<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 11, 1996
REGISTRATION NO. 333-16397
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM S-11
AMENDMENT NO. 1
TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
FDIC REMIC TRUST 1996-C1
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS GOVERNING INSTRUMENT)
------------------
C/O STATE STREET BANK AND TRUST C/O STATE STREET BANK AND TRUST
COMPANY COMPANY
CORPORATE TRUST DEPARTMENT CORPORATE TRUST DEPARTMENT, NOT
IN ITS INDIVIDUAL CAPACITY BUT SOLELY
225 FRANKLIN STREET AS TRUSTEE FOR
BOSTON, MASSACHUSETTS 02110 FDIC REMIC TRUST 1996-C1
(ADDRESS OF PRINCIPAL EXECUTIVE 225 FRANKLIN STREET
OFFICES) BOSTON, MASSACHUSETTS 02110
(NAME AND ADDRESS OF AGENT FOR
SERVICE)
------------------
COPIES TO:
RANDOLPH F. TOTTEN, ESQ. MARGARET L. JACOBS, ESQ. GEOFFREY K. HURLEY, ESQ.
HUNTON & WILLIAMS FEDERAL DEPOSIT LATHAM & WATKINS
RIVERFRONT PLAZA, EAST INSURANCE CORPORATION 885 THIRD AVENUE, SUITE
TOWER 550 17TH STREET, N.W. 1000
951 EAST BYRD STREET WASHINGTON, D.C. 20429 NEW YORK, NEW YORK
RICHMOND, VIRGINIA 10022-4802
23219-4074
------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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. [_]
------------------
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED(1) REGISTERED PER UNIT(1) PRICE(1) FEE(2)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial Mortgage Pass-
Through Certificates... $742,000,000 100% $742,000,000 $224,545.45
</TABLE>
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- -------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee on the
basis of the proposed maximum aggregate offering price.
(2) Exclusive of $303.04, which was previously paid with the initial filing on
November 19, 1996.
------------------
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>
CROSS REFERENCE SHEET
PURSUANT TO RULE 501(A) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM AND CAPTION IN FORM S-11 CAPTION IN PROSPECTUS
----------------------------- ---------------------
<S> <C>
1.Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus...... Forepart of Registration Statement;
Outside Front Cover Page of Prospectus
2.Inside Front and Outside Back
Cover Page of Prospectus...... Inside Front; Outside Back Cover Page of
Prospectus
3.Summary Information, Risk
Factors and Ratio of Earnings
to Fixed Charges.............. Summary of Prospectus; Risk Factors
4.Determination of Offering
Price......................... *
5.Dilution........................ *
6.Selling Security Holders........ *
7.Plan of Distribution............ Description of the Certificates;
Description of the Mortgage Pool;
Underwriting
8.Use of Proceeds................. Use of Proceeds
9.Selected Financial Data......... Financial Information
10.Management's Discussion and
Analysis of Financial
Condition and Results of
Operations.................... The Bank Insurance Fund; Financial
Information
11.General Information as to
Registrant.................... Summary of Prospectus; Description of the
Mortgage Pool
12.Policy with Respect to Certain
Activities.................... Summary of Prospectus; Servicing of the
Mortgage Loans
13.Investment Policies of
Registrant.................... Summary of Prospectus; Risk Factors;
Description of the Mortgage Pool;
Description of the Pooling and Servicing
Agreement
14.Description of Real Estate...... Description of the Mortgage Pool
15.Operating Data.................. *
16.Tax Treatment of Registrant and
Its Security Holders.......... Certain Federal Income Tax Consequences;
State and Other Tax Consequences
17.Market Price of and Dividends on
the Registrant's Common Equity
and Related Stockholder
Matters....................... Risk Factors
18.Description of Registrant's
Securities.................... Description of the Certificates
19.Legal Proceedings............... *
20.Security Ownership of Certain
Beneficial Owners and
Management.................... *
21.Directors and Executive
Officers...................... *
22.Executive Compensation.......... *
23.Certain Relationships and
Related Transactions.......... *
24.Selection, Management and
Custody of Registrant's
Investments................... Summary of Prospectus; Description of the
Mortgage Pool; Servicing of the Mortgage
Loans; Description of the Certificates;
Description of the Pooling and Servicing
Agreement
25.Policies with Respect to Certain
Transactions.................. *
26.Limitations of Liability........ Summary of Prospectus; Risk Factors;
Description of the Certificates;
Servicing of the Mortgage Loans;
Description of the Pooling and Servicing
Agreement
27.Financial Statements and
Information................... The Bank Insurance Fund; Financial
Information
28.Interests of Named Experts and
Counsel....................... *
29.Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................... *
</TABLE>
- --------
* Answer negative or item inapplicable
<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 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 STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated December 11, 1996
PROSPECTUS
$740,531,095 (APPROXIMATE)
FDIC REMIC TRUST 1996-C1
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1996-C1
FEDERAL DEPOSIT INSURANCE CORPORATION, MORTGAGE LOAN SELLER
BANC ONE MANAGEMENT AND CONSULTING CORPORATION, SERVICER
------------
The Series 1996-C1 Commercial Mortgage Pass-Through Certificates (the
"Certificates") will consist of 10 classes of Certificates, consisting of the
seven classes of Certificates offered hereby (collectively, the "Offered
Certificates"), and the Class I-XS Certificates, the Class II-XS Certificates
and the Class R Certificates, which are not offered hereby. The Certificates in
the aggregate evidence the entire beneficial ownership interest in a trust fund
(the "Trust Fund") consisting primarily of a pool (the "Mortgage Pool") of
adjustable and fixed rate, amortizing and balloon payment mortgage loans and
participation interests in similar mortgage loans (the "Mortgage Loans"). The
Mortgage Loans are secured primarily by first liens primarily on fee simple
estates in commercial, multifamily
(cover continued on next page)
------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND, TOGETHER WITH AMOUNTS PAYABLE UNDER
THE LIMITED GUARANTY, ARE THE SOLE SOURCE OF PAYMENTS ON THE CERTIFICATES.
PAYMENTS ON THE CERTIFICATES ON ANY DISTRIBUTION DATE WILL BE MADE ONLY TO THE
EXTENT OF AVAILABLE FUNDS FOR SUCH DISTRIBUTION DATE. THE CERTIFICATES DO NOT
REPRESENT ANY OBLIGATION OF OR AN INTEREST IN THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY DEPOSITORY INSTITUTION FOR WHICH THE FEDERAL DEPOSIT
INSURANCE CORPORATION IS ACTING AS RECEIVER, EXCEPT AS OTHERWISE DESCRIBED
HEREIN. THE CERTIFICATES ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR BY ANY
OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY. HOWEVER, A LIMITED GUARANTY WILL
BE PROVIDED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION THROUGH THE BANK
INSURANCE FUND TO COVER, AMONG OTHER THINGS, LOSSES AND OTHER SHORTFALLS
ATTRIBUTABLE TO CREDIT DEFAULTS AND BASIS RISK ON THE MORTGAGE LOANS, TO THE
EXTENT DESCRIBED HEREIN. THE LIMITED GUARANTY IS BY ITS TERMS NOT BACKED BY THE
FULL FAITH AND CREDIT OF THE UNITED STATES OF AMERICA.
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 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.
------------
INVESTMENTS IN THE OFFERED CERTIFICATES MAY INVOLVE MATERIAL RISKS.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER THE CAPTION
"RISK FACTORS" BEGINNING ON PAGE 26 BEFORE PURCHASING ANY OFFERED CERTIFICATE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INITIAL PERCENTAGE OF PASS- UNDERWRITING FINAL SCHEDULED
INITIAL CLASS APPLICABLE SUB-POOL THROUGH PRICE TO DISCOUNTS AND DISTRIBUTION EXPECTED
SUB-POOL DESIGNATION BALANCE(1) CERTIFICATE BALANCE RATE PUBLIC(2) COMMISSION DATE(3) RATING(4)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
I Class I-A 458,858,000 81% July 25, 2026 Aaa/AAA
I Class I-B 33,989,000 6% July 25, 2026 Aa2/ AA
I Class I-C 28,325,000 5% July 25, 2026 A2/A
I Class I-D 45,319,493 8% July 25, 2026 Baa2/BBB
II Class II-A 146,193,000 84% (5) January 25, 2027 Aaa/AAA
II Class II-B 15,663,000 9% (5) January 25, 2027 Aa2/AA
II Class II-C 12,183,602 7% (5) January 25, 2027 A2/A-
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Footnotes to table on next page)
The Offered Certificates are offered by the several Underwriters when, as and
if issued by the Trust Fund, delivered to and accepted by the Underwriters and
subject to their right to reject orders in whole or in part. Proceeds to the
Mortgage Loan Seller from the sale of the Offered Certificates are anticipated
to be approximately $ plus accrued interest with respect to the Sub-Pool I
Certificates, but before deducting expenses payable by the Mortgage Loan
Seller, estimated to be approximately $3,000,000. It is expected that delivery
of the Offered Certificates will be made in book-entry form only through the
Same Day Funds Settlement System of The Depository Trust Company on or about
December 23, 1996, which will be the business day following the pricing of
the Offered Certificates (such settlement cycle being herein referred to as
("T+ ")). Purchasers of Offered Certificates should note that trading of the
Offered Certificates on the date of pricing and the next succeeding business
days may be affected by the T+ settlement. See "Underwriting" herein.
------------
LEHMAN BROTHERS GOLDMAN, SACHS & CO.
The date of this Prospectus is December , 1996.
- -----
In this Prospectus, the term "Mortgage Loan Seller" will refer to the Federal
Deposit Insurance Corporation acting as mortgage loan seller in its capacity as
receiver of each of the Depository Institutions with respect to a majority of
the Mortgage Loans and in its capacity as administrator of the Bank Insurance
Fund with respect to the remaining Mortgage Loans. The term "FDIC" will refer
to the Federal Deposit Insurance Corporation acting solely in its corporate
capacity and not as Mortgage Loan Seller.
<PAGE>
(cover continued)
- -------
(1) Subject to a permitted variance of plus or minus 5%.
(2) Plus accrued interest from December 1, 1996 with respect to the Sub-Pool I
Certificates.
(3) The Final Scheduled Distribution Dates have been set to a date three years
after the Distribution Date following the latest scheduled maturity date
for any Mortgage Loan in the applicable Sub-Pool.
(4) By Moody's Investors Service, Inc., and Duff & Phelps Credit Rating Co.,
Inc., respectively.
(5) The Pass-Through Rate on the Offered Certificates evidencing an interest
in Sub-Pool II will be subject to adjustment on each Distribution Date
based on changes in LIBOR. The Pass-Through Rate on such Certificates for
the first Distribution Date will be based on LIBOR as of the LIBOR
Business Day preceding the Closing Date.
and, to a limited extent, residential real properties (the "Mortgaged
Properties"). For purposes of calculating distributions on the Certificates,
the Mortgage Pool is segregated into two separate sub-pools, designated as
Sub-Pool I, which consists of all of the fixed rate Mortgage Loans and certain
high-floor adjustable rate Mortgage Loans (the "Group I Loans"), and Sub-Pool
II, which consists of all other adjustable rate Mortgage Loans (the "Group II
Loans"). As of December 1, 1996 (the "Cut-off Date"), the aggregate principal
balance of (i) the Mortgage Loans in the Mortgage Pool was approximately
$746,873,986 (the "Cut-off Date Balance"), (ii) the Group I Loans in Sub-Pool
I was approximately $572,834,384 (the "Cut-off Date Sub-Pool I Balance") and
(iii) the Group II Loans in Sub-Pool II was approximately $174,039,602 (the
"Cut-off Date Sub-Pool II Balance"), in each case after application of all
payments of principal due on or before such date, whether or not received. The
Offered Certificates bear the class designations and have the characteristics
set forth in the table on the cover page of this Prospectus.
The Mortgage Loans will be conveyed to State Street Bank and Trust Company,
the trustee of the Trust Fund, by the Federal Deposit Insurance Corporation,
in its capacity as receiver of various Depository Institutions with respect to
a majority of the Mortgage Loans, and in its corporate capacity as
administrator of the Bank Insurance Fund with respect to the remaining
Mortgage Loans (in such capacities, the "Mortgage Loan Seller"). Each
Depository Institution for which the Mortgage Loan Seller is still acting as
receiver is insolvent and in the process of liquidation and substantially all
of the Depository Institutions from which the Mortgage Loan Seller has
acquired Mortgage Loans have been liquidated. The files with respect to many
of the Mortgage Loans are incomplete. As a result, there can be no assurance
that there are not material inaccuracies in the information included in this
Prospectus with respect to one or more Mortgage Loans. See "Risk Factors--The
Mortgage Loans--Troubled Originators," "--Limited Information" and "--Mortgage
Loan Schedule."
Distributions of interest on and principal of the Offered Certificates will
be made, to the extent of available funds, on the 25th day of each month or,
if such 25th day is not a business day, then on the next succeeding business
day, beginning in January, 1997 (each, a "Distribution Date"). As more fully
described herein, distributions allocable to interest accrued on each class of
Offered Certificates will be made on each Distribution Date based on the pass-
through rate (the "Pass-Through Rate") then applicable to such class and the
principal amount (the "Class Balance") of such class, in each case outstanding
immediately prior to such Distribution Date. Distributions allocable to
interest on the Offered Certificates evidencing an interest in Sub-Pool II may
be subject to reduction to reflect unfunded interest shortfalls attributable
to Basis Risk Shortfalls (as defined herein) as described herein. See "Risk
Factors--The Certificates--Sub-Pool II Certificates--Basis Risk."
Distributions of Scheduled Principal will be made to the Classes of Offered
Certificates sequentially in the amounts and in accordance with the priorities
described herein. Distributions of Principal Prepayments will be made to the
Classes of Offered Certificates sequentially until the Distribution Date
occurring in January, 2002 and thereafter certain amounts of Principal
Prepayments may be distributed to junior classes of Certificates as more fully
described herein. Distributions on the Sub-Pool I Certificates will be based
solely on the Mortgage Loans in Sub-Pool I and distributions on the Sub-Pool
II Certificates will be based solely on the Mortgage Loans in Sub-Pool II. See
"Description of the Certificates--Distributions."
The Federal Deposit Insurance Corporation, in its corporate capacity (in
such capacity, the "FDIC"), will deliver to the trustee a limited guaranty
(the "Limited Guaranty"), which will cover, among other things, losses and
other shortfalls attributable to credit default and other losses on (i) the
Group I Loans in an amount initially equal to approximately 30% of the Cut-off
Date Sub-Pool I Balance and (ii) the Group II Loans in an amount initially
equal to approximately 40% of the Cut-off Date Sub-Pool II Balance. Claims
under the Limited Guaranty may be satisfied only through draws upon the Bank
Insurance Fund, as described herein. There can be no assurance that amounts in
the Bank Insurance Fund will be available to pay any such claim at any
particular time. THE LIMITED GUARANTY IS BY ITS TERMS NOT BACKED BY THE FULL
FAITH AND CREDIT OF THE UNITED STATES OF AMERICA. As and to the extent
described herein, in the event that the coverage available in respect of a
particular Sub-Pool under the Limited Guaranty has been exhausted, credit
losses and shortfalls on the Mortgage Loans in such Sub-Pool will be borne
first by the class of Certificates evidencing an interest therein having the
lowest alphabetical class designation, before allocation of such losses and
shortfalls to any other class of Certificates evidencing an interest therein.
The yield to maturity on each class of Offered Certificates will depend on,
among other things, its respective Pass-Through Rate and the rate and timing
of principal payments (including by reason of prepayments, defaults,
liquidations and repurchases attributable to breaches of representations and
warranties) on the Mortgage Loans that are applied in reduction of the Class
Balance of such class. See "Yield and Maturity Considerations" and "Risk
Factors--The Certificates--Variability in Yield; Priority in Payments;
Subordination." The ratings assigned to the Offered Certificates will not
constitute an assessment of the likelihood that principal prepayments
(including for this purpose both voluntary prepayments as well as unscheduled
collections resulting from defaults, liquidations and repurchases attributable
to breaches of representations and warranties) of the Mortgage Loans will be
made, the degree to which the rate of such prepayments might differ from that
originally anticipated or the likelihood of early optional termination of the
Trust Fund. Furthermore, such ratings will not address the possibility that
(x) prepayment of the Mortgage Loans at a higher or lower rate than
anticipated by an investor may cause such investor to experience a lower than
anticipated yield, (y) an investor that purchases an Offered Certificate at a
significant premium might fail to recover its initial investment under certain
prepayment scenarios or (z) Basis Risk Shortfalls may reduce the amount
available for distribution on the Sub-Pool II Certificates. See "Risk
Factors--The Certificates--Limited Nature of Ratings" and "Ratings."
2
<PAGE>
As described herein, "real estate mortgage investment conduit" ("REMIC")
elections will be made with respect to specific portions of the Trust Fund for
federal income tax purposes. The Offered Certificates generally will represent
"regular interests" in a REMIC. See "Certain Federal Income Tax Consequences--
Tax Treatment of Regular Certificates--Original Issue Discount."
There currently is no secondary market for the Offered Certificates. The
Underwriters intend to make a secondary market in the Offered Certificates,
but have no obligation to do so. See "Risk Factors--The Certificates--Limited
Liquidity."
Koch Asset Management Company and Glaves & Associates, Inc. serve as the
financial adviser to the Federal Deposit Insurance Corporation in connection
with the issuance and sale of the Certificates.
------------------
ONLY THE ASSETS OF THE TRUST FUND MAY BE SUBJECT TO ISSUER LIABILITY UNDER
THE FEDERAL SECURITIES LAWS FOR THE INFORMATION CONTAINED IN THIS PROSPECTUS.
THE TRUST FUND'S ASSETS ARE LIMITED SOLELY TO THE MORTGAGE LOANS AND THE
PROCEEDS THEREOF, AS DESCRIBED HEREIN. IN THE EVENT THAT THE TRUST FUND'S
ASSETS ARE DIMINISHED BY RECOVERIES AGAINST IT BASED UPON ITS LIABILITIES AS
ISSUER UNDER THE FEDERAL SECURITIES LAWS, THE ASSETS AVAILABLE FOR PAYMENT TO
CERTIFICATEHOLDERS WILL BE DIMINISHED. THE LIMITED GUARANTY WILL NOT BE
AVAILABLE TO COVER SUCH LIABILITIES.
------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE OFFERED
CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS, ALL DEALERS EFFECTING
TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------
AVAILABLE INFORMATION
The Trust Fund has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus forms a part)
under the Securities Act of 1933, as amended, with respect to the Offered
Certificates. This Prospectus contains summaries of the material terms of the
documents referred to herein and therein, but does not contain all of the
information set forth in the Registration Statement pursuant to the rules and
regulations of the Commission. For further information, reference is made to
such Registration Statement and the exhibits thereto. Such Registration
Statement and exhibits as well as reports and other information filed by the
Trust Fund can be inspected without charge and copied at prescribed rates at
the public reference facilities maintained by the Commission at the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, and at its Regional Offices located as follows: Chicago Regional
Office, Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511; and New York Regional Office, Seven World Trade
Center, Suite 1300, New York, New York 10048. The Commission maintains a Web
site that contains reports, proxy, and information statements and other
information regarding registrants that file electronically with the
Commission. The Web site is located at http://www.sec.gov.
No person has been authorized to give any information or to make any
representation not contained in this Prospectus and, if given or made, such
information or representation must not be relied upon. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
securities other than the Offered Certificates, or an offer of the Offered
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.
------------------
3
<PAGE>
REPORTS TO CERTIFICATEHOLDERS
The Trustee will be required to mail to holders of the Offered Certificates,
the Mortgage Loan Seller, the Servicer, the Underwriters and each Rating
Agency periodic unaudited reports concerning the Trust Fund. Such reports will
be sent on behalf of the Trust Fund to a nominee of DTC as the registered
holder of the Offered Certificates. Conveyance of notices and other
communications by DTC to its participating organizations, and directly or
indirectly through such participating organizations to the beneficial owners
of the Offered Certificates, will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time. See "Description of the Certificates--Reports to
Certificateholders; Certain Available Information" and "--Book-Entry
Registration and Definitive Certificates." Any such reports may also be made
available to the previously mentioned parties through electronic delivery
systems such as electronic bulletin boards or internet sites.
------------------
4
<PAGE>
TRANSACTION OVERVIEW
Prospective investors are advised to carefully read, and should rely solely
on the detailed information appearing elsewhere in this Prospectus relating to
the securities referred to herein in making their investment decision. The
following transaction overview does not include all relevant information
relating to the Offered Certificates or Mortgage Loans, particularly with
respect to the risks and special considerations involved with an investment in
the Offered Certificates and is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Prior to making
any investment decision, a prospective investor should fully review this
Prospectus. Capitalized terms have the meanings assigned to them in this
Prospectus.
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
PERCENT OF APPROXIMATE PERCENT OF APPROXIMATE
SUB-POOL I CREDIT SUB-POOL I SUB-POOL II CREDIT
CERTIFICATES SUPPORT CERTIFICATES SUB-POOL II CERTIFICATES CERTIFICATES SUPPORT
<S> <C> <C> <C> <C> <C> <C> <C>
81% 49% Class I-A Class I-XS Class II-XS Class II-A 84% 56%
Fixed Rate (NR) (NR) Floating Rate
(Aaa/AAA) Stripped Stripped (Aaa/AAA)
Interest Interest
----------- --------------
6% 43% Class I-B Class II-B 9% 47%
Fixed Rate Floating Rate
(Aa2/AA) (Aa2/AA)
----------- --------------
5% 38% Class I-C Class II-C 7% 40%
Fixed Rate Floating Rate
(A2/A) (A2/A-)
-----------
8% 30% Class I-D
Fixed Rate
(Baa2/BBB)
</TABLE>
<TABLE>
<CAPTION>
CERTIFICATE PERCENTAGE WEIGHTED
PRINCIPAL OR OF TOTAL AVERAGE PRINCIPAL
RATING NOTIONAL SUB-POOL LIFE WINDOW
CLASS MOODY'S/D&P AMOUNT CERTIFICATES DESCRIPTION COUPON (YEARS)* (YEARS)*
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
I-A Aaa/AAA 458,858,000 81% Fixed Rate 3.43 0.09-8.17
I-B Aa2/AA 33,989,000 6% Fixed Rate 8.21 5.09-8.51
I-C A2/A 28,325,000 5% Fixed Rate 8.47 5.09-8.84
I-D Baa2/BBB 45,319,493 8% Fixed Rate 9.56 5.09-26.59
II-A Aaa/AAA 146,193,000 84% Floating Rate 2.96 0.09-7.92
II-B Aa2/AA 15,663,000 9% Floating Rate 9.10 5.09-12.34
II-C A2/A- 12,183,602 7% Floating Rate 13.59 5.09-27.09
</TABLE>
* Based upon the Modeling Assumptions on page 94 of this Prospectus and
assuming 7% CPR.
<TABLE>
<CAPTION>
<S> <C>
Banc One Management and Consulting
Master/Special Servicer: Corporation
Trustee: State Street Bank and Trust Company
Tax Status: REMIC election
> Senior/subordinate with shifting interest
Securities Structure:
Credit Enhancement: Bank Insurance Fund Limited Guaranty
Call Provision: 10% clean-up call
SMMEA Status: No securities are SMMEA-eligible
Class I-A and Class II-A Certificates are
ERISA Status: ERISA-eligible
Basis Risk: Interest shortfalls due to basis risk will
be covered by the Bank Insurance Fund
Limited Guaranty to the extent of the Basis
Risk Support Amount, which is generally
equal to the Excess Interest on the Class
I-XS Certificates in the related period
Excess Interest: Payable to the holders of the Class I-XS
and Class II-XS Certificates in an amount
equal to the excess of the Weighted Average
Net Mortgage Rate over the Weighted Average
Pass-Through Rate
</TABLE>
5
<PAGE>
SUMMARY OF PROSPECTUS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Certain
capitalized terms used in this summary may be defined elsewhere in this
Prospectus. An "Index of Principal Definitions" is included at the end of this
Prospectus. The Trust Fund will consist of both whole mortgage loans and
participation interests in whole mortgage loans. As used herein, "Mortgage
Loans" refers to both whole mortgage loans and participation interests in whole
mortgage loans. Whenever reference is made in this Prospectus to the principal
amount or a percentage of the Mortgage Loans, the Group I Loans or the Group II
Loans, the principal amount or percentage is calculated based on the Trust
Fund's ownership interest in the unpaid principal balance of the applicable
group of whole mortgage loans as of December 1, 1996 (the "Cut-off Date")
unless otherwise indicated.
TITLE OF CERTIFICATES... Commercial Mortgage Pass-Through Certificates, Series
1996-C1 (the "Certificates"), to be issued in 10
classes.
CERTIFICATE
DESIGNATIONS........... "Sub-Pool I Certificates": The Class I-A, Class I-B,
Class I-C, and Class I-D Certificates.
"Sub-Pool II Certificates": The Class II-A, Class II-
B, and Class II-C Certificates.
"Offered Certificates": The Sub-Pool I Certificates
and the Sub-Pool II Certificates.
"Stripped Interest Certificates": The Class I-XS
Certificates and the Class II-XS Certificates.
"Class R Certificates": The Class R Certificates.
REGISTRANT AND ISSUER... FDIC REMIC Trust 1996-C1 (the "Trust Fund"). The
address of the Registrant is FDIC REMIC Trust 1996-C1
c/o State Street Bank and Trust Company, Corporate
Trust Department, 225 Franklin Street, Boston,
Massachusetts 02110 and the telephone number of the
Registrant is (617) 786-3000. The Registrant is a
Trust created under the laws of the State of New York
pursuant to the Declaration of Trust, effective as of
November 13, 1996.
SERVICER AND SPECIAL
SERVICER............... Banc One Management and Consulting Corporation, an
Ohio corporation. See "Servicing of the Mortgage
Loans--The Servicer."
TRUSTEE................. State Street Bank and Trust Company, a Massachusetts
banking corporation. See "Description of the
Certificates--The Trustee."
FDIC OR MORTGAGE LOAN
SELLER................. In this Prospectus, the term "FDIC" will refer to the
Federal Deposit Insurance Corporation acting solely
in its capacity as administrator of the Bank
Insurance Fund and not as Mortgage Loan Seller and
the term "Mortgage Loan Seller" will refer to the
Federal Deposit Insurance Corporation in its capacity
as receiver of approximately 183 state or federally
chartered depository institutions (the "Depository
Institutions") with respect to a majority of the
Mortgage Loans, and in its capacity as administrator
of the Bank Insurance Fund with respect to the
remaining Mortgage Loans. No more than 6.71% of the
Mortgage Loans were acquired from any single
Depository Institution. See "The Federal Deposit
Insurance Corporation--The Mortgage Loan Seller" and
"Description of the Certificates--The Limited
Guaranty."
6
<PAGE>
CUT-OFF DATE............ December 1, 1996.
INFORMATION DATE........ November 22, 1996.
SETTLEMENT DATE.... On or about December 23, 1996.
DISTRIBUTION DATE FOR
THE
OFFERED CERTIFICATES... The 25th day of each month, or if such day is not a
business day, then the next succeeding business day,
beginning in January, 1997.
RECORD DATE FOR THE
OFFERED CERTIFICATES... With respect to any Distribution Date, the last day
of the preceding calendar month with respect to the
Sub-Pool I Certificates, and the 24th day of the
calendar month in which such Distribution Date occurs
with respect to the Sub-Pool II Certificates.
REGISTRATION OF THE
OFFERED CERTIFICATES... The Offered Certificates of each class will initially
be represented by one or more global Certificates
registered in the name of Cede & Co., as nominee of
The Depository Trust Company ("DTC"). No person
acquiring an interest in any Offered Certificate (any
such person, a "Certificate Owner") will be entitled
to receive such Certificate in fully registered,
certificated form (a "Definitive Offered
Certificate"), except under the limited circumstances
described under "Description of the Certificates--
Book-Entry Registration and Definitive Certificates."
Instead, DTC will effect payments and transfers in
respect of the Offered Certificates by means of its
electronic recordkeeping services, acting through
certain participating organizations ("Participants").
This may result in certain delays in receipt of
payments by an investor and may restrict an
investor's ability to pledge its securities. Unless
and until Definitive Offered Certificates of any
class are issued, all references herein to the rights
of holders of a class of Offered Certificates are to
the rights of the Certificate Owners of the
applicable class, as they may be exercised through
DTC and its Participants, except as otherwise
specified herein. See "Description of the
Certificates--General" and "--Book-Entry Registration
and Definitive Certificates."
DENOMINATIONS........... The Offered Certificates of each class will be
issued, maintained and transferred on the book-entry
records of DTC and its Participants in denominations
of $100,000 and in integral multiples of $1,000 in
excess thereof, except that one Certificate of each
such class may evidence the remainder of the initial
Class Balance of such class.
THE MORTGAGE POOL....... The Mortgage Pool will consist of adjustable and
fixed rate, amortizing and balloon payment mortgage
loans and participation interests in similar mortgage
loans conveyed to the Trust Fund by the Mortgage Loan
Seller on or prior to the Closing Date. The Mortgage
Loans are secured primarily by first liens primarily
on fee simple estates in commercial, multifamily and,
to a limited extent, residential real properties (the
"Mortgaged Properties"). As of the Cut-off Date, the
Mortgage Loans had, in the aggregate, an unpaid
principal balance, after application of all payments
7
<PAGE>
due on or before such date, whether or not received,
of approximately $746,873,986 (the "Cut-off Date
Balance"), subject to a variance of plus or minus 5%.
General............... Set forth below is certain information with respect
to all of the Mortgage Loans. More detailed
information with respect to the 25 largest Group I
Loans and 25 largest Group II Loans is included under
"Description of the Mortgage Pool--Mortgage Loan
Information" and in Annex A and Annex B,
respectively, to this Prospectus. The files with
respect to many of the Mortgage Loans are incomplete.
As a result, there can be no assurance that there are
not material inaccuracies in the information included
in this Prospectus with respect to one or more
Mortgage Loans. See "Risk Factors--The Mortgage
Loans--Limited Information."
As of the Cut-off Date, approximately 10.81% of the
Group I Loans and approximately 9.02% of the Group II
Loans consisted of "lead" participation interests in
mortgage loans (as opposed to outright ownership of
the mortgage loans). Approximately 10.04% of the
Group I Loans and approximately 9.08% of the Group II
Loans consisted of "non-lead" participation interests
in mortgage loans.
Approximately 1.6% of the Mortgage Loans were
originated as and are secured by liens that are
subordinate to the lien of a first mortgage (a
"Junior Lien"). The Mortgaged Property securing each
Junior Lien also secures a first and any intervening
lien Mortgage Loan included in the Trust Fund.
Approximately 30.02% of the Mortgage Loans are
adjustable rate loans ("ARM Loans") and approximately
69.98% of the Mortgage Loans bear interest at a fixed
rate ("Fixed Rate Loans"). The rate at which interest
accrues on any Mortgage Loan is herein referred to as
the "Mortgage Rate" for such loan. The Mortgage Loans
will be segregated into two separate sub-pools,
designated as "Sub-Pool I" and "Sub-Pool II,"
respectively.
Scheduled payments of principal of and/or interest on
substantially all the Mortgage Loans ("Scheduled
Payments") are due monthly, quarterly, semiannually
or annually. The date that a Scheduled Payment on any
Mortgage Loan is due is herein referred to as the
"Due Date" for such Scheduled Payment. All of the
Mortgage Loans provide for the accrual of interest on
an actuarial basis.
Approximately 80.09% of the Mortgage Loans provide
for Scheduled Payments of principal based on
amortization schedules more than 12 months beyond the
remaining terms of such Mortgage Loans (each such
Mortgage Loan, a "Balloon Loan"), thereby leaving
substantial principal amounts due and payable (each
such payment, a "Balloon Payment") on their
respective maturity dates, unless prepaid prior
thereto. Approximately 51 of the Balloon Loans which
represent approximately 2.54% of the Cut-off Date
Balance are in default with respect to the Balloon
Payment due thereon; however, the borrowers continue
to make Assumed Scheduled Payments thereon on a
timely basis (any such loan, a "Matured Performing
Mortgage Loan"). The "Assumed Scheduled Payment" with
8
<PAGE>
respect to any Matured Performing Mortgage Loan is
equal to at least the interest portion of the
Scheduled Payment due on such Mortgage Loan on the
Due Date immediately prior to the Due Date on which
the Balloon Payment was first due, adjusted, in the
case of an ARM Loan, to reflect adjustments to the
current Mortgage Rate thereon.
Certain of the Mortgage Loans contain provisions
prohibiting prepayments during certain periods, and
certain of the Mortgage Loans provide for the payment
of prepayment premiums in connection with certain
prepayments. Pursuant to the terms of the Pooling and
Servicing Agreement (as herein defined) the Servicer
is not required to enforce such prepayment
provisions, and the Servicer has indicated that it
does not intend to enforce any such prohibitions or
to collect prepayment premiums.
Approximately 24.65% of the Mortgage Loans are
primarily secured by retail properties; approximately
15.97% of the Mortgage Loans are primarily secured by
office properties; approximately 15.26% of the
Mortgage Loans are primarily secured by
industrial/warehouse properties; approximately 15.69%
of the Mortgage Loans are primarily secured by
multifamily properties; approximately 11.27% of the
Mortgage Loans are primarily secured by mixed use
properties; approximately 9.38% of the Mortgage Loans
are primarily secured by lodging properties;
approximately 5.31% of the Mortgage Loans are
primarily secured by other types of income producing
properties; and approximately 2.45% of the Mortgage
Loans are primarily secured by residential
properties.
Approximately 29.46%, 19.53%, 8.69% and 8.45% of the
Mortgage Loans are secured by liens on Mortgaged
Properties located in California, Massachusetts,
Connecticut and Texas, respectively. The remaining
Mortgaged Properties are located throughout
approximately 35 other jurisdictions, none of which
include Mortgaged Properties securing more than 6.02%
of the Mortgage Loans.
The Mortgaged Properties with respect to
approximately 542 of the Mortgage Loans (the
"Appraised Loans") (representing approximately 61.09%
of the Cut-off Date Balance) were the subject of an
appraisal performed between June 1, 1995 and November
29, 1996 either by the Servicer in connection with
its usual servicing of the Mortgage Loans or on
behalf of the Mortgage Loan Seller by various
nationally-recognized appraisal firms in
contemplation of the issuance of the Certificates (as
described herein, the "Appraisal Process"). The
remaining Mortgage Loans were not included in the
Appraisal Process. The methodology for including
Mortgage Loans in the Appraisal Process is described
under "Description of the Mortgage Pool--Mortgage
Loan Information--The Appraisal Process." All
information with respect to Cut-off Date LTV Ratios
is based upon (a) the Cut-off Date Balance of the
Mortgage Loans and (b) the appraised value of the
related Mortgaged Property determined in connection
with the Appraisal Process. All information with
respect to the Information Date Estimated Net Cash
Flow Coverage Ratios (calculated as described herein)
in this Prospectus is based primarily upon
9
<PAGE>
the information obtained in connection with the
Appraisal Process, responses to a general borrower
solicitation made immediately prior to the
commencement of the Appraisal Process, or from
operating statements contained in the Mortgage Loan
files. All such information was used only if it
related to net operating income or net cash flow for
either 1995 or 1996, and such net operating income if
not for an entire year, has been annualized.
Information received from borrowers has not been
independently verified. As described more fully
herein under "Description of the Mortgage Pool--
Mortgage Loan Information," "Estimated Net Cash Flow"
with respect to a Mortgaged Property securing a
Mortgage Loan is an estimate of annualized net
operating income. In many cases, Estimated Net Cash
Flow for a particular Mortgaged Property was derived
from an analysis of income and expense experiences of
other properties deemed comparable by the appraiser,
because an operating statement for such Mortgaged
Property was not available. THE ESTIMATED NET CASH
FLOW COVERAGE RATIO WITH RESPECT TO A PARTICULAR
MORTGAGED PROPERTY SHOULD NOT BE CONSIDERED AS
EQUIVALENT TO ANY MEASURE OF PERFORMANCE, SUCH AS A
RATIO OF EARNINGS TO FIXED CHARGES, DETERMINED IN
ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES, AS AN INDICATOR OF THE PERFORMANCE OF
SUCH PROPERTY OR TO CASH FLOWS GENERATED BY
OPERATING, INVESTING AND FINANCING ACTIVITIES, AS AN
INDICATOR OF CASH FLOWS OR AS A MEASURE OF LIQUIDITY.
See "Description of the Mortgage Pool--Mortgage Loan
Information."
Sub-Pool I............ Set forth below is certain information with respect
to the Group I Loans. More detailed information with
respect to the Group I Loans is included under
"Description of the Mortgage Pool--Mortgage Loan
Information--Sub Pool I" and, with respect to the 25
largest Group I Loans, in Annex A to this Prospectus.
Sub-Pool I consists exclusively of 1,256 Mortgage
Loans (the "Group I Loans"), which have an aggregate
Cut-off Date Balance of approximately $572,834,384.
The Group I Loans include all of the Fixed Rate
Mortgage Loans as well as ARM Loans (approximately
8.76% of Sub-Pool I) with Mortgage Rates that are
subject to adjustment from time to time based on
fluctuations in the value of a particular index, but
which have minimum Mortgage Rates of at least 7.50%.
As of the Information Date (unless otherwise
indicated), the Group I Loans in the aggregate had
the following additional characteristics:
(i) Cut-off Date Balances ranging from $112 to
$10,765,701, and an average Cut-off Date Balance
of $456,078;
(ii) Mortgage Rates ranging from 2.00% per annum to
18.15% per annum, and a weighted average
Mortgage Rate of 8.706% per annum;
(iii) seasoning (i.e., the number of months from
origination to the Information Date) of the
Group I Loans ranging from 6 months to 344
months, and a weighted average seasoning of
83.3 months;
10
<PAGE>
(iv) remaining terms to scheduled maturity ranging
from 1 month to 319 months (excluding Matured
Performing Mortgage Loans), and a weighted
average remaining term to scheduled maturity
of 80.40 months (excluding Matured Performing
Mortgage Loans);
(v) approximately 61.91% of the Group I Loans are
Appraised Loans (each, an "Appraised Group I
Loan");
(vi) the Cut-off Date LTV Ratios (calculated as
described herein), with respect to such Group
I Loans range from .109% to 626.92% with a
weighted average Cut-off Date LTV Ratio for
such Group I Loans of 79.04%;
(vii) approximately 72.61% of the Group I Loans have
operating statement information, and the
Estimated Net Cash Flow Coverage Ratios
(calculated as described herein) with respect
to such Group I Loans range from -1.18x to
180.91x with a weighted average Estimated Net
Cash Flow Coverage Ratio for such Fixed Rate
Loans of 2.13x;
(viii) approximately 13.7% of the Group I Loans are
up to 29 days late with respect to their
Scheduled Payments, or Assumed Scheduled
Payments, as the case may be, and
approximately 4.69% of the Group I Loans are
up to 59 days delinquent with respect to their
Scheduled Payments, or Assumed Scheduled
Payments, as the case may be;
(ix) approximately 2.53% of the Group I Loans are
Matured Performing Mortgage Loans (each, a
"Matured Performing Fixed Rate Loan");
(x) approximately 98.42% of the Group I Loans are
secured primarily by a first lien on the
related Mortgaged Property; and
(xi) approximately 13.41% of the Group I Loans were
originated by the Mortgage Loan Seller after
the commencement of the applicable
receivership (the "Loans-to-Facilitate"). See
"Description of the Mortgage Pool--Loans-to-
Facilitate."
Sub-Pool II........... Set forth below is certain information with respect
to the Group II Loans. More detailed information with
respect to the Group II Loans is included under
"Description of the Mortgage Pool--Mortgage Loan
Information--Sub Pool II" and, with respect to the 25
largest Group II Loans, in Annex B to this
Prospectus.
Sub-Pool II consists exclusively of 638 ARM Loans
(the "Group II Loans"), which have an aggregate Cut-
off Date Balance of approximately $174,039,602. The
Mortgage Rate on each Group II Loan is subject to
adjustment on specified Due Dates by adding or, in
certain cases, subtracting, a fixed number of basis
points (a "Gross Margin") to or from, as the case may
be, the value of a base index (an "Index") or, in
certain cases, a fraction thereof, subject, in the
case of certain of the Group II Loans, to rounding
conventions and to periodic and/or lifetime maximum
and/or minimum Mortgage Rates, as described herein.
The Group II Loans include only Mortgage Loans that
provide for a scheduled Mortgage Rate adjustment
based on an Index following the Information Date.
11
<PAGE>
As of the Information Date (unless otherwise
indicated), the Group II Loans in the aggregate had
the following additional characteristics:
(i) Cut-off Date Balances ranging from $1,424 to
$4,082,693, and an average Cut-off Date
Balance of $272,789;
(ii) Mortgage Rates ranging from approximately
4.82% per annum to approximately 15.50% per
annum, and a weighted average Mortgage Rate of
approximately 9.113% per annum;
(iii) Gross Margins for Prime Index Loans ranging
from approximately -1.00% to approximately
4.0%, and a weighted average Gross Margin of
approximately 1.335%; Gross Margins for other
Group II Loans ranging from approximately -
.47% to approximately 5.50%, and a weighted
average Gross Margin of approximately 2.48%;
(iv) approximately 26.08% of the Group II Loans
have maximum lifetime Mortgage Rates, which
range from approximately 6.90% per annum to
approximately 28.00% per annum, and a weighted
average maximum lifetime Mortgage Rate of
approximately 13.538% per annum; the remainder
of the Group II Loans do not have maximum
lifetime Mortgage Rates;
(v) approximately 8.09% of the Group II Loans have
minimum lifetime Mortgage Rates, which range
from approximately 1.0% per annum to
approximately 7.00% per annum, and a weighted
average minimum lifetime Mortgage Rate of
approximately 5.361% per annum; the remainder
of the Group II Loans do not have minimum
lifetime Mortgage Rates;
(vi) seasoning (i.e., the number of months from
origination to the Information Date) of the
Group II Loans ranging from 12 months to 255
months, and a weighted average seasoning of
89.6 months;
(vii) remaining terms to scheduled maturity ranging
from 1 month to 325 months (excluding Matured
Performing Mortgage Loans), and a weighted
average remaining term to scheduled maturity
of 101.21 months (excluding Matured Performing
Mortgage Loans);
(viii) approximately 58.40% of the Group II Loans are
Appraised Loans (each, an "Appraised Group II
Loan");
(ix) the Cut-off Date LTV Ratios (calculated as
described herein) with respect to such Group
II Loans range from 1.77% to 394.55% with a
weighted average Cut-off Date LTV Ratio for
such Group II Loans of 80.91%;
(x) approximately 64.81% of the Group II Loans
have operating statement information, and the
Estimated Net Cash Flow Coverage Ratios
(calculated as described herein) with respect
to such Group II Loans range from .24x to
53.10x, with a weighted average Estimated Net
Cash Flow Coverage Ratio for such Group II
Loans of 2.12;
(xi) approximately 8.76% of the Group II Loans
permit negative amortization, as described
herein;
12
<PAGE>
(xii) approximately 13.98% of the Group II Loans are
up to 29 days late with respect to their
Scheduled Payments, or Assumed Scheduled
Payments, as the case may be, and
approximately 4.47% of the Group II Loans are
up to 59 days delinquent with respect to their
Scheduled Payments, or Assumed Scheduled
Payments, as the case may be;
(xiii) approximately 2.57% of the Group II Loans are
Matured Performing Mortgage Loans (each, a
"Matured Performing ARM Loan");
(xiv) approximately 98.47% of the Group II Loans are
secured primarily by a first lien on the
related Mortgaged Property; and
(xv) approximately 2.14% of the Group II Loans were
originated by the Mortgage Loan Seller after
the commencement of the applicable
receivership (the "Loans-to-Facilitate"). See
"Description of the Mortgage Pool--Loans-to-
Facilitate."
The Indices upon which Mortgage Rate adjustments on
the Group II Loans are based include, among others,
(i) the highest prime lending rate as published from
time to time in the "Money Rates" section of The Wall
Street Journal ("The Wall Street Journal Prime Rate")
or the prime lending rate of various financial
institutions in the case of approximately 71.05% of
the Group II Loans, (ii) the monthly weighted average
cost of funds of member savings institutions of the
Eleventh District Federal Home Loan Bank System, in
the case of approximately 9.20% of the Group II
Loans, (iii) the FHLB rate in the case of
approximately 2.11% of the Group II Loans and, (iv)
constant maturity U.S. Treasury rates of various
maturities, in the case of approximately 12.84% of
the Group II Loans. No more than 4.80% of the Group
II Loans have Mortgage Rates based on another Index.
The Mortgage Loan Seller has instructed the Servicer
to, and the Pooling and Servicing Agreement will
require the Servicer to, convert any Index that no
longer exists on a Group II Loan to The Wall Street
Journal Prime Rate, to the extent permitted by the
applicable Mortgage Loan documents. See "Description
of the Mortgage Pool--Mortgage Loan Information--Sub-
Pool II."
DESCRIPTION OF THE
CERTIFICATES........... The Certificates will be issued pursuant to a Pooling
and Servicing Agreement, to be dated as of the Cut-
off Date, by and among the Mortgage Loan Seller, the
FDIC, the Servicer and the Trustee (the "Pooling and
Servicing Agreement"), and will represent in the
aggregate the entire beneficial ownership interest in
the Trust Fund, which consists of the Mortgage Pool
and certain related assets. See "Description of the
Pooling and Servicing Agreement." In addition, on
each Distribution Date, (x) the Sub-Pool I
Certificates will have the benefit of the obligation
of the FDIC to draw from the Bank Insurance Fund
amounts then payable under the Limited Guaranty in
respect of losses on the Mortgage Loans in Sub-Pool I
and (y) the Sub-Pool II Certificates will have the
benefit of the obligation of the FDIC to draw from
the Bank Insurance Fund amounts then payable under
the Limited Guaranty in respect of (i) losses on the
Mortgage Loans in Sub-Pool II and (ii) Basis Risk
Shortfalls to the limited
13
<PAGE>
extent provided in the Pooling and Servicing
Agreement. Such obligations of the FDIC are limited
in scope as described herein and are not backed by
the full faith and credit of the United States of
America. See "The Bank Insurance Fund."
Class Balances........ As of the Closing Date, the aggregate of the Class
Balances of the Certificates will be less than the
Cut-off Date Balance of the Mortgage Loans; the
aggregate of the Class Balances of each Sub-Pool of
Certificates will be equal to or less than the
Corresponding Cut-off Date Sub-Pool Balance. The
initial Class Balance of each class of Offered
Certificates, subject to a variance of plus or minus
5%, is set forth on the cover page of this
Prospectus. The Class Balance of each class of
Certificates evidencing an interest in a particular
Sub-Pool outstanding at any time represents the
maximum amount that the holders thereof are entitled
to receive as distributions allocable to principal
from the cash flow on the Mortgage Loans in such Sub-
Pool, the other assets in the Trust Fund, and any
proceeds of the Limited Guaranty. As more
specifically described herein, the Class Balance of
each class of Offered Certificates will be reduced on
each Distribution Date to the extent of any
distributions of principal of such class on such
Distribution Date. The Stripped Interest Certificates
have no Class Balances. See "Description of the
Certificates--General."
Pass-Through Rates.... Sub-Pool I. For each Distribution Date, the Pass-
Through Rates on the Sub-Pool I Certificates will be
fixed at the following rates per annum:
<TABLE>
<CAPTION>
PASS-THROUGH
CLASS RATE
----- ------------
<S> <C>
I-A...........................
I-B...........................
I-C...........................
I-D...........................
</TABLE>
The Pass-Through Rate on the Class I-XS Certificates
will be subject to adjustment on each Distribution
Date to equal the excess, if any, of the Weighted
Average Effective Net Mortgage Rate of Sub-Pool I for
such Distribution Date over the weighted average of
the Pass-Through Rates on the Sub-Pool I Certificates
for such Distribution Date. The Pass-Through Rate for
the Class I-XS Certificates on the first Distribution
Date will be % per annum.
See "Description of the Certificates--Distributions--
Sub-Pool I Certificates--Pass-Through Rates."
Sub-Pool II. For each Distribution Date, the Pass-
Through Rates on the Sub-Pool II Certificates will be
subject to adjustment to equal the sum of LIBOR and
the Applicable Margin, as set forth below:
<TABLE>
<CAPTION>
CLASS APPLICABLE MARGIN
----- -----------------
<S> <C>
II-A.....................
II-B.....................
II-C.....................
</TABLE>
14
<PAGE>
provided, however, that in the event that the Pass-
Through Rate on one or more classes of Sub-Pool II
Certificates exceeds the Weighted Average Effective
Net Mortgage Rate of Sub-Pool II for such
Distribution Date, payment of interest at the Pass-
Through Rate on such class or classes of Sub-Pool II
Certificates will be reduced to the extent that the
Basis Risk Support Amount, if any, for such
Distribution Date is insufficient to make up such
shortfall. Any such shortfall on any Distribution
Date will be allocated among such class or classes of
Sub-Pool II Certificates as described herein, and
will not be carried forward for payment in the
future.
As defined more specifically herein, the "Basis Risk
Support Amount" for any Distribution Date is an
amount equal solely to the amount, if any,
distributable on such Distribution Date in respect of
interest on the Class I-XS Certificates See
"Description of the Certificates--Distributions--Sub-
Pool II Certificates--Basis Risk."
As defined more specifically herein, the "Weighted
Average Effective Net Mortgage Rate" of a Sub-Pool on
any Distribution Date is equal to the weighted
average of the Net Mortgage Rates on the Mortgage
Loans in such Sub-Pool, adjusted to the extent
necessary to reflect the accrual of interest on a
"30/360" basis. See "Description of the
Certificates--Distributions--Interest Distribution
Calculations." The "Net Mortgage Rate" on any
Mortgage Loan at any time of determination is equal
to the then applicable Mortgage Rate minus the sum of
the rates at which the servicing fees and the trust
administration fees are calculated.
For purposes of determining the Pass-Through Rates on
the Sub-Pool II Certificates for any Distribution
Date, "LIBOR" shall be obtained by the Trustee by
obtaining the quoted offered rate for one-month
United States dollar deposits with leading banks in
the London interbank market that appears as of 11:00
a.m. (London time) on the display page designated as
page 3750 on the Telerate Monitor on the LIBOR
Business Day prior to the immediately preceding
Distribution Date, or, in the case of the first
Distribution Date, on the LIBOR Business Day
preceding the Closing Date. See "Description of the
Certificates--Distributions--Sub-Pool II
Certificates--Pass-Through Rates."
The Pass-Through Rate on the Class II-XS Certificates
will be subject to adjustment on each Distribution
Date to equal the excess, if any, of the Weighted
Average Effective Net Mortgage Rate of Sub-Pool II
for such Distribution Date over the weighted average
of the Component Reference Rates on the Sub-Pool II
Certificates for such Distribution Date. The
"Component Reference Rate" for a class of Sub-Pool II
Certificates on any Distribution Date is equal to the
lesser of the Weighted Average Effective Net Mortgage
Rate of Sub-Pool II on such Distribution Date and the
Pass-Through Rate for such class on such Distribution
Date.
Distributions......... Distributions on the Certificates will be made by the
Trustee, to the extent of available funds, on each
Distribution Date to the holders of record as of the
close of business on the applicable Record Date.
Distributions on each Sub-Pool of Certificates will
be based on the Mortgage Loans in the
15
<PAGE>
Corresponding Sub-Pool. For purposes of calculating
distributions on the Certificates, as well as the
amount of servicing fees and trust administrative
fees payable each month, each Mortgaged Property
acquired by the Trust Fund (each, an "REO Property")
will be treated as if there exists with respect
thereto an outstanding Mortgage Loan (an "REO Loan")
generally with the same characteristics as its
predecessor Mortgage Loan. See "Description of the
Certificates--Distributions--Certain Calculations
with Respect to Individual Mortgage Loans." For
purposes hereof, any class of Certificates or any
Certificate evidencing an interest in a particular
Sub-Pool, including the class of Stripped Interest
Certificates evidencing an interest in such Sub-Pool,
is sometimes herein referred to as a "Corresponding"
class or a "Corresponding" Certificate, respectively,
with respect to such Sub-Pool or to the other classes
of Certificates evidencing an interest in such Sub-
Pool. With respect to any Distribution Date, the
total of all (x) scheduled payments due on the
Mortgage Loans or deemed to be due on the Matured
Performing Mortgage Loans and REO Loans during the
related Due Period, to the extent received by the
related Determination Date or in respect of which the
Servicer has made a P&I Advance for such Distribution
Date, and (y) unscheduled collections received on the
Mortgage Loans and REO Loans during the related
Prepayment Period that are available for distribution
to holders of the Certificates evidencing interests
in a particular Sub-Pool on any Distribution Date,
together with any payments made under the Limited
Guaranty for such Sub-Pool and such Distribution
Date, is herein referred to as the "Available
Distribution Amount" for such Sub-Pool and such
Distribution Date. The "Prepayment Period" for each
Distribution Date commences on the sixteenth day of
the calendar month preceding the month in which such
Distribution Date occurs (or in the case of the first
Distribution Date, the period that begins on the day
following the Cut-off Date) and ends on the fifteenth
day of the month in which such Distribution Date
occurs. The "Due Period" for each Distribution Date
commences on the second day of the calendar month
preceding the month in which such Distribution Date
occurs (or in the case of the first Distribution
Date, the period that begins on the day following the
Cut-off Date) and ends on the first day of the month
in which such Distribution Date occurs. The
"Determination Date" for each Distribution Date is
the 15th day of the month in which such Distribution
Date occurs or, if such 15th day is not a business
day, then the next preceding business day. See
"Description of the Certificates--Distributions--
Method, Timing and Amount."
On each Distribution Date, the Trustee will apply the
applicable Available Distribution Amount for such
date to make distributions in respect of interest and
principal as described under "Description of the
Certificates--Distributions".
Generally, as more specifically described herein, (i)
distributions with respect to any class of
Certificates will be applied first to interest and
then to principal (the amount of interest and
principal required to be distributed to any class of
Certificates on any Distribution Date, as described
more
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specifically herein, "Distributable Interest" and
"Distributable Principal," respectively); (ii)
shortfalls (other than as a result of Basis Risk) in
distributions of interest with respect to any class
of Certificates on any Distribution Date generally
will be carried forward for payment on subsequent
Distribution Dates, without interest thereon, to the
extent of available funds; (iii) Distributable
Interest for any Distribution Date for each class of
Offered Certificates and Stripped Interest
Certificates is calculated based on a 360-day year
consisting of twelve 30-day months; (iv) no
distributions in respect of principal of any class of
Certificates evidencing an interest in a particular
Sub-Pool will be made until all Corresponding classes
of Certificates having a prior alphabetical class
designation have been paid in full except that
certain prepayments of principal on the Mortgage
Loans may be allocated in part to classes having
later alphabetical class designations; and (v)
distributions in respect of interest on a class of
Stripped Interest Certificates will be made on each
Distribution Date, but only after all Corresponding
classes of Certificates have received their
respective Distributable Interest and Distributable
Principal for such Distribution Date. See
"Description of the Certificates--Distributions".
SERVICING............... The FDIC has used the Servicer to service
substantially all performing commercial mortgage
loans acquired by it since October 1993 and a
substantial number of the Mortgage Loans have been
serviced by the Servicer for at least two years. The
Servicer is required to service the Mortgage Loans
with the objective of maximization of the present
value of net cash flows generated from the Mortgage
Loans, in a manner consistent with the terms of the
Mortgage Loans and the standards set forth in the
Pooling and Servicing Agreement. The Servicer is
entitled to use sub-servicers in connection with its
servicing responsibilities, subject to certain
conditions; the engagement of a separate special
servicer is not contemplated.
In connection with its servicing activities, the
Servicer will be required, among other things, (i) to
make reasonable efforts to collect all Scheduled
Payments due on the Mortgage Loans, and to make
advances in respect of (a) certain delinquent
Scheduled Payments on the Mortgage Loans, other than
Balloon Payments, (b) certain delinquent Assumed
Scheduled Payments and (c) certain REO Loans, in each
case subject to the limitations described herein (any
such advance, as more specifically described herein,
a "P&I Advance"), (ii) to make advances in respect of
certain delinquent tax payments, insurance premiums,
property protection expenses and senior liens (any
such advance, as more specifically described herein,
a "Servicing Advance"), (iii) to modify the Matured
Performing Mortgage Loans and certain defaulted
Mortgage Loans, (iv) to institute foreclosure or
related proceedings with respect to certain defaulted
Mortgage Loans, (v) to inspect certain of the
Mortgaged Properties from time to time and collect
certain information from the respective borrowers and
(vi) to the extent of its calculated Servicing Fee
for a particular period, as described herein, to make
payments from its own funds in the amount of the
shortfall, if any, in collection of interest
attributable to prepayments of any Mortgage Loans.
See "Servicing of the Mortgage Loans."
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As more fully described herein, the Servicer will be
entitled to reimbursement for any P&I Advances and
Servicing Advances (collectively, "Advances") made,
by it or on its behalf, from amounts collected in
respect of the applicable Sub-Pool, to the extent
described herein, together with interest thereon at
The Wall Street Journal Prime Rate. See "Description
of the Certificates--P&I Advances" and "Description
of the Pooling and Servicing Agreement--Collection
Account."
THE LIMITED GUARANTY.... In connection with the sale of the Mortgage Loans to
the Trust Fund, the FDIC will deliver to the Trustee
for the benefit of the Certificateholders the Limited
Guaranty. The Limited Guaranty will cover losses and
other shortfalls attributable to credit defaults on
the Mortgage Loans, as well as certain Basis Risk
Shortfalls, and certain expenses of the Trust Fund,
up to an aggregate amount initially equal to
$241,466,156, which is approximately 32.3% of the
Cut-off Date Balance. The amount of claims that may
be paid in respect of Sub-Pool I pursuant to the
Limited Guaranty is initially equal to approximately
$171,850,315, which is approximately 30.0% of the
Cut-off Date Sub-Pool I Balance, and the amount of
claims that may be paid in respect of Sub-Pool II
pursuant to the Limited Guaranty is initially equal
to approximately $69,615,840, which is approximately
40.0% of the Cut-off Date Sub-Pool II Balance. The
aggregate amount of such coverage, as well as the
respective Available Sub-Pool Coverage Amount, will
be reduced to reflect the payment of claims under the
Limited Guaranty and increased to reflect any amounts
recovered by or on behalf of the FDIC in respect of
such claims, in each case on a Sub-Pool by Sub-Pool
basis. The aggregate amount of such coverage
available at the time of any determination is
referred to herein as the "Available Guaranty
Amount," and the amount of such coverage available to
a particular Sub-Pool is referred to herein as the
"Available Sub-Pool Coverage Amount" for such Sub-
Pool. Although the Limited Guaranty is issued by the
FDIC, claims thereunder may be satisfied only through
draws upon the Bank Insurance Fund ("BIF"). There can
be no assurance that amounts in the BIF will be
available to pay any such claim at any particular
time. The BIF was established by Congress in 1989
pursuant to the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA"). BIF
insures the deposits of all of its member
institutions (typically, commercial or savings
banks). THE LIMITED GUARANTY IS BY ITS TERMS NOT
BACKED BY THE FULL FAITH AND CREDIT OF THE UNITED
STATES OF AMERICA. With certain important exceptions,
discussed herein under "The Bank Insurance Fund," the
FDIC's obligations under the Limited Guaranty will
rank pari passu (i.e., are neither senior nor
subordinate) with all other general obligations of
the FDIC. See "Description of the Certificates--The
Limited Guaranty" and "The Bank Insurance Fund." See
"Risk Factors--The Certificates--Sub-Pool II
Certificates--Basis Risk."
Although only one Limited Guaranty will be provided
by the FDIC, the amount of claims payable thereunder
in respect of a particular Sub-Pool will be limited
to the applicable Available Sub-Pool Coverage Amount
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<PAGE>
plus the Excess Coverage Amount, if any. The "Excess
Coverage Amount" with respect to a particular Sub-
Pool is equal to the excess, if any, of the
applicable Available Sub-Pool Coverage Amount of the
other Sub-Pool over the aggregate of the Class
Balances of the Certificates evidencing an interest
in such other Sub-Pool. There can be no assurance
that an Excess Coverage Amount ever will be available
to a particular Sub-Pool; as a result, in the event
that claims paid under the Limited Guaranty in
respect of a particular Sub-Pool exceed the
applicable Available Sub-Pool Coverage Amount,
subsequent losses on the Mortgage Loans and REO Loans
in such Sub-Pool may be borne by the holders of
Corresponding Certificates, allocated as described
under "--Subordination," notwithstanding an
outstanding Available Sub-Pool Coverage Amount for
the other Sub-Pool.
SUBORDINATION........... The Limited Guaranty is intended to provide to all
classes of Offered Certificates and to the Stripped
Interest Certificates "first loss" coverage in
respect of credit defaults on the Mortgage Loans in
an aggregate amount equal to the Available Guaranty
Amount. In the event that the amount of coverage
available under the Limited Guaranty in respect of a
particular Sub-Pool (i.e., the applicable Available
Sub-Pool Coverage Amount and the Excess Coverage
Amount, if any) has been exhausted, credit losses and
shortfalls on the Mortgage Loans in such Sub-Pool
generally will be borne first by the Corresponding
class of Certificates having the lowest alphabetical
class designation before allocation of such losses
and shortfalls to any other Corresponding class of
Certificates. This subordination is intended to
enhance the likelihood of timely receipt by the
holders of any class of Certificates evidencing an
interest in a particular Sub-Pool with a relatively
high alphabetical class designation of the full
amount of Distributable Interest and Distributable
Principal payable in respect of such class on each
Distribution Date, as compared with any Corresponding
class of Certificates having a relatively low
alphabetical class designation. The protection
afforded to the holders of each class of Certificates
evidencing an interest in a particular Sub-Pool by
means of the subordination of each other
Corresponding class of Certificates with a lower
alphabetical class designation will be accomplished
by the application of the Available Distribution
Amount for such Sub-Pool on each Distribution Date in
the order of priority described above in this Summary
under "Description of the Certificates--
Distributions." To the extent that any class of
Certificates evidencing an interest in a particular
Sub-Pool is amortized faster than the Mortgage Loans
in such Sub-Pool due to the distribution to such
class of more than its pro rata share of
Distributable Principal with respect to such Sub-
Pool, the percentage interest evidenced by such class
of Certificates will be decreased (with a
corresponding increase in the interest in the Sub-
Pool evidenced by the other classes of Certificates),
thereby increasing, relative to their respective
Class Balances, the subordination afforded to such
class of Certificates by the other Corresponding
classes of Certificates. See "Yield and Maturity
Considerations--Weighted Average Life." The
Certificates of any class evidencing an interest in a
particular Sub-Pool are neither senior nor
subordinate to the Certificates of any class
evidencing
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<PAGE>
an interest in the other Sub-Pool. See "Description
of the Certificates--Subordination" and "Yield and
Maturity Considerations."
CERTAIN INVESTMENT
CONSIDERATIONS;
MORTGAGE LOAN
PREPAYMENTS............ The yield on the Offered Certificates of any class
will depend on, among other things, the Pass-Through
Rate for such class. The yield on any Offered
Certificate purchased at a discount or premium will
also be affected by the rate and timing of
distributions in respect of principal on such
Certificate, which in turn will be affected by the
rate and timing of principal payments and prepayments
(including for this purpose both voluntary principal
prepayments as well as other unscheduled collections
resulting from defaults, liquidations and repurchases
attributable to breaches of representations and
warranties) on the Mortgage Loans and the extent to
which Distributable Principal is applied on any
Distribution Date in reduction of the Class Balance
of the class to which such Certificate belongs. See
"Description of the Certificates--Distributions--
Sub-Pool I Certificates--Priority" and "Sub-Pool II
Certificates--Priority."
Mortgage Loan Prepayments. The actual rate of
prepayment of principal on the Mortgage Loans cannot
be predicted. Certain of the Mortgage Loans may be
prepaid at any time, certain of the Mortgage Loans
may be prepaid only following a "lock-out period" and
certain of the Mortgage Loans require the payment of
a prepayment premium in connection with certain
prepayments. Pursuant to the terms of the Pooling and
Servicing Agreement the Servicer is not required to
enforce such prepayment provision, and the Servicer
has indicated that it does not intend to enforce
prepayment prohibitions or to collect prepayment
premiums. As a result, investors should assume that
the Mortgage Loans may be prepaid at any time and
without a corresponding prepayment premium. There can
be no assurance as to the amount or timing of
voluntary prepayments or any other unscheduled
collections on the Mortgage Loans. The investment
performance of the Offered Certificates may vary
materially and adversely from the investment
expectations of investors due to prepayments on the
Mortgage Loans being higher or lower than anticipated
by investors. The actual yield to the holder of an
Offered Certificate may not be equal to the yield
anticipated at the time of purchase of the
Certificate or, notwithstanding that the actual yield
is equal to the yield anticipated at that time, the
total return on investment expected by the investor
or the expected weighted average life of the
Certificate may not be realized. These effects are
summarized below. For a discussion of certain factors
affecting prepayment of the Mortgage Loans, see
"Yield and Maturity Considerations." IN DECIDING
WHETHER TO PURCHASE ANY OFFERED CERTIFICATES, AN
INVESTOR SHOULD MAKE AN INDEPENDENT DECISION AS TO
THE APPROPRIATE PREPAYMENT ASSUMPTIONS TO BE USED.
Limited Information. The files with respect to many
of the Mortgage Loans are incomplete. As a result,
there can be no assurance that there are not material
inaccuracies in the information included in this
Prospectus
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<PAGE>
with respect to one or more Mortgage Loans. In the
event that any such inaccuracy in respect of a
Mortgage Loan in a particular Sub-Pool results in a
breach of a representation of the FDIC, an applicable
remedy may include repurchase by the FDIC of such
loan, which would have the same effect to holders of
the Corresponding Certificates as a prepayment. See
"Risk Factors--The Mortgage Loans--Limited
Information" and "Description of the Mortgage Pool--
Representations and Warranties; Remedies."
Yield. If an investor purchases an Offered
Certificate at an amount equal to its unpaid
principal amount (that is, at "par"), the effective
yield to that investor (assuming that there are no
interest shortfalls and assuming the full return of
the purchaser's investment principal) will
approximate the Pass-Through Rate on that
Certificate. If an investor pays less or more than
the unpaid principal amount of the Certificate (that
is, buys the Certificate at a "discount" or
"premium," respectively), then, based on the
assumptions set forth in the preceding sentence, the
effective yield to the investor will be higher or
lower, respectively, than the Pass-Through Rate on
that Certificate, because such discount or premium
will be amortized over the life of the Certificate.
Any deviation in the actual rate of prepayments on
the Mortgage Loans in the applicable Sub-Pool from
the rate assumed by the investor will affect the
period of time over which, or the rate at which, the
discount or premium will be amortized and,
consequently, will change the investor's actual yield
from that anticipated. An investor that purchases an
Offered Certificate at a discount should carefully
consider the risk that a slower than anticipated rate
of principal payments on the Mortgage Loans in the
Sub-Pool evidenced thereby will result in an actual
yield that is lower than such investor's expected
yield. An investor that purchases any Offered
Certificate at a premium should consider the risk
that a faster than anticipated rate of principal
payments on the Mortgage Loans in the Sub-Pool
evidenced thereby will result in an actual yield that
is lower than such investor's expected yield. Insofar
as an investor's initial investment in any Offered
Certificate is returned in the form of payments of
principal thereon, there can be no assurance that
such amounts can be reinvested in a comparable
alternative investment with a comparable yield.
Reinvestment Risk. As stated above, if an Offered
Certificate is purchased at par, fluctuations in the
rate of distributions of principal will generally not
affect the yield to maturity of that Certificate.
However, the total return on any purchaser's
investment, including an investor that purchases at
par, will be reduced to the extent that principal
distributions received on its Certificate cannot be
reinvested at a rate as high as the Pass-Through Rate
of the Certificate. Investors in the Offered
Certificates should consider the risk that rapid
rates of prepayments on the Mortgage Loans in the
Sub-Pool evidenced thereby may coincide with periods
of low prevailing market interest rates. During
periods of low prevailing market interest rates,
borrowers may be expected to prepay or refinance
Mortgage Loans that carry interest rates
significantly higher than then-current interest rates
for comparable mortgage loans. Consequently, the
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<PAGE>
amount of principal distributions available to an
investor for reinvestment at such low prevailing
interest rates may be relatively large. Conversely,
slow rates of prepayments on the Mortgage Loans may
coincide with periods of high prevailing market
interest rates. During such periods, it is less
likely that borrowers will elect to prepay or
refinance Mortgage Loans and, therefore, the amount
of principal distributions available to an investor
for reinvestment at such high prevailing interest
rates may be relatively small.
Weighted Average Life Volatility. One indication of
the effect of varying prepayment rates on a security
is the change in its weighted average life. The
"weighted average life" of an Offered Certificate is
the average amount of time that will elapse between
the date of issuance of the Certificate and the date
on which each dollar in reduction of the principal
amount of the Certificate is distributed to the
investor. Low rates of prepayment may result in the
extension of the weighted average life of a
Certificate; conversely, high rates may result in the
shortening of such weighted average life. In general,
if in a high interest rate environment the weighted
average life of a Certificate purchased at par is
extended beyond that initially anticipated, such
Certificate's market value will be adversely
affected, even though the yield to maturity on the
Certificate is unaffected. Similarly, there is a cap
on the amount by which the market value of the
Certificate can increase in a low interest rate
environment because its weighted average life will be
shortened if there are high prepayments. The weighted
average lives of the Offered Certificates, under
various prepayment scenarios, are displayed in the
tables appearing under the heading "Yield and
Maturity Considerations--Weighted Average Life."
OPTIONAL TERMINATION.... At its option, any of the Servicer, the FDIC, the
Mortgage Loan Seller or the holder of the Class R
Certificate may purchase all of the Mortgage Loans
and REO Properties, and thereby effect termination of
the Trust Fund and early retirement of the then
outstanding Certificates, on any Distribution Date on
which the remaining aggregate principal balance of
the Mortgage Loans and REO Properties is less than
10% of the Cut-off Date Balance of the Mortgage
Loans. See "Description of the Certificates--
Termination."
CERTAIN FEDERAL INCOME
TAX CONSEQUENCES....... Upon the issuance of the Certificates, Hunton &
Williams, counsel to the Federal Deposit Insurance
Corporation in connection with the issuance of the
Certificates, 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, separate portions of
the Trust Fund each will qualify as a real estate
mortgage investment conduit (a "REMIC") under the
Internal Revenue Code of 1986 (the "Code").
For federal income tax purposes, each Sub-Pool I
Certificate will constitute a regular interest in a
REMIC, and each Sub-Pool II Certificate will
constitute, in part, a regular interest in a REMIC
and, in part, a contractual right to receive to the
extent of the Available Guaranty Amount an amount
equal to the Basis Risk Shortfall to the extent of
the
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<PAGE>
Basis Risk Support Amount, as described under
"Description of the Certificates--Distributions--Sub-
Pool II Certificates--Basis Risk." See "Certain
Federal Income Tax Consequences--General" and "--Tax
Treatment of Regular Certificates--Basis Risk Support
Amount."
For federal income tax reporting purposes, Classes
, , and will be treated, and Classes , ,
, and will not 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, on each of the Sub-
Pool I Certificates and the Sub-Pool II Certificates
will be 7% of CPR, and the level of LIBOR that will
be assumed for such determinations on the Sub-Pool II
Certificates will be %. No representation is made,
however, about the rate at which prepayments on the
Mortgage Loans actually will occur or the level of
LIBOR at any time after the date of this Prospectus.
See "Certain Federal Income Tax Consequences--Tax
Treatment of Regular Certificates--Original Issue
Discount."
Subject to the discussion under "Certain Federal
Income Tax Consequences--General" regarding the right
of the Sub-Pool II Certificates to receive the Basis
Risk Support Amount, the Offered Certificates will be
treated as assets described in section 7701(a)(19)(C)
of the Code, "real estate assets" under section
856(c)(5)(A) of the Code, and "permitted assets"
within the meaning of section 860L(c)(1)(G) of the
Code generally in the same proportion that the assets
of the Trust Fund would be so treated. In addition,
interest on the Offered Certificates will be treated
as "interest on obligations secured by mortgages on
real property" under section 856(c)(3)(B) of the Code
generally to the extent that such Certificates are
treated as "real estate assets" under section
856(c)(5)(A) of the Code. The Mortgage Loans
generally will be treated as "real estate assets"
under section 856(c)(5)(A) of the Code. The Offered
Certificates, except the Sub-Pool II Certificates to
the extent that they represent ownership of the right
to receive the Basis Risk Support Amount, 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 a regular or
residual interest therein.
For further information regarding federal income tax
consequences of investing in the Offered
Certificates, see "Certain Federal Income Tax
Consequences."
ERISA CONSIDERATIONS.... A fiduciary of any employee benefit plan or other
retirement arrangement subject to the Employee
Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code (a "Plan")
should review carefully with its legal advisers
whether the purchase or holding of Offered
Certificates could give rise to a transaction that is
prohibited or is not otherwise permitted either under
ERISA or Section 4975 of the Code or whether there
exists any statutory or administrative exemption
applicable to an investment therein.
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The U.S. Department of Labor has issued to Lehman
Brothers an individual prohibited transaction
exemption, Prohibited Transaction Exemption 91-14
(the "Exemption"), which generally exempts from the
application of certain of the prohibited transaction
provisions of Section 406 of ERISA and the excise
taxes imposed on such prohibited transactions by
Section 4975(a) and (b) of the Code, transactions
relating to the purchase, sale and holding of pass-
through certificates underwritten by Lehman Brothers
and the servicing and operation of related asset
pools, provided that certain conditions are
satisfied.
It is expected that Prohibited Transaction Exemption
91-14 will generally apply to the Class I-A
Certificates and the Class II-A Certificates, but it
will not apply to the other classes of Offered
Certificates (such other classes, collectively, the
"ERISA-Restricted Certificates"). THE ERISA-
RESTRICTED CERTIFICATES SHOULD NOT BE ACQUIRED BY A
PLAN. BECAUSE THE ERISA-RESTRICTED CERTIFICATES ARE
SUBORDINATED TO THE CLASS I-A OR CLASS II-A
CERTIFICATES, THE EXEMPTION DOES NOT APPLY TO THE
ERISA-RESTRICTED CERTIFICATES, AND SUCH CERTIFICATES
MAY NOT BE PURCHASED BY OR TRANSFERRED TO A PLAN,
EXCEPT IN THE EVENT THAT THE TRUSTEE RECEIVES AN
OPINION OF COUNSEL SATISFACTORY TO THE TRUSTEE THAT
THE PURCHASE AND HOLDING OF THE ERISA-RESTRICTED
CERTIFICATES WILL NOT RESULT IN A NON-EXEMPT
PROHIBITED TRANSACTION AS DESCRIBED HEREIN. See
"ERISA Considerations."
RATINGS................. It is a condition of their issuance that the Offered
Certificates of each class receive the ratings from
Moody's Investors Service, Inc. and Duff & Phelps
Credit Rating Co. (together, the "Rating Agencies")
as set forth on the cover page of this Prospectus. A
security rating addresses the likelihood of the
receipt by Certificateholders of all distributions to
which such Certificateholders are entitled, including
the complete payment of principal by the Final
Scheduled Distribution Date. 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 or likelihood
of prepayments (whether voluntary or involuntary) of
Mortgage Loans, or the possibility of a lower than
anticipated yield to investors. A security rating
does not address the likelihood of Basis Risk
Shortfalls, the sufficiency of any Basis Risk Support
Amount to cover such shortfall or the corresponding
effect on yield to investors. See "Ratings" and "Risk
Factors--The Certificates--Limited Nature of
Ratings."
LEGAL INVESTMENT........ The appropriate characterization of the Offered
Certificates under various legal investment
restrictions, and thus the ability of investors
subject to these restrictions to purchase the Offered
Certificates, may be subject to significant
interpretative uncertainties. At the time of their
issuance, the Offered Certificates will not be
"mortgage related securities" within the meaning of
the Secondary Mortgage Market Enhancement Act of 1984
("SMMEA"). The Office of the Comptroller of the
Currency has recently issued regulations effective
December 31, 1996 implementing the Riegle Community
Development and Regulatory Improvement Act of 1994,
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<PAGE>
which extends SMMEA to certain commercial mortgage
related securities rated in one of the two highest
rating categories. No assurance is given that the
Mortgage Loans will satisfy the requirements for any
of the Offered Certificates to qualify in the future
as SMMEA eligible securities. Accordingly, investors
should consult their own legal advisers to determine
whether and to what extent the Offered Certificates
constitute legal investments for them. See "Legal
Investment."
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RISK FACTORS
AN INVESTMENT IN THE OFFERED CERTIFICATES INVOLVES VARIOUS RISKS.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING INFORMATION IN
CONJUNCTION WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE
MAKING A DECISION TO PURCHASE THE OFFERED CERTIFICATES.
THE MORTGAGE LOANS
Troubled Originators. Most of the Mortgage Loans will have been originated
or purchased by approximately 183 state or federally chartered depository
institutions (each, a "Depository Institution") either (x) for which the
Mortgage Loan Seller has been appointed as receiver or (y) from which the
Mortgage Loan Seller, in its capacity as administrator of the Bank Insurance
Fund, has acquired such Mortgage Loans. The remainder of the Mortgage Loans
have been originated by the Mortgage Loan Seller, in its capacity as receiver
of one or more of the Depository Institutions subject to the guidelines
described under "Description of the Mortgage Pool--Loans-to-Facilitate." Each
Depository Institution for which the Mortgage Loan Seller is still acting as
receiver is insolvent and in the process of liquidation and many of the
Depository Institutions from which the Mortgage Loan Seller has acquired
Mortgage Loans have been liquidated. It is possible that the financial
difficulties experienced by certain of the Depository Institutions may have
adversely affected either or both of (i) the standards and procedures by which
the Mortgage Loans were originated by such Depository Institutions or, if
purchased from another originator, the standards and procedures by which the
Depository Institutions (a) selected such Mortgage Loans for purchase and (b)
reviewed them prior to purchase and (ii) the manner in which such Mortgage
Loans have been serviced prior to the acquisition thereof by the Mortgage Loan
Seller.
Limited Information. Except with respect to the Loans-to-Facilitate, the
information set forth in this Prospectus with respect to the Mortgage Loans is
derived primarily from a review of certain of the credit, servicing and legal
files relating to the Mortgage Loans. The Mortgage Loan Seller has determined
that there is not sufficient available information to permit the Mortgage Loan
Seller to determine fully the origination, credit appraisal and underwriting
practices of the Mortgage Loan originators with respect to the Mortgage Loans
or the manner in which the Mortgage Loans have been serviced prior to the
acquisition thereof by the Mortgage Loan Seller. In particular, for various
reasons, including without limitation the age of certain of the Mortgage Loans
and the number of servicing transfers with respect to certain Mortgage Loans,
the Mortgage Loan Seller did not have access to reliable information, either
from books and records or from officers of the Mortgage Loan originators, with
respect to the underwriting policies and practices followed by the Mortgage
Loan originators in originating commercial, multifamily and/or residential
mortgage loans. Even if such information were available, it is unlikely that
specific information regarding the origination and underwriting policies and
guidelines of any Mortgage Loan originator at a particular time would be
useful in evaluating the underwriting and origination of the Mortgage Loans
included in its respective portfolio because (i) the terms of a substantial
number of such Mortgage Loans may have been renegotiated or modified on one or
more occasions since the date of origination and (ii) certain of such Mortgage
Loans may have been originated or purchased by a Depository Institution using
different or inconsistent underwriting criteria. Accordingly, no assurance can
be given that the Mortgage Loans, other than the Loans-to-Facilitate, were
originated in accordance with any particular set of uniform underwriting
policies or practices or that any of the Mortgage Loans were serviced prior to
their acquisition by the FDIC in accordance with any particular set of
servicing standards.
Furthermore, it is possible that this Prospectus does not contain material
information regarding the Mortgage Loans that would have been disclosed if the
servicing procedures, books and records, payment histories, Mortgage Loan
files and personnel of the Mortgage Loan originators and the Depository
Institutions had not been affected by such institutions' having been placed in
receivership. In the absence of applicable information in the file for a
Mortgage Loan and in instances where no updated appraisal or operating
statement information was received by the Mortgage Loan Seller or the Servicer
on its behalf, it is not possible for the Mortgage Loan Seller to determine,
among other things, the appraised value of the related Mortgaged Property,
whether such Mortgaged Property is owner-occupied, whether the current net
operating income from the related Mortgaged
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Property is sufficient to cover debt service on the Mortgage Loan, whether
there have been modifications, waivers or amendments with respect to such
Mortgage Loan that are not included in such file, or whether such Mortgage
Loan otherwise has terms that are inconsistent with information used to
prepare the disclosure set forth in this Prospectus. In addition, although the
Mortgage Loan Seller has engaged various contractors to identify and review
the terms of any modification to a Mortgage Loan that may have occurred during
the period following the review of the related file through the Closing Date,
there can be no assurance that such Mortgage Loan does not have terms
materially inconsistent with the information used to prepare the disclosure
set forth in this Prospectus.
While a review of the Mortgage Loan files in contemplation of the issuance
of the Certificates has been undertaken on behalf of the Mortgage Loan Seller,
the Mortgage Loans have not been "re-underwritten" or subjected to the type of
review that would typically be made in respect of newly originated mortgage
loans. However, as described herein under "Description of the Mortgage Pool--
Mortgage Loan Information," the Mortgaged Properties with respect to
approximately 61.09% of the Mortgage Loans (the "Appraised Loans"), were
appraised primarily from June 1, 1995 through November 29, 1996 either by the
Servicer in connection with its normal servicing of the Mortgage Loans or on
behalf of the Mortgage Loan Seller by various nationally-recognized appraisal
firms in contemplation of the issuance of the Certificates (the "Appraisal
Process"). The methodology for including Mortgage Loans in the Appraisal
Process is described under "Description of the Mortgage Pool--Mortgage Loan
Information." The information in this Prospectus with respect to Cut-off Date
LTV Ratios is based upon the most recently available appraised value (which,
in the case of non-Appraised Loans (38.09% of Group I Loans and 41.60% of
Group II Loans), may be significantly out of date) and information in this
Prospectus with respect to Estimated Net Cash Flow Coverage Ratios is based
solely upon 1995 or 1996 net cash flow and is only available for 72.61% of the
Group I Loans and 64.81% of the Group II Loans. Where 1995 or 1996 net cash
flow information was unavailable, information regarding Estimated Net Cash
Flow for such Mortgage Loan was not included in the information provided
herein. ESTIMATED NET CASH FLOW WAS NOT CALCULATED IN ACCORDANCE WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. There can be no assurance that
information with respect to Cut-off Date LTV Ratios and Information Date
Estimated Net Cash Flow Coverage Ratios is in any respect indicative of the
actual fair market value of any such Mortgaged Property or of the ability of
the underlying borrowers to make debt service payments on the Mortgage Loans.
See "Description of the Mortgage Pool--Mortgage Loan Information."
Notwithstanding the foregoing, the FDIC will make certain representations
and warranties regarding the Mortgage Loans, including the accuracy of the
mortgage loan schedule with respect to each Sub-Pool (together, the "Mortgage
Loan Schedule") attached to the Pooling and Servicing Agreement, which
includes information upon which is based certain of the statistical
information included in this Prospectus. In the event of a loss related to the
breach of a representation, the FDIC will be obligated to cure such breach or
to repurchase, substitute for (subject to certain limitations set forth in the
Pooling and Servicing Agreement) or make a payment to the Trust Fund in an
amount equal to the loss (in certain cases at the option of the FDIC). In any
case in which the FDIC may select a remedy, it is under no obligation to
consider the ramifications of such selection to Certificateholders generally
or to the holders of Certificates of any particular Class. In the unlikely
event that the FDIC fails to honor its obligations with respect to breaches of
its representations and warranties, such obligations may be subject to
enforcement in the Federal courts. The Federal courts have generally held that
claims sounding in contract against the Federal Deposit Insurance Corporation
in its corporate capacity, which might otherwise be barred under the doctrine
of sovereign immunity, may nonetheless be maintained by virtue of the waiver
of sovereign immunity created by the FDIC's "sue and be sued clause," 12
U.S.C.(a) 1819 (Fourth). However, there is no guaranty that any such claim
will not be barred or will succeed on its merits or otherwise. See
"Description of the Mortgage Pool--Representations and Warranties; Remedies"
and "The Bank Insurance Fund--Defenses to Payment of BIF Obligations under the
Limited Guaranty."
Mortgage Loan Schedule. Although the Mortgage Loan Seller has endeavored to
create an accurate database upon which the Mortgage Loan Schedule was produced
because of the factors described above and described more fully under
"Description of the Mortgage Pool--Mortgage Loan Information," the Mortgage
Loan Seller believes that the database may contain material inaccuracies with
respect to one or more Mortgage Loans. By making the representations described
under "Description of the Mortgage Pool--Representations and
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Warranties; Remedies," the risk of material inaccuracies in the Mortgage Loan
Schedule will be borne by the FDIC, to the extent described in such section.
For a description of the specific remedies applicable to a breach of any such
representation, see "Description of the Mortgage Pool--Representations and
Warranties; Remedies."
Nature of the Mortgaged Properties. The Mortgaged Properties consist of
income-producing and owner-occupied properties. Repayment of loans made on the
security of income-producing property is typically dependent primarily upon
the ability of the related real estate project to generate income sufficient
to pay operating expenses, to make necessary repairs, tenant improvements and
capital improvements and to pay debt service; thus, the value of an income-
producing property is typically directly related to the net operating income
derived from such property. If the net operating income of a property is
reduced (for example, if rental or occupancy rates decline, or real estate tax
rates or other operating expenses increase), the borrower's ability to repay
the loan may be impaired. A number of the Mortgage Loans may be secured by
liens on owner-occupied Mortgaged Properties or on Mortgaged Properties leased
to a single tenant or a small number of significant tenants. Accordingly, a
decline in the financial condition of the borrower or a significant tenant, as
applicable, may have a disproportionately greater effect on the net operating
income from such Mortgaged Properties than would be the case with respect to
Mortgaged Properties with multiple tenants. Furthermore, the value of any
Mortgaged Property may be adversely affected by risks generally incident to
interests in real property, including changes in general or local economic
conditions and/or specific industry segments; declines in real estate values;
declines in rental or occupancy rates; increases in interest rates, real
estate tax rates and other operating expenses; changes in governmental rules,
regulations and fiscal policies, including environmental legislation; acts of
God; and other factors beyond the control of the Servicer.
In addition, additional risk may be presented by the type and use of a
particular Mortgaged Property. Lending on the security of office buildings,
shopping centers, lodging and industrial sites generally is perceived to
involve greater risk than lending on the security of multifamily or
residential projects, and certain types of commercial properties are exposed
to particular risks. For instance, shopping centers in general are affected by
the health of the retail industry, and a particular shopping center may be
adversely affected by a decline in the drawing power of an anchor tenant, the
bankruptcy of an anchor tenant, a shift in consumer demand due to demographic
changes (e.g., population decreases or changes in average age or income)
and/or changes in consumer preference (e.g., to discount retailers). In
addition, industrial properties may be adversely affected by reduced demand
for industrial space occasioned by a decline in a particular industry segment
(e.g., a decline in defense spending), and a particular industrial property
that suited the needs of its original tenant may be difficult to relet to
another tenant or may become functionally obsolete relative to newer
properties.
Limited Recourse. Except as otherwise set forth herein with respect to the
Limited Guaranty, the Mortgage Loans are not insured or guaranteed by any
governmental entity or private mortgage insurer. No evaluation has been
undertaken relating to the significance of the recourse provisions of any of a
number of the Mortgage Loans that provide for recourse against the related
borrower or another person in the event of a default. Accordingly, investors
should consider all of the Mortgage Loans to be nonrecourse loans as to which
recourse in the case of default will be limited to the specific property and
such other assets, if any, as were pledged to secure a Mortgage Loan. Even
with respect to those Mortgage Loans that provide for recourse against the
borrower and its assets generally, there can be no assurance that enforcement
of such recourse provisions will be practicable, or that the assets of the
borrower 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. As indicated under "Description of the Mortgage Pool--Mortgage Loan
Information," the Cut-off Date LTV Ratio with respect to approximately 16.42%
of the Appraised Group I Loans, and approximately 16.26% of the Appraised
Group II Loans is greater than 100%. See "Certain Legal Aspects of Mortgage
Loans--Foreclosure."
Delinquent Mortgage Loans; Matured Performing Mortgage Loans. As of the
Information Date, approximately 13.70% of the Group I Loans and approximately
13.98% of the Group II Loans were up to 29 days late with respect to their
Scheduled Payments; approximately 4.69% of the Group I Loans, and
approximately 4.47% of the Group II Loans were up to 59 days delinquent with
respect to their Scheduled Payments; and approximately 2.53% of the Group I
Loans, and approximately 2.57% of the Group II Loans were Matured Performing
Mortgage Loans. Matured Performing Mortgage Loans are expected to be modified
to
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provide for, among other things, extended maturity dates and Scheduled Payment
adjustments. See "--Balloon Payments" and "Servicing of the Mortgage Loans--
Modifications, Waivers and Amendments." Investors should consider the risk
that the inclusion of delinquent Mortgage Loans and Matured Performing
Mortgage Loans in the Mortgage Pool may affect the rate of defaults and
prepayments on the Mortgage Loans and the yield on the Offered Certificates.
See "Yield and Maturity Considerations." The Servicing Fee payable to the
Servicer is based on a variable rate designed to provide a direct incentive to
the Servicer to minimize the delinquency status of the Mortgage Loans. See
"Servicing of the Mortgage Loans--Servicing and Other Compensation and Payment
of Expenses."
Borrower Default. Information concerning the Estimated Net Cash Flow
Coverage Ratios of the Mortgage Loans is set forth under "Description of the
Mortgage Pool--Mortgage Loan Information." As indicated therein, the Estimated
Net Cash Flow for the Mortgaged Properties securing approximately 14.40% of
the Group I Loans and approximately 13.08% of the Group II Loans is currently
insufficient to cover debt service payments. Even where the net operating
income generated by a Mortgaged Property is currently sufficient to cover debt
service payments on the related Mortgage Loan, there can be no assurance that
this will continue to be the case in the future. In the case of an ARM Loan,
an increase in the Mortgage Rate will increase the debt service and could
impair the related borrower's ability to repay such loan. See "--Nature of the
Mortgaged Properties" and "--Limited Recourse." ESTIMATED NET CASH FLOW WAS
NOT CALCULATED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
INFORMATION PROVIDED BY BORROWERS HAS NOT BEEN INDEPENDENTLY VERIFIED. See
"Description of the Mortgage Pool--Mortgage Loan Information."
In order to produce a greater recovery on a present value basis on defaulted
Mortgage Loans, including Matured Performing Mortgage Loans, the Servicer has
considerable flexibility under the Pooling and Servicing Agreement to extend
and modify Mortgage Loans that are in default or as to which a payment default
is reasonably foreseeable, including, in particular, Balloon Payments. More
specifically, subject to the overall goal of producing a greater recovery on a
present value basis from the defaulted Mortgage Loans than would result from
foreclosure, and to certain conditions set forth in the Pooling and Servicing
Agreement, including under certain circumstances the requirement to obtain the
consent of the FDIC, the Servicer has the power, among other things, to
forgive permanently payments of principal, to lower temporarily mortgage
rates, to lower or modify payment rates, or to modify the schedule for
payments of principal. To the extent amounts remain available thereunder, the
Limited Guaranty will cover the reduction of principal and interest otherwise
due in respect of a Mortgage Loan attributable to a modification, waiver or
amendment of the terms thereof by the Servicer, as described under
"Description of the Certificates--The Limited Guaranty."
The Servicer is entitled to receive a Modification Fee in connection with
the modification of defaulted Mortgage Loans or as to which default is
reasonably foreseeable, a Resolution Fee, in addition to a Modification Fee,
in connection with the modification of a Mortgage Loan during its Resolution
Period and a Liquidation Fee in connection with the liquidation of defaulted
Mortgage Loans or properties acquired on behalf of the Trust Fund. While the
payment of such compensation to the Servicer is designed to increase the
present value of receipts from or proceeds of Mortgage Loans in default or as
to which default is reasonably foreseeable, there can be no assurance that it
will do so. See "Servicing of the Mortgage Loans--Servicing and Other
Compensation and Payment of Expenses."
Balloon Payments. Approximately 87.66% of the Group I Loans and
approximately 55.14% of the Group II Loans are Balloon Loans. Balloon Loans
involve a greater risk to the lender than self-amortizing loans because the
ability of a borrower to make a Balloon Payment typically will depend upon its
ability either to refinance the loan or to sell the related Mortgaged
Property. The ability of a borrower 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 borrower's equity in the Mortgaged Property, the financial
condition and operating history of the borrower and the Mortgaged Property,
tax laws, prevailing general economic conditions and the availability of
credit for loans secured by multifamily or commercial, as the case may be,
real properties generally. Neither the Servicer, the Trustee nor the Mortgage
Loan Seller will be required to refinance any Balloon Loan.
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In order to maximize recoveries on defaulted Mortgage Loans, the Pooling and
Servicing Agreement enables the Servicer to extend and modify Mortgage Loans
that are in material default or as to which a payment default (including the
failure to make a Balloon Payment) is reasonably foreseeable; subject,
however, to the limitations described under "Servicing of the Mortgage Loans--
Modifications, Waivers and Amendments." There can be no assurance, however,
that any such extension or modification will increase the present value of
recoveries in a given case. Any delay in collection of a Balloon Payment that
would otherwise be distributable in respect of a class of Certificates,
whether such delay is due to borrower default or to modification of the
Balloon Loan by the Servicer, will likely extend the weighted average life of
such class of Certificates. See "Yield and Maturity Considerations."
Adjustable Rate Mortgage Loans; Negative Amortization. Approximately 7.99%
of the Mortgage Loans provide for the deferral and capitalization of interest
payments (i.e., "negative amortization"). Increases in the required Scheduled
Payments on Mortgage Loans in excess of those assumed in the original
underwriting of such loans may result in a default rate higher than that on
mortgage loans with fixed mortgage rates. Moreover, increases in the principal
balances of Mortgage Loans due to negative amortization may result in a
default rate that is higher than that of adjustable rate mortgage loans that
do not provide for negative amortization. Certain of such Mortgage Loans may
contain no limit as to the amount of negative amortization that can be
accredited to their respective balances. A slower rate of amortization or
negative amortization on an Mortgage Loan would correspondingly be reflected
in a slower rate of amortization or negative amortization on the Corresponding
Certificates. See "Description of the Certificates--Distributions--Interest
Distribution Calculations."
Mortgage Participation Interests. As of the Cut-off Date, approximately
10.81% of the Group I Loans and approximately 9.02% of the Group II Loans
consisted of "lead" participation interests in the related mortgage loans (as
opposed to outright ownership of the mortgage loans). Holders of "lead"
participation interests generally exercise control over the election of
remedies in the event of a default and over other lender decisions.
Approximately 10.04% of the Group I Loans and approximately 9.08% of the Group
II Loans consisted of "non-lead" participation interests in the related
mortgage loans. The holder of a non-lead participation interest does not have
the ability to control the relationship between the holder of the mortgage
loan and the related borrower and, accordingly, has limited control over the
exercise of remedies in the event of a default or over other types of mortgage
lender decisions.
Because the holder of a lead participation interest may have a fiduciary
duty to holders of any non-lead participation interest and may be subject to
agreements concerning the control of lender decisions, the value of a lead
participation interest may be less than that of a direct ownership of the
related mortgage loan. Because the holder of a non-lead participation has only
limited ability to control lender decisions, there may be a greater risk of
loss on the related mortgage loan because lender decisions may not be made on
the basis of the best interest of the Trust Fund.
With respect to non-lead participations, the Mortgage Loan Seller has made
very limited representations about the underlying mortgage loans and the
participation interest files contain limited information about the underlying
mortgage loans.
Enforceability. Most of the Mortgage Loans contain due-on-sale clauses and
due-on-encumbrance clauses, which permit the lender to accelerate the maturity
of the Mortgage Loan if the borrower sells, transfers, conveys or encumbers
the related Mortgaged Property or its interest in such Mortgaged Property.
Such clauses generally are enforceable, subject to certain exceptions. The
Mortgage Loan Seller did not undertake any procedures to determine whether the
Mortgaged Properties securing any of the Mortgage Loans were the subject of
subordinate financing. See "Certain Legal Aspects of Mortgage Loans--Due-on-
Sale and Due-on-Encumbrance."
A significant number of the Mortgage Loans include debt-acceleration
clauses, which permit the lender to accelerate the debt upon a monetary or
non-monetary default of the borrower. The courts of all states will enforce
clauses providing for acceleration in the event of a material payment default
after the giving of appropriate notices. The equity courts of any state,
however, may refuse to permit the foreclosure of a mortgage or deed of trust
when an acceleration of the indebtedness would be inequitable or unjust or the
circumstances would render the acceleration unconscionable. See "Certain Legal
Aspects of Mortgage Loans."
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Most of the Mortgage Loans are secured, in part, by an assignment of leases
and rents pursuant to which the borrower assigns to the lender its right,
title and interest as landlord under the leases of the related Mortgaged
Property, and the income derived therefrom, as further security for the
related Mortgage Loan, while retaining a license to collect rents for so long
as there is no default. If the borrower defaults, the license terminates and
the lender is entitled to collect rents. Some state laws may require that the
lender take possession of the Mortgaged Property and obtain a judicial
appointment of a receiver before becoming entitled to collect the rents. In
addition, if bankruptcy or similar proceedings are commenced by or in respect
of the borrower, the lender's ability to collect the rents may be adversely
affected. See "Certain Legal Aspects of Mortgage Loans--Leases and Rents."
Environmental Law Considerations. The Mortgage Loan Seller generally has not
determined whether environmental assessments have been conducted with respect
to the Mortgaged Properties, and it is likely that any environmental
assessments that were conducted with respect to any of the Mortgaged
Properties were conducted at the time of the origination of the related
Mortgage Loans and not thereafter. However, the Mortgage Loan Seller will
represent and warrant that, as of the Closing Date, no Mortgaged Property is
affected by a Disqualifying Condition (as defined herein under "Description of
the Mortgage Pool--Representations and Warranties; Remedies"). In the event
that, following a default in payment that continues for 60 days, (i) the
environmental site assessment obtained by the Servicer prior to any
foreclosure (as described in the following paragraph) indicates the presence
of a Disqualifying Condition that arose prior to the Closing Date and (ii) the
Servicer certifies that it has acted in compliance with the servicing standard
set forth in the Pooling and Servicing Agreement and has not, by any action,
created, caused or contributed to a Disqualifying Condition, the Mortgage Loan
Seller, at its option, will either cure such Disqualifying Condition or
repurchase the affected Mortgage Loan for a price equal to the outstanding
principal balance thereof plus accrued and unpaid interest to the date of
repurchase, plus certain related expenses. See "Description of the Mortgage
Pool--Representations and Warranties; Remedies."
The Pooling and Servicing Agreement requires that the Servicer obtain an
environmental site assessment of a Mortgaged Property prior to acquiring title
thereto on behalf of the Trust Fund or assuming its operation. Such
prohibition may effectively preclude enforcement of the security for the
related Mortgage Note until a satisfactory environmental site assessment is
obtained (or until any required remedial action is thereafter taken). The
Servicer is not required to obtain an environmental site assessment in
connection with a modification, waiver or amendment of a particular Mortgage
Loan unless the Servicer determines in accordance with the servicing standard
imposed on it by the Pooling and Servicing Agreement that such an
environmental site assessment is necessary or appropriate under the particular
circumstances. See "Servicing of the Mortgage Loans--Realization Upon
Defaulted Mortgage Loans" and "Certain Legal Aspects of Mortgage Loans--
Environmental Risks--Environmental Site Assessments."
Under the laws of certain states where the Mortgaged Properties are located,
failure to perform the remediation of environmental conditions required or
demanded by the state may give rise to a lien on a Mortgaged Property to
ensure the reimbursement of remediation costs incurred by the state. Although
the costs of remedial action could be substantial, the state of the law in
certain of these jurisdictions presently is unclear as to whether and under
what conditions such costs (or the requirements otherwise to undertake
remedial actions) would be imposed on a secured lender such as the Trust Fund.
However, under the laws of some states and under applicable federal law, a
lender may be liable for such costs in certain circumstances as the "owner" or
"operator" of the Mortgaged Property. Shortfalls occurring as the result of
imposition of any such costs will be covered by the Limited Guaranty, to the
extent of amounts available thereunder. See "Certain Legal Aspects of the
Mortgage Loans--Environmental Risks--Environmental Site Assessments."
Concentration. Approximately 30.23% and 17.75% of the Group I Loans are
secured by liens on Mortgaged Properties located in California and
Massachusetts, respectively and approximately 26.92% and 25.38% of the Group
II Loans are secured by liens on Mortgaged Properties located in California
and Massachusetts, respectively. In general, geographic concentration
increases the exposure of the Trust Fund to any adverse economic or other
developments that may occur in those states. The economies of those states may
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be adversely affected to a greater degree than that of other areas in the
country by certain developments affecting industries concentrated in such
states. The Mortgage Loan Seller did not undertake any procedures to determine
the state of the economy of any particular region or locality, or the effect
of any such economy on any particular property type.
No Mortgage Loan in a particular Sub-Pool constitutes more than
approximately 2.35% of the applicable Cut-off Date Sub-Pool Balance. However,
the Mortgage Loan Seller did not undertake any procedures to determine whether
there were affiliations between borrowers with respect to more than one
Mortgage Loan, or to determine whether the net operating income on Mortgaged
Properties securing a significant amount of Mortgage Loans was dependent upon
payments under operating leases by a particular tenant or group of related
tenants. In general, concentration of borrowers or tenants increases the
exposure of the related Sub-Pool to any adverse economic or other development
that may occur to such borrowers or tenants.
THE CERTIFICATES
Limited Liquidity. There is currently no secondary market for the
Certificates. While the Underwriters currently intend to make a secondary
market in the Offered Certificates, they are under no obligation to do so.
There can be no assurance that a secondary market will develop or, if a
secondary market does develop, that it will provide holders of Certificates
with liquidity of investment or that it will continue while the Certificates
are outstanding. Any such secondary market may provide less liquidity to
investors than any comparable market for securities that evidence interests
solely in single-family mortgage loans. The Certificates will not be listed on
any securities exchange.
The primary source of ongoing information regarding the Certificates,
including information regarding the status of the Mortgage Loans, the other
assets of the Trust Fund and the Limited Guaranty, will be the periodic
reports (the "Periodic Reports") to be delivered pursuant to the Pooling and
Servicing Agreement as described herein under the heading "Description of the
Certificates--Reports to Certificateholders; Certain Available Information."
There can be no assurance that any additional ongoing information regarding
the Offered Certificates will be available to any person through any other
source. The limited nature of such information in respect of the Certificates
may adversely affect the liquidity thereof, even if a secondary market for the
Offered Certificates does develop. Although reports with respect to the Trust
Fund initially will be required to be filed from time to time with the
Commission pursuant to the Exchange Act, (i) it is not anticipated that such
reports will include information in addition to the information to be included
in the Periodic Reports and (ii) the Trust Fund may exercise whatever rights
it may have to terminate its obligation to file reports with the Commission
pursuant to the Exchange Act.
Insofar as a secondary market does develop with respect to any class of
Offered Certificates, the market value of such Certificates will be affected
by several factors, including the perceived liquidity thereof, the anticipated
cash flow thereon (which may vary widely depending upon the prepayment and
default assumptions applied in respect of the Mortgage Loans) and prevailing
interest rates. The price payable at any time in respect of certain classes of
Certificates (in particular, a class with a relatively long average life) may
be extremely sensitive to small fluctuations in prevailing interest rates; and
the relative change in price for a Certificate in response to an upward or
downward movement in prevailing interest rates may not necessarily equal the
relative change in price for such Certificate in response to an equal but
opposite movement in such rates. Accordingly, the sale of Offered Certificates
by a holder in any secondary market that may develop may be at a discount from
the price paid by such holder.
Certificateholders will have no redemption rights, although the Certificates
are subject to early retirement at the option of any of the Servicer, the
FDIC, the Mortgage Loan Seller or the Class R Certificateholder under certain
specified circumstances described herein. See "Description of the
Certificates--Termination."
Securities Law and Other Liabilities. Only the assets of the Trust Fund may
be subject to issuer liability under the federal securities laws for the
information contained in this Prospectus, and the Trust Fund's assets are
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limited solely to the Mortgage Loans and the proceeds thereof, as described
herein. In the event that the Trust Fund's assets are diminished by recoveries
against it based upon its liabilities under the federal securities laws, the
assets available for payment to Certificateholders will be diminished. Except
as stated in "Description of the Certificates--The Trustee", neither the
Trustee nor any of its directors, officers, employees or agents has
investigated the accuracy of any information contained in the Prospectus or
makes any representation or warranty of such accuracy or the completeness
thereof. Even if the Federal Deposit Insurance Corporation were deemed to be
the issuer of the Certificates for purposes of the federal securities laws,
the doctrine of sovereign immunity, as limited by the Federal Tort Claims Act
(28 U.S.C. 1346(b)), provides that claims may not be brought against the
United States or any agency or instrumentality thereof unless specifically
permitted by act of Congress. The Federal Tort Claims Act bars claims for
fraud or misrepresentation, and courts have held, in cases involving the
Federal Deposit Insurance Corporation as well as other federal agencies and
instrumentalities, that the United States may assert its sovereign immunity to
claims brought under the federal securities laws. Thus, it is probable that
any attempt to assert a claim against the Federal Deposit Insurance
Corporation for a violation of the federal securities laws resulting from a
material misstatement in or material omission from this Prospectus or the
registration statement of which this Prospectus forms a part would be barred.
Variability in Yield; Priority of Payments; Subordination. The yield on any
Offered Certificate will depend on, among other things, the Pass-Through Rate
in effect from time to time for such Certificate. The Pass-Through Rate
applicable to the Sub-Pool II Certificates will fluctuate based on changes in
LIBOR. See "Description of the Certificates--Distributions--Sub-Pool II
Certificates--Pass-Through Rates." Accordingly, the yield on the Sub-Pool II
Certificates, in general, will be highly sensitive to changes in LIBOR. Such
yield will be adversely affected by Basis Risk Shortfalls, to the extent not
covered by Basis Risk Support Amounts. Any "Unfunded Basis Risk Shortfall" on
any Distribution Date (i.e., the excess, if any, of the Basis Risk Shortfall
for such Distribution Date over the Basis Risk Support Amount for such
Distribution Date) will be allocated among the classes of Sub-Pool II
Certificates then having Pass-Through Rates in excess of the Weighted Average
Effective Net Mortgage Rate of Sub-Pool II, as described herein under "--Sub-
Pool II Certificates--Basis Risk." The Pass-Through Rate on the Sub-Pool I
Certificates will be fixed for the life of such Certificates. See "Description
of the Certificates--Distributions."
The yield on any Offered Certificate purchased at a discount or premium will
also be affected by the rate and timing of principal payments on such
Certificate, which in turn will be affected by (i) the rate and timing of
principal payments and prepayments (including voluntary principal prepayments
as well as other unscheduled collections resulting from defaults, liquidations
and repurchases attributable to breaches of representations and warranties) on
the Mortgage Loans in the Sub-Pool evidenced thereby and (ii) the extent to
which Distributable Principal is applied on any Distribution Date in reduction
of the Class Balance of the class to which such Certificate belongs. As
further described herein, Distributable Principal in respect of a particular
Sub-Pool will be allocated to the Corresponding classes of Certificates in
descending alphabetical order except that certain principal prepayments may be
allocated to classes having later alphabetical class designations as described
under "Description of the Certificates--Distributions." Because it is
impossible to predict accurately the timing and amount of principal
prepayments and other unscheduled recoveries of principal, if any, that will
be received, investors may find it difficult to analyze the effect that such
items might have on the yield and weighted average lives of the Certificates.
The yield on any Offered Certificate also will be affected by the rate and
timing of losses attributable to defaults on the Mortgage Loans in the Sub-
Pool evidenced thereby and, in the event of exhaustion of the amount of
coverage under the Limited Guaranty available to such Sub-Pool, by (x) the
severity of such losses and (y) the rate and timing of delinquencies of such
Mortgage Loans in respect of which the Servicer does not or is not required to
make a P&I Advance. As and to the extent described herein, the classes of
Certificates evidencing an interest in a particular Sub-Pool having a lower
alphabetical class designation are subordinate in right and time of payment to
the Corresponding classes of Certificates having a higher alphabetical class
designation and, in the event of exhaustion of the amount of coverage under
the Limited Guaranty in respect of such Sub-Pool, will
33
<PAGE>
bear shortfalls in collections and losses incurred in respect of the Mortgage
Loans in such Sub-Pool prior to more senior Corresponding classes of such
Certificates. Losses and other shortfalls experienced with respect to the
Mortgage Loans in a particular Sub-Pool, to the extent not covered by the
Limited Guaranty, will not be applied to reduce either the Class Balance or
the absolute entitlement to interest of any Corresponding class of
Certificates, even though such losses and shortfalls may cause one or more of
such classes to receive less than the full amount of principal and interest to
which it is entitled. See "Description of the Mortgage Pool," "Description of
the Certificates--Distributions" and "--Subordination" and "Yield and Maturity
Considerations."
Sub-Pool II Certificates--Basis Risk. Under certain circumstances, the Pass-
Through Rates of one or more classes of Sub-Pool II Certificates as of any
Distribution Date could exceed the Weighted Average Effective Net Mortgage
Rate of Sub-Pool II. The resulting shortfall in interest collections (a "Basis
Risk Shortfall," as more specifically defined herein) could arise due to,
among other things, variations in the difference between LIBOR and the Indices
for the ARM Loans, variations in the difference between the Applicable Margins
on the Sub-Pool II Certificates and the Gross Margins on the ARM Loans,
variations in Mortgage Rate adjustment dates for the ARM Loans relative to
those for the Sub-Pool II Certificates, implementation of the maximum lifetime
Mortgage Rates for the ARM Loans and differences in the length of the accrual
periods for particular ARM Loan payments and the Accrual Periods for
corresponding Distribution Dates for the Sub-Pool II Certificates. Any such
shortfall, to the extent not offset by the Basis Risk Support Amount will be
borne only by such classes of Sub-Pool II Certificates, and will be allocated
among such classes as described herein under "Description of the
Certificates--Distributions--Sub-Pool II Certificates--Basis Risk." The Basis
Risk Support Amount with respect to any Distribution Date is payable by the
FDIC only through demand on the Limited Guaranty and is limited solely to the
amount, if any, distributable on such Distribution Date in respect of interest
on the Class I-XS Certificates and to the extent of the Available Guaranty
Amount. Any Unfunded Basis Risk Shortfall will not be carried forward for
payment on any future Distribution Date. As described herein, in the absence
of an increasing Weighted Average Effective Net Mortgage Rate for each Sub-
Pool over time, because, generally, the weighted average of the Pass-Through
Rates on the classes of Certificates evidencing an interest in each Sub-Pool
will increase over time, the Pass-Through Rates on the classes of Stripped
Interest Certificates would be expected to decrease over time and, as a
result, the likelihood and amount of Unfunded Basis Risk Shortfalls would be
expected to increase over time. See "Description of the Certificates--
Distributions--Sub-Pool II Certificates--Basis Risk."
Credit Support Limitations. The Certificates will represent beneficial
ownership interests solely in the assets of the Trust Fund and will not
represent an interest in or obligation of the Federal Deposit Insurance
Corporation in any capacity, any Depository Institution or any other person,
except as otherwise described herein. Distributions on any class of Offered
Certificates will depend solely on the amount and timing of payments and other
collections and advances in respect of the Mortgage Loans in the Sub-Pool
evidenced thereby, Basis Risk Support Amounts (in the case of the Sub-Pool II
Certificates) and other amounts available under the Limited Guaranty. To
increase the likelihood of timely and complete distributions to the holders of
the Offered Certificates of each class, the Offered Certificates (as well as
the Stripped Interest Certificates) will have the benefit of the Limited
Guaranty to cover losses and other shortfalls attributable to credit defaults
and other losses in respect of the Mortgage Loans, as well as certain expenses
of the Trust Fund. The aggregate amount of coverage under the Limited Guaranty
initially is equal to approximately $241,466,156, which is equal to
approximately 32.3% of the Cut-off Date Balance. The amount of such coverage
initially available to Sub-Pool I is limited to approximately $171,850,315,
which is equal to approximately 30.0% of the Cut-off Date Sub-Pool I Balance
and the amount of such coverage initially available to Sub-Pool II is limited
to approximately $69,615,840, which is equal to approximately 40.0% of the
Cut-off Date Sub-Pool II Balance. See "Description of the Certificates--The
Limited Guaranty." Although the Limited Guaranty is issued by the FDIC, claims
thereunder may be satisfied only through draws upon the Bank Insurance Fund.
There can be no assurance that amounts in the Bank Insurance Fund will be
available to pay any such claim at any particular time. THE LIMITED GUARANTY
IS BY ITS TERMS NOT BACKED BY THE FULL FAITH AND CREDIT OF THE UNITED STATES
OF AMERICA. See "The Bank Insurance Fund." Amounts available under the Limited
Guaranty (as well as the respective amounts
34
<PAGE>
available to each Sub-Pool) will be reduced over the life of the Certificates
by the aggregate dollar amount of claims paid thereunder and will be increased
to reflect any amounts recovered by or on behalf of the FDIC in respect of
such claims, in each case on a Sub-Pool by Sub-Pool basis. The aggregate
amount of coverage available under the Limited Guaranty at the time of any
determination is referred to herein as the "Available Guaranty Amount," and
the amount of such coverage available to a particular Sub-Pool is referred to
herein as the "Available Sub-Pool Coverage Amount" for such Sub-Pool. In the
event that the Available Sub-Pool Coverage Amount under the Limited Guaranty
in respect of a particular Sub-Pool has been exhausted, the entire risk of
shortfalls and losses on the Mortgage Loans in such Sub-Pool in excess of the
Excess Coverage Amount, if any, will be borne by the holders of the
Corresponding classes of Certificates, notwithstanding the existence of any
Available Sub-Pool Coverage Amount for the other Sub-Pool. Such risk will be
allocated to such classes of Certificates in reverse alphabetical class
designation as and to the extent described under "Description of the
Certificates--Subordination." Under no circumstances will claims in respect of
a particular Sub-Pool in excess of the sum of the Available Sub-Pool Coverage
Amount and the Excess Coverage Amount, if any, for such Sub-Pool be paid, and
in no event will aggregate claims in respect of both Sub-Pools in excess of
the Available Guaranty Amount be paid.
Limited Nature of Ratings. Any rating assigned by a Rating Agency to a class
of Certificates will reflect its assessment only of the likelihood that
holders of such class of Certificates will receive payments to which such
Certificateholders are entitled under the Pooling and Servicing Agreement. The
ratings assigned to the Certificates 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 from a particular Sub-
Pool is adequate to make payments required on the classes of Certificates
evidencing an interest therein. Such rating will not constitute an assessment
of the likelihood that principal prepayments (including for this purpose both
voluntary prepayments as well as unscheduled collections resulting from
defaults, liquidations and repurchases attributable to breaches of
representations and warranties) of the Mortgage Loans will be made, the degree
to which the rate of such prepayments might differ from that originally
anticipated or the likelihood of early optional termination of the Trust Fund.
Furthermore, such ratings will not address the possibility that (x) prepayment
of the Mortgage Loans at a higher or lower rate than anticipated by an
investor may cause such investor to experience a lower than anticipated yield,
(y) an investor that purchases an Offered Certificate at a significant premium
might fail to recover its initial investment under certain prepayment
scenarios or (z) Basis Risk Shortfalls may reduce the amount available for
distribution on the Sub-Pool II Certificates.
The amount of the Limited Guaranty was determined on the basis of criteria
established by each Rating Agency. The Mortgage Loan Seller believes that
those criteria are based in part upon an analysis of the behavior of mortgage
loans in a larger group. However, there can be no assurance that the
historical data supporting any such analysis will accurately reflect future
experience, or that the data derived from a large pool of mortgage loans will
accurately predict the delinquency, foreclosure or loss experience of the
Mortgage Loans. Such criteria also may be based upon determinations of the
values of the Mortgaged Properties that provide security for the Mortgage
Loans. However, no assurance can be given that those values will not decline
in the future. See "Ratings."
Control. Under certain circumstances, the consent or approval of the FDIC
and the holders of a specified percentage of the aggregate Class Balance or
notional amount (in the case of the Stripped Interest Certificates) of all
outstanding Certificates, in certain cases regardless of the Sub-Pool
evidenced thereby, will be required to direct, and will be sufficient to bind
all Certificateholders to, certain actions, including amending the Pooling and
Servicing Agreement in certain circumstances. See "Description of the
Certificates--Voting Rights" and "Description of the Pooling and Servicing
Agreement--Amendment." In addition, under certain circumstances, the Servicer
is required to obtain the consent of the FDIC before taking certain actions
with respect to the Mortgage Loans. See "Servicing of the Mortgage Loans--
Realization Upon Defaulted Mortgage Loans." In determining whether to consent
to or to approve any particular action, the FDIC is under no obligation to
consider the ramifications of any such determination to Certificateholders
generally or to the holders of Certificates of any particular class.
Book-Entry Registration. Each class of Offered Certificates initially will
be represented by one or more Certificates registered in the name of Cede &
Co., as nominee for DTC. As a result, unless and until
35
<PAGE>
corresponding Definitive Offered Certificates are issued, the Certificate
Owners with respect to each class of Offered Certificates will be able to
exercise the rights of Certificateholders only indirectly through DTC and its
Participants. In addition, the access of Certificate Owners to information
regarding the Offered Certificates in which they hold interests may be
limited. Conveyance of notices and other communications by DTC to its
Participants, and directly and indirectly through such Participants to
Certificate Owners, will be governed by arrangements among them, subject to
any statutory or regulatory requirements as may be in effect from time to
time. Furthermore, as described herein, Certificate Owners may suffer delays
in the receipt of payments on the related class of Offered Certificates, and
the ability of any Certificate Owner to pledge or otherwise take actions with
respect to its interest in the Offered Certificates may be limited due to the
lack of a physical certificate evidencing such interest. See "Description of
the Certificates--Book-Entry Registration and Definitive Certificates."
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Trust Fund will consist primarily of a pool of adjustable and fixed
rate, amortizing and balloon payment mortgage loans and participation
interests in similar loans, each of which is evidenced by a mortgage note
(each, a "Mortgage Note") and secured by a mortgage (each, a "Mortgage") that
creates a first lien or a Junior Lien on a fee simple or leasehold estate in
commercial, multifamily or, in the case of a limited number of Mortgage Loans,
residential real property. Each participation interest included in the Trust
Fund represents a percentage ownership of the related mortgage loan and will
entitle the Trust Fund to receive that percentage of principal and interest
paid on the mortgage loan. The participation interest provides no recourse
against the holder of the Mortgage Note for the benefit of the holder of the
participation in the event there is a default and loss on the related mortgage
loan.
For approximately 10.81% of the Group I Loans and 9.02% of the Group II
Loans, the Trust Fund will hold a "lead" participation interest in the related
mortgage loan. For approximately 10.04% of the Group I Loans and 9.08% of the
Group II Loans, the Trust Fund will hold a non-lead participation interest. In
the case of a non-lead participation interest, none of the Trust, the
Servicer, or the FDIC has the ability to control the relationship between the
holder of the mortgage loan and the related borrower and has limited ability
to control the exercise of remedies in the event of a default or other
mortgage lender decisions.
The Mortgage Loans, in the aggregate, had a Cut-off Date Balance of
approximately $746,873,986. Of the Group I Loans 87.66%, and of the Group II
Loans, 55.14% provide for scheduled payments of principal based on
amortization schedules more than 12 months beyond the remaining terms of such
Mortgage Loans (each such Mortgage Loan, a "Balloon Loan"), thereby leaving
substantial principal amounts due and payable (each such payment, a "Balloon
Payment") on their respective maturity dates, unless prepaid prior thereto. As
of the Information Date, 2.53% of the Group I Loans and 2.57% of the Group II
Loans were in default with respect to the Balloon Payment due on such loans
prior to the Information Date; however, the borrowers continue to make Assumed
Scheduled Payments thereon on a timely basis (any such loan, a "Matured
Performing Mortgage Loan"). The "Assumed Scheduled Payment" with respect to
any Matured Performing Mortgage Loan is equal to the Scheduled Payment due on
such loan on the Due Date immediately prior to the Due Date on which the
Balloon Payment was first due, adjusted, in the case of an ARM Loan, to
reflect adjustments to the Mortgage Rate thereon.
Certain of the Mortgage Loans contain provisions entitling the holder of the
Mortgage Note to demand payment of the entire principal balance thereof prior
to its Maturity Date. The Pooling and Servicing Agreement provides that the
Servicer will not exercise any such option to call the note except in the
event of a payment default thereunder. Certain of the Mortgage Loans contain
provisions prohibiting prepayments during certain
36
<PAGE>
periods, and certain of the Mortgage Loans provide for the payment of
prepayment premiums in connection with certain prepayments. The Servicer does
not intend to enforce prepayment prohibitions or to collect prepayment
premiums.
MORTGAGE LOAN INFORMATION
The information contained in this Prospectus with respect to the Mortgage
Loans is based primarily upon a review of the Mortgage Loan files on behalf of
the Mortgage Loan Seller in contemplation of the issuance of the Certificates
(the "Initial Review"). The Mortgage Loans have not been "re-underwritten" or
subjected to the type of review that would typically be made in respect of
newly originated mortgage loans. However, in contemplation of the issuance of
the Certificates, the Mortgage Loan Seller arranged for (w) the solicitation
of updated operating statements from the borrowers, (x) the appraisal of the
Mortgaged Properties with respect to certain of the Mortgage Loans (the
"Appraisal Process"); (y) the verification of certain information with respect
to the ARM Loans (the "ARM Audit"); and (z) the review of the contents of the
Mortgage Loan files with respect to certain of the Mortgage Loans (the
"Mortgage File Sampling"). See "Risk Factors--The Mortgage Loans--Limited
Information."
Due Diligence Process. The Initial Review was undertaken on behalf of the
Mortgage Loan Seller during the period from October 1, 1993 to November 22,
1996. The Initial Review was limited to a review of the contents of each
Mortgage Loan file, such as the related Mortgage Note, and a comparison of
such information to the related servicing records. The statistical information
included in this Prospectus with respect to the Mortgage Loans is based
primarily upon a database generated in connection with the Initial Review (the
"Initial Database"), modified to reflect the ARM Audit and the Mortgage File
Sampling, in each case to the extent then completed, as described herein.
The Appraisal Process. The Mortgaged Properties, with respect to 542 of the
Mortgage Loans (the "Appraised Loans"), which represent approximately 61.09%
of the Cut-off Date Balance, were the subject of an appraisal process
conducted on behalf of the Mortgage Loan Seller during the period from October
11, 1996 through November 29, 1996 in contemplation of the issuance of the
Certificates or were related to appraisals performed by or on behalf of the
Servicer on or after June 1, 1995 in the course of the Servicer's usual
servicing activity. The Mortgaged Properties were initially selected by the
Mortgage Loan Seller for the appraisal process as described below.
Participation interests were excluded from the appraisal process. The
balance of all Mortgage Loans having a principal balance as of September 15,
1996 in excess of $1,000,000 for which no appraisal had been procured
subsequent to July 1, 1995 were included in the appraisal process.
Additionally, approximately 61.4% of Mortgage Loans having principal balances
ranging between $500,000--$1,000,000, approximately 36.9% of Mortgage Loans
ranging between $250,000--$500,000, and approximately 18.1% of Mortgage Loans
with balances below $250,000 were selected on a random basis for inclusion in
the appraisal process.
During the course of the appraisal process, certain of the Mortgage Loans
originally selected for appraisal were eliminated from the appraisal process
for various reasons, including without limitation, uncooperative borrowers.
Mortgage Loans acquired by the Mortgage Loan Seller after September 1, 1996
were not included in the appraisal process, even if they had principal
balances in excess of $1,000,000.
Each appraisal included in the appraisal process was required to comply with
the then current Uniform Standards of Professional Appraisal Practice as
published by The Appraisal Standards Board of The Appraisal Foundation, was
conducted by a state certified, designated MAI appraiser and reviewed on
behalf of the Mortgage Loan Seller by a state certified, designated SRA
appraiser for consistency and conformity to the appraisal process.
37
<PAGE>
GROUP I LOANS
<TABLE>
<CAPTION>
PRINCIPAL APPRAISED APPRAISED TOTAL
NUMBER OF BALANCE OCT. 1, 1996- JUNE 1, 1995- APPRAISED PERCENT
PRINCIPAL BALANCE RANGE LOANS OF LOANS DEC. 1996 SEPT. 30, 1996 LOANS APPRAISED
- ----------------------- --------- ------------ ------------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Greater than
$1,000,000............. 141 $314,138,459 $227,620,316 $24,057,186 $251,677,502 80.1%
$500,000 to $1,000,000.. 139 97,765,220 44,916,533 12,172,118 57,088,651 58.4
$250,000 to $500,000.... 246 88,501,523 24,559,013 7,920,589 32,479,602 36.7
Less than $250,000...... 730 72,429,182 7,537,652 5,871,644 13,409,296 18.5
----- ------------ ------------ ----------- ------------ ----
Total................... 1,256 $572,834,384 $304,633,515 $50,021,537 $354,655,051 61.9%
===== ============ ============ =========== ============ ====
GROUP II LOANS
<CAPTION>
PRINCIPAL APPRAISED APPRAISED TOTAL
NUMBER OF BALANCE OCT. 1, 1996- JUNE 1, 1995- APPRAISED PERCENT
PRINCIPAL BALANCE RANGE LOANS OF LOANS DEC. 1996 SEPT. 30, 1996 LOANS APPRAISED
- ----------------------- --------- ------------ ------------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Greater than
$1,000,000............. 39 $ 63,697,006 $ 55,206,225 $ 2,552,634 $ 57,758,859 90.7%
$500,000 to $1,000,000.. 46 32,841,919 19,583,502 3,476,451 23,059,953 70.2
$250,000 to $500,000.... 105 37,114,317 10,485,989 3,370,675 13,856,664 37.3
Less than $250,000...... 448 40,386,359 4,674,453 2,295,452 6,969,905 17.3
----- ------------ ------------ ----------- ------------ ----
Total................... 638 $174,039,602 $ 89,950,169 $11,695,212 $101,645,381 58.4%
===== ============ ============ =========== ============ ====
</TABLE>
The ARM Audits. Each ARM Loan has been subject to an audit on behalf of the
Mortgage Loan Seller for the purpose of verifying that all payments previously
made by the applicable borrower were properly paid in accordance with the
terms of such loan. To make such determinations, the actual payment history of
each borrower was compared against a "reconstructed" payment history that
reflected the exact terms of the related ARM Loan during the period for which
such actual payment history was available. The correct Mortgage Rate for each
Mortgage Rate adjustment date was compared with the interest rate actually
used and all payments due were compared with all payments actually made in
respect of each ARM Loan to determine whether the borrower was overcharged or
undercharged.
If it was determined that an overcharge with respect to an ARM Loan
occurred, the applicable borrower was notified by mail as to (a) the amount of
overcharge, (b) the principal balance of such ARM Loan as of the audit date
and (c) the current Mortgage Rate, Index, Gross Margin and next Mortgage Rate
adjustment date. Each letter provided that the outstanding principal balance
of such borrower's ARM Loan would be reduced by the amount of the overcharge,
unless the borrower otherwise requested cash in the amount of the overcharge.
The Mortgage File Sampling. The contents of the files with respect to 95.65%
of the Group I Loans and 95.74% of the Group II Loans have been reviewed on
behalf of the Mortgage Loan Seller. Such review indicated certain material
differences between the information in such files and the corresponding
information in the Modified Database with respect to certain of the Mortgage
Loans. The Mortgage Loan Seller believes that such differences are
attributable primarily to (i) insufficient reliable information, (ii) missing
and non-retrievable documentation in the Mortgage Loan files, (iii) the
potentially disruptive effects of the transfer of servicing two or more times
for each Mortgage Loan from the related Depository Institution to the Servicer
and (iv) modifications to Mortgage Loans following the creation of the Initial
Database. In an attempt to reconcile such differences, the contents of the
files of any Mortgage Loan that may have been modified (determined primarily
by reference to inconsistencies in the databases with respect to Mortgage Rate
for Fixed Rate Loans and Maturity Date) following the creation of the Initial
Database were searched for modification agreements. As a result of such
procedure, the Initial Database was revised to reflect the terms of any
modification agreement so discovered (the Initial Database, as so revised, the
"Final Database").
38
<PAGE>
Although the Mortgage Loan Seller has endeavored to create an accurate Final
Database, because of the factors enumerated above, the Mortgage Loan Seller
believes that the Final Database may contain material inaccuracies with
respect to one or more Mortgage Loans. By making the representations described
under "--Representations and Warranties; Remedies," the risk of material
inaccuracies in the Mortgage Loan Schedule will be borne by the FDIC, to the
extent described in such section. For a description of the remedies applicable
to a breach of any such representation, see "--Representations and Warranties;
Remedies."
Set forth below is certain information with respect to the Group I Loans
(i.e., the Mortgage Loans in Sub-Pool I), and the Group II Loans (i.e., the
Mortgage Loans in Sub-Pool II). In addition, set forth in Annex A and Annex B
to this Prospectus is additional information with respect to the 25 largest
Mortgage Loans in each Sub-Pool.
SUB-POOL I
Sub-Pool I consists exclusively of 1,256 Mortgage Loans (the "Group I
Loans"), which have an aggregate Cut-off Date Balance of $572,834,384 (the
"Cut-off Date Sub-Pool I Balance"). Of the Cut-off Date Sub-Pool I Balance,
$61,921,461 (79 Mortgage Loans) represents ownership of lead participation
interests and $57,506,445 (68 Mortgage Loans) represents ownership of non-lead
participation interests.
Set forth below is certain information with respect to the Mortgage Loans in
Sub-Pool I. Annex A to this Prospectus contains additional information with
respect to the 25 largest Mortgage Loans in Sub-Pool I.
The following table sets forth the Mortgage Rates for the Group I Loans as
of the Information Date.
SUB-POOL I--MORTGAGE RATES FOR GROUP I LOANS AS OF THE INFORMATION DATE
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
GROUP I CUT-OFF SUB-POOL I
RANGE OF MORTGAGE RATES (%) LOANS DATE BALANCE BALANCE
- --------------------------- --------- ------------ ------------
<S> <C> <C> <C>
Less than 5.50.............................. 34 $ 26,224,104 4.58%
5.50- 5.99................................. 1 107,726 0.02
6.00- 6.49................................. 19 9,597,447 1.68
6.50- 6.99................................. 11 8,389,249 1.46
7.00- 7.49................................. 34 21,132,809 3.69
7.50- 7.99................................. 110 57,428,484 10.03
8.00- 8.49................................. 134 77,745,937 13.57
8.50- 8.99................................. 171 88,175,184 15.39
9.00- 9.49................................. 164 92,787,075 16.20
9.50- 9.99................................. 205 117,971,643 20.59
10.00-10.49................................. 179 39,702,283 6.93
10.50-10.99................................. 58 13,625,599 2.38
11.00-11.49................................. 48 10,775,751 1.88
11.50-11.99................................. 27 4,083,472 0.71
12.00-12.49................................. 24 1,844,658 0.32
12.50-12.99................................. 15 1,814,155 0.32
13.00-13.49................................. 8 445,822 0.08
13.50-13.99................................. 5 627,259 0.11
14.00 or greater............................ 9 355,727 0.06
----- ------------ ------
Total....................................... 1,256 $572,834,384 100.00%
===== ============ ======
</TABLE>
Weighted average Mortgage Rate: 8.706% per annum
39
<PAGE>
The following tables set forth information for the Group I Loans that are ARM
Loans.
SUB-POOL I--GROSS MARGINS FOR THE GROUP I ARM LOANS
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
GROUP I CUT-OFF SUB-POOL I
RANGE OF GROSS MARGINS (%) LOANS DATE BALANCE BALANCE
- -------------------------- --------- ------------ ------------
<S> <C> <C> <C>
0.00........................................ 2 $ 681,321 0.12%
0.01-0.99................................... 3 672,213 0.12
1.00-1.99................................... 29 15,837,473 2.76
2.00-2.99................................... 82 23,674,412 4.13
3.00-3.99................................... 29 5,250,486 0.92
4.00+....................................... 15 4,047,474 0.71
Fixed Rate.................................. 1,096 522,671,005 91.24
----- ------------ ------
Total....................................... 1,256 $572,834,384 100.00%
===== ============ ======
</TABLE>
Weighted average Gross Margin: 2.206% per annum
SUB-POOL I--FREQUENCY OF ADJUSTMENTS TO MORTGAGE RATES FOR THE GROUP I ARM
LOANS
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
MORTGAGE RATE ADJUSTMENT GROUP I CUT-OFF SUB-POOL I
FREQUENCY (MONTHS) LOANS DATE BALANCE BALANCE
- ------------------------ --------- ------------ ------------
<S> <C> <C> <C>
1...................... 15 $ 5,700,262 1.00%
3...................... 5 366,997 0.06
6...................... 13 4,658,098 0.81
12...................... 51 12,998,683 2.27
24...................... 1 111,573 0.02
36...................... 8 774,011 0.14
60...................... 4 4,349,084 0.76
Adjusts with an Index... 63 21,204,671 3.70
Fixed Rate.............. 1,096 522,671,005 91.24
----- ------------ ------
Total................... 1,256 $572,834,384 100.00%
===== ============ ======
</TABLE>
SUB-POOL I--MAXIMUM LIFETIME MORTGAGE RATES FOR THE GROUP I ARM LOANS
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
RANGE OF MAXIMUM GROUP I CUT-OFF SUB-POOL I
LIFETIME MORTGAGE RATES (%) LOANS DATE BALANCE BALANCE
- --------------------------- --------- ------------ ------------
<S> <C> <C> <C>
No Maximum Rate........................... 17 $ 9,070,780 1.58%
0.01-11.99............................... 13 5,342,613 0.93
12.00-12.99............................... 15 4,568,174 0.80
13.00-13.99............................... 9 2,872,823 0.50
14.00-14.99............................... 29 11,419,488 1.99
15.00-15.99............................... 26 8,964,559 1.56
16.00-16.99............................... 22 4,209,698 0.73
17.00-17.99............................... 12 1,769,479 0.31
18.00-18.99............................... 3 145,125 0.03
19.00-19.99............................... 4 629,669 0.11
20.00+.................................... 10 1,170,972 0.20
Fixed Rate................................ 1,096 522,671,005 91.24
----- ------------ ------
Total..................................... 1,256 $572,834,384 100.00%
===== ============ ======
</TABLE>
Weighted average maximum lifetime Mortgage Rate*: 14.497% per annum. This
calculation does not include the 1.58% of the Group I Loans without maximum
lifetime Mortgage Rates.
40
<PAGE>
SUB-POOL I--MINIMUM LIFETIME MORTGAGE RATES FOR THE GROUP I ARM LOANS
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
RANGE OF MINIMUM LIFETIME MORTGAGE RATES GROUP I CUT-OFF SUB-POOL I
(%) LOANS DATE BALANCE BALANCE
- ---------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
7.50-7.99................................. 15 $ 5,355,455 0.93%
8.00-8.99................................. 49 15,948,371 2.78
9.00-9.99................................. 39 16,393,195 2.86
10.00+.................................... 57 12,466,359 2.18
Fixed Rate................................ 1,096 522,671,005 91.24
----- ------------ ------
Total..................................... 1,256 $572,834,384 100.00%
===== ============ ======
</TABLE>
Weighted average minimum lifetime Mortgage Rate*: 9.252% per annum
- --------
SUB-POOL I--INDICES FOR THE GROUP I ARM LOANS
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
GROUP I CUT-OFF SUB-POOL I
INDEX LOANS DATE BALANCE BALANCE
- ----- --------- ------------ ------------
<S> <C> <C> <C>
One Year CMT*............................... 15 $ 2,446,872 0.43%
Various Prime Rates......................... 120 35,652,845 6.22
COFI........................................ 11 6,777,898 1.18
Other....................................... 2 215,842 0.04
Three Year CMT*............................. 9 1,155,587 0.20
Five Year CMT*.............................. 3 3,914,334 0.68
Fixed Rate.................................. 1,096 522,671,005 91.24
----- ------------ ------
Total....................................... 1,256 $572,834,384 100.00%
===== ============ ======
</TABLE>
- --------
* Constant Maturity Treasury.
If the respective Index set forth in a particular Mortgage Note becomes
unavailable, and such Mortgage Note provides for no alternative Index, the
Servicer will select The Wall Street Journal Prime Rate as the Index.
The following tables set forth information about all of the Group I Loans.
SUB-POOL I--CUT-OFF DATE BALANCES FOR GROUP I LOANS*
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
GROUP I CUT-OFF SUB-POOL I
RANGE OF CUT-OFF DATE BALANCES ($) LOANS DATE BALANCE BALANCE
- ---------------------------------- --------- ------------- ------------
<S> <C> <C> <C>
250,000.00 or less....................... 730 $ 72,429,182 12.64%
250,000.01- 500,000.00.................. 246 88,501,523 15.45
500,000.01-1,000,000.00.................. 139 97,765,220 17.07
1,000,000.01-2,000,000.00.................. 94 129,198,159 22.55
2,000,000.01-3,000,000.00.................. 23 56,091,039 9.79
3,000,000.01-4,000,000.00.................. 6 21,017,279 3.67
4,000,000.01-5,000,000.00.................. 9 39,061,562 6.82
5,000,000.01 or more....................... 9 68,770,421 12.01
----- ------------- ------
Total...................................... 1,256 $572,834,384 100.00%
===== ============= ======
</TABLE>
Average Cut-off Date Balance: $456,078
- --------
* The Cut-off Date Balance of a Group I Loan may be larger than its original
principal balance as a result of, among other things, a modification.
41
<PAGE>
SUB-POOL I--YEAR OF ORIGINATION OF GROUP I LOANS
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
GROUP I CUT-OFF SUB-POOL I
YEAR LOANS DATE BALANCE BALANCE
- ---- --------- ------------ ------------
<S> <C> <C> <C>
1968........................................ 1 $ 244,381 0.04%
1971........................................ 2 1,825 0.00
1972........................................ 4 198,007 0.03
1973........................................ 7 2,230,465 0.39
1974........................................ 3 1,032,887 0.18
1975........................................ 1 738,225 0.13
1976........................................ 8 2,215,999 0.39
1977........................................ 16 2,151,238 0.38
1978........................................ 17 14,362,792 2.51
1979........................................ 14 1,269,683 0.22
1980........................................ 3 415,727 0.07
1981........................................ 4 488,030 0.09
1982........................................ 5 557,473 0.10
1983........................................ 22 9,831,035 1.72
1984........................................ 36 14,569,289 2.54
1985........................................ 59 12,167,942 2.12
1986........................................ 119 31,160,282 5.44
1987........................................ 133 51,863,806 9.05
1988........................................ 164 67,913,781 11.86
1989........................................ 130 56,249,926 9.82
1990........................................ 106 49,096,030 8.57
1991........................................ 82 42,808,890 7.47
1992........................................ 83 55,799,587 9.74
1993........................................ 113 64,470,238 11.25
1994........................................ 78 52,321,364 9.13
1995........................................ 35 30,700,171 5.36
1996........................................ 10 7,945,097 1.39
Unknown..................................... 1 30,217 0.01
----- ------------ -----
Total....................................... 1,256 $572,834,384 100.0%
===== ============ =====
</TABLE>
SUB-POOL I--SEASONING OF GROUP I LOANS AS OF THE INFORMATION DATE
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
GROUP I CUT-OFF SUB-POOL I
RANGE OF SEASONING (MONTHS) LOANS DATE BALANCE BALANCE
- --------------------------- --------- ------------ ------------
<S> <C> <C> <C>
12 or less................................. 14 $ 18,446,682 3.22%
13- 24.................................... 33 21,345,600 3.73
25- 36.................................... 90 54,833,535 9.57
37- 48.................................... 108 64,742,151 11.30
49- 60.................................... 83 57,543,160 10.05
61- 72.................................... 92 44,593,088 7.78
73- 84.................................... 97 45,361,518 7.92
85- 96.................................... 128 56,423,110 9.85
97-108.................................... 174 77,967,932 13.61
109-120.................................... 140 45,448,575 7.93
121 or more................................ 297 86,129,033 15.04
----- ------------ ------
Total...................................... 1,256 $572,834,384 100.00%
===== ============ ======
</TABLE>
Weighted average seasoning of the Group I Loans: 83.3 months
42
<PAGE>
SUB-POOL I--REMAINING TERM TO SCHEDULED MATURITY OF THE GROUP I LOANS THAT
AREBALLOON LOANS AS OF THE INFORMATION DATE
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
GROUP I CUT-OFF SUB-POOL I
RANGE OF REMAINING TERMS (MONTHS) LOANS DATE BALANCE BALANCE
- --------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
6 or less................................... 26 $ 9,475,220 1.65%
7- 12..................................... 28 17,585,079 3.07
13- 24..................................... 69 34,123,895 5.96
25- 36..................................... 76 55,066,578 9.61
37- 48..................................... 34 24,161,672 4.22
49- 60..................................... 29 16,172,389 2.82
61- 84..................................... 91 60,428,432 10.55
85-120..................................... 474 277,471,277 48.44
121-180..................................... 12 6,343,262 1.11
181-240..................................... 3 1,217,819 0.21
241-360..................................... 1 121,149 0.02
Fully Amortizing Loans...................... 381 56,179,654 9.81
Matured Performing Loans.................... 32 14,487,957 2.53
----- ------------ ------
Total....................................... 1,256 $572,834,384 100.00%
===== ============ ======
</TABLE>
Weighted average remaining term to scheduled maturity (not including Matured
Performing Mortgage Loans or fully amortizing Mortgage Loans): 75.6 months.
SUB-POOL I--REMAINING TERM TO SCHEDULED MATURITY OF GROUP I LOANS THAT ARE
FULLY AMORTIZING GROUP I LOANS AS OF THE INFORMATION DATE
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
GROUP I CUT-OFF SUB-POOL I
RANGE OF REMAINING TERMS (MONTHS) LOANS DATE BALANCE BALANCE
- --------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
6 or less................................... 14 $ 75,569 0.01%
7- 12..................................... 11 182,013 0.03
13- 24..................................... 21 568,001 0.10
25- 36..................................... 39 2,760,469 0.48
37- 48..................................... 16 286,573 0.05
49- 60..................................... 18 1,034,285 0.18
61- 84..................................... 60 10,898,413 1.90
85-120..................................... 115 18,459,332 3.22
121-180..................................... 38 7,417,885 1.29
181-240..................................... 35 11,835,265 2.07
241-360..................................... 14 2,661,848 0.46
Balloon Loans............................... 843 502,166,773 87.66
Matured Performing Loans.................... 32 14,487,957 2.53
----- ------------ ------
Total....................................... 1,256 $572,834,384 100.00%
===== ============ ======
</TABLE>
Weighted average remaining term to scheduled maturity (not including Matured
Performing Mortgage Loans or Balloon Loans): 123.6 months.
43
<PAGE>
SUB-POOL I--CUT-OFF DATE LTV RATIOS FOR APPRAISED GROUP I LOANS*
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
RANGE OF CUT-OFF DATE LOAN-TO-VALUE RATIOS GROUP I CUT-OFF SUB-POOL I
(%) LOANS DATE BALANCE BALANCE
- ------------------------------------------ --------- ------------ ------------
<S> <C> <C> <C>
30.000 or less........................... 27 $ 22,570,384 3.94%
30.001- 40.000........................... 27 30,654,777 5.35
40.001- 50.000........................... 28 28,443,400 4.97
50.001- 60.000........................... 44 39,022,553 6.81
60.001- 70.000........................... 43 37,121,125 6.48
70.001- 75.000........................... 30 29,698,448 5.18
75.001- 80.000........................... 19 14,309,386 2.50
80.001- 90.000........................... 34 34,353,078 6.00
90.001- 95.000........................... 17 15,169,209 2.65
95.001-100.000........................... 11 9,220,147 1.61
100.001-125.000........................... 64 53,700,727 9.37
125.001-150.000........................... 20 20,012,574 3.49
150.001-200.000........................... 18 16,906,368 2.95
200.001-300.000........................... 3 3,309,083 0.58
300.001-400.000........................... 1 163,793 0.03
No Current Appraisal...................... 870 218,179,332 38.09
----- ------------ ------
Total..................................... 1,256 $572,834,384 100.00%
===== ============ ======
</TABLE>
Weighted average Cut-off Date LTV Ratio for Appraised Group I Loans: 79.04%
- --------
* Determined as described on page 54 of this Prospectus.
SUB-POOL I--CURRENT ESTIMATED NET CASH FLOW COVERAGE RATIOS FOR THE GROUP I
LOANS AS OF THE INFORMATION DATE
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT- OFF DATE
RANGE OF ESTIMATED NET CASH FLOW COVERAGE GROUP I CUT-OFF SUB-POOL I
RATIOS LOANS DATE BALANCE BALANCE
- ----------------------------------------- --------- ------------ -------------
<S> <C> <C> <C>
0.80 or less............................. 72 $ 29,699,363 5.18%
0.81-0.90................................ 39 31,938,161 5.58
0.91-1.00................................ 34 20,851,738 3.64
1.01-1.10................................ 39 24,193,989 4.22
1.11-1.20................................ 41 41,156,220 7.18
1.21-1.30................................ 40 25,838,535 4.51
1.31-1.40................................ 42 25,942,479 4.53
1.41-1.50................................ 27 30,086,005 5.25
1.51-1.60................................ 24 15,279,600 2.67
1.61-1.70................................ 14 9,431,553 1.65
1.71-1.80................................ 20 17,917,146 3.13
1.81-1.90................................ 13 11,175,313 1.95
1.91-2.00................................ 14 7,324,917 1.28
2.01+.................................... 148 125,090,543 21.84
Junior Liens............................. 27 9,038,500 1.58
No Current Net Cash Flow Information..... 662 147,870,322 25.81
----- ------------ ------
Total.................................... 1,256 $572,834,384 100.00%
===== ============ ======
</TABLE>
Weighted average Estimated Net Cash Flow Coverage Ratio: 2.13x
44
<PAGE>
The "Estimated Net Cash Flow Coverage Ratio" for any Mortgage Loan that is
secured by a first lien on the related Mortgaged Property is the ratio of
"Estimated Net Cash Flow" of the related Mortgaged Property for a one-year
period to the amount of debt service that will be payable under such Mortgage
Loan for the one-year period following the date of determination, assuming, in
the case of an ARM Loan, no adjustments to the Mortgage Rate or Scheduled
Payments thereon following such date. Estimated Net Cash Flow Coverage Ratios
were not calculated with respect to any Mortgage Loan secured by a Junior
Lien. "Estimated Net Cash Flow" for each appraised Mortgage Loan generally was
estimated by the appraiser based upon an analysis of the condition of the
related Mortgaged Property and of income and expense experiences of comparable
properties identified in the related region or locality. If an operating
statement for the applicable property (i.e., an income and expense statement
with respect to such property) was available to the appraiser, Estimated Net
Cash Flow was determined based upon the income and expense information
included in such statement and adjusted, to the extent deemed necessary by the
appraiser, to reflect property-specific information known to the appraiser as
well as relevant real estate market information (e.g., income and expense
information with respect to comparable properties in the same region or
locality).
For example, the Estimated Net Cash Flow for a particular property may have
been subject to reduction if a significant portion of the income of the
property was attributable to above-market payments pursuant to short term
leases. If an operating statement was not available, Estimated Net Cash Flow
was based upon property-specific information known to the appraiser as well as
relevant real estate market information. In all cases, the appraisals and the
Estimated Net Cash Flows, were reviewed by an independent MAI appraiser. In
any case in which the reviewer determined that the Estimated Net Cash Flow for
a particular property was questionable, the results were returned to the
original appraiser for re-analysis. In general, "Estimated Net Cash Flow" is
an estimate of the revenue derived from the use and operation of a Mortgaged
Property (consisting primarily of rental income), less operating expenses
(such as utilities, administrative expenses, repairs and maintenance,
management fees and advertising) and less fixed expenses (such as insurance
and real estate taxes). "Estimated Net Cash Flow" does not reflect interest
expenses and non-cash items, such as depreciation and amortization, and
generally does not reflect capital expenditures.
There was not sufficient information in the Mortgage Loan files or otherwise
available from the borrowers (such as operating statements, tax returns or
financial statements) to prepare accurately an analysis of property
performance and debt service consistent with a standard measure, such as a
ratio of earnings to fixed charges, calculated in accordance with generally
accepted accounting principles. "Earnings" in the calculation of earnings to
fixed charges is defined generally as pretax income from continuing
operations, including depreciation and amortization, and "fixed charges" in
such calculation is defined generally to include interest and amortization of
debt expense and discount or premium, in each case whether expensed or
capitalized. THE ESTIMATED NET CASH FLOW COVERAGE RATIO WITH RESPECT TO A
PARTICULAR MORTGAGED PROPERTY SHOULD NOT BE CONSIDERED AS EQUIVALENT TO ANY
MEASURE OF PERFORMANCE, SUCH AS A RATIO OF EARNINGS TO FIXED CHARGES,
DETERMINED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, AS AN
INDICATOR OF THE PERFORMANCE OF SUCH PROPERTY OR TO CASH FLOWS GENERATED BY
OPERATING, INVESTING AND FINANCING ACTIVITIES, AS AN INDICATOR OF CASH FLOWS
OR AS A MEASURE OF LIQUIDITY.
There can be no assurance that such information is in any respect indicative
of the ability of the underlying borrowers to make debt service payments on
the particular Mortgage Loans, even with respect to such loans as to which
operating statements were available. There can be no assurance that Estimated
Net Cash Flow with respect to a particular Mortgaged Property reflects any
increases in expenses or decreases in income on such property beyond the
period covered thereby, even if expected. Further, with respect to the
Mortgage Loans as to which operating statements were not available, there can
be no assurance that the Estimated Net Cash Flow Coverage Ratios provided
herein are representative of Estimated Net Cash Flow Coverage Ratios that
would have been calculated from operating statements had they been available
for the related Mortgaged Properties. Finally, although the Mortgage Loan
Seller does not believe that the Mortgage Loans for which no Net Cash Flow
information was obtained as a group will have materially different
characteristics than those Mortgage Loans for which such information was
available (other than principal balances), no assurance can be given to that
effect.
45
<PAGE>
The Group I Loans are secured by Mortgaged Properties located in
approximately 35 different jurisdictions. The following table sets forth the
states in which the Mortgaged Properties relating to the Group I Loans are
located. See "Risk Factors--The Mortgage Loans--Concentration."
SUB-POOL I--GEOGRAPHIC DISTRIBUTION OF GROUP I LOANS
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
GROUP I CUT-OFF SUB-POOL I
STATE LOANS DATE BALANCE BALANCE
- ----- --------- ------------ ------------
<S> <C> <C> <C>
California.................................. 277 $173,167,489 30.23%
Massachusetts............................... 301 101,680,521 17.75
Texas....................................... 213 55,437,379 9.68
Connecticut................................. 131 50,839,222 8.88
New Jersey.................................. 31 31,113,253 5.43
New York.................................... 78 29,181,020 5.09
Florida..................................... 17 21,640,506 3.78
New Hampshire............................... 28 18,341,441 3.20
District of Columbia........................ 17 13,523,618 2.36
Virginia.................................... 16 12,486,498 2.18
Other....................................... 147 65,423,438 11.42
----- ------------ ------
Total....................................... 1,256 $572,834,384 100.00%
===== ============ ======
</TABLE>
- --------
The following table sets forth the property type of the Mortgaged Properties
in Sub-Pool I as of the Information Date. See "Risk Factors--The Mortgage
Loans--Nature of the Mortgaged Properties."
SUB-POOL I--PROPERTY TYPE
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
GROUP I CUT-OFF SUB-POOL I
PROPERTY TYPE LOANS DATE BALANCE BALANCE
- ------------- --------- ------------ ------------
<S> <C> <C> <C>
Retail...................................... 338 $127,423,238 22.24%
Office...................................... 179 94,040,815 16.42
Multifamily................................. 197 89,619,440 15.64
Industrial.................................. 166 86,830,577 15.16
Mixed-Use................................... 192 67,471,465 11.78
Lodging..................................... 43 63,251,470 11.04
Other....................................... 70 32,736,542 5.71
Residential................................. 71 11,460,837 2.00
----- ------------ -----
Total....................................... 1,256 $572,834,384 100.0%
===== ============ =====
</TABLE>
SUB-POOL I--DELINQUENCY STATUS AS OF THE INFORMATION DATE*
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
GROUP I CUT-OFF SUB-POOL I
DAYS PAST DUE LOANS DATE BALANCE BALANCE
- ------------- --------- ------------ ------------
<S> <C> <C> <C>
Current..................................... 991 $467,501,615 81.61%
1-29....................................... 197 78,490,493 13.70
30-59....................................... 68 26,842,276 4.69
----- ------------ -----
Total....................................... 1,256 $572,834,384 100.0%
===== ============ =====
</TABLE>
- --------
* Delinquencies are measured from the stated due date, exclusive of any
applicable grace periods.
46
<PAGE>
SUB-POOL I--HISTORICAL DELINQUENCY STATUS AS OF THE INFORMATION DATE
<TABLE>
<CAPTION>
NUMBER PERCENT OF
OF AGGREGATE CUT-OFF DATE
GROUP I CUT-OFF SUB-POOL I
TIMES 30 DAYS PAST DUE IN THE LAST 12 MONTHS LOANS DATE BALANCE BALANCE
- -------------------------------------------- ------- ------------ ------------
<S> <C> <C> <C>
0........................................... 931 $435,368,857 76.00%
1........................................... 143 65,795,948 11.49
2........................................... 79 44,625,007 7.79
3........................................... 51 16,336,149 2.85
4........................................... 22 4,075,651 0.71
5........................................... 21 3,517,033 0.61
6........................................... 1 541,594 0.09
7........................................... 1 221,909 0.04
8........................................... 3 483,169 0.08
9........................................... 2 1,243,193 0.22
10........................................... 1 466,286 0.08
12........................................... 1 159,589 0.03
----- ------------ ------
Total........................................ 1,256 $572,834,384 100.00%
===== ============ ======
</TABLE>
<TABLE>
<CAPTION>
NUMBER PERCENT OF
OF AGGREGATE CUT-OFF DATE
GROUP I CUT-OFF SUB-POOL I
TIMES 60 DAYS PAST DUE IN THE LAST 12 MONTHS LOANS DATE BALANCE BALANCE
- -------------------------------------------- ------- ------------ ------------
<S> <C> <C> <C>
0............................................ 1,022 $458,107,263 79.97%
1............................................ 108 49,869,548 8.71
2............................................ 31 12,590,640 2.20
3............................................ 34 14,389,796 2.51
4............................................ 34 13,374,877 2.33
5............................................ 6 4,362,228 0.76
6............................................ 10 4,229,587 0.74
7............................................ 4 13,396,848 2.34
8............................................ 5 2,079,869 0.36
9............................................ 2 433,730 0.08
----- ------------ ------
Total........................................ 1,256 $572,834,384 100.00%
===== ============ ======
</TABLE>
SUB-POOL II
Sub-Pool II consists exclusively of 638 ARM Loans (the "Group II Loans"),
which have an aggregate Cut-off Date Balance of approximately $174,039,602
(the "Cut-off Date Sub-Pool II Balance"). Of the Cut-off Date Sub-Pool II
Balance, $15,704,941 (28 Mortgage Loans) represents ownership of lead
participation interests and $15,797,335 (25 Mortgage Loans) represents
ownership of non-lead ownership interests.
The Mortgage Rate on each Group II Loan is subject to adjustment on
specified Due Dates (each such date of adjustment, a "Mortgage Rate Adjustment
Date") by adding or, in certain cases, subtracting, a fixed number of basis
points (a "Gross Margin") to the value of a base index (an "Index") or, in
certain cases, a fraction thereof, subject, in certain cases, to rounding
conventions, in the case of 26.36% of the Group II Loans, to lifetime maximum
and/or minimum Mortgage Rates, and in the case of 15.48% of the Group II
Loans, to periodic maximum and/or minimum Mortgage Rates, as described herein.
47
<PAGE>
The amount of Scheduled Payments on each Group II Loan is subject to
adjustment on specified Due Dates (each such date, a "Payment Adjustment
Date") to an amount that would amortize the outstanding principal balance
thereof over its remaining amortization schedule and to pay interest at the
applicable Mortgage Rate, subject with respect to certain Group II Loans to
payment caps, which limit the amount by which a Scheduled Payment may adjust
on any Payment Adjustment Date. Further, in the case of certain Group II
Loans, the Payment Adjustment Date may occur at different frequencies than the
related Mortgage Rate Adjustment Dates. As a result, and because the
application of payment caps may limit the amount by which the Scheduled
Payments may adjust in respect of certain Mortgage Loans, the amount of a
Scheduled Payment may be more or less than the amount necessary to amortize
the Mortgage Loan principal balance over its then remaining amortization
schedule and to pay interest at the applicable Mortgage Rate. Accordingly
Mortgage Loans may be subject to slower amortization (if the Scheduled Payment
due on a Due Date is sufficient to pay interest accrued to such Due Date at
the applicable Mortgage Rate but is not sufficient to reduce principal in
accordance with the applicable amortization schedule), to negative
amortization (if interest accrued to a Due Date at the applicable Mortgage
Rate is greater than the entire Scheduled Payment due on such Due Date) or to
accelerated amortization (if the Scheduled Payment due on a Due Date is
greater than the amount necessary to pay interest accrued to such Due Date at
the applicable Mortgage Rate and to reduce principal in accordance with the
applicable amortization schedule).
Set forth below is certain information with respect to the Mortgage Loans in
Sub-Pool II. Annex B to this Prospectus contains additional information with
respect to the 25 largest Mortgage Loans in Sub-Pool II.
The following tables set forth information about the Group II Loans as of
the Information Date.
SUB-POOL II--MORTGAGE RATES FOR GROUP II LOANS AS OF THE INFORMATION DATE
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
GROUP II CUT-OFF SUB-POOL II
RANGE OF MORTGAGE RATES (%) LOANS DATE BALANCE BALANCE
- --------------------------- --------- ------------ ------------
<S> <C> <C> <C>
Less than 5.50.............................. 4 $ 2,052,035 1.18%
5.50- 5.99................................. 1 161,235 0.09
6.00- 6.49................................. 7 2,100,937 1.21
6.50- 6.99................................. 5 459,315 0.26
7.00- 7.49................................. 25 8,753,296 5.03
7.50- 7.99................................. 43 12,947,548 7.44
8.00- 8.49................................. 88 22,290,193 12.81
8.50- 8.99................................. 57 20,520,967 11.79
9.00- 9.49................................. 99 27,921,489 16.04
9.50- 9.99................................. 114 37,959,464 21.81
10.00-10.49................................. 107 25,497,472 14.65
10.50-10.99................................. 41 7,427,944 4.27
11.00-11.49................................. 29 2,756,487 1.58
11.50-11.99................................. 7 2,183,836 1.25
12.00-12.49................................. 4 306,767 0.18
12.50-12.99................................. 4 255,617 0.15
14.00 or greater............................ 3 445,002 0.26
--- ------------ ------
Total....................................... 638 $174,039,602 100.00%
=== ============ ======
</TABLE>
Weighted average Mortgage Rate: 9.113% per annum
48
<PAGE>
SUB-POOL II--GROSS MARGINS FOR THE GROUP II LOANS
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
GROUP II CUT-OFF SUB-POOL II
RANGE OF GROSS MARGINS (%) LOANS DATE BALANCE BALANCE
- -------------------------- --------- ------------ ------------
<S> <C> <C> <C>
Less than 0.00.............................. 4 $ 518,188 0.30%
0.00........................................ 111 23,790,434 13.67
0.01-0.99................................... 23 11,088,929 6.37
1.00-1.99................................... 187 61,985,471 35.62
2.00-2.99................................... 191 46,937,155 26.97
3.00-3.99................................... 102 25,199,478 14.48
4.00+....................................... 20 4,519,947 2.60
--- ------------ ------
Total....................................... 638 $174,039,602 100.00%
=== ============ ======
</TABLE>
Weighted average Gross Margin: 1.666% per annum
SUB-POOL II--FREQUENCY OF ADJUSTMENTS TO MORTGAGE RATES FOR THE GROUP II LOANS
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
MORTGAGE RATE ADJUSTMENT GROUP II CUT-OFF SUB-POOL II
FREQUENCY (MONTHS) LOANS DATE BALANCE BALANCE
- ------------------------ --------- ------------ ------------
<S> <C> <C> <C>
1...................... 31 $ 10,705,409 6.15%
3...................... 22 4,586,269 2.64
6...................... 99 25,738,091 14.79
12...................... 171 39,404,001 22.64
24...................... 20 6,029,917 3.46
30...................... 1 84,103 0.05
36...................... 110 18,416,295 10.58
60...................... 24 6,828,263 3.92
Adjusts with an Index... 160 62,247,253 35.77
--- ------------ ------
Total................... 638 $174,039,602 100.00%
=== ============ ======
</TABLE>
SUB-POOL II--MAXIMUM LIFETIME MORTGAGE RATES FOR THE GROUP II LOANS
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
RANGE OF MAXIMUM GROUP II CUT-OFF SUB-POOL II
LIFETIME MORTGAGE RATES (%) LOANS DATE BALANCE BALANCE
- --------------------------- --------- ------------ ------------
<S> <C> <C> <C>
No Maximum Rate........................... 481 $128,649,772 73.92%
0.01-11.99............................... 16 12,949,975 7.44
12.00-12.99............................... 15 7,874,696 4.52
13.00-13.99............................... 7 2,473,008 1.42
14.00-14.99............................... 24 6,372,011 3.66
15.00-15.99............................... 25 5,777,584 3.32
16.00-16.99............................... 27 3,116,411 1.79
17.00-17.99............................... 16 1,794,696 1.03
18.00-18.99............................... 13 2,398,888 1.38
19.00-19.99............................... 5 519,093 0.30
20.00+.................................... 9 2,113,468 1.21
--- ------------ ------
Total..................................... 638 $174,039,602 100.00%
=== ============ ======
</TABLE>
Weighted average maximum lifetime Mortgage Rate*: 13.538% per annum. This
calculation does not include the 73.92% of the Group II Loans without maximum
lifetime Mortgage Rates.
49
<PAGE>
SUB-POOL II--MINIMUM LIFETIME MORTGAGE RATES FOR THE GROUP II LOANS
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
RANGE OF MINIMUM GROUP II CUT-OFF SUB-POOL II
LIFETIME MORTGAGE RATES (%) LOANS DATE BALANCE BALANCE
- --------------------------- --------- ------------ ------------
<S> <C> <C> <C>
No Minimum Rate........................... 593 $159,959,126 91.91%
1.00-1.99................................. 3 170,940 0.10
3.00-3.99................................. 4 686,145 0.39
4.00-4.99................................. 15 5,120,679 2.94
5.00-5.99................................. 11 2,295,530 1.32
6.00-6.99................................. 9 3,154,204 1.81
7.00-7.99................................. 3 2,652,978 1.52
--- ------------ ------
Total..................................... 638 $174,039,602 100.00%
=== ============ ======
</TABLE>
Weighted average minimum lifetime Mortgage Rate*: 5.361% per annum. This
calculation does not include the 91.91% of the Group II Loans without minimum
lifetime Mortgage Rates.
SUB-POOL II--INDICES FOR THE GROUP II LOANS
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
GROUP II CUT-OFF SUB-POOL II
INDEX LOANS DATE BALANCE BALANCE
- ----- --------- ------------ ------------
<S> <C> <C> <C>
One Year CMT*............................... 58 $ 9,354,198 5.37%
Various Prime Rates......................... 424 123,660,499 71.05
COFI........................................ 43 16,006,829 9.20
Other....................................... 51 8,346,070 4.80
Three Year CMT*............................. 43 9,504,233 5.46
Five Year CMT*.............................. 8 3,490,211 2.01
FHLB........................................ 11 3,677,562 2.11
--- ------------ ------
Total....................................... 638 $174,039,602 100.00%
=== ============ ======
</TABLE>
- --------
* Constant Maturity Treasury.
If the respective Index set forth in a particular Mortgage Note becomes
unavailable, and such Mortgage Note provides for no alternative Index, the
Servicer will select The Wall Street Journal Prime Rate as the Index.
SUB-POOL II--CUT-OFF DATE BALANCES FOR THE GROUP II LOANS*
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
RANGE OF CUT- GROUP II CUT-OFF SUB-POOL II
OFF DATE BALANCES ($) LOANS DATE BALANCE BALANCE
- --------------------- --------- ------------ ------------
<S> <C> <C> <C>
250,000.00 or less....................... 448 $40,386,359 23.21%
250,000.01 - 500,000.00................ 105 37,114,317 21.33
500,000.01 - 1,000,000.00................ 46 32,841,919 18.87
1,000,000.01 - 2,000,000.00................ 34 47,756,946 27.44
2,000,000.01 - 3,000,000.00................ 2 4,964,846 2.85
3,000,000.01 - 4,000,000.00................ 2 6,892,521 3.96
4,000,000.01 - 5,000,000.00................ 1 4,082,693 2.35
--- ------------ ------
Total...................................... 638 $174,039,602 100.00%
=== ============ ======
</TABLE>
Average Cut-off Date Balance: $272,789
- --------
* The Cut-off Date Balance of a Mortgage Loan may be larger than its original
principal balance as a result of, among other things, modification or
negative amortization.
50
<PAGE>
SUB-POOL II--YEAR OF ORIGINATION OF GROUP II LOANS
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
GROUP II CUT-OFF SUB-POOL II
YEAR LOANS DATE BALANCE BALANCE
- ---- --------- ------------ ------------
<S> <C> <C> <C>
1975........................................ 1 $ 20,645 0.01%
1977........................................ 2 15,584 0.01
1979........................................ 1 7,954 0.00
1980........................................ 2 373,945 0.21
1981........................................ 5 505,295 0.29
1982........................................ 6 506,345 0.29
1983........................................ 13 1,722,098 0.99
1984........................................ 24 4,577,127 2.63
1985........................................ 59 7,756,350 4.46
1986........................................ 89 18,464,910 10.61
1987........................................ 99 22,690,576 13.04
1988........................................ 105 22,587,289 12.98
1989........................................ 78 29,053,048 16.69
1990........................................ 53 14,256,962 8.19
1991........................................ 36 19,324,132 11.10
1992........................................ 25 10,948,710 6.29
1993........................................ 24 9,708,398 5.58
1994........................................ 13 7,559,166 4.34
1995........................................ 3 3,961,069 2.28
--- ------------ ------
Total....................................... 638 $174,039,602 100.00%
=== ============ ======
</TABLE>
SUB-POOL II--SEASONING OF GROUP II LOANS AS OF THE INFORMATION DATE
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
GROUP II CUT-OFF SUB-POOL II
RANGE OF SEASONING (MONTHS) LOANS DATE BALANCE BALANCE
- --------------------------- --------- ------------ ------------
<S> <C> <C> <C>
12 or less................................. 1 $ 3,141,728 1.81%
13- 24.................................... 2 819,340 0.47
25- 36.................................... 14 9,248,515 5.31
37- 48.................................... 26 9,385,369 5.39
49- 60.................................... 26 10,437,643 6.00
61- 72.................................... 35 19,025,796 10.93
73- 84.................................... 58 21,705,898 12.47
85- 96.................................... 86 24,710,930 14.20
97-108.................................... 102 23,755,734 13.65
109-120.................................... 101 24,155,770 13.88
121 or more................................ 187 27,652,859 15.89
--- ------------ ------
Total...................................... 638 $174,039,602 100.00%
=== ============ ======
</TABLE>
Weighted average seasoning of the Group II Loans: 89.6 months
51
<PAGE>
SUB-POOL II--REMAINING TERM TO SCHEDULED MATURITY OF THE GROUP II LOANS THAT
ARE BALLOON LOANS AS OF THE INFORMATION DATE
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
GROUP II CUT-OFF SUB-POOL II
RANGE OF REMAINING TERMS (MONTHS) LOANS DATE BALANCE BALANCE
- --------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
6 or less................................... 16 $ 6,846,668 3.93%
7- 12..................................... 14 7,459,667 4.29
13- 24..................................... 36 16,276,744 9.35
25- 36..................................... 22 10,674,367 6.13
37- 48..................................... 22 7,450,726 4.28
49- 60..................................... 22 14,090,681 8.10
61- 84..................................... 27 11,283,294 6.48
85-120..................................... 30 18,852,255 10.83
121-180..................................... 6 3,033,106 1.74
Fully Amortizing Loans...................... 424 73,604,679 42.29
Matured Performing Loans.................... 19 4,467,415 2.57
--- ------------ ------
Total....................................... 638 $174,039,602 100.00%
=== ============ ======
</TABLE>
Weighted average remaining term to scheduled maturity (not including Matured
Performing Mortgage Loans or fully amortizing Mortgage Loans): 50.0 months.
SUB-POOL II--REMAINING TERM TO SCHEDULED MATURITY OF GROUP II LOANS THAT ARE
FULLY AMORTIZING GROUP II LOANS AS OF THE INFORMATION DATE
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
GROUP II CUT-OFF SUB-POOL II
RANGE OF REMAINING TERMS (MONTHS) LOANS DATE BALANCE BALANCE
- --------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
6 or less.................................. 8 $ 219,080 0.13%
7- 12.................................... 8 455,217 0.26
13- 24.................................... 9 343,316 0.20
25- 36.................................... 10 343,535 0.20
37- 48.................................... 15 1,191,136 0.68
49- 60.................................... 27 3,450,174 1.98
61- 84.................................... 31 5,616,951 3.23
85-120.................................... 88 9,182,667 5.28
121-180.................................... 98 19,159,258 11.01
181-240.................................... 83 22,109,250 12.70
241-360.................................... 47 11,534,095 6.63
Balloon.................................... 195 95,967,509 55.14
Matured Performing......................... 19 4,467,415 2.57
--- ------------ ------
Total...................................... 638 $174,039,602 100.00%
=== ============ ======
</TABLE>
Weighted average remaining term to scheduled maturity (not including Matured
Performing Mortgage Loans or Balloon Loans): 168.0 months.
52
<PAGE>
The following table sets forth the range of Cut-off Date LTV Ratios of the
Group II Loans. The "Cut-off Date LTV Ratio" for any Mortgage Loan is a
fraction, expressed as a percentage, the numerator of which is the Cut-off
Date Balance thereof, and the denominator of which is the appraised value of
the related Mortgaged Property based on either (i) an appraisal of recent date
prepared in connection with the Appraisal Process or otherwise, or (ii) the
most recent appraisal value dated on or later than June 1, 1995 as reported on
the records of the Servicer or the Due Diligence Contractor, as the case may
be.
SUB-POOL II--CUT-OFF DATE LTV RATIOS FOR APPRAISED GROUP II LOANS
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
RANGE OF CUT-OFF DATE LOAN-TO-VALUE RATIOS GROUP II CUT-OFF SUB-POOL II
(%) LOANS DATE BALANCE BALANCE
- ------------------------------------------ --------- ------------ ------------
<S> <C> <C> <C>
30.000 or less........................... 15 $ 5,810,675 3.34%
30.001- 40.000........................... 17 9,398,930 5.40
40.001- 50.000........................... 15 7,121,188 4.09
50.001- 60.000........................... 11 6,385,576 3.67
60.001- 70.000........................... 12 9,896,834 5.69
70.001- 75.000........................... 6 3,563,468 2.05
75.001- 80.000........................... 7 5,565,471 3.20
80.001- 90.000........................... 14 11,154,779 6.41
90.001- 95.000........................... 8 4,538,849 2.61
95.001-100.000........................... 11 9,906,719 5.69
100.001-125.000........................... 27 18,664,203 10.72
125.001-150.000........................... 7 7,198,668 4.14
150.001-200.000........................... 6 2,440,021 1.40
No Current Appraisal...................... 482 72,394,222 41.60
--- ------------ ------
Total..................................... 638 $174,039,602 100.00%
=== ============ ======
</TABLE>
Weighted average Cut-off Date LTV Ratio for Appraised Group II Loans: 80.91%
SUB-POOL II--ESTIMATED NET CASH FLOW COVERAGE RATIOS* FOR THE APPRAISED GROUP
II LOANS AS OF THE INFORMATION DATE
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
GROUP II CUT-OFF SUB-POOL II
RANGE OF ESTIMATED NET CASH FLOW COVERAGE RATIOS LOANS DATE BALANCE BALANCE
- ------------------------------------------------ --------- ------------ ------------
<S> <C> <C> <C>
0.80 or less...................................... 32 $ 11,592,877 6.66%
0.81-0.90......................................... 17 5,930,580 3.41
0.91-1.00......................................... 8 5,230,250 3.01
1.01-1.10......................................... 15 6,233,645 3.58
1.11-1.20......................................... 26 18,552,492 10.66
1.21-1.30......................................... 11 5,406,236 3.11
1.31-1.40......................................... 13 9,673,370 5.56
1.41-1.50......................................... 9 8,578,357 4.93
1.51-1.60......................................... 7 4,523,146 2.60
1.61-1.70......................................... 13 5,839,972 3.36
1.71-1.80......................................... 5 2,450,998 1.41
1.81-1.90......................................... 3 1,709,772 0.98
1.91-2.00......................................... 2 459,298 0.26
Over 2.00......................................... 57 26,619,469 15.30
Junior Lien....................................... 18 2,663,057 1.53
No Current Net Cash Flow Information.............. 402 58,576,083 33.66
--- ------------ ------
Total............................................. 638 $174,039,602 100.00%
=== ============ ======
</TABLE>
Weighted average Estimated Net Cash Flow Coverage Ratio: 2.12x
- ----------
* Determined as described below.
53
<PAGE>
There can be no assurance that the Estimated Net Cash Flow Coverage Ratios
for the Mortgage Loans are in any respect indicative of the ability of the
underlying borrowers to make debt service payments on the Appraised Loans,
even with respect to such loans as to which operating statements were
available. There can be no assurance that Estimated Net Cash Flow reflects any
increases in expenses or decreases in income beyond the period covered
thereby, even if expected. Further, with respect to the Appraised Loans as to
which operating statements were not available, there can be no assurance that
the Estimated Net Cash Flow Coverage Ratios provided herein are representative
of Estimated Net Cash Flow Coverage Ratios that would have been calculated
from operating statements had they been available for the related Mortgaged
Properties. ESTIMATED NET CASH FLOW WAS NOT CALCULATED IN ACCORDANCE WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. See the discussion under the table
captioned "Sub-Pool I--Current Estimated Net Cash Flow Coverage Ratios for the
Group I Loans as of the Information Date."
The Group II Loans are secured by Mortgaged Properties located in
approximately 29 different jurisdictions. The following table sets forth the
states in which the Mortgaged Properties relating to the Group II Loans are
located. See "Risk Factors--The Mortgage Loans--Concentration."
SUB-POOL II--GEOGRAPHIC DISTRIBUTION OF GROUP II LOANS
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
GROUP II CUT-OFF SUB-POOL II
STATE LOANS DATE BALANCE BALANCE
- ----- --------- ------------ ------------
<S> <C> <C> <C>
California.................................. 118 $ 46,851,860 26.92%
Massachusetts............................... 236 44,177,296 25.38
New York.................................... 36 15,818,074 9.09
Connecticut................................. 64 14,081,140 8.09
Texas....................................... 72 7,681,546 4.41
Missouri.................................... 12 6,996,969 4.02
Virginia.................................... 4 6,762,711 3.89
Nebraska.................................... 2 5,393,037 3.10
New Hampshire............................... 18 4,782,985 2.75
Illinois.................................... 6 4,287,224 2.46
Other....................................... 70 17,206,760 9.89
--- ------------ ------
Total....................................... 638 $174,039,602 100.00%
=== ============ ======
</TABLE>
The following table sets forth the property type of the Mortgaged Properties
in Sub-Pool II as of the Information Date. See "Risk Factors--The Mortgage
Loans--Nature of the Mortgaged Properties."
SUB-POOL II--PROPERTY TYPE
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
GROUP II CUT-OFF SUB-POOL II
PROPERTY TYPE LOANS DATE BALANCE BALANCE
- ------------- --------- ------------ ------------
<S> <C> <C> <C>
Retail...................................... 170 $ 56,717,406 32.59%
Multifamily................................. 103 27,571,937 15.84
Industrial.................................. 97 27,175,832 15.61
Office...................................... 102 25,271,114 14.52
Mixed-Use................................... 75 16,723,337 9.61
Other....................................... 38 6,909,928 3.97
Residential................................. 38 6,846,207 3.93
Lodging..................................... 15 6,823,840 3.92
--- ------------ ------
Total....................................... 638 $174,039,602 100.00%
=== ============ ======
</TABLE>
54
<PAGE>
SUB-POOL II--DELINQUENCY STATUS AS OF THE INFORMATION DATE*
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
GROUP II CUT-OFF DATE SUB-POOL II
DAYS PAST DUE LOANS BALANCE BALANCE
- ------------- --------- ------------ ------------
<S> <C> <C> <C>
Current..................................... 519 $141,936,294 81.55%
1-29....................................... 89 24,325,709 13.98
30-59....................................... 30 7,777,599 4.47
--- ------------ ------
Total....................................... 638 $174,039,602 100.00%
=== ============ ======
</TABLE>
- --------
* Delinquencies are measured from the stated due date, exclusive of any
applicable grace periods.
SUB-POOL II--HISTORICAL DELINQUENCY STATUS AS OF THE INFORMATION DATE
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
GROUP II CUT-OFF DATE SUB-POOL II
TIMES 30 DAYS PAST DUE IN THE LAST 12 MONTHS LOANS BALANCE BALANCE
- -------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
0........................................ 475 $123,684,979 71.07%
1........................................ 73 23,715,920 13.63
2........................................ 36 9,249,439 5.31
3........................................ 23 5,076,409 2.92
4........................................ 12 8,140,311 4.68
5........................................ 8 2,792,273 1.60
6........................................ 3 288,484 0.17
7........................................ 3 333,814 0.19
8........................................ 3 204,118 0.12
9........................................ 1 93,815 0.05
11........................................ 1 460,040 0.26
--- ------------ ------
Total..................................... 638 $174,039,602 100.00%
=== ============ ======
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CUT-OFF DATE
GROUP II CUT-OFF DATE SUB-POOL II
TIMES 60 DAYS PAST DUE IN THE LAST 12 MONTHS LOANS BALANCE BALANCE
- -------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
0........................................ 553 $143,919,631 82.69%
1........................................ 38 12,412,641 7.13
2........................................ 21 6,162,712 3.54
3........................................ 8 4,483,249 2.58
4........................................ 4 1,426,195 0.82
5........................................ 6 384,728 0.22
6........................................ 4 1,591,412 0.91
7........................................ 1 1,212,374 0.70
9........................................ 1 185,543 0.11
10........................................ 2 2,261,116 1.30
--- ------------ ------
Total..................................... 638 $174,039,602 100.00%
=== ============ ======
</TABLE>
55
<PAGE>
LOANS-TO-FACILITATE
General. Approximately 13.41% of the Group I Loans and approximately 2.14%
of the Group II Loans have been originated by the Mortgage Loan Seller, in its
capacity as receiver of one or more Depository Institutions (such Mortgage
Loans, "Loans-to-Facilitate"). The Loans-to-Facilitate program is intended to
assist the Mortgage Loan Seller in its sale of commercial properties that the
Mortgage Loan Seller deems not readily marketable due to a lack of available
commercial financing and for which the Mortgage Loan Seller believes financing
by it will result in a higher net present value to it than other alternatives,
such as a cash sale or a deferral of sale. Loans-to-Facilitate are originated
pursuant to a uniform system of procedures, policies, forms and underwriting
guidelines applicable to its origination of Loans-to-Facilitate (the
"Guidelines"). The program goals include (i) increasing the net present value
of the return to the Mortgage Loan Seller from disposition of the property,
(ii) accelerating the sale of such properties, (iii) achieving consistent
Mortgage Loan Seller financing policies, (iv) delegating to the private sector
underwriting and servicing functions and (v) establishing a clear separation
of underwriting and selling responsibilities to prevent potential conflicts of
interest. Accordingly, the Guidelines may not necessarily correspond to
underwriting standards investors might expect to be applied by traditional
mortgage loan originators.
Underwriting. The Mortgage Loan Seller retains an approved private sector
contract underwriter to evaluate offers made by prospective purchasers for
foreclosed properties who request seller financing. The underwriter makes a
written recommendation as to whether a Loan-to-Facilitate should be made to
assist in the sale of the related property. The ultimate decision, however,
whether to approve the proposed financing is made by the Mortgage Loan Seller.
The underwriter evaluates (i) the adequacy of the property's net operating
income to service the required payment schedule of the proposed mortgage loan
(including "most likely" and "worst case" estimates of projected cash flows)
and (ii) the prior experience of the purchaser with respect to owning and
managing properties similar to the subject property. The underwriting process
concludes with the submission by the underwriter to the Mortgage Loan Seller
of its written recommendation in which the underwriter summarizes the
information obtained during the underwriting process and provides a positive
or negative recommendation as to whether the proposed mortgage loan should be
approved in accordance with the Guidelines. The Mortgage Loan Seller does not
dictate to the underwriter the specific factors that such underwriter should
consider in making its recommendation on whether or not to make the proposed
loan.
The factors assigned the greatest importance by the Mortgage Loan Seller and
its underwriters in evaluating a proposed mortgage loan are discussed below.
Strict compliance with the Guidelines is not necessarily a condition to the
Mortgage Loan Seller's approval of a proposed mortgage loan. In some cases, a
loan is made even with a negative recommendation from the underwriter.
Financing Terms--General. Interest must be paid monthly, without negative
amortization, generally at a fixed rate, determined from time to time by the
Mortgage Loan Seller depending, in part, upon the amount financed. Generally,
the mortgage rate on each mortgage loan is set at 3.00% to 4.00% over the
average yield on U.S. Treasury securities adjusted to a constant maturity of
seven years or ten years, as determined by the Federal Reserve Board and
published in its Statistical Release H.15 (519) under the heading "Treasury
Constant Maturities." Payments must be calculated on a level-payment 30-year
amortization schedule, unless otherwise requested by the borrower and
offsetting factors developed through the underwriting process justify
different terms. Each mortgage loan maturity typically has a stated maturity
of ten years. Certain of the Loans-to-Facilitate provide for payment of
premiums in connection with certain prepayments. Escrows for taxes, reserves
for replacements and hazard insurance premiums are normally funded through
borrower payments. Loans-to-Facilitate are non-recourse, non-assumable and
generally contain due-on-sale and due-on-encumbrance clauses. The Guidelines
establish a minimum cash payment of not less than 25% of the purchase price
for each property.
Supplemental Information. Financial information on the property is obtained
to facilitate an analysis of the projected cash flow of the subject property.
Such financial information is derived from current rent rolls and lease
schedules, current and, if available, historical income and expense statements
for such property, information obtained in appraisal reports and pro forma
operating statements or land development projections provided by
56
<PAGE>
the purchaser. In addition, the underwriter obtains resumes of management
experience and general business of the purchasing entity, and environmental
information with respect to the property. Also, each mortgage loan requires
that the related borrower provide to the Mortgage Loan Seller, on a semi-
annual basis, unaudited financial statements, operating statements, profit and
loss statements and balance sheets with respect to the related property.
Appraisals. Appraisals are generally obtained within 6 to 12 months prior to
the sale of the related property. Information obtained from the appraisal is
considered in connection with the market analysis, net operating income
projections and expense analysis performed by the underwriters with respect to
the subject property.
ASSIGNMENT OF THE MORTGAGE LOANS
Whole Loans and Lead Participation Interests. In connection with the
assignment by the Mortgage Loan Seller of the Mortgage Loans that are whole
loans or lead participation interests to the Trustee for the benefit of the
Certificateholders, the Mortgage Loan Seller will deliver to the Trustee the
following documents with respect to each whole mortgage loan or lead
participation interest (collectively, as to each Mortgage Loan, the "Mortgage
File"):
(i) the original Mortgage Note or a copy thereof, endorsed by the
Mortgage Loan Seller, without recourse, to the order of State Street Bank
and Trust Company, as Trustee for the registered holders of FDIC REMIC
Trust 1996-C1, Commercial Mortgage Pass-Through Certificates, Series 1996-
C1 or a lost note affidavit;
(ii) the original Mortgage or a certified copy thereof, with evidence of
recording indicated thereon;
(iii) originals or certified copies of the related assignment of leases,
rents and profits (the "Assignment of Leases and Rents") and any related
security agreement (if, in either case, such item is a document separate
from the Mortgage), any related UCC Financing Statements (including the
assignments of any such UCC Financing Statements to the Trustee), in each
case with evidence of recording indicated thereon;
(iv) an assignment of the Mortgage and of the related Assignment of
Leases and Rents and any related security agreement, to State Street Bank
and Trust Company, as Trustee for the registered holders of FDIC REMIC
Trust 1996-C1, Commercial Mortgage Pass-Through Certificates, Series 1996-
C1, in recordable form;
(v) an assignment of other documents executed in connection with the
Mortgage Loan and an assignment of any participation agreement or
participation certificate to State Street Bank and Trust Company, as
Trustee for the registered holders of FDIC REMIC Trust 1996-C1, Commercial
Mortgage Pass-Through Certificates, Series 1996-C1;
(vi) originals or certified copies of all assumption, modification and
substitution agreements in those instances where the terms or provisions of
the Mortgage or Mortgage Note have been modified or the Mortgage or
Mortgage Note has been assumed;
(vii) the originals or certificates of a lender's title insurance policy
issued on the date of the origination of such Mortgage Loan together with
each endorsement thereto or, with respect to each Mortgage Loan not covered
by a lender's title insurance policy, an attorney's opinion of title issued
as of the date of origination of such Mortgage Loan given by an attorney
licensed to practice law in the jurisdiction where the related Mortgaged
Property is located; and
(viii) any additional documents required to be added to the Mortgage File
pursuant to the Pooling and Servicing Agreement, including with respect to
a lead participation interest an original or a certified copy of any
related participation agreement or participation certificate.
The Trustee will be required to review each Mortgage File and to certify
pursuant to the Pooling and Servicing Agreement (a) on the Closing Date as to
the receipt by or on behalf of the Trustee of the Mortgage Note for each
Mortgage Loan and participation agreement or participation certificate with
respect to each lead
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participation interest, (b) within 60 days of the Closing Date as to the
receipt by or on behalf of the Trustee of the documents described in clauses
(i) through (viii) of the definition of Mortgage File (the "Interim
Certification") and (c) within one year of the Closing Date as to the receipt
by or on behalf of the Trustee of the documents described in clauses (i)
through (viii) of the definition of Mortgage File to the extent not received
as of the date of the Interim Certification.
The Pooling and Servicing Agreement will require the Mortgage Loan Seller
promptly (and in any event within 45 days of the Closing Date) to cause each
assignment of a Mortgage described above and each assignment of an Assignment
of Leases and Rents described above to be submitted for recording in the real
property records of the jurisdiction in which the related Mortgaged Property
is located except in states where, in the written opinion of local counsel
acceptable to the Mortgage Loan Seller and the Trustee, such recordation is
not required to protect the Trustee's interests in the related Mortgage Loans
against sale, further assignment, satisfaction or discharge by the Mortgage
Loan Seller, the Servicer or any sub-servicers.
Non-lead Participation Interests. The Mortgage Loan Seller will (i) assign
to the Trustee for the benefit of the Certificateholders all its right, title
and interest in each minority participation interest and (ii) deliver to the
Trustee an original or certified copy of the participation certificate or
participation agreement evidencing such non-lead participation interest and
any additional documents required pursuant to the Pooling and Servicing
Agreement (collectively, the "Non-lead Participation File"). The Trustee will
on the Closing Date receipt for (i) an assignment of non-lead participation
interests and (ii) a Non-lead Participation File and be required to review
each Non-lead Participation File and to certify within 60 days of the Closing
Date as to its receipt of the documents required to be included in the Non-
lead Participation File.
Defects. If, in the process of reviewing the Mortgage Files and Non-lead
Participation Files (the "Files"), the Trustee finds any document constituting
a part of a File to have not been properly executed, or to be missing or to be
defective on its face in any material respect (each, a "Defect" in the related
File), the Trustee shall promptly so notify the Servicer, the Mortgage Loan
Seller and the FDIC. The remedies available to the Certificateholders in
connection with a Defect in a File are set forth below Under "--
Representations and Warranties; Remedies."
REPRESENTATIONS AND WARRANTIES; REMEDIES
In the Pooling and Servicing Agreement, the FDIC will represent and warrant
to the Servicer and the Trustee for the benefit of the Certificateholders,
among other things, that:
(A) the information set forth in the Mortgage Loan Schedule and Mortgage
Loan Participation Schedule attached to the Pooling and Servicing Agreement
is correct in all material respects;
(B) immediately prior to their sale and assignment to the Trustee, the
Mortgage Loan Seller was the sole owner and holder of each whole mortgage
loan, each lead participation interest and each non-lead participation
interest (collectively, the "Mortgage Assets"), the Mortgage Loan Seller
has authority to sell each such Mortgage Asset and the Mortgage Loan Seller
is transferring each such Mortgage Asset free and clear of liens;
(C) as to each whole mortgage loan and each mortgage loan underlying a
lead participation interest (i) each is covered by a title insurance policy
and each such policy is in full force and effect, or with respect to each
such mortgage loan not covered by a title insurance policy, there exists an
attorney's opinion of title; (ii) as of the Closing Date, each related
Mortgage constituted a valid first lien (or in the case of certain of the
mortgage loans, a Junior Lien) on the related Mortgaged Property (subject
only to (a) the lien of current real property taxes and assessments not yet
due (and, in the case of a Junior Lien, the applicable senior lien or
liens), (b) covenants, conditions, and restrictions, rights of way,
easements, and other matters of public record as of the date of the
recording of such Mortgage, such exceptions appearing of record and either
being acceptable to mortgage lending institutions generally or specifically
referred to in the related title insurance policy or title opinion and
which do not materially and adversely affect the value of the Mortgaged
Property, and (c) other matters to which like properties are commonly
subject that do not
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materially interfere with the benefits of the security intended to be
provided by the Mortgage); (iii) all taxes and governmental assessments
that became due and owing prior to the Closing Date in respect of the
related Mortgaged Property have been paid or an escrow of funds in an
amount sufficient to cover such payments has been established; (iv) as of
the Closing Date, no related Mortgaged Property is affected by a
Disqualifying Condition (as defined below); and there is no proceeding
pending for the total or partial condemnation of any related Mortgaged
Property; (v) as of the Closing Date, each related Mortgaged Property is
insured by a fire and extended perils insurance policy issued by a
"qualified insurer" (as defined in the Pooling and Servicing Agreement);
(vi) each related Mortgage Note or the related Mortgage contains customary
and enforceable provisions such as to render the rights and remedies of the
holder thereof adequate for the realization against the Mortgaged Property
of the benefits of the security; (vii) with respect to any such mortgage
loan that is secured in whole or in part by the interest of a borrower
under a ground lease of a related Mortgaged Property, among other things,
such ground lease (a) permits the encumbrance of the related Mortgage and
is in full force and effect and (b) has an original term (including any
extension option) which extends not less than ten years beyond the stated
term of the related Mortgage Loan; and (viii) with respect to each such
mortgage loan, the servicing practices used by the related originator and
the related Depository Institution were legal and prudent and met customary
standards utilized by prudent institutional mortgage lenders;
(D) each Mortgage Loan is a "qualified mortgage" in accordance with the
REMIC provisions of the Code and each participation interest is an
ownership interest in one or more mortgage loans secured principally by an
interest in real property, qualified for inclusion in a REMIC;
(E) with respect to any lead participation interest the Servicer is not
required to obtain the consent of any related third-party participant in
order to commence foreclosure proceedings;
(F) each lead and non-lead participation interest (i) was validly issued,
(ii) represents a beneficial ownership of a pro rata interest on a mortgage
loan, (iii) is not subject to redemption otherwise than on payment of the
underlying mortgage loan, (iv) does not entitle the holder to recourse
against the holder of another ownership interest in the underlying mortgage
loan to recover for a loss on the underlying mortgage loan and (v) upon the
insolvency of any related third-party participant, the Trust Fund's
ownership interest therein will not be property of the estate of such
third-party participant; and
(G) with respect to each Mortgage Loan as of the Cut-off Date, all
Scheduled Payments due on or before the Cut-off Date have been made, except
as otherwise indicated on the Mortgage Loan Schedule or the Mortgage Loan
Participation Schedule.
A "Disqualifying Condition" is defined generally as a condition, existing as
a result of, or arising from, the presence of "Hazardous Materials" on a
Mortgaged Property, such that the Mortgage Loan secured by the affected
Mortgaged Property would be ineligible, solely by reason of such condition,
for purchase by FNMA under the relevant provisions of FNMA's Multifamily
Seller/Servicer Guide in effect as of the Closing Date, including a condition
that would constitute a material violation of applicable federal, state or
local law in effect as of the Closing Date.
Upon the discovery or notice of either (x) a breach of any of such
representations or warranties (other than the representations and warranties
described in clause (C)(iv) of the second preceding paragraph with respect to
Disqualifying Conditions), clause (C)(vii) of the second preceding paragraph
(with respect to ground lease terms) and clause (D) of the second preceding
paragraph (with respect to REMIC provisions)) that materially and adversely
affects the interests of the Certificateholders, or (y) a Defect in any File,
and if, as more fully set forth in the Pooling and Servicing Agreement, there
is a connection between any loss incurred and the breached representation or
warranty or Defect, as the case may be, the FDIC will either cure the breach,
indemnify the Trust Fund against loss or, at the FDIC's option, repurchase at
a price generally equal to the outstanding principal balance of such Mortgage
Asset plus accrued interest and certain unreimbursed fees and expenses of the
Servicer (the "Purchase Price") or substitute for the related Mortgage Asset
in the circumstances described below. For purposes of the foregoing, a breach
of any such representation shall conclusively be deemed to materially and
adversely affect the interests of the Certificateholders only if a loss or
expense is incurred with respect to a
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Mortgage Asset. To the extent of any such indemnification payments made by the
FDIC, the FDIC will be subrogated to the rights of the Trust Fund to any
amounts recovered on the related Mortgage Loan in excess of the principal
balance of such Mortgage Loan together with accrued and unpaid interest
thereon at the applicable Mortgage Rate, as described in the Pooling and
Servicing Agreement. In the event that any litigation is commenced in which
facts are alleged that, in the judgment of the FDIC, could constitute a breach
of any of the FDIC's representations and warranties relating to the Mortgage
Loans, the FDIC has reserved the right, under the Pooling and Servicing
Agreement, to conduct the defense of such litigation at its expense.
In the event of a breach of the representation and warranty described in
clause (C)(iv) of the third preceding paragraph (with respect to Disqualifying
Conditions), the FDIC will, at the request of the Servicer, either cure such
Disqualifying Condition within 90 days of the FDIC's receipt of notice of such
request or repurchase or substitute for the affected Mortgage Asset, provided
that (i) the related Mortgage Loan is at least 60 days delinquent and the
Servicer has not completed foreclosure proceedings or accepted a deed in lieu
of foreclosure, (ii) the Servicer has delivered to the FDIC a phase I
environmental site assessment meeting the requirements of the FNMA Multifamily
Seller/Servicer Guide and indicating the presence of a Disqualifying Condition
and (iii) the Servicer shall have provided a written certification to the FDIC
to the effect that it has acted in compliance with the Servicing Standard and
has not, by any action, created, caused or contributed to, a Disqualifying
Condition. In the event of a breach of the representation and warranty
described in clause (C)(vii) of the third preceding paragraph (with respect to
ground lease terms), if such breach would result in the related Mortgage Loan
failing to meet the conditions and requirements for inclusion in a trust set
forth in the Exemption (see "ERISA Considerations") or in the event of a
breach of the representation and warranty described in clause (D) of the third
preceding paragraph (with respect to REMIC provisions), the FDIC will either
cure such breach or repurchase or substitute for the Mortgage Asset within 90
days of discovery of such breach.
The FDIC will also represent and warrant that, as of the Closing Date, it
has no intention to foreclose on the Mortgaged Property securing any Mortgage
Loan and has no knowledge that any Mortgage Loan will not be paid in full.
With respect to any Mortgage Asset as to which the FDIC has breached such
representation and warranty, on or prior to the date on which the Trust Fund
would otherwise acquire the related Mortgaged Property by foreclosure or deed
in lieu of foreclosure, the FDIC will repurchase such Mortgage Asset, unless
in the case of any such loan that is in default on the Closing Date the FDIC
has provided the Trustee with an opinion of counsel that such Mortgaged
Property would qualify as "foreclosure property" within the meaning of Section
860G(a)(8) of the Code. The obligations of the FDIC described above in
connection with representations and warranties constitute the sole remedies
available to the Certificateholders or the Trustee for any such breach
thereof. See "Risk Factors--The Mortgage Loans--Troubled Originators" and "--
Limited Information."
If the FDIC discovers or receives notice of any breach of its
representations or warranties with respect to a Mortgage Asset, the FDIC may,
at its option, rather than make an indemnification payment with respect to, or
repurchase, such Mortgage Asset as provided above, remove such Mortgage Asset
from the related Sub-Pool (each removed Mortgage Asset, a "Deleted Mortgage
Asset") and substitute in its place one or more Mortgage Loans (each
substituted Mortgage Loan, a "Substitute Mortgage Loan"), but only if such
substitution is effected within two years of the Closing Date. Any Substitute
Mortgage Loan will, on the date of substitution, among other things, (i) have
an outstanding principal balance, after deduction of all scheduled payments
due in the month of substitution, of not more than the Scheduled Principal
Balance of the Deleted Mortgage Asset as of the date of substitution (the
obligation of the FDIC in respect of a shortfall resulting from the
substitution of a Mortgage Asset with a smaller principal balance is described
below), (ii)(A) in the case of a Substitute Mortgage Loan that is an ARM Loan,
(1) have the same Index as the Index on the Deleted Mortgage Asset, a LIBOR
Index or The Wall Street Journal Prime Rate, (2) have a Gross Margin not less
than the Gross Margin on the Deleted Mortgage Asset, (3) if applicable, have a
maximum Mortgage Rate and minimum Mortgage Rate not less than the maximum
Mortgage Rate and minimum Mortgage Rate, respectively, on the Deleted Mortgage
Asset, (4) provide for Scheduled Payment adjustments to occur not less
frequently than on the Deleted Mortgage Asset, (5) provide for Mortgage Rate
adjustments to occur not less frequently than on a Deleted Mortgage Asset
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and (6) not permit negative amortization unless the Deleted Mortgage Asset
permits negative amortization and (B) in the case of a Substitute Mortgage
Loan that is a Fixed Rate Loan, have a Mortgage Rate not less than the
Mortgage Rate of the Deleted Mortgage Asset, (iii) have a remaining term to
maturity not later than the earlier of the Deleted Mortgage Asset and the
latest maturity permitted if such Substitute Mortgage Loan were subject to the
modification standards described under "Servicing of the Mortgage Loans--
Modifications, Waivers and Amendments," (iv) comply with all of the
representations and warranties set forth in the Pooling and Servicing
Agreement as of the date of substitution and (v) otherwise be acceptable to
each Rating Agency.
In connection with any substitution, an amount equal to the excess, if any,
of the Purchase Price of the Deleted Mortgage Asset over the outstanding
principal balance of the Substitute Mortgage Loan (after deduction of all
scheduled payments due in the month of substitution), together with one
month's interest at the applicable Mortgage Rate on such balance, will be
delivered by the FDIC to the Servicer for deposit in the applicable Collection
Account and distribution to the holders of Certificates evidencing an interest
in the applicable Sub-Pool on the first Distribution Date following the Due
Period in which the substitution occurred. In the event that one or more
mortgage loans are substituted for one or more Deleted Mortgage Assets, then
the amounts described in clause (i) will be determined on the basis of
aggregate principal balances.
In any case in which the FDIC may select a remedy for a Defect or for a
breach of representation or warranty, it is under no obligation to consider
the ramifications of such selection to Certificateholders generally or to the
holders of Certificates of any particular class.
In addition to the foregoing representations and warranties, the FDIC
covenants that upon receipt of notice of an action to be taken with respect to
a mortgage loan underlying a non-lead participation interest that would be
inconsistent with the continued qualification of the Trust Fund as a REMIC,
the FDIC will repurchase the related non-lead participation interest.
SERVICING OF THE MORTGAGE LOANS
GENERAL
The Servicer will be required to service and administer the Mortgage Loans,
either directly or through sub-servicers, on behalf of the Trustee and in the
best interests of and for the benefit of the FDIC and the Certificateholders
(as determined by the Servicer in its good faith and reasonable judgment,
without taking into account differing payment priorities among the classes of
Certificates), in accordance with applicable law, the terms of the Pooling and
Servicing Agreement, the terms of the respective Mortgage Loans and, to the
extent consistent with the foregoing, in the same manner in which, and with
the same care, prudence and diligence with which it services and administers
commercial mortgage loans for other portfolios, giving due consideration to
the customary and usual standards of practice prudent institutional mortgage
lenders and loan servicers utilize with respect to mortgage loans comparable
to the Mortgage Loans and with respect to transactions similar to that
contemplated by the Pooling and Servicing Agreement, and with the objective of
maximization of the present value of net cash flows generated from the
Mortgage Loans and REO Properties, but without regard to: (i) any relationship
that the Servicer or any affiliate of the Servicer may have with the related
mortgagor; (ii) the ownership of any Certificate by the Servicer or any
affiliate of the Servicer; (iii) the Servicer's obligation to make P&I
Advances and Servicing Advances; (iv) the Servicer's right to receive
compensation for its services under the Pooling and Servicing Agreement or
with respect to any particular transaction; and (v) the ownership or servicing
or management by the Servicer for others of any other mortgage loans or
properties (the "Servicing Standard").
Set forth below, following the subsection captioned "The Servicer," is a
description of certain pertinent provisions of the Pooling and Servicing
Agreement relating to the servicing of the Mortgage Loans. Reference is also
made to the section captioned "Description of the Pooling and Servicing
Agreement" for important information in addition to that set forth herein
regarding the terms and conditions of the Pooling and Servicing Agreement as
they relate to the rights and obligations of the Servicer thereunder.
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THE SERVICER
Banc One Management and Consulting Corporation (the "Servicer") will be
responsible for servicing the Mortgage Loans. The Servicer has been servicing
the Mortgage Loans on behalf of the Mortgage Loan Seller since October 1993.
The Servicer is a wholly-owned subsidiary of BANC ONE CORPORATION. Its
principal executive offices are located at 1717 Main Street, Dallas, Texas
75201. BANC ONE CORPORATION is a bank holding company with bank subsidiaries
in several states, as well as non-bank subsidiaries engaged in mortgage
banking, finance, leasing and other related businesses. BANC ONE CORPORATION's
bank and non-bank subsidiaries engage in lending and related activities in a
substantial part of the United States. To the extent that assets owned,
managed and/or serviced by the Servicer or its affiliates are of a type
similar to the Mortgaged Properties, such assets might, depending upon the
particular circumstances (including, for example, the location of such
assets), compete with Mortgaged Properties for tenants, purchasers, financing
and the like.
As of September 30, 1996 the Servicer was responsible for managing and
servicing a portfolio of approximately 6,361 assets, consisting of mortgage
loans, real estate owned and other assets with a balance in excess of $4.6
billion. Loan concentrations within such portfolio included office buildings,
retail centers, industrial and multifamily projects. Real estate owned assets
under management approximated $29.2 million, with significant concentrations
in multifamily, office buildings and retail centers.
The information set forth in the two preceding paragraphs concerning the
Servicer has been provided by the Servicer, and neither the FDIC, the Mortgage
Loan Seller nor the Trustee makes any representation or warranty as to the
accuracy or completeness of such information. The information set forth above
should not be considered to reflect the credit quality of the Mortgage Loans
or as a basis for assessing the likelihood, amount or severity of losses on
the Mortgage Loans. Such information is included only as an indication of the
experience of the Servicer. There can be no assurance that the default,
delinquency and loss experience of the Servicer will be representative of the
results that may be experienced with respect to the Mortgage Loans.
COLLECTION AND OTHER SERVICING PROCEDURES
The Servicer, directly or through Sub-Servicers, will be required to make
reasonable efforts to collect all payments under the Mortgage Loans, and will
be required to follow such collection procedures as it would follow with
respect to mortgage loans and participation interests if it held such mortgage
loans and participation interests for its own account, provided such
procedures arc consistent with the Servicing Standard.
The Pooling and Servicing Agreement will require the Servicer to establish
and maintain the Collection Account with respect to each Sub-Pool and the REO
Account, as described under "Description of the Pooling and Servicing
Agreement--Accounts." The Servicer will be required to deposit into the
Collection Account for each Sub-Pool all payments received in respect of the
Mortgage Loans in such Sub-Pool including, without limitation, all Scheduled
Payments, all Assumed Scheduled Payments, all proceeds of hazard and any other
insurance policies maintained in respect of each Mortgaged Property securing a
Mortgage Loan in such Sub-Pool (to the extent such proceeds are not applied to
the restoration of the related Mortgaged Property or released to the borrower
in accordance with the normal servicing procedures of the Servicer and the
terms and conditions of the related Mortgage) (collectively, "Insurance
Proceeds") and all other amounts received and retained in connection with the
condemnation or liquidation of defaulted Mortgage Loans in such Sub-Pool by
foreclosure or otherwise (collectively, "Liquidation Proceeds"). With respect
to any Mortgage Loans as to which the Servicer has, directly or through its
own agents or independent contractors, taken over possession and management of
the underlying Mortgaged Property on behalf of the Trust Fund, whether through
foreclosure or deed in lieu of foreclosure, upon abandonment of the Mortgaged
Property by the borrower or otherwise, the Trust Fund's ownership interest in
all payments on or other receipts with respect to such Mortgage Loan or the
related Mortgaged Property (each, an "REO Property") (including, among other
things, rent, all Liquidation Proceeds and Insurance Proceeds) will be
deposited in the REO Account. No later than the business day immediately
preceding each Distribution Date (with respect to each Distribution Date, the
"P&I Advance Date"), the portion
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of the foregoing amounts on deposit in the Collection Account and the REO
Account with respect to the applicable Sub-Pool that constitute the Available
Distribution Amount for such Sub-Pool for such Distribution Date will be
remitted to the Trustee for deposit in the Distribution Account for such Sub-
Pool.
The Pooling and Servicing Agreement also will require the Servicer to
establish and maintain one or more escrow accounts (collectively, the "Escrow
Account") to which the Servicer will be required to deposit amounts received
from each borrower, if required by the terms of the related Mortgage, for the
payment of taxes, assessments, certain hazard and other insurance premiums and
other comparable items. Withdrawals from the Escrow Account may be made to
effect timely payment of taxes, assessments, hazard and certain other
insurance premiums, to refund to borrowers amounts determined to be overages,
to remove amounts deposited therein in error, to pay interest to borrowers on
balances in the Escrow Account, if required, to repair or otherwise protect
the Mortgaged Properties and to clear and terminate such account. The Servicer
will be responsible for the administration of the Escrow Account and will be
entitled to all income on the funds therein not required to be paid to
borrowers under applicable law. If amounts on deposit in the Escrow Account
are insufficient to pay any tax, insurance premium or other similar item when
due, the Servicer will advance such item only to the extent that such advance
will be, in its judgment, reasonably recoverable from the related REO Property
or Mortgage Loan proceeds or payments. The Servicer will be entitled to
reimbursement of any such Servicing Advance in the same manner as a P&I
Advance. See "Description of the Certificates--P&I Advances."
The Servicer, directly or through Sub-Servicers, will also be required to
perform as to the Mortgage Loans various other customary functions of a
servicer of comparable loans, including maintaining escrow or impound
accounts, or otherwise monitoring the timely payment of items customarily
escrowed; attempting to collect delinquent payments; supervising foreclosures;
negotiating modifications; conducting property inspections on a periodic or
other basis; managing (or overseeing the management of) REO Properties; and
maintaining servicing records relating to the Mortgage Loans.
The Servicer is also responsible for calculating adjustments in the Mortgage
Rate and the Scheduled Payment for each ARM Loan and for notifying the related
borrower of such adjustments. If the base index for any ARM Loan is not
published or is otherwise unavailable and the related Mortgage Rate provides
for no alternative Index, then the Servicer will select the highest prime
lending rate as published from time to time in the "Money Rates" section of
The Wall Street Journal ("The Wall Street Journal Prime Rate"). If the
Mortgage Rate or the Scheduled Payment with respect to any ARM Loan is not
properly adjusted following the Cut-off Date by the Servicer pursuant to the
terms of such Mortgage Loan and applicable law, the Servicer is required to
deposit from its own funds in the Collection Account for Sub-Pool II on or
prior to the Due Date of the affected Scheduled Payment, an amount equal to
the excess, if any, of (i) the amount that would have been payable by the
borrower if the Mortgage Rate or Scheduled Payment had been properly adjusted
over (ii) the amount of such improperly adjusted Scheduled Payment, subject to
reimbursement only out of such amounts as are recovered from the borrower in
respect of such excess.
SUB-SERVICERS
The Servicer may delegate its servicing obligations in respect of the
Mortgage Loans serviced thereby to one or more third-party servicers, subject
to certain conditions set forth in the Pooling and Servicing Agreement (each,
a "Sub-Servicer"); provided that the Servicer will remain obligated under the
Pooling and Servicing Agreement. A Sub-Servicer may be an affiliate of the
Servicer. Each sub-servicing agreement between the Servicer and a Sub-Servicer
(a "Sub-Servicing Agreement") will provide that, if for any reason the
Servicer is no longer acting in such capacity, the Trustee or any successor
Servicer may assume the Servicer's rights and obligations under such Sub-
Servicing Agreement. The Servicer will be required to monitor the performance
of Sub-Servicers retained by it and will have the right to remove a Sub-
Servicer retained by it at any time it considers such removal to be in the
best interests of Certificateholders and FDIC.
The Servicer will be solely liable for all fees owed by it to any Sub-
Servicer, irrespective of whether the Servicer's compensation pursuant to the
Pooling and Servicing Agreement is sufficient to pay such fees. Each
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Sub-Servicer will be reimbursed by the Servicer for certain expenditures that
it makes, generally to the same extent the Servicer would be reimbursed under
the Pooling and Servicing Agreement.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation to be paid to the Servicer in respect of its
servicing activities will be the Servicing Fee. The "Servicing Fee" will be
payable monthly on a loan-by-loan basis from amounts received in respect of
interest on each Mortgage Loan and, in the case of an REO Loan, from revenues
generated by the related REO Property, will accrue in accordance with the
terms of the related Mortgage Note at a per annum rate (the "Servicing Fee
Rate") and will be computed on the basis of the same principal amount and for
the same period respecting which any related interest payment on the related
Mortgage Loan, or deemed payable on the REO Loan, is computed. The rate at
which the Servicing Fee is calculated is intended to provide a direct
incentive to the Servicer to minimize the delinquency status of the Mortgage
Pool. As a result, the Servicing Fee Rate will be subject to adjustment on
each Determination Date based upon the percentage of the Mortgage Pool by
aggregate principal balance (exclusive of REO Properties) that is 61 days or
more delinquent (a "Delinquent Mortgage Loan") in respect of Scheduled
Payments as of the Determination Date following the most recently completed
Due Period. Any Matured Performing Mortgage Loan that is not modified within
120 days of its original maturity date (or, in the case of a Balloon Loan that
is a Matured Performing Mortgage Loan as of the Cut-off Date, within 120 days
of the Closing Date) will be deemed to be 61 or more days delinquent for
purposes of determining the Servicing Fee Rate.
The Servicing Fee Rate will be the following annual percentages of the
aggregate principal balance of the Mortgage Assets: (i) 0.17%, if the balance
of Delinquent Mortgage Assets does not equal or exceed 5% of the aggregate
principal balance of all Mortgage Assets, (ii) 0.15%, if the principal balance
of Delinquent Mortgage Assets equals at least 5% but does not exceed 7% of the
aggregate principal balance of all Mortgage Assets and (iii) 0.13%, if the
principal balance of Delinquent Mortgage Assets exceeds 7% of the aggregate
principal balance of all Mortgage Assets.
As further compensation for its servicing activities, the Servicer will also
be entitled to receive (i) a Liquidation Fee in connection with the sale (or
overseeing the sale) to an unaffiliated person of any REO Property or any
Mortgage Asset that has been delinquent for a period specified in the Pooling
and Servicing Agreement, payable out of related sales proceeds, (ii) a
Modification Fee in connection with the modification of a defaulted Mortgage
Loan (or as to which default is reasonably foreseeable) and (iii) in addition
to a Modification Fee, a Resolution Fee in connection with the modification
during the Resolution Period of a defaulted Mortgage Loan (or as to which
default is reasonably foreseeable). The "Liquidation Fee" in respect of any
defaulted Mortgage Loan or REO Property is payable to the Servicer upon
disposition of the Mortgage Loan or REO Property and shall be calculated in
the following manner: in an amount equal to 1.10% of the net sales proceeds
received from the sale of such REO Property or delinquent Mortgage Loan, as
the case may be, if such sale is completed within 12 months from the date on
which the Trust Fund acquired the delinquent Mortgage Loan or REO Property;
provided, however, that if such sale is completed during any subsequent six
month period, then the Liquidation Fee will be decreased by 5% of the
Liquidation Fee applicable in the immediately preceding six month period
subject to a floor of .75%. Any shortfall in net liquidation proceeds,
including a shortfall attributable to payment of the Liquidation Fee, will be
covered by the Limited Guaranty, to the extent of the applicable remaining
coverage available thereunder. The "Modification Fee" earned in connection
with the modification of a Mortgage Loan will be limited to the extent of
collections from the related mortgagor, but in no event will exceed 1% of the
outstanding principal balance of such Mortgage Loan. The "Resolution Fee"
payable in connection with the modification of a Mortgage Loan during the
Resolution Period, in addition to any Modification Fee then payable by the
borrower, will be equal to 1.10% of all amounts collected on such Mortgage
Loan, if such modification is completed within 12 months from the date on
which the Trust Fund acquired the Mortgage Loan; provided, however, that if
such modification is completed during any subsequent six month period, then
the Resolution Fee will be decreased by 5% of the Resolution Fee applicable in
the immediately preceding period subject to a floor of .75%. Any shortfall in
collections resulting from the
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modification of a Mortgage Loan, including a shortfall attributable to payment
of a Resolution Fee, will be covered by the Limited Guaranty, to the extent of
the applicable remaining coverage available thereunder. The "Resolution
Period" with respect to any Mortgage Loan, other than a Matured Performing
Mortgage Loan as of the Cut-off Date, commences either on the 61st day
following its maturity date or on the day the Mortgage Loan becomes 61 days
delinquent.
With respect to any Matured Performing Mortgage Loan as of the Cut-off Date,
no Resolution Fee is payable except with respect to modifications occurring
after the 121st day following the Closing Date.
Additional servicing compensation in the form of assumption fees, late
payment charges, charges for beneficiary statements or demands, amounts
collected for checks returned for insufficient funds and any other fees
collected from borrowers and not expressly payable to another person pursuant
to the Pooling and Servicing Agreement will be retained by the Servicer. The
Servicer will also be entitled to withdraw from the Collection Account, the
Escrow Account and the REO Account, as additional servicing compensation,
interest or other income earned on deposit therein, as provided in the Pooling
and Servicing Agreement.
Subject to its right to be reimbursed for all P&I Advances and Servicing
Advances, the Servicer generally will be required to pay all other expenses
incurred by it in connection with its servicing activities under the Pooling
and Servicing Agreement (including, without limitation, the costs incurred in
connection with the maintenance of a fidelity bond and an errors and omissions
insurance policy with respect to its officers, employees and agents), and will
not be entitled to reimbursement therefor except as expressly provided in the
Pooling and Servicing Agreement. A "Servicing Advance" is any advance by the
Servicer in respect of customary, reasonable and necessary costs and expenses
incurred in connection with the protection and maintenance of the Mortgaged
Properties, including without limitation, advances in respect of property
taxes and insurance premiums, attorneys' and brokers' fees, foreclosure costs,
property maintenance expenses and senior liens. See "Description of the
Pooling and Servicing Agreement--Collection Account." Further, in the event
that the aggregate of the Prepayment Interest Shortfalls are greater than the
aggregate of the Prepayment Interest Excesses in respect of a particular Sub-
Pool for any Distribution Date, the Servicer will be required to deposit into
the Collection Account for such Sub-Pool (such deposit, a "Compensating
Interest Payment"), without any right of reimbursement therefor, an amount
equal to the allocable portion for such Sub-Pool (based upon the net
shortfalls, if any, for each Sub-Pool for such Distribution Date) of the
lesser of (i) the Servicing Fee with respect to both Sub-Pools for the
applicable period and (ii) an amount sufficient to eliminate such net
shortfall.
Compensating Interest Payments will not cover shortfalls in Mortgage Loan
interest accruals that result from any liquidation of a Mortgage Loan that
occurs during a Due Period prior to the related Due Date therein; however,
such shortfalls in respect of a Mortgage Loan in a particular Sub-Pool will be
covered by the Limited Guaranty to the extent of the applicable Available Sub-
Pool Coverage Amount and Excess Coverage Amount, if any. See "Description of
the Certificates--The Limited Guaranty."
MODIFICATIONS, WAIVERS AND AMENDMENTS
The Servicer may agree, subject to the terms and conditions set forth in the
Pooling and Servicing Agreement, INCLUDING WITHOUT LIMITATION THE CONSENT OF
THE FDIC FOR SO LONG AS THE LIMITED GUARANTY IS OUTSTANDING, to modify, waive
or amend any term of any Mortgage Loan in a manner consistent with the
Servicing Standard described herein, provided that such modification, waiver
or amendment will not (i) affect the status of any of the REMICs or cause any
tax to be imposed on the Trust Fund, (ii) affect the amount or timing of any
Scheduled Payment on such Mortgage Loan or (iii) materially impair the
security for the Mortgage Loan or reduce the likelihood of timely payment of
amounts due thereon. The Servicer also may agree, subject to the terms and
conditions set forth in the Pooling and Servicing Agreement, including without
limitation the consent of the FDIC for so long as the Limited Guaranty is
outstanding, to any modification, waiver or amendment that would so affect
payments on, or impair the security for, a Mortgage Loan if, in its reasonable
judgment, a material default on the Mortgage Loan has occurred or a payment
default is reasonably foreseeable; if the Limited Guaranty is no longer
outstanding, the foregoing action requires the consent of the holders of
majority of the outstanding principal amount of the Offered Certificates of
the class in Corresponding Sub-Pool having the lowest alphabetical
designation. In no event, however, may the Servicer extend the maturity date
of such Mortgage Loan to a date (the "Optimal Wind-Down Date") later than the
earliest of (i) one year prior to
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the applicable Final Scheduled Distribution Date, (ii) if such Mortgage Loan
is secured in whole or in part by a Mortgage on a leasehold estate, the date
occurring ten years prior to the termination of such leasehold estate and
(iii) five years following the maturity date of such Mortgage Loan (or, with
respect to a Mortgage Loan that has previously been modified, the earlier of
(x) five years following the previous modification date and (y) the number of
years to the end of its original amortization term). Further, no such
modification shall result in a reduction of the Mortgage Rate on a Mortgage
Loan either by more than 2 percentage points or for a period of more than 2
years. The right of the FDIC (or a class of Certificates, as applicable) to
withhold consent to a proposed modification is applicable only to Mortgage
Loans with Cut-off Date Balances in excess of $400,000 and only to proposed
modifications of provisions other than maturity. Any such right must be
exercised within 10 days of notice of the proposed modification from the
Servicer.
In connection with the extension of the maturity date on any Mortgage Loan,
subject to the sufficiency of net operating income of the related Mortgaged
Property, (i) in the case of a Fixed Rate Loan, the Servicer generally will
set the Mortgage Rate on the extended Fixed Rate Loan at a fixed rate of not
lower than the higher of (a) the weighted average of the Mortgage Rates of the
Mortgage Loans in Sub-Pool I as of the Cut-off Date and (b) the Mortgage Rate
for such Mortgage Loan and (ii) in the case of an ARM Loan, the Servicer
generally will (a) set the floor rate on the extended ARM Loan at not lower
than the higher of (1) the weighted average of the Mortgage Rates of the
Mortgage Loans in Sub-Pool II as of the Cut-off Date and (2) the then current
Mortgage Rate for such Mortgage Loan, (b) require the Mortgage Rate and
corresponding Scheduled Payment to adjust monthly, without negative
amortization; based either on LIBOR or The Wall Street Journal Prime Rate and
(c) require a Gross Margin equal to the Gross Margin of the ARM Loan plus the
shortfall, if any, between the Index value of the ARM Loan and the modified
Index value as of the date of the modification. To the extent that the net
operating income of the related Mortgaged Property (together with such other
sources of payment as the Servicer determines are acceptable therefor) is
sufficient to support Scheduled Payments that will amortize the Mortgage Loan
on a level payment basis to the rescheduled maturity date, the Servicer will
require that Scheduled Payments be made in such amounts. If the Servicer
determines that net operating income will not be so sufficient, the Servicer
will either agree to a schedule of Scheduled Payments that would fully
amortize the Mortgage Loan by the Optimal Wind-Down Date after providing for a
Balloon Payment at the rescheduled maturity date or reduce the Scheduled
Payments to a level that can be supported by net operating income (by reducing
the principal balance of the Mortgage Loan). Shortfalls in net collections on
Mortgage Loans attributable to modifications are covered by the Limited
Guaranty, to the extent described herein under "Description of the
Certificates--The Limited Guaranty."
The Servicer is required to undertake the prompt modification of Matured
Performing Mortgage Loans in accordance with the standards described above and
as more specifically provided in the Pooling and Servicing Agreement. Except
for certain extensions of maturity dates of Mortgage Loans that are Matured
Performing Mortgage Loans as of the Cut-off Date, the Servicer will not agree
to any modification, waiver or amendment of the payment terms of a defaulted
Mortgage Loan or a Mortgage Loan where a payment default is reasonably
foreseeable unless the Servicer has determined that such modification, waiver
or amendment is reasonably likely to produce a greater recovery on a present
value basis than liquidation of the Mortgage Loan.
The Servicer is required to notify the Trustee of any modification, waiver
or amendment of any term of any Mortgage Loan, and must deliver to the
Trustee, for deposit in the related Mortgage File, an original counterpart of
the agreement related to such modification, waiver or amendment, promptly
following the execution thereof. Copies of each agreement whereby any such
modification, waiver or amendment of any term of any Mortgage Loan is effected
are to be available for review during normal business hours at the offices of
the Servicer. See "Description of the Certificates--Reports to
Certificateholders; Certain Available Information."
REALIZATION UPON DEFAULTED MORTGAGE LOANS
If a default on a Mortgage Loan has occurred and is continuing, the
Servicer, on behalf of the Trustee, may at any time 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
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law or otherwise, if such action is consistent with the Servicing Standard.
The Servicer may not, however, acquire title to any Mortgaged Property, have a
receiver of rents appointed with respect to any Mortgaged Property or take any
other action with respect to any Mortgaged Property that would cause the FDIC,
the Mortgage Loan Seller or the Trustee, for the benefit of the
Certificateholders, to be considered to hold title to, to be a "mortgagee-in-
possession" of, or to be an "owner" or an "operator" of, such Mortgaged
Property within the meaning of the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA") or any other
comparable law, unless the Servicer has previously determined, based on a
report prepared by a person who regularly conducts environmental audits, that:
(i) the Mortgaged Property is in compliance with applicable environmental
laws and regulations or, if not, that taking such actions as are necessary
to bring the Mortgaged Property into compliance therewith is reasonably
likely to produce a greater recovery, on a present value basis, than not
taking such actions; and
(ii) there are no circumstances or conditions present at the Mortgaged
Property that have resulted in any contamination for which investigation,
testing, monitoring, containment, clean-up or remediation could be required
under any applicable environmental laws and regulations or, if such
circumstances or conditions are present for which any such action could be
required, taking such actions with respect to the Mortgaged Property is
reasonably likely to produce a greater recovery, on a present value basis,
than not taking such actions. See "Certain Legal Aspects of Mortgage
Loans--Environmental Risks."
The Servicer will be required to notify the FDIC and the Trustee, who will
notify the holders of the Corresponding Certificates, of the Servicer's
intended course of action to effect such compliance and/or respond to such
circumstances, and the Servicer will be permitted to take such proposed action
and acquire title to such Mortgaged Property only if (i) (A) the FDIC, in the
event that amounts remain available under the Limited Guaranty, or (B) in all
other cases, Certificateholders entitled to at least 51% of the Voting Rights
allocable to the Corresponding Certificates and (ii) the Trustee, have not
objected in writing within 30 days of such notification.
If title to any REO Property is acquired by the Trust Fund, the Servicer, on
behalf of the Trust Fund, will be required to sell the REO 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 any of the REMICs
to fail to qualify as such under the Code at any time that any Certificate is
outstanding. Subject to the foregoing, the Servicer generally will be required
to solicit bids for any REO Property so acquired in such a manner as will be
reasonably likely to realize a fair price for such property. If the Trust Fund
acquires title to any REO Property, the Servicer, on behalf of the Trust Fund,
may retain an independent contractor to manage and operate such property. The
retention of an independent contractor, however, will not relieve the Servicer
of its obligation to manage such REO Property in a manner consistent with the
Servicing Standard.
To the extent that the amount of coverage available under the Limited
Guaranty has been exhausted, and 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 together
with the aggregate of amounts reimbursable to the Servicer and the FDIC with
respect to such Mortgage Loan, the applicable Sub-Pool will realize a loss in
the amount of such shortfall. Such shortfall will be allocated among the
various Corresponding classes of Certificates as described herein under
"Description of the Certificates--Subordination." See "Description of the
Certificates--The Limited Guaranty."
A borrower's failure to make required Scheduled Payments may mean that
operating income is insufficient to service the mortgage debt, or may reflect
the diversion of that income from the servicing of the mortgage debt. In
addition, a borrower that is unable to make Scheduled Payments also may be
unable to make timely payment of taxes and insurance premiums and to otherwise
maintain the related Mortgaged Property. In general, the Servicer will be
required to monitor any Mortgage Loan that is in default, evaluate whether the
causes of the default can be corrected over a reasonable period without
significant impairment of the value of the related
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Mortgaged Property, initiate corrective action in cooperation with the
borrower if cure is likely, inspect the related Mortgaged Property and take
such other actions as are consistent with the Servicing Standard. A
significant period of time may elapse before the Servicer is able to assess
the success of any such corrective action or the need for additional
initiatives.
The time within which the Servicer can make the initial determination of
appropriate action, evaluate the success of corrective action, develop
additional initiatives, institute foreclosure proceedings and actually
foreclose (or accept a deed to a Mortgaged Property in lieu of foreclosure) on
behalf of the holders of the Corresponding Certificates may vary considerably
depending on the particular Mortgage Loan, the Mortgaged Property, the
borrower, the presence of an acceptable party to assume the Mortgage Loan and
the laws of the jurisdiction in which the Mortgaged Property is located. If a
borrower files a bankruptcy petition, the Servicer may not be permitted to
accelerate the maturity of the related Mortgage Loan or to foreclose on the
related Mortgaged Property for a considerable period of time, and such
Mortgage Loan may be restructured in the resulting bankruptcy proceedings. See
"Certain Legal Aspects of Mortgage Loans--Bankruptcy Laws."
HAZARD INSURANCE POLICIES
The Pooling and Servicing Agreement requires the Servicer to maintain or
cause each borrower to maintain, to the extent permitted by the related
Mortgage Loan, a fire and other hazard insurance policy that provides for such
coverage in an amount (less a reasonable deductible) equal to the lesser of
the principal balance owing on such Mortgage Loan and the replacement cost of
the related Mortgaged Property. All amounts collected by a Servicer under any
such policy (except for amounts to be applied to the restoration or repair of
the Mortgaged Property or released to the borrower in accordance with the
Servicer's normal servicing procedures and/or to the terms and conditions of
the related Mortgage and Mortgage Note) will be deposited in the Collection
Account for the applicable Sub-Pool. The Pooling and Servicing Agreement
provides that the Servicer may satisfy its obligation to cause each borrower
to maintain such a fire and other hazard insurance policy by maintaining a
blanket policy insuring against fire and other hazard losses on all of the
Mortgage Loans.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies covering the Mortgaged Properties are underwritten by
different insurers under different state laws in accordance with different
applicable state forms, and therefore will not contain identical terms and
conditions, most such policies typically do not cover any physical damage
resulting from war, revolution, governmental actions, floods and other water-
related causes, earth movement (including earthquakes, landslides and
mudflows), wet or dry rot, vermin, domestic animals and certain other kinds of
risks. Accordingly, a Mortgaged Property may not be insured for losses arising
from any such cause unless the related Mortgage specifically requires, or
permits the holder thereof to require, such coverage.
Hazard insurance policies typically contain co-insurance clauses that in
effect require an 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 clauses generally provide that the insurer's liability in the event of
partial loss does not exceed the lesser of (i) the replacement cost of the
improvements less physical depreciation and (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.
In addition, to the extent required by the related Mortgage, the Servicer
may require the borrower to maintain other forms of insurance including, but
not limited to, loss of rents endorsements, business interruption insurance
and comprehensive public liability insurance, and the Pooling and Servicing
Agreement requires the Servicer to maintain public liability insurance with
respect to any REO Properties as the Servicer determines in accordance with
the Servicing Standard to be in the best interests of the Certificateholders
and the FDIC. Any cost incurred by the Servicer in maintaining any such
insurance policy will be added to the amount owing under
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the Mortgage Loan where the terms of the Mortgage Loan so permit; provided,
however, that the addition of any such cost will not be taken into account for
purposes of calculating the distributions to be made to Certificateholders.
Such costs may be recovered by the Servicer as a Servicing Advance.
The Limited Guaranty will cover losses and other shortfalls attributable to
credit defaults on the Mortgage Loans in a particular Sub-Pool to the extent
of the applicable Available Sub-Pool Coverage Amount and the Excess Coverage
Amount, if any. No pool insurance policy, special hazard insurance policy,
bankruptcy bond, repurchase bond or certificate guarantee insurance will be
maintained with respect to the Mortgage Loans.
FIDELITY BONDS AND ERRORS AND OMISSIONS INSURANCE
The Pooling and Servicing Agreement requires the Servicer to obtain and
maintain in effect a fidelity bond or similar form of insurance coverage
(which may provide blanket coverage) or any combination thereof insuring
against loss occasioned by fraud, theft, or other intentional misconduct of
the officers, employees and agents of the Servicer. The Pooling and Servicing
Agreement allows the Servicer to self-insure against loss occasioned by the
errors and omissions of the officers, employees and agents of the Servicer; so
long as certain criteria set forth in the Pooling and Servicing Agreement are
met.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the Mortgage Loans contain a due-on-sale clause that entitles the
mortgagee to accelerate payment of the Mortgage Loan upon any sale or other
transfer of the related Mortgaged Property made without the mortgagee's
consent. Certain of the Mortgage Loans also contain a due-on-encumbrance
clause that entitles the mortgagee to accelerate the maturity of the Mortgage
Loan upon the creation of any other lien or encumbrance upon the Mortgaged
Property. The Servicer will determine whether to exercise any right the
Trustee may have under any such provision in a manner consistent with the
Servicing Standard. The 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--Due-on-Sale and Due-on-Encumbrance."
INSPECTIONS; COLLECTION OF OPERATING INFORMATION
The Servicer is required to perform a physical inspection of each Mortgaged
Property at such times and in such manner as are consistent with the Servicing
Standard, but in any event (i)(A) at least annually for each related Mortgage
Loan with an outstanding principal balance equal to at least $1,000,000 and
(B) at least bi-annually for each related Mortgage Loan with an outstanding
principal balance equal to at least $200,000 but less than $1,000,000 and (ii)
if any Scheduled Payment (other than any Balloon Payment due with respect to a
Matured Performing Mortgage Loan prior to the modification thereof) for such
Mortgage Loan becomes more than 60 days delinquent on the related Mortgage
Loan, as soon as practicable thereafter. The Servicer will be required to
prepare a written report of each such inspection describing the condition of
the Mortgaged Property and specifying the existence of any material vacancies
in the Mortgaged Property, of any sale, transfer or abandonment of the
Mortgaged Property, of any material change in the condition of the Mortgaged
Property, or of any material waste committed thereon.
The Pooling and Servicing Agreement also requires the Servicer to make
reasonable efforts to collect promptly from each borrower the annual operating
statements of the related Mortgaged Property to the extent permitted under the
terms of the related Mortgage Loan. The Pooling and Servicing Agreement
further requires the Servicer to (i) review all such items as may be
collected, (ii) prepare written reports based on such reviews identifying debt
service coverages for the Mortgage Loans and any extraordinary increases or
decreases in expenses or revenues associated with the related Mortgaged
Properties and (iii) deliver copies of such written reports to the Trustee.
However, there can be no assurance that any Mortgage Loans require the
delivery of operating statements, or that any operating statements required to
be delivered will in fact be delivered, nor is the Servicer likely to have any
practical means of compelling such delivery in the case of an otherwise
performing Mortgage Loan.
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Copies of the most recent inspection reports and operating statements
referred to above are to be available for review by Certificateholders during
normal business hours at the offices of the Trustee. See "Description of the
Certificates--Reports to Certificateholders; Certain Available Information."
EVENTS OF DEFAULT
Events of Default under the Pooling and Servicing Agreement will include (i)
any failure by the Servicer to remit to the Trustee for distribution to the
holders of the Certificates any amount required to be so distributed or
remitted under the terms of the Pooling and Servicing Agreement; (ii) any
failure by the Servicer duly to observe or perform in any material respect any
of its other covenants or obligations under the Pooling and Servicing
Agreement, which failure continues unremedied for 30 days after written notice
thereof has been given to the Servicer by the Trustee, the FDIC or the
Mortgage Loan Seller, or to the Servicer, the FDIC, the Mortgage Loan Seller
and the Trustee by the holders of the Certificates entitled to not less than
25% of the Voting Rights of any class affected thereby; (iii) any breach of a
representation or warranty made by the Servicer under the Pooling and
Servicing Agreement that materially and adversely affects the interests of the
holders of the Certificates or the FDIC and that continues unremedied for 30
days after written notice of such breach has been given to the Servicer by the
Trustee, the FDIC or the Mortgage Loan Seller, or to the Servicer, the FDIC,
the Mortgage Loan Seller and the Trustee by the holders of the Certificates
evidencing not less than 25% of the Voting Rights of any class affected
thereby; and (iv) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities, or similar proceedings in respect of or
relating to the Servicer and certain actions by or on behalf of the Servicer
indicating its insolvency or inability to pay its obligations.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default remains unremedied under the Pooling and
Servicing Agreement, the Trustee, the FDIC (for so long as the Limited
Guarantee remains outstanding) or holders of Certificates evidencing not less
than 25% of the aggregate outstanding principal amount of the Certificates may
terminate all of the rights and obligations of the Servicer as Servicer under
the Pooling and Servicing Agreement with respect to the Mortgage Pool and in
and to the Mortgage Loans and the proceeds thereof (other than its right to
recovery of other expenses and amounts advanced pursuant to the terms of the
Pooling and Servicing Agreement, which rights the Servicer will retain under
all circumstances). Upon such termination, the Trustee will succeed to all of
the responsibilities, duties and liabilities of the Servicer under the Pooling
and Servicing Agreement with respect to the Mortgage Pool (except that if the
Trustee is prohibited by law from obligating itself to make regarding
delinquent mortgage loans, then the Trustee will not be obligated to make such
advances) and will be entitled to similar compensation arrangements. In the
event that the Trustee is unwilling or unable so to act, it may or, at the
written request of the FDIC or the holders of Certificates entitled to at
least 51% of the Voting Rights, it shall appoint, or petition a court of
competent jurisdiction for the appointment of, a successor servicer. Such
successor servicer shall (i) be acceptable to the FDIC, the Mortgage Loan
Seller and the Trustee based upon its financial and commercial loan servicing
abilities and (ii) be available and be willing to service the Mortgage Loans
under the terms and conditions set forth in the Pooling and Servicing
Agreement, and each Rating Agency shall have confirmed that the rating on each
class of Certificates immediately prior to the succession will not be
qualified, downgraded or withdrawn as a result of such succession. Pending
such appointment, the Trustee is obligated to act in such capacity. The
Trustee and any such successor may agree upon the servicing compensation to be
paid, which in no event may be greater than the compensation payable to the
Servicer under the Pooling and Servicing Agreement.
The FDIC or holders of Certificates representing at least 66% of the Voting
Rights evidenced by all classes of Certificates affected by any Event of
Default will be entitled to waive such Event of Default; provided, however,
that an Event of Default described in clause (i) under "--Events of Default"
may be waived only by all of the holders of the Certificates. Upon any such
waiver of an Event of Default, such Event of Default shall cease to exist and
shall be deemed to have been remedied for every purpose under the Pooling and
Servicing Agreement.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
Only the Sub-Pool I Certificates and the Sub-Pool II Certificates
(collectively, "Offered Certificates") are offered hereby. The Certificates
(including the Stripped Interest Certificates and the Class R Certificates)
will be issued pursuant to a Pooling and Servicing Agreement, to be dated as
of the Cut-off Date, by and among the Mortgage Loan Seller, the FDIC, the
Servicer and the Trustee (the "Pooling and Servicing Agreement"), and will
represent in the aggregate the entire beneficial ownership interest in a Trust
Fund consisting of: (i) the Mortgage Loans and all payments under and proceeds
of the Mortgage Loans received after the Cut-off Date (exclusive of payments
of principal and interest due on or before the Cut-off Date); (ii) any
Mortgaged Property acquired on behalf of the Trust Fund through foreclosure,
deed in lieu of foreclosure or otherwise (upon acquisition, an "REO
Property"); (iii) such funds or assets as from time to time are deposited in
the Collection Accounts; and (iv) the rights of the mortgagee under all
insurance policies with respect to the Mortgage Loans. In addition, on each
Distribution Date, (x) the Sub-Pool I Certificates will have the benefit of
the obligation of the FDIC to draw from the Bank Insurance Fund amounts then
payable under the Limited Guaranty in respect of losses on the Mortgage Loans
in Sub-Pool I and (y) the Sub-Pool II Certificates will have the benefit of
the obligation of the FDIC to draw from the Bank Insurance Fund amounts then
payable under the Limited Guaranty in respect of (i) losses on the Mortgage
Loans in Sub-Pool II and (ii) Basis Risk Shortfalls. Such obligations of the
FDIC are limited in scope as described herein and are not backed by the full
faith and credit of the United States of America. See "--Distributions--Sub-
Pool II Certificates--Basis Risk," "--The Limited Guaranty" and "The Bank
Insurance Fund."
The Certificates will consist of ten classes, to be designated as the Class
I-A Certificates, the Class I-B Certificates, the Class I-C Certificates and
the Class I-D Certificates (collectively, the "Sub-Pool I Certificates"), the
Class II-A Certificates, the Class II-B Certificates and the Class II-C
Certificates (collectively, the "Sub-Pool II Certificates"), the Class I-XS
Certificates and the Class II-XS Certificates (collectively, the "Stripped
Interest Certificates") and the Class R Certificates. The Class I-XS
Certificates, which evidence an interest solely in Sub-Pool I, the Class II-XS
Certificates, which evidence an interest solely in Sub-Pool II, and the Class
R Certificates are not offered hereby. The Class I-XS Certificates and Class
II-XS Certificates will be delivered on the Closing Date to the FDIC as
partial consideration for the Limited Guaranty. The Class R Certificates may
at the option of the Mortgage Loan Seller be issued in two classes (each
corresponding to a residual interest in a particular REMIC), and will be
delivered to one or more Depository Institutions on the Closing Date.
Each class of Sub-Pool I Certificates with a later alphabetical designation
is subordinate to each class of Sub-Pool I Certificates with a prior
alphabetical designation. Each class of Sub-Pool II Certficates with a later
alphabetical designation is subordinate to each class of Sub-Pool II
Certificates with a prior alphabetical designation. The Certificates of any
class evidencing an interest in a particular Sub-Pool are neither senior nor
subordinate to the Certificates of any class evidencing an interest in the
other Sub-Pool. Shortfalls in collections on the Mortgage Loans in a
particular Sub-Pool will not be offset by any portion of the collections on
the Mortgage Loans in the other Sub-Pool.
The initial Class Balance of each class of Offered Certificates is set forth
on the cover page of this Prospectus. The Class Balance of each class of
Certificates evidencing an interest in a particular Sub-Pool outstanding at
any time represents the maximum amount that the holders thereof are entitled
to receive as distributions allocable to principal from the cash flow on the
Mortgage Loans in such Sub-Pool and other assets in the Trust Fund. As more
specifically described herein, the Class Balance of each class of Offered
Certificates will be reduced on each Distribution Date to the extent of any
distributions of principal of such class on such Distribution Date. The
Stripped Interest Certificates have no Class Balances and are not entitled to
receive any distributions allocable to principal except with respect to
deferred interest arising from negative amortization of Mortgage Loans.
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The Offered Certificates will be issued in book-entry form in the authorized
denominations for each class specified in the cover page of this Prospectus.
The Trustee will make such distributions with respect to the Offered
Certificates as set forth below.
The ERISA-Restricted Certificates are subject to certain restrictions on the
transfer of such Certificates to Plans. See "ERISA Considerations."
DISTRIBUTIONS
Method, Timing and Amount. Distributions on the Certificates will be made by
the Trustee, to the extent of available funds, on the 25th day of each month
or, if such 25th day is not a business day, then on the next succeeding
business day, commencing in January, 1997 (each, a "Distribution Date").
Distributions on the Sub-Pool I Certificates and on the Class I-XS
Certificates will be based solely on the Group I Loans, and distributions on
the Sub-Pool II Certificates and on the Class II-XS Certificates will be based
solely on the Group II Loans.
The "Due Period" for each Distribution Date commences on the second day of
the calendar month preceding the month in which such Distribution Date occurs
(or in the case of the first Distribution Date, the period that begins on the
day following the Cut-off Date) and ends on the first day of the month in
which such Distribution Date occurs. The "Prepayment Period" for each
Distribution Date commences on the sixteenth day of the calendar month
preceding the month in which such Distribution Date occurs (or in the case of
the first Distribution Date, the period that begins on the day following the
Cut-off Date) and ends on the fifteenth day of the month in which such
Distribution Date occurs. The "Determination Date" for each Distribution Date
is the 15th day of the month in which such Distribution Date occurs or, if
such 15th day is not a business day, then the next preceding business day.
All payments with respect to a Distribution Date will be made to the persons
in whose names the Certificates are registered at the close of business on the
Record Date, which will be the last day of the preceding calendar month with
respect to the Sub-Pool I Certificates, and the 24th day of the calendar month
in which such Distribution Date occurs with respect to the Sub-Pool II
Certificates. However, if any class of Sub-Pool II Certificates is no longer
maintained on the book-entry records of DTC, the record date with respect to
such class will be the last day of the month preceding the month in which the
related Distribution Date occurs. All distributions made with respect to a
class of Certificates will be allocated pro rata among the outstanding
Certificates of such class based on their respective Percentage Interests. The
"Percentage Interest" evidenced by any Offered Certificate is equal to the
initial denomination thereof as of the Closing Date, divided by the initial
Class Balance of the class to which it belongs.
For purposes hereof, any class of Certificates or any Certificate evidencing
an interest in a particular Sub-Pool, including the class of Stripped Interest
Certificates evidencing an interest in such Sub-Pool, is sometimes herein
referred to as a "Corresponding" class or a "Corresponding" Certificate,
respectively, with respect to such Sub-Pool or to the other classes of
Certificates evidencing an interest in such Sub-Pool.
Interest Distribution Calculations. The "Distributable Interest" in respect
of any class of Offered Certificates evidencing an interest in a particular
Sub-Pool for any Distribution Date will equal the Accrued Interest for such
class, reduced (to not less than zero) by the allocable share for such class
of Certificates (in each case, calculated as described herein) of (x) any
Deferred Interest for such Distribution Date allocable to the Sub-Pool to the
extent it exceeds the amount due on the Corresponding Stripped Interest
Certificates, (y) in the case of the Sub-Pool II Certificates, any unfunded
Basis Risk Shortfall for such Distribution Date and (z) for the Certificates
evidencing an interest in a particular Sub-Pool, including the Corresponding
Stripped Interest Certificates, any Net Aggregate Prepayment Interest
Shortfall for such Sub-Pool allocable to such Class. The amount, if any, of
Distributable Interest for a class of Certificates that is not distributed to
such class on a particular Distribution Date (otherwise than pursuant to
clauses (x), (y) and (z) above) will be carried forward for payment on
subsequent Distribution Dates, without interest thereon, to the extent of
available funds.
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The "Accrued Interest" in respect of each class of Offered Certificates for
each Distribution Date is equal to interest at the applicable Pass-Through
Rate accrued during the applicable Accrual Period on the Class Balance (or, in
the case of the Stripped Interest Certificates, the Notional Amount) of such
class of Certificates immediately prior to such Distribution Date. The
"Notional Amount" of the Stripped Interest Certificates evidencing an interest
in a particular Sub-Pool at the time of any determination is equal to the
aggregate of the Class Balances of the Corresponding classes of Certificates
then outstanding.
The "Accrual Period" for each Distribution Date with respect to each class
of Sub-Pool I Certificates and the Class I-XS Certificates will be the
calendar month immediately preceding such Distribution Date and with respect
to Sub-Pool II Certificates and Class II-XS will be the period from the
previous Distribution Date (or the Closing Date in the case of the first
Distribution Date) through the day preceding such Distribution Date.
Distributable Interest will be calculated for each class of Certificates on
the basis of a 360-day year consisting of twelve 30-day months.
The "Deferred Interest" for any Distribution Date is equal to the aggregate
negative amortization in respect of the Mortgage Loans in a Sub-Pool for the
related Due Period, which will be allocated among the classes of Certificates
first to the Corresponding Stripped Interest Certificates and then to the
other Corresponding classes in reverse alphabetical order by (i) decreasing
the Distributable Interest payable in respect of each such class on such
Distribution Date and (ii) in the case of a Stripped Interest Certificate,
crediting it with deferred interest, and in the case of other classes,
increasing the Class Balance of each such class by a like amount.
The "Net Aggregate Prepayment Interest Shortfall" for any Sub-Pool and any
Distribution Date will be the amount, if any, by which (a) the aggregate of
any Prepayment Interest Shortfalls in respect of such Sub-Pool for such
Distribution Date exceeds (b) the sum of (i) the aggregate of any Prepayment
Interest Excesses in respect of such Sub-Pool collected during the related Due
Period and (ii) the allocable portion for such Sub-Pool of any Compensating
Interest Payment made by the Servicer with respect to such Distribution Date.
A "Prepayment Interest Shortfall" for any Distribution Date is the shortfall
in interest collected in connection with a prepayment of a Mortgage Loan in
whole or in part prior to its Due Date in the related Due Period, to the
extent such prepayment is not accompanied by interest accrued through such Due
Date. A "Prepayment Interest Excess" for any Distribution Date is the excess
in interest collected in connection with a prepayment of a Mortgage Loan in
whole or in part following its Due Date in the related Due Period, to the
extent such prepayment is accompanied by interest accrued through such date of
prepayment. As to any Distribution Date, to the extent Prepayment Interest
Excesses for all Mortgage Loans in a particular Sub-Pool are greater than
Prepayment Interest Shortfalls in such Sub-Pool, such excess will be
compensation to the Servicer and will not be a part of the Available
Distribution Amount for such Sub-Pool for such Distribution Date. The Net
Aggregate Prepayment Interest Shortfall for a particular Sub-Pool and any
Distribution Date will be allocated to the Corresponding classes of
Certificates, first to the Corresponding Stripped Interest Certificates and
then to the other Corresponding classes in reverse alphabetical order.
The "Weighted Average Effective Net Mortgage Rate" of a Sub-Pool on any
Distribution Date is the weighted average of the applicable Effective Net
Mortgage Rates for the Mortgage Loans in such Sub-Pool, weighted on the basis
of their respective Stated Principal Balances immediately prior to such
Distribution Date. For purposes of calculating the Weighted Average Effective
Net Mortgage Rate for any Distribution Date, the applicable "Effective Net
Mortgage Rate" for any Distribution Date for each Mortgage Loan (other than a
Discounted Mortgage Loan) is an annualized rate equal to the Mortgage Rate in
effect for such Mortgage Loan as of the commencement of the related Due
Period, (a) reduced by the rate at which the servicing and trust
administrative fees accrued for the applicable period (the Mortgage Rate, as
so reduced, the "Net Mortgage Rate"), and (b) if the accrual of interest on
any Mortgage Loan is computed other than on the basis of a 360-day year
consisting of twelve 30-day months (which is the basis of accrual for interest
on the Certificates), then adjusted to reflect that difference in computation.
The applicable "Effective Net Mortgage Rate" for a Discounted Mortgage Loan is
% per annum, adjusted, if applicable, as described in clause (b) of the
preceding sentence.
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Principal Distribution Calculations. The "Distributable Principal" for each
Distribution Date for a particular Sub-Pool will equal the aggregate of the
following amounts with respect to the Mortgage Loans in such Sub-Pool: (i) all
Scheduled Principal Payments and (ii) all Principal Prepayments.
"Scheduled Principal Payments" means the sum of (i) all principal payments
required to be made under the terms of the related Mortgage Loan credited to
the Trust Fund and (ii) all non-scheduled payments of principal on the related
Mortgage Loan credited to the Trust Fund after the date that is one year prior
to the maturity date of that Mortgage Loan.
"Principal Prepayments" means all non-scheduled payments of principal on the
related Mortgage Loan credited to the Trust Fund before the date that is one
year prior to the maturity date of that Mortgage Loan.
Certain Calculations with Respect to Individual Mortgage Loans. The "Stated
Principal Balance" of each Mortgage Loan (upon which are based, among other
things, the Weighted Average Effective Net Mortgage Rate calculations)
outstanding at any time represents the principal balance of such Mortgage Loan
ultimately due and payable to the Certificateholders. The Stated Principal
Balance of each Mortgage Loan will initially equal the Cut-off Date Balance
thereof (or, in the case of a Discounted Mortgage Loan, the present value of
such balance, discounted as described below) and, on each Distribution Date,
will be increased by any negative amortization for such date and will be
reduced by the portion of the Distributable Principal for such date
attributable to such Mortgage Loan. The Stated Principal Balance of a Mortgage
Loan may also be reduced in connection with a Deficient Valuation resulting
from any bankruptcy or similar proceeding. See "Certain Legal Aspects of
Mortgage Loans--Foreclosure" and "--Bankruptcy Laws."
As referred to herein, the "Scheduled Principal Balance" of a Mortgage Loan
(other than a Discounted Mortgage Loan) with respect to any Determination Date
is equal to the principal balance of such Mortgage Loan as of the Due Date of
such Mortgage Loan occurring in the Due Period relating to such Determination
Date, after giving effect to (a) any principal prepayments or other
unscheduled recoveries of principal and any Balloon Payments received during
or prior to the related Prepayment Period, (b) any negative amortization added
to the principal balance of such Mortgage Loan on or before such Due Date, (c)
any payment in respect of principal due on or before such Due Date (other than
a Balloon Payment, but including the principal portion of any Assumed
Scheduled Payment, if applicable), irrespective of any delinquency in payment
by the borrower, and (d) any adjustment resulting from a Deficient Valuation
or in connection with a Debt Service Reduction resulting from any bankruptcy
or similar proceeding. The Scheduled Principal Balance of any Fixed Rate Loan
that has a Net Mortgage Rate lower than the Pass-Through Rate on the Class I-D
Certificates is equal to the present value of the future Scheduled Payments
due thereon, net of servicing and trust administrative fees, discounted
monthly at % per annum (i.e., the highest Pass-Through Rate on any class of
Sub-Pool I Certificates), and the principal portion of each Scheduled Payment
due thereon will be similarly discounted (any such Mortgage Loan, a
"Discounted Mortgage Loan"), as calculated by the Servicer and reported to the
Trustee.
For purposes of calculating distributions on the Certificates, as well as
the amount of servicing fees and trust administrative fees payable each month,
each REO Property will be treated as if there exists with respect thereto an
outstanding mortgage loan (an "REO Loan"), and all references to "Mortgage
Loan," "Mortgage Loans," "Mortgage Pool" and "Sub-Pool" herein, when used in
such context, will be deemed to also be references to or to also include, as
the case may be, any "REO Loans." Each REO Loan will generally be deemed to
have the same characteristics as its actual predecessor Mortgage Loan,
including the same adjustable or fixed Mortgage Rate (and, accordingly, the
same Net Mortgage Rate and Effective Net Mortgage Rate) and the same unpaid
principal balance and Stated Principal Balance. Amounts due on such
predecessor Mortgage Loan, including any portion thereof payable or
reimbursable to the Servicer, will continue to be "due" in respect of the REO
Loan; and amounts received in respect of the related REO Property, net of
payments to be made, or reimbursement to the Servicer for payments previously
advanced, in connection with the operation and
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management of such property, generally will be applied by the Servicer as if
received on the predecessor Mortgage Loan. However, notwithstanding the terms
of the predecessor Mortgage Loan, the Scheduled Payment "due" on an REO Loan
will in all cases, for so long as the related Mortgaged Property is part of
the Trust Fund, equal scheduled interest thereon at the applicable Mortgage
Rate.
Available Distribution Amount. The aggregate amount available for
distribution to holders of Certificates evidencing interests in a particular
Sub-Pool on each Distribution Date (the "Available Distribution Amount" for
such Sub-Pool) will, in general, equal the sum of the following amounts:
(a) the total amount of all cash received on the Mortgage Loans and any
REO Properties that is on deposit in the Collection Account for such Sub-
Pool as of the close of business on the related Determination Date,
exclusive of:
(i) all scheduled payments of interest and principal in respect of
such Sub-Pool collected but due on a Due Date subsequent to the related
Due Period,
(ii) all non-scheduled payments of principal in respect of such Sub-
Pool received subsequent to the related Prepayment Period, and
(iii) all amounts in the Collection Account for such Sub-Pool that
are due or reimbursable to any person (including, without limitation,
the Servicer, the Trustee, the Mortgage Loan Seller or the FDIC) other
than the Certificateholders;
(b) all P&I Advances in respect of such Sub-Pool made by the Servicer
with respect to such Distribution Date;
(c) any Compensating Interest Payment in respect of such Sub-Pool made by
the Servicer to cover Prepayment Interest Shortfalls for such Distribution
Date; and
(d) all amounts in respect of such Sub-Pool paid pursuant to the Limited
Guaranty for such Distribution Date.
Sub-Pool I Certificates--Priority. On each Distribution Date, for so long as
the Sub-Pool I Certificates and the Class I-XS Certificates are outstanding,
the Trustee will apply amounts on deposit in the Collection Account for Sub-
Pool I, to the extent of the Available Distribution Amount for Sub-Pool I, in
the following order of priority:
(i) to distributions of interest on the Class I-A Certificates, in an
amount equal to all Distributable Interest in respect of the Class I-A
Certificates for such Distribution Date, together with any portion thereof
remaining unpaid from previous Distribution Dates;
(ii) to distributions of principal of the Class I-A Certificates, in an
amount equal to the lesser of (x) the Class Balance of the Class I-A
Certificates outstanding immediately prior to such Distribution Date and
(y) the Distributable Principal for such Distribution Date allocable to
Class I-A as described herein;
(iii) to distributions of interest on the Class I-B Certificates, in an
amount equal to all Distributable Interest in respect of the Class I-B
Certificates for such Distribution Date, together with any portion thereof
remaining unpaid from previous Distribution Dates;
(iv) to distributions of principal of the Class I-B Certificates, in an
amount equal to the lesser of (x) the Class Balance of the Class I-B
Certificates outstanding immediately prior to such Distribution Date and
(y) Distributable Principal for such Distribution Date allocable to Class
I-B as described herein;
(v) to distributions of interest on the Class I-C Certificates, in an
amount equal to all Distributable Interest in respect of the Class I-C
Certificates for such Distribution Date, together with any portion thereof
remaining unpaid from previous Distribution Dates;
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(vi) to distributions of principal of the Class I-C Certificates, in an
amount equal to the lesser of (x) the Class Balance of the Class I-C
Certificates outstanding immediately prior to such Distribution Date and
(y) Distributable Principal for such Distribution Date allocable to Class
I-C as described herein;
(vii) to distributions of interest on the Class I-D Certificates, in an
amount equal to all Distributable Interest in respect of the Class I-D
Certificates for such Distribution Date, together with any portion thereof
remaining unpaid from previous Distribution Dates;
(viii) to distributions of principal of the Class I-D Certificates, in an
amount equal to the lesser of (x) the Class Balance of the Class I-D
Certificates outstanding immediately prior to such Distribution Date and
(y) Distributable Principal for such Distribution Date allocable to Class
I-D as described herein; and
(ix) to distributions of interest (including any deferred interest) on
the Class I-XS Certificates, in an amount equal to all Distributable
Interest in respect of the Class I-XS Certificates for such Distribution
Date, together with any portion thereof remaining unpaid from previous
Distribution Dates.
On each Distribution Date, any portion of the Available Distribution Amount
for Sub-Pool I remaining after all distributions in respect of Distributable
Interest and Distributable Principal to the Corresponding classes of
Certificates are made and after payment of certain expenses will be
distributed to the holders of the Class R Certificates.
Sub-Pool I Certificates--Pass-Through Rates. The Pass-Through Rate for each
Distribution Date will be fixed at % per annum in the case of the Class I-A
Certificates, % per annum in the case of the Class I-B Certificates, % per
annum in the case of the Class I-C Certificates, and % per annum in the case
of the Class I-D Certificates. The Pass-Through Rate on the Class I-XS
Certificates will be subject to adjustment on each Distribution Date based on
the excess, if any, of the Weighted Average Effective Net Mortgage Rate of
Sub-Pool I over the weighted average of the Pass-Through Rates on the Sub-Pool
I Certificates. The Pass-Through Rate for the Class I-XS Certificates on the
first Distribution Date will be % per annum.
Sub-Pool II Certificates--Priority. On each Distribution Date, for so long
as the Sub-Pool II Certificates and the Class II-XS Certificates are
outstanding, the Trustee will apply amounts on deposit in the Collection
Account for Sub-Pool II, to the extent of the Available Distribution Amount
for Sub-Pool II, in the following order of priority:
(i) to distributions of interest on the Class II-A Certificates, in an
amount equal to all Distributable Interest in respect of the Class II-A
Certificates for such Distribution Date, together with any portion thereof
remaining unpaid from previous Distribution Dates;
(ii) to distributions of principal of the Class II-A Certificates, in an
amount equal to the lesser of (x) the Class Balance of the Class II-A
Certificates outstanding immediately prior to such Distribution Date and
(y) the Distributable Principal for such Distribution Date allocable to
Class II-A as described herein;
(iii) to distributions of interest on the Class II-B Certificates, in an
amount equal to all Distributable Interest in respect of the Class II-B
Certificates for such Distribution Date, together with any portion thereof
remaining unpaid from previous Distribution Dates;
(iv) to distributions of principal of the Class II-B Certificates, in an
amount equal to the lesser of (x) the Class Balance of the Class II-B
Certificates outstanding immediately prior to such Distribution Date and
(y) Distributable Principal for such Distribution Date allocable to Class
II-B as described herein;
(v) to distributions of interest on the Class II-C Certificates, in an
amount equal to all Distributable Interest in respect of the Class II-C
Certificates for such Distribution Date, together with any portion thereof
remaining unpaid from previous Distribution Dates;
(vi) to distributions of principal of the Class II-C Certificates, in an
amount equal to the lesser of (x) the Class Balance of the Class II-C
Certificates outstanding immediately prior to such Distribution Date and
(y) Distributable Principal for such Distribution Date allocable to Class
II-C as described herein; and
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(vii) to distributions of interest (including deferred interest) on the
Class II-XS Certificates, in an amount equal to all Distributable Interest
in respect of the Class II-XS Certificates for such Distribution Date,
together with any portion thereof remaining unpaid from previous
Distribution Dates.
On any Distribution Date on which there is a Basis Risk Shortfall, the
Trustee will distribute the lesser of such shortfall and the Basis Risk
Support Amount for such Distribution Date among the various classes of Sub-
Pool II Certificates that have Pass-Through Rates on such Distribution Date in
excess of the Weighted Average Effective Net Mortgage Rate of Sub-Pool II for
such Distribution Date, as described herein under "--Sub-Pool II
Certificates--Basis Risk." On each Distribution Date, any portion of the
Available Distribution Amount for Sub-Pool II remaining after all
distributions in respect of Distributable Interest and Distributable Principal
to the Corresponding classes of Certificates are made and after payment of
certain expenses will be distributed to the holders of the Class R
Certificates.
Sub-Pool II Certificates--Pass-Through Rates. The Pass-Through Rate on each
class of Sub-Pool II Certificates for each Distribution Date will be subject
to adjustment to equal the sum of LIBOR and the Applicable Margin, as set
forth below:
<TABLE>
<CAPTION>
CLASS APPLICABLE MARGIN
----- -----------------
<C> <S>
II-A
II-B
II-C
</TABLE>
provided, however, that in the event that the Pass-Through Rate on one or more
classes of Sub-Pool II Certificates exceeds the Weighted Average Effective Net
Mortgage Rate of Sub-Pool II for such Distribution Date, payment of interest
at the Pass-Through Rate on such class or classes of Sub-Pool II Certificates
will be reduced to the extent that the Basis Risk Support Amount, if any, for
such Distribution Date is insufficient to make up such shortfall and subject
to the amount available under the Limited Guaranty. Any such shortfall on any
Distribution Date will be allocated among such class or classes of Sub-Pool II
Certificates as described herein, and will not be carried forward for payment
in the future. See "--Sub-Pool II Certificates--Basis Risk."
The Pass-Through Rate on the Class II-XS Certificates will be subject to
adjustment on each Distribution Date based on the excess, if any, of the
Weighted Average Effective Net Mortgage Rate of Sub-Pool II over the weighted
average of the Component Reference Rates on the Sub-Pool II Certificates. The
"Component Reference Rate" for a class of Sub-Pool II Certificates on any
Distribution Date is equal to the lesser of the Weighted Average Effective Net
Mortgage Rate of Sub-Pool II on such Distribution Date and the Pass-Through
Rate for such class on such Distribution Date.
For purposes of determining the Pass-Through Rates on the Sub-Pool II
Certificates for any Distribution Date, "LIBOR" shall be obtained by the
Trustee by obtaining the quoted offered rate for one-month United States
dollar deposits with lending banks in the London interbank market that appears
as of 11:00 a.m. (London time) on the display page designated as page 3750 on
the Telerate monitor on the LIBOR Business Day prior to the immediately
preceding Distribution Date (each such date, a "LIBOR Adjustment Date") or, in
the case of the first Distribution Date, as of the LIBOR Business Day
preceding the Closing Date. "LIBOR Business Day" means a day on which banks
are open for dealing in foreign currency and exchange in London and New York
City.
The establishment of LIBOR by the Trustee on any LIBOR Adjustment Date, and
the Trustee's calculation of the rates applicable to the Sub-Pool II
Certificates for the related Distribution Date (in the absence of manifest
error) will be final and binding. Each such rate of interest may be obtained
by telephoning the Trustee at (617) 664-5500.
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Sub-Pool II Certificates--Basis Risk. Payment of interest at the Pass-
Through Rate on any class of Sub-Pool II Certificates may be dependent upon,
among other things, the Pass-Through Rate for such class being less than or
equal to the Weighted Average Effective Net Mortgage Rate of Sub-Pool II. The
Pass-Through Rate of the Sub-Pool II Certificates of each class is based upon
the value of LIBOR plus the Applicable Margin, which may be different from the
value of the Indices upon which the Mortgage Rates of the ARM Loans are based
(either as a result of the use of a different Index, Mortgage Rate
determination date, Mortgage Rate adjustment date or maximum lifetime Mortgage
Rate). In particular, the Pass-Through Rates of the Sub-Pool II Certificates
adjust monthly, while the Mortgage Rates of the ARM Loans in many cases adjust
less frequently (generally at six-month, twelve-month, three-year or five-year
intervals). In addition, LIBOR and the Indices applicable to the ARM Loans may
respond to different economic and market factors, and there is no necessary
correspondence between them. Thus, it is possible, for example, that LIBOR may
rise during periods in which one or more of the Indices are stable or are
falling or that, even if both LIBOR and the Indices rose during the same
period, LIBOR may rise much more rapidly than the Indices. Consequently, the
Weighted Average Effective Net Mortgage Rate of Sub-Pool I may not equal or
exceed the Pass-Through Rate on one or more classes of the Sub-Pool II
Certificates.
Any shortfall in accrued interest at the Weighted Average Effective Net
Mortgage Rate of Sub-Pool II in relation to accrued interest at the Pass-
Through Rate on one or more classes of Sub-Pool II Certificates on any
Distribution Date is referred to herein as a "Basis Risk Shortfall." To the
extent not offset by the Basis Risk Support Amount, Basis Risk Shortfalls on
any Distribution Date will be allocated among such classes of Sub-Pool II
Certificates having Pass-Through Rates then in excess of the Weighted Average
Effective Net Mortgage Rate of Sub-Pool II, pro rata, based on the applicable
shortfall for each such class, which for any such class on any Distribution
Date is equal to interest accrued on such class for such Distribution Date at
a rate equal to the excess of the Pass-Through Rate thereon over the Weighted
Average Effective Net Mortgage Rate of Sub-Pool II.
The Basis Risk Support Amount on any Distribution Date is limited solely to
Distributable Interest on both classes of the Stripped Interest Certificates
for such Distribution Date. Basis Risk Shortfalls in excess of the Basis Risk
Support Amount (or the amount then available under the Limited Guaranty) on
any Distribution Date will not be paid to Certficateholders. The effect of
this provision is to make available to the Sub-Pool II Certificates in the
event of a Basis Risk Shortfall (x) the full amount of interest accrued at the
Weighted Average Effective Net Mortgage Rate of Sub-Pool II, including the
full amount of Distributable Interest on the Class II-XS Certificates on such
Distribution Date, and (y) the full amount of Distributable Interest on the
Class I-XS Certificates on such Distribution Date, in each case not by
reducing Distributable Interest on the Stripped Interest Certificates but by
drawing on the Limited Guaranty to the extent of the Basis Risk Support
Amount. Any Unfunded Basis Risk Shortfall will not be carried forward for
payment in the future.
As described above, a Basis Risk Shortfall will result on any Distribution
Date with respect to any class or classes of Sub-Pool II Certificates as to
which the Pass-Through Rate then exceeds the Weighted Average Effective Net
Mortgage Rate of Sub-Pool II. Because the classes of Sub-Pool II Certificates
having lower alphabetical class designations (i.e., the more subordinate
classes) will have higher Pass-Through Rates than the classes of Sub-Pool II
Certificates having higher alphabetical class designations (i.e., the more
senior classes), it is relatively more likely that the Pass-Through Rates of
the more junior classes will exceed the Weighted Average Effective Net
Mortgage Rate of Sub-Pool II and, as a result, the more junior classes are
relatively more likely to suffer Basis Risk Shortfalls. Further, the class of
Certificates evidencing an interest in a particular Sub-Pool then outstanding
with the lowest Pass-Through Rate (i.e., the most senior class) will receive
more than their pro rata share of Distributable Principal prior to the more
junior classes of Corresponding Certificates; as a result, the weighted
average of the Pass-Through Rates of the Corresponding Certificates generally
will increase over time, which in turn will reduce over time the Distributable
Interest on the class of Stripped Interest Certificates evidencing an interest
in such Sub-Pool, and therefore will reduce the Basis Risk Support Amount at
any particular time. As a result, in the absence of an increasing Weighted
Average Effective Net Mortgage Rate of Sub-Pool II (e.g., through an
increasing positive spread between the Indices on which the Mortgage Rates are
based and LIBOR or through a more rapid rate of prepayment of the Mortgage
Loans in Sub-Pool II with lower
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Mortgage Rates) and/or an increasing Weighted Average Effective Net Mortgage
Rate of Sub-Pool I (e.g., through a more rapid rate of prepayment of the
Mortgage Loans in Sub-Pool I with lower Mortgage Rates), the likelihood and
amount of Basis Risk Support Amounts will decrease over time. Further, because
the weighted average lives of the more junior classes of Sub-Pool II
Certificates are longer than the weighted average lives of the more senior
classes of Sub-Pool II Certificates, the more junior classes of Sub-Pool II
Certificates will be more likely than the more senior classes of Sub-Pool II
Certificates to suffer larger Unfunded Basis Risk Shortfalls.
The ratings on the Certificates do not address the likelihood of Basis Risk
Shortfalls, the sufficiency of any Basis Risk Support Amount to cover such
shortfalls or the corresponding yield to investors. See "Ratings" and "Risk
Factors--The Certificates--Limited Nature of Ratings."
Allocation of Scheduled Principal Payments
On each Distribution Date, Scheduled Principal Payments relating to Sub-Pool
I received on or prior to the related Determination Date, will be allocated to
the Sub-Pool I Certificates in the following order of priority:
(i) to the Class I-A Certificates, an amount equal to the lesser of (x)
the Class Balance of the Class I-A Certificates outstanding immediately
prior to such Distribution Date and (y) the Scheduled Principal Payments
for such Distribution Date;
(ii) to the Class I-B Certificates, an amount equal to the lesser of (x)
the Class Balance of the Class I-B Certificates outstanding immediately
prior to such Distribution Date and (y) the Scheduled Principal Payments
for such Distribution Date;
(iii) to the Class I-C Certificates, an amount equal to the lesser of (x)
the Class Balance of the Class I-C Certificates outstanding immediately
prior to such Distribution Date and (y) the Scheduled Principal Payments
for such Distribution Date; and
(iv) to the Class I-D Certificates, an amount equal to the lesser of (x)
the Class Balance of the Class I-D Certificates outstanding immediately
prior to such Distribution Date and (y) the Scheduled Principal Payments
for such Distribution Date.
On each Distribution Date, Scheduled Principal Payments relating to Sub-Pool
II received on or prior to the related Determination Date, will be allocated
among the Sub-Pool II Certificates in the following order of priority:
(i) to the Class II-A Certificates, an amount equal to the lesser of (x)
the Class Balance of the Class II-A Certificates outstanding immediately
prior to such Distribution Date and (y) the Scheduled Principal Payments
for such Distribution Date;
(ii) to the Class II-B Certificates, an amount equal to the lesser of (x)
the Class Balance of the Class II-B Certificates outstanding immediately
prior to such Distribution Date and (y) the Scheduled Principal Payments
for such Distribution Date; and
(iii) to the Class II-C Certificates, an amount equal to the lesser of
(x) the Class Balance of the Class II-C Certificates outstanding
immediately prior to such Distribution Date and (y) the Scheduled Principal
Payments for such Distribution Date.
Allocation of Principal Prepayments
On each Distribution Date prior to January 2002, all Principal Prepayments
with respect to a Sub-Pool will be allocated in the same order of priority as
Scheduled Principal Payments. On each Distribution Date beginning in January
2002 and later months, if the Delinquency Test is satisfied, the Subordinated
Percentage Amount will be allocated among the Corresponding subordinated
classes for which the Credit Enhancement Test is satisfied on such
Distribution Date in proportion to their remaining principal amounts, and the
remainder of the Principal Prepayments will be allocated in same order of
priority as Scheduled Principal Payments.
Notwithstanding the foregoing, if at any time following the Distribution
Date occurring in December 2004, the Trustee is notified in writing by either
Rating Agency that the then current rating on any class of Certificates
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would otherwise be put on review for possible downgrade, downgraded, qualified
or withdrawn by such Rating Agency, then on each Distribution Date following
such notification, the Trustee will make distributions in respect of the
Principal Prepayments in the same manner as the Scheduled Principal Payments
are distributed.
For purposes of determining the allocation of Principal Prepayments, the
following terms have the following meanings:
A class is "senior" to a Corresponding class if it has a prior alphabetical
designation. A class is "subordinated" to a Corresponding class if it has a
subsequent alphabetical designation.
The "Subordinated Percentage Amount" with respect to either Sub-Pool on any
Distribution Date means the amount derived by (i) multiplying the Sub-Pool
Principal Prepayments distributable on such Distribution Date by a fraction,
the numerator of which is the outstanding principal amount of all
Corresponding classes not then entitled to receive Scheduled Principal
Payments and the denominator of which is the outstanding principal amount of
all Corresponding classes and (ii) multiplying the result by the then
applicable Subordinated Percentage. The applicable Subordinated Percentages
for each Distribution Date are as follows:
<TABLE>
<CAPTION>
SUBORDINATED
DISTRIBUTION DATE IN PERCENTAGE
-------------------- ------------
<S> <C>
January 1997--December 2001 0%
January 2002--December 2002 30%
January 2003--December 2003 40%
January 2004--December 2004 60%
January 2005--December 2005 80%
January 2006 and thereafter 100%
</TABLE>
The "Delinquency Test" with respect to either Sub-Pool on any Distribution
Date will be met if the balance of the Mortgage Loans in such Sub-Pool that
are either delinquent by more than 60 days or are REO Property does not exceed
40% of the amount then available under the Limited Guaranty applicable to such
Sub-Pool.
The "Credit Enhancement Amount" with respect to a class of Certificates is
the sum of (i) the amount of the Limited Guaranty then available to the
Corresponding Sub-Pool Certificates and (ii) the then outstanding principal
amount of all Corresponding classes having a lower alphabetical designation.
The "Class Credit Enhancement Percentage" is a fraction, the numerator of
which is the then Credit Enhancement Amount with respect to that class and the
denominator of which is the sum of the then outstanding principal amounts of
that class and all Corresponding classes.
The "Credit Enhancement Test" with respect to any class of Certificates will
be satisfied on any Distribution Date if the Class Credit Enhancement
Percentage for each more senior Corresponding class is at least equal to its
Required Percentage.
The "Required Percentages" for each class of Certificates shall be:
<TABLE>
<CAPTION>
REQUIRED
CLASS PERCENTAGE
----- ----------
<S> <C>
SUB-POOL I
Class I-A....................................................... 60%
Class I-B....................................................... 51%
Class I-C....................................................... 47%
Class I-D....................................................... 37%
SUB-POOL II
Class II-A...................................................... 66%
Class II-B...................................................... 56%
Class II-C...................................................... 45%
</TABLE>
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EXAMPLE OF DISTRIBUTIONS
The following chart sets forth an example of distributions on the Offered
Certificates for Distribution Date occurring in January, 1997 (the pattern is
repeated for succeeding Distribution Dates):
December 2 through January 1
(A)............................. The Due Period with respect to the
Distribution Date on January 27.
Scheduled Payments (including Balloon
Payments) due during the Due Period and
any Assumed Scheduled Payments deemed
to be due during the Due Period, in
each case to the extent received by the
Determination Date on January 15 or
advanced by the P&I Advance Date on
January 24, will be available for
distribution to Certificateholders on
the Distribution Date on January 27.
(Succeeding Due Periods run from the
second day of each month through the
first day of the next month.)
December 2 through January 15
(B)............................. The Prepayment Period with respect to
the Distribution Date on January 27.
Principal prepayments made and other
unscheduled collections received during
the Prepayment Period, will be
available for distribution to
Certificateholders on the Distribution
Date on January 27 (16th through the
15th for succeeding periods).
December 31 (C).................. Record Date for Sub-Pool I Certificates.
January 15 (D)................... Determination Date. The Servicer is
required to determine on or prior to
this date, among other things, the
Available Distribution Amount with
respect to each Sub-Pool for the
Distribution Date on January 27, the
amount of P&I Advances required to be
made on the P&I Advance Date on January
24 and to report to the Trustee the
information necessary to determine the
amount of claims (x) in respect of
Basis Risk Shortfalls and (y) under the
Limited Guaranty required to be made on
the Demand Date.
January 19 (E)................... The Demand Date. The Trustee is
required to make a demand on the FDIC
as administrator of the Bank Insurance
Fund, (x) for payment of any portion of
the Basis Risk Support Amount necessary
to offset the Basis Risk Shortfall for
the Distribution Date on January 27,
and (y) for payment under the Limited
Guaranty in respect of (a) Realized
Losses incurred during the related Due
Period and (b) the occurrence of a
Mortgage Loan becoming a Limited
Guaranty Draw Loan during the related
Due Period.
January 24 (F)................... The P&I Advance Date. The Servicer is
required to deliver to the Trustee for
distribution to Certificateholders on
the Distribution Date on January 27,
among other things, the portion of the
Available Distribution Amount in
respect of each Sub-Pool for such
Distribution Date then held in the
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Collection Account for such Sub-Pool,
the amount of Compensating Interest
Payments for such Distribution Date,
and a P&I Advance in respect of the
total amount of Scheduled Payments and
Assumed Scheduled Payments due or
deemed to be due during the Due Period
described above and not received by the
Determination Date (except to the
extent deemed by the Servicer to be
non-recoverable).
January 24 (G)................... Record Date for the Sub-Pool II
Certificates.
January 27 (H)................... Distribution Date (January 25 and 26
are not Business Days).
- --------
(A) Scheduled Payments due during the Due Period and any Assumed Scheduled
Payments deemed to be due during the Due Period, to the extent received by
the Servicer by the Determination Date will be remitted to the Trustee by
the Servicer on January 24 for distribution to Certificateholders on
January 27, 1997.
(B) Principal prepayments and other unscheduled collections received by the
Servicer during the Prepayment Period will be remitted to the Trustee by
the Servicer on January 24 for distribution to Certificateholders on
January 27, 1997.
(C) Distributions on the Sub-Pool I Certificates will be made on the
Distribution Date to Certificateholders of record at the close of business
on the last day of the month preceding the month in which the Distribution
Date occurs.
(D) As of the close of business on January 15, the Available Distribution
Amount to be passed through to Certificateholders will be determined.
Holders of Offered Certificates generally will be entitled, to the extent
of available funds, to Distributable Interest as described under "--
Distributions--Interest Distribution Calculations" and to Distributable
Principal as described under "--Distributions--Principal Distribution
Calculations."
(E) The FDIC is required to remit to the Trustee in immediately available
funds on or prior to January 24 for deposit into the Distribution Account
any claims under the Limited Guaranty.
(F) All amounts required to be remitted by the Servicer must be remitted in
immediately available funds to the Trustee for deposit into the
Distribution Account.
(G) Distributions on the Sub-Pool II Certificates will be made on the
Distribution Date to Certificateholders of record at the close of business
on the 24th day of the month in which the Distribution Date occurs.
(H) The Trustee will make distributions to Certificateholders on the 25th day
of each month or, if such day is not a Business Day, on the next
succeeding Business Day.
P&I ADVANCES
On the business day immediately preceding each Distribution Date, the
Servicer will be obligated, subject to the recoverability determination
described in the next paragraph, to make advances (each, a "P&I Advance") out
of its own funds or, subject to the replacement thereof as provided in the
Pooling and Servicing Agreement, funds held in the Collection Account with
respect to the applicable Sub-Pool that are not required to be part of the
Available Distribution Amount for such Sub-Pool for such Distribution Date, in
an amount equal to the aggregate of: (i) all Scheduled Payments (net of the
related Servicing Fee), other than Balloon Payments, that were due on the
Mortgage Loans in such Sub-Pool during the related Due Period and delinquent
as of the related Determination Date; (ii) in the case of each Balloon Loan
delinquent in respect of its Balloon Payment as of the related Determination
Date, an amount equal to the Assumed Scheduled Payment thereon (net of the
related Servicing Fee), but only to the extent that the related borrower has
not made a payment sufficient to cover such amount under any forbearance
arrangement or otherwise that has been included in the Available Distribution
Amount for such Sub-Pool for such Distribution Date; and (iii) in the case of
each REO Property, an amount equal to thirty days interest with respect
thereto at the related Mortgage Rate in effect as of the commencement of the
related Due Period (net of the related Servicing Fee), but only to the extent
that such amount is not covered
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by any net income from such REO Property included in the Available
Distribution Amount for such Sub-Pool for such Distribution Date. The "Assumed
Scheduled Payment" with respect to any Balloon Loan is the amount that would
be due on each applicable Due Date as if it were a Matured Performing Mortgage
Loan. The Servicer's obligations to make P&I Advances in respect of any
Mortgage Loan or REO Property will continue through liquidation of such
Mortgage Loan or disposition of such REO Property, as the case may be.
The Servicer will be entitled to recover any P&I Advance made out of its own
funds from any amounts collected in respect of the Mortgage Loan as to which
such P&I Advance was made, whether in the form of late payments, Insurance
Proceeds, Liquidation Proceeds or otherwise ("Related Proceeds") or, to the
extent Related Proceeds are insufficient, from the Limited Guaranty to the
extent of the applicable Available Sub-Pool Coverage Amount and any Excess
Coverage Amount, or otherwise out of general funds with respect to the related
Sub-Pool on deposit in the applicable Collection Account. The Servicer will be
entitled to be reimbursed for all P&I Advances (including interest thereon at
the prime rate), as well as other fees and expenses to which it may be
entitled, prior to the distribution to the Certificateholders of principal of
or interest on the Certificates. In the event that the Available Sub-Pool
Coverage Amount and Excess Coverage Amount in respect of a particular Sub-Pool
has become exhausted, the Servicer will be required to make a P&I Advance
generally only in the amount of a fraction thereof, the numerator of which is
equal to the excess of the aggregate of the Class Balances of the
Corresponding Certificates over the aggregate Uncovered Portion thereof and
the denominator of which is the aggregate of such Class Balances.
Notwithstanding the foregoing, the Servicer will not be obligated to make any
P&I Advance that it determines in its reasonable good faith judgment would, if
made, not be recoverable out of Related Proceeds or from the Limited Guaranty,
and the Servicer will be entitled to recover any P&I Advance previously made
that it so determines to be a nonrecoverable from the Limited Guaranty to the
extent of the applicable Available Sub-Pool Coverage Amount and any Excess
Coverage Amount, or otherwise out of general funds with respect to the related
Sub-Pool on deposit in the applicable Collection Account. The determination by
the Servicer that any prior P&I Advance is nonrecoverable or that any P&I
Advance, if made, would be nonrecoverable (in either case, a "Nonrecoverable
Advance"), is required to be evidenced by an officer's certificate to that
effect. In the event that P&I Advances with respect to 18 months of Scheduled
Payments on any Mortgage Loan remain unreimbursed, the Servicer is required to
arrange for the appraisal of the related Mortgaged Property and, if
applicable, make a claim under the Limited Guaranty, as described under "--The
Limited Guaranty."
Interest accrued on outstanding Advances in respect of a particular Sub-Pool
may result in a reduction in amounts payable on the Corresponding class of
Certificates with the lowest alphabetical class designation, to the extent not
covered by the Limited Guaranty or not offset or covered by amounts otherwise
payable on such Certificates. To the extent that any holder of a Certificate
must bear the cost of Advances, the benefits of such Advances to such holder
will be contingent on the ability of such holder to reinvest the amounts
received as a result of such Advances.
THE LIMITED GUARANTY
General. To increase the likelihood of the complete and timely payment of
Distributable Interest and Distributable Principal to the holders of Offered
Certificates (as well as the Stripped Interest Certificates) of each class,
the FDIC will deliver to the Trustee for the benefit of Certificateholders a
Limited Guaranty in an aggregate amount initially equal to approximately 32.3%
of the Cut-off Date Balance (the "Initial Guaranty Amount"). The amount of
such coverage initially available to Sub-Pool I is limited to approximately
$171,850,315, which is equal to approximately 30.0% of the Cut-off Date Sub-
Pool I Balance and the amount of such coverage initially available to Sub-Pool
II is limited to approximately $69,615,840, which is equal to approximately
40.0% of the Cut-off Date Sub-Pool II Balance. Amounts available under the
Limited Guaranty (as well as the respective amounts available to each Sub-
Pool) will be reduced over the life of the Certificates by the aggregate
dollar amount of claims paid thereunder and will be increased to reflect any
amounts recovered by or on behalf of the FDIC in respect of such claims, in
each case on a Sub-Pool by Sub-Pool basis. The aggregate amount of coverage
available under the Limited Guaranty at the time of any determination is
referred to herein as the "Available Guaranty Amount," and the amount of such
coverage available to a particular Sub-Pool is referred
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to herein as the "Available Sub-Pool Coverage Amount" for such Sub-Pool.
Although the Limited Guaranty is issued by the FDIC, claims thereunder may be
satisfied only through draws upon the Bank Insurance Fund. There can be no
assurance that amounts in the Bank Insurance Fund will be available to pay any
such claim at any particular time. THE LIMITED GUARANTY IS BY ITS TERMS NOT
BACKED BY THE FULL FAITH AND CREDIT OF THE UNITED STATES OF AMERICA. See "The
Bank Insurance Fund." The Limited Guaranty, to the extent of the Available
Guaranty Amount, will be available on each Distribution Date to cover
shortfalls in the collections on the Mortgage Loans due to (i) Realized Losses
and (ii) Mortgage Loans becoming Limited Guaranty Draw Loans. The Limited
Guaranty also will be available to cover Basis Risk Shortfalls to the extent
of the Basis Risk Support Amount and certain expenses of the Trust Fund. The
Limited Guaranty will not cover Prepayment Interest Shortfalls. Further, the
Limited Guaranty will not cover the FDIC's obligations in connection with a
breach by it of a representation or warranty with respect to any Mortgage Loan
or in connection with a Defect in any Mortgage File. Although only one Limited
Guaranty will be provided by the FDIC, the amount of claims payable thereunder
in respect of a particular Sub-Pool will be limited to the applicable
Available Sub-Pool Coverage Amount plus the Excess Coverage Amount, if any.
The "Excess Coverage Amount" with respect to a particular Sub-Pool is equal to
the excess, if any, of the applicable Available Sub-Pool Coverage Amount of
the other Sub-Pool over the aggregate of the Class Balances of the
Certificates evidencing an interest in such other Sub-Pool. In the event that
the Available Sub-Pool Coverage Amount under the Limited Guaranty in respect
of a particular Sub-Pool has been exhausted, the entire risk of shortfalls and
losses on the Mortgage Loans in such Sub-Pool in excess of the Excess Coverage
Amount will be borne by the holders of the Corresponding classes of
Certificates, notwithstanding the existence of any Available Sub-Pool Coverage
Amount for the other Sub-Pool. Such risk will be allocated to such classes of
Certificates in reverse alphabetical class designation as and to the extent
described under "--Subordination." Under no circumstances will claims in
respect of a particular Sub-Pool in excess of the sum of the Available Sub-
Pool Coverage Amount and the Excess Coverage Amount be paid, and in no event
will aggregate claims in respect of both Sub-Pools in excess of the Available
Guaranty Amount be paid.
Scope of Coverage. A claim may be presented under the Limited Guaranty in
respect of the Realized Loss, if any, incurred in connection with the
liquidation of a defaulted Mortgage Loan or REO Property, whether through
foreclosure sale or otherwise. A "Realized Loss" is equal to the excess, if
any, of (i) the sum of (a) the unpaid principal balance of such Mortgage Loan
or REO Loan, as the case may be, plus (b) accrued and unpaid interest at the
applicable Net Mortgage Rate on such Mortgage Loan or REO Loan from time to
time, over (ii) the excess, if any, of (x) all Liquidation Proceeds, Insurance
Proceeds and other recoveries with respect to such Mortgage Loan or REO Loan,
received and not yet distributed to the applicable Certificateholders, over
(y) amounts payable or reimbursable therefrom to the Servicer for unpaid
servicing compensation, and to the Servicer or the FDIC for unreimbursed
Servicing Advances, together with interest on unreimbursed Advances, and
certain other unreimbursed expenses.
In addition, a claim may be presented under the Limited Guaranty with
respect to a Basis Risk Shortfall but not in excess of the lesser of (x) the
Basis Risk Support Amount and (y) the remaining amount available for payment
under the Limited Guaranty.
A claim also may be presented under the Limited Guaranty in respect of (i)
any temporary modification, waiver or amendment to the terms of any Mortgage
Loan that results in the reduction of the Scheduled Payments due thereon, (ii)
a reduction by a bankruptcy court of competent jurisdiction of (A) the
principal balance of a Mortgage Loan (a "Deficient Valuation") or (B) the
Scheduled Payment or the Mortgage Rate on a Mortgage Loan (a "Debt Service
Reduction"), (iii) a determination, immediately following the period in which
an aggregate of 18 months of Scheduled Payments have been advanced and remain
unreimbursed in respect of a Mortgage Loan, that the appraised value of the
related Mortgaged Property is less than the unpaid principal balance of the
Mortgage Loan plus accrued but unpaid interest thereon, or (iv) a permanent
reduction in the principal balance of any Mortgage Loan or the reduction in
the present value of the Scheduled Payments on a Discounted Mortgage Loan
attributable to the extension of the maturity date of such loan (any such
Mortgage Loan, a "Limited Guaranty Draw Loan").
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The amount payable with respect to a particular Mortgage Loan under the
Limited Guaranty in connection with shortfalls described in clause (i) of the
immediately preceding paragraph is equal to the amount of the reduction in the
portion of the Scheduled Payment thereon attributable to interest; clause
(ii)(A) of the immediately preceding paragraph is equal to the amount by which
the principal balance thereof is reduced; clause (ii)(B) of the immediately
preceding paragraph is equal either to the amount of the reduction in the
portion of the Scheduled Payment thereon attributable to interest or to the
present value of the resulting reduction in the Net Mortgage Rate thereon;
clause (iii) of the immediately preceding paragraph is equal to the excess, if
any, of the unpaid principal balance thereof plus accrued and unpaid interest
thereon over the appraised value of the related Mortgaged Property; and clause
(iv) of the immediately preceding paragraph is equal to the amount of the
reduction of the principal balance of the Mortgage Loan, in all cases together
with related unreimbursed Advances and interest thereon.
Claims under the Limited Guaranty. If, by the close of business no later
than the fifth business day prior to any Distribution Date, the Trustee
determines, based upon the collection report previously delivered to it by the
Servicer, the existence of a shortfall covered by the Limited Guaranty, as
described under "--Scope of Coverage" above, the Trustee will be required to
make a claim to the FDIC on behalf of the Certificateholders under the Limited
Guaranty in an amount equal to the lesser of such shortfall for such
Distribution Date and the Available Guaranty Amount. Claims under the Limited
Guaranty also may be made on a periodic basis to cover certain expenses of the
Servicer, the Trustee and the FDIC, including without limitation interest on
Advances.
If the Available Sub-Pool Coverage Amount with respect to a particular Sub-
Pool, together with the Excess Coverage Amount, if any, has been reduced to
zero, coverage under the Limited Guaranty with respect to such Sub-Pool will
be exhausted, and thereafter, the holders of the Corresponding Certificates
will bear all risks of shortfalls and losses on the Mortgage Loans in such
Sub-Pool, as and to the extent described below under "--Subordination."
SUBORDINATION
The Limited Guaranty is intended to provide to all classes of Offered
Certificates and to the Stripped Interest Certificates "first loss" coverage
in respect of credit defaults on the Mortgage Loans in an aggregate amount
equal to the Available Guaranty Amount. In the event that the amount of
coverage available under the Limited Guaranty has been exhausted, credit
losses and shortfalls on each Mortgage Loan in a particular Sub-Pool will be
borne first by the Corresponding class of Certificates having the lowest
alphabetical class designation before allocation of such losses and shortfalls
to any other Corresponding class of Certificates. This subordination is
intended to enhance the likelihood of timely receipt by the holders of any
class of Certificates evidencing an interest in a particular Sub-Pool with a
relatively high alphabetical class designation of the full amount of
Distributable Interest and Distributable Principal payable in respect of such
class on each Distribution Date, as compared with any Corresponding class of
Certificates having a relatively low alphabetical class designation. The
protection afforded to the holders of each class of Certificates evidencing an
interest in a particular Sub-Pool by means of the subordination of each other
Corresponding class of Certificates with a lower alphabetical class
designation will be accomplished by the application of the Available
Distribution Amount for such Sub-Pool on each Distribution Date in the order
of priority described above under "--Distributions--Method, Timing and
Amount," "--Sub-Pool I Certificates--Priority" and "--Sub-Pool II
Certificates--Priority."
Losses and other shortfalls experienced with respect to the Mortgage Loans
in a particular Sub-Pool, to the extent not covered by the Limited Guaranty,
will not be applied to reduce either the Class Balance or the absolute
entitlement to interest of any Corresponding class of Certificates, even
though such losses and shortfalls may cause one or more of such classes to
receive less than the full amount of principal and interest to which it is
entitled. As a result, the aggregate Stated Principal Balance of a particular
Sub-Pool at any time may be less than the aggregate of the Class Balances of
the Corresponding Certificates. Such deficit will be allocated to the
respective classes of Certificates (in each case to the extent of its Class
Balance) in reverse alphabetical order of their class designations. Such
allocation will not reduce the Class Balance of any such class and is intended
solely to identify the portion (the "Uncovered Portion") of the Class Balance
of each such class for which there is at such time no corresponding principal
amount of Mortgage Loans. See "--Voting Rights."
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REPORTS TO CERTIFICATEHOLDERS; CERTAIN AVAILABLE INFORMATION
On each Distribution Date the Trustee will forward to the holders of each
class of Certificates, a statement (a "Distribution Date Statement") based
primarily upon information furnished to the Trustee by the Servicer that will
set forth with respect to the applicable Sub-Pool or the Mortgage Pool, as
indicated, among other things:
(i) the amount, if any, of the distribution on such Distribution Date to
the holders of Certificates of each such class allocable to Distributable
Principal and the Optimal Principal Distribution Amount for each such class
on such Distribution Date;
(ii) the amount, if any, of the distribution on such Distribution Date to
holders of Certificates of each such class allocable to Distributable
Interest and any portion thereof remaining unpaid after giving effect to
the distributions made on such Distribution Date, separately stated and the
Accrued Interest and Deferred Interest (in the case of Sub-Pool II only) in
respect of such Sub-Pool and each Corresponding class of Certificates for
such Distribution Date;
(iii) the Pass-Through Rate for each class of Certificates for such
Distribution Date;
(iv) the aggregate amount of P&I Advances and Servicing Advances made in
respect of such Sub-Pool and such Distribution Date, and the aggregate
amount of unreimbursed P&I Advances and Servicing Advances in respect of
such Sub-Pool at the close of business on such Distribution Date;
(v) the aggregate Stated Principal Balance and Scheduled Principal
Balance of the Mortgage Loans in each Sub-Pool outstanding immediately
following such Distribution Date;
(vi) the weighted average amortization term and the weighted average
remaining months to maturity of the Mortgage Loans in each Sub-Pool as of
the commencement of the Due Period to which such Distribution Date relates
and the Weighted Average Effective Net Mortgage Rate of each Sub-Pool as of
such Distribution Date;
(vii) the number and aggregate principal balance of Mortgage Loans in
such Sub-Pool (A) delinquent one month, (B) delinquent two months, (C)
delinquent three or more months, (D) as to which foreclosure proceedings
have been commenced and (E) REO, as well as twelve month historical
information for such categories;
(viii) the Class Balance of each Corresponding class of Certificates
immediately before and immediately after such Distribution Date, and the
Uncovered Portion thereof, if any;
(ix) the (a) aggregate amount of Principal Prepayments and curtailments
for such Sub-Pool made during the related Due Period and (b) any Net
Aggregate Prepayment Interest Shortfall for such Sub-Pool and such
Distribution Date, in both cases also showing twelve month historical
information;
(x) the amount of the Servicing Fee paid to the Servicer, and, with
respect to each Mortgage Loan, as applicable, the Liquidation Fee,
Resolution Fee and Modification Fee paid to the Servicer, and the trust
administrative fee paid to the Trustee during the related Due Period in
respect of such Sub-Pool and any other amounts otherwise reimbursable to
the Servicer or the Trustee during the related Due Period;
(xi) with respect to any Mortgage Loan in such Sub-Pool the terms of
which were modified, waived or amended, a summary of terms thereof prepared
by the Servicer;
(xii) the amount of claims paid under the Limited Guaranty for such
Distribution Date and the Available Guaranty Amount and the Available Sub-
Pool Coverage Amount for each Sub-Pool and the Excess Coverage Amount, if
any, for any Sub-Pool immediately following such Distribution Date;
(xiii) the Basis Risk Shortfall, the Basis Risk Support Amount, the
Unfunded Basis Risk Shortfall and the allocation thereof to the Sub-Pool II
Certificates for such Distribution Date;
(xiv) the outstanding principal balance of Mortgage Loans that have been
repurchased during the related Due Period by the FDIC;
(xv) the outstanding principal balance of Deleted Mortgage Loans and
Substitute Mortgage Loans for the related Due Period; and
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(xvi) current realized losses for each of Sub-Pool I and Sub-Pool II and
on an aggregate basis for the related Due Period and for the past twelve
months.
In the case of information furnished pursuant to subclauses (i), (ii) and
(xiii)(a) above, the amounts will be expressed as a dollar amount in the
aggregate of the relevant class of Certificates and per single Certificate.
Within a reasonable period of time after the end of each Calendar year, the
Trustee will be required to furnish to each person who at any time during the
calendar year was a holder of a Certificate of such series a statement
containing the information set forth in subclauses (i), (ii), and (xiv) above,
aggregated for such calendar year or the applicable portion thereof during
which such person was a Certificateholder. Such obligation will be deemed to
have been satisfied to the extent that substantially comparable information is
provided pursuant to any requirements of the Code as are from time to time in
force. See, however, "--Book-Entry Registration and Definitive Certificates."
The Servicer is also required to deliver to the Trustee prior to each
Distribution Date, and the trustee is to deliver to the Mortgage Loan Seller,
the Underwriters, the Certificateholders (upon request), and each of the
Rating Agencies the following reports:
(a) A Comparative Financial Status Report substantially in the form of Annex
C-1 attached hereto, setting forth, among other things, to the extent such
information is provided by the related borrower the occupancy, revenue, net
operating income and debt service coverage ratio for each Mortgage Loan as of
the Determination Date immediately preceding the preparation of such report
for each of the following periods: (i) the most current available year-to-date
(to the extent of information received), (ii) the previous two full fiscal
years, and (iii) the "base year" (representing the original underwriting
information used as of the Cut-Off Date);
(b) A Delinquent Loan Status Report substantially in the form of Annex C-2
attached hereto, setting forth, among other things, those Mortgage Loans
which, as of the close of business on the Determination Date immediately
preceding the preparation of such report, were delinquent 30-59 days,
delinquent 60-89 days, delinquent 90 days or more, current but specially
serviced, or in foreclosure but not REO Property, as well as twelve month
historical information for such categories;
(c) A Historical Loan Modification Report substantially in the form of Annex
C-3 attached hereto, setting forth, among other things, those Mortgage Loans
which, as of the close of business on the Determination Date immediately
preceding the preparation of such report, have been modified pursuant to the
Pooling and Servicing Agreement (i) during the related Prepayment Period and
(ii) since the Cut-Off Date, showing the original and the revised terms
thereof;
(d) A Historical Loss Estimate Report substantially in the form of Annex C-4
attached hereto, setting forth, among other things, as of the close of
business on the Determination Date immediately preceding the preparation of
such report, (i) the aggregate amount of liquidation proceeds and liquidation
expenses, both for the current period and historically, and (ii) the amount of
Realized Losses occurring during the related Prepayment Period, set forth on a
Mortgage Loan-by-Mortgage Loan basis;
(e) A REO Status Report substantially in the form of Annex C-5 attached
hereto, setting forth, among other things, with respect to each REO Property
that was included in the Trust Fund as of the close of business on the
Determination Date immediately preceding the preparation of such report, (i)
the acquisition date of such REO Property, (ii) the amount of income collected
with respect to any REO Property net of related expenses and other amounts, if
any, received on such REO Property during the related Prepayment Period, and
(iii) the value of the REO Property based on the most recent appraisal or
other valuation thereof available to the Servicer as of such date of
determination (including any prepared internally by any Sub-Servicer); and
(f) A Watch List, substantially in the form of Annex C-6 attached hereto,
which provides, among other things, a list of Mortgage Loans in jeopardy of
becoming Sub-Serviced Mortgage Loans.
Certain information provided by the Servicer to the Trustee may be obtained
by calling the Servicer at 214-290-2674.
The Pooling and Servicing Agreement requires that the Trustee make available
at its corporate trust office, during normal business hours, for review by any
holder of a Certificate or prospective holder of a Certificate, originals or
copies of, among other things, the following items: (a) the Pooling and
Servicing Agreement and
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any amendments thereto, (b) all Distribution Date Statements delivered to the
holders of the Certificates since the Closing Date, (c) all officer's
certificates delivered to the Trustee since the Closing Date, (d) all
accountants' reports delivered to the Trustee since the Closing Date, (e) the
most recent property inspection report prepared by or on behalf of the
Servicer in respect of each Mortgaged Property and delivered to the Trustee,
(f) the most recent Mortgaged Property annual operating statements, if any,
collected by or on behalf of the Servicer and delivered to the Trustee, and
(g) any and all modifications, waivers and amendments of the terms of a
Mortgage Loan entered into by the Servicer and delivered to the Trustee.
Copies of any and all of the foregoing items will be available from the
Trustee upon request; however, the Trustee will be permitted to require
payment of a sum sufficient to cover the reasonable costs and expenses of
providing such copies.
Until such time as Definitive Offered Certificates of any class are issued,
the foregoing information will be available to Certificate Owners of such
class only to the extent it is forwarded by or otherwise available through DTC
and its Participants. Conveyance of notices and other communications by DTC to
Participants, and by Participants to Certificate Owners, will be governed by
arrangements among them, subject to any statutory or regulatory requirements
as may be in effect from time to time. The Servicer, the Trustee, the FDIC,
the Mortgage Loan Seller and the Certificate Registrar are required to
recognize as Certificateholders only those persons in whose names the
Certificates are registered on the books and records of the Certificate
Registrar. The initial registered holder of the Offered Certificates will be
Cede & Co. as nominee for DTC.
Certificateholders may obtain Distribution Date Statements directly from the
Trustee by providing the Trustee with evidence satisfactory to the Trustee
that such person is a Certificateholder, together with a written request to
receive Distribution Date Statements directly from the Trustee. The Trustee's
address for such requests is State Street Bank and Trust Company, Corporate
Trust Department, 225 Franklin Street, Boston, MA 02110, Attn: FDIC REMIC
Trust 1996-C1 or via facsimile transmission at (617) 664-5367. Factor
information may be obtained by calling the Trustee at (617) 664-5500.
VOTING RIGHTS
At all times during the term of the Pooling and Servicing Agreement, 100% of
the Voting Rights will be allocated among the respective classes of
Certificates, of which 1% will be allocated to the Stripped Interest
Certificates based on their respective Notional Amounts and 99% will be
allocated to Class I-A, Class I-B, Class I-C, Class I-D, Class II-A, Class II-
B and Class II-C Certificates, in proportion to the Class Balances of their
Certificates (net of any uncovered portion of the Class Balance thereof). No
Voting Rights will be allocated to the Class R Certificates. Voting Rights
allocated to a class of Certificates will be allocated among such Certificates
in proportion to the Percentage Interests evidenced thereby.
TERMINATION
The obligations created by the Pooling and Servicing Agreement will
terminate following the earliest to occur of (i) the final payment (or advance
in respect thereof) or other liquidation of the last Mortgage Loan or REO
Property or (ii) the purchase of all of the assets of the Trust Fund by the
FDIC, the Mortgage Loan Seller, the Servicer or the Class R
Certificateholders. Certificateholders will have no redemption rights.
Any such purchase of all the Mortgage Loans and other assets in the Trust
Fund is required to be made at a price equal to the greater of (a) the fair
market value of all of the assets in the Trust Fund and (b) the sum of (i) the
aggregate principal balance of all the Mortgage Loans then included in the
Trust Fund, plus accrued interest and the aggregate of amounts payable or
reimbursable to the Servicer under the Pooling and Servicing Agreement, and
(ii) the fair market value of all REO Properties then included in the Trust
Fund, as determined by an appraiser selected by the Servicer. Such purchase
will effect early retirement of the then outstanding Offered Certificates, but
the right of the FDIC, the Mortgage Loan Seller, the Servicer or the Class R
Certificateholders to effect such termination is subject to the requirement
that the then aggregate Stated Principal Balance of the Mortgage Loans and REO
Properties be less than 10% of the Cut-off Date Pool Balance.
On the final Distribution Date, the aggregate amount paid for the Mortgage
Loans and REO Properties will constitute the Available Distribution Amount for
such date, with the portion thereof distributed on the Certificates to be
distributed in accordance with the priorities described under "--
Distributions--Sub-Pool I Certificates--Priority" and "--Sub-Pool II
Certificates--Priority" above.
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BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES; MINIMUM DENOMINATIONS
The Offered Certificates of each class will be issued in book-entry format
and maintained and transferred on the book-entry records of The Depository
Trust Company ("DTC"), New York, NY. The Offered Certificates of each class
will initially be issued as fully-registered securities registered in the name
of Cede & Co. (DTC's partnership nominee). One fully-registered Offered
Certificate will be issued for each Class of Offered Certificates, each in the
aggregate principal amount of such Class, and will be deposited with DTC. If,
however, the aggregate principal amount of any Class exceeds $200 million, one
certificate will be issued with respect to each $200 million of principal
amount and an additional certificate will be issued with respect to any
remaining principal amount of such Class. No Certificate Owner will be
entitled to receive a Definitive Offered Certificate representing its interest
in any such class, except under the limited circumstances described herein.
Unless and until Definitive Offered Certificates are issued, all references to
actions by holders of the Offered Certificates of a particular class will
refer to actions taken by DTC upon instructions received from Certificate
Owners of such class through its Participants, and all references herein to
payments, notices, reports and statements to holders of the Offered
Certificates will refer to payments notices, reports and statements to DTC or
Cede & Co., as the registered holder of the Offered Certificates, for
distribution to Certificate Owners through its Participants in accordance with
DTC procedures.
Until Definitive Offered Certificates of any class are issued, interests in
the Offered Certificates of such class will be transferred on the book-entry
records of DTC and its Participants. Definitive Offered Certificates of any
class, if issued, may be transferred or exchanged at the offices of the
Trustee located at 225 Franklin Street, Boston, Massachusetts, without the
payment of any service charges, other than any tax or other governmental
charge payable in connection therewith. The Trustee will initially serve as
registrar (in such capacity, the "Certificate Registrar") for purposes of
recording and otherwise providing for the registration of the Certificates and
of transfers and exchanges of the Definitive Offered Certificates, if issued.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking corporation" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended. DTC holds securities that its Participants
deposit with DTC. DTC also facilitates the clearance and settlement of
securities transactions among Participants of securities transactions, such as
transfers and pledges, in deposited securities through electronic computerized
book-entry changes in their accounts, thereby eliminating the need for
physical movement of securities certificates. "Direct Participants," which
maintain accounts with DTC, include securities brokers and dealers, banks,
trust companies, clearing corporations, and certain other organizations. DTC
is owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc., and the National
Association of Securities Dealers, Inc. Access to the DTC system also is
available to others such as brokers and dealers, banks, and trust companies
that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ("Indirect Participants"). The
rules applicable to DTC and its Participants are on file with the Commission.
Purchases of Book-Entry Certificates under the DTC system must be made by or
through Direct Participants, which will receive a credit for the Book-Entry
Certificates on DTC's records. The ownership interest of each actual purchaser
of a Book-Entry Certificate (a "Certificate Owner") is in turn to be recorded
on the Direct and Indirect Participants' records. Certificate Owners will not
receive written confirmation from DTC of their purchases, but Certificate
Owners are expected to receive written confirmations providing details of such
transactions, as well as periodic statements of their holdings, from the
Direct or Indirect Participant through which each Certificate Owner entered
into the transaction. Transfers of ownership interest in the Book-Entry
Certificates are to be accomplished by entries made on the books of
Participants acting on behalf of Certificate Owners. Certificate Owners will
not receive certificates representing their ownership interests in the Book-
Entry Certificates, except in the event that use of the book-entry system for
the Book-Entry Certificates of any class is discontinued.
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To facilitate subsequent transfers, all Book-Entry Certificates deposited
with DTC are registered in the name of DTC's partnership nominee, Cede & Co.
The deposit of Book-Entry Certificates with DTC and their registration in the
name of Cede & Co. effect no change in beneficial ownership. DTC has no
knowledge of the actual Certificate Owners of the Book-Entry Certificates;
DTC's records reflect only the identity of the Direct Participants to whose
accounts such Book-Entry Certificates are credited, which may or may not be
the Certificate Owners. The Participants will remain responsible for keeping
account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Certificate Owners will be governed
by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the Book-
Entry Certificates are being redeemed, DTC's practice is to determine by lot
the amount of the interest of each Direct Participant in such issue to be
redeemed.
Neither DTC nor Cede & Co. will consent or vote with respect to the Book-
Entry Certificates. Under its usual procedures, DTC mails an Omnibus Proxy to
Issuer as soon as possible after the record date. The Omnibus Proxy assigns
Cede & Co.'s consenting or voting rights to those Direct Participants to whose
accounts the Book-Entry Certificates are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
Distributions on the Book-Entry Certificates will be made to DTC. DTC's
practice is to credit Direct Participants' accounts on the related
Distribution Date in accordance with their respective holdings shown on DTC's
records unless DTC has reason to believe that it will not receive payment on
such date. Disbursement of such distributions by Participants to Certificate
Owners will be governed by standing instructions and customary practices, as
is the case with securities held for the accounts of customers in bearer form
or registered in "street name," and will be the responsibility of each such
Participant (and not of DTC, the FDIC, the Mortgage Loan Seller, the Trustee
or the Servicer), subject to any statutory or regulatory requirements as may
be in effect from time to time. Under a book-entry system, Certificate Owners
may receive payments after the related Distribution Date. Distributions of
principal and interest to DTC is the responsibility of the Trustee,
disbursement of such payments to Direct Participants shall be the
responsibility of DTC, and disbursement of such payment to the Certificate
Owners shall be the responsibility of Direct and Indirect Participants.
With respect to the Book-Entry Certificates, the only "Certificateholder"
(as such term is used in the Pooling and Servicing Agreement) will be the
nominee of DTC, and the Certificate Owners will not be recognized as
Certificateholders under the Pooling and Servicing Agreement. Certificate
Owners will be permitted to exercise the rights of Certificateholders under
the Pooling and Servicing Agreement only indirectly through the Participants
who in turn will exercise their rights through DTC. DTC will take action
permitted to be taken by a Certificateholder under the Pooling and Servicing
Agreement only at the direction of one or more Participants to whose account
with DTC interests in the Book-Entry Certificates are credited.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain Certificate Owners, the ability of
a Certificate Owner to pledge its interest in Book-Entry Certificates to
persons or entities that do not participate in the DTC system, or otherwise
take actions in respect of its interest in Book-Entry Certificates, may be
limited due to the lack of a physical certificate evidencing such interest.
DTC may discontinue providing its services as securities depository with
respect to the Offered Certificates at any time by giving reasonable notice to
the Mortgage Loan Seller. Under such circumstances, in the event that a
successor securities depository is not obtained, the Offered Certificates will
be printed and delivered. The Mortgage Loan Seller may decide to discontinue
use of system of book-entry transfers through DTC (or a successor securities
depository). In that event, Offered Certificates will be printed and
delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Mortgage Loan Seller believes to be
reliable, but the Mortgage Loan Seller takes no responsibility for the
accuracy thereof.
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The Book-Entry Certificates initially issued in book-entry form will be
issued as Definitive Offered Certificates to Certificate Owners or their
nominees, rather than to DTC or its nominee, only if (i) the Trustee is
advised in writing that DTC is no longer willing or able to discharge properly
its responsibilities as depository with respect to such Certificates and the
Mortgage Loan Seller is unable to locate a qualified successor or (ii) the
Mortgage Loan Seller, at its option, elects to terminate the book-entry system
through DTC with respect to such Certificates. Upon the occurrence of either
of the events described in the preceding sentence, DTC will be required to
notify all Participants of the availability through DTC of Definitive Offered
Certificates. Upon surrender by DTC of the certificate or certificates
representing a class of Book-Entry Certificates, together with instructions
for registration, the Trustee, as Certificate Registrar, will be required to
issue to the Certificate Owners identified in such instructions the Definitive
Offered Certificates to which they are entitled, and thereafter the holders of
such Definitive Offered Certificates will be recognized as Certificateholders
under the Pooling and Servicing Agreement.
The Certificates will be issued in denominations of $100,000 and in integral
multiples of $1,000 in excess thereof, except that one Certificate of each
such class may evidence the remainder of the Initial Class Balance of such
class.
THE TRUSTEE
State Street Bank and Trust Company, a Massachusetts banking corporation,
will act as Trustee on behalf of the Certificateholders. The offices of the
Trustee primarily responsible for the administration of the Trust Fund are
located at 225 Franklin Street, Boston, Massachusetts. See "Description of the
Pooling and Servicing Agreement--Duties of the Trustee," "--Certain Matters
Regarding the Trustee" and "--Resignation and Removal of the Trustee."
Except with respect to the statements concerning the Trustee set forth in
the paragraph above, neither the Trustee nor any of its directors, officers or
employees have investigated or make any representation or warranty as to the
accuracy or completeness of any information set forth in this prospectus.
YIELD AND MATURITY CONSIDERATIONS
YIELD CONSIDERATIONS
General. The yield on any Offered Certificate will depend on: (i) the Pass-
Through Rate in effect from time to time for such Certificate; (ii) the price
paid for such Certificate and, if the price was other than par, the rate and
timing of payments of principal on such Certificate; and (iii) the aggregate
amount of distributions on such Certificate.
Pass-Through Rates. The Pass-Through Rates applicable to the Sub-Pool II
Certificates will fluctuate based on changes in LIBOR. See "Description of the
Certificates--Distributions--Sub-Pool II Certificates--Pass-Through Rates."
Accordingly, the yield on the Sub-Pool II Certificates, in general, will be
highly sensitive to changes in LIBOR. Such yield will be adversely affected by
Basis Risk Shortfalls, to the extent not covered by Basis Risk Support
Amounts. Unfunded Basis Risk Shortfalls will be allocated among one or more
classes of Sub-Pool II Certificates as described herein under "Description of
the Certificates--Distributions--Sub-Pool II Certificates--Basis Risk." The
Pass-Through Rates on the Sub-Pool I Certificates will be fixed for the life
of such Certificates. See "Description of the Certificates--Distributions--
Sub-Pool I Certificates--Pass-Through Rates."
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Listed below are the monthly average values of LIBOR since January 1991.
LIBOR 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 LIBOR, and no assurance can
be given as to the value of LIBOR on any LIBOR Adjustment Date.
<TABLE>
<CAPTION>
MONTH 1991 1992 1993 1994 1995 1996
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
January............................ 7.331% 4.247% 3.264% 3.191% 6.011% 5.662%
February........................... 6.682 4.214 3.195 3.432 6.201 5.403
March.............................. 6.662 4.395 3.232 3.674 6.210 5.451
April.............................. 6.225 4.153 3.208 3.887 6.196 5.532
May................................ 6.020 3.937 3.191 4.395 6.147 5.510
June............................... 6.167 3.993 3.256 4.442 6.144 5.547
July............................... 6.100 3.509 3.216 4.617 6.004 5.546
August............................. 5.831 3.456 3.232 4.753 5.977 5.500
September.......................... 5.679 3.315 3.210 5.000 5.939 5.550
October............................ 5.402 3.269 3.232 5.142 5.949 5.461
November........................... 4.996 3.362 3.252 5.560 5.913 5.450
December........................... 4.998 3.748 3.373 6.170 5.945
</TABLE>
Rate and Timing of Principal Payments. The yield to holders of Offered
Certificates that are purchased at a discount or premium will be affected by
the rate and timing of principal payments on such Certificates. The rate and
timing of principal payments on such Certificates will be directly related to
the rate and timing of principal payments on or in respect of the Mortgage
Loans in the Sub-Pool evidenced thereby (including principal prepayments on
the Mortgage Loans resulting from both voluntary prepayments by the mortgagors
and involuntary liquidations). The rate and timing of principal payments on
the Mortgage Loans will in turn be affected by the amortization schedules
thereof and the rate and timing of principal prepayments and other unscheduled
collections thereon (including for this purpose, collections made in
connection with liquidations of Mortgage Loans due to defaults, casualties or
condemnations affecting the Mortgaged Properties, or repurchases of Mortgage
Loans out of the Trust Fund attributable to breaches of representations and
warranties). Prepayments and, assuming the Mortgage Loan stated maturity dates
have not occurred, liquidations and purchases of the Mortgage Loans in a
particular Sub-Pool, will result in distributions on the Corresponding
Certificates of amounts that would otherwise be distributed over the remaining
terms of the Mortgage Loans. Defaults on the Mortgage Loans, particularly at
or near their stated maturity dates, even if any resulting Realized Loss
ultimately is covered by the Limited Guaranty, may result in significant
delays in payments of principal on the Mortgage Loans in a particular Sub-Pool
(and, accordingly, on the Offered Certificates evidencing an interest in such
Sub-Pool) while work-outs are negotiated or foreclosures are completed. See
"Servicing of the Mortgage Loans--Modifications, Waivers and Amendments" and
"--Realization Upon Defaulted Mortgage Loans" and "Certain Legal Aspects of
Mortgage Loans."
The extent to which the yield to maturity of any Offered Certificate may
vary from the anticipated yield will depend upon the degree to which it is
purchased at a discount or premium and when, and to what degree, payments of
principal on the Mortgage Loans in the Sub-Pool evidenced thereby are in turn
distributed on such Certificate. An investor should consider, in the case of
any Offered Certificate purchased at a discount, the risk that a slower than
anticipated rate of principal payments on the Mortgage Loans in the Sub-Pool
evidenced thereby could result in an actual yield to such investor that is
lower than the anticipated yield and, in the case of any such Offered
Certificate purchased at a premium, the risk that a faster than anticipated
rate of principal payments could result in an actual yield to such investor
that is lower than the anticipated yield. In general, the earlier a prepayment
of principal on the Mortgage Loans is distributed on a Certificate purchased
at a discount or premium, 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 (to the extent distributable on such investor's Certificates)
occurring at a rate higher (or lower) than the rate anticipated by the
investor during any particular period would not be fully
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offset by a subsequent like reduction (or increase) in the rate of principal
payments. Because the rate of principal payments on the Mortgage Loans will
depend on future events and a variety of factors (as described more fully
below), no assurance can be given as to such rate or the rate of principal
prepayments in particular.
Losses and Shortfalls. The yield to holders of the Offered Certificates will
also depend on the extent to which such holders are required to bear the
effects of any losses or shortfalls (including Basis Risk Shortfalls) on the
Mortgage Loans in the Sub-Pool evidenced thereby. The amount available under
the Limited Guaranty to cover credit losses will be reduced in an amount equal
to any draws to cover Basis Risk Shortfalls.
In the event that coverage under the Limited Guaranty becomes exhausted,
losses and other shortfalls on the Mortgage Loans in a particular Sub-Pool
will generally be borne: (i) in the case of the Sub-Pool I Certificates,
first, by the holders of the Class I-D Certificates, to the extent of amounts
otherwise distributable in respect of their Certificates; second, by the
holders of the Class I-C Certificates, to the extent of amounts otherwise
distributable in respect of their Certificates; third, by the holders of the
Class I-B Certificates, to the extent of amounts otherwise distributable in
respect of their Certificates; and last, by the holders of the Class I-A
Certificates to the extent of amounts otherwise distributable in respect of
their Certificates; and (ii) in the case of the Sub-Pool II Certificates,
first, by the holders of the Class II-C Certificates, to the extent of amounts
otherwise distributable in respect of their Certificates; second, by the
holders of the Class II-B Certificates, to the extent of amounts otherwise
distributable in respect of their Certificates; and last, by the holders of
the Class II-A Certificates.
Certain Relevant Factors. The rate and timing of principal payments and
defaults and the severity of losses on the Mortgage Loans may be affected by a
number of factors, including, without limitation, prevailing interest rates,
the terms of the Mortgage Loans (for example, prepayment premiums, adjustable
Mortgage Rates and amortization terms that require Balloon Payments), the
demographics and relative economic vitality of the areas in which the
Mortgaged Properties are located and the general supply and demand for rental
units in such areas, the quality of management of the Mortgaged Properties,
the servicing of the Mortgage Loans, possible changes in tax laws and other
opportunities for investment. See "Risk Factors--The Mortgage Loans" and
"Description of the Mortgage Pool."
The rate of prepayment on the Mortgage Loans in either Sub-Pool is likely to
be 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. Adjustments to the Mortgage Rates on the ARM
Loans will generally be limited by lifetime and/or periodic caps and floors
and, in each case, will be based on the related Index (which may not rise and
fall consistently with mortgage interest rates then available) plus the
related Gross Margin (which may be different from margins then offered on
adjustable rate mortgage loans). See "Description of the Mortgage Pool--
Mortgage Loan Information--Sub-Pool II." As a result, the Mortgage Rates on
the ARM Loans at any time may not be comparable to prevailing market interest
rates. In addition, as prevailing market interest rates decline, and without
regard to whether the Mortgage Rates on the ARM Loans decline in a manner
consistent therewith, related borrowers 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 a different index,
margin or rate cap or floor on another adjustable rate mortgage loan. Certain
of the Mortgage Loans may be prepaid at any time and, in certain cases,
without payment of a prepayment premium.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
Mortgaged Properties in order to realize their equity therein, to meet cash
flow needs or to make other investments. In addition, some borrowers may be
motivated by federal and state tax laws (which are subject to change) to sell
Mortgaged Properties prior to the exhaustion of tax depreciation benefits.
No representation can be made as to the particular factors that will affect
the rate and timing of prepayments and defaults on the Mortgage Loans, as to
the relative importance of such factors, as to the percentage of the principal
balance of the Mortgage Loans that will be prepaid or as to which a default
will have occurred as of any date or as to the overall rate of prepayment or
default on the Mortgage Loans.
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Delay in Payment of Distributions. The effective yield to holders of the
Sub-Pool I Certificates will differ from the yield otherwise produced by the
applicable Pass-Through Rates and purchase prices of such Certificates because
interest distributions will not be payable to such holders until the 25th day
of the month following the month of accrual (without any additional
distribution of interest or earnings thereon in respect of such delay).
Unpaid Interest. As described under "Description of the Certificates--
Distributions--Sub-Pool I Certificates--Priority" and "--Sub-Pool II
Certificates--Priority," if the portion of the Available Distribution Amount
for a particular Sub-Pool distributable in respect of interest on any
Corresponding class of Offered Certificates on any Distribution Date is less
than the Distributable Interest then payable for such class, the shortfall
will be distributable to holders of such class of Certificates on subsequent
Distribution Dates, to the extent of available funds, without interest thereon
to compensate such holders for the late payment.
WEIGHTED AVERAGE LIFE
The weighted average life of each class of Offered Certificates refers to
the average amount of time that will elapse from the date of its issuance
until each dollar allocable to principal of such Certificate is distributed to
the investor, and is determined for purposes of the tables below by (i)
multiplying the amount of each principal distribution thereon by the number of
years from the date of issuance of such class to the related Distribution
Date, (ii) summing the results and (iii) dividing the sum by the aggregate
amount of the reductions in the Class Balance of such class. The weighted
average life of an Offered Certificate of a particular class will be
influenced by, among other things, the rate at which principal of the Mortgage
Loans in the Sub-Pool evidenced thereby is paid or otherwise collected or
advanced. As described above, for a period of five years Distributable
Principal for a particular Sub-Pool and each Distribution Date will be
allocated solely to the Corresponding class A Certificates, then solely to the
Corresponding class B Certificates, then solely to the Corresponding class C
Certificates and, in the case of the Sub-Pool I Certificates, and then solely
to the class I-D Certificates, in each case until the entire class Balance
thereof has been paid in full, and for the following five year period, the
most senior class outstanding will receive a disproportionate share of
DIstributable Principal. Consequently, the weighted average lives of the
Corresponding class A Certificates will be shorter, and the weighted average
lives of the Corresponding class B Certificates, Corresponding class C
Certificates and, in the case of the Sub-Pool I Certificates, the class I-D
Certificates may be longer, than would otherwise be the case if such payments
or other collections of principal (or advances in respect thereof) were
distributable on a pro rata basis among all classes of Corresponding
Certificates.
Prepayments on mortgage loans may be measured by a prepayment standard or
model. The model used in this Prospectus is the "Constant Prepayment Rate" or
"CPR" model. The CPR model represents an assumed constant annual rate of
prepayment each month, expressed as a per annum percentage of the then
scheduled principal balance of the pool of mortgage loans. As used in each of
the following tables, the column headed "0%" assumes that none of the Mortgage
Loans in the applicable Sub-Pool is prepaid before maturity. The columns
headed "4%," "7%," "10%" and "15%" assume that prepayments on the Mortgage
Loans in the applicable Sub-Pool are made at those CPRs. There is no
assurance, however, that prepayments of the Mortgage Loans will conform to any
level of CPR, and no representation is made that the Mortgage Loans will
prepay at the CPRs shown or at any other prepayment rate.
MODELLING ASSUMPTIONS
The following tables indicate the percentage of the initial Class Balance of
each class of Offered Certificates that would be outstanding after each of the
dates shown at various CPRs and the corresponding weighted average life of
each such class of Offered Certificates. The tables have been prepared on the
basis of the following assumptions, among others:
(i) the Mortgage Loans prepay at the indicated percentage of the CPR;
(ii) that distributions on the Certificates are received, in cash, on the
25th day of each month, commencing in January, 1997;
(iii) the maturity dates for all Mortgage Loans that became Matured
Balloon Mortgage Loans on or before December 1, 1996 have been extended to
the date of the third anniversary of their related original maturity dates
that occurs after December 1, 1996;
94
<PAGE>
(iv) no defaults or delinquencies in, or modifications, waivers or
amendments respecting, the payment by the borrowers of Scheduled Payments
on the Mortgage Loans occur except as described in clause (iii) above;
(v) in the case of an ARM Loan, (a) the Mortgage Rate stays constant
until its first Mortgage Rate adjustment date, and then adjusts to a
Mortgage Rate equal to the applicable Index for such Mortgage Loan as set
forth below plus the applicable Gross Margin for such Mortgage Loan,
subject to all of the characteristics of the Mortgage Loan, and (b) LIBOR
will remain constant at 5.625% through the Final Scheduled Distribution
Date;
(vi) Scheduled Payments are received on the first day of each month
commencing in January 1996;
(vii) prepayments represent payment in full of individual Mortgage Loans,
are received on their respective Due Dates and include 30 days' interest
thereon;
(viii) there are no repurchases or substitutions of Mortgage Loans, and
no amounts are required to be paid by the FDIC in respect of shortfalls in
the Information Date Balances of the Mortgage Loans;
(ix) the Certificates are purchased on December 23, 1996;
(x) the Index for each ARM Loan will adjust immediately to 8.25% per
annum for The Wall Street Journal Prime Rate, 5.37% per annum for the one-
year Treasury Index, 5.70% per annum for the three-year Treasury Index,
5.85% per annum for the five-year Treasury Index, 6.32% per annum for the
5-year Federal Home Loan Bank Index, 6.32% per annum for the other
miscellaneous Indices and 4.839% for the various Cost-of-Funds Indices; the
Pass-Through Rate for each of the Class I-A, Class I-B, Class I-C, and I-D
Certificates is 6.75%, 7.0625%, 7.25% and 7.25% per annum respectively and
the Margin for the Class II-A, Class II-B and Class II-C Certificates is
.4%, .8% and 1.6% per annum respectively;
(xi) all Mortgage Loans are assumed to accrue interest on a 30/360 basis;
(xii) principal prepayments received on any Mortgage Loan within 12
months of a scheduled balloon payment or after a scheduled balloon payment
are not recharacticized as scheduled principal payments; notwithstanding
the fact that such principal prepayments will be so characterized for
purposes of Reallocating Principal to Subordinate Certificates;
(xiii) no optional termination of the Trust Fund occurs; and
(xiv) the servicing rate and trust administration fee on each Mortgage
Loan will, in the aggregate, equal .15% per annum.
The assumptions described above that have been made in preparing the
following tables are expected to vary from the actual performance of the
Mortgage Loans. In particular, actual prepayments are not likely to occur at
constant rates or at the assumed rates, and variations in prepayment speeds,
even if averaging to the same constant prepayment rate over time, may have
different effects on the payment rates of the Certificates. Further,
prepayments may apply disproportionately to Mortgage Loans with different
Mortgage Rates. There can be no assurance as to the actual rates of prepayment
of the Mortgage Loans or as to variations in applicable interest rates.
PRINCIPAL PAYMENT TABLES
Based on the foregoing assumptions, the tables indicate the weighted average
life of each class of Offered Certificates and set forth the percentage of the
initial Class Balance of each such class that would be outstanding after the
Distribution Date in July of each of the years indicated, under various
prepayment and scenarios.
None of the indicated percentages of CPR purports to be an historical
description of prepayment experience or a prediction of the anticipated rate
of prepayment of the Mortgage Loans included in the Mortgage Pool. Variations
in the actual prepayment experience and the balance of the Mortgage Loans that
prepay may increase
95
<PAGE>
or decrease the percentage of initial Class Balance (and weighted average
life) shown in the following tables. Such variations may occur even if the
average prepayment experience of all such Mortgage Loans equals any of the
specified percentages of the CPR. In addition, as described above under
"Description of the Mortgage Pool," the Mortgage Loans may be subject to
periods of slower amortization or to negative amortization, in which case the
weighted average lives of the Offered Certificates will be increased, and to
periods of accelerated amortization, in which case the weighted average lives
of the Offered Certificates will be decreased.
Investors are urged to conduct their own analyses of the rates at which the
Mortgage Loans may be expected to prepay.
Based on the foregoing assumptions, the following tables indicate the
resulting weighted average lives of the Certificates and sets forth the
percentage of the initial Class Balance of the Certificates that would be
outstanding after each of the dates shown at the indicated CPR Assumptions.
The characteristics of the Mortgage Loans in either Sub-Pool may differ from
those assumed in preparing the tables above. There can be no assurance that
the Mortgage Loans in either Sub-Pool will prepay at any of the rates shown in
the tables or at any other particular rate. In addition, it is unlikely that
any Mortgage Loan in either Sub-Pool will prepay at the specified percentages
of CPR until maturity or that all of the Mortgage Loans in such Sub-Pool will
prepay at the same rate. The timing of changes in the rate of prepayments may
significantly affect the actual yield to maturity to investors, even if the
average rate of principal prepayments is consistent with the expectations of
investors.
96
<PAGE>
PERCENT OF THE INITIAL CLASS BALANCE OF THE
CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW**
<TABLE>
<CAPTION>
CLASS I- CLASS I- CLASS I-
A CERTIFICATES B CERTIFICATES C CERTIFICATES
------------------- ------------------- -------------------
DATE 0% 4% 7% 10% 15% 0% 4% 7% 10% 15% 0% 4% 7% 10% 15%
---- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/01/96.......... 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
12/25/97.......... 90 86 82 79 73 100 100 100 100 100 100 100 100 100 100
12/25/98.......... 80 72 66 60 51 100 100 100 100 100 100 100 100 100 100
12/25/99.......... 63 53 46 39 30 100 100 100 100 100 100 100 100 100 100
12/25/00.......... 55 43 35 28 18 100 100 100 100 100 100 100 100 100 100
12/25/01.......... 50 36 27 20 9 100 100 100 100 100 100 100 100 100 100
12/25/02.......... 43 29 20 13 3 100 99 98 97 95 100 99 98 97 95
12/25/03.......... 33 20 12 5 0 100 97 95 93 52 100 97 95 93 89
12/25/04.......... 19 8 2 0 0 100 95 91 57 0 100 95 91 87 57
12/25/05.......... 0 0 0 0 0 0 0 0 0 0 29 0 0 0 0
12/25/06.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
12/25/07.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
12/25/08.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
12/25/09.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
12/25/10.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
12/25/11.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
12/25/12.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
12/25/13.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
12/25/14.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
12/25/15.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
12/25/16.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
12/25/17.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
12/25/18.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
12/25/19.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
12/25/20.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
12/25/21.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
12/25/22.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
12/25/23.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
1/25/24.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Average Life: 4.8 4.0 3.4 3.0 2.4 8.7 8.4 8.2 7.9 7.0 9.0 8.7 8.5 8.3 7.9
</TABLE>
- ------
** Assumes no extensions
97
<PAGE>
PERCENT OF THE INITIAL CLASS BALANCE OF THE
CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW**
<TABLE>
<CAPTION>
CLASS I- CLASS II- CLASS II-
D CERTIFICATES A CERTIFICATES B CERTIFICATES CLASS II-C CERTIFICATES
--------------------- ------------------- --------------------- ------------------------
DATE 0% 4% 7% 10% 15% 0% 4% 7% 10% 15% 0% 4% 7% 10% 15% 0% 4% 7% 10% 15%
- ---- ---- ---- --- --- --- --- --- --- --- --- ---- ---- --- --- --- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/01/96............ 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
12/25/97............ 100 100 100 100 100 85 81 78 74 69 100 100 100 100 100 100 100 100 100 100
12/25/98............ 100 100 100 100 100 69 62 57 53 45 100 100 100 100 100 100 100 100 100 100
12/25/99............ 100 100 100 100 100 56 48 42 36 27 100 100 100 100 100 100 100 100 100 100
12/25/00............ 100 100 100 100 100 47 37 31 25 16 100 100 100 100 100 100 100 100 100 100
12/25/01............ 100 100 100 100 100 34 24 18 12 5 100 100 100 100 100 100 100 100 100 100
12/25/02............ 100 99 98 97 95 28 18 12 7 0 100 99 98 97 93 100 99 98 97 95
12/25/03............ 100 97 95 93 89 20 11 6 1 0 100 97 95 93 48 100 97 95 93 89
12/25/04............ 100 95 91 87 81 8 1 0 0 0 100 95 70 41 6 100 95 91 87 81
12/25/05............ 100 82 61 46 27 4 0 0 0 0 100 77 44 20 0 100 92 86 80 64
12/25/06............ 36 24 18 13 7 1 0 0 0 0 100 57 29 10 0 100 88 80 72 48
12/25/07............ 31 20 14 10 5 0 0 0 0 0 79 34 13 0 0 100 85 74 63 34
12/25/08............ 22 14 9 6 3 0 0 0 0 0 57 20 3 0 0 100 81 69 49 25
12/25/09............ 19 11 7 5 2 0 0 0 0 0 37 7 0 0 0 100 78 57 37 18
12/25/10............ 12 7 4 3 1 0 0 0 0 0 17 0 0 0 0 100 69 44 28 13
12/25/11............ 8 4 3 2 1 0 0 0 0 0 1 0 0 0 0 100 55 34 21 9
12/25/12............ 6 3 2 1 * 0 0 0 0 0 0 0 0 0 0 80 42 25 15 6
12/25/13............ 5 2 1 1 * 0 0 0 0 0 0 0 0 0 0 60 30 18 10 4
12/25/14............ 4 2 1 1 * 0 0 0 0 0 0 0 0 0 0 46 22 12 7 2
12/25/15............ 3 1 1 * * 0 0 0 0 0 0 0 0 0 0 33 15 8 5 2
12/25/16............ 1 1 * * * 0 0 0 0 0 0 0 0 0 0 22 10 5 3 1
12/25/17............ 1 * * * * 0 0 0 0 0 0 0 0 0 0 15 6 3 2 *
12/25/18............ 1 * * * * 0 0 0 0 0 0 0 0 0 0 10 4 2 1 *
12/25/19............ 1 * * * * 0 0 0 0 0 0 0 0 0 0 7 3 1 1 *
12/25/20............ * * * * * 0 0 0 0 0 0 0 0 0 0 5 2 1 * *
12/25/21............ * * * * * 0 0 0 0 0 0 0 0 0 0 3 1 1 * *
12/25/22............ * * * * * 0 0 0 0 0 0 0 0 0 0 2 1 * * *
12/25/23............ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 * * * * *
1/25/24............ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Average Life: 10.9 10.0 9.6 9.2 8.7 4.1 3.4 3.0 2.6 2.1 12.5 10.4 9.1 8.2 7.0 18.4 15.3 13.6 12.2 10.4
</TABLE>
- -----
* Indicates an amount between zero and 0.5% of the original aggregate
Certificate Principal Amount outstanding.
** Assumes no extensions.
98
<PAGE>
DURATION TABLES
Based upon the foregoing assumption and on the assumption of no extensions,
the tables indicate various price and prepayment speeds of each class of
Offered Certificates and sets forth the CBE yield and duration at such price
and speeds.
CBE YIELD AND DURATION OF THE CLASS I-A CERTIFICATES (6.750% COUPON)
AT THE RESPECTIVE CPR AND PRICE SET FORTH BELOW
<TABLE>
<CAPTION>
0% CPR 4% CPR 7% CPR 10% CPR 15% CPR
------------------ ------------------ ------------------ ------------------ ------------------
PRICE CBE YIELD DURATION CBE YIELD DURATION CBE YIELD DURATION CBE YIELD DURATION CBE YIELD DURATION
----- --------- -------- --------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
99-16................... 6.859 3.81 6.861 3.21 6.863 2.83 6.866 2.49 6.870 2.03
99-20................... 6.826 3.81 6.822 3.22 6.819 2.83 6.816 2.49 6.809 2.04
99-24................... 6.793 3.82 6.784 3.22 6.775 2.83 6.766 2.50 6.748 2.04
99-28................... 6.761 3.82 6.745 3.22 6.731 2.84 6.716 2.50 6.686 2.04
100-00.................. 6.728 3.82 6.706 3.23 6.687 2.84 6.666 2.50 6.625 2.04
100-04.................. 6.695 3.82 6.668 3.23 6.643 2.84 6.616 2.50 6.565 2.05
100-08.................. 6.663 3.83 6.629 3.23 6.600 2.84 6.566 2.50 6.504 2.05
100-12.................. 6.631 3.83 6.591 3.23 6.556 2.85 6.517 2.51 6.443 2.05
100-16.................. 6.598 3.83 6.552 3.24 6.513 2.85 6.467 2.51 6.383 2.05
100-20.................. 6.566 3.84 6.514 3.24 6.469 2.85 6.418 2.51 6.322 2.05
100-24.................. 6.534 3.84 6.476 3.24 6.426 2.85 6.369 2.51 6.262 2.05
100-28.................. 6.502 3.84 6.438 3.24 6.382 2.86 6.320 2.52 6.202 2.06
101-00.................. 6.469 3.84 6.400 3.25 6.339 2.86 6.271 2.52 6.142 2.06
Average Life 4.82 3.97 3.43 2.96 2.35
First Pay 01/25/97 01/25/97 01/25/97 01/25/97 01/25/97
Last Pay 07/25/05 04/25/05 02/25/05 07/25/04 05/25/03
</TABLE>
CBE YIELD AND DURATION OF THE CLASS I-B CERTIFICATES (7.0625% COUPON)
AT THE RESPECTIVE CPR AND PRICE SET FORTH BELOW
<TABLE>
<CAPTION>
0% CPR 4% CPR 7% CPR 10% CPR 15% CPR
------------------ ------------------ ------------------ ------------------ ------------------
PRICE CBE YIELD DURATION CBE YIELD DURATION CBE YIELD DURATION CBE YIELD DURATION CBE YIELD DURATION
----- --------- -------- --------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
97-24................... 7.453 6.27 7.460 6.12 7.466 6.00 7.474 5.84 7.505 5.31
98-04................... 7.392 6.27 7.398 6.13 7.402 6.01 7.409 5.84 7.433 5.31
98-16................... 7.332 6.28 7.336 6.14 7.339 6.02 7.344 5.85 7.362 5.32
98-28................... 7.272 6.28 7.274 6.14 7.276 6.02 7.279 5.85 7.290 5.32
99-08................... 7.212 6.29 7.213 6.15 7.214 6.03 7.215 5.86 7.220 5.33
99-20................... 7.152 6.30 7.152 6.15 7.151 6.03 7.151 5.86 7.149 5.33
100-00.................. 7.093 6.30 7.091 6.16 7.089 6.04 7.087 5.87 7.079 5.34
100-12.................. 7.034 6.31 7.030 6.17 7.028 6.05 7.024 5.88 7.009 5.34
100-24.................. 6.975 6.32 6.970 6.17 6.966 6.05 6.961 5.88 6.940 5.35
101-04.................. 6.916 6.32 6.910 6.18 6.905 6.06 6.898 5.89 6.871 5.35
101-16.................. 6.858 6.33 6.851 6.19 6.844 6.06 6.835 5.89 6.802 5.36
101-28.................. 6.800 6.34 6.791 6.19 6.784 6.07 6.773 5.90 6.734 5.36
102-08.................. 6.742 6.34 6.732 6.20 6.724 6.08 6.711 5.91 6.665 5.37
Average Life 8.69 8.43 8.21 7.90 6.97
First Pay 07/25/05 01/25/02 01/25/02 01/25/02 01/25/02
Last Pay 10/25/05 07/25/05 06/25/05 04/25/05 07/25/04
</TABLE>
99
<PAGE>
CBE YIELD AND DURATION OF THE CLASS I-C CERTIFICATES (7.250% COUPON)
AT THE RESPECTIVE CPR AND PRICE SET FORTH BELOW
<TABLE>
<CAPTION>
0% CPR 4% CPR 7% CPR 10% CPR 15% CPR
------------------ ------------------ ------------------ ------------------ ------------------
PRICE CBE YIELD DURATION CBE YIELD DURATION CBE YIELD DURATION CBE YIELD DURATION CBE YIELD DURATION
----- --------- -------- --------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
96-16................... 7.842 6.34 7.854 6.18 7.863 6.07 7.872 5.96 7.892 5.74
97-00................... 7.761 6.35 7.771 6.19 7.778 6.08 7.786 5.97 7.802 5.75
97-16................... 7.680 6.36 7.688 6.20 7.694 6.09 7.700 5.98 7.713 5.76
98-00................... 7.600 6.37 7.606 6.21 7.611 6.10 7.615 5.99 7.625 5.77
98-16................... 7.520 6.38 7.525 6.22 7.528 6.11 7.531 6.00 7.537 5.77
99-00................... 7.441 6.39 7.444 6.23 7.445 6.12 7.447 6.01 7.450 5.78
99-16................... 7.363 6.40 7.363 6.24 7.363 6.12 7.363 6.01 7.363 5.79
100-00.................. 7.285 6.40 7.283 6.25 7.282 6.13 7.280 6.02 7.277 5.80
100-16.................. 7.208 6.41 7.204 6.26 7.201 6.14 7.198 6.03 7.192 5.81
101-00.................. 7.131 6.42 7.125 6.26 7.120 6.15 7.116 6.04 7.107 5.81
101-16.................. 7.054 6.43 7.046 6.27 7.040 6.16 7.035 6.05 7.022 5.82
102-00.................. 6.978 6.44 6.968 6.28 6.961 6.17 6.954 6.06 6.938 5.83
102-16.................. 6.903 6.45 6.891 6.29 6.882 6.17 6.873 6.06 6.855 5.84
Average Life 8.99 8.69 8.47 8.27 7.86
First Pay 10/25/05 01/25/02 01/25/02 01/25/02 01/25/02
Last Pay 01/25/06 11/25/05 10/25/05 08/25/05 05/25/05
</TABLE>
CBE YIELD AND DURATION OF THE CLASS I-D CERTIFICATES (7.250% COUPON)
AT THE RESPECTIVE CPR AND PRICE SET FORTH BELOW
<TABLE>
<CAPTION>
0% CPR 4% CPR 7% CPR 10% CPR 15% CPR
------------------ ------------------ ------------------ ------------------ ------------------
PRICE CBE YIELD DURATION CBE YIELD DURATION CBE YIELD DURATION CBE YIELD DURATION CBE YIELD DURATION
----- --------- -------- --------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
94-00................... 8.160 7.02 8.201 6.69 8.227 6.49 8.250 6.32 8.285 6.09
94-16................... 8.085 7.04 8.122 6.70 8.146 6.50 8.167 6.33 8.198 6.10
95-00................... 8.011 7.05 8.044 6.71 8.065 6.51 8.084 6.35 8.112 6.11
95-16................... 7.937 7.06 7.966 6.73 7.985 6.53 8.001 6.36 8.026 6.12
96-00................... 7.863 7.08 7.889 6.74 7.905 6.54 7.920 6.37 7.942 6.13
96-16................... 7.790 7.09 7.812 6.75 7.826 6.55 7.839 6.38 7.857 6.14
97-00................... 7.718 7.10 7.736 6.76 7.748 6.56 7.758 6.39 7.774 6.15
97-16................... 7.646 7.12 7.660 6.77 7.670 6.57 7.678 6.40 7.690 6.16
98-00................... 7.574 7.13 7.585 6.79 7.592 6.58 7.598 6.41 7.608 6.17
98-16................... 7.503 7.14 7.511 6.80 7.515 6.59 7.519 6.42 7.526 6.18
99-00................... 7.433 7.16 7.436 6.81 7.439 6.60 7.441 6.43 7.444 6.19
99-16................... 7.363 7.17 7.363 6.82 7.363 6.61 7.363 6.44 7.363 6.20
100-00.................. 7.293 7.18 7.290 6.83 7.288 6.63 7.286 6.45 7.283 6.21
Average Life 10.85 10.03 9.56 9.18 8.67
First Pay 01/25/06 01/25/02 01/25/02 01/25/02 01/25/02
Last Pay 07/25/23 07/25/23 07/25/23 07/25/23 07/25/23
</TABLE>
100
<PAGE>
DISCOUNT MARGIN OF THE CLASS II-A CERTIFICATES (6.025% COUPON)
AT THE RESPECTIVE CPR AND PRICE SET FORTH BELOW
<TABLE>
<CAPTION>
PRICE 0% CPR 4% CPR 7% CPR 10% CPR 15% CPR
----- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
99-08............................ 62.0 65.9 69.1 72.7 78.9
99-12............................ 58.3 61.6 64.2 67.2 72.4
99-16............................ 54.6 57.3 59.4 61.7 65.9
99-20............................ 50.9 52.9 54.5 56.3 59.4
99-24............................ 47.3 48.6 49.7 50.8 52.9
99-28............................ 43.6 44.3 44.8 45.4 46.5
100-00........................... 40.0 40.0 40.0 40.0 40.0
100-04........................... 36.4 35.7 35.2 34.6 33.6
100-08........................... 32.7 31.4 30.4 29.2 27.1
100-12........................... 29.1 27.1 25.6 23.8 20.7
100-16........................... 25.5 22.9 20.8 18.4 14.3
100-20........................... 21.9 18.6 16.0 13.1 07.9
100-24........................... 18.3 14.4 11.2 7.7 1.5
Weighted Average Life : 4.08 3.37 2.96 2.60 2.14
First Principal Payment Date : 01/25/97 01/25/97 01/25/97 01/25/97 01/25/97
Last Principal Payment Date : 03/25/07 04/25/05 11/25/04 05/25/04 12/25/02
</TABLE>
DISCOUNT MARGIN OF THE CLASS II-B CERTIFICATES (6.425% COUPON)
AT THE RESPECTIVE CPR AND PRICE SET FORTH BELOW
<TABLE>
<CAPTION>
PRICE 0% CPR 4% CPR 7% CPR 10% CPR 15% CPR
----- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
98-16............................ 97.7 100.2 102.1 103.8 106.9
98-24............................ 94.8 96.8 98.4 99.8 102.4
99-00............................ 91.8 93.4 94.7 95.8 97.9
99-08............................ 88.8 90.0 91.0 91.9 93.4
99-16............................ 85.9 86.7 87.3 87.9 88.9
99-24............................ 82.9 83.3 83.7 83.9 84.4
100-00........................... 80.0 80.0 80.0 80.0 80.0
100-08........................... 77.1 76.7 76.3 76.1 75.6
100-16........................... 74.2 73.4 72.7 72.2 71.1
100-24........................... 71.3 70.1 69.1 68.2 66.7
101-00........................... 68.4 66.8 65.5 64.3 62.3
101-08........................... 65.5 63.5 61.9 60.5 58.0
101-16........................... 62.6 60.2 58.3 56.6 53.6
Weighted Average Life : 12.48 10.38 9.10 8.22 7.02
First Principal Payment Date : 03/25/07 01/25/02 01/25/02 01/25/02 01/25/02
Last Principal Payment Date : 01/25/12 07/25/10 04/25/09 11/25/07 04/25/05
</TABLE>
101
<PAGE>
DISCOUNT MARGIN OF THE CLASS II-C CERTIFICATES (7.225% COUPON)
AT THE RESPECTIVE CPR AND PRICE SET FORTH BELOW
<TABLE>
<CAPTION>
PRICE 0% CPR 4% CPR 7% CPR 10% CPR 15% CPR
----- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
97-00............................ 190.4 193.9 196.3 198.7 202.7
97-16............................ 185.2 188.1 190.2 192.1 195.5
98-00............................ 180.1 182.4 184.0 185.6 188.3
98-16............................ 175.0 176.8 178.0 179.1 181.2
99-00............................ 170.0 171.1 171.9 172.7 174.1
99-16............................ 165.0 165.5 165.9 166.3 167.0
100-00........................... 160.0 160.0 160.0 160.0 160.0
100-16........................... 155.1 154.5 154.1 153.7 153.0
101-00........................... 150.2 149.0 148.2 147.5 146.1
101-16........................... 145.3 143.6 142.4 141.2 139.3
102-00........................... 140.5 138.2 136.6 135.1 132.4
102-16........................... 135.7 132.8 130.9 128.9 125.7
103-00........................... 130.9 127.5 125.2 122.9 118.9
Weighted Average Life : 18.36 15.28 13.59 12.24 10.44
First Principal Payment Date : 01/25/12 01/25/02 01/25/02 01/25/02 01/25/02
Last Principal Payment Date : 01/25/24 01/25/24 01/25/24 01/25/24 01/25/24
</TABLE>
OTHER FACTORS AFFECTING YIELD, WEIGHTED AVERAGE LIFE AND MATURITY
Balloon Payments; Extensions of Maturity. Because the ability of a borrower
to make a Balloon Payment typically will depend upon its ability either to
refinance the loan or to sell the related Mortgaged Property, there is a risk
that the Balloon Loans may default at maturity, or that the maturity of such a
Balloon Loan may be extended in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things,
bankruptcy of the borrower or adverse conditions in the market where the
property is located. In order to minimize losses on defaulted Balloon Loans,
the Servicer, with the consent of FDIC and to the extent and under the
circumstances set forth herein, is authorized to modify Balloon Loans that are
in default or as to which a payment default is reasonably foreseeable. See
"Servicing of the Mortgage Loans--Modifications, Waivers and Amendments." Any
defaulted Balloon Payment or modification that extends the maturity of a
Balloon Loan in a particular Sub-Pool may delay distributions of principal on
a Corresponding class of Offered Certificates and thereby extend the weighted
average life of such Certificates and, if such Certificates were purchased at
a discount, reduce the yield thereon. Furthermore, any distributions of
principal so delayed will be distributable only to the most senior
Corresponding class of Certificates, thereby extending the weighted average
life of Corresponding subordinated Certificates.
Negative Amortization. The weighted average life of the Sub-Pool II
Certificates will be affected by any ARM Loan that contains provisions that
limit the amount by which its Scheduled Payment may adjust in response to a
change in its Mortgage Rate, that provide that its Scheduled Payment will
adjust less frequently than its Mortgage Rate or that provide for constant
Scheduled Payments notwithstanding adjustments to its Mortgage Rate.
Generally, negative amortization will result in deferral of interest to the
Corresponding Stripped Interest Certificate, with amounts in excess of such
deferral on a given Distribution Date being allocable to the most subordinated
Corresponding class.
During a period of increasing interest rates, such an ARM Loan would be
expected to amortize at a slower rate (and perhaps not at all) than if
interest rates were declining or were remaining constant. A slower rate of
amortization or negative amortization on an ARM Loan would correspondingly be
reflected in a slower rate of amortization or negative amortization on the
Sub-Pool II Certificates. Accordingly, the weighted average lives of ARM Loans
that permit negative amortization (and that of the classes of Sub-Pool II
Certificates to which any
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such negative amortization would be allocated or that would bear the effects
of a slower rate of amortization on such ARM Loans) will increase as a result
of such feature. During a period of declining interest rates, such an ARM Loan
would be expected to amortize at a faster rate than if interest rates were
increasing or were remaining constant. A faster rate of amortization on an ARM
Loan would correspondingly be reflected in a faster rate of amortization on
the Sub-Pool II Certificates. Any such acceleration in amortization of its
principal balance will shorten the weighted average life of such ARM Loan and,
correspondingly, the weighted average lives of those classes of Sub-Pool II
Certificates then entitled to receive Distributable Principal.
The extent to which the yield on any Sub-Pool II Certificate will be
affected by ARM Loans that permit "Negative Amortization" will depend upon (i)
whether such Sub-Pool II Certificate was purchased at a premium or a discount
and (ii) the extent to which the payment characteristics of such ARM Loans
delay or accelerate the distributions of principal on such Certificate. See
"--Yield Considerations" and "Description of the Certificates--Distributions--
Interest Distribution Calculations."
Foreclosures and Payment Plans. The number of foreclosures and the principal
amount of the Mortgage Loans in a particular Sub-Pool that are foreclosed in
relation to the number and principal amount of such Mortgage Loans that are
repaid in accordance with their terms will affect the weighted average lives
of those Mortgage Loans and, accordingly, the weighted average lives of and
yields on the Offered Certificates evidencing an interest in such Sub-Pool.
Servicing decisions made with respect to the Mortgage Loans in a particular
Sub-Pool, including the use of payment plans prior to a demand for
acceleration and the restructuring of such Mortgage Loans in bankruptcy
proceedings, may also have an effect upon the payment patterns of such
Mortgage Loans and thus the weighted average lives of and yields on the
Certificates evidencing an interest in such Sub-Pool.
Representations and Warranties; Remedies. The number of purchases and the
principal amount of Mortgage Loans in a particular Sub-Pool that are
repurchased in relation to the number and principal amount of such Mortgage
Loans that are repaid in accordance with their terms will affect the weighted
average lives of those Mortgage Loans and, accordingly, the weighted average
lives of and yields on the Offered Certificates evidencing an interest in such
Sub-Pool. See "Description of the Mortgage Pool--Representations and
Warranties; Remedies."
THE FEDERAL DEPOSIT INSURANCE CORPORATION
GENERAL
The Federal Deposit Insurance Corporation is a federally-chartered
corporation organized under the laws of the United States. Congress
established the FDIC in 1933 to provide protection for bank depositors and to
foster sound banking practices. The principal office of the FDIC is located at
550 17th Street, N.W., Washington, D.C. 20429.
The FDIC acts as a corporation for the purposes of administering the Funds
(as defined below) and regulating the activities of insured depository
institutions, and as a receiver or conservator for troubled or failed
institutions. In its corporate capacity, the FDIC has, among others, the
following powers: to make contracts; to sue and be sued; to have succession
until dissolved by an Act of Congress; to prescribe rules and regulations
necessary to carry out the provisions of any law that it has the
responsibility of administering or enforcing; to make examinations of and to
require information and reports from depository institutions; and to exercise
all powers specifically granted to it by law and such incidental powers as are
necessary to carry out the powers so granted.
As receiver of a depository institution, the FDIC succeeds to all rights,
titles, powers and privileges of the institution, its shareholders, members,
account holders, depositors, creditors, officers or directors with respect to
the institution and its assets. The FDIC may perform all functions of the
institution, collect all obligations due to the institution and preserve and
conserve the assets and property of the institution. Additionally, in its
capacity
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as receiver, the FDIC may organize a new federal savings association to take
over the assets and liabilities of a defaulted savings association; organize a
new national bank or bridge bank with respect to any insured bank; or
liquidate the institution having due regard to the conditions of credit in the
locality.
THE MORTGAGE LOAN SELLER
On the Closing Date, the FDIC, as receiver for approximately 200 Depository
Institutions and as administrator of the Bank Insurance Fund (in such
capacities, the "Mortgage Loan Seller"), will assign its interest in the
Mortgage Loans, without recourse, to the Trustee for the benefit of the
Certificateholders pursuant to the Pooling and Servicing Agreement. The
Mortgage Loan Seller has been appointed as receiver with respect to a number
of depository institutions, including each of the Depository Institutions.
THE BANK INSURANCE FUND
GENERAL
The Bank Insurance Fund (the "BIF") was established by Congress in 1989
pursuant to the Financial Institutions Reform, Recovery, and Enforcement Act
of 1989 ("FIRREA") as the successor to the Deposit Insurance Fund. In response
to the insolvency of the Federal Savings and Loan Insurance Corporation (the
"FSLIC"), the source of deposit insurance for savings and loans prior to the
enactment of FIRREA, Congress enacted FIRREA to reform, recapitalize and
consolidate the federal deposit insurance system. The BIF insures the deposits
of all of its member institutions (typically, commercial or savings banks)
(collectively, the "Member Institutions"). In addition to the BIF, FIRREA
established the Savings Association Insurance Fund (the "SAIF") to insure the
deposits of all of its member institutions (typically, thrifts), and the FSLIC
Resolution Fund (the "FRF") to wind up the affairs of the FSLIC, which was
abolished by FIRREA and of the Resolution Trust Corporation which was
terminated by statute as of December 31, 1995. All three funds (collectively,
the "Funds") are administered by the FDIC and are separately maintained to
carry out their respective mandates, and the FDIC is prohibited from
commingling the assets of the Funds. In addition, the FDIC, acting on behalf
of the BIF, examines state chartered banks that are not member institutions of
the Federal Reserve System and provides and monitors assistance to BIF insured
failing banks.
SOURCES OF FUNDS
Assessments. The primary source of funding for the BIF are investment income
and deposit insurance premiums assessed against Member Institutions. Under
Section 7 of the Federal Deposit Insurance Act (the "FDI Act"), the FDIC has
the ability to set assessment rates for the Member Institutions. Premium
assessment rates are determined by the FDIC in its discretion, and are paid to
the BIF quarterly.
In addition to the deposit insurance assessments imposed on Member
Institutions, the FDIC may impose special assessments for any purpose that the
FDIC deems necessary, including without limitation, to repay borrowings from
the U.S. Treasury or Member Institutions or to satisfy its obligations under
the Limited Guaranty. For further information about the BIF, see the financial
statements of the BIF beginning on page F-1 of this Prospectus.
Borrowings. Under the FDI Act, the FDIC is authorized to borrow on behalf of
the BIF or the SAIF from the U.S. Treasury and Member Institutions (and to
provide security to Member Institutions for such loans). Borrowings are to be
used by the FDIC in carrying out its insurance obligations, including its
obligations under the Limited Guaranty. The FDIC's authority to borrow from
the U.S. Treasury is subject to the approval of the Secretary of the Treasury
and to an aggregate limit of $30 billion. Currently, the FDIC has no
indebtedness outstanding to the U.S. Treasury or to any Member Institution.
The FDIC is also authorized to borrow funds from the Federal Financing Bank
("FFB"), subject to the Maximum Obligation Limitation (as defined below).
Currently, the FDIC has no indebtedness outstanding to the
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FFB other than certain indebtedness of the FRF for which the FRF alone (and
not the BIF or the SAIF) is statutorily liable. See "--Limitations on
Indebtedness."
LIMITATIONS ON INDEBTEDNESS
The FDI Act limits the amount of obligations that the FDIC may incur on
behalf of the BIF or the SAIF (the "Maximum Obligation Limitation"). Such
obligations cannot exceed the sum of:
(A) the amount of cash and cash equivalents held by the BIF;
(B) 90% of the FDIC's estimate of the fair market value of assets held
other than amounts referred to in (A) above; and
(C) the total amounts authorized to be borrowed from the Secretary of the
Treasury pursuant to Section 14(a) of the FDI Act, which presently is $30
billion.
For the purposes of Maximum Obligation Limitation, obligations include:
(A) any guarantee issued by the FDIC, other than deposit guarantees;
(B) any amounts borrowed pursuant to Section 14 of the FDI Act; and
(C) any other obligation for which the FDIC has a direct or contingent
liability to pay any amount.
Contingent liabilities, such as the Limited Guaranty, are measured, for
purposes of calculating the Maximum Obligation Limitation, based on their
expected cost to the FDIC, rather than their face amount. As noted, deposit
guarantees are excluded, and are represented on the BIF statement of financial
position as estimated liabilities for unresolved cases.
As of September 30, 1996, December 31, 1995 and December 31, 1994, the
maximum obligation authority available to the FDIC on behalf of the BIF was
approximately $48.0 billion, $47.0 billion and $51.6 billion, respectively.
PRIORITY OF CLAIMS AGAINST THE BIF
Generally. With certain important exceptions, discussed below, the FDIC's
obligations under the Limited Guaranty will rank pari passu with all other
general obligations of the FDIC. The obligations of the FDIC under the Limited
Guaranty are not by their terms supported by the full faith and credit of the
United States. Rather, the obligations of the FDIC under the Limited Guaranty
are supported solely by the BIF. In the event of the insolvency of the BIF,
the ability of the FDIC to perform under the Limited Guaranty will be
dependent upon the ability of the FDIC to replenish the BIF through deposit
insurance assessments imposed on Member Institutions, borrowings from the U.S.
Treasury and from its other sources of funds, as described above under "--
Sources of Funds."
Treasury Borrowings. In the event of the insolvency of the FDIC, any
indebtedness outstanding to the U.S. Treasury may have to be paid before other
indebtedness of the FDIC, including any amounts outstanding under the Limited
Guaranty. Under the Federal Insolvency Act, Title 31 United States Code,
Section 3713, a claim of the United States may be required to be paid first
when a person (other than a person subject to Chapter 11 of the United States
Bankruptcy Code) indebted to the United States Government is insolvent.
Secured Borrowings. As stated above, the FDIC presently has no indebtedness
to any Member Institution; however, to the extent that the FDIC borrows funds
from Member Institutions and provides security for such borrowings, the FDIC's
secured creditors would have priority with respect to the specific property
securing any such loan.
FFB Borrowings. As stated above, the FDIC presently has no indebtedness to
the FFB payable by or with respect to the BIF, and the priority of the claim
created by any future FFB borrowings is uncertain. It is possible that any
such claim would constitute a claim of the United States Government which
under the Federal Insolvency Act might be required to be paid prior to any
payments of general obligations, including any amounts owed under the Limited
Guaranty.
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DEFENSES TO PAYMENT OF BIF OBLIGATIONS UNDER THE LIMITED GUARANTY
The obligations of the FDIC under the Limited Guaranty constitute unsecured
contract obligations for which the Trustee, on behalf of the
Certificateholders, may seek judicial enforcement. The FDIC is not aware of
any available statutory or common law defenses that would permit avoidance of
its obligations under the Limited Guaranty; provided, however, that
enforcement of the obligations under the Limited Guaranty might be limited by
a court exercising equitable jurisdiction. In connection with its delivery of
the Limited Guaranty, the FDIC will deliver at closing an opinion of the
General Counsel to the effect that the Limited Guaranty constitutes a duly
authorized, valid and enforceable obligation of the FDIC and that the FDIC is
authorized to enter into and perform its obligations under the Limited
Guaranty.
DESCRIPTION OF THE POOLING AND SERVICING AGREEMENT
GENERAL
A form of the Pooling and Servicing Agreement has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part. The
following summaries describe certain provisions that appear in the Pooling and
Servicing Agreement. 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 and Servicing Agreement. A copy of the Pooling
and Servicing Agreement (including the Mortgage Loan Schedule attached
thereto) will be provided by the Trustee upon written request of a
Certificateholder. The Trustee may impose a reasonable charge for providing
such copies.
ACCOUNTS
General. The Servicer will be required to establish and maintain or cause to
be established and maintained one or more separate accounts or sub-accounts
for the collection of payments on or in respect of the Mortgage Loans in a
particular Sub-Pool (collectively, the "Collection Account"). Each account or
sub-account constituting the Collection Account will be either (i) an account
maintained with either a federal or state chartered depository institution or
trust company, the short term deposit or debt obligations of which (or of such
institution's parent holding company) are rated in the highest rating category
of Moody's Investors Service ("Moody's") and Duff & Phelps Credit Rating Co.
("Duff & Phelps"), at the time of any deposit therein (or, if such obligations
are, at the time of such deposit, not rated by either Duff & Phelps or
Moody's, such obligations need only be rated by any two of Duff & Phelps,
Fitch (as defined herein), Moody's, and Standard & Poor's (as defined
herein)), or (ii) a trust account or accounts maintained with a federal or
state chartered depository institution or trust company acting in its
fiduciary capacity.
The Servicer will also establish and maintain one or more separate custodial
accounts (collectively, the "REO Account") to be used in connection with REO
Properties in a particular Sub-Pool acquired on behalf of the holders of
Certificates evidencing an interest therein. Pursuant to the Pooling and
Servicing Agreement, the Servicer will deposit into the applicable REO Account
upon receipt all revenues received by it in respect of any REO Property. As
set forth in the Pooling and Servicing Agreement, the Servicer will be
entitled to make certain withdrawals from the REO Account for a particular
Sub-Pool to, among other things, (i) make remittances to the Trustee for
deposit into the Distribution Account as required by the Pooling and Servicing
Agreement, as described under "Servicing of the Mortgage Loans--Collections
and Other Servicing Procedures," (ii) pay taxes, assessments, insurance
premiums, other amounts necessary for the proper operation, management and
maintenance of the REO Properties in such Sub-Pool and certain third-party
expenses in accordance with the Pooling and Servicing Agreement and (iii) to
pay or reimburse the Servicer or the FDIC for certain advances, fees and
expenses made or incurred in respect of such Sub-Pool.
Permitted Investments. Amounts on deposit in the Collection Account and the
REO Account may be invested pending each succeeding Distribution Date in
United States government securities and other high quality investments
specified in the Pooling and Servicing Agreement ("Permitted Investments").
Permitted Investments will consist of one or more of the following:
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(i) direct obligations of, or guaranteed as to timely payment of
principal and interest by, the United States or any agency or
instrumentality thereof, provided that such obligations are backed by the
full faith and credit of the United States of America;
(ii) direct obligations of, or guaranteed as to timely payment of
principal and interest by, the Federal Home Loan Mortgage Corporation
("FHLMC"), Fannie Mae (formerly the Federal National Mortgage Association)
("FNMA") or the Federal Farm Credit System, provided that any such
obligation, at the time of purchase or contractual commitment providing for
the purchase thereof, is qualified by each Rating Agency as an investment
of funds backing securities rated in the highest category by each Rating
Agency or is backed by the full faith and credit of the United States of
America;
(iii) demand and time deposits in or certificates of deposit of, or
bankers' acceptances issued by, any bank or trust company, savings and loan
association or savings bank, provided that, in the case of obligations that
are not fully FDIC-insured deposits, the commercial paper and/or long-term
unsecured debt obligations of such depository institution or trust company
(or in the case of the principal depository institution in a holding
company system, the commercial paper or long-term unsecured debt
obligations of such holding company) have the highest rating available for
such securities by each Rating Agency (in the case of commercial paper) or
have received the highest rating available for such securities by each
Rating Agency (in the case of long-term unsecured debt obligations), or
such lower rating as will not result in the downgrading or withdrawal of
the rating or ratings then assigned to the Offered Certificates by either
Rating Agency;
(iv) general obligations of or obligations guaranteed by any state of the
United States or the District of Columbia receiving the highest long-term
debt rating available for such securities by each Rating Agency, or such
lower rating as will not result in the downgrading or withdrawal of the
rating or ratings then assigned to the Offered Certificates by either
Rating Agency;
(v) commercial or finance company paper (including both non-interest-
bearing discount obligations and interest-bearing obligations payable on
demand or on a specified date not more than one year after the date of
issuance thereof) that is rated by each Rating Agency in its highest short-
term unsecured rating category at the time of such investment or
contractual commitment providing for such investment, and is issued by a
corporation the outstanding senior long-term debt obligations of which are
then rated by each Rating Agency in its highest long-term unsecured rating
category, or such lower rating as will not result in the downgrading or
withdrawal of the rating or ratings then assigned to the Offered
Certificates by either Rating Agency;
(vi) guaranteed reinvestment agreements issued by any bank, insurance
company or other corporation as will not result in the downgrading or
withdrawal of the rating or ratings then assigned to the Offered
Certificates by either Rating Agency;
(vii) repurchase obligations with respect to any security described in
clause (i) or (ii) above entered into with a depository institution or
trust company (acting as principal) meeting the rating standards described
in clause (iii) above;
(viii) securities bearing interest or sold at a discount that are issued
by any corporation incorporated under the laws of the United States of
America or any state thereof or the District of Columbia and rated by each
Rating Agency in its highest long-term unsecured rating category at the
time of such investment or contractual commitment providing for such
investment; provided, however, that securities issued by any such
corporation will not be Permitted Investments to the extent that investment
therein would cause the then outstanding principal amount of securities
issued by such corporation that are then held as part of the Collection
Account or the Distribution Account to exceed 20% of the aggregate
principal amount of all Permitted Investments then held in the Collection
Account and the Distribution Account;
(ix) units of taxable money market funds, which funds are regulated
investment companies, seek to maintain a constant net asset value per share
and invest solely in obligations backed by the full faith and credit of the
United States, and have been designated in writing by each Rating Agency as
Permitted Investments with respect to this definition;
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(x) if previously confirmed in writing to the Trustee any other demand,
money market or time deposit, or any other obligation, security or
investment, as may be acceptable to each Rating Agency as a permitted
investment of funds backing securities rated in the highest category by
each Rating Agency; and
(xi) such other obligations as are acceptable as Permitted Investments to
each Rating Agency;
provided, however, that (A) such obligation or security continues to qualify
as a "cash flow investment" pursuant to Section 860G(a)(6) of the Code; (B) no
obligation or security shall be a Permitted Investment if (i) such obligation
or security evidences a right to receive only interest payments or (ii) the
stated interest rate on such obligation or security is in excess of 120% of
the yield to maturity produced by the price at which such obligation or
security was purchased; and (C) if such obligation or security is, at the time
of such investment, not rated by Duff & Phelps, such obligation or security
need only be rated by Moody's.
Any interest or other income earned on funds in such accounts will be paid
to the Servicer as additional servicing compensation and the risk of loss of
funds in the such accounts resulting from such investments will be borne by
the Servicer. The amount of such loss will be required to be deposited by the
Servicer in the Collection Account or the REO Account, as the ease may be,
immediately as realized.
COLLECTION ACCOUNT
Deposits. The Servicer will be required to deposit or cause to be deposited
in the Collection Account for a particular Sub-Pool the following payments and
collections received or made by the Servicer in respect of such Sub-Pool
subsequent to the Cut-off Date (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 in such Sub-Pool;
(ii) all payments on account of interest on the Mortgage Loans in such
Sub-Pool (net of any portion thereof retained by the Servicer as Servicing
Fees) and all prepayment premiums;
(iii) all Insurance Proceeds;
(iv) all payments required to be deposited in the Collection Account with
respect to any deductible clause in any blanket insurance policy;
(v) all Liquidation Proceeds;
(vi) any amount required to be deposited by the Servicer in connection
with losses realized on investments for the benefit of the Servicer of
funds held in the Collection Account;
(vii) all amounts payable by the FDIC as described under "Description of
the Mortgage Pool--Representations and Warranties; Remedies"; and
(viii) any other amounts required to be deposited in the Collection
Account as provided in the Pooling and Servicing Agreement.
Withdrawals. The Servicer may, from time to time, make withdrawals in
respect of a particular Sub-Pool from the Collection Account for such Sub-Pool
for any of the following purposes:
(i) to remit to the Trustee for deposit in the Distribution Account the
amounts required to make distributions to the holders of the Certificates
evidencing an interest in such Sub-Pool on each Distribution Date;
(ii) to reimburse itself for unreimbursed P&I Advances, such
reimbursement to be made out of amounts received that were identified and
applied by the Servicer as late collections of interest (net of the
Servicing Fee) on and principal of the Mortgage Loans in such Sub-Pool with
respect to which such P&I Advances were made;
(iii) to reimburse itself for unpaid Servicing Fees, and unreimbursed
Servicing Advances, such reimbursement to be made out of amounts that
represent Liquidation Proceeds and Insurance Proceeds with respect to which
such fees were earned or such expenses were incurred;
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(iv) to pay itself any unpaid Liquidation Fee, Resolution Fee or
Modification Fee to which it is entitled in connection with a
rehabilitation of a defaulted Mortgage Loan or a liquidation of a defaulted
Mortgage Loan in such Sub-Pool, a Mortgaged Property securing a defaulted
Mortgage Loan in such Sub-Pool or an REO Property in such Sub-Pool, such
amount or amounts to be made out of funds that represent Liquidation
Proceeds or Insurance Proceeds and, in the case of a Resolution Fee, from
other collections on the related Mortgage Loan;
(v) to pay for costs and expenses incurred by the Trust Fund for
environmental site assessments performed with respect to Mortgaged
Properties in such Sub-Pool, and for any containment, clean-up or
remediation of hazardous wastes and materials present on such Mortgaged
Properties;
(vi) to reimburse itself, the FDIC, the Mortgage Loan Seller, 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 "--Certain Matters Regarding the Servicer, the
FDIC and the Mortgage Loan Seller";
(vii) to pay itself, as additional servicing compensation, interest and
investment income earned in respect of amounts held in the Collection
Account for such Sub-Pool;
(viii) to reimburse itself for unreimbursed P&I Advances and Servicing
Advances described in clause (ii) above and clause (iii) above incurred by
it that, in the good faith judgment of the Servicer, will not be
recoverable from the amounts described in clauses (ii) and (iii),
respectively, or from the Limited Guaranty;
(ix) at the direction of the Trustee, to pay any federal, state or local
taxes imposed on the Trust Fund or its assets or transactions that are
allocable to such Sub-Pool, as and to the extent described under "Certain
Federal Income Tax Consequences--REMIC-Level Taxes";
(x) to pay for the cost of an independent MAI-appraiser retained to
determine a fair sale price for a defaulted Mortgage Loan in such Sub-Pool
or a property acquired in respect thereof in connection with the
liquidation of such Mortgage Loan or property;
(xi) to pay for the cost of various opinions of counsel obtained pursuant
to the Pooling and Servicing Agreement for the benefit of
Certificateholders that are allocable to such Sub-Pool;
(xii) to reimburse itself or the Trustee for unreimbursed expenses
reasonably incurred in connection with a Defect or a breach of any
representation or warranty by the FDIC that gives rise to a repurchase
obligation of the FDIC with regard to a Mortgage Loan in such Sub-Pool,
including, without limitation, enforcement of such obligation;
(xiii) to pay to the Trustee any unpaid fees and expenses; and
(xiv) to clear and terminate the Collection Account upon the termination
of the Trust Fund.
DISTRIBUTION ACCOUNT
The Trustee will be required to establish and maintain one or more accounts
or sub-accounts (collectively, the "Distribution Account") into which the
Servicer will deposit an amount equal to all amounts held in the Collection
Account and REO Account for a particular Sub-Pool that are part of the
Available Distribution Amount for such Sub-Pool and from which distributions
will be made on the Corresponding Certificates on each Distribution Date. In
addition, the Servicer is required to deliver to the Trustee for deposit into
the Distribution Account with respect to a particular Sub-Pool, P&I Advances
and Compensating Interest Payments for such Sub-Pool on each P&I Advance Date,
and the FDIC is required to deliver to the Trustee for deposit directly into
the Distribution Account with respect to a particular Sub-Pool amounts payable
under the Limited Guaranty and, in the case of Sub-Pool II, any Basis Risk
Support Amounts.
CERTAIN MATTERS REGARDING THE SERVICER, THE FDIC AND THE MORTGAGE LOAN SELLER
The Pooling and Servicing Agreement provides that the Servicer may not
resign from its obligations thereunder except (i) upon a determination that
such obligations are no longer permissible under applicable law
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or are in material conflict by reason of applicable law with any other
activities carried on by it or (ii) under the circumstances set forth below
under "--Resignation of the Servicer; Transfer of Servicing." No such
resignation will become effective until the Trustee or a successor servicer
has assumed the Servicer's obligations and duties under the Pooling and
Servicing Agreement.
The Pooling and Servicing Agreement also provides that none of the Servicer,
the FDIC, the Mortgage Loan Seller or any director, officer, employee or agent
of either of them will be under any liability to the Trust Fund or
Certificateholders for any action taken, or not taken, in good faith pursuant
to the Pooling and Servicing Agreement or for errors in judgment; provided,
however, that none of the Servicer, the FDIC, the Mortgage Loan Seller or any
such person will be protected against any breach of a representation, warranty
or covenant made therein, or against any expense or liability that such person
is specifically required to bear pursuant to the terms of the Pooling and
Servicing Agreement, or against any liability that would otherwise be imposed
by reason of willful misfeasance, bad faith or negligence in the performance
of obligations or duties thereunder. The Pooling and Servicing Agreement
further provides that the Servicer, the FDIC, the Mortgage Loan Seller and any
director, officer, employee or agent of any of them will be entitled to
indemnification by the Trust Fund against any loss, liability or expense
incurred in connection with any legal action or claim that relates to the
Pooling and Servicing Agreement or the Certificates; provided, however, that
such indemnification will not extend to any loss, liability or expense (i)
related to any specific Mortgage Loan or Mortgage Loans (except as any such
loss, liability or expense shall otherwise be reimbursable pursuant to the
Pooling and Servicing Agreement); (ii) incurred by reason of such party's
misfeasance, bad faith or negligence in the performance of obligations or
duties under the Pooling and Servicing Agreement, or by reason of such party's
reckless disregard of such obligations or duties; (iii) incurred in connection
with any violation by such party of any state or federal securities law; or
(iv) imposed by any taxing authority if such loss, liability or expense is not
specifically reimbursable pursuant to the terms of the Pooling and Servicing
Agreement. In addition, the Pooling and Servicing Agreement provides that
neither the Servicer, the FDIC nor the Mortgage Loan Seller will be under any
obligation to appear in, prosecute or defend any legal action that is not
incidental to its respective responsibilities under the Pooling and Servicing
Agreement and that in its opinion may involve it in any expense or liability.
However, each of the Servicer, the FDIC and the Mortgage Loan Seller will be
permitted, in the exercise of its discretion, to undertake any such action
that it may deem necessary or desirable with respect to the enforcement and/or
protection of the rights and duties of the parties to the Pooling and
Servicing Agreement 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 Servicer, the FDIC or the Mortgage Loan Seller, as the case may
be, will be entitled to charge the applicable Collection Account therefor.
Any person into which the Servicer, the FDIC or the Mortgage Loan Seller may
be merged or consolidated, or any person resulting from any merger or
consolidation to which the Servicer, the FDIC or the Mortgage Loan Seller is a
party, or any person succeeding to the business of the Servicer, the FDIC or
the Mortgage Loan Seller, will be the successor of the Servicer, the FDIC or
the Mortgage Loan Seller, as the case may be, under the Pooling and Servicing
Agreement.
AMENDMENT
The Pooling and Servicing Agreement may be amended, from time to time, by
the Mortgage Loan Seller, the FDIC, the Servicer and the Trustee without the
consent of any of the holders of the Certificateholders, (i) to cure any
ambiguity, (ii) to correct or supplement any provision therein that may be
inconsistent with any other provision therein, (iii) to make any other
provisions with respect to matters or questions arising under the Pooling and
Servicing Agreement that are not inconsistent with the provisions thereof, or
(iv) to comply with any requirements imposed by the Code; provided that such
amendment (other than an amendment for the specific purpose referred to in
clause (iv) above) may not (as evidenced by an opinion of counsel, which may
rely conclusively as to credit matters on a letter of each Rating Agency, to
such effect satisfactory to the Trustee) adversely affect in any material
respect the interests of any Certificateholders. The Pooling and Servicing
Agreement may also be amended, from time to time, by the Mortgage Loan Seller,
the FDIC, the Servicer and
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the Trustee, with the consent of the holders of the Certificates entitled to
not less than 51% of the Voting Rights for any purpose; provided that no such
amendment may (i) reduce in any manner the amount of, or delay the timing of,
payments received or advanced on Mortgage Loans in a particular Sub-Pool that
are required to be distributed in respect of any Certificate evidencing an
interest in such Sub-Pool without the consent of the holder of such
Certificate, (ii) alter the obligations of the Servicer to make P&I Advances
without the consent of all of the Certificateholders, (iii) adversely affect
in any material respect the interests of the holders of any class of
Certificates, in a manner other than as described in clauses (i) and (ii),
without the consent of the holders of all Certificates of such class, (iv)
reduce the aforesaid percentages of Certificates the holders of which are
required to consent to any such amendment without the consent of the holders
of all the Certificates then outstanding or (v) alter the Servicing Standard.
However, the Trustee and the Servicer will be prohibited from consenting to
any amendment of the Pooling and Servicing Agreement unless the Trustee and
the Servicer shall first have received an opinion of counsel to the effect
that such amendment will not result in the imposition of a tax on the Trust
Fund or cause the Trust Fund (or designated portion thereof) to fail to
qualify as a REMIC at any time that the Certificates are outstanding.
LIST OF CERTIFICATEHOLDERS
Upon written request of three or more Certificateholders of record made for
purposes of communicating with other holders of Certificates with respect to
their rights under the Pooling and Servicing Agreement, the Trustee will
afford such Certificateholders access during normal business hours to the most
recent list of Certificateholders.
DUTIES OF THE TRUSTEE
The Trustee will make no representation as to the validity or sufficiency of
the Pooling and Servicing Agreement (other than as to the due authorization,
execution and delivery thereof by it), the Certificates or any underlying
Mortgage Loan or related document and will not be accountable for the use or
application by or on behalf of the Servicer of any funds paid to the Servicer
in respect of the Certificates or the underlying Mortgage Loans, or any funds
deposited into or withdrawn from the Collection Account or any other account
by or on behalf of the Servicer. If no Event of Default has occurred and is
continuing, the Trustee will be required to perform only those duties
specifically required under the Pooling and Servicing Agreement. However, upon
receipt of any of the various certificates, reports or other instruments
required to be furnished to it pursuant to the Pooling and Servicing
Agreement, the Trustee will be required to examine such documents and to
determine whether they conform to the requirements of the Pooling and
Servicing Agreement.
CERTAIN MATTERS REGARDING THE TRUSTEE
The Trustee is entitled to withdraw from the Distribution Account on each
Distribution Date the Trustee Fee. As to each Mortgage Loan and REO Loan, the
Trustee Fee will accrue at the Trustee Fee Rate and will be computed on the
basis of the same principal amount and for the same period respecting which
any related interest payment due on the Certificates is computed. In addition,
from time to time, the Trustee may request the Servicer to withdraw, and the
Servicer will pay from the Collection Account the Trustee Fee, to the extent
not paid from the Distribution Account and amounts necessary to reimburse the
Trustee for all reasonable expenses, disbursements and advances incurred by
the Trustee in the normal course of performing its duties in accordance with
any of the provisions of the Pooling and Servicing Agreement (including the
reasonable compensation and the expenses and disbursements of its outside
counsel and all persons not regularly in its employ, but excluding allocable
overhead), except any such expense or disbursement (i) specifically required
to be borne by the Trustee, (ii) incurred by reason of willful misfeasance,
bad faith or negligence in the performance of the Trustee's duties and
obligations, (iii) as may arise from a breach of any representation, warranty
or covenant of the Trustee made in the Pooling and Servicing Agreement or (iv)
incurred in connection with the use of any custodian, except as otherwise
provided in the Pooling and Servicing Agreement.
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The Trustee and any director, officer, employee or agent of the Trustee will
be entitled to indemnification, to the extent of amounts held in the
Collection Account, for any loss, liability or expense (including, without
limitation, costs and expenses of litigation, and of investigation, counsel
fees, damages, judgments and amounts paid in settlement) incurred by the
Trustee in connection with the Trustee's acceptance or administration of the
Trust Fund under the Pooling and Servicing Agreement; provided, however, that
such indemnification will not extend to any loss, liability or expense that
constitutes a specific liability imposed on the Trustee pursuant to the
Pooling and Servicing Agreement, or to any loss, liability or expense incurred
by reason of willful misfeasance, bad faith or 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, or as may
arise from a breach of any representation, warranty or covenant of the Trustee
made therein. In the event that any such loss, liability or expense
("liability") arises from the issuance or sale of the Certificates and the
indemnification described above is invalid or unenforceable, the Trustee may
deduct from the Collection Account the amount of any such liability as may
arise by reason of the acts or omissions of others, it being the intention
that the Trustee shall suffer such loss, liability or expense only to the
extent that it is caused by its own fault.
RESIGNATION AND REMOVAL OF THE TRUSTEE
The Trustee may resign from its obligations and duties under the Pooling and
Servicing Agreement by giving written notice thereof to the FDIC, the Mortgage
Loan Seller, the Servicer and the Certificateholders. Upon receiving such
notice of resignation, the Mortgage Loan Seller will be required to use its
best efforts to promptly appoint a successor trustee. If no successor trustee
shall have accepted an appointment within thirty days after the giving of such
notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction to appoint a successor trustee.
If at any time the Trustee ceases to be eligible to continue as such under
the Pooling and Servicing Agreement, or if at any time the Trustee becomes
incapable of acting, or if certain events of (or proceedings in respect of)
bankruptcy or insolvency occur with respect to the Trustee, the Mortgage Loan
Seller may remove the Trustee and appoint a successor trustee acceptable to
the Mortgage Loan Seller. In addition, holders of the Certificates entitled to
at least 51% of the Voting Rights may at any time (with or without cause)
remove the Trustee under the Pooling and Servicing Agreement and appoint a
successor trustee acceptable to the Mortgage Loan Seller.
Any resignation or removal of a Trustee and appointment of a successor
trustee will not become effective until acceptance of appointment by the
successor trustee.
RESIGNATION OF THE SERVICER; TRANSFER OF SERVICING
The Pooling and Servicing Agreement permits the Servicer to resign from the
obligations and duties imposed on it thereby at any time after November 30,
1997 upon notice to the Trustee; provided that (i) a successor servicer is
acceptable to the FDIC, the Mortgage Loan Seller and the Trustee based upon
its financial and commercial loan servicing abilities and is available and
willing to service the Mortgage Loans under the terms and conditions set forth
in the Pooling and Servicing Agreement, (ii) the Servicer bears all costs
associated with its resignation and the transfer of servicing to the successor
servicer and (iii) each Rating Agency shall have confirmed that the rating on
each class of Certificates immediately prior to such transfer of servicing
will not be qualified, downgraded or withdrawn as a result of such transfer,
as evidenced by a letter by each Rating Agency delivered to the Trustee.
In addition, the Pooling and Servicing Agreement permits the Servicer to
assign its rights and delegate its duties and obligations under the Pooling
and Servicing Agreement in connection with the sale or transfer of a
substantial portion of its mortgage servicing portfolio; provided that (i) the
purchaser or transferee is reasonably satisfactory to the FDIC, the Mortgage
Loan Seller, the Trustee, based upon its financial and commercial mortgage
loan servicing capabilities, and reasonably satisfactory to each Rating Agency
and (ii) the requirements set forth in the immediately preceding paragraph
(other than clause (ii) thereof) are satisfied.
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CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains general summaries of certain legal aspects
of loans secured by commercial and multifamily residential properties. Because
such legal aspects are governed by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete, to reflect the
laws of any particular state, except as set forth therein, or to encompass the
laws of all states in which the security for the Mortgage Loans is situated.
Accordingly, the summaries are qualified in their entirety by reference to the
applicable laws of those states.
GENERAL
Each Mortgage 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, deeds 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 grantor (the borrower) conveys title to
the real property to the grantee (the 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 property 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 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.
In most states, hotel and motel room rates are considered accounts
receivable under the Uniform Commercial Code ("UCC"); in cases where hotels or
motels constitute loan security, the rates are generally pledged by the
borrower as additional security for the loan. In general, the lender must file
financing statements in order to perfect its security interest in the rates
and must file continuation statements, generally every five
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years, to maintain perfection of such security interest. Even if the lender's
security interest in room rates is perfected under the UCC, it will generally
be required to commence a foreclosure action or otherwise take possession of
the property in order to collect the room rates following a default. See "--
Bankruptcy Laws."
Even after a foreclosure, the potential payments from a Mortgaged Property
may be less than the periodic payments due under the mortgage. For example,
the net income that would otherwise be generated from the Mortgaged Property
may be less than the amount that would be needed to service the debt if the
leases on the Mortgaged Property are at below-market rents, the market rents
have fallen since the original financing, vacancies have increased, or as a
result of excessive or increased maintenance, repair or other obligations
which a lender succeeds to as landlord.
PERSONALTY
In the case of certain types of Mortgaged Properties, such as hotels, motels
and nursing homes, personal property (to the extent owned by the borrower and
not previously pledged) may constitute a significant portion of the property's
value as security. The creation and enforcement of liens on personal property
are governed by the UCC. Accordingly, if a borrower pledges personal property
as security for a Mortgage Loan, the lender generally must file UCC financing
statements in order to perfect its security interest therein, and must file
continuation statements, generally every five years, to maintain that
perfection.
JUNIOR MORTGAGES LOANS; RIGHTS OF SENIOR MORTGAGES
Some of the Mortgage Loans are secured by junior mortgages or deeds of trust
which are subordinate to senior mortgages or deeds of trust held by other
lenders or institutional investors. The rights under a junior deed of trust or
junior mortgage, are subordinate to those of the mortgagee or beneficiary
under the senior mortgage or deed of trust, including the prior rights of the
senior mortgagee or beneficiary to receive rents, hazard insurance and
condemnation proceeds and to cause the property securing the Mortgage Loan to
be sold upon default of the mortgagor or trustor, thereby extinguishing the
junior mortgagee's or junior beneficiary's lien unless the junior lender
asserts its subordinate interest in a property in foreclosure litigation or
satisfies the defaulted senior loan. As discussed more fully below, in many
states a junior mortgagee or beneficiary may satisfy a defaulted senior loan
in full, adding the amounts expended to the balance due on the junior loan.
Absent a provision in the senior mortgage, no notice of default is required to
be given to the junior mortgagee.
The form of the mortgage or deed of trust used by many institutional lenders
confers on the mortgagee or beneficiary the right both to receive all proceeds
collected under any hazard insurance policy and all awards made in connection
with any condemnation proceedings, and to apply such proceeds and awards to
any indebtedness secured by the mortgage or deed of trust, in such order as
the mortgage or beneficiary may determine. Thus, in the event improvements on
the property are damaged or destroyed by fire or other casualty, or in the
event the property is taken by condemnation, the mortgagee or beneficiary
under the senior mortgage or deed of trust will have the prior right to
collect any insurance proceeds payable under a hazard insurance policy and any
award of damages in connection with the condemnation and to apply the same to
the indebtedness secured by the senior mortgage or deed of trust. Proceeds in
excess of the amount of senior mortgage indebtedness will, in most cases, be
applied to the indebtedness of a junior mortgage or trust deed to the extent
the junior mortgage or deed of trust so provides. The laws of certain states
may limit the ability of mortgagees or beneficiaries to apply the proceeds of
hazard insurance and partial condemnation awards to the secured indebtedness.
In such states, the mortgagor or trustor must be allowed to use the proceeds
of hazard insurance to repair the damage unless the security of the mortgagee
or beneficiary has been impaired. Similarly, in certain states, the mortgagee
or beneficiary is entitled to the award for a partial condemnation of the real
property security only to the extent that its security is impaired.
The form of mortgage or deed of trust used by many institutional lenders
typically contains a "future advance" clause, which provides, in essence, that
additional amounts advanced to or on behalf of the mortgagor or trustor by the
mortgagee or beneficiary are to be secured by the mortgage or deed of trust.
While such a clause
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is valid under the laws of most states, the priority of any advance made under
the clause depends, in some states, on whether the advance was an "obligatory"
or "optional" advance. If the mortgagee or beneficiary is obligated to advance
the additional amounts, the advance may be entitled to receive the same
priority as amounts initially made under the mortgage or deed of trust,
notwithstanding that there may be intervening junior mortgages or deeds of
trust and other liens between the date of recording of the mortgage or deed of
trust and the date of the future advance, and notwithstanding that the
mortgagee or beneficiary had actual knowledge of such intervening junior
mortgages or deeds of trust and other liens at the time of the advance. Where
the mortgagee or beneficiary is not obligated to advance the additional
amounts and has actual knowledge of the intervening junior mortgages or deeds
of trust and other liens, the advance may be subordinate to such intervening
junior mortgages or deeds of trust and other liens. Priority of advances under
a "future advance" clause rests, in many other states, on state law giving
priority to all advances made under the loan agreement up to a "credit limit"
amount stated in the recorded mortgage.
Another provision typically found in the form of the mortgage or deed of
trust used by many institutional lenders obligates the mortgagor or trustor to
pay before delinquency all taxes and assessments on the property and, when
due, all encumbrances, charges and liens on the property which appear prior to
the mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the property or the rights of the mortgagee or beneficiary under the
mortgage or deed of trust. Upon a failure of the mortgagor or trustor to
perform any of these obligations, the mortgagee or beneficiary is given the
right under the mortgage or deed of trust to perform the obligation itself, at
its election, with the mortgagor or trustor agreeing to reimburse the
mortgagee or beneficiary for any sums expended by the mortgagee or beneficiary
on behalf of the trustor. All sums so expended by the mortgagee or beneficiary
become part of the indebtedness secured by the mortgage or deed of trust.
The form of mortgage or deed of trust used by many institutional lenders
typically requires the mortgagor or trustor to obtain the consent of the
mortgagee or beneficiary in respect to actions affecting the mortgaged
property, including, without limitation, leasing activities (including new
leases and termination or modification of existing leases), alterations and
improvements to buildings forming a part of the mortgaged property and
management and leasing agreements for the mortgaged property. Tenants will
often refuse to execute leases unless the mortgagee or beneficiary executes a
written agreement with the tenant not to disturb the tenant's possession of
its premises in the event of a foreclosure. A senior mortgagee or beneficiary
may refuse to consent to matters approved by a junior mortgagee or beneficiary
with the result that the value of the security for the junior mortgage or deed
of trust is diminished. For example, a senior mortgagee or beneficiary may
decide not to approve a lease or to refuse to grant to a tenant a non-
disturbance agreement. If, as a result, the lease is not executed, the value
of the mortgaged property may be diminished.
FORECLOSURE
General. Foreclosure is a legal procedure that allows the lender to recover
its mortgage debt by enforcing its rights and available legal remedies under
the mortgage. If the borrower defaults in payment or performance of its
obligations under the note or mortgage, the lender has the right to institute
foreclosure proceedings to sell the real property at public auction to satisfy
the indebtedness.
Foreclosure procedures vary from state to state. Two primary methods of
foreclosing a mortgage are judicial foreclosure, involving court proceedings,
and non-judicial foreclosure pursuant to a power of sale granted in the
mortgage instrument. Other foreclosure procedures are available in some
states, such as strict foreclosure, but they are either infrequently used or
available only in limited circumstances.
Judicial Foreclosure. A judicial foreclosure proceeding is conducted in a
court having jurisdiction over the mortgaged property. Generally, the action
is initiated by the service of legal pleadings upon all parties having a
subordinate interest of record in the real property and all parties in
possession of the property, under leases or otherwise, whose interests are
subordinate to the mortgage. Delays in completion of the foreclosure may
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occasionally result from difficulties in locating defendants. A foreclosure
action is subject to most of the delays and expenses of other lawsuits if
defenses are raised or counterclaims are interposed, and sometimes requires
several years to complete. When the lender's right to foreclose is contested,
the legal proceedings can be time-consuming. Upon successful completion of a
judicial foreclosure proceeding, the court generally issues a judgment of
foreclosure and appoints a referee or other officer to conduct a public sale
of the mortgaged property, the proceeds of which are used to satisfy the
judgment. Such sales are made in accordance with procedures that vary from
state to state.
Non-Judicial Foreclosure/Power of Sale. Foreclosure of a deed of trust is
generally accomplished by a non-judicial trustee's sale pursuant to a power of
sale typically granted in the deed of trust. A power of sale may also be
contained in any other type of mortgage instrument if applicable law so
permits. A power of sale under a deed of trust allows a non-judicial public
sale to be conducted generally following a request from the beneficiary/lender
to the trustee to sell the property upon default by the borrower and after
notice of sale is given in accordance with the terms of the mortgage and
applicable state law. In some states, prior to such sale, the trustee under
the deed of trust must record a notice of default and notice of sale and send
a copy to the borrower and to any other party who has recorded a request for a
copy of a notice of default and notice of sale. In addition, in some states
the trustee must provide notice to any other party having an interest of
record in the real property, including junior lienholders. A notice of sale
must be posted in a public place and, in most states, published for a
specified period of time in one or more newspapers. The borrower or junior
lienholder may then have the right, during a reinstatement period required in
some states, to cure the default by paying the entire actual amount in arrears
(without regard to the acceleration of the indebtedness), plus the lender's
expenses incurred in enforcing the obligation. In other states, the borrower
or the junior lienholder is not provided a period to reinstate the loan, but
has only the right to pay off the entire debt to prevent the foreclosure sale.
Generally, state law governs the procedure for public sale, the parties
entitled to notice, the method of giving notice and the applicable time
periods.
Equitable Limitations on Enforceability of Certain Provisions. United States
courts have traditionally imposed general equitable principles to limit the
remedies available to lenders in foreclosure actions. These principles are
generally designed to relieve borrowers from the effects of mortgage defaults
perceived as harsh or unfair. Relying on such principles, a court may alter
the specific terms of a loan to the extent it considers necessary to prevent
or remedy an injustice, undue oppression or overreaching, or may require the
lender to undertake affirmative actions to determine the cause of the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's and have required that lenders reinstate loans or recast payment
schedules in order to accommodate borrowers who are suffering from a temporary
financial disability. In other cases, courts have limited the right of the
lender to foreclose in the case of a non-monetary default, such as a failure
to adequately maintain the mortgaged property or an impermissible further
encumbrance of the mortgaged property. Finally, some courts have addressed the
issue of whether federal or state constitutional provisions reflecting due
process concerns for adequate notice require that a borrower receive notice in
addition to statutorily-prescribed minimum notice. For the most part, these
cases have upheld the reasonableness of the notice provisions or have found
that a public sale under a mortgage providing for a power of sale does not
involve sufficient state action to trigger constitutional protections.
A junior mortgagee may not foreclose on the property securing a senior
mortgage unless it forecloses subject to the senior mortgages, in which case
it must either pay the entire amount due on the senior mortgages prior to or
at the time of the foreclosure sale or 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 by a junior mortgagee triggers the enforcement of a "due-
on-sale" clause in a senior mortgage, the junior mortgagee may be required to
pay the full amount of the senior mortgages to the senior mortgagees.
Accordingly, with respect to those Mortgage 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.
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Also, a third party may be unwilling to purchase a mortgaged property at a
public sale because of the difficulty in determining the exact status of title
to the property (due to, among other things, redemption rights that may exist)
and because of the possibility that physical deterioration of the property may
have occurred during the foreclosure proceedings. Until 1994, potential buyers
were confronted with the 1980 decision of the United States Court of Appeals
for the Fifth Circuit, Durrett v. Washington National Insurance Co., 621 F.2d
201 (5th Cir. 1980). The court in Durrett held that a non-collusive, regularly
conducted foreclosure sale was a fraudulent transfer under Section 67d of the
former Bankruptcy Act (Section 548 of the current Bankruptcy Code) and,
therefore, could be rescinded in favor of the bankrupt's estate, if (i) the
foreclosure sale was held while the debtor was insolvent and not more than one
year prior to the filing of the bankruptcy petition and (ii) the price paid
for the foreclosed property did not represent "fair consideration"
("reasonably equivalent value" under the Bankruptcy Code). However, on May 23,
1994, Durrett was effectively overruled by the United States Supreme Court in
BFP v. Resolution Trust Corp., as Receiver for Imperial Federal Savings
Association, 511 U.S. 531 (1994), in which the Court held that "reasonably
equivalent value', for foreclosed property, is the price in fact received at
the foreclosure sale, so long as all the requirements of the State's
foreclosure law have been complied with." Although the reasoning and result of
Durrett with respect to the Bankruptcy Code was rejected by the United States
Supreme Court, the case could still be persuasive to a court applying a state
fraudulent conveyance law which has provisions similar to those construed in
Durrett.
Even if the lender is successful in the foreclosure action and is able to
take possession of the property, the costs of operating and maintaining a
commercial or multifamily property may be significant and may be greater than
the income derived from that property. The costs of management and operation
of those mortgaged properties which are hotels, motels, restaurants, nursing
homes, convalescent homes or hospitals may be particularly significant because
of the expertise, knowledge and with respect to nursing or convalescent homes,
regulatory compliance, required to run such operations and the effect which
foreclosure and a change in ownership may have with respect to consent
requirements and on the public's and the industry's (including franchisors')
perception of the quality of such operations. The lender also will commonly
obtain the services of a real estate broker and pay the broker's commission in
connection with the sale or lease 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. Moreover, because of the expenses
associated with acquiring, owning and selling a mortgaged property, a lender
could realize an overall loss on a mortgage loan even if the mortgaged
property is sold at foreclosure, or resold after it is acquired through
foreclosure, for an amount equal to the full outstanding principal amount of
the loan plus accrued interest.
The holder of a junior mortgage that forecloses on a mortgaged property does
so subject to senior mortgages and any other prior liens, and may be obliged
to keep senior mortgage loans current in order to avoid foreclosure of its
interest in the property. In addition, if the foreclosure of a junior mortgage
triggers the enforcement of a "due-on-sale" clause contained in a senior
mortgage, the junior mortgagee could be required to pay the full amount of the
senior mortgage indebtedness or face foreclosure.
Rights of Redemption. The purposes of a foreclosure action 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 a majority
of 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
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other states, redemption may be permitted if the former borrower pays only a
portion of the sums due. In some states, the borrower retains possession of
the property during the statutory redemption period. 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 purchaser 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.
Anti-Deficiency Legislation. Some or all of the Mortgage Loans may be
nonrecourse loans, as to which recourse in the case of default will be limited
to the Mortgaged Property and such other assets, if any, that were pledged to
secure the Mortgage Loan. However, even if a Mortgage Loan by its terms
provides for recourse to the borrower's other assets, a lender's ability to
realize upon those assets may be limited by state law. For example, in some
states a lender cannot obtain a deficiency judgment against the borrower
following foreclosure or sale under a deed of trust or by non-judicial means.
A deficiency judgment is a personal judgment against the former borrower equal
to the difference between the net amount realized upon the public sale of the
real property and the amount due to the lender. Other statutes may require the
lender to exhaust the security afforded under a mortgage 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 those states, the
lender, following judgment on such personal action, may be deemed to have
elected a remedy and thus may be precluded from foreclosing upon the security.
Consequently, lenders in those states where such an election of remedy
provision exists may choose to proceed first against the security. Finally,
other statutory provisions, designed to protect borrowers from exposure to
large deficiency judgments that might result from bidding at below-market
values at the foreclosure sale, limit any deficiency judgment to the excess of
the outstanding debt over the fair market value of the property at the time of
the sale.
Leasehold Risks. Certain of the Mortgage Loans are secured by a mortgage on
the borrower's interest in a ground lease. Leasehold mortgage loans are
subject to certain risks not associated with mortgage loans secured by a lien
on the fee estate of the borrower. The most significant of these risks is that
if the borrower's leasehold were to be terminated upon a lease default, the
leasehold mortgagee would lose its security. This risk may be lessened if the
ground lease requires the lessor to give the leasehold mortgagee notices of
lessee (borrower) defaults and an opportunity to cure them, permits the
leasehold estate to be assigned to and by the leasehold mortgagee or the
purchaser at a foreclosure sale, and contains certain other protective
provisions typically included in a "mortgageable" ground lease.
Under the Bankruptcy Code, a landlord in bankruptcy may "reject" an
unexpired lease. If it does, the Bankruptcy Code permits the lessee either to
treat the lease as terminated (an election that "mortgageable" ground leases
would prohibit) or "remain in possession of the leasehold." 11 U.S.C.
(S)365(h)). The legislative history of this provision indicates that Congress
intended that lessees that elected to remain in "possession of the leasehold"
were entitled to retain all of their leasehold rights under the rejected
lease, and there is case law that construes the Bankruptcy Code consistent
with that intent. See, e.g., Chestnut Ridge Plaza Associates, L.P. v. Fox
Grocery Co., 156 B.R. 477 (Bankr. W.D. Pa. 1993). However, some bankruptcy
court decisions have held that a lessee's rights under a lease rejected by a
landlord in bankruptcy are limited to the lessee's own physical possession of
the leased premises under the terms of the lease, and that the rejected lease
does not otherwise continue. Thus, in In re Carlton Restaurant, Inc., 151 B.R.
353 (Bankr. E.D. Pa. 1993), the court held that a landlord's rejection of a
lease in bankruptcy "excuses [it] from accepting performance by a party other
than a lessee who remains in possession."
Although none of the cases that have taken a restrictive view of the rights
of a lessee under a rejected lease involved a leasehold mortgagee, whose
security might have been impaired as a result of the court's holding, the
holding that a landlord that rejects a lease in bankruptcy need not honor the
right to assign that lease or to recognize a sublease casts doubt upon the
ability of a leasehold mortgagee to realize upon its security in the case of
the bankruptcy of the ground lessor. Representatives of the real estate
lending industry, which has lent billions
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of dollars on the security of ground leases, have strongly criticized these
cases. As a result, Congress is considering legislation that would, if passed,
clarify the Bankruptcy Code effectively to overrule such cases. However,
unless and until such legislation is passed or the cases are overruled, some
uncertainty will remain and ground lessee/borrowers may find it difficult to
refinance their mortgages.
BANKRUPTCY LAWS
Operation of the Bankruptcy Code and related state laws may interfere with
or affect the ability of a lender to realize upon collateral and/or to enforce
a deficiency judgment. For example, under 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 bankruptcy by or on behalf of a junior lien or may
stay the senior lender from taking action to foreclose out such junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards protective of the lender are met, the amount and terms of a
mortgage loan secured by a lien on property of the debtor may be modified
under certain circumstances. For example, the outstanding amount of the loan
may be reduced to the then-current value of the property (with a corresponding
partial reduction of the amount of lender's security interest) pursuant to a
confirmed plan or lien avoidance proceeding, thus leaving the lender a general
unsecured creditor for the difference between such value and the outstanding
balance of the loan. Other modifications may include the reduction in the
amount of each scheduled payment, by means of a reduction in the rate of
interest and/or an alteration of the repayment schedule (with or without
affecting the unpaid principal balance of the loan), and/or by an extension
(or shortening) of the term to maturity. Some bankruptcy courts have approved
plans, based on the particular facts of the reorganization case, that effected
the cure of a mortgage loan default by paying arrearages over a number of
years. Also, a bankruptcy court may permit a debtor, through its
rehabilitative plan, to reinstate a mortgage loan payment schedule even if the
lender has obtained a final judgment of foreclosure prior to the filing of the
debtor's petition.
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.
In addition, the Bankruptcy Code has been amended to provide that a lender's
perfected pre-petition security interest in leases, rents and hotel revenues
continues in the post-petition leases, rents and hotel revenues, unless a
bankruptcy court orders to the contrary "based on the equities of the case."
Thus, unless a court orders otherwise, revenues from a Mortgaged Property
generated after the date the bankruptcy petition is filed will constitute
"cash collateral" under the Bankruptcy Code. Debtors may only use cash
collateral upon obtaining the lender's consent or a prior court order finding
that the lender's interest in the Mortgaged Properties and the cash collateral
is "adequately protected" as such term is defined and interpreted under the
Bankruptcy Code. It should be noted, however, that the court may find that the
lender has no security interest in either pre-petition or post-petition
revenues if the court finds that the loan documents do not contain language
covering accounts, room rents, or other forms of personally necessary for a
security interest to attach to hotel revenues.
In a bankruptcy or similar proceeding, action may be taken seeking the
recovery as a preferential transfer of any payments made by the mortgagor
under the related Mortgage Loan to the Trust Fund. Payments on long-term debt
may be protected from recovery as preferences if they are payments in the
ordinary course of business made on debts incurred in the ordinary course of
business. Whether any particular payment would be protected depends upon the
facts specific to a particular transaction.
A trustee in bankruptcy, in some cases, may be entitled to collect its costs
and expenses in preserving or selling the mortgaged property ahead of payment
to the lender. In certain circumstances, a debtor in bankruptcy may have the
power to grant liens senior to the lien of a mortgage, and analogous state
statutes and general
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principles of equity may also provide a mortgagor with means to halt a
foreclosure proceeding or sale and to force a restructuring of a mortgage loan
on terms a lender would not otherwise accept. Moreover, the laws of certain
states also give priority to certain tax liens over the lien of a mortgage or
deed of trust. Under the Bankruptcy Code, if the court finds that actions of
the mortgagee have been unreasonable, the lien of the related mortgage may be
subordinated to the claims of unsecured creditors.
Pursuant to the federal doctrine of "substantive consolidation" or to the
(predominantly state law) doctrine of "piercing the corporate veil," a
bankruptcy court, in the exercise of its equitable powers, also has the
authority to order that the assets and liabilities of a related entity be
consolidated with those of an entity before it. Thus, property ostensibly the
property of one entity may be determined to be the property of a different
entity in bankruptcy, the automatic stay applicable to the second entity
extended to the first and the rights of the creditors of the first entity
impaired in the fashion set forth above in the discussion of ordinary
bankruptcy principles. Depending on facts and circumstances not wholly in
existence at the time a loan is originated or transferred to the Trust Fund,
the application of any of these doctrines to one or more of the mortgagors in
the context of the bankruptcy of one or more of their affiliates could result
in material impairment of the rights of the Certificateholders.
If a borrower's ability to make payment on a mortgage loan is dependent on
its receipt of rent payments under a lease of the related property, that
ability may be impaired by the commencement of a bankruptcy proceeding
relating to a lessee under such lease. Under the Bankruptcy Code, the filing
of a petition in bankruptcy by or on behalf of a lessee results in a stay in
bankruptcy against the commencement or continuation of any state court
proceeding for past due rent, for accelerated rent, for damages or for a
summary eviction order with respect to a default under the lease that occurred
prior to the filing of the lessee's petition. In addition, the Bankruptcy Code
generally provides that a trustee or debtor-in-possession may, subject to
approval of the court, (i) assume the lease and retain it or assign it to a
third party or (ii) reject the lease. If the lease is assumed, the trustee or
debtor-in-possession (or assignee, if applicable) must cure any defaults under
the lease, compensate the lessor for its losses and provide the lessor with
"adequate assurance" of future performance. Such remedies may be insufficient,
and any assurances provided to the lessor may, in fact, be inadequate. If the
lease is rejected, the lessor will be treated as an unsecured creditor with
respect to its claim for damages for termination of the lease. The Bankruptcy
Code also limits a lessor's damages for lease rejection to the rent reserved
by the lease (without regard to acceleration) for the greater of one year, or
15%, not to exceed three years, of the remaining term of the lease.
ENVIRONMENTAL RISKS
General. A lender may be subject to environmental risks when taking a
security interest in real property. Of particular concern may be properties
that are or have been used for industrial, manufacturing, military or disposal
activity. Such environmental risks include the risk of the diminution of the
value of a contaminated property or, as discussed below, liability for the
costs of compliance with environmental regulatory requirements or the costs of
clean-up or other remedial actions. These compliance or clean-up costs could
exceed the value of the property or the amount of the lender's loan. In
certain circumstances, a lender could determine to abandon a contaminated
mortgaged property as collateral for its loan rather than foreclose and risk
liability for compliance or clean-up costs.
CERCLA. The federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), imposes strict liability on
present and past "owners" and "operators" of contaminated real property for
the costs of clean-up. A secured lender may be liable as an "owner" or
"operator" of a contaminated mortgaged property if agents or employees of the
lender have become sufficiently involved in the management of such mortgaged
property or the operations of the borrower. Such liability may exist even if
the lender did not cause or contribute to the contamination and regardless of
whether the lender has actually taken possession of a mortgaged property
through foreclosure, deed in lieu of foreclosure or otherwise. The magnitude
of the CERCLA liability at any given contaminated site is a function of the
actions required to
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address adequately the risks to human health and the environment posed by the
particular conditions at the site. As a result, such liability is not
constrained by the value of the property or the amount of the original or
unamortized principal balance of any loans secured by the property. Moreover,
under certain circumstances, liability under CERCLA may be joint and several--
i.e., any liable party may be obligated to pay the entire cleanup costs
regardless of its relative contribution to the contamination. If a lender is
found to be liable, it is entitled to bring an action for contribution against
other liable parties, such as the present or past owners and operators of the
property. The lender nonetheless may have to bear a disproportionate share of
the liability if such other parties are defunct or without substantial assets.
Until recent legislation was adopted, it was uncertain what actions could be
taken by a secured lender in the event of a loan default without it incurring
exposure under CERCLA in the event the property was environmentally
contaminated. The Asset Conservation, Lender Liability and Deposit Insurance
Act of 1996 (the "1996 Lender Liability Act") provides for a safe harbor for
secured lenders from CERCLA liability even though the lender forecloses and
sells the real estate securing the loan, provided the secured lender sells "at
the earliest practicable, commercially reasonable time, at commercially
reasonable terms, taking into account market conditions and legal and
regulatory requirements." Although the 1996 Lender Liability Act provides
significant protection to secured lenders, it has not been construed by the
courts and there are circumstances in which actions taken could expose a
secured lender to CERCLA liability. And, the transferee from the secured
lender is not entitled to the protections enjoyed by a secured lender. Hence,
the marketability of any contaminated real estate continues to be suspect.
Certain Other Federal and State Laws. Many states have environmental clean-
up statutes similar to CERCLA, and not all those statutes provide for a
secured creditor exemption. In addition, underground storage tanks are
commonly found on a wide variety of commercial and industrial properties.
Federal and state laws impose liability on the owners and operators of
underground storage tanks for any cleanup that may be required as a result of
releases from such tanks. These laws also impose certain compliance
obligations on the tank owners and operators, such as regular monitoring for
leaks and upgrading of older tanks. A lender may become a tank owner or
operator, and subject to compliance obligations and potential cleanup
liabilities, either as a result of becoming involved in the management of a
site at which a tank is located or, more commonly, by taking title to such a
property. Federal and state laws also obligate property owners and operators
to maintain and, under some circumstances, to remove asbestos-containing
building materials and lead based paint. As a result, the presence of these
materials can increase the cost of operating a property and thus diminish its
value. In a few states, transfers of some types of properties are conditioned
upon cleanup of contamination prior to transfer. In these cases, a lender that
becomes the owner of a property through foreclosure, deed in lieu of
foreclosure or otherwise, may be required to clean up the contamination before
selling or otherwise transferring the property.
Beyond statute-based environmental liability, there exist common law causes
of action (for example, actions based on nuisance or on toxic tort resulting
in death, personal injury or damage to property) related to hazardous
environmental conditions on a property. While it may be more difficult to hold
a lender liable in such cases, unanticipated or uninsured liabilities of the
borrower may jeopardize the borrower's ability to meet its loan obligations.
Superlien Laws. Under the laws of many states, contamination on a property
may give rise to a lien on the property for clean-up costs. In several states,
such a lien has priority over all existing liens, including those of existing
mortgages. In these states, the lien of a mortgage may lose its priority to
such a "superlien."
Additional Considerations. The cost of remediating environmental
contamination at a property can be substantial, and it is possible, under the
circumstances described above, that such costs could become a liability of the
Trust Fund and on occasion a loss to the Certificateholders. To reduce the
likelihood of such a loss, the Pooling and Servicing Agreement will provide
that the Servicer, acting on behalf of the Trustee, may not acquire title to a
Mortgaged Property or take over its operation unless the Servicer, based on an
environmental site assessment prepared by a qualified environmental
consultant, has made the determination that it is appropriate to do so, as
described under "Servicing of the Mortgage Loans--Realization Upon Defaulted
Mortgage Loans."
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If a lender forecloses on a mortgage secured by a property, the operations
on which are subject to environmental laws and regulations, the lender will be
required to operate the property in accordance with those laws and
regulations. Compliance may well entail expense, although multifamily
properties generally are subject to less compliance cost than industrial or
manufacturing properties.
In addition, a lender may be obligated to disclose environmental conditions
on a property to government entities and/or to prospective buyers (including
prospective buyers at a foreclosure sale or following foreclosure). Such
disclosure may decrease the amount that prospective buyers are willing to pay
for the affected property, sometimes substantially, and thereby decrease the
ability of the lender to recoup its investment in a loan upon foreclosure.
Environmental Site Assessments. In addition to possibly allowing a lender to
qualify for the innocent landowner defense (see discussion under "--
Environmental Risks--CERCLA" above), environmental site assessments can be a
valuable tool in anticipating, managing and minimizing environmental risk.
They are commonly performed in many commercial real estate transactions.
Environmental site assessments vary considerably in their content and
quality. Even when adhering to good professional practices, environmental
consultants will sometimes not detect significant environmental problems
because an exhaustive environmental assessment would be far too costly and
time-consuming to be practical. Nevertheless, it is generally helpful in
assessing and addressing environmental risks in connection with commercial
real estate (including multifamily properties) to have an environmental site
assessment of a property because it enables anticipation of environmental
problems and, if agreements are structured appropriately, can allow a party to
decline to go forward with a transaction.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE
Certain of the Mortgage Loans may contain "due-on-sale" and "due-on-
encumbrance" clauses that purport to permit the lender to accelerate the
maturity of the loan if the borrower transfers or encumbers the related
Mortgaged Property. In recent years, court decisions and legislative actions
placed substantial restrictions on the right of lenders to enforce such
clauses in many states. By virtue, however, of the Garn-St Germain Depository
Institutions Act of 1982 (the "Garn Act"), effective October 15, 1982 (which
purports to preempt state laws that prohibit the enforcement of due-on-sale
clauses by providing among other matters, that "due-on-sale" clauses in
certain loans made after the effective date of the Garn Act are enforceable,
within certain limitations as set forth in the Garn Act and the regulations
promulgated thereunder), the Servicer may nevertheless have the right to
accelerate the maturity of a Mortgage Loan that contains a "due-on-sale"
provision upon transfer of an interest in the property, regardless of the
Servicer's ability to demonstrate that a sale threatens its legitimate
security interest.
SUBORDINATE FINANCING
Certain of the Mortgage Loans may not restrict the ability of the borrower
to use the Mortgaged Property as security for one or more additional loans.
Where a borrower encumbers a mortgaged property with one or more junior liens,
the senior lender is subjected to additional risk. First, the borrower may
have difficulty servicing and repaying multiple loans. Moreover, if the
subordinate financing permits recourse to the borrower (as is frequently the
case) and the senior loan does not, a borrower may have more incentive to
repay sums due on the subordinate 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 borrower
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 any existing junior lender is harmed or the borrower is
additionally burdened. Third, if the borrower 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 proceedings by the senior lender.
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DEFAULT INTEREST AND LIMITATIONS ON PREPAYMENTS
Notes and mortgages 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 that 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.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control Act
of 1980 ("Title V") provides that state usury limitations shall not apply to
certain types of residential (including multifamily) first mortgage loans
originated by certain lenders after March 31, 1980. Title V authorized any
state to reimpose interest rate limits by adopting, before April 1, 1983, a
law or constitutional provision that expressly rejects application of the
federal law. In addition, even where Title V is not so rejected, any state is
authorized by the law to adopt a provision limiting discount points or other
charges on mortgage loans covered by Title V. Certain states have taken action
to reimpose interest rate limits and/or to limit discount points or other
charges.
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 borrower who enters military service after the
origination of such borrower's mortgage loan (including a borrower 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 borrower'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
individuals 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 with individuals as borrowers 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
Servicer to collect full amounts of interest on certain of the Mortgage Loans.
Any shortfalls in interest collections resulting from the application of the
Relief Act would result in a reduction of the amounts distributable to the
holders of the Certificates and would not be covered by advances or any form
of credit support provided in connection with the Certificates. In addition,
the Relief Act imposes limitations that would impair the ability of the
Servicer to foreclose on an affected Mortgage Loan during the borrower's
period of active duty status, and, under certain circumstances, during an
additional three month period thereafter.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of drug-
related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984 (the
"Crime Control Act"), the government may seize the property even before
conviction. The government must publish notice of the forfeiture proceeding
and may give notice to all parties "known to have an alleged interest in the
property," including the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) the lender was, at
the time of execution of the mortgage, "reasonably without cause to believe"
that the property was used in, or purchased with the proceeds of, illegal drug
or RICO activities.
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AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers that are
structural in nature from existing places of public accommodation to the
extent "readily achievable." In addition, under the ADA, alterations to a
place of public accommodation or a commercial facility are to be made so that,
to the maximum extent feasible, such altered portions are readily accessible
to and usable by disabled individuals. The "readily achievable" standard takes
into account, among other factors, the financial resources of the affected
site, owner, landlord or other applicable person. In addition to imposing a
possible financial burden on the borrower in its capacity as owner or
landlord, the ADA may also impose such requirements on a foreclosing lender
who succeeds to the interest of the borrower as owner or landlord.
Furthermore, since the "readily achievable" standard may vary depending on the
financial condition of the owner or landlord, a foreclosing lender who is
financially more capable than the borrower of complying with the requirements
of the ADA may be subject to more stringent requirements than those to which
the borrower is subject.
CERTAIN LAWS AND REGULATIONS
The Mortgaged Properties will be subject to compliance with various federal,
state and local statutes and regulations. Failure to comply (together with an
inability to remedy any such failure) could result in material diminution in
the value of a Mortgaged Property which could, together with the possibility
of limited alternative uses for a particular Mortgaged Property (i.e., a
nursing or convalescent home or hospital), result in a failure to realize the
full principal amount of the related Mortgage Loan.
TYPE OF MORTGAGED PROPERTY
The lender may be subject to additional risk depending upon the type and use
of the Mortgaged Property in question. For instance, Mortgaged Properties
which are hospitals, nursing homes or convalescent homes may present special
risks to lenders in large part due to significant governmental regulation of
the operation, maintenance, control and financing of health care institutions.
Mortgages on Mortgaged Properties which are owned by the borrower under a
condominium form of ownership are subject to the declaration, by-laws and
other rules and regulations of the condominium association. Mortgaged
Properties which are hotels or motels may present additional risk to the
lender in that: (i) hotels and motels are typically operated pursuant to
franchise, management and operating agreements which may be terminable by the
operator; and (ii) the transferability of the hotel's operating, liquor and
other licenses to the entity acquiring the hotel either through purchase or
foreclosure is subject to the vagaries of local law requirements. In addition,
Mortgaged Properties which are multifamily residential properties or
cooperatively owned multifamily properties may be subject to rent control
laws, which could impact the future cash flows of such properties.
ACCELERATION ON DEFAULT
Some of the Mortgage Loans included in a Trust Fund will include a "debt-
acceleration" clause, which permits the lender to accelerate the full debt
upon a monetary or nonmonetary default of the borrower. The courts of all
states will enforce clauses providing for acceleration in the event of a
material payment default after giving effect to any appropriate notices. The
equity courts of any state, however, may refuse to foreclose a mortgage or
deed of trust when an acceleration of the indebtedness would be inequitable or
unjust or the circumstances would render the acceleration unconscionable.
Furthermore, in some states, the borrower may avoid foreclosure and reinstate
an accelerated loan by paying only the defaulted amounts and the costs and
attorneys' fees incurred by the lender in collecting such defaulted payments.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the anticipated material federal
income tax consequences of the purchase, ownership, and disposition of the
Offered Certificates. The summary is based upon laws, regulations, rulings,
and decisions now in effect, all of which are subject to change. The
discussion does not purport to deal with the federal income tax consequences
to all categories of investors, some of which may be subject to special rules.
The discussion focuses primarily on investors who will hold the Offered
Certificates as "capital assets" (generally, property held for investment)
within the meaning of section 1221 of the Code, although much of the
discussion is applicable to other investors as well. Investors should note
that, although final regulations under the REMIC Provisions of the Code (the
"REMIC Regulations") have been issued by the Treasury, no currently effective
regulations or other administrative guidance have been issued with respect to
certain provisions of the Code that are or may be applicable to
Certificateholders, particularly the provisions dealing with market discount.
Although the Treasury has issued final regulations dealing with original issue
discount ("OID") and premium (the "OID Regulations"), the OID Regulations do
not address directly the treatment of "Regular Certificates" (as defined
below). Furthermore, the REMIC Regulations do not address all of the issues
that arise in connection with the formation and operation of a REMIC. Hence,
definitive guidance cannot be provided with respect to many aspects of the tax
treatment of Certificateholders. Moreover, there can be no assurance that the
Internal Revenue Service (the "Service") will not take positions that would be
materially adverse to investors. Finally, the summary does not purport to
address the anticipated state income tax consequences to investors of owning
and disposing of the Offered Certificates. Consequently, investors should
consult their own tax advisors in determining the federal, state, local,
foreign, and any other tax consequences to them of the purchase, ownership,
and disposition of the Offered Certificates.
GENERAL
A separate REMIC election will be made with respect to each of two specified
pools of Trust Fund assets (each, an "Asset Pool") for federal income tax
purposes. The Asset Pool of the "Lower-Tier REMIC" generally will consist of
the Mortgage Loans. The Asset Pool of the "Upper-Tier REMIC" generally will
consist of non-certificated "regular interests" in the Lower-Tier REMIC. Upon
the issuance of the Certificates, Hunton & Williams, counsel to the Federal
Deposit Insurance Corporation in connection with the issuance of the
Certificates, will deliver its opinion generally to the effect that, assuming
timely filing of REMIC elections and compliance with all provisions of the
Pooling and Servicing Agreement and the other issuance and closing documents,
each Asset Pool will qualify as a REMIC (each, a "Trust REMIC") for federal
income tax purposes. Hunton & Williams also will deliver its opinion that the
discussion set forth in this Prospectus under "Certain Federal Income Tax
Consequences" is correct and complete in all material respects. The foregoing
opinions will be based on existing law, but there can be no assurance that the
law will not change or that contrary positions will not be taken by the
Service.
The Certificates other than the Class R Certificates will be designated as
REMIC "regular interests" ("Regular Certificates"), which generally are
treated as debt for federal income tax purposes. The Class R Certificates (the
"Residual Certificates") will represent REMIC "residual interests," which
generally are not treated as debt for such purposes, but rather as
representing rights and responsibilities with respect to the taxable income or
loss of the related Trust REMIC.
In general, Certificates held by a "mutual savings bank" or "domestic
building and loan association" (a "Thrift Institution") taxed as a "domestic
building and loan association" will constitute assets described in section
7701(a)(19)(C)(xi) of the Code; Certificates held by a real estate investment
trust (a "REIT") will constitute "real estate assets" within the meaning of
section 856(c)(5)(A) of the Code; and interest on such Certificates will be
considered "interest on obligations secured by mortgages on real property"
within the meaning of section 856(c)(3)(B), all in the same proportion that
the related Trust REMIC's assets would so qualify. If 95% or more of the
assets of a given Trust REMIC constitute qualifying assets for Thrift
Institutions and REITs, the related Certificates and the income thereon will
be treated entirely as qualifying assets and income for such purposes. Both
Trust REMICs will be treated as a single REMIC for purposes of determining
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the extent to which the related Certificates and the income thereon will be
treated as qualifying assets and income for such purposes. Regular and
Residual Certificates held by a financial institution to which section 585 or
586 of the Code applies will be treated as evidences of indebtedness for
purposes of section 582(c)(1) of the Code. The Sub Pool I Regular Certificates
also will be "qualified mortgages" within the meaning of section 860G(a)(3) of
the Code with respect to other REMICs. As described below, however, The Sub
Pool II Regular Certificates will not entirely constitute qualified mortgages
for REMIC purposes. Effective September 1, 1997, Regular Certificates held by
a financial asset securitization investment trust (a "FASIT") will qualify for
treatment as "permitted assets" within the meaning of section 860L(c)(1)(G) of
the Code.
In addition to representing ownership of regular interests in the Upper-Tier
REMIC, the Sub-Pool II Certificates also will represent for federal income tax
purposes ownership of a contract right to receive an amount equal to any Basis
Risk Shortfall to the extent of the Basis Risk Support Amount (a "Contract
Right"). To the extent that the Sub-Pool II Certificates represent ownership
of a Contract Right, the Sub-Pool II Certificates will not represent assets
described in the foregoing sections of the Code. Therefore, the Sub-Pool II
Certificates will not entirely constitute permitted investments or qualified
mortgages if held by another REMIC and thus will be unsuitable for inclusion
in another REMIC. Moreover, a Contract Right will not constitute an obligation
that is principally secured by an interest in real property within the meaning
of section 856(c)(5)(A) of the Code, and payments made to a REIT with respect
to such Contract Right will not constitute gross income as described in
section 856(c) of the Code.
TAX TREATMENT OF REGULAR CERTIFICATES
General
Except as described below for Regular Certificates issued with OID or
acquired with market discount or premium, interest paid or accrued on a
Regular Certificate will be treated as ordinary income to the
Certificateholder and a principal payment on such Certificate will be treated
as a return of capital to the extent that the Certificateholder's basis in the
Certificate is allocable to that payment. Regular Certificateholders must
report income from such Certificates under an accrual method of accounting,
even if they otherwise would have used the cash receipts and disbursements
method.
Original Issue Discount
Overview. Based in part on anticipated prices (including accrued interest)
and the prepayment assumptions described below, Classes , and will
be issued, and Classes , , and will not be issued, with OID
within the meaning of section 1273(a) of the Code. Certificateholders of
Regular Certificates as to which there is OID should be aware that they
generally must include OID in income for federal income tax purposes on an
annual basis under a constant yield accrual method that reflects compounding.
In general, OID is treated as ordinary interest income and must be included in
income in advance of the receipt of the cash to which it relates.
The amount of OID required to be included in a Regular Certificateholder's
income in any taxable year will be computed in accordance with section
1272(a)(6) of the Code, which provides for the accrual of OID under a constant
yield method on regular interests in a REMIC. Under section 1272(a)(6), as
elaborated by the related legislative history, the amount and the rate of
accrual of OID generally is to be calculated based on the prepayment rate for
the Mortgage Loans and the reinvestment rate on amounts held pending
distribution that were assumed in pricing the Regular Certificates (the
"Pricing Prepayment Assumptions"). The OID Regulations do not address directly
the treatment of instruments that are subject to section 1272(a)(6). However,
until the Treasury issues guidance to the contrary, the Trustee, in its
capacity as party responsible for computing the amount of OID to be reported
to a Regular Certificateholder each taxable year, will base its computations
on Code section 1272(a)(6) and the OID Regulations as described below.
Prospective investors should be aware that because no regulatory guidance
currently exists under Code section 1272(a)(6), there can be no complete
assurance that the methodology described below represents the correct manner
of calculating OID on the Regular Certificates.
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The Pricing Prepayment Assumptions include an assumption of . No
representation is made, however, about the rate at which prepayments on the
Mortgage Loans actually will occur.
Amount of Original Issue Discount. The amount of OID on a Regular
Certificate equals the excess, if any, of the Certificate's "stated redemption
price at maturity" over its "issue price." Under the OID Regulations, a debt
instrument's stated redemption price at maturity is the sum of all payments
provided by the instrument other than "qualified stated interest" ("Deemed
Principal Payments"). Qualified stated interest, in general, is stated
interest that is payable unconditionally in cash or property (other than debt
instruments of the issuer) at least annually at (i) a single fixed rate or
(ii) a variable rate that meets certain requirements set out in the OID
Regulations. See "--Variable Rate Certificates" below. Thus, in the case of
any Regular Certificate, the stated redemption price at maturity will include
all Deemed Principal Payments payable on that Certificate. The issue price of
a Regular Certificate generally will equal the initial price at which a
substantial amount of Certificates of the same class is sold to the public
(including any amounts paid for interest accrued as of the Closing Date under
the terms of the Certificate).
Under a de minimis rule, a Regular Certificate will be considered to have no
OID if the amount of OID is less than 0.25% of the Certificate's stated
redemption price at maturity multiplied by its weighted average maturity
("WAM"). For that purpose, the WAM of a Regular Certificate is the sum of the
amounts obtained by multiplying the amount of each Deemed Principal Payment by
a fraction, the numerator of which is the number of complete years from the
Certificate's issue date until the payment is made, and the denominator of
which is the Certificate's stated redemption price at maturity. Although no
guidance has been issued regarding the application of the de minimis rule to
REMIC regular interests, the WAM of a Regular Certificate has been computed
using the Pricing Prepayment Assumptions. A Regular Certificateholder will
include de minimis OID in income on a pro rata basis as stated principal
payments on the Certificate are received or, if earlier, upon disposition of
the Certificate, unless the Certificateholder makes the "Constant Yield
Election" (as defined below).
Accrual of Original Issue Discount. A Regular Certificateholder of a
Certificate that has OID generally must include in gross income the sum, for
all days during his taxable year on which he holds the Regular Certificate, of
the "daily portions" of the OID on such Certificate. In the case of an
original Regular Certificateholder, the daily portions of OID with respect to
such Certificate generally will be determined by allocating to each day in any
accrual period the Certificate's ratable portion of the excess, if any, of (i)
the sum of (a) the present value of all projected payments under the
Certificate yet to be received as of the close of such period plus (b) the
amount of payments received on the Certificate during such period over (ii)
the Certificate's "adjusted issue price" at the beginning of such period. The
accrual period that will be used by the Trustee for purposes of computing the
daily portions on a Regular Certificate will be the one month (or shorter
period) ending on each Distribution Date. The present value of projected
payments yet to be received on a Regular Certificate is to be computed using
the Pricing Prepayment Assumptions and the Certificate's original yield to
maturity (adjusted to take into account the length of the particular accrual
period), and taking into account payments actually received on the Certificate
prior to the close of the accrual period. The adjusted issue price of a
Regular Certificate at the beginning of the first accrual period is its issue
price. The adjusted issue price at the beginning of each subsequent period is
the adjusted issue price of the Certificate at the beginning of the preceding
period increased by the amount of OID allocable to that period and reduced by
the amount of any Deemed Principal Payments received during that period. Thus,
an increased (or decreased) rate of prepayments received with respect to a
Regular Certificate will be accompanied by a correspondingly increased (or
decreased) rate of recognition of OID by the Certificateholder.
The yield to maturity of a Regular Certificate is calculated based on the
Pricing Prepayment Assumptions. Contingencies, such as the exercise of
"mandatory redemptions," that are taken into account by the parties in pricing
the Regular Certificates typically will be subsumed in the Pricing Prepayment
Assumptions and thus will be reflected in the Certificate's yield to maturity.
If the subsequent Certificateholder's adjusted basis in the Regular
Certificate immediately after the acquisition exceeds the adjusted issue price
of the Certificate, but is less than or equal to the sum of the payments to be
received under the Certificate after the acquisition date, the
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amount of OID on the Certificate will be reduced by a fraction, the numerator
of which is the excess of the Certificate's adjusted basis immediately after
its acquisition over the adjusted issue price of the Certificate and the
denominator of which is the excess of the sum of all payments to be received
on the Certificate after the acquisition date over the adjusted issue price of
the Certificate. If a subsequent Certificateholder's adjusted basis in a
Regular Certificate, immediately after its acquisition, exceeds the sum of all
payments to be received on the Certificate after the acquisition date, the
Certificateholder will no longer be required to accrue OID on the Certificate,
and the Certificateholder can elect to reduce the amount of interest income
recognized on the Certificate by the amount of amortizable premium. See "--
Amortizable Premium" below.
Special Rules and Considerations. The OID Regulations provide that a
Certificateholder generally may make an election (a "Constant Yield Election")
to include in gross income all current income on the Regular Certificate,
including market discount (as described below under "--Market Discount") (as
reduced by any acquisition premium, as described below) under the constant
yield method used to account for OID. To make the Constant Yield Election, the
Certificateholder of the Regular Certificate must attach a statement to its
timely filed federal income tax return for the taxable year in which the
Certificateholder acquired the Regular Certificate. The statement must
identify the instruments to which the election applies. A Constant Yield
Election is irrevocable unless the Certificateholder obtains the consent of
the Service. In general, the Constant Yield Election may be made on an
obligation-by-obligation basis. If, however a Constant Yield Election is made
for a debt instrument with market discount, the Certificateholder is deemed to
have made an election to include in income currently the market discount on
all of the Certificateholder's other debt instruments with market discount, as
described in "--Market Discount" below. In addition, if a Constant Yield
Election is made for a debt instrument with amortizable premium, the
Certificateholder is deemed to have made an election to amortize the premium
on all of the Certificateholder's other debt instruments with amortizable
premium under the constant yield method. See "--Amortizable Premium" below.
To prevent taxpayers from structuring debt instruments or transactions, or
applying the bright-line or mechanical rules of the OID Regulations, in ways
that produce unreasonable tax results, the Treasury issued proposed and
temporary regulations containing an anti-abuse rule on the same date as the
issuance of the OID Regulations. The proposed and temporary regulations
provide that if a principal purpose in structuring a debt instrument, engaging
in a transaction, or applying the OID Regulations is to achieve a result that
is unreasonable in light of the purposes of the applicable statutes, the
Service can apply or depart from the OID Regulations as necessary or
appropriate to achieve a reasonable result. A result is not considered
unreasonable under the proposed and temporary regulations, however, in the
absence of a substantial effect on the present value of a taxpayer's tax
liability.
In view of the complexities and current uncertainties as to the manner of
inclusion in income of OID on Regular Certificates, each investor should
consult his own tax advisor to determine the appropriate amount and method of
inclusion in income of OID on such Certificates for federal income tax
purposes.
Variable Rate Certificates
The Sub-Pool II Certificates will pay interest at a variable rate (a
"Variable Rate Certificate"). The rules applicable to variable rate debt
instruments, as defined in the OID Regulations ("VRDIs"), apply to a Variable
Rate Certificate only if: (i) such Certificate is not issued at a premium to
its noncontingent principal amount in excess of the lesser of (a) .015
multiplied by the product of such noncontingent principal amount and the WAM
(as that term is defined above in the discussion of the de minimis rule) of
the Certificate or (b) 15 percent of such noncontingent principal amount; (ii)
stated interest on the Certificate compounds or is payable unconditionally at
least annually at specified rates, including (a) one or more "qualified
floating rates," (b) a single fixed rate and one or more qualified floating
rates, or (c) a single "objective rate;" and (iii) the qualified floating rate
or the objective rate in effect during an accrual period is set at a current
value of that rate (i.e., the value of the rate on any day occurring during
the interval that begins three months prior to the first day on which that
value is in effect under the Certificate and ends one year following that
day).
A rate is a qualified floating rate if variations in the rate reasonably can
be expected to measure contemporaneous variations in the cost of newly
borrowed funds in the currency in which the debt instrument is
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denominated. A qualified floating rate may measure contemporaneous variations
in borrowing costs for the issuer of the debt instrument or for issuers in
general. A multiple of a qualified floating rate is considered a qualified
floating rate only if the rate is equal to either (a) the product of a
qualified floating rate and a fixed multiple that is greater than zero but not
more than 1.35 or (b) the product of a qualified floating rate and a fixed
multiple that is greater than zero but not more than 1.35, increased or
decreased by a fixed rate. If a Regular Certificate provides for two or more
qualified floating rates that reasonably can be expected to have approximately
the same values throughout the term of the Certificate, the qualified floating
rates together will constitute a single qualified floating rate. Two or more
qualified floating rates conclusively will be presumed to have approximately
the same values throughout the term of a Certificate if the values of all such
rates on the issue date of the Certificate are within 25 basis points of each
other.
A variable rate will be considered a qualified floating rate if it is
subject to a restriction or restrictions on the maximum stated interest rate
(a "Cap"), a restriction or restrictions on the minimum stated interest rate
(a "Floor"), a restriction or restrictions on the amount of increase or
decrease in the stated interest rate (a "Governor"), or other similar
restriction only if: (a) the Cap, Floor, or Governor is fixed throughout the
term of the related Certificate or (b) the Cap, Floor, or Governor, or similar
restriction is not reasonably expected, as of the issue date, to cause the
yield on the Certificate to be significantly less or significantly more than
the expected yield on the Regular Certificate determined without such Cap,
Floor, Governor, or similar restriction, as the case may be. Although the OID
Regulations are unclear, it appears that a VRDI, the primary rate on which is
subject to a Cap, Floor, or Governor that itself is a qualified floating rate,
bears interest at an objective rate and not at a qualified floating rate.
Under final Treasury regulations issued on June 12, 1996, an objective rate
is a rate (other than a qualified floating rate) that (i) is determined using
a single fixed formula, (ii) is based on objective financial or economic
information, and (iii) is not based on information that is within the control
of the issuer (or a related party) or that is unique to the circumstances of
the issuer (or a related party), such as the level of the issuer's dividends,
profits, or stock value. The definition of an objective rate is broader than
the former definition in the OID Regulations and would include, for example, a
rate that is based on changes in a general inflation index.
If interest on a Variable Rate Certificate is stated at a fixed rate for an
initial period of less than one year followed by a variable rate that is
either a qualified floating rate or an objective rate for a subsequent period,
and the value of the variable rate on the issue date approximates the fixed
rate, the fixed rate and the variable rate together constitute a single
qualified floating rate or objective rate. A variable rate conclusively will
be presumed to approximate an initial fixed rate if the value of the variable
rate on the issue date does not differ from the value of the fixed rate by
more than 25 basis points.
Under the OID Regulations, all interest payable on a Variable Rate
Certificate that qualifies as a VRDI and provides for stated interest
unconditionally payable in cash or property at least annually at a single
qualified floating rate or a single objective rate (a "Single Rate VRDI
Certificate") is treated as qualified stated interest. The amount and accrual
of OID on a Single Rate VRDI Certificate is determined, in general, by
converting such Certificate into a hypothetical fixed rate security and
applying the rules applicable to fixed rate securities described under
"Original Issue Discount" above to the hypothetical fixed rate security.
Qualified stated interest or OID allocable to an accrual period with respect
to a Single Rate VRDI Certificate must be increased (or decreased) if the
interest actually accrued or paid during such accrual periods exceeds (or is
less than) the interest assumed to be accrued or paid during such accrual
period under the related hypothetical fixed rate security.
Market Discount
A subsequent purchaser of a Regular Certificate at a discount from its
adjusted issue price will acquire such Certificate with "market discount." The
purchaser generally will be required to recognize the market discount (in
addition to any OID remaining with respect to the Regular Certificate) as
ordinary income. A person who purchases a Regular Certificate at a price lower
than the total of the remaining projected payments on the Certificate but
higher than its adjusted issue price does not acquire the Certificate with
market discount, but will be required to report OID, appropriately adjusted to
reflect the excess of the price paid over the adjusted issue
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price. See "--Tax Treatment of Regular Certificates--Original Issue Discount."
A Regular Certificate will not be considered to have market discount if the
amount of such market discount is de minimis, i.e., less than the product of
(i) 0.25% of the adjusted issue price of such Certificate, multiplied by (ii)
its WAM. For that purpose, the WAM of a Regular Certificate is the sum of the
amounts obtained by multiplying the amount of each payment by a fraction, the
numerator of which is the number of complete years from the Certificate's
issue date until the payment is made, and the denominator of which is the
Certificate's stated redemption price at maturity. Regardless of whether the
subsequent purchaser of a Regular Certificate with more than a de minimis
amount of market discount is a cash-basis or an accrual-basis taxpayer, market
discount generally will be taken into income as payments are received, in an
amount equal to the lesser of (i) the amount of the payment received or (ii)
the amount of market discount that has "accrued" (as described below), but
that has not yet been included in income. The purchaser may make an election,
which generally applies to all market discount instruments acquired by the
purchaser in the taxable year of election or thereafter, to recognize market
discount currently on an uncapped accrual basis (the "Current Recognition
Election"). In addition, the purchaser may make a Constant Yield Election with
respect to a Regular Certificate purchased with market discount. See "--Tax
Treatment of Regular Certificates--Original Issue Discount."
The relevant legislative history indicates that, until the Treasury
promulgates applicable regulations, the purchaser of a Regular Certificate
with market discount generally may elect to accrue the market discount either:
(i) on the basis of a constant interest rate or (ii) in the ratio of OID
accrued for the relevant period to the total remaining OID at the beginning of
such period. Regardless of which computation method is elected, the Pricing
Prepayment Assumptions must be used to calculate the accrual of market
discount.
A Certificateholder who has acquired a Regular Certificate with market
discount generally will be required to treat a portion of any gain on a sale
or exchange of the 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 as partial principal payments were received. Moreover, such Regular
Certificateholder generally must defer interest deductions attributable to any
indebtedness incurred or continued to purchase or carry the Certificate to the
extent they exceed income on the Certificate. Any such deferred interest
expense, in general, is allowed as a deduction not later than the year in
which the related market discount income is recognized. If a Regular
Certificateholder makes a Current Recognition Election or a Constant Yield
Election, the interest deferral rule will not apply.
Treasury regulations implementing the market discount rules have not yet
been issued, and uncertainty exists with respect to many aspects of those
rules. For example, the treatment of a Regular Certificate subject to
redemption at the option of the Trustee that is acquired at a market discount
is unclear. It appears likely, however, that the market discount rules
applicable in such a case would be similar to the rules pertaining to OID. Due
to the substantial lack of regulatory guidance with respect to the market
discount rules, it is unclear how those rules will affect any secondary market
that develops for a given Class of Regular Certificates. Prospective investors
in Regular Certificates should consult their own tax advisors as to the
application of the market discount rules to those Certificates.
Amortizable Premium
A purchaser of a Regular Certificate who purchases the Certificate at a
premium over the total of its Deemed Principal Payments may elect to amortize
such premium under a constant yield method that reflects compounding based on
the interval between payments on the Certificate. The relevant legislative
history indicates that premium is to be accrued in the same manner as market
discount. Accordingly, it appears that the accrual of premium on a Regular
Certificate will be calculated using the Pricing Prepayment Assumptions. Under
the Code, except as otherwise provided in Treasury regulations to be issued,
amortized premium would be treated as an offset to interest income on a
Regular Certificate and not as a separate deduction item. If a
Certificateholder makes an election to amortize premium on a Regular
Certificate, such election will apply to all taxable debt instruments
(including all REMIC regular interests) held by the Certificateholder at the
beginning of the taxable year in which the election is made, and to all
taxable debt instruments acquired thereafter by such Certificateholder, and
will be irrevocable without the consent of the Service. Purchasers who pay a
premium for the Regular Certificates should consult their tax advisors
regarding the election to amortize premium and the method to be employed.
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Basis Risk Support Amount
The treatment of amounts received by a Sub-Pool II Certificateholder under
such Certificateholder's Contract Right to receive certain payments from the
FDIC ("Basis Risk Support Payments") in the event of a Basis Risk Shortfall
will depend in part on the portion, if any, of the Certificateholder's
purchase price allocable thereto. For federal income tax reporting purposes,
the Trustee intends to treat the issue price of a Sub-Pool II Certificate as
allocable entirely to the regular interest represented by such Certificate,
based on the position that the fair market value of the right to receive Basis
Risk Support Payments is nominal at the time of acquisition of a Sub-Pool II
Certificate because of the remoteness of a Basis Risk Shortfall occurring.
Accordingly, no portion of the issue price of a Sub-Pool II Certificate will
be treated for federal income tax reporting purposes as allocable to the
Contract Right to receive Basis Risk Support Payments. Assuming that the
Certificateholder of a Sub-Pool II Certificate would not be required to
allocate any portion of its purchase price to such Contract Right, all Basis
Risk Support Payments received by such Certificateholder would be treated as
ordinary income and most likely would accrue, and be taken into income, at
substantially the same time as they would if such payments were interest on
the Sub-Pool II Certificates.
Gain or Loss on Disposition
If a Regular Certificate is sold, the Certificateholder will recognize gain
or loss equal to the difference between the amount realized on the sale and
his adjusted basis in the Regular Certificate. The adjusted basis of a Regular
Certificate generally will equal the cost of the Certificate to the
Certificateholder, increased by any OID or market discount previously
includible in the Certificateholder's gross income with respect to the
Certificate, and reduced by the portion of the basis of the Certificate
allocable to payments on the Certificate previously received by the
Certificateholder. Except to the extent that the market discount rules apply
and except as provided below, any gain or loss on the sale or other
disposition of a Regular Certificate generally will be capital gain or loss.
Such gain or loss will be long-term gain or loss if the Certificate is held as
a capital asset for more than 12 months.
If the Certificateholder of a Regular Certificate is a bank, Thrift
Institution, or similar institution described in section 582 of the Code, any
gain or loss on the sale or exchange of the Regular Certificate will be
treated as ordinary income or loss. In the case of other types of
Certificateholders, gain from the disposition of a Regular Certificate that
otherwise would be capital gain will be treated as ordinary income to the
extent that the amount actually includible in income with respect to the
Regular Certificate by the Certificateholder during his holding period is less
than the amount that would have been includible in income if the yield on that
Certificate during the holding period had been 110% of a specified U.S.
Treasury borrowing rate as of the date that the Certificateholder acquired the
Regular Certificate. Although the relevant legislative history indicates that
the portion of the gain from disposition of a Regular Certificate that will be
recharacterized as ordinary income is limited to the amount of OID (if any) on
the Certificate that was not previously includible in income, the applicable
Code provision contains no such limitation.
Realized Losses
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 on the Mortgage Loans. However, it appears that a
noncorporate holder that does not acquire a 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 Certificateholder 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
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the Mortgage Loans until it can be established that any such reduction
ultimately will not be recoverable. As a result, the amount of taxable income
reported in any period by the holder of a Certificate could exceed the amount
of economic income actually realized by the holder in such period. Although
the holder of a Certificate eventually will recognize a loss or reduction in
income attributable to previously accrued and included income that as the
result of a realized loss ultimately will not be realized, the law is unclear
with respect to the timing and character of such loss or reduction in income.
REMIC QUALIFICATION
Each Asset Pool will qualify under the Code as a REMIC, so long as a REMIC
election is in effect and certain tests concerning (i) the composition of the
Trust REMIC's assets and (ii) the nature of the Certificateholders' interests
in the Trust REMIC are met on a continuing basis. A loss of REMIC status could
have a number of consequences for Certificateholders. If, as the result of
REMIC disqualification, the Trust Fund were treated as an association taxable
as a corporation, distributions on the Regular Certificates could be
recharacterized in part as dividends from a non-includible corporation and in
part as returns of capital. Alternatively, distributions on a Regular
Certificate could continue to be treated as comprised of interest and
principal notwithstanding REMIC disqualification, in which case a cash-basis
Certificateholder might not be required to continue to recognize interest and
market discount with respect to the Certificate on the accrual basis. Under
the first alternative, a loss of REMIC status would, and under the second
alternative, a loss of REMIC status could cause the Certificates and the
associated distributions not to be qualified assets and income for the various
purposes of Thrift Institutions, domestic building and loan associations, and
REITs described in the last paragraph under "--General" above, although such a
loss would not affect the status of the Certificates as "government
securities" for REITs. The Certificates should continue to qualify as
"government securities" for RICs regardless of whether REMIC status is lost.
REMIC-LEVEL TAXES
General
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 Certificates.
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"). The Pooling and Servicing Agreement includes provisions
designed to prevent the acceptance of any contributions to the Trust Fund 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.
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 Trust Fund will be
borne by the Servicer or Trustee in either case out of its own funds, provided
that the 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
Servicer's or the Trustee's obligations, as the case may be, under the
Agreement and in respect of compliance with applicable laws and regulations.
Any such tax not borne by the Servicer or the Trustee will be charged against
the Trust Fund resulting in a reduction in amounts payable to holders of the
Certificates.
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Possible Taxes on Income From Foreclosure Property
Under the terms of the Pooling and Servicing Agreement, the Servicer is
obligated to operate and manage any Mortgaged Property acquired as REO
Property in accordance with the Servicing Standard. After the Servicer reviews
the operation of such property and consults with the Trustee to determine the
Trustee's federal income tax reporting position with respect to income it is
anticipated that the Trust Fund would derive from such property, the Servicer
could determine that it would not be commercially feasible to manage and
operate such property in a manner that would avoid the imposition of a tax on
"net income from foreclosure property" within the meaning of the REMIC
Provisions or a tax on prohibited transactions (either such tax referred to
herein as an "REO Tax"). To the extent that income the Trust Fund receives
from an REO Property is subject to a tax on "net income from foreclosure
property," such income would be subject to federal tax at the highest marginal
corporate tax rate (currently 35%); and to the extent that such income is
subject to a tax on "prohibited transactions," such income would be subject to
federal tax at a 100% rate. The determination as to whether income from an REO
Property would be subject to an REO Tax will depend on the specific facts and
circumstances relating to the management and operation of each REO Property.
Generally, income from an REO Property that is directly operated by the
Servicer would be apportioned and classified as "service" or "non-service"
income. The "service" portion of such income could be subject to federal tax
either at the highest marginal corporate tax rate or at the 100% rate on
"prohibited transactions," and the "non-service" portion of such income could
be subject to federal tax at the highest marginal corporate tax rate or,
although it appears unlikely, at the 100% rate applicable to "prohibited
transactions." See, in particular, "Servicing of the Mortgage Loans--
Realization Upon Defaulted Mortgage Loans." Any REO Tax imposed on the Trust
Fund's income from an REO Property would reduce the amount available for
distribution to Certificateholders. Certificateholders are advised to consult
their own tax advisers regarding the possible imposition of REO Taxes in
connection with the operation of commercial REO Properties by REMICs.
TAXATION OF FOREIGN CERTIFICATEHOLDERS OF REMIC REGULAR CERTIFICATES
Interest, including OID, paid on a Regular Certificate to a nonresident
alien individual, foreign corporation, or other non-United States person
("Foreign Person") generally will be treated as "portfolio interest" and,
therefore, will not be subject to any United States withholding tax, provided
that (i) such interest is not effectively connected with a trade or business
in the United States of the Certificateholder, and (ii) the Trustee (or other
person who would otherwise be required to withhold tax) is provided with
appropriate certification that the beneficial owner of the Regular Certificate
is a Foreign Person ("Foreign Person Certification"). If Foreign Person
Certification is not provided, interest (including OID) paid on such an
Certificate may be subject to either a 30% withholding tax or 31% backup
withholding. See "--Backup Withholding."
REPORTING AND TAX ADMINISTRATION OF REGULAR CERTIFICATES
To the extent required by statute, regulation, or administrative ruling, the
Trustee will make reports at least annually to Regular Certificateholders of
record and to the Service with respect to (i) interest paid or accrued on the
Certificates, (ii) OID, if any, accrued on the Certificates, and (iii)
information necessary to compute the accrual of any market discount or the
amortization of any premium on the Certificates.
BACKUP WITHHOLDING
Under federal income tax law, a Certificateholder may be subject to "backup
withholding" under certain circumstances. Backup withholding may apply to a
Certificateholder who is a United States person if the Certificateholder,
among other things, (i) fails to furnish his social security number or other
taxpayer identification number ("TIN") to the Trustee, (ii) furnishes the
Trustee an incorrect TIN, (iii) fails to report properly interest and
dividends, or (iv) under certain circumstances, fails to provide the Trustee
or the Certificateholder's securities broker with a certified statement,
signed under penalties of perjury, that the TIN provided to the Trustee is
correct and that the Certificateholder is not subject to backup withholding.
Backup withholding may apply, under certain circumstances, to a
Certificateholder who is a Foreign Person if the Certificateholder fails to
provide the Trustee or the Certificateholder's securities broker with a
Foreign Person
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Certification. Backup withholding applies to "reportable payments," which
include interest payments and principal payments to the extent of accrued OID,
as well as distributions of proceeds from the sale of Regular Certificates or
Residual Certificates. The backup withholding rate is 31%. Backup withholding,
however, does not apply to payments on an Certificate made to certain exempt
recipients, such as tax-exempt organizations, and to certain Foreign Persons.
Certificateholders should consult their tax advisors for additional
information concerning the potential application of backup withholding to
payments received by them with respect to a Regular Certificate.
DUE TO THE COMPLEXITY OF THE FEDERAL INCOME TAX RULES APPLICABLE TO
CERTIFICATEHOLDERS AND THE CONSIDERABLE UNCERTAINTY THAT EXISTS WITH RESPECT
TO MANY ASPECTS OF THOSE RULES, POTENTIAL INVESTORS SHOULD CONSULT THEIR OWN
TAX ADVISORS REGARDING THE TAX TREATMENT OF THE ACQUISITION, OWNERSHIP, AND
DISPOSITION OF THE CERTIFICATES.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences," potential investors should consider the
state income tax consequences of the acquisition, ownership, and disposition
of the Offered Certificates. State income tax law may differ substantially
from the corresponding federal law, and this discussion does not purport to
describe any aspect of the income tax laws of any state. Therefore, potential
investors should consult their own tax advisors with respect to the various
state tax consequences of an investment in the Offered Certificates.
ERISA CONSIDERATIONS
GENERAL
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 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 (all of which are hereinafter referred to as
"Plans"), and on persons who are fiduciaries with respect to 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 that 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 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, ERISA and the Code prohibit a broad
range of transactions involving assets of a Plan and persons ("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, 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.
PLAN ASSET REGULATIONS
A Plan's investment in the Certificates of a particular class may cause the
Mortgage Loans included in the Sub-Pool evidenced by such Certificates to be
deemed Plan assets. Section 2510.3-101 of the regulations of the United States
Department of Labor ("DOL") provides that when a Plan acquires an equity
interest in an entity,
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<PAGE>
the Plan's assets include both such equity interest and an undivided interest
in each of the underlying assets of the entity, unless certain exceptions not
applicable to this discussion apply, or unless the equity participation in the
entity by "benefit plan investors" (that is, Plans and certain employee
benefit plans not subject to ERISA) is not "significant." For this purpose, in
general, equity participation in the Trust Fund by benefit plan investors will
be "significant" on any date if, immediately after the most recent acquisition
of any Offered Certificate, 25% or more of any class of equity interests is
held by benefit plan investors.
Any person who has discretionary authority or control respecting the
management or disposition of Plan assets, and any person who provides
investment advice with respect to such assets for a fee, is a fiduciary of the
investing Plan. If the Mortgage Loans constitute Plan assets, then any party
exercising management or discretionary control regarding those assets, such as
the Trustee, the Servicer, or any Sub-Servicer, may be deemed to be a Plan
"fiduciary" with respect to the investing Plan, and thus subject to the
fiduciary responsibility provisions and prohibited transaction provisions of
ERISA and the Code. In addition, if the Mortgage Loans constitute Plan assets,
the purchase of Certificates by a Plan, as well as the operation of the Trust
Fund, may constitute or involve a prohibited transaction under ERISA or the
Code.
The DOL has issued to Lehman Brothers an individual prohibited transaction
exemption, Prohibited Transaction Exemption 91-14 et al. (Exemption
Application No. D-7958 et al., 56 Fed. Reg. 7413 (1991)) (the "Exemption"),
which generally exempts from the application of the prohibited transaction
provisions of Section 406 of ERISA, and the excise taxes imposed on such
prohibited transactions pursuant to Sections 4975(a) and (b) of the Code,
certain transactions, among others, relating to the servicing and operation of
mortgage pools, such as the Mortgage Pool, and the purchase, sale and holding
of mortgage pass-through certificates, such as the Class I-A and Class II-A
Certificates (collectively, the "Senior Certificates"), underwritten by an
Underwriter (as hereinafter defined), provided that certain conditions set
forth in the Exemption are satisfied. For purposes of this Section "ERISA
Considerations," the term "Underwriter" shall include (a) Lehman Brothers, (b)
any person directly or indirectly, through one or more intermediaries,
controlling, controlled by or under common control with Lehman Brothers, and
(c) any member of the underwriting syndicate or selling group of which a
person described in (a) or (b) is a manager or co-manager with respect to the
Senior Certificates.
The Exemption sets forth six general conditions which must be satisfied for
a transaction involving the purchase, sale and holding of any of the Senior
Certificates to be eligible for exemptive relief thereunder. First, the
acquisition of the Senior Certificates by a Plan must be on terms that are at
least as favorable to the Plan as they would be in an arm's-length transaction
with an unrelated party. Second, the rights and interests evidenced by the
Senior Certificates must not be subordinated to the rights and interests
evidenced by the other certificates of the same trust. Third, the Senior
Certificates at the time of acquisition by the Plan must be rated in one of
the three highest generic rating categories by Standard & Poor's Ratings Group
("Standard & Poor's"), Moody's, Duff & Phelps or Fitch Investors Service, L.P.
("Fitch"). Fourth, the Trustee cannot be an affiliate of any other member of
the "Restricted Group," which consists of any Underwriter, the FDIC, the
Servicer, the Trustee, any sub-servicer, and any mortgagor with respect to
Mortgage Loans constituting more than 5% of the aggregate unamortized
principal balance of the Mortgage Loans as of the date of initial issuance of
the Senior Certificates and any affiliate of the foregoing. Fifth, the sum of
all payments made to and retained by the Underwriter must represent not more
than reasonable compensation for underwriting the Senior Certificates; the sum
of all payments made to and retained by the FDIC pursuant to the assignment of
the Mortgage Loans to the Trust Fund must represent not more than the fair
market value of such obligations; and the sum of all payments made to and
retained by the Servicer and any sub-servicer must represent not more than
reasonable compensation for such person's services under the Pooling and
Servicing Agreement and reimbursement of such person's reasonable expenses in
connection therewith. Sixth, the investing Plan must be an accredited investor
as defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933, as amended.
Because the Senior Certificates are not subordinated to any other class of
Certificates, the second general condition set forth above is satisfied with
respect to such Certificates. It is a condition of the issuance of the Senior
Certificates that they be rated not lower than "Aaa" by Moody's and "AAA" by
Duff & Phelps. As of the Closing Date, the fourth general condition set forth
above will be satisfied with respect to the Senior
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Certificates. A fiduciary of a Plan contemplating purchasing a Senior
Certificate in the secondary market must make its own determination that, at
the time of such purchase, such Certificate continues to satisfy the third and
fourth general conditions set forth above. A fiduciary of a Plan contemplating
purchasing a Senior Certificate, whether in the initial issuance of such
Certificates or in the secondary market, must make its own determination that
the first, fifth and sixth general conditions set forth above will be
satisfied with respect to such Senior Certificate.
The Exemption also requires that the Trust Fund meet the following
requirements: (i) the Trust Fund must consist solely of assets of the type
that have been included in other investment pools; (ii) certificates in such
other investment pools must have been rated in one of the three highest
categories of Standard & Poor's, Moody's, Duff & Phelps or Fitch for at least
one year prior to the Plan's acquisition of Senior Certificates; and (iii)
certificates in such other investment pools must have been purchased by
investors other than Plans for at least one year prior to any Plan's
acquisition of Senior Certificates.
If the general conditions of the Exemption are satisfied, the Exemption may
provide an exemption from the restrictions imposed by Sections 406(a) and
407(a) of ERISA (as well as the excise taxes imposed by Sections 4975(a) and
(b) of the Code by reason of Sections 4975(c)(1) (A) through (D) of the Code)
in connection with (i) the direct or indirect sale, exchange or transfer of
Senior Certificates in the initial issuance of Certificates between the FDIC
or the Underwriter and a Plan when the FDIC, the Underwriter, the Trustee, the
Servicer, a sub-servicer or a mortgagor is a Party in Interest with respect to
the investing Plan, (ii) the direct or indirect acquisition or disposition in
the secondary market of any Senior Certificates by a Plan and (iii) the
holding of Senior Certificates by a Plan. However, no exemption is provided
from the restrictions of Sections 406(a)(1)(E), 406(a)(2) and 407 of ERISA for
the acquisition or holding of a Senior Certificate on behalf of an "Excluded
Plan" by any person who has discretionary authority or renders investment
advice with respect to the assets of such Excluded Plan. For purposes hereof,
an Excluded Plan is a Plan sponsored by any member of the Restricted Group.
If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA and the taxes imposed by Section 4975(c)(1)(E)
of the Code in connection with (i) the direct or indirect sale, exchange or
transfer of Senior Certificates in the initial issuance of Certificates
between the FDIC or the Underwriter and a Plan when the person who has
discretionary authority or renders investment advice with respect to the
investment of Plan assets in such Certificates is (a) a mortgagor with respect
to 5 % or less of the fair market value of the Mortgage Loans or (b) an
affiliate of such a person, (ii) the direct or indirect acquisition or
disposition in the secondary market of Senior Certificates by a Plan and (iii)
the holding of Senior Certificates by a Plan.
Further, if certain specific conditions of the Exemption are satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Section 4975(c) of the Code for transactions
in connection with the servicing, management and operation of the Mortgage
Pool. It is expected that the specific conditions of the Exemption required
for this purpose will be satisfied with respect to the Senior Certificates.
The Exemption also may provide an exemption from the restrictions imposed by
Sections 406(a) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of the
Code if such restrictions are deemed to otherwise apply merely because a
person is deemed to be a Party in Interest with respect to an investing Plan
by virtue of providing services to the Plan (or by virtue of having certain
specified relationships to such a person) solely as a result of the Plan's
ownership of Certificates.
Before purchasing a Senior Certificate, a fiduciary of a Plan should itself
confirm that (i) such Senior Certificates constitute "certificates" for
purposes of the Exemption and (ii) the specific and general conditions and the
other requirements set forth in the Exemption would be satisfied. In addition
to making its own determination as to the availability of the exemptive relief
provided in the Exemption, the Plan fiduciary should consider the availability
of any other prohibited transaction exemptions, including, without limitation,
Prohibited Transaction Exemption ("PTE") 90-1, regarding investments by
insurance company pooled separate accounts;
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PTE 91-38, regarding investments by bank collective investment funds; or PTE
84-14, regarding transactions effected by a "qualified professional asset
manager." A purchaser of a Senior Certificate should be aware, however, that
even if the conditions specified in one or more exemptions are satisfied, the
scope of relief provided by an exemption may not cover all acts that might be
construed as prohibited transactions.
THE CHARACTERISTICS OF THE CLASS I-B, CLASS I-C, CLASS I-D, CLASS II-B AND
CLASS II-C CERTIFICATES WILL NOT MEET THE REQUIREMENTS OF THE EXEMPTION.
ACCORDINGLY, THE CLASS I-B, CLASS I-C, CLASS I-D, CLASS II-B AND CLASS II-C
CERTIFICATES SHOULD NOT BE ACQUIRED BY A PLAN.
Any Plan fiduciary considering whether to purchase an Offered Certificate 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.
LEGAL INVESTMENT
The appropriate characterization of the Offered Certificates under various
legal investment restrictions, and thus the ability of investors subject to
these restrictions to purchase Offered Certificates, is subject to significant
interpretive uncertainties. Accordingly, all institutions the investment
activities of which are subject to legal investment laws and regulations or to
review by regulatory authorities should consult with their own legal advisers
in determining whether and to what extent the Offered Certificates constitute
legal investments or are subject to restrictions on investment. All investors
the investment authority of which is subject to legal restrictions, including
federally chartered thrift institutions, should consult their own legal
advisers to determine whether and to what extent the Offered Certificates will
constitute legal investments for them. At the time of their issuance, the
Offered Certificates will not be "mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act of 1984. ("SMMEA"). The Office
of the Comptroller of the Currency has recently issued regulations effective
December 31, 1996 implementing the Riegle Community Development and Regulatory
Improvement Act of 1994, which extends SMMEA to certain commercial mortgage
related securities rated in one of the two highest rating categories. No
assurance is given that the Mortgage Loans will satisfy the requirements for
any of the Offered Certificates to qualify in the future as SMMEA eligible
securities.
No representation is made hereby as to the proper characterization of the
Offered Certificates for legal investment purposes, or as to the ability of
particular investors to purchase the Offered Certificates under applicable
legal investment restrictions. The uncertainties described above (and any
unfavorable future determinations concerning legal investment characteristics
of the Offered Certificates) may adversely affect the liquidity of the Offered
Certificates.
All depository institutions considering an investment in the Offered
Certificates should review the Federal Financial Institutions Examination
Council's Supervisory Policy Statement on the Selection of Securities Dealers
and Unsuitable Investment Practices (to the extent adopted by their respective
regulators), setting forth, in relevant part, certain investment practices
deemed to be unsuitable for an institution's investment portfolio, as well as
guidelines for investing in certain types of mortgage securities.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not
limited to, "prudent investor" provisions, percentage-of-assets limits and
provisions that may restrict or prohibit investment in securities which are
not "interest bearing" or "income paying."
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Offered Certificates or
to purchase Offered Certificates representing more than a specified percentage
of the investor's assets. Investors should consult their own legal advisers in
determining whether and to what extent the Offered Certificates constitute
legal investments for such investors.
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UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement") between the Mortgage Loan Seller, FDIC and the
Trustee on behalf of the Trust Fund and the Underwriters named below, dated
December , 1996, the Trust Fund has agreed to sell to the Underwriters, and
the Underwriters have severally agreed to purchase equal percentages of each
class of Offered Certificates.
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Offered
Certificates if any are purchased. In the event of default by any Underwriter,
the Underwriting Agreement provides that, in certain circumstances, the
purchase commitments of non-defaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
There is currently no secondary market for the Offered Certificates. The
Underwriters, either directly or through their affiliates, intend to make a
secondary market in the Offered Certificates, but none of the Underwriters has
any obligation to do so. There can be no assurance that an active secondary
market for any of the Offered Certificates will develop or that any such
market, if established, will continue.
The Underwriters propose to offer each class of the Offered Certificates in
part directly to purchasers at the initial public offering prices set forth on
the cover page of this Prospectus, and in part to certain securities dealers
at such prices less the concessions set forth below for each such class. The
Underwriters may allow, and such dealers may reallow, concessions not in
excess of the amount set forth below for each such class. After the Offered
Certificates are released for sale to the public, the public offering prices
and other selling terms may be changed by the Underwriters.
<TABLE>
<CAPTION>
SELLING
CONCESSIONS REALLOWANCES
----------- ------------
<S> <C> <C>
Class I-A..............................................
Class I-B..............................................
Class I-C..............................................
Class I-D..............................................
Class II-A.............................................
Class II-B.............................................
Class II-C.............................................
</TABLE>
Llama Company L.P. and M.R. Beal & Company will act as members of a selling
group and will have a limited right to sell not more than $20,000,000 of
aggregate principal amount of the Class I-A Certificates.
It is expected that delivery of the Offered Certificates will be made in
book-entry form through the facilities of The Depository Trust Company against
payment therefor on or about December 23, 1996 (the "Delivery Date"), which
will be the business day following the date of pricing of the Offered
Certificates (such settlement cycle being herein referred to as "T+ ").
Purchasers of the Offered Certificates should note that trading of the Offered
Certificates on the date of pricing and the next succeeding business days
may be affected by the T+ settlement.
The FDIC will indemnify the Underwriters against certain civil liabilities,
including liabilities under the Securities Act of 1933, as amended, or will
contribute to payments the Underwriters may be required to make in respect
thereof.
USE OF PROCEEDS
The net proceeds from the sale of the Offered Certificates will be used
towards the simultaneous purchase by the Trust Fund of the Mortgage Loans from
the Mortgage Loan Seller.
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LEGAL MATTERS
Certain legal matters will be passed upon for the Trust Fund, the Mortgage
Loan Seller and the FDIC by the General Counsel of the FDIC and by Hunton &
Williams, Richmond, Virginia, and certain legal matters will be passed upon
for the Underwriters by Latham & Watkins, New York, New York.
RATINGS
It is a condition to issuance that the Certificates be rated not lower than
the following:
<TABLE>
<CAPTION>
MOODY'S DUFF & PHELPS
------- -------------
<S> <C> <C>
Class I-A.............................................. Aaa AAA
Class I-B.............................................. Aa2 AA
Class I-C.............................................. A2 A
Class I-D.............................................. Baa2 BBB
Class II-A............................................. Aaa AAA
Class II-B............................................. Aa2 AA
Class II-C............................................. A2 A-
</TABLE>
A securities rating on mortgage pass-through certificates addresses the
likelihood of the receipt by holders thereof of payments to which they are
entitled. The rating takes 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 from a particular Sub-Pool is
adequate to make payments required under the Corresponding Certificates. The
ratings on the Offered Certificates do not, however, constitute a statement
regarding the likelihood or frequency of prepayments (whether voluntary or
involuntary) on the Mortgage Loans, or the corresponding effect on yield to
investors. The ratings do not address the likelihood of Basis Risk Shortfalls,
the sufficiency of any Basis Risk Shortfall Amount to cover such shortfall or
the corresponding effect on yield to investors.
There can be no assurance as to whether any rating agency not requested to
rate the Offered Certificates will nonetheless issue a rating to any class
and, if so, what such rating or ratings would be. A rating assigned to any
class of Offered Certificates by a rating agency that has not been requested
to do so may be lower than the rating assigned thereto by Moody's or Duff &
Phelps.
The ratings on the Offered Certificates should be evaluated independently
from similar ratings on other types of securities. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision
or withdrawal at any time by the assigning rating agency.
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INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<S> <C>
1996 Lender Liability Act................................................... 121
Accrual Period.............................................................. 73
Accrued Interest............................................................ 73
ADA......................................................................... 124
Advances.................................................................... 18
Appraisal Process........................................................... 37
Appraised Group I Loans..................................................... 11
Appraised Group II Loans.................................................... 12
Appraised Loans............................................................. 37
ARM Audit................................................................... 37
ARM Loans................................................................... 8
Asset Pool.................................................................. 125
Assignment of Leases and Rents.............................................. 57
Assumed Scheduled Payment................................................... 36
Available Distribution Amount............................................... 75
Available Sub-Pool Coverage Amount.......................................... 84
Available Guaranty Amount................................................... 83
Balloon Loan................................................................ 36
Balloon Payment............................................................. 36
Basis Risk Shortfall........................................................ 78
Basis Risk Support Amount................................................... 78
Basis Risk Support Payments................................................. 131
BIF......................................................................... 104
Cap......................................................................... 129
CERCLA...................................................................... 67
Certificate Owner........................................................... 89
Certificate Registrar....................................................... 89
Certificates................................................................ 6
Class Balance............................................................... 2
Class Credit Enhancement Percentage......................................... 80
Code........................................................................ 22
Collection Account.......................................................... 106
Compensating Interest Payment............................................... 65
Component Reference Rate.................................................... 15
Constant Prepayment Rate.................................................... 94
Contributions Tax........................................................... 132
Corresponding............................................................... 72
CPR......................................................................... 94
Credit Enhancement Amount................................................... 80
Credit Enhancement Text..................................................... 80
Crime Control Act........................................................... 123
Current Recognition Election................................................ 126
Cut-off Date................................................................ 6
Cut-off Date Balance........................................................ 8
Cut-off Date LTV Ratio...................................................... 53
Cut-off Date Sub-Pool I Balance............................................. 39
Cut-off Date Sub-Pool II Balance............................................ 47
Debt Service Reduction...................................................... 84
Defect...................................................................... 58
Deferred Interest........................................................... 73
</TABLE>
<TABLE>
<S> <C>
Deficient Valuation......................................................... 84
Definitive Offered Certificate.............................................. 7
Deleted Mortgage Asset...................................................... 60
Delinquent Mortgage Loan.................................................... 64
Delinquency Test............................................................ 80
Delivery Date............................................................... 138
Deemed Principal Payments................................................... 123
Depository Institutions..................................................... 6
Determination Date.......................................................... 72
Direct Participants......................................................... 89
Discounted Mortgage Loan.................................................... 74
Disqualifying Condition..................................................... 59
Distributable Interest...................................................... 72
Distributable Principal..................................................... 74
Distribution Account........................................................ 109
Distribution Date........................................................... 72
Distribution Date Statement................................................. 86
DTC......................................................................... 7
Due Date.................................................................... 8
Due Period.................................................................. 72
Duff & Phelps............................................................... 106
Earnings.................................................................... 45
Effective Net Mortgage Rate................................................. 73
ERISA....................................................................... 134
ERISA-Restricted Certificates............................................... 24
Escrow Account.............................................................. 63
Estimated Net Cash Flow..................................................... 45
Estimated Net Cash Flow Coverage
Ratio...................................................................... 45
Exemption................................................................... 135
Excess Coverage Amount...................................................... 84
FASIT....................................................................... 126
FDI Act..................................................................... 104
FDIC........................................................................ 6
FFB......................................................................... 105
FHLMC....................................................................... 107
Files....................................................................... 58
Final Database.............................................................. 38
Final Scheduled Distribution Date........................................... 2
FIRREA...................................................................... 104
Fitch....................................................................... 135
Fixed Rate Loans............................................................ 8
Floor....................................................................... 129
FNMA........................................................................ 107
Foreign Person.............................................................. 133
Foreign Person Certification................................................ 133
FRF......................................................................... 104
FSLIC....................................................................... 104
Funds....................................................................... 104
Garn Act.................................................................... 122
</TABLE>
140
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS--(CONTINUED)
<TABLE>
<S> <C>
Governor.................................................................... 129
Gross Margin................................................................ 47
Group I Loans............................................................... 39
Group II Loans.............................................................. 47
Guidelines.................................................................. 56
Index....................................................................... 47
Indirect Participants....................................................... 89
Information Date............................................................ 7
Initial Database............................................................ 37
Initial Guaranty Amount..................................................... 83
Initial Review.............................................................. 37
Insurance Proceeds.......................................................... 62
Interim Certification....................................................... 58
Junior Lien................................................................. 8
LIBOR....................................................................... 77
LIBOR Adjustment Date....................................................... 77
LIBOR Business Day.......................................................... 77
Limited Guaranty............................................................ 2
Limited Guaranty Draw Loan.................................................. 84
Liquidation Fee............................................................. 64
Liquidation Proceeds........................................................ 62
Loans-to-Facilitate......................................................... 56
Lower-Tier REMIC............................................................ 125
Matured Performing ARM Loan................................................. 13
Matured Performing Fixed Rate Loan.......................................... 11
Matured Performing Mortgage Loan............................................ 36
Maximum Obligation Limitation............................................... 101
Member Institutions......................................................... 104
Modification Fee............................................................ 64
Moody's..................................................................... 106
Mortgage.................................................................... 36
Mortgage Assets............................................................. 58
Mortgage File............................................................... 57
Mortgage File Sampling...................................................... 37
Mortgage Loan Seller........................................................ 6
Mortgage Loans.............................................................. 1
Mortgage Loan Schedule...................................................... 27
Mortgage Note............................................................... 36
Mortgage Pool............................................................... 1
Mortgage Rate............................................................... 8
Mortgage Rate Adjustment Date............................................... 47
Mortgaged Properties........................................................ 7
Negative Amortization....................................................... 103
Net Aggregate Prepayment Interest
Shortfall.................................................................. 73
Net Mortgage Rate........................................................... 73
Non-lead Participation File................................................. 58
Nonrecoverable Advance...................................................... 83
Notional Amount............................................................. 73
Offered Certificates........................................................ 71
</TABLE>
<TABLE>
<S> <C>
OID......................................................................... 125
OID Regulations............................................................. 125
Optimal Wind-Down Date...................................................... 65
P&I Advance................................................................. 17
P&I Advance Date............................................................ 62
Participants................................................................ 7
Parties in Interest......................................................... 134
Pass-Through Rate........................................................... 2
Payment Adjustment Date..................................................... 48
Percentage Interest......................................................... 72
Periodic Reports............................................................ 32
Permitted Investments....................................................... 107
Plan........................................................................ 23
Pooling and Servicing Agreement............................................. 71
Prepayment Interest Excess.................................................. 73
Prepayment Interest Shortfall............................................... 73
Prepayment Period........................................................... 72
Pricing Prepayment Assumptions.............................................. 122
Principal Prepayments....................................................... 74
Prohibited Transactions Tax................................................. 132
PTE......................................................................... 136
Purchase Price.............................................................. 59
Rating Agencies............................................................. 24
Realized Loss............................................................... 84
Regular Certificates........................................................ 125
Related Proceeds............................................................ 83
Relief Act.................................................................. 123
REIT........................................................................ 125
REMIC....................................................................... 22
REMIC Regulations........................................................... 125
REO Account................................................................. 106
REO Loan.................................................................... 16
REO Property................................................................ 62
REO Tax..................................................................... 133
Required Percentages........................................................ 80
Residual Certificates....................................................... 121
Resolution Fee.............................................................. 64
RICO........................................................................ 121
SAIF........................................................................ 104
Scheduled Payments.......................................................... 8
Scheduled Principal Balance................................................. 74
Scheduled Principal Payments................................................ 74
Senior Certificates......................................................... 135
Service..................................................................... 125
Servicer.................................................................... 62
Servicing Advance........................................................... 17
Servicing Fee............................................................... 64
Servicing Fee Rate.......................................................... 64
Servicing Standard.......................................................... 61
Settlement Date............................................................. 7
</TABLE>
141
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS--(CONTINUED)
<TABLE>
<S> <C>
Single Rate VRDI Certificates............................................... 129
SMMEA....................................................................... 137
Special Servicer............................................................ 6
Standard & Poor's........................................................... 135
Stated Principal Balance.................................................... 74
Stripped Interest Certificates.............................................. 6
Subordinated Percentage Amount.............................................. 80
Sub-Pool I.................................................................. 8
Sub-Pool II................................................................. 8
Sub-Pool I Certificates..................................................... 71
Sub-Pool II Certificates.................................................... 71
Sub-Servicer................................................................ 63
Sub-Servicing Agreement..................................................... 63
Substitute Mortgage Loan.................................................... 60
The Wall Street Journal Prime Rate.......................................... 63
Thrift Institution.......................................................... 125
TIN......................................................................... 133
Trustee..................................................................... 6
Trust Fund.................................................................. 6
Trust REMIC................................................................. 125
UCC......................................................................... 114
Uncovered Portion........................................................... 85
Underwriting Agreement...................................................... 138
Unfunded Basis Risk Shortfall............................................... 33
Upper-Tier REMIC............................................................ 125
Variable Rate Certificate................................................... 128
VRDIs....................................................................... 128
WAM......................................................................... 127
Weighted Average Effective Net Mortgage Rate................................ 73
Weighted Average Life....................................................... 22
</TABLE>
142
<PAGE>
FEDERAL DEPOSIT INSURANCE CORPORATION
BANK INSURANCE FUND
INDEX
AUDITED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Reports of Independent Public Accountants..................... F-2, F-3
Statements of Income and the Fund Balance (Deficit) for the
years ended December 31, 1995, 1994 and 1993................. F-4
Statements of Financial Position as of December 31, 1995 and
1994......................................................... F-5
Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993.......................................... F-6
Notes to Financial Statements................................. F-7 through F-23
INTERIM UNAUDITED FINANCIAL STATEMENTS
Statements of Financial Position as of September 30, 1996
(unaudited), December 31, 1995 and September 30, 1995
(unaudited).................................................. F-24
Statements of Income and Fund Balance for the nine months
ended September 30, 1996 (unaudited), for the year ended
December 31, 1995 and for the nine months ended September 30,
1995 (unaudited)............................................. F-25
Statements of Cash Flows for the nine months ended September
30, 1996 (unaudited), for the year ended December 31, 1995
and for the nine months ended September 30, 1995
(unaudited).................................................. F-26
Notes to Financial Statements (unaudited)..................... F-27
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of the
Federal Deposit Insurance Corporation
In our opinion, the statements of income and fund balance (deficit) and cash
flows of the Bank Insurance Fund of the Federal Deposit Insurance Corporation
(FDIC) appearing on pages F-4 through F-27 present fairly, in all material
respects, the results of operations and cash flows for the period ended
December 31, 1993, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of FDIC's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above. We have not audited the financial statements
of the Bank Insurance Fund of the Federal Deposit Insurance Corporation for
any period subsequent to December 31, 1993.
Price Waterhouse LLP
Price Waterhouse LLP
Washington, D.C.
June 30, 1994
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Federal Deposit Insurance Corporation
We have audited the accompanying statements of financial position of the
Federal Deposit Insurance Corporation's Bank Insurance Fund (the "Fund") as of
December 31, 1995 and 1994, and the related statements of income and the fund
balance and cash flows for the years then ended. These financial statements
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Fund as of December
31, 1995 and 1994, and the results of its operations and its cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Washington, D.C.
May 2, 1996
F-3
<PAGE>
FEDERAL DEPOSIT INSURANCE CORPORATION
BANK INSURANCE FUND STATEMENTS OF INCOME AND THE FUND BALANCE
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE
Assessments (Note 11).................. $ 2,906,943 $ 5,590,644 $ 5,784,277
Interest on U.S. Treasury investments.. 1,068,395 521,473 165,130
Revenue from corporate owned assets.... 58,585 140,821 258,858
Other revenue.......................... 55,176 214,086 222,536
----------- ----------- -----------
Total Revenue........................ 4,089,099 6,467,024 6,430,801
----------- ----------- -----------
EXPENSES AND LOSSES
Operating expenses..................... 470,625 423,196 388,464
Provision for insurance losses (Note
10)................................... (33,167) (2,873,419) (7,677,400)
Corporate owned asset expenses......... 73,599 137,632 190,641
Interest and other insurance expenses
(Note 18)............................. (27,874) 53,493 306,861
----------- ----------- -----------
Total Expenses and Losses............ 483,183 (2,259,098) (6,791,434)
----------- ----------- -----------
Net Income............................. 3,605,916 8,726,122 13,222,235
----------- ----------- -----------
Fund Balance--Beginning................ 21,847,782 13,121,660 (100,575)
----------- ----------- -----------
Fund Balance--Ending................... $25,453,698 $21,847,782 $13,121,660
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
FEDERAL DEPOSIT INSURANCE CORPORATION
BANK INSURANCE FUND STATEMENTS OF FINANCIAL POSITION
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents (Note 3)..................... $ 531,308 $ 1,621,456
Investment in U.S. Treasury obligations, net (Note 4)
(market value of investments at 12-31-95 and 12-31-94
was $20.9 billion and $12.5 billion, respectively.)... 20,762,046 12,896,856
Interest receivable on investments and other assets,
net................................................... 406,804 260,702
Receivables from bank resolutions, net (Note 5)........ 4,143,040 8,190,492
Investment in corporate owned assets, net (Note 6)..... 180,293 242,628
Property and buildings, net (Note 7)................... 151,740 155,079
----------- -----------
Total Assets....................................... $26,175,231 $23,367,213
=========== ===========
LIABILITIES AND THE FUND BALANCE
Accounts payable and other liabilities................. $ 192,744 $ 256,197
Liabilities incurred from bank resolutions (Note 8).... 31,882 81,945
Estimated Liabilities for: (Notes 9 and 10)
Anticipated failure of insured institutions.......... 279,000 875,000
Assistance agreements................................ 55,941 163,164
Asset securitization guarantee....................... 126,151 128,417
Litigation losses.................................... 35,815 14,708
----------- -----------
Total Liabilities.................................. 721,533 1,519,431
----------- -----------
Commitments and contingencies (Notes 14 and 15)
Fund Balance........................................... 25,453,698 21,847,782
----------- -----------
Total Liabilities and the Fund Balance............. $26,175,231 $23,367,213
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
FEDERAL DEPOSIT INSURANCE CORPORATION
BANK INSURANCE FUND STATEMENTS OF CASH FLOWS
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
---------------------------------------
1995 1994 1993
------------ ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash provided from:
Assessments........................ $ 2,796,114 $ 5,709,912 $ 5,789,779
Interest on U.S. Treasury invest-
ments............................. 875,226 458,606 160,697
Recoveries from bank resolutions... 5,059,751 5,336,125 8,739,202
Recoveries from corporate owned as-
sets.............................. 211,691 694,401 1,241,305
Miscellaneous receipts............. 36,084 22,337 32,927
Cash used for:
Operating expenses................. (442,101) (485,963) (538,081)
Interest paid on liabilities from
bank resolutions.................. 0 0 (169,872)
Disbursements for bank resolu-
tions............................. (1,596,391) (2,791,417) (4,198,035)
Disbursements for corporate owned
assets............................ (159,299) (173,601) (368,564)
Miscellaneous disbursements........ (23,929) (658) (15,779)
------------ ----------- ------------
Net Cash Provided by Operating Activ-
ities (Note 17)..................... 6,757,146 8,769,742 10,673,579
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash provided from:
Maturity of U.S. Treasury obliga-
tions............................. 3,830,000 800,000 1,700,000
Cash used for:
Purchase of U.S. Treasury obliga-
tions............................. (11,675,925) (8,431,525) (5,322,969)
------------ ----------- ------------
Net Cash Used by Investing Activi-
ties................................ (7,845,925) (7,631,525) (3,622,969)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash used for:
Repayments of indebtedness from
bank resolutions.................. (1,369) 0 (10,160,000)
------------ ----------- ------------
Net Cash Used by Financing Activi-
ties................................ (1,369) 0 (10,160,000)
------------ ----------- ------------
Net (Decrease) Increase in Cash and
Cash Equivalents.................... (1,090,148) 1,138,217 (3,109,390)
------------ ----------- ------------
Cash and Cash Equivalents--Begin-
ning................................ 1,621,456 483,239 3,592,629
------------ ----------- ------------
Cash and Cash Equivalents--Ending.... $ 531,308 $ 1,621,456 $ 483,239
============ =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
BANK INSURANCE FUND
NOTES TO FINANCIAL STATEMENTS
1. LEGISLATIVE HISTORY AND OPERATIONS OF THE BANK INSURANCE FUND
Legislative History
The U.S. Congress created the Federal Deposit Insurance Corporation (FDIC)
through enactment of the Banking Act of 1933. The FDIC was created to restore
and maintain public confidence in the nation's banking system.
More recently, the Financial Institutions Reform, Recovery, and Enforcement
Act of 1989 (FIRREA) was enacted to reform, recapitalize and consolidate the
federal deposit insurance system. The FIRREA created the Bank Insurance Fund
(BIF), the Savings Association Insurance Fund (SAIF) and the FSLIC Resolution
Fund (FRF). It also designated the FDIC as the administrator of these three
funds. All three funds are maintained separately to carry out their respective
mandates.
Pursuant to FIRREA, an active institution's insurance fund membership and
primary federal supervisor are generally determined by the institution's
charter type. Deposits of BIF-member institutions are mostly insured by the
BIF; BIF members are predominantly commercial and savings banks supervised by
the FDIC, the Office of the Comptroller of the Currency, or the Federal
Reserve. Deposits of SAIF-member institutions are mostly insured by the SAIF;
SAIF members are predominantly thrifts supervised by the Office of Thrift
Supervision (OTS). The Oakar amendment to the Federal Deposit Insurance Act
(FDI Act) allows BIF and SAIF members to acquire deposits insured by the other
insurance fund without changing insurance fund coverage for the acquired
deposits.
The FRF is responsible for winding up the affairs of the former Federal
Savings and Loan Insurance Corporation (FSLIC).
Other significant legislation includes the Omnibus Budget Reconciliation Act
of 1990 (1990 OBR Act) and the Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA). These acts made changes to the FDIC's
assessment authority (see Note 11) and borrowing authority (see "Operations of
the BIF" in a following section). The FDICIA also requires the FDIC to: 1)
resolve troubled institutions in a manner that will result in the least
possible cost to the deposit insurance funds; 2) provide a schedule for
bringing the reserves in the insurance funds to 1.25 percent of insured
deposits; and 3) upon recapitalization, maintain the insurance funds at 1.25
percent of insured deposits or a higher percentage as circumstances warrant.
Recent Legislative Proposals
Recent proposed legislation would, if signed into law, affect the BIF in the
following ways: 1) BIF-members would be required to share the interest costs
of Financing Corporation (FICO) debt on a proportional basis with SAIF-
members; 2) if the BIF's capitalization level exceeds the designated reserve
ratio (currently 1.25 percent), FDIC would be required to refund such excess
up to the amount of the BIF-members' most recent semi-annual assessment; and
3) if the thrift charter is eliminated by January 1, 1998, the BIF and the
SAIF would be merged on that date. There would be a separate assessment to
fund the BIF-members' share of the FICO interest costs, and therefore such
interest costs would not affect regular assessments or the fund balance.
Legislative proposals are subject to change as part of the normal legislative
process; therefore, it is uncertain what provisions the proposed law, if
enacted, will ultimately include.
See also Note 19 which addresses subsequent events.
The FICO, established under the Competitive Equality Banking Act of 1987, is
a mixed-ownership government corporation whose sole purpose was to function as
a financing vehicle for the FSLIC.
F-7
<PAGE>
BANK INSURANCE FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Operations of the BIF
The primary purpose of the BIF is to: 1) insure the deposits and protect the
depositors of BIF-insured banks and 2) finance the resolution of failed banks,
including managing and liquidating their assets. In addition, the FDIC, acting
on behalf of the BIF, examines state-chartered banks that are not members of
the Federal Reserve System and provides and monitors assistance to troubled
banks.
The BIF is primarily funded from the following sources: 1) BIF assessment
premiums; 2) interest earned on investments in U.S. Treasury obligations; 3)
income earned on and funds received from the management and disposition of
assets acquired from failed banks; and 4) U.S. Treasury and Federal Financing
Bank (FFB) borrowings, if necessary.
The 1990 OBR Act established the FDIC's authority to borrow working capital
from the FFB on behalf of the BIF and the SAIF. The FDICIA increased the
FDIC's authority to borrow for insurance losses from the U.S. Treasury, on
behalf of the BIF and the SAIF, from $5 billion to $30 billion.
The FDICIA also established a limitation on obligations that can be incurred
by the BIF known as the maximum obligation limitation (MOL). Under the MOL,
the BIF cannot incur any additional obligation if its total obligations exceed
the sum of: 1) the BIF's cash and cash equivalents; 2) 90 percent of the fair
market value of the BIF's other assets; and 3) the total amount authorized to
be borrowed from the U.S. Treasury, excluding FFB borrowings. For purposes of
calculating the MOL, the FDIC's total U.S. Treasury borrowing authority was
allocated between the BIF and the SAIF based on the ratio of each fund's
insured deposits to total insured deposits. At December 31, 1995, the MOL for
the BIF was $47 billion.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
These financial statements pertain to the financial position, results of
operations and cash flows of the BIF and are presented in accordance with
generally accepted accounting principles (GAAP). These statements do not
include reporting for assets and liabilities of closed banks for which the BIF
acts as receiver or liquidating agent. Periodic and final accountability
reports of the BIF's activities as receiver or liquidating agent are furnished
to courts, supervisory authorities and others as required.
Use of Estimates
The preparation of the BIF's financial statements in conformity with
generally accepted accounting principles requires FDIC management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates. Where it is reasonably possible that changes in estimates will
cause a material change in the financial statements in the near term, the
nature and extent of such changes in estimates have been disclosed in the
financial statements.
U.S. Treasury Obligations
Securities are intended to be held to maturity and are shown at book value.
Book value is the face value of securities plus the unamortized premium or
less the unamortized discount. Amortizations are computed on a daily basis
from the date of acquisition to the date of maturity. Interest is calculated
on a daily basis and recorded monthly using the effective interest method.
Allowance for Losses on Receivables from Bank Resolutions and Investment in
Corporate Owned Assets
The BIF records as a receivable the amounts advanced and/or obligations
incurred for assisting and closing banks. The BIF also records as an asset the
amounts advanced for investment in corporate owned assets. Any
F-8
<PAGE>
BANK INSURANCE FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
related allowance for loss represents the difference between the funds
advanced and/or obligations incurred and the expected repayment. The latter is
based on the estimated cash recoveries from the assets of assisted or failed
banks, net of all estimated liquidation costs. Estimated cash recoveries also
include dividends and gains on sales from equity instruments acquired in
resolution transactions.
Escrowed Funds from Resolution Transactions
In various resolution transactions, the BIF paid the acquirer the difference
between failed bank liabilities assumed and assets purchased, plus or minus
any premium or discount. The BIF considered the amount of the deduction for
assets purchased to be funds held on behalf of the receivership (an
obligation). The funds remained in escrow and accrued interest until such time
as the receivership used the funds to: 1) repurchase assets under asset
putback options; 2) pay preferred and secured claims; 3) pay receivership
expenses; or 4) pay dividends.
The FDIC policy of holding escrowed funds was terminated during 1994. The
BIF continues to pay the acquirer of the failed bank the difference between
liabilities assumed and assets purchased, plus or minus any premium or
discount. The BIF then pays the receivership for the assets purchased by the
assuming institution, plus or minus the premium or discount paid.
Litigation Losses
The BIF accrues, as a charge to current period operations, an estimate of
probable losses from litigation against the BIF in both its corporate and
receivership capacities. The FDIC's Legal Division recommends these estimates
on a case-by-case basis. The litigation loss estimates related to
receiverships are included in the allowance for losses for receivables from
bank resolutions.
Receivership Administration
The FDIC is responsible for controlling and disposing of the assets of
failed institutions in an orderly and efficient manner. The assets, and the
claims against them, are accounted for separately to ensure that liquidation
proceeds are distributed in accordance with applicable laws and regulations.
Also, the income and expenses attributable to receiverships are accounted for
as transactions of those receiverships. Liquidation expenses incurred by the
BIF on behalf of the receiverships are recovered from those receiverships.
Cost Allocations Among Funds
Certain operating expenses (including personnel, administrative and other
indirect expenses) not directly charged to each fund under the FDIC's
management are allocated on the basis of the relative degree to which the
operating expenses were incurred by the funds. The cost of furniture, fixtures
and equipment purchased by the FDIC on behalf of the three funds under its
administration is allocated among these funds on a pro rata basis. The BIF
expenses its share of these allocated costs at the time of acquisition because
of their immaterial amounts.
Postretirement Benefits Other Than Pensions
The FDIC established an entity to provide the accounting and administration
of postretirement benefits on behalf of the BIF, the SAIF, the FRF and the
Resolution Trust Corporation (RTC). The BIF funds its liabilities for these
benefits directly to the entity.
Disclosure about Recent Financial Accounting Standards Board Pronouncements
In May 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by
Creditors for Impairment of a Loan," to be adopted for fiscal years beginning
after December 15, 1994. While FDIC adopted SFAS No. 114, most of the BIF
assets are specifically outside the scope of this pronouncement. These assets
do not meet the definition of a loan within the meaning of
F-9
<PAGE>
BANK INSURANCE FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
the statement or are valued through alternative methods. Any assets subject to
SFAS No. 114 are immaterial either because of insignificant book value or
because any potential adjustment to the carrying value as a result of applying
Statement No. 114 would be immaterial.
The FASB issued SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan--Income Recognition and Disclosures," in October 1994, to be adopted for
fiscal years beginning after December 15, 1994. This statement is an amendment
to SFAS No. 114 and was adopted by the FDIC this year.
Other recent pronouncements issued by the FASB have been adopted or are
either not applicable or not material to the financial statements.
Depreciation
The FDIC has designated the BIF administrator of facilities owned and used
in its operations. Consequently, the BIF includes the cost of these facilities
in its financial statements and provides the necessary funding for them. The
BIF charges other funds sharing the facilities a rental fee representing an
allocated share of its annual depreciation expense.
The Washington, D.C., office buildings and the L. William Seidman Center in
Arlington, Virginia, are depreciated on a straight-line basis over a 50-year
estimated life. The San Francisco condominium offices are depreciated on a
straight-line basis over a 35-year estimated life.
Related Parties
The nature of related parties and a description of related party
transactions are disclosed throughout the financial statements and footnotes.
Reclassifications
Reclassifications have been made in the 1994 and 1993 financial statements
to conform to the presentation used in 1995.
3. CASH AND CASH EQUIVALENTS
The BIF considers cash equivalents to be short-term, highly liquid
investments with original maturities of three months or less. In 1995, cash
restrictions included $10 million for health insurance payable and $274
thousand for funds held in trust. In 1994, cash restrictions included $7.4
million for health insurance payable and $737 thousand for funds held in
trust.
F-10
<PAGE>
BANK INSURANCE FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. INVESTMENT IN U.S. TREASURY OBLIGATIONS, NET
All cash received by the BIF is invested in U.S. Treasury obligations unless
the cash is: 1) used to defray operating expenses; 2) used for outlays related
to assistance to banks and liquidation activities; or 3) invested in cash
equivalents.
U.S. TREASURY OBLIGATIONS AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
YIELD UNREALIZED UNREALIZED
AT BOOK HOLDING HOLDING MARKET FACE
MATURITY PURCHASE VALUE GAINS LOSSES VALUE VALUE
-------- -------- ----------- ---------- ---------- ----------- -----------
DOLLARS IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C>
Less than one year (a).. 5.53% $ 6,750,414 $ 19,934 $ (5,262) $ 6,765,086 $ 6,750,000
1-3 years............... 5.88% 12,318,436 147,762 (24,776) 12,441,422 12,350,000
3-5 years............... 5.59% 1,693,196 15,613 0 1,708,809 1,690,000
----------- -------- -------- ----------- -----------
Total................. $20,762,046 $183,309 $(30,038) $20,915,317 $20,790,000
=========== ======== ======== =========== ===========
</TABLE>
- --------
(a) Includes a $400 million Treasury note which matured on Sunday, December
31, 1995. Settlement occurred on the next business day, January 2, 1996.
U.S. TREASURY OBLIGATIONS AT DECEMBER 31, 1994
<TABLE>
<CAPTION>
YIELD UNREALIZED UNREALIZED
AT BOOK HOLDING HOLDING MARKET FACE
MATURITY PURCHASE VALUE GAINS LOSSES VALUE VALUE
-------- -------- ----------- ---------- ---------- ----------- -----------
DOLLARS IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C>
Less than one year...... 4.83% $ 3,821,758 $ 0 $ (46,627) $ 3,775,131 $ 3,830,000
1-3 years............... 5.37% 8,034,591 0 (271,169) 7,763,422 8,000,000
3-5 years............... 4.72% 1,040,507 0 (94,945) 945,562 1,000,000
----------- --- --------- ----------- -----------
Total................. $12,896,856 $ 0 $(412,741) $12,484,115 $12,830,000
=========== === ========= =========== ===========
</TABLE>
In 1995, the unamortized discount, net of unamoritized premium, was $28
million. In 1994, the unamortized premium, net of unamortized discount, was
$66.9 million.
5. RECEIVABLES FROM BANK RESOLUTIONS, NET
The FDIC resolution process results in different types of transactions
depending on the unique facts and circumstances surrounding each failing or
failed institution. Payments to prevent a failure are made to operating
institutions when cost and other criteria are met. Such payments may
facilitate a merger or allow a troubled institution to continue operations.
Payments for institutions that fail are made to cover insured depositors'
claims and represent a claim against the receiverships' assets.
The FDIC, as receiver for failed banks, engages in a variety of strategies
at the time of failure to maximize the return from the sale or disposition of
assets and to minimize realized losses. A failed bank acquirer can purchase
selected assets at the time of resolution and assume full ownership, benefit
and risk related to such assets. In certain cases, the receiver offers a
period of time when an acquirer can sell assets back to the receivership at a
specified value (i.e., an asset "putback" option). The receiver can also enter
into a loss-sharing arrangement with an acquirer whereby, for specified assets
and in accordance with individual contract terms, the two parties share in
credit losses and certain qualifying expenses. These arrangements typically
direct that the receiver pay to the acquirer a specified percentage of the
losses triggered by the charge-off of assets covered by
F-11
<PAGE>
BANK INSURANCE FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
the terms of the loss-sharing agreement. The receiver absorbs the majority of
the losses incurred and shares in the acquirer's future recoveries of
previously charged-off assets. Failed bank assets also can be retained by the
receiver to either be managed and disposed of by FDIC liquidation staff or by
contracted private-sector servicers with oversight from the FDIC.
As stated in Note 2, the allowance for losses on receivables from bank
resolutions represents the difference between amounts advanced and/or
obligations incurred and the expected repayment. This is based upon the
estimated cash recoveries from the management and disposition of the assets of
the assisted or failed bank, net of all estimated liquidation costs.
As of December 31, 1995 and 1994, the BIF, in its receivership capacity,
held assets with a book value of $10 billion and $18.3 billion, respectively.
The estimated cash recoveries from the sale of these assets (excluding cash
and miscellaneous receivables of $2.1 billion at December 31, 1995 and $4.2
billion at December 31, 1994) are regularly evaluated, but remain subject to
uncertainties because of changing economic conditions. These factors could
affect the claimants' (including the BIF's) actual recoveries from the level
currently estimated.
RECEIVABLES FROM BANK RESOLUTIONS, NET
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1995 1994
------------ ------------
DOLLARS IN THOUSANDS
<S> <C> <C>
ASSETS FROM OPEN BANK ASSISTANCE:
Redeemable preferred stock/warrants.............. $ 23,500 $ 993,500
Subordinated debt instruments.................... 100,000 119,500
Notes receivable................................. 3,222 22,037
Other open bank assistance....................... 29,761 29,773
Deferred settlement.............................. 0 229,525
Interest receivable.............................. 1,517 1,921
Allowance for losses (Note 10)................... (57,405) (1,155,680)
------------ ------------
100,595 240,576
------------ ------------
RECEIVABLES FROM CLOSED BANKS:
Loans and related assets......................... 1,525,295 1,528,443
Resolution transactions.......................... 23,512,531 28,736,839
Capital instruments.............................. 25,000 25,000
Depositors' claims unpaid........................ 10,339 13,561
Allowance for losses (Note 10)................... (21,030,720) (22,353,927)
------------ ------------
4,042,445 7,949,916
------------ ------------
Total.......................................... $ 4,143,040 $ 8,190,492
============ ============
</TABLE>
F-12
<PAGE>
BANK INSURANCE FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. INVESTMENT IN CORPORATE OWNED ASSETS, NET
The BIF acquires assets in certain troubled and failed bank cases by either
purchasing an institution's assets outright or purchasing the assets under the
terms specified in each resolution agreement. In addition, the BIF can
purchase assets remaining in a receivership to facilitate termination. The
majority of corporate owned assets are real estate and mortgage loans. The BIF
recognizes income and expenses on these assets. Income consists primarily of
the portion of collections on performing mortgages related to interest earned.
Expenses are recognized for administering the management and liquidation of
these assets.
INVESTMENT IN CORPORATE OWNED ASSETS, NET
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1995 1994
---------- ----------
DOLLARS IN THOUSANDS
<S> <C> <C>
Investment in corporate owned assets................. $ 939,756 $ 902,304
Allowance for losses (Note 10)....................... (759,463) (659,676)
---------- ----------
Total.............................................. $ 180,293 $ 242,628
========== ==========
</TABLE>
7. PROPERTY AND BUILDINGS, NET
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1995 1994
---------- ----------
DOLLARS IN THOUSANDS
<S> <C> <C>
Land................................................ $ 29,631 $ 29,631
Office buildings.................................... 151,442 151,442
Accumulated depreciation............................ (29,333) (25,994)
---------- ----------
Total............................................. $ 151,740 $ 155,079
========== ==========
</TABLE>
8. LIABILITIES INCURRED FROM BANK RESOLUTIONS
The FDIC can enter into different types of resolution transactions depending
on the unique facts and circumstances surrounding each failing or failed
institution. The BIF can assume certain liabilities that require future
payments over a specified period of time.
LIABILITIES INCURRED FROM BANK RESOLUTIONS
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1995 1994
---------- ----------
DOLLARS IN THOUSANDS
<S> <C> <C>
Escrowed funds from resolution transactions (Note
2)................................................. $ 0 $ 54,410
Funds held in trust................................. 274 737
Depositors' claims unpaid........................... 10,339 13,561
Note indebtedness................................... 0 1,389
Interest payable/other liabilities.................. 21,269 11,848
---------- ----------
Total............................................. $ 31,882 $ 81,945
========== ==========
</TABLE>
The BIF's liabilities incurred from bank resolutions of $32 million are
considered current liabilities.
F-13
<PAGE>
BANK INSURANCE FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. ESTIMATED LIABILITIES FOR:
Anticipated Failure of Insured Institutions
The BIF records an estimated loss for banks that have not yet failed but
have been identified by the regulatory process as likely (probable) to fail
within the foreseeable future as a result of regulatory insolvency (equity
less than two percent of assets). This includes banks that were solvent at
year-end, but that have adverse financial trends and, absent some favorable
event (such as obtaining additional capital or merging), are likely to fail in
the future. The FDIC relies on this finding regarding regulatory insolvency as
the determining factor in defining the existence of the "accountable event"
that triggers loss recognition under GAAP.
The FDIC cannot predict the precise timing and cost of bank failures. An
estimated liability and a corresponding reduction in the fund balance are
recorded in the period when the liability is deemed probable and reasonably
estimable. It should be noted, however, that future assessment revenues will
be available to the BIF to recover some or all of these losses and that their
amounts have not been reflected as a reduction in the losses.
The estimated liabilities for anticipated failure of insured institutions as
of December 31, 1995 and 1994, were $279 million and $875 million,
respectively. The estimated liability is derived in part from estimates of
recoveries from the sale of the assets of these probable bank failures. As
such, they are subject to the same uncertainties as those affecting the BIF's
receivables from bank resolutions (see Note 5). This could affect the ultimate
costs to the BIF from probable bank failures.
The FDIC estimates that banks with combined assets of approximately $2
billion may fail in 1996 and 1997, and the BIF has recognized a loss of $279
million for those failures considered probable. The level of bank failures
during 1996 and 1997 may vary from this estimate with additional losses
reasonably possible ranging up to $70 million. The further into the future
projections of bank failures are made, the greater the uncertainty of banks
failing and the magnitude of the loss associated with those failures. The
accuracy of these estimates will largely depend on future economic conditions.
Assistance Agreements
The estimated liabilities for assistance agreements resulted from several
large transactions where problem assets were purchased by an acquiring
institution under an agreement that calls for the FDIC to absorb credit losses
and to pay related costs for funding and asset administration plus an
incentive fee.
Asset Securitization Guarantee
As part of the FDIC's efforts to maximize the return from the failed bank
assets and minimize losses from bank resolutions, the FDIC entered into its
first securitization transaction in August 1994. The securitization
transaction was accomplished through the creation of a real estate mortgage
investment conduit (REMIC), a trust, that purchases the loans to be
securitized from one or more institutions for which the FDIC acts as a
receiver or purchases loans owned by the Corporation. The loans in the trust
are pooled and stratified and the resulting cash flow is directed into a
number of different classes of pass-through certificates. The regular pass-
through certificates are sold to the public through licensed brokerage houses.
The largest contributing receivership retains residual pass-through
certificates, which are entitled to any remaining cash flows from the trust
after obligations to regular pass-through holders have been met.
To increase the likelihood of full and timely distributions of interest and
principal to the holders of the regular pass-through certificates, and thus
the marketability of such certificates, the BIF agreed to provide a credit
enhancement through a limited guarantee to cover future credit losses with
respect to the loans underlying the certificates. The FDIC securitization
involved the following structure: 1) approximately 1,800 performing commercial
mortgages from nearly 200 failed banks were sold to a REMIC (FDIC REMIC Trust
1994 C-1);
F-14
<PAGE>
BANK INSURANCE FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2) the REMIC in turn sold approximately $759 million in 11 classes of
securities backed by the commercial mortgages; and 3) the investors received a
limited guarantee backed by the BIF covering credit losses and other
shortfalls due to credit defaults up to a maximum of $248 million.
In exchange for backing the limited guarantee, the BIF received REMIC
securities and a portion of the proceeds from the sale of the commercial
mortgages. The net present value (NPV) of the assets received was priced to
equal the NPV of the expected exposure under the guarantee so that the BIF
neither profits nor suffers a loss as a result of the limited guarantee.
At December 31, 1995, the BIF has a liability of $126 million under the
guarantee and assets of $126 million representing the REMIC securities and the
portion of the mortgage sales proceeds received. At December 31, 1994, the BIF
liability for the guarantee was $128 million and assets were $128 million.
Cash receipts from the REMIC securities and mortgages sales proceeds
received are $12.9 million and $5.3 million during 1995 and 1994,
respectively, and are reflected in the Statement of Cash Flows as
"Miscellaneous receipts." Cash payments of guarantee claims are $2.4 million
inception-to-date and are reflected in the Statement of Cash Flows as
"Miscellaneous disbursements." Income related to the REMIC securities was $183
thousand and $28 thousand at December 31, 1995 and 1994, respectively, and is
presented as "Other revenue." The following chart summarizes the BIF's
remaining obligation under the guarantee.
ASSET SECURITIZATION GUARANTEE
<TABLE>
<CAPTION>
GUARANTEE MAXIMUM
CLAIMS PAID REMAINING
MAXIMUM THROUGH OBLIGATION
OBLIGATION DECEMBER 31 AT DECEMBER 31
---------- ----------- --------------
DOLLARS IN THOUSANDS
<S> <C> <C> <C>
1995................................... $247,748 $2,429 $245,319
1994................................... $247,748 $ 0 $247,748
</TABLE>
Litigation Losses
The BIF records an estimated loss for unresolved legal cases to the extent
those losses are considered to be probable in occurrence and reasonably
estimable in amount. In addition, the FDIC's Legal Division has determined
that losses from unresolved legal cases totaling $406 million are reasonably
possible. This includes $12 million in losses for the BIF in its corporate
capacity and $394 million in losses for the BIF in its receivership capacity
(see Note 2).
10. ANALYSIS OF CHANGES IN ALLOWANCE FOR LOSSES AND ESTIMATED LIABILITIES
Provision for insurance losses includes the estimated losses for bank
resolutions that occurred during the year for which an estimated loss was not
established and loss adjustments for bank resolutions that occurred in prior
years. It also includes an estimated loss for banks that have not yet failed
but have been identified by the regulatory process as likely to fail (see Note
9). These are referred to as estimated liabilities for anticipated failure of
insured institutions.
In the following charts, transfers include reclassifications from "Estimated
Liabilities for: Anticipated failure of insured institutions" to "Closed
banks." Terminations represent final adjustments to the estimated cost figures
for those bank resolutions that were completed and the operations of the
receivership ended.
F-15
<PAGE>
BANK INSURANCE FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
ANALYSIS OF CHANGES IN ALLOWANCE FOR LOSSES AND ESTIMATED LIABILITIES--1995
<TABLE>
<CAPTION>
PROVISION FOR
INSURANCE LOSSES
BEGINNING -------------------- ADJUSTMENTS/ ENDING
BALANCE CURRENT PRIOR NET CASH TRANSFERS/ BALANCE
01/01/95 YEAR YEARS TOTAL PAYMENTS TERMINATIONS 12/31/95
--------- ------- ----- ----- -------- ------------ --------
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOSSES:
Open bank assistance.... $ 1,156 $ 0 $(140) $(140) $ 0 $ (959) $ 57
Corporate owned assets.. 660 0 99 99 0 0 759
Closed banks............ 22,354 (52) 464 412 0 (1,735) 21,031
------- ---- ----- ----- ----- ------- -------
Total Allowance for
Losses............... 24,170 (52) 423 371 0 (2,694) 21,847
======= ==== ===== ===== ===== ======= =======
ESTIMATED LIABILITIES
FOR:
Anticipated failure of
insured institutions... 875 131 (570) (439) 0 (157) 279
Assistance agreements... 163 0 14 14 (101) (20) 56
Asset securitization
guarantee.............. 128 0 0 0 (2) 0 126
Litigation losses....... 15 0 21 21 0 0 36
------- ---- ----- ----- ----- ------- -------
Total Estimated
Liabilities.......... 1,181 131 (535) (404) (103) (177) 497
======= ==== ===== ===== ===== ======= =======
Provision for Insurance
Losses................. $ 79 $(112) $ (33)
==== ===== =====
</TABLE>
ANALYSIS OF CHANGES IN ALLOWANCE FOR LOSSES AND ESTIMATED LIABILITIES--1994
<TABLE>
<CAPTION>
PROVISION FOR
INSURANCE LOSSES
BEGINNING ------------------------ ADJUSTMENTS/ ENDING
BALANCE CURRENT PRIOR NET CASH TRANSFERS/ BALANCE
01/01/94 YEAR YEARS TOTAL PAYMENTS TERMINATIONS 12/31/94
--------- ------- ------- ------- -------- ------------ --------
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOSSES:
Open bank assistance.... $ 215 $ 0 $ (421) $ (421) $ 3 $1,359 $ 1,156
Corporate owned assets.. 742 0 (82) (82) 0 0 660
Closed banks............ 23,191 (236) (229) (465) 0 (372) 22,354
------- ----- ------- ------- ---- ------ -------
Total Allowance for
Losses............... 24,148 (236) (732) (968) 3 987 24,170
======= ===== ======= ======= ==== ====== =======
ESTIMATED LIABILITIES
FOR:
Anticipated failure of
insured institutions... 2,972 406 (2,128) (1,722) 0 (375) 875
Assistance agreements... 326 0 (177) (177) (37) 51 163
Asset securitization
guarantee.............. 0 0 0 0 0 128 128
Litigation losses....... 21 0 (6) (6) 0 0 15
------- ----- ------- ------- ---- ------ -------
Total Estimated Lia-
bilities............. 3,319 406 (2,311) (1,905) (37) (196) 1,181
======= ===== ======= ======= ==== ====== =======
Provision for Insurance
Losses................. $ 170 $(3,043) $(2,873)
===== ======= =======
</TABLE>
F-16
<PAGE>
BANK INSURANCE FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
ANALYSIS OF CHANGES IN ALLOWANCE FOR LOSSES AND ESTIMATED LIABILITIES--1993
<TABLE>
<CAPTION>
PROVISION FOR
INSURANCE LOSSES
BEGINNING ------------------------ NET ADJUSTMENTS/ ENDING
BALANCE CURRENT PRIOR CASH TRANSFERS/ BALANCE
01/01/93 YEAR YEARS TOTAL PAYMENTS TERMINATIONS 12/31/93
--------- ------- ------- ------- -------- ------------ --------
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOSSES:
Open bank assistance.... $ 2,203 $ 40 $ (890) $ (850) $ 19 $(1,157) $ 215
Corporate owned assets.. 425 0 317 317 0 0 742
Closed banks............ 23,397 (224) 99 (125) 0 (81) 23,191
------- ----- ------- ------- ---- ------- -------
Total Allowance for
Losses............... 26,025 (184) (474) (658) 19 (1,238) 24,148
======= ===== ======= ======= ==== ======= =======
ESTIMATED LIABILITIES
FOR:
Anticipated failure of
insured institutions... 10,782 818 (7,873) (7,055) 0 (755) 2,972
Assistance agreements... 388 0 34 34 (97) 1 326
Asset securitization
guarantee.............. 0 0 0 0 0 0 0
Litigation losses....... 19 0 2 2 0 0 21
------- ----- ------- ------- ---- ------- -------
Total Estimated Lia-
bilities............. 11,189 818 (7,837) (7,019) (97) (754) 3,319
======= ===== ======= ======= ==== ======= =======
Provision for Insurance
Losses................. $ 634 $(8,311) $(7,677)
===== ======= =======
</TABLE>
11. ASSESSMENTS
The 1990 OBR Act removed caps on assessment rate increases and authorized
the FDIC to set assessment rates for BIF members semiannually, to be applied
against a member's average assessment base. The FDICIA: 1) required the FDIC
to implement a risk-based assessment system; 2) authorized the FDIC to
increase assessment rates for BIF-member institutions as needed to ensure that
funds are available to satisfy the BIF's obligations; and 3) authorized the
FDIC to increase assessment rates more frequently than semiannually and impose
emergency special assessments as necessary to ensure that funds are available
to repay U.S. Treasury borrowings.
The FDIC uses a risk-based assessment system that charges higher rates to
those institutions that pose greater risks to the BIF. To arrive at a risk-
based assessment for a particular institution, the FDIC places each
institution in one of nine risk categories using a two-step process based
first on capital ratios and then on other relevant information. The FDIC's
Board of Directors (Board) reviews premium rates semiannually.
The BIF reached its capitalization level of 1.25 percent of insured
deposits, as mandated by FDICIA, at the end of May 1995 (see Note 1). Based on
the recapitalization, the Board approved a reduction in assessment rates for
BIF members from a range of 23 cents to 31 cents per $100 of domestic deposits
to a range of 4 cents to 31 cents per $100 of domestic deposits. The Board's
BIF rate decrease was approved retroactively to June 1, 1995, therefore the
BIF refunded $1.5 billion in assessment overpayments in September 1995 which
is included in the assessment line item in the accompanying financial
statements.
In November 1995, the Board approved a new assessment rate structure for the
BIF. Effective January 1996, the highest-rated institutions (approximately 92
percent of the nearly 11,000 BIF-insured banks) will pay the statutory annual
minimum of $2,000 for deposit insurance. Rates for all other institutions will
be reduced to a range of 3 cents to 27 cents per $100 of insured deposits.
The average assessment rate is expected to decline to approximately 0.43
cents per $100 of domestic deposits, versus the average assessment rate of 4.4
cents per $100 during the latter half of 1995. The projected average
assessment rate would be the lowest in the more than 60-year history of
federal deposit insurance for banks. The lowest average assessment rates for
banks previously was 3.13 cents per $100 in both 1962 and 1963.
F-17
<PAGE>
BANK INSURANCE FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
12. PENSION BENEFITS, SAVINGS PLANS, POSTEMPLOYMENT BENEFITS AND ACCRUED
ANNUAL LEAVE
Eligible FDIC employees (i.e., all permanent and temporary employees with
appointments exceeding one year) are covered by either the Civil Service
Retirement System (CSRS) or the Federal Employee Retirement System (FERS). The
CSRS is a defined benefit plan offset with the Social Security System in
certain cases. Plan benefits are determined on the basis of years of
creditable service and compensation levels. The CSRS-covered employees also
can contribute to the tax-deferred Federal Thrift Savings Plan (TSP).
The FERS is a three-part plan consisting of a basic defined benefit plan
that provides benefits based on years of creditable service and compensation
levels, Social Security benefits and the TSP. Automatic and matching employer
contributions to the TSP are provided up to specified amounts under the FERS.
Eligible FDIC employees also may participate in an FDIC-sponsored tax-
deferred savings plan with matching contributions. The BIF pays its share of
the employer's portion of all related costs.
Although the BIF contributes a portion of pension benefits for eligible
employees, it does not account for the assets of either retirement system. The
BIF also does not have actuarial data for accumulated plan benefits or the
unfunded liability relative to eligible employees. These amounts are reported
and accounted for by the U.S. Office of Personnel Management.
Due to a substantial decline in the FDIC's workload, the Corporation
developed a staffing reduction program, a component of which is a voluntary
separation incentive plan, or buyout. Employees eligible to participate in the
buyout program were placed into two categories, depending on the immediacy of
the need for staffing reduction. Participating Category I employees agreed to
retirement or resignation by December 31, 1995. There are 328 Category I FDIC
employees participating at an estimated cost to the BIF of $8.3 million. The
cost for Category I employees is presented as "Operating expenses" in 1995.
Participating Category II employees must have applied by February 7, 1996, and
resign or retire no later than September 30, 1997. Consideration of all
Category II applications is not complete; however, the Corporation estimates
the possible cost of the buyout program for Category II employees to be about
$15.8 million. The cost for Category II employees will be expensed in 1996.
The buyout affects other liabilities (postretirement and accrued annual
leave); however, that effect is not estimable at this time. Management
believes that the buyout will not have a material effect on the BIF. The
liability to employees for accrued annual leave is approximately $43.4 million
and $40.3 million at December 31, 1995 and 1994, respectively.
PENSION BENEFITS AND SAVINGS PLANS EXPENSES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31
-----------------------
1995 1994 1993
------- ------- -------
DOLLARS IN THOUSANDS
<S> <C> <C> <C>
Civil Service Retirement System.................... $ 9,411 $ 9,988 $ 8,890
Federal Employee Retirement System (Basic Bene-
fit).............................................. 36,741 32,410 29,254
FDIC Savings Plan.................................. 20,545 21,603 16,267
Federal Thrift Savings Plan........................ 10,264 10,513 8,742
------- ------- -------
Total............................................ $76,961 $74,514 $63,153
======= ======= =======
</TABLE>
F-18
<PAGE>
BANK INSURANCE FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
13. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The FDIC provides certain health, dental and life insurance coverage for its
eligible retirees, the retirees' beneficiaries and covered dependents.
Retirees eligible for health and/or life insurance coverage are those who have
qualified due to: 1) immediate enrollment upon appointment or five years of
participation in the plan and 2) eligibility for an immediate annuity. Dental
coverage is provided to all retirees eligible for an immediate annuity.
The FDIC is self-insured for hospital/medical, prescription drug, mental
health and chemical dependency coverage. Additional risk protection was
purchased from Aetna Life Insurance Company through stop-loss and fiduciary
liability insurance. All claims are administered on an administrative services
only basis with the hospital/medical claims administered by Aetna Life
Insurance Company, the mental health and chemical dependency claims
administered by OHS Foundation Health Psychcare Inc., and the prescription
drug claims administered by Caremark.
The life insurance program, underwritten by Metropolitan Life Insurance
Company, provides basic coverage at no cost to retirees and allows converting
optional coverages to direct-pay plans. Dental care is underwritten by
Connecticut General Life Insurance Company and provides coverage at no cost to
retirees.
The BIF expensed $18.8 million, $23 million, and $49 million for net
periodic postretirement benefit costs for the years ended December 31, 1995,
1994, and 1993, respectively. For measurement purposes, the FDIC assumed the
following: 1) a discount rate of 6 percent; 2) an average long-term rate of
return on plan assets of 5 percent; 3) an increase in health costs in 1995 of
12 percent, decreasing down to an ultimate rate in 1999 of 8 percent; and 4)
an increase in dental costs for 1995 and thereafter of 8 percent. Both the
assumed discount rate and health care cost rate have a significant effect on
the amount of the obligation and periodic cost reported.
If the health care cost rate were increased one percent, the accumulated
postretirement benefit obligation as of December 31, 1995, would have
increased by 22.9 percent. The effect of this change on the aggregate of
service and interest cost for 1995 would be an increase of 25.6 percent.
NET PERIODIC POSTRETIREMENT BENEFIT COST
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31
---------------------------
1995 1994 1993
-------- -------- -------
DOLLARS IN THOUSANDS
<S> <C> <C> <C>
Service cost (benefits attributed to employee
service during the year)..................... $ 22,574 $ 25,206 $30,274
Interest cost on accumulated postretirement
benefit obligation........................... 14,706 14,323 15,549
Net total of other components................. (3,567) (4,881) 3,117
Return on plan assets......................... (14,907) (11,651) 39
-------- -------- -------
Total....................................... $ 18,806 $ 22,997 $48,979
======== ======== =======
</TABLE>
F-19
<PAGE>
BANK INSURANCE FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
As stated in Note 2, the FDIC established an entity to provide accounting
and administration on behalf of the BIF, the SAIF, the FRF and the RTC. The
BIF funds its liability and these funds are being managed as "plan assets."
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION AND FUNDED STATUS
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1995 1994
-------- --------
DOLLARS IN
THOUSANDS
<S> <C> <C>
Retirees................................................ $ 79,370 $ 70,944
Fully eligible active plan participants................. 22,401 16,831
Other active participants............................... 182,408 234,852
-------- --------
Total Obligation...................................... 284,179 322,627
Less: Plan assets at fair value (a)..................... 317,037 302,130
-------- --------
(Over) Under Funded Status............................ (32,858) 20,497
Unrecognized prior service cost......................... 57,242 0
Unrecognized net gain................................... 11,954 0
-------- --------
Postretirement Benefit Liability Recognized in the
Statements of Financial Position....................... $ 36,338 $ 20,497
======== ========
</TABLE>
- --------
(a) Consists of U.S. Treasury investments
14. COMMITMENTS
Leases
The BIF's allocated share of FDIC's lease commitments totals $132.9 million
for future years. The lease agreements contain escalation clauses resulting in
adjustments, usually on an annual basis. The BIF recognized leased space
expense of $42.7 million and $50.9 million for the years ended December 31,
1995 and 1994, respectively.
LEASED SPACE FEES
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000 2001
------- ------- ------- ------- ------- -------
DOLLARS IN THOUSANDS
<S> <C> <C> <C> <C> <C>
$34,869 $30,604 $21,004 $17,603 $14,318 $14,516
</TABLE>
Asset Putbacks
Upon resolution of a failed bank, the assets are placed into receivership
and may be sold to an acquirer under an agreement that certain assets may be
resold, or "putback," to the receivership. The values and time limits for
these assets to be putback are defined within each agreement. It is possible
that the BIF could be called upon to fund the purchase of any or all of the
"unexpired putbacks" at any time prior to expiration. As of December 31, 1995
there are no assets that are eligible for putback.
F-20
<PAGE>
BANK INSURANCE FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
15. CONCENTRATION OF CREDIT RISK
The BIF is counterparty to a group of financial instruments with entities
located throughout regions of the United States experiencing problems in both
loans and real estate. The BIF's maximum exposure to possible accounting loss,
should each counterparty to these instruments fail to perform and any
underlying assets prove to be of no value, is shown as follows:
CONCENTRATION OF CREDIT RISK AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
SOUTHEAST SOUTHWEST NORTHEAST MIDWEST CENTRAL WEST TOTAL
--------- --------- --------- ------- ------- ---- ------
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C> <C> <C> <C>
Receivables from bank
resolutions, net....... $ 97 $267 $2,958 $150 $13 $652 $4,137(a)
Corporate owned
assets, net............ 24 53 51 0 20 32 180
---- ---- ------ ---- --- ---- ------
Total................. $121 $320 $3,009 $150 $33 $684 $4,317
==== ==== ====== ==== === ==== ======
</TABLE>
- --------
(a) The net receivable excludes $3.9 million and $2.5 million, respectively,
of the SAIF's allocated share of maximum credit loss exposure from the
resolutions of Southeast Bank, N.A., Miami, FL, and Olympic National Bank,
Los Angeles, CA. There is no risk that the SAIF will not meet these
obligations.
Insured Deposits
As of December 31, 1995, the total deposits insured by the BIF is
approximately $2 trillion. This would be the accounting loss recognized if all
depository institutions failed and if the assets acquired as a result of the
resolution process provide no recovery.
16. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash equivalents are short-term, highly liquid investments and are shown at
current value. The fair market value of the investment in U.S. Treasury
obligations is disclosed in Note 4 and is based on current market prices. The
carrying amount of interest receivable on investments, accounts payable and
liabilities incurred from bank resolutions approximates their fair market
value. This is due to their short maturities or comparisons with current
interest rates.
It is not practicable to estimate the fair market value of net receivables
from bank resolutions. These assets are unique, not intended for sale to the
private sector, and have no established market. The FDIC believes that a sale
to the private sector would require indeterminate, but substantial discounts
for an interested party to profit from these assets because of credit and
other risks. A discount of this proportion would significantly increase the
cost of bank resolutions to the BIF. Comparisons with other financial
instruments do not provide a reliable measure of their fair market value. Due
to these and other factors, the FDIC cannot determine an appropriate market
discount rate and, thus, is unable to estimate fair market value on a
discounted cash flow basis. As shown in Note 5, the carrying amount is the
estimated cash recovery value which is the original amount advanced (and/or
obligations incurred) net of the estimated allowance for loss. The majority of
the net investment in corporate owned assets (except real estate) is comprised
of various types of financial instruments (investments, loans, accounts
receivable, etc.) acquired from failed banks. As with net receivables from
bank resolutions, it is not practicable to estimate fair market values. Cash
recoveries are primarily from the sale of poor quality assets. They are
dependent on market conditions that vary over time and can occur unpredictably
over many years following resolution. Since the FDIC cannot reasonably predict
the timing of these cash recoveries, it is unable to estimate fair market
value on a discounted cash flow basis. As shown in Note 6, the carrying amount
is the estimated cash recovery value, which is the original amount advanced
(and/or obligations incurred) net of the estimated allowance for loss.
F-21
<PAGE>
BANK INSURANCE FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
As stated in Note 9, the carrying amount of the estimated liability for
anticipated failure of insured institutions is the total of estimated losses
for banks that have not failed, but the regulatory process has identified as
likely to fail within the foreseeable future. It does not consider discounted
future cash flows. This is because the FDIC cannot predict the timing of
events with reasonable accuracy. For this reason, the FDIC considers the total
estimate of these losses to be the best measure of their fair market value.
17. SUPPLEMENTARY INFORMATION RELATING TO THE STATEMENTS OF CASH FLOWS
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
------------------------------------
1995 1994 1993
---------- ----------- -----------
DOLLARS IN THOUSANDS
<S> <C> <C> <C>
Net Income........................... $3,605,916 $ 8,726,122 $13,222,235
---------- ----------- -----------
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY OPERATING
ACTIVITIES
INCOME STATEMENT ITEMS:
Provision for insurance losses....... (33,167) (2,873,419) (7,677,400)
Amortization of U.S. Treasury
securities.......................... (19,266) 43,145 6,715
Interest on Federal Financing Bank
borrowings.......................... 0 0 (72,977)
Depreciation on buildings............ 3,339 3,339 3,339
CHANGE IN ASSETS AND LIABILITIES:
(Increase) in interest receivable on
investments and other assets........ (146,102) (179,994) 24,915
Decrease in receivables from bank
resolutions......................... 3,659,128 5,916,593 14,384,722
(Increase) decrease in corporate
owned assets........................ (37,452) 566,472 418,322
(Decrease) increase in accounts
payable and other liabilities....... (63,454) 64,366 (216,563)
(Decrease) in liabilities incurred
from bank resolutions............... (48,694) (3,263,790) (9,419,779)
(Decrease) in estimated liability for
anticipated failure of
insured institutions................ (157,000) (375,000) 0
(Decrease) increase in estimated
liabilities for
assistance agreements............... (4,048) 13,479 0
(Decrease) increase in estimated
liability for asset
securitization guarantee............ (2,054) 128,429 0
---------- ----------- -----------
Net Cash Provided by Operating
Activities.......................... $6,757,146 $ 8,769,742 $10,673,579
========== =========== ===========
</TABLE>
F-22
<PAGE>
BANK INSURANCE FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
18. INTEREST AND OTHER INSURANCE EXPENSES
The BIF incurs interest expense on funds borrowed to finance its resolution
activity. In 1995 or 1994, the BIF did not incur interest expense on funds
borrowed from FFB because all borrowings were repaid on August 6, 1993. Other
insurance expenses are incurred by the BIF as a result of payments to insured
depositors in closed bank payoff activity and the administration of assistance
transactions.
INTEREST AND OTHER INSURANCE EXPENSES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31
---------------------------
1995 1994 1993
-------- ------- --------
DOLLARS IN THOUSANDS
<S> <C> <C> <C>
INTEREST EXPENSE FOR:
Escrowed funds from resolution transactions
(Note 2)...................................... $(43,635) $54,033 $204,969
FFB borrowings................................. 0 0 96,895
-------- ------- --------
(43,635) 54,033 301,864
======== ======= ========
INSURANCE EXPENSE FOR:
Resolution transactions........................ 15,753 507 1,570
Assistance transactions........................ 8 (1,047) 3,427
-------- ------- --------
15,761 (540) 4,997
-------- ------- --------
Total........................................ $(27,874) $53,493 $306,861
======== ======= ========
</TABLE>
19. EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED)
On September 30, 1996 the President signed the Deposit Insurance Funds Act
of 1996 (DIFA 1996). DIFA 1996 provides for the capitalization of the Savings
Association Insurance Fund (SAIF) to its designated reserve ratio of 1.25
percent by means of a one-time special assessment on SAIF-insured deposits.
In addition, DIFA 1996 provides that, effective January 1, 1997, the
assessment base for payments on the interest on obligations issued by the
Financing Corporation (FICO) is to be expanded to include all FDIC-insured
institutions, i.e., banks and thrifts. The Act separates the FICO assessment
from the SAIF assessment as of January 1, 1997, as a result of the repeal of
section 7(b)(2)(D) of the FDI Act (which provides that the amount of the FICO
assessment is to be subtracted from the amount of the SAIF assessment).
Beginning January 1, 1997, and ending the earlier of December 31, 1999 or the
date on which the last savings association ceases to exist, BIF-assessable
deposits shall be assessed for FICO purposes at a rate equal to one-fifth of
the rate of the assessment imposed on SAIF-assessable deposits. Thereafter,
all insured depository institutions will share the FICO assessment on a pro
rata basis.
The FICO assessment will have no financial effect on the BIF since the FICO
claim will be assessed separately from the regular assessment, and the FICO
assessment is imposed on banks and not on the BIF. The FDIC as administrator
of the BIF is acting solely as an agent for the FICO to collect and remit the
FICO assessment to the FICO.
F-23
<PAGE>
BANK INSURANCE FUND
STATEMENTS OF FINANCIAL POSITION
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1995 1995 1996
------------- ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............ $ 446 $ 531 $ 347(a)
Investment in U.S. Treasury obliga-
tions, net.......................... 20,174 20,762 21,539
Interest receivable on investments
and other assets.................... 415 407 348
Receivables from bank resolutions,
net................................. 4,749 4,143 4,260
Investment in corporate owned assets,
net................................. 167 180 7
Property and buildings, net.......... 153 152 149
------- ------- -------
Total Assets..................... $26,104 $26,175 $26,650
======= ======= =======
LIABILITIES AND THE FUND BALANCE
Accounts payable and other liabili-
ties................................ $ 407 $ 193 $ 172
Liabilities incurred from bank reso-
lutions............................. 21 32 30
Estimated Liabilities for:
Anticipated failure of insured
institutions...................... 352 279 157
Assistance agreements.............. 103 56 50
Asset securitization guarantee..... 127 126 122
Litigation losses.................. 19 36 13
------- ------- -------
Total Liabilities................ 1,029 722 544
Fund Balance..................... 25,075 25,453 26,106
------- ------- -------
Total Liabilities and the Fund
Balance......................... $26,104 $26,175 $26,650
======= ======= =======
</TABLE>
- --------
(a) Includes $285 million in one-day U.S. Treasury certificates.
F-24
<PAGE>
BANK INSURANCE FUND
STATEMENTS OF INCOME AND FUND BALANCE
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR FOR THE YEAR YEAR
TO DATE ENDED TO DATE
SEPTEMBER 30 DECEMBER 31 SEPTEMBER 30
1995 1995 1996
------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
REVENUE
Assessments............................. $ 2,646 $ 2,907 $ 54
Interest on U.S. Treasury investments... 766 1,068 938
Revenue from corporate owned assets..... 44 59 56
Other revenue........................... 30 55 30
------- ------- -------
Total Revenue......................... 3,486 4,089 1,078
------- ------- -------
EXPENSES AND LOSSES
Operating expenses...................... 325 471 341
Provision for insurance losses.......... (93) (33) 24
Corporate owned asset expenses.......... 55 74 59
Interest and other insurance expenses... (28) (28) 1
------- ------- -------
Total Expenses and Losses............. 259 484 425
------- ------- -------
Net Income.............................. 3,227 3,605 653
Fund Balance--Beginning................. 21,848 21,848 25,453
------- ------- -------
Fund Balance--Ending.................... $25,075 $25,453 $26,106
======= ======= =======
</TABLE>
F-25
<PAGE>
BANK INSURANCE FUND
STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
(UNAUDITED) FOR THE YEAR (UNAUDITED)
YEAR TO DATE ENDED YEAR TO DATE
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1995 1995 1996
------------- ------------ -------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Cash provided from:
Assessments......................... $2,790 $ 2,796 $ 64
Interest on U.S. Treasury
invesments......................... 549 875 977
Recoveries from bank resolutions.... 4,442 5,060 272
Recoveries from corporate owned as-
sets............................... 211 212 226
Miscellaneous receipts.............. 20 36 24
------ ------- ------
Total cash provided from operating
activities....................... 8,012 8,979 1,563
Cash used for:
Operating Expenses.................. (331) (442) (359)
Disbursements for bank resolutions.. (1,452) (1,597) (538)
Disbursements for corporate owned
assets............................. (133) (159) (71)
Miscellaneous disbursements......... (7) (24) (5)
------ ------- ------
Total cash used for operating ac-
tivities......................... (1,923) (2,222) (973)
Net Cash Provided by Operating Activi-
ties................................. 6,089 6,757 590
Cash Flows from Investing Activities
Cash provided from:
Maturity ot U.S. Treasury obliga-
tions.............................. 1,530 3,830 7,050
Cash used for:
Purchase of U.S.Treasury obliga-
tions.............................. (8,793) (11,676) (7,824)
------ ------- ------
Net Cash Used by Investing Activi-
ties................................. (7,263) (7,846) (774)
Cash Flows from Financing Activities
Cash Used for:
Payments of indebtedness incurred
from bank resolutions.............. (1) (1) 0
------ ------- ------
Net Cash Used by Financing Activi-
ties................................. (1) (1) 0
Net Decrease in Cash and Cash Equiva-
lents................................ (1,175) (1,090) (184)
Cash and Cash Equivalents--Beginning.. 1,621 1,621 531
------ ------- ------
Cash and Cash Equivalents--Ending..... $ 446 $ 531 $ 347
====== ======= ======
</TABLE>
F-26
<PAGE>
BANK INSURANCE FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1996
1. BASIS OF PRESENTATION..... The accompanying financial statements are
unaudited and include the accounts of the Bank
Insurance Fund (BIF). The statements do not
include all of the information and disclosures
required by generally accepted accounting
principles. These statements should be read in
conjunction with the financial statements and
notes thereto for the year ended December 31,
1995, for the BIF. The accompanying financial
statements have not been audited by independent
accountants in accordance with generally
accepted auditing standards but in the opinion
of management such financial statements include
all adjustments, consisting only of normal
recurring adjustments, necessary to summarize
fairly the BIF's financial position and results
of operations. The results of operations for
the nine months ended September 30, 1996, may
not be indicative of the results that may be
expected for the year ending December 31, 1996.
The December 31, 1995, condensed balance sheet
data was derived from audited financial
statements, but does not include all
disclosures required by generally accepted
accounting principles.
2. DISCLOSURE ABOUT RECENT
FINANCIAL ACCOUNTING
STANDARDS BOARD
PRONOUNCEMENTS............ In May 1993, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 114,
"Accounting by Creditors for Impairment of a
Loan," to be adopted for fiscal years beginning
after December 15, 1994. While FDIC adopted
SFAS No. 114, most of the BIF assets are
specifically outside the scope of this
pronouncement. These assets do not meet the
definition of a loan within the meaning of the
statement or are valued through alternative
methods. Any assets subject to SFAS No. 114 are
immaterial either because of insignificant book
value or because any potential adjustment to
the carrying value as a result of applying
Statement No. 114 would be immaterial. The FASB
issued SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan--Income Recognition
and Disclosures," in October 1994, to be
adopted for fiscal years beginning after
December 15, 1994. This statement is an
amendment to SFAS No. 114 and was adopted by
the FDIC this year. Other recent pronouncements
issued by the FASB have been adopted or are
either not applicable or not material to the
financial statements.
F-27
<PAGE>
ANNEX A
CERTAIN CHARACTERISTICS OF THE 25
LARGEST GROUP I MORTGAGE LOANS
(BY CUT-OFF DATE SUB-POOL I BALANCE)
<TABLE>
<CAPTION>
BANK REMAINING
ONE AMORTIZATION
LOAN IDENTIFICATION LOAN LOCATION TERM ORIGINATION MATURITY CUT-OFF DATE
NUMBER NUMBER (CITY) STATE RATE PROPERTY TYPE (MONTHS) DATE DATE BALANCE
- ------------------- --------- ------------- ----- ----- --------------- ------------ ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
05268 875016718 PISCATAWAY NJ 8.75% Office 151 05/26/78 06/01/03 $ 10,765,701
9800244 149760018 WASHINGTON DC 9.26 Lodging 615 03/26/93 04/01/05 10,692,373
05615 265788918 MIAMI BEACH FL 9.37 Lodging 308 10/28/92 10/28/02 9,175,697
07904 72106718 PORTSMOUTH NH 9.00 Other 131 12/04/87 03/01/99 7,347,946
9132060 357344018 MANSFIELD MA 8.98 Other 0 05/11/88 02/15/05 7,061,842
07903 570942218 SAN DIEGO CA 9.96 Industrial 353 12/13/95 12/13/05 6,732,604
05677 276440418 UNKNOWN VA 8.00 Lodging 343 04/28/88 05/01/98 6,235,764
07150 78242418 BETHESDA MD 4.36 Lodging 357 12/20/84 06/01/05 5,492,181
00279 187928618 HARTFORD CT 7.75 Office 164 03/31/89 06/30/99 5,266,314
9014541 941200718 IRVING TX 9.88 Multi-Family 267 07/14/83 10/01/02 4,994,965
9800109 75572718 EXETER NH 8.34 Multi-Family 305 03/06/92 03/06/99 4,604,712
05100 371002618 NEW YORK NY 6.80 Multi-Family 266 03/02/89 03/01/04 4,561,044
02828 394612618 MANHATTAN NY 8.00 Mixed-Use 312 03/06/90 04/01/00 4,325,703
05813 77098118 SOUTH ORANGE NJ 9.78 Multi-Family 171 05/26/94 05/26/04 4,151,876
05141 928229318 SAVANNAH GA 9.25 Multi-Family 635 11/04/91 12/01/97 4,134,754
9014953 954720818 HOUSTON TX 6.00 Multi-Family 338 05/07/84 01/01/05 4,115,920
9800203 710944918 STAMFORD CT 9.99 Lodging 44 03/04/93 03/04/03 4,103,518
07323 392911318 UNKNOWN LA 7.50 Industrial 184 06/29/87 10/20/12 4,069,069
08135 1235 BOSTON MA 7.00 Office 402 03/16/89 06/30/99 3,759,562
9550156 589264018 MEDFIELD MA 7.88 Industrial 279 01/18/90 10/17/05 3,677,443
07966 1063 HERMOSA BEACH CA 9.67 Retail--General 355 03/15/96 13/15/06 3,541,283
08093 1121 NEWPORT BEACH CA 10.25 Mixed-Use 246 02/01/93 02/28/98 3,443,794
07130 297370818 LOS ANGELES CA 8.00 Retail--General 282 07/01/91 08/01/99 3,426,912
17903 570958818 SAN DIEGO CA 9.96 Industrial 353 12/13/95 12/13/05 3,168,284
9014936 834212218 DALLAS TX 3.25 Multi-Family 191 05/01/89 05/01/05 2,985,646
----- --- ------------
Totals/Weighted Aver-
ages: 8.44% 301 $131,834,908
===== === ============
<CAPTION>
ESTIMATED
NET CASH
FLOW
LOAN IDENTIFICATION COVERAGE CUT-OFF DATE
NUMBER RATIO LTV RATIO
- ------------------- --------- ------------
<S> <C> <C>
05268 3.88x 15.29%
9800244 0.90 82.25
05615 3.19 33.01
07904 0.00 0.00
9132060 1.12 112.84
07903 1.45 61.88
05677 2.31 74.32
07150 1.79 85.82
00279 0.00 49.22
9014541 1.12 84.66
9800109 1.83 57.56
05100 3.09 27.64
02828 0.00 0.00
05813 0.00 48.11
05141 1.09 91.88
9014953 1.58 82.32
9800203 2.23 16.37
07323 0.89 68.10
08135 0.00 101.06
9550156 1.12 105.07
07966 2.31 50.99
08093 1.41 162.06
07130 0.96 131.80
17903 0.00 35.20
9014936 1.11 140.83
--------- ------------
Totals/Weighted Aver-
ages: 1.91x 69.24%
========= ============
</TABLE>
A-1
<PAGE>
ANNEX B
CERTAIN CHARACTERISTICS OF THE 25
LARGEST GROUP II MORTGAGE LOANS
(BY CUT-OFF DATE SUB-POOL II BALANCE)
<TABLE>
<CAPTION>
BANK
LOAN ONE MINI- MAXI-
IDENTIFICATION LOAN GROSS MUM MUM
NUMBER NUMBER LOCATION (CITY) STATE RATE INDEX MARGIN RATE RATE
-------------- ------------- --------------- ----- ----- -------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
05130 210745518 CULPEPPER VA 8.75% PRIME 0.50% 0.00% 0.00%
07166 699553318 LINCOLN NE 9.75 PRIME 1.50 0.00 0.00
07905 322274118 YORKTOWN WEIGHT NY 10.25 PRIME 2.00 0.00 0.00
07968 1005 BABYLON NY 10.25 PRIME 2.00 0.00 0.00
05157 684712218 BRONX NY 9.50 PRIME 1.25 0.00 0.00
07324 415948818 HOPKINSVILLE KY 9.25 PRIME 1.00 0.00 0.00
05822 548888618 LONG BEACH CA 10.25 PRIME 2.00 7.00 11.00
05859 739833118 UNKNOWN MO 9.25 PRIME 1.00 0.00 0.00
07423 223724518 ALSTON MA 10.75 PRIME 2.00 0.00 0.00
05746 660174318 HARTFORD CT 7.50 1 YR CMT 3.00 0.00 0.00
02829 394612626 NEW YORK NY 8.00 5 YR CMT 3.00 0.00 0.00
07257 724440218 LOS ANGELES CA 9.75 PRIME 1.50 0.00 0.00
07231 496218818 WEST COVINA CA 7.75 COFI 3.00 0.00 22.00
07165 699477518 LINCOLN NE 9.75 PRIME 1.50 0.00 0.00
05819 128970018 ORANGE COUNTY CA 8.25 PRIME 0.00 0.00 8.50
07870 69038718 MONTVILLE CT 9.25 FHLB 4.00 0.00 0.00
07136 532724118 TEMECULA CA 11.75 PRIME 3.50 0.00 0.00
05135 210558218 CULPEPPER VA 8.75 PRIME 0.50 0.00 0.00
05857 641279418 KANSAS CITY MO 9.10 3 YR CMT 3.25 0.00 0.00
9141678 817440018 NEW YORK NY 5.00 PRIME 1.50 0.00 7.75
05451 699172218 DENVER CO 8.75 PRIME 1.00 0.00 8.75
05213 275262318 COLLINSVILLE IL 8.25 PRIME 0.00 0.00 12.00
05120 183087518 WASHINGTON DC 9.50 PRIME 1.50 0.00 9.50
01817 122200818 HOOKSETT NH 9.00 PRIME 2.00 0.00 0.00
06581 75129618 NORTHAMPTON MA 9.50 PRIME 1.25 0.00 0.00
----- ---- ---- -----
Total/Weighted Averages: 9.21% 1.70% 7.00% 11.53%
===== ==== ==== =====
</TABLE>
- ----
* Adjusts with the Index (The Wall Street Journal Prime Rate)
<TABLE>
<CAPTION>
ESTIMATED CUT-
RATE PMT. REMAINING NET CASH OFF
ADJUST. ADJUST. AMORTIZATION CUT-OFF FLOW DATE
FREQ. FREQ. TERM ORIGINATION MATURITY DATE COVERAGE LTV
(MONTHS) (MONTHS) PROPERTY TYPE (MONTHS) DATE DATE BALANCE RATIO RATIO
- -------- -------- --------------- ------------ ----------- -------- ----------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
* 1 Retail--General 276 12-20-89 11-01-04 $ 4,082,693 4.12x 95.31%
* 0 Retail--General 0 09-15-89 10-31-01 3,750,793 1.49 128.53
* 1 Retail--General 228 12-21-95 12-21-02 3,141,728 1.37 65.45
24 24 Retail--General 232 04-05-91 05-01-98 2,838,482 1.11 83.25
12 12 Office 173 05-07-91 06-01-03 2,134,364 1.49 59.79
1 1 Industrial 239 11-13-86 05-09-97 1,889,004 1.18 115.18
* 1 Retail--General 327 03-01-94 03-01-99 1,849,714 0.92 92.95
12 12 Retail--General 298 10-02-91 01-31-01 1,798,557 0.00 18.45
12 12 Industrial 180 12-11-86 12-11-06 1,776,563 2.25 38.21
12 12 Industrial 262 10-26-93 11-01-03 1,773,134 1.58 75.45
* 1 Mixed-Use 279 03-06-90 04-01-00 1,766,775 0.00 0.00
* 1 Industrial 481 12-15-93 12-15-97 1,689,348 3.65 105.58
6 6 Lodging 224 08-06-90 09-05-97 1,642,457 1.04 105.96
* 1 Retail--General 59 09-15-89 11-30-01 1,642,244 0.00 21.33
* 1 Office 68 08-03-92 09-01-02 1,596,973 0.77 88.72
36 36 Multi-Family 72 12-05-85 03-01-11 1,563,367 1.16 97.71
* 12 Other 329 05-02-94 04-03-99 1,552,468 9.16 33.71
* 1 Retail--General 276 12-20-89 11-01-04 1,536,375 0.00 20.62
12 12 Multi-Family 249 09-15-87 09-15-97 1,496,697 1.32 83.15
1 0 Mixed-Use 278 02-26-90 01-17-05 1,435,885 2.68 62.43
* 0 Mixed-Use 294 06-27-91 07-05-01 1,359,776 11.17 12.83
* 1 Multi-Family 184 04-15-87 10-15-16 1,358,840 0.00 31.24
* 1 Mixed-Use 0 12-11-86 10-01-02 1,358,775 1.10 48.53
12 1 Industrial 145 05-01-89 09-01-04 1,340,259 1.12 127.64
6 6 Mixed-Use 207 03-22-89 03-22-14 1,326,630 1.14 82.91
--- ----------- ----- ------
236 $47,693,902 2.38x 75.15%
=== =========== ===== ======
</TABLE>
B-1
<PAGE>
ANNEX C-1
FDIC REMIC TRUST 1996-C1
COMPARATIVE FINANCIAL STATUS REPORT
AS OF
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
CURR. PAID ANNUAL
LOAN SCHED. THRU DEBT
NUMBER CITY STATE BAL. DATE SERVICE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
List all loans currently in deal with or without information
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Total: $ $
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Financial Information:
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Current Full Year:
- ----------------------------------------------------------------------------------------------------
Current Full Yr. received with DSC less than 1:
- ----------------------------------------------------------------------------------------------------
Prior Full Year:
- ----------------------------------------------------------------------------------------------------
Prior Full Yr. received with DSC less than 1:
- ----------------------------------------------------------------------------------------------------
Quarterly Financial:
- ----------------------------------------------------------------------------------------------------
(1) DSC calculated using NOI/Debt Service
- --------------------------------------------------------------------------------
(2) Net change should compare the latest year to the
underwriting year
- --------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------
ORIGINAL UNDERWRITING INFORMATION
- ---------------------------------------------------------------------------------------------
BASE YEAR
- ---------------------------------------------------------------------------------------------
LAST
PROP. FINAN.
INSP. INFO AS % TOTAL $ (1)
DATE OF DATE OCC REVENUE NOI DSC
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
largest to smallest loan
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
WA $ $ WA
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
<CAPTION>
Received
- ---------------------------------------------------------------------------------------------
Loans Balance
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
# % $ %
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------
PRIOR FULL YEAR OPERATING INFORMATION
- ----------------------------------------------------------------------------------------------
AS OF NORMALIZED
- ----------------------------------------------------------------------------------------------
LAST
PROP. FINAN.
INSP. INFO AS % TOTAL $ (1)
DATE OF DATE OCC REVENUE NOI DSCX
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
WA $ $ WA
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
<CAPTION>
Required
- ----------------------------------------------------------------------------------------------
Loans Balance
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
# % $ %
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>
C-1
<PAGE>
ANNEX C-1 (CONTINUED)
FDIC REMIC TRUST 1996-C1
COMPARATIVE FINANCIAL STATUS REPORT
AS OF
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
CURRENT ANNUAL OPERATING INFORMATION
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
LAST
PROP. FINAN.
INSP. INFO AS % TOTAL $ (1)
DATE OF DATE OCC REVENUE NOI DSC
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
WA $ $ WA
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
"ACTUAL"
- ----------------------------------------------------------------------------------------------------------
YTD FINANCIAL INFORMATION
- ----------------------------------------------------------------------------------------------------------
MONTH REPORTED
- ----------------------------------------------------------------------------------------------------------
FINAN.
INFO AS % TOTAL $ %
OF DATE OCC REVENUE NOI DSC
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
WA $ $ WA
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(2)
- ------------------------------------------------------------------------------------------------------------------------------------
NET CHANGE
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT & BASIS
- ------------------------------------------------------------------------------------------------------------------------------------
%
% TOTAL (1)
OCC REV DSC
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
WA $ WA
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
C-2
<PAGE>
ANNEX C-2
FDIC REMIC TRUST 1996-C1
DELINQUENT LOAN STATUS REPORT
AS OF
</TABLE>
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)=A+B+C+D
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL
SQ FT OR OUTSTANDING TOTAL OTHER
UNITS/ SCHEDULED P&I OUTSTANDING ADVANCES CURRENT
LOAN NO. PROPERTY OCC %/ PAID TO LOAN ADVANCES TO EXPENSES (TAXES & TOTAL MONTHLY
CITY & STATE TYPE DATE DATE BALANCE DATE TO DATE ESCROW) EXPOSURE P&I
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
LOAN NO.
CITY & STATE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
FCL = Foreclosure
- -------------------------------------------------------------------------------------------------------------------------------
LTM = Latest 12 Months
- -------------------------------------------------------------------------------------------------------------------------------
FCL = Foreclosure
- -------------------------------------------------------------------------------------------------------------------------------
LTM = Latest 12 Months
- -------------------------------------------------------------------------------------------------------------------------------
* Status should contain a code indicating the current direction of each loan such as (FCL--In
foreclosure, MOD--Modification, DPO--Direct Payoff, NS--Note Sale, BK--Bankruptcy, PP--Payment Plan,
Curr--Current, TBD--To Be Determined, etc.)
- -------------------------------------------------------------------------------------------------------------------------------
** It is possible to combine the status codes if the loan is going in more than one direction (i.e.
FCL/Mod, BK/Mod., BK/FCL/DPO)
* Status should contain a code indicating the current direction of each loan such as (FCL--In
foreclosure, MOD--Modification, DPO--Direct Payoff, NS--Note Sale, BK--Bankruptcy, PP--Payment Plan,
Curr--Current, TBD--To Be Determined, etc.)
- -------------------------------------------------------------------------------------------------------------------------------
** It is possible to combine the status codes if the loan is going in more than one direction (i.e.
FCL/Mod, BK/Mod., BK/FCL/DPO)
</TABLE>
C-3
<PAGE>
ANNEX C-2
FDIC REMIC TRUST 1996-C1 (CONTINUED)
DELINQUENT LOAN STATUS REPORT
AS OF
<TABLE>
<CAPTION>
(F) (G)=(92+F)-C
- ---------------------------------------------------------------------------------------------------------------
MOST APPRAISAL TRANSFER LOSS USING DATE NOI
CURRENT LTM ACCURATE BPO OR DATE/ 92% FILED/
INTEREST MATURITY NOI LTM APPRAISAL PROPERTY INTERNAL CLOSING APPRAISAL OR FCL SALE
RATE DATE DATE NOI/ DSCR DATE VALUE VALUE** DATE BPO (F) DATE STATUS* COMMENTS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
90+ DAYS DELINQUENT
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
60 DAYS DELINQUENT
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
30 DAYS DELINQUENT
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Current & at Special
Servicer
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
C-4
<PAGE>
ANNEX C-3
FDIC REMIC TRUST 1996-C1
HISTORICAL LOAN MODIFICATION REPORT
AS OF
<TABLE>
<CAPTION>
BALANCE
WHEN SENT TO BALANCE AT THE NO.
MOD/ EFFECT SPECIAL EFFECTIVE DATE OF MOS./NEW
LOAN ID CITY/STATE EXTENSION DATE SERVICE REHABILITATION OLD RATE RATE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
THIS REPORT IS HISTORICAL
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Total For All
Loans:
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Total For Loans in Current
Month:
- --------------------------------------------------------------------------------------------
# of Loans $ Balance
- --------------------------------------------------------------------------------------------
Modification:
- --------------------------------------------------------------------------------------------
Maturity Date Ex-
tension:
- --------------------------------------------------------------------------------------------
Total:
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
(1) Actual principal loss taken by bonds
- --------------------------------------------------------------------------------
(2) Expected future loss due to a rate reduction. This is just an estimate
calculated at the time of the modification.
C-5
<PAGE>
ANNEX C-3 (CONTINUED)
FDIC REMIC TRUST 1996-C1
HISTORICAL LOAN MODIFICATION REPORT
AS OF
<TABLE>
<CAPTION>
TOTAL NO. (2) EST. FUTURE
MOS. FOR (1) REALIZED INTEREST LOSS TO
OLD CHANGE OF LOSS TO TRUST TRUST $ (RATE
OLD P&I NEW P&I MATURITY NEW MATURITY MOD $ REDUCTIONS) COMMENT
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
C-6
<PAGE>
ANNEX C-4
FDIC REMIC TRUST 1996-C1
HISTORICAL LOSS ESTIMATE REPORT (REO-SOLD OR DISCOUNTED PAYOFF)
AS OF
<TABLE>
<CAPTION>
(C)=B2 (A) (B) (D) (E) (F)
- --------------------------------------------------------------------------------------------------------------------
LATEST NET AMT
SERVICER % RECEIVED APPRAISAL OR EFFECT DATE RECEIVED SCHEDULED TOTAL P&I
LOAN ID PROPERTY NAME CITY/STATE FROM SALE BROKERS OPINION OF SALE SALES PRICE FROM SALE BALANCE ADVANCED
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
THIS REPORT IS HISTORICAL
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Total of Loans:
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Current Month Only:
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
C-7
<PAGE>
ANNEX C-4 (CONTINUED)
FDIC REMIC TRUST 1996-C1
HISTORICAL LOSS ESTIMATE REPORT (REO-SOLD OR DISCOUNTED PAYOFF)
AS OF
<TABLE>
<CAPTION>
(G) (H) (I)=D(F+G+H) (K)=I-E (M) (N)=K+M (O)-O-E
- -------------------------------------------------------------------------------------------------------------
DATE TOTAL LOSS LOSS % OF
TOTAL ACTUAL LOSSES DATE LOSSES MINOR ADJ TO MINOR ADJ WITH SCHEDULED
EXPENSES SERVICING FEES NET PROCEEDS PASSED THRU PASSED THRU TRUST PASSED THRU ADJUSTMENT BALANCE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
C-8
<PAGE>
ANNEX C-5
FDIC REMIC TRUST 1996-C1
REO STATUS REPORT
AS OF
<TABLE>
<CAPTION>
(A) (B) (C) (D) (C)=A+B+C+D
- ----------------------------------------------------------------------------------------------------
OTHER
SQ FT OR SCHEDULED TOTAL P&I ADVANCES TOTAL CURRENT
LOAN NO. PROPERTY UNITS/ PAID TO LOAN ADVANCES TO (TAXES & EXPENSES TOTAL MONTHLY
CITY & STATE TYPE OCC % DATE BALANCE DATE ESCROW) TO DATE EXPOSURE P&I
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
C-9
<PAGE>
ANNEX C-5 (CONTINUED)
FDIC REMIC TRUST 1996-C1
REO STATUS REPORT
AS OF
<TABLE>
<CAPTION>
(F) (G)=(92*F)-C
- ------------------------------------------------------------------------------------------------------------------------
(YTD) MOST (1) APPRAISAL TRANSFER LOSS USING
CURRENT MOST ACCURATE BPO DATE/ 92% REO
INTEREST MATURITY NOI AS RECENT APPRAISAL PROPERTY INTERNAL CLOSING APPRAISAL OR ACQUISITION PENDING
RATE DATE OF DATE NOI/ DSCR DATE VALUE VALUE DATE BPO (F) DATE OFFERS COMMENTS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate
Owned
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
C-10
<PAGE>
ANNEX C-6
FDIC REMIC TRUST 1996-C1
SERVICER WATCH LIST
AS OF
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
CURRENT PAID
LOAN SCHED THRU MATURITY %
NUMBER PROPERTY TYPE CITY STATE BALANCE DATE DATE CURRENT DSC COMMENT/REASON ON WATCH LIST
- -----------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <S>
- -----------------------------------------------------------------------------------------------
List all loans on watch list and reason
sorted in descending balance order.
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Total: $
</TABLE>
C-11
<PAGE>
===============================================================================
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE TRUST FUND OR ANY OF THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN
THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION
WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE IN-
FORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information...................................................... 3
Reports to Certificateholders.............................................. 4
Transaction Overview....................................................... 5
Summary of Prospectus...................................................... 6
Risk Factors............................................................... 26
Description of the Mortgage Pool........................................... 36
Servicing of the Mortgage Loans............................................ 61
Description of the Certificates............................................ 71
Yield and Maturity Considerations.......................................... 91
The Federal Deposit Insurance Corporation.................................. 103
The Bank Insurance Fund.................................................... 104
Description of the Pooling and Servicing Agreement......................... 106
Certain Legal Aspects of Mortgage Loans.................................... 113
Certain Federal Income Tax Consequences.................................... 125
State Tax Considerations................................................... 134
ERISA Considerations....................................................... 134
Legal Investment........................................................... 137
Underwriting............................................................... 138
Use of Proceeds............................................................ 138
Legal Matters.............................................................. 139
Ratings.................................................................... 139
Index of Principal Definitions............................................. 140
Financial Statements of the Bank Insurance Fund............................ F-1
Annex A.................................................................... A-1
Annex B.................................................................... B-1
Annex C.................................................................... C-1
</TABLE>
-----------------
UNTIL MARCH , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED CER-
TIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLI-
GATION OF THE DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
===============================================================================
===============================================================================
- -------------------------------------------------------------------------------
THE FEDERAL DEPOSIT INSURANCE CORPORATION,
ACTING IN ITS CORPORATE CAPACITY, AS ADMINISTRATOR OF THE BANK INSURANCE FUND
AND AS RECEIVER OF EACH OF CERTAIN
DEPOSITORY INSTITUTIONS
$740,531,095
(APPROXIMATE)
FDIC REMIC TRUST 1996-C1
COMMERCIAL MORTGAGE
PASS-THROUGH CERTIFICATES,
SERIES 1996-C1
-----------------
PROSPECTUS
December , 1996
-----------------
LEHMAN BROTHERS
GOLDMAN, SACHS & CO.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
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:
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 224,848
Printing and Engraving Fees....................................... 300,000
Legal Fees and Expenses........................................... 250,000
Accounting Fees and Expenses...................................... 250,000
Trustee Fees and Expenses......................................... 50,000
Rating Agency Fees................................................ 500,000
Miscellaneous..................................................... 50,000
Loan Sale Advisor Fee............................................. 1,200,000
----------
Total........................................................... $2,824,848
==========
</TABLE>
ITEM 31. SALES TO SPECIAL PARTIES.
Not applicable.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable.
ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Not applicable.
ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Not applicable.
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Index to Financial Statements (included on page F-1).
(b) Exhibits.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Declaration of Trust.*
4.1 Form of Pooling and Servicing Agreement.
4.2 Form of Limited Guaranty.
5.1 Opinion of Hunton & Williams as to legality of the Certificates.
8.1 Opinion of Hunton & Williams as to certain tax matters
23.1 Consent of Price Waterhouse L.L.P.*
23.2 Consent of Arthur Andersen LLP*
23.3 Consent of Hunton & Williams (included in Exhibit 5.1).
</TABLE>
- --------
* Previously filed.
II-1
<PAGE>
ITEM 36. UNDERTAKINGS.
A. Undertaking for equity offerings of nonreporting registrants.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
B. Undertaking required for acceleration of effectiveness.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted against the Registrant 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 issues.
C. Undertaking permitted by Rule 430A of the Securities Act
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus field by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, as amended,
State Street Bank and Trust Company, not in its individual capacity but as
Trustee of the Registrant Trust Fund, certifies that it has reasonable grounds
to believe that the Registrant Trust Fund meets all of the requirements for
filing on Form S-11 and has duly caused this Amendment No. 1 to the
Registration Statement to be signed for the Registrant Trust Fund, by a duly
authorized signatory, in the City of Boston, Commonwealth of Massachusetts, on
the 11th day of December, 1996.
FDIC REMIC TRUST 1996-C1
(the "Trust Fund")
By State Street Bank and Trust Company
----------------------------------------------
Not in its individual capacity but solely as
trustee of the Trust Fund.
By /s/ David Duclos
----------------------------------------------
Authorized Signatory
II-3
<PAGE>
Exhibit 1.1
FDIC REMIC TRUST 1996-C1
Commercial Mortgage Pass-Through Certificates
Series 1996-C1
UNDERWRITING AGREEMENT
----------------------
December ___, 1996
<PAGE>
Lehman Brothers Inc. Goldman, Sachs & Co.
Three World Financial Center, 20th Floor 85 Broad Street
200 Vesey Street New York, New York 10004
New York, New York 10285
Ladies and Gentlemen:
FDIC REMIC Trust 1996-C1 (the "Trust"), a trust established under the laws
of the State of New York pursuant to a Declaration of Trust dated as of November
13, 1996, which is to be restated and supplanted pursuant to the Pooling and
Servicing Agreement described below, proposes, subject to the terms and
conditions stated herein, to sell to the underwriters named in Schedule I hereto
(the "Underwriters"), its Commercial Mortgage Pass-Through Certificates of the
Series and Classes, in the aggregate principal amount and bearing the interest
rates as specified in Schedule II hereto (the "Certificates"). The Certificates
will be issued pursuant to a Pooling and Servicing Agreement (the "Pooling and
Servicing Agreement"), dated as of December 1, 1996 among the Federal Deposit
Insurance Corporation, acting both in its capacity as receiver of certain failed
banking institutions (in such capacity, the "Seller") and in its corporate
capacity (in such capacity, the "FDIC"), Banc One Management and Consulting
Corporation, as Servicer (the "Servicer"), and State Street Bank and Trust
Company, as Trustee (the "Trustee"). The Certificates will be authenticated by
the Trustee and will evidence beneficial ownership interests in a trust fund
(the "Trust Fund") that consists primarily of a mortgage pool (the "Mortgage
Pool") conveyed by the Seller to the Trustee. The Mortgage Pool consists
primarily of adjustable and fixed rate, amortizing and balloon payment,
conventional mortgage loans (such mortgage loans, the "Mortgage Loans") conveyed
by the Seller to the Trustee of the Trust Fund and listed in an attachment to
the Pooling and Servicing Agreement. The Mortgage Loans are secured by first
liens on primarily commercial and multifamily real properties. The Class R
Certificates also are to be issued pursuant to the Pooling and Servicing
Agreement, but are not being purchased and sold pursuant to the provisions
hereof. In connection with the issuance of the Certificates, the Limited
Guarantee Agreement (the "Guarantee Agreement") was entered into between the
FDIC and the Trustee. The Certificates are described more fully in the
Prospectus (as defined below) which the Seller is furnishing to you.
The Trust and the Seller offer to enter into the following agreement (the
"Agreement") with you ("you" or the "Representative") and the other
Underwriters, which Agreement, upon your written acceptance of this offer, will
be binding on the Trust, the Seller and the Underwriters. This offer is made
subject to your acceptance of this Agreement on or before 5:00 p.m. New York
time on the date hereof and, if not so accepted, will be subject to withdrawal
by the Trust and the Seller on notice delivered to you at any time prior to the
acceptance hereof by you.
1. Representations and Warrants. The Seller represents and warrants to,
----------------------------
and agrees with, each Underwriter that:
(a) The Trustee on behalf of the Trust has filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement (as
hereinafter defined), the file number of which is set forth in
Schedule II hereto, on Form S-11 for the registration of the
Certificates under the Securities Act of 1933, as amended (the "Act").
The Registration Statement has become effective and copies thereof
have heretofore been delivered to the Representative. The
registration statement whose file number is set forth in Schedule II
hereto, including the exhibits thereto, as amended at the date hereof
is hereinafter called the "Registration Statement". The prospectus,
dated the date specified in Schedule II hereto and in the form filed
with the Commission under the Act is hereinafter called the
"Prospectus." Any preliminary form of the Prospectus is hereinafter
called a "Preliminary Prospectus." The Trustee on behalf of the Trust
will not, without the prior consent of the Representative, (i) make
any change in the Prospectus or (ii) file any other amendment to the
Registration
<PAGE>
Statement until after the period in which a prospectus is required to
be delivered to purchasers of the Certificates under the Act.
(b) As of the date hereof, when the Registration Statement became
effective and at the Closing Date, (i) the Registration Statement and
the Prospectus complied or will comply in all material respects with
the applicable requirements of the Act and the rules thereunder and
(ii) the Registration Statement, as amended as of any such time, did
not contain and will not contain any untrue statement of a material
fact and did not and will not omit to state any 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
and the Prospectus did not contain and will not contain an untrue
statement of a material fact and did not omit 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 Seller 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 in reliance upon and in
conformity with written information furnished to the FDIC or the
Seller by you, or by any Underwriter through you, specifically for use
in the preparation thereof.
(c) The FDIC has been duly established and is validly existing, and has
full power and authority to enter into and perform its obligations
under the Pooling and Servicing Agreement, the Guarantee Agreement and
the guarantee provision set forth on the signature page of this
Agreement (the "Guarantee Provision").
(d) The Seller has been duly appointed as the receiver of each of the
Depository Institutions and as to those loans that it has acquired in
its corporate capacity, it has duly acquired such loans and has full
power and authority to enter into and perform its obligations under
this Agreement and the Pooling and Servicing Agreement.
(e) The Seller is not aware of (i) any request by the Commission for any
further amendment of the Registration Statement or the Prospectus or
for any additional information, (ii) the issuance by the Commission of
any stop order suspending the effectiveness of the Registration
Statement or the institution or threatening of any proceeding for that
purpose or (iii) any notification with respect to the suspension of
the qualification of the Certificates for sale in any jurisdiction or
the initiation or threatening of any proceeding for such purpose.
(f) At or prior to the Closing Date, the Seller will have entered into the
Pooling and Servicing Agreement; this Agreement has been duly
authorized, executed and delivered by the Seller, and the Pooling and
Servicing Agreement, when executed and delivered by the Seller, will
have been duly authorized, executed and delivered by the Seller, and
this Agreement constitutes, and the Pooling and Servicing Agreement,
when so executed and delivered, will constitute, valid and binding
agreements of the Seller, enforceable against the Seller in accordance
with their terms, except that (i) the enforceability thereof may be
subject to general principles of equity regardless of whether
enforcement is sought in a proceeding in equity or at law and (ii) the
enforceability of rights to indemnity under this Agreement may be
subject to limitations of public policy under applicable securities
laws.
(g) At or prior to the Closing Date, the FDIC will have entered into the
Pooling and Servicing Agreement and the Guarantee Agreement; the
Pooling and Servicing Agreement and the Guarantee Agreement, when
executed and delivered by the FDIC, will have been authorized,
executed and delivered by the FDIC, and will constitute the valid and
binding agreements of the FDIC, enforceable against the FDIC in
accordance with their respective terms, except the
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enforceability thereof may be subject to general principles of equity
regardless of whether enforcement is sought in a proceeding in equity
or at law.
(h) The Guarantee Provision has been duly authorized, executed and
delivered by the FDIC and constitutes the valid and binding agreement
of the FDIC, enforceable against the FDIC in accordance with its
terms, except that (i) the enforceability thereof may be subject to
general principles of equity regardless of whether enforcement is
sought in a proceeding in equity or at law and (ii) the enforceability
of rights of indemnity under this Agreement may be subject to
limitations of public policy under applicable securities laws.
(i) The Certificates, the Pooling and Servicing Agreement and the
Guarantee Agreement conform in all material respects to the
descriptions thereof contained in the Prospectus; the Certificates
have been duly and validly authorized by the Trustee and will, when
duly and validly executed and authenticated by the Trustee and issued
in accordance with the Pooling and Servicing Agreement, be entitled to
the benefits of the Pooling and Servicing Agreement.
(j) As of the date hereof and at the Closing Date, the statements in the
Prospectus set forth under the captions "The Federal Deposit Insurance
Corporation" and "The Bank Insurance Fund" are true, correct and
complete in all material respects.
(k) As of the Closing Date, the representations and warranties of the FDIC
set forth in Section 2.03 of the Pooling and Servicing Agreement will
be true and correct.
(l) The issuance of the Certificates pursuant to the Pooling and Servicing
Agreement and the sale of the Certificates to the Underwriters
pursuant to this Agreement, the compliance by the Seller with the
other provisions of this Agreement and the Pooling and Servicing
Agreement and the Certificates, the compliance by the FDIC with the
provisions of the Pooling and Servicing Agreement, the Guarantee
Agreement and the Guarantee Provision, and the consummation of the
other transactions herein or therein contemplated do not, under any
statute, regulation or rule of general applicability or any decision,
order, decree or judgment of any judicial or other governmental body
specifically applicable to the Seller or FDIC, as the case may be,
require the consent, approval, authorization, order, registration or
qualification of or with any court or governmental authority, except
(i) such as have been obtained or effected under the Act (provided
that the Seller makes no representations or warranties as to any
consent, approval, authorization, registration or qualification which
may be required under state securities or Blue Sky laws), (ii) any
recordations of the assignment of the Mortgage Loans to the Trustee
pursuant to the Pooling and Servicing Agreement that have not yet been
completed and (iii) such other approvals as have been obtained.
(m) Neither the execution nor the delivery of this Agreement nor the
Pooling and Servicing Agreement, nor the issuance nor delivery of the
Certificates, nor the consummation of any other of the transactions
contemplated herein or therein, nor the fulfillment of the terms of
the Certificates, this Agreement or the Pooling and Servicing
Agreement conflicts or will conflict with or violate, result in a
breach of or constitute a default under any terms of any statute
currently applicable to the Seller, or any order, or regulation
currently applicable to the Seller, or of any court, regulatory body,
administrative agency or governmental body having jurisdiction over
the Seller, or the terms of any indenture or other agreement or
instrument to which the Seller is a party or by which it or any of its
properties are bound.
(n) Neither the execution nor the delivery of the Pooling and Servicing
Agreement, the Guarantee Agreement nor the Guarantee Provision, nor
the consummation of any other of the transactions contemplated
therein, nor the fulfillment of the terms thereof conflicts or will
conflict with or
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violate, result in a breach of or constitute a default under any terms
of any statute currently applicable to the FDIC, or any order, or
regulation currently applicable to the FDIC, or of any court,
regulatory body, administrative agency or governmental body having
jurisdiction over the FDIC or the terms of any indenture or other
agreement or instrument to which the FDIC is a party or by which it or
any of its properties are bound.
(o) There are no actions or proceedings against, or investigations of, the
Seller pending, or, to the knowledge of the Seller, threatened, before
any court, administrative agency or other tribunal (i) asserting that
invalidity of this Agreement, the Pooling and Servicing Agreement or
the Certificates, (ii) seeking to prevent the sale of the Certificates
to the Underwriters or the consummation of any of the other
transactions contemplated by this Agreement or the Pooling and
Servicing Agreement, (iii) which might materially and adversely affect
the performance by the Seller of its obligations under, or the
validity or enforceability of, this Agreement, the Pooling and
Servicing Agreement, or the Certificates or (iv) seeking to affect
adversely the federal income tax attributes of the Certificates
described in the Prospectus.
(p) There are no actions or proceedings against, or investigations of, the
FDIC pending, or, to the knowledge of the FDIC, threatened, before any
court, administrative agency or other tribunal (i) asserting the
invalidity of the Pooling and Servicing Agreement, the Guarantee
Agreement or Guarantee Provision, (ii) seeking to prevent the
consummation of any of the other transactions contemplated by the
Pooling and Servicing Agreement, the Guarantee Agreement or Guarantee
Provision or (iii) which might materially and adversely affect the
performance by the FDIC of its obligations under, or the validity or
enforceability of, the Pooling and Servicing Agreement, the Guarantee
Agreement or Guarantee Provision.
(q) Any taxes, fees and other governmental charges in connection with the
execution and delivery of this Agreement and the Pooling and Servicing
Agreement and the execution, delivery and sale of the Certificates
have been or will be paid at or prior to the Closing Date.
2. Purchase and Sale. Subject to the terms and conditions and in
-----------------
reliance on the representations and warranties herein set forth, the Trust
agrees to sell to each Underwriter, and each Underwriter agrees, severally and
not jointly, to purchase from the Trust, the principal amount of each Class of
Certificates set forth opposite each such Underwriter's name in Schedule I
hereto.
The purchase price for each Class of the Certificates as a percentage of
their respective Certificate Principal Amounts as of the Closing Date is set
forth in Schedule II hereof (the "Purchase Price"). There will be added to the
Purchase Price interest, in respect to each Class of the Certificates evidencing
an interest in Sub-Pool I (as defined in the Pooling and Servicing Agreement),
at the interest rate applicable to such Class from December 1, 1996 to, but not
including, the Closing Date.
3. Delivery and Payment. Delivery of and payment for the Certificates
--------------------
shall be made on _______________________ and in the manner set forth in Schedule
II hereto, or such later date and time as the Representative shall designate,
which date and time may be postponed by agreement between the Representative and
the Seller or as provided in Section 10 hereof (such date and time of delivery
and payment for the Certificates being herein called the "Closing Date").
Delivery of the Certificates, as set forth in Schedule II hereto, shall be made
to the Underwriters against payment by the Underwriters of the Purchase Price as
specified in Schedule II hereto. Unless delivery is made through the facilities
of The Depository Trust Company, the Certificates shall be registered in such
names and in such denominations as the Underwriters may request not less than
three full Business Days (as defined in the Pooling and Servicing Agreement) in
advance of the Closing Date.
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If delivery of the Certificates is not being made through The Depository
Trust Company, the Trustee on behalf of the Trust agrees to have the
Certificates available for inspection, checking and packaging by the
Underwriters in New York, New York, not later than 1:00 p.m. on the Business Day
prior to the Closing Date.
4. Offering by Underwriters. It is understood that the Underwriters
------------------------
propose to offer the Certificates for sale to the public as set forth in the
Prospectus.
5. Agreements. The Seller agrees with the Underwriters that:
----------
(a) The Trustee on behalf of the Trust will promptly advise the
Representative: (i) when any amendment to the Registration Statement
shall have become effective; (ii) of any request by the Commission for
any amendment to the Registration Statement or the Prospectus or for
any additional information; (iii) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration
Statement or the institution or threatening of any proceeding for that
purpose; and (iv) of the receipt by the Seller or the Trustee on
behalf of the Trust of any notification with respect to the suspension
of the qualification of the Certificates for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose.
In addition, the Trustee on behalf of the Trust will not: (i) file
any amendment to the Registration Statement or supplement to the
Prospectus unless the Seller or the Trustee on behalf of the Trust has
furnished the Representative a copy for its review prior to filing;
(ii) file any such proposed supplement to the Prospectus to which the
Representative reasonably objects; or (iii) file any such proposed
amendment to the Registration Statement to which the Representative
reasonably objects until after the period in which a prospectus is
required to be delivered to purchasers of the Certificates under the
Act. The Seller will use its best efforts to prevent the issuance of
any stop order and, if issued, to obtain as soon as possible the
withdrawal thereof.
(b) If, at any time when a prospectus relating to the Certificates is
required to be delivered under the Act, any event occurs as a result
of which the Prospectus as then amended or supplemented would include
any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it
shall be necessary to amend or supplement the Prospectus to comply
with the Act or the rules under the Act, the Trustee on behalf of the
Trust will promptly prepare and file with the Commission, subject to
paragraph (a) of this Section 5, an amendment or supplement that will
correct such statement or omission or an amendment that will effect
such compliance and, if such amendment or supplement is required to be
contained in a post-effective amendment to the Registration Statement,
will use its best efforts to cause such amendment of the Registration
Statement to be made effective as soon as possible.
(c) The Trustee on behalf of the Trust will furnish to the Representative
and counsel for the Underwriters, without charge, signed copies of the
Registration Statement (including exhibits thereto) and to each other
Underwriter a copy of the Registration Statement (without 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,
the Preliminary Prospectus, if any, and any amendments and supplements
thereto as the Representative may reasonably request. The Seller will
pay the expenses of printing all documents relating to the offering.
(d) The Trustee on behalf of the Trust and the Seller will furnish such
information, execute such instruments and take such action, if any, as
may be required to qualify the Certificates for sale under the laws of
such jurisdictions as the Representative may designate and will
maintain such qualification in effect so long as required for the
distribution of the Certificates.
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<PAGE>
(e) The Seller will pay or reimburse all costs and expenses in connection
with the transactions contemplated hereby, including, but not limited
to, the fees and disbursements of its counsel; the costs and expenses
of printing (or otherwise reproducing) and delivering the Pooling and
Servicing Agreement, the Guarantee Agreement and the Certificates;
accounting fees and disbursements; the costs and expenses in
connection with the qualification or exemption of the Certificates
under state securities or Blue Sky Laws, including filing fees and
reasonable fees and disbursements of counsel in connection therewith,
in connection with the preparation of any Blue Sky Survey and in
connection with any determination of the eligibility of the
Certificates for investment by institutional investors and the
preparation of any Legal Investment Survey; the expenses of printing
any such Blue Sky Survey and Legal Investment Survey; the costs and
expenses in connection with the preparation, printing and filing of
the Registration Statement (including exhibits thereto), the
Prospectus, and the Preliminary Prospectus, if any (including the fees
and expenses of any party retained on behalf of the Seller to perform
contract underwriting services with respect to the Mortgage Loans),
the preparation and printing of this Agreement and the furnishing to
the Representative of such copies of each Preliminary Prospectus and
Prospectus as the Representative may reasonably request; the fees of
rating agencies; and the costs, expenses and filing fees in connection
with any National Association of Securities Dealers, Inc. filing
required in connection with the public offering of the Certificates.
Except as provided above with respect to a Blue Sky Survey and a Legal
Investment Survey and in Section 7 hereof, the Underwriters shall be
responsible for paying all costs and expenses incurred by them in
connection with their purchase and sale of the Certificates, including
the fees of counsel to the Underwriters.
6. Conditions to the Obligations of the Underwriters. The obligations of
-------------------------------------------------
the Underwriters to purchase the Certificates as provided in this Agreement
shall be subject to the accuracy of the representations and warranties on the
part of the Seller contained herein as of the date hereof and the Closing Date,
to the accuracy of the statements of the Seller made in any certificates
pursuant to the provisions hereof, to the performance by the Trustee on behalf
of the Trust and the Seller of their respective obligations hereunder and to the
following additional conditions with respect to the Certificates:
(a) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for the purpose
shall have been instituted or threatened.
(b) The Seller shall have delivered to the Representative a certificate,
dated the Closing Date, of the ___________ to the effect that: (i)
the signer of such certificate has carefully examined this Agreement
and the Prospectus; (ii) the representations and warranties of the
Seller in this Agreement are true and correct in all material respects
at and as of the Closing Date with the same effect as if made on the
Closing Date; (iii) the Seller has complied with all the agreements
and satisfied all the conditions on its part to be performed or
satisfied at or prior to the Closing Date; (iv) no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been instituted or, to
the Seller's knowledge, threatened; and (v) nothing has come to his
attention that would lead him to believe that the Prospectus contains
any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
(c) The FDIC shall have executed and delivered the Guarantee Agreement.
(d) The FDIC shall have delivered to the Representative a certificate,
dated the Closing Date, of the _________, to the effect that: (i) the
FDIC has duly authorized, executed and delivered the Pooling and
Servicing Agreement, the Guarantee Agreement and the Guarantee
Provision; (ii) the Pooling and Servicing Agreement, the Guarantee
Agreement and the Guarantee Provision
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<PAGE>
constitute legal, valid and binding obligations of the FDIC,
enforceable against the FDIC in accordance with their respective
terms, except that (1) the enforceability thereof may be subject to
general principles of equity (regardless of whether enforcement is
sought in a proceeding in equity or at law), and (2) the
enforceability of rights to indemnity under the Guarantee Provision
may be subject to limitations of public policy under applicable
securities laws; (iii) the execution and delivery by the FDIC of the
Pooling and Servicing Agreement, the Guarantee Agreement and the
Guarantee Provision do not require the consent, approval or
authorization of any court or government authority except such as have
been obtained or effected under the Act; and (iv) neither the
execution and delivery by the FDIC of the Pooling and Servicing
Agreement, the Guarantee Agreement and the Guarantee Agreement and the
Guarantee Provision, nor the performance by the FDIC of its
obligations thereunder, will conflict with or violate, result in a
breach of or constitute a default under any terms of any statute
currently applicable to the FDIC or any order or regulation currently
applicable to the FDIC of any court, regulatory body, administrative
agency or governmental body having jurisdiction over the FDIC, or the
terms of any indenture or other agreement or instrument to which the
FDIC is a party or by which it or any of its properties are bound.
(e) The Representative shall have received from Hunton & Williams, counsel
for the Seller and the FDIC, a favorable opinion, dated the Closing
Date and satisfactory in form and substance to counsel for the
Underwriters, to the effect that:
(i) The Registration Statement is effective under the Act and, to
the best of the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued, or proceeding
therefor instituted or threatened by the Commission.
(ii) The Registration Statement as of its effective date and the
Prospectus as of the date thereof, other than financial statements,
schedules and other numerical, financial and statistical data contained
therein, as to which such counsel need express no opinion, complied as to
form in all material respects with the requirements of the Act and the
rules thereunder.
(iii) The conditions to the use by the Trust of a registration
statement on Form S-11 under the Act, as set forth in the General
Instructions to Form S-11, have been satisfied with respect to the
Registration Statement and the Prospectus, and to the best of the knowledge
of such counsel, based on inquiry of representatives of the Seller and the
FDIC, there are no contracts or documents which are required to be filed as
exhibits to the Registration Statement pursuant to the Act or the
regulations thereunder which have not been filed.
(iv) This Agreement and the Pooling and Servicing Agreement each
constitutes a valid and binding agreement of the Seller, enforceable
against the Seller in accordance with their respective terms, subject to
(i) general principles of equity regardless of whether enforcement is
sought in a proceeding in equity or at law and (ii) limitations of public
policy under applicable securities laws.
(v) The Pooling and Servicing Agreement, the Guarantee Agreement
and the Guarantee Provision each constitutes a valid and binding agreement
of the FDIC, enforceable against the FDIC in accordance with their
respective terms, subject to (i) general principles of equity regardless of
whether enforcement is sought in a proceeding in equity or at law and (ii),
with respect to the Guarantee Provision, limitations of public policy under
applicable securities laws.
(vi) The Certificates will, when the Mortgage Loans have been duly
conveyed to the Trustee in accordance with the Pooling and Servicing
Agreement and the Certificates have been executed and authenticated by the
Trustee and issued in accordance with the of the Pooling and Servicing
Agreement be entitled to the benefits of the Pooling and Servicing
Agreement.
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<PAGE>
(vii) Assuming due authorization, execution and delivery of the
Declaration of Trust by the Trustee, the provisions of the Declaration of
Trust, as amended and restated in its entirety pursuant to the Pooling and
Servicing Agreement, are sufficient to establish the Trust under and
pursuant to the laws of the State of New York.
(viii) Assuming due authorization, execution and delivery of this
Agreement by the Trustee on behalf of the Trust, this Agreement constitutes
a valid and binding agreement of the Trust, enforceable against the Trust
in accordance with its terms, subject to (i) general principles of equity
regardless of whether enforcement is sought in a proceeding in equity or at
law and (ii) limitations of public policy under applicable securities laws.
(ix) Assuming due authorization, execution and delivery of the
Pooling and Servicing Agreement by the Trustee, the Pooling and Servicing
Agreement constitutes a valid and binding agreement of the Trustee,
enforceable against the Trustee in accordance with its terms, subject to
general principles of equity regardless of whether enforcement is sought in
a proceeding in equity or at law.
(x) The Certificates, the Pooling and Servicing Agreement and the
Guarantee Agreement conform in all material respects to the descriptions
thereof in the Prospectus.
(xi) The statements contained in the Prospectus under the headings
"Certain Federal Income Tax Consequences", "Certain Legal Aspects of the
Mortgage Loans", "ERISA Considerations" and "Legal Investment
Considerations" to the extent that they constitute matters of law or legal
conclusions with respect thereto, are a fair and accurate summary of the
matters addressed therein, under existing law and the assumptions stated
therein.
(xii) Under existing law, assuming that the election required by
Section 860(b) of the Internal Revenue Code of 1986, as amended (the
"Code"), is properly made and assuming compliance with the Pooling and
Servicing Agreement, as in effect on the Closing Date, the Trust Fund (as
defined in the Pooling and Servicing Agreement) will be treated for federal
income tax purposes as one or more "real estate mortgage investment
conduits" ("REMIC") within the meaning of Section 860D of the Code.
(xiii) 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.
(xiv) The issuance of the Certificates pursuant to the Pooling and
Servicing Agreement and the sale of the Certificates to the Underwriters
pursuant to this Agreement, the compliance by the Seller and the FDIC, as
the case may be, with the other provisions of this Agreement, the Pooling
and Servicing Agreement, the Guarantee Agreement, the Guarantee Provision
and the Certificates and the consummation by the Seller and the FDIC of the
other transactions therein contemplated do not, under any statute,
regulation or rule of general applicability or, to the best of the
knowledge of such counsel, under any decision, order, decree or judgment of
any judicial or other governmental body specifically applicable to the
Seller or the FDIC, as the case may be, require the consent, approval,
authorization, order, registration or qualification of or filing with any
court or governmental authority except such as have been obtained or
effected under the Act (but such counsel need express no opinion as to any
consent, approval, authorization, registration or qualification which may
be required under state securities or Blue Sky Laws), any recordations of
the assignment of the Mortgage Loans to the Trustee and the filing of any
financial statements required by the Pooling and Servicing Agreement that
have not yet been completed and such other approvals as have been obtained.
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Such opinion: (a) may express its reliance as to factual matters on
(i) appropriate delegations of authority by the Seller or the FDIC, as the
case may be, (ii) a certificate regarding the prices received for the
Certificates and (iii) certificates of government and agency officials and
the representations and warranties made by, and on certificates or other
documents furnished by officers of, the parties to this Agreement, the
Pooling and Servicing Agreement, the Guarantee Provision and the Guarantee
Agreement; (b) may assume the due authorization, execution and delivery of
the instruments and documents referred to therein by the parties thereto
other than the Seller or the FDIC, as the case may be; (c) may express its
reliance as to the opinions in paragraphs (iv), (v) and (vi) above
regarding this Agreement, the Pooling and Servicing Agreement, the
Guarantee Agreement, the Guarantee Provision and the Certificates on the
opinion of the General Counsel of the FDIC; and (d) may be qualified as an
opinion only as to the laws of the State of New York and the United States
of America.
Such counsel shall also confirm that while they have endeavored to see
that the Registration Statement and the Prospectus comply with the Act and
the applicable rules and regulations thereunder relating to registration
statements on Form S-11 and related prospectuses, they cannot, of course,
make any representation to the Representative as to the accuracy or
completeness of statements of fact contained in the Registration Statement
or the Prospectus. However, such counsel shall confirm that nothing has
come to the attention of such counsel that would lead such counsel to
believe that the Registration Statement at the time it became effective,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make statements
therein, in light of the circumstances under which they were made, not
misleading, or that the Prospectus, as of the date thereof, and at the
Closing Date, contained or contains an untrue statement of a material fact
or omitted or omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading (other than financial statements, schedules and other
numerical financial and statistical data contained therein, as to which
such counsel need express no opinion).
(f) The Representative shall have received from the General Counsel of the
FDIC a favorable opinion, dated the Closing Date and satisfactory in
form and substance to counsel for the Underwriters, to the effect
that:
(i) The FDIC has been duly established and is validly existing and
has statutory authority to enter into and perform its obligations under the
Pooling and Servicing Agreement, the Guarantee Agreement and the Guarantee
Provision and to consummate the transactions contemplated thereby.
(ii) The Federal Deposit Insurance Corporation has been duly
appointed as the receiver of each of the Depository Institutions and as to
those loans that it has acquired in its corporate capacity, it has acquired
such loans and the Seller has statutory authority to enter into and perform
its obligations under this Agreement and the Pooling and Servicing
Agreement.
(iii) This Agreement has been duly authorized, executed and
delivered by the Seller and constitutes a valid and binding agreement of
the Seller, enforceable against the Seller in accordance with its terms,
subject to general principles of equity regardless of whether enforcement
is sought in a proceeding in equity or at law.
(iv) The Pooling and Servicing Agreement, the Guarantee Agreement
and the Guarantee Provision each have been duly authorized, executed and
delivered by the FDIC, and each constitutes a valid and binding agreement
of the FDIC, enforceable against the FDIC in accordance with their
respective terms, subject to (i) general principles of equity regardless of
whether enforcement is sought in a proceeding in equity or at law and (ii),
with respect to the Guarantee Provision, limitations of public policy under
applicable securities laws.
-9-
<PAGE>
(v) The Pooling and Servicing Agreement has been duly authorized,
executed and delivered by the Seller and constitutes a valid and binding
agreement of the Seller, enforceable against the Seller in accordance with
its terms, subject to general principles of equity regardless of whether
enforcement is sought in a proceeding in equity or at law.
(vi) The statements in the Prospectus set forth under the captions
"The Federal Deposit Insurance Corporation" and "The Bank Insurance Fund"
to the extent that they constitute matters of law or legal conclusions with
respect thereto, in all material respects, are a fair and accurate summary
of the matters addressed therein, under existing law and the assumptions
stated therein.
(vii) Neither the execution nor the delivery of this Agreement or
the Pooling and Servicing Agreement, nor the issuance or delivery of the
Certificates, nor the consummation of any other transactions contemplated
herein or therein, nor the fulfillment of the terms of the Certificates,
this Agreement or the Pooling and Servicing Agreement, will conflict with
or violate, result in a breach of or constitute a default under any terms
of any statute currently applicable to the Seller or any order, rule or
regulation currently applicable to the Seller of any court, regulatory
body, administrative agency or governmental body having jurisdiction over
the Seller, or the terms of any indenture or other agreement or instrument
known to such counsel to which the Seller is a party or by which its
properties are bound.
(viii) Neither the execution nor the delivery of the Guarantee
Provision, the Guarantee Agreement or the Pooling and Servicing Agreement,
nor the consummation of any other transactions contemplated therein, nor
the fulfillment of the terms of the Guarantee Provision, the Guarantee
Agreement or the Pooling and Servicing Agreement will conflict with or
violate, result in a breach of or constitute a default under any terms of
any statute currently applicable to the FDIC or any order, rule or
regulation currently applicable to the FDIC of any court, regulatory body,
administrative agency or governmental body having jurisdiction over the
FDIC, or the terms of any indenture or other agreement or instrument known
to such counsel to which the FDIC is a party or by which its properties are
bound.
(ix) There is no pending or, to the best knowledge of such counsel,
threatened action, suit or proceeding before any court or governmental
agency, authority or body or any arbitrator involving the Seller or the
FDIC of a character required to be disclosed in the Registration Statement
which is not adequately disclosed in the Prospectus, and there is no
franchise, contract or other document of a character required to be
described in the Registration Statement or Prospectus, or to be filed as an
exhibit, which is not described or filed as required.
(x) No approval, authorization, consent or order, registration,
filing, qualification, license or permit of or with any court or government
agency or body is required for the consummation by the Seller or the FDIC,
as the case may be, of the transactions contemplated herein, in the
Guarantee Agreement or in the Guarantee Provision, except such as have been
obtained under the Act and such as may be required under the Blue Sky Laws
of any jurisdiction in connection with the purchase and distribution of the
Certificates by the Underwriters.
(g) The Representative shall have received from counsel to the Servicer,
which may be the General Counsel or any Assistant General Counsel of
the Servicer, a favorable opinion, dated the Closing Date, and
satisfactory in form and substance to counsel for the Underwriters, to
the effect that:
(i) The Servicer has been duly organized as a business corporation
and is validly existing and in good standing under the laws of the State of
Ohio and has full corporate power and authority to own its properties and
conduct its operations as described in the Prospectus, to enter into and
perform its
-10-
<PAGE>
obligations under the Pooling and Servicing Agreement and to consummate the
transactions contemplated thereby, is or will be in compliance with the
laws of each jurisdiction in which any Mortgaged Property (as defined in
the Pooling and Servicing Agreement) is located to the extent such
compliance is necessary to enforce each Mortgage Loan in accordance with
the terms of the Pooling and Servicing Agreement, owns or possesses or has
obtained all material governmental licenses, permits, consents, orders,
approvals and other authorizations necessary to lease, own or license, as
the case may be, and to operate its properties and to carry on its
operations as described in the Prospectus, and is conducting its operations
so as to comply in all material respects with all applicable statutes,
ordinances, rules and regulations of the jurisdictions in which it is
conducting operations.
(ii) The execution and delivery of the Pooling and Servicing
Agreement has been duly authorized by the Servicer and the Pooling and
Servicing Agreement has been duly executed and delivered by the Servicer
and constitutes a valid and binding agreement of the Servicer, enforceable
against the Servicer in accordance with its terms, subject to bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement
of creditors' rights generally and to general principles of equity
regardless of whether enforcement is sought in a proceeding in equity or at
law.
(iii) Neither the execution nor the delivery of the Pooling and
Servicing Agreement nor the consummation of any other of the transactions
contemplated therein, nor the fulfillment of the terms of the Pooling and
Servicing Agreement conflicts or will conflict with or violate, result in a
breach of or constitute a default under any terms or provisions of the
articles of incorporation or by-laws of the Servicer, any statute currently
applicable to the Servicer or any order, rule or regulation currently
applicable to the Servicer of any court, regulatory body, administrative
agency or governmental body having jurisdiction over the Servicer, or the
terms of any indenture or other agreement or instrument known to such
counsel to which the Servicer is a party or by which it or any of its
properties are bound.
(iv) There is no pending or, to the best knowledge of such counsel,
threatened action, suit or proceeding before any court or governmental
agency, authority or body or any arbitrator involving the Servicer of a
character required to be disclosed in the Registration Statement which is
not adequately disclosed in the Prospectus.
(v) No approval, authorization, consent or order, registration,
filing, qualification, license or permit of or with any court or government
agency or body which has not been obtained is required for the consummation
by the Servicer of the transactions contemplated in the Pooling and
Servicing Agreement.
Any such opinion delivered by counsel to the Servicer may: (a) express its
reliance as to factual matters on the representations and warranties made
by, and on the certificates or other documents furnished by officers of the
parties to this Agreement and the Pooling and Servicing Agreement; and (b)
assume the due authorization, execution and delivery of the instruments and
documents referred to therein by the parties thereto other than the
Servicer. Any such opinion delivered by counsel to the Servicer other than
the General Counsel or any Assistant General Counsel to the Servicer may:
(a) express its reliance as to the due authorization, execution and
delivery of the Pooling and Servicing Agreement on the Opinion of the
General Counsel or any Assistant General Counsel of the Servicer, and (b)
be qualified as an opinion only as to the laws of the jurisdiction(s)
wherein such counsel is admitted to practice law and the laws of the United
States of America.
(h) The Representative shall have received from counsel to the Trustee on
behalf of the Trust, a favorable opinion, dated the Closing Date and
satisfactory in form to and substance to counsel to the Underwriters,
to the effect that:
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<PAGE>
(i) The execution and delivery of the Declaration of Trust and this
Agreement have each been duly authorized by the Trust and the Declaration
of Trust and this Agreement have each been duly executed and delivered by
the Trustee on behalf of the Trust and each constitutes a valid and binding
agreement of the Trust enforceable against the Trust in accordance with its
terms, subject to general principles of equity regardless of whether
enforcement is sought in a proceeding in equity or at law.
(ii) No approval, authorization, consent or order, registration,
filing, qualification, license or permit of or with any court or government
agency or body which has not been obtained is required for the consummation
by the Trust of the transactions contemplated in the Declaration of Trust
and this Agreement.
(iii) The execution and delivery of the Declaration of Trust and the
Pooling and Servicing Agreement have each been duly authorized by the
Trustee and the Declaration of Trust and the Pooling and Servicing
Agreement have each been duly executed and delivered by the Trustee and
each constitutes a valid and binding agreement of the Trustee enforceable
against the Trustee in accordance with their respective terms, subject to
general principles of equity regardless of whether enforcement is sought in
a proceeding in equity or at law.
(iv) No approval, authorization, consent or order, registration,
filing, qualification, license or permit of or with any court or government
agency or body which has not been obtained is required for the consummation
by the Trustee of the transactions contemplated in the Pooling and
Servicing Agreement.
Any such opinion delivered by counsel to the Trustee may: (a) express its
reliance as to factual matters on the representations and warranties made by,
and on the certificates or other documents furnished by officers of the parties
to this Agreement and the Pooling and Servicing Agreement; and (b) assume the
due authorization, execution and delivery of the instruments and documents
referred to therein by the parties thereto other than the Trust or the Trustee.
(i) The Representative shall have received from the Servicer a
certificate, dated the Closing Date, of a duly authorized officer of
the Servicer, to the effect that the information set forth in the
Prospectus under the heading "Servicing of the Mortgage Loans--The
Servicer" is true and correct in all material respects.
(j) The Representative shall have received from Latham & Watkins, counsel
for the Underwriters, a favorable opinion, dated the Closing Date and
satisfactory in form and substance to the underwriters.
(k) The Representative shall have received from [E&Y Kenneth Leventhal],
certified public accountants, letters dated _______________, [and] the
date hereof [and the Closing Date] and satisfactory in form and
substance to the Representative and counsel for the Underwriters to
the effect that they have performed certain specified procedures, all
of which have been agreed to by the Underwriters, as a result of which
they have determined that certain information set forth in the
Prospectus under the headings "Summary of Prospectus", "Risk Factors",
"Description of the Certificates", "Description of the Mortgage
Loans", "Yield, Prepayment and Maturity Considerations" and certain
other headings agrees with the records of the Seller.
(l) The Representative shall have received from Price Waterhouse LLP,
certified independent public accountants, letters dated
_______________, [and] the date hereof [and the Closing Date] and
satisfactory in form and substance to the Representative and counsel
for the Underwriters to the effect that they have performed certain
specified procedures, all of which have been agreed to by the
Underwriters, as a result of which they have determined that
-12-
<PAGE>
certain information set forth in the Prospectus under the headings
"The Bank Insurance Fund" and "Financial Statements of the Bank
Insurance Fund" agrees with the records of the FDIC.
(m) The Representative shall have received from Arthur Andersen LLP,
certified independent public accountants, letters dated
_______________, [and] the date hereof [and the Closing Date] and
satisfactory in form and substance to the Representative and counsel
for the Underwriters to the effect that they have performed certain
specified procedures, all of which have been agreed to by the
Underwriters, as a result of which they have determined that certain
information set forth in the Prospectus under the headings "The Bank
Insurance Fund" and "Financial Statements of the Bank Insurance Fund"
agrees with the records of the FDIC.
(n) The Class I-A1, Class I-A2 and Class II-A Certificates shall be rated
no lower than "Aaa" by Moody's Investors Service, Inc. ("Moodys") and
"AAA" by Duff & Phelps Credit Rating Co. ("Duff & Phelps"). The Class
I-B and Class II-B Certificates shall be rated no lower than "___" by
Moody's and "___" by Duff & Phelps. The Class I-C and Class II-C
Certificates shall be rated no less than "___" by Moody's and "___" by
Duff & Phelps. The Class I-D, Class I-E, Class I-F and Class I-G
Certificates shall be rated no lower than "___" by Moody's and "___"
by Duff & Phelps.
(o) All proceedings in connection with the transactions contemplated by
this Agreement, and all documents incident hereto and thereto, shall
be satisfactory in form and substance to the Representative and
counsel for the Underwriters, and the Representative and Counsel for
the Underwriters shall have received such information, certificates
and documents as they may reasonably request.
If any of the conditions specified in this Section 6 shall not have been
fulfilled in all material respects when and as provided by this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in
this Agreement shall not be in all material respects reasonably
satisfactory in form and substance to the Representative and counsel for
the Underwriters, this Agreement and all obligations of the Underwriters
hereunder may be canceled at, or at any time prior to, the Closing Date by
the Representative. Notice of such cancellation shall be given to the
Trustee on behalf of the Trust and the Seller in writing, or by telephone
or telegraph confirmed in writing.
7. Reimbursement of Underwriters' Expenses. If the sale of any
---------------------------------------
Certificates provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 6 hereof is not satisfied
or because of any refusal, inability or failure on the part of the Trustee on
behalf of the Trust and the Seller to perform any agreement herein or therein or
comply with any provision hereof or thereof, other than by reason of a default
by any of the Underwriters, the Seller will reimburse the Underwriters severally
upon demand for all out-of-pocket expenses (including reasonable fees and
disbursements of counsel) that shall have been incurred by them in connection
with the proposed purchase and sale of such Certificates.
8. Indemnification and Contribution.
--------------------------------
(a) The Seller will indemnify and hold harmless each Underwriter against
losses, claims, damages, or liabilities, joint or several, to which
such Underwriter may become subject, under the Act 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
alleged untrue statement of a material fact contained in any part of
the Registration Statement when such part became effective, or in any
Preliminary Prospectus, the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
and will reimburse each Underwriter for any legal or other expenses
reasonably
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<PAGE>
incurred by it in connection with investigating or defending against
such loss, claim, damage, liability, or action; provided, however, (i)
the Seller shall not be liable in any such case to the extent that any
such loss, claim, damage, or liability arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Seller by you, or by any Underwriter
through you, specifically for use in the preparation thereof, and (ii)
such indemnity with respect to any Preliminary Prospectus shall not
inure to the benefit of any Underwriter (or any person controlling any
Underwriter) from whom the person asserting any such loss, claim,
damage or liability purchased the Certificates which are the subject
thereof if such person did not receive a copy of the Prospectus (or
the Prospectus as amended or supplemented) at or prior to the
confirmation of the sale of such Certificates to such person in any
case where such delivery is required by the Act and the untrue
statement or omission of a material fact contained in such Preliminary
Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented).
(b) Each Underwriter will indemnify and hold harmless the Seller against
any losses, claims, damages, or liabilities to which the Seller may
become subject, under the Act 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 alleged untrue
statement of a material fact contained in any part of the Registration
Statement when such part became effective, or in any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or
arise out of or are based upon the omission or 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 Seller by you, or by such Underwriter through you,
specifically for use in the preparation thereof, and will reimburse
the Seller for any legal or other expenses reasonably incurred by the
Seller in connection with investigating or defending against any such
loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying
party under this Section 8, notify the indemnifying party in writing
of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve the indemnifying party from any
liability which the indemnifying party may have to any indemnified
party otherwise than under this Section 8. In case any such action is
brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party
will be entitled to participate therein, and to the extent that the
indemnifying party may elect, by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from
such indemnified party, to assume the defense thereof, with counsel
satisfactory to such indemnified party (which may be counsel
representing the indemnifying party); provided, however, that if the
defendants in any such action include both the indemnified party and
the indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or
other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnified party or
parties shall have the right to select separate counsel to assert such
legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt
of notice from the indemnifying party to such indemnified party of the
indemnifying party's election so to assume the defense of such action
and approval by the indemnified party of counsel, the indemnifying
party will not be liable to such indemnified party under this Section
8 for any legal or other expenses
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<PAGE>
subsequently incurred by such indemnified party in connection with the
defense thereof unless (i) the indemnified party shall have employed
separate counsel in connection with the assertion of legal defenses in
accordance with the proviso to the next preceding sentence (it being
understood, however, that the indemnifying party shall not be liable
for the expenses of more than one separate counsel, approved by the
Underwriters in the case of paragraph (a) of this Section 8,
representing the indemnified parties under such paragraph (a) who are
parties to such action), (ii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party; and except that, if clause (i) or
(iii) is applicable, such liability shall be only in respect of the
counsel referred to in such clause (i) or (iii).
(d) If the indemnification provided for in this Section 8 is unavailable
or insufficient to hold harmless an indemnified party under subsection
(a) or (b) above, then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of the
losses, claims, damages, or liabilities referred to in subsection (a)
or (b) above, (i) in such proportion as is appropriate to reflect the
relative benefits received by the Seller on the one hand and the
Underwriters on the other from the offering of the Certificates, or
(ii) if the allocation provided by clause (i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also
the relative fault of the Seller on the one hand and the Underwriters
on the other in connection with the statement or omissions that
resulted in such losses, claims, damages, or liabilities, as well as
any other relevant equitable considerations. The relative benefits
received by the Seller on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total
proceeds from the offering of the Certificates (before deducting
expenses) received by the Seller bear to the total underwriting
discounts and commissions (before deducting expenses) received or
realized by the Underwriters from the purchase and resale, or
underwriting, of the Certificates. The relative fault shall be
determined by reference to, among other things, whether the untrue or
alleged untrue Statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
the Seller or the Underwriters and the parties' relative intent,
knowledge, access to information, and opportunity to correct or
prevent such untrue statement or omission. The Seller and the
Underwriters agree that it would not be just and equitable if
contributions pursuant to this subsection (d) were to be determined by
pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation that
does not take account of the equitable considerations referred to in
the first sentence of this subsection (d). The amount paid by an
indemnified party as a result of the losses, claims, damages, or
liabilities referred to in the first sentence of this subsection (d)
shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending against any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection
(d), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the
Certificates underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such
Underwriter has otherwise been required to pay by reason of such
untrue statement or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to
compensation from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection
(d) to contribute shall be several in proportion to their respective
underwriting obligations and not joint.
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<PAGE>
(e) The obligation of the Seller under this Section 8 shall be in
addition. to any liability which the Seller may otherwise have and
shall extend, upon, the same terms and conditions, to each person, if
any, who controls any Underwriter within the meaning of the Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
9. Substitution of Underwriters.
----------------------------
(a) If any Underwriter shall fall to take up and pay for the amount of the
Certificates agreed by such Underwriter to be purchased under this
Agreement, upon tender of such Certificates in accordance with the
terms hereof, and the amount of the Certificates not purchased does
not aggregate more than 10% of the total amount of the Certificates
set forth in Schedule I hereof, the remaining Underwriters shall be
obligated to take up and pay for the Certificates that the withdrawing
or defaulting Underwriter agreed but failed to purchase.
(b) If any Underwriter shall fail to take up and pay for the amount of the
Certificates agreed by such Underwriter to be purchased under this
Agreement (such Underwriter being hereinafter referred to as a
"Defaulting Underwriter"), upon tender of such Certificates in
accordance with the terms hereof, and the amount of the Certificates
not purchased aggregates more than 10% of the total amount of the
Certificates set forth in Schedule I hereto, and arrangements
satisfactory to the remaining Persons are not made within 36 hours
thereafter, this Agreement shall terminate. In the event of any such
termination the Seller shall not be under any liability to any
Underwriter (except to the extent provided in Section 5(e) and Section
8 hereof) nor shall any Underwriter (other than an Underwriter who
shall have failed, otherwise than for some reason permitted under this
Agreement, to purchase the amount of the Certificates agreed by such
Underwriter to be purchased hereunder) be under any liability to the
Seller (except to the extent provided in Section 8 hereof). Nothing
herein shall be deemed to relieve any Defaulting Underwriter from any
liability it may have to the Seller or any other Underwriter by reason
of its failure to take up and pay for Certificates as agreed by such
Defaulting Underwriter.
10. Termination. This Agreement shall be subject to termination in the
-----------
absolute discretion of the Underwriters by notice given to the Trustee on behalf
of the Trust and the Seller prior to delivery of any payment for the
Certificates if there has occurred any of the following: (i) a suspension or
material limitation in trading in securities generally on either the New York
Stock Exchange or the American Stock Exchange; (ii) a general moratorium on
commercial banking activities declared by either Federal or New York State
authorities; or (iii) any outbreak or escalation of hostilities involving the
United States or any other calamity or crisis the effect of which is such as to
make it, in the judgment of the Underwriters, impracticable to market the
Certificates on the terms and in the manner contemplated in the Prospectus.
11. Authority of the Representative. The Representative represents and
-------------------------------
warrants to the Trust and the Seller that it has been duly authorized to act on
behalf of the Underwriters in connection with this Agreement, and any action
taken by the Representative in connection with this Agreement shall be binding
on the Underwriters.
12. Representation and Indemnities to Survive. The respective agreements,
-----------------------------------------
representations, warranties, indemnities and other statements of the Seller or
its officers and the Underwriters set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of the Seller, any Underwriter or any of the controlling
persons referred to in Section 8 hereof and will survive delivery of any payment
for the Certificates. The provisions of Sections 7 and 8 hereof shall survive
the termination or cancellation of this Agreement.
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<PAGE>
13. 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 them at your address set forth at the
beginning of this Agreement; if sent to the Trustee on behalf of the Trust will
be mailed, delivered or telegraphed and confirmed to it at State Street Bank and
Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, Attn: Mr.
David Duclos, Structured Finance Services Department; or, if sent to the Seller
will be mailed, delivered or telegraphed and confirmed to Federal Deposit
Insurance Corporation, 515 17th St., N.W., Washington, D.C. 20429,
Attn.________________________________.
14. Successors. This Agreement will inure to the benefit of and be
----------
binding upon the parties hereto and the controlling persons referred to in
Section 8 hereof and their respective successors and assigns, and no other
person will have any right or obligation hereunder.
15. Applicable Law; Counterparts. This Agreement will be governed by and
----------------------------
construed in accordance with the laws of the State of New York without giving
effect to the provisions thereof concerning conflict of laws. This Agreement may
be executed in any number of counterparts, each of which shall for all purposes
be deemed to be an original and all of which shall together constitute but one
and the same instrument.
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 among the Trust, the Seller
and the several Underwriters.
FDIC REMIC TRUST 1996-C1
By: State Street Bank and Trust Company
--------------------------------------------
not in its individual capacity but solely as
Trustee on behalf of the Trust
By:
-----------------------------------------
Name: David Duclos
Title: Assistant Vice President
FEDERAL DEPOSIT INSURANCE
CORPORATION, as Seller
By:
-----------------------------------------------
Name:
Title:
Accepted at New York, New York
as of the date first written above.
By: LEHMAN BROTHERS INC.
By:
-----------------------------------
Name:
Title:
By: GOLDMAN, SACHS & CO.
By:
-----------------------------------
Name:
Title:
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<PAGE>
Guarantee Provision
-------------------
The Federal Deposit Insurance Corporation, acting in its corporate capacity,
hereby guarantees the obligations of the Seller set forth in Section 8 of this
Agreement, without reference to the enforceability of this Agreement against the
Seller.
FEDERAL DEPOSIT INSURANCE CORPORATION,
acting in its corporate capacity
By:
----------------------------------------------------
Name:
Title:
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Schedule I
<TABLE>
<CAPTION>
Class I-A Class I-B Class I-C Class I-D
Underwriters Certificates Certificates Certificates Certificates
- --------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Lehman Brothers............
Goldman, Sachs & Co........
_______Total...............
<CAPTION>
Class II-A Class II-B Class II-C
Underwriters Certificates Certificates Certificates
- --------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Lehman Brothers............
Goldman, Sachs & Co........
_______Total...............
</TABLE>
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<PAGE>
Schedule II
FDIC REMIC Trust 1996-C1
Commercial Mortgage Pass-Through
Certificates, Series 1996-C1 consisting
of the respective Classes, in the respective
aggregate Certificate Principal Amounts
and bearing the respective
interest rates as set forth below:
Aggregate Certificate Interest Purchase
Designation Principal Amount Rate Price *
- ----------- --------------------- -------- ---------
Class I-A
Class I-B
Class I-C
Class I-D
Class II-A
Class II-B
Class II-C
; as more fully described in a Prospectus dated December __, 1996 on
file with the Securities and Exchange Commission pursuant to registration
statement file No. 333-16397 on form S-11.
* Expressed as a percentage of the respective Certificate Principal
Amounts.
Delivery Instructions:
Delivery of the Certificates will be made in book-entry form only
through the Same Day Funds Settlement System of the Depository
Trust Company.
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TABLE OF CONTENTS
ARTICLE I.
DEFINITIONS
Section 1.01. Defined Terms ................................................. 4
Accrual Period .............................................................. 4
Accrued Interest ............................................................ 4
Acquisition Date ............................................................ 4
Adjustable Rate Mortgage Loan ............................................... 4
Advance ..................................................................... 4
Affiliate ................................................................... 5
Aggregate Mortgage Loan Negative Amortization ............................... 5
Aggregate Prepayment Interest Shortfall ..................................... 5
Aggregate Relief Act Shortfall .............................................. 5
Aggregate Uncertificated Negative Amortization .............................. 5
Appraised Mortgage Loan ..................................................... 5
Appraised Value ............................................................. 5
Assignment of Leases, Rents and Profits ..................................... 5
Assumed Scheduled Payment ................................................... 6
Available Distribution Amount ............................................... 6
Available Sub-Pool Coverage Amount .......................................... 6
Balloon Mortgage Loan ....................................................... 6
Balloon Payment ............................................................. 6
Bankruptcy Code ............................................................. 6
Basis Risk Shortfall ........................................................ 6
Basis Risk Shortfall Payment ................................................ 6
Basis Risk Support Amount ................................................... 6
Book-Entry Certificate ...................................................... 7
Business Day ................................................................ 7
CERCLA ...................................................................... 7
Certificate ................................................................. 7
Certificate Balance ......................................................... 7
Certificate Factor .......................................................... 7
Certificateholder ........................................................... 7
Certificate Owner ........................................................... 7
Certificate Rate ............................................................ 8
Certificate Register ........................................................ 8
Certificate Registrar ....................................................... 8
Class ....................................................................... 8
Class Balance ............................................................... 9
Class I-A Balance ........................................................... 9
Class I-A Certificate ....................................................... 9
Class I-B Balance ........................................................... 9
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Class I-B Certificate ....................................................... 9
Class I-C Balance ........................................................... 9
Class I-C Certificate ....................................................... 9
Class I-D Balance .......................................................... 10
Class I-D Certificate ...................................................... 10
Class I-XS Certificate ..................................................... 10
Class I-XS Distribution Amount ............................................. 10
Class II-A Balance ......................................................... 10
Class II-A Certificate ..................................................... 10
Class II-A Negative Amortization ........................................... 11
Class II-B Balance ......................................................... 11
Class II-B Certificate ..................................................... 11
Class II-B Negative Amortization ........................................... 11
Class II-C Balance ......................................................... 11
Class II-C Certificate ..................................................... 11
Class II-C Negative Amortization ........................................... 11
Class II-XS Certificate .................................................... 11
Class II-XS Distribution Amount ............................................ 12
Class R-LT Certificate ..................................................... 12
Class R-LT Distribution Amount ............................................. 12
Class R-UT Certificate ..................................................... 12
Class R-UT Distribution Amount ............................................. 12
Class Negative Amortization ................................................ 12
Clean Air Act .............................................................. 12
Clean Water Act ............................................................ 12
Closing Date ............................................................... 12
Code ....................................................................... 12
Collection Account ......................................................... 13
Collection Report .......................................................... 13
Compensating Interest Payment .............................................. 13
Component I-AXS ............................................................ 13
Component I-BXS ............................................................ 13
Component I-CXS ............................................................ 13
Component I-DXS ............................................................ 13
Component II-AXS ........................................................... 13
Component II-BXS ........................................................... 13
Component II-CXS ........................................................... 13
Component Notional Amount .................................................. 13
Component Rate ............................................................. 14
Controlling Class R-UT Certificateholder ................................... 15
Corporate Trust Office ..................................................... 15
Credit Draw Amount ......................................................... 15
Credit File ................................................................ 15
Custodian .................................................................. 15
Cut-off Date ............................................................... 15
Cut-off Date Balance ....................................................... 15
Debt Service Reduction ..................................................... 15
Declaration of Trust ....................................................... 15
Defaulted Mortgage Loan .................................................... 16
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Defect ..................................................................... 16
Deficient Valuation ........................................................ 16
Definitive Certificate ..................................................... 16
Deleted Mortgage Loan ...................................................... 16
Delinquent Mortgage Loan ................................................... 16
Demand Date ................................................................ 16
Depository ................................................................. 16
Depository Institutions .................................................... 16
Depository Participant ..................................................... 16
Determination Date ......................................................... 16
Direct Mortgage Loan ....................................................... 16
Directly Operate ........................................................... 17
Discount Date .............................................................. 17
Discounted Mortgage Loan ................................................... 17
Discounted Principal Balance ............................................... 17
Discounted Scheduled Payments .............................................. 17
Disqualified Organization .................................................. 18
Disqualifying Condition .................................................... 18
Distributable Interest ..................................................... 18
Distribution Account ....................................................... 19
Distribution Date .......................................................... 19
Due Date ................................................................... 19
Due Period ................................................................. 20
Duff & Phelps .............................................................. 20
Effective Net Mortgage Rate ................................................ 20
Eligible Account ........................................................... 20
Environmental Assessment ................................................... 20
Environmental Condition Precedent to Foreclosure ........................... 20
ERISA ...................................................................... 20
ERISA-Restricted Certificate ............................................... 21
Escrow Account ............................................................. 21
Escrow Payment ............................................................. 21
Estimated Net Cash Flow .................................................... 21
Estimated Net Cash Flow Coverage Ratio ..................................... 21
Event of Default ........................................................... 21
Excess Coverage Amount ..................................................... 21
Exemption .................................................................. 21
Extended Loan Floor Rate ................................................... 21
Extraordinary Expenses ..................................................... 22
FDIC ....................................................................... 24
FDIC Reimbursement Rate .................................................... 24
Fee Interest ............................................................... 24
FHLMC ...................................................................... 24
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Final Recovery Determination................................................ 24
Final Scheduled Distribution Date .......................................... 24
Fixed Rate Mortgage Loan ................................................... 24
FNMA ....................................................................... 25
Gross Margin ............................................................... 25
Ground Lease ............................................................... 25
Guaranteed Amount .......................................................... 25
Guaranty Payment ........................................................... 25
Guide ...................................................................... 25
Hazardous Materials ........................................................ 25
Independent ................................................................ 25
Independent Contractor ..................................................... 26
Index ...................................................................... 26
Initial Pool Balance ....................................................... 26
Initial Sub-Pool I Balance ................................................. 26
Initial Sub-Pool II Balance ................................................ 26
Inspection Expenses ........................................................ 26
Insurance Policy ........................................................... 27
Insurance Proceeds ......................................................... 27
Interested Person .......................................................... 27
Interest Overcharge ........................................................ 27
Issue Price ................................................................ 27
Late Collections ........................................................... 27
Latest Possible Maturity Date .............................................. 27
Lease ...................................................................... 28
LIBOR ...................................................................... 28
LIBOR Adjustment Date ...................................................... 28
LIBOR Business Day ......................................................... 28
Limited Guaranty ........................................................... 28
Limited Guaranty Account ................................................... 28
Limited Guaranty Draw Loan ................................................. 28
Liquidation Event .......................................................... 28
Liquidation Fee ............................................................ 29
Liquidation Proceeds ....................................................... 29
Loan-to-Value Ratio ........................................................ 29
Loss ....................................................................... 29
Lower-Tier REMIC ........................................................... 29
Lower-Tier REMIC Residual Cash Flow ....................................... 29
Managing Underwriters ...................................................... 30
Matured Performing Mortgage Loan ........................................... 30
Maturity Date .............................................................. 30
Modification Fee ........................................................... 30
Monthly Portion ............................................................ 30
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Moody's .................................................................... 30
Mortgage ................................................................... 30
Mortgaged Property ......................................................... 30
Mortgagee .................................................................. 30
Mortgage File .............................................................. 30
Mortgage Loan .............................................................. 32
Mortgage Loan Accrual Period ............................................... 32
Mortgage Loan Accrued Interest ............................................. 32
Mortgage Loan Negative Amortization ........................................ 32
Mortgage Loan Schedule ..................................................... 33
Mortgage Loan Seller ....................................................... 34
Mortgage Note .............................................................. 34
Mortgage Participation ..................................................... 34
Mortgage Rate .............................................................. 34
Mortgage Rate Adjustment Date .............................................. 34
Mortgagor .................................................................. 34
Net Aggregate Prepayment Interest Shortfall ................................ 34
Net Aggregate Relief Act Shortfall ......................................... 35
Net Insurance Proceeds ..................................................... 35
Net Mortgage Rate .......................................................... 35
Net REO Revenues ........................................................... 35
New Lease .................................................................. 35
Non-Monthly Loan ........................................................... 36
Nonrecoverable Advance ..................................................... 36
Nonrecoverable P&I Advance ................................................. 36
Nonrecoverable Servicing Advance ........................................... 36
Non-Registered Certificate ................................................. 36
Non-United States Person ................................................... 36
Notional Amount ............................................................ 36
Officers' Certificate ...................................................... 36
Opinion of Counsel ......................................................... 36
Optimal Distributable Interest ............................................. 36
Optimal Wind-Down Date ..................................................... 36
Original Class Balance ..................................................... 37
Original Class I-A Balance ................................................. 37
Original Class I-B Balance ................................................. 37
Original Class I-C Balance ................................................. 37
Original Class I-D Balance ................................................. 37
Original Class II-A Balance ................................................ 37
Original Class II-B Balance ................................................ 37
Original Class II-C Balance ................................................ 37
Original Uncertificated Regular Interest I-A Balance ....................... 37
Original Uncertificated Regular Interest I-B Balance ....................... 37
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Original Uncertificated Regular Interest I-C Balance ....................... 37
Original Uncertificated Regular Interest I-D Balance ....................... 37
Original Uncertificated Regular Interest II-A Balance ...................... 37
Original Uncertificated Regular Interest II-B Balance ...................... 37
Original Uncertificated Regular Interest II-C Balance ...................... 37
OTS ........................................................................ 37
Ownership Interest ......................................................... 37
Payment Adjustment Date .................................................... 38
Percentage Interest ........................................................ 38
Permitted Investments ...................................................... 38
Permitted Transferee ....................................................... 40
Person ..................................................................... 40
P&I Advance ................................................................ 40
P&I Advance Date ........................................................... 40
Prepayment Assumption ...................................................... 40
Prepayment Interest Excess ................................................. 40
Prepayment Interest Shortfall .............................................. 40
Prepayment Premium ......................................................... 41
Principal Prepayment ....................................................... 41
Projected Net Mortgage Rate ................................................ 41
Purchase Price ............................................................. 41
Qualified Insurer .......................................................... 41
Qualified Substitute Mortgage Loan ......................................... 41
Rating Agency .............................................................. 42
Realized Loss .............................................................. 42
Record Date ................................................................ 43
Regular Certificate ........................................................ 43
Regular Interest ........................................................... 43
Related Proceeds ........................................................... 44
Relief Act ................................................................. 44
Relief Act Shortfall ....................................................... 44
REMIC ...................................................................... 44
REMIC Provisions ........................................................... 44
Remittance Rate ............................................................ 44
Rents from Real Property ................................................... 44
REO Account ................................................................ 44
REO Acquisition ............................................................ 44
REO Disposition ............................................................ 44
REO Loan ................................................................... 44
REO Payment ................................................................ 45
REO Property ............................................................... 45
REO Revenues ............................................................... 45
Request for Release ........................................................ 45
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Residual Account ........................................................... 45
Residual Allocation Period ................................................. 45
Residual Cash Flow ......................................................... 46
Residual Certificate ....................................................... 46
Residual Interest .......................................................... 46
Resolution Fee ............................................................. 46
Resolution Period .......................................................... 46
Resource Conservation and Recovery Act ..................................... 46
Responsible Officer ........................................................ 46
Resulting Loss ............................................................. 46
Scheduled Payment .......................................................... 46
Scheduled Principal Balance ................................................ 47
Security Agreement ......................................................... 47
Servicer ................................................................... 47
Servicing Advances ......................................................... 47
Servicing Fee .............................................................. 48
Servicing Fee Rate ......................................................... 48
Servicing Officer .......................................................... 48
Simple Interest Excess ..................................................... 48
Simple Interest Loan ....................................................... 48
Simple Interest Shortfall .................................................. 48
Startup Day ................................................................ 49
Stated Principal Balance ................................................... 49
Stripped Interest Certificate .............................................. 50
Stripped Interest Component ................................................ 50
Sub-Pool ................................................................... 50
Sub-Pool I ................................................................. 50
Sub-Pool I Available Coverage Amount ....................................... 50
Sub-Pool I Available Distribution Amount ................................... 50
Sub-Pool I Certificates .................................................... 51
Sub-Pool I Optimal Principal Distribution Amount ........................... 51
Sub-Pool I Remittance Rate ................................................. 52
Sub-Pool I Stripped Interest Components .................................... 52
Sub-Pool II ................................................................ 52
Sub-Pool II Available Coverage Amount ...................................... 52
Sub-Pool II Available Distribution Amount .................................. 52
Sub-Pool II Certificates ................................................... 53
Sub-Pool II Optimal Principal Distribution Amount .......................... 53
Sub-Pool II Remittance Rate ................................................ 54
Sub-Pool II Stripped Interest Components ................................... 54
Sub-Servicer ............................................................... 54
Sub-Servicing Agreement .................................................... 55
Substitution Shortfall Amount .............................................. 55
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Tax Matters Person ......................................................... 55
Tax Returns ................................................................ 55
The Wall Street Journal Prime Rate ......................................... 55
Toxic Substances Control Act ............................................... 55
Trust Fund ................................................................. 55
Trustee .................................................................... 55
Trustee's Fee .............................................................. 55
Trustee Fee Rate ........................................................... 55
UCC Financing Statement .................................................... 55
Uncertificated Negative Amortization ....................................... 55
Uncertificated Principal Balance............................................ 56
Uncertificated Regular Interest............................................. 56
Uncertificated Regular Interest I-A......................................... 56
Uncertificated Regular Interest I-A Balance................................. 56
Uncertificated Regular Interest I-B......................................... 56
Uncertificated Regular Interest I-B Balance................................. 56
Uncertificated Regular Interest I-C......................................... 56
Uncertificated Regular Interest I-C Balance................................. 56
Uncertificated Regular Interest I-D......................................... 57
Uncertificated Regular Interest I-D Balance................................. 57
Uncertificated Regular Interest II-A........................................ 57
Uncertificated Regular Interest II-A Balance................................ 57
Uncertificated Regular Interest II-A Negative Amortization.................. 57
Uncertificated Regular Interest II-B........................................ 57
Uncertificated Regular Interest II-B Balance................................ 57
Uncertificated Regular Interest II-B Negative Amortization.................. 58
Uncertificated Regular Interest II-C........................................ 58
Uncertificated Regular Interest II-C Balance................................ 58
Uncertificated Regular Interest II-C Negative Amortization.................. 58
Uncertificated Sub-Pool I Regular Interests................................. 58
Uncertificated Sub-Pool II Regular Interests................................ 58
Uncovered Portion........................................................... 58
Unfunded Basis Risk Shortfall............................................... 59
Uninsured Cause............................................................. 59
United States Person........................................................ 59
Upper-Tier REMIC............................................................ 59
Upper-Tier REMIC Certificate................................................ 59
Upper-Tier REMIC Sub-Pool I Available Distribution Amount.................... 59
Upper-Tier REMIC Sub-Pool II Available Distribution Amount................... 59
Upper-Tier REMIC Residual Cash Flow......................................... 59
Voting Rights............................................................... 60
Weighted Average Effective Net Mortgage Rate................................ 60
Section 1.02. Determination of LIBOR........................................ 60
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Section 1.03. Allocations of Negative Amortization and Certain
Shortfalls .................................................... 60
Section 1.04. Discounting Methodology........................................ 62
Section 1.05. Application of Residual Cash Flows............................. 62
ARTICLE II.
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
Section 2.01. Restatement of the Trust; Conveyance of Mortgage Loans ........ 65
Section 2.02. Acceptance of the Lower-Tier REMIC by Trustee.................. 66
Section 2.03. Representations and Warranties of the FDIC and the
Servicer ...................................................... 67
Section 2.04. Remedies with respect to Defects in Mortgage Files and
Breaches of Representation and Warranty........................ 77
Section 2.05. Representations and Warranties as to Environmental Matters..... 81
Section 2.06. Issuance of Certificates Evidencing Interests in the Lower-
Tier REMIC..................................................... 83
Section 2.07. Conveyance of Uncertificated Regular Interests; Acceptance
of the Upper-Tier REMIC by the Trustee......................... 83
Section 2.08. Issuance of Certificates Evidencing Interests in the Upper-
Tier REMIC..................................................... 83
ARTICLE III.
ADMINISTRATION AND SERVICING
OF THE TRUST FUND
Section 3.01. Servicer to Act as Servicer.................................... 84
Section 3.02. Collection of Mortgage Loan Payments........................... 85
Section 3.03. Collection of Taxes, Assessments and Similar Items;
Escrow Accounts................................................ 86
Section 3.04. Collection Account and Distribution Account.................... 87
Section 3.05. Permitted Withdrawals From the Collection Account.............. 90
Section 3.06. Investment of Funds in the Escrow Accounts, the
Collection Account, the Distribution Account and the REO
Account........................................................ 92
Section 3.07. Maintenance of Insurance Policies; Errors and Omissions
and Fidelity Coverage.......................................... 93
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Section 3.08. Enforcement of Due-On-Sale Clauses; Assumption
Agreements; Subordinate Financing............................ 96
Section 3.09. Realization Upon Defaulted Mortgage Loans.................... 97
Section 3.10. Trustee to Cooperate; Release of Mortgage Files.............. 100
Section 3.11. Servicing Compensation ...................................... 100
Section 3.12. Inspections; Collection of Financial Statements.............. 101
Section 3.13. Annual Statement as to Compliance............................ 102
Section 3.14. Reports by Independent Public Accountants.................... 103
Section 3.15. Access to Certain Documentation.............................. 103
Section 3.16. Title to REO Property; REO Account........................... 104
Section 3.17. Management of REO Property................................... 105
Section 3.18. Sale of Mortgage Loans and Sale of REO Properties............ 108
Section 3.19. Modifications, Waivers, Amendments and Consents ............. 110
Section 3.20. Additional Obligations of the Servicer....................... 115
Section 3.21. Sub-Servicing Agreements .................................... 116
Section 3.22. Obligations of the FDIC in Respect of Interest Overcharge
Principal Reductions......................................... 117
ARTICLE IV.
PAYMENTS TO CERTIFICATEHOLDERS
Section 4.01. Distributions................................................ 119
Section 4.02. Statements to Certificateholders............................. 125
Section 4.03. P&I Advances................................................. 129
Section 4.04. Limited Guaranty............................................. 132
Section 4.05. Demands on the Limited Guaranty.............................. 133
Section 4.06. Obligations of the FDIC in respect of Basis Risk
Shortfalls................................................... 133
Section 4.07. Reports of Foreclosures and Abandonment of Mortgaged
Property..................................................... 134
Section 4.08. Reimbursement of Advances.................................... 134
ARTICLE V.
THE CERTIFICATES
Section 5.01. The Certificates............................................. 135
Section 5.02. Registration of Transfer and Exchange of
Certificates................................................. 136
Section 5.03. Mutilated, Destroyed, Lost or Stolen
Certificates................................................. 140
Section 5.04. Persons Deemed Owners........................................ 140
Section 5.05. Available Information........................................ 141
Section 5.06. Book-Entry Certificates...................................... 141
</TABLE>
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ARTICLE VI.
THE MORTGAGE LOAN SELLER, THE FDIC AND THE SERVICER
<S> <C> <C>
Section 6.01. Liability of the Mortgage Loan Seller, the FDIC and the
Servicer.................................................. 143
Section 6.02. Merger, Consolidation or Conversion of the Mortgage
Loan Seller or the Servicer............................... 143
Section 6.03. Limitation on Liability of the Mortgage Loan Seller, the
FDIC, the Servicer and Others............................. 143
Section 6.04. Resignation of the Servicer............................... 144
Section 6.05. Rights of the Mortgage Loan Seller and the FDIC in
Respect of the Servicer................................... 145
Section 6.06. The Mortgage Loan Seller, the FDIC and the Servicer to
Cooperate with the Trustee................................ 146
Section 6.07. The Mortgage Loan Seller, the FDIC and the Trustee to
Cooperate with the Servicer............................... 146
ARTICLE VII.
DEFAULT
Section 7.01. Events of Default......................................... 147
Section 7.02. Trustee to Act; Appointment of Successor.................. 148
Section 7.03. Notification to Certificateholders........................ 149
Section 7.04. Waiver of Events of Default............................... 150
Section 7.05. Additional Remedies of Trustee Upon Event of Default...... 150
ARTICLE VIII.
CONCERNING THE TRUSTEE
Section 8.01. Duties of Trustee......................................... 151
Section 8.02. Certain Matters Affecting the Trustee..................... 152
Section 8.03. Trustee Not Liable for Certificates or Mortgage Loans..... 154
Section 8.04. Trustee May Own Certificates.............................. 154
Section 8.05. Fees and Expenses of Trustee; Indemnification of Trustee.. 154
Section 8.06. Eligibility Requirements for Trustee...................... 156
Section 8.07. Resignation and Removal of the Trustee.................... 156
Section 8.08. Successor Trustee......................................... 157
Section 8.09. Merger or Consolidation of Trustee........................ 158
Section 8.10. Appointment of Co-Trustee or Separate Trustee............. 158
Section 8.11. Appointment of Custodians................................. 159
</TABLE>
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Section 8.12. Representations and Warranties of the Trustee............. 160
Section 8.13. Filings with the Securities and Exchange Commission....... 161
Section 8.14. Filings with the Commonwealth of Massachusetts............ 161
ARTICLE IX.
TERMINATION
Section 9.01. Termination Upon Repurchase or Liquidation of All
Mortgage.................................................. 162
Section 9.02. Termination of the Upper-Tier REMIC....................... 164
Section 9.03. Additional Termination Requirements....................... 164
ARTICLE X.
REMIC ADMINISTRATION
Section 10.01. REMIC Administration..................................... 165
Section 10.02. Prohibited Transactions and Activities................... 168
ARTICLE XI.
MISCELLANEOUS PROVISIONS
Section 11.01. Amendment................................................ 169
Section 11.02. Recordation of Agreement; Counterparts................... 170
Section 11.03. Limitation on Rights of Certificateholders............... 171
Section 11.04. Governing Law............................................ 171
Section 11.05. Notices.................................................. 172
Section 11.06. Severability of Provisions............................... 172
Section 11.07. Successors and Assigns................................... 172
Section 11.08. Article and Section Headings............................. 172
Section 11.09. Notices to Rating Agencies............................... 173
Section 11.10. Effect of Payments by the FDIC; Subrogation.............. 174
Section 11.11. Notices and Reports to the FDIC.......................... 174
</TABLE>
Exhibits
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Exhibit A-1 Form of Class I-A Certificate
Exhibit A-2 Form of Class I-B Certificate
Exhibit A-3 Form of Class I-C Certificate
Exhibit A-4 Form of Class I-D Certificate
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Exhibit A-5 Form of Class I-XS Certificate
Exhibit A-6 Form of Class II-A Certificate
Exhibit A-7 Form of Class II-B Certificate
Exhibit A-8 Form of Class II-C Certificate
Exhibit A-9 Form of Class II-XS Certificate
Exhibit A-10 Form of Class R-LT Certificate
Exhibit A-11 Form of Class R-UT Certificate
Exhibit B-1 Form of Initial Certification
Exhibit B-2 Form of Interim Certification
Exhibit B-3 Form of Final Certification
Exhibit C-1 Form of Transferor Certificate Pursuant to Section 5.02(b)(i)(A)
Exhibit C-2 Form of Transferor Certificate Pursuant to Section 5.02(b)(i)(B)
Exhibit C-3 Form of Transferee Certificate Pursuant to Section 5.02(b)(i)(B)
Exhibit D-1 Form of Transfer Affidavit Pursuant to Section 5.02(d)(i)
Exhibit D-2 Form of Transferor Certificate Pursuant to Section 5.02(d)(ii)
Exhibit E-1 Request for Release
Exhibit E-2 Servicer's Request to Trustee to execute legal documents
Exhibit F Form of Collection Report
Exhibit G-1 Form of Limited Guaranty - Summary
Exhibit G-2 Form of Available Limited Guaranty - Available Guaranty Amount
Exhibit G-3 Form of Limited Guaranty - Realized Losses
Exhibit G-4 Form of Limited Guaranty - Limited Guaranty
Draw Loans - Temporary Modification
Exhibit G-5 Form of Limited Guaranty - Limited Guaranty Draw Loans -
Discounted Mortgage Loan; Debt Service Reduction
Exhibit G-6 Form of Limited Guaranty - Limited Guaranty Draw Loans -
Deficiency Valuation or Other Principal Balance Reduction
Exhibit G-7 Form of Limited Guaranty - Limited Guaranty Draw Loans -
Appraisal Reduction
Exhibit G-8 Form of Limited Guaranty - Extraordinary Expenses
Exhibit H List of Depository Institutions
Exhibit I List of Second, Third or Fourth Lien Mortgage Loans
Exhibit J-1 Form of Request for Reimbursement of Advances - Summary
Exhibit J-2 Form of P&I Advances
Exhibit J-3 Form of Servicer Advances
Exhibit K Form of Initial Notification for Breaches of Representations and
Warranties
Exhibit L Form of Request for Payment of Interest Overcharges
Exhibit M Form of Notice of Basis Risk Shortfall
Exhibit N Application of Residual Cash Flows
Exhibit O Form of Limited Guaranty Agreement
Schedule 1 Mortgage Loan Schedule for Sub-Pool I
Schedule 2 Mortgage Loan Schedule for Sub-Pool II
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This Pooling and Servicing Agreement (the "Agreement"), dated as of
December 1, 1996, by and among the Federal Deposit Insurance Corporation, acting
in its corporate capacity (in such capacity, the "FDIC") to the extent set forth
herein, and otherwise in its capacities as administrator of the Bank Insurance
Fund and as receiver (in such capacities, the "Mortgage Loan Seller") of the
state or federally chartered depository institutions set forth on Exhibit H
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hereto (the "Depository Institutions"), Banc One Management and Consulting
Corporation, as Servicer, and State Street Bank and Trust Company, in its
capacity as Trustee.
PRELIMINARY STATEMENT:
The FDIC REMIC Trust 1996-C1 Commercial Mortgage Pass-Through
Certificates, Series 1996-C1 (collectively, the "Certificates"), will be issued
hereunder in multiple classes, which in the aggregate will evidence the entire
beneficial ownership interest in the Trust Fund. As provided herein, the
Trustee will elect or will cause an election to be made, as required by federal
law (and, if applicable, state law), in order that the segregated pool of
assets, consisting of Mortgage Loans and certain other related assets subject to
this Agreement, be treated for federal (and, if applicable, state) income tax
purposes as a real estate mortgage investment conduit (a "REMIC"), and such
segregated pool of assets will be designated as the "Lower-Tier REMIC". Seven
uncertificated partial undivided beneficial ownership interests in the assets of
the Lower-Tier REMIC (collectively, the "Uncertificated Regular Interests") will
be the "regular interests" in the Lower-Tier REMIC, and the Class R-LT
Certificates will be the sole class of "residual interests" in the Lower-Tier
REMIC, for purposes of the REMIC Provisions. The segregated pool of assets
consisting of the Uncertificated Regular Interests will be designated as the
"Upper-Tier REMIC", and the Trustee will make, or cause to be made, a separate
REMIC election with respect thereto. The Class I-A, Class I-B, Class I-C and
Class I-D Certificates (collectively, the "Sub-Pool I Certificates"), the Class
II-A, Class II-B and Class II-C Certificates (collectively, the "Sub-Pool II
Certificates"), the Class I-XS Certificates and the Class II-XS Certificates
will be the "regular interests" in the Upper-Tier REMIC, and the Class R-UT
Certificates will be the sole class of "residual interests" in the Upper-Tier
REMIC, for purposes of the REMIC Provisions.
The following table irrevocably sets forth the designation, initial
Uncertificated Principal Balance and Latest Possible Maturity Date for the
Uncertificated Regular Interests.
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Initial Uncertified
Designation Principal Balance Latest Possible Maturity Date(1)
----------- ----------------- --------------------------------
<S> <C> <C>
Uncertificated Regular Interest I-A $ September 25, 2025
Uncertificated Regular Interest I-B $ September 25, 2025
Uncertificated Regular Interest I-C $ September 25, 2025
Uncertificated Regular Interest I-D $ September 25, 2025
Uncertificated Regular Interest II-A $ January 25, 2025
Uncertificated Regular Interest II-B $ January 25, 2025
Uncertificated Regular Interest II-C $ January 25, 2025
</TABLE>
(1) Determined as provided herein in the definition of "Latest Possible
Maturity Date".
The following table irrevocably sets forth the designation, Original
Class Balance and Latest Possible Maturity Date for the respective Classes of
Upper-Tier REMIC Certificates constituting "regular interests" in the Upper-Tier
REMIC.
<PAGE>
-2-
<TABLE>
Original Latest Possible
Destination Class Balance Maturity Date(2)
----------- ------------- -------------
<S> <C> <C>
Class I-A $ September 25, 2025
Class I-B $ September 25, 2025
Class I-C $ September 25, 2025
Class I-D $ September 25, 2025
Class I-XS N/A(1) September 25, 2025
Class II-A $ January 25, 2025
Class II-B $ January 25, 2025
Class II-C $ January 25, 2025
Class II-XS N/A(1) September 25, 2025
</TABLE>
(1) As provided herein, the Class I-XS and the Class II-XS Certificates have no
Class Balances and entitle the Holders hereof solely to distributions of
interest accrued on the Notional Amount of such Certificates. The
aggregate Notional Amount of the Class I-XS Certificates is initially equal
to $____________, and the aggregate Notional Amount for the Class II-XS
Certificates is initially equal to $__________.
(2) Determined as provided herein in the definition of "Latest Possible
Maturity Date".
As and to the extent provided herein, the Class I-B Certificates, the
Class I-C Certificates, the Class I-D Certificates, the Class I-XS Certificates
and the Class R-UT Certificates are subordinate to the Class I-A Certificates,
the Class I-C Certificates, the Class I-D Certificates, the Class I-XS
Certificates and the Class R-UT Certificates are subordinate to the Class I-B
Certificates; the Class I-D Certificates, the Class I-XS Certificates and the
Class R-UT Certificates are subordinate to the Class I-C Certificates; the Class
I-XS Certificates and the Class R-UT Certificates are subordinate to the Class
I-D Certificates; and the Class R-UT Certificates are subordinate to the Class
I-XS Certificates, in each case to the extent described herein.
As and to the extent provided herein, the Class II-B Certificates, the
Class II-C Certificates, the Class II-XS Certificates and the Class R-UT
Certificates are subordinate to the Class II-A Certificates; the Class II-C
Certificates, the Class II-XS Certificates and the Class R-UT Certificates are
subordinate to the Class II-B Certificates; the Class II-XS Certificates and the
Class R-UT Certificates are subordinate to the Class II-C Certificates; and the
Class R-UT Certificates are subordinate to the Class II-XS Certificates, in each
case to the extent described herein.
The Sub-Pool I Certificates, together with the Class I-XS
Certificates, are not subordinate to the Sub-Pool II Certificates or the Class
II-XS Certificates, and the Sub-Pool II Certificates, together with the Class
II-XS Certificates, are not subordinate to the Sub-Pool I Certificates or the
Class I-XS Certificates.
As of the close of business on the Cut-off Date, the Mortgage Loans
had an aggregate Cut-off Date Balance equal to the Initial Pool Balance, the
Mortgage Loans in Sub-Pool I had an aggregate Cut-off Date Balance equal to the
Initial Sub-Pool I Balance, and the
<PAGE>
-3-
Mortgage Loans in Sub-Pool II had an aggregate Cut-off Date Balance equal to the
Initial Sub-Pool II Balance.
In consideration of the mutual agreements herein contained, the
Federal Deposit Insurance Corporation, in its corporate capacity, and in its
capacities as administrator of the Bank Insurance Fund and as receiver of the
Depository Institutions, Banc One Management and Consulting Corporation, as
Servicer, and State Street Bank and Trust Company as Trustee, agree as follows:
<PAGE>
-4-
ARTICLE I.
DEFINITIONS
Section 1.01. Defined Terms.
Whenever used in this Agreement, including in the Preliminary
Statement, the following words and phrases, unless the context otherwise
requires, shall have the meanings specified in this Article. Unless otherwise
specified herein or in any Mortgage Note, all calculations described herein
shall be made on the basis of a 360-day year consisting of twelve 30-day months.
"Accrual Period": For each Distribution Date with respect to the
Uncertificated Sub-Pool I Regular Interests, the Sub-Pool I Stripped Interest
Components, the Sub-Pool I Certificates, the calendar month immediately
preceding such Distribution Date and with respect to the Uncertificated Sub-Pool
II Regular Interests, the Sub-Pool II Stripped Interest Certificates, and the
Sub-Pool II Certificates will be the period commencing on the immediately
preceding Distribution Date (or the Closing Date in the case of the first
Distribution Date) and ending on the day immediately preceding such Distribution
Date.
"Accrued Interest": With respect to any Class of Regular
Certificates, other than the Class I-XS and Class II-XS Certificates, for any
Distribution Date, interest accrued during the related Accrual Period at the
Certificate Rate applicable to such Class of Regular Certificates for such
Distribution Date, accrued on the Class Balance thereof outstanding immediately
prior to such Distribution Date. With respect to any Uncertificated Regular
Interest for any Distribution Date, interest accrued during the related Accrual
Period at the Remittance Rate applicable to such Uncertificated Regular Interest
for such Distribution Date, accrued on the Uncertificated Principal Balance
thereof outstanding immediately prior to such Distribution Date. With respect
to any Stripped Interest Component, interest accrued during the related Accrual
Period at the Component Rate applicable to such Stripped Interest Component for
such Distribution Date, accrued on the related Component Notional Amount thereof
immediately prior to such Distribution Date.
"Acquisition Date": With respect to any REO Property, the first day
on which such REO Property is considered to be acquired by the Trust Fund within
the meaning of Treasury Regulation Section 1.856-6(b)(1), which is the first day
on which the Trust Fund is treated as the owner of such REO Property for federal
income tax purposes.
"Adjustable Rate Mortgage Loan": A Mortgage Loan as to which the
related Mortgage Note provides for periodic adjustments following the Cut-off
Date to the Mortgage Rate thereon based on changes in the related Index.
"Advance": Any Servicing Advance or P&I Advance.
<PAGE>
-5-
"Affiliate": With respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Aggregate Mortgage Loan Negative Amortization": With respect to any
Distribution Date, the aggregate of all Mortgage Loan Negative Amortization for
all of the Mortgage Loans in Sub-Pool II for their respective Due Dates during
the related Due Period. Aggregate Mortgage Loan Negative Amortization for any
Distribution Date shall be allocated among the respective Uncertificated Sub-
Pool II Regular Interests pursuant to Section 1.03(a).
"Aggregate Prepayment Interest Shortfall": With respect to the
Mortgage Loans in a particular Sub-Pool and any Distribution Date, the excess,
if any, of (a) the sum of (i) the aggregate amount of Prepayment Interest
Shortfalls incurred in connection with Principal Prepayments received during the
related Due Period and (ii) the aggregate amount of Simple Interest Shortfalls
incurred in connection with early receipt of Scheduled Payments due during the
related Due Period over (b) the sum of (i) the aggregate amount of Prepayment
Interest Excess received in connection with Principal Prepayments received
during the related Due Period and (ii) the aggregate amount of Simple Interest
Excess received in connection with the late receipt of Scheduled Payments due
during the related Due Period.
"Aggregate Relief Act Shortfall": With respect to a particular Sub-
Pool and any Distribution Date, the aggregate of the Relief Act Shortfalls for
such Sub-Pool on such Distribution Date.
"Aggregate Uncertificated Negative Amortization": With respect to any
Distribution Date, the aggregate of all Uncertificated Negative Amortization for
all of the Uncertificated Sub-Pool II Regular Interests for such Distribution
Date. Aggregate Uncertificated Negative Amortization for any Distribution Date
shall be allocated among the respective Classes of Sub-Pool II Certificates
pursuant to Section 1.03(b).
"Appraised Mortgage Loan": A Mortgage Loan that was the subject of an
appraisal contained in the Credit File on behalf of the Mortgage Loan Seller.
"Appraised Value": As of any date of determination, the appraised
value of a Mortgaged Property, based upon the most recent appraisal by an
Independent appraiser that is contained in the Credit File.
"Assignment of Leases, Rents and Profits": With respect to any
Mortgaged Property, any assignment of leases, rents and profits or similar
agreement executed by the Mortgagor, assigning to the Mortgagee all of the
income, rents and profits derived from the ownership, operation, leasing or
disposition of all or a portion of such Mortgaged Property, in
<PAGE>
-6-
the form which was duly executed, acknowledged and delivered, as amended,
modified, renewed or extended through the date hereof and from time to time
hereafter.
"Assumed Scheduled Payment": With respect to any Balloon Mortgage
Loan that is delinquent in respect of its Balloon Payment beyond the Due Period
in which such Balloon Payment was first due (without regard to any acceleration
of principal under the related Mortgage Note and Mortgage), as to any Due Date
from and after the scheduled Maturity Date, an amount equal to the Scheduled
Payment (or, in the case of a Simple Interest Loan, an amount equal to not less
than the interest portion of such Scheduled Payment) due thereon on such Due
Date, assuming for purposes of calculating such Scheduled Payment (i) that the
Balloon Payment is due at the end of the then-current amortization schedule for
such Balloon Mortgage Loan (rather than on the Maturity Date therefor) and (ii)
in the case of an Adjustable Rate Mortgage Loan, that the interest portion of
such Scheduled Payment is adjusted to reflect changes to the related Mortgage
Rate, taking into account any limitation to such adjustments, as well as any
limitation on adjustments to Scheduled Payments, contained in the related
Mortgage Note.
"Available Distribution Amount": With respect to Sub-Pool I, the Sub-
Pool I Available Distribution Amount and with respect to Sub-Pool II, the Sub-
Pool II Available Distribution Amount.
"Available Sub-Pool Coverage Amount": As defined in the Limited
Guaranty.
"Balloon Mortgage Loan": Any Mortgage Loan that provided on the date
of origination for Scheduled Payments based on an amortization schedule
extending beyond its Maturity Date.
"Balloon Payment": With respect to any Balloon Mortgage Loan as of
any date of determination, the Scheduled Payment payable on the Maturity Date of
such Mortgage Loan.
"Bankruptcy Code": The federal Bankruptcy Code, as amended from time
to time (Title 11 of the United States Code).
"Basis Risk Shortfall": With respect to any Distribution Date and the
Class II-A, Class II-B or Class II-C Certificates, an amount equal to the
excess, if any, of (a) the Optimal Distributable Interest for such Class and
such Distribution Date over (b) all Distributable Interest for such Class and
such Distribution Date.
"Basis Risk Shortfall Payment": With respect to any Distribution Date
and any Class of Sub-Pool II Certificates as to which a Basis Risk Shortfall has
occurred for such Distribution Date, the allocable portion of the Basis Risk
Support Amount for such Class and such Distribution Date, determined in
accordance with Section 1.03(f).
"Basis Risk Support Amount": With respect to any Distribution Date,
an amount equal to the sum of the Class I-XS Distribution Amount for such
Distribution Date and the Class
<PAGE>
-7-
II-XS Distribution Amount for such Distribution Date, payable by the FDIC in
respect of Basis Risk Shortfalls pursuant to Section 4.06.
"Book-Entry Certificate": Any Certificate registered in the name of
the Depository or its nominee.
"Business Day": Any day other than a Saturday, a Sunday or a day on
which banking institutions in New York City, New York, Dallas, Texas or in the
city in which the Corporate Trust Office of the Trustee is located are
authorized or obligated by law or executive order to remain closed.
"CERCLA": The Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 46 U.S.C. Section 9601 et seq., as amended.
"Certificate": Any Sub-Pool I Certificate, Sub-Pool II Certificate,
Stripped Interest Certificate or Residual Certificate.
"Certificate Balance": With respect to any Regular Certificate (other
than a Class I-XS or Class II-XS Certificate), as of any date of determination,
the then outstanding principal amount of such Certificate, which is equal to the
product of (a) the Percentage Interest evidenced by such Certificate and (b) the
then Class Balance of the Class of Certificates to which such Certificate
belongs.
"Certificate Factor": With respect to any Class of Regular
Certificates (other than the Class I-XS or Class II-XS Certificates), as of any
date of determination, a fraction, expressed as a decimal carried to eight
places, the numerator of which is the then related Class Balance, and the
denominator of which is the related Original Class Balance.
"Certificateholder" or "Holder": The Person in whose name a
Certificate is registered in the Certificate Register, except that neither a
Disqualified Organization nor a non-United States Person shall be a Holder of a
Residual 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 FDIC, the Mortgage Loan Seller or the Servicer or any Affiliate
thereof, in each ease for its account and not for the account of others, 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(b). The Trustee shall be entitled to
rely upon a certification of the FDIC, the Mortgage Loan Seller or the Servicer
in determining if any Certificates are registered in the name of a respective
Affiliate. For all purposes of this Agreement the Trustee shall be deemed to be
the Holder of the Uncertificated Regular Interests for the benefit of the
Holders of the Certificates.
"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 the Depository or on the
<PAGE>
-8-
books of a Depository Participant or on the books of an indirect participating
brokerage firm for which a Depository Participant acts as agent.
"Certificate Rate": With respect to any Distribution Date,
(a) as to the Class I-A Certificates, ____% per annum;
(b) as to the Class I-B Certificates, ____% per annum;
(c) as to the Class I-C Certificates, ____% per annum; and
(d) as to the Class I-D Certificates, ____% per annum;
With respect to any Distribution Date other than the first
Distribution Date,
(a) as to the Class II-A Certificates, a per annum rate equal to the
lesser of (i) the sum of (A) LIBOR as of the related LIBOR Adjustment Date
and (B) __% and (ii) the Weighted Average Effective Net Mortgage Rate for
Sub-Pool II as of such Distribution Date;
(b) as to the Class II-B Certificates, a per annum rate equal to the
lesser of (i) the sum of (A) LIBOR as of the related LIBOR Adjustment Date
and (B) __% and (ii) the Weighted Average Effective Net Mortgage Rate for
Sub-Pool II as of such Distribution Date; and
(c) as to the Class II-C Certificates, a per annum rate equal to the
lesser of (i) the sum of (A) LIBOR as of the related LIBOR Adjustment Date
and (B) ___% and (ii) the Weighted Average Effective Net Mortgage Rate for
Sub-Pool II as of such Distribution Date.
With respect to the first Distribution Date,
(a) as to the Class II-A Certificates, ____% per annum (i.e., LIBOR
as of ______ __, 1996 plus ____%);
(b) as to the Class II-B Certificates, ____% per annum (i.e., LIBOR
as of ______ __, 1996 plus ____%); and
(c) as to the Class II-C Certificates, ____% per annum (i.e., LIBOR
as of _____ __, 1996 plus ____%).
"Certificate Register" and "Certificate Registrar": The register
maintained and the registrar appointed pursuant to Section 5.02.
"Class": Collectively, all of the Certificates bearing the same
designation.
<PAGE>
-9-
"Class Balance": As to the Class I-A Certificates, the Class I-A
Balance; as to the Class I-B Certificates, the Class I-B Balance; as to the
Class I-C Certificates, the Class I-C Balance; as to the Class I-D Certificates,
the Class I-D Balance; as to the Class II-A Certificates, the Class II-A
Balance; as to the Class II-B Certificates, the Class II-B Balance; as to the
Class II-C Certificates, the Class II-C Balance.
"Class I-A Balance": The aggregate principal amount of Class I-A
Certificates outstanding as of any date of determination, which is equal to:
(a) in the case of any date of determination up to and including the initial
Distribution Date, the Original Class I-A Balance; and (b) in the case of any
date of determination thereafter, the Class I-A Balance outstanding immediately
prior to the most recently preceding Distribution Date, as reduced by any
distributions of principal made on the Class I-A Certificates on such preceding
Distribution Date pursuant to clause (ii) of Section 4.01(b)(1).
"Class I-A Certificate": Any one of the Class I-A Certificates, as
executed and delivered hereunder by the Trustee, substantially in the form of
Exhibit A-1, senior in right of payment to the Class I-B, Class I-C, Class I-D,
- -------
Class I-XS and Class R-UT Certificates as set forth herein, and evidencing a
Regular Interest in the Upper-Tier REMIC for purposes of the REMIC Provisions.
"Class I-B Balance": The aggregate principal amount of Class I-B
Certificates outstanding as of any date of determination, which is equal to:
(a) in the case of any date of determination up to and including the initial
Distribution Date, the Original Class I-B Balance; and (b) in the case of any
date of determination thereafter, the Class I-B Balance outstanding immediately
prior to the most recently preceding Distribution Date, as reduced by any
distributions of principal made on the Class I-B Certificates on such preceding
Distribution Date pursuant to clause (iii) of Section 4.01(b)(1).
"Class I-B Certificate": Any one of the Class I-B Certificates, as
executed and delivered hereunder by the Trustee, substantially in the form of
Exhibit A-2, subordinate in right of payment to the Class I-A Certificates and
- -------
senior in right of payment to the Class I-C, Class I-D, Class I-XS and Class R-
UT Certificates as set forth herein, and evidencing an interest designated as a
Regular Interest in the Upper-Tier REMIC for purposes of the REMIC Provisions.
"Class I-C Balance": The aggregate principal amount of Class I-C
Certificates outstanding as of any date of determination, which is equal to:
(a) in the case of any date of determination up to and including the initial
Distribution Date, the Original Class I-C Balance; and (b) in the case of any
date of determination thereafter, the Class I-C Balance outstanding immediately
prior to the most recently preceding Distribution Date, as reduced by any
distributions of principal made on the Class I-C Certificates on such preceding
Distribution Date pursuant to clause (v) of Section 4.01(b)(1).
"Class I-C Certificate": Any one of the Class I-C Certificates, as
executed and delivered hereunder by the Trustee, substantially in the form of
Exhibit A-3, subordinate in right
- -------
<PAGE>
-10-
of payment to the Class I-A and Class I-B Certificates and senior in right of
payment to the Class I-D, Class I-XS and Class R-UT Certificates as set forth
herein, and evidencing an interest designated as a Regular Interest in the
Upper-Tier REMIC for purposes of the REMIC Provisions.
"Class I-D Balance": The aggregate principal amount of Class I-D
Certificates outstanding as of any date of determination, which is equal to:
(a) in the case of any date of determination up to and including the initial
Distribution Date, the Original Class I-D Balance; and (b) in the case of any
date of determination thereafter, the Class I-D Balance outstanding immediately
prior to the most recently preceding Distribution Date, minus any distributions
of principal made on the Class I-D Certificates on such preceding Distribution
Date pursuant to clause (vii) of Section 4.01(b)(1).
"Class I-D Certificate": Any one of the Class I-D Certificates, as
executed and delivered hereunder by the Trustee, substantially in the form of
Exhibit A-4, subordinate in right of payment to the Class I-A, Class I-B and
- -------
Class I-C Certificates and senior in right of payment to the Class I-XS and
Class R-UT Certificates as set forth herein, and evidencing an interest
designated as a Regular Interest in the Upper-Tier REMIC for purposes of the
REMIC Provisions.
"Class I-XS Certificate": Any one of the Class I-XS Certificates, as
executed and delivered hereunder by the Trustee, substantially in the form of
Exhibit A-5, subordinate in right of payment to the Class I-A, Class I-B, Class
- -------
I-C and Class I-D Certificates and senior in right of payment to the Class R-UT
Certificates as set forth herein, and evidencing a Regular Interest in the
Upper-Tier REMIC for purposes of the REMIC Provisions.
"Class I-XS Distribution Amount": With respect to the Class I-XS
Certificates and any Distribution Date, the aggregate Distributable Interest in
respect of the Sub-Pool I Stripped Interest Components for such Distribution
Date, together with any portion thereof remaining unpaid from previous
Distribution Dates.
"Class II-A Balance": The aggregate principal amount of Class II-A
Certificates outstanding as of any date of determination, which is equal to:
(a) in the case of any date of determination up to and including the initial
Distribution Date, the Original Class II-A Balance; and (b) in the case of any
date of determination thereafter, the Class II-A Balance outstanding immediately
prior to the most recently preceding Distribution Date, as increased by any
Class II-A Negative Amortization for such preceding Distribution Date and as
reduced by any distributions of principal made on the Class II-A Certificates on
such preceding Distribution Date pursuant to clause (ii) of Section 4.01(a)(1).
"Class II-A Certificate": Any one of the Class II-A Certificates, as
executed and delivered hereunder by the Trustee, substantially in the form of
Exhibit A-6, senior in right of payment to the Class II-B, Class II-C, Class II-
- -------
XS and Class R-UT Certificates as set forth herein, and evidencing a Regular
Interest in the Upper-Tier REMIC for purposes of the REMIC Provisions.
<PAGE>
-11-
"Class II-A Negative Amortization": With respect to any Distribution
Date, the portion of the Aggregate Uncertificated Negative Amortization for such
Distribution Date that is allocable to the Class II-A Certificates in accordance
with Section 1.03(b).
"Class II-B Balance": The aggregate principal amount of Class II-B
Certificates outstanding as of any date of determination, which is equal to:
(a) in the case of any date of determination up to and including the initial
Distribution Date, the Original Class II-B Balance; and (b) in the case of any
date of determination thereafter, the Class II-B Balance outstanding immediately
prior to the most recently preceding Distribution Date, as increased by any
Class II-B Negative Amortization for such preceding Distribution Date and as
reduced by any distributions of principal made on the Class II-B Certificates on
such preceding Distribution Date pursuant to clause (iv) of Section 4.01(a)(1).
"Class II-B Certificate": Any one of the Class II-B Certificates, as
executed and delivered hereunder by the Trustee, substantially in the form of
Exhibit A-7, subordinate in right of payment to the Class II-A Certificates and
- -------
senior in right of payment to the Class II-C, Class II-XS and Class R-UT
Certificates as set forth herein, and evidencing an interest designated as a
Regular Interest in the Upper-Tier REMIC for purposes of the REMIC Provisions.
"Class II-B Negative Amortization": With respect to any Distribution
Date, the portion of the Aggregate Uncertificated Negative Amortization for such
Distribution Date that is allocable to the Class II-B Certificates in accordance
with Section 1.03(b).
"Class II-C Balance": The aggregate principal amount of Class II-C
Certificates outstanding as of any date of determination, which is equal to:
(a) in the case of any date of determination up to and including the initial
Distribution Date, the Original Class II-C Balance; and (b) in the case of any
date of determination thereafter, the Class II-C Balance outstanding immediately
prior to the most recently preceding Distribution Date, as increased by any
Class II-C Negative Amortization for such preceding Distribution Date and as
reduced by any distributions of principal made on the Class II-C Certificates on
such preceding Distribution Date pursuant to clause (vi) of Section 4.01(a)(1).
"Class II-C Certificate": Any one of the Class II-C Certificates, as
executed and delivered hereunder by the Trustee, substantially in the form of
Exhibit A-8, subordinate in right of payment to the Class II-A and Class II-B
- -------
Certificates and senior in right of payment to the Class II-XS and Class R-UT
Certificates as set forth herein, and evidencing an interest designated as a
Regular Interest in the Upper-Tier REMIC for purposes of the REMIC Provisions.
"Class II-C Negative Amortization": With respect to any Distribution
Date, the portion of the Aggregate Uncertificated Negative Amortization for such
Distribution Date that is allocable to the Class II-C Certificates in accordance
with Section 1.03(b).
"Class II-XS Certificate": Any one of the Class II-XS Certificates,
as executed and delivered hereunder by the Trustee, substantially in the form of
Exhibit A-9, subordinate
- -------
<PAGE>
-12-
in right of payment to the Class II-A, Class II-B and Class II-C Certificates
and senior in right of payment to the Class R-UT Certificates as set forth
herein, and evidencing a Regular Interest in the Upper-Tier REMIC for purposes
of the REMIC Provision.
"Class II-XS Distribution Amount": With respect to the Class II-XS
Certificates and any Distribution Date, the aggregate Distributable Interest in
respect of the Sub-Pool II Stripped Interest Components for such Distribution
Date, together with any portion thereof remaining unpaid from previous
Distribution Dates.
"Class R-LT Certificate": Any one of the Class R-LT Certificates, as
executed and delivered hereunder by the Trustee, substantially in the form of
Exhibit A-10, subordinate in right of payment to the Uncertificated Regular
- -------
Interests as set forth herein, evidencing an interest designated as a Residual
Interest in the Lower-Tier REMIC for purposes of the REMIC Provisions.
"Class R-LT Distribution Amount": With respect to any Distribution
Date (other than the first Distribution Date), the excess, if any, of the Lower-
Tier REMIC Residual Cash Flow for the immediately preceding Distribution Date
over the amounts applied by the Trustee pursuant to Section 1.05(b) during the
related Residual Allocation Period.
"Class R-UT Certificate": Any one of the Class R-UT Certificates, as
executed and delivered hereunder by the Trustee, substantially in the form of
Exhibit A-11, subordinate in right of payment to the Regular Certificates as set
- -------
forth herein, evidencing an interest designated as a Residual Interest in the
Upper-Tier REMIC for purposes of the REMIC Provisions.
"Class R-UT Distribution Amount": With respect to any Distribution
Date (other than the first Distribution Date), the excess, if any, of the Upper-
Tier REMIC Residual Cash Flow for the immediately preceding Distribution Date
over the amounts applied by the Trustee pursuant to Section 1.05(c) during the
related Residual Allocation Period.
"Class Negative Amortization": As to the Class II-A Certificates, the
Class II-A Negative Amortization; as to the Class II-B Certificates, the Class
II-B Negative Amortization; and as to the Class II-C Certificates, the Class
II-C Negative Amortization.
"Clean Air Act": The Clean Air Act, 42 U.S.C. Section 7401 et seq.
"Clean Water Act": The Clean Water Act, 33 U.S.C. Section 1251 et
seq.
"Closing Date": December ___, 1996.
"Code": The Internal Revenue Code of 1986, as it may be amended from
time to time.
<PAGE>
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"Collection Account": The segregated custodial account or accounts
created and maintained by the Servicer pursuant to Section 3.04(a) on behalf of
the Trustee in trust for Certificateholders, which shall be entitled "Banc One
Management and Consulting Corporation, as Servicer, in trust for registered
holders of FDIC REMIC Trust 1996-C1, Commercial Mortgage Pass-Through
Certificates, Series 1996-C1".
"Collection Report": A report on machine readable media prepared by
the Servicer pursuant to Section 4.03 and containing the information specified
in Exhibit F attached hereto, with such additions, deletions and modifications
-------
as agreed to by the Trustee and the Servicer from time to time in writing.
"Compensating Interest Payment": With respect to any Distribution
Date, the lesser of (i) the Aggregate Prepayment Interest Shortfall for the
Mortgage Loans in both Sub-Pools for such Distribution Date and (ii) the
Servicing Fee for the related Due Period.
"Component I-AXS": An uncertificated partial undivided ownership
interest in the Upper-Tier REMIC that bears interest on its Component Notional
Amount at a rate equal to its Component Rate.
"Component I-BXS": An uncertificated partial undivided ownership
interest in the Upper-Tier REMIC that bears interest on its Component Notional
Amount at a rate equal to its Component Rate.
"Component I-CXS": An uncertificated partial undivided ownership
interest in the Upper-Tier REMIC that bears interest on its Component Notional
Amount at a rate equal to its Component Rate.
"Component I-DXS": An uncertificated partial undivided ownership
interest in the Upper-Tier REMIC that bears interest on its Component Notional
Amount at a rate equal to its Component Rate.
"Component II-AXS": An uncertificated partial undivided ownership
interest in the Upper-Tier REMIC that bears interest on its Component Notional
Amount at a rate equal to its Component Rate.
"Component II-BXS": An uncertificated partial undivided ownership
interest in the Upper-Tier REMIC that bears interest on its Component Notional
Amount at a rate equal to its Component Rate.
"Component II-CXS": An uncertificated partial undivided ownership
interest in the Upper-Tier REMIC that bears interest on its Component Notional
Amount at a rate equal to its Component Rate.
"Component Notional Amount": With respect to Component I-AXS as of
any date of determination, the Class I-A Balance as of such date; with respect
to Component I-BXS
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as of any date of determination, the Class I-B Balance as of such date; with
respect to Component I-CXS as of any date of determination, the Class I-C
Balance as of such date; with respect to Component I-DXS as of any date of
determination, the Class I-D Balance as of such date.
With respect to Component II-AXS as of any date of determination, the
Class II-A Balance as of such date; with respect to Component II-BXS as of any
date of determination, the Class II-B Balance as of such date; and with respect
to Component II-CXS as of any date of determination, the Class II-C Balance as
of such date.
"Component Rate": With respect to the first Distribution Date,
(a) as to Component II-AXS, ____% per annum;
(b) as to Component II-BXS, ____% per annum; and
(c) as to Component II-CXS, ____% per annum.
With respect to any Distribution Date other than the first
Distribution Date,
(a) as to Component II-AXS, the excess, if any, of (iii) the Weighted
Average Effective Net Mortgage Rate for Sub-Pool II as of such Distribution
Date over (iv) the sum of (A) LIBOR as of the related LIBOR Adjustment Date
and (B) ____%;
(b) as to Component II-BXS, the excess, if any, of (v) the Weighted
Average Effective Net Mortgage Rate for Sub-Pool II as of such Distribution
Date over (vi) the sum of (A) LIBOR as of the related LIBOR Adjustment Date
and (B) ____%; and
(c) as to Component II-CXS, the excess, if any, of (i) the Weighted
Average Effective Net Mortgage Rate for Sub-Pool II as of such Distribution
Date over (ii) the sum of (A) LIBOR as of the related LIBOR Adjustment Date
and (B) ____%.
With respect to any Distribution Date,
(a) as to Component I-AXS, the excess, if any, of (i) the Weighted
Average Effective Net Mortgage Rate for Sub-Pool I as of such Distribution
Date over (ii) ____%;
(b) as to Component I-BXS, the excess, if any, of (i) the Weighted
Average Effective Net Mortgage Rate for Sub-Pool I as of such Distribution
Date over (ii) ____%;
(c) as to Component I-CXS, the excess, if any, of (i) the Weighted
Average Effective Net Mortgage Rate for Sub-Pool I as of such Distribution
Date over (ii) ____%; and
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(d) as to Component I-DXS, the excess, if any, of (i) the Weighted
Average Effective Net Mortgage Rate for Sub-Pool I as of such Distribution
Date over (ii) ____%.
"Controlling Class R-UT Certificateholder": As defined in Section
9.01(a).
"Corporate Trust Office": The principal corporate trust 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 Agreement is located at 225 Franklin Street, Boston,
Massachusetts, 02110, Attention: Corporate Trust Department.
"Credit Draw Amount": As defined in the Limited Guaranty.
"Credit File": Any documents, other than the Mortgage File, in the
possession of the Servicer relating to the origination and servicing of any
Mortgage Loan.
"Custodian": A Person who is at any time appointed by the Trustee
pursuant to Section 8.11 as a document custodian for the Mortgage Files, which
Person shall not be the Mortgage Loan Seller or an Affiliate of the Mortgage
Loan Seller.
"Cut-off Date": With respect to any Mortgage Loan, other than a
Qualified Substitute Mortgage Loan, December 1, 1996. With respect to any
Qualified Substitute Mortgage Loan, its respective date of substitution.
"Cut-off Date Balance": With respect to any Mortgage Loan other than
a Mortgage Loan that as of the Cut-off Date is a Discounted Mortgage Loan, the
outstanding principal balance of such Mortgage Loan as of the Cut-off Date, net
of the principal portion of all unpaid Scheduled Payments due on or before such
date, plus the principal portion of all Scheduled Payments due following the
Cut-off Date but received prior to such date, which is set forth on the related
Mortgage Loan Schedule. With respect to a Mortgage Loan that is a Discounted
Mortgage Loan as of the Cut-off Date, the outstanding Discounted Principal
Balance of such Mortgage Loan, net of the principal portion of all unpaid
Scheduled Payments due on or before such date, plus the principal portion of all
Scheduled Payments due following the Cutoff Date but received prior to such
date, which is set forth on the related Mortgage Loan Schedule.
"Debt Service Reduction": With respect to any Mortgage Loan, a
reduction in the Scheduled Payment for such Mortgage Loan made effective by the
entry of an order by a court of competent jurisdiction in a proceeding under the
Bankruptcy Code, except such a reduction resulting from a Deficient Valuation.
"Declaration of Trust": The Declaration of Trust, dated as of
November 13, 1996, of FDIC REMIC Trust 1996-C1, naming CS First Boston
Corporation as initial beneficiary, which instrument initially formed the Trust
Fund.
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"Defaulted Mortgage Loan": Any Mortgage Loan that is at least 61
days' delinquent in respect of a Scheduled Payment.
"Defect": As defined in Section 2.02(d).
"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 principal balance of the Mortgage Loan, which
valuation results from a proceeding initiated under the Bankruptcy Code.
"Definitive Certificate": As defined in Section 5.06(a).
"Deleted Mortgage Loan": A Mortgage Loan replaced or to be replaced
by a Qualified Substitute Mortgage Loan.
"Delinquent Mortgage Loan": For purposes of calculating the Servicing
Fee, either (i) a Defaulted Mortgage Loan (other than a Matured Performing
Mortgage Loan) or (ii) (A) a Matured Performing Mortgage Loan (other than a
Balloon Mortgage Loan described in clause (B) hereof) that is not modified
pursuant to Section 3.19 within 120 calendar days of its original maturity date
as set forth in the related Mortgage Note or (B) a Balloon Mortgage Loan that is
a Matured Performing Mortgage Loan as of the Cut-off Date and is not modified
pursuant to Section 3.19 within 120 calendar days of the Closing Date.
"Demand Date": As defined in the Limited Guaranty.
"Depository": The Depository Trust Company, or any successor
Depository hereafter named. The nominee of the initial Depository for purposes
of registering those Certificates that are to be Book-Entry Certificates is Cede
& Co. The Depository shall at all times be a "clearing corporation" as defined
in Section 8-102(3) of the Uniform Commercial Code of the State of New York and
a "clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended.
"Depository Institutions": The state or federally chartered
depository institutions for which the Mortgage Loan Seller is acting as
receiver, which are identified in Exhibit H.
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"Depository Participant": A broker, dealer, bank or other financial
institution or other Person for whom from time to time the Depository effects
book-entry transfers and pledges of securities deposited with the Depository.
"Determination Date": With respect to any Distribution Date, the 15th
day of the month in which such Distribution Date occurs, or if such 15th day is
not a Business Day, the Business Day immediately preceding.
"Direct Mortgage Loan": Each of the mortgage loans transferred and
assigned to the Trustee pursuant to Section 2.01 and from time to time held in
the Trust Fund, the Direct
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Mortgage Loans so held being identified on the related Mortgage Loan Schedule.
As used herein, the term "Direct Mortgage Loan" includes the related Mortgage
Note, Mortgage and other security documents contained in the related Mortgage
File.
"Directly Operate": With respect to any REO Property, the furnishing
or rendering of services to the tenants thereof, the management or operation of
such REO Property, the holding of such REO Property primarily for sale to
customers, the performance of any construction work thereon or any use of such
REO Property in a trade or business conducted by the Trust Fund other than
through an Independent Contractor; provided, however, that the Trustee (or the
Servicer in its capacity as servicer hereunder) shall not be considered to
Directly Operate a REO Property solely because the Trustee (or the Servicer in
its capacity as servicer hereunder) establishes rental terms, chooses tenants,
enters into or renews leases, deals with taxes and insurance, or makes decisions
as to repairs or capital expenditures with respect to such REO Property.
"Discount Date": With respect to any Fixed Rate Mortgage Loan
(including any Discounted Mortgage Loan that has become subject to a Debt
Service Reduction), the last day of the Due Period in which such event occurred.
"Discounted Mortgage Loan": Any (x) Fixed Rate Mortgage Loan having a
Net Mortgage Rate as of the Cut-off Date lower than ____% per annum or (y) Fixed
Rate Mortgage Loan (including a Mortgage Loan described in clause (x) hereof)
that has become subject to a Debt Service Reduction.
"Discounted Principal Balance": With respect to any Mortgage Loan
that as of the Cut-off Date is a Discounted Mortgage Loan, as of the Cut-off
Date, an amount equal to the sum of all future Scheduled Payments (including any
Balloon Payment) to become due thereon net of interest calculated at ____% per
annum, discounted to present value on a monthly basis at ____% per annum. With
respect to any Mortgage Loan that became a Discounted Mortgage Loan as a result
of the occurrence of an event described in clause (y) of the definition thereof,
as of the related Discount Date, an amount equal to the sum of the Discounted
Scheduled Payments to become due thereon (assuming for purposes hereof that all
payments to become due thereon are the Discounted Scheduled Payments),
discounted on a monthly basis at the Projected Net Mortgage Rate thereof.
"Discounted Scheduled Payments": As of any Determination Date, with
respect to any Fixed Rate Mortgage Loan that became a Discounted Mortgage Loan
following the Cut-off Date, the Scheduled Payments payable pursuant to the terms
of the related Mortgage Note in accordance with the terms of a Debt Service
Reduction, assuming, however, that (i) each Scheduled Payment is equal in an
amount to the Scheduled Payment in effect immediately following such Debt
Service Reduction, less the maximum Servicing Fee and Trustee's Fee and (ii)
such Scheduled Payments remain in effect until the earlier of (a) the date on
which the Scheduled Principal Balance of such Mortgage Loan would be fully
amortized on the basis of the Projected Net Mortgage Rate with respect to such
Mortgage Loan and such Scheduled Payments and (b) the Optimal Wind-Down Date.
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"Disqualified Organization": Any of (i) 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, unless,
in the case of the FDIC, the Trustee has received an Opinion of Counsel (at the
expense of the FDIC) that the holding of an Ownership Interest in a Residual
Certificate by the FDIC will not cause the Trust Fund or any Person having an
Ownership Interest in any Class of Certificates (other than the FDIC) to incur
any liability for any federal tax imposed under the Code that would not
otherwise be imposed but for the transfer of an Ownership Interest in the
Residual Certificates to the FDIC, (ii) 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, (iii) any organization described in Section
1381(a)(2)(C) of the Code, (iv) any other Person so designated by the Trustee
based upon an Opinion of Counsel (at the expense of either the transferor or the
transferee) provided to the Trustee that the holding of an Ownership Interest in
a Residual 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 liability for any federal tax imposed under the Code that would
not otherwise be imposed but for the transfer of an Ownership Interest in the
Residual Certificate to such Person, or (v) any other Person identified as a
disqualified organization by the REMIC Provisions. A corporation will not be
treated as an instrumentality of the United States or of any State or political
subdivision thereof if all of its activities are subject to tax, and, with the
exception of the FHLMC, a majority of its board of directors is not selected by
such governmental unit. The terms "United States", "State" and "international
organization" shall have the meanings set forth in Section 7701 of the Code.
"Disqualifying Condition": A condition existing as a result of, or
arising from, the presence of Hazardous Materials on a Mortgaged Property such
that the Mortgage Loan secured by the affected Mortgaged Property would be
ineligible, solely by reason of such condition, for purchase by FNMA under the
terms of Section 501.04 of the Guide (assuming such Mortgage Loan were otherwise
eligible for purchase) (except that any condition relating to the existence of
lead-based paint shall be applicable only as to Mortgage Loans secured by
multifamily or residential real properties), including a condition that would
constitute, solely by reason of such condition, a material violation of
applicable federal, state or local law in effect as of the Closing Date.
"Distributable Interest": With respect to any Distribution Date, as
to any Class of Sub-Pool I Certificates or Sub Pool II Certificates, the Accrued
Interest in respect thereof for such Distribution Date, net of the portion of
(i) any Net Aggregate Prepayment Interest Shortfall for such Distribution Date
allocable to such Class of Certificates pursuant to Section 1.03 (h) in the case
of the Sub-Pool II Certificates and Section 1.03(i) in the case of the Sub-Pool
I Certificates, (ii) in the case of the Sub-Pool II Certificates of any Class,
any Aggregate Uncertificated Negative Amortization for such Distribution Date
allocable to such Class of Certificates pursuant to Section 1.03(b) and (iii)
any Net Aggregate Relief Act Shortfall for such Distribution Date allocable to
such Class of Certificates pursuant to Section 1.03 (d) in the case of the Sub-
Pool II Certificates and Section 1.03(e) in the case of the Sub-Pool I
Certificates. With respect to any Distribution Date, as to any Uncertificated
Regular Interest, the Accrued
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Interest in respect thereof for such Distribution Date, net of the portion of
(iv) any Net Aggregate Prepayment Interest Shortfall for such Distribution Date
allocable to such Uncertificated Regular Interest pursuant to Section 1.03(h) in
the case of the Uncertificated Sub-Pool II Regular Interests and Section 1.03(i)
in the case of the Uncertificated Sub-Pool I Regular Interests, (v) in the case
of any of the Uncertificated Sub-Pool II Regular Interests, any Aggregate
Mortgage Loan Negative Amortization for such Distribution Date allocable to such
Uncertificated Regular Interest pursuant to Section 1.03 and (vi) any Net
Aggregate Relief Act Shortfall for such Distribution Date allocable to such
Uncertificated Regular Interest pursuant to Section 1.03(d) in the case of the
Uncertificated Sub-Pool II Regular Interests and Section 1.03(e) in the case of
the Uncertificated Sub-Pool I Regular Interests. With respect to any
Distribution Date, as to any Stripped Interest Component, the Accrued Interest
in respect thereof for such Distribution Date, net of the portion of (vii) any
Net Aggregate Prepayment Interest Shortfall for such Distribution Date allocable
to such Stripped Interest Component pursuant to Section 1.03(h) in the case of
the Sub-Pool II Stripped Interest Components and Section 1.30(i) in the case of
the Sub-Pool I Stripped Interest Components and (viii) any Net Aggregate Relief
Act Shortfall for such Distribution Date allocable to such Stripped Interest
Component pursuant to Section 1.03(d) in the case of the Sub-Pool II Stripped
Interest Components and Section 1.03(e) in the case of the Sub-Pool I Stripped
Interest Components.
"Distribution Account": The segregated account or accounts created
and maintained by the Trustee pursuant to Section 3.04(b) which shall be
entitled "State Street Bank and Trust Company, as Trustee, in trust for the
registered holders of FDIC REMIC Trust 1996-C1, Commercial Mortgage Pass-Through
Certificates, Series 1996-C1."
"Distribution Date": The 25th day of any month, or if any such day is
not a Business Day, the Business Day immediately following, commencing January
27, 1997.
"Due Date": With respect to (i) any Mortgage Loan on or prior to its
Maturity Date, the day of the month set forth in the related Mortgage Note on
which each Scheduled Payment thereon is scheduled to be first due (or, in the
case of a Non-Monthly Loan, deemed to be due); (ii) any REO Loan, the day of the
month set forth in the related Mortgage Note on which each Scheduled Payment on
the related Mortgage Loan was scheduled to be first due (succeeding Due Dates on
REO Loans shall be monthly, even if the related Mortgage Loan was a Non-Monthly
Loan); and (iii) any Balloon Mortgage Loan after the Maturity Date thereon, the
day of the month set forth in the related Mortgage Note on which each Scheduled
Payment on such Mortgage Loan was scheduled to be first due; provided, however,
that with respect to (x) any Mortgage Loan (other than a Non-Monthly Loan) that
by its terms pays interest in advance of its accrual rather than in arrears, for
purposes of calculating distributions on the Certificates, the interest portion
of each Scheduled Payment that becomes due thereon shall be deemed to become due
on, and the "Due Date" therefor shall be deemed to be, the date occurring one
month after such Scheduled Payment is first due or deemed due and (y) any Non-
Monthly Loan that by its terms pays interest in advance of its accrual rather
than in arrears, for purposes of calculating distributions on the Certificates,
the interest portion of each Scheduled Payment that becomes due thereon shall be
deemed to become due on, and the "Due Date" therefor shall be
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deemed to be, the date occurring the same number of months after such Scheduled
Payment is first due or deemed due as the number of calendar months between Due
Dates on such loan.
"Due Period": With respect to any Distribution Date, the period
ending on the first day of the month in which such Distribution Date occurs and
commencing on the second day of the immediately preceding month (or, in the case
of the first Due Period, commencing on the day immediately following the Cut-off
Date).
"Duff & Phelps": Duff & Phelps Credit Rating Co., or any successor
thereto.
"Effective Net Mortgage Rate": With respect to any Mortgage Loan or
REO Loan, for any Distribution Date, (a) if the related Mortgage Note provides
that interest accrues on such Mortgage Loan or REO Loan, as the case may be, on
the basis of a 360-day year consisting of twelve 30-day months (a "30/360
basis"), the related Net Mortgage Rate (or, in the case of a Discounted Mortgage
Loan, the Projected Net Mortgage Rate) in effect as of the commencement of the
most recently ended Due Period, and (b) if the related Mortgage Note provides
that interest accrues on such Mortgage Loan or REO Loan, as the case may be,
other than on a 30/360 basis, the annualized rate, as calculated by the
Servicer, at which interest would have to accrue thereon on a 30/360 basis
during the one month period preceding the related Due Date in the most recently
ended Due Period in order to produce the aggregate amount of interest (adjusted
to the related Net Mortgage Rate (or, in the case of a Discounted Mortgage Loan,
the Projected Net Mortgage Rate) in effect as of the commencement of the most
recently ended Due Period) actually accrued during such one month period.
"Eligible Account": Either (i) an account maintained with a federal
or state chartered depository institution or trust company, the short term
deposit or debt obligations of which (or of such institution's parent holding
company) are rated in the highest short term rating category of Moody's and Duff
& Phelps at the time of any deposit therein (or, if such obligations are, at the
time of such deposit, not rated by Duff & Phelps, such obligations need only be
rated by Moody's) and the long term deposit or debt obligations of which (or of
such institution's parent holding company) are rated in the second highest long
term rating category of Moody's and Duff & Phelps at the time of deposit therein
(or, if such obligations are, at the time of deposit, not rated by Duff &
Phelps, such obligations need only be rated by Moody's) or (ii) a trust account
or accounts maintained with a federal or state chartered depository institution
or trust company acting in its fiduciary capacity. Eligible Accounts may bear
interest.
"Environmental Assessment": A "Phase I environmental site assessment"
as described in, and meeting the criteria of, Chapter 5 of the Guide.
"Environmental Condition Precedent to Foreclosure": Any of the
conditions set forth in Section 3.09(c)(i) - (ii).
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended.
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"ERISA-Restricted Certificate": Any Class I-B, Class I-C, Class I-D,
Class I-XS, Class II-B, Class II-C, Class II-XS or Residual Certificate.
"Escrow Account": The account or accounts created and maintained
pursuant to Section 3.03(a).
"Escrow Payment": Any payment received by the Servicer for the
account of any Mortgagor for application toward the payment of taxes, insurance
premiums, assessments and similar items in respect of the related Mortgaged
Property.
"Estimated Net Cash Flow": With respect to any Mortgaged Property, as
of any date of determination, rent from all leases under which the tenants have
then taken occupancy (including only rents prior to expiration for those leases
whose terms expire within one year of the date of determination and pass-
throughs for operating expenses, taxes and utilities and excluding all free
rent) less operating expenses (such as utilities, administrative expenses,
repairs and maintenance) and less fixed expenses (such as insurance premiums and
real estate and other taxes to be paid by the Mortgagor).
"Estimated Net Cash Flow Coverage Ratio": With respect to any
Appraised Mortgage Loan for any twelve month period, the ratio of Estimated Net
Cash Flow produced by the related Mortgaged Property during such period to the
aggregate amount of Scheduled Payments (other than any Balloon Payment) due
under such Mortgage Loan during the following twelve month period.
"Event of Default": One or more of the events described in Section
7.01.
"Excess Coverage Amount": As defined in the Limited Guaranty.
"Exemption": The United States Department of Labor administrative
exemption, Prohibited Transaction Exemption 91-14 et al., 56 Fed. Reg. 7413
(1991), as amended, granted to Lehman Brothers Inc.
"Extended Loan Floor Rate": With respect to any Mortgage Loan for
which the Servicer is considering an extension of the related Maturity Date in
accordance with Section 3.19(c), a Mortgage Rate that is (a) in the case of a
Fixed Rate Mortgage Loan, no lower than a per annum rate equal to the higher of
the following rates at the time of the proposed extension: (i) the weighted
average, expressed as a percentage and rounded to five decimal places, of the
Mortgage Rates for the Mortgage Loans in Sub-Pool I as of the Cut-off Date,
weighted on the basis of the respective Cut-off Date Balances of such Mortgage
Loans, and (ii) the Mortgage Rate for such Mortgage Loan, and (b) in the case of
an Adjustable Rate Mortgage Loan, a per annum adjustable rate (adjusted monthly
without negative amortization) having a minimum mortgage rate no lower than the
higher of the following rates at the time of the proposed extension: (x) the
weighted average, expressed as a percentage and rounded to five decimal places,
of the Mortgage Rates for the Mortgage Loans in Sub-Pool II as of the Cut-off
Date,
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weighted on the basis of the respective Cut-off Date Balances of such Mortgage
Loans, and (y) the Mortgage Rate in effect for such Mortgage Loan as of the date
of the proposed extension.
"Extraordinary Expenses": Any of the following costs, fees or
expenses, as reported to the Trustee by the Servicer:
(i) any Modification Fees and Resolution Fees payable to the
Servicer pursuant to Section 3.19;
(ii) interest on Advances payable to the FDIC pursuant to Section
4.08;
(iii) the costs and expenses of the Servicer of enforcing the
obligations of the FDIC pursuant to Sections 2.04(c) and 2.05(c) in
connection with a Defect in a Mortgage File or a breach of a representation
or warranty made by the FDIC pursuant to Section 2.04 or 2.05;
(iv) the cost of Environmental Assessments obtained pursuant to
2.05(b)(ii);
(v) certain interest accrued on Escrow Accounts payable to
Mortgagors pursuant to Section 3.03(a);
(vi) certain costs of insurance required pursuant to Section
3.07(a) and (b);
(vii) the cost of Opinions of Counsel regarding the holding by the
Trust Fund of certain personal property as required by Section 3.09(b)(ii);
(viii) the cost of Environmental Assessments obtained pursuant to
Section 3.09(c);
(ix) the cost of any remedial, corrective or other action taken
pursuant to Section 3.09(d) in respect of any Environmental Conditions
Precedent to Foreclosure that are not satisfied;
(x) the cost of Opinions of Counsel regarding the holding by the
Trust Fund of REO Property subsequent to the second anniversary of
acquisition thereof as required by Section 3.16(a);
(xi) the costs of the Servicer incurred in consulting with counsel
pursuant to Section 3.17(a) regarding the operation and management of REO
Property;
(xii) the cost of opinions of MAI-certified appraisers and other
experts in real estate finance/investment sales matters obtained pursuant
to Section 3.18(d) in determining whether any bid received from an
Interested Person represents a fair price for any Defaulted Mortgage Loan
or any REO Property;
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(xiii) the cost of Opinions of Counsel obtained pursuant to Section
3.19(a) regarding whether a proposed modification, waiver or amendment of
the terms of a Mortgage Loan will cause either the Lower-Tier REMIC or the
Upper-Tier REMIC to (a) fail to qualify as a REMIC or (b) be subject to any
tax;
(xiv) the cost of Opinions of Counsel obtained pursuant to Section
3.19(b) regarding whether a proposed modification, waiver or amendment of
the terms of a Mortgage Loan would impair the security for such Mortgage
Loan;
(xv) the cost of Opinions of Counsel obtained pursuant to Section
3.19(c) and the expenses of the Trustee and the Servicer incurred in
connection with certain amendments of the provisions of Section 3.19(c);
(xvi) certain costs and expenses of the Servicer incurred as a
result of a Mortgagor's request for a modification of the related Mortgage
Loan as described in Section 3.19(d);
(xvii) the costs of appraisals obtained pursuant to Section 3.20(c)
in the event that an aggregate of eighteen months of scheduled Payments
have been advanced and remain unreimbursed with respect to a Mortgage Loan;
(xviii) the costs of appraisals obtained by the Servicer pursuant to
Section 4.03(e) in connection with its determination that a P&I Advance
would be a Nonrecoverable P&I Advance;
(xix) certain legal costs and expenses reimbursable to the
Servicer, the FDIC and the Mortgage Loan Seller pursuant to Section 6.03;
(xx) the costs of the Servicer in preparing certain reports
pursuant to Section 6.06;
(xxi) the identification payments made to the Trustee pursuant to
Section 8.05(b);
(xxii) the costs incurred by the Trustee in making certain filings
with the Securities and Exchange Commission and soliciting proxies pursuant
to Section 8.13;
(xxiii) the costs and expenses of the Trustee incurred in
consultation with tax counsel and otherwise as described pursuant to
Section 3.17(a)(iii), 10.01(d) and 10.01(f);
(xxiv) certain taxes, interest and penalties payable by the Trust
Fund pursuant to Section 10.01(d);
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(xxv) the cost of an Opinion of Counsel obtained pursuant to
Section 11.02 relating to the recordation of this Agreement; and
(xxvi) Inspection Expenses incurred pursuant to Section
3.12(a)(i)(A) and (B).
"FDIC": The Federal Deposit Insurance Corporation, acting solely in
its corporate capacity and not as Mortgage Loan Seller, or any successor
thereto.
"FDIC Reimbursement Rate": The rate per annum applicable to the
accrual of interest on Servicing Advances and P&I Advances in accordance with
Section 4.08, as reported to the Servicer and the Trustee by the FDIC, which
rate per annum shall be adjusted on a monthly basis to equal the sum of ____%
and the weekly average yield, expressed as a percent per annum, on the United
States Treasury security (as published by the Federal Reserve Board in
Statistical Release H.15(519)) adjusted to a constant maturity closest to the
weighted average maturity of the investment securities then held by the Bank
Insurance Fund, determined at the end of each anniversary of the Closing Date.
Such rate per annum, as reported by the FDIC to the Trustee and the Servicer,
will be applicable to such accrual of interest until a new rate is so reported
by the FDIC. The FDIC Reimbursement Rate shall be ____% per annum until the
later of one month following the Closing Date and the announcement of a new rate
by the FDIC.
"Fee Interest": As defined in Section 2.03(d).
"FHLMC": The Federal Home Loan Mortgage Corporation, or any successor
thereto.
"Final Recovery Determination": A determination by the Servicer with
respect to any defaulted Mortgage Loan (other than a Mortgage Loan as to which
the related Mortgaged Property has become a REO Property, that was repurchased
by or on behalf of the FDIC pursuant to Section 2.04 or 2.05, or that was
purchased by the Servicer pursuant to Section 3.18(c) or the Servicer or the
Controlling Class R-UT Certificateholder pursuant to Section 9.01), that there
has been a recovery of all Insurance Proceeds, Liquidation Proceeds and other
payments or recoveries that the Servicer, in its reasonable good faith judgment,
exercised without regard to any obligation of the Servicer to make payments from
its own funds pursuant to Section 3.07(b), expects to be ultimately recoverable.
"Final Scheduled Distribution Date": With respect to a Sub-Pool, the
date that is three years after the Distribution Date that follows the scheduled
maturity date of the Mortgage Loan in such Sub-Pool with the longest remaining
term to scheduled maturity as of the Cut-off Date.
"Fixed Rate Mortgage Loan": Any Mortgage Loan other than an
Adjustable Rate Mortgage Loan (i.e., a Mortgage Loan as to which the related
Mortgage Note provides (x) for a Mortgage Rate that remains fixed following the
Cut-off Date through the term thereof (even if such Mortgage Rate were subject
to adjustment prior to the Cut-off Date based on the value of a particular
index) or (y) for a Mortgage Rate that is subject to increase from time to time
<PAGE>
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following the Cut-off Date in accordance with a schedule set forth in the
related Mortgage Loan documents).
"FNMA": Fannie Mae (formerly known as The Federal National Mortgage
Association), or any successor thereto.
"Gross Margin": With respect to each Adjustable Rate Mortgage Loan
(and any successor REO Loan), the fixed number of percentage points set forth in
the Mortgage Loan Schedule that is added to the applicable value of the related
Index on each Mortgage Rate Adjustment Date in accordance with the terms of the
related Mortgage Note to determine, subject to any applicable periodic and
lifetime limitations on adjustments thereto, the related Mortgage Rate.
"Ground Lease": As defined in Section 2.03(d).
"Guaranteed Amount": As defined in the Limited Guaranty.
"Guaranty Payment": A payment made by the FDIC pursuant to
Section 3.02 of the Limited Guaranty.
"Guide": The FNMA Multifamily Seller/Servicer Guide (i) in effect as
of the Closing Date, for purposes of the definition of "Disqualifying Condition"
and (ii) as amended from time to time, for all other purposes of this Agreement.
"Hazardous Materials": Any dangerous, toxic or hazardous pollutants,
chemicals, wastes, medical wastes, or substances, including, without limitation,
those so identified pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq., or any other
environmental laws or regulations now existing, and specifically including,
without limitation, asbestos and asbestos-containing materials, polychlorinated
biphenyls ("PCBs"), radon gas, petroleum and petroleum products, urea
formaldehyde and any substances classified as being "in inventory," "usable work
in process" or similar classification which would, if classified an unusable, be
included in the foregoing definition.
"Independent": When used with respect to any specified Person, any
such Person who (i) is in fact independent of the Mortgage Loan Seller, the
Servicer and any and all Affiliates thereof, (ii) does not have any direct
financial interest in or any material indirect financial interest in any of the
Mortgage Loan Seller, the Servicer or any Affiliate thereof, and (iii) is not
connected with the Mortgage Loan Seller, the Servicer or any Affiliate thereof
as an officer, employee, promoter, underwriter, trustee, partner, director or
Person performing similar functions; provided, however, that a Person shall not
fail to be Independent of the Mortgage Loan Seller, the Servicer or any
Affiliate thereof merely because such Person is the beneficial owner of 1% or
less of any class of securities issued by the Mortgage Loan Seller or the
Servicer or any Affiliate thereof, as the case may be. The Trustee and the
Servicer may rely,
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in the performance of any duty hereunder, upon the statement of any Person
contained in any certificate or opinion that such Person is Independent
according to this definition.
"Independent Contractor": Any Person (other than the Servicer) that
would be an "independent contractor" with respect to the Trust Fund within the
meaning of Section 856(d)(3) of the Code if the Trust Fund were a real estate
investment trust (except that the ownership test set forth in that section shall
be considered to be met by any Person that owns, directly or indirectly, 35
percent or more of any Class of Certificates, or such other interest in any
Class of Certificates as is set forth in an Opinion of Counsel, which shall be
at no expense to the Trustee or the Trust Fund, delivered to the Trustee), so
long as the Trust Fund does not receive or derive any income from such Person
and provided that the relationship between such Person and the Trust Fund is at
arm's length, all within the meaning of Treasury Regulation Section 1.856-
4(b)(5), or any other Person (including the Servicer) upon receipt by the
Trustee of an Opinion of Counsel, which shall be at no expense to the Trustee or
the Trust Fund, to the effect that the taking of any action in respect of any
REO Property by such Person, subject to any conditions therein specified, that
is otherwise herein contemplated to be taken by an Independent Contractor will
not cause such REO Property to cease to qualify as "foreclosure property" within
the meaning of Section 860G(a)(8) of the Code, or cause any income realized in
respect of such REO Property to fail to qualify as Rents from Real Property.
"Index": With respect to each Adjustable Rate Mortgage Loan (and any
successor REO Loan), for each Mortgage Rate Adjustment Date applicable thereto,
the base index (or, if so provided in the related Mortgage Note, a fraction of a
base index) used to determine the new Mortgage Rate in effect thereon as
specified in the related Mortgage Note. If the Index currently in effect for
any Adjustable Rate Mortgage Loan (or successor REO Loan) ceases to be
available, the Servicer shall, subject to Section 3.20 and the terms of the
related Mortgage Note, select The Wall Street Journal Prime Rate as the
alternative index.
"Initial Pool Balance": The aggregate outstanding principal balance
of the Mortgage Loans as of the Cut-off Date, after application of all payments
of principal due on or before such date, whether or not received.
"Initial Sub-Pool I Balance": The aggregate outstanding principal
balance of the Mortgage Loans in Sub-Pool I as of the Cut-off Date, after
application of principal due on or before such date, whether or not received.
"Initial Sub-Pool II Balance": The aggregate outstanding principal
balance of the Mortgage Loans in Sub-Pool II as of the Cut-off Date, after
application of principal due on or before such date, whether or not received.
"Inspection Expenses": The expenses of the Servicer of inspecting
Mortgaged Properties pursuant to Section 3.12(a)(i)(A) and (B), which for any
calendar year, commencing January 1, 1998, shall not in the aggregate exceed
$[350] per property described in Section 3.12(a)(i)(A) and (B).
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"Insurance Policy": With respect to any Mortgage Loan, any hazard
insurance policy, flood insurance policy, title policy or other insurance policy
that is maintained from time to time in respect of such Mortgage Loan or the
related Mortgaged Property.
"Insurance Proceeds": Proceeds paid under any Insurance Policy, to
the extent such proceeds are not applied to the restoration of the related
Mortgaged Property or released to the Mortgagor in accordance with applicable
law, the terms and conditions of the related Mortgage Note and Mortgage and the
servicing standards set forth in Section 3.01.
"Interested Person": The FDIC, the Mortgage Loan Seller, the
Servicer, any Holder of a Certificate, or any Affiliate of any such Person.
"Interest Overcharge": The amount, if any, determined in the audit of
the Adjustable Rate Mortgage Loans conducted on behalf of the Mortgage Loan
Seller in contemplation of the issuance of the Certificates to have been charged
and collected in respect of interest on an Adjustable Rate Mortgage Loan that is
in excess of the amount that should have been charged and collected pursuant to
the terms of such Mortgage Loan.
"Issue Price": With respect to each Class of Certificates, the "issue
price" as defined in the Code and regulations promulgated thereunder.
"Late Collections": With respect to any Mortgage Loan, all amounts
received during any Due Period, whether as late payments of Scheduled Payments
or as Insurance Proceeds, Liquidation Proceeds or otherwise, that represent late
payments or collections of principal or interest due (without regard to any
acceleration of principal of such Mortgage Loan) but delinquent for a previous
Due Period and not previously recovered. With respect to any REO Loan, all
amounts received in respect of the related REO Property during any Due Period,
whether as REO Revenues, Insurance Proceeds, Liquidation Proceeds or otherwise,
that represent late collections of (iv) Scheduled Payments (other than any
Balloon Payment) due in respect of the related Mortgage Loan (without regard to
any acceleration of principal of such Mortgage Loan) but unpaid as of the date
of REO Acquisition, (v) any Assumed Scheduled Payments in respect of the related
Mortgage Loan for Due Dates prior to the date of REO Acquisition, to the extent
not paid by the Mortgagor under any forbearance arrangement entered into
pursuant to Section 3.19, or (vi) any REO Payments in respect of such REO Loan
for Due Dates in preceding Due Periods, in any such case described in the
preceding clauses (i) - (iii) if and to the extent amounts received in respect
of the related REO Property have not been previously applied thereto.
"Latest Possible Maturity Date": The latest possible maturity date,
solely for purposes of Treasury regulation Section 1.860G-1(a)(4)(iii), of any
Uncertificated Regular Interest or any Class of Certificates representing a
Regular Interest in the Upper-Tier REMIC, is set forth in the Preliminary
Statement, which in the case of any Regular Certificate is the Latest Possible
Maturity Date of any Uncertificated Regular Interest, and in the case of any
Uncertificated Regular Interest is the Distribution Date that immediately
follows the scheduled
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Maturity Date of the Mortgage Loan in the related Sub-Pool with the longest
remaining term to scheduled maturity.
"Lease": Any lease, license or other agreement pursuant to which any
Person is entitled to use, occupy or possess all or a portion of a Mortgaged
Property.
"LIBOR": The average of the interbank offered rates for one month
United States dollar deposits in the London market, which will be determined on
each LIBOR Adjustment Date pursuant to Section 1.02.
"LIBOR Adjustment Date": With respect to the determination of the
Certificate Rates on the Class II-A, Class II-B or Class II-C Certificates for
any Distribution Date other than the first Distribution Date, or the
determination of the Component Rates on Component II-AXS, Component II-BXS or
Component II-CXS for any Distribution Date, the LIBOR Business Day prior
to the immediately preceding Distribution Date.
"LIBOR Business Day": Any day on which banks are open for dealing in
foreign currency and exchange in London and New York City.
"Limited Guaranty": The Limited Guaranty Agreement dated as of the
Closing Date between the FDIC and the Trustee in the form attached hereto as
Exhibit G.
- -------
"Limited Guaranty Account": As defined in Section 4.04(b).
"Limited Guaranty Draw Loan": Any Mortgage Loan (i) that following
the Cutoff Date has become subject to a temporary modification, waiver or
amendment of the terms thereof that results in the reduction in the interest
portion of the Scheduled Payments due thereon; (ii) that becomes a Discounted
Mortgage Loan following the Cut-off Date; (iii) that has become the subject of a
Deficient Valuation or as to which the principal balance thereof has otherwise
been reduced, including as a result of an extension of the maturity date of a
Discounted Mortgage Loan; or (iv) as to which, immediately following the date on
which an aggregate of P&I Advances in respect of 18 months of Scheduled Payments
remain unreimbursed, the appraised value of the related Mortgaged Property, as
determined in an appraisal pursuant to Section 3.20(c), is less than the
Purchase Price for such Mortgage Loan (calculated as if such loan were purchased
by a person other than the FDIC).
"Liquidation Event": With respect to any Mortgage Loan, any of the
following events: (i) such Mortgage Loan is paid in full; (ii) a Final Recovery
Determination is made with respect to such Mortgage Loan; (iii) such Mortgage
Loan is repurchased by or on behalf of the FDIC pursuant to Section 2.04 or 2.05
or has become a Deleted Mortgage Loan; or (iv) such Mortgage Loan is purchased
by the Servicer pursuant to Section 3.18(c) or by the Servicer or by the
Controlling Class R-UT Certificateholder pursuant to Section 9.01. With respect
to any REO Property (and the related REO Loan), any of the following events:
(i) an REO Disposition occurs with respect to such REO Property; or (ii) such
REO Property is purchased by the Servicer or by the Controlling Class R-UT
Certificateholder pursuant to Section 9.01.
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"Liquidation Fee": The fee payable as described in Section 3.11 to
the Servicer in connection with an REO Disposition or in connection with the
sale of a Defaulted Mortgage Loan pursuant to Section 3.18 to a Person, other
than an Interested Person, equal to ____% of the net Liquidation Proceeds;
provided, however, that payment of such fee shall not be required hereunder if
doing so would be a violation of, or would subject the Trustee, the FDIC, the
Mortgage Loan Seller, or the Trust Fund to liability under, any state or local
statute, regulation or similar requirement, including without limitation, those
governing the licensing of real estate brokers or salesmen.
"Liquidation Proceeds": Cash amounts (other than Insurance Proceeds
or REO Revenues) received or paid by the Servicer in connection with (i) the
taking of all or a part of a Mortgaged Property by exercise of the power of
eminent domain or condemnation, (ii) the liquidation of a Mortgaged Property or
other collateral constituting security for a Defaulted Mortgage Loan, through
trustee's sale, foreclosure sale, REO Disposition or otherwise, (iii) the sale
of a Mortgage Loan or REO Property pursuant to Section 3.18, (iv) the repurchase
of any Mortgage Loan by or on behalf of the FDIC pursuant to Section 2.04 or
2.05 and (v) the purchase of a Mortgage Loan or REO Property by the Servicer or
by the Holder of the Controlling Class R-UT Certificateholder pursuant to
Section 9.01.
"Loan-to-Value Ratio": With respect to any Mortgage Loan as of any
date, the fraction, expressed as a percentage, the numerator of which is the
principal balance of such Mortgage Loan at the date of determination and the
denominator of which is the Appraised Value of the related Mortgaged Property.
"Loss": As defined in Section 2.04.
"Lower-Tier REMIC": A segregated pool of assets subject hereto,
constituting a trust created hereby and to be administered hereunder, consisting
of: (i) the Mortgage Loans as from time to time are subject to this Agreement
and all payments under and proceeds of such Mortgage Loans received after the
Cut-off Date, together with all documents included in the related Mortgage File
and Credit File; (ii) such funds or assets, excluding the right to receive Basis
Risk Shortfall Payments from the FDIC pursuant to Section 4.06, as from time to
time are deposited in the Collection Account, the Distribution Account and, if
established, the REO Account; (iii) any REO Property (or REO Loan in respect
thereof) acquired in respect of the Mortgage Loans; and (iv) the rights of the
Mortgagee under all Insurance Policies with respect to the Mortgage Loans.
"Lower-Tier REMIC Residual Cash Flow": With respect to any
Distribution Date, the sum of (1) the excess, if any, of the Sub-Pool II
Available Distribution Amount for such Distribution Date over the amount
required to be distributed in respect of the Uncertificated Sub-Pool II Regular
Interests pursuant to Section 4.01(c) for such Distribution Date and (2) the
excess, if any, of the Sub-Pool I Available Distribution Amount for such
Distribution Date over the amount required to be distributed in respect of the
Uncertificated Sub-Pool I Regular Interests pursuant to Section 4.01(d) for such
Distribution Date.
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"Managing Underwriters": Collectively, Lehman Brothers Inc.,
_______________________, __________________________, ______________________,
____________________ and _______________.
"Matured Performing Mortgage Loan": A Mortgage Loan that is
delinquent as to its Balloon Payment as of the Cut-off Date, that has not yet
been the subject of a modification as a consequence thereof and on which the
Mortgagor makes Assumed Scheduled Payments as indicated on the Mortgage Loan
Schedule.
"Maturity Date": With respect to any Mortgage Loan, other than a
Matured Performing Mortgage Loan, as of any date of determination, the date on
which the last payment of principal is due and payable under the related
Mortgage Note, after taking into account all Principal Prepayments received
prior to such date of determination, but without giving effect to (i) any
acceleration of the principal of such Mortgage Loan, (ii) any grace period
permitted by the related Mortgage Note, or (iii) any modification, waiver or
amendment of such Mortgage Loan granted or agreed to by the Servicer pursuant to
Section 3.19. With respect to any Matured Performing Mortgage Loan, the date
described in the preceding sentence, following the modification thereof pursuant
to Section 3.19(e).
"Modification Fee": The fee payable to the Servicer as described in
Section 3.19(d) in connection with the modification of a Mortgage Loan pursuant
to Section 3.19, in an amount equal to 1.00% of the modified principal balance
of any Mortgage Loan or, with respect to a modification of a Mortgage Loan
within the first 30 days of a Resolution Period, ____% of such modified
principal balance.
"Monthly Portion": With respect to a Non-Monthly Loan and any Due
Period, other than a Mortgage Loan having a Due Date during such Due Period, the
interest portion of the Scheduled Payment for such loan due on the next
succeeding Due Date for such loan divided by the number of calendar months
between Due Dates on such loan.
"Moody's": Moody's Investors Service, Inc., or any successor thereto.
"Mortgage": With respect to any Mortgage Loan, the mortgage, deed of
trust or other instrument securing a Mortgage Note and creating a first or other
lien on the related Mortgaged Property, together with any rider, addendum or
amendment thereto, as amended from time to time.
"Mortgaged Property": The real property subject to the lien of a
Mortgage.
"Mortgagee": With respect to any Mortgage Loan as of any date of
determination, the holder of the related Mortgage and Mortgage Note as of such
date.
"Mortgage File": With respect to any Direct Mortgage Loan,
collectively the following documents:
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(i) the original of the Mortgage Note or a copy thereof, endorsed
by the Mortgage Loan Seller to the order of the Trustee in the
following form: "Pay to the order of State Street Bank and
Trust Company, as Trustee, for the registered holders of FDIC
REMIC Trust 1996-C1, Commercial Mortgage Pass-Through
Certificates, Series 1996-C1, without recourse";
(ii) the original Mortgage or a certified copy thereof, with
evidence of recording indicated thereon;
(iii) originals or certified copies of any related Assignment of
Leases, Rents and Profits and any related Security Agreement
(if, in either case, such item is a document separate from the
Mortgage) and any related UCC Financing Statements in each
case, with evidence of recording indicated thereon;
(iv) an assignment of the Mortgage, executed to the order of the
Trustee in the following form: to "State Street Bank and Trust
Company, as Trustee, for the registered holders of FDIC REMIC
Trust 1996-C1, Commercial Mortgage Pass-Through Certificates,
Series 1996-C1, without recourse" in recordable form;
(v) assignments of any related Assignment of Leases, Rents and
Profits and any related Security Agreement (if, in either case,
such item is a document separate from the Mortgage), executed
to the order of the Trustee in the following form: to "State
Street Bank and Trust Company, as Trustee, for the registered
holders of FDIC REMIC Trust 1996-C1, Commercial Mortgage Pass-
Through Certificates, Series 1996-C1, without recourse";
(vi) originals or certified copies of all assumption, modification
and substitution agreements in those instances where the terms
or provisions of the Mortgage or Mortgage Note have been
modified or the Mortgage or Mortgage Note has been assumed or
substituted;
(vii) the originals or certificates of a lender's title insurance
policy issued on the date of the origination of such Mortgage
Loan, together with each endorsement thereto or, with respect
to each Mortgage Loan not covered by a lender's title insurance
policy, an attorney's opinion of title issued as of the date of
origination of such Mortgage Loan given by an attorney licensed
to practice law in the jurisdiction where the related Mortgaged
Property is located;
(viii) a certified copy of the Ground Lease, if any, encumbered by the
related Mortgage, any amendments thereto, any intervening
assignments thereof,
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and any related subordination agreement, in each case with
evidence of recording indicated thereon, if applicable;
(ix) a copy of the UCC-1 Financing Statement(s) and related
continuation statements, if any, each with evidence of filing
thereon, together with an original executed form UCC-2 or
UCC-3, in form suitable for filing, disclosing the assignment
to the Trustee of the security interest in the personal
property (if any) constituting security for repayment of the
Mortgage Loan;
(x) the original of any guaranty relating to the Mortgage Loan; and
(xi) 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.
With respect to any Mortgage Participation, collectively the
following:
(i) [ ]
"Mortgage Loan": Each of the (i) Direct Mortgage Loans transferred
and assigned to the Trustee pursuant to Section 2.01 and from time to time held
in the Trust Fund, the Direct Mortgage Loans so held being identified on the
related Mortgage Loan Schedule and (ii) each of the Underlying Mortgage Loans as
to which the Mortgage Loan Seller holds a Mortgage Participation, the Underlying
Mortgage Loans being identified in the Mortgage Participation Schedule. As used
herein, the term "Mortgage Loan" includes the related Mortgage Note, Mortgage
and other security documents contained in the related Mortgage File.
"Mortgage Loan Accrual Period": With respect to any Mortgage Loan or
REO Loan and any Due Date, the one month period immediately preceding such Due
Date.
"Mortgage Loan Accrued Interest": With respect to each Mortgage Loan
and each Due Date, the aggregate amount of interest accrued in respect of such
Mortgage Loan during the related Mortgage Loan Accrual Period at the Mortgage
Rate then in effect.
"Mortgage Loan Negative Amortization": With respect to each Mortgage
Loan in Sub-Pool II as of any Due Date, the amount, if any, by which the
Mortgage Loan Accrued Interest for such Due Date exceeds the Scheduled Payment
for such Due Date (or, in the case of a Non-Monthly Loan, the Monthly Portion of
such Scheduled Payment) and which, pursuant to the terms of the Mortgage Note,
is added to the principal balance of the Mortgage Loan. Mortgage Loan Negative
Amortization shall not occur in respect of REO Loans or in respect of Balloon
Mortgage Loans delinquent as to their respective Balloon Payments.
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"Mortgage Loan Schedule": With respect to each Sub-Pool, the list of
Mortgage Loans included in such Sub-Pool transferred on the Closing Date to the
Trustee as part of the Trust Fund, attached hereto as Schedule 1 in the case of
Sub-Pool I and Schedule 2 in the case of Sub-Pool II (and as provided to the
Trustee and the Servicer in an automated format). The Mortgage Loan Schedule
for each Sub-Pool shall set forth the following information with respect to each
Mortgage Loan in such Sub-Pool:
(i) the loan number;
(ii) the name of the Mortgagor and the street address (including city,
state and zip code) of the related Mortgaged Property;
(iii) the type of the underlying Mortgaged Property;
(iv) the Loan-to-Value Ratio as of the Cut-off Date (for Appraised
Mortgage Loan only);
(v) the Estimated Net Cash Flow Coverage Ratio (for Appraised Mortgage
Loans only);
(vi) (A) the original principal balance and (B) the Cut-off Date Balance;
(vii) the Mortgage Rate in effect at the Cut-off Date, and whether such
loan is an Adjustable Rate Mortgage Loan or a Fixed Rate Mortgage
Loan;
(viii) if the Mortgage Loan is an Adjustable Rate Mortgage Loan, (A) the
Index identity and value, (B) the Gross Margin, (C) any lifetime
interest rate floor or cap applicable to the calculation of the
Mortgage Rate, (D) any limitations on the periodic adjustment to the
Mortgage Rate on a Mortgage Rate Adjustment Date or the periodic
adjustment to the Scheduled Payment on a Payment Adjustment Date,
(E) the first Mortgage Rate Adjustment Date and the first Payment
Adjustment Date following the Cut-off Date and (F) the frequency of
Mortgage Rate Adjustment Dates and Payment Adjustment Dates;
(ix) the Scheduled Payment due under the related Mortgage Note;
(x) the original term, remaining term and Maturity Date;
(xi) the amortization term;
(xii) the Appraised Value (for Appraised Mortgage Loans only);
(xiii) the lien priority of such Mortgage Loan;
(xiv) the Due Date;
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(xv) whether such Mortgage Loan is a Matured Performing Mortgage Loan;
(xvi) whether such Mortgage Loan is a Simple Interest Loan;
(xvii) whether such Mortgage Loan is a Discounted Mortgage Loan as of the
Cut-off Date; and
(xviii)the number of Scheduled Payments, if any, that are due on such
Mortgage Loan and remain unpaid as of the Cut-off Date.
Such list may be in the form of more than one list, collectively, setting forth
all of the information required.
"Mortgage Loan Seller": The Federal Deposit Insurance Corporation,
acting in its capacity as administrator of the Bank Insurance Fund and as
receiver of the Depository Institutions and not in its corporate capacity, or
any successor thereto.
"Mortgage Note": The original executed note evidencing the
indebtedness of a Mortgagor under a Mortgage Loan, together with any rider,
addendum or amendment thereto.
"Mortgage Participation": Each of the mortgage participations
transferred and assigned to the Trustee pursuant to Section 2.01 and from time
to time held in the Trust Fund, the Mortgage Participations so held being
identified on the related Mortgage Participation Schedule. As used herein, the
term "Mortgage Participation" includes the related Certificate, Participation
Agreement and other security documents contained in the related Mortgage File.
"Mortgage Rate": With respect to any Mortgage Loan, the annual rate
at which interest accrues on such Mortgage Loan from time to time. With respect
to any REO Loan, the rate per annum at which interest would then occur in
accordance with the related Mortgage Note.
"Mortgage Rate Adjustment Date": With respect to each Adjustable
Rate Mortgage Loan (and any successor REO Loan), any date on which the related
Mortgage Rate is subject to adjustment pursuant to the related Mortgage Note.
The first Mortgage Rate Adjustment Date subsequent to the Cut-off Date for each
Adjustable Rate Mortgage Loan is specified in the Mortgage Loan Schedule, and
successive Mortgage Rate Adjustment Dates for such Mortgage Loan (and any
successor REO Loan) shall thereafter periodically occur with the frequency
specified in the Mortgage Loan Schedule.
"Mortgagor": The obligor or obligors on a Mortgage Note, including
without limitation, any Person that has acquired the related Mortgaged Property
and assumed the obligations of the original obligor under the Mortgage Note.
"Net Aggregate Prepayment Interest Shortfall": With respect to each
Sub-Pool and any Distribution Date, the excess, if any, of (a) the Aggregate
Prepayment Interest Shortfall
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for such Sub-Pool and such Distribution Date over (b) the sum of the amount of
Compensating Interest Payments paid by the Servicer with respect to such Sub-
Pool and such Distribution Date pursuant to Section 3.20(b) and the amount of
Residual Cash Flow applied on such Distribution Date pursuant to Section
1.05(b)(ii) and Section 1.05(c)(ii) and allocable to such Sub-Pool pursuant to
Section 1.03(h) in the case of Sub-Pool II and Section 1.03(i) in the case of
Sub-Pool I.
"Net Aggregate Relief Act Shortfall": With respect to each Sub-Pool
and any Distribution Date, the excess, if any, of (a) the Aggregate Relief Act
Shortfall for such Sub-Pool and such Distribution Date over (b) the amount of
Residual Cash Flow applied on such Distribution Date pursuant to Section
1.05(b)(iv) and Section 1.05(c)(iv) and allocable to such Sub-Pool pursuant to
Section 1.03(d) in the case of Sub-Pool II and Section 1.03(e) in the case of
Sub-Pool I.
"Net Insurance Proceeds": With respect to any Mortgage Loan or REO
Loan, any and all Insurance Proceeds collected in connection therewith, in any
case net of all amounts payable or reimbursable to the Servicer out of such
collection as expressly provided herein for any of the following items relating
to such Mortgage Loan or REO Loan: (a) unreimbursed Servicing Advances and
interest thereon in accordance with Section 4.08; (b) unreimbursed P&I Advances
and interest thereon in accordance with Section 4.08; (c) unpaid Servicing Fees;
(d) unpaid Modification Fees; (e) any unpaid Resolution Fees; and (f) any unpaid
Liquidation Fee.
"Net Mortgage Rate": With respect to any Mortgage Loan or REO Loan,
as of any date of determination, a rate per annum equal to the related Mortgage
Rate then in effect (or, if such Mortgage Rate has been reduced in connection
with a Debt Service Reduction, as a result of modification, amendment or waiver
entered into by the Servicer pursuant to Section 3.19 or by reason of the
operation of the Relief Act, the Mortgage Rate that would then have been in
effect in the absence of such event) minus ____% per annum, which is the sum of
the maximum Servicing Fee Rate and the Trustee Fee Rate.
"Net REO Revenues": With respect to any REO Loan, any and all REO
Revenues collected in connection therewith, net of (a) the portion of such REO
Revenues to be applied in accordance with the terms hereof to the proper
operation, management, maintenance, leasing and disposition of the related REO
Property and (b) all amounts payable or reimbursable to the Servicer out of such
REO Revenues as expressly provided herein for any of the following items
relating to such REO Loan: (i) unreimbursed Servicing Advances and interest
thereon in accordance with Section 4.03(g) and 4.08; (ii) unreimbursed P&I
Advances and interest thereon in accordance with Section 4.03(g) and 4.08; (iii)
unpaid Servicing Fees; (iv) unpaid Modification Fees; (v) unpaid Resolution
Fees; and (vi) unpaid Liquidation Fees.
"New Lease": Any lease of REO Property entered into on behalf of the
Trust Fund, including any lease renewed, modified or extended on behalf of the
Trust Fund if the Trust Fund has the right to renegotiate the terms of such
lease.
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"Non-Monthly Loan": Any Mortgage Loan that has Due Dates that occur
less frequently than monthly.
"Nonrecoverable Advance": A Nonrecoverable P&I Advance or a
Nonrecoverable Servicing Advance.
"Nonrecoverable P&I Advance": Any P&I Advance previously made or
proposed to be made in respect of a Mortgage Loan or REO Loan that, in the
reasonable good faith judgment of the Servicer, will not be ultimately
recoverable from Related Proceeds or from the Limited Guaranty.
"Nonrecoverable Servicing Advance": Any Servicing Advance previously
made or proposed to be made in respect of a Mortgage Loan or REO Property that,
in the reasonable good faith judgment of the Servicer, will not be ultimately
recoverable from Related Proceeds or from the Limited Guaranty.
"Non-Registered Certificate": Unless and until registered under the
Securities Act of 1933, as amended, any Class I-XS Certificate, Class II-XS
Certificate or Residual Certificate.
"Non-United States Person": Any person other than a United States
Person.
"Notional Amount": With respect to the Class I-XS Certificates as of
any date of determination, the aggregate of the Class Balances of the Sub-Pool I
Certificates. With respect to the Class II-XS Certificates as of any date of
determination, the aggregate of the Class Balances of the Sub-Pool II
Certificates.
"Officers' Certificate": A certificate signed by two Servicing
Officers.
"Opinion of Counsel": A written opinion of counsel addressed and
delivered to the Trustee reasonably acceptable to the Trustee, except that any
opinion of counsel relating to (a) the qualification of the Lower-Tier REMIC or
the Upper-Tier REMIC as a REMIC or (b) compliance with the REMIC Provisions,
must be an opinion of counsel who is in fact Independent of the Mortgage Loan
Seller and the Servicer. For purposes of clause (b) hereof, outside counsel to
the Mortgage Loan Seller and the Servicer shall be deemed to be Independent.
"Optimal Distributable Interest": With respect to the Class II-A,
Class II-B or Class II-C Certificates and any Distribution Date, the aggregate
Distributable Interest on such Class for such Distribution Date, determined
based upon the assumption that the Certificate Rate for such Class is determined
without regard to clause (ii) of the definition thereof.
"Optimal Wind-Down Date": With respect to any Mortgage Loan in a
particular Sub-Pool, not later than the earliest of (i) three years prior to the
Final Scheduled Distribution Date for such Sub-Pool, (ii) if such Mortgage Loan
is secured in whole or in part by a Mortgage on a leasehold estate, the date
occurring ten years prior to the termination of such leasehold estate and (iii)
five years following the Maturity Date of such Mortgage Loan (or, with respect
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to a Mortgage Loan that is a Matured Performing Mortgage Loan as of the Cut-off
Date, the earlier of (x) five years following the Cut-off Date and (y) the
number of years remaining to the end of the amortization term for such Matured
Performing Mortgage Loan).
"Original Class Balance": As to Class I-A Certificates, the Original
Class I-A Balance; as to the Class I-B Certificates, the Original Class I-B
Balance; as to the Class I-C Certificates, the Original Class I-C Balance; as to
Class I-D Certificates, the Original Class I-D Balance; as to the Class II-A
Certificates, the Original Class II-A Balance; as to the Class II-B
Certificates, the Original Class II-B Balance; and as to the Class II-C
Certificates, the Original Class II-C Balance.
"Original Class I-A Balance": $
"Original Class I-B Balance": $
"Original Class I-C Balance": $
"Original Class I-D Balance": $
"Original Class II-A Balance": $
"Original Class II-B Balance": $
"Original Class II-C Balance": $
"Original Uncertificated Regular Interest I-A Balance": $
"Original Uncertificated Regular Interest I-B Balance": $
"Original Uncertificated Regular Interest I-C Balance": $
"Original Uncertificated Regular Interest I-D Balance": $
"Original Uncertificated Regular Interest II-A Balance": $
"Original Uncertificated Regular Interest II-B Balance": $
"Original Uncertificated Regular Interest II-C Balance": $
"OTS": The Office of Thrift Supervision, or any successor thereto.
"Ownership Interest": With respect 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.
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"Payment Adjustment Date": With respect to each Adjustable Rate
Mortgage Loan, any date on which the related Scheduled Payment is subject to
adjustment pursuant to the related Mortgage Note. The first Payment Adjustment
Date subsequent to the Cut-off Date for each Adjustable Rate Mortgage Loan is
specified in the Mortgage Loan Schedule for Sub-Pool II, and successive Payment
Adjustment Dates for such Mortgage Loan shall thereafter periodically occur with
the frequency specified in the Mortgage Loan Schedule.
"Percentage Interest": With respect to any Regular Certificate of a
particular Class, the portion of such Class evidenced by such Certificate,
expressed as a percentage, the numerator of which is the initial Certificate
Balance of such Certificate as of the Closing Date, as specified on the face
thereof, and the denominator of which is the Original Class Balance of such
Class. With respect to any Residual Certificate, the portion of such Class
evidenced by such Certificate, as specified on the face thereof.
"Permitted Investments": Any one or more of the following
obligations or securities, regardless of whether issued by the FDIC, the
Servicer, the Trustee or any of their respective Affiliates and having at the
time of purchase, or at such other time as may be specified, the required
ratings, if any, provided for in this definition:
(i) direct obligations of, or guaranteed as to timely payment of
principal and interest by, the United States or any agency or
instrumentality thereof provided that such obligations are backed by the
full faith and credit of the United States of America;
(ii) direct obligations of, or guaranteed as to timely payment of
principal and interest by, FHLMC, FNMA or the Federal Farm Credit System,
provided that any such obligation, at the time of purchase or contractual
commitment providing for the purchase thereof, is qualified by each Rating
Agency as an investment of funds backing securities rated "Aaa" in the case
of Moody's and "AAA" in the case of Fitch or is backed by the full faith
and credit of the United States of America;
(iii) demand and time deposits in or certificates of deposit of, or
bankers' acceptances issued by, any bank or trust company, savings and loan
association or savings bank, provided that, in the case of obligations that
are not fully FDIC-insured deposits, the commercial paper and/or long-term
unsecured debt obligations of such depository institution or trust company
(or in the case of the principal depository institution in a holding
company system, the commercial paper or long-term unsecured debt
obligations of such holding company) have the highest rating available for
such securities by each Rating Agency (in the case of commercial paper) or
have received the highest rating available for such securities by each
Rating Agency (in the case of long-term unsecured debt obligations), or
such lower rating as will not result in the downgrading or withdrawal of
the rating or ratings then assigned to the Regular Certificates by either
Rating Agency;
(iv) general obligations of or obligations guaranteed by any state
of the United States or the District of Columbia receiving the highest
long-term debt rating available
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for such securities by each Rating Agency, or such lower rating as will not
result in the downgrading or withdrawal of the rating or ratings then
assigned to the Regular Certificates by either Rating Agency;
(v) commercial or finance company paper (including both non-
interest-bearing discount obligations and interest-bearing obligations
payable on demand or on a specified date not more than one year after the
date of issuance thereof) that is rated by each Rating Agency in its
highest short-term unsecured rating category at the time of such investment
or contractual commitment providing for such investment, and is issued by a
corporation the outstanding senior long-term debt obligations of which are
then rated by each Rating Agency in its highest long-term unsecured rating
categories, or such lower rating as will not result in the downgrading or
withdrawal of the rating or ratings then assigned to the Regular
Certificates by either Rating Agency;
(vi) guaranteed reinvestment agreements issued by any bank,
insurance company or other corporation as will not result in the
downgrading or withdrawal of the rating or ratings then assigned to the
Certificates by either Rating Agency;
(vii) repurchase obligations with respect to any security described
in clause (i) or (ii) above entered into with a depository institution or
trust company (acting as principal) meeting the rating standards described
in clause (iii) above;
(viii) securities bearing interest or sold at a discount that are
issued by any corporation incorporated under the laws of the United States
of America or any state thereof or the District of Columbia and rated by
each Rating Agency in its highest long-term unsecured rating category at
the time of such investment or contractual commitment providing for such
investment; provided, however, that securities issued by any such
corporation will not be Permitted Investments to the extent that investment
therein would cause the then outstanding principal amount of securities
issued by such corporation that are then held as part of the Collection
Account or the Distribution Account to exceed 20% of the aggregate
principal amount of all Permitted Investments then held in the Collection
Account and the Distribution Account;
(ix) units of taxable money market funds which funds are regulated
investment companies, seek to maintain a constant net asset value per share
and invest solely in obligations backed by the full faith and credit of the
United States, and have been designated in writing by each Rating Agency as
Permitted Investments with respect to this definition;
(x) if previously confirmed in writing to the Trustee, any other
demand, money market or time deposit, or any other obligation, security or
investment, as may be acceptable to each Rating Agency as a permitted
investment of funds backing securities rated "Aaa" by Moody's and "AAA" by
Duff & Phelps; and
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(xi) such other obligations as are acceptable as Permitted
Investments to each Rating Agency;
provided, however, that (A) such obligation or security continues to qualify as
a "cash flow investment" pursuant to Section 860G(a)(6) of the Code; (B) no
obligation or security shall be a Permitted Investment if (i) such obligation or
security evidences a right to receive only interest payments or (ii) the stated
interest rate on such obligation or security is in excess of 120% of the yield
to maturity produced by the price at which such obligation or security was
purchased; and (C) if such obligation or security is, at the time of such
investment, not rated by Duff & Phelps, such obligation or security need only be
rated by Moody's.
"Permitted Transferee": Any Person other than a Disqualified
Organization.
"Person": Any individual, corporation, partnership, joint venture,
association, limited liability company, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"P&I Advance": As to any Mortgage Loan or REO Loan, any advance made
by the Servicer on any P&I Advance Date pursuant to Section 4.03.
"P&I Advance Date": The Business Day immediately prior to each
Distribution Date.
"Prepayment Assumption": The prepayment assumption first described
on page __ of the Prospectus, dated December __,1996 relating to the Regular
Certificates.
"Prepayment Interest Excess": With respect to any Distribution Date,
for each Mortgage Loan that was subject to a Principal Prepayment in full or in
part during the related Due Period following its Due Date therein, the amount of
interest accrued at the Net Mortgage Rate for such Mortgage Loan on the amount
of such Principal Prepayment and allocable to the period from and after such Due
Date, to the extent collected.
"Prepayment Interest Shortfall": With respect to any Distribution
Date, for each Mortgage Loan that was subject to a Principal Prepayment in full
or in part during the related Due Period prior to its Due Date therein, the
amount of interest that would have accrued at the Net Mortgage Rate for such
Mortgage Loan on the amount of such Principal Prepayment during the period
commencing on the date as of which such Principal Prepayment was applied and
ending on the day immediately preceding such Due Date, inclusive.
"Prepayment Period": For each Distribution Date, the period
commencing on the sixteenth day of the month preceding the month in which such
Distribution Date occurs (or, in the case of the first Distribution Date, the
period that begins on the day following the Cut-off Date) and ending on the
fifteenth day of the month in which such Distribution Date occurs.
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"Prepayment Premium": Any premium, penalty or fee paid or payable, as
the context requires, by a Mortgagor in connection with a Principal Prepayment.
"Principal Prepayment": Any payment of principal made by the
Mortgagor on a Mortgage Loan received in advance of its scheduled Due Date and
which is not accompanied by an mount of interest representing scheduled interest
due on any date or dates in any month or months subsequent to the month of
prepayment.
"Projected Net Mortgage Rate": With respect to any Fixed Rate Loan
that became a Discounted Mortgage Loan following the Cut-off Date, the greater
of (a) the Net Mortgage Rate for such Fixed Rate Loan and (b) ____% per annum.
"Purchase Price": With respect to any Mortgage Loan to be purchased
by or on behalf of the FDIC pursuant to Section 2.04 or 2.05, by the Servicer
pursuant to Section 3.18(b), by the Servicer or the Controlling Class R-UT
Certificateholder pursuant to Section 9.01, or to be otherwise sold pursuant to
Section 3.18(c), the outstanding principal balance thereof as of the date of
purchase, together with (i) all accrued and unpaid interest at the Mortgage Rate
on such Mortgage Loan from the Due Date as to which interest was last paid by
the Mortgagor to but not including the Due Date in the Due Period in which such
purchase occurred (exclusive of any portion of such interest representing
Mortgage Loan Negative Amortization for prior Due Dates previously added to the
principal balance of such Mortgage Loan), (ii) all related unreimbursed
Servicing Advances, (iii) all accrued and unpaid interest on related Servicing
Advances and related P&I Advances pursuant to Section 4.08 and (iv) if such
Mortgage Loan is being purchased by or on behalf of the FDIC pursuant to Section
2.04 or 2.05, all expenses reasonably incurred or to be incurred by the Servicer
and the Trustee in respect of the Breach or Defect giving rise to the repurchase
obligation, including, without limitation, any expenses arising out of the
enforcement of the repurchase obligation. With respect to any REO Property to
be sold pursuant to Section 3.18(c), the amount calculated in accordance with
the preceding sentence in respect of the related REO Loan.
"Qualified Insurer": An insurance company or security or bonding
company qualified to write the related insurance policy in the relevant
jurisdiction which, in the case of a hazard or flood insurance policy, shall
either have a "Claims Paying Rating" of "Aa2" or better from Moody's and "AA" or
better from Duff & Phelps (if rated by Duff & Phelps) or be otherwise acceptable
as a Qualified Insurer to each Rating Agency; provided that if such company has
no "Claims Paying Rating" from Duff & Phelps, such company need only be rated
by, or be acceptable to, Moody's. With respect to any such policy having cut-
through re-insurance provisions, the foregoing rating requirement shall instead
be met by the primary insurer or any insurance carrier that is providing re-
insurance coverage to such insurance company in connection with the insurance
coverage required, provided such re-insurance carrier has agreed that the
insured parties under the primary insurance coverage that is being re-insured
will have direct (or cut-through) access to such re-insurance.
"Qualified Substitute Mortgage Loan": A mortgage loan substituted for
a Deleted Mortgage Loan pursuant to the terms of this Agreement, which must, on
the date of such
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substitution, (i) have an outstanding principal balance, after application of
all scheduled payments of principal and interest due during or prior to the
month of substitution, not in excess of the Scheduled Principal Balance of the
Deleted Mortgage Loan as of the Due Date in the calendar month during which the
substitution occurs, (ii)(A) in the case of a Substitute Mortgage Loan that is
an Adjustable Rate Mortgage Loan, (1) have the same Index as the Index on the
Deleted Mortgage Loan, an Index based on LIBOR or an Index based on The Wall
Street Journal Prime Rate, (2) have a Gross Margin not less than the Gross
Margin on the Deleted Mortgage Loan, (3) if applicable, have a maximum mortgage
rate and minimum mortgage rate not less than the maximum Mortgage Rate and
minimum Mortgage Rate, respectively, on the Deleted Mortgage Loan, (4) provide
for Scheduled Payment adjustments to occur not less frequently than on the
Deleted Mortgage Loan and (5) not permit negative amortization unless the
Deleted Mortgage Loan permits negative amortization and (B) in the case of a
Substitute Mortgage Loan that is a Fixed Rate Mortgage Loan, have a mortgage
rate not less than the Mortgage Rate of the Deleted Mortgage Loan, (iii) have a
remaining term to maturity not later than the earlier of the remaining term to
maturity of the Deleted Mortgage Loan and the latest maturity permitted if such
substitute Mortgage Loan were subject to the modification standards set forth in
Section 3.19 hereof, (iv) comply with all of the representations and warranties
set forth in Section 2.03(c) and Section 2.05(a) hereof and (v) otherwise be
acceptable to each Rating Agency. In the event that one or more mortgage loans
are substituted for one or more Deleted Mortgage Loans, then the amounts
described in clause (i) shall be determined on the basis of aggregate principal
balances.
"Rating Agency": Duff & Phelps or Moody's. If either such agency or
successor thereto is no longer in existence, "Rating Agency" shall be such
nationally recognized statistical rating agency or other comparable Person
designated by the Mortgage Loan Seller, notice of which designation shall be
given to the Trustee and Servicer.
"Realized Loss": With respect to each Mortgage Loan as to which a
Final Recovery Determination has been made, an amount (not less than zero) equal
to (i) the outstanding principal balance (reduced as described in the last
paragraph of this definition, if applicable) of such Mortgage Loan as of the
commencement of the Due Period in which the Final Recovery Determination was
made, plus (ii) accrued and unpaid interest at the Mortgage Rate (or, in the
case of a Discounted Mortgage Loan, at the Projected Net Mortgage Rate) on such
Mortgage Loan from the Due Date as to which interest was last paid by the
Mortgagor to but not including the Due Date in the Due Period in which such
Final Recovery Determination was made (exclusive of any portion of such interest
representing Mortgage Loan Negative Amortization for prior Due Dates previously
added to the principal balance of such Mortgage Loan), plus (iii) all related
unreimbursed Servicing Advances, (iv) all accrued and unpaid interest on related
Servicing Advances and related P&I Advances pursuant to Section 4.08, minus (v)
the proceeds, if any, received in respect of such Mortgage Loan during the Due
Period in which such Final Recovery Determination was made, net of amounts that
are payable therefrom to the Servicer with respect to such Mortgage Loan in
respect of unpaid Servicing Fees, Modification Fees, Resolution Fees and
Liquidation Fees.
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With respect to any REO Property as to which a Final Recovery
Determination has been made, an amount (not less than zero) equal to (i) the
outstanding principal balance (reduced as described in the last paragraph of
this definition, if applicable) of the related Mortgage Loan as of the date of
acquisition of such REO Property on behalf of the Trust Fund, plus (ii) accrued
and unpaid interest at the Mortgage Rate (or, in the case of a Discounted
Mortgage Loan, at the Projected Net Mortgage Rate) on such Mortgage Loan from
the Due Date as to which interest was last paid by the Mortgagor to but not
including the Due Date in the Due Period in which such REO Property was acquired
(exclusive of any portion of such interest representing Mortgage Loan Negative
Amortization for prior Due Dates previously added to the principal balance of
such Mortgage Loan), plus (iii) the REO Payment for such REO Property for each
Due Period commencing with the Due Period in which such REO Property was
acquired and ending with the Due Period in which such Final Recovery
Determination was made, plus (iv) any amounts previously withdrawn from the
Collection Account in respect of the related Mortgage Loan pursuant to Sections
3.05(a)(v) and 3.09, minus (v) the aggregate of all P&I Advances made by the
Servicer in respect of such REO Property or the related Mortgage Loan for which
the Servicer or the FDIC have been or, in connection with such Final Recovery
Determination, will be reimbursed pursuant to Section 3.16 (c) out of REO
Revenues, Insurance Proceeds and Liquidation Proceeds received in respect of
such REO Property, minus (vi) the total of all REO Revenues, Insurance Proceeds
and Liquidation Proceeds received in respect of such REO Property that has been,
or in connection with such Final Recovery Determination, will be transferred to
the Distribution Account pursuant to Section 3.16.
With respect to each Mortgage Loan which has become the subject of a
Deficient Valuation, the difference between the outstanding principal balance
(reduced as described in the last paragraph of this definition, if applicable)
of the Mortgage Loan outstanding immediately prior to such Deficient Valuation
and the outstanding principal balance of the Mortgage Loan as reduced in
connection with the Deficient Valuation.
The outstanding principal balance of any Mortgage Loan or REO Property
described in the three preceding paragraphs shall be reduced in the case of any
Discounted Mortgage Loan by the aggregate amount by which such balance has been
discounted, commencing with any loan discounted as of the Cut-off Date.
"Record Date": With respect to any Distribution Date, the last
Business Day of the calendar month immediately preceding the month in which such
Distribution Date occurs. For so long as any Class of Certificates is
registered in the name of the Depository or its nominee, the date referred to
for purposes of establishing various rights of the related Certificate Owners,
such as the entitlement to distributions in respect of the Certificates of such
Class, are subject to the standards of the Depository.
"Regular Certificate": Any Sub-Pool I Certificate, Sub-Pool II
Certificate or Stripped Interest Certificate.
"Regular Interest": A "regular interest" in a REMIC within the
meaning of Section 860G(a)(1) of the Code.
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"Related Proceeds": With respect to an Advance on any Mortgage Loan
or REO Loan or REO Property, any recovery of funds in respect thereof, other
than from the Limited Guaranty, including without limitation, late payments,
Insurance Proceeds, Liquidation Proceeds in respect of such Mortgage Loan, REO
Loan or REO Property.
"Relief Act": The Soldiers' and Sailors' Civil Relief Act of 1940, as
amended.
"Relief Act 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 Due Period as a result of the
application of the Relief Act.
"REMIC": A "real estate mortgage investment conduit" as defined in
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 Treasury regulations and any published
rulings, notices or announcements promulgated thereunder, as the foregoing may
be in effect from time to time.
"Remittance Rate": The Sub-Pool I Remittance Rate or the Sub-Pool II
Remittance Rate.
"Rents from Real Property": With respect to any REO Property, gross
income of the character described in Section 856(d) of the Code.
"REO Account": A segregated custodial account or accounts created and
maintained by the Servicer pursuant to Section 3.16(b) on behalf of the Trustee
in trust for the Certificateholders, which shall be entitled "Banc One
Management and Consulting Corporation, as Servicer, in trust for registered
holders of FDIC REMIC Trust 1996-C1, Commercial Mortgage Pass-Through
Certificates, Series 1996-C1".
"REO Acquisition": The acquisition of any REO Property pursuant to
Section 3.9.
"REO Disposition": The receipt by the Servicer of all payments or
cash recoveries (including proceeds of a final sale) which the Servicer, in its
reasonable good faith judgment, expects to be finally recoverable from the sale
or other disposition of the REO Property.
"REO Loan": Any Mortgage Loan as to which the related Mortgaged
Property has become an REO Property. For the purposes specified herein, an REO
Loan shall be treated, including without limitation in allocating collections in
respect thereof (exclusive of amounts to be paid as Modification Fees,
Resolution Fees or Liquidation Fees, amounts to be paid or escrowed for the
payment of the costs of operating, managing and maintaining such REO
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Property and amounts to be paid as interest on related P&I Advances and related
Servicing Advances) among principal, accrued and unpaid interest and other
amounts due and owing under the related Mortgage Note, exactly as the related
Mortgage Loan and the terms and conditions of the related Mortgage Note and
Mortgage shall continue to be given full force and effect following the date of
REO Acquisition, except that (i) Mortgage Loan Negative Amortization shall not
occur in respect of an REO Loan, (ii) Due Dates thereon shall be deemed to occur
monthly, even if the related Mortgage Loan was a Non-Monthly Loan, (iii)
interest deemed to be due on each Due Date shall be calculated in arrears, even
if the related Mortgage Loan provided for the accrual of interest in advance and
(iv) the accrual of interest shall be calculated on an actuarial basis, even if
the related Mortgage Loan was a Simple Interest Loan. All amounts due and owing
in respect of any Mortgage Loan as of the date it becomes an REO Loan shall
continue to be due and owing in respect of such REO Loan for purposes of this
Agreement and shall not be reduced by the amount legally credited as a result of
the bid and acquisition of the REO Property on behalf of the Trust Fund.
"REO Payment": With respect to any REO Loan as to any Due Date from
and after the date of the related REO Acquisition, an amount equal to the
interest portion of the Scheduled Payment (or, in the case of a Non-Monthly
Loan, the Monthly Portion of such Scheduled Payment) due on the related Mortgage
Loan on such Due Date. If such Mortgage Loan was an Adjustable Rate Mortgage
Loan, the interest portion of such Scheduled Payment shall be adjusted to
reflect changes to the related Mortgage Rate, taking into account any limitation
to such adjustments contained in the related Mortgage Note, but without regard
to any limitation in such Mortgage Note on adjustment to Scheduled Payments.
"REO Property": A Mortgaged Property acquired by the Servicer in the
name of the Trustee on behalf of the Certificateholders through foreclosure,
acceptance of a deed-in-lieu of foreclosure or otherwise in accordance with
applicable law in connection with the default or reasonably foreseeable default
of a Mortgage Loan.
"REO Revenues": All income, rents and profits derived from the
ownership, operation or leasing of any REO Property.
"Request for Release": A request signed by a Servicing Officer, in
the form of Exhibit E-1 attached hereto.
-------
"Residual Account": The segregated account or accounts created and
maintained by the Trustee pursuant to Section 1.05(a) which shall be entitled
"State Street Bank and Trust Company, as Trustee, in trust for the registered
holders of FDIC REMIC Trust 1996-C1, Commercial Mortgage Pass-Through
Certificates, Series 1996-C1".
"Residual Allocation Period": With respect to any Distribution Date
(other than the first Distribution Date), the period ending on such Distribution
Date and commencing on the day following the immediately preceding Distribution
Date.
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"Residual Cash Flow": With respect to any Distribution Date, the sum
of the Lower-Tier REMIC Residual Cash Flow and the Upper-Tier REMIC Residual
Cash Flow for such Distribution Date.
"Residual Certificate": Any Class R-LT Certificate or Class R-UT
Certificate.
"Residual Interest": A "residual interest" in a REMIC within the
meaning of Section 860G(a)(2) of the Code.
"Resolution Fee": The fee payable to the Servicer as described in
Section 3.19 in connection with the modification of a Mortgage Loan (other than
a Matured Performing Mortgage Loan as of the Cut-off Date) during the Resolution
Period pursuant to Section 3.19, which fee shall be in addition to any
Modification Fee then payable by the related Mortgagor, and shall be an amount
equal to ____% of all amounts collected by the Servicer on such modified
Mortgage Loan. No Resolution Fee is payable with respect to a Matured
Performing Mortgage Loan as of the Cut-off Date except with respect to
modifications occurring after the 121st day following the Closing Date.
"Resolution Period": With respect to any Mortgage Loan, either (x)
the period commencing on the day on which such Mortgage Loan becomes a Defaulted
Mortgage Loan and ending on the day that such delinquency is cured or (y) the
period commencing on the 61st calendar day following its Maturity Date, as
applicable.
"Resource Conservation and Recovery Act": The Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901 et seq.
"Responsible Officer": Any officer of the Trustee in its corporate
trust department or similar group and, 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.
"Resulting Loss": As defined in Section 2.04.
"Scheduled Payment": With respect to any Mortgage Loan, the scheduled
monthly payment of principal and interest on such Mortgage Loan (or, in the case
of a Non-Monthly Loan, the Monthly Portion of such Scheduled Payment), including
any Balloon Payment, that is payable by a Mortgagor on each Due Date under the
related Mortgage Note and applicable law and, in the case of a Simple Interest
Loan, based upon the calculations of the Servicer, (a) after giving effect to
(i) any amortization of such Mortgage Loan as a result of a Principal Prepayment
applied, or a Deficient Valuation made, prior to the Due Date for such Scheduled
Payment; (ii) any Debt Service Reduction with respect to such Mortgage Loan or
any other reduction in the amount paid under such Mortgage Loan pursuant to a
cash collateral order by a court of competent jurisdiction in a proceeding under
the Bankruptcy Code; (iii) any reduction in the amount of interest collectible
from the related Mortgagor pursuant to the Relief Act; and (iv) any
modification, waiver or amendment granted or agreed to by the Servicer
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pursuant to Section 3.19; (b) on the assumption that all other amounts, if any,
due under such Mortgage Loan are paid when due; (c) without taking into account
late fees and default interest rates; and (d) in the case of a Mortgage Loan
that by its terms pays interest in advance rather than in arrears, the Scheduled
Payment (i) is the principal portion on such Mortgage Loan that is or would be
payable on such Due Date under the related Mortgage Note and (ii) the interest
portion on such Mortgage Loan that was payable on the preceding Due Date.
"Scheduled Principal Balance": With respect to any Mortgage Loan
other than a Mortgage Loan that became a Discounted Mortgage Loan following the
Cut-off Date, as of any Due Date, (a) the Cut-off Date Balance of such Mortgage
Loan, plus (b) any Mortgage Loan Negative Amortization added to such Cut-off
Date Balance on any Due Date after the Cut-off Date up to and including such Due
Date, minus (c) the sum of:
(i) the principal portion of each Scheduled Payment due on such
Mortgage Loan on each Due Date after the Cut-off Date up to and including
such Due Date (other than a Balloon Payment, but including the principal
portion of any Assumed Scheduled Payment, if applicable), whether or not
received or advanced;
(ii) all Principal Prepayments received after the Cut-off Date up to
and including such Due Date (or, in the case of a Discounted Mortgage Loan,
the discounted portion of such prepayment);
(iii) the principal portion of all Insurance Proceeds and Liquidation
Proceeds received after the Cut-off Date up to and including such Due Date;
and
(iv) any reduction in the outstanding principal balance of such
Mortgage Loan in connection with a Deficient Valuation that occurred after
the Cut-off Date up to and including such Due Date.
With respect to any Mortgage Loan that became a Discounted Mortgage
Loan following the Cut-off Date, (a) the Discounted Principal Balance thereof as
of the Discount Date, minus (b) the sum of the items described in clauses (i)-
(iv) of the immediately preceding sentence, to the extent received or incurred
following the Discount Date.
"Security Agreement": With respect to any Mortgage Loan, any security
agreement or equivalent instrument, whether contained in the related Mortgage or
executed separately, creating in favor of the holder of such Mortgage a security
interest in the personal property constituting security for repayment of such
Mortgage Loan.
"Servicer": Banc One Management and Consulting Corporation, its
successor in interest, or any successor servicer appointed as herein provided.
"Servicing Advances": All customary, reasonable and necessary "out of
pocket" costs and expenses (including attorneys' fees and expenses and fees of
real estate brokers) incurred in the performance by the Servicer of its
servicing obligations, including, but not
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limited to, the cost of (i) compliance with the Servicer's obligations set forth
in Section 3.03(c), (ii) the preservation, restoration and protection of a
Mortgaged Property, (iii) obtaining any Insurance Proceeds or any Liquidation
Proceeds of the nature described in clauses (i) - (iii) of the definition of
"Liquidation Proceeds", (iv) any modification, waiver, amendment, workout,
restructure, enforcement or judicial proceedings with respect to a Mortgage Loan
or a Mortgaged Property, including foreclosures, (v) the management,
maintenance, leasing, operation and liquidation of any REO Property and (vi)
satisfying or keeping current any mortgage loan that is secured by a lien on a
Mortgaged Property that is prior to the lien of the related Mortgage Loan on
such property.
"Servicing Fee": With respect to each Mortgage Loan and REO Loan, the
fee payable to the Servicer pursuant to Section 3.11(a).
"Servicing Fee Rate": With respect to each Mortgage Loan and REO
Loan, a per annum rate calculated in accordance with the following table:
Delinquency Ratio Servicing Fee Rate
----------------- ------------------
0% - 5% 0.17%
over 5% - 7% 0.15%
over 7% 0.13%
For the purposes of this definition, "Delinquency Ratio" means the ratio
(expressed as a percentage) computed on each Determination Date by dividing (i)
the aggregate outstanding principal balance of all Mortgage Loans (other than
REO Loans) that were Delinquent Mortgage Loans as of such date by (ii) the
aggregate outstanding principal balance of all Mortgage Loans (other than REO
Loans) as of such date.
"Servicing Officer": Any officer or authorized employee of the
Servicer involved in, or responsible for, the administration and servicing of
the Mortgage Loans, whose name and specimen signature appears on a list of
servicing officers and authorized employees furnished in writing to the Trustee
by the Servicer, as such list may be amended from time to time.
"Simple Interest Excess": With respect to each Simple Interest Loan
and any Distribution Date, the excess (as calculated by the Servicer) of (i) the
Scheduled Payment due on the Due Date during the related Due Period (as
calculated by the Servicer) over (ii) the amount of the Scheduled Payment that
would have been due on such Due Date if the accrual of interest on such loan
were calculated on an actuarial basis.
"Simple Interest Loan": Any Mortgage Loan that provides for the
accrual of interest on the principal amount thereof on a simple interest basis,
as identified on the Mortgage Loan Schedule.
"Simple Interest Shortfall": With respect to each Simple Interest
Loan and any Distribution Date, the excess (as calculated by the Servicer) of
(i) the amount of the Scheduled Payment that would have been due on the Due Date
during the related Due Period if the accrual
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of interest on such loan were determined upon an actuarial basis over (ii) the
Scheduled Payment due on such Due Date (as calculated by the Servicer).
"Startup Day": With respect to each of the Lower-Tier REMIC and the
Upper-Tier REMIC, the day designated as such in Section 10.01(c).
"Stated Principal Balance": With respect to any Mortgage Loan other
than a Mortgage Loan that became a Discounted Mortgage Loan following the Cut-
off Date, as of any date of determination up to but not including the
Distribution Date on which proceeds, if any, of a Liquidation Event with respect
to such Mortgage Loan would be distributed, (a) the Cut-off Date Balance of such
Mortgage Loan, plus (b) any Mortgage Loan Negative Amortization added to such
Cut-off Date Balance on any Due Date after the Cut-off Date up to and including
the Due Date in the Due Period for the most recently preceding Distribution
Date, minus (c) the sum of:
(i) the principal portion of each Scheduled Payment due on such
Mortgage Loan after the Cut-off Date, to the extent received from the
Mortgagor or advanced by the Servicer and included as part of an Available
Distribution Amount distributed pursuant to Section 4.01 on or before such
date of determination;
(ii) all Principal Prepayments received with respect to such
Mortgage Loan after the Cut-off Date and included as part of an Available
Distribution Amount distributed pursuant to Section 4.01 on or before such
date of determination (or, in the case of a Discounted Mortgage Loan and
any Principal Prepayment in part, the discounted portion of such payment);
(iii) the principal portion of all Insurance Proceeds and Liquidation
Proceeds received with respect to such Mortgage Loan after the Cut-off Date
and included as part of an Available Distribution Amount distributed
pursuant to Section 4.01 on or before such date of determination; and
(iv) any reduction in the outstanding principal balance of such
Mortgage Loan in connection with a Deficient Valuation or Debt Service
Reduction that occurred during or prior to the Due Period for the most
recent Distribution Date coinciding with or preceding such date of
determination.
With respect to any Mortgage Loan that became a Discounted Mortgage
Loan following the Cut-off Date, (a) the Discounted Principal Balance thereof as
of the Discount Date, minus (b) the sum of the items described in clauses (i)-
(iv) of the immediately preceding sentence, to the extent received or incurred
following the Discount Date.
With respect to any REO Loan, as of any date of determination up to
but not including the Distribution Date on which proceeds, if any, of a
Liquidation Event with respect to such REO Loan would be distributed, an amount
(not less than zero) equal to (x) the Stated Principal Balance of the related
Mortgage Loan as of the date of the related REO Acquisition,
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minus (y) the principal portion of all Insurance Proceeds, Liquidation Proceeds
and REO Revenues received with respect to such REO Loan and included as part of
an Available Distribution Amount distributed pursuant to Section 4.01 on or
before such date of determination.
A Mortgage Loan or REO Loan shall be deemed to be part of the Trust
Fund and to have an outstanding Stated Principal Balance through and including
the Distribution Date on which the proceeds, if any, received in connection with
a Liquidation Event in respect thereof are to be distributed to
Certificateholders. The Stated Principal Balance of a Mortgage Loan or REO Loan
following a Liquidation Event in connection therewith shall be zero.
"Stripped Interest Certificate": A Class I-XS Certificate or a Class
II-XS Certificate.
"Stripped Interest Component": Any Sub-Pool I Stripped Interest
Component or Sub-Pool II Stripped Interest Component.
"Sub-Pool": Either of Sub-Pool I or Sub-Pool II.
"Sub-Pool I": The sub-pool of Mortgage Loans consisting of the Fixed
Rate Mortgage Loans identified on Schedule 1 from time to time, and any REO
Properties acquired in respect thereof.
"Sub-Pool I Available Coverage Amount": As defined in the Limited
Guaranty.
"Sub-Pool I Available Distribution Amount": With respect to Sub-Pool
I for any Distribution Date, an amount equal to (a) the sum of (i) the amount on
deposit in the Collection Account and the Distribution Account as of the close
of business on the related Determination Date allocable to such Sub-Pool, (ii)
the aggregate amount of any P&I Advances allocable to Sub-Pool I made by the
Servicer on the related P&I Advance Date pursuant to Section 4.03, (iii) the
aggregate amount received in respect of REO Properties in such Sub-Pool
transferred from the REO Account (if established) to the Distribution Account on
the related P&I Advance Date pursuant to Section 3.16(c) and/or Section 3.16(d),
(iv) the aggregate amount of Compensating Interest Payments allocable to such
Sub-Pool made by the Servicer pursuant to Section 3.20(b) and (v) the aggregate
amount paid for such Distribution Date by the FDIC in respect of Realized Losses
and Limited Guaranty Draw Loans pursuant to Section 3.02 of the Limited Guaranty
that is allocable to Sub-Pool I, net of (b) the portion of the amount described
in clause (a)(i) hereof that represents one or more of the following: (i)
Scheduled Payments paid by the Mortgagors that are due on a Due Date following
the end of the related Due Period, (ii) any Principal Prepayments (together with
any related payments of interest allocable to the period following the Due Date
for the related Mortgage Loan during the related Due Period), Liquidation
Proceeds, Insurance Proceeds and other unscheduled recoveries (including without
limitation amounts paid by the FDIC in connection with (x) the breach of a
representation and warranty pursuant to Section 2.03 and 2.05 and (y) interest
overcharges on ARM Loans pursuant to Section 3.20) received after the end of the
related Due Period, (iii) any amounts payable or
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reimbursable from the Collection Account pursuant to clauses (ii) - (xiii) of
Section 3.05(a) in respect of such Sub-Pool, (iv) any interest or investment
income earned on amounts on deposit in the Collection Account or the
Distribution Account allocable to such Sub-Pool, (v) amounts payable or
reimbursable to the Trustee from the Collection Account pursuant to Section 8.05
or from the Distribution Account pursuant to Section 3.04 in respect of such
Sub-Pool, (vi) any amounts on deposit in the Collection Account or the
Distribution Account allocable to such Sub-Pool that were not required to be
deposited therein and (vii) the interest portion of Scheduled Payments on
Mortgage Loans providing for the accrual of interest in advance due during the
related Due Period.
"Sub-Pool I Certificates": Collectively, the Class I-A, Class I-B,
Class I-C and Class I-D Certificates.
"Sub-Pool I Optimal Principal Distribution Amount": With respect to
Sub-Pool I on any Distribution Date, the sum of:
(a) the principal portion of all Scheduled Payments, excluding Balloon
Payments, that became due during the related Due Period on the Mortgage
Loans in Sub-Pool I (other than a Discounted Mortgage Loan), whether or not
such Scheduled Payments were received;
(b) the principal portion of all Assumed Scheduled Payments deemed to
become due during the related Due Period with respect to any Balloon
Mortgage Loan in Sub-Pool I that is delinquent in respect of its Balloon
Payment, including any Matured Performing Mortgage Loan, whether or not
such Assumed Scheduled Payments are received;
(c) the principal portion of any Scheduled Payment that became due,
and the principal portion of any Assumed Scheduled Payment that is deemed
to have become due, during the related Due Period on any Discounted
Mortgage Loan in Sub Pool I that would be applied in reduction of Scheduled
Principal Balance in accordance with the definition thereof and Section
1.04;
(d) to the extent not included in clause (b) hereof, the principal
portion of all Balloon Payments on the Mortgage Loans in Sub-Pool I, in
each case up to the Scheduled Principal Balance thereof, received during
the related Due Period;
(e) to the extent not included in the preceding clauses hereof, all
Principal Prepayments and the principal portion of all Insurance Proceeds
and Liquidation Proceeds on any Mortgage Loan in Sub-Pool I, up to the
Scheduled Principal Balance thereof, received in the related Due Period;
(f) the aggregate amount of reductions in the principal balances of
the Mortgage Loans in Sub-Pool I in connection with Deficient Valuations,
in each case up to the Scheduled Principal Balance thereof, occurring in
the related Due Period;
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(g) with respect to each Mortgage Loan in Sub-Pool I as to which a
Discount Date occurred during the related Due Period, the excess, if any,
of the Scheduled Principal Balance of such loan immediately prior to such
Discount Date over the Discounted Principal Balance thereof;
(h) with respect to each Mortgage Loan in Sub-Pool I that became a
Limited Guaranty Draw Loan during the related Due Period, other than as
described in clause (i) of the definition thereof, the resulting decline in
the Scheduled Principal Balance thereof;
(i) in connection with the substitution of one or more Qualified
Substitute Mortgage Loans for one or more Deleted Mortgage Loans in Sub-
Pool I pursuant to Section 2.04 during the related Due Period, the excess,
if any, of (i) the aggregate of the Stated Principal Balances (calculated
as of the respective dates of substitution) of such Deleted Mortgage Loans,
net of the aggregate of the principal portions of the Scheduled Payments
due during such related Due Period (to the extent received from the related
Mortgagor or advanced by the Servicer and distributed pursuant to Section
4.01 on the Distribution Date in the related Due Period) in respect of each
such Deleted Mortgage Loan that was replaced prior to the Distribution Date
in the related Due Period, over (ii) the aggregate of the Stated Principal
Balances (calculated as of the respective dates of substitution) of such
Qualified Substitute Mortgage Loans; and
(j) to the extent not included in any of the preceding clauses, the
Scheduled Principal Balance of each Mortgage Loan in Sub-Pool I as of the
Determination Date in the month preceding the month in which such
Distribution Date occurs that either was purchased or repurchased from the
Trust Fund pursuant to Section 2.04, 2.05, 3.18 or 9.01, or as to which a
Final Recovery Determination was made during the related Due Period.
"Sub-Pool I Remittance Rate": With respect to each of the
Uncertificated Sub-Pool I Regular Interests and any Distribution Date, a per
annum rate equal to the Weighted Average Effective Net Mortgage Rate for Sub-
Pool I as of such Distribution Date.
"Sub-Pool I Stripped Interest Components": Collectively, Component I-
AXS, Component I-BXS, Component I-CXS and Component I-DXS.
"Sub-Pool II": The sub-pool of Mortgage Loans consisting of the
Adjustable Rate Mortgage Loans identified on Schedule 2 from time to time, and
any REO Properties acquired in respect thereof.
"Sub-Pool II Available Coverage Amount": As defined in the Limited
Guaranty.
"Sub-Pool II Available Distribution Amount": With respect to Sub-Pool
II for any Distribution Date, an amount equal to (a) the sum of (i) the amount
on deposit in the Collection Account and the Distribution Account as of the
close of business on the related Determination Date allocable to Sub-Pool II,
(ii) the aggregate amount of any P&I Advances
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allocable to Sub-Pool II made by the Servicer on the related P&I Advance Date
pursuant to Section 4.03, (iii) the aggregate amount received in respect of REO
Properties in such Sub-Pool transferred from the REO Account (if established) to
the Distribution Account on the related P&I Advance pursuant to Section 3.16(c)
and/or Section 3.16(d), (iv) the aggregate amount of Compensating Interest
Payments allocable to such Sub-Pool made by the Servicer pursuant to Section
3.20(b) and (v) the aggregate amount paid for such Distribution Date by the FDIC
in respect of Realized Losses and Limited Guaranty Draw Loans pursuant to
Section 3.02 of the Limited Guaranty that is allocable to Sub-Pool II, net of
(b) the portion of the amount described in clause (a)(i) hereof that represents
one or more of the following: (i) Scheduled Payments paid by the Mortgagors
that are due on a Due Date following the end of the related Due Period, (ii) any
Principal Prepayments (together with any related payments of interest allocable
to the period following the Due Date for the related Mortgage Loan during the
related Due Period), Liquidation Proceeds, Insurance Proceeds and other
unscheduled recoveries (including without limitation amounts paid by the FDIC in
connection with (x) the breach of a representation and warranty pursuant to
Section 2.03 and 2.05 and (y) interest overcharges on ARM Loans pursuant to
Section 3.20) received after the end of the related Due Period, (iii) any
amounts payable or reimbursable from the Collection Account pursuant to clauses
(ii) - (xiii) of Section 3.05(a) in respect of such Sub-Pool, (iv) any interest
or investment income earned on amounts on deposit in the Collection Account or
the Distribution Account allocable to such Sub-Pool, (v) amounts payable or
reimbursable to the Trustee from the Collection Account pursuant to Section 8.05
or from the Distribution Account pursuant to Section 3.04 in respect of such
Sub-Pool, (vi) any amounts on deposit in the Collection Account or the
Distribution Account allocable to such Sub-Pool that were not required to be
deposited therein and (vii) the interest portion of Scheduled Payments on
Mortgage Loans providing for the accrual of interest in advance due during the
related Due Period.
"Sub-Pool II Certificates": Collectively, the Class II-A, Class II-B
and Class II-C Certificates.
"Sub-Pool II Optimal Principal Distribution Amount": With respect to
Sub-Pool II on any Distribution Date, the sum of:
(a) the principal portion of all Scheduled Payments, excluding Balloon
Payments, that became due during the related Due Period on the Mortgage
Loans in Sub-Pool II, whether or not such Scheduled Payments were received;
(b) the principal portion of all Assumed Scheduled Payments deemed to
have become due during the related Due Period with respect to any Balloon
Mortgage Loan in Sub-Pool II that is delinquent in respect of its Balloon
Payment, including any Matured Performing Mortgage Loan, whether or not
such Assumed Scheduled Payments are received;
(c) to the extent not included in clause (b) hereof, the principal
portion of all Balloon Payments on the Mortgage Loans in Sub-Pool II, in
each case up to the Scheduled Principal Balance thereof, received during
the related Due Period;
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(d) to the extent not included in the preceding clauses hereof, all
Principal Prepayments and the principal portion of all Insurance Proceeds
and Liquidation Proceeds on any Mortgage Loan in Sub-Pool II, up to the
Scheduled Principal Balance thereof, received in the related Due Period;
(e) the aggregate amount of reductions in the principal balances of
the Mortgage Loans in Sub-Pool II in connection with Deficient Valuations,
in each case up to the Scheduled Principal Balance thereof, occurring in
the related Due Period;
(f) all payments made by the FDIC in respect of the related Due Period
pursuant to Section 3.22;
(g) with respect to each Mortgage Loan in Sub-Pool II that becomes a
Limited Guaranty Draw Loan, other than as described in clause (i) of the
definition thereof, the resulting decline in the Scheduled Principal
Balance thereof;
(h) in connection with the substitution of one or more Qualified
Substitute Mortgage Loans for one or more Deleted Mortgage Loans in Sub-
Pool II pursuant to Section 2.04 during the related Due Period, the excess,
if any, of (i) the aggregate of the Stated Principal Balances (calculated
as of the respective dates of substitution) of such Deleted Mortgage Loans,
net of the aggregate of the principal portions of the Scheduled Payments
due during such Due Period (to the extent received from the related
Mortgagor or advanced by the Servicer and distributed pursuant to Section
4.01 on the Distribution Date in the related Due Period) in respect of each
such Deleted Mortgage Loan that was replaced prior to the Distribution Date
in the related Due Period, over (ii) the aggregate of the Stated Principal
Balances (calculated as of the respective dates of substitution) of such
Qualified Substitute Mortgage Loans; and
(i) to the extent not included in any of the preceding clauses, the
Scheduled Principal Balance of each Mortgage Loan in Sub-Pool II as of the
Determination Date in the month preceding the month in which such
Distribution Date occurs that either was purchased or repurchased from the
Trust Fund pursuant to Section 2.04, 2.05, 3.18 or 9.01, or as to which a
Final Recovery Determination was made during the related Due Period.
"Sub-Pool II Remittance Rate": With respect to each of the
Uncertificated Sub-Pool II Regular Interests and any Distribution Date, a per
annum rate equal to the Weighted Average Effective Net Mortgage Rate for Sub-
Pool II as of such Distribution Date.
"Sub-Pool II Stripped Interest Components": Collectively, Component
II-AXS, Component II-BXS and Component II-CXS.
"Sub-Servicer": Any Person with which the Servicer has entered a Sub-
Servicing Agreement.
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"Sub-Servicing Agreement": The written contract between the Servicer
and any Sub-Servicer relating to the servicing and administration of Mortgage
Loans as provided in Section 3.21.
"Substitution Shortfall Amount": As defined in Section 2.04(d).
"Tax Matters Person": With respect to each of the Lower-Tier REMIC
and the Upper-Tier REMIC the Person designated as the "tax matters person" of
such REMIC in the manner provided under Treasury regulation section 1.860F-4(d)
and temporary Treasury regulation section 301.6231(a)(7)-1T.
"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
filed with the Internal Revenue Service or any other governmental taxing
authority under any applicable provisions of federal, state or local tax laws.
"The Wall Street Journal Prime Rate": The highest prime lending rate,
as published from time to time in the "Money Rates" section of The Wall Street
Journal.
"Toxic Substances Control Act": The Toxic Substances Control Act, 15
U.S.C. Section 2601 et seq.
"Trust Fund": Collectively, the Lower-Tier REMIC and the Upper-Tier
REMIC.
"Trustee": State Street Bank and Trust Company, or its successor in
interest, or any successor trustee appointed as herein provided.
"Trustee's Fee": The fee payable to the Trustee pursuant to Section
8.05(a).
"Trustee Fee Rate": ____% per annum.
"UCC Financing Statement": A financing statement executed and filed
pursuant to the Uniform Commercial Code, as in effect in the relevant
jurisdiction.
"Uncertificated Negative Amortization": As to the Uncertificated
Regular Interest II-A, the Uncertificated Regular Interest II-A Negative
Amortization; as to the Uncertificated Regular Interest II-B, the Uncertificated
Regular Interest II-B Negative Amortization; and as to the Uncertificated
Regular Interest II-C, the Uncertificated Regular Interest II-C Negative
Amortization.
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"Uncertificated Principal Balance": As to the Uncertificated Regular
Interest I-A, the Uncertificated Regular Interest I-A Balance; as to the
Uncertificated Regular Interest I-B, the Uncertificated Regular Interest I-B
Balance; as to the Uncertificated Regular Interest I-C, the Uncertificated
Regular Interest I-C Balance; as to the Uncertificated Regular Interest I-D, the
Uncertificated Regular Interest I-D Balance; as to the Uncertificated Regular
Interest II-A, the Uncertificated Regular Interest II-A Balance; as to the
Uncertificated Regular Interest II-B, the Uncertificated Regular Interest II-B
Balance; and as to the Uncertificated Regular Interest II-C, the Uncertificated
Regular Interest II-C Balance.
"Uncertificated Regular Interest": An uncertificated partial
undivided beneficial ownership interest in the Lower-Tier REMIC that bears
interest on its Uncertificated Principal Balance at a rate equal to the
applicable Remittance Rate.
"Uncertificated Regular Interest I-A": An uncertificated partial
undivided beneficial ownership in the Lower-Tier REMIC that bears interest on
the Uncertificated Regular Interest I-A Balance at a rate equal to the Sub-Pool
I Remittance Rate.
"Uncertificated Regular Interest I-A Balance": The principal amount
of the Uncertificated Regular Interest I-A as of any date of determination,
which is equal to: (a) in the case of any date of determination up to and
including the initial Distribution Date, the Original Uncertificated Regular
Interest I-A Balance; and (b) in the case of any date of determination
thereafter, the Uncertificated Regular Interest I-A Balance outstanding
immediately prior to the most recently preceding Distribution Date, minus any
distributions of principal made on the Uncertificated Regular Interest I-A on
such Distribution Date pursuant to clause (ii) of Section 4.01(d).
"Uncertificated Regular Interest I-B": An uncertificated partial
undivided beneficial ownership in the Lower-Tier REMIC that bears interest on
the Uncertificated Regular Interest I-B Balance at a rate equal to the Sub-Pool
I Remittance Rate.
"Uncertificated Regular Interest I-B Balance": The principal amount
of the Uncertificated Regular Interest I-B as of any date of determination,
which is equal to: (a) in the case of any date of determination up to and
including the initial Distribution Date, the Original Uncertificated Regular
Interest I-B Balance; and (b) in the case of any date of determination
thereafter, the Uncertificated Regular Interest I-B Balance outstanding
immediately prior to the most recently preceding Distribution Date, minus any
distributions of principal made on the Uncertificated Regular Interest I-B on
such Distribution Date pursuant to clause (iii) of Section 4.01(d).
"Uncertificated Regular Interest I-C": An uncertificated partial
undivided beneficial ownership in the Lower-Tier REMIC that bears interest on
the Uncertificated Regular Interest I-C Balance at a rate equal to the Sub-Pool
I Remittance Rate.
"Uncertificated Regular Interest I-C Balance": The principal amount
of the Uncertificated Regular Interest I-C as of any date of determination,
which is equal to: (a) in the
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case of any date of determination up to and including the initial Distribution
Date, the Original Uncertificated Regular Interest I-C Balance; and (b) in the
case of any date of determination thereafter, the Uncertificated Regular
Interest I-C Balance outstanding immediately prior to the most recently
preceding Distribution Date, minus any distributions of principal made on the
Uncertificated Regular Interest I-C on such Distribution Date pursuant to clause
(v) of Section 4.01(d).
"Uncertificated Regular Interest I-D": An uncertificated partial
undivided beneficial ownership in the Lower-Tier REMIC that bears interest on
the Uncertificated Regular Interest I-D Balance at a rate equal to the Sub-Pool
I Remittance Rate.
"Uncertificated Regular Interest I-D Balance": The principal amount
of the Uncertificated Regular Interest I-D as of any date of determination,
which is equal to: (a) in the case of any date of determination up to and
including the initial Distribution Date, the Original Uncertificated Regular
Interest I-D Balance; and (b) in the case of any date of determination
thereafter, the Uncertificated Regular Interest I-D Balance outstanding
immediately prior to the most recently preceding Distribution Date, minus any
distributions of principal made on the Uncertificated Regular Interest I-D on
such Distribution Date pursuant to clause (vii) of Section 4.01(d).
"Uncertificated Regular Interest II-A": An uncertificated partial
undivided beneficial ownership in the Lower-Tier REMIC that bears interest on
the Uncertificated Regular Interest II-A Balance at a rate equal to the Sub-Pool
II Remittance Rate.
"Uncertificated Regular Interest II-A Balance": The principal amount
of the Uncertificated Regular Interest II-A as of any date of determination,
which is equal to: (a) in the case of any date of determination up to and
including the initial Distribution Date, the Original Uncertificated Regular
Interest II-A Balance; and (b) in the case of any date of determination
thereafter, the Uncertificated Regular Interest II-A Balance outstanding
immediately prior to the most recently preceding Distribution Date, as increased
by any Uncertificated Regular Interest II-A Negative Amortization and as reduced
by any distributions of principal made on the Uncertificated Regular Interest
II-A on such Distribution Date pursuant to clause (ii) of Section 4.01(c).
"Uncertificated Regular Interest II-A Negative Amortization": With
respect to any Distribution Date, the portion of Aggregate Mortgage Loan
Negative Amortization for such Distribution Date that is allocable to the
Uncertificated Regular Interest II-A in accordance with Section 1.03(a).
"Uncertificated Regular Interest II-B": An uncertificated partial
undivided beneficial ownership in the Lower-Tier REMIC that bears interest on
the Uncertificated Regular Interest II-B Balance at a rate equal to the Sub-Pool
II Remittance Rate.
"Uncertificated Regular Interest II-B Balance": The principal amount
of the Uncertificated Regular Interest II-B as of any date of determination,
which is equal to: (a) in
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the case of any date of determination up to and including the initial Distri-
bution Date, the Original Uncertificated Regular Interest II-B Balance; and
(b) in the case of any date of determination thereafter, the Uncertificated
Regular Interest II-B Balance outstanding immediately prior to the most recently
preceding Distribution Date, as increased by any Uncertificated Regular Interest
II-B Negative Amortization and as reduced by any distributions of principal made
on the Uncertificated Regular Interest II-B on such Distribution Date pursuant
to clause (iv) of Section 4.01(c).
"Uncertificated Regular Interest II-B Negative Amortization": With
respect to any Distribution Date, the portion of Aggregate Mortgage Loan
Negative Amortization for such Distribution Date that is allocable to the
Uncertificated Regular Interest II-B in accordance with Section 1.03(a).
"Uncertificated Regular Interest II-C": An uncertificated partial
undivided beneficial ownership in the Lower-Tier REMIC that bears interest on
the Uncertificated Regular Interest II-C Balance at a rate equal to the Sub-Pool
II Remittance Rate.
"Uncertificated Regular Interest II-C Balance": The principal amount
of the Uncertificated Regular Interest II-C as of any date of determination,
which is equal to: (a) in the case of any date of determination up to and
including the initial Distribution Date, the Original Uncertificated Regular
Interest II-C Balance; and (b) in the case of any date of determination
thereafter, the Uncertificated Regular Interest II-C Balance outstanding
immediately prior to the most recently preceding Distribution Date, as increased
by any Uncertificated Regular Interest II-C Negative Amortization and as reduced
by any distributions of principal made on the Uncertificated Regular Interest
II-C on such Distribution Date pursuant to clause (vi) of Section 4.01(c).
"Uncertificated Regular Interest II-C Negative Amortization": With
respect to any Distribution Date, the portion of Aggregate Mortgage Loan
Negative Amortization for such Distribution Date that is allocable to the
Uncertificated Regular Interest II-C in accordance with Section 1.03(a).
"Uncertificated Sub-Pool I Regular Interests": Collectively, the
Uncertificated Regular Interest I-A, the Uncertificated Regular Interest I-B,
the Uncertificated Regular Interest I-C and the Uncertificated Regular Interest
I-D.
"Uncertificated Sub-Pool II Regular Interests": Collectively, the
Uncertificated Regular Interest II-A, the Uncertificated Regular Interest II-B
and the Uncertificated Regular Interest II-C.
"Uncovered Portion": With respect to any Class of Regular
Certificates, other than the Class I-A and Class II-A Certificates and the
Stripped Interest Certificates, as of any date of determination, the portion of
the related Class Balance representing: the lesser of (i) the Class Balance of
such Class then outstanding and (ii) the excess, if any, of (x) the sum of the
amount described in clause (i) hereof plus the Class Balance of each Class of
Certificates then
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outstanding having a higher priority to distributions in respect of the Sub-Pool
I Optimal Principal Distribution Amount or the Sub-Pool II Optimal Principal
Distribution Amount, as applicable, to the Class referred to in clause (i)
hereof over (y) the aggregate Uncertificated Principal Balance of the
Uncertificated Sub-Pool I Regular Interests or the Uncertificated Sub-Pool II
Regular Interests, as applicable, then outstanding.
"Unfunded Basis Risk Shortfall": With respect to any Distribution
Date and any Class of Sub-Pool II Certificates as to which a Basis Risk
Shortfall has occurred for such Distribution Date, an amount equal to the
excess, if any, of the Basis Risk Shortfall for such Class and such Distribution
Date over the Basis Risk Shortfall Payment for such Class and such Distribution
Date.
"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 3.07.
"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, an estate 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, or any trust with
respect to which (i) a United States court is able to exercise primary
supervision over the administration of such trust and (ii) one or more United
States fiduciaries have the authority to control all substantial decisions of
the trust. The term "United States" shall have the meaning set forth in Section
7701 of the Code or successor provisions.
"Upper-Tier REMIC": The segregated pool of assets consisting of the
Uncertificated Regular Interests conveyed in trust to the Trustee for the
benefit of the Holders of the Certificates pursuant to Section 2.07, with
respect to which a separate REMIC election is to be made.
"Upper-Tier REMIC Certificate": Any Regular Certificate or Class R-UT
Certificate.
"Upper-Tier REMIC Sub-Pool I Available Distribution Amount": With
respect to any Distribution Date, the Sub-Pool I Certificates and the Class I-XS
Certificates, the sum of the amounts applied pursuant to Section 4.01(d) on such
Distribution Date.
"Upper-Tier REMIC Sub-Pool II Available Distribution Amount": With
respect to any Distribution Date, the Sub-Pool II Certificates and the Class II-
XS Certificates, the sum of the amounts applied pursuant to Section 4.01(c) on
such Distribution Date.
"Upper-Tier REMIC Residual Cash Flow": With respect to any
Distribution Date, the sum of (1) the excess, if any, of the Upper-Tier REMIC
Sub-Pool II Available Distribution Amount for such Distribution Date over the
amount required to be distributed in
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respect of the Sub-Pool II Certificates and the Class II-XS Certificates
pursuant to Section 4.01(a)(1) for such Distribution Date and (2) the excess,
if any, of the Upper-Tier REMIC Sub-Pool I Available Distribution Amount for
such Distribution Date over the amount required to be distributed in respect
of the Sub-Pool I Certificates and the Class I-XS Certificates pursuant to
Section 4.01(b)(1) for such Distribution Date.
"Voting Rights": The portion of the voting rights of all of the
Certificates that is allocated to any Certificate. At all times during the term
of this Agreement, 99% of the Voting Rights shall be allocated to the Regular
Certificates (other than the Class I-XS and Class II-XS Certificates), 0.50% of
the Voting Rights shall be allocated to the Class I-XS Certificates, 0.50% of
the Voting Rights shall be allocated to the Class II-XS Certificates, 0% of the
Voting Rights shall be allocated to the Class R-LT Certificates and 0% of the
Voting Rights shall be allocated to the Class R-UT Certificates. All of the
Voting Rights allocated to the Regular Certificates (other than the Class I-XS
and Class II-XS Certificates) shall be allocated among the Class I-A, Class I-B,
Class I-C, Class I-D, Class II-A, Class II-B, and Class II-C Certificates in
proportion to the respective Class Balances of such Certificates (net, in the
case of the Class I-B, Class I-C, Class I-D, Class II-B and Class II-C
Certificates, of any Uncovered Portion of the related Class Balance), all of the
Voting Rights allocated to the Class I-XS and Class II-XS Certificates shall be
allocated among such Certificates in proportion to the respective Notional
Amounts thereof. Voting Rights allocated to a Class of Certificates shall be
allocated among the Certificates of such Class in proportion to the Percentage
Interests evidenced by such Certificates.
"Weighted Average Effective Net Mortgage Rate": With respect to a
particular Sub-Pool and any Distribution Date, the weighted average, expressed
as a percentage and rounded to five decimal places, of the respective Effective
Net Mortgage Rates for the Mortgage Loans and REO Loans in such Sub-Pool for
such Distribution Date, weighted on the basis of the respective Stated Principal
Balances of such Mortgage Loans and REO Loans outstanding immediately prior to
such Distribution Date.
Section 1.02. Determination of LIBOR.
On each LIBOR Adjustment Date, the Trustee will determine LIBOR on the
basis of obtaining the quoted offered rate for one-month United States dollar
deposits with lending banks in the London market that appears as of 11:00 a.m.
(London time) on the display page designated as page 3750 on the Telerate
monitor on the LIBOR Business Day prior to the immediately preceding
Distribution Date, or, in the case of the first Distribution Date, as of the
LIBOR Business Day preceding the Distribution Date.
The establishment of LIBOR by the Trustee on any LIBOR Adjustment
Date, in the absence of manifest error, will be final and binding.
Section 1.03. Allocations of Negative Amortization and Certain
Shortfalls.
(a) Aggregate Mortgage Loan Negative Amortization for any Distribution
Date shall be allocated among the respective Uncertificated Sub-Pool II Regular
Interests, pro rata, based
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on the Accrued Interest for such Uncertificated Regular Interests on such
Distribution Date, assuming for purposes of this calculation only, that Accrued
Interest in respect of a particular Uncertificated Regular Interest is based on
the Certificate Rate of the Class of Sub-Pool II Certificates bearing the same
Class designation as such Uncertificated Regular Interest, rather than on the
Remittance Rate for such Uncertificated Regular Interest.
(b) Aggregate Uncertificated Negative Amortization for any Distribution
Date shall be allocated among the respective Classes of Sub-Pool II
Certificates, pro rata, based on the Accrued Interest for such Classes on such
Distribution Date.
(c) Amounts payable pursuant to Section 1.05(b)(iv) and Section
1.05(c)(iv) in respect of the Aggregate Relief Act Shortfalls of Sub-Pool II
and Sub-Pool I for any Distribution Date shall be allocated between such
Sub-Pools, pro rata, based on the amount of such shortfalls for such
Distribution Date.
(d) The Net Aggregate Relief Act Shortfall for Sub-Pool II and any
Distribution Date shall be allocated among (x) the respective Classes of Sub-
Pool II Certificates, pro rata, based on the Accrued Interest for such Classes
on such Distribution Date, (y) the respective Uncertificated Sub-Pool II Regular
Interest, pro rata, based on the Accrued Interest for such Uncertificated
Regular Interests on such Distribution Date, and (z) the respective Sub-Pool II
Stripped Interest Components, pro rata, based on the Accrued Interest for such
Stripped Interest Components on such Distribution Date.
(e) The Net Aggregate Relief Act Shortfall for Sub-Pool I and any
Distribution Date shall be allocated among (x) the respective Classes of Sub-
Pool I Certificates, pro rata, based on the Accrued Interest for such Classes on
such Distribution Date, (y) the respective Uncertificated Sub-Pool I Regular
Interests, pro rata, based on the Accrued Interest for such Uncertificated
Regular Interests on such Distribution Date and (z) the respective Sub-Pool I
Stripped Interest Components, pro rata, based on the Accrued Interest for such
Stripped Interest Components on such Distribution Date.
(f) The Basis Risk Shortfall Payment for any Distribution Date shall be
allocated among the respective Classes of Sub-Pool II Certificates as to which a
Basis Risk Shortfall exists for such Distribution Date, pro rata, based upon the
excess, for each such Class, of the Optimal Distributable Interest over the
Distributable Interest for such Distribution Date.
(g) Amounts payable pursuant to Section 1.05(b)(ii) and Section
1.05(c)(ii) in respect of the Aggregate Prepayment Interest Shortfalls of
Sub-Pool II and Sub-Pool I for any Distribution Date shall be allocated
between such Sub-Pools, pro rata, based on the amount of such shortfalls
for such Distribution Date.
(h) The Net Aggregate Prepayment Interest Shortfall for Sub-Pool II and
any Distribution Date shall be allocated among (x) the respective Classes of
Sub-Pool II Certificates, pro rata, based on the Accrued Interest for such
Classes on such Distribution Date, (y) the respective Uncertificated Sub-Pool II
Regular Interests, pro rata, based on the Accrued Interest
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for such Uncertificated Regular Interests on such Distribution Date and (z) the
respective Sub-Pool II Stripped Interest Components, pro rata, based on the
Accrued Interest for such Stripped Interest Components on such Distribution
Date.
(i) The Net Aggregate Prepayment Interest Shortfall for Sub-Pool I and any
Distribution Date shall be allocated among (x) the respective Classes of Sub-
Pool I Certificates, pro rata, based on the Accrued Interest for such Classes on
such Distribution Date, (y) the respective Uncertificated Sub-Pool I Regular
Interests, pro rata, based on the Accrued Interest for such Uncertificated
Regular Interests on such Distribution Date and (z) the respective Sub-Pool I
Stripped Interest Components, pro rata, based on the Accrued Interest for such
Stripped Interest Components on such Distribution Date.
Section 1.04. Discounting Methodology.
All present value calculations with respect to Discounted Mortgage
Loans shall be discounted on a monthly basis at a rate equal to (x) ____% per
annum in the case of a Mortgage Loan that was a Discounted Mortgage Loan as of
the Cut-off Date or (y) the Projected Net Mortgage Rate in the case of any Fixed
Rate Mortgage Loan that becomes a Discounted Mortgage Loan following the Cut-off
Date. The "principal portion" of any Scheduled Payment due on any Discounted
Mortgage Loan on any Due Date therefor shall equal that portion of such payment
remaining after first applying the portion of such Scheduled Payment as is
necessary to cover interest on the Scheduled Principal Balance thereof at the
rate described in clause (x) or (y) hereof, as applicable. The "principal
portion" of any Principal Prepayment in part received on any Discounted Mortgage
Loan shall be equal to the excess of the Discounted Principal Balance of such
Mortgage Loan immediately prior to such prepayment over the present value of the
Scheduled Payments remaining immediately following such payment. For purposes
of the preceding sentence, it is assumed that each such Scheduled Payment is
reduced by a maximum Servicing Fee and Trustee's Fee, and that such Scheduled
Payments remain in effect until the earlier of (a) the date on which the
Scheduled Principal Balance of such Mortgage Loan would be fully amortized on
the basis of its Projected Net Mortgage Rate and such Scheduled Payments and (b)
its respective Maturity Date. The "principal portion" of any Principal
Prepayment in full received on any Discounted Mortgage Loan shall be equal to
the Discounted Principal Balance of such Mortgage Loan. All present value
calculations with respect to Discounted Mortgage Loans shall be performed by the
Servicer.
Section 1.05. Application of Residual Cash Flows.
(a) The Trustee shall establish and maintain one or more accounts
(collectively, the "Residual Account"), held in trust for the benefit of the
Certificateholders. If the Trustee does not elect to establish and maintain a
separate Residual Account with respect to each Sub-Pool, the Trustee shall at
all times during the term hereof maintain a separate ledger sub-account of the
Residual Account for each Sub-Pool, which ledger sub-account shall accurately
reflect each deposit to and withdrawal from the Residual Account that is
allocable to such Sub-Pool. The Residual Account shall be an Eligible Account.
On each Distribution Date
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the Trustee shall withdraw from the Distribution Account and deposit into the
Residual Account the Residual Cash Flow for such Distribution Date.
(b) During each Residual Allocation Period, the Trustee shall
withdraw from the Residual Account the Lower-Tier REMIC Residual Cash Flow and
apply such amount in the following order of priority:
(i) to reimburse the Servicer for Inspection Expenses incurred
during such Residual Allocation Period;
(ii) to reduce the Aggregate Prepayment Interest Shortfalls for Sub-
Pool I and Sub-Pool II for the related Distribution Date, allocated between
such Sub-Pools as described in Section 1.03(g);
(iii) to reimburse the Servicer for any Extraordinary Expenses, other
than Inspection Expenses, incurred during such Residual Allocation Period;
(iv) to reduce the Aggregate Relief Act Shortfalls for Sub-Pool I
and Sub-Pool II for the related Distribution Date, allocated between such
Sub-Pools as described in Section 1.03(c); and
(v) to reduce any Credit Draw Amount for the related Distribution
Date.
(c) During each Residual Allocation Period, the Trustee shall withdraw
from the Residual Account the Upper-Tier REMIC Residual Cash Flow and apply such
amount in the following order of priority, in each case to the extent of any
portion thereof remaining unpaid after application of Lower-Tier REMIC Residual
Cash Flow on such Distribution Date pursuant to Section 1.05(b):
(i) to reimburse the Servicer for Inspection Expenses incurred
during such Residual Allocation Period;
(ii) to reduce the Aggregate Prepayment Interest Shortfalls for Sub-
Pool I and Sub-Pool II for the related Distribution Date, allocated between
such Sub-Pools as described in Section 1.03(g);
(iii) to reimburse the Servicer for any Extraordinary Expenses, other
than Inspection Expenses, incurred since the preceding Distribution Date;
(iv) to reduce the Aggregate Relief Act Shortfalls for Sub-Pool I
and Sub-Pool II for the related Distribution Date, allocated between such
Sub-Pools as described in Section 1.03(c); and
(v) to reduce any Credit Draw Amount on the related Distribution
Date.
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(d) All amounts applied pursuant to Section 1.05(b)(i), (iii) and (v) or
Section 1.05(c)(i), (iii) and (v) during any Residual Allocation Period shall be
applied prior to making a claim on the Limited Guaranty in respect of such
amounts on the related Demand Date.
(e) All amounts applied pursuant to Section 1.05(b)(ii), (iv) and (v)
and Section 1.05(c)(ii), (iv) and (v) during any Residual Allocation Period
shall be distributed to holders of Regular Certificates on the related
Distribution Date pursuant to Section 4.01(a) and Section 4.01(b).
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ARTICLE II.
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
Section 2.01. Restatement of the Trust; Conveyance of Mortgage Loans.
(a) This Agreement amends and restates the Declaration of Trust in
all respects. The Trustee will be acting not in its individual capacity but
solely as Trustee hereunder. The office of the Trust Fund will be in care of the
Trustee at its Corporate Trust Office, Attention: FDIC REMIC Trust 1996-C1. The
actions heretofore taken by the Trustee under the authority of the Declaration
of Trust are hereby ratified and confirmed.
The Mortgage Loan Seller, concurrently with the execution and delivery
hereof, does hereby assign to the Trustee without recourse all the right, title
and interest of the Mortgage Loan Seller, including any security interest
therein for the benefit of the Mortgage Loan Seller, in, to and under (i) the
Mortgage Loans constituting Sub-Pool I and identified on Schedule 1, (ii) the
Mortgage Loans constituting Sub-Pool II and identified on Schedule 2, and (iii)
all other assets included or to be included in the Trust Fund for the benefit of
the Certificateholders. Such assignment includes all interest and principal
received or receivable on or with respect to the Mortgage Loans (other than
payments of principal and interest due and payable on the Mortgage Loans on or
before the Cut-off Date, except as provided in clause (y) of this sentence)
including without limitation (x) the amount of $__________ representing
Scheduled Payments due after the Cut-off Date but received by or on behalf of
the Mortgage Loan Seller on or prior to the Cut-off Date and (y) an amount to be
reported by the Servicer representing the interest portion of Scheduled Payments
due in respect of Mortgage Loans providing for the accrual of interest in
advance during the period from _____ __, 1996 up to and including the Cut-off
Date. The Mortgage Loan Seller shall deliver to the Servicer for deposit into
the Collection Account on or before the Business Day immediately preceding the
first Distribution Date cash in the aggregate amount described in clauses (x)
and (y) of the immediately preceding sentence. The transfer of the Mortgage
Loans and related property accomplished hereby is absolute and is intended by
the parties to constitute a sale.
(b) In connection with the Mortgage Loan Seller's assignment, the
Mortgage Loan Seller does hereby deliver to, and deposit with, the Trustee, or
to one or more Custodians as the agent or agents of the Trustee, the Mortgage
File for each Mortgage Loan so assigned. None of the Servicer, the Trustee or
any such Custodian shall be liable for any failure by the Mortgage Loan Seller
to comply with the delivery requirements of this Section 2.01(b).
(c) The FDIC shall, as to each Mortgage Loan, promptly (in any event
within 45 days of the Closing Date) cause the assignment of the Mortgage and the
assignment of Assignment of Leases, Rents and Profits respectively specified in
clauses (iv) and (v) of the definition of "Mortgage File" to be submitted for
recording or filing, at its own expense, in the appropriate public office for
real property records. Any such assignment delivered in blank shall be
completed to the order of the Trustee prior to recording. If any such
assignment is lost or
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returned unrecorded or unfiled because of a defect therein, the FDIC shall
promptly prepare or cause to be prepared a substitute therefor or cure such
defect, as the case may be, and thereafter cause the same to be duly recorded or
filed.
(d) The Mortgage Loan Seller shall complete the endorsements on
those Mortgage Notes delivered in blank (or cause such to be completed) to the
order of the Trustee.
(e) All documents and records in the Mortgage Loan Seller's
possession relating to the Mortgage Loans that are not required to be a part of
a Mortgage File in accordance with the definition thereof shall be delivered to
the Servicer on or before the Closing Date and shall be held by the Servicer in
trust for the benefit of the Trustee on behalf of the Certificateholders.
(f) In connection with the Mortgage Loan Seller's assignment
pursuant to Section 2.01(a) and in consideration of receipt by the FDIC of,
among other things, the Stripped Interest Certificates, the FDIC hereby
represents and warrants that it has delivered to the Trustee and the Servicer,
on or before the Closing Date, a true, correct, complete and executed copy of
the Limited Guaranty as in full force and effect, without amendment or
modification, on the Closing Date.
Section 2.02. Acceptance of the Lower-Tier REMIC by Trustee.
(a) On or prior to the Closing Date, the Trustee shall deliver to
the Mortgage Loan Seller, the FDIC and the Servicer an Initial Certification in
the form annexed hereto as Exhibit B-1 (the "Initial Certification"). The
-------
Trustee, by the execution and delivery of this Agreement, acknowledges receipt,
subject to the provisions of Section 2.01 and to any exceptions noted on any
exception report to the Initial Certification, of the documents specified in
clause (i) of the definition of "Mortgage File" (it being herein agreed that
neither the Servicer nor the Trustee is under any obligation to, and neither in
fact does, make any representation as to whether any of the other documents
specified in the definition of "Mortgage File" exist or are required to be
delivered to it), a copy of the fully executed Limited Guaranty and all other
assets included in the Trust Fund in good faith, and without any notice of
adverse claim, and declares that it or one or more Custodians on its behalf
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 Lower-Tier REMIC and delivered to it, in trust for the
exclusive use and benefit of all present and future Certificateholders. In its
review of the Mortgage Files pursuant to this Agreement, the Trustee may rely
upon the purported due execution and genuineness of any such document and on the
purported genuineness of any signature thereon and shall not be responsible for
determining whether any document is enforceable, in recordable form or properly
recorded.
(b) Within 45 days after the Closing Date, the Trustee shall deliver
to the Mortgage Loan Seller, the FDIC and the Servicer an Interim Certification
in the form annexed hereto as Exhibit B-2 (the "Interim Certification").
-------
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(c) Prior to the first anniversary date of this Agreement, the
Trustee shall deliver to the Mortgage Loan Seller, the FDIC and the Servicer a
Final Certification in the form annexed hereto as Exhibit B-3 (the "Final
-------
Certification").
(d) If, in the process of reviewing the Mortgage Files, the Trustee
finds any document or documents constituting a part of a Mortgage File not to
have been properly executed, or to be missing or to be defective on its face in
any material respect (each, a "Defect" in the related Mortgage File), the
Trustee shall promptly so notify the Servicer, the FDIC and the Mortgage Loan
Seller.
(e) In case of the appointment of a Custodian, the reviews, receipts
and certifications provided for herein shall be given by such Custodian on
behalf of the Trustee.
Section 2.03. Representations and Warranties of the FDIC and the
Servicer.
(a) The FDIC hereby represents and warrants to and covenants with
the Trustee and the Servicer, as of the Closing Date, that:
(i) The Mortgage Loan Seller and the FDIC have taken all necessary
action to authorize the execution, delivery and performance of this
Agreement by them, and have the power and authority to execute, deliver and
perform this Agreement and all the transactions contemplated hereby,
including in the case of the Mortgage Loan Seller, but not limited to, the
power and authority to sell, assign and transfer the Direct Mortgage Loans
and Mortgage Participations in accordance with this Agreement.
(ii) This Agreement, assuming due authorization, execution and
delivery by the Trustee and the Servicer, constitutes a valid, legal and
binding obligation of the Mortgage Loan Seller and the FDIC, enforceable
against the Mortgage Loan Seller and the FDIC in accordance with the terms
hereof, subject to (A) applicable bankruptcy, insolvency, reorganization,
receivership, 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.
(iii) The execution and delivery of this Agreement and the
performance of its respective obligations hereunder by the Mortgage Loan
Seller and the FDIC will not conflict with any provision of any law or
regulation to which the Mortgage Loan Seller or the FDIC is subject, or
conflict with, result in a breach of or constitute a default under any of
the terms, conditions or provisions of any agreement or instrument to which
the Mortgage Loan Seller or the FDIC is a party or by which it is bound, or
any order or decree applicable to the Mortgage Loan Seller or the FDIC, or
result in the creation or imposition of any lien on any of the Mortgage
Loan Seller's or the FDIC's assets or property, which would materially and
adversely affect the ability of the Mortgage Loan Seller or the FDIC to
carry out the transactions contemplated by this Agreement. Each of the
Mortgage Loan Seller and the FDIC has obtained any consent, approval,
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authorization or order of any court or governmental agency or body required
for the execution, delivery and performance by it of this Agreement.
(iv) There is no action, suit or proceeding pending against the
Mortgage Loan Seller or the FDIC in any court or by or before any other
governmental agency or instrumentality that would materially and adversely
affect the ability of either the Mortgage Loan Seller or the FDIC to carry
out the transactions contemplated by this Agreement.
(v) The Limited Guaranty constitutes a valid, legal and binding
obligation of the FDIC, enforceable against the FDIC in accordance with the
terms thereof, subject to (A) applicable bankruptcy, insolvency,
reorganization, receivership, 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.
(b) The Servicer hereby represents, warrants and covenants to the
Trustee and the Mortgage Loan Seller, as of the Closing Date, that:
(i) The Servicer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Ohio, and the Servicer
is or will be 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.
(ii) The execution and delivery of this Agreement by the Servicer,
and the performance and compliance with the terms of this Agreement by the
Servicer, will not violate the Servicer's articles of incorporation or code
of regulations 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 or materially
conflict with by reason of applicable law the performance of other
activities presently carried on by it.
(iii) The 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 Trustee and the Mortgage Loan Seller, constitutes a valid,
legal and binding obligation of the Servicer, enforceable against the
Servicer in accordance with the terms hereof, subject to (A) applicable
bankruptcy, insolvency, reorganization, receivership, 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.
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(v) The 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 the condition
(financial or other) or operations of the Servicer or the ability of the
Servicer to perform its obligations under this Agreement.
(vi) No litigation is pending or, to the best of the Servicer's
knowledge, threatened against the Servicer which would prohibit the
Servicer from entering into this Agreement or is likely to materially and
adversely affect the condition (financial or other) or operations of the
Servicer or the ability of the Servicer to perform its obligations under
this Agreement.
(vii) Each officer, director or employee of the Servicer with
responsibilities concerning the servicing and administration of the
Mortgage Loans is covered by errors and omissions insurance in the amounts
and with the coverage required by Section 3.07(c).
(viii) The execution, delivery and performance by the Servicer of
this Agreement and the consummation of the transactions contemplated hereby
do not require the consent or approval of, the giving of notice to, the
registration with, or the taking of any other action in respect of, any
state, federal or other governmental authority or agency, except such as
has been obtained, given, effected or taken prior to the date hereof or
except such that can be obtained, given, effected or taken prior to the
actual performance by the Servicer of its obligations under this Agreement.
(ix) There are no actions, suits or proceedings pending or, to the
best of the Servicer's knowledge, threatened or likely to be asserted
against or affecting the Servicer, before or by any court, administrative
agency, arbitrator or governmental body (A) with respect to any of the
transactions contemplated by this Agreement or (B) with respect to any
other matter which in the judgment of the Servicer will be determined
adversely to the Servicer and will, if determined adversely to the Servicer
materially and adversely affect it or its business, assets, operations or
condition, financial or otherwise, or adversely affect its ability to
perform its obligations under this Agreement.
(x) No information, certificate, or statement or report furnished
as of the date hereof in writing signed by a Servicing Officer and
delivered to the Mortgage Loan Seller, any Affiliate or the Trustee by the
Servicer in connection with this Agreement contains any untrue statement of
a material fact.
(c) The FDIC hereby represents and warrants to and covenants with the
Trustee and the Servicer that the information set forth in the Mortgage Loan
Schedule and Mortgage Participation Schedule is correct in all material
respects, and makes the following additional
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representations, as of the Closing Date, or as of such other date specifically
expressly provided in this Section 2.03(c), that:
(i) The Mortgage Loan Seller is the sole owner and holder of each
Direct Mortgage Loan and each Mortgage Participation;
(ii) The Mortgage Loan Seller has good and marketable title to and
has full right and authority to sell, assign and transfer each Direct
Mortgage Loan and each Mortgage Participation;
(iii) Each Direct Mortgage Loan is either a whole loan or a
participation certificate;
(iv) Each Mortgage Loan complied as of the date of origination with,
or is exempt from, applicable state or federal laws, regulations and other
requirements pertaining to usury; any and all other requirements or any
federal, state or local laws, including, without limitation, truth-in-
lending, real estate settlement procedures, equal credit opportunity or
disclosure laws, applicable to such Mortgage Loan have been complied with
as of the date of origination of such Mortgage Loan;
(v) The servicing and collection practices used by the related
originator and the related Depository Institution with respect to each
Mortgage Loan have been in all respects legal and prudent and have met
customary standards utilized by prudent institutional mortgage lenders in
their commercial mortgage servicing business;
(vi) The Mortgage Loan Seller is transferring each Direct Mortgage
Loan and each Mortgage Participation free and clear of any and all liens,
pledges, charges or security interests of any nature;
(vii) The proceeds of each Mortgage Loan have been fully disbursed
and there is no requirement for future advances thereunder;
(viii) Each of the related Mortgage Note, related Mortgage and other
agreements executed in connection therewith is the legal, valid and binding
obligation of the maker thereof (subject to any non-recourse provisions
therein), enforceable in accordance with its terms, except as such
enforcement may be limited by (A) bankruptcy, insolvency, reorganization or
other similar laws affecting the enforcement of creditors' rights
generally, (B) general principles of equity (regardless of whether such
enforcement is considered in a proceeding in equity or at law), and (c) in
the case of certain personal guarantees executed in connection with certain
Mortgage Loans, the community property laws of the states in which the
persons executing such guarantees are domiciled, and there is no offset,
defense, counterclaim or right to rescission with respect to such Mortgage
Note, Mortgage or other agreements;
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(ix) The related assignment of each Direct Mortgage constitutes the
legal, valid and binding assignment of such Direct Mortgage to the Trustee;
and the related assignment of Assignment of Leases, Rents and Profits and
of Security Agreement, if any, constitutes the legal, valid and binding
assignment of such documents to the Trustee;
(x) Each related Mortgage (including any related Security
Agreement) is a valid and enforceable first lien, or in the case of each
Mortgage relating to the Mortgage Loans listed on Exhibit I, a valid and
-------
enforceable second, third or fourth lien, on the related Mortgaged
Property, which Mortgaged Property is free and clear of all encumbrances
and liens having priority over the lien of the Mortgage, except for (i)
liens for real estate taxes and special assessments not yet due and
payable, (ii) covenants, conditions and restrictions, rights of way,
easements and other matters of public record as of the date of recording of
such Mortgage, such exceptions appearing of record being acceptable to
mortgage lending institutions generally or specifically reflected in the
appraisal made in connection with the origination of the related Mortgage
Loan, and (iii) other matters to which like properties are commonly subject
which do not, individually or in the aggregate, materially interfere with
the benefits of the security intended to be provided by such Mortgage;
(xi) No related Mortgage has been waived, modified, altered,
satisfied, canceled or subordinated in any respect or rescinded, and no
related Mortgaged Property has been released from the lien or other
encumbrance of, nor has the related Mortgagor been released from its
obligations under, the Mortgage, in whole or in any part, in a manner which
materially interferes with the benefits of the security intended to be
provided by the Mortgage or the use, enjoyment, value or marketability of
the Mortgaged Property for the purposes specified in the Mortgage, nor has
any instrument been executed that would effect any such cancellation,
subordination, rescission or release, with the exception of the written
instruments which are part of the related Mortgage File;
(xii) All taxes and governmental assessments that prior to the
Closing Date became due and owing in respect of, and affect, each related
Mortgaged Property have been paid, or an escrow of funds in an amount
sufficient to cover such payments has been established;
(xiii) All escrow deposits and payments relating to the Mortgage Loan
are in the possession, or under the control, of the Mortgage Loan Seller or
the Lead Participant or an agent thereof and there are no deficiencies in
connection therewith;
(xiv) Except for interest advanced during the construction period in
the case of certain construction loans that have since become permanent
loans, the related lender has not, directly or indirectly, advanced funds,
or received any advance of funds by a party other than the related
Mortgagor, for the payment of any amount required by the related Mortgage
Note or the related Mortgage, except for interest accruing from the date of
the Mortgage Note or date of disbursement of the Mortgage Loan proceeds,
whichever
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is later, to the date which precedes by 30 days the first due date under
the related Mortgage Note;
(xv) The gross proceeds of each Mortgage Loan to the Mortgagor at
origination did not exceed the noncontingent principal amount of the
Mortgage Loan and either (A) such Mortgage Loan is secured by an interest
in real property having a fair market value (i) at the date the Mortgage
Loan was originated at least equal to 80 percent of the original principal
balance of the Mortgage Loan or (ii) at the Closing Date at least equal to
80 percent of the principal balance of the Mortgage Loan on such date;
provided that for purposes of this clause (xv), the fair market value of
the real property interest must first be reduced by (a) the amount of any
lien on the real property interest that is senior to the Mortgage Loan
(unless such senior lien also secures a Mortgage Loan) and (b) a
proportionate amount of any lien that is in parity with the Mortgage Loan
(unless such other lien secures a Mortgage Loan that is cross-
collateralized with such Mortgage Loan, in which event the computation
described in (i) and (ii) of this clause (xv) shall be made on a pro rata
basis in accordance with the fair market values of the Mortgaged Properties
securing such cross-collateralized Mortgage Loans), or (B) substantially
all the proceeds of such Mortgage Loan were used to acquire, improve or
protect the real property which served as the only security for such
Mortgage Loan (other than a recourse feature or other third party credit
enhancement within the meaning of Treasury Regulations Section 1 860G-
2(a)(1)(ii));
(xvi) Any Mortgage Loan that was "significantly modified" prior to
the Closing Date so as to result in a taxable exchange under Code Section
1001 either (A) was modified as a result of the default or reasonably
foreseeable default of such Mortgage Loan or (B) satisfies the provisions
of either clause (xv)(A)(i) (substituting the date of the last such
modification for the date the Mortgage Loan was originated) or clause
(xv)(A)(ii) above, including the proviso thereto;
(xvii) There is no proceeding pending for the total or partial
condemnation of any related Mortgaged Property, and each Mortgaged Property
is in good repair and free and clear of any damage that would affect
materially and adversely the value of the Mortgaged Property as security
for the related Mortgage Loan or the use for which the premises were
intended or, if materially damaged, in addition to the insurance described
in clause (xxiii) below which covers such damage, such Mortgaged Property
and such damage is covered by a rent interruption insurance policy issued
by a Qualified Insurer with a term of not less than one year;
(xviii) Each Mortgaged Property is free and clear of any mechanics'
and materialmen's liens or liens in the nature thereof, and no rights are
outstanding that under law could give rise to any such liens, any of which
liens are or may be prior to, or equal with, the lien of the related
Mortgage except those which are insured against by the title insurance
policy referred to in clause (xxiii) below;
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(xix) None of the improvements that were included for the purpose of
determining the appraised value of a related Mortgaged Property at the time
of the origination of each Mortgage Loan lies outside of the boundaries and
building restriction lines of such property, no improvements on adjoining
properties materially encroach upon such Mortgaged Property, and no
improvement located on or forming part of the related Mortgaged Property is
in violation of any applicable zoning laws or ordinances;
(xx) The related Mortgagor is in possession of all licenses,
permits and other authorizations necessary and required by applicable law
for the conduct of its business; all such licenses, permits and
authorizations are valid and in full force and effect;
(xxi) If applicable, each related Mortgagor is the owner and holder
of the landlord's interest under any lease for use and occupancy of all or
any portion of the related Mortgaged Property; each related Mortgage
provides for the appointment of a receiver for rents in the event of
default or allows the mortgagee to enter into possession to collect the
rents; neither the Mortgage Loan Seller nor the Mortgagor has made any
assignments of the landlord's interest in any such lease or any portion of
the rents, additional rents, charges, issues or profits due and payable or
to become due and payable under any such lease, which assignments are
presently outstanding and have priority over the related Mortgage or any
related Assignment of Leases, Rents and Profits given in connection with
the origination of the related Mortgage, other than as may be disclosed in
the related lender's title insurance policy or opinion of title referred to
in clause (xxiii) below;
(xxii) To the extent required under applicable law, as of the Closing
Date, each holder of a Mortgage Loan was authorized to transact and do
business in the jurisdiction in which the related Mortgaged Property is
located at all times when it held the Mortgage Loan;
(xxiii) Each Mortgage Loan is covered by a title insurance policy
issued by a Qualified Insurer, insuring that the related Mortgage is a
valid first lien (or with respect to Mortgage Loans listed on Exhibit I, a
lien of the priority identified) on such Mortgaged Property, subject only
to the exceptions stated therein, or, with respect to each Mortgage Loan
not covered by a title insurance policy, there exists an attorney's opinion
of title given by an attorney licensed to practice law in the jurisdiction
where the Mortgaged Property is located that the Mortgage is a valid first
lien (or with respect to Mortgage Loans listed on Exhibit I, a lien of the
priority identified) on such Mortgaged Property, subject only to ordinary
and customary exceptions; each such title insurance policy is in full force
and effect; such title insurance policy contains a negative amortization
rider, if applicable, and contains no exclusion for zoning, uses,
encroachments and survey; neither the Mortgage Loan Seller nor any prior
mortgagee has done, by act or omission, anything which would materially
impair the coverage of any such title insurance policy; and each such title
insurance policy with respect to a Direct Mortgage Loan is freely
assignable (subject to securing the required assignment endorsement upon
payment of premium therefor if necessary) and (subject
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to the recordation of the assignment of Mortgage, the securing of the
required assignment endorsement, if any, and the payment of the required
premium therefor) will inure to the benefit of the Trustee as mortgagee of
record;
(xxiv) Each related Mortgaged Property is insured by a fire and
extended perils insurance policy, issued by a Qualified Insurer, providing
coverage against loss or damage sustained by reason of fire, lightning,
windstorm, hail, explosion; riot, riot attending a strike, civil commotion,
aircraft, vehicles and smoke, and, to the extent required as of the date of
origination by the related originator consistent with its normal commercial
mortgage lending practices, against other risks insured against by persons
operating like properties in the locality of the Mortgaged Property, in an
amount not less than the amount necessary to avoid the operation of any co-
insurance provisions with respect to the Mortgaged Property, and consistent
with the amount that would have been required as of the date of origination
by the related originator in its normal commercial mortgage lending
activities with respect to similar properties in the same locality; all
premiums on such insurance policy have been paid; such insurance policy
requires prior notice to the insured of termination or cancellation, and no
such notice has been received; the related Mortgage obligates the related
Mortgagor to maintain all such insurance and, at such Mortgagor's failure
to do so, authorizes the mortgagee to maintain such insurance at the
Mortgagor's cost and expense and to seek reimbursement therefor from such
Mortgagor;
(xxv) Except as specified in clause (xxvi) below and except for a
delinquent Balloon Payment in the case of a Matured Performing Mortgage
Loan, there is no default, breach, violation or event of acceleration
existing under any related Mortgage or a the related Mortgage Note and no
event (other than payments due but not yet delinquent) which, with the
passage of time or with notice and the expiration of any grace or cure
period, would constitute a default, breach, violation or event of
acceleration; except for a delinquent Balloon Payment in the case of a
Matured Performing Mortgage Loan, neither the Mortgage Loan Seller nor a
Lead Participant has waived any material default, breach, violation or
event of acceleration of any of foregoing, and, pursuant to the terms of
the Mortgage Loan, the related Mortgage or the related Mortgage Note, no
Person other than the holder of such Mortgage Note may declare an event of
default or accelerate the related indebtedness under any such Mortgage
Loan, Mortgage or Mortgage Note;
(xxvi) As of the Cut-off Date, all Scheduled Payments due on each
Mortgage Loan on or before the Cut-off Date have been made, except as
otherwise noted on the related Mortgage Loan Schedule; as of the Cut-off
Date, no Scheduled Payments due on any Mortgage Loan was more than 59 days
delinquent;
(xxvii) All of the terms of each Mortgage pertaining to interest rate
adjustments, payment adjustments and adjustments of the principal balance
are enforceable, such adjustments will not affect the priority of the
Mortgage lien, and all such adjustments and
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all calculations of interest made before the Cut-off Date were made
correctly and in full compliance with the terms of the related Mortgage
Note and Mortgage;
(xxviii) Each related Mortgage Note or the related Mortgage contains
customary and enforceable provisions such as to render the rights and
remedies of the holder thereof adequate for the realization against the
Mortgaged Property of the benefits of the security, including realization
by judicial or, if applicable, non-judicial foreclosure, and there is no
exemption available to the Mortgagor which would interfere with such right
to foreclose;
(xxix) The FDIC has no intention to foreclose on any Mortgaged
Property and has no knowledge that any Mortgage Loan will not be paid in
full;
(xxx) The Trustee, if not the owner of a Direct Mortgage Loan,
will have a valid and perfected security interest of first priority in such
Mortgage Loan and the proceeds thereof;
(xxxi) Each Mortgage Loan is a "qualified mortgage" within the
meaning of section 860G of the Code and does not contain any provision
requiring action that would render it not to qualify as a "qualified
mortgage"; and
(xxxii) Except with respect to Mortgage Loans described in Section
2.03(d) herein, each Mortgage Loan is secured by a fee simple estate.
(d) With respect to any Mortgage Loan that is secured in whole
or in part by the interest of a Mortgagor as a lessee under a ground lease to a
Mortgaged Property (a "Ground Lease") but not by the related fee interest in
such Mortgaged Property (the "Fee Interest"), the FDIC hereby represents and
warrants that:
(i) Such Ground Lease or a memorandum thereof has been or will
be duly recorded; such Ground Lease permits the interest of the lessee
thereunder to be encumbered by the related Mortgage; and there has been no
material change in the terms of such Ground Lease since its recordation,
with the exception of written instruments which are part of the related
Mortgage File;
(ii) Except as may be indicated in the related title insurance
policy or opinion of title referred to in Section 2.03(c)(xxiii) above,
such Ground Lease is not subject to any liens or encumbrances superior to,
or of equal priority with, the related Mortgage, other than the related Fee
Interest;
(iii) The Mortgagor's interest in such Ground Lease is assignable
to the Mortgagee upon notice to, but without the consent of, the lessor
thereunder and, in the event that it is so assigned, is further assignable
by the Mortgagee upon notice to, but without a need to obtain the consent
of, such lessor;
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(iv) At the Closing Date, such Ground Lease is in full force and
effect and no default has occurred under such Ground Lease, nor is there
any existing condition which, but for the passage of time or the giving of
notice, would result in a default under the terms of such Ground Lease;
(v) Such Ground Lease requires the lessor thereunder to give
notice of any default by the lessee to the mortgagee, provided that the
mortgagee has provided the lessor with notice of its lien in accordance
with the provisions of such Ground Lease; and such Ground Lease, or an
estoppel letter received by the mortgagee from the lessor, further provides
that no notice of termination given under such Ground Lease is effective
against the mortgagee unless a copy has been delivered to the mortgagee in
the manner described in such Ground Lease;
(vi) A mortgagee is permitted a reasonable opportunity
(including, where necessary, sufficient time to gain possession of the
interest of the lessee under such Ground Lease) to cure any default under
such Ground Lease, which is curable after the receipt of notice of any such
default before the lessor thereunder may terminate such Ground Lease;
(vii) Such Ground Lease has an original term (including any
extension options set forth therein) which extends not less than ten years
beyond the Maturity Date of the related Mortgage Loan;
(viii) Under the terms of such Ground Lease and the related
Mortgage, taken together, any related insurance proceeds other than in
respect of a total or substantially total loss or taking, will be applied
either to the repair or restoration of all or part of the related Mortgaged
Property, with the mortgagee or a trustee appointed by it having the right
to hold and disburse such proceeds as the repair or restoration progresses
(except in such cases where a provision entitling another party to hold and
disburse such proceeds would not be viewed as commercially unreasonable by
the Mortgage Loan Seller), or to the payment of the outstanding principal
balance of the Mortgage Loan together with any accrued interest thereon;
and
(ix) Such Ground Lease does not impose any restrictions on
subletting which would be viewed as commercially unreasonable by the
Mortgage Loan Seller; and such Ground Lease contains a covenant that the
lessor thereunder is not permitted, in the absence of an uncured default,
to disturb the possession, interest or quiet enjoyment of any lessee in the
relevant portion of the Mortgaged Property subject to such Ground Lease for
any reason, or in any manner, which would materially adversely affect the
security provided by the related Mortgage.
(e) With respect to any Mortgage Loan that is secured in whole or in part
by the interest of a Mortgagor under a Ground Lease and by the related Fee
Interest, the FDIC hereby represents and warrants that:
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(i) Such Fee Interest is subject, and subordinate of record, to
the Mortgage; and the Mortgage does not by its terms provide that it will
be subordinated to the lien of any other mortgage or other lien upon such
Fee Interest; and
(ii) Upon occurrence of a default under the terms of the related
Mortgage by the Mortgagor, the mortgagee has the right to foreclose upon or
otherwise exercise its rights with respect to such Fee Interest within a
period of time that would not have been viewed, as of the date of
origination, as commercially unreasonable by the Mortgage Loan Seller.
(f) It is understood and agreed that each of the representations and
warranties set forth in this Section 2.03 shall survive delivery of the
respective Mortgage Files to the Trustee or a Custodian, as the case may be,
until the termination of this Agreement, shall inure to the benefit of the
Trustee and the Servicer and shall be independent of each other, such that the
failure to establish a breach of a given representation and warranty with
respect to a Mortgage Loan shall not preclude the existence of another breach
with respect to such Mortgage Loan. Upon discovery by the Mortgage Loan Seller,
the Servicer or a Responsible Officer of the Trustee (or upon written notice
thereof from any Certificateholder) of a breach of any of the foregoing
representations and warranties that materially and adversely affects the
interests of the Certificateholders, the Servicer or the Trustee in any Mortgage
Loan, the party discovering such breach shall give prompt written notice to the
other parties hereto. For purposes of the foregoing, a breach of any
representation or warranty contained in this Section 2.03 shall conclusively be
deemed to materially and adversely affect the interests of the
Certificateholders, the Servicer or the Trustee if a loss or expense is
incurred.
Section 2.04. Remedies with respect to Defects in Mortgage Files and
Breaches of Representation and Warranty.
(a) As to a Mortgage Loan that either (i) has been the subject
of a notice in accordance with Section 2.03(f) or (ii) is listed on the
Trustee's Exception Report as having one or more missing or defective documents,
except for such breaches as have been cured or for such missing or defective
documents listed on the Trustee's Exception Report that have since been
delivered to the Trustee, and a breach of the representation and warranty set
forth in Section 2.03(c)(xxxi), upon notice from the Trustee or the Servicer,
the FDIC shall promptly make an indemnification payment to the Servicer, for
deposit into the Collection Account, in the amount of any loss or expense (such
loss or expense, a "Loss") incurred if there is a connection between such Loss
and either (1) a breach of one of the representations or warranties contained in
Section 2.03 or (2) one or more missing or defective documents (such Loss, a
"Resulting Loss"). The obligation of the FDIC to make such indemnification
payments shall be the exclusive remedy of the Trustee, the Certificateholders
and the Servicer for any breach of a representation or warranty or for a
defective or missing document required to be delivered to the Trustee or a
Custodian, as the case may be, pursuant to Section 2.01. To the extent of any
such indemnification payments made in respect of a Mortgage Loan, the FDIC shall
be subrogated to the rights of the Trust Fund to any amounts recovered on the
related Mortgage Loan or the related Mortgaged Property, provided, however, that
such subrogated amounts shall
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be paid only from recoveries on such Mortgage Loan or the related Mortgaged
Property in any Due Period which are in excess of the unpaid principal balance
of such Mortgage Loan together with accrued and unpaid interest thereon at the
related Mortgage Rate to the Due Date in such Due Period. Notwithstanding the
foregoing, the FDIC, at its option, shall have the right upon notice to the
other parties hereto to (1) cure any breach, or cause to be delivered any
missing or defective documents, with respect to any Mortgage Loan referred to in
the third preceding sentence or (2) repurchase, or cause to be repurchased, any
Mortgage Loan referred to in the third preceding sentence, in lieu of
indemnifying for any Resulting Loss, at the Purchase Price for such Mortgage
Loan and in the same manner set forth in Section 2.04(b). Any such purchase of
a Mortgage Loan shall be on a whole loan, servicing released basis, or shall be
a repurchase of the related participation certificate, as appropriate.
Notwithstanding anything to the contrary contained in this Section 2.04, in the
event of a breach of the representation and warranty contained in Section
2.03(d)(vii), if such breach would result in the related Mortgage Loan failing
to meet the conditions and requirements for inclusion in a trust set forth in
the Exemption or in the event of a breach of the representation and warranty
described in Section 2.03(c)(xv), (xvi), or (xxxi), the FDIC will either cure
such breach or repurchase, or cause to be repurchased, the Mortgage Loan within
90 days of discovery of such breach. Notwithstanding anything to the contrary
contained in this Section 2.04, in the event of a breach of the representation
and warranty contained in Section 2.03(c)(xxx), on or prior to the date on which
the Trust Fund would otherwise acquire the related Mortgaged Property by
foreclosure or deed in lieu of foreclosure, the FDIC shall repurchase such
Mortgage Loan or cause such Mortgage Loan to be repurchased, unless the FDIC has
provided the Trustee with an Opinion of Counsel (at the expense of the FDIC)
that such Mortgaged Property would qualify as "foreclosed property" within the
meaning of Section 860G(a)(8) of the Code. In the event any claim, counterclaim
or defense based upon allegations which could constitute a breach of any of the
FDIC's representations and warranties relating to the Mortgage Loans is raised
in any litigation, the Servicer will notify the FDIC of such allegations within
a reasonable time after the Servicer becomes aware of such claim, counterclaim
or defense and will give the FDIC a reasonable opportunity to assist and consult
with the Servicer in defending such allegations or, at the option of the FDIC,
at its own expense, to conduct the defense of such allegations.
It is intended that the FDIC shall be responsible for Losses connected in
whole or in part to a breached representation referred to in the preceding
paragraph or to a defective or missing document. However, it is not intended
that a loss resulting from adverse market conditions become a Resulting Loss due
to the fortuitous breach of an unrelated representation. Accordingly, the
following shall apply in the construction of the preceding paragraph, it being
understood that a good faith standard shall be used:
(i) A Loss shall conclusively be deemed to be a Resulting Loss
if it relates to a Mortgage Loan as to which there has been a breach of the
representation and warranty in clause (iii), (xi), (xiv), (xxv), (xxvi) or
(xxxi) of Section 2.03(c);
(ii) If a portion of any Loss is a Resulting Loss, the entire
Loss shall be deemed to be a Resulting Loss;
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(iii) A Loss will be a Resulting Loss either if the event causing
the realization of the Loss is connected to the Mortgage Loan being
defective or if the Loss or any portion thereof is so connected; and
(iv) Any Resulting Loss shall be established by an Officers'
Certificate of the Servicer setting forth the amount of such Resulting Loss
and the facts causing such Loss to be a Resulting Loss. The Trustee shall
be entitled to rely on such Officers' Certificate of the Servicer unless it
is incorrect on its face.
(b) The purchase of any Mortgage Loan pursuant to this Section
2.04 shall be effected by delivery by the FDIC of the Purchase Price therefor to
the Servicer for deposit in the Collection Account, together with (i) a written
certification of the amount of the Purchase Price to be paid and (ii) either (A)
a written certification that such purchase is being made because the Mortgage
Loan does not constitute a "qualified mortgage" within the meaning of Section
860G(a)(3) of the Code or (B) an Opinion of Counsel (at the expense of the FDIC)
to the effect that such purchase will not result in the imposition of any
prohibited transaction or contributions tax on either the Lower-Tier REMIC or
the Upper-Tier REMIC pursuant to the REMIC Provisions or cause either such REMIC
to fail to qualify as a REMIC at any time that any Certificate is outstanding.
The Trustee, upon receipt from the Servicer of an Officers' Certificate to the
effect that such deposit has been made and either a copy of the FDIC's
certification described in clause (ii)(A) above or the Opinion of Counsel
described in clause (ii)(B) above, shall release or cause to be released to the
Mortgage Loan Seller the related Mortgage File, shall execute and deliver at the
expense of the FDIC such instruments of transfer or assignment in each case
without recourse, representation or warranty, as shall be requested by the FDIC
to vest in the FDIC any Mortgage Loan released pursuant hereto and the Trustee
and the Servicer shall have no further responsibility with regard to such
Mortgage Loan.
Notwithstanding the foregoing, in the event of a breach of the
representation and warranty set forth in 2.03(c) (with respect to the following
Mortgage Loan information in the related Mortgage Loan Schedule): (a) if the
actual Mortgage Rate of a Fixed Rate Loan is less than (i) such rate as reported
on the Mortgage Loan Schedule and (ii) ____% per annum, the FDIC will, within 90
days of notice thereof, repurchase, cause to be repurchased, or substitute for
such Mortgage Loan; (b) if the actual Mortgage Rate of a Fixed Rate Loan is more
than 0.50% less than such rate as reported on the Mortgage Loan Schedule, the
FDIC will, within 90 days of notice thereof, repurchase, cause to be
repurchased, or substitute for such Mortgage Loan; (c) if the actual Gross
Margin of an Adjustable Rate Mortgage Loan is more than 0.50% less than such
margin as reported on the Mortgage Loan Schedule, the FDIC will, within 90 days
of notice thereof, repurchase, cause to be repurchased, or substitute for such
Mortgage Loan; (d) if the actual Index of an Adjustable Rate Mortgage Loan is
not the index reported on the Mortgage Loan Schedule and is not The Wall Street
Journal Prime Rate, the FDIC will, within 90 days of notice thereof, repurchase,
cause to be repurchased, or substitute for such Mortgage Loan; (e) if the
Mortgage Loan is an Adjustable Rate Mortgage Loan but is reported on the
Mortgage Loan Schedule as a Fixed Rate Loan, the FDIC will repurchase, cause to
be repurchased, or substitute for such Mortgage Loan within 90 days from the
date, if any, on which it receives notice that the Mortgage Rate thereon falls
below ____% per annum; and (f)
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if the Mortgage Loan is a Fixed Rate Loan but is reported on the Mortgage Loan
Schedule as an Adjustable Rate Mortgage Loan, the FDIC will repurchase, cause to
be repurchased, or substitute for such Mortgage Loan within 90 days from the
date, if any, on which it receives notice that the Net Mortgage Rate thereon
falls below a rate equal to the sum (i) the Weighted Average Effective Net
Mortgage Rate of Sub-Pool II and (ii) ____% per annum.
Notwithstanding the foregoing, if the FDIC is advised by counsel (and
so certifies in writing to the Servicer and the Trustee) that the Opinion of
Counsel contemplated by the second preceding paragraph cannot then be rendered,
the FDIC will not be required to purchase, or cause to be repurchased, the
affected Mortgage Loan until promptly after either (i) such Opinion of Counsel
can be rendered or (ii) a material default on such Mortgage Loan has occurred or
a default in respect of payment on such Mortgage Loan is reasonably foreseeable.
Any certification delivered by the FDIC pursuant to the first sentence of this
paragraph shall summarize the reasons for the related advice given by its
counsel, unless otherwise provided in the Opinion of Counsel.
In lieu of purchasing any such Mortgage Loan as provided above, the
FDIC may cause such Mortgage Loan to be removed from the Lower-Tier REMIC (in
which case it shall become a Deleted Mortgage Loan) and substitute one or more
Qualified Substitute Mortgage Loans in the manner and subject to the limitations
set forth in Section 2.04(d).
(c) Section 2.04 of this Agreement provides the sole remedies
available to the Certificateholders, or the Trustee on behalf of the
Certificateholders, respecting any Defect in a Mortgage File or breach of any
representation or warranty set forth in Section 2.03 hereof. Such obligations
shall be enforced by the Servicer on behalf of the Trustee and the
Certificateholders. The costs and expenses incurred in enforcing such
obligations shall be an Extraordinary Expense.
(d) Any substitution of Qualified Substitute Mortgage Loans for
Deleted Mortgage Loans made pursuant to Section 2.04(a) or 2.05(c) must be
effected prior to the date which is two years after the Startup Day for the
Lower-Tier REMIC.
As to any Deleted Mortgage Loan for which the FDIC substitutes a
Qualified Substitute Mortgage Loan or Loans, such substitution shall be effected
by the FDIC (i) providing the Servicer with conversion data and the servicing
files and copies of the Mortgage File with respect to the Qualified Substitute
Mortgage Loan at least 30 days prior to the date of substitution and (ii) after
such 30 day period, delivering to the Trustee, for such Qualified Substitute
Mortgage Loan or Loans, the Mortgage File for such Qualified Substitute Mortgage
Loan with all necessary endorsements thereon, together with a certificate from
an authorized representative of the FDIC providing that each such Qualified
Substitute Mortgage Loan satisfies the definition thereof and specifying the
Substitution Shortfall Amount (as described below), if any, in connection with
such substitution. The Trustee shall acknowledge receipt for such Qualified
Substitute Mortgage Loan or Loans and, within five Business Days thereafter,
review such documents as specified in the definition of Mortgage File and
deliver to the FDIC and the Servicer, with respect to such Qualified Substitute
Mortgage Loan or Loans, a certification
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substantially in the form attached hereto as Exhibit B-2, with any applicable
-------
exceptions noted thereon. Within one year of the date of substitution, the
Trustee shall deliver to the FDIC and the Servicer a certification substantially
in the form of Exhibit B-3 hereto with respect to such Qualified Substitute
-------
Mortgage Loan or Loans, with any applicable exceptions noted thereon. Scheduled
Payments due with respect to Qualified Substitute Mortgage Loans in the month of
substitution are not part of the Lower-Tier REMIC and will be retained by the
FDIC. For the month of substitution, distributions to Certificateholders will
reflect the Scheduled Payment due on such Deleted Mortgage Loan on or before the
Due Date in the month of substitution, and the FDIC shall thereafter be entitled
to retain all amounts subsequently received in respect of such Deleted Mortgage
Loan. The Trustee shall give or cause to be given written notice to the
Certificateholders that such substitution has taken place, shall cause the
appropriate Mortgage Loan Schedule to be amended to reflect the removal of such
Deleted Mortgage Loan from the terms of this Agreement and the substitution of
the Qualified Substitute Mortgage Loan or Loans and shall deliver a copy of such
amended Mortgage Loan Schedule to the Servicer. Upon such substitution, such
Qualified Substitute Mortgage Loan or Loans shall be subject to the terms of
this Agreement in all respects, including, all applicable representations and
warranties thereof set forth in Sections 2.03(c) and 2.05, in each case as of
the date of substitution.
For any month in which the FDIC substitutes one or more Qualified
Substitute Mortgage Loans for one or more Deleted Mortgage Loans, the Servicer
will determine the amount (the "Substitution Shortfall Amount"), if any, by
which the aggregate Purchase Price of all such Deleted Mortgage Loans exceeds
the aggregate of, as to each such Qualified Substitute Mortgage Loan, the
Scheduled Principal Balance thereof as of the date of substitution, together
with one month's interest on such Scheduled Principal Balance at the applicable
Net Mortgage Rate or, in the case of a Discounted Mortgage Loan the Projected
Net Mortgage Rates. On the date of such substitution, the FDIC will deliver or
cause to be delivered to the Servicer for deposit in the Collection Account an
amount equal to the Substitution Shortfall Amount, if any, and the Trustee, upon
receipt of the related Qualified Substitute Mortgage Loan or Loans and
certification by the Servicer of such deposit, shall release to the FDIC the
related Mortgage File or Files and shall execute and deliver such instruments of
transfer or assignment, in each case without recourse, as shall be requested by
the FDIC to vest in the FDIC (or its designee) any Deleted Mortgage Loan
released pursuant hereto.
In addition, the FDIC shall obtain at its own expense and deliver to
the Trustee an Opinion of Counsel to the effect that such substitution will not
cause (a) any federal tax to be imposed on the Lower-Tier REMIC, 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) either the Lower-Tier REMIC or the
Upper-Tier REMIC to fail to qualify as a REMIC at any time that any Certificate
is outstanding.
Section 2.05. Representations and Warranties as to Environmental
Matters.
(a) The FDIC hereby represents and warrants that, as of the Closing Date,
no Mortgaged Property is affected by a Disqualifying Condition.
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(b) In the event of a breach of the foregoing representation and warranty,
on the written request of the Servicer, the FDIC shall take the action described
in subsection (c) below, provided that each of the following conditions is
satisfied:
(i) The Mortgage Loan is at least 60 days delinquent and no
Person has completed foreclosure, accepted a deed in lieu of foreclosure or
taken possession of, or taken over the operation of, the related Mortgaged
Property, and the Servicer shall have delivered to the FDIC an Officer's
Certificate as to the foregoing;
(ii) The Servicer shall have delivered to the FDIC an
Environmental Assessment (the cost of which shall be an Extraordinary
Expense) indicating the presence of a Disqualifying Condition; and
(iii) The Servicer shall provide an Officer's Certificate to the
FDIC that the Servicer has acted in compliance with the servicing standard
set forth in Section 3.01 and has not, by any action, created, caused or
contributed to a Disqualifying Condition.
(c) Upon satisfaction of the foregoing conditions (unless the FDIC shall
establish that the Disqualifying Condition arose subsequent to the Closing
Date), the FDIC shall, within 60 days of receipt from the Servicer of written
notice and the above-mentioned certifications, at the FDIC's option either (x)
cure such Disqualifying Condition within 90 days of the FDIC's receipt of such
notice (y) repurchase, or cause to be repurchased, the affected Mortgage Loan on
a whole loan servicing-released basis at the Purchase Price or (z) substitute
for such Mortgage Loan in accordance with the provisions of 2.04(d). Upon
receipt by the Servicer from the FDIC of the Purchase Price for the repurchased
Mortgage Loan, the Servicer shall deposit such amount in the Collection Account,
and the Trustee shall, upon receipt of an Officer's Certificate certifying as to
the receipt by the Servicer of the Purchase Price and the deposit of the
Purchase Price into the Collection Account pursuant to this Section 2.05(c),
release or cause to be released to the FDIC the related Mortgage File and shall
execute and deliver at the expense of the FDIC such instruments of transfer or
assignment, in each case without recourse, representation or warranty, as shall
be requested by the FDIC to vest in the FDIC (or its designee) any Mortgage Loan
released pursuant hereto and the Trustee and the Servicer shall have no further
responsibility with regard to such Mortgage Loan.
It is understood and agreed that the obligation of the FDIC to cure,
repurchase or substitute as set forth in this Section 2.05(c) shall be the
exclusive remedy of the Trustee, the Certificateholders and the Servicer for a
breach of the representation and warranty set forth in Section 2.05(a). Such
obligation shall be enforced by the Servicer on behalf of the Trustee and the
Certificateholders. The costs and expenses incurred in enforcing such
obligations shall be an Extraordinary Expense.
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Section 2.06. Issuance of Certificates Evidencing Interests in the
Lower-Tier REMIC.
The Trustee acknowledges the assignment to it of the assets included
in the Lower-Tier REMIC. Concurrently with such assignment and in exchange
therefor, the Uncertificated Regular Interests have been created and delivered
hereunder, and the Trustee, pursuant to the written request of the Mortgage Loan
Seller executed by an officer of the Mortgage Loan Seller, has executed,
authenticated and delivered to or upon the order of the Mortgage Loan Seller,
the Class R-LT Certificates in authorized denominations. The interests
evidenced by the Class R-LT Certificates, together with the Uncertificated
Regular Interests, constitute the entire beneficial ownership of the Lower-Tier
REMIC. The rights of the Class R-LT Certificateholders and the Upper-Tier REMIC
to receive distributions from the proceeds of the Lower-Tier REMIC in respect of
the Class R-LT Certificates and the Uncertificated Regular Interests, and all
ownership interests of the Class R-LT Certificateholders and the Upper-Tier
REMIC in such distributions, shall be as set forth in this Agreement.
Section 2.07. Conveyance of Uncertificated Regular Interests;
Acceptance of the Upper-Tier REMIC by the Trustee.
The Mortgage Loan Seller, as of the Closing Date, and concurrently
with the execution and delivery hereof, does hereby assign without recourse all
the right, title and interest of the Mortgage Loan Seller in and to the
Uncertificated Regular Interests to the Trustee for the benefit of the Holders
of the Upper-Tier REMIC Certificates. The Trustee acknowledges the assignment
to it of the Uncertificated Regular Interests and declares that it holds and
will hold the same in trust for the exclusive use and benefit of all present and
future Holders of the Upper-Tier REMIC Certificates. The rights of the Holders
of the respective Classes of the Upper-Tier REMIC Certificates to receive
distributions from the proceeds of the Upper-Tier REMIC in respect of the Upper-
Tier REMIC Certificates, and all ownership interests of the Holders of the
respective Classes of the Upper-Tier REMIC Certificates in such distributions,
shall be as set forth in this Agreement.
Section 2.08. Issuance of Certificates Evidencing Interests in the
Upper-Tier REMIC.
The Trustee acknowledges the assignment to it of the Uncertificated
Regular Interests and, concurrently with such assignment and in exchange
therefor, has executed, authenticated and delivered to or upon the order of the
Mortgage Loan Seller, the Upper-Tier REMIC Certificates for the Upper-Tier
REMIC, in authorized denominations evidencing the entire beneficial ownership of
the Upper-Tier REMIC.
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ARTICLE III.
ADMINISTRATION AND SERVICING
OF THE TRUST FUND
Section 3.01. Servicer to Act as Servicer.
(a) The Servicer shall service and administer the Mortgage Loans
on behalf of the Trustee and solely in the best interests of and for the benefit
of the Certificateholders (as determined by the Servicer in its good faith
reasonable judgment, without taking into account differing payment priorities
among the Classes of Certificates but with a view toward maintaining the REMIC
status of the Lower-Tier REMIC and the Upper-Tier REMIC) for the benefit of FDIC
in accordance with applicable law, the terms of this Agreement and the terms of
the respective Mortgage Loans and, to the extent consistent with the foregoing,
in the same manner in which, and with the same care, prudence and diligence with
which, it services and administers commercial mortgage loans for other
portfolios, giving due consideration to the customary and usual standards of
practice prudent institutional mortgage lenders and loan servicers utilize with
respect to mortgage loans comparable to the Mortgage Loans and with respect to
transactions similar to that contemplated by this Agreement, and with the
objective of maximization of the present value of net cash flows generated from
the Mortgage Loans and REO Properties, but without regard to: (i) any
relationship that the Servicer or any Affiliate of the Servicer may have with
the related Mortgagor; (ii) the ownership of any Certificate by the Servicer or
any Affiliate of the Servicer; (iii) the Servicer's obligation to make P&I
Advances and Servicing Advances; (iv) the Servicer's right to receive
compensation for its services hereunder or with respect to any particular
transaction and (v) the ownership or servicing by the Servicer for others of any
other mortgage loans or properties.
Subject only to the above-described servicing standards and the terms
of this Agreement and of the respective Mortgage Loans, the Servicer shall have
full power and authority, acting alone, to do or cause to be done any and all
things in connection with such servicing and administration which it may deem
necessary or desirable. Without limiting the generality of the foregoing, the
Servicer, in its own name, is hereby authorized and empowered by the Trustee, to
execute and deliver, on behalf of the Certificateholders and the Trustee or any
of them, any and all financing statements, continuation statements and other
documents or instruments necessary to maintain the lien created by any Mortgage
or other security document in the related Mortgage File on the related Mortgaged
Property and related collateral (it being herein acknowledged that the
Servicer's obligation to file financing statements and continuation statements
is limited to those Mortgage Loans for which an effective financing statement or
continuation statement is on file in the appropriate public filing office as
determined by the Servicer based solely upon a review of the Mortgage Files and
to the related collateral covered thereby or as to which it receives written
notice that such a financing statement or continuation statement may be due);
subject to Section 3.19, any and all modifications, waivers, amendments or
consents to or with respect to any documents contained in the related Mortgage
File; and any and all instruments of satisfaction or cancellation, or of partial
or full release or discharge, subordination, nondisturbance and attornment
agreements, and all other comparable instruments,
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with respect to the Mortgage Loans and the Mortgaged Properties. The Servicer
shall service and administer the Mortgage Loans in accordance with applicable
law and shall provide to the related Mortgagor all reports required to be
provided to them by the related Mortgage Loan. Subject to Section 3.10, the
Trustee shall furnish to the Servicer any powers of attorney and other documents
in forms as supplied to it by the Servicer necessary or appropriate to enable
the Servicer to carry out its servicing and administrative duties hereunder;
provided, however, that the Trustee shall not be held liable for any negligence
with respect to, or misuse of, any such power of attorney by the Servicer. The
Servicer may at its own expense (except to the extent otherwise reimbursable as
a Servicing Advance) utilize agents or attorneys-in-fact in performing any of
its servicing obligations hereunder, but no such utilization shall relieve the
Servicer from any of its obligations hereunder, and the Servicer shall remain
responsible for all acts and omissions of any such agent or attorney; provided,
however, that the Trustee shall not be deemed the attorney-in-fact of the
Servicer hereunder.
(b) The Servicer, for the benefit of the Certificateholders and
the Trustee, shall use reasonable efforts to enforce the obligations of the
Mortgage Loan Seller and the FDIC under this Agreement. Such enforcement,
including, without limitation, the legal prosecution of claims and the pursuit
of other appropriate remedies, shall be undertaken in such manner, to such an
extent and at such times, as the Servicer, in its good faith business judgment,
would undertake were it the owner of the Mortgage Loans, but without regard to
the circumstances referred to in Section 3.01(a)(i)-(v). To the extent that the
Servicer is not otherwise reimbursed pursuant to Section 1.05 or pursuant to the
Limited Guaranty, the Servicer shall be entitled to reimburse itself for the
reasonable and necessary costs of such enforcement out of funds held in respect
of the applicable Sub-Pool in the Collection Account pursuant to Section
3.05(a).
(c) The Servicer shall be required to pay all expenses incurred
by it in connection with its servicing activities hereunder (including without
limitation, payment of any agents or attorneys-in-fact utilized by the Servicer
to perform its duties hereunder and the premiums for any blanket policy insuring
against hazard losses pursuant to Section 3.07(b)(ii)), and shall be entitled to
reimbursement therefor to the extent expressly provided in this Agreement.
(d) Except as otherwise provided in Sections 3.06(a) and 3.18,
the relationship of the Servicer to the Trustee under this Agreement is intended
by the parties to be that of an independent contractor and not that of a joint
venturer, partner or agent.
(e) The Servicer shall not exercise any call option with respect
to any Mortgage Loan, other than in the event of default with respect to such
loan.
Section 3.02. Collection of Mortgage Loan Payments.
(a) The 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
(including without limitation, the servicing standards set forth in Section
3.01(a)), follow such collection procedures as it would follow were
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it the owner of the Mortgage Loans. Consistent with the foregoing, the Servicer
may in its discretion waive any late payment charge or penalty interest in
connection with any delinquent payment on a Mortgage Loan or any prepayment
premium or penalty in connection with a principal prepayment of a Mortgage Loan.
(b) All amounts collected on any Mortgage Loan in the form of payments
from Mortgagors, Insurance Proceeds or Liquidation Proceeds of the nature
described in clauses (i) and (ii) of the definition thereof shall be applied to
amounts due and owing under the related Mortgage Note and Mortgage (including
without limitation, for principal and accrued and unpaid interest) in accordance
with the express provisions of the related Mortgage Note and Mortgage and, in
the absence of such express provisions, in accordance with the customary
practice of the Servicer in respect of mortgage loans held for its own account;
provided, however, that such amounts shall not be applied to assumption fees and
late payment charges constituting additional servicing compensation as described
in the first sentence of Section 3.11(b) unless and until all principal and
interest then due and payable on such Mortgage Loan has been collected.
(c) All payments of principal of and interest on the Mortgage Loans
received by the Servicer prior to the Cut-off Date that are due on Due Dates
following the Cut-off Date shall be deposited in the Collection Account and
shall be remitted to the Trustee on the P&I Advance Date immediately following
the related Due Date for distribution pursuant to Section 4.01.
Section 3.03. Collection of Taxes, Assessments and Similar Items;
Escrow Accounts.
(a) The Servicer shall establish and maintain one or more accounts
(the "Escrow Accounts"), into which all Escrow Payments shall be deposited and
retained. Escrow Accounts shall be Eligible Accounts. Withdrawals of amounts
so collected from an Escrow Account may be made only to: (i) effect payment of
premiums, taxes, assessments and comparable items; (ii) reimburse the Servicer
for any Servicing Advances; (iii) refund to Mortgagors any sums as may be
determined to be overages; (iv) pay interest, if required and as described
below, to Mortgagors on balances in the Escrow Account; (v) remove amounts
deposited therein in error; or (vi) clear and terminate the Escrow Account at
the termination of this Agreement in accordance with Section 9.01. As part of
its servicing duties, the Servicer shall pay or cause to be paid to the
Mortgagors interest on funds in Escrow Accounts, to the extent required by law
or the terms of the related Mortgage Loan; provided, however, that the aggregate
of all interest payable on such funds to the Mortgagors as of December 31 of
each year in excess of the amount of interest earned thereon by the Servicer as
of December 31 of such year shall be an Extraordinary Expense. Subject to the
immediately preceding sentence, funds in the Escrow Accounts may be invested in
Permitted Investments in accordance with the provisions of Section 3.06.
(b) The Servicer shall maintain accurate records with respect to each
Mortgaged Property reflecting the status of taxes, assessments and other similar
items that are or may become a lien thereon and the status of insurance premiums
payable in respect thereof.
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The Servicer shall obtain, from time to time, all bills for the payment of such
items (including renewal premiums) and shall effect payment thereof (or shall
acquire insurance from some other Qualified Insurer) prior to the applicable
penalty or termination date, employing for such purpose Escrow Payments as
allowed under the terms of the related Mortgage Loan. To the extent that a
Mortgage Loan does not require a Mortgagor to make payments for taxes, insurance
premiums and similar items in escrow, the Servicer shall require that any such
payments be made by the Mortgagor at the time they first become due to the
extent permitted by the Mortgage Loan.
(c) In accordance with the servicing standard of Section 3.01(a), the
Servicer shall advance as and when necessary with respect to each Mortgaged
Property all such funds as are necessary for the purpose of effecting the
payment of (i) real property taxes, assessments and other similar items that are
or may become a lien thereon and (ii) premiums on Insurance Policies, in each
instance if and to the extent Escrow Payments collected from the related
Mortgagor are insufficient to pay such item when due and the related Mortgagor
has failed to pay such item on a timely basis. All such Servicing Advances
shall be reimbursable in the first instance from related collections from the
Mortgagors, and further as provided in Sections 3.05 and 3.16. No costs
incurred by the Servicer in effecting the payment of real property 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.
Notwithstanding anything herein to the contrary, no Servicing Advance
shall be required to be made hereunder if such Servicing Advance would, if made,
constitute a Nonrecoverable Servicing Advance. The determination by the
Servicer that it has made a Nonrecoverable Servicing Advance or that any
proposed Servicing Advance, if made, would constitute a Nonrecoverable Servicing
Advance shall be evidenced by an Officers' Certificate delivered to the Mortgage
Loan Seller and the Trustee no later than the Business Day following such
determination.
Section 3.04. Collection Account and Distribution Account.
(a) The Servicer shall establish and maintain one or more accounts or
sub-accounts (collectively, the "Collection Account"), held on behalf of the
Trustee in trust for the benefit of the Certificateholders. If the Servicer
does not elect to establish and maintain a separate Collection Account with
respect to each Sub-Pool, the Servicer shall at all times during the term hereof
maintain a separate ledger sub-account of the Collection Account for each Sub-
Pool, which ledger sub-account shall accurately reflect each deposit to and
withdrawal from the Collection Account that is allocable to such Sub-Pool. The
Collection Account shall be an Eligible Account. The Servicer shall deposit or
cause to be deposited in the Collection Account, within one day of receipt (in
the case of payments by Mortgagors or other collections on the Mortgage Loans)
or as otherwise required hereunder, the following payments and collections
received or made by or on behalf of the Servicer subsequent to the Cut-off Date
(other than in respect of principal and interest on the Mortgage Loans due and
payable on or before the Cut-off
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Date), or payments (other than Principal Prepayments) received by it on or prior
to the Cut-off Date but allocable to a period subsequent thereto:
(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 (at
the Servicer's option, net of the Servicing Fee) and all Prepayment
Premiums;
(iii) all Insurance Proceeds and Liquidation Proceeds received in
respect of any Mortgage Loan;
(iv) all payments made by the FDIC in connection with Defects in
the Mortgage Files or breaches of its representations or warranties
pursuant to Sections 2.04 and 2.05;
(v) any amounts required to be deposited by the Servicer pursuant
to Section 3.07(b);
(vi) any Liquidation Proceeds paid by the Servicer or the
Controlling Class R-UT Certificateholder in connection with the purchase of
all the Mortgage Loans and REO Properties pursuant to Section 9.01;
(vii) any amounts required to be deposited pursuant to Section
3.06(b) in connection with losses realized on Permitted Investments with
respect to funds held in the Collection Account;
(viii) amounts received by the Servicer from the FDIC pursuant to
Section 3.22;
(ix) all Substitution Shortfall Amounts received from the FDIC
pursuant to Section 2.04(d); and
(x) any other amounts received by the Servicer or payable by the
Servicer that are expressly required by the terms of this Agreement to be
deposited in the Collection Account.
The foregoing requirements for deposit in the Collection Account shall
be exclusive, it being understood and agreed that, without limiting the
generality of the foregoing, actual payments from Mortgagors in the nature of
late payment charges, Escrow Payments, charges for beneficiary statements or
demands, assumption fees, amounts collected for Mortgagor checks returned for
insufficient funds or other amounts paid by or on behalf of the Mortgagors that
the Servicer determines in accordance with the servicing standard set forth in
Section 3.01(a), not to accept for deposit in the Collection Account need not be
deposited by the Servicer in the Collection Account. If the Servicer shall
deposit in the Collection Account any
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amount not required to be deposited therein, it may at any time withdraw such
amount from the Collection Account, any provision herein to the contrary
notwithstanding.
(b) The Trustee shall establish and maintain one or more accounts
(collectively, the "Distribution Account"), held in trust for the benefit of the
Certificateholders. If the Trustee does not elect to establish and maintain a
separate Distribution Account with respect to each Sub-Pool, the Trustee shall
at all times during the term hereof maintain a separate ledger sub-account of
the Distribution Account for each Sub-Pool, which ledger sub-account shall
accurately reflect each deposit to and withdrawal from the Distribution Account
that is allocable to such Sub-Pool. The Distribution Account shall be an
Eligible Account. The Servicer shall deliver to the Trustee each month
following the Determination Date but on or before the P&I Advance Date therein,
for deposit in the Distribution Account, an aggregate amount of immediately
available funds equal to the Available Distribution Amount for each Sub-Pool and
the related Distribution Date then on deposit in the Collection Account and any
Prepayment Premiums received during the related Due Period.
In addition, the Servicer shall, as and when required hereunder,
deliver to the Trustee for deposit in the Distribution Account:
(i) any P&I Advances;
(ii) any amounts required to be transferred from the REO Account on
any P&I Advance Date pursuant to Section 3.16(c) or 3.16(d); and
(iii) any amounts required to be deposited by the Servicer pursuant
to Section 3.06(b) in connection with losses realized on Permitted
Investments with respect to funds held in the Distribution Account.
The Trustee shall (upon receipt deposit in the Distribution Account
any and all amounts received by the Trustee that are required by the terms of
this Agreement to be deposited therein.
(c) Funds in the Collection Account and the Distribution Account may
be invested in Permitted Investments in accordance with the provisions set forth
in Section 3.06. The Servicer shall give notice to the Trustee of the location
of the Collection Account as of the Closing Date and of the new location of the
Collection Account prior to any change thereof. If the Distribution Account is
located elsewhere than at the Corporate Trust Office, the Trustee shall give
notice to the Servicer of the location of the Distribution Account as of the
Closing Date and shall notify the Servicer in any event of the new location of
the Distribution Account prior to any change thereof.
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Section 3.05. Permitted Withdrawals From the Collection Account.
(a) With respect to each Sub-Pool the Servicer may, from time to
time, make withdrawals from the Collection Account for any of the following
purposes (the order set forth below not constituting an order of priority for
such withdrawals):
(i) to remit to the Trustee for deposit in the Distribution Account
the amounts required to be so deposited pursuant to the fourth sentence of
Section 3.04(b), or that may be withdrawn in respect of such Sub-Pool
pursuant to Section 4.03(c);
(ii) to reimburse itself or the FDIC for unreimbursed P&I Advances
made in respect of such Sub-Pool, the Servicer's and the FDIC's right to
reimbursement pursuant to this clause (ii) being limited to amounts
attributable to Late Collections (at the Servicer's option, net of the
related Servicing Fees) of Scheduled Payments on the particular Mortgage
Loans with respect to which such P&I Advances were made;
(iii) to reimburse itself for unpaid Servicing Fees, Modification
Fees, Resolution Fees and other expenses payable pursuant to Section
3.19(c) and 3.19(d) allocable to the related Sub-Pool, and to reimburse
itself or the FDIC for unreimbursed Servicing Advances made in respect of,
such Sub-Pool, the Servicer's (or the FDIC's) right to reimburse itself
pursuant to this clause (iii) with respect to any Mortgage Loan being
limited to related Liquidation Proceeds and Insurance Proceeds and, in the
case of the Resolution Fee, from other collections on the related Mortgage
Loan, and, if the Trustee so elects under Section 8.05, to pay to the
Trustee any unpaid Trustee's Fees;
(iv) to pay itself any Liquidation Fee to which it is entitled in
connection with the liquidation of a Defaulted Mortgage Loan, a Mortgaged
Property securing a defaulted Mortgage Loan or a REO Property that is
included in such Sub-Pool, the Servicer's right to pay itself pursuant to
this clause (iv) with respect to any Mortgage Loan being limited to related
Liquidation Proceeds;
(v) to pay for costs and expenses incurred by the Trust Fund
pursuant to Section 3.07(a) or (b), Section 3.09(c) or (d), Section 6.06 or
Section 3.17(a) that are allocable to such Sub-Pool;
(vi) to pay (A) itself, the FDIC or the Mortgage Loan Seller, as the
case may be, any amounts payable pursuant to Section 6.03 that are
allocable to such Sub-Pool and (B) the Trustee or any Custodian any amounts
payable pursuant to Section 8.05(a) or (b) or Section 10.01(d) that are
allocable to such Sub-Pool;
(vii) to pay itself, as additional servicing compensation in
accordance with Section 3.11(b), interest and investment income earned in
respect of amounts that are allocable to such Sub-Pool held in the
Collection Account as provided in Section 3.06(b);
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(viii) to reimburse itself or the FDIC for Nonrecoverable P&I
Advances and Nonrecoverable Servicing Advances made in respect of such Sub-
Pool;
(ix) at the direction of the Trustee, to pay any and all federal,
state and local taxes imposed on the Trust Fund or its assets or
transactions that are allocable to such Mortgage Sub-Pool, to the extent
that the Servicer and the Trustee are not liable therefor pursuant to
Section 10.01(h);
(x) to pay for the cost of an Independent MAI-appraiser retained
pursuant to Section 3.18(d) that is allocable to such Sub-Pool;
(xi) to pay for (A) the cost of the Opinions of Counsel contemplated
by Sections 3.09(b)(ii), 3.16(a), 3.19(a), 3.19(b) and (c) that is
allocable to such Sub-Pool, (B) the portion of the cost that is allocable
to such Sub-Pool of the Opinions of Counsel contemplated by Section
11.01(a) or (c) in connection with amendments to this Agreement requested
by the Servicer or the Trustee, but only in such cases as permitted by
Section 11.01(g), and (C) the portion of the cost that is allocable to such
Sub-Pool of recording this Agreement in accordance with Section 11.02;
(xii) at such time as it reimburses itself or the FDIC for (A) any
unreimbursed P&I Advance pursuant to subclause (ii) above, to pay the FDIC
any interest accrued and payable thereon in accordance with Section 4.08,
or (B) any unreimbursed Servicing Advance pursuant to clause (iii) above,
to pay the FDIC any interest accrued and payable thereon in accordance with
Section 4.08;
(xiii) to reimburse itself or the Trustee, as the case may be, for
any unreimbursed expenses allocable to such Sub-Pool reasonably incurred by
such Person in respect of any Resulting Loss giving rise to an
indemnification or repurchase obligation of the FDIC under this Agreement,
including, without limitation, any expenses arising out of the enforcement
of the indemnification or repurchase obligation, each such Person's right
to reimbursement pursuant to this clause (xiii) with respect to any
Mortgage Loan being limited to that portion of the Purchase Price paid for
such Mortgage Loan that represents such expense in accordance with clause
(iv) of the definition of Purchase Price or the cost of enforcing such
indemnification obligation, as the case may be; and
(xiv) to clear and terminate the Collection Account at the
termination of this Agreement pursuant to Section 9.01.
(b) Notwithstanding the foregoing, to the extent that any of the
amounts referred to above are Extraordinary Expenses, the Servicer shall first
require that such amounts be paid from the Limited Guaranty or pursuant to
Section 1.05, as required hereunder, to the extent of available funds, and only
thereafter shall such Extraordinary Expenses be withdrawn from the Collection
Account pursuant to clause (a) of this Section 3.05.
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(c) The Servicer shall keep and maintain separate accounting records,
on a Mortgage Loan by Mortgage Loan and a Sub-Pool by Sub-Pool basis, for the
purpose of justifying any withdrawal from the Collection Account pursuant to
subclauses (ii) - (vi), (ix) and (xi) of Section 3.05(a).
Section 3.06. Investment of Funds in the Escrow Accounts, the
Collection Account, the Distribution Account and the
REO Account.
(a) The Servicer may in writing direct any depository institution
maintaining the Escrow Accounts, the Collection Account, the REO Account or the
Trustee with respect to the Distribution Account (each such account, for
purposes of this Section 3.06, an "Investment Account") to invest the funds held
therein in one or more Permitted Investments bearing interest or sold at a
discount, and maturing, unless payable on demand, (i) no later than the Business
Day immediately preceding the next succeeding date on which such funds are
required to be withdrawn from such account pursuant to this Agreement, if a
Person other than the depository institution maintaining such account is the
obligor thereon, and (ii) no later than the next succeeding date on which such
funds are required to be withdrawn from such account pursuant to this Agreement,
if the depository institution maintaining such account is the obligor thereon.
All such Permitted Investments shall be held to maturity, unless payable on
demand. Any investment of funds in an Investment Account shall be made in the
name of the Trustee (in its capacity as such). The Servicer, on behalf of the
Trustee, shall maintain continuous possession of any Permitted Investment in the
Escrow Accounts, the Collection Account and REO Account that is either (i) a
"certificated security", as such term is defined in the Uniform Commercial Code
of any applicable jurisdiction (the "UCC"), or (ii) other property in which a
secured party may perfect its security interest by possession under the UCC or
any other applicable law. Possession of any such Permitted Investment by the
Servicer shall constitute possession by a person designated by the Trustee for
purposes of Section 8-313 of the UCC and possession by the Trustee, as secured
party, for purposes of Section 9-305 of the UCC and any other applicable law;
provided, however, that the Trustee shall not be responsible, as bailee or
otherwise, for Permitted Investments held by the Servicer. In the event amounts
on deposit in an Investment Account are at any time invested in a Permitted
Investment payable on demand, the Servicer shall:
(x) consistent with any notice required to be given thereunder, demand
that payment thereon be made on the last day such Permitted Investment may
otherwise mature hereunder in an amount equal to the lesser of (1) all
amounts then payable thereunder and (2) the amount required to be withdrawn
on such date; and
(y) demand payment of all amounts due thereunder promptly upon
determination by the Servicer that such Permitted Investment would not
constitute a Permitted Investment in respect of funds thereafter on deposit
in the Investment Account.
(b) All income and gain realized from investment of funds deposited in
the Escrow Accounts (subject to the fourth sentence of Section 3.03(a)), the
Collection Account, the Distribution Account or the REO Account shall be for the
sole and exclusive benefit of the
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Servicer and shall be subject to its withdrawal in accordance with Section 3.03,
Section 3.05 or 3.16, as the case may be, and, if held in the Distribution
Account shall be remitted by the Trustee to the Servicer on each Distribution
Date. The Servicer shall deposit in the Escrow Accounts, the Collection
Account, the Distribution Account or the REO Account, as the case may be, the
amount of any loss incurred in respect of any such Permitted Investment
immediately upon realization of such loss.
(c) Except as otherwise expressly provided in this Agreement, if any
default occurs in the making of a payment due under any Permitted Investment, or
if a default occurs in any other performance required under any Permitted
Investment, the Trustee may and, subject to Section 8.02, upon the request of
Holders of Certificates representing more than 50% of the Voting Rights of any
Class of Regular Certificates affected thereby, shall take such action as may be
appropriate to enforce such payment or performance, including the institution
and prosecution of appropriate proceedings; provided, however, that if the
Servicer shall have deposited in the Escrow Accounts, the Collection Account,
the Distribution Account or the REO Account, as the case may be, an amount equal
to all amounts due under any such Permitted Investment (net of anticipated
income or earnings thereon that would have been payable to the Servicer as
additional servicing compensation), the Servicer shall have the sole right to
enforce such payment or performance, and the Trustee shall deliver to the
Servicer the certificate or other instrument evidencing such investment together
with any necessary document of transfer.
Section 3.07. Maintenance of Insurance Policies; Errors and Omissions
and Fidelity Coverage.
(a) The Servicer on behalf of the Trustee as mortgagee shall maintain
or cause the related Mortgagor (if permitted by the related Mortgage Note) to
maintain for each Mortgage Loan fire and hazard insurance with extended coverage
on the related Mortgaged Property with a Qualified Insurer in an amount which is
at least equal to the lesser of the current principal balance of such Mortgage
Loan and the replacement cost of the improvements that are a part of such
property (less a reasonable deductible). Notwithstanding the foregoing, if the
maintenance of such amount of fire and hazard insurance is insufficient, in the
Servicer's judgment, to avoid the application of any co-insurance clause, then
the Servicer shall maintain or require the related Mortgagor to maintain such
greater amount of insurance sufficient to avoid the application of any co-
insurance clause. The cost of any such insurance, if not borne by the
Mortgagor, shall be an Extraordinary Expense. If any loss which is of a type
which is or which would have been covered under any such policy occurs, the
Servicer will deposit in the Collection Account from its own funds an amount
equal to the lesser of such loss and, so long as any recovery has been obtained
under such insurance, the amount equal to any reduction in recovery under a fire
and hazard insurance policy required to be maintained under the first sentence
of this Section 3.07(a) (regardless of when the reduction in recovery occurred),
provided (i) such reduction in recovery results from the application of a co-
insurance clause in such policy, and (ii) if the proceeds of such policy were
applied to the restoration and repair of the related Mortgaged Property, such
property was not restored to its condition as of the Closing Date, reasonable
wear and tear excepted, because of such reduction in recovery. To the extent
that amounts are available in the REO Account or are required to be advanced by
the Servicer
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pursuant to Section 3.17, the Servicer shall cause to be maintained fire and
hazard insurance with extended coverage on each REO Property in an amount (less
a reasonable deductible) which is at least equal to the greater of (i) an amount
not less than is necessary to avoid the application of any co-insurance clause
contained in the related fire and hazard insurance policy and (ii) the
replacement cost of the improvements which are a part of such property. The
Servicer shall cause to be maintained with respect to each REO Property public
liability insurance with a Qualified Insurer providing such coverage against
such risks as the Servicer determines, consistent with the servicing standard
set forth in Section 3.01(a), to be in the best interests of the Trust Fund.
Any Insurance Proceeds received by the Servicer shall be deposited into the
Collection Account. It is understood and agreed that no earthquake or other
additional insurance other than flood insurance is to be required of any
Mortgagor or to be maintained by the Servicer, other than pursuant to the terms
of the related Mortgage Note or Mortgage and pursuant to such applicable laws
and regulations as shall at any time be in force and as shall require such
additional insurance. If permitted by the related Mortgage Note or Mortgage,
the Servicer may maintain, if available, or may require the related Mortgagor to
maintain other forms of insurance including but not limited to, loss of rents
endorsements, business interruption insurance and comprehensive public liability
insurance. If a Mortgaged Property or REO Property was located at the time of
origination of the Mortgage Loan in a federally designated special flood hazard
area, the Servicer will cause the related Mortgagor to maintain or will itself
obtain flood insurance in respect thereof to the extent available. Such flood
insurance shall be in an amount at least equal to the lesser of (i) the unpaid
principal balance of the related Mortgage Loan and (ii) the greater of (a) the
maximum amount of such insurance that can be obtained at a reasonable cost and
(b) the maximum amount of such insurance as is available for the related
property under the national flood insurance program (assuming that the area in
which such property is located is participating in such program). The cost of
any insurance described above, if not borne by the Mortgagor, shall be payable
out of amounts available under the Limited Guaranty.
The Servicer agrees, with respect to the Mortgage Loans, to prepare
and present, on behalf of the Trustee, claims under each related insurance
policy maintained pursuant to this Section 3.07(a) in a timely fashion in
accordance with the terms of such policy and to take such reasonable steps as
are necessary to receive payment or to permit recovery thereunder.
All policies required hereunder shall name the Trustee as loss payee
and, to the extent available and applicable, shall contain negative amortization
endorsements.
(b)(i) If the Servicer causes the mortgagee's (or, in case of an REO
Property, the Trustee's) interest in any Mortgaged Property to be covered by a
master or single interest blanket insurance policy naming the Trustee as loss
payee or an additional insured, which policy is issued by a Qualified Insurer
and provides no less coverage, in scope and amount, for such Mortgaged Property
than the insurance coverage required to be maintained with respect to such
Mortgaged Property pursuant to Section 3.07(a), it shall conclusively be deemed
to have satisfied its obligations to maintain insurance with respect to the
related Mortgage Loan pursuant to Section 3.07(a). In the event that the
Servicer shall cause any Mortgage Loan to be covered by such a master or single
interest blanket insurance policy after receipt of notice that a Mortgagor
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has failed to maintain a fire and hazard insurance policy complying with the
provisions of Section 3.07(a) for any Mortgage Loan, the incremental cost of
such insurance allocable to such Mortgage Loan (i.e., other than any minimum or
standby premium payable for such policy whether or not any Mortgage Loan is then
covered thereby), if not borne by the Mortgagor, shall be an Extraordinary
Expense. In connection with its activities as Servicer hereunder, the Servicer
agrees to prepare and present, on behalf of itself, the Trustee and
Certificateholders, claims under any such master or single interest blanket
insurance policy which it maintains in a timely fashion in accordance with the
terms of such policy and to take such reasonable steps as are necessary to
receive payment or permit recovery thereunder.
(ii) If the Servicer obtains and maintains a blanket policy (other
than a policy described in clause (i) above) with a Qualified Insurer insuring
against fire and hazard losses on all or a significant portion of the mortgage
loans which the Servicer services, it shall conclusively be deemed to have
satisfied its obligations concerning the maintenance of insurance coverage set
forth in Section 3.07(a) with respect to the Mortgage Loans covered by such
blanket policy, it being understood and agreed that such policy may contain a
deductible clause, in which case the Servicer shall, in the event that there
shall not have been maintained on the related Mortgaged Property a policy
otherwise complying with the provisions of Section 3.07(a), and there shall have
been one or more losses which would have been covered by such a policy had it
been maintained, immediately deposit into the Collection Account from its own
funds the amount not otherwise payable under the blanket policy because of such
deductible clause. The incremental cost of such blanket policy allocable to the
Mortgage Loans (i.e., other than any minimum or standby premium payable for such
policy whether or not any Mortgage Loan is then covered thereby) shall be an
Extraordinary Expense. In connection with its activities as Servicer hereunder,
the Servicer agrees to prepare and present, on behalf of itself, the Trustee and
Certificateholders, claims under any such blanket policy which it maintains in a
timely fashion in accordance with the terms of such policy and to take such
reasonable steps as are necessary to receive payment or permit recovery
thereunder.
(iii) The Servicer shall be deemed to have satisfied the provisions of
this subsection (b) if a direct or indirect parent obtains or provides any such
insurance which, by its terms, also covers the Servicer.
(c) The Servicer shall maintain a fidelity bond in the form and
amount that would meet the servicing requirements of prudent institutional
commercial mortgage lenders and loan servicers. The Servicer shall be deemed to
have complied with this provision if one of its Affiliates has such fidelity
bond coverage and, by the terms of such fidelity bond, the coverage afforded
thereunder extends to the Servicer. Any such fidelity bond shall not be canceled
without ten days' prior written notice to the Trustee. In addition, the Servicer
shall keep in force during the term of this Agreement a policy or policies of
insurance covering loss occasioned by the errors and omissions of its officers,
employees and agents in connection with its obligations to service the Mortgage
Loans hereunder with a Qualified Insurer. The Servicer shall be deemed to have
complied with this provision if one of its Affiliates has such insurance
coverage and, by the terms of such insurance policy, the coverage afforded
thereunder extends to the Servicer. The Servicer shall cause each and every Sub-
Servicer for it to maintain a policy
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of insurance covering errors and omissions and a fidelity bond which would meet
such requirements. So long as the long term debt or deposit obligations of the
Servicer or its direct parent are rated at least "Aa2" by Moody's and "AA" by
Duff & Phelps, the Servicer shall be allowed to provide self-insurance with
respect to an errors and omissions insurance policy. In the event that there
shall not have been maintained an errors and omissions policy and there shall
have been a loss which would have been covered by such policy, the Servicer
shall deposit in the Collection Account the amount that otherwise would have
been payable under the policy. If the Servicer's or its direct parent's long
term debt or deposit rating falls below such standards, the Servicer will be
required to obtain and maintain an errors and omissions insurance policy
pursuant to the foregoing requirements.
Section 3.08. Enforcement of Due-On-Sale Clauses; Assumption
Agreements; Subordinate Financing.
(a) With respect to each Mortgage Loan that contains a provision in
the nature of a "due-on-sale" clause, which by its terms:
(i) provides that such Mortgage Loan shall (or may at the
mortgagee's option) become due and payable upon the sale or other transfer
of an interest in the related Mortgaged Property; or
(ii) provides that such Mortgage Loan may not be assumed without the
consent of the related mortgagee in connection with any such sale or other
transfer,
then, for so long as such Mortgage Loan is included in the Trust Fund, the
Servicer, on behalf of the Trustee as the mortgagee of record, shall exercise
any right it may have with respect to such Mortgage Loan (x) to accelerate the
payments thereon, (y) to withhold its consent to any such sale or other transfer
or (z) to waive such "due-on-sale" clause, in a manner consistent with the
servicing standard set forth in Section 3.01(a).
(b) With respect to each Mortgage Loan that contains a provision in
the nature of a "due-on-encumbrance" clause, which by its terms:
(i) provides that such Mortgage Loan shall (or may at the
mortgagee's option) become due and payable upon the creation of any lien or
other encumbrance on the related Mortgaged Property; or
(ii) requires the consent of the related mortgagee to the creation of
any such lien or other encumbrance on the related Mortgaged Property, then,
for so long as such Mortgage Loan is included in the Trust Fund, the
Servicer, on behalf of the Trustee as the mortgagee of record, shall
exercise any right it may have with respect to such Mortgage Loan (x) to
accelerate the payments thereon, (y) to withhold its consent to the
creation of any such lien or other encumbrance or (z) to waive such "due-
on-encumbrance" clause, in a manner consistent with the servicing standard
set forth in Section 3.01(a).
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(c) Nothing in this Section 3.08 shall constitute a waiver of the
Trustee's right, as the mortgagee of record, to receive notice of any assumption
of a Mortgage Loan, any sale or other transfer of the related Mortgaged Property
or the creation of any lien or other encumbrance with respect to such Mortgaged
Property.
(d) Except as otherwise permitted by Section 3.19 (and this
Section 3.08 in the case of waivers described in this Section 3.08), the
Servicer shall not agree to modify, waive or amend any term of any Mortgage Loan
in connection with the taking of, or the failure to take, any action pursuant to
this Section 3.08.
Section 3.09. Realization Upon Defaulted Mortgage Loans.
(a) The Servicer shall, subject to subsections (b) through (f) of
this Section 3.09, exercise reasonable efforts, consistent with the servicing
standard set forth in Section 3.01(a), 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, and which are not released from the Trust Fund pursuant to any other
provision hereof. The foregoing is subject to the provisions that, in any case
in which a Mortgaged Property shall have suffered damage from an Uninsured
Cause, the Servicer shall not be required to make a Servicing Advance toward the
restoration of such property unless it shall determine in its reasonable
discretion (i) that such restoration will increase the net proceeds of
liquidation of such Mortgaged Property to Certificateholders after reimbursement
to itself for such expenses, and (ii) that such expenses will be recoverable by
the Servicer out of the proceeds of liquidation of such Mortgaged Property, as
contemplated in Section 3.05, 3.16 or 3.19. The 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 therefor as
provided in Section 3.05 or 3.16.
(b) The Servicer shall not acquire any personal property pursuant to
this Section 3.09 unless either:
(i) such personal property is incident to real property (within the
meaning of Section 856(e)(1) of the Code) so acquired by the Servicer; or
(ii) the Servicer shall have obtained an Opinion of Counsel (the cost
of which shall be an Extraordinary Expense) to the effect that the holding
of such personal property by the Trust Fund will not cause the imposition
of a tax on the Trust Fund under the REMIC Provisions or cause the Lower-
Tier REMIC or the Upper-Tier REMIC to fail to qualify as a REMIC at any
time that any Certificate is outstanding.
(c) Notwithstanding the foregoing provisions of this Section 3.09,
the Servicer shall not, on behalf of the Trustee, complete foreclosure
proceedings, obtain title to a Mortgaged Property in lieu of foreclosure or
otherwise, or take any other action with respect to any Mortgaged Property, if,
as a result of any such action, the FDIC, the Mortgage Loan
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Seller or the Trustee, on behalf of the Certificateholders, would be considered
to hold title to, to be a "mortgagee-in-possession" of, or to be an "owner" or
"operator" of such Mortgaged Property within the meaning of CERCLA, or any
comparable law, or if, as a result of such action, the Trustee, the Mortgage
Loan Seller, the FDIC, the Trust Fund or the Servicer would be subject to
liability pursuant to any federal, state or local environmental statute,
regulation or similar requirement including but not limited to CERCLA, the
Resource Conservation and Recovery Act, the Toxic Substances Control Act, the
Clean Water Act, and the Clean Air Act, or at common law, unless and until (as
evidenced by an Officers' Certificate delivered to the Trustee) the Servicer has
determined in accordance with the servicing standard set forth in Section
3.01(a), based on an Environmental Assessment report prepared by an Independent
Person who is qualified to make such Environmental Assessment, that:
(i) such Mortgaged Property is in compliance with applicable
environmental laws in all material respects; and
(ii) there are no circumstances or conditions present at such
Mortgaged Property relating to the use, management or disposal of any
Hazardous Materials or for which investigation, testing, monitoring,
containment, clean-up or remediation could be required under any federal,
state or local law or regulation.
The cost of the Environmental Assessment shall be an Extraordinary Expense. The
Servicer shall deliver to the FDIC and the Trustee a copy of any such
Environmental Assessment. In the event that any such Environmental Assessment
so warrants, the Servicer is hereby authorized to perform such additional
environmental testing as it deems necessary and prudent to establish
satisfaction of the foregoing Environmental Conditions Precedent to Foreclosure
or to proceed in accordance with subsection (d), (e) or (f), as the case may be,
below. The expenses incurred pursuant to the immediately preceding sentence
shall be an Extraordinary Expense.
(d) If (i) the environmental testing contemplated by subsection (c)
above establishes that any of the Environmental Conditions Precedent to
Foreclosure is not satisfied with respect to any Mortgaged Property and (ii) the
Servicer in good faith reasonably believes that it is in the best economic
interest of the Trust Fund to proceed against such Mortgaged Property and, if
title thereto is acquired, to take such remedial, corrective or other action
with respect to the unsatisfied condition or conditions as may be prescribed by
applicable law to satisfy such condition or conditions, then the Servicer shall
so notify the FDIC and the Trustee, and the Trustee shall forward such notice to
the Certificateholders (which notice shall set forth in reasonable detail the
reasons for its decisions and advising the Certificateholders of their rights to
object, subject to the remainder of this sentence) and, if (i) the FDIC, in the
event that amounts remain available under the Limited Guaranty, or (ii) in all
other cases, the Trustee, on its own behalf or on behalf of Holders of
Certificates entitled to at least 51% of the Voting Rights of any Class of
Regular Certificates affected thereby have not notified the Servicer in writing
of their objection within 30 days of such notification, the Servicer shall
proceed against such Mortgaged Property. The cost of any remedial, corrective
or other action contemplated by the preceding sentence in respect of any of the
Environmental Conditions Precedent to Foreclosure that is not satisfied shall be
an Extraordinary Expense, and neither the Servicer nor
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the Trustee shall be required to expend or risk its own funds or otherwise incur
any financial liability in connection with any such action. The basis of any
objection of the Trustee to the Servicer's decision to proceed against the
Mortgaged Property must be reasonable and shall be set forth in any objection
delivered by it.
(e) If (i) the environmental testing contemplated by subsection (c)
above establishes that any of the Environmental Conditions Precedent to
Foreclosure is not satisfied with respect to any Mortgaged Property and (ii)
either (A) the Servicer in good faith reasonably believes based upon the
Environmental Assessment report that it is not in the best economic interest of
the Trust Fund to proceed against such Mortgaged Property or (B) either (1) the
FDIC or (2) Holders of Certificates entitled to at least 51% of the Voting
Rights of any Class of Regular Certificates affected thereby, as the case may
be, have notified the Trustee and the Trustee (on behalf of such Holders or on
its own behalf) has notified the Servicer in writing of their objection to the
Servicer's intentions to proceed against such Mortgaged Property within 30 days
of receiving notice thereof as contemplated by subsection (d) above, then the
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) as
determined in accordance with the servicing standard set forth in Section
3.01(a), and is hereby authorized at such time as it deems appropriate, at the
option of the FDIC, to release such Mortgaged Property from the lien of the
related Mortgage or to deliver such Mortgage Loan to the FDIC.
(f) The Servicer shall report to the FDIC and the Trustee monthly as
to any actions taken by the Servicer with respect to any Mortgaged Property as
to which the environmental testing contemplated in subsection (c) above has
revealed that any of the Environmental Conditions Precedent to Foreclosure is
not satisfied, in each case until the earliest to occur of satisfaction of all
such conditions, repurchase of or delivery to the FDIC of the related Mortgage
Loan and release of the lien of the related Mortgage on such Mortgaged Property.
The Trustee shall promptly forward each such report to (i) the
Certificateholders and (ii) the FDIC for so long as amounts remain available
under the Limited Guaranty.
(g) The Servicer shall report to the Internal Revenue Service and
the related Mortgagor, in the manner required by applicable law, the information
required to be reported regarding any Mortgaged Property which is abandoned or
foreclosed. The Servicer shall deliver a copy of any such report to the Trustee.
(h) The Servicer shall have the right to determine, in accordance
with its normal and usual commercial mortgage servicing procedures, the
advisability of the maintenance of an action to obtain a deficiency judgment if
the state in which the Mortgaged Property is located permits such an action.
(i) The Servicer shall maintain accurate records, prepared by a
Servicing Officer, of each Final Recovery Determination in respect of a
defaulted Mortgage Loan and the basis thereof. Each Final Recovery
Determination shall be evidenced by an Officers' Certificate delivered to the
Trustee no later than the third Business Day following such Final Recovery
Determination.
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Section 3.10. Trustee to Cooperate; Release of Mortgage Files.
(a) Upon the payment in full of any Mortgage Loan, or the receipt by
the Servicer of a notification that payment in full shall be escrowed in a
manner customary for such purposes, the Servicer will immediately notify the
Trustee and any related Custodian by a certification (which certification shall
be in the form of a Request for Release substantially in the form of Exhibit E-1
-------
hereto and 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 Collection Account pursuant to Section 3.04(a) have been or
will be so deposited) of a Servicing Officer and shall request delivery to it of
the Mortgage File. Upon receipt of such certification and request, the Trustee
shall promptly release or cause the Custodian to release the related Mortgage
File to the Servicer. No expenses incurred in connection with any instrument of
satisfaction or deed of reconveyance shall be chargeable to the Collection
Account or the Distribution Account; the filing fee or recording cost of any
instrument of satisfaction or deed of reconveyance shall be an obligation of the
FDIC.
(b) The Trustee upon request of the Servicer and receipt from the
Servicer of a Request for Release, shall promptly release or cause the Custodian
to release any Mortgage File (or any portion thereof) to the Servicer. Upon
return of such Mortgage File to the Trustee, the Trustee shall acknowledge
receipt thereof by executing and returning the Servicer's transmittal letter
that accompanied the returned Mortgage File.
(c) Within seven Business Days (or within such shorter period as
such request can reasonably be fulfilled if the Servicer notifies the Trustee of
an exigency) of the Servicer's request therefor, the Trustee shall execute and
deliver to the Servicer or the Servicer may execute and deliver in the name of
the Trustee and the Trust Fund, any court pleadings, requests for trustee's sale
or other documents furnished to the Trustee and 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. Together with such documents or pleadings, the Servicer shall deliver to
the Trustee a certificate of a Servicing Officer substantially in the form of
Exhibit E-2 hereto requesting that such pleadings or documents be executed by
- -------
the Trustee and certifying 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 3.11. Servicing Compensation.
(a) As compensation for its activities hereunder, the Servicer shall
be entitled to receive the Servicing Fee with respect to each Mortgage Loan and
REO Loan. As to each Mortgage Loan and REO Loan, the Servicing Fee shall accrue
at the Servicing Fee Rate and shall be computed on the basis of the same
principal amount respecting which any related interest payment due on such
Mortgage Loan or deemed due on such REO Loan is computed
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(except that for purposes of calculating its fee each Mortgage Loan shall be
deemed to accrue interest on the basis of a 360-day year consisting of twelve
30-day months). The Servicing Fee with respect to any Mortgage Loan or REO Loan
shall cease to accrue if a Liquidation Event occurs in respect thereof. As to
each Mortgage Loan other than a Non-Monthly Loan, the Servicing Fee shall be
payable monthly from payments of interest on such Mortgage Loan. As to each
Non-Monthly Loan, the Servicing Fee shall be payable at the same frequency as
the Due Date therefor, from payments of interest on such Non-Monthly Loan;
however the Servicer may, at its option, advance to itself the Servicing Fee on
a Non-Monthly Loan on a monthly basis, which advance shall be treated as a
Servicing Advance for all purposes of this agreement. In the case of each REO
Loan, the Servicing Fee shall be payable monthly from revenues generated by the
related REO Property. The Servicer shall be entitled to recover unpaid
Servicing Fees in respect of any Mortgage Loan out of related Liquidation
Proceeds and Insurance Proceeds to the extent permitted by Section 3.05(a) and
in respect of any REO Loan out of related REO Revenues, Insurance Proceeds or
Liquidation Proceeds to the extent permitted by Section 3.16(c). As further
compensation for its activities hereunder, the Servicer shall also be entitled
to receive (i) the Liquidation Fee in connection with the liquidation of a
Defaulted Mortgage Loan, a Mortgaged Property securing any Defaulted Mortgage
Loan or an REO Disposition pursuant to Section 3.18 to a Person other than an
Interested Person out of related Liquidation Proceeds, provided that the payment
of such Liquidation Fee would not be a violation of, and would not subject the
Trustee, the FDIC, the Mortgage Loan Seller or the Trust Fund to liability
under, any state or local statute, regulation or other requirement (including
without limitation, those governing the licensing of real estate brokers or
salesmen), (ii) the Modification Fee for any Mortgage Loan modified in
accordance with Section 3.19 and (iii) a Resolution Fee for any loan modified in
accordance with Section 3.19 during the related Resolution Period. The right to
receive the Servicing Fee, the Liquidation Fee, the Modification Fee or the
Resolution Fee in respect of any Mortgage Loan may not be transferred in whole
or in part except in connection with the transfer of all of the Servicer's
responsibilities and obligations under this Agreement.
(b) Additional servicing compensation in the form of assumption
fees, late payment charges, charges for beneficiary statements or demands and
amounts collected for checks returned for insufficient funds, in each case to
the extent actually paid by a Mortgagor, shall be retained by the Servicer and
shall not be required to be deposited in the Collection Account pursuant to
Section 3.04(a). The Servicer shall also be entitled to additional servicing
compensation in the form of interest or other income earned on deposits in the
Escrow Accounts (subject to the fourth sentence of Section 3.03(a)), the
Collection Account, the Distribution Account and the REO Account in accordance
with Section 3.06(b).
Section 3.12. Inspections; Collection of Financial Statements.
(a) The Servicer shall inspect each Mortgaged Property at such times
and in such manner as are consistent with the servicing standard set forth in
Section 3.01(a), but in any event (i)(A) at least once per calendar year,
commencing January 1, 1998, for each related Mortgage Loan with an outstanding
principal balance equal to at least $1,000,000 and (B) at least bi-annually,
commencing January 1, 1998, for each related Mortgage Loan with an outstanding
principal balance equal to at least $200,000 but less than $1,000,000 and (ii)
if any
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Scheduled Payment (other than any Balloon Payment due with respect to a Matured
Performing Mortgage Loan prior to the modification thereof pursuant to Section
3.19(e)) for such Mortgage Loan becomes more than 60 days delinquent on the
related Mortgage Loan, as soon as practicable thereafter. In the course of each
such inspection, the Servicer shall use its best efforts to determine the
existence of any material vacancy in the Mortgaged Property, of any sale,
transfer or abandonment of the Mortgaged Property, of any material change in the
condition of the Mortgaged Property, of any material waste committed on the
Mortgaged Property, of any material failure on the part of the related Mortgagor
to keep the Mortgaged Property in good condition and repair, of any permanent or
substantial injury to the Mortgaged Property through unreasonable use, abuse or
neglect or of any other matter which would materially and adversely affect or
result in diminution of the security provided by the related Mortgage. The
costs of inspections required pursuant to clauses (i)(A) and (i)(B) hereof shall
be Extraordinary Expenses to the extent provided in the definition of
"Inspection Expense", and any costs in excess of such amount, together with the
costs of inspections required pursuant to clause (ii) hereof shall be borne by
the Servicer. The Servicer may, if consistent with the servicing standard set
forth in Section 3.01, use its own employees to conduct all such inspections,
provided, however, that in order to collect the cost of an inspection at any
particular property as an Extraordinary Expense, the Servicer must provide to
the FDIC a fee proposal from a reputable independent inspector to conduct such
service at such property at a price equal to or greater than that claimed by the
Servicer in respect of such property. The Servicer shall promptly make a
written report of each such inspection and shall deliver a copy thereof to the
Trustee within 14 days of its preparation.
(b) With respect to each Mortgage Loan, the Servicer shall make
reasonable efforts to collect from the related Mortgagor such annual operating
statements of the related Mortgaged Property and financial statements of such
Mortgagor as may be required to be delivered pursuant to the terms of the
related Mortgage. The Servicer shall promptly deliver copies thereof to the
Trustee. The Servicer shall promptly review each such statement, calculate the
current debt service coverage ratio for the related Mortgage Loan, and (i)
deliver to the Trustee a written report signed by a Servicing Officer containing
its calculations of the related debt service coverage ratios and in the case of
a Mortgage Loan as to which the Servicer has observed what it considers to be
extraordinary increases or decreases in the expenses or revenues associated with
the related Mortgaged Property, containing an analysis of that change in
circumstance and (ii) take any action with respect to such Mortgage Loan as it
deems consistent with the servicing standard set forth in Section 3.01(a).
(c) The Trustee shall not be required to monitor receipt of, or
examine the report required to be delivered to it pursuant to this Section 3.12
or the analysis submitted to it pursuant to Section 3.19(c) or (g), its sole
duty with respect to such reports and analysis being to hold and make such
reports and analysis available in accordance with Section 5.05.
Section 3.13. Annual Statement as to Compliance.
The Servicer will deliver to the Trustee, with a copy to the Mortgage
Loan Seller, on or before April 30 of each year, beginning in 1998, an Officers'
Certificate stating, as to
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each signer thereof, that (i) a review of the activities of the Servicer during
the preceding calendar year and of its performance under this Agreement has been
made under such officer's supervision, (ii) to the best of such officer's
knowledge, based on such review, the Servicer has fulfilled all of its
obligations in all material respects 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 officer and the nature and status
thereof and (iii) the Servicer has received no notice regarding qualification,
or challenging the status, of the Lower-Tier REMIC or the Upper-Tier REMIC as a
REMIC from the Internal Revenue Service or any other governmental agency or
body.
Section 3.14. Reports by Independent Public Accountants.
On or before April 30 of each year, beginning in 1998, the Servicer at
its expense shall cause a firm of independent public accountants (which may also
render other services to the Servicer), which is a member of the American
Institute of Certified Public Accountants and is reasonably satisfactory to each
Rating Agency, to furnish a statement to the Trustee, the FDIC and the Mortgage
Loan Seller to the effect that such firm has examined certain documents and
records relating to the servicing by or on behalf of the Servicer during the
preceding calendar year of the Mortgage Loans under this Agreement and that, on
the basis of such examination conducted substantially in compliance with the
Uniform Single Audit Program for Mortgage Bankers or the Audit Program for
Mortgages serviced for FHLMC, such firm confirms that such servicing has been
conducted in compliance with (i) this Pooling and Servicing Agreement, in the
case of the statements to be delivered on or before April 30, 1998 and April 30,
1999 and (ii) the servicing guidelines established by the Uniform Single Audit
Program for Mortgage Bankers or the Audit Program for Mortgages serviced by
FHLMC, in the case of each statement to be delivered thereafter, except in any
case for such significant exceptions or errors in records that, in the opinion
of such firm, the Uniform Single Audit Program for Mortgage Bankers or the Audit
Program for Mortgages serviced for FHLMC requires it to report, in which case
such exceptions and errors shall be so reported. In rendering any such
statement, such firm may rely, as to matters relating to direct servicing of
mortgage loans by Sub-Servicers, upon comparable statements for examinations
conducted substantially in compliance with the Uniform Single Audit Program for
Mortgage Bankers or the Audit Program for Mortgages serviced for FHLMC (rendered
within one year of such statement) of independent public accountants with
respect to the related Sub-Servicer.
Section 3.15. Access to Certain Documentation.
The Servicer shall provide to the Trustee, and to the OTS, the FDIC
(Division of Supervision), and any other federal or state banking or insurance
regulatory authority that may exercise authority over any Certificateholder,
access to any reasonable nonconfidential and nonproprietary documentation
regarding the Mortgage Loans that, in the case of the Trustee, it may request
and, in other cases, as may be required by applicable law. Such access shall be
afforded without charge but only upon reasonable prior written request and
during normal business hours at the offices of the Servicer designated by it.
The Servicer shall not deny access to the Trustee, on the grounds of
confidentiality or ownership, to any document or record,
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including any that might be in electronic form, that would be reasonably
necessary for the Trustee to determine if an Event of Default has occurred
hereunder, to verify any amount set forth in any Collection Report, to prepare
any Tax Return or to show, in any instance, that the Trustee acted properly
hereunder and nothing in this Section shall affect any right the Trustee might
have under any law, through legal process, to discover or otherwise obtain
access to any document or records in the possession of the Servicer with respect
to the Mortgage Loans or the transactions contemplated by this Agreement.
Section 3.16. Title to REO Property; REO Account.
(a) This Section shall apply only to REO Property acquired for the
account of the Trust Fund, and shall not apply to any REO Property relating to a
Mortgage Loan which was repurchased from the Trust Fund pursuant to any
provision hereof. If title to any such REO Property is acquired, the deed or
certificate of sale shall be issued to the Trustee on behalf of the
Certificateholders. The Servicer, on behalf of the Trust Fund, shall 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, unless (i) the
Internal Revenue Service grants an extension of time to sell such property or
(ii) the Servicer obtains for the Trustee an Opinion of Counsel (the cost of
which shall be an Extraordinary Expense), addressed to the Trustee and the
Servicer, to the effect that the holding by the Trust Fund of such REO Property
subsequent to the second anniversary of such acquisition will not result in the
imposition of taxes on the Trust Fund or cause the Lower-Tier REMIC or the
Upper-Tier REMIC to fail to qualify as a REMIC at any time that any Certificates
are outstanding. The 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) of
the Code 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. Any extension referred to in clause (i) shall be requested by
the Servicer at least 60 days before the day on which the two-year grace period
would otherwise expire.
(b) The Servicer shall segregate and hold all funds collected and
received in connection with any REO Property separate and apart from its own
funds and general assets. If an REO Acquisition shall occur, the Servicer shall
establish and maintain one or more accounts (collectively, the "REO Account"),
held on behalf of the Trustee in trust for the benefit of the
Certificateholders, for the retention of revenues derived from REO Property. If
the Servicer does not elect to establish and maintain a separate REO Account
with respect to each Sub-Pool, the Servicer shall at all times during the term
hereof maintain a separate ledger sub-account of the REO Account for each Sub-
Pool, which ledger sub-account shall accurately reflect each deposit to and
withdrawal from the REO Account that is allocable to such Sub-Pool. The REO
Account shall be an Eligible Account. Funds in the REO Account may be invested
in Permitted Investments in accordance with Section 3.06. The Servicer shall
give notice to the Trustee of the location of the REO Account when first
established and of the new location of the REO Account prior to any change
thereof.
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(c) The Servicer shall deposit, or cause to be deposited, in the REO
Account, upon receipt, all REO Revenues and all Insurance Proceeds received in
respect of an REO Property. The Servicer shall withdraw from the REO Account
funds necessary for the proper operation, management, maintenance, leasing and
disposition of any REO Property, but only to the extent of amounts on deposit in
the REO Account relating to such REO Property. In addition, the Servicer may
from time to time make withdrawals from the REO Account, out of amounts on
deposit therein with respect to any REO Property: (i) to pay itself unpaid
Servicing Fees, Modification Fees, Resolution Fees or Liquidation Fees in
respect of the related REO Loan or related Mortgage Loan; (ii) to reimburse
itself for unreimbursed Servicing Advances in respect of such REO Property or
the related Mortgage Loan and to pay to the FDIC interest thereon in accordance
with Section 4.08; and (iii) to reimburse itself for unreimbursed P&I Advances
in respect of the related REO Loan or related Mortgage Loan and to pay to the
FDIC interest thereon in accordance with Section 4.08. On each P&I Advance
Date, the Servicer shall withdraw from the REO Account and deposit into the
Distribution Account, the Net REO Revenues and Net Insurance Proceeds therein
received during the most recently ended Due Period, provided that the Servicer
may establish and retain in an account for the benefit of the
Certificateholders, funds for a reasonable reserve for repairs, replacements,
capital improvements and other related expenses.
(d) The proceeds of any REO Disposition shall be deposited in the
REO Account and shall be transferred, net of any payments to the Servicer as
provided in Section 3.16(c), to the Distribution Account on the P&I Advance Date
in the Due Period following receipt thereof for distribution on the succeeding
Distribution Date in accordance with Section 4.01. Any REO Disposition shall be
for cash.
(e) The Servicer shall keep and maintain separate records, on an REO
Property by REO Property basis, for the purpose of accounting for all deposits
to, and withdrawals from, the REO Account pursuant to Section 3.16(b), (c) or
(d).
Section 3.17. Management of REO Property.
(a) Prior to the acquisition of title to a Mortgaged Property the
Servicer shall review the operation of such Mortgaged Property and determine the
nature of the income that would be derived from such property if it were
acquired by the Trust Fund. If the Servicer determines from such review that:
(i) None of the income from Directly Operating such Mortgaged
Property would be subject to (1) tax as "net income from foreclosure
property" within the meaning of the REMIC Provisions or (2) the tax imposed
on "prohibited transactions" under Section 860F of the Code (either such
tax referred to herein as an "REO Tax"), such Mortgaged Property may be
Directly Operated by the Servicer as REO Property;
(ii) Directly Operating such Mortgaged Property as an REO
Property could result in income from such property that would be subject to
an REO Tax, but that a lease of such property to another person to operate
such property, or the performance
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of some services by an Independent Contractor with respect to such
property, or another method of operating such Mortgaged Property would not
result in income subject to an REO Tax, then the Servicer may (provided
that, in the judgement of the Servicer, it is commercially feasible to do
so) acquire such Mortgaged Property as REO Property and so lease or operate
such REO Property; or
(iii) It is reasonable to believe that Directly Operating such
property as REO Property could result in income subject to an REO Tax and
that there is no commercially reasonable feasible means to operate such
property as REO Property without the Trust Fund incurring or possibly
incurring an REO Tax on income from such property, the Servicer shall give
written notice to the Trustee summarizing a proposed plan ("Proposed Plan")
to manage such property as REO Property. Such notice shall include
potential sources of income, and to the extent reasonably feasible,
estimates of the amount of income from each such source. Within a
reasonable period of time after receipt of such notice, the Trustee shall
consult with the Servicer and shall advise the Servicer of the Trustee's
federal income tax reporting position with respect to the various sources
of income that the Trust Fund would derive under the Proposed Plan. In
addition, the Trustee shall (to the extent feasible) advise the Servicer of
the estimated amount of taxes that the Trust Fund would be required to pay
with respect to each such source of income. After receiving the
information described in the two preceding sentences from the Trustee, the
Servicer, upon consultation with the Trustee (who may in turn obtain advice
of tax counsel, the cost of which shall be an Extraordinary Expense) shall
decide either to (A) implement the Proposed Plan (after acquiring the
respective Mortgaged Property as REO Property) or (B) manage and operate
such property in a manner that would not result in the imposition of an REO
Tax on the income derived from such property. The Servicer's decision as
to how each REO Property shall be managed and operated shall be based in
either case on the good faith and reasonable judgment of the Servicer as to
which means would be in the best interests of the Certificateholders by
maximizing (to the extent commercially feasible) the net after-tax REO
Revenues received by the Trust Fund with respect to such property and, to
the extent consistent with the foregoing, in the same manner as would
prudent institutional mortgage loan servicers and asset managers operating
acquired mortgage property comparable to such REO Property. The Servicer
may consult with counsel (the expense of which shall be an Extraordinary
Expense) in connection with determinations required under this Section
3.17(a). Neither the Servicer nor the Trustee shall be liable to the
Certificateholders, the Trust Fund or the FDIC for errors in judgement made
in good faith in the exercise of its discretion while performing its
responsibilities under this Section 3.17(a). Nothing in this Section
3.17(a) is intended to prevent the sale of a Defaulted Mortgage Loan
pursuant to the terms and subject to the conditions of Section 3.18.
(b) If the Trustee acquires any REO Property pursuant to Section 3.09,
the Servicer shall manage, conserve, protect and operate such REO Property for
the benefit of the Certificateholders solely for the purpose of its prompt
disposition and sale in a manner that does not cause such REO Property to fail
to qualify as "foreclosure property" within the meaning of Section 860G(a)(8) of
the Code or, except as provided in Section 3.17(a), result in the receipt
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by the Trust Fund of any income subject to the tax on "prohibited transactions"
under Section 860F(a) of the Code. Subject to the foregoing and to the specific
requirements and prohibitions of this Agreement, the Servicer shall have full
power and authority to do any and all things in connection therewith as are
consistent with the manner in which the Servicer would manage and operate such
property if it were owned by the Servicer, all on such terms and for such period
as the Servicer deems to be in the best interests of Certificateholders, and,
consistent therewith, shall withdraw from the REO Account, to the extent of
amounts on deposit therein with respect to such REO Property, funds necessary
for the proper operation, management, leasing and maintenance of such REO
Property, including:
(i) all insurance premiums due and payable in respect of such
REO Property;
(ii) all real estate taxes and assessments in respect of such
REO Property that may result in the imposition of a lien thereon; and
(iii) all costs and expenses necessary to maintain, lease,
operate, manage and sell such REO Property.
To the extent that amounts on deposit in the REO Account in respect of any REO
Property are insufficient for the purposes set forth in (i) - (iii) above with
respect to such REO Property, the Servicer shall advance from its own funds such
amount as is necessary for such purposes unless (as evidenced by an Officers'
Certificate delivered to the Trustee) the Servicer would not make such advances
if the Servicer owned such REO Property or, in the Servicer's reasonable good
faith judgment, the payment of such amounts will not be recoverable from the
operation or sale of such REO Property; provided, however, that the Servicer may
make any such advance even if it is not recoverable from the operation or sale
of such property if it is deemed by the Servicer to be a necessary fee or
expense incurred in connection with the defense or prosecution of legal
proceedings.
(c) The Servicer may contract with any Independent Contractor for the
operation and management of any REO Property, provided that:
(i) the terms and conditions of any such contract may not be
inconsistent herewith;
(ii) subject to Section 3.17(a), any such contract may
require, or may be administered to require, that the Independent
Contractor (A) pay all costs and expenses incurred in connection with
the operation and management of such REO Property, including, without
limitation, those listed in subsection (b) hereof, and (B) remit all
related revenues collected (net of such costs and expenses) to the
Servicer upon receipt;
(iii) none of the provisions of this Section 3.17(c) relating
to any such contract or to actions taken through any such Independent
Contractor shall be
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deemed to relieve the Servicer of any of its duties and obligations to
the Trustee on behalf of Certificateholders with respect to the
operation and management of any such REO Property; and
(iv) the Servicer shall be obligated with respect thereto to
the same extent as if it alone were performing all duties and
obligations in connection with the operation and management of such
REO Property.
The Servicer shall be entitled to enter into any agreement with any Independent
Contractor performing services for it related to its duties and obligations
hereunder for indemnification of the Servicer by such Independent Contractor,
and nothing in this Agreement shall be deemed to limit or modify such
indemnification.
Section 3.18. Sale of Mortgage Loans and Sale of REO Properties.
(a) The Servicer may sell a Mortgage Loan or REO Property (or deliver
a satisfaction of Mortgage or deed or similar instrument at a foreclosure sale)
only on the terms and subject to the conditions set forth in this Section 3.18
or as otherwise expressly provided in this Agreement.
(b) In the event that any Mortgage Loan becomes a Defaulted Mortgage
Loan and the Servicer has determined in good faith that such Defaulted Mortgage
Loan will become subject to foreclosure proceedings, the Servicer shall promptly
so notify the Trustee. The Servicer may at its option purchase from the Trust
Fund, at a price equal to the Purchase Price, any such Defaulted Mortgage Loan.
The Purchase Price for any Defaulted Mortgage Loan purchased hereunder shall be
deposited into the Collection Account, and the Trustee, upon receipt of an
Officers' Certificate from the Servicer to the effect that such deposit has been
made, shall release or cause to be released to the Servicer the related Mortgage
File and shall execute and deliver such instruments of transfer or assignment in
such form as are furnished to the Trustee, in each case without recourse, as
shall be necessary to vest in the Servicer such Defaulted Mortgage Loan.
(c) The Servicer may offer to sell to any Person any Defaulted
Mortgage Loan not otherwise purchased by the Servicer pursuant to subsection (b)
above, and any REO Property, if and when the Servicer determines, consistent
with the servicing standard set forth in Section 3.01(a), that such a sale would
be in the best economic interests of the Trust Fund, but shall, in any event, so
offer to sell any REO Property no later than the time determined by the Servicer
to be sufficient to result in the sale of such REO Property within the time
period specified in Section 3.16(a). The Servicer shall give the Trustee not
less than three Business Days' prior notice of its intention to sell any
Defaulted Mortgage Loan or REO Property. The Servicer shall accept the highest
cash bid received from any Person for any Defaulted Mortgage Loan or any REO
Property in an amount at least equal to the Purchase Price for such Mortgage
Loan or REO Property as of the proposed date of the sale. In the absence of any
such bid, the Servicer shall accept the highest cash bid that is determined to
be a fair price for such Defaulted Mortgage Loan or REO Property by the
Servicer, if the highest bidder is a Person other than
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an Interested Person, or determined by the Trustee, if the highest bidder is an
Interested Person. In the absence of any bid determined to be fair as
aforesaid, the Servicer may offer the Defaulted Mortgage Loan or REO Property
for sale to any Person, other than an Interested Person, in a commercially
reasonable manner for a period of not less than 10 days or more than 30 days,
and shall accept the highest cash bid received therefor in excess of the highest
bid previously submitted. If no such bid is received, any Interested Person may
resubmit its original bid, and the Trustee shall accept the highest outstanding
bid, regardless of from whom received. No Interested Person shall be obligated
to submit a bid to purchase any Defaulted Mortgage Loan or any REO Property, and
notwithstanding anything to the contrary herein, neither the Trustee, in its
individual capacity, nor any of its Affiliates may bid for or purchase any
Defaulted Mortgage Loan or any REO Property pursuant hereto.
Notwithstanding the foregoing, the Servicer may reject the highest
cash bid and/or accept a lower cash bid or otherwise sell a Defaulted Mortgage
Loan or any REO Property other than in a manner prescribed by the immediately
preceding paragraph (subject, however, to Section 3.16(a)) if it determines at
any time, consistent with the servicing standard set forth in Section 3.01(a),
that to do so would be in the best economic interests of the Certificateholders.
The basis for any such action will be described in an Officers' Certificate
delivered to the Trustee.
(d) In determining whether any bid received from an Interested Person
represents a fair price for any Defaulted Mortgage Loan or any REO Property, the
Trustee may conclusively rely on the opinion of an Independent MAI-certified
appraiser with an expertise the relevant property type with an expertise in the
relevant property type and any other expert in real estate finance/investment
sales matters retained by the Trustee the costs of which shall be an
Extraordinary Expense. In determining whether any bid constitutes a fair price
for any Defaulted Mortgage Loan or any REO Property, the Servicer shall take
into account and any appraiser or other expert in real estate finance/investment
sales matters shall be instructed to take into account, as applicable, among
other factors, the period and amount of any delinquency on the affected
Defaulted Mortgage Loan, the financial standing of the tenants of the Mortgaged
Property or REO Property, the physical condition of the Mortgaged Property or
REO Property, the state of the local economy and the Trust Fund's obligation to
dispose of any REO Property within the time period specified in Section 3.16(a).
(e) Subject to the provisions of Section 3.16, the Servicer shall act
on behalf of the Trustee in negotiating and taking any other action necessary or
appropriate in connection with the sale of any Defaulted Mortgage Loan or REO
Property, and the collection of all amounts payable in connection therewith.
Any sale of a Defaulted Mortgage Loan or any REO Property shall be final and
without recourse to the Trustee or the Trust Fund (other than representations
and warranties of the Trust Fund with respect to ownership of the Mortgage Loan
or REO Property and the condition of the related Mortgaged Property), and to the
extent such Person shall act in accordance with the terms of this Agreement,
neither the Servicer nor the Trustee shall have any liability to any
Certificateholder with respect to the purchase price therefor accepted by the
Servicer or the Trustee.
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Section 3.19. Modifications, Waivers, Amendments and Consents.
(a) Subject to the provisions of this Section 3.19, the Servicer shall
have the right, but not the obligation, on behalf of the Trust Fund to agree to
any modification, waiver or amendment of any term of any Mortgage Loan without
the consent of the Trustee or any Certificateholder. All modifications, waivers
or amendments of any Mortgage Loan shall be in writing and, except as set forth
in Section 3.19(c) below, shall be consistent with the servicing standard set
forth in Section 3.01(a). Notwithstanding anything to the contrary contained in
this Agreement, the Servicer shall not agree to any modification, waiver or
amendment of any term of any Mortgage Loan unless it has first obtained and
delivered to the Trustee an Opinion of Counsel (the cost of which shall be an
Extraordinary Expense), which may be applicable to more than one transaction or
generally to a class or classes of transactions described therein, to the effect
that the proposed modification, waiver or amendment (or the charging of a fee
therefor as provided in Section 3.19(d)) will not cause (i) the Lower-Tier REMIC
or the Upper-Tier REMIC to fail to qualify as a REMIC at any time that any
Certificate is outstanding, (ii) a gain on the disposition of a qualified
mortgage which would be subject to the 100% tax on prohibited transactions
imposed by Section 860F(a) of the Code or (iii) the Lower-Tier REMIC or the
Upper-Tier REMIC to be subject to any tax under the REMIC Provisions or
equivalent provisions of federal, state or local law or ordinance; provided,
however, that no such Opinion of Counsel shall be required for a modification,
waiver or amendment made pursuant to Section 3.19(c) except as otherwise
required under Section 3.19(c)(iii).
(b) The Servicer may agree to a modification, waiver or amendment of
any term of any Mortgage Loan only if such modification, waiver or amendment
would not, except as provided in Section 3.19(c) below:
(i) affect the amount or timing of any payment of principal or
interest thereunder; or
(ii) either (x) materially impair the security for such Mortgage Loan
(including, but not limited to, the continued validity and enforceability
of any guaranty given as additional security in connection with the
origination of the Mortgage Loan), as evidenced by an Opinion of Counsel
(the cost of which shall be an Extraordinary Expense) of Independent
counsel delivered to the Servicer (which Opinion of Counsel need only
contain the opinion that the modification, waiver or amendment will not
materially impair the security for such Mortgage Loan as a legal matter and
may contain customary and reasonable exceptions) or (y) in the Servicer's
judgment, reduce the likelihood of timely payment of amounts thereon.
(c) If the Servicer determines in its reasonable judgment that a
material default has occurred or a payment default is reasonably foreseeable and
that modification, waiver or amendment of the terms of such Mortgage Loan is
reasonably likely to produce a greater recovery on a present value basis than
liquidation of such Mortgage Loan, the Servicer may, subject in each such case
to the remainder of this Section 3.19(c) and to the servicing standard set forth
in Section 3.01(a), agree to a modification, waiver or amendment of any of the
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following terms of such Mortgage Loan with the consent of the FDIC, for so long
as amounts remain available under the Limited Guaranty (subject to the remainder
of this Section 3.19(c)), but without the consent of the Trustee or any
Certificateholders:
(i) The Servicer may from time to time extend the Maturity Date of
any such Mortgage Loan to a date occurring not later than the Optimal Wind-
Down Date with respect thereto; provided, however, that the aggregate of
all extensions of the Maturity Date of any Mortgage Loan may not exceed
five (5) years;
(ii) The Servicer may from time-to time (A) reduce the amounts owing
under any such Mortgage Loan by forgiving principal and/or (B) forgiving
interest accrued on such Mortgage Loan and/or (C) reduce the Scheduled
Payments on any such Mortgage Loan (including by reducing the principal
balance or amortization schedule thereof); provided, however, that no such
forgiveness of interest or reduction in Scheduled Payments shall result in
a reduction of the Mortgage Rate by more than two (2) percentage points for
more than two (2) years; and
(iii) The Servicer may from time to time permit the Mortgagor to
substitute collateral for all or a portion of the Mortgaged Property or to
pledge additional collateral for the Mortgage Loan, or may release part of
the Mortgaged Property; provided, however, that the Servicer shall have
requested and received an Opinion of Counsel (the cost of which shall be an
Extraordinary Expense) addressed to the Trustee to the effect that any such
substitution, additional pledge or release of collateral is permitted
hereby and will not cause the Mortgage Loan to cease to be a qualified
mortgage within the meaning of Section 860G(a)(3)(A) of the Code, and
provided, further, that the Servicer shall not permit the Mortgagor to
substitute any collateral pursuant to this Section 3.19 unless the Servicer
shall have first determined in accordance with the servicing standard set
forth in Section 3.01(a), based upon an environmental site assessment
satisfying the requirements set forth in Section 3.09(c) and prepared by an
Independent Person who is qualified to make environmental site assessments,
at the expense of the Mortgagor, that such substitute collateral is in
compliance with applicable environmental laws and that there are no
circumstances or conditions present at such substitute collateral relating
to the use, management or disposal of any Hazardous Materials or for which
investigation, testing, monitoring, containment, clean-up or remediation
would be required under any then effective federal, state or local law or
regulation, or, if any such containment, clean-up or remediation is
required, that adequate funds therefor have been placed in escrow with the
Servicer by or on behalf of the Mortgagor.
Notwithstanding the foregoing, the right of the FDIC to withhold its
consent to a proposed modification, waiver or amendment of a Mortgage Loan is
limited solely to modifications, waivers and amendments of the provisions of a
Mortgage Loan, other than the extension of the Maturity Date thereof pursuant to
clause (c)(i) of this Section 3.19, having an outstanding principal balance at
the time of the proposed modification, waiver or amendment in excess of
$400,000. Any such right must be exercised within 10 days of notice of the
proposed modification from the Servicer. Such notice shall be sent by the
Servicer to the Managing
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Director-Contract Oversight and Management Branch of the FDIC at the address set
forth in Section 11.05.
In the event that the Servicer intends to agree to extend the Maturity
Date of any Mortgage Loan as permitted by clause (i) above, the Servicer will
first determine the Extended Loan Floor Rate applicable to such Mortgage Loan.
In connection with an extension of the Maturity Date of an Adjustable Rate
Mortgage Loan, the Servicer shall require (A) that the Index for any such
modified Adjustable Rate Mortgage Loan be either (1) LIBOR or (2) The Wall
Street Journal Prime Rate and (B) that the Gross Margin on such modified
Adjustable Rate Mortgage Loan equal the Gross Margin of such loan immediately
prior to the date of the proposed modification plus the shortfall, if any,
between the Index value of the Adjustable Rate Mortgage Loan immediately prior
to the date of the proposed modification and the modified Index value thereof as
of the date of the modification. If an amortization schedule can be established
with respect to such Mortgage Loan that would fully amortize such Mortgage Loan
by an extended maturity date on a level payment basis and would result in
adjusted Scheduled Payments (with interest calculated at a rate at least equal
to the applicable Extended Loan Floor Rate) that can be supported by the net
operating income of the related Mortgaged Property (together with such other
sources of payment as the Servicer determines are acceptable therefor), the
Servicer shall, pursuant to the related modification, waiver or amendment
providing for such extension, extend such Maturity Date and require that such
adjusted Scheduled Payments be made. If the Servicer determines that the net
operating income, together with any such other sources of payment, will not
support such adjusted Scheduled Payments, the Servicer shall either agree to a
Balloon Payment at the proposed extended maturity date (which must occur no
later than the Optimal Wind-Down Date) and a schedule of Scheduled Payments that
would fully amortize the Mortgage Loan by the Optimal Wind-Down Date, taking
into account such Balloon Payment, or reduce the Scheduled Payments of such
Mortgage Loan pursuant to the preceding clause (ii) without extending the
Maturity Date thereof. Notwithstanding anything to the contrary contained in
this Section 3.19, the Servicer shall not agree to any modification, waiver or
amendment of any Mortgage Loan (x) that provides for the calculation of interest
on a basis that does not assume a 360-day year consisting of twelve 30-day
months and (y) secured in whole or in part by a Ground Lease and not the related
fee interest if such modification, waiver or amendment would extend the Maturity
Date of such Mortgage Loan to a date less than ten years prior to the expiration
of such Ground Lease.
In the event the Servicer intends to permit a Mortgagor to substitute
collateral for all or any portion of a Mortgaged Property or pledge additional
collateral for the Mortgage Loan as permitted by the preceding clause (iii), if
the security interest of the Trust Fund in such collateral would be perfected by
possession, or if such collateral requires special care or protection, then
prior to agreeing to such substitution or addition of collateral, the Servicer
shall make arrangements for such possession, care or protection, and prior to
agreeing to such substitution or addition of collateral (or such arrangement for
possession, care or protection) shall obtain the prior written consent of the
Trustee with respect thereto (which consent shall not be unreasonably withheld,
delayed or conditioned); provided, however, that the Trustee shall not be
required to consent to any substitution or addition of collateral or to hold any
such collateral
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that will require the Trustee to undertake any additional duties or obligations
or incur any additional expense.
Before the Servicer agrees to any modification, waiver or amendment of
a Mortgage Loan pursuant to this Section 3.19(c), it shall, at its own expense
(except to the extent otherwise reimbursable as a Servicing Advance), prepare an
analysis of the basis on which it deems such action to be advisable pursuant to
the first sentence of this Section 3.19(c), including the status of an existing
material default or the grounds for concluding that a payment default is
reasonably foreseeable, and shall furnish a copy of such analysis to the
Trustee. The Servicer shall have no liability to the Trust Fund, the
Certificateholders or any other Person if its analysis and determination that
the modification, waiver or amendment is reasonably likely to produce a greater
recovery on a present value basis than liquidation proves to be wrong or
incorrect, so long as the analysis and determination was made in good faith by
the Servicer.
Subject to Section 3.19(g), if either the Servicer or Holders of
Certificates representing at least 25% of the Voting Rights submit to the
Trustee a proposal to amend the provisions of this Section 3.19(c) as they
relate to the Servicer's ability to modify, waive or amend the terms of any
Mortgage Loan, the Trustee shall submit such proposal to a vote of the
Certificateholders. Such proposal shall be deemed to be adopted, and the
provisions of this Section 3.19(c) to be amended accordingly, if such proposal
receives the affirmative vote of Holders of Certificates representing at least
51% of the Voting Rights of each Class of Regular Certificates affected thereby
and the Person submitting such proposal shall have obtained at its own expense
and delivered to the Trustee an Opinion of Counsel that the proposed amendments
would not cause the Lower-Tier REMIC or the Upper-Tier REMIC to fail to qualify
as a REMIC at any time that any Certificate is outstanding or any imposition of
tax under the REMIC Provisions or equivalent provisions of federal, state or
local law or ordinance. Any expense incurred in connection therewith shall be
an Extraordinary Expense. To the extent that a proposal to amend the provisions
of this Section 3.19(c) is submitted by the Holders of Certificates representing
at least 25% of the Voting Rights and if such proposal is adopted pursuant to
the terms of this paragraph, the reasonable expenses of the Servicer in
modifying its servicing procedures to comply with this Section 3.19(c), as
amended, shall be an Extraordinary Expense.
(d) In connection with a modification of a Mortgage Loan pursuant to
this Section 3.19, the Servicer shall be entitled to receive a Modification Fee
payable by the related borrower; provided, however, that the Servicer shall not
be entitled to receive Modification Fees aggregating more than 5.00% for any
Mortgage Loan (determined by reference to the modified principal balance of such
loan as of the first modification thereof), regardless of the source of payment
and regardless of the number of times such loan is modified. If a modification
occurs prior to the related Resolution Period, the Servicer will be entitled to
recover from the Limited Guaranty, to the extent of remaining coverage available
thereunder, the portion of the Modification Fee not paid by the borrower;
provided, however, that the Limited Guaranty is required to cover Modification
Fees aggregating not more than 1.00% for any Mortgage Loan (determined by
reference to the modified principal balance of such loan as of the first
modification thereof in respect of which all or a portion of the related
Modification Fee was
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funded by the Limited Guaranty), regardless of the number of times such loan is
modified. If any Mortgage Loan as to which all or a portion of a Modification
Fee is funded by the Limited Guaranty is within 1 year of the date of the
applicable modification either (i) further modified, in respect of which the
Servicer is entitled to a Resolution Fee, or (ii) liquidated, in respect of
which the Servicer is entitled to a Liquidation Fee, one-half of the portion of
such Modification Fee funded by the Limited Guaranty will be reimbursed by the
Servicer to the FDIC as administrator of the Bank Insurance Fund. Modifications
effected during a Resolution Period shall entitle the Servicer to both a
Modification Fee and a Resolution Fee, in each case subject to the provisions of
this Agreement; provided, however, that only a Resolution Fee shall be payable
in connection with a negotiated pay-off.
With respect to any Balloon Loan that is a Matured Performing Mortgage
Loan as of the Cut-off Date, the Limited Guaranty is required to fund a
Modification Fee up to the of 1% in connection with a modification occurring
within 60 days of the Closing Date, and is not required to fund any Modification
Fee thereafter. The Servicer also shall be entitled to receive a Resolution Fee
in connection with the modification of a Mortgage Loan during the related
Resolution Period; provided, however, that no Resolution Fee shall be paid to
the Servicer in respect of a modification of a Balloon Mortgage Loan that is a
Matured Performing Mortgage Loan as of the Cut-off Date, unless such
modification occurs on or after to the 121st calendar day following the Closing
Date. The Servicer shall make reasonable efforts to collect its Modification
Fee from the related Mortgagor but shall not condition its grant of any request
for a consent, modification, waiver or amendment on payment thereof and no fee
shall be charged to such Mortgagor to the extent reasonably unaffordable by such
Mortgagor. The Servicer shall charge the Mortgagor for any costs and expenses
incurred by the Servicer in connection with any request for a modification
unless the Servicer determines that the Mortgagor cannot reasonably afford such
costs and expenses, but the failure or inability of the Mortgagor to pay any
such costs and expenses shall not impair the right of the Servicer to cause such
costs and expenses to be paid or reimbursed as an Extraordinary Expense. Any
provision of this Section 3.19(d) to the contrary notwithstanding, other than in
the case of a modification, waiver or amendment of the terms of a Mortgage Loan
pursuant to Section 3.19(c), no fee described in this Section 3.19(d) shall be
collected by the Servicer from the Mortgagor (or on behalf of the Mortgagor) in
conjunction with any consent or any such modification, waiver or amendment
(unless the amount thereof is specified in the related Mortgage Note) if the
collection of such fee would cause such consent, modification, waiver or
amendment to be a "significant modification" of, or otherwise constitute a
deemed reissuance of, the Mortgage Note under the Code.
(e) With respect to each Matured Performing Mortgage Loan, the
Mortgage Loan Seller shall undertake or cause the Servicer to undertake the
prompt modification of the terms of such Mortgage Loan as described in Section
3.19(c).
(f) The Servicer shall notify the Trustee of any modification, waiver
or amendment of any term of any Mortgage Loan and the date thereof, and shall
deliver to the Trustee (i) the Servicer's analysis underlying such modification,
waiver or amendment, (ii) an original counterpart of the agreement relating to
such modification, waiver or amendment,
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promptly following the execution thereof for deposit in the related Mortgage
File, and (iii) in the case of a modification, waiver or amendment pursuant to
Section 3.19(c), a summary of the terms thereof, for delivery to the
Certificateholders pursuant to Section 4.02.
(g) Before the Servicer agrees to any modification, waiver or
amendment of a Mortgage Loan pursuant to this Section 3.19, it shall, at its
expense, prepare an analysis of the basis on which is deems such action to be
advisable, including the status of an existing material default or the grounds
for concluding that a payment default is reasonably foreseeable, and shall
furnish a copy of such analysis to the Trustee and, if the Limited Guaranty is
then outstanding, to the FDIC, along with a notice setting forth in reasonable
detail the modification, waiver or amendment being contemplated by it, at least
10 days prior to the agreeing to such modification, waiver or amendment. If the
FDIC notifies the Servicer in writing during such 10 day period that it does not
consent to such modification, waiver or amendment, which consent shall not be
unreasonably withheld and shall be given without regard to the Servicer's right
to receive any Modification Fee, the Servicer shall not agree to such
modification, waiver or amendment. In the event that the FDIC fails to provide
the Servicer with such notification, the FDIC is hereby deemed to consent to
such modification, waiver or amendment.
(h) The provisions of this Section 3.19 limiting the terms of a
particular modification are applicable only to Servicer's ability to agree to
such a modification, and not to a modification imposed unilaterally by a
bankruptcy court of competent jurisdiction.
Section 3.20. Additional Obligations of the Servicer.
(a) In connection with each Adjustable Rate Mortgage Loan (and, if and
to the extent applicable, any successor REO Loan), the Servicer shall calculate
adjustments in the Mortgage Rate and the Scheduled Payment and shall notify the
Mortgagor of such adjustments, all in accordance with the Mortgage Note and
applicable law. In the event the Index for any Adjustable Rate Mortgage Loan
(or successor REO Loan) is not published or is otherwise unavailable, the
Servicer shall select The Wall Street Journal Prime Rate as the alternative
index with respect to such Mortgage Loan (or successor REO Loan).
In the event that the Mortgage Rate or the Scheduled Payment with
respect to any Adjustable Rate Mortgage Loan is not properly adjusted pursuant
to the terms of such Mortgage Loan and applicable law, the Servicer shall
deposit in the Collection Account on or prior to the Due Date of each affected
Scheduled Payment, an amount equal to the excess, if any, of (i) the amount that
would have been payable by the Mortgagor if the Mortgage Rate or Scheduled
Payment had been properly adjusted, over (ii) the amount of such improperly
adjusted Scheduled Payment, subject to reimbursement only out of such amounts as
are recovered from the Mortgagor in respect of such excess (it being understood
that amounts that would have been deemed P&I Advances absent such improper
adjustment shall continue to be deemed P&I Advances notwithstanding such
improper adjustment). For purposes of calculating distributions to
Certificateholders, any payment by the Servicer under this Section 3.20(a) shall
be deemed to have been paid by the affected Mortgagor as of the Due Date of the
affected Scheduled Payment.
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(b) The Servicer shall deposit in the Collection Account on each P&I
Advance Date, without any right of reimbursement therefor, the Compensating
Interest Payment for the related Distribution Date. Such Compensating Interest
Payment shall be allocated by the Trustee between the Sub-Pools based on the
Aggregate Prepayment Interest Shortfalls for such Sub-Pools and such
Distribution Date.
(c) With respect to any Mortgage Loan as to which P&I Advances in
respect of an aggregate of eighteen months of Scheduled Payments remain
unreimbursed, the Servicer shall promptly cause the related Mortgaged Property
to be appraised by an MAI-certified appraiser (the cost of which shall be an
Extraordinary Expense). To the extent that such Mortgage Loan becomes a Limited
Guaranty Draw Loan as a result of such appraisal, the Trustee shall make a claim
on the applicable Demand Date under the Limited Guaranty for the appropriate
amount.
Section 3.21. Sub-Servicing Agreements.
(a) The Servicer may enter into Sub-Servicing Agreements for the
servicing and administration of all or a part of the Mortgage Loans, provided
that, in each case, the Sub-Servicing Agreement: (i) is consistent with this
Agreement in all material respects and requires the Sub-Servicer to comply with
all of the applicable conditions of this Agreement, including, without
limitation, in connection with the retention of amounts collected by such Sub-
Servicer on the Mortgage Loans serviced thereby, the provisions of this
Agreement relating to the establishment of the Collection Account, deposits
thereto, withdrawals therefrom and the investment of funds therein; (ii)
provides that if the Servicer shall for any reason no longer be the servicer
hereunder (including, without limitation, by reason of an Event of Default), the
Trustee or its designee may thereupon assume all of the rights and, except to
the extent they arose prior to the date of assumption, obligations of the
Servicer under such agreement; and (iii) provides that the Trustee for the
benefit of the Certificateholders shall be a third party beneficiary under such
agreement, but that (except to the extent the Trustee or its designee assumes
the obligations of the Servicer thereunder as contemplated by the immediately
preceding clause (ii)) none of the Trustee, any successor Servicer or any
Certificateholder shall have any duties under such agreement or any liabilities
arising therefrom. The Servicer shall deliver to the Trustee copies of all Sub-
Servicing Agreements, and any amendments thereto and modifications thereof,
promptly upon the Servicer's execution and delivery of such documents.
References in this Agreement to actions taken or to be taken by the Servicer
include actions taken or to be taken by a Sub-Servicer on behalf of the
Servicer; and, in connection therewith, all amounts advanced by any Sub-Servicer
to satisfy the obligations of the Servicer hereunder to make Servicing Advances
and P&I Advances shall be deemed to have been advanced by the Servicer out of
its own funds and, accordingly, such Advances shall be recoverable by such Sub-
Servicer in the same manner and out of the same funds as if such Sub-Servicer
were the Servicer and, for so long as they are outstanding. For purposes of
this Agreement, the Servicer shall be deemed to have received any payment when
the Sub-Servicer receives such payment. The Servicer shall notify the Trustee,
the FDIC and the Mortgage Loan Seller in writing promptly of the appointment of
any Sub-Servicer.
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(b) The Servicer shall obtain the prior written approval from the FDIC
of the use of any Sub-Servicer, which approval shall not be unreasonably
withheld.
(c) Each Sub-Servicer 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.
(d) As part of its servicing activities hereunder, the Servicer, for
the benefit of the Trustee and the Certificateholders, shall (at no expense to
the Trustee, the Certificateholders or the Trust Fund) monitor the performance
and enforce the obligations of each Sub-Servicer under the related Sub-Servicing
Agreement. Such enforcement, including, without limitation, the legal
prosecution of claims, termination of Sub-Servicing Agreements in accordance
with their respective terms 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
Servicer, in its good faith business judgment, would require were it the owner
of the Mortgage Loans. The Servicer shall have the right to remove a Sub-
Servicer retained by it at any time it considers such removal to be in the best
interests of Certificateholders.
(e) In the event the Trustee or its designee assumes the rights and
obligations of the Servicer under any Sub-Servicing Agreement, the Servicer at
its expense shall, upon request of the Trustee, deliver to the assuming party
all documents and records relating to such Sub-Servicing Agreement and the
Mortgage Loans then being serviced thereunder and an accounting of amounts
collected and held on behalf of it thereunder, and otherwise use its best
efforts to effect the orderly and efficient transfer of the Sub-Servicing
Agreement to the assuming party.
(f) Notwithstanding any Sub-Servicing Agreement, the Servicer shall
remain obligated and liable to the Trustee and the Certificateholders for the
servicing and administration of the Mortgage Loans in accordance with the
provisions of this Agreement to the same extent and under the same terms and
conditions as if the Servicer alone were servicing and administering the
Mortgage Loans.
Section 3.22. Obligations of the FDIC in Respect of Interest
Overcharge Principal Reductions.
In the event that a Mortgagor under an Adjustable Rate Mortgage Loan
as to which an Interest Overcharge has occurred elects after the Cut-off Date to
have the principal balance of such Mortgage Loan reduced by an amount equal to
such Interest Overcharge, the Servicer shall cause the principal balance of such
Mortgage Loan to be so reduced and shall notify the FDIC in writing on or before
the Determination Date immediately succeeding the end of the Due Period during
which principal balance was so reduced of the amount of the Interest Overcharge,
together with the results of its pre-Cut-off Date audit of such Adjustable Rate
Mortgage Loan and evidence of such election by the related Mortgagor. The
Servicer shall on behalf of the FDIC (x) deliver to the Trustee for deposit into
the Distribution Account on each P&I Advance Date cash in an amount equal to the
aggregate of all Interest Overcharges incurred
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during the applicable Due Period as to which the principal balances of the
related Mortgage Loans will be reduced and (y) deliver to any borrower cash in
the amount equal to the amount of Interest Overcharges incurred during such
period as to which the borrower requests cash in lieu of a principal balance
reduction. Such amounts shall be reimbursed by the FDIC to the Servicer in the
same manner as the reimbursement of Advances pursuant to Section 4.08, without
however any right to receive interest thereon or reimbursement therefor from the
Trust Fund.
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ARTICLE IV.
PAYMENTS TO CERTIFICATEHOLDERS
Section 4.01. Distributions.
(a)(1) Distributions of principal and interest in respect of the Sub-
Pool II Certificates and the Class II-XS Certificates. On each Distribution
Date, the Trustee shall apply amounts on deposit in the Distribution Account and
the Limited Guaranty Account, to the extent of the Upper-Tier REMIC Sub-Pool II
Available Distribution Amount, together with amounts on deposit in the Residual
Account and available for distribution pursuant to Section 1.05(c)(ii), (iv) and
(v) and allocable to Sub-Pool II pursuant to Section 1.03, in the following
order of priority:
(i) to distributions of interest to the Class II-A
Certificateholders, in an amount equal to all Distributable Interest in
respect of the Class II-A Certificates for such Distribution Date, together
with any portion thereof remaining unpaid from previous Distribution Dates;
(ii) to distributions of principal to the Class II-A
Certificateholders, in an amount equal to the lesser of (x) the sum of (1)
the Class II-A Balance outstanding immediately prior to such Distribution
Date and (2) any Class II-A Negative Amortization for such Distribution
Date and (y) the Sub-Pool II Optimal Principal Distribution Amount for such
Distribution Date;
(iii) to distributions of interest to the Class II-B
Certificateholders, in an amount equal to all Distributable Interest in
respect of the Class II-B Certificates for such Distribution Date, together
with any portion thereof remaining unpaid from previous Distribution Dates;
(iv) to distributions of principal to the Class II-B
Certificateholders, in an amount equal to the lesser of (x) the sum of (1)
the Class II-B Balance outstanding immediately prior to such Distribution
Date and (2) any Class II-B Negative Amortization for such Distribution
Date and (y) the Sub-Pool II Optimal Principal Distribution Amount for such
Distribution Date (net of any portion thereof distributed on such
Distribution Date in respect of the Class II-A Certificates pursuant to
clause (ii) above);
(v) to distributions of interest to the Class II-C
Certificateholders, in an amount equal to all Distributable Interest in
respect of the Class II-C Certificates for such Distribution Date, together
with any portion thereof remaining unpaid from previous Distribution Dates;
(vi) to distributions of principal to the Class II-C
Certificateholders, in an amount equal to the lesser of (x) the sum of (1)
the Class II-C Balance outstanding immediately prior to such Distribution
Date and (2) any Class II-C Negative
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Amortization for such Distribution Date and (y) the Sub-Pool II Optimal
Principal Distribution Amount for such Distribution Date (net of any
portion thereof distributed on such Distribution Date in respect of the
Class II-A Certificates pursuant to clause (ii) above and the Class II-B
Certificates pursuant to clause (iv) above); and
(vii) to distributions of interest to the Class II-XS
Certificateholders, in an amount equal to the Class II-XS Distribution
Amount in respect of the Class II-XS Certificates for such Distribution
Date.
(a)(2) On each Distribution Date on which there is a Basis Risk
Shortfall in respect of any Class of Sub-Pool II Certificates, the Trustee shall
apply the Basis Risk Support Amount and the portion, if any, of the Residual
Cash Flow for such Distribution Date allocable to Basis Risk Shortfalls pursuant
to Section 1.05 to distributions of interest to the Class II-A
Certificateholders, the Class II-B Certificateholders and the Class II-C
Certificateholders, in each case in an amount equal to the Basis Risk Shortfall
Payment for such Class and such Distribution Date.
(b)(1) Distributions of principal and interest in respect of the Sub-
Pool I Certificates. On each Distribution Date, the Trustee shall apply amounts
on deposit in the Distribution Account and the Limited Guaranty Account, to the
extent of the Upper-Tier REMIC Sub-Pool I Available Distribution Amount,
together with amounts on deposit in the Residual Account and available for
distribution pursuant to Section 1.05(c)(ii), (iv) and (v) and allocable to Sub-
Pool I pursuant to Section 1.03, in the following order of priority:
(i) to distributions of interest to the Class I-A Certificateholders
in an amount equal to all Distributable Interest in respect of the Class I-
A Certificates for such Distribution Date, together with any portion
thereof remaining unpaid from previous Distribution Dates;
(ii) to distributions of principal to the Class I-A
Certificateholders, in an amount equal to the lesser of (x) the Class I-A
Balance outstanding immediately prior to such Distribution Date and (y) the
Sub-Pool I Optimal Principal Distribution Amount for such Distribution
Date;
(iii) to distributions of interest to the Class I-B
Certificateholders, in an amount equal to all Distributable Interest in
respect of the Class I-B Certificates for such Distribution Date, together
with any portion thereof remaining unpaid from previous Distribution Dates;
(iv) to distributions of principal to the Class I-B
Certificateholders, in an amount equal to the lesser of (x) the Class I-B
Balance outstanding immediately prior to such Distribution Date and (y) the
Sub-Pool I Optimal Principal Distribution Amount for such Distribution Date
(net of any portion thereof distributed on such Distribution Date in
respect of the Class I-A Certificates pursuant to clause (ii) above);
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(v) to distributions of interest to the Class I-C
Certificateholders, in an amount equal to all Distributable Interest in
respect of the Class I-C Certificates for such Distribution Date, together
with any portion thereof remaining unpaid from previous Distribution Dates;
(vi) to distributions of principal to the Class I-C
Certificateholders, in an amount equal to the lesser of (x) the Class I-C
Balance outstanding immediately prior to such Distribution Date and (y) the
Sub-Pool I Optimal Principal Distribution Amount for such Distribution Date
(net of any portion thereof distributed on such Distribution Date in
respect of the Class I-A Certificates pursuant to clause (ii) above and the
Class I-B Certificates pursuant to clause (iv) above);
(vii) to distributions of interest to the Class I-D
Certificateholders, in an amount equal to all Distributable Interest in
respect of the Class I-D Certificates for such Distribution Date, together
with any portion thereof remaining unpaid from previous Distribution Dates;
(viii) to distributions of principal to the Class I-D
Certificateholders, in an amount equal to the lesser of (x) the Class I-D
Balance outstanding immediately prior to such Distribution Date and (y) the
Sub-Pool I Optimal Principal Distribution Amount for such Distribution Date
(net of any portion thereof distributed on such Distribution Date in
respect of the Class I-A Certificates pursuant to clause (ii) above, the
Class I-B Certificates pursuant to clause (iv) above and the Class I-C
Certificates pursuant to clause (vi) above); and
(ix) to distributions of interest to the Class I-XS
Certificateholders, in an amount equal to the Class I-XS Distribution
Amount in respect of the Class I-XS Certificates for such Distribution
Date.
(c) Distributions of principal and interest in respect of the
Uncertificated Sub-Pool II Regular Interests. On each Distribution Date, the
Trustee shall apply amounts on deposit in the Distribution Account, to the
extent of the Sub-Pool II Available Distribution Amount, together with amounts
on deposit in the Residual Account and available for distribution pursuant to
Section 1.05(b)(ii), (iv) and (v), in the following order of priority:
(i) to distributions of interest to the Trustee, as holder of the
Uncertificated Regular Interest II-A, for allocation to the Upper-Tier
REMIC Sub-Pool II Available Distribution Amount on such Distribution Date,
in an amount equal to all Distributable Interest in respect of the
Uncertificated Regular Interest II-A for such Distribution Date, together
with any portion thereof remaining unpaid from previous Distribution Dates;
(ii) to distributions of principal to the Trustee, as holder of the
Uncertificated Regular Interest II-A, for allocation to the Upper-Tier
REMIC Sub-Pool II Available Distribution Amount on such Distribution Date,
in an amount equal to the lesser of (x) the sum of (1) the Uncertificated
Regular Interest II-A Balance outstanding immediately
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prior to such Distribution Date and (2) any Uncertificated Regular Interest
II-A Negative Amortization for such Distribution Date and (y) the Sub-Pool
II Optimal Principal Distribution Amount for such Distribution Date;
(iii) to distributions of interest to the Trustee, as holder of the
Uncertificated Regular Interest II-B, for allocation to the Upper-Tier
REMIC Sub-Pool II Available Distribution Amount on such Distribution Date,
in an amount equal to all Distributable Interest in respect of the
Uncertificated Regular Interest II-B for such Distribution Date, together
with any portion thereof remaining unpaid from previous Distribution Dates;
(iv) to distributions of principal to the Trustee, as holder of the
Uncertificated Regular Interest II-B, for allocation to the Upper-Tier
REMIC Sub-Pool II Available Distribution Amount on such Distribution Date,
in an amount equal to the lesser of (x) the sum of (1) the Uncertificated
Regular Interest II-B Balance outstanding immediately prior to such
Distribution Date and (2) any Uncertificated Regular Interest II-B Negative
Amortization for such Distribution Date and (y) the Sub-Pool II Optimal
Principal Distribution Amount for such Distribution Date (net of any
portion thereof distributed on such Distribution Date in respect of the
Uncertificated Regular Interest II-A pursuant to clause (ii) above);
(v) to distributions of interest to the Trustee, as holder of the
Uncertificated Regular Interest II-C, for allocation to the Upper-Tier
REMIC Sub-Pool II Available Distribution Amount on such Distribution Date,
in an amount equal to all Distributable Interest in respect of the
Uncertificated Regular Interest II-C for such Distribution Date, together
with any portion thereof remaining unpaid from previous Distribution Dates;
and
(vi) to distributions of principal to the Trustee, as holder of the
Uncertificated Regular Interest II-C, for allocation to the Upper-Tier
REMIC Sub-Pool II Available Distribution Amount on such Distribution Date,
in an amount equal to the lesser of (x) the sum of (1) the Uncertificated
Regular Interest II-C Balance outstanding immediately prior to such
Distribution Date and (2) any Uncertificated Regular Interest II-C Negative
Amortization for such Distribution Date and (y) the Sub-Pool II Optimal
Principal Distribution Amount for such Distribution Date (net of any
portion thereof distributed on such Distribution Date in respect of the
Uncertificated Regular Interest II-A pursuant to clause (ii) above and the
Uncertificated Regular Interest II-B pursuant to clause (iv) above).
(d)(1) Distributions of principal and interest in respect of the
Uncertificated Sub-Pool I Regular Interests. On each Distribution Date, the
Trustee shall apply amounts on deposit in the Distribution Account, to the
extent of the Sub-Pool I Available Distribution Amount, together with amounts on
deposit in the Residual Account and available for distribution pursuant to
Section 1.05(b)(ii), (iv) and (v), in the following order of priority:
(i) to distributions of interest to the Trustee, as holder of the
Uncertificated Regular Interest I-A for allocation to the Upper-Tier REMIC
Sub-Pool I Available
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Distribution Amount on such Distribution Date, in an amount equal to all
Distributable Interest in respect of the Uncertificated Regular Interest I-
A for such Distribution Date, together with any portion thereof remaining
unpaid from previous Distribution Dates;
(ii) to distributions of principal to the Trustee, as holder of the
Uncertificated Regular Interest I-A, for allocation to the Upper-Tier REMIC
Sub-Pool I Available Distribution Amount on such Distribution Date, in an
amount equal to the lesser of (x) the Uncertificated Regular Interest I-A
Balance outstanding immediately prior to such Distribution Date and (y) the
Sub-Pool I Optimal Principal Distribution Amount for such Distribution
Date;
(iii) to distributions of interest to the Trustee, as holder of the
Uncertificated Regular Interest I-B, for allocation to the Upper-Tier REMIC
Sub-Pool I Available Distribution Amount on such Distribution Date, in an
amount equal to all Distributable Interest in respect of the Uncertificated
Regular Interest I-B for such Distribution Date, together with any portion
thereof remaining unpaid from previous Distribution Dates;
(iv) to distributions of principal to the Trustee, as holder of the
Uncertificated Regular Interest I-B, for allocation to the Upper-Tier REMIC
Sub-Pool I Available Distribution Amount on such Distribution Date, in an
amount equal to the lesser of (x) the Uncertificated Regular Interest I-B
Balance outstanding immediately prior to such Distribution Date for such
Distribution Date and (y) the Sub-Pool I Optimal Principal Distribution
Amount for such Distribution Date (net of any portion thereof distributed
on such Distribution Date in respect of the Uncertificated Regular Interest
I-A pursuant to clause (ii) above;
(v) to distributions of interest to the Trustee, as holder of the
Uncertificated Regular Interest I-C, for allocation to the Upper-Tier REMIC
Sub-Pool I Available Distribution Amount on such Distribution Date, in an
amount equal to all Distributable Interest in respect of the Uncertificated
Regular Interest I-C for such Distribution Date, together with any portion
thereof remaining unpaid from previous Distribution Dates;
(vi) to distributions of principal to the Trustee, as holder of the
Uncertificated Regular Interest I-C, for allocation to the Upper-Tier REMIC
Sub-Pool I Available Distribution Amount on such Distribution Date, in an
amount equal to the lesser of (x) the Uncertificated Regular Interest I-C
Balance outstanding immediately prior to such Distribution Date and (y) the
Sub-Pool I Optimal Principal Distribution Amount for such Distribution Date
(net of any portion thereof distributed on such Distribution Date in
respect of the Uncertificated Regular Interest I-A pursuant to clause (ii)
above and the Uncertificated Regular Interest I-B pursuant to clause (iv)
above);
(vii) to distributions of interest to the Trustee, as holder of the
Uncertificated Regular Interest I-D for allocation to the Upper-Tier REMIC
Sub-Pool I Available Distribution Amount on such Distribution Date, in an
amount equal to all Distributable
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Interest in respect of the Uncertificated Regular Interest I-D for such
Distribution Date, together with any portion thereof remaining unpaid from
previous Distribution Dates; and
(viii) to distributions of principal to the Trustee, as holder of the
Uncertificated Regular Interest I-D, for allocation to the Upper-Tier REMIC
Sub-Pool I Available Distribution Amount on such Distribution Date, in an
amount equal to the lesser of (x) the Uncertificated Regular Interest I-D
Balance outstanding immediately prior to such Distribution Date and (y) the
Sub-Pool I Optimal Principal Distribution Amount for such Distribution Date
(net of any portion thereof distributed on such Distribution Date in
respect of the Uncertificated Regular Interest I-A pursuant to clause (ii)
above, the Uncertificated Regular Interest I-B pursuant to clause (iv)
above and the Uncertificated Regular Interest I-C pursuant to clause (vi)
above).
(e) Distributions in respect of the Residual Certificates. On each
Distribution Date (other than the first Distribution Date), the Trustee shall
distribute the Class R-LT Distribution Amount to the holders of the Class R-LT
Certificates and the Trustee shall distribute the Class R-UT Distribution Amount
to the holders of the Class R-UT Certificates. There will be no distribution to
holders of the Residual Certificates on the first Distribution Date.
(f) All distributions made with respect to each Class on each
Distribution Date shall be allocated pro rata among the outstanding Certificates
in such Class based on their respective Percentage Interests. All such
distributions with respect to each Class (other than the final distribution with
respect thereto) will be made on each Distribution Date to the
Certificateholders of the respective Class of record at the close of business on
the related Record Date and shall be made by wire transfer of immediately
available funds to the account of any such Certificateholder at a bank or other
entity having appropriate facilities therefor, if such Certificateholder (a)
shall have provided the Trustee with wiring instructions no less than five
Business Days prior to the related Record Date (or, in the case of the initial
Distribution Date, no later than the Closing Date) and (b) is (i) the registered
owner of Certificates the aggregate initial principal balance of which is at
least $3,000,000, or, in the case of the Class I-XS Certificates and Class II-XS
Certificates, the aggregate initial Notional Amount of which is at least
$3,000,000, or (ii) is the Holder of a 100% Percentage Interest in either Class
of Residual Certificates or otherwise by check mailed to the address of such
Certificateholder appearing in the Certificate Register. The final distribution
on each Certificate will be made in like manner, but only upon presentment and
surrender of such Certificate at the Corporate Trust Office or such other
location specified in the notice to Certificateholders of such final
distribution. For purposes of calculating any distribution in respect of (i)
any Regular Certificates of any Class and (ii) any of the Uncertificated Regular
Interests pursuant to any of the clauses of subsections (a) - (d) of this
Section 4.01, the Class Balances of the Certificates of such Class, and the
Uncertificated Principal Balances of such Uncertificated Regular Interests,
shall be deemed to be reduced by any distributions thereon in respect of
principal on such Distribution Date pursuant to any preceding clause of such
subsection.
(g) The rights of the Certificateholders to receive distributions
from the proceeds of the Trust Fund and the Limited Guaranty, and all interests
of the Certificateholders
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in such distributions, shall be as set forth in this Agreement. Neither the
Holders of any Class of Certificates nor the Trustee shall in any way be
responsible or liable to the Holders of any other Class of Certificates in
respect of amounts properly previously distributed on the Certificates.
(h) Except as otherwise provided in Section 9.01, whenever the
Trustee expects that the final distribution of principal with respect to any
Class of Certificates entitled thereto will be made on the next Distribution
Date, the Trustee shall promptly mail to each Holder of record (as of the Record
Date) of such Class of Certificates a notice to the effect that:
(i) the Trustee expects that the final distribution of principal
with respect to such Class of Certificates will be made on such
Distribution Date but only upon presentation and surrender of such
Certificates at the office of the Certificate Registrar therein specified,
and
(ii) no interest shall accrue on such Certificates from and after
such Distribution Date.
Any funds not distributed to any Holder or Holders of Certificates of such Class
on such Distribution Date because of the failure of such Holder or Holders to
tender their Certificates shall, on such date, be set aside and held in trust
and credited to the account of the appropriate non-tendering Holder or Holders.
If any Certificates as to which notice has been given pursuant to this Section
4.01(h) shall not have been surrendered for cancellation within six months after
the time specified in such notice, the Trustee shall mail a second notice to the
remaining non-tendering Certificateholders to surrender their Certificates for
cancellation in order to receive the final distribution with respect thereto.
If within one year after the second notice all such Certificates shall not have
been surrendered for cancellation, the Trustee, directly or through an agent,
shall take such steps to contact the remaining non-tendering Certificateholders
concerning surrender of their Certificates as it shall deem reasonable and
appropriate and shall have no liability for any failure to contact any such
Certificateholder. The costs and expenses of holding such funds in trust and of
contacting such Certificateholders following the first anniversary of the
delivery of such second notice to the non-tendering Certificateholders shall be
paid out of such funds. No interest shall accrue or be payable to any
Certificateholder on any amount held in trust hereunder by the Trustee as a
result of such Certificateholder's failure to surrender its Certificate(s) for
final payment thereof in accordance with this Section 4.01(h).
Section 4.02. Statements to Certificateholders.
On each Distribution Date, the Trustee shall forward to the Holders of
each Class of Certificates, a statement that will set forth, among other things:
(i) the amount, if any, of the distribution on such Distribution
Date to the Holders of Certificates of each such Class allocable to the
Sub-Pool I Optimal Principal Distribution Amount or the Sub-Pool II Optimal
Principal Distribution Amount, as applicable, and any portion thereof
remaining unpaid, separately stated;
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(ii) the amount, if any, of the distribution on such Distribution
Date to Holders of Certificates of each such Class allocable to
Distributable Interest, and any portion thereof remaining unpaid,
separately stated, the Accrued Interest in respect of each Class of
Certificates for such Distribution Date and the Class Negative Amortization
(in the case of Sub-Pool II only);
(iii) the Certificate Rate for each Class of Certificates for such
Distribution Date;
(iv) the aggregate amount for each Sub-Pool of P&I Advances and
Servicing Advances made in respect of such Distribution Date, and the
aggregate amount for each Sub-Pool of unreimbursed P&I Advances and
Servicing Advances at the close of business on such Distribution Date;
(v) the aggregate Stated Principal Balance and Scheduled Principal
Balance of the Mortgage Loans in each Sub-Pool outstanding immediately
following such Distribution Date;
(vi) the weighted average amortization term, the weighted average
remaining months to the maturity date of the Mortgage Loans as of the
commencement of the Due Period in which such Distribution Date occurs,
weighted on the basis of the Stated Principal Balances of such Mortgage
Loans, separately identifying such balance by Sub-Pool, and the Weighted
Average Effective Net Mortgage Rate for each Sub-Pool as of such
Distribution Date;
(vii) the number and aggregate principal balance of Mortgage Loans
and Matured Performing Mortgage Loans that, as of the Determination Date
are, (A) delinquent in respect of one Scheduled Payment, or Assumed
Scheduled Payment, as the case may be, (B) delinquent in respect of two
Scheduled Payments, or Assumed Scheduled Payments, as the case may be, (C)
delinquent in respect of three or more Scheduled Payments, or Assumed
Scheduled Payments, as the case may be, and (D) Mortgage Loans and Matured
Performing Mortgage Loans as to which foreclosure proceedings have been
commenced, separately identifying such balance by Sub-Pool (for the
purposes of reporting such delinquency information as of the end of any Due
Period, determined as of the related Determination Date, for Mortgage Loans
with monthly Scheduled Payments that are past due for between (i) 1-29 days
will be deemed one Scheduled Payment delinquent, (ii) 30-59 days will be
deemed two Scheduled Payments delinquent and (iii) 60 or more will be
deemed three Scheduled Payments delinquent);
(viii) as to each Mortgage Loan that is delinquent in respect of at
least two Scheduled Payments, (A) the loan number thereof and the Sub-Pool
in which it is included, (B) the unpaid principal balance thereof, (c)
whether the delinquency is in respect of its Balloon Payment, (D) the
aggregate amount of unreimbursed Servicing Advances and unreimbursed P&I
Advances in respect thereof, (E) the aggregate amount of interest accrued
and payable on such Servicing Advances and P&I Advances, (F)
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whether a notice of acceleration has been sent to the Mortgagor and, if so,
the date of such notice, (G) whether foreclosure proceedings have been
commenced and, if so, the date so commenced and (H) if such Mortgage Loan
is more than three months delinquent and foreclosure has not been
commenced, the reason therefor:
(ix) with respect to any Mortgage Loan in each Sub-Pool as to which
a Liquidation Event has occurred during the related Due Period (other than
a payment in full), (A) the loan number thereof and the Sub-Pool in which
it is included, (B) the nature of the Liquidation Event, (C) the aggregate
amount of Liquidation Proceeds received, (D) the portion of such
Liquidation Proceeds payable or reimbursable to the Servicer in respect of
such Mortgage Loan and (E) the amount of any Realized Loss, and the portion
thereof allocated to Certificateholders;
(x) with respect to each REO Property included in the Trust Fund
as of the end of the related Due Period, (A) the loan number of the related
Mortgage Loan and the Sub-Pool in which it is included, (B) the date of
acquisition of such REO Property by the Trust Fund, (C) the book value of
such REO Property, (D) the Stated Principal Balance and Scheduled Principal
Balance of the related REO Loan immediately following such Distribution
Date, (E) the aggregate amount of unreimbursed Servicing Advances and
unreimbursed P&I Advances in respect thereof, and (F) the aggregate amount
of interest accrued and payable on such Servicing Advances and P&I
Advances;
(xi) with respect to any REO Property sold during the related Due
Period, (A) the loan number of the related Mortgage Loan and the Sub-Pool
in which it is included, (B) the aggregate amount of Liquidation Proceeds
received, (C) the portion of such Liquidation Proceeds payable or
reimbursable to the Servicer in respect of such REO Property or the related
REO Loan or the related Mortgage Loan and (D) the amount of any Realized
Loss in respect of the related REO Loan;
(xii) the Class Balance of each Class of Certificates immediately
before and immediately after such Distribution Date and the Uncovered
Portion thereof, if any;
(xiii) the (a) aggregate amount of Principal Prepayments made during
the related Due Period and (b) any Net Aggregate Prepayment Interest
Shortfall for such Distribution Date for each Sub-Pool;
(xiv) the Certificate Factor for each such Class of Certificates
immediately following such Distribution Date;
(xv) the Servicing Fee, and with respect to each Mortgage Loan, the
Liquidation Fee, if any, the Resolution Fee, if any, the Modification Fee,
if any, and the Trustee's Fee in respect of each Sub-Pool and in the
aggregate paid to the Servicer and the Trustee, as the case may be, and any
other amounts otherwise reimbursable to the Servicer or the Trustee during
the related Due Period;
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(xvi) with respect to any Mortgage Loan the terms of which were
modified, waived or amended pursuant to Section 3.19(c), the summary of
terms thereof prepared by the Servicer pursuant to Section 3.19(f);
(xvii) the amount of Guaranty Payments paid under the Limited
Guaranty for each Sub-Pool for such Distribution Date and the Available
Limited Guaranty Amount and the Available Sub-Pool Coverage Amount
immediately following such Distribution Date;
(xviii) the amount of Basis Risk Shortfalls, Basis Risk Shortfall
Amount for such Distribution Date;
(xix) the aggregate principal balance of Mortgage Loans repurchased
by the FDIC during the related Due Period as a result of breaches of
representations or warranties or Defects in Mortgage Files;
(xx) the outstanding principal balance of Deleted Mortgage Loans
and Substitute Mortgage Loans for each Sub-Pool for the related Due Period;
and
(xxi) the aggregate amount of Interest Overcharges paid by the FDIC
during the related Due Period pursuant to Section 3.22.
In the case of information furnished pursuant to subclauses (i), (ii)
and (xiii)(a) above, the amounts shall be expressed as a clear amount in the
aggregate for all Certificates of each applicable Class and $1,000 denomination.
In the case of information to be furnished pursuant to clauses (viii),
(ix), (x), (xi), (xiii), (xix) and (xxi), the Servicer shall, on the related
Determination Date, deliver to the Trustee a written, presentable report
containing information required by such clauses, and the Trustee shall attach
such report, as prepared and delivered by the Servicer, to the report containing
the information set forth in the remaining clauses above and shall deliver both
such reports to the Holders of Certificates on each Distribution Date.
Within a reasonable period of time after the end of each calendar
year, the Trustee shall furnish to each Person who at any time during the
calendar year was a Holder of a Regular 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 as from time to
time are in force.
On each Distribution Date, the Trustee shall forward to the Mortgage
Loan Seller, the FDIC, to each Rating Agency, to each Holder of a Residual
Certificate, to the Servicer and, in the case of reports regarding the Regular
Certificates, to The Trepp Group (at 477 Madison Avenue, 25th Floor, New York,
New York 10022, or such other address as The Trepp Group
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may hereafter designate), a copy of the reports forwarded to the Regular
Certificateholders on such Distribution Date and a statement setting forth the
amounts, if any, actually distributed with respect to the Class R-LT
Certificates and Class R-UT Certificates on such Distribution Date.
Within a reasonable period of time after the end of each calendar
year, the Trustee shall furnish to each Person who at any time during the
calendar year was a Holder of a Residual Certificate a statement containing the
information provided pursuant to the previous paragraph in respect of
distributions on the Class R-LT Certificates and Class R-UT Certificates and in
respect of items (i), (ii) and (xix) 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 as from time to time are in
force.
The Trustee shall base its report on information provided to it by the
Servicer in the Collection Report, and the Trustee shall be protected to the
extent of its use of any such information or computations made using such
information.
Section 4.03. P&I Advances.
(a) Not later than 12:00 p.m. (Eastern time) on each Determination
Date, the Servicer shall deliver to the Trustee, by electronic transmission (or
on such other medium as to which the Servicer and the Trustee may agree from
time to time), the Collection Report for the related Distribution Date, which
report may omit the delinquency status of the Mortgage Loans in the aggregate
and in each Sub-Pool and the aggregate amount of P&I Advances to be made on such
Distribution Date with respect to each Sub-Pool, together with such other
information relating to the Mortgage Loans in the aggregate and to each Sub-Pool
as the Trustee shall reasonably require in order to perform its obligations
under this Agreement. The Trustee shall, not later than 12:00 p.m. (Eastern
time) on the fifth Business Day following the Trustee's receipt of the
Collection Report, furnish by facsimile a statement to the Servicer setting
forth the Sub-Pool I Available Distribution Amount and the Sub-Pool II Available
Distribution Amount and the amount to be withdrawn from the Collection Account
and delivered to the Trustee for deposit in the Distribution Account pursuant to
the first paragraph of Section 3.04(b) in respect of the related Distribution
Date. The Trustee shall have no obligation to recompute, verify or recalculate
the information provided to it by the Servicer in the Collection Report.
(b) On the third Business Day prior to the related Distribution Date,
the Servicer shall deliver to the Trustee, by electronic transmission (or on
such other medium as to which the Servicer and the Trustee may agree from time
to time), a report that shall contain all information permitted to be omitted
from the Collection Report delivered pursuant to Section 4.03(a) above.
(c) On or before 3:00 p.m. (Eastern time), on each P&I Advance Date,
the Servicer shall either (i) pay to the Trustee for deposit into the
Distribution Account from its own funds an amount equal to the aggregate amount
of P&I Advances, if any, to be made in respect
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of the Mortgage Loans and REO Properties in each Sub-Pool for the related
Distribution Date, (ii) apply amounts held in the Collection Account allocable
to such Sub-Pool (other than any portion thereof that constitutes a part of the
Available Distribution Amount for such Sub-Pool on the related Distribution
Date) in discharge of any such obligation to make P&I Advances, or (iii) make
P&I Advances in the form of any combination of (i) or (ii) aggregating the total
amount of P&I Advances to be made by the Servicer with respect to the Mortgage
Loans and REO Properties in such Sub-Pool. Any amounts held in the Collection
Account and so used pursuant to clauses (ii) or (iii) of the immediately
preceding sentence to make P&I Advances shall be appropriately reflected in the
Servicer's records and replaced by the Servicer by deposit in the Collection
Account on or before the Determination Date relating to the Distribution Date in
respect of which such amounts will constitute a portion of the Available
Distribution Amount in respect of the affected Sub-Pool (to the extent not
previously replaced through the deposit of Late Collections of the delinquent
principal and interest in respect of which such P&I Advances were made). If by
3:00 p.m. (Eastern time) on any P&I Advance Date, the Trustee shall not have
received from the Servicer the aggregate amount of P&I Advances, if any, to be
made by the Servicer on such P&I Advance Date as calculated in accordance with
Section 4.03(d), the Trustee shall immediately so notify the Servicer by
telephone. The Trustee, as successor Servicer, shall make all P&I Advances for
any Distribution Date to the extent that the Servicer shall be in default of its
obligation to make such P&I Advances as required hereunder. The FDIC shall make
all P&I Advances for any Distribution Date to the extent that the Servicer and
the Trustee shall be in default of their respective obligations to make P&I
Advances as required hereunder.
(d) The aggregate amount of P&I Advances to be made by the Servicer in
respect of any Distribution Date shall, subject to subsection (e) below, equal
the aggregate of: (i) with respect to each Mortgage Loan other than an REO Loan
and other than a Non-Monthly Loan that does not have a Due Date in the related
Due Period, all Scheduled Payments (net of the Servicing Fee), other than
Balloon Payments, due (without regard to any acceleration of principal under the
related Mortgage Note and Mortgage) during the related Due Period and for which
no previous advance was made, which Scheduled Payments were delinquent as of the
close of business on the related Determination Date; (ii) with respect to each
Balloon Mortgage Loan as to which the related Balloon Payment was due (without
regard to any acceleration of principal under the related Mortgage Note and
Mortgage) during or prior to the related Due Period and was delinquent as of the
close of business on the related Determination Date, the excess, if any, of (A)
the Assumed Scheduled Payment in respect of such Balloon Mortgage Loan for the
Due Date during the related Due Period (net of the Servicing Fee), over (B) any
amounts received as of the related Determination Date (and not previously
distributed to Certificateholders) that were paid by the related Mortgagor under
a forbearance arrangement entered into pursuant to Section 3.19 and applied as
interest (net of the Servicing Fee) on or principal of such Balloon Mortgage
Loan (exclusive of any portion thereof representing Late Collections
reimbursable to the Servicer for prior P&I Advances); (iii) with respect to each
Non.Monthly Loan that does not have a Due Date in the related Due Period, the
Monthly Portion of the Scheduled Payment (at the Servicer's option, net of the
Servicing Fee) for such Due Period; and (iv) with respect to each REO Loan, the
excess, if any, of (A) the REO Payment in respect of such REO Loan for the Due
Date during the related Due Period (net of the
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Servicing Fee), over (B) any related REO Revenues received during the related
Due Period applied as interest (net of the Servicing Fee) on the related REO
Loan (exclusive of any portion thereof representing Late Collections
reimbursable to the Servicer for prior P&I Advances).
(e) The obligation of the Servicer to make such P&I Advances is
mandatory, notwithstanding any other provision of this Agreement other than the
next succeeding paragraph, and with respect to any Mortgage Loan or REO Loan in
a particular Sub-Pool, shall continue until the Distribution Date on which the
proceeds, if any, received in connection with a Liquidation Event with respect
thereto are to be distributed.
Notwithstanding anything herein to the contrary, if, with respect to
either Sub-Pool, the applicable Available Sub-Pool Coverage Amount and the
Excess Coverage Amount, if any, have become exhausted, the Servicer shall be
obligated to make a P&I Advance in respect of any Mortgage Loan or REO Loan in
such Sub-Pool only to the extent of the portion thereof equal to a fraction, the
numerator of which is equal to the excess of the aggregate of the Class Balances
of the Certificates of the applicable Sub-Pool over the aggregate Uncovered
Portion thereof (as reported to the Servicer by the Trustee promptly upon
written request) and the denominator of which is the aggregate of the Class
Balances of such Sub-Pool. Additionally, no P&I Advance with respect to a
particular Mortgage Loan shall be made hereunder if such P&I Advance would, if
made, constitute a Nonrecoverable P&I Advance. The determination by the
Servicer that it has made a Nonrecoverable P&I Advance or that any proposed P&I
Advance, if made, would constitute a Nonrecoverable P&I Advance shall be
evidenced by an Officers' Certificate delivered to the Mortgage Loan Seller, the
FDIC and the Trustee no later than the Business Day following such determination
which Officer's Certificate shall set forth such determination of
nonrecoverability and the procedure and consideration of the Servicer forming
the basis of such determination (including, without limitation, an appraisal
conducted in accordance with (i) the Uniform Standards of Professional Appraisal
Practice, as published by the Appraisal Standards Board of the Appraisal
Foundation or (ii) MAI standards (the cost of which shall be an Extraordinary
Expense) rent rolls, occupancy status, property inspections and Servicer
inquiries).
(f) The amount of any reimbursement pursuant to Section 3.05(a)(viii)
in respect of any unreimbursed Advance shall be allocated: first, to specific
REO Properties (to the full extent of any such Advances outstanding with respect
to each), as to which title thereto has been held on behalf of the related Sub-
Pool of the Trust Fund for the longest period of time; and second, to specific
Mortgage Loans in each Sub-Pool (to the full extent of any such Advances
outstanding with respect to each), as to which Scheduled Payments have been
delinquent for the longest period of time. Allocation among REO Properties that
have been held for the same period of time, or among Mortgage Loans that have
similar numbers of delinquent Scheduled Payments, may be made by the Servicer in
its discretion.
(g) The rights of the Servicer and/or the FDIC to be reimbursed for
all Servicing Advances and P&I Advances, together with interest thereon shall be
an obligation of the related Sub-Pool of the Trust Fund for which the Servicer
and/or the FDIC has not been reimbursed and shall, subject to the limitations of
this Agreement as to the source of funds for
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such reimbursement and the timing of such reimbursement, be prior to the rights
of Certificateholders to receive distributions on their respective Certificates.
(h) On the third Business Day prior to the related Demand Date, the
Servicer shall provide to the Trustee a report containing such information as
the Trustee shall require to prepare the demand to the FDIC for payments under
the Limited Guaranty. The Trustee shall be under no obligation to recompute or
verify such information.
Section 4.04. Limited Guaranty.
(a) The parties hereto acknowledge that the FDIC has delivered to the
Trustee its Limited Guaranty, to provide a source of funds to enhance the
likelihood of the receipt by the Certificateholders on each Distribution Date of
the amounts to be distributed with respect to such Distribution Date pursuant to
Sections 4.01(a) and 4.01(b). The Limited Guaranty shall not at any time be a
part of the Trust Fund (or part of the Lower-Tier REMIC or the Upper-Tier
REMIC).
(b) On each Demand Date, the Trustee shall: (i) make demands under
the Limited Guaranty in accordance with the provisions of Section 3.01 of the
Limited Guaranty; (ii) make available or cause to be made available the
Certificate Register to the FDIC, the Mortgage Loan Seller or the Servicer
during normal business hours of the Trustee at such time as any of them may
request; (iii) provide such other information to the FDIC, the Mortgage Loan
Seller or the Servicer, upon written request, as is available to it and as is
contemplated by the Limited Guaranty to be provided by it to the FDIC, the
Mortgage Loan Seller or the Servicer (as the case may be); and (iv) establish a
segregated trust account (the "Limited Guaranty Account"), which shall be an
Eligible Account held by the Trustee separate and apart from the Trust Fund, and
shall be designated "State Street Bank and Trust Company, as Trustee in trust
for the registered holders of the FDIC REMIC Trust 1996-C1 Commercial Mortgage
Pass-Through Certificates, Series 1996-C1". If the Trustee does not elect to
establish and maintain a separate Limited Guaranty Account with respect to each
Sub-Pool, the Trustee shall at all times during the term hereof maintain a
separate ledger sub-account of the Limited Guaranty Account for each Sub-Pool,
which ledger sub-account shall accurately reflect each deposit into and
withdrawal from the Limited Guaranty Account that is allocable to such Sub-Pool.
The Trustee shall deposit any amount paid under the Limited Guaranty in the
Limited Guaranty Account and distribute such amount as described in this
Agreement. Amounts paid under the Limited Guaranty shall be transferred to the
Distribution Account and distributed by the Trustee to Holders of Certificates
in accordance with Section 4.01(a) or Section 4.01(b), as applicable. It shall
not be necessary for such payments to be made by checks or wire transfers
separate from the checks or wire transfers used to pay the distributions to
Certificateholders with other funds available to make such payment. Amounts on
deposit in the Limited Guaranty Account shall not be invested. As long as the
Distribution Account is established at State Street Bank and Trust Company, the
Limited Guaranty Account shall also be established at State Street Bank and
Trust Company.
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(c) On or prior to the Closing Date, and from time to time thereafter,
the Trustee shall provide or cause to be provided to the FDIC wire transfer
instructions or other instructions sufficient to permit the FDIC to effect wire
transfers pursuant to the Limited Guaranty to the Limited Guaranty Account. The
Trustee shall accept and hold all amounts so paid or transferred in accordance
with the provisions of this Agreement. Any funds remaining in the Limited
Guaranty Account on the first Business Day following a Distribution Date shall
be promptly remitted to the FDIC.
(d) The Servicer shall notify the Trustee by means of an Officers'
Certificate of the amount of any recovery in respect of a Mortgage Loan (and the
Sub-Pool to which such Mortgage Loan relates) as to which a claim under the
Limited Guaranty previously has been made.
Section 4.05. Demands on the Limited Guaranty.
(a) On the fourth Business Day prior to the related Distribution Date
the Trustee will determine the applicable Guarantied Amount and so notify the
FDIC by facsimile by delivery of a Demand for Payment, in the form attached to
the Limited Guaranty as Exhibit A.
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(b) Any distributions pursuant to Section 4.01 to Certificateholders
of amounts attributable to the Guarantied Amount for such Distribution Date
shall not be considered distributions of payments on the Mortgage Loans, and
shall give rise to the right of the FDIC to be reimbursed for such amounts to
the extent provided in the Limited Guaranty.
(c) With respect to each Distribution Date, to the extent of any
distributions to Certificateholders pursuant to Section 4.01(a) and 4.01(b) of
amounts described in Section 4.05(b), the FDIC shall become subrogated to the
rights of the Holders of the Certificates to receive, on future Determination
Dates, all Liquidation Proceeds, Insurance Proceeds and other payments and
recoveries received by the Servicer as proceeds of the related Mortgage Loan or
REO Property. Distribution of such amounts shall be made by the Servicer on
each Determination Date in immediately available funds from the Collection
Account directly to the FDIC pursuant to payment instructions specified by the
FDIC from time to time.
(d) The Trustee shall cause records to be kept as to the amounts
subject to the subrogation described in Section 4.05(c). The FDIC shall not
acquire any Voting Rights under this Agreement as the result of any subrogation
described in Section 4.05(c).
Section 4.06. Obligations of the FDIC in respect of Basis Risk
Shortfalls.
(a) On the third Business Day prior to each Distribution Date the
Trustee will determine the Basis Risk Shortfall for the related Distribution
Date and will on such Business Day so notify the FDIC by facsimile of the amount
of such Basis Risk Shortfall.
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(b) With respect to any Distribution Date as to which there is a Basis
Risk Shortfall, the FDIC shall deliver to the Trustee on or before 10:00 a.m. on
the related P&I Advance Date for deposit in the Distribution Account and
distribution on such Distribution Date pursuant to Section 4.01(a)(1) the lesser
of the total amount of such shortfall and the Basis Risk Support Amount.
(c) Notwithstanding the foregoing, for so long as the FDIC is the
Holder of the Class I-XS and Class II-XS Certificates, the Trustee shall apply
all amounts otherwise distributable on such Certificates pursuant to Section
4.01 against the FDIC's obligation in respect of Basis Risk Shortfalls pursuant
to the immediately preceding paragraph.
Section 4.07. Reports of Foreclosures and Abandonment of Mortgaged
Property.
Each year beginning in 199[8], the Servicer or the Sub-Servicers shall
file the reports of foreclosures and abandonments of any Mortgaged Property and
the informational returns relating to cancellation of indebtedness income with
respect to any Mortgaged Property required by Sections 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 6050J and
6050P of the Code.
Section 4.08. Reimbursement of Advances.
The FDIC, in its corporate capacity, shall reimburse the Servicer not
later than the fifth Business Day following each Distribution Date for all
Advances for which the Servicer has identified to the FDIC on or prior to the
22nd day of the month of such Distribution Date as unreimbursed. In connection
with any such reimbursement, the FDIC shall be subrogated to the rights of the
Servicer to be reimbursed for such Advances by the Trust Fund, and will be
entitled to recover any such Advance in the same manner as the Servicer, whether
from Related Proceeds, from the Limited Guaranty or, in the event such Advance
is determined to be a Nonrecoverable Advance, from general funds with respect to
the related Sub-Pool on deposit in the Collection Account. The FDIC will be
entitled to receive interest at a rate equal to the FDIC Reimbursement Rate
accrued on the amount of such Advance from the date paid by the FDIC to but not
including the date of reimbursement, payable to the extent of available funds
from Residual Cash Flow in accordance with Section 1.05(d)(iii) and Section
1.05(c)(iii) and, to the extent remaining unpaid at the time of recovery of the
related Advance, from Related Proceeds, from the Limited Guaranty or from
general funds with respect to the related Sub-Pool on deposit in the Collection
Account. Notwithstanding such reimbursement, the Servicer shall pursue recovery
of such Advances from the related Mortgagors, and shall withdraw reimbursement
therefor from the various accounts as provided in this Agreement together with
interest thereon at the FDIC Reimbursement Rate, as if such Advances were still
outstanding, and shall within five Business Days of receipt thereof remit to the
FDIC any such recoveries and reimbursements to the account and in the manner
requested by the FDIC.
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ARTICLE V.
THE CERTIFICATES
Section 5.01. The Certificates.
(a) The Certificates will be substantially in the respective forms
annexed hereto as Exhibits A-1, A-2, A-3, A-4, A-5, A-6, A-7, A-8, A-9, A-10 and
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A-11. The Certificates will be issuable in registered form only; provided,
however, that in accordance with Section 5.06(a) beneficial ownership interests
in the Regular Certificates shall initially be held and transferred through the
book-entry facilities of the Depository. The Regular Certificates, other than
the Class I-XS and Class II-XS Certificates, will be issuable only in
denominations corresponding to initial Certificate Balances as of the Closing
Date of $100,000 and integral multiples of $1,000 in excess thereof; provided,
however, that if the Original Class Balance of any such Class does not equal an
integral multiple of $1,000, then a single additional Certificate of such Class
may be issued in a denomination corresponding to an initial Certificate Balance
as of the Closing Date that includes the excess of (i) the aggregate Original
Class Balance of such Class over (ii) the largest integral multiple of $1,000
that does not exceed such amount. The Class I-XS and Class II-XS Certificates
are issuable only in denominations corresponding to initial Notional Amounts as
of the Closing Date of $100,000 and integral multiples of $1,000 in excess
thereof; provided, however, that a single Class I-XS and Class II-XS Certificate
of each such Class may be issued in a denomination corresponding to a Notional
Amount as of the Closing Date that includes the excess of (i) the aggregate
Notional Amount of such Class as of the Closing Date over (ii) the largest
integral multiple of $1,000 that does not exceed such amount. The Class R-LT
Certificates will be issuable only in denominations representing Percentage
Interests of not less than 10%; and the Class R-UT Certificates will be issuable
only in denominations representing Percentage Interests of not less than 10%.
(b) The Certificates shall be executed by manual or facsimile
signature on behalf of the Trustee in its capacity as trustee hereunder by an
authorized officer under its seal imprinted thereon. 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 Certificate Registrar 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 shall be dated the date of their authentication.
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Section 5.02. Registration of Transfer and Exchange of Certificates.
(a) At all times during the term of this Agreement, there shall be
maintained at the office of the Certificate Registrar a Certificate Register in
which, subject to such reasonable regulations as the Certificate Registrar may
prescribe, the Certificate Registrar shall provide for the registration of
Certificates and of transfers and exchanges of Certificates as herein provided.
The Trustee is hereby initially appointed (and hereby agrees to act) as
Certificate Registrar for the purpose of registering Certificates and transfers
and exchanges of Certificates as herein provided. The Certificate Registrar may
appoint any other bank or trust company to act as Certificate Registrar under
such conditions as the predecessor Certificate Registrar may prescribe, provided
that the predecessor Certificate Registrar shall not be relieved of any of its
duties or responsibilities hereunder by reason of such appointment. The
Servicer shall have the right to inspect the Certificate Register or to obtain a
copy thereof at all reasonable times, and to rely conclusively upon a
certificate of the Certificate Registrar as to the information set forth in the
Certificate Register.
(b) No transfer of any Non-Registered Certificate shall be made
unless that transfer is made pursuant to an effective registration statement
under the Securities Act of 1933, as amended (the "1933 Act"), and effective
registration or qualification under applicable state securities laws, or is made
in a transaction which does not require such registration or qualification. If
such a transfer is to be made without registration or qualification, then the
Certificate Registrar shall require (except in the case of the initial transfer
of the Class I-XS, the Class II-XS and Residual Certificates to the FDIC or the
Mortgage Loan Seller, as the case may be), in order to assure compliance with
such laws, receipt of: (i) if such transfer is of a Non-Registered Certificate
and is purportedly being made in reliance upon Rule 144A under the 1933 Act,
either (A) a certificate from the Certificateholder desiring to effect such
transfer substantially in the form attached as Exhibit C-1 hereto, or (B) a
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certificate from the Certificateholder desiring to effect such transfer
substantially in the form attached as Exhibit C-2 hereto and a certificate from
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such Certificateholder's prospective transferee substantially in the form
attached as Exhibit C-3 hereto; and (ii) in all other cases, an Opinion of
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Counsel satisfactory to the Certificate Registrar to the effect that such
transfer may be made without such registration or qualification (which Opinion
of Counsel shall not be an expense of the Trust Fund or of the FDIC, the
Mortgage Loan Seller, the Servicer, the Trustee or the Certificate Registrar in
their respective capacities as such), together with the written certification(s)
as to the facts surrounding such transfer from the Certificateholder desiring to
effect such transfer and/or such Certificateholder's prospective transferee on
which such Opinion of Counsel is based. None of the FDIC, the Mortgage Loan
Seller, the Trustee or the Certificate Registrar is obligated to register or
qualify the Non-Registered Certificates under the 1933 Act or any other
securities law or to take any action not otherwise required under this Agreement
to permit the transfer of any Non-Registered Certificate without registration or
qualification. Any Non-Registered Certificateholder desiring to effect such a
transfer shall, and does hereby agree to, indemnify the Trustee, the Certificate
Registrar, the FDIC and the Mortgage Loan Seller against any liability that may
result if the transfer is not so exempt or is not made in accordance with such
federal and state laws.
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(c) No transfer of an ERISA-Restricted Certificate (other than an
ERISA Restricted Certificate that is a Book-Entry Certificate) or any interest
therein shall be made to (A) any employee benefit plan or other retirement
arrangement, including individual retirement accounts and annuities, Keogh plans
and collective investment funds and separate accounts in which such plans,
accounts or arrangements are invested, that is subject to ERISA, or the Code
(each, a "Plan") or (B) any Person who is directly or indirectly purchasing the
ERISA-Restricted Certificate or interest therein on behalf of, as named
fiduciary of, as trustee of, or with assets of a Plan, unless the prospective
transferee provides the Certificate Registrar with a certification of facts and
an Opinion of Counsel (at the expense of the prospective transferee) which
establish to the satisfaction of the Certificate Registrar that such transfer
will not result in a violation of Section 406 of ERISA or Section 4975 of the
Code or cause the Servicer or the Trustee to be deemed a fiduciary of such Plan
or result in the imposition of an excise tax under Section 4975 of the Code. In
the absence of its having received the certification and Opinion of Counsel
contemplated by the preceding sentence, the Certificate Registrar shall require
the prospective transferee of any ERISA-Restricted Certificate to certify that
it is neither (A) a Plan nor (B) a Person who is directly or indirectly
purchasing such ERISA-Restricted Certificate on behalf of, as named fiduciary
of, as trustee of, or with assets of a Plan.
(d) (i) Each Person who has or who acquires any Ownership Interest
in a Residual Certificate shall be deemed by the acceptance or acquisition of
such Ownership Interest to have agreed to be bound by the following provisions
and to have irrevocably 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 Residual Certificate are expressly subject to the following
provisions:
(A) Each Person holding or acquiring any Ownership Interest in a
Residual Certificate shall be a United States Person and a Permitted
Transferee and shall promptly notify the Trustee of any change or impending
change in its status as a United States Person or a Permitted Transferee.
(B) In connection with any proposed Transfer of any Ownership
Interest in a Residual Certificate, the Trustee shall require delivery to
it, and shall not register the Transfer of any Residual Certificate until
its receipt of, (I) an affidavit and agreement (a "Transfer Affidavit and
Agreement" in the form attached hereto as Exhibit D-l) from the proposed
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Transferee, in form and substance satisfactory to the Trustee representing
and warranting, among other things, that it is a United States Person and a
Permitted Transferee, that it is not acquiring its Ownership Interest in
the Residual Certificate that is the subject of the proposed Transfer as a
nominee, trustee or agent for any Person who is not a Permitted Transferee
or a United States Person, that for so long as it retains its Ownership
Interest in a Residual Certificate, it will endeavor to remain a Permitted
Transferee and a United States Person, 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 D-2, from the holder
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wishing to transfer the Residual Certificate, in
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form and substance satisfactory to the 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 assigned to this transaction has actual knowledge that the proposed
Transferee is not a Permitted Transferee or a United States Person, no
Transfer of an Ownership Interest in a Residual Certificate to such
proposed Transferee shall be effected.
(D) Each Person holding or acquiring any Ownership Interest in a
Residual 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 Residual Certificate and (y) not to transfer
its Ownership Interest unless it provides a certificate to the Trustee in
the form attached hereto as Exhibit D-1.
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(E) Each Person holding or acquiring an Ownership Interest in a
Residual 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 Residual Certificate, if it is "a pass-through
interest holder", or is holding an Ownership Interest in a Residual
Certificate on behalf of a "pass-through interest holder".
(ii) The Trustee will register the Transfer of any Residual
Certificate only if it shall have received the Transfer Affidavit and Agreement
in the form attached hereto as Exhibit D-1, a certificate of the Holder
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requesting such transfer in the form attached hereto as Exhibit D-2 and all of
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such other documents as shall have been reasonably required by the Trustee as a
condition to such registration. Transfers of the Residual Certificates to Non-
United States Persons and Disqualified Organizations are prohibited.
(iii) If any Disqualified Organization shall become a holder of a
Residual Certificate, then the last preceding Holder 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 Residual
Certificate. If a Non-United States Person shall become a holder of a Residual
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 Residual
Certificate. If a transfer of a Residual Certificate is disregarded pursuant to
the provisions of Treasury Regulations Section 1.860E-1 or Section 1.860G-3,
then the last preceding Holder 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 Residual Certificate. The Trustee shall be
under no liability to any Person for any registration of Transfer of a Residual
Certificate that is in fact not permitted by this Section 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.
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(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 Residual Certificate to any Person who is not a
Permitted Transferee and a United States Person, including the information
regarding "excess inclusions" of such Residual Certificates required to be
provided to the Internal Revenue Service and certain Persons as described in
Treasury Regulations Sections 1.860D-l(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 Code that holds an Ownership Interest in a Residual Certificate having as
among its record holders at any time any Person who is not a Permitted
Transferee or a United States Person. 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.
(e) Subject to the preceding subsections, upon surrender for
registration of transfer of any Certificate at the office of the Certificate
Registrar, the Trustee shall execute and the Certificate Registrar 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
Percentage Interest.
(f) At the option of any Holder, its Certificates may be exchanged
for other Certificates of authorized denominations of the same Class of a like
aggregate Percentage Interest, 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 and the Certificate
Registrar shall authenticate and deliver the Certificates which the
Certificateholder making the exchange is entitled to receive.
(g) Every Certificate presented or surrendered for transfer or
exchange shall (if so required by the Certificate Registrar) be duly endorsed
by, or be accompanied by a written instrument of transfer in the form
satisfactory to the Certificate Registrar duly executed by, the Holder thereof
or his attorney duly authorized in writing.
(h) No service charge shall be imposed for any transfer or
exchange of Certificates, but the Trustee or the Certificate Registrar 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.
(i) All Certificates surrendered for transfer and exchange shall
be physically cancelled by the Certificate Registrar and a certificate of such
cancellation shall be delivered to the Trustee by the Certificate Registrar. The
Certificate Registrar shall hold and dispose of such cancelled Certificates in
accordance with its standard procedures.
(j) Unless the Servicer is acting as Certificate Registrar, the
Certificate Registrar shall be required to provide notice to the Servicer of
each transfer of a Certificate and
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to provide the Servicer with an updated copy of the Certificate Register on
January 1 and July 1 of each year, commencing January 1, 1997.
(k) The Certificate Registrar may conclusively rely upon any
certificate, affidavit, opinion or other document delivered to it pursuant to
this Section.
(l) Neither the Trustee nor the Certificate Registrar shall have
any obligation or duty to monitor, determine or inquire as to compliance with
any restriction on transfer imposed under 5.02(c), (d) or (e) under this
Agreement or under applicable law with respect to any transfer of any Non-
Registered Certificate, Residual Certificate or ERISA-Restricted Certificate or
any interest therein, other than to require delivery of the certification(s)
and/or Opinions of Counsel described in said Sections applicable with respect to
changes in registration of record ownership of Certificates in the Certificate
Register and to examine the same to determine substantial compliance as to form
with the express requirements of this Agreement. The Trustee and Certificate
Registrar shall have no liability for transfers, including transfers made
through the book-entry facilities of the Depository or between or among
Depository Participants or Certificate Owners, made in violation of applicable
restrictions except for its failure to perform its express duties in connection
with changes in registration of record ownership in the Certificate Register.
Section 5.03. Mutilated, Destroyed, Lost or Stolen Certificates.
If (i) any mutilated Certificate is surrendered to the Certificate
Registrar, or the Certificate Registrar receives evidence to its satisfaction of
the destruction, loss or theft of any Certificate, and (ii) there is delivered
to the Trustee and the Certificate Registrar such security or indemnity as may
be required by them to save each of them harmless, then, in the absence of
notice to the Trustee or the Certificate Registrar that such Certificate has
been acquired by a bona fide purchaser, the Trustee shall execute, authenticate
and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost
or stolen Certificate, a new Certificate of the same Class and like Percentage
Interest. Upon the issuance of any new Certificate under this Section, the
Trustee may require the payment of a sum sufficient-to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee and the Certificate
Registrar) connected therewith. Any 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 Mortgage Loan Seller, the Servicer, the Trustee, the Certificate
Registrar 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 Mortgage Loan Seller, the Servicer, the Trustee, the
Certificate Registrar nor any agent of any of them shall be affected by notice
to the contrary.
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Section 5.05. Available Information.
The Trustee shall maintain at its Corporate Trust Office and shall
make available during normal business hours for review upon one days' prior
written request by any Holder of a Certificate or any Person identified to the
Trustee as a prospective transferee of a Certificate, originals or copies of the
following items which, if required to be delivered to it by the Servicer, shall
include only those actually delivered: (i) in the case of a Holder or
prospective transferee of a Non-Registered Certificate, the private placement
memorandum or other disclosure document relating to the Certificates of such
Class, in the form most recently provided to the Trustee; and (ii) in all cases,
(A) this Agreement and any amendments hereto entered into pursuant to Section
11.01, (B) all statements required to be delivered to Certificateholders of the
relevant Class pursuant to Section 4.02 since the Closing Date, (C) all
Officers' Certificates delivered to the Trustee since the Closing Date pursuant
to Section 3.13, (D) all accountants' reports delivered to the Trustee since the
Closing Date pursuant to Section 3.14, (E) the most recent inspection report
prepared by the Servicer in respect of each Mortgaged Property pursuant to
Section 3.12(a), (F) as to each Mortgage Loan pursuant to which the related
Mortgagor is required to deliver such items, the most recent annual operating
statement of the related Mortgaged Property and financial statements of the
related Mortgagor collected by the Servicer pursuant to Section 3.12(b), (G) any
and all notices and reports delivered to the Trustee with respect to any
Mortgaged Property as to which the environmental testing contemplated by Section
3.09(c) revealed that any of the Environmental Conditions Precedent to
Foreclosure were not satisfied (but only for so long as such Mortgaged Property
or the related Mortgage Loan are part of the Trust Fund), (H) any and all
modifications, waivers and amendments of the terms of a Mortgage Loan entered
into by the Servicer pursuant to Section 3.19 (but only for so long as the
affected Mortgage Loan is part of the Trust Fund), (I) any and all Officers'
Certificates delivered to the Trustee to evidence the Servicer's determination
that any P&I Advance or Servicing Advance was, or if made would be, a
Nonrecoverable P&I Advance or Nonrecoverable Servicing Advance, as the case may
be. Copies of any and all of the foregoing items that are in possession of the
Trustee will be available from the Trustee upon written request and (J) in the
case of a written request by three or more Certificateholders, the most recent
list of Certificateholders as set forth in the Certificate Register, which list
may be used for the purpose of communicating with other Certificateholders;
however, the Trustee shall be permitted to require payment from the person
requesting such information of a sum sufficient to cover the reasonable costs
and expenses of providing such copies.
Section 5.06. Book-Entry Certificates.
(a) The Regular Certificates, other than the Stripped Interest
Certificates, shall initially be issued as one or more Certificates registered
in the name of the Depository or its nominee and, except as provided in
subsection (c) below, transfer of such Certificates may not be registered by the
Trustee unless such transfer is to a successor Depository that agrees to hold
such Certificates for the respective Certificate Owners with Ownership Interests
therein. Such Certificate Owners shall hold and transfer their respective
Ownership Interests in and to such Certificates through the book-entry
facilities of the Depository and, except as provided in subsection (c) below,
shall not be entitled to definitive, fully registered Certificates ("Definitive
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Certificates") in respect of such Ownership Interests. All transfers by
Certificate Owners of their respective Ownership Interests in the Book-Entry
Certificates shall be made in accordance with the procedures established by the
Depository Participant or brokerage finn representing such Certificate Owner.
Each Depository Participant shall only transfer the Ownership Interests in the
Book-Entry Certificates of Certificate Owners it represents or of brokerage
finns for which it acts as agent in accordance with the Depository's normal
procedures.
(b) The Trustee, the Servicer and the Mortgage Loan Seller may for
all purposes, including the making of payments due on the Book-Entry
Certificates, deal with the Depository as the authorized representative of the
Certificate Owners with respect to such Certificates for the purposes of
exercising the rights of Certificateholders hereunder. The rights of Certificate
Owners with respect to the Book-Entry Certificates shall be limited to those
established by law and agreements between such Certificate Owners and the
Mortgage Loan Seller, Depository Participants and brokerage firms representing
such Certificate Owners; provided that no such agreement shall give any rights
to any Certificateholder against the Servicer or the Trustee without the written
consent of the party so affected. Multiple requests and directions from, and
votes of, the Depository as Holder of the Book-Entry Certificates with respect
to any particular matter shall not be deemed inconsistent if they are made with
respect to different Certificate Owners. The Trustee may establish a reasonable
record date in connection with solicitations of consents from or voting by
Certificateholders and shall give notice to the Depository of such record date.
(c) If (i)(A) the Mortgage Loan Seller advises the Trustee in
writing that the Depository is no longer willing or able to discharge properly
its responsibilities with respect to the Book-Entry Certificates, and (B) the
Mortgage Loan Seller is unable to locate a qualified successor, or (ii) the
Mortgage Loan Seller at its option advises the Trustee in writing that it elects
to terminate the book-entry system through the Depository Seller, the
Certificate Registrar shall notify all Certificate Owners, through the
Depository, of the occurrence of any such event and of the availability of
Definitive Certificates to Certificate Owners requesting the same. Upon
surrender to the Trustee of the Book-Entry Certificates by the Depository,
accompanied by registration instructions from the Depository for registration of
transfer, the Trustee shall execute and authenticate and deliver the Definitive
Certificates to the Certificate Owners identified in such instructions.
Definitive Certificates shall be provided to the Trustee by the Mortgage Loan
Seller. The Mortgage Loan Seller and the Trustee shall not be liable for any
delay in delivery of such instructions and may conclusively rely on, and shall
be protected in relying on, such instructions. Upon the issuance of Definitive
Certificates for purposes of evidencing ownership of the Regular Certificates,
the registered holders of the Definitive Certificates shall be recognized as
Certificateholders hereunder and, accordingly, shall be entitled directly to
receive payment on, to exercise Voting Rights with respect to, and to transfer
and exchange such Definitive Certificates.
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ARTICLE VI.
THE MORTGAGE LOAN SELLER, THE FDIC AND THE SERVICER
Section 6.01. Liability of the Mortgage Loan Seller, the FDIC and the
Servicer.
The Mortgage Loan Seller, the FDIC and the Servicer shall be liable in
accordance herewith only to the extent of the respective obligations
specifically imposed upon and undertaken by the Mortgage Loan Seller, the FDIC
and the Servicer herein.
Section 6.02. Merger, Consolidation or Conversion of the Mortgage
Loan Seller or the Servicer.
Subject to the following paragraph, the Mortgage Loan Seller, the
FDIC and the Servicer will each keep in full effect its existence, rights and
franchises as a corporation under the laws of the jurisdiction of its incorpo-
ration, 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.
The Mortgage Loan Seller, the FDIC or the Servicer may be merged or
consolidated with or into any Person, or transfer all or substantially all of
its assets to any Person, in which case any Person resulting from any merger or
consolidation to which the Mortgage Loan Seller, the FDIC or the Servicer shall
be a party, or any Person succeeding to the business of the Mortgage Loan
Seller, the FDIC or the Servicer, shall be the successor of the Mortgage Loan
Seller, the FDIC or the 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.
Section 6.03. Limitation on Liability of the Mortgage Loan Seller,
the FDIC, the Servicer and Others.
Neither the Mortgage Loan Seller, the FDIC, the Servicer nor any of
the directors, officers, employees or agents of the Mortgage Loan Seller, the
FDIC, or the 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 Mortgage Loan
Seller, the FDIC, the Servicer or any such Person against any breach of
warranties or representations made herein, or against any specific liability
imposed on the Servicer pursuant to any Section hereof, or against any liability
which would otherwise be imposed by reason of misfeasance, bad faith or
negligence in the performance of duties. The Mortgage Loan Seller, the FDIC,
the Servicer and any director, officer, employee or agent of the Mortgage Loan
Seller, the FDIC or the Servicer may rely in good faith on any document of any
kind which,
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prima facie, is properly executed and submitted by any Person respecting any
matters arising hereunder. The Mortgage Loan Seller, the FDIC, the Servicer and
any director, officer, employee or agent of the Mortgage Loan Seller, the FDIC,
or the Servicer shall be indemnified and held harmless by the Trust Fund against
any loss, liability or expense incurred in connection with any legal action or
claim relating to this Agreement or the Certificates, other than any loss,
liability or expense (i) specifically required to be borne by such parties
pursuant to the terms hereof or otherwise incidental to the performance of
obligations and duties hereunder, including, without limitation, in the case of
the Servicer, the prosecution (but not the defense of any counterclaim) of an
enforcement action in respect of any specific Mortgage Loan or Mortgage Loans
(except as any such loss, liability or expense shall be otherwise payable or
reimbursable pursuant to this Agreement); (ii) incurred by reason of
misfeasance, bad faith or negligence in the performance of duties; (iii)
incurred in connection with any violation by it of any state or federal
securities law; or (iv) imposed by any taxing authority if such loss, liability
or expense is not specifically reimbursable pursuant to the terms of this
Agreement. Neither the Mortgage Loan Seller, the FDIC nor .the Servicer shall
be under any obligation to appear in, prosecute or defend any legal action
unless such action is related to its respective duties under this Agreement and
in its opinion does not involve it in any expense or liability; provided,
however, that the Mortgage Loan Seller, the FDIC or the Servicer may in its
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 shall be
expenses, costs and liabilities of the Trust Fund, and the Mortgage Loan Seller,
the FDIC and the Servicer shall be entitled to be reimbursed therefor as an
Extraordinary Expense.
Section 6.04. Resignation of the Servicer.
(a) Except as permitted by paragraph (b) hereof, the Servicer
shall not resign from the obligations and duties hereby imposed on it, except
upon determination that its duties hereunder are no longer permissible under
applicable law or are in material conflict by reason of applicable law with any
other activities carried on by it, the other activities of the Servicer so
causing such a conflict being of a type and nature carried on by the Servicer at
the date of this Agreement. Any such determination permitting the resignation of
the Servicer shall be evidenced by an Opinion of Counsel (obtained at the
expense of the Servicer) to such effect which shall be delivered to the Trustee.
No such resignation shall become effective until the Trustee or a successor
servicer shall have assumed the Servicer's responsibilities and obligations in
accordance with Section 7.02.
(b) The Servicer may resign from the obligations and duties
imposed on it hereby at any time after December 31, 1997, upon reasonable notice
to the Trustee, provided that (i) a successor servicer is (x) available, and (y)
such successor servicer shall execute and deliver to the Trustee an agreement,
in form and substance satisfactory to the Trustee, which contains an assumption
by such Person of the due and punctual performance and observance of each
covenant and condition to be performed or observed by the Servicer hereunder
from and after the date of such agreement; (ii) the Servicer bears all costs
associated with its resignation and the transfer of servicing; (iii) each Rating
Agency shall have confirmed that the rating or
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ratings on each class of Certificates then rated that were in effect immediately
prior to such transfer of servicing will not be qualified, downgraded, or
withdrawn as a result of such servicing transfer, as evidenced by a letter
delivered to the Trustee by each Rating Agency; (iv) the Servicer shall not be
released from its obligations hereunder that arose prior to the date on which
the foregoing transfer of servicing occurs; and (v) such successor is reasonably
satisfactory to the FDIC, the Mortgage Loan Seller and the Trustee.
(c) The Servicer may assign its rights and delegate its duties and
obligations hereunder in connection with the sale or transfer of a substantial
portion of its mortgage servicing or asset management portfolio, provided that:
(i) the purchaser or transferee accepting such assignment and delegation (A)
shall be reasonably satisfactory to the FDIC, the Mortgage Loan Seller and the
Trustee based upon its financial and commercial mortgage loan servicing
capabilities, (B) shall be (1) an established housing and home finance
institution, bank or mortgage servicing institution having a net worth of not
less than $50,000,000 organized and doing business under the laws of any state
of the United States or the District of Columbia, authorized under such laws to
perform the duties of a servicer of mortgage loans and (2) acceptable to each
Rating Agency as evidenced by a letter from each Rating Agency to the Trustee,
and (3) shall execute and deliver to the Trustee an agreement, in form and
substance reasonably satisfactory to the Trustee; (ii) as evidenced by a letter
from each Rating Agency delivered to the Trustee, the Rating Agency's rating or
ratings of the Certificates in effect immediately prior to such assignment, sale
or transfer will not be qualified, downgraded or withdrawn as a result of such
assignment, sale or transfer; (iii) the Servicer shall not be released from its
obligations hereunder that arose prior to the effective date of such assignment
and delegation under this Section 6.04(c); and (iv) the Servicing Fee Rate (or
any component thereof) shall not exceed the rate then in effect. Upon
acceptance of such assignment and delegation, the purchaser or transferee shall
be the successor Servicer hereunder.
Section 6.05. Rights of the Mortgage Loan Seller and the FDIC in
Respect of the Servicer.
The Servicer shall afford the Mortgage Loan Seller, the FDIC and the
Trustee, upon reasonable notice, during normal business hours access to all
records maintained by the. Servicer in respect of its rights and obligations
hereunder and access to officers of the Servicer responsible for such
obligations. Additionally, upon reasonable written notice, the Servicer shall
permit the FDIC to visit the offices of the Servicer during normal business
hours to view the servicing operations of the Servicer insofar as they relate to
this Agreement and the transactions contemplated hereby. Upon reasonable
written request, the Servicer shall furnish the Mortgage Loan Seller, the FDIC
and the Trustee with its most recent financial statements and such other
information as the Servicer possesses, and which it is not prohibited pursuant
to any contract, document or instrument to which it is a party or otherwise
applicable to it or by law, regulation or ruling from disclosing, regarding its
business, affairs, property and condition, financial or otherwise solely as they
relate to the Mortgage Loans and the transactions contemplated by this
Agreement. Each of the Mortgage Loan Seller and the FDIC may, but is not
obligated to, enforce the obligations of the Servicer hereunder and may, but is
not obligated to, perform, or cause a designee to perform, any defaulted
obligation of the Servicer hereunder or exercise
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rights of the Servicer hereunder; provided, however, that the Servicer shall not
be relieved of any of its obligations hereunder by virtue of such performance by
the Mortgage Loan Seller, the FDIC or a designee of either. Neither the
Mortgage Loan Seller nor the FDIC shall have any responsibility or liability for
any action or failure to act by the Servicer and neither is obligated to
supervise the performance of the Servicer under this Agreement or otherwise.
Section 6.06. The Mortgage Loan Seller, the FDIC and the Servicer to
Cooperate with the Trustee.
The Mortgage Loan Seller, the FDIC and the Servicer shall furnish such
reports, certifications and information as are reasonably requested by the
Trustee in writing. Notwithstanding the immediately preceding sentence, if any
Person other than the Trustee requests the Servicer to prepare an), document or
report not specifically provided for in this Agreement, the expense of preparing
such report or document shall be home by such Person; provided, however, that if
such Person is the Trustee or if such report is requested Certificateholders
representing at least 25% of the Voting Rights, the expense of preparing such
report shall be an Extraordinary Expense.
Section 6.07. The Mortgage Loan Seller, the FDIC and the Trustee to
Cooperate with the Servicer.
The Mortgage Loan Seller, the FDIC and the Trustee each shall furnish
such reports, certifications and information as are reasonably requested in
writing by the Servicer in order to enable it to perform its duties 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 Servicer to remit to the Trustee for
deposit in the Distribution Account any account required to be so remitted
under the terms of this Agreement;
(ii) any failure on the part of the Servicer duly to observe or
perform in any material respect any other of the covenants or agreements on
the part of the Servicer contained in this Agreement 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 Servicer by the Mortgage Loan Seller (with a copy to the Trustee) or
the Trustee, or to the Servicer (with a copy to the Mortgage Loan Seller
and the Trustee) by the Holders of Certificates entitled to at least 25% of
the Voting Rights; or
(iii) any breach of the representations and warranties contained in
Section 2.03(b) which materially and adversely affects the interests of the
Certificateholders and which continues unremedied for a period of 30 days
after the date on which notice of such breach, requiring the same to be
remedied, shall have been given to the Servicer by the Mortgage Loan Seller
or the Trustee, or to the Servicer (with a copy to the Mortgage Loan Seller
and the Trustee) by the Holders of Certificates entitled to at least 25% of
the Voting Rights of any Class affected thereby; or
(iv) a decree or order of a court or agency or supervisory
authority having jurisdiction in the premises in an involuntary case under
any present or future federal or state bankruptcy, insolvency or similar
law or the appointment of a conservator, receiver, liquidator, trustee or
similar official in any bankruptcy, 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 Servicer and such decree or order shall have remained in force
undischarged or unstayed for a period of 60 days; or
(v) the Servicer shall consent to the appointment of a
conservator, receiver, liquidator, trustee or similar official in any
bankruptcy, insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to the Servicer or of or
relating to all or substantially all of its property; or
(vi) the Servicer shall admit in writing its inability to pay its
debts generally as they become due, file a petition to take advantage of
any applicable bankruptcy, insolvency or reorganization statute, make an
assignment for the benefit of its creditors,
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voluntarily suspend payment of its obligations, or take any corporate
action furtherance of the foregoing;
then, and in each and every such case, so long as an Event of Default shall not
have been remedied, the Trustee may, and at the written direction of the Holders
of Certificates entitled to, in the case of an Event of Default described in
clauses (i)-(iii) hereof, at least 51% of the Voting Rights of any Class of
Regular Certificates which, in the sole judgment of the Trustee, has been
affected by such Event of Default (or, if no Regular Certificates are then
outstanding, at least 51% of the Percentage Interests evidenced by each Class of
Residual Certificates) or, in the case of any Event of Default described in
clauses (iv) - (vi) hereof, at least 51% of all of the Voting Rights, the
Trustee shall, by notice in writing to the Servicer, with a copy of such notice
to the Mortgage Loan Seller, terminate all of the rights and obligations
(including, without limitation, all obligations of the Servicer to make
Servicing Advances and P&I Advances or incur any expenses pursuant hereto),
except in respect of obligations accruing prior to such termination of the
Servicer as Servicer under this Agreement and in and to the Mortgage Loans and
the proceeds thereof. From and after the receipt by the Servicer of such
written notice, all authority and power of the Servicer under this Agreement,
whether with respect to the Certificates (other than as a holder of any
Certificate) 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
and at the expense of the 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 Servicer agrees
promptly (and in any event no later than ten Business Days subsequent to such
notice) to provide the Trustee with all documents and records, including those
in electronic form, requested by it to enable it or any successor Servicer
appointed pursuant to 6.02, 6.04(c) or 7.01 to assume the Servicer's functions
hereunder, and to cooperate with the Trustee or any successor Servicer appointed
pursuant to 6.02, 6.04(c) or 7.01 in effecting the termination of the Servicer's
responsibilities and rights hereunder, including without limitation, the
transfer within two Business Days to the Trustee for administration by it of all
cash amounts which shall at the time be or should have been credited by the
Servicer to the Collection Account, any Escrow Account or, if established, the
REO Account or thereafter be received with respect to the Mortgage Loans or any
REO Property (provided, however, that the Servicer shall continue to be entitled
to receive all amounts accrued or owing to it under this Agreement on or prior
to the date of such termination, whether in respect of P&I Advances or
otherwise, and it and its directors, officers, employees and agents shall
continue to be entitled to the benefits of Section 6.03 notwithstanding any such
termination).
Section 7.02. Trustee to Act; Appointment of Successor.
On and after the time the Servicer receives a notice of termination
pursuant to Section 7.01, the Trustee shall be the successor in all respects to
the Servicer in its capacity as Servicer under this Agreement and the
transactions set forth or provided for herein and shall be subject to all the
responsibilities, duties and liabilities relating thereto and arising thereafter
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placed on the Servicer by the terms and provisions hereof including without
limitation, the Servicer's obligation to make P&I Advances; provided that if the
Trustee is prohibited by law or regulation from obligating itself to make
advances regarding delinquent mortgage loans, then the Trustee shall not be
obligated to make such P&I Advances pursuant to Section 4.03; and provided,
further, that any failure to perform such duties or responsibilities caused by
the Servicer's failure to provide information or monies required by Section 7.01
shall not be considered a default by the Trustee hereunder and shall have no
liability as a result of a failure or delay by the predecessor servicer to
transfer and records or amounts to it as provided in Section 7.01. The Trustee
shall not be liable for any of the representations and warranties of the
Servicer or for any losses incurred by the Servicer pursuant to Section 3.06
hereunder nor shall the Trustee be required to purchase any Mortgage Loan
hereunder. As compensation therefor, the Trustee shall be entitled to the
Servicing Fees and all funds relating to the Mortgage Loans which the Servicer
would have been entitled to charge to the Collection Account or, if established,
the REO Account if the 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, promptly appoint, or
petition a court of competent jurisdiction to appoint, any established mortgage
loan servicing institution acceptable to the Rating Agencies with a net worth of
not less than $50,000,000 as the successor to the Servicer hereunder in the
assumption of all or any part of the responsibilities, duties or liabilities of
the Servicer hereunder. Except with respect to an appointment provided below,
no appointment of a successor to the Servicer hereunder shall be effective until
the assumption of the successor to the Servicer of all the responsibilities,
duties and liabilities hereunder. Pending appointment of a successor to the
Servicer hereunder, the Trustee shall act in such capacity as hereinabove
provided. Notwithstanding the above, the Trustee shall, if it is prohibited by
law or regulation from making advances regarding delinquent mortgage loans,
promptly appoint (subject to the approval of each Rating Agency) any established
mortgage loan servicing institution having a net worth of not less than
$50,000,000 as the successor to the Servicer hereunder in the assumption of all
or any part of the responsibilities, duties or liabilities of the Servicer
hereunder (including without limitation, the obligation to make P&I Advances
pursuant to Section 4.03), which appointment will become effective immediately.
In connection with such appointment and assumption described herein, 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
Servicer hereunder. The Mortgage Loan Seller, the Trustee, the Custodian, if
any, and such successor shall take such action, consistent with this Agreement,
as shall be necessary to effectuate any such succession.
Section 7.03. Notification to Certificateholders.
(a) Upon any such termination pursuant to Section 7.01 above or
any appointment of a successor to the Servicer pursuant to Section 7.02, the
Trustee shall give prompt written notice thereof to Certificateholders at their
respective addresses appearing in the Certificate Register.
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(b) Not later than the later of 60 days after the occurrence of
any event which constitutes or, with notice or lapse of time or both, would
constitute an Event of Default or 5 days after a Responsible Officer becomes
aware of the occurrence of such an event, the Trustee shall transmit by mail to
the Mortgage Loan Seller and all Certificateholders notice of such occurrence,
unless such 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 evidenced
by all Classes of Certificates affected by any Event of Default hereunder may
waive such Event of Default; provided, however, that an Event of Default under
clause (i) of Section 7.01 may be waived only by all of the Certificateholders.
Upon any such waiver of an Event of Default, such 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 Event of Default or
impair any right consequent thereon except to the extent expressly so waived.
Notwithstanding any other provisions of this Agreement, for purposes of waiving
any Event of Default pursuant to this Section 7.04, Certificates registered in
the name of the Mortgage Loan Seller or any Affiliate of the Mortgage Loan
Seller shall be entitled to Voting Rights with respect to the matters described
above.
Section 7.05. Additional Remedies of Trustee Upon Event of Default.
During the continuance of any Event of Default, so long as such Event
of Default shall not have been remedied, the Trustee, in addition to the rights
specified in Section 7.01, shall have the right, in its own name and as trustee
of an express trust, to take all actions now or hereafter existing at law, in
equity or by statute to enforce its rights and remedies and to protect the
interests, and enforce the rights and remedies, of the Certificateholders
(including the institution and prosecution of all judicial, administrative and
other proceedings and the filings of proofs of claim and debt in connection
therewith). Except as otherwise expressly provided in this Agreement, no remedy
provided for by this Agreement shall be exclusive of any other remedy, and each
and every remedy shall be cumulative and in addition to any other remedy, and no
delay or omission to exercise any right or remedy shall impair any such right or
remedy or shall be deemed to be a waiver of any Event of Default.
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ARTICLE VIII.
CONCERNING THE TRUSTEE
Section 8.01. Duties of Trustee.
(a) The Trustee, prior to the occurrence of an Event of Default
and after the curing or waiver 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 of which it has actual notice
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 contained
in this Agreement shall not be construed as a duty.
(b) 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 such action as it deems appropriate to have the instrument
corrected. The Trustee shall not be responsible for the accuracy or content of
any resolution, certificate, statement, opinion, report, document, order or
other instrument furnished by the Mortgage Loan Seller or the Servicer, and
accepted by the Trustee in good faith, pursuant to this Agreement.
(c) Subject to Section 8.02, 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 known to
it, 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;
(ii) The Trustee shall not be personally liable for an error
of judgment made in good faith by a Responsible Officer or Responsible
Officers, unless it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts;
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(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; and
(iv) Except as specifically provided in this Agreement, the
Trustee shall not be required to expend its own funds or otherwise
incur any financial liability in the performance of its duties
hereunder if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against liability is not
reasonably assured to it.
(d) The Trustee shall furnish the Mortgage Loan Seller or its designees,
the Managing Underwriters, and (for the information set forth in clauses (i) and
(ii) below only) Bloomberg Financial Services and the Trepp Group with (i)
statements provided to Certificateholders pursuant to Section 4.02; (ii) monthly
data diskettes received from the Servicer; and (iii) upon reasonable written
request, any other information within its possession regarding the collection of
payments on the Mortgage Loans as and to the extent such information has been
furnished to it by the Servicer and the Trustee's allocation of such payments to
the Certificateholders in order to enable the Mortgage Loan Seller and the
Managing Underwriters to monitor the allocation of collections on the Mortgage
Loans, along with other amounts described in the Agreement, as payments to the
Certificateholders; provided, that the Trustee shall not be required to provide
--------
any analytical or other reports or information generated by the Trustee for
internal use only. The Trustee shall be entitled to charge a reasonable fee for
providing the information required to be provided hereunder.
Section 8.02. Certain Matters Affecting the Trustee.
(a) Except as otherwise provided in Section 8.01:
(i) 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;
(ii) The Trustee may consult with counsel and the written
advice of such counsel or 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;
(iii) 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
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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; the
Trustee shall not be required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of
its duties hereunder, or in the exercise of any of its rights or
powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it; nothing contained herein
shall, however, relieve the Trustee of the obligation, upon the
occurrence of an Event of Default (which has not been cured or
waived), 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;
(iv) The Trustee shall not be personally liable for any
action reasonably 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;
(v) Prior to the occurrence of an Event of Default
hereunder and after the curing or waiver of all Events of Default
which may have occurred, the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
consent, order, approval, bond or other paper or document furnished to
it hereunder, 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;
(vi) 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;
(vii) The Trustee shall not be required to obtain a
deficiency judgment against any Mortgagor;
(viii) For all purposes under this Agreement, the Trustee
shall not be deemed to have notice of any Event of Default or other
fact or circumstance upon the occurrence of which it may be required
to take action hereunder unless a
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Responsible Officer has actual knowledge thereof or unless written
notice of any event which is in fact such a default is received by the
Trustee at the Corporate Trust Office, and such notice references the
Holders of the Certificates and this Agreement; and
(ix) The Trustee shall not be responsible for any act or
omission of the Certificate Registrar (unless the Trustee or an
Affiliate of the Trustee is acting as Certificate Registrar), the
Servicer, the FDIC or the Mortgage Loan Seller.
(b) Following the Startup Day, the Trustee shall not accept any
contribution of assets to the Trust Fund (other than a Qualified Substitute
Mortgage Loan pursuant to Section 2.04(d) hereof) unless it shall have obtained
an Opinion of Counsel, at no expense to the Trustee, the Servicer or the Trust
Fund, to the effect that the inclusion of such assets in the Trust Fund will not
cause either the Lower-Tier REMIC or the Upper-Tier REMIC 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.
Section 8.03. Trustee Not Liable for Certificates or Mortgage Loans.
The recitals contained herein and in the Certificates, other than the
Certificate of Authentication, shall be taken as the statements of the Mortgage
Loan Seller, as the case may be, and the Trustee assumes no responsibility for
their correctness. The Trustee makes no representations as to the validity or
sufficiency of this Agreement (other than as to the due authorization, execution
and delivery thereof by it or of the Certificates (other than as to the due
authorization and execution thereof by it or of any Mortgage Loan or related
document. The Trustee shall not be accountable for the use or application by
the Mortgage Loan Seller of any of the Certificates issued to it or of the
proceeds of such Certificates, or for the use or application of any funds paid
to the Mortgage Loan Seller in respect of the assignment of the Mortgage Loans
to the Trust Fund, or any funds deposited in or withdrawn from the Collection
Account or any other account by or on behalf of the Mortgage Loan Seller or the
Servicer. The Trustee shall not be responsible for the accuracy or content of
any resolution, certificate, statement, opinion, report, document, order or
other instrument furnished by the Mortgage Loan Seller or the Servicer, and
accepted by the Trustee in good faith, pursuant to this Agreement.
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. Fees and Expenses of Trustee; Indemnification of
Trustee.
(a) The Trustee may withdraw from the Distribution Account, prior
to any other payments to be made from such account, on each Distribution Date
the Trustee's Fee. As to each Mortgage Loan and REO Loan, the Trustee's Fee
shall accrue at the Trustee Fee Rate
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and shall be computed on the basis of the same principal amount and for the same
period respecting which any related interest payment due on the Mortgage Loans
is computed (except that for purposes of calculating its fee, each Mortgage Loan
shall be deemed to accrue interest on the basis of a 360-day year consisting of
twelve 30-day months). From time to time the Trustee may request the Servicer
to withdraw, and the Servicer shall pay, from the Collection Account the
Trustee's Fee, to the extent not paid from the Distribution Account all amounts
necessary to reimburse the Trustee for all ongoing reasonable expenses and
disbursements incurred or made by the Trustee in the course of performing its
duties in accordance with any of the provisions of this Agreement (including the
reasonable compensation and the expenses and disbursements of its outside
counsel and of all persons not regularly in its employ, but excluding allocable
overhead), other than any such expense or disbursement (i) specifically required
to be borne thereby pursuant to the terms hereof, (ii) incurred by reason of
willful misfeasance, bad faith or negligence in the performance of the Trustee's
obligations and duties hereunder, or by reason of reckless disregard of such
obligations and duties, (iii) as may arise from a breach of any representation,
warranty or covenant of the Trustee made herein or (iv) except as otherwise
provided in Section 8.11, incurred in connection with the use of any Custodian;
provided, however, that the Trustee shall not refuse to perform any of its
duties under this Agreement solely as a result of the failure of the Servicer or
the Trust Fund to pay the Trustee's fees and expenses.
(b) The Trustee and any director, officer, employee or agent of
the Trustee shall be entitled to be indemnified and held harmless by the Trust
Fund (which amounts shall be Extraordinary Expenses) against any loss, liability
or expense (including, without limitation, costs and expenses of litigation, and
of investigation, counsel fees, damages, judgments and amounts paid in
settlement) arising out of, or incurred in connection with, any act or omission
of the Trustee relating to the exercise and performance of any of the powers and
duties of the Trustee hereunder; provided that neither the Trustee nor any of
the other above specified Persons shall be entitled to indemnification pursuant
to this Section 8.05(b) for any loss, liability or expense incurred by reason of
willful misfeasance, bad faith or negligence in the performance of the Trustee's
obligations and duties hereunder, or by reason of reckless disregard of such
obligations or duties, or as may arise from a breach of any representation,
warranty or covenant of the Trustee made herein. The provisions of this Section
8.05(b) shall survive any resignation or removal of the Trustee and appointment
of a successor trustee.
(c) The Servicer shall indemnify the Trustee for any liability or
assessment against the Trustee resulting from any negligent error or omission in
any information furnished in writing or by electronic means by the Servicer to
the Trustee that is reasonably necessary for the Trustee to perform its duties
pursuant to Section 10.01(e).
(d) The Servicer shall indemnify the Trustee for any loss,
liability or expense (including without limitation costs and expenses of
litigation, and of investigation, counsel fees, damages, judgments and amounts
paid in settlement) arising in respect of the Servicer's negligent acts or
omissions in connection with its performance of its duties under this Agreement
or the Certificates that are done or omitted in violation of its obligations
under this Agreement (including without limitation servicing, foreclosures or
liquidations, and any resultant liability
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therefrom) (other than any loss, liability or expense incurred by reason of
willful misfeasance, bad faith or negligence of the Trustee in the performance
of duties hereunder, or as may arise from a breach of any representation or
warranty of the Trustee set forth herein or from any failure of the Trustee to
perform its obligations set forth in Section 8.12); provided, however, that the
indemnification provided for in this Section 8.05(d) shall only be effective
upon exhaustion by the Trustee of its claims against the Collection Account
pursuant to Section 8.05(b) and the termination of the Collection Account upon
the final withdrawal of funds from the Collection Account pursuant to Section
3.05(a)(xiv). Notwithstanding anything herein to the contrary, the foregoing
indemnification shall not benefit the Trustee or any director, officer, employee
or agent of the Trustee insofar as any such loss, liability or expense arises
out of the Trustee's acting in any capacity other than as Trustee, including
without limitation as successor Servicer.
(e) The provisions of this Section 8.05 shall survive the termination
of this Agreement. Any payment hereunder made by the Mortgage Loan Seller, the
FDIC or the Servicer to the Trustee shall be from its own funds, without
reimbursement therefor from Certificateholders or the Trust Fund.
Section 8.06. Eligibility Requirements for Trustee.
The Trustee hereunder shall at all times be an association or a
corporation 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 trust powers, having a combined capital and surplus of at least
$50,000,000, subject to supervision or examination by federal or state
authority. If such association or 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 association or 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 Trustee shall not have its place .of business from which it administers the
Trust Fund in any state or local jurisdiction that imposes a tax on the Trust
Fund on the net income of a REMIC (other than a tax corresponding to a tax
imposed under the REMIC Provisions). The corporation or association serving as
Trustee may have banking and trust relationships with the Mortgage Loan Seller,
the FDIC and its Affiliates or the Servicer and its Affiliates.
Section 8.07. Resignation and Removal of the Trustee.
(a) The Trustee may at any time resign and be discharged from the
trusts hereby created by giving written notice thereof to the Rating Agencies,
the FDIC, the Mortgage Loan Seller, the Servicer and to all Certificateholders.
Upon receiving such notice of resignation, the Mortgage Loan Seller shall
promptly appoint a successor trustee 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
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Servicer by the Mortgage Loan Seller. If no successor trustee shall have been
so appointed and have accepted appointment within 30 days after the giving of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor trustee.
(b) 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 Mortgage Loan Seller, 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 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, then the Mortgage Loan Seller may remove the Trustee and appoint a
successor trustee 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 Servicer by
the Mortgage Loan Seller.
(c) 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 Mortgage Loan Seller, 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 remaining Certificateholders and the
Servicer by the Mortgage Loan Seller.
(d) 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.
(a) Any successor trustee appointed as provided in Section 8.07 shall
execute, acknowledge and deliver to the Mortgage Loan Seller 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 (other than any Mortgage Files at the time held by a Custodian, which
shall become the agent of any successor trustee hereunder), and the Mortgage
Loan Seller and the predecessor trustee shall execute and deliver such
instruments and do such other things as may reasonably be required to more fully
and certainly vest and confirm in the successor trustee all such rights, powers,
duties and obligations, and to enable the successor trustee to perform its
obligations hereunder.
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(b) No successor trustee shall accept appointment as provided in this
Section unless at the time of such acceptance (i) such successor trustee shall
be eligible under the provisions of Section 8.06, (ii) the long-term unsecured
debt obligations of such successor (or, in the case of the principal depository
institution in a depository institution holding company, the long-term unsecured
debt obligations of such depository institution holding company) are rated "AA"
or better by Duff & Phelps and "Aa2" or better by Moody's and the short-term
unsecured debt obligations of such successor (or, in the case of the principal
depository institution in a depository institution holding company, the short-
term unsecured debt obligations of such depository institution holding company)
are rated "D-1" by Duff & Phelps and (iii) such successor trustee shall
otherwise be acceptable to the Rating Agencies.
(c) Upon acceptance of appointment by a successor trustee as provided
in this Section, the Mortgage Loan Seller 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 Mortgage Loan Seller fails to mail
such notice within 10 days after acceptance of appointment by the successor
trustee, the successor trustee shall cause such notice to be mailed at the
expense of the Mortgage Loan Seller.
Section 8.09. Merger or Consolidation of Trustee.
Any entity into which the Trustee may be merged or converted or with
which it may be consolidated or any entity resulting from any merger, conversion
or consolidation to which the Trustee shall be a party, or any entity succeeding
to the corporate trust business of the Trustee, shall be the successor of the
Trustee hereunder, provided such entity 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.
(a) 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
Servicer and the Trustee acting jointly shall have the power and shall execute
and deliver all instruments to appoint one or more Persons approved by the
Trustee to act as co-trustee or co-trustees, jointly with the Trustee, or
separate trustee or separate trustees, of all or any part of the Trust Fund, and
to vest in such Person or Persons, in such capacity, such title to the Trust
Fund, or any part thereof, and, subject to the other provisions of this Section
8.10, such powers, duties, obligations, rights and trusts as the Servicer and
the Trustee may consider necessary or desirable. If the Servicer shall not have
joined in such appointment within 15 days after the receipt by it of a request
to do so, 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.
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(b) 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 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.
(c) 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.
(d) 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.
(e) The appointment of a co-trustee or separate trustee under this
Section 8.10 shall not relieve the Trustee of its duties and responsibilities
hereunder.
Section 8.11. Appointment of Custodians.
The Trustee may appoint one or more Custodians to hold all or a
portion of the Mortgage Files as agent for the Trustee. Subject to the other
provisions of this Article VIII, the Trustee agrees to enforce the terms and
provisions of Sections 2.01 and 2.02 hereof against the Custodian for the
benefit of the Certificateholders. Each Custodian shall be a depository
institution subject to supervision by federal or state authority, shall have
combined capital and surplus of at least $10,000,000 (unless the Trustee shall
have guaranteed the availability of capital in such amount), shall be qualified
to do business in the jurisdiction in which it holds any Mortgage File and shall
not be the Mortgage Loan Seller or any Affiliate of the Mortgage Loan Seller.
Each Custodian shall be subject to the same obligations and standard of care as
are imposed on the initial Custodian hereunder in connection with the retention
of Mortgage Files. The appointment of one or more Custodians shall not relieve
the Trustee from any of its obligations hereunder, and the Trustee shall remain
responsible for all acts and omissions of any Custodian. The fees and expenses
of the Custodian, to the extent not in excess of fees and
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expenses charged by the Trustee for custodial services under this Agreement,
shall be paid directly by the FDIC or, if paid directly by the Trustee,
reimbursed to the Trustee by the FDIC.
Section 8.12. Representations and Warranties of the Trustee.
The Trustee hereby represents and warrants to the Servicer, the FDIC
and the Mortgage Loan Seller, as of the Closing Date, that:
(i) The Trustee is a banking corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Massachusetts.
(ii) The execution and delivery of this Agreement by the Trustee,
and the performance and compliance with the terms of this Agreement by the
Trustee, will not violate the Trustee's charter 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 Trustee 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 Servicer, the FDIC and the Mortgage Loan Seller,
constitutes a valid, legal and binding obligation of the Trustee,
enforceable against the Trustee in accordance with the terms hereof,
subject to (A) applicable bankruptcy, insolvency, reorganization,
receivership, 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 Trustee 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 the condition
(financial or other) or operations of the Trustee or the ability of the
Trustee to perform its obligations under this Agreement.
(vi) No litigation is pending or, to the best of the Trustee's
knowledge, threatened against the Trustee which would prohibit the Trustee
from entering into this Agreement or, is likely to materially and adversely
affect the condition (financial or other) or operations of the Trustee or
the ability of the Trustee to perform its obligations under this Agreement.
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Section 8.13. Filings with the Securities and Exchange Commission.
The Trustee shall, prepare and file with the Securities and Exchange
Commission any and all reports, statements and information respecting the Trust
Fund and/or the Certificates required to be filed, and shall solicit any and all
proxies of the Certificateholders whenever such proxies are required to be
solicited, pursuant to the Securities Exchange Act of 1934, as amended. The
cost of the foregoing shall be an Extraordinary Expense. Notwithstanding the
foregoing, within 15 days following the Closing Date, the Mortgage Loan Seller
shall prepare, and the Trustee shall execute and file with the Securities and
Exchange Commission, a report on Form 8-K setting forth information with respect
to the Mortgage Loans included in the Trust Fund on the Closing Date.
The Trustee is authorized, on behalf of the Trust Fund, to execute and
file with the Securities and Exchange Commission a Registration Statement on
Form S-11, together with amendments thereto, and such other forms and statements
relating to the sale of the Certificates in any state, as may be requested of it
by the Mortgage Loan Seller or any designee thereof and the execution and filing
of any such documents prior to the execution and delivery hereof is hereby
ratified and confirmed.
Section 8.14. Filings with the Commonwealth of Massachusetts.
The Trustee shall make all filings required by Massachusetts General
Laws Chapter 182, Sections 2 and 14.
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ARTICLE IX.
TERMINATION
Section 9.01. Termination Upon Repurchase or Liquidation of All
Mortgage.
(a) Subject to Section 9.03 and Section 8.05(e), the respective
obligations and responsibilities under this Agreement of the Mortgage Loan
Seller, the FDIC, the Servicer and the Trustee (other than the obligations of
the Trustee to provide for and make payments to Certificateholders as hereafter
set forth) shall terminate upon payment to the Certificateholders and the
deposit of all amounts held by or on behalf of the Servicer and required
hereunder to be so paid or deposited on the Distribution Date following the
earlier to occur of (i) the purchase by the Servicer or the Class R-UT
Certificateholder having the largest Percentage Interest in such Class (the
"Controlling Class R-UT Certificateholder"), at the option of either, of all
Mortgage Loans and each REO Property remaining in the Lower-Tier REMIC at a
price equal to the greater of (A) the aggregate Purchase Price of all the
Mortgage Loans included in the Lower-Tier REMIC, plus the appraised value of
each REO Property, if any, included in the Lower-Tier REMIC, such appraisal to
be conducted by an Independent MAI-appraiser selected by the Servicer, minus, if
the Purchaser is the Servicer, the aggregate amount of unreimbursed P&I Advances
and Servicing Advances and unpaid Servicing Fees remaining outstanding (which
items shall be deemed to have been paid or reimbursed to the Servicer in
connection with such purchase), and (B) the aggregate fair market value of all
of the assets of the Trust Fund (as determined by the Servicer as of the close
of business on the third Business Day next preceding the date upon which notice
of any such termination is furnished to Certificateholders pursuant to Section
9.01(b)), and (ii) the final payment or other liquidation (or any advance with
respect thereto) of the last Mortgage Loan or REO Property remaining in the
Trust Fund; provided, however, that in no event shall the trust created hereby
continue beyond the expiration of 21 years from the death of the last survivor
of the descendants of Joseph P. Kennedy, the late ambassador of the United
States to the Court of St. James's, living on the date hereof.
(b) The Servicer or the Controlling Class R-UT Certificateholder, may
make an election to purchase all of the Mortgage Loans and each REO Property
remaining in the Lower-Tier REMIC pursuant to clause (i) of the preceding
paragraph by giving written notice to the Trustee, the FDIC and the Mortgage
Loan Seller and (A) the Servicer, in the event such election is made by the
Controlling Class R-UT Certificateholder, or (B) the Controlling Class R-UT
Certificateholder in the event such election is made by the Servicer, no later
than 60 days prior to the anticipated date of purchase; provided, however, that
the Servicer or the Controlling Class R-UT Certificateholder may elect to
purchase all of the Mortgage Loans and each REO Property remaining in the Lower-
Tier REMIC pursuant to clause (i) of Section 9.01(a) only if the aggregate
Stated Principal Balance of the Mortgage Loans and any REO Loans remaining in
the Lower-Tier REMIC at the time of such election is less than 10% of the
aggregate Cut-off Date Balance of the Mortgage Loans. Notwithstanding the
foregoing, the Controlling Class R-UT Certificateholder shall have the right
prior to the right of the Servicer to purchase all of the Mortgage Loans and
each REO Property remaining in the Lower-Tier REMIC if, and only if, upon
receipt by it of notice of the Servicer's election to purchase the Mortgage
Loans and each
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REO Property remaining in the Lower-Tier REMIC pursuant to this clause (b), it
notifies the Servicer, the Trustee, the FDIC and the Mortgage Loan Seller within
five (5) Business Days after receipt of such notice of its election to purchase
the Mortgage Loans and each REO Property.
(c) Notice of any termination shall be given by the Servicer by letter
to the Trustee for timely delivery to the Certificateholders mailed (a) in the
event such notice is given in connection with the Servicer's or the Controlling
Class R-UT Certificateholder's purchase of the Mortgage Loans and each REO
Property, during the month next preceding the month of the final distribution on
the Certificates 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 the Trust Fund will terminate and 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. Unless it is acting as Certificate Registrar, the Servicer shall
give such notice to the Certificate Registrar at the time such notice is given
to Certificateholders. In the event such notice is given in connection with the
purchase by the Servicer or the Controlling Class R-UT Certificateholder of all
of the Mortgage Loans and each REO Property remaining in the Trust Fund, the
Controlling Class R-UT Certificateholder shall deliver to the Servicer for
deposit in the Collection Account or the Servicer shall deposit therein, as
applicable, not later than the P&I Advance Date relating to the Distribution
Date on which the final distribution on the Certificates is to occur an amount
in immediately available funds equal to the above-described purchase price.
Upon receipt of notification of such final deposit, the Trustee shall release to
the Servicer or the Controlling Class R-UT Certificateholder, as the case may
be, the Mortgage Files for the remaining Mortgage Loans and shall execute all
assignments, endorsements and other instruments furnished to it by the Servicer
or the Controlling Class R-UT Certificateholder, as applicable, as shall be
necessary to effectuate transfer of the Mortgage Loans and REO Properties to the
Servicer (or its designee) or the Controlling Class R-UT Certificateholder (or
its designee), as the case may be. Any transfer of Mortgage Loans to the
Controlling Class R-UT Certificateholder shall be on a servicing-released basis.
(d) Upon presentation and surrender of the Certificates by the
Certificateholders on the final Distribution Date, the Trustee shall distribute
to each Certificateholder so presenting and surrendering its Certificates the
amount. otherwise distributable on such Distribution Date in accordance with
Section 4.01 in respect of the Certificates so presented and surrendered. Any
funds not distributed on such Distribution Date shall be set aside and held in
trust for the benefit of Certificateholders not presenting and surrendering
their Certificates in the aforesaid manner, and shall be disposed of in
accordance with this Section 9.01 and Section 4.01.
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Section 9.02. Termination of the Upper-Tier REMIC.
The Upper-Tier REMIC shall be terminated on the date on which (i) it
receives the last distributions on the Uncertificated Regular Interests and (ii)
the last distribution on the Upper-Tier REMIC Certificates is made.
Section 9.03. Additional Termination Requirements.
(a) In the event that the Servicer or the Controlling Class R-UT
Certificateholder purchases all the Mortgage Loans and each REO Property
remaining in the Trust Fund pursuant to Section 9.01, the Trust Fund (and,
accordingly, the Lower-Tier REMIC and the Upper-Tier REMIC) shall be terminated
in accordance with the following additional requirements.
(i) The Trustee shall specify the first day in the 90-day
liquidation period in a statement attached to the final Tax Return of the
Lower-Tier REMIC and the Upper-Tier REMIC pursuant to Treasury Regulation
Section 1.860F-1 and shall satisfy all the requirements of a qualified
liquidation under Section 860F of the Code and any regulations thereunder,
as evidenced by an Opinion of Counsel obtained at the expense of the
Servicer or the Controlling Class R-UT Certificateholder, as applicable;
(ii) During such 90-day liquidation period, and at or prior to the
time of making of the final payment on the Certificates, the Trustee shall
sell all of the assets of the Trust Fund to the Servicer or the Controlling
Class R-UT Certificateholder, as applicable, 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 Certificateholders in accordance with
Section 9.01 all cash on hand in the Trust Fund (other than cash retained
to meet claims), and the Trust Fund shall terminate at that time.
(b) The Trustee shall prepare any documentation required in
connection with the adoption of any plan of complete liquidation of the Trust
Fund pursuant to this Section 9.03 that in the judgment of the Trustee may be
necessary or appropriate to effect the termination and liquidation of the Trust
Fund hereunder. The cost of the foregoing shall be an expense of the party
purchasing the remaining Mortgage Loans pursuant to Section 9.01.
(c) By their acceptance of the Regular and Residual Certificates,
the Holders hereof hereby agree to authorize the Trustee to adopt a plan of
complete liquidation for the Trust Fund, which authorization shall be binding
upon all successor Regular and Residual Certificateholders.
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ARTICLE X.
REMIC ADMINISTRATION
Section 10.01. REMIC Administration.
(a) The Trustee shall elect to treat each of the Lower-Tier REMIC and
the Upper-Tier REMIC as a REMIC under the Code and, if necessary, under
applicable state law. Each such election will be made on Form 1066 or other
appropriate federal or state Tax Returns for the taxable year ending on the last
day of the calendar year in which the Certificates are issued.
(b) The Uncertificated Regular Interests shall be designated as the
Regular Interests in the Lower-Tier REMIC, and the Class R-LT Certificates shall
be designated as the single class of Residual Interest in the Lower-Tier REMIC.
The Class I-A, Class I-B, Class I-C, Class I-D, Class I-XS, Class II-A,
Class II-B, Class II-C and Class II-XS Certificates shall be designated as the
Regular Interests in the Upper-Tier REMIC, and the Class R-UT Certificates shall
be designated as the single class of Residual Interest in the Upper-Tier REMIC.
The Trustee shall not permit the creation of any "interests" in the Lower-Tier
REMIC or the Upper-Tier REMIC (within the meaning of Section 860G of the Code)
other than the Uncertificated Regular Interests and the interests represented by
the Certificates.
(c) The Closing Date is hereby designated as the "startup day" of each
of the Lower-Tier REMIC and the Upper-Tier REMIC within the meaning of Section
860G(a)(9) of the Code.
(d) The Trustee shall pay out of its own funds, without any right of
reimbursement, any and all expenses of the Trust Fund incurred in the
preparation and filing of the tax returns required to be prepared and filed by
it hereunder, other than the expense of obtaining any tax related Opinion of
Counsel and other than taxes and filing fees, except as specified herein.
Subject to Section 10.01(g), the Trustee shall be reimbursed pursuant to Section
3.05(a)(vi) for all other tax related expenses incurred hereunder. The holder
of the largest Percentage Interest in each Class of the Residual Certificates,
by their acceptance of such Certificates, agrees to be and is hereby designated
as the Tax Matter Person for each related REMIC. The holders of the largest
Percentage Interest in the Class R-LT Certificates and Class R-UT Certificates,
as the Tax Matter Person for the Lower-Tier REMIC and the Upper-Tier REMIC,
respectively, hereby appoint the Trustee (or any successor trustee) to act as
their agent and in such capacity the Trustee (or any successor trustee) shall
act on behalf of the Trust Fund in relation to any tax matter or controversy and
shall represent the Trust Fund in any administrative or judicial proceeding
relating to an examination or audit by any governmental taxing authority,
request an administrative adjustment as to any taxable year of the Lower-Tier
REMIC or the Upper-Tier REMIC, enter into settlement agreements with any
governmental taxing agency, extend any statute of limitations relating to any
tax item of the Lower-Tier REMIC or the Upper-Tier REMIC and otherwise act on
behalf of the Lower-Tier REMIC and the Upper-Tier REMIC in relation to any tax
matter or controversy involving the Lower-Tier
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REMIC or the Upper-Tier REMIC. The legal expenses and costs of any action
described in this subsection (d) shall be Extraordinary Expenses. Any taxes,
interest and penalties resulting from any action described in this subsection
(d) shall be charged to and paid by the Trust Fund as an Extraordinary Expense,
unless such taxes, interest and penalties are incurred by reason of the
Trustee's willful misfeasance, bad faith or gross negligence or are expressly
provided by this Agreement to be borne by any party hereto. Any taxes, interest
and penalties incurred by reason of the Trustee's willful misfeasance, bad faith
or gross negligence shall be charged to and paid by the Trustee.
(e) The Trustee shall prepare, sign and file all of the Tax Returns in
respect of the Lower-Tier REMIC and the Upper-Tier REMIC. The expenses of
preparing and filing such returns shall be borne by the Trustee without any
right of reimbursement therefor. The Servicer shall provide on a timely basis
to the Trustee or its designee such information with respect to each of the
Lower-Tier REMIC and the Upper-Tier REMIC as is in its possession and reasonably
requested in writing by the Trustee to enable it to perform its obligations
under this Article.
(f) The Trustee shall perform on behalf of each of the Lower-Tier
REMIC and the Upper-Tier REMIC all reporting and other tax compliance duties
that are the responsibility of each such REMIC under the Code, REMIC Provisions
or other compliance guidance issued by the Internal Revenue Service or State of
New York taxing authority. The Trustee shall also file tax returns in
Massachusetts and New York and in such other jurisdictions that the Trustee
determines may from time to time be required to be filed on behalf of the Trust
Fund; provided, however, that, notwithstanding any contrary provision of this
Article X, the Trustee shall be liable for any taxes, interest and penalties
arising due to its failure to file any such other state Tax Returns only if such
failure was due to the Trustee's gross negligence, subject to the general
indemnification and liability standards of Section 8.05(b). Included among such
duties, the Trustee shall provide to: (i) any transferor of a Residual
Certificate such information as is necessary for the application of any tax
relating to the transfer of a Residual Certificate to any Person who is not a
Permitted Transferee; (ii) the Certificateholders, such information or reports
as are required by the Code or the REMIC Provisions including reports relating
to interest, original issue discount and market discount or premium (using the
Prepayment Assumption as required); and (iii) the Internal Revenue Service the
name, title, address and telephone number of the Person who will serve as the
representative of each of the Lower-Tier REMIC and the Upper-Tier REMIC. In
addition, the Mortgage Loan Seller shall provide or cause to be provided to the
Trustee, within ten (10) days after the Closing Date, all information or data
requested by the Trustee 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 (based upon the Prepayment Assumption) of the Certificates.
(g) The Trustee shall take such action and shall cause the REMICs
created hereunder to take such action as shall be necessary to create or
maintain the status thereof as REMICs under the REMIC Provisions (and the
Servicer shall assist it, to the extent reasonably requested by it). The
Trustee shall not take any action, cause the Lower-Tier REMIC or the
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Upper-Tier REMIC 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, would: (i) affect the status of the Lower-Tier REMIC or the
Upper-Tier REMIC as a REMIC; or (ii) result in the imposition of a tax upon the
Lower-Tier REMIC or the Upper-Tier REMIC (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 has received an
Opinion of Counsel (unless otherwise specified herein, at the expense of the
party seeking to take such action) to the effect that the contemplated action
will not: (i) cause the Lower-Tier REMIC or the Upper-Tier REMIC to fail to
qualify as a REMIC at any time that any Certificates are outstanding; or (ii)
result in the imposition of any tax on the Lower-Tier REMIC or the Upper-Tier
REMIC pursuant to the REMIC Provisions. The Servicer shall not take any action,
omit to take any action, or cause the Lower-Tier REMIC or the Upper-Tier REMIC
to take any action, as to which the Trustee has advised it in writing that an
Adverse REMIC Event could result. The Trustee may consult with counsel in
preparing such written advice, and the cost of same shall be borne by the party
seeking to take, or omit to take, the action.
(h) If any tax or filing fee is imposed on the Trust Fund, including,
without limitation, "prohibited transactions" taxes as defined in Section
860F(a)(2) of the Code, any tax on "net income from foreclosure property" as
defined in Section 860G(c) of the Code, any taxes on contributions to the Lower-
Tier REMIC or the Upper-Tier REMIC after the Startup Day pursuant to Section
860G(d) of the Code, and any other tax imposed by the Code or any applicable
provisions of state or local tax laws (other than any tax permitted to be
incurred by the Servicer pursuant to Section 3.17(a)(iii)) such tax or filing
fee shall be charged: (i) to the Trustee, if such tax or filing fee arises out
of or results from a breach by the Trustee of any of its obligations under this
Article X; (ii) to the Servicer, if such tax or filing fee arises out of or
results from a breach by the Servicer of any of its obligations under Article
III, or this Article X; (iii) to the Mortgage Loan Seller, if such tax or filing
fee arises out of or results from a Breach of the FDIC's representation set
forth in Section 2.03(c)(xv) or (xvi); or (iv) if not charged to the Mortgage
Loan Seller, the Trustee or the Servicer, against amounts on deposit in the
Collection Account, in which case the amount of such tax or filing fee shall be
paid by the Servicer by withdrawal from the Collection Account at the direction
of the Trustee. Any tax permitted to be incurred by the Servicer pursuant to
Section 3.17(a)(iii) shall be charged to and paid by the Trust Fund.
(i) On or before April 15 of each calendar year, commencing April 15,
1997, the Trustee shall deliver to the Servicer and each Rating Agency a
certificate from a Responsible Officer stating the Trustee's compliance with
this Article X.
(j) The Trustee shall, for federal income tax purposes, maintain books
and records with respect to each of the Lower-Tier REMIC and the Upper-Tier
REMIC on a calendar year and on an accrual basis.
(k) Following the Startup Day, the Trustee shall not accept any
contributions of assets to either the Lower-Tier REMIC or the Upper-Tier REMIC,
other than in connection
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with any Qualified Substitute Mortgage Loan delivered in accordance with Section
2.04, unless it shall have received an Opinion of Counsel at no expense to the
Trustee or the Trust Fund, to the effect that the inclusion of such assets in
such REMIC will not cause: (i) the Lower-Tier REMIC or the Upper-Tier REMIC to
fail to qualify as a REMIC at any time that any Certificates are outstanding; or
(ii) the imposition of any tax on the Trust Fund under the REMIC Provisions or
other applicable provisions of federal, state and local law or ordinances.
(l) Except as otherwise permitted by Section 3.17(a)(iii), neither the
Trustee nor the Servicer shall enter into any arrangement by which either the
Lower-Tier REMIC or the Upper-Tier REMIC 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.
Section 10.02. Prohibited Transactions and Activities.
Neither the Trustee nor the Servicer shall: (i) sell or dispose of
any of the Mortgage Loans (except in connection with (a) 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, (b) the bankruptcy
of the Trust Fund, (c) the termination of the Trust Fund pursuant to Article IX
of this Agreement, or (d) a purchase, sale or disposition of Mortgage Loans
pursuant to Article II or III of this Agreement); (ii) acquire any assets for
the Trust Fund except as expressly permitted by this Agreement; (iii) sell or
dispose of any investments in the Collection Account, the Distribution Account
or the REO Account for gain; or (iv) accept any contributions to the Trust Fund
after the Closing Date (other than a Qualified Substitute Mortgage Loan
delivered in accordance with Section 2.04), in any event unless it has received
an Opinion of Counsel (at no expense to the Servicer, the Trustee or the Trust
Fund) that such sale, disposition, or acquisition will not: (a) cause the
Lower-Tier REMIC or the Upper-Tier REMIC to fail to qualify as a REMIC at any
time that any Certificates are outstanding; or (b) cause the Trust Fund to be
subject to the imposition of any prohibited transactions or contribution tax
pursuant to the REMIC Provisions.
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ARTICLE XI.
MISCELLANEOUS PROVISIONS
Section 11.01. Amendment.
(a) This Agreement may be amended from time to time by the Mortgage
Loan Seller, the FDIC, the Servicer and the Trustee, without the consent of any
of the Certificate-holders, (i) to cure any ambiguity, (ii) to correct or
supplement any provisions herein which may be inconsistent with any other
provisions herein, (iii) to make any other provisions with respect to matters or
questions arising hereunder which shall not be inconsistent with the provisions
hereof or (iv) if such amendment, as evidenced by an Opinion of Counsel
delivered to the Trustee, is reasonably necessary to comply with any
requirements imposed by the Code or any successor or amendatory statute or any
temporary or final regulation, revenue ruling, revenue procedure or other
written official announcement or interpretation relating to federal income tax
laws or any proposed such action which, if made effective, would apply
retroactively to the Trust Fund at least from the effective date of such
amendment, or would be necessary to avoid the occurrence of a prohibited
transaction or to reduce the incidence of any tax that would arise from any
actions taken with respect to the operation of the Trust Fund; provided that
such action (except any amendment described in clause (v) above) shall not, as
evidenced by an Opinion of Counsel delivered to the Trustee, adversely affect in
any material respect the interests of any Certificateholder.
(b) This Agreement may also be amended from time to time by the
Mortgage Loan Seller, the FDIC, the Servicer and the Trustee with the consent of
the Holders of Certificates entitled to at least 51% 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, (ii) alter
the obligation of the Servicer to make P&I Advances without the consent of the
Holders of all Certificates, (iii) adversely affect in any material respect the
interests of the Holders of any Class of Certificates in a manner other than as
described in (i) and (ii) without the consent of the Holders of all Certificates
of such Class, (iv) reduce the aforesaid percentages of Certificates the Holders
of which are required to consent to any such amendment without the consent of
the Holders of all Certificates then outstanding or (v) alter the servicing
standard set forth in Section 3.01(a). No amendment of this Agreement shall
affect the FDIC's Limited Guaranty obligation or the FDIC's rights to
reimbursement hereunder in connection therewith without the prior written
consent of the FDIC. 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 Mortgage Loan Seller, the
FDIC, the Servicer or any Affiliate of the Mortgage Loan Seller or the Servicer
shall be entitled to Voting Rights with respect to matters described in clauses
(i), (ii) and (iii) of this paragraph affecting such Certificates.
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(c) Notwithstanding any contrary provision of this Agreement, neither
the Trustee nor the Servicer shall consent to any amendment to this Agreement
unless the Trustee and the Servicer shall each have obtained or been furnished
with an Opinion of Counsel to the effect that such amendment or the exercise of
any power granted to the Servicer or the Trustee in accordance with such
amendment will not result in the imposition of a tax on the Trust Fund pursuant
to the REMIC Provisions or cause the Lower-Tier REMIC or the Upper-Tier REMIC to
fail to qualify as a REMIC at any time that any Certificates are outstanding.
(d) Promptly after the execution of any such amendment, the Trustee
shall furnish a statement describing the amendment to each Certificateholder.
(e) 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.
(f) The Trustee and the Servicer may, but neither shall be obligated
to, enter into any amendment pursuant to this Section that affects its rights,
duties and immunities under this Agreement or otherwise.
(g) The cost of any Opinion of Counsel to be delivered pursuant to
Section 11.01(a) or (c) shall be borne by the Person seeking the related
amendment, except that if the Servicer or the Trustee requests any amendment of
this Agreement and such amendment does not solely benefit the Servicer or the
Trustee, the Servicer or the Trustee shall be entitled to withdraw the cost of
any Opinion of Counsel required pursuant to Section 11.01(a) or (c) out of the
Collection Account pursuant to Section 3.05(a)(xi).
Section 11.02. Recordation of Agreement; Counterparts.
(a) 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 Servicer at the expense of the Trust Fund on direction by the
Trustee, but only upon direction accompanied by an Opinion of Counsel (the cost
of which shall be an Extraordinary Expense) to the effect that such recordation
materially and beneficially affects the interests of the Certificateholders;
provided, however, that the Trustee shall have no obligation or responsibility
to determine whether any such recordation of this Agreement is required.
(b) 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.
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Section 11.03. Limitation on Rights of Certificateholders.
(a) 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.
(b) 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.
(c) 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 or any Mortgage
Loan, unless, with respect to any suit, action or proceeding upon or under or
with respect to this Agreement, such Holder previously shall have given to the
Trustee a written notice of an Event of Default, or of a default by the Mortgage
Loan Seller or the FDIC in the performance of any of its obligations 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 Certificate-holder
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, which priority or
preference is not otherwise provided for herein, 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 internal 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.
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Section 11.05. Notices.
Any communications provided for or permitted hereunder shall be in
writing and, unless otherwise expressly provided herein, shall be deemed to have
been duly given if (a) personally delivered, (b) mailed by registered mail,
postage prepaid, return receipt requested, and received by the addressee, (c)
sent by express courier delivery service and received by the addressee, or (d)
transmitted by telex, telecopy or telegraph and confirmed by a writing delivered
by means of (a), (b) or (c), to: (i) in the case of the Mortgage Loan Seller or
the FDIC, Federal Deposit Insurance Corporation, 1717 H Street, N.W.,
Washington, D.C. 20006 (in the case of overnight mail) or 550 17th Street,
N.W., Washington, D.C. 20429 (in the case of regular mail), Attention:
Associate General Counsel-Special Projects Section, telecopy number: (202) 736-
0189, with copies to Deputy Director-Finance, L. William Seidman Center, 3501
North Fairfax Drive, Arlington, Virginia, telecopy number: (202) 736-0189, and
Managing Director-Contract Oversight and Management Branch, 1910 Pacific Avenue,
10th Floor, Dallas, Texas 75201, telecopy number: (214) 953-4981; (ii) in the
case of the Servicer, Banc One Management and Consulting Corporation, [1717 Main
Street (12th Floor), Dallas, Texas 75201, Attention: Karen Ledet, telecopy
number: (214) 290-2406, with a copy to F. Jerry Phelps, Esq. (39th Floor),
telecopy number: (214) 290-5265]; (iii) in the case of the Trustee, 225
Franklin Street, Boston, Massachusetts 02110, Attention: Corporate Trust
Department, telecopy number: (617) 664-5500; (iv) in the case of Moody's,
Moody's Investors Service, Inc., 99 Church Street, New York, New York 10007,
Attention: Managing Director, Structured Finance - Commercial Real Estate
Group, telecopy number: (212) 553-1350; and (v) in the case of Duff & Phelps,
Duff & Phelps Credit Rating Co., 17 State Street, 12th Floor, New York, New York
10004, telecopy number: (212) 908-0222; or as to each such Person such other
address as may hereafter be furnished by such Person to the parties hereto in
writing. Any communication required or permitted to be delivered to a
Certificateholder shall be sent to the address of such Holder as shown in the
Certificate Register.
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.
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.
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.
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Section 11.09. Notices to Rating Agencies.
(a) The Trustee shall use its best efforts promptly to provide notice
to the Rating Agencies with respect to each of the following of which it has
actual knowledge:
(i) any material change or amendment to this Agreement;
(ii) the occurrence of any Event of Default that has not been
cured;
(iii) the resignation or termination of the Servicer or the
Trustee;
(iv) any change in the location of the Distribution Account;
and
(v) the final payment to the Holders of the Certificates of
any Class.
(b) The Servicer shall use its best efforts promptly to provide notice
to the Rating Agencies with respect to each of the following of which it has
actual knowledge:
(i) the purchase of any Mortgage Loan pursuant to this
Agreement;
(ii) the resignation or removal of the Trustee;
(iii) any change in the location of the Collection Account;
(iv) any event that would result in the voluntary or
involuntary termination of any insurance of the accounts of the
Trustee; and
(v) any determination by the Servicer that a Servicing
Advance or P&I Advance constitutes (or would, if made, constitute) a
Nonrecoverable Servicing Advance or a Nonrecoverable P&I Advance, as
the case may be.
(c) The Servicer shall promptly furnish to the Rating Agencies copies
of the following:
(i) each of its annual statements as to compliance described
in Section 3.13;
(ii) each of its annual independent public accountants'
servicing reports described in Section 3.14; and
(iii) such other information that either Rating Agency may
request that is readily available to the Servicer.
(d) The Trustee shall promptly furnish to each Rating Agency a copy of
the statement delivered to Certificateholders pursuant to Section 4.02.
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Section 11.10. Effect of Payments by the FDIC; Subrogation.
Anything herein to the contrary notwithstanding, any payment with
respect to principal of or interest on the Certificates that is made with moneys
received pursuant to the terms of the Limited Guaranty shall not be considered
payment of the Certificates from the Trust Fund and shall not result in the
payment of or the provision for the payment of the principal of or interest on
the Certificates within the meaning of Section 4.01. The Mortgage Loan Seller,
the Servicer and the Trustee acknowledge, and each Holder by its acceptance of a
Certificate agrees, that without the need for any further action on the part of
the FDIC, the Mortgage Loan Seller, the Servicer, the Trustee or the Certificate
Registrar (a) to the extent the FDIC makes payments, directly or indirectly, on
account of principal of or interest on the Certificates to the Holders of such
Certificates, the FDIC will be fully subrogated to the rights of such Holders to
receive such principal and interest from the Trust Fund in respect of the
related Mortgage Loans or REO Properties and (b) the FDIC shall be paid such
principal and interest, but only from the sources and in the manner provided
herein for the payment of such principal and interest.
The Trustee and the Servicer shall cooperate in all respects with any
reasonable written request by the FDIC for action to preserve or enforce the
rights or interests of the FDIC under this Agreement without limiting the rights
or affecting the interests of the Holders as otherwise set forth herein;
provided, however, that no such written request shall cause the Servicer or the
Trustee to incur any unreasonable cost or expense not otherwise provided for in
this Agreement.
Section 11.11. Notices and Reports to the FDIC.
(a) All notices, statements, reports, certificates or opinions
required by this Agreement to be sent to any other party hereto or to the
Certificateholders shall also be sent to the FDIC.
(b) In addition to the items required to be delivered to the FDIC
pursuant to clause (a) above, the Trustee will also submit monthly reports to
the FDIC substantially in the forms set forth in Exhibits G-l, G-2, M and N to
-------
this Agreement.
(c) In addition to the items required to be delivered to the FDIC
pursuant to clause (a) above, the Servicer will also submit monthly reports to
the FDIC substantially in the forms set forth in Exhibits G-3, G-4, G-5, G-6, G-
-------
7, G-8, K, J-1, J-2, J-3 and L to this Agreement.
<PAGE>
-175-
IN WITNESS WHEREOF, the parties hereto have caused their names to be
signed hereto by their respective officers thereunto duly authorized, in each
case as of the day and year first above written.
FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate
capacity and in its capacity as administrator of the
Bank Insurance Fund
By:
------------------------------------
Name:
-------------------------
Title:
-------------------------
FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver of
the Depository Institutions
By:
------------------------------------
Name:
-------------------------
Title:
-------------------------
BANC ONE MANAGEMENT AND CONSULTING CORPORATION,
Servicer
By:
------------------------------------
Name:
-------------------------
Title:
-------------------------
STATE STREET BANK & TRUST COMPANY, Trustee
By:
------------------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE>
Exhibit 4.2
LIMITED GUARANTY AGREEMENT
--------------------------
This LIMITED GUARANTY AGREEMENT, entered into as of December __, 1996, by
and between the Federal Deposit Insurance Corporation, solely in its corporate
capacity, and State Street Bank and Trust Company, not in its individual
capacity but solely as trustee (the "Trustee") of FDIC REMIC Trust 1996-C1 (the
"Trust") created pursuant to a Declaration of Trust, dated November 13, 1996 and
amended and restated pursuant to the Pooling and Servicing Agreement, dated as
of December 1, 1996 (the "Pooling and Servicing Agreement") by and among the
Trustee, Banc One Management and Consulting Corporation (the "Servicer") and the
Federal Deposit Insurance Corporation, in its corporate capacity (in such
capacity, the "FDIC") and in its capacity as administrator of the Bank Insurance
Fund and as receiver of various depository institutions (in such capacities, the
"Mortgage Loan Seller");
W I T N E S S E T H:
WHEREAS, the Mortgage Loan Seller is the owner of adjustable and fixed
rate, amortizing and balloon payment, mortgage loans identified on Schedule 1
and Schedule 2 to the Pooling and Servicing Agreement (the "Mortgage Loans")
secured primarily by liens on fee simple estates in commercial, multifamily and
residential real properties;
WHEREAS, the Mortgage Loan Seller will convey the Mortgage Loans to the
Trust;
WHEREAS, as a condition to such conveyance, and in consideration of, among
other things, the delivery to the FDIC of the Stripped Interest Certificates,
the FDIC is required to deliver to the Trustee on behalf of the
Certificateholders this Agreement;
NOW, THEREFORE, in consideration of the premises and the covenants herein
contained, the parties agree as follows:
<PAGE>
ARTICLE I.
Definitions
-----------
1.01 Definitions. For purposes of this Agreement, the following terms
-----------
shall have the meanings assigned respectively below. All capitalized terms used
but not defined herein are defined in the Pooling and Servicing Agreement.
"Appraisal Reduction" shall mean, in connection with an appraisal referred
-------------------
to in clause (iv) of the definition of Limited Guaranty Draw loan, the excess,
if any, of the Purchase Price for such loan (calculated as if such loan were
purchased by a person other than the FDIC) over the appraised value of the
related Mortgaged Property.
"Available Sub-Pool Coverage Amount" shall mean, with respect to Sub-Pool
----------------------------------
I, the Sub-Pool I Available Coverage Amount, and with respect to Sub-Pool II,
the Sub-Pool II Available Coverage Amount.
"Bank Insurance Fund" shall mean the Bank Insurance Fund established by
-------------------
Congress in 1989 as the successor to the Deposit Insurance Fund pursuant to the
Financial Institutions Reform, Recovery and Enhancement Act of 1989.
"Business Day" shall mean any day other than (i) a Saturday or a Sunday or
------------
(ii) a day on which federally insured depository institutions in the City of New
York, the District of Columbia or the city in which the Corporate Trust Office
is located are authorized or obligated by law, governmental decree or executive
order to be closed.
"Certificates" shall mean the FDIC REMIC Trust 1996-C1, Commercial Mortgage
------------
Pass-Through Certificates, Series 1996-C1 evidencing, in the aggregate, the
entire beneficial ownership interest in the Trust.
-2-
<PAGE>
"Certificateholders" shall mean the holders of the Certificates.
------------------
"Claim Period" shall mean, with respect to any Distribution Date, the
------------
period ending on the related Demand Date and commencing on the day following the
immediately preceding Demand Date or, in the case of the first Distribution
Date, commencing on the Closing Date.
"Credit Draw Amount" shall mean, with respect to any Distribution Date, the
------------------
portion of the Guarantied Amount for such Distribution Date attributable to
Realized Losses and Limited Guaranty Draw loans, together with any interest
payable thereon pursuant to Section 3.01 hereof.
"Demand for Payment" shall mean, with respect to a Credit Draw Amount and
------------------
an Expense Draw Amount, the written demand for payment by the Trustee in the
form attached hereto as Exhibit A.
"Demand Date" shall mean, with respect to any Distribution Date, the fourth
-----------
Business Day preceding such Distribution Date.
"Dollars" or "$" shall mean the lawful money of the United States of
--------------
America.
"Excess Coverage Amount" shall mean, with respect to Sub-Pool I, the Sub-
----------------------
Pool I Excess Coverage Amount, and with respect to Sub-Pool II, the Sub-Pool II
Excess Coverage Amount.
"Expense Draw Amount" shall mean the portion of any Guarantied Amount
-------------------
attributable to Extraordinary Trust Fund Expenses, including without limitation
Inspection Expenses.
"Guarantied Amount" shall have the meaning set forth in Section 2.02.
-----------------
-3-
<PAGE>
"Guaranty" shall mean the FDIC's guarantee of payment of Guarantied Amounts
--------
pursuant to this Agreement.
"Limited Guaranty Account" shall have the meaning specified in Section
------------------------
5.01.
"Limited Guaranty Draw Loan" shall mean any Mortgage Loan (i) that
--------------------------
following the Cut-off Date has become subject to a temporary modification,
waiver or amendment of the terms thereof that results in the reduction of the
Scheduled Payments due thereon; (ii) that becomes a Discounted Mortgage Loan
following the Cut-off Date; (iii) that has become the subject of a Deficient
Valuation or as to which the principal balance thereof has otherwise been
reduced, including as a result of the extension of the Maturity Date of a
Discounted Mortgage Loan, or (iv) as to which, immediately following the date on
which P&I Advances in respect of an aggregate of 18 months of Scheduled Payments
remain unreimbursed, the appraised value of the related Mortgaged Property, as
determined in an appraisal pursuant to Section 3.20(c) of the Pooling and
Servicing Agreement, is less than the Purchase Price for such Mortgage Loan
(calculated as if such loan were purchased by a person other than the FDIC).
"Limited Guaranty Draw Loan Reduction" shall mean a Temporary Reduction, an
------------------------------------
Appraisal Reduction or a Permanent Reduction.
"Permanent Reduction" shall mean, in connection with a permanent reduction
-------------------
of the principal balance of a Mortgage Loan referred to in clause (ii) or (iii)
of the definition of Limited Guaranty Draw Loan, the amount of the reduction of
the principal balance of such loan.
"Prospectus" shall mean the prospectus dated December __, 1996, prepared in
----------
connection with the issuance of the Certificates.
-4-
<PAGE>
"Sub-Pool I Available Coverage Amount" shall mean at any time of
------------------------------------
determination $___________, as reduced by (x) the sum of (i) the aggregate of
all Guarantied Amounts previously paid hereunder in Sub-Pool I and (ii) the
aggregate of all amounts previously paid in respect of Sub-Pool I from Residual
Cash Flow pursuant to Section 1.05(b)(iii), Section 1.05(b)(v), Section
1.05(c)(iii) or Section 1.05(c)(v) of the Pooling and Servicing Agreement (i.e.,
all amounts covered by Residual Cash Flow that otherwise would be required to be
paid under this Limited Guaranty Agreement, other than Inspection Expenses) and
as increased by (y) all amounts paid by the Trustee to the FDIC pursuant to the
Pooling and Servicing Agreement in reimbursement of previously paid Guarantied
Amounts in respect of Sub-Pool I.
"Sub-Pool I Excess Coverage Amount" shall mean at any time of determination
---------------------------------
the excess, if any, of (i) the Sub-Pool II Available Coverage Amount over (ii)
the aggregate of the Class Balances of the Sub-Pool II Certificates.
"Sub-Pool II Available Coverage Amount" shall mean at any time of
-------------------------------------
determination $___________, as reduced by (x) the sum of (i) the aggregate of
all Guarantied Amounts previously paid hereunder in respect of Sub-Pool II and
(ii) the aggregate of all amounts previously paid in respect of Sub-Pool II from
Residual Cash Flow pursuant to Section 1.05(b)(iii), Section 1.05(b)(v), Section
1.05(c)(iii) or Section 1.05(c)(v) of the Pooling and Servicing Agreement (i.e.,
all amounts covered by Residual Cash Flow that otherwise would be required to be
paid under this Limited Guaranty Agreement, other than Inspection Expenses) and
as increased by (y) all amounts paid by the Trustee to the FDIC pursuant to the
Pooling and Servicing Agreement in reimbursement of previously paid Guarantied
Amounts in respect of Sub-Pool II.
-5-
<PAGE>
"Sub-Pool II Excess Coverage Amount" shall mean at any time of
----------------------------------
determination the excess, if any, of (i) the Sub-Pool I Available Coverage
Amount over (ii) the aggregate of the Class Balances of the Sub-Pool I
Certificates.
"Temporary Reduction" shall mean, with respect to any Due Date, in
-------------------
connection with a temporary modification, waiver or amendment of the terms of
any Mortgage Loan referred to in clause (i) of the definition of Limited
Guaranty Draw Loan, the amount of the reduction in the portion of the Scheduled
Payment thereon due on such Due Date attributable to interest.
ARTICLE II.
The Guaranty
------------
2.01 Guaranty. Subject to the terms and conditions hereinafter set forth,
--------
the FDIC hereby guaranties to the Trustee on behalf of the holders of
Certificates evidencing an interest in a particular Sub-Pool payment as provided
in Section 3.02 of the Credit Draw Amount and the Expense Draw Amount for such
Sub-Pool, provided that the Guarantied amount in respect of a particular Sub-
Pool shall not exceed the Available Sub-Pool Coverage Amount plus the Excess
Coverage Amount for such Sub-Pool at the time of determination. The obligations
of the FDIC under this Section 2.01 are absolute and unconditional, (a)
irrespective of (i) the value, genuineness, validity, regularity or
enforceability of the Mortgage Loans or any other agreement or instrument
referred to herein or therein, or (ii) any substitution, release or exchange of
any other guaranty of or security for any of the Mortgage Loans and (b) to the
fullest extent permitted by applicable law, irrespective of any other
circumstance whatsoever that
-6-
<PAGE>
might otherwise constitute a legal or equitable discharge or defense of a surety
or guarantor, it being the intent of this Section 2.01 that the obligation of
the FDIC hereunder be absolute and unconditional under any and all
circumstances.
It is understood and agreed that the assets of the Bank Insurance Fund (the
"BIF") are the sole assets available for payment of the Guarantied Amounts
pursuant to this Agreement and that the obligations of the FDIC hereunder are
not general obligations of the United States backed by its full faith and
credit.
2.02 Coverage of Guaranty. This Guaranty shall extend to the amount of
--------------------
(i) Realized Losses, (ii) Limited Guaranty Draw Loan Reductions and (iii)
Extraordinary Trust Fund Expenses incurred in connection with each Sub-Pool
(collectively, the "Guarantied Amount" with respect to such Sub-Pool).
ARTIClE III.
Payment of the Guarantied Amount
--------------------------------
3.01 Demand on FDIC. The Trustee's demand on the FDIC for payment of the
--------------
Credit Draw Amount and the Expense Draw Amount may be made at any time in
writing substantially in the form attached hereto as Exhibit A. The Trustee
will make a Demand for Payment during a particular Claim Period only after first
applying Residual Cash Flow available pursuant to Section 1.05 of the Pooling
and Servicing Agreement. The Trustee will make a demand for Payment as soon as
reasonably practicable following notice to the Trustee of the occurrence of a
Realized Loss, a Limited Guaranty Draw Loan Reduction or an Extraordinary Trust
Fund Expense. The portion of any Credit Draw Amount in respect of a Realized
Loss or
-7-
<PAGE>
Limited Guaranty Draw Loan Reduction incurred in a particular Due Period that is
not paid on the P&I Advance Date in the month in which such Due Period ends will
include accrued interest at a rate equal to the sum of (x) the Weighted Average
Effective Net Mortgage Rate for the applicable Sub-Pool and the Distribution
Date immediately following the P&I Advance Date on which such amount will be
paid plus (y)_.__%.
3.02 Payment by FDIC. The FDIC will, not later than the P&I Advance Date
---------------
in respect of each Distribution Date, pay to the Trustee the amount set forth in
the Demand for Payment requested during the related Claim Period by the Trustee
pursuant to Section 3.01 hereof; provided, that in each case, the FDIC is
required to pay in respect of a particular Sub-Pool an amount not in excess of
the Available Sub-Pool Coverage Amount and the Excess Coverage Amount for such
Sub-Pool on the date of determination and further provided that (a) the FDIC
may, at any time, upon ten (10) days' notification to the Trustee, deduct from
any amount payable hereunder any amount previously improperly paid and (b) the
FDIC may, at any time, add to any amount payable hereunder in respect of a
Credit Draw Amount relating to a particular Mortgage Loan all or a portion of
the amount of outstanding Advances made with respect to such loan. All such
payments by the FDIC hereunder shall be made as described in Section 5.01.
3.03 Conditions of Guaranty. The FDIC hereby waives diligence,
----------------------
presentment, protest and any requirement that the Trustee or any
Certificateholder exhaust any right or take any action against or give notice to
any mortgagor under the Mortgage Loans or the FDIC, except for the written
demands for payment by the Trustee, on behalf of the Certificateholders, on the
FDIC as required by this Agreement. The FDIC will accept a Demand For Payment
-8-
<PAGE>
from the Servicer upon a determination by the FDIC that the Trustee has failed
to present properly such Demand For Payment in a timely fashion.
ARTICLE IV.
Representations and Warranties of FDIC
--------------------------------------
The FDIC represents and warrants to the Trustee, on behalf of the
Certificateholders, as of the date hereof and as of December __, 1996, that:
4.01 Financial Condition. Since September 30, 1996, there has been no
-------------------
material adverse change in the financial condition of the Bank Insurance Fund.
4.02 No Breach. None of the execution and delivery of this Agreement, the
---------
consummation of the transactions herein contemplated or compliance with the
terms and provisions hereof will conflict with or result in a breach of, or
require any consent under, any applicable law or regulation, or any order, writ,
injunction or decree of any court or governmental authority or agency, or any
agreement or instrument to which the FDIC is a party or by which the FDIC is
bound or to which the FDIC is subject, or constitute a default under any such
agreement or instrument, or result in the creation or imposition of any lien
upon the FDIC's earnings or assets pursuant to the terms of any such agreement
or instrument.
4.03 Action. This Agreement has been duly and validly authorized,
------
executed and delivered by the FDIC and constitutes its legal, valid and binding
obligation, enforceable in accordance with its terms.
4.04 Approvals. No authorizations, approvals or consents of, and no
---------
filings or registrations with, any governmental or regulatory authority or
agency (other than such as have
-9-
<PAGE>
been obtained) are necessary for the execution, delivery or performance by the
FDIC of this Agreement or for the validity or enforceability hereof.
4.05 Borrowing from Treasury. Pursuant to Section 14(a) of the Federal
-----------------------
Deposit Insurance Act, the FDIC is authorized to borrow from the U.S. Treasury,
with the approval of the Secretary of the Treasury, up to an amount that when
aggregated with borrowings outstanding to the Savings Association Insurance Fund
equals $__ billion, in order to meet its obligations under this Guaranty and its
deposit insurance obligations to member institutions.
4.06 Information in Prospectus. The statements in the sections of the
-------------------------
Prospectus entitled "The Federal Deposit Insurance Corporation" and "The Bank
Insurance Fund" are true, correct and complete in all material respects.
ARTICLE V.
Miscellaneous
-------------
5.01 All Payments Made to Trustee. All amounts payable by the FDIC under
----------------------------
this Agreement shall be made to the Trustee on behalf of the Certificateholders
in dollars and in immediately available funds by credit to the segregated trust
account established and held by the Trustee under the Pooling and Servicing
Agreement for the benefit of the Certificateholders (the "Limited Guaranty
Account"). The Limited Guaranty Account shall be designated "State Street Bank
and Trust Company, as Trustee in trust for the registered holders of the FDIC
REMIC Trust 1996-C1 Commercial Mortgage Pass-Through Certificates, Series 1996-
C1". If the Trustee does not elect to establish and maintain a separate Limited
Guaranty Account with
-10-
<PAGE>
respect to each Sub-Pool, the Trustee shall at all times during the term hereof
maintain a separate ledger sub-account of the Limited Guaranty Account for each
Sub-Pool, which ledger sub-account shall accurately reflect each deposit to and
withdrawal from the Limited Guaranty Account that is allocable to such Sub-Pool.
The Trustee shall deposit any amount paid under the Limited Guaranty in the
Limited Guaranty Account and distribute such amount as described in the Pooling
and Servicing Agreement. All payments made by the FDIC to the Trustee under
this Agreement shall be deemed paid as required hereunder notwithstanding any
failure by the Trustee to remit any such amounts to the Certificateholders on
the related Distribution Date.
5.02 Termination. The FDIC's obligations hereunder shall remain in full
-----------
force and effect and shall terminate only upon the termination of the Trust
pursuant to the provisions of the Pooling and Servicing Agreement.
5.03 Governing Law. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE
-------------
UNDER THE LAWS OF THE STATE OF NEW YORK, AND FOR ALL PURPOSES SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH SUCH LAWS, BUT WITHOUT GIVING EFFECT TO THE
CONFLICT OF LAWS PRINCIPLES THEREOF.
5.04 Communications. All communications pursuant to or required by this
--------------
Agreement shall be (a) in writing, (b) addressed to each party at its respective
address set forth in the Pooling and Servicing Agreement and mailed, telecopied
or delivered, and (c) deemed to have been given at such time as said
communications are transmitted by telecopier or, if mailed or personally
delivered, when received by the party to which said communications were
addressed.
-11-
<PAGE>
5.05 Amendments Etc. The terms of this Agreement may be waived, altered
--------------
or amended only by an instrument in writing duly executed by each party hereto.
Any such amendment, alteration or waiver shall be binding upon the parties
hereto and the Certificateholders.
5.06 Captions. The captions and section headings appearing herein are
--------
included solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.
5.07 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument and each party hereto may execute this Agreement by signing any such
counterpart.
5.08 Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES,
--------------------
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
5.09 Severability. If any provision hereof is invalid and unenforceable
------------
in any jurisdiction, then, to the fullest extent permitted by law, (i) the other
provisions hereof shall remain in full force and effect in such jurisdiction and
shall be liberally construed in favor of the Trustee on behalf of the
Certificateholders in order to carry out the intentions of the parties hereto as
nearly as may be possible and (ii) the invalidity or unenforceability of any
provision hereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
FEDERAL DEPOSIT INSURANCE
CORPORATION, in its corporate capacity
By:
-------------------------------------------
Name:
Title:
STATE STREET BANK AND TRUST
COMPANY, as trustee
By:
-------------------------------------------
Name:
Title:
-13-
<PAGE>
EXHIBIT A (1 OF 2)
FORM OF LIMITED GUARANTY
SUMMARY
Date: ____________________
<TABLE>
<CAPTION>
------------------------------------------------------------
Current Month Year-to-Date
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sub Pool I
I. Realized Losses xx,xxx xx,xxx
II. Limited Guaranty Draw Loss Reductions:
Temporary Reduction xx,xxx xx,xxx
Discounted Mortgage Loan xx,xxx xx,xxx
Deficient Valuation xx,xxx xx,xxx
Appraisal Reduction xx,xxx xx,xxx
------ ------
Total Limited Guaranty Draw Loans xx,xxx xx,xxx
III. Extraordinary Trust Fund Expenses xx,xxx xx,xxx
------ ------
Sub Pool 1 Limited Guaranty Claim xx,xxx xx,xxx
Less: Residual Cash Applied to Limited Guaranty Claim xx,xxx xx,xxx
------ ------
SUB POOL 1 LIMITED GUARANTY DRAW xx,xxx xx,xxx
------ ------
- ---------------------------------------------------------------------------------------------------------------------------------
Sub Pool II
I. Realized Losses xx,xxx xx,xxx
II. Limited Guaranty Draw Loans:
Temporary Reduction xx,xxx xx,xxx
Discounted Mortgage Loan xx,xxx xx,xxx
Deficient Valuation xx,xxx xx,xxx
Appraisal Reduction xx,xxx xx,xxx
------ ------
Total Limited Guaranty Draw Loans xx,xxx xx,xxx
III. Extraordinary Trust Fund Expenses xx,xxx xx,xxx
------ ------
Sub Pool II Limited Guaranty Claim xx,xxx xx,xxx
Less: Residual Cash Applied to Limited Guaranty Claim xx,xxx xx,xxx
------ ------
SUB POOL II LIMITED GUARANTY ClAIMS xx,xxx xx,xxx
------ ------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIMITED GUARANTY CLAIM xx,xxx xx,xxx
------ ------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
State Street Bank and Trust Company as Trustee
- ------------------------------------- -----------------------------------
by = Authorized Officer (COMB Approval)
<PAGE>
EXHIBIT A (2 of 2)
FORM OF AVAILABLE LIMITED GUARANTY
AVAILABLE GUARANTY AMOUNT
Date: ____________________
<TABLE>
<CAPTION>
----------------------------------
Sub Pool I Sub Pool II
- --------------------------------------------------------------------------------
<S> <C> <C>
Available Guaranty Amount:
Beginning Available Sub-Pool Coverage Amount
Add: Excess Coverage Amount Received
or
Less: Excessive Coverage Transferred
Subtotal
Less: Cumulative Guaranty Claims to Date
Subtotal
Add: Recoveries from Residual Payments
Recoveries from Loan Recoveries
Current Available Coverage Amount
- -------------------------------------------------------------------------------
</TABLE>
State Street Bank and Trust Company as Trustee
- ------------------------------------ --------------------------------------
by = Authorized Officer (COMB Approval)
<PAGE>
Exhibit 5.1
File Number: 51754.000002
Direct Dial: 804/788-8200
December 11, 1996
FDIC REMIC Trust 1996-C1
c/o State Street Bank and Trust
Company, as Trustee
225 Franklin Street
Boston, Massachusetts 02110
FDIC REMIC Trust 1996-C1
Commercial Mortgage Pass-Through Certificates
Series 1996-C1
Registration Statement on Form S-11
-----------------------------------
Dear Sirs:
We have acted as counsel to FDIC REMIC Trust 1996-C1 (the
"Registrant"), in connection with the registration under the Securities Act of
1933, as amended (the "Act"), of Commercial Mortgage Pass-Through Certificates,
Series 1996-C1 (the "Certificates") and the related preparation and filing of a
Registration Statement on Form S-11 (the "Registration Statement"). The
Certificates are issuable under a pooling and servicing agreement (the "Pooling
and Servicing Agreement"), among the Federal Deposit Insurance Corporation, in
its corporate capacity and in its capacity as receiver of various depository
institutions, as depositor, Banc One Management and Consulting Corporation, as
servicer, and State Street Bank and Trust Company, as trustee. The Pooling and
Servicing Agreement will be substantially in the form filed as an Exhibit to the
Registration Statement.
In connection with rendering this opinion letter, we have examined the
form of the Pooling and Servicing Agreement contained as an Exhibit to the
Registration Statement, the Registration Statement and such records and other
documents as we have deemed necessary and relevant. 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 had the corporate
power and
<PAGE>
FDIC REMIC Trust 1996-C1
December 11, 1996
Page 2
authority to enter into and perform all obligations thereunder and, as to such
parties, we also have assumed the due authorization by all requisite corporate
action, the due execution and delivery and the validity, binding effect and
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 or the federal
laws of the United States of America, 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 when the Pooling
and Servicing Agreement has been duly authorized by all necessary organizational
action and has been duly executed and delivered by the parties thereto, and when
the Certificates have been duly executed and authenticated in accordance with
the provisions of the Pooling and Servicing Agreement, and issued and sold in as
contemplated in the Registration Statement and the prospectus delivered in
connection therewith, the Certificates will be legally and validly issued and
outstanding, fully paid and non-assessable, and the holders of the Certificates
will be entitled to the benefits provided by the Pooling and Servicing Agreement
pursuant to which such Certificates were issued.
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
included in the Registration Statement under the heading "Legal Matters" and
"Certain 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,
/s/ Hunton & Williams
<PAGE>
Exhibit 8.1
File Number: 51754.000002
Direct Dial: 804/788-8200
December 11, 1996
FDIC REMIC Trust 1996-C1
c/o State Street Bank and Trust
Company, as Trustee
225 Franklin Street
Boston, Massachusetts 02110
FDIC REMIC Trust 1996-C1
Commercial Mortgage Pass-Through Certificates
Series 1996-C1
Registration Statement on Form S-11
-----------------------------------
Dear Sirs:
We have acted as counsel to FDIC REMIC Trust 1996-C1 (the
"Registrant"), in connection with the registration under the Securities Act of
1933, as amended (the "Act"), of Commercial Mortgage Pass-Through Certificates,
Series 1996-C1 (the "Certificates") and the related preparation and filing of a
Registration Statement on Form S-11 (the "Registration Statement"). The
Certificates are issuable under a pooling and servicing agreement (the "Pooling
and Servicing Agreement"), among the Federal Deposit Insurance Corporation, in
its corporate capacity and in its capacity as receiver of various depository
institutions, as depositor, Banc One Management and Consulting Corporation, as
servicer, and State Street Bank and Trust Company, as trustee. The Pooling and
Servicing Agreement will be substantially in the form filed as an Exhibit to the
Registration Statement.
In connection with rendering this opinion letter, we have examined the
form of the Pooling and Servicing Agreement contained as an Exhibit to the
Registration Statement, the Registration Statement and such records and other
documents as we have deemed necessary and relevant. 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 had the corporate
power and
<PAGE>
FDIC REMIC Trust 1996-C1
December 11, 1996
Page 2
authority to enter into and perform all obligations thereunder and, as to such
parties, we also have assumed the due authorization by all requisite corporate
action, the due execution and delivery and the validity, binding effect and
enforceability of such documents.
Based on the foregoing, we are of the opinion that the legal
conclusions contained in the Registration Statement under the caption "Certain
Federal Income Tax Consequences," are correct in all material resepects, and the
discussion thereunder does not omit any material provision with respect to the
matters covered. You should be aware that this opinion represents our
conclusions as to the application of existing law to a transaction as described
above. There can be no assurance that contrary positions will not be taken by
the Internal Revenue Service or that the law will not change
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
included in the Registration Statement under the heading "Legal Matters" and
"Certain 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.
No opinion has been sought and none has been given concerning the tax
treatment of the issuance and sale of the Certificates under the laws of any
state.
Very truly yours,
/s/ Hunton & Williams
<PAGE>
FDIC REMIC Trust 1966-C1
December 11, 1996
Page 3
