As filed with the Securities and Exchange Commission on January 24, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------
GREENPOINT MORTGAGE SECURITIES INC.
(Exact name of registrant as specified in its Charter)
Delaware 68-039-7342
(State of Incorporation) (I.R.S. Employer Identification No.)
700 Larkspur Landing Circle
Suite 240
Larkspur, California 94939
(415) 925-5442
(Address, including zip code, and telephone number, including area code,
of principal executive offices)
---------------------
S.A. Ibrahim
GreenPoint Mortgage Securities Inc.
700 Larkspur Landing Circle, Suite 240
Larkspur, California 94939
(415) 461-6790
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
--------------------
With a copy to:
<TABLE>
<CAPTION>
<S> <C> <C>
Phillip R. Pollock, Esq. Michael P. Braun, Esq. Peter S. Humphreys, Esq.
Tobin & Tobin Brown & Wood LLP Dewey Ballantine LLP
500 Sansome St., 8th Floor One World Trade Center 1301 Avenue of the Americas
San Francisco, California 94111 New York, New York 10048 New York, New York 10019
-----------------
</TABLE>
Approximate date of commencement of proposed sale to the public:
From time to time on or after the effective date of the
registration statement, as determined by market conditions.
If the only securities being registered on this form are being
offered pursuant to dividend or interest reinvestment plans, please
check the following box. |_|
If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, other than securities offered only in
connection with dividend or interest reinvestment plans, please check
the following box. |X|
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b), under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for
the same offering. |_|
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. |_|
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box. |_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
========================================================================================================================
AMOUNT PROPOSED PROPOSED AMOUNT OF
TITLE OF EACH CLASS OF TO BE MAXIMUM MAXIMUM REGISTRATION
SECURITIES TO BE REGISTERED(1) REGISTERED OFFERING PRICE AGGREGATE FEE
PER UNIT(2) OFFERING PRICE(1)
========================================================================================================================
<S> <C> <C> <C> <C>
Asset Backed Securities.................... $762,687,624 100% $762,687,624 $212,027.16
========================================================================================================================
</TABLE>
(1) Includes $112,687,624 covered by the prior registration statement.
(2) Estimated for the purpose of calculating the registration fee.
Pursuant to Rule 429 of the Securities and Exchange
Commission's Rules and Regulations under the Securities Act of 1933, as
amended, the Prospectus and Prospectus Supplements contained in this
Registration Statement also relate to the Registrant's registration
statement No. 333-79833, as previously filed by the Registrant on Form
S-3.
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>
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION JANUARY 24, 2000
Prospectus Supplement
(To Prospectus dated _____________, _____)
$___________ (approximate)
HOME EQUITY LOAN TRUST 200_-_
HOME EQUITY LOAN ASSET-BACKED NOTES, SERIES 200_-_
GREENPOINT MORTGAGE SECURITIES INC.
SPONSOR ____________
[LOGO] [GREENPOINT MORTGAGE FUNDING, INC.]
as Seller and Servicer
The notes THE TRUST
represent non-
recourse o will issue a single class of senior notes, which
obligations of the are offered hereby
trust only and do
not represent an o will issue a certificate, representing the
interest in or beneficial ownership in the trust, which is not
obligation of offered hereby
the sponsor, the
master servicer, THE NOTES
the trustee or any
of their affiliates. o are principally secured by the assets of the trust
which consist of a pool of adjustable rate home
This prospectus equity revolving credit line loan agreements
supplement may
be used to offer o currently have no trading market
and sell the notes
only if CREDIT ENHANCEMENT
accompanied by
the prospectus. o The certificates will absorb up to a certain
percentage of all losses on the mortgage loans.
o An irrevocable and unconditional guaranty
insurance policy issued by [________] will
guarantee payments on the notes.
o If _____ defaults, certain payments to the holder
of the certificates will only be paid after
payments due on the notes are made.
REVIEW THE INFORMATION IN "RISK FACTORS" ON PAGE S-6 IN THIS PROSPECTUS
SUPPLEMENT AND ON PAGE 4 IN THE PROSPECTUS.
o For complete information about the notes, read both this prospectus
supplement and the prospectus.
o _________________, the underwriter, will buy the notes from the
sponsor at the price specified below.
PER $1,000 OF
NOTES TOTAL
------------- -----
Price to Public.................................... $ $
Underwriting Discount.............................. $ $
Proceeds, before expenses, to the sponsor.......... $ $
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE NOTES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
[Underwriter]
_________________, 200_
<PAGE>
TABLE OF CONTENTS
Page
----
PROSPECTUS SUPPLEMENT
Summary.....................................................................S-3
Risk Factors................................................................S-8
The Insurer................................................................S-11
The Trust..................................................................S-11
The Seller and Servicer....................................................S-12
GreenPoint Mortgage Funding, Inc.'s Loan Program ..........................S-15
The Sponsor ...............................................................S-16
Description of the Mortgage Loans..........................................S-17
Description of the Notes...................................................S-21
Maturity and Prepayment Considerations.....................................S-32
Description of the Agreements..............................................S-33
Use of Proceeds............................................................S-42
Federal Income Tax Consequences............................................S-42
State Taxes................................................................S-46
ERISA Considerations.......................................................S-47
Legal Investment Considerations............................................S-48
Underwriting...............................................................S-48
Legal Matters..............................................................S-49
[Experts]..................................................................S-49
Ratings....................................................................S-49
Index of Defined Terms.....................................................S-50
PROSPECTUS
Risk Factors..................................................................4
The Trust.....................................................................8
Use of Proceeds..............................................................14
The Sponsor..................................................................14
Loan Program.................................................................14
Description of the Securities................................................17
Credit Enhancement...........................................................32
Yield and Prepayment Consideration...........................................38
The Agreements...............................................................41
Certain Legal Aspects of the Loans...........................................58
Federal Income Tax Consequences..............................................69
State Tax Considerations.....................................................96
ERISA Considerations.........................................................96
Legal Investment............................................................101
Method of Distribution......................................................102
Legal Matters...............................................................103
Financial Information.......................................................103
Available Information.......................................................103
Incorporation of Certain Documents by Reference.............................104
Rating......................................................................104
Index of Defined Terms......................................................106
<PAGE>
SUMMARY
This summary highlights selected information from this document and
does not contain all of the information that you need to consider in making your
investment decision. Please read this entire prospectus supplement and the
accompanying prospectus for additional information about the notes.
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HOME EQUITY LOAN ASSET-BACKED NOTES, SERIES 200_-_
- --------------------------------------------------------------------------------
Initial Note Maturity
Class/Interest Note Rate Balance Date Rating Rating Type
- --------------------------------------------------------------------------------
Notes LIBOR + $_________
____%
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Certificates N.A. N.A.
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The initial note balance is subject to a variance of ___%. Under
certain interest rate scenarios, you may receive less interest than indicated.
We refer you to "Description of the Notes--Payments on the Notes" for more
information regarding the limitations on the payment of interest on the notes.
The certificates are not being offered.
THE SELLER AND SERVICER
o [GreenPoint Mortgage Funding, Inc.].
o [GreenPoint Mortgage Funding, Inc.] maintains its principal office at 1100
Larkspur Landing Circle, Suite 101, Larkspur, California 94939]. Its
telephone number is [(415) 925-5442].
o The servicer will receive a monthly fee from the interest payments on the
mortgage loans equal to ___% per annum on the principal balance of each
mortgage loan.
WE REFER YOU TO "THE SELLER AND SERVICER" IN THIS PROSPECTUS SUPPLEMENT FOR
ADDITIONAL INFORMATION.
THE SPONSOR
o GreenPoint Mortgage Securities Inc.
o GreenPoint Mortgage Securities Inc. maintains its principal office at 700
Larkspur Landing Circle, Suite 240, Larkspur, California 94939. Its
telephone number is (415) 925-5442.
WE REFER YOU TO "THE SPONSOR" IN THE PROSPECTUS FOR ADDITIONAL INFORMATION.
TRUST
o Home Equity Loan Trust, 200_-_.
INDENTURE TRUSTEE
o [--------------------------]
OWNER TRUSTEE
o [--------------------------]
INSURER
o [------------------------]
WE REFER YOU TO "THE INSURER" IN THIS PROSPECTUS SUPPLEMENT FOR ADDITIONAL
INFORMATION.
CUT-OFF DATE
o ______________, 200_.
CLOSING DATE
o ______________, 200_.
PAYMENT DATE
o The __th day of each month, or if such day is not a business day, the next
business day. The first payment date is ____________, 200_.
COLLECTION PERIOD
o The calendar month preceding the month of a payment date.
REGISTRATION OF NOTES
We will issue the notes in book-entry form. You will hold your interests
either through a depository in the United States or through one of two
depositories in Europe. While the notes are book-entry, they will be
registered in the name of the applicable depository, or in the name of the
depository's nominee.
Transfers within any depository system will be made in accordance with the
usual rules and operating procedures of that system. Cross-market transfers
between two different depository systems may be made through a third-party
bank and/or the related depositories. The limited circumstances under which
definitive notes will replace the book-entry notes are described in this
prospectus supplement.
WE REFER YOU TO "RISK FACTORS-- CONSEQUENCES ON OWNING BOOK-ENTRY NOTES"
AND "DESCRIPTION OF THE SECURITIES" IN THE PROSPECTUS FOR ADDITIONAL
INFORMATION.
ASSETS OF THE TRUST
The trust assets include:
o a pool of adjustable rate home equity revolving credit line loan
agreements, which we call "mortgage loans", secured by either first or
junior deeds of trust or mortgages on one- to four-family residential
properties;
o payments of interest due on the mortgage loans on and after the cut-off
date and principal payments received on the mortgage loans on and after
the cut-off date;
o property that secured a mortgage loan which has been acquired by
foreclosure or deed in lieu of foreclosure; and
o rights under certain hazard insurance policies covering the mortgaged
properties.
During the life of the trust, all new advances made to mortgagors under the
mortgage loans will become assets of the trust. Due to such advances and
any principal payments on the mortgage loans, the pool balance will
generally fluctuate and differ from day to day.
THE MORTGAGE LOANS
1. Mortgage Loan Statistics
On the closing date, the mortgage loans will have the following characteristics:
o number of mortgage loans: _____
o aggregate principal balance: $__________
o number of mortgage loans: _____
o mortgaged property locations: ___ states
o average credit limit: $_____
o credit limit range: $____ to $____
o interest rate range: _____% to ______%
o weighted average interest rate: _____%
o loan age range: ____ to ____months
o weighted average loan age: __ months
o credit limit utilization rate range: ___ to ___
o weighted average credit limit utilization rate: ___
o gross margin range: ___ to ___
o weighted average gross margin: __
o combined loan-to-value ratio range, of ____% to _____% (approximate)
o weighted average combined loan-to-value ratio ____% (approximate)
o all of the mortgage loans bear interest at an adjustable rate based on
[_________].
o balloon loans: ____% (approximate).
2. Payment Terms of Mortgage Loans
o Each borrower may borrow up to the maximum amount of that borrower's
line of credit. If borrowed amounts are repaid, they can again be
borrowed.
o INTEREST - Interest is payable monthly on the outstanding principal
balance of each mortgage loan for each day in the billing cycle.
PRINCIPAL - The mortgage loans have a [ ] year draw period during which
time amounts may be borrowed, followed by a ten year repayment period
during which the borrower must repay the outstanding principal of the
loan.
WE REFER YOU TO "DESCRIPTION OF THE MORTGAGE LOANS" IN THIS PROSPECTUS
SUPPLEMENT FOR ADDITIONAL INFORMATION.
THE NOTES
1. GENERAL
o The notes will be secured by the assets of the trust.
o Each month, the indenture trustee will calculate the amount you are
owed.
o If you hold a note on the day immediately preceding the related
payment date, you will be entitled to receive payments on that payment
date.
2. INTEREST PAYMENTS: Interest on the notes accrues during the period
beginning on the prior payment date (or in the case of the first payment
date, beginning on the closing date) and ending on the day before the
applicable payment date. The indenture trustee will calculate interest
based on the actual number of days in the interest accrual period and a
year assumed to consist of 360 days. On each payment date, you will be
entitled to the following amounts from your portion of interest collections
on the mortgage loans:
o interest at the related note rate that accrued during the interest
accrual period on your invested amount; and
o any interest that was due on a prior payment date and not paid. In
addition, interest will have accrued on the amount of interest which
was previously due and not paid.
3. PRINCIPAL PAYMENTS: From the first payment date and ending on the payment
date in __________ and if certain events causing an acceleration of payment
of principal do not occur, you will be entitled to either (a) or (b),
whichever is the lesser amount:
(a) ___% of the principal collected during the prior due period; or
(b) the amount of principal collected during the prior due period minus
advances made to the borrowers during that due period.
On the payment date following ___________, or if certain events causing an
acceleration of principal occur, you will be entitled to receive the amount
described in (a) above.
WE REFER YOU TO "DESCRIPTION OF THE NOTES--PAYMENTS ON THE NOTES" IN THIS
PROSPECTUS SUPPLEMENT FOR ADDITIONAL INFORMATION.
CREDIT ENHANCEMENT
1. THE INSURANCE POLICY: [_______________] will issue an insurance policy
which unconditionally guarantees the payment of:
o accrued and unpaid interest due on the notes;
o principal losses on the mortgage loans; and
o any principal amounts owed to noteholders on the maturity date.
WE REFER YOU TO "DESCRIPTION OF THE NOTES--THE POLICY" IN THIS PROSPECTUS
SUPPLEMENT FOR ADDITIONAL INFORMATION.
2. LIMITED SUBORDINATION OF CERTIFICATES: Prior to a draw on the policy,
losses on the mortgage loans will be allocable to the certificates. up
to certain levels. In addition, if the insurer defaults, certain
payments to the holder of the certificates will be made after payments
to the notes.
WE REFER YOU TO "DESCRIPTION OF THE NOTES" IN THIS PROSPECTUS SUPPLEMENT
FOR ADDITIONAL INFORMATION.
OPTIONAL TERMINATION
The mortgage loans will be subject to an optional transfer to the sponsor
on any payment date after:
o the principal balance of the notes is reduced to any amount less than or
equal to _% of the original principal balance of the notes; and
o all amounts due and owing to the insurer and unreimbursed draws on the
insurance policy, with interest thereon have been paid.
WE REFER YOU TO "DESCRIPTION OF THE AGREEMENTS--TERMINATION; RETIREMENT OF
THE NOTES" IN THIS PROSPECTUS SUPPLEMENT FOR ADDITIONAL INFORMATION.
FEDERAL TAX CONSIDERATIONS
For federal income tax purposes:
o Tax counsel is of the opinion that the notes will be treated as debt
instruments.
o You must agree to treat your note as indebtedness for federal, state
and local income and franchise tax purposes.
WE REFER YOU TO "FEDERAL INCOME TAX CONSEQUENCES" IN THIS
PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAX CONSEQUENCES" IN THE
PROSPECTUS FOR ADDITIONAL INFORMATION.
ERISA CONSIDERATIONS
The fiduciary responsibility provisions of ERISA and prohibited transaction
provisions of ERISA and the Internal Revenue Code can limit investments by
certain pension and other benefit plans. Provided the requirements of these
provisions are satisfied, pension and other benefit plans should be able to
purchase investments like the notes so long as they are treated as debt
under applicable state law and have no "substantial equity features." Any
plan fiduciary considering whether to purchase the notes on behalf of a plan
should consult with its counsel regarding the applicability of the
provisions of ERISA and the Internal Revenue Code.
WE REFER YOU TO "ERISA CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS FOR ADDITIONAL INFORMATION.
LEGAL INVESTMENT CONSIDERATIONS
The notes are not eligible under the Secondary Mortgage Market Enhancement
Act of 1984, and consequently some institutions will be unable to invest in
the notes.
WE REFER YOU TO "LEGAL INVESTMENT CONSIDERATIONS" IN THIS PROSPECTUS
SUPPLEMENT AND "LEGAL INVESTMENT" IN THE PROSPECTUS FOR ADDITIONAL
INFORMATION.
NOTE RATING
o The trust will not issue the notes unless they receive the ratings
specified in the table on page S-4. A rating is not a recommendation to
buy, sell or hold securities and may be subject to revision or
withdrawal by the rating agencies.
WE REFER YOU TO "RATINGS" AND "RISK FACTORS--NOTE RATING BASED PRIMARILY ON
CLAIMS-PAYING ABILITY OF THE INSURER" IN THIS PROSPECTUS SUPPLEMENT FOR
ADDITIONAL INFORMATION.
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS PRIOR TO ANY
PURCHASE OF NOTES. YOU SHOULD ALSO CAREFULLY CONSIDER THE INFORMATION SET FORTH
UNDER "RISK FACTORS" IN THE PROSPECTUS.
BALLOON LOANS INCREASE RISK OF LOSS
Balloon loans pose a risk because a borrower must pay a large lump sum
payment of principal at the end of the loan term. If the borrower is unable to
pay the lump sum or refinance such amount, you will suffer a loss if the insurer
fails to perform its obligations under the policy and the other forms of credit
enhancement are insufficient to cover the loss. Approximately ___% of the
mortgage loans are balloon loans.
PREPAYMENTS AFFECT TIMING AND RATE OF RETURN ON YOUR INVESTMENT
The yield to maturity on your notes will be directly related to the rate of
principal payments on the mortgage loans. Please consider the following:
o Mortgagors may fully or partially prepay their mortgage loan at any time.
However, some mortgage loans require that the mortgagor pay a fee with any
prepayments in full within five years of origination, except that generally
no fee is required for any prepayment in full made within twelve months of
a loan's maturity date. This may result in the rate of prepayments being
slower than would otherwise be the case.
o During the initial draw period, the borrower is only required to make
payments of interest. In addition, during the draw period borrowers may
take out additional loans. As a result, the amount the trust receives in
any month (and in turn, the amount of principal paid to you) may change
significantly.
o All the mortgage loans contain due-on-sale provisions. Due-on-sale
provisions require the mortgagor to fully pay the mortgage loan when the
mortgaged property is sold. Generally, the servicer will enforce the
due-on-sale provision unless prohibited by applicable law.
o Home equity loans generally are not viewed by borrowers as permanent
financing. Accordingly, the mortgage loans may experience a higher rate of
prepayment than purchase money first lien mortgage loans.
WE REFER YOU TO "RISK FACTORS - PREPAYMENTS ARE UNPREDICTABLE AND AFFECT
YIELD" IN THE PROSPECTUS.
NOTE RATING BASED PRIMARILY ON CLAIMS-PAYING ABILITY OF THE INSURER
The rating on the notes depends primarily on an assessment by the rating
agencies of the mortgage loans and upon the claims-paying ability of the
insurer. Any reduction of the rating assigned to the claims-paying ability of
the insurer may cause a corresponding reduction on the ratings assigned to the
notes. A reduction in the rating assigned to the notes will reduce the market
value of the notes and may affect your ability to sell them. In general, the
rating on your notes addresses credit risk and does not address the likelihood
of prepayments.
WE REFER YOU TO "RATINGS" IN THIS PROSPECTUS SUPPLEMENT.
INTEREST PAYMENTS ON THE MORTGAGE LOANS MAY BE REDUCED
o PREPAYMENTS OF PRINCIPAL MAY REDUCE INTEREST PAYMENTS. If a mortgagor
prepays a mortgage loan in full, the mortgagor is charged interest only up
to the date of the prepayment, instead of a full month. The servicer is
obligated to reduce its servicing fee in the month of such prepayment so
that one month's interest is paid with such prepayment in full. If the
servicing fee is insufficient to pay such interest shortfalls attributed to
prepayments, a shortfall in interest due on the notes may result. The
insurer is required to cover this shortfall. If the insurer fails to
perform its obligations under the policy, you may incur a loss.
o CERTAIN INTEREST SHORTFALLS ARE NOT COVERED BY THE SERVICER OR THE
INSURANCE POLICY. The Soldiers' and Sailors' Civil Relief Act of 1940
permits certain modifications to the payment terms for mortgage loans,
including a reduction in the amount of interest paid by the borrower, under
certain circumstances. Neither the servicer nor the insurer will pay for
any interest shortfalls created by the Soldiers' and Sailors' Civil Relief
Act of 1940.
SERVICER'S ABILITY TO CHANGE THE TERMS OF THE MORTGAGE LOANS
Subject to certain limitations, the servicer may agree to changes in the
terms of a mortgage loan, if such changes are consistent with accepted servicing
practices. The servicer may also change its servicing procedures. These changes
could result in delays or reductions in payments on the mortgage loans, and
correspondingly, on the notes.
WE REFER YOU TO "DESCRIPTION OF THE NOTES--AMENDMENTS TO CREDIT LINE
AGREEMENTS" IN THIS PROSPECTUS SUPPLEMENT.
RISK OF LOSSES AS A RESULT OF GEOGRAPHIC CONCENTRATION
The mortgaged properties are located in __ states. However, __% of the
mortgaged properties (by principal balance as of the cut-off date) are located
in ______. If ____________ experiences weaker economic conditions or greater
rates of decline in real estate values than the United States generally, then
the pool of mortgage loans may experience higher rates of delinquencies,
defaults and foreclosures than if the pool were more diversified.
NOTEHOLDERS COULD BE ADVERSELY AFFECTED IN THE ABSENCE OF YEAR 2000 COMPLIANCE
Some computer programs use two digits to define the applicable year. In
performing date calculations, a two-digit program could recognize a date ending
in "00" as the year 1900, rather than the year 2000. This could result in a
failure to properly calculate dates after December 31, 1999, including dates
such as February 29, 2000, and this could also cause the computer running the
program to stop operating properly.
If the servicer, any subservicer or any of their suppliers, customers or
agents do not timely implement effective procedures to deal with computer
programs that rely on two-digit year calculations, the servicer's performance of
its obligations under the sale and servicing agreement could be adversely
affected. This could result in delays in processing payments on the mortgage
loans, which could cause a delay in distributions to you.
RISK OF INCREASED DELINQUENCY, DEFAULT AND FORECLOSURE EXPERIENCE DUE TO LESS
STRINGENT UNDERWRITING STANDARDS
The seller's underwriting standards are generally less stringent than those
of Fannie Mae or the Freddie Mac with respect to credit history and certain
other items. If a borrower has a poor credit history, the seller may still make
a loan to the borrower. This approach to underwriting may result in higher rates
of delinquencies, defaults and foreclosures than for mortgage loans underwritten
in a more traditional manner.
<PAGE>
THE INSURER
The information set forth in this section has been provided by [________],
the insurer. No representation is made by the underwriters, the sponsor, the
seller, the servicer or any of their affiliates as to the accuracy of
completeness of any such information.
[DESCRIPTION OF INSURER]
THE TRUST
GENERAL
Home Equity Loan Trust 200_-_ (the "trust") is a business trust formed under
the laws of the State of Delaware pursuant to a trust agreement for the
transactions described in this prospectus supplement. After its formation, the
trust will not engage in any activity other than:
o acquiring, holding and managing the mortgage loans and the other assets
of the trust and proceeds therefrom,
o issuing the notes and the certificates,
o making payments on the notes and the certificates and
o engaging in other activities that are necessary, suitable or convenient
to accomplish the foregoing or are incidental thereto or in connection
therewith.
The notes and the certificates will be delivered by the trust to the sponsor
as consideration for the mortgage loans pursuant to a sale and servicing
agreement.
On the Closing Date, the trust will purchase mortgage loans having an
aggregate principal balance of approximately $___________ as of [date] (the
"Cut-Off Date") from the sponsor pursuant to the sale and servicing agreement.
The assets of the trust will consist primarily of the mortgage loans, which
will be secured by first- or junior-lien mortgages on the mortgaged properties.
See "Description of the Mortgage Loans" herein. The assets of the trust will
also include (1) payments in respect on the mortgage loans received on or after
the Cut-Off Date (exclusive of (1) certain payments in respect of interest
accrued on the mortgage loans during ______ and (2) payments in respect of
interest on the delinquent mortgage loans due prior to the Cut-Off Date and
received thereafter), (2) amounts on deposit in the Collection Account and
Distribution Account and (3) certain other ancillary or incidental funds, rights
and properties related to the foregoing.
The trust will include the unpaid principal balance of each mortgage loan as
of the opening of business on the Cut-Off Date. With respect to any date, the
"pool balance" will be equal to the aggregate principal balances of all mortgage
loans as of such date.
The assets of the trust will be pledged to the indenture trustee as security
for the notes pursuant to an indenture between the trust and the indenture
trustee.
The servicer is obligated to service the mortgage loans pursuant to the sale
and servicing agreement (collectively with the indenture and the trust
agreement, the "Agreements") and will be compensated for such services as
described under "Description of the Agreements--Servicing Compensation and
Payment of Expenses" herein.
The trust's principal offices are located in __________________, in care of
[____________________], as owner trustee, at the address set forth below.
THE OWNER TRUSTEE
[__________________] will act as the owner trustee under the trust
agreement. [_________________] is a ____________________________ banking
corporation and its principal offices are located at [_________________________
________________________________].
THE SELLER AND SERVICER
[DESCRIPTION OF GREENPOINT MORTGAGE FUNDING, INC.]
[GENERAL
GreenPoint Mortgage Funding, Inc., the seller and servicer, is engaged in
the mortgage banking business, which consists of the origination, acquisition,
sale and servicing of residential mortgage loans secured primarily by one to
four-unit family residences, and the purchase and sale of mortgage servicing
rights. The seller originates loans through a nationwide network of production
branches. Loans are originated primarily through the seller's wholesale
division, through a network of independent mortgage loan brokers approved by the
seller, and also through its retail lending division and correspondent lending
division. The mortgage loans were acquired by the seller in one of the three
following manners: (1) originated by an independent broker and purchased by the
seller, (ii) originated by a broker and funded by the seller, or (iii)
originated and funded by the seller in the ordinary course of business.
The seller is a wholly-owned subsidiary of GreenPoint Financial Corp., a
national specialty housing finance company. GreenPoint Financial Corp. is listed
on the New York Stock Exchange under the symbol "GPT."
The seller's present business operations were formed through the transfer to
the seller effective October 1, 1999 of the assets and liabilities of Headlands
Mortgage Company. Simultaneously with this transfer, GreenPoint Mortgage Corp.,
a subsidiary of GreenPoint Financial Corp. specializing in non-conforming, no
documentation loans, was merged into the seller. All of the mortgage operations
of GreenPoint Financial Corp. are now conducted through the seller.
The seller's executive offices are located at 1100 Larkspur Landing Circle,
Suite 101, Larkspur, California 94939.
DELINQUENCY AND CHARGE-OFF EXPERIENCE
GreenPoint Mortgage Funding, Inc., the servicer, will service the mortgage
loans pursuant to the sale and servicing agreement. All of the mortgage loans
are currently serviced by the servicer substantially in accordance with the
procedures described below and in the accompanying prospectus. The seller has
originated home equity mortgage loans since ___________________________.
In connection with the consolidation of GreenPoint Financial Corp.'s
mortgage operations in the seller as described above, the servicing operations
formerly maintained by Headlands Mortgage Company at its servicing center in
Santa Rosa, California are being transferred to the servicing center formerly
maintained by GreenPoint Mortgage Corp. in Columbus, Georgia. The servicer
expects this transfer to be completed during the first quarter of 2000, at which
time all of the servicer's servicing operations will be located in Columbus. The
servicer will continue to use the servicing procedures described herein and in
the accompanying prospectus to service the mortgage loans; however the personnel
who service the mortgage loans at the Columbus facility will principally be
former GreenPoint Mortgage Corp. employees rather than former Headlands Mortgage
Company employees. Until the transfer is complete, a portion of the mortgage
loans will continue to be serviced at the Santa Rosa facility.
Mortgage loan servicing includes:
o collecting payments from borrowers and remitting those funds to
investors,
o accounting for mortgage loan principal and interest,
o reporting to investors,
o holding custodial funds for payment of mortgage and mortgage related
expenses such as taxes and insurance,
o advancing funds to cover delinquent payments,
o inspecting foreclosures and property disposition in the event of
unremedied defaults, and
o otherwise administering the mortgages.
The following tables contain servicing portfolio information with respect to
dates and periods prior to the consolidation of GreenPoint Financial Corp.'s
mortgage operations in the seller on October 1, 1999. The first table below
summarizes the delinquency, foreclosure and loss experience on Headlands
Mortgage Company's HELOC mortgage loan and closed end mortgage loan servicing
portfolio. This portfolio consists of second-lien and home equity lines of
credit mortgage loans originated or acquired by Headlands Mortgage Company and
included in a securitization transaction (either pursuant to the sponsor's
securitization program or one sponsored by a third-party conduit). The second
table below summarizes the available delinquency, foreclosure and loss
experience of GreenPoint Mortgage Corp. with respect to second-lien and home
equity lines of credit mortgage loans originated or acquired by GreenPoint
Mortgage Corp. GreenPoint Mortgage Corp. did not originate second-lien or home
equity lines of credit mortgage loans using underwriting standards comparable to
those used by Headlands Mortgage Company and which were used to originate the
mortgage loans. GreenPoint Mortgage Corp. only had limited experience in
servicing second-lien or home equity loans.
<TABLE>
<CAPTION>
HEADLANDS MORTGAGE COMPANY
HELOC AND SECOND LIEN MORTGAGE PORTFOLIO
DELINQUENCY AND FORECLOSURE EXPERIENCE
---------------------------------------------------------------------------------------------
December 31, ___ December 31, ___ December 31, ___ __________, ___
--------------------- --------------------- --------------------- ---------------------
Percent of Percent of Percent of Percent of
Number Servicing Number Servicing Number Servicing Number Servicing
of Loans Portfolio of Loans Portfolio of Loans Portfolio of Loans Portfolio
-------- ---------- -------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Number
======== ========== ======== ========== ======== ========== ======== ==========
Period of
Delinquency
Total
Delinquencies
(excluding
foreclosures)
======== ========== ======== ========== ======== ========== ======== ==========
Foreclosures
Pending
======== ========== ======== ========== ======== ========== ======== ==========
Losses sustained
===================== ===================== ===================== =====================
</TABLE>
<TABLE>
<CAPTION>
GREENPOINT MORTGAGE CORP.
HELOC AND SECOND LIEN MORTGAGE PORTFOLIO
DELINQUENCY, FORECLOSURE AND LOSS EXPERIENCE
------------------------------------------------------------------------
December 31, ___ December 31, ___ __________, ___
---------------------- ---------------------- ----------------------
Percent of Percent of Percent of
Number of Servicing Number of Servicing Number of Servicing
Loans Portfolio Loans Portfolio Loans Portfolio
--------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total Number
========= ========== ========= ========== ========= ==========
Period of Delinquency
Total Delinquencies
(excluding foreclosures)
========= ========== ========= ========== ========= ==========
Foreclosures Pending
========= ========== ========= ========== ========= ==========
Losses sustained
====================== ====================== ======================
</TABLE>
<PAGE>
GREENPOINT MORTGAGE FUNDING, INC.'S LOAN PROGRAM
The mortgage loans will have been purchased by GreenPoint Mortgage
Funding, Inc., either directly or through affiliates, from mortgage loan brokers
or originated by its retail division. The mortgage loans have been originated in
accordance with the underwriting criteria specified below under "--Underwriting
Standards."
UNDERWRITING STANDARDS
The seller believes that the mortgage loans originated were
underwritten in accordance with standards consistent with those utilized by
mortgage lenders generally during the period of origination.
Underwriting standards are applied by or on behalf of a lender to
evaluate the borrower's credit standing and repayment ability, and the value and
adequacy of the mortgaged property as collateral. In general, a prospective
borrower applying for a mortgage loan is required to fill out a detailed
application designed to provide to the underwriting officer pertinent credit
information. As part of the description of the borrower's financial condition,
the borrower generally is required to provide a current list of assets and
liabilities and a statement of income and expenses, as well as an authorization
to acquire a credit report which summarizes the borrower's credit history with
local merchants and lenders and any record of bankruptcy or other public
records. In most cases, an employment verification is obtained from an
independent source (typically the borrower's employer) which verification
reports the length of employment with that organization, the current salary and
whether it is expected that the borrower will continue such employment in the
future. If a prospective borrower is self-employed, the borrower may be required
to submit copies of signed tax returns. The borrower may also be required to
authorize verification of deposits at financial institutions where the borrower
has demand or savings accounts.
In determining the adequacy of the mortgaged property as collateral, an
appraisal is made of each property considered for financing. The appraiser is
required to inspect the property and verify that it is in good condition and
that construction, if new, has been completed. For single family loans, the
appraisal is based on the market value of comparable homes, the estimated rental
income, if considered applicable by the appraiser, and the cost of replacing the
home. For loans on a two-to-four unit property, the appraisal must specify
whether an income analysis, a market analysis or a cost analysis was used. The
income analysis evaluates a two-to-four unit project's cash flow, expenses,
capitalization and other operational information in determining the property's
value. The market analysis to evaluate the prices paid for the purchase of
similar properties in the two-to-four unit project's area, with adjustments made
for variations between these properties and the multifamily project being
appraised. In the cost analysis, in the appraiser makes an estimate of land
value and then determines the current cost of reproducing the building, less any
accrued depreciation. In any case, the value of the property being financed, as
indicated by the appraisal, must currently support and should support in the
future, the outstanding loan balance. For property values to $650,000 appraisers
may use either a full appraisal (FNMA 1004/FHLMC 70) or a drive-by appraisal
(FHLMC 704); for values between $650,001 to $1,000,000 with a combined
loan-to-value of less than 75%, a full appraisal is required; for values between
$650,001 to $1,000,000 with a combined loan-to-value of greater than 75%, a full
appraisal and one field review ordered by the lender is required; and for loans
with values greater than $1,000,000 with a combined loan-to-value greater than
65%, two full appraisals are required. The seller may order discretionary
reviews at any time to ensure the value of the properties.
In the case of single family loans, once all applicable employment,
credit and property information is received, a determination generally is made
as to whether the prospective borrower has sufficient monthly income available
(a) to meet the borrower's monthly obligations on the proposed mortgage loan,
which is determined on the basis of the monthly payments due in the year of
origination, and other expenses related to the mortgaged property, such as
property taxes and hazard insurance and (b) to meet monthly housing expenses,
other financial obligations and monthly living expenses. The underwriting
standards applied by the seller may be varied in appropriate cases where factors
such as low loan-to-value ratios or other favorable credit exist. However,
maximum combined loan-to-value ratios and maximum loan amounts are limited by
credit score and total debt-to-income ratios.
The seller requires title insurance for all mortgage loans. Fire and
extended hazard insurance and flood insurance, when applicable, are also
required.
A lender may originate mortgage loans under a reduced documentation
program. A reduced documentation program is designed to streamline the loan
approval process and thereby improve the lender's competitive position among
other loan originators. Under a reduced documentation program, more emphasis is
placed on credit score and property underwriting than on certain credit
underwriting documentation concerning income. Further, employment verification
is waived.
For mortgage loans secured by a leasehold interest in a real property,
the company will represent and warrant, among other things, that the remaining
term of the lease and any sublease is at least five years longer than the
remaining term of the mortgage loan.
THE SPONSOR
The sponsor is a company incorporated in Delaware on November 18, 1996.
The sponsor is a special purpose corporation organized for limited purposes,
with limited assets and a limited operating history. The sponsor was named
Headlands Mortgage Securities Inc. prior to a name change effective on December
7, 1999. The sponsor is a wholly owned subsidiary of GreenPoint Mortgage
Funding, Inc. and maintains its principal office at 700 Larkspur Landing Circle,
Suite 240, Larkspur, California 94939. Its telephone number is (415) 925-5442.
DESCRIPTION OF THE MORTGAGE LOANS
GENERAL
All statistical information concerning the mortgage loans is based upon all
of the mortgage loans included in the trust. All weighted averages described
below are weighted on the basis of the pool balance as of the Cut-Off Date
unless otherwise indicated.
The combined loan-to-value ratio, or "CLTV", of each mortgage loan is the
ratio, expressed as a percentage, of (a) the sum of (1) the greater of the
credit limit and the current balance as of the Cut-Off Date and (2) the
principal balance of any senior mortgage loan as of the origination of such
mortgage loan, over (b) the value (based on an appraised value or other
acceptable valuation method) for the related mortgaged property determined in
the origination of such mortgage loan. The average "Credit Limit Utilization
Rate" for the mortgage loans as of the Cut-Off Date is determined by dividing
the sum of the Cut-Off Date principal balances of the mortgage loans by the sum
of the credit limits of the mortgage loans.
MORTGAGE LOAN TERMS
The mortgage loans were originated pursuant to loan agreements (the "Credit
Line Agreements"). Under the Credit Line Agreements, the borrowers may receive
advances (an "Additional Balance" or a "Draw") at any time during a specified
period (the "Draw Period"). The minimum amount of any Draw that a borrower may
receive is $100. The maximum amount of each Draw with respect to any mortgage
loan is equal to the excess, if any, of the Credit Limit over the principal
balance outstanding under such Credit Line Agreement at the time of such Draw.
Approximately ___% of the mortgage loans have original terms of 20 years,
consisting of a Draw Period of 10 years and an amortization period of 10 years.
During the amortization period, the borrower is obligated to make monthly
payments equal to the sum of 1/120 of the unpaid balance of the mortgage loan at
the end of the Draw Period plus accrued finance charges. The loan rate for each
mortgage loan adjusts monthly. Minimal monthly principal payments may be
required to be made by the borrowers during the Draw Period, but such payments
will not be sufficient to fully amortize the mortgage loan.
The borrower's right to make a Draw under a mortgage loan may be suspended,
or the credit limit may be reduced under a number of circumstances, including,
but not limited to:
o a material adverse change in the borrower's financial circumstances
o a significant decline in the appraised value of the mortgaged property
o or a default by the borrower of any material obligation under the Credit
Line Agreement.
Generally, such suspension or reduction will not affect the payment terms
for previously drawn balances. In the event of default under a mortgage loan,
the right of the borrower to make a Draw may be terminated and the entire
outstanding principal balance of such mortgage loan may be declared immediately
due and payable. A "default" includes, but is not limited to, the borrower's
failure to make any payment as required, any action or inaction by the borrower
that adversely affects the mortgaged property or the rights in the mortgaged
property or any fraud or material misrepresentation by the borrower in
connection with the mortgage loan. The credit limit may also be increased, upon
completion of satisfactory underwriting review, as described below.
Interest accrues on each mortgage loan, payable monthly, on the related
average daily outstanding principal balance for each month at the related loan
rate. The loan rate for each month is adjusted quarterly and is equal to the
Index on the last day of the most recently ended March, June, September or
December plus a fixed percentage amount (the "gross margin") specified in the
related Credit Line Agreement, computed on the basis of a 365 day year times
actual days elapsed.
The "due date" for payments under each mortgage loan is the [ ]th day of
each month.
The interest accrued each month is calculated based on [_________________]
(the "Index") on the related adjustment date. Substantially all of the mortgage
loans are subject to a maximum loan rate of at least __% per annum. The mortgage
loans have a minimum loan rate equal to the greater of zero and the gross
margin. [No mortgage loan is subject to a periodic rate cap.]
Payments made by or on behalf of the borrower for each mortgage loan are
generally required to be applied, first, to any unpaid interest and second, to
the principal.
MORTGAGE LOAN POOL STATISTICS
The servicer has computed the following additional information as of the
Cut-Off Date.
<PAGE>
COMBINED LOAN-TO-VALUE RATIOS
Cut-Off Date Percent of
Number of Principal Cut-Off Date
Combined Loan-to-Value Ratios Mortgage Loans Balance Pool Balance
- ----------------------------- -------------- ------------ ------------
LIEN PRIORITY
Cut-Off Date Percent of
Number of Principal Cut-Off Date
Lien Priority Mortgage Loans Balance Pool Balance
- ------------- -------------- ------------ ------------
PROPERTY TYPE
Cut-Off Date Percent of
Number of Principal Cut-Off Date
Property Type Mortgage Loans Balance Pool Balance
- ------------- -------------- ------------ ------------
OWNER OCCUPANCY STATUS
Cut-Off Date Percent of
Number of Principal Cut-Off Date
Owner Occupancy Status Mortgage Loans Balance Pool Balance
- ---------------------- -------------- ------------ ------------
GEOGRAPHIC DISTRIBUTION
Cut-Off Date Percent of
Number of Principal Cut-Off Date
Owner Occupancy Status Mortgage Loans Balance Pool Balance
- ---------------------- -------------- ------------ ------------
PRINCIPAL BALANCES
Cut-Off Date Percent of
Number of Principal Cut-Off Date
Principal Balances Mortgage Loans Balance Pool Balance
- ------------------ -------------- ------------ ------------
<PAGE>
CREDIT LIMITS
Cut-Off Date Percent of
Number of Principal Cut-Off Date
Credit Limits Mortgage Loans Balance Pool Balance
- ------------- -------------- ------------ ------------
CREDIT LIMIT UTILIZATION RATES
Cut-Off Date Percent of
Number of Principal Cut-Off Date
Credit Limit Utilization Rates Mortgage Loans Balance Pool Balance
- ------------------------------ -------------- ------------ ------------
LOAN AGE
Cut-Off Date Percent of
Number of Principal Cut-Off Date
Loan Age Mortgage Loans Balance Pool Balance
- -------- -------------- ------------ ------------
LOAN RATES AS OF THE CUT-OFF DATE
Cut-Off Date Percent of
Number of Principal Cut-Off Date
Loan Rates Mortgage Loans Balance Pool Balance
- ---------- -------------- ------------ ------------
GROSS MARGIN
Cut-Off Date Percent of
Number of Principal Cut-Off Date
Gross Margin Mortgage Loans Balance Pool Balance
- ------------ -------------- ------------ ------------
MAXIMUM RATES FOR MORTGAGE LOANS
Cut-Off Date Percent of
Number of Principal Cut-Off Date
Maximum Rates Mortgage Loans Balance Pool Balance
- ------------- -------------- ------------ ------------
<PAGE>
ORIGINATION YEAR
Cut-Off Date Percent of
Number of Principal Cut-Off Date
Origination Year Mortgage Loans Balance Pool Balance
- ---------------- -------------- ------------ ------------
STATUS
Cut-Off Date Percent of
Number of Principal Cut-Off Date
Number of Days Delinquent Mortgage Loans Balance Pool Balance
- ------------------------- -------------- ------------ ------------
DESCRIPTION OF THE NOTES
The Home Equity Loan Trust 200__-__ , the "trust", will issue one class of
Home Equity Loan Asset-Backed Notes pursuant to the indenture between the trust
and ________, as indenture trustee. The trust will also issue the certificates
pursuant to the terms of a trust agreement between the trust and __________, as
owner trustee. The notes will be secured by the assets of the trust pursuant to
the indenture. In addition, the sponsor will enter into a sale and servicing
agreement among ____________, as seller, the trust, the indenture trustee and
the servicer. The indenture, the trust agreement and the sale and servicing
agreement are collectively referred to as the "Agreements" herein. The forms of
the Agreements have been filed as exhibits to the registration statement of
which this prospectus supplement and the prospectus are a part. The following
summaries describe certain provisions of the Agreements. The summaries do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all of the provisions of the Agreements. Wherever particular
sections or defined terms of the Agreements are referred to, such sections or
defined terms are hereby incorporated herein by reference.
GENERAL
The notes will be issued in minimum denominations of $1,000 and multiples of
$1 in excess thereof and will evidence specified undivided interests in the
trust. The property of the trust will consist of: (1) each of the mortgage loans
that from time to time are subject to the sale and servicing agreement and the
mortgage files; (2) collections on the mortgage loans received on and after the
Cut-Off Date (exclusive of certain payments in respect of interest accrued on
the mortgage loans during ______ and payments in respect to interest on the
delinquent mortgage loans due prior to the Cut-Off Date and received
thereafter); (3) mortgaged properties relating to the mortgage loans that are
acquired by foreclosure or deed in lieu of foreclosure; (4) the Collection
Account and the Distribution Account; and (5) the Policy. Notes, if issued in
physical form will be transferable and exchangeable at the corporate trust
office of the indenture trustee, which will initially act as note registrar. See
"-- Book-Entry Notes" below. No service charge will be made for any registration
of exchange or transfer of notes, but the indenture trustee may require payment
of a sum sufficient to cover any tax or other governmental charge.
The aggregate undivided interest in the trust represented by the notes as of
the closing date will equal $____________ (the "Original Invested Amount") which
represents ___% of the Cut-Off Date pool balance. The original note balance will
equal $__________ (subject to a permitted variance in the aggregate of plus or
minus 5%). Following the closing date, the "Invested Amount" with respect to any
Payment Date will be an amount equal to the Original Invested Amount minus (1)
the amount of Investor Principal Collections previously distributed to
noteholders, and minus (2) an amount equal to the product of the Investor
Floating Allocation Percentage and the Liquidation Loss Amounts not allocated to
the certificates (each, as defined herein). The principal amount of the
outstanding notes (the "note balance") on any Payment Date is equal to the
original note balance minus the aggregate of amounts actually distributed as
principal to the noteholders. See "-- Payments on the Notes" below. Each note
represents the right to receive payments of interest at the note rate and
payments of principal as described below.
BOOK-ENTRY NOTES
The notes will be issued in book-entry form. Beneficial owners may elect to
hold their notes through The Depository Trust Company ("DTC") in the United
States, or Cedelbank or the Euroclear System in Europe if they are participants
of such systems, or indirectly through organizations which are participants in
such systems. Investors may hold beneficial interests in notes in minimum
denominations representing note balances of $1,000 and in multiples of $1 in
excess thereof.
See "Description of the Securities -- Book-Entry Registration of Securities"
in the prospectus.
ASSIGNMENT OF MORTGAGE LOANS
At the time of issuance of the notes, the sponsor will transfer to the trust
all of its right, title and interest in and to each mortgage loan (including any
Additional Balances arising in the future), related Credit Line Agreements and
mortgage notes, as applicable, and the mortgages and other related documents
(collectively, the "Related Documents"), including all collections received on
or with respect to each such mortgage loan on or after the Cut-Off Date
(exclusive of certain payments in respect of payments in respect of interest on
the delinquent mortgage loans due prior to the Cut-Off Date and received
thereafter) . The trust, concurrently with such transfer, will deliver or cause
to be delivered the notes to the sponsor. Each mortgage loan transferred to the
trust will be identified on the mortgage loan schedule which will be attached as
an exhibit to the indenture. Such schedule will include information as to the
Cut-Off Date principal balance of each mortgage loan, as well as information
with respect to the loan rate.
The indenture trustee will review or cause to be reviewed the mortgage notes
and the Related Documents within 90 days of the closing date. If any Related
Document is found to be defective in any material respect and such defect is not
cured within 90 days following notification thereof to the sponsor by the owner
trustee, the trust or the insurer, the sponsor will be obligated to accept the
transfer of such mortgage loan from the trust. Upon such transfer, the sponsor
will be obligated to either substitute for the defective mortgage loan with an
Eligible Substitute Mortgage Loan or to purchase such mortgage loan at a
purchase price equal to the principal balance of the defective mortgage loan
plus an amount equal to all accrued but unpaid interest on the defective
mortgage loan. The obligation of the sponsor to accept a defective mortgage loan
and to convey an Eligible Substitute Mortgage Loan or to repurchase the
defective mortgage loan is the sole remedy available to the indenture trustee
and the noteholders regarding any defects in the mortgage loans or the Related
Documents.
An "Eligible Substitute Mortgage Loan" is a mortgage loan substituted by the
sponsor for a defective mortgage loan which must, on the date of such
substitution:
o have an outstanding principal balance (or in the case of a substitution
of more than one mortgage loan for a defective mortgage loan, an
aggregate principal balance) that is equal to or less than the principal
balance of the defective mortgage loan;
o have a loan rate not less than the loan rate of the defective mortgage
loan and not more than [ ]% in excess of the loan rate of such defective
mortgage loan;
o have a loan rate based on the same Index with adjustments to such loan
rate made on the same adjustment date as that of the defective mortgage
loan;
o have a gross margin that is not less than the gross margin of the
defective mortgage loan and not more than [ ] basis points higher than
the gross margin for the defective mortgage loan;
o have a mortgage of the same or higher level of priority as the mortgage
relating to the defective mortgage loan;
o comply with each representation and warranty as to the mortgage loans
set forth in the sale and servicing agreement (deemed to be made as of
the date of substitution);
o have an original CLTV not greater than that of the defective mortgage
loan; and
o satisfy certain other conditions specified in the sale and servicing
agreement.
The sponsor will make certain representations and warranties as to the
accuracy in all material respects of certain information furnished to the
indenture trustee with respect to each mortgage loan (e.g., Cut-Off Date
principal balance and the loan rate). In addition, the sponsor will represent
and warrant on the closing date that, among other things: (1) at the time of
transfer to the trust, the sponsor has transferred or assigned all of its
rights, title and interest in or granted a security interest in each mortgage
loan and the Related Documents, free of any lien (subject to certain exceptions)
and (2) each mortgage loan complied, at the time or origination, in all material
respects with applicable state and federal laws. Upon discovery of a breach of
any such representation and warranty which materially and adversely affects the
interests of the noteholders or the insurer in the related mortgage loan and
Related Documents, the sponsor will have a period of 90 days after discovery or
notice of the breach to effect a cure. If the breach cannot be cured within the
90-day period, the sponsor will be obligated to accept a transfer of the
defective mortgage loan from the trust. The same procedure and limitations that
are set forth in the two preceding paragraphs for the transfer of defective
mortgage loans will apply to the transfer of a mortgage loan that is required to
be transferred because of such breach of a representation or warranty in the
sale and servicing agreement that materially and adversely affects the interests
of the noteholders.
AMENDMENTS TO CREDIT LINE AGREEMENTS
Subject to applicable law, the servicer may change the terms of the Credit
Line Agreements at any time provided that such changes do not adversely affect
the interest of the noteholders or the insurer, and are consistent with prudent
business practice. In addition, the sale and servicing agreement permits the
servicer, within certain limitations described therein, to increase or reduce
the credit limit of the related mortgage loan and reduce the gross margin for
such mortgage loan.
OPTIONAL TRANSFERS OF MORTGAGE LOANS TO THE SPONSOR
Subject to the conditions specified in the sale and servicing agreement, on
any payment date the sponsor may remove from the trust, certain mortgage loans
without notice to the noteholders. The sponsor is permitted to randomly
designate the mortgage loans to be removed. Mortgage loans so designated will
only be removed upon satisfaction of certain conditions specified in the sale
and servicing agreement, including:
o the [overcollateralization targets have been met];
o the sponsor shall have delivered to the indenture trustee and the
insurer a mortgage loan schedule containing a list of all mortgage loans
remaining in the trust after such removal;
o the sponsor shall represent and warrant that no selection procedures
which the sponsor reasonably believes are adverse to the interests of
the noteholders or the insurer were used by the sponsor in selecting
such mortgage loans;
o in connection with each such retransfer of mortgage loans, the rating
agencies shall have been notified of the proposed transfer and the
rating agencies shall have notified the sponsor, the indenture trustee
and the insurer in writing that such transfer will not result in a
reduction or withdrawal of the ratings assigned to the notes without
regard to the Policy;
o the proposed transfer will not cause a Rapid Amortization Event to
occur;
o the Rapid Amortization Period shall not have commenced; and
o the sponsor shall have delivered to the indenture trustee and the
insurer an officer's certificate confirming the satisfaction of the
first three conditions.
PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO COLLECTION ACCOUNT AND DISTRIBUTION
ACCOUNT
The servicer shall establish and maintain in the name of the indenture
trustee an account (the "Collection Account") for the benefit of the
noteholders, the insurer and the sponsor, as their interests may appear. The
Collection Account will be an Eligible Account (as defined herein). Subject to
the investment provisions described in the following paragraphs, upon receipt by
the servicer of amounts in respect of the mortgage loans (excluding amounts
representing the servicing fee) the servicer will deposit such amounts in the
Collection Account. Not later than the third business day prior to each Payment
Date (the "Determination Date"), the servicer will notify the indenture trustee
of the amount of such deposit to be included in funds available for the related
Payment Date. Amounts so deposited may be invested in Eligible Investments (as
described in the sale and servicing agreement) maturing no later than one
Business Day prior to the date on which amounts on deposit therein are required
to be deposited in the Distribution Account.
The indenture trustee will establish an account (the "Distribution Account")
into which will be deposited amounts withdrawn from the Collection Account for
payment to noteholders on a Payment Date. The Distribution Account will be an
Eligible Account. Amounts on deposit therein may be invested in Eligible
Investments maturing on or before the Business Day prior to the related Payment
Date. Net investment earnings on the funds in the Distribution Account will be
paid to ____________.
An "Eligible Account" is a segregated account that is:
o maintained with a depository institution whose debt obligations at the
time of any deposit therein have the highest short-term debt rating by
the rating agencies and whose accounts are fully insured by either the
Savings Association Insurance Fund or the Bank Insurance Fund of the
Federal Deposit Insurance Corporation with a minimum long-term
unsecured debt rating of "A1" by Moody's and "A" by S&P and Fitch, and
o which is any of (as approved in writing by the insurer):
o a federal savings and loan association duly organized, validly
existing and in good standing under the applicable banking laws of
any state,
o an institution or association duly organized, validly existing and
in good standing under the applicable banking laws of any state,
o a national banking association duly organized, validly existing and
in good standing under the federal banking laws, or
o a principal subsidiary of a bank holding company
o a segregated trust account maintained with the corporate trust
department of a federal or state chartered depository institution or
trust company, having capital and surplus of not less than
$50,000,000, acting in its fiduciary capacity, or
o otherwise acceptable to each rating agency and the insurer as
evidenced by a letter from each rating agency and the insurer to the
indenture trustee, without reduction or withdrawal of their then
current ratings of the notes without regard to the Policy.
Eligible Investments are specified in the sale and servicing agreement and
are limited to investments which are acceptable to the insurer and meet the
criteria of the rating agencies from time to time as being consistent with their
then current ratings of the notes.
ALLOCATIONS AND COLLECTIONS
All collections on the mortgage loans will generally be allocated in
accordance with the Credit Line Agreements or the mortgage notes, as applicable,
between amounts collected in respect of interest and amounts collected in
respect of principal. As to any payment date, "Interest Collections" will be
equal to the amounts collected during the related Collection Period, including
such portion of Net Liquidation Proceeds allocated to interest pursuant to the
terms of the Credit Line Agreements or the mortgage notes, as applicable, less
servicing fees for the related Collection Period.
As to any Payment Date, "Principal Collections" will be equal to the sum of
the amounts collected during the related Collection Period, including such
portion of Net Liquidation Proceeds allocated to principal pursuant to the terms
of the Credit Line Agreements or mortgage notes, as applicable, and any Transfer
Deposit Amounts. "Liquidation Proceeds" are the proceeds (excluding any amounts
drawn on the Policy) received in connection with the liquidation of any mortgage
loan, whether through trustee's sale, foreclosure sale or otherwise. "Net
Liquidation Proceeds" with respect to a mortgage loan are equal to the
Liquidation Proceeds, reduced by related expenses, but not including the
portion, if any, of such amount that exceeds the sum of the principal balance of
the mortgage loan plus accrued and unpaid interest thereon to the end of the
Collection Period during which such mortgage loan became a liquidated mortgage
loan.
With respect to any payment date, the portion of Interest Collections
allocable to the notes ("Investor Interest Collections") will equal the product
of (a) Interest Collections for such Payment Date and (b) the Investor Floating
Allocation Percentage. With respect to any Payment Date, the "Investor Floating
Allocation Percentage" is the percentage equivalent of a fraction determined by
dividing (a) the Invested Amount at the close of business on the preceding
Payment Date (or the Closing Date in the case of the first Payment Date) by (b)
the pool balance at the beginning of the related Collection Period. The
remaining amount of Interest Collections will be allocated to the certificates.
Principal Collections will be allocated between the noteholders and the
sponsor ("Investor Principal Collections" and "Sponsor Principal Collections",
respectively) as described herein.
The indenture trustee will deposit any amounts drawn under the Policy into
the Distribution Account.
The "principal balance" of a mortgage loan (other than a liquidated mortgage
loan) on any day is equal to the Cut-Off Date principal balance thereof, plus
(1) any Additional Balances in respect of such mortgage loan minus (2) all
collections credited against the principal balance of such mortgage loan in
accordance with the related Credit Line Agreement or mortgage note prior to such
day. The principal balance of a liquidated mortgage loan after final recovery of
related Liquidation Proceeds shall be zero.
"Liquidation Loss Amount" means with respect to any liquidated mortgage
loan, the unrecovered principal balance thereof during the Collection Period in
which such mortgage loan became a liquidated mortgage loan, after giving effect
to the Net Liquidation Proceeds received in connection therewith. The "Investor
Loss Amount" shall be the product of the Investor Floating Allocation Percentage
and the aggregate of the Liquidation Loss Amounts for such Payment Date. A
"liquidated mortgage loan" is any mortgage loan in respect of which the servicer
has determined, based on the servicing procedures specified in the sale and
servicing agreement, as of the end of the preceding Collection Period that all
Liquidation Proceeds which it expects to recover with respect to the disposition
of the related mortgaged property have been recovered.
As, to any Payment Date, the "Collection Period" is the calendar month
preceding each Payment Date.
PAYMENTS ON THE NOTES
Beginning with the first Payment Date (which will occur on _________ __,
200__), payments on the notes will be made by the indenture trustee or the
Paying Agent based upon aggregate information provided by the servicer on each
Payment Date to the persons in whose names such notes are registered at the
close of business on the day prior to each Payment Date or, if the notes are no
longer in book-entry form, at the close of business on the last day of the month
preceding such Payment Date (the "Record Date"). The term "Payment Date" means
the twenty-fifth day of each month or, if such day is not a Business Day, then
the next succeeding Business Day. Payments will be made by check or money order
mailed (or upon the request of a noteholder owning notes having denominations
aggregating at least $1,000,000, by wire transfer or otherwise) to the address
of the person entitled thereto (which, in the case of book-entry notes, will be
DTC or its nominee) as it appears on the note register in amounts calculated as
described herein on the Determination Date. However, the final payment in
respect of the notes will be made only upon presentation and surrender thereof
at the office or the agency of the indenture trustee specified in the notice to
noteholders of such final payment. For purposes of the Agreements, a "Business
Day" is any day other than (1) a Saturday or Sunday or (2) a day on which the
insurer or banking institutions in the States of California, ___________ or
__________ are required or authorized by law to be closed.
APPLICATION OF INTEREST COLLECTIONS. On each Payment Date, the indenture
trustee or the paying agent will apply the Investor Interest Collections in the
following manner and order of priority:
o as payment to the indenture trustee for its fee for services rendered
pursuant to the sale and servicing agreement and as payment to the owner
trustee for its fee for services rendered pursuant to the trust
agreement;
o as payment for the premium for the Policy;
o to the noteholders, as payment for the accrued interest due and any
overdue accrued interest (with interest thereon to the extent permitted
by law) on the note balance of the notes; and
o to the holder of the certificates, the amount to which it is entitled in
accordance with the provisions of the sale and servicing agreement;
CALCULATION OF THE NOTE RATE. Interest will be distributed on each Payment
Date at the Note Rate for the related interest accrual period on the note
balance as of the first day of such interest accrual period (reduced by any
Civil Relief Act Interest Shortfalls for such Payment Date). The "Note Rate" for
a Payment Date will generally equal the sum of (a) LIBOR, determined as
specified herein, as of the second LIBOR Business Day prior to the immediately
preceding Payment Date (or as of two LIBOR Business Days prior to the closing
date, in the case of the first Payment Date) plus (b) ___% per annum.
Notwithstanding the foregoing, in no event will the amount of interest required
to be distributed in respect of the notes on any Payment Date exceed the amount
calculated at a rate (the "Net WAC") equal to the weighted average of the loan
rates (net of the Servicing Fee Rate, the fee payable to the indenture trustee
and the owner trustee (expressed as a rate) and the rate at which the premium
payable to the insurer is calculated) weighted on the basis of the daily balance
of each mortgage loan during the calendar month preceding the Collection Period
relating to such Payment Date or in the case of the first Payment Date, the
weighted average loan rate as of the Cut-Off Date.
Interest on the notes in respect of any Payment Date will accrue on the note
balance from the preceding Payment Date (or in the case of the first Payment
Date, from the closing date) through the day preceding such Payment Date (each
such period, an "interest accrual period") on the basis of the actual number of
days in the interest accrual period and a 360-day year. Interest payments on the
notes will be funded from Investor Interest Collections and, if necessary, from
the Policy pursuant to the terms thereof. Interest for any Payment Date due but
not paid on such Payment Date will be due on the next succeeding Payment Date
together with additional interest on such amount at a rate equal to the
applicable Note Rate.
CALCULATION OF THE LIBOR RATE. On each Payment Date, LIBOR shall be
established by the indenture trustee and as to any interest accrual period,
LIBOR will equal the rate for United States dollar deposits for one month which
appears on the Telerate Screen Page 3750 as of 11:00 A.M., London time, on the
second LIBOR Business Day prior to the first day of such Interest accrual
period. "Telerate Screen Page 3750" means the display designated as page 3750 on
the Telerate Service (or such other page as may replace page 3750 on that
service for the purpose of displaying London interbank offered rates of major
banks). If such rate does not appear on such page (or such other page as may
replace that page on that service, or if such service is no longer offered, such
other service for displaying LIBOR or comparable rates as may be selected by the
sponsor after consultation with the indenture trustee), the rate will be the
Reference Bank Rate. The "Reference Bank Rate" will be determined on the basis
of the rates at which deposits in U.S. Dollars are offered by the reference
banks (which shall be three major banks that are engaged in transactions in the
London interbank market, selected by the sponsor after consultation with the
indenture trustee) as of 11:00 A.M., London time, on the day that is two LIBOR
Business Days prior to the immediately preceding Payment Date to prime banks in
the London interbank market for a period of one month in amounts approximately
equal to the principal amount of the notes then outstanding. The indenture
trustee will request the principal London office of each of the reference banks
to provide a quotation of its rate. If at least two such quotations are
provided, the rate will be the arithmetic mean of the quotations. If on such
date fewer than two quotations are provided as requested, the rate will be the
arithmetic mean of the rates quoted by two or more major banks in New York City,
selected by the sponsor after consultation with the indenture trustee, as of
11:00 A.M., New York City time, on such date for loans in U.S. Dollars to
leading European banks for a period of one month in amounts approximately equal
to the principal amount of the notes then outstanding. If no such quotations can
be obtained, the rate will be LIBOR for the prior Payment Date. "LIBOR Business
Day" means any day other than (1) a Saturday or a Sunday or (2) a day on which
banking institutions in the State of New York or in the city of London, England
are required or authorized by law to be closed.
PAYMENTS OF PRINCIPAL COLLECTIONS. For the period beginning on the first
Payment Date and, unless a Rapid Amortization Event shall have earlier occurred,
ending immediately after the Payment Date in _____________ (such period, the
"Managed Amortization Period"), the amount of Principal Collections payable to
noteholders as of each Payment Date during the Managed Amortization Period will
equal, to the extent funds are available therefor, the Scheduled Principal
Collections Payment Amount for such Payment Date. On any Payment Date during the
Managed Amortization Period, the "Scheduled Principal Collections Payment
Amount" shall equal the lesser of the Maximum Principal Payment and the
Alternative Principal Payment (as defined herein). With respect to any Payment
Date, the "Maximum Principal Payment" will equal the product of the Investor
Fixed Allocation Percentage and Principal Collections for such Payment Date.
With respect to any Payment Date, the "Alternative Principal Payment" will equal
the amount, but not less than zero, of Principal Collections for such Payment
Date less the aggregate of Additional Balances created during the related
Collection Period. The "Rapid Amortization Period" is the period beginning at
the earlier of (1) the occurrence of a Rapid Amortization Event and (2)
immediately following the Payment Date in __________ and continuing until the
later of when (1) the note balance has been reduced to zero and all amounts then
due and owing to the insurer have been paid and (2) the trust is terminated. See
"-- Termination; Retirement of the Notes."
Beginning with the first Payment Date following the end of the Managed
Amortization Period, the amount of Principal Collections payable to noteholders
on each Payment Date will be equal to the Maximum Principal Payment.
Payments of Principal Collections based upon the Investor Fixed Allocation
Percentage may result in payments of principal to noteholders in amounts that
are greater relative to the declining pool balance than would be the case if the
Investor Floating Allocation Percentage were used to determine the percentage of
Principal Collections distributed in respect of the Invested Amount. Principal
Collections not allocated to the noteholders will be allocated to the
certificates. The aggregate payments of principal to the noteholders will not
exceed the initial note balance.
In addition, to the extent of funds available therefor (including funds
available under the Policy), on the Payment Date in __________, noteholders will
be entitled to receive as a payment of principal an amount equal to the
outstanding note balance.
THE PAYING AGENT. The paying agent shall initially be the indenture trustee,
together with any successor thereto in such capacity. The paying agent shall
have the revocable power to withdraw funds from the Distribution Account for the
purpose of making payments to the noteholders.
RAPID AMORTIZATION EVENTS
As described above, the Managed Amortization Period will continue through
the Payment Date in __________, unless a Rapid Amortization Event occurs prior
to such date in which case the Rapid Amortization Period will commence prior to
such date. The "Rapid Amortization Period" is the period commencing on the
earlier of:
o the end of the Managed Amortization Period and
o the day, if any, upon which a Rapid Amortization Event occurs and
concluding upon the later of:
o termination of the trust and
o all amounts due and owing to the insurer and the noteholders have
been paid.
"Rapid Amortization Event" refers to any of the following events:
(a) failure on the part of the sponsor, the trust or the servicer:
o to make a payment or deposit required under the Agreements or
o to observe or perform in any material respect any other covenants or
agreements of the sponsor set forth in the Agreements, which failure
continues unremedied for a period of 60 days after written notice;
(b) any representation or warranty made by the sponsor, the trust or the
servicer in the Agreements proves to have been incorrect in any material
respect when made and continues to be incorrect in any material respect
for a period of 60 days after written notice and as a result of which
the interests of the noteholders or the insurer are materially and
adversely affected; provided, however, that a Rapid Amortization Event
shall not be deemed to occur with respect to a breach of representation
and warranty relating to a mortgage loan if the sponsor or the servicer
has purchased or made a substitution for the related mortgage loan or
mortgage loans if applicable during such period (or within an additional
60 days, with the consent of the indenture trustee and the insurer) in
accordance with the provisions of the sale and servicing agreement;
(c) the occurrence of certain events of bankruptcy, insolvency or
receivership relating to the sponsor, the trust or the servicer;
(d) the trust becomes subject to regulation by the SEC as an investment
company within the meaning of the Investment Company Act, of 1940,
as amended;
(e) the aggregate of all draws under the Policy exceeds __% of the
Cut-Off Date pool balance; or
(f) default in the payment of any interest, principal or any installment of
principal on the related notes when the same becomes due and payable,
and such default continues for a period of five business days.
In the case of any event described in clause (a) or (b), a Rapid
Amortization Event will be deemed to have occurred only if, after the applicable
grace period, if any, described in such clauses, either the indenture trustee or
noteholders holding notes evidencing more than 51% of the Percentage Interests
(in either case, with the consent of the insurer) or the insurer (so long as
there is no default by the insurer in the performance of its obligations under
the Policy), by written notice to the sponsor and the servicer (and to the
indenture trustee, if given by the noteholders) declare that a Rapid
Amortization Event has occurred as of the date of such notice. In the case of
any event described in clause (c), (d) or (e) a Rapid Amortization Event will be
deemed to have occurred without any notice or other action on the part of the
indenture trustee, the insurer or the noteholders immediately upon the
occurrence of such event.
In addition to the consequences of a Rapid Amortization Event discussed
above, if the sponsor voluntarily files a bankruptcy petition or goes into
liquidation or any person is appointed a receiver or bankruptcy trustee of the
sponsor, on the day of any such filing or appointment no further Additional
Balances will be transferred to the trust, the sponsor will immediately cease to
transfer Additional Balances to the trust and the sponsor will promptly give
notice to the indenture trustee and the insurer of any such filing or
appointment.
Notwithstanding the foregoing, if a conservator or trustee-in-bankruptcy is
appointed for the sponsor and no Rapid Amortization Event exists other than such
conservatorship, receivership or insolvency of the sponsor, the conservator or
receiver may have the power to prevent the commencement of the Rapid
Amortization Period or the sale of mortgage loans described above.
THE POLICY
[Description of the Policy]
MATURITY AND PREPAYMENT CONSIDERATIONS
The Agreements, except as otherwise described herein, provides that the
noteholders will be entitled to receive on each Payment Date payments of
principal, in the amounts described herein, until the note balance is reduced to
zero. During the Managed Amortization Period, noteholders will receive amounts
from Principal Collections based upon the Investor Fixed Allocation Percentage
subject to reduction as described below. During the Rapid Amortization Period,
noteholders will receive amounts from Principal Collections based solely upon
the Investor Fixed Allocation Percentage. Because prior payments of Investor
Principal Collections to noteholders reduce the Investor Floating Allocation
Percentage but do not change the Fixed Allocation Percentage, allocations of
Principal Collections based on the Fixed Allocation Percentage may result in
payments of principal to the noteholders in amounts that are, in most cases,
greater relative to the declining balance of the mortgage loans than would be
the case if the Investor Floating Allocation Percentage were used to determine
the percentage of Principal Collections distributed to noteholders. This is
especially true during the Rapid Amortization Period when the noteholders are
entitled to receive Investor Principal Collections and not a lesser amount. In
addition, to the extent of losses allocable to the noteholders, noteholders may
also receive as payment of principal the Investor Floating Allocation Percentage
of the amount of such losses from draws under the Policy. The level of losses
may therefore affect the rate of payment of principal on the notes. For a
description of the defined terms used in this section, See "Description of the
Notes."
Because during the Rapid Amortization Period the noteholders' share of
Principal Collections is based upon the Investor Fixed Allocation Percentage
(without reduction), an increase in the pool balance due to additional draws may
also result in noteholders receiving principal at a greater rate than would
otherwise occur if the Investor Floating Allocation Percentage were used to
determine the percentage of Principal Collections distributed to noteholders.
The sale and servicing agreement permits the sponsor, at its option, but subject
to the satisfaction of certain conditions specified in the sale and servicing
agreement, including the conditions described below, to remove certain mortgage
loans from the trust at any time during the life of the trust, so long as the
pool balance (after giving effect to such removal) exceeds [ ]. Such removals
may affect the rate at which principal is distributed to noteholders by reducing
the overall pool balance and thus the amount of Principal Collections. See
"Description of the Notes--Optional Transfers of Mortgage Loans to the Sponsor."
The prepayment experience with respect to the mortgage loans will affect the
weighted average life of the notes.
The rate of prepayment on the mortgage loans cannot be predicted. The
sponsor is not aware of any publicly available studies or statistics that
accurately predict or forecast the rate of prepayment of mortgage loans such as
the mortgage loans. Generally, home equity loans are not viewed by borrowers as
permanent financing. Accordingly, the mortgage loans may experience a higher
rate of prepayment than traditional first mortgage loans. Because the mortgage
loans generally do not amortize during the Draw Period, rates of principal
payment on the mortgage loans will generally be slower than those of traditional
fully-amortizing first mortgages in the absence of prepayments on such mortgage
loans. The prepayment experience of the trust with respect to the mortgage loans
may be affected by a wide variety of factors, including general economic
conditions, prevailing interest rate levels, the availability of alternative
financing, homeowner mobility, the frequency and amount of any future draws on
the Credit Line Agreements and changes affecting the deductibility for federal
income tax purposes of interest payments on home equity loans. Substantially all
of the mortgage loans contain "due-on-sale" provisions, and the servicer intends
to enforce such provisions, unless such enforcement is not permitted by
applicable law. The enforcement of a "due-on-sale" provision will have the same
effect as a prepayment of the related mortgage loan. See "Certain Legal Aspects
of the Loans--Due-on-Sale Clauses" in the prospectus.
The yield to an investor who purchases the notes in the secondary market at
a price other than par will vary from the anticipated yield if the rate of
prepayment on the mortgage loans is actually different than the rate anticipated
by such investor at the time such notes were purchased.
Collections on the mortgage loans may vary because, among other things,
borrowers may make payments during any month as low as the minimum monthly
payment for such month which may be zero, or as high as the entire outstanding
principal balance plus accrued interest and the fees and charges thereon. It is
possible that borrowers may fail to make scheduled payments. Collections on the
mortgage loans may vary due to seasonal purchasing and payment habits of
borrowers.
No assurance can be given as to the level of prepayments that will be
experienced by the trust but it can be expected that a portion of borrowers will
not prepay their mortgage loans to any significant degree.
DESCRIPTION OF THE AGREEMENTS
The following summary describes certain terms of the sale and servicing
agreement, the trust agreement and the indenture. Such summary does not purport
to be complete and is subject to, and qualified in its entirety by reference to,
the respective provisions of the sale and servicing agreement, the trust
agreement and the indenture. Whenever particular defined terms in the indenture
are referred to, such defined terms are thereby incorporated herein by
reference. See "The Agreements" in the prospectus.
REPORTS TO NOTEHOLDERS
Concurrently with each payment to the noteholders, the servicer will forward
to the indenture trustee for mailing to such noteholder and the insurer a
statement setting forth among other items:
o the Investor Floating Allocation Percentage for the preceding Collection
Period;
o the amount being distributed to noteholders;
o the amount of interest included in such payment and the related Note
Rate;
o the amount, if any, of overdue accrued interest included in such
payment;
o the amount, if any, of the remaining overdue accrued interest after
giving effect to such payment;
o the amount, if any, of principal included in such payment;
o the amount, if any, of the reimbursement of previous Liquidation Loss
Amounts included in such payment;
o the amount, if any, of the aggregate unreimbursed Liquidation Loss
Amounts after giving effect to such payment;
o the servicing fee for such Payment Date;
o the Invested Amount and the note balance, each after giving effect to
such payment;
o the pool balance as of the end of the preceding Collection Period;
o the number and aggregate principal balances of the mortgage loans as to
which the minimum monthly payment is delinquent to 30-59 days, 60-89
days and 90 or more days, respectively, as of the end of the Collection
Period;
o the book value of any real estate which is acquired by the trust through
foreclosure or grant of deed in lieu of foreclosure; and
o the amount of any draws on the Policy.
COLLECTION AND OTHER SERVICING PROCEDURES ON MORTGAGE LOANS
The servicer will make reasonable efforts to collect all payments called for
under the mortgage loans and will, consistent with the sale and servicing
agreement, follow such collection procedures as it follows from time to time
with respect to the home equity loans in its servicing portfolio comparable to
the mortgage loans. Consistent with the above, the servicer may in its
discretion waive any late payment charge or any assumption or other fee or
charge that may be collected in the ordinary course of servicing the mortgage
loans.
With respect to the mortgage loans, the servicer may arrange with a borrower
a schedule for the payment of interest due and unpaid for a period, provided
that any such arrangement is consistent with the servicer's policies with
respect to the home equity mortgage loans it owns or services. In accordance
with the terms of the sale and servicing agreement, the servicer may consent
under certain circumstances to the placing of a subsequent senior lien in
respect of a mortgage loan.
HAZARD INSURANCE
The servicer will cause to be maintained for each mortgage loan and each
property acquired upon foreclosure, or by deed in lieu of foreclosure, hazard
insurance with extended coverage in an amount which is at least equal to the
lesser of
o the outstanding principal balance on the mortgage loan and any related
senior lien(s); and
o the maximum insurable value of the improvements securing the mortgage
loan.
Generally, if the mortgaged property is located in a federally designated flood
area, the hazard insurance to be maintained for the mortgage loan shall include
flood insurance in such amounts as are required under applicable guidelines of
the Federal Flood Emergency Act. Any amounts collected by the servicer under any
such policies will be deposited in the Collection Account, net of certain
amounts as indicated in the sale and servicing agreement. The servicer shall be
under no obligation to require that any mortgagor maintain earthquake or other
additional insurance and shall be under no obligation itself to maintain any
such additional insurance on property acquired, other than pursuant to
applicable laws and regulations. If the servicer obtains and maintains a blanket
policy consistent with prudent industry standards insuring against hazard losses
on all of the mortgage loans in an aggregate amount prudent under industry
standards, it shall conclusively be deemed to have satisfied its obligations and
if there shall have been a loss which would have been covered by such policy,
deposit in the Collection Account, as the case may be, the amount not otherwise
payable under the blanket policy because of any deductible clause.
We refer you to "The Agreements-Hazard Insurance" in the prospectus for
further information.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
The servicer will foreclose upon or otherwise comparably convert to
ownership mortgaged properties securing such of the mortgage loans as come into
default when, in accordance with applicable servicing procedures under the sale
and servicing agreement, no satisfactory arrangements can be made for the
collection of delinquent payments. In connection with such foreclosure or other
conversion, the servicer will follow such practices as it deems necessary or
advisable and as are in keeping with its general subordinate mortgage servicing
activities, provided the servicer will not be required to expend its own funds
in connection with foreclosure or other conversion, correction of default on a
related senior mortgage loan or restoration of any property unless, in its sole
judgment, such foreclosure, correction or restoration will increase Net
Liquidation Proceeds. The servicer will be reimbursed out of Liquidation
Proceeds for advances of its own funds as liquidation expenses before any Net
Liquidation Proceeds are distributed to noteholders or the certificateholders.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
With respect to each Collection Period, the servicer will receive from
interest collections in respect of the mortgage loans a portion of such interest
collections as a monthly servicing fee in the amount equal to [ ]% per annum on
the aggregate principal balances of the mortgage loans as of the first day of
the related Collection Period (or as of the Cut-Off Date for the first
Collection Period). All assumption fees, late payment charges and other fees and
charges, to the extent collected from borrowers, will be retained by the
servicer as additional servicing compensation.
The servicer will pay certain ongoing expenses associated with the trust and
incurred by it in connection with its responsibilities under the sale and
servicing agreement. In addition, the servicer will be entitled to reimbursement
for certain expenses incurred by it in connection with defaulted mortgage loans
and in connection with the restoration of mortgaged properties, such right of
reimbursement being prior to the rights of noteholders to receive any related
Net Liquidation Proceeds.
CERTAIN MATTERS REGARDING THE SERVICER AND THE SPONSOR
The sale and servicing agreement provides that the servicer may not resign
from its obligations and duties thereunder:
o unless such duties and obligations are no longer permissible under
applicable law or are in material conflict by reason of applicable law
with any other activities of a type and nature presently carried on by
it or its subsidiaries or affiliates or
o upon the satisfaction of the following conditions:
o the servicer has proposed a successor servicer to the indenture trustee
and the insurer in writing and such proposed successor servicer is
reasonably acceptable to the indenture trustee and the insurer; and
o the rating agencies have confirmed to the indenture trustee and the
insurer that the appointment of such proposed successor servicer as the
servicer will not result in the reduction or withdrawal of the then
current rating of the notes.
No such resignation will become effective until the indenture trustee or a
successor servicer has assumed the servicer's obligations and duties under the
sale and servicing agreement.
The servicer may perform any of its duties and obligations under the sale
and servicing agreement through one or more subservicers or delegates, which may
be affiliates of the servicer. Notwithstanding any such arrangement, the
servicer will remain liable and obligated to the indenture trustee and the
noteholders for the servicer's duties and obligations under the sale and
servicing agreement, without any diminution of such duties and obligations and
as if the servicer itself were performing such duties and obligations.
Under the sale and servicing agreement, the sponsor will indemnify an
injured party for the entire amount of any losses, claims, damages or
liabilities arising out of or based on the sale and servicing agreement (other
than losses resulting from defaults under the mortgage loans). The sale and
servicing agreement provides that neither the sponsor nor the servicer nor their
directors, officers, employees or agents will be under any other liability to
the trust, the indenture trustee, the noteholders, the insurer or any other
person for any action taken or for refraining from taking any action pursuant to
the sale and servicing agreement. However, neither the sponsor nor the servicer
will be protected against any liability which would otherwise be imposed by
reason of willful misconduct, bad faith or gross negligence of the sponsor or
the servicer in the performance of its duties under the sale and servicing
agreement or by reason of reckless disregard of its obligations thereunder. In
addition, the sale and servicing agreement provides that the servicer will not
be under any obligation to appear in, prosecute or defend any legal action which
is not incidental to its servicing responsibilities under the sale and servicing
agreement and which in its opinion may expose it to any expense or liability.
The servicer may, in its sole discretion, undertake any such legal action which
it may deem necessary or desirable with respect to the sale and servicing
agreement and the rights and duties of the parties thereto and the interest of
the noteholders and the insurer thereunder.
Any corporation into which the servicer may be merged or consolidated, or
any corporation resulting from any merger, conversion or consolidation to which
the servicer shall be a party, or any corporation succeeding to the business of
the servicer shall be the successor of the servicer hereunder, without the
execution or filing of any paper or any further act on the part of any of the
parties.
EVENTS OF SERVICING TERMINATION
"Events of Servicing Termination" will consist of:
(a) any failure by the servicer to deposit in the Collection Account any
deposit required to be made under the sale and servicing agreement or
to make any payment required to be made under the insurance agreement,
which failure continues unremedied for two Business Days after the
giving of written notice of such failure to the servicer by the
indenture trustee, or to the servicer and the indenture trustee by the
insurer or noteholders evidencing an aggregate, of at least 25% of the
voting rights;
(b) any failure by the servicer duly to observe or perform in any material
respect any other of its covenants or agreements in the sale and
servicing agreement which, in each case, materially and adversely
affects the interests of the noteholders or the insurer and continues
unremedied for 60 days after the giving of written notice of such
failure to the servicer by the indenture trustee, or to the servicer
and the indenture trustee by the insurer or noteholders evidencing an
aggregate of at least 25% of the voting rights;
(c) certain events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings relating to the servicer
and certain actions by the servicer indicating insolvency,
reorganization or inability to pay its obligations (each an "Insolvency
Event"); or
(d) any Event of Servicing Termination under the terms of the Policy, has
occurred and is continuing. Under certain other circumstances, the
insurer may deliver written notice to the servicer terminating all the
rights and obligations of the servicer under the sale and servicing
agreement.
Notwithstanding the foregoing, a delay in or failure of performance referred
to under clause (a) above for a period of five Business Days or referred to
under clause (b) above for a period of 60 days, shall not constitute an Event of
Servicing Termination if such delay or failure could not be prevented by the
exercise of reasonable diligence by the servicer and such delay or failure was
caused by an act of God or other similar occurrence. Upon the occurrence of any
such event the servicer shall not be relieved from using its best efforts to
perform its obligations in a timely manner in accordance with the terms of the
sale and servicing agreement and the servicer shall provide the indenture
trustee, the sponsor, the insurer and the noteholders prompt notice of such
failure or delay by it, together with a description of its efforts to so perform
its obligations.
RIGHTS UPON AN EVENT OF SERVICING TERMINATION
So long as an Event of Servicing Termination remains unremedied, either:
o the indenture trustee, or noteholders evidencing an aggregate of at
least 51% of the Voting Rights in each case with the consent of the
insurer or
o the insurer, may terminate all of the rights and obligations of the
servicer under the sale and servicing agreement and in and to the
mortgage loans, whereupon the indenture trustee will succeed to all the
responsibilities, duties and liabilities of the servicer under the sale
and servicing agreement and will be entitled to similar compensation
arrangements. In the event that the indenture trustee would be obligated
to succeed the servicer but is unwilling or unable so to act, it may
appoint, or petition a court of competent jurisdiction for the
appointment of, a housing and home finance institution or other mortgage
loan or home equity loan servicer with all licenses and permits required
to perform its obligations under the sale and servicing agreement and
having a net worth of at least $[ ] and acceptable to the insurer to act
as successor to the servicer under the sale and servicing agreement.
Pending such appointment, the indenture trustee will be obligated to act
in such capacity unless prohibited by law. Such successor will be
entitled to receive the same compensation that the servicer would
otherwise have received (or such lesser compensation as the indenture
trustee and such successor may agree). A receiver or conservator for the
servicer may be empowered to prevent the termination and replacement of
the servicer where the only Event of Servicing Termination that has
occurred is an Insolvency Event.
CERTAIN MATTERS REGARDING THE INDENTURE TRUSTEE AND THE OWNER TRUSTEE
Neither the indenture trustee nor any director, officer or employee of the
indenture trustee will be under any liability to the trust of the noteholders
for taking any action or for refraining from the taking of any action in good
faith pursuant to the indenture, or for errors in judgment; provided, that none
of the indenture trustee or any director, officer or employee thereof will be
protected against any liability that would otherwise be imposed on it by reason
of willful malfeasance, bad faith or negligence in the performance of its duties
or by reason of its reckless disregard of its obligations and duties under the
indenture. Subject to certain limitations set forth in the indenture, the
indenture trustee and any director, officer, employee or agent thereof will be
indemnified by the trust and held harmless against any loss, liability or
expense incurred in connection with investigating, preparing to defend or
defending any legal action, commenced or threatened, relating to the indenture,
other than any loss, liability or expense incurred by reason of its own willful
malfeasance, bad faith or negligence in the performance of its duties under the
indenture, or by reason of its reckless disregard of its obligations and duties
under the indenture. All persons into which the indenture trustee may be merged
or with which it may be consolidated, or any person resulting from such merger
or consolidation, will be the successor to the indenture trustee under the
indenture.
The owner trustee, the indenture trustee and any of their respective
affiliates may hold notes in their own names or as pledgees. For the purpose of
meeting the legal requirements of certain jurisdictions, the servicer, the owner
trustee and the indenture trustee acting jointly (or in some instances, the
owner trustee or the indenture trustee acting alone) will have the power to
appoint co-trustees or separate trustees of all or any part of the trust. In the
event of such an appointment, all rights, powers, duties and obligations
conferred or imposed upon the owner trustee by the sale and servicing agreement
and the trust Agreement and the indenture trustee by the indenture will be
conferred or imposed upon the owner trustee and the indenture trustee,
respectively, and in each such case such separate trustee or co-trustee jointly,
or, in any jurisdiction in which the owner trustee or indenture trustee will be
incompetent or unqualified to perform certain acts, singly upon such separate
trustee or co-trustee who will exercise and perform such rights, powers, duties
and obligations solely at the direction of the owner trustee or the indenture
trustee, respectively.
The indenture trustee may resign at any time, in which event the owner
trustee will be obligated to appoint a successor thereto. The owner trustee may
resign at any time, in which event the co-owner trustee will be obligated to
appoint a successor thereto. The servicer may also remove the owner trustee or
the indenture trustee if either ceases to be eligible to continue as such under
the trust agreement or the indenture, as the case may be, or becomes legally
unable to act or becomes insolvent. Any resignation or removal of the owner
trustee or indenture trustee and appointment of a successor thereto will not
become effective until acceptance of the appointment by such successor.
DUTIES OF THE OWNER TRUSTEE AND INDENTURE TRUSTEE
The owner trustee will make no representations as to the validity or
sufficiency of the trust agreement, the notes (other than the execution and
authentication thereof), or of any mortgage loans or related documents, and will
not be accountable for the use or application by the sponsor or the servicer of
any funds paid to the sponsor or the servicer in respect of the notes, or the
mortgage loans, or the investment of any monies by the servicer before such
monies are deposited into the Collection Account or the Distribution Account.
Generally, the owner trustee's duties under the trust agreement will be limited
to the receipt of the various certificates, reports or other instruments
required to be furnished to the owner trustee under the trust agreement, in
which case it will only be required to examine them to determine whether they
conform to the requirements of the trust agreement.
The indenture trustee will make no representations as to the validity or
sufficiency of the indenture, the notes (other than the execution and
authentication thereof) or of any mortgage loans or related documents, and will
not be accountable for the use or application by the sponsor or the servicer of
any funds paid to the sponsor or the servicer in respect of the notes or the
mortgage loans, or the use or investment of any monies by the servicer before
such monies are deposited into the Collection Account or the Distribution
Account. Generally, the indenture trustee's duties under the indenture will be
limited to the receipt of the various certificates, reports or other instruments
required to be furnished to the indenture trustee under the indenture, in which
case it will only be required to examine them to determine whether they conform
to the requirements of the indenture.
The indenture trustee will be under no obligation to exercise any of the
rights or powers vested in it by the indenture or to make any investigation of
matters arising thereunder or to institute, conduct or defend any litigation
thereunder or in relation thereto at the request, order or direction of any of
the noteholders, unless such noteholders have offered to the indenture trustee
reasonable security or indemnity against the costs, expenses and liabilities
that may be incurred therein or thereby.
AMENDMENT
The sale and servicing agreement may be amended from time to time by the
sponsor, the servicer and the indenture trustee and with the consent of the
insurer, but without the consent of the noteholders, to cure any ambiguity, to
correct or supplement any provisions therein which may be inconsistent with any
other provisions of the sale and servicing agreement, to add to the duties of
the sponsor or the servicer or to add or amend any provisions of the sale and
servicing agreement as required by the rating agencies in order to maintain or
improve any rating of the notes (it being understood that, after obtaining the
ratings in effect on the closing date, neither the sponsor, the indenture
trustee nor the servicer is obligated to obtain, maintain, or improve any such
rating) or to add any other provisions with respect to matters or questions
arising under the sale and servicing agreement or the Policy which shall not be
inconsistent with the provisions of the sale and servicing agreement or to
comply with any requirement imposed by the Code; provided that such action will
not, as evidenced by an opinion of counsel, adversely affect in any material
respect the interests of any noteholder or the insurer; provided, that any such
amendment will not be deemed to materially and adversely affect the noteholders
and no such opinion will be required to be delivered if the person requesting
such amendment obtains a letter from the rating agencies stating that such
amendment would not result in a downgrading of the then current rating of the
notes, without regard to the Policy. The sale and servicing agreement may also
be amended from time to time by the sponsor, the servicer, and the indenture
trustee, with the consent of noteholders evidencing an aggregate of at least 51%
of the Voting Rights and the insurer for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of the sale and
servicing agreement or of modifying in any manner the rights of the noteholders;
provided that no such amendment will:
o reduce in any manner the amount of, or delay the timing of, collections
of payments on the notes or distributions or payments under the Policy
which are required to be made on any note without the consent of the
holder of such note,
o reduce the aforesaid percentage required to consent to any such
amendment, without the consent of the holders of all notes then
outstanding or
o adversely affect in any material respect the interest of the insurer.
TERMINATION; RETIREMENT OF THE NOTES
The trust will generally terminate on the later of (A) the Payment Date
immediately following the payment in full of all amounts owing to the insurer
and (B) the earliest of:
o the Payment Date on which the note balance of all of the notes have been
reduced to zero and all other amounts due and owing to the noteholders
have been paid in full,
o the Payment Date immediately following the final payment or other
liquidation of the last mortgage loan in the trust,
o the Payment Date immediately following the optional redemption by the
sponsor of the notes, as described below and
o the Payment Date in [ ].
The notes will be subject to optional redemption on any Payment Date after
the note balance is reduced to an amount less than or equal to [ ]% of the
initial note balance. Any such optional repurchase will cause a redemption of
the notes outstanding at the time. Such redemption will only occur if the
purchase price is at least equal to the sum of the outstanding note balance and
accrued and unpaid interest, together with all amounts due and owing to the
insurer and unreimbursed draws on the Policy. The sponsor may not exercise its
right to redeem any notes if such redemption would result in a draw on the
Policy without the prior consent of the insurer. In no event, however, will the
trust created by the trust agreement continue for more than 21 years after the
death of certain individuals named in the trust agreement. Written notice of
termination of the trust agreement will be given to each noteholder, and the
final distribution will be made only upon surrender and cancellation of the
notes at an office or agency designated by the indenture trustee which will be
specified in the notice of termination.
In addition, the trust may be liquidated as a result of certain events of
bankruptcy, insolvency or receivership relating to the sponsor. See "Description
of the Notes--Rapid Amortization Events" herein.
No holder of a note will have any right under the indenture to institute any
proceeding with respect to the indenture unless such holder previously has given
to the indenture trustee written notice of default and unless noteholders
evidencing an aggregate, undivided interest in the trust of at least 51% of the
note balance have made written requests upon the indenture trustee to institute
such proceeding in its own name as indenture trustee thereunder and have offered
to the indenture trustee reasonable indemnity and the indenture trustee for 60
days has neglected or refused to institute any such proceeding. The indenture
trustee will be under no obligation to exercise any of the trusts or powers
vested in it by the indenture or to make any investigation of matters arising
thereunder or to institute, conduct or defend any litigation thereunder or in
relation thereto at the request, order or direction of any of the noteholders,
unless such noteholders have offered to the indenture trustee reasonable
security or indemnity against the cost, expenses and liabilities which may be
incurred therein or thereby.
THE INDENTURE TRUSTEE
____________, a ___________________ with its principal place of business in
____________, has been named indenture trustee pursuant to the indenture.
The commercial bank or trust company serving as indenture trustee may own
notes and have normal banking relationships with the sponsor, the servicer and
the insurer and/or their affiliates.
USE OF PROCEEDS
The net proceeds to be received from the sale of the notes will be applied
by the sponsor to purchase the mortgage loans.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion, which summarizes certain U.S. federal income tax
aspects of the purchase, ownership and disposition of the notes, is based on the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the
Treasury Regulations thereunder, and published rulings and court decisions in,
effect as of the date hereof, all of which are subject to change, possibly
retroactively. This discussion does not address every aspect of the U.S. federal
income tax laws which may be relevant to noteholders in light of their personal
investment circumstances or to certain types of noteholders subject to special
treatment under the U.S. federal income tax laws (for example, banks and life
insurance companies). Accordingly, investors should consult their tax advisors
regarding U.S. federal, state, local, foreign and any other tax consequences to
them of investing in the notes.
CHARACTERIZATION OF THE NOTES AS INDEBTEDNESS
Based on the application of existing law to the facts as set forth in the
Agreements and other relevant documents and assuming compliance with the terms
of the Agreements as in effect on the date of issuance of the notes, [ ],
special tax counsel to the trust ("Tax Counsel") and counsel to the
Underwriters, is of the opinion that the notes will be treated as debt
instruments for federal income tax purposes as of such date and the trust will
not be characterized as an association (or publicly traded partnership) taxable
as a corporation or as a taxable mortgage pool within the meaning of Section
7701 (i). Accordingly, upon issuance, the notes will be treated as "Debt
Securities" as described in the prospectus. See "Federal Income Tax
Consequences" in the prospectus.
The sponsor and the noteholders express in the sale and servicing agreement
their intent that, for applicable tax purposes, the notes will be indebtedness
secured by the mortgage loans. The sponsor and the noteholders, by accepting the
notes, and each beneficial owner by its acquisition of an interest in a note,
have agreed to treat the notes as indebtedness for U.S. federal income tax
purposes. However, because different criteria are used to determine the non-tax
accounting characterization of the transaction, the sponsor intends to treat
this transaction as a sale of an interest in the principal balances of the
mortgage loans for financial accounting and certain regulatory purposes.
In general, whether for U.S. federal income tax purposes a transaction
constitutes a sale of property or loan, the repayment of which is secured by
property, is a question of fact, the resolution of which is based upon the
economic substance of the transaction rather than its form or the manner in
which it is labeled. While IRS and the courts have set forth several factors to
be taken into account in determining whether the substance of a transaction is a
sale of property or a secured loan, the primary factor in making this
determination is whether the transferee has assumed the risk of loss or other
economic burdens relating to the property and has obtained the benefits of
ownership thereof. Tax Counsel has analyzed and relied on several factors in
reaching its opinion that the weight of the benefits and burdens of ownership of
the mortgage loans has been retained by the sponsor and has not been transferred
to the noteholders.
In some instances, courts have held that a taxpayer is bound by the
particular form it has chosen for a transaction, even if the substance of the
transaction does not accord with its form. Tax Counsel has advised that the
rationale of those cases will not apply to this transaction, because the form of
the transaction as reflected in the operative provisions, of the documents
either accords with the characterization of the notes as debt or otherwise makes
the rationale of those cases inapplicable to this situation.
TAXATION OF INTEREST INCOME OF NOTE OWNERS
Assuming that the beneficial owners of notes, or "Note Owners", are holders
of debt obligations for U.S. federal income tax purposes, the notes generally
will be taxable as Debt Securities. See "Federal Income Tax Consequences" in the
prospectus.
While it is not anticipated that the notes will be issued at a greater than
DE MINIMIS discount, under Treasury regulations (the "OID Regulations") it is
possible that the notes could nevertheless be deemed to have been issued with
original issue discount ("OID") if the interest were not treated as an
unconditionally payable under the OID Regulations. If such regulations were to
apply, all of the taxable income to be recognized with respect to the notes
would be includible in income of Note Owners as OID, but would not be includible
again when the interest is actually received. See "Federal Income Tax
Consequences--Taxation of Debt Securities; Interest and Acquisition Discount" in
the prospectus for a discussion of the application of the OID rules if the notes
are in fact issued at a greater than DE MINIMIS discount or are treated as
having been issued with OID under the OID Regulations. For purposes of
calculating OID, it is likely that the notes will be treated as Pay-Through
Securities.
POSSIBLE CLASSIFICATION OF THE TRUST AS A PARTNERSHIP OR ASSOCIATION TAXABLE AS
A CORPORATION
The opinion of Tax Counsel is not binding on the courts or the IRS. It is
possible that the IRS could assert that for purposes of the Code, the
transaction contemplated by this prospectus with respect to the notes
constitutes a sale of the mortgage loans (or an interest therein) to the Note
Owners and that the proper classification of the legal relationship between the
sponsor and the Note Owners resulting from this transaction is that of a
partnership (including a publicly traded partnership), a publicly traded
partnership treated as a corporation, or an association taxable as a
corporation. Since Tax Counsel has advised that the notes will be treated as
indebtedness in the hands of the noteholders for U.S. federal income tax
purposes, the sponsor will not attempt to comply with U.S. federal income tax
reporting requirements applicable to partnerships or corporations as such
requirements would apply if the notes were treated as indebtedness.
If it were determined that this transaction created an entity classified as
a corporation (including a publicly traded partnership taxable as a
corporation), the trust would be subject to U.S. federal income tax at corporate
income tax rates on the income it derives from the mortgage loans, which would
reduce the amounts available for payment to the Note Owners. Cash payments to
the Note Owners generally would be treated as dividends for tax purposes to the
extent of such corporation's earnings and profits. If the transaction were
treated as creating a partnership between the Note Owners and the sponsor, the
partnership itself would not be subject to U.S. federal income tax (unless it
were to be characterized as a publicly traded partnership taxable as a
corporation); rather, the sponsor and each Note Owner would be taxed
individually on their respective distributive shares of the partnership's
income, gain, loss, deductions and credits. The amount and timing of items of
income and deductions of the Note Owner could differ if the notes were held to
constitute partnership interests rather than indebtedness.
POSSIBLE CLASSIFICATION AS A TAXABLE MORTGAGE POOL
In relevant part, Section 7701 (i) of the Code provides that any entity (or
a portion of an entity) that is a "taxable mortgage pool" will be classified as
a taxable corporation and will not be permitted to file a consolidated U.S.
federal income tax return with another corporation. Subject to a grandfather
provision for existing entities, any entity (or a portion of any entity) will be
a taxable mortgage pool if
o substantially all of its assets consist of debt instruments, more than
50% of which are real estate mortgages
o the entity is the obligor under debt obligations with two or more
maturities, and
o under the terms of the entity's debt obligations (or an underlying
arrangement), payments on such debt obligations bear a relationship to
the debt instruments held by the entity.
Assuming that all of the provisions of the Agreements, as in effect on the
date of issuance, are complied with, Tax Counsel is of the opinion that the
arrangement created by the Agreements will not be a taxable mortgage pool under
Section 7701 (i) of the Code because only one class of indebtedness, secured by
the mortgage loans is being issued.
The opinion of Tax Counsel is not binding on the IRS or the courts. If the
IRS were to contend successfully (or future regulations were to provide) that
the arrangement created by the Agreements is a taxable mortgage pool, such
arrangement would be subject to U.S. federal corporate income tax on its taxable
income generated by ownership of the mortgage loans. Such a tax might reduce
amounts available for payments to Note Owners. The amount of such a tax would
depend upon whether payments to Note Owners would be deductible as interest
expense in computing the taxable income of such an arrangement as a taxable
mortgage pool.
FOREIGN INVESTORS
In general, subject to certain exceptions, interest (including OID) paid on
a note to a nonresident alien individual, foreign corporation or other
non-United States person is not subject to U.S. federal income tax, provided
that such interest is not effectively connected with a trade or business of the
recipient in the United States and the Note Owner provides the required foreign
person information certification. See "Federal Income Tax Consequences--Tax
Treatment of Foreign Investors" in the prospectus.
If the interests of the Note Owners were deemed to be partnership interests,
the partnership, if it were considered to be engaged in a U.S. trade or
business, would be required, on a quarterly basis, to pay withholding tax equal
to the product, for each foreign partner, of such foreign partner's distributive
share of "effectively connected" income of the partnership multiplied by the
highest rate of tax applicable to that foreign partner. In addition, such
foreign partner would be subject to branch profits tax. Each non-foreign partner
would be required to certify to the partnership that it is not a foreign person.
The tax withheld from each foreign partner would be credited against such
foreign partner's U.S. income tax liability.
If the trust were taxable as a corporation, payments to foreign persons, to
the extent treated as dividends (or if the trust were characterized as a
partnership that was not engaged in a trade or business, all interest payments),
would generally be subject to withholding at the rate of 30%, unless such rate
were reduced by an applicable tax treaty.
If, contrary to the opinion of Tax Counsel, the notes are recharacterized as
equity interests in a partnership, or in an association or publicly traded
partnership taxable as a corporation, any taxes required to be so withheld will
be treated for all purposes of the notes and the Policy as having been paid to
the related noteholder.
BACKUP WITHHOLDING
Certain Note Owners may be subject to backup withholding at the rate of 31%
with respect to interest paid on the notes if the Note Owners, upon issuance,
fail to supply the indenture trustee or his broker with his taxpayer
identification number, furnish an incorrect taxpayer identification number, fail
to report interest, dividends, or other "reportable payments" (as defined in the
Code) property, or, under certain circumstances, fail to provide the indenture
trustee or his broker with a certified statement, under penalty of perjury, that
he is not subject to backup withholding.
The indenture trustee will be required to report annually to the IRS, and to
each noteholder of record, the amount of interest paid (and OID accrued, if any)
on the notes (and the amount of interest withheld for U.S. federal income taxes,
if any) for each calendar year, except as to exempt holders (generally, holders
that are corporations, certain tax-exempt organizations or nonresident aliens
who provide certification as to their status as nonresidents). As long as the
only "noteholder" of record is Cede, as nominee for DTC, Note Owners and the IRS
will receive tax and other information including the amount of interest paid on
the notes from participants and indirect participants of the DTC system rather
than from the indenture trustee. (The indenture trustee, however, will respond
to requests for necessary information to enable participants, indirect
participants and certain other persons to complete their reports.) Each
non-exempt Note Owner will be required to provide, under penalty of perjury, a
certificate on IRS Form W-9 containing his or her name, address, correct federal
taxpayer identification number and a statement that he or she is not subject to
backup withholding. Should a nonexempt Note Owner fail to provide the required
certification, the participants or indirect participants (or the paying agent)
will be required to withhold 31% of the interest (and principal) otherwise
payable to the holder, and remit the withheld amount to the IRS as a credit
against the holder's federal income tax liability.
Final regulations dealing with withholding tax on income paid to foreign
persons, backup withholding and related matters (the "New Withholding
Regulations") were issued by the Treasury Department on October 6, 1997. The New
Withholding Regulations generally will be effective for payments made after
December 31, 2000, subject to certain transition rules. Prospective Certificate
Owners are strongly urged to consult their own tax advisors with respect to the
New Withholding Regulations.
TAX-EXEMPT ENTITIES
A tax-exempt Note Owner would be subject to less favorite tax treatment
because an interest in a partnership would generate "unrelated business taxable
income" and thereby subject the Note Owner to the "unrelated business, taxable
income" provisions of the Code.
STATE TAXES
The sponsor makes no representations regarding the tax consequences of
purchase, ownership or disposition of the notes under the tax laws of any state.
Investors considering an investment in the notes should consult their own tax
advisors regarding such tax consequences.
All investors should consult their own tax advisors regarding the federal,
state, local, foreign or any other income tax consequences of the purchase,
ownership and disposition of the notes.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and/or Section 4975 of the Code prohibit pension,
profit-sharing and other employee benefit plans, as well as individual
retirement accounts and certain types of Keogh Plans that are subject to ERISA
or to Section 4975 of the Code ("Plans") from engaging in certain transactions
with persons that are "parties in interest" under ERISA or "disqualified
persons" under the Code with respect to such Plans. A violation of these
"prohibited transaction" rules may result in an excise tax or other penalties
and liabilities under ERISA and the Code for such persons. Title I of ERISA
also requires that fiduciaries of a Plan subject to ERISA make investments
that are prudent, diversified (except if prudent not to do so) and in
accordance with governing plan documents.
Certain transactions involving the trust might be deemed to constitute
prohibited transactions under ERISA and the Code if assets of the trust were
deemed to be assets of a Plan. Under a regulation issued by the United States
Department of Labor (the "Plan Assets Regulation"), the assets of the trust
would be treated as plan assets of a Plan for the purposes of ERISA and the
Code only if the Plan acquires an "equity interest" in the trust and none of
the exceptions contained in the Plan Assets Regulation is applicable. An
equity interest is defined under the Plan Assets Regulation as an interest
other than an instrument which is treated as indebtedness under applicable
local law and which has no substantial equity features. Although there is
little guidance on the subject, the sponsor believes that the notes should be
treated as indebtedness without substantial equity features for purposes of
the Plan Assets Regulation. This determination is based in part upon the
traditional debt features of the notes, including the reasonable expectation
of purchasers of notes that the notes will be repaid when due, as well as the
absence of conversion rights, warrants and other typical equity features. The
debt treatment of the notes for ERISA purposes could change if the trust
incurs losses. However, even if the notes are treated as indebtedness without
substantial equity features, the acquisition or holding of notes by or on
behalf of a Plan could be considered to give rise to a prohibited transaction
if the trust or any of its affiliates is or becomes a party in interest or a
disqualified person with respect to such Plan. In such case, certain
exemptions from the prohibited transaction rules could be applicable,
depending on the type and circumstances of the plan fiduciary making the
decision to acquire a note. Included among these exemptions are: Prohibited
Transaction Class Exemption ("PTCE") 90-l, regarding investments by insurance
company pooled separate accounts; PTCE 95-60, regarding investments by
insurance company general accounts; PTCE 91-38, regarding investments by bank
collective investment funds; PTCE 96-23, regarding transactions affected by
in-house asset managers; and PTCE 84-14, regarding transactions effected by
"qualified professional asset managers."
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements; however, such plans may be
subject to comparable state law restrictions. Any plan that is not subject to
ERISA, but that is qualified and exempt from taxation under Code Sections
401(a) and 501(a), however, is subject to the prohibited transaction rules in
Code Section 503.
A Plan fiduciary considering the purchase of notes should consult its tax
and/or legal advisors regarding whether the assets of the trust would be
considered plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
LEGAL INVESTMENT CONSIDERATIONS
Although, as a condition to their issuance, the notes will be rated in the
highest rating category of the rating agencies, the notes will not constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"), because not all of the mortgages securing the
mortgage loans are first mortgages. Accordingly, many institutions with legal
authority to invest in comparably rated securities based on first mortgage loans
may not be legally authorized to invest in the notes, which because they
evidence interests in a pool that includes junior mortgage loans are not
"mortgage related securities" under SMMEA. See "Legal Investment" in the
prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement,
dated _________ __, 200__, between the sponsor and ___________, the sponsor has
agreed to sell to the underwriter, and the underwriter has agreed to purchase
from the sponsor the notes offered hereby.
In the underwriting agreement, the underwriter has agreed, subject to the
terms and conditions set forth therein, to purchase all the notes offered hereby
if any of the notes are purchased.
The sponsor has been advised by the underwriter that they propose initially
to offer the notes to the public in Europe and the United States at the
underwriting price set forth herein and to certain dealers at such, price, less
a discount not in excess of ____% of the note denominations. The underwriter may
allow and such dealers may reallow a discount not in excess of ___% of the note
denominations to certain other dealers. After the initial public offering, the
public offering price, such concessions and such discounts may be changed.
The sponsor has been advised by the underwriter that they presently intend
to make a market in the notes offered hereby; however, the underwriter is not
obligated to do so, any market-making may be discontinued at any time, and there
can be no assurance that an active public market for the notes will develop.
In connection with the offering, the underwriter may engage in transactions
that stabilize, maintain or otherwise affect the price of the notes.
Specifically, the underwriter may overallot the offering, crating a syndicate
short position. In addition, the underwriter may bid for, and purchase, the
notes in the open market to cover syndicate shorts or to stabilize the price of
the notes. Any of these activities may stabilize or maintain the market price of
the notes above independent market levels. The underwriter is not required to
engage in these activities, and if commenced, such activities may be
discontinued at any time.
The underwriting agreement provides that the sponsor will indemnify the
underwriter against certain civil liabilities, including liabilities under the
Securities Act of 1933, as amended.
LEGAL MATTERS
Certain legal matters with respect to the notes will be passed upon for the
sponsor by [ ] and for the underwriters by [ ].
[EXPERTS]
RATINGS
It is a condition to issuance that the notes be rated "____" by __________
and _____ and "_____" by ___________.
A securities rating addresses the likelihood of the receipt by noteholders
of payments on the mortgage loans. The rating takes into consideration the
characteristics of the mortgage loans and the structural, legal and tax aspects
associated with the notes. The ratings on the notes do not, however, constitute
statements regarding the likelihood or frequency of prepayments on the mortgage
loans or the possibility that noteholders might realize a lower than anticipated
yield.
The ratings assigned to the notes will depend primarily upon the
creditworthiness of the insurer. Any reduction in a rating assigned to the
claims-paying ability of the insurer below the ratings initially assigned to the
notes may result in a reduction of one or more of the ratings assigned to the
notes.
A securities rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each securities rating should be evaluated independently of
similar ratings on different securities.
<PAGE>
INDEX OF DEFINED TERMS
Page
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Additional Balance.........................................................S-17
Agreements...........................................................S-12, S-21
Alternative Principal Payment..............................................S-29
Business Day...............................................................S-27
CLTV.......................................................................S-17
Code.......................................................................S-42
Collection Account.........................................................S-25
Collection Period..........................................................S-27
Credit Limit Utilization Rate..............................................S-17
Credit Line Agreement......................................................S-17
Cut-Off Date...............................................................S-11
default....................................................................S-18
Determination Date.........................................................S-25
Distribution Account.......................................................S-25
Draw.......................................................................S-17
Draw Period................................................................S-17
DTC........................................................................S-22
due date...................................................................S-18
Eligible Account...........................................................S-25
Eligible Substitute Mortgage Loan..........................................S-23
ERISA......................................................................S-47
Events of Servicing Termination............................................S-37
Index......................................................................S-18
Insolvency Event...........................................................S-38
interest accrual period....................................................S-28
Interest Collections.......................................................S-26
Invested Amount............................................................S-22
Investor Floating Allocation Percentage....................................S-26
Investor Interest Collections..............................................S-26
Investor Loss Amount.......................................................S-27
Investor Principal Collections.............................................S-26
LIBOR Business Day.........................................................S-29
liquidated mortgage loan...................................................S-27
Liquidation Loss Amount....................................................S-27
Liquidation Proceeds.......................................................S-26
Managed Amortization Period................................................S-29
Maximum Principal Payment..................................................S-29
Net Liquidation Proceeds...................................................S-26
Net WAC....................................................................S-28
New Withholding Regulations................................................S-46
note balance...............................................................S-22
Note Owners................................................................S-43
Note Rate..................................................................S-28
OID........................................................................S-43
OID Regulations............................................................S-43
Original Invested Amount...................................................S-22
Payment Date...............................................................S-27
Plan Assets Regulation.....................................................S-47
Plans......................................................................S-47
principal balance..........................................................S-27
Principal Collections......................................................S-26
PTCE.......................................................................S-47
Rapid Amortization Event...................................................S-30
Rapid Amortization Period............................................S-29, S-30
Record Date................................................................S-27
Reference Bank Rate........................................................S-29
Related Documents..........................................................S-22
Scheduled Principal Collections
Payment Amount..........................................................S-29
SMMEA......................................................................S-48
Sponsor Principal Collections..............................................S-26
Tax Counsel................................................................S-43
Telerate Screen Page 3750..................................................S-28
trust......................................................................S-21
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the SEC is effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JANUARY 24, 2000
Prospectus Supplement
(To prospectus dated _________, ____)
$___________ (approximate)
HOME EQUITY LOAN TRUST 200_
HOME EQUITY LOAN ASSET-BACKED CERTIFICATES, SERIES 200_
GREENPOINT MORTGAGE SECURITIES INC.
AS SPONSOR
[LOGO] [GREENPOINT MORTGAGE FUNDING, INC.]
AS SELLER AND SERVICER
The certificates THE TRUST
represent
obligations of the o will issue [2] classes of senior certificates
trust only and do
not represent an o will issue a single residual certificate
interest in or
obligation of o will make a REMIC election for federal income tax
the sponsor, the purposes
trustee or any of
their affiliates. THE CERTIFICATES
This prospectus o represent the entire beneficial interest in a
supplement may trust, whose assets consist of a pool of closed-end
be used to offer fixed rate mortgage loans
and sell the
certificates only o currently have no trading market
if accompanied
by the o are obligations of the trust only and are not
prospectus. obligations of the seller and servicer or its
affiliates
CREDIT ENHANCEMENT
o will be provided in the form of
[overcollateralization] and an irrevocable and
unconditional certificate guaranty insurance
policy issued by [certificate insurer]
REVIEW THE INFORMATION IN "RISK FACTORS" ON PAGE S-__ HEREIN AND ON PAGE __ IN
THE PROSPECTUS.
o For complete information about the certificates, read both this prospectus
supplement and the prospectus.
o __________________, the underwriter, will buy the offered certificates from
GreenPoint Mortgage Securities Inc. at a price equal to ________ of their
face value. The underwriter will sell the offered certificates from time to
time in negotiated transactions.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
[UNDERWRITER]
_____________, 200_
<PAGE>
TABLE OF CONTENTS
Page
----
PROSPECTUS SUPPLEMENT
Summary.....................................................................S-3
Risk Factors................................................................S-9
The Certificate Insurer....................................................S-12
[Greenpoint Mortgage Funding, Inc.]........................................S-12
Greenpoint Mortgage Funding, Inc.'s Loan Program...........................S-15
The Sponsor................................................................S-16
Description of the Mortgage Loans..........................................S-16
Prepayment and Yield Considerations........................................S-20
Description of the Certificates............................................S-25
Use of Proceeds............................................................S-43
Federal Income Tax Consequences............................................S-43
State Taxes................................................................S-46
ERISA Considerations.......................................................S-46
Legal Investment Considerations............................................S-49
Underwriting...............................................................S-49
Experts....................................................................S-50
Legal Matters..............................................................S-50
Ratings....................................................................S-50
Index of Defined Terms.....................................................S-51
PROSPECTUS
Risk Factors..................................................................4
The Trust.....................................................................8
Use of Proceeds..............................................................14
The Sponsor..................................................................14
Loan Program.................................................................14
Description of the Securities................................................17
Credit Enhancement...........................................................32
Yield and Prepayment Consideration...........................................38
The Agreements...............................................................41
Certain Legal Aspects of the Loans...........................................58
Federal Income Tax Consequences..............................................69
State Tax Considerations.....................................................96
ERISA Considerations.........................................................96
Legal Investment............................................................101
Method of Distribution......................................................102
Legal Matters...............................................................103
Financial Information.......................................................103
Available Information.......................................................103
Incorporation of Certain Documents by Reference.............................104
Rating......................................................................104
Index of Defined Terms......................................................106
<PAGE>
SUMMARY
This summary highlights selected information from this document and does not
contain all of the information that you need to consider in making your
investment decision. Please read this entire prospectus supplement and the
accompanying prospectus carefully for additional information about the offered
certificates.
HOME EQUITY LOAN ASSET-BACKED CERTIFICATES, SERIES 200_-_
- ------------------------------------------------------------------------------
LAST
INITIAL CLASS SCHEDULED
CERTIFICATE PRINCIPAL PAYMENT
CLASS RATE BALANCE DATE RATING RATING TYPE
- -----------------------------------------------------------------------------
Class A-1 % $ -
- -----------------------------------------------------------------------------
Class A-2 % $ -
- -----------------------------------------------------------------------------
Class R N/A $0 -
- -----------------------------------------------------------------------------
The initial class principal balance is subject to a variance of ___%.
The Class R certificates are not being offered.
THE SELLER AND SERVICER
o [GreenPoint Mortgage Funding, Inc.].
o [GreenPoint Mortgage Funding, Inc.] maintains its principal office at
1100 Larkspur Landing Circle, Suite 101, Larkspur, California 94939.
Its telephone number is (415) 925-5442.
o The servicer will receive a monthly fee from the interest payments on
the mortgage loans equal to __% per annum on the principal balance of
each mortgage loan.
WE REFER YOU TO "GREENPOINT MORTGAGE FUNDING, INC." IN THIS PROSPECTUS
SUPPLEMENT FOR ADDITIONAL INFORMATION.
THE SPONSOR
o GreenPoint Mortgage Securities Inc.
o GreenPoint Mortgage Securities Inc. maintains its principal office at
700 Larkspur Landing Circle, Suite 240, Larkspur, California 94939.
Its telephone number is (415) 925-5442.
WE REFER YOU TO "THE SPONSOR" IN THIS PROSPECTUS SUPPLEMENT FOR ADDITIONAL
INFORMATION.
TRUST
o Home Equity Loan Trust 200_-_.
TRUSTEE
o [----------------------------]
CERTIFICATE INSURER
o [------------------].
WE REFER YOU TO "THE CERTIFICATE INSURER" IN THIS PROSPECTUS SUPPLEMENT FOR
ADDITIONAL INFORMATION.
CUT-OFF DATE
o ____________, 200_.
CLOSING DATE
o ____________, 200_.
PAYMENT DATE
o The [25th] day of each month, or if that day is not a business day, the
next business day. The first payment date is ___________ 200_.
DUE PERIOD
o The calendar month immediately preceding a determination date or a
payment date, as applicable.
REGISTRATION OF OFFERED CERTIFICATES
We will issue the offered certificates in book-entry form. You will hold
your interests either through a depository in the United States or through
one of two depositories in Europe. While the certificates are book-entry,
they will be registered in the name of a depository, or in the name of a
depository's nominee.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--BOOK-ENTRY CERTIFICATES"
IN THIS PROSPECTUS SUPPLEMENT AND "RISK FACTORS--CONSEQUENCES OF OWNING
BOOK-ENTRY CERTIFICATES" IN THE PROSPECTUS FOR ADDITIONAL INFORMATION.
TRUST PROPERTY
The trust property is held by the trustee for the benefit of the
certificateholders. The trust property includes:
o a pool of closed-end fixed rate mortgage loans, secured by first and
second deeds of trust or mortgages on one- to four-family residential
properties;
o payments on the mortgage loans received on and after the cut-off date;
o property that secured a mortgage loan which has been acquired by
foreclosure or deed in lieu of foreclosure;
o rights under any hazard insurance policies covering the mortgaged
properties; and
o amounts on deposit in accounts described in this prospectus supplement.
THE MORTGAGE LOANS
On the closing date, the trust will acquire a pool of fixed rate home equity
loans, or "mortgage loans" with an aggregate principal balance as of the
cut-off date of $____________.
The mortgage loans will have the following characteristics as of the cut-off
date:
o number of mortgage loans: _______
o aggregate principal balance: $____________
o mortgaged property location: __ states and the District of Columbia
o average principal balance: $___________
o maximum principal balance: $___________
o interest rates range: _____% to ____%
o weighted average interest rate: _________% (approximate)
o weighted average remaining term to stated maturity, based on principal
balance: ___ months (approximate)
o term to stated maturity range: __ months to 360 months
o combined loan-to-value ratio range: ____% to _____% (approximate)
o balloon loans - loans with amortization schedules that do not fully
amortize by their maturity date: _____% (approximate)
WE REFER YOU TO "DESCRIPTION OF THE MORTGAGE LOANS" IN THIS PROSPECTUS
SUPPLEMENT FOR ADDITIONAL INFORMATION.
MONTHLY ADVANCES
If the servicer reasonably believes that cash advances can be recovered
from future payments or collections on the mortgage loans, the servicer
will make cash advances to the trust to cover delinquent mortgage loan
payments. The servicer will make advances only to maintain a regular flow
of scheduled interest and principal payments on the certificates, not to
guarantee or insure against losses.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--ADVANCES" IN THIS
PROSPECTUS SUPPLEMENT FOR ADDITIONAL INFORMATION.
THE CERTIFICATES
1. General
o Each month the trustee will calculate the amount you are owed.
o If you hold a certificate on the last day of a calendar month, you
will be entitled to receive payments on the payment date in the next
month.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES" IN THIS PROSPECTUS
SUPPLEMENT FOR ADDITIONAL INFORMATION.
2. Interest Distributions
o Interest accrues on the certificates from the first day of a calendar
month through the last day of that calendar month.
On each payment date, you will be entitled to the following:
o interest at the certificate rate that accrued during the interest
period; and
o any interest that was due on a prior payment date and not paid. In
addition, interest will have accrued on the amount of interest which
was previously due and not paid.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--INTEREST" IN THIS
PROSPECTUS SUPPLEMENT FOR ADDITIONAL INFORMATION.
3. Principal Distributions
o Principal distributions are payable on each payment date. However, no
class of certificates will receive a principal distribution until the
other classes with a lower numerical class designation are paid in
full.
o Shortfalls in available funds may result in a class receiving less
than what is due.
o The calculation of the amount a class is entitled to receive on each
payment date and the priority of principal distributions among the
certificates is described in this prospectus supplement under
"Description of the Certificates--Principal."
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--PRINCIPAL" IN THIS
PROSPECTUS SUPPLEMENT FOR ADDITIONAL INFORMATION.
CREDIT ENHANCEMENTS
1. THE CERTIFICATE INSURANCE POLICY: The policy guarantees the payment of:
o accrued and unpaid interest on the offered certificates;
o principal losses on the mortgage loans; and
o any principal amounts owed to the certificateholders on the last
scheduled payment date.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--THE POLICY" AND "THE
CERTIFICATE INSURER" IN THIS PROSPECTUS SUPPLEMENT FOR ADDITIONAL
INFORMATION.
2. OVERCOLLATERALIZATION: Certain receipts in excess of the amounts due on the
certificates will be applied as principal payments to the certificates.
This will result in an acceleration of principal payments on the
certificates relative to the amortization of the related mortgage loans,
increasing the amount of credit support for the certificates.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--OVERCOLLATERALIZATION" IN
THIS PROSPECTUS SUPPLEMENT FOR ADDITIONAL INFORMATION.
PRE-FUNDING ACCOUNT
On the closing date, the sponsor shall deposit cash to the trust, which the
trust will use to acquire additional mortgage loans from the seller. The
trustee may only acquire such additional mortgage loans until
_________________.
If any amounts are left in the pre-funding accounts on [date], holders of
the certificates will receive such amounts as an early payment of
principal.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--PRE-FUNDING ACCOUNT" IN
THIS PROSPECTUS SUPPLEMENT FOR ADDITIONAL INFORMATION.
CAPITALIZED INTEREST ACCOUNT
On the closing date, the trustee shall deposit cash to the trust which will
be used to cover interest shortfalls on the certificates expected to occur
prior to the trust's purchase of the additional mortgage loans. Until the
trust purchases the additional mortgage loans or prepays the certificates,
interest payments on the mortgage loans will not cover the amount of
interest due on the certificates.
Any amounts left in the capitalized interest account after [date] will be
paid to seller.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--CAPITALIZED INTEREST
ACCOUNT" IN THIS PROSPECTUS SUPPLEMENT FOR ADDITIONAL INFORMATION.
OPTIONAL TERMINATION
If the total pool balance declines below __% of the total pool balance as
of the cut-off date, then the sponsor may purchase all of the trust assets
and terminate the trust. In this event, you will receive a final
distribution.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--TERMINATION; PURCHASE OF
MORTGAGE LOANS" IN THIS PROSPECTUS SUPPLEMENT FOR MORE DETAIL.
FEDERAL TAX CONSIDERATIONS
For federal income tax purposes:
o An election will be made to treat the trust as a REMIC
o The offered certificates will be regular interests in the REMIC and will
be treated as debt instruments of the REMIC
o The Class R certificates will represent the beneficial ownership of the
sole class of residual interest in the REMIC.
WE REFER YOU TO "FEDERAL INCOME TAX CONSIDERATIONS" IN THIS PROSPECTUS
SUPPLEMENT AND IN THE PROSPECTUS FOR ADDITIONAL INFORMATION.
ERISA CONSIDERATIONS
The fiduciary responsibility provisions of ERISA and prohibited
transaction provisions of ERISA and the Internal Revenue Code can limit
investments by certain pension and other employee benefit plans. Provided
certain conditions are met, the offered certificates may be purchased by
pension and other benefit plans. If you are a fiduciary of a pension or
other employee benefit plan which is subject to ERISA, you should consult
with your counsel regarding the applicability of the provisions of ERISA
and the Internal Revenue Code before purchasing a certificate.
WE REFER YOU TO "ERISA CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS FOR ADDITIONAL INFORMATION.
LEGAL INVESTMENT CONSIDERATIONS
The certificates are not eligible under the Secondary Mortgage Market
Enhancement Act of 1984. Consequently, some institutions will be unable to
invest in the certificates.
WE REFER YOU TO "LEGAL INVESTMENT CONSIDERATIONS" IN THIS PROSPECTUS
SUPPLEMENT AND "LEGAL INVESTMENT" IN THE PROSPECTUS FOR ADDITIONAL
INFORMATION.
CERTIFICATE RATING
The trust will not issue the offered certificates unless they receive the
following ratings:
___ by _________________
___ by _________________
A rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal by either rating agency.
WE REFER YOU TO "RATING" AND "RISK FACTORS--RATING OF THE SECURITIES DOES
NOT ASSURE PAYMENT" IN THE PROSPECTUS FOR ADDITIONAL INFORMATION.
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS PRIOR TO ANY
PURCHASE OF CERTIFICATES. YOU SHOULD ALSO CAREFULLY CONSIDER THE INFORMATION SET
FORTH UNDER "RISK FACTORS" IN THE PROSPECTUS.
BALLOON LOANS INCREASE RISK OF LOSS
Balloon loans pose a risk because a borrower must pay a large lump sum
payment of principal at the end of the loan term. If the borrower is unable to
pay the lump sum or refinance such amount, you will suffer a loss if the insurer
fails to perform its obligations under the policy and the other forms of credit
enhancement are insufficient to cover the loss. Approximately ___% of the
mortgage loans are balloon loans.
PREPAYMENTS AFFECT TIMING AND RATE OF RETURN ON YOUR INVESTMENT
The yield to maturity on your certificates will be directly related to the
rate of principal payments on the mortgage loans. Please consider the following:
o Mortgagors may fully or partially prepay their mortgage loan at any
time. However, some mortgage loans require that the mortgagor pay a fee
with any prepayments in full within five years of origination, except
that generally no fee is required for any prepayment in full made within
twelve months of a loan's maturity date. This may result in the rate of
prepayments being slower than would otherwise be the case.
o All the mortgage loans contain due-on-sale provisions. Due-on-sale
provisions require the mortgagor to fully pay the mortgage loan when the
mortgaged property is sold. Generally, the servicer will enforce the
due-on-sale provision unless prohibited by applicable law.
o Home equity loans generally are not viewed by borrowers as permanent
financing. Accordingly, the mortgage loans may experience a higher rate
of prepayment than purchase money first lien mortgage loans.
WE REFER YOU TO "RISK FACTORS - PREPAYMENTS ARE UNPREDICTABLE AND AFFECT
YIELD" IN THE PROSPECTUS.
RATINGS BASED PRIMARILY ON CLAIMS-PAYING ABILITY OF THE INSURER
The rating on the certificates depends primarily on an assessment by the
rating agencies of the mortgage loans and upon the claims-paying ability of the
insurer. Any reduction of the rating assigned to the claims-paying ability of
the insurer may cause a corresponding reduction on the ratings assigned to the
notes. A reduction in the rating assigned to the notes will reduce the market
value of the notes and may affect your ability to sell them. In general, the
rating on your notes addresses credit risk and does not address the likelihood
of prepayments.
WE REFER YOU TO "RATINGS" IN THIS PROSPECTUS SUPPLEMENT.
INTEREST PAYMENTS ON THE MORTGAGE LOANS MAY BE REDUCED
o PREPAYMENTS OF PRINCIPAL MAY REDUCE INTEREST PAYMENTS. If a mortgagor
prepays a mortgage loan in full, the mortgagor is charged interest only
up to the date of the prepayment, instead of a full month. The servicer
is obligated to reduce its servicing fee in the month of such prepayment
so that one month's interest is paid with such prepayment in full. If
the servicing fee is insufficient to pay such interest shortfalls
attributed to prepayments, a shortfall in interest due on the notes may
result. The insurer is required to cover this shortfall. If the insurer
fails to perform its obligations under the policy, you may incur a loss.
o CERTAIN INTEREST SHORTFALLS ARE NOT COVERED BY THE SERVICER OR THE
INSURANCE POLICY. The Soldiers' and Sailors' Civil Relief Act of 1940
permits certain modifications to the payment terms for mortgage loans,
including a reduction in the amount of interest paid by the borrower,
under certain circumstances. Neither the servicer nor the insurer will
pay for any interest shortfalls created by the Soldiers' and Sailors'
Civil Relief Act of 1940.
RISK OF LOSSES AS A RESULT OF GEOGRAPHIC CONCENTRATION
The mortgaged properties are located in __ states. However, __% of the
mortgaged properties (by principal balance as of the cut-off date) are located
in ______. If ____________ experiences weaker economic conditions or greater
rates of decline in real estate values than the United States generally, then
the pool of mortgage loans may experience higher rates of delinquencies,
defaults and foreclosures than if the pool were more diversified.
RISK OF INCREASED DELINQUENCY, DEFAULT AND FORECLOSURE EXPERIENCE DUE TO LESS
STRINGENT UNDERWRITING STANDARDS
The seller's underwriting standards are generally less stringent than those
of Fannie Mae or the Freddie Mac with respect to credit history and certain
other items. If a borrower has a poor credit history, the seller may still make
a loan to the borrower. This approach to underwriting may result in higher rates
of delinquencies, defaults and foreclosures than for mortgage loans underwritten
in a more traditional manner.
[RISK OF PREPAYMENT DUE TO SUBSEQUENT MORTGAGE LOANS
The trust will buy additional mortgage loans from the seller until _______.
The seller will sell mortgage loans to the trust if it has mortgage loans to
sell. The ability of the seller to originate and acquire additional mortgage
loans is affected by a variety of factors, including interest rates,
unemployment levels, the rate of inflation and consumer perception of economic
conditions generally. If the full amount deposited in the pre-funding accounts
for the purpose of purchasing additional mortgage loans cannot be used for that
purpose within [three] months from the closing date, any remaining amounts will
be paid to you as a prepayment on the certificates.]
RISKS ASSOCIATED WITH YEAR 2000 COMPLIANCE
Some computer programs use two digits to define the applicable year. In
performing date calculations, a two-digit program could recognize a date ending
in "00" as the year 1900, rather than the year 2000. This could result in a
failure to properly calculate dates after December 31, 1999, including dates
such as February 29, 2000, and this could also cause the computer running the
program to stop operating properly.
If the servicer, any subservicer or any of their suppliers, customers or
agents do not timely implement effective procedures to deal with computer
programs that rely on two-digit year calculations, the servicer's performance of
its obligations under the pooling and servicing agreement could be adversely
affected. This could result in delays in processing payments on the mortgage
loans, which could cause a delay in distributions to you.
<PAGE>
THE CERTIFICATE INSURER
The information set forth in this section has been provided by the
certificate insurer. No representation is made by the underwriter, the sponsor,
the seller, the servicer or any of their affiliates as to the accuracy or
completeness of any such information.
[DESCRIPTION OF THE CERTIFICATE INSURER]
[GREENPOINT MORTGAGE FUNDING, INC.]
[GENERAL
GreenPoint Mortgage Funding, Inc., the seller and servicer, is engaged in
the mortgage banking business, which consists of the origination, acquisition,
sale and servicing of residential mortgage loans secured primarily by one to
four-unit family residences, and the purchase and sale of mortgage servicing
rights. The seller originates loans through a nationwide network of production
branches. Loans are originated primarily through the seller's wholesale
division, through a network of independent mortgage loan brokers approved by the
seller, and also through its retail lending division and correspondent lending
division. The mortgage loans were acquired by the seller in one of the three
following manners: (1) originated by an independent broker and purchased by the
seller, (ii) originated by a broker and funded by the seller, or (iii)
originated and funded by the seller in the ordinary course of business.
The seller is a wholly-owned subsidiary of GreenPoint Financial Corp., a
national specialty housing finance company. GreenPoint Financial Corp. is listed
on the New York Stock Exchange under the symbol "GPT."
The seller's present business operations were formed through the transfer to
the seller effective October 1, 1999 of the assets and liabilities of Headlands
Mortgage Company. Simultaneously with this transfer, GreenPoint Mortgage Corp.,
a subsidiary of GreenPoint Financial Corp. specializing in non-conforming, no
documentation loans, was merged into the seller. All of the mortgage operations
of GreenPoint Financial Corp. are now conducted through the seller.
The seller's executive offices are located at 1100 Larkspur Landing Circle,
Suite 101, Larkspur, California 94939.
[SERVICING OVERVIEW
The servicer will service the mortgage loans pursuant to the pooling and
servicing agreement. All of the mortgage loans are currently serviced by the
servicer substantially in accordance with the procedures described below and in
the accompanying prospectus. The seller has originated home equity mortgage
loans since __________________________.
In connection with the consolidation of GreenPoint Financial Corp.'s
mortgage operations in the seller as described above, the servicing operations
formerly maintained by Headlands Mortgage Company at its servicing center in
Santa Rosa, California are being transferred to the servicing center formerly
maintained by GreenPoint Mortgage Corp. in Columbus, Georgia. The servicer
expects this transfer to be completed during the first quarter of 2000, at which
time all of the servicer's servicing operations will be located in Columbus. The
servicer will continue to use the servicing procedures described herein and in
the accompanying prospectus to service the mortgage loans; however the personnel
who service the mortgage loans at the Columbus facility will principally be
former GreenPoint Mortgage Corp. employees rather than former Headlands Mortgage
Company employees. Until the transfer is complete, a portion of the mortgage
loans will continue to be serviced at the Santa Rosa facility.
Mortgage loan servicing includes:
o collecting payments from borrowers and remitting those funds to
investors,
o accounting for mortgage loan principal and interest,
o reporting to investors,
o holding custodial funds for payment of mortgage and mortgage related
expenses such as taxes and insurance,
o advancing funds to cover delinquent payments,
o inspecting foreclosures and property disposition in the event of
unremedied defaults, and
o otherwise administering the mortgages.
The following tables contain servicing portfolio information with respect to
dates and periods prior to the consolidation of GreenPoint Financial Corp.'s
mortgage operations in the seller on October 1, 1999. The first table below
summarizes the delinquency, foreclosure and loss experience on Headlands
Mortgage Company's HELOC mortgage loan and closed end mortgage loan servicing
portfolio. This portfolio consists of second-lien and home equity lines of
credit mortgage loans originated or acquired by Headlands Mortgage Company and
included in a securitization transaction (either pursuant to the sponsor's
securitization program or one sponsored by a third-party conduit). The second
table below summarizes the available delinquency, foreclosure and loss
experience of GreenPoint Mortgage Corp. with respect to second-lien and home
equity lines of credit mortgage loans originated or acquired by GreenPoint
Mortgage Corp. GreenPoint Mortgage Corp. did not originate second-lien or home
equity lines of credit mortgage loans using underwriting standards comparable to
those used by Headlands Mortgage Company and which were used to originate the
mortgage loans. GreenPoint Mortgage Corp. only had limited experience in
servicing second-lien or home equity loans.
<TABLE>
<CAPTION>
HEADLANDS MORTGAGE COMPANY
HELOC AND SECOND LIEN MORTGAGE PORTFOLIO
DELINQUENCY AND FORECLOSURE EXPERIENCE
---------------------------------------------------------------------------------------------
December 31, ___ December 31, ___ December 31, ___ __________, ___
--------------------- --------------------- --------------------- ---------------------
Percent of Percent of Percent of Percent of
Number Servicing Number Servicing Number Servicing Number Servicing
of Loans Portfolio of Loans Portfolio of Loans Portfolio of Loans Portfolio
-------- ---------- -------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Number
======== ========== ======== ========== ======== ========== ======== ==========
Period of
Delinquency
Total
Delinquencies
(excluding
foreclosures)
======== ========== ======== ========== ======== ========== ======== ==========
Foreclosures
Pending
======== ========== ======== ========== ======== ========== ======== ==========
Losses sustained
===================== ===================== ===================== =====================
</TABLE>
<TABLE>
<CAPTION>
GREENPOINT MORTGAGE CORP.
HELOC AND SECOND LIEN MORTGAGE PORTFOLIO
DELINQUENCY, FORECLOSURE AND LOSS EXPERIENCE
------------------------------------------------------------------------
December 31, ___ December 31, ___ __________, ___
---------------------- ---------------------- ----------------------
Percent of Percent of Percent of
Number of Servicing Number of Servicing Number of Servicing
Loans Portfolio Loans Portfolio Loans Portfolio
--------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total Number
========= ========== ========= ========== ========= ==========
Period of Delinquency
Total Delinquencies
(excluding foreclosures)
========= ========== ========= ========== ========= ==========
Foreclosures Pending
========= ========== ========= ========== ========= ==========
Losses sustained
====================== ====================== ======================
</TABLE>
<PAGE>
GREENPOINT MORTGAGE FUNDING, INC.'S LOAN PROGRAM
The mortgage loans will have been purchased by GreenPoint Mortgage Funding,
Inc., either directly or through affiliates, from mortgage loan brokers or
originated by its retail division. The mortgage loans have been originated in
accordance with the underwriting criteria specified below under "--Underwriting
Standards."
UNDERWRITING STANDARDS
The seller believes that the mortgage loans originated were underwritten in
accordance with standards consistent with those utilized by mortgage lenders
generally during the period of origination.
Underwriting standards are applied by or on behalf of a lender to evaluate
the borrower's credit standing and repayment ability, and the value and adequacy
of the mortgaged property as collateral. In general, a prospective borrower
applying for a mortgage loan is required to fill out a detailed application
designed to provide to the underwriting officer pertinent credit information. As
part of the description of the borrower's financial condition, the borrower
generally is required to provide a current list of assets and liabilities and a
statement of income and expenses, as well as an authorization to acquire a
credit report which summarizes the borrower's credit history with local
merchants and lenders and any record of bankruptcy or other public records. In
most cases, an employment verification is obtained from an independent source
(typically the borrower's employer) which verification reports the length of
employment with that organization, the current salary and whether it is expected
that the borrower will continue such employment in the future. If a prospective
borrower is self-employed, the borrower may be required to submit copies of
signed tax returns. The borrower may also be required to authorize verification
of deposits at financial institutions where the borrower has demand or savings
accounts.
In determining the adequacy of the mortgaged property as collateral, an
appraisal is made of each property considered for financing. The appraiser is
required to inspect the property and verify that it is in good condition and
that construction, if new, has been completed. For single family loans, the
appraisal is based on the market value of comparable homes, the estimated rental
income, if considered applicable by the appraiser, and the cost of replacing the
home. For loans on a two-to-four unit property, the appraisal must specify
whether an income analysis, a market analysis or a cost analysis was used. The
income analysis evaluates a two-to-four unit project's cash flow, expenses,
capitalization and other operational information in determining the property's
value. The market analysis to evaluate the prices paid for the purchase of
similar properties in the two-to-four unit project's area, with adjustments made
for variations between these properties and the multifamily project being
appraised. In the cost analysis, in the appraiser makes an estimate of land
value and then determines the current cost of reproducing the building, less any
accrued depreciation. In any case, the value of the property being financed, as
indicated by the appraisal, must currently support and should support in the
future, the outstanding loan balance. For property values to $650,000 appraisers
may use either a full appraisal (FNMA 1004/FHLMC 70) or a drive-by appraisal
(FHLMC 704); for values between $650,001 to $1,000,000 with a combined
loan-to-value of less than 75%, a full appraisal is required; for values between
$650,001 to $1,000,000 with a combined loan-to-value of greater than 75%, a full
appraisal and one field review ordered by the lender is required; and for loans
with values greater than $1,000,000 with a combined loan-to-value greater than
65%, two full appraisals are required. The seller may order discretionary
reviews at any time to ensure the value of the properties.
In the case of single family loans, once all applicable employment, credit
and property information is received, a determination generally is made as to
whether the prospective borrower has sufficient monthly income available (a) to
meet the borrower's monthly obligations on the proposed mortgage loan, which is
determined on the basis of the monthly payments due in the year of origination,
and other expenses related to the mortgaged property, such as property taxes and
hazard insurance and (b) to meet monthly housing expenses, other financial
obligations and monthly living expenses. The underwriting standards applied by
the seller may be varied in appropriate cases where factors such as low
loan-to-value ratios or other favorable credit exist. However, maximum combined
loan-to-value ratios and maximum loan amounts are limited by credit score and
total debt-to-income ratios.
The seller requires title insurance for all mortgage loans. Fire and
extended hazard insurance and flood insurance, when applicable, are also
required.
A lender may originate mortgage loans under a reduced documentation program.
A reduced documentation program is designed to streamline the loan approval
process and thereby improve the lender's competitive position among other loan
originators. Under a reduced documentation program, more emphasis is placed on
credit score and property underwriting than on certain credit underwriting
documentation concerning income. Further, employment verification is waived.
For mortgage loans secured by a leasehold interest in a real property, the
company will represent and warrant, among other things, that the remaining term
of the lease and any sublease is at least five years longer than the remaining
term of the mortgage loan.
THE SPONSOR
The sponsor is a company incorporated in Delaware on November 18, 1996. The
sponsor is a special purpose corporation organized for limited purposes, with
limited assets and a limited operating history. The sponsor was named Headlands
Mortgage Securities Inc. prior to a name change effective on December 7, 1999.
The sponsor is a wholly owned subsidiary of GreenPoint Mortgage Funding, Inc.
and maintains its principal office at 700 Larkspur Landing Circle, Suite 240,
Larkspur, California 94939. Its telephone number is (415) 925-5442.
DESCRIPTION OF THE MORTGAGE LOANS
GENERAL
The statistical information presented in this prospectus supplement is only
with respect to the mortgage loans included in the trust and is based on the
characteristics of the mortgage loans as of _______, 200_, (the "Cut-Off Date").
The mortgage loans to be purchased by the trust will be originated or
purchased by the seller and sold by the seller to the sponsor and transferred by
the sponsor to the trust.
The mortgage pool consists of mortgage loans with an aggregate principal
balance, or "pool balance", as of the Cut-Off Date of $_________. The principal
balance of a mortgage loan (other than a liquidated mortgage loan) on any day is
equal to its Cut-Off Date principal balance minus all collections applied in
reduction of the Cut-Off Date principal balance of such mortgage loan.
In no event will more than 5% of the Cut-Off Date pool balance deviate from
the characteristics of the mortgage loans described below.
The mortgage loans provide that interest is charged to the borrowers and
payments are due from the borrowers, as of a scheduled day of each month which
is fixed at the time of origination. Scheduled monthly payments made by the
borrowers on the mortgage loans either earlier or later than the scheduled due
dates will not affect the amortization schedule or the application of the
payments to principal and interest.
The sum of the columns below may not equal the total indicated due to
rounding. In addition, unless otherwise set forth herein, all percentages set
forth herein with respect to the mortgage loans are percentages of the Cut-Off
Date pool balance.
<PAGE>
CUT-OFF DATE PRINCIPAL BALANCES
Range of Cut-Off
Date Principal Number of Cut-Off Date Percent of Cut-Off
Balances Mortgage Loans Pool Balance Date Pool Balance
- -------- -------------- ------------ -----------------
GEOGRAPHIC DISTRIBUTION BY STATE
Number of Cut-Off Date Percent of Cut-Off
State Mortgage Loans Pool Balance Date Pool Balance
- ----- -------------- ------------ -----------------
LOAN-TO-VALUE RATIOS
Number of Cut-Off Date Percent of Cut-Off
Loan-to-Value Ratio Mortgage Loans Pool Balance Date Pool Balance
- ------------------- -------------- ------------ -----------------
LOAN RATES
Number of Cut-Off Date Percent of Cut-Off
Loan Rates Mortgage Loans Pool Balance Date Pool Balance
- ---------- -------------- ------------ -----------------
ORIGINAL TERM TO STATED MATURITY
Original Term to Number of Cut-Off Date Percent of Cut-Off
Stated Maturity Mortgage Loans Pool Balance Date Pool Balance
- --------------- -------------- ------------ -----------------
REMAINING MONTHS TO STATED MATURITY
Remaining Term to Number of Cut-Off Date Percent of Cut-Off
Stated Maturity Mortgage Loans Pool Balance Date Pool Balance
- --------------- -------------- ------------ -----------------
<PAGE>
MONTHS SINCE ORIGINATION
Months Since Number of Cut-Off Date Percent of Cut-Off
Origination Mortgage Loans Pool Balance Date Pool Balance
- ----------- -------------- ------------ -----------------
PROPERTY TYPE
Number of Cut-Off Date Percent of Cut-Off
Property Type Mortgage Loans Pool Balance Date Pool Balance
- ------------- -------------- ------------ -----------------
OCCUPANCY TYPE
Number of Cut-Off Date Percent of Cut-Off
Occupancy Type Mortgage Loans Pool Balance Date Pool Balance
- -------------- -------------- ------------ -----------------
[CONVEYANCE OF SUBSEQUENT MORTGAGE LOANS
The pooling and servicing agreement permits the trust to purchase from the
seller, subsequent to the Cut-Off Date and prior to _______, 200_, subsequent
mortgage loans in an amount not to exceed approximately $________ in aggregate
principal balance for inclusion in the trust. Each subsequent mortgage loan will
have been originated or purchased by the seller in accordance with the
underwriting guidelines set forth above under "GreenPoint Mortgage Funding,
Inc.'s Loan Program--Underwriting Standards." Accordingly, the statistical
characteristics of the pool set forth above are based exclusively on the initial
mortgage loans and the statistical characteristics of the pool after giving
effect to the acquisition of any subsequent mortgage loans will likely differ
from the information provided in this prospectus supplement. The date on which
the seller transfers a subsequent mortgage loan to the trust shall be referred
to in this prospectus supplement as the Subsequent Transfer Date.
Each conveyance of subsequent mortgage loans will be subject to, among other
things, the following conditions:
o the subsequent mortgage loans must:
o satisfy the eligibility criteria set forth in the prospectus under
"The Loan Program--Representations by Sellers; Repurchases" and
o comply with each representation and warranty for the mortgage loans
set forth in the pooling and servicing agreement;
o subsequent mortgage loan must not have been selected by the seller in a
manner that it believes is adverse to the interests of the
certificateholders,
o no subsequent mortgage loan may be ___ or more days contractually
delinquent as of the applicable Cut-Off Date;
o no subsequent mortgage loan may have a remaining term to maturity in
excess of ___ years;
o no subsequent mortgage loan may have a loan rate less than ____%;
o following the purchase of the subsequent mortgage loans by the trust,
the mortgage loans
o will have a weighted average loan rate of at least ____%;
o will have a weighted average loan-to-value ratio of not more than
____%;
o will not have a weighted average remaining term to stated maturity
of more than ____ months; and
o will, in each case, have a principal balance in excess of $_______
as of the Cut-Off Date;
o the seller, [the sponsor and the trustee shall not have been notified by
either rating agency that the conveyance of the subsequent mortgage
loans will result in a qualification, modification or withdrawal of its
then-current rating of any class of certificates] [shall have notified
each rating agency of such conveyance as required by the pooling and
servicing agreement]; and
o the trustee shall have received certain opinions of counsel as to, among
other things, the enforceability and validity of the transfer agreements
relating to such conveyance of such subsequent mortgage loans. All
subsequent mortgage loans shall be added from a specified group of
mortgage loans.
PREPAYMENT AND YIELD CONSIDERATIONS
GENERAL
The rate of principal payments, the aggregate amount of distributions and
the yield to maturity of the offered certificates will be related to the rate
and timing of payments of principal on the mortgage loans. The rate of principal
payments on the mortgage loans will in turn be affected by the amortization
schedules of the mortgage loans and by the rate of principal prepayments,
including for this purpose prepayments resulting from refinancing, liquidations
of the mortgage loans due to defaults, casualties, condemnations and repurchases
by the seller. The mortgage loans may be prepaid by the mortgagors at any time.
However, approximately __% of the mortgage loans are subject to prepayment
penalties which vary from jurisdiction to jurisdiction.
Prepayments, liquidations and purchases of the mortgage loans including any
optional purchase by the sponsor of the remaining mortgage loans in connection
with the termination of the trust, will result in distributions on the related
offered certificates of principal amounts which would otherwise be distributed
over the remaining terms of such mortgage loans. Since the rate of payment of
principal of the mortgage loans will depend on future events and a variety of
factors, no assurance can be given as to such rate or the rate of principal
prepayments. The extent to which the yield to maturity of an offered certificate
may vary from the anticipated yield will depend upon the degree to which a
certificate is purchased at a discount or premium, and the degree to which the
timing of payments thereon is sensitive to prepayments, liquidations and
purchases of such mortgage loans.
The rate of prepayment on the mortgage loans cannot be predicted. The
prepayment experience of the trust with respect to the mortgage loans may be
affected by a wide variety of factors, including economic conditions, prevailing
interest rate levels, the availability of alternative financing and homeowner
mobility and changes affecting the deductibility for federal income tax purposes
of interest payments on loans. All of the mortgage loans contain "due-on-sale"
provisions, and the servicer is required by the pooling and servicing agreement
to enforce such provisions, unless such enforcement is not permitted by
applicable law. The enforcement of a "due-on-sale" provision will have the same
effect as a prepayment of the related mortgage loan. See "Certain Legal Aspects
of Loans--Due-on-Sale Clauses" in the prospectus.
As with fixed rate obligations generally, the rate of prepayment on a pool
of mortgage loans with fixed rates such as the mortgage loans is affected by
prevailing market rates for mortgage loans of a comparable term and risk level.
When the market interest rate is below the interest rate on a mortgage,
mortgagors may have an increased incentive to refinance their mortgage loans.
Depending on prevailing market rates, the future outlook for market rates and
economic conditions generally, some mortgagors may sell or refinance mortgaged
properties in order to realize their equity in the mortgaged properties, to meet
cash flow needs or to make other investments.
In addition to the foregoing factors affecting the weighted average life of
the offered certificates, any use of Excess Spread to pay principal of the
offered certificates will result in the acceleration of the certificates,
relative to the amortization of the mortgage loans. This acceleration feature
creates overcollateralization which results from the excess of the aggregate
principal balance of mortgage loans over the Aggregate Class A Principal
Balance. Once the required level of overcollateralization is reached, the
acceleration feature will cease, unless necessary to maintain the required level
of overcollateralization. See "Description of the Certificates--
Overcollateralization" in this prospectus supplement.
WEIGHTED AVERAGE LIVES
Generally, greater than anticipated prepayments of principal will increase
the yield on the offered certificates purchased at a price less than par and
will decrease the yield on the offered certificates purchased at a price greater
than par. The effect on an investor's yield due to principal prepayments on the
mortgage loans occurring at a rate that is faster (or slower) than the rate
anticipated by the investor in the period immediately following the issuance of
the certificates will not be entirely offset by a subsequent like reduction (or
increase) in the rate of principal payments. The weighted average life of the
offered certificates will also be affected by the amount and timing of
delinquencies and defaults on the mortgage loans and the recoveries, if any, on
defaulted mortgage loans and foreclosed properties.
The "weighted average life" of a certificate refers to the average amount of
time that will elapse from the date of issuance to the date each dollar in
respect of principal of such certificate is repaid. The weighted average life of
any class of offered certificates will be influenced by, among other factors,
the rate at which principal payments are made on the mortgage loans, including
final payments made upon the maturity of balloon loans. The weighted average
life of a certificate of any class is determined by:
o multiplying the amount of each distribution in reduction of the related
Class A Principal Balance by the number of years from the date of
issuance of the certificate to the related Payment Date,
o adding the results, and
o dividing the sum by the highest related Class Principal Balance of the
certificate.
Prepayments on mortgage loans are commonly measured relative to a prepayment
standard or model. The model used in this prospectus supplement is the
prepayment assumption, which represents an assumed rate of prepayment each month
relative to the then outstanding principal balance of the pool of mortgage loans
for the life of such mortgage loans. A 100% prepayment assumption assumes a
conditional prepayment rate ("CPR") of [ ]% per annum. As used in the table
below, 0% prepayment assumption assumes a conditional prepayment rate equal to
0% of the prepayment assumption, i.e., no prepayments. Correspondingly, [200]%
prepayment assumption assumes prepayment rates equal to [200]% of the prepayment
assumption, and so forth. The prepayment assumption does not purport to be a
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
mortgage loans. The sponsor believes that no existing statistics of which it is
aware provide a reliable basis for holders of the offered certificates to
predict the amount or the timing of receipt of prepayments on the mortgage
loans.
Since the tables were prepared on the basis of the assumptions in the
following paragraph, there are discrepancies between characteristics of the
actual mortgage loans and the characteristics of the mortgage loans assumed in
preparing the tables. Any such discrepancy may have an effect upon the
percentages of the Class Principal Balances outstanding and weighted average
lives of the offered certificates set forth in the tables. In addition, since
the actual mortgage loans in the trust have characteristics which differ from
those assumed in preparing the tables set forth below, the distributions of
principal on the offered certificates may be made earlier or later than as
indicated in the tables.
For the purpose of the tables below, it is assumed that:
o the mortgage loans consist of pools of loans with the level-pay and
balloon amortization characteristics set forth below,
o the closing date is ________________,
o distributions on the certificates are made on the 25th day of each month
regardless of the day on which the Payment Date actually occurs,
commencing in _____________ and are made in accordance with the
priorities described herein,
o the scheduled monthly payments of principal and interest on the mortgage
loans will be timely delivered on the first day of each month (with no
defaults), commencing in _______________,
o the mortgage loans' prepayment rates are a multiple of the prepayment
assumption,
o all prepayments are prepayments in full received on the last day of each
month (commencing ______________) and include 30 days' interest thereon,
o no optional termination is exercised,
o the certificates of each class have the respective certificate rates and
initial Class Principal Balances as set forth herein,
o the overcollateralization levels are set initially as specified in the
pooling and servicing agreement, and thereafter decrease in accordance
with the provisions of the pooling and servicing agreement,
o [with respect to pools of loans with an assumed Cut-Off Date of
_________________, interest will be calculated at a rate of % per annum
for one month],
Original Original Remaining
Amortization Term to Term to
Amortization Principal Term Maturity Maturity
Methodology Balance Loan Rate (months) (months) (months)
Balloon..... $
Level Pay... $
Level Pay... $
Subject to the foregoing discussion and assumptions, the following table
indicates the weighted average life of each class of offered certificates, and
sets forth the percentages of the initial Class Principal Balance of each
offered certificate that would be outstanding after each of the dates shown at
various percentages of the prepayment assumption.
<PAGE>
Percent of Initial Class Principal Balance Outstanding
at the Following Percentages of the Prepayment Assumption
Class A-1 Class A-2
--------- ---------
Payment Date % % % % % % % %
- ------------ - - - - - - - -
Initial 100 100 100 100 100 100 100 100
Percentage.......
Weighted Average
Life (years).....
These tables have been prepared based on the assumptions described above
(including the assumptions regarding the characteristics and performance of the
mortgage loans, which differ from the actual characteristics and performance
thereof) and should be read in conjunction with these tables.
<PAGE>
DESCRIPTION OF THE CERTIFICATES
The Home Equity Loan Asset-Backed Certificates, Series 200_-_ will be issued
pursuant to the pooling and servicing agreement. The form of the pooling and
servicing agreement has been filed as an exhibit to the registration statement
of which this prospectus supplement and the prospectus are a part. The following
summaries describe certain provisions of the pooling and servicing agreement.
The summaries do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all of the provisions of the
pooling and servicing agreement. Wherever particular sections or defined terms
of the pooling and servicing agreement are referred to, these sections or
defined terms are incorporated into this prospectus supplement by reference.
GENERAL
The offered certificates will be issued in denominations of $1,000 and
multiples of $1 in excess of $1,000 and will evidence specified undivided
interests in the trust. The property of the trust will consist of, to the extent
provided in the pooling and servicing agreement:
o the mortgage loans;
o payments on the mortgage loans received on and after the Cut-Off Date
(exclusive of amounts that were due prior to the Cut-Off Date);
o mortgaged properties relating to the mortgage loans that are acquired by
foreclosure or deed in lieu of foreclosure;
o the Collection Account and the Distribution Account and funds on deposit
in these accounts, but not including any interest earned on these
accounts; and
o rights under hazard insurance policies covering the mortgaged
properties.
In addition, the seller has caused the certificate insurer to issue an
irrevocable and unconditional certificate guaranty insurance policy (the
"Policy") for the benefit of the holders of the Class A certificates, pursuant
to which the certificate insurer will guarantee payments to the Class A
certificateholders. Definitive certificates will be transferable and
exchangeable at the corporate trust office of the trustee, which will initially
act as certificate registrar. See "--Book-Entry Certificates" below. No service
charge will be made for any registration of exchange or transfer of
certificates, but the trustee may require payment of a sum sufficient to cover
any tax or other governmental charge.
The Class A-1 and Class A-2 certificates will represent undivided ownership
interests in the mortgage loans, all collections on these mortgage loans
(exclusive of interest payments due prior to the Cut-Off Date) and the proceeds
of these mortgage loans. The principal amount of a class of certificates on any
Payment Date is equal to the balance on the closing date minus the aggregate of
amounts actually distributed as principal to the holders of that class. On any
date, the Aggregate Class A Principal Balance is the aggregate of the Class A
Principal Balances of the Class A-1 and Class A-2 certificates.
The person in whose name a certificate is registered as such in the
certificate register is referred to herein as a certificateholder.
The percentage interest of a Class A certificate as of any date of
determination will be equal to the percentage obtained by dividing the
denomination of such certificate by the Class A Principal Balance for the
related class as of the Cut-Off Date.
The certificates will not be listed on any securities exchange.
BOOK-ENTRY CERTIFICATES
The offered certificates will be issued in book-entry form. Persons
acquiring beneficial ownership interests in the offered certificates
("Certificate Owners") will hold their offered certificates through The
Depository Trust Company ("DTC") in the United States, or Cedelbank or the
Euroclear System ("Euroclear") in Europe if they are participants of such
systems, or indirectly through organizations which are participants in such
systems. Investors may hold beneficial interests in the certificates in minimum
denominations representing Certificate Principal Balances of $1,000 and in
multiples of $1 in excess of $1,000. Except under limited circumstances, no
person acquiring a book-entry certificate will be entitled to receive a physical
certificate representing such certificate. Unless and until physical
certificates are issued, it is anticipated that the only "certificateholder" of
the offered certificates will be Cede & Co., as nominee of DTC. Certificate
Owners will not be certificateholders as that term is used in the pooling and
servicing agreement. Certificate Owners are only permitted to exercise their
rights indirectly through the DTC system.
Neither the sponsor, the seller, the servicer nor the trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the book-entry certificates, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
ASSIGNMENT OF MORTGAGE LOANS
On ______________, the closing date, the sponsor will transfer to the trust
all of its right, title and interest in and to each mortgage loan, the mortgage
notes, mortgages and other documents (collectively, the "Related Documents"),
including all payments received on or with respect to each mortgage loan on or
after the applicable Cut-Off Date, but not including interest payments due prior
to the Cut-Off Date. The trustee, concurrently with this transfer, will deliver
the certificates to the sponsor. Each mortgage loan transferred to the trust
will be identified on a mortgage loan schedule delivered to the trustee pursuant
to the pooling and servicing agreement. The mortgage loan schedule will include
information about the principal balance of each mortgage loan as of the Cut-Off
Date, its loan rate as well as other information.
Within 90 days of the closing date, the trustee will review the mortgage
loans and the Related Documents pursuant to the pooling and servicing agreement
and if any mortgage loan or Related Document is found to be defective in any
material respect and that defect is not cured within 90 days following
notification of the defect to the sponsor, the sponsor will be obligated to
either replace the defective mortgage loan with an Eligible Substitute Mortgage
Loan or to repurchase the defective mortgage loan. A substitution is permitted
only within two years of the closing date and may not be made unless an opinion
of counsel is provided stating that such substitution will not disqualify the
trust as a REMIC or result in a prohibited transaction tax under the Code. The
sponsor may purchase the defective mortgage loan at a price equal to the
outstanding principal balance of that mortgage loan as of the date of purchase,
plus all accrued and unpaid interest on the defective mortgage loan, computed at
the loan rate, net of the servicing fee (if the seller is the servicer), plus
the amount of any unreimbursed servicing advances made by the servicer. The
purchase price will be deposited in the Collection Account on or prior to the
next succeeding Determination Date after the substitutions or repurchase
obligation arises. The Determination Date is the [ ] day of each month. The
obligation of the sponsor to repurchase or substitute a defective mortgage loan
is the sole remedy regarding any defects in the mortgage loans and Related
Documents available to the trustee or the certificateholders.
In connection with the substitution of an Eligible Substitute Mortgage Loan,
the sponsor will be required to deposit in the Collection Account on or prior to
the next succeeding Determination Date after the substitution or repurchase
obligation arises an amount (the "Substitution Adjustment") equal to the excess
of the principal balance of the related defective mortgage loan over the
Principal Balance of the Eligible Substitute Mortgage Loan.
An Eligible Substitute Mortgage Loan is a mortgage loan substituted by the
sponsor for a defective mortgage loan which must, on the date of the
substitution:
o have an outstanding principal balance (or in the case of a substitution
of more than one mortgage loan for a defective mortgage loan, an
aggregate principal balance), equal to or less than the principal
balance of the defective mortgage loan;
o have a loan rate not less than the loan rate of the defective mortgage
loan and not more than [ ]% in excess of the loan rate of a defective
mortgage loan;
o have a mortgage of the same or higher level of priority as the defective
mortgage loan at the time substitution;
o have a remaining term to maturity not more than six months earlier and
not later than the remaining term to maturity of the defective mortgage
loan;
o comply with each representation and warranty set forth in the pooling
and servicing agreement (deemed to be made as of the date of
substitution);
o have an original loan-to-value ratio not greater than that of the
defective mortgage loan;
o be of the same type of mortgaged property as the defective mortgage loan
or a detached single family residence.
More than one Eligible Substitute Mortgage Loan may be substituted for a
defective mortgage loan if such Eligible Substitute Mortgage Loans meet the
foregoing attributes in the aggregate and such substitution is approved in
writing in advance by the insurer.
The sponsor will make certain representations and warranties as to the
accuracy in all material respects of certain information furnished to the
trustee with respect to each mortgage loan (e.g., Cut-Off Date principal balance
and the loan rate). In addition, the sponsor will represent and warrant, on the
closing date, that, among other things:
o at the time of transfer to the trust, the sponsor has transferred or
assigned all of its right, title and interest in each mortgage loan and
the Related Documents, free of any lien; and
o each mortgage loan complied, at the time of origination, in all material
respects with applicable state and federal laws.
Upon discovery of a breach of any representation and warranty which
materially and adversely affects the interests of the trust, the
certificateholders or the certificate insurer in the related mortgage loan and
Related Documents, the seller will have a period of 90 days after discovery or
notice of the breach to effect a cure. If the breach cannot be cured within the
90-day period, the sponsor will be obligated to substitute for the defective
mortgage loan with an Eligible Substitute Mortgage Loan or purchase the
defective mortgage loan from the trust. The same procedure and limitations that
are set forth above for the substitution or purchase of defective mortgage loans
as a result of deficient documentation relating will apply to the substitution
or purchase of a defective mortgage loan as a result of a breach of a
representation or warranty in the pooling and servicing agreement that
materially and adversely affects the interests of the certificateholders or the
certificate insurer.
Pursuant to the pooling and servicing agreement, the servicer will service
and administer the mortgage loans as more fully set forth above.
PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO COLLECTION ACCOUNT AND DISTRIBUTION
ACCOUNT
The servicer shall establish and maintain in the name of the trustee a
separate Collection Account for the benefit of the holders of the certificates.
The Collection Account will be an Eligible Account. Subject to the investment
provision described in the following paragraphs, upon receipt by the servicer of
amounts in respect of the mortgage loans (excluding amounts representing the
servicing fee), the servicer will deposit these amounts in the Collection
Account. Amounts deposited may be invested in Eligible Investments maturing no
later than two Business Days prior to the next succeeding date on which amounts
on deposit in the Collection Amount are required to be deposited in the
Distribution Account.
The trustee will establish a Distribution Account into which amounts
withdrawn from the Collection Account for distribution to certificateholders on
a Payment Date will be deposited. The Distribution Account will be an Eligible
Account. Amounts on deposited in the Distribution Account may be invested in
Eligible Investments maturing on or before the Business Day prior to the related
Payment Date.
An Eligible Account is an account that is maintained with a depository
institution whose debt obligations at the time of any deposit therein have the
highest short-term debt rating by the rating agencies, and whose accounts are
fully insured by either the Savings Association Insurance Fund or the Bank
Insurance Fund of the FDIC established by such fund with a minimum long-term
unsecured debt rating of "A2" by Moody's and "A" by S&P, otherwise acceptable to
each rating agency and the certificate insurer as evidenced by a letter from
each rating agency and the certificate insurer to the trustee, without reduction
or withdrawal of their then current ratings of the certificates.
Eligible Investments are specified in the pooling and servicing agreement
and are limited to investments which meet the criteria of the rating agencies
from time to time as being consistent with their then current ratings of the
certificates. "Eligible Investments" are limited to:
o direct obligations of, or obligations fully guaranteed as to timely
payment of principal and interest by, the United States or any agency or
instrumentality of the United States, provided that such obligations are
backed by the full faith and credit of the United States;
o repurchase agreements on obligations specified in the prior clause
maturing not more than three months from the date of acquisition
thereof, provided that the short-term unsecured debt obligations of the
party agreeing to repurchase such obligations are at the time rated by
each rating agency in its highest short-term rating category;
o certificates of deposit, time deposits and bankers' acceptances (which,
if Moody's is a rating agency, shall each have an original maturity of
not more than 90 days and, in the case of bankers' acceptances, shall in
no event have an original maturity of more than 365 days) of any U.S.
depository institution or trust company incorporated under the laws of
the United States or any state thereof and subject to supervision and
examination by federal and/or state banking authorities, provided that
the unsecured short-term debt obligations of such depository institution
or trust company at the date of acquisition thereof have been rated by
each of the rating agencies in its highest unsecured short-term debt
rating category;
o commercial paper (having original maturities of not more than 90 days)
of any corporation incorporated under the laws of the United States or
any state thereof which on the date of acquisition has been rated by the
rating agencies in their highest short-term rating categories;
o short term investment funds sponsored by any trust company or bank
incorporated under the laws of the United States or any state thereof
which on the date of acquisition has been rated by the rating agencies
in their respective highest rating category of long term unsecured debt;
o interests in any money market fund which at the date of acquisition of
the interests in such fund and throughout the time as the interest is
held in such fund has the rating specified by each rating agency; and
o other obligations or securities that are acceptable to each rating
agency as an Eligible Investment hereunder and will not result in a
reduction in the then current rating of the certificates, as evidenced
by a letter to such effect from such rating agency and with respect to
which the sponsor has received confirmation that, for tax purposes, the
investment complies with the last clause of this definition; provided
that no instrument described hereunder shall evidence either the right
to receive
o only interest with respect to the obligations underlying such
instrument or
o both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments
with respect to such instrument provided a yield to maturity at par
greater than 120% of the yield to maturity at par of the underlying
obligations; and
o provided, further, that no instrument described hereunder may be
purchased at a price greater than par if such instrument may be prepaid
or called at a price less than its purchase price prior to its stated
maturity.
ADVANCES
Not later than two Business Days prior to each Payment Date, the servicer
will remit to the trustee for deposit in the Distribution Account an amount to
be distributed on that Payment Date, equal to the sum of the interest accrued
and principal due on each mortgage loan through the related Due Date but not
received by the servicer as of the close of business on the last day of the
related Due Period (net of the servicing fee) (the "Monthly Advance"). Such
obligation of the servicer continues with respect to each mortgage loan until a
mortgage loan becomes a liquidated mortgage loan.
In the course of performing its servicing obligations, the servicer will pay
all reasonable and customary "out-of-pocket" costs and expenses incurred in the
performance of its servicing obligations, including, but not limited to, the
cost of
o the preservation, restoration and protection of the mortgaged
properties,
o any enforcement or judicial proceedings, including foreclosures, and
o the management and liquidation of mortgaged properties acquired in
satisfaction of the related mortgage.
o Each such expenditure will constitute a "Servicing Advance."
The servicer's right to reimbursement for Servicing Advances is limited to
late collections on the related mortgage loan, including Liquidation Proceeds,
Insurance Proceeds and other amounts as may be collected by the servicer from
the related mortgagor or that relate to these unreimbursed amounts. The
servicer's right to reimbursement for Monthly Advances shall be limited to late
collections of interest on any mortgage loan and to Liquidation Proceeds and
Insurance Proceeds on the related mortgage loan. The servicer's right to these
reimbursements is prior to the rights of certificateholders.
If in the good faith judgment and sole discretion of the servicer it
determines that an advance will not be ultimately recoverable from the related
mortgagor or other collections from that mortgage, the servicer will not be
required to make an advance for that mortgage loan. If the servicer determines
that an advance will not be recoverable from the related Mortgagor or the other
collections from the mortgage then the servicer may be reimbursed from other
amounts on deposit in the Collection Account.
PAYMENT DATES
On each Payment Date, which is the [25th] day of each month, or if such day
is not a Business Day, then the next Business Day, commencing in
______________________, the holders of the offered certificates will be entitled
to receive, from amounts then on deposit in the Distribution Account, to the
extent of funds available therefor in accordance with the priorities and in the
amounts described below under "--Priority of Distributions," an aggregate amount
equal to the sum of (a) the Class Interest Distribution for each class of
offered certificates and (b) the Class A Principal Distribution. Distributions
will be made (1) in immediately available funds to holders of offered
certificates, the aggregate principal balance of which is at least $1,000,000,
by wire transfer or to the account of such certificateholder at a domestic bank
or other entity having appropriate facilities therefor, if such
certificateholder has so notified the trustee in accordance with the pooling and
servicing agreement, or (2) by check mailed to the address of the person as it
appears on the certificate register maintained by the trustee as certificate
registrar.
DEPOSITS TO THE DISTRIBUTION ACCOUNT
No later than one Business Day prior to each Payment Date, the following
amounts for the previous Due Period shall be deposited into the Distribution
Account and shall constitute the Available Funds for that Payment Date:
o payments of principal and interest on the mortgage loans (net of amounts
representing the servicing fee with respect to each mortgage loan and
reimbursement for related Monthly Advances and Servicing Advances);
o Net Liquidation Proceeds and Insurance Proceeds with respect to the
mortgage loans (net of amounts applied to the restoration or repair of a
mortgaged property);
o the purchase price for repurchased defective mortgage loans and any
related Substitution Adjustment Amounts;
o payments from the servicer in connection with
o Monthly Advances,
o Prepayment Interest Shortfalls and
o the termination of the trust as provided in the pooling and
servicing agreement; and
o any amounts paid under the Policy.
PRIORITY OF DISTRIBUTIONS
A. On each Payment Date the trustee shall withdraw from the Distribution
Account the Available Funds and make distributions as described below and to
the extent of Available Funds in the following order of priority:
(1) to the trustee, the trustee fee for that Payment Date;
(2) to holders of each class of Class A certificates, an amount equal to
the related Class Interest Distribution for that Payment Date;
(3) sequentially, to the Class A-1 and the Class A-2 certificateholders,
in that order, until the respective Class A Principal Balance of each of
these classes is reduced to zero, the related Class A Principal Distribution
(other than the portion constituting the Distributable Excess Spread) for
such Payment Date; provided, however, that after the occurrence and
continuance of an Insurer Default, this portion of the Class A Principal
Distribution will be distributed pro rata to the holders of these
certificates based on the respective Class A Principal Balances;
(4) to the certificate insurer, the amount owing to the certificate
insurer under the Insurance Agreement for the premium;
(5) sequentially, to the Class A-1 and Class A-2 certificateholders, in
that order, until the respective Class A Principal Balance of each of these
classes is reduced to zero, the related Distributable Excess Spread for such
Payment Date; provided, however, that after the occurrence and continuance
of an Insurer Default, the Distributable Excess Spread will be distributed
pro rata to the holders of these certificates based on the respective Class
A Principal Balances.
(6) to the servicer, the amount of any accrued and unpaid servicing fee;
(7) to the certificate insurer, amounts owing to the certificate insurer
for reimbursement for prior draws made on the Policy;
(8) to the servicer, the amount of Nonrecoverable Advances not
previously reimbursed;
(9) to the certificate insurer, any other amounts owing to the
certificate insurer under the Insurance Agreement; and
(10) to the Class R certificateholders, the balance.
THE CERTIFICATE RATE
The Certificate Rate for any interest accrual period with respect to the
Class A-1 certificates will be ___% per annum, and the Class A-2 certificates
will be ___% per annum. Interest accrual period means the period from the first
day of the calendar month preceding the month of that Payment Date through the
last day of that calendar month.
Interest will accrue on the certificates on the basis of a 360-day year
consisting of twelve 30-day months.
INTEREST
On each Payment Date, if there are sufficient funds available, the Class
Interest Distribution will be distributed for each class of Class A
certificates. The Class Interest Distribution is equal to the sum of (a) one
month's interest at the Certificate Rate on the related Class A Principal
Balance immediately prior to that Payment Date (the "Class Monthly Interest
Distributable Amount") and (b) any Class Interest Carryover Shortfall for such
Class of Class A certificates for that Payment Date. As to any Payment Date and
class of Class A certificates, the Class Interest Carryover Shortfall is the sum
of (x) the excess of the related Class Monthly Interest Distributable Amount for
the preceding Payment Date and any outstanding Class Interest Carryover
Shortfall with respect to that class on the preceding Payment Date, over the
amount in respect of interest that is actually distributed to that class on the
prior Payment Date plus (y) one month's interest on the excess, to the extent
permitted by law, at the related Certificate Rate. The interest entitlement
described in (a) above will be reduced by such class' pro rata share of Civil
Relief Act Interest Shortfalls, if any, for that Payment Date. Civil Relief Act
Interest Shortfalls will not be covered by payments under the Policy.
On each Payment Date, the Class Interest Distribution for each class of
Class A certificates will be distributed on an equal priority and any shortfall
in the amount required to be distributed as interest to each class will be
allocated between the classes pro rata based on the amount each class would have
been distributed in the absence of such shortfall.
PRINCIPAL
On each Payment Date, if there are sufficient funds available in accordance
with the priorities described above under "--Priorities of Distributions,"
principal will be distributed to the holders of Class A certificates then
entitled to distributions of principal in an amount equal to the lesser of (A)
the related Aggregate Class A Principal Balance and (B) the related Class A
Principal Distribution for such Payment Date. "Class A Principal Distribution"
means the sum of the related Class A Monthly Principal Distributable Amount for
a Payment Date and any outstanding Class A Principal Carryover Shortfall as of
the close of business on the preceding Payment Date.
Class A Monthly Principal Distributable Amount means to the extent that
funds are available, the amount equal to the sum of the following amounts,
without duplication, for the immediately preceding Due Period:
o each payment of principal on a mortgage loan received by the servicer
during the Due Period, including all full and partial principal
prepayments,
o the principal balance as of the end of the immediately preceding Due
Period of each mortgage loan that became a liquidated mortgage loan for
the first time during that Due Period,
o the portion of the purchase price allocable to principal of all
repurchased defective mortgage loans with respect to that Due Period,
o any Substitution Adjustment Amounts received on or prior to the previous
Determination Date and not yet distributed and
o the portion of Excess Spread, if any, required to be distributed on such
Payment Date to satisfy the required level of overcollateralization for
such Payment Date (the "Distributable Excess Spread") but not greater
than 100%.
"Class A Principal Carryover Shortfall" means, with respect to any Payment
Date, the excess of the sum of the related Class A Monthly Principal
Distributable Amount for the preceding Payment Date and any outstanding Class A
Principal Carryover Shortfall on the preceding Payment Date over the amount in
respect of principal that is actually distributed to the Class A
certificateholders on the preceding Payment Date.
If the required level of overcollateralization is reduced below the then
existing amount of overcollateralization or if the required level of
overcollateralization is satisfied, the amount of the related Class A Monthly
Principal Distributable Amount on the following Payment Date will be
correspondingly reduced by the amount of the reduction in overcollateralization
an by the amount necessary so that the overcollateralization will not exceed the
required level of overcollateralization after giving effect to the principal
distribution to be made on that Payment Date.
The application of Distributable Excess Spread is intended to create
overcollateralization to provide a source of additional cashflow to cover losses
on the mortgage loans. If the amount of losses in a particular Due Period
exceeds the amount of the related Excess Spread for the related Payment Date,
the amount distributed in respect of principal will be reduced. A draw on the
Policy for the payment of principal will not be made until the Class A Principal
Balance exceeds the pool balance. See "--The Policy" herein. Accordingly, there
may be Payment Dates on which Class A certificateholders receive little or no
principal distributions.
So long as an Insurer Default has not occurred and is continuing,
distributions of the Class A Principal Distribution with respect to the offered
certificates will be applied, sequentially, so that no class of offered
certificates having a higher numerical designation is entitled to distributions
of principal until each class of certificates having a lower numerical
designation has been reduced to zero. If on any Payment Date, an Insurer Default
has occurred and is continuing, the Class A Principal Distribution for the
offered certificates will be applied to the distribution of principal of each
class outstanding on a pro rata basis in accordance with the Class A Principal
Balance of each class.
On each Payment Date following an Insurer Default, net losses realized on
liquidated mortgage loans (if the net losses realized is not covered by
Available Funds) will reduce the amount of any overcollateralization.
Due Period means, with respect to any Determination Date or Payment Date,
the calendar month immediately preceding that Determination Date or Payment
Date.
A liquidated mortgage loan, for any Payment Date, is a mortgage loan that
the servicer has determined that all Liquidation Proceeds which it expects to
recover with respect to such mortgage loan (including disposition of the related
REO Property) have been recovered. This determination shall be in accordance
with the servicing procedures in the pooling and servicing agreement and shall
be made at the end of the proceeding Due Period.
"Excess Spread" means, with respect to any Payment Date, the positive
excess, if any, of (A) Available Funds for such Payment Date over (B) the amount
required to be distributed pursuant to subclause items (1) through (4), in each
case set forth under the heading "Description of the Certificates--Priority of
Distributions" on the Payment Date.
An Insurer Default will occur in the event the certificate insurer fails to
make a payment required under the Policy or if certain events of bankruptcy or
insolvency occur with respect to the certificate insurer.
THE POLICY
The following information has been supplied by the certificate insurer for
inclusion in this prospectus supplement. Accordingly, neither the sponsor nor
the servicer makes any representation as to the accuracy and completeness of
such information.
[To be provided by the certificate insurer.]
OVERCOLLATERALIZATION
The credit enhancement provisions of the trust result in a limited
acceleration of the Class A certificates relative to the amortization of the
mortgage loans in the early months of the transaction. The accelerated
amortization is achieved by the application of Distributable Excess Spread to
principal distributions on the Class A certificates. This acceleration feature
creates overcollateralization (i.e., the excess of the pool balance over the
related Aggregate Class A Principal Balance). Once the required level of
overcollateralization is reached, and subject to the provisions described in the
next paragraph, the acceleration feature will cease, until necessary to maintain
the required level of overcollateralization.
The pooling and servicing agreement provides that, subject to certain
floors, caps and triggers, the required level of overcollateralization may
increase or decrease over time. Any decrease in the required level of
overcollateralization will occur only at the sole discretion of the certificate
insurer. This decrease will have the effect of reducing the amortization of the
Class A certificates below what it otherwise would have been.
[PRE-FUNDING ACCOUNT
On the closing date, ($__________) will be deposited in a pre-funding
account. The pre-funding account shall be part of the trust and will be used to
acquire additional mortgage loans in accordance with the pooling and servicing
agreement. The funding period will begin on the closing date and terminate on
_____________, 200_. Any funds remaining at the end of the funding period will
be distributed to holders of the classes of certificates entitled to receive
principal on the Payment Date in ______________, 200_ in reduction of the
related Certificate Principal Balances. This will result in a partial principal
prepayment of the related certificates on that date.
Amounts on deposit in the pre-funding account will be invested in Permitted
Investments. All interest and any other investment earnings on amounts on
deposit in the pre-funding account will be deposited in the capitalized interest
account. The pre-funding account shall not be an asset of the REMIC. All
reinvestment earnings on the pre-funding account shall be owned by, and be
taxable to, the seller.
CAPITALIZED INTEREST ACCOUNT
On the closing date, a portion of the proceeds from the sale of the
certificates will be deposited in a capitalized interest account. The
capitalized interest account shall be maintained with and in the name of the
trustee on behalf of the trust a portion of the proceeds of the sale of the
certificates. The amount deposited therein will be used by the trustee on the
Payment Dates in __________________ 200_, _____________ 200_ and ______________,
200_ to cover shortfalls in interest on the certificates that may arise as a
result of interest shortfalls on the certificates during the funding period. Any
amounts remaining in the capitalized interest account at the end of the funding
period which are not needed to cover shortfalls on the Payment Date in
___________ 200_ are required to be paid directly to the seller.] The
capitalized interest account shall not be an asset of the REMIC. All
reinvestment earnings on the capitalized interest account shall be owned by, and
be taxable to, the seller.]
REPORTS TO CERTIFICATEHOLDERS
Concurrently with each distribution to the certificateholders, the trustee
will forward to each certificateholder a statement (based solely on information
received from the servicer) setting forth among other items with respect to each
Payment Date:
(1) the aggregate amount of the distribution to each class of
certificateholders on such Payment Date;
(2) the amount of distribution set forth in paragraph (1) above in
respect of interest and any Class Interest Carryover Shortfall, and the
amount of any Class Interest Carryover Shortfall remaining;
(3) the amount of distribution set forth in paragraph (1) above in
respect of principal and the Class A Principal Carryover Shortfall, and any
remaining Class A Principal Carryover Shortfall;
(4) the amount of Excess Spread and the amount applied as to a
distribution on the certificates;
(5) the Guaranteed Principal Amount, if any, for such Payment Date;
(6) the amount paid under the Policy for such Payment Date in respect of
the Class Interest Distribution to each class of certificates;
(7) the servicing fee;
(8) the pool balance, as of the close of business on the last day of the
preceding Due Period;
(9) the Aggregate Class A Principal Balance after giving effect to
payments allocated to principal above;
(10) the amount of overcollateralization as of the close of business on
the Payment Date, after giving effect to distributions of principal on that
Payment Date;
(11) the number and aggregate principal balances of the mortgage loans
as to which the minimum monthly payment is delinquent for 30-59 days, 60-89
days and 90 or more days, respectively, as of the end of the preceding Due
Period;
(12) the book value of any real estate which is acquired by the trust
through foreclosure or of deed in lieu of foreclosure;
(13) the aggregate amount of prepayments received on the mortgage loans
during the previous Due Period; and
(14) the weighted average loan rate on the mortgage loans as of the
first day of the month prior to the Payment Date.
In the case of information furnished pursuant to clauses (2) and (3) above,
the amounts shall be expressed as a dollar amount per certificate with a $1,000
denomination.
Within 60 days after the end of each calendar year, the trustee will forward
to each person, if requested in writing by such person, who was a
certificateholder during the prior calendar year a statement containing the
information set forth in clauses (2) and (3) above aggregated for such calendar
year.
LAST SCHEDULED PAYMENT DATE
The last scheduled Payment Date for each class of offered certificates is as
follows: Class A-1 certificates, ________; and Class A-2 certificates,
_________. It is expected that the actual last Payment Date for each class of
offered certificates will occur significantly earlier than the last scheduled
Payment Dates. See "Prepayment and Yield Considerations" in this prospectus
supplement.
Such last scheduled Payment Dates are based on a [ ]% prepayment assumption
with no payments of Distributable Excess Spread and the assumptions set forth
above under "Prepayment and Yield Considerations--Weighted Average Lives".
COLLECTION AND OTHER SERVICING PROCEDURES ON MORTGAGE LOANS
The servicer will make reasonable efforts to collect all payments called for
under the mortgage loans and will, consistent with the pooling and servicing
agreement, follow such collection procedures as it follows from time to time
with respect to the loans in its servicing portfolio comparable to the mortgage
loans. Consistent with the above, the servicer may in its discretion waive any
late payment charge or any assumption or other fee or charge that may be
collected in the ordinary course of servicing the mortgage loans.
With respect to the mortgage loans, the servicer may arrange with a borrower
a schedule for the payment of interest due and unpaid for a period, PROVIDED,
that any such arrangement is consistent with the servicer's policies with
respect to the mortgage loans it owns or services.
HAZARD INSURANCE
The servicer will cause to be maintained for each mortgage loan and each
property acquired upon foreclosure, or by deed in lieu of foreclosure, hazard
insurance with extended coverage in an amount which is at least equal to the
lesser of
o the outstanding principal balance on the mortgage loan and any related
senior lien(s); and
o the maximum insurable value of the improvements securing the mortgage
loan.
Generally, if the mortgaged property is located in a federally designated
flood area, the hazard insurance to be maintained for the mortgage loan shall
include flood insurance in such amounts as are required under applicable
guidelines of the Federal Flood Emergency Act. Any amounts collected by the
servicer under any such policies will be deposited in the Collection Account,
net of certain amounts as indicated in the pooling and servicing agreement. The
servicer shall be under no obligation to require that any mortgagor maintain
earthquake or other additional insurance and shall be under no obligation itself
to maintain any such additional insurance on property acquired, other than
pursuant to applicable laws and regulations. If the servicer obtains and
maintains a blanket policy consistent with prudent industry standards insuring
against hazard losses on all of the mortgage loans in an aggregate amount
prudent under industry standards, it shall conclusively be deemed to have
satisfied its obligations and if there shall have been a loss which would have
been covered by such policy, deposit in the Collection Account, as the case may
be, the amount not otherwise payable under the blanket policy because of any
deductible clause.
We refer you to "The Agreements--Hazard Insurance" in the prospectus for
further information.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
The servicer will foreclose upon or otherwise comparably convert to
ownership mortgaged properties securing such of the mortgage loans as come into
default when, in accordance with applicable servicing procedures under the
pooling and servicing agreement, no satisfactory arrangements can be made for
the collection of delinquent payments. In connection with such foreclosure or
other conversion, the servicer will follow such practices as it deems necessary
or advisable and as are in keeping with its general subordinate mortgage
servicing activities, provided the servicer will not be required to expend its
own funds in connection with foreclosure or other conversion, correction of
default on a related senior mortgage loan or restoration of any property unless,
in its sole judgment, such foreclosure, correction or restoration will increase
Net Liquidation Proceeds. The servicer will be reimbursed out of Liquidation
Proceeds for advances of its own funds as liquidation expenses before any Net
Liquidation Proceeds are distributed to noteholders or the certificateholders.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
With respect to each Due Period, the servicer will receive from interest
collections in respect of the mortgage loans a portion of such interest
collections as a monthly servicing fee in the amount equal to [ ]% per annum, or
the servicing fee rate, on the aggregate principal balances of the mortgage
loans as of the first day of the related Due Period. All assumption fees, late
payment charges and other fees and charges, to the extent collected from
borrowers, will be retained by the servicer as additional servicing
compensation.
The servicer will pay certain ongoing expenses associated with the trust and
incurred by it in connection with its responsibilities under the pooling and
servicing agreement. In addition, the servicer will be entitled to reimbursement
for certain expenses incurred by it in connection with defaulted mortgage loans
and in connection with the restoration of mortgaged properties, such right of
reimbursement being prior to the rights of noteholders to receive any related
Net Liquidation Proceeds.
EVIDENCE AS TO COMPLIANCE
The pooling and servicing agreement provides for delivery on or before March
31 of each year, beginning on March 31, [year], to the indenture trustee and the
insurer of an annual statement signed by an officer of the servicer to the
effect that the servicer has fulfilled its material obligations under the
pooling and servicing agreement throughout the preceding fiscal year, except as
specified in such statement.
On or before March 31 of each year, beginning March 31, [year], the servicer
will furnish a report prepared by a firm of nationally recognized independent
public accountants (who may also render other services to the servicer or the
sponsor) to the trustee, the certificate insurer and the rating agencies to the
effect that such firm has examined certain documents and the records relating to
servicing of the mortgage loans under the pooling and servicing agreement and
that, on the basis of such examination, such firm believes that such servicing
was conducted in compliance with the pooling and servicing agreement except for
(a) such exceptions as such firm believes to be immaterial and (b) such other
exceptions as shall be set forth in such report.
CERTAIN MATTERS REGARDING THE SPONSOR AND SERVICER
The pooling and servicing agreement provides that the servicer may not
resign from its obligations and duties thereunder:
o unless such duties and obligations are no longer permissible under
applicable law or are in material conflict by reason of applicable law
with any other activities of a type and nature presently carried on by
it or its subsidiaries or affiliates or
o upon the satisfaction of the following conditions:
o the servicer has proposed a successor servicer to the trustee and
the certificate insurer in writing and such proposed successor
servicer is reasonably acceptable to the trustee and the certificate
insurer; and
o the rating agencies have confirmed to the trustee and the
certificate insurer that the appointment of such proposed successor
servicer as the servicer will not result in the reduction or
withdrawal of the then current rating of the certificates.
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 servicer may perform any of its duties and obligations under the pooling
and servicing agreement through one or more subservicers or delegates, which may
be affiliates of the servicer. Notwithstanding any such arrangement, the
servicer will remain liable and obligated to the trustee and the
certificateholders for the servicer's duties and obligations under the pooling
and servicing agreement, without any diminution of such duties and obligations
and as if the servicer itself were performing such duties and obligations.
Under the pooling and servicing agreement, the sponsor will indemnify an
injured party for the entire amount of any losses, claims, damages or
liabilities arising out of or based on the pooling and servicing agreement
(other than losses resulting from defaults under the mortgage loans). The
pooling and servicing agreement provides that neither the sponsor nor the
servicer nor their directors, officers, employees or agents will be under any
other liability to the trust, the trustee, the certificateholders, the
certificate insurer or any other person for any action taken or for refraining
from taking any action pursuant to the pooling and servicing agreement. However,
neither the sponsor nor the servicer will be protected against any liability
which would otherwise be imposed by reason of willful misconduct, bad faith or
gross negligence of the sponsor or the servicer in the performance of its duties
under the pooling and servicing agreement or by reason of reckless disregard of
its obligations thereunder. In addition, the pooling and servicing agreement
provides that the servicer will not be under any obligation to appear in,
prosecute or defend any legal action which is not incidental to its servicing
responsibilities under the pooling and servicing agreement and which in its
opinion may expose it to any expense or liability. The servicer may, in its sole
discretion, undertake any such legal action which it may deem necessary or
desirable with respect to the pooling and servicing agreement and the rights and
duties of the parties thereto and the interest of the certificateholders and the
certificate insurer thereunder.
Any corporation into which the servicer may be merged or consolidated, or
any corporation resulting from any merger, conversion or consolidation to which
the servicer shall be a party, or any corporation succeeding to the business of
the servicer shall be the successor of the servicer hereunder, without the
execution or filing of any paper or any further act on the part of any of the
parties.
EVENTS OF DEFAULT
Events of Default will consist of:
(1) any failure by the servicer to deposit in the Collection Account
any deposit required to be made under the pooling and servicing
agreement or to make any payment required to be made under the
Insurance Agreement, which failure continues unremedied for two
Business Days after written notice is given of that failure to the
servicer by the trustee, or to the servicer and the trustee by the
certificate insurer or Class A certificateholders evidencing an
aggregate, of at least 25% of the voting rights;
(2) any failure by the servicer duly to observe or perform in any
material respect any other of its covenants or agreements in the
pooling and servicing agreement which, in each case, materially
and adversely affects the interests of the Class A
certificateholders or the certificate insurer and continues
unremedied for 60 days after the written notice is given of such
failure to the servicer by the trustee, or to the servicer and the
trustee by the certificate insurer or Class A certificateholders
evidencing an aggregate of at least 25% of the voting rights;
(3) any Insolvency Event which includes certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities or
similar proceedings relating to the servicer and certain actions
by the servicer indicating insolvency, reorganization or inability
to pay its obligations; or
(4) any Event of Default, as defined in the Insurance Agreement, has
occurred and is continuing.
Under certain other circumstances, the certificate insurer may deliver
written notice to the servicer terminating all the rights and obligations of the
servicer under the pooling and servicing agreement.
Notwithstanding the foregoing, a delay in or failure of performance referred
to under clause (1) above for a period of five Business Days or under clause (2)
above for a period of 60 days, shall not constitute an Event of Default if such
delay or failure could not be prevented by the exercise of reasonable diligence
by the servicer and the delay or failure was caused by an act of God or other
similar occurrence. Upon the occurrence of any such event, the servicer shall
not be relieved from using its best efforts to perform its obligations in a
timely manner in accordance with the terms of the pooling and servicing
agreement and the servicer shall provide the trustee, the sponsor, the
certificate insurer and the Class A certificateholders prompt notice of such
failure or delay by it, together with a description of its efforts to so perform
its obligations.
RIGHTS UPON AN EVENT OF DEFAULT
So long as an Event of Default remains unremedied, either (1) the trustee,
or Class A certificateholders evidencing an aggregate of at least 51% of the
voting rights, in each case with the consent of the certificate insurer, or (2)
the certificate insurer may terminate all of the rights and obligations of the
servicer under the pooling and servicing agreement and in and to the mortgage
loans. In these circumstances, the trustee will succeed to all the
responsibilities, duties and liabilities of the servicer under the pooling and
servicing agreement and will be entitled to similar compensation arrangements.
In the event that the trustee would be obligated to succeed the servicer but is
unwilling or unable so to act, it may appoint, or petition a court of competent
jurisdiction for the appointment of, a housing and home finance institution or
other mortgage loan or home equity loan servicer with all licenses and permits
required to perform its obligations under the pooling and servicing agreement.
The appointed servicer must have a net worth of at least $[ ] and must be
acceptable to the certificate insurer to act as successor to the servicer under
the pooling and servicing agreement. Pending such appointment, the trustee will
be obligated to act as servicer unless prohibited by law. The successor will be
entitled to receive the same compensation that the servicer would otherwise have
received (or such lesser compensation as the trustee and such successor may
agree). A receiver or conservator for the servicer may be empowered to prevent
the termination and replacement of the servicer if the only Event of Default
that has occurred is an Insolvency Event.
AMENDMENT
The pooling and servicing agreement may be amended from time to time by the
sponsor, the servicer and the trustee and with the consent of the certificate
insurer, but without the consent of the Class A certificateholders, to cure any
ambiguity, to correct or supplement any provisions therein which may be
inconsistent with any other provisions of the pooling and servicing agreement,
to add to the duties of the sponsor or the servicer or to add or amend any
provisions of the pooling and servicing agreement as required by the rating
agencies in order to maintain or improve any rating of the Class A certificates
(it being understood that, after obtaining the ratings in effect on the Closing
Date, neither the sponsor, the trustee nor the servicer is obligated to obtain,
maintain, or improve any such rating) or to add any other provisions with
respect to matters or questions arising under the pooling and servicing
agreement or the Policy which shall not be inconsistent with the provisions of
the pooling and servicing agreement or to comply with any requirement imposed by
the Code; provided that such action will not, as evidenced by an opinion of
counsel, adversely affect in any material respect the interests of any
certificateholder or the certificate insurer; provided, that any such amendment
will not be deemed to materially and adversely affect the Class A
certificateholders and no such opinion will be required to be delivered if the
person requesting such amendment obtains a letter from the rating agencies
stating that such amendment would not result in a downgrading of the then
current rating of the Class A certificates, without regard to the Policy. The
pooling and servicing agreement may also be amended from time to time by the
sponsor, the servicer, and the trustee, with the consent of Class A
certificateholders evidencing an aggregate of at least 51% of the voting rights
and the certificate insurer for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the pooling and
servicing agreement or of modifying in any manner the rights of the Class A
certificateholders; provided that no such amendment will:
o reduce in any manner the amount of, or delay the timing of, collections
of payments on the Class A certificates or distributions or payments
under the Policy which are required to be made on any Class A
certificate without the consent of the holder of such Class A
certificate;
o reduce the percentage required to consent to any such amendment, without
the consent of the holders of all Class A certificates then outstanding;
or
o adversely affect in any material respect the interest of the certificate
insurer.
TERMINATION; PURCHASE OF MORTGAGE LOANS
The trust will terminate on the Payment Date following the later of (A)
payment in full of all amounts owing to the certificate insurer unless the
certificate insurer shall otherwise consent and (B) the earliest of (1) the
Payment Date on which the Aggregate Class A Principal Balance has been reduced
to zero, (2) the final payment or other liquidation of the last mortgage loan in
the trust, (3) the optional purchase by the servicer of the mortgage loans, and
(4) the Payment Date in [ ] on which date the Policy will be available to pay
the outstanding principal balance of the Class A certificates.
Subject to provisions in the pooling and servicing agreement regarding a
plan of complete liquidation, the servicer may, at its option, terminate the
pooling and servicing agreement on any date on which the pool balance is less
than 5% of the sum of the Cut-Off Date pool balance by purchasing, on the next
succeeding Payment Date, all of the outstanding mortgage loans at a price equal
to the sum of the outstanding pool balance (subject to reduction as provided in
the pooling and servicing agreement if the purchase price is based in part on
the appraised value of any REO Property included in the trust and that appraised
value is less than the Principal Balance of the mortgage loan) and accrued and
unpaid interest thereon at the weighted average of the loan rates through the
end of the Due Period preceding the final Payment Date together with all amounts
due and owing to the certificate insurer.
The purchase shall be accomplished by deposit into the Distribution Account
of the purchase price specified above.
VOTING RIGHTS
Under the pooling and servicing agreement, the voting rights (the "Voting
Rights") will be allocated to the Class A certificates among the classes in
proportion to their respective Class Principal Balances. Voting rights allocated
to a class of certificates will be further allocated among the certificates of
that class on the basis of their respective percentage interests. [So long as no
Insurer Default is continuing, the certificate insurer will be entitled to
exercise the voting rights of the Class A certificates].
THE TRUSTEE
_______________________________________, has been named trustee pursuant to
the pooling and servicing agreement.
The trustee may have normal banking relationships with the sponsor and the
servicer.
USE OF PROCEEDS
The net proceeds to be received from the sale of the certificates will be
applied by the sponsor towards the purchase of the mortgage loans.
FEDERAL INCOME TAX CONSEQUENCES
An election will be made to treat the trust as a REMIC for federal income
tax purposes under the Code. In the opinion of Tax Counsel, the Class A
certificates will be designated as regular interests in the REMIC and the Class
R certificates will be designated as the sole class of residual interests in the
REMIC. See "Federal Income Tax Consequences--Taxation of the REMIC and its
Holders" in the prospectus.
The offered certificates generally will be treated as debt instruments
issued by the REMIC for federal income tax purposes. Income on such certificates
must be reported under an accrual method of accounting.
Depending on their issue price, the offered certificates may be issued with
original issue discount ("OID") for federal income tax purposes. Holders of
certificates issued with OID will be required to include OID in income as it
accrues under a constant yield method, in advance of the receipt of cash
attributable to such income. The OID Regulations do not contain provisions
specifically interpreting Code Section 1272(a)(6) which applies to prepayable
securities such as the Offered certificates. Until the Treasury issues guidance
to the contrary, the trustee intends to base its OID computation on Code Section
1272(a)(6) and the OID Regulations as described in the prospectus. However,
because no regulatory guidance currently exists under Code Section 1272(a)(6),
there can be no assurance that such methodology represents the correct manner of
calculating OID.
The yield used to calculate accruals of OID with respect to the offered
certificates with OID will be the original yield to maturity of the
certificates, determined by assuming that the mortgage loans will prepay in
accordance with ____% of the prepayment assumption. No representation is made as
to the actual rate at which the mortgage loans will prepay.
In the opinion of Tax Counsel, the offered certificates will be treated as
regular interests in a REMIC under section 860G of the Code. Accordingly, the
offered certificates will be treated as assets described in section
7701(a)(19)(C) of the Code, and "real estate assets" within the meaning of
section 856(c)(4)(A) of the Code, in each case to the extent described in the
prospectus. Interest on the offered certificates will be treated as interest on
obligations secured by mortgages on real property within the meaning of section
856(c)(3)(B) of the Code to the same extent that the offered certificates are
treated as real estate assets. See "Federal Income Tax Consequences" in the
prospectus.
BACKUP WITHHOLDING
Certain Certificate Owners may be subject to backup withholding at the rate
of 31% with respect to interest paid on the offered certificates if the
Certificate Owners, upon issuance, fail to supply the trustee or their broker
with their taxpayer identification number, furnish an incorrect taxpayer
identification number, fails to report interest, dividends, or other "reportable
payments" (as defined in the Code) properly, or, under certain circumstances,
fails to provide the trustee or their broker with a certified statement, under
penalty of perjury, that they are not subject to backup withholding.
The trustee will be required to report annually to the IRS, and to each
offered certificateholder of record, the amount of interest paid (and OID
accrued, if any) on the offered certificates (and the amount of interest
withheld for federal income taxes, if any) for each calendar year, except as to
exempt holders (generally, holders that are corporations, certain tax-exempt
organizations or nonresident aliens who provide certification as to their status
as nonresidents). As long as the only "certificateholder" of record is Cede &
Co., as nominee for DTC, Certificate Owners and the IRS will receive tax and
other information including the amount of interest paid on such certificates
owned from participants and indirect participants of the DTC system rather than
from the trustee. (The trustee, however, will respond to requests for necessary
information to enable participants, indirect participants and certain other
persons to complete their reports.) Each non-exempt Certificate Owner will be
required to provide, under penalty of perjury, a certificate on IRS Form W-9
containing his or her name, address, correct federal taxpayer identification
number and a statement that he or she is not subject to backup withholding.
Should a nonexempt Certificate Owner fail to provide the required certification,
the participants or indirect participants (or the paying agent) will be required
to withhold 31% of the interest (and principal) otherwise payable to the holder,
and remit the withheld amount to the IRS as a credit against the holder's
federal income tax liability.
Such amounts will be deemed distributed to the affected Certificate Owner
for all purposes of the certificates, the pooling and servicing agreement and
the Policy.
Final regulations dealing with withholding tax on income paid to foreign
persons, backup withholding and related matters (the "New Withholding
Regulations") were issued by the Treasury Department on October 6, 1997. The New
Withholding Regulations generally will be effective for payments made after
December 31, 2000, subject to certain transition rules. Prospective Certificate
Owners are strongly urged to consult their own tax advisors with respect to the
New Withholding Regulations.
FEDERAL INCOME TAX CONSEQUENCES TO FOREIGN INVESTORS
The following information describes the United States federal income tax
treatment of holders that are not United States persons ("Foreign Investors").
The term "Foreign Investor" means any person other than:
o a citizen or resident of the United States,
o a corporation, partnership or other entity organized in or under the
laws of the United States, any state thereof or the District of
Columbia, (other than a partnership that is not treated as a United
States person under any applicable Treasury regulations),
o an estate the income of which is includible in gross income for United
States federal income tax purposes, regardless of its source,
o a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have authority to control all substantial decisions of
the trust, or
o certain trusts treated as United States persons before August 20, 1996
that elect to continue to be so treated to the extent provided in
regulations.
The Code and Treasury regulations generally subject interest paid to a
Foreign Investor to a withholding tax at a rate of 30% (unless such rate were
changed by an applicable treaty). The withholding tax, however, is eliminated
with respect to certain "portfolio debt investments" issued to Foreign
Investors. Portfolio debt investments include debt instruments issued in
registered form for which the United States payor receives a statement that the
beneficial owner of the instrument is a Foreign Investor. The offered
certificates will be issued in registered form, therefore if the information
required by the Code is furnished (as described below) and no other exceptions
to the withholding tax exemption are applicable, no withholding tax will apply
to the offered certificates.
For the offered certificates to constitute portfolio debt investments exempt
from the United States withholding tax, the withholding agent must receive from
the Certificate Owner an executed IRS Form W-8 or similar form signed under
penalty of perjury by the Certificate Owner stating that the Certificate Owner
is a Foreign Investor and providing such Certificate Owner's name and address.
The statement must be received by the withholding agent in the calendar year in
which the interest payment is made, or in either of the two preceding calendar
years.
A Certificate Owner that is a nonresident alien or foreign corporation will
not be subject to United States federal income tax on gain realized on the sale,
exchange, or redemption of such offered certificate, PROVIDED that:
o such gain is not effectively connected with a trade or business carried
on by the Certificate Owner in the United States,
o in the case of a Certificate Owner that is an individual, such
Certificate Owner is not present in the United States for 183 days or
more during the taxable year in which such sale, exchange or redemption
occurs and
o in the case of gain representing accrued interest, the conditions
described in the immediately preceding paragraph are satisfied.
In addition, prospective Certificate Owners are strongly urged to consult
their own tax advisors with respect to the New Withholding Regulations. See
"--Backup Withholding".
STATE TAXES
The sponsor makes no representations regarding the tax consequences of
purchase, ownership or disposition of the offered certificates under the tax
laws of any state. Investors considering an investment in the certificates
should consult their own tax advisors regarding such tax consequences.
All investors should consult their own tax advisors regarding the federal,
state, local or foreign income tax consequences of the purchase, ownership and
disposition of the certificates.
ERISA CONSIDERATIONS
Any Plan fiduciary which proposes to cause an employee benefit plan
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or a benefit plan or arrangement subject to Section 4975 of the Code
(each, a "Plan") to acquire any of the offered certificates should consult
with its counsel with respect to the potential consequences under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and the Code, of
the Plan's acquisition and ownership of such certificates. See "ERISA
Considerations" in the prospectus.
The U.S. Department of Labor (the "DOL") has granted to ________________.
(the "Underwriter") Prohibited Transaction Exemption [ ], Application No. _____,
__ Fed. Reg. _____ (____) (the "Exemption") which exempts from the application
of the prohibited transaction rules transactions relating to (1) the
acquisition, sale and holding by Plans of certain certificates representing an
undivided interest in certain asset-backed pass-through trusts, with respect to
which __________________ or any of its affiliates is the sole underwriter or the
manager or co-manager of the underwriting syndicate; and (2) the servicing,
operation and management of such asset-backed pass-through trusts, PROVIDED that
the general conditions and certain other conditions set forth in the Exemption
are satisfied. The Exemption will apply to the acquisition, holding and resale
of the Class A certificates by a Plan, PROVIDED that certain conditions (certain
of which are described below) are met.
Among the conditions which must be satisfied for the Exemption to apply are
the following:
(1) The acquisition of the Class A certificates by a Plan is on terms
(including the price for such certificates) that are at least as favorable
to the investing Plan as they would be in an arm's-length transaction with
an unrelated party;
(2) The rights and interests evidenced by the Class A certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the trust;
(3) The Class A certificates acquired by the Plan have received a rating
at the time of such acquisition that is in one of the three highest generic
rating categories from S&P, Moody's, DCR or Fitch;
(4) The sum of all payments made to and retained by the underwriter in
connection with the distribution of the Class A certificates represents not
more than reasonable compensation for underwriting such certificates; the
sum of all payments made to and retained by the seller pursuant to the sale
of the mortgage loans to the trust represents not more than the fair market
value of such mortgage loans; the sum of all payments made to and retained
by such servicer represents not more than reasonable compensation for any
servicer's services under the pooling and servicing agreement and
reimbursement of such servicer's reasonable expenses in connection
therewith;
(5) The trustee is not an affiliate of any underwriter, the seller, any
servicer, the certificate insurer, any borrower whose obligations under one
or more mortgage loans constitute more than 5% of the aggregate unamortized
principal balance of the assets in the trust, or any of their respective
affiliates; and
(6) The Plan investing in the Class A certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the SEC under the
Securities Act of 1933, as amended.
On July 21, 1997, the DOL published in the Federal Register an amendment to
the Exemption, which extends exemptive relief to certain mortgage-backed and
asset-backed securities transactions using pre-funding accounts for trusts
issuing pass-through certificates. The amendment generally allows mortgage loans
or other secured receivables (the "Obligations") supporting payments to
certificateholders, and having a value equal to no more than twenty-five percent
(25%) of the total principal amount of the certificates being offered by the
trust, to be transferred to the trust within a 90-day or three-month period
following the closing date (the "Pre-Funding Period"), instead of requiring that
all such Obligations be either identified or transferred on or before the
closing date. The relief is available when the following conditions are met:
(1) The ratio of the amount allocated to the pre-funding account to the
total principal amount of the certificates being offered (the "Pre-Funding
Limit") must not exceed twenty-five percent (25%).
(2) All Obligations transferred after the Closing Date (the "Additional
Obligations") must meet the same terms and conditions for eligibility as the
original Obligations used to create the trust, which terms and conditions
have been approved by a rating agency.
(3) The transfer of such Additional Obligations to the trust during the
Pre-Funding Period must not result in the certificates to be covered by the
Exemption receiving a lower credit rating from a rating agency upon
termination of the Pre-Funding Period than the rating that was obtained at
the time of the initial issuance of the certificates by the trust.
(4) Solely as a result of the use of pre-funding, the weighted average
annual percentage interest rate for all of the Obligations in the trust at
the end of the Pre-Funding Period must not be more than 100 basis points
lower than the average interest rate for the Obligations transferred to the
trust on the closing date.
(5) In order to insure that the characteristics of the Additional
Obligations are substantially similar to the original Obligations which were
transferred to the trust:
(i) the characteristics of the Additional Obligations must be
monitored by an insurer or other credit support provider that is
independent of the sponsor; or
(ii) an independent accountant retained by the sponsor must provide
the sponsor with a letter (with copies provided to each rating agency
rating the certificates, the related underwriter and the related
trustee) stating whether or not the characteristics of the Additional
Obligations conform to the characteristics described in the related
prospectus or prospectus supplement and/or pooling and servicing
agreement. In preparing such letter, the independent accountant must use
the same type of procedures as were applicable to the Obligations
transferred to the trust as of the closing date.
(6) The Pre-Funding Period must end no later than three months or 90
days after the closing date or earlier in certain circumstances if the
pre-funding account falls below the minimum level specified in the pooling
and servicing agreement or an Event of Default occurs.
(7) Amounts transferred to any pre-funding account and/or capitalized
interest account used in connection with the pre-funding may be invested
only in certain permitted investments.
(8) The related prospectus or prospectus supplement must describe:
(i) any pre-funding account and/or capitalized interest account used
in connection with a pre-funding account;
(ii) the duration of the Pre-Funding Period;
(iii) the percentage and/or dollar amount of the Pre-Funding Limit
for the trust; and
(iv) that the amounts remaining in the pre-funding account at the
end of the Pre-Funding Period will be remitted to certificateholders as
repayments of principal.
(9) The related pooling and servicing agreement must describe the
Permitted Investments for the pre-funding account and/or capitalized
interest account and, if not disclosed in the related prospectus or
prospectus supplement, the terms and conditions for eligibility of
Additional Obligations.
The underwriter believes that the Exemption as amended will apply to the
acquisition and holding of the Class A certificates by Plans and that all
conditions of the Exemption other than those within the control of the investors
will be met.
Any Plan fiduciary considering whether to purchase any Class A certificates
on behalf of a Plan should consult with its counsel regarding the applicability
of the fiduciary responsibility and prohibited transaction provisions of ERISA
and the Code to such investment. Among other things, before purchasing any Class
A certificates, a fiduciary of a Plan subject to the fiduciary responsibility
provisions of ERISA or an employee benefit plan subject to the prohibited
transaction provisions of the Code should make its own determination as to the
availability of the exemptive relief provided in the Exemption, and also
consider the availability of any other prohibited transaction exemptions.
LEGAL INVESTMENT CONSIDERATIONS
The offered certificates will not constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA").
Institutions whose investment activities are subject to review by federal or
state regulatory authorities should consult with their counsel or the applicable
authorities to determine whether an investment in the offered certificates
complies with applicable guidelines, policy statements or restrictions. See
"Legal Investment" in the prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement,
dated ____________________, between the sponsor and the underwriter, the sponsor
has agreed to sell to the underwriter and the underwriter has agreed to purchase
from the sponsor the Class A certificates.
Distributions of the offered certificates will be made from time to time in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale. Proceeds to the sponsor from the sale of the offered certificates
will be approximately $________, plus accrued interest, before deducting
expenses payable by the sponsor, estimated to be $_______ in the aggregate. In
connection with the purchase and sale of the offered certificates, the
underwriter may be deemed to have received compensation from the sponsor in the
form of underwriting discounts.
The sponsor has been advised by the underwriter that it presently intends to
make a market in the offered certificates; however, it is not obligated to do
so, any market-making may be discontinued at any time, and there can be no
assurance that an active public market for the offered certificates will
develop.
The underwriting agreement provides that the sponsor will indemnify the
underwriter against certain civil liabilities, including liabilities under the
Securities Act of 1933, as amended.
EXPERTS
[----------]
LEGAL MATTERS
Certain legal matters with respect to the Class A certificates will be
passed upon for the sponsor by [ ], New York, New York, and for the underwriter
by ____________________.
RATINGS
The Class A certificates must receive ratings of "AAA" by _______ and "Aaa"
by ______ prior to their issuance.
A securities rating addresses the likelihood of the receipt by a
certificateholder of distributions on the mortgage loans. The rating takes into
consideration the characteristics of the mortgage loans and the structural,
legal and tax aspects for the certificates. However, the ratings on the
certificates do not constitute statements regarding the likelihood or frequency
of prepayments on the mortgage loans or the possibility that certificateholders
might realize a lower than anticipated yield.
The ratings assigned to the certificates will depend primarily upon the
financial strength of the certificate insurer. Any reduction in a rating
assigned to the claims-paying ability of the certificate insurer below the
ratings initially assigned to the certificates may result in a corresponding
reduction of the ratings assigned to the certificates.
A securities rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each securities rating should be evaluated independently of
similar ratings on different securities.
<PAGE>
INDEX OF DEFINED TERMS
Additional Obligations.....................................................S-47
Certificate Owners.........................................................S-25
Class A Principal Carryover Shortfall......................................S-33
Class A Principal Distribution.............................................S-32
Class Monthly Interest Distributable Amount................................S-32
CPR........................................................................S-21
Cut-Off Date...............................................................S-15
Distributable Excess Spread................................................S-33
DOL........................................................................S-45
DTC........................................................................S-25
Eligible Investments.......................................................S-28
ERISA......................................................................S-45
Euroclear..................................................................S-25
Excess Spread..............................................................S-34
Exemption..................................................................S-45
Foreign Investors..........................................................S-44
Monthly Advance............................................................S-29
New Withholding Regulations................................................S-44
Obligations................................................................S-46
OID........................................................................S-42
Plan.......................................................................S-45
Policy.....................................................................S-24
pool balance...............................................................S-16
Pre-Funding Limit..........................................................S-46
Pre-Funding Period.........................................................S-46
Related Documents..........................................................S-25
Servicing Advance..........................................................S-29
SMMEA......................................................................S-48
Substitution Adjustment....................................................S-26
Underwriter................................................................S-45
Voting Rights..............................................................S-42
weighted average life......................................................S-21
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JANUARY 24, 2000
PROSPECTUS
GREENPOINT MORTGAGE SECURITIES INC.
(SPONSOR)
ASSET BACKED SECURITIES
(ISSUABLE IN SERIES)
PLEASE CAREFULLY THE TRUSTS
CONSIDER OUR
DISCUSSION OF Each trust will be established to hold the assets
SOME OF THE transferred to it by GreenPoint Mortgage Securities
RISKS OF Inc. The assets of each trust will be specified in the
INVESTING IN THE prospectus supplement and may consist of:
CERTIFICATES
UNDER "RISK o mortgage loans secured by senior and junior liens on
FACTORS" one- to four-family residential properties;
BEGINNING ON
PAGE 4. o closed-end and/or revolving home equity loans or
certain balances thereof secured by senior and
junior liens on one-to four-family residential
properties;
o home improvement installment sales contracts and
installment loan agreements that may be unsecured,
secured by mortgages primarily on one- to four-
family residential properties, or secured by
purchase money security interests in the home
improvements; and
o certain insurance policies, surety bonds, cash
accounts, reinvestment income, guaranties or letters
of credit.
THE SECURITIES
GreenPoint Mortgage Securities Inc. will sell the securities pursuant to a
prospectus supplement. The securities will be grouped into one or more series,
each having its own distinct designation. Each series will be issued in one or
more classes and each class will evidence beneficial ownership of a specified
portion of future payments on the assets in the trust that the series relates
to. A prospectus supplement for a series will specify all of the terms of the
series and of each of the classes in the series.
OFFERS OF SECURITIES
The securities may be offered through several different methods, including
offerings through underwriters.
----------------
THE SEC AND STATE SECURITIES REGULATORS HAVE NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
______________ _____, 200_
<PAGE>
TABLE OF CONTENTS
Risk Factors..................................................................4
The Trust.....................................................................8
Use of Proceeds..............................................................14
The Sponsor..................................................................14
Loan Program.................................................................14
Description of the Securities................................................17
Credit Enhancement...........................................................32
Yield and Prepayment Considerations..........................................38
The Agreements...............................................................41
Certain Legal Aspects of the Loans...........................................58
Federal Income Tax Consequences..............................................69
State Tax Considerations.....................................................96
ERISA Considerations.........................................................96
Legal Investment............................................................101
Method of Distribution......................................................102
Legal Matters...............................................................103
Financial Information.......................................................103
Available Information.......................................................103
Incorporation of Certain Documents by Reference.............................104
Rating......................................................................104
Index of Defined Terms......................................................106
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION IN THIS PROSPECTUS AND EACH
ACCOMPANYING PROSPECTUS SUPPLEMENT
Information about each series of securities is contained in two separate
documents:
o this prospectus, which provides general information, some of which may
not apply to a particular series; and
o the accompanying prospectus supplement for a particular series, which
describes the specific terms of the securities of that series.
The prospectus supplement will contain information about a particular series
that supplements the information contained in this prospectus, and you should
rely on that supplementary information in the prospectus supplement.
You should rely on the information in this prospectus and the accompanying
prospectus supplement. We have not authorized anyone to provide you with
information that is different from that contained in this prospectus and the
accompanying prospectus supplement.
<PAGE>
RISK FACTORS
Investors should consider the following factors in connection with the
purchase of securities. You should also consider the risk factors described in
your prospectus supplement.
ABILITY TO RESELL SECURITIES MAY BE LIMITED
No market for any of the securities will exist before they are issued. We
cannot assure you that a secondary market will develop, or if it does develop,
that it will continue. Consequently, you may not be able to sell your securities
readily or at prices that will enable you to realize your desired yield. The
market values of the securities are likely to fluctuate; these fluctuations may
be significant and could result in significant losses to you.
The secondary market for asset backed securities have experienced periods of
illiquidity and can be expected to do so in the future. Illiquidity can have a
severely adverse effect on the prices of securities that are especially
sensitive to prepayment, credit, or interest rate risk, or that have been
structured to meet the investment requirements of limited categories of
investors.
LIMITED SOURCE OF PAYMENTS - NO RECOURSE TO SPONSOR, SELLER, MASTER SERVICER OR
TRUSTEE
The assets of the trust are the sole source of distributions for the
securities. The securities do not represent an interest in or obligation of the
sponsor, the seller, the master servicer, the trustee or any of their
affiliates, except for the limited obligations of the seller with respect to
certain breaches of its representations and warranties and of the master
servicer with respect to its servicing obligations. Neither the securities nor
the trust assets will be guaranteed by or insured by any governmental agency or
instrumentality, the sponsor, the seller, the master servicer, the trustee or
any of their affiliates, unless so specified in the supplement. Consequently, if
payments on the trust assets are insufficient to make all payments required on
the certificates you may incur a loss on your investment.
CREDIT ENHANCEMENT MAY NOT BE SUFFICIENT TO PROTECT YOU FROM LOSSES
Credit enhancement is intended to reduce the effect of delinquent payments
or loan losses on those classes of securities that have the benefit of the
credit enhancement. However, the amount of any credit enhancement may decline or
be depleted before the securities are paid in full. As a result, securityholders
may suffer losses. In addition, credit enhancement may not cover all potential
sources of loss, such as a loss resulting from fraud or negligence by a loan
originator or other party.
WE REFER YOU TO "CREDIT ENHANCEMENT" IN THIS PROSPECTUS FOR MORE DETAIL.
PREPAYMENTS ARE UNPREDICTABLE AND AFFECT YIELD
The rate of principal distributions and yield to maturity on the securities
will be directly related to the rate of principal payments on the trust assets.
For example, the rate of principal payments on the loans will be affected by the
following:
o the amortization schedules of the loans;
o the rate of principal prepayments (including partial prepayments and
prepayments resulting from refinancing) by borrowers;
o liquidations of defaulted loans by the master servicer;
o repurchases of loans by the seller as a result of defective
documentation or breaches of representations and warranties; and
o the optional purchase by the master servicer of all of the loans in
connection with the termination of the trust.
The rate of principal payments on loans is influenced by a variety of
economic, geographic, social and other factors. For example, if interest rates
for similar loans fall below the interest rates on the loans, the rate of
prepayment would generally be expected to increase. Conversely, if interest
rates on similar loans rise above the interest rates on the loans, the rate of
prepayment would generally be expected to decrease.
We cannot predict the rate at which borrowers will repay their loans. Please
consider the following:
o If you are purchasing a security at a discount, in particular, a
principal-only security, your yield may be lower than expected if
principal payments on the loans occur at a slower rate than you
expected;
o If you are purchasing a security at a premium, in particular, an
interest-only security, your yield may be lower than expected if
principal payments on the loans occur at a faster rate than you expected
and you could lose your initial investment; and
o The earlier a payment of principal occurs, the greater the impact on
your yield. For example, if you purchase a security at a premium,
although the average rate of principal payments is consistent with your
expectations, if the rate of principal payments occurs initially at a
rate higher than expected, which would adversely impact your yield, a
subsequent reduction in the rate of principal payments will not offset
any adverse yield effect.
DECLINE IN PROPERTY VALUES MAY INCREASE LOAN LOSSES.
Because your securities represent an interest in loans or are secured by
loans, your investment may be affected by a decline in property values. If the
outstanding balance of a loan and any secondary financing on the underlying
property is greater than the value of the property, there is an increased risk
of delinquency, default, foreclosure and loss. A decline in property values
could extinguish the value of a junior lien holder's interest in a property.
Losses on such loans that are not otherwise covered by the credit enhancement
described in the supplement will be borne by the holder of one or more classes
of securities.
DELAYS IN LIQUIDATION MAY ADVERSELY AFFECT YOU
Substantial delays may occur before defaulted loans are liquidated and the
proceeds forwarded to investors. Property foreclosure actions are regulated by
state statutes and rules and are subject to many of the delays and expenses that
characterize lawsuits if defenses or counterclaims are raised. As a result,
foreclosure actions can sometimes take several years to complete and the
liquidation proceeds may not cover the defaulted loan amount. In particular,
because the costs of liquidation do not vary based on the loan amount, the risk
of insufficient liquidation proceeds is greater with small loans. Some states
prohibit a mortgage lender from obtaining a judgment against the borrower for
amounts not covered by property proceeds if the property is sold outside of a
judicial proceeding.
JUNIOR LIEN PRIORITY COULD RESULT IN PAYMENT DELAYS AND LOSSES
Most of the mortgages and deeds of trust, if any, securing the loans are
junior in priority. Junior liens receive proceeds from a sale of the related
property only after the senior liens have been paid. If the remaining proceeds
are insufficient to satisfy the loans, then:
o there will be a delay in payments to you while a deficiency judgment
against the borrower is sought; and
o you may incur a loss if a deficiency judgment cannot be obtained or is
not realized upon.
STATE AND FEDERAL LAWS MAY LIMIT ABILITY TO COLLECT ON LOANS
Applicable federal and state laws regulate interest rates and other charges
and require certain disclosures. In addition, other laws, public policy and
general principles of equity relating to the protection of consumers, unfair and
deceptive practices and debt collection practices may apply to the origination,
servicing and collection of the mortgage loans. Depending on the provisions of
the applicable law and the specific facts involved, violations may limit the
ability to collect all or part of the principal of or interest on the mortgage
loans. In some cases, the borrower may be entitled to a refund of amounts
previously paid and, could subject the trust to damages and administrative
enforcement.
The home improvement contracts are also subject to federal and state laws
which protect a homeowner from defective craftsmanship or incomplete work by a
contractor. These laws permit the borrower to withhold payment if the work does
not meet the quality and durability standards agreed to by the homeowner and the
contractor. These laws may have the effect of subjecting the trust to all claims
and defenses which the borrower had against the seller.
WE REFER YOU TO "CERTAIN LEGAL ASPECTS OF THE LOANS" IN THIS PROSPECTUS FOR
MORE DETAIL.
COSTS FOR CLEANING CONTAMINATED PROPERTY MAY RESULT IN LOSSES
Under certain state and federal laws, a contaminated property may give rise
to a lien on the property to assure the costs of cleanup. In addition these laws
may impute liability for clean-up costs to the lender if the lender was involved
in the operations of the borrower, even if the environmental damage was caused
by a prior owner. Any lien or costs attached to a contaminated property could
result in a loss to securityholders.
WE REFER YOU TO "CERTAIN LEGAL ASPECTS OF THE LOANS--ENVIRONMENTAL RISKS" IN
THIS PROSPECTUS FOR MORE DETAIL.
RATING OF THE SECURITIES DOES NOT ASSURE PAYMENT
It will be a condition to the issuance of the securities offered hereby that
they be rated in one of the four highest rating categories by the rating agency
identified in the supplement. The ratings of the securities will be based on,
among other things, the adequacy of the value of the trust assets and any credit
enhancement. The rating should not be deemed a recommendation to purchase, hold
or sell the securities, particularly since the ratings do not address market
price or suitability for an investor. There is no assurance that the ratings
will remain in effect over the life of the security, and may be lowered or
withdrawn.
WE REFER YOU TO "RATING" IN THIS PROSPECTUS FOR MORE DETAIL.
CONSEQUENCES OF OWNING BOOK-ENTRY SECURITIES
LIMIT ON LIQUIDITY OF SECURITIES. Issuance of the securities in book-entry
form may reduce their liquidity in the secondary trading market because
investors may be unwilling to purchase certificates for which they cannot obtain
physical securities.
LIMIT ON ABILITY TO TRANSFER OR PLEDGE. Since transactions in the book-entry
securities can be effected only though the DTC, participating organizations,
indirect participants and certain banks, your ability to transfer or pledge a
book-entry security to persons or entities that do not participate in the DTC
system or otherwise to take actions in respect of such securities, may be
limited due to lack of a physical security.
DELAYS IN DISTRIBUTIONS. You may experience some delay in the receipt of
distributions on book-entry securities because the distributions will be
forwarded by the trustee to DTC for DTC to credit the accounts of its
participants which will thereafter credit them to your account either directly
or indirectly through indirect participants, as applicable.
PLEASE REVIEW "DESCRIPTION OF THE NOTES" IN THE PROSPECTUS SUPPLEMENT FOR
MORE DETAIL.
PAYMENTS TO AND RIGHTS OF INVESTORS ADVERSELY AFFECTED BY INSOLVENCY OF SELLER
The seller and the sponsor will treat the transfer of the loans from the
seller to the sponsor as a sale for accounting purposes. The sponsor and the
trust will treat the transfer of the loans from the sponsor to the trust as a
sale for accounting purposes. If these characterizations are correct, then if
the seller were to become bankrupt, the loans would not be part of the seller's
bankruptcy estate and would not be available to the seller's creditors. On the
other hand, if the seller becomes bankrupt, its bankruptcy trustee or one of its
creditors may argue that the transfer of the loans is a pledge of the loans as
security for a borrowing rather than a sale. Such an attempt, even if
unsuccessful, could result in delays in payments to you.
In the event of a bankruptcy of the master servicer, the bankruptcy trustee
or receiver may have the power to prevent the trustee or the securityholders
from appointing a successor master servicer, which could result in a delay in
payments to you.
In addition, federal and state statutory provisions, including the federal
bankruptcy laws and state laws affording relief to debtors, may interfere with
or affect the ability of the master servicer to liquidate the property, which
could result in a delay in payments to you.
TRUST ASSETS MAY NOT BE SUFFICIENT TO PAY SECURITIES
There is no assurance that the market value of the trust assets at any time
will equal the principal amount of the securities. In addition, under any
situation in which the trust assets are required to be sold, the proceeds
generally will be paid to cover administrative costs before being paid to you.
The net proceeds may be insufficient to pay the principal and interest on the
securities.
THE TRUST
GENERAL
GreenPoint Mortgage Securities Inc., the sponsor, will establish a trust for
each series of asset backed securities and convey to the related trustee certain
assets, consisting of the pool of loans specified in the prospectus supplement.
Generally, the trust will be a business trust formed pursuant to a trust
agreement between the sponsor and the trustee. Each trust will be created on the
first day of the month in which the securities are issued or another date which
will be specified in the prospectus supplement (the "Cut-off Date"). All
references in this prospectus to "pool", "certificates", "notes", "securities",
or "securityholders", should be deemed to apply to one specific series, trust
and prospectus supplement, unless otherwise noted.
The certificates of each series will represent interests in the assets of
the trust and the notes of each series will be secured by the pledge of the
trust assets. The trust for each series will be held by the trustee for the
benefit of the related securityholders. The securities will be entitled to
payment from the assets of the trust or other assets pledged for the benefit of
the securityholders, as specified in the prospectus supplement and will not be
entitled to payments in respect of the assets of any other trust established by
the sponsor.
The trust assets will be acquired by the sponsor, either directly or through
affiliates, from originators or sellers which may be affiliates of the sponsor,
and conveyed without recourse by the sponsor to the trust. Loans acquired by the
sponsor will have been originated in accordance with the underwriting criteria
described under "Loan Program--Underwriting Standards" or as otherwise described
in the prospectus supplement. See "Loan Program--Underwriting Standards".
The sponsor will cause the trust assets to be assigned to the trustee named
in the prospectus supplement for the benefit of the holders of the securities.
For a fee, the master servicer named in the prospectus supplement will service
the trust assets, either directly or through other servicing institutions, or
subservicers, pursuant to a pooling and servicing agreement among the sponsor,
the master servicer and the trustee in the case of a series consisting of
certificates, or a master servicing agreement between the trustee and the master
servicer with respect to a series consisting of certificates and notes. See
"Loan Program" and "The Agreements". With respect to loans serviced by the
master servicer through a subservicer, the master servicer will remain liable
for its servicing obligations under the related agreement as if the master
servicer alone were servicing such loans.
As used herein, "Agreement" means, with respect to a series consisting of
certificates, the pooling and servicing agreement, and with respect to a series
consisting of certificates and notes, the trust agreement, the indenture and the
master servicing agreement, as the context requires.
With respect to each trust, prior to the initial offering of the securities,
the trust will have no assets or liabilities. No trust is expected to engage in
any activities other than acquiring, managing and holding the trust assets and
other assets specified in the prospectus supplement and the proceeds thereof,
issuing securities and making payments and distributions thereon and certain
related activities. No trust is expected to have any source of capital other
than its assets and any related credit enhancement.
Generally, the only obligations of the sponsor will be to obtain certain
representations and warranties from the sellers and to assign them to the
trustee. See "The Agreements--Assignment of the Trust Assets". The obligations
of the master servicer with respect to the loans will consist principally of its
contractual servicing obligations under the related Agreement (including its
obligation to enforce the obligations of the subservicers or sellers, or both,
as more fully described herein under "Loan Program--Representations by Sellers;
Repurchases" and "The Agreements--Subservicing by Sellers" and "--Assignment of
the Trust Assets") and its obligation, if any, to make certain cash advances in
the event of delinquencies in payments on or with respect to the loans in the
amounts described herein under "Description of the Securities--Advances". The
obligations of the master servicer to make advances may be subject to
limitations, to the extent provided herein and in the prospectus supplement.
The following is a brief description of the assets expected to be included
in the trust. If specific information respecting the trust assets is not known
at the time the securities are offered, more general information of the nature
described below will be provided in the prospectus supplement, and specific
information will be set forth in a report on Form 8-K to be filed with the SEC
within fifteen days after the initial issuance of the securities. A copy of the
Agreements with respect to each series of securities will be available for
inspection at the corporate trust office of the trustee. A schedule of the loans
relating to each series will be attached to the Agreement delivered to the
trustee.
The Loans
GENERAL. The loans included in a trust will be mortgage loans, home equity
loans or home improvement contracts. The loans may be either closed-end loans or
revolving credit line loans. The loans may be conventional loans or loans that
are insured or guaranteed by a governmental agency, such as the FHA or VA.
The loans will have monthly payments due on the first day of each month or
on such other day of the month specified in the prospectus supplement. The
payment terms of the loans to be included in a trust will be described in the
prospectus supplement and may include any of the following features (or
combination thereof):
o Interest may be payable at a fixed rate, a rate adjustable from time to
time in relation to an index (as specified in the prospectus
supplement), a rate that is fixed for a period of time or under certain
circumstances and is followed by an adjustable rate, a rate that
otherwise varies from time to time, or a rate that is convertible from
an adjustable rate to a fixed rate. Changes to an adjustable rate may be
subject to periodic limitations, maximum rates, minimum rates or a
combination of such limitations. Accrued interest may be deferred and
added to the principal of a loan for such periods and under such
circumstances as may be specified in the prospectus supplement.
o Principal may be payable on a level debt service basis to fully amortize
the loan over its term, may be calculated on the basis of an assumed
amortization schedule that is significantly longer than the original
term to maturity or on an interest rate that is different from the loan
rate or may not be amortized during all or a portion of the original
term. Payment of all or a substantial portion of the principal may be
due on maturity. These payments are called balloon payments. Principal
may include interest that has been deferred and added to the principal
balance of the loan.
o Monthly payments of principal and interest may be fixed for the life of
the loan, may increase over a specified period of time or may change
from period to period. loans may include limits on periodic increases or
decreases in the amount of monthly payments and may include maximum or
minimum amounts of monthly payments.
o Prepayments of principal may be subject to a prepayment fee, which may
be fixed for the life of the loan or may decline over time. Certain
loans may permit prepayments after expiration of certain periods. These
periods are called lockout periods. Other loans may permit prepayments
without payment of a fee unless the prepayment occurs during specified
time periods. The loans may include "due on sale" clauses which permit
the mortgagee to demand payment of the entire loan in connection with
the sale or certain transfers of the related property. Other loans may
be assumable by persons meeting the then applicable standards set forth
in the Agreement.
A trust may contain buydown loans that include provisions whereby a third
party partially subsidizes the monthly payments of the borrowers on such loans
during the early years of such loans, the difference to be made up from a
buydown fund contributed by such third party at the time of origination of the
loan. A buydown fund will be in an amount equal either to the discounted value
or full aggregate amount of future payment subsidies. The underlying assumption
of buydown plans is that the income of the borrower will increase during the
buydown period as a result of normal increases in compensation and inflation, so
that the borrower will be able to meet the full loan payments at the end of the
buydown period. To the extent that this assumption as to increased income is not
fulfilled, the possibility of defaults on buydown loans is increased. The
prospectus supplement will contain information with respect to any buydown loan
concerning limitations on the interest rate paid by the borrower initially, on
annual increases in the interest rate and on the length of the buydown period.
The real property that secures repayment of the loans is referred to herein
as the mortgaged properties. Home improvement contracts may, and the other loans
will, be secured by mortgages or deeds of trust or other similar security
instruments creating a lien on a mortgaged property. In the case of home equity
loans, such liens generally will be subordinated to one or more senior liens on
the related mortgaged properties as described in the prospectus supplement. As
specified in the prospectus supplement, home improvement contracts may be
unsecured or secured by purchase money security interests in the home
improvements financed thereby. The mortgaged properties and the home
improvements are collectively referred to herein as the properties. The
properties relating to loans will consist of detached or semi-detached one- to
four-family dwelling units, townhouses, rowhouses, individual condominium units,
manufactured homes, individual units in planned unit developments, and certain
other dwelling units. Such properties may include vacation and second homes,
investment properties and dwellings situated on leasehold estates. The loans may
include cooperative apartment loans secured by security interests in shares
issued by private, nonprofit, cooperative housing corporations and in the
related proprietary lease or occupancy agreements granting exclusive rights to
occupy specific dwelling units in the cooperatives' building. In the case of
leasehold interests, the term of the leasehold will exceed the scheduled
maturity of the loan by at least five years, unless otherwise specified in the
prospectus supplement. The properties may be located in any one of the fifty
states, the District of Columbia, Guam, Puerto Rico or any other territory of
the United States.
Loans with certain loan-to-value ratios and/or certain principal balances
may be covered wholly or partially by primary mortgage guaranty insurance
policies. The existence, extent and duration of any such coverage will be
described in the prospectus supplement.
The aggregate principal balance of loans secured by properties that are
owner-occupied may be disclosed in the prospectus supplement. The basis for a
representation that a given percentage of the loans is secured by single family
properties that are owner-occupied will be either (i) the making of a
representation by the borrower at origination of the loan either that the
underlying property will be used by the borrower for a period of at least six
months every year or that the borrower intends to use the property as a primary
residence or (ii) a finding that the address of the underlying property is the
borrower's mailing address.
HOME EQUITY LOANS.
As more fully described in the prospectus supplement, interest on each
revolving credit line loan, excluding introduction rates offered from time to
time during promotional periods, is computed and payable monthly on the average
daily outstanding principal balance of such loan. Principal amounts on a
revolving credit line loan may be drawn down (up to a maximum amount as set
forth in the prospectus supplement) or repaid under each revolving credit line
loan from time to time, but may be subject to a minimum periodic payment. As
specified in the prospectus supplement, the trust may include any amounts
borrowed under a revolving credit line loan after the Cut-off Date.
The full amount of a closed-end loan is advanced at the origination of the
loan and generally is repayable in equal (or substantially equal) installments
of an amount to fully amortize such loan at its stated maturity or is a balloon
loan. As more fully described in the prospectus supplement, interest on each
closed-end loan is calculated on the basis of the outstanding principal balance
of such loan multiplied by the related loan rate thereon and further multiplied
by either a fraction, the numerator of which is the number of days in the period
elapsed since the preceding payment of interest was made and the denominator of
which is the number of days in the annual period for which interest accrues on
such loan, or a fraction which is 30 over 360. Except to the extent provided in
the prospectus supplement, the original terms to stated maturity of closed-end
loans generally will not exceed 360 months.
Under certain circumstances, under either a revolving credit line loan or a
closed-end loan, a borrower may choose an interest only payment option and is
obligated to pay only the amount of interest which accrues on the loan during
the billing cycle. An interest only payment option may be available for a
specified period before the borrower must begin paying at least the minimum
monthly payment of a specified percentage of the average outstanding balance of
the loan.
HOME IMPROVEMENT CONTRACTS.
The trust assets for a series of securities may consist, in whole or in
part, of home improvement contracts originated by a home improvement contractor,
a thrift or a commercial mortgage banker in the ordinary course of business. The
home improvements securing the home improvement contracts may include, but are
not limited to, replacement windows, house siding, new roofs, swimming pools,
satellite dishes, kitchen and bathroom remodeling goods and solar heating
panels. As specified in the prospectus supplement, the home improvement
contracts will either be unsecured or secured by mortgages which are generally
subordinate to other mortgages on the same property, or secured by purchase
money security interests in the home improvements financed thereby. Except as
otherwise specified in the prospectus supplement, the home improvement contracts
will be fully amortizing and may have fixed interest rates or adjustable
interest rates and may provide for other payment characteristics as described in
the prospectus supplement. The initial loan-to-value ratio of a home improvement
contract is computed in the manner described in the prospectus supplement.
ADDITIONAL INFORMATION.
Each prospectus supplement will contain information, as of the date of such
prospectus supplement and to the extent then specifically known to the sponsor,
with respect to the loans contained in the pool, including:
o the aggregate outstanding principal balance and the average outstanding
principal balance of the loans as of the applicable Cut-off Date;
o the type of property securing the loan (e.g., single family residences,
individual units in condominium apartment buildings, two- to four-family
dwelling units, other real property or home improvements);
o the original terms to maturity of the loans;
o the largest principal balance;
o the smallest principal balance of any of the loans;
o the earliest origination date and latest maturity date of any of the
loans;
o the loan-to-value ratios or combined loan-to-value ratios, as
applicable, of the loans;
o the loan rates or annual percentage rates or range of loan rates or
annual percentage rates borne by the loans;
o the maximum and minimum per annum loan rates; and
o the geographical location of the loans.
If specific information regarding the loans is not known to the sponsor at
the time the related securities are initially offered, more general information
of the nature described above will be provided in the prospectus supplement, and
specific information will be set forth in a report filed on Form 8-K to be filed
with the SEC within 15 days of initial issuance of the securities.
Generally, the loan-to-value ratio (or "LTV") of a loan at any given time is
the fraction, expressed as a percentage, the numerator of which is the original
principal balance of the related loan and the denominator of which is the
collateral value of the related property. Generally, the combined loan-to-value
ratio (or "CLTV") of a loan at any given time is the ratio, expressed as a
percentage, of (i) the sum of (a) the original principal balance of the loan
(or, in the case of a revolving credit line loan, the maximum amount available)
and (b) the outstanding principal balance at the date of origination of the loan
of any senior mortgage loan(s) or, in the case of any open-ended senior mortgage
loan, the maximum available line of credit with respect to such mortgage loan,
regardless of any lesser amount actually outstanding at the date of origination
of the loan, to (ii) the collateral value of the related property.
The "collateral value" of a property, other than with respect to certain
loans the proceeds of which were used to refinance an existing mortgage loan
(each, a "refinance loan"), is the lesser of (a) the appraised value determined
in an appraisal obtained at origination of such loan and (b) the sales price for
such property if the proceeds of such loan are used to purchase the related
property. In the case of refinance loans, the collateral value of the related
property is the appraised value thereof determined in an appraisal obtained at
the time of refinancing.
No assurance can be given that values of the properties have remained or
will remain at their levels on the dates of origination of the related loans. If
the residential real estate market should experience an overall decline in
property values such that the sum of the outstanding principal balances of the
loans and any primary or secondary financing on the properties, as applicable,
in a particular pool become equal to or greater than the value of the
properties, the actual rates of delinquencies, foreclosures and losses could be
higher than those now generally experienced in the mortgage lending industry. In
addition, adverse economic conditions and other factors (which may or may not
affect real property values) may affect the timely payment by borrowers of
scheduled payments of principal and interest on the loans and, accordingly, the
actual rates of delinquencies, foreclosures and losses with respect to any pool.
To the extent that such losses are not covered by subordination provisions or
alternative arrangements, such losses will be borne by the securityholders.
SUBSTITUTION OF TRUST ASSETS
Substitution of trust assets may be permitted in the event of breaches of
representations and warranties with respect to certain trust assets or in the
event the documentation with respect to any trust asset is determined by the
trustee to be incomplete or as further specified in the prospectus supplement.
The period during which such substitution will be permitted generally will be
indicated in the prospectus supplement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the securities will be
applied by the sponsor to the purchase of trust assets or will be used by the
sponsor for general corporate purposes. The sponsor expects to sell securities
in series from time to time, but the timing and amount of offerings of
securities will depend on a number of factors, including the volume of trust
assets acquired by the sponsor, prevailing interest rates, availability of funds
and general market conditions.
THE SPONSOR
GreenPoint Mortgage Securities Inc., the sponsor, is a Delaware corporation
organized on November 18, 1996 for the limited purpose of acquiring, owning and
transferring trust assets and selling interests therein or bonds secured
thereby. The sponsor is a subsidiary of GreenPoint Mortgage Funding, Inc., a
subsidiary of GreenPoint Financial Corp. GreenPoint Financial Corp. is listed on
the New York Stock Exchange under the symbol "GPT". The sponsor maintains its
principal office at 700 Larkspur Landing Circle, Suite 240, Larkspur, California
94939. Its telephone number is (415) 925-5442.
Neither the sponsor nor any of the sponsor's affiliates will insure or
guarantee distributions on the securities of any series.
LOAN PROGRAM
The loans will have been purchased by the sponsor, either directly or
through affiliates, from sellers. Unless otherwise specified in the prospectus
supplement, the loans acquired by the sponsor will have been originated in
accordance with the underwriting criteria described below in "Underwriting
Standards".
UNDERWRITING STANDARDS
Each seller will represent and warrant that all loans originated and/or sold
by it to the sponsor will have been underwritten in accordance with standards
consistent with those utilized by mortgage lenders generally during the period
of origination for similar types of loans. As to any loan insured by the FHA or
partially guaranteed by the VA, the seller will represent that it has complied
with underwriting policies of the FHA or the VA, as the case may be.
Underwriting standards are applied by or on behalf of a lender to evaluate
the borrower's credit standing and repayment ability, and the value and adequacy
of the related property as collateral. In general, a prospective borrower
applying for a mortgage loan is required to fill out a detailed application
designed to provide to the underwriting officer pertinent credit information. As
part of the description of the borrower's financial condition, the borrower
generally is required to provide a current list of assets and liabilities and a
statement of income and expenses, as well as an authorization to apply for a
credit report which summarizes the borrower's credit history with local
merchants and lenders and any record of bankruptcy or other significant public
records. In most cases, an employment verification is obtained from an
independent source (typically the borrower's employer), which verification
reports the length of employment with that organization, the borrower's current
salary and whether it is expected that the borrower will continue such
employment in the future. If a prospective borrower is self-employed, the
borrower may be required to submit copies of signed tax returns. The borrower
may also be required to authorize verification of deposits at financial
institutions where the borrower has demand or savings accounts.
In determining the adequacy of the property as collateral, an appraisal will
generally be made of each property considered for financing. The appraiser is
required to inspect the property and verify that it is in good repair and that
construction, if new, has been completed. The appraisal is based on the market
value of comparable homes, the estimated rental income (if considered applicable
by the appraiser) and the cost of replacing the home.
Once all applicable employment, credit and property information is received,
a determination generally is made as to whether the prospective borrower has
sufficient monthly income available:
o to meet the borrower's monthly obligations on the proposed mortgage loan
(generally determined on the basis of the monthly payments due in the
year of origination) and other expenses related to the property (such as
property taxes and hazard insurance), and
o to meet monthly housing expenses and other financial obligations and
monthly living expenses.
The underwriting standards applied by a seller, particularly with respect to the
level of loan documentation and the borrower's income and credit history, may be
varied in appropriate cases where factors such as low CLTVs or other favorable
credit aspects exist.
If specified in the prospectus supplement, a portion of the loans in the
pool may have been originated under a limited documentation program. Under a
limited documentation program, more emphasis is placed on the value and adequacy
of the property as collateral and other assets of the borrower than on credit
underwriting. Under a limited documentation program, certain credit underwriting
documentation concerning income or income verification and/or employment
verification is waived. The prospectus supplement will indicate the types of
limited documentation programs pursuant to which the loans were originated and
the underwriting standards applicable to such limited documentation programs.
In the case of a loan secured by a leasehold interest in real property, the
title to which is held by a third party lessor, the seller will represent and
warrant, among other things, that the remaining term of the lease and any
sublease is at least five years longer than the remaining term on the related
mortgage note.
Certain of the types of loans that may be included in a trust may involve
additional uncertainties not present in traditional types of loans. For example,
certain of such loans may provide for escalating or variable payments by the
borrower. These types of loans are underwritten on the basis of a judgment that
the borrowers have the ability to make the monthly payments required initially.
In some instances, however, a borrower's income may not be sufficient to permit
continued loan payments as such payments increase. These types of loans may also
be underwritten primarily upon the basis of CLTVs or other favorable credit
factors.
QUALIFICATIONS OF SELLERS
Each seller must be an institution experienced in originating and servicing
loans of the type contained in the pool in accordance with accepted practices
and prudent guidelines, and must maintain satisfactory facilities to originate
and service those loans. Each seller must be a seller/servicer approved by
either Fannie Mae or Freddie Mac. Each seller must be a mortgagee approved by
the FHA or an institution the deposit accounts of which are insured by the
Federal Deposit Insurance Corporation.
REPRESENTATIONS BY SELLERS; REPURCHASES
Each seller will have made representations and warranties in respect of the
loans sold by such seller and evidenced by all, or a part, of a series of
securities. Such representations and warranties may include, among other things:
o that title insurance (or in the case of properties located in areas
where such policies are generally not available, an attorney's
certificate of title) and any required hazard insurance policy were
effective at origination of each loan and that each policy (or
certificate of title as applicable) remained in effect on the date of
purchase of the loan from the seller by or on behalf of the sponsor;
o that the seller had good title to each such loan and such loan was
subject to no offsets, defenses, counterclaims or rights of rescission
except to the extent that any buydown agreement may forgive certain
indebtedness of a borrower;
o that each loan constituted a valid lien on, or a perfected security
interest with respect to, the property (subject only to permissible
liens disclosed, if applicable, title insurance exceptions, if
applicable, and certain other exceptions described in the Agreement) and
that the property was free from damage and was in acceptable condition;
o that there were no delinquent tax or assessment liens against the
property;
o that no required payment on a loan was delinquent more than the number
of days specified in the prospectus supplement; and
o that each loan was made in compliance with, and is enforceable under,
all applicable state and federal laws and regulations in all material
respects.
The master servicer or the trustee will promptly notify the relevant seller
of any breach of any representation or warranty made by it in respect of a loan
which materially and adversely affects the interests of the securityholders in
such loan. Unless otherwise specified in the prospectus supplement, if such
seller cannot cure such breach within the time period specified in the
prospectus supplement following notice from the master servicer or the trustee,
as the case may be, then such seller will be obligated either
o to repurchase such loan from the trust at a purchase price equal to 100%
of the unpaid principal balance thereof as of the date of the repurchase
plus accrued interest thereon to the first day of the month following
the month of repurchase at the loan rate (less any advances or amount
payable as related servicing compensation if the seller is the master
servicer) or
o substitute for such loan a replacement loan that satisfies the criteria
specified in the prospectus supplement.
If a REMIC election is to be made with respect to a trust the master
servicer or a holder of the related residual certificate generally will be
obligated to pay any prohibited transaction tax which may arise in connection
with any such repurchase or substitution and the trustee must have received a
satisfactory opinion of counsel that any such substitution will not cause the
trust to lose its status as a REMIC or otherwise subject the trust to a
prohibited transaction tax. This repurchase or substitution obligation will
constitute the sole remedy available to holders of securities or the trustee for
a breach of representation by a seller.
Neither the sponsor nor the master servicer (unless the master servicer is
the seller) will be obligated to purchase or substitute a loan if a seller
defaults on its obligation to do so, and no assurance can be given that sellers
will carry out their respective repurchase or substitution obligations with
respect to loans.
DESCRIPTION OF THE SECURITIES
Each series of certificates will be issued pursuant to either a pooling and
servicing agreement or a trust agreement among the sponsor, the master servicer
and the trustee. A form of pooling and servicing agreement and trust agreement
has been filed as an exhibit to the registration statement of which this
prospectus forms a part. Each series of notes will be issued pursuant to an
indenture between the related trust and the entity named in the prospectus
supplement as trustee, and the related loans will be serviced by the master
servicer pursuant to a master servicing agreement. A form of indenture and
master servicing agreement has been filed as an exhibit to the registration
statement of which this prospectus forms a part.
A series of securities may consist of both notes and certificates. Each
Agreement, dated as of the related Cut-off Date, will be among the seller, the
sponsor, the master servicer and the trustee for the benefit of the holders of
the securities. The provisions of each Agreement will vary depending upon the
nature of the securities to be issued thereunder and the nature of the trust.
The following are descriptions of the material provisions which may appear in
each Agreement. The descriptions are subject to, and are qualified in their
entirety by reference to, all of the provisions of the Agreement for each series
of securities and the prospectus supplement. The sponsor will provide a copy of
the Agreement (without exhibits) relating to any series without charge upon
written request of a holder of record of a security of such series addressed to
GreenPoint Mortgage Securities Inc., 700 Larkspur Landing Circle, Suite 240,
Larkspur, California 94939, Attention: Secretary.
GENERAL
Unless otherwise described in the prospectus supplement, the securities of
each series:
o will be issued in book-entry or fully registered form, in the authorized
denominations specified in the prospectus supplement,
o will, in the case of certificates, evidence specified beneficial
ownership interests in the assets of the trust,
o will, in the case of notes, be secured by, the assets of the trust; and
o will not be entitled to payments in respect of the assets included in
any other trust established by the sponsor.
Unless otherwise specified in the prospectus supplement, the securities will
not represent obligations of the sponsor or any affiliate of the sponsor.
Certain of the loans may be guaranteed or insured as set forth in the prospectus
supplement. Each trust will consist of, to the extent provided in the related
Agreement:
o the trust assets as are subject to the related Agreement, including all
payments of interest and principal received with respect to the loans
after the Cut-off Date;
o such assets as from time to time are required to be deposited in the
related Security Account, as described below under "The
Agreements--Payments on Loans; Deposits to Security Account";
o property which secured a loan and which is acquired on behalf of the
securityholders by foreclosure or deed in lieu of foreclosure; and
o any insurance policies or other forms of credit enhancement required to
be maintained pursuant to the related Agreement. If so specified in the
prospectus supplement, a trust may also include one or more of the
following: reinvestment income on payments received on the trust assets,
a reserve account, a mortgage pool insurance policy, a special hazard
insurance policy, a bankruptcy bond, one or more letters of credit, a
surety bond, guaranties or similar instruments.
Each series of securities will be issued in one or more classes. Each class
of certificates of a series will evidence beneficial ownership of a specified
percentage (which may be 0%) or portion of future interest payments and a
specified percentage (which may be 0%) or portion of future principal payments
on, and each class of notes of a series will be secured by, the related trust
assets. A series of securities may include one or more classes that are senior
in right to payment to one or more other classes of securities of such series.
Certain series or classes of securities may be covered by insurance policies,
surety bonds or other forms of credit enhancement, in each case as described
under "Credit Enhancement" herein and in the prospectus supplement. One or more
classes of securities of a series may be entitled to receive distributions of
principal, interest or any combination thereof. Distributions on one or more
classes of a series of securities may be made prior to one or more other
classes, after the occurrence of specified events, in accordance with a schedule
or formula or on the basis of collections from designated portions of the
related trust assets, in each case as specified in the prospectus supplement.
The timing and amounts of such distributions may vary among classes or over time
as specified in the prospectus supplement.
Distributions of principal and interest (or, where applicable, of principal
only or interest only) on the related securities will be made by the trustee on
each distribution date (i.e., monthly, quarterly, semi-annually or at such other
intervals and on the dates as are specified in the prospectus supplement) in
proportion to the percentages specified in the prospectus supplement.
Distributions will be made to the persons in whose names the securities are
registered at the close of business on the record date. Distributions will be
made in the manner specified in the prospectus supplement to the persons
entitled thereto at the address appearing in the register maintained for
securityholders; provided, however, that the final distribution in retirement of
the securities will be made only upon presentation and surrender of the
securities at the office or agency of the trustee or other person specified in
the notice to securityholders of such final distribution.
The securities will be freely transferable and exchangeable at the corporate
trust office of the trustee specified in the prospectus supplement. No service
charge will be made for any registration of exchange or transfer of securities
of any series, but the trustee may require payment of a sum sufficient to cover
any related tax or other governmental charge.
Under current law the purchase and holding by or on behalf of any employee
benefit plan subject to provisions of ERISA or the Code of certain classes of
securities may result in prohibited transactions within the meaning of ERISA and
the Code. See "ERISA Considerations". Retirement arrangements subject to these
provisions include individual retirement accounts and annuities, Keogh plans and
collective investment funds in which the plans, accounts or arrangements are
invested. Unless otherwise specified in the prospectus supplement, the transfer
of securities will not be registered unless the transferee:
o represents that it is not, and is not purchasing on behalf of or with
plan assets of, any such plan, account or arrangement; or
o provides an opinion of counsel satisfactory to the trustee and the
sponsor that the purchase of securities of such a class by, on behalf of
such plan or with plan assets, account or arrangement is permissible
under applicable law and will not subject the trustee, the master
servicer or the sponsor to any obligation or liability in addition to
those undertaken in the Agreements.
As to each series, an election may be made to treat the related trust or
designated portions thereof as a REMIC as defined in the Code. The prospectus
supplement will specify whether a REMIC election is to be made. Alternatively,
the Agreement for a series of securities may provide that a REMIC election may
be made at the discretion of the sponsor or the master servicer and may only be
made if certain conditions are satisfied. As to any such series, the terms and
provisions applicable to the making of a REMIC election will be set forth in the
prospectus supplement. If such an election is made with respect to a series of
securities, one of the classes will be designated as evidencing the sole class
of residual interests in the REMIC. All other classes of securities in such a
series will constitute regular interests in the REMIC. As to each series of
securities with respect to which a REMIC election is to be made, the master
servicer, the trustee or a holder of the residual certificate will be obligated
to take all actions required in order to comply with applicable laws and
regulations.
DISTRIBUTIONS ON SECURITIES
GENERAL.
In general, the method of determining the amount of distributions on a
particular series of securities will depend on the type of credit support, if
any, that is used with respect to such series. See "Credit Enhancement". Set
forth below are descriptions of various methods that may be used to determine
the amount of distributions on the securities of a particular series. The
prospectus supplement for each series of securities will describe the method to
be used in determining the amount of distributions on the securities of such
series.
Distributions allocable to principal and interest on the securities will be
made by the trustee out of, and only to the extent of, funds in the related
Security Account, including any funds transferred from any reserve account. As
between securities of different classes and as between distributions of
principal (and, if applicable, between distributions of principal prepayments
and scheduled payments of principal) and interest, distributions made on any
distribution date will be applied as specified in the prospectus supplement. The
prospectus supplement will also describe the method for allocating distributions
among securities of a particular class.
AVAILABLE FUNDS.
All distributions on the securities of each series on each distribution date
will be made from the available funds described below, in accordance with the
terms described in the prospectus supplement and specified in the Agreement.
Available funds for each distribution date will generally equal the amount on
deposit in the related Security Account on such distribution date (net of
related fees and expenses payable by the related trust) other than amounts to be
held therein for distribution on future distribution dates.
DISTRIBUTIONS OF INTEREST.
Interest will accrue on the aggregate principal balance of the securities
(or, in the case of securities entitled only to distributions allocable to
interest, the aggregate notional amount) of each class of securities (the "Class
Security Balance") entitled to interest from the date, at the pass-through rate
or interest rate, as applicable (which in either case may be a fixed rate or
rate adjustable as specified in such prospectus supplement), and for the periods
specified in such prospectus supplement. To the extent funds are available
therefor, interest accrued during each such specified period on each class of
securities entitled to interest (other than a class of securities that provides
for interest that accrues, but is not currently payable, referred to herein as
accrual securities) will be distributable on the distribution dates specified in
the prospectus supplement until the aggregate Class Security Balance of the
securities of such class has been distributed in full or, in the case of
securities entitled only to distributions allocable to interest, until the
aggregate notional amount of such securities is reduced to zero or for the
period of time designated in the prospectus supplement. Except in the case of
the accrual securities, the original Class Security Balance of each security
will equal the aggregate distributions allocable to principal to which such
security is entitled. Distributions allocable to interest on each security that
is not entitled to distributions allocable to principal will be calculated based
on the notional amount of such security. The notional amount of a security will
not evidence an interest in or entitlement to distributions allocable to
principal but will be used solely for convenience in expressing the calculation
of interest and for certain other purposes.
Interest payable on the securities of a series on a distribution date will
include all interest accrued during the period specified in the prospectus
supplement. In the event interest accrues over a period ending two or more days
prior to a distribution date, the effective yield to securityholders will be
reduced from the yield that would otherwise be obtainable if interest payable on
the security were to accrue through the day immediately preceding such
distribution date, and the effective yield (at par) to securityholders will be
less than the indicated coupon rate.
With respect to any class of accrual securities, if specified in the
prospectus supplement, any interest that has accrued but is not paid on a given
distribution date will be added to the aggregate Class Security Balance of such
class of securities on that distribution date. Distributions of interest on any
class of accrual securities will commence only after the occurrence of the
events specified in such prospectus supplement. Prior to such time, the
beneficial ownership interest in the trust or the principal balance, as
applicable, of such class of accrual securities, as reflected in the aggregate
Class Security Balance of such class of accrual securities, will increase on
each distribution date by the amount of interest that accrued on such class of
accrual securities during the preceding interest accrual period but that was not
required to be distributed to such class on such distribution date. Any such
class of accrual securities will thereafter accrue interest on its outstanding
Class Security Balance as so adjusted.
DISTRIBUTIONS OF PRINCIPAL.
The prospectus supplement will specify the method by which the amount of
principal to be distributed on the securities on each distribution date will be
calculated and the manner in which such amount will be allocated among the
classes of securities entitled to distributions of principal. The aggregate
Class Security Balance of any class of securities entitled to distributions of
principal generally will be the aggregate original Class Security Balance of
such class of securities specified in such prospectus supplement, reduced by all
distributions reported to the holders of such securities as allocable to
principal and,
o in the case of accrual securities, as specified in the prospectus
supplement, increased by all interest accrued but not then distributable
on such accrual securities, and
o in the case of adjustable rate securities, subject to the effect of
negative amortization, if applicable.
If so provided in the prospectus supplement, one or more classes of
securities will be entitled to receive all or a disproportionate percentage of
the principal prepayments in the percentages and under the circumstances or for
the periods specified in such prospectus supplement. Any such allocation of
principal prepayments to such class or classes of securities will have the
effect of accelerating the amortization of such securities while increasing the
interests evidenced by one or more other classes of securities in the trust.
Increasing the interests of the other classes of securities relative to that of
certain securities is intended to preserve the availability of the subordination
provided by such other securities. See "Credit Enhancement--Subordination".
UNSCHEDULED DISTRIBUTIONS.
If specified in the prospectus supplement, the securities will be subject to
receipt of distributions before the next scheduled distribution date under the
circumstances and in the manner described below and in such prospectus
supplement. If applicable, the trustee will be required to make such unscheduled
distributions on the day and in the amount specified in the prospectus
supplement if, due to substantial payments of principal (including principal
prepayments) on the trust assets, the trustee or the master servicer determines
that the funds available or anticipated to be available from the Security
Account and, if applicable, any reserve account, may be insufficient to make
required distributions on the securities on such distribution date. Unless
otherwise specified in the prospectus supplement, the amount of any such
unscheduled distribution that is allocable to principal will not exceed the
amount that would otherwise have been required to be distributed as principal on
the securities on the next distribution date. Unless otherwise specified in the
prospectus supplement, the unscheduled distributions will include interest at
the applicable pass-through rate (if any) or interest rate (if any) on the
amount of the unscheduled distribution allocable to principal for the period and
to the date specified in the prospectus supplement.
ADVANCES
To the extent provided in the prospectus supplement, the master servicer
will be required to advance on or before each distribution date (from its own
funds, funds advanced by subservicers or funds held in the Security Account for
future distributions to the holders of securities of the related series), an
amount equal to the aggregate of payments of interest and/or principal that were
delinquent on the related determination date (as specified in the prospectus
supplement) and were not advanced by any subservicer, subject to the master
servicer's determination that such advances may be recoverable out of late
payments by borrowers, liquidation proceeds, insurance proceeds or otherwise.
In making advances, the master servicer will endeavor to maintain a regular
flow of scheduled interest and principal payments to securityholders, rather
than to guarantee or insure against losses. If advances are made by the master
servicer from cash being held for future distribution to securityholders, the
master servicer will replace such funds on or before any future distribution
date to the extent that funds in the applicable Security Account on such
distribution date would be less than the amount required to be available for
distributions to securityholders on such date. Any funds advanced will be
reimbursable to the master servicer out of recoveries on the specific loans with
respect to which such advances were made (e.g., late payments made by the
related borrower, any related insurance proceeds, liquidation proceeds or
proceeds of any loan purchased by the sponsor, a subservicer or a seller
pursuant to the related Agreement). Advances by the master servicer (and any
advances by a subservicer) also will be reimbursable to the master servicer (or
subservicer) from cash otherwise distributable to securityholders (including the
holders of senior securities) to the extent that the master servicer determines
that any such advances previously made are not ultimately recoverable as
described above. To the extent provided in the prospectus supplement, the master
servicer also will be obligated to make advances, to the extent recoverable out
of insurance proceeds, liquidation proceeds or otherwise, in respect of certain
taxes and insurance premiums not paid by borrowers on a timely basis. Funds so
advanced are reimbursable to the master servicer to the extent permitted by the
related Agreement. The obligations of the master servicer to make advances may
be supported by a cash advance reserve fund, a surety bond or other arrangement
of the type described herein under "Credit Enhancement", in each case as
described in the prospectus supplement.
If specified in the prospectus supplement, in the event the master servicer
or a subservicer fails to make a required advance, the trustee will be obligated
to make such advance in its capacity as successor servicer. If the trustee makes
such an advance, it will be entitled to be reimbursed for such advance to the
same extent and degree as the master servicer or a subservicer is entitled to be
reimbursed for advances. See "Description of the Securities--Distributions on
Securities".
COMPENSATING INTEREST
If so specified in the prospectus supplement, the master servicer will be
required to remit to the trustee, with respect to each loan in the trust as to
which a principal prepayment in full or a principal payment which is in excess
of the scheduled monthly payment and is not intended to cure a delinquency was
received during any Due Period, an amount, from and to the extent of amounts
otherwise payable to the master servicer as servicing compensation, equal to (1)
the excess, if any, of (a) 30 days' interest on the principal balance of the
related loan at the loan rate net of the per annum rate at which the master
servicer's servicing fee accrues, over (b) the amount of interest actually
received on such loan during such Due Period, net of the master servicer's
servicing fee or (2) such other amount as described in the prospectus
supplement.
REPORTS TO SECURITYHOLDERS
Prior to or concurrently with each distribution on a distribution date the
master servicer or the trustee will furnish to each securityholder of record of
the related series a statement setting forth, to the extent applicable to such
series of securities, among other things:
o the amount of such distribution allocable to principal, separately
identifying the aggregate amount of any principal prepayments and if so
specified in the prospectus supplement, any applicable prepayment
penalties included therein;
o the amount of such distribution allocable to interest;
o the amount of any advance;
o the aggregate amount (a) otherwise allocable to the subordinated
securityholders on such distribution date, and (b) withdrawn from the
reserve account, if any, that is included in the amounts distributed to
the senior securityholders;
o the outstanding principal balance or notional amount of each class of
the related series after giving effect to the distribution of principal
on such distribution date;
o the percentage of principal payments on the loans (excluding
prepayments), if any, which each such class will be entitled to receive
on the following distribution date;
o the percentage of principal prepayments on the loans, if any, which each
such class will be entitled to receive on the following distribution
date;
o the related amount of the servicing compensation retained or withdrawn
from the Security Account by the master servicer, and the amount of
additional servicing compensation received by the master servicer
attributable to penalties, fees, excess liquidation proceeds and other
similar charges and items;
o the number and aggregate principal balances of loans
o delinquent (exclusive of loans in foreclosure) (A) 1 to 30 days, (B)
31 to 60 days, (C) 61 to 90 days and (D) 91 or more days, and
o in foreclosure and delinquent (A) 1 to 30 days, (B) 31 to 60 days,
(C) 61 to 90 days and (D) 91 or more days, as of the close of
business on the last day of the calendar month preceding such
distribution date;
o the book value of any real estate acquired through foreclosure or grant
of a deed in lieu of foreclosure;
o the pass-through rate or interest rate, as applicable, if adjusted from
the date of the last statement, of any such class expected to be
applicable to the next distribution to such class;
o if applicable, the amount remaining in any reserve account at the close
of business on the distribution date;
o the pass-through rate or interest rate, as applicable, as of the day
prior to the immediately preceding distribution date; and
o any amounts remaining under letters of credit, pool insurance policies
or other forms of credit enhancement.
The report to securityholders for any series of securities may include
additional or other information of a similar nature to that specified above.
In addition, within a reasonable period of time after the end of each
calendar year, the master servicer or the trustee will mail to each
securityholder of record at any time during such calendar year a report
customary information as may be deemed necessary or desirable for
securityholders to prepare their tax returns.
CATEGORIES OF CLASSES OF SECURITIES
The securities of any series may be comprised of one or more classes. Such
classes, in general, fall into different categories. The following chart
identifies and generally defines certain of the more typical categories. The
prospectus supplement for a series of securities may identify the classes which
comprise such series by reference to the following categories.
CATEGORIES OF CLASSES DEFINITION
PRINCIPAL TYPES
Accretion Directed...................... A class that receives principal
payments from the accreted interest
from specified accrual classes. An
accretion directed class also may
receive principal payments from
principal paid on the trust assets.
Component Certificates.................. A class consisting of "components."
The components of a class of
component certificates may have
different principal and/or interest
payment characteristics but together
constitute a single class. Each
component of a class of component
certificates may be identified as
falling into one or more of the
categories in this chart.
Notional Amount Certificates............ A class having no principal balance
and bearing interest on the related
notional amount. The notional amount
is used for purposes of the
determination of interest
distributions.
Planned Principal Class or PACs......... A class that is designed to receive
principal payments using a
predetermined principal balance
schedule derived by assuming two
constant prepayment rates for the
trust assets. These two rates are
the endpoints for the "structuring
range" for the planned principal
class. The planned principal classes
in any series of certificates may be
subdivided into different categories
(e.g., primary planned principal
classes, secondary planned principal
classes and so forth) having
different effective structuring
ranges and different principal
payment priorities. The structuring
range for the secondary planned
principal class of a series of
securities will be narrower than
that for the primary planned
principal class of such series.
Scheduled Principal Class............... A class that is designed to receive
principal payments using a
predetermined principal balance
schedule but is not designated as a
planned principal class or targeted
principal class. In many cases, the
schedule is derived by assuming two
constant prepayment rates for the
trust assets. These two rates are
the endpoints for the "structuring
range" for the scheduled principal
class.
Sequential Pay.......................... Classes that receive principal
payments in a prescribed sequence,
that do not have predetermined
principal balance schedules and that
under all circumstances receive
payments of principal continuously
from the first distribution date on
which they receive principal until
they are retired. A single class
that receives principal payments
before or after all other classes in
the same series of securities may be
identified as a sequential pay
class.
Strip................................... A class that receives a constant
proportion, or "strip," of the
principal payments on the trust
assets. The constant proportion of
such principal payments may or may
not vary for each trust asset
included in the trust and will be
calculated in the manner described
in the prospectus supplement. Such
classes may also receive payments of
interest.
Support Class (or companion class)...... A class that receives principal
payments on any distribution date
only if scheduled payments have been
made on specified planned principal
classes, targeted principal classes
and/or scheduled principal classes.
Targeted Principal Class ............... A class that is designed to receive
principal payments using a
predetermined principal balance
schedule derived by assuming a
single constant prepayment rate for
the trust assets.
INTEREST TYPES
Accrual................................. A class that accretes the amount of
accrued interest otherwise
distributable on such class, which
amount will be added as principal to
the principal balance of such class
on each applicable distribution
date. Such accretion may continue
until some specified event has
occurred or until such class is
retired.
Fixed Rate.............................. A class with a pass-through rate
that is fixed throughout the life of
the class.
Floating Rate........................... A class with a pass-through rate
that resets periodically based upon
a designated index and that varies
directly with changes in such index.
Inverse Floating Rate................... A class with a pass-through rate
that resets periodically based upon
a designated index and that varies
inversely with changes in such
index.
Interest Only or IO..................... Securities that receive some or all
of the interest payments made on the
trust assets and little or no
principal. Interest only
certificates have either a nominal
principal balance or a notional
amount. A nominal principal balance
represents actual principal that
will be paid on such securities. It
is referred to as nominal since it
is extremely small compared to other
classes. A notional amount is the
amount used as a reference to
calculate the amount of interest due
on an interest only security that is
not entitled to any distributions in
respect of principal.
Partial Accrual......................... A class that accretes a portion of
the amount of accrued interest
thereon, which amount will be added
to the principal balance of such
class on each applicable
distribution date, with the
remainder of such accrued interest
to be distributed currently as
interest on such class. Such
accretion may continue until a
specified event has occurred or
until such class is retired.
Principal Only or PO.................... A class that does not bear interest
and is entitled to receive only
distributions in respect of
principal.
Variable Rate........................... A class with a pass-through rate
that resets periodically and is
calculated by reference to the rate
or rates of interest applicable to
specified assets or instruments
(e.g., the loan rates borne by the
loans in the trust).
BOOK-ENTRY REGISTRATION OF SECURITIES
As described in the prospectus supplement, if not issued in fully registered
form, each class of securities will be registered as book-entry securities.
Persons acquiring beneficial ownership interests in the securities, or
"beneficial owners", will hold their securities through The Depository Trust
Company, commonly referred to as DTC, in the United States, or Cedelbank or the
Euroclear System ("Euroclear") in Europe, if they are participants of such
systems, or indirectly through organizations which are participants in such
systems. The book-entry securities will be issued in one or more certificates
which equal the aggregate principal balance of the securities and will initially
be registered in the name of Cede & Co., the nominee of DTC, Cedelbank and
Euroclear will hold omnibus positions on behalf of their participants through
customers' securities accounts in Cedelbank's and Euroclear's names on the books
of their respective depositaries which in turn will hold such positions in
customers' securities accounts in the depositaries' names on the books of DTC.
Citibank, N.A., will act as depositary for Cedelbank and The Chase Manhattan
Bank will act as depositary for Euroclear (in such capacities, individually the
"Relevant Depositary" and collectively the "European Depositaries"). Except as
described below, no beneficial owner will be entitled to receive a physical
certificate representing their security. Unless and until physical securities
are issued, it is anticipated that the only securityholder of record will be
Cede & Co., as nominee of DTC. Beneficial owners are only permitted to exercise
their rights indirectly through participants and DTC.
The beneficial owner's ownership of a book-entry security will be recorded
on the records of the brokerage firm, bank, thrift institution or other
financial intermediary that maintains the beneficial owner's account for such
purpose. In turn, the financial intermediary's ownership of a book-entry
security will be recorded on the records of DTC (or of a participating firm that
acts as agent for the financial intermediary, whose interest will in turn be
recorded on the records of DTC, if the beneficial owner's financial intermediary
is not a DTC participant, and on the records of Cedelbank or Euroclear, as
appropriate).
Beneficial owners will receive all distributions of principal of, and
interest on, the securities from the trustee through DTC and DTC participants.
While the securities are outstanding (except under the circumstances described
below), under the DTC system, DTC is required to make book-entry transfers among
its participants with respect to the securities and is required to receive and
transmit distributions of principal of, and interest on, the securities.
Participants and indirect participants with whom beneficial owners have accounts
with respect to the securities are similarly required to make book-entry
transfers and receive and transmit such distributions on behalf of their
clients. Accordingly, although beneficial owners will not possess physical
securities, the DTC system provide a mechanism by which beneficial owners will
receive distributions and will be able to transfer their interest.
Beneficial owners will not receive or be entitled to receive physical
certificates representing their interests in the securities, except under the
limited circumstances described below. Unless and until physical securities are
issued, beneficial owners who are not DTC participants may transfer ownership of
securities only through the DTC system.
Because of time zone differences, credits of securities received in
Cedelbank or Euroclear as a result of a transaction with a participant will be
made during subsequent securities settlement processing and dated the business
day following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedelbank participants on such business day. Cash received in
Cedelbank or Euroclear as a result of sales of securities by or through a
Cedelbank participant or Euroclear participant to a DTC participant will be
received with value on the DTC settlement date but will be available in the
relevant Cedelbank or Euroclear cash account only as of the business day
following settlement with DTC.
Transfers between participants will occur in accordance with the DTC system.
Transfers between Cedelbank participants and Euroclear participants will occur
in accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedelbank
participants or Euroclear participants, on the other, will be effected in DTC in
accordance with the DTC system on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. Cedelbank participants and Euroclear participants may not deliver
instructions directly to the European Depositaries.
Cedelbank is incorporated under the laws of Luxembourg as a professional
depository. Cedelbank holds securities for its participating organizations and
facilitates the clearance and settlement of securities transactions between
Cedelbank participants through electronic book-entry changes in accounts of
Cedelbank participants, thereby eliminating the need for physical movement of
securities. Transactions may be settled in Cedelbank in any of 28 currencies,
including United States dollars. Cedelbank provides to its Cedelbank
participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedelbank interfaces with domestic markets in several
countries. As a professional depository, Cedelbank is subject to regulation by
the Luxembourg Monetary Institute. Cedelbank participants are recognized
financial institutions around the world, including underwriters, securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations. Indirect access to Cedelbank is also available to others,
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Cedelbank participant, either directly
or indirectly.
Euroclear was created in 1968 to hold securities for its participants and to
clear and settle transactions between Euroclear participants through
simultaneous electronic book-entry delivery against payment, thereby eliminating
the need for physical movement of securities and any risk from lack of
simultaneous transfers of securities and cash. Transactions may be settled in
any of 32 currencies, including United States dollars. Euroclear includes
various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. Euroclear is
operated by the Brussels, Belgium office of Morgan Guaranty Trust Company of New
York ("Morgan" and in such capacity, the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Belgian Cooperative"). All operations are conducted by Morgan, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Belgian Cooperative. The Belgian
Cooperative establishes policy for Euroclear on behalf of Euroclear
participants. Euroclear participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries.
Indirect access to Euroclear is also available to other firms that clear through
or maintain a custodial relationship with a Euroclear participant, either
directly or indirectly.
Morgan is the Belgian branch of a New York banking corporation which is a
member bank of the Federal Reserve System. As such, it is regulated and examined
by the Board of Governors of the Federal Reserve System and the New York State
Banking Department, as well as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with Morgan are governed by
the Terms and Conditions Governing Use of Euroclear and the related Operating
Procedures of the Euroclear System and applicable Belgian law (collectively, the
"Terms and Conditions"). The Terms and Conditions govern transfers of securities
and cash within Euroclear, withdrawals of securities and cash from Euroclear,
and receipts of payments with respect to securities in Euroclear. All securities
in Euroclear are held on a fungible basis without attribution of specific
certificates to specific securities clearance accounts. The Euroclear Operator
acts under the Terms and Conditions only on behalf of Euroclear participants,
and has no record of or relationship with persons holding through Euroclear
participants.
Under a book-entry format, beneficial owners of book-entry securities may
experience some delay in their receipt of payments, since such payments will be
forwarded by the trustee to Cede & Co., as nominee of DTC. Distributions with
respect to securities held through Cedelbank or Euroclear will be credited to
the cash accounts of Cedelbank participants or Euroclear participants in
accordance with the relevant system's rules and procedures, to the extent
received by the Relevant Depositary. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
See "Federal Income Tax Consequences--Tax Treatment of Foreign Investors" and
"--Tax Consequences to Holders of the Notes--Backup Withholding" herein. Because
DTC can only act on behalf of financial intermediaries, the ability of a
beneficial owner to pledge book-entry securities to persons or entities that do
not participate in the DTC system may be limited due to the lack of physical
certificates. In addition, issuance of the securities in book-entry form may
reduce the liquidity of such securities in the secondary market since certain
potential investors may be unwilling to purchase securities for which they
cannot obtain physical certificates.
Monthly and annual reports on the Trust will be provided to Cede & Co., as
nominee of DTC, and may be made available by Cede & Co. to beneficial owners
upon request, in accordance with the rules, regulations and procedures creating
and affecting DTC, and to the financial intermediaries to whose DTC accounts the
book-entry securities are credited.
DTC has advised the trustee that, unless and until physical securities are
issued, DTC will take any action permitted to be taken by the securityholders
under the applicable Agreement only at the direction of one or more financial
intermediaries to whose DTC accounts the book-entry securities are credited, to
the extent that such actions are taken on behalf of financial intermediaries
whose holdings include such book-entry securities. Cedelbank or the Euroclear
Operator, as the case may be, will take any other action permitted to be taken
by a securityholder under the Agreement on behalf of a Cedelbank participant or
Euroclear participant only in accordance with its relevant rules and procedures
and subject to the ability of the Relevant Depositary to effect such actions on
its behalf through DTC. DTC may take actions, at the direction of its
participants, with respect to some securities which conflict with actions taken
with respect to other securities.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of
physical securities. Upon surrender by DTC of the certificates representing the
book-entry securities and instructions for re-registration, the trustee will
issue physical securities, and thereafter the trustee will recognize the holders
of such physical securities as securityholders under the applicable Agreement.
Although DTC, Cedelbank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of securities among participants of
DTC, Cedelbank and Euroclear, they are under no obligation to perform or
continue to perform such procedures and such procedures may be discontinued at
any time.
None of the master servicer, the sponsor or the trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the book-entry securities held by
Cede & Co., as nominee of DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
CREDIT ENHANCEMENT
GENERAL
Credit enhancement may be provided with respect to one or more classes of a
series of securities or with respect to the related trust assets. Credit
enhancement may be in the form of:
o a limited financial guaranty policy issued by an entity named in the
prospectus supplement,
o the subordination of one or more classes of the securities of such
series,
o the establishment of one or more reserve accounts,
o the use of a cross-collateralization feature,
o use of a mortgage pool insurance policy,
o FHA insurance or VA guarantee,
o bankruptcy bond,
o special hazard insurance policy,
o surety bond,
o letter of credit,
o guaranteed investment contract,
o overcollateralization,
o or another method of credit enhancement contemplated herein and
described in the prospectus supplement, or any combination of the
foregoing.
Unless otherwise specified in the prospectus supplement, credit enhancement
will not provide protection against all risks of loss and will not guarantee
repayment of the entire principal balance of the securities and interest
thereon. If losses occur which exceed the amount covered by credit enhancement
or which are not covered by the credit enhancement, securityholders will bear
their allocable share of any deficiencies.
If specified in the prospectus supplement, the coverage provided by one or
more of the forms of credit enhancement described in this prospectus may apply
concurrently to two or more separate trusts. If applicable, the prospectus
supplement will identify the trusts to which such credit enhancement relates and
the manner of determining the amount of coverage provided to such trusts thereby
and of the application of such coverage to the identified trusts.
SUBORDINATION
If so specified in the prospectus supplement, protection afforded to holders
of one or more classes of securities of a series by means of the subordination
feature may be accomplished by the preferential right of holders of senior
securities to receive distributions in respect of scheduled principal, principal
prepayments, interest or any combination thereof that otherwise would have been
payable to holders of subordinate securities under the circumstances and to the
extent specified in the prospectus supplement. Protection may also be afforded
to the holders of senior securities by (a) reducing the ownership interest (if
applicable) of the related subordinate securities; (b) a combination of the
immediately preceding sentence and clause (a) above; or (c) as otherwise
described in the prospectus supplement.
If so specified in the prospectus supplement, delays in receipt of scheduled
payments on the loans and losses on defaulted loans may be borne first by the
various classes of subordinate securities and thereafter by the various classes
of senior securities, in each case under the circumstances and subject to the
limitations specified in the prospectus supplement. The aggregate distributions
in respect of delinquent payments on the loans over the lives of the securities
or at any time, the aggregate losses in respect of defaulted loans which must be
borne by the subordinate securities by virtue of subordination and the amount of
the distributions otherwise distributable to the subordinate securityholders
that will be distributable to senior securityholders on any distribution date
may be limited as specified in the prospectus supplement. If aggregate
distributions in respect of delinquent payments on the loans or aggregate losses
in respect of such loans were to exceed an amount specified in the prospectus
supplement, holders of senior securities would experience losses.
As specified in the prospectus supplement, all or any portion of
distributions otherwise payable to holders of subordinate securities on any
distribution date may instead be deposited into one or more reserve accounts
established with the trustee or distributed to holders of senior securities.
Such deposits may be made on each distribution date, for specified periods or
until the balance in the reserve account has reached a specified amount and,
following payments from the reserve account to holders of senior securities or
otherwise, thereafter to the extent necessary to restore the balance in the
reserve account to required levels, in each case as specified in the prospectus
supplement. Amounts on deposit in the reserve account may be released to the
holders of certain classes of securities at the times and under the
circumstances specified in the prospectus supplement.
If specified in the prospectus supplement, various classes of senior
securities and subordinate securities may themselves be subordinate in their
right to receive certain distributions to other classes of senior and
subordinate securities, respectively, through a cross-collateralization
mechanism or otherwise. As between classes of senior securities and as between
classes of subordinate securities, distributions may be allocated among such
classes:
o in the order of their scheduled final distribution dates,
o in accordance with a schedule or formula,
o in relation to the occurrence of events, or
o otherwise, as specified in the prospectus supplement.
As between classes of subordinate securities, payments to holders of senior
securities on account of delinquencies or losses and payments to any reserve
account will be allocated as specified in the prospectus supplement.
LETTER OF CREDIT
The letter of credit, if any, with respect to a series of securities will be
issued by the bank or financial institution specified in the prospectus
supplement (the "L/C Bank"). Under the letter of credit, the L/C Bank will be
obligated to honor drawings thereunder in an aggregate fixed dollar amount, net
of unreimbursed payments thereunder, equal to the percentage specified in the
prospectus supplement of the aggregate principal balance of the loans on the
related Cut-off Date or of one or more classes of securities. If so specified in
the prospectus supplement, the letter of credit may permit drawings in the event
of losses not covered by insurance policies or other credit support, such as
losses arising from damage not covered by standard hazard insurance policies,
losses resulting from the bankruptcy of a borrower and the application of
certain provisions of the federal Bankruptcy Code, or losses resulting from
denial of insurance coverage due to misrepresentations in connection with the
origination of a loan. The amount available under the letter of credit will, in
all cases, be reduced to the extent of the unreimbursed payments thereunder. The
obligations of the L/C Bank under the letter of credit for each series of
securities will expire at the earlier of the date specified in the prospectus
supplement or the termination of the trust. See "The Agreements--Termination:
Optional Termination." A copy of the letter of credit for a series, if any, will
be filed with the SEC as an exhibit to a Current Report on Form 8-K to be filed
within 15 days of issuance of the securities of the related series.
INSURANCE POLICIES, SURETY BONDS AND GUARANTIES
If so provided in the prospectus supplement, deficiencies in amounts
otherwise payable on the securities or certain classes thereof will be covered
by insurance policies and/or surety bonds provided by one or more insurance
companies or sureties. Such instruments may cover, with respect to one or more
classes of securities, timely distributions of interest and/or full
distributions of principal on the basis of a schedule of principal distributions
set forth in or determined in the manner specified in the prospectus supplement.
In addition, if specified in the prospectus supplement, a trust may also include
bankruptcy bonds, special hazard insurance policies, other insurance or
guaranties for the purpose of:
o maintaining timely payments or providing additional protection against
losses on the assets included in such trust,
o paying administrative expenses, or
o establishing a minimum reinvestment rate on the payments made in respect
of such assets or principal payment rate on such assets.
Such arrangements may include agreements under which securityholders are
entitled to receive amounts deposited in various accounts held by the trustee
upon the terms specified in the prospectus supplement. A copy of any such
instrument for a series will be filed with the SEC as an exhibit to a Current
Report on Form 8-K to be filed with the Commission within 15 days of issuance of
the securities.
OVER-COLLATERALIZATION
If so provided in the prospectus supplement, a portion of the interest
payment on each loan may be applied as an additional distribution in respect of
principal to reduce the principal balance of a certain class or classes of
securities and, thus, accelerate the rate of payment of principal on such class
or classes of securities relative to the principal balance of the loans in the
related trust.
RESERVE ACCOUNTS
If specified in the prospectus supplement, credit support with respect to a
series of securities will be provided by the establishment and maintenance with
the trustee for such series of securities, in trust, of one or more reserve
accounts for such series. The prospectus supplement will specify whether or not
any such reserve accounts will be included in the trust for such series.
The reserve account for a series will be funded:
o by the deposit therein of cash, United States Treasury securities,
instruments evidencing ownership of principal or interest payments
thereon, letters of credit, demand notes, certificates of deposit or a
combination thereof in the aggregate amount specified in the prospectus
supplement,
o by the deposit therein from time to time of certain amounts, as
specified in the prospectus supplement to which the subordinate
securityholders, if any, would otherwise be entitled, or
o in such other manner as may be specified in the prospectus supplement.
Any amounts on deposit in the reserve fund and the proceeds of any other
instrument deposited therein upon maturity will be held in cash or will be
invested in investments consisting of United States government securities and
other high-quality investments ("Permitted Investments"). Any instrument
deposited therein will name the trustee, in its capacity as trustee for
securityholders, or such other entity as is specified in the prospectus
supplement, as beneficiary and will be issued by an entity acceptable to each
rating agency that rates the securities. Additional information with respect to
such instruments deposited in the reserve funds will be set forth in the
prospectus supplement.
Any amounts so deposited and payments on instruments so deposited will be
available for withdrawal from the reserve account for distribution to the
holders of securities of the related series for the purposes, in the manner and
at the times specified in the prospectus supplement.
POOL INSURANCE POLICIES
If specified in the prospectus supplement, a separate pool insurance policy
will be obtained for the pool and issued by the pool insurer named in the
prospectus supplement. Each pool insurance policy will, subject to the
limitations described below, cover loss by reason of default in payment on loans
in the pool in an amount equal to a percentage specified in such prospectus
supplement of the aggregate principal balance of such loans on the Cut-off Date.
As more fully described below, the master servicer will present claims
thereunder to the pool insurer on behalf of itself, the trustee and the holders
of the securities of the related series. The pool insurance policies, however,
are not blanket policies against loss, since claims thereunder may only be made
respecting particular defaulted loans and only upon satisfaction of certain
conditions precedent described below. The pool insurance policies generally will
not cover losses due to a failure to pay or denial of a claim under a primary
mortgage insurance policy.
The pool insurance policies generally will provide that no claims may be
validly presented unless:
o any required primary mortgage insurance policy is in effect for the
defaulted loan and a claim thereunder has been submitted and settled;
o hazard insurance on the related property has been kept in force and real
estate taxes and other protection and preservation expenses have been
paid;
o if there has been physical loss or damage to the property, it has been
restored to its physical condition (reasonable wear and tear excepted)
at the time of issuance of the policy; and
o the insured has acquired good and merchantable title to the property
free and clear of liens except certain permitted encumbrances.
Upon satisfaction of these conditions, the pool insurer will have the option
either:
o to purchase the property securing the defaulted loan at a price equal
to the principal balance thereof plus accrued and unpaid interest at
the loan rate to the date of such purchase and certain expenses
incurred by the master servicer on behalf of the trustee and
securityholders, or
o to pay the amount by which the sum of the principal balance of the
defaulted loan plus accrued and unpaid interest at the loan rate to the
date of payment of the claim and the aforementioned expenses exceeds the
proceeds received from an approved sale of the property,
in either case net of certain amounts paid or assumed to have been paid under
the related primary mortgage insurance policy.
If any property securing a defaulted loan is damaged and proceeds, if any,
from the related hazard insurance policy or the applicable special hazard
insurance policy are insufficient to restore the damaged property to a condition
sufficient to permit recovery under the pool insurance policy, the master
servicer will not be required to expend its own funds to restore the damaged
property unless it determines that (a) such restoration will increase the
proceeds to securityholders on liquidation of the loan after reimbursement of
the master servicer for its expenses and (b) such expenses will be recoverable
by it through proceeds of the sale of the property or proceeds of the related
pool insurance policy or any related primary mortgage insurance policy.
The pool insurance policies generally will not insure (and many primary
mortgage insurance policies do not insure) against loss sustained by reason of a
default arising from, among other things:
o fraud or negligence in the origination or servicing of a loan, including
misrepresentation by the borrower, the originator or persons involved in
the origination thereof, or
o failure to construct a property in accordance with plans and
specifications.
A failure of coverage attributable to one of the foregoing events might result
in a breach of the related seller's representations described above, and, in
such events might give rise to an obligation on the part of such seller to
repurchase the defaulted loan if the breach cannot be cured by such seller. No
pool insurance policy will cover (and many primary mortgage insurance policies
do not cover) a claim in respect of a defaulted loan occurring when the servicer
of such loan, at the time of default or thereafter, was not approved by the
applicable insurer.
The original amount of coverage under each pool insurance policy generally
will be reduced over the life of the related securities by the aggregate dollar
amount of claims paid less the aggregate of the net amounts realized by the pool
insurer upon disposition of all foreclosed properties. The amount of claims paid
will include certain expenses incurred by the master servicer as well as accrued
interest on delinquent loans to the date of payment of the claim or such other
date set forth in the prospectus supplement. Accordingly, if aggregate net
claims paid under any pool insurance policy reach the original policy limit,
coverage under that pool insurance policy will be exhausted and any further
losses will be borne by the related securityholders.
CROSS SUPPORT
If specified in the prospectus supplement, the beneficial ownership of
separate groups of assets included in a trust may be evidenced by separate
classes of the related series of securities. In such case, credit support may be
provided by a cross support feature which requires that distributions be made to
securities evidencing a beneficial ownership interest in, or secured by, one or
more asset groups within the same trust prior to distributions to subordinate
securities evidencing a beneficial ownership interest in, or secured by, one or
more other asset groups within such trust. The prospectus supplement for a
series of securities which includes a cross support feature will describe the
manner and conditions for applying such cross support feature.
OTHER INSURANCE, GUARANTIES, LETTERS OF CREDIT AND SIMILAR INSTRUMENTS OR
AGREEMENTS
If specified in the prospectus supplement, a trust may also include
insurance, guaranties, letters of credit or similar arrangements for the purpose
of:
o maintaining timely payments or providing additional protection against
losses on the assets included in such trust,
o paying administrative expenses, or
o establishing a minimum reinvestment rate on the payments made in respect
of such assets or principal payment rate on such assets. Such
arrangements may include agreements under which securityholders are
entitled to receive amounts deposited in various accounts held by the
trustee upon the terms specified in such prospectus supplement.
YIELD AND PREPAYMENT CONSIDERATIONS
The yields to maturity and weighted average lives of the securities will be
affected primarily by the amount and timing of principal payments received on or
in respect of the trust assets. The original terms to maturity of the loans in a
given pool will vary depending upon the type of loans included therein. Each
prospectus supplement will contain information with respect to the type and
maturities of the loans in the related pool. The prospectus supplement will
specify the circumstances, if any, under which the related loans will be subject
to prepayment penalties. The prepayment experience on the loans in a pool will
affect the weighted average life of the securities.
The rate of prepayments with respect to conventional mortgage loans has
fluctuated significantly in recent years. In general, if prevailing rates fall
significantly below the loan rates borne by the loans, such loans are more
likely to be subject to higher prepayment rates than if prevailing interest
rates remain at or above such loan rates. Conversely, if prevailing interest
rates rise appreciably above the loan rates borne by the loans, such loans are
more likely to experience a lower prepayment rate than if prevailing rates
remain at or below such loan rates. However, there can be no assurance that such
will be the case.
The rate of prepayment on the loans cannot be predicted. Home equity loans
and home improvement contracts have been originated in significant volume only
during the past few years and the sponsor is not aware of any publicly available
studies or statistics on the rate of prepayment of such loans. Generally, home
equity loans and home improvement contracts are not viewed by borrowers as
permanent financing. Accordingly, such loans may experience a higher rate of
prepayment than traditional first mortgage loans. On the other hand, because
home equity loans such as the revolving credit line loans generally are not
fully amortizing, the absence of voluntary borrower prepayments could cause
rates of principal payments lower than, or similar to, those of traditional
fully-amortizing first mortgage loans. The prepayment experience of the trust
may be affected by a wide variety of factors, including:
o general economic conditions,
o prevailing interest rate levels,
o the availability of alternative financing,
o homeowner mobility,
o the frequency and amount of any future draws on any revolving credit
line loans,
o the amounts of, and interest rates on, the underlying senior mortgage
loans,
o the use of first mortgage loans as long-term financing for home purchase
and subordinate mortgage loans as shorter-term financing for a variety
of purposes, including home improvement, education expenses and
purchases of consumer durables such as automobiles.
Accordingly, the loans may experience a higher rate of prepayment than
traditional fixed-rate mortgage loans. In addition, any future limitations on
the right of borrowers to deduct interest payments on home equity loans for
federal income tax purposes may further increase the rate of prepayments of the
loans. The enforcement of due-on-sale provision will have the same effect as a
prepayment of the related loan. See "Certain Legal Aspects of the Loans--
Due-on-Sale Clauses".
The yield to an investor who purchases securities in the secondary market at
a price other than par will vary from the anticipated yield if the rate of
prepayment on the loans is actually different than the rate anticipated by such
investor at the time such securities were purchased.
Collections on home equity loans may vary because, among other things,
borrowers may:
o make payments during any month as low as the minimum monthly payment for
such month or, during the interest-only period for certain revolving
credit line loans and, in more limited circumstances, closed-end loans,
with respect to which an interest-only payment option has been selected,
the interest and the fees and charges for such month, or
o make payments as high as the entire outstanding principal balance plus
accrued interest and the fees and charges thereon. It is possible that
borrowers may fail to make the required periodic payments. In addition,
collections on the loans may vary due to seasonal purchasing and the
payment habits of borrowers.
As specified in the prospectus supplement, certain of the conventional loans
will contain due-on-sale provisions permitting the mortgagee to accelerate the
maturity of the loan upon sale or certain transfers by the borrower of the
related property. Loans insured by the FHA, and single family loans partially
guaranteed by the VA, are assumable with the consent of the FHA and the VA,
respectively. Thus, the rate of prepayments on such loans may be lower than that
of conventional loans bearing comparable interest rates. The master servicer
generally will enforce any due-on-sale or due-on-encumbrance clause, to the
extent it has knowledge of the conveyance or further encumbrance or the proposed
conveyance or proposed further encumbrance of the property and reasonably
believes that it is entitled to do so under applicable law; provided, however,
that the master servicer will not take any enforcement action that would impair
or threaten to impair any recovery under any related insurance policy. See
"Certain Legal Aspects of the Loans" for a description of certain provisions of
each Agreement and certain legal developments that may affect the prepayment
experience on the loans.
When a full prepayment is made on a loan, the borrower is charged interest
on the principal amount of the loan so prepaid only for the number of days in
the month actually elapsed up to the date of the prepayment, rather than for a
full month. The effect of prepayments in full will be to reduce the amount of
interest passed through or paid in the following month to holders of securities
because interest on the principal amount of any loan so prepaid will generally
be paid only to the date of prepayment. Partial prepayments in a given month may
be applied to the outstanding principal balances of the loans so prepaid on the
first day of the month of receipt or the month following receipt. In the latter
case, partial prepayments will not reduce the amount of interest passed through
or paid in such month. Generally, neither full nor partial prepayments will be
passed through or paid until the month following receipt.
Even assuming that the properties provide adequate security for the loans,
substantial delays could be encountered in connection with the liquidation of
defaulted loans and corresponding delays in the receipt of related proceeds by
securityholders could occur. An action to foreclose on a property securing a
loan is regulated by state statutes and rules and is subject to many of the
delays and expenses of other lawsuits if defenses or counterclaims are
interposed, sometimes requiring several years to complete. Furthermore, in some
states an action to obtain a deficiency judgment is not permitted following a
nonjudicial sale of a property. In the event of a default by a borrower, these
restrictions among other things, may impede the ability of the master servicer
to foreclose on or sell the property or to obtain liquidation proceeds
sufficient to repay all amounts due on the related loan. In addition, the master
servicer will be entitled to deduct from related liquidation proceeds all
expenses reasonably incurred in attempting to recover amounts due on defaulted
loans and not yet repaid, including payments to senior lienholders, legal fees
and costs of legal action, real estate taxes and maintenance and preservation
expenses.
Liquidation expenses with respect to defaulted mortgage loans do not vary
directly with the outstanding principal balance of the loan at the time of
default. Therefore, assuming that a servicer took the same steps in realizing
upon a defaulted mortgage loan having a small remaining principal balance as it
would in the case of a defaulted mortgage loan having a large remaining
principal balance, the amount realized after expenses of liquidation would be
smaller as a percentage of the remaining principal balance of the small mortgage
loan than would be the case with the other defaulted mortgage loan having a
large remaining principal balance.
If the rate at which interest is passed through or paid to the holders of
securities of a series is calculated on a loan-by-loan basis, disproportionate
principal prepayments among loans with different loan rates will affect the
yield on such securities. In most cases, the effective yield to securityholders
will be lower than the yield otherwise produced by the applicable pass-through
rate and purchase price, because while interest will accrue on each loan from
the first day of the month (unless otherwise specified in the prospectus
supplement), the distribution of such interest will not be made earlier than the
month following the month of accrual.
Under certain circumstances, the master servicer, the holders of the
residual interests in a REMIC or any person specified in the prospectus
supplement may have the option to purchase the assets of a trust and thereby
effect earlier retirement of the related series of securities. See "The
Agreements--Termination; Optional Termination".
The relative contribution of the various factors affecting prepayment may
vary from time to time. There can be no assurance as to the rate of payment of
principal of the trust assets at any time or over the lives of the securities.
The prospectus supplement will discuss in greater detail the effect of the
rate and timing of principal payments (including prepayments), delinquencies and
losses on the yield, weighted average lives and maturities of the securities.
THE AGREEMENTS
Set forth below is a description of the material provisions of each
Agreement which are not described elsewhere in this prospectus. The description
is subject to, and qualified in its entirety by reference to, the provisions of
each Agreement. Where particular provisions or terms used in the Agreements are
referred to, such provisions or terms are as specified in the Agreements.
ASSIGNMENT OF THE TRUST ASSETS
ASSIGNMENT OF THE LOANS. At the time of issuance of the securities, the
sponsor will assign the loans to the trustee, without recourse, together with
all principal and interest received by or on behalf of the sponsor on or with
respect to such loans after the Cut-off Date, other than principal and interest
due on or before the Cut-off Date and other than any amounts specified in the
prospectus supplement. The trustee will, concurrently with such assignment,
deliver the securities to the sponsor in exchange for the loans. Each loan will
be identified in a schedule appearing as an exhibit to the related Agreement.
Such schedule will include information as to the outstanding principal balance
of each loan after application of payments due on or before the Cut-off Date, as
well as information regarding the loan rate or annual percentage rate, the
maturity of the loan, the LTVs or CLTVs, as applicable, at origination and
certain other information.
Unless otherwise specified in the prospectus supplement, the related
Agreement will require that, within the time period specified therein, the
sponsor will also deliver or cause to be delivered to the trustee (or to the
custodian hereinafter referred to) as to each mortgage loan or home equity loan,
among other things:
o the mortgage note or contract endorsed without recourse in blank or to
the order of the trustee,
o the mortgage, deed of trust or similar instrument with evidence of
recording indicated thereon, except that any mortgage not returned from
the public recording office, in which case the sponsor will deliver or
cause to be delivered a copy of such mortgage together with a
certificate that the original of such mortgage was delivered to such
recording office,
o an assignment of the mortgage to the trustee, which assignment will be
in recordable form in the case of a mortgage assignment, and
o such other security documents, including those relating to any senior
interests in the property, as may be specified in the prospectus
supplement or the related Agreement.
Unless otherwise specified in the prospectus supplement, the sponsor will
promptly cause the assignments of the loans to be recorded in the appropriate
public office for real property records. If specified in the prospectus
supplement, some or all of the loan documents may not be delivered to the
trustee until after the occurrence of certain events specified in the prospectus
supplement.
Unless otherwise specified in the prospectus supplement, the sponsor will as
to each home improvement contract, deliver or cause to be delivered to the
trustee the original home improvement contract and copies of documents and
instruments related to each home improvement contract and, other than in the
case of unsecured home improvement contracts, the security interest in the
property securing such home improvement contract. In order to give notice of the
right, title and interest of securityholders to the home improvement contracts,
the sponsor will cause a UCC-1 financing statement to be executed by the sponsor
or the seller identifying the trustee as the secured party and identifying all
home improvement contracts as collateral. Unless otherwise specified in the
prospectus supplement, the home improvement contracts will not be stamped or
otherwise marked to reflect their assignment to the trustee. Therefore, if,
through negligence, fraud or otherwise, a subsequent purchaser were able to take
physical possession of the home improvement contracts without notice of such
assignment, the interest of securityholders in the home improvement contracts
could be defeated. See "Certain Legal Aspects of the Loans--The Home Improvement
Contracts."
The trustee or an appointed custodian will review the loan documents within
the time period specified in the prospectus supplement after receipt thereof to
ascertain that all required documents have been properly executed and received,
and the trustee will hold such documents in trust for the benefit of the related
securityholders. Unless otherwise specified in the prospectus supplement, if any
such document is found to be missing or defective in any material respect, the
trustee (or such custodian) will notify the master servicer and the sponsor, and
the master servicer will notify the related seller. If such seller cannot cure
the omission or defect within the time period specified in the prospectus
supplement after receipt of such notice, such seller will be obligated to either
purchase the related loan from the trust at the Purchase Price or if so
specified in the prospectus supplement, remove such loan from the trust and
substitute in its place one or more other loans that meets certain requirements
set forth therein. There can be no assurance that a seller will fulfill this
purchase or substitution obligation. Unless otherwise specified in the
prospectus supplement, this obligation to cure, purchase or substitute
constitutes the sole remedy available to the securityholders or the trustee for
omission of, or a material defect in, a constituent document.
The trustee will be authorized to appoint a custodian pursuant to a
custodial agreement to maintain possession of and, if applicable, to review the
documents relating to the loans as agent of the trustee.
Notwithstanding the foregoing provisions, with respect to a trust for which
a REMIC election is to be made, no purchase or substitution of a loan will be
made if such purchase or substitution would result in a prohibited transaction
tax under the Code.
NO RECOURSE TO SELLERS; SPONSOR OR MASTER SERVICER. As described above under
"--Assignment of the Loans," the sponsor will assign the loans comprising the
trust to the trustee, without recourse. However, each seller will be obligated
to repurchase or substitute for any loan as to which certain representations and
warranties are breached or for failure to deliver certain documents relating to
the loans as described herein under "Assignment of the Loans" and "Loan
Program--Representations by Sellers; Repurchases." These obligations to purchase
or substitute constitute the sole remedy available to the securityholders or the
trustee for a breach of any such representation or warranty or failure to
deliver a constituent document.
PAYMENTS ON LOANS; DEPOSITS TO SECURITY ACCOUNT
The master servicer will establish and maintain or cause to be established
and maintained with respect to the each trust a separate account or accounts for
the collection of payments on the trust assets in the trust (the "Security
Account"). The prospectus supplement may provide for other requirements for the
Security Account, but if it does not, then the Security Account must be either:
o maintained with a depository institution the short-term debt obligations
of which (or, in the case of a depository institution that is the
principal subsidiary of a holding company, the short-term debt
obligations of such holding company) are rated in one of the two highest
short-term rating categories by the rating agency that rated one or more
classes of the related series of securities,
o an account or accounts the deposits in which are fully insured by the
FDIC,
o an account or accounts the deposits in which are insured by the FDIC to
the limits established by the FDIC and the uninsured deposits in which
are otherwise secured such that, as evidenced by an opinion of counsel,
securityholders have a claim with respect to the funds in such account
or accounts, or a perfected first-priority security interest against any
collateral securing such funds, that is superior to the claims of any
other depositors or general creditors of the depository institution with
which such account or accounts are maintained, or
o an account or accounts otherwise acceptable to such rating agency.
The collateral eligible to secure amounts in the Security Account is limited
to Permitted Investments. A Security Account may be maintained as an interest
bearing account or the funds held therein may be invested pending each
succeeding distribution date in Permitted Investments. The master servicer or
its designee will be entitled to receive any such interest or other income
earned on funds in the Security Account as additional compensation and will be
obligated to deposit in the Security Account the amount of any loss immediately
as realized. The Security Account may be maintained with the master servicer or
with a depository institution that is an affiliate of the master servicer,
provided it meets the standards set forth above.
The master servicer will deposit or cause to be deposited in the Security
Account for each trust, to the extent applicable and unless otherwise specified
in the prospectus supplement and provided in the related Agreement, the
following payments and collections received or advances made by or on behalf of
it subsequent to the Cut-off Date (other than certain payments due on or before
the Cut-off Date and any excluded amounts):
o all payments on account of principal and interest (which may be net of
the applicable servicing compensation), including principal prepayments
and, if specified in the prospectus supplement, any applicable
prepayment penalties, on the loans;
o all net insurance proceeds, less any incurred and unreimbursed advances
made by the master servicer, of the hazard insurance policies and any
primary mortgage insurance policies, to the extent such proceeds are not
applied to the restoration of the property or released to the mortgagor
in accordance with the master servicer's normal servicing procedures;
o all proceeds received in connection with the liquidation of defaulted
loans, less any expenses of liquidation and any unreimbursed advances
made by the master servicer;
o any net proceeds received on a monthly basis with respect to any
properties acquired on behalf of the securityholders by foreclosure or
deed in lieu of foreclosure;
o all advances as described herein under "Description of the
Securities--Advances";
o all proceeds of any loan or property in respect thereof repurchased by
any seller as described under "Loan Program--Representations by Sellers;
Repurchases" or "--Assignment of Trust Assets" above and all proceeds of
any loan repurchased as described under "--Termination; Optional
Termination" below;
o all payments required to be deposited in the Security Account with
respect to any deductible clause in any blanket insurance policy
described under "--Hazard Insurance" below;
o any amount required to be deposited by the master servicer in connection
with losses realized on investments for the benefit of the master
servicer of funds held in the Security Account and, to the extent
specified in the prospectus supplement, any payments required to be made
by the master servicer in connection with prepayment interest
shortfalls; and
o all other amounts required to be deposited in the Security Account
pursuant to the related agreement.
The master servicer (or the sponsor, as applicable) may from time to time
direct the institution that maintains the Security Account to withdraw funds
from the Security Account for the following purposes:
o to pay to the master servicer the servicing fees described in the
prospectus supplement and, as additional servicing compensation,
earnings on or investment income with respect to funds in the Security
Account credited thereto;
o to reimburse the master servicer for advances, such right of
reimbursement with respect to any loan being limited to amounts received
that represent late recoveries of payments of principal and/or interest
on such loan (or insurance proceeds or liquidation proceeds with respect
thereto) with respect to which such advance was made;
o to reimburse the master servicer for any advances previously made which
the master servicer has determined to be nonrecoverable;
o to reimburse the master servicer from insurance proceeds for expenses
incurred by the master servicer and covered by insurance policies;
o to reimburse the master servicer for unpaid master servicing fees and
unreimbursed out-of-pocket costs and expenses incurred by the master
servicer in the performance of its servicing obligations, such right of
reimbursement being limited to amounts received representing late
recoveries of the payments for which such advances were made;
o to pay to the master servicer, with respect to each loan or property
acquired in respect thereof that has been purchased by the master
servicer pursuant to the Agreement, all amounts received thereon and not
taken into account in determining the principal balance of such
repurchased loan,
o to reimburse the master servicer or the sponsor for expenses incurred
and reimbursable pursuant to the Agreement;
o to withdraw any amount deposited in the Security Account and not
required to be deposited therein; and
o to clear and terminate the Security Account upon termination of the
Agreement.
In addition, unless otherwise specified in the prospectus supplement, on or
prior to the business day immediately preceding each distribution date, the
master servicer shall withdraw from the Security Account the amount of available
funds, to the extent on deposit, for deposit in an account maintained by the
trustee.
The applicable Agreement may require the master servicer to establish and
maintain one or more escrow accounts into which mortgagors deposit amounts
sufficient to pay taxes, assessments, hazard insurance premiums or comparable
items. Withdrawals from the escrow accounts maintained for mortgagors may be
made to effect timely payment of taxes, assessments and hazard insurance
premiums or comparable items, to reimburse the master servicer out of related
assessments for maintaining hazard insurance, to refund to mortgagors amounts
determined to be overages, to remit to mortgagors, if required, interest earned,
if any, on balances in any of the escrow accounts, to repair or otherwise
protect the property and to clear and terminate any of the escrow accounts. The
master servicer will be solely responsible for administration of the escrow
accounts and will be expected to make advances to such account when a deficiency
exists therein.
PRE-FUNDING ACCOUNT
If so provided in the prospectus supplement, the master servicer will
establish and maintain, in the name of the trustee on behalf of the
securityholders, a pre-funding account into which the sponsor will deposit cash
on the Closing Date. The pre-funding account will be maintained with the
trustee. The deposit will not exceed 50% of the initial aggregate principal
amount of the securities. The money will be used by the trustee to purchase
additional loans from the sponsor from time to time during the funding period.
Monies on deposit in the pre-funding account will not be available to cover
losses on or in respect of the loans. The funding period for a trust will begin
on the Closing Date and will end on the date specified in the prospectus
supplement, which will not be later than one year after the Closing Date. Monies
on deposit in the pre-funding account may be invested in Permitted Investments
as specified in the related Agreement. Earnings on investment of funds in the
pre-funding account will be applied as specified in the prospectus supplement
and losses will be charged against the funds on deposit in the pre-funding
account. Any amounts remaining in the pre-funding account at the end of the
funding period will be distributed to securityholders as a prepayment of
principal, in the manner and priority specified in the prospectus supplement.
In addition, if so provided in the prospectus supplement, on the related
Closing Date the sponsor will make a deposit to a capitalized interest account,
which will be maintained with the trustee. The funds on deposit in the
capitalized interest account will be used solely to cover shortfalls in interest
that may arise as a result of utilization of the pre-funding account. Monies on
deposit in the capitalized interest account will not be available to cover
losses on or in respect of the loans. To the extent that the entire amount on
deposit in the capitalized interest account has not been used to cover
shortfalls in interest by the end of the funding period, any remaining amounts
will be paid to the sponsor.
SUBSERVICING BY SELLERS
The master servicer may enter into subservicing agreements with any
servicing entity which will act as the subservicer for the loans, which will not
contain any terms inconsistent with the related Agreement. While each
subservicing agreement will be a contract solely between the master servicer and
the subservicer, the Agreement pursuant to which a series of securities is
issued will provide that, if for any reason the master servicer for such series
of securities is no longer the master servicer of the loans, the trustee or any
successor master servicer must recognize the subservicer's rights and
obligations under such subservicing agreement. Notwithstanding any such
subservicing arrangement, unless otherwise provided in the prospectus
supplement, the master servicer will remain liable for its servicing duties and
obligations under the master servicing agreement as if the master servicer alone
were servicing the loans.
COLLECTION PROCEDURES
The master servicer, directly or through one or more subservicers, will make
reasonable efforts to collect all payments called for under the loans and will,
consistent with each Agreement and any pool insurance policy, primary mortgage
insurance policy, FHA insurance, VA guaranty, bankruptcy bond or alternative
arrangements, follow such collection procedures as are customary with respect to
loans that are comparable to the loans. Consistent with the above, the master
servicer may, in its discretion:
o waive any prepayment charge, assumption fee, late payment or other
charge in connection with a loan, and
o to the extent not inconsistent with the coverage of such loan by a pool
insurance policy, primary mortgage insurance policy, FHA insurance, VA
guaranty, bankruptcy bond or alternative arrangements, if applicable,
suspend or reduce regular monthly payment for a period of up to six
months, or arrange with a borrower a schedule for the liquidation of
delinquencies.
To the extent the master servicer is obligated to make or cause to be made
advances, such obligation will remain during any period of such an arrangement.
Under the Agreement, the master servicer will be required to enforce
due-on-sale clauses with respect to any loans to the extent contemplated by the
terms of such loans and permitted by applicable law. Where an assumption of, or
substitution of liability with respect to, a loan is required by law, upon
receipt of assurance that the primary mortgage insurance policy covering such
loan will not be affected, the master servicer may permit the assumption of a
loan, pursuant to which the borrower would remain liable on the related loan
note, or a substitution of liability with respect to such loan, pursuant to
which the new borrower would be substituted for the original borrower as being
liable on the loan note. Any fees collected for entering into an assumption or
substitution of liability agreement may be retained by the master servicer as
additional servicing compensation. In connection with any assumption or
substitution, the loan rate borne by the related loan note may not be changed.
HAZARD INSURANCE
Except as otherwise specified in the prospectus supplement, the master
servicer will require the mortgagor or obligor on each loan to maintain a hazard
insurance policy providing coverage against loss by fire and other hazards which
are covered under the standard extended coverage endorsement customary for the
type of property in the state in which such property is located. Such coverage
will be in an amount that is at least equal to the lesser of:
o the maximum insurable value of the improvements securing such loan from
time to time and
o the greater of
o the combined principal balance owing on such loan and any mortgage
loan senior to such loan and
o an amount such that the proceeds of such policy shall be sufficient
to prevent the mortgagor or obligor and/or the lender from becoming
a co-insurer.
All amounts collected by the master servicer under any hazard policy (except for
amounts to be applied to the restoration or repair of the property or released
to the mortgagor or obligor in accordance with the master servicer's normal
servicing procedures) will be deposited in the related Security Account. In the
event that the master servicer maintains a blanket policy insuring against
hazard losses on all the loans comprising part of a trust, it will conclusively
be deemed to have satisfied its obligation relating to the maintenance of hazard
insurance. Such blanket policy may contain a deductible clause, in which case
the master servicer will be required to deposit from its own funds into the
Security Account the amounts which would have been deposited therein but for
such clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements securing a loan by fire,
lightning, explosion, smoke, windstorm and hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Although the policies relating to the loans may have been underwritten
by different insurers under different state laws in accordance with different
applicable forms and therefore may not contain identical terms and conditions,
the basic terms thereof are dictated by respective state laws, and most such
policies typically do not cover (among other things) any physical damage
resulting from the following:
o war,
o revolution,
o governmental actions,
o floods and other water-related causes,
o earth movement, including earthquakes, landslides and mud flows,
o nuclear reactions,
o wet or dry rot,
o vermin, rodents, insects or domestic animals,
o theft and, in certain cases, vandalism.
The foregoing list is merely indicative of certain kinds of uninsured risks and
is not intended to be all inclusive.
If, however, any mortgaged property at the time of origination of the
related loan is located in an area identified by the Flood Emergency Management
Agency as having special flood hazards and flood insurance has been made
available, the master servicer will cause to be maintained with a generally
acceptable insurance carrier a flood insurance policy in accordance with
mortgage servicing industry practice. Such flood insurance policy will provide
coverage in an amount not less than the lesser of the principal balance of the
loan and the minimum amount required under the terms of coverage to compensate
for any damage or loss on a replacement cost basis, but not more than the
maximum amount of such insurance available for the related mortgaged property
under either the regular or emergency programs of the National Flood Insurance
Program.
The hazard insurance policies covering properties securing the loans
typically contain a clause which in effect requires the insured at all time to
carry insurance of a specified percentage (generally 80% to 90%) of the full
replacement value of the insured property in order to recover the full amount of
any partial loss. If the insured's coverage falls below this specified
percentage, then the insurer's liability in the event of partial loss will not
exceed the larger of (a) the replacement costs of the improvements less physical
depreciation and (b) such proportion of the loss as the amount of insurance
carried bears to the specified percentage of the full replacement cost of such
improvements. Since the amount of hazard insurance the master servicer may cause
to be maintained on the improvements securing the loans declines as the
principal balances owing thereon decrease, and since improved real estate
generally has appreciated in value over time in the past, the effect of this
requirement in the event of partial loss may be that hazard insurance proceeds
will be insufficient to restore fully the damaged property.
PRIMARY MORTGAGE INSURANCE
The master servicer will maintain or cause to be maintained, as the case may
be, in full force and effect, to the extent specified in the prospectus
supplement, a primary mortgage insurance policy with regard to each loan for
which such coverage is required. The master servicer will not cancel or refuse
to renew any such primary mortgage insurance policy in effect at the time of the
initial issuance of a series of securities that is required to be kept in force
under the applicable Agreement unless the replacement primary mortgage insurance
policy for such cancelled or nonrenewed policy is maintained with an insurer
whose claims-paying ability is sufficient to maintain the current rating of the
classes of securities of such series that have been rated.
Although the terms and conditions of primary mortgage insurance vary, the
amount of a claim for benefits under a primary mortgage insurance policy
covering a mortgage loan will consist of the insured percentage of the unpaid
principal amount of the covered loan and accrued and unpaid interest thereon and
reimbursement of certain expenses, less:
o all rents or other payments collected or received by the insured (other
than the proceeds of hazard insurance) that are derived from or in any
way related to the property,
o hazard insurance proceeds in excess of the amount required to restore
the property and which have not been applied to the payment of the loan,
o amounts expended but not approved by the insurer of the related primary
mortgage insurance policy,
o claim payments previously made by the insurer, and
o unpaid premiums.
Primary mortgage insurance policies reimburse certain losses sustained by
reason of default in payments by borrowers. Primary mortgage insurance policies
will not insure against, and exclude from coverage, a loss sustained by reason
of a default arising from or involving certain matters, including:
o fraud or negligence in ordination or servicing of the loans, including
misrepresentation by the originator, mortgagor (or obligor) or other
persons involved in the origination of the loan;
o failure to construct the property subject to the loan in accordance with
specified plans;
o physical damage to the property; and
o the related subservicer not being approved as a servicer by the insurer.
Evidence of each primary mortgage insurance policy will be provided to the
trustee simultaneously with the transfer to the trustee of the loan. The master
servicer, on behalf of itself, the trustee and securityholders, is required to
present claims to the insurer under any primary mortgage insurance policy and to
take such reasonable steps as are necessary to permit recovery thereunder with
respect to defaulted loans. Amounts collected by the master servicer on behalf
of the master servicer, the trustee and securityholders shall be deposited in
the related Security Account for distribution as set forth above. The master
servicer will not cancel or refuse to renew any primary mortgage insurance
policy required to be kept in force by the Agreement.
CLAIMS UNDER INSURANCE POLICIES AND OTHER REALIZATION UPON DEFAULTED LOANS
The master servicer, on behalf of the trustee and securityholders, will
present claims to the insurer under any applicable insurance policies. If the
property securing a defaulted loan is damaged and proceeds, if any, from the
related hazard insurance policy are insufficient to restore the damaged
property, the master servicer is not required to expend its own funds to restore
the damaged property unless it determines (a) that such restoration will
increase the proceeds to securityholders on liquidation of the loan after
reimbursement of the master servicer for its expenses and (b) that such expenses
will be recoverable by it from related insurance proceeds or liquidation
proceeds.
If recovery on a defaulted loan under any insurance policy is not available,
or if the defaulted loan is not covered by an insurance policy, the master
servicer will be obligated to follow or cause to be followed such normal
practices and procedures as it deems necessary or advisable to realize upon the
defaulted loan. If the proceeds of any liquidation of the property securing the
defaulted loan are less than the principal balance of such loan plus interest
accrued thereon that is payable to securityholders, the trust will realize a
loss in the amount of such difference plus the aggregate of expenses incurred by
the master servicer in connection with such proceedings and which are
reimbursable under the Agreement.
The proceeds from any liquidation of a loan will be applied in the following
order of priority:
first, to reimburse the master servicer for any unreimbursed expenses
incurred by it to restore the related property and any unreimbursed servicing
compensation payable to the master servicer with respect to such loan;
second, to reimburse the master servicer for any unreimbursed advances with
respect to such loan;
third, to accrued and unpaid interest (to the extent no advance has been
made for such amount) on such loan; and
fourth, as a recovery of principal of such loan.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The master servicer's primary compensation for its activities as master
servicer will come from the payment to it, with respect to each interest payment
on a loan, of the amount specified in the prospectus supplement. As principal
payments are made on the loans, the portion of each monthly payment which
represents interest will decline, and thus servicing compensation to the master
servicer will decrease as the loans amortize. Prepayments and liquidations of
loans prior to maturity will also cause servicing compensation to the master
servicer to decrease. As compensation for its servicing duties, a subservicer,
if any, will be entitled to a monthly servicing fee as described in the
prospectus supplement. In addition, the master servicer or subservicer will
retain all prepayment charges, assumption fees and late payment charges, to the
extent collected from borrowers, and any benefit that may accrue as a result of
the investment of funds in the applicable Security Account (unless otherwise
specified in the prospectus supplement).
The master servicer will pay or cause to be paid certain ongoing expenses
associated with each trust and incurred by it in connection with its
responsibilities under the related Agreement, including, without limitation, and
if so specified in the prospectus supplement, payment of any fee or other amount
payable in respect of any credit enhancement arrangements, payment of the fees
and disbursements of the trustee, any custodian appointed by the trustee, the
certificate registrar and any paying agent, and payment of expenses incurred in
enforcing the obligations of subservicers and sellers. The master servicer will
be entitled to reimbursement of expenses incurred in enforcing the obligations
of subservicers and sellers under certain limited circumstances.
EVIDENCE AS TO COMPLIANCE
Each Agreement will provide that the master servicer at its expense shall
cause a firm of independent public accountants to furnish a report annually to
the trustee to the effect that such firm has performed certain procedures
specified in the Agreement and that such review has disclosed no items of
noncompliance with the provisions of such Agreement which, in the opinion of
such firm, are material, except for such items of noncompliance as shall be set
forth in such report.
Each Agreement will also provide for delivery to the trustee, on or before a
specified date in each year, of an annual statement signed by an officer of the
master servicer to the effect that the master servicer has fulfilled its
obligations under the Agreement throughout the preceding year.
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE SPONSOR
The master servicer under each pooling and servicing agreement or master
servicing agreement, as applicable, will be named in the prospectus supplement.
The entity serving as master servicer may have normal business relationships
with the sponsor or the sponsor's affiliates.
Each Agreement will provide that the master servicer may not resign from its
obligations and duties under the Agreement except upon (a) appointment of a
successor servicer and receipt by the trustee of a letter from the applicable
rating agency that such resignation and appointment will not result in a
downgrade of the securities or (b) a determination that its duties thereunder
are no longer permissible under applicable law. The master servicer may,
however, be removed from its obligations and duties as set forth in the
Agreement. No such resignation will become effective until the trustee or a
successor servicer has assumed the master servicer's obligations and duties
under the Agreement.
Each Agreement will further provide that neither the master servicer, the
sponsor nor any director, officer, employee, or agent of the master servicer or
the sponsor (collectively, the "Indemnified Parties") will be under any
liability to the related trust or securityholders for any action taken or for
refraining from the taking of any action in good faith pursuant to the
Agreement, or for errors in judgment; provided, however, that neither the master
servicer, the sponsor nor any such person will be protected against any
liability which would otherwise be imposed by reason of willful misfeasance, bad
faith or gross negligence in the performance of duties thereunder or by reason
of reckless disregard of obligations and duties thereunder. Each Agreement will
further provide that each Indemnified Party will be entitled to indemnification
by the related trust and will be held harmless against any loss, liability or
expense incurred in connection with any legal action relating to the Agreement
or the securities for such series, other than any loss, liability or expense
related to any specific loan or loans (except any such loss, liability or
expense otherwise reimbursable pursuant to the Agreement) and any loss,
liability or expense incurred by reason of willful misfeasance, bad faith or
gross negligence in the performance of such Indemnified Party's duties
thereunder or by reason of reckless disregard by such Indemnified Party of
obligations and duties thereunder. In addition, each Agreement will provide that
neither the master servicer nor the sponsor will be under any obligation to
appear in, prosecute or defend any legal action which is not incidental to its
respective responsibilities under the Agreement and which in its opinion may
involve it in any expense or liability. The master servicer or the sponsor may,
however, in its discretion undertake any such action which it may deem necessary
or desirable with respect to the Agreement and the rights and duties of the
parties thereto and the interests of the securityholders 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 and the master
servicer or the sponsor, as the case may be, will be entitled to be reimbursed
therefor out of funds otherwise distributable to securityholders.
Except as otherwise specified in the prospectus supplement, any person into
which the master servicer may be merged or consolidated, or any person resulting
from any merger or consolidation to which the master servicer is a party, or any
person succeeding to the business of the master servicer, will be the successor
of the master servicer under each Agreement, provided that such person is
qualified to sell mortgage loans to, and service mortgage loans on behalf of,
Fannie Mae or Freddie Mac and further provided that such merger, consolidation
or succession does not adversely affect the then current rating or ratings of
the class or classes of securities of such series that have been rated.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
POOLING AND SERVICING AGREEMENT; MASTER SERVICING AGREEMENT. Except as
otherwise specified in the prospectus supplement, events of default under each
Agreement will consist of:
o any failure by the master servicer to make an Advance which continues
unremedied for one business day
o any failure by the master servicer to make or cause to be made any other
required payment pursuant to the Agreement which continues unremedied
for five days after written notice of such failure to the master
servicer in the manner specified in the Agreement;
o any failure by the master servicer duly to observe or perform in any
material respect any of its other covenants or agreements in the
Agreement which continues unremedied for sixty days after written notice
of such failure to the master servicer in the manner specified in the
Agreement; and
o certain events of insolvency, readjustments of debt, marshalling of
assets and liabilities or similar proceedings and certain actions by or
on behalf of the master servicer indicating its insolvency,
reorganization or inability to pay its obligations.
If specified in the prospectus supplement, the Agreement will permit the
trustee to sell the trust assets and the other assets of the trust described
under "Credit Enhancement" herein in the event that payments in respect thereto
are insufficient to make payments required in the Agreement. The trust assets
will be sold only under the circumstances and in the manner specified in the
prospectus supplement.
Unless otherwise provided in the prospectus supplement, so long as an event
of default under an Agreement remains unremedied, the trustee may, and at the
direction of holders of securities evidencing not less than 25% of the aggregate
voting rights of such series and under such other circumstances as may be
specified in such Agreement, the trustee shall terminate all of the rights and
obligations of the master servicer under the Agreement relating to such trust
and in and to the related trust assets, whereupon the trustee will succeed to
all of the responsibilities, duties and liabilities of the master servicer under
the Agreement, including, if specified in the prospectus supplement, the
obligation to make advances, and will be entitled to similar compensation
arrangements. In the event that the trustee is unwilling or unable so to act, it
may appoint, or petition a court of competent jurisdiction for the appointment
of, a housing and home finance institution which is a Fannie Mae or Freddie Mac
approved servicer with a net worth of a least $10,000,000 to act as successor to
the master servicer under the Agreement. 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 master servicer under the
Agreement.
Unless otherwise provided in the prospectus supplement, no securityholder,
solely by virtue of such holder's status as a securityholder, will have any
right under any Agreement to institute any proceeding with respect to such
Agreement, unless such holder previously has given to the trustee written notice
of default and unless the holders of securities evidencing not less than 25% of
the aggregate voting rights for such series have made written request upon the
trustee to institute such proceeding in its own name as trustee thereunder and
have offered to the trustee reasonable indemnity, and the trustee for 60 days
has neglected or refused to institute any such proceeding. However, the trustee
is under no obligation to exercise any of the trusts or powers vested in it by
the Agreement for any series or to make any investigation of matters arising
thereunder or to institute, conduct or defend any litigation thereunder or in
relation thereto at the request, order or direction of any securityholders,
unless such securityholders have offered and provided to the trustee reasonable
security or indemnity against the costs, expenses and liabilities which may be
incurred therein or thereby.
INDENTURE. Except as otherwise specified in the prospectus supplement,
events of default or rapid amortization events under the indenture for each
series of notes include:
o a default in the payment of any principal of or interest on any note
which continues unremedied for five days after the giving of written
notice of such default is given as specified in the prospectus
supplement;
o failure to perform in any material respect any other covenant of the
sponsor or the trust in the indenture which continues for a period of
sixty (60) days after notice thereof is given in accordance with the
procedures described in the prospectus supplement;
o certain events of bankruptcy, insolvency, receivership or liquidation of
the sponsor or the trust; or
o any other event of default provided with respect to notes of that series
including but not limited to certain defaults on the part of the issuer,
if any, of a credit enhancement instrument supporting such notes.
If an event of default with respect to the notes of any series at the time
outstanding occurs and is continuing, either the trustee or the holders of a
majority of the then aggregate outstanding amount of the notes of such series
may declare the principal amount (or, if the notes have an interest rate of
0%, such portion of the principal amount as may be specified in the terms of
that series, as provided in the prospectus supplement) of all the notes of
such series to be due and payable immediately. Such declaration may, under
certain circumstances, be rescinded and annulled by the holders of more than
50% of the aggregate voting rights of the notes of such series. Rapid
amortization events will trigger an accelerated rate of payment of principal
on the notes, as described in the related prospectus supplement.
If, following an event of default with respect to any series of notes, the
notes of such series have been declared to be due and payable, the trustee may,
in its discretion, notwithstanding such acceleration, elect to maintain
possession of the collateral securing the notes of such series and to continue
to apply distributions on such collateral as if there had been no declaration of
acceleration if such collateral continues to provide sufficient funds for the
payment of principal of and interest on the notes of such series as they would
have become due if there had not been such a declaration. In addition, unless
otherwise specified in the prospectus supplement, the trustee may not sell or
otherwise liquidate the collateral securing the notes of a series following an
event of default or a rapid amortization event, unless:
o the holders of 100% of the aggregate voting rights of the notes of such
series consent to such sale,
o the proceeds of such sale or liquidation are sufficient to pay in full
the principal of and accrued interest, due and unpaid, on the
outstanding notes of such series at the date of such sale, or
o the trustee determines that such collateral would not be sufficient on
an ongoing basis to make all payments on such notes as such payments
would have become due if such notes had not been declared due and
payable, and the trustee obtains the consent of the holders of 662/3% of
the aggregate voting rights of the notes of such series.
In the event that the trustee liquidates the collateral in connection with
an event of default or a rapid amortization event, the indenture provides that
the trustee will have a prior lien on the proceeds of any such liquidation for
unpaid fees and expenses. As a result, upon the occurrence of such an event of
default or rapid amortization event, the amount available for distribution to
the noteholders would be less than would otherwise be the case. However, the
trustee may not institute a proceeding for the enforcement of its lien except
in connection with a proceeding for the enforcement of the lien of the
indenture for the benefit of the noteholders after the occurrence of such an
event of default or rapid amortization event.
Except as otherwise specified in the prospectus supplement, in the event the
principal of the notes of a series is declared due and payable, as described
above, the holders of any such notes issued at a discount from par may be
entitled to receive no more than an amount equal to the unpaid principal amount
thereof less the amount of such discount which is unamortized.
Subject to the provisions of the indenture relating to the duties of the
trustee, in case an event of default or a rapid amortization event shall occur
and be continuing with respect to a series of notes, the trustee shall be
under no obligation to exercise any of the rights or powers under the
indenture at the request or direction of any of the holders of notes of such
series, unless such holders offered to the trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities which might be
incurred by it in complying with such request or direction. Subject to such
provisions for indemnification and certain limitations contained in the
indenture, the holders of a majority of the then aggregate outstanding amount
of the notes of such series shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the trustee
or exercising any trust or power conferred on the trustee with respect to the
notes of such series, and the holders of a majority of the then aggregate
outstanding amount of the notes of such series may, in certain cases, waive
any default with respect thereto, except a default in the payment of principal
or interest or a default in respect of a covenant or provision of the
indenture that cannot be modified without the waiver or consent of all the
holders of the outstanding notes of such series affected thereby.
AMENDMENT
Except as otherwise specified in the prospectus supplement, each Agreement
may be amended by the sponsor, the master servicer and the trustee, without the
consent of any of the securityholders:
o to cure any ambiguity;
o to correct a defective provision or correct or supplement any provision
therein which may be inconsistent with any other provision therein;
o to make any other revisions with respect to matters or questions arising
under the Agreement which are not inconsistent with the provisions
thereof; or
o to comply with any requirements imposed by the Code or any regulation
thereunder, provided, however, that no such amendments (except those
pursuant to this clause) will adversely affect in any material respect
the interests of any securityholder.
An amendment will be deemed not to adversely affect in any material respect
the interests of the securityholders if the trustee receives a letter from each
rating agency requested to rate the class or classes of securities of such
series stating that such amendment will not result in the downgrading or
withdrawal of the respective ratings then assigned to such securities. Each
Agreement may also be amended by the sponsor, the master servicer and the
trustee with consent of holders of securities of such series evidencing not less
than 66 2/3% of the aggregate voting rights of each class affected thereby for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of the Agreement or of modifying in any manner the rights
of the holders of the related securities; provided, however, that no such
amendment may (a) reduce in any manner the amount of, or delay the timing of,
payments received on loans which are required to be distributed on any security
without the consent of the holder of such security, or (b) with respect to any
series of certificates, reduce the aforesaid percentage of securities of any
class the holders of which are required to consent to any such amendment without
the consent of the holders of all securities of such class covered by such
Agreement then outstanding. If a REMIC election is made with respect to a trust,
the trustee will not be entitled to consent to an amendment to the related
Agreement without having first received an opinion of counsel to the effect that
such amendment will not cause such trust to fail to qualify as a REMIC.
TERMINATION; OPTIONAL TERMINATION
POOLING AND SERVICING AGREEMENT; TRUST AGREEMENT. Unless otherwise specified
in the related Agreement, the obligations created by each pooling and servicing
agreement and trust agreement for each series of securities will terminate upon
the payment to the related securityholders of all amounts held in the Security
Account or by the master servicer and required to be paid to them pursuant to
such Agreement following the later of:
(a) the final payment of or other liquidation of the last of the trust
assets subject thereto or the disposition of all property acquired
upon foreclosure of any such trust assets remaining in the trust, and
(b) the purchase by the master servicer or, if REMIC treatment has been
elected and if specified in the prospectus supplement, by the holder of
the residual interest or any other party specified to have such rights
(see "Federal Income Tax Consequences" below), from the related trust
of all of the remaining trust assets and all property acquired in
respect of such trust assets.
Unless otherwise specified by the prospectus supplement, any such purchase
of trust assets and property acquired in respect of trust assets evidenced by a
series of securities will be made at the option of the master servicer, such
other person or, if applicable, such holder of the REMIC residual interest, at a
price specified in the prospectus supplement. The exercise of such right will
effect early retirement of the securities of that series, but the right of the
master servicer, such other person or, if applicable, such holder of the REMIC
residual interest, to so purchase is subject to the principal balance of the
related trust assets being less than the percentage specified in the prospectus
supplement of the aggregate principal balance of the trust assets at the Cut-off
Date for the series. The foregoing is subject to the provision that if a REMIC
election is made with respect to a trust, any repurchase pursuant to clause (b)
above will be made only in connection with a "qualified liquidation" of the
REMIC within the meaning of Section 860F(g)(4) of the Code.
INDENTURE. The indenture will be discharged with respect to a series of
notes (except with respect to certain continuing rights specified in the
indenture) upon the delivery to the trustee for cancellation of all the notes of
such series or, with certain limitations, upon deposit with the trustee of funds
sufficient for the payment in full of all of the notes of such series.
In addition to such discharge with certain limitations, the indenture will
provide that, if so specified with respect to the notes of any series, the
related trust will be discharged from any and all obligations in respect of the
notes of such series (except for certain obligations relating to temporary notes
and exchange of notes, to register the transfer of or exchange notes of such
series, to replace stolen, lost or mutilated notes of such series, to maintain
paying agencies and to hold monies for payment in trust) upon the deposit with
the trustee, in trust, of money and/or direct obligations of or obligations
guaranteed by the United States of America which through the payment of interest
and principal in respect thereof in accordance with their terms will provide
money in an amount sufficient to pay the principal of and each installment of
interest on the notes of such series on the last scheduled distribution date for
such notes and any installment of interest on such notes in accordance with the
terms of the indenture and the notes of such series. In the event of any such
defeasance and discharge of notes of such series, holders of notes of such
series would be able to look only to such money and/or direct obligations for
payment of principal and interest, if any, on their notes until maturity.
THE TRUSTEE
The trustee under each Agreement will be named in the prospectus supplement.
The commercial bank, savings and loan association or trust company serving as
trustee may have normal banking relationships with the sponsor, the master
servicer and any of their respective affiliates.
CERTAIN LEGAL ASPECTS OF THE LOANS
The following discussion contains summaries, which are general in nature, of
certain legal matters relating to the loans. Because such legal aspects are
governed primarily by applicable state law (which laws may differ
substantially), the descriptions do not, except as expressly provided below,
reflect the laws of any particular state, nor do they encompass the laws of all
states in which the security for the loans is situated. The descriptions are
qualified in their entirety by reference to the applicable federal laws and the
appropriate laws of the states in which loans may be originated.
GENERAL
The loans for a series may be secured by deeds of trust, mortgages, security
deeds or deeds to secure debt, depending upon the prevailing practice in the
state in which the property subject to the loan is located. Deeds of trust are
used almost exclusively in California instead of mortgages. A mortgage creates a
lien upon the real property encumbered by the mortgage, which lien is generally
not prior to the lien for real estate taxes and assessments. Priority between
mortgages depends on their terms and generally on the order of recording with a
state or county office. There are two parties to a mortgage, the mortgagor, who
is the borrower and owner of the mortgaged property, and the mortgagee, who is
the lender. Under the mortgage instrument, the mortgagor delivers to the
mortgagee a note or bond and the mortgage. Although a deed of trust is similar
to a mortgage, a deed of trust formally has three parties, the borrower-property
owner called the trustor (similar to a mortgagor), a lender (similar to a
mortgagee) called the beneficiary, and a third-party grantee called the trustee.
Under a deed of trust, the borrower grants the property, irrevocably until the
debt is paid, in trust, generally with a power of sale, to the trustee to secure
payment of the obligation. A security deed and a deed to secure debt are special
types of deeds which indicate on their face that they are granted to secure an
underlying debt. By executing a security deed or deed to secure debt, the
grantor conveys title to, as opposed to merely creating a lien upon, the subject
property to the grantee until such time as the underlying debt is repaid. The
trustee's authority under a deed of trust, the mortgagee's authority under a
mortgage and the grantee's authority under a security deed or deed to secure
debt are governed by law and, with respect to some deeds of trust, the
directions of the beneficiary.
FORECLOSURE/REPOSSESSION
DEED OF TRUST. Foreclosure of a deed of trust is generally accomplished by a
non-judicial sale under a specific provision in the deed of trust which
authorizes the trustee to sell the property at public auction upon any default
by the borrower under the terms of the note or deed of trust. In certain states,
such foreclosure also may be accomplished by judicial action in the manner
provided for foreclosure of mortgages. In addition to any notice requirements
contained in a deed of trust, in some states (such as California), the trustee
must record a notice of default and send a copy to the borrower-trustor, to any
person who has recorded a request for a copy of any notice of default and notice
of sale, to any successor in interest to the borrower-trustor, to the
beneficiary of any junior deed of trust and to certain other persons. In some
states (including California), the borrower-trustor has the right to reinstate
the loan at any time following default until shortly before the trustee's sale.
In general, the borrower, or any other person having a junior encumbrance on the
real estate, may, during a statutorily prescribed reinstatement period, cure a
monetary default by paying the entire amount in arrears plus other designated
costs and expenses incurred in enforcing the obligation. Generally, state law
controls the amount of foreclosure expenses and costs, including attorney's
fees, which may be recovered by a lender. After the reinstatement period has
expired without the default having been cured, the borrower or junior lienholder
no longer has the right to reinstate the loan and must pay the loan in full to
prevent the scheduled foreclosure sale. If the deed of trust is not reinstated
within any applicable cure period, a notice of sale must be posted in a public
place and, in most states (including California), published for a specific
period of time in one or more newspapers. In addition, some state laws require
that a copy of the notice of sale be posted on the property and sent to all
parties having an interest of record in the real property. In California, the
entire process from recording a notice of default to a non-judicial sale usually
takes four to five months.
MORTGAGES. Foreclosure of a mortgage is generally accomplished by judicial
action. The action is initiated by the service of legal pleadings upon all
parties having an interest in the real property. Delays in completion of the
foreclosure may occasionally result from difficulties in locating necessary
parties. Judicial foreclosure proceedings are often not contested by any of the
parties. When the mortgagee's right to foreclosure is contested, the legal
proceedings necessary to resolve the issue can be time consuming. After the
completion of a judicial foreclosure proceeding, the court generally issues a
judgment of foreclosure and appoints a referee or other court officer to conduct
the sale of the property. In some states, mortgages may also be foreclosed by
advertisement, pursuant to a power of sale provided in the mortgage.
Although foreclosure sales are typically public sales, frequently no third
party purchaser bids in excess of the lender's lien because of the difficulty of
determining the exact status of title to the property, the possible
deterioration of the property during the foreclosure proceedings and a
requirement that the purchaser pay for the property in cash or by cashier's
check. Thus the foreclosing lender often purchases the property from the trustee
or referee for an amount equal to the principal amount outstanding under the
loan, accrued and unpaid interest and the expenses of foreclosure in which event
the mortgagor's debt will be extinguished or the lender may purchase for a
lesser amount in order to preserve its right against a borrower to seek a
deficiency judgment in states where such judgment is available. Thereafter,
subject to the right of the borrower in some states to remain in possession
during the redemption period, the lender will assume the burden of ownership,
including obtaining hazard insurance and making such repairs at its own expense
as are necessary to render the property suitable for sale. The lender will
commonly obtain the services of a real estate broker and pay the broker's
commission in connection with the sale of the property. Depending upon market
conditions, the ultimate proceeds of the sale of the property may not equal the
lender's investment in the property. Any loss may be reduced by the receipt of
any mortgage guaranty insurance proceeds.
Courts have imposed general equitable principles upon foreclosure, which are
generally designed to mitigate the legal consequences to the borrower of the
borrower's defaults under the loan documents. Some courts have been faced with
the issue of whether federal or state constitutional provisions reflecting due
process concerns for fair notice require that borrowers under deeds of trust
receive notice longer than that prescribed by statute. For the most part, these
cases have upheld the notice provisions as being reasonable or have found that
the sale by a trustee under a deed of trust does not involve sufficient state
action to afford constitutional protection to the borrower.
When the beneficiary under a junior mortgage or deed of trust cures the
default and reinstates or redeems by paying the full amount of the senior
mortgage or deed of trust, the amount paid by the beneficiary so to cure or
redeem becomes a part of the indebtedness secured by the junior mortgage or deed
of trust. See "Junior Mortgages; Rights of Senior Mortgagees" below.
ENVIRONMENTAL RISKS
Real property pledged as security to a lender may be subject to unforeseen
environmental risks. Under the laws of certain states, contamination of a
property may give rise to a lien on the property to assure the payment of the
costs of clean-up. In several states such a lien has priority over the lien of
an existing mortgage against such property. In addition, under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the United States Environmental Protection Agency ("EPA") may impose
a lien on property where the EPA has incurred clean-up costs. However, a CERCLA
lien is subordinate to pre-existing, perfected security interests.
Under the laws of some states, and under CERCLA, it is conceivable that a
secured lender may be held liable as an owner or operator for the costs of
addressing releases or threatened releases of hazardous substances at a
mortgaged property, even though the environmental damage or threat was caused by
a prior or current owner or operator. CERCLA imposes liability for such costs on
any and all responsible parties, including owners or operators. However, CERCLA
excludes from the definition of "owner or operator" a secured creditor who holds
indicia of ownership primarily to protect its security interest (the "secured
creditor exclusion"). Thus, if a lender's activities begin to encroach on the
actual management of a contaminated facility or property, the lender may incur
liability as an owner or operator under CERCLA. Similarly, if a lender
forecloses and takes title to a contaminated facility or property, the lender
may incur CERCLA liability in various circumstances, including, but not limited
to, when it holds the facility or property as an investment (including leasing
the facility or property to a third party), or fails to market the property in a
timely fashion.
If a lender is or becomes liable, it can bring an action for contribution
against any other responsible parties, including a previous owner or operator,
who created the environmental hazard, but those persons or entities may be
bankrupt or otherwise judgment proof. The costs associated with environmental
cleanup may be substantial. It is conceivable that such costs arising from the
circumstances set forth above would result in a loss to securityholders.
CERCLA does not apply to petroleum products, and the secured creditor
exclusion does not govern liability for cleanup costs under federal laws other
than CERCLA, in particular Subtitle I of the federal Resource Conservation and
Recovery Act ("RCRA"), which regulates underground petroleum storage tanks
(except heating oil tanks). The EPA has adopted a lender liability rule for
underground storage tanks under Subtitle I of RCRA. Under such rule, a holder of
a security interest in an underground storage tank or real property containing
an underground storage tank is not considered an operator of the underground
storage tank as long as petroleum is not added to, stored in or dispensed from
the tank. In addition, under the Asset Conservation, Lender Liability and
Deposit Insurance Protection Act of 1996, the protections accorded to lenders
under CERCLA are also accorded to holders of security interests in underground
tanks. It should be noted, however, that liability for cleanup of petroleum
contamination may be governed by state law, which may not provide for any
specific protection for secured creditors.
Except as otherwise specified in the applicable supplement, at the time the
mortgage loans were originated, no environmental assessment or a very limited
environmental assessment of the mortgaged properties was conducted.
Whether actions taken by a lender would constitute participation in the
management of a mortgaged property, or the business of a borrower, so as to
render the secured creditor exemption unavailable to a lender has been a matter
of judicial interpretation of the statutory language, and court decisions have
been inconsistent. In 1990, the Court of Appeals for the Eleventh Circuit
suggested that the mere capacity of the lender to influence a borrower's
decisions regarding disposal of hazardous substances was sufficient
participation in the management of the borrower's business to deny the
protection of the secured creditor exemption to the lender.
This ambiguity appears to have been resolved by the enactment of the Asset
Conservation, Lender Liability and Deposit Insurance Protection Act of 1996,
which was signed into law by President Clinton on September 30, 1996. The new
legislation provides that in order to be deemed to have participated in the
management of a mortgaged property, a lender must actually participate in the
operational affairs of the property or the borrower. The legislation also
provides that participation in the management of the property does not include
"merely having the capacity to influence, or unexercised right to control"
operations. Rather, a lender will lose the protection of the secured creditor
exemption only if it exercises decision-making control over the borrower's
environmental compliance and hazardous substance handling and disposal
practices, or assumes day-to-day management of all operational functions of the
mortgaged property.
Except as otherwise specified in the prospectus supplement, at the time the
loans were originated, no environmental assessments or very limited
environmental assessments of the properties were conducted.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property from the foreclosure sale. In certain
other states (including California), this right of redemption applies only to
sales following judicial foreclosure, and not to sales pursuant to a
non-judicial power of sale. In most states where the right of redemption is
available, statutory redemption may occur upon payment of the foreclosure
purchase price, accrued interest and taxes. In other states, redemption may be
authorized if the former borrower pays only a portion of the sums due. The
effect of a statutory right of redemption is to diminish the ability of the
lender to sell the foreclosed property. The exercise of a right of redemption
would defeat the title of any purchaser from the lender subsequent to
foreclosure or sale under a deed of trust. Consequently, the practical effect of
the redemption right is to force the lender to retain the property and pay the
expenses of ownership until the redemption period has run. In some states, there
is no right to redeem property after a trustee's sale under a deed of trust.
ANTI-DEFICIENCY LEGISLATION; BANKRUPTCY LAWS; TAX LIENS
Certain states have imposed statutory and judicial restrictions that limit
the remedies of a beneficiary under a deed of trust or a mortgagee under a
mortgage. In some states, including California, statutes and case law limit the
right of the beneficiary or mortgagee to obtain a deficiency judgment against
borrowers financing the purchase of their residence or following sale under a
deed of trust or certain other foreclosure proceedings. A deficiency judgment is
a personal judgment against the borrower equal in most cases to the difference
between the amount due to the lender and the fair market value of the real
property at the time of the foreclosure sale. As a result of these prohibitions,
it is anticipated that in most instances the master servicer will utilize the
non-judicial foreclosure remedy and will not seek deficiency judgments against
defaulting borrowers.
Some state statutes require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
In certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of these states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies with respect to the security. Consequently, the
practical effect of the election requirement, when applicable, is that lenders
will usually proceed first against the security rather than bringing a personal
action against the borrower. In some states, exceptions to the anti-deficiency
statutes are provided for in certain instances where the value of the lender's
security has been impaired by acts or omissions of the borrower, for example, in
the event of waste of the property. Finally, other statutory provisions limit
any deficiency judgment against the former borrower following a foreclosure sale
to the excess of the outstanding debt over the fair market value of the property
at the time of the public sale. The purpose of these statutes is generally to
prevent a beneficiary or a mortgagee from obtaining a large deficiency judgment
against the former borrower as a result of low or no bids at the foreclosure
sale.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
and state laws affording relief to debtors, may interfere with or affect the
ability of the secured mortgage lender to realize upon its security. For
example, in a proceeding under the federal Bankruptcy Code, a lender may not
foreclose on a mortgaged property without the permission of the bankruptcy
court. The rehabilitation plan proposed by the debtor may provide, if the
mortgaged property is not the debtor's principal residence and the court
determines that the value of the mortgaged property is less than the principal
balance of the mortgage loan, for the reduction of the secured indebtedness to
the value of the mortgaged property as of the date of the commencement of the
bankruptcy, rendering the lender a general unsecured creditor for the
difference, and also may reduce the monthly payments due under such mortgage
loan, change the rate of interest and alter the mortgage loan repayment
schedule. The effect of any such proceedings under the federal Bankruptcy Code,
including but not limited to any automatic stay, could result in delays in
receiving payments on the loans underlying a series of securities and possible
reductions in the aggregate amount of such payments.
The federal tax laws provide priority to certain tax liens over the lien of
a mortgage or secured party.
DUE-ON-SALE CLAUSES
Each conventional loan generally will contain a due-on-sale clause which
will generally provide that if the mortgagor or obligor sells, transfers or
conveys the property, the loan or contract may be accelerated by the mortgagee
or secured party. Court decisions and legislative actions have placed
substantial restrictions on the right of lenders to enforce such clauses in many
states. For instance, the California Supreme Court in August 1978 held that
due-on-sale clauses were generally unenforceable. However, the Garn-St Germain
Depository Institutions Act of 1982 (the "Garn-St Germain Act"), subject to
certain exceptions, preempts state constitutional, statutory and case law
prohibiting the enforcement of due-on-sale clauses. As a result, due-on-sale
clauses are generally enforceable except in those states whose legislatures
exercised their authority to regulate the enforceability of such clauses with
respect to mortgage loans that were (a) originated or assumed during the "window
period" under the Garn-St Germain Act which ended in all cases not later than
October 15, 1982, and (b) originated by lenders other than national banks,
federal savings institutions and federal credit unions. Freddie Mac has taken
the position in its published mortgage servicing standards that, out of a total
of eleven "window period states," five states (Arizona, Michigan, Minnesota, New
Mexico and Utah) have enacted statutes extending, on various terms and for
varying periods, the prohibition on enforcement of due-on-sale clauses with
respect to certain categories of window period loans. Also, the Garn-St Germain
Act does "encourage" lenders to permit assumption of loans at the original rate
of interest or at some other rate less than the average of the original rate and
the market rate.
As to loans secured by an owner-occupied residence, the Garn-St Germain Act
sets forth nine specific instances in which a mortgagee covered by the Garn-St
Germain Act may not exercise its rights under a due-on-sale clause,
notwithstanding the fact that a transfer of the property may have occurred. The
inability to enforce a due-on-sale clause may result in transfer of the related
property to an uncreditworthy person, which could increase the likelihood of
default or may result in a mortgage bearing an interest rate below the current
market rate being assumed by a new home buyer, which may affect the average life
of the loans and the number of loans which may extend to maturity.
In addition, under federal bankruptcy law, due-on-sale clauses may not be
enforceable in bankruptcy proceedings and may, under certain circumstances, be
eliminated in any modified mortgage resulting from such bankruptcy proceeding.
ENFORCEABILITY OF PREPAYMENT AND LATE PAYMENT FEES
Forms of notes, mortgages and deeds of trust used by lenders may contain
provisions obligating the borrower to pay a late charge if payments are not
timely made, and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states, there
are or may be specific limitations upon the late charges which a lender may
collect from a borrower for delinquent payments. Certain states also limit the
amounts that a lender may collect from a borrower as an additional charge if the
loan is prepaid. Under certain state laws, prepayment charges may not be imposed
after a certain period of time following the origination of mortgage loans with
respect to prepayments on loans secured by liens encumbering owner-occupied
residential properties. Since many of the properties will be owner-occupied, it
is anticipated that prepayment charges may not be imposed with respect to many
of the loans. The absence of such a restraint on prepayment, particularly with
respect to fixed rate loans having higher loan rates, may increase the
likelihood of refinancing or other early retirement of such loans or contracts.
Late charges and prepayment fees are typically retained by servicers as
additional servicing compensation.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control Act
of 1980, enacted in March 1980 ("Title V") provides that state usury limitations
shall not apply to certain types of residential first mortgage loans originated
by certain lenders after March 31, 1980. The Office of Thrift Supervision, as
successor to the Federal Home Loan Bank Board, is authorized to issue rules and
regulations and to publish interpretations governing implementation of Title V.
Title V authorized the states to reimpose interest rate limits by adopting,
before April 1, 1983, a law or constitutional provision which expressly rejects
application of the federal law. Fifteen states adopted such a law prior to the
April 1, 1983 deadline. In addition, even where Title V was not so rejected, any
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.
THE HOME IMPROVEMENT CONTRACTS
GENERAL. The home improvement contracts, other than those home improvement
contracts that are unsecured or secured by mortgages on real estate (such home
improvement contracts are hereinafter referred to in this section as
"contracts") generally are "chattel paper" or constitute "purchase money
security interests" each as defined in the UCC. Pursuant to the UCC, the sale of
chattel paper is treated in a manner similar to perfection of a security
interest in chattel paper. Under the related Agreement, the sponsor will
transfer physical possession of the contracts to the trustee or a designated
custodian or may retain possession of the contracts as custodian for the
trustee. In addition, the sponsor will make an appropriate filing of a UCC-1
financing statement in the appropriate states to, among other things, give
notice of the trust's ownership of the contracts. Unless otherwise specified in
the prospectus supplement, the contracts will not be stamped or otherwise marked
to reflect their assignment from the sponsor to the trustee. Therefore, if
through negligence, fraud or otherwise, a subsequent purchaser were able to take
physical possession of the contracts without notice of such assignment, the
trust's interest in the contracts could be defeated.
SECURITY INTERESTS IN HOME IMPROVEMENTS. The contracts that are secured by
the home improvements financed thereby grant to the originator of such contracts
a purchase money security interest in such home improvements to secure all or
part of the purchase price of such home improvements and related services. A
financing statement generally is not required to be filed to perfect a purchase
money security interest in consumer goods. Such purchase money security
interests are assignable. In general, a purchase money security interest grants
to the holder a security interest that has priority over a conflicting security
interest in the same collateral and the proceeds of such collateral. However, to
the extent that the collateral subject to a purchase money security interest
becomes a fixture, in order for the related purchase money security interest to
take priority over a conflicting interest in the fixture, the holder's interest
in such home improvement must generally be perfected by a timely fixture filing.
In general, a security interest does not exist under the UCC in ordinary
building material incorporated into an improvement on land. Home improvement
contracts that finance lumber, bricks, other types of ordinary building material
or other goods that are deemed to lose such characterization upon incorporation
of such materials into the related property, will not be secured by a purchase
money security interest in the home improvement being financed.
ENFORCEMENT OF SECURITY INTEREST IN HOME IMPROVEMENTS. So long as the home
improvement has not become subject to the real estate law, a creditor can
repossess a home improvement securing a contract by voluntary surrender, by
self-help repossession that is peaceful (i.e., without breach of the peace) or,
in the absence of voluntary surrender and the ability to repossess without
breach of the peace, by judicial process. The holder of a contract must give the
debtor a number of days' notice, which varies from 10 to 30 days depending on
the state, prior to commencement of any repossession. The UCC and consumer
protection laws in most states place restrictions on repossession sales,
including requiring prior notice to the debtor and commercial reasonableness in
effecting such a sale. The law in most states also requires that the debtor be
given notice of any sale prior to resale of the unit that the debtor may redeem
at or before such resale.
Under the laws applicable in most states, a creditor is entitled to obtain a
deficiency judgment from a debtor for any deficiency on repossession and resale
of the property securing the debtor's loan. However, some states impose
prohibitions or limitations on deficiency judgments, and in many cases the
defaulting borrower would have no assets with which to pay a judgment.
Certain other statutory provisions, including federal and state bankruptcy
and insolvency laws and general equitable principles, may limit or delay the
ability of a lender to repossess and resell collateral or enforce a deficiency
judgment.
CONSUMER PROTECTION LAWS. The so-called "Holder-in-Due Course" rule of the
Federal Trade Commission is intended to defeat the ability of the transferor of
a consumer credit contract which is the seller of goods which gave rise to the
transaction (and certain related lenders and assignees) to transfer such
contract free of notice of claims by the debtor thereunder. The effect of this
rule is to subject the assignee of such a contract to all claims and defenses
which the debtor could assert against the seller of goods. Liability under this
rule is limited to amounts paid under a contract; however, the obligor also may
be able to assert the rule to set off remaining amounts due as a defense against
a claim brought by the trustee against such obligor. Numerous other federal and
state consumer protection laws impose requirements applicable to the origination
and lending pursuant to the contracts, including the Truth in Lending Act, the
Federal Trade Commission Act, the Fair Credit Billing Act, the Fair Credit
Reporting Act, the Equal Credit Opportunity Act, the Fair Debt Collection
Practices Act and the Uniform Consumer Credit Code. In the case of some of these
laws, the failure to comply with their provisions may affect the enforceability
of the related contract.
APPLICABILITY OF USURY LAWS. Title V of the Depository Institutions
Deregulation and Monetary Control Act of 1980, as amended ("Title V"), provides
that, subject to the following conditions, state usury limitations shall not
apply to any contract which is secured by a first lien on certain kinds of
consumer goods. The contracts would be covered if they satisfy certain
conditions governing, among other things, the terms of any prepayments, late
charges and deferral fees and requiring a 30-day notice period prior to
instituting any action leading to repossession of the related unit.
Title V authorized any state to reimpose limitations on interest rates and
finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen states
adopted such a law prior to the April 1, 1983 deadline. In addition, even where
Title V was not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on loans covered by Title V.
INSTALLMENT CONTRACTS
The loans may also consist of installment contracts. Under an installment
contract the seller (referred to in this section as the "lender") retains legal
title to the property and enters into an agreement with the purchaser (referred
to in this section as the "borrower") for the payment of the purchase price,
plus interest, over the term of such contract. Only after full performance by
the borrower of the contract is the lender obligated to convey title to the
property to the purchaser. As with mortgage or deed of trust financing, during
the effective period of the installment contract, the borrower is generally
responsible for maintaining the property in good condition and for paying real
estate taxes, assessments and hazard insurance premiums associated with the
property.
The method of enforcing the rights of the lender under an installment
contract varies on a state-by-state basis depending upon the extent to which
state courts are willing, or able pursuant to state statute, to enforce the
contract strictly according to its terms. The terms of installment contracts
generally provide that upon a default by the borrower, the borrower loses his or
her right to occupy the property, the entire indebtedness is accelerated, and
the buyer's equitable interest in the property is forfeited. The lender in such
a situation does not have to foreclose in order to obtain title to the property,
although in some cases a quiet title action is in order if the borrower has
filed the installment contract in local land records and an ejectment action may
be necessary to recover possession. In a few states, particularly in cases of
borrower default during the early years of an installment contract, the courts
will permit ejectment of the buyer and a forfeiture of his or her interest in
the property. However, most state legislatures have enacted provisions by
analogy to mortgage law protecting borrowers under installment contracts from
the harsh consequences of forfeiture. Under such statutes, a judicial or
nonjudicial foreclosure may be required, the lender may be required to give
notice of default and the borrower may be granted some grace period during which
the installment contract may be reinstated upon full payment of the default
amount and the borrower may have a post-foreclosure statutory redemption right.
In other states, courts in equity may permit a borrower with significant
investment in the property under an installment contract for the sale of real
estate to share in the proceeds of sale of the property after the indebtedness
is repaid or may otherwise refuse to enforce the forfeiture clause.
Nevertheless, generally speaking, the lender's procedures for obtaining
possession and clear title under an installment contract in a given state are
simpler and less time-consuming and costly than are the procedures for
foreclosing and obtaining clear title to a property subject to one or more
liens.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act of
1940, as amended (the "Relief Act"), a borrower who enters military service
after the origination of such borrower's loan (including a borrower who is a
member of the National Guard or is in reserve status at the time of the
origination of the loan and is later called to active duty) may not be charged
interest above an annual rate of 6% during the period of such borrower's active
duty status, unless a court orders otherwise upon application of the lender. It
is possible that such interest rate limitation could have an effect, for an
indeterminate period of time, on the ability of the master servicer to collect
full amounts of interest on certain of the loans. Unless otherwise provided in
the prospectus supplement, any shortfall in interest collections resulting from
the application of the Relief Act could result in losses to securityholders. The
Relief Act also imposes limitations which would impair the ability of the master
servicer to foreclose on an affected loan during the borrower's period of active
duty status. Moreover, the Relief Act permits the extension of a loan's maturity
and the re-adjustment of its payment schedule beyond the completion of military
service. Thus, in the event that such a loan goes into default, there may be
delays and losses occasioned by the inability to realize upon the Property in a
timely fashion.
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGEES
To the extent that the loans comprising the trust for a series are secured
by mortgages which are junior to other mortgages held by other lenders or
institutional investors, the rights of the trust (and therefore the
securityholders), as mortgagee under any such junior mortgage, are subordinate
to those of any mortgagee under any senior mortgage. The senior mortgagee has
the right to receive hazard insurance and condemnation proceeds and to cause the
property securing the loan to be sold upon default of the mortgagor, thereby
extinguishing the junior mortgagee's lien unless the junior mortgagee asserts
its subordinate interest in the property in foreclosure litigation and,
possibly, satisfies the defaulted senior mortgage. A junior mortgagee may
satisfy a defaulted senior loan in full and, in some states, may cure a default
and bring the senior loan current, in either event adding the amounts expended
to the balance due on the junior loan. In most states, absent a provision in the
mortgage or deed of trust, no notice of default is required to be given to a
junior mortgagee.
The standard form of the mortgage used by most institutional lenders confers
on the mortgagee the right both to receive all proceeds collected under any
hazard insurance policy and all awards made in connection with condemnation
proceedings, and to apply such proceeds and awards to any indebtedness secured
by the mortgage, in such order as the mortgagee 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 a senior mortgage 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. Proceeds in excess of the amount of
senior mortgage indebtedness, in most cases, may be applied to the indebtedness
of a junior mortgage.
Another provision sometimes found in the form of the mortgage or deed of
trust used by institutional lenders obligates the mortgagor 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 under the mortgage. Upon a
failure of the mortgagor to perform any of these obligations, the mortgagee is
given the right under certain mortgages to perform the obligation itself, at its
election, with the mortgagor reimbursing the mortgagee for any sums expended by
the mortgagee on behalf of the mortgagor. All sums so expended by the mortgagee
become part of the indebtedness secured by the mortgage.
The form of credit line trust deed or mortgage generally used by most
institutional lenders which make revolving credit line loans typically contains
a future advance clause, which provides, in essence, that additional amounts
advanced to or on behalf of the borrower by the beneficiary or lender are to be
secured by the deed of trust or mortgage. Any amounts so advanced after the
Cut-off Date with respect to any mortgage will not be included in the trust. The
priority of the lien securing any advance made under a future advance clause may
depend in most states on whether the deed of trust or mortgage is called and
recorded as a credit line deed of trust or mortgage. If the beneficiary or
lender advances additional amounts, the advance is entitled to receive the same
priority as amounts initially advanced under the trust deed or mortgage,
notwithstanding the fact that there may be junior trust deeds or mortgages and
other liens which intervene between the date of recording of the trust deed or
mortgage and the date of the future advance, and notwithstanding that the
beneficiary or lender had actual knowledge of such intervening junior trust
deeds or mortgages and other liens at the time of the advance. In most states,
the trust deed or mortgage lien securing mortgage loans of the type which
includes home equity credit lines applies retroactively to the date of the
original recording of the trust deed or mortgage, provided that the total amount
of advances under the home equity credit line does not exceed the maximum
specified principal amount of the recorded trust deed or mortgage, except as to
advances made after receipt by the lender of a written notice of lien from a
judgment lien creditor of the trustor.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws impose substantive
requirements upon mortgage lenders in connection with the originating, servicing
and enforcing of loans secured by single family properties. These laws include
the federal Truth-in-Lending Act and Regulation Z promulgated thereunder, Real
Estate Settlement Procedures Act and Regulation B promulgated thereunder, Equal
Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act and
related statutes and regulations. In particular, Regulation Z requires certain
disclosures to borrowers regarding the terms of the loans; the Equal Credit
Opportunity Act and Regulation B promulgated thereunder prohibit discrimination
in the extension of credit on the basis of age, race, color, sex, religion,
marital status, national origin, receipt of public assistance or the exercise of
any right under the Consumer Credit Protection Act; and the Fair Credit
Reporting Act regulates the use and reporting of information related to the
borrower's credit experience. Certain provisions of these laws impose specific
statutory liabilities upon lenders who fail to comply therewith. In addition,
violations of such laws may limit the ability of the sellers to collect all or
part of the principal of or interest on the loans and could subject the sellers
and in some cases their assignees to damages and administrative enforcement.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of the anticipated material federal income tax
consequences of the purchase, ownership, and disposition of the securities and
is based on advice of tax counsel. The summary is based upon the provisions of
the Code, the regulations promulgated thereunder, including, where applicable,
proposed regulations, and the judicial and administrative rulings and decisions
now in effect, all of which are subject to change or possible differing
interpretations. The statutory provisions, regulations, and interpretations on
which this interpretation is based are subject to change, and those changes
could apply retroactively.
The summary does not purport to deal with all aspects of federal income
taxation that may affect particular investors in light of their individual
circumstances, nor with certain types of investors subject to special treatment
under the federal income tax laws. This summary focuses primarily upon investors
who will hold securities as capital assets within the meaning of Section 1221 of
the Code, but much of the discussion is applicable to other investors as well.
Prospective investors are advised to consult their own tax advisers concerning
the federal, state, local and any other tax consequences to them of the
purchase, ownership and disposition of the securities.
The federal income tax consequences to holders will vary depending on
whether
o the securities are classified as indebtedness;
o an election is made to treat the trust as a REMIC or a FASIT under the
Internal Revenue Code of 1986, as amended (the "Code");
o the securities represent an ownership interest in some or all of the
trust assets; or
o an election is made to treat the trust as a partnership.
The prospectus supplement will specify how the securities will be treated
for federal income tax purposes and will discuss whether a REMIC or FASIT
election will be made.
TAXATION OF DEBT SECURITIES
STATUS AS REAL PROPERTY LOANS. Except to the extent otherwise provided in
the prospectus supplement, tax counsel will have advised the sponsor that:
o securities held by a domestic building and loan association will
constitute "loans... secured by an interest in real property" within the
meaning of Code Section 7701(a)(19)(C)(v); and
o securities held by a real estate investment trust will constitute "real
estate assets" within the meaning of Code Section 856(c)(5)(A) and
interest on these securities will be considered "interest on obligations
secured by mortgages on real property or on interests in real property"
within the meaning of Code Section 856(c)(3)(B).
The Small Business Job Protection Act of 1996, as part of the repeal of the
bad debt reserve method for thrift institutions, repealed the application of
Code Section 593(d) to any taxable year beginning after December 31, 1995.
INTEREST AND ACQUISITION DISCOUNT. Securities representing regular interests
in a REMIC are generally taxable to holders in the same manner as evidences of
indebtedness issued by the REMIC. Stated interest on the regular interest
securities will be taxable as ordinary income and taken into account using the
accrual method of accounting, regardless of the holder's normal accounting
method. Interest, other than original issue discount, on securities, other than
regular interest securities, that are characterized as indebtedness for federal
income tax purposes will be includible in income by holders in accordance with
their usual methods of accounting. Securities characterized as debt for federal
income tax purposes and regular interest securities will be referred to
collectively as debt securities. If a FASIT election is made, the material
federal tax income consequences for investors associated with the purchase,
ownership and disposition of those securities will be set forth under the
heading "Federal Income Tax Consequences" in the prospectus supplement.
Debt securities that are compound interest securities will, and other debt
securities may, be issued with original issue discount, which we refer to as
"OID". The following discussion is based in part on the rules governing OID
which are set forth in Sections 1271-1275 of the Code and the Treasury
regulations issued on February 2, 1994, which we refer to as "OID Regulations".
A holder should be aware, however, that the OID Regulations do not adequately
address some issues relevant to prepayable securities, such as the debt
securities.
In general, OID, will equal the difference between the stated redemption
price at maturity of a debt security and its issue price. A holder of a debt
security must include OID in gross income as ordinary interest income as it
accrues under an accrual method of accounting. In general, OID must be included
in income in advance of the receipt of the cash representing that income. The
amount of OID on a debt security will be considered to be zero if it is less
than a de minimis amount determined under the Code.
The issue price of a debt security is the first price at which a substantial
amount of debt securities of that class are sold to the public, excluding bond
houses, brokers, underwriters or wholesalers. If less than a substantial amount
of a particular class of debt securities is sold for cash on or prior to the
closing date, the issue price for the class will be treated as the fair market
value of the class on the closing date. The issue price of a debt security also
includes the amount paid by an initial debt security holder for accrued interest
that relates to a period prior to the issue date of the debt security. The
stated redemption price at maturity of a debt security includes the original
principal amount of the debt security, but generally will not include
distributions of interest if distributions constitute qualified stated interest.
Under the OID Regulations, qualified stated interest generally means
interest payable at a single fixed rate or qualified variable rate, which we
describe below, and those interest payments are unconditionally payable at
intervals of one year or less during the entire term of the debt security. The
OID Regulations state that interest payments are unconditionally payable only if
a late payment or nonpayment is expected to be penalized or reasonable remedies
exist to compel payment. Some debt securities may provide for default remedies
in the event of late payment or nonpayment of interest. The interest on those
debt securities will be unconditionally payable and constitute qualified stated
interest, not OID. However, absent clarification of the OID Regulations, where
debt securities do not provide for default remedies, the interest payments will
be included in the debt security's stated redemption price at maturity and taxed
as OID. Interest is payable at a single fixed rate only if the rate
appropriately takes into account the length of the interval between payments.
Distributions of interest on debt securities on which deferred interest will
accrue will not constitute qualified stated interest payments and will be part
of the stated redemption price at maturity of those debt securities. Where the
interval between the issue date and the first distribution date on a debt
security is either longer or shorter than the interval between subsequent
distribution dates, all or part of the interest foregone, in the case of the
longer interval, and all of the additional interest, in the case of the shorter
interval, will be included in the stated redemption price at maturity and tested
under the de minimis rule described below. In the case of a debt security with a
long first period which has non-de minimis OID, all stated interest in excess of
interest payable at the effective interest rate for the long first period will
be included in the stated redemption price at maturity and the debt security
will generally have OID. Holders of debt securities should consult their own tax
advisors to determine the issue price and stated redemption price at maturity of
a debt security.
Under the de minimis rule, OID on a debt security will be considered to be
zero if the OID is less than 0.25% of the stated redemption price at maturity of
the debt security multiplied by the weighted average maturity of the debt
security. For this purpose, the weighted average maturity of the debt security
is computed as the sum of the amounts determined by multiplying the number of
full years from the issue date until each distribution in reduction of stated
redemption price at maturity is scheduled to be made by a fraction, the
numerator of which is the amount of each distribution included in the stated
redemption price at maturity of the debt security and the denominator of which
is the stated redemption price at maturity of the debt security. Holders
generally must report de minimis OID pro rata as principal payments are
received, and such income will be capital gain if the debt security is held as a
capital asset. However, accrual method holders may elect to accrue all de
minimis OID as well as market discount under a constant interest method.
Debt securities may provide for interest based on a qualified variable rate.
Under the OID Regulations, interest is treated as payable at a qualified
variable rate and not as contingent interest if, generally,
o the interest is unconditionally payable at least annually,
o the issue price of the debt instrument does not exceed the total
noncontingent principal payments and
o interest is based on a qualified floating rate, an objective rate, or a
combination of qualified floating rates that do not operate in a manner
that significantly accelerates or defers interest payments on the debt
security.
In the case of compound interest securities, some interest weighted securities,
and other debt securities, none of the payments under the instrument will be
considered qualified stated interest, and thus the aggregate amount of all
payments will be included in the stated redemption price.
The IRS recently issued final regulations governing the calculation of OID
on instruments having contingent interest payments. The regulations specifically
do not apply for purposes of calculating OID on debt instruments subject to Code
Section 1272(a)(6), such as the debt security. Additionally, the OID Regulations
do not contain provisions specifically interpreting Code Section 1272(a)(6).
Until the Treasury issues guidance to the contrary, the trustee intends to base
its computation on Code Section 1272(a)(6) and the OID Regulations as described
in this Prospectus. However, because no regulatory guidance currently exists
under Code Section 1272(a)(6), there can be no assurance that this methodology
represents the correct manner of calculating OID.
The holder of a debt security issued with OID must include in gross income,
for all days during its taxable year on which it holds the debt security, the
sum of the "daily portions" of the OID. The amount of OID includible in income
by a holder will be computed by allocating to each day during a taxable year a
pro rata portion of the OID that accrued during the relevant accrual period. In
the case of a debt security that is not a regular interest security and the
principal payments on which are not subject to acceleration resulting from
prepayments on the loans, the amount of OID includible in income of a holder for
an accrual period, which generally is the period over which interest accrues on
the debt instrument, will equal the product of the yield to maturity of the debt
security and the adjusted issue price of the debt security, reduced by any
payments of qualified stated interest. The adjusted issue price is the sum of
its issue price plus prior accruals or OID, reduced by the total payments made
with respect to the debt security in all prior periods, other than qualified
stated interest payments.
The amount of OID to be included in income by a holder of a debt instrument,
that is subject to acceleration due to prepayments on other debt obligations
securing such instruments, is computed by taking into account the anticipated
rate of prepayments assumed in pricing the debt instrument. The amount of OID
that will accrue during an accrual period on a this type of security is the
excess, if any, of the sum of
o the present value of all payments remaining to be made on the security
as of the close of the accrual period and
o the payments during the accrual period of amounts included in the stated
redemption price of the security, over the adjusted issue price of the
security at the beginning of the accrual period.
The present value of the remaining payments is to be determined on the basis
of three factors:
o the original yield to maturity of the pay-through security, which is
determined on the basis of compounding at the end of each accrual period
and properly adjusted for the length of the accrual period,
o events which have occurred before the end of the accrual period, and
o the assumption that the remaining payments will be made in accordance
with the original prepayment assumption.
The effect of this method is to increase the portions of OID required to be
included in income by a holder to take into account prepayments with respect to
the loans at a rate that exceeds the prepayment assumption, and to decrease, but
not below zero for any period, the portions of OID required to be included in
income by a holder of this type of security to take into account prepayments
with respect to the loans at a rate that is slower than the prepayment
assumption. Although OID will be reported to holders of these securities based
on the prepayment assumption, no representation is made to holders that loans
will be prepaid at that rate or at any other rate.
The sponsor may adjust the accrual of OID on a class of regular interest
securities or other regular interests in a REMIC in a manner that it believes to
be appropriate, to take account of realized losses on the loans, although the
OID Regulations do not provide for such adjustments. If the IRS were to require
that OID be accrued without such adjustments, the rate of accrual of OID for a
class of regular interest securities could increase.
Some classes of regular interest securities may represent more than one
class of REMIC regular interests. Unless otherwise provided in the prospectus
supplement, the trustee intends, based on the OID Regulations, to calculate OID
on these securities as if, solely for the purposes of computing OID, the
separate regular interests were a single debt instrument.
A subsequent holder of a debt security will also be required to include OID
in gross income, but a holder who purchases that debt security for an amount
that exceeds its adjusted issue price will be entitled, as will an initial
holder who pays more than a debt security's issue price, to offset such OID by
comparable economic accruals of portions of the excess.
EFFECTS OF DEFAULTS AND DELINQUENCIES. Holders will be required to report
income with respect to the securities under an accrual method without giving
effect to delays and reductions in distributions attributable to a default or
delinquency on the loans, except possibly to the extent that it can be
established that those amounts are uncollectible. As a result, the amount of
income, including OID, reported by a holder of that security in any period could
significantly exceed the amount of cash distributed to the holder in that
period. The holder will eventually be allowed a loss, or will be allowed to
report a lesser amount of income, to the extent that the aggregate amount of
distributions on the securities is deducted as a result of a loan default.
However, the timing and character of the losses or reductions in income are
uncertain and, accordingly, holders of securities should consult their own tax
advisors on this point.
INTEREST WEIGHTED SECURITIES. It is not clear how income should be accrued
with respect to regular interest securities or stripped securities, which we
define under "--Tax Status as a Grantor Trust; General", the payments on which
consist solely or primarily of a specified portion of the interest payments on
qualified mortgages held by the REMIC or on loans underlying pass-through
securities which we refer to interest weighted securities and define below. The
sponsor intends to take the position that all of the income derived from an
interest weighted security should be treated as OID and that the amount and rate
of accrual of such OID should be calculated by treating the interest weighted
security as a compound interest security. However, in the case of interest
weighted securities that are entitled to some payments of principal and that are
regular interest securities the IRS could assert that income derived from an
interest weighted security should be calculated as if the security were a
security purchased at a premium equal to the excess of the price paid by the
holder for the security over its stated principal amount, if any. Under this
approach, a holder would be entitled to amortize such premium only if it has in
effect an election under Section 171 of the Code with respect to all taxable
debt instruments held by such holder, as described below. Alternatively, the IRS
could assert that an interest weighted security should be taxable under the
rules governing bonds issued with contingent payments. That treatment may be
more likely in the case of interest weighted securities that are stripped
securities as described below. See "--Tax Status as a Grantor Trust--Discount or
Premium on Pass-Through Securities."
VARIABLE RATE DEBT SECURITIES. In the case of debt securities bearing
interest at a rate that varies directly, according to a fixed formula, with an
objective index, it appears that
o the yield to maturity of those debt securities and
o in the case of pay-through securities, the present value of all payments
remaining to be made on those debt securities, should be calculated as
if the interest index remained at its value as of the issue date of
those securities.
Because the proper method of adjusting accruals of OID on a variable rate debt
security is uncertain, holders of variable rate debt securities should consult
their own tax advisers regarding the appropriate treatment of such securities
for federal income tax purposes.
MARKET DISCOUNT. A purchaser of a security may be subject to the market
discount rules of Sections 1276-1278 of the Code. A holder that acquires a debt
security with more than a prescribed de minimis amount of market discount, which
generally is the excess of the principal amount of the debt security over the
purchaser's purchase price, will be required to include accrued market discount
in income as ordinary income in each month, but limited to an amount not
exceeding the principal payments on the debt security received in that month
and, if the securities are sold, the gain realized. Market discount would accrue
in a manner to be provided in Treasury regulations but, until regulations are
issued, market discount would in general accrue either:
o on the basis of a constant yield, in the case of a security subject to
prepayment, taking into account a prepayment assumption, or
o in the ratio of (a) in the case of securities or the loans underlying
pass-through security that have not been originally issued with OID,
stated interest payable in the relevant period to total stated interest
remaining to be paid at the beginning of the period or (b) in the case
of securities or the loans underlying pass-through security originally
issued at a discount, OID in the relevant period to total OID remaining
to be paid.
Section 1277 of the Code provides that, regardless of the origination date
of the debt security or the loans for a pass-through security, the excess of
interest paid or accrued to purchase or carry a security or the underlying loans
for a pass-through security with market discount over interest received on the
security is allowed as a current deduction only to the extent excess is greater
than the market discount that accrued during the taxable year in which interest
expense was incurred. In general, the deferred portion of any interest expense
will be deductible when market discount is included in income, including upon
the sale, disposition, or repayment of the security or an underlying loan for a
pass-through security. A holder may elect to include market discount in income
currently as it accrues, on all market discount obligations acquired by holder
during the taxable year the election is made and after, in which case the
interest deferral rule will not apply.
PREMIUM. A holder who purchases a debt security, other than an interest
weighted security to the extent described above, at a cost greater than its
stated redemption price at maturity, generally will be considered to have
purchased the security at a premium, which it may elect to amortize as an offset
to interest income on such security, and not as a separate deduction item, on a
constant yield method. Although no regulations addressing the computation of
premium accrual on securities similar to the securities have been issued, the
legislative history of the 1986 Act indicates that premium is to be accrued in
the same manner as market discount. Accordingly, it appears that the accrual of
premium on a class of pay-through securities will be calculated using the
prepayment assumption used in pricing. If a holder makes an election to amortize
premium on a debt security, the election will apply to all taxable debt
instruments, including all REMIC regular interests and all pass-through
securities representing ownership interests in a trust holding debt obligations,
held by the holder at the beginning of the taxable year in which the election is
made, and to all taxable debt instruments acquired after by the holder, and will
be irrevocable without the consent of the IRS. Purchasers who pay a premium for
the securities should consult their tax advisers regarding the election to
amortize premium and the method to be employed. Recently, the IRS issued final
regulations dealing with amortizable bond premium. These regulations
specifically do not apply to prepayable debt instruments subject to Code Section
1272(a)(6) such as the securities. Absent further guidance from the IRS, the
trustee intends to account for amortizable bond premium in the manner described
above. Prospective purchasers of the securities should consult their tax
advisors regarding the possible application of these regulations.
ELECTION TO TREAT ALL INTEREST AS ORIGINAL ISSUE DISCOUNT. The OID
Regulations permit a holder of a debt security to elect to accrue all interest,
discount, including de minimis market or OID, and premium income as interest,
based on a constant yield method for debt securities acquired on or after April
4, 1994. If an election were to be made with respect to a debt security with
market discount, the holder of the debt security would be deemed to have made an
election to include in income currently market discount with respect to all
other debt instruments having market discount that such holder of the debt
security acquires during the year of the election or thereafter. Similarly, a
holder of a debt security that makes this election for a debt security that is
acquired at a premium will be deemed to have made an election to amortize bond
premium for all debt instruments having amortizable bond premium that such
holder owns or acquires. The election to accrue interest, discount and premium
on a constant yield method for a debt security is irrevocable.
TAXATION OF THE REMIC AND ITS HOLDERS
GENERAL. In the opinion of tax counsel, if a REMIC election is made with
respect to a series of securities, then the arrangement by which the securities
of that series are issued will be treated as a REMIC as long as all of the
provisions of the applicable Agreement are complied with and the statutory and
regulatory requirements are satisfied. Securities will be designated as regular
interests or residual interests in a REMIC, as specified in the prospectus
supplement.
Except to the extent specified otherwise in a prospectus supplement, if a
REMIC election is made with respect to a series of securities,
o securities held by a domestic building and loan association will
constitute "a regular or a residual interest in a REMIC" within the
meaning of Code Section 7701(a)(19)(C)(xi), assuming that at least 95%
of the REMIC's assets consist of cash, government securities, "loans
secured by an interest in real property," and other types of assets
described in Code Section 7701(a)(19)(C); and
o securities held by a real estate investment trust will constitute "real
estate assets" within the meaning of Code Section 856(c)(5)(B), and
income with respect to the securities will be considered "interest on
obligations secured by mortgages on real property or on interests in
real property" within the meaning of Code Section 856(c)(3)(B),
assuming, for both purposes, that at least 95% of the REMIC's assets are
qualifying assets.
If less than 95% of the REMIC's assets consist of assets described above, then a
security will qualify for the tax treatment described above in the proportion
that REMIC assets are qualifying assets.
The Small Business Job Protection Act of 1996, as part of the repeal of the
bad debt reserve method for thrift institutions, repealed the application of
Code Section 593(d) to any taxable year beginning after December 31, 1995.
REMIC EXPENSES; SINGLE CLASS REMICS
As a general rule, all of the expenses of a REMIC will be taken into account
by holders of the residual interest securities. In the case of a single class
REMIC, however, the expenses will be allocated, under Treasury regulations,
among the holders of the regular interest securities and the holders of the
residual interest securities, which we define below, on a daily basis in
proportion to the relative amounts of income accruing to each holder on that
day. In the case of a holder of a regular interest security who is an individual
or a pass-through interest holder, including certain pass-through entities but
not real estate investment trusts, expenses will be deductible only to the
extent that expenses, plus other "miscellaneous itemized deductions" of the
holder, exceed 2% of the holder's adjusted gross income. In addition, for
taxable years beginning after December 31, 1990, the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the applicable amount, which amount will be
adjusted for inflation for taxable years beginning after 1990, will be reduced
by the lesser of:
o 3% of the excess of adjusted gross income over the applicable amount, or
o 80% of the amount of itemized deductions otherwise allowable for such
taxable year.
The reduction or disallowance of this deduction may have a significant
impact on the yield of the regular interest security to such a holder. In
general terms, a single class REMIC is one that either:
o would qualify, under existing Treasury regulations, as a grantor trust
if it were not a REMIC, treating all interests as ownership interests,
even if they would be classified as debt for federal income tax
purposes, or
o is similar to a trust and which is structured with the principal purpose
of avoiding the single class REMIC rules.
Unless otherwise specified in the prospectus supplement, the expenses of the
REMIC will be allocated to holders of the related residual interest securities.
TAXATION OF THE REMIC
GENERAL. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC is not generally subject to entity-level tax. Rather, the
taxable income or net loss of a REMIC is taken into account by the holders of
residual interests. As described above, the regular interests are generally
taxable as debt of the REMIC.
CALCULATION OF REMIC INCOME. The taxable income or net loss of a REMIC is
determined under an accrual method of accounting and in the same manner as in
the case of an individual, with certain adjustments. In general, the taxable
income or net loss will be the difference between
o the gross income produced by the REMIC's assets, including stated
interest and any OID or market discount on loans and other assets, and
o deductions, including stated interest and OID accrued on regular
interest securities, amortization of any premium with respect to loans,
and servicing fees and other expenses of the REMIC.
A holder of a residual interest security that is an individual or a pass-through
interest holder, including certain pass-through entities, but not including real
estate investment trusts, will be unable to deduct servicing fees payable on the
loans or other administrative expenses of the REMIC for a given taxable year, to
the extent that such expenses, when aggregated with such holder's other
miscellaneous itemized deductions for that year, do not exceed two percent of
such holder's adjusted gross income.
For purposes of computing its taxable income or net loss, the REMIC should
have an initial aggregate tax basis in its assets equal to the aggregate fair
market value of the regular interests and the residual interests on the day that
the interests are issued, which we refer to as the "start up day". The aggregate
basis will be allocated among the assets of the REMIC in proportion to their
respective fair market values.
The OID provisions of the Code apply to loans of individuals originated on
or after March 2, 1984, and the market discount provisions apply to loans
originated after July 18, 1984. Subject to possible application of the de
minimis rules, the method of accrual by the REMIC of OID income on the loans
will be equivalent to the method under which holders of pay-through securities
accrue OID, i.e., under the constant yield method taking into account the
prepayment assumption. The REMIC will deduct OID on the regular interest
securities in the same manner that the holders of the regular interest
securities include such discount in income, but without regard to the de minimis
rules. See "Taxation of Debt Securities" above. However, a REMIC that acquires
loans at a market discount must include such market discount in income
currently, as it accrues, on a constant interest basis.
To the extent that the REMIC's basis allocable to loans that it holds
exceeds their principal amounts, the resulting premium, if attributable to
mortgages originated after September 27, 1985, will be amortized over the life
of the loans, taking into account the prepayment assumption on a constant yield
method. Although the law is somewhat unclear regarding recovery of premium
attributable to loans originated on or before that date, it is possible that the
premium may be recovered in proportion to payments of loan principal.
PROHIBITED TRANSACTIONS AND CONTRIBUTIONS TAX. The REMIC will be subject to
a 100% tax on any net income derived from a "prohibited transaction." For this
purpose, net income will be calculated without taking into account any losses
from prohibited transactions or any deductions attributable to any prohibited
transaction that resulted in a loss. In general, prohibited transactions
include:
o subject to limited exceptions, the sale or other disposition of any
qualified mortgage transferred to the REMIC;
o subject to limited exceptions, the sale or other disposition of a cash
flow investment;
o the receipt of any income from assets not permitted to be held by the
REMIC pursuant to the Code; or
o the receipt of any fees or other compensation for services rendered by
the REMIC.
It is anticipated that a REMIC will not engage in any prohibited transactions in
which it would recognize a material amount of net income. In addition, subject
to a number of exceptions, a tax is imposed at the rate of 100% on amounts
contributed to a REMIC after the close of the three-month period beginning on
the startup day. The holders of residual interest securities will generally be
responsible for the payment of any such taxes imposed on the REMIC. To the
extent not paid by such holders or otherwise, however, taxes will be paid out of
the trust and will be allocated pro rata to all outstanding classes of
securities of such REMIC.
TAXATION OF HOLDERS OF RESIDUAL INTEREST SECURITIES
The holder of a security representing a residual interest security will take
into account the "daily portion" of the taxable income or net loss of the REMIC
for each day during the taxable year on which holder held the residual interest
security. The daily portion is determined by allocating to each day in any
calendar quarter its ratable portion of the taxable income or net loss of the
REMIC for such quarter, and by allocating that amount among the holders, on that
day of the residual interest securities in proportion to their respective
holdings on such day.
The holder of a residual interest security must report its proportionate
share of the taxable income of the REMIC whether or not it receives cash
distributions from the REMIC attributable to the income or loss. The reporting
of taxable income without corresponding distributions could occur, for example,
in certain REMIC issues in which the loans held by the REMIC were issued or
acquired at a discount, since mortgage prepayments cause recognition of discount
income, while the corresponding portion of the prepayment could be used in whole
or in part to make principal payments on REMIC regular interests issued without
any discount or at an insubstantial discount. If this occurs, it is likely that
cash distributions will exceed taxable income in later years. Taxable income may
also be greater in earlier years of certain REMIC issues as a result of the fact
that interest expense deductions, as a percentage of outstanding principal on
REMIC regular interest securities, will typically increase over time as lower
yielding securities are paid, whereas interest income with respect to loans will
generally remain constant over time as a percentage of loan principal.
In any event, because the holder of a residual interest security is taxed on
the net income of the REMIC, the taxable income derived from a residual interest
security in a given taxable year will not be equal to the taxable income
associated with investment in a corporate bond or stripped instrument having
similar cash flow characteristics and pretax yield. Therefore, the after-tax
yield on the residual interest security may be less than that of a bond or
instrument.
LIMITATION ON LOSSES. The amount of the REMIC's net loss that a holder may
take into account currently is limited to the holder's adjusted basis at the end
of the calendar quarter in which the loss arises. A holder's basis in a residual
interest security will initially equal such holder's purchase price, and will
subsequently be increased by the amount of the REMIC's taxable income allocated
to the holder, and decreased, but not below zero, by the amount of distributions
made and the amount of the REMIC's net loss allocated to the holder. Any
disallowed loss may be carried forward indefinitely, but may be used only to
offset income of the REMIC generated by the same REMIC. The ability of holders
of residual interest securities to deduct net losses may be subject to
additional limitations under the Code, as to which such holders should consult
their tax advisers.
DISTRIBUTIONS. Distributions on a residual interest security, whether at
their scheduled times or as a result of prepayments, will generally not result
in any additional taxable income or loss to a holder of a residual interest
security. If the amount of such payment exceeds a holder's adjusted basis in the
residual interest security, however, the holder will recognize gain, treated as
gain from the sale of the residual interest security, to the extent of the
excess.
SALE OR EXCHANGE. A holder of a residual interest security will recognize
gain or loss on the sale or exchange of a residual interest security equal to
the difference, if any, between the amount realized and the holder's adjusted
basis in the residual interest security at the time of the sale or exchange.
Except to the extent provided in regulations, which have not yet been issued,
any loss upon disposition of a residual interest security will be disallowed if
the selling holder acquires any residual interest in a REMIC or similar mortgage
pool within six months before or after the disposition.
EXCESS INCLUSIONS. The portion of the REMIC taxable income of a holder of a
residual interest security consisting of "excess inclusion" income may not be
offset by other deductions or losses, including net operating losses, on the
holder's federal income tax return. Further, if the holder of a residual
interest security is an organization subject to the tax on unrelated business
income imposed by Code Section 511, the holder's excess inclusion income will be
treated as unrelated business taxable income of the holder. In addition, under
Treasury regulations yet to be issued, if a real estate investment trust, a
regulated investment company, a common trust, or certain cooperatives were to
own a residual interest security, a portion of dividends or other distributions
paid by the real estate investment trust or other entity would be treated as
excess inclusion income. If a Residual security is owned by a foreign person
excess inclusion income is subject to tax at a rate of 30% which may not be
reduced by treaty, is not eligible for treatment as portfolio interest and is
subject to certain additional limitations. See "Tax Treatment of Foreign
Investors."
The excess inclusion portion of a REMIC's income is generally equal to the
excess, if any, of REMIC taxable income for the quarterly period allocable to a
residual interest security, over the daily accruals for the quarterly period of:
o 120% of the long term applicable federal rate on the startup day
multiplied by
o the adjusted issue price of the residual interest security at the
beginning of the quarterly period.
The adjusted issue price of a residual interest at the beginning of each
calendar quarter will equal its issue price, calculated in a manner analogous to
the determination of the issue price of a regular interest, increased by the
aggregate of the daily accruals for prior calendar quarters, and decreased, but
not below zero, by the amount of loss allocated to a holder and the amount of
distributions made on the residual interest security before the beginning of the
quarter. The long-term federal rate, which is announced monthly by the Treasury
Department, is an interest rate that is based on the average market yield of
outstanding marketable obligations of the United States government having
remaining maturities in excess of nine years.
Under the REMIC Regulations, in certain circumstances, transfers of residual
securities may be disregarded. See "--Restrictions on Ownership and Transfer of
Residual Interest Securities" and "--Tax Treatment of Foreign Investors" below.
RESTRICTIONS ON OWNERSHIP AND TRANSFER OF RESIDUAL INTEREST SECURITIES. As a
condition to qualification as a REMIC, reasonable arrangements must be made to
prevent the ownership of a residual interest security by any disqualified
organization. Disqualified organizations include the United States, any State or
political subdivision of the United States, any foreign government, any
international organization, or any agency or instrumentality of any of the
foregoing, a rural electric or telephone cooperative described in Section
1381(a)(2)(C) of the Code, or any entity exempt from the tax imposed by Sections
1-1399 of the Code, if such entity is not subject to tax on its unrelated
business income. Accordingly, the applicable Agreement will prohibit
disqualified organizations from owning a residual interest security. In
addition, no transfer of a residual interest security will be permitted unless
the proposed transferee shall have furnished to the trustee an affidavit
representing and warranting that it is neither a disqualified organization nor
an agent or nominee acting on behalf of a disqualified organization.
If a residual interest security is transferred to a disqualified
organization in violation of the restrictions set forth above, a substantial tax
will be imposed on the transferor of the residual interest security at the time
of the transfer. In addition, if a disqualified organization holds an interest
in a pass-through entity, including, among others, a partnership, trust, real
estate investment trust, regulated investment company, or any person holding as
nominee, that owns a residual interest security, the pass-through entity will be
required to pay an annual tax on its allocable share of the excess inclusion
income of the REMIC.
Under the REMIC Regulations, if a residual interest security is a
noneconomic residual interest, a transfer of the residual interest security to a
United States person will be disregarded for all federal tax purposes unless no
significant purpose of the transfer was to impede the assessment or collection
of tax. A residual interest security is a noneconomic residual interest unless,
at the time of the transfer:
o the present value of the expected future distributions on the residual
interest security at least equals the product of the present value of
the anticipated excess inclusions and the highest rate of tax for the
year in which the transfer occurs, and
o the transferor reasonably expects that the transferee will receive
distributions from the REMIC at or after the time at which the taxes
accrue on the anticipated excess inclusions in an amount sufficient to
satisfy the accrued taxes.
If a transfer of a residual interest is disregarded, the transferor would be
liable for any Federal income tax imposed upon taxable income derived by the
transferee from the REMIC. The REMIC Regulations provide no guidance as to how
to determine if a significant purpose of a transfer is to impede the assessment
or collection of tax. A similar type of limitation exists with respect to
certain transfers of residual interest securities by foreign persons to United
States persons. See "--Tax Treatment of Foreign Investors."
MARK TO MARKET RULES. Prospective purchasers of a residual interest security
should be aware that the IRS regulations which provide that a residual interest
security acquired after January 3, 1995 cannot be marked-to-market.
ADMINISTRATIVE MATTERS
The REMIC's books must be maintained on a calendar year basis and the REMIC
must file an annual federal income tax return. The REMIC will also be subject to
the procedural and administrative rules of the Code applicable to partnerships,
including the determination of any adjustments to, among other things, items of
REMIC income, gain, loss, deduction, or credit, by the IRS in a unified
administrative proceeding.
TAX STATUS AS A GRANTOR TRUST
GENERAL. As specified in the prospectus supplement if a REMIC election is
not made, in the opinion of tax counsel, the trust relating to a series of
securities will be classified for federal income tax purposes as a grantor trust
under Subpart E, Part I of Subchapter J of the Code and not as an association
taxable as a corporation. In some series there will be no separation of the
principal and interest payments on the loans. In such circumstances, a holder
will be considered to have purchased a pro rata undivided interest in each of
the loans. In other cases, i.e. stripped securities, sale of the securities will
produce a separation in the ownership of all or a portion of the principal
payments from all or a portion of the interest payments on the loans.
Each holder must report on its federal income tax return its share of the
gross income derived from the loans (not reduced by the amount payable as
trustee fees and the servicing fees, at the same time and in the same manner as
those items would have been reported under the holder's tax accounting method
had it held its interest in the loans directly, received directly its share of
the amounts received with respect to the loans, and paid directly its share of
the servicing fees. In the case of pass-through securities other than stripped
securities, the income will consist of a pro rata share of all of the income
derived from all of the loans and, in the case of stripped securities, the
income will consist of a pro rata share of the income derived from each stripped
bond or stripped coupon in which the holder owns an interest. The holder of a
security will generally be entitled to deduct servicing fees under Section 162
or Section 212 of the Code to the extent that the servicing fees represent
reasonable compensation for the services rendered by the trustee and the master
servicer or third parties that are compensated for the performance of services.
In the case of a noncorporate holder, however, servicing fees, to the extent not
otherwise disallowed, e.g., because they exceed reasonable compensation, will be
deductible in computing the holder's regular tax liability only to the extent
that the fees, when added to other miscellaneous itemized deductions, exceed 2%
of adjusted gross income and may not be deductible to any extent in computing
the holder's alternative minimum tax liability. In addition, the amount of
itemized deductions otherwise allowable for the taxable year for an individual
whose adjusted gross income exceeds the applicable amount, which will be
adjusted for inflation, will be reduced by the lesser of:
o 3% of the excess of adjusted gross income over the applicable amount or
o 80% of the amount of itemized deductions otherwise allowable for the
taxable year.
DISCOUNT OR PREMIUM ON PASS-THROUGH SECURITIES. The holder's purchase price
of a pass-through security is to be allocated among the loans in proportion to
their fair market values, determined as of the time of purchase of the
securities. In the typical case, the trustee, to the extent necessary to fulfill
its reporting obligations, will treat each loan as having a fair market value
proportional to the share of the aggregate principal balances of all of the
loans that it represents, since the securities, unless otherwise specified in
the prospectus supplement, will have a relatively uniform interest rate and
other common characteristics. To the extent that the portion of the purchase
price of a pass-through security allocated to a loan, other than to a right to
receive any accrued interest thereon and any undistributed principal payments,
is less than or greater than the portion of the principal balance of the loan
allocable to the security, the interest in the loan allocable to the
pass-through security will be deemed to have been acquired at a discount or
premium, respectively.
The treatment of any discount will depend on whether the discount represents
OID or market discount. In the case of a loan with OID in excess of a prescribed
de minimis amount or a stripped security, a holder of a security will be
required to report as interest income in each taxable year its share of the
amount of OID that accrues during that year in the manner described above. OID
with respect to a loan could arise, for example, by virtue of the financing of
points by the originator of the loan, or by virtue of the charging of points by
the originator of the loan in an amount greater than a statutory de minimis
exception, in circumstances under which the points are not currently deductible
pursuant to applicable Code provisions. Any market discount or premium on a loan
will be includible in income, generally in the manner described above, except
that in the case of pass-through securities, market discount is calculated on
the loans underlying the Certificate, rather than on the security. A holder that
acquires an interest in a loan originated after July 18, 1984 with more than a
de minimis amount of market discount, generally, the excess of the principal
amount of the loan over the purchaser's allocable purchase price, will be
required to include accrued market discount in income in the manner set forth
above. See "--Taxation of Debt Securities; Market Discount" and "--Premium"
above.
In the case of market discount on a pass-through security attributable to
loans originated on or before July 18, 1984, the holder generally will be
required to allocate the portion of the discount that is allocable to a loan
among the principal payments on the loan and to include the discount allocable
to each principal payment in ordinary income at the time such principal payment
is made. That treatment would generally result in discount being included in
income at a slower rate than discount would be required to be included in income
using the method described in the preceding paragraph.
STRIPPED SECURITIES. A stripped security may represent a right to receive
only a portion of the interest payments on the loans, a right to receive only
principal payments on the loans, or a right to receive certain payments of both
interest and principal. Certain stripped securities such as ratio strip
securities may represent a right to receive differing percentages of both the
interest and principal on each loan. Pursuant to Section 1286 of the Code, the
separation of ownership of the right to receive some or all of the interest
payments on an obligation from ownership of the right to receive some or all of
the principal payments results in the creation of stripped bonds with respect to
principal payments and stripped coupons with respect to interest payments.
Section 1286 of the Code applies the OID rules to stripped bonds and stripped
coupons. For purposes of computing OID, a stripped bond or a stripped coupon is
treated as a debt instrument issued on the date that such stripped interest is
purchased with an issue price equal to its purchase price or, if more than one
stripped interest is purchased, the ratable share of the purchase price
allocable to the stripped interest.
Servicing fees in excess of reasonable servicing fees will be treated under
the stripped bond rules. If the excess servicing fees are less than 100 basis
points or 1% interest on the loan principal balance or the securities are
initially sold with a de minimis discount, assuming no prepayment assumption is
required, any non-de minimis discount arising from a subsequent transfer of the
securities should be treated as market discount. The IRS appears to require that
reasonable servicing fees be calculated on a loan by loan basis, which could
result in some loans being treated as having more than 100 basis points of
interest stripped off.
The Code, OID Regulations and judicial decisions provide no direct guidance
as to how the interest and OID rules are to apply to stripped securities and
other pass-through securities. Under the method described above for prepayment
securities or the cash flow bond method, a prepayment assumption is used and
periodic recalculations are made which take into account with respect to each
accrual period the effect of prepayments during the period. However, the 1986
Act does not, absent Treasury regulations, appear specifically to cover
instruments such as the stripped securities which technically represent
ownership interests in the underlying loans, rather than being debt instruments
secured by those loans. Nevertheless, it is believed that the cash flow bond
method is a reasonable method of reporting income for the securities, and it is
expected that OID will be reported on that basis unless otherwise specified in
the prospectus supplement. In applying the calculation to pass-through
securities, the trustee will treat all payments to be received by a holder with
respect to the underlying loans as payments on a single installment obligation.
The IRS could, however, assert that OID must be calculated separately for each
loan underlying a security.
Under certain circumstances, if the loans prepay at a rate faster than the
prepayment assumption, the use of the cash flow bond method may accelerate a
holder's recognition of income. If, however, the loans prepay at a rate slower
than the prepayment assumption, in some circumstances the use of this method may
decelerate a holder's recognition of income.
In the case of a stripped security that is an interest weighted security,
the trustee intends, absent contrary authority, to report income to
securityholders as OID, in the manner described above for interest weighted
securities.
POSSIBLE ALTERNATIVE CHARACTERIZATIONS. The characterizations of the
stripped securities described above are not the only possible interpretations of
the applicable Code provisions. Among other possibilities, the IRS could contend
that:
o in some series, each non-interest weighted security is composed of an
unstripped undivided ownership interest in loans and an installment
obligation consisting of stripped principal payments;
o the non-interest weighted securities are subject to the contingent
payment provisions of the Contingent Regulations; or
o each interest weighted stripped security is composed of an unstripped
undivided ownership interest in loans and an installment obligation
consisting of stripped interest payments.
Given the variety of alternatives for treatment of the stripped securities
and the different federal income tax consequences that result from each
alternative, potential purchasers are urged to consult their own tax advisers
regarding the proper treatment of the securities for federal income tax
purposes.
CHARACTER AS QUALIFYING LOANS. In the case of stripped securities, there is
no specific legal authority existing regarding whether the character of the
securities, for federal income tax purposes, will be the same as the loans. The
IRS could take the position that the loans' character is not carried over to the
securities. Pass-through securities will be, and, although the matter is not
free from doubt, stripped securities should be considered to represent "real
estate assets" within the meaning of Section 856(c)(5)(B) of the Code and "loans
secured by an interest in real property" within the meaning of Section
7701(a)(19)(C)(v) of the Code. In addition, interest income attributable to the
securities should be considered to represent "interest on obligations secured by
mortgages on real property or on interests in real property" within the meaning
of Section 856(c)(3)(B) of the Code. Reserves or funds underlying the securities
may cause a proportionate reduction in the above-described qualifying status
categories of securities.
SALE OR EXCHANGE
Subject to the discussion below with respect to trusts as to which a
partnership election is made, a holder's tax basis in its security is the price
such holder pays for a security, plus amounts of original issue or market
discount included in income and reduced by any payments received, other than
qualified stated interest payments, and any amortized premium. Gain or loss
recognized on a sale, exchange, or redemption of a security, measured by the
difference between the amount realized and the security's basis as so adjusted,
will generally be capital gain or loss, assuming that the security is held as a
capital asset. In the case of a security held by a bank, thrift, or similar
institution described in Section 582 of the Code, however, gain or loss realized
on the sale or exchange of a regular interest security will be taxable as
ordinary income or loss. In addition, gain from the disposition of a regular
interest security that might otherwise be capital gain will be treated as
ordinary income to the extent of the excess, if any, of the amount that would
have been includible in the holder's income if the yield on the regular interest
security had equaled 110% of the applicable federal rate as of the beginning of
the holder's holding period, over the amount of ordinary income actually
recognized by the holder on the regular interest security.
MISCELLANEOUS TAX ASPECTS
BACKUP WITHHOLDING. Subject to the discussion below with respect to trusts
as to which a partnership election is made, a holder, other than a holder of a
residual interest security, may, under certain circumstances, be subject to
"backup withholding" at a rate of 31% with respect to distributions or the
proceeds of a sale of certificates to or through brokers that represent interest
or OID on the securities. This withholding generally applies if the holder of a
security
o fails to furnish the trustee with its taxpayer identification number
("TIN");
o furnishes the trustee an incorrect TIN;
o fails to report properly interest, dividends or other "reportable
payments" as defined in the Code; or
o under some circumstances, fails to provide the trustee or such holder's
securities broker with a certified statement, signed under penalty of
perjury, that the TIN provided is its correct number and that the holder
is not subject to backup withholding.
Backup withholding will not apply, however, to some payments made to holders,
including payments to certain exempt recipients, such as exempt organizations,
and to certain nonresidents which we define below. Holders should consult their
tax advisers as to their qualification for exemption from backup withholding and
the procedure for obtaining the exemption.
The trustee will report to the holders and to the master servicer for each
calendar year the amount of any reportable payments during the year and the
amount of tax withheld, if any, with respect to payments on the securities.
TAX TREATMENT OF FOREIGN INVESTORS
Subject to the discussion below with respect to trusts as to which a
partnership election is made, under the Code, unless interest, including OID,
paid on a security, other than a residual interest security, is considered to be
effectively connected with a trade or business conducted in the United States by
a nonresident alien individual, foreign partnership or foreign corporation,
which we define as "nonresident", those interest will normally qualify as
portfolio interest, except where the recipient is a holder, directly or by
attribution, of 10% or more of the capital or profits interest in the issuer, or
the recipient is a controlled foreign corporation to which the issuer is a
related person, and will be exempt from federal income tax. Upon receipt of
appropriate ownership statements, the issuer normally will be relieved of
obligations to withhold tax from the interest payments. These provisions
supersede the generally applicable provisions of United States law that would
otherwise require the issuer to withhold at a 30% rate, unless that rate were
reduced or eliminated by an applicable tax treaty, on, among other things,
interest and other fixed or determinable, annual or periodic income paid to
nonresidents. Holders of pass-through securities and stripped securities,
including ratio strip securities, however, may be subject to withholding to the
extent that the loans were originated on or before July 18, 1984.
Interest and OID of holders who are foreign persons are not subject to
withholding if they are effectively connected with a United States business
conducted by the holder. They will, however, generally be subject to the regular
United States income tax.
Payments to holders of residual interest securities who are foreign persons
will generally be treated as interest for purposes of the 30% or lower treaty
rate United States withholding tax. Holders should assume that the income does
not qualify for exemption from United States withholding tax as portfolio
interest. It is clear that, to the extent that a payment represents a portion of
REMIC taxable income that constitutes excess inclusion income, a holder of a
residual interest security will not be entitled to an exemption from or
reduction of the 30% or lower treaty rate withholding tax rule. If the payments
are subject to United States withholding tax, they generally will be taken into
account for withholding tax purposes only when paid or distributed or when the
residual interest security is disposed of. The Treasury has statutory authority,
however, to promulgate regulations which would require that these amounts to be
taken into account at an earlier time in order to prevent the avoidance of tax.
Such regulations could, for example, require withholding prior to the
distribution of cash in the case of residual interest securities that do not
have significant value. Under the REMIC Regulations, if a residual interest
security has tax avoidance potential, a transfer of a residual interest security
to a nonresident will be disregarded for all federal tax purposes. A residual
interest security has tax avoidance potential unless, at the time of the
transfer the transferor reasonably expects that the REMIC will distribute to the
transferee amounts that will equal at least 30% of each excess inclusion, and
that these amounts will be distributed at or after the time at which the excess
inclusions accrue and not later than the calendar year following the calendar
year of accrual. If a Nonresident transfers a residual interest security to a
United States person, and if the transfer has the effect of allowing the
transferor to avoid tax on accrued excess inclusions, then the transfer is
disregarded and the transferor continues to be treated as the owner of the
residual interest security for purposes of the withholding tax provisions of the
Code. See "Taxation of Holders of Residual Interest Securities--Excess
Inclusions."
On October 6, 1997, the Treasury Department issued new regulations (the "New
Regulations") which make certain modifications to the withholding and
information reporting rules described above. The New Regulations attempt to
unify certification requirements and modify reliance standards. The New
Regulations will generally be effective for payments made after December 31,
2000, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
TAX CHARACTERIZATION OF THE TRUST AS A PARTNERSHIP
Tax counsel will deliver its opinion that a trust will not be treated as a
publicly traded partnership taxable as a corporation for federal income tax
purposes. This opinion will be based on the assumption that the terms of the
related Agreement and related documents will be complied with, and on counsel's
conclusions that the nature of the income of the trust will exempt it from the
rule that certain publicly traded partnerships are taxable as corporations or
the issuance of the securities has been structured as a private placement under
an IRS safe harbor, so that the trust will not be characterized as a publicly
traded partnership taxable as a corporation.
If the trust were taxable as a corporation for federal income tax purposes,
the trust would be subject to corporate income tax on its taxable income. The
trust's taxable income would include all its income, possibly reduced by its
interest expense on the Notes. Any such corporate income tax could materially
reduce cash available to make payments on the notes and distributions on the
certificates, and certificateholders could be liable for any tax that is unpaid
by the trust.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
TREATMENT OF THE NOTES AS INDEBTEDNESS. The trust will agree, and the
noteholders will agree by their purchase of notes, to treat the notes as debt
for federal income tax purposes. Tax counsel will, except as otherwise provided
in the prospectus supplement, advise the sponsor that the notes will be
classified as debt for federal income tax purposes. The discussion below assumes
this characterization of the notes is correct.
OID, INDEXED SECURITIES, ETC. The discussion below assumes that all payments
on the notes are denominated in U.S. dollars, and that the notes are not indexed
securities or strip notes. Moreover, the discussion assumes that the interest
formula for the notes meets the requirements for qualified stated interest under
the OID Regulations, and that any OID on the notes, i.e., any excess of the
principal amount of the notes over their issue price, does not exceed a de
minimis amount, i.e., 0.25% of their principal amount multiplied by the number
of full years included in their term, all within the meaning of the OID
Regulations. If these conditions are not satisfied with respect to any given
series of notes, additional tax considerations with respect to such notes will
be disclosed in the prospectus supplement.
INTEREST INCOME ON THE NOTES. Based on the above assumptions, except as
discussed in the following paragraph, the notes will not be considered issued
with OID. The stated interest thereon will be taxable to a noteholder as
ordinary interest income when received or accrued in accordance with
noteholder's method of tax accounting. Under the OID Regulations, a holder of a
note issued with a de minimis amount of OID must include such OID in income, on
a pro rata basis, as principal payments are made on the note. It is believed
that any prepayment premium paid as a result of a mandatory redemption will be
taxable as contingent interest when it becomes fixed and unconditionally
payable. A purchaser who buys a note for more or less than its principal amount
will generally be subject, respectively, to the premium amortization or market
discount rules of the Code.
A holder of a note that has a fixed maturity date of not more than one year
from the issue date of note which we refer to as a short-term note may be
subject to special rules. An accrual basis holder of a short-term note and
certain cash method holders, including regulated investment companies, as set
forth in Section 1281 of the Code generally would be required to report interest
income as interest accrues on a straight-line basis over the term of each
interest period. Other cash basis holders of a short-term note would, in
general, be required to report interest income as interest is paid or, if
earlier, upon the taxable disposition of the short-term note. However, a cash
basis holder of a short-term note reporting interest income as it is paid may be
required to defer a portion of any interest expense otherwise deductible on
indebtedness incurred to purchase or carry the short-term note until the taxable
disposition of the short-term note. A cash basis taxpayer may elect under
Section 1281 of the Code to accrue interest income on all nongovernment debt
obligations with a term of one year or less, in which case the taxpayer would
include interest on the short-term note in income as it accrues, but would not
be subject to the interest expense deferral rule referred to in the preceding
sentence. Certain special rules apply if a short-term note is purchased for more
or less than its principal amount.
SALE OR OTHER DISPOSITION. If a noteholder sells a note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the note. The
adjusted tax basis of a note to a particular noteholder will equal the holder's
cost for the note, increased by any market discount, acquisition discount, OID
and gain previously included by noteholder in income with respect to the note
and decreased by the amount of bond premium, if any, previously amortized and by
the amount of principal payments previously received by noteholder with respect
to the note. Any such gain or loss will be capital gain or loss if the note was
held as a capital asset, except for gain representing accrued interest and
accrued market discount not previously included in income. Capital losses
generally may be used only to offset capital gains.
FOREIGN HOLDERS. Interest payments made or accrued to a noteholder who is a
nonresident alien, foreign corporation or other non-United States person
generally will be considered portfolio interest, and generally will not be
subject to United States federal income tax and withholding tax, if the interest
is not effectively connected with the conduct of a trade or business within the
United States by the foreign person, and the foreign person:
o is not actually or constructively a "10 percent shareholder" of the
trust or the seller (including a holder of 10% of the outstanding
certificates) or a "controlled foreign corporation" with respect to
which the trust or the seller is a "related person" within the meaning
of the Code and
o provides the trustee or other person who is otherwise required to
withhold U.S. tax with respect to the notes with an appropriate
statement on Form W-8 or a similar form, signed under penalties of
perjury, certifying that the beneficial owner of the note is a foreign
person and providing the foreign person's name and address.
If a note is held through a securities clearing organization or certain other
financial institutions, the organization or institution may provide the relevant
signed statement to the withholding agent; in that case, however, the signed
statement must be accompanied by a Form W-8 or substitute form provided by the
foreign person that owns the note. If such interest is not portfolio interest,
then it will be subject to United States federal income and withholding tax at a
rate of 30 percent, unless reduced or eliminated pursuant to an applicable tax
treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a note by a foreign person will be exempt from United
States federal income and withholding tax, if:
o the gain is not effectively connected with the conduct of a trade or
business in the United States by the foreign person and
o in the case of an individual foreign person, the foreign person is not
present in the United States for 183 days or more in the taxable year.
BACKUP WITHHOLDING. Each holder of a note, other than an exempt holder such
as a corporation, tax-exempt organization, qualified pension and profit-sharing
trust, individual retirement account or nonresident alien who provides
certification as to status as a nonresident, will be required to provide, under
penalties of perjury, a certificate containing the holder's name, address,
correct federal taxpayer identification number and a statement that the holder
is not subject to backup withholding. Should a nonexempt noteholder fail to
provide the required certification, the trust will be required to withhold 31
percent of the amount otherwise payable to the holder, and remit the withheld
amount to the IRS as a credit against the holder's federal income tax liability.
POSSIBLE ALTERNATIVE TREATMENTS OF THE NOTES. If, contrary to the opinion of
tax counsel, the IRS successfully asserted that one or more of the notes did not
represent debt for federal income tax purposes, the notes might be treated as
equity interests in the trust. If so treated, the trust might be treated as a
publicly traded partnership taxable as a corporation with the adverse
consequences described above and the taxable corporation would not be able to
reduce its taxable income by deductions for interest expense on notes
recharacterized as equity. Alternatively, and most likely in the view of tax
counsel, the trust might be treated as a publicly traded partnership that would
not be taxable as a corporation because it would meet certain qualifying income
tests. Nonetheless, treatment of the notes as equity interests in such a
publicly traded partnership could have adverse tax consequences to some holders.
For example, income to certain tax-exempt entities including pension funds would
be unrelated business taxable income, income to foreign holders generally would
be subject to U.S. tax and U.S. tax return filing and withholding requirements,
and individual holders might be subject to certain limitations on their ability
to deduct their share of the trust's expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
TREATMENT OF THE TRUST AS A PARTNERSHIP. The trust and the master servicer
will agree, and the certificateholders will agree by their purchase of
certificates, to treat the trust as a partnership for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income, with the assets of the partnership being the assets held by the
trust, the partners of the partnership being the certificateholders, and the
notes being debt of the partnership. However, the proper characterization of the
arrangement involving the trust, the certificates, the notes, the trust and the
master servicer is not clear because there is no authority on transactions
closely comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the certificates have certain features characteristic of debt, the
certificates might be considered debt of the trust. Any such characterization
would not result in materially adverse tax consequences to certificateholders as
compared to the consequences from treatment of the certificates as equity in a
partnership, described below. The following discussion assumes that the
certificates represent equity interests in a partnership.
INDEXED SECURITIES, ETC. The following discussion assumes that all payments
on the certificates are denominated in U.S. dollars, none of the certificates
are indexed securities or strip certificates, and that a series of securities
includes a single class of certificates. If these conditions are not satisfied
with respect to any given series of certificates, additional tax considerations
with respect to such certificates will be disclosed in the prospectus
supplement.
PARTNERSHIP TAXATION. As a partnership, the trust will not be subject to
federal income tax. Rather, each certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the trust. The trust's income will consist
primarily of interest and finance charges earned on the loans including
appropriate adjustments for market discount, OID and bond premium and any gain
upon collection or disposition of loans. The trust's deductions will consist
primarily of interest accruing with respect to the notes, servicing and other
fees, and losses or deductions upon collection or disposition of loans.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the related Agreement and related
documents. The Agreement will provide, in general, that the certificateholders
will be allocated taxable income of the trust for each month equal to the sum
of:
o the interest that accrues on the certificates in accordance with their
terms for the month, including interest accruing at the pass-through
rate for the month and interest on amounts previously due on the
certificates but not yet distributed;
o any trust income attributable to discount on the loans that corresponds
to any excess of the principal amount of the certificates over their
initial issue price;
o prepayment premium payable to the certificateholders for the month; and
o any other amounts of income payable to the certificateholders for the
month.
The allocation will be reduced by any amortization by the trust of premium
on loans that corresponds to any excess of the issue price of certificates over
their principal amount. All remaining taxable income of the trust will be
allocated to the sponsor. Based on the economic arrangement of the parties, this
approach for allocating trust income should be permissible under applicable
Treasury regulations, although no assurance can be given that the IRS would not
require a greater amount of income to be allocated to certificateholders.
Moreover, even under the foregoing method of allocation, certificateholders may
be allocated income equal to the entire pass-through rate plus the other items
described above even though the trust might not have sufficient cash to make
current cash distributions of such amount. Thus, cash basis holders will in
effect be required to report income from the certificates on the accrual basis
and certificateholders may become liable for taxes on trust income even if they
have not received cash from the trust to pay taxes. In addition, because tax
allocations and tax reporting will be done on a uniform basis for all
certificateholders but certificateholders may be purchasing certificates at
different times and at different prices, certificateholders may be required to
report on their tax returns taxable income that is greater or less than the
amount reported to them by the trust.
All of the taxable income allocated to a certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
including an individual retirement account will constitute unrelated business
taxable income generally taxable to the holder under the Code.
An individual taxpayer's share of expenses of the trust including servicing
fees but not interest expense would be miscellaneous itemized deductions. The
deductions might be disallowed to the individual in whole or in part and might
result in the holder being taxed on an amount of income that exceeds the amount
of cash actually distributed to the holder over the life of the trust.
The trust intends to make all tax calculations relating to income and
allocations to certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each loan, the trust might
be required to incur additional expense but it is believed that there would not
be a material adverse effect on certificateholders.
DISCOUNT AND PREMIUM. It is believed that the loans were not issued with
OID, and, therefore, the trust should not have OID income. However, the purchase
price paid by the trust for the loans may be greater or less than the remaining
principal balance of the loans at the time of purchase. If so, the loan will
have been acquired at a premium or discount, as the case may be. As indicated
above, the trust will make this calculation on an aggregate basis, but might be
required to recompute it on a loan by loan basis.
If the trust acquires the loans at a market discount or premium, the trust
will elect to include any discount in income currently as it accrues over the
life of the loans or to offset any premium against interest income on the loans.
As indicated above, a portion of market discount income or premium deduction may
be allocated to certificateholders.
SECTION 708 TERMINATION. Pursuant to regulations under Code Section 708, a
sale or exchange of 50% or more of the capital and profits in a partnership
would cause a deemed contribution of assets of the partnership which we refer to
as the "old partnership" to a new partnership which we refer to as the "new
partnership" in exchange for interests in the new partnership. The interests
would be deemed distributed to the partners of the old partnership in
liquidation thereof, which would not constitute a sale or exchange. Accordingly,
under these new regulations, if the Trust Fund were characterized as a
partnership and a sale of certificates terminated the partnership under Code
Section 708, the purchaser's basis in its ownership interest would not change.
DISPOSITION OF CERTIFICATES. Generally, capital gain or loss will be
recognized on a sale of certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the certificates sold.
A certificateholder's tax basis in a certificate will generally equal the
holder's cost increased by the holder's share of trust income includible in
income and decreased by any distributions received with respect to such
certificate. In addition, both the tax basis in the certificates and the amount
realized on a sale of a certificate would include the holder's share of the
notes and other liabilities of the trust. A holder acquiring certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such certificates, and, upon sale or other disposition of some of the
certificates, allocate a portion of such aggregate tax basis to the certificates
sold rather than maintaining a separate tax basis in each certificate for
purposes of computing gain or loss on a sale of that certificate.
Any gain on the sale of a certificate attributable to the holder's share of
unrecognized accrued market discount on the loans would generally be treated as
ordinary income to the holder and would give rise to special tax reporting
requirements. The trust does not expect to have any other assets that would give
rise to such special reporting requirements. Thus, to avoid those special
reporting requirements, the trust will elect to include market discount in
income as it accrues.
If a certificateholder is required to recognize an aggregate amount of
income not including income attributable to disallowed itemized deductions
described above over the life of the certificates that exceeds the aggregate
cash distributions with respect thereto, the excess will generally give rise to
a capital loss upon the retirement of the certificates.
ALLOCATIONS BETWEEN TRANSFERORS AND TRANSFEREES. In general, the trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the certificateholders in
proportion to the principal amount of certificates owned by them as of the close
of the last day of such month. As a result, a holder purchasing certificates may
be allocated tax items which will affect its tax liability and tax basis
attributable to periods before the actual transaction.
The use of a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed or only applies to transfers
of less than all of the partner's interest, taxable income or losses of the
trust might be reallocated among the certificateholders. The trust's method of
allocation between transferors and transferees may be revised to conform to a
method permitted by future regulations.
SECTION 754 ELECTION. In the event that a certificateholder sells its
certificates at a profit or loss, the purchasing certificateholder will have a
higher lower basis in the certificates than the selling certificateholder had.
The tax basis of the trust's assets will not be adjusted to reflect that higher
or lower basis unless the trust were to file an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the trust will not make an election. As a
result, certificateholders might be allocated a greater or lesser amount of
trust income than would be appropriate based on their own purchase price for
certificates.
ADMINISTRATIVE MATTERS. The trustee is required to keep or have kept
complete and accurate books of the trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the trust will be the calendar year. The trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
trust and will report each certificateholder's allocable share of items of trust
income and expense to holders and the IRS on Schedule K-1. The trust will
provide the Schedule K-l information to nominees that fail to provide the trust
with the information statement described below and nominees will be required to
forward information to the beneficial owners of the certificates. Generally,
holders must file tax returns that are consistent with the information return
filed by the trust or be subject to penalties unless the holder notifies the IRS
of all inconsistencies.
Under Section 6031 of the Code, any person that holds certificates as a
nominee at any time during a calendar year is required to furnish the trust with
a statement containing certain information on the nominee, the beneficial owners
and the certificates so held. The information includes:
o the name, address and taxpayer identification number of the nominee and
o as to each beneficial owner
o the name, address and identification number of the person,
o whether the person is a United States person, a tax-exempt entity or
a foreign government, an international organization, or any wholly
owned agency or instrumentality of either of the foregoing, and
o some information on certificates that were held, bought or sold on
behalf of the person throughout the year.
In addition, brokers and financial institutions that hold certificates through a
nominee are required to furnish directly to the trust information as to
themselves and their ownership of certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the trust. The information referred to above for any
calendar year must be furnished to the trust on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the trust
with the information described above may be subject to penalties.
The sponsor will be designated as the tax matters partner in the Agreement
and will be responsible for representing the certificateholders in any dispute
with the IRS. The Code provides for administrative examination of a partnership
as if the partnership were a separate and distinct taxpayer. Generally, the
statute of limitations for partnership items does not expire before three years
after the date on which the partnership information return is filed. Any adverse
determination following an audit of the return of the trust by the appropriate
taxing authorities could result in an adjustment of the returns of the
certificateholders. In some circumstances, a certificateholder may be precluded
from separately litigating a proposed adjustment to the items of the trust. An
adjustment could also result in an audit of a certificateholder's returns and
adjustments of items not related to the income and losses of the trust.
TAX CONSEQUENCES TO FOREIGN CERTIFICATEHOLDERS. It is not clear whether the
trust would be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes with respect to non-U.S.
persons because there is no clear authority dealing with that issue under facts
substantially similar to those described herein. Although it is not expected
that the trust would be engaged in a trade or business in the United States for
such purposes, the trust will withhold as if it were so engaged in order to
protect the trust from possible adverse consequences of a failure to withhold.
The trust expects to withhold on the portion of its taxable income that is
allocable to foreign certificateholders pursuant to Section 1446 of the Code, as
if such income were effectively connected to a U.S. trade or business, at a rate
of 35% for foreign holders that are taxable as corporations and 39.6% for all
other foreign holders. Subsequent adoption of Treasury regulations or the
issuance of other administrative pronouncements may require the trust to change
its withholding procedures. In determining a holder's withholding status, the
trust may rely on IRS Form W-8, IRS Form W-9 or the holder's certification of
nonforeign status signed under penalties of perjury.
The term "U.S. Person" means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under the
laws of the United States, any state of the United States or the District of
Columbia, other than a partnership that is not treated as a United States person
under any applicable Treasury regulation , or an estate whose income is subject
to U.S. federal income tax regardless of its source of income, or a trust if a
court within the United States is able to exercise primary supervision of the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust.
Each foreign holder might be required to file a U.S. individual or corporate
income tax return including, in the case of a corporation, the branch profits
tax on its share of the trust's income. Each foreign holder must obtain a
taxpayer identification number from the IRS and submit that number to the trust
on Form W-8 in order to assure appropriate crediting of the taxes withheld. A
foreign holder generally would be entitled to file with the IRS a claim for
refund with respect to taxes withheld by the trust taking the position that no
taxes were due because the trust was not engaged in a U.S. trade or business.
However, interest payments made or accrued to a certificateholder who is a
foreign person generally will be considered guaranteed payments to the extent
such payments are determined without regard to the income of the trust. If these
interest payments are properly characterized as guaranteed payments, then the
interest will not be considered portfolio interest. As a result,
certificateholders will be subject to United States federal income tax and
withholding tax at a rate of 30 percent, unless reduced or eliminated pursuant
to an applicable treaty. In that case, a foreign holder would only be entitled
to claim a refund for that portion of the taxes in excess of the taxes that
should be withheld with respect to the guaranteed payments.
BACKUP WITHHOLDING. Distributions made on the certificates and proceeds from
the sale of the certificates will be subject to a "backup" withholding tax of
31% if, in general, the certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Federal
Income Tax Consequences," potential investors should consider the state and
local income tax consequences of the acquisition, ownership, and disposition of
the securities. State and local 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 or locality. Therefore, potential
investors should consult their own tax advisors with respect to the various
state and local tax consequences of an investment in the securities.
ERISA CONSIDERATIONS
The following describes certain considerations under the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") and the Code, which apply only
to securities of a series that are not divided into subclasses. If securities
are divided into subclasses the prospectus supplement will contain information
concerning considerations relating to ERISA and the Code that are applicable to
such securities.
ERISA and Section 4975 of the Code impose requirements on employee benefit
plans (and on certain other retirement plans and arrangements, including
individual retirement accounts and annuities, and certain Keogh plans, and on
collective investment funds and separate accounts in which such plans, accounts
or arrangements are invested) (collectively "Plans") subject to ERISA and on
persons who are fiduciaries with respect to such Plans. Generally, ERISA applies
to investments made by Plans. Among other things, ERISA requires that the assets
of Plans be held in trust and that the trustee, or other duly authorized
fiduciary, have exclusive authority and discretion to manage and control the
assets of such Plans. ERISA also imposes certain duties on persons who are
fiduciaries of Plans. Under ERISA, any person who exercises any authority or
control respecting the management or disposition of the assets of a Plan is
considered to be a fiduciary of such Plan (subject to certain exceptions not
here relevant). 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 ERISA Section 3(33)), are not
subject to ERISA requirements. Accordingly, assets of such plans may be invested
in securities without regard to the ERISA considerations described above and
below, subject to the provisions of applicable state law. Any such plan which is
qualified and exempt from taxation under Code Sections 401(a) and 501(a),
however, is subject to the prohibited transaction rules set forth in Code
Section 503.
In addition to the imposition of general fiduciary standards of investment
prudence and diversification, ERISA prohibits a broad range of transactions
involving Plan assets and persons ("Parties in Interest") having certain
specified relationships to a Plan and imposes additional prohibitions where
Parties in Interest are fiduciaries with respect to such Plan. Because the loans
may be deemed Plan assets of each Plan that purchases securities, an investment
in the securities by a Plan might be a prohibited transaction under ERISA
Sections 406 and 407 and subject to an excise tax under Section 4975 of the Code
unless a statutory, regulatory or administrative exemption applies.
On November 13, 1986, the United States Department of Labor (the "DOL")
issued final regulations concerning the definition of what constitutes the
assets of a Plan. (Labor Reg. Section 2510.3-101) Under this regulation, the
underlying assets and properties of corporations, partnerships, trusts and
certain other entities in which a Plan makes an equity investment could be
deemed for purposes of ERISA and Section 4975 of the Code to be assets of the
investing Plan in certain circumstances. However, the regulation provides that,
generally, the assets of a corporation or partnership in which a Plan invests
will not be deemed for purposes of ERISA to be assets of such Plan if the equity
interest acquired by the investing Plan is a publicly-offered security. A
publicly-offered security, as defined in the Labor Reg. Section 2510.3-101, is a
security that is widely held, freely transferable and registered under the
Securities Exchange Act of 1934, as amended. The prospectus supplement will
indicate the anticipated treatment under these regulations of securities issued
by the trust.
In Prohibited Transaction Exemption 83-1 ("PTE 83-1") the DOL exempted from
ERISA's prohibited transaction rules certain transactions relating to the
operation of residential mortgage pool investment trusts and the purchase, sale
and holding of "mortgage pool pass-through certificates" in the initial issuance
of such certificates. PTE 83-1 permits, subject to certain conditions,
transactions which might otherwise be prohibited between Plans and Parties in
Interest with respect to those Plans related to the origination, maintenance and
termination of mortgage pools consisting of mortgage loans secured by first or
second mortgages or deeds of trust on single-family residential property, and
the acquisition and holding of certain mortgage pool pass-through certificates
representing an interest in such mortgage pools by Plans. If the general
conditions (discussed below) of PTE 83-1 are satisfied, investments by a Plan in
certificates that represent interests in a pool consisting of mortgage loans
secured by single family homes ("Single Family Securities") will be exempt from
the prohibitions of ERISA Sections 406(a) and 407 (relating generally to
transactions with Parties in Interest who are not fiduciaries) if the Plan
purchases the Single Family Securities at no more than fair market value and
will be exempt from the prohibitions of ERISA Sections 406(b)(1) and (2)
(relating generally to transactions with fiduciaries) if, in addition, the
purchase is approved by an independent fiduciary, no sales commission is paid to
the pool sponsor, the Plan does not purchase more than 25% of all Single Family
Securities, and at least 50% of all Single Family Securities are purchased by
persons independent of the pool sponsor or pool trustee. PTE 83-1 does not
provide an exemption for transactions involving subordinate securities.
Accordingly, no transfer of a subordinate certificate or a security which is not
a Single Family Security may be made to a Plan unless specified in the
prospectus supplement.
The discussion in this and the next succeeding paragraph applies only to
Single Family Securities. The sponsor believes that, for purposes of PTE 83-1,
the term "mortgage pass-through certificate" would include: (1) certificates
issued in a series consisting of only a single class of certificates; and (2)
senior certificates issued in a series in which there is only one class of
such certificates; provided that the certificates in the case of clause (1),
or the senior certificates in the case of clause (2), evidence the beneficial
ownership of both a specified percentage (greater than 0%) of future interest
payments and a specified percentage (greater than 0%) of future principal
payments on the loans. It is not clear whether a class of certificates that
evidences the beneficial ownership of a specified percentage of interest
payments only or principal payments only, or certain notional amounts of
either principal or interest payments, would be a mortgage pass-through
certificate for purposes of PTE 83-1.
PTE 83-1 sets forth three general conditions which must be satisfied for any
transaction to be eligible for exemption:
o the maintenance of a system of insurance or other protection for the
pooled mortgage loans and property securing such loans, and for
indemnifying certificateholders against reductions in pass-through
payments due to property damage or defaults in loan payments in an
amount not less than the greater of one percent of the aggregate
principal balance of all covered pooled mortgage loans or the principal
balance of the largest covered pooled mortgage loan;
o the existence of a pool trustee who is not an affiliate of the pool
sponsor; and
o a limitation on the amount of the payment retained by the pool sponsor,
together with other funds inuring to its benefit, to not more than
adequate consideration for selling the mortgage loans plus reasonable
compensation for services provided by the pool sponsor to the pool.
The sponsor believes that the first general condition referred to above will
be satisfied with respect to the certificates issued without a subordination
feature, or the senior certificates only in a series issued with a subordination
feature, provided that the subordination and reserve account, subordination by
shifting of interests, the pool insurance or other form of credit enhancement
described under "Credit Enhancement" herein (such subordination, pool insurance
or other form of credit enhancement being the system of insurance or other
protection referred to above) with respect to a series of certificates is
maintained in an amount not less than the greater of one percent of the
aggregate principal balance of the loans or the principal balance of the largest
loan. See "Description of the Securities" herein. In the absence of a ruling
that the system of insurance or other protection with respect to a series of
certificates satisfies the first general condition referred to above, there can
be no assurance that these features will be so viewed by the DOL. The trustee
will not be affiliated with the sponsor.
Each Plan fiduciary who is responsible for making the investment decisions
whether to purchase or commit to purchase and to hold Single Family Securities
must make its own determination as to whether the first and third general
conditions, and the specific conditions described briefly in the preceding
paragraphs, of PTE 83-1 have been satisfied, or as to the availability of any
other prohibited transaction exemptions. Each Plan fiduciary should also
determine whether, under the general fiduciary standards of investment prudence
and diversification, an investment in the certificates is appropriate for the
Plan, taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio.
The DOL has granted to certain underwriters individual administrative
exemptions (the "Underwriter Exemptions"), from certain of the prohibited
transaction rules of ERISA and the related excise tax provisions of Section 4975
of the Code with respect to the initial purchase, the holding and the subsequent
resale by Plans of certificates in pass-through trusts that consist of certain
receivables, loans and other obligations that meet the conditions and
requirements of the Underwriter Exemptions.
While each Underwriter Exemption is an individual exemption separately
granted to a specific underwriter, the terms and conditions which generally
apply to the Underwriter Exemptions are substantially the following:
o the acquisition of the certificates by a Plan is on terms (including the
price for the certificates) that are at least as favorable to the Plan
as they would be in an arm's-length transaction with an unrelated party;
o the rights and interests evidenced by the certificates acquired by the
Plan are not subordinated to the rights and interests evidenced by other
certificates of the trust;
o the certificates acquired by the Plan have received a rating at the time
of such acquisition that is one of the three highest generic rating
categories from S&P, Moody's, DCR or Fitch;
o the trustee must not be an affiliate of any other member of the
Restricted Group as defined below;
o the sum of all payments made to and retained by the underwriters in
connection with the distribution of the certificates represents not more
than reasonable compensation for underwriting the certificates; the sum
of all payments made to and retained by the seller pursuant to the
assignment of the loans to the trust represents not more than the fair
market value of such loans; the sum of all payments made to and retained
by the servicer and any other servicer represents not more than
reasonable compensation for such person's services under the agreement
pursuant to which the loans are pooled and reimbursements of such
person's reasonable expenses in connection therewith; and
o the Plan investing in the certificates is an accredited investor as
defined in Rule 501(a)(1) of Regulation D of the Securities Act of 1933,
as amended.
The trust must also meet the following requirements:
o the corpus of the trust must consist solely of assets of the type that
have been included in other investment pools;
o the certificates in such other investment pools must have been rated in
one of the three highest rating categories of S&P, Moody's, Fitch or DCR
for at least one year prior to the Plan's acquisition of the securities;
and
o certificates evidencing interests in such other investment pools must
have been purchased by investors other than Plans for at least one year
prior to any Plan's acquisition of certificates.
Moreover, the Underwriter Exemptions generally provide relief from certain
self-dealing/conflict of interest prohibited transactions that may occur when
the Plan fiduciary causes a Plan to acquire securities in a trust holding
receivables as to which the fiduciary (or its affiliate) is an obligor provided
that, among other requirements:
o in the case of an acquisition in connection with the initial issuance of
certificates, at least fifty percent of each class of certificates in
which Plans have invested is acquired by persons independent of the
Restricted Group (as defined below),
o such fiduciary (or its affiliate) is an obligor with respect to five
percent or less of the fair market value of the obligations contained in
the trust;
o the Plan's investment in certificates of any class does not exceed
twenty-five percent of all of the certificates of that class outstanding
at the time of the acquisition; and
o immediately after the acquisition, no more than twenty-five percent of
the assets of any Plan with respect to which such person is a fiduciary
is invested in certificates representing an interest in one or more
trusts containing assets sold or serviced by the same entity.
The Underwriter Exemptions do not apply to Plans sponsored by the seller,
any underwriter of the certificates, the trustee, the master servicer, any
insurer with respect to the loans, any obligor with respect to loans included in
the trust constituting more than five percent of the aggregate unamortized
principal balance of the assets in the trust, or any affiliate of such parties
(the "Restricted Group").
On July 21, 1997, the U.S. Department of Labor published in the Federal
Register an amendment to the Underwriter Exemptions, which extends exemptive
relief to certain mortgage-backed and asset-backed certificates transactions
using pre-funding accounts for trusts issuing pass-through certificates. The
amendment generally allows mortgage loans or other secured receivables
supporting payments to securityholders, and having a value equal to no more than
twenty-five percent of the total principal amount of the securities being
offered by the trust, to be transferred to the trust within a 90-day or
three-month pre-funding period following the closing date, instead of requiring
that all such obligations be either identified or transferred on or before the
closing date. The relief is available when certain conditions are met.
The prospectus supplement will indicate the classes of securities, if any,
as to which it is expected that an Underwriter Exemption will apply.
Any Plan fiduciary that proposes to cause a Plan to purchase securities is
encouraged to consult with its counsel concerning the impact of ERISA and the
Code, the applicability of PTE 83-1, the availability and applicability of any
Underwriter Exemption or any other exemptions from the prohibited transaction
provisions of ERISA and the Code and the potential consequences in their
specific circumstances, before making the investment. Moreover, each Plan
fiduciary should determine whether under the general fiduciary standards of
investment prudence and diversification an investment in the securities is
appropriate for the Plan, taking into account the overall investment policy of
the Plan and composition of the Plan's investment portfolio.
LEGAL INVESTMENT
The prospectus supplement for each series of securities will specify which,
if any, of the classes of securities offered thereby constitute "mortgage
related securities" for purposes of the Secondary Mortgage Market Enhancement
Act of 1984 ("SMMEA"). Classes of securities that qualify as mortgage related
securities will be legal investments for persons, trusts, corporations,
partnerships, associations, business trusts, and business entities (including
depository institutions, life insurance companies and pension funds) created
pursuant to or existing under the laws of the United States or of any state
(including the District of Columbia and Puerto Rico) whose authorized
investments are subject to state regulations to the same extent as, under
applicable law, obligations issued by or guaranteed as to principal and interest
by the United States or any such entities. Under SMMEA, if a state enacted
legislation prior to October 4, 1991 specifically limiting the legal investment
authority of any such entities with respect to mortgage related securities,
securities will constitute legal investments for entities subject to such
legislation only to the extent provided therein. Approximately twenty-one states
adopted such legislation prior to the October 4, 1991 deadline. SMMEA provides,
however, that in no event will the enactment of any such legislation affect the
validity of any contractual commitment to purchase, hold or invest in
securities, or require the sale or other disposition of securities, so long as
such contractual commitment was made or such securities were acquired prior to
the enactment of such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in securities
without limitations as to the percentage of their assets represented thereby,
federal credit unions may invest in mortgage related securities, and national
banks may purchase securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
24 (Seventh), subject in each case to such regulations as the applicable federal
authority may prescribe. In this connection, federal credit unions should review
the National Credit Union Administration ("NCUA") Letter to Credit Unions No.
96, as modified by NCUA Letter to Credit Unions No. 108, which includes
guidelines to assist federal credit unions in making investment decisions for
mortgage related securities and the NCUA's regulation "Investment and Deposit
Activities" (12 C.F.R. Part 703), which sets forth certain restrictions on
investments by federal credit unions in mortgage related securities (in each
case whether or not the class of securities under consideration for purchase
constituted a mortgage related security).
All depository institutions considering an investment in the securities
(whether or not the class of securities under consideration for purchase
constitutes a mortgage related security) should review the Federal Financial
Institutions Examination Council's Supervisory Policy Statement on the
Securities Activities (to the extent adopted by their respective regulators)
(the "Policy Statement") setting forth, in relevant part, certain securities
trading and sales practices deemed unsuitable for an institution's investment
portfolio, and guidelines for (and restrictions on) investing in mortgage
derivative products, including mortgage related securities which are "high-risk
mortgage securities" as defined in the Policy Statement. According to the Policy
Statement, high-risk mortgage securities include securities not entitled to
distributions allocated to principal or interest and subordinate securities.
Under the Policy Statement, it is the responsibility of each depository
institution to determine, prior to purchase (and at stated intervals
thereafter), whether a particular mortgage derivative product is a high-risk
mortgage security, and whether the purchase (or retention) of such a product
would be consistent with the Policy Statement.
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 which 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 securities or to purchase
securities representing more than a specified percentage of the investor's
assets. Investors should consult their own legal advisors in determining whether
and to what extent the securities constitute legal investments for such
investors.
METHOD OF DISTRIBUTION
The securities are being offered hereby in series from time to time (each
series evidencing or relating to a separate trust) through any of the following
methods:
o by negotiated firm commitment underwriting and public reoffering by
underwriters;
o by agency placements through one or more placement agents primarily with
institutional investors and dealers; and
o by placement directly by the sponsor with institutional investors.
A prospectus supplement will be prepared for each series which will describe
the method of offering being used for that series and will set forth:
o the identity of any underwriters thereof,
o either:
o the price at which such series is being offered, the nature and
amount of any underwriting discounts or additional compensation to
such underwriters and the proceeds of the offering to the sponsor,
o or the method by which the price at which the underwriters will sell
the securities will be determined,
o information regarding the nature of the underwriters' obligations,
o any material relationship between the sponsor and any underwriter and,
o where appropriate, information regarding any discounts or concessions to
be allowed or reallowed to dealers or others and any arrangements to
stabilize the market for the securities so offered.
In firm commitment underwritten offerings, the underwriters will be
obligated to purchase all of the securities of such series if any such
securities are purchased. securities may be acquired by the underwriters for
their own accounts and may be resold from time to time in one or more
transactions, including negotiated transactions, at a fixed public offering
price or at varying prices determined at the time of sale.
Underwriters and agents may be entitled under agreements entered into with
the sponsor to indemnification by the sponsor against certain civil liabilities,
including liabilities under the securities Act of 1933, as amended, or to
contribution with respect to payments which such underwriters or agents may be
required to make in respect thereof.
GreenPoint Mortgage Funding, Inc. or other affiliates of the sponsor may
purchase securities and pledge them to secure indebtedness or, together with its
pledgees, donees, transferees or other successors in interest, sell the
securities, from time to time, either directly or indirectly through one or more
underwriters, underwriting syndicates or designated agents.
If a series is offered other than through underwriters, the prospectus
supplement relating thereto will contain information regarding the nature of
such offering and any agreements to be entered into between the sponsor and
purchasers of securities of such series.
LEGAL MATTERS
The validity of the securities will be passed upon for the sponsor by Tobin
& Tobin, a professional corporation, San Francisco, California. Certain federal
income tax consequences with respect to the securities will be passed upon for
the sponsor by Brown & Wood LLP, New York, New York or Dewey Ballantine LLP, New
York, New York. Brown & Wood LLP, New York, New York or Dewey Ballantine LLP,
New York, New York will act as counsel for the underwriter.
FINANCIAL INFORMATION
A new trust will be formed with respect to each series of securities and no
trust will engage in any business activities or have any assets or obligations
prior to the issuance of the related series of securities. Accordingly, no
financial statements with respect to any trust will be included in this
prospectus or in the prospectus supplement.
AVAILABLE INFORMATION
The sponsor has filed with the SEC a registration statement under the
Securities Act of 1933, as amended, with respect to the securities. This
prospectus, which forms a part of the registration statement, and the supplement
relating to each series of securities contain information set forth in the
registration statement pursuant to the rules and regulations of the SEC. For
further information, reference is made to such registration statement and the
exhibits thereto, which may be inspected and copied at the facilities maintained
by the SEC at its Public Reference Section, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at its Regional Offices located as follows:
Chicago Regional Office, New York Regional Office
500 West Madison Street, Seven World Trade Center
Chicago, IL 60661 New York, NY 10048
The SEC maintains a website at http://www.sec.gov. that contains reports,
proxy and information statements and other information regarding registrants
including the sponsor, that file electronically with the SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference some of the information we
file with it, which means that we can disclose important information to you by
referring you to those documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for all purposes of this prospectus to the extent that
a statement contained herein (or in the accompanying supplement) or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference modifies or replaces such statement. Any such statement so modified or
superseded shall not be deemed, except as modified or superseded, to constitute
a part of this prospectus. Neither the sponsor nor the master servicer for any
series intends to file with the SEC periodic reports with respect to the related
trust following completion of the reporting period required by Rule 15d-1 or
Regulation 15D under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
All documents filed by or on behalf of the trust referred to in the
accompanying supplement with the SEC pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act on or after the date of such supplement and prior to
the termination of any offering of the securities issued by such trust shall be
deemed to be incorporated by reference in this prospectus and to be a part of
this prospectus from the date of the filing of such documents.
The trust will provide without charge to each person to whom this prospectus
is delivered, on the written or oral request of such person, a copy of any or
all of the documents referred to above that have been or may be incorporated by
reference in this prospectus (not including exhibits to the information that is
incorporated by reference unless such exhibits are specifically incorporated by
reference into the information that this prospectus incorporates). Such requests
should be directed to the corporate trust office of the trustee specified in the
accompanying supplement.
RATING
It is a condition to the issuance of the securities of each series offered
hereby and by the supplement that they shall be rated in one of the four highest
rating categories by the nationally recognized statistical rating agency or
agencies specified in the prospectus supplement.
Ratings on asset-backed securities address the likelihood of receipt by
securityholders of all distributions on the trust assets. These ratings address
the structural, legal and issuer- related aspects associated with such
securities, the nature of the trust assets and the credit quality of the credit
enhancer or guarantor, if any. Ratings on asset-backed securities do not
represent any assessment of the likelihood of principal prepayments by
mortgagors or of the degree by which such prepayments might differ from those
originally anticipated. As a result, securityholders might suffer a lower than
anticipated yield, and, in addition, holders of stripped securities in extreme
cases might fail to recoup their underlying investments.
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. Further, such ratings do not address the effect of prepayments on
the yield anticipated by the investor. Each security rating should be evaluated
independently of any other security rating.
<PAGE>
INDEX OF DEFINED TERMS
Agreement.....................................................................9
Belgian Cooperative..........................................................30
CERCLA.......................................................................60
Class Security Balance.......................................................21
CLTV.........................................................................13
Code.........................................................................70
collateral value.............................................................13
Cut-off Date..................................................................8
DOL..........................................................................97
EPA..........................................................................60
ERISA........................................................................96
Euroclear....................................................................28
Euroclear Operator...........................................................30
European Depositaries........................................................28
Exchange Act................................................................104
Garn-St Germain Act..........................................................63
Indemnified Parties..........................................................52
L/C Bank.....................................................................34
LTV..........................................................................13
Morgan.......................................................................30
NCUA........................................................................101
New Regulations..............................................................87
OID..........................................................................71
OID Regulations..............................................................71
Parties in Interest..........................................................96
Permitted Investments........................................................35
Plans........................................................................96
Policy Statement............................................................101
PTE 83-1.....................................................................97
RCRA.........................................................................61
refinance loan...............................................................13
Relevant Depositary..........................................................28
Relief Act...................................................................67
Restricted Group............................................................100
secured creditor exclusion...................................................60
Security Account.............................................................43
Single Family Securities.....................................................97
SMMEA.......................................................................101
Terms and Conditions.........................................................30
TIN..........................................................................86
Title V..................................................................64, 66
U.S. Person..................................................................95
Underwriter Exemptions.......................................................98
<PAGE>
================================================================================
$
GREENPOINT HOME EQUITY LOAN TRUST 200_-_
[LOGO]
GREENPOINT MORTGAGE SECURITIES INC.
SPONSOR
--------------------------------
PROSPECTUS SUPPLEMENT
--------------------------------
[Underwriter]
[Date]
You should rely only on the information contained or incorporated by reference
in this prospectus supplement and the accompanying prospectus. We have not
authorized anyone to provide you with different information.
We are not offering the notes offered hereby in any state where such offer is
not permitted.
We represent the accuracy of the information in this prospectus supplement and
the accompanying prospectus only as of the dates on their respective covers.
Dealers will be required to deliver a prospectus supplement and prospectus when
acting as underwriters of the notes offered hereby and with respect to their
unsold allotments or subscriptions. In addition, all dealers selling the notes,
whether or not participating in this offering, may be required to deliver a
prospectus supplement and prospectus until ninety days after the date of this
prospectus supplement.
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection
with the issuance and distribution of the Securities being registered under this
Registration Statement, other than underwriting discounts and commissions:
SEC Registration Fee.......................................... $ 212,027.16
Printing and Engraving........................................ $ 140,000.00
Legal Fees and Expenses....................................... $ 260,000.00
Trustee Fees and Expenses..................................... $ 60,000.00
Accounting Fees and Expenses.................................. $ 100,000.00
Blue Sky Fees and Expenses.................................... $ 20,000.00
Rating Agency Fees............................................ $ 500,000.00
Miscellaneous................................................. $ 5,000.00
--------------
Total (*)..................................................... $ 1,297,027.16
===============
- --------------------
* All amounts except the SEC Registration Fee are estimates of expenses
incurred in connection with the issuance and distribution of four Series of
Securities in an aggregate principal amount assumed for these purposes to be
equal to approximately $175,000,000 of Securities registered hereby.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Amended and Restated Certificate of Incorporation and
By-Laws provide for indemnification of directors and officers of the Registrant
to the fullest extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law, provides, in
substance, that Delaware corporations shall have the power, under specified
circumstances, to indemnify their directors, officers, employees and agents in
connection with actions, suits or proceedings brought against them by a third
party or in the right of the corporation, by reason of the fact that they were
or are such directors, officers, employees or agents, against expenses incurred
in any such action, suit or proceeding. The Delaware General Corporation Law
also provides that the Registrant may purchase insurance on behalf of any such
director, officer, employee or agent.
ITEM 16. FINANCIAL STATEMENT AND EXHIBITS.
1.1 Form of Underwriting Agreement.*
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 Bylaws of the Registrant.*
4.1 Form of Pooling and Servicing Agreement.*
4.2 Form of Trust Agreement.*
4.3 Form of Indenture.*
4.4 Form of Mortgage Loan Purchase Agreement.*
5.1 Opinion of Tobin & Tobin as to legality of the Certificates
(including consent of such firm).
8.1 Opinion of Brown & Wood LLP as to certain tax matters
(including consent of such firm).
8.2 Opinion of Dewey Ballantine LLP as to certain tax matters
(including consent of such firm).
23.1 Consent of Tobin & Tobin (included in exhibit 5.1 hereof).
23.2 Consent of Brown & Wood LLP (included in exhibit 8.1 hereof).
23.3 Consent of Dewey Ballantine LLP (included in exhibit 8.2
hereof).
24.1 Power of Attorney (included at page II-3).
25.1 Statement of Eligibility and Qualification of Trustee under
the Trust Indenture Act of 1939.**
_________________
* Filed previously with the Commission as an exhibit to the Registration
Statement on Form S-3 (No. 333-28031).
** To be filed pursuant to Section 305(b)(2) of the Trust Indenture Act of 1939.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change of such
information in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
(c) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Larkspur, State of California, on this 24th day of
January, 2000.
GREENPOINT MORTGAGE SECURITIES INC.
By: /s/ Gilbert J. MacQuarrie
----------------------------
Name: Gilbert J. MacQuarrie
Title: Vice President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Directors and
Officers of GreenPoint Mortgage Securities Inc., a Delaware corporation, hereby
constitute and appoint S.A. Ibrahim, Steve Abreu and Gilbert J. MacQuarrie, each
with full power of substitution and resubstitution, their true and lawful
attorneys and agents to sign the names of the undersigned Directors and Officers
in the capacities indicated below to the registration statement to which this
Power of Attorney is attached as an exhibit, and all amendments (including
post-effective amendments) and supplements thereto, and all instruments or
documents filed as a part thereof or in connection therewith, and to file the
same, with all exhibits thereto, and all other instruments or documents in
connection therewith, with the Securities and Exchange Commission; and each of
the undersigned hereby ratifies and confirms all that said attorneys, agents or
any of them shall do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ S.A. Ibrahim President and Director January 24, 2000
- ------------------------------------ (Principal Executive Officer)
S.A. Ibrahim
/s/ Gilbert J. MacQuarrie Vice President, Secretary, Treasurer January 24, 2000
- ------------------------------------ and Director (Principal Financial
Gilbert J. MacQuarrie Officer and Principal Accounting Officer)
/s/ Becky S. Poisson Director January 24, 2000
- ------------------------------------
Becky S. Poisson
/s/ Steve Abreu Director January 24, 2000
- ------------------------------------
Steve Abreu
/s/ Kenneth Siprelle Director January 24, 2000
- ------------------------------------
Kenneth Siprelle
/s/ John Edmonds Director January 24, 2000
- ------------------------------------
John Edmonds
</TABLE>
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description of Exhibit
- ---------- ----------------------
1.1 Form of Underwriting Agreement. *
3.1 Amended and Restated Certificate of Incorporation
of the Registrant.
3.2 Bylaws of the Registrant. *
4.1 Form of Pooling and Servicing Agreement. *
4.2 Form of Trust Agreement. *
4.3 Form of Indenture. *
4.4 Form of Mortgage Loan Purchase Agreement. *
5.1 Opinion of Tobin & Tobin as to legality of the
Certificates (including consent of such firm).
8.1 Opinion of Brown & Wood LLP as to certain tax
matters (including consent of such firm).
8.2 Opinion of Dewey Ballantine LLP as to certain tax
matters (including consent of such firm).
23.1 Consent of Tobin & Tobin (included in exhibit 5.1
hereof).
23.2 Consent of Brown & Wood LLP (included in exhibit
8.1 hereof).
23.3 Consent of Dewey Ballantine LLP (included in exhibit
8.2 hereof).
24.1 Power of Attorney (included at page II-3).
25.1 Statement of Eligibility and Qualification of
Trustee under the Trust Indenture Act of 1939.**
_____________________
* Filed previously with the Commission as an exhibit to the Registration
Statement on Form S-3 (No. 333-28031).
** To be filed pursuant to Section 305(b)(2) of the Trust Indenture Act of 1939.
Exhibit 3.1
Amended and Restated
Certificate of Incorporation
of the Registrant
RESTATED CERTIFICATE OF INCORPORATION
OF
HEADLANDS MORTGAGE SECURITIES INC.
Headlands Mortgage Securities Inc., a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), hereby
certifies as follows:
FIRST: The name of the Corporation is Headlands Mortgage Securities
Inc. and the original Certificate of Incorporation of the Corporation was filed
with the Secretary of the State of Delaware on November 18, 1996.
SECOND: On November 30, 1999, a resolution amending and restating the
Certificate of Incorporation of the Corporation, to read in its entirety as set
forth in the Amended and Restated Certificate of Incorporation of Headlands
Mortgage Securities Inc. attached hereto, was duly adopted by written consent of
the sole stockholder of the Corporation, all in accordance with the provisions
of Sections 242 and 245 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, Headlands Mortgage Securities Inc. has caused its
corporate seal to be hereunto affixed and this certificate to be signed by its
President, Peter T. Paul, who hereby acknowledges that the facts herein stated
are true and that this Certificate is his act and deed, and attested by its
Secretary, Gilbert J. MacQuarrie, this 30th day of November, 1999.
HEADLANDS MORTGAGE
SECURITIES INC.
By: /s/ Peter T. Paul
-------------------
Name: Peter T. Paul
Title: President
ATTEST:
/s/ Gilbert J. MacQuarrie
- ---------------------------------
Name: Gilbert J. MacQuarrie
Title: Secretary
<PAGE>
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
FIRST: Name. The name of the corporation (the "Corporation") is
GreenPoint Mortgage Securities Inc.
SECOND: Delaware Office and Registered Agent. The address of its
registered office in the State of Delaware is The Corporation Trust Company,
1209 Orange Street, in the City of Wilmington, County of New Castle. The name of
its registered agent at such address is The Corporation Trust Company.
THIRD: Purpose. The nature of the business to be conducted is limited
solely to the following:
(a) to acquire mortgage loans and participation interests in mortgage
loans and mortgage securities issued and/or guaranteed as to timely payment of
interest and/or principal by the Governmental National Mortgage Association,
Federal National Mortgage Association and Federal Home Loan Mortgage Corporation
(such mortgage loans, participation interests and mortgage securities,
collectively, "mortgage assets") by contribution or purchase for the purpose of
effecting the securitization thereof, either directly or through other entities,
and whether such securitization involves the issuance of securities
("Securities") backed by or evidencing an interest in, such mortgage assets;
(b) to enter into agreements for the servicing and administration of
mortgage assets;
(c) to hold, sell, transfer or pledge ownership interests in mortgage
assets and the proceeds therefrom from time to time;
(d) to issue debt secured by mortgage assets;
(e) to hold, pledge or otherwise deal with Securities and to loan or
invest or otherwise apply proceeds from mortgage assets, funds received in
respect of Securities and any other income as determined by the board of
directors of the Corporation; and
(f) to engage in any activity and to exercise any powers permitted to
corporations under the laws of the State of Delaware, PROVIDED that they are
incident to the foregoing and necessary or convenient to accomplish the
foregoing.
FOURTH: Capitalization. The total number of shares of stock which the
Corporation shall have authority to issue is one hundred thousand (100,000)
shares, all of one class and designated Common Stock, and having a par value of
one cent ($.01) per share.
FIFTH: Incorporator. The name and mailing address of the incorporator
is as follows: Phillip R. Pollock, Esq., c/o Tobin & Tobin, One Montgomery
Street, 15th Floor, San Francisco, California 94104.
SIXTH: Indemnification. The Corporation shall, to the full extent
permitted by Section 145 of the General Corporation Law of the State of
Delaware, as amended from time to time (the "Delaware General Corporation Law"),
indemnify all persons whom it may indemnify pursuant thereto.
SEVENTH: Special Provisions. The following provisions are for the
management of the business and for the conduct of the affairs of the Corporation
and for the further creation, definition, limitation and regulation of the
powers of the Corporation and of its directors and stockholders:
(a) Subject to the remainder of this subparagraph (a), the number of
directors of the Corporation shall be fixed by, or in the manner
provided in, the Bylaws of the Corporation. At all times, there
shall be not fewer than two (2) Independent Directors on the board
of directors of the Corporation. For purposes of this Certificate
of Incorporation, "Independent Director" shall mean an individual
who is not, and has not been during the preceding five years (and
is not and has not been an associate of), a direct, indirect or
beneficial stockholder, officer, director, employee, affiliate,
associate, financier or customer of, or supplier to, GreenPoint
Mortgage Funding, Inc., formerly operating as Headlands Mortgage
Company, a California corporation ("GMF"), or any subsidiary or
affiliate of GMF (each of GMF and each such subsidiary or affiliate
is herein referred to as a "GMF Person"), provided, however, that
notwithstanding the foregoing, any individual who would otherwise
qualify as an Independent Director except for his or her acting as
a director of a limited purpose, bankruptcy remote entity formed by
GMF, or any affiliate of GMF, shall be deemed to qualify as an
Independent Director of the Corporation. As used herein,
"associate" shall mean, when used to indicate a relationship with
any person (a) any corporation or organization of which such person
is an officer, director or partner or is, directly or indirectly,
the beneficial owner of 10% or more of any class of equity
securities, (b) any trust or other estate in which such person
serves as trustee or in a similar capacity, and (c) any relative or
spouse of such person, or any relative of such spouse, who resides
at the same address as such person, but such term excludes the
Corporation and any subsidiary of the Corporation; "affiliate" of
an entity shall mean a person that directly, or indirectly through
one or more intermediaries, controls or is controlled by, or is
under the common control with such entity, but such term excludes
the Corporation and any subsidiary of the Corporation; "person"
shall mean any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity, as
well as any syndicate or group deemed to be a person pursuant to
Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended; and "subsidiary" shall mean any corporation a majority of
the voting stock of which is owned, directly or indirectly, through
one or more subsidiaries, by GMF, but excluding the Corporation and
any subsidiary of the Corporation.
(b) The directors of the Corporation may from time to time adopt,
amend or repeal any of the Bylaws of the Corporation,
including Bylaws adopted by the stockholders, but stockholders
may from time to time specify provisions of the Bylaws that
may not be amended or repealed by the directors.
(c) Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws provide.
(d) Notwithstanding any other provision of this Certificate of
Incorporation and any provision of law that otherwise so
empowers the Corporation, the Corporation shall not, without
the prior approval of the board of directors of the
Corporation, which approval shall include the affirmative vote
of all of the directors of the Corporation (including each
Independent Director), do any of the following:
(1) amend or change this Certificate of Incorporation
(including adoption of any new provisions or the repeal
of any existing provisions hereto);
(2) enter into any transaction with any GMF Person;
(3) dissolve, liquidate, consolidate, merge or sell all or
substantially all of the Corporation's assets;
(4) commence a voluntary case or other proceeding with
respect to the Corporation under any applicable
bankruptcy, insolvency, reorganization, debt,
arrangement, dissolution, or other similar law, or
permit or arrange for the appointment of, or the
taking of possession of any of the Corporation's
property by, a receiver, liquidator, assignee,
trustee, custodian or other similar official;
(5) approve a reduction in, or transfer to surplus of,
any of the capital of the Corporation pursuant to
Section 244 of the Delaware General Corporation Law;
or
(6) issue, assume or guarantee any debt securities or
undertake any direct or indirect debt obligations of
any kind; provided, however, that the Corporation
shall not issue, assume or guarantee any liability
(regardless of unanimous board of directors approval)
unless such liability will not result in the
termination or lowering of the rating then assigned
to any outstanding Securities then rated by any
rating agency.
(e) In approving any of the actions in clauses (3), (4) or (6) or
clause (1) (to the extent the proposed action would affect
such clause (3), (4) or (6)) of subparagraph (d) above, the
directors of the Corporation shall, to the extent permitted by
applicable law, take into account the interests of the secured
creditors of the Corporation.
(f) An Independent Director of the Corporation shall not act as a
trustee in bankruptcy for any GMF Person.
(g) If an Independent Director resigns or otherwise ceases to be a
director of the Corporation, a replacement Independent Director of
the Corporation shall be selected pursuant to the provisions of the
Bylaws of the Corporation.
(h) Notwithstanding any provision set forth herein or in the Bylaws of
the Corporation which may be to the contrary, the board of
directors of the Corporation shall not vote at a meeting or by
unanimous consent without a meeting pursuant to Section 141 of the
Delaware General Corporation Law with respect to any of the actions
set forth in any of clauses (1) through (6) inclusive of
subparagraph (d) of this paragraph unless, at the time of such
vote, at least one Independent Director is serving as a member of
said board of directors.
(i) The following provisions shall be applicable to the Corporation's
conduct of business:
(1) the Corporation's assets shall not be commingled with
those of any other entity, including any corporate
parent or other affiliate of the Corporation,
PROVIDED that such restriction shall not preclude the
Corporation from repaying indebtedness or making
distributions to any shareholder of the Corporation,
so long as all such transactions are properly
reflected on the books and records of the
Corporation;
(2) the Corporation shall pay from its own funds all
obligations and indebtedness incurred by it, PROVIDED
that the organizational expenses of the Corporation
may be initially paid by affiliates of the
Corporation so long as they are promptly reimbursed
by the Corporation;
(3) if the Corporation maintains offices in the office of
any affiliate of the Corporation, the Corporation
shall pay fair market rent for any such office space
of such affiliate;
(4) the Corporation shall conduct its own business in
its own name;
(5) the Corporation shall maintain separate bank
accounts, books, records and financial statements;
(6) the Corporation shall maintain its books, records,
resolutions and agreements as official records;
(7) the Corporation shall maintain adequate capital in
light of its contemplated business operations;
(8) the Corporation shall observe all corporate and
other organizational formalities;
(9) the Corporation shall maintain an arm's-length
relationship with affiliates;
(10) the Corporation shall not guarantee or become
obligated for the debts of any other entity or hold
out its credit as being available to satisfy the
obligations of others, except as may be required in
connection with conducting its business in accordance
with Article THIRD;
(11) the Corporation shall not acquire obligations or
securities of affiliates, except as may be required
in connection with conducting its business in
accordance with Article THIRD;
(12) the Corporation shall not make any loans to any other
person or entity, except as may be required in
connection with conducting its business in accordance
with Article THIRD;
(13) the Corporation shall use separate stationery,
invoices and checks;
(14) the Corporation shall not pledge its assets to
secure the obligations of any other entity;
(15) the Corporation shall hold itself out as a separate
entity, and not fail to correct any known
misunderstanding regarding its separate identity; and
(16) the Corporation shall not identify itself or any of
its affiliates as a division or part of the other.
(j) In addition to the powers and authorities hereinabove or by law
expressly conferred upon them, the directors of the Corporation are
hereby empowered to exercise all such powers and to do all such
acts and things as may be exercised or done by the Corporation,
subject to the provisions of the Delaware General Corporation Law,
of this Certificate of Incorporation and of the Bylaws of the
Corporation; PROVIDED, HOWEVER, that no bylaw, whether adopted by
the stockholders or by the directors of the Corporation, shall
invalidate any prior act of the directors which would have been
valid if such bylaw had not been adopted.
EIGHTH: Personal Liability of Directors. A director of this Corporation
shall not be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability:
(a) for any breach of the director's duty of loyalty to the
Corporation or its stockholders,
(b) for acts or omissions not in good faith, or which involve
intentional misconduct or a knowing violation of law,
(c) under Section 174 of the Delaware General Corporation Law, or
<PAGE>
(d) for any transaction from which the director derived an improper
personal benefit.
NINTH: Amendments. The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation in
the manner now or hereafter prescribed by law, subject to the restrictions
contained in subparagraphs (d) and (e) of paragraph SEVENTH hereof, and all
rights and powers conferred hereby on stockholders, directors and officers of
the Corporation are subject to this reservation; PROVIDED, HOWEVER, that no
amendment to Articles THIRD, SEVENTH or NINTH shall be effective without the
Corporation having received confirmation from each rating agency rating any
outstanding Securities that such amendment will not result in the termination or
lowering of the rating of such Securities.
Exhibit 5.1
Opinion of Tobin & Tobin
as to legality of the Certificates
<TABLE>
<CAPTION>
<S> <C> <C>
TOBIN & TOBIN
A PROFESSIONAL CORPORATION
500 SANSOME STREET
EIGHTH FLOOR
SAN FRANCISCO, CALIFORNIA 94111 RICHARD TOBIN (1852-1887)
PHILLIP R. POLLOCK FACSIMILE (415) 433-3883 ROBERT TOBIN (1875-1889)
(415) 433-1400 CYRIL R. TOBIN (1905-1977)
</TABLE>
January 10, 2000
GreenPoint Mortgage Securities Inc.
700 Larkspur Landing Circle
Suite 240
Larkspur, CA 94939
Re: GreenPoint Mortgage Securities Inc.
Ladies and Gentlemen:
We have acted as counsel to GreenPoint Mortgage Securities Inc., a
Delaware corporation (the "Company"), in connection with the preparation of a
registration statement on Form S-3 (the "Registration Statement") for the
registration with the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "Act"), of Asset-Backed Securities with an
aggregate offering price of up to $762,687,624.00. As described in the
Registration Statement, the Asset-Backed Securities consist of Asset-Backed
Certificates ("Certificates") and Asset-Backed Notes ("Notes").
The Certificates may be issued from time to time in series. Each
series of Certificates will be issued by a trust (each, a "Trust") formed by
the Company pursuant to a pooling and servicing agreement (each, a "Pooling
and Servicing Agreement") among the Company, a master servicer (the "Master
Servicer"), a seller (the "Seller") and a trustee (the "Trustee"). Each series
of Certificates issued by a Trust may include one or more classes of
Certificates. The Notes are issuable in series under separate indentures (each
such agreement an "Indenture"), between an issuer and an indenture trustee.
We have examined and relied upon copies of the Company's Bylaws, the
Registration Statement, the form of Pooling and Servicing Agreement and the
forms of Certificates included as exhibits thereto, the form of Indenture and
the forms of Notes included as exhibits thereto, and such other records,
documents and statutes as we have deemed necessary for purposes of this
opinion.
In our examination we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, the conformity
to original documents of all documents submitted to us as certified or
photostatic copies and the authenticity of the originals of such documents. As
to any facts material to the opinions expressed herein that were not
independently established or verified, we have relied upon statements and
representations of officers and other representatives of the Company and
others.
Based upon the foregoing, we are of the opinion that:
1. When any Pooling and Servicing Agreement relating to a
series of Certificates has been duly and validly authorized by all necessary
action on the part of the Company and has been duly executed and delivered by
the Company, the Master Servicer, the Seller, the Trustee and any other party
thereto, such Pooling and Servicing Agreement will constitute a legal, valid
and binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency or other laws relating to or affecting creditors'
rights generally or by general equity principles.
2. When a series of Certificates has been duly authorized by
all necessary action on the part of the Company (subject to the terms thereof
being otherwise in compliance with applicable law at such time), duly executed
and authenticated by the Trustee for such series in accordance with the terms
of the related Pooling and Servicing Agreement and issued and delivered
against payment therefor as described in the Registration Statement and the
Prospectus delivered in connection therewith, such series of Certificates will
be legally and validly issued, fully paid and nonassessable, and the holders
thereof will be entitled to the benefits of the related Pooling and Servicing
Agreement.
3. When an Indenture for a series of Notes has been duly
authorized by all necessary action and duly executed and delivered by the
parties thereto, such Indenture will be a legal and valid obligation of the
applicable issuer.
4. When an Indenture for a series of Notes has been duly
authorized by all necessary action and duly executed and delivered by the
parties thereto, and when the Notes of such series have been duly executed and
authenticated in accordance with the provisions of that Indenture, and issued
and sold as contemplated in the Registration Statement and the Prospectus
delivered in connection therewith, such Notes will be legally and validly
issued and outstanding, fully paid and non-assessable, and will be binding
obligations of the applicable issuer, and the holders of such Bonds will be
entitled to the benefits of that Indenture.
In rendering the foregoing opinions, we express no opinion as to the
laws of any jurisdiction other than the laws of the State of New York
(excluding choice of law principles therein), the corporation laws of the
State of Delaware and the federal laws of the United States of America.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the references to this firm under the heading
"Legal Matters" in the base prospectus forming a part of the Registration
Statement, without admitting that we are "experts" within the meaning of the
Act or the Rules and Regulations of the Commission issued thereunder, with
respect to any part of the Registration Statement, including this exhibit.
Very truly yours,
/s/ Tobin & Tobin
Exhibit 8.1
Opinion of Brown & Wood LLP
as to certain tax matters
January 24, 2000
GreenPoint Mortgage Securities Inc.
700 Larkspur Landing Circle, Suite 240
Larkspur, California 94939
Re: GreenPoint Mortgage Securities Inc.
Registration Statement on Form S-3
-----------------------------------
Ladies and Gentlemen:
We have acted as special tax counsel to GreenPoint Mortgage Securities
Inc., a Delaware corporation (the "Company"), in connection with the preparation
of a registration statement on Form S-3 (the "Registration Statement") for the
registration with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Act"), of asset backed
securities (the "Securities"). As described in the Registration Statement, the
Securities will be issued from time to time in series. Each series of Securities
will be issued by a trust (each, a "Trust") formed by the Company pursuant to a
(i) pooling and servicing agreement (each, a "Pooling and Servicing Agreement")
among the Company, a master servicer, a seller and a trustee, (ii) a trust
agreement (each, a "Trust Agreement") between a depositor and a trustee or (iii)
an indenture (each, an "Indenture") between the related Trust and an indenture
trustee. Each series of Securities issued by a Trust may include one or more
classes of Securities. The Securities will be sold from time to time pursuant to
certain underwriting agreements (each, an "Underwriting Agreement") among the
Company and the underwriter or underwriters named therein.
In arriving at the opinion expressed below, we have assumed that each
Pooling and Servicing Agreement, Trust Agreement and Indenture will be duly
authorized by all necessary corporate action by the parties thereto for the
related series of Securities and will be duly executed and delivered by the
parties thereto substantially in the applicable form filed or incorporated by
reference as an exhibit to the Registration Statement, that each series of
Securities will be duly executed and delivered in substantially the forms set
forth in the related Pooling and Servicing Agreement, Trust Agreement or
Indenture filed or incorporated by reference as an exhibit to the Registration
Statement, and that Securities will be sold as described in the Registration
Statement.
We have advised the Company with respect to certain federal income tax
consequences of the proposed issuance of the Securities. This advice is
summarized under the headings "Summary--Federal Tax Considerations" and "Federal
Income Tax Consequences" in the prospectus supplement (the "Prospectus
Supplement") and "Federal Income Tax Consequences" in the basic prospectus (the
"Basic Prospectus" and, together with the Prospectus Supplement, the
"Prospectus") relating to the Securities, all a part of the Registration
Statement. Such description does not purport to discuss all possible federal
income tax ramifications of the proposed issuance of the Securities, but with
respect to those tax consequences that are discussed, in our opinion, the
description is accurate in all material respects.
This opinion is based on the facts and circumstances set forth in the
Registration Statement and in the other documents reviewed by us. Our opinion as
to the matters set forth herein could change with respect to a particular series
of Securities as a result of changes in facts or circumstances, changes in the
terms of the documents reviewed by us, or changes in the law subsequent to the
date hereof. Because the Prospectus contemplates series of Securities with
numerous different characteristics, you should be aware that the particular
characteristics of each series of Securities and the tax characteristics of the
related Trust must be considered in determining the applicability of this
opinion to a particular series of Securities and the related Trust. Therefore
this opinion should not be relied upon for a particular series of Securities or
the related Trust absent our express confirmation of our opinion for a
particular series or Trust.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to a reference to this firm under the heading "Legal
Matters" in the Basic Prospectus forming a part of the Registration Statement,
without implying or admitting that we are "experts" within the meaning of the
Act or the rules and regulations of the Commission issued thereunder, with
respect to any part of the Registration Statement, including this exhibit.
Very truly yours,
/s/ Brown & Wood LLP
Exhibit 8.2
Opinion of Dewey Ballantine LLP
as to certain tax matters
January 24, 2000
GreenPoint Mortgage Securities Inc.
700 Larkspur Landing Circle, Suite 240
Larkspur, California 94939
Re: GreenPoint Mortgage Securities Inc.
Registration Statement on Form S-3
-----------------------------------
Ladies and Gentlemen:
We have acted as special tax counsel to GreenPoint Mortgage
Securities Inc., a Delaware corporation (the "Company"), in connection with
the preparation of a registration statement on Form S-3 (the "Registration
Statement") for the registration with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the "Act"),
of asset backed securities (the "Securities") in an aggregate principal amount
of up to $762,687,624. As described in the Registration Statement, the
Securities will be issued from time to time in series. Each series of
Securities will be issued by a trust (each, a "Trust") formed by the Company
pursuant to a (i) pooling and servicing agreement (each, a "Pooling and
Servicing Agreement") among the Company, a master servicer, a seller and a
trustee, (ii) a trust agreement (each, a "Trust Agreement") between a
depositor and a trustee or (iii) an indenture (each, an "Indenture") between
the related Trust and an indenture trustee. Each series of Securities issued
by a Trust may include one or more classes of Securities. The Securities will
be sold from time to time pursuant to certain underwriting agreements (each,
an "Underwriting Agreement") among the Company and the underwriter or
underwriters named therein.
In arriving at the opinion expressed below, we have assumed that each
Pooling and Servicing Agreement, Trust Agreement and Indenture will be duly
authorized by all necessary corporate action by the parties thereto for the
related series of Securities and will be duly executed and delivered by the
parties thereto substantially in the applicable form filed or incorporated by
reference as an exhibit to the Registration Statement, that each series of
Securities will be duly executed and delivered in substantially the forms set
forth in the related Pooling and Servicing Agreement, Trust Agreement or
Indenture filed or incorporated by reference as an exhibit to the Registration
Statement, and that Securities will be sold as described in the Registration
Statement.
We have advised the Company with respect to certain federal income
tax consequences of the proposed issuance of the Securities. This advice is
summarized under the headings "Summary--Federal Tax Considerations" and
"Federal Income Tax Consequences" in the prospectus supplement (the
"Prospectus Supplement") and "Federal Income Tax Consequences" in the base
prospectus (the Base Prospectus" and, together with the Prospectus Supplement,
the "Prospectus") relating to the Securities, all a part of the Registration
Statement. Such description does not purport to discuss all possible federal
income tax ramifications of the proposed issuance of the Securities, but with
respect to those tax consequences that are discussed, in our opinion, the
description is accurate in all material respects.
This opinion is based on the facts and circumstances set forth in the
Registration Statement and in the other documents reviewed by us. Our opinion
as to the matters set forth herein could change with respect to a particular
series of Securities as a result of changes in facts or circumstances, changes
in the terms of the documents reviewed by us, or changes in the law subsequent
to the date hereof. Because the Prospectus contemplates series of Securities
with numerous different characteristics, you should be aware that the
particular characteristics of each series of Securities and the tax
characteristics of the related Trust must be considered in determining the
applicability of this opinion to a particular series of Securities and the
related Trust. Therefore this opinion should not be relied upon for a
particular series of Securities or the related Trust absent our express
confirmation of our opinion for a particular series or Trust.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to a reference to this firm (as counsel to the
Company) under the heading "Legal Matters" in the Base Prospectus forming a
part of the Registration Statement, without implying or admitting that we are
"experts" within the meaning of the Act or the rules and regulations of the
Commission issued thereunder, with respect to any part of the Registration
Statement, including this exhibit.
Very truly yours,
/s/ Dewey Ballantine LLP
