Realized Loss. Allocations of Realized Losses which are Default Losses to the
Class A Certificates will be made on a pro rata basis, based on their then
outstanding Certificate Principal Balances, or the Accrued Certificate Interest
thereon, as applicable, between the Class A-1, Class A-5 and Class A-6
Certificates, on the one hand, and the Class A-2, Class A-3, Class A-4 and
Variable Strip Certificates, on the other. Any such Realized Losses so allocated
to the Class A-1, Class A-5 and Class A-6 Certificates will be allocated first
to the Class A-6 Certificates until the Certificate Principal Balance thereof or
the Accrued Certificate Interest thereon, as appropriate, is reduced to zero and
then to the Class A-1 and Class A-5 Certificates on a pro rata basis. Any
allocation of the principal portion of Realized Losses (other than Debt Service
Reductions) to a Class A Certificate shall be made by reducing the Certificate
Principal Balance thereof by the amount so allocated, which allocation shall be
deemed to have occurred at the close of business on such Distribution Date. Any
allocation of the principal portion of Realized Losses (other than Debt Service
Reductions) to the Class B Certificates, shall be made by operation of the
definition of "Certificate Principal Balance" and by operation of the provisions
of Section 4.01(b). Allocations of the interest portions of Realized Losses
shall be made by operation of the definition of "Accrued Certificate Interest"
and by operation of the provisions of Section 4.01(b) or 4.01(d), as applicable.
Allocations of the principal portion of Debt Service Reductions shall be made by
operation of the provisions of Section 4.01(b) or 4.01(d), as applicable. All
Realized Losses and all other losses allocated to a Class of Certificates under
this Section 4.04 will be allocated among the Certificates of such Class in
proportion to the Percentage Interests evidenced thereby.
SECTION 4.05. Information Reports to be Filed by
the Master Servicer.
The Master Servicer or the Sub-Servicers shall file the
information returns with respect to the receipt of mortgage interest received in
a trade or business, reports of foreclosures and abandonments of any Mortgaged
Property and the information returns relating to cancellation of indebtedness
income with respect to any Mortgaged Property required by Sections 6050H, 6050J
and 6050P of the Code, respectively, and deliver to the Trustee an Officers'
Certificate stating that such reports have been filed. Such reports shall be in
form and substance sufficient to meet the reporting requirements imposed by such
Sections 6050H, 6050J and 6050P of the Code.
SECTION 4.06. Compliance with Withholding
Requirements.
Notwithstanding any other provision of this Agreement, the
Trustee shall comply with all federal withholding requirements respecting
payments to Certificateholders of interest
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or original issue discount on the Mortgage Loans, and payments of interest or
discount on amounts invested by the Trustee as agent for Certificateholders
pursuant to an election made under Section 4.01 hereof, that the Trustee
reasonably believes are applicable under the Code. The consent of
Certificateholders shall not be required for such withholding. In the event the
Trustee withholds any amount from interest or original issue discount payments
or advances thereof to any Certificateholder pursuant to federal withholding
requirements, the Trustee shall, together with its monthly report to such
Certificateholders pursuant to Section 4.02 hereof, indicate such amount
withheld.
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ARTICLE V
THE CERTIFICATES
SECTION 5.01 The Certificates.
The Certificates will be substantially in the respective forms
annexed hereto as Exhibits A-1, A-2 and B. The Certificates will be issuable in
registered form only. The Class A Certificates, other than the Class A-5 and
Class A-7 Certificates, shall be issuable in minimum dollar denominations of
$1,000 and integral multiples of $1 in excess thereof, except that one
Certificate of each Class of Class A Certificates may be issued in an amount
such that the denomination of such Certificate and the aggregate denomination of
all other outstanding Certificates of such Class together equal the aggregate
Certificate Principal Balance of such Class. The Class B Certificates shall be
issuable in minimum dollar denominations of $25,000 and integral multiples of $1
in excess thereof, except that one Certificate of such Class may be issued in an
amount such that the denomination of such Certificate and the aggregate
denomination of all other outstanding Certificates of such Class together equal
the aggregate Certificate Principal Balance of such Class. The Class A-5 and
Class A-7 Certificates shall be issuable in minimum Notional Amounts of $1,000
and integral multiples of $1 in excess thereof, except that one Certificate of
each such Class may be issued in an amount such that the denomination of such
Certificate and the aggregate denomination of all other outstanding Certificates
of such Class together equal the aggregate Notional Amount of such Class. The
Class R Certificates will each be issuable in minimum denominations of any
Percentage Interest representing 20% and integral multiples of 0.01% in excess
thereof, provided, however, that one Class R Certificate may be issued to the
"tax matters person" pursuant to Article X, in a minimum denomination
representing a Percentage Interest of not less than 0.01%.
Upon original issue, the Certificates shall, upon the written
request of the Company executed by an officer of the Company, be executed and
delivered by the Trustee, authenticated by the Trustee and delivered to or upon
the order of the Company upon receipt by the Trustee of the documents specified
in Section 2.01. The Certificates shall be executed by manual or facsimile
signature on behalf of the Trustee in its capacity as trustee hereunder by a
Responsible Officer. Certificates bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Trustee shall bind
the Trustee, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Certificates
or did not hold such offices at the date of such Certificates. No Certificate
shall be entitled to any benefit under this Agreement, or be valid for any
purpose, unless there appears on such Certificate a certificate of
authentication substantially in the form provided for herein executed by the
Trustee by manual signature, and such certificate upon any Certificate shall be
conclusive evidence, and the only evidence, that such Certificate has been duly
authenticated and delivered hereunder. All Certificates issued on the Closing
Date shall be dated the Closing Date and any Certificates delivered thereafter
shall be dated the date of their authentication.
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SECTION 5.02. Registration of Transfer and
Exchange of Certificates.
The Trustee shall maintain a Certificate Register in which,
subject to such reasonable regulations as it may prescribe, the Trustee shall
provide for the registration of Certificates and of transfers and exchanges of
Certificates as herein provided.
No transfer, sale, pledge or other disposition of a Class B or
a Class R Certificate shall be made unless such transfer, sale, pledge or other
disposition is exempt from the registration requirements of the Securities Act
of 1933, as amended (the "Act"), and any applicable state securities laws or is
made in accordance with said Act and laws. In the event that a transfer of a
Class B or Class R Certificate is to be made (i) the Depositor may direct the
Trustee to require a written Opinion of Counsel acceptable to and in form and
substance satisfactory to the Trustee and the Depositor that such transfer shall
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
Depositor or the Master Servicer, provided that such Opinion of Counsel will not
be required in connection with the initial transfer of any such Certificate by
the Depositor or any affiliate thereof, to a non-affiliate of the Depositor and
(ii) the Trustee shall require the transferee to execute a representation
letter, substantially in the form of Exhibit G-1 hereto, and the Trustee shall
require the transferor to execute a representation letter, substantially in the
form of Exhibit G-2 hereto, each acceptable to and in form and substance
satisfactory to the Depositor and the Trustee certifying to the Depositor and
the Trustee the facts surrounding such transfer, which representation letters
shall not be an expense of the Trustee, the Depositor or the Master Servicer.
Any such Certificateholder desiring to effect such transfer shall, and does
hereby agree to, indemnify the Trustee, the Depositor and the Master Servicer
against any liability that may result if the transfer is not so exempt or is not
made in accordance with such applicable federal and state laws.
The Trustee shall require a written Opinion of Counsel from a
prospective transferee prior to the transfer of any Class B or Class R
Certificate to any employee benefit plan or other retirement arrangement,
including individual retirement accounts and Keogh plans, that is subject to
Section 406 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") or Section 4975 of the Code (any of the foregoing, a "Plan"), to a
trustee or other Person acting on behalf of any Plan, or to any other person who
is using "plan assets" of any Plan to effect such acquisition (including any
insurance company using funds in its general or separate accounts that may
constitute "plan assets"). Such Opinion of Counsel must establish to the
satisfaction of the Depositor and the Trustee or the Certificate Registrar that
such disposition will not violate the prohibited transaction provisions of
Section 406 of ERISA and Section 4975 of the Code. Neither the Depositor, the
Master Servicer nor the Trustee will be required to obtain such Opinion of
Counsel on behalf of any prospective transferee. In the case of any transfer of
the foregoing Certificates to an insurance company, in lieu of such Opinion of
Counsel, the Trustee shall require a certification in the form of Exhibit G-5
hereto substantially to the effect that all funds used by such transferee to
purchase such Certificates will be funds held by it in its general account which
it reasonably believes do not constitute "plan assets" of any Plan (as defined
above). The permission of any transfer in violation of the restriction on
transfer set forth in this paragraph shall not constitute a default or an Event
of Default.
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(i) Each Person who has or who acquires any Ownership Interest
in a Class R Certificate shall be deemed by the acceptance or acquisition of
such Ownership Interest to have agreed to be bound by the following provisions
and to have irrevocably authorized the Trustee or its designee under clause
(iii)(A) below to deliver payments to a Person other than such Person and to
negotiate the terms of any mandatory sale under clause (iii)(B) below and to
execute all instruments of transfer and to do all other things necessary in
connection with any such sale. The rights of each Person acquiring any Ownership
Interest in a Class R Certificate are expressly subject to the following
provisions:
(A) Each Person holding or acquiring any Ownership Interest in
a Class R Certificate shall be a Permitted Transferee and shall
promptly notify the Trustee of any change or impending change in its
status as a Permitted Transferee.
(B) In connection with any proposed transfer of any Ownership
Interest in a Class R Certificate, the Trustee shall require delivery
to it, and shall not register the transfer of any Class R Certificate
until its receipt of (I) an affidavit and agreement (a "Transfer
Affidavit and Agreement" in the form attached hereto as Exhibit G-3)
from the proposed Transferee, in form and substance satisfactory to the
Master Servicer and the Trustee representing and warranting, among
other things, that it is a Permitted Transferee, that it is not
acquiring its Ownership Interest in the Class R Certificate that is the
subject of the proposed Transfer as a nominee, trustee or agent for any
Person who is not a Permitted Transferee, that for so long as it
retains its Ownership Interest in a Class R Certificate, it will
endeavor to remain a Permitted Transferee, and that it has reviewed the
provisions of this Section 5.02 and agrees to be bound by them, and
(II) a certificate, in the form attached hereto as Exhibit G-4, from
the Holder wishing to transfer the Class R Certificate, in form and
substance satisfactory to the Master Servicer and the Trustee
representing and warranting, among other things, that no purpose of the
proposed Transfer is to impede the assessment or collection of tax.
(C) Notwithstanding the delivery of a Transfer Affidavit and
Agreement by a proposed Transferee under clause (B) above, if a
Responsible Officer of the Trustee assigned to this transaction has
actual knowledge that the proposed Transferee is not a Permitted
Transferee, no Transfer of an Ownership Interest in a Class R
Certificate to such proposed Transferee shall be effected.
(D) Each Person holding or acquiring any Ownership Interest in
a Class R Certificate shall agree (x) to require a Transfer Affidavit
and Agreement from any other Person to whom such Person attempts to
transfer its Ownership Interest in a Class R Certificate and (y) not to
transfer its Ownership Interest unless it provides a certificate to the
Trustee in the form attached hereto as Exhibit G-4.
(E) Each Person holding or acquiring an Ownership Interest in
a Class R Certificate, by purchasing an Ownership Interest in such
Certificate, agrees to give the Trustee written notice that it is a
"pass-through interest holder" within the meaning of Temporary Treasury
Regulations Section 1.67-3T(a)(2)(i)(A) immediately upon acquiring an
Ownership Interest in a Class R Certificate, if it is "a pass-through
interest holder",
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or is holding an Ownership Interest in a Class R Certificate on behalf
of a "pass-through interest holder."
(ii) The Trustee will register the Transfer of any Class R
Certificate only if it shall have received the Transfer Affidavit and Agreement
in the form attached hereto as Exhibit G-3, a certificate of the holder
requesting such transfer in the form attached hereto as Exhibit G-4 and all of
such other documents as shall have been reasonably required by the Trustee as a
condition to such registration. Transfers of the Class R Certificates to
Non-United States Persons and Disqualified Organizations are prohibited.
(iii) (a) If any Disqualified Organization shall become a
holder of a Class R Certificate, then the last preceding Permitted Transferee
shall be restored, to the extent permitted by law, to all rights and obligations
as holder thereof retroactive to the date of registration of such Transfer of
such Class R Certificate. If a Non-United States Person shall become a holder of
a Class R Certificate, then the last preceding United States Person shall be
restored, to the extent permitted by law, to all rights and obligations as
holder thereof retroactive to the date of registration of such Transfer of such
Class R Certificate. If a transfer of a Class R Certificate is disregarded
pursuant to the provisions of Treasury Regulations Section 1.860E-1 or Section
1.860G-3, then the last preceding Permitted Transferee shall be restored, to the
extent permitted by law, to all rights and obligations as holder thereof
retroactive to the date of registration of such Transfer of such Class R
Certificate. The Trustee shall be under no liability to any Person for any
registration of Transfer of a Class R Certificate that is in fact not permitted
by this Section 5.02 or for making any payments due on such Certificate to the
holder thereof or for taking any other action with respect to such holder under
the provisions of this Agreement.
(b) If any purported Transferee shall become a holder
of a Class R Certificate in violation of the restrictions in this Section 5.02
and to the extent that the retroactive restoration of the rights of the holder
of such Class R Certificate as described in clause (iii)(a) above shall be
invalid, illegal or unenforceable, then the Trustee shall have the right,
without notice to the holder or any prior holder of such Class R Certificate, to
sell such Class R Certificate to a purchaser selected by the Trustee on such
terms as the Trustee may choose. Such purported Transferee shall promptly
endorse and deliver each Class R Certificate in accordance with the instructions
of the Trustee. Such purchaser may be the Trustee itself. The proceeds of such
sale, net of the commissions (which may include commissions payable to the
Trustee), expenses and taxes due, if any, will be remitted by the Trustee to
such purported Transferee. The terms and conditions of any sale under this
clause (iii)(b) shall be determined in the sole discretion of the Trustee, and
the Trustee shall not be liable to any Person having an Ownership Interest in a
Class R Certificate as a result of its exercise of such discretion.
(iv) The Trustee shall make available to the Internal Revenue
Service and those Persons specified by the REMIC Provisions, all information
necessary to compute any tax imposed (A) as a result of the transfer of an
ownership interest in a Class R Certificate to any Person who is a Disqualified
Organization, including the information regarding "excess inclusions" of such
Class R Certificates required to be provided to the Internal Revenue Service and
certain Persons as described in Treasury Regulations Sections 1.860D-1(b)(5) and
1.860E- 2(a)(5), and (B) as a result of any regulated investment company, real
estate investment trust, common trust fund, partnership, trust, estate or
organization described in Section 1381 of the
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Code that holds an Ownership Interest in a Class R Certificate having as among
its record holders at any time any Person who is a Disqualified Organization.
The Trustee may charge and shall be entitled to reasonable compensation for
providing such information as may be required from those Persons which may have
had a tax imposed upon them as specified in clauses (A) and (B) of this
paragraph for providing such information.
Subject to the preceding paragraphs, upon surrender for
registration of transfer of any Certificate at the office of the Trustee
maintained for such purpose, the Trustee shall execute and the Trustee or the
Authenticating Agent shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Certificates of the same
Class of a like aggregate initial Certificate Principal Balance. Every
Certificate surrendered for transfer shall be accompanied by notification of the
account of the designated transferee or transferees for the purpose of receiving
distributions pursuant to Section 4.01 by wire transfer, if any such transferee
desires and is eligible for distribution by wire transfer.
At the option of the Certificateholders, Certificates may be
exchanged for other Certificates of authorized denominations of the same Class
of a like aggregate initial Certificate Principal Balance, upon surrender of the
Certificates to be exchanged at the office of the Certificate Registrar.
Whenever any Certificates are so surrendered for exchange the Trustee shall
execute, authenticate and deliver the Certificates which the Certificateholder
making the exchange is entitled to receive. Every Certificate presented or
surrendered for transfer or exchange shall (if so required by the Trustee or the
Certificate Registrar) be duly endorsed by, or be accompanied by a written
instrument of transfer in the form satisfactory to the Trustee or the
Certificate Registrar duly executed by, the Holder thereof or his attorney duly
authorized in writing.
No service charge shall be made to the Certificateholders for
any transfer or exchange of Certificates, but the Trustee may require payment of
a sum sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates.
All Certificates surrendered for transfer and exchange shall
be canceled and retained by the Trustee in accordance with the Trustee's
standard procedures.
SECTION 5.03. Mutilated, Destroyed, Lost or Stolen
Certificates.
If (i) any mutilated Certificate is surrendered to the Trustee
and the Trustee receives evidence to its satisfaction of the destruction, loss
or theft of any Certificate, and (ii) there is delivered to the Trustee such
security or indemnity as may be required by it to save it harmless, then, in the
absence of notice to the Trustee 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 the same Class and initial Certificate
Principal Balance. Upon the issuance of any new Certificate under this Section,
the Trustee may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Any replacement Certificate issued pursuant to this Section shall constitute
complete and indefeasible evidence of
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ownership in the Trust Fund, as if originally issued, whether or not the lost,
stolen or destroyed Certificate shall be found at any time.
SECTION 5.04. Persons Deemed Owners.
The Company, the Master Servicer, the Trustee and any agent of
any of them may treat the person in whose name any Certificate is registered as
the owner of such Certificate for the purpose of receiving distributions
pursuant to Section 4.01 and for all other purposes whatsoever, and neither the
Company, the Master Servicer, the Trustee nor any agent of any of them shall be
affected by notice to the contrary.
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ARTICLE VI
THE COMPANY AND THE MASTER SERVICER
SECTION 6.01. Liability of the Company and the
Master Servicer.
The Company and the Master Servicer each shall be liable in
accordance herewith only to the extent of the obligations specifically imposed
upon and undertaken by the Company and the Master Servicer herein.
SECTION 6.02. Merger, Consolidation or Conversion
of the Company or the Master
Servicer.
The Company and the Master Servicer each will keep in full
effect its existence, rights and franchises as a corporation under the laws of
the state of its incorporation, and each will obtain and preserve its
qualification to do business as a foreign corporation in each jurisdiction in
which such qualification is or shall be necessary to protect the validity and
enforceability of this Agreement, the Certificates or any of the Mortgage Loans
and to perform its respective duties under this Agreement; and provided further
that the Rating Agencies' ratings of the Class A Certificates immediately prior
to such merger or consolidation will not be qualified, reduced or withdrawn as a
result thereof (as evidenced by a letter to such effect from the Rating
Agencies).
Any Person into which the Company or the Master Servicer may
be merged, consolidated or converted, or any corporation resulting from any
merger or consolidation to which the Company or the Master Servicer shall be a
party, or any Person succeeding to the business of the Company or the Master
Servicer, shall be the successor of the Company or the Master Servicer, as the
case may be, hereunder, without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding; provided, however, that the successor or surviving
Person to the Master Servicer shall be qualified to sell mortgage loans to and
service mortgage loans for FNMA or FHLMC.
SECTION 6.03. Limitation on Liability of the
Company, the Master Servicer and
Others.
Neither the Company, the Master Servicer nor any of the
directors, officers, employees or agents of the Company or the Master Servicer
shall 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 this Agreement, or for errors in judgment; provided, however, that
this provision shall not protect the Company or the Master Servicer (but this
provision shall protect the above described persons) against any breach of
warranties or representations made herein, or against any specific liability
imposed on the Master Servicer pursuant to Section 3.01 or any other Section
hereof; and provided further that this provision shall not protect the Company,
the Master Servicer or any such person, against any liability which would
otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance
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of duties or by reason of reckless disregard of obligations and duties
hereunder. The Company, the Master Servicer and any director, officer, employee
or agent of the Company or the Master Servicer may rely in good faith on any
document of any kind PRIMA FACIE properly executed and submitted by any Person
respecting any matters arising hereunder. The Company, the Master Servicer and
any director, officer, employee or agent of the Company or the Master Servicer
shall be indemnified and held harmless by the Trust Fund against any loss,
liability or expense incurred in connection with any legal action relating to
this Agreement or the Certificates, other than any loss, liability or expense
related to Master Servicer's servicing obligations with respect to any specific
Mortgage Loan or Mortgage Loans (except as any such loss, liability or expense
shall be otherwise reimbursable pursuant to this Agreement) or related to the
Master Servicer's obligations under Section 3.01, or any loss, liability or
expense incurred by reason of willful misfeasance, bad faith or gross negligence
in the performance of duties hereunder or by reason of reckless disregard of
obligations and duties hereunder. Neither the Company nor the Master Servicer
shall be under any obligation to appear in, prosecute or defend any legal action
which is not incidental to its respective duties under this Agreement and which
in its opinion may involve it in any expense or liability; provided, however,
that the Company or the Master Servicer may in its sole discretion undertake any
such action 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 Certificateholders hereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom (except any action or
liability related to the Master Servicer's obligations under Section 3.01) shall
be expenses, costs and liabilities of the Trust Fund, and the Company and the
Master Servicer shall be entitled to be reimbursed therefor from the Certificate
Account as provided in Section 3.11, any such right of reimbursement being prior
to the rights of Certificateholders to receive any amount in the Certificate
Account.
SECTION 6.04. Limitation on Resignation of the
Master Servicer.
The Master Servicer shall not resign from the obligations and
duties hereby imposed on it except (a) upon appointment of a successor servicer
reasonably acceptable to the Trustee and upon receipt by the Trustee of a letter
from each Rating Agency that such a resignation and appointment will not, in and
of itself, result in a downgrading of the Certificates or (b) upon determination
that its duties hereunder are no longer permissible under applicable law (any
such determination permitting the resignation of the Master Servicer to be
evidenced by an Opinion of Counsel (at the expense of the resigning Master
Servicer) to such effect delivered to the Trustee). No such resignation shall
become effective until the Trustee or a successor servicer shall have assumed
the Master Servicer's responsibilities, duties, liabilities and obligations
hereunder.
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ARTICLE VII
DEFAULT
SECTION 7.01. Events of Default.
"Event of Default", wherever used herein, means any one of the
following events:
(i) any failure by the Master Servicer to remit to the Trustee
for distribution to the Certificateholders any payment (other than an
Advance) required to be made under the terms of the Certificates or
this Agreement which continues unremedied for a period of one day after
the date upon which written notice of such failure, requiring the same
to be remedied, shall have been given to the Master Servicer by the
Company (with a copy to the Trustee) or the Trustee, or to the Master
Servicer, the Company and the Trustee by the Holders of Certificates
entitled to at least 25% of the Voting Rights; or
(ii) any failure on the part of the Master Servicer duly to
observe or perform in any material respect any other of the covenants
or agreements on the part of the Master Servicer contained in the
Certificates or in this Agreement (including any breach of the Master
Servicer's representations and warranties pursuant to Section 2.03(a)
which materially and adversely affects the interests of the
Certificateholders) which continues unremedied for a period of 30 days
after the date on which written notice of such failure, requiring the
same to be remedied, shall have been given to the Master Servicer by
the Company (with a copy to the Trustee) or the Trustee, or to the
Master Servicer, the Company and the Trustee by the Holders of
Certificates entitled to at least 25% of the Voting Rights; or
(iii) a decree or order of a court or agency or supervisory
authority having jurisdiction in an involuntary case under any present
or future federal or state bankruptcy, insolvency or similar law or 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 Master Servicer and such
decree or order shall have remained in force undischarged or unstayed
for a period of 60 consecutive days; or
(iv) the Master Servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment
of debt, marshalling of assets and liabilities or similar proceedings
of or relating to the Master Servicer or of or relating to all or
substantially all of its property; or
(v) the Master Servicer shall admit in writing its inability to
pay its debts generally as they become due, file a petition to take
advantage of or otherwise voluntarily commence a case or proceeding
under any applicable bankruptcy, insolvency, reorganization or other
similar statute, make an assignment for the benefit of its creditors,
or voluntarily suspend payment of its obligations; or
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(vi) the Master Servicer shall fail to deposit in the Certificate
Account on any Certificate Account Deposit Date an amount equal to any
required Advance.
If the Master Servicer shall fail to make any deposit in the Certificate Account
as required by Section 4.01, the Trustee shall give the Master Servicer notice
pursuant to clause (i) not later than the Business Day following the Certificate
Account Deposit Date. If an Event of Default described in clauses (i) - (v) of
this Section shall occur, then, and in each and every such case, so long as such
Event of Default shall not have been remedied, the Company or the Trustee may,
and at the direction of the Holders of Certificates entitled to at least 51% of
the Voting Rights, the Trustee shall, by notice to the Master Servicer (and to
the Company if given by the Trustee or to the Trustee if given by the Company)
terminate all of the rights and obligations of the Master Servicer under this
Agreement and in and to the Trust Fund, other than its rights as a
Certificateholder hereunder and the Company, terminate all of the rights and
obligations of the Master Servicer under this Agreement and in and to the Trust
Fund, other than its rights as a Certificateholder hereunder. If an Event of
Default described in clause (vi) hereof shall occur, the Trustee shall, by
notice to the Master Servicer and the Company, terminate all of the rights and
obligations of the Master Servicer under this Agreement and in and to the Trust
Fund, other than its rights as a Certificateholder hereunder. On or after the
receipt by the Master Servicer of such notice, all authority and power of the
Master Servicer under this Agreement, whether with respect to the Certificates
(other than as a holder thereof) or the Mortgage Loans or otherwise, shall pass
to and be vested in the Trustee pursuant to and under this Section, and, without
limitation, the Trustee is hereby authorized and empowered to execute and
deliver, on behalf of the Master Servicer, as attorney-in-fact or otherwise, any
and all documents and other instruments, and to do or accomplish all other acts
or things necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement or assignment of
the Mortgage Loans and related documents, or otherwise. The Master Servicer
agrees to cooperate with the Trustee in effecting the termination of the Master
Servicer's responsibilities and rights hereunder, including, without limitation,
the transfer to the Trustee or its appointed agent for administration by it of
all cash amounts which shall at the time be deposited by the Master Servicer or
should have been deposited to the Custodial or the Certificate Account or
thereafter be received with respect to the Mortgage Loans. The Trustee shall not
be deemed to have breached any obligation hereunder as a result of a failure to
make or delay in making any distribution as and when required hereunder caused
by the failure of the Master Servicer to remit any amounts received on it or to
deliver any documents held by it with respect to the Mortgage Loans. For
purposes of this Section 7.01, the Trustee shall not be deemed to have knowledge
of an Event of Default unless a Responsible Officer of the Trustee assigned to
and working in the Trustee's Corporate Trust Division has actual knowledge
thereof or unless notice of any event which is in fact such an Event of Default
is received by the Trustee and such notice references the Certificates, the
Trust Fund or this Agreement.
SECTION 7.02. Trustee to Act; Appointment of
Successor.
On and after the time the Master Servicer receives a notice of
termination pursuant to Section 7.01, the Trustee or its appointed agent shall
be the successor in all respects to the Master Servicer in its capacity as
Master Servicer under this Agreement and the transactions set forth or provided
for herein and shall be subject thereafter to all the responsibilities, duties
and liabilities relating thereto placed on the Master Servicer including the
obligation to
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make Advances which have been or will be required to be made (except for the
responsibilities, duties and liabilities contained in Section 2.03 and its
obligations to deposit amounts in respect of losses incurred prior to the date
of succession pursuant to Section 3.12 and 4.01(e)) by the terms and provisions
hereof; and provided further, that any failure to perform such duties or
responsibilities caused by the Master Servicer's failure to provide information
required by Section 4.03 shall not be considered a default by the Trustee
hereunder. As compensation therefor, the Trustee shall be entitled to all funds
relating to the Mortgage Loans which the Master Servicer would have been
entitled to charge to the Custodial Account and the Certificate Account if the
Master Servicer had continued to act hereunder. Notwithstanding the above, the
Trustee may, if it shall be unwilling to so act, or shall, if it is unable to so
act or if the Holders of Certificates entitled to at least 51% of the Voting
Rights so request in writing to the Trustee, appoint, or petition a court of
competent jurisdiction to appoint, any FNMA- or FHLMCapproved mortgage servicing
institution having a net worth of not less than $10,000,000 as the successor to
the Master Servicer hereunder in the assumption of all or any part of the
responsibilities, duties or liabilities of the Master Servicer hereunder.
Pending appointment of a successor to the Master Servicer hereunder, the Trustee
shall act in such capacity as hereinabove provided. In connection with such
appointment and assumption, the Trustee may make such arrangements for the
compensation of such successor out of payments on Mortgage Loans as it and such
successor shall agree; provided, however, that no such compensation shall be in
excess of that permitted the Master Servicer hereunder. The Trustee and such
successor shall take such action, consistent with this Agreement, as shall be
necessary to effectuate any such succession; provided, however, that such
succession shall not reduce the ratings of the Certificates below the original
ratings thereof.
Any successor, including the Trustee, to the Master Servicer
shall maintain in force during its term as master servicer hereunder the
Insurance Policies and fidelity bonds to the same extent as the Master Servicer
is so required pursuant to Sections 3.13 and 3.18.
SECTION 7.03. Notification to Certificateholders.
(a) Upon any such termination or appointment of a successor to
the Master Servicer, the Trustee shall give prompt notice thereof to
Certificateholders.
(b) Within 60 days after the occurrence of any Event of
Default, the Trustee shall transmit by mail to all Holders of Certificates
notice of each such Event of Default hereunder known to the Trustee, unless such
Event of Default shall have been cured or waived.
SECTION 7.04. Waiver of Events of Default.
The Holders representing at least 66% of the Voting Rights of
Certificates affected by a default or Event of Default hereunder, may waive such
default or Event of Default (other than an Event of Default set forth in Section
7.01(vi); PROVIDED, HOWEVER, that (a) a default or Event of Default under clause
(i) of Section 7.01 may be waived only by all of the Holders of Certificates
affected by such default or Event of Default and (b) no waiver pursuant to this
Section 7.04 shall affect the Holders of Certificates in the manner set forth in
the second paragraph of Section 11.01 or materially adversely affect any
non-consenting Certificateholder. Upon any such waiver of a default or Event of
Default by the Holders representing the requisite
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percentage of Voting Rights of Certificates affected by such default or Event of
Default, such default or Event of Default shall cease to exist and shall be
deemed to have been remedied for every purpose hereunder. No such waiver shall
extend to any subsequent or other default or Event of Default or impair any
right consequent thereon except to the extent expressly so waived.
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ARTICLE VIII
CONCERNING THE TRUSTEE
SECTION 8.01. Duties of Trustee.
The Trustee, prior to the occurrence of an Event of Default
and after the curing of all Events of Default which may have occurred,
undertakes to perform such duties and only such duties as are specifically set
forth in this Agreement. If an Event of Default occurs and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Agreement, and use the same degree of care and skill in their exercise as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs. Any permissive right of the Trustee enumerated in this Agreement
shall not be construed as a duty.
The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform to the requirements of this Agreement. If any such instrument is found
not to conform to the requirements of this Agreement in a material manner, the
Trustee shall take action as it deems appropriate to have the instrument
corrected.
The Trustee shall sign on behalf of the Trust Fund any tax
return that the Trustee is required to sign pursuant to applicable federal,
state or local tax laws.
The Trustee covenants and agrees that it shall perform its
obligations hereunder in a manner so as to maintain the status of the Trust Fund
as a REMIC under the REMIC Provisions and to prevent the imposition of any
federal, state or local income, prohibited transaction, contribution or other
tax on the Trust Fund to the extent that maintaining such status and avoiding
such taxes are reasonably within the control of the Trustee and are reasonably
within the scope of its duties under this Agreement.
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 misconduct; provided, however, that:
(i) Prior to the occurrence of an Event of Default, and
after the curing of all such Events of Default which may have
occurred, the duties and obligations of the Trustee shall be
determined solely by the express provisions of this Agreement,
the Trustee shall not be liable except for the performance of
such duties and obligations as are specifically set forth in
this Agreement, no implied covenants or obligations shall be
read into this Agreement against the Trustee and, in the
absence of bad faith on the part of the Trustee, the Trustee
may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Trustee and
conforming to the requirements of this Agreement;
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(ii) The Trustee shall not be personally liable for an
error of judgment made in good faith by a Responsible Officer
or Responsible Officers of the Trustee, unless it shall be
proved that the Trustee was negligent in ascertaining the
pertinent facts;
(iii) The Trustee shall not be personally liable with
respect to any action taken, suffered or omitted to be taken
by it in good faith in accordance with the direction of
Holders of Certificates entitled to at least 25% of the Voting
Rights relating to the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee,
under this Agreement.
SECTION 8.02. Certain Matters Affecting the
Trustee.
Except as otherwise provided in Section 8.01:
(a) The Trustee may request and rely upon and shall be
protected in acting or refraining from acting upon any
resolution, Officers' Certificate, certificate of auditors or
any other certificate, statement, instrument, opinion, report,
notice, request, consent, order, appraisal, bond or other
paper or document reasonably believed by it to be genuine and
to have been signed or presented by the proper party or
parties;
(b) The Trustee may consult with counsel and any
Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken or suffered or
omitted by it hereunder in good faith and in accordance
therewith;
(c) The Trustee shall be under no obligation to
exercise any of the trusts or powers vested in it by this
Agreement or to make any investigation of matters arising
hereunder or to institute, conduct or defend any litigation
hereunder or in relation hereto at the request, order or
direction of any of the Certificateholders, pursuant to the
provisions of this Agreement, unless such Certificateholders
shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which
may be incurred therein or thereby; nothing contained herein
shall, however, relieve the Trustee of the obligation, upon
the occurrence of an Event of Default (which has not been
cured), to exercise such of the rights and powers vested in it
by this Agreement, and to use the same degree of care and
skill in their exercise as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs;
(d) The Trustee shall not be personally liable for any
action taken, suffered or omitted by it in good faith and
believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Agreement;
(e) Prior to the occurrence of an Event of Default
hereunder and after the curing of all Events of Default which
may have occurred, the Trustee shall
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not be bound to make any investigation into the facts or
matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order,
approval, bond or other paper or document, unless requested in
writing to do so by Holders of Certificates entitled to at
least 25% of the Voting Rights; provided, however, that if the
payment within a reasonable time to the Trustee of the costs,
expenses or liabilities likely to be incurred by it in the
making of such investigation is, in the opinion of the
Trustee, not reasonably assured to the Trustee by the security
afforded to it by the terms of this Agreement, the Trustee may
require reasonable indemnity against such expense or liability
as a condition to taking any such action. The reasonable
expense of every such reasonable examination shall be paid by
the Master Servicer or, if paid by the Trustee, shall be
repaid by the Master Servicer upon demand; and
(f) The Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or
by or through agents or attorneys.
SECTION 8.03. Trustee Not Liable for Certificates
or Mortgage Loans.
The recitals contained herein and in the Certificates, other
than the signature of the Trustee on the Certificates and the certificate of
authentication, shall be taken as the statements of the Company or the Master
Servicer, as the case may be, and the Trustee assumes no responsibility for
their correctness. The Trustee makes no representations or warranties as to the
validity or sufficiency of this Agreement or of the Certificates or of any
Mortgage Loan or related document, other than the signature of the Trustee on
the Certificates and the Certificate of Authentication. The Trustee shall not be
accountable for the use or application by the Company or the Master Servicer of
any of the Certificates or of the proceeds of such Certificates, or for the use
or application of any funds paid to the Seller in respect of the Mortgage Loans
or deposited in or withdrawn from the Custodial Account or the Certificate
Account or any other account by or on behalf of the Company or the Master
Servicer, other than any funds held by or on behalf of the Trustee in accordance
with Section 4.01.
SECTION 8.04. Trustee May Own Certificates.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Certificates with the same rights it would have if it
were not Trustee.
SECTION 8.05. Payment of Trustee's Fees.
The Trustee shall withdraw from the Certificate Account on
each Distribution Date and pay to itself the Trustee's Fee. Except as otherwise
provided in this Agreement, the Trustee and any director, officer, employee or
agent of the Trustee shall be indemnified by the Trust Fund and held harmless
against any loss, liability or "unanticipated out-of-pocket" expense incurred or
paid to third parties (which expenses shall not include salaries paid to
employees, or allocable overhead, of the Trustee) in connection with the
acceptance or administration of its trusts hereunder or the Certificates, other
than any loss, liability or expense incurred by reason of willful misfeasance,
bad faith or negligence in the performance of duties hereunder or by reason of
reckless disregard of obligations and duties hereunder all such amounts shall be
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payable from funds in the Custodial Account as provided in Section 3.11. The
provisions of this Section 8.05 shall survive the termination of this Agreement.
The Master Servicer shall indemnify the Trustee and any
director, officer, employee or agent of the Trustee against any loss, liability
or expense that may be sustained in connection with this Agreement related to
the willful misfeasance, bad faith or negligence in the performance of its
duties hereunder.
SECTION 8.06. Eligibility Requirements for
Trustee.
The Trustee hereunder shall at all times be a corporation or a
national banking association organized and doing business under the laws of any
state or the United States of America or the District of Columbia, authorized
under such laws to exercise corporate trust powers, having a combined capital
and surplus of at least $50,000,000 and subject to supervision or examination by
federal or state authority. In addition, the Trustee shall at all times be
acceptable to the Rating Agency rating the Certificates. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purposes of this Section the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. In case at any time the Trustee shall
cease to be eligible in accordance with the provisions of this Section, the
Trustee shall resign immediately in the manner and with the effect specified in
Section 8.07. The corporation or national banking association serving as Trustee
may have normal banking and trust relationships with the Seller and its
affiliates or the Master Servicer and its affiliates; provided, however, that
such corporation cannot be an affiliate of the Master Servicer other than the
Trustee in its role as successor to the Master Servicer.
SECTION 8.07. Resignation and Removal of the
Trustee.
The Trustee may at any time resign and be discharged from the
trusts hereby created by giving notice thereof to the Company, the Master
Servicer and to all Certificateholders; provided, that such resignation shall
not be effective until a successor trustee is appointed and accepts appointment
in accordance with the following provisions. Upon receiving such notice of
resignation, the Company shall promptly appoint a successor trustee who meets
the eligibility requirements of Section 8.06 by written instrument, in
duplicate, which instrument shall be delivered to the resigning Trustee and to
the successor trustee. A copy of such instrument shall be delivered to the
Certificateholders and the Master Servicer by the Company. If no successor
trustee shall have been so appointed and have accepted appointment within 60
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; provided, however, that the resigning Trustee shall not resign and be
discharged from the trusts hereby created until such time as the Rating Agency
rating the Certificates approves the successor trustee.
If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 8.06 and shall fail to resign after
written request therefor by the Company or the Master Servicer, or if at any
time the Trustee shall become incapable of acting, or shall be adjudged bankrupt
or insolvent, or a receiver of the Trustee or of its property shall be
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appointed, or any public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation, conservation or
liquidation, or if the rating of the long-term debt obligations of the Trustee
is not acceptable to the Rating Agency in respect of mortgage pass-through
certificates having a rating equal to the then current rating on the
Certificates, then the Company may remove the Trustee and appoint a successor
trustee who meets the eligibility requirements of Section 8.06 by written
instrument, in duplicate, which instrument shall be delivered to the Trustee so
removed and to the successor trustee. A copy of such instrument shall be
delivered to the Certificateholders and the Master Servicer by the Company.
The Holders of Certificates entitled to at least 51% of the
Voting Rights may at any time remove the Trustee and appoint a successor trustee
by written instrument or instruments, in triplicate, signed by such Holders or
their attorneys-in-fact duly authorized, one complete set of which instruments
shall be delivered to the Master Servicer, one complete set to the Trustee so
removed and one complete set to the successor so appointed. A copy of such
instrument shall be delivered to the Certificateholders and the Master Servicer
by the Company.
Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section shall not
become effective until acceptance of appointment by the successor trustee as
provided in Section 8.08.
SECTION 8.08. Successor Trustee.
Any successor trustee appointed as provided in Section 8.07
shall execute, acknowledge and deliver to the Master Servicer and to its
predecessor trustee an instrument accepting such appointment hereunder, and
thereupon the resignation or removal of the predecessor trustee shall become
effective and such successor trustee, without any further act, deed or
conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with the like effect as if originally
named as trustee herein. The predecessor trustee shall deliver to the successor
trustee all Mortgage Files and related documents and statements held by it
hereunder, and the Master Servicer and the predecessor trustee shall execute and
deliver such instruments and do such other things as may reasonably be required
for more fully and certainly vesting and confirming in the successor trustee all
such rights, powers, duties and obligations.
No successor trustee shall accept appointment as provided in
this Section unless at the time of such acceptance such successor trustee shall
be eligible under the provisions of Section 8.06.
Upon acceptance of appointment by a successor trustee as
provided in this Section, the Master Servicer shall mail notice of the
succession of such trustee hereunder to all Holders of Certificates at their
addresses as shown in the Certificate Register. If the Master Servicer fails to
mail such notice within ten days after acceptance of appointment by the
successor trustee, the successor trustee shall cause such notice to be mailed at
the expense of the Master Servicer.
SECTION 8.09. Merger or Consolidation of Trustee.
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Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated or any corporation resulting from
any merger, conversion or consolidation to which the Trustee shall be a party,
or any corporation succeeding to the business of the Trustee, shall be the
successor of the Trustee hereunder, provided such corporation shall be eligible
under the provisions of Section 8.06, without the execution or filing of any
paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding.
SECTION 8.10. Appointment of Co-Trustee or
Separate Trustee.
Notwithstanding any other provisions hereof, 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 Company 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 other provisions of this Section
8.10, such powers, duties, obligations, rights and trusts as the Company and the
Trustee may consider necessary or desirable. If the Company shall not have
joined in such appointment within 15 days after the receipt by it of a request
so to do, or in case an Event of Default shall have occurred and be continuing,
the Trustee alone shall have the power to make such appointment. No co-trustee
or separate trustee hereunder shall be required to meet the terms of eligibility
as a successor trustee under Section 8.06 hereunder and no notice to Holders of
Certificates of the appointment of co-trustee(s) or separate trustee(s) shall be
required under Section 8.08 hereof.
In the case of any appointment of a co-trustee or separate
trustee pursuant to this Section 8.10 all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or co-trustee
jointly, except to the extent that under any law of any jurisdiction in which
any particular act or acts are to be performed (whether as Trustee hereunder or
as successor to the Master Servicer hereunder), the Trustee shall be incompetent
or unqualified to perform such act or acts, in which event such rights, powers,
duties and obligations (including the holding of title to the Trust Fund or any
portion thereof in any such jurisdiction) shall be exercised and performed by
such separate trustee or co-trustee at the direction of the Trustee.
Any notice, request or other writing given to the Trustee
shall be deemed to have been given to each of the then separate 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 Article VIII. 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.
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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.
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ARTICLE IX
TERMINATION
SECTION 9.01. Termination Upon Repurchase or
Liquidation of All Mortgage Loans.
Subject to Section 9.02, the respective obligations and
responsibilities of the Company, the Master Servicer and the Trustee created
hereby (other than the obligations of the Master Servicer to provide for and the
Trustee to make payments to Certificateholders as hereafter set forth) shall
terminate upon payment to the Certificateholders of all amounts held by or on
behalf of the Trustee and required to be paid to them hereunder following the
earlier to occur of (i) the repurchase by the Master Servicer of all Mortgage
Loans and each REO Property in respect thereof remaining in the Trust Fund at a
price equal to (a) 100% of the unpaid principal balance of each Mortgage Loan
(other than one as to which a REO Property was acquired) on the day of
repurchase together with accrued interest on such unpaid principal balance at
the related Net Mortgage Rate to the first day of the month in which the
proceeds of such repurchase are to be distributed, plus (b) the appraised value
of any REO Property less the good faith estimate of the Master Servicer of
liquidation expenses to be incurred in connection with its disposal thereof,
such appraisal to be conducted by an appraiser mutually agreed upon by the
Master Servicer and the Trustee at the expense of the Master Servicer, (but not
more than the unpaid principal balance of the related Mortgage Loan, together
with accrued interest on that balance at the Net Mortgage Rate to the first day
of the month of repurchase), and (ii) the final payment or other liquidation (or
any Advance with respect thereto) of the last Mortgage Loan remaining in the
Trust Fund (or the disposition of all REO Property in respect thereof);
provided, however, that in no event shall the trust created hereby continue
beyond expiration of 21 years from the death of the last survivor of the
descendants of Joseph P. Kennedy, the late ambassador of the United States to
the Court of St. James, living on the date hereof. In the case of any repurchase
by the Master Servicer pursuant to clause (i), the Master Servicer shall include
in such repurchase price the amount of any Advances that will be reimbursed to
the Master Servicer pursuant to Section 3.11(iii) and the Master Servicer shall
exercise reasonable efforts to cooperate fully with the Trustee in effecting
such repurchase and the transfer of the Mortgage Loans and related Mortgage
Files and related records to the Master Servicer.
The right of the Master Servicer to repurchase all Mortgage
Loans pursuant to (i) above shall be conditioned upon the aggregate Stated
Principal Balance of such Mortgage Loans at the time of any such repurchase
aggregating an amount equal to or less than __% of the aggregate Stated
Principal Balance of the Mortgage Loans at the Cut-off Date. If such right is
exercised, the Master Servicer upon such repurchase shall provide to the
Trustee, the certification required by Section 3.16.
Notice of any termination, specifying the Distribution Date
upon which the Certificateholders may surrender their Certificates to the
Trustee for payment of the final distribution and cancellation, shall be given
promptly by the Master Servicer by letter to the Trustee and shall be given
promptly by the Trustee to the Certificateholders mailed (a) in the event such
notice is given in connection with the Master Servicer's election to repurchase,
not earlier than the 15th day and not later than the 25th day of the month next
preceding the month of such final
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distribution or (b) otherwise during the month of such final distribution on or
before the Determination Date in such month, in each case specifying (i) the
Distribution Date upon which final payment of the Certificates will be made upon
presentation and surrender of Certificates at the office of the Certificate
Registrar therein designated, (ii) the amount of any such final payment and
(iii) that the Record Date otherwise applicable to such Distribution Date is not
applicable, payments being made only upon presentation and surrender of the
Certificates at the office of the Certificate Registrar therein specified. In
the event such notice is given in connection with the Master Servicer's election
to repurchase, the Master Servicer shall deposit in the Custodial Account
pursuant to Section 3.10 on the last day of the related Prepayment Period an
amount equal to the above-described repurchase price payable out of its own
funds. Upon presentation and surrender of the Certificates by the
Certificateholders, the Trustee shall distribute to the Certificateholders (i)
the amount otherwise distributable on such Distribution Date, if not in
connection with the Master Servicer's election to repurchase, or (ii) if the
Master Servicer elected to so repurchase, an amount determined as follows: with
respect to each Class A and Class B Certificate, the outstanding Certificate
Principal Balance thereof, plus one month's interest thereon at the applicable
Pass-Through Rate and any previously unpaid Accrued Certificate Interest,
subject to the priority set forth in Section 4.01(b); and with respect to each
Class R Certificate, the Percentage Interest evidenced thereby multiplied by the
difference, if any, between the above described repurchase price and the
aggregate amount to be distributed to the Class A and Class B
Certificateholders. Upon certification to the Trustee by a Servicing Officer,
following such final deposit, the Trustee shall promptly release the Mortgage
Files as directed by the Master Servicer for the remaining Mortgage Loans, and
the Trustee shall execute all assignments, endorsements and other instruments
required by the Master Servicer as being necessary to effectuate such transfer.
In the event that all of the Certificateholders shall not
surrender their Certificates for cancellation within six months after the time
specified in the above-mentioned notice, the Trustee shall give a second notice
to the remaining Certificateholders to surrender their Certificates for
cancellation and receive the final distribution with respect thereto. If within
six months after the second notice all of the Certificates shall not have been
surrendered for cancellation, the Trustee shall take reasonable steps as
directed by the Company, or appoint an agent to take reasonable steps, to
contact the remaining Certificateholders concerning surrender of their
Certificates, and the cost thereof shall be paid out of the funds and other
assets which remain subject hereto. If, within nine months after the second
notice, all of the Certificates shall not have been surrendered for
cancellation, the Class R Certificateholders shall be entitled to all unclaimed
funds and other assets which remain subject hereto.
SECTION 9.02. Additional Termination Requirements.
(a) In the event the Master Servicer repurchases the Mortgage
Loans as provided in Section 9.01, the Trust Fund shall be terminated in
accordance with the following additional requirements, unless the Master
Servicer obtains for the Trustee an Opinion of Counsel to the effect that the
failure of the Trust Fund to comply with the requirements of this Section 9.02
will not (i) result in the imposition of taxes on the net income derived from
"prohibited transactions" of the Trust Fund as defined in Section 860F of the
Code or (ii) cause the Trust Fund to fail to qualify as a REMIC at any time that
any Certificates are outstanding:
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(i) The Trustee shall establish a 90-day liquidation period and
specify the first day of such period in a statement attached to the
Trust Fund's final Tax Return pursuant to Treasury Regulation
ss.1.860F-1. The Trustee shall satisfy all the requirements of a
qualified liquidation under 860F of the Code and any regulations
thereunder, as evidenced by an Opinion of Counsel obtained at the
expense of the Master Servicer;
(ii) During such 90-day liquidation period, and at or prior to
the time of making of the final payment on the Certificates, the Master
Servicer shall sell all of the assets of the Trust Fund for cash; and
(iii) At the time of the making of the final payment on the
Certificates, the Trustee shall distribute or credit, or cause to be
distributed or credited, to the Holders of the Class R Certificates all
remaining cash on hand (other than cash retained to meet claims), and
the Trust Fund shall terminate at that time.
(b) By their acceptance of the Class R Certificates, the
Holders thereof hereby agree to authorize the Trustee to specify the 90-day
liquidation period for the Trust Fund, which authorization shall be binding upon
all successor Class R Certificateholders.
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ARTICLE X
REMIC PROVISIONS
SECTION 10.01. REMIC Administration.
(a) The Trustee shall make an election to treat the Trust Fund
as a REMIC under the Code and, if necessary, under applicable state law. Such
election will be made on Form 1066 or other appropriate federal tax or
information return or any appropriate state return for the taxable year ending
on the last day of the calendar year in which the Certificates are issued. For
the purposes of the REMIC election in respect of the Trust Fund, the Class A and
Class B Certificates shall be designated as the "regular interests" and the
Class R Certificates shall be designated as the sole class of "residual
interest" in the Trust Fund. The Trustee shall not permit the creation of any
"interests" in the Trust Fund (within the meaning of Section 860G of the Code)
other than the Regular Certificates and the Residual Certificates.
(b) The Closing Date is hereby designated as the "startup day"
of the Trust Fund within the meaning of Section 860G(a)(9) of the Code.
(c) The Trustee shall hold a Class R Certificate representing
a 0.01% Percentage interest of all Class R Certificates and shall be designated
as the tax matters person of the Trust Fund in the manner provided under
Treasury regulations section 1.860F-4(d) and temporary Treasury regulations
section 301.6231(a)(7)-1T. The Trustee, as tax matters person, shall (i) act on
behalf of the Trust Fund in relation to any tax matter or controversy involving
the Trust Fund and (ii) represent the Trust Fund in any administrative or
judicial proceeding relating to an examination or audit by any governmental
taxing authority with respect thereto. To the extent authorized under the Code
and the regulations promulgated thereunder, each Holder of a Class R
Certificate, hereby irrevocably appoints and authorizes the Trustee to be its
attorney-in-fact for purposes of signing any Tax Returns required to be filed on
behalf of the Trust Fund. The legal expenses and costs of any such action
described in this subsection and any liability resulting therefrom shall
constitute expenses of the Trust Fund and the Trustee shall be entitled to
reimbursement therefor unless such legal expenses and costs are incurred by
reason of the Trustee's willful misfeasance, bad faith or negligence.
(d) Except as provided in Section 4.05, the Trustee shall
prepare or cause to be prepared, sign and file all of the Tax Returns in respect
of the Trust Fund created hereunder. The expenses of preparing and filing such
returns shall be borne by the Trustee without any right of reimbursement
therefor.
(e) The Trustee shall perform on behalf of the Trust Fund all
reporting and other tax compliance duties that are the responsibility of the
Trust Fund under the Code, REMIC Provisions or other compliance guidance issued
by the Internal Revenue Service or any state or local taxing authority. Among
its other duties, as required by the Code, the REMIC Provisions or other such
compliance guidance, the Trustee shall provide (i) to any Transferor of a Class
R Certificate such information as is necessary for the application of any tax
relating to the transfer of a Class R Certificate to any Person who is not a
Permitted Transferee, (ii) Certificateholders such information or reports as are
required by the Code or the REMIC
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Provisions including reports relating to interest, original issue discount and
market discount or premium (using the Prepayment Assumption) and (iii) to the
Internal Revenue Service the name, title, address and telephone number of the
person who will serve as the representative of the Trust Fund. In addition, the
Company shall provide or cause to be provided to the Trustee, within ten (10)
days after the Closing Date, all information or data that the Trustee reasonably
determines to be relevant for tax purposes as to the valuations and issue prices
of the Certificates, including, without limitation, the price, yield, prepayment
assumption and projected cash flow of the Certificates.
(f) The Trustee shall take such action and shall cause the
Trust Fund created hereunder to take such action as shall be necessary to create
or maintain the status thereof as a REMIC under the REMIC Provisions (and the
Master Servicer shall assist it, to the extent reasonably requested by it). The
Trustee shall not take any action, cause the Trust Fund to take any action or
fail to take (or fail to cause to be taken) any action that, under the REMIC
Provisions, if taken or not taken, as the case may be, could (i) endanger the
status of the Trust Fund as a REMIC or (ii) result in the imposition of a tax
upon the Trust Fund (including but not limited to the tax on prohibited
transactions as defined in Section 860F(a)(2) of the Code and the tax on
contributions to a REMIC set forth in Section 860G(d) of the Code) (either such
event, an "Adverse REMIC Event") unless the Trustee received an Opinion of
Counsel (at the expense of the party seeking to take such action but in no event
shall such Opinion of Counsel be an expense of the Trustee) to the effect that
the contemplated action will not, with respect to the Trust Fund created
hereunder, endanger such status or result in the imposition of such a tax. The
Master Servicer shall not take or fail to take any action (whether or not
authorized hereunder) as to which the Trustee has advised it in writing that it
has received an Opinion of Counsel to the effect that an Adverse REMIC Event
could occur with respect to such action. In addition, prior to taking any action
with respect to the Trust Fund or its assets, or causing the Trust Fund to take
any action, which is not expressly permitted under the terms of this Agreement,
the Master Servicer will consult with the Trustee or its designee, in writing,
with respect to whether such action could cause an Adverse REMIC Event to occur
with respect to the Trust Fund, and the Master Servicer shall not take any such
action or cause the Trust Fund to take any such action as to which the Trustee
has advised it in writing that an Adverse REMIC Event could occur. The Trustee
may consult with counsel to make such written advice, and the cost of same shall
be borne by the party seeking to take the action not permitted by this Agreement
(but in no event shall such cost be an expense of the Trustee). At all times as
may be required by the Code, the Trustee will ensure that substantially all of
the assets of the Trust Fund will consist of "qualified mortgages" as defined in
Section 860G(a)(3) of the Code and "permitted investments" as defined in Section
860G(a)(5) of the Code.
(g) In the event that any tax is imposed on "prohibited
transactions" of the Trust Fund created hereunder as defined in Section
860F(a)(2) of the Code, on "net income from foreclosure property" of the Trust
Fund as defined in Section 860G(c) of the Code, on any contributions to the
Trust Fund after the Startup Day therefor pursuant to Section 860G(d) of the
Code, or any other tax is imposed by the Code or any applicable provisions of
state or local tax laws, such tax shall be charged (i) to the Trustee pursuant
to Section 10.03 hereof, if such tax arises out of or results from the willful
misfeasance, bad faith or negligence in performance by the Trustee of any of its
obligations under this Article X, (ii) to the Master Servicer pursuant to
Section 10.03 hereof, if such tax arises out of or results from a breach by the
Master Servicer
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of any of its obligations under Article III or this Article X, or otherwise
(iii) against amounts on deposit in the Custodial Account and shall be paid by
withdrawal therefrom.
(h) On or before April 15 of each calendar year, commencing
April 15, 19__, the Trustee shall deliver to the Master Servicer and each Rating
Agency a Certificate from a Responsible Officer of the Trustee stating the
Trustee's compliance with this Article X.
(i) The Master Servicer and the Trustee shall, for federal
income tax purposes, maintain books and records with respect to the Trust Fund
on a calendar year and on an accrual basis.
(j) Following the Startup Day, the Trustee shall not accept
any contributions of assets to the Trust Fund other than in connection with any
Qualified Substitute Mortgage Loan delivered in accordance with Section 2.04
unless it shall have received an Opinion of Counsel (which such Opinion of
Counsel shall not be an expense of the Trustee) to the effect that the inclusion
of such assets in the Trust Fund will not cause the Trust Fund to fail to
qualify as a REMIC at any time that any Certificates are outstanding or subject
the Trust Fund to any tax under the REMIC Provisions or other applicable
provisions of federal, state and local law or ordinances.
(k) Neither the Trustee nor the Master Servicer shall enter
into any arrangement by which the Trust Fund will receive a fee or other
compensation for services nor permit either such REMIC to receive any income
from assets other than "qualified mortgages" as defined in Section 860G(a)(3) of
the Code or "permitted investments" as defined in Section 860G(a)(5) of the
Code.
(l) Solely for purposes of satisfying Section
1.860G-1(a)(4)(iii) of the Treasury regulations, and based on certain
assumptions described below, the "latest possible maturity date" by which the
Certificate Principal Balances of the Certificates representing a regular
interest in the Trust Fund would be reduced to zero is _________ 25, 20__, which
is the Distribution Date immediately following the latest scheduled maturity of
any Mortgage Loan as determined assuming that (i) scheduled interest and
principal payments on the Mortgage Loans are received in a timely manner, with
no delinquencies or losses, (ii) there are no principal prepayments, and (iii)
neither the Seller nor the Master Servicer will repurchase any Mortgage Loans.
SECTION 10.02. Prohibited Transactions and
Activities.
Neither the Company, the Master Servicer nor the Trustee shall
sell, dispose of or substitute for any of the Mortgage Loans (except in
connection with (i) the foreclosure of a Mortgage Loan, including but not
limited to, the acquisition or sale of a Mortgaged Property acquired by deed in
lieu of foreclosure, (ii) the bankruptcy of the Trust Fund, (iii) the
termination of the Trust Fund pursuant to Article IX of this Agreement or (iv) a
purchase of Mortgage Loans pursuant to Article II or III of this Agreement) nor
acquire any assets for the Trust Fund, nor sell or dispose of any investments in
the Custodial Account or the Certificate Account for gain, nor accept any
contributions to the Trust Fund after the Closing Date unless it has received an
Opinion of Counsel (at the expense of the party seeking to cause such sale,
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disposition, substitution or acquisition but in no event shall such Opinion of
Counsel be an expense of the Trustee) that such sale, disposition, substitution
or acquisition will not (a) affect adversely the status of the Trust Fund as a
REMIC or (b) cause the Trust Fund to be subject to a tax on "prohibited
transactions" or "contributions" pursuant to the REMIC Provisions.
SECTION 10.03. Master Servicer and Trustee
Indemnification.
(a) The Trustee agrees to indemnify the Trust Fund, the
Company and the Master Servicer for any taxes and costs including, without
limitation, any reasonable attorneys fees imposed on or incurred by the Trust
Fund, the Company or the Master Servicer, as a result of the willful
misfeasance, bad faith or negligence by the Trustee with respect to the
Trustee's covenants set forth in this Article X.
(b) The Master Servicer agrees to indemnify the Trust Fund,
the Company and the Trustee for any taxes and costs (including, without
limitation, any reasonable attorneys' fees) imposed on or incurred by the Trust
Fund, the Company or the Trustee, as a result of a breach of the Master
Servicer's covenants set forth in this Article X or in Article III with respect
to compliance with the REMIC Provisions, including without limitation, any
penalties arising from the Trustee's execution of Tax Returns prepared by the
Master Servicer that contain errors or omissions.
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ARTICLE XI
MISCELLANEOUS PROVISIONS
SECTION 11.01. Amendment.
This Agreement may be amended from time to time by the
Company, the Master Servicer and the Trustee without the consent of any of the
Certificateholders, (i) to cure any ambiguity, (ii) to correct or supplement any
provisions herein which may be defective or inconsistent with any other
provisions herein or to correct any error, (iii) to change the timing and/or
nature of deposits in the Certificate Account, provided that (a) such change
would not adversely affect in any material respect the interests of any
Certificateholder, as evidenced by an Opinion of Counsel, and (b) such change
would not adversely affect the then-current rating of any rated class of
Certificates, as evidenced by a letter from each applicable Rating Agency, (iv)
to modify, eliminate or add to any of the provisions of the Trust Fund (a) to
such extent as shall be necessary to maintain the qualification of the Trust
Fund as a REMIC or to avoid or minimize the risk of imposition of any tax on the
Trust Fund, provided that the Trustee has received an Opinion of Counsel to the
effect that (1) such action is necessary or desirable to maintain such
qualification or to avoid or minimize such risk, and (2) such action will not
adversely affect in any material respect the interests of any Certificateholder,
or (b) to restrict the transfer of the Class R Certificates, provided that the
Company has determined that the then-current ratings of the Class A Certificates
will not be adversely affected, as evidenced by a letter from each Rating
Agency, and that any such amendment will not give rise to any tax with respect
to the transfer of the Class R Certificates to a non-Permitted Transferee, (v)
to make any other provisions with respect to matters or questions arising this
Agreement which are not materially inconsistent with the provisions thereof,
provided that such action will not adversely affect in any material respect the
interests of any Certificateholder, or (vi) to amend specified provisions that
are not material to holders of any class of Certificates offered hereunder.
This Agreement may also be amended from time to time by the
Company, the Master Servicer and the Trustee with the consent of the Holders of
Certificates entitled to at least 66-2/3% of the Voting Rights allocated to each
Class affected thereby for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of this Agreement or of
modifying in any manner the rights of the Holders of Certificates; provided,
however, that no such amendment shall (i) reduce in any manner the amount of, or
delay the timing of, payments received on Mortgage Loans which are required to
be distributed on any Certificate without the consent of the Holder of such
Certificate, or (ii) reduce the aforesaid percentage of Certificates the Holders
of which are required to consent to any such amendment, without the consent of
the Holders of all Certificates then outstanding. Notwithstanding any other
provision of this Agreement, for purposes of the giving or withholding of
consents pursuant to this Section 11.01, Certificates registered in the name of
the Seller or the Master Servicer or any affiliate thereof shall be entitled to
Voting Rights with respect to matters described in clauses (i) and (ii) of this
paragraph.
Notwithstanding any contrary provision of this Agreement, the
Trustee shall not consent to any amendment to this Agreement unless it shall
have first received an Opinion of Counsel (provided by the Person requesting
such amendment) to the effect that such amendment
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will not result in the imposition of any tax on the Trust Fund pursuant to the
REMIC Provisions or cause the Trust Fund to fail to qualify as a REMIC at any
time that any of the Certificates are outstanding.
Promptly after the execution of any such amendment the Trustee
shall furnish a statement describing the amendment to each Certificateholder.
It shall not be necessary for the consent of
Certificateholders under this Section 11.01 to approve the particular form of
any proposed amendment, but it shall be sufficient if such consent shall approve
the substance thereof. The manner of obtaining such consents and of evidencing
the authorization of the execution thereof by Certificateholders shall be
subject to such reasonable regulations as the Trustee may prescribe.
Prior to executing any amendment pursuant to this Section, the
Trustee shall be entitled to receive an Opinion of Counsel (provided by the
Person requesting such amendment) to the effect that such amendment is
authorized or permitted by this Agreement. The cost of an Opinion of Counsel
delivered pursuant to this Section 11.01 shall be an expense of the party
requesting such amendment, but in any case shall not be an expense of the
Trustee.
The Trustee may, but shall not be obligated to enter into any
amendment pursuant to this Section that affects its rights, duties and
immunities under this Agreement or otherwise.
SECTION 11.02. Recordation of Agreement;
Counterparts.
To the extent permitted by applicable law, this Agreement is
subject to recordation in all appropriate public offices for real property
records in all the counties or other comparable jurisdictions in which any or
all of the properties subject to the Mortgages are situated, and in any other
appropriate public recording office or elsewhere, such recordation to be
effected by the Master Servicer and at the expense of the Company on direction
by the Trustee, but only upon direction accompanied by an Opinion of Counsel to
the effect that such recordation materially and beneficially affects the
interests of the Certificateholders.
For the purpose of facilitating the recordation of this
Agreement as herein provided and for other purposes, this Agreement may be
executed simultaneously in any number of counterparts, each of which
counterparts shall be deemed to be an original, and such counterparts shall
constitute but one and the same instrument.
SECTION 11.03. Limitation on Rights of
Certificateholders.
The death or incapacity of any Certificateholder shall not
operate to terminate this Agreement or the Trust Fund, nor entitle such
Certificateholder's legal representatives or heirs to claim an accounting or to
take any action or proceeding in any court for a partition or winding up of the
Trust Fund, nor otherwise affect the rights, obligations and liabilities of the
parties hereto or any of them.
No Certificateholder shall have any right to vote (except as
expressly provided for herein) or in any manner otherwise control the operation
and management of the Trust Fund,
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or the obligations of the parties hereto, nor shall anything herein set forth,
or contained in the terms of the Certificates, be construed so as to constitute
the Certificateholders from time to time as partners or members of an
association; nor shall any Certificateholder be under any liability to any third
party by reason of any action taken by the parties to this Agreement pursuant to
any provision hereof.
No Certificateholder shall have any right by virtue of any
provision of this Agreement to institute any suit, action or proceeding in
equity or at law upon or under or with respect to this Agreement, unless such
Holder previously shall have given to the Trustee a notice of an Event of
Default, or of a default by the Seller or the Trustee in the performance of any
obligation hereunder, and of the continuance thereof, as hereinbefore provided,
and unless also the Holders of Certificates entitled to at least 25% of the
Voting Rights shall have made written request upon the Trustee to institute such
action, suit or proceeding in its own name as Trustee hereunder and shall have
offered to the Trustee such reasonable indemnity as it may require against the
costs, expenses and liabilities to be incurred therein or thereby, and the
Trustee, for 60 days after its receipt of such notice, request and offer of
indemnity, shall have neglected or refused to institute any such action, suit or
proceeding. It is understood and intended, and expressly covenanted by each
Certificateholder with every other Certificateholder and the Trustee, that no
one or more Holders of Certificates shall have any right in any manner whatever
by virtue of any provision of this Agreement to affect, disturb or prejudice the
rights of the Holders of any other of such Certificates, or to obtain or seek to
obtain priority over or preference to any other such Holder, or to enforce any
right under this Agreement, except in the manner herein provided and for the
equal, ratable and common benefit of all Certificateholders. For the protection
and enforcement of the provisions of this Section, each and every
Certificateholder and the Trustee shall be entitled to such relief as can be
given either at law or in equity.
SECTION 11.04. Governing Law.
This Agreement and the Certificates shall be construed in
accordance with the laws of the State of New York and the obligations, rights
and remedies of the parties hereunder shall be determined in accordance with
such laws.
SECTION 11.05. Notices.
All demands, notices and direction hereunder shall be in
writing and shall be deemed effective upon receipt when delivered to (a) in the
case of the Company, ____________, ____________________________________,
Attention: ________________, or such other address as may hereafter be furnished
to the Trustee and the Master Servicer in writing by the Company, (b) in the
case of the Trustee, ______________________________________________ __________,
Attention: _________________________________, or such other address as may
hereafter be furnished to the Master Servicer and the Company in writing by the
Trustee and (c) in the case of the Master Servicer, [Name of Master Servicer]
[Address of Master Servicer] Attention: ________________________ or such other
address as may hereafter be furnished to the Company and the Trustee in writing.
Any notice required or permitted to be mailed to a Certificateholder shall be
given by first class mail, postage prepaid, at the address of such Holder as
shown in the Certificate Register. Any notice so mailed within the time
prescribed
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in this Agreement shall be conclusively presumed to have been duly given,
whether or not the Certificateholder receives such notice.
SECTION 11.06. Severability of Provisions.
If any one or more of the covenants, agreements, provisions or
terms of this Agreement shall be for any reason whatsoever held invalid, then
such covenants, agreements, provisions or terms shall be deemed severable from
the remaining covenants, agreements, provisions or terms of this Agreement and
shall in no way affect the validity or enforceability of the other provisions of
this Agreement or of the Certificates or the rights of the Holders thereof.
SECTION 11.07. Successors and Assigns; Third Party
Beneficiary.
The provisions of this Agreement shall be binding upon and
inure to the benefit of the respective successors and assigns of the parties
hereto, and all such provisions shall inure to the benefit of the Trustee and
the Certificateholders. The parties hereto agree that the Seller is the intended
third party beneficiary of Sections 3.07, 3.10 and 3.22 hereof, and that the
Seller may enforce such provisions to the same extent as if the Seller were a
party to this Agreement.
SECTION 11.08. Article and Section Headings.
The article and section headings herein are for convenience of
reference only, and shall not limit or otherwise affect the meaning hereof.
SECTION 11.09. Notice to Rating Agencies and
Certificateholder.
The Trustee shall use its best efforts to promptly provide
notice to the Rating Agency referred to below with respect to each of the
following of which it has actual knowledge:
1. Any material change or amendment to this Agreement;
2. The occurrence of any Event of Default that has not been
cured;
3. The resignation or termination of the Master Servicer or
the Trustee;
4. The repurchase or substitution of Mortgage Loans pursuant
to Section 2.04;
5. The final payment to Certificateholders; and
6. Any change in the location of the Custodial Account or the
Certificate Account.
In addition, the Trustee shall promptly furnish to the Rating
Agency copies of the following:
1. Each report to Certificateholders described in Section
4.02;
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2. Each annual independent public accountants' servicing
report received as described in Section 3.20; and
3. Each Master Servicer compliance report received as
described in Section 3.19.
Any such notice pursuant to this Section 11.09 shall be in
writing and shall be deemed to have been duly given if personally delivered or
mailed by first class mail, postage prepaid, or by express delivery service to
(i) in the case of [______________________________] ___________________________,
Attention: ___________, and (ii) in the case of _______________________________]
or, in each case, such other address as such Rating Agency may designate in
writing to the parties thereto.
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IN WITNESS WHEREOF, the Company, the Master Servicer and the
Trustee have caused their names to be signed hereto by their respective officers
thereunto duly authorized all as of the day and year first above written.
OPTION ONE MORTGAGE ACCEPTANCE
CORPORATION,
Company
By:___________________________________________
[NAME OF MASTER SERVICER],
Master Servicer
By:___________________________________________
[NAME OF TRUSTEE]
Trustee
By:___________________________________________
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EXHIBIT A-1
FORM OF CLASS A CERTIFICATE
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE
IS A "REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT," AS THOSE
TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL
REVENUE CODE OF 1986.
[UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
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.]
[THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR THE PURPOSES
OF APPLYING THE U.S. FEDERAL INCOME TAX ORIGINAL ISSUE DISCOUNT ("OID") RULES TO
THIS CERTIFICATE. ASSUMING THAT THE MORTGAGE LOANS PREPAY AT AN ASSUMED RATE OF
PREPAYMENT USED SOLELY FOR THE PURPOSES OF APPLYING THE OID RULES TO THE
CERTIFICATES EQUAL TO A STANDARD PREPAYMENT ASSUMPTION OF ___% PER ANNUM (THE
"PREPAYMENT ASSUMPTION"), THIS CERTIFICATE HAS BEEN ISSUED WITH NO MORE THAN
$______ OF OID PER $1,000 OF INITIAL PRINCIPAL AMOUNT, AND THE YIELD TO MATURITY
IS ____% AND THE AMOUNT OF OID ATTRIBUTABLE TO THE INITIAL ACCRUAL PERIOD IS NO
MORE THAN $____ PER $1,000 OF INITIAL PRINCIPAL AMOUNT COMPUTED USING THE EXACT
METHOD. NO REPRESENTATION IS MADE THAT THE MORTGAGE LOANS WILL PREPAY AT A RATE
BASED ON THE PREPAYMENT ASSUMPTION OR AT ANY OTHER RATE.]
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Series 199_-____ Aggregate Initial Certificate
Principal Balance of the Class A
Certificates: $_______________
Pass-Through Rate: _____% Initial Certificate Principal
Balance of this Certificate:
$_______________
Date of Pooling and Servicing
Agreement and Cut-off Date:
_____________ 1, 199_
First Distribution Date:
____________ 2, 199_
Issue Date: ____________ __, 199_ Master Servicer: [Name of Master
Servicer]
No. ___________________ Trustee: [Name of Trustee]
CUSIP:
CLASS A MORTGAGE PASS-THROUGH
CERTIFICATE, SERIES 199_-____
evidencing a beneficial ownership interest in the Trust Fund
consisting primarily of a pool of residential mortgage loans sold by
OPTION ONE MORTGAGE ACCEPTANCE CORPORATION
This certifies that is the registered owner of the Percentage
Interest evidenced by this Certificate in the Trust Fund established under a
Pooling and Servicing Agreement, dated as specified above (the "Agreement"),
among Option One Mortgage Acceptance Corporation (hereinafter called the
"Depositor", which term includes any successor entity under the Agreement),
[Name of Master Servicer] (the "Master Servicer") and [Name of Trustee] (the
"Trustee"), a summary of certain of the pertinent provisions of which is set
forth hereafter. The Certificates of the Series specified above (collectively,
the "Certificates") evidence in the aggregate the entire beneficial ownership
interest in a segregated pool of assets created pursuant to the Agreement (the
"Trust Fund") comprised of conventional one- to four-family residential first
mortgage loans (the "Mortgage Loans"), or interests therein, and certain other
assets sold by the Depositor. To the extent not defined herein, the capitalized
terms used herein have the meanings assigned in the Agreement. This Certificate
is issued under and is subject to the terms, provisions and conditions of the
Agreement, to which Agreement the Holder of this Certificate by virtue of the
acceptance hereof assents and by which such Holder is bound.
The Trustee shall distribute or cause to be distributed on the
25th day of each month or, if such 25th day is not a Business Day, the Business
Day immediately following
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(each, a "Distribution Date"), commencing on the First Distribution Date
specified above, to the Person in whose name this Certificate is registered at
the close of business on the last Business Day of the month immediately
preceding the month of such distribution (the "Record Date"), from the Available
Distribution Amount an amount equal to the product of the Percentage Interest
evidenced by this Certificate and the amount required to be distributed to the
Holders of Class A Certificates on such Distribution Date pursuant to the
Agreement. Reference is hereby made to the further provisions of this
Certificate and the Agreement set forth herein, which further provisions shall
for all purposes have the same effect as though fully set forth at this place.
This Certificate is one of a duly authorized issue of
Certificates of the series and class specified on the face hereof (herein called
the "Certificates"). The Certificates in the aggregate represent the entire
beneficial interest in: (i) the Mortgage Loans (exclusive of payments of
principal and interest due on or before the Cut-off Date) as from time to time
are subject to the Agreement and all payments under and proceeds of the Mortgage
Loans, together with all documents included in the related Mortgage File; (ii)
such funds or assets as from time to time are deposited in respect of the
Mortgage Loans in the account established by the Master Servicer for the
collection of payments on the Mortgage Loans (the "Custodial Account"), the
Certificate Account and the Expense Fund and belonging to the Trust Fund; (iii)
any REO Property; (iv) the Pool Insurance Policy, the Special Hazard Insurance
Policy and all other insurance policies with respect to the Mortgage Loans
required to be maintained pursuant to the Agreement and all the proceeds
thereof; and (v) the Depositor's interest in respect of the representations and
warranties made be the Seller in the Seller's Warranty Certificate as assigned
to the Trustee pursuant to Section 2.04 of the Agreement (all of the foregoing
being hereinafter collectively called the "Trust Fund").
All distributions will be made or caused to be made by the
Trustee either in immediately available funds (i) by check mailed to the address
of the Person entitled thereto, as such name and address shall appear on the
Certificate Register or (ii) by wire transfer to the account of such Person at
the request of the Person entitled thereto if such Person shall have so notified
the Trustee in writing by 5 Business Days prior to the applicable Record Date
and such Certificateholder is the registered holder of Certificates the
aggregate Initial Certificate Principal Balance of which is not less than
$2,500,000. Notwithstanding the above, the final distribution on this
Certificate will be made after due notice by the Master Servicer of the pendency
of such distribution and only upon presentation and surrender of this
Certificate at the office of the Trustee. The Certificate Principal Balance
hereof will be reduced to the extent of distributions allocable to principal and
any Realized Losses allocable hereto.
The Certificates do not represent an obligation of, or an
interest in, the Depositor, the Master Servicer, or the Trustee and are not
insured or guaranteed by any governmental agency or instrumentality. The
Certificates are limited in right of payment to certain collections and
recoveries respecting the Mortgage Loans, all as more specifically set forth
herein and in the Agreement. As provided in the Agreement, withdrawals from the
Custodial Account or Certificate Account may be made by the Master Servicer from
time to time for purposes other than distributions to Certificateholders, such
purposes including reimbursement to the Master Servicer of advances made, or
certain expenses incurred, by it, or by the Depositor or Trustee.
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The Agreement permits, with certain exceptions therein
provided, the amendment thereof and the modification of the rights and
obligations of the Depositor and the Master Servicer and the rights of the
Certificateholders under the Agreement at any time by the Depositor, the Master
Servicer, and the Trustee with the consent of the Holders of Certificates
entitled to at least 66-2/3% of the Voting Rights. Any such consent by the
Holder of this Certificate shall be conclusive and binding on such Holder and
upon all future Holders of this Certificate and of any Certificate issued upon
the transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent is made upon this Certificate. The Agreement also
permits the amendment thereof, in certain limited circumstances, without the
consent of the Holders of any of the Certificates.
As provided in the Agreement and subject to certain
limitations therein set forth, the transfer of this Certificate is registrable
in the Certificate Register upon surrender of this Certificate for registration
of transfer at the Corporate Trust Office, duly endorsed by, or accompanied by
an assignment in the form below or other written instrument of transfer in form
satisfactory to the Trustee duly executed by, the Holder hereof or such Holder's
attorney duly authorized in writing, and thereupon one or more new Certificates
of the same Class in authorized denominations evidencing the same aggregate
initial Certificate Principal Balance will be issued to the designated
transferee or transferees.
The Certificates are issuable in fully registered form and in
denominations specified in the Agreement. As provided in the Agreement and
subject to certain limitations therein set forth, the Certificates are
exchangeable for new Certificates of the same Class in authorized denominations
evidencing the same aggregate initial Certificate Principal Balance, as
requested by the Holder surrendering the same.
No service charge will be made for any such registration of
transfer or exchange, but the Trustee may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any transfer or exchange of Certificates.
The Depositor, the Master Servicer and the Trustee and any
agent of the Depositor, the Master Servicer or the Trustee may treat the Person
in whose name this Certificate is registered as the owner hereof for all
purposes, and neither the Depositor, the Master Servicer, the Trustee nor any
such agent shall be affected by notice to the contrary.
The obligations created by the Agreement and the Trust Fund
created thereby shall terminate upon payment to the Certificateholders of all
amounts held by or on behalf of the Trustee and required to be paid to them
pursuant to the Agreement following the earlier of (i) the repurchase by the
Master Servicer of all Mortgage Loans and each REO Property in respect thereof,
or (ii) the final payment on, or other liquidation (or any advance with respect
thereto) of, the last Mortgage Loan remaining in the Trust Fund (or the
disposition of all REO Property in respect thereof). The Agreement permits, but
does not require, the Master Servicer to repurchase from the Trust Fund all
Mortgage Loans and all property acquired in respect of any Mortgage Loan at a
price determined as provided in the Agreement. The exercise of such right will
effect early retirement of the Certificates; however, the Master Servicer's
right to repurchase is subject to the aggregate Stated Principal Balance of the
Mortgage Loans at the time of
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repurchase being less than or equal to 5% of the aggregate Stated Principal
Balance of the Mortgage Loans at the Cut-off Date.
Unless the certificate of authentication hereon has been
executed by the Trustee, by manual signature, this Certificate shall not be
entitled to any benefit under the Agreement or be valid for any purpose.
The recitals contained herein shall be taken as statements of
the Depositor or the Master Servicer as the case may be.
<PAGE>
-6-
IN WITNESS WHEREOF, the Trustee in its capacity as trustee
under the Agreement has caused this Certificate to be duly executed.
Dated: [NAME OF TRUSTEE],
as Trustee
By:______________________________________
Authorized Officer
CERTIFICATE OF AUTHENTICATION
This is one of the Class A Certificates referred to in the
within-mentioned Agreement.
[NAME OF TRUSTEE],
as Trustee
By:______________________________________
Authorized Officer
<PAGE>
ASSIGNMENT
----------
FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and
transfer(s) unto
_________________________________
________________________________________________________________
________________________________________________________________
Social Security or other identifying number of assignee:
(Please print or typewrite name and address including postal zip code of
assignee)
the beneficial interest evidenced by the within Mortgage Pass-Through
Certificate and hereby authorizes the registration of transfer of such interest
to the above-named assignee on the Certificate Register.
I (we) further direct the Trustee to issue a new Certificate of a like
denomination and class to the above named assignee and deliver such
Certificate(s) to the following address:
______________________________________________________________________
______________________________________________________________________________
Dated:
---------------------------------------
Signature by or on behalf of assignor
---------------------------------------
Signature Guaranteed
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within instrument in every particular, without
alteration or enlargement or any change whatever, and must be guaranteed by a
commercial bank or trust company on the continental United States or by a firm
or corporation having membership in any national securities exchange or in the
National Association of Securities Dealers, Inc.
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for the information of
___________________ and the Master Servicer:
Distributions shall be made, by wire transfer or otherwise, in
immediately available funds to _________________________________ for the account
of ________________________ _________________________________________ account
number ________________________, or, if mailed by check, to
___________________________________________. Applicable statements should be
mailed to _______________________. This information is provided by
_______________________________, the assignee named above, or
_____________________________, as its agent.
<PAGE>
EXHIBIT A-2
FORM OF CLASS B CERTIFICATE
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE
IS A "REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT," AS THOSE
TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL
REVENUE CODE OF 1986 (THE "CODE").
THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE
CLASS A CERTIFICATES AS DESCRIBED IN THE POOLING AND SERVICING
AGREEMENT REFERRED TO HEREIN (THE "AGREEMENT").
NO TRANSFER OF THIS CERTIFICATE MAY BE MADE TO AN EMPLOYEE
BENEFIT PLAN SUBJECT TO SECTION 406 OF THE EMPLOYEE RETIREMENT INCOME SECURITY
ACT OF 1974, AS AMENDED, OR SECTION 4975 OF THE CODE OR PERSON USING "PLAN
ASSETS" OF ANY SUCH PLAN TO EFFECT SUCH ACQUISITION (INCLUDING ANY INSURANCE
COMPANY UNDER THE CIRCUMSTANCES DESCRIBED IN THE AGREEMENT), UNLESS THE
TRANSFEREE PROVIDES AN OPINION OF COUNSEL (OR CERTIFICATION OF FACTS UNDER THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE AGREEMENT) SATISFACTORY TO THE DEPOSITOR
AND THE TRUSTEE OR THE CERTIFICATE REGISTRAR THAT SUCH DISPOSITION WILL NOT
VIOLATE THE PROHIBITED TRANSACTION PROVISIONS OF SECTION 406 OF ERISA AND
SECTION 4975 OF THE CODE.
[THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR THE PURPOSES
OF APPLYING THE U.S. FEDERAL INCOME TAX ORIGINAL ISSUE DISCOUNT ("OID") RULES TO
THIS CERTIFICATE. ASSUMING THAT THE MORTGAGE LOANS PREPAY AT AN ASSUMED RATE OF
PREPAYMENT USED SOLELY FOR THE PURPOSES OF APPLYING THE OID RULES TO THE
CERTIFICATES EQUAL TO A STANDARD PREPAYMENT ASSUMPTION OF ___% PER ANNUM (THE
"PREPAYMENT ASSUMPTION"), THIS CERTIFICATE HAS BEEN ISSUED WITH NO MORE THAN
$______ OF OID PER $1,000 OF INITIAL PRINCIPAL AMOUNT, AND THE YIELD TO MATURITY
IS ____% AND THE AMOUNT OF OID ATTRIBUTABLE TO THE INITIAL ACCRUAL PERIOD IS NO
MORE THAN $____ PER $1,000 OF INITIAL PRINCIPAL BALANCE COMPUTED USING THE EXACT
METHOD. NO REPRESENTATION IS MADE THAT THE MORTGAGE LOANS WILL PREPAY AT A RATE
BASED ON THE PREPAYMENT ASSUMPTION OR AT ANY OTHER RATE.]
<PAGE>
Series 199_-____ Aggregate Initial Certificate
Principal Balance of the Class B
Certificates: $_______________
Pass-Through Rate: _____% Initial Certificate Principal
Balance of this Certificate:
$_______________
Date of Pooling and Servicing
Agreement and Cut-off Date:
_____________ 1, 199_
First Distribution Date: Master Servicer: [Name of Master
Servicer] ____________ __, 199_
Issue Date: _____________ __, 199_ Trustee: [Name of Trustee]
No. ___________________
CUSIP:_________________
CLASS B MORTGAGE PASS-THROUGH
CERTIFICATE, SERIES 199_-____
evidencing a beneficial ownership interest in the Trust Fund
consisting primarily of a pool of residential mortgage loans sold by
OPTION ONE MORTGAGE ACCEPTANCE CORPORATION
This certifies that ________________________ is the registered
owner of the Percentage Interest evidenced by this Certificate in the Trust Fund
established under a Pooling and Servicing Agreement, dated as specified above
(the "Agreement"), among Option One Mortgage Acceptance Corporation (hereinafter
called the "Depositor", which term includes any successor entity under the
Agreement), [Name of Master Servicer] (the "Master Servicer") and [Name of
Trustee] (the "Trustee"), a summary of certain of the pertinent provisions of
which is set forth hereafter. The Certificates of the Series specified above
(collectively, the "Certificates") evidence in the aggregate the entire
beneficial ownership interest in a segregated pool of assets created pursuant to
the Agreement (the "Trust Fund") comprised of conventional one- to four-family
residential first mortgage loans (the "Mortgage Loans"), or interests therein,
and certain other assets sold by the Depositor. To the extent not defined
herein, the capitalized terms used herein have the meanings assigned in the
Agreement. This Certificate is issued under and is subject to the terms,
provisions and conditions of the Agreement, to which Agreement the Holder of
this Certificate by virtue of the acceptance hereof assents and by which such
Holder is bound.
<PAGE>
-2-
The Trustee shall distribute or cause to be distributed on the
25th day of each month or, if such 25th day is not a Business Day, the Business
Day immediately following (each, a "Distribution Date"), commencing on the First
Distribution Date specified above, to the Person in whose name this Certificate
is registered at the close of business on the last Business Day of the month
immediately preceding the month of such distribution (the "Record Date"), from
the related Group Available Distribution Amount an amount equal to the product
of the Percentage Interest evidenced by this Certificate and the amount required
to be distributed to the Holders of Class B Certificates on such Distribution
Date pursuant to the Agreement. Reference is hereby made to the further
provisions of this Certificate and the Agreement set forth herein, which further
provisions shall for all purposes have the same effect as though fully set forth
at this place.
This Certificate is one of a duly authorized issue of
Certificates of the series and class specified on the face hereof (herein called
the "Certificates"). The Certificates in the aggregate represent the entire
beneficial interest in: (i) the Mortgage Loans (exclusive of payments of
principal and interest due on or before the Cut-off Date) as from time to time
are subject to the Agreement and all payments under and proceeds of the Mortgage
Loans, together with all documents included in the related Mortgage File; (ii)
such funds or assets as from time to time are deposited in respect of the
Mortgage Loans in the account established by the Master Servicer for the
collection of payments on the Mortgage Loans (the "Custodial Account"), the
Certificate Account and the Expense Fund and belonging to the Trust Fund; (iii)
any REO Property; (iv) the Pool Insurance Policy, the Special Hazard Insurance
Policy, and all other insurance policies with respect to the Mortgage Loans
required to be maintained pursuant to the Agreement and all the proceeds
thereof; and (v) the Depositor's interest in respect of the representations and
warranties made by the Seller in the Seller's Warranty Certificate as assigned
to the Trustee pursuant to Section 2.04 of the Agreement (all of the foregoing
being hereinafter collectively called the "Trust Fund").
All distributions will be made or caused to be made by the
Trustee either in immediately available funds (i) by check mailed to the address
of the Person entitled thereto, as such name and address shall appear on the
Certificate Register, (ii) by wire transfer to the account of such Person at the
request of the Person entitled thereto if such Person shall have so notified the
Trustee in writing by 5 Business Days prior to the applicable Record Date and
such Certificateholder is the registered holder of Certificates the aggregate
Initial Certificate Principal Balance of which is not less than $2,500,000.
Notwithstanding the above, the final distribution on this Certificate will be
made after due notice by the Master Servicer of the pendency of such
distribution and only upon presentation and surrender of this Certificate at the
office of the Trustee. The Certificate Principal Balance hereof will be reduced
to the extent of distributions allocable to principal and any Realized Losses
allocable hereto.
The Certificates do not represent an obligation of, or an
interest in, the Depositor, the Master Servicer, or the Trustee and are not
insured or guaranteed by any governmental agency or instrumentality. The
Certificates are limited in right of payment to certain collections and
recoveries respecting the Mortgage Loans, all as more specifically set forth
herein and in the Agreement. As provided in the Agreement, withdrawals from the
Custodial Account or Certificate Account may be made from time to time for
purposes other than distributions to Certificateholders, such purposes including
reimbursement to the Master Servicer of advances made, or certain expenses
incurred, by it, or by the Depositor or Trustee.
<PAGE>
-3-
The Agreement permits, with certain exceptions therein
provided, the amendment thereof and the modification of the rights and
obligations of the Depositor and the Master Servicer and the rights of the
Certificateholders under the Agreement at any time by the Depositor, the Master
Servicer, and the Trustee with the consent of the Holders of Certificates
entitled to at least 66-2/3% of the Voting Rights. Any such consent by the
Holder of this Certificate shall be conclusive and binding on such Holder and
upon all future Holders of this Certificate and of any Certificate issued upon
the transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent is made upon this Certificate. The Agreement also
permits the amendment thereof, in certain limited circumstances, without the
consent of the Holders of any of the Certificates.
No transfer of any Class B Certificate shall be made to any
employee benefit plan or other retirement arrangement, including individual
retirement accounts and annuities and Keogh plans, that is subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") (any of
the foregoing, a "Plan"), to any Person acting on behalf of a Plan, or to any
other Person who is using "plan assets" to effect such acquisition (including
any insurance company using funds in its general or separate accounts that may
constitute "plan assets") unless the prospective transferee of a
Certificateholder desiring to transfer its Certificates provides to the Trustee
or the Certificate Registrar an Opinion of Counsel (or, in the limited
circumstances described in the Agreement, a certification of facts) which
establishes to the satisfaction of the Depositor and the Trustee or the
Certificate Registrar that such disposition will not violate the prohibited
transaction provisions of Section 406 of ERISA and Section 4975 of the Code.
As provided in the Agreement and subject to certain
limitations therein set forth, the transfer of this Certificate is registrable
in the Certificate Register upon surrender of this Certificate for registration
of transfer at the Corporate Trust Office, duly endorsed by, or accompanied by
an assignment in the form below or other written instrument of transfer in form
satisfactory to the Trustee duly executed by, the Holder hereof or such Holder's
attorney duly authorized in writing, and thereupon one or more new Certificates
of the same Class in authorized denominations evidencing the same aggregate
initial Certificate Principal Balance will be issued to the designated
transferee or transferees.
The Certificates are issuable in fully registered form and in
denominations specified in the Agreement. As provided in the Agreement and
subject to certain limitations therein set forth, the Certificates are
exchangeable for new Certificates of the same Class in authorized denominations
evidencing the same aggregate initial Certificate Principal Balance, as
requested by the Holder surrendering the same.
No service charge will be made for any such registration of
transfer or exchange, but the Trustee may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any transfer or exchange of Certificates.
The Depositor, the Master Servicer and the Trustee and any
agent of the Depositor, the Master Servicer or the Trustee may treat the Person
in whose name this Certificate is registered as the owner hereof for all
purposes, and neither the Depositor, the Master Servicer, the Trustee nor any
such agent shall be affected by notice to the contrary.
<PAGE>
-4-
The obligations created by the Agreement and the Trust Fund
created thereby shall terminate upon payment to the Certificateholders of all
amounts held by or on behalf of the Trustee and required to be paid to them
pursuant to the Agreement following the earlier of (i) the repurchase by the
Master Servicer of all Mortgage Loans and each REO Property in respect thereof,
or (ii) the final payment on, or other liquidation (or any advance with respect
thereto) of, the last Mortgage Loan remaining in the Trust Fund (or the
disposition of all REO Property in respect thereof). The Agreement permits, but
does not require, the Master Servicer to repurchase from the Trust Fund all
Mortgage Loans and all property acquired in respect of any Mortgage Loan at a
price determined as provided in the Agreement. The exercise of such right will
effect early retirement of the Certificates; however, the Master Servicer's
right to repurchase is subject to the aggregate Stated Principal Balance of the
Mortgage Loans at the time of repurchase being less than or equal to 5% of the
aggregate Stated Principal Balance of the Mortgage Loans at the Cut-off Date.
Unless the certificate of authentication hereon has been
executed by the Trustee, by manual signature, this Certificate shall not be
entitled to any benefit under the Agreement or be valid for any purpose.
The recitals contained herein shall be taken as statements of
the Depositor or the Master Servicer as the case may be.
<PAGE>
-5-
IN WITNESS WHEREOF, the Trustee in its capacity as trustee
under the Agreement has caused this Certificate to be duly executed.
Dated: [NAME OF TRUSTEE],
as Trustee
By:______________________________________
Authorized Officer
CERTIFICATE OF AUTHENTICATION
This is one of the Class B Certificates referred to in the
within-mentioned Agreement.
[NAME OF TRUSTEE],
as Trustee
By:______________________________________
Authorized Officer
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and
transfer(s) unto
___________________________________________________
________________________________________________________________
________________________________________________________________
Social Security or other identifying number of assignee:
(Please print or typewrite name and address including postal zip code of
assignee)
the beneficial interest evidenced by the within Mortgage Pass-Through
Certificate and hereby authorizes the registration of transfer of such interest
to the above-named assignee on the Certificate Register.
I (we) further direct the Trustee to issue a new Certificate of a like
denomination and class to the above named assignee and deliver such
Certificate(s) to the following address:
______________________________________________________________________
________________________________________________________________________________
Dated:
---------------------------------------
Signature by or on behalf of assignor
---------------------------------------
Signature Guaranteed
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within instrument in every particular, without
alteration or enlargement or any change whatever, and must be guaranteed by a
commercial bank or trust company on the continental United States or by a firm
or corporation having membership in any national securities exchange or in the
National Association of Securities Dealers, Inc.
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for the information of
____________________________ and the Master Servicer:
Distributions shall be made, by wire transfer or otherwise, in
immediately available funds to _________________________________________________
for the account of _________________________________________ account number
________________________, or, if mailed by check, to __________________________.
Applicable statements should be mailed to _______________________. This
information is provided by _______________________________, the assignee named
above, or _____________________________, as its agent.
<PAGE>
EXHIBIT B
FORM OF CLASS R CERTIFICATE
THIS CLASS R CERTIFICATE HAS BEEN DESIGNATED BY THE SELLER REFERRED TO BELOW AS
A "RESIDUAL INTEREST" IN THE REMIC CREATED BY THE POOLING AND SERVICING
AGREEMENT PURSUANT TO THE REMIC PROVISIONS OF THE INTERNAL REVENUE CODE OF 1986
(THE "CODE").
NO TRANSFER OF THIS CERTIFICATE MAY BE MADE TO AN EMPLOYEE BENEFIT PLAN SUBJECT
TO THE FIDUCIARY RESPONSIBILITY PROVISIONS OF THE EMPLOYEE RETIREMENT INCOME
SECURITY ACT OF 1974, AS AMENDED, OR SECTION 4975 OF THE CODE OR PERSON USING
"PLAN ASSETS" OF ANY SUCH PLAN TO EFFECT SUCH ACQUISITION (INCLUDING ANY
INSURANCE COMPANY UNDER THE CIRCUMSTANCES DESCRIBED IN THE AGREEMENT), UNLESS
THE TRANSFEREE PROVIDES AN OPINION OF COUNSEL (OR CERTIFICATION OF FACTS UNDER
THE LIMITED CIRCUMSTANCES DESCRIBED IN THE AGREEMENT) SATISFACTORY TO THE
DEPOSITOR AND THE TRUSTEE OR THE CERTIFICATE REGISTRAR THAT SUCH DISPOSITION
WILL NOT VIOLATE THE PROHIBITIVE TRANSACTION PROVISIONS OF SECTION 406 OF ERISA
AND SECTION 4975 OF THE CODE. [BY ITS ACCEPTANCE OF A CERTIFICATE, EACH
CERTIFICATEHOLDER WILL BE DEEMED TO HAVE REPRESENTED AND WARRANTED THAT IT IS
NOT SUBJECT TO THE FOREGOING LIMITATION.]
THIS CERTIFICATE AND THE POOLING AND SERVICING AGREEMENT MAY BE AMENDED WITHOUT
THE CONSENT OF THE HOLDER HEREOF, AND IN A MANNER THAT MAY ADVERSELY AFFECT THE
INTERESTS OF THE HOLDER HEREOF, IF NECESSARY TO PREVENT THE DISQUALIFICATION OF
THE TRUST FUND AS A REMIC.
ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CLASS R CERTIFICATE MAY BE
MADE ONLY IF THE PROPOSED TRANSFEREE PROVIDES AN AFFIDAVIT TO THE MASTER
SERVICER AND THE TRUSTEE THAT (1) SUCH TRANSFEREE IS NOT EITHER (A) THE UNITED
STATES, ANY STATE OR POLITICAL SUBDIVISION THEREOF, ANY FOREIGN GOVERNMENT, ANY
INTERNATIONAL ORGANIZATION, OR ANY AGENCY OR INSTRUMENTALITY OF ANY OF THE
FOREGOING, (B) ANY ORGANIZATION (OTHER THAN A COOPERATIVE DESCRIBED IN SECTION
521 OF THE CODE) WHICH IS EXEMPT FROM THE TAX IMPOSED BY CHAPTER 1 OF THE CODE
UNLESS SUCH ORGANIZATION IS SUBJECT TO THE TAX IMPOSED BY SECTION 511 OF THE
CODE, (C) ANY ORGANIZATION DESCRIBED IN SECTION 1381(a)(2)(C) OF THE CODE, (ANY
SUCH PERSON DESCRIBED IN THE FOREGOING CLAUSES (A), (B) OR (C) BEING HEREINAFTER
REFERRED TO AS A "DISQUALIFIED ORGANIZATION") OR (D) AN AGENT OF A DISQUALIFIED
ORGANIZATION. NOTWITHSTANDING THE REGISTRATION IN THE CERTIFICATE REGISTER OR
ANY TRANSFER, SALE OR OTHER DISPOSITION OF THIS CLASS R CERTIFICATE TO A
DISQUALIFIED ORGANIZATION OR AN AGENT OF A DISQUALIFIED ORGANIZATION, SUCH
REGISTRATION SHALL BE DEEMED TO BE OF NO LEGAL FORCE OR EFFECT WHATSOEVER AND
SUCH PERSON SHALL NOT BE DEEMED TO
<PAGE>
-2-
BE A CERTIFICATEHOLDER FOR ANY PURPOSE HEREUNDER, INCLUDING, BUT NOT LIMITED TO,
THE RECEIPT OF DISTRIBUTIONS ON THIS CERTIFICATE. EACH HOLDER OF A CLASS R
CERTIFICATE BY ACCEPTANCE OF THIS CERTIFICATE SHALL BE DEEMED TO HAVE CONSENTED
TO THE PROVISIONS OF THIS PARAGRAPH.
IF ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CLASS R CERTIFICATE IS MADE
TO ANY OF CERTAIN "PASS-THROUGH ENTITIES" DESCRIBED IN SECTION 860E(e)(6) OF THE
CODE, AND A DISQUALIFIED ORGANIZATION IS THE RECORD HOLDER OF AN INTEREST IN
SUCH ENTITY, THEN A TAX MAY BE IMPOSED ON SUCH ENTITY.
NO TRANSFER OF THE CERTIFICATE MAY BE MADE TO A NON-UNITED STATES PERSON AS
DEFINED IN THE AGREEMENT.
<PAGE>
-3-
Series 199_-____ Aggregate unpaid principal balance
of the Mortgage Loans after
deducting payments due on or before
the Cut-off Date: $____________
Percentage Interest: ___%
Date of Pooling and Servicing
Agreement: _____________ 1, 199_ Issue Date: ___________ __, 199_
First Distribution Date:
____________ __, 199_
Master Servicer:
[Name of Master Servicer]
Trustee:
[Name of Trustee]
No. __
CLASS R MORTGAGE PASS-THROUGH CERTIFICATE, SERIES 199_-____
evidencing a beneficial ownership interest in the Trust Fund
consisting primarily of a pool of residential mortgage loans sold by
OPTION ONE MORTGAGE ACCEPTANCE CORPORATION
This certifies that is the registered owner of the Percentage
Interest evidenced by this Certificate in the Class R residual interests in the
Trust Fund created pursuant to a Pooling and Servicing Agreement, dated as
specified above (the "Agreement"), between Option One Mortgage Acceptance
Corporation (hereinafter called the "Depositor", which term includes any
successor entity under the Agreement), [Name of Master Servicer] (the "Master
Servicer"), and [Name of Trustee] (the "Trustee"), a summary of certain of the
pertinent provisions of which is set forth hereafter. To the extent not defined
herein, the capitalized terms used herein have the meanings assigned in the
Agreement. This Certificate is issued under and is subject to the terms,
provisions and conditions of the Agreement, to which Agreement the Holder of
this Certificate by virtue of the acceptance hereof assents and by which such
Holder is bound.
Pursuant to the terms of the Agreement, distributions will be
made on the 25th day of each month, or if such 25th day is not a Business Day,
the Business Day immediately following (a "Distribution Date"), commencing on
the First Distribution Date specified above, to the Person in whose name this
Certificate is registered at the close of business on the last Business Day of
the month immediately preceding the month of such distribution (the "Record
Date"), from the Available Distribution Amount in an amount equal to the product
of the Percentage Interest evidenced by this Certificate and the amount required
to be distributed to the holders of Class R Certificates on such Distribution
Date pursuant to the Agreement.
<PAGE>
-4-
All distributions under the Agreement on the Class R
Certificates will be made or caused to be made by the Trustee by check mailed to
the address of the Person entitled thereto, as such name and address shall
appear on the Certificate Register. Notwithstanding the above, the final
distribution on this Certificate will be made after due notice by the Master
Servicer of the pendency of such distribution and only upon presentation and
surrender of this Certificate at the office of the Trustee.
This Certificate is one of a duly authorized issue of
Certificates designated as Mortgage Pass-Through Certificates of the series
specified on the face hereof (herein called the "Certificates") and representing
the Percentage Interest specified on the face hereof in the Class R
Certificates.
The Certificates are limited in right of payment to certain
collections and recoveries respecting the Mortgage Loans, all as more
specifically set forth herein and in the Agreement. As provided in the
Agreement, withdrawals from the Custodial Account or Certificate Account may be
made from time to time for purposes other than distributions to
Certificateholders, such purposes including reimbursement of advances made, or
certain expenses incurred with respect to the Mortgage Loans.
The Agreement permits, with certain exceptions therein
provided, the amendment thereof and the modification of the rights and
obligations of the Depositor, the Master Servicer and the Trustee and the rights
of the Certificateholders under the Agreement at any time by the Depositor, the
Master Servicer and the Trustee with the consent of the Holders of Certificates
entitled to at least 66-2/3% of the Voting Rights. Any such consent by the
Holder of this Certificate shall be conclusive and binding on such Holder and
upon all future Holders of this Certificate and of any Certificate issued upon
the transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent is made upon this Certificate. The Agreement also
permits the amendment thereof, in certain limited circumstances, without the
consent of the Holders of any of the Certificates.
As provided in the Agreement and subject to certain
limitations therein set forth, the transfer of this Certificate is registrable
in the Certificate Register upon surrender of this Certificate for registration
of transfer at the Corporate Trust Office, duly endorsed by, or accompanied by
an assignment in the form below or other written instrument of transfer in form
satisfactory to the Trustee duly executed by, the Holder hereof or such Holder's
attorney duly authorized in writing, and thereupon one or more new Certificates
of the same Class in authorized denominations evidencing the same aggregate
Percentage Interest will be issued to the designated transferee or transferees.
No transfer of any Class R Certificate shall be made to any
employee benefit plan or other retirement arrangement, including individual
retirement accounts and annuities and Keogh plans, that is subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") (any of
the foregoing, a "Plan") to any Person acting on behalf of a Plan, or to any
other Person who is using "plan assets" to effect such acquisition (including
any insurance company using funds in its general or separate accounts that may
constitute "plan assets"), unless the prospective transferee of a
Certificateholder desiring to transfer its Certificates provides to the Trustee
or the Certificate Registrar an Opinion of Counsel (or, in
<PAGE>
-5-
the limited circumstances described in the Agreement, a certification of facts)
which establishes to the satisfaction of the Depositor and the Trustee or the
Certificate Registrar that such disposition will not violate the prohibited
transaction provisions of Section 406 of ERISA and Section 4975 of the Code.
The Class R Certificates are issuable in fully registered form
and in minimum denominations specified in the Agreement. As provided in the
Agreement and subject to certain limitations therein set forth (including
limitations on the total number of Class R Certificates outstanding), Class R
Certificates are exchangeable for new Certificates of the same Class in
authorized denominations evidencing the same aggregate Percentage Interest, as
requested by the Holder surrendering the same.
No service charge will be made for any such registration of
transfer or exchange, but the Trustee may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any transfer or exchange of Certificates.
The Depositor, the Master Servicer and the Trustee and any
agent of the Depositor, the Master Servicer or the Trustee may treat the Person
in whose name this Certificate is registered as the owner hereof for all
purposes, and neither the Depositor, the Master Servicer, the Trustee nor any
such agent shall be affected by notice to the contrary.
The obligations created by the Agreement and the Trust Fund
created thereby shall terminate upon payment to the Certificateholders of all
amounts held by or on behalf of the Trustee and required to be paid to them
pursuant to the Agreement following the earlier of (i) the repurchase by the
Master Servicer of all Mortgage Loans and each REO Property in respect thereof
or (ii) the final payment or other liquidation (or any advance with respect
thereto) of the last Mortgage Loan remaining in the Trust Fund (or the
disposition of all REO Property in respect thereof). The Agreement permits, but
does not require, the Master Servicer to purchase from the Trust Fund all
Mortgage Loans and all property acquired in respect of any Mortgage Loan at a
price determined as provided in the Agreement. The exercise of such right will
effect early retirement of the Certificates; however, such right to purchase is
subject to the aggregate Stated Principal Balance of the Mortgage Loans at the
time of purchase being less than or equal to 5% of the aggregate Stated
Principal Balance of the Mortgage Loans at the Cut-off Date.
Unless the certificate of authentication hereon has been
executed by the Trustee, by manual signature, this Certificate shall not be
entitled to any benefit under the Agreement or be valid for any purpose.
The recitals contained herein shall be taken as the statements
of the Depositor or the Master Servicer, as the case may be.
<PAGE>
-6-
IN WITNESS WHEREOF, the Trustee in its capacity as trustee
under the Agreement has caused this Certificate to be duly executed.
Dated: [NAME OF TRUSTEE],
as Trustee
By:______________________________________
Authorized Officer
CERTIFICATE OF AUTHENTICATION
This is one of the Class R Certificates referred to in the
within-mentioned Agreement.
[NAME OF TRUSTEE],
as Trustee
By:______________________________________
Authorized Officer
<PAGE>
ASSIGNMENT
----------
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto
________________________________
________________________________
________________________________
Social Security or other identifying number of assignee:
(Please print or typewrite name and address including postal zip code of
assignee)
the Percentage Interest evidenced by the within Class R Mortgage Pass-Through
Certificate and hereby authorizes the registration of transfer of such interest
to the above-named assignee on the Certificate Register.
I (we) further direct the Trustee to issue a new Class R Certificate of
a like Percentage Interest to the above named assignee and deliver such
Certificate to the following address:
____________________________
____________________________
Dated:
_____________________________________
Signature by or on behalf of assignor
_____________________________________
Signature Guaranteed
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within instrument in every particular, without
alteration or enlargement or any change whatever, and must be guaranteed by a
commercial bank or trust company on the continental United States or by a firm
or corporation having membership in any national securities exchange or in the
National Association of Securities Dealers, Inc.
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for purposes of distribution:
Distributions shall be made, by wire transfer or otherwise, in
immediately available funds to _________________________________________________
for the account of _________________________________________ account number
________________________, or, if mailed by check, to __________________________.
Applicable statements should be mailed to _______________________. This
information is provided by _______________________________, the assignee named
above, or _____________________________, as its agent.
<PAGE>
EXHIBIT C
TRUSTEE INITIAL CERTIFICATION
_______ __, 199_
[Name of Master Servicer]
[Address of Master Servicer]
Option One Mortgage Acceptance Corporation
2020 East First Street, Suite 100
Santa Ana, California 92705
Re: Pooling and Servicing Agreement dated as of _____________ 1,
199_ among Option One Mortgage Acceptance Corporation,
[Name of Master Servicer] and [Name of Trustee], Mortgage Pass-
Through Certificates, Series 199_-____
---------------------------------------------------------------
Gentlemen:
In accordance with Section 2.02 of the above-captioned Pooling
and Servicing Agreement, the undersigned, as Trustee, hereby certifies that as
to each Mortgage Loan listed in the Mortgage Loan Schedule (other than any
Mortgage Loan paid in full or listed on the attachment hereto) it has reviewed
the Mortgage File and the Mortgage Loan Schedule and has determined that, except
as provided in Exhibit A hereto: (i) all documents required to be included in
the Mortgage File are in its possession; (ii) such documents have been reviewed
by it and appear regular on their face and relate to such Mortgage Loan; and
(iii) based on examination by it, and only as to such documents, the information
set forth in items (i) - (vi), (viii) and (x) - (xii) of the definition or
description of "Mortgage Loan Schedule" is correct.
The Trustee has made no independent examination of any
documents contained in each Mortgage File beyond the review specifically
required in the above-referenced Pooling and Servicing Agreement. The Trustee
makes no representation that any documents specified in clause (vi) of Section
2.01 should be included in any Mortgage File. The Trustee makes no
representations as to: (i) the validity, legality, sufficiency, enforceability
or genuineness of any of the documents contained in each Mortgage File of any of
the Mortgage Loans identified on the Mortgage Loan Schedule, (ii) the
collectability, insurability, effectiveness or suitability of any such Mortgage
Loan, or (iii) the existence of any assumption, modification, written assurance
or substitution agreement with respect to any Mortgage File if no such documents
appear in the Mortgage File delivered to the Trustee.
<PAGE>
-2-
Capitalized words and phrases used herein shall have the
respective meanings assigned to them in the above-captioned Pooling and
Servicing Agreement.
[NAME OF TRUSTEE]
By:___________________________________
Name:
Title:
<PAGE>
EXHIBIT D
FORM OF TRUSTEE FINAL CERTIFICATION
[date]
[Name of Master Servicer]
[Address of Master Servicer]
Option One Mortgage Acceptance Corporation
2020 East First Street, Suite 100
Santa Ana, California 92705
Re: Pooling and Servicing Agreement dated as of _____________ 1, 199_
among Option One Mortgage Acceptance Corporation, [Name of Master
Servicer] and [Name of Trustee], Mortgage Pass-Through Certificates,
Series 199_-____
--------------------------------------------------------------------
Gentlemen:
In accordance with Section 2.02 of the above-captioned Pooling
and Servicing Agreement, the undersigned, as Trustee, hereby certifies, except
as provided in Exhibit __ hereto, that as to each Mortgage Loan listed in the
Mortgage Loan Schedule (other than any Mortgage Loan paid in full or listed on
the attachment hereto) it has received the documents set forth in Section 2.01.
The Trustee has made no independent examination of any
documents contained in each Mortgage File beyond the review specifically
required in the above-referenced Pooling and Servicing Agreement. The Trustee
makes no representation that any documents specified in clause (vi) of Section
2.01 should be included in any Mortgage File. The Trustee makes no
representations as to: (i) the validity, legality, sufficiency, enforceability
or genuineness of any of the documents contained in each Mortgage File of any of
the Mortgage Loans identified on the Mortgage Loan Schedule, or (ii) the
collectability, insurability, effectiveness or suitability of any such Mortgage
Loan.
Capitalized words and phrases used herein shall have the
respective meanings assigned to them in the above-captioned Pooling and
Servicing Agreement.
[NAME OF TRUSTEE]
By:_____________________________
Name:___________________________
Title:__________________________
<PAGE>
EXHIBIT E
FORM OF REMITTANCE REPORT
<PAGE>
EXHIBIT F-1
REQUEST FOR RELEASE
(for Trustee)
LOAN INFORMATION
Name of Mortgagor: _____________________________
Master Servicer
Loan No.: _____________________________
TRUSTEE
Name: _____________________________
Address: _____________________________
_____________________________
Trustee
Mortgage File No.: _____________________________
REQUEST FOR REQUESTING DOCUMENTS (check one):
1. Mortgage Loan Liquidated.
(The Master Servicer hereby certifies that all proceeds
of foreclosure, insurance or other liquidation have been
finally received and deposited into the Custodial Account
to the extent required pursuant to the Pooling and
Servicing Agreement.)
2. Mortgage Loan in Foreclosure.
3. Mortgage Loan Repurchased Pursuant to Section 9.01 of the Pooling
and Servicing Agreement.
4. Mortgage Loan Repurchased Pursuant to Article II of the Pooling
and Servicing Agreement.
(The Master Servicer hereby certifies that the repurchase
price has been deposited into the Custodial Account
pursuant to the Pooling and Servicing Agreement.)
<PAGE>
-2-
5. Other (explain).
The undersigned Master Servicer hereby acknowledges that it has
received from [Name of Trustee], as Trustee for the Holders of Mortgage
Pass-Through Certificates, Series 199_-____, the documents referred to below
(the "Documents"). All capitalized terms not otherwise defined in this Request
for Release shall have the meanings given them in the Pooling and Servicing
Agreement dated as of _____________ 1, 199_, (the "Pooling and Servicing
Agreement") between the Trustee, Option One Mortgage Acceptance Corporation and
[Name of Master Servicer].
( ) Promissory Note dated _______________, 19__, in the original
principal sum of $__________, made by _____________________,
payable to, or endorsed to the order of, the Trustee.
( ) Mortgage recorded on _____________________ as instrument no.
____________________ in the County Recorder's Office of the County
of _________________, State of __________________ in
book/reel/docket _________________ of official records at
page/image _____________.
( ) Deed of Trust recorded on ___________________ as instrument no.
________________ in the County Recorder's Office of the County of
_________________, State of __________________ in book/reel/docket
_________________ of official records at page/image
______________.
( ) Assignment of Mortgage or Deed of Trust to the Trustee, recorded
on ___________________ as instrument no. _________ in the County
Recorder's Office of the County of __________, State of
_______________ in book/reel/docket ____________ of official
records at page/image ____________.
( ) Other documents, including any amendments, assignments or other
assumptions of the Mortgage Note or Mortgage.
( ) ---------------------------------------------
( ) ---------------------------------------------
( ) ---------------------------------------------
<PAGE>
-3-
( ) ---------------------------------------------
The undersigned Master Servicer hereby acknowledges and agrees as
follows:
(1) The Master Servicer shall hold and retain possession
of the Documents in trust for the benefit of the Trustee, solely
for the purposes provided in the Agreement.
(2) The Master Servicer shall not cause or knowingly
permit the Documents to become subject to, or encumbered by, any
claim, liens, security interest, charges, writs of attachment or
other impositions nor shall the Master Servicer assert or seek to
assert any claims or rights of setoff to or against the Documents
or any proceeds thereof.
(3) The Master Servicer shall return each and every
Document previously requested from the Mortgage File to the
Trustee when the need therefor no longer exists, unless the
Mortgage Loan relating to the Documents has been liquidated and
the proceeds thereof have been remitted to the Custodial Account
and except as expressly provided in the Agreement.
(4) The Documents and any proceeds thereof, including any
proceeds of proceeds, coming into the possession or control of the
Master Servicer shall at all times be earmarked for the account of
the Trustee, and the Master Servicer shall keep the Documents and
any proceeds separate and distinct from all other property in the
Master Servicer's possession, custody or control.
[NAME OF MASTER SERVICER]
By:
Its:
Date: _____________________, 19__
<PAGE>
EXHIBIT F-2
REQUEST FOR RELEASE
[Mortgage Loans Paid in Full]
OFFICER'S CERTIFICATE AND TRUST RECEIPT
MORTGAGE PASS-THROUGH CERTIFICATES
Series 199_-____
______________________________________ HEREBY CERTIFIES THAT HE/SHE IS AN
OFFICER OF THE MASTER SERVICER, HOLDING THE OFFICE SET FORTH BENEATH HIS/HER
SIGNATURE, AND HEREBY FURTHER CERTIFIES AS FOLLOWS:
WITH RESPECT TO THE MORTGAGE LOANS, AS THE TERM IS DEFINED IN THE
POOLING AND SERVICING AGREEMENT DESCRIBED IN THE ATTACHED
SCHEDULE:
ALL PAYMENTS OF PRINCIPAL, PREMIUM (IF ANY), AND INTEREST HAVE BEEN
MADE.
LOAN NUMBER: _______________ BORROWER'S NAME:_____________
COUNTY:_____________________
WE HEREBY CERTIFY THAT ALL AMOUNTS RECEIVED IN CONNECTION WITH SUCH PAYMENTS,
WHICH ARE REQUIRED TO BE DEPOSITED IN THE CUSTODIAL ACCOUNT PURSUANT TO SECTION
3.10 OF THE POOLING AND SERVICING AGREEMENT, HAVE BEEN OR WILL BE CREDITED.
___________ ______________________ DATED:______________
/ / VICE PRESIDENT
/ / ASSISTANT VICE PRESIDENT
<PAGE>
EXHIBIT G-1
TRANSFER AFFIDAVIT AND AGREEMENT
STATE OF )
: ss.:
COUNTY OF )
___________________, being first duly sworn, deposes,
represents and warrants:
1. That he is [Title of Officer] of [Name of Owner] (the
"Owner"), (record or beneficial owner of the Class R Certificates (the "Owner"),
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 and agreement. This Class R Certificate was issued pursuant to
the Pooling and Servicing Agreement (the "Pooling and Servicing Agreement")
dated as of _____________ 1, 199_ among Option One Mortgage Acceptance
Corporation, as depositor, [Name of Master Servicer], as master servicer (the
"Master Servicer"), and [Name of Trustee], as trustee (the "Trustee").
2. That the Owner (i) is and will be a "Permitted Transferee"
as of _______ __, 199_ and (ii) is acquiring the Class R Certificates for its
own account or for the account of another Owner from which it has received an
affidavit in substantially the same form as this affidavit. A "Permitted
Transferee" is any person other than a "disqualified organization" or a
Non-United States Person. For this purpose, a "disqualified organization" means
any of the following: (i) the United States, any State or political subdivision
thereof, any possession of the United States, or any agency or instrumentality
of any of the foregoing (other than an instrumentality which is a corporation if
all of its activities are subject to tax and, except for the FHLMC, a majority
of its board of directors is not selected by such governmental unit), (ii) a
foreign government, any international organization, or any agency or
instrumentality of any of the foregoing, (iii) any organization (other than
certain farmers' cooperatives described in Section 521 of the Internal Revenue
Code of 1986 (the "Code")) which is exempt from the tax imposed by Chapter 1 of
the Code (unless such organization is subject to the tax imposed by Section 511
of the Code on unrelated business taxable income), (iv) rural electric and
telephone cooperatives described in Section 1381(a)(2)(C) of the Code and (v)
any other Person so designated by the Trustee based upon an Opinion of Counsel
that the holding of an Ownership Interest in a Class R Certificate by such
Person may cause the Trust Fund or any Person having an Ownership Interest in
any Class of Certificates, other than such Person, to incur a liability for any
federal tax imposed under the Code that would not otherwise be imposed but for
the Transfer of an Ownership Interest in a Class R Certificate to such Person.
The terms "United States", "State" and "international organization" shall have
the meanings set forth in Section 7701 of the Code or successor provisions.
3. That the Owner is aware (i) of the tax that would be
imposed on transfers of the Class R Certificates to disqualified organizations
under the Code that applies to all
<PAGE>
-2-
transfers of the Class R Certificates after March 31, 1988; (ii) that such tax
would be on the transferor, or, if such transfer is through an agent (which
person includes a broker, nominee or middleman) for a disqualified organization
Transferee, on the agent; (iii) that the person otherwise liable for the tax
shall be relieved of liability for the tax if the transferee furnishes to such
person an affidavit that the transferee is not a disqualified organization and,
at the time of transfer, such person does not have actual knowledge that the
affidavit is false and; (iv) that the Residual Certificates may be "noneconomic
residual interests" within the meaning of Treasury regulation section
1.860E-1(c)(2) and that the transferor of a "noneconomic residual interest" will
remain liable for any taxes due with respect to the income on such residual
interest, unless no significant purpose of the transfer is to enable the
transferor to impede the assessment or collection of tax.
4. That the Owner is aware of the tax imposed on a
"pass-through entity" holding the Class R Certificates if at any time during the
taxable year of the pass-through entity a non-Permitted Transferee is the record
holder of an interest in such entity. For this purpose, a "pass through entity"
includes a regulated investment company, a real estate investment trust or
common trust fund, a partnership, trust or estate, and certain cooperatives.
5. That the Owner is aware that the Trustee will not register
the transfer of any Class R Certificates unless the transferee, or the
transferee's agent, delivers to the Trustee, among other things, an affidavit in
substantially the same form as this affidavit. The Owner expressly agrees that
it will not consummate any such transfer if it knows or believes that any of the
representations contained in such affidavit and agreement are false.
6. That the Owner consents to any additional restrictions or
arrangements that shall be deemed necessary upon advice of counsel to constitute
a reasonable arrangement to ensure that the Class R Certificates will only be
owned, directly or indirectly, by Owners that are Permitted Transferees.
7. That the Owner's taxpayer identification number is
__________.
8. That the Owner has reviewed the restrictions set forth on
the face of the Class R Certificates and the provisions of Section 5.02 of the
Pooling and Servicing Agreement under which the Class R Certificates were issued
(and, in particular, the Owner is aware that such Section authorizes the Trustee
to deliver payments to a person other than the Owner and negotiate a mandatory
sale by the Trustee in the event that the Owner holds such Certificate in
violation of Section 5.02); and that the Owner expressly agrees to be bound by
and to comply with such restrictions and provisions.
9. That the Owner is not acquiring and will not transfer the
Class R Certificates in order to impede the assessment or collection of any tax.
10. That the Owner anticipates that it will, so long as it
holds the Class R Certificates, have sufficient assets to pay any taxes owed by
the holder of such Class R Certificates.
<PAGE>
-3-
11. That the Owner has no present knowledge that it may become
insolvent or subject to a bankruptcy proceeding for so long as it holds the
Class R Certificates.
12. That the Owner has no present knowledge or expectation
that it will be unable to pay any United States taxes owed by it so long as any
of the Certificates remain outstanding. In this regard, the Owner hereby
represents to and for the benefit of the Person from whom it acquired the Class
R Certificates that the Owner intends to pay taxes associated with holding the
Class R Certificates as they become due, fully understanding that it may incur
tax liabilities in excess of any cash flows generated by the Class R
Certificates.
13. That the Owner is not acquiring the Class R Certificates
with the intent to transfer the Class R Certificates to any person or entity
that will not have sufficient assets to pay any taxes owed by the holder of such
Class R Certificates, or that may become insolvent or subject to a bankruptcy
proceeding, for so long as the Class R Certificates remain outstanding.
14. That Owner will, in connection with any transfer that it
makes of the Class R Certificates, obtain from its transferee the
representations required by Section 5.02(d) of the Pooling and Servicing
Agreement under which the Class R Certificates were issued and will not
consummate any such transfer if it knows, or knows facts that should lead it to
believe, that any such representations are false.
15. That Owner will, in connection with any transfer that it
makes of the Class R Certificates, deliver to the Trustee an affidavit, which
represents and warrants that it is not transferring the Class R Certificates to
impede the assessment or collection of any tax and that it has no actual
knowledge that the proposed transferee: (i) has insufficient assets to pay any
taxes owed by such transferee as holder of the Class R Certificates; (ii) may
become insolvent or subject to a bankruptcy proceeding, for so long as the Class
R Certificates remain outstanding and; (iii) is not a "Permitted Transferee".
16. That the Owner is a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in, or
under the laws of, the United States or any political subdivision thereof, or an
estate or trust whose income from sources without the United States is
includible 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.
17. The Purchaser is not any employee benefit plan subject to
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
the Internal Revenue Code of 1986, as amended, (the "Code"), nor a Person
acting, directly or indirectly, on behalf of any such plan or using the assets
of any such plan to effect the acquisition of the Class R Certificate (including
any insurance company using funds in its general or separate accounts that may
constitute "plan assets"), and understands that the registration of transfer of
any Certificate to any employee benefit plan, or to any person acting on behalf
of such plan or using the assets of any such plan, will not be made unless such
employee benefit plan delivers an opinion of its counsel, addressed and
satisfactory to the Trustee, the Company and the Master Servicer, to the
<PAGE>
-4-
effect that the purchase and holding of a Certificate by or on behalf of such
employee benefit plan would not result in the assets of the Trust Fund being
deemed to be "plan assets" and subject to the fiduciary responsibility provision
of ERISA or the prohibited transaction provisions of the Code (or comparable
provisions of subsequent enactments), would not constitute or result in a
prohibited transaction under section 406 of ERISA or section 4975 of the Code,
and would not subject the Company, the Master Servicer or the Trustee to any
obligation or liability (including liabilities under ERISA or Section 4975 of
the Code) in addition to those undertaken in the Pooling and Servicing Agreement
or any other liability. The Purchaser understands that under current law such an
opinion cannot be rendered. In the case of any transfer of the foregoing
Certificates to an insurance company, in lieu of such opinion of counsel, the
transferee may provide a certification substantially to the effect that all
funds used by such transferee to purchase such Certificates will be funds held
by it in its general account which it reasonably believes do not constitute
"plan assets" of any Plan.
<PAGE>
-5-
IN WITNESS WHEREOF, the Owner has caused this instrument to be
executed on its behalf, by its [TITLE OF OFFICER], attested by its [Assistant
Secretary], this ___ day of ____________, 199_.
[NAME OF OWNER]
By:________________________
Name: [NAME OF OFFICER]
Title: [TITLE OF OFFICER]
ATTEST:
____________________________________
[Assistant] Secretary
Personally appeared before me the above-named [NAME OF
OFFICER], known or proved to me to be the same person who executed the foregoing
instrument and to be a [TITLE OF OFFICER] of the Owner, and acknowledged to me
that he or she executed the same as his or her free act and deed and the free
act and deed of the Owner.
Subscribed and sworn before me this _____ day of _______,
199_.
--------------------------------------
NOTARY PUBLIC
COUNTY OF________
STATE OF_________
My Commission expires the _____ day of
__________________, 19__.
<PAGE>
EXHIBIT G-2
Form of Transferor Certificate
___________________, 19__
[Depositor]
[Name of Trustee]
[Address of Trustee]
Attention: Structured Finance Services (MBS)
Re: Mortgage Pass-Through Certificates, Series 199_-____, Class R
-------------------------------------------------------------
Dear Sirs:
This letter is delivered to you in connection with the sale by
___________________________ (the "Seller") to _____________________________ (the
"Purchaser") of $_____________ Initial Certificate Principal Balance of Mortgage
Pass-Through Certificates, Series 199_-____, Class R (the "Certificates"),
pursuant to Section 5.02 of the Pooling and Servicing Agreement (the "Pooling
and Servicing Agreement"), dated as of _____________ 1, 199_ among Option One
Mortgage Acceptance Corporation, as seller (the "Company"), [Name of Master
Servicer], as master servicer, and [Name of Trustee], as trustee (the
"Trustee"). All terms used herein and not otherwise defined shall have the
meaning set forth in the Pooling and Servicing Agreement. The Seller hereby
certifies, represents and warrants to, and covenants with, the Company and the
Trustee that:
1. No purpose of the Seller relating to the transfer of the
Certificates by the Seller to the Purchaser is or will be to impede the
assessment or collection of any tax.
2. The Seller understands that the Purchaser has delivered to
the Trustee and the Master Servicer a transfer affidavit and agreement in the
form attached to the Pooling and Servicing Agreement as Exhibit G-1. The Seller
does not know or believe that any representation contained therein is false.
3. The Seller has at the time of the transfer conducted a
reasonable investigation of the financial condition of the Purchaser as
contemplated by Treasury Regulations Section 1.860E-1(c)(4)(i) and, as a result
of that investigation, the Seller has determined that the Purchaser has
historically paid its debts as they become due and has found no significant
evidence to indicate that the Purchaser will not continue to pay its debts as
they become due in the future. The Seller understands that the transfer of the
Certificates may not be respected for United States income tax purposes (and the
Seller may continue to be liable for United States income taxes associated
therewith) unless the Seller has conducted such an investigation.
<PAGE>
-2-
4. The Seller has no actual knowledge that the proposed
Transferee is a Disqualified Organization, an agent of a Disqualified
Organization or a Non-United States Person.
Very truly yours,
__________________________________
(Seller)
By:______________________________________
Name:____________________________________
Title:___________________________________
<PAGE>
-3-
EXHIBIT G-5
FORM OF INVESTOR REPRESENTATION LETTER
[for Insurance Companies]
_____________, 199_
[Depositor]
[Name of Trustee]
[Address of Trustee]
Attention: Corporate Trust
Re: Mortgage Pass-Through Certificate
Series 199_-____, Class
---------------------------------
Dear Sirs:
___________ (the "Purchaser") intends to purchase from
__________ (the "Seller") $__________ Initial Certificate Principal Balance of
Mortgage Pass-Through Certificates, Series 199_-____, Class __ (the
"Certificate"), issued pursuant to the Pooling and Servicing Agreement (the
"Pooling and Servicing Agreement"), dated as _____________ 1, 199_ among Option
One Mortgage Acceptance Corporation, as seller (the "Company"), [Name of Master
Servicer], as master servicer, and [Name of Trustee], as trustee (the
"Trustee"). All terms used herein and not otherwise defined shall have the
meanings set forth in the Pooling and Servicing Agreement. The Purchaser hereby
certifies, represents and warrants to, and covenants with, the Company and the
Trustee that:
1. The certificates purchased pursuant hereto will
not be transferred to any employee benefit plan or other
retirement arrangement including individual retirement
accounts and Keogh plans that is subject to Section 406 of the
Employee Retirement Income Security Act of 1974, as amended
("ERISA") or Section 4975 of the Code (any of the foregoing, a
"Plan").
<PAGE>
-4-
2. The Purchaser is an insurance company and all
funds used by the Purchaser in connection with the purchase of
such certificates are and will be, funds held by the Purchaser
in its general account which the Purchaser reasonably believes
do not constitute "plan assets" as defined under Section 406
of ERISA or Section 4975 of the Code of any Plan.
Very truly yours,
-------------------------------------
By:__________________________________
Name:________________________________
Title:_______________________________
<PAGE>
EXHIBIT H
MORTGAGE LOAN SCHEDULE
<PAGE>
EXHIBIT I
SELLER'S WARRANTY CERTIFICATE
-----------------------------
This Seller's Warranty Certificate, dated _____________ __, 199_, is
executed and delivered by [Name of Seller], a California corporation (the
"Seller").
PRELIMINARY STATEMENT
The Seller and Option One Mortgage Corporation ("OOMC") are parties to
the Standard Terms and Conditions of Agreement Effective _________ __, 199_ and
the Standard Terms and Conditions of Agreement Effective ________ _, ____ (each
a "Standard Terms Agreement") and to various Mortgage Loan Purchase Agreements
entered into thereunder.
All of the Mortgage Loans have been previously sold by the Seller to
OOMC in accordance with the related Standard Terms Agreement and the related
Mortgage Loan Purchase Agreements.
OOMC has notified the Seller that OOMC intends to assign the Mortgage
Loans to Option One Mortgage Acceptance Corporation (the "Depositor"), and that
the Depositor intends to deposit the Mortgage Loans into a trust fund (the
"Trust Fund") evidenced by Mortgage PassThrough Certificates, Series 199_-____
(the "Certificates"). The Certificates will be issued pursuant to a Pooling and
Servicing Agreement (the "Pooling and Servicing Agreement") among the Depositor,
[Name of Trustee] as trustee (in such capacity, the "Trustee"), and [Name of
Master Servicer], as master servicer (the "Master Servicer"), dated as of
____________ 1, 199_ (the "Cut-off Date"). The Certificates are described more
fully in the related Prospectus Supplement (the "Prospectus Supplement") dated
__________ __, 199_, to the prospectus (the "Prospectus") dated _____________
__, 199_. Capitalized terms used but not defined herein shall have the
respective meanings assigned in the related Standard Terms Agreements and the
Pooling and Servicing Agreement, as applicable.
Pursuant to the terms of the Pooling and Servicing Agreement, the
Depositor shall assign to the Trustee all of its right, title and interest in
and to the Mortgage Loans, and other rights and obligations under this Agreement
(except with respect to its rights to either indemnification or notice) and the
Trustee shall succeed to such right, title and interest and rights and
obligations hereunder of the Depositor.
Pursuant to the foregoing, the Seller hereby certifies to the
following:
SECTION 1. DELIVERY OF MORTGAGE FILES. On or before the date hereof
(the "REMIC Closing Date"), the Seller shall have delivered the documents or
instruments specified below with respect to each Mortgage Loan (each a "Mortgage
File") to [Name of Trustee] (acting in such capacity, the "Custodian"), pursuant
to the [Tri-Party Custody Agreement] dated ________ ______ __, 199_, as amended
(the "Custody Agreement") and the Custodial Agreement, dated ____________ 1,
199_, in each case among OOMC, the Seller and the Custodian.
<PAGE>
-2-
Each Mortgage File contains the following documents:
(a) the original mortgage note, naming the Seller as the
holder/payee thereof (or, if the Seller is not the original
holder/payee thereof, bearing all endorsements necessary to evidence a
complete and unbroken chain of endorsements from the original
holder/payee to the Seller) and endorsed by the Seller "Pay to the
order of [Name of Trustee], as trustee for holders of Option One
Mortgage Acceptance Corporation, Mortgage Pass-Through Certificates,
without recourse";
(b) the original mortgage or deed of trust ("Mortgage"),
naming the Seller as the "mortgagee" or "beneficiary" thereof (or, if
the Seller is not the original mortgagee/beneficiary thereof, such
Mortgage together with all assignments necessary to evidence the
complete and unbroken chain of intervening assignments from the
original mortgagee/beneficiary to the Seller), and bearing evidence
that such instrument has been recorded in the appropriate jurisdiction
where the underlying property securing the Mortgage Loan (the
"Mortgaged Property") is located (or, in lieu of the original of the
recorded Mortgage, a duplicate or conformed copy of the Mortgage,
together with a certificate of an officer of the Seller certifying that
such copy represents a true and correct copy of the original and that
such original has been submitted to the title insurance company for
recordation in the appropriate governmental recording office of the
jurisdiction where the Mortgaged Property is located, or a certificate
of receipt from the recording office, certifying that such copy
represents a true and correct copy of the original and that such
original has been submitted for recordation in the appropriate
governmental recording office of the jurisdiction where the Mortgaged
Property is located);
(c) an original assignment of the Mortgage executed by the
Seller, without recourse, to "[Name of Trustee], as trustee for holders
of Option One Mortgage Acceptance Corporation, Mortgage Pass-Through
Certificates, without recourse, with evidence of recording thereon, and
the original of any intervening assignment of the Mortgage, including
any warehousing assignment, necessary to evidence a complete and
unbroken chain of assignments from the original mortgagee/beneficiary
to the Seller and bearing evidence that each such instrument has been
recorded in the appropriate jurisdiction where the Mortgaged Property
is located (or, in lieu of any such original recorded assignment of
Mortgage or any such original recorded intervening assignment of
Mortgage, a duplicate or conformed copy of such assignment of Mortgage,
together with a certificate of an officer of the Seller or the
Originator certifying that such copy represents a true and correct copy
of the original and that such original has been submitted to the title
insurance company for recordation in the appropriate governmental
recording office of the jurisdiction where the Mortgaged Property is
located, or a certificate of receipt from the recording office,
certifying that such copy represents a true and correct copy of the
original and that such original has been submitted for recordation in
the appropriate governmental recording office of the jurisdiction where
the Mortgaged Property is located);
<PAGE>
-3-
(d) the original lender's title insurance policy, or, if such
policy has not been issued, any one of an original or a copy of the
preliminary title report, title binder or title commitment on the
Mortgaged Property with the original policy of the insurance to be
delivered promptly following the receipt thereof;
(e) the original of any assumption, modification, extension or
guaranty agreement;
(f) the original or a copy of the private mortgage insurance
policy or original certificate of private mortgage insurance, if
applicable;
(g) if the mortgage note, the Mortgage, any assignment of
Mortgage or any other related document has been signed by a person on
behalf of the mortgagor, the original power of attorney or other
instrument that authorized and empowered such person to sign, or a
duplicate or conformed copy of the power of attorney or other
instrument, together with a certification of an officer of the Seller
or of the applicable title insurance company or escrow company
certifying that such copy represents a true and correct copy of the
original; and
(h) The original or a copy of the Certificate of Pool
Insurance issued by GEMICO, UGI or PMI, if applicable.
Within five days of the receipt by the Seller of the Assignment of
Mortgage with evidence of recordation thereon, or a copy thereof certified by
the applicable recording office, but in no event later than 120 days after the
REMIC Closing Date, the Seller shall deliver such Assignment of Mortgage to the
Trustee.
In the event that the recorded Assignment of Mortgage, or a certified
copy thereof, is not delivered to the Trustee within 120 days of the REMIC
Closing Date, the Seller shall be obligated to repurchase or substitute the
related Mortgage Loan as provided in Section 3. The Seller will also pay the
fees of the Trustee incurred in connection with the removal and replacement of
each Assignment of Mortgage delivered for recording, as well as the fees of the
Trustee incurred in connection with the addition of any title insurance policy
or recorded Mortgage to the related Mortgage File.
Within five days of the Seller's receipt thereof, but in no event later
than 120 days after the REMIC Closing Date, the Seller shall deliver to the
Trustee: (i) the original recorded Mortgage in those instances where an original
was not delivered to the Custodian on or prior to the applicable Purchase Date;
(ii) the original policy of title insurance or a true and correct copy thereof
in those instances where a marked up commitment (binder) to issue such policy or
preliminary policy was delivered to the Custodian; and (iii) any other original
documents constituting a part of a Mortgage File received with respect to any
Mortgage Loan, including, but not limited to, any original documents evidencing
the assumption or modification of any Mortgage Loan.
<PAGE>
-4-
Subject to the next succeeding sentence, in the event that the Seller
is not able to deliver with respect to a given Mortgage Loan the documents
referred to in the above paragraph within 120 days of the REMIC Closing Date,
such Mortgage Loan shall be repurchased by the Seller in the manner provided in
Section 3. With respect to any Mortgage Loan, in the event that the Seller is
unable to deliver the original recorded Mortgage, the original recorded
Assignment of Mortgage, any recorded intervening assignments of the Mortgage or
any assumption or modification agreement or the original policy of title
insurance, duplicate policy or a true and correct copy thereof within the
applicable time period and such failure of timely delivery (i) is solely the
result of a delay caused by the recording office, in the case of the Mortgage,
the Assignment of Mortgage, any intervening assignments of Mortgage or any
assumption and modification agreements, or (ii) is solely the result of acts or
omissions on the part of the applicable title insurance company, in the case of
the title insurance policy, then the Seller shall be afforded additional time to
deliver such document or documents; provided that such document or documents
shall be delivered within the time period required by the applicable Pooling and
Servicing Agreement.
The Seller shall deliver to the Master Servicer or its designee all
original documents relating to the Mortgage Loans that are not delivered to the
Depositor or the Trustee, other than original documents required to be held by
the Seller pursuant to applicable mortgage lending laws, rules and regulations
of the jurisdiction in which the Mortgaged Property is located (in lieu of which
the Seller shall deliver photocopies). In the event that any original document
held by the Seller is required pursuant to the terms of this Section to be a
part of a Mortgage File, such document shall be delivered promptly to the
Trustee.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller
hereby represents and warrants to and for the benefit of the Depositor and its
affiliates and the Trustee that as of the REMIC Closing Date (or such other date
specifically provided herein):
(i) no written information, certificate of an officer,
statement furnished in writing or written report delivered to OOMC, any
affiliate of OOMC, the Master Servicer or the Trustee and prepared by
the Seller will contain any untrue statement of a material fact or omit
to state a material fact necessary to make the information,
certificate, statement or report not misleading;
(ii) each of the representations and warranties
contained in Exhibits 2-A and 2-B hereto is true and correct. With
respect to such representations and warranties which are made to the
best of the Seller's knowledge, if the Seller discovers or receives
written notice, which may come from the Purchaser, the Servicer, the
Custodian or any Interested Party, that the substance of such
representation and warranty is inaccurate and such inaccuracy
materially and adversely affects the interest of the Purchaser or any
Interested Person in the related Mortgage Loan, notwithstanding the
Seller's lack of knowledge with respect to the substance of such
representation of warranty, such inaccuracy shall be deemed a breach
thereof;
<PAGE>
-5-
(iii) as of the date of the Prospectus Supplement and as
of the REMIC Closing Date, the Seller's Information will be true and
accurate and will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
in which they are made, not misleading. For purposes hereof and of each
of the related Standard Terms Agreements, the "Seller's Information"
shall include all information included in the Prospectus Supplement
under the headings "Summary of Prospectus Supplement--The Mortgage
Pool" and "Description of the Mortgage Pool", or elsewhere in the
Prospectus Supplement with respect to the matters discussed under such
captions, to the extent based upon any information provided by or
approved by the Seller including the information in the Mortgage Loan
Schedules attached hereto as Exhibits 1 and the Seller's
representations and warranties relating to the Mortgage Loans attached
hereto as Exhibits.
SECTION 3. CURE, REPURCHASE, AND INDEMNITY OBLIGATIONS OF THE SELLER.
Each of the representations and warranties contained in or required to be made
pursuant to Section 2 shall survive the transfer of the Mortgage Loans to the
Trustee and shall continue in full force and effect, notwithstanding any
restrictive or qualified endorsement on the mortgage notes and notwithstanding
subsequent termination of the related Standard Terms Agreement, this Certificate
or the Pooling and Servicing Agreement. The representations, warranties and
covenants contained herein shall not be impaired by any review or examination of
the Mortgage Files or other documents evidencing or relating to the Mortgage
Loans by the Depositor, its affiliates or agents or any failure on the part of
the Depositor, its affiliates or agents to review or examine such documents, and
shall inure to the benefit of any transferee of the Mortgage Loans from the
Depositor including, without limitation, the Trustee for the benefit of holders
of the Certificates.
Within 90 days of the earlier of discovery by the Seller or receipt of
notice of a breach of any of the representations and warranties of the Seller
set forth in or required to be made pursuant to Section 2 which materially and
adversely affects the interests of the Depositor or the Certificateholders or
any other transferee in any Mortgage Loan, the Seller shall, not later than 90
days after its receipt of notice of such defect, (i) cure such breach in all
material respects, or (ii) repurchase the related Mortgage Loan if such defect
cannot be corrected or cured at a price equal to the sum of (a) 100% of the
outstanding principal balance thereof, (b) unpaid accrued interest thereon from
the due date to which interest was last paid by the mortgagor to the first day
of the month following the month of repurchase at a rate equal to the related
mortgage rate, (c) all amounts advanced by the Master Servicer on the Mortgage
Loan and not reimbursed, and (d) all expenses reasonably incurred or to be
incurred by the Depositor, the Master Servicer or the Trustee in respect of the
breach or defect giving rise to the repurchase obligation, including any
expenses in connection with servicing a Mortgage Loan that has gone into default
and which subsequently is determined to be eligible for repurchase or arising
out of the enforcement of the repurchase obligation (the "Repurchase Price"), or
(iii) substitute a Qualified Substitute Mortgage Loan in place of such Deleted
Mortgage Loan in accordance with Section 2.04 of the Pooling and Servicing
Agreement.
<PAGE>
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Upon discovery of any defective document in a Mortgage File relating to
a Mortgage Loan which materially and adversely affects the interests of the
Depositor or the Certificateholders or any other transferee in any Mortgage
Loan, the Trustee shall notify the Seller of such defect and request that the
Seller cure such defect within 60 days from the date the Seller was notified of
such defect. In the event that any such defect cannot be corrected or cured
within such 90-day period, the Seller shall (i) repurchase the related Mortgage
Loan at the Repurchase Price or (ii) substitute a Qualified Substitute Mortgage
Loan for the related Deleted Mortgage Loan as provided for in accordance with
Section 2.04 of the Pooling and Servicing Agreement.
If the first scheduled Monthly Payment with respect to a Mortgage Loan
is not made within 30 days of the due date in accordance with the terms of the
related Mortgage Note, such Mortgage Loan will be substituted or repurchased by
the Seller in the manner provided in this Section 3.
<PAGE>
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SECTION 4. PURCHASE OF CERTAIN CONVERTIBLE MORTGAGE LOANS FROM TRUSTEE.
Upon notification that the related Mortgagor intends to exercise the option to
convert a Convertible Mortgage Loan to a fixed interest rate Mortgage Loan the
Seller shall promptly, and in no event after the day on which such Convertible
Mortgage Loan converts to a fixed interest rate, purchase such Convertible
Mortgage Loan from the Trust Fund by depositing into the Custodial Account the
Purchase Price.
IN WITNESS WHEREOF, the Seller has caused this Certificate to be signed
by its duly authorized officer as of the date first above written.
[NAME OF MASTER SERVICER]
By:______________________________
Name:
Title:
<PAGE>
EXHIBIT 1
MORTGAGE LOAN SCHEDULE
<PAGE>
EXHIBIT 2
GROUP I MORTGAGE LOANS
(ADJUSTABLE RATE MORTGAGE LOANS)
SELLER'S REPRESENTATIONS AND WARRANTIES
The Seller hereby represents and warrants to and for the benefit of the
Depositor and the Trustee, as to each Mortgage Loan, that as of the Closing Date
or as of such other date specifically provided herein:
[Sample representations and warranties:]
(i) The information set forth on the Mortgage Loan Schedule
with respect to each Mortgage Loan is true and correct in all material
respects as of the REMIC Closing Date;
(ii) No more than _____% of the Mortgage Loans, based on the
Cut-off Date Principal Balance, are located in any one zip code area;
(iii) No more than _____% of the Mortgaged Properties, based
on the Cutoff Date Pool Principal Balance, were located in the State of
California;
(iv) No more than _____% of the Mortgage Loans, based on the
Cut-off Date Pool Principal Balance, were secured by condominium units;
no more than _____% of the Mortgage Loans, based on the Cut-off Date
Pool Principal Balance, were secured by properties in planned unit
developments;
(v) At least _____% of the Mortgage Loans, based on the
Cut-off Date Pool Principal Balance, were secured by a first lien on a
parcel of real property improved by a single family residence; and no
more than _____% of the Mortgage Loans, based on the Cut-off Date Pool
Principal Balance, were secured by a first lien on a parcel of real
estate improved by a two-to four-unit single family residence;
(vi) No Mortgage Loan at origination had a principal balance
less than $________; no more than _____% of the Mortgage Loans, based
on the Cut-off Date Pool Principal Balance, had original principal
balances in excess of $_________; the average Cut-off Date Principal
Balance of Mortgage Loans in the Mortgage Pool was
$---------;
(vii) At least _____% of the Mortgage Loans, by Cut-off Date
Pool Principal Balance, were secured by owner-occupied primary
residences; less than __% of the Mortgage Loans, by Cut-off Date Pool
Principal Balance, were secured by second homes or vacation homes of
the related Mortgagors; and no more than _____% of the Mortgage Loans,
by Cut-off Date Principal Balance, were secured by investor-owned
properties;
<PAGE>
(viii) Each Mortgage Loan in the Mortgage Pool will have a
first payment due date on or after ____________ 1, 199_;
(ix) Each Mortgage Loan will have been originated on or before
_________ ______, 199_.
(x) The Mortgage Interest Rates borne by the Mortgage Loans in
the Mortgage Pool as of the Cut-off Date range from _____% per annum to
______% per annum and the weighted average Mortgage Interest Rate,
based on the Cut-off Date Pool Principal Balance, was _____% per annum;
(xi) Approximately _____% of the Mortgage Loans, based on the
Cut-off Date Pool Principal Balance, were rate and term refinance
Mortgage Loans; approximately _____% of the Mortgage Loans, based on
the Cut-off Date Pool Principal Balance, were "cash-out refi's" (as
defined in the Seller's Underwriting Guide); and approximately _____%
of the Mortgage Loans, based on the Cut-off Date Pool Principal
Balance, were made in order to purchase the related Mortgaged
Properties;
(xii) No Mortgage Loan in the Mortgage Pool shall have had an
LTV at origination in excess of _____% or a CLTV in excess of _____%;
the weighted average LTV, based on the Cut-off Date Pool Principal
Balance, was equal to or less than _____%; no more than _____% of the
Mortgage Loans, based on the Cut-off Date Pool Principal Balance, shall
have an LTV in excess of 80% and each such Mortgage Loan is subject to
a policy of primary mortgage insurance, issued by ___________ insuring
the excess balance above 75% until such balance is reduced to 80% of
the Appraised Value;
(xiii) No more than _____% of the Mortgage Loans, based on the
Cut-off Date Pool Principal Balance, have financing on the related
Mortgaged Property subordinate to the lien of such Mortgage Loan;
(xiv) The gross margins on the Mortgage Loans range from
_____% to _____%. The weighted average gross margin on the Mortgage
Loans is _____%.
(xv) There is no delinquent tax or assessment lien against any
Mortgaged Property;
(xvi) There is no valid offset, defense or counterclaim to any
Mortgage Note or Mortgage, including the obligation of the Mortgagor to
pay the unpaid principal of or interest on such Mortgage Note, and any
applicable right of rescission has expired;
(xvii) There are no mechanics' liens or claims for work, labor
or material affecting any Mortgaged Property which are or may be a lien
prior to, or equal with, the lien of such Mortgage, except those which
are insured against by the title insurance policy referred to in (vii)
below;
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<PAGE>
(xviii) To the best of the Seller's knowledge each Mortgaged
Property is free of material damage and is in good repair;
(xix) Each Mortgage is a valid and enforceable first lien on
the Mortgaged Property subject only to (1) the lien of nondelinquent
current real property taxes and assessments, (2) covenants, conditions
and restrictions, rights of way, easements and other matters of public
record as of the date of recording of such Mortgage, such exceptions
appearing of record being acceptable to mortgage lending institutions
generally or specifically reflected in the appraisal made in connection
with the origination of the related Mortgage Loan, and (3) other
matters to which like properties are commonly subject that do not
materially interfere with the benefits of the security intended to be
provided by such Mortgage;
(xx) Each Mortgage Loan at origination complied in all
material respects with applicable state and federal laws, including,
without limitation, usury, equal credit opportunity, real estate
settlement procedures, truth-in-lending and disclosure laws and
consummation of the transactions contemplated hereby, including without
limitation, the receipt of interest by the owner of such Mortgage Loan
or the holders of Certificates evidencing an interest therein, will not
involve the violation of any such laws.
(xxi) Neither the Seller nor any prior holder of any Mortgage
has modified the Mortgage in any material respect (except that a
Mortgage Loan may have been modified by a written instrument which has
been recorded, if necessary to protect the interests of the owner of
such Mortgage Loan or the holders of Certificates evidencing an
interest therein and which has been delivered to the Trustee);
satisfied, canceled or subordinated such Mortgage in whole or in part;
released the applicable Mortgaged Property in whole or in part from the
lien of such Mortgage; or executed any instrument of release,
cancellation or satisfaction with respect thereto;
(xxii) A lender's policy of title insurance insuring the first
lien priority of the Mortgage Loan, together with a condominium
endorsement and extended coverage endorsement, if applicable, and an
8.1 ALTA environmental endorsement or equivalent endorsement in an
amount at least equal to the original principal balance of each such
Mortgage Loan, or a commitment binder, commitment to issue the same or
preliminary policy affirmatively insuring ingress and egress and
insuring against encroachments by or upon the Mortgaged Property on the
standard ALTA form, was effective on the date of the origination of
each Mortgage Loan, each such policy is valid and remains in full force
and effect, and each such policy was issued by a title insurer
qualified to do business in the jurisdiction where the Mortgaged
Property is located and acceptable to FNMA or FHLMC and in a form
acceptable to FNMA or FHLMC, which policy insures the Seller and
successor owners of indebtedness secured by the insured Mortgage, as to
the first priority lien of the Mortgage; to the best of the Seller's
knowledge, no claims have been made under such mortgage title insurance
policy and no prior holder of the applicable Mortgage, including the
Seller, has done, by act or omission, anything which would impair the
coverage of such mortgage title insurance policy;
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<PAGE>
(xxiii) Each Mortgage Loan was originated or funded by (a) a
savings and loan association, savings bank, commercial bank, credit
union, insurance company or similar institution which is supervised and
examined by a federal or state authority (or originated by (i) a
subsidiary of any of the foregoing institutions which subsidiary is
actually supervised and examined by applicable regulatory authorities
or (ii) a mortgage loan correspondent of any of the foregoing and that
was originated pursuant to the criteria established by any of the
foregoing) or (b) a mortgagee approved by the Secretary of Housing and
Urban Development pursuant to sections 203 and 211 of the National
Housing Act, as amended;
(xxiv) With respect to each Mortgage Loan, the applicable
Mortgage Note provides for an adjustable rate of interest, is payable
on the first day of each month in self-amortizing monthly installments
of principal and interest, with interest payable in arrears, and
requires a payment which is sufficient to fully amortize the
outstanding principal balance of the Mortgage Loan over its remaining
term and to pay interest at the applicable Mortgage Interest Rate. No
Mortgage Loan is subject to negative amortization or has a maximum
original term of more than 30 years;
(xxv) All of the improvements which were included for the
purpose of determining the Appraised Value of the Mortgaged Property
lie wholly within the boundaries and building restriction lines of such
property, and no improvements on adjoining properties encroach upon the
Mortgaged Property;
(xxvi) No improvement located on or being part of the
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 the Mortgaged
Property and, with respect to the use and occupancy and fire
underwriting certificates, have been made or obtained from the
appropriate authorities and the Mortgaged Property is lawfully occupied
under applicable law;
(xxvii) All parties that have had any interest in the
Mortgage, whether as Mortgagee, assignee, pledgee or otherwise, are
(or, during the period in which they held and disposed of such
interest, were) (1) in compliance with any and all applicable licensing
requirements of the laws of the state wherein the Mortgaged Property is
located, and (2)(A) organized under the laws of such state, or (B)
qualified to do business in such state, or (C) federal savings and loan
associations or national banks having principal offices in such state,
or (D) not doing business in such state;
(xxviii) Each Mortgage Note and the applicable Mortgage are
genuine, and each is the legal, valid and binding obligation of the
maker thereof, enforceable in accordance with its terms, except as
limited by bankruptcy, insolvency, moratorium, receivership and other
similar laws relating to creditors' rights generally or by equitable
principles. All parties to the Mortgage Note and the Mortgage had legal
capacity to execute the Mortgage Note and the Mortgage and each
Mortgage Note and Mortgage has been duly and properly executed by such
parties.
-4-
<PAGE>
(xxix) The proceeds of the Mortgage Loans have been fully
disbursed, there is no requirement for future advances thereunder and
any and all requirements as to completion of any on-site or off-site
improvements and as to disbursement of any escrow funds therefor have
been complied with. All costs, fees and expenses incurred in making,
closing or recording the Mortgage Loans were paid;
(xxx) Each Mortgage contains customary and enforceable
provisions that render the rights and remedies of the holder thereof
adequate for the realization against the Mortgaged Property of the
benefits of the security, including (i) in the case of a Mortgage
designated as a deed of trust, by trustee's sale, and (ii) otherwise by
judicial foreclosure. There is no homestead or other exemption
available to the Mortgagor which would interfere with the right to sell
the Mortgaged Property at a trustee's sale or the right to foreclose
the Mortgage;
(xxxi) 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 Certificateholders to the trustee under the deed of trust, except
in connection with a trustee's sale after default by the Mortgagor;
(xxxii) Each Mortgage Note and each Mortgage is in
substantially one of the forms approved by FNMA and FHLMC.
(xxxiii) Each Mortgaged Property is suitable for year-round
occupancy;
(xxxiv) There exist no deficiencies with respect to escrow
deposits and payments, if such are required, for which customary
arrangements for repayment thereof have not been made, and no escrow
deficits or payments of other charges or payments due the Seller have
been capitalized under the Mortgage or the applicable Mortgage Note;
(xxxv) The origination, underwriting and collection practices
used by the Seller or any originator with respect to each Mortgage Loan
have been in all respects legal, proper, prudent and customary in the
mortgage servicing business;
(xxxvi) There is no pledged account or other security other
than real estate securing the Mortgagor's obligations;
(xxxvii) No Mortgage Loan has a shared appreciation feature,
or other contingent interest feature;
(xxxviii) With respect to each Mortgage Loan secured by a
leasehold estate:
(1) The leasehold created by direct lease of
the freehold estate, the ground lease or
memorandum thereof has been recorded, and by its
terms permits the leasehold estate to be
mortgaged. The ground lease grants any leasehold
mortgagee standard protections necessary
-5-
<PAGE>
to protect the security of a leasehold mortgagee
including the right of the leasehold mortgagee to
receive notice of the lessee's default under the
ground lease; the right of the leasehold
mortgagee, with adequate time, to cure such
default; and, in the case of incurable defaults
of the lessee, the right of the leasehold
mortgagee to enter into a new ground lease with
the lessor on terms financially identical and
otherwise substantially identical to the existing
ground lease;
(2) The ground lease was at the origination
of the Mortgage Loan, and is, in full force and
effect without any outstanding defaults, and was
and is not subject to liens and encumbrances;
(3) The ground lease has an original term
which extends not less than ten (10) years beyond
the term of the Mortgage; and
(4) The fee estate of the lessor under the
ground lease is encumbered by the ground lease,
and any lien of any present or future fee
mortgagee is and will be subject to and
subordinate to the ground lease. The foreclosure
of the fee mortgage will not terminate the
leasehold estate or the rights of the
sub-tenants, and the fee mortgage is subject to
the ground lease;
(xxxix) Each Mortgage Loan contains a customary "due on sale"
clause;
(xl) No Mortgage Loan provides for a prepayment penalty;
(xli) The improvements upon each Mortgaged Property are
covered by a valid and existing hazard insurance policy with a
generally acceptable carrier which policy provides for fire extended
coverage and such other hazards as are customary in the area where the
Mortgaged Property is located representing coverage not less than the
minimum amount required to compensate for damage or loss on a
replacement cost basis. All individual insurance policies contain a
standard mortgagee clause naming the Seller or the original holder of
the Mortgage, and its successors in interest, as mortgagee, and the
Seller has received no notice that any premiums due and payable thereon
have not been paid; the Mortgage obligates the Mortgagor thereunder to
maintain all such insurance at the Mortgagor's cost and expense, and
upon the Mortgagor's failure to do so, authorizes the holder of the
Mortgage to obtain and maintain such insurance at the Mortgagor's cost
and expense and to seek reimbursement therefor from the Mortgagor;
(xlii) If the 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 Mortgage Loan, (B) the minimum amount required to
compensate for damage or loss on a replacement cost basis or (C) the
-6-
<PAGE>
maximum amount of insurance that is available under the Flood Disaster
Protection Act of 1973;
(xliii) There is no proceeding pending or, to the best of the
Seller's knowledge, threatened for the total or partial condemnation
for any Mortgaged Property, nor is such a proceeding currently
occurring, and such property is undamaged by waste, fire, earthquake or
earth movement;
(xliv) There is no default, breach, violation or event of
acceleration existing under the Mortgage or the applicable Mortgage
Note; and the Seller has not waived by default, breach, violation or
event of acceleration;
(xlv) The Mortgaged Properties do not include cooperatives or
mobile homes and do not constitute other than real property under state
law;
(xlvi) Prior to its respective Closing Date, each Mortgage
Loan is being serviced by the Seller;
(xlvii) There is no obligation on the part of the Seller or
any other party to make any payments in addition to the Monthly
Payments required to be made by the applicable Mortgagor;
(xlviii) Any future advances made prior to the applicable
Cut-off Date with respect to any Mortgage Loan have been consolidated
with the outstanding principal amount secured by such Mortgage, and the
secured principal amount, as consolidated, bears a single interest rate
and single repayment term reflected on the Mortgage Loan Schedule. The
consolidated principal amount does not exceed the original principal
amount of the Mortgage Loan. The Mortgage Note with respect to any
Mortgage Loan does not permit or obligate the Servicer to make future
advances to the Mortgagor at the option of the Mortgagor;
(xlix) The Seller has caused or will cause to be performed any
and all acts required to preserve the rights and remedies of the
Purchaser and any Interested Person evidencing an interest in the
Mortgage Loans in any insurance policies applicable to the Mortgage
Loans including, without limitation, any necessary notifications of
insurers, assignments of policies or interests therein, and
establishments of coinsured, joint loss payee and mortgagee rights in
favor of the Purchaser;
(l) There are no defaults in complying with the terms of any
Mortgage, and 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, if required
by the terms of the Mortgage Loan, 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 due and
payable. Except for (A) payments in the nature of escrow payments, and
(B) interest accruing from the date of the Mortgage Note or date of
disbursement of the Mortgage proceeds, whichever is greater to the day
which precedes by one month the Due Date of the first installment of
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<PAGE>
principal and interest, including, without limitation, taxes and
insurance payments, the Servicer has not advanced funds, or induced,
solicited or knowingly received any advance of funds by a party other
than the Mortgagor, directly or indirectly, for the payment of any
amount required by the Mortgage;
(li) The Mortgage File contains an appraisal of the applicable
Mortgaged Property signed prior to the approval of the Mortgage Loan by
a qualified appraiser, duly appointed by the originator or the mortgage
loan broker, as the case may be, who had no interest, direct or
indirect, in the Mortgaged Property or in any loan made on the security
thereof, and whose compensation is not affected by the approval or
disapproval of the Mortgage Loan; the appraisal is in a form acceptable
to FNMA and FHLMC and meets the requirements of the Office of Thrift
Supervision or its predecessor as they existed at the time of
origination;
(lii) None of the Mortgage Loans are graduated payment
mortgage loans or growth equity mortgage loans;
(liii) In selecting the Mortgage Loans for sale pursuant
hereto, no selection procedure was employed by the Seller which was
intended to adversely affect the interest of the Purchaser;
(liv) (a) None of the Mortgage Loans shall be 30 days or more
past due as of the applicable Closing Date and (b) no Mortgage Loan
shall have been contractually delinquent for more than one monthly
installment period during the twelve months preceding the applicable
Cut-off Date;
(lv) To the Seller's best knowledge, no material
misrepresentation, fraud or similar occurrence with respect to a
Mortgage Loan has taken place on the part of any person involved in the
origination of the Mortgage Loan or in the application of any insurance
in relation to such Mortgage Loan;
(lvi) Upon payment of the purchase price for the Mortgage Loan
by the Purchaser, the Seller has transferred to the Purchaser good and
marketable title to each Mortgage Note and Mortgage free and clear of
any and all liens, claims, encumbrances, participation interests,
equities, pledges, charges or security interests of any nature and has
full right and authority, subject to no participation of or agreement
with any other person, to sell and assign the same;
(lvii) The Seller acquired any right, title and interest in
and to the Mortgage Loans in good faith and without notice of any
adverse claim;
(lviii) The Seller has not assigned any interest or
participation in any Mortgage Loan (or, if, any interest or
participation has been assigned, it has been released); (lix) The
Seller knows of nothing involving any Mortgage File, Mortgaged Property
or Mortgagor's credit standing that could reasonably be expected (1) to
cause private institutional investors seeking to invest in mortgage
loans originated in accordance
-8-
<PAGE>
with underwriting criteria established by the Guide to regard the
Mortgage Loan as an unacceptable investment, (2) to cause the Mortgage
Loan to become delinquent or (3) to affect adversely the value of
marketability of the Mortgage Loan;
(lx) The representations and warranties of the Mortgagor in
the mortgage loan application and in connection with the Mortgage Loan
are true and correct in all material respects (and it shall be deemed
that a breach is material only if the Mortgage Loan would not have been
made if the Mortgagor had not provided true and correct information);
and
(lxi) Interest on each Mortgage Loan is calculated on the
basis of a 360-day year consisting of twelve 30-day months.
-9-
<PAGE>
EXHIBIT J
Notice Under Section 3.24
___________________, 199_
[Name of Trustee]
[Address of Trustee]
Attention: ____________________________
Re: Mortgage Pass-Through Certificates, Series 199_-____
----------------------------------------------------
Pursuant to Section 3.24 of the Pooling and Servicing Agreement, dated
as of _____________ 1, 199_, relating to the Certificates* referenced above, the
undersigned does hereby notify you that:
(a) The prepayment assumption used in pricing the Certificates was ___%
CPR or ___% SPA, as applicable.
(b) With respect to each Class of the captioned Certificates, set forth
below is (i), the first price, as a percentage of the Certificate Principal
Balance of each Class of Certificates, at which 10% of the aggregate Certificate
Principal Balance of each such Class of Certificates was first sold at a single
price, if applicable, or (ii) if more than 10% of a Class of Certificates have
been sold but no single price is paid for at least 10% of the aggregate
Certificate Principal Balance of such Class of Certificates, then the weighted
average price at which the Certificates of such Class were sold expressed as a
percentage of the Certificate Principal Balance of such Class of Certificates,
(iii) if less than 10% of the aggregate Certificate Principal Balance of a Class
of Certificates has been sold, the purchase price for each such Class of
Certificates paid by ________________ (the "Underwriter") expressed as a
percentage of the Certificate Principal Balance of such Class of Certificates
calculated by: (1) estimating the fair market value of each such Class of
Certificates as of _______ __, 199_; (2) adding such estimated fair market value
to the aggregate purchase prices of each Class of Certificates described in
clause (i) or (ii) above; (3) dividing each of the fair market values determined
in clause (1) by the sum obtained in clause (2); (4) multiplying the quotient
obtained for each Class of Certificates in clause (3) by the purchase price paid
by the Underwriter for all the Certificates purchased by it; and (5) for each
Class of Certificates, dividing the product obtained from such Class of
Certificates in clause (4) by the initial Principal Balance of such Class of
Certificates or (iv) the fair market
- --------
* Defined terms used herein and not otherwise defined herein have the
meaning assigned in the Pooling and Servicing Agreement.
-1-
<PAGE>
value (but not less than zero) as of the Closing Date of each Certificate of
each Class of Certificates retained by the Depositor or an affiliate
corporation, or delivered to the Seller:
Class A-1: ____________________
Class A-2: ____________________
Class A-3: ____________________
Class A-4: ____________________
Class A-5: ____________________
Class A-6: ____________________
Class A-7: ____________________
Class B: ____________________
[*less than 10% has been sold to the public]
The prices and values set forth above do not include accrued interest
with respect to periods before the closing.
OPTION ONE MORTGAGE ACCEPTANCE
CORPORATION
By:___________________________________
Name:
Title:
-2-
Exhibit 4.2
-----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OPTION ONE MORTGAGE ACCEPTANCE CORPORATION
Company,
[NAME OF MASTER SERVICER]
Master Servicer,
and
[NAME OF TRUSTEE],
Trustee
POOLING AND SERVICING AGREEMENT
Dated as of ____________ 1, 199_
Mortgage Pass-Through Certificates
Series 199_-____
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PAGE
ARTICLE I
DEFINITIONS
<S> <C>
SECTION 1.01. Defined Terms
Accrued Certificate Interest........................................................................... 2
Adjustment Date........................................................................................ 2
Advance .......................................................................................... 2
Agreement .......................................................................................... 2
Anniversary .......................................................................................... 2
Assignment .......................................................................................... 2
Assignment Agreement................................................................................... 3
Available Distribution Amount.......................................................................... 3
Bankruptcy Code........................................................................................ 3
Bankruptcy Loss........................................................................................ 3
Business Day .......................................................................................... 3
Cash Liquidation....................................................................................... 3
Certificate .......................................................................................... 3
Certificate Account.................................................................................... 4
Certificate Account Deposit Date....................................................................... 4
Certificateholder" or "Holder.......................................................................... 4
Certificate Owner...................................................................................... 4
Certificate Principal Balance.......................................................................... 4
Certificate Register................................................................................... 4
Closing Date .......................................................................................... 4
Code .......................................................................................... 4
Collateral Value....................................................................................... 4
Company .......................................................................................... 4
Converted Mortgage Loan................................................................................ 5
Convertible Mortgage Loan.............................................................................. 5
Converting Mortgage Loan............................................................................... 5
Corporate Trust Office................................................................................. 5
Custodial Account...................................................................................... 5
Cut-off Date .......................................................................................... 5
Debt Service Reduction................................................................................. 5
Deficient Valuation.................................................................................... 5
Definitive Certificate................................................................................. 5
Deleted Mortgage Loan.................................................................................. 5
Determination Date..................................................................................... 5
Distribution Date...................................................................................... 6
Due Date .......................................................................................... 6
Due Period .......................................................................................... 6
Duff & Phelps.......................................................................................... 6
<PAGE>
PAGE
Eligible Account....................................................................................... 6
Event of Default....................................................................................... 6
Excess Bankruptcy Loss................................................................................. 6
Excess Fraud Loss...................................................................................... 6
Excess Special Hazard Loss............................................................................. 6
Extraordinary Events................................................................................... 7
Extraordinary Losses................................................................................... 7
FDIC .......................................................................................... 7
FHLMC .......................................................................................... 7
FNMA .......................................................................................... 7
Fraud Losses .......................................................................................... 7
Fraud Loss Amount...................................................................................... 8
Funding Date .......................................................................................... 8
Gross Margin .......................................................................................... 8
Index .......................................................................................... 8
Initial Certificate Principal Balance.................................................................. 8
Insurance Policy....................................................................................... 9
Insurance Proceeds..................................................................................... 9
Late Collections....................................................................................... 9
Letter of Credit....................................................................................... 9
Letter of Credit Issuer................................................................................ 9
Loan-to-Value Ratio.................................................................................... 9
Master Servicer........................................................................................ 9
Maximum Interest Rate.................................................................................. 9
Minimum Interest Rate.................................................................................. 9
Monthly Payment........................................................................................ 10
Moody's .......................................................................................... 10
Mortgage .......................................................................................... 10
Mortgage File.......................................................................................... 10
Mortgage Loan.......................................................................................... 10
Mortgage Loan Schedule................................................................................. 10
Mortgage Note.......................................................................................... 11
Mortgage Rate.......................................................................................... 11
Mortgaged Property..................................................................................... 11
Mortgagor .......................................................................................... 11
Net Mortgage Rate...................................................................................... 12
Nonrecoverable Advance................................................................................. 12
Officers' Certificate.................................................................................. 12
Opinion of Counsel..................................................................................... 12
OTS .......................................................................................... 12
Outstanding Mortgage Loan.............................................................................. 12
Ownership Interest..................................................................................... 12
Pass-Through Rate...................................................................................... 12
Percentage Interest.................................................................................... 13
Periodic Cap .......................................................................................... 13
ii
<PAGE>
PAGE
Permitted Instruments.................................................................................. 13
Person .......................................................................................... 14
Prepayment Assumption.................................................................................. 14
Prepayment Period...................................................................................... 14
Primary Hazard Insurance Policy........................................................................ 14
Primary Mortgage Insurance Policy...................................................................... 14
Principal Prepayment................................................................................... 14
Purchase Price......................................................................................... 15
Qualified Insurer...................................................................................... 15
Qualified Substitute Mortgage Loan..................................................................... 15
Rating Agency.......................................................................................... 16
Realized Loss.......................................................................................... 16
Record Date .......................................................................................... 16
Relief Act .......................................................................................... 16
Relief Act Interest Shortfall.......................................................................... 16
Remittance Report...................................................................................... 16
REO Acquisition........................................................................................ 16
REO Disposition........................................................................................ 16
REO Imputed Interest................................................................................... 17
REO Proceeds .......................................................................................... 17
REO Property .......................................................................................... 17
Request for Release.................................................................................... 17
Required Insurance Policy.............................................................................. 17
Responsible Officer.................................................................................... 17
Seller .......................................................................................... 17
Seller's Warranty Certificate.......................................................................... 17
Servicing Account...................................................................................... 17
Servicing Advances..................................................................................... 17
Servicing Fee.......................................................................................... 18
Servicing Fee Rate..................................................................................... 18
Servicing Officer...................................................................................... 18
Single Certificate..................................................................................... 18
Special Hazard Amount.................................................................................. 18
Special Hazard Percentage.............................................................................. 18
Standard & Poor's...................................................................................... 18
Startup Day .......................................................................................... 19
Stated Principal Balance............................................................................... 19
Sub-Servicer .......................................................................................... 19
Sub-Servicer Remittance Date........................................................................... 19
Sub-Servicing Account.................................................................................. 19
Sub-Servicing Agreement................................................................................ 19
Tax Returns .......................................................................................... 19
Transfer .......................................................................................... 19
Transferor .......................................................................................... 19
Trust Fund .......................................................................................... 19
iii
<PAGE>
PAGE
Trustee .......................................................................................... 20
Trustee's Fee.......................................................................................... 20
Uninsured Cause........................................................................................ 20
Voting Rights.......................................................................................... 20
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
2.01. Conveyance of Mortgage Loans.............................................................. 21
2.02. Acceptance of the Trust Fund by the Trustee............................................... 23
2.03. Representations, Warranties and Covenants of the Master Servicer and
the Company............................................................................... 25
2.04. Representations and Warranties of the Seller; Repurchase and
Substitution.............................................................................. 27
2.05. Issuance of Certificates Evidencing Interests in the Trust Fund........................... 29
ARTICLE III
ADMINISTRATION AND SERVICING
OF THE TRUST FUND
3.01. Master Servicer to Act as Master Servicer................................................. 30
3.02. Sub-Servicing Agreements Between Master Servicer and Sub-
Servicers................................................................................. 31
3.03. Successor Sub-Servicers................................................................... 31
3.04. Liability of the Master Servicer.......................................................... 32
3.05. No Contractual Relationship Between Sub-Servicers and Trustee or
Certificateholders........................................................................ 32
3.06. Assumption or Termination of Sub-Servicing Agreements by Trustee.......................... 32
3.07. Collection of Certain Mortgage Loan Payments.............................................. 33
3.08. Sub-Servicing Accounts.................................................................... 33
3.09. Collection of Taxes, Assessments and Similar Items; Servicing
Accounts.................................................................................. 34
3.10. Custodial Account......................................................................... 34
3.11. Permitted Withdrawals From the Custodial Account.......................................... 35
3.12. Permitted Instruments..................................................................... 36
3.13. Maintenance of the Letter of Credit, Primary Mortgage Insurance and
Primary Hazard Insurance.................................................................. 37
3.14. Enforcement of Due-on-Sale Clauses; Assumption Agreements................................. 39
3.15. Realization Upon Defaulted Mortgage Loans................................................. 40
3.16. Trustee to Cooperate; Release of Mortgage Files........................................... 41
3.17. Servicing Compensation.................................................................... 42
3.18. Maintenance of Certain Servicing Policies................................................. 43
iv
<PAGE>
PAGE
3.19. Annual Statement as to Compliance......................................................... 43
3.20. Annual Independent Public Accountants' Servicing Statement................................ 43
3.21. Access to Certain Documentation........................................................... 44
3.22. Title, Conservation and Disposition of REO Property....................................... 44
3.23. Additional Obligations of the Master Servicer............................................. 46
3.24. Additional Obligations of the Company..................................................... 46
3.25. Converted Mortgage Loans; Purchase Obligations Upon Conversion;
Administration by the Trustee............................................................. 47
ARTICLE IV
PAYMENTS TO CERTIFICATEHOLDERS
4.01. Certificate Account; Distributions........................................................ 48
4.02. Statements to Certificateholders.......................................................... 49
4.03. Remittance Reports; Advances by the Master Servicer....................................... 51
4.04. Allocation of Realized Losses............................................................. 52
4.05. Information Reports to be Filed by the Master Servicer.................................... 53
4.06. The Letter of Credit...................................................................... 53
4.07. Compliance with Withholding Requirements.................................................. 55
ARTICLE V
THE CERTIFICATES
5.01 The Certificates.......................................................................... 56
5.02. Registration of Transfer and Exchange of Certificates..................................... 56
5.03. Mutilated, Destroyed, Lost or Stolen Certificates......................................... 57
5.04. Persons Deemed Owners..................................................................... 57
ARTICLE VI
THE COMPANY AND THE MASTER SERVICER
6.01. Liability of the Company and the Master Servicer.......................................... 58
6.02. Merger, Consolidation or Conversion of the Company or the Master
Servicer.................................................................................. 58
6.03. Limitation on Liability of the Company, the Master Servicer and
Others.................................................................................... 58
6.04. Limitation on Resignation of the Master Servicer.......................................... 59
ARTICLE VII
DEFAULT
v
<PAGE>
PAGE
7.01. Events of Default......................................................................... 60
7.02. Trustee to Act; Appointment of Successor.................................................. 62
7.03. Notification to Certificateholders........................................................ 62
7.04. Waiver of Events of Default............................................................... 63
ARTICLE VIII
CONCERNING THE TRUSTEE
8.01. Duties of Trustee......................................................................... 64
8.02. Certain Matters Affecting the Trustee..................................................... 65
8.03. Trustee Not Liable for Certificates or Mortgage Loans..................................... 66
8.04. Trustee May Own Certificates.............................................................. 66
8.05. Payment of Trustee's Fees................................................................. 66
8.06. Eligibility Requirements for Trustee...................................................... 67
8.07. Resignation and Removal of the Trustee.................................................... 67
8.08. Successor Trustee......................................................................... 68
8.09. Merger or Consolidation of Trustee........................................................ 68
8.10. Appointment of Co-Trustee or Separate Trustee............................................. 69
8.11. Information Reports and Tax Returns....................................................... 70
ARTICLE IX
TERMINATION
9.01. Termination Upon Repurchase or Liquidation of All Mortgage
Loans..................................................................................... 71
9.02. Additional Termination Requirements....................................................... 72
ARTICLE X
MISCELLANEOUS PROVISIONS
10.01. Amendment................................................................................. 74
10.02. Recordation of Agreement; Counterparts.................................................... 75
10.03. Limitation on Rights of Certificateholders................................................ 75
10.04. Governing Law............................................................................. 76
10.05. Notices................................................................................... 76
10.06. Severability of Provisions................................................................ 77
10.07. Successors and Assigns; Third Party Beneficiary........................................... 77
10.08. Article and Section Headings.............................................................. 77
10.09. Notice to Rating Agencies and Certificateholder........................................... 77
vi
<PAGE>
Signatures
Acknowledgments
Exhibit A Form of A Certificate
Exhibit B Form of Irrevocable Letter of Credit
Exhibit C Form of Trustee Initial Certification
Exhibit D Form of Trustee Final Certification
Exhibit E Form of Remittance Report
Exhibit F-1 Request for Release
Exhibit F-2 Request for Release for Mortgage Loans Paid in Full
Exhibit G-1 Form of Investor Representation Letter
Exhibit G-2 Form of Transferor Representation Letter
Exhibit G-3 Form of Investor Representation Letter for Insurance Companies
Exhibit H Mortgage Loan Schedule
Exhibit I Seller's Warranty Certificate
Exhibit J Form of Notice Under Section 3.24
vii
</TABLE>
<PAGE>
This Pooling and Servicing Agreement, effective as of
__________ 1, 199_, among OPTION ONE MORTGAGE ACCEPTANCE CORPORATION, as the
company (together with its permitted successors and assigns, the "Company"),
[NAME OF MASTER SERVICER], as master servicer (together with its permitted
successors and assigns, the "Master Servicer"), and [NAME OF TRUSTEE], as
trustee (together with its permitted successors and assigns, the "Trustee"),
PRELIMINARY STATEMENT:
The Company intends to sell mortgage pass-through certificates
(the "Certificates"), which will evidence the entire beneficial ownership
interest in the Mortgage Loans (as defined herein). The Mortgage Loans have an
aggregate Stated Principal Balance as of the Cut-off Date equal to
$______________. The Mortgage Loans are adjustable rate mortgage loans having
terms to maturity at origination or modification of not more than 30 years.
In consideration of the mutual agreements herein contained,
the Company, the Master Servicer and the Trustee agree as follows:
1
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms.
Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the meanings
specified in this Article.
"Accrued Certificate Interest": With respect to each
Distribution Date, one month's interest accrued at the then applicable
Pass-Through Rate on the Certificate Principal Balance of the Certificates
immediately prior to such Distribution Date. Accrued Certificate Interest will
be calculated on the basis of a 360-day year consisting of twelve 30-day months.
In each case Accrued Certificate Interest on the Certificates will be reduced by
the amount of (i) Prepayment Interest Shortfalls, if any, which are not covered
by payments by the Master Servicer pursuant to Section 3.23 with respect to such
Distribution Date, (ii) the interest portion (adjusted to the related Net
Mortgage Rate) of any of Realized Losses (including Excess Special Hazard
Losses, Excess Fraud Losses, Excess Bankruptcy Losses and Extraordinary Losses)
not covered by draws on the Letter of Credit pursuant to Section 4.04, (iii) the
interest portion of Advances previously made with respect to a Mortgage Loan or
REO Property which remained unreimbursed following the Cash Liquidation or REO
Disposition of such Mortgage Loan or REO Property that was made with respect to
delinquencies that were ultimately determined to be Excess Special Hazard
Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses,
and (iv) any other interest shortfalls, including interest that is not
collectible from the Mortgagor pursuant to the Relief Act or similar legislation
or regulations as in effect from time to time; with all such reductions
allocated to the Certificates, in proportion to their respective amounts of
Accrued Certificate Interest which would have resulted absent such reductions.
"Adjustment Date": With respect to each Mortgage Loan, the
date set forth in the related Mortgage Note on which the Mortgage Rate may
change and each semi-annual anniversary of such date. The first Adjustment Date
as to each Mortgage Loan is set forth in the Mortgage Loan Schedule.
"Advance": As to any Mortgage Loan, any advance made by the
Master Servicer on any Distribution Date pursuant to Section 4.03.
"Agreement": This Pooling and Servicing Agreement and all
amendments hereof.
"Anniversary": Each anniversary of ___________ 1, 19__.
"Assignment": An assignment of Mortgage, notice of transfer or
equivalent instrument, in recordable form, which is sufficient under the laws of
the jurisdiction wherein the related Mortgaged Property is located to reflect of
record the sale of the Mortgage, which assignment, notice of transfer or
equivalent instrument may be in the form of one or more blanket assignments
covering Mortgages secured by Mortgaged Properties located in the same county,
if permitted by law.
2
<PAGE>
"Assignment Agreement": The Assignment and Assumption
Agreement, dated as of ____________, 199_, between and the Company relating to
the transfer and assignment of the Mortgage Loans.
"Available Distribution Amount": With respect to each
Distribution Date, the Available Distribution Amount will be an amount equal to
(a) the sum of (i) the balance on deposit in the Custodial Account as of the
close of business on the related Determination Date and (ii) the aggregate
amount of any Advances made, all required amounts pursuant to Section 3.22 and
all amounts required to be paid by the Master Servicer pursuant to Sections 3.13
and 3.23 by deposits into the Certificate Account on the immediately preceding
Certificate Account Deposit Date, reduced by (b) the sum, as of the close of
business on the related Determination Date of (i) Monthly Payments collected but
due during a Due Period subsequent to the Due Period ending on the first day of
the month of the related Distribution Date, (ii) all interest or other income
earned on deposits in the Custodial Account, (iii) any other amounts
reimbursable or payable to the Master Servicer or any other Person pursuant to
Section 3.11, (iv) Insurance Proceeds, Liquidation Proceeds, Principal
Prepayments, REO Proceeds and the proceeds of Mortgage Loan purchases (or
amounts received in connection with substitutions) made pursuant to Section
2.02, 2.04 and 3.25, in each case received or made in the month of such
Distribution Date and (v) the Trustee's Fee.
"Bankruptcy Amount": As of any date of determination, an
amount, equal to the excess, if any, of (A) $______, over (B) the aggregate
amount of draws made under the Letter of Credit with respect to Bankruptcy
Losses since the Cut-off Date up to such date of determination in accordance
with Section 4.04.
The Bankruptcy Amount may be further reduced by the Master
Servicer (including accelerating the manner in which such coverage is reduced)
provided that prior to any such reduction, the Master Servicer shall (i) obtain
written confirmation from each Rating Agency that such reduction shall not
reduce the rating assigned to the Certificates by such Rating Agency below the
lower of the then-current rating or the rating assigned to such Certificates as
of the Closing Date by such Rating Agency and (ii) provide a copy of such
written confirmation to the Trustee.
"Bankruptcy Code": The United States Bankruptcy Code of 1978,
as amended.
"Bankruptcy Loss": With respect to any Mortgage Loan, a
Deficient Valuation or Debt Service Reduction; provided, however, that a
Deficient Valuation or a Debt Service Reduction shall not be deemed a Bankruptcy
Loss hereunder so long as the Master Servicer has notified the Trustee in
writing that the Master Servicer is diligently pursuing any remedies that may
exist in connection with the related Mortgage Loan and either (A) the related
Mortgage Loan is not in default with regard to payments due thereunder or (B)
delinquent payments of principal and interest under the related Mortgage Loan
and any related escrow payments in respect of such Mortgage Loan are being
advanced on a current basis by the Master Servicer, in either case without
giving effect to any Deficient Valuation or Debt Service Reduction.
"Business Day": Any day other than (i) a Saturday or a Sunday
or (ii) a day on which banking institutions in the State of __________ or the
State of ________ (and such other
3
<PAGE>
state or states in which the Custodial Account, the Certificate Account or the
office of the Letter of Credit Issuer at which draws under the Letter of Credit
are to be made is at the time located) are required or authorized by law or
executive order to be closed.
"Cash Liquidation": As to any defaulted Mortgage Loan other
than a Mortgage Loan as to which an REO Acquisition occurred, the final receipt
by or on behalf of the Master Servicer of all Insurance Proceeds, Liquidation
Proceeds and other payments or cash recoveries which the Master Servicer
reasonably and in good faith expects to be finally recoverable with respect to
such Mortgage Loan.
"Certificate": Any one of the Certificates, executed by the
Trustee and authenticated by the Certificate Registrar substantially in the form
annexed hereto as Exhibit A.
"Certificate Account": The account or accounts created and
maintained pursuant to Section 4.01, which shall be entitled
"________________________________, as trustee, in trust for the registered
holders of Option One Mortgage Acceptance Corporation, Mortgage PassThrough
Certificates, Series 199_-___" and which must be an Eligible Account.
"Certificate Account Deposit Date": The 20th day (or if such
20th day is not a Business Day, the Business Day immediately preceding such 20th
day) of the month.
"Certificateholder" or "Holder": The Person in whose name a
Certificate is registered in the Certificate Register, except that any
Certificate registered in the name of the Company or the Master Servicer or any
affiliate thereof shall be deemed not to be outstanding and the Voting Rights to
which it is entitled shall not be taken into account in determining whether the
requisite percentage of Voting Rights necessary to effect any such consent has
been obtained, except as otherwise provided in Section 10.01. The Trustee shall
be entitled to rely upon a certification of the Company or the Master Servicer
in determining if any Certificates are registered in the name of a respective
affiliate.
"Certificate Owner": With respect to a Book-Entry Certificate,
the Person who is the beneficial owner of such Certificate, as reflected on the
books of an indirect participating brokerage firm for which a Company
Participant acts as agent, if any, and otherwise on the books of a Company
Participant, if any, and otherwise on the books of the Company.
"Certificate Principal Balance": With respect to each
Certificate, on any date of determination, an amount equal to (i) the Initial
Certificate Principal Balance of such Certificate as specified on the face
thereof, minus (ii) the sum of (x) the aggregate of all amounts previously
distributed with respect to such Certificate (or any predecessor Certificate)
and applied to reduce the Certificate Principal Balance thereof pursuant to
Section 4.02(b) and (y) the aggregate of all reductions in Certificate Principal
Balance deemed to have occurred in connection with Realized Losses which were
previously allocated to such Certificate (or any predecessor Certificate)
pursuant to Section 4.04.
"Certificate Register": The register maintained pursuant to
Section 5.02.
"Closing Date": _______ __, 19__.
4
<PAGE>
"Code": The Internal Revenue Code of 1986.
"Collateral Value": The appraised value of a Mortgaged
Property based upon the lesser of (i) the appraisal made at the time of the
origination of the related Mortgage Loan, or (ii) the sales price of such
Mortgaged Property at such time of origination. With respect to a Mortgage Loan
the proceeds of which were used to refinance an existing mortgage loan, the
appraised value of the Mortgaged Property based upon the appraisal (as reviewed
and approved by the Seller) obtained at the time of refinancing.
"Company": Option One Mortgage Acceptance Corporation, or its
successor in interest.
"Converted Mortgage Loan": Any Convertible Mortgage Loan with
respect to which the interest rate borne by such Mortgage Loan has been
converted from an adjustable interest rate to a fixed interest rate.
"Convertible Mortgage Loan": Any Mortgage Loan which by its
terms grants to the related Mortgagor the option to convert the interest rate
borne by such Mortgage Loan from an adjustable interest rate to a fixed interest
rate.
"Converting Mortgage Loan": Any Convertible Mortgage Loan with
respect to which the related Mortgagor has given notice of his intent to convert
from an adjustable interest rate to a fixed interest rate and prior to the
conversion of such Mortgage Loan.
"Corporate Trust Office": The principal office of the Trustee
at which at any particular time its corporate trust business with respect to
this Agreement shall be administered, which office at the date of the execution
of this instrument is located at __________________
_______________________________________________, Attention:
_______________________ Series 199_-__.
"Custodial Account": The custodial account or accounts created
and maintained pursuant to Section 3.10 in a depository institution, as
custodian for the holders of the Certificates, for the holders of certain other
interests in mortgage loans serviced or sold by the Master Servicer and for the
Master Servicer, into which the amounts set forth in Section 3.10 shall be
deposited directly. Any such account or accounts shall be an Eligible Account.
"Cut-off Date": __________ 1, 199_.
"Debt Service Reduction": With respect to any Mortgage Loan, a
reduction in the scheduled Monthly Payment for such Mortgage Loan by a court of
competent jurisdiction in a proceeding under the Bankruptcy Code, except such a
reduction constituting a Deficient Valuation or any reduction that results in a
permanent forgiveness of principal.
"Deficient Valuation": With respect to any Mortgage Loan, a
valuation by a court of competent jurisdiction of the Mortgaged Property in an
amount less than the then outstanding
5
<PAGE>
indebtedness under the Mortgage Loan, which valuation results from a proceeding
initiated by the Mortgagor under the Bankruptcy Code.
"Definitive Certificate": Any definitive, fully registered
Certificate.
"Deleted Mortgage Loan": A Mortgage Loan replaced or to be
replaced with a Qualified Substitute Mortgage Loan.
"Determination Date": The 15th day (or if such 15th day is not
a Business Day, the Business Day immediately preceding such 15th day) of the
month of the related Distribution Date.
"Distribution Date": The 25th day of any month, or if such
25th day is not a Business Day, the Business Day immediately following such 25th
day commencing on ________ 25, 19__.
"Due Date": The first day of the month of the related
Distribution Date.
"Due Period": With respect to any Distribution Date, the
period commencing on the second day of the month preceding the month of such
Distribution Date (or, with respect to the first Due Period, the day following
the Cut-off Date) and ending on the related Due Date.
["Duff & Phelps": Duff & Phelps Credit Rating Company or its
successor in interest.]
"Eligible Account": An account maintained with a federal or
state chartered depository institution (i) the short-term obligations of which
are rated by each of the Rating Agencies in its highest rating at the time of
any deposit therein, or (ii) insured by the FDIC (to the limits established by
such Corporation), the uninsured deposits in which account are otherwise secured
such that, as evidenced by an Opinion of Counsel (obtained by and at the expense
of the Person requesting that the account be held pursuant to this clause (ii))
delivered to the Trustee prior to the establishment of such account, the
Certificateholders will have a claim with respect to the funds in such account
and a perfected first priority security interest against any collateral (which
shall be limited to Permitted Instruments, each of which shall mature not later
than the Business Day immediately preceding the Distribution Date next following
the date of investment in such collateral or the Distribution Date if such
Permitted Instrument is an obligation of the institution that maintains the
Certificate Account or Custodial Account) securing such funds that is superior
to claims of any other depositors or general creditors of the depository
institution with which such account is maintained or (iii) a trust account or
accounts maintained with a federal or state chartered depository institution or
trust company with trust powers acting in its fiduciary capacity or (iv) an
account or accounts of a depository institution acceptable to the Rating
Agencies (as evidenced in writing by the Rating Agencies that use of any such
account as the Custodial Account or the Certificate Account will not have an
adverse effect on the then-current ratings assigned to the Certificates).
Eligible Accounts may bear interest.
"Event of Default": One or more of the events described in
Section 7.01.
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"Excess Bankruptcy Loss": Any Bankruptcy Loss, or portion
thereof, which exceeds the then applicable Bankruptcy Amount.
"Excess Fraud Loss": Any Fraud Loss, or portion thereof, which
exceeds the then applicable Fraud Loss Amount.
"Excess Special Hazard Loss": Any Special Hazard Loss, or
portion thereof, that exceeds the then applicable Special Hazard Amount.
"Extraordinary Events": Any of the following conditions with
respect to a Mortgaged Property or Mortgage Loan causing or resulting in a loss
which causes the liquidation of such Mortgage Loan:
(a) losses that are of a type that would be covered by the
fidelity bond and the errors and omissions insurance policy required to
be maintained pursuant to Section 3.18 but are in excess of the
coverage maintained thereunder;
(b) nuclear reaction or nuclear radiation or radioactive
contamination, all whether controlled or uncontrolled, and whether such
loss be direct or indirect, proximate or remote or be in whole or in
part caused by, contributed to or aggravated by a peril covered by the
definition of the term "Special Hazard Loss";
(c) hostile or warlike action in time of peace or war,
including action in hindering, combatting or defending against an
actual, impending or expected attack:
1. by any government or sovereign power, de jure or
de facto, or by any authority maintaining or using military,
naval or air forces; or
2. by military, naval or air forces; or
3. by an agent of any such government, power,
authority or forces;
(d) any weapon of war employing atomic fission or radioactive
force whether in time of peace or war; or
(e) insurrection, rebellion, revolution, civil war, usurped
power or action taken by governmental authority in hindering,
combatting or defending against such an occurrence, seizure or
destruction under quarantine or customs regulations, confiscation by
order of any government or public authority; or risks of contraband or
illegal transportation or trade.
"Extraordinary Losses": Any loss incurred on a Mortgage Loan
caused by or resulting from an Extraordinary Event.
"FDIC": Federal Deposit Insurance Corporation or any
successor.
"FHLMC": Federal Home Loan Mortgage Corporation or any
successor.
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["Fitch": Fitch Investors Service, Inc., or its successor in
interest.]
"FNMA": Federal National Mortgage Association or any
successor.
"Fraud Losses": Any Realized Loss sustained by reason of a
default arising from fraud, dishonesty or misrepresentation in connection with
the related Mortgage Loan.
"Fraud Loss Amount": As of any date of determination after the
Cut-off Date, an amount equal to: (X) up to and including the [first]
anniversary of the Cut-off Date an amount equal to ____% of the aggregate
outstanding principal balance of all of the Mortgage Loans as of the Cut-off
Date minus the aggregate amount of draws made under the Letter of Credit with
respect to Fraud Losses since the Cut-off Date up to such date of determination,
(Y) from the [first] to the fifth anniversary of the Cut-off Date, an amount
equal to (1) the lesser of (a) the Fraud Loss Amount as of the most recent
anniversary of the Cut-off Date and (b) ____% of the aggregate outstanding
principal balance of all of the Mortgage Loans as of the most recent anniversary
of the Cut-off Date minus (2) the aggregate amount of draws made under the
Letter of Credit with respect to Fraud Losses since the most recent anniversary
of the Cut-off Date up to such date of determination. On and after the fifth
anniversary of the Cut-off Date the Fraud Loss Amount shall be zero.
The Fraud Loss Amount may be further reduced by the Master
Servicer (including accelerating the manner in which such coverage is reduced)
provided that prior to any such reduction, the Master Servicer shall (i) obtain
written confirmation from each Rating Agency that such reduction shall not
reduce the rating assigned to the Certificates by such Rating Agency below the
lower of the then-current rating or the rating assigned to such Certificates as
of the Closing Date by such Rating Agency and (ii) provide a copy of such
written confirmation to the Trustee.
"Funding Date": With respect to each Mortgage Loan, the date
on which funds were advanced by or on behalf of the Seller and interest began to
accrue thereunder.
"Gross Margin": As to each Mortgage Loan, the fixed percentage
set forth in the related Mortgage Note and indicated in Exhibit H hereto which
percentage is added to the Index on each Adjustment Date to determine (subject
to rounding in accordance with the related Mortgage Note, Periodic Cap, Maximum
Interest Rate and Minimum Interest Rate) the interest rate to be borne by such
Mortgage Loan until the next Adjustment Date.
"Index": With respect to any Mortgage Loan, the Cost of Funds
Index reflecting the monthly weighted average cost of funds of savings and loan
associations and savings banks, the home offices of which are located in
Arizona, California and Nevada, that are member institutions of the FHLB of San
Francisco, as published in THE WALL STREET JOURNAL, as most recently available
as of the date ____ days prior to the relevant Adjustment Date, or in the event
that such index is no longer available, an index selected by the Master Servicer
and reasonably acceptable to the Trustee that is based on comparable
information.
"Initial Certificate Principal Balance": With respect to the
Certificates, $_____________.
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"Insurance Policy": With respect to any Mortgage Loan, any
insurance policy which is required to be maintained from time to time under this
Agreement in respect of such Mortgage Loan.
"Insurance Proceeds": Proceeds paid by any insurer pursuant to
the Primary Mortgage Insurance Policy and any other insurance policy covering a
Mortgage Loan to the extent such proceeds are not applied to the restoration of
the related Mortgaged Property or released to the Mortgagor in accordance with
the procedures that the Master Servicer would follow in servicing mortgage loans
held for its own account.
"Late Collections": With respect to any Mortgage Loan, all
amounts received during any Due Period, whether as late payments of Monthly
Payments or as Insurance Proceeds, Liquidation Proceeds or otherwise, which
represent late payments or collections of Monthly Payments due but delinquent
for a previous Due Period and not previously recovered.
"Letter of Credit": The irrevocable letter of credit covering
certain losses on the Mortgage Loans in all of the Mortgage Pools, in the form
of Exhibit B hereto, issued by the Letter of Credit Issuer, naming the Trustee
as beneficiary for the benefit of the Certificateholders, as the same may be
terminated, modified or reduced from time to time pursuant to its terms and
Section 4.06, and any replacement letter of credit obtained pursuant to Section
4.06.
"Letter of Credit Issuer": _____________, or if a replacement
Letter of Credit is issued in accordance with the terms hereof, the issuer of
such replacement Letter of Credit.
"Liquidation Proceeds": Amounts (other than Insurance
Proceeds) received by the Master Servicer in connection with the taking of an
entire Mortgaged Property by exercise of the power of eminent domain or
condemnation or in connection with the liquidation of a defaulted Mortgage Loan
through trustee's sale, foreclosure sale or otherwise, other than amounts
received in respect of REO Property.
"Loan-to-Value Ratio": As of any date, the fraction, expressed
as a percentage, the numerator of which is the current principal balance of the
related Mortgage Loan at the date of determination and the denominator of which
is the Collateral Value of the related Mortgaged Property.
"Master Servicer": [Name of Master Servicer], or any successor
master servicer appointed as herein provided.
"Maximum Interest Rate": As to any Mortgage Loan, the maximum
interest rate that may be borne by such Mortgage Loan as set forth in the
related Mortgage Note and indicated in Exhibit H, which rate may be applicable
to such Mortgage Loan at any time during the life of such Mortgage Loan.
"Minimum Interest Rate": As to any Mortgage Loan, the minimum
interest rate that may be borne by such Mortgage Loan as set forth in the
related Mortgage Note and
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indicated in Exhibit H hereto, which rate may be applicable to such Mortgage
Loan at any time during the life of such Mortgage Loan.
"Monthly Payment": With respect to any Mortgage Loan, the
scheduled monthly payment of principal and interest on such Mortgage Loan which
is payable by a Mortgagor from time to time under the related Mortgage Note as
originally executed (after adjustment, if any, for Principal Prepayments and for
Deficient Valuations occurring prior to such Due Date, and after any adjustment
by reason of any bankruptcy or similar proceeding or any moratorium or similar
waiver or grace period).
["Moody's": Moody's Investors Service, Inc. or its successor
in interest.]
"Mortgage": The mortgage, deed of trust or any other
instrument securing the Mortgage Loan.
"Mortgage File": The mortgage documents listed in Section 2.01
pertaining to a particular Mortgage Loan and any additional documents required
to be added to the Mortgage File pursuant to this Agreement; provided, that
whenever the term "Mortgage File" is used to refer to documents actually
received by the Trustee, such term shall not be deemed to include such
additional documents required to be added unless they are actually so added.
"Mortgage Loan": Each of the mortgage loans, transferred and
assigned to the Trustee pursuant to Section 2.01 or Section 2.03 and from time
to time held in the Trust Fund, the Mortgage Loans originally so transferred,
assigned and held being identified in the Mortgage Loan Schedule attached hereto
as Exhibit H (and any Qualified Substitute Mortgage Loans). As used herein, the
term "Mortgage Loan" includes the related Mortgage Note and Mortgage.
"Mortgage Loan Schedule": As of any date of determination, the
schedule of Mortgage Loans included in the Trust Fund. The initial schedule of
Mortgage Loans with accompanying information transferred on the Closing Date to
the Trustee as part of the Trust Fund for the Certificates, attached hereto as
Exhibit H (as amended from time to time to reflect the addition of Qualified
Substitute Mortgage Loans) (and, for purposes of the Trustee's review of the
Mortgage Files pursuant to Section 2.02, in computer-readable form as delivered
to the Trustee), which list shall set forth the following information, if
applicable, with respect to each Mortgage Loan:
(i) the loan number and name of the Mortgagor;
(ii) the street address, city, state and zip code of the
Mortgaged Property;
(iii) the Mortgage Rate;
(iv) Maximum Interest Rate;
(v) Minimum Interest Rate;
(vi) Gross Margin;
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(vii) the first Adjustment Rate;
(viii) the Periodic Cap;
(ix) the maturity date;
(x) the original principal balance;
(xi) the first payment date;
(xii) the type of Mortgaged Property;
(xiii) the Monthly Payment in effect as of the Cut-off Date;
(xiv) the principal balance as of the Cut-off Date;
(xv) the occupancy status;
(xvi) the purpose of the Mortgage Loan;
(xvii) the Collateral Value of the Mortgaged Property;
(xviii) the original term to maturity;
(xix) the paid-through date of the Mortgage Loan;
(xx) the Loan-to-Value Ratio; and
(xxi) whether or not the Mortgage Loan was underwritten
pursuant to a limited documentation program.
The Mortgage Loan Schedule shall also set forth the total of
the amounts described under (xiv) above for all of the Mortgage Loans. The
Mortgage Loan Schedule may be in the form of more than one schedule,
collectively setting forth all of the information required. With respect to any
Qualified Substitute Mortgage Loan, the item described in clause (xiii) shall be
set forth as the date of substitution.
"Mortgage Note": The note or other evidence of the
indebtedness of a Mortgagor under a Mortgage Loan.
"Mortgage Rate": With respect to any Mortgage Loan, the annual
rate at which interest accrues on such Mortgage Loan.
"Mortgaged Property": The underlying property securing a
Mortgage Loan.
"Mortgagor": The obligor or obligors on a Mortgage Note.
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"Net Mortgage Rate": As to each Mortgage Loan, a per annum
rate of interest equal to the related Mortgage Rate as in effect from time to
time minus the Servicing Fee Rate.
"Nonrecoverable Advance": Any Advance previously made or
proposed to be made in respect of a Mortgage Loan which, in the good faith
judgment of the Master Servicer, will not or, in the case of a proposed Advance,
would not be ultimately recoverable from related Late Collections, Insurance
Proceeds, Liquidation Proceeds or REO Proceeds. The determination by the Master
Servicer that it has made a Nonrecoverable Advance or that any proposed Advance
would constitute a Nonrecoverable Advance, shall be evidenced by an Officers'
Certificate delivered to the Company and the Trustee.
"Officers' Certificate": A certificate signed by the Chairman
of the Board, the Vice Chairman of the Board, the President or a vice president
and by the Treasurer, the Secretary, or one of the assistant treasurers or
assistant secretaries of the Master Servicer or of the Sub-Servicer and
delivered to the Company and Trustee.
"Opinion of Counsel": A written opinion of counsel, who may be
counsel for the Company or the Master Servicer, reasonably acceptable to the
Trustee; except that any opinion of counsel relating to (a) the qualification of
any account required to be maintained pursuant to this Agreement as an Eligible
Account, or (b) resignation of the Master Servicer pursuant to Section 6.04 must
be an opinion of counsel who (i) is in fact independent of the Company and the
Master Servicer, (ii) does not have any direct financial interest or any
material indirect financial interest in the Company or the Master Servicer or in
an affiliate of either and (iii) is not connected with the Company or the Master
Servicer as an officer, employee, director or person performing similar
functions.
"OTS": Office of Thrift Supervision or any successor.
"Outstanding Mortgage Loan": As to any Due Date, a Mortgage
Loan (including an REO Property) which was not the subject of a Principal
Prepayment in full, Cash Liquidation or REO Disposition and which was not
purchased or substituted for prior to such Due Date pursuant to Sections 2.02,
2.04 or 3.25.
"Ownership Interest": As to any Certificate, any ownership or
security interest in such Certificate, including any interest in such
Certificate as the Holder thereof and any other interest therein, whether direct
or indirect, legal or beneficial, as owner or as pledgee.
"Pass-Through Rate": With respect to the Certificates and any
Distribution Date, a rate equal to the weighted average, expressed as a
percentage, of the Net Mortgage Rates of all Mortgage Loans in the Trust Fund as
of the Due Date in the month immediately preceding the month in which such
Distribution Date occurs, weighted on the basis of the respective Stated
Principal Balances of such Mortgage Loans, which Stated Principal Balances shall
be the Stated Principal Balances of such Mortgage Loans at the close of business
on the immediately preceding Distribution Date after giving effect to the
distributions thereon allocable to principal (or, in the case of the initial
Distribution Date, at the close of business on the Cut-off Date).
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"Percentage Interest": With respect to any Certificate, the
undivided percentage ownership interest equal to the initial Certificate
Principal Balance thereof divided by the aggregate Initial Certificate Principal
Balance of all of the Certificates.
"Periodic Cap": With respect to the Mortgage Loans, the
periodic rate cap which limits the increase or the decrease of the related
Mortgage Rate on any Adjustment Date to ----%.
"Permitted Instruments": Any one or more of the following:
(i)(a) direct obligations of, or obligations fully guaranteed as to
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 and (b) direct obligations
of, and obligations guaranteed as to timely payment by FHLMC or FNMA
if, at the time of investment, they are assigned the highest credit
rating by the Rating Agencies;
(ii) repurchase obligations (the collateral for which is held by a
third party or the Trustee) with respect to any security described in
clause (i) above, provided that the short-term unsecured obligations of
the party agreeing to repurchase such obligations are at the time rated
by each Rating Agency in one of its two highest long-term rating
categories;
(iii) certificates of deposit, time deposits, demand deposits and
bankers' acceptances of any bank or trust company incorporated under
the laws of the United States or any state thereof or the District of
Columbia, provided that the short-term commercial paper of such bank or
trust company (or, in the case of the principal depository institution
in a depository institution holding company, the long-term unsecured
debt obligations of the depository institution holding company) at the
date of acquisition thereof has been rated by each Rating Agency in its
highest short-term rating;
(iv) commercial paper (having original maturities of not more than
nine months) of any corporation incorporated under the laws of the
United States or any state thereof or the District of Columbia which on
the date of acquisition has been rated by each Rating Agency in its
highest short-term rating;
(v) a money market fund or a qualified investment fund rated by
each Rating Agency in its highest rating available; and
(vi) if previously confirmed in writing to the Trustee, any other
obligation or security acceptable to each Rating Agency in respect of
mortgage pass-through certificates rated in each Rating Agency's
highest rating category;
provided, that no such instrument shall be a Permitted Instrument if such
instrument evidences either (a) the right to receive interest only payments with
respect to the obligations underlying such instrument or (b) both principal and
interest payments derived from obligations underlying such instrument where the
principal and interest payments with respect to such instrument
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provide a yield to maturity exceeding 120% of the yield to maturity at par of
such underlying obligation.
"Person": Any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Prepayment Assumption": A prepayment assumption of ___% of
the standard prepayment assumption, used for determining the accrual of original
issue discount and market discount and premium on the Certificates for federal
income tax purposes. The standard prepayment assumption assumes a constant rate
of prepayment of mortgage loans of 0.2% per annum of the then outstanding
principal balance of such mortgage loans in the first month of the life of the
mortgage loans, increasing by an additional 0.2% per annum in each succeeding
month until the thirtieth month, and a constant 6% per annum rate of prepayment
thereafter for the life of such mortgage loans.
"Prepayment Interest Shortfall": With respect to any
Distribution Date, for each Mortgage Loan that was the subject of a partial
Principal Prepayment, a Principal Prepayment in full, or of a Cash Liquidation
or an REO Disposition during the related Prepayment Period, an amount equal to
the amount of interest that would have accrued at the applicable Net Mortgage
Rate (i) in the case of a Principal Prepayment in full, Cash Liquidation or REO
Disposition on the principal balance of such Mortgage Loan immediately prior to
such prepayment (or liquidation), commencing on the date of prepayment (or
liquidation) and ending on the last day of the month of prepayment or
liquidation or (ii) in the case of a partial Principal Prepayment, on the amount
of such prepayment, commencing on the date as of which the prepayment is applied
and ending on the last day of the month of prepayment.
"Prepayment Period": As to any Distribution Date, the calendar
month preceding the month in which such Distribution Date occurs.
"Primary Hazard Insurance Policy": Each primary hazard
insurance policy required to be maintained pursuant to Section 3.13.
"Primary Mortgage Insurance Policy": Each primary mortgage
insurance policy required to be maintained pursuant to Section 3.13.
"Principal Prepayment": Any payment of principal made by the
Mortgagor on a Mortgage Loan which is received in advance of its scheduled Due
Date and which is not accompanied by an amount of interest representing
scheduled interest due on any date or dates in any month or months subsequent to
the month of prepayment.
"Purchase Price": With respect to any Mortgage Loan (or REO
Property) required to be purchased pursuant to Section 2.02, 2.04 or 3.25, an
amount equal to the sum of (i) 100% of the Stated Principal Balance thereof,
(ii) unpaid accrued interest (or REO Imputed Interest) at the sum of the
applicable Net Mortgage Rate, the rate at which the Trustee's Fee accrues on the
Stated Principal Balance thereof outstanding during each Due Period that such
interest was not paid or advanced, from the date through which interest was last
paid by the
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Mortgagor or advanced and distributed to Certificateholders together with unpaid
related Servicing Fees from the date through which interest was last paid by the
Mortgagor, in each case to the first day of the month in which such Purchase
Price is to be distributed, plus (iii) the aggregate of all Advances made in
respect thereof that were not previously reimbursed.
"Qualified Insurer": An insurance company duly qualified as
such under the laws of the state of its principal place of business and each
state having jurisdiction over such insurer in connection with the insurance
policy issued by such insurer, duly authorized and licensed in such states to
transact business in such states and to write the insurance provided by the
insurance policy issued by it, approved as an insurer by the Master Servicer, as
a FNMAapproved mortgage insurer and having a claims paying ability rating of at
least "AA" by ____________________ and which is acceptable to _____________. Any
replacement insurer with respect to a Mortgage Loan must have at least as high a
claims paying ability rating by _____________ and ___________________ as the
insurer it replaces had on the Closing Date.
"Qualified Substitute Mortgage Loan": A Mortgage Loan
substituted by the Company for a Deleted Mortgage Loan which must, on the date
of such substitution, as confirmed in an Officers' Certificate delivered to the
Trustee, (i) have an outstanding principal balance, after deduction of the
principal portion of the monthly payment due in the month of substitution (or in
the case of a substitution of more than one Mortgage Loan for a Deleted Mortgage
Loan, an aggregate outstanding principal balance, after such deduction), not in
excess of the Stated Principal Balance of the Deleted Mortgage Loan (the amount
of any shortfall to be deposited by the Master Servicer, in the Custodial
Account in the month of substitution); (ii) have a Mortgage Rate and a Net
Mortgage Rate no lower than and not more than 1% per annum higher than the
Mortgage Rate and Net Mortgage Rate, respectively, of the Deleted Mortgage Loan
as of the date of substitution; (iii) have a remaining term to stated maturity
not greater than (and not more than one year less than) that of the Deleted
Mortgage Loan; (iv) comply with each representation and warranty set forth in
Section 2 of the Seller's Warranty Certificate; (v) have a Loan-to-Value Ratio
as of the date of substitution equal to or lower than the Loan-to-Value Ratio of
the Deleted Mortgage Loan as of such date; and (vi) be covered under a Primary
Insurance Policy if such Qualified Substitute Mortgage Loan has a Loan-to-Value
Ratio in excess of 80%. In the event that one or more mortgage loans are
substituted for one or more Deleted Mortgage Loans, the amounts described in
clause (i) hereof shall be determined on the basis of aggregate principal
balances, the Mortgage Rates described in clause (ii) hereof shall be determined
on the basis of weighted average Mortgage Rates, the Net Mortgage Rates
described in clause (ii) hereof shall be satisfied as to each such mortgage
loan, the terms described in clause (iii) shall be determined on the basis of
weighted average remaining terms to maturity, the Loan-to-Value Ratios described
in clause (v) hereof shall be satisfied as to each such mortgage loan and,
except to the extent otherwise provided in this sentence, the representations
and warranties described in clause (iv) hereof must be satisfied as to each
Qualified Substitute Mortgage Loan or in the aggregate, as the case may be.
"Rating Agency": [Standard & Poor's] [Moody's] [Fitch] [Duff &
Phelps]. If either agency or a successor is no longer in existence, "Rating
Agency" shall be such statistical credit rating agency, or other comparable
Person, designated by the Company, notice of which designation shall be given to
the Trustee and the Master Servicer. References herein to the two highest long
term debt rating categories of a Rating Agency shall mean "AA" or better in the
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case of [Standard & Poor's] [Fitch] [Duff & Phelps] and "Aa2" or better in the
case of Moody's and references herein to the highest short-term debt rating of a
Rating Agency shall mean "D-1" or better in the case of [Duff & Phelps] and
"A-1" in the case of [Standard & Poor's,] and in the case of any other Rating
Agency such references shall mean such rating categories without regard to any
plus or minus.
"Realized Loss": With respect to any Mortgage Loan or related
REO Property as to which a Cash Liquidation or REO Disposition has occurred, an
amount (not less than zero) equal to (i) the Stated Principal Balance of the
Mortgage Loan as of the date of Cash Liquidation or REO Disposition, plus (ii)
interest (and REO Imputed Interest, if any) at the related Net Mortgage Rate
from the Due Date as to which interest was last paid or advanced to
Certificateholders up to the date of the Cash Liquidation or REO Disposition on
the Stated Principal Balance of such Mortgage Loan outstanding during each Due
Period that such interest was not paid or advanced, minus (iii) the proceeds, if
any, received during the month in which such Cash Liquidation or REO Disposition
occurred, to the extent applied as recoveries of interest at the related Net
Mortgage Rate and to principal of the Mortgage Loan, net of the portion thereof
reimbursable to the Master Servicer or any Sub-Servicer with respect to related
Advances not previously reimbursed. With respect to each Mortgage Loan which has
become the subject of a Deficient Valuation, the difference between the
principal balance of the Mortgage Loan outstanding immediately prior to such
Deficient Valuation and the principal balance of the Mortgage Loan as reduced by
the Deficient Valuation. With respect to each Mortgage Loan which has become the
subject of a Debt Service Reduction, the amount of such Debt Service Reduction.
"Record Date": The last Business Day of the month immediately
preceding the month of the related Distribution Date.
"Relief Act": The Soldiers' and Sailors' Civil Relief Act of
1940, as amended.
"Remittance Report": A report prepared by the Master Servicer
providing the information set forth in Exhibit E attached hereto.
"REO Acquisition": The acquisition by the Master Servicer on
behalf of the Trustee for the benefit of the Certificateholders of any REO
Property pursuant to Section 3.15.
"REO Disposition": The receipt by the Master Servicer of
Insurance Proceeds, Liquidation Proceeds and other payments and recoveries
(including proceeds of a final sale) which the Master Servicer expects to be
finally recoverable from the sale or other disposition of the REO Property.
"REO Imputed Interest": As to any REO Property, for any
period, an amount equivalent to interest (at the Mortgage Rate that would have
been applicable to the related Mortgage Loan had it been outstanding) on the
unpaid principal balance of the Mortgage Loan as of the date of acquisition
thereof (as such balance is reduced by any income from the REO Property treated
as a recovery of principal pursuant to Section 3.15).
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"REO Proceeds": Proceeds, net of directly related expenses,
received in respect of any REO Property (including, without limitation, proceeds
from the rental of the related Mortgaged Property and of any REO Disposition),
which proceeds are required to be deposited into the Custodial Account as and
when received.
"REO Property": A Mortgaged Property acquired by the Master
Servicer through foreclosure or deed-in-lieu of foreclosure in connection with a
defaulted Mortgage Loan.
"Request for Release": A release signed by a Servicing
Officer, in the form of Exhibits F-1 or F-2 attached hereto.
"Required Insurance Policy": With respect to any Mortgage
Loan, any Insurance Policy or any other insurance policy that is required to be
maintained from time to time under this Agreement or pursuant to the provisions
of a Mortgage Loan.
"Responsible Officer": When used with respect to the Trustee,
the Chairman or Vice Chairman of the Board of Directors or Trustees, the
Chairman or Vice Chairman of the Executive or Standing Committee of the Board of
Directors or Trustees, the President, the Chairman of the Committee on Trust
Matters, any vice president, any assistant vice president, the Secretary, any
assistant secretary, the Treasurer, any assistant treasurer, the Cashier, any
assistant cashier, any trust officer or assistant trust officer, the Controller
and any assistant controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also, with respect to a particular matter, any other officer to
whom such matter is referred because of such officer's knowledge of and
familiarity with the particular subject.
"Seller": [Name of Seller], and its successors and assigns.
"Seller's Warranty Certificate": The Seller's Warranty
Certificate of the Seller, dated _____ __, 19__, in the form of Exhibit I
attached hereto.
"Servicing Account": The account or accounts created and
maintained pursuant to Section 3.09.
"Servicing Advances": All customary, reasonable and necessary
"out of pocket" costs and expenses incurred in connection with a default,
delinquency or other unanticipated event by the Master Servicer in the
performance of its servicing obligations, including, but not limited to, the
cost of (i) the preservation, restoration and protection of a Mortgaged
Property, (ii) any enforcement or judicial proceedings, including foreclosures,
(iii) the management and liquidation of any REO Property and (iv) compliance
with the obligations under the second paragraph of Section 3.01 and Section
3.09.
"Servicing Fee": As to each Mortgage Loan, an amount, payable
out of any payment of interest on the Mortgage Loan, equal to interest at the
related Servicing Fee Rate on the Stated Principal Balance of such Mortgage Loan
for the calendar month preceding the month in which the payment is due
(alternatively, in the event such payment of interest accom-
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panies a Principal Prepayment in full made by the Mortgagor, interest for the
number of days covered by such payment of interest).
"Servicing Fee Rate": With respect to each Mortgage Loan, the
per annum rate of _____%.
"Servicing Officer": Any officer of the Master Servicer
involved in, or responsible for, the administration and servicing of the
Mortgage Loans, whose name appears on a list of servicing officers furnished to
the Trustee by the Master Servicer, as such list may from time to time be
amended.
"Single Certificate": A Certificate evidencing the minimum
denomination of the Certificates as set forth in Section 5.01.
"Special Hazard Amount": As of any Distribution Date, an
amount equal to $________ (the initial "Special Hazard Amount") minus the sum of
(i) the aggregate amount of draws made under the Letter of Credit in accordance
with Section 4.04 since the Cut-off Date and (ii) the Adjustment Amount (as
defined below) as most recently calculated. For each anniversary of the Cut-off
Date, the Adjustment Amount shall be calculated and shall be equal to the
amount, if any, by which the amount calculated in accordance with the preceding
sentence (without giving effect to the deduction of the Adjustment Amount for
such anniversary) exceeds the greater of (A) the product of the Special Hazard
Percentage for such anniversary multiplied by the outstanding principal balance
of all of the Mortgage Loans on such anniversary and (B) twice the outstanding
principal balance of the Mortgage Loan which has the largest outstanding
principal balance on such Anniversary.
"Special Hazard Percentage": As of each anniversary of the
Cut-off Date, the greater of (i) 1% and (ii) the largest percentage obtained by
dividing the aggregate outstanding principal balance on such anniversary of the
Mortgage Loans secured by Mortgaged Properties located in a single, five-digit
zip code area in the State of California by the outstanding principal balance of
all the Mortgage Loans on such anniversary.
"[Standard & Poor's": Standard & Poor's Ratings Group, a
division of McGraw Hill, Inc. or its successor in interest.]
"Stated Principal Balance": With respect to any Mortgage Loan
or related REO Property at any given time, (i) the principal balance of the
Mortgage Loan outstanding as of the Cut-off Date, after application of principal
payments due on or before such date, whether or not received, minus (ii) the sum
of (a) the principal portion of the Monthly Payments due with respect to such
Mortgage Loan or REO Property during each Due Period ending prior to the most
recent Distribution Date which were received or with respect to which an Advance
was made, (b) all Principal Prepayments with respect to such Mortgage Loan or
REO Property, and all Insurance Proceeds, Liquidation Proceeds and net income
from a REO Property to the extent applied by the Master Servicer as recoveries
of principal in accordance with Section 3.15 with respect to such Mortgage Loan
or REO Property, which were distributed pursuant to Section 4.01 on any previous
Distribution Date and (c) any Realized Loss with respect thereto allocated
pursuant to Section 4.04 for any previous Distribution Date.
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"Sub-Servicer": Any Person with which the Master Servicer has
entered into a Sub-Servicing Agreement and which meets the qualifications of a
Sub-Servicer pursuant to Section 3.02.
"Sub-Servicer Remittance Date": The 18th day of each month, or
if such day is not a Business Day, the immediately preceding Business Day.
"Sub-Servicing Account": An account established by a
Sub-Servicer which meets the requirements set forth in Section 3.08 and is
otherwise acceptable to the Master Servicer.
"Sub-Servicing Agreement": The written contract between the
Master Servicer and a Sub-Servicer and any successor Sub-Servicer relating to
servicing and administration of certain Mortgage Loans as provided in Section
3.02.
["Tax Returns": [To be provided.]
"Transfer": Any direct or indirect transfer, sale, pledge,
hypothecation or other form of assignment of any Ownership Interest in a
Certificate.
"Transferor": Any Person who is disposing by Transfer of any
Ownership Interest in a Certificate.
"Trust Fund": The corpus of the trust created by this
Agreement, to the extent described herein, consisting of the Mortgage Loans,
such assets as shall from time to time be identified as deposited in respect of
the Mortgage Loans in the Custodial Account and in the Certificate Account,
property which secured a Mortgage Loan and which has been acquired by
foreclosure or deed in lieu of foreclosure, proceeds of any Primary Hazard
Insurance Policies, if any, and the Letter of Credit (or any alternate form of
credit support substituted therefor) and all proceeds thereof.
"Trustee": [Name of Trustee], or its successor in interest, or
any successor trustee appointed as herein provided.
"Trustee's Fee": As to each Mortgage Loan and as the
Distribution Date, an amount, payable out of any payment of interest on the
Mortgage Loan, equal to interest at ____% per annum on the Stated Principal
Balance of such Mortgage Loan as of the Due Date immediately preceding the month
in which such Distribution Date occurs.
"Uninsured Cause": Any cause of damage to property subject to
a Mortgage such that the complete restoration of such property is not fully
reimbursable by the hazard insurance policies or flood insurance policies
required to be maintained pursuant to Section 3.13.
"Voting Rights": The portion of the voting rights of all of
the Certificates which is allocated to any Certificate. The Voting Rights shall
be allocated among Holders of the Certificates, in proportion to the outstanding
Certificate Principal Balances of their respective Certificates.
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ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
SECTION 2.01. Conveyance of Mortgage Loans.
The Company, as of the Closing Date, and concurrently with the
execution and delivery hereof, does hereby assign, transfer, sell, set over and
otherwise convey to the Trustee without recourse all the right, title and
interest of the Company in and to the Mortgage Loans identified on the Mortgage
Loan Schedule and all other assets included or to be included in the Trust Fund
for the benefit of the Certificateholders. Such assignment includes all
principal and interest received by the Master Servicer on or with respect to the
Mortgage Loans (other than payment of principal and interest due on or before
the Cut-off Date).
In connection with such transfer and assignment, the Company
has requested the Seller to deliver to, and deposit with the Trustee, the
following documents or instruments:
(i) the original Mortgage Note, endorsed by the Seller "Pay to
the order of [Name of Trustee], as trustee without recourse" or to "Pay
to the order of [Name of Trustee], as trustee for holders of Option One
Mortgage Acceptance Corporation, Mortgage Pass-Through Certificates,
Series 199_-_, without recourse" with all intervening endorsements
showing a complete chain of endorsements from the originator to the
Person endorsing it to the Trustee;
(ii) the original recorded Mortgage or, if the original Mortgage
has not been returned from the applicable public recording office, a
copy of the Mortgage certified by the Seller to be a true and complete
copy of the original Mortgage submitted to the title insurance company
for recording;
(iii) a duly executed original Assignment of the Mortgage
endorsed by the Seller, without recourse, to "[Name of Trustee], as
trustee" or to "[Name of Trustee], as trustee for holders of Option One
Mortgage Acceptance Corporation Mortgage PassThrough Certificates,
Series 199_-_", with evidence of recording thereon;
(iv) the original recorded Assignment or Assignments of the
Mortgage showing a complete chain of assignment from the originator
thereof to the Person assigning it to the Trustee or, if any such
Assignment has not been returned from the applicable public recording
office, a copy of such Assignment certified by the Seller to be a true
and complete copy of the original Assignment submitted to the title
insurance company for recording;
(v) the original lender's title insurance policy, or, if such
policy has not been issued, any one of an original or a copy of the
preliminary title report, title binder or title commitment on the
Mortgaged Property with the original policy of the insurance to be
delivered promptly following the receipt thereof;
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(vi) the original of any assumption, modification, extension or
guaranty agreement;
(vii) the original or a copy of the private mortgage insurance
policy or original certificate of private mortgage insurance, if
applicable; and
(viii) if any of the documents or instruments referred to above
were executed on behalf of the Mortgagor by another Person, the
original power of attorney or other instrument that authorized and
empowered such Person to sign, or a copy thereof certified by the
Seller (or by an officer of the applicable title insurance or escrow
company) to be a true and correct copy of the original.
The Seller is obligated pursuant to the Seller's Warranty
Certificate to deliver to the Trustee: (a) either the original recorded
Mortgage, or in the event such original cannot be delivered by the Seller, a
copy of such Mortgage certified as true and complete by the appropriate
recording office, in those instances where a copy thereof certified by the
Seller was delivered to the Trustee pursuant to clause (ii) above; and (b)
either the original Assignment or Assignments of the Mortgage, with evidence of
recording thereon, showing a complete chain of assignment from the originator to
the Seller, or in the event such original cannot be delivered by the Seller, a
copy of such Assignment or Assignments certified as true and complete by the
appropriate recording office, in those instances where copies thereof certified
by the Seller were delivered to the Trustee pursuant to clause (iv) above.
Notwithstanding anything to the contrary contained in this Section 2.01, in
those instances where the public recording office retains the original Mortgage
after it has been recorded, the Seller shall be deemed to have satisfied its
obligations hereunder upon delivery to the Trustee of a copy of such Mortgage
certified by the public recording office to be a true and complete copy of the
recorded original thereof.
If any Assignment is lost or returned unrecorded to the
Trustee because of any defect therein, the Seller is required to prepare a
substitute Assignment or cure such defect, as the case may be, and the Trustee
shall cause such Assignment to be recorded in accordance with this paragraph.
The Seller is required, as described in the Seller's Warranty
Certificate, to deliver to the Trustee the original of any documents assigned to
the Trustee pursuant to this Section 2.01 not later than 120 days after the
Closing Date.
All original documents relating to the Mortgage Loans which
are not delivered to the Trustee, to the extent delivered by the Seller to the
Master Servicer, are and shall be held by the Master Servicer in trust for the
benefit of the Trustee on behalf of the Certificateholders.
Except as may otherwise expressly be provided herein, neither
the Company, the Master Servicer nor the Trustee shall (and the Master Servicer
shall ensure that no Sub-Servicer shall) assign, sell, dispose of or transfer
any interest in the Trust Fund or any portion thereof, or permit the Trust Fund
or any portion thereof to be subject to any lien, claim, mortgage, security
interest, pledge or other encumbrance of, any other Person.
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It is intended that the conveyance of the Mortgage Loans by
the Company to the Trustee as provided in this Section be, and be construed as,
a sale of the Mortgage Loans by the Company to the Trustee for the benefit of
the Certificateholders. It is, further, not intended that such conveyance be
deemed a pledge of the Mortgage Loans by the Company to the Trustee to secure a
debt or other obligation of the Company. However, in the event that the Mortgage
Loans are held to be property of the Company, or if for any reason this
Agreement is held or deemed to create a security interest in the Mortgage Loans,
then it is intended that, (a) this Agreement shall also be deemed to be a
security agreement within the meaning of Articles 8 and 9 of the New York
Uniform Commercial Code and the Uniform Commercial Code of any other applicable
jurisdiction; (b) the conveyance provided for in this Section shall be deemed to
be (1) a grant by the Company to the Trustee of a security interest in all of
the Company's right (including the power to convey title thereto), title and
interest, whether now owned or hereafter acquired, in and to (A) the Mortgage
Loans, including the Mortgage Notes, the Mortgages, any related insurance
policies and all other documents in the related Mortgage Files, (B) all amounts
payable to the holders of the Mortgage Loans in accordance with the terms
thereof and (C) all proceeds of the conversion, voluntary or involuntary, of the
foregoing into cash, instruments, securities or other property, including
without limitation all amounts from time to time held or invested in the
Certificate Account or the Custodial Account, whether in the form of cash,
instruments, securities or other property and (2) an assignment by the Company
to the Trustee of any security interest in any and all of the Seller's right
(including the power to convey title thereto), title and interest, whether now
owned or hereafter acquired, in and to the property described in the foregoing
clauses (1)(A) through (C) granted by the Seller to the Company pursuant to the
Assignment Agreement; (c) the possession by the Trustee or its agent of Mortgage
Notes and such other items of property as constitute instruments, money,
negotiable documents or chattel paper shall be deemed to be "possession by the
secured party" or possession by a purchaser or a person designated by such
secured party, for purposes of perfecting the security interest pursuant to the
New York Uniform Commercial Code and the Uniform Commercial Code of any other
applicable jurisdiction (including, without limitation, Sections 9-305, 8-313 or
8-321 thereof); and (d) notifications to persons holding such property, and
acknowledgments, receipts or confirmations from persons holding such property,
shall be deemed notifications to, or acknowledgments, receipts or confirmations
from, financial intermediaries, bailees or agents (as applicable) of the Trustee
for the purpose of perfecting such security interest under applicable law. The
Company and the Trustee shall, to the extent consistent with this Agreement,
take such actions as may be necessary to ensure that, if this Agreement were
deemed to create a security interest in the Mortgage Loans, such security
interest would be deemed to be a perfected security interest of first priority
under applicable law and will be maintained as such throughout the term of the
Agreement.
SECTION 2.02. Acceptance of the Trust Fund by the
Trustee.
The Trustee acknowledges receipt (subject to any exceptions
noted in the Initial Certification described below) of the documents referred to
in Section 2.01 above and all other assets included in the Trust Fund and
declares that it holds and will hold such documents and the other documents
delivered to it constituting the Mortgage Files, and that it holds or will hold
such other assets included in the Trust Fund (to the extent delivered or
assigned to the Trustee), in trust for the exclusive use and benefit of all
present and future Certificateholders.
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The Trustee agrees, for the benefit of the Certificateholders,
to review each Mortgage File on or before the Closing Date to ascertain that all
documents required to be delivered to it are in its possession, and the Trustee
agrees to execute and deliver to the Company and the Master Servicer on the
Closing Date an Initial Certification in the form annexed hereto as Exhibit C to
the effect that, as to each Mortgage Loan listed in the Mortgage Loan Schedule
(other than any Mortgage Loan paid in full or any Mortgage Loan specifically
identified in such certification as not covered by such certification), (i) all
documents required to be delivered to it pursuant to this Agreement with respect
to such Mortgage Loan are in its possession, (ii) such documents have been
reviewed by it and appear regular on their face and relate to such Mortgage Loan
and (iii) based on its examination and only as to the foregoing documents, the
information set forth in items (i) - (vi) and (xiii) of the definition of the
"Mortgage Loan Schedule" accurately reflects information set forth in the
Mortgage File. Neither the Trustee nor the Master Servicer shall be under any
duty to determine whether any Mortgage File should include any of the documents
specified in clause (vi) of Section 2.01. Neither the Trustee nor the Master
Servicer shall be under any duty or obligation to inspect, review or examine
said documents, instruments, certificates or other papers to determine that the
same are genuine, enforceable or appropriate for the represented purpose or that
they have actually been recorded or that they are other than what they purport
to be on their face.
Within 90 days of the Closing Date the Trustee shall deliver
to the Company and the Master Servicer a Final Certification in the form annexed
hereto as Exhibit D evidencing the completeness of the Mortgage Files, with any
applicable exceptions noted thereon.
If in the process of reviewing the Mortgage Files and
preparing the certifications referred to above the Trustee finds any document or
documents constituting a part of a Mortgage File to be missing or defective in
any material respect, the Trustee shall promptly notify the Seller, the Master
Servicer and the Company. The Trustee shall promptly notify the Seller of such
defect and request that the Seller cure any such defect within 60 days from the
date on which the Seller was notified of such defect, and if the Seller does not
cure such defect in all material respects during such period, request that the
Seller purchase such Mortgage Loan from the Trust Fund on behalf of the
Certificateholders at the Purchase Price within 90 days after the date on which
the Seller was notified of such defect. It is understood and agreed that the
obligation of the Seller to cure a material defect in, or purchase any Mortgage
Loan as to which a material defect in a constituent document exists shall
constitute the sole remedy respecting such defect available to
Certificateholders or the Trustee on behalf of Certificateholders. The Purchase
Price for the purchased Mortgage Loan shall be deposited or caused to be
deposited upon receipt by the Master Servicer in the Custodial Account and, upon
receipt by the Trustee of written notification of such deposit signed by a
Servicing Officer, the Trustee shall release or cause to be released to the
Seller the related Mortgage File and shall execute and deliver such instruments
of transfer or assignment, in each case without recourse, as the Seller shall
require as necessary to vest in the Seller ownership of any Mortgage Loan
released pursuant hereto and at such time the Trustee shall have no further
responsibility with respect to the related Mortgage File.
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SECTION 2.03. Representations, Warranties and
Covenants of the Master Servicer and
the Company.
(a) The Master Servicer hereby represents and warrants to and
covenants with the Company and the Trustee for the benefit of Certificateholders
that:
(i) The Master Servicer is, and throughout the term
hereof shall remain, a __________ duly organized, validly existing and
in good standing under the laws of the State of __________ (except as
otherwise permitted pursuant to Section 6.02), the Master Servicer is,
and shall remain, in compliance with the laws of each state in which
any Mortgaged Property is located to the extent necessary to perform
its obligations under this Agreement, and the Master Servicer is, and
shall remain, approved to sell mortgage loans to and service mortgage
loans for FNMA and FHLMC;
(ii) The execution and delivery of this Agreement by the
Master Servicer, and the performance and compliance with the terms of
this Agreement by the Master Servicer, will not violate the Master
Servicer's articles of incorporation or bylaws or 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
agreement or other instrument to which it is a party or which is
applicable to it or any of its assets;
(iii) The Master Servicer has the full power and authority
to enter into and consummate all transactions contemplated by this
Agreement, has duly authorized the execution, delivery and performance
of this Agreement, and has duly executed and delivered this Agreement;
(iv) This Agreement, assuming due authorization,
execution and delivery by the Company and the Trustee, constitutes a
valid, legal and binding obligation of the Master Servicer, enforceable
against the Master Servicer in accordance with the terms hereof,
subject to (A) applicable bankruptcy, insolvency, reorganization,
moratorium and other laws affecting the enforcement of creditors'
rights generally, and (B) general principles of equity, regardless of
whether such enforcement is considered in a proceeding in equity or at
law;
(v) The Master Servicer is not in violation of, and its
execution and delivery of this Agreement and its performance and
compliance with the terms of this Agreement will not constitute a
violation of, any law, any order or decree of any court or arbiter, or
any order, regulation or demand of any federal, state or local
governmental or regulatory authority, which violation is likely to
affect materially and adversely either the ability of the Master
Servicer to perform its obligations under this Agreement or the
financial condition of the Master Servicer;
(vi) No litigation is pending or, to the best of the
Master Servicer's knowledge, threatened against the Master Servicer
which would prohibit its entering into this Agreement or performing its
obligations under this Agreement or is likely to affect
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materially and adversely either the ability of the Master Servicer to
perform its obligations under this Agreement or the financial condition
of the Master Servicer;
(vii) The Master Servicer will comply in all material
respects in the performance of this Agreement and with all reasonable
rules and requirements of each insurer under each Insurance Instrument;
(viii) The execution of this Agreement and the performance
of the Master Servicer's obligations hereunder do not require any
license, consent or approval of any state or federal court, agency,
regulatory authority or other governmental body having jurisdiction
over the Master Servicer, other than such as have been obtained; and
(ix) No information, certificate of an officer, statement
furnished in writing or report delivered to the Company, any affiliate
of the Company or the Trustee by the Master Servicer will, to the
knowledge of the Master Servicer, contain any untrue statement of a
material fact or omit a material fact necessary to make the
information, certificate, statement or report not misleading; and
It is understood and agreed that the representations,
warranties and covenants set forth in this Section 2.03(a) shall survive the
execution and delivery of this Agreement, and shall inure to the benefit of the
Company, the Trustee and the Certificateholders. Upon discovery by the Company,
the Trustee or the Master Servicer of a breach of any of the foregoing
representations, warranties and covenants that materially and adversely affects
the interests of the Company or the Trustee, the party discovering such breach
shall give prompt written notice to the other parties.
(b) The Company hereby represents and warrants to the Master
Servicer and the Trustee for the benefit of Certificateholders that as of the
Closing Date (or, if otherwise specified below, as of the date so specified):
(i) Immediately prior to the assignment of the Mortgage
Loans to the Trustee, the Company had good title to, and was
the sole owner of, each Mortgage Loan free and clear of any
pledge, lien, encumbrance or security interest (other than
rights to servicing and related compensation) and such
assignment validly transfers ownership of the Mortgage Loans
to the Trustee free and clear of any pledge, lien, encumbrance
or security interest;
(ii) No Mortgage Loan is one month or more delinquent in
payment of principal and interest as of the Cut-off Date and
no Mortgage Loan has been so delinquent more than once in the
12-month period prior to the Cut-off Date;
(iii) The information set forth in the Mortgage Loan
Schedule with respect to each Mortgage Loan or the Mortgage
Loans, as the case may be, is true and correct in all material
respects at the date or dates respecting which such
information is furnished;
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(iv) The Mortgage Loans are fully-amortizing,
adjustable-rate mortgage loans with Monthly Payments due on
the first day of each month and terms to maturity at
origination or modification of not more than 30 years;
(v) Each Mortgage Loan secured by a Mortgaged Property
with a Loan-to-Value Ratio at origination in excess of 80% is
the subject of a Primary Mortgage Insurance Policy that
insures that portion of the principal balance thereof that
exceeds the amount equal to 75% of the appraised value of the
related Mortgaged Property. Each such Primary Mortgage
Insurance Policy is in full force and effect and the Trustee
is entitled to the benefits thereunder; and
(vi) The representations and warranties of the Seller
with respect to the Mortgage Loans and the remedies therefor
are as set forth in the Seller's Warranty Certificate.
[Other representations and warranties as applicable.]
It is understood and agreed that the representations and warranties set forth in
this Section 2.03(b) shall survive delivery of the respective Mortgage Files to
the Trustee.
Upon discovery by either the Company, the Master Servicer or
the Trustee of a breach of any representation or warranty set forth in this
Section 2.03 which materially and adversely affects the interests of the
Certificateholders in any Mortgage Loan, the party discovering such breach shall
give prompt written notice to the other parties.
SECTION 2.04. Representations and Warranties of
the Seller; Repurchase and
Substitution.
The Company hereby assigns to the Trustee for the benefit of
Certificateholders its interest in respect of the representations and warranties
made by the Seller in the Seller's Warranty Certificate or the exhibits thereto.
Insofar as the Seller's Warranty Certificate relates to such representations and
warranties and any remedies provided thereunder for any breach of such
representations and warranties, such right, title and interest may be enforced
by the Trustee on behalf of the Certificateholders. Upon the discovery by the
Company, the Master Servicer or the Trustee of a breach of any of the
representations and warranties made in the Seller's Warranty Certificate in
respect of any Mortgage Loan which materially and adversely affects the
interests of the Certificateholders in such Mortgage Loan, the party discovering
such breach shall give prompt written notice to the other parties. The Trustee
shall promptly notify the Seller of such breach and request that such Seller
shall, within 90 days from the date that the Company, the Seller or the Trustee
was notified of such breach, either (i) cure such breach in all material
respects or (ii) purchase such Mortgage Loan from the Trust Fund at the Purchase
Price and in the manner set forth in Section 2.02; provided that in the case of
such breach, the Seller shall have the option to substitute a Qualified
Substitute Mortgage Loan or Loans for such Mortgage Loan if such substitution
occurs within 90 days following the Closing Date. Any such substitution must
occur within 90 days from the date the Seller was notified of the breach if such
90 day period expires before two years following the Closing Date. In the event
that the Seller elects to substitute a Qualified Substitute Mortgage Loan or
Loans for a Deleted Mortgage Loan
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pursuant to this Section 2.04, the Seller shall deliver to the Trustee for the
benefit of the Certificateholders with respect to such Qualified Substitute
Mortgage Loan or Loans, the original Mortgage Note, the Mortgage, an Assignment
of the Mortgage in recordable form, and such other documents and agreements as
are required by Section 2.01, with the Mortgage Note endorsed as required by
Section 2.01. No substitution will be made in any calendar month after the
Determination Date for such month. Monthly Payments due with respect to
Qualified Substitute Mortgage Loans in the month of substitution shall not be
part of the Trust Fund and will be retained by the Master Servicer and remitted
by the Master Servicer to the Seller on the next succeeding Distribution Date.
For the month of substitution, distributions to Certificateholders will include
the Monthly Payment due on a Deleted Mortgage Loan for such month and thereafter
the Seller shall be entitled to retain all amounts received in respect of such
Deleted Mortgage Loan. The Company shall amend or cause to be amended the
Mortgage Loan Schedule for the benefit of the Certificateholders to reflect the
removal of such Deleted Mortgage Loan and the substitution of the Qualified
Substitute Mortgage Loan or Loans and the Company shall deliver the amended
Mortgage Loan Schedule, to the Trustee. Upon such substitution, the Qualified
Substitute Mortgage Loan or Loans shall be subject to the terms of this
Agreement in all respects, the Seller shall be deemed to have made the
representations and warranties with respect to the Qualified Substitute Mortgage
Loan contained in the Seller's Warranty Certificate as of the date of
substitution, and the Company shall be deemed to have made with respect to any
Qualified Substitute Mortgage Loan or Loans, as of the date of substitution, the
representations and warranties set forth in Section 2.03 hereof, and the Seller
shall be obligated to repurchase or substitute for any Qualified Substitute
Mortgage Loan as to which a repurchase or substitution obligation has occurred
pursuant to Section 3 of the Seller's Warranty Certificate.
In connection with the substitution of one or more Qualified
Substitute Mortgage Loans for one or more Deleted Mortgage Loans, the Master
Servicer will determine the amount (if any) by which the aggregate principal
balance of all such Qualified Substitute Mortgage Loans as of the date of
substitution is less than the aggregate Stated Principal Balance of all such
Deleted Mortgage Loans (in each case after application of the principal portion
of the Monthly Payments due in the month of substitution that are to be
distributed to Certificateholders in the month of substitution). The Seller
shall provide the Master Servicer on the day of substitution for immediate
deposit in to the Custodial Account the amount of such shortfall, without any
reimbursement therefor. The Seller shall give notice in writing to the Trustee
of such event, which notice shall be accompanied by an Officers' Certificate as
to the calculation of such shortfall. The costs of any substitution as described
above, including any related assignments, opinions or other documentation in
connection therewith shall be borne by the Seller.
Except as expressly set forth herein neither the Trustee nor
the Master Servicer is under any obligation to discover any breach of the above
mentioned representations and warranties. It is understood and agreed that the
obligation of the Seller to cure such breach or to so purchase or substitute for
any Mortgage Loan as to which such a breach has occurred and is continuing shall
constitute the sole remedy respecting such breach available to
Certificateholders or the Trustee on behalf of Certificateholders. In addition,
if the first scheduled Monthly Payment is due during the first month after its
closing date (as such term is used in the Seller's Warranties Certificate) and
such Monthly Payment is not received by the Master Servicer within 30 days of
the due date in accordance with the terms of the related
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Mortgage Note, the Master Servicer shall promptly notify the Seller and the
Trustee and the Seller shall purchase such Mortgage Loan from the Trust Fund at
the Purchase Price or substitute a Qualified Substitute Mortgage Loan therefor
within 15 days from the date that the Seller was notified.
SECTION 2.05. Issuance of Certificates Evidencing
Interests in the Trust Fund.
The Trustee acknowledges the assignment to it of the Mortgage
Loans and the delivery of the Mortgage Files to it together with the assignment
to it of all other assets included in the Trust Fund, receipt of which is hereby
acknowledged. Concurrently with such delivery and in exchange therefor, the
Trustee, pursuant to the written request of the Company executed by an officer
of the Company, has executed and caused to be authenticated, and delivered to or
upon the order of the Company, the Certificates in authorized denominations
which evidence ownership of the entire Trust Fund.
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ARTICLE III
ADMINISTRATION AND SERVICING
OF THE TRUST FUND
SECTION 3.01. Master Servicer to Act as Master
Servicer.
The Master Servicer shall service and administer the Mortgage
Loans for the benefit of the Certificateholders, in accordance with this
Agreement and the customary and usual standards of practice of prudent
institutional mortgage lenders servicing comparable mortgage loans for their own
account in the respective states in which the Mortgaged Properties are located.
Subject to the foregoing, the Master Servicer shall have full power and
authority, acting alone and/or through Sub-Servicers as provided in Section
3.02, to do or cause to be done any and all things in connection with such
servicing and administration that it may deem necessary or desirable. Without
limiting the generality of the foregoing, the Master Servicer in its own name or
in the name of a Sub-Servicer is hereby authorized and empowered by the Trustee
when the Master Servicer believes it appropriate in its best judgment, to (i)
execute and deliver, on behalf of the Certificateholders and the Trustee or any
of them, any and all instruments of satisfaction or cancellation, or of partial
or full release or discharge, and all other comparable instruments, with respect
to the Mortgage Loans and the Mortgaged Properties, (ii) institute foreclosure
proceedings or obtain a deed-in-lieu of foreclosure so as to convert the
ownership of such properties, and (iii) hold or cause to be held title to such
properties, on behalf of the Trustee and Certificateholders. The Master Servicer
shall service and administer the Mortgage Loans in accordance with applicable
state and federal law and shall provide to the Mortgagors any reports required
to be provided to them thereby. Subject to Section 3.16, the Trustee shall
furnish to the Master Servicer and any Sub-Servicer any powers of attorney and
other documents necessary or appropriate to enable the Master Servicer and any
Sub-Servicer to carry out their servicing and administrative duties hereunder.
The Trustee shall not be responsible for any action taken by the Master Servicer
or any Sub-Servicer pursuant to the application of such powers of attorney.
In accordance with the standards of the preceding paragraph,
the Master Servicer shall advance or cause to be advanced funds as necessary for
the purpose of effecting the payment of taxes and assessments on the Mortgaged
Properties, which advances shall be reimbursable in the first instance from
related collections from the Mortgagors pursuant to Section 3.09, and further as
provided in Section 3.11. No costs incurred by the Master Servicer or by
Sub-Servicers in effecting the payment of taxes and assessments on the Mortgaged
Properties shall, for the purpose of calculating distributions to
Certificateholders, be added to the amount owing under the related Mortgage
Loans, notwithstanding that the terms of such Mortgage Loans so permit.
The Master Servicer may approve a request for a partial
release of the Mortgaged Property, easement, consent to alteration or demolition
and other similar matters if it has determined, exercising its good faith
business judgement in the same manner as it would if it were the owner of the
related Mortgage Loan, that such approval will not adversely affect the security
for, or the timely and full collectability of, the related Mortgage Loan. Any
fee
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collected by the Master Servicer for processing such request will be retained by
the Master Servicer as additional servicing compensation.
The relationship of the Master Servicer (and of any successor
to the Master Servicer under this Agreement) to the Trustee under this Agreement
is intended by the parties to be that of an independent contractor and not that
of a joint venturer, partner or agent.
SECTION 3.02. Sub-Servicing Agreements Between
Master Servicer and Sub-Servicers.
(a) The Master Servicer may enter into Sub-Servicing
Agreements with SubServicers for the servicing and administration of the
Mortgage Loans and for the performance of any and all other activities of the
Master Servicer hereunder. Each Sub-Servicer shall be either (i) an institution
the accounts of which are insured by the FDIC or (ii) another entity that
engages in the business of originating or servicing mortgage loans, and in
either case shall be authorized to transact business in the state or states in
which the related Mortgaged Properties it is to service are situated, if and to
the extent required by applicable law to enable the SubServicer to perform its
obligations hereunder and under the Sub-Servicing Agreement, and in either case
shall be a FHLMC or FNMA approved mortgage servicer. Each Sub-Servicing
Agreement must impose on the Sub-Servicer requirements conforming to the
provisions set forth in Section 3.08 and provide for servicing of the Mortgage
Loans consistent with the terms of this Agreement. With the consent of the
Trustee, which consent shall not be unreasonably withheld, the Master Servicer
and the Sub-Servicers may enter into Sub-Servicing Agreements and make
amendments to the Sub-Servicing Agreements or enter into different forms of
Sub-Servicing Agreements; provided, however, that any such amendments or
different forms shall be consistent with and not violate the provisions of this
Agreement.
(b) As part of its servicing activities hereunder, the Master
Servicer, for the benefit of the Trustee and the Certificateholders, shall
enforce the obligations of each SubServicer under the related Sub-Servicing
Agreement, including, without limitation, any obligation to make advances in
respect of delinquent payments as required by a Sub-Servicing Agreement, or to
purchase a Mortgage Loan on account of defective documentation or on account of
a breach of a representation or warranty, as described in Section 2.02. Such
enforcement, including, without limitation, the legal prosecution of claims,
termination of Sub-Servicing Agreements and the pursuit of other appropriate
remedies, shall be in such form and carried out to such an extent and at such
time as the Master Servicer, in its good faith business judgment, would require
were it the owner of the related Mortgage Loans. The Master Servicer shall pay
the costs of such enforcement at its own expense, but shall be reimbursed
therefor only (i) from a general recovery resulting from such enforcement only
to the extent, if any, that such recovery exceeds all amounts due in respect of
the related Mortgage Loans or (ii) from a specific recovery of costs, expenses
or attorneys' fees against the party against whom such enforcement is directed.
SECTION 3.03. Successor Sub-Servicers.
The Master Servicer shall be entitled to terminate any
Sub-Servicing Agreement and the rights and obligations of any Sub-Servicer
pursuant to any Sub-Servicing Agreement in
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accordance with the terms and conditions of such Sub-Servicing Agreement. In the
event of termination of any Sub-Servicer, all servicing obligations of such
Sub-Servicer shall be assumed simultaneously by the Master Servicer without any
act or deed on the part of such Sub-Servicer or the Master Servicer, and the
Master Servicer either shall service directly the related Mortgage Loans or
shall enter into a Sub-Servicing Agreement with a successor Sub-Servicer which
qualifies under Section 3.02.
SECTION 3.04. Liability of the Master Servicer.
Notwithstanding any Sub-Servicing Agreement, any of the
provisions of this Agreement relating to agreements or arrangements between the
Master Servicer and a SubServicer or reference to actions taken through a
Sub-Servicer or otherwise, the Master Servicer shall remain obligated and
primarily liable to the Trustee and Certificateholders for the servicing and
administering of the Mortgage Loans in accordance with the provisions of Section
3.01 without diminution of such obligation or liability by virtue of such
Sub-Servicing Agreements or arrangements or by virtue of indemnification from
the Sub-Servicer and to the same extent and under the same terms and conditions
as if the Master Servicer alone were servicing and administering the Mortgage
Loans. For purposes of this Agreement, the Master Servicer shall be deemed to
have received payments on Mortgage Loans when the Sub-Servicer has received such
payments. The Master Servicer shall be entitled to enter into any agreement with
a SubServicer for indemnification of the Master Servicer by such Sub-Servicer
and nothing contained in this Agreement shall be deemed to limit or modify such
indemnification.
SECTION 3.05. No Contractual Relationship Between
Sub-Servicers and Trustee or
Certificateholders.
Any Sub-Servicing Agreement that may be entered into and any
transactions or services relating to the Mortgage Loans involving a Sub-Servicer
in its capacity as such and not as an originator shall be deemed to be between
the Sub-Servicer and the Master Servicer alone, and the Trustee and
Certificateholders shall not be deemed parties thereto and shall have no claims,
rights, obligations, duties or liabilities with respect to the Sub-Servicer
except as set forth in Section 3.06.
SECTION 3.06. Assumption or Termination of
Sub-Servicing Agreements by Trustee.
In the event the Master Servicer shall for any reason no
longer be the master servicer (including by reason of an Event of Default), the
Trustee or its designee shall thereupon assume all of the rights and obligations
of the Master Servicer under each Sub-Servicing Agreement that the Master
Servicer may have entered into, unless the Trustee is then permitted and elects
to terminate any Sub-Servicing Agreement in accordance with its terms. The
Trustee, its designee or the successor servicer for the Trustee shall be deemed
to have assumed all of the Master Servicer's interest therein and to have
replaced the Master Servicer as a party to each Sub-Servicing Agreement to the
same extent as if the Sub-Servicing Agreements had been assigned to the assuming
party, except that the Master Servicer shall not thereby be relieved of any
liability or obligations under the Sub-Servicing Agreements, and the Master
Servicer shall
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continue to be entitled to any rights or benefits which arose prior to its
termination as master servicer.
The Master Servicer at its expense shall, upon request of the
Trustee, deliver to the assuming party all documents and records relating to
each Sub-Servicing Agreement and the Mortgage Loans then being serviced and an
accounting of amounts collected and held by it and otherwise use its best
efforts to effect the orderly and efficient transfer of the Sub-Servicing
Agreements to the assuming party.
SECTION 3.07. Collection of Certain Mortgage Loan
Payments.
The Master Servicer shall make reasonable efforts to collect
all payments called for under the terms and provisions of the Mortgage Loans,
and shall, to the extent such procedures shall be consistent with this Agreement
and the terms and provisions of any related Insurance Policy, follow such
collection procedures as it would follow with respect to mortgage loans
comparable to the Mortgage Loans and held for its own account. The Master
Servicer shall not be required to institute or join in litigation with respect
to collection of any payment (whether under a Mortgage, Mortgage Note, Primary
Hazard Insurance Policy, Primary Mortgage Insurance Policy or otherwise or
against any public or governmental authority with respect to a taking or
condemnation) if it reasonably believes that it is prohibited by applicable law
from enforcing the provision of the Mortgage or other instrument pursuant to
which such payment is required. Consistent with the foregoing, the Master
Servicer may in its discretion waive any prepayment fees, late payment charge or
other charge, except as otherwise required under applicable law. The Master
Servicer shall be responsible for preparing and distributing all information
statements relating to payments on the Mortgage Loans, in accordance with all
applicable federal and state tax laws and regulations.
SECTION 3.08. Sub-Servicing Accounts.
In those cases where a Sub-Servicer is servicing a Mortgage
Loan pursuant to a Sub-Servicing Agreement, the Sub-Servicer will be required to
establish and maintain one or more accounts (collectively, the "Sub-Servicing
Account"). The Sub-Servicing Account shall be an Eligible Account and shall
otherwise be acceptable to the Master Servicer. All amounts held in a
Sub-Servicing Account shall be held in trust for the Trustee for the benefit of
the Certificateholders. The Sub-Servicer will be required to deposit into the
Sub-Servicing Account no later than the first Business Day after receipt all
proceeds of Mortgage Loans received by the Sub-Servicer, less its servicing
compensation and any unreimbursed expenses and advances, to the extent permitted
by the Sub-Servicing Agreement. On each Sub-Servicer Remittance Date the
Sub-Servicer will be required to remit to the Master Servicer for deposit into
the Custodial Account all funds held in the Sub-Servicing Account with respect
to any Mortgage Loan as of the Sub-Servicer Remittance Date, after deducting
from such remittance an amount equal to the servicing compensation and
unreimbursed expenses and advances to which it is then entitled pursuant to the
related Sub-Servicing Agreement, to the extent not previously paid to or
retained by it. In addition, on each Sub-Servicer Remittance Date the
Sub-Servicer will be required to remit to the Master Servicer any amounts
required to be advanced pursuant to the related SubServicing Agreement. The
Sub-Servicer will also be required to remit to the Master Servicer,
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within one Business Day of receipt, the proceeds of any Principal Prepayment
made by the Mortgagor and any Insurance Proceeds or Liquidation Proceeds.
SECTION 3.09. Collection of Taxes, Assessments and
Similar Items; Servicing Accounts.
The Master Servicer and the Sub-Servicers shall establish and
maintain one or more accounts (the "Servicing Accounts"), and shall deposit and
retain therein all collections from the Mortgagors (or related advances from
Sub-Servicers) for the payment of taxes, assessments, Primary Hazard Insurance
Policy premiums, and comparable items for the account of the Mortgagors, to the
extent that the Master Servicer customarily escrows for such amounts.
Withdrawals of amounts so collected from a Servicing Account may be made only to
(i) effect payment of taxes, assessments, Primary Hazard Insurance Policy
premiums and comparable items; (ii) reimburse the Master Servicer (or a
Sub-Servicer to the extent provided in the related Sub-Servicing Agreement) out
of related collections for any payments made pursuant to Sections 3.01 (with
respect to taxes and assessments) and 3.13 (with respect to Primary Hazard
Insurance Policies); (iii) refund to Mortgagors any sums as may be determined to
be overages; or (iv) clear and terminate the Servicing Account at the
termination of this Agreement pursuant to Section 9.01. As part of its servicing
duties, the Master Servicer or Sub-Servicers shall, if and to the extent
required by law, pay to the Mortgagors interest on funds in Servicing Accounts
from its or their own funds, without any reimbursement therefor.
SECTION 3.10. Custodial Account.
(a) The Master Servicer shall establish and maintain one or
more accounts (collectively, the "Custodial Account") in which the Master
Servicer shall deposit or cause to be deposited no later than the first Business
Day after receipt or as and when received from the Sub-Servicers, the following
payments and collections received or made by or on behalf of it subsequent to
the Cut-off Date, or received by it prior to the Cut-off Date but allocable to a
period subsequent thereto (other than in respect of principal and interest on
the Mortgage Loans due on or before the Cut-off Date):
(i) all payments on account of principal, including Principal
Prepayments, on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage Loans,
not including any portion thereof representing interest on account of
the related Servicing Fee Rate;
(iii) all Insurance Proceeds, other than proceeds that represent
reimbursement of costs and expenses incurred by the Master Servicer in
connection with presenting claims under the related Insurance Policies,
Liquidation Proceeds and REO Proceeds;
(iv) all proceeds of any Mortgage Loan or REO Property
repurchased or purchased in accordance with Sections 2.02, 2.04, 3.25
or 9.01 and all amounts required to be deposited in connection with the
substitution of a Qualified Substitute Mortgage Loan pursuant to
Section 2.04;
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(v) any amounts required to be deposited in the Custodial
Account pursuant to Section 3.12, 3.13 or 3.22; and
(vi) all amounts required to be deposited pursuant to Section
3.25.
For purposes of the immediately preceding sentence, the
Cut-off Date with respect to any Qualified Substitute Mortgage Loan shall be
deemed to be the date of substitution.
The foregoing requirements for deposit in the Custodial
Account shall be exclusive. In the event the Master Servicer shall deposit in
the Custodial Account any amount not required to be deposited therein, it may
withdraw such amount from the Custodial Account, any provision herein to the
contrary notwithstanding. The Custodial Account shall be maintained as a
segregated account, separate and apart from trust funds created for mortgage
pass-through certificates of other series, and the other accounts of the Master
Servicer.
(b) Funds in the Custodial Account may be invested in
Permitted Instruments in accordance with the provisions set forth in Section
3.12. The Master Servicer shall give notice to the Trustee and the Company of
the location of the Custodial Account after any change thereof.
(c) Payments in the nature of late payment charges, prepayment
fees, assumption fees and reconveyance fees received on the Mortgage Loans shall
not be deposited in the Custodial Account, but rather shall be received and held
by the Master Servicer as additional servicing compensation.
SECTION 3.11. Permitted Withdrawals From the
Custodial Account.
The Master Servicer may, from time to time as provided herein,
make withdrawals from the Custodial Account of amounts on deposit therein
pursuant to Section 3.10 that are attributable to the Mortgage Loans for the
following purposes:
(i) to make deposits into the Certificate Account in
the amounts and in the manner provided for in Section 4.01, such
deposit to include interest collections on the Mortgage Loans at the
Net Mortgage Rate [and net of amounts reimbursed therefrom];
(ii) to pay to itself, the Company, the Seller or any
other appropriate person, as the case may be, with respect to each
Mortgage Loan that has previously been purchased, repurchased or
replaced pursuant to Sections 2.02, 2.04 or 9.01 all amounts received
thereon and not yet distributed as of the date of purchase, repurchase
or substitution;
(iii) to reimburse itself or any Sub-Servicer for
Advances not previously reimbursed, the Master Servicer's or any
Sub-Servicer's right to reimbursement pursuant to this clause (iii)
being limited to amounts received which represent Late Collections (net
of the related Servicing Fees) of Monthly Payments on
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Mortgage Loans with respect to which such Advances were made and as
further provided in Section 3.15;
(iv) to reimburse or pay itself, the Trustee or the
Company for expenses incurred by or reimbursable to the Master
Servicer, the Trustee or the Company pursuant to Sections 3.22, 6.03,
8.05, 10.01(c) or 10.01(g), except as otherwise provided in such
Sections;
(v) to reimburse itself or any Sub-Servicer for costs
and expenses incurred by or reimbursable to it relating to the
prosecution of any claims pursuant to Section 3.13 that are in excess
of the amounts so recovered;
(vi) to reimburse itself or any Sub-Servicer for unpaid
Servicing Fees and unreimbursed Servicing Advances, the Master
Servicer's or any Sub-Servicer's right to reimbursement pursuant to
this clause (vi) with respect to any Mortgage Loan being limited to
late recoveries of the payments for which such advances were made
pursuant to Section 3.01 or Section 3.09 and any other related Late
Collections;
(vii) to pay itself as servicing compensation (in
addition to the Servicing Fee), on or after each Distribution Date, any
interest or investment income earned on funds deposited in the
Custodial Account for the period ending on such Distribution Date,
subject to Section 8.05;
(viii) to reimburse itself or any Sub-Servicer for any
Advance previously made which itself has determined to be a
Nonrecoverable Advance, provided that such Advance was made with
respect to a delinquency that ultimately constituted an Excess Special
Hazard Loss, Excess Fraud Loss, Excess Bankruptcy Loss or Extraordinary
Loss; and
(ix) to clear and terminate the Custodial Account at the
termination of this Agreement pursuant to Section 9.01.
The Master Servicer shall keep and maintain separate
accounting records on a Mortgage Loan by Mortgage Loan basis, for the purpose of
justifying any withdrawal from the Custodial Account pursuant to such clauses
(ii), (iii), (iv), (v), (vi), (vii) and (viii).
SECTION 3.12. Permitted Instruments.
Any institution maintaining the Custodial Account shall at the
direction of the Master Servicer invest the funds in such account in Permitted
Instruments, each of which shall mature not later than the Business Day
immediately preceding the Distribution Date next following the date of such
investment (except that if such Permitted Instrument is an obligation of the
institution that maintains such account, then such Permitted Instrument shall
mature not later than such Distribution Date) and shall not be sold or disposed
of prior to its maturity. All income and gain realized from any such investment
as well as any interest earned on deposits in the Custodial Account shall be for
the benefit of the Master Servicer. The Master Servicer shall deposit in the
Custodial Account (with respect to investments made hereunder of funds held
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therein) an amount equal to the amount of any loss incurred in respect of any
such investment immediately upon realization of such loss without right of
reimbursement.
SECTION 3.13. Maintenance of the Letter of Credit,
Primary Mortgage Insurance and
Primary Hazard Insurance.
(a) The Master Servicer covenants and agrees to exercise its
best reasonable efforts to maintain and keep the Letter of Credit in full force
and effect in accordance with Section 4.06 until the termination of the Trust
Fund created hereby, unless the amount available to be drawn thereunder has been
exhausted or unless the Letter of Credit has been terminated pursuant to the
terms thereof or hereof. As to any Distribution Date, with respect to any
Mortgage Loan as to which liquidation has been completed (which shall be deemed
to have occurred when the Master Servicer determines that it has received all
Insurance Proceeds (other than proceeds from a drawing under the Letter of
Credit), Liquidation Proceeds and other recoveries which the Master Servicer
deems to be recoverable) during the preceding calendar month or was deemed to
have occurred during such preceding calendar month in accordance with Section
3.07 (other than any Mortgage Loan relating to a Mortgaged Property which has
suffered an Extraordinary Loss), by 12:00 Noon, New York City time, on the
related Certificate Account Deposit Date, the Trustee shall draw on the Letter
of Credit, after receipt of the written statement of the Master Servicer
delivered pursuant to Section 4.04, pursuant to the terms thereof. In lieu of a
draw under the Letter of Credit as provided above, the Seller, at its sole
option, may, on the Certificate Account Deposit Date upon which such draw could
otherwise be made, deposit an amount equal to such draw into the Certificate
Account. After any drawing under the Letter of Credit or payment by the Seller
pursuant to this Section 3.13(a), the Trustee shall assign to the Seller any
rights in or to the related Mortgage Loan and such Mortgage Loan will thereafter
no longer be part of the Trust Fund. Upon receipt by the Seller of any amounts
in connection with a Mortgage Loan so assigned to it, the Seller shall supply
the Trustee with an Officers' Certificate which sets forth such amount, and
(except in the case of a payment made by the Seller in lieu of a draw on the
Letter of Credit) the Seller shall cause the Letter of Credit Issuer to be
reimbursed to the extent required for reinstatement of the available amount
under the Letter of Credit. Upon receipt by the Trustee of such an Officers'
Certificate, if the Letter of Credit remains outstanding, the Trustee shall
request the reinstatement of the amount remaining under the Letter of Credit in
an amount equal to such recovered amount by delivering a certificate to the
Letter of Credit Issuer substantially in the form of Annex B to the Letter of
Credit.
Notwithstanding the foregoing, draws on the Letter of Credit,
or payments in lieu thereof, in connection with Fraud Losses shall not exceed in
the aggregate Fraud Loss Amount.
(b) The Master Servicer may terminate the Letter of Credit or
reduce the amount thereof (pursuant to Section 4.06(d)) or substitute an
alternative form of credit enhancement therefor, provided that prior to any such
reduction, termination or substitution, the Master Servicer shall obtain written
confirmation from the Rating Agency that such reduction, termination or
substitution would not adversely affect the then-current rating assigned to the
Certificates by such Rating Agency and provide a copy of such confirmation to
the Trustee and, provided that the Master Servicer obtains on Opinion of Counsel
to the effect that obtaining any
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such alternative form of credit support will not adversely affect the
classification of the Trust Fund as a grantor trust for federal income tax
purposes.
(c) The Master Servicer shall not take, or permit any
Sub-servicer to take, any action which would result in non-coverage under any
applicable Primary Mortgage Insurance Policy of any loss which, but for the
actions of the Master Servicer or Sub-servicer, would have been covered
thereunder. To the extent coverage is available, the Master Servicer shall keep
or cause to be kept in full force and effect each such Primary Mortgage
Insurance Policy until the principal balance of the related Mortgage Loan
secured by a Mortgaged Property is reduced to 75% or less of the Collateral
Value in the case of such a Mortgage Loan having a Loan-toValue Ratio at
origination in excess of 80%. The Master Servicer shall not cancel or refuse to
renew any such Primary Mortgage Insurance Policy, or consent to any Sub-servicer
canceling or refusing to renew any such Primary Mortgage Insurance Policy
applicable to a Mortgage Loan subserviced by it, that is in effect at the date
of the initial issuance of the Certificates and is required to be kept in force
hereunder unless the replacement Primary Mortgage Insurance Policy for such
canceled or non-renewed policy is maintained with a Qualified Insurer.
(d) In connection with its activities as administrator and
servicer of the Mortgage Loans, the Master Servicer agrees to present or to
cause the related Sub-servicer to present, on behalf of the Master Servicer, the
Sub-servicer, if any, the Trustee and Certificateholders, claims to the insurer
under any Primary Mortgage Insurance Policies, in a timely manner in accordance
with such policies, and, in this regard, to take or cause to be taken such
reasonable action as shall be necessary to permit recovery under any Primary
Mortgage Insurance Policies respecting defaulted Mortgage Loans. Pursuant to
Section 3.10, any Insurance Proceeds collected by or remitted to the Master
Servicer under any Primary Mortgage Insurance Policies shall be deposited in the
Custodial Account, subject to withdrawal pursuant to Section 3.11.
(e) The Master Servicer shall cause to be maintained for each
Mortgage Loan primary hazard insurance with extended coverage on the related
Mortgaged Property in an amount equal to the lesser of 100% of the replacement
value of the improvements, as determined by the insurance company, on such
Mortgaged Property or the unpaid principal balance of the Mortgage Loan. The
Master Servicer shall also cause to be maintained on property acquired upon
foreclosure, or deed in lieu of foreclosure, of any Mortgage Loan, fire
insurance with extended coverage in an amount equal to the replacement value of
the improvements thereon. Pursuant to Section 3.10, any amounts collected by the
Master Servicer under any such policies (other than amounts to be applied to the
restoration or repair of the related Mortgaged Property or property thus
acquired or amounts released to the Mortgagor in accordance with the Master
Servicer's normal servicing procedures) shall be deposited in the Custodial
Account, subject to withdrawal pursuant to Section 3.11. Any cost incurred by
the Master Servicer in maintaining any such insurance shall not, for the purpose
of calculating monthly distributions to Certificateholders, be added to the
amount owing under the Mortgage Loan, notwithstanding that the terms of the
Mortgage Loan so permit. It is understood and agreed that no earthquake or other
additional insurance is to be required of any Mortgagor or maintained on
property acquired in respect of a Mortgage Loan other than pursuant to such
applicable laws and regulations as shall at any time be in force and as shall
require such additional insurance. When the improvements securing a Mortgage
Loan are located at the time of origination of such Mortgage
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Loan in a federally designated special flood hazard area, the Master Servicer
shall cause flood insurance (to the extent available) to be maintained in
respect thereof. Such flood insurance shall be in an amount equal to the lesser
of (i) the replacement value of the improvements, which are part of such
Mortgaged Property on a replacement cost basis and (ii) the maximum amount of
such insurance available for the related Mortgaged Property under the national
flood insurance program (assuming that the area in which such Mortgaged Property
is located is participating in such program).
In the event that the Master Servicer shall obtain and
maintain a blanket fire insurance policy with extended coverage insuring against
hazard losses on all of the Mortgage Loans, it shall conclusively be deemed to
have satisfied its obligations as set forth in the first two sentences of this
Section 3.13, it being understood and agreed that such policy may contain a
deductible clause, in which case the Master Servicer shall, in the event that
there shall not have been maintained on the related Mortgaged Property a policy
complying with the first two sentences of this Section 3.13 and there shall have
been a loss which would have been covered by such policy, deposit in the
Certificate Account the amount not otherwise payable under the blanket policy
because of such deductible clause. Any such deposit by the Master Servicer shall
be made on the Certificate Account Deposit Date next preceding the Distribution
Date which occurs in the month following the month in which payments under any
such policy would have been deposited in the Custodial Account. In connection
with its activities as administrator and servicer of the Mortgage Loans, the
Master Servicer agrees to present, on behalf of itself, the Trustee and
Certificateholders, claims under any such blanket policy.
SECTION 3.14. Enforcement of Due-on-Sale Clauses;
Assumption Agreements.
The Master Servicer will, to the extent it has knowledge of
any conveyance or prospective conveyance by any Mortgagor of the Mortgaged
Property (whether by absolute conveyance or by contract of sale, and whether or
not the Mortgagor remains or is to remain liable under the Mortgage Note or the
Mortgage), exercise or cause to be exercised its rights to accelerate the
maturity of such Mortgage Loan under any "due-on-sale" clause applicable
thereto; provided, however, that the Master Servicer shall not exercise any such
rights if it reasonably believes that it is prohibited by law from doing so or
if such enforcement will adversely affect or jeopardize required coverage under
the Insurance Instruments. If the Master Servicer is unable to enforce such
"due-on-sale" clause (as provided in the previous sentence) or if no
"due-on-sale" clause is applicable, the Master Servicer or the Sub-Servicer will
enter into an assumption and modification agreement with the Person to whom such
property has been conveyed or is proposed to be conveyed, pursuant to which such
Person becomes liable under the Mortgage Note and, to the extent permitted by
applicable state law, the Mortgagor remains liable thereon; provided, however,
that the Master Servicer shall not enter into any assumption and modification
agreement if the coverage provided under the Primary Insurance Policy, if any,
would be impaired by doing so. The Master Servicer is also 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 the Mortgagor and becomes liable under the Mortgage Note, if the Master
Servicer shall have determined in good faith that such substitution will not
adversely affect the collectability of the Mortgage Loan. Any fee collected by
or on behalf of the Master Servicer for entering into an assumption or
substitution of liability
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agreement will be retained by or on behalf of the Master Servicer as additional
servicing compensation. In connection with any such assumption, no material term
of the Mortgage Note (including but not limited to the Mortgage Rate, the amount
of the Monthly Payment and any other term affecting the amount or timing of
payment on the Mortgage Loan) may be changed. The Master Servicer shall notify
the Trustee that any such substitution or assumption agreement has been
completed by forwarding to the Trustee the original copy of such substitution or
assumption agreement, which copy shall be added to the related Mortgage File and
shall, for all purposes, be considered a part of such Mortgage File to the same
extent as all other documents and instruments constituting a part thereof.
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 that the
Master Servicer may be restricted by law from preventing, for any reason
whatsoever. For purposes of this Section 3.14, the term "assumption" is deemed
to also include a sale of a Mortgaged Property that is not accompanied by an
assumption or substitution of liability agreement.
SECTION 3.15. Realization Upon Defaulted Mortgage
Loans.
The Master Servicer shall exercise reasonable efforts,
consistent with the procedures that the Master Servicer would use in servicing
loans for its own account, to foreclose upon or otherwise comparably convert
(which may include an REO Acquisition) the ownership of properties securing such
of the Mortgage Loans as come into and continue in default and as to which no
satisfactory arrangements can be made for collection of delinquent payments
pursuant to Section 3.07, and which are not released from the Trust Fund
pursuant to any other provision hereof. The Master Servicer shall use reasonable
efforts to realize upon such defaulted Mortgage Loans in such manner as will
maximize the receipt of principal and interest by Certificateholders, taking
into account, among other things, the timing of foreclosure proceedings. The
foregoing is subject to the provisions that, in any case in which Mortgaged
Property shall have suffered damage from an Uninsured Cause, the Master Servicer
shall not be required to expend its own funds toward the restoration of such
property unless it shall determine in (i) that such restoration will increase
the net proceeds of liquidation of the related Mortgage Loan to
Certificateholders after reimbursement to itself for such expenses, and (ii)
that such expenses will be recoverable by the Master Servicer through Insurance
Proceeds or Liquidation Proceeds from the related Mortgaged Property, as
contemplated in Section 3.11. The Master Servicer shall be responsible for all
other costs and expenses incurred by it in any such proceedings; provided,
however, that it shall be entitled to reimbursement thereof from the related
Mortgaged Property, as contemplated in Section 3.11.
The proceeds of any Cash Liquidation or REO Disposition, as
well as any recovery resulting from a partial collection of Insurance Proceeds
or Liquidation Proceeds or any income from an REO Property, will be applied in
the following order of priority: first, to reimburse the Master Servicer or any
Sub-Servicer for any related unreimbursed Servicing Advances, pursuant to
Section 3.11(vi) or 3.22; second, to accrued and unpaid interest on the Mortgage
Loan or REO Imputed Interest, at the Mortgage Rate, to the date of the Cash
Liquidation or REO Disposition, or to the Due Date prior to the Distribution
Date on which such
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amounts are to be distributed if not in connection with a Cash Liquidation or
REO Disposition; and third, as a recovery of principal of the Mortgage Loan. If
the amount of the recovery so allocated to interest is less than a full recovery
thereof, that amount will be allocated as follows: first, on a pro rata basis,
to unpaid Servicing Fees; and second, to interest at the related Net Mortgage
Rate. The portion of the recovery so allocated to unpaid Servicing Fees shall be
reimbursed to the Master Servicer or any Sub-Servicer pursuant to Section
3.11(vi). The portions of the recovery so allocated to interest at the related
Net Mortgage Rate and to principal of the Mortgage Loan shall be applied as
follows: first, to reimburse the Trustee for any unpaid Trustee's Fees, second,
to reimburse the Master Servicer or any Sub-Servicer for any related
unreimbursed Advances in accordance with Section 3.11(iii) or 3.22, and third,
for distribution in accordance with the provisions of Section 4.01(b).
SECTION 3.16. Trustee to Cooperate; Release of
Mortgage Files.
Upon the payment in full of any Mortgage Loan, or the receipt
by the Master Servicer of a notification that payment in full shall be escrowed
in a manner customary for such purposes, the Master Servicer will immediately
notify the Trustee by a certification (which certification shall include a
statement to the effect that all amounts received or to be received in
connection with such payment which are required to be deposited in the Custodial
Account pursuant to Section 3.10 have been or will be so deposited) of a
Servicing Officer and shall request delivery to it of the Mortgage File in the
form of the Request for Release attached hereto as Exhibit F-2. Upon receipt of
such certification and request, the Trustee shall promptly release the related
Mortgage File to the Master Servicer. Subject to the receipt by the Master
Servicer of the proceeds of such payment in full and the payment of all related
fees and expenses, the Master Servicer shall arrange for the release to the
Mortgagor of the original cancelled Mortgage Note. The Master Servicer shall
provide for preparation of the appropriate instrument of satisfaction covering
any Mortgage Loan which pays in full and the Trustee shall cooperate in the
execution and return of such instrument to provide for its delivery or recording
as may be required. All other documents in the Mortgage File shall be retained
by the Master Servicer to the extent required by applicable law. No expenses
incurred in connection with any instrument of satisfaction or deed of
reconveyance shall be chargeable to the Custodial Account or the Certificate
Account.
From time to time and as appropriate for the servicing or
foreclosure of any Mortgage Loan, including, for this purpose, collection under
the Insurance Instruments or any other insurance policy relating to the Mortgage
Loan, the Trustee shall, upon request of the Master Servicer and delivery to the
Trustee of a Request for Release in the form attached hereto as Exhibit F-1,
release the related Mortgage File to the Master Servicer, and the Trustee shall
execute such documents as the Master Servicer shall prepare and request as being
necessary to the prosecution of any such proceedings. Such Request for Release
shall obligate the Master Servicer to return each document previously requested
from the Mortgage File to the Trustee when the need therefor by the Master
Servicer no longer exists, unless the Mortgage Loan has been liquidated and the
Liquidation Proceeds relating to the Mortgage Loan have been deposited in the
Custodial Account or the Mortgage File or such document has been delivered to an
attorney, or to a public trustee or other public official as required by law,
for purposes of initiating or pursuing legal action or other proceedings for the
foreclosure of the Mortgaged Property either judicially or non-judicially, and
the Master Servicer has delivered to the Trustee
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a certificate of a Servicing Officer certifying as to the name and address of
the Person to which such Mortgage File or such document was delivered and the
purpose or purposes of such delivery. Upon receipt of a certificate of a
Servicing Officer stating that such Mortgage Loan was liquidated and that all
amounts received or to be received in connection with such liquidation which are
required to be deposited into the Custodial Account have been or will be so
deposited, or that such Mortgage Loan has become an REO Property, the servicing
receipt shall be released by the Trustee to the Master Servicer.
Upon written request of a Servicing Officer, the Trustee shall
execute and deliver to the Master Servicer any court pleadings, requests for
trustee's sale or other documents prepared by the Master Servicer that are
necessary to the foreclosure or trustee's sale in respect of a Mortgaged
Property or to any legal action brought to obtain judgment against any Mortgagor
on the Mortgage Note or Mortgage or to obtain a deficiency judgment, or to
enforce any other remedies or rights provided by the Mortgage Note or Mortgage
or otherwise available at law or in equity. Each such request that such
pleadings or documents be executed by the Trustee shall include a certification
as to the reason such documents or pleadings are required and that the execution
and delivery thereof by the Trustee will not invalidate or otherwise affect the
lien of the Mortgage, except for the termination of such a lien upon completion
of the foreclosure or trustee's sale.
SECTION 3.17. Servicing Compensation.
As compensation for its activities hereunder, the Master
Servicer shall be entitled to retain, from deposits to the Custodial Account of
amounts representing payments or recoveries of interest, the Servicing Fees with
respect to each Mortgage Loan (less any portion of such amounts retained by any
Sub-Servicer). In addition, the Master Servicer shall be entitled to recover
unpaid Servicing Fees out of related Late Collections to the extent permitted in
Section 3.11.
The Master Servicer also shall be entitled pursuant to Section
3.11 to receive from the Custodial Account, as additional servicing compensation
interest or other income earned on deposits therein, as well as any prepayment
fees, assumption fees, late payment fees and reconveyance fees. The Master
Servicer shall be required to pay all expenses incurred by it in connection with
its servicing activities hereunder (including payment of fees and commissions
for the Letter of Credit, payment of the premiums for any Primary Mortgage
Insurance Policy or blanket policy insuring against hazard losses pursuant to
Section 3.13, payment of the servicing compensation of the Sub-Servicer to the
extent not retained by it), and shall not be entitled to reimbursement therefor
except as specifically provided in Section 3.11. The Servicing Fee may not be
transferred in whole or in part except in connection with the transfer of all of
the Master Servicer's responsibilities and obligations under this Agreement.
SECTION 3.18. Maintenance of Certain Servicing
Policies.
During the term of its service as Master Servicer, the Master
Servicer shall maintain in force (i) a policy or policies of insurance covering
errors and omissions in the performance of its obligations as servicer hereunder
and (ii) a fidelity bond in respect of its officers, employees or agents. Each
such policy or policies and bond shall, together, comply
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with the requirements from time to time of FNMA or FHLMC for persons performing
servicing for mortgage loans purchased by such corporation. The Master Servicer
shall prepare and present, on behalf of itself, the Trustee and
Certificateholders, claims under any such errors and omissions policy or
policies or fidelity bond in a timely fashion in accordance with the terms of
such policy or bond, and upon the filing of any claim on any policy or bond
described in this Section, the Master Servicer shall promptly notify the Trustee
of any such claims and the Trustee shall notify the Rating Agency of such claim.
SECTION 3.19. Annual Statement as to Compliance.
The Master Servicer will deliver to the Trustee and the
Company on or before _____ __ of each year, beginning with _____ __, 199_, an
Officers' Certificate stating, as to each signatory thereof, that (i) a review
of the activities of the Master Servicer during the preceding calendar year and
of its performance under this Agreement has been made under such officers'
supervision, and (ii) to the best of such officers' knowledge, based on such
review, the Master Servicer has fulfilled in all material respects its
obligations under this Agreement throughout such year, or, if there has been a
default in the fulfillment of any such obligation, specifying each such default
known to such officers and the nature and status thereof. Copies of such
certificate shall be provided by the Trustee to any Certificateholder upon
request at the Master Servicer's expense, provided such statement is delivered
by the Master Servicer to the Trustee.
SECTION 3.20. Annual Independent Public
Accountants' Servicing Statement.
On or before March 31 of each year, beginning with March 31,
19__, the Master Servicer at its expense shall furnish to the Company and the
Trustee a statement from a firm of independent certified public accountants
(which is a member of the American Institute of Certified Public Accountants) to
the effect that, based on an examination by such firm conducted substantially in
compliance with the Uniform Single Attestation Program for Mortgage Bankers or
the Audit Program for Mortgages serviced for FHLMC, the servicing of mortgage
loans under agreements (including this Agreement) substantially similar to each
other was conducted in compliance with such agreements except for such
significant exceptions or errors in record that, in the opinion of the firm, the
Uniform Single Attestation Program for Mortgage Bankers or the Audit Program for
Mortgages serviced for FHLMC requires it to report. In rendering its statement
such firm may rely, as to the matters relating to the direct servicing of
mortgage loans by Sub-servicers, upon comparable statements for examinations
conducted substantially in compliance with the Uniform Single Attestation
Program for Mortgage Bankers or the Audit Program for Mortgages serviced for
FHLMC (rendered within one year of such statement) of firms of independent
public accountants with respect to those Sub-servicers which also have been the
subject of such an examination. Copies of such statement shall be provided by
the Trustee to any Certificateholder upon request at the Master Servicer's
expense, provided such statement is delivered by the Master Servicer to the
Trustee.
SECTION 3.21. Access to Certain Documentation.
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(a) The Master Servicer shall provide to the OTS, the FDIC and
other federal banking regulatory agencies, and their respective examiners,
access to the documentation regarding the Mortgage Loans required by applicable
regulations of the OTS, the FDIC and such other agencies. Such access shall be
afforded without charge, but only upon reasonable and prior written request and
during normal business hours at the offices of the Master Servicer designated by
it. Nothing in this Section shall derogate from the obligation of the Master
Servicer to observe any applicable law prohibiting disclosure of information
regarding the Mortgagors and the failure of the Master Servicer to provide
access as provided in this Section as a result of such obligation shall not
constitute a breach of this section.
(b) The Master Servicer shall afford the Company and the
Trustee, upon reasonable notice, during normal business hours access to all
records maintained by the Master Servicer in respect of its rights and
obligations hereunder and access to officers of the Master Servicer responsible
for such obligations. Upon request, the Master Servicer shall furnish the
Company and the Trustee with its most recent financial statements and such other
information as the Master Servicer possesses regarding its business, affairs,
property and condition, financial or otherwise to the extent related to the
servicing of the Mortgage Loans. The Company may, but is not obligated to,
enforce the obligations of the Master Servicer hereunder and may, but is not
obligated to, perform, or cause a designee to perform, any defaulted obligation
of the Master Servicer hereunder or exercise the rights of the Master Servicer
hereunder; provided that the Master Servicer shall not be relieved of any of its
obligations hereunder by virtue of such performance by the Company or its
designee. The Company shall not have any responsibility or liability for any
action or failure to act by the Master Servicer and is not obligated to
supervise the performance of the Master Servicer under this Agreement or
otherwise.
SECTION 3.22. Title, Conservation and Disposition
of REO Property.
This Section shall apply only to REO Properties acquired for
the account of the Trust Fund, and shall not apply to any REO Property relating
to a Mortgage Loan which was purchased or repurchased from the Trust Fund
pursuant to any provision hereof. In the event that title to any such REO
Property is acquired, the deed or certificate of sale shall be issued to the
Trustee, or to its nominee, on behalf of the Certificateholders. 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 Certificateholders, rent the same, or any
part thereof, as the Master Servicer deems to be in the best interest of the
Certificateholders for the period prior to the sale of such REO Property.
The Master Servicer shall segregate and hold all funds
collected and received in connection with the operation of any REO Property
separate and apart from its own funds and general assets. The Master Servicer
shall deposit, or cause to be deposited, on a daily basis in the Custodial
Account all revenues received with respect to the REO Properties, net of any
directly related expenses incurred or withdraw therefrom funds necessary for the
proper operation, management and maintenance of the REO Property.
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If as of the date of acquisition of title to any REO Property
there remain outstanding unreimbursed Servicing Advances with respect to such
REO Property or any outstanding Advances allocated thereto the Master Servicer,
upon an REO Disposition, shall be entitled to reimbursement for any related
unreimbursed Servicing Advances and any unreimbursed related Advances as well as
any unpaid Servicing Fees from proceeds received in connection with the REO
Disposition, as further provided in Section 3.15.
Subject to the first paragraph of this Section 3.22, the REO
Disposition shall be carried out by the Master Servicer at such price and upon
such terms and conditions as the Master Servicer shall determine to be in the
best economic interest of the Trust Fund.
The Master Servicer shall deposit the proceeds from the REO
Disposition, net of any payment to the Master Servicer as provided above, in the
Custodial Account upon receipt thereof for distribution in accordance with
Section 4.01, including any such net proceeds which are in excess of the
applicable Stated Principal Balance plus all unpaid REO Imputed Interest thereon
through the date of the REO Disposition.
Notwithstanding the foregoing provisions of this Section 3.22,
with respect to any Mortgage Loan as to which the Master Servicer has received
notice of, or has actual knowledge of, the presence of any toxic or hazardous
substance on the Mortgaged Property, the Master Servicer shall promptly request
the Trustee and the Company to provide directions and instructions with respect
to such Mortgage Loan and shall act in accordance with any such directions and
instructions jointly provided by the Trustee and the Company. Notwithstanding
the preceding sentence of this Section 3.22, with respect to any Mortgage Loan
described by such sentence, the Master Servicer shall not, on behalf of the
Trustee, either (i) obtain title to the related Mortgaged Property as a result
of or in lieu of foreclosure or otherwise, or (ii) otherwise acquire possession
of, the related Mortgaged Property, unless (i) the Company and the Trustee
jointly direct the Master Servicer to take such action and (ii) either (A) the
Master Servicer has, at least 30 days prior to taking such action, obtained and
delivered to the Company an environmental audit report prepared by a Person who
regularly conducts environmental audits using customary industry standards or
(B) the Company has directed the Master Servicer not to obtain an environmental
audit report. If the Trustee and the Company have not jointly provided
directions and instructions to the Master Servicer in connection with any such
Mortgage Loan within 30 days of a request by the Master Servicer for such
directions and instructions, then the Master Servicer shall take such action as
it deems to be in the best economic interest of the Trust Fund (other than
proceeding against the Mortgaged Property) and is hereby authorized at such time
as it deems appropriate to release such Mortgaged Property from the lien of the
related Mortgage.
The cost of the environmental audit report contemplated by
this Section 3.22 shall be advanced by the Master Servicer as an expense of the
Trust Fund, and the Master Servicer shall be reimbursed therefor from the
Custodial Account as provided in Section 3.11, any such right of reimbursement
being prior to the rights of the Certificateholders to receive any amount in the
Custodial Account.
If the Master Servicer determines, as described above, that it
is in the best economic interest of the Trust Fund to take such actions as are
necessary to bring any such
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Mortgaged Property in compliance with applicable environmental laws, or to take
such action with respect to the containment, clean-up or remediation of
hazardous substances, hazardous materials, hazardous wastes, or petroleum-based
materials affecting any such Mortgaged Property, then the Master Servicer shall
take such action as it deems to be in the best economic interest of the Trust
Fund. The cost of any such compliance, containment, clean-up or remediation
shall be advanced by the Master Servicer as an expense of the Trust Fund, and
the Master Servicer shall be entitled to be reimbursed therefor from the
Custodial Account as provided in Section 3.11, any such right of reimbursement
being prior to the rights of the Certificateholders to receive any amount in the
Custodial Account.
SECTION 3.23. Additional Obligations of the Master
Servicer.
On each Certificate Account Deposit Date, the Master Servicer
shall deliver to the Trustee for deposit in the Certificate Account from its own
funds and without any right of reimbursement therefor, a total amount equal to
the aggregate of the Prepayment Interest Shortfalls for such Distribution Date;
provided that the Master Servicer's obligations under this subsection on any
Distribution Date shall not be more than the total amount of its master
servicing compensation payable in such month.
SECTION 3.24. Additional Obligations of the
Company.
The Company agrees that on or prior to the tenth day after the
Closing Date, the Company shall provide the Trustee with a written notification,
substantially in the form of Exhibit J attached hereto, relating to the
Certificates, setting forth (i)(a) if less than 10% of the aggregate Certificate
Principal Balance of the Certificates has been sold as of such date, the value
calculated pursuant to clause (b)(iii) of Exhibit J hereto, or, (b) if 10% or
more of the Certificates has been sold as of such date but no single price is
paid for at least 10% of the aggregate Certificate Principal Balance of the
Certificates, then the weighted average price at which the Certificates were
sold and the aggregate percentage of Certificates sold, (c) the first single
price at which at least 10% of the aggregate Certificate Principal Balance of
such class of Certificates was sold or, (d) if any Certificates are retained by
the Company or an affiliated corporation, or are delivered to the Seller, the
fair market value thereof as of the Closing Date, (ii) the prepayment assumption
used in pricing the Certificates, and (iii) such other information as to matters
of fact as the Trustee may reasonably request to enable it to comply with its
reporting requirements with respect to such Certificates to the extent such
information can in the good faith judgment of the Company be determined by it.
SECTION 3.25. Converted Mortgage Loans; Purchase
Obligations Upon Conversion;
Administration by the Trustee.
(a) The Trustee, as Noteholder (as defined in the Mortgage
Notes for the Mortgage Loans), hereby authorizes and directs the Master
Servicer, on behalf of the Noteholder, to determine fixed interest rates into
which Mortgagors under Convertible Mortgage Loans may convert the adjustable
interest rates on their Mortgage Notes in accordance with the fixed formula set
forth in such Mortgage Notes. The Master Servicer agrees to make such
determinations and otherwise administer the Convertible Mortgage Loans as
contemplated in the Mortgage Notes until the later to occur of (i) the date on
which all the Convertible Mortgage
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Loans have become Converted Mortgage Loans, and (ii) the last date on which
Mortgagors have the option to convert the adjustable interest rates on their
Mortgage Notes to fixed interest rates.
(b) Upon becoming aware of the intent to convert any
Convertible Mortgage Loan the Master Servicer will promptly notify the Trustee
(if it holds the related Mortgage File) and (if the Seller is not then the
Master Servicer) the Seller. Prior to the day on which a Convertible Mortgage
Loan has become a Converted Mortgage Loan, the Seller shall be obligated
pursuant to the terms of the Seller's Warranty Certificate to purchase a
Converting Mortgage Loan at the Purchase Price. All amounts paid by the Seller
in connection with the purchase of a Converting Mortgage Loan will be deposited
in the Custodial Account. A failure by the Seller to purchase a Converting
Mortgage Loan will constitute an Event of Default for the Seller in its capacity
as Master Servicer under this Agreement pursuant to Section 7.01.
(c) A Converting Mortgage Loan or a Converted Mortgage Loan
shall remain in the Trust Fund and all payments in respect thereof shall remain
in the Trust Fund unless and until such Converting Mortgage Loan or Converted
Mortgage Loan is purchased by the Seller pursuant to Section 3.25(b).
(d) Upon any purchase of a Converting Mortgage Loan by the
Seller pursuant to Section 3.25(b) and the deposit in the Custodial Account of
the Purchase Price, the Trustee shall give the Master Servicer written notice
thereof, and the Trustee shall release, or cause to be released, the related
Mortgage File, shall execute and deliver such instruments of transfer or
assignment (which shall be prepared by, and be at the expense of the Seller), in
each case without recourse, as the Seller, a third party, or the Trustee, as
purchaser thereof, shall require as necessary to vest in the Seller ownership of
any Mortgage Loan released pursuant hereto and at such time the Trustee shall
have no further responsibility with respect to the related Mortgage File and
whereupon such Converted Mortgage Loan shall cease to be a part of the Trust
Fund.
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ARTICLE IV
PAYMENTS TO CERTIFICATEHOLDERS
SECTION 4.01. Certificate Account; Distributions.
(a) The Trustee shall establish and maintain a Certificate
Account, in which the Master Servicer shall cause to be deposited on behalf of
the Trustee on or before 3:00 P.M. New York time on each Certificate Account
Deposit Date by wire transfer of immediately available funds an amount equal to
the sum of (i) any Advance for the immediately succeeding Distribution Date,
(ii) any amount required to be deposited in the Certificate Account pursuant to
Sections 3.11, 3.13, 3.23 or 4.03(b) and (iii) all other amounts constituting
or, if not otherwise applicable to the payment of the Trustee's Fee, that would
constitute the Available Distribution Amount for the immediately succeeding
Distribution Date. The Trustee shall transfer from the Certificate Account to
itself, the Trustee's Fee on each Certificate Account Deposit Date. Such amounts
do not constitute part of the Available Distribution Amount.
(b) On each Distribution Date the Trustee shall distribute to
each Certificateholder of record on the next preceding Record Date (other than
as provided in Section 9.01 respecting the final distribution) either in
immediately available funds (by wire transfer or otherwise) to the account of
such Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder has so notified the Trustee at least 5
Business Days prior to the related Record Date and such Certificateholder is the
registered owner of Certificates the aggregate Initial Certificate Principal
Balance of which is not less than $2,500,000, or otherwise by check mailed to
such Certificateholder at the address of such Holder appearing in the
Certificate Register, such Certificateholder's share (based on the aggregate of
the Percentage Interests represented by Certificates held by such Holder) of the
Available Distribution Amount.
(c) The Trustee shall, upon written request from the Master
Servicer, invest or cause the institution maintaining the Certificate Account to
invest the funds in the Certificate Account in Permitted Instruments designated
in the name of the Trustee for the benefit of the Certificateholders, which
shall mature not later than the Business Day next preceding the Distribution
Date next following the date of such investment (except that (i) any investment
in obligations of the institution with which the Certificate Account is
maintained may mature on such Distribution Date and (ii) any other investment
may mature on such Distribution Date if the Trustee shall agree to advance funds
on such Distribution Date to the Certificate Account in the amount payable on
such investment on such Distribution Date, pending receipt thereof to the extent
necessary to make distributions on the Certificates) and shall not be sold or
disposed of prior to maturity. All income and gain realized from any such
investment shall be for the benefit of the Master Servicer and shall be subject
to its withdrawal or order from time to time. The amount of any losses incurred
in respect of any such investments shall be deposited in the Certificate Account
by the Master Servicer out of its own funds immediately as realized without
right of reimbursement.
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SECTION 4.02. Statements to Certificateholders.
On each Distribution Date the Trustee shall forward or cause
to be forwarded by mail to each Holder of a Certificate and to the Company and
the Master Servicer a statement as to such distribution setting forth the
following information as to the Certificates to the extent applicable:
(i) (a) the amount of such distribution to the
Certificateholders applied to reduce the Certificate Principal Balance
thereof, and (b) the aggregate amount included therein representing
Principal Prepayments;
(ii) the amount of such distribution to the Certificateholders
allocable to interest;
(iii) if the distribution to the Certificateholders is less than
the full amount that would be distributable to such Certificateholders
if there were sufficient funds available therefor, the amount of the
shortfall;
(iv) the amount of any Advance by the Master Servicer pursuant to
Section 4.03;
(v) the number and aggregate Stated Principal Balance of the
Mortgage Loans after giving effect to the distribution of principal on
such Distribution Date;
(vi) the aggregate Certificate Principal Balance of the
Certificates, after giving effect to the amounts distributed on such
Distribution Date, separately identifying any reduction thereof due to
Realized Losses other than pursuant to an actual distribution of
principal;
(vii) the amount of Servicing Fees paid to the Master Servicer;
(viii) on the basis of the most recent reports furnished to it by
Subservicers, the number and aggregate principal balances of Mortgage
Loans that are delinquent (A) one month, (B) two months and (C) three
months, and the number and aggregate principal balance of Mortgage
Loans that are in foreclosure;
(ix) the number, aggregate principal balance and book value of any
REO Properties;
(x) the aggregate Accrued Certificate Interest remaining unpaid,
if any, for the Certificates, after giving effect to the distribution
made on such Distribution Date;
(xi) the Special Hazard Amount, Fraud Loss Amount and Bankruptcy
Amount as of the close of business on such Distribution Date and a
description of any change in the calculation of such amounts;
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(xii) the aggregate amount of Realized Losses allocated to the
Certificates on such Distribution Date;
(xiii) the aggregate amount of any recoveries on previously
foreclosed loans from the Seller due to a breach of representation or
warranty;
(xiv) the weighted average remaining term to maturity of the
Mortgage Loans after giving effect to the amounts distributed on such
Distribution Date; and
(xv) the weighted average Mortgage Rates of the Mortgage Loans
after giving effect to the amounts distributed on such Distribution
Date.
In the case of information furnished pursuant to subclauses
(i) and (ii) above, the amounts shall also be expressed as a dollar amount per
Single Certificate.
Within a reasonable period of time after the end of each
calendar year, the Trustee shall prepare and forward to each Person who at any
time during the calendar year was a Holder of a Certificate, a statement
containing the information set forth in subclauses (i) and (ii) above,
aggregated for such calendar year or applicable portion thereof during which
such Person was a Certificateholder. Such obligation of the Trustee shall be
deemed to have been satisfied to the extent that substantially comparable
information shall be provided by the Trustee pursuant to any requirements of the
Code and regulations thereunder as from time to time are in force.
SECTION 4.03. Remittance Reports; Advances by the
Master Servicer.
(a) By 11:00 A.M. New York time the Business Day following
each Determination Date, the Master Servicer shall deliver to the Trustee a
report, prepared as of the close of business on the Determination Date (the
"Determination Date Report"), by telecopy or in a mutually agreeable electronic
format. The Determination Date Report and any written information supplemental
thereto shall include such information with respect to the Mortgage Loans that
is reasonably available to the Master Servicer and that is required by the
Trustee for purposes of making the calculations referred to in the following
paragraph, as set forth in written specifications or guidelines issued by the
Trustee from time to time. Not later than 2:00 P.M. New York time on the
Certificate Account Deposit Date, the Trustee shall furnish by telecopy to the
Master Servicer a statement (the information in such statement to be made
available to Certificateholders or the Company by the Master Servicer on
request) setting forth (i) the Available Distribution Amount, (ii) the amounts
required to be withdrawn from the Custodial Account and deposited into the
Certificate Account on the immediately succeeding Certificate Account Deposit
Date pursuant to clause (iii) of Section 4.01(a); and (iii) such other
information with respect to the Mortgage Loans as the Trustee may reasonably
require to perform the calculations necessary to make the distributions
contemplated by Section 4.01 and to prepare the statements to Certificateholders
contemplated by Section 4.02. The determination by the Trustee of such amounts
shall, in the absence of obvious error, be presumptively deemed to be correct
for all purposes hereunder.
(b) Not later than 2:00 P.M. New York time on the Certificate
Account Deposit Date, the Trustee shall notify the Master Servicer of the
aggregate amount of Advances
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required to be made for the related Distribution Date, which shall be the
aggregate amount of Monthly Payments (with each interest portion thereof
adjusted to be net of the related Servicing Fee Rate), less the amount of any
related Debt Service Reductions or reductions in the amount of interest
collectable from the Mortgagor pursuant to the Relief Act, on the Outstanding
Mortgage Loans as of the related Due Date, which Monthly Payments were
delinquent as of the close of business as of the related Determination Date. On
or before 3:00 P.M. New York time on each Certificate Account Deposit Date, the
Master Servicer shall either (i) deposit in the Certificate Account from its own
funds, or funds received therefor from the Sub-Servicers, an amount equal to the
Advances to be made by the Master Servicer in respect of the related
Distribution Date, (ii) withdraw from amounts on deposit in the Custodial
Account and deposit in the Certificate Account all or a portion of the amounts
held for future distribution in discharge of any such Advance, or (iii) make
advances in the form of any combination of (i) and (ii) aggregating the amount
of such Advance. Any portion of the amounts held for future distribution so used
shall be replaced by the Master Servicer by deposit in the Custodial Account on
or before 12:00 P.M. New York time on any future Certificate Account Deposit
Date to the extent that funds attributable to the Mortgage Loans that are
available in the Custodial Account for deposit in the Certificate Account on
such Certificate Account Deposit Date shall be less than payments to
Certificateholders required to be made on the following Distribution Date. Such
allocations shall be conclusive for purposes of reimbursement to the Master
Servicer from recoveries on the Mortgage Loans pursuant to Section 3.11. The
determination by the Master Servicer that it has made a Nonrecoverable Advance
or that any proposed Advance, if made, would constitute a Nonrecoverable
Advance, shall be evidenced by a certificate of a Servicing Officer delivered to
the Seller and the Trustee. The Trustee shall deposit all funds it receives
pursuant to this Section 4.03 into the Certificate Account.
(c) In the event that the Master Servicer determines on the
Certificate Account Deposit Date that it will be unable to deposit in the
Certificate Account an amount equal to the Advance required to be made for the
immediately succeeding Distribution Date in the amount determined by the Trustee
pursuant to paragraph (b) above, it shall give notice to the Trustee of its
inability to advance (such notice may be given by telecopy), not later than 3:00
P.M., New York time, on such Business Day, specifying the portion of such amount
that it will be unable to deposit. If the Master Servicer shall have determined
that it is not obligated to make the entire Advance because all or a lesser
portion of such Advance would not be recoverable from Insurance Proceeds,
Liquidation Proceeds or otherwise, the Master Servicer shall promptly deliver to
the Trustee for the benefit of the Certificateholders an Officer's Certificate
setting forth the reasons for the Master Servicer's determination. Not later
than 5:00 P.M., New York time, on the Certificate Account Deposit Date, unless
by such time the Master Servicer shall have directly or indirectly deposited in
the Certificate Account the entire amount of the Advances required to be made
for the related Distribution Date, pursuant to Section 7.01, the Trustee shall
(a) terminate all of the rights and obligations of the Master Servicer under
this Agreement in accordance with Section 7.01 and (b) assume the rights and
obligations of the Master Servicer hereunder, including the obligation to
deposit in the Certificate Account an amount equal to the Advance for the
immediately succeeding Distribution Date.
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SECTION 4.04. Allocation of Realized Losses.
Prior to each Distribution Date, the Master Servicer shall
determine the total amount of Realized Losses, if any, that resulted from any
Cash Liquidation, Debt Service Reduction, Deficient Valuation or REO Disposition
that occurred during the related Prepayment Period. The amount of each Realized
Loss shall be evidenced by an Officers' Certificate by the Master Servicer.
Realized Losses shall be allocated to the Letter of Credit and to the
Certificates as determined by the Trustee in accordance with the following
provisions. All Realized Losses, other than Excess Special Hazard Losses, Excess
Bankruptcy Losses, Excess Fraud Losses or Extraordinary Losses shall first be
covered by draws on the Letter of Credit by the Master Servicer pursuant to
Section 4.06 and then allocated to the Certificates, in reduction of the
Certificate Principal Balance thereof. Any Excess Special Hazard Losses, Excess
Bankruptcy Losses, Excess Fraud Losses and Extraordinary Losses on the Mortgage
Loans will be allocated to the Certificates. Any allocation of the principal
portion of Realized Losses to a Certificate shall be made by reducing the
Certificate Principal Balance thereof by the amount so allocated, which
allocation shall be deemed to have occurred at the close of business on such
Distribution Date. Allocations of the interest portions of Realized Losses shall
be made by operation of the definition of "Accrued Certificate Interest". All
Realized Losses and all other losses allocated to the Certificates under this
Section 4.04 will be allocated among the Certificates in proportion to the
Percentage Interests evidenced thereby.
SECTION 4.05. Information Reports to be Filed by
the Master Servicer.
The Master Servicer or the Sub-Servicers shall file the
information returns with respect to the receipt of mortgage interest received in
a trade or business, reports of foreclosures and abandonments of any Mortgaged
Property and the information returns relating to cancellation of indebtedness
income with respect to any Mortgaged Property required by Sections 6050H, 6050J
and 6050P of the Code, respectively, and deliver to the Trustee an Officers'
Certificate stating that such reports have been filed. Such reports shall be in
form and substance sufficient to meet the reporting requirements imposed by such
Sections 6050H, 6050J and 6050P of the Code.
SECTION 4.06. The Letter of Credit.
(a) Except as otherwise set forth herein, the Master Servicer
hereby covenants and agrees to exercise its best reasonable efforts to maintain
or cause the Letter of Credit (or substitute credit enhancement), to be
maintained to the extent and in the form and amount and for the purposes set
forth in this Agreement. The Trustee shall draw on the Letter of Credit at the
times and in the manner set forth herein and therein.
(b) In the event that at any time the Letter of Credit remains
outstanding the short-term unsecured debt obligations of the Letter of Credit
Issuer are downgraded to "A-1" by Standard & Poor's, then, the Master Servicer
shall promptly notify the Trustee of such downgrade and, within 60 days of such
event, either (i) the Master Servicer shall obtain a replacement letter of
credit or other form of credit enhancement in accordance with this Section
4.06(b).
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Prior to delivering any replacement letter of credit or other
form of credit enhancement to the Trustee pursuant to this Section 4.06(b), the
Master Servicer shall (i) obtain an Opinion of Counsel to the effect that such
replacement letter of credit or alternative form of credit support will not
adversely affect the classification of the Trust Fund as a grantor trust for
federal income tax purposes and (ii) written confirmation from the Rating Agency
that such replacement letter of credit or alternative form of credit enhancement
would not have adversely affected the then-current rating assigned to the
Certificates by such Rating Agency and deliver to the Trustee an Opinion of
Counsel to the effect that such replacement letter of credit or alternative form
of credit enhancement is a valid and legally binding obligation of the related
letter of credit issuer or issuer of such alternate form of credit enhancement
in accordance with its terms. Any replacement letter of credit shall be in
generally the same form as the form of Letter of Credit attached as Exhibit B
hereto, shall be issued by a Qualified Bank and the initial amount available to
be drawn thereunder shall equal the amount remaining under the previous Letter
of Credit. The cost of obtaining and maintaining any replacement letter of
credit or alternative form of credit enhancement shall be borne by the Master
Servicer.
The Trustee acknowledges such grant and accepts the trusts
under this Section 4.06 in accordance with the provisions hereof.
(c) Upon receipt of a certificate of a Servicing Officer of
the Master Servicer or the Company instructing the Trustee to reduce, modify or
terminate the amounts available under the Letter of Credit in accordance with
Section 3.13 and (i) in the case of a modification (but not a reduction or
termination of the Letter of Credit), an Opinion of Counsel to the effect that
any such modification of the Letter of Credit will not adversely affect the
classification of the Trust Fund as a grantor trust for federal income tax
purposes, and (ii) written confirmation from the Rating Agency to the effect
that the then-current rating assigned to the Certificates by such Rating Agency
will not be adversely affected by any such reduction, modification or
termination, the Trustee shall reduce, modify or terminate the Letter of Credit
pursuant to such instructions and Section 3.13 shall be deemed modified to the
extent set forth in such instructions.
On the Determination Date immediately following each
anniversary of the Cut-off Date the Master Servicer shall provide the Trustee
with a certificate of a Servicing Officer which sets forth the amounts, if any,
by which the amount available under the Letter of Credit, the Bankruptcy Amount,
the Fraud Loss Amount and the Special Hazard Amount are to be reduced in
accordance with the definitions thereof. In addition, for purposes of reducing
the amount available under the Letter of Credit, the Bankruptcy Amount, the
Fraud Loss Amount and the Special Hazard Amount, as applicable, the Master
Servicer shall notify the Trustee by means of a certificate of a Servicing
Officer of any amounts deposited by the Master Servicer in the Certificate
Account pursuant to Sections 3.11(a), 3.12(b) and 3.20(a). Upon receipt of each
certificate of a Servicing Officer the Trustee will promptly notify the Letter
of Credit Issuer of such reductions in the form of Annex C to the Letter of
Credit.
In addition, for purposes of reducing the amount available
under the Letter of Credit, the Special Hazard Amount, the Fraud Loss Amount and
the Bankruptcy Amount, as applicable, upon realization thereof, the Master
Servicer shall notify the Trustee by means of an Officer's Certificate of any
losses incurred by the Master Servicer in connection with any
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Mortgage Loan purchased pursuant to Section 3.13, separately identifying any
such losses which would have been either Special Hazard Losses, Fraud Losses or
Bankruptcy Losses, had the Mortgage Loan not been so purchased. Upon receipt of
such an Officers' Certificate, the Trustee shall promptly notify the Letter of
Credit Issuer of such reduction by delivering a certificate to the Letter of
Credit Issuer substantially in the form of Annex C to the Letter of Credit. Upon
receipt by the Trustee of such an Officers' Certificate, if the Letter of Credit
remains outstanding, the Trustee shall request the reinstatement of the amount
available under the Letter of Credit (and the Fraud Loss Amount, Bankruptcy
Amount or Special Hazard Amount, if applicable) under the Letter of Credit in an
amount equal to such recovered amount be delivering a certificate to the Letter
of Credit Issuer substantially in the form of Annex B to the Letter of Credit.
(d) Upon termination of the Trust Fund pursuant to Article IX
or upon termination of the Letter of Credit pursuant to the terms of this
Agreement (including a draw of the entire amount available under the Letter of
Credit pursuant to Section 4.06(b)), the Trustee shall provide the Letter of
Credit Issuer with a certificate of termination pursuant to the provisions of
the Letter of Credit.
SECTION 4.07. Compliance with Withholding
Requirements.
Notwithstanding any other provision of this Agreement, the
Trustee shall comply with all federal withholding requirements respecting
payments to Certificateholders of interest or original issue discount on the
Mortgage Loans, and payments of interest or discount on amounts invested by the
Trustee as agent for Certificateholders pursuant to an election made under
Section 4.01 hereof, that the Trustee reasonably believes are applicable under
the Code. The consent of Certificateholders shall not be required for such
withholding. In the event the Trustee withholds any amount from interest or
original issue discount payments or advances thereof to any Certificateholder
pursuant to federal withholding requirements, the Trustee shall, together with
its monthly report to such Certificateholders pursuant to Section 4.02 hereof,
indicate such amount withheld.
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ARTICLE V
THE CERTIFICATES
SECTION 5.01 The Certificates.
The Certificates will be substantially in the form annexed
hereto as Exhibits A. The Certificates will be issuable in registered form only.
The Certificates shall be issuable in minimum dollar denominations of $1,000 and
integral multiples of $1 in excess thereof, except that one Certificate may be
issued in an amount such that the denomination of such Certificate and the
aggregate denomination of all other outstanding Certificates together equal the
aggregate Certificate Principal Balance of the Certificates.
Upon original issue, the Certificates shall, upon the written
request of the Company executed by an officer of the Company, be executed and
delivered by the Trustee, authenticated by the Trustee and delivered to or upon
the order of the Company upon receipt by the Trustee of the documents specified
in Section 2.01. The Certificates shall be executed by manual or facsimile
signature on behalf of the Trustee in its capacity as trustee hereunder by a
Responsible Officer. Certificates bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Trustee shall bind
the Trustee, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Certificates
or did not hold such offices at the date of such Certificates. No Certificate
shall be entitled to any benefit under this Agreement, or be valid for any
purpose, unless there appears on such Certificate a certificate of
authentication substantially in the form provided for herein executed by the
Trustee by manual signature, and such certificate upon any Certificate shall be
conclusive evidence, and the only evidence, that such Certificate has been duly
authenticated and delivered hereunder. All Certificates issued on the Closing
Date shall be dated the Closing Date and any Certificates delivered thereafter
shall be dated the date of their authentication.
SECTION 5.02. Registration of Transfer and
Exchange of Certificates.
The Trustee shall maintain a Certificate Register in which,
subject to such reasonable regulations as it may prescribe, the Trustee shall
provide for the registration of Certificates and of transfers and exchanges of
Certificates as herein provided.
Upon surrender for registration of transfer of any Certificate
at the office of the Trustee maintained for such purpose, the Trustee shall
execute and the Trustee or the Authenticating Agent shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Certificates of a like aggregate initial Certificate Principal Balance.
Every Certificate surrendered for transfer shall be accompanied by notification
of the account of the designated transferee or transferees for the purpose of
receiving distributions pursuant to Section 4.01 by wire transfer, if any such
transferee desires and is eligible for distribution by wire transfer.
At the option of the Certificateholders, Certificates may be
exchanged for other Certificates of authorized denominations of a like aggregate
initial Certificate Principal Balance,
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upon surrender of the Certificates to be exchanged at the office of the
Certificate Registrar. Whenever any Certificates are so surrendered for exchange
the Trustee shall execute, authenticate and deliver the Certificates which the
Certificateholder making the exchange is entitled to receive. Every Certificate
presented or surrendered for transfer or exchange shall (if so required by the
Trustee or the Certificate Registrar) be duly endorsed by, or be accompanied by
a written instrument of transfer in the form satisfactory to the Trustee or the
Certificate Registrar duly executed by, the Holder thereof or his attorney duly
authorized in writing.
No service charge shall be made to the Certificateholders for
any transfer or exchange of Certificates, but the Trustee may require payment of
a sum sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates.
All Certificates surrendered for transfer and exchange shall
be canceled and retained by the Trustee in accordance with the Trustee's
standard procedures.
SECTION 5.03. Mutilated, Destroyed, Lost or Stolen
Certificates.
If (i) any mutilated Certificate is surrendered to the Trustee
and the Trustee receives evidence to its satisfaction of the destruction, loss
or theft of any Certificate, and (ii) there is delivered to the Trustee such
security or indemnity as may be required by it to save it harmless, then, in the
absence of notice to the Trustee 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 the same initial Certificate Principal
Balance. Upon the issuance of any new Certificate under this Section, the
Trustee may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Any replacement Certificate issued pursuant to this Section shall constitute
complete and indefeasible evidence of ownership in the Trust Fund, as if
originally issued, whether or not the lost, stolen or destroyed Certificate
shall be found at any time.
SECTION 5.04. Persons Deemed Owners.
The Company, the Master Servicer, the Trustee and any agent of
any of them may treat the person in whose name any Certificate is registered as
the owner of such Certificate for the purpose of receiving distributions
pursuant to Section 4.01 and for all other purposes whatsoever, and neither the
Company, the Master Servicer, the Trustee nor any agent of any of them shall be
affected by notice to the contrary.
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ARTICLE VI
THE COMPANY AND THE MASTER SERVICER
SECTION 6.01. Liability of the Company and the
Master Servicer.
The Company and the Master Servicer each shall be liable in
accordance herewith only to the extent of the obligations specifically imposed
upon and undertaken by the Company and the Master Servicer herein.
SECTION 6.02. Merger, Consolidation or Conversion
of the Company or the Master
Servicer.
The Company and the Master Servicer each will keep in full
effect its existence, rights and franchises as a corporation under the laws of
the state of its incorporation, and each will obtain and preserve its
qualification to do business as a foreign corporation in each jurisdiction in
which such qualification is or shall be necessary to protect the validity and
enforceability of this Agreement, the Certificates or any of the Mortgage Loans
and to perform its respective duties under this Agreement; and provided further
that the Rating Agencies' ratings of the Certificates immediately prior to such
merger or consolidation will not be qualified, reduced or withdrawn as a result
thereof (as evidenced by a letter to such effect from the Rating Agencies).
Any Person into which the Company or the Master Servicer may
be merged, consolidated or converted, or any corporation resulting from any
merger or consolidation to which the Company or the Master Servicer shall be a
party, or any Person succeeding to the business of the Company or the Master
Servicer, shall be the successor of the Company or the Master Servicer, as the
case may be, hereunder, without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding; provided, however, that the successor or surviving
Person to the Master Servicer shall be qualified to sell mortgage loans to and
service mortgage loans for FNMA or FHLMC.
SECTION 6.03. Limitation on Liability of the
Company, the Master Servicer and
Others.
Neither the Company, the Master Servicer nor any of the
directors, officers, employees or agents of the Company or the Master Servicer
shall 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 this Agreement, or for errors in judgment; provided, however, that
this provision shall not protect the Company or the Master Servicer (but this
provision shall protect the above described persons) against any breach of
warranties or representations made herein, or against any specific liability
imposed on the Master Servicer pursuant to Section 3.01 or any other Section
hereof; and provided further that this provision shall not protect the Company,
the Master Servicer or any such person, against any liability which would
otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance
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of duties or by reason of reckless disregard of obligations and duties
hereunder. The Company, the Master Servicer and any director, officer, employee
or agent of the Company or the Master Servicer may rely in good faith on any
document of any kind PRIMA FACIE properly executed and submitted by any Person
respecting any matters arising hereunder. The Company, the Master Servicer and
any director, officer, employee or agent of the Company or the Master Servicer
shall be indemnified and held harmless by the Trust Fund against any loss,
liability or expense incurred in connection with any legal action relating to
this Agreement or the Certificates, other than any loss, liability or expense
related to Master Servicer's servicing obligations with respect to any specific
Mortgage Loan or Mortgage Loans (except as any such loss, liability or expense
shall be otherwise reimbursable pursuant to this Agreement) or related to the
Master Servicer's obligations under Section 3.01, or any loss, liability or
expense incurred by reason of willful misfeasance, bad faith or gross negligence
in the performance of duties hereunder or by reason of reckless disregard of
obligations and duties hereunder. Neither the Company nor the Master Servicer
shall be under any obligation to appear in, prosecute or defend any legal action
which is not incidental to its respective duties under this Agreement and which
in its opinion may involve it in any expense or liability; provided, however,
that the Company or the Master Servicer may in its sole discretion undertake any
such action 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 Certificateholders hereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom (except any action or
liability related to the Master Servicer's obligations under Section 3.01) shall
be expenses, costs and liabilities of the Trust Fund, and the Company and the
Master Servicer shall be entitled to be reimbursed therefor from the Certificate
Account as provided in Section 3.11, any such right of reimbursement being prior
to the rights of Certificateholders to receive any amount in the Certificate
Account.
SECTION 6.04. Limitation on Resignation of the
Master Servicer.
The Master Servicer shall not resign from the obligations and
duties hereby imposed on it except (a) upon appointment of a successor servicer
reasonably acceptable to the Trustee and upon receipt by the Trustee of a letter
from each Rating Agency that such a resignation and appointment will not, in and
of itself, result in a downgrading of the Certificates or (b) upon determination
that its duties hereunder are no longer permissible under applicable law (any
such determination permitting the resignation of the Master Servicer to be
evidenced by an Opinion of Counsel (at the expense of the resigning Master
Servicer) to such effect delivered to the Trustee). No such resignation shall
become effective until the Trustee or a successor servicer shall have assumed
the Master Servicer's responsibilities, duties, liabilities and obligations
hereunder.
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ARTICLE VII
DEFAULT
SECTION 7.01. Events of Default.
"Event of Default", wherever used herein, means any one of the
following events:
(i) any failure by the Master Servicer to remit to the Trustee
for distribution to the Certificateholders any payment (other than an
Advance) required to be made under the terms of the Certificates or
this Agreement which continues unremedied for a period of one day after
the date upon which written notice of such failure, requiring the same
to be remedied, shall have been given to the Master Servicer by the
Company (with a copy to the Trustee) or the Trustee, or to the Master
Servicer, the Company and the Trustee by the Holders of Certificates
entitled to at least 25% of the Voting Rights; or
(ii) any failure on the part of the Master Servicer duly to
observe or perform in any material respect any other of the covenants
or agreements on the part of the Master Servicer contained in the
Certificates or in this Agreement (including any breach of the Master
Servicer's representations and warranties pursuant to Section 2.03(a)
which materially and adversely affects the interests of the
Certificateholders) which continues unremedied for a period of 30 days
after the date on which written notice of such failure, requiring the
same to be remedied, shall have been given to the Master Servicer by
the Company (with a copy to the Trustee) or the Trustee, or to the
Master Servicer, the Company and the Trustee by the Holders of
Certificates entitled to at least 25% of the Voting Rights; or
(iii) a decree or order of a court or agency or supervisory
authority having jurisdiction in an involuntary case under any present
or future federal or state bankruptcy, insolvency or similar law or 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 Master Servicer and such
decree or order shall have remained in force undischarged or unstayed
for a period of 60 consecutive days; or
(iv) the Master Servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment
of debt, marshalling of assets and liabilities or similar proceedings
of or relating to the Master Servicer or of or relating to all or
substantially all of its property; or
(v) the Master Servicer shall admit in writing its inability to
pay its debts generally as they become due, file a petition to take
advantage of or otherwise voluntarily commence a case or proceeding
under any applicable bankruptcy, insolvency, reorganization or other
similar statute, make an assignment for the benefit of its creditors,
or voluntarily suspend payment of its obligations; or
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(vi) the Master Servicer shall fail to deposit in the Certificate
Account on any Certificate Account Deposit Date an amount equal to any
required Advance.
If the Master Servicer shall fail to make any deposit in the Certificate Account
as required by Section 4.01, the Trustee shall give the Master Servicer notice
pursuant to clause (i) not later than the Business Day following the Certificate
Account Deposit Date. If an Event of Default described in clauses (i) - (v) of
this Section shall occur, then, and in each and every such case, so long as such
Event of Default shall not have been remedied, the Company or the Trustee may,
and at the direction of the Holders of Certificates entitled to at least 51% of
the Voting Rights, the Trustee shall, by notice to the Master Servicer (and to
the Company if given by the Trustee or to the Trustee if given by the Company)
terminate all of the rights and obligations of the Master Servicer under this
Agreement and in and to the Trust Fund, other than its rights as a
Certificateholder hereunder and the Company, terminate all of the rights and
obligations of the Master Servicer under this Agreement and in and to the Trust
Fund, other than its rights as a Certificateholder hereunder. In addition, any
failure of the Master Servicer to repurchase a Converting Mortgage Loan pursuant
to Section 3.25 shall constitute an Event of Default, and in such event, all of
the rights and obligations of the Master Servicer hereunder may be terminated in
accordance with the preceding sentence. If an Event of Default described in
clause (vi) hereof shall occur, the Trustee shall, by notice to the Master
Servicer and the Company, terminate all of the rights and obligations of the
Master Servicer under this Agreement and in and to the Trust Fund, other than
its rights as a Certificateholder hereunder. On or after the receipt by the
Master Servicer of such notice, all authority and power of the Master Servicer
under this Agreement, whether with respect to the Certificates (other than as a
holder thereof) or the Mortgage Loans or otherwise, shall pass to and be vested
in the Trustee pursuant to and under this Section, and, without limitation, the
Trustee is hereby authorized and empowered to execute and deliver, on behalf of
the Master Servicer, as attorney-in-fact or otherwise, any and all documents and
other instruments, and to do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, whether to
complete the transfer and endorsement or assignment of the Mortgage Loans and
related documents, or otherwise. The Master Servicer agrees to cooperate with
the Trustee in effecting the termination of the Master Servicer's
responsibilities and rights hereunder, including, without limitation, the
transfer to the Trustee or its appointed agent for administration by it of all
cash amounts which shall at the time be deposited by the Master Servicer or
should have been deposited to the Custodial or the Certificate Account or
thereafter be received with respect to the Mortgage Loans. The Trustee shall not
be deemed to have breached any obligation hereunder as a result of a failure to
make or delay in making any distribution as and when required hereunder caused
by the failure of the Master Servicer to remit any amounts received on it or to
deliver any documents held by it with respect to the Mortgage Loans. For
purposes of this Section 7.01, the Trustee shall not be deemed to have knowledge
of an Event of Default unless a Responsible Officer of the Trustee assigned to
and working in the Trustee's Corporate Trust Division has actual knowledge
thereof or unless notice of any event which is in fact such an Event of Default
is received by the Trustee and such notice references the Certificates, the
Trust Fund or this Agreement.
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SECTION 7.02. Trustee to Act; Appointment of
Successor.
On and after the time the Master Servicer receives a notice of
termination pursuant to Section 7.01, the Trustee or its appointed agent shall
be the successor in all respects to the Master Servicer in its capacity as
Master Servicer under this Agreement and the transactions set forth or provided
for herein and shall be subject thereafter to all the responsibilities, duties
and liabilities relating thereto placed on the Master Servicer including the
obligation to make Advances which have been or will be required to be made
(except for the responsibilities, duties and liabilities contained in Section
2.03 and its obligations to deposit amounts in respect of losses incurred prior
to the date of succession pursuant to Section 3.12) by the terms and provisions
hereof; and provided further, that any failure to perform such duties or
responsibilities caused by the Master Servicer's failure to provide information
required by Section 4.03 shall not be considered a default by the Trustee
hereunder. As compensation therefor, the Trustee shall be entitled to all funds
relating to the Mortgage Loans which the Master Servicer would have been
entitled to charge to the Custodial Account and the Certificate Account if the
Master Servicer had continued to act hereunder. Notwithstanding the above, the
Trustee may, if it shall be unwilling to so act, or shall, if it is unable to so
act or if the Holders of Certificates entitled to at least 51% of the Voting
Rights so request in writing to the Trustee, appoint, or petition a court of
competent jurisdiction to appoint, any FNMA- or FHLMCapproved mortgage servicing
institution having a net worth of not less than $10,000,000 as the successor to
the Master Servicer hereunder in the assumption of all or any part of the
responsibilities, duties or liabilities of the Master Servicer hereunder.
Pending appointment of a successor to the Master Servicer hereunder, the Trustee
shall act in such capacity as hereinabove provided. In connection with such
appointment and assumption, the Trustee may make such arrangements for the
compensation of such successor out of payments on Mortgage Loans as it and such
successor shall agree; provided, however, that no such compensation shall be in
excess of that permitted the Master Servicer hereunder. The Trustee and such
successor shall take such action, consistent with this Agreement, as shall be
necessary to effectuate any such succession; provided, however, that such
succession shall not reduce the ratings of the Certificates below the original
ratings thereof.
Any successor, including the Trustee, to the Master Servicer
shall maintain in force during its term as master servicer hereunder the
Insurance Policies and fidelity bonds to the same extent as the Master Servicer
is so required pursuant to Sections 3.13 and 3.18.
SECTION 7.03. Notification to Certificateholders.
(a) Upon any such termination or appointment of a successor to
the Master Servicer, the Trustee shall give prompt notice thereof to
Certificateholders.
(b) Within 60 days after the occurrence of any Event of
Default, the Trustee shall transmit by mail to all Holders of Certificates
notice of each such Event of Default hereunder known to the Trustee, unless such
Event of Default shall have been cured or waived.
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SECTION 7.04. Waiver of Events of Default.
The Holders representing at least 66% of the Voting Rights of
Certificates affected by a default or Event of Default hereunder, may waive such
default or Event of Default (other than an Event of Default set forth in Section
7.01(vi); PROVIDED, HOWEVER, that (a) a default or Event of Default under clause
(i) of Section 7.01 may be waived only by all of the Holders of Certificates
affected by such default or Event of Default and (b) no waiver pursuant to this
Section 7.04 shall affect the Holders of Certificates in the manner set forth in
the second paragraph of Section 10.01 or materially adversely affect any
non-consenting Certificateholder. Upon any such waiver of a default or Event of
Default by the Holders representing the requisite percentage of Voting Rights of
Certificates affected by such default or Event of Default, such default or Event
of Default shall cease to exist and shall be deemed to have been remedied for
every purpose hereunder. No such waiver shall extend to any subsequent or other
default or Event of Default or impair any right consequent thereon except to the
extent expressly so waived.
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ARTICLE VIII
CONCERNING THE TRUSTEE
SECTION 8.01. Duties of Trustee.
The Trustee, prior to the occurrence of an Event of Default
and after the curing of all Events of Default which may have occurred,
undertakes to perform such duties and only such duties as are specifically set
forth in this Agreement. If an Event of Default occurs and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Agreement, and use the same degree of care and skill in their exercise as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs. Any permissive right of the Trustee enumerated in this Agreement
shall not be construed as a duty.
The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform to the requirements of this Agreement. If any such instrument is found
not to conform to the requirements of this Agreement in a material manner, the
Trustee shall take action as it deems appropriate to have the instrument
corrected.
The Trustee shall sign on behalf of the Trust Fund any tax
return that the Trustee is required to sign pursuant to applicable federal,
state or local tax laws.
The Trustee covenants and agrees that it shall perform its
obligations hereunder in a manner so as to maintain the status of the Trust Fund
as a grantor trust and to prevent the imposition of any federal, state or local
income, prohibited transaction, contribution or other tax on the Trust Fund to
the extent that maintaining such status and avoiding such taxes are reasonably
within the control of the Trustee and are reasonably within the scope of its
duties under this Agreement.
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 misconduct; provided, however, that:
(i) Prior to the occurrence of an Event of Default, and
after the curing of all such Events of Default which may have
occurred, the duties and obligations of the Trustee shall be
determined solely by the express provisions of this Agreement,
the Trustee shall not be liable except for the performance of
such duties and obligations as are specifically set forth in
this Agreement, no implied covenants or obligations shall be
read into this Agreement against the Trustee and, in the
absence of bad faith on the part of the Trustee, the Trustee
may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Trustee and
conforming to the requirements of this Agreement;
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(ii) The Trustee shall not be personally liable for an
error of judgment made in good faith by a Responsible Officer
or Responsible Officers of the Trustee, unless it shall be
proved that the Trustee was negligent in ascertaining the
pertinent facts;
(iii) The Trustee shall not be personally liable with
respect to any action taken, suffered or omitted to be taken
by it in good faith in accordance with the direction of
Holders of Certificates entitled to at least 25% of the Voting
Rights relating to the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee,
under this Agreement.
SECTION 8.02. Certain Matters Affecting the
Trustee.
Except as otherwise provided in Section 8.01:
(a) The Trustee may request and rely upon and shall be
protected in acting or refraining from acting upon any
resolution, Officers' Certificate, certificate of auditors or
any other certificate, statement, instrument, opinion, report,
notice, request, consent, order, appraisal, bond or other
paper or document reasonably believed by it to be genuine and
to have been signed or presented by the proper party or
parties;
(b) The Trustee may consult with counsel and any
Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken or suffered or
omitted by it hereunder in good faith and in accordance
therewith;
(c) The Trustee shall be under no obligation to
exercise any of the trusts or powers vested in it by this
Agreement or to make any investigation of matters arising
hereunder or to institute, conduct or defend any litigation
hereunder or in relation hereto at the request, order or
direction of any of the Certificateholders, pursuant to the
provisions of this Agreement, unless such Certificateholders
shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which
may be incurred therein or thereby; nothing contained herein
shall, however, relieve the Trustee of the obligation, upon
the occurrence of an Event of Default (which has not been
cured), to exercise such of the rights and powers vested in it
by this Agreement, and to use the same degree of care and
skill in their exercise as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs;
(d) The Trustee shall not be personally liable for any
action taken, suffered or omitted by it in good faith and
believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Agreement;
(e) Prior to the occurrence of an Event of Default
hereunder and after the curing of all Events of Default which
may have occurred, the Trustee shall
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not be bound to make any investigation into the facts or
matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order,
approval, bond or other paper or document, unless requested in
writing to do so by Holders of Certificates entitled to at
least 25% of the Voting Rights; provided, however, that if the
payment within a reasonable time to the Trustee of the costs,
expenses or liabilities likely to be incurred by it in the
making of such investigation is, in the opinion of the
Trustee, not reasonably assured to the Trustee by the security
afforded to it by the terms of this Agreement, the Trustee may
require reasonable indemnity against such expense or liability
as a condition to taking any such action. The reasonable
expense of every such reasonable examination shall be paid by
the Master Servicer or, if paid by the Trustee, shall be
repaid by the Master Servicer upon demand; and
(f) The Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or
by or through agents or attorneys.
SECTION 8.03. Trustee Not Liable for Certificates
or Mortgage Loans.
The recitals contained herein and in the Certificates, other
than the signature of the Trustee on the Certificates and the certificate of
authentication, shall be taken as the statements of the Company or the Master
Servicer, as the case may be, and the Trustee assumes no responsibility for
their correctness. The Trustee makes no representations or warranties as to the
validity or sufficiency of this Agreement or of the Certificates or of any
Mortgage Loan or related document, other than the signature of the Trustee on
the Certificates and the Certificate of Authentication. The Trustee shall not be
accountable for the use or application by the Company or the Master Servicer of
any of the Certificates or of the proceeds of such Certificates, or for the use
or application of any funds paid to the Seller in respect of the Mortgage Loans
or deposited in or withdrawn from the Custodial Account or the Certificate
Account or any other account by or on behalf of the Company or the Master
Servicer, other than any funds held by or on behalf of the Trustee in accordance
with Section 4.01.
SECTION 8.04. Trustee May Own Certificates.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Certificates with the same rights it would have if it
were not Trustee.
SECTION 8.05. Payment of Trustee's Fees.
The Trustee shall withdraw from the Certificate Account on
each Distribution Date and pay to itself the Trustee's Fee. Except as otherwise
provided in this Agreement, the Trustee and any director, officer, employee or
agent of the Trustee shall be indemnified by the Trust Fund and held harmless
against any loss, liability or "unanticipated out-of-pocket" expense incurred or
paid to third parties (which expenses shall not include salaries paid to
employees, or allocable overhead, of the Trustee) in connection with the
acceptance or administration of its trusts hereunder or the Certificates, other
than any loss, liability or expense incurred by reason of willful misfeasance,
bad faith or negligence in the performance of duties hereunder or by reason of
reckless disregard of obligations and duties hereunder all such amounts shall be
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payable from funds in the Custodial Account as provided in Section 3.11. The
provisions of this Section 8.05 shall survive the termination of this Agreement.
The Master Servicer shall indemnify the Trustee and any
director, officer, employee or agent of the Trustee against any loss, liability
or expense that may be sustained in connection with this Agreement related to
the willful misfeasance, bad faith or negligence in the performance of its
duties hereunder.
SECTION 8.06. Eligibility Requirements for
Trustee.
The Trustee hereunder shall at all times be a corporation or a
national banking association organized and doing business under the laws of any
state or the United States of America or the District of Columbia, authorized
under such laws to exercise corporate trust powers, having a combined capital
and surplus of at least $50,000,000 and subject to supervision or examination by
federal or state authority. In addition, the Trustee shall at all times be
acceptable to the Rating Agency rating the Certificates. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purposes of this Section the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. In case at any time the Trustee shall
cease to be eligible in accordance with the provisions of this Section, the
Trustee shall resign immediately in the manner and with the effect specified in
Section 8.07. The corporation or national banking association serving as Trustee
may have normal banking and trust relationships with the Seller and its
affiliates or the Master Servicer and its affiliates; provided, however, that
such corporation cannot be an affiliate of the Master Servicer other than the
Trustee in its role as successor to the Master Servicer.
SECTION 8.07. Resignation and Removal of the
Trustee.
The Trustee may at any time resign and be discharged from the
trusts hereby created by giving notice thereof to the Company, the Master
Servicer and to all Certificateholders; provided, that such resignation shall
not be effective until a successor trustee is appointed and accepts appointment
in accordance with the following provisions. Upon receiving such notice of
resignation, the Company shall promptly appoint a successor trustee who meets
the eligibility requirements of Section 8.06 by written instrument, in
duplicate, which instrument shall be delivered to the resigning Trustee and to
the successor trustee. A copy of such instrument shall be delivered to the
Certificateholders and the Master Servicer by the Company. If no successor
trustee shall have been so appointed and have accepted appointment within 60
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; provided, however, that the resigning Trustee shall not resign and be
discharged from the trusts hereby created until such time as the Rating Agency
rating the Certificates approves the successor trustee.
If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 8.06 and shall fail to resign after
written request therefor by the Company or the Master Servicer, or if at any
time the Trustee shall become incapable of acting, or shall be adjudged bankrupt
or insolvent, or a receiver of the Trustee or of its property shall be
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appointed, or any public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation, conservation or
liquidation, or if the rating of the long-term debt obligations of the Trustee
is not acceptable to the Rating Agency in respect of mortgage pass-through
certificates having a rating equal to the then current rating on the
Certificates, then the Company may remove the Trustee and appoint a successor
trustee who meets the eligibility requirements of Section 8.06 by written
instrument, in duplicate, which instrument shall be delivered to the Trustee so
removed and to the successor trustee. A copy of such instrument shall be
delivered to the Certificateholders and the Master Servicer by the Company.
The Holders of Certificates entitled to at least 51% of the
Voting Rights may at any time remove the Trustee and appoint a successor trustee
by written instrument or instruments, in triplicate, signed by such Holders or
their attorneys-in-fact duly authorized, one complete set of which instruments
shall be delivered to the Master Servicer, one complete set to the Trustee so
removed and one complete set to the successor so appointed. A copy of such
instrument shall be delivered to the Certificateholders and the Master Servicer
by the Company.
Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section shall not
become effective until acceptance of appointment by the successor trustee as
provided in Section 8.08.
SECTION 8.08. Successor Trustee.
Any successor trustee appointed as provided in Section 8.07
shall execute, acknowledge and deliver to the Master Servicer and to its
predecessor trustee an instrument accepting such appointment hereunder, and
thereupon the resignation or removal of the predecessor trustee shall become
effective and such successor trustee, without any further act, deed or
conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with the like effect as if originally
named as trustee herein. The predecessor trustee shall deliver to the successor
trustee all Mortgage Files and related documents and statements held by it
hereunder, and the Master Servicer and the predecessor trustee shall execute and
deliver such instruments and do such other things as may reasonably be required
for more fully and certainly vesting and confirming in the successor trustee all
such rights, powers, duties and obligations.
No successor trustee shall accept appointment as provided in
this Section unless at the time of such acceptance such successor trustee shall
be eligible under the provisions of Section 8.06.
Upon acceptance of appointment by a successor trustee as
provided in this Section, the Master Servicer shall mail notice of the
succession of such trustee hereunder to all Holders of Certificates at their
addresses as shown in the Certificate Register. If the Master Servicer fails to
mail such notice within ten days after acceptance of appointment by the
successor trustee, the successor trustee shall cause such notice to be mailed at
the expense of the Master Servicer.
SECTION 8.09. Merger or Consolidation of Trustee.
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Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated or any corporation resulting from
any merger, conversion or consolidation to which the Trustee shall be a party,
or any corporation succeeding to the business of the Trustee, shall be the
successor of the Trustee hereunder, provided such corporation shall be eligible
under the provisions of Section 8.06, without the execution or filing of any
paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding.
SECTION 8.10. Appointment of Co-Trustee or
Separate Trustee.
Notwithstanding any other provisions hereof, 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 Company 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 other provisions of this Section
8.10, such powers, duties, obligations, rights and trusts as the Company and the
Trustee may consider necessary or desirable. If the Company shall not have
joined in such appointment within 15 days after the receipt by it of a request
so to do, or in case an Event of Default shall have occurred and be continuing,
the Trustee alone shall have the power to make such appointment. No co-trustee
or separate trustee hereunder shall be required to meet the terms of eligibility
as a successor trustee under Section 8.06 hereunder and no notice to Holders of
Certificates of the appointment of co-trustee(s) or separate trustee(s) shall be
required under Section 8.08 hereof.
In the case of any appointment of a co-trustee or separate
trustee pursuant to this Section 8.10 all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or co-trustee
jointly, except to the extent that under any law of any jurisdiction in which
any particular act or acts are to be performed (whether as Trustee hereunder or
as successor to the Master Servicer hereunder), the Trustee shall be incompetent
or unqualified to perform such act or acts, in which event such rights, powers,
duties and obligations (including the holding of title to the Trust Fund or any
portion thereof in any such jurisdiction) shall be exercised and performed by
such separate trustee or co-trustee at the direction of the Trustee.
Any notice, request or other writing given to the Trustee
shall be deemed to have been given to each of the then separate 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 Article VIII. 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.
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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.
SECTION 8.11. Information Reports and Tax Returns. The Trustee
shall prepare, execute and timely file such information reports or returns as
may be required from time to time under any applicable federal, state or local
law with respect to the Trust Fund or the Certificateholders and shall timely
provide Certificateholders of such Series with information as to the Master
Servicer's determination of monthly income accrued by the Trust Fund. [Unless
there is a statutory or administrative clarification to the contrary, as
evidenced by an Opinion of Counsel delivered to the Trustee, requiring such
information reports or returns to be prepared based on a different method, the
Trustee shall prepare such information returns or reports based on a constant
yield method with respect to the Certificates of such Series, using the
Prepayment Assumption and a representative initial offering price for
Certificates in computing such constant yield.]
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ARTICLE IX
TERMINATION
SECTION 9.01. Termination Upon Repurchase or
Liquidation of All Mortgage Loans.
The respective obligations and responsibilities of the
Company, the Master Servicer and the Trustee created hereby (other than the
obligations of the Master Servicer to provide for and the Trustee to make
payments to Certificateholders as hereafter set forth) shall terminate upon
payment to the Certificateholders of all amounts held by or on behalf of the
Trustee and required to be paid to them hereunder following the earlier to occur
of (i) the repurchase by the Master Servicer of all Mortgage Loans and each REO
Property in respect thereof remaining in the Trust Fund at a price equal to (a)
100% of the unpaid principal balance of each Mortgage Loan (other than one as to
which a REO Property was acquired) on the day of repurchase together with
accrued interest on such unpaid principal balance at the related Net Mortgage
Rate to the first day of the month in which the proceeds of such repurchase are
to be distributed, plus (b) the appraised value of any REO Property less the
good faith estimate of the Master Servicer of liquidation expenses to be
incurred in connection with its disposal thereof, such appraisal to be conducted
by an appraiser mutually agreed upon by the Master Servicer and the Trustee at
the expense of the Master Servicer, (but not more than the unpaid principal
balance of the related Mortgage Loan, together with accrued interest on that
balance at the Net Mortgage Rate to the first day of the month of repurchase),
and (ii) the final payment or other liquidation (or any Advance with respect
thereto) of the last Mortgage Loan remaining in the Trust Fund (or the
disposition of all REO Property in respect thereof); provided, however, that in
no event shall the trust created hereby continue beyond expiration of 21 years
from the death of the last survivor of the descendants of Joseph P. Kennedy, the
late ambassador of the United States to the Court of St. James, living on the
date hereof. In the case of any repurchase by the Master Servicer pursuant to
clause (i), the Master Servicer shall include in such repurchase price the
amount of any Advances that will be reimbursed to the Master Servicer pursuant
to Section 3.11(iii) and the Master Servicer shall exercise reasonable efforts
to cooperate fully with the Trustee in effecting such repurchase and the
transfer of the Mortgage Loans and related Mortgage Files and related records to
the Master Servicer.
The right of the Master Servicer to repurchase all Mortgage
Loans pursuant to (i) above shall be conditioned upon the aggregate Stated
Principal Balance of such Mortgage Loans at the time of any such repurchase
aggregating an amount equal to or less than __% of the aggregate Stated
Principal Balance of the Mortgage Loans at the Cut-off Date. If such right is
exercised, the Master Servicer upon such repurchase shall provide to the
Trustee, the certification required by Section 3.16.
Notice of any termination, specifying the Distribution Date
upon which the Certificateholders may surrender their Certificates to the
Trustee for payment of the final distribution and cancellation, shall be given
promptly by the Master Servicer by letter to the Trustee and shall be given
promptly by the Trustee to the Certificateholders mailed (a) in the event such
notice is given in connection with the Master Servicer's election to repurchase,
not earlier than the 15th day and not later than the 25th day of the month next
preceding the month of such final
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distribution or (b) otherwise during the month of such final distribution on or
before the Determination Date in such month, in each case specifying (i) the
Distribution Date upon which final payment of the Certificates will be made upon
presentation and surrender of Certificates at the office of the Certificate
Registrar therein designated, (ii) the amount of any such final payment and
(iii) that the Record Date otherwise applicable to such Distribution Date is not
applicable, payments being made only upon presentation and surrender of the
Certificates at the office of the Certificate Registrar therein specified. In
the event such notice is given in connection with the Master Servicer's election
to repurchase, the Master Servicer shall deposit in the Custodial Account
pursuant to Section 3.10 on the last day of the related Prepayment Period an
amount equal to the above-described repurchase price payable out of its own
funds. Upon presentation and surrender of the Certificates by the
Certificateholders, the Trustee shall distribute to the Certificateholders (i)
the amount otherwise distributable on such Distribution Date, if not in
connection with the Master Servicer's election to repurchase, or (ii) if the
Master Servicer elected to so repurchase, an amount determined as follows: with
respect to each Certificate, the outstanding Certificate Principal Balance
thereof, plus one month's interest thereon at the applicable Pass-Through Rate
and any previously unpaid Accrued Certificate Interest. Upon certification to
the Trustee by a Servicing Officer, following such final deposit, the Trustee
shall promptly release the Mortgage Files as directed by the Master Servicer for
the remaining Mortgage Loans, and the Trustee shall execute all assignments,
endorsements and other instruments required by the Master Servicer as being
necessary to effectuate such transfer.
In the event that all of the Certificateholders shall not
surrender their Certificates for cancellation within six months after the time
specified in the above-mentioned notice, the Trustee shall give a second notice
to the remaining Certificateholders to surrender their Certificates for
cancellation and receive the final distribution with respect thereto. If within
six months after the second notice all of the Certificates shall not have been
surrendered for cancellation, the Trustee shall take reasonable steps as
directed by the Company, or appoint an agent to take reasonable steps, to
contact the remaining Certificateholders concerning surrender of their
Certificates, and the cost thereof shall be paid out of the funds and other
assets which remain subject hereto. If, within nine months after the second
notice, all of the Certificates shall not have been surrendered for
cancellation, the Trustee shall be entitled to all unclaimed funds and other
assets which remain subject hereto.
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ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.01. Amendment.
This Agreement may be amended from time to time by the
Company, the Master Servicer and the Trustee without the consent of any of the
Certificateholders, (i) to cure any ambiguity, (ii) to correct or supplement any
provisions herein which may be defective or inconsistent with any other
provisions herein or to correct any error, (iii) to change the timing and/or
nature of deposits in the Certificate Account, provided that (a) such change
would not adversely affect in any material respect the interests of any
Certificateholder, as evidenced by an Opinion of Counsel, and (b) such change
would not adversely affect the then-current rating of any rated class of
Certificates, as evidenced by a letter from each applicable Rating Agency, (iv)
to make any other provisions with respect to matters or questions arising this
Agreement which are not materially inconsistent with the provisions thereof,
provided that such action will not adversely affect in any material respect the
interests of any Certificateholder, or (v) to amend specified provisions that
are not material to holders of any class of Certificates offered hereunder.
This Agreement may also be amended from time to time by the
Company, the Master Servicer and the Trustee with the consent of the Holders of
Certificates entitled to at least 66-2/3% of the Voting Rights for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the rights of the
Holders of Certificates; provided, however, that no such amendment shall (i)
reduce in any manner the amount of, or delay the timing of, payments received on
Mortgage Loans which are required to be distributed on any Certificate without
the consent of the Holder of such Certificate, or (ii) reduce the aforesaid
percentage of Certificates the Holders of which are required to consent to any
such amendment, without the consent of the Holders of all Certificates then
outstanding. Notwithstanding any other provision of this Agreement, for purposes
of the giving or withholding of consents pursuant to this Section 10.01,
Certificates registered in the name of the Seller or the Master Servicer or any
affiliate thereof shall be entitled to Voting Rights with respect to matters
described in clauses (i) and (ii) of this paragraph.
Promptly after the execution of any such amendment the Trustee
shall furnish a statement describing the amendment to each Certificateholder.
It shall not be necessary for the consent of
Certificateholders under this Section 10.01 to approve the particular form of
any proposed amendment, but it shall be sufficient if such consent shall approve
the substance thereof. The manner of obtaining such consents and of evidencing
the authorization of the execution thereof by Certificateholders shall be
subject to such reasonable regulations as the Trustee may prescribe.
Prior to executing any amendment pursuant to this Section, the
Trustee shall be entitled to receive an Opinion of Counsel (provided by the
Person requesting such amendment) to the effect that such amendment is
authorized or permitted by this Agreement. The cost of an
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Opinion of Counsel delivered pursuant to this Section 10.01 shall be an expense
of the party requesting such amendment, but in any case shall not be an expense
of the Trustee.
The Trustee may, but shall not be obligated to enter into any
amendment pursuant to this Section that affects its rights, duties and
immunities under this Agreement or otherwise.
SECTION 10.02. Recordation of Agreement;
Counterparts.
To the extent permitted by applicable law, this Agreement is
subject to recordation in all appropriate public offices for real property
records in all the counties or other comparable jurisdictions in which any or
all of the properties subject to the Mortgages are situated, and in any other
appropriate public recording office or elsewhere, such recordation to be
effected by the Master Servicer and at the expense of the Company on direction
by the Trustee, but only upon direction accompanied by an Opinion of Counsel to
the effect that such recordation materially and beneficially affects the
interests of the Certificateholders.
For the purpose of facilitating the recordation of this
Agreement as herein provided and for other purposes, this Agreement may be
executed simultaneously in any number of counterparts, each of which
counterparts shall be deemed to be an original, and such counterparts shall
constitute but one and the same instrument.
SECTION 10.03. Limitation on Rights of
Certificateholders.
The death or incapacity of any Certificateholder shall not
operate to terminate this Agreement or the Trust Fund, nor entitle such
Certificateholder's legal representatives or heirs to claim an accounting or to
take any action or proceeding in any court for a partition or winding up of the
Trust Fund, nor otherwise affect the rights, obligations and liabilities of the
parties hereto or any of them.
No Certificateholder shall have any right to vote (except as
expressly provided for herein) or in any manner otherwise control the operation
and management of the Trust Fund, or the obligations of the parties hereto, nor
shall anything herein set forth, or contained in the terms of the Certificates,
be construed so as to constitute the Certificateholders from time to time as
partners or members of an association; nor shall any Certificateholder be under
any liability to any third party by reason of any action taken by the parties to
this Agreement pursuant to any provision hereof.
No Certificateholder shall have any right by virtue of any
provision of this Agreement to institute any suit, action or proceeding in
equity or at law upon or under or with respect to this Agreement, unless such
Holder previously shall have given to the Trustee a notice of an Event of
Default, or of a default by the Seller or the Trustee in the performance of any
obligation hereunder, and of the continuance thereof, as hereinbefore provided,
and unless also the Holders of Certificates entitled to at least 25% of the
Voting Rights shall have made written request upon the Trustee to institute such
action, suit or proceeding in its own name as Trustee hereunder and shall have
offered to the Trustee such reasonable indemnity as it may require against the
costs, expenses and liabilities to be incurred therein or thereby, and the
Trustee, for 60 days after its receipt of such notice, request and offer of
indemnity, shall have neglected or
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refused to institute any such action, suit or proceeding. It is understood and
intended, and expressly covenanted by each Certificateholder with every other
Certificateholder and the Trustee, that no one or more Holders of Certificates
shall have any right in any manner whatever by virtue of any provision of this
Agreement to affect, disturb or prejudice the rights of the Holders of any other
of such Certificates, or to obtain or seek to obtain priority over or preference
to any other such Holder, or to enforce any right under this Agreement, except
in the manner herein provided and for the equal, ratable and common benefit of
all Certificateholders. For the protection and enforcement of the provisions of
this Section, each and every Certificateholder and the Trustee shall be entitled
to such relief as can be given either at law or in equity.
SECTION 10.04. Governing Law.
This Agreement and the Certificates shall be construed in
accordance with the laws of the State of New York and the obligations, rights
and remedies of the parties hereunder shall be determined in accordance with
such laws.
SECTION 10.05. Notices.
All demands, notices and direction hereunder shall be in
writing and shall be deemed effective upon receipt when delivered to (a) in the
case of the Company, ____________, ____________________________________,
Attention: ________________, or such other address as may hereafter be furnished
to the Trustee and the Master Servicer in writing by the Company, (b) in the
case of the Trustee, ______________________________________________ __________,
Attention: _________________________________, or such other address as may
hereafter be furnished to the Master Servicer and the Company in writing by the
Trustee and (c) in the case of the Master Servicer, [Name of Master Servicer]
[Address of Master Servicer] Attention: ________________________ or such other
address as may hereafter be furnished to the Company and the Trustee in writing.
Any notice required or permitted to be mailed to a Certificateholder shall be
given by first class mail, postage prepaid, at the address of such Holder as
shown in the Certificate Register. Any notice so mailed within the time
prescribed in this Agreement shall be conclusively presumed to have been duly
given, whether or not the Certificateholder receives such notice.
SECTION 10.06. Severability of Provisions.
If any one or more of the covenants, agreements, provisions or
terms of this Agreement shall be for any reason whatsoever held invalid, then
such covenants, agreements, provisions or terms shall be deemed severable from
the remaining covenants, agreements, provisions or terms of this Agreement and
shall in no way affect the validity or enforceability of the other provisions of
this Agreement or of the Certificates or the rights of the Holders thereof.
SECTION 10.07. Successors and Assigns; Third Party
Beneficiary.
The provisions of this Agreement shall be binding upon and
inure to the benefit of the respective successors and assigns of the parties
hereto, and all such provisions shall inure
73
<PAGE>
to the benefit of the Trustee and the Certificateholders. The parties hereto
agree that the Seller is the intended third party beneficiary of Sections 3.07,
3.10 and 3.22 hereof, and that the Seller may enforce such provisions to the
same extent as if the Seller were a party to this Agreement.
SECTION 10.08. Article and Section Headings.
The article and section headings herein are for convenience of
reference only, and shall not limit or otherwise affect the meaning hereof.
SECTION 10.09. Notice to Rating Agencies and
Certificateholder.
The Trustee shall use its best efforts to promptly provide
notice to the Rating Agencies referred to below and the Letter of Credit Issuer
with respect to each of the following of which it has actual knowledge:
1. Any material change or amendment to this Agreement;
2. The occurrence of any Event of Default that has not been
cured;
3. The resignation or termination of the Master Servicer or
the Trustee;
4. The repurchase or substitution of Mortgage Loans pursuant
to Section 2.04;
5. The final payment to Certificateholders; and
6. Any change in the location of the Custodial Account or the
Certificate Account.
In addition, the Trustee shall promptly furnish to the Rating
Agency copies of the following:
1. Each report to Certificateholders described in Section
4.02;
2. Each annual independent public accountants' servicing
report received as described in Section 3.20; and
3. Each Master Servicer compliance report received as
described in Section 3.19.
Any such notice pursuant to this Section 10.09 shall be in
writing and shall be deemed to have been duly given if personally delivered or
mailed by first class mail, postage prepaid, or by express delivery service to
(i) in the case of [______________________________] ___________________________,
Attention: ___________, and (ii) in the case of [___________________ __________]
or, in each case, such other address as such Rating Agency may designate in
writing to the parties thereto.
74
<PAGE>
IN WITNESS WHEREOF, the Company, the Master Servicer and the
Trustee have caused their names to be signed hereto by their respective officers
thereunto duly authorized all as of the day and year first above written.
OPTION ONE MORTGAGE ACCEPTANCE
CORPORATION
Company
By:__________________________________________
[NAME OF MASTER SERVICER],
Master Servicer
By:__________________________________________
[NAME OF TRUSTEE]
Trustee
By:__________________________________________
75
<PAGE>
EXHIBITS
[See Exhibit 4.1]
76
EXHIBITS 5.1, 8.1, 23.1
-----------------------
[LETTERHEAD OF THACHER PROFFITT & WOOD]
October 22, 1996
Option One Mortgage Acceptance Corporation
2020 East First Street, Suite 100
Santa Ana, California 92705
Re: Option One Mortgage Acceptance Corporation
Mortgage Pass-Through Certificates;
Registration Statement on Form S-3
------------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Option One Mortgage
Acceptance Corporation, a Delaware corporation (the "Registrant") in connection
with the registration under the Securities Act of 1933, as amended (the "Act"),
of Mortgage Pass-Through Certificates (the "Certificates"), and the related
preparation and filing of a Registration Statement on Form S-3 (the
"Registration Statement"). The Certificates are issuable in series under
separate pooling and servicing agreements (each such agreement, a "Pooling and
Servicing Agreement"), among the Registrant, a master servicer to be identified
in the prospectus supplement for such series of Certificates and a trustee to be
identified in the prospectus supplement for such series of Certificates. Each
Pooling and Servicing Agreement will be substantially in the form filed as an
Exhibit to the Registration Statement.
<PAGE>
In connection with rendering this opinion letter, we have
examined the forms of the Pooling and Servicing Agreements contained as Exhibits
in the Registration Statement, the Registration Statement and such records and
other documents as we have deemed necessary. As to matters of fact, we have
examined and relied upon representations or certifications of officers of the
Registrant or public officials. We have assumed the authenticity of all
documents submitted to us as originals, the genuineness of all signatures, the
legal capacity of natural persons and the conformity to the originals of all
documents. We have assumed that all parties, other than the Registrant, had the
corporate power and authority to enter into and perform all obligations
thereunder, and, as to such parties, we also have assumed the enforceability of
such documents.
In rendering this opinion letter, we express no opinion as to
the laws of any jurisdiction other than the laws of the State of New York, nor
do we express any opinion, either implicitly or otherwise, on any issue not
expressly addressed below. In rendering this opinion letter, we have not passed
upon and do not pass upon the application of "doing business" or the securities
laws of any jurisdiction. This opinion letter is further subject to the
qualification that enforceability may be limited by (i) bankruptcy, insolvency,
liquidation, receivership, moratorium, reorganization or other laws affecting
the enforcement of the rights of creditors generally and (ii) general principles
of equity, whether enforcement is sought in a proceeding in equity or at law.
Based on the foregoing, we are of the opinion that:
1. When a Pooling and Servicing Agreement for a series of
Certificates has been duly authorized by all necessary action and duly executed
and delivered by the parties thereto, such Pooling and Servicing Agreement will
be a legal and valid obligation of the Registrant.
2. When a Pooling and Servicing Agreement for a series of
Certificates has been duly authorized by all necessary action and duly executed
and delivered by the parties thereto, and when the Certificates of such series
have been duly executed and authenticated in accordance with the provisions of
that Pooling and Servicing Agreement, and issued and sold as contemplated in the
Registration Statement and the prospectus and prospectus supplement delivered in
connection therewith, such Certificates will be legally and validly issued and
outstanding, fully paid and non-assessable, and the holders of such Certificates
will be entitled to the benefits of that Pooling and Servicing Agreement.
3. The description of federal income tax consequences
appearing under the heading "Federal Income Tax Consequences" in the prospectus
contained in the Registration Statement, while not purporting to discuss all
possible federal income tax consequences of an investment in Certificates, is
accurate with respect to those tax consequences which are discussed.
<PAGE>
We hereby consent to the filing of this opinion letter as an
Exhibit to the Registration Statement, and to the use of our name in the
prospectus and prospectus supplement included in the Registration Statement
under the heading "Legal Matters", and in the prospectus included in the
Registration Statement under the heading "Federal Income Tax Consequences",
without admitting that we are "experts" within the meaning of the Act, and the
rules and regulations thereunder, with respect to any part of the Registration
Statement, including this Exhibit.
Very truly yours,
THACHER PROFFITT & WOOD
By
/s/ Thacher Proffitt & Wood
---------------------------
EXHIBIT 24.1
------------
OPTION ONE MORTGAGE ACCEPTANCE CORPORATION
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints any of Robert E. Dubrish, Steven L. Nadon
or William L. O'Neill as his true and lawful attorney-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities (including his capacity as director and/or
officer of Option One Mortgage Acceptance Corporation), to sign any or all
amendments (including post-effective amendments) to the Registration Statement
on Form S-3, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully and to all intents and purposes as he might or
could do in person, hereby ratifying and confirming that said attorney-in-fact
and agent, or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
SIGNATURE TITLE DATE
/s/ Robert E. Dubrish Director and President October 22, 1996
- --------------------------
Robert E. Dubrish
/s/ Steven L. Nadon Director and Secretary October 22, 1996
- --------------------------
Steven L. Nadon
/s/ William L. O'Neill Director and Treasurer October 22, 1996
- --------------------------
William L. O'Neill
