PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED NOVEMBER 19, 1998)
[NORWEST LOGO]
NORWEST INTEGRATED STRUCTURED ASSETS, INC. 1998-3 TRUST
ISSUER
NORWEST INTEGRATED STRUCTURED ASSETS, INC.
[NISTAR LOGO]
SELLER
$227,445,655
(APPROXIMATE)
MORTGAGE ASSET-BACKED PASS-THROUGH CERTIFICATES, SERIES 1998-3
PRINCIPAL AND INTEREST PAYABLE MONTHLY, COMMENCING IN DECEMBER 1998
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<S> <C>
YOU SHOULD CAREFULLY THE TRUST WILL ISSUE--
CONSIDER THE RISK o Two Groups consisting of twelve Classes of senior Class A Certificates.
FACTORS BEGINNING ON
PAGE S-15 OF THIS o Six Classes of Class B Certificates, all of which are subordinated to, and
PROSPECTUS provide credit enhancement for, the Class A Certificates. Each Class of
SUPPLEMENT. Class B Certificates is also subordinated to each Class of Class B
Certificates, if any, with a lower number.
Neither the offered
certificates nor the The Classes of offered certificates are listed under the heading 'Offered
underlying mortgage Certificates' in the table on page S-4.
loans are insured or
guaranteed by any THE YIELD TO MATURITY OF INTEREST ONLY AND PRINCIPAL ONLY
governmental agency CERTIFICATES WILL BE PARTICULARLY SENSITIVE TO THE RATE OF PRINCIPAL
or instrumentality. PAYMENTS ON THE MORTGAGE LOANS IN THE TRUST. IF YOU ARE
PURCHASING PRINCIPAL ONLY CERTIFICATES YOU SHOULD CONSIDER THE
The offered RISK THAT A SLOWER THAN ANTICIPATED RATE OF PRINCIPAL PAYMENTS ON
certificates will THE MORTGAGE LOANS WILL RESULT IN AN ACTUAL YIELD THAT IS LOWER
represent interests in THAN YOUR EXPECTED YIELD. IF YOU ARE PURCHASING INTEREST ONLY
the trust only and CERTIFICATES YOU SHOULD CONSIDER THE RISK THAT A FASTER THAN
will not represent ANTICIPATED RATE OF PRINCIPAL PAYMENTS ON THE MORTGAGE LOANS
interests in or WILL RESULT IN AN ACTUAL YIELD THAT IS LOWER THAN YOUR EXPECTED
obligations of YIELD AND COULD RESULT IN THE LOSS OF ALL OR PART OF YOUR INITIAL
NISTAR(Service Mark) or any INVESTMENT.
NISTAR(Service Mark) affiliate.
THE ASSETS OF THE TRUST WILL INCLUDE--
This prospectus
supplement may be o Two pools of fully amortizing, one- to four-family, residential first
used to offer and sell mortgage loans (excluding the Fixed Retained Yield described in this
the offered certificates prospectus supplement), substantially all of which loans have original
only if accompanied terms to stated maturity of approximately 15 to 30 years.
by the prospectus.
</TABLE>
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THE
CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT OR DETERMINED THAT THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
DONALDSON, LUFKIN & JENRETTE LEHMAN BROTHERS
SECURITIES CORPORATION
------------------------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS NOVEMBER 19, 1998.
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
Information is provided to you about the Offered Certificates in two
separate documents that progressively provide more detail: (a) the accompanying
Prospectus, which provides general information, some of which may not apply to
your Certificates and (b) this Prospectus Supplement, which describes the
specific terms of your Certificates.
IF THE DESCRIPTION OF THE TERMS OF YOUR CERTIFICATES VARIES BETWEEN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, YOU SHOULD RELY ON THE
INFORMATION IN THIS PROSPECTUS SUPPLEMENT.
Cross-references are included in this Prospectus Supplement and the
accompanying Prospectus to captions in these materials where you can find
further related discussions. The following Table of Contents and the Table of
Contents included in the accompanying Prospectus provide the pages on which
these captions are located.
You can find a listing of the pages where capitalized terms used in this
Prospectus Supplement and the accompanying Prospectus are defined under the
caption 'Index of Significant Prospectus Supplement Definitions' beginning on
page S-77 in this document and under the caption 'Index of Significant
Definitions' beginning on page 99 in the accompanying Prospectus. Any
capitalized terms used but not defined in this Prospectus Supplement have the
meanings assigned in the Prospectus.
------------------------
This Prospectus Supplement and the accompanying Prospectus contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended. Such forward-looking statements, together with related
qualifying language and assumptions, are found in the material, including each
of the tables, set forth under 'Risk Factors' and 'Prepayment and Yield
Considerations.' Forward-looking statements are also found elsewhere in this
Prospectus Supplement and the Prospectus, and may be identified by, among other
things, accompanying language including the words 'expects,' 'intends,'
'anticipates,' 'estimates' or analogous expressions, or by qualifying language
or assumptions. Such statements involve known and unknown risks, uncertainties
and other important factors that could cause the actual results or performance
to differ materially from such forward-looking statements. Such risks,
uncertainties and other factors include, among others, general economic and
business conditions, competition, changes in political, social and economic
conditions, regulatory initiatives and compliance with government regulations,
customer preference and various other matters, many of which are beyond the
Seller's control. These forward-looking statements speak only as of the date of
this Prospectus Supplement. The Seller expressly disclaims any obligation or
undertaking to disseminate any updates or revisions to such forward-looking
statements to reflect any change in the Seller's expectations with regard
thereto or any change in events, conditions or circumstances on which any
forward-looking statement is based.
S-2
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
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PAGE
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SUMMARY INFORMATION............................ S-5
RISK FACTORS................................... S-15
Prepayments May Adversely Affect Yield....... S-15
Geographic Concentration May Increase Risk of
Loss Because of Adverse Economic
Conditions or Natural Disasters........... S-16
Subordination of Class B Certificates
Increases Risk of Loss.................... S-16
Class B Certificates Provide Subordination
for Both Groups........................... S-16
Underwriting Standards....................... S-16
Rights of Beneficial Owners May Be Limited By
Book-Entry System for Certain Classes of
Class A Certificates...................... S-17
Certificates May Not Be Appropriate For
Individual Investors...................... S-17
Year 2000 Readiness Disclosure............... S-17
DESCRIPTION OF THE CERTIFICATES................ S-19
Denominations; Forms of Certificates......... S-19
Distributions................................ S-19
Interest..................................... S-22
Principal (Including Prepayments)............ S-25
Calculation of Amount to be Distributed on
the Certificates........................ S-26
Allocation of Amount to be Distributed on
the Class A Certificates................ S-31
Cross-Collateralization...................... S-32
Additional Rights of the Class I-A-R and
Class I-A-LR Certificateholders........... S-33
Periodic Advances............................ S-33
Restrictions on Transfer of the Class I-A-R,
Class I-A-LR and Class B Certificates..... S-34
Reports...................................... S-35
Subordination of Class B Certificates........ S-35
Allocation of Losses...................... S-36
DESCRIPTION OF THE MORTGAGE LOANS.............. S-39
General...................................... S-39
Pledged Asset Mortgage Loans................. S-39
Mortgage Loan Underwriting................... S-40
Group I Mortgage Loan Data................... S-45
Group II Mortgage Loan Data.................. S-49
Mandatory Repurchase or Substitution of
Mortgage Loans............................ S-53
Optional Repurchase of Defaulted Mortgage
Loans..................................... S-53
PREPAYMENT AND YIELD CONSIDERATIONS............ S-53
Sensitivities of the Class I-A-4, Class I-A-6
and Class II-A-2 Certificates............. S-62
Yield Considerations with Respect to the
Class B-2 and Class B-3 Certificates...... S-63
POOLING AND SERVICING AGREEMENT................ S-66
General...................................... S-66
Distributions................................ S-66
Voting....................................... S-66
Trustee...................................... S-66
Trust Administrator.......................... S-67
Master Servicer.............................. S-67
Special Servicing Agreements................. S-67
Optional Termination......................... S-67
SERVICING OF THE MORTGAGE LOANS................ S-68
The Servicers................................ S-68
Servicer Custodial Accounts.................. S-68
Unscheduled Principal Receipts............... S-69
Anticipated Changes in Servicing............. S-69
Fixed Retained Yield; Servicing Compensation
and Payment of Expenses................... S-70
Servicer Defaults............................ S-70
MATERIAL FEDERAL INCOME TAX CONSEQUENCES....... S-71
Regular Certificates......................... S-71
Residual Certificates........................ S-72
ERISA CONSIDERATIONS........................... S-73
LEGAL INVESTMENT............................... S-74
SECONDARY MARKET............................... S-74
UNDERWRITING................................... S-74
RECENT DEVELOPMENTS............................ S-75
LEGAL MATTERS.................................. S-75
USE OF PROCEEDS................................ S-75
RATINGS........................................ S-75
INDEX OF SIGNIFICANT PROSPECTUS SUPPLEMENT
DEFINITIONS.................................. S-77
</TABLE>
S-3
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THE SERIES 1998-3 CERTIFICATES
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<CAPTION>
INITIAL RATING
OF OFFERED
CERTIFICATES(3)
INITIAL PASS-THROUGH --------------
CLASS PRINCIPAL BALANCE(1) RATE PRINCIPAL TYPES(2) INTEREST TYPES(2) FITCH MOODY'S
- ---------------------------------------- ------------ ----------------------- ----------------- ----- -------
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OFFERED CERTIFICATES
Class I-A-1......... $ 52,132,901 6.250% Senior, Sequential Pay Fixed Rate AAA Aaa
Class I-A-2......... $ 1,016,000 7.000% Senior, Sequential Pay Fixed Rate AAA Aaa
Class I-A-3......... $ 7,216,016 6.250% Senior, Lockout Fixed Rate AAA Aaa
Class I-A-4......... $ 284,760 (4) Senior, Sequential Pay Principal Only AAA Aaa
Class I-A-5......... $ 1,357,000 7.000% Senior, Sequential Pay Fixed Rate AAA Aaa
Class I-A-6......... (5) 6.250% Senior, Notional Amount Interest Only, AAA Aaa
Fixed Rate
Class I-A-7......... $ 10,155,041 6.000% Senior, Sequential Pay Fixed Rate AAA Aaa
Class I-A-R......... $ 100 6.250% Senior, Sequential Pay Fixed Rate AAA Aaa
Class I-A-LR........ $ 100 6.250% Senior, Sequential Pay Fixed Rate AAA Aaa
Class II-A-1........ $126,631,015 7.000% Senior, Sequential Pay Fixed Rate AAA Aaa
Class II-A-2........ $ 15,195,722 (6) Senior, Sequential Pay Principal Only AAA Aaa
Class B-1........... $ 3,450,000 6.250% Subordinated Fixed Rate AA Aa2
Class B-2........... $ 7,477,000 6.250% Subordinated Fixed Rate A None
Class B-3........... $ 2,530,000 6.250% Subordinated Fixed Rate BBB None
NON-OFFERED CERTIFICATES
Class II-A-PO....... $ 183 (7) Senior, Ratio Strip Principal Only N/A N/A
Class B-4........... $ 1,264,000 6.250% Subordinated Fixed Rate N/A N/A
Class B-5........... $ 460,000 6.250% Subordinated Fixed Rate N/A N/A
Class B-6........... $ 925,687 6.250% Subordinated Fixed Rate N/A N/A
</TABLE>
- ------------------------------
(1) Approximate. The initial Principal Balances are subject to adjustment as
described herein.
(2) See 'Description of the Certificates -- Categories of Classes of
Certificates' in the Prospectus for a description of the principal and
interest categories listed.
(3) A description of the ratings of the Offered Certificates is set forth under
the heading 'Rating of Certificates' on page S-5 of the Summary Information
and under 'Ratings' in the main text of this Prospectus Supplement.
(4) The Class I-A-4 Certificates are principal-only certificates and will not be
entitled to distributions in respect of interest.
(5) The Class I-A-6 Certificates are interest-only certificates, have no
principal balance and will bear interest on the Class I-A-6 Notional Amount
(initially approximately $406,201) as described under 'Description of the
Certificates -- Interest' herein.
(6) The Class II-A-2 Certificates are principal-only certificates and will not
be entitled to distributions in respect of interest.
(7) The Class II-A-PO Certificates are principal-only certificates and will not
be entitled to distributions in respect of interest.
S-4
<PAGE>
SUMMARY INFORMATION
o THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT, BUT DOES NOT
CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER IN MAKING YOUR
INVESTMENT DECISION. PLEASE READ THIS ENTIRE PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS (THE 'PROSPECTUS') CAREFULLY FOR ADDITIONAL DETAILED
INFORMATION ABOUT THE OFFERED CERTIFICATES.
RELEVANT PARTIES
ISSUER
The Norwest Integrated Structured Assets, Inc. 1998-3 Trust (the 'TRUST') will
own the Mortgage Loans and issue the Certificates.
SELLER
Norwest Integrated Structured Assets, Inc. (the 'SELLER') will acquire the
Mortgage Loans from Norwest Mortgage, Inc. ('NORWEST MORTGAGE'), an affiliate of
the Seller and the Master Servicer, and will transfer the Mortgage Loans into
the Trust.
MASTER SERVICER
Norwest Bank Minnesota, National Association, an affiliate of the Seller and
Norwest Mortgage ('NORWEST BANK' and, in its capacity as master servicer, the
'MASTER SERVICER'), will supervise the Servicers and perform certain other
duties with respect to the Certificates.
SERVICERS
Norwest Mortgage and one or more other Servicers approved by the Master Servicer
will provide customary servicing functions with respect to the Mortgage Loans
pursuant to servicing agreements (each, an 'UNDERLYING SERVICING AGREEMENT')
assigned to the Trust.
TRUSTEE
United States Trust Company of New York (the 'TRUSTEE') will act as the trustee
for the Trust.
TRUST ADMINISTRATOR
First Union National Bank (the 'TRUST ADMINISTRATOR') will act as the trust
administrator for the Trust.
RATING OF CERTIFICATES
The Trust will not issue the Offered Certificates unless they have received at
least the ratings set forth on page S-4 from Fitch IBCA, Inc. ('FITCH') and, if
applicable, Moody's Investors Service, Inc. ('MOODY'S' and, together with Fitch,
the 'RATING AGENCIES').
o The ratings of the Rating Agencies are not recommendations to buy, sell or
hold the Certificates rated. A rating may be subject to revision or withdrawal
at any time by the assigning Rating Agency.
o The ratings do not address the possibility that, as a result of principal
prepayments, the yield on your Certificate may be lower than anticipated.
o The ratings do not address the possibility that if you hold Class I-A-6
Certificates, you may not recover your initial investment as a result of
principal prepayments on the Mortgage Loans.
See '-- Effects of Prepayments on Investment Expectations' below and 'Ratings'
in this Prospectus Supplement.
DESCRIPTION OF CERTIFICATES
The Mortgage Asset-Backed Pass-Through Certificates, Series 1998-3 (the
'CERTIFICATES') will be issued on or about November 25, 1998 (the 'CLOSING
DATE').
<PAGE>
The Certificates consist of:
o the twelve Classes of senior certificates designated as 'Senior' Certificates
in the table on page S-4 (collectively, the 'CLASS A CERTIFICATES'). The Class
A Certificates will consist of two groups (each may be referred to as a
'GROUP' and will be called the 'GROUP I-A CERTIFICATES' and the 'GROUP II-A
CERTIFICATES', respectively). The Group I-A Certificates will consist of nine
Classes and the Group II-A Certificates will consist of three Classes; and
o the six Classes of junior certificates designated as 'Subordinated'
Certificates in the table on page S-4 (collectively, the 'SUBORDINATED
CERTIFICATES' or the 'CLASS B CERTIFICATES').
Only the Class A Certificates (other than the Class II-A-PO Certificates) and
the Class B-1, Class B-2 and Class B-3 Certificates (collectively, the 'OFFERED
CERTIFICATES') are being offered by this Prospectus Supplement and the
accompanying Prospectus. The Class II-A-PO, Class B-4, Class B-5
S-5
<PAGE>
and Class B-6 Certificates are not being offered pursuant to this Prospectus
Supplement and the accompanying Prospectus, and the Seller may retain or sell
such Classes.
See page S-4 for more information with respect to each Class of Certificates.
PRINCIPAL BALANCE AND INTEREST EVIDENCED BY THE CERTIFICATES
The Certificates will have an approximate aggregate initial Principal Balance of
$230,095,525. Any difference between the aggregate Principal Balance of the
Certificates as of the date of issuance of the Certificates and the approximate
aggregate initial Principal Balance of the Certificates as of the date of this
Prospectus Supplement will not exceed 5% of the aggregate initial Principal
Balance of the Certificates. Any such difference will be allocated among the
various Classes of Certificates so as to materially retain the characteristics
of the Offered Certificates described in this Prospectus Supplement.
The Group I-A Certificates will represent interests in the Group I Mortgage
Loans. The Group II-A Certificates will represent interests in the Group II
Mortgage Loans. The Class B Certificates will represent interests in both the
Group I Mortgage Loans and the Group II Mortgage Loans.
The following tables set forth the approximate undivided interest in the
principal balance of the Mortgage Loans of the applicable Loan Group(s) that the
Seller expects each Class or Group of Classes indicated to evidence as of the
Closing Date.
<TABLE>
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APPROXIMATE INITIAL
UNDIVIDED INTEREST
IN THE GROUP I
GROUP I-A CLASS OR CLASSES MORTGAGE LOANS
- ------------------------------------ --------------------
Group I-A........................... 93.00%
---------
Group I-A (all Classes)......... 93.00%
---------
---------
</TABLE>
<TABLE>
<CAPTION>
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<S> <C> <C>
APPROXIMATE INITIAL
UNDIVIDED INTEREST
IN THE GROUP II
GROUP II-A CLASS OR CLASSES MORTGAGE LOANS
- ------------------------------------ --------------------
Group II-A (other than Class
II-A-PO).......................... 93.00%
Class II-A-PO*...................... 0.00%
---------
Group II-A (all Classes)........ 93.00%
---------
---------
- ------------------------------
* The Class II-A-PO Certificates in the aggregate
represent an approximate 0.27% initial interest in the
aggregate principal balance of the Group II Discount
Mortgage Loans.
</TABLE>
<TABLE>
<CAPTION>
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<S> <C> <C>
APPROXIMATE INITIAL
UNDIVIDED INTEREST
IN THE
CLASS OR CLASSES MORTGAGE LOANS
- ------------------------------------ --------------------
Group I-A........................... 31.36%
Group II-A (other than Class
II-A-PO).......................... 61.64%
Group II-A-PO*...................... 0.00%
---------
Group II-A (all Classes)........ 61.64%
Class B-1........................... 1.50%
Class B-2........................... 3.25%
Class B-3........................... 1.10%
Class B-4, B-5 and B-6.............. 1.15%
---------
Total........................... 100.00%
---------
---------
</TABLE>
- ------------
* The Class II-A-PO Certificates represent approximately 0.27% initial interest
in the aggregate principal balance of the Discount Mortgage Loans.
- --------------------------------------------------------------------------------
The following tables set forth for the Classes or Groups of Classes indicated
the approximate undivided interest in the Pool Balance (Non-PO Portion) for the
related Loan Group(s) that is expected to be evidenced in the aggregate thereby
as of the Closing Date.
<TABLE>
<CAPTION>
- ---------------------------------------------------------
<S> <C> <C>
APPROXIMATE INITIAL
UNDIVIDED INTEREST
IN POOL BALANCE
(NON-PO PORTION)
FOR LOAN GROUP I
-------------------------
GROUP I-A CLASS OR CLASSES PERCENTAGE IN DOLLARS
- ------------------------------ ---------- -----------
Group I-A..................... 93.00% $72,161,918
---------- -----------
Totals.................... 93.00% $72,161,918
---------- -----------
---------- -----------
</TABLE>
<TABLE>
<CAPTION>
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<S> <C> <C>
APPROXIMATE INITIAL
UNDIVIDED INTEREST IN
POOL BALANCE
(NON-PO PORTION)
FOR LOAN GROUP II
GROUP II-A CLASS OR --------------------------
CLASSES PERCENTAGE IN DOLLARS
- ----------------------------- ---------- ------------
Group II-A (other than Class
II-A-PO)................... 93.00% $141,826,737
---------- ------------
Totals................... 93.00% $141,826,737
---------- ------------
---------- ------------
</TABLE>
<TABLE>
<CAPTION>
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<S> <C> <C>
APPROXIMATE INITIAL
UNDIVIDED INTEREST IN
AGGREGATE OF POOL BALANCES
(NON-PO PORTION)
--------------------------
CLASS OR CLASSES PERCENTAGE IN DOLLARS
- ----------------------------- ---------- ------------
Group I-A.................... 31.36% $ 72,161,918
Group II-A (other than Class
II-A-PO)................... 61.64% $141,826,737
Class B...................... 7.00% $ 16,106,687
---------- ------------
Totals................... 100.00% $230,095,342
---------- ------------
---------- ------------
- ----------------------------------------------------------
</TABLE>
The relative interests in the applicable initial Pool Balance (Non-PO Portion)
represented by the Class A Certificates of a Group in the aggregate (other than
the Class II-A-PO Certificates) and the
S-6
<PAGE>
Class B Certificates in the aggregate are subject to change over time because:
o certain unscheduled principal payments on the Mortgage Loans in the related
Loan Group will be disproportionally allocated to the related Group of Class A
Certificates (other than the Class II-A-PO Certificates) for a specified
period;
o certain losses and certain shortfalls on the Mortgage Loans of the related
Loan Group will be allocated first to the Classes of Class B Certificates in
reverse numerical order prior to the allocation of such losses and shortfalls
to the related Group of Class A Certificates, as discussed in 'Description of
the Certificates -- Distributions' and '-- Subordination of Class B
Certificates' in this Prospectus Supplement; and
o under specific circumstances, certain scheduled and unscheduled principal
payments on the Mortgage Loans of a particular Loan Group otherwise
distributable to the Class B Certificates may be disproportionately allocated
to the unrelated Group of Class A Certificates (other than the Class II-A-PO
Certificates), as discussed in 'Description of the Certificates --
Cross-Collateralization' in this Prospectus Supplement.
FORMS OF CERTIFICATES; DENOMINATIONS
Your Certificates will be issued either in book-entry form or in fully
registered, certificated form. The table under 'Description of the
Certificates -- Denominations; Form of Certificates' in the Prospectus
Supplement sets forth the original certificate form, the minimum denomination
and the incremental denomination of the Offered Certificates. The Offered
Certificates are not intended to be directly or indirectly held or beneficially
owned by anyone in amounts lower than such minimum denominations.
MORTGAGE POOL
The Mortgage Loans, which are the source of distributions to holders of the
Certificates, will consist of conventional, fixed interest rate, monthly pay,
fully amortizing, one- to four-family, residential first mortgage loans. Some of
the Mortgage Loans may be loans secured by shares issued by non-profit
cooperative housing corporations.
The Mortgage Loans will consist of two groups ('LOAN GROUP I' and 'LOAN GROUP
II', and each a 'LOAN GROUP'). The Mortgage Loans in Loan Group I are sometimes
referred to as the 'GROUP I MORTGAGE LOANS' and the Mortgage Loans in Loan Group
II are sometimes referred to as the 'GROUP II MORTGAGE LOANS'.
The Group I Mortgage Loans (which, except to the extent of cross-
collateralization payments described below, are the primary source of
distributions to holders of the Group I-A Certificates and the source of a
portion of the distributions to holders of the Class B Certificates) will
consist of Mortgage Loans with original principal balances exceeding the Loan
Purchase Limit and substantially all of which have original terms to maturity of
approximately 15 to 30 years.
The Group II Mortgage Loans (which, except to the extent of
cross-collateralization payments described below, are the source of
distributions to holders of the Group II-A Certificates and the source of a
portion of the distributions to holders of the Class B Certificates) will
consist of Mortgage Loans with original principal balances less than or equal to
the Loan Purchase Limit and substantially all of which have original terms to
maturity of approximately 15 to 30 years.
The 'LOAN PURCHASE LIMIT' will be $227,150.
The Seller expects the Mortgage Loans to have the further specifications set
forth in the following tables and under the heading 'Description of the Mortgage
Loans' in this Prospectus Supplement.
S-7
<PAGE>
<TABLE>
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<S> <C> <C>
GROUP I MORTGAGE LOANS
SELECTED MORTGAGE LOAN DATA(1)
(AS OF THE CUT-OFF DATE)
Cut-Off Date: November 1, 1998
Number of Mortgage Loans: 221
Aggregate Unpaid Principal Balance(2): $77,593,461
Range of Unpaid Principal Balances(2): $226,861 to $997,815
Average Unpaid Principal Balance(2): $351,102
Range of Mortgage Interest Rates: 6.750% to 8.625%
Weighted Average Mortgage Interest Rate(2): 7.536%
Range of Remaining Terms to Stated Maturity: 180 months to 360 months
Weighted Average Remaining Term to Stated Maturity(2): 354 months
Range of Original Loan-to-Value Ratio(2): 24.69% to 95.00%
Weighted Average Original Loan-to-Value Ratio(2): 75.65%
Geographic Concentration of Mortgaged Properties Securing
Mortgage Loans in Excess of 5% of the Aggregate Unpaid
Principal Balance(2): California 39.67%
Maryland 5.99%
Colorado 5.61%
Maximum Five-Digit Zip Code Concentration(2): 1.75%
</TABLE>
- ------------------------------
(1) Information concerning the Group I Premium Mortgage Loans is set forth under
'Description of the Mortgage Loans -- Mortgage Loan Characteristics.'
(2) Approximate.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
GROUP II MORTGAGE LOANS
SELECTED MORTGAGE LOAN DATA(1)
(AS OF THE CUT-OFF DATE)
Cut-Off Date: November 1, 1998
Number of Group II Mortgage Loans: 1,500
Aggregate Unpaid Principal Balance(2): $152,502,065
Range of Unpaid Principal Balances(2): $12,867 to $226,969
Average Unpaid Principal Balance(2): $101,668
Range of Mortgage Interest Rates: 6.500% to 9.500%
Weighted Average Mortgage Interest Rate(2): 7.838%
Range of Remaining Terms to Stated Maturity: 176 months to 360 months
Weighted Average Remaining Term to Stated Maturity(2): 352 months
Range of Original Loan-to-Value Ratios(2): 11.86% to 100.00%
Weighted Average Original Loan-to-Value Ratio(2)(3): 77.73%
Geographic Concentration of Mortgaged Properties Securing Mortgage Loans
in Excess of 5% of the Aggregate Unpaid Principal Balance(2): California 11.44%
Colorado 9.55%
Texas 9.01%
Oregon 8.92%
Arizona 6.41%
Maximum Five-Digit Zip Code Concentration(2): 0.78%
</TABLE>
- ------------------------------
(1) Information concerning the Group II Discount Mortgage Loans and Group II
Premium Mortgage Loans is set forth under 'Description of the Mortgage Loans
-- Mortgage Loan Characteristics.'
(2) Approximate.
(3) With respect to the Pledged Asset Mortgage Loans, the Loan-to-Value Ratio is
calculated without regard to any Additional Collateral. See 'Description of
the Mortgage Loans -- Mortgage Loan Data.'
- --------------------------------------------------------------------------------
S-8
<PAGE>
CHANGES TO MORTGAGE POOLS
The Seller may remove Mortgage Loans from a Loan Group, or may make
substitutions for certain Mortgage Loans, in advance of the Closing Date.
After the issuance of the Certificates, the Seller may remove certain Mortgage
Loans from a Loan Group through repurchase or, under certain circumstances, may
make substitutions for certain Mortgage Loans.
See 'Description of the Mortgage Loans' in this Prospectus Supplement.
OPTIONAL TERMINATION OF THE TRUST
The Seller may, subject to certain conditions including the then-remaining size
of the Trust Estate, purchase all outstanding Mortgage Loans in the Trust Estate
and thereby effect early retirement of the Certificates. See 'Pooling and
Servicing Agreement -- Optional Termination' in this Prospectus Supplement.
UNDERWRITING STANDARDS
Approximately 67.72% (by aggregate unpaid principal balance as of the Cut-Off
Date) of the Group I Mortgage Loans and approximately 46.10% of the Group II
Mortgage Loans were generally originated in conformity with Norwest Mortgage's
general underwriting standards (the 'GENERAL STANDARDS') or modified
underwriting standards (the 'MODIFIED STANDARDS' and together with the General
Standards, the 'UNDERWRITING STANDARDS') described in the Prospectus under the
heading 'The Mortgage Loan Programs -- Mortgage Loan Underwriting -- General
Standards' and '-- Modified Standards.' In certain instances, Norwest Mortgage
may have granted exceptions to the Underwriting Standards.
The remaining approximate 32.28% of the Group I Mortgage Loans and approximately
53.90% of the Group II Mortgage Loans were purchased by Norwest Mortgage in bulk
purchase transactions and were underwritten using underwriting standards which
may vary from the Underwriting Standards (the 'BULK PURCHASE UNDERWRITTEN
LOANS'). However, Norwest Mortgage has in each case reviewed the underwriting
standards applied to such Bulk Purchase Underwritten Loans and, except as noted
in the next sentence, determined that such standards were not materially
different than the Underwriting Standards. The underwriting guidelines
applicable to foreign national and 'condotel' Bulk Purchase Underwritten Loans
purchased from Bank United permit higher loan-to-value ratios and require less
documentation of income than the Underwriting Standards specify for such loan
types.
See 'Description of the Mortgage Loans' in this Prospectus Supplement and 'The
Mortgage Loan Programs -- Mortgage Loan Underwriting' in the Prospectus.
DISTRIBUTIONS OF PRINCIPAL AND INTEREST TO CERTIFICATEHOLDERS
On each Distribution Date the Pool Distribution Amount relating to each Loan
Group, which consists of those payments, recoveries, advances and other receipts
in respect of the Mortgage Loans in such Loan Group which are available for
distribution on such date, will be distributed generally in the following order
of priority:
o First, pro rata, to the holders of the Group I-A Certificates or Group II-A
Certificates, as applicable, in respect of interest which they are entitled to
receive on such Distribution Date;
o Second, to the holders of the Group I-A Certificates or Group II-A
Certificates, as applicable, in respect of principal which they are entitled
to receive on such Distribution Date; and
o Third, to the holders of the Class B Certificates in numerical order (i.e.,
first to the Class B-1 Certificates, then the Class B-2 Certificates, etc.) in
respect of interest and principal which they are entitled to receive on such
Distribution Date.
In addition, the portion, if any, of principal to which the Class II-A-PO
Certificates are entitled on a Distribution Date which consists of the Class
A-PO Deferred Amount will only be paid out of amounts otherwise distributable as
principal to the Class B Certificates on such Distribution Date.
INTEREST DISTRIBUTIONS
The amount of interest which will accrue on your Certificates (unless you own
Class I-A-4 or Class II-A-2 Certificates) each month is equal to:
o 1/12th of the Pass-Through Rate for your Class of Certificates multiplied by
the outstanding Principal Balance (or notional amount, in the case of the
Class I-A-6 Certificates) of such Class on the related Distribution Date minus
o the amount of certain interest shortfalls arising from the timing of
prepayments on the Mortgage Loans and interest losses allocated to your Class
of Certificates, as described under 'Description of the
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Certificates -- Interest' in this Prospectus Supplement.
The Class I-A-4 and Class II-A-2 Certificates are principal-only certificates.
If you own Class I-A-4 or Class II-A-2 Certificates you will not be entitled to
distributions of interest.
The allocation of interest distributions among the Class A Certificates will be
made as described under 'Description of the Certificates -- Distributions' and
'Interest' in this Prospectus Supplement.
PRINCIPAL DISTRIBUTIONS
The calculation of the amount of principal which each Class of Offered
Certificates is entitled to receive on each Distribution Date and the priority
of principal distributions among the Class A Certificates of each Group are
described under 'Description of the Certificates -- Distributions,' '--
Principal (Including Prepayments)' and '-- Cross-Collateralization' in this
Prospectus Supplement.
CREDIT ENHANCEMENT
The rights of the holders of each Class of Class B Certificates to receive
distributions will be subordinated to the rights of the holders of the Class A
Certificates and the holders of the Classes of Class B Certificates, if any,
with lower numerical designations to receive distributions.
In general, the protection afforded the holders of more senior Classes of
Certificates by means of this subordination will be effected in two ways:
o by the preferential rights of the holders of such Classes to receive, prior to
any distribution being made on any Distribution Date to the holders of the
more junior Classes of Certificates, the amounts of interest and principal due
on the more senior Classes of Certificates (other than the Class A-PO Deferred
Amount) and, if necessary, by the right of such more senior holders to receive
future distributions on the Mortgage Loans that would otherwise have been
allocated to the holders of the more junior Classes of Certificates; and
o by the allocation to the more junior Classes of Certificates (in inverse order
of seniority), until their respective Principal Balances have been reduced to
zero, of losses resulting from the liquidation of defaulted Mortgage Loans or
the bankruptcy of mortgagors prior to the allocation of such losses to the
more senior Classes of Certificates (other than certain excess losses arising
from special hazards, mortgagor fraud or mortgagor bankruptcy).
See 'Description of the Certificates -- Distributions' and '-- Subordination of
Class B Certificates' in this Prospectus Supplement.
In addition, in order to increase the period during which the Principal Balances
of the Class B Certificates remain available as credit enhancement to the Class
A Certificates, a disproportionate amount of prepayments and certain unscheduled
recoveries with respect to the Mortgage Loans of each Loan Group will be
allocated to the related Group of Class A Certificates (other than the Class
II-A-PO Certificates). This allocation will accelerate the amortization of the
Class A Certificates of such Group (other than the Class II-A-PO Certificates)
while, in the absence of losses due to the liquidation of defaulted Mortgage
Loans or losses resulting from the bankruptcy of mortgagors, increasing the
percentage interest in the principal balance of the Mortgage Loans in the
related Loan Group evidenced by the Class B Certificates. See 'Description of
the Certificates' and 'Prepayment and Yield Considerations' in this Prospectus
Supplement.
After the Principal Balances of the Class B Certificates have been reduced to
zero, the principal portion of all losses (other than the portion attributable
to the Discount Mortgage Loans in such Loan Group, if any) will be allocated to
the related Group of Class A Certificates (other than the Class II-A-PO
Certificates). To the extent such losses arise with respect to Discount Mortgage
Loans, principal losses will be shared among the Class A Certificates of the
related Group according to their respective interests in such Mortgage Loans.
The principal portion of any losses borne by the Class A Certificates of a Group
(other than losses borne by the Class II-A-PO Certificates) will be shared pro
rata by the Classes of such Class A Certificates of such Group (other than the
Class II-A-PO Certificates) based on their then-outsanding Principal Balances
and the interest portion of such losses will be shared pro rata by such Classes
based on interest accrued. See 'Description of the Certificates -- Interest' and
'-- Subordination of Class B Certificates -- Allocation of Losses' in this
Prospectus Supplement.
Excess losses on the Mortgage Loans of a Loan Group resulting from special
hazards, mortgagor fraud and mortgagor bankruptcy will be borne by the Class A
Certificates of the related Group and the Class B Certificates as described in
this Prospectus Supplement under 'Description of the Certificates --
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Interest' and 'Subordination of Class B Certificates -- Allocation of Losses.'
If you are purchasing Class B Certificates you should be aware that losses
(other than excess losses) from both Loan Groups will be allocated to your
Certificates before being borne by the Class A Certificates of either Group. If
you are purchasing Class A Certificates of a Group you should be aware that if
the Mortgage Loans in the unrelated Loan Group experience a disproportionate
amount of losses, the Principal Balances of the Class B Certificates may be
reduced to zero sooner than you anticipated and your Class A Certificates may
been experience losses.
In addition, if you are purchasing Class B Certificates, you should consider
that under certain circumstances you will not receive any principal
distributions from the Mortgage Loans of a Loan Group even if the Principal
Balances of the related Class A Certificates have been reduced to zero. Instead
such distributions will be used to pay the Class A Certificates of the unrelated
Group (other than the Class II-A-PO Certificates). See 'Description of the
Certificates -- Cross Collateralization' in this Prospectus Supplement for a
discussion of the circumstances under which this will occur.
IF YOU ARE PURCHASING CLASS B CERTIFICATES, YOU SHOULD CONSIDER THAT THE YIELD
TO MATURITY ON EACH CLASS OF CLASS B CERTIFICATES WILL BE MORE SENSITIVE TO
LOSSES DUE TO LIQUIDATIONS OF THE MORTGAGE LOANS (AND THE TIMING THEREOF) THAN
THAT ON THE MORE SENIOR CLASSES OF CERTIFICATES IN THE EVENT THAT THE AGGREGATE
PRINCIPAL BALANCE OF THE CLASSES OF CERTIFICATES THAT ARE JUNIOR TO IT HAS BEEN
REDUCED TO ZERO.
The sensitivity of the yield to maturity of the Class B-2 and Class B-3
Certificates to losses is illustrated in the tables under the heading
'Prepayment and Yield Considerations -- Yield Considerations with Respect to the
Class B-2 and Class B-3 Certificates' in this Prospectus Supplement. These
illustrations are based on default, loss and other assumptions which are
unlikely to match actual experience on the Mortgage Loans. Therefore, your
results will vary.
See 'Description of the Certificates -- Subordination of Class B Certificates'
in this Prospectus Supplement.
EFFECTS OF PREPAYMENTS ON YOUR INVESTMENT EXPECTIONS
The Offered Certificates were structured assuming, among other things, that
prepayments on the Mortgage Loans occur at a constant rate of 100% of the
Prepayment Vector (as defined herein). However, no one can predict the actual
rate of prepayment of principal on the Mortgage Loans.
IN DECIDING WHETHER TO PURCHASE ANY OFFERED CERTIFICATES, YOU SHOULD MAKE AN
INDEPENDENT DECISION AS TO THE APPROPRIATE PREPAYMENT ASSUMPTIONS TO USE. If
prepayments on the Mortgage Loans are higher or lower than you anticipate, the
investment performance of the Offered Certificates may vary materially and
adversely from your investment expectations.
In addition, if you are purchasing Class A Certificates you should consider that
each Group of Class A Certificates (other than the Class II-A-PO Certificates)
in the aggregate will be more sensitive to prepayments on the Mortgage Loans in
the related Loan Group than the Class B Certificates because such prepayments
will be disproportionately allocated to the Class A Certificates of such Group
then entitled to principal distributions during the nine years beginning on the
first Distribution Date. See 'Description of the Certificates -- Principal
(Including Prepayments)' and 'Prepayment and Yield Considerations' in this
Prospectus Supplement.
The actual yield on your Certificates may not be equal to the yield you
anticipated at the time of purchase or, notwithstanding that the actual yield is
equal to the yield you anticipated at that time, the total return on investment
you expected or the expected weighted average life of your Certificates may not
be realized. These effects are summarized below.
YIELD
The actual yield on your Certificates in relation to the related Pass-Through
Rate will vary depending upon the price you paid for your Certificates.
o If you purchase an Offered Certificate (other than a Class I-A-4, Class I-A-6
or Class II-A-2 Certificate) at an amount equal to its unpaid Principal
Balance (that is, at 'par'), your effective yield (assuming that there are no
interest shortfalls and assuming the full return of your invested principal)
will approximate the Pass-Through Rate on that Certificate.
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o If you pay less or more than the unpaid Principal Balance of an Offered
Certificate (that is, buy the Certificate at a 'discount' or 'premium,'
respectively), then, your effective yield (assuming that there are no interest
shortfalls and assuming the full return of your invested principal) will be
higher or lower, respectively, than the Pass-Through Rate on the Certificate,
because such discount or premium will be amortized over the life of the
Certificate.
The yield on your Certificates will also be affected by the rate and timing of
prepayments on the Mortgage Loans. Any deviation in the actual rate of
prepayments on the Mortgage Loans from the rate you assumed will affect the
period of time over which, or the rate at which, the discount or premium will be
amortized and, consequently, will cause your actual yield to differ from that
which you anticipated.
If you purchase Class I-A-4 or Class II-A-2 Certificates, which do not pay
interest, your yield will primarily be a function of the price you paid for your
Class I-A-4 or Class II-A-2 Certificates, the rate and timing of principal
payments on the Group I Mortgage Loans or Group II Mortgage Loans, as
applicable, and losses incurred on and after the Cross-Over Date.
The particular sensitivities of the Class I-A-4 or Class II-A-2 Certificates are
separately displayed in the tables appearing under the heading 'Prepayment and
Yield Considerations' in this Prospectus Supplement.
If you purchase Class I-A-6 Certificates, which have no Principal Balance, your
yield will be sensitive to both the timing of receipt of prepayments and the
overall rate of prepayment on the Mortgage Loans.
IF YOU ARE PURCHASING OFFERED CERTIFICATES AT A DISCOUNT, PARTICULARLY THE CLASS
I-A-4 OR CLASS II-A-2 CERTIFICATES, YOU SHOULD CONSIDER THE RISK THAT A SLOWER
THAN ANTICIPATED RATE OF PRINCIPAL PAYMENTS ON THE MORTGAGE LOANS IN THE RELATED
LOAN GROUP, OR BOTH LOAN GROUPS IN THE CASE OF THE CLASS B CERTIFICATES, WILL
RESULT IN AN ACTUAL YIELD THAT IS LOWER THAN YOUR EXPECTED YIELD.
IF YOU ARE PURCHASING OFFERED CERTIFICATES AT A PREMIUM, OR IF YOU ARE
PURCHASING CLASS I-A-6 CERTIFICATES, WHICH HAVE NO PRINCIPAL BALANCE, YOU SHOULD
CONSIDER THE RISK THAT A FASTER THAN ANTICIPATED RATE OF PRINCIPAL PAYMENTS ON
THE MORTGAGE LOANS IN THE RELATED LOAN GROUP, OR BOTH LOAN GROUPS IN THE CASE OF
CLASS B CERTIFICATES, WILL RESULT IN AN ACTUAL YIELD THAT IS LOWER THAN YOUR
EXPECTED YIELD AND THAT A RAPID RATE OF PRINCIPAL PAYMENTS ON THE MORTGAGE LOANS
IN THE RELATED LOAN GROUP, OR BOTH LOAN GROUPS IN THE CASE OF THE CLASS B
CERTIFICATES, COULD RESULT IN THE LOSS OF ALL OR PART OF YOUR INITIAL
INVESTMENT.
REINVESTMENT RISK
As stated above, if you purchase an Offered Certificate (other than a Class
I-A-4, Class I-A-6 or Class II-A-2 Certificate) at par, fluctuations in the rate
of distributions of principal will generally not affect your yield to maturity.
However, the total return on your investment, even if you purchase your
Certificates at par, will be reduced if principal distributions received on your
Certificates cannot be reinvested at a rate as high as the stated Pass-Through
Rate or, in the case of the Class I-A-4 or Class II-A-2 Certificates, the
expected yield, which is based on the price you paid and the rate of prepayments
you anticipated.
You should consider the risk that rapid rates of prepayments on the Mortgage
Loans in the related Loan Group, or both Loan Groups in the case of the Class B
Certificates, may coincide with periods of low prevailing market interest rates.
During periods of low prevailing market interest rates, mortgagors may be
expected to prepay or refinance Mortgage Loans that carry interest rates
significantly higher than then-current interest rates for mortgage loans.
Consequently, the amount of principal distributions available to you for
reinvestment at such low prevailing interest rates may be relatively large.
Conversely, slow rates of prepayments on the Mortgage Loans in the related Loan
Group, or both Loan Groups in the case of the Class B Certificates, may coincide
with periods of high prevailing market interest rates. During such periods, it
is less likely that mortgagors will elect to prepay or refinance Mortgage Loans
and, therefore, the amount of principal distributions available to you for
reinvestment at such high prevailing interest rates may be relatively small.
WEIGHTED AVERAGE LIFE VOLATILITY
One indication of the impact of varying prepayment speeds on a security is the
change in its weighted average life.
o The 'weighted average life' of an Offered Certificate (other than a Class
I-A-6 Certificate) is the average amount of time that will elapse between the
date of issuance of the Certificate and the date on which each dollar in
reduction of the principal
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balance of the Certificate is distributed to the investor.
o The weighted average life of a Class I-A-6 Certificate is the average amount
of time that will elapse between the date of issuance of the Certificates and
the date on which each dollar in reduction of the Principal Balance of the
Class I-A-7 Certificates (a portion of the Principal Balance of which
corresponds to the notional amount of the Class I-A-6 Certificates) is
distributed to the investors in the Class I-A-7 Certificates.
Low rates of prepayment on the Mortgage Loans in the related Loan Group, or both
Loan Groups in the case of the Class B Certificates, may result in the extension
of the weighted average life of a Certificate. High rates of prepayment may
result in the shortening of the weighted average life of a Certificate.
In general, if you purchase your Certificates at par and the weighted average
life of your Certificates is extended beyond your anticipated time period, the
market value of your Certificates may be adversely affected even though the
yield to maturity on your Certificates is unaffected.
The sensitivity of the weighted average lives of the Offered Certificates to
prepayment is illustrated in the tables appearing under the heading 'Prepayment
and Yield Considerations' in this Prospectus Supplement. THESE ILLUSTRATIONS ARE
BASED ON PREPAYMENT AND OTHER ASSUMPTIONS WHICH ARE UNLIKELY TO MATCH THE ACTUAL
EXPERIENCE ON THE MORTGAGE LOANS. THEREFORE, YOUR RESULTS WILL VARY.
See 'Risk Factors -- Prepayments May Adversely Affect Yield' and 'Prepayment and
Yield Considerations' in this Prospectus Supplement.
FEDERAL INCOME TAX STATUS
For federal income tax purposes, the Trust Estate will consist of two real
estate mortgage investment conduits (the 'UPPER-TIER REMIC' and the 'LOWER-TIER
REMIC,' respectively, and each a 'REMIC'). The Offered Certificates (other than
the Class I-A-R and Class I-A-LR Certificates) are referred to collectively as
the 'REGULAR CERTIFICATES'). The Regular Certificates and the Class II-A-PO,
Class B-4, Class B-5 and Class B-6 Certificates will constitute 'regular
interests' in the Upper-Tier REMIC. The Class I-A-R Certificate will be the
'residual interest' in the Upper-Tier REMIC and the Class I-A-LR Certificate
will be the 'residual interest' in the Lower-Tier REMIC.
The Regular Certificates will be treated as newly-originated debt instruments
for most federal income tax purposes. You must report income received on your
Regular Certificates as it accrues from Distribution Date to Distribution Date,
which will be before such income is distributed in cash to you. Additionally, as
described under 'Material Federal Income Tax Consequences' in this Prospectus
Supplement, certain Classes of Regular Certificates may be issued with 'original
issue discount' ('OID'). If your Class of Regular Certificates is issued with
OID, you must report OID income over the life of the Regular Certificate, often
well before such income is distributed in cash to you.
The Class I-A-R and Class I-A-LR Certificates will not be treated as debt
instruments for federal income tax purposes. Instead, if you are the holder of
the Class I-A-R or Class I-A-LR Certificate, you must include the taxable income
or loss of the Upper-Tier REMIC or the Lower-Tier REMIC, respectively, in
determining your federal taxable income. All or most of the taxable income of
the Upper-Tier REMIC and the Lower-Tier REMIC includible by the Class I-A-R and
Class I-A-LR Certificateholders will be treated as 'excess inclusion' income
which is subject to special limitations for federal tax purposes. AS A RESULT OF
THIS TAX TREATMENT, YOUR AFTER-TAX RETURN ON THE CLASS I-A-R OR CLASS I-A-LR
CERTIFICATE MAY BE SIGNIFICANTLY LOWER THAN WOULD BE THE CASE IF THE CLASS I-A-R
AND CLASS I-A-LR CERTIFICATES WERE TAXED AS DEBT INSTRUMENTS, OR MAY BE NEGATIVE
(I.E., YOU MAY HAVE TO USE FUNDS OTHER THAN DISTRIBUTIONS ON YOUR CERTIFICATE TO
MEET THE TAX LIABILITIES RESULTING FROM THE OWNERSHIP OF A CLASS I-A-R OR CLASS
I-A-LR CERTIFICATE).
Additionally, the Class I-A-R and Class I-A-LR Certificates will be considered
'non-economic residual interests' for tax purposes. AS A RESULT, CERTAIN
TRANSFERS OF THE CLASS I-A-R OR CLASS I-A-LR CERTIFICATES MAY BE DISREGARDED FOR
FEDERAL TAX PURPOSES, WITH THE TRANSFEROR CONTINUING TO HAVE TAX LIABILITIES FOR
THE TRANSFERRED CERTIFICATES. See 'Description of the
Certificates -- Restrictions on Transfer of the Class I-A-R, Class I-A-LR and
Class B Certificates' and 'Material Federal Income Tax Considerations' in this
Propectus Supplement and 'Material Federal Income Tax Consequences -- Federal
Income Tax Consequences for REMIC Certificates' in the Prospectus.
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ERISA CONSIDERATIONS
If you are a fiduciary of an employee benefit plan or other retirement plan or
arrangement subject to Title I of the Employee Retirement Income Security Act of
1974, as amended ('ERISA'), or Section 4975 of the Internal Revenue Code of
1986, as amended (the 'CODE'), or a governmental plan, as defined in Section
3(32) of ERISA, subject to any federal, state or local law ('SIMILAR LAW') which
is, to a material extent, similar to the foregoing provisions of ERISA or the
Code (collectively, a 'PLAN'), you should carefully review with your legal
advisors whether the purchase or holding of Offered Certificates could give rise
to a transaction prohibited or not otherwise permissible under ERISA, the Code
or Similar Law.
BECAUSE THE CLASS B-1, CLASS B-2 AND CLASS B-3 CERTIFICATES ARE SUBORDINATED TO
THE CLASS A CERTIFICATES WITH RESPECT TO CERTAIN LOSSES, THE CLASS B-1, CLASS
B-2 AND CLASS B-3 CERTIFICATES MAY NOT BE TRANSFERRED UNLESS THE TRANSFEREE HAS
DELIVERED TO THE TRUST ADMINISTRATOR AND THE SELLER:
o A REPRESENTATION LETTER STATING EITHER (A) THAT THE TRANSFEREE IS NOT A PLAN
AND IS NOT ACTING ON BEHALF OF A PLAN OR USING THE ASSETS OF A PLAN TO EFFECT
SUCH PURCHASE OR (B) SUBJECT TO CERTAIN CONDITIONS DESCRIBED HEREIN, THAT THE
SOURCE OF FUNDS USED TO PURCHASE SUCH CERTIFICATES IS AN 'INSURANCE COMPANY
GENERAL ACCOUNT'; OR
o AN OPINION OF COUNSEL AND SUCH OTHER DOCUMENTATION AS DESCRIBED UNDER
'DESCRIPTION OF THE CERTIFICATES -- RESTRICTIONS ON TRANSFER OF THE CLASS
I-A-R, CLASS I-A-LR AND CLASS B CERTIFICATES' IN THIS PROSPECTUS SUPPLEMENT.
THE CLASS I-A-R AND CLASS I-A-LR CERTIFICATES MAY NOT BE PURCHASED BY OR
TRANSFERRED TO A PLAN OR A PERSON ACTING ON BEHALF OF OR INVESTING THE ASSETS OF
A PLAN. See 'Description of the Certificates -- Restrictions on Transfer of the
Class I-A-R, Class I-A-LR and Class B Certificates' and 'ERISA Considerations'
in this Prospectus Supplement.
LEGAL INVESTMENT
o The Class A and Class B-1 Certificates will constitute 'mortgage related
securities' for purposes of the Secondary Mortgage Market Enhancement Act of
1984, as amended ('SMMEA') so long as they are rated in one of the two highest
rating categories by at least one nationally recognized statistical rating
organization.
o The Class B-2 and Class B-3 Certificates will not constitute 'mortgage related
securities' under SMMEA.
If your investment activities are subject to legal investment laws and
regulations, regulatory capital requirements or review by regulatory authorities
you may be subject to restrictions on investments in the Offered Certificates
and should consult your own legal, tax and accounting advisors in determining
the suitability of and consequences to you of the Offered Certificates.
See 'Legal Investment' in the Prospectus.
MONTHLY REPORTS AND ADDITIONAL INFORMATION
The Master Servicer will prepare, and the Trust Administrator will forward to
Certificateholders with each distribution, a copy of the Monthly Report
described under 'Reports to Certificateholders' and 'Pooling and Servicing
Agreement -- Reports to Certificateholders' in the Prospectus. In addition, the
Seller intends to make the information contained in the Monthly Report, together
with certain additional information, available to any interested investor via
the internet and other electronic means described under 'Where You Can Find More
Information' in the Prospectus.
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RISK FACTORS
PREPAYMENTS MAY ADVERSELY AFFECT YIELD
The rate of distributions of principal and the yield to maturity on your
Certificates will be directly related to the rate of payments of principal on
the Mortgage Loans in the related Loan Group, or both Loan Groups in the case of
the Class B Certificates, and the amount and timing of mortgagor defaults
resulting in Realized Losses. Mortgagors are permitted to prepay the Mortgage
Loans, in whole or in part, at any time without penalty. The rate of principal
payments on the Mortgage Loans will be affected by, among other things:
o the amortization schedules of the Mortgage Loans;
o the rate of principal prepayments (including partial payments and those
resulting from refinancing) thereon by mortgagors;
o liquidations of defaulted Mortgage Loans;
o repurchases of Mortgage Loans by the Seller as a result of defective
documentation or breaches of representations and warranties, or optional
purchase by the Seller of defaulted Mortgage Loans; and
o the optional purchase by the Seller of all of the Mortgage Loans in
connection with the termination of the Trust Estate.
See 'Prepayment and Yield Considerations' and 'Pooling and Servicing
Agreement -- Optional Termination' herein and 'The Pooling and Servicing
Agreement -- Assignment of Mortgage Loans to the Trustee,' '-- Optional
Purchases' and '-- Termination; Optional Purchase of Mortgage Loans' in the
Prospectus.
The rate of payments (including prepayments) on pools of mortgage loans is
influenced by a variety of economic, geographic, social and other factors.
o If prevailing rates for similar mortgage loans fall below the Mortgage
Interest Rates on the Mortgage Loans, the rate of prepayment would
generally be expected to increase.
o Conversely, if interest rates on similar mortgage loans rise above the
Mortgage Interest Rates on the Mortgage Loans, the rate of prepayment
would generally be expected to decrease.
The rate of prepayment on the Mortgage Loans may also be influenced by
programs offered by mortgage originators (including Norwest Mortgage), on a
general or targeted basis, to encourage refinancing. See 'Prepayment and Yield
Considerations -- Refinancings' in the Prospectus.
If you are purchasing Offered Certificates at a discount, particularly the
Class I-A-4 and Class II-A-2 Certificates, you should consider the risk that if
principal payments on the Mortgage Loans in the related Loan Group, or both Loan
Groups in the case of the Class B Certificates, occur at a rate slower than you
expected, your yield may be lower than you expected.
If you are purchasing Offered Certificates at a premium, or are purchasing
the Class I-A-6 Certificates which have no Principal Balance, you should
consider the risk that if principal payments on the Mortgage Loans in the
related Loan Group, or both Loan Groups in the case of the Class B Certificates,
occur at a rate faster than you expected, your yield may be lower than you
expected. IF YOU ARE PURCHASING CLASS I-A-6 CERTIFICATES, YOU SHOULD CONSIDER
THE RISK THAT A RAPID RATE OF PRINCIPAL PAYMENTS ON THE MORTGAGE LOANS IN THE
RELATED LOAN GROUP COULD RESULT IN YOUR FAILURE TO RECOVER YOUR INITIAL
INVESTMENT.
The particular sensitivities of the Class I-A-4, Class I-A-6 and Class
II-A-2 Certificates are separately displayed in the tables appearing under the
heading 'Prepayment and Yield Considerations' in this Prospectus Supplement.
See 'Summary Information -- Effects of Prepayments on Investment
Expectations' and 'Prepayment and Yield Considerations' herein.
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GEOGRAPHIC CONCENTRATION MAY INCREASE RISK OF LOSS BECAUSE OF ADVERSE ECONOMIC
CONDITIONS OR NATURAL DISASTERS
The yield to maturity on your Certificates may be affected by the
geographic concentration of the Mortgaged Properties securing the Mortgage
Loans. Certain geographic regions of the United States from time to time will
experience weaker regional economic conditions and housing markets and,
consequently, will experience higher rates of loss and delinquency on mortgage
loans generally. Any concentration of the Mortgage Loans in such a region may
present risk considerations in addition to those generally present for similar
mortgage-backed securities without such concentration. In addition, California,
Florida, Texas and several other regions have experienced natural disasters,
including earthquakes, fires, floods and hurricanes, which may adversely affect
property values. Any deterioration in housing prices in the states in which
there is a significant concentration of Mortgaged Properties, as well as other
states in which the Mortgaged Properties are located, and any deterioration of
economic conditions in such states which adversely affects the ability of
borrowers to make payments on the Mortgage Loans may increase the likelihood of
losses on the Mortgage Loans. Such losses, if they occur, may have an adverse
effect on the yield to maturity of your Certificates, especially if they are
subordinated and particularly if they are Class B-3 Certificates. The states and
geographic areas where there are large concentrations of Mortgaged Properties
are identified under 'Description of the Mortgage Loans.'
SUBORDINATION OF CLASS B CERTIFICATES INCREASES RISK OF LOSS
The rights of the holders of each Class of Class B Certificates to receive
distributions will be subordinated to such rights of the holders of the Class A
Certificates and the lower-numbered Classes of Class B Certificates, if any. In
addition, Realized Losses, other than Excess Losses, will be allocated to the
Class B Certificates in the reverse order in which they are entitled to
distributions of principal before being allocated to the Class A Certificates.
Accordingly, if you are purchasing Class B Certificates, you will be more likely
to experience losses as a result of the occurrence of losses or interest
shortfalls on the Mortgage Loans. See 'Description of the
Certificates -- Subordination of Class B Certificates.'
CLASS B CERTIFICATES PROVIDE SUBORDINATION FOR BOTH GROUPS
The Special Hazard Loss Amount, the Fraud Loss Amount and the Bankruptcy
Loss Amount are available to cover Special Hazard Losses, Fraud Losses and
Bankruptcy Losses on Mortgage Loans in both Loan Groups. Therefore, in the event
Mortgage Loans in one Loan Group suffer a high level of such losses, the
available coverage for all Class A Certificates will be reduced. In the event
Mortgage Loans in a Loan Group suffer such losses after the available coverage
has been exhausted, such Excess Losses will be allocated as described herein
under 'Description of the Certificates -- Subordination of Class B
Certificates -- Allocation of Losses.'
Because the Class B Certificates provide credit support for both Loan
Groups, the Principal Balances of the Class B Certificates could be reduced to
zero as a result of disproportionate amount of Realized Losses on the Mortgage
Loans in one Loan Group. Therefore, Realized Losses on the Mortgage Loans in one
Loan Group will reduce the subordination provided by the Class B Certificates to
the other Group of Class A Certificates and increase the likelihood that
Realized Losses may be allocated to such other Group of Class A Certificates.
See 'Description of the Certificates -- Subordination of Class B
Certificates -- Allocation of Losses' herein.
Under certain circumstances principal otherwise payable to the Class B
Certificates will be paid to the Class A Certificates (other than the Class
II-A-PO Certificates) as described under 'Description of the
Certificates -- Cross-Collateralization' herein. In addition, the Class A-PO
Deferred Amount is payable from amounts otherwise distributable as principal on
the Class B Certificates regardless of the Loan Group from which such payments
are derived.
UNDERWRITING STANDARDS
Certain of the Mortgage Loans will have been originated using underwriting
standards that are different from and, in certain respects, less stringent than
the general underwriting policies of Norwest Mortgage. See 'The Mortgage Loan
Programs -- Mortgage Loan Underwriting -- Modified Standards' in the Prospectus.
For example, certain of the Mortgage Loans may have been originated with higher
maximum Loan-to-Value Ratios, less restrictive requirements for investment
properties or 'equity take out' financings, may be secured by shares
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in cooperative housing corporations, 'condotels' or unique parcels of land, or
may have been made to foreign nationals. In addition, a substantial portion of
the Mortgage Loans are No Ratio Loans (as described under 'The Mortgage Loan
Programs -- Mortgage Loan Underwriting -- Modified Standards' in the Prospectus)
for which ratios of the related prospective borrowers' debt service on the
Mortgage Loan and total debt obligations to income were not required to be taken
into account in making the loan. Accordingly, the Mortgage Loans may also
experience rates of delinquencies, defaults, foreclosure, bankruptcy and loss
that are higher than those experienced by mortgage loans underwritten to Norwest
Mortgage's general underwriting standards. See 'Prepayment and Yield
Considerations' herein.
RIGHTS OF BENEFICIAL OWNERS MAY BE LIMITED BY BOOK-ENTRY SYSTEM FOR CERTAIN
CLASSES OF CLASS A CERTIFICATES
Transactions in the Book-Entry Certificates generally can be only carried
out through DTC, DTC Participants and Indirect DTC Participants. If you are a
Beneficial Owner of Book-Entry Certificates, your ability to pledge your
Certificates, and the liquidity of your Certificates in general, may be limited
due to the fact that you will not have a physical certificate. In addition, you
may experience delays in receiving payments on your Certificates. See 'Risk
Factors -- Book-Entry Certificates May Experience Decreased Liquidity and
Payment Delay' and 'Description of the Certificates -- Book-Entry Form' in the
Prospectus.
CERTIFICATES MAY NOT BE APPROPRIATE FOR INDIVIDUAL INVESTORS
If you are an individual investor who does not have sufficient resources or
expertise to evaluate the particular characteristics of the applicable Class of
Offered Certificates, the Offered Certificates may not be an appropriate
investment for you. This may be the case because, among other things:
o if you purchase your Certificates at a price other than par, your yield
to maturity will be sensitive to the uncertain rate and timing of
principal prepayments on the Mortgage Loans in the related Loan Group,
or both Loan Groups in the case of the Class B Certificates;
o the rate of principal distributions on, and the weighted average life
of, the Offered Certificates will be sensitive to the uncertain rate and
timing of principal prepayments on the Mortgage Loans in the related
Loan Group, or both Loan Groups in the case of the Class B Certificates,
and the priority of principal distributions among the Classes of
Certificates, and as such the Offered Certificates may be inappropriate
investments for you if you require a distribution of a particular amount
of principal on a specific date or an otherwise predictable stream of
distributions;
o there can be no assurance that you will be able to reinvest amounts
distributed in respect of principal on your Certificates (which, in
general, are expected to be greater during periods of relatively low
interest rates) at a rate at least as high as the applicable
Pass-Through Rate or, in the case of the Class I-A-4 and Class II-A-2
Certificates, the expected yields, which are based on the prices you
paid and the rates of prepayment you anticipated;
o there can be no assurance that a secondary market for the Offered
Certificates will develop or provide you with liquidity of investment;
and
o you must report interest as well as original issue discount, if any, on
the accrual method of accounting, even if you are otherwise using the
cash method of accounting.
If you are an individual investor considering the purchase of an Offered
Certificate, you should also carefully consider the further risks and other
special considerations discussed above and under the headings 'Summary
Information -- Effects of Prepayments on Investment Expectations' and
'Prepayment and Yield Considerations' herein and 'Risk Factors' in the
Prospectus.
YEAR 2000 READINESS DISCLOSURE
The Seller is aware of the issues associated with the programming code in
the existing computer systems as the millennium (year 2000) approaches. The
'year 2000 problem' is pervasive and complex; virtually every computer operation
will be affected in some way by the rollover of the two digit year value to 00.
The issue is
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whether computer systems will properly recognize date-sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data, fail or cause another system to fail.
The Seller has been advised by the Master Servicer, Norwest Mortgage, the
Trustee and the Trust Administrator that they are committed to either (i)
implementing modifications to their respective existing systems to the extent
required to cause them to be year 2000 compliant or (ii) acquiring computer
systems that are year 2000 compliant, in each case prior to January 1, 2000. The
Seller has also been advised by the Master Servicer that the Master Servicer is
engaged in the process of ascertaining the efforts of the Other Servicers to
achieve the year 2000 compliance. However, neither the Seller nor any affiliate
of the Seller has made any independent investigation of the computer systems of
the Trustee, Trust Administrator or any of the Other Servicers. In the event
that computer problems arise out of a failure of such efforts to be completed on
time, or in the event that the computer systems of the Trustee, Trust
Administrator, the Master Servicer, Norwest Mortgage or an Other Servicer are
not fully year 2000 compliant, the resulting disruptions in the collection or
distribution of receipts on the Mortgage Loans could materially adversely affect
your Certificates.
See 'Risk Factors' in the Prospectus for a description of certain other
risks and special considerations applicable to the Offered Certificates.
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<PAGE>
DESCRIPTION OF THE CERTIFICATES
DENOMINATIONS; FORM OF CERTIFICATES
Offered Certificates issued in fully registered, certificated form are
referred to herein as 'DEFINITIVE CERTIFICATES.' The Trust Administrator or
other paying agent will make distributions of principal on, and interest on, the
Definitive Certificates directly to holders of Definitive Certificates in
accordance with the procedures set forth in the Pooling and Servicing Agreement.
The Definitive Certificates will be transferable and exchangeable at the offices
of the Trust Administrator or other certificate registrar. No service charge
will be imposed for any registration of transfer or exchange, but the Trust
Administrator may require payment of a sum sufficient to cover any tax or other
governmental charge imposed in connection therewith.
Offered Certificates, other than those initially issued as Definitive
Certificates, will be issued in book-entry form and are referred to herein as
'BOOK-ENTRY CERTIFICATES.' Each Class of the Book-Entry Certificates initially
will be represented by one physical certificate registered in the name of Cede &
Co. ('CEDE'), as nominee of The Depository Trust Company ('DTC'), which will be
the 'HOLDER' or 'CERTIFICATEHOLDER' of such Certificates, as such terms are used
herein. A person acquiring an interest in the Book-Entry Certificates (a
'BENEFICIAL OWNER') will not be entitled to receive a Definitive Certificate
representing such person's interest in the Book-Entry Certificates, except as
set forth under 'Description of the Certificates -- Book-Entry Form' in the
Prospectus. Unless and until Definitive Certificates are issued under the
limited circumstances described therein, all references to actions taken by
Certificateholders or holders shall, in the case of the Book-Entry Certificates,
refer to actions taken by DTC upon instructions from its DTC Participants (as
defined under 'Description of the Certificates -- Book-Entry Form' in the
Prospectus), and all references herein to distributions, notices, reports and
statements to Certificateholders or holders shall, in the case of the Book-Entry
Certificates, refer to distributions, notices, reports and statements to DTC or
Cede, as the registered holder of the Book-Entry Certificates, as the case may
be, for distribution to Beneficial Owners in accordance with DTC procedures. See
'Description of the Certificates -- Book-Entry Form' in the Prospectus.
The following table sets forth the original certificate form, the minimum
denomination and the incremental denomination of the Offered Certificates. The
Offered Certificates are not intended to be directly or indirectly held or
beneficially owned in amounts lower than such minimum denominations.
FORM AND DENOMINATIONS OF OFFERED CERTIFICATES
<TABLE>
<CAPTION>
ORIGINAL CERTIFICATE MINIMUM INCREMENTAL
CLASS FORM DENOMINATION DENOMINATION
----- --------------------- ------------ ------------
<S> <C> <C> <C>
Classes I-A-1(1), I-A-3(1), I-A-7(1) and II-A-1(1).............. Book-Entry $100,000 $1,000
Classes I-A-2 and I-A-5......................................... Book-Entry $ 1,000 $1,000
Classes I-A-4(1)and II-A-2(1)................................... Definitive $100,000 $1,000
Class I-A-6..................................................... Definitive $406,201(2) N/A
Classes I-A-R and I-A-LR........................................ Definitive $ 100 N/A
Classes B-1, B-2 and B-3........................................ Definitive $100,000 $1,000
</TABLE>
- ------------------------------
(1) In order to aggregate the original Principal Balance of such Class, one
Certificate of such Class will be issued in an incremental denomination of
less than that shown.
(2) Initial Notional Amount.
DISTRIBUTIONS
The Trust Administrator or other paying agent will make monthly
distributions of interest and in reduction of Principal Balance to holders of
each Class of Certificates, to the extent of each Class's entitlement thereto,
on the 25th day of each month or, if such day is not a business day, on the
succeeding business day (each, a 'DISTRIBUTION DATE'), beginning in December
1998. The 'DETERMINATION DATE' with respect to each Distribution Date will be
the 17th day of each month, or if such day is not a business day, the preceding
business day. Distributions will be made on each Distribution Date to holders of
record at the close of business on the last business day of the preceding month
(each, a 'RECORD DATE').
The aggregate amount available for distribution to holders of the Group I-A
Certificates on each Distribution Date (except to the extent of
cross-collateralization payments) will be the Group I Pool Distribution Amount.
The
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<PAGE>
aggregate amount available for distribution to holders of the Group II-A
Certificates on each Distribution Date (except to the extent of
cross-collateralization payments) will be the Group II Pool Distribution Amount.
The Class B Certificates will be entitled to distributions from the Group I Pool
Distribution Amount and the Group II Pool Distribution Amount. The Group I Pool
Distribution Amount will be determined by reference to amounts received and
expenses incurred in connection with the Group I Mortgage Loans and the Group II
Pool Distribution Amount will be determined by reference to amounts received and
expenses incurred in connection with the Group II Mortgage Loans. The 'GROUP I
POOL DISTRIBUTION AMOUNT' and the 'GROUP II POOL DISTRIBUTION AMOUNT' (each, a
'POOL DISTRIBUTION AMOUNT') for a Distribution Date will be the sum of:
(i) all previously undistributed payments or other receipts on account
of principal (including principal prepayments and Liquidation Proceeds in
respect of principal, if any), and interest on or in respect of the Group I
Mortgage Loans or Group II Mortgage Loans, as applicable, received by the
Master Servicer, including without limitation any related insurance
proceeds and the proceeds of any purchase of a related Group I Mortgage
Loan or Group II Mortgage Loan, as applicable, for breach of a
representation or warranty or the sale of a Mortgaged Property by a
Servicer in connection with the liquidation of the related Group I Mortgage
Loan or Group II Mortgage Loan, as applicable, on or prior to the
Remittance Date in the month in which such Distribution Date occurs,
(ii) all Periodic Advances made with respect to a Group I Mortgage
Loan or Group II Mortgage Loan, as applicable, and
(iii) all other amounts with respect to a Group I Mortgage Loan or
Group II Mortgage Loan, as applicable, (including any insurance proceeds
and Compensating Interest) placed in the Certificate Account by any
Servicer on or before the Remittance Date or by the Master Servicer on or
before the Distribution Date pursuant to the Pooling and Servicing
Agreement, but excluding the following:
(a) amounts received as late payments of principal or interest
with respect to Group I Mortgage Loans or Group II Mortgage Loans, as
applicable, respecting which one or more unreimbursed Periodic
Advances has been made;
(b) to the extent permitted by the Pooling and Servicing
Agreement, that portion of Liquidation Proceeds with respect to a
Group I Mortgage Loan or a Group II Mortgage Loan, as applicable,
that represents any unreimbursed Periodic Advances of such Servicer;
(c) those portions of each payment of interest on a particular
Group I Mortgage Loan or Group II Mortgage Loan, as applicable, which
represent (i) the Servicing Fee, (ii) the Master Servicing Fee and
(iii) the Fixed Retained Yield, if any;
(d) all amounts with respect to Group I Mortgage Loans or Group
II Mortgage Loans, as applicable, representing scheduled payments of
principal and interest due after the Due Date occurring in the month
in which such Distribution Date occurs;
(e) all principal prepayments in full, all partial principal
prepayments, all proceeds of any Group I Mortgage Loans or Group II
Mortgage Loans, as applicable, or property acquired in respect
thereof, or liquidated pursuant to the Pooling and Servicing
Agreement, including Net Partial Liquidation Proceeds but excluding
any Net Foreclosure Profits (as defined under 'Description of the
Certificates' in the Prospectus), and other unscheduled receipts in
respect of principal of the Mortgage Loans other than proceeds of a
repurchase of a Mortgage Loan by the Seller or amounts deposited by
the Seller in the Certificate Account in connection with the
substitution of a Group I Mortgage Loan or Group II Mortgage Loan, as
applicable, (collectively, 'UNSCHEDULED PRINCIPAL RECEIPTS') that
were received by the Servicers after the Unscheduled Principal
Receipt Period (as described under 'Servicing of the Mortgage
Loans -- Unscheduled Principal Receipts' below) relating to the
Distribution Date for the applicable type of Unscheduled Principal
Receipt, and all related payments of interest on such amounts;
(f) all repurchase proceeds with respect to Group I Mortgage
Loans or Group II Mortgage Loans, as applicable, repurchased by the
Seller on or following the Due Date in the month in which such
Distribution Date occurs and the excess of the unpaid principal
balance of any defective Group I Mortgage Loan or Group II Mortgage
Loan, as applicable, for which a
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<PAGE>
Mortgage Loan was substituted over the unpaid principal balance of
such substituted Mortgage Loan on or following the Due Date in the
month in which such Distribution Date occurs;
(g) to the extent permitted by the Pooling and Servicing
Agreement, that portion of Liquidation Proceeds or insurance proceeds
with respect to a Group I Mortgage Loan or Group II Mortgage Loan, as
applicable, or proceeds of any Mortgaged Property that becomes owned
by the Trust Estate which represents any unpaid Servicing Fee or
Master Servicing Fee to which such Servicer or the Master Servicer,
respectively, is entitled, or which represents unpaid Fixed Retained
Yield, and the portion of net Liquidation Proceeds used to reimburse
any unreimbursed Periodic Advances;
(h) all amounts representing certain expenses reimbursable to
the Master Servicer and other amounts permitted to be retained by the
Master Servicer or withdrawn by the Master Servicer from the
Certificate Account pursuant to the Pooling and Servicing Agreement;
(i) reinvestment earnings on payments received in respect of the
Group I Mortgage Loans or Group II Mortgage Loans, as applicable, or
on other amounts on deposit in the Certificate Account;
(j) Net Foreclosure Profits in respect of the Group I Mortgage
Loans or Group II Mortgage Loans, as applicable;
(k) Month End Interest in respect of the Group I Mortgage Loans
or Group II Mortgage Loans, as applicable; and
(l) generally, the amount of any recoveries in respect of
principal which had previously been allocated as a loss to one or
more Classes of Class A Certificates of the related Group or the
Class B Certificates.
The 'REMITTANCE DATE' with respect to any Distribution Date and (i) any
Mortgage Loan serviced by an Other Servicer will be the 18th day of each month,
or if any such day is not a business day, the preceding business day and (ii)
any Mortgage Loan serviced by Norwest Mortgage will, except as described below
under 'Servicing of the Mortgage Loans -- Anticipated Changes in Servicing,' be
the 24th day of each month, or if any such day is not a business day, the
preceding business day.
'PARTIAL LIQUIDATION PROCEEDS' are Liquidation Proceeds received by a
Servicer on a Mortgage Loan prior to such Mortgage Loan becoming a Liquidated
Loan and 'NET PARTIAL LIQUIDATION PROCEEDS' are Partial Liquidation Proceeds
less expenses incurred with respect to such liquidation.
Each Servicer is required to deposit in the Certificate Account by the
Remittance Date certain amounts in respect of the Mortgage Loans as set forth
herein under 'Servicing of the Mortgage Loans -- Custodial Accounts.' The Master
Servicer is required to remit to the Trust Administrator on or before the
Distribution Date any payments constituting part of the Pool Distribution Amount
of a Loan Group that are received by the Master Servicer or are required to be
made with the Master Servicer's own funds. Except as described below under
'Description of the Certificates -- Periodic Advances,' neither the Master
Servicer nor the Trust Administrator is obligated to remit any amounts which a
Servicer was required but failed to deposit in the Certificate Account.
On each Distribution Date, the Pool Distribution Amount for each Loan Group
will be allocated among the Classes of Class A Certificates relating to such
Loan Group and the Class B Certificates and distributed to the holders thereof
of record as of the related Record Date as follows (the 'POOL DISTRIBUTION
AMOUNT ALLOCATION'):
(a) with respect to each Group of Class A Certificates, from the Group I
Pool Distribution Amount or Group II Pool Distribution Amount, as applicable, as
follows:
first, to the Classes of Class A Certificates of a Group, pro rata based on
their respective Interest Accrual Amounts, in an aggregate amount up to the sum
of their Interest Accrual Amounts with respect to such Distribution Date;
second, to the Classes of Class A Certificates of such Group, pro rata
based on their respective unpaid Interest Shortfall Amounts in an aggregate
amount up to the sum of their unpaid Interest Shortfall Amounts;
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<PAGE>
third, concurrently, pro rata to the Class A Certificates of such Group
(other than the Class II-A-PO Certificates), based on the Class A Non-PO Optimal
Principal Amount for such Group, and, in the case of the Group II-A
Certificates, the Class II-A-PO Certificates, based on the Class A-PO Optimal
Principal Amount for such Group, (A) to the Classes of Class A Certificates of
such Group, (other than the Class II-A-PO Certificates), in an aggregate amount
up to the Class A Non-PO Optimal Principal Amount for such Group, such
distribution to be allocated among such Classes in accordance with the
priorities set forth below under '-- Principal (Including Prepayments) --
Allocation of Amount to be Distributed on the Class A Certificates' and (B), in
the case of the Group II-A Certificates, to the Class II-A-PO Certificates in an
amount up to the Class A-PO Optimal Principal Amount for such Group; and
fourth, to the Class II-A-PO Certificates in an amount up to the Class A-PO
Deferred Amount, but only from amounts otherwise distributable (without regard
to this priority) to the Classes of Class B Certificates in reverse order of
priority from their respective Class B Principal Distribution Amounts; and
(b) to the Class B Certificates, from the Group I Pool Distribution Amount
and Group II Pool Distribution Amount, subject to distributions to the Class A
Certificates described in (a) above and payments described under
'-- Cross-Collateralization' below, sequentially, to the Class B-1, Class B-2,
Class B-3, Class B-4, Class B-5 and Class B-6 Certificates so that each such
Class shall receive (A) first, an amount up to its Interest Accrual Amount with
respect to such Distribution Date, (B) then, an amount up to its previously
unpaid Interest Shortfall Amounts and (C) finally, an amount up to its Class B
Optimal Principal Amount, in each case before any Classes of Class B
Certificates with higher numerical designations receive any payments in respect
of interest or principal; provided, however, that the amount distributable to
any Class of Class B Certificates in respect of its Class B Principal
Distribution Amount will be reduced by the amount, if any, otherwise
distributable as principal hereunder used to pay the Class A-PO Deferred Amount
in accordance with clause (a) priority fourth above.
The undivided percentage interest (the 'PERCENTAGE INTEREST') represented
by any Offered Certificate of a Class in distributions to such Class will be
equal to the percentage obtained by dividing the initial principal balance of
such Certificate (or initial notional amount, in the case of the Class I-A-6
Certificates) by the initial Principal Balance (or initial notional amount) of
such Class.
INTEREST
The amount of interest that will accrue on each Class of Certificates,
other than the Class I-A-4, Class II-A-2 and Class II-A-PO Certificates, during
each month, after taking into account any Non-Supported Interest Shortfalls and
the interest portion of certain losses allocated to such Class, is referred to
herein as the 'INTEREST ACCRUAL AMOUNT' for such Class.
The Interest Accrual Amount for each Class of Certificates, other than the
Class I-A-4, Class II-A-2 and Class II-A-PO Certificates, will equal (a) the
product of (i) 1/12th of the Pass-Through Rate for such Class and (ii) the
outstanding Principal Balance of such Class or, in the case of the Class I-A-6
Certificates, the outstanding Class I-A-6 Notional Amount minus (b) the sum of
(i) any Non-Supported Interest Shortfall allocable to such Class, (ii) the
interest portion of any Excess Losses allocable to such Class and (iii) the
interest portion of any Realized Losses, other than the interest portion of any
Excess Losses, allocable to such Class on or after the Cross-Over Date. The
pass-through rate (the 'PASS-THROUGH RATE') for each Class of Offered
Certificates, other than the Class I-A-4 and Class II-A-2 Certificates, is the
percentage set forth on page S-4 of this Prospectus Supplement.
The Class I-A-6 Certificates are interest-only Certificates and have no
Principal Balance. The 'CLASS I-A-6 NOTIONAL AMOUNT' with respect to each
Distribution Date will be equal to the Principal Balance of the Class I-A-7
Certificates divided by 25. Accordingly, any distributions in respect of
principal made to, or losses in respect of principal allocated in reduction of,
the Principal Balance of the Class I-A-7 Certificates will result in a
proportional reduction in the Class I-A-6 Notional Amount. See '-- Principal
(Including Prepayments)' and '-- Subordination of Class B
Certificates -- Allocation of Losses' herein. The Class I-A-6 Notional Amount
with respect to the first Distribution Date will be approximately $406,201.
No interest will accrue on the Class I-A-4, Class II-A-2 and Class II-A-PO
Certificates.
The 'PRINCIPAL BALANCE' of a Class of Class A Certificates (other than the
Class I-A-6 and Class II-A-PO Certificates) as of any Determination Date will be
the principal balance of such Class on the date of initial
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<PAGE>
issuance of the Class A Certificates, less (i) all amounts previously
distributed on such Class in reduction of the principal balance of such Class
and (ii) such Class's pro rata share of the principal portion of Excess Losses
allocated through such Determination Date to the holders of Class A Certificates
of such Group (other than the Class II-A-PO Certificates) in the manner
described herein under '-- Subordination of Class B Certificates -- Allocation
of Losses.' After the Cross-Over Date, the Principal Balance of a Class of Class
A Certificates (other than the Class I-A-6 and Class II-A-PO Certificates) may
be subject to further reduction in an amount equal to such Class's pro rata
share of the difference, if any, between (a) the Class A Non-PO Principal
Balance for the related Group as of such Determination Date without regard to
this provision and (b) the difference between (i) the Adjusted Pool Amount for
the related Loan Group for the preceding Distribution Date and (ii) the Adjusted
Pool Amount (PO Portion) for the related Loan Group for the preceding
Distribution Date. Any pro rata allocation among the Classes of Class A
Certificates of a Group (other than the Class II-A-PO Certificates) described in
this paragraph will be made among such Classes on the basis of their
then-outstanding Principal Balances.
The 'PRINCIPAL BALANCE' of the Class II-A-PO Certificates as of any
Determination Date will be the principal balance of such Class on the date of
initial issuance of the Class A Certificates less (i) all amounts previously
distributed to the holders of the Class II-A-PO Certificates pursuant to clause
(a) priority third clause (B) and clause (a) priority fourth of the Pool
Distribution Amount Allocation and (ii) the principal portion of Excess Losses
allocated through such Determination Date to the Class II-A-PO Certificates in
the manner described herein under '-- Subordination of Class B
Certificates -- Allocation of Losses.' After the Cross-Over Date, the Principal
Balance of the Class II-A-PO Certificates will be subject to further reduction
in an amount equal to the excess, if any, of (a) the Principal Balance of the
Class II-A-PO Certificates as of such Determination Date without regard to this
provision over (b) the Adjusted Pool Amount (PO Portion) for Loan Group II for
the preceding Distribution Date.
The 'PRINCIPAL BALANCE' of a Class of Class B Certificates as of any
Determination Date will be the lesser of (a) the principal balance of such Class
on the date of initial issuance of the Class B Certificates less (i) all amounts
previously distributed to holders of such Class in reduction of the principal
balance thereof and (ii) the principal portion of Excess Losses allocated
through such Determination Date to the holders of such Class in the manner
described under '-- Subordination of Class B Certificates -- Allocation of
Losses' and (b) the sum of the Adjusted Pool Amounts as of the preceding
Distribution Date less the sum of (i) the sum of the Class A Principal Balances
and (ii) the Principal Balances of the Classes of Class B Certificates with
lower numerical designations, each as of such Determination Date.
The 'CLASS A PRINCIPAL BALANCE' for a Group as of any Determination Date
will be equal to the sum of the Principal Balances of the Classes of Class A
Certificates of such Group as of such date.
The 'CLASS A NON-PO PRINCIPAL BALANCE' for a Group as of any Determination
Date will be equal to the sum of the Principal Balances of the Classes of Class
A Certificates of such Group (other than the Class II-A-PO Certificates) as of
such date.
The 'CLASS B PRINCIPAL BALANCE' as of any date will be equal to the sum of
the Principal Balances of the Classes of Class B Certificates as of such date.
The 'AGGREGATE PRINCIPAL BALANCE' as of any date will be equal to the sum
of the Class A Principal Balances and the Class B Principal Balance as of such
date.
The 'AGGREGATE NON-PO PRINCIPAL BALANCE' as of any date will be equal to
the sum of the Class A Non-PO Principal Balances and the Class B Principal
Balance as of such date.
With respect to any Distribution Date and any Loan Group, the 'ADJUSTED
POOL AMOUNT' will equal the aggregate unpaid principal balance of the Mortgage
Loans in such Loan Group as of the Cut-Off Date minus the sum of (i) all amounts
in respect of principal received in respect of the Mortgage Loans in such Loan
Group (including amounts received as Periodic Advances, principal prepayments
and Liquidation Proceeds in respect of principal) and distributed to holders of
the Certificates on such Distribution Date and all prior Distribution Dates and
(ii) the principal portion of all Realized Losses (other than Debt Service
Reductions) incurred on the Mortgage Loans in such Loan Group from the Cut-Off
Date through the end of the month preceding such Distribution Date.
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The 'ADJUSTED POOL AMOUNT (PO PORTION)'with respect to any Distribution
Date and Loan Group I will equal zero and with respect to any Distribution Date
and Loan Group II, will equal the sum as to each Mortgage Loan in such Loan
Group outstanding at the Cut-Off Date of the product of (A) the PO Fraction for
such Mortgage Loan and (B) the principal balance of such Mortgage Loan as of the
Cut-Off Date less the sum of (i) all amounts in respect of principal received in
respect of such Mortgage Loan (including amounts received as Periodic Advances,
principal prepayments and Liquidation Proceeds in respect of principal) and
distributed to holders of the Certificates on such Distribution Date and all
prior Distribution Dates and (ii) the principal portion of any Realized Loss
(other than a Debt Service Reduction) incurred on such Mortgage Loan from the
Cut-Off Date through the end of the month preceding the month in which such
Distribution Date occurs.
The 'NET MORTGAGE INTEREST RATE' on each Mortgage Loan will be equal to the
Mortgage Interest Rate on such Mortgage Loan as stated in the related mortgage
note minus the sum of (i) the Servicing Fee Rate, (ii) the Master Servicing Fee
Rate and (iii) the Fixed Retained Yield rate, if any, for such Mortgage Loan.
See 'Servicing of the Mortgage Loans -- Fixed Retained Yield; Servicing
Compensation and Payment of Expenses' herein.
When mortgagors prepay principal, or when principal is recovered through
foreclosure sales or other liquidations of defaulted Mortgage Loans, or when
other Unscheduled Principal Receipts occur, a full month's interest for the
month of payment or recovery may not be paid or recovered, resulting in interest
shortfalls to the extent that such payment or recovery is not included in the
distribution to Certificateholders made in the month in which it is received.
Interest shortfalls resulting from principal prepayments in full made by
mortgagors ('PREPAYMENTS IN FULL') are referred to herein as 'PREPAYMENT
INTEREST SHORTFALLS.' The Master Servicer will be obligated, on or before each
Distribution Date, to pay to the Trust Administrator for the benefit of
Certificateholders, from the Master Servicer's own funds (including amounts
otherwise payable to the Master Servicer in respect of such Distribution Date as
Master Servicing Fees) an amount (such amount, 'COMPENSATING INTEREST') equal to
the lesser of (i) the aggregate Prepayment Interest Shortfall with respect to
such Distribution Date and (ii) the lesser of (X) the product of (A) 1/12th of
0.20% and (B) the aggregate of the Scheduled Principal Balances of the Mortgage
Loans for such Distribution Date and (Y) the Available Master Servicing
Compensation for such Distribution Date.
The 'AVAILABLE MASTER SERVICING COMPENSATION' for any Distribution Date
will be equal to the sum of (a) the Master Servicing Fee for such Distribution
Date, (b) interest earned through the business day preceding the applicable
Distribution Date on any Prepayments in Full remitted to the Master Servicer and
deposited in the Certificate Account (which amount of interest with respect to
Prepayments in Full on the Mortgage Loans serviced by Norwest Mortgage is
expected to be zero unless the Remittance Date for such Mortgage Loans changes
as described below under 'Servicing of the Mortgage Loans -- Anticipated Changes
in Servicing') and (c) the aggregate amount of Month End Interest remitted by
the Servicers to the Master Servicer pursuant to the related Underlying
Servicing Agreements. With respect to the Mortgage Loans serviced by Norwest
Mortgage, 'MONTH END INTEREST' for each Distribution Date will be equal to the
lesser of (i) the aggregate Prepayment Interest Shortfalls with respect to the
Mortgage Loans serviced by Norwest Mortgage and (ii) the product of 1/12th of
0.20% and the aggregate scheduled principal balance (as determined in the
applicable Underlying Servicing Agreement) of the Mortgage Loans serviced by
Norwest Mortgage. With respect to the Mortgage Loans serviced by each Other
Servicer, 'MONTH END INTEREST' for each Distribution Date depends in part on
whether such Other Servicer is required to remit to the Master Servicer
Prepayments in Full for deposit into the Certificate Account daily on a
specified business day following the receipt thereof. 'MONTH END INTEREST' for
Other Servicers will generally equal the lesser of (a) (i) with respect to Other
Servicers required to remit Prepayments in Full on a daily basis, the aggregate
Curtailment Interest Shortfalls with respect to the Mortgage Loans serviced by
such Other Servicer or (ii) with respect to Other Servicers not required to
remit Prepayments in Full on a daily basis, the sum of the aggregate Prepayment
Interest Shortfalls and aggregate Curtailment Interest Shortfalls with respect
to the Mortgage Loans serviced by such Other Servicer and (b) the sum of (X) for
each Mortgage Loan serviced by such Other Servicer, the product of 1/12th of the
Servicing Fee Rate and the scheduled principal balance (as determined in the
applicable Underlying Servicing Agreement) of such Mortgage Loan serviced by
such Other Servicer and (Y) reinvestment earnings on payments received in
respect of the Mortgage Loans or on other amounts on deposit in the related
Servicer Custodial Account pursuant to the related Underlying Servicing
Agreement on such Distribution Date (other than with respect to Mortgage Loans
serviced by Merrill Lynch Credit Corporation). As described below under
'Servicing of the Mortgage Loans -- Anticipated Changes in
S-24
<PAGE>
Servicing,' a Servicer not currently remitting Prepayments in Full on a daily
basis may agree to begin to do so at some time in the future and, in conjunction
therewith, the amount of Month End Interest such Servicer is required to remit
may be decreased or such Servicer may be relieved of its obligation to remit any
Month End Interest. If an Other Servicer that is not currently remitting
Prepayments in Full on a daily basis begins to do so, any such change may have
an impact on the amount of Compensating Interest by increasing the amount
described in clause (b) of the definition of Available Master Servicing
Compensation and decreasing the amount described in clause (c) of the definition
thereof. No assurance can be given as to the timing of any such changes or that
any such changes will occur.
As to any Distribution Date, Prepayment Interest Shortfalls to the extent
that they exceed Compensating Interest are referred to herein as 'NON-SUPPORTED
INTEREST SHORTFALLS' and will be allocated to (i) the Class A Certificates
according to the percentage obtained by dividing the sum of the then-outstanding
Class A Non-PO Principal Balances by the Aggregate Non-PO Principal Balance and
(ii) the Class B Certificates according to the percentage obtained by dividing
the then-outstanding Class B Principal Balance by the Aggregate Non-PO Principal
Balance. Such allocation of Non-Supported Interest Shortfalls will reduce the
amount of interest due to be distributed to holders of Certificates then
entitled to distributions in respect of interest. Any such reduction in respect
of interest allocated to the Class A or Class B Certificates will be allocated
among such Classes of Class A or Class B Certificates, as the case may be, pro
rata on the basis of their respective Interest Accrual Amounts, without regard
to any reduction pursuant to this paragraph, for such Distribution Date.
Any interest shortfalls arising from Unscheduled Principal Receipts in full
that are not Prepayments in Full and any interest shortfalls resulting from the
timing of the receipt of partial principal prepayments by mortgagors
('CURTAILMENT INTEREST SHORTFALLS') or of other partial Unscheduled Principal
Receipts with respect to the Mortgage Loans will not be offset by Compensating
Interest, but instead will be borne first by the Classes of Class B Certificates
in reverse numerical order and then pro rata by the Class A Certificates based
on interest accrued. See '-- Subordination of Class B Certificates' herein.
After the Cross-Over Date all interest shortfalls arising from Unscheduled
Principal Receipts, other than Prepayment Interest Shortfalls covered by
Compensating Interest, will be treated as Non-Supported Interest Shortfalls and
allocated in reduction of interest accrued on the Class A Certificates.
The interest portion of any Excess Losses will be allocated among the Class
A Certificates of the related Group and the Class B Certificates pro rata based
on (i) in the case of the Class A Certificates, their respective Interest
Accrual Amounts and (ii) in the case of the Class B Certificates, interest
accrued on their respective Apportioned Principal Balances, without regard to
any reduction pursuant to this paragraph, for such Distribution Date.
Allocations of the interest portion of Realized Losses (other than Excess
Losses) first to the Classes of Class B Certificates in reverse numerical order
will result from the priority of distributions first to the holders of the Class
A Certificates and then to the holders of the Classes of Class B Certificates in
numerical order of the Pool Distribution Amount as described above under
'-- Distributions.'
On each Distribution Date on which the amount available to be distributed
in respect of interest on a Class of Certificates pursuant to the Pool
Distribution Amount Allocation is less than such Class's Interest Accrual
Amount, the amount of any such deficiency (as to each Class, an 'INTEREST
SHORTFALL AMOUNT') will be added to the amount of interest distributable on such
Class on subsequent Distribution Dates, but only for so long as such Class's
Principal Balance is greater than zero. No interest will accrue on any Interest
Shortfall Amounts. Under certain circumstances the unpaid Interest Shortfall
Amounts for a Group of Class A Certificates will be payable from amounts
otherwise distributable as principal on the Class B Certificates in reverse
order of priority. See '-- Cross-Collateralization' below.
PRINCIPAL (INCLUDING PREPAYMENTS)
The principal balance of a Certificate at any time is equal to the product
of the related Class's Principal Balance and such Certificate's Percentage
Interest, and represents the maximum specified dollar amount (exclusive of (i)
any interest that may accrue on such Certificate and (ii) in the case of the
Class I-A-R and Class I-A-LR Certificates any additional amounts to which the
holder of such Certificate may be entitled as described below under
'-- Additional Rights of the Class I-A-R and Class I-A-LR Certificateholders')
to which the holder thereof is entitled from the cash flow on the Mortgage Loans
at such time, and will decline to the
S-25
<PAGE>
extent of distributions in reduction of the principal balance of, and
allocations of losses to, such Certificate. The approximate initial Principal
Balance of each Class of Certificates (other than the Class I-A-6 Certificates)
is set forth on page S-4 of this Prospectus Supplement. The Class I-A-6
Certificates will have no Principal Balance.
Calculation of Amount to be Distributed on the Certificates
Distributions in reduction of the Principal Balance of each Group of Class
A Certificates (other than the Class II-A-PO Certificates) will be made on each
Distribution Date pursuant to the Pool Distribution Amount Allocation, in an
aggregate amount equal to the Class A Non-PO Principal Distribution Amount for
such Group.
The 'CLASS A NON-PO PRINCIPAL DISTRIBUTION AMOUNT' with respect to any
Group and any Distribution Date will be equal to the amount distributed with
respect to such Group pursuant to clause (a) priority third clause (A) of the
Pool Distribution Amount Allocation, in an aggregate amount up to the Class A
Non-PO Optimal Principal Amount for such Group.
Distributions in reduction of the Principal Balance of the Class II-A-PO
Certificates will be made on each Distribution Date in an aggregate amount equal
to the Class A-PO Distribution Amount for the Group II-A Certificates. The
'CLASS A-PO DISTRIBUTION AMOUNT' with respect to such Group and any Distribution
Date will be equal to the sum of (i) the amount distributed with respect to such
Group pursuant to clause (a) priority third clause (B) of the Pool Distribution
Amount Allocation, in an aggregate amount up to the Class A-PO Optimal Principal
Amount for such Group and (ii) the amount distributed with respect to such Group
pursuant to clause (a) priority fourth of the Pool Distribution Amount
Allocation, in an aggregate amount up to the Class A-PO Deferred Amount.
Distributions in reduction of the Principal Balances of the Class B-1,
Class B-2, Class B-3, Class B-4, Class B-5 and Class B-6 Certificates will be
made on each Distribution Date first to the Class B-1 Certificates, second to
the Class B-2 Certificates, third to the Class B-3 Certificates, fourth to the
Class B-4 Certificates, fifth to the Class B-5 Certificates and then to the
Class B-6 Certificates, pursuant to clause (b) (C) of the Pool Distribution
Amount Allocation, in an aggregate amount with respect to each such Class (each,
a 'CLASS B PRINCIPAL DISTRIBUTION AMOUNT') up to the Class B Optimal Principal
Amount for such Class.
The 'CLASS A NON-PO OPTIMAL PRINCIPAL AMOUNT' for each Group, the 'CLASS B
LOAN GROUP I OPTIMAL PRINCIPAL AMOUNT' and the 'CLASS B LOAN GROUP II OPTIMAL
PRINCIPAL AMOUNT' for each Class of Class B Certificates and the 'Class A-PO
Optimal Principal Amount' for the Group II-A Certificates with respect to each
Distribution Date will be an amount equal to the sum for each outstanding
Mortgage Loan in the related Loan Group (including each defaulted Mortgage Loan,
other than a Liquidated Loan, with respect to which the related Mortgaged
Property has been acquired by the Trust Estate) of the product of:
(A) (i) in the case of the Class A Non-PO Optimal Principal Amounts,
the Class B Loan Group I Optimal Principal Amounts and the Class B Loan
Group II Optimal Principal Amounts, the Non-PO Fraction for such Mortgage
Loan and (ii) in the case of the Class A-PO Optimal Principal Amount, the
PO Fraction for such Group II Mortgage Loan; and
(B) the sum of:
(i) the applicable Class Percentage of (x) the scheduled payment of
principal due on such Mortgage Loan on the first day of the month in
which the Distribution Date occurs, less (y) if the Bankruptcy Loss
Amount is zero, the principal portion of Debt Service Reductions with
respect to such Mortgage Loan;
(ii) the applicable Class Prepayment Percentage of all Unscheduled
Principal Receipts that were received by a Servicer with respect to such
Mortgage Loan during the Unscheduled Principal Receipt Period relating
to such Distribution Date for each applicable type of Unscheduled
Principal Receipt;
S-26
<PAGE>
(iii) the applicable Class Prepayment Percentage of the Scheduled
Principal Balance of such Mortgage Loan which, during the month
preceding the month of such Distribution Date was repurchased by the
Seller, as described under the heading 'Description of the Mortgage
Loans -- Mandatory Repurchase or Substitution of Mortgage Loans' herein;
and
(iv) the applicable Class Percentage of the excess of the unpaid
principal balance of any defective Mortgage Loan for which a Mortgage
Loan was substituted during the month preceding the month in which such
Distribution Date occurs over the unpaid principal balance of such
substituted Mortgage Loan, less the amount allocable to the principal
portion of any unreimbursed advances in respect of such defective
Mortgage Loan. See 'The Pooling and Servicing Agreement -- Assignment of
the Mortgage Loans to the Trustee' in the Prospectus.
The 'CLASS PERCENTAGE' will equal (i) the applicable Class A Percentage, in
the case of the calculation of the Class A Non-PO Optimal Principal Amount for a
Group; (ii) the applicable Class B Percentage, in the case of the calculation of
the Class B Loan Group I Optimal Principal Amount and the Class B Loan Group II
Optimal Principal Amount for a Class of Class B Certificates; and (iii) 100% in
the case of the calculation of the Class A-PO Optimal Principal Amount for the
Group II-A Certificates.
The 'CLASS PREPAYMENT PERCENTAGE' will equal (i) the applicable Class A
Prepayment Percentage, in the case of the calculation of the Class A Non-PO
Optimal Principal Amount for a Group; (ii) the applicable Class B Prepayment
Percentage, in the case of the calculation of the Class B Loan Group I Optimal
Principal Amount and the Class B Loan Group II Optimal Principal Amount for a
Class of Class B Certificates; and (iii) 100% in the case of the calculation of
the Class A-PO Optimal Principal Amount for the Group II-A Certificates.
The 'CLASS B OPTIMAL PRINCIPAL AMOUNT' for a Class of Class B Certificates
is equal to the sum of the Class B Loan Group I Optimal Principal Amount and the
Class B Loan Group II Optimal Principal Amount for such Class.
The 'CLASS A-PO DEFERRED AMOUNT' for the Group II-A Certificates and any
Distribution Date prior to the Cross-Over Date will equal the difference between
(A) the sum of (i) the amount by which the Class A-PO Optimal Principal Amount
for such Group for all prior Distribution Dates exceeds the amounts distributed
to the Class II-A-PO Certificates on such prior Distribution Dates pursuant to
clause (a) priority third clause (B) of the Pool Distribution Amount Allocation,
but only to the extent such shortfall is not attributable to Realized Losses
allocated to the Class II-A-PO Certificates as described in '-- Subordination of
Class B Certificates -- Allocation of Losses' below and (ii) the sum of the
product for each Discount Mortgage Loan in the related Loan Group which became a
Liquidated Loan at any time on or prior to the last day of the applicable
Unscheduled Principal Receipt Period for the current Distribution Date of (a)
the PO Fraction for such Discount Mortgage Loan and (b) an amount equal to the
principal portion of Realized Losses (other than Bankruptcy Losses due to Debt
Service Reductions) incurred with respect to such Discount Mortgage Loan other
than Excess Losses and (B) amounts distributed on the Class II-A-PO Certificates
on prior Distribution Dates pursuant to clause (a) priority fourth of the Pool
Distribution Amount Allocation. On or after the Cross-Over Date, the Class A-PO
Deferred Amount will be zero. No interest will accrue on any Class A-PO Deferred
Amount. There will be no Class A-PO Deferred Amount with respect to the Group
I-A Certificates.
The principal distribution to the holders of a Class of Class B
Certificates will be reduced on any Distribution Date on which (i) the Principal
Balance of such Class of Class B Certificates on the following Determination
Date would be reduced to zero as a result of principal distributions or
allocation of losses and (ii) the Principal Balance of any Class A Certificates
or any Class of Class B Certificates with a lower numerical designation, would
be subject to reduction on such Determination Date as a result of allocation of
Realized Losses (other than Excess Losses). The amount of any such reduction in
the principal distributed to the holders of such Class of Class B Certificates
will instead be distributed pro rata to the holders of any Class (other than the
Class II-A-PO Certificates) senior in priority to receive distributions in
accordance with the Pool Distribution Amount Allocation.
Generally, in the event that there is any recovery of an amount in respect
of principal which had previously been allocated as a Realized Loss to any Class
of Certificates, such Class, so long as its Principal Balance has not
S-27
<PAGE>
been reduced to zero, will be entitled to its pro rata share of such recovery in
an amount up to the amount by which the Principal Balance of such Class was
reduced as a result of such Realized Loss.
The 'SCHEDULED PRINCIPAL BALANCE' of a Mortgage Loan as of any Distribution
Date is the unpaid principal balance of such Mortgage Loan as specified in the
amortization schedule at the time relating thereto (before any adjustment to
such schedule by reason of bankruptcy (other than Deficient Valuations),
moratorium or similar waiver or grace period) as of the Due Date occurring in
the month preceding the month in which such Distribution Date occurs, after
giving effect to any principal prepayments or other unscheduled recoveries of
principal previously received, to any partial principal prepayments and
Deficient Valuations occurring prior to such Due Date, to the payment of
principal due on such Due Date irrespective of any delinquency in payment by the
mortgagor and to any Unscheduled Principal Receipts received or applied during
the applicable Unscheduled Principal Receipt Period for the Distribution Date in
the month preceding the month in which such Distribution Date occurs.
A 'REALIZED LOSS' is any Liquidated Loan Loss (including any Special Hazard
Loss and any Fraud Loss) or any Bankruptcy Loss. A 'LIQUIDATED LOAN' is a
defaulted Mortgage Loan as to which the Servicer has determined that all
recoverable liquidation and insurance proceeds have been received. A 'LIQUIDATED
LOAN LOSS' on a Liquidated Loan is equal to the excess, if any, of (i) the
unpaid principal balance of such Liquidated Loan, plus accrued interest thereon
in accordance with the amortization schedule at the Net Mortgage Interest Rate
through the last day of the month in which such Mortgage Loan was liquidated,
over (ii) net Liquidation Proceeds. For purposes of calculating the amount of
any Liquidated Loan Loss, all net Liquidation Proceeds (after reimbursement of
any previously unreimbursed Periodic Advance) will be applied first to accrued
interest and then to the unpaid principal balance of the Liquidated Loan. A
'SPECIAL HAZARD LOSS' is (A) a Liquidated Loan Loss suffered by a Mortgaged
Property on account of direct physical loss exclusive of (i) any loss covered by
a standard hazard insurance policy or, if the Mortgaged Property is located in
an area identified in the Federal Register by the Federal Emergency Management
Agency as having special flood hazards, a flood insurance policy, of the types
described in the Prospectus under 'The Trust Estates -- Mortgage
Loans -- Insurance Policies' and (ii) any loss caused by or resulting from (a)
normal wear and tear, (b) dishonest acts of the Trustee, the Trust
Administrator, the Master Servicer or the Servicer or (c) errors in design,
faulty workmanship or faulty materials, unless the collapse of the property or a
part thereof ensues or (B) a Liquidated Loan Loss arising from or relating to
the presence or suspected presence of hazardous wastes or substances on a
Mortgaged Property. A 'FRAUD LOSS' is a Liquidated Loan Loss incurred on a
Liquidated Loan as to which there was fraud in the origination of such Mortgage
Loan. A 'BANKRUPTCY LOSS' is a loss attributable to certain actions which may be
taken by a bankruptcy court in connection with a Mortgage Loan, including a
reduction by a bankruptcy court of the principal balance of or the interest rate
on a Mortgage Loan or an extension of its maturity. A 'DEBT SERVICE REDUCTION'
means a reduction in the amount of monthly payments due to certain bankruptcy
proceedings, but does not include any permanent forgiveness of principal. A
'DEFICIENT VALUATION' with respect to a Mortgage Loan means a valuation by a
court of the Mortgaged Property in an amount less than the outstanding
indebtedness under the Mortgage Loan or any reduction in the amount of monthly
payments that results in a permanent forgiveness of principal, which valuation
or reduction results from a bankruptcy proceeding.
The 'NON-PO FRACTION' with respect to any Group I Mortgage Loan will be 1.0
and with respect to any Group II Mortgage Loan will equal the Net Mortgage
Interest Rate for such Mortgage Loan divided by 6.250%, but will not be greater
than 1.0.
The 'POOL BALANCE (NON-PO PORTION') for any Loan Group is the sum for each
outstanding Mortgage Loan in such Loan Group of the product of (i) the Non-PO
Fraction for such Mortgage Loan and (ii) the Scheduled Principal Balance of such
Mortgage Loan as of such Distribution Date.
Any Mortgage Loan with a Net Mortgage Interest Rate less than 6.250% is a
'DISCOUNT MORTGAGE LOAN'. None of the Group I Mortgage Loans are Discount
Mortgage Loans. The 'PO FRACTION' with respect to each Mortgage Loan of a Group
that is not a Discount Mortgage Loan (a 'GROUP I PREMIUM MORTGAGE LOAN' or
'GROUP II PREMIUM MORTGAGE LOAN', as applicable and each, a 'PREMIUM MORTGAGE
LOAN') will be zero. The PO FRACTION with respect to any Group II Mortgage Loan
that is a Discount Mortgage Loan (each, a 'GROUP II DISCOUNT MORTGAGE LOAN')
will equal the difference between 1.0 and the Non-PO Fraction for such Mortgage
Loan.
S-28
<PAGE>
The 'POOL BALANCE (PO PORTION)' for Loan Group I is zero and for Loan Group
II is the sum for each Discount Mortgage Loan in such Loan Group of the product
of the Scheduled Principal Balance of such Discount Mortgage Loan and the PO
Fraction for such Discount Mortgage Loan.
The 'CLASS A PERCENTAGE' for any Group and any Distribution Date occurring
on or prior to the Cross-Over Date is the percentage (subject to rounding),
which in no event will exceed 100%, obtained by dividing the Class A Non-PO
Principal Balance for such Group as of such date (before taking into account
distributions in reduction of Principal Balance on such date) by the Pool
Balance (Non-PO Portion) for the related Loan Group. The Class A Percentage for
the Group I-A Certificates for the first Distribution Date will be approximately
93.00%. The Class A Percentage for the Group II-A Certificates for the first
Distribution Date will be approximately 93.00%. The Class A Percentage for each
Group and any Distribution Date occurring after the Cross-Over Date will be
100%.
The 'CLASS A PREPAYMENT PERCENTAGE' for each Group and any Distribution
Date will be the percentage indicated below:
<TABLE>
<CAPTION>
DISTRIBUTION DATE OCCURRING IN CLASS A PREPAYMENT PERCENTAGE
------------------------------ --------------------------------------------------------
<S> <C>
December 1998 through November 2003.......... 100%;
December 2003 through November 2004.......... the applicable Class A Percentage, plus 70% of the
applicable Subordinated Percentage;
December 2004 through November 2005.......... the applicable Class A Percentage, plus 60% of the
applicable Subordinated Percentage;
December 2005 through November 2006.......... the applicable Class A Percentage, plus 40% of the
applicable Subordinated Percentage;
December 2006 through November 2007.......... the applicable Class A Percentage, plus 20% of the
applicable Subordinated Percentage; and
December 2007 and thereafter................. the applicable Class A Percentage;
</TABLE>
provided, however, that if on any of the foregoing Distribution Dates the Class
A Percentage for either Group exceeds the related initial Class A Percentage,
the Class A Prepayment Percentage for both Groups for such Distribution Date
will once again equal 100%. See 'Prepayment and Yield Considerations' herein and
in the Prospectus. Notwithstanding the foregoing, no reduction of the level of
the Class A Prepayment Percentage for either Group will occur on any
Distribution Date if (i) as of such Distribution Date as to which any such
reduction applies, the average outstanding principal balance on such
Distribution Date and for the preceding five Distribution Dates of the Mortgage
Loans in either Loan Group that were delinquent 60 days or more (including for
this purpose any Mortgage Loans in foreclosure and Mortgage Loans with respect
to which the related Mortgaged Property has been acquired by the Trust Estate)
is greater than or equal to 50% of the applicable Group Subordinate Amount or
(ii) for any Distribution Date, cumulative Realized Losses with respect to the
Mortgage Loans in either Loan Group exceed the percentages of the applicable
Group Subordinate Amount as of the Cut-Off Date (with respect to each Loan Group
the 'ORIGINAL GROUP SUBORDINATE AMOUNT') indicated below:
<TABLE>
<CAPTION>
PERCENTAGE OF ORIGINAL GROUP
DISTRIBUTION DATE OCCURRING IN SUBORDINATE AMOUNT
------------------------------ ----------------------------
<S> <C>
December 2003 through November 2004.......... 30%
December 2004 through November 2005.......... 35%
December 2005 through November 2006.......... 40%
December 2006 through November 2007.......... 45%
December 2007 and thereafter................. 50%
</TABLE>
If on any Distribution Date the allocation to the Class A Certificates of a
Group (other than the Class II-A-PO Certificates) of full and partial principal
prepayments and other amounts in the percentage required in the preceding
paragraph would reduce the outstanding Class A Non-PO Principal Balance for such
Group below zero, the Class A Prepayment Percentage with respect to such Group
for such Distribution Date will be limited to the percentage necessary to reduce
such Class A Non-PO Principal Balance to zero. In addition, once the Principal
Balances of the Class A Certificates of a Group (other than the Class II-A-PO
Certificates) have been reduced to zero, the Class A Prepayment Percentage for
such Group will be 0%. The tests described in
S-29
<PAGE>
the preceding paragraph will be performed with respect to each Loan Group even
if the Principal Balance of the related Group of Class A Certificates (other
than the Class II-A-PO Certificates) has been reduced to zero.
This disproportionate allocation of certain unscheduled payments in respect
of principal will have the effect of accelerating the amortization of the Class
A Certificates of a Group (other than the Class II-A-PO Certificates) while, in
the absence of Realized Losses, increasing the interest in the principal balance
of the Mortgage Loans in the related Loan Group evidenced by the Class B
Certificates. Increasing the respective interest of the Class B Certificates in
a Loan Group relative to that of the Class A Certificates of the related Group
(other than the Class II-A-PO Certificates) is intended to preserve the
availability of the subordination provided by the Class B Certificates. See
'-- Subordination of Class B Certificates' below. The 'SUBORDINATED PERCENTAGE'
for any Loan Group and any Distribution Date will be calculated (i) for Loan
Group I, as the difference between 100% and the Class A Percentage for the Class
I-A Certificates for such date and (ii) for Loan Group II, as the difference
between 100% and the Class A Percentage for the Class II-A Certificates for such
date. The 'SUBORDINATED PREPAYMENT PERCENTAGE' for any Loan Group and for any
Distribution Date will be calculated (i) for Loan Group I, as the difference
between 100% and the Class A Prepayment Percentage for the Class I-A
Certificates for such date and (ii) for Loan Group II, as the difference between
100% and the Class A Prepayment Percentage for the Class II-A Certificates for
such date.
The 'CLASS B PERCENTAGE' and 'CLASS B PREPAYMENT PERCENTAGE' for a Class of
Class B Certificates and for any Loan Group and any Distribution Date will equal
that portion of the Subordinated Percentage for such Loan Group and Subordinated
Prepayment Percentage for such Loan Group, as the case may be, represented by
the fraction the numerator of which is the then-outstanding Principal Balance
for such Class of Class B Certificates and the denominator of which is the sum
of the Principal Balances of the Classes of Class B Certificates entitled to
principal distributions for such Distribution Date as described below. In the
event that a Class of Class B Certificates is not entitled to principal
distributions for such Distribution Date, the Class B Percentage and Class B
Prepayment Percentage for such Class will both be 0% with respect to such
Distribution Date.
In the event that on any Distribution Date the Current Fractional Interest
of any Class of Class B Certificates is less than the Original Fractional
Interest of such Class, then the Classes of Certificates that are subordinate to
such Class will not be entitled to distributions in respect of principal and the
Principal Balances of such subordinated Classes will not be used to determine
the Class B Percentages and Class B Prepayment Percentages of the Classes of
Class B Certificates that are senior to such subordinated Classes for such
Distribution Date. The Class B-6 Certificates will not have original or current
fractional interests which are required to be maintained as described above.
The 'ORIGINAL FRACTIONAL INTEREST' of a Class of Class B Certificates is
the percentage obtained by dividing the sum of the initial Principal Balances of
the Classes of Certificates that are subordinate to such Class by the initial
Aggregate Non-PO Principal Balance. The 'CURRENT FRACTIONAL INTEREST' of a Class
of Class B Certificates for any Distribution Date is the percentage obtained by
dividing the sum of the then-outstanding Principal Balances of the Classes of
Certificates that are subordinate to such Class by the then-outstanding
Aggregate Non-PO Principal Balance.
The following table sets forth the expected approximate Original Fractional
Interest for each Class of Class B Certificates on the date of issuance of the
Certificates.
<TABLE>
<CAPTION>
APPROXIMATE
ORIGINAL
FRACTIONAL
CLASS INTEREST
- ----- -----------
<S> <C>
B-1................................................................................. 5.50%
B-2................................................................................. 2.25%
B-3................................................................................. 1.15%
B-4................................................................................. 0.60%
B-5................................................................................. 0.40%
B-6................................................................................. N/A
</TABLE>
S-30
<PAGE>
Allocation of Amount to be Distributed on the Class A Certificates
Group I-A Certificates
The Class I-A-6 Certificates are interest-only Certificates and are not
entitled to distributions in respect of principal.
On each Distribution Date prior to the Cross-Over Date, the Class A Non-PO
Principal Distribution Amount for the Group I-A Certificates will be allocated
among and distributed in reduction of the Principal Balances of the Group I-A
Certificates as follows:
first, to the Class I-A-3 Certificates, up to the Priority Amount for such
Distribution Date;
second, sequentially, to the Class I-A-R and Class I-A-LR Certificates,
until the Principal Balance of each such Class has been reduced to zero;
third, concurrently, to the Class I-A-1 and Class I-A-7 Certificates, pro
rata, until the Principal Balance of each such Class has been reduced to zero;
fourth, concurrently, as follows:
(A) approximately 89.2857142857%, sequentially, as follows:
(i) to the Class I-A-2 Certificates, until the Principal Balance
thereof has been reduced to zero; and
(ii) to the Class I-A-5 Certificates, until the Principal Balance
thereof has been reduced to zero; and
(B) approximately 10.7142857143% to the Class I-A-4 Certificates, until the
Principal Balance thereof has been reduced to zero; and
fifth, to the Class I-A-3 Certificates, without regard to the Priority
Amount, until the Principal Balance thereof has been reduced to zero.
Group II-A Certificates
On each Distribution Date prior to the Cross-Over Date, the Class A Non-PO
Principal Distribution Amount for the Group II-A Certificates will be
distributed concurrently, to the Class II-A-1 Certificates and the Class II-A-2
Certificates, pro rata, until the Principal Balance of each such Class has been
reduced to zero.
The 'PRIORITY AMOUNT' for any Distribution Date means the lesser of (i) the
Principal Balance of the Class I-A-3 Certificates and (ii) the sum of (A) the
product of (1) the Priority Percentage, (2) the Shift Percentage and (3) the
Group I Scheduled Principal Amount and (B) the product of (1) the Priority
Percentage, (2) the Prepayment Shift Percentage and (3) the Group I Unscheduled
Principal Amount.
The 'PRIORITY PERCENTAGE' means the Principal Balance of the Class I-A-3
Certificates divided by the Pool Balance (Non-PO Portion) for Loan Group I.
The 'GROUP I SCHEDULED PRINCIPAL AMOUNT' means the sum for each outstanding
Mortgage Loan in Loan Group I (including each defaulted Mortgage Loan in such
Loan Group, other than a Liquidated Loan, with respect to which the related
Mortgaged Property has been acquired by the Trust Estate) of the product of (A)
the Non-PO Fraction for such Mortgage Loan and (B) the sum of the amounts for
such Mortgage Loan described in clauses B(i) and B(iv) of the definition of
'Class A Non-PO Optimal Principal Amount' beginning on page S-26, but without
such amounts being multiplied by the applicable Class A Percentage.
The 'GROUP I UNSCHEDULED PRINCIPAL AMOUNT' means the sum for each
outstanding Mortgage Loan in Loan Group I (including each defaulted Mortgage
Loan in such Loan Group, other than a Liquidated Loan, with respect to which the
related Mortgage Property has been acquired by the Trust Estate) of the product
of (A) the Non-PO Fraction for such Mortgage Loan and (B) the sum of the amounts
for such Mortgage Loan described in clauses B(ii) and B(iii) of the definition
of 'Class A Non-PO Optimal Principal Amount' beginning on page S-26, but without
such amounts being multiplied by the applicable Class A Prepayment Percentage.
S-31
<PAGE>
The 'SHIFT PERCENTAGE' for any Distribution Date will be the percentage
indicated below:
<TABLE>
<CAPTION>
DISTRIBUTION DATE OCCURRING IN SHIFT PERCENTAGE
- ------------------------------ ----------------
<S> <C>
December 1998 through November 2003.............................................. 0%
December 2003 and thereafter..................................................... 100%
</TABLE>
The 'PREPAYMENT SHIFT PERCENTAGE' for any Distribution Date will be the
percentage indicated below:
<TABLE>
<CAPTION>
PREPAYMENT
DISTRIBUTION DATE OCCURRING IN SHIFT PERCENTAGE
- ------------------------------ ----------------
<S> <C>
December 1998 through November 2003.............................................. 0%
December 2003 through November 2004.............................................. 30%
December 2004 through November 2005.............................................. 40%
December 2005 through November 2006.............................................. 60%
December 2006 through November 2007.............................................. 80%
December 2007 and thereafter..................................................... 100%
</TABLE>
Notwithstanding the foregoing, on each Distribution Date occurring on or
after the Cross-Over Date, the Class A Non-PO Principal Distribution Amount for
each Loan Group will be distributed among the Classes of Class A Certificates
for each Loan Group (other than the Class II-A-PO Certificates) pro rata in
accordance with their respective outstanding Principal Balances without regard
to either the proportions or the priorities set forth above.
Any amounts distributed on a Distribution Date to the holders of any Class
in reduction of Principal Balance will be allocated among the holders of such
Class pro rata in accordance with their respective Percentage Interests.
CROSS-COLLATERALIZATION
On each Distribution Date prior to the Cross-Over Date but on or after the
date on which the Principal Balances of the Group I-A Certificates or the
Principal Balances of the Group II-A Certificates (other than the Class II-A-PO
Certificates) have been reduced to zero, amounts otherwise distributable as
principal on the Class B Certificates, in reverse order of priority, from their
applicable Apportioned Class B Principal Distribution Amounts, will be paid as
principal to the remaining Class A Certificates (other than the Class II-A-PO
Certificates) in accordance with the priorities set forth for such Group under
'-- Allocation of Amount to be Distributed on the Class A Certificates,'
provided that on such Distribution Date (a) the Aggregate Subordinate Percentage
for such Distribution Date is less than 200% of the Aggregate Subordinate
Percentage as of the Cut-Off Date or (b) the average outstanding principal
balance of the Mortgage Loans in either Loan Group delinquent 60 days or more
over the last six months as a percentage of the related Group Subordinate Amount
is greater than or equal to 50%.
With respect to each Class of Class B Certificates and any Distribution
Date, the 'APPORTIONED CLASS B PRINCIPAL DISTRIBUTION AMOUNT' will equal the
product of (i) the applicable Class B Principal Distribution Amount less any
amounts needed to pay any Class A-PO Deferred Amount and (ii) the applicable
Apportionment Fraction.
In the event the Principal Balances of the Class I-A Certificates have been
reduced to zero, the 'APPORTIONMENT FRACTION' for a Class of Class B
Certificates will equal a fraction the numerator of which is equal to the
applicable Class B Loan Group I Optimal Principal Amount and the denominator of
which is equal to the applicable Class B Optimal Principal Amount. In the event
the Principal Balances of the Class II-A Certificates (other than the Class
II-A-PO Certificates) have been reduced to zero, the 'APPORTIONMENT FRACTION'
for a Class of Class B Certificates will equal a fraction the numerator of which
is equal to the applicable Class B Loan Group II Optimal Principal Amount and
the denominator of which is equal to applicable Class B Optimal Principal
Amount.
The 'AGGREGATE SUBORDINATE PERCENTAGE' at any time will equal the sum of
the Principal Balances of the Class B Certificates divided by the sum of the
Pool Balances (Non-PO Portion) of the Loan Groups.
In addition, if on any Distribution Date the Class A Non-PO Principal
Balance of the Group I-A Certificates or Group II-A Certificates (after giving
effect to distributions to be made on such Distribution Date) is greater
S-32
<PAGE>
than the Pool Balance (Non-PO Portion) of the related Loan Group (any such
Group, the 'UNDERCOLLATERALIZED GROUP' and any such excess, the
'UNDERCOLLATERALIZED AMOUNT'), all amounts otherwise distributable as principal
on the Class B Certificates, in reverse order of priority pursuant to clause
(b)(C) of the Pool Distribution Amount Allocation (other than amounts needed to
pay any Class II-A-PO Deferred Amount or unpaid Interest Shortfall Amounts as
described below) will be paid as principal to the Class A Certificates (other
than the Class II-A-PO Certificates) of the Undercollateralized Group in
accordance with the priorities set forth under '-- Allocation of Amount to be
Distributed on the Class A Certificates,' until the aggregate Principal Balance
of the Class A Certificates (other than the Class II-A-PO Certificates) of the
Undercollateralized Group equals the Pool Balance (Non-PO Portion) of the
related Loan Group. In addition, the amount of any unpaid Interest Shortfall
Amounts with respect to the Undercollateralized Group (including any Interest
Shortfall Amount for such Distribution Date) will be paid to the
Undercollateralized Group prior to the payment of any Undercollateralized Amount
from amounts otherwise distributable as principal on the Class B Certificates,
in reverse order of priority pursuant to clause (b)(C) of the Pool Distribution
Amount Allocation (other than any amounts needed to pay any Class A-PO Deferred
Amount); such amount will be paid to the Undercollateralized Group in accordance
with clause (a) priority second of the Pool Distribution Amount Allocation.
ADDITIONAL RIGHTS OF THE CLASS I-A-R AND CLASS I-A-LR CERTIFICATEHOLDERS
The Class I-A-R and Class I-A-LR Certificates will remain outstanding for
as long as the Trust Estate shall exist, whether or not either such Class is
receiving current distributions of principal or interest. The holders of the
Class I-A-R and Class I-A-LR Certificates will be entitled to receive the
proceeds of the remaining assets of the Upper-Tier REMIC and the Lower-Tier
REMIC, respectively, if any, on the final Distribution Date for the
Certificates, after distributions in respect of any accrued but unpaid interest
on the Certificates and after distributions in reduction of Principal Balance
have reduced the Principal Balances of the Certificates to zero. It is not
anticipated that there will be any assets remaining in the Upper-Tier REMIC and
the Lower-Tier REMIC on the final Distribution Date following the distributions
of interest and in reduction of Principal Balance made on the Certificates on
such date.
In addition, the Class I-A-LR Certificateholder will be entitled on each
Distribution Date to receive any Pool Distribution Amounts remaining after all
distributions pursuant to the Pool Distribution Amount Allocation have been made
and any Net Foreclosure Profits, as described under 'Description of the
Certificates' in the Prospectus. It is not anticipated that there will be any
such Net Foreclosure Profits or undistributed portion of the Pool Distribution
Amounts.
PERIODIC ADVANCES
If, on any Determination Date, payments of principal and interest due on
any Mortgage Loan in the Trust Estate on the related Due Date have not been
received, the related Servicer will, in certain circumstances, be required to
advance on or before the related Distribution Date for the benefit of holders of
the Certificates an amount in cash equal to all delinquent payments of principal
and interest due on each Mortgage Loan in the Trust Estate (with interest
adjusted to the applicable Net Mortgage Interest Rate) not previously advanced,
but only to the extent that such Servicer believes that such amounts will be
recoverable by it from liquidation proceeds or other recoveries in respect of
the related Mortgage Loan (each, a 'PERIODIC ADVANCE'). Upon a Servicer's
failure to make a Periodic Advance required by the Underlying Servicing
Agreement, the Trust Administrator if such Servicer is Norwest Mortgage, or the
Master Servicer, if such Servicer is not Norwest Mortgage, will be required to
make such Periodic Advance. In addition, if under the terms of the applicable
Underlying Servicing Agreement, an Other Servicer is not obligated to make
Periodic Advances while a Mortgage Loan is in liquidation, the Master Servicer
will, under certain circumstances, be required to make such Periodic Advances.
The Underlying Servicing Agreements and the Pooling and Servicing Agreement
provide that any advance of the kind described in the preceding paragraph may be
reimbursed to the related Servicer, the Master Servicer or the Trust
Administrator as applicable, at any time from funds available in the Servicer
Custodial Account or the Certificate Account, as the case may be, to the extent
that (i) such funds represent receipts on, or liquidation, insurance, purchase
or repurchase proceeds in respect of, the Mortgage Loans to which the advance
relates or (ii) the Servicer, the Master Servicer or Trust Administrator as
applicable, has determined in good faith that the advancing party will be unable
to recover such advance from funds of the type referred to in clause (i) above.
S-33
<PAGE>
RESTRICTIONS ON TRANSFER OF THE CLASS I-A-R, CLASS I-A-LR AND CLASS B
CERTIFICATES
The Class I-A-R and Class I-A-LR Certificates will be subject to the
following restrictions on transfer, and each of the Class I-A-R and Class I-A-LR
Certificates will contain a legend describing such restrictions.
The REMIC provisions of the Code impose certain taxes on (i) transferors of
residual interests to, or agents that acquire residual interests on behalf of,
Disqualified Organizations and (ii) certain Pass-Through Entities (as defined in
the Prospectus) that have Disqualified Organizations as beneficial owners. No
tax will be imposed on a Pass-Through Entity (other than an 'electing large
partnership,' as defined in the Prospectus) with respect to the Class I-A-R or
Class I-A-LR Certificate to the extent it has received an affidavit from the
owner thereof that such owner is not a Disqualified Organization or a nominee
for a Disqualified Organization. The Pooling and Servicing Agreement will
provide that no legal or beneficial interest in the Class I-A-R or Class I-A-LR
Certificate may be transferred to or registered in the name of any person unless
(i) the proposed purchaser provides to the Trust Administrator an affidavit (or,
to the extent acceptable to the Trust Administrator, a representation letter
signed under penalty of perjury) to the effect that, among other items, such
transferee is not a Disqualified Organization (as defined in the Prospectus) and
is not purchasing the Class I-A-R or Class I-A-LR Certificate as an agent for a
Disqualified Organization (i.e., as a broker, nominee, or other middleman
thereof) and (ii) the transferor states in writing to the Trust Administrator
that it has no actual knowledge that such affidavit or letter is false. Further,
such affidavit or letter requires the transferee to affirm that it (i)
historically has paid its debts as they have come due and intends to do so in
the future, (ii) understands that it may incur tax liabilities with respect to
the Class I-A-R or Class I-A-LR Certificate in excess of cash flows generated
thereby, (iii) intends to pay taxes associated with holding the Class I-A-R or
Class I-A-LR Certificate as such taxes become due and (iv) will not transfer the
Class I-A-R or Class I-A-LR Certificate to any person or entity that does not
provide a similar affidavit or letter. The transferor must certify in writing to
the Trust Administrator that, as of the date of the transfer, it had no
knowledge or reason to know that the affirmations made by the transferee
pursuant to the preceding sentence were false.
In addition, the Class I-A-R and Class I-A-LR Certificates may not be
purchased by or transferred to any person that is not a 'U.S. Person,' unless
(i) such person holds such Class I-A-R or Class I-A-LR Certificate in connection
with the conduct of a trade or business within the United States and furnishes
the transferor and the Trust Administrator with an effective Internal Revenue
Service Form 4224 or (ii) the transferee delivers to both the transferor and the
Trust Administrator an opinion of a nationally recognized tax counsel to the
effect that such transfer is in accordance with the requirements of the Code and
the regulations promulgated thereunder and that such transfer of the Class I-A-R
or Class I-A-LR Certificate will not be disregarded for federal income tax
purposes. The term 'U.S. PERSON' means a citizen or resident of the United
States, a corporation, partnership (except to the extent provided in applicable
Treasury regulations) or other entity created or organized in or under the laws
of the United States or any political subdivision thereof, an estate that is
subject to United States federal income tax regardless of the source of its
income, or a trust if a court within the United States is able to exercise
primary supervision over the administration of such trust, and one or more such
U.S. Persons have the authority to control all substantial decisions of such
trust (or, to the extent provided in applicable Treasury regulations, certain
trusts in existence on August 20, 1996 which are eligible to be treated as U.S.
Persons).
The Pooling and Servicing Agreement will provide that any attempted or
purported transfer in violation of these transfer restrictions will be null and
void and will vest no rights in any purported transferee. Any transferor or
agent to whom the Trust Administrator provides information as to any applicable
tax imposed on such transferor or agent may be required to bear the cost of
computing or providing such information. See 'Material Federal Income Tax
Consequences -- Federal Income Tax Consequences for REMIC
Certificates -- Taxation of Residual Certificates -- Tax-Related Restrictions on
Transfer of Residual Certificates' in the Prospectus.
The Class I-A-R and Class I-A-LR Certificates may not be purchased by or
transferred to any person which is an employee benefit plan or other retirement
plan or arrangement subject to Title I of ERISA or Code Section 4975 (an 'ERISA
PLAN') or which is a governmental plan, as defined in Section 3(32) of ERISA,
subject to any federal, state or local law ('SIMILAR LAW') which is, to a
material extent, similar to the foregoing provisions of ERISA or the Code
(collectively, with an ERISA Plan, a 'PLAN'), or any person acting on behalf of
or investing the assets of such Plan. See 'ERISA Considerations' herein and in
the Prospectus.
S-34
<PAGE>
Under current law the purchase and holding of the Class B Certificates by
or on behalf of a Plan may result in 'prohibited transactions' within the
meaning of ERISA and Code Section 4975 or Similar Law. Transfer of the Class B
Certificates will not be made unless the transferee (i) executes a
representation letter in form and substance satisfactory to the Trust
Administrator and the Seller stating that (a) it is not, and is not acting on
behalf of, any such Plan or using the assets of any such Plan to effect such
purchase or (b) if it is an insurance company, that the source of funds used to
purchase the Class B Certificates is an 'insurance company general account' (as
such term is defined in Section V(e) of Prohibited Transaction Class Exemption
95-60 ('PTE 95-60'), 60 Fed. Reg. 35925 (July 12, 1995)), there is no Plan with
respect to which the amount of such general account's reserves and liabilities
for the contract(s) held by or on behalf of such Plan and all other Plans
maintained by the same employer (or affiliate thereof as defined in Section
V(a)(1) of PTE 95-60) or by the same employee organization exceeds 10% of the
total of all reserves and liabilities of such general account (as such amounts
are determined under Section I(a) of PTE 95-60) at the date of acquisition, and
the purchase and holding of such Certificates by the transferee are covered by
Sections I and III of PTE 95-60, or (ii) provides (A) an opinion of counsel in
form and substance satisfactory to the Trust Administrator and the Seller that
the purchase or holding of the Class B Certificates by or on behalf of such Plan
will not result in the assets of the Trust Estate being deemed to be 'plan
assets' and subject to the prohibited transaction provisions of ERISA, the Code
or Similar Law and will not subject the Seller, the Master Servicer, the Trust
Administrator or the Trustee to any obligation in addition to those undertaken
in the Pooling and Servicing Agreement and (B) such other opinions of counsel,
officers' certificates and agreements as the Seller or the Master Servicer may
require in connection with such transfer. The Class B Certificates will contain
a legend describing such restrictions on transfer and the Pooling and Servicing
Agreement will provide that any attempted or purported transfer in violation of
these transfer restrictions will be null and void and will vest no rights in any
purported transferee. See 'ERISA Considerations' herein and in the Prospectus.
REPORTS
The Master Servicer will include in the Monthly Report delivered to holders
of Class A and Class B Certificates with respect to each Distribution Date the
information specified in the Prospectus under 'The Pooling and Servicing
Agreement -- Reports to Certificateholders,' which information will be set forth
with respect to each Loan Group, where applicable.
Copies of the foregoing reports are available upon written request to the
Trust Administrator at its corporate trust office. See 'Pooling and Servicing
Agreement -- Trust Administrator' herein.
SUBORDINATION OF CLASS B CERTIFICATES
The rights of the holders of the Class B Certificates to receive
distributions with respect to the Mortgage Loans in the Trust Estate will be
subordinated to such rights of the holders of the Class A Certificates and the
rights of the holders of the Classes of Class B Certificates with higher
numerical designations to receive distributions with respect to the Mortgage
Loans in the Trust Estate will be subordinated to such rights of the holders of
Classes of Class B Certificates with lower numerical designations, all to the
extent described below. This subordination is intended to enhance the likelihood
of timely receipt by the holders of the more senior Certificates of the full
amount of their scheduled monthly payments of interest and principal and to
afford the holders of the more senior Certificates protection against Realized
Losses, as more fully described below. If Realized Losses exceed the credit
support provided through subordination to a given Class of Certificates or if
Excess Losses occur, all or a portion of such losses will be borne by such Class
of Certificates.
The protection afforded to the holders of more senior Classes of
Certificates by means of the subordination feature will be accomplished by the
preferential right of such holders to receive, prior to any distribution being
made on a Distribution Date in respect of the more junior Classes of
Certificates, the amounts of principal and interest due such holders on each
Distribution Date out of the Pool Distribution Amounts with respect to such date
and, if necessary, by the right of such holders to receive future distributions
on the Mortgage Loans that would otherwise have been payable to the holders of
the more junior Classes of Certificates. Because of the priority in which the
Class A Non-PO Principal Distribution Amount for a Group is allocated among the
Class A Certificates of such Group (other than the Class II-A-PO Certificates),
the application of this subordination to cover Realized Losses experienced in
periods prior to the periods in which a Class of Class A Certificates is
S-35
<PAGE>
entitled to distributions in reduction of Principal Balance will decrease the
protection provided by the subordination to any such Class.
Amounts distributed to holders of Subordinated Certificates will not be
available to cover delinquencies or Realized Losses in respect of subsequent
Distribution Dates.
Allocation of Losses
Realized Losses (other than Excess Losses) on the Mortgage Loans in a Loan
Group will not be allocated to the holders of the Class A Certificates of the
related Group until the date on which the amount of principal payments on the
Mortgage Loans in both Loan Groups to which the holders of the Subordinated
Certificates are entitled has been reduced to zero as a result of the allocation
of losses to the Subordinated Certificates, i.e., the Distribution Date
preceding the Distribution Date for which the Subordinated Percentage for each
Loan Group is equal to zero (the 'CROSS-OVER DATE'). Prior to such time, such
Realized Losses (other than a Debt Service Reduction or Excess Loss) will be
effected through the adjustment of the Principal Balance of the most subordinate
Class then outstanding in such amount as is necessary to cause the Aggregate
Principal Balance to equal the sum of the Adjusted Pool Amounts.
Allocations to the Classes of Class B Certificates of (i) the principal
portion of Debt Service Reductions, (ii) the interest portion of Realized Losses
(other than Excess Losses), (iii) any interest shortfalls resulting from
delinquencies for which the Servicer, the Master Servicer or the Trust
Administrator does not advance, (iv) any interest shortfalls or losses resulting
from the application of the Soldiers' and Sailors' Civil Relief Act of 1940, as
more fully described under 'Certain Legal Aspects of the Mortgage
Loans -- Soldiers' and Sailors' Civil Relief Act' in the Prospectus and (v) any
interest shortfalls resulting from the timing of the receipt of Unscheduled
Principal Receipts (other than Prepayments in Full) with respect to Mortgage
Loans will result from the priority of distributions of the Pool Distribution
Amounts first to the Class A Certificates and then to the Classes of Class B
Certificates in numerical order as described above under '-- Distributions.'
The allocation of the principal portion of Realized Losses (other than
Excess Losses) in respect of the Mortgage Loans in a Loan Group allocated on or
after the Cross-Over Date will be effected through the adjustment on any
Determination Date of the applicable Class A Non-PO Principal Balance and, in
the case of Loan Group II, the Principal Balance of the Class II-A-PO
Certificates such that (i) such Class A Non-PO Principal Balance equals the
Adjusted Pool Amount for the related Loan Group less the Adjusted Pool Amount
(PO Portion) for such Loan Group as of the preceding Distribution Date and (ii)
the Principal Balance of the Class II-A-PO Certificates equals the Adjusted Pool
Amount (PO Portion) for such Loan Group as of the preceding Distribution Date.
The principal portion of such Realized Losses allocated to a Group of Class A
Certificates (other than the Class II-A-PO Certificates) will be allocated to
such outstanding Classes of Class A Certificates pro rata in accordance with
their Principal Balances. The interest portion of any Realized Loss allocated to
a Group on or after the Cross-Over Date will be allocated among the outstanding
Classes of Class A Certificates of such Group pro rata in accordance with their
respective Interest Accrual Amounts, without regard to any reduction pursuant to
this sentence. Any such losses will be allocated among the outstanding Class A
Certificates within each such Class pro rata in accordance with their respective
Percentage Interests.
If due to losses on the Mortgage Loans in a Loan Group the applicable Pool
Distribution Amount is not sufficient to cover the applicable Class A Non-PO
Optimal Principal Amount on a particular Distribution Date, then the percentage
of principal payments on the Mortgage Loans in such Loan Group to which the
holders of the related Group of Class A Certificates (other than the Class
II-A-PO Certificates) will be entitled (i.e., the applicable Class A Percentage)
on and after the next Distribution Date will be proportionately increased,
thereby reducing, as a relative matter, the respective interest of the Class B
Certificates in future payments of principal on the Mortgage Loans in such Loan
Group.
Special Hazard Losses, Fraud Losses and Bankruptcy Losses, other than
Excess Losses, will be allocated solely to the Classes of Class B Certificates
in reverse numerical order. Special Hazard Losses, Fraud Losses and Bankruptcy
Losses in excess of the Special Hazard Loss Amount, the Fraud Loss Amount and
the Bankruptcy Loss Amount, respectively, are 'EXCESS SPECIAL HAZARD LOSSES,'
'EXCESS FRAUD LOSSES' and 'EXCESS BANKRUPTCY LOSSES,' respectively, and are
referred to herein collectively as 'EXCESS LOSSES'.
S-36
<PAGE>
Any Excess Losses on the Mortgage Loans in a Loan Group will be allocated
(i) with respect to the principal portion of such losses (a) to the outstanding
Classes of Class A Certificates of the related Group (other than the Class
II-A-PO Certificates) and the Class B Certificates pro rata based on their
outstanding Principal Balances or, in the case of the Class B Certificates, the
applicable Apportioned Principal Balances in proportion to the Non-PO Fraction
of such losses and (b) in respect of Discount Mortgage Loans, to the Class
II-A-PO Certificates in proportion to the PO Fraction of such losses and (ii)
with respect to the interest portion of such losses, to the Class A and Class B
Certificates pro rata based on interest accrued in the case of the Class A
Certificates or the interest that would accrue on the Class B Certificates based
on the applicable Apportioned Principal Balance in the case of the Class B
Certificates by reducing their respective Interest Accrual Amounts. The
principal portion of any such losses so allocated to the Class A Certificates of
a Group (other than the Class II-A-PO Certificates) will be allocated to such
outstanding Classes of Class A Certificates of such Group pro rata in accordance
with their then-outstanding Principal Balances. Any losses allocated to a Class
of Certificates will be allocated among the outstanding Certificates within such
Class pro rata in accordance with their respective Percentage Interests.
The 'APPORTIONED PRINCIPAL BALANCE' of any Class of Class B Certificates
for purposes of allocating Excess Losses on the Mortgage Loans in a Loan Group
will equal the Principal Balance of the Class of Class B Certificates multiplied
by a fraction the numerator of which is the applicable Group Subordinate Amount
and the denominator of which is the sum of the Group Subordinate Amounts. The
'GROUP SUBORDINATE AMOUNT' with respect to any Loan Group is equal to the excess
of the Pool Balance (Non-PO Portion) for such Loan Group over the Class A Non-PO
Principal Balance of the related Group of Class A Certificates.
Upon initial issuance of the Certificates, the 'SPECIAL HAZARD LOSS AMOUNT'
with respect thereto will be equal to approximately 1.00% (approximately
$2,300,955) of the aggregate unpaid principal balance of the Mortgage Loans as
of the Cut-Off Date. As of any Distribution Date, the Special Hazard Loss Amount
will equal the initial Special Hazard Loss Amount less the sum of (A) any
Special Hazard Losses allocated solely to the Class B Certificates and (B) the
Adjustment Amount. The 'ADJUSTMENT AMOUNT' on each anniversary of the Cut-Off
Date will be equal to the amount, if any, by which the Special Hazard Amount,
without giving effect to the deduction of the Adjustment Amount for such
anniversary, exceeds the greater of (i) 1.00% (or, if greater than 1.00%, the
highest percentage of Mortgage Loans by principal balance in any California zip
code) times the aggregate principal balance of all the Mortgage Loans on such
anniversary (ii) twice the principal balance of the single Mortgage Loan having
the largest principal balance, and (iii) that which is necessary to maintain the
original ratings assigned to the Class A and Class B Certificates by the
applicable Rating Agencies, as evidenced by letters to that effect delivered by
such Rating Agencies to the Master Servicer and the Trust Administrator. On and
after the Cross-Over Date, the Special Hazard Loss Amount will be zero.
Upon initial issuance of the Certificates, the 'FRAUD LOSS AMOUNT' with
respect thereto will be equal to approximately 2.00% (approximately $4,601,911)
of the aggregate unpaid principal balance of the Mortgage Loans as of the
Cut-Off Date. As of any Distribution Date prior to the first anniversary of the
Cut-Off Date, the Fraud Loss Amount will equal the initial Fraud Loss Amount
minus the aggregate amount of Fraud Losses allocated solely to the Class B
Certificates through the related Determination Date. As of any Distribution Date
from the first through fifth anniversary of the Cut-Off Date, the Fraud Loss
Amount will be an amount equal to (1) the lesser of (a) the Fraud Loss Amount as
of the most recent anniversary of the Cut-Off Date and (b) 1.00% of the
aggregate principal balance of all of the Mortgage Loans as of the most recent
anniversary of the Cut-Off Date minus (2) the aggregate amount of Fraud Losses
allocated solely to the Class B Certificates since the most recent anniversary
of the Cut-Off Date through the related Determination Date. On and after the
Cross-Over Date or after the fifth anniversary of the Cut-Off Date, the Fraud
Loss Amount will be zero.
Upon initial issuance of the Certificates, the 'BANKRUPTCY LOSS AMOUNT'
with respect thereto will be equal to approximately 0.04% (approximately
$86,177) of the aggregate unpaid principal balance of the Mortgage Loans as of
the Cut-Off Date. As of any Distribution Date prior to the first anniversary of
the Cut-Off Date, the Bankruptcy Loss Amount will equal the initial Bankruptcy
Loss Amount minus the aggregate amount of Bankruptcy Losses allocated solely to
the Class B Certificates through the related Determination Date. As of any
Distribution Date on or after the first anniversary of the Cut-Off Date, the
Bankruptcy Loss Amount will equal the excess, if any, of (1) the lesser of (a)
the Bankruptcy Loss Amount as of the business day next preceding the most recent
anniversary of the Cut-Off Date and (b) an amount, if any, calculated pursuant
to the terms of the Pooling and Servicing Agreement, which amount as calculated
will provide for a reduction in the
S-37
<PAGE>
Bankruptcy Loss Amount, over (2) the aggregate amount of Bankruptcy Losses
allocated solely to the Class B Certificates since such anniversary. The
Bankruptcy Loss Amount and the related coverage levels described above may be
reduced or modified upon written confirmation from each Rating Agency that such
reduction or modification will not adversely affect the then-current ratings
assigned to the Certificates by it. Such a reduction or modification may
adversely affect the coverage provided by subordination with respect to
Bankruptcy Losses. On and after the Cross-Over Date, the Bankruptcy Loss Amount
will be zero.
Notwithstanding the foregoing, the provisions relating to subordination
will not be applicable in connection with a Bankruptcy Loss so long as the
applicable Servicer has notified the Trust Administrator and the Master Servicer
in writing that such Servicer is diligently pursuing any remedies that may exist
in connection with the representations and warranties made regarding the related
Mortgage Loan and when (A) the related Mortgage Loan is not in default with
regard to the payments due thereunder or (B) delinquent payments of principal
and interest under the related Mortgage Loan and any premiums on any applicable
Standard Hazard Insurance Policy and any related escrow payments in respect of
such Mortgage Loan are being advanced on a current basis by such Servicer, in
either case without giving effect to any Debt Service Reduction.
As a result of the mechanism described above, the risk of Special Hazard
Losses, Fraud Losses and Bankruptcy Losses will be borne solely by the Class B
Certificates to a lesser extent (i.e., only up to the Special Hazard Loss
Amount, Fraud Loss Amount and Bankruptcy Loss Amount, respectively) than the
risk of other Realized Losses, which will be allocated first to the Class B
Certificates in reverse numerical order to the full extent of their initial
Principal Balances.
S-38
<PAGE>
DESCRIPTION OF THE MORTGAGE LOANS(1)
GENERAL
The mortgage loans to be included in the Trust Estate will be fixed
interest rate, conventional, monthly pay, fully amortizing, one- to four-family,
residential first mortgage loans (the 'MORTGAGE LOANS'). Substantially all of
the Group I Mortgage Loans will have original principal balances exceeding the
Loan Purchase Limit and original terms to maturity of approximately 15 to 30
years. Substantially all of the Group II Mortgage Loans will have original
principal balances less than or equal to the Loan Purchase Limit and original
terms of maturity of approximately 15 to 30 years. The 'LOAN PURCHASE LIMIT'
will be $227,150. The Mortgage Loans are expected to be secured by first liens
(the 'MORTGAGES') on one- to four-family residential properties (the 'MORTGAGED
PROPERTIES') and to have the additional characteristics described below and in
the Prospectus.
Each of the Mortgage Loans is subject to a due-on-sale clause. See 'Certain
Legal Aspects of the Mortgage Loans -- Due-on-Sale Clauses' and 'Servicing of
the Mortgage Loans -- Enforcement of Due-on-Sale Clauses; Realization Upon
Defaulted Mortgage Loans' in the Prospectus.
PLEDGED ASSET MORTGAGE LOANS
Certain of the Group II Mortgage Loans serviced by Merrill Lynch Credit
Corporation ('MLCC') are either (i) secured by a security interest in additional
collateral (general securities) owned by the borrower or (ii) supported by a
third party guarantee (usually of a parent of the borrower), which is in turn
secured by a security interest in collateral (generally securities) owned by
such guarantor (any such loans, 'PLEDGED ASSET MORTGAGE LOANS,' and any such
collateral 'ADDITIONAL COLLATERAL'). The amount of such Additional Collateral
generally does not exceed 30% of the original principal balance of the Mortgage
Loan. The requirement to maintain Additional Collateral terminates when the
principal balance of the Mortgage Loan is paid down to a predetermined amount.
The pledge agreement and the security interest in such Additional Collateral
will be assigned to the Trustee. It is anticipated that, in the event of a loss
upon the liquidation of a Pledged Asset Mortgage Loan, MLCC will attempt to
realize on the related security interest. No assurance can be given as to the
amount of proceeds, if any, that might be realized from such Additional
Collateral. In no event will the Trust Estate be permitted to acquire ownership
of the Additional Collateral. Pursuant to the terms of the Underlying Servicing
Agreement, MLCC will continue to administer the Additional Collateral even if
MLCC is no longer the Servicer of the Pledged Asset Mortgage Loans. Ambac
Assurance Corporation (the 'SURETY BOND PROVIDER') has previously issued a
limited purpose surety bond (the 'LIMITED PURPOSE SURETY BOND'), which is
intended to guarantee payment to the Trust Estate of certain shortfalls in the
net proceeds realized from the liquidation of any required Additional Collateral
(such amount not to exceed 30% of the original principal amount of the related
Pledged Asset Mortgage Loan) to the extent any such shortfall results in a loss
of principal on the related Pledged Asset Mortgage Loan upon liquidation. The
Limited Purpose Surety Bond will not cover any payments on the Certificates that
are recoverable or sought to be recovered as a voidable preference under
applicable law.
- ------------------------------
(1) The descriptions in this Prospectus Supplement of the Loan Groups and the
properties securing the Mortgage Loans to be included in the Loan Groups are
based upon the expected characteristics of the Mortgage Loans at the close
of business on the Cut-Off Date, as adjusted for the scheduled principal
payments due on or before such date. Notwithstanding the foregoing, any of
such Mortgage Loans may be excluded from the related Loan Group (i) as a
result of principal prepayment thereof in full or (ii) if, as a result of
delinquencies or otherwise, the Seller otherwise deems such exclusion
necessary or desirable. In either event, other Mortgage Loans may be
included in such Loan Group. The Seller believes that the information set
forth herein with respect to the expected characteristics of the Mortgage
Loans on the Cut-Off Date is representative of the characteristics as of the
Cut-Off Date of the Mortgage Loans to be included in the related Loan Groups
as it will be constituted at the time the Certificates are issued, although
the aggregate principal balance of the Mortgage Loans included in each Loan
Group as of the Cut-Off Date, the range of Mortgage Interest Rates and
maturities, and certain other characteristics of the Mortgage Loans in a
Loan Group may vary. In the event that any of the characteristics as of the
Cut-Off Date of the Mortgage Loans that constitute a Loan Group on the date
of initial issuance of the Certificates vary materially from those described
herein, revised information regarding such Mortgage Loans will be made
available to purchasers of the Offered Certificates, on or before such
issuance date, and a Current Report on Form 8-K containing such information
will be filed with the Securities and Exchange Commission within 15 days
following such date.
S-39
<PAGE>
Although the Limited Purpose Surety Bond is limited in amount (the 'MAXIMUM
AMOUNT'), the Seller has been advised by the Surety Bond Provider that the
Maximum Amount is, and will be, sufficient to cover all potential claims on
behalf of the Trust Estate with respect to the Additional Collateral securing
the Pledged Asset Mortgage Loans and on behalf of other assignees of additional
collateral securing similar mortgage loans from MLCC covered by the Limited
Purpose Surety Bond.
MORTGAGE LOAN UNDERWRITING
Approximately 67.72% (by aggregate unpaid principal balance as of the
Cut-Off Date) of the Group I Mortgage Loans and approximately 46.10% (by
aggregate unpaid principal balance as of the Cut-Off Date) of the Group II
Mortgage Loans were originated in conformity with Norwest Mortgage's general
underwriting standards (the 'GENERAL STANDARDS') or modified underwriting
standards (the 'MODIFIED STANDARDS' and together with the General Standards, the
'UNDERWRITING STANDARDS') described in the Prospectus under the heading 'The
Mortgage Loan Programs -- Mortgage Loan Underwriting -- General Standards' and
'-- Modified Standards' and as applied by Norwest Mortgage, or by eligible
originators to whom Norwest Mortgage had delegated all underwriting functions.
In certain instances, exceptions to the Underwriting Standards may have been
granted by Norwest Mortgage. The remaining approximate 32.28% (by aggregate
unpaid principal balance as of the Cut-Off Date) of the Group I Mortgage Loans
and approximate 53.90% (by aggregate unpaid principal balance as of the Cut-Off
Date) of the Group II Mortgage Loans (the 'BULK PURCHASE UNDERWRITTEN LOANS')
will have been underwritten in connection with bulk purchase transactions under
underwriting standards which may vary from the Underwriting Standards. Norwest
Mortgage will have reviewed the underwriting standards applied by the
originators in connection with Bulk Purchase Underwritten Loans and, except as
noted in the next sentence, will have determined that such standards did not
depart materially from the Underwriting Standards. The underwriting guidelines
applicable to foreign national and 'condotel' Bulk Purchase Underwritten Loans
purchased from Bank United permit higher loan-to-value ratios and require less
documentation of income than the Underwriting Standards specify for such loan
types. Neither the Seller nor Norwest Mortgage has underwritten any of the Bulk
Purchase Underwritten Loans.
S-40
<PAGE>
The following table sets forth certain characteristics of all the Group I
Mortgage Loans and the Group I Premium Mortgage Loans.
SELECTED GROUP I MORTGAGE LOAN DATA
(AS OF NOVEMBER 1, 1998 (THE 'CUT-OFF DATE'))
<TABLE>
<CAPTION>
ALL GROUP I
GROUP I PREMIUM
MORTGAGE MORTGAGE
LOANS LOANS
--------------------- ---------------------
<S> <C> <C>
Number of Mortgage Loans 221 221
Aggregate Unpaid Principal Balance(1) $77,593,461 $77,593,461
Range of Unpaid Principal Balances(1) $226,861 to $997,815 $226,861 to $997,815
Average Unpaid Principal Balance(1) $351,102 $351,102
Range of Mortgage Interest Rates 6.750% to 8.625% 6.750% to 8.625%
Weighted Average Mortgage Interest
Rate(1) 7.536% 7.536%
Weighted Average Net Mortgage
Interest Rate(1) 6.250% 6.250%
Range of Remaining Terms to Stated
Maturity 180 to 360 Months 180 to 360 Months
Weighted Average Remaining Term to
Stated Maturity(1) 354 Months 354 Months
Range of Original Loan-to-Value Ratios(1) 24.69% to 95.00% 24.69% to 95.00%
Weighted Average Original Loan-to-Value Ratio(1) 75.65% 75.65%
Number of Mortgage Loans with Original Loan-to-Value
Ratios
greater than 80% originated without
Primary Mortgage Insurance 2 2
Mortgage Loans with Original Loan-to-
Value Ratios greater than 80%
originated without Primary Mortgage
Insurance as a Percentage of Aggregate Unpaid Principal
Balance(1) 0.81% 0.81%
Weighted Average Original Loan-to-
Value Ratio of Mortgage Loans with
Original Principal Balance greater
than $600,000(1) 74.92% 74.92%
Maximum Original Loan-to-Value
Ratio of Mortgage Loans with
Original Principal Balance greater
than $600,000(1) 84.52% 84.52%
</TABLE>
- ------------------------------
(1) Approximate.
S-41
<PAGE>
SELECTED GROUP I MORTGAGE LOAN DATA (CONT.)
<TABLE>
<CAPTION>
ALL GROUP I
GROUP I PREMIUM
MORTGAGE MORTGAGE
LOANS LOANS
----------------- -----------------
<S> <C> <C>
Geographic Concentration of
Mortgaged Properties securing
Mortgage Loans in Excess of 5% of
the Aggregate Unpaid Principal
Balance(1)
California 39.67% 39.67%
Maryland 5.99% 5.99%
Colorado 5.61% 5.61%
Maximum Five-Digit Zip Code Concentration(1) 1.75% 1.75%
Earliest Origination Month March 1997 March 1997
Latest Origination Month October 1998 October 1998
Latest Stated Maturity Date November 1, 2028 November 1, 2028
Number of Buy-Down Loans 0 0
Buy-Down Loans as a Percentage of Aggregate Unpaid
Principal
Balance(1) 0.00% 0.00%
Number of Relocation Loans 0 0
Relocation Loans as a Percentage of Aggregate Unpaid
Principal
Balance(1) 0.00% 0.00%
Number of No Ratio Loans 34 34
No Ratio Loans as a Percentage of Aggregate Unpaid
Principal Balance(1) 14.09% 14.09%
Number of Foreign National Loans 4 4
Foreign National Loans as a Percentage of Aggregate
Unpaid Principal Balance(1) 1.74% 1.74%
Weighted Average FICO Score(1)(2) 726 726
</TABLE>
- ------------------------------
(1) Approximate.
(2) Does not include the Group I Mortgage Loans for which FICO Scores are not
available.
S-42
<PAGE>
The following table sets forth certain characteristics of all the Group II
Mortgage Loans, the Group II Premium Mortgage Loans and the Group II Discount
Mortgage Loans.
<TABLE>
<CAPTION>
SELECTED GROUP II MORTGAGE LOAN DATA
(AS OF THE CUT-OFF DATE)
ALL GROUP II GROUP II
GROUP II PREMIUM DISCOUNT
MORTGAGE MORTGAGE MORTGAGE
LOANS LOANS LOANS
------------------- ------------------- -------------------
<S> <C> <C> <C>
Number of Mortgage Loans 1,500 1,499 1
Aggregate Unpaid Principal Balance(1) $152,502,065 $152,434,649 $67,416
Range of Unpaid Principal Balances(1) $12,867 to $226,969 $12,867 to $226,969 $67,415 to $67,416
Average Unpaid Principal Balance(1) $101,668 $101,691 $67,416
Range of Mortgage Interest Rates 6.500% to 9.500% 6.625% to 9.500% 6.500% to 6.500%
Weighted Average Mortgage Interest Rate(1) 7.838% 7.838% 6.500%
Weighted Average Net Mortgage Interest
Rate(1) 6.250% 6.250% 6.233%
Range of Remaining Terms to Stated
Maturity 176 to 360 Months 176 to 360 Months 357 to 357 Months
Weighted Average Remaining Term to Stated
Maturity(1) 352 Months 352 Months 357 Months
Range of Original Loan-to-Value Ratios(1) 11.86% to 100.00% 11.86% to 100.00% 80.00% to 80.00%
Weighted Average Original Loan-to-Value
Ratio(1) 77.73% 77.73% 80.00%
Number of Mortgage Loans with Original
Loan-to-Value Ratios greater than 80%
originated without Primary Mortgage
Insurance 33 33 0
Mortgage Loans with Original Loan-to-Value
Ratios greater than 80% originated
without Primary Mortgage Insurance as a
Percentage of Aggregate Unpaid Principal
Balance(1) 2.08% 2.08% 0.00%
Weighted Average Original Loan-to-Value
Ratio of Mortgage Loans with Original
Principal Balance greater than
$600,000(1) 0.00% 0.00% 0.00%
Maximum Original Loan-to-Value Ratio of
Mortgage Loans with Original Principal
Balance greater than $600,000(1) 0.00% 0.00% 0.00%
</TABLE>
- ------------------------------
(1) Approximate.
S-43
<PAGE>
<TABLE>
<CAPTION>
SELECTED GROUP II MORTGAGE LOAN DATA (CONT.)
ALL GROUP II GROUP II
GROUP II PREMIUM DISCOUNT
MORTGAGE MORTGAGE MORTGAGE
LOANS LOANS LOANS
------------------- ------------------- -------------------
<S> <C> <C> <C>
Geographic Concentration of Mortgaged
Properties securing Mortgage Loans in
Excess of 5% of the Aggregate Unpaid
Principal Balance(1)
California 11.44% 11.42% *
Colorado 9.55% 9.55% *
Texas 9.01% 9.01% *
Oregon 8.92% 8.93% *
Arizona 6.41% 6.42% *
North Carolina * * 100.00%
Maximum Five-Digit Zip Code
Concentration(1)
Earliest Origination Month May 1997 May 1997 July 1998
Latest Origination Month October 1998 October 1998 July 1998
Latest Stated Maturity Date November 1, 2028 November 1, 2028 August 1, 2028
Number of Buy-Down Loans 0 0 0
Buy-Down Loans as a Percentage of
Aggregate Unpaid Principal Balance 0.00% 0.00% 0.00%
Number of Relocation Loans 0 0 0
Relocation Loans as a Percentage of
Aggregate Unpaid Principal Balance 0.00% 0.00% 0.00%
Number of No Ratio Loans 216 215 1
No Ratio Loans as a Percentage of
Aggregate Unpaid Principal Balance(1) 16.50% 16.46% 100.00%
Number of Foreign National Loans 29 28 1
Foreign National Loans as a Percentage of
Aggregate Unpaid Principal Balance(1) 2.20% 2.16% 100.00%
Number of Pledged Asset Loans 2 2 0
Percentage of Pledged Asset Loans as a
Percentage of the Aggregate Unpaid
Principal Balance 0.18% 0.18% 0.00%
Weighted Average FICO Score(1)(2) 719 719 775
</TABLE>
- ------------------------------
(1) Approximate.
(2) Does not include Group II Mortgage Loans for which FICO Scores are not
available.
* Less than 5% of the aggregate unpaid principal balance as of the Cut-Off
Date.
S-44
<PAGE>
GROUP I MORTGAGE LOAN DATA
Set forth below is a description of certain additional expected
characteristics of the Group I Mortgage Loans as of the Cut-Off Date (except as
otherwise indicated).
MORTGAGE INTEREST RATES
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
NUMBER OF AGGREGATE AGGREGATE PERCENT
GROUP I UNPAID UNPAID WEIGHTED PERCENT SINGLE
MORTGAGE PRINCIPAL PRINCIPAL AVERAGE PERCENT PERCENT PRIMARY FAMILY
MORTGAGE INTEREST RATE LOANS BALANCE BALANCE LTV PURCHASE FULL DOC RESIDENCE DETACHED
- ---------------------- --------- -------------- ------------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6.750%......................... 1 $ 407,648.72 0.53% 80.00% 100.00% 100.00% 100.00% 100.00%
6.875%......................... 4 1,353,924.56 1.74 80.00 100.00 100.00 100.00 100.00
7.000%......................... 5 2,008,793.93 2.59 76.52 28.52 100.00 100.00 85.95
7.125%......................... 17 5,138,696.30 6.62 77.75 61.83 86.99 90.23 66.27
7.250%......................... 24 7,710,563.44 9.94 76.54 70.36 84.89 80.20 86.96
7.375%......................... 40 15,223,793.90 19.62 75.31 47.99 78.46 86.17 87.25
7.500%......................... 36 13,689,782.35 17.64 76.61 78.54 65.58 89.27 82.26
7.600%......................... 1 283,736.23 0.37 68.67 0.00 0.00 100.00 0.00
7.625%......................... 22 7,824,032.20 10.08 72.17 38.79 54.97 78.21 79.70
7.750%......................... 25 8,665,836.71 11.17 75.06 57.95 65.08 73.77 67.92
7.875%......................... 21 7,354,599.77 9.48 73.64 34.25 56.94 79.03 78.15
8.000%......................... 12 4,181,456.68 5.39 80.15 45.17 70.93 82.62 70.40
8.125%......................... 7 1,953,006.81 2.52 70.44 0.00 87.22 34.96 38.52
8.250%......................... 4 1,282,699.24 1.65 78.30 100.00 100.00 81.00 23.36
8.375%......................... 1 259,346.78 0.33 80.00 100.00 0.00 100.00 100.00
8.625%......................... 1 255,543.28 0.33 80.00 100.00 0.00 100.00 0.00
--- -------------- ------ -------- -------- -------- --------- --------
Total/Weighted Average... 221 $77,593,460.90 100.00% 75.65% 55.75% 71.90% 82.78% 77.67%
--- -------------- ------ -------- -------- -------- --------- --------
--- -------------- ------ -------- -------- -------- --------- --------
<CAPTION>
WEIGHTED
AVERAGE
FICO
MORTGAGE INTEREST RATE SCORE
- ---------------------- --------
<S> <C>
6.750%......................... 757
6.875%......................... 760
7.000%......................... 716
7.125%......................... 732
7.250%......................... 738
7.375%......................... 724
7.500%......................... 725
7.600%......................... 741
7.625%......................... 731
7.750%......................... 723
7.875%......................... 712
8.000%......................... 725
8.125%......................... 721
8.250%......................... 704
8.375%......................... 775
8.625%......................... 733
---
Total/Weighted Average... 726
---
---
</TABLE>
ORIGINAL LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
NUMBER OF AGGREGATE AGGREGATE PERCENT
GROUP I UNPAID UNPAID WEIGHTED PERCENT SINGLE
RANGE OF ORIGINAL MORTGAGE PRINCIPAL PRINCIPAL AVERAGE PERCENT PERCENT PRIMARY FAMILY
LOAN-TO-VALUE RATIOS LOANS BALANCE BALANCE LTV PURCHASE FULL DOC RESIDENCE DETACHED
- -------------------- --------- -------------- ------------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
50% or less.................... 6 $ 1,910,469.00 2.46% 39.70% 52.28% 33.59% 66.41% 100.00%
50.01- 55.00%.................. 7 2,988,062.44 3.85 53.12 23.75 30.82 67.59 86.62
55.01- 60.00%.................. 8 2,523,253.41 3.25 58.14 20.94 89.14 31.83 69.19
60.01- 65.00%.................. 9 3,401,660.91 4.38 63.51 41.43 27.54 93.25 72.68
65.01- 70.00%.................. 22 8,006,396.66 10.32 68.53 20.14 59.52 68.80 73.48
70.01- 75.00%.................. 35 13,213,883.62 17.03 74.07 50.72 54.89 84.90 79.24
75.01- 80.00%.................. 104 34,459,876.73 44.42 79.66 73.34 81.74 87.18 77.76
80.01- 85.00%.................. 4 2,120,415.34 2.73 84.19 0.00 100.00 100.00 79.57
85.01- 90.00%.................. 14 5,149,850.37 6.64 89.30 48.28 100.00 87.22 73.97
90.01- 95.00%.................. 12 3,819,592.42 4.92 94.72 92.55 93.81 93.81 76.00
--- -------------- ------ -------- -------- -------- --------- --------
Total/Weighted Average... 221 $77,593,460.90 100.00% 75.65% 55.75% 71.90% 82.78% 77.67%
--- -------------- ------ -------- -------- -------- --------- --------
--- -------------- ------ -------- -------- -------- --------- --------
<CAPTION>
WEIGHTED
AVERAGE
RANGE OF ORIGINAL FICO
LOAN-TO-VALUE RATIOS SCORE
- -------------------- --------
<S> <C>
50% or less.................... 705
50.01- 55.00%.................. 754
55.01- 60.00%.................. 739
60.01- 65.00%.................. 725
65.01- 70.00%.................. 714
70.01- 75.00%.................. 713
75.01- 80.00%.................. 731
80.01- 85.00%.................. 744
85.01- 90.00%.................. 729
90.01- 95.00%.................. 719
---
Total/Weighted Average... 726
---
---
</TABLE>
The Loan-to-Value Ratio of a Group I Mortgage Loan is calculated using the
lesser of (i) the appraised value of the related Mortgaged Property, as
established by an appraisal obtained by the originator from an appraiser at the
time of origination and (ii) the sale price for such property. For the purpose
of calculating the Loan-to-Value Ratio of any Group I Mortgage Loan that is the
result of the refinancing (including a refinancing for 'equity take out'
purposes) of an existing mortgage loan, the appraised value of the related
Mortgaged Property is generally determined by reference to an appraisal obtained
in connection with the origination of the replacement loan. There can be no
assurance that such appraisal, which is based on the independent judgment of an
appraiser and not an arms-length sales transaction is an accurate representation
of the market value of a Mortgaged Property. See 'The Trust Estates -- Mortgage
Loans' in the Prospectus. No assurance can be given that the values of the
Mortgaged Properties securing the Group I Mortgage Loans have remained or will
remain at the levels used in calculating the Loan-to-Value Ratios shown above.
The Seller has taken no action to establish the current value of any Mortgaged
Property. See 'Risk Factors -- Risks of the Mortgage Loans' in the Prospectus.
S-45
<PAGE>
ORIGINAL GROUP I MORTGAGE LOAN PRINCIPAL BALANCES
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
NUMBER OF AGGREGATE AGGREGATE PERCENT
RANGE OF GROUP I UNPAID UNPAID WEIGHTED PERCENT SINGLE
ORIGINAL MORTGAGE LOAN MORTGAGE PRINCIPAL PRINCIPAL AVERAGE PERCENT PERCENT PRIMARY FAMILY
PRINCIPAL BALANCES LOANS BALANCE BALANCE LTV PURCHASE FULL DOC RESIDENCE DETACHED
- ---------------------- --------- -------------- ------------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$227,150-$250,000.............. 37 $ 8,812,133.96 11.36% 75.11% 59.47% 67.73% 56.86% 70.11%
$250,001-$300,000.............. 60 16,438,906.33 21.19 75.89 57.12 72.94 83.50 77.71
$300,001-$350,000.............. 40 12,952,590.21 16.69 75.88 61.58 67.46 87.38 67.22
$350,001-$400,000.............. 28 10,522,342.70 13.56 74.45 64.78 74.74 88.99 74.46
$400,001-$450,000.............. 21 8,969,877.59 11.56 79.02 62.33 80.28 76.29 76.21
$450,001-$500,000.............. 17 8,211,854.92 10.58 77.47 53.87 76.49 76.49 76.10
$500,001-$550,000.............. 4 2,087,691.17 2.69 68.19 24.47 74.85 100.00 100.00
$550,001-$600,000.............. 2 1,140,905.55 1.47 64.44 49.71 0.00 100.00 100.00
$600,001-$650,000.............. 5 3,211,006.82 4.14 78.70 39.42 60.21 100.00 100.00
$650,001-$700,000.............. 3 2,011,741.52 2.59 76.08 0.00 100.00 100.00 100.00
$700,001-$750,000.............. 1 709,617.22 0.91 75.00 100.00 100.00 100.00 100.00
$750,001-$800,000.............. 2 1,526,978.05 1.97 79.07 50.07 100.00 100.00 100.00
$950,001-$1,000,000............ 1 997,814.86 1.29 54.05 0.00 0.00 100.00 100.00
--- -------------- ------ -------- -------- -------- --------- --------
Total/Weighted Average... 221 $77,593,460.90 100.00% 75.65% 55.75% 71.90% 82.78% 77.67%
--- -------------- ------ -------- -------- -------- --------- --------
--- -------------- ------ -------- -------- -------- --------- --------
<CAPTION>
WEIGHTED
RANGE OF AVERAGE
ORIGINAL MORTGAGE LOAN FICO
PRINCIPAL BALANCES SCORE
- ---------------------- --------
<S> <C>
$227,150-$250,000.............. 721
$250,001-$300,000.............. 728
$300,001-$350,000.............. 723
$350,001-$400,000.............. 736
$400,001-$450,000.............. 729
$450,001-$500,000.............. 735
$500,001-$550,000.............. 731
$550,001-$600,000.............. 722
$600,001-$650,000.............. 707
$650,001-$700,000.............. 708
$700,001-$750,000.............. 698
$750,001-$800,000.............. 696
$950,001-$1,000,000............ 752
---
Total/Weighted Average... 726
---
---
</TABLE>
MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
NUMBER OF AGGREGATE AGGREGATE PERCENT
GROUP I UNPAID UNPAID WEIGHTED PERCENT SINGLE
MORTGAGE PRINCIPAL PRINCIPAL AVERAGE PERCENT PERCENT PRIMARY FAMILY
PROPERTY LOANS BALANCE BALANCE LTV PURCHASE FULL DOC RESIDENCE DETACHED
- -------- --------- -------------- ------------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Single-family detached......... 168 $60,265,898.98 77.67% 75.45% 51.83% 70.60% 84.17% 100.00%
Two- to four-family units...... 30 9,854,459.72 12.70 77.88 58.78 85.58 78.30 0.00
Condominiums
High-rise (greater than four
stories)................... 1 448,717.20 0.58 72.00 100.00 0.00 100.00 0.00
Low-rise (four stories or
less)...................... 5 1,562,680.06 2.01 64.84 44.35 59.80 22.40 0.00
Planned unit developments...... 14 4,409,328.33 5.68 77.75 91.52 76.77 89.23 0.00
Townhouses..................... 2 566,337.45 0.73 74.95 100.00 0.00 100.00 0.00
Cooperative Units.............. 1 486,039.16 0.63 75.00 100.00 100.00 100.00 0.00
Manufactured Home.............. 0 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Condotel
High-Rise.................... 0 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Low-Rise..................... 0 0.00 0.00 0.00 0.00 0.00 0.00 0.00
--- -------------- ------ -------- -------- -------- --------- --------
Total/Weighted Average... 221 $77,593,460.90 100.00% 75.65% 55.75% 71.90% 82.78% 77.67%
--- -------------- ------ -------- -------- -------- --------- --------
--- -------------- ------ -------- -------- -------- --------- --------
<PAGE>
<CAPTION>
WEIGHTED
AVERAGE
FICO
PROPERTY SCORE
- -------- --------
<S> <C>
Single-family detached......... 725
Two- to four-family units...... 732
Condominiums
High-rise (greater than four
stories)................... 763
Low-rise (four stories or
less)...................... 737
Planned unit developments...... 722
Townhouses..................... 687
Cooperative Units.............. 754
Manufactured Home.............. 0
Condotel
High-Rise.................... 0
Low-Rise..................... 0
---
Total/Weighted Average... 726
---
---
</TABLE>
ORIGINATORS OF GROUP I MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
NUMBER OF AGGREGATE AGGREGATE PERCENT
GROUP I UNPAID UNPAID WEIGHTED PERCENT SINGLE
MORTGAGE PRINCIPAL PRINCIPAL AVERAGE PERCENT PERCENT PRIMARY FAMILY
ORIGINATOR LOANS BALANCE BALANCE LTV PURCHASE FULL DOC RESIDENCE DETACHED
- ---------- --------- -------------- ------------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NMI or Affiliate............... 129 $44,385,392.02 57.21% 76.70% 66.51% 80.87% 82.79% 79.21%
Bank United.................... 31 11,293,704.79 14.55 75.62 26.80 59.52 77.06 78.92
North American Mortgage
Company...................... 18 6,563,959.78 8.46 76.94 53.70 82.67 90.05 49.44
HomeSide Lending............... 13 4,694,980.74 6.05 64.54 34.85 10.33 100.00 100.00
Other Originators.............. 30 10,655,423.57 13.73 75.40 52.07 68.14 76.71 77.50
--- -------------- ------ -------- -------- -------- --------- --------
Total/Weighted Average... 221 $77,593,460.90 100.00% 75.65% 55.75% 71.90% 82.78% 77.67%
--- -------------- ------ -------- -------- -------- --------- --------
--- -------------- ------ -------- -------- -------- --------- --------
<CAPTION>
WEIGHTED
AVERAGE
FICO
ORIGINATOR SCORE
- ---------- --------
<S> <C>
NMI or Affiliate............... 726
Bank United.................... 704
North American Mortgage
Company...................... 740
HomeSide Lending............... 759
Other Originators.............. 725
---
Total/Weighted Average... 726
---
---
</TABLE>
It is expected that, as of the Cut-Off Date, no single 'Other Originator'
will have accounted for more than 5.00% of the aggregate unpaid principal
balance of the Group I Mortgage Loans as of the Cut-Off Date.
S-46
<PAGE>
PURPOSES OF GROUP I MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
NUMBER OF AGGREGATE AGGREGATE PERCENT
GROUP I UNPAID UNPAID WEIGHTED PERCENT SINGLE
MORTGAGE PRINCIPAL PRINCIPAL AVERAGE PERCENT PERCENT PRIMARY FAMILY
LOAN PURPOSE LOANS BALANCE BALANCE LTV PURCHASE FULL DOC RESIDENCE DETACHED
- ------------ --------- -------------- ------------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Purchase........................ 127 $43,256,063.62 55.75% 78.12% 100.00% 72.87% 82.72% 72.21%
Equity Take Out Refinance....... 46 16,609,979.05 21.41 72.12 0.00 75.15 87.21 85.67
Rate/Term Refinance............. 48 17,727,418.23 22.84 72.93 0.00 66.48 78.76 83.50
--- -------------- ------ -------- -------- -------- --------- --------
Total/Weighted Average.... 221 $77,593,460.90 100.00% 75.65% 55.75% 71.90% 82.78% 77.67%
--- -------------- ------ -------- -------- -------- --------- --------
--- -------------- ------ -------- -------- -------- --------- --------
<CAPTION>
WEIGHTED
AVERAGE
FICO
LOAN PURPOSE SCORE
- ------------ --------
<S> <C>
Purchase........................ 729
Equity Take Out Refinance....... 722
Rate/Term Refinance............. 723
---
Total/Weighted Average.... 726
---
---
</TABLE>
In general, in the case of a Group I Mortgage Loan made for 'rate/term'
refinance purposes, substantially all of the proceeds are used to pay in full
the principal balance of a previous mortgage loan of the mortgagor with respect
to a Mortgaged Property and to pay origination and closing costs associated with
such refinancing. However, in the case of a Group I Mortgage Loan made for
'equity take out' refinance purposes, all or a portion of the proceeds are
generally retained by the mortgagor for uses unrelated to the Mortgaged
Property. The amount of such proceeds retained by the mortgagor may be
substantial. See 'The Trust Estates -- Mortgage Loans' and 'The Mortgage Loan
Programs -- Mortgage Loan Underwriting' in the Prospectus.
FICO SCORES
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
NUMBER OF AGGREGATE AGGREGATE PERCENT
GROUP I UNPAID UNPAID WEIGHTED PERCENT SINGLE
RANGE OF MORTGAGE PRINCIPAL PRINCIPAL AVERAGE PERCENT PERCENT PRIMARY FAMILY
FICO SCORES LOANS BALANCE BALANCE LTV PURCHASE FULL DOC RESIDENCE DETACHED
- ----------- --------- -------------- ------------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
250-300......................... 0 $ 0.00 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
301-350......................... 0 0.00 0.00 0.00 0.00 0.00 0.00 0.00
351-400......................... 0 0.00 0.00 0.00 0.00 0.00 0.00 0.00
401-450......................... 0 0.00 0.00 0.00 0.00 0.00 0.00 0.00
451-500......................... 0 0.00 0.00 0.00 0.00 0.00 0.00 0.00
501-550......................... 0 0.00 0.00 0.00 0.00 0.00 0.00 0.00
551-600......................... 0 0.00 0.00 0.00 0.00 0.00 0.00 0.00
601-650......................... 10 3,654,099.94 4.71 76.11 51.25 75.14 69.74 76.78
651-700......................... 46 16,284,171.30 20.99 75.66 54.66 81.76 75.43 84.17
701-750......................... 95 32,765,972.30 42.23 75.16 49.18 67.24 82.67 78.68
751-800......................... 67 23,923,902.94 30.83 76.26 65.82 72.53 89.21 73.69
801-850......................... 0 0.00 0.00 0.00 0.00 0.00 0.00 0.00
851-900......................... 0 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Not Available................... 3 965,314.42 1.24 75.30 64.37 35.63 100.00 35.63
--- -------------- ------ -------- -------- -------- --------- --------
Total/Weighted Average.... 221 $77,593,460.90 100.00% 75.65% 55.75% 71.90% 82.78% 77.67%
--- -------------- ------ -------- -------- -------- --------- --------
--- -------------- ------ -------- -------- -------- --------- --------
<PAGE>
<CAPTION>
WEIGHTED
AVERAGE
RANGE OF FICO
FICO SCORES SCORE
- ----------- --------
<S> <C>
250-300......................... 0
301-350......................... 0
351-400......................... 0
401-450......................... 0
451-500......................... 0
501-550......................... 0
551-600......................... 0
601-650......................... 634
651-700......................... 684
701-750......................... 728
751-800......................... 767
801-850......................... 0
851-900......................... 0
Not Available................... 0
---
Total/Weighted Average.... 726
---
---
</TABLE>
'FICO SCORES' are statistical credit scores obtained by many mortgage
lenders in connection with the loan application to help assess a borrower's
credit worthiness. FICO Scores are generated by models developed by a third
party and are made available to lenders through three national credit bureaus.
The models were derived by analyzing data on consumers in order to establish
patterns which are believed to be indicative of the borrower's probability of
default. The FICO Score is based on a borrower's historical credit data,
including, among other things, payment history, delinquencies on accounts,
levels of outstanding indebtedness, length of credit history, types of credit,
and bankruptcy experience. FICO Scores range from approximately 250 to
approximately 900, with higher scores indicating an individual with a more
favorable credit history compared to an individual with a lower score. However,
a FICO Score purports only to be a measurement of the relative degree of risk a
borrower represents to a lender, i.e., that a borrower with a higher score is
statistically expected to be less likely to default in payment than a borrower
with a lower score. In addition, it should be noted that FICO Scores were
developed to indicate a level of default probability over a two-year period,
which does not correspond to the life of a mortgage loan. Furthermore, FICO
Scores were not developed specifically for use in connection with mortgage
loans, but for consumer loans in general. Therefore, a FICO Score does not take
into consideration the effect of mortgage loan characteristics on the
probability of repayment by the borrower. The FICO Scores set forth in the table
above were obtained at either the time of origination of the Group I Mortgage
Loan or more recently. Neither the Seller nor Norwest Mortgage make any
representations or warranties as to the actual performance of any Group I
Mortgage Loan or that a particular FICO Score should be relied upon as a basis
for an expectation that the borrower will repay the mortgage loan according to
its terms. See 'The Mortgage Loan Programs -- The Mortgage Loan Understanding'
in the Prospectus.
OCCUPANCY OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
AGGREGATE AGGREGATE
NUMBER OF UNPAID UNPAID WEIGHTED PERCENT PERCENT
MORTGAGE PRINCIPAL PRINCIPAL AVERAGE PERCENT PERCENT PRIMARY SINGLE
OCCUPANCY CODE LOANS BALANCE BALANCE LTV PURCHASE FULL DOC RESIDENCE FAMILY
- -------------- --------- -------------- ------------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Property............. 34 $ 9,896,132.57 12.75% 69.64% 52.28% 91.67% 0.00% 61.34%
Primary Residence............... 178 64,228,220.42 82.78 76.66 55.71 68.82 100.00 78.98
Second Home..................... 9 3,469,107.91 4.47 74.19 66.35 72.46 0.00 100.00
--- -------------- ------ -------- -------- -------- --------- --------
Total..................... 221 $77,593,460.90 100.00% 75.65% 55.75% 71.90% 82.78% 77.67%
--- -------------- ------ -------- -------- -------- --------- --------
--- -------------- ------ -------- -------- -------- --------- --------
<CAPTION>
WEIGHTED
AVERAGE
FICO
OCCUPANCY CODE SCORE
- -------------- --------
<S> <C>
Investment Property............. 711
Primary Residence............... 728
Second Home..................... 720
---
Total..................... 726
---
---
</TABLE>
S-47
<PAGE>
GROUP I MORTGAGE LOAN DOCUMENTATION LEVELS
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
NUMBER OF AGGREGATE AGGREGATE PERCENT
GROUP I UNPAID UNPAID WEIGHTED PERCENT SINGLE
MORTGAGE PRINCIPAL PRINCIPAL AVERAGE PERCENT PERCENT PRIMARY FAMILY
DOCUMENTATION LEVEL LOANS BALANCE BALANCE LTV PURCHASE FULL DOC RESIDENCE DETACHED
- ------------------- --------- -------------- ------------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Full Documentation................ 159 $55,787,493.29 71.90% 78.11% 56.50% 100.00% 79.23% 76.27%
Income Verification............... 0 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Verification................ 61 21,157,352.81 27.26 69.21 55.47 0.00 91.59 80.68
Preferred Processing.............. 1 648,614.80 0.84 74.29 0.00 0.00 100.00 100.00
--- -------------- ------ ----- ----- ------ ------ ------
Total/Weighted Average...... 221 $77,593,460.90 100.00% 75.65% 55.75% 71.90% 82.78% 77.67%
--- -------------- ------ ----- ----- ------ ------ ------
--- -------------- ------ ----- ----- ------ ------ ------
<CAPTION>
WEIGHTED
AVERAGE
FICO
DOCUMENTATION LEVEL SCORE
- ------------------- --------
<S> <C>
Full Documentation................ 725
Income Verification............... 0
Asset Verification................ 732
Preferred Processing.............. 642
---
Total/Weighted Average...... 726
---
---
</TABLE>
Documentation levels vary depending upon several factors, including loan
amount, Loan-to-Value Ratio and the type and purpose of the Mortgage Loan.
Asset, income and mortgage verifications were obtained for Group I Mortgage
Loans processed with 'full documentation.' In the case of 'preferred
processing,' neither asset, income nor mortgage verifications were obtained. In
most instances, a verification of the borrower's employment was obtained.
However, for all of the Group I Mortgage Loans, a credit report on the borrower
and a property appraisal were obtained. See 'The Mortgage Loan
Programs -- Mortgage Loan Underwriting' in the Prospectus.
REMAINING TERMS TO
STATED MATURITY
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
NUMBER OF AGGREGATE AGGREGATE
GROUP I UNPAID UNPAID
REMAINING STATED MORTGAGE PRINCIPAL PRINCIPAL
TERM (MONTHS) LOANS BALANCE BALANCE
- ---------------- --------- -------------- -------------
<S> <C> <C> <C>
180................. 5 $ 1,612,734.00 2.08%
236................. 1 230,308.30 0.30
341................. 1 241,392.23 0.31
348................. 2 783,160.21 1.01
351................. 1 237,480.20 0.31
353................. 2 1,063,177.10 1.37
354................. 4 1,210,187.48 1.56
355................. 9 3,577,785.85 4.61
356................. 29 10,185,590.20 13.13
357................. 30 11,412,124.66 14.71
358................. 59 20,237,125.75 26.07
359................. 57 19,514,387.92 25.15
360................. 21 7,288,007.00 9.39
--- -------------- ------
Total......... 221 $77,593,460.90 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
YEARS OF ORIGINATION
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
NUMBER OF AGGREGATE AGGREGATE
GROUP I UNPAID UNPAID
MORTGAGE PRINCIPAL PRINCIPAL
YEAR OF ORIGINATION LOANS BALANCE BALANCE
- -------------------- --------- -------------- -------------
<S> <C> <C> <C>
1997................ 3 $ 1,024,552.44 1.32%
1998................ 218 76,568,908.46 98.68
--- -------------- ------
Total......... 221 $77,593,460.90 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
GEOGRAPHIC DISTRIBUTION OF
MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
NUMBER OF AGGREGATE AGGREGATE
GROUP I UNPAID UNPAID
MORTGAGE PRINCIPAL PRINCIPAL
GEOGRAPHIC AREA LOANS BALANCE BALANCE
- --------------- --------- -------------- -------------
<S> <C> <C> <C>
Arizona.............. 2 $ 506,649.54 0.65%
Arkansas............. 2 604,601.10 0.78
California........... 84 30,793,226.55 39.67
Colorado............. 11 4,350,136.56 5.61
District of
Columbia........... 5 1,680,400.76 2.17
Florida.............. 7 2,239,014.02 2.89
Georgia.............. 6 2,683,904.82 3.46
Hawaii............... 6 2,133,449.69 2.75
Idaho................ 1 237,036.95 0.31
Illinois............. 4 1,381,789.15 1.78
Kansas............... 2 592,823.55 0.76
Louisiana............ 1 330,577.00 0.43
Maine................ 1 259,346.78 0.33
Maryland............. 14 4,650,295.20 5.99
Massachusetts........ 9 2,613,909.34 3.37
Michigan............. 1 525,000.00 0.68
Minnesota............ 3 1,656,011.82 2.13
Missouri............. 1 434,372.16 0.56
Nevada............... 4 1,454,923.34 1.88
New Jersey........... 7 2,322,924.39 2.99
New Mexico........... 2 722,265.65 0.93
New York............. 7 2,490,551.51 3.21
North Carolina....... 4 1,562,497.24 2.01
Ohio................. 1 299,530.53 0.39
Oregon............... 5 1,683,832.69 2.17
Pennsylvania......... 1 496,580.37 0.64
Rhode Island......... 2 573,143.41 0.74
South Carolina....... 1 422,737.42 0.54
Tennessee............ 3 984,087.21 1.27
Texas................ 6 1,404,945.56 1.81
Utah................. 4 1,493,781.16 1.93
Virginia............. 11 3,011,623.75 3.88
Washington........... 3 997,491.68 1.29
--- -------------- ------
Total.......... 221 $77,593,460.90 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
S-48
<PAGE>
GROUP II MORTGAGE LOAN DATA
Set forth below is a description of certain additional expected
characteristics of the Group II Mortgage Loans as of the Cut-Off Date (except as
otherwise indicated).
MORTGAGE INTEREST RATES
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
NUMBER OF AGGREGATE AGGREGATE PERCENT
GROUP II UNPAID UNPAID WEIGHTED PERCENT SINGLE
MORTGAGE PRINCIPAL PRINCIPAL AVERAGE PERCENT PERCENT PRIMARY FAMILY
MORTGAGE INTEREST RATE LOANS BALANCE BALANCE LTV PURCHASE FULL DOC RESIDENCE DETACHED
- ---------------------- --------- --------------- ------------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6.500%........................ 1 $ 67,415.67 0.04% 80.00% 100.00% 0.00% 100.00% 100.00%
6.625%........................ 3 637,236.03 0.42 76.48 64.85 100.00 64.85 64.85
6.750%........................ 6 776,827.67 0.51 76.49 65.28 79.55 80.72 80.72
6.875%........................ 7 1,158,045.54 0.76 81.09 79.58 83.02 80.24 29.97
7.000%........................ 22 3,015,433.73 1.98 77.07 57.63 68.22 83.55 76.98
7.125%........................ 16 2,311,193.14 1.52 75.14 65.29 64.38 89.30 73.76
7.250%........................ 48 5,895,149.05 3.87 75.00 55.62 46.19 81.43 78.98
7.325%........................ 1 138,903.35 0.09 74.04 0.00 0.00 100.00 100.00
7.375%........................ 55 7,586,079.27 4.97 74.59 64.01 59.44 73.82 83.61
7.500%........................ 137 16,155,630.11 10.59 77.36 58.01 61.49 69.44 78.09
7.625%........................ 129 14,687,501.42 9.63 75.92 61.08 58.00 65.28 78.01
7.750%........................ 181 19,692,086.84 12.91 74.52 44.44 52.66 60.41 69.66
7.800%........................ 1 112,385.46 0.07 74.97 100.00 0.00 100.00 0.00
7.875%........................ 207 21,118,328.62 13.85 77.08 55.18 62.94 57.99 70.19
8.000%........................ 165 15,862,272.59 10.40 79.14 53.22 68.79 50.72 65.22
8.125%........................ 149 12,910,159.25 8.47 79.37 67.20 79.09 28.40 55.90
8.250%........................ 137 11,555,320.84 7.58 82.46 69.46 81.83 31.20 53.11
8.375%........................ 90 7,183,896.94 4.71 80.78 67.78 84.63 14.33 49.13
8.500%........................ 70 6,116,893.50 4.01 77.99 53.09 66.03 25.53 44.04
8.625%........................ 55 3,857,290.50 2.53 85.25 71.49 82.16 22.50 43.88
8.750%........................ 16 1,370,609.93 0.90 79.62 73.32 60.46 27.31 20.10
8.875%........................ 3 242,044.04 0.16 86.13 80.63 100.00 0.00 52.46
9.500%........................ 1 51,361.45 0.03 83.87 100.00 100.00 0.00 0.00
----- --------------- ------ ----- ------ ------ ------ ------
Total/Weighted Average.. 1,500 $152,502,064.94 100.00% 77.73% 58.64% 65.64% 53.36% 66.39%
----- --------------- ------ ----- ------ ------ ------ ------
----- --------------- ------ ----- ------ ------ ------ ------
<CAPTION>
WEIGHTED
AVERAGE
FICO
MORTGAGE INTEREST RATE SCORE
- ---------------------- --------
<S> <C>
6.500%........................ 775
6.625%........................ 703
6.750%........................ 769
6.875%........................ 720
7.000%........................ 726
7.125%........................ 730
7.250%........................ 725
7.325%........................ 760
7.375%........................ 722
7.500%........................ 721
7.625%........................ 726
7.750%........................ 724
7.800%........................ 685
7.875%........................ 715
8.000%........................ 720
8.125%........................ 721
8.250%........................ 714
8.375%........................ 715
8.500%........................ 696
8.625%........................ 708
8.750%........................ 709
8.875%........................ 686
9.500%........................ 788
---
Total/Weighted Average.. 719
---
---
</TABLE>
ORIGINAL LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
NUMBER OF AGGREGATE AGGREGATE PERCENT
GROUP II UNPAID UNPAID WEIGHTED PERCENT SINGLE
RANGE OF ORIGINAL MORTGAGE PRINCIPAL PRINCIPAL AVERAGE PERCENT PERCENT PRIMARY FAMILY
LOAN-TO-VALUE RATIOS LOANS BALANCE BALANCE LTV PURCHASE FULL DOC RESIDENCE DETACHED
- -------------------- --------- --------------- ------------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
50% or less................... 49 $ 4,686,583.89 3.07% 42.02% 31.04% 42.80% 62.05% 80.74%
50.01- 55.00%................. 37 3,701,490.99 2.43 52.98 18.94 28.59 48.67 81.24
55.01- 60.00%................. 41 3,964,217.87 2.60 58.22 24.77 41.62 46.25 63.04
60.01- 65.00%................. 88 8,957,252.67 5.87 63.44 28.61 40.56 35.53 62.37
65.01- 70.00%................. 149 14,310,735.35 9.38 69.09 23.85 69.08 28.38 56.88
70.01- 75.00%................. 146 15,585,216.94 10.22 74.20 47.55 42.66 67.49 66.17
75.01- 80.00%................. 448 54,077,087.49 35.46 79.52 68.40 53.93 78.87 75.06
80.01- 85.00%................. 78 9,091,107.88 5.96 84.37 24.24 96.53 68.02 76.51
85.01- 90.00%................. 425 33,408,891.09 21.91 89.82 94.83 97.84 11.33 51.40
90.01- 95.00%................. 37 4,449,868.69 2.92 94.69 39.39 97.05 100.00 65.95
95.01-100.00%................. 2 269,612.08 0.18 100.00 100.00 100.00 0.00 100.00
----- --------------- ------ ------ ------ ------ ------ ------
Total/Weighted Average.. 1,500 $152,502,064.94 100.00% 77.73% 58.64% 65.64% 53.36% 66.39%
----- --------------- ------ ------ ------ ------ ------ ------
----- --------------- ------ ------ ------ ------ ------ ------
<CAPTION>
WEIGHTED
AVERAGE
RANGE OF ORIGINAL FICO
LOAN-TO-VALUE RATIOS SCORE
- -------------------- --------
<S> <C>
50% or less................... 727
50.01- 55.00%................. 727
55.01- 60.00%................. 729
60.01- 65.00%................. 723
65.01- 70.00%................. 732
70.01- 75.00%................. 723
75.01- 80.00%................. 719
80.01- 85.00%................. 702
85.01- 90.00%................. 718
90.01- 95.00%................. 687
95.01-100.00%................. 732
---
Total/Weighted Average.. 719
---
---
</TABLE>
The Loan-to-Value Ratio of a Group II Mortgage Loan is calculated using the
lesser of (i) the appraised value of the related Mortgaged Property, as
established by an appraisal obtained by the originator from an appraiser at the
time of origination and (ii) the sale price for such property. Although for
purposes of applying the Underwriting Standards, the Loan-to-Value Ratio of a
Pledged Asset Mortgage Loan is calculated taking into account the value of any
Additional Collateral, for purposes of this Prospectus Supplement, such
Loan-to-Loan Ratio is calculated without regard to the value of any Additional
Collateral. For the purpose of calculating the Loan-to-Value Ratio of any Group
II Mortgage Loan that is the result of the refinancing (including a refinancing
for 'equity take out' purposes) of an existing mortgage loan, the appraised
value of the related Mortgaged Property is generally determined by reference to
an appraisal obtained in connection with the origination of the replacement
loan. There can be no assurance that such appraisal, which is based on the
independent judgment of an appraiser and not an arms-length sales transaction is
an accurate representation of the market value of a Mortgaged Property. See 'The
Trust Estates -- Mortgage Loans' in the Prospectus. No assurance can be given
that the values of the Mortgaged Properties securing the Group II Mortgage Loans
have remained or will remain at the levels used in calculating the Loan-to-Value
Ratios shown above. The Seller has taken no action to establish the current
value of any Mortgaged Property. See 'Risk Factors -- Risks of the Mortgage
Loans' in the Prospectus.
S-49
<PAGE>
ORIGINAL GROUP II MORTGAGE LOAN PRINCIPAL BALANCES
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
NUMBER OF AGGREGATE AGGREGATE PERCENT
RANGE OF GROUP II UNPAID UNPAID WEIGHTED PERCENT SINGLE
ORIGINAL MORTGAGE LOAN MORTGAGE PRINCIPAL PRINCIPAL AVERAGE PERCENT PERCENT PRIMARY FAMILY
PRINCIPAL BALANCES LOANS BALANCE BALANCE LTV PURCHASE FULL DOC RESIDENCE DETACHED
- ---------------------- --------- --------------- ------------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$0-$50,000.................... 230 $ 8,741,423.03 5.73% 79.62% 77.05% 83.32% 26.31% 58.59%
$50,001-$100,000.............. 596 45,039,702.28 29.53 78.08 63.72 72.85 35.16 62.37
$100,001-$150,000............. 411 50,331,933.74 33.01 78.24 52.26 64.58 54.93 67.08
$150,001-$200,000............. 200 34,828,443.82 22.84 76.72 53.48 58.52 69.46 68.13
$200,001-$227,150............. 63 13,560,562.07 8.89 76.02 66.79 52.47 84.04 77.76
----- --------------- ------ ----- ----- ----- ----- -----
Total................... 1,500 $152,502,064.94 100.00% 77.73% 58.64% 65.64% 53.36% 66.39%
----- --------------- ------ ----- ----- ----- ----- -----
----- --------------- ------ ----- ----- ----- ----- -----
<CAPTION>
WEIGHTED
RANGE OF AVERAGE
ORIGINAL MORTGAGE LOAN FICO
PRINCIPAL BALANCES SCORE
- ---------------------- --------
<S> <C>
$0-$50,000.................... 718
$50,001-$100,000.............. 723
$100,001-$150,000............. 719
$150,001-$200,000............. 714
$200,001-$227,150............. 722
---
Total................... 719
---
---
</TABLE>
MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
NUMBER OF AGGREGATE AGGREGATE PERCENT
GROUP II UNPAID UNPAID WEIGHTED PERCENT SINGLE
MORTGAGE PRINCIPAL PRINCIPAL AVERAGE PERCENT PERCENT PRIMARY FAMILY
PROPERTY LOANS BALANCE BALANCE LTV PURCHASE FULL DOC RESIDENCE DETACHED
- -------- --------- --------------- ------------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Single-family detached........ 957 $101,249,295.99 66.39% 77.01% 52.96% 58.07% 63.57% 100.00%
Two- to four-family units..... 248 26,068,131.42 17.10 80.49 64.64 89.83 21.44 0.00
Condominiums
High-rise (greater than four
stories).................. 17 1,658,865.20 1.09 74.97 73.83 74.79 16.05 0.00
Low-rise (four stories or
less)..................... 199 15,032,829.11 9.86 78.88 79.42 76.18 41.95 0.00
Planned unit developments..... 42 4,642,258.06 3.04 76.02 70.10 52.33 64.37 0.00
Townhouses.................... 24 2,812,159.38 1.84 77.45 57.77 65.49 48.10 0.00
Cooperative Units............. 3 335,695.08 0.22 85.17 100.00 88.15 70.21 0.00
Manufactured Home............. 3 170,309.03 0.11 68.02 78.81 54.60 78.81 0.00
Condotel
High-Rise................... 0 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Low-Rise.................... 7 532,521.67 0.35 70.74 82.36 100.00 25.15 0.00
----- --------------- ------ ----- ------ ------ ----- ------
Total/Weighted Average.. 1,500 $152,502,064.94 100.00% 77.73% 58.64% 65.64% 53.36% 66.39%
----- --------------- ------ ----- ------ ------ ----- ------
----- --------------- ------ ----- ------ ------ ----- ------
<CAPTION>
WEIGHTED
AVERAGE
FICO
PROPERTY SCORE
- -------- --------
<S> <C>
Single-family detached........ 718
Two- to four-family units..... 724
Condominiums
High-rise (greater than four
stories).................. 733
Low-rise (four stories or
less)..................... 717
Planned unit developments..... 736
Townhouses.................... 694
Cooperative Units............. 736
Manufactured Home............. 753
Condotel
High-Rise................... 0
Low-Rise.................... 700
---
Total/Weighted Average.. 719
---
---
</TABLE>
ORIGINATORS OF GROUP II MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
NUMBER OF AGGREGATE AGGREGATE PERCENT
GROUP II UNPAID UNPAID WEIGHTED PERCENT SINGLE
MORTGAGE PRINCIPAL PRINCIPAL AVERAGE PERCENT PERCENT PRIMARY FAMILY
ORIGINATOR LOANS BALANCE BALANCE LTV PURCHASE FULL DOC RESIDENCE DETACHED
- ---------- --------- --------------- ------------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NMI or Affiliate.............. 529 $ 55,015,970.26 36.08% 77.61% 64.41% 67.76% 53.23% 69.35%
Bank United................... 579 57,966,289.22 38.00 78.77 50.73 70.16 47.71 63.17
HomeSide Lending.............. 99 11,857,149.46 7.78 71.38 59.01 24.89 90.20 77.80
Temple Inland Mortgage
Corp........................ 145 11,251,476.62 7.38 80.17 69.15 79.67 34.02 49.97
Other Originators............. 148 16,411,179.38 10.76 77.37 59.72 62.36 60.38 70.90
----- --------------- ------ ----- ----- ----- ----- -----
Total/Weighted Average.. 1,500 $152,502,064.94 100.00% 77.73% 58.64% 65.64% 53.36% 66.39%
----- --------------- ------ ----- ----- ----- ----- -----
----- --------------- ------ ----- ----- ----- ----- -----
<CAPTION>
WEIGHTED
AVERAGE
FICO
ORIGINATOR SCORE
- ---------- --------
<S> <C>
NMI or Affiliate.............. 724
Bank United................... 708
HomeSide Lending.............. 732
Temple Inland Mortgage
Corp........................ 719
Other Originators............. 731
---
Total/Weighted
Average............... 719
---
---
</TABLE>
It is expected that, as of the Cut-Off Date, no single 'Other Originator'
will have accounted for more than 5.00% of the aggregate unpaid principal
balance of the Group II Mortgage Loans as of the Cut-Off Date.
S-50
<PAGE>
PURPOSES OF GROUP II MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
NUMBER OF AGGREGATE AGGREGATE PERCENT
GROUP II UNPAID UNPAID WEIGHTED PERCENT SINGLE
MORTGAGE PRINCIPAL PRINCIPAL AVERAGE PERCENT PERCENT PRIMARY FAMILY
LOAN PURPOSE LOANS BALANCE BALANCE LTV PURCHASE FULL DOC RESIDENCE DETACHED
- ------------ --------- --------------- ------------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Purchase....................... 933 $ 89,419,621.59 58.64% 81.38% 100.00% 66.27% 50.99% 59.96%
Equity Take Out Refinance...... 316 34,134,462.33 22.38 71.64 0.00 64.15 58.25 73.76
Rate/Term Refinance............ 251 28,947,981.02 18.98 73.64 0.00 65.45 54.92 77.56
----- --------------- ------ ----- ----- ----- ----- -----
Total/Weighted Average... 1,500 $152,502,064.94 100.00% 77.73% 58.64% 65.64% 53.36% 66.39%
----- --------------- ------ ----- ----- ----- ----- -----
----- --------------- ------ ----- ----- ----- ----- -----
</TABLE>
WEIGHTED
AVERAGE
FICO
LOAN PURPOSE SCORE
- ------------ --------
Purchase....................... 724
Equity Take Out Refinance...... 714
Rate/Term Refinance............ 711
---
Total/Weighted Average... 719
---
---
In general, in the case of a Group II Mortgage Loan made for 'rate/term'
refinance purposes, substantially all of the proceeds are used to pay in full
the principal balance of a previous mortgage loan of the mortgagor with respect
to a Mortgaged Property and to pay origination and closing costs associated with
such refinancing. However, in the case of a Group II Mortgage Loan made for
'equity take out' refinance purposes, all or a portion of the proceeds are
generally retained by the mortgagor for uses unrelated to the Mortgaged
Property. The amount of such proceeds retained by the mortgagor may be
substantial. See 'The Trust Estates -- Mortgage Loans' and 'The Mortgage Loan
Programs -- Mortgage Loan Underwriting' in the Prospectus.
FICO SCORES
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
NUMBER OF AGGREGATE AGGREGATE PERCENT
GROUP II UNPAID UNPAID WEIGHTED PERCENT SINGLE
RANGE OF MORTGAGE PRINCIPAL PRINCIPAL AVERAGE PERCENT PERCENT PRIMARY FAMILY
FICO SCORES LOANS BALANCE BALANCE LTV PURCHASE FULL DOC RESIDENCE DETACHED
- ----------- --------- --------------- ------------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
250-300........................ 0 $ 0.00 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
301-350........................ 0 0.00 0.00 0.00 0.00 0.00 0.00 0.00
351-400........................ 0 0.00 0.00 0.00 0.00 0.00 0.00 0.00
401-450........................ 0 0.00 0.00 0.00 0.00 0.00 0.00 0.00
451-500........................ 0 0.00 0.00 0.00 0.00 0.00 0.00 0.00
501-550........................ 3 380,156.65 0.25 88.61 26.93 100.00 100.00 100.00
551-600........................ 14 1,372,378.88 0.90 82.55 72.27 66.53 73.74 62.97
601-650........................ 91 8,483,072.92 5.56 82.43 49.11 79.38 52.39 76.96
651-700........................ 354 37,667,492.48 24.70 78.44 51.39 67.69 56.70 68.50
701-750........................ 573 59,426,268.91 38.98 77.00 58.36 63.50 52.37 64.74
751-800........................ 409 39,489,914.63 25.89 76.76 67.49 61.63 52.22 65.92
801-850........................ 17 1,699,897.16 1.11 75.02 53.69 67.92 39.12 55.36
851-900........................ 0 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Not Available.................. 39 3,982,883.31 2.61 79.87 64.08 83.97 44.47 56.03
----- --------------- ------ ----- ----- ----- ----- -----
Total/Weighted Average... 1,500 $152,502,064.94 100.00% 77.73% 58.64% 65.64% 53.36% 66.39%
----- --------------- ------ ----- ----- ----- ----- -----
----- --------------- ------ ----- ----- ----- ----- -----
</TABLE>
WEIGHTED
AVERAGE
RANGE OF FICO
FICO SCORES SCORE
- ----------- --------
250-300........................ 0
301-350........................ 0
351-400........................ 0
401-450........................ 0
451-500........................ 0
501-550........................ 536
551-600........................ 574
601-650........................ 635
651-700........................ 680
701-750........................ 724
751-800........................ 770
801-850........................ 806
851-900........................ 0
Not Available.................. 0
---
Total/Weighted Average... 719
---
---
FICO Scores are generated by models developed by a third party and are made
available to lenders through three national credit bureaus. The models were
derived by analyzing data on consumers in order to establish patterns which are
believed to be indicative of the borrower's probability of default. The FICO
Score is based on a borrower's historical credit data, including, among other
things, payment history, delinquencies on accounts, levels of outstanding
indebtedness, length of credit history, types of credit, and bankruptcy
experience. FICO Scores range from approximately 250 to approximately 900, with
higher scores indicating an individual with a more favorable credit history
compared to an individual with a lower score. However, a FICO Score purports
only to be a measurement of the relative degree of risk a borrower represents to
a lender, i.e., that a borrower with a higher score is statistically expected to
be less likely to default in payment than a borrower with a lower score. In
addition, it should be noted that FICO Scores were developed to indicate a level
of default probability over a two-year period, which does not correspond to the
life of a mortgage loan. Furthermore, FICO Scores were not developed
specifically for use in connection with mortgage loans, but for consumer loans
in general. Therefore, a FICO Score does not take into consideration the effect
of mortgage loan characteristics on the probability of repayment by the
borrower. The FICO Scores set forth in the table above were obtained at either
the time of origination of the Group II Mortgage Loan or more recently. Neither
the Seller nor Norwest Mortgage make any representations or warranties as to the
actual performance of any Group II Mortgage Loan or that a particular FICO Score
should be relied upon as a basis for an expectation that the borrower will repay
the mortgage loan according to its terms. See 'The Mortgage Loan Programs -- The
Mortgage Loan Understanding' in the Prospectus.
OCCUPANCY OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
AGGREGATE AGGREGATE
NUMBER OF UNPAID UNPAID WEIGHTED PERCENT PERCENT
MORTGAGE PRINCIPAL PRINCIPAL AVERAGE PERCENT PERCENT PRIMARY SINGLE
OCCUPANCY CODE LOANS BALANCE BALANCE LTV PURCHASE FULL DOC RESIDENCE FAMILY
- -------------- --------- --------------- ------------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Property............ 781 $ 67,101,469.73 44.00% 79.12% 61.00% 88.77% 0.00% 52.95%
Primary Residence.............. 677 81,373,047.28 53.36 76.81 56.03 46.42 100.00 79.10
Second Home.................... 42 4,027,547.93 2.64 73.17 71.83 68.50 0.00 33.65
----- --------------- ------ ----- ----- ----- ----- -----
Total.................... 1,500 $152,502,064.94 100.00% 77.73% 58.64% 65.64% 53.36% 66.39%
----- --------------- ------ ----- ----- ----- ----- -----
----- --------------- ------ ----- ----- ----- ----- -----
</TABLE>
WEIGHTED
AVERAGE
FICO
OCCUPANCY CODE SCORE
- -------------- --------
Investment Property............ 721
Primary Residence.............. 717
Second Home.................... 732
---
Total.................... 719
---
---
S-51
<PAGE>
GROUP II MORTGAGE LOAN DOCUMENTATION LEVELS
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
NUMBER OF AGGREGATE AGGREGATE PERCENT
GROUP II UNPAID UNPAID WEIGHTED PERCENT SINGLE
MORTGAGE PRINCIPAL PRINCIPAL AVERAGE PERCENT PERCENT PRIMARY FAMILY
DOCUMENTATION LEVEL LOANS BALANCE BALANCE LTV PURCHASE FULL DOC RESIDENCE DETACHED
- ------------------- --------- --------------- ------------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Full Documentation............... 1,051 $100,097,101.22 65.64% 80.70% 59.20% 100.00% 37.73% 58.74%
Income Verification.............. 2 184,446.51 0.12 78.74 0.00 0.00 58.28 58.28
Asset Verification............... 446 52,135,473.08 34.18 72.05 57.86 0.00 83.43 81.06
Preferred Processing............. 1 85,044.13 0.06 54.98 0.00 0.00 0.00 100.00
----- --------------- ------ ----- ----- ----- ----- -----
Total/Weighted Average..... 1,500 $152,502,064.94 100.00% 77.73% 58.64% 65.64% 53.36% 66.39%
----- --------------- ------ ----- ----- ----- ----- -----
----- --------------- ------ ----- ----- ----- ----- -----
</TABLE>
WEIGHTED
AVERAGE
FICO
DOCUMENTATION LEVEL SCORE
- ------------------- --------
Full Documentation............... 716
Income Verification.............. 672
Asset Verification............... 725
Preferred Processing............. 695
---
Total/Weighted Average..... 719
---
---
Documentation levels vary depending upon several factors, including loan
amount, Loan-to-Value Ratio and the type and purpose of the Mortgage Loan.
Asset, income and mortgage verifications were obtained for Group II Mortgage
Loans processed with 'full documentation.' In the case of 'preferred
processing,' neither asset, income nor mortgage verifications were obtained. In
most instances, a verification of the borrower's employment was obtained.
However, for all of the Group II Mortgage Loans, a credit report on the borrower
and a property appraisal were obtained. See 'The Mortgage Loan
Programs -- Mortgage Loan Underwriting' in the Prospectus.
REMAINING TERMS TO
STATED MATURITY
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
NUMBER OF AGGREGATE AGGREGATE
GROUP II UNPAID UNPAID
REMAINING STATED MORTGAGE PRINCIPAL PRINCIPAL
TERM (MONTHS) LOANS BALANCE BALANCE
- ---------------- --------- --------------- -------------
<S> <C> <C> <C>
176................ 2 $ 278,077.29 0.18%
177................ 2 250,160.90 0.16
178................ 10 1,065,485.29 0.70
179................ 11 913,721.59 0.60
180................ 10 1,079,850.00 0.71
234................ 1 173,324.69 0.11
235................ 2 193,533.54 0.13
295................ 1 174,545.96 0.11
343................ 1 154,122.30 0.10
344................ 1 51,361.45 0.03
348................ 9 855,704.56 0.56
349................ 16 1,284,881.42 0.84
350................ 19 1,439,106.27 0.94
351................ 41 4,478,311.27 2.94
352................ 57 5,320,122.13 3.49
353................ 91 9,814,257.76 6.44
354................ 83 9,301,469.67 6.10
355................ 129 13,298,759.55 8.72
356................ 152 16,062,160.40 10.53
357................ 265 24,971,467.96 16.37
358................ 301 30,204,220.45 19.82
359................ 217 23,678,692.49 15.53
360................ 79 7,458,728.00 4.89
----- --------------- ------
Total........ 1,500 $152,502,064.94 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
YEARS OF ORIGINATION
PERCENTAGE OF
TOTAL
NUMBER OF AGGREGATE AGGREGATE
GROUP II UNPAID UNPAID
MORTGAGE PRINCIPAL PRINCIPAL
YEAR OF ORIGINATION LOANS BALANCE BALANCE
- ------------------- --------- --------------- -------------
1997............... 46 $ 3,785,176.00 2.48%
1998............... 1,454 148,716,888.94 97.52
----- --------------- ------
Total........ 1,500 $152,502,064.94 100.00%
----- --------------- ------
----- --------------- ------
GEOGRAPHIC DISTRIBUTION OF
MORTGAGED PROPERTIES
PERCENTAGE OF
TOTAL
NUMBER OF AGGREGATE AGGREGATE
GROUP II UNPAID UNPAID
MORTGAGE PRINCIPAL PRINCIPAL
GEOGRAPHIC AREA LOANS BALANCE BALANCE
- --------------- -------- --------------- -------------
Alabama................ 12 $ 986,069.54 0.65%
Alaska................. 4 739,438.82 0.48
Arizona................ 95 9,781,654.61 6.41
Arkansas............... 5 361,750.92 0.24
California............. 136 17,400,813.80 11.44
Colorado............... 130 14,563,643.10 9.55
Connecticut............ 21 1,987,804.25 1.30
Delaware............... 3 244,215.27 0.16
District of Columbia... 3 466,256.47 0.31
Florida................ 89 6,962,598.02 4.57
Georgia................ 28 3,283,108.42 2.15
Hawaii................. 3 469,804.56 0.31
Idaho.................. 18 1,719,591.22 1.13
Illinois............... 19 1,828,980.31 1.20
Indiana................ 15 1,074,635.25 0.70
Iowa................... 10 756,224.87 0.50
Kansas................. 11 924,944.20 0.61
Kentucky............... 10 1,040,788.40 0.68
Louisiana.............. 7 456,308.95 0.30
Maine.................. 1 214,173.47 0.14
Maryland............... 29 3,424,991.39 2.25
Massachusetts.......... 45 5,764,497.66 3.78
Michigan............... 21 1,881,669.04 1.23
Minnesota.............. 18 2,092,098.74 1.37
Mississippi............ 1 125,913.29 0.08
Missouri............... 19 1,238,905.53 0.81
Montana................ 21 1,972,334.68 1.29
Nebraska............... 5 372,617.82 0.24
Nevada................. 11 1,190,349.69 0.78
New Hampshire.......... 10 987,926.30 0.65
New Jersey............. 48 5,877,294.01 3.85
New Mexico............. 10 934,239.48 0.61
New York............... 49 5,563,592.77 3.65
North Carolina......... 38 4,030,470.51 2.64
North Dakota........... 2 105,461.60 0.07
Ohio................... 47 2,950,078.93 1.93
Oklahoma............... 2 187,121.33 0.12
Oregon................. 120 13,608,690.99 8.92
Pennsylvania........... 18 1,410,560.56 0.92
Rhode Island........... 14 1,443,089.47 0.95
South Carolina......... 17 1,868,901.28 1.23
South Dakota........... 4 353,823.50 0.23
Tennessee.............. 7 682,531.50 0.45
Texas.................. 189 13,733,476.28 9.01
Utah................... 34 3,615,281.80 2.37
Vermont................ 5 600,006.36 0.39
Virginia............... 39 4,870,010.61 3.19
Washington............. 50 5,686,951.96 3.73
Wisconsin.............. 4 356,080.68 0.23
Wyoming................ 3 310,292.73 0.20
----- --------------- ------
Total............. 1,500 $152,502,064.94 100.00%
----- --------------- ------
----- --------------- ------
S-52
<PAGE>
MANDATORY REPURCHASE OR SUBSTITUTION OF MORTGAGE LOANS
The Seller is required, with respect to Mortgage Loans that are found by
the Trust Administrator to have defective documentation, or in respect of which
the Seller has breached a representation or warranty, either to repurchase such
Mortgage Loans or, if within two years of the date of initial issuance of the
Certificates, to substitute new Mortgage Loans therefor. Any Mortgage Loan so
substituted must, among other things, have an unpaid principal balance equal to
or less than the Scheduled Principal Balance of the Mortgage Loan for which it
is being substituted (after giving effect to the scheduled principal payment due
in the month of substitution on the Mortgage Loan for which a new Mortgage Loan
is being substituted), a Loan-to-Value Ratio less than or equal to, and a
Mortgage Interest Rate equal to that of the Mortgage Loan for which it is being
substituted. See 'Prepayment and Yield Considerations' herein and 'The Pooling
and Servicing Agreement -- Assignment of Mortgage Loans to the Trustee' in the
Prospectus.
OPTIONAL REPURCHASE OF DEFAULTED MORTGAGE LOANS
The Seller may, in its sole discretion, repurchase from the Trust Estate
any defaulted Mortgage Loan, or any Mortgage Loan as to which default is
reasonably foreseeable, at a price equal to the unpaid principal balance of such
Mortgage Loan, together with accrued interest at a rate equal to the Mortgage
Interest Rate through the last day of the month in which such repurchase occurs.
See 'The Pooling and Servicing Agreement -- Optional Purchases' in the
Prospectus. A Servicer may, in its sole discretion, allow the assumption of a
defaulted Mortgage Loan serviced by such Servicer, subject to certain conditions
specified in the applicable Underlying Servicing Agreement, or encourage the
refinancing of a defaulted Mortgage Loan. See 'Prepayment and Yield
Considerations' herein and 'Servicing of the Mortgage Loans -- Enforcement of
Due-on-Sale Clauses; Realization Upon Defaulted Mortgage Loans' in the
Prospectus.
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of distributions in reduction of the Principal Balance of any
Class of the Offered Certificates, the aggregate amount of distributions on any
Class of the Offered Certificates and the weighted average life and yield to
maturity of any Class of the Offered Certificates purchased at a discount or
premium will be directly equal to the rate of payments of principal on the
Mortgage Loans in the related Loan Group, or both Loan Groups in the case of the
Class B Certificates, and the amount and timing of mortgagor defaults resulting
in Realized Losses on the Mortgage Loans in the related Loan Group, or both Loan
Groups in the case of the Class B Certificates. Prepayments (which, as used
herein, include all unscheduled payments of principal, including payments as the
result of liquidations, purchases and repurchases) of the Mortgage Loans in a
Loan Group will result in distributions to Certificateholders then entitled to
distributions in respect of principal in respect of such Mortgage Loans of
amounts which would otherwise be distributed over the remaining terms of such
Mortgage Loans. Since the rate of prepayment on the Mortgage Loans will depend
on future events and a variety of factors (as described more fully below and in
the Prospectus under 'Prepayment and Yield Considerations'), no assurance can be
given as to such rate or the rate of principal payments or yield on, or weighted
average life of, any Class of the Offered Certificates or the aggregate amount
of distributions on any Class of the Offered Certificates.
The rate of principal payments on the Mortgage Loans will be affected by
the amortization schedules of the Mortgage Loans, the rate of principal
prepayments (including partial prepayments and those resulting from refinancing)
thereon by mortgagors, liquidations of defaulted Mortgage Loans, repurchases by
the Seller of Mortgage Loans as a result of defective documentation or breaches
of representations and warranties and optional purchases by the Seller of all of
the Mortgage Loans in connection with the termination of the Trust Estate. See
'Description of the Mortgage Loans -- Mandatory Repurchase or Substitution of
Mortgage Loans' and 'Pooling and Servicing Agreement -- Optional Termination'
herein and 'The Pooling and Servicing Agreement -- Assignment of Mortgage Loans
to the Trustee,' '-- Optional Purchases' and '-- Termination; Optional Purchase
of Mortgage Loans' in the Prospectus. Mortgagors are permitted to prepay the
Mortgage Loans, in whole or in part, at any time without penalty. If prevailing
rates for similar mortgage loans fall below the Mortgage Interest Rates on the
Mortgage Loans, the rate of prepayment would generally be expected to increase.
Conversely, if interest rates on similar mortgage loans rise above the Mortgage
Interest Rates on the Mortgage Loans, the rate of prepayment would generally be
expected to decrease. In addition, because the
S-53
<PAGE>
characteristics of the Group I Mortgage Loans and the Group II Mortgage Loans
differ, the Group I Mortgage Loans and Group II Mortgage Loans as a whole may be
expected to prepay at different rates. The rate of prepayment on the Mortgage
Loans may also be influenced by programs offered by mortgage loan originators
(including Norwest Mortgage), servicers (including Norwest Mortgage) and
mortgage loan brokers to encourage refinancing through such originators,
servicers and brokers, including, but not limited to, general or targeted
solicitations (which may be based on characteristics including, but not limited
to, the mortgage loan interest rate or payment history and the geographic
location of the Mortgaged Property), reduced origination fees or closing costs,
pre-approved applications, waiver of pre-closing interest accrued with respect
to a refinanced loan prior to the pay-off of such loan, or other financial
incentives. In particular, the application of Norwest Mortgage's 'retention
program,' which enables qualifying mortgagors to refinance at greatly reduced
cost, to its servicing portfolio may substantially affect the rate of prepayment
on the Mortgage Loans. See 'Prepayment and Yield Considerations -- Refinancings'
in the Prospectus. In addition, Norwest Mortgage or third parties may enter into
agreements with borrowers providing for the bi-weekly payment of principal and
interest on the related mortgage loan, thereby accelerating payment of the
mortgage loan resulting in partial prepayments.
The rate of defaults on the Mortgage Loans will also affect the rate and
timing of principal payments on the Mortgage Loans. In general, defaults on
mortgage loans are expected to occur with greater frequency in their early
years. As a result of Mortgage Loans being originated using underwriting
standards that, in certain respects, may be less stringent than the General
Standards applied by Norwest Mortgage, the Mortgage Loans may experience rates
of delinquency, foreclosure, bankruptcy and loss that are higher than those
experienced by mortgage loans that satisfy the General Standards applied by
Norwest Mortgage.
NORWEST MORTGAGE HAS NOT HAD SUFFICIENT EXPERIENCE SERVICING MORTGAGE LOANS
UNDERWRITTEN BY IT IN ACCORDANCE WITH THE MODIFIED STANDARDS TO PROVIDE
MEANINGFUL DISCLOSURE OF ITS DELINQUENCY AND LOSS EXPERIENCE WITH RESPECT TO
SUCH MORTGAGE LOANS. IN ADDITION, THE SELLER DOES NOT BELIEVE THAT BANK UNITED,
WHICH ACTS AS SERVICER FOR 30.10% OF THE MORTGAGE LOANS (BY AGGREGATE UNPAID
PRINCIPAL BALANCE AS OF THE CUT-OFF DATE), HAS HAD SUFFICIENT EXPERIENCE
SERVICING MORTGAGE LOANS UNDERWRITTEN TO STANDARDS SIMILAR TO THE MODIFIED
STANDARDS TO PROVIDE MEANINGFUL DISCLOSURE OF ITS DELINQUENCY AND LOSS
EXPERIENCE WITH RESPECT TO SUCH MORTGAGE LOANS.
Other factors affecting prepayment of mortgage loans include changes in
mortgagors' housing needs, job transfers, unemployment or substantial
fluctuations in income, significant declines in real estate values and adverse
economic conditions either generally or in particular geographic areas,
mortgagors' equity in the Mortgaged Properties, including the use of the
properties as second or vacation homes, and servicing decisions, such as,
without limitation, the decision as to whether to foreclose on a Mortgage Loan
or to modify the terms of the related Mortgage Note and decisions as to the
timing of any foreclosure. In addition, all of the Mortgage Loans contain
due-on-sale clauses which will generally be exercised upon the sale of the
related Mortgaged Properties. Consequently, acceleration of mortgage payments as
a result of any such sale will affect the level of prepayments on the Mortgage
Loans. The extent to which defaulted Mortgage Loans are assumed by transferees
of the related Mortgaged Properties will also affect the rate of principal
payments. The rate of prepayment and, therefore, the yield to maturity of the
Offered Certificates will be affected by the extent to which (i) the Seller
elects to repurchase, rather than substitute for, Mortgage Loans which are found
by the Trust Administrator to have defective documentation or with respect to
which the Seller has breached a representation or warranty, (ii) a Servicer
elects to encourage the refinancing of any defaulted Mortgage Loan rather than
to permit an assumption thereof by a mortgagor or (iii) a Servicer agrees to
modify the payment terms of a Mortgage Note rather than foreclose on the related
Mortgage Loan. See 'Servicing of the Mortgage Loans -- Enforcement of
Due-on-Sale Clauses; Realization Upon Defaulted Mortgage Loans' in the
Prospectus.
As described under 'Description of the Certificates -- Principal (Including
Prepayments)' herein, all or a disproportionate percentage of principal
prepayments on the Mortgage Loans in a Loan Group (including liquidations and
repurchases of Mortgage Loans in such Loan Group) will be distributed, to the
extent of the Non-PO Fraction, to the holders of the Class A Certificates of the
related Group (other than the Class II-A-PO Certificates) then entitled to
distributions in respect of principal during the nine years beginning on the
first Distribution Date, and, to the extent that such principal prepayments are
made in respect of a Group II Discount Mortgage Loan, to the Class II-A-PO
Certificates in proportion to the interest of the Class II-A-PO Certificates in
the Group II Discount Mortgage Loan represented by the PO Fraction.
S-54
<PAGE>
As described herein under 'Description of the Certificates -- Principal
(Including Prepayments) -- Allocation of Amount to be Distributed on the Class A
Certificates' unless the Principal Balances of the other Group I-A Certificates
have been reduced to zero, the Class I-A-3 Certificates will not be entitled to
any distributions of principal payments for five years following the issuance of
the Certificates. Thereafter, the Class I-A-3 Certificates will be entitled to
their proportional share of scheduled principal payments, and the percentage of
principal prepayments from the Group I Mortgage Loans allocated to the Class
I-A-3 Certificates will gradually increase during the following five years.
THE YIELD TO MATURITY OF THE OFFERED CERTIFICATES WILL BE SENSITIVE IN
VARYING DEGREES TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING
PREPAYMENTS, WHICH MAY BE MADE AT ANY TIME WITHOUT PENALTY) ON THE MORTGAGE
LOANS IN THE RELATED LOAN GROUP, OR BOTH LOAN GROUPS IN THE CASE OF THE CLASS B
CERTIFICATES. INVESTORS IN THE OFFERED CERTIFICATES SHOULD CONSIDER THE
ASSOCIATED RISKS, INCLUDING, IN THE CASE OF OFFERED CERTIFICATES PURCHASED AT A
DISCOUNT, PARTICULARLY THE CLASS I-A-4 AND CLASS II-A-2 CERTIFICATES, THE RISK
THAT A SLOWER THAN ANTICIPATED RATE OF PAYMENTS IN RESPECT OF PRINCIPAL
(INCLUDING PREPAYMENTS) ON THE MORTGAGE LOANS IN THE RELATED LOAN GROUP, OR BOTH
LOAN GROUPS IN THE CASE OF THE CLASS B CERTIFICATES, COULD RESULT IN AN ACTUAL
YIELD THAT IS LOWER THAN ANTICIPATED AND, IN THE CASE OF OFFERED CERTIFICATES
PURCHASED AT A PREMIUM, PARTICULARLY THE CLASS I-A-6 CERTIFICATES, WHICH HAVE NO
PRINCIPAL BALANCE, THAT A FASTER THAN ANTICIPATED RATE OF PAYMENTS IN RESPECT OF
PRINCIPAL (INCLUDING PREPAYMENTS) ON THE MORTGAGE LOANS IN THE RELATED LOAN
GROUP, OR BOTH LOAN GROUPS IN THE CASE OF THE CLASS B CERTIFICATES, COULD RESULT
IN AN ACTUAL YIELD THAT IS LOWER THAN ANTICIPATED. INVESTORS PURCHASING OFFERED
CERTIFICATES AT A PREMIUM SHOULD ALSO CONSIDER THE RISK THAT A RAPID RATE OF
PAYMENTS IN RESPECT OF PRINCIPAL (INCLUDING PREPAYMENTS) ON THE MORTGAGE LOANS
IN THE RELATED LOAN GROUP COULD RESULT IN THE FAILURE OF SUCH INVESTORS TO FULLY
RECOVER THEIR INITIAL INVESTMENTS. AN INVESTOR IS URGED TO MAKE AN INVESTMENT
DECISION WITH RESPECT TO ANY CLASS OF OFFERED CERTIFICATES BASED ON THE
ANTICIPATED YIELD TO MATURITY OF SUCH CLASS RESULTING FROM ITS PURCHASE PRICE
AND SUCH INVESTOR'S OWN DETERMINATION AS TO ANTICIPATED MORTGAGE LOAN PREPAYMENT
RATES UNDER A VARIETY OF SCENARIOS.
The timing of changes in the rate of prepayment on the Mortgage Loans in a
Loan Group may significantly affect the actual yield to maturity experienced by
an investor who purchases a Class A Certificate of the related Group or a Class
B Certificate at a price other than par, even if the average rate of principal
payments experienced over time is consistent with such investor's expectation.
In general, the earlier a prepayment of principal on the underlying Mortgage
Loans in a related Loan Group, the greater the effect on such investor's yield
to maturity. As a result, the effect on such investor's yield of principal
payments occurring at a rate higher (or lower) than the rate anticipated by the
investor during the period immediately following the issuance of the Offered
Certificates would not be fully offset by a subsequent like reduction (or
increase) in the rate of principal payments.
The yield to maturity on the Classes of Class B Certificates with higher
numerical designations will generally be more sensitive to losses than the
Classes with lower numerical designations, because the entire amount of such
losses (except for the portion of Excess Losses allocated to the Class A
Certificates of the related Group and Classes of Class B Certificates with lower
numerical designations) will be allocable to the Classes of Class B Certificates
in reverse numerical order, except as provided herein. To the extent not covered
by Periodic Advances, delinquencies on Mortgage Loans in a Loan Group will also
have a relatively greater effect on the yield to maturity on the Classes of
Class B Certificates with higher numerical designations because amounts
otherwise distributable to holders of the Class B Certificates will be made
available to protect the holders of the Class A Certificates of the related
Group against interruptions in distributions due to such unadvanced mortgagor
delinquencies. Such unadvanced delinquencies, even if subsequently cured, may
affect the timing of the receipt of distributions by the holders of the Class B
Certificates.
The actual yield to maturity experienced by an investor may also be
affected by the occurrence of interest shortfalls resulting from Unscheduled
Principal Receipts to the extent, if any, to which such interest shortfalls are
not covered by Compensating Interest or subordination. See 'Description of the
Certificates -- Interest' and 'Servicing of the Mortgage Loans -- Anticipated
Changes in Servicing.'
The yield to maturity on the Offered Certificates and more particularly on
the Class B-1 and Class B-2 Certificates and, especially the Class B-3
Certificates, may be affected by the geographic concentration of the Mortgaged
Properties securing the Mortgage Loans in the related Loan Group, or both Loan
Groups in the case
S-55
<PAGE>
of the Class B Certificates. In recent periods, California, the New York
metropolitan area, the Washington, D.C. metropolitan area and several other
regions in the United States have experienced significant declines in housing
prices. In addition, California and several other regions have experienced
natural disasters, including earthquakes, fires, floods and hurricanes, which
may adversely affect property values. Any deterioration in housing prices in the
states in which there is a significant concentration of Mortgaged Properties, as
well as other states in which the Mortgaged Properties are located, and any
deterioration of economic conditions in such states which adversely affects the
ability of borrowers to make payments on the Mortgage Loans, may increase the
likelihood of losses on the Mortgage Loans. Such losses, if they occur, may have
an adverse effect on the yield to maturity of the Offered Certificates and more
particularly on the Class B-1 and Class B-2 Certificates and especially the
Class B-3 Certificates.
As to Mortgaged Properties in regions that have recently experienced
natural disasters, neither the Seller nor Norwest Mortgage has undertaken the
physical inspection of such Mortgaged Properties. As a result, there can be no
assurance that material damage to any Mortgaged Property in an affected region
has not occurred. In the Pooling and Servicing Agreement, the Seller will
represent and warrant that, as of the date of issuance of the Certificates, each
Mortgaged Property is undamaged by flood, water, fire, earthquake or earth
movement, windstorm, tornado or similar casualty (excluding casualty from the
presence of hazardous wastes or hazardous substances, as to which the Seller
makes no representation) so as to adversely affect the value of such Mortgaged
Property as security for such Mortgage Loan or the use for which such premises
were intended. In the event of a breach of such representation with respect to a
Mortgaged Property which materially and adversely affects the interests of
Certificateholders in the related Mortgage Loan, the Seller will be obligated to
repurchase or substitute for such Mortgage Loan, as described under 'The
Mortgage Loan Programs -- Representations and Warranties' and 'The Pooling and
Servicing Agreement -- Assignment of Mortgage Loans to the Trustee' in the
Prospectus. Repurchase of any such Mortgage Loan will affect in varying degrees
the yields and weighted average lives of the related Classes of Offered
Certificates and could adversely affect the yield of any related Offered
Certificates purchased at a premium.
No representation is made as to the rate of principal payments on the
Mortgage Loans or as to the yield to maturity of any Class of Offered
Certificates.
An investor should consider the risk that rapid rates of prepayments on the
Mortgage Loans in a Loan Group, or both Loan Groups in the case of the Class B
Certificates, and therefore of amounts distributable in reduction of principal
balance of the related Offered Certificates, may coincide with periods of low
prevailing interest rates. During such periods, the effective interest rates on
securities in which an investor may choose to reinvest amounts distributed in
reduction of the principal balance of such investor's Offered Certificate may be
lower than the applicable Pass-Through Rate or, in the case of the Class I-A-4
and Class II-A-2 Certificates, the anticipated yields thereon. Conversely,
slower rates of prepayments on the Mortgage Loans in a Loan Group, or both Loan
Groups in the case of the Class B Certificates, and therefore of amounts
distributable in reduction of principal balance of the related Offered
Certificates, may coincide with periods of high prevailing interest rates.
During such periods, the amount of principal distributions available to an
investor for reinvestment at such high prevailing interest rates may be
relatively small.
DUE TO THE SPECIAL TAX TREATMENT OF RESIDUAL INTERESTS, THE AFTER-TAX
RETURN OF THE CLASS I-A-R AND CLASS I-A-LR CERTIFICATES MAY BE SIGNIFICANTLY
LOWER THAN WOULD BE THE CASE IF THE CLASS I-A-R AND CLASS I-A-LR CERTIFICATES
WERE TAXED AS DEBT INSTRUMENTS, OR MAY BE NEGATIVE. SEE 'MATERIAL FEDERAL INCOME
TAX CONSEQUENCES' HEREIN.
As referred to herein, the 'WEIGHTED AVERAGE LIFE' of a Class of Offered
Certificates (other than the Class I-A-6 Certificates) refers to the average
amount of time that will elapse from the date of issuance of such Class until
each dollar in reduction of the Principal Balance of such Class is distributed
to the investor. The weighted average life of a Class I-A-6 Certificate is equal
to the average amount of time that will elapse between the date of issuance of
the Certificates and the date on which each dollar in reduction of the Principal
Balance of the Class I-A-7 Certificates (a portion of the Principal Balance of
which corresponds to the notional amount of the Class I-A-6 Certificates) is
distributed to the investors in the Class I-A-7 Certficates.
Prepayments of mortgage loans commonly are measured relative to a
prepayment standard or model. The prepayment model used in this Prospectus
Supplement (the 'PREPAYMENT VECTOR') represents an assumed rate of prepayment
each month relative to the then outstanding principal balance of a pool of
mortgage loans. A 100%
S-56
<PAGE>
Prepayment Vector assumes a Constant Prepayment Rate ('CPR') of 6.0% per annum
of the then outstanding principal balance of such mortgage loans in the first
month of the life of the mortgage loans and an additional 1.27272727% (precisely
14/11%) per annum in each month thereafter until the twelfth month. Beginning in
the twelfth month and in each month thereafter during the life of the mortgage
loans, a 100% Prepayment Vector assumes a CPR of 20% per annum each month. The
Prepayment Vector 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 in any Loan Group.
The tables set forth below have been prepared assuming, among other things,
the following (the 'STRUCTURING ASSUMPTIONS'): (i) each Loan Group consists of
one '15 YEAR ASSUMED PREMIUM MORTGAGE LOAN' and one '30 YEAR ASSUMED PREMIUM
MORTGAGE LOAN' AND LOAN GROUP II, IN ADDITION, CONSISTS OF ONE '30 YEAR ASSUMED
DISCOUNT MORTGAGE LOAN' (collectively, the 'ASSUMED MORTGAGE LOANS') with the
characteristics set forth below, (ii) the scheduled payment in each month for
each Assumed Mortgage Loan has been based on its outstanding balance as of the
first day of the month preceding the month of such payment, its Mortgage
Interest Rate and its remaining term to stated maturity, so that such scheduled
payments would amortize the remaining balance over its remaining term to
maturity, (iii) scheduled monthly payments of principal and interest on the
Assumed Mortgage Loans will be timely received on the first day of each month
(with no defaults), commencing in December 1998, (iv) the Seller does not
repurchase any Assumed Mortgage Loan and the Seller does not exercise its option
to purchase the Assumed Mortgage Loans and thereby cause a termination of the
Trust Estate, (v) principal prepayments in full on the Assumed Mortgage Loans
will be received on the last day of each month commencing in November 1998 at
the respective constant percentages of the Prepayment Vector set forth in the
tables and there are no partial principal prepayments or Prepayment Interest
Shortfalls, (vi) the Certificates will be issued on November 25, 1998, (vii)
distributions to Certificateholders will be made on the 25th day of each month,
commencing in December 1998, (viii) the Servicing Fee Rate is 0.25% per annum
and the Master Servicing Fee Rate is 0.017% per annum for each Assumed Mortgage
Loan and (ix) the initial Principal Balance of each Class of Certificates (or,
the initial Class I-A-6 Notional Amount, in the case of the Class I-A-6
Certificates) will be as set forth on page S-4 of this Prospectus Supplement.
ASSUMED MORTGAGE LOAN CHARACTERISTICS
<TABLE>
<CAPTION>
REMAINING TERM ORIGINAL TERM
PRINCIPAL BALANCE AS MORTGAGE TO MATURITY TO MATURITY
OF THE CUT-OFF DATE INTEREST RATE (IN MONTHS) (IN MONTHS)
-------------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
LOAN GROUP I
15 Year Assumed Premium Mortgage Loan............. $ 1,612,734.00 7.2971843156% 180 180
30 Year Assumed Premium Mortgage Loan............. $ 75,980,726.90 7.5412174732% 357 360
LOAN GROUP II
15 Year Assumed Premium Mortgage Loan............. $ 3,587,295.07 7.3034412879% 179 180
30 Year Assumed Discount Mortgage Loan............ $ 67,415.67 6.5000000000% 357 360
30 Year Assumed Premium Mortgage Loan............. $ 148,847,354.20 7.8512990863% 356 360
</TABLE>
It is highly unlikely that the Mortgage Loans in a Loan Group will prepay
at any constant Prepayment Vector, that all of the Mortgage Loans in a Loan
Group will prepay at the same Prepayment Vector or that the Mortgage Loans in a
Loan Group will not experience any losses. In addition, there will be
differences between the characteristics of the Mortgage Loans ultimately
included in each Loan Group and the characteristics which are assumed in
preparing the tables, as described above. Any difference may have an effect upon
the actual percentages of initial Principal Balances (or, the initial Class
I-A-6 Notional Amount, in the case of the Class I-A-6 Certificates) of the
Classes of Certificates outstanding, the actual weighted average lives of the
Classes of Certificates and the date on which the Principal Balance (or, the
Class I-A-6 Notional Amount, in the case of the Class I-A-6 Certificates) of any
Class of Certificates is reduced to zero.
Based upon the foregoing assumptions, the following tables indicate the
weighted average life of each Class of Offered Certificates, and set forth the
percentages of the initial Principal Balance (or, the initial Class I-A-6
Notional Amount, in the case of the Class I-A-6 Certificates) of each such
Class, of Offered Certificates that would be outstanding after each of the dates
shown at constant percentages of the Prepayment Vector presented.
S-57
<PAGE>
PERCENTAGE OF INITIAL PRINCIPAL BALANCE(1) OUTSTANDING FOR:
<TABLE>
<CAPTION>
CLASS I-A-1, CLASS I-A-6
AND CLASS I-A-7 CLASS I-A-2
CERTIFICATES AT THE CERTIFICATES AT THE
FOLLOWING PERCENTAGES FOLLOWING PERCENTAGES
OF THE PREPAYMENT VECTOR OF THE PREPAYMENT VECTOR
--------------------------------------------------- -------------------------------------------
DISTRIBUTION DATE 0% 25% 50% 100% 150% 200% 0% 50% 75% 100% 150%
- ----------------- ----- ----- ---- ---- ---- ---- ----- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial................. 100 100 100 100 100 100 100 100 100 100 100
November 1999........... 99 94 89 79 69 59 100 100 100 100 100
November 2000........... 98 87 77 57 40 25 100 100 100 100 100
November 2001........... 96 80 65 40 20 5 100 100 100 100 100
November 2002........... 95 74 56 27 7 0 100 100 100 100 100
November 2003........... 93 68 47 16 0 0 100 100 100 100 0
November 2004........... 92 62 40 9 0 0 100 100 100 100 0
November 2005........... 90 57 33 4 0 0 100 100 100 100 0
November 2006........... 88 53 28 1 0 0 100 100 100 100 0
November 2007........... 87 49 24 0 0 0 100 100 100 75 0
November 2008........... 85 45 21 0 0 0 100 100 100 29 0
November 2009........... 82 41 18 0 0 0 100 100 100 0 0
November 2010........... 80 38 15 0 0 0 100 100 100 0 0
November 2011........... 77 35 13 0 0 0 100 100 100 0 0
November 2012........... 75 31 10 0 0 0 100 100 100 0 0
November 2013........... 72 28 8 0 0 0 100 100 92 0 0
November 2014........... 69 26 7 0 0 0 100 100 51 0 0
November 2015........... 66 23 5 0 0 0 100 100 16 0 0
November 2016........... 62 20 4 0 0 0 100 100 0 0 0
November 2017........... 59 18 3 0 0 0 100 100 0 0 0
November 2018........... 55 15 2 0 0 0 100 100 0 0 0
November 2019........... 50 13 1 0 0 0 100 100 0 0 0
November 2020........... 46 11 0 0 0 0 100 85 0 0 0
November 2021........... 41 9 0 0 0 0 100 44 0 0 0
November 2022........... 36 7 0 0 0 0 100 7 0 0 0
November 2023........... 30 4 0 0 0 0 100 0 0 0 0
November 2024........... 24 3 0 0 0 0 100 0 0 0 0
November 2025........... 17 1 0 0 0 0 100 0 0 0 0
November 2026........... 10 0 0 0 0 0 100 0 0 0 0
November 2027........... 2 0 0 0 0 0 100 0 0 0 0
November 2028........... 0 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life(2)............... 19.28 10.44 6.18 2.88 1.89 1.40 29.39 22.91 16.11 9.62 4.82
<CAPTION>
CLASS I-A-3
CERTIFICATES AT THE
FOLLOWING PERCENTAGES
OF THE PREPAYMENT VECTOR
-------------------------------------------
DISTRIBUTION DATE 200% 0% 50% 100% 150% 200%
- ----------------- ---- ----- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Initial................. 100 100 100 100 100 100
November 1999........... 100 100 100 100 100 100
November 2000........... 100 100 100 100 100 100
November 2001........... 100 100 100 100 100 100
November 2002........... 0 100 100 100 100 78
November 2003........... 0 100 100 100 100 18
November 2004........... 0 98 95 92 64 0
November 2005........... 0 97 90 83 34 0
November 2006........... 0 95 83 71 17 0
November 2007........... 0 93 75 58 10 0
November 2008........... 0 91 66 46 7 0
November 2009........... 0 89 58 36 5 0
November 2010........... 0 86 50 28 3 0
November 2011........... 0 84 44 22 2 0
November 2012........... 0 81 38 17 1 0
November 2013........... 0 78 33 13 1 0
November 2014........... 0 75 29 10 1 0
November 2015........... 0 72 25 8 * 0
November 2016........... 0 68 21 6 * 0
November 2017........... 0 65 18 4 * 0
November 2018........... 0 60 15 3 * 0
November 2019........... 0 56 13 2 * 0
November 2020........... 0 51 10 2 * 0
November 2021........... 0 46 8 1 * 0
November 2022........... 0 41 7 1 * 0
November 2023........... 0 35 5 1 * 0
November 2024........... 0 29 4 * * 0
November 2025........... 0 22 3 * * 0
November 2026........... 0 14 2 * * 0
November 2027........... 0 6 1 * * 0
November 2028........... 0 0 0 0 0 0
Weighted Average
Life(2)............... 3.47 20.87 13.46 10.56 7.00 4.51
</TABLE>
- ------------------------------
(1) With respect to the Class I-A-6 Certificates, percentages are expressed as
a percentage of the initial Class I-A-6 Notional Amount.
(2) The weighted average life of an Offered Certificate is determined by (i)
multiplying the amount of each distribution in reduction of Principal
Balance or notional amount, as the case may be, by the number of years from
the date of the issuance of such Certificate to the related Distribution
Date, (ii) adding the results and (iii) dividing the sum by the aggregate
distributions in reduction of Principal Balance or notional amount, as the
case may be, referred to in clause (i).
* Indicates a percentage greater than zero but less than 0.5% of the initial
Principal Balance or notional amount, as the case may be, of such Class.
S-58
<PAGE>
PERCENTAGE OF INITIAL PRINCIPAL BALANCE OUTSTANDING FOR:
<TABLE>
<CAPTION>
CLASS I-A-4 CLASS I-A-5
CERTIFICATES AT THE CERTIFICATES AT THE
FOLLOWING PERCENTAGES FOLLOWING PERCENTAGES
OF THE PREPAYMENT VECTOR OF THE PREPAYMENT VECTOR
----------------------------------------------------- -------------------------------------------
DISTRIBUTION DATE 0% 50% 75% 100% 150% 200% 0% 50% 75% 100% 150%
- ----------------- ----- ----- ----- ----- ---- ---- ----- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial................. 100 100 100 100 100 100 100 100 100 100 100
November 1999........... 100 100 100 100 100 100 100 100 100 100 100
November 2000........... 100 100 100 100 100 100 100 100 100 100 100
November 2001........... 100 100 100 100 100 100 100 100 100 100 100
November 2002........... 100 100 100 100 100 0 100 100 100 100 100
November 2003........... 100 100 100 100 35 0 100 100 100 100 62
November 2004........... 100 100 100 100 0 0 100 100 100 100 0
November 2005........... 100 100 100 100 0 0 100 100 100 100 0
November 2006........... 100 100 100 100 0 0 100 100 100 100 0
November 2007........... 100 100 100 89 0 0 100 100 100 100 0
November 2008........... 100 100 100 70 0 0 100 100 100 100 0
November 2009........... 100 100 100 54 0 0 100 100 100 95 0
November 2010........... 100 100 100 42 0 0 100 100 100 74 0
November 2011........... 100 100 100 33 0 0 100 100 100 57 0
November 2012........... 100 100 100 25 0 0 100 100 100 44 0
November 2013........... 100 100 97 20 0 0 100 100 100 34 0
November 2014........... 100 100 79 15 0 0 100 100 100 26 0
November 2015........... 100 100 64 12 0 0 100 100 100 20 0
November 2016........... 100 100 52 9 0 0 100 100 91 15 0
November 2017........... 100 100 42 7 0 0 100 100 73 12 0
November 2018........... 100 100 33 5 0 0 100 100 58 9 0
November 2019........... 100 100 26 4 0 0 100 100 46 6 0
November 2020........... 100 94 20 3 0 0 100 100 36 5 0
November 2021........... 100 76 16 2 0 0 100 100 27 3 0
November 2022........... 100 60 12 1 0 0 100 100 20 2 0
November 2023........... 100 46 9 1 0 0 100 81 15 2 0
November 2024........... 100 34 6 1 0 0 100 60 10 1 0
November 2025........... 100 23 4 * 0 0 100 41 7 1 0
November 2026........... 100 14 2 * 0 0 100 24 4 * 0
November 2027........... 100 6 1 * 0 0 100 10 1 * 0
November 2028........... 0 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life(1)............... 29.54 25.08 19.15 12.48 4.98 3.58 29.64 26.70 21.43 14.62 5.11
<CAPTION>
DISTRIBUTION DATE 200%
- ------------------------ ----
<S> <C>
Initial................. 100
November 1999........... 100
November 2000........... 100
November 2001........... 100
November 2002........... 0
November 2003........... 0
November 2004........... 0
November 2005........... 0
November 2006........... 0
November 2007........... 0
November 2008........... 0
November 2009........... 0
November 2010........... 0
November 2011........... 0
November 2012........... 0
November 2013........... 0
November 2014........... 0
November 2015........... 0
November 2016........... 0
November 2017........... 0
November 2018........... 0
November 2019........... 0
November 2020........... 0
November 2021........... 0
November 2022........... 0
November 2023........... 0
November 2024........... 0
November 2025........... 0
November 2026........... 0
November 2027........... 0
November 2028........... 0
Weighted Average
Life(1)............... 3.66
</TABLE>
- ------------------------------
(1) The weighted average life of an Offered Certificate is determined by (i)
multiplying the amount of each distribution in reduction of Principal
Balance by the number of years from the date of the issuance of such
Certificate to the related Distribution Date, (ii) adding the results and
(iii) dividing the sum by the aggregate distributions in reduction of
Principal Balance referred to in clause (i).
* Indicates a percentage greater than zero but less than 0.5% of the initial
Principal Balance of such Class.
S-59
<PAGE>
PERCENTAGE OF INITIAL PRINCIPAL BALANCE OUTSTANDING FOR:
<TABLE>
<CAPTION>
CLASS I-A-R CLASS I-A-LR
CERTIFICATE AT THE CERTIFICATE AT THE
FOLLOWING PERCENTAGES FOLLOWING PERCENTAGES
OF THE PREPAYMENT VECTOR OF THE PREPAYMENT VECTOR
------------------------------------------ ------------------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200% 0% 50% 100% 150% 200%
- ----------------- ----- ----- ---- ---- ---- ----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial................. 100 100 100 100 100 100 100 100 100 100
November 1999........... 0 0 0 0 0 0 0 0 0 0
November 2000........... 0 0 0 0 0 0 0 0 0 0
November 2001........... 0 0 0 0 0 0 0 0 0 0
November 2002........... 0 0 0 0 0 0 0 0 0 0
November 2003........... 0 0 0 0 0 0 0 0 0 0
November 2004........... 0 0 0 0 0 0 0 0 0 0
November 2005........... 0 0 0 0 0 0 0 0 0 0
November 2006........... 0 0 0 0 0 0 0 0 0 0
November 2007........... 0 0 0 0 0 0 0 0 0 0
November 2008........... 0 0 0 0 0 0 0 0 0 0
November 2009........... 0 0 0 0 0 0 0 0 0 0
November 2010........... 0 0 0 0 0 0 0 0 0 0
November 2011........... 0 0 0 0 0 0 0 0 0 0
November 2012........... 0 0 0 0 0 0 0 0 0 0
November 2013........... 0 0 0 0 0 0 0 0 0 0
November 2014........... 0 0 0 0 0 0 0 0 0 0
November 2015........... 0 0 0 0 0 0 0 0 0 0
November 2016........... 0 0 0 0 0 0 0 0 0 0
November 2017........... 0 0 0 0 0 0 0 0 0 0
November 2018........... 0 0 0 0 0 0 0 0 0 0
November 2019........... 0 0 0 0 0 0 0 0 0 0
November 2020........... 0 0 0 0 0 0 0 0 0 0
November 2021........... 0 0 0 0 0 0 0 0 0 0
November 2022........... 0 0 0 0 0 0 0 0 0 0
November 2023........... 0 0 0 0 0 0 0 0 0 0
November 2024........... 0 0 0 0 0 0 0 0 0 0
November 2025........... 0 0 0 0 0 0 0 0 0 0
November 2026........... 0 0 0 0 0 0 0 0 0 0
November 2027........... 0 0 0 0 0 0 0 0 0 0
November 2028........... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life(1)............... 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08
</TABLE>
- ------------------------------
(1) The weighted average life of an Offered Certificate is determined by (i)
multiplying the amount of each distribution in reduction of Principal
Balance by the number of years from the date of the issuance of such
Certificate to the related Distribution Date, (ii) adding the results and
(iii) dividing the sum by the aggregate distributions in reduction of
Principal Balance referred to in clause (i).
S-60
<PAGE>
PERCENTAGE OF INITIAL PRINCIPAL BALANCE OUTSTANDING FOR:
<TABLE>
<CAPTION>
CLASS II-A-1 AND CLASS II-A-2 CLASS B-1, CLASS B-2 AND CLASS B-3
CERTIFICATES AT THE CERTIFICATES AT THE
FOLLOWING PERCENTAGES FOLLOWING PERCENTAGES
OF THE PREPAYMENT VECTOR OF THE PREPAYMENT VECTOR
--------------------------------------------------- -------------------------------------------
DISTRIBUTION DATE 0% 25% 50% 100% 150% 200% 0% 50% 100% 150% 200%
- ----------------- ----- ----- ---- ---- ---- ---- ----- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial................. 100 100 100 100 100 100 100 100 100 100 100
November 1999........... 99 95 90 81 72 63 99 99 99 99 99
November 2000........... 98 88 79 63 48 34 98 98 98 98 98
November 2001........... 97 83 70 48 31 17 97 97 97 97 97
November 2002........... 96 77 61 37 19 7 96 96 96 96 96
November 2003........... 94 72 54 27 11 2 94 94 94 94 94
November 2004........... 93 67 47 21 6 0 93 90 87 84 68
November 2005........... 91 63 41 15 3 0 91 85 78 71 40
November 2006........... 90 58 36 12 2 0 90 78 67 57 24
November 2007........... 88 54 32 9 1 0 88 70 55 42 14
November 2008........... 86 50 28 7 1 0 86 62 43 29 8
November 2009........... 84 47 25 6 * 0 84 54 34 20 5
November 2010........... 82 43 22 4 * 0 82 48 26 13 3
November 2011........... 79 40 19 3 * 0 79 42 20 9 2
November 2012........... 77 37 16 3 * 0 77 36 16 6 1
November 2013........... 74 33 14 2 * 0 74 31 12 4 1
November 2014........... 71 31 12 2 * 0 71 27 9 3 *
November 2015........... 68 28 11 1 * 0 68 23 7 2 *
November 2016........... 65 25 9 1 * 0 65 20 5 1 *
November 2017........... 61 23 8 1 * 0 61 17 4 1 *
November 2018........... 57 20 7 1 * 0 57 14 3 1 *
November 2019........... 53 18 5 * * 0 53 12 2 * *
November 2020........... 49 15 5 * * 0 49 10 2 * *
November 2021........... 44 13 4 * * 0 44 8 1 * *
November 2022........... 39 11 3 * * 0 39 6 1 * *
November 2023........... 33 9 2 * * 0 33 5 1 * *
November 2024........... 27 7 2 * * 0 27 4 * * *
November 2025........... 20 5 1 * * 0 20 2 * * *
November 2026........... 13 3 1 * * 0 13 1 * * *
November 2027........... 6 1 * * * 0 6 1 * * *
November 2028........... 0 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life(1)............... 19.89 11.70 7.58 3.96 2.47 1.75 19.87 12.86 10.11 8.78 7.04
</TABLE>
- ------------------------------
(1) The weighted average life of an Offered Certificate is determined by (i)
multiplying the amount of each distribution in reduction of Principal
Balance by the number of years from the date of the issuance of such
Certificate to the related Distribution Date, (ii) adding the results and
(iii) dividing the sum by the aggregate distributions in reduction of
Principal Balance referred to in clause (i).
* Indicates a percentage greater than zero but less than 0.5% of the initial
Principal Balance of such Class.
S-61
<PAGE>
Interest accrued on the Offered Certificates will be reduced by the amount
of any interest portions of Realized Losses allocated to such Certificates as
described under 'Description of the Certificates -- Interest' herein. The yield
on the Offered Certificates will be less than the yield otherwise produced by
their respective Pass-Through Rates and the prices at which such Certificates
are purchased because the interest which accrues on the Mortgage Loans in the
related Loan Group, or both Loan Groups in the case of the Class B Certificates,
during each month will not be passed through to Certificateholders until the
25th day of the month following the end of such month (or if such 25th day is
not a business day, the following business day).
The Seller intends to file certain additional yield tables and other
computational materials with respect to one or more Classes of Offered
Certificates with the Securities and Exchange Commission in a Report on Form
8-K. See 'Incorporation Of Certain Documents By Reference' in the Prospectus.
Such tables and materials will have been prepared by the Underwriters at the
request of certain prospective investors, based on assumptions provided by, and
satisfying the special requirements of, such investors. Such tables and
assumptions may be based on assumptions that differ from the Structuring
Assumptions. Accordingly, such tables and other materials may not be relevant to
or appropriate for investors other than those specifically requesting them.
SENSITIVITIES OF THE CLASS I-A-4, CLASS I-A-6 AND CLASS II-A-2 CERTIFICATES
THE YIELDS TO AN INVESTOR IN THE CLASS I-A-4, CLASS I-A-6 OR CLASS II-A-2
CERTIFICATES WILL BE HIGHLY SENSITIVE TO THE RATE AND TIMING OF PRINCIPAL
PAYMENTS (INCLUDING PREPAYMENTS) ON THE GROUP I MORTGAGE LOANS OR GROUP II
MORTGAGE LOANS, AS THE CASE MAY BE, WHICH RATE MAY FLUCTUATE SIGNIFICANTLY FROM
TIME TO TIME. AN INVESTOR SHOULD FULLY CONSIDER THE ASSOCIATED RISKS, INCLUDING
THE RISK THAT A RAPID RATE OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS), ON THE
GROUP I MORTGAGE LOANS IN THE CASE OF THE CLASS I-A-6 CERTIFICATES, COULD RESULT
IN THE FAILURE OF AN INVESTOR IN THE CLASS I-A-6 CERTIFICATES TO FULLY RECOVER
ITS INITIAL INVESTMENT OR THE RISK THAT A RELATIVELY SLOW RATE OF PRINCIPAL
PAYMENTS (INCLUDING PREPAYMENTS) ON THE GROUP I MORTGAGE LOANS OR GROUP II
MORTGAGE LOANS, AS THE CASE MAY BE, WILL HAVE A NEGATIVE EFFECT ON THE YIELD TO
AN INVESTOR IN THE CLASS I-A-4 AND CLASS II-A-2 CERTIFICATES.
The following tables indicate the sensitivities to various rates of
prepayment on the Group I Mortgage Loans or Group II Mortgage Loans, as the case
may be, of the pre-tax yields to maturity on a corporate bond equivalent ('CBE')
basis of the Class I-A-4, Class I-A-6 and Class II-A-2 Certificates. Such
calculations are based on distributions made in accordance with 'Description of
the Certificates' above, on the Structuring Assumptions and on the further
assumptions that the Class I-A-4, Class I-A-6 and Class II-A-2 Certificates will
be purchased on November 25, 1998 at an aggregate purchase price equal to, in
the case of the Class I-A-4 Certificates, approximately 48.50% of the initial
Principal Balance of the Class I-A-4 Certificates, in the case of the Class
I-A-6 Certificates, approximately 9.00% of the initial Class I-A-6 Notional
Amount plus accrued interest thereon from November 1, 1998 to (but not
including) November 25, 1998 and in the case of the Class II-A-2 Certificates
approximately 79.00% of initial Principal Balance of the Class II-A-2
Certificates.
SENSITIVITY OF THE PRE-TAX YIELD TO MATURITY ON THE CLASS I-A-4 CERTIFICATES TO
PREPAYMENTS
<TABLE>
<CAPTION>
PERCENTAGES OF THE PREPAYMENT VECTOR
-----------------------------------------------
0% 50% 100% 150% 200%
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Pre-Tax Yield to Maturity (CBE).............................. 2.46% 2.92% 6.06% 15.07% 21.28%
</TABLE>
SENSITIVITY OF THE PRE-TAX YIELD TO MATURITY OF THE CLASS I-A-6 CERTIFICATES TO
PREPAYMENTS
<TABLE>
<CAPTION>
PERCENTAGES OF THE PREPAYMENT VECTOR
----------------------------------------------------------
0% 50% 100% 150% 187% 200%
------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Pre-Tax Yield to Maturity (CBE).................. 74.59% 59.17% 40.63% 18.13% (0.04)% (6.66)%
</TABLE>
SENSITIVITY OF THE PRE-TAX YIELD TO MATURITY ON THE CLASS II-A-2 CERTIFICATES TO
PREPAYMENTS
<TABLE>
<CAPTION>
PERCENTAGES OF THE PREPAYMENT VECTOR
-----------------------------------------------
0% 50% 100% 150% 200%
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Pre-Tax Yield to Maturity (CBE).............................. 1.21% 3.44% 6.71% 10.64% 14.90%
</TABLE>
S-62
<PAGE>
The pre-tax yields to maturity set forth in the preceding tables were
calculated by (i) determining the monthly discount rates which, when applied to
the assumed stream of cash flows to be paid on the Class I-A-4, Class I-A-6 and
Class II-A-2 Certificates, would cause the discounted present value of such
assumed stream of cash flows to equal an assumed purchase price for the Class
I-A-4 Certificates of approximately 48.50% of the initial Principal Balance of
the Class I-A-4 Certificates, for the Class I-A-6 Certificates equal to
approximately 9.00% of the initial Class I-A-6 Notional Amount plus accrued
interest from November 1, 1998 to (but not including) November 25, 1998 and for
the Class II-A-2 Certificates an assumed purchase price equal to approximately
79.00% of the initial Principal Balance of the Class II-A-2 Certificates; and
(ii) converting such monthly rates to corporate bond equivalent rates. Such
calculation does not take into account the interest rates at which investors may
be able to reinvest funds received by them as distributions on the Class I-A-4,
Class I-A-6 and Class II-A-2 Certificates and consequently does not purport to
reflect the return on any investment in the Class I-A-4, Class I-A-6 and Class
II-A-2 Certificates when such reinvestment rates are considered.
Notwithstanding the assumed prepayment rates reflected in the preceding
tables, it is highly unlikely that the Group I Mortgage Loans or Group II
Mortgage Loans will prepay at a constant Prepayment Vector until maturity or
that all of the Group I Mortgage Loans or Group II Mortgage Loans will prepay at
the same Prepayment Vector. In addition, there will be differences between the
characteristics of the Mortgage Loans ultimately included in Loan Group I or
Loan Group II and the Assumed Mortgage Loans. As a result of these factors, the
pre-tax yields on the Class I-A-4, Class I-A-6 and Class II-A-2 Certificates are
likely to differ from those shown in such table, even if all of the Group I
Mortgage Loans or Group II Mortgage Loans prepay at the indicated percentages of
the Prepayment Vector.
YIELD CONSIDERATIONS WITH RESPECT TO THE CLASS B-2 AND CLASS B-3 CERTIFICATES
Defaults on mortgage loans may be measured relative to a default standard
or model. The model used in this Prospectus Supplement, the standard default
assumption ('SDA'), represents an assumed rate of default each month relative to
the then-outstanding performing principal balance of a pool of new mortgage
loans. A default assumption of 100% SDA assumes constant default rates of 0.02%
per annum of the then-outstanding principal balance of such mortgage loans in
the first month of the life of the mortgage loans and an additional 0.02% per
annum in each month thereafter until the 30th month. Beginning in the 30th month
and in each month thereafter through the 60th month of the life of the mortgage
loans, 100% SDA assumes a constant default rate of 0.60% per annum each month.
Beginning in the 61st month and in each month thereafter through the 120th month
of the life of the mortgage loans, 100% SDA assumes that the constant default
rate declines each month by 0.0095% per annum, and that the constant default
rate remains at 0.03% per annum in each month after the 120th month. For the
purposes of the following tables, it is assumed that there is no delay between
the default and liquidation of the mortgage loans. As used in the following
tables, '0% SDA' assumes default rates equal to 0% of SDA (no defaults). SDA
does not purport to be a historical description of default experience or a
prediction of the anticipated rate of default of any pool of mortgage loans,
including the Mortgage Loans.
The following tables indicate the sensitivity of the pre-tax yield to
maturity on the Class B-2 and Class B-3 Certificates to various rates of
prepayment and varying levels of aggregate Realized Losses. The tables set forth
below are based upon, among other things, the Structuring Assumptions (other
than the assumption that no defaults shall have occurred with respect to the
Mortgage Loans) and the additional assumptions that liquidations (other than
those scenarios indicated as 0% of SDA (no defaults)) occur monthly on the last
day of the preceding month at the percentages of SDA set forth in the table.
In addition, it was assumed that (i) Realized Losses on liquidations of 25%
or 50% of the outstanding principal balance of such liquidated Mortgage Loans,
as indicated in the tables below (referred to as a 'LOSS SEVERITY PERCENTAGE')
will occur at the time of liquidation, (ii) there are no Special Hazard Losses,
Fraud Losses or Bankruptcy Losses and (iii) the Class B-2 and Class B-3
Certificates are purchased on November 25, 1998 at assumed purchase prices equal
to approximately 92.53% and approximately 88.25%, respectively, of the Principal
Balances thereof plus accrued interest from November 1, 1998 to (but not
including) November 25, 1998.
The actual Mortgage Loans ultimately included in each Loan Group will have
characteristics differing from those assumed in preparing the table and it is
unlikely that they will prepay or liquidate at any of the rates specified. In
addition, it is unlikely that Realized Losses will be incurred according to any
one particular pattern.
S-63
<PAGE>
The assumed percentages of SDA and the Prepayment Vector shown in the tables
below are for illustrative purposes only and the Seller makes no representations
with respect to the reasonableness of such assumptions or that the actual rates
of prepayment and liquidation and loss severity experience of the Mortgage Loans
will in any way correspond to any of the assumptions made herein. For these
reasons, and because the timing of cash flows is critical to determining yield,
the pre-tax yields to maturity of the Class B-2 and Class B-3 Certificates are
likely to differ from the pre-tax yields to maturity shown below in the tables.
The pre-tax yields to maturity set forth in the following tables were
calculated by determining the monthly discount rates which, when applied to the
assumed streams of cash flows to be paid on the Class B-2 and Class B-3
Certificates, would cause the discounted present value of such assumed streams
of cash flows to equal the aggregate assumed purchase prices of the Class B-2
and Class B-3 Certificates set forth above. In all cases, monthly rates were
then converted to the semi-annual corporate bond equivalent yields shown below.
Implicit in the use of any discounted present value or internal rate of return
calculations such as these is the assumption that intermediate cash flows are
reinvested at the discount rate or internal rate of return. Thus, these
calculations do not take into account the different interest rates at which
investors may be able to reinvest funds received by them as distributions on the
Class B-2 and Class B-3 Certificates. Consequently, these yields do not purport
to reflect the total return on any investment in the Class B-2 and Class B-3
Certificates when such reinvestment rates are considered.
SENSITIVITY OF PRE-TAX YIELDS TO MATURITY OF THE CLASS B-2
CERTIFICATES TO PREPAYMENTS AND REALIZED LOSSES
<TABLE>
<CAPTION>
LOSS PERCENTAGES OF THE PREPAYMENT VECTOR
PERCENTAGE SEVERITY -----------------------------------------------------
OF SDA PERCENTAGE 0% 50% 100% 150% 200%
- ---------- ---------- --------- --------- --------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
0%........................................ N/A 7.05% 7.25% 7.39% 7.49% 7.69%
50%........................................ 25% 7.04% 7.26% 7.39% 7.49% 7.69%
50%........................................ 50% 7.00% 7.26% 7.39% 7.49% 7.69%
100%........................................ 25% 7.01% 7.26% 7.39% 7.49% 7.69%
100%........................................ 50% 6.96% 7.26% 7.39% 7.49% 7.68%
150%........................................ 25% 6.98% 7.27% 7.40% 7.49% 7.69%
150%........................................ 50% 6.03% 7.29% 7.40% 7.49% 7.68%
200%........................................ 25% 6.96% 7.26% 7.40% 7.50% 7.69%
200%........................................ 50% 3.90% 6.84% 7.40% 7.50% 7.68%
</TABLE>
SENSITIVITY OF PRE-TAX YIELDS TO MATURITY OF THE CLASS B-3
CERTIFICATES TO PREPAYMENTS AND REALIZED LOSSES
<TABLE>
<CAPTION>
LOSS PERCENTAGES OF THE PREPAYMENT VECTOR
PERCENTAGE SEVERITY -----------------------------------------------------
OF SDA PERCENTAGE 0% 50% 100% 150% 200%
- ---------- ---------- --------- --------- --------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
0%........................................ N/A 7.53% 7.86% 8.09% 8.26% 8.58%
50%........................................ 25% 7.41% 7.87% 8.10% 8.26% 8.58%
50%........................................ 50% 7.34% 7.87% 8.10% 8.26% 8.58%
100%........................................ 25% 7.35% 7.87% 8.10% 8.26% 8.58%
100%........................................ 50% 2.08% 7.29% 8.10% 8.26% 8.57%
150%........................................ 25% 6.12% 7.89% 8.10% 8.26% 8.58%
150%........................................ 50% (31.61)% 1.58% 7.28% 8.26% 8.57%
200%........................................ 25% 2.47% 7.43% 8.10% 8.26% 8.59%
200%........................................ 50% (46.62)% (30.95)% 2.15% 8.24% 8.56%
</TABLE>
The following table sets forth the amount of Realized Losses that would be
incurred with respect to the Mortgage Loans, expressed as a percentage of the
aggregate outstanding principal balance of the Mortgage Loans as of the Cut-Off
Date.
S-64
<PAGE>
AGGREGATE REALIZED LOSSES
<TABLE>
<CAPTION>
LOSS PERCENTAGES OF THE PREPAYMENT VECTOR
PERCENTAGE SEVERITY -----------------------------------------------------
OF SDA PERCENTAGE 0% 50% 100% 150% 200%
- ---------- ---------- --------- --------- --------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
50%........................................ 25% 0.49% 0.31% 0.21% 0.14% 0.10%
50%........................................ 50% 0.98% 0.62% 0.42% 0.29% 0.20%
100%........................................ 25% 0.97% 0.62% 0.42% 0.29% 0.20%
100%........................................ 50% 1.94% 1.24% 0.83% 0.57% 0.40%
150%........................................ 25% 1.44% 0.92% 0.62% 0.43% 0.30%
150%........................................ 50% 2.88% 1.84% 1.24% 0.85% 0.60%
200%........................................ 25% 1.90% 1.22% 0.82% 0.57% 0.40%
200%........................................ 50% 3.81% 2.44% 1.64% 1.13% 0.80%
</TABLE>
Investors are urged to make their investment decisions based on their
determinations as to anticipated rates of prepayment and Realized Losses under a
variety of scenarios. Investors in Class B-2 and Class B-3 Certificates should
fully consider the risk that Realized Losses on the Mortgage Loans could result
in the failure of such investors to fully recover their investments.
S-65
<PAGE>
POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement to be dated as of the date of initial issuance of the Certificates
(the 'POOLING AND SERVICING AGREEMENT') among the Seller, the Master Servicer,
the Trust Administrator and the Trustee. Reference is made to the Prospectus for
important additional information regarding the terms and conditions of the
Pooling and Servicing Agreement and the Certificates. See 'Description of the
Certificates,' 'Servicing of the Mortgage Loans' and 'The Pooling and Servicing
Agreement' in the Prospectus.
The Trust Estate created pursuant to the Pooling and Servicing Agreement
will consist of (i) the Mortgage Loans as described under 'Description of the
Mortgage Loans,' (ii) such assets as from time to time are identified as
deposited in any account held for the benefit of the Certificateholders, (iii)
any Mortgaged Properties acquired on behalf of the Certificateholders by
foreclosure or by deed in lieu of foreclosure after the date of original
issuance of the Certificates and (iv) the rights of the Trust Administrator, on
behalf of the Trustee, to receive the proceeds of all insurance policies and
performance bonds, if any, required to be maintained pursuant to the Pooling and
Servicing Agreement.
DISTRIBUTIONS
Distributions (other than the final distribution in retirement of the
Offered Certificates of each Class) will be made by check mailed to the address
of the person entitled thereto as it appears on the Certificate Register.
However, with respect to any holder of an Offered Certificate evidencing at
least a $500,000 initial Principal Balance or any holder of a Class I-A-6
Certificate evidencing a 100% Percentage Interest, distributions will be made on
the Distribution Date by wire transfer in immediately available funds. The final
distribution in respect of each Class of Offered Certificates will be made only
upon presentation and surrender of the related Certificate at the office or
agency appointed by the Trust Administrator specified in the notice of final
distribution with respect to the related Class. See 'Description of the
Certificates -- General' in the Prospectus.
DTC will receive distributions on the Book-Entry Certificates from the
Trust Administrator and transmit them to participants for distribution to
Beneficial Owners or their nominees.
VOTING
With respect to any provisions of the Pooling and Servicing Agreement
providing for the action, consent or approval of the holders of all Certificates
evidencing specified Voting Interests in the Trust Estate, the Class I-A-6
Certificates will be entitled to 1% of the aggregate Voting Interest represented
by all Certificates and each remaining Class of Certificates will be entitled to
a pro rata portion of the remaining Voting Interest based on the outstanding
Principal Balance of such Class. Each Certificateholder of a Class will have a
Voting Interest equal to the product of the Voting Interest to which such Class
is collectively entitled and the Percentage Interest in such Class represented
by such holder's Certificates. With respect to any provisions of the Pooling and
Servicing Agreement providing for action, consent or approval of each Class of
Certificates or specified Classes of Certificates, each Certificateholder of a
Class will have a Voting Interest in such Class equal to such holder's
Percentage Interest in such Class. Unless Definitive Certificates are issued as
described above, Beneficial Owners of Book-Entry Certificates may exercise their
voting rights only through Participants.
TRUSTEE
The Trustee for the Certificates will be United States Trust Company of New
York, a New York state chartered bank and trust company. The corporate trust
office of the Trustee is located at 114 West 47th Street, New York, New York
10036. See 'The Pooling and Servicing Agreement -- The Trustee' in the
Prospectus.
S-66
<PAGE>
TRUST ADMINISTRATOR
First Union National Bank, a national banking association, will act as
Trust Administrator for the Certificates. The corporate trust office of the
Trust Administrator is located at 230 South Tryon Street, Charlotte, North
Carolina 28288. The Trust Administrator will perform certain administrative
functions on behalf of the Trustee and will act as the initial paying agent,
certificate registrar and custodian. In addition, the Trust Administrator will
be required to make Periodic Advances to the limited extent described herein
with respect to the Mortgage Loans serviced by Norwest Mortgage if Norwest
Mortgage, as Servicer, fails to make a Periodic Advance required by the related
Underlying Servicing Agreement. See 'Description of the Certificates -- Periodic
Advances' herein.
MASTER SERVICER
Norwest Bank will act as Master Servicer of the Mortgage Loans and, in that
capacity, will supervise the servicing of the Mortgage Loans, cause the Mortgage
Loans to be serviced in the event a Servicer is terminated and a successor
servicer is not appointed, provide certain reports to the Trust Administrator
regarding the Mortgage Loans and the Certificates and make Periodic Advances to
the limited extent described herein. See 'Description of the
Certificates -- Periodic Advances' herein. Under the Pooling and Servicing
Agreement, any good faith interpretation of the Master Servicer of any
provisions of the Pooling and Servicing Agreement relating to the distributions
to be made on or the allocation of any losses to the Certificates which the
Master Servicer concludes are ambiguous or unclear will be binding on
Certificateholders. The Master Servicer will be entitled to a 'MASTER SERVICING
FEE' payable monthly equal to the product of (i) 1/12th of 0.017% (the 'MASTER
SERVICING FEE RATE') and (ii) the aggregate Scheduled Principal Balances of the
Mortgage Loans as of the first day of each month. The Master Servicer will pay
all administrative expenses to the Trust Estate subject to reimbursement as
described under 'Master Servicer' in the Prospectus.
SPECIAL SERVICING AGREEMENTS
The Pooling and Servicing Agreement may permit the Master Servicer to enter
into a special servicing agreement with an unaffiliated holder of a Class of
Class B Certificates or of a class of securities representing interests in one
or more Classes of Class B Certificates and/or other subordinated mortgage
pass-through certificates. Pursuant to such an agreement, such holder may
instruct the Master Servicer to instruct the Servicers, to the extent provided
in the applicable Underlying Servicing Agreement to commence or delay
foreclosure proceedings with respect to delinquent Mortgage Loans. Such
commencement or delay at such holder's direction will be taken by the Master
Servicer only after such holder deposits a specified amount of cash with the
Master Servicer. Such cash will be available for distribution to
Certificateholders if Liquidation Proceeds are less than they otherwise may have
been had the Servicers acted pursuant to their normal servicing procedures.
OPTIONAL TERMINATION
The Seller may purchase from the Trust Estate all of the Mortgage Loans,
and thereby effect early retirement of the Certificates, on any Distribution
Date when the aggregate Scheduled Principal Balance of the Mortgage Loans is
less than 10% of the aggregate unpaid principal balance of the Mortgage Loans as
of the Cut-Off Date. Any such purchase is required be made only in connection
with a 'qualified liquidation' of each of the Upper-Tier REMIC and the
Lower-Tier REMIC within the meaning of Section 860F(a)(4)(A) of the Code. The
purchase price will generally be equal to the unpaid principal balance of each
Mortgage Loan plus the fair market value of other property (including any
Mortgaged Property title to which has been acquired by the Trust Estate ('REO
PROPERTY')) in the Trust Estate plus accrued interest. In the event the Trust
Estate is liquidated as described above, holders of the Certificates, to the
extent funds are available, will receive the unpaid principal balance of their
Certificates and any accrued and unpaid interest thereon. The amount, if any,
remaining in the Certificate Account after the payment of all principal and
interest on the Certificates and expenses of the Upper-Tier REMIC and the
Lower-Tier REMIC will be distributed to the holder of the Class I-A-LR
Certificate. See 'Description of the Certificates -- Additional Rights of the
Class I-A-R and Class I-A-LR Certificateholders' herein and 'The Pooling and
Servicing Agreement -- Termination; Optional Purchase of Mortgage Loans' in the
Prospectus. The exercise of the foregoing option will be in the Seller's sole
discretion. Without limitation, the Seller may
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enter into agreements with third parties to (i) exercise such option at the
direction of such third party or (ii) forbear from the exercise of such option.
SERVICING OF THE MORTGAGE LOANS
Norwest Mortgage and the other servicers listed below (the 'OTHER
SERVICERS,' and collectively with Norwest Mortgage, the 'SERVICERS') will
service the Mortgage Loans, each pursuant to a separate Underlying Servicing
Agreement. The rights to enforce the related Servicer's obligations under each
Underlying Servicing Agreement with respect to the related Mortgage Loans will
be assigned to the Trust Administrator, on behalf of the Trustee, for the
benefit of Certificateholders. Among other things, the Servicers are obligated
under certain circumstances to advance delinquent payments of principal and
interest with respect to the Mortgage Loans. See 'Servicing of the Mortgage
Loans' in the Prospectus.
THE SERVICERS
The Group I Mortgage Loans initially will be serviced by the following
entities:
APPROXIMATE PERCENTAGE OF
AGGREGATE UNPAID
PRINCIPAL BALANCE AS OF
NAME OF SERVICER THE CUT-OFF DATE SERVICED
- ---------------- -------------------------
Norwest Mortgage, Inc........................ 65.76%
Bank United.................................. 14.56%
North American Mortgage Company.............. 8.46%
HomeSide Lending............................. 6.05%
National City Mortgage Co. .................. 3.21%
First Union Mortgage Corp. .................. 1.34%
FT Mortgage Companies........................ 0.31%
Banc One Mortgage Corporation................ 0.31%
------
Total................................... 100.00%
------
------
The Group II Mortgage Loans initially will be serviced by the following
entities:
APPROXIMATE PERCENTAGE OF
AGGREGATE UNPAID
PRINCIPAL BALANCE AS OF
NAME OF SERVICER THE CUT-OFF DATE SERVICED
- ---------------- -------------------------
Norwest Mortgage, Inc........................ 45.62%
Bank United.................................. 38.02%
HomeSide Lending............................. 7.77%
National City Mortgage Co. .................. 7.38%
North American Mortgage Company.............. 0.74%
Merrill Lynch Credit Corporation............. 0.47%
-------
Total................................... 100.00%
-------
-------
SERVICER CUSTODIAL ACCOUNTS
Each Servicer is required to establish and maintain a custodial account for
principal and interest (each such account, a 'SERVICER CUSTODIAL ACCOUNT'), into
which it will deposit all collections of principal (including principal
prepayments and Liquidation Proceeds in respect of principal, if any) and
interest (net of Servicing Fees) on any Mortgage Loan that such Servicer
services, related insurance proceeds, advances made from the Servicer's own
funds and the proceeds of any purchase of a related Mortgage Loan for breach of
a representation or warranty or the sale of a Mortgaged Property in connection
with liquidation of the related Mortgage Loan. All Servicer Custodial Accounts
are required to be held in a depository institution and invested in the manner
specified in the related Underlying Servicing Agreement. Funds in such accounts
generally must be held separate
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and apart from the assets of the Servicer and generally may not be commingled
with funds held by a Servicer with respect to mortgage loans other than the
Mortgage Loans.
Not later than the Remittance Date, the Servicers are obligated to remit to
the Certificate Account all amounts on deposit in the Servicer Custodial
Accounts as of the close of business on the business day preceding the
Remittance Date as described in the Prospectus under 'Servicing of the Mortgage
Loans -- Payments on Mortgage Loans.'
UNSCHEDULED PRINCIPAL RECEIPTS
The Pooling and Servicing Agreement specifies, as to each type of
Unscheduled Principal Receipt, a period (as to each type of Unscheduled
Principal Receipt, the 'UNSCHEDULED PRINCIPAL RECEIPT PERIOD') during which all
Unscheduled Principal Receipts of such type received by the Servicer will be
distributed to Certificateholders on the related Distribution Date. Each
Unscheduled Principal Receipt Period will either be (i) the one month period
ending on the last day of the calendar month preceding the month in which the
applicable Remittance Date occurs (such period a 'PRIOR MONTH RECEIPT PERIOD')
or (ii) the one month period ending on the day preceding the Determination Date
preceding the applicable Remittance Date (such period a 'MID-MONTH RECEIPT
PERIOD').
With respect to the Mortgage Loans serviced by Norwest Mortgage, the
Unscheduled Principal Receipt Period with respect to all types of Unscheduled
Principal Receipts is a Mid-Month Receipt Period. With respect to the Mortgage
Loans serviced by certain Other Servicers, the Unscheduled Principal Receipt
Period with respect to all types of Unscheduled Principal Receipts is a Prior
Month Receipt Period. For certain Other Servicers, the Unscheduled Principal
Receipt Period with respect to partial Unscheduled Principal Receipts is a Prior
Month Receipt Period and with respect to Unscheduled Principal Receipts in full
is a Mid-Month Receipt Period.
ANTICIPATED CHANGES IN SERVICING
Changes in Timing of Remittances of Unscheduled Principal Receipts in Full
and Elimination of Month End Interest. The Pooling and Servicing Agreement will
provide that the Master Servicer may (but is not required), from time to time
and without the consent of any Certificateholder, the Trust Administrator or the
Trustee, require Norwest Mortgage as Servicer under the related Underlying
Servicing Agreement to, or enter into an amendment to any applicable Underlying
Servicing Agreement to require any Other Servicer to, remit Unscheduled
Principal Receipts in full to the Master Servicer for deposit into the
Certificate Account daily on a specified business day following receipt thereof
(to the extent such Other Servicer is not currently remitting such amount on a
daily basis) which will generally result in a deposit earlier than on the
following Remittance Date. In conjunction with any such change, the applicable
Servicer may be relieved of its obligation to remit Month End Interest and
certain other conforming changes may be made. Such changes would have an effect
on the amount of Compensating Interest as described herein under the heading
'Description of the Certificates -- Interest.' Further, the Pooling and
Servicing Agreement will provide that the Master Servicer may (but is not
required to), without the consent of any Certificateholder, the Trust
Administrator or the Trustee, require Norwest Mortgage or any successor thereto
under the applicable Underlying Servicing Agreement to make remittances to the
Certificate Account (other than any remittances which are required to be made
daily) on the 18th day of each month, or if such 18th day is not a business day,
on the preceding business day. No assurance can be given as to the timing of any
such changes or that any such changes will occur.
Changes in Unscheduled Principal Receipt Period. The Pooling and Servicing
Agreement will provide that the Master Servicer may (but is not required to),
from time to time and without the consent of any Certificateholder, the Trust
Administrator or the Trustee, (a) direct Norwest Mortgage, as Servicer under the
related Underlying Servicing Agreement, to change the Unscheduled Principal
Receipt Period applicable to any type of Unscheduled Principal Receipt within
the parameters described in (i) below or (b) with respect to any Other Servicer,
enter into an amendment to any applicable Underlying Servicing Agreement for the
purpose of changing the Unscheduled Principal Receipt Period applicable to any
type of Unscheduled Principal Receipt within the parameters described in (ii)
below and making any necessary conforming changes incident thereto. In
connection therewith, (i) the Unscheduled Principal Receipt Period for the
Mortgage Loans serviced by Norwest
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Mortgage may be changed to achieve an Unscheduled Principal Receipt Period
regime (the 'TARGET REGIME') under which the Unscheduled Principal Receipt
Period with respect to partial Unscheduled Principal Receipts would be a Prior
Month Receipt Period and the Unscheduled Principal Receipt Period with respect
to Unscheduled Principal Receipts in full would be a Mid-Month Receipt Period
and (ii) the Unscheduled Principal Receipt Periods for the Mortgage Loans
serviced by Other Servicers which do not currently conform to the Target Regime
may be changed to the Target Regime.
Because Unscheduled Principal Receipts will result in interest shortfalls
to the extent that they are not distributed to Certificateholders in the month
in which they are received by the applicable Servicer, changing the applicable
Unscheduled Principal Receipt Period from a Mid-Month Receipt Period to a Prior
Month Receipt Period may have the effect of increasing the amount of interest
shortfalls with respect to the applicable type of Unscheduled Principal Receipt.
Conversely, changing the applicable Unscheduled Principal Receipt Period from a
Prior Month Receipt Period to a Mid-Month Receipt Period may decrease the amount
of interest shortfalls with respect to the applicable type of Unscheduled
Principal Receipt. See 'Description of the Certificates -- Interest.' No
assurance can be given as to the timing of any change to any Unscheduled
Principal Receipt Period or that any such changes will occur.
FIXED RETAINED YIELD; SERVICING COMPENSATION AND PAYMENT OF EXPENSES
A fixed percentage of the interest on each Mortgage Loan (the 'FIXED
RETAINED YIELD') with a per annum Mortgage Interest Rate greater than (i) the
sum of (a) 6.250%, (b) the Servicing Fee Rate and (c) the Master Servicing Fee
Rate, which will be determined on a loan by loan basis and will equal the
Mortgage Interest Rate on each Mortgage Loan minus the rate described in clause
(i), will not be included in the Trust Estate. There will be no Fixed Retained
Yield on any Mortgage Loan with a Mortgage Interest Rate equal to or less than
the rate described in clause (i). See 'Servicing of the Mortgage Loans -- Fixed
Retained Yield, Servicing Compensation and Payment of Expenses' in the
Prospectus for further information regarding Fixed Retained Yield.
The primary compensation payable to each of the Servicers is the aggregate
of the Servicing Fees applicable to the related Mortgage Loans. The Servicing
Fee applicable to each Mortgage Loan is expressed as a fixed percentage (the
'SERVICING FEE RATE') of the scheduled principal balance (as defined in the
Underlying Servicing Agreements) of such Mortgage Loan as of the first day of
each month. The Servicing Fee Rate for each Mortgage Loan will be a fixed
percentage rate per annum. The Servicing Fee Rate for each Mortgage Loan is
0.25% per annum. The Servicers also are entitled to additional servicing
compensation as described in the Prospectus under 'Servicing of the Mortgage
Loans -- Fixed Retained Yield, Servicing Compensation and Payment of Expenses.'
The Master Servicer will pay all routine expenses, including fees of the
Trustee and the Trust Administrator incurred in connection with its
responsibilities under the Pooling and Servicing Agreement, subject to certain
rights of reimbursement as described in the Prospectus. The servicing fees and
other expenses of the Upper-Tier REMIC and Lower-Tier REMIC will be allocated to
the holder of the Class I-A-R and Class I-A-LR Certificates, respectively.
Unless and until applicable authority provides othewise, the Seller intends to
treat all such expenses as incurred by the Lower-Tier REMIC and, therefore as
allocable to the holder of the Class I-A-LR Certificate. See 'Material Federal
Income Tax Consequences' herein and 'Material Federal Income Tax Consequences --
Federal Income Tax Consequences for REMIC Certificates -- Limitations on
Deduction of Certain Expenses' in the Prospectus.
SERVICER DEFAULTS
The Trustee will have the right pursuant to the Underlying Servicing
Agreements to terminate a Servicer in certain events, including the breach by
such Servicer of any of its material obligations under its Underlying Servicing
Agreement. In the event of such termination, (i) the Trustee may enter into a
substitute Underlying Servicing Agreement with the Master Servicer or, at the
Master Servicer's nomination, another servicing institution acceptable to the
Trustee and each Rating Agency; and (ii) the Master Servicer shall assume
certain of the Servicer's servicing obligations under such Underlying Servicing
Agreement, including the obligation to make Periodic Advances (limited as
provided herein under the heading 'Description of the Certificates --
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Periodic Advances'), until such time as a successor servicer is appointed. See
'Servicing of the Mortgage Loans -- Fixed Retained Yield, Servicing Compensation
and Payment of Expenses' in the Prospectus.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion represents the opinion of Cadwalader, Wickersham &
Taft as to the anticipated material federal income tax consequences of the
purchase, ownership and disposition of the Offered Certificates.
The Trust Estate will consist of two segregated asset groupings, each of
which will qualify as a REMIC for federal income tax purposes. One REMIC (the
'LOWER-TIER REMIC') will issue certain uncertificated interests (each, a
'LOWER-TIER REMIC REGULAR INTEREST'), each of which will be designated as
regular interest in the Lower-Tier REMIC, and the Class I-A-LR Certificate,
which will be designated as the residual interest in the Lower-Tier REMIC. The
assets of the Lower-Tier REMIC will include the Mortgage Loans (exclusive of
Fixed Retained Yield), together with the amounts held by the Master Servicer in
a separate account in which collections on the Mortgage Loans will be deposited
(the 'CERTIFICATE ACCOUNT'), the hazard insurance policies and primary mortgage
insurance policies, if any, relating to the Mortgage Loans and any property that
secured a Mortgage Loan that is acquired by foreclosure or deed in lieu of
foreclosure.
The second REMIC (the 'UPPER-TIER REMIC') will issue all Classes of the
Class A Certificates (other than the Class I-A-LR Certificate) and all Class B
Certificates. Each Class of Offered Certificates (other than the Class I-A-R and
Class I-A-LR Certificates) (collectively, the 'REGULAR CERTIFICATES'), together
with each Class of Certificates not offered hereby will be designated as regular
interests in the Upper-Tier REMIC, and the Class I-A-R Certificate will be
designated as the residual interest in the Upper-Tier REMIC. The regular
interests and the residual interest in the Upper-Tier REMIC are referred to
herein collectively as the 'UPPER-TIER CERTIFICATES.' The Class I-A-R and Class
I-A-LR Certificates are 'RESIDUAL CERTIFICATES' for purposes of the Prospectus.
The assets of the Upper-Tier REMIC will include the uncertificated Lower-Tier
REMIC Regular Interests and a separate account in which distributions on the
uncertificated Lower-Tier REMIC Regular Interests will be deposited. The
aggregate amount distributed to the holders of the Upper-Tier Certificates,
payable from such separate account, will be equal to the aggregate distributions
in respect of the Mortgage Loans on the uncertificated Lower-Tier REMIC Regular
Interests.
The Offered Certificates will be treated as 'loans . . . secured by an
interest in real property which is . . . residential real property' for a
domestic building and loan association, 'real estate assets' for a real estate
investment trust and, other than the Class I-A-R and Class I-A-LR Certificates,
'qualified mortgages' for a REMIC and 'permitted assets' for a financial asset
securitization investment trust, to the extent described in the Prospectus.
REGULAR CERTIFICATES
The Regular Certificates generally will be treated as newly originated debt
instruments for federal income tax purposes. Beneficial Owners (or in the case
of Definitive Certificates, holders) of the Regular Certificates will be
required to report income on such Certificates in accordance with the accrual
method of accounting.
The Class I-A-4 and Class II-A-2 Certificates will be issued with original
issue discount in an amount equal to the excess of the initial principal
balances thereof over their respective issue prices. It is anticipated that the
Class I-A-1, Class I-A-3, Class I-A-6, Class B-1, Class B-2 and Class B-3
Certificates will be issued with original issue discount in an amount equal to
the excess of their initial principal balances over their respective issue
prices (including accrued interest). It is also anticipated that the Class
I-A-2, Class I-A-5 and Class II-A-1 Certificates will be issued at a premium for
federal income tax purposes. It is further anticipated that the Class II-A-PO,
Class B-4, Class B-5 and Class B-6 Certificates, which are not offered hereby,
will be issued with original issue discount for federal income tax purposes.
Although unclear for federal income tax purposes, it is anticipated that
the Class I-A-6 Certificates will be considered to be issued with original issue
discount in an amount equal to the excess of all distributions of interest
expected to be received thereon over their issue price (including accrued
interest). Any 'negative' amounts of original issue discounts on the Class I-A-6
Certificates attributable to rapid prepayments with respect to the Mortgage
Loans will not be deductible currently, but may be offset against future
positive accruals of
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original issue discount, if any. Finally, a holder of a Class I-A-6 Certificate
may be entitled to a loss deduction to the extent it becomes certain that such
holder will not recover a portion of its basis in such Certificate, assuming no
further prepayments. In the alternative, it is possible that rules similar to
the 'noncontingent bond method' of the contingent interest rules in the OID
Regulations, as amended on June 12, 1996, may be promulgated with respect to the
Class I-A-6 Certificates. See 'Material Federal Income Tax
Consequences -- Federal Income Tax Consequences for REMIC
Certificates -- Taxation of Regular Certificates -- Original Issue Discount' in
the Prospectus. Under the noncontingent bond method, if the interest payable for
any period is greater or less than the amount projected, the amount of income
included for that period would be either increased or decreased accordingly. Any
net reduction in the income accrual for the taxable year below zero (a 'NEGATIVE
ADJUSTMENT') would be treated by a Certificateholder as ordinary loss to the
extent of prior income accruals and would be carried forward to offset future
interest accruals. At maturity, any remaining Negative Adjustment would be
treated as a loss on retirement of the Certificate. The legislative history of
relevant Code provisions indicates, however, that negative amounts of original
issue discount on an instrument such as a REMIC regular interest may not give
rise to taxable losses in any accrual period prior to the instrument's
disposition or retirement. Thus, it is not clear whether any losses resulting
from a Negative Adjustment would be recognized currently or be carried forward
until disposition of retirement of the debt obligation.
The Prepayment Assumption (as defined in the Prospectus) that the Master
Servicer intends to use in determining the rate of accrual of original issue
discount and whether the original issue discount is considered de minimis, and
that may be used by Beneficial Owners (or holders) to amortize premium, will be
calculated using 100% of the Prepayment Vector. No representation is made as to
the actual rate at which the Mortgage Loans will prepay.
RESIDUAL CERTIFICATES
The holders of the Class I-A-R and Class I-A-LR Certificates must include
the taxable income or loss of the Upper-Tier REMIC and Lower-Tier REMIC,
respectively, in determining their federal taxable income. The Class I-A-R and
Class I-A-LR Certificates will remain outstanding for federal income tax
purposes until there are no Certificates of any other Class outstanding.
PROSPECTIVE INVESTORS ARE CAUTIONED THAT THE CLASS I-A-R AND CLASS I-A-LR
CERTIFICATEHOLDERS' REMIC TAXABLE INCOME AND THE TAX LIABILITY THEREON MAY
EXCEED, AND MAY SUBSTANTIALLY EXCEED, CASH DISTRIBUTIONS TO SUCH HOLDERS DURING
CERTAIN PERIODS, IN WHICH EVENT, THE HOLDER THEREOF MUST HAVE SUFFICIENT
ALTERNATIVE SOURCES OF FUNDS TO PAY SUCH TAX LIABILITY. Furthermore, it is
anticipated that all or a substantial portion of the taxable income of the
Upper-Tier REMIC and Lower-Tier REMIC includible by the holder of the Class
I-A-R and Class I-A-LR Certificates, respectively, will be treated as 'excess
inclusion' income, resulting in (i) the inability of such holder to use net
operating losses to offset such income from the respective REMIC, (ii) the
treatment of such income as 'unrelated business taxable income' to certain
holders who are otherwise tax-exempt, and (iii) the treatment of such income as
subject to 30% withholding tax to certain non-U.S. investors, with no exemption
or treaty reduction.
Each of the Class I-A-R and Class I-A-LR Certificates will be considered a
'noneconomic residual interest,' with the result that transfers thereof would be
disregarded for federal income tax purposes if any significant purpose of the
transferor was to impede the assessment or collection of tax. Accordingly, the
Class I-A-R and Class I-A-LR Certificates are subject to certain restrictions on
transfer and any prospective transferee thereof will be required to furnish to
the Trust Administrator an affidavit as described herein under 'Description of
the Certificates -- Restrictions on Transfer of the Class I-A-R, Class I-A-LR
and Class B Certificates.' See 'Material Federal Income Tax
Consequences -- Federal Income Tax Consequences for REMIC
Certificates -- Taxation of Residual Certificates -- Limitations on Offset of
Exemption of REMIC Income' and '-- Tax-Related Restrictions on Transfer of
Residual Certificates -- Noneconomic Residual Interests' in the Prospectus.
An individual, trust or estate that holds the Class I-A-R or Class I-A-LR
Certificate (whether such Certificate is held directly or indirectly through
certain pass-through entities) also may have additional gross income with
respect to, but may be subject to limitations on the deductibility of, Servicing
Fees on the Mortgage Loans and other administrative expenses of the REMIC in
computing such holder's regular tax liability, and may not be able to deduct
such fees or expenses to any extent in computing such holder's alternative
minimum tax liability. In addition, some portion of a purchaser's basis, if any,
in the Class I-A-R or Class I-A-LR Certificate
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may not be recovered until termination of the respective REMIC. Furthermore, the
federal income tax consequences of any consideration paid to a transferee on a
transfer of the Class I-A-R or Class I-A-LR Certificate are unclear. The
preamble to the REMIC Regulations indicates that the Internal Revenue Service
anticipates providing guidance with respect to the federal tax treatment of such
consideration. Any transferee receiving consideration with respect to the Class
I-A-R or Class I-A-LR Certificate should consult its tax advisors.
DUE TO THE SPECIAL TAX TREATMENT OF RESIDUAL INTERESTS, THE EFFECTIVE
AFTER-TAX RETURN OF THE CLASS I-A-R AND CLASS I-A-LR CERTIFICATES MAY BE
SIGNIFICANTLY LOWER THAN WOULD BE THE CASE IF THE CLASS I-A-R AND CLASS I-A-LR
CERTIFICATES WERE TAXED AS DEBT INSTRUMENTS, OR MAY BE NEGATIVE.
See 'Material Federal Income Tax Consequences' in the Prospectus.
ERISA CONSIDERATIONS
Neither the Class I-A-R nor the Class I-A-LR Certificate may be purchased
by or transferred to a Plan or a person acting on behalf of or investing the
assets of a Plan. See 'Description of the Certificates -- Restrictions on
Transfer of the Class I-A-R, Class I-A-LR and Class B Certificates.'
In addition, because the Class B Certificates are subordinated to the Class
A Certificates with respect to certain losses, the Class B Certificates may not
be transferred unless the transferee has delivered (i) a representation letter
to the Trust Administrator and Seller stating either (a) that the transferee is
not a Plan and is not acting on behalf of a Plan or using the assets of a Plan
to effect such purchase or (b) subject to the conditions described herein, that
the source of funds used to purchase the Class B Certificates is an 'insurance
company general account' as defined in Section V(e) of PTE 95-60 and the
purchase and holding of such Certificates are covered by Sections I and III of
PTE 95-60, or (ii) an opinion of counsel and such other documentation as
described herein under 'Description of the Certificates -- Restrictions on
Transfer of the Class I-A-R, Class I-A-LR and Class B Certificates.'
Accordingly, the following discussion applies to the Class A Certificates
(other than the Class I-A-R and Class I-A-LR Certificates) offered hereby and
does not purport to discuss the considerations under ERISA, Code Section 4975 or
Similar Law with respect to the purchase, acquisition or resale of the Class
I-A-R, Class I-A-LR or Class B Certificates.
As described in the Prospectus under 'ERISA Considerations,' ERISA and the
Code impose certain duties and restrictions on ERISA Plans and certain persons
who perform services for ERISA Plan. Comparable duties and restrictions may
exist under Similar Law on governmental plans and certain persons who perform
services for governmental plans. For example, unless exempted, investment by a
Plan in the Class A Certificates may constitute a prohibited transaction under
ERISA, the Code or Similar Law. There are certain exemptions issued by the
United States Department of Labor (the 'DOL') that may be applicable to an
investment by an ERISA Plan in the Class A Certificates, including the
individual administrative exemption described below. For a further discussion of
the individual administrative exemption, including the necessary conditions to
its applicability, and other important factors to be considered by an ERISA Plan
contemplating investing in the Class A Certificates, see 'ERISA Considerations'
in the Prospectus.
On December 5, 1990, the DOL issued to Donaldson, Lufkin & Jenrette
Securities Corporation, ('DLJ') an individual administrative exemption,
Prohibited Transaction Exemption 90-83, 55 Fed. Reg. 50250 (the 'EXEMPTION'),
from certain of the prohibited transaction rules of ERISA with respect to the
initial purchase, the holding and the subsequent resale by an ERISA Plan of
certificates in pass-through trusts that meet the conditions and requirements of
the Exemption. The Exemption might apply to the acquisition, holding and resale
of the Class A Certificates by an ERISA Plan, provided that specified conditions
are met.
Among the conditions which would have to be satisfied for the Exemption to
apply to the acquisition by an ERISA Plan of the Class A Certificates is the
condition that the ERISA Plan investing in the Offered Certificates be an
'accredited investor' as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the 'SECURITIES ACT').
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Before purchasing a Class A Certificate, a fiduciary of an ERISA Plan
should make its own determination as to the availability of the exemptive relief
provided in the Exemption or the availability of any other prohibited
transaction exemptions, and whether the conditions of any such exemption will be
applicable to the Class A Certificates, and a fiduciary of a governmental plan
should make its own determination as to the need for and availability of any
exemptive relief under Similar Law. Any fiduciary of an ERISA Plan considering
whether to purchase a Class A Certificate should also carefully review with its
own legal advisors the applicability of the fiduciary duty and prohibited
transaction provisions of ERISA, the Code and Similar Law to such investment.
See 'ERISA Considerations' in the Prospectus.
LEGAL INVESTMENT
The Class A and Class B-1 Certificates constitute 'mortgage related
securities' for purposes of the Secondary Mortgage Market Enhancement Act of
1984, as amended ('SMMEA') so long as they are rated in one of the two highest
rating categories by at least one nationally recognized statistical rating
organization. The Class B-2 and Class B-3 Certificates will not constitute
'mortgage related securities' under SMMEA.
Prospective purchasers whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities may be subject to restrictions on investment in the
Offered Certificates and should consult their own legal, tax and accounting
advisors in determining the suitability of and consequences to them of the
purchase, ownership and disposition of the Offered Certificates. See 'Legal
Investment' in the Prospectus.
SECONDARY MARKET
There will not be any market for the Offered Certificates prior to the
issuance thereof. Each Underwriter intends to act as a market maker in the
Offered Certificates purchased by such Underwriter, subject to applicable
provisions of federal and state securities laws and other regulatory
requirements, but is under no obligation to do so. There can be no assurance
that a secondary market in the Offered Certificates will develop or, if such a
market does develop, that it will provide holders of Offered Certificates with
liquidity of investment at any particular time or for the life of the Offered
Certificates. As a source of information concerning the Certificates and the
Mortgage Loans, prospective investors in Certificates may obtain copies of the
reports included in monthly statements to Certificateholders described under
'Description of the Certificates -- Reports' herein and 'The Pooling and
Servicing Agreement -- Reports to Certificateholders' in the Prospectus upon
written request to the Trust Administrator at the Corporate Trust Office.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated May
4, 1998 and the terms agreement dated November 2, 1998 (together, the 'DLJ
UNDERWRITING AGREEMENT') among Norwest Mortgage, the Seller and DLJ, as
underwriter, and the underwriting agreement dated September 14, 1998 and the
terms agreement dated November 2, 1998 (together, the 'LEHMAN BROTHERS
UNDERWRITING AGREEMENT') among Norwest Mortgage, the Seller and Lehman Brothers
Inc. ('LEHMAN BROTHERS'), as underwriter, the Class A Certificates offered
hereby are being purchased from the Seller by DLJ and the Class B Certificates
offered hereby are being purchased from the Seller by Lehman Brothers, in each
case upon issuance thereof. Each of DLJ and Lehman Brothers is referred to
herein as an 'UNDERWRITER,' and together, as the 'UNDERWRITERS,' and each of the
DLJ Underwriting Agreement and the Lehman Brothers Underwriting Agreement is
referred to herein as an 'UNDERWRITING AGREEMENT.' DLJ is committed to purchase
all of the Class A Certificates offered hereby if any such Certificates are
purchased, and Lehman Brothers is committed to purchase all of the Class B
Certificates offered hereby if any such Certificates are purchased. Each
Underwriter has advised the Seller that it proposes to offer the Offered
Certificates purchased by such Underwriter, from time to time, for sale in
negotiated transactions or otherwise at prices determined at the time of sale.
Proceeds to the Seller from the sale of the Offered Certificates are expected to
be approximately 97.78% of the aggregate initial Principal Balance of the Class
A Certificates offered hereby, approximately 92.05% of the aggregate initial
Principal Balance of the Class B-1 Certificates, approximately 89.58% of the
aggregate initial Principal Balance
S-74
<PAGE>
of the Class B-2 Certificates and approximately 83.72% of the aggregate initial
Principal Balance of the Class B-3 Certificates plus, in each case, accrued
interest thereon, at the rate of 6.25% per annum from November 1, 1998 to (but
not including) November 25, 1998, before deducting expenses payable by the
Seller estimated to be $360,000. Neither Underwriter is an affiliate of the
Seller. DLJ has advised the Seller that it has not allocated the purchase price
paid to the Seller for the Classes of Class A Certificates being purchased by
such Underwriter among such Classes. The Underwriters and any dealers that
participate with any Underwriter in the distribution of the Offered Certificates
may be deemed to be underwriters, and any discounts or commissions received by
them and any profit on the resale of Offered Certificates by them may be deemed
to be underwriting discounts or commissions, under the Securities Act.
Each Underwriting Agreement provides that the Seller or Norwest Mortgage
will indemnify the applicable Underwriter against certain civil liabilities
under the Securities Act or contribute to payments which such Underwriter may be
required to make in respect thereof.
RECENT DEVELOPMENTS
The Seller, the Master Servicer, and Norwest Mortgage were wholly-owned
subsidiaries of Norwest Corporation ('NORWEST'), a bank holding company based in
Minneapolis, Minnesota. Norwest and Wells Fargo & Company ('WELLS') entered into
an Agreement and Plan of Merger dated June 7, 1998 under which Wells merged into
and with Norwest on November 2, 1998. The name of the combined holding company
is 'Wells Fargo & Company' and its headquarters is located in San Francisco,
California. It is anticipated that the names of the Seller, the Master Servicer
and Norwest Mortgage will be changed during 1999 in connection with the merger.
The Seller believes that the merger will not have a material effect on the
ability of the Seller, the Master Servicer or Norwest Mortgage to perform their
respective obligations under the Pooling and Servicing Agreement or Norwest
Mortgage's Underlying Servicing Agreement.
LEGAL MATTERS
The validity of the Offered Certificates and certain tax matters with
respect thereto will be passed upon for the Seller by Cadwalader, Wickersham &
Taft, New York, New York. Certain legal matters will be passed upon for the
Underwriters by Brown & Wood LLP, New York, New York.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Offered Certificates
will be applied by the Seller to the purchase from Norwest Mortgage of the
Mortgage Loans underlying the Certificates.
RATINGS
It is a condition to the issuance of the Class A Certificates offered
hereby that each such Class will have been rated 'Aaa' by Moody's Investors
Service, Inc. ('MOODY'S') and 'AAA' by Fitch IBCA, Inc. ('FITCH'). It is a
condition to the issuance of the Class B-1 Certificates that they will have been
rated 'Aa2' by Moody's and 'AA' by Fitch. It is a condition to the issuance of
the Class B-2 and Class B-3 Certificates that they will have been rated 'A' and
'BBB', respectively by Fitch. A security rating is not a recommendation to buy,
sell or hold securities and may be subject to revision or withdrawal at any time
by the assigning rating agency. Each security rating should be evaluated
independently of any other security rating.
The ratings of Moody's on mortgage pass-through certificates address the
likelihood of the receipt by certificateholders of all distributions to which
such certificateholders are entitled. Moody's rating opinions address the
structural, legal and issuer aspects associated with the certificates, including
the nature of the underlying mortgage loans and the credit quality of the credit
support provider, if any. Moody's ratings on pass-through certificates do not
represent any assessment of the likelihood that principal prepayments may differ
from those originally anticipated.
S-75
<PAGE>
The ratings of Fitch on mortgage pass-through certificates address the
likelihood of the receipt by certificateholders of all distributions to which
such certificateholders are entitled. Fitch's rating opinions address the
structural and legal aspects associated with the certificates, including the
nature of the underlying mortgage loans. Fitch's ratings on pass-through
certificates do not represent any assessment of the likelihood or rate of
principal prepayments and consequently any adverse effect the timing of such
prepayments could have on an investor's anticipated yield.
The ratings of Moody's and Fitch also do not address the possibility that,
as a result of principal prepayments, a holder of a Class I-A-6 Certificate may
not fully recover its initial investment.
The Seller has not requested a rating on the Offered Certificates of any
Class by any rating agency other than Moody's and Fitch, although data with
respect to the Mortgage Loans may have been provided to other rating agencies
solely for their informational purposes. There can be no assurance that any
rating assigned by any other rating agency to the Offered Certificates will be
as high as those assigned by Moody's and Fitch.
S-76
<PAGE>
INDEX OF SIGNIFICANT
PROSPECTUS SUPPLEMENT DEFINITIONS
TERM PAGE
- ---- ----
15 Year Assumed Premium Mortgage Loan.......... S-57
30 Year Assumed Discount Mortgage Loan......... S-57
30 Year Assumed Premium Mortgage Loan.......... S-57
Additional Collateral.......................... S-39
Adjusted Pool Amount........................... S-23
Adjusted Pool Amount (PO Portion).............. S-24
Adjustment Amount.............................. S-37
Aggregate Non-PO Principal Balance............. S-23
Aggregate Principal Balance.................... S-23
Aggregate Subordinate Percentage............... S-32
Apportioned Class B Principal Distribution
Amount....................................... S-32
Apportioned Principal Balance.................. S-37
Apportionment Fraction......................... S-32
Assumed Mortgage Loans......................... S-57
Available Master Servicing Compensation........ S-24
Bankruptcy Loss................................ S-28
Bankruptcy Loss Amount......................... S-37
Beneficial Owner............................... S-19
Book-Entry Certificates........................ S-19
Bulk Purchase Underwritten Loans............... S-40
CBE............................................ S-62
Cede........................................... S-19
Certificate Account............................ S-71
Certificateholder.............................. S-19
Certificates................................... S-5
Class A Certificates........................... S-5
Class A Non-PO Optimal Principal Amount........ S-26
Class A Non-PO Principal Balance............... S-23
Class A Non-PO Principal Distribution Amount... S-26
Class A Percentage............................. S-29
Class A Prepayment Percentage.................. S-29
Class A Principal Balance...................... S-23
Class A-PO Certificates........................ S-5
Class A-PO Deferred Amount..................... S-27
Class A-PO Distribution Amount................. S-26
Class B Certificates........................... S-5
Class B Loan Group I Optimal Principal
Amount....................................... S-26
Class B Loan Group II Optimal Principal
Amount....................................... S-26
Class B Optimal Principal Amount............... S-27
Class B Percentage............................. S-30
Class B Prepayment Percentage.................. S-30
Class B Principal Balance...................... S-23
Class B Principal Distribution Amount.......... S-26
Class I-A-6 Notional Amount.................... S-22
Class Percentage............................... S-27
TERM PAGE
- ---- ----
Class Prepayment Percentage.................... S-27
Closing Date................................... S-5
Code........................................... S-14
Compensating Interest.......................... S-24
CPR............................................ S-57
Cross-Over Date................................ S-36
Current Fractional Interest.................... S-30
Curtailment Interest Shortfalls................ S-25
Cut-Off Date................................... S-41
Debt Service Reduction......................... S-28
Deficient Valuation............................ S-28
Definitive Certificates........................ S-19
Determination Date............................. S-19
Discount Mortgage Loan......................... S-28
Distribution Date.............................. S-19
DLJ............................................ S-73
DLJ Underwriting Agreement..................... S-74
DOL............................................ S-73
DTC............................................ S-19
ERISA.......................................... S-14
ERISA Plan..................................... S-34
Excess Bankruptcy Losses....................... S-36
Excess Fraud Losses............................ S-36
Excess Losses.................................. S-36
Excess Special Hazard Losses................... S-36
Exemption...................................... S-73
FICO Scores.................................... S-47
Fitch.......................................... S-75
Fixed Retained Yield........................... S-70
Fraud Loss..................................... S-28
Fraud Loss Amount.............................. S-37
General Standards.............................. S-40
Group.......................................... S-5
Group I Discount Mortgage Loan................. S-28
Group I Mortgage Loans......................... S-7
Group I Pool Distribution Amount............... S-20
Group I Premium Mortgage Loan.................. S-28
Group I Scheduled Principal Amount............. S-31
Group I Unscheduled Principal Amount........... S-31
Group I-A Certificates......................... S-5
Group II Discount Mortgage Loan................ S-28
Group II Mortgage Loans........................ S-7
Group II Pool Distribution Amount.............. S-20
Group II Premium Mortgage Loan................. S-28
Group II-A Certificates........................ S-5
Group Subordinate Amount....................... S-37
Interest Accrual Amount........................ S-22
Interest Shortfall Amount...................... S-25
Lehman Brothers................................ S-74
S-77
<PAGE>
TERM PAGE
- ----- ----
Lehman Brothers Underwriting Agreement......... S-74
Limited Purpose Surety Bond.................... S-39
Liquidated Loan................................ S-28
Liquidated Loan Loss........................... S-28
Loan Group..................................... S-7
Loan Group I................................... S-7
Loan Group II.................................. S-7
Loan Purchase Limit............................ S-39
Loss Severity Percentage....................... S-63
Lower-Tier REMIC............................... S-71
Lower-Tier REMIC Regular Interest.............. S-71
Master Servicer................................ S-5
Master Servicing Fee........................... S-67
Master Servicing Fee Rate...................... S-67
Maximum Amount................................. S-40
Mid-Month Receipt Period....................... S-69
MLCC........................................... S-39
Modified Standards............................. S-40
Month End Interest............................. S-24
Moody's........................................ S-75
Mortgage Loans................................. S-39
Mortgaged Properties........................... S-39
Mortgages...................................... S-39
Negative Adjustment............................ S-72
Net Mortgage Interest Rate..................... S-24
Net Partial Liquidation Proceeds............... S-21
Non-Supported Interest Shortfalls.............. S-25
Non-PO Fraction................................ S-28
Norwest........................................ S-75
Norwest Bank................................... S-5
Norwest Mortgage............................... S-5
Offered Certificates........................... S-5
OID............................................ S-13
Original Fractional Interest................... S-30
Original Group Subordinate Amount.............. S-29
Other Servicers................................ S-68
Partial Liquidation Proceeds................... S-21
Pass-Through Rate.............................. S-22
Percentage Interest............................ S-22
Periodic Advance............................... S-33
Plan........................................... S-34
Pledged Asset Mortgage Loans................... S-39
PO Fraction.................................... S-28
Pool Balance (Non-PO Portion).................. S-28
Pool Balance (PO Portion)...................... S-29
Pool Distribution Amount....................... S-20
Pool Distribution Amount Allocation............ S-21
Pooling and Servicing Agreement................ S-66
Premium Mortgage Loan.......................... S-28
Prepayment Interest Shortfalls................. S-24
Prepayment Shift Percentage.................... S-32
Prepayment Vector.............................. S-56
TERM PAGE
- ---- ----
Prepayments in Full............................ S-24
Principal Balance.............................. S-23
Prior Month Receipt Period..................... S-69
Priority Amount................................ S-31
Priority Percentage............................ S-31
Prospectus..................................... S-5
PTE 95-60...................................... S-35
Rating Agencies................................ S-5
Realized Loss.................................. S-28
Record Date.................................... S-19
Regular Certificates........................... S-71
REMIC.......................................... S-13
Remittance Date................................ S-21
REO Property................................... S-67
Residual Certificates.......................... S-71
Scheduled Principal Balance.................... S-28
SDA............................................ S-63
Securities Act................................. S-73
Seller......................................... S-5
Servicer....................................... S-5
Servicer Custodial Account..................... S-68
Servicers...................................... S-68
Servicing Fee Rate............................. S-70
Shift Percentage............................... S-32
Similar Law.................................... S-34
SMMEA.......................................... S-74
Special Hazard Loss............................ S-28
Special Hazard Loss Amount..................... S-37
Structuring Assumptions........................ S-57
Subordinated Certificates...................... S-5
Subordinated Percentage........................ S-30
Subordinated Prepayment Percentage............. S-30
Surety Bond Provider........................... S-39
Target Regime.................................. S-70
Trust.......................................... S-5
Trust Administrator............................ S-5
Trustee........................................ S-5
U.S. Person.................................... S-34
Undercollateralized Amount..................... S-33
Undercollateralized Group...................... S-33
Underlying Servicing Agreement................. S-5
Underwriter.................................... S-74
Underwriters................................... S-74
Underwriting Agreement......................... S-74
Underwriting Standards......................... S-40
Unscheduled Principal Receipt Period........... S-69
Unscheduled Principal Receipts................. S-20
Upper-Tier Certificates........................ S-71
Upper-Tier REMIC............................... S-71
weighted average life.......................... S-56
Wells.......................................... S-75
S-78
<PAGE>
PROSPECTUS
NORWEST INTEGRATED STRUCTURED ASSETS, INC.
(NISTAR(Service Mark))
SELLER
MORTGAGE ASSET-BACKED PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES BY SEPARATE TRUSTS)
------------------------------
<TABLE>
<S> <C>
YOU SHOULD CAREFULLY EACH TRUST--
CONSIDER THE RISK
FACTORS BEGINNING ON o will issue a series of mortgage asset-backed pass-through certificates,
PAGE 9 OF THIS which will consist of one or more classes of certificates; and
PROSPECTUS.
o will own--
Neither the certificates
of any series nor the o a pool or pools of fixed or adjustable interest rate, conventional
related underlying mortgage loans which are secured by a first lien lien on a one- to four-
mortgage loans will be family residential property; and
insured or guaranteed
by any governmental o other assets described in this prospectus and the accompanying
agency or prospectus supplement.
instrumentality.
EACH POOL OF MORTGAGE LOANS--
The certificates of
each series will o will be sold to the related Trust by NISTAR(Service Mark), who will have in turn
represent interests in purchased them from Norwest Mortgage, Inc., one of its affiliates;
the related trust only
and will not represent o will be underwritten to Norwest Mortgage, Inc.'s standards, or such
interests in or other standards as described in this prospectus and the accompanying
obligations of prospectus supplement; and
NISTAR(Service Mark) or any
NISTAR(Service Mark) affiliate. o will be serviced by Norwest Mortgage, Inc. individually or together
with other servicers.
This prospectus may
be used to offer and EACH SERIES OF CERTIFICATES--
sell any series of
certificates only if o will represent interests in the related Trust;
accompanied by the
prospectus supplement o may provide credit support for certain classes by 'subordinating'
for that series. certain classes to other classes of certificates; any subordinated classes
will be entitled to payment subject to the payment of more senior
classes and may bear losses before more senior classes;
o may be entitled to one or more of the other types of credit support
described in this prospectus; and
o will be paid only from the assets of the related Trust.
</TABLE>
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THE
CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
THE DATE OF THIS PROSPECTUS IS NOVEMBER 19, 1998
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
Information is provided to you about the Certificates in two separate
documents that progressively provide more detail; (a) this Prospectus, which
provides general information, some of which may not apply to a particular Series
of Certificates, including your Series, and (b) the accompanying Prospectus
Supplement, which will describe the specific terms of your Series of
Certificates, including:
o the principal balances and/or interest rates of each Class and/or
Subclass;
o the timing and priority of interest and principal payments;
o statistical and other information about the Mortgage Loans;
o information about credit enhancement, if any, for each Class or
Subclass;
o the ratings for each Class or Subclass; and
o the method for selling the Certificates.
IF THE TERMS OF A PARTICULAR SERIES OF CERTIFICATES VARY BETWEEN THIS
PROSPECTUS AND THE PROSPECTUS SUPPLEMENT, YOU SHOULD RELY ON THE INFORMATION IN
THE PROSPECTUS SUPPLEMENT.
You should rely only on the information provided in this Prospectus and the
accompanying Prospectus Supplement including the information incorporated by
reference. No one has been authorized to provide you with different information.
The Certificates are not being offered in any state where the offer is not
permitted. The Seller does not claim the accuracy of the information in this
Prospectus or the accompanying Prospectus Supplement as of any date other than
the dates stated on their respective covers.
Cross-references are included in this Prospectus and in the accompanying
Prospectus Supplement to captions in these materials where you can find further
related discussions. The following table of Contents and the Table of Contents
included in the accompanying Prospectus Supplement provide the pages on which
these captions are located.
You can find a listing of the pages where capitalized terms used in this
Prospectus are defined under the caption 'Index of Significant Definitions'
beginning on page 99 in this Prospectus.
The Seller's principal executive office is located at 7485 New Horizon Way,
Frederick, Maryland 21703, and the Seller's telephone number is (301) 846-8200.
------------------------------
2
<PAGE>
TABLE OF CONTENTS
PROSPECTUS
PAGE
-----
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED
IN THIS PROSPECTUS AND THE ACCOMPANYING
PROSPECTUS SUPPLEMENT...................... 2
SUMMARY OF PROSPECTUS........................ 5
RISK FACTORS................................. 9
Limited Liquidity for Certificates......... 9
Limited Assets for Payment of
Certificates............................ 9
Credit Enhancement is Limited in Amount and
Coverage................................ 9
Real Estate Market Conditions Affect
Mortgage Loan Performance............... 10
Geographic Concentration May Increase Rates
of Loss and Delinquency................. 10
Underwriting Standards..................... 11
Rate of Prepayment or Mortgage Loans May
Adversely Affect Average Lives and
Yields on Certificates.................. 11
Book-Entry Certificates May Experience
Decreased Liquidity and Payment Delay... 11
THE TRUST ESTATES............................ 12
General.................................... 12
Mortgage Loans............................. 12
THE SELLER................................... 16
NORWEST MORTGAGE............................. 16
NORWEST BANK................................. 17
THE MORTGAGE LOAN PROGRAMS................... 17
Mortgage Loan Production Sources........... 17
Acquisition of Mortgage Loans from
Correspondents.......................... 18
Mortgage Loan Underwriting................. 18
General Standards....................... 19
Modified Standards...................... 23
Pool Certification Underwriting......... 23
Representations and Warranties............. 25
DESCRIPTION OF THE CERTIFICATES.............. 26
General.................................... 26
Definitive Form............................ 27
Book-Entry Form............................ 27
Distributions to Certificateholders........ 29
General................................. 29
Distributions of Interest............... 30
Distributions of Principal.............. 30
Categories of Classes of Certificates...... 32
<PAGE>
PAGE
-----
Other Credit Enhancement................... 34
Limited Guarantee....................... 34
Financial Guaranty Insurance Policy or
Surety Bond........................... 34
Letter of Credit........................ 35
Pool Insurance Policies................. 35
Special Hazard Insurance Policies....... 35
Mortgagor Bankruptcy Bond............... 35
Reserve Fund............................ 35
Cross Support........................... 35
Overcollateralization................... 36
PREPAYMENT AND YIELD CONSIDERATIONS.......... 36
Pass-Through Rates......................... 36
Effects of Defaults........................ 36
Scheduled Delays in Distributions.......... 36
Effect of Principal Prepayments............ 37
Weighted Average Life of Certificates...... 37
Refinancings............................... 38
SERVICING OF THE MORTGAGE LOANS.............. 39
The Master Servicer........................ 39
The Servicers.............................. 39
Payments on Mortgage Loans................. 40
Periodic Advances and Limitations
Thereon................................. 44
Collection and Other Servicing
Procedures.............................. 44
Enforcement of Due-on-Sale Clauses;
Realization Upon Defaulted Mortgage
Loans................................... 45
Insurance Policies......................... 47
Fixed Retained Yield, Servicing
Compensation and Payment of Expenses.... 47
Evidence as to Compliance.................. 48
CERTAIN MATTERS REGARDING THE MASTER
SERVICER................................... 49
THE POOLING AND SERVICING AGREEMENT.......... 50
Assignment of Mortgage Loans to the
Trustee................................. 50
Optional Purchases......................... 52
Reports to Certificateholders.............. 52
List of Certificateholders................. 53
Events of Default.......................... 53
Rights Upon Event of Default............... 53
Amendment.................................. 54
Termination; Optional Purchase of Mortgage
Loans................................... 55
The Trustee................................ 55
CERTAIN LEGAL ASPECTS OF THE MORTGAGE
LOANS...................................... 56
General.................................... 56
3
<PAGE>
PAGE
-----
Foreclosure................................ 56
Foreclosure on Shares of
Cooperatives............................ 57
Rights of Redemption....................... 58
Anti-Deficiency Legislation, the Bankruptcy
Code and Other Limitations on Lenders... 58
Soldiers' and Sailors' Civil Relief Act and
Similar Laws............................ 60
Environmental Considerations............... 61
'Due-on-Sale' Clauses...................... 62
Applicability of Usury Laws................ 63
Enforceability of Certain Provisions....... 64
MATERIAL FEDERAL INCOME TAX CONSEQUENCES..... 64
Federal Income Tax Consequences for REMIC
Certificates............................ 64
General................................. 64
Status of REMIC Certificates............ 65
Qualification as a REMIC................ 65
Taxation of Regular Certificates........ 67
General............................... 67
Original Issue Discount............... 67
Acquisition Premium................... 69
Variable Rate Regular Certificates.... 70
Market Discount....................... 71
Premium............................... 71
Election to Treat All Interest Under
the Constant Yield Method.......... 72
Treatment of Losses................... 72
Sale or Exchange of Regular
Certificates....................... 73
Taxation of Residual Certificates.......... 73
Taxation of REMIC Income................ 73
Basis and Losses........................ 74
Treatment of Certain Items of REMIC
Income and Expense.................... 75
Limitations on Offset or Exemption of
REMIC Income.......................... 76
Tax-Related Restrictions on Transfer of
Residual Certificates................. 77
Sale or Exchange of a Residual
Certificate........................... 79
Mark to Market Regulations.............. 79
Taxes That May Be Imposed on the REMIC
Pool.................................... 80
Prohibited Transactions................. 80
Contributions to the REMIC Pool After
the Startup Day....................... 80
Net Income from Foreclosure
Property.............................. 80
Liquidation of the REMIC Pool.............. 80
Administrative Matters..................... 81
Limitations on Deduction of Certain
Expenses................................ 81
<PAGE>
PAGE
-----
Taxation of Certain Foreign Investors...... 81
Regular Certificates.................... 81
Residual Certificates................... 82
Backup Withholding...................... 82
Reporting Requirements.................. 83
Federal Income Tax Consequences for
Certificates as to Which No REMIC
Election is Made........................ 83
General................................. 83
Tax Status.............................. 84
Premium and Discount.................... 85
Premium............................... 85
Original Issue Discount............... 85
Market Discount....................... 85
Recharacterization of Servicing Fees.... 85
Sale or Exchange of Certificates........ 86
Stripped Certificates................... 86
General............................... 86
Status of Stripped Certificates....... 87
Taxation of Stripped Certificates..... 88
Reporting Requirements and Backup
Withholding........................... 89
Taxation of Certain Foreign Investors... 89
ERISA CONSIDERATIONS......................... 90
General.................................... 90
Certain Requirements Under ERISA........... 90
General................................. 90
Parties in Interest/Disqualified
Persons............................... 90
Delegation of Fiduciary Duty............ 91
Administrative Exemptions.................. 91
Individual Administrative
Exemptions............................ 91
PTE 83-1................................ 92
Exempt Plans............................... 93
Unrelated Business Taxable Income--
Residual Certificates................... 93
LEGAL INVESTMENT............................. 93
PLAN OF DISTRIBUTION......................... 95
USE OF PROCEEDS.............................. 96
LEGAL MATTERS................................ 96
RATING....................................... 96
REPORTS TO CERTIFICATEHOLDERS................ 96
WHERE YOU CAN FIND MORE
INFORMATION................................ 97
REGISTRATION STATEMENT AND OTHER MATERIALS
FILED WITH THE SEC...................... 97
DETAILED INFORMATION RELATING TO THE
MORTGAGE LOANS OF A SERIES.............. 97
INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE............................... 98
INDEX OF SIGNIFICANT DEFINITIONS............. 99
4
<PAGE>
SUMMARY OF PROSPECTUS
o THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT, BUT DOES NOT
CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER IN MAKING YOUR
INVESTMENT DECISION. TO UNDERSTAND ALL OF THE TERMS OF A SERIES OF
CERTIFICATES, PLEASE READ THIS ENTIRE DOCUMENT AND THE ACCOMPANYING PROSPECTUS
SUPPLEMENT CAREFULLY.
o THIS SUMMARY PROVIDES AN OVERVIEW OF CERTAIN CALCULATIONS, CASH FLOWS AND
OTHER INFORMATION TO AID YOUR UNDERSTANDING OF THE TERMS OF THE CERTIFICATES
AND IS QUALIFIED BY THE FULL DESCRIPTION OF THESE CALCULATIONS, CASH FLOWS AND
OTHER INFORMATION IN THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS
SUPPLEMENT.
RELEVANT PARTIES FOR EACH SERIES OF CERTIFICATES
ISSUER
Each series (each, a 'SERIES') of certificates (the 'CERTIFICATES') will be
issued by a separate trust (a 'TRUST' or, together with all assets owned by such
Trust, a 'TRUST ESTATE'). Each Trust Estate will be formed pursuant to a pooling
and servicing agreement (each, a 'POOLING AND SERVICING AGREEMENT') among the
Seller, the Master Servicer and the Trustee specified in the applicable
Prospectus Supplement.
SELLER
With respect to each Trust Estate, Norwest Integrated Structured Assets, Inc.
(the 'SELLER') will acquire the Mortgage Loans from Norwest Mortgage, Inc.
('NORWEST MORTGAGE') and will transfer the Mortgage Loans to the Trust. The
Seller is a direct, wholly-owned subsidiary of Norwest Mortgage. Norwest
Mortgage is an indirect, wholly-owned subsidiary of Wells Fargo & Company. See
'Recent Developments' in the applicable Prospectus Supplement.
MASTER SERVICER
Norwest Bank Minnesota, National Association ('NORWEST BANK' and, in such
capacity, the 'MASTER SERVICER') will supervise the Servicers and perform
certain other administrative and reporting duties with respect to each Series of
Certificates. In addition, the Master Servicer will generally be required to
make Periodic Advances with respect to the Mortgage Loans in each Trust Estate
to the extent that the related Servicer (other than Norwest Mortgage) fails to
make a required Periodic Advance.
Norwest Bank is a direct, wholly-owned subsidiary of Wells Fargo & Company and
an affiliate of the Seller.
SERVICERS
Norwest Mortgage and, if specified in the applicable Prospectus Supplement, one
or more other entities (each, a 'SERVICER') will service the Mortgage Loans in
each Trust. Each Servicer will perform certain servicing functions with respect
to the Mortgage Loans serviced by it pursuant to a related Servicing Agreement
(each, an 'UNDERLYING SERVICING AGREEMENT').
THE MORTGAGE LOANS
Each Trust will own the related Mortgage Loans (other than the Fixed Retained
Yield described in this Prospectus, if any) and certain other related property,
as specified in the applicable Prospectus Supplement.
The Mortgage Loans in each Trust Estate:
o will be conventional, fixed or adjustable interest rate, mortgage loans
secured by first liens on one-to four-family residential properties;
o will have been acquired by the Seller from Norwest Mortgage;
o will have been originated by Norwest Mortgage or an affiliate or will have
been acquired by Norwest Mortgage directly or indirectly from other mortgage
loan originators; and
o will have been underwritten either to Norwest Mortgage's general or modified
standards or, to the extent specified in the applicable Prospectus Supplement,
to the standards of a Pool Insurer or to other standards.
See 'The Trust Estates' and 'The Mortgage Loan Programs -- Mortgage Loan
Underwriting.'
You should refer to the applicable Prospectus Supplement for the precise
characteristics or expected characteristics of the Mortgage Loans and a
description of the other property, if any, included in a particular Trust
Estate.
5
<PAGE>
DISTRIBUTIONS ON THE CERTIFICATES
Each Series of Certificates will include one or more classes (each, a 'CLASS'),
any of which may be divided into one or more subclasses (each, a 'SUBCLASS'). A
Class or Subclass of Certificates will be entitled, to the extent of funds
available, to one of the following:
o principal and interest payments in respect of the related Mortgage Loans;
o principal distributions, with no interest distributions;
o interest distributions, with no principal distributions; or
o such other distributions as are described in the applicable Prospectus
Supplement.
INTEREST DISTRIBUTIONS
With respect to each Series of Certificates, interest on the related Mortgage
Loans at the weighted average of their Mortgage Interest Rates (net of servicing
fees and certain other amounts as described in this Prospectus or in the
applicable Prospectus Supplement), will be passed through to holders of the
related Classes of Certificates in accordance with the particular terms of each
such Class of Certificates. The terms of each Class of Certificates will be
described in the related Prospectus Supplement. See 'Description of the
Certificates -- Distributions of Certificateholders -- Distributions of
Interest.'
Except as otherwise specified in the applicable Prospectus Supplement, interest
on each Class and Subclass of Certificates of each Series will accrue at the
pass-through rate for each Class and Subclass indicated in the applicable
Prospectus Supplement (each, a 'PASS-THROUGH RATE') on their outstanding
principal balance or notional amount.
PRINCIPAL DISTRIBUTIONS
With respect to a Series of Certificates, principal payments (including
prepayments) on the related Mortgage Loans will be passed through to holders of
the related Certificates or otherwise applied in accordance with the related
Pooling and Servicing Agreement on each Distribution Date. Distributions in
reduction of principal balance will be allocated among the Classes and
Subclasses of Certificates of a Series in the manner specified in the applicable
Prospectus Supplement. See 'Description of the Certificates -- Distributions to
Certificateholders -- Distributions of Principal.'
DISTRIBUTION DATES
Distributions on the Certificates will generally be made on the 25th day (or, if
such day is not a business day, the business day following the 25th day) of each
month, commencing with the month following the month in which the applicable
Cut-Off Date occurs (each, a 'DISTRIBUTION DATE'). The 'CUT-OFF DATE' for each
Series will be the date specified in the applicable Prospectus Supplement.
If so specified in the applicable Prospectus Supplement, distributions on
Certificates may be made on a different day of each month or may be made
quarterly, or semi-annually, on the dates specified in such Prospectus
Supplement.
RECORD DATES
Distributions will be made on each Distribution Date to Certificateholders of
record at the close of business on (unless a different date is specified in the
applicable Prospectus Supplement) the last business day of the month preceding
the month in which such Distribution Date occurs (each, a 'RECORD DATE').
CREDIT ENHANCEMENT
SUBORDINATION
A Series of Certificates may include one or more Classes of senior certificates
(the 'SENIOR CERTIFICATES') and one or more Classes of subordinated certificates
(the 'SUBORDINATED CERTIFICATES'). The rights of the holders of Subordinated
Certificates of a Series to receive distributions will be subordinated to such
rights of the holders of the Senior Certificates of the same Series to the
extent and in the manner specified in the applicable Prospectus Supplement.
Subordination is intended to enhance the likelihood of the timely receipt by the
Senior Certificateholders of their proportionate share of scheduled monthly
principal and interest payments on the related Mortgage Loans and to protect
them from losses. This protection will be effected by:
o the preferential right of the Senior Certificateholders to receive, prior to
any distribution being made in respect of the related Subordinated
Certificates on each Distribution Date, current distributions on the related
Mortgage Loans of principal and interest due them on each Distribution Date
out of the funds available for distributions on such date;
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o the right of such holders to receive future distributions on the Mortgage
Loans that would otherwise have been payable to the holders of Subordinated
Certificates; and/or
o the prior allocation to the Subordinated Certificates of all or a portion of
losses realized on the underlying Mortgage Loans.
OTHER TYPES OF CREDIT ENHANCEMENT
If so specified in the applicable Prospectus Supplement, the Certificates of any
Series, or any one or more Classes of a Series, may be entitled to the benefits
of other types of credit enhancement, including but not limited to:
<TABLE>
<S> <C>
o limited guarantee o mortgage pool insuance
o financial guaranty policy
insurance policy o reserve fund
o surety bond o cross-support
o letter of credit o overcollateralization
</TABLE>
Any credit support will be described in the applicable Prospectus Supplement.
See 'Description of the Certificates -- Other Credit Enhancement.'
PERIODIC ADVANCES ON DELINQUENT PAYMENTS
In the event that a payment on a Mortgage Loan is delinquent, the Servicer of
the Mortgage Loan will be obligated, to the extent specified in the Underlying
Servicing Agreement, to make cash advances ('PERIODIC ADVANCES') to the Servicer
Custodial Account if the Servicer determines that it will be able to recover
such amounts from future payments and collections on such Mortgage Loans. A
Servicer who makes Periodic Advances will be reimbursed for such Periodic
Advances as described in this Prospectus and in the applicable Prospectus
Supplement. In certain circumstances, the Master Servicer or Trustee will be
required to make Periodic Advances upon a Servicer default.
In addition, the Master Servicer may be required to make Periodic Advances if
the Underlying Servicing Agreement does not require the Servicer to make
Periodic Advances while a Mortgage Loan is in the process of being liquidiated.
See 'Servicing of the Mortgage Loans -- Periodic Advances and Limitations
Thereon.'
FORMS OF CERTIFICATES
The Certificates will be issued either:
o in book-entry form ('BOOK-ENTRY CERTIFICATES') through the facilities of The
Depository Trust Company ('DTC'); or
o in fully registered, certificated form ('DEFINITIVE CERTIFICATES').
If you own Book-Entry Certificates, you will not receive a physical certificate
representing your ownership interest in such Book-Entry Certificates, except
under extraordinary circumstances which are discussed in 'Description of the
Certificates -- Definitive Form' in this Prospectus. Instead, DTC will effect
payments and transfers by means of its electronic recordkeeping services, acting
through certain participating organizations. This may result in certain delays
in your receipt of distributions and may restrict your ability to pledge your
securities. Your rights with respect to Book-Entry Certificates may generally
only be exercised through DTC and its participating organizations.
See 'Description of the Certificates -- Book-Entry Form.'
OPTIONAL PURCHASE OF CERTAIN MORTGAGE LOANS
The Seller may, to the extent specified in the related Prospectus Supplement and
subject to the terms of the applicable Pooling and Servicing Agreement, purchase
from the related Trust:
o any defaulted Mortgage Loan or any Mortgage Loan as to which default is
reasonably foreseeable; and
o any Mortgage Loan as to which the originator of such Mortgage Loan breached a
representation or warranty to Norwest Mortgage regarding the characteristics
of such Mortgage Loan.
See 'Pooling and Servicing Agreement -- Optional Purchases.'
OPTIONAL PURCHASE OF ALL MORTGAGE LOANS
If so specified in the Prospectus Supplement with respect to a Series, all, but
not less than all, of the Mortgage Loans in the related Trust and any property
acquired with respect to such Mortgage Loans may be purchased by the Seller,
Norwest Mortgage or such other party as is specified in the applicable
Prospectus Supplement. Any such purchase must be
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made in the manner and at the price specified in such Prospectus Supplement.
In the event that an election is made to treat the related Trust Estate (or one
or more segregated pools of assets in the Trust Estate) as a 'real estate
mortgage investment conduit' (a 'REMIC'), any such purchase will be effected
only pursuant to a 'qualified liquidation,' as defined under Section
860F(a)(4)(A) of the Internal Revenue Code of 1986, as amended (the 'CODE').
Exercise of the right of purchase will effect the early retirement of the
Certificates of that Series.
See 'Prepament and Yield Considerations.'
ERISA LIMITATIONS
If you are a fiduciary of any employee benefit plan subject to the fiduciary
responsibility provisions of the Employee Retirement Income Security Act of
1974, as amended ('ERISA'), you should carefully review with your own legal
advisors whether the purchase or holding of Certificates could give rise to a
transaction prohibited or otherwise impermissible under ERISA or the Code.
See 'ERISA Considerations.'
TAX STATUS
The treatment of the Certificates for federal income tax purposes will depend
on:
o whether a REMIC election is made with respect to a Series of Certificates; and
o if a REMIC election is made, whether the Certificates are Regular Interests or
Residual Interests.
See 'Certain Federal Income Tax Consequences.'
LEGAL INVESTMENT
The applicable Prospectus Supplement will specify whether the Class or Classes
of Certificates offered will constitute 'mortgage related securities' for
purposes of the Secondary Mortgage Market Enhancement Act of 1984, as amended.
If your investment authority is subject to legal restrictions you should consult
your own legal advisors to determine whether and to what extent such
Certificates constitute legal investments for you.
See 'Legal Investments' in this Prospectus and in the applicable Prospectus
Supplement.
RATING
Certificates of any Series will not be offered pursuant to this Prospectus and a
Prospectus Supplement unless each Offered Class or Subclass is in one of the
four highest rating categories by at least one nationally recognized statistical
rating organization (a 'RATING AGENCY').
o A security rating is not a recommendation to buy, sell or hold the
Certificates of any Series and is subject to revision or withdrawal at any
time by the assigning rating agency.
o Ratings do not address the effect of prepayments on the yield you may
anticipate when you purchase your Certificates.
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RISK FACTORS
You should consider, among other things, the following factors in
connection with the purchase of Certificates.
LIMITED LIQUIDITY FOR CERTIFICATES
The liquidity of your Certificates may be limited. You should consider
that:
o a secondary market for the Certificates of any Series may not
develop, or if it does, it may not provide you with liquidity of
investment, or it may not continue for the life of the Certificates
of any Series;
o the Prospectus Supplement for any Series of Certificates may indicate
that an underwriter intends to establish a secondary market in such
Certificates, but no underwriter will be obligated to do so; and
o unless specified in the applicable Prospectus Supplement, the
Certificates will not be listed on any securities exchange.
LIMITED ASSETS FOR PAYMENT OF CERTIFICATES
Except for any related insurance policies and any reserve fund or credit
enhancement described in the applicable Prospectus Supplement:
o Mortgage Loans included in the related Trust Estate will be the sole
source of payments on the Certificates of a Series;
o the Certificates of any Series will not represent an interest in or
obligation of the Seller, Norwest Mortgage, Norwest Bank, the Trustee
or any of their affiliates, except for the Seller's limited
obligations with respect to certain breaches of its representations
and warranties, Norwest Mortgage's obligations as Servicer and
Norwest Bank's obligations as Master Servicer; and
o neither the Certificates of any Series nor the related Mortgage Loans
will be guaranteed or insured by any governmental agency or
instrumentality, the Seller, Norwest Mortgage, Norwest Bank, the
Trustee, any of their affiliates or any other person.
Consequently, in the event that payments on the Mortgage Loans underlying
your series of Certificates are insufficient or otherwise unavailable to make
all payments required on your Certificates, there will be no recourse to the
Seller, Norwest Mortgage, Norwest Bank, the Trustee or, except as specified in
the applicable Prospectus Supplement, any other entity.
CREDIT ENHANCEMENT IS LIMITED IN AMOUNT AND COVERAGE
With respect to each Series of Certificates, credit enhancement may be
provided in limited amounts to cover certain types of losses on the underlying
Mortgage Loans. Credit enhancement will be provided in one or more of the forms
referred to in this Prospectus, including, but not limited to; subordination of
the Classes of Certificates of the same Series; a limited guarantee; a financial
guaranty insurance policy; a surety bond; a letter of credit; a pool insurance
policy; a special hazard insurance policy; a mortgagor bankruptcy bond; a
reserve fund; cross-support; overcollateralization; and any combination of the
preceding types of credit enhancement. See 'Description of the
Certificates -- Other Credit Enhancement.'
Regardless of the form of credit enhancement provided:
o the amount of coverage will be limited in amount and in most cases
will be subject to periodic reduction in accordance with a schedule
or formula;
o may provide only very limited coverage as to certain types of losses,
and may provide no coverage as to certain other types of losses; and
o all or a portion of the credit enhancement for any Series of
Certificates will generally be permitted to be reduced, terminated or
substituted for, in the sole discretion of the Master Servicer, if
each applicable Rating Agency indicates that the then-current ratings
will not be adversely affected.
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In the event losses exceed the amount of coverage provided by any credit
enhancement or losses of a type not covered by any credit enhancement occur,
such losses will be borne by the holders of the related Certificates (or certain
Classes).
The rating of any Series of Certificates by any applicable Rating Agency
may be lowered following the initial issuance thereof as a result of the
downgrading of the obligations of any applicable credit support provider, or as
a result of losses on the related Mortgage Loans in excess of the levels
contemplated by such Rating Agency at the time of its initial rating analysis.
Neither the Seller, Norwest Mortgage, Norwest Bank, nor any of their
affiliates will have any obligation to replace or supplement any credit
enhancement, or to take any other action to maintain any rating of any Class of
Certificates.
See 'Description of the Certificates -- Other Credit Enhancement.'
REAL ESTATE MARKET CONDITIONS AFFECT MORTGAGE LOAN PERFORMANCE
An investment in securities such as the Certificates, which generally
represent interests in pools of residential mortgage loans, may be affected by a
decline in real estate values and changes in the mortgagor's financial
condition. There is no assurance that the values of the Mortgaged Properties
securing the Mortgage Loans underlying any Series of Certificates have remained
or will remain at their levels on the dates of origination of the related
Mortgage Loans.
If the residential real estate market should experience an overall decline
in property values such that the outstanding balances of the Mortgage Loans
contained in a particular Trust Estate and any secondary financing on the
Mortgaged Properties, become equal to or greater than the value of the Mortgaged
Properties, delinquencies, foreclosures and losses could be higher than those
now generally experienced in the mortgage lending industry and those experienced
in Norwest Mortgage's or other Servicers' servicing portfolios.
To the extent that losses on Mortgage Loans underlying a Series are not
covered by credit enhancement, Certificateholders of the Series will bear all
risk of loss resulting from default by mortgagors and will have to look
primarily to the value of the Mortgaged Properties for recovery of the
outstanding principal and unpaid interest on the defaulted Mortgage Loans. See
'The Trusts Estates -- Mortgage Loans' and 'The Mortgage Loan
Programs -- Mortgage Loan Underwriting.'
GEOGRAPHIC CONCENTRATION MAY INCREASE RATES OF LOSS AND DELINQUENCY
In addition to risk factors related to the residential real estate market
generally, certain geographic regions of the United States from time to time
will experience weaker regional economic conditions and housing markets or be
directly or indirectly affected by natural disasters or civil disturbances such
as earthquakes, hurricanes, floods, eruptions or riots. Mortgage loans in such
areas will experience higher rates of loss and delinquency than on mortgage
loans generally. Although Mortgaged Properties located in certain identified
flood zones will be required to be covered, to the maximum extent available, by
flood insurance, as described under 'Servicing of the Mortgage
Loans -- Insurance Policies,' no Mortgaged Properties will otherwise be required
to be insured against earthquake damage or any other loss not covered by
Standard Hazard Insurance Policies, as described under 'Servicing of the
Mortgage Loans -- Insurance Policies.'
The ability of mortgagors to make payments on the Mortgage Loans may also
be affected by factors which do not necessarily affect property values, such as
adverse economic conditions generally, in particular geographic areas or
industries, or affecting particular segments of the borrowing community (such as
mortgagors relying on commission income and self-employed mortgagors). Such
occurrences may accordingly affect the actual rates of delinquencies,
foreclosures and losses with respect to any Trust Estate.
The Mortgage Loans underlying certain Series of Certificates may be
concentrated in certain regions. Such concentration may present risk
considerations in addition to those generally present for similar mortgage
asset-backed securities without such concentration. See 'The Mortgage Loan
Programs -- Mortgage Loan Underwriting' and 'Prepayment and Yield
Considerations -- Weighted Average Life of Certificates.'
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UNDERWRITING STANDARDS
The Mortgage Loans (including certain loans made to foreign nationals) may
have been originated using underwriting standards that are different from and,
in certain respects, less stringent than the general underwriting policies of
Norwest Mortgage. See 'The Mortgage Loan Programs -- Mortgage Loan
Underwriting -- Modified Standards.' For example, certain of the Mortgage Loans
may have been originated with higher maximum Loan-to-Value Ratios, less
restrictive requirements for investment properties or 'equity take out'
financings, and may have been secured by shares in cooperative housing
corporations, condotels or unique parcels of land. In addition, ratios of a
prospective borrower's debt service on the Mortgage Loan and total debt
obligations to income may not be required to be taken into account in making the
loan. Such Mortgage Loans may experience rates of delinquencies, defaults,
foreclosure, bankruptcy and loss that are higher than those experienced by
mortgage loans underwritten to Norwest Mortgage's general underwriting
standards.
RATE OF PREPAYMENT ON MORTGAGE LOANS MAY ADVERSELY AFFECT AVERAGE LIVES AND
YIELDS ON CERTIFICATES
The yield of the Certificates of each Series will depend in part on the
rate of principal payment on the Mortgage Loans (including prepayments,
liquidations due to defaults and mortgage loan repurchases). Such yield may be
adversely affected, depending upon whether a particular Certificate is purchased
at a premium or a discount, by a higher or lower than anticipated rate of
prepayments on the related Mortgage Loans. In particular:
o the yield on Classes of Certificates entitling their holders
primarily or exclusively to payments of interest or primarily or
exclusively to payments of principal will be extremely sensitive to
the rate of prepayments on the related Mortgage Loans; and
o the yield on certain Classes of Certificates may be relatively more
sensitive to the rate of prepayment of specified Mortgage Loans than
other Classes of Certificates.
The rate of prepayments on Mortgage Loans is influenced by a number of
factors, including:
o prevailing mortgage market interest rates;
o local and national economic conditions;
o homeowner mobility; and
o the ability of the borrower to obtain refinancing.
In addition, your yield may be adversely affected by interest shortfalls
which may result from the timing of the receipt of prepayments or liquidations
to the extent that such interest shortfalls are not covered by aggregate
Servicing Fees or other mechanisms specified in the applicable Prospectus
Supplement. Your yield will be also adversely affected to the extent that losses
on the Mortgage Loans in the related Trust Estate are allocated to your
Certificates and may be adversely affected to the extent of unadvanced
delinquencies on the Mortgage Loans in the related Trust. Classes of
Certificates identified in the applicable Prospectus Supplement as Subordinated
Certificates are more likely to be affected by delinquencies and losses than
other Classes of Certificates.
See 'Prepayment and Yield Considerations.'
BOOK-ENTRY CERTIFICATES MAY EXPERIENCE DECREASED LIQUIDITY AND PAYMENT DELAY
Since transactions in the Classes and Subclasses of Book-Entry Certificates
of any Series generally can be effected only through DTC, DTC Participants and
Indirect DTC Participants:
o your ability to pledge Book-Entry Certificates to someone who does
not participate in the DTC system, or to otherwise act with respect
to such Book-Entry Certificates, may be limited due to the lack of a
physical certificate;
o you may experience delays in your receipt of payments on Book-Entry
Certificates because distributions will be made by the Master
Servicer, or a Paying Agent on behalf of the Master Servicer, to
Cede, as nominee for DTC; and
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o the liquidity of Book-Entry Certificates in any secondary trading
market that may develop may be limited because investors may be
unwilling to purchase securities for which they cannot obtain
delivery of physical certificates.
See 'Description of the Certificates -- Book-Entry Form.'
THE TRUST ESTATES
GENERAL
The Trust Estate for each Series of Certificates will consist primarily of
fixed or adjustable rate, conventional first mortgage loans ('MORTGAGE LOANS')
evidenced by promissory notes (the 'MORTGAGE NOTES') secured by mortgages, deeds
of trust or other instruments creating first liens (the 'MORTGAGES') on some or
all of the following types of property (as so secured, the 'MORTGAGED
PROPERTIES'), to the extent set forth in the applicable Prospectus Supplement:
(i) one- to four-family detached residences, (ii) townhouses, (iii) condominium
units including, those where features of the property may include maid service,
a front desk or resident manager, rental pools and up to 20% of commercial space
('CONDOTELS'), (iv) units within planned unit developments, (v) long-term leases
with respect to any of the foregoing, (vi) shares issued by private non-profit
housing corporations ('COOPERATIVES') and the related proprietary leases or
occupancy agreements granting exclusive rights to occupy specified units in such
cooperatives' buildings, and (vii) manufactured homes. In addition, a Trust
Estate will also include (i) amounts held from time to time in the related
Certificate Account, (ii) the Seller's interest in any primary mortgage
insurance, hazard insurance, title insurance or other insurance policies
relating to a Mortgage Loan, (iii) any property which initially secured a
Mortgage Loan and which has been acquired by foreclosure or trustee's sale or
deed in lieu of foreclosure or trustee's sale, (iv) if applicable, and to the
extent set forth in the applicable Prospectus Supplement, any reserve fund or
funds and (v) if applicable, and to the extent set forth in the applicable
Prospectus Supplement, contractual obligations of any person to make payments in
respect of any form of credit enhancement or any interest subsidy agreement. The
Trust Estate will not include the portion of interest on the Mortgage Loans
which constitutes the Fixed Retained Yield, if any. See 'Servicing of the
Mortgage Loans -- Fixed Retained Yield, Servicing Compensation and Payment of
Expenses.'
MORTGAGE LOANS
The Mortgage Loans will have been acquired by the Seller from its
affiliate, Norwest Mortgage. The Mortgage Loans will have been originated by
Norwest Mortgage or will have been acquired by Norwest Mortgage from other
affiliated or unaffiliated mortgage loan originators. Each Mortgage Loan will
have been underwritten either to Norwest Mortgage's general standards or
modified standards, to the extent specified in the applicable Prospectus
Supplement, to the standards of certain unaffiliated originators or of a Pool
Insurer. See 'The Mortgage Loan Programs -- Mortgage Loan Production Sources'
and '-- Mortgage Loan Underwriting.' The Prospectus Supplement for each Series
will set forth the respective number and principal amounts of Mortgage Loans (i)
originated by Norwest Mortgage or its affiliate and (ii) purchased by Norwest
Mortgage or its affiliates from unaffiliated mortgage loan originators through
Norwest Mortgage's mortgage loan purchase programs.
Each of the Mortgage Loans will be secured by a Mortgage on a Mortgaged
Property located in any of the 50 states or the District of Columbia. Generally,
the land underlying a Mortgaged Property will consist of five acres or less but
may consist of greater acreage in Norwest Mortgage's discretion. The borrowers
for each of the Mortgage Loans will be natural persons or, under certain
conditions, borrowers may be inter vivos revocable trusts established by natural
persons.
If specified in the applicable Prospectus Supplement, the Mortgage Loans
may be secured by leases on real property under circumstances that Norwest
Mortgage determines in its discretion are commonly acceptable to institutional
mortgage investors. A Mortgage Loan secured by a lease on real property is
secured not by a fee simple interest in the Mortgaged Property but rather by a
lease under which the mortgagor has the right, for a specified term, to use the
related real estate and the residential dwelling located on the property.
Generally, a Mortgage Loan will be secured by a lease only if (i) the use of
leasehold estates as security for mortgage loans is
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customary in the area, (ii) the lease is not subject to any prior lien that
could result in termination of the lease and (iii) the term of the lease ends at
least five years beyond the maturity date of the related Mortgage Loan. The
provisions of each lease securing a Mortgage Loan will expressly permit (i)
mortgaging of the leasehold estate, (ii) assignment of the lease without the
lessor's consent and (iii) acquisition by the holder of the Mortgage, in its own
or its nominee's name, of the rights of the lessee upon foreclosure or
assignment in lieu of foreclosure, unless alternative arrangements provide the
holder of the Mortgage with substantially similar protections. No lease will
contain provisions which (i) provide for termination upon the lessee's default
without the holder of the Mortgage being entitled to receive written notice of,
and opportunity to cure, such default, (ii) provide for termination in the event
of damage or destruction as long as the Mortgage is in existence or (iii)
prohibit the holder of the Mortgage from being insured under the hazard
insurance policy or policies related to the premises.
The Prospectus Supplement will set forth the geographic distribution of
Mortgaged Properties and the number and aggregate unpaid principal balances of
the Mortgage Loans by category of Mortgaged Property. The Prospectus Supplement
for each Series will also set forth the range of original terms to maturity of
the Mortgage Loans in the Trust Estate, the weighted average remaining term to
stated maturity at the Cut-Off Date of such Mortgage Loans, the earliest and
latest months of origination of such Mortgage Loans, the range of Mortgage
Interest Rates borne by such Mortgage Loans, if such Mortgage Loans have varying
Net Mortgage Interest Rates, the weighted average Net Mortgage Interest Rate at
the Cut-Off Date of such Mortgage Loans, the range of Loan-to-Value Ratios at
the time of origination of such Mortgage Loans and the range of principal
balances at origination of such Mortgage Loans.
The information with respect to the Mortgage Loans and Mortgaged Properties
described in the preceding two paragraphs may be presented in the Prospectus
Supplement for a Series as ranges in which the actual characteristics of such
Mortgage Loans and Mortgaged Properties are expected to fall. In all such cases,
information as to the final characteristics of the Mortgage Loans and Mortgaged
Properties will be available in a Current Report on Form 8-K which the Seller
will file with the Commission within 15 days of the initial issuance of the
related Series.
The Mortgage Loans in a Trust Estate will generally have monthly payments
due on the first of each month (each, a 'DUE DATE') but may, if so specified in
the applicable Prospectus Supplement, have payments due on a different day of
each month. Each Mortgage Loan will be of one of the following types of mortgage
loans:
a. Fixed Rate Loans. If so specified in the applicable Prospectus
Supplement, a Trust Estate may include fixed-rate, fully-amortizing Mortgage
Loans providing for level monthly payments of principal and interest and terms
at origination or modification of not more than 30 years. If specified in the
applicable Prospectus Supplement, fixed rates on certain Mortgage Loans may be
converted to adjustable rates after origination of such Mortgage Loans and upon
the satisfaction of other conditions specified in the applicable Prospectus
Supplement. If so specified in the applicable Prospectus Supplement, the Pooling
and Servicing Agreement will require the Seller or another party to repurchase
each such converted Mortgage Loan at the price set forth in the applicable
Prospectus Supplement. A Trust Estate containing fixed rate Mortgage Loans may
contain convertible Mortgage Loans which have converted from an adjustable
interest rate prior to the formation of the Trust Estate and which are subject
to no further conversions.
b. Adjustable Rate Loans. If so specified in the applicable Prospectus
Supplement, a Trust Estate may include adjustable-rate fully-amortizing Mortgage
Loans having an original or modified term to maturity of not more than 30 years
with a related Mortgage Interest Rate which generally adjusts initially either
six months, one, three, five, seven or ten years subsequent to the initial Due
Date, and thereafter at either six-month, one-year or other intervals over the
term of the Mortgage Loan to equal the sum of a fixed margin set forth in the
related Mortgage Note and an index. The applicable Prospectus Supplement will
set forth the relevant index and the highest, lowest and weighted average margin
with respect to the adjustable rate mortgage loans in the related Trust Estate.
The applicable Prospectus Supplement will also indicate any periodic or lifetime
limitations on changes in any per annum Mortgage Rate at the time of any
adjustment.
If specified in the applicable Prospectus Supplement, adjustable rates on
certain Mortgage Loans may be converted to fixed rates after origination of such
Mortgage Loans and upon the satisfaction of the conditions specified in the
applicable Prospectus Supplement. If specified in the applicable Prospectus
Supplement, the Seller or another party will generally be required to repurchase
each such converted Mortgage Loan at the price
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set forth in the applicable Prospectus Supplement. A Trust Estate containing
adjustable-rate Mortgage Loans may contain convertible Mortgage Loans which have
converted from a fixed interest rate prior to the formation of the Trust Estate.
The scheduled monthly payment for an adjustable rate Mortgage Loan will be
adjusted as and when described in the applicable Prospectus Supplement to an
amount that would fully amortize the Mortgage Loan over its remaining term on a
level debt service basis; provided that increases in the scheduled monthly
payment may be subject to certain limitations as specified in the applicable
Prospectus Supplement. If the adjustments made to monthly payments for an
adjustable rate Mortgage Loan are made at intervals different from the intervals
at which the Mortgage Interest Rate is adjusted 'negative amortization' of
principal may result with respect to such Mortgage Loan. Negative amortization
will occur if an adjustment to the Mortgage Interest Rate on such a Mortgage
Loan causes the amount of interest accrued thereon in any month to exceed the
current scheduled monthly payment on such mortgage loan. The resulting amount of
interest that has secured but is not then payable ('DEFERRED INTEREST') will be
added to the principal balance of such Mortgage Loan.
c. Graduated Payment Loans. If so specified in the applicable Prospectus
Supplement, a Trust Estate may contain fixed-rate, graduated payment Mortgage
Loans having original or modified terms to maturity of not more than 30 years
with monthly payments during the first year calculated on the basis of an
assumed interest rate which is a specified percentage below the Mortgage Rate on
such Mortgage Loan. Such monthly payments increase at the beginning of the
second year by a specified percentage of the monthly payment during the
preceding year and each year specified thereafter to the extent necessary to
amortize the Mortgage Loan over the remainder of its term or other shorter
period. Mortgage Loans incorporating such graduated payment features may include
(i) 'GRADUATED PAY MORTGAGE LOANS,' pursuant to which amounts constituting
Deferred Interest are added to the principal balances of such mortgage loans,
(ii) 'TIERED PAYMENT MORTGAGE LOANS,' pursuant to which, if the amount of
interest accrued in any month exceeds the current scheduled payment for such
month, such excess amounts are paid from a subsidy account (usually funded by a
home builder or family member) established at closing and (iii) 'GROWING EQUITY
MORTGAGE LOANS,' for which the monthly payments increase at a rate which has the
effect of amortizing the loan over a period shorter than the stated term.
d. Subsidy Loans. If so specified in the applicable Prospectus Supplement,
a Trust Estate may contain Mortgage Loans subject to temporary interest subsidy
agreements ('SUBSIDY LOANS') pursuant to which the monthly payments made by the
related mortgagors will be less than the scheduled monthly payments on such
Mortgage Loans with the present value of the resulting difference in payment
('SUBSIDY PAYMENTS') being provided by the employer of the mortgagor, generally
on an annual basis. Subsidy Payments will generally be placed in a custodial
account ('SUBSIDY ACCOUNT') by the related Servicer. Despite the existence of a
subsidy program, a mortgagor remains primarily liable for making all scheduled
payments on a Subsidy Loan and for all other obligations provided for in the
related Mortgage Note and Mortgage Loan.
The terms of the subsidy agreements relating to Subsidy Loans generally
range from one to ten years. Subsidy Loans are offered by employers generally
through either a 'graduated' or 'fixed' subsidy loan program, or programs that
combine features of graduated and fixed subsidy loan programs. The subsidy
agreements relating to Subsidy Loans generally range from one to ten years. The
subsidy agreements relating to Subsidy Loans made under a graduated program
generally will provide for subsidy payments that result in effective subsidized
interest rates between three percentage points (3%) and five percentage points
(5%) below the Mortgage Interest Rates specified in the related Mortgage Notes
during the term of the subsidy agreement. Generally, under a graduated program,
the subsidized rate for a Mortgage Loan will increase approximately one
percentage point per year until it equals the full Mortgage Interest Rate. For
example, if the initial subsidized interest rate is five percentage points below
the Mortgage Interest Rate in year one, the subsidized rate will increase to
four percentage points below the Mortgage Interest Rate in year two, and
likewise until year six, when the subsidized rate will equal the Mortgage
Interest Rate. Where the subsidy agreements relating to Subsidy Loans are in
effect for longer than five years, the subsidized interest rates generally
increase at smaller percentage increments for each year. The subsidy agreements
relating to Subsidy Loans made under a fixed program generally will provide for
subsidized interest rates at fixed percentages (generally one percentage point
to two percentage points) below the Mortgage Interest Rates for the term of the
subsidy agreements The subsidy agreements relating to Subsidy Loans pursuant to
combination fixed/graduated programs generally will provide for an initial fixed
subsidy of up to five percentage points below the related Mortgage Interest Rate
for up to five
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years, and then a periodic reduction in the subsidy for up to five years, at an
equal fixed percentage per year until the subsidized rate equals the Mortgage
Interest Rate.
Generally, employers may terminate subsidy programs in the event of (i) the
mortgagor's death, retirement, resignation or termination of employment, (ii)
the full prepayment of the Subsidy Loan by the mortgagor, (iii) the sale or
transfer by the mortgagor of the related Mortgaged Property as a result of which
the mortgagee is entitled to accelerate the Subsidy Loan pursuant to the
'due-on-sale' clause contained in the Mortgage, or (iv) the commencement of
foreclosure proceedings or the acceptance of a deed in lieu of foreclosure. In
addition, some subsidy programs provide that if prevailing market rates of
interest on mortgage loans similar to a Subsidy Loan are less than the Mortgage
Interest Rate of such Subsidy Loan, the employer may request that the mortgagor
refinance such Subsidy Loan and may terminate the related subsidy agreement if
the mortgagor fails to do so. In the event the mortgagor refinances a Subsidy
Loan, the new loan will not be included in the Trust Estate. See 'Prepayment and
Yield Considerations.' In the event a subsidy agreement is terminated, the
amount remaining in the Subsidy Account will be returned to the employer, and
the mortgagor will be obligated to make the full amount of all remaining
scheduled payments, if any. The mortgagor's reduced monthly housing expense as a
consequence of payments under a subsidy agreement is used by Norwest Mortgage in
determining certain expense-to-income ratios utilized in underwriting a Subsidy
Loan. See 'The Mortgage Loan Programs -- Mortgage Loan Underwriting.'
e. Buy-Down Loans. If so specified in the applicable Prospectus
Supplement, a Trust Estate may contain Mortgage Loans subject to temporary
buy-down plans ('BUY-DOWN LOANS') pursuant to which the monthly payments made by
the mortgagor during the early years of the Mortgage Loan will be less than the
scheduled monthly payments on the Mortgage Loan. The resulting difference in
payment will be compensated for from an amount contributed by the seller of the
related Mortgaged Property or another source, including the originator of the
Mortgage Loan (generally on a present value basis) and, if so specified in the
applicable Prospectus Supplement, placed in a custodial account (the 'BUY-DOWN
FUND') by the related Servicer. If the mortgagor on a Buy-Down Loan prepays such
Mortgage Loan in its entirety, or defaults on such Mortgage Loan and the
Mortgaged Property is sold in liquidation thereof, during the period when the
mortgagor is not obligated, on account of the buy-down plan, to pay the full
monthly payment otherwise due on such loan, the unpaid principal balance of such
Buy-Down Loan will be reduced by the amounts remaining in the Buy-Down Fund with
respect to such Buy-Down Loan, and such amounts will be deposited in the
Servicer Custodial Account or the Certificate Account, net of any amounts paid
with respect to such Buy-Down Loan by any insurer, guarantor or other person
pursuant to a credit enhancement arrangement described in the applicable
Prospectus Supplement.
f. Balloon Loans. If so specified in the applicable Prospectus Supplement,
a Trust Estate may contain Mortgage Loans which are amortized over a fixed
period not exceeding 30 years but which have shorter terms to maturity ('BALLOON
LOANS') that causes the outstanding principal balance of the related Mortgage
Loan to be due and payable at the end of a certain specified period (the
'BALLOON PERIOD'). The borrower of such Balloon Loan will be obligated to pay
the entire outstanding principal balance of the Balloon Loan at the end of the
related Balloon Period. In the event the related mortgagor refinances a Balloon
Loan at maturity, the new loan will not be included in the Trust Estate. See
'Prepayment and Yield Considerations.'
g. Pledged Asset Mortgage Loans. If so specified in the applicable
Prospectus Supplement, a Trust Estate may contain fixed rate mortgage loans
having original terms to stated maturity of not more than 30 years which are
either (i) secured by a security interest in additional collateral (normally
securities) owned by the borrower or (ii) supported by a third party guarantee
(usually a parent of the borrower); which is in turn secured by a security
interest in collateral (usually securities) owned by such guarantor (any such
loans, 'PLEDGED ASSET MORTGAGE LOANS,' and any such collateral, 'ADDITIONAL
COLLATERAL'). Generally, the amount of such Additional Collateral will not
exceed 30% of the amount of such loan, and the requirement to maintain
Additional Collateral will terminate when the principal amount of the Mortgage
Loan is paid down to a predetermined amount.
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THE SELLER
Norwest Integrated Structured Assets, Inc. (the 'SELLER') is a direct,
wholly owned subsidiary of Norwest Mortgage, Inc. and an indirect, wholly owned
subsidiary of Wells Fargo & Company. See 'Recent Developments' in the applicable
Prospectus Supplement. The Seller was incorporated in the State of Delaware on
December 10, 1996.
The limited purposes of the Seller are, in general, to acquire, own and
sell mortgage loans; to issue, acquire, own, hold and sell mortgage asset-backed
pass-through securities which represent ownership interests in mortgage loans,
collections thereon and related properties; and to engage in any acts which are
incidental to, or necessary, suitable or convenient to accomplish, the
foregoing.
The Seller maintains its principal office at 7485 New Horizon Way,
Frederick, Maryland 21703. Its telephone number is (301) 846-8200.
At the time of the formation of any Trust Estate, the Seller will be the
sole owner of all the related Mortgage Loans. The Seller will have acquired the
Mortgage Loans included in any Trust Estate from Norwest Mortgage. Except to the
extent otherwise specified in the applicable Prospectus Supplement, the Seller's
only obligation with respect to the Certificates of any Series will be to
repurchase or substitute for Mortgage Loans in a Trust Estate in the event of
defective documentation or upon the breach of certain representations and
warranties made by the Seller. See 'The Pooling and Servicing
Agreement -- Assignment of Mortgage Loans to the Trustee.'
NORWEST MORTGAGE
Norwest Mortgage, Inc. ('NORWEST MORTGAGE') was originally incorporated as
a Minnesota corporation on July 1, 1983. On August 30, 1995, Norwest Mortgage
and Directors Mortgage Loan Corporation, a California corporation, completed a
statutory merger. As a result of the merger, Norwest became a California
corporation as of September 1, 1995. Norwest Mortgage is engaged principally in
the business of (i) originating and purchasing residential mortgage loans in its
own name and through its affiliates, Norwest Funding, Inc. and Norwest Funding
II, Inc. (collectively, 'NORWEST FUNDING') and (ii) servicing residential
mortgage loans for its own account or for the account of others. Norwest
Mortgage is a direct, wholly owned subsidiary of Norwest Nova, Inc. and an
indirect, wholly owned subsidiary of Wells Fargo & Company. See 'Recent
Developments' in the applicable Prospectus Supplement. The executive offices of
Norwest Mortgage are located at 405 Southwest 5th Street, Des Moines, Iowa
50309-4603, and its telephone number is (515) 221-7300.
On May 7, 1996 Norwest Mortgage and Norwest Funding acquired all of the
mortgage origination, servicing and secondary marketing operations of The
Prudential Home Mortgage Company, Inc. ('PHMC'), an indirect, wholly owned
subsidiary of The Prudential Insurance Company of America, and purchased certain
mortgage loans from PHMC and a substantial portion of PHMC's mortgage servicing
portfolio.
On January 7, 1997, a complaint was served on PHMC with respect to an
individual and purported class action filed by The Capitol Life Insurance
Company ('CAPITOL LIFE') in the Superior Court of New Jersey against PHMC, The
Prudential Home Mortgage Securities Company, Inc. ('PHMSC') and certain of their
affiliates and 100 unnamed 'Doe defendants'. On March 26, 1997, PHMC and others
filed a motion to dismiss the complaint for failure to state a claim on which
relief can be granted. On June 2, 1997, an amended complaint was filed and
American Investors Life Insurance Company joined Capitol Life as a named
plaintiff in the actions. As amended, the complaint asserts claims against PHMC,
PHMSC, certain of their present and former affiliates and certain former
employees as well as Merrill Lynch & Co., Kidder, Peabody & Co. Incorporated,
Lehman Brothers Inc. and Salomon Brothers Inc. As amended, the complaint
alleges, among other things, that the defendants made false and misleading
statements and/or omissions of material fact and fraudulently concealed material
facts in connection with the purchase by the plaintiffs of certain of PHMSC's
Subordinated Mortgage Securities, Series 1992-A. One of the named defendants,
who is a former employee of PHMC and certain of its affiliates, is an officer
and employee of the Seller and Norwest Mortgage. The Seller has been advised
that PHMC, PHMSC, their affiliated defendants and such common employee will
vigorously defend the action. Based on the foregoing, the Seller does not
believe that this litigation will have an adverse effect on any Series of
Certificates.
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Norwest Mortgage is an approved servicer of Fannie Mae ('FANNIE MAE'), the
Federal Home Loan Mortgage Corporation ('FREDDIE MAC') and the Government
National Mortgage Association ('GINNIE MAE'). As of December 31, 1997, Norwest
Mortgage had a net worth of approximately $446.5 million.
NORWEST BANK
Norwest Bank Minnesota, National Association ('NORWEST BANK') will act as
Master Servicer with respect to each Series. Norwest Bank is a direct, wholly
owned subsidiary of Wells Fargo & Company. See 'Recent Developments' in the
applicable Prospectus Supplement. Norwest Bank is a national banking association
originally chartered in 1872 and is engaged in a wide range of activities
typical of a national bank.
Norwest Bank's principal office is located at Norwest Center, Sixth and
Marquette, Minneapolis, Minnesota 55479. Norwest Bank conducts its master
servicing and securities administration services at its offices in Columbia,
Maryland. Its address there is 11000 Broken Land Parkway, Columbia, Maryland
21044-3662 and its telephone number is (410) 884-2000.
THE MORTGAGE LOAN PROGRAMS
MORTGAGE LOAN PRODUCTION SOURCES
Norwest Mortgage conducts a significant portion of its mortgage loan
originations through more than 700 loan production offices (the 'LOAN STORES')
located throughout all 50 states. Norwest Mortgage also conducts a significant
portion of its mortgage loan originations through centralized production offices
located in Frederick, Maryland and Minneapolis, Minnesota. At the latter
locations, Norwest Mortgage receives applications for home mortgage loans on
toll-free telephone numbers that can be called from anywhere in the United
States.
The following are Norwest Mortgage's primary sources of mortgage loan
originations: (i) direct contact with prospective borrowers (including borrowers
with mortgage loans currently serviced by Norwest Mortgage or borrowers referred
by borrowers with mortgage loans currently serviced by Norwest Mortgage), (ii)
referrals by realtors, other real estate professionals and prospective borrowers
to the Loan Stores, (iii) referrals from selected corporate clients, (iv)
referrals from the private mortgage banking group, a division of Norwest
Funding, Inc., which specializes in mortgage loans with original principal
balances in excess of the limits of Fannie Mae and Freddie Mac, (v) several
joint ventures into which Norwest Mortgage, through its wholly owned subsidiary,
Norwest Mortgage Ventures, Inc., has entered with realtors and banking
institutions (the 'JOINT VENTURES') and (vi) referrals from mortgage brokers and
similar entities. In addition to its own mortgage loan originations, Norwest
Mortgage acquires qualifying mortgage loans from other unaffiliated originators
('CORRESPONDENTS'). See '-- Acquisition of Mortgage Loans from Correspondents'
below. The relative contribution of each of these sources to Norwest Mortgage's
business, measured by the volume of loans generated, tends to fluctuate over
time.
Norwest Mortgage Ventures, Inc. owns at least a 50% interest in each of the
Joint Ventures, with the remaining ownership interest in each being owned by a
realtor or a banking institution having significant contact with potential
borrowers. Mortgage loans that are originated by Joint Ventures in which Norwest
Mortgage's partners are realtors are generally made to finance the acquisition
of properties marketed by such Joint Venture partners. Applications for mortgage
loans originated through Joint Ventures are generally taken by Joint Venture
employees and underwritten by Norwest Mortgage in accordance with its standard
underwriting criteria. Such mortgage loans are then closed by the Joint Ventures
in their own names and subsequently purchased by Norwest Mortgage or Norwest
Funding.
Norwest Mortgage may directly contact prospective borrowers (including
borrowers with mortgage loans currently serviced by Norwest Mortgage) through
general and targeted solicitations. Such solicitations are made through direct
mailings, mortgage loan statement inserts and television, radio and print
advertisements and by telephone. Norwest Mortgage's targeted solicitations may
be based on characteristics such as the borrower's mortgage loan interest rate
or payment history and the geographic location of the mortgaged property. See
'Prepayment and Yield Considerations.'
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A majority of Norwest Mortgage's corporate clients are companies that
sponsor relocation programs for their employees and in connection with which
Norwest Mortgage provides mortgage financing. Eligibility for a relocation loan
is based, in general, on an employer's providing financial assistance to the
relocating employee in connection with a job-required move. Although Subsidy
Loans are typically generated through such corporate-sponsored programs, the
assistance extended by the employer need not necessarily take the form of a loan
subsidy. (Not all relocation loans are generated by Norwest Mortgage through
referrals from its corporate clients; some relocation loans are generated as a
result of referrals from mortgage brokers and similar entities and others are
generated through Norwest Mortgage's acquisition of mortgage loans from other
originators.) Also among Norwest Mortgage's corporate clients are various
professional associations. These associations, as well as the other corporate
clients, promote the availability of a broad range of Norwest Mortgage mortgage
products to their members or employees, including refinance loans, second-home
loans and investment-property loans.
ACQUISITION OF MORTGAGE LOANS FROM CORRESPONDENTS
In order to qualify for participation in Norwest Mortgage's mortgage loan
purchase programs, lending institutions must (i) meet and maintain certain net
worth and other financial standards, (ii) demonstrate experience in originating
residential mortgage loans and (iii) meet certain criteria (as described in the
following paragraph).
The contractual arrangements with Correspondents may involve the commitment
by Norwest Mortgage to accept delivery of a certain dollar amount of mortgage
loans over a period of time. This commitment may be satisfied either by delivery
of mortgage loans one at a time or in multiples as aggregated by the
Correspondent. The contractual arrangements with certain Correspondents may also
involve the delegation of all underwriting functions to such Correspondents
('DELEGATED UNDERWRITING'), which will result in Norwest Mortgage not performing
any underwriting functions prior to acquisition of the loan but instead relying
on such originators' representations, and Norwest Mortgage's post-purchase
reviews of samplings of mortgage loans acquired from such originators regarding
the originators' compliance with Norwest Mortgage's underwriting standards.
Norwest will require Correspondents participating in Delegated Underwriting to
meet some or all of the following requirements: (i) such Correspondent must have
a net worth of at least $500,000, (ii) if such Correspondent is a depository
institution, its capital requirement ratio must be in compliance with federal
requirements, (iii) such Correspondent must generally have a two year history,
although for younger companies the experience level of key management personnel
may be taken into consideration, (iv) such Correspondent must maintain fidelity
bond insurance and errors and omission insurance, in each case in an amount of
$300,000 or more and (v) such Correspondent must be Fannie Mae/Freddie Mac
approved. In addition, in connection with the approval of any Correspondent's
participation in Delegated Underwriting, Norwest Mortgage will review such
Correspondent's financial statements, along with those of its parent company, if
applicable, for indications of general business health as well as net worth.
Norwest Mortgage will also review delinquency ratios with respect to such
Correspondent.
Certain institutional conduit Correspondents may be permitted to utilize
their own underwriting criteria based upon a comparison of such criteria by
Norwest Mortgage to the general and modified criteria of Norwest Mortgage
described under '-- Mortgage Loan Underwriting' below and a determination by
Norwest Mortgage of the materiality of variances therefrom and the underwriting
policies of these Correspondents may vary from Norwest Mortgage's underwriting
standards. Norwest Mortgage may also acquire portfolios of seasoned loans in
negotiated transactions.
MORTGAGE LOAN UNDERWRITING
The Trust Estate for each Series of Certificates will include Mortgage
Loans which have been underwritten in accordance with one or more of the
following: (i) Norwest Mortgage's general underwriting standards, (ii) Norwest
Mortgage's 'retention program,' (iii) Norwest Mortgage's modified underwriting
standards that have been applied in the underwriting of mortgage loans under
Norwest Mortgage's 'alternative' mortgage loan underwriting program, (iv) the
underwriting standards of a Pool Insurer and (v) the underwriting standards of
certain institutional conduit Correspondents.
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General Standards
Norwest Mortgage's underwriting standards are applied by or on behalf of
Norwest Mortgage or by Correspondents to evaluate the applicant's credit
standing and ability to repay the loan, as well as the value and adequacy of the
mortgaged property as collateral. The underwriting standards that guide the
determination represent a balancing of several factors that may affect the
ultimate recovery of the loan amount, including, among others, the amount of the
loan, the ratio of the loan amount to the property value (i.e., the lower of the
appraised value of the mortgaged property and the purchase price), the
borrower's means of support and the borrower's credit history. Norwest
Mortgage's guidelines for underwriting may vary according to the nature of the
borrower or the type of loan, since differing characteristics may be perceived
as presenting different levels of risk. In addition, where compensating factors
exist with respect to a prospective applicant, the underwriting standards
described below may be permitted to vary. With respect to certain Mortgage
Loans, the originators of such loans may have contracted with unaffiliated third
parties to perform the underwriting process.
Norwest Mortgage utilizes various systems of credit scoring as a tool to
supplement the mortgage loan underwriting process. The most comprehensive credit
scoring applied by Norwest Mortgage utilizes consistent, objective measures of
borrower credit history (the 'FICO SCORE') described in the following paragraph,
and also considers specific loan attributes, including, but not limited to,
loan-to-value ratio, principal balance, loan purpose and property type. Such
objective measures and attributes are used to evaluate loan applications and
assign each application a 'CREDIT SCORE.'
The portion of the Credit Score related to borrower credit history is
generally based on computer models developed by a third party. These models
evaluate information available from three major credit reporting bureaus
regarding historical patterns of consumer credit behavior in relation to default
experience for similar types of borrower profiles. A particular borrower's
credit patterns are then considered in order to derive a FICO Score which
indicates a level of default probability over a two-year period.
The Credit Score is used by Norwest Mortgage to determine the type of
underwriting process and which level of underwriter will review the loan file.
For transactions which are determined to be low-risk transactions, based upon
the Credit Score and other parameters (including the mortgage loan production
source), the lowest underwriting authority is generally required. Features
leading to the characterization of a transaction as low-risk may include, for
example, a lower Loan-to-Value Ratio, a lower principal balance (in each case,
relative to Mortgage Loans having otherwise similar characteristics), a standard
loan purpose and/or a traditional property type. For moderate and higher risk
transactions, higher level underwriters and a full review of the mortgage file
are generally required. Features leading to the characterization of a
transaction as moderate- or high-risk may include, for example (relative to
low-risk transactions), a higher Loan-to-Value Ratio, higher principal balance
(in each case, relative to Mortgage Loans having otherwise similar
characteristics), nonstandard loan purpose and/or a nontraditional property
type. Borrowers who have a satisfactory Credit Score (based upon the mortgage
loan production source) are generally subject to streamlined credit review
(which relies on the credit scoring process for various elements of the
underwriting assessments). Such borrowers may also be eligible for a limited
documentation program and are generally permitted a greater latitude in the
application of borrower debt-to-income ratios.
With respect to all mortgage loans underwritten by Norwest Mortgage,
Norwest Mortgage's underwriting of a mortgage loan may be based on data obtained
by parties other than Norwest Mortgage that are involved at various stages in
the mortgage origination or acquisition process. This typically occurs under
circumstances in which loans are subject to more than one approval process, as
when correspondents, certain mortgage brokers or similar entities that have been
approved by Norwest Mortgage to process loans on its behalf, or independent
contractors hired by Norwest Mortgage to perform underwriting services on its
behalf ('CONTRACT UNDERWRITERS') make initial determinations as to the
consistency of loans with Norwest Mortgage underwriting guidelines. The
underwriting of mortgage loans acquired by Norwest Mortgage pursuant to a
Delegated Underwriting arrangement with a Correspondent is not reviewed prior to
acquisition of the mortgage loan by Norwest Mortgage although the mortgage loan
file is reviewed by Norwest Mortgage to confirm that certain documents are
included in the file. Instead, Norwest Mortgage relies on (i) the
Correspondent's representations that such mortgage loan was underwritten in
accordance with Norwest Mortgage's underwriting standards and (ii) a
post-purchase review of a sampling of all mortgage loans acquired from such
originator. In addition, in
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order to be eligible to sell mortgage loans to Norwest Mortgage pursuant to a
Delegated Underwriting arrangement, the originator must meet certain
requirements including, among other things, certain quality, operational and
financial guidelines. See '-- Acquisition of Mortgage Loans from
Correspondents' above.
A prospective borrower applying for a mortgage loan is required to complete
a detailed application. The loan application elicits pertinent information about
the applicant, with particular emphasis on the applicant's financial health
(assets, liabilities, income and expenses), the property being financed and the
type of loan desired. A self-employed applicant may be required to submit his or
her most recent signed federal income tax returns. With respect to every
applicant, credit reports are obtained from commercial reporting services,
summarizing the applicant's credit history with merchants and lenders.
Significant unfavorable credit information reported by the applicant or a credit
reporting agency must be explained by the applicant. The credit review process
generally is streamlined for borrowers with a qualifying Credit Score.
Verifications of employment, income, assets or mortgages may be used to
supplement the loan application and the credit report in reaching a
determination as to the applicant's ability to meet his or her monthly
obligations on the proposed mortgage loan, as well as his or her other mortgage
payments (if any), living expenses and financial obligations. A mortgage
verification involves obtaining information regarding the borrower's payment
history with respect to any existing mortgage the applicant may have. This
verification is accomplished by either having the present lender complete a
verification of mortgage form, evaluating the information on the credit report
concerning the applicant's payment history for the existing mortgage,
communicating, either verbally or in writing, with the applicant's present
lender or analyzing cancelled checks provided by the applicant. Verifications of
income, assets or mortgages may be waived under certain programs offered by
Norwest Mortgage, but Norwest Mortgage's underwriting guidelines require, in
most instances, a verbal or written verification of employment to be obtained.
In some cases, employment histories may be obtained through V.I.E., Inc., an
entity jointly owned by Norwest Mortgage and an unaffiliated third party, that
obtains employment data from state unemployment insurance departments or other
state agencies. In addition, the loan applicant may be eligible for a loan
approval process permitting limited documentation. The above referenced reduced
documentation options and waivers limit the amount of documentation required for
an underwriting decision and have the effect of increasing the relative
importance of the credit report and the appraisal. Documentation requirements
vary based upon a number of factors, including the purpose of the loan, the
amount of the loan, the ratio of the loan amount to the property value and the
mortgage loan production source. Norwest Mortgage accepts alternative methods of
verification, in those instances where verifications are part of the
underwriting decision; for example, salaried income may be substantiated either
by means of a form independently prepared and signed by the applicant's employer
or by means of the applicant's most recent paystub and W-2. In cases where two
or more persons have jointly applied for a mortgage loan, the gross incomes and
expenses of all of the applicants, including nonoccupant co-mortgagors, are
combined and considered as a unit.
In general, except for borrowers meeting certain standards who apply for
loans with certain qualifying characteristics under Norwest Mortgage's
'retention program' applicable to then-current borrowers, borrowers applying for
loans must demonstrate that the ratio of their total monthly housing debt to
their monthly gross income, and the ratio of their total monthly debt to their
monthly gross income do not exceed certain maximum levels. Applicants for
mortgage loans with respect to which the Loan-to-Value Ratio is less than or
equal to 75% generally must demonstrate a 33% total monthly housing
debt-to-monthly gross income ratio and a 38% total monthly debt-to-monthly gross
income ratio. Applicants for mortgage loans with Loan-to-Value Ratios in excess
of 75% generally must demonstrate a 28% total monthly housing debt-to-monthly
gross income ratio and a 36% total monthly debt-to-monthly gross income ratio.
These ratios may be exceeded, in the judgment of Norwest Mortgage, based on the
presence of other factors such as an applicant's good credit history,
significant other assets, ability to accumulate assets, potential for continued
employment advancement or income growth, or a lower (relative to Mortgage Loans
having otherwise similar characteristics) Loan-to-Value Ratio. Under the
'retention program,' however, such maximum levels may not be applied, depending
on a number of factors including Loan-to-Value Ratio, a borrower's credit
history, a borrower's liquid net worth, the potential of a borrower for
continued employment advancement or income growth, the ability of the borrower
to accumulate assets or to devote a greater portion of income to basic needs
such as housing expense, a borrower's Credit Score and the type of loan for
which the borrower is applying. The debt-to-income ratio calculations described
above
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are based on the amortization schedule and the interest rate of the related
loan, with each ratio being computed on the basis of the proposed monthly
mortgage payment. In the case of adjustable-rate mortgage loans, the interest
rate used to determine a mortgagor's monthly payment for purposes of such ratios
may, in certain cases, be the initial mortgage interest rate or another interest
rate, which, in either case, is lower than the sum of the index rate that would
have been applicable at origination plus the applicable margin. In evaluating
applications for Subsidy Loans and Buy-Down Loans, such ratios are determined by
including in the applicant's total monthly housing expense and total monthly
debt the proposed monthly mortgage payment reduced by the amount expected to be
applied on a monthly basis under the related subsidy agreement or buy-down
agreement or, in certain cases, the mortgage payment that would result from an
interest rate lower than the Mortgage Interest Rate but higher than the
effective rate to the mortgagor as a result of the subsidy agreement or the
buy-down agreement. See 'The Trust Estates -- Mortgage Loans.' Secondary
financing is permitted on mortgage loans under certain circumstances. In those
cases, the payment obligations under both primary and secondary financing are
included in the computation of the housing debt-to-income ratios, and the
combined amount of primary and secondary loans will be used to calculate the
combined loan-to-value ratio. Any secondary financing permitted will generally
mature prior to the maturity date of the related mortgage loan. In evaluating an
application with respect to a 'non-owner-occupied' property, which Norwest
Mortgage defines as a property leased to a third party by its owner (as distinct
from a 'second home,' which Norwest Mortgage defines as an owner-occupied,
non-rental property that is not the owner's principal residence), Norwest
Mortgage will include projected rental income net of certain mortgagor
obligations and other assumed expenses or loss from such property to be included
in the applicant's monthly gross income or total monthly debt in calculating the
foregoing ratios. A mortgage loan secured by a two- to four-family Mortgaged
Property is considered to be an owner-occupied property if the borrower occupies
one of the units; rental income on the other units is generally taken into
account in evaluating the borrower's ability to repay the mortgage loan.
Mortgage Loans will not generally have had at origination a Loan-to-Value
Ratio in excess of 95%. However, if so specified in the applicable Prospectus
Supplement, Mortgage Loans that had Loan-to-Value Ratios at origination in
excess of 95% may be included in the related Trust Estate. The 'LOAN-TO-VALUE
RATIO' is the ratio, expressed as a percentage, of the principal amount of the
Mortgage Loan at origination to the lesser of (i) the appraised value of the
related Mortgaged Property, as established by an appraisal obtained by the
originator generally no more than four months prior to origination (or, with
respect to newly constructed properties, no more than twelve months prior to
origination), or (ii) the sale price for such property. In some instances, the
Loan-to-Value Ratio may be based on an appraisal that was obtained by the
originator more than four months prior to origination, provided that (i) a
recertification of the original appraisal is obtained and (ii) the original
appraisal was obtained no more than twelve months prior to origination. For the
purpose of calculating the Loan-to-Value Ratio of any Mortgage Loan that is the
result of the refinancing (including a refinancing for 'equity take out'
purposes) of an existing mortgage loan, the appraised value of the related
Mortgaged Property is generally determined by reference to an appraisal obtained
in connection with the origination of the replacement loan. In connection with
certain of its mortgage originations, Norwest Mortgage currently obtains
appraisals through Value Information Technology, Inc. an entity jointly owned by
Norwest Mortgage and an unaffiliated third party.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at the levels which existed on the dates of appraisal
(or, where applicable, recertification of value) of the related Mortgage Loans.
The appraisal of any Mortgaged Property reflects the individual appraiser's
judgment as to value, based on the market values of comparable homes sold within
the recent past in comparable nearby locations and on the estimated replacement
cost. The appraisal relates both to the land and to the structure; in fact, a
significant portion of the appraised value of a Mortgaged Property may be
attributable to the value of the land rather than to the residence. Because of
the unique locations and special features of certain Mortgaged Properties,
identifying comparable properties in nearby locations may be difficult. The
appraised values of such Mortgaged Properties will be based to a greater extent
on adjustments made by the appraisers to the appraised values of reasonably
similar properties rather than on objectively verifiable sales data. If
residential real estate values generally or in particular geographic areas
decline such that the outstanding balances of the Mortgage Loans and any
secondary financing on the Mortgaged Properties in a particular Trust Estate
become equal to or greater than the values of the related Mortgaged Properties,
the actual rates of delinquencies, foreclosures and losses could be higher than
those now generally experienced in the mortgage lending industry and those now
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experienced in Norwest Mortgage's servicing portfolios. In addition, adverse
economic conditions generally, in particular geographic areas or industries, or
affecting particular segments of the borrowing community (such as mortgagors
relying on commission income and self-employed mortgagors) and other factors
which may or may not affect real property values, including the purposes for
which the Mortgage Loans were made and the uses of the Mortgaged Properties, may
affect the timely payment by mortgagors of scheduled payments of principal and
interest on the Mortgage Loans and, accordingly, the actual rates of
delinquencies, foreclosures and losses with respect to any Trust Estate. See
'Prepayment and Yield Considerations -- Weighted Average Life of Certificates.'
To the extent that such losses are not covered by the methods of credit support
or the insurance policies described herein under 'Description of the
Certificates -- Other Credit Enhancement' and 'Servicing of the Mortgage
Loans -- Insurance Policies', they will be borne by holders of the Certificates
of the Series evidencing interests in such Trust Estate.
Norwest Mortgage originates mortgage loans with Loan-to-Value Ratios in
excess of 80%, either with or without the requirement to obtain primary mortgage
insurance. In cases for which primary mortgage insurance is obtained, the excess
over 75% (or such lower percentage as Norwest Mortgage may require at
origination) will be covered by primary mortgage insurance from an approved
primary mortgage insurance company until the unpaid principal balance of the
Mortgage Loan is reduced to an amount that will result in a Loan-to-Value Ratio
less than or equal to 80%. However, Norwest Mortgage does not require primary
mortgage insurance on loans that have Loan-to-Value Ratios exceeding 80% if such
loans are secured by primary residences or second homes (excluding
cooperatives). Each loan originated without primary mortgage insurance will have
been made at an interest rate that was higher than the rate would have been if
the Loan-to-Value Ratio was 80% or less or if primary mortgage insurance was
obtained. The Prospectus Supplement will specify the number and percentage of
Mortgage Loans contained in the Trust Estate for a particular Series of
Certificates with Loan-to-Value Ratios at origination in excess of 80% which
were originated without primary mortgage insurance.
Except as described below, Mortgage Loans will generally be covered by an
appropriate standard form American Land Title Association ('ALTA') title
insurance policy, or a substantially similar policy or form of insurance
acceptable to Fannie Mae or Freddie Mac. Certain Mortgage Loans ('T.O.P. LOANS')
originated by Norwest Mortgage or Norwest Funding in connection with the 'TITLE
OPTION PLUS' program are not covered by title insurance policies, although title
searches are performed in connection with the origination of T.O.P. Loans by
American Land Title Company, Inc., an affiliate of Norwest Mortgage. The Seller
will represent and warrant to the Trustee of any Trust Estate that the Mortgaged
Property related to each Mortgage Loan (including each T.O.P. Loan) is free and
clear of all encumbrances and liens having priority over the first lien of the
related Mortgage, subject to certain limited exceptions as set forth below under
'-- Representations and Warranties.' However in the event that a lien senior to
the lien of the Mortgage related to a T.O.P. Loan that is contained in the Trust
Estate for any Series is found to exist, the sole recourse of the Trustee will
be against the Seller for breach of its representation and warranty. The Trustee
will not have recourse against any title insurance company or other party.
Where permitted by law, Norwest Mortgage generally requires that a borrower
include in each monthly payment a portion of the real estate taxes, assessments,
primary mortgage insurance (if applicable), and hazard insurance premiums and
other similar items with respect to the related mortgage loan. Norwest Mortgage
may, however, on a case-by-case basis, in its discretion not require such
advance payments for certain Mortgage Loans, based on an evaluation of the
borrowers' ability to pay such taxes and charges as they become due.
Retention Program Standards. A borrower whose mortgage loan is serviced by
Norwest Mortgage may be eligible for Norwest Mortgage's 'retention program.'
Provided such a borrower is current in his or her mortgage payment obligations.
Norwest Mortgage may permit a refinancing of the mortgage loan to a current
market interest rate without applying any significant borrower credit or
property underwriting standards. As a result, borrowers who qualify under the
retention program may not need to demonstrate that their current monthly housing
debt or total monthly debt obligations in relation to their monthly income
levels do not exceed certain ratios; Norwest Mortgage may not obtain a current
credit report for the borrower or apply a new Credit Score to the refinanced
loan; and the borrower may not be required to provide any verifications of
current employment, income level or extent of assets. In addition, no current
appraisal or indication of market value may be required with respect to the
properties securing the mortgage loans which are refinanced under the retention
program. Mortgage Loans initially included in the Trust Estate for a particular
Series of Certificates may have been the
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subject of a refinancing under the retention program and, to the extent that
borrowers become eligible for the retention program after their Mortgage Loans
have been included in a particular Trust Estate, such Mortgage Loans may be
refinanced under such program. See 'Prepayment and Yield Considerations' in this
Prospectus and in the Prospectus Supplement for a description of the potential
effects on Certificateholders resulting from such refinancings.
Modified Standards
In comparison to Norwest Mortgage's 'general' underwriting standards
described above, the underwriting standards applicable to mortgage loans under
Norwest Mortgage's 'alternative' mortgage loan underwriting program permit
different underwriting criteria, additional types of mortgaged properties or
categories of borrowers such as 'foreign nationals' without a FICO Score who
hold certain types of visas and have acceptable credit references (such Mortgage
Loans, 'FOREIGN NATIONAL LOANS'), and include certain other less restrictive
parameters. Generally, relative to the 'general' underwriting standards, these
standards include higher loan amounts, higher maximum Loan-to-Value Ratios,
higher maximum 'combined' Loan-to-Value Ratios (in each case, relative to
Mortgage Loans with otherwise similar characteristics) in cases of simultaneous
primary and secondary financings, less restrictive requirements for 'equity take
out' refinancings, the removal of limitations on the number of permissible
mortgage loans that may be extended to one borrower and the ability to originate
mortgage loans with Loan-to-Value Ratios in excess of 80% without the
requirement to obtain primary mortgage insurance if such loans are secured by
cooperatives or investment properties.
With respect to mortgaged property types, mortgage loans may be secured by
shares in cooperative housing corporations, 'manufactured homes', investment
properties permitted under less stringent guidelines, condotels (features of
which may include maid service, a front desk or resident manager, rental pools
and up to 20% of commercial space), and the mortgaged properties may represent
an unusually high percentage of land vs. structure or have other unique
characteristics.
In addition, borrowers who satisfy certain guidelines regarding credit
history and current assets may have been approved under a 'NO RATIO' program
(such Mortgage Loans, 'NO RATIO LOANS'). For such cases, the borrower's income
would not have been verified nor would there have been the calculation of any
ratios, as part of the loan underwriting decision, of the borrower's expected
monthly housing debt or total monthly debt obligations to the borrower's monthly
income. In connection with such No Ratio program, the borrower's assets would
have been verified and certain minimum 'cash reserves' required.
Pool Certification Underwriting
If specified in the applicable Prospectus Supplement, certain of the
Mortgage Loans will have been reviewed by General Electric Mortgage Insurance
Corporation ('GEMICO'), United Guaranty Residential Insurance Company ('UGRIC')
or a similar entity (collectively, the 'POOL INSURERS') to determine conformity,
in the aggregate, with such company's respective credit, appraisal and
underwriting guidelines. Norwest Mortgage will not have underwritten such
Mortgage Loans. Neither GEMICO nor UGRIC have underwritten any of the Mortgage
Loans for compliance with any investor guidelines.
Based on information provided by the relevant company, as a condition to
eligibility of a Mortgage Loan for inclusion in a mortgage pool to be insured by
GEMICO or UGRIC, the loan originator generally will be required to comply with
the following procedures, although exceptions may be made if permitted by such
company.
Initially, a prospective borrower must fill out a detailed application
providing pertinent credit information. The loan originator obtains a credit
report, which summarizes the prospective borrower's credit history with
merchants and lenders and any record of bankruptcy, or other pertinent legal
history. In addition, a verification of employment for the last two years is
made from either the applicant's employer or a Form W-2 for the most recent two
years and the applicant's most recent pay stub. If an applicant is
self-employed, such applicant submits copies of signed tax returns with all
schedules for the prior two years together with a current year-to-date profit
and loss statement and any other documentation deemed necessary. Rental income
used to qualify the applicant is verified either by lease agreements or by the
borrower's tax returns. In the case of refinancings, the loan originator must
require, among other things, that there has not been more than one delinquency
in the prior
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12 months nor, in the case of mortgage loans reviewed by GEMICO, any delinquency
in the past 90 days on the prior mortgage loan.
In determining the adequacy of the Mortgaged Property as collateral, an
independent appraisal must be made of each property considered for financing.
Each appraiser must be selected in accordance with predetermined guidelines
established for appraisers. The appraiser is required to inspect the property
and verify that it is in good condition and that construction, if new, has been
completed. The appraisal is based on the market value of comparable homes. No
appraisal more than six months old will be accepted by GEMICO and no appraisal
more than 120 days old will be accepted by UGRIC.
Once all applicable employment, credit and property information is
received, a determination must be made by the loan originator (and confirmed on
review by GEMICO or UGRIC) as to whether the prospective borrower has sufficient
monthly income to meet (i) the monthly payment obligations on the proposed
mortgage loan (including principal and interest payments, real estate taxes,
insurance on the subject property, and homeowners' association dues and
secondary financing, if any), and (ii) the aggregate of the foregoing and all
other financial obligations not expected to be fully repaid within the next 10
months. As a general rule, UGRIC permits a maximum ratio of a prospective
borrower's debt, as described in clauses (i) and (ii) above, to such borrower's
income to be 33% and 38%, respectively for fixed rate, fixed payment loans and
for adjustable rate loans with Loan-to-Value Ratios of 75% or less. Maximum
ratios of 28% and 33%, respectively, are permitted for adjustable rate loans
with Loan-to-Value Ratios above 75%. These general rules may be varied, and
higher debt-to-income ratios may be permitted, in appropriate cases
characterized by lower Loan-to-Value Ratios or other favorable factors. GEMICO's
underwriting process relies on a combination of its own proprietary credit
scoring model (which includes factors related to a borrower's credit history as
well as specific loan attributes) and the consideration of borrower
debt-to-income ratios. Depending upon the credit score, GEMICO will permit
maximum ratios, as described in clauses (i) and (ii) above, of 40% and 50%,
respectively.
In some special cases, GEMICO and UGRIC may underwrite loans under a
'limited documentation' program. With respect to such loans, limited
investigation into the borrower's credit history and income profile is
undertaken by the originator and such loans may be underwritten primarily on the
basis of an appraisal of the mortgaged property and Loan-to-Value Ratio on
origination. Thus, if the Loan-to-Value Ratio is less than the percentage
required under standard guidelines, the originator may forego certain aspects of
the review relating to monthly income, and, in the case of mortgage loans
reviewed by GEMICO, traditional ratios of monthly or total expenses to gross
income may not be applied. At a minimum, a limited documentation program must
require a loan application, a credit report, an appraisal acceptable to Fannie
Mae/Freddie Mac performed by an independent appraiser, and a verification of
downpayment or three months of bank statements. The maximum Loan-to-Value Ratio
allowed under any limited documentation program underwritten by GEMICO and UGRIC
is 70%. UGRIC's 'limited documentation' program is limited exclusively to
self-employed borrowers.
For any rate or term refinance of a mortgage loan, or conversion of an
adjustable rate mortgage loan, where GEMICO or UGRIC has already insured the
prior loan, GEMICO or UGRIC may have determined a loan's insurability without
reviewing updated credit or collateral information. In the case of seasoned
loans, GEMICO or UGRIC may have determined a loan's insurability by performing a
more limited credit and collateral review.
The foregoing should not be taken as a full and complete discussion of all
of the procedures undertaken in connection with a particular underwriting. Both
GEMICO and UGRIC consider various other factors including, but not limited to,
reviewing sales contracts, verifying deposits and other assets and examining
additional supporting documentation in certain instances such as divorce decrees
and separation agreements. Investors should consult the particular Pool
Insurer's underwriting guidelines for more specific and complete requirements
regarding underwriting standards. Furthermore, the underwriting process often
results in certain compensating factors being considered to offset the existence
of other negative factors in a loan file.
The use of pool certification underwriting by a Pool Insurer in no way
indicates that the related Certificates or Mortgage Loans are insured or
guaranteed under a mortgage pool insurance policy unless the applicable
Prospectus Supplement so specifies.
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GEMICO may be contacted at 640 Freedom Business Center, King of Prussia,
Pennsylvania 19406, Attention: Compliance Underwriting; (800) 288-4364. UGRIC
may be contacted at 1815 South Meyers Road, Suite 430 Oakbrook Terrace, Illinois
60181, Attention: Pool Department; (800) 323-7324.
REPRESENTATIONS AND WARRANTIES
In connection with the transfer of the Mortgage Loans related to any Series
by the Seller to the Trust Estate, the Seller will generally make certain
representations and warranties regarding the Mortgage Loans. In certain cases
where the Seller acquired some or all of the Mortgage Loans related to a Series
from a Correspondent, if so indicated in the applicable Prospectus Supplement,
the Seller may, rather than itself making representations and warranties, cause
the representations and warranties made by the Correspondent in connection with
its sale of Mortgage Loans to Norwest Mortgage or Norwest Funding to be assigned
to the Trust Estate. In such cases, the Correspondent's representations and
warranties may have been made as of a date prior to the date of execution of the
Pooling and Servicing Agreement. Unless otherwise provided in the applicable
Prospectus Supplement, such representations and warranties (whether made by the
Seller or another party) will generally include the following with respect to
the Mortgage Loans, or each Mortgage Loan, as the case may be: (i) the schedule
of Mortgage Loans appearing as an exhibit to such Pooling and Servicing
Agreement is correct in all material respects at the date or dates respecting
which such information is furnished as specified therein; (2) immediately prior
to the transfer and assignment contemplated by the Pooling and Servicing
Agreement, the Seller is the sole owner and holder of the Mortgage Loan, free
and clear of any and all liens, pledges, charges or security interests of any
nature and has full right and authority to sell and assign the same; (iii) no
Mortgage Note or Mortgage is subject to any right of rescission, set-off,
counterclaim or defense; (iv) the Mortgage Loan (other than a T.O.P. Loan as
described above under '-- Mortgage Loan Underwriting') is covered by a title
insurance policy (or in the case of any Mortgage Loan secured by a Mortgaged
Property located in a jurisdiction where such policies are generally not
available, an opinion of counsel of the type customarily rendered in such
jurisdiction in lieu of title insurance is instead received); (v) the Mortgage
is a valid, subsisting and enforceable first lien on the related Mortgaged
Property and the Mortgaged Property is free and clear of all encumbrances and
liens having a priority over the first lien of the Mortgage except for those
liens set forth in the Pooling and Servicing Agreement; (vi) the Mortgaged
Property is undamaged by water, fire, earthquake or earth movement, windstorm,
flood, tornado or similar casualty (excluding casualty from the presence of
hazardous wastes or hazardous substances, as to which no representation is
made), so as to affect adversely the value of the Mortgaged Property as security
for the Mortgage Loan or the use for which the premises were intended; (vii) all
payments required to be made up to the Due Date immediately preceding the
Cut-Off Date for such Mortgage Loan under the terms of the related Mortgage Note
have been made and no Mortgage Loan had more than one delinquency in the 12
months preceding the Cut-Off Date; and (viii) any and all requirements of any
federal, state or local law with respect to the origination of the Mortgage
Loans including, without limitation, usury, truth-in-lending, real estate
settlement procedures, consumer credit protection, equal credit opportunity or
disclosure laws applicable to the Mortgage Loans have been complied with.
No representations or warranties are made by the Seller or any other party
as to the environmental condition of any Mortgaged Property including the
absence, presence or effect of hazardous wastes or hazardous substances on such
Mortgaged Property or any effect from the presence or effect of hazardous wastes
or hazardous substances on, near or emanating from such Mortgaged Property. See
'Certain Legal Aspects of the Mortgage Loans -- Environmental Considerations'
below.
In addition, no representations or warranties are made by the Seller or any
other party with respect to the absence or effect of fraud in the origination of
any Mortgage Loan, and any loss or liability resulting from the presence or
effect of fraud will be borne solely be Certificateholders.
See 'The Pooling and Servicing Agreement -- Assignment of Mortgage Loans to
the Trustee' for a description of the limited remedies available in connection
with breaches of the foregoing representations and warranties.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
Each Series of Certificates will include one or more Classes, each of which
may be divided into two or more Subclasses. Any references herein to the
characteristics of a Class of Certificates may also describe the characteristics
of a Subclass of Certificates. In addition, any Class or Subclass of
Certificates may consist of two or more non-severable components, each of which
may exhibit any of the principal or interest payment characteristics described
herein with respect to a Class of Certificates. A Series may include one or more
Classes of Certificates entitled, to the extent of funds available, to (i)
principal and interest distributions in respect of the related Mortgage Loans,
(ii) principal distributions, with no interest distributions, (iii) interest
distributions, with no principal distributions or (iv) such other distributions
as are described in the applicable Prospectus Supplement.
Each Series of Certificates will be issued pursuant to a Pooling and
Servicing Agreement (the 'POOLING AND SERVICING AGREEMENT') among the Seller,
Norwest Bank, as the Master Servicer, and the Trustee named in the applicable
Prospectus Supplement. An illustrative form of Pooling and Servicing Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The following summaries describe certain provisions common
to the Certificates and to each 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 for each Series of Certificates and the applicable Prospectus
Supplement. Wherever particular sections or defined terms of the Pooling and
Servicing Agreement are referred to, such sections or defined terms are thereby
incorporated herein by reference from the form of Pooling and Servicing
Agreement filed as an exhibit to the Registration Statement.
Unless otherwise specified in the applicable Prospectus Supplement,
distributions to Certificateholders of all Series (other than the final
distribution in retirement of the Certificates) will be made by check mailed to
the address of the person entitled thereto (which in the case of Book-Entry
Certificates will be Cede as nominee for DTC) as it appears on the certificate
register, except that, with respect to any holder of a Certificate evidencing
not less than a certain minimum denomination set forth in the applicable
Prospectus Supplement, distributions will be made by wire transfer in
immediately available funds, provided that the Master Servicer or the Paying
Agent acting on behalf of the Master Servicer shall have been furnished with
appropriate wiring instructions not less than seven business days prior to the
related Distribution Date. The final distribution in retirement of Certificates
will be made only upon presentation and surrender of the Certificates at the
office or agency maintained by the Trustee or other entity for such purpose, as
specified in the final distribution notice to Certificateholders.
Each Series of Certificates will represent ownership interests in the
related Trust Estate. An election may be made to treat the Trust Estate (or one
or more segregated pools of assets therein) with respect to a Series of
Certificates as a REMIC. If such an election is made, such Series will consist
of one or more Classes of Certificates that will represent 'regular interests'
within the meaning of Code Section 860G(a)(1) (such Class or Classes
collectively referred to as the 'REGULAR CERTIFICATES') and one Class or
Subclass of Certificates with respect to each REMIC that will be designated as
the 'residual interest' within the meaning of Code Section 860G(a)(2) (the
'RESIDUAL CERTIFICATES') representing the right to receive distributions as
specified in the Prospectus Supplement for such Series. See 'Material Federal
Income Tax Consequences.'
The Seller may sell certain Classes or Subclasses of the Certificates of a
Series, including one or more Classes of Subordinated Certificates, in privately
negotiated transactions exempt from registration under the Securities Act.
Alternatively, if so specified in a Prospectus Supplement relating to such
Subordinated Certificates, the Seller may offer one or more Classes of the
Subordinated Certificates of a Series by means of this Prospectus and such
Prospectus Supplement.
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DEFINITIVE FORM
Certificates of a Series that are issued in fully registered, certificated
form are referred to herein as 'DEFINITIVE CERTIFICATES.' Distributions of
principal of, and interest on, the Definitive Certificates will be made directly
to holders of Definitive Certificates in accordance with the procedures set
forth in the Pooling and Servicing Agreement. The Definitive Certificates of a
Series offered hereby and by means of the applicable Prospectus Supplements will
be transferable and exchangeable at the office or agency maintained by the
Trustee or such other entity for such purpose set forth in the applicable
Prospectus Supplement. No service charge will be made for any transfer or
exchange of Definitive Certificates, but the Trustee or such other entity may
require payment of a sum sufficient to cover any tax or other governmental
charge in connection with such transfer or exchange.
In the event that an election is made to treat the Trust Estate (or one or
more segregated pools of assets therein) as a REMIC, the 'residual interest'
thereof will be issued as a Definitive Certificate. No legal or beneficial
interest in all or any portion of any 'residual interest' may be transferred
without the receipt by the transferor and the Trustee of an affidavit signed by
the transferee stating, among other things, that the transferee (i) is not a
disqualified organization within the meaning of Code Section 860E(e) or an agent
(including a broker, nominee, or middleman) thereof and (ii) understands that it
may incur tax liabilities in excess of any cash flows generated by the residual
interest. Further, the transferee must state in the affidavit that it (x)
historically has paid its debts as they have come due, (y) intends to pay its
debts as they come due in the future and (z) intends to pay taxes associated
with holding the residual interest as they become due. The transferor must
certify to the Trustee that, as of the time of the transfer, it has no actual
knowledge that any of the statements made in the transferee affidavit are false
and no reason to know that the statements made by the transferee pursuant to
clauses (x), (y) and (z) of the preceding sentence are false. See 'Material
Federal Income Tax Consequences -- Federal Income Tax Consequences for REMIC
Certificates -- Taxation of Residual Certificates -- Tax-Related Restrictions on
Transfer of Residual Certificates.'
BOOK-ENTRY FORM
Each Class or Subclass of the Book-Entry Certificates of a Series initially
will be represented by one or more physical certificates registered in the name
of Cede & Co. ('CEDE'), as nominee of DTC, which will be the 'holder' or
'CERTIFICATEHOLDER' of such Certificates, as such terms are used herein. No
person acquiring an interest in a Book-Entry Certificate (a 'BENEFICIAL OWNER')
will be entitled to receive a Definitive Certificate representing such person's
interest in the Book-Entry Certificate, except as set forth below. Unless and
until Definitive Certificates are issued under the limited circumstances
described below in this section, all references to actions taken by
Certificateholders or holders shall, in the case of the Book-Entry Certificates,
refer to actions taken by DTC upon instructions from its DTC Participants, and
all references herein to distributions, notices, reports and statements to
Certificateholders or holders shall, in the case of the Book-Entry Certificates,
refer to distributions, notices, reports and statements to DTC or Cede, as the
registered holder of the Book-Entry Certificates, as the case may be, for
distribution to Beneficial Owners in accordance with DTC procedures.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a 'clearing
corporation' within the meaning of the New York Uniform Commercial Code and a
'clearing agency' registered pursuant to Section 17A of the Securities Exchange
Act of 1934, as amended. DTC was created to hold securities for its
participating organizations ('DTC PARTICIPANTS') and to facilitate the clearance
and settlement of securities transactions among DTC Participants through
electronic book-entries, thereby eliminating the need for physical movement of
certificates. DTC Participants include securities brokers and dealers (which may
include any underwriter identified in the Prospectus Supplement applicable to
any Series), banks, trust companies and clearing corporations. Indirect access
to the DTC system also is available to banks, brokers, dealers, trust companies
and other institutions that clear through or maintain a custodial relationship
with a DTC Participant, either directly or indirectly ('INDIRECT DTC
PARTICIPANTS').
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the 'RULES'), DTC is required to make book-entry transfers of
Book-Entry Certificates among DTC Participants on whose behalf it acts with
respect to the Book-Entry Certificates and to receive and transmit distributions
of principal of and interest on the Book-Entry Certificates. DTC Participants
and Indirect DTC Participants with which
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Beneficial Owners have accounts with respect to the Book-Entry Certificates
similarly are required to make book-entry transfers and receive and transmit
such payments on behalf of their respective Beneficial Owners.
Beneficial Owners that are not DTC Participants or Indirect DTC
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, Book-Entry Certificates may do so only through DTC
Participants and Indirect DTC Participants. In addition, Beneficial Owners will
receive all distributions of principal and interest from the Master Servicer, or
a Paying Agent on behalf of the Master Servicer, through DTC Participants. DTC
will forward such distributions to its DTC Participants, which thereafter will
forward them to Indirect DTC Participants or Beneficial Owners. Beneficial
Owners will not be recognized by the Trustee or the Master Servicer or any
paying agent as Certificateholders, as such term is used in the Pooling and
Servicing Agreement, and Beneficial Owners will be permitted to exercise the
rights of Certificateholders only indirectly through DTC and its DTC
Participants.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect DTC Participants and certain banks, the ability of a
Beneficial Owner to pledge Book-Entry Certificates to persons or entities that
do not participate in the DTC system, or to otherwise act with respect to such
Book-Entry Certificates, may be limited due to the lack of a physical
certificate for such Book-Entry Certificates. In addition, under a book-entry
format, Beneficial Owners may experience delays in their receipt of payments,
since distributions will be made by the Master Servicer, or a paying agent on
behalf of the Master Servicer, to Cede, as nominee for DTC.
DTC has advised the Seller that it will take any action permitted to be
taken by a Certificateholder under the Pooling and Servicing Agreement only at
the direction of one or more DTC Participants to whose accounts with DTC the
Book-Entry Certificates are credited. Additionally, DTC has advised the Seller
that it will take such actions with respect to specified Voting Interests only
at the direction of and on behalf of DTC Participants whose holdings of
Book-Entry Certificates evidence such specified Voting Interests. DTC may take
conflicting actions with respect to Voting Interests to the extent that DTC
Participants whose holdings of Book-Entry Certificates evidence such Voting
Interests authorize divergent action.
Neither the Seller, the Master 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 held by
Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests. In the event of the
insolvency of DTC, a DTC Participant or an Indirect DTC Participant in whose
name Book-Entry Certificates are registered, the ability of the Beneficial
Owners of such Book-Entry Certificates to obtain timely payment and, if the
limits of applicable insurance coverage by the Securities Investor Protection
Corporation are exceeded or if such coverage is otherwise unavailable, ultimate
payment, of amounts distributable with respect to such Book-Entry Certificates
may be impaired.
The Book-Entry Certificates will be converted to Definitive Certificates
and reissued to Beneficial Owners or their nominees, rather than to DTC or its
nominee, only if (i) the Trustee is advised in writing that DTC is no longer
willing or able to discharge properly its responsibilities as depository with
respect to the Book-Entry Certificates and the Trustee is unable to locate a
qualified successor, (ii) the Master Servicer, at its option, elects to
terminate the book-entry system through DTC or (iii) after the occurrence of a
dismissal or resignation of the Master Servicer under the Pooling and Servicing
Agreement, Beneficial Owners representing not less than 51% of the Voting
Interests of the outstanding Book-Entry Certificates advise the Trustee through
DTC, in writing, that the continuation of a book-entry system through DTC (or a
successor thereto) is no longer in the Beneficial Owners' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee will be required to notify all Beneficial Owners through
DTC Participants of the availability of Definitive Certificates. Upon surrender
by DTC of the physical certificates representing the Book-Entry Certificates and
receipt of instructions for re-registration, the Trustee will reissue the
Book-Entry Certificates as Definitive Certificates to Beneficial Owners. The
procedures relating to payment on and transfer of Certificates initially issued
as Definitive Certificates will thereafter apply to those Book-Entry
Certificates that have been reissued as Definitive Certificates.
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DISTRIBUTIONS TO CERTIFICATEHOLDERS
General
On each Distribution Date, each holder of a Certificate of a Class will be
entitled to receive its Certificate's Percentage Interest of the portion of the
Pool Distribution Amount (as defined below) allocated to such Class. The
undivided percentage interest (the 'PERCENTAGE INTEREST') represented by any
Certificate of a Subclass or any Class in distributions to such Subclass or
Class will be equal to the percentage obtained by dividing the initial principal
balance (or notional amount) of such Certificate by the aggregate initial
principal balance (or notional amount) of all Certificates of such Subclass or
Class, as the case may be.
In general, the funds available for distribution to Certificateholders of a
Series of Certificates with respect to each Distribution Date for such Series
(the 'POOL DISTRIBUTION AMOUNT') will be the sum of all previously undistributed
payments or other receipts on account of principal (including principal
prepayments and Liquidation Proceeds, if any) and interest on or in respect of
the related Mortgage Loans received by the related Servicer after the Cut-Off
Date (except for amounts due on or prior to the Cut-Off Date), or received by
the related Servicer on or prior to the Cut-Off Date but due after the Cut-Off
Date, in either case received on or prior to the business day preceding the
Determination Date in the month in which such Distribution Date occurs, plus all
Periodic Advances with respect to payments due to be received on the Mortgage
Loans on the Due Date preceding such Distribution Date, but excluding the
following:
(a) amounts received as late payments of principal or interest
respecting which one or more unreimbursed Periodic Advances has been made;
(b) that portion of Liquidation Proceeds with respect to a Mortgage
Loan which represents any unreimbursed Periodic Advances;
(c) those portions of each payment of interest on a particular
Mortgage Loan which represent (i) the Fixed Retained Yield, if any, (ii)
the applicable Servicing Fee, (iii) the applicable Master Servicing Fee,
(iv) the Trustee's fee and (v) any other amounts described in the
applicable Prospectus Supplement;
(d) all amounts representing scheduled payments of principal and
interest due after the Due Date occurring in the month in which such
Distribution Date occurs;
(e) all proceeds (including Liquidation Proceeds other than, in
certain cases as specified in the applicable Prospectus Supplement,
Liquidation Proceeds which were received prior to the related Servicer's
determination that no further recoveries on a defaulted Mortgage Loan will
be forthcoming ('PARTIAL LIQUIDATION PROCEEDS')) of any Mortgage Loans, or
property acquired in respect thereof, that were liquidated, foreclosed,
purchased or repurchased pursuant to the applicable Pooling and Servicing
Agreement, which proceeds were received on or after the Due Date occurring
in the month in which such Distribution Date occurs and all principal
prepayments in full, partial principal prepayments and Partial Liquidation
Proceeds received by the related Servicer on or after the Determination
Date (or, with respect to any such amount and in certain cases as specified
in the applicable Prospectus Supplement, the Due Date) occurring in the
month in which such Distribution Date occurs, and all related payments of
interest on such amounts;
(f) that portion of Liquidation Proceeds which represents any unpaid
Servicing Fees, Master Servicing Fee or any Trustee Fee to which the
related Servicer, the Trustee or the Master Servicer, respectively, is
entitled and any unpaid Fixed Retained Yield;
(g) if an election has been made to treat the applicable Trust Estate
as a REMIC, any Net Foreclosure Profits with respect to such Distribution
Date;
(h) all amounts representing certain expenses reimbursable to the
Master Servicer or any Servicer and other amounts permitted to be withdrawn
by the Master Servicer from the Certificate Account, in each case pursuant
to the applicable Pooling and Servicing Agreement;
(i) all amounts in the nature of late fees, assumption fees,
prepayment fees and similar fees and payments of interest related to
principal prepayments received on or after the first day of the month in
which a Distribution Date occurs and prior to the Determination Date in the
month of such Distribution Date which the related Servicer is entitled to
retain pursuant to the applicable Underlying Servicing Agreement;
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<PAGE>
(j) reinvestment earnings on payments received in respect of the
Mortgage Loans; and
(k) any recovery of an amount in respect of principal which had
previously been allocated as a realized loss to such Series of
Certificates.
The applicable Prospectus Supplement for a Series will describe any
variation in the calculation of the Pool Distribution Amount for such Series.
'NET FORECLOSURE PROFITS' with respect to a Distribution Date will be the
excess of (i) the portion of aggregate net Liquidation Proceeds which represents
the amount by which aggregate profits on liquidated Mortgage Loans with respect
to which net Liquidation Proceeds exceed the unpaid principal balance thereof
plus accrued interest thereon at the Mortgage Interest Rate over (ii) aggregate
realized losses on liquidated Mortgage Loans with respect to which net
Liquidation Proceeds are less than the unpaid principal balance thereof plus
accrued interest thereon at the Mortgage Interest Rate.
Distributions of Interest
With respect to each Series of Certificates, interest on the related
Mortgage Loans at the weighted average of the applicable Net Mortgage Interest
Rates thereof, will be passed through monthly to holders of the related Classes
of Certificates in the aggregate, in accordance with the particular terms of
each such Class of Certificates. The 'NET MORTGAGE INTEREST RATE' for each
Mortgage Loan in a given period will equal the mortgage interest rate per annum
for such Mortgage Loan in such period, as specified in the related mortgage note
(the 'MORTGAGE INTEREST RATE'), less the portion thereof, if any, not contained
in the Trust Estate (the 'FIXED RETAINED YIELD'), and less amounts payable to
the Servicers for servicing the Mortgage Loan (the 'SERVICING FEE'), the fee
payable to the Master Servicer (the 'MASTER SERVICING FEE'), the fee payable to
the Trustee (the 'TRUSTEE FEE') and any related expenses specified in the
applicable Prospectus Supplement.
Interest will accrue on the principal balance (or notional amount, as
described below) of each Class of Certificates entitled to interest at the
Pass-Through Rate for such Class indicated in the applicable Prospectus
Supplement (which may be a fixed rate or an adjustable rate) from the date and
for the periods specified in such Prospectus Supplement. To the extent the Pool
Distribution Amount is available therefor, interest accrued during each such
specified period on each Class of Certificates entitled to interest (other than
a Class that provides for interest that accrues, but is not currently payable,
referred to hereafter as 'ACCRUAL CERTIFICATES') will be distributable on the
Distribution Dates specified in the applicable Prospectus Supplement until the
principal balance (or notional amount) of such Class has been reduced to zero.
Distributions allocable to interest on each Certificate that is not entitled to
distributions allocable to principal will generally be calculated based on the
notional amount of such Certificate. The notional amount of a Certificate will
not evidence an interest in or entitlement to distributions allocable to
principal but will be solely for convenience in expressing the calculation of
interest and for certain other purposes.
With respect to any Class of Accrual Certificates, any interest that has
accrued but is not paid on a given Distribution Date will be added to the
principal balance of such Class of Certificates on that Distribution Date.
Distributions of interest on each Class of Accrual Certificates will commence
only after the occurrence of the events or the existence of the circumstance
specified in such Prospectus Supplement and, prior to such time, or in the
absence of such circumstances, the principal balance of such Class will increase
on each Distribution Date by the amount of interest that accrued on such Class
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
Certificates will thereafter accrue interest on its outstanding principal
balance as so adjusted.
Distributions of Principal
The principal balance of any Class of Certificates entitled to
distributions of principal will generally be the original principal balance of
such Class specified in such Prospectus Supplement, reduced by all distributions
reported to the holders of such Certificates as allocable to principal and any
losses on the related Mortgage Loans allocated to such Class of Certificates and
(i) in the case of Accrual Certificates, increased by all interest accrued but
not then distributable on such Accrual Certificates and (ii) in the case of a
Series of Certificates representing interests in a Trust Estate containing
adjustable-rate Mortgage Loans, increased by any Deferred Interest allocable to
such Class. The principal balance of a Class or Subclass of Certificates
generally represents the maximum specified dollar amount (exclusive of any
interest that may accrue on such Class or Subclass to which
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<PAGE>
the holder thereof is entitled from the cash flow on the related Mortgage Loans
at such time) and will decline to the extent of distributions in reduction of
the principal balance of, and allocations of losses to such Class or Subclass.
Certificates with no principal balance will not receive distributions in respect
of principal. The applicable Prospectus Supplement will specify the method by
which the amount of principal to be distributed on the Certificates on each
Distribution Date will be calculated and the manner in which such amount will be
allocated among the Classes of Certificates entitled to distributions of
principal.
If so provided in the applicable Prospectus Supplement, one or more Classes
of Senior Certificates will be entitled to receive all or a disproportionate
percentage of the payments of principal that are received from borrowers in
advance of their scheduled due dates and are not accompanied by amounts
representing scheduled interest due after the months of such payments or of
other unscheduled principal receipts or recoveries in the percentages and under
the circumstances or for the periods specified in such Prospectus Supplement.
Any such allocation of principal prepayments or other unscheduled receipts or
recoveries in respect of principal to such Class or Classes of Senior
Certificates will have the effect of accelerating the amortization of such
Senior Certificates while increasing the interests evidenced by the Subordinated
Certificates in the Trust Estate. Increasing the interests of the Subordinated
Certificates relative to that of the Senior Certificates is intended to preserve
the availability of the subordination provided by the Subordinated Certificates.
If specified in the applicable Prospectus Supplement, the rights of the
holders of the Subordinated Certificates of a Series of Certificates for which
credit enhancement is provided through subordination to receive distributions
with respect to the Mortgage Loans in the related Trust Estate will be
subordinated to such rights of the holders of the Senior Certificates of the
same Series to the extent described below, except as otherwise set forth in such
Prospectus Supplement. This subordination is intended to enhance the likelihood
of regular receipt by holders of Senior Certificates of the full amount of
scheduled monthly payments of principal and interest due them and to provide
limited protection to the holders of the Senior Certificates against losses due
to mortgagor defaults.
The protection afforded to the holders of Senior Certificates of a Series
of Certificates for which credit enhancement is provided through subordination
by the subordination feature described above will be effected by (i) the
preferential right of such holders to receive, prior to any distribution being
made in respect of the related Subordinated Certificates on each Distribution
Date, current distributions on the related Mortgage Loans of principal and
interest due them on each Distribution Date out of the funds available for
distribution on such date in the related Certificate Account, (ii) by the right
of such holders to receive future distributions on the Mortgage Loans that would
otherwise have been payable to the holders of Subordinated Certificates and/or
(iii) by the prior allocation to the Subordinated Certificates of all or a
portion of losses realized on the related Mortgage Loans.
Losses realized on liquidated Mortgage Loans (other than Excess Special
Hazard Losses, Excess Fraud Losses and Excess Bankruptcy Losses as described
below) will be allocated to the holders of Subordinated Certificates through a
reduction of the amount of principal payments on the Mortgage Loans to which
such holders are entitled before any corresponding reduction is made in respect
of the Senior Certificate.
A 'SPECIAL HAZARD LOSS' is a loss on a liquidated Mortgage Loan occurring
as a result of a hazard not insured against under a standard hazard insurance
policy of the type described herein under 'Servicing of the Mortgage
Loans -- Insurance Policies.' A 'FRAUD LOSS' is a loss on a liquidated Mortgage
Loan as to which there was fraud in the origination of such Mortgage Loan. A
'BANKRUPTCY LOSS' is a loss on a liquidated Mortgage Loan attributable to
certain actions which may be taken by a bankruptcy court in connection with a
Mortgage Loan, including a reduction by a bankruptcy court of the principal
balance of or the interest rate on a Mortgage Loan or an extension of its
maturity. Special Hazard Losses in excess of the amount specified in the
applicable Prospectus Supplement (the 'SPECIAL HAZARD LOSS AMOUNT') are 'EXCESS
SPECIAL HAZARD LOSSES.' Fraud Losses in excess of the amount specified in the
applicable Prospectus Supplement (the 'FRAUD LOSS AMOUNT') are 'EXCESS FRAUD
LOSSES.' Bankruptcy losses in excess of the amount specified in the applicable
Prospectus Supplement (the 'BANKRUPTCY LOSS AMOUNT') are 'EXCESS BANKRUPTCY
LOSSES.' Any Excess Special Hazard Losses, Excess Fraud Losses or Excess
Bankruptcy Losses with respect to a Series will be allocated on a pro rata basis
among the related Classes of Senior and Subordinated Certificates. An allocation
of a loss on a 'pro rata basis' among two or more Classes of Certificates means
an allocation on a pro rata basis to each such Class of Certificates on the
basis of their then-outstanding principal balances in the case of the principal
portion of a loss or based on the accrued interest thereon in the case of an
interest portion of a loss.
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Since the amounts of the Special Hazard Loss Amount, Fraud Loss Amount and
Bankruptcy Loss Amount for a Series of Certificates are each expected to be less
than the amount of principal payments on the Mortgage Loans to which the holders
of the Subordinated Certificates of such Series are initially entitled (such
amount being subject to reduction, as described above, as a result of allocation
of losses on liquidated Mortgage Loans that are not Special Hazard Losses, Fraud
Losses or Bankruptcy Losses), the holders of Subordinated Certificates of such
Series will bear the risk of Special Hazard Losses, Fraud Losses and Bankruptcy
Losses to a lesser extent than they will bear other losses on liquidated
Mortgage Loans.
Although the subordination feature described above is intended to enhance
the likelihood of timely payment of principal and interest to the holders of
Senior Certificates, shortfalls could result in certain circumstances. For
example, a shortfall in the payment of principal otherwise due the holders of
Senior Certificates could occur if losses realized on the Mortgage Loans in a
Trust Estate were exceptionally high and were concentrated in a particular
month.
The holders of Subordinated Certificates will not be required to refund any
amounts previously properly distributed to them, regardless of whether there are
sufficient funds on a subsequent Distribution Date to make a full distribution
to holders of each Class of Senior Certificates of the same Series.
CATEGORIES OF CLASSES OF CERTIFICATES
The Certificates 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 Certificates may identify the Classes
which comprise such Series by reference to the following categories or another
category specified in the applicable Prospectus Supplement.
<TABLE>
<CAPTION>
CATEGORIES OF CLASSES DEFINITION
PRINCIPAL TYPES
<S> <C>
Accretion Directed Class............ 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 Mortgage Loans for the
related Series.
Component Class..................... A Class consisting of two or more specified components (each, a
'COMPONENT') as described in the applicable Prospectus Supplement. The
Components of a Class of Component Certificates may have different
principal and/or interest payment characteristics but together constitute a
single class and do not represent severable interests. Each Component of a
Class of Component Certificates may be identified as falling into one or
more of the categories in this chart.
Lockout Class....................... A senior Class that is designed not to participate in or to participate to
a limited extent in (i.e., to be 'locked out' of), for a specified period,
the receipt of (1) principal prepayments on the Mortgage Loans that are
allocated disproportionately to the senior Classes of such Series as a
group pursuant to a 'shifting interest' structure and/or (2) scheduled
principal payments on the Mortgage Loans that are allocated to the senior
Classes as a group. A Lockout Class will typically not be entitled to
receive, or will be entitled to receive only a restricted portion of,
distributions of principal prepayments and/or scheduled principal payments,
as applicable, for a period of several years, during which time all or a
portion of such principal payments that it would otherwise be entitled to
receive in the absence of a 'lockout' structure will be distributed in
reduction of the principal balances of other senior Classes. Lockout
Classes are designed to minimize weighted average life volatility during
the lockout period.
</TABLE>
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<TABLE>
<S> <C>
Notional Amount Class............... 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 Amortization Class (also
sometimes referred to as a
'PAC')............................ A Class that is designed to receive principal payments using a
predetermined principal balance schedule derived by assuming two constant
prepayment rates for the underlying Mortgage Loans. These two rates are the
endpoints for the 'structuring range' for the Planned Amortization Class.
The Planned Amortization Classes in any Series of Certificates may be
subdivided into different categories (e.g., Planned Amortization Class I
('PAC I') Planned Amortization Class II ('PAC II') and so forth) derived
using different structuring ranges. A PAC is designed to provide protection
against volatility of weighted average life if prepayments occur at a
constant rate within the structuring range.
Ratio Strip Class................... A Class that is entitled to receive a constant proportion, or 'ratio
strip,' of the principal payments on the underlying Mortgage Loans.
Scheduled Amortization Class........ A Class that is designed to receive principal payments using a
predetermined principal balance schedule but is not designated as a Planned
Amortization Class or Targeted Amortization Class. The schedule is derived
by assuming either two constant prepayment rates or a single constant
prepayment rate for the underlying Mortgage Loans. In the former case, the
two rates are the endpoints for the 'structuring range' for the Scheduled
Amortization Class and such range generally is narrower than that for a
Planned Amortization Class. Typically, the Support Class(es) for the
applicable Series of Certificates generally will represent a smaller
percentage of the Scheduled Amortization Class than a Support Class
generally would represent in relation to a Planned Amortization Class or a
Targeted Amortization Class. A Scheduled Amortization Class is generally
less sensitive to weighted average life volatility as a result of
prepayments than a Support Class but more sensitive than a Planned
Amortization Class or a Targeted Amortization Class.
Sequential Pay Class................ A Class that is entitled to receive principal payments in a prescribed
sequence, that does not have a predetermined principal balance schedule and
that, in most cases, is entitled to receive payments of principal
continuously from the first Distribution Date on which it receives
principal until it is retired. A single Class is entitled to receive
principal payments before or after other Classes in the same Series of
Certificates may be identified as a Sequential Pay Class.
Support Class (also sometimes
referred to as a 'COMPANION
CLASS')........................... A Class that is entitled to receive principal payments on any Distribution
Date only if scheduled payments have been made on specified Planned
Amortization Classes, Targeted Amortization Classes and/or Scheduled
Amortization Classes.
Targeted Amortization Class (also
sometimes referred to as a
'TAC')............................ 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 underlying Mortgage Loans. A TAC is
</TABLE>
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<TABLE>
<S> <C>
designed to provide some protection against shortening of weighted average
life if prepayments occur at a rate exceeding the assumed constant
prepayment rate used to derive the principal balances schedule of such
Class.
INTEREST TYPES
Accrual Class....................... 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 Accrual Class is retired.
Fixed Rate Class.................... A Class with an interest rate that is fixed throughout the life of the
Class.
Floating Rate Class................. A Class with an interest rate that resets periodically based upon a
designated index and that varies directly with changes in such index.
Interest Only Class................. A Class that is entitled to receive some or all of the interest payments
made on the Mortgage Loans and little or no principal. Interest Only
Classes have either a nominal principal balance or a notional amount. A
nominal principal balance represents actual principal that will be paid on
the Class. 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 Class
that is not entitled to any distributions in respect of principal.
Inverse Floating Rate Class......... A Class with an interest rate that resets periodically based upon a
designated index and that varies inversely with changes in such index and
with changes in the interest rate payable on the related Floating Rate
Class.
Principal Only Class................ A Class that does not bear interest and is entitled to receive only
distributions in respect of principal.
Step Coupon Class................... A Class with a fixed interest rate that is reduced to a lower fixed rate
after a specific period of time. The difference between the initial
interest rate and the lower interest rate will be supported by a reserve
fund established on the Closing Date.
Variable Rate Class................. A Class with an interest rate that resets periodically and is calculated by
reference to the rate or rates of interest applicable to the Mortgage
Loans.
</TABLE>
OTHER CREDIT ENHANCEMENT
In addition to, or in substitution for, the subordination discussed under
'Distributions to Certificateholders -- Distributions of Principal' above,
credit enhancement may be provided with respect to any Series of Certificates in
any other manner which may be described in the applicable Prospectus Supplement,
including, but not limited to, credit enhancement through an alternative form of
subordination and/or one or more of the methods described below.
Limited Guarantee
If so specified in the Prospectus Supplement with respect to a Series of
Certificates, credit enhancement may be provided in the form of a limited
guarantee issued by a guarantor named therein.
Financial Guaranty Insurance Policy or Surety Bond
If so specified in the Prospectus Supplement with respect to a Series of
Certificates credit enhancement may be provided in the form of a financial
guaranty insurance policy or a surety bond issued by an insurer named therein.
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<PAGE>
Letter of Credit
Alternative credit support with respect to a Series of Certificates may be
provided by the issuance of a letter of credit by the bank or financial
institution specified in the applicable Prospectus Supplement. The coverage,
amount and frequency of any reduction in coverage provided by a letter of credit
issued with respect to a Series of Certificates will be set forth in the
Prospectus Supplement relating to such Series.
Pool Insurance Policies
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Seller will obtain a pool insurance policy for the Mortgage
Loans in the related Trust Estate. The pool insurance policy will cover any loss
(subject to the limitations described in the applicable Prospectus Supplement)
by reason of default to the extent a related Mortgage Loan is not covered by any
primary mortgage insurance policy. The amount and principal terms of any such
coverage will be set forth in the Prospectus Supplement.
Special Hazard Insurance Policies
If so specified in the applicable Prospectus Supplement, for each Series of
Certificates as to which a pool insurance policy is provided, the Seller will
also obtain a special hazard insurance policy for the related Trust Estate in
the amount set forth in such Prospectus Supplement. The special hazard insurance
policy will, subject to the limitations described in the applicable Prospectus
Supplement, protect against loss by reason of damage to Mortgaged Properties
caused by certain hazards not insured against under the standard form of hazard
insurance policy for the respective states in which the Mortgaged Properties are
located. The amount and principal terms of any such coverage will be set forth
in the Prospectus Supplement.
Mortgagor Bankruptcy Bond
If so specified in the applicable Prospectus Supplement, losses resulting
from a bankruptcy proceeding relating to a mortgagor affecting the Mortgage
Loans in a Trust Estate with respect to a Series of Certificates will be covered
under a mortgagor bankruptcy bond (or any other instrument that will not result
in a downgrading of the rating of the Certificates of a Series by the Rating
Agency or Rating Agencies that rated such Series). Any mortgagor bankruptcy bond
or such other instrument will provide for coverage in an amount meeting the
criteria of the Rating Agency or Rating Agencies rating the Certificates of the
related Series, which amount will be set forth in the applicable Prospectus
Supplement. The amount and principal terms of any such coverage will be set
forth in the Prospectus Supplement.
Reserve Fund
If so specified in the applicable Prospectus Supplement, credit enhancement
with respect to a Series of Certificates may be provided by the establishment of
one or more reserve funds (each, a 'RESERVE FUND') for such Series.
The Reserve Fund for a Series may be funded (i) by the deposit therein of
cash, U.S. Treasury securities or 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
applicable Prospectus Supplement, (ii) by the deposit therein from time to time
of certain amounts, as specified in the applicable Prospectus Supplement, to
which the certain Classes of Certificates would otherwise be entitled or (iii)
in such other manner as may be specified in the applicable Prospectus
Supplement.
Cross Support
If specified in the applicable Prospectus Supplement, the beneficial
ownership of separate groups of Mortgage Loans included in a Trust Estate may be
evidenced by separate Classes of Certificates. In such case, credit support may
be provided by a cross support feature which requires that distributions be made
with respect to certain Classes from mortgage loan payments that would otherwise
be distributed to Subordinated Certificates evidencing a beneficial ownership
interest in other loan groups within the same Trust Estate. The applicable
Prospectus Supplement for a Series that includes a cross support feature will
describe the specific operation of any such cross support feature.
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<PAGE>
Overcollateralization
If specified in the applicable Prospectus Supplement, credit enhancement
with respect to a Series of Certificates may be provided through
'overcollateralization.' Overcollateralization can occur by the initial deposit
to the Trust Estate of Mortgage Loans which have an outstanding principal
balance that exceeds the initial principal balance of the Certificates.
Overcollateralization can also occur when interest collections on the Mortgage
Loans (less any Fixed Retained Yield, Master Servicing Fee and Servicing Fee)
exceed interest payments on the Certificates for the related Distribution Date
and such excess interest is applied as principal payments on the Certificates
thereby reducing the principal balance of the Certificates relative to the
outstanding principal balance of the Mortgage Loans.
PREPAYMENT AND YIELD CONSIDERATIONS
PASS-THROUGH RATES
Any Class of Certificates of a Series may have a fixed Pass-Through Rate,
or a Pass-Through Rate which varies based on changes in an index or based on
changes with respect to the underlying Mortgage Loans (such as, for example,
varying on the basis of changes in the weighted average Net Mortgage Interest
Rate of the underlying Mortgage Loans).
The Prospectus Supplement for each Series will specify the range and the
weighted average of the Mortgage Interest Rates and, if applicable, Net Mortgage
Interest Rates for the Mortgage Loans underlying such Series as of the Cut-Off
Date. If the Trust Estate includes adjustable-rate Mortgage Loans or includes
Mortgage Loans with different Net Mortgage Interest Rates, the weighted average
Net Mortgage Interest Rate may vary from time to time as set forth below. See
'The Trust Estates.' The Prospectus Supplement for a Series will also specify
the initial weighted average Pass-Through Rate for each Class of Certificates of
such Series and will specify whether each such Pass-Through Rate is fixed or is
variable.
The Net Mortgage Interest Rate for any adjustable-rate Mortgage Loan will
change with any changes in the index specified in the applicable Prospectus
Supplement on which such Mortgage Interest Rate adjustments are based, subject
to any applicable periodic or aggregate caps or floors on the related Mortgage
Interest Rate. The weighted average Net Mortgage Interest Rate with respect to
any Series may vary due to changes in the Net Mortgage Interest Rates of
adjustable-rate Mortgage Loans, to the timing of the Mortgage Interest Rate
readjustments of such Mortgage Loans and to different rates of payment of
principal of fixed- or adjustable-rate Mortgage Loans bearing different Mortgage
Interest Rates.
EFFECTS OF DEFAULTS
The rate of defaults on the Mortgage Loans will also affect the rate and
timing of principal payments on the Mortgage Loans. In general, defaults on
mortgage loans are expected to occur with greater frequency in their early
years. The rate of default on Mortgage Loans that are secured by non-owner
occupied properties, Mortgage Loans with higher Loan-to-Value Ratios and
Mortgage Loans made to borrowers with higher debt-to-income ratios or borrowers
approved under a 'NO RATIO' program, may be higher than for other types of
Mortgage Loans. As a result of the Mortgage Loans being originated using
'alternative' underwriting standards that, in certain respects, may be less
stringent than the 'general' standards applied by Norwest Mortgage, the Mortgage
Loans may experience rates of delinquency, foreclosure, bankruptcy and loss that
are higher than those experienced by mortgage loans that satisfy the standards
generally applied by Norwest Mortgage.
SCHEDULED DELAYS IN DISTRIBUTIONS
At the date of initial issuance of the Certificates of each Series offered
hereby, the initial purchasers of a Class of Certificates may be required to pay
accrued interest at the applicable Pass-Through Rate for such Class from the
Cut-Off Date for such Series to, but not including, the date of issuance. The
effective yield to Certificateholders will be below the yield otherwise produced
by the applicable Pass-Through Rate because the distribution of principal and
interest which is due on each Due Date will not be made until the 25th day (or
if such day is not a business day, the first business day following the 25th
day) of the month in which such Due Date occurs (or until such other
Distribution Date specified in the applicable Prospectus Supplement).
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EFFECT OF PRINCIPAL PREPAYMENTS
When a Mortgage Loan is prepaid in full, the mortgagor pays interest on the
amount prepaid only to the date of prepayment and not thereafter. Liquidation
Proceeds (as defined herein under 'Servicing of the Mortgage Loans -- Payments
on Mortgage Loans') and amounts received in settlement of insurance claims are
also likely to include interest only to the time of payment or settlement. When
a Mortgage Loan is prepaid in full or in part, an interest shortfall may result
depending on the timing of the receipt of the prepayment and the timing of when
those prepayments are passed through to Certificateholders. To partially
mitigate this reduction in yield, the Underlying Servicing Agreements relating
to a Series may provide, to the extent specified in the applicable Prospectus
Supplement, that with respect to certain principal prepayments received on or,
the Master Servicer will be obligated, on or before each Distribution Date, to
pay an amount equal to the lesser of (i) the aggregate interest shortfall with
respect to such Distribution Date resulting from principal prepayments in full
by mortgagors and (ii) the portion of the Master Servicer's master servicing
compensation for such Distribution Date specified in the applicable Prospectus
Supplement. No comparable interest shortfall coverage will be provided by the
Master Servicer with respect to liquidations of any Mortgage Loans or partial
principal payments. Any interest shortfall arising from prepayments not so
covered or from liquidations will be covered by means of the subordination of
the rights of Subordinated Certificateholders or any other credit support
arrangements.
A lower rate of principal prepayments than anticipated would negatively
affect the total return to investors in any Certificates of a Series that are
offered at a discount to their principal amount and a higher rate of principal
prepayments than anticipated would negatively affect the total return to
investors in the Certificates of a Series that are offered at a premium to their
principal amount. The yield on Certificates that are entitled solely or
disproportionately to distributions of principal or interest may be particularly
sensitive to prepayment rates, and further information with respect to yield on
such Certificates will be included in the applicable Prospectus Supplement.
WEIGHTED AVERAGE LIFE OF CERTIFICATES
The Mortgage Loans may be prepaid in full or in part at any time. Mortgage
Loan generally will not provide for a prepayment penalty but may so provide if
indicated in the related Prospectus Supplement. Fixed rate Mortgage Loans
generally will contain due-on-sale clauses permitting the mortgagee to
accelerate the maturities of the Mortgage Loans upon conveyance of the related
Mortgaged Properties, and adjustable-rate Mortgage Loans generally will permit
creditworthy borrowers to assume the then-outstanding indebtedness on the
Mortgage Loans.
Prepayments on Mortgage Loans are commonly measured relative to a
prepayment standard or model. The Prospectus Supplement for each Series of
Certificates may describe one or more such prepayment standards or models and
contain tables setting forth the weighted average life of each Class and the
percentage of the original aggregate principal balance of each Class that would
be outstanding on specified Distribution Dates for such Series and the projected
yields to maturity on certain Classes thereof, in each case based on the
assumptions stated in such Prospectus Supplement, including assumptions that
prepayments on the Mortgage Loans are made at rates corresponding to various
percentages of the prepayment standard or model specified in such Prospectus
Supplement.
There is no assurance that prepayment of the Mortgage Loans underlying a
Series of Certificates will conform to any level of the prepayment standard or
model specified in the applicable Prospectus Supplement. A number of factors,
including but not limited to homeowner mobility, economic conditions, natural
disasters, changes in mortgagors' housing needs, job transfers, unemployment or,
in the case of borrowers relying on commission income and self-employed
borrowers, significant fluctuations in income or adverse economic conditions,
mortgagors' net equity in the properties securing the mortgage loans, including
the use of second or 'home equity' mortgage loans by mortgagors or the use of
the properties as second or vacation homes, servicing decisions, enforceability
of due-on-sale clauses, mortgage market interest rates, mortgage recording
taxes, competition among mortgage loan originators resulting in reduced
refinancing costs, reduction in documentation requirements and willingness to
accept higher loan-to-value ratios, and the availability of mortgage funds, may
affect prepayment experience. In general, however, if prevailing mortgage
interest rates fall below the Mortgage Interest Rates borne by the Mortgage
Loans underlying a Series of Certificates, the prepayment rates of such Mortgage
Loans are likely to be higher than if prevailing rates remain at or above the
rates borne by such
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Mortgage Loans. Conversely, if prevailing mortgage interest rates rise above the
Mortgage Interest Rates borne by the Mortgage Loans, the Mortgage Loans are
likely to experience a lower prepayment rate than if prevailing rates remain at
or below such Mortgage Interest Rates. However, there can be no assurance that
prepayments will rise or fall according to such changes in mortgage interest
rates. It should be noted that Certificates of a Series may evidence an interest
in a Trust Estate with different Mortgage Interest Rates. Accordingly, the
prepayment experience of such Certificates will to some extent be a function of
the mix of interest rates of the Mortgage Loans. In addition, the terms of the
Underlying Servicing Agreements will require the related Servicer to enforce any
due-on-sale clause to the extent it has knowledge of the conveyance or the
proposed conveyance of the underlying Mortgaged Property; provided, however,
that any enforcement action that the Servicer determines would jeopardize any
recovery under any related primary mortgage insurance policy will not be
required and provided, further, that the Servicer may permit the assumption of
defaulted Mortgage Loans. See 'Servicing of the Mortgage Loans -- Enforcement of
Due-on-Sale Clauses; Realization Upon Defaulted Mortgage Loans' and 'Certain
Legal Aspects of the Mortgage Loans -- Due-On-Sale Clauses' for a description of
certain provisions of each Pooling and Servicing Agreement and certain legal
developments that may affect the prepayment experience on the Mortgage Loans.
Prepayments on the Mortgage Loans are also affected by the obligation or
right of the Seller. Servicer or other party specified in the applicable
Prospectus Supplement to repurchase or purchase certain or all of the Mortgage
Loans under certain circumstances. The Seller will be obligated, under certain
circumstances, to repurchase certain of the Mortgage Loans. In addition, if
specified in the applicable Prospectus Supplement, the Pooling and Servicing
Agreement will permit, but not require, the Seller, and the terms of certain
insurance policies relating to the Mortgage Loans may permit the applicable
insurer, to purchase any Mortgage Loan which is in default or as to which
default is reasonably foreseeable. The proceeds of any such purchase or
repurchase will be deposited in the related Certificate Account and such
purchase or repurchase will have the same effect as a prepayment in full of the
related Mortgage Loan. See 'The Pooling and Servicing Agreement -- Assignment of
Mortgage Loans to the Trustee' and '-- Optional Purchases.' In addition, if so
specified in the applicable Prospectus Supplement, the Seller or another person
identified therein will have the option to purchase all, but not less than all,
of the Mortgage Loans in any Trust Estate under the limited conditions specified
in such Prospectus Supplement. For any Series of Certificates for which an
election has been made to treat the Trust Estate (or one or more segregated
pools of assets therein) as a REMIC, any such purchase or repurchase may be
effected only pursuant to a 'qualified liquidation,' as defined in Code Section
860F(a)(4)(A). See 'The Pooling and Servicing Agreement -- Termination; Optional
Purchase of Mortgage Loans.'
REFINANCINGS
At the request of the mortgagor, a Servicer, including Norwest Mortgage,
may allow the refinancing of a Mortgage Loan in any Trust Estate serviced by
such Servicer by accepting prepayments thereon and permitting a new loan secured
by a Mortgage on the same property. Upon such refinancing, the new loan will not
be included in the Trust Estate. A mortgagor may be legally entitled to require
the Servicer to allow such a refinancing. Any such refinancing will have the
same effect as a prepayment in full of the related Mortgage Loan. In this regard
a Servicer may, from time to time, implement programs designed to encourage
refinancing through such Servicer, including but not limited to general or
targeted solicitations, or the offering of pre-approved applications, reduced or
nominal origination fees or closing costs, or other financial incentives. A
Servicer may also encourage refinancing of defaulted Mortgage Loans, including
Mortgage Loans that would permit creditworthy borrowers to assume the
outstanding indebtedness.
Norwest Mortgage is in the process of instituting a new 'retention program'
applicable to its servicing portfolio. Provided the borrower is current in his
or her mortgage payment obligations, Norwest Mortgage may agree to refinance the
mortgage loan in order to reduce the borrower's mortgage interest rate, without
the application of any significant new borrower credit or property underwriting
standards. See 'The Mortgage Loan Programs -- Mortgage Loan Underwriting --
Retention Program Standards' in this Prospectus. The streamlined procedures,
minimal borrower cost and the absence of significant underwriting standards
associated with this retention program may result in an increase in the number
of Mortgage Loans eligible for refinancing and a narrowing of the interest rate
differential that may otherwise need to exist before a refinancing is practical
and economic for the borrower. These factors, together with increased borrower
sophistication in general regarding the benefits of refinancing may also result
in a significant increase in the rate of prepayments on the Mortgage
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Loans. In addition, the success of Norwest Mortgage over time in attracting
borrowers to its retention program who are current in their mortgage payment
obligations may result in a higher proportion of Mortgage Loans not eligible for
such program remaining in the Trust Estate, thereby increasing the relative
percentage of delinquent Mortgage Loans in such Trust Estate.
SERVICING OF THE MORTGAGE LOANS
The following is a summary of certain provisions of the forms of the
Underlying Servicing Agreement and the Pooling and Servicing Agreement that have
been filed as exhibits to the Registration Statement of which this Prospectus
forms a part. 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 and Underlying Servicing Agreements for each
Series of Certificates and the applicable Prospectus Supplement.
THE MASTER SERVICER
The Master Servicer with respect to each Series of Certificates will be
Norwest Bank. See 'Norwest Bank.' The Master Servicer generally will (a) be
responsible under each Pooling and Servicing Agreement for providing general
administrative services for the Trust Estate for any such Series, including,
among other things, (i) for administering and supervising the performance by the
Servicers of their duties and responsibilities under the Underlying Servicing
Agreements, (ii) oversight of payments received on Mortgage Loans, (iii)
monitoring the amounts on deposit in various trust accounts, (iv) calculation of
the amounts payable to Certificateholders on each Distribution Date, (v)
preparation of periodic reports to the Trustee or the Certificateholders with
respect to the foregoing matters, (vi) preparation of federal and applicable
state and local tax and information returns; (vii) preparation of reports, if
any, required under the Securities and Exchange Act of 1934, as amended and
(viii) performing certain of the servicing obligations of a terminated Servicer
as described below under '-- The Servicers'; (b) maintain any mortgage pool
insurance policy, mortgagor bankruptcy bond, special hazard insurance policy or
other form of credit support that may be required with respect to any Series and
(c) make advances of delinquent payments of principal and interest on the
Mortgage Loans to the limited extent described below under '-- Periodic Advances
and Limitations Thereon,' if such amounts are not advanced by a Servicer (other
than Norwest Mortgage). The Master Servicer will also perform additional duties
as described in the applicable Pooling and Servicing Agreement. The Master
Servicer will be entitled to receive a portion of the interest payments on the
Mortgage Loans included in the Trust Estate for such a Series to cover its fees
as Master Servicer. The Master Servicer may subcontract with Norwest Mortgage or
any other entity the obligations of the Master Servicer under any Pooling and
Servicing Agreement. The Master Servicer will remain primarily liable for any
such contractor's performance in accordance with the applicable Pooling and
Servicing Agreement. The Master Servicer may be released from its obligations in
certain circumstances. See 'Certain Matters Regarding the Master Servicer.'
The Master Servicer will generally be required to pay all expenses incurred
in connection with the administration of the Trust Estate, including, without
limitation, fees or other amounts payable pursuant to any applicable agreement
for the provision of credit enhancement for such Series, the fees and
disbursements of the Trustee and any custodian, fees due to the independent
accountants and expenses incurred in connection with distributions and reports
to Certificateholders. Certain of these expenses may be reimbursable to the
Master Servicer pursuant to the terms of the applicable Pooling and Servicing
Agreement.
THE SERVICERS
For each Series, Norwest Mortgage and, if specified in the applicable
Prospectus Supplement, one or more other Servicers will provide certain
customary servicing functions with respect to Mortgage Loans pursuant to
separate Underlying Servicing Agreements with the Seller or an affiliate
thereof. The rights of the Seller or such affiliate under the applicable
Underlying Servicing Agreements in respect of the Mortgage Loans included in the
Trust Estate for any such Series will be assigned (directly or indirectly) to
the Trustee for such Series. The Servicers may be entitled to withhold their
Servicing Fees and certain other fees and charges from remittances of payments
received on Mortgage Loans serviced by them.
Each Servicer generally will be approved by Fannie Mae or Freddie Mac as a
servicer of mortgage loans and must be approved by the Master Servicer. In
determining whether to approve a Servicer, the Master Servicer will
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review the credit of the Servicer, including capitalization ratios, liquidity,
profitability and other similar items that indicate financial ability to perform
its obligations. In addition, the Master Servicer's mortgage servicing personnel
will review the Servicer's servicing record and evaluate the ability of the
Servicer to conform with required servicing procedures. Once a Servicer is
approved, the Master Servicer will continue to monitor on an annual basis the
financial position and servicing performance of the Servicer.
The duties to be performed by each Servicer include collection and
remittance of principal and interest payments on the Mortgage Loans,
administration of mortgage escrow accounts, collection of insurance claims,
foreclosure procedures, and, if necessary, the advance of funds to the extent
certain payments are not made by the mortgagor and have not been determined by
the Servicer to be not recoverable under the applicable insurance policies with
respect to such Series, from proceeds of liquidation of such Mortgage Loans or
otherwise. Each Servicer also will provide such accounting and reporting
services as are necessary to enable the Master Servicer to provide required
information to the Trustee with respect to the Mortgage Loans included in the
Trust Estate for such Series. Each Servicer is entitled to a periodic Servicing
Fee equal to a specified percentage of the outstanding principal balance of each
Mortgage Loan serviced by such Servicer. With the consent of the Master
Servicer, any of the servicing obligations of a Servicer may be delegated to
another person approved by the Master Servicer. In addition, certain limited
duties of a Servicer may be delegated without consent.
The Trustee, or if so provided in the applicable Pooling and Servicing
Agreement, the Master Servicer, may terminate a Servicer who has failed to
comply with its covenants or breached one of its representations contained in
the Underlying Servicing Agreement or in certain other circumstances. Upon
termination of a Servicer by the Master Servicer, the Master Servicer will
assume certain servicing obligations of the terminated Servicer, or, at its
option, may appoint a substitute Servicer acceptable to the Trustee (which
substitute Servicer may be Norwest Mortgage) to assume the servicing obligations
of the terminated Servicer. The Master Servicer's obligations to act as a
servicer following the termination of an Underlying Servicing Agreement will
not, however, require the Master Servicer to (i) purchase a Mortgage Loan from
the Trust Estate due to a breach by such Servicer of a representation or
warranty in respect of such Mortgage Loan or (ii) with respect to a default by
Norwest Mortgage as Servicer, advance payments of principal and interest on a
delinquent Mortgage Loan.
PAYMENTS ON MORTGAGE LOANS
The Master Servicer will, as to each Series of Certificates, establish and
maintain a separate trust account in the name of the Trustee (the 'CERTIFICATE
ACCOUNT'). Such account may be established at Norwest Bank or an affiliate
thereof. Each such account must be maintained with a depository institution
('DEPOSITORY') either (i) whose long-term debt obligations (or, in the case of a
depository institution which is part of a holding company structure, the
long-term debt obligations of such parent holding company) are, at the time of
any deposit therein rated in at least one of the two highest rating categories
by each nationally recognized statistical rating organization that rated the
related Series of Certificates, or (ii) that is otherwise acceptable to the
Rating Agency or Rating Agencies rating the Certificates of such Series and, if
a REMIC election has been made, that would not cause the related Trust Estate
(or one or more segregated pools of assets therein) to fail to qualify as a
REMIC. To the extent that the portion of funds deposited in the Certificate
Account at any time exceeds the limit of insurance coverage established by the
Federal Deposit Insurance Corporation (the 'FDIC'), such excess will be subject
to loss in the event of the failure of the Depository. Such insurance coverage
will be based on the number of holders of Certificates, rather than the number
of underlying mortgagors. Holders of the Subordinated Certificates of a Series
will bear any such loss up to the amount of principal payments on the related
Mortgage Loans to which such holders are entitled.
Pursuant to the applicable Underlying Servicing Agreements with respect to
a Series, each Servicer will be required to establish and maintain one or more
accounts (collectively, the 'SERVICER CUSTODIAL ACCOUNT') into which the
Servicer will be required to deposit on a daily basis amounts received with
respect to Mortgage Loans serviced by such Servicer included in the Trust Estate
for such Series, as more fully described below. Each Servicer Custodial Account
must be a separate custodial account insured to the available limits by the FDIC
and limited to funds held with respect to a particular Series, unless the
Underlying Servicing Agreement specifies that a Servicer may establish an
account which is an eligible account meeting the requirements of the applicable
Rating Agencies (an 'ELIGIBLE CUSTODIAL ACCOUNT') to serve as a unitary Servicer
Custodial Account both for such Series and for other Series of Certificates for
which Norwest Bank is the Master Servicer and having the
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same financial institution acting as Trustee and to be maintained in the name of
such financial institution, in its respective capacities as Trustee for each
such Series.
Each Servicer will be required to deposit in the Certificate Account for
each Series of Certificates on the date the Certificates are issued any amounts
representing scheduled payments of principal and interest on the Mortgage Loans
serviced by such Servicer due after the applicable Cut-Off Date but received on
or prior thereto, and except as specified in the applicable Pooling and
Servicing Agreement or Underlying Servicing Agreement, will deposit in the
Servicer Custodial Account on receipt and, thereafter, not later than the 24th
calendar day of each month or such earlier day as may be specified in the
Underlying Servicing Agreement (the 'REMITTANCE DATE'), will remit to the Master
Servicer for deposit in the Certificate Account, the following payments and
collections received or made by such Servicer with respect to the Mortgage Loans
serviced by such Servicer subsequent to the applicable Cut-Off Date (other than
(a) payments due on or before the Cut-Off Date, (b) amounts held for future
distribution, (c) amounts representing certain expenses reimbursable to the
Servicer, (d) amounts representing reimbursements for Periodic Advances made by
the Servicer, (e) amounts representing additional servicing compensation and (f)
any other amounts permitted to be retained by the Servicer pursuant to the
applicable Underlying Servicing Agreement):
(i) all payments on account of principal, including prepayments, and
interest;
(ii) all amounts received by the Servicer in connection with the
liquidation of defaulted Mortgage Loans or property acquired in respect
thereof, whether through foreclosure sale or otherwise, including payments
in connection with defaulted Mortgage Loans received from the mortgagor
other than amounts required to be paid to the mortgagor pursuant to the
terms of the applicable Mortgage Loan or otherwise pursuant to law
('LIQUIDATION PROCEEDS') less, to the extent permitted under the applicable
Underlying Servicing Agreement, the amount of any expenses incurred in
connection with the liquidation of such Mortgage Loans;
(iii) all proceeds received by the Servicer under any title, hazard or
other insurance policy covering any such Mortgage Loan, other than proceeds
to be applied to the restoration or repair of the property subject to the
related Mortgage or released to the mortgagor in accordance with the
Underlying Servicing Agreement;
(iv) all Periodic Advances made by the Servicer;
(v) all amounts withdrawn from Buy-Down Funds or Subsidy Funds, if
any, with respect to such Mortgage Loans, in accordance with the terms of
the respective agreements applicable thereto;
(vi) all proceeds of any such Mortgage Loans or property acquired in
respect thereof purchased or repurchased pursuant to the Pooling and
Servicing Agreement or the Underlying Servicing Agreement; and
(vii) all other amounts required to be deposited therein pursuant to
the applicable Pooling and Servicing Agreement or the Underlying Servicing
Agreement.
Notwithstanding the foregoing, if at any time the sums in (x) any Servicer
Custodial Account, other than any Eligible Custodial Account, exceed $100,000 or
(y) any such Servicer Custodial Account, in certain circumstances, exceed such
amount less than $100,000 as shall have been specified by the Master Servicer,
the Servicer will be required within one business day to withdraw such excess
funds from such account and remit such amounts to the Certificate Account.
Notwithstanding the foregoing, each Servicer will be entitled, at its election,
either (a) to withhold and pay itself the applicable Servicing Fee from any
payment or other recovery on account of interest as received and prior to
deposit in the Servicer Custodial Account or (b) to withdraw from the Servicer
Custodial Account the applicable Servicing Fee after the entire payment or
recovery has been deposited in such account.
The Master Servicer or Trustee will deposit in the Certificate Account any
Periodic Advances made by the Master Servicer or Trustee in the event of a
Servicer default not later than the Distribution Date on which such amounts are
required to be distributed. All other amounts will be deposited in the
Certificate Account not later than the business day next following the day of
receipt and posting by the Master Servicer. On or before each Distribution Date,
the Master Servicer will withdraw from the Certificate Account and remit to the
Trustee for distribution to Certificateholders all amounts allocable to the Pool
Distribution Amount for such Distribution Date.
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If a Servicer, the Master Servicer or the Trustee deposits in the
Certificate Account for a Series any amount not required to be deposited
therein, the Master Servicer may at any time withdraw such amount from such
account for itself or for remittance to such Servicer or the Trustee, as
applicable. Funds on deposit in the Certificate Account may be invested in
certain investments acceptable to the Rating Agencies ('ELIGIBLE INVESTMENTS')
maturing in general not later than the business day preceding the next
Distribution Date, including the following:
(i) obligations of the United States of America or any agency thereof,
provided such obligations are backed by the full faith and credit of the
United States of America;
(ii) general obligations of or obligations guaranteed by any state of
the United States of America or the District of Columbia receiving the
highest short-term or highest long-term rating of each Rating Agency, or
such lower rating as would not result in the downgrading or withdrawal of
the rating then assigned to any of the Certificates by any Rating Agency or
result in any of such rated Certificates being placed on credit review
status (other than for possible upgrading) by any Rating Agency;
(iii) commercial or finance company paper which is then rated in the
highest long-term commercial or finance company paper rating category of
each Rating Agency or the highest short-term rating category of each Rating
Agency, or such lower rating category as would not result in the
downgrading or withdrawal of the rating then assigned to any of the
Certificates by either Rating Agency or result in any of such rated
Certificates being placed on credit review status (other than for possible
upgrading) by any Rating Agency;
(iv) certificates of deposit, demand or time deposits, federal funds
or banker's acceptances issued by any depository institution or trust
company incorporated under the laws of the United States or of any state
thereof and subject to supervision and examination by federal and/or state
banking authorities, provided that the commercial paper and/or debt
obligations of such depository institution or trust company (or in the case
of the principal depository institution in a holding company system, the
commercial paper or debt obligations of such holding company) are then
rated in the highest short-term or the highest long-term rating category
for such securities of each of the Rating Agencies, or such lower rating
categories as would not result in the downgrading or withdrawal of the
rating then assigned to any of the Certificates by any Rating Agency or
result in any of such rated Certificates being placed on credit review
status (other than for possible upgrading) by any Rating Agency;
(v) guaranteed reinvestment agreements issued by any bank, insurance
company or other corporation acceptable to each Rating Agency at the time
of the issuance of such agreements;
(vi) repurchase agreements on obligations with respect to any security
described in clauses (i) or (ii) above or any other security issued or
guaranteed by an agency or instrumentality of the United States of America,
in either case entered into with a depository institution or trust company
(acting as principal) described in (iv) above;
(vii) securities (other than stripped bonds or stripped coupon
securities) bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States of America or
any state thereof which, at the time of such investment or contractual
commitment providing for such investment, are then rated in the highest
short-term or the highest long-term rating category by each Rating Agency,
or in such lower rating category as would not result in the downgrading or
withdrawal of the rating then assigned to any of the Certificates by any
Rating Agency or result in any of such rated Certificates being placed on
credit review status (other than for possible upgrading) by any Rating
Agency; and
(viii) such other investments acceptable to each Rating Agency as
would not result in the downgrading of the rating then assigned to the
Certificates by any Rating Agency or result in any of such rated
Certificates being placed on credit review status (other than for possible
upgrading) by any Rating Agency.
In the event that an election has been made to treat the Trust Estate (or one or
more segregated pools of assets therein) with respect to a Series as a REMIC, no
such Eligible Investments will be sold or disposed of at a gain prior to
maturity unless the Master Servicer has received an opinion of counsel or other
evidence satisfactory to it that such sale or disposition will not cause the
Trust Estate (or segregated pool of assets) to be subject to the tax on
'prohibited transactions' imposed by Code Section 860F(a)(1), otherwise subject
the Trust Estate (or
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segregated pool of assets) to tax, or cause the Trust Estate (or any segregated
pool of assets) to fail to qualify as a REMIC while any Certificates of the
Series are outstanding. Except as otherwise specified in the applicable
Prospectus Supplement, all income and gain realized from any such investment
will be for the account of the Master Servicer as additional compensation and
all losses from any such investment will be deposited by the Master Servicer out
of its own funds to the Certificate Account immediately as realized.
The Master Servicer is permitted, from time to time, to make withdrawals
from the Certificate Account for the following purposes, to the extent permitted
in the applicable Pooling and Servicing Agreement (and, in the case of Servicer
reimbursements by the Master Servicer, only to the extent funds in the
respective Servicer Custodial Account are not sufficient therefor):
(i) to reimburse the Master Servicer, the Trustee or any Servicer for
Advances;
(ii) to reimburse any Servicer for liquidation expenses and for
amounts expended by itself or any Servicer, as applicable, in connection
with the restoration of damaged property;
(iii) to pay to itself the applicable Master Servicing Fee and any
other amounts constituting additional master servicing compensation, to pay
the Trustee the applicable Trustee Fee, to pay any other fees described in
the applicable Prospectus Supplement; and to pay to the owner thereof any
Fixed Retained Yield;
(iv) to reimburse itself or any Servicer for certain expenses
(including taxes paid on behalf of the Trust Estate) incurred by and
recoverable by or reimbursable to itself or the Servicer, as applicable;
(v) to pay to the Seller, a Servicer or itself with respect to each
Mortgage Loan or property acquired in respect thereof that has been
repurchased by the Seller or purchased by a Servicer or the Master Servicer
all amounts received thereon and not distributed as of the date as of which
the purchase price of such Mortgage Loan was determined;
(vi) to pay to itself any interest earned on or investment income
earned with respect to funds in the Certificate Account (all such interest
or income to be withdrawn not later than the next Distribution Date);
(vii) to pay to itself, the Servicer and the Trustee from net
Liquidation Proceeds allocable to interest, the amount of any unpaid Master
Servicing Fee, Servicing Fees or Trustee Fees and any unpaid assumption
fees, late payment charges or other mortgagor charges on the related
Mortgage Loan;
(viii) to withdraw from the Certificate Account any amount deposited
in such account that was not required to be deposited therein; and
(ix) to clear and terminate the Certificate Account.
The Master Servicer will be authorized to appoint a paying agent (the
'PAYING AGENT') to make distributions, as agent for the Master Servicer, to
Certificateholders of a Series. If the Paying Agent for a Series is the Trustee
of such Series, such Paying Agent will be authorized to make withdrawals from
the Certificate Account in order to make distributions to Certificateholders. If
the Paying Agent for a Series is not the Trustee for such Series, the Master
Servicer will, on each Distribution Date, deposit in immediately available funds
in an account designated by any such Paying Agent the amount required to be
distributed to the Certificateholders on such Distribution Date.
The Master Servicer will cause any Paying Agent that is not the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
agrees with the Trustee that such Paying Agent will:
(1) hold all amounts deposited with it by the Master Servicer for
distribution to Certificateholders in trust for the benefit of
Certificateholders until such amounts are distributed to Certificateholders
or otherwise disposed of as provided in the applicable Pooling and
Servicing Agreement;
(2) give the Trustee notice of any default by the Master Servicer in
the making of such deposit; and
(3) at any time during the continuance of any such default, upon
written request to the Trustee, forthwith pay to the Trustee all amounts
held in trust by such Paying Agent.
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PERIODIC ADVANCES AND LIMITATIONS THEREON
Generally each Servicer will be required to make (i) Periodic Advances to
cover delinquent payments of principal and interest on such Mortgage Loan and
(ii) other advances of cash ('OTHER ADVANCES' and, collectively with Periodic
Advances, 'ADVANCES') to cover (x) delinquent payments of taxes, insurance
premiums, and other escrowed items and (y) rehabilitation expenses and
foreclosure costs, including reasonable attorneys' fees, in either case unless
such Servicer has determined that any subsequent payments on that Mortgage Loan
or from the borrower will ultimately not be available to reimburse such Servicer
for such amounts. The failure of the Servicer to make any required Periodic
Advances or Other Advances under an Underlying Servicing Agreement constitutes a
default under such agreement for which the Servicer will be terminated. Upon
default by a Servicer, other than Norwest Mortgage, the Master Servicer may, and
upon default by Norwest Mortgage the Trustee may, in each case if so provided in
the Pooling and Servicing Agreement, be required to make Periodic Advances to
the extent necessary to make required distributions on certain Certificates or
certain Other Advances, provided that the Master Servicer or Trustee, as
applicable, determines that funds will ultimately be available to reimburse it.
In addition, if under the terms of an Underlying Servicing Agreement, the
applicable Servicer is not obligated to make Periodic Advances while a Mortgage
Loan is in liquidation, the Master Servicer, to the extent provided in the
Pooling and Servicing Agreement, may be required to make the Periodic Advances
during the period the Servicer is not required to do so. In the case of
Certificates of any Series for which credit enhancement is provided in the form
of a mortgage pool insurance policy, the Seller may obtain an endorsement to the
mortgage pool insurance policy which obligates the Pool Insurer to advance
delinquent payments of principal and interest. The Pool Insurer would only be
obligated under such endorsement to the extent the mortgagor fails to make such
payment and the Master Servicer or Trustee fails to make a required advance.
The advance obligation of the Master Servicer and Trustee may be further
limited to an amount specified by the Rating Agency rating the Certificates. Any
such Periodic Advances by the Servicers or the Master Servicer or Trustee, as
the case may be, must be deposited into the applicable Servicer Custodial
Account or the Certificate Account and will be due no later than the business
day before the Distribution Date to which such delinquent payment relates.
Advances by the Servicers or the Master Servicer or Trustee, as the case may be,
will be reimbursable out of insurance proceeds or Liquidation Proceeds of, or,
except for Other Advances, future payments on, the Mortgage Loans for which such
amounts were advanced. If an Advance made by a Servicer, the Master Servicer or
the Trustee later proves, or is deemed by the Master Servicer or the Trustee, to
be unrecoverable, such Servicer, the Master Servicer or the Trustee, as the case
may be, will be entitled to reimbursement from funds in the Certificate Account
prior to the distribution of payments to the Certificateholders to the extent
provided in the Pooling and Servicing Agreement.
Any Periodic Advances made by a Servicer, the Master Servicer or the
Trustee with respect to Mortgage Loans included in the Trust Estate for any
Series are intended to enable the Trustee to make timely payment of the
scheduled distributions of principal and interest on the Certificates of such
Series. However, neither the Master Servicer, the Trustee, any Servicer nor any
other person will, except as otherwise specified in the applicable Prospectus
Supplement, insure or guarantee the Certificates of any Series or the Mortgage
Loans included in the Trust Estate for any Certificates.
COLLECTION AND OTHER SERVICING PROCEDURES
Each Servicer will be required by the related Underlying Servicing
Agreement to make reasonable efforts to collect all payments called for under
the Mortgage Loans and, consistent with the applicable Underlying Servicing
Agreement and any applicable agreement governing any form of credit enhancement,
to follow such collection procedures as it follows with respect to mortgage
loans serviced by it that are comparable to the Mortgage Loans. Consistent with
the above, the Servicer may, in its discretion, (i) waive any prepayment charge,
assumption fee, late payment charge or any other charge in connection with the
prepayment of a Mortgage Loan and (ii) arrange with a mortgagor a schedule for
the liquidation of deficiencies running for not more than 180 days (or such
longer period to which the Master Servicer and any applicable Pool Insurer or
primary mortgage insurer have consented) after the applicable Due Date.
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Under each Underlying Servicing Agreement, each Servicer, to the extent
permitted by law, will establish and maintain one or more escrow accounts (each
such account, a 'SERVICING ACCOUNT') in which each such Servicer will be
required to deposit any payments made by mortgagors in advance for taxes,
assessments, primary mortgage (if applicable) and hazard insurance premiums and
other similar items. Withdrawals from the Servicing Account may be made to
effect timely payment of taxes, assessments, mortgage and hazard insurance, to
refund to mortgagors amounts determined to be overages, to pay interest to
mortgagors on balances in the Servicing Account, if required, and to clear and
terminate such account. Each Servicer will be responsible for the administration
of its Servicing Account. A Servicer will be obligated to advance certain
amounts which are not timely paid by the mortgagors, to the extent that it
determines, in good faith, that they will be recoverable out of insurance
proceeds, liquidation proceeds, or otherwise. Alternatively, in lieu of
establishing a Servicing Account, a Servicer may procure a performance bond or
other form of insurance coverage, in an amount acceptable to the Master Servicer
and each Rating Agency rating the related Series of Certificates, covering loss
occasioned by the failure to escrow such amounts.
ENFORCEMENT OF DUE-ON-SALE CLAUSES; REALIZATION UPON DEFAULTED MORTGAGE LOANS
With respect to each Mortgage Loan having a fixed interest rate, the
applicable Underlying Servicing Agreement will generally provide that, when any
Mortgaged Property is about to be conveyed by the mortgagor, the Servicer will,
to the extent it has knowledge of such prospective conveyance, exercise its
rights to accelerate the maturity of such Mortgage Loan under the 'due-on-sale'
clause applicable thereto, if any, unless it is not exercisable under applicable
law or if such exercise would result in loss of insurance coverage with respect
to such Mortgage Loan or would, in the Servicer's judgment, be reasonably likely
to result in litigation by the mortgagor and such Servicer has not obtained the
Master Servicer's consent to such exercise. In either case, the Servicer is
authorized to take or enter into an assumption and modification agreement from
or with the person to whom such Mortgaged Property has been or is about to be
conveyed, pursuant to which such person becomes liable under the Mortgage Note
and, unless prohibited by applicable state law, the mortgagor remains liable
thereon, provided that the Mortgage Loan will continue to be covered by any pool
insurance policy and any related primary mortgage insurance policy and the
Mortgage Interest Rate with respect to such Mortgage Loan and the payment terms
shall remain unchanged. The Servicer will also be authorized, with the prior
approval of the pool insurer and the primary mortgage insurer, if any, to enter
into a substitution of liability agreement with such person, pursuant to which
the original mortgagor is released from liability and such person is substituted
as mortgagor and becomes liable under the Mortgage Note.
Each Underlying Servicing Agreement and Pooling and Servicing Agreement
with respect to a Series will require the Servicer or the Master Servicer, as
the case may be, to present claims to the insurer under any insurance policy
applicable to the Mortgage Loans included in the Trust Estate for such Series
and to take such reasonable steps as are necessary to permit recovery under such
insurance policies with respect to defaulted Mortgage Loans, or losses on the
Mortgaged Property securing the Mortgage Loans.
Each Servicer is obligated under the applicable Underlying Servicing
Agreement for each Series to realize upon defaulted Mortgage Loans in accordance
with its normal servicing practices, which will conform generally to those of
prudent mortgage lending institutions which service mortgage loans of the same
type in the same jurisdictions. Notwithstanding the foregoing, the Servicer is
authorized under the applicable Underlying Servicing Agreement to permit the
assumption of a defaulted Mortgage Loan rather than to foreclose or accept a
deed-in-lieu of foreclosure if, in the Servicer's judgment, the default is
unlikely to be cured and the assuming borrower meets Norwest Mortgage's
applicable underwriting guidelines. In connection with any such assumption, the
Mortgage Interest Rate and the payment terms of the related Mortgage Note will
not be changed. Each Servicer may also, with the consent of the Master Servicer,
modify the payment terms of Mortgage Loans that are in default, or as to which
default is reasonably foreseeable, that remain in the Trust Estate rather than
foreclose on such Mortgage Loans; provided that no such modification shall
forgive principal owing under such Mortgage Loan or permanently reduce the
interest rate on such Mortgage Loan. Any such modification will be made only
upon the determination by the Servicer and the Master Servicer that such
modification is likely to increase the proceeds of such Mortgage Loan over the
amount expected to be collected pursuant to foreclosure. See also 'The Pooling
and Servicing Agreement -- Optional Purchases,' above, with respect to the
Seller's right to repurchase Mortgage Loans that are in default, or as to which
default is reasonably foreseeable. Further, a
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Servicer may encourage the refinancing of such defaulted Mortgage Loans,
including Mortgage Loans that would permit creditworthy borrowers to assume the
outstanding indebtedness. In connection with the decision of the Servicer
regarding the foreclosure or assumption of a Mortgage Loan, the modification of
the related Mortgage Note or any other action to be taken with respect to a
defaulted Mortgage Loan, the Servicer is expressly permitted by the Underlying
Servicing Agreement to take into account the interests of the borrower.
In the case of foreclosure or of damage to a Mortgaged Property from an
uninsured cause, the Servicer will not be required to expend its own funds to
foreclose or restore any damaged property, unless it reasonably determines (i)
that such foreclosure or restoration will increase the proceeds to
Certificateholders of such Series of liquidation of the Mortgage Loan after
reimbursement to the related Servicer for its expenses and (ii) that such
expenses will be recoverable to it through Liquidation Proceeds or any
applicable insurance policy in respect of such Mortgage Loan. In the event that
Servicer has expended its own funds for foreclosure or to restore damaged
property, it will be entitled to be reimbursed from the Certificate Account for
such Series an amount equal to all costs and expenses incurred by it.
Norwest Mortgage will not be obligated to, and any other Servicer will not
(except with the express written approval of the Master Servicer), foreclose on
any Mortgaged Property which it believes may be contaminated with or affected by
hazardous wastes or hazardous substances. See 'Certain Legal Aspects of the
Mortgage Loans -- Environmental Considerations.' If a Servicer does not
foreclose on a Mortgaged Property, the Certificateholders of the related Series
may experience a loss on the related Mortgage Loan. A Servicer will not be
liable to the Certificateholders if it fails to foreclose on a Mortgaged
Property which it believes may be so contaminated or affected, even if such
Mortgaged Property is, in fact, not so contaminated or affected. Conversely, a
Servicer will not be liable to the Certificateholders if, based on its belief
that no such contamination or effect exists, the Servicer forecloses on a
Mortgaged Property and takes title to such Mortgaged Property, and thereafter
such Mortgaged Property is determined to be so contaminated or affected.
The Servicer may foreclose against property securing a defaulted Mortgage
Loan either by foreclosure, by sale or by strict foreclosure and in the event a
deficiency judgment is available against the mortgagor or other person (see
'Certain Legal Aspects of the Mortgage Loans -- Anti-Deficiency Legislation and
Other Limitations on Lenders' for a discussion of the availability of deficiency
judgments), may proceed for the deficiency. It is anticipated that in most cases
the Servicer will not seek deficiency judgments, and will not be required under
the applicable Underlying Servicing Agreement to seek deficiency judgments. In
lieu of foreclosure, each Servicer may arrange for the sale by the borrower of
the Mortgaged Property related to a defaulted Mortgage Loan to a third party,
rather than foreclosing upon and selling such Mortgaged Property.
With respect to a Trust Estate (or any segregated pool of assets therein)
as to which a REMIC election has been made, if the Trustee acquires ownership of
any Mortgaged Property as a result of a default or reasonably foreseeable
default of any Mortgage Loan secured by such Mortgaged Property, the Trustee or
Master Servicer will be required to dispose of such property prior to the close
of the third calendar year following the year the Trust Estate acquired such
property (or such shorter period as provided in the applicable Underlying
Servicing Agreement) unless the Trustee (a) receives an opinion of counsel to
the effect that the holding of the Mortgaged Property by the Trust Estate will
not cause the Trust Estate to be subject to the tax on 'prohibited transactions'
imposed by Code Section 860F(a)(1) or cause the Trust Estate (or any segregated
pool of assets therein as to which one or more REMIC elections have been made or
will be made) to fail to qualify as a REMIC or (b) applies for and is granted an
extension of the applicable period in the manner contemplated by Code Section
856(e)(3). The Servicer also will be required to administer the Mortgaged
Property in a manner which does not cause the Mortgaged Property to fail to
qualify as 'foreclosure property' within the meaning of Code Section 860G(a)(8)
or result in the receipt by the Trust Estate of any 'net income from foreclosure
property' within the meaning of Code Section 860G(c)(2), respectively. In
general, this would preclude the holding of the Mortgaged Property by a party
acting as a dealer in such property or the receipt of rental income based on the
profits of the lessee of such property. See 'Material Federal Income Tax
Consequences.'
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INSURANCE POLICIES
Each Underlying Servicing Agreement will require the related Servicer to
cause to be maintained for each Mortgage Loan a standard hazard insurance policy
issued by a generally acceptable insurer insuring the improvements on the
Mortgaged Property underlying such Mortgage Loan against loss by fire, with
extended coverage (a 'STANDARD HAZARD INSURANCE POLICY'). The Underlying
Servicing Agreements will require that such Standard Hazard Insurance Policy be
in an amount at least equal to the lesser of 100% of the insurable value of the
improvements on the Mortgaged Property or the principal balance of such Mortgage
Loan; provided, however, that such insurance may not be less than the minimum
amount required to fully compensate for any damage or loss on a replacement cost
basis. Each Servicer will also maintain on property acquired upon foreclosure,
or deed in lieu of foreclosure, of any Mortgage Loan, a Standard Hazard
Insurance Policy in an amount that is at least equal to the lesser of 100% of
the insurable value of the improvements which are a part of such property or the
principal balance of such Mortgage Loan plus accrued interest and liquidation
expenses; provided, however, that such insurance may not be less than the
minimum amount required to fully compensate for any damage or loss on a
replacement cost basis. Any amounts collected under any such policies (other
than amounts to be applied to the restoration or repair of the Mortgaged
Property or released to the borrower in accordance with normal servicing
procedures) will be deposited in the Servicer Custodial Account for remittance
to the Certificate Account by a Servicer.
The Standard Hazard Insurance Policies covering the Mortgage Loans
generally will cover physical damage to, or destruction of, the improvements on
the Mortgaged Property caused by fire, lightning, explosion, smoke, windstorm,
hail, riot, strike and civil commotion, subject to the conditions and exclusions
particularized in each policy. Because the Standard Hazard Insurance Policies
relating to such Mortgage Loans will be underwritten by different insurers and
will cover Mortgaged Properties located in various states, such policies will
not contain identical terms and conditions. The most significant terms thereof,
however, generally will be determined by state law and generally will be
similar. Most such policies typically will not cover any physical damage
resulting from the following: war, revolution, governmental actions, floods and
other water-related causes, earth movement (including earthquakes, landslides
and mudflows), nuclear reaction, wet or dry rot, vermin, rodents, insects or
domestic animals, hazardous wastes or hazardous substances, theft and, in
certain cases, vandalism. The foregoing list is merely indicative of certain
kinds of uninsured risks and is not all-inclusive.
In general, if the improvements on a Mortgaged Property are located in an
area identified in the Federal Register by the Federal Emergency Management
Agency as having special flood hazards (and such flood insurance has been made
available) each Underlying Servicing Agreement will require the related Servicer
to cause to be maintained a flood insurance policy meeting the requirements of
the current guidelines of the Federal Insurance Administration with a generally
acceptable insurance carrier. Generally, the Underlying Servicing Agreement will
require that such flood insurance be in an amount not less than the least of (i)
the outstanding principal balance of the Mortgage Loan, (ii) the full insurable
value of the improvements, or (iii) the maximum amount of insurance which is
available under the Flood Disaster Protection Act of 1973, as amended. Norwest
Mortgage does not provide financing for flood zone properties located in
communities not participating in the National Flood Insurance Program or if
available insurance coverage is, in its judgment, unrealistically low.
Each Servicer may maintain a blanket policy insuring against hazard losses
on all of the Mortgaged Properties in lieu of maintaining the required Standard
Hazard Insurance Policies and may maintain a blanket policy insuring against
special hazards in lieu of maintaining any required flood insurance. Each
Servicer will be liable for the amount of any deductible under a blanket policy
if such amount would have been covered by a required Standard Hazard Insurance
Policy or flood insurance, had it been maintained.
Any losses incurred with respect to Mortgage Loans due to uninsured risks
(including earthquakes, mudflows, floods and hazardous wastes or hazardous
substances) or insufficient hazard insurance proceeds will adversely affect
distributions to the Certificateholders.
FIXED RETAINED YIELD, SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Fixed Retained Yield with respect to any Mortgage Loan is that portion, if
any, of interest at the Mortgage Interest Rate that is not included in the
related Trust Estate. The Prospectus Supplement for a Series will specify
whether there is any Fixed Retained Yield with respect to the Mortgage Loans of
such Series. If so, the Fixed
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Retained Yield will be established on a loan-by-loan basis and will be specified
in the schedule of Mortgage Loans attached as an exhibit to the applicable
Pooling and Servicing Agreement. Norwest Mortgage as Servicer may deduct the
Fixed Retained Yield from mortgagor payments as received or deposit such
payments in the Servicer Custodial Account or Certificate Account for such
Series and then either withdraw the Fixed Retained Yield from the Servicer
Custodial Account or Certificate Account or request the Master Servicer to
withdraw the Fixed Retained Yield from the Certificate Account for remittance to
Norwest Mortgage. In the case of any Fixed Retained Yield with respect to
Mortgage Loans serviced by a Servicer other than Norwest Mortgage, the Master
Servicer will make withdrawals from the Certificate Account for the purpose of
remittances to Norwest Mortgage as owner of the Fixed Retained Yield.
Notwithstanding the foregoing, with respect to any payment of interest received
by Norwest Mortgage as Servicer relating to a Mortgage Loan (whether paid by the
mortgagor or received as Liquidation Proceeds, insurance proceeds or otherwise)
which is less than the full amount of interest then due with respect to such
Mortgage Loan, the owner of the Fixed Retained Yield with respect to such
Mortgage Loan will bear a ratable share of such interest shortfall.
For each Series of Certificates, each Servicer will be entitled to be paid
the Servicing Fee on the related Mortgage Loans serviced by such Servicer until
termination of the applicable Underlying Servicing Agreement. A Servicer, at its
election, will pay itself the Servicing Fee for a Series with respect to each
Mortgage Loan by (a) withholding the Servicing Fee from any scheduled payment of
interest prior to deposit of such payment in the Servicer Custodial Account for
such Series or (b) withdrawing the Servicing Fee from the Servicer Custodial
Account after the entire interest payment has been deposited in such account. A
Servicer may also pay itself out of the Liquidation Proceeds of a Mortgage Loan
or other recoveries with respect thereto, or withdraw from the Servicer
Custodial Account or request the Master Servicer to withdraw from the
Certificate Account for remittance to the Servicer such amounts after the
deposit thereof in such accounts, or if such Liquidation Proceeds or other
recoveries are insufficient, from Net Foreclosure Profits with respect to the
related Distribution Date the Servicing Fee in respect of such Mortgage Loan to
the extent provided in the applicable Pooling and Servicing Agreement. The
Servicing Fee or the range of Servicing Fees with respect to the Mortgage Loans
underlying the Certificates of a Series will be specified in the applicable
Prospectus Supplement. Additional servicing compensation in the form of
prepayment charges, assumption fees, late payment charges or otherwise will be
retained by the Servicers.
Each Servicer will pay all expenses incurred in connection with the
servicing of the Mortgage Loans serviced by such Servicer underlying a Series,
including, without limitation, payment of the hazard insurance policy premiums.
The Servicer will be entitled, in certain circumstances, to reimbursement from
the Certificate Account of Periodic Advances, of Other Advances made by it to
pay taxes, insurance premiums and similar items with respect to any Mortgaged
Property or for expenditures incurred by it in connection with the restoration,
foreclosure or liquidation of any Mortgaged Property (to the extent of
Liquidation Proceeds or insurance policy proceeds in respect of such Mortgaged
Property) and of certain losses against which it is indemnified by the Trust
Estate.
As set forth in the preceding paragraph, a Servicer may be entitled to
reimbursement for certain expenses incurred by it, and payment of additional
fees for certain extraordinary services rendered by it (provided that such fees
do not exceed those which would be charged by third parties for similar
services) in connection with the liquidation of defaulted Mortgage Loans and
related Mortgaged Properties. In the event that claims are either not made or
are not fully paid from any applicable form of credit enhancement, the related
Trust Estate will suffer a loss to the extent that Liquidation Proceeds, after
reimbursement of the Servicing Fee and the expenses of the Servicer, are less
than the principal balance of the related Mortgage Loan.
EVIDENCE AS TO COMPLIANCE
Each Servicer will deliver annually to the Trustee or Master Servicer, as
applicable, on or before the date specified in the applicable Underlying
Servicing Agreement, an Officer's Certificate stating that (i) a review of the
activities of such Servicer during the preceding calendar year and of
performance under the applicable Underlying Servicing Agreement has been made
under the supervision of such officer, and (ii) to the best of such officer's
knowledge, based on such review, such Servicer has fulfilled all its obligations
under the applicable Underlying Servicing Agreement throughout such year, or, if
there has been a default in the fulfillment of any such obligation, specifying
each such default known to such officer and the nature and status thereof. Such
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Officer's Certificate shall be accompanied by a statement of a firm of
independent public accountants to the effect that, on the basis of an
examination of certain documents and records relating to a random sample of the
mortgage loans being serviced by such Servicer pursuant to such Underlying
Servicing Agreement and/or other similar agreements, conducted substantially in
compliance with the Uniform Single Audit Program for Mortgage Bankers, the
servicing of such mortgage loans was conducted in compliance with the provisions
of the applicable Underlying Servicing Agreement and other similar agreements,
except for (i) such exceptions as such firm believes to be immaterial and (ii)
such other exceptions as are set forth in such statement.
The Master Servicer will deliver annually to the Trustee, on or before the
date specified in the applicable Pooling and Servicing Agreement, an Officer's
Certificate stating that such officer has received, with respect to each
Servicer, the Officer's Certificate and accountant's statement described in the
preceding paragraph, and, that on the basis of such officer's review of such
information, each Servicer has fulfilled all its obligations under the
applicable Underlying Servicing Agreement throughout such year, or, if there has
been a default in the fulfillment of any such obligation, specifying each such
default known to such officer and the nature and status thereof.
CERTAIN MATTERS REGARDING THE MASTER SERVICER
The Master Servicer may not resign from its obligations and duties under
the Pooling and Servicing Agreement for each Series without the consent of the
Trustee, except upon its determination that its duties thereunder are no longer
permissible under applicable law or are in material conflict by reason of
applicable law with any other activities of a type and nature carried on by it.
No such resignation will become effective until the Trustee for such Series or a
successor master servicer has assumed the Master Servicer's obligations and
duties under the Pooling and Servicing Agreement. If the Master Servicer resigns
for any of the foregoing reasons and the Trustee is unable or unwilling to
assume responsibility for its duties under the Pooling and Servicing Agreement,
it may appoint another institution to so act as described under 'The Pooling and
Servicing Agreement -- Rights Upon Event of Default' below.
The Pooling and Servicing Agreement will also provide that neither the
Master Servicer nor any subcontractor, nor any partner, director, officer,
employee or agent of any of them, will be under any liability to the Trust
Estate or the Certificateholders, for the taking of any action or for refraining
from the taking of any action in good faith pursuant to the Pooling and
Servicing Agreement, or for errors in judgment; provided, however, that neither
the Master Servicer, any subcontractor, nor any such person will be protected
against any liability that would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence in the performance of his or its
duties or by reason of reckless disregard of his or its obligations and duties
thereunder. The Pooling and Servicing Agreement will further provide that the
Master Servicer, any subcontractor, and any partner, director, officer, employee
or agent of either of them shall be entitled to indemnification by the Trust
Estate and will be held harmless against any loss, liability or expense incurred
in connection with any legal action relating to the Pooling and Servicing
Agreement or the Certificates, other than any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or gross negligence in the
performance of his or its duties thereunder or by reason of reckless disregard
of his or its obligations and duties thereunder. In addition, the Pooling and
Servicing Agreement will provide that the Master Servicer will not be under any
obligation to appear in, prosecute or defend any legal action that is not
incidental to its duties under the Pooling and Servicing Agreement and that in
its opinion may involve it in any expense or liability. The Master Servicer may,
however, in its discretion, undertake any such action deemed by it necessary or
desirable with respect to the Pooling and Servicing Agreement and the rights and
duties of the parties thereto and the interests of the Certificateholders
thereunder. In such event, the legal expenses and costs of such action and any
liability resulting therefrom will be expenses, costs and liabilities of the
Trust Estate and the Master Servicer will be entitled to be reimbursed therefor
out of the Certificate Account, and any loss to the Trust Estate arising from
such right of reimbursement will be allocated first to the Subordinated
Certificate of a Series before being allocated to the related Senior
Certificates, or if such Series does not contain Subordinated Certificates, pro
rata among the various Classes of Certificates unless otherwise specified in the
applicable Pooling and Servicing Agreement.
Any person into which the Master Servicer may be merged or consolidated, or
any person resulting from any merger, conversion or consolidation to which the
Master Servicer is a party, or any person succeeding to the business through the
transfer of substantially all of its assets or all assets relating to such
business, or otherwise,
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of the Master Servicer will be the successor of the Master Servicer under the
Pooling and Servicing Agreement for each Series provided that such successor or
resulting entity has a net worth of not less than $15,000,000 and is qualified
to service mortgage loans for Fannie Mae or Freddie Mac.
The Master Servicer also has the right to assign its rights and delegate
its duties and obligations under the Pooling and Servicing Agreement for each
Series; provided that, if the Master Servicer desires to be released from its
obligations under the Pooling and Servicing Agreement, (i) the purchaser or
transferee accepting such assignment or delegation is qualified to service
mortgage loans for Fannie Mae or Freddie Mac, (ii) the purchaser is satisfactory
to the Trustee for such Series, in the reasonable exercise of its judgment, and
executes and delivers to the Trustee an agreement, in form and substance
reasonably satisfactory to the Trustee, which contains an assumption by such
purchaser or transferee of the due and punctual performance and observance of
each covenant and condition to be performed or observed by the Master Servicer
under the Pooling and Servicing Agreement from and after the date of such
agreement; and (iii) each applicable Rating Agency's rating of any Certificates
for such Series in effect immediately prior to such assignment, sale or transfer
would not be qualified, downgraded or withdrawn as a result of such assignment,
sale or transfer and the Certificates would not be placed on credit review
status by any such Rating Agency. The Master Servicer will be released from its
obligations under the Pooling and Servicing Agreement upon any such assignment
and delegation, except that the Master Servicer will remain liable for all
liabilities and obligations incurred by it prior to the time that the conditions
contained in clauses (i), (ii) and (iii) above are met.
THE POOLING AND SERVICING AGREEMENT
ASSIGNMENT OF MORTGAGE LOANS TO THE TRUSTEE
The Seller will have acquired the Mortgage Loans included in each Trust
Estate from Norwest Mortgage pursuant to an agreement (the 'NORWEST MORTGAGE
SALE AGREEMENT'). In connection with the conveyance of the Mortgage Loans to the
Seller, Norwest Mortgage will (i) agree to deliver to the Seller all of the
documents which the Seller is required to deliver to the Trustee; (ii) make
certain representations and warranties to the Seller which will be the basis of
certain of the Seller's representations and warranties to the Trustee or assign
the representations and warranties made by a Correspondent to Norwest Mortgage;
and (iii) agree to repurchase or substitute (or assign rights to a comparable
agreement of a Correspondent) for any Mortgage Loan for which any document is
not delivered or is found to be defective in any material respect, or which
Mortgage Loan is discovered at any time not to be in conformance with any
representation and warranty Norwest Mortgage has made to the Seller and the
breach of such representation and warranty materially and adversely affects the
interests of the Certificateholders in the related Mortgage Loan, if Norwest
Mortgage cannot deliver such document or cure such defect or breach within 60
days after notice thereof. Such agreement will inure to the benefit of the
Trustee and is intended to help ensure the Seller's performance of its limited
obligation to repurchase or substitute for Mortgage Loans. See 'The Mortgage
Loan Programs -- Representations and Warranties' above.
At the time of issuance of each Series of Certificates, the Mortgage Loans
in the related Trust Estate will, pursuant to the applicable Pooling and
Servicing Agreement, be assigned to the Trustee, together with all principal and
interest received on or with respect to such Mortgage Loans after the applicable
Cut-Off Date other than principal and interest due and payable on or before such
Cut-Off Date and interest attributable to the Fixed Retained Yield on such
Mortgage Loans, if any. See 'Servicing of the Mortgage Loans -- Fixed Retained
Yield, Servicing Compensation and Payment of Expenses.' The Trustee or its agent
will, concurrently with such assignment, authenticate and deliver the
Certificates evidencing such Series to the Seller in exchange for the Mortgage
Loans. Each Mortgage Loan will be identified in a schedule appearing as an
exhibit to the applicable Pooling and Servicing Agreement. Each such schedule
will include, among other things, the unpaid principal balance as of the close
of business on the applicable Cut-Off Date, the maturity date and the Mortgage
Interest Rate for each Mortgage Loan in the related Trust Estate.
In addition, with respect to each Mortgage Loan in a Trust Estate, the
mortgage or other promissory note, any assumption, modification or conversion to
fixed interest rate agreement, a mortgage assignment in recordable form and the
recorded Mortgage (or other documents as are required under applicable law to
create perfected security interest in the Mortgaged Property in favor of the
Trustee) will be delivered to the Trustee or, if indicated
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in the applicable Prospectus Supplement, to a custodian; provided that, in
instances where recorded documents cannot be delivered due to delays in
connection with recording, copies thereof, certified by the Seller to be true
and complete copies of such documents sent for recording, may be delivered and
the original recorded documents will be delivered promptly upon receipt. The
assignment of each Mortgage will be recorded promptly after the initial issuance
of Certificates for the related Trust Estate, except in states where, in the
opinion of counsel acceptable to the Trustee, such recording is not required to
protect the Trustee's interest in the Mortgage Loan against the claim of any
subsequent transferee or any successor to or creditor of the Seller, Norwest
Mortgage or the originator of such Mortgage Loan.
Notwithstanding the preceding paragraph, with respect to any Mortgage which
has been recorded in the name of Mortgage Electronic Registration Systems, Inc.
('MERS') or its designee, no mortgage assignment in favor of the Trustee will be
required to be prepared or delivered. Instead, the Trustee and the applicable
Servicer will be required to take all actions as are necessary to cause the
applicable Trust Estate to be shown as the owner of the related Mortgage Loan on
the records of MERS for purposes of the system of recording transfers of
beneficial ownership of mortgages maintained by MERS.
The Trustee or custodian will hold all Mortgage Loan documents delivered to
it in trust for the benefit of Certificateholders of the related Series and will
review such documents within 180 days of the date of the applicable Pooling and
Servicing Agreement. If any document is not delivered or is found to be
defective in any material respect, or if the Seller is in breach of any of its
representations and warranties, and such breach materially and adversely affects
the interests of the Certificateholders in a Mortgage Loan, and the Seller
cannot deliver such document or cure such defect or breach within 60 days after
written notice thereof, the Seller will, within 60 days of such notice, either
repurchase the related Mortgage Loan from the Trustee at a price equal to the
then unpaid principal balance thereof, plus accrued and unpaid interest at the
applicable Mortgage Interest Rate (minus any Fixed Retained Yield) through the
last day of the month in which such repurchase takes place, or (in the case of a
Series for which one or more REMIC elections have been or will be made, unless
the maximum period as may be provided by the Code or applicable regulations of
the Department of the Treasury ('TREASURY REGULATIONS') shall have elapsed since
the execution of the applicable Pooling and Servicing Agreement) substitute for
such Mortgage Loan a new mortgage loan having characteristics such that the
representations and warranties of the Seller made pursuant to the applicable
Pooling and Servicing Agreement (except for representations and warranties as to
the correctness of the applicable schedule of mortgage loans) would not have
been incorrect had such substitute Mortgage Loan originally been a Mortgage
Loan. In the case of a repurchased Mortgage Loan, the purchase price will be
deposited by the Seller in the related Certificate Account. In the case of a
substitute Mortgage Loan, the mortgage file relating thereto will be delivered
to the Trustee or the custodian and the Seller will deposit in the Certificate
Account, an amount equal to the excess of (i) the unpaid principal balance of
the Mortgage Loan which is substituted for, over (ii) the unpaid principal
balance of the substitute Mortgage Loan, together with interest on such excess
at the Mortgage Interest Rate (minus any Fixed Retained Yield) to the next
scheduled Due Date of the Mortgage Loan which is being substituted for. In no
event will any substitute Mortgage Loan have an unpaid principal balance greater
than the scheduled principal balance calculated in accordance with the
amortization schedule (the 'SCHEDULED PRINCIPAL BALANCE') of the Mortgage Loan
for which it is substituted (after giving effect to the scheduled principal
payment due in the month of substitution on the Mortgage Loan substituted for),
or a term greater than, a Mortgage Interest Rate less than, a Mortgage Interest
Rate more than one percent per annum greater than or a Loan-to-Value Ratio
greater than, the Mortgage Loan for which it is substituted. If substitution is
to be made for an adjustable rate Mortgage Loan, the substitute Mortgage Loan
will have an unpaid principal balance no greater than the Scheduled Principal
Balance of the Mortgage Loan for which it is substituted (after giving effect to
the scheduled principal payment due in the month of substitution on the Mortgage
Loan substituted for), a Loan-to-Value Ratio less than or equal to, and a
Mortgage Interest Rate at least equal to, that of the Mortgage Loan for which it
is substituted, and will bear interest based on the same index, margin and
frequency of adjustment as the substituted Mortgage Loan. The repurchase
obligation and the mortgage substitution referred to above will constitute the
sole remedies available to the Certificateholders or the Trustee with respect to
missing or defective documents or breach of the Seller's representations and
warranties.
If no custodian is named in the Pooling and Servicing Agreement, the
Trustee will be authorized to appoint a custodian to maintain possession of the
documents relating to the Mortgage Loans and to conduct the review of
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such documents described above. Any custodian so appointed will keep and review
such documents as the Trustee's agent under a custodial agreement.
OPTIONAL PURCHASES
To the extent specified in the related Prospectus Supplement and subject to
the provisions of the applicable Pooling and Servicing Agreement, the Seller or
the Master Servicer may, at such party's option, repurchase (i) any Mortgage
Loan which is in default or as to which default is reasonably foreseeable if, in
the Seller's or the Master Servicer's judgment, the related default is not
likely to be cured by the borrower or default is not likely to be averted, up to
the limit specified in such Pooling and Servicing Agreement and (ii) any
Mortgage Loan as to which the originator of such Mortgage Loan breached a
representation or warranty to Norwest Mortgage regarding the characteristics of
such Mortgage Loan, at a price equal to the unpaid principal balance thereof
plus accrued interest thereon and under the conditions set forth in the
applicable Prospectus Supplement.
REPORTS TO CERTIFICATEHOLDERS
Unless otherwise specified or modified in the related Pooling and Servicing
Agreement for each Series, the Master Servicer will prepare and the Trustee will
include with each distribution to Certificateholders of record of such Series a
Monthly Report setting forth the following information, if applicable:
(i) the amount of such distribution allocable to principal of the
related Mortgage Loans, separately identifying the aggregate amount of any
principal prepayments included therein, the amount of such distribution
allocable to interest on the related Mortgage Loans and the aggregate
unpaid principal balance of the Mortgage Loans evidenced by each Class
after giving effect to the principal distributions on such Distribution
Date;
(ii) the amount of servicing compensation with respect to the related
Trust Estate and such other customary information as is required to enable
Certificateholders to prepare their tax returns;
(iii) the amount by which the Servicing Fee for the related
Distribution Date has been reduced by interest shortfalls due to
prepayments;
(iv) the aggregate amount of any Periodic Advances by the Servicer,
the Master Servicer or the Trustee included in the amounts actually
distributed to the Certificateholders;
(v) to each holder of a Certificate entitled to the benefits of
payments under any form of credit enhancement or from any Reserve Fund:
(a) the amounts so distributed under any such form of credit
enhancement or from any such Reserve Fund on the applicable Distribution
Date; and
(b) the amount of coverage remaining under any such form of credit
enhancement and the balance in any such Reserve Fund, after giving
effect to any payments thereunder and other amounts charged thereto on
the Distribution Date;
(vi) in the case of a Series of Certificates with a variable
Pass-Through Rate, such Pass-Through Rate;
(vii) the aggregate principal balance of the Mortgage Loans and the
percentage interest, if any, of such aggregate principal balance
represented by such class;
(viii) the book value of any collateral acquired by the Trust Estate
through foreclosure or otherwise ('REO PROPERTY');
(ix) the unpaid principal balance of any Mortgage Loan as to which the
Servicer has notified the Master Servicer that such Servicer has determined
not to foreclose because it believes the related Mortgaged Property may be
contaminated with or affected by hazardous wastes or hazardous substances;
(x) the number and aggregate principal amount of Mortgage Loans one
month, two months and three or more months delinquent;
(xi) the number and aggregate principal balance of Mortgage Loans in
foreclosure;
(xii) the number and aggregate principal balance of Mortgage Loans
with respect to which the related mortgaged property has become REO
Property;
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(xiii) the amount of realized losses as a result of bankruptcy or the
liquidation of REO Property; and
(xiv) the amount of the remaining Special Hazard Loss Amount, Fraud
Loss Amount and Bankruptcy Loss Amount as of the close of business on such
Distribution Date.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer will furnish either directly, or through the
Trustee, a report to each Certificateholder of record at any time during such
calendar year such information as required by the Code and applicable
regulations thereunder to enable Certificateholders to prepare their tax
returns. In the event that an election has been made to treat the Trust Estate
(or one or more segregated pools of assets therein) as a REMIC, the Trustee will
be required to sign the federal and applicable state and local income tax
returns of the REMIC (which will be prepared by the Master Servicer). See
'Material Federal Income Tax Consequences -- Federal Income Tax Consequences for
REMIC Certificates -- Administrative Matters.'
LIST OF CERTIFICATEHOLDERS
The Pooling and Servicing Agreement for each Series will require the
Trustee to provide access to the most current list of names and addresses of
Certificateholders of such Series to any group of five or more
Certificateholders who advise the Trustee in writing that they desire to
communicate with other Certificateholders with respect to their rights under the
Pooling and Servicing Agreement or under the Certificates.
EVENTS OF DEFAULT
Events of Default under the Pooling and Servicing Agreement for each Series
include (i) any failure by the Master Servicer to make a required deposit which
continues unremedied for three business days after the giving of written notice
of such failure to the Master Servicer by the Trustee for such Series, or to the
Master Servicer and the Trustee by the holders of Certificates of such Series
having voting rights allocated to such Certificates ('VOTING INTERESTS')
aggregating not less than 25% of the Voting Interests allocated to all
Certificates for such Series; (ii) any failure by the Master Servicer duly to
observe or perform in any material respect any other of its covenants or
agreements in the Pooling and Servicing Agreement which continues unremedied for
60 days (or 30 days in the case of a failure to maintain any pool insurance
policy required to be maintained pursuant to the Pooling and Servicing
Agreement) after the giving of written notice of such failure to the Master
Servicer by the Trustee, or to the Master Servicer and the Trustee by the
holders of Certificates aggregating not less than 25% of the Voting Interests;
(iii) certain events of insolvency, readjustment of debt, marshaling of assets
and liabilities or similar proceedings and certain action by the Master Servicer
indicating its insolvency, reorganization or inability to pay its obligations
and (iv) it and any subservicer appointed by it becoming ineligible to service
for both Fannie Mae and Freddie Mac (unless remedied within 90 days).
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default remains unremedied under the Pooling and
Servicing Agreement for a Series, the Trustee for such Series or holders of
Certificates of such Series evidencing not less than 66 2/3% of the Voting
Interests in the Trust Estate for such Series may terminate all of the rights
and obligations of the Master Servicer under the Pooling and Servicing Agreement
and in and to the Mortgage Loans (other than the Master Servicer's right to
recovery of the aggregate Master Servicing Fees due prior to the date of
termination, and other expenses and amounts advanced pursuant to the terms of
the Pooling and Servicing Agreement, which rights the Master Servicer will
retain under all circumstances), whereupon the Trustee will succeed to all the
responsibilities, duties and liabilities of the Master Servicer under the
Pooling and Servicing Agreement and will be entitled to monthly compensation not
to exceed the aggregate Master Servicing Fees together with the other
compensation to which the Master Servicer is entitled under the Pooling and
Servicing Agreement. In the event that the Trustee is unwilling or unable so to
act, it may select, pursuant to the public bid procedure described in the
applicable Pooling and Servicing Agreement, or petition a court of competent
jurisdiction to appoint, a housing and home finance institution, bank or
mortgage servicing institution with a net worth of at least $10,000,000 to act
as successor to the Master Servicer under the provisions of the Pooling and
Servicing Agreement; provided however, that until such a successor Master
Servicer is appointed and has assumed the responsibilities, duties and
liabilities of the Master Servicer under the Pooling and Servicing Agreement,
the Trustee shall continue as the
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successor to the Master Servicer as described above. In the event such public
bid procedure is utilized, the successor would be entitled to compensation in an
amount equal to the aggregate Master Servicing Fees, together with the other
compensation to which the Master Servicer is entitled under the Pooling and
Servicing Agreement, and the Master Servicer would be entitled to receive the
net profits, if any, realized from the sale of its rights and obligations under
the Pooling and Servicing Agreement.
During the continuance of any Event of Default under the Pooling and
Servicing Agreement for a Series, the Trustee for such Series will have the
right to take action to enforce its rights and remedies and to protect and
enforce the rights and remedies of the Certificateholders of such Series, and
holders of Certificates evidencing not less than 25% of the Voting Interests for
such Series may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred upon the Trustee. However, the Trustee will not be under any
obligation to pursue any such remedy or to exercise any of such trusts or powers
unless such Certificateholders have offered the Trustee reasonable security or
indemnity against the cost, expenses and liabilities which may be incurred by
the Trustee thereby. Also, the Trustee may decline to follow any such direction
if the Trustee determines that the action or proceeding so directed may not
lawfully be taken or would involve it in personal liability or be unjustly
prejudicial to the non-assenting Certificateholders.
No Certificateholder of a Series, solely by virtue of such holder's status
as a Certificateholder, will have any right under the Pooling and Servicing
Agreement for such Series to institute any proceeding with respect to the
Pooling and Servicing Agreement, unless such holder previously has given to the
Trustee for such Series written notice of default and unless the holders of
Certificates evidencing not less than 25% of the Voting Interests 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.
AMENDMENT
Each Pooling and Servicing Agreement may be amended by the Seller, the
Master Servicer and the Trustee without the consent of the Certificateholders,
(i) to cure any ambiguity or mistake, (ii) to correct or supplement any
provision therein that may be inconsistent with any other provision therein,
(iii) to modify, eliminate or add to any of its provisions to such extent as
shall be necessary to maintain the qualification of the Trust Estate (or one or
more segregated pools of assets therein) as a REMIC at all times that any
Certificates are outstanding or to avoid or minimize the risk of the imposition
of any tax on the Trust Estate pursuant to the Code that would be a claim
against the Trust Estate, provided that the Trustee has received an opinion of
counsel to the effect that such action is necessary or desirable to maintain
such qualification or to avoid or minimize the risk of the imposition of any
such tax and such action will not, as evidenced by such opinion of counsel,
adversely affect in any material respect the interests of any Certificateholder,
(iv) to change the timing and/or nature of deposits into the Certificate
Account, provided that such change will not, as evidenced by an opinion of
counsel, adversely affect in any material respect the interests of any
Certificateholder and that such change will not adversely affect the then
current rating assigned to any Certificates, as evidenced by a letter from each
Rating Agency to such effect, (v) to add to, modify or eliminate any provisions
therein restricting transfers of Residual Certificates to certain disqualified
organizations described below under 'Material Federal Income Tax
Consequences -- Federal Income Tax Consequences for REMIC
Certificates -- Taxation of Residual Certificates -- Tax-Related Restrictions on
Transfer of Residual Certificates,' (vi) to make certain provisions with respect
to the denominations of, and the manner of payments on, certain Classes or
Subclasses of Certificates initially retained by the Seller or an affiliate, or
(vii) to make any other provisions with respect to matters or questions arising
under such Pooling and Servicing Agreement that are not inconsistent with the
provisions thereof, provided that such action will not, as evidenced by an
opinion of counsel, adversely affect in any material respect the interests of
the Certificateholders of the related Series. The Pooling and Servicing
Agreement may also be amended by the Seller, the Master Servicer and the Trustee
with the consent of the holders of Certificates evidencing interests aggregating
not less than 66 2/3% of the Voting Interests evidenced by the Certificates of
each Class or Subclass affected thereby, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such Pooling and Servicing Agreement or of modifying in any manner the rights of
the Certificateholders; provided, however, that no such amendment may (i) reduce
in any manner the amount of, or delay the timing of, any payments received on or
with respect to Mortgage Loans that are required to be distributed on any
Certificates, without the consent of the holder of such Certificate, (ii)
adversely affect in any
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material respect the interests of the holders of a Class or Subclass of
Certificates of a Series in a manner other than that set forth in (i) above
without the consent of the holders of Certificates aggregating not less than
66 2/3% of the Voting Interests evidenced by such Class or Subclass, or (iii)
reduce the aforesaid percentage of Certificates of any Class or Subclass, the
holders of which are required to consent to such amendment, without the consent
of the holders of all Certificates of such Class or Subclass affected then
outstanding. Notwithstanding the foregoing, the Trustee will not consent to any
such amendment if such amendment would subject the Trust Estate (or any
segregated pool of assets therein) to tax or cause the Trust Estate (or any
segregated pool of assets therein) to fail to qualify as a REMIC.
TERMINATION; OPTIONAL PURCHASE OF MORTGAGE LOANS
The obligations created by the Pooling and Servicing Agreement for a Series
of Certificates will terminate on the Distribution Date following the final
payment or other liquidation of the last Mortgage Loan subject thereto and the
disposition of all property acquired upon foreclosure of any such Mortgage Loan.
In no event, however, will the trust created by the Pooling and Servicing
Agreement continue beyond the expiration of 21 years from the death of the last
survivor of certain persons named in such Pooling and Servicing Agreement. For
each Series of Certificates, the Trustee will give written notice of termination
of the Pooling and Servicing Agreement to each Certificateholder, and the final
distribution will be made only upon surrender and cancellation of the
Certificates at an office or agency appointed by the Seller and specified in the
notice of termination.
If so provided in the applicable Prospectus Supplement, the Pooling and
Servicing Agreement for each Series of Certificates will permit, but not
require, the Seller, Norwest Mortgage or such other party as is specified in the
applicable Prospectus Supplement, to purchase from the Trust Estate for such
Series all remaining Mortgage Loans at the time subject to the Pooling and
Servicing Agreement at a price specified in such Prospectus Supplement. In the
event that such party has caused the related Trust Estate (or any segregated
pool of assets therein) to be treated as a REMIC, any such purchase will be
effected only pursuant to a 'qualified liquidation' as defined in Code Section
860F(a)(4)(A) and, if the Trust Estate is liquidated other than in the manner
specified in the Pooling and Servicing Agreement, the receipt by the Trustee of
an opinion of counsel or other evidence that such other liquidation method will
not (i) result in the imposition of a tax on 'prohibited transactions' under
Code Section 860F(a)(1), (ii) otherwise subject the Trust Estate to tax, or
(iii) cause the Trust Estate (or any segregated pool of assets) to fail to
qualify as a REMIC. The exercise of such right will effect early retirement of
the Certificates of that Series, but the right so to purchase may be exercised
only after the aggregate principal balance of the Mortgage Loans for such Series
at the time of purchase is less than a specified percentage of the aggregate
principal balance at the Cut-Off Date for the Series, or after the date set
forth in the applicable Prospectus Supplement.
THE TRUSTEE
The Trustee under each Pooling and Servicing Agreement (the 'TRUSTEE') will
be named in the applicable Prospectus Supplement. The commercial bank or trust
company serving as Trustee may have normal banking relationships with the Seller
or any of its affiliates. With respect to certain Series of Certificates, a
trust administrator will perform certain duties and functions normally performed
by the Trustee. Any trust administrator will be a party to the Pooling and
Servicing Agreement and will be named in the applicable Prospectus Supplement.
Any trust administrator will have obligations and rights similar to the Trustee
as described herein.
The Trustee may resign at any time, in which event the Master Servicer will
be obligated to appoint a successor trustee. The Master Servicer may also remove
the Trustee if the Trustee ceases to be eligible to act as Trustee under the
Pooling and Servicing Agreement, if the Trustee becomes insolvent or in order to
change the situs of the Trust Estate for state tax reasons. Upon becoming aware
of such circumstances, the Master Servicer will become obligated to appoint a
successor trustee. The Trustee may also be removed at any time by the holders of
Certificates evidencing not less than 51% of the Voting Interests in the Trust
Estate, except that, any Certificate registered in the name of the Seller, the
Master Servicer or any affiliate thereof will not be taken into account in
determining whether the requisite Voting Interest in the Trust Estate necessary
to effect any such removal has been obtained. Any resignation and removal of the
Trustee, and the appointment of a successor trustee, will not become effective
until acceptance of such appointment by the successor trustee. The Trustee, and
any successor trustee, will have a combined capital and surplus of at least
$50,000,000, or will be a member of a
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bank holding system, the aggregate combined capital and surplus of which is at
least $50,000,000, provided that the Trustee's and any such successor trustee's
separate capital and surplus shall at all times be at least the amount specified
in Section 310(a)(2) of the Trust Indenture Act of 1939, and will be subject to
supervision or examination by federal or state authorities.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans which are general in nature. Because such legal aspects are
governed by applicable state law (which laws may differ substantially), the
summaries do not purport to be complete or to reflect the laws of any particular
state, nor to encompass the laws of all states in which the security for the
Mortgage Loans is situated. The summaries are qualified in their entirety by
reference to the applicable federal and state laws governing the Mortgage Loans.
GENERAL
The Mortgage Loans will, in general, be secured by either first mortgages
or first deeds of trust, depending upon the prevailing practice in the state in
which the underlying property is located. A mortgage creates a lien upon the
real property described in the mortgage. There are two parties to a mortgage:
the mortgagor, who is the borrower (or, in the case of a Mortgage Loan secured
by a property that has been conveyed to an inter vivos revocable trust, the
settlor of such trust); and the mortgagee, who is the lender. In a mortgage
instrument state, the mortgagor delivers to the mortgagee a note or bond
evidencing the loan and the mortgage. Although a deed of trust is similar to a
mortgage, a deed of trust has three parties: a borrower called the trustor
(similar to a mortgagor), a lender called the beneficiary (similar to a
mortgagee), and a third-party grantee called the trustee. Under a deed of trust,
the borrower grants the property, irrevocably until the debt is paid, in trust,
generally with a power of sale, to the trustee to secure payment of the loan.
The trustee's authority under a deed of trust and the mortgagee's authority
under a mortgage are governed by the express provisions of the deed of trust or
mortgage, applicable law, and, in some cases, with respect to the deed of trust,
the directions of the beneficiary.
FORECLOSURE
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in completion
of the foreclosure occasionally may result from difficulties in locating
necessary parties defendant. When the mortgagee's right of 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 may issue a judgment of foreclosure and appoint a receiver or other
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. Foreclosure of a mortgage by advertisement is essentially similar to
foreclosure of a deed of trust by non-judicial power of sale.
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property to a third party 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 some states, the trustee must record a notice
of default and send a copy to the borrower-trustor and to any person who has
recorded a request for a copy of a notice of default and notice of sale. In
addition, the trustee must provide notice in some states to any other individual
having an interest of record in the real property, including any junior
lienholders. 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,
published for a specified 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 property.
In some states, the borrower-trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In general,
the borrower, or any other person having a junior encumbrance on the real
estate, may, during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in enforcing the
obligation. Certain state laws control the amount of foreclosure expenses and
costs, including attorneys' fees, which may be recovered by a lender.
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In case of foreclosure under either a mortgage or a deed of trust, the sale
by the receiver or other designated officer, or by the trustee, is a public
sale. However, because of the difficulty a potential buyer at the sale would
have in determining the exact status of title and because the physical condition
of the property may have deteriorated during the foreclosure proceedings, it is
uncommon for a third party to purchase the property at the foreclosure sale.
Rather, it is common for the lender to purchase the property from the trustee or
receiver for an amount equal to the unpaid principal amount of the note, accrued
and unpaid interest and the expenses of foreclosure. Thereafter, subject to the
right of the borrower in some states to remain in possession during the
redemption period, the lender will assume the burdens of ownership, including
obtaining hazard insurance and making such repairs at its own expense as are
necessary to render the property suitable for sale. The lender commonly will
obtain the services of a real estate broker and pay the broker a commission in
connection with the sale of the property. Depending upon market conditions, the
ultimate proceeds of the sale of the property may not equal the lender's
investment in the property. Any loss may be reduced by the receipt of mortgage
insurance proceeds, if any, or by judicial action against the borrower for the
deficiency, if such action is permitted by law. See '-- Anti-Deficiency
Legislation and Other Limitations on Lenders' below.
FORECLOSURE ON SHARES OF COOPERATIVES
The cooperative shares owned by the tenant-stockholder and pledged to the
lender are, in almost all cases, subject to restrictions on transfer as set
forth in the cooperative's Certificate of Incorporation and By-laws, as well as
in the proprietary lease or occupancy agreement, and may be cancelled by the
cooperative for failure by the tenant-stockholder to pay rent or other
obligations or charges owed by such tenant-stockholder, including mechanics'
liens against the cooperative apartment building incurred by such
tenant-stockholder. The proprietary lease or occupancy agreement generally
permits the cooperative to terminate such lease or agreement in the event an
obligor fails to make payments or defaults in the performance of covenants
required thereunder. Typically, the lender and the cooperative enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder on its obligations
under the proprietary lease or occupancy agreement. A default by the
tenant-stockholder under the proprietary lease or occupancy agreement will
usually constitute a default under the security agreement between the lender and
the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate such lease or
agreement until the lender has been provided an opportunity to cure the default.
The recognition agreement typically provides that if the proprietary lease or
occupancy agreement is terminated, the cooperative will recognize the lender's
lien against proceeds from a sale of the cooperative apartment, subject,
however, to the cooperative's right to sums due under such proprietary lease or
occupancy agreement. The total amount owed to the cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the cooperative loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a foreclosure on a
cooperative loan, the lender must obtain the approval or consent of the
cooperative as required by the proprietary lease before transferring the
cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited by the agreement in any rights it may have to dispossess the
tenant-stockholders.
Foreclosure on the cooperative shares is accomplished by a sale in
accordance with the provisions of Article 9 of the Uniform Commercial Code (the
'UCC') and the security agreement relating to those shares. Article 9 of the UCC
requires that a sale be conducted in a 'commercially reasonable' manner. Whether
a foreclosure sale has been conducted in a 'commercially reasonable' manner will
depend on the facts in each case. In determining commercial reasonableness, a
court will look to the notice given the debtor and the method, manner, time,
place and terms of the foreclosure. Generally, a sale conducted according to the
usual practice of banks selling similar collateral will be considered reasonably
conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the cooperative corporation to receive sums due under
the proprietary lease or occupancy agreement. If there are proceeds remaining,
the lender must account to the tenant-stockholder for the surplus. Conversely,
if a portion of
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the indebtedness remains unpaid, the tenant-stockholder is generally responsible
for the deficiency. See
'-- Anti-Deficiency Legislation and Other Limitations on Lenders' below.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust and/or foreclosure
of a mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure 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 some states, the right to redeem is an equitable right. The effect of
a right of redemption is to delay the ability of the lender to sell the
foreclosed property. The exercise of a right of redemption would defeat the
title of any purchaser at a foreclosure sale, or of any purchaser from the
lender subsequent to judicial foreclosure or sale under a deed of trust.
Consequently, the practical effect of the redemption right is to force the
lender to maintain the property and pay the expenses of ownership until the
redemption period has run.
ANTI-DEFICIENCY LEGISLATION, THE BANKRUPTCY CODE AND OTHER LIMITATIONS ON
LENDERS
Certain states have imposed statutory prohibitions which limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure or sale under a
deed of trust. A deficiency judgment would be a personal judgment against the
former borrower equal in most cases to the difference between the net amount
realized upon the public sale of the real property and the amount due to the
lender. Other statutes require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
Finally, other statutory provisions limit any deficiency judgment against the
former borrower following a judicial sale to the excess of the outstanding debt
over the fair market value of the property at the time of public sale. The
purpose of these statutes is generally to prevent a beneficiary or a mortgagee
from obtaining a large deficiency judgment against the former borrower as a
result of low or no bids at the judicial sale.
Generally, Article 9 of the UCC governs foreclosure on cooperative shares
and the related proprietary lease or occupancy agreement and foreclosure on the
beneficial interest in a land trust. Some courts have interpreted Section 9-504
of the UCC to prohibit a deficiency award unless the creditor establishes that
the sale of the collateral (which, in the case of a Mortgage Loan secured by
shares of a cooperative, would be such shares and the related proprietary lease
or occupancy agreement) was conducted in a commercially reasonable manner.
A Servicer generally will not be required under the applicable Underlying
Servicing Agreement to pursue deficiency judgments on the Mortgage Loans even if
permitted by law.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the United States Bankruptcy
Code, 11 U.S.C Sections 101 et seq. (the 'BANKRUPTCY CODE'), and state laws
affording relief to debtors may interfere with or affect the ability of a
secured mortgage lender to obtain payment of a mortgage loan, to realize upon
collateral and/or enforce a deficiency judgment. For example, under the
Bankruptcy Code, virtually all actions (including foreclosure actions and
deficiency judgment proceedings) are automatically stayed upon the filing of a
bankruptcy petition, and, usually, no interest or principal payments are made
during the course of the bankruptcy case. Foreclosure of an interest in real
property of a debtor in a case under the Bankruptcy Code can typically occur
only if the bankruptcy court vacates the stay, an action the court may be
reluctant to take, particularly if the debtor has the prospect of restructuring
his or her debts and the mortgage collateral is not deteriorating in value. The
delay and the consequences thereof caused by such automatic stay can be
significant. Also, under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a junior lienor (a subordinate lender secured by a
mortgage on the property) may stay a senior lender from taking action to
foreclose.
A homeowner may file for relief under the Bankruptcy Code under any of
three different chapters of the Bankruptcy Code. Under Chapter 7, the assets of
the debtor are liquidated and a lender secured by a lien may 'bid in' (i.e., bid
up to the amount of the debt) at the sale of the asset. See '-- Foreclosure.' A
homeowner may also file for relief under Chapter 11 of the Bankruptcy Code and
reorganize his or her debts through his or her reorganization plan.
Alternatively, a homeowner may file for relief under Chapter 13 of the
Bankruptcy Code and address his or her debts in a rehabilitation plan. (Chapter
13 is often referred to as the 'wage earner chapter'
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or 'consumer chapter' because most individuals seeking to restructure their
debts file for relief under Chapter 13 rather than Chapter 11.)
The Bankruptcy Code permits a mortgage loan that is secured by property
that does not consist solely of the debtor's principal residence to be modified
without the consent of the lender provided certain substantive and procedural
safeguards are met. Under the Bankruptcy Code, the lender's security interest
may be reduced to the then-current value of the property as determined by the
court if the value is less than the amount due on the loan, thereby leaving the
lender as a general unsecured creditor for the difference between the value of
the collateral and the outstanding balance of the mortgage loan. A borrower's
unsecured indebtedness will typically be discharged in full upon payment of a
substantially reduced amount. Other modifications to a mortgage loan may include
a reduction in the amount of each scheduled payment, which reduction may result
from a reduction in the rate of interest, an alteration of the repayment
schedule, an extension of the final maturity date, and/or a reduction in the
outstanding balance of the secured portion of the loan. In certain
circumstances, subject to the court's approval, a debtor in a case under Chapter
11 of the Bankruptcy Code may have the power to grant liens senior to the lien
of a mortgage.
A reorganization plan under Chapter 11 and a rehabilitation plan under
Chapter 13 of the Bankruptcy Code may each allow a debtor to cure a default with
respect to a mortgage loan on such debtor's residence by paying arrearages over
a period of time and to deaccelerate and reinstate the original mortgage loan
payment schedule, even though the lender accelerated the loan and a final
judgment of foreclosure had been entered in state court (provided no sale of the
property had yet occurred) prior to the filing of the debtor's petition under
the Bankruptcy Code. Under a Chapter 13 plan, curing of defaults must be
accomplished within the five year maximum term permitted for repayment plans,
such term commencing when repayment plan becomes effective, while defaults may
be cured over a longer period of time under a Chapter 11 plan of reorganization.
Generally, a repayment plan in a case under Chapter 13 and a plan of
reorganization under Chapter 11 may not modify the claim of a mortgage lender if
the borrower elects to retain the property, the property is the borrower's
principal residence and the property is the lender's only collateral. Certain
courts have allowed modifications when the mortgage loan is secured both by the
debtor's principal residence and by collateral that is not 'inextricably bound'
to the real property, such as appliances, machinery, or furniture.
The general protection for mortgages secured only by the debtor's principal
residence is not applicable in a case under Chapter 13 if the last payment on
the original payment schedule is due before the final date for payment under the
debtor's Chapter 13 plan (which date could be up to five years after the debtor
emerges from bankruptcy). Under several recently decided cases, the terms of
such a loan can be modified in the manner described above. While these decisions
are contrary to the holding in a prior case by a senior appellate court, it is
possible that the later decisions will become the accepted interpretation in
view of the language of the applicable statutory provision. If this
interpretation is adopted by a court considering the treatment in a Chapter 13
repayment plan of a Mortgage Loan, it is possible that the Mortgage Loan could
be modified.
State statutes and general principles of equity may also provide a
mortgagor with means to halt a foreclosure proceeding or sale and to force a
restructuring of a mortgage loan on terms a lender would not otherwise accept.
In a bankruptcy or similar proceeding of a mortgagor, action may be taken
seeking the recovery, as a preferential transfer or on other grounds, of any
payments made by the mortgagor under the related mortgage loan prior to the
bankruptcy or similar proceeding. Payments on long-term debt may be protected
from recovery as preferences if they are payments in the ordinary course of
business made on debts incurred in the ordinary course of business or if the
value of the collateral exceeds the debt at the time of payment. Whether any
particular payment would be protected depends upon the facts specific to a
particular transaction.
A trustee in bankruptcy, in some cases , may be entitled to collect its
costs and expenses in preserving or selling the mortgaged property ahead of a
payment to the lender. Moreover, the laws of certain states also give priority
to certain tax and mechanics liens over the lien of a mortgage. Under the
Bankruptcy Code, if the court finds that actions of the mortgagee have been
unreasonable and inequitable, the lien of the related mortgage may be
subordinated to the claims of unsecured creditors.
The National Bankruptcy Review Commission (the 'BANKRUPTCY COMMISSION'), an
independent commission established under the Bankruptcy Reform Act of 1994 to
study issues and make recommendations
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relating to the Bankruptcy Code, delivered its report to the President and
Congress in October, 1997. The Bankruptcy Commission recommended in its report
that the Bankruptcy Code be amended to treat any claim secured only by a junior
lien on a borrower's principal residence as unsecured to the extent that the
amount of such claim exceeds the appraised value of the mortgaged property at
the date of origination of the loan minus the value of all senior liens. If such
a change in the Bankruptcy Code were to be enacted, and if such change were to
apply to loans originated prior to enactment, a substantial number of the
Mortgage Loans in a Trust Estate could be treated, in whole or in part, as
unsecured debt in a case under Chapter 13 of the Bankruptcy Code. As a
consequence, borrowers who become Chapter 13 debtors could have substantially
less incentive to make arrangements for repayment of the Mortgage Loans, and
there is, accordingly, a significant risk that the recovery on such Mortgage
Loans would be materially less than the outstanding balance of such Mortgage
Loans, or that there could be no recovery.
The Bankruptcy Commission recommendation described was not incorporated in
bankruptcy reform legislation that was passed by the House of Representatives in
June, 1998. There can be no assurance, however, that such proposal would not be
enacted in other legislation.
Bankruptcy reform legislation being considered by the Senate would amend
the Bankruptcy Code (such amendment, the 'TILA AMENDMENT') to authorize
bankruptcy court judges to disallow claims based on secured debt if the creditor
failed to comply with certain provisions of the federal Truth in Lending Act. As
most recently proposed, such provision would apply retroactively to secured debt
incurred by a debtor prior to the date of effectiveness of such legislation,
including the Mortgage Loans. The House bill does not include a comparable
provision as of the date hereof. If the TILA Amendment were to become law, a
violation of the Truth in Lending act with respect to a Mortgage Loan could
result in a total loss with respect to such loan in a bankruptcy proceeding. Any
such violation would be a breach of representation and warranty of the
depositor, and the depositor would be obligated to repurchase such Mortgage Loan
as described herein.
Various proposals to amend the Bankruptcy Code in ways that could adversely
affect the value of the Mortgage Loans in a trust have been considered by
Congress, and more such proposed legislation may be considered in the future. No
assurance can be given that any particular proposal will or will not be enacted
into law, or that any provision so enacted will not differ materially from the
proposals described above.
The Code provides priority to certain tax liens over the lien of the
mortgage. In addition, substantive requirements are imposed upon mortgage
lenders in connection with the origination and the servicing of mortgage loans
by numerous federal and some state consumer protection laws. These laws include
the federal Trust-in-Lending Act, Real Estate Settlement Procedures Act, Equal
Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act, and
related statutes. These federal laws impose specific statutory liabilities upon
lenders who originate mortgage loans and who fail to comply with the provisions
of the applicable laws. In some cases, this liability may affect assignees of
the Mortgage Loans.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT AND SIMILAR LAWS
Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended (the 'RELIEF ACT'), a borrower who enters military service
after the origination of such borrower's Mortgage Loan (including a borrower who
is a member of the National Guard or is in reserve status at the time of the
origination of the Mortgage Loan and is later called to active duty) may not be
charged interest above an annual rate of 6% during the period of such borrower's
active duty status, unless a court orders otherwise upon application of the
lender. It is possible that such action could have an effect, for an
indeterminate period of time, on the ability of the Servicer to collect full
amounts of interest on certain of the Mortgage Loans in a Trust Estate. Any
shortfall in interest collections resulting from the application of the Relief
Act could result in losses to the holders of the Certificates of the related
Series. Further, the Relief Act imposes limitations which would impair the
ability of the Servicer to foreclose on an affected Mortgage Loan during the
borrower's period of active duty status. Thus, in the event that such a Mortgage
Loan goes into default, there may be delays and losses occasioned by the
inability to realize upon the Mortgaged Property in a timely fashion. Certain
states have enacted comparable legislation which may interfere with or affect
the ability of the Servicer to timely collect payments of principal and interest
on, or to foreclose on, Mortgage Loans of borrowers in such states who are
active or reserve members of the armed services.
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ENVIRONMENTAL CONSIDERATIONS
A lender may be subject to unforeseen environmental risks when taking a
security interest in real or personal property. Property subject to such a
security interest may be subject to federal, state, and local laws and
regulations relating to environmental protection. Such laws may regulate, among
other things: emissions of air pollutants; discharges of wastewater or storm
water; generation, transport, storage or disposal of hazardous waste or
hazardous substances; operation, closure and removal of underground storage
tanks; removal and disposal of asbestos-containing materials; management of
electrical or other equipment containing polychlorinated biphenyls ('PCBS').
Failure to comply with such laws and regulations may result in significant
penalties, including civil and criminal fines. Under the laws of certain states,
environmental contamination on a property may give rise to a lien on the
property to ensure the availability and/or reimbursement of cleanup costs.
Generally all subsequent liens on such property are subordinated to such a lien
and, in some states, even prior recorded liens are subordinated to such liens
('SUPERLIENS'). In the latter states, the security interest of the Trustee in a
property that is subject to such a Superlien could be adversely affected.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act, as amended ('CERCLA'), and under state law in certain states, a
secured party which takes a deed in lieu of foreclosure, purchases a mortgaged
property at a foreclosure sale, operates a mortgaged property or undertakes
certain types of activities that may constitute management of the mortgaged
property may become liable in certain circumstances for the costs of remedial
action ('CLEANUP COSTS') if hazardous wastes or hazardous substances have been
released or disposed of on the property. Such Cleanup Costs may be substantial.
CERCLA imposes strict, as well as joint and several liability for environmental
remediation and/or damage costs on several classes of 'potentially responsible
parties,' including current 'owners and/or operators' of property, irrespective
of whether those owners or operators caused or contributed to contamination on
the property. In addition, owners and operators of properties that generate
hazardous substances that are disposed of at other 'off-site' locations may held
strictly, jointly and severally liable for environmental remediation and/or
damages at those off-site locations. Many states also have laws that are similar
to CERCLA. Liability under CERCLA or under similar state law could exceed the
value of the property itself as well as the aggregate assets of the property
owner.
The law is unclear as to whether and under what precise circumstances
cleanup costs, or the obligation to take remedial actions, could be imposed on a
secured lender such as the Trust Estate. Under the laws of some states and under
CERCLA, a lender may be liable as an 'owner or operator' for costs of addressing
releases or threatened releases of hazardous substances on a mortgaged property
if such lender or its agents or employees have 'participated in the management'
of the operations of the borrower, even though the environmental damage or
threat was caused by a prior owner or current owner or operator or other third
party. Excluded from CERCLA's definition of 'owner or operator,' is a person
'who without participating in the management of . . . [the] facility, holds
indicia of ownership primarily to protect his security interest' (the
'secured-creditor exemption'). This exemption for holders of a security interest
such as a secured lender applies only to the extent that a lender seeks to
protect its security interest in the contaminated facility or property. Thus, if
a lender's activities begin to encroach on the actual management of such
facility or property, the lender faces potential liability as an 'owner or
operator' under CERCLA. Similarly, when a lender forecloses and takes title to a
contaminated facility or property, the lender may incur potential CERCLA
liability in various circumstances, including among others, when it holds the
facility or property as an investment (including leasing the facility or
property to a third party), fails to market the property in a timely fashion or
fails to properly address environmental conditions at the property or facility.
The Resource Conservation and Recovery Act, as amended ('RCRA'), contains a
similar secured-creditor exemption for those lenders who hold a security
interest in a petroleum underground storage tank ('UST') or in real estate
containing a UST, or that acquire title to a petroleum UST or facility or
property on which such a UST is located. As under CERCLA, a lender may lose its
secured-creditor exemption and be held liable under RCRA as a UST owner or
operator if such lender or its employees or agents participate in the management
of the UST. In addition, if the lender takes title to or possession of the UST
or the real estate containing the UST, under certain circumstances the
secured-creditor exemption may be deemed to be unavailable.
A decision in May 1990 of the United States Court of Appeals for the
Eleventh Circuit in United States v. Fleet Factors Corp. very narrowly construed
CERCLA's secured-creditor exemption. The court's opinion suggested that a lender
need not have involved itself in the day-to-day operations of the facility or
participated in
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decisions relating to hazardous waste to be liable under CERCLA; rather,
liability could attach to a lender if its involvement with the management of the
facility were broad enough to support the inference that the lender had the
capacity to influence the borrower's treatment of hazardous waste. The court
added that a lender's capacity to influence such decisions could be inferred
from the extent of its involvement in the facility's financial management. A
subsequent decision by the United States Court of Appeals for the Ninth Circuit
in In re Bergsoe Metal Corp., apparently disagreeing with, but not expressly
contradicting, the Fleet Factors court, held that a secured lender had no
liability absent 'some actual management of the facility' on the part of the
lender.
Court decisions have taken varying views of the scope of the
secured-creditor exemption, leading to administrative and legislative efforts to
provide guidance to lenders on the scope of activities that would trigger CERCLA
and/or RCRA liability. Until recently, these efforts have failed to provide
substantial guidance.
On September 30, 1996 the President signed into law, the Asset
Conservation, Lender Liability and Deposit Insurance Protection Act of 1996 (the
'ASSET CONSERVATION ACT'). The Asset Conservation Act was intended to clarify
the scope of the secured creditor exemption under both CERCLA and RCRA. The
Asset Conservation Act more explicitly defined the kinds of 'participation in
management' that would trigger liability under CERCLA and specified certain
activities that would not constitute 'participation in management' or otherwise
result in a forfeiture of the secured-creditor exemption prior to foreclosure or
during a workout period. The Asset Conservation Act also clarified the extent of
protection against liability under CERCLA in the event of foreclosure and
authorized certain regulatory clarifications of the scope of the
secured-creditor exemption for purposes of RCRA, similar to the statutory
protections under CERCLA. However, since the courts have not yet had the
opportunity to interpret the new statutory provisions, the scope of the
additional protections offered by the Asset Conservation Act is not fully
defined. It also is important to note that the Asset Conservation Act does not
offer complete protection to lenders and that the risk of liability remains.
If a secured lender does become liable, it may be entitled to bring an
action for contribution against the owner or operator who created the
environmental contamination or against some other liable party, but that person
or entity may be bankrupt or otherwise judgment-proof. It is therefore possible
that cleanup or other environmental liability costs could become a liability of
the Trust Estate and occasion a loss to the Trust Estate and to
Certificateholders in certain circumstances. The new secured creditor amendments
to CERCLA, also, would not necessarily affect the potential for liability in
actions by either a state or a private party under other federal or state laws
which may impose liability on 'owners or operators' but do not incorporate the
secured-creditor exemption.
Traditionally, residential mortgage lenders have not taken steps to
evaluate whether hazardous wastes or hazardous substances are present with
respect to any mortgaged property prior to the origination of the mortgage loan
or prior to foreclosure or accepting a deed-in-lieu of foreclosure. Accordingly,
neither the Seller, Norwest Mortgage nor Norwest Funding has made such
evaluations prior to the origination of the Mortgage Loans, nor does Norwest
Mortgage or Norwest Funding require that such evaluations be made by originators
who have sold the Mortgage Loans to Norwest Mortgage. Neither the Seller nor
Norwest Mortgage is required to undertake any such evaluations prior to
foreclosure or accepting a deed-in-lieu of foreclosure. Neither the Seller nor
the Master Servicer makes any representations or warranties or assumes any
liability with respect to: the environmental condition of such Mortgaged
Property; the absence, presence or effect of hazardous wastes or hazardous
substances on any Mortgaged Property; any casualty resulting from the presence
or effect of hazardous wastes or hazardous substances on, near or emanating from
such Mortgaged Property; the impact on Certificateholders of any environmental
condition or presence of any substance on or near such Mortgaged Property; or
the compliance of any Mortgaged Property with any environmental laws, nor is any
agent, person or entity otherwise affiliated with the Seller authorized or able
to make any such representation, warranty or assumption of liability relative to
any such Mortgaged Property. See 'The Mortgage Loan Programs -- Representations
and Warranties' and 'Servicing of the Mortgage Loans -- Enforcement of
Due-on-Sale Clauses; Realization Upon Defaulted Mortgage Loans' above.
'DUE-ON-SALE' CLAUSES
The forms of note, mortgage and deed of trust relating to conventional
Mortgage Loans may contain a 'due-on-sale' clause permitting acceleration of the
maturity of a loan if the borrower transfers its interest in the property. In
recent years, court decisions and legislative actions placed substantial
restrictions on the right of
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lenders to enforce such clauses in many states. However, effective October 15,
1982, Congress enacted the Garn-St Germain Depository Institutions Act of 1982
(the 'GARN ACT') which purports to preempt state laws which prohibit the
enforcement of 'due-on-sale' clauses by providing among other matters, that
'due-on-sale' clauses in certain loans (which loans may include the Mortgage
Loans) made after the effective date of the Garn Act are enforceable, within
certain limitations as set forth in the Garn Act and the regulations promulgated
thereunder. 'Due-on-sale' clauses contained in mortgage loans originated by
federal savings and loan associations or federal savings banks are fully
enforceable pursuant to regulations of the Office of Thrift Supervision ('OTS'),
as successor to the Federal Home Loan Bank Board ('FHLBB'), which preempt state
law restrictions on the enforcement of such clauses. Similarly, 'due-on-sale'
clauses in mortgage loans made by national banks and federal credit unions are
now fully enforceable pursuant to preemptive regulations of the Comptroller of
the Currency and the National Credit Union Administration, respectively.
The Garn Act created a limited exemption from its general rule of
enforceability for 'due-on-sale' clauses in certain mortgage loans ('WINDOW
PERIOD LOANS') which were originated by non-federal lenders and made or assumed
in certain states ('WINDOW PERIOD STATES') during the period, prior to October
15, 1982, in which that state prohibited the enforcement of 'due-on-sale'
clauses by constitutional provision, statute or statewide court decision (the
'WINDOW PERIOD'). Though neither the Garn Act nor the OTS regulations actually
names the Window Period States, Freddie Mac has taken the position, in
prescribing mortgage loan servicing standards with respect to mortgage loans
which it has purchased, that the Window Period States were: Arizona, Arkansas,
California, Colorado, Georgia, Iowa, Michigan, Minnesota, New Mexico, Utah and
Washington. Under the Garn Act, unless a Window Period State took action by
October 15, 1985, the end of the Window Period, to further regulate enforcement
of 'due-on-sale' clauses in Window Period Loans, 'due-on-sale' clauses would
become enforceable even in Window Period Loans. Five of the Window Period States
(Arizona, Minnesota, Michigan, New Mexico and Utah) have taken actions which
restrict the enforceability of 'due-on-sale' clauses in Window Period Loans
beyond October 15, 1985. The actions taken vary among such states.
By virtue of the Garn Act, a Servicer may generally be permitted to
accelerate any conventional Mortgage Loan which contains a 'due-on-sale' clause
upon transfer of an interest in the property subject to the mortgage or deed of
trust. With respect to any Mortgage Loan secured by a residence occupied or to
be occupied by the borrower, this ability to accelerate will not apply to
certain types of transfers, including (i) the granting of a leasehold interest
which has a term of three years or less and which does not contain an option to
purchase, (ii) a transfer to a relative resulting from the death of a borrower,
or a transfer where the spouse or children become an owner of the property in
each case where the transferee(s) will occupy the property, (iii) a transfer
resulting from a decree of dissolution of marriage, legal separation agreement
or from an incidental property settlement agreement by which the spouse becomes
an owner of the property, (iv) the creation of a lien or other encumbrance
subordinate to the lender's security instrument which does not relate to a
transfer of rights of occupancy in the property (provided that such lien or
encumbrance is not created pursuant to a contract for deed), (v) a transfer by
devise, descent or operation of law on the death of a joint tenant or tenant by
the entirety, (vi) a transfer into an inter vivos trust in which the borrower is
the beneficiary and which does not relate to a transfer of rights of occupancy;
and (vii) other transfers as set forth in the Garn Act and the regulations
thereunder. Regulations promulgated under the Garn Act also prohibit the
imposition of a prepayment penalty upon the acceleration of a loan pursuant to a
due-on-sale clause. The extent of the effect of the Garn Act on the average
lives and delinquency rates of the Mortgage Loans cannot be predicted. See
'Prepayment and Yield Considerations.'
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 OTS as successor to the
FHLBB is authorized to issue rules and regulations and to publish
interpretations governing implementation of Title V. The statute authorized any
state to reimpose interest rate limits by adopting before April 1, 1983, a law
or constitutional provision which expressly rejects application of the federal
law. Fifteen states have adopted laws reimposing or reserving the right to
reimpose interest rate limits. In addition, even where Title V is not so
rejected, any state is authorized to adopt a provision limiting certain other
loan charges.
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The Seller will represent and warrant in the Pooling and Servicing
Agreement to the Trustee for the benefit of Certificateholders that all Mortgage
Loans are originated in full compliance with applicable state laws, including
usury laws. See 'The Pooling and Servicing Agreement -- Assignment of Mortgage
Loans to the Trustee.'
ENFORCEABILITY OF CERTAIN PROVISIONS
Standard forms of note, mortgage and deed of trust generally 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 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 the Pooling and Servicing Agreement, late charges and prepayment
fees (to the extent permitted by law and not waived by the Servicer) will be
retained by the Servicer as additional servicing compensation.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial remedies
that may be fashioned include judicial requirements that the lender undertake
affirmative and expensive actions to determine the causes for the borrower's
default and the likelihood that the borrower will be able to reinstate the loan.
In some cases, courts have substituted their judgment for the lender's judgment
and have required lenders to reinstate loans or recast payment schedules to
accommodate borrowers who are suffering from temporary financial disability. In
some cases, courts have limited the right of lenders to foreclose if the default
under the mortgage instrument is not monetary, such as the borrower failing to
adequately maintain the property or the borrower executing a second mortgage or
deed of trust affecting the property. In other cases, some courts have been
faced with the issue of whether federal or state constitutional provisions
reflecting due process concerns for adequate notice require that borrowers under
the deeds of trust receive notices in addition to the statutorily-prescribed
minimum requirements. For the most part, these cases have upheld the notice
provisions as being reasonable or have found that the sale by a trustee under a
deed of trust or under a mortgage having a power of sale does not involve
sufficient state action to afford constitutional protections to the borrower.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following general discussion represents the opinion of Cadwalader,
Wickersham & Taft as to the anticipated material federal income tax consequences
of the purchase, ownership and disposition of Certificates. The discussion below
does not purport to address all federal income tax consequences that may be
applicable to particular categories of investors, some of which may be subject
to special rules. The authorities on which this discussion is based are subject
to change or differing interpretations, and any such change or interpretation
could apply retroactively. This discussion reflects the applicable provisions of
the Code, as well as regulations (the 'REMIC REGULATIONS') promulgated by the
U.S. Department of the Treasury on December 23, 1992. Investors should consult
their own tax advisors in determining the federal, state, local and any other
tax consequences to them of the purchase, ownership and disposition of
Certificates.
For purposes of this discussion, where the applicable Prospectus Supplement
provides for a Fixed Retained Yield with respect to the Mortgage Loans of a
Series of Certificates, references to the Mortgage Loans will be deemed to refer
to that portion of the Mortgage Loans held by the Trust Estate that does not
include the Fixed Retained Yield. References to a 'HOLDER' or
'CERTIFICATEHOLDER' in this discussion generally mean the beneficial owner of a
Certificate.
FEDERAL INCOME TAX CONSEQUENCES FOR REMIC CERTIFICATES
GENERAL
With respect to a particular Series of Certificates, an election may be
made to treat the Trust Estate or one or more segregated pools of assets therein
as one or more REMICs within the meaning of Code Section 860D. A Trust Estate or
a portion or portions thereof as to which one or more REMIC elections will be
made will be
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referred to as a 'REMIC POOL.' For purposes of this discussion, Certificates of
a Series as to which one or more REMIC elections are made are referred to as
'REMIC CERTIFICATES' and will consist of one or more Classes of 'REGULAR
CERTIFICATES' and one Class of 'RESIDUAL CERTIFICATES' in the case of each REMIC
Pool. Qualification as a REMIC requires ongoing compliance with certain
conditions. With respect to each Series of REMIC Certificates, Cadwalader,
Wickersham & Taft, counsel to the Seller, has advised the Seller that in the
firm's opinion, assuming (i) the making of an appropriate election, (ii)
compliance with the Pooling and Servicing Agreement, and (iii) compliance with
any changes in the law, including any amendments to the Code or applicable
Treasury regulations thereunder, each REMIC Pool will qualify as a REMIC. In
such case, the Regular Certificates will be considered to be 'regular interests'
in the REMIC Pool and generally will be treated for federal income tax purposes
as if they were newly originated debt instruments, and the Residual Certificates
will be considered to be 'residual interests' in the REMIC Pool. The Prospectus
Supplement for each Series of Certificates will indicate whether one or more
REMIC elections with respect to the related Trust Estate will be made, in which
event references to 'REMIC' or 'REMIC POOL' herein shall be deemed to refer to
each such REMIC Pool.
STATUS OF REMIC CERTIFICATES
REMIC Certificates held by a domestic building and loan association will
constitute 'a regular or residual interest in a REMIC' within the meaning of
Code Section 7701(a)(19)(C)(xi) in the same proportion that the assets of the
REMIC Pool would be treated as 'loans . . . secured by an interest in real
property which is . . . residential real property' within the meaning of Code
Section 7701(a)(19)(C)(v) or as other assets described in Code Section
7701(a)(19)(C). REMIC Certificates held by a real estate investment trust will
constitute 'real estate assets' within the meaning of Code Section 856(c)(4)(A),
and interest on the Regular Certificates and income with respect to Residual
Certificates 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) in the same proportion that, for both purposes, the assets
of the REMIC Pool would be so treated. If at all times 95% or more of the assets
of the REMIC Pool qualify for each of the foregoing treatments, the REMIC
Certificates will qualify for the corresponding status in their entirety. For
purposes of Code Section 856(c)(4)(A), payments of principal and interest on the
Mortgage Loans that are reinvested pending distribution to holders of REMIC
Certificates qualify for such treatment. Where two REMIC Pools are a part of a
tiered structure they will be treated as one REMIC for purposes of the tests
described above respecting asset ownership of more or less than 95%. In
addition, if the assets of the REMIC include Buy-Down Loans, it is possible that
the percentage of such assets constituting 'loans . . . secured by an interest
in real property which is . . . residential real property' for purposes of Code
Section 7701(a)(19)(C)(v) may be required to be reduced by the amount of the
related Buy-Down Funds. Regular Certificates will represent 'qualified
mortgages,' within the meaning of Code Section 860G(a)(3), for other REMICs and
'permitted assets,' within the meaning of Code Section 860L(c), for financial
asset securitization investment trusts. REMIC Certificates held by a regulated
investment company will not constitute 'Government securities' within the
meaning of Code Section 851(b)(3)(A)(i). REMIC Certificates held by certain
financial institutions will constitute an 'evidence of indebtedness' within the
meaning of Code Section 582(c)(1). The Small Business Job Protection Act of 1996
(the 'SBJPA OF 1996') repealed the reserve method for bad debts of domestic
building and loan associations and mutual savings banks, and thus has eliminated
the asset category of 'qualifying real property loans' in former Code Section
593(d) for taxable years beginning after December 31, 1995. The requirement in
the SBJPA of 1996 that such institutions must 'recapture' a portion of their
existing bad debt reserves is suspended if a certain portion of their assets are
maintained in 'residential loans' under Code Section 7701(a)(19)(C)(v), but only
if such loans were made to acquire, construct or improve the related real
property and not for the purpose of refinancing. However, no effort will be made
to identify the portion of the Mortgage Loans of any Series meeting this
requirement, and no representation is made in this regard.
QUALIFICATION AS A REMIC
In order for the REMIC Pool to qualify as a REMIC, there must be ongoing
compliance on the part of the REMIC Pool with the requirements set forth in the
Code. The REMIC Pool must fulfill an asset test, which requires that no more
than a de minimis portion of the assets of the REMIC Pool, as of the close of
the third calendar month beginning after the 'STARTUP DAY' (which for purposes
of this discussion is the date of issuance
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of the REMIC Certificates) and at all times thereafter, may consist of assets
other than 'qualified mortgages' and 'permitted investments.' The REMIC
Regulations provide a safe harbor pursuant to which the de minimis requirement
will be met if at all times the aggregate adjusted basis of the nonqualified
assets is less than 1% of the aggregate adjusted basis of all the REMIC Pool's
assets. An entity that fails to meet the safe harbor may nevertheless
demonstrate that it holds no more than a de minimis amount of nonqualified
assets. A REMIC Pool also must provide 'reasonable arrangements' to prevent its
residual interests from being held by 'disqualified organizations' or agents
thereof and must furnish applicable tax information to transferors or agents
that violate this requirement. See '-- Taxation of Residual Certificates --
Tax-Related Restrictions on Transfer of Residual Certificates -- Disqualified
Organizations.'
A qualified mortgage is any obligation that is principally secured by an
interest in real property and that is either transferred to the REMIC Pool on
the Startup Day or is purchased by the REMIC Pool within a three-month period
thereafter pursuant to a fixed price contract in effect on the Startup Day.
Qualified mortgages include whole mortgage loans, such as the Mortgage Loans,
and, generally, certificates of beneficial interest in a grantor trust that
holds mortgage loans and regular interests in another REMIC, such as lower-tier
regular interests in a tiered REMIC. The REMIC Regulations specify that loans
secured by timeshare interests and shares held by a tenant stockholder in a
cooperative housing corporation can be qualified mortgages. A qualified mortgage
includes a qualified replacement mortgage, which is any property that would have
been treated as a qualified mortgage if it were transferred to the REMIC Pool on
the Startup Day and that is received either (i) in exchange for any qualified
mortgage within a three-month period thereafter or (ii) in exchange for a
'defective obligation' within a two-year period thereafter. A 'defective
obligation' includes (i) a mortgage in default or as to which default is
reasonably foreseeable, (ii) a mortgage as to which a customary representation
or warranty made at the time of transfer to the REMIC Pool has been breached,
(iii) a mortgage that was fraudulently procured by the mortgagor, and (iv) a
mortgage that was not in fact principally secured by real property (but only if
such mortgage is disposed of within 90 days of discovery). A Mortgage Loan that
is 'defective' as described in clause (iv) that is not sold or, if within two
years of the Startup Day, exchanged, within 90 days of discovery, ceases to be a
qualified mortgage after such 90-day period.
Permitted investments include cash flow investments, qualified reserve
assets, and foreclosure property. A cash flow investment is an investment,
earning a return in the nature of interest, of amounts received on or with
respect to qualified mortgages for a temporary period, not exceeding 13 months,
until the next scheduled distribution to holders of interests in the REMIC Pool.
A qualified reserve asset is any intangible property held for investment that is
part of any reasonably required reserve maintained by the REMIC Pool to provide
for payments of expenses of the REMIC Pool or amounts due on the regular or
residual interests in the event of defaults (including delinquencies) on the
qualified mortgages, lower than expected reinvestment returns, prepayment
interest shortfalls and certain other contingencies. The reserve fund will be
disqualified if more than 30% of the gross income from the assets in such fund
for the year is derived from the sale or other disposition of property held for
less than three months, unless required to prevent a default on the regular
interests caused by a default on one or more qualified mortgages. A reserve fund
must be reduced 'promptly and appropriately' as payments on the Mortgage Loans
are received. Foreclosure property is real property acquired by the REMIC Pool
in connection with the default or imminent default of a qualified mortgage and
generally not held beyond the close of the third calendar year following the
year in which such property is acquired with an extension that may be granted by
the Internal Revenue Service.
In addition to the foregoing requirements, the various interests in a REMIC
Pool also must meet certain requirements. All of the interests in a REMIC Pool
must be either of the following: (i) one or more classes of regular interests or
(ii) a single class of residual interests on which distributions, if any, are
made pro rata. A regular interest is an interest in a REMIC Pool that is issued
on the Startup Day with fixed terms, is designated as a regular interest, and
unconditionally entitles the holder to receive a specified principal amount (or
other similar amount), and provides that interest payments (or other similar
amounts), if any, at or before maturity either are payable based on a fixed rate
or a qualified variable rate, or consist of a specified, nonvarying portion of
the interest payments on qualified mortgages. Such a specified portion may
consist of a fixed number of basis points, a fixed percentage of the total
interest, or a qualified variable rate, inverse variable rate or difference
between two fixed or qualified variable rates on some or all of the qualified
mortgages. The specified principal amount of a regular interest that provides
for interest payments consisting of a specified, nonvarying portion of interest
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payments on qualified mortgages may be zero. A residual interest is an interest
in a REMIC Pool other than a regular interest that is issued on the Startup Day
and that is designated as a residual interest. An interest in a REMIC Pool may
be treated as a regular interest even if payments of principal with respect to
such interest are subordinated to payments on other regular interests or the
residual interest in the REMIC Pool, and are dependent on the absence of
defaults or delinquencies on qualified mortgages or permitted investments, lower
than reasonably expected returns on permitted investments, unanticipated
expenses incurred by the REMIC Pool or prepayment interest shortfalls.
Accordingly, the Regular Certificates of a Series will constitute one or more
classes of regular interests, and the Residual Certificates with respect to that
Series will constitute a single class of residual interests on which
distributions are made pro rata.
If an entity, such as the REMIC Pool, fails to comply with one or more of
the ongoing requirements of the Code for REMIC status during any taxable year,
the Code provides that the entity will not be treated as a REMIC for such year
and thereafter. In this event, an entity with multiple classes of ownership
interests may be treated as a separate association taxable as a corporation
under Treasury regulations, and the Regular Certificates may be treated as
equity interests therein. The Code, however, authorizes the Treasury Department
to issue regulations that address situations where failure to meet one or more
of the requirements for REMIC status occurs inadvertently and in good faith, and
disqualification of the REMIC Pool would occur absent regulatory relief.
Investors should be aware, however, that the Conference Committee Report to the
Tax Reform Act of 1986 (the '1986 ACT') indicates that the relief may be
accompanied by sanctions, such as the imposition of a corporate tax on all or a
portion of the REMIC Pool's income for the period of time in which the
requirements for REMIC status are not satisfied.
TAXATION OF REGULAR CERTIFICATES
General
In general, interest, original issue discount, and market discount on a
Regular Certificate will be treated as ordinary income to a holder of the
Regular Certificate (the 'REGULAR CERTIFICATEHOLDER'), and principal payments on
a Regular Certificate will be treated as a return of capital to the extent of
the Regular Certificateholder's basis in the Regular Certificate allocable
thereto. Regular Certificateholders must use the accrual method of accounting
with regard to Regular Certificates, regardless of the method of accounting
otherwise used by such Regular Certificateholders.
Original Issue Discount
Compound Interest Certificates will be, and other classes of Regular
Certificates may be, issued with 'original issue discount' within the meaning of
Code Section 1273(a). Holders of any Class or Subclass of Regular Certificates
having original issue discount generally must include original issue discount in
ordinary income for federal income tax purposes as it accrues, in accordance
with a constant interest method that takes into account the compounding of
interest, in advance of receipt of the cash attributable to such income. The
following discussion is based in part on temporary and final Treasury
regulations issued on February 2, 1994, as amended on June 14, 1996, (the 'OID
REGULATIONS') under Code Sections 1271 through 1273 and 1275 and in part on the
provisions of the 1986 Act. Regular Certificateholders should be aware, however,
that the OID Regulations do not adequately address certain issues relevant to
prepayable securities, such as the Regular Certificates. To the extent such
issues are not addressed in such regulations, the Seller intends to apply the
methodology described in the Conference Committee Report to the 1986 Act. No
assurance can be provided that the Internal Revenue Service will not take a
different position as to those matters not currently addressed by the OID
Regulations. Moreover, the OID Regulations include an anti-abuse rule allowing
the Internal Revenue Service to apply or depart from the OID Regulations where
necessary or appropriate to ensure a reasonable tax result in light of the
applicable statutory provisions. A tax result will not be considered
unreasonable under the anti-abuse rule in the absence of a substantial effect on
the present value of a taxpayer's tax liability. Investors are advised to
consult their own tax advisors as to the discussion herein and the appropriate
method for reporting interest and original issue discount with respect to the
Regular Certificates.
Each Regular Certificate (except to the extent described below with respect
to a Regular Certificate on which principal is distributed in a single
installment or by lots of specified principal amounts upon the request of
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a Certificateholder or by random lot (a 'NON-PRO RATA CERTIFICATE')) will be
treated as a single installment obligation for purposes of determining the
original issue discount includible in a Regular Certificateholder's income. The
total amount of original issue discount on a Regular Certificate is the excess
of the 'stated redemption price at maturity' of the Regular Certificate over its
'issue price.' The issue price of a Class of Regular Certificates offered
pursuant to this Prospectus generally is the first price at which a substantial
amount of such Class is sold to the public (excluding bond houses, brokers and
underwriters). Although unclear under the OID Regulations, the Seller intends to
treat the issue price of a Class as to which there is no substantial sale as of
the issue date or that is retained by the Seller as the fair market value of
that Class as of the issue date. The issue price of a Regular Certificate also
includes any amount paid by an initial Regular Certificateholder for accrued
interest that relates to a period prior to the issue date of the Regular
Certificate, unless the Regular Certificateholder elects on its federal income
tax return to exclude such amount from the issue price and to recover it on the
first Distribution Date. The stated redemption price at maturity of a Regular
Certificate always includes the original principal amount of the Regular
Certificate, but generally will not include distributions of interest if such
distributions constitute 'qualified stated interest.' Under the OID Regulations,
qualified stated interest generally means interest payable at a single fixed
rate or a qualified variable rate (as described below) provided that such
interest payments are unconditionally payable at intervals of one year or less
during the entire term of the Regular Certificate. Because there is no penalty
or default remedy in the case of nonpayment of interest with respect to a
Regular Certificate, it is possible that no interest on any Class of Regular
Certificates will be treated as qualified stated interest. However, except as
provided in the following three sentences or in the applicable Prospectus
Supplement, because the underlying Mortgage Loans provide for remedies in the
event of default, the Seller intends to treat interest with respect to the
Regular Certificates as qualified stated interest. Distributions of interest on
a Compound Interest Certificate, or on other Regular Certificates with respect
to which deferred interest will accrue, will not constitute qualified stated
interest, in which case the stated redemption price at maturity of such Regular
Certificates includes all distributions of interest as well as principal
thereon. Likewise, the Seller intends to treat an interest-only Class or a Class
on which interest is substantially disproportionate to its principal amount (a
so-called 'super-premium' Class) as having no qualified stated interest. Where
the interval between the issue date and the first Distribution Date on a Regular
Certificate is shorter than the interval between subsequent Distribution Dates,
the interest attributable to the additional days will be included in the stated
redemption price at maturity.
Under a de minimis rule, original issue discount on a Regular Certificate
will be considered to be zero if such original issue discount is less than 0.25%
of the stated redemption price at maturity of the Regular Certificate multiplied
by the weighted average maturity of the Regular Certificate. For this purpose,
the weighted average maturity of the Regular Certificate is computed as the sum
of the amounts determined by multiplying the number of full years (i.e.,
rounding down partial 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 Regular Certificate and the
denominator of which is the stated redemption price at maturity of the Regular
Certificate. The Conference Committee Report to the 1986 Act provides that the
schedule of such distributions should be determined in accordance with the
assumed rate of prepayment of the Mortgage Loans (the 'PREPAYMENT ASSUMPTION')
and the anticipated reinvestment rate, if any, relating to the Regular
Certificates. The Prepayment Assumption with respect to a Series of Regular
Certificates will be set forth in the applicable Prospectus Supplement. Holders
generally must report de minimis original issue discount pro rata as principal
payments are received, and such income will be capital gain if the Regular
Certificate is held as a capital asset. Under the OID Regulations, however,
Regular Certificateholders may elect to accrue all de minimis original issue
discount as well as market discount and market premium, under the constant yield
method. See '-- Election to Treat All Interest Under the Constant Yield Method.'
A Regular Certificateholder generally must include in gross income for any
taxable year the sum of the 'daily portions,' as defined below, of the original
issue discount on the Regular Certificate accrued during an accrual period for
each day on which it holds the Regular Certificate, including the date of
purchase but excluding the date of disposition. The Seller will treat the
monthly period ending on the day before each Distribution Date as the accrual
period. With respect to each Regular Certificate, a calculation will be made of
the original issue discount that accrues during each successive full accrual
period (or shorter period from the date of original issue) that ends on the day
before the related Distribution Date on the Regular Certificate. The
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Conference Committee Report to the 1986 Act states that the rate of accrual of
original issue discount is intended to be based on the Prepayment Assumption.
Other than as discussed below with respect to a Non-Pro Rata Certificate, the
original issue discount accruing in a full accrual period would be the excess,
if any, of (i) the sum of (a) the present value of all of the remaining
distributions to be made on the Regular Certificate as of the end of that
accrual period, and (b) the distributions made on the Regular Certificate during
the accrual period that are included in the Regular Certificate's stated
redemption price at maturity, over (ii) the adjusted issue price of the Regular
Certificate at the beginning of the accrual period. The present value of the
remaining distributions referred to in the preceding sentence is calculated
based on (i) the yield to maturity of the Regular Certificate at the issue date,
(ii) events (including actual prepayments) that have occurred prior to the end
of the accrual period, and (iii) the Prepayment Assumption. For these purposes,
the adjusted issue price of a Regular Certificate at the beginning of any
accrual period equals the issue price of the Regular Certificate, increased by
the aggregate amount of original issue discount with respect to the Regular
Certificate that accrued in all prior accrual periods and reduced by the amount
of distributions included in the Regular Certificate's stated redemption price
at maturity that were made on the Regular Certificate in such prior periods. The
original issue discount accruing during any accrual period (as determined in
this paragraph) will then be divided by the number of days in the period to
determine the daily portion of original issue discount for each day in the
period. With respect to an initial accrual period shorter than a full accrual
period, the daily portions of original issue discount must be determined
according to an appropriate allocation under any reasonable method.
Under the method described above, the daily portions of original issue
discount required to be included in income by a Regular Certificateholder
generally will increase to take into account prepayments on the Regular
Certificates as a result of prepayments on the Mortgage Loans that exceed the
Prepayment Assumption, and generally will decrease (but not below zero for any
period) if the prepayments are slower than the Prepayment Assumption. An
increase in prepayments on the Mortgage Loans with respect to a Series of
Regular Certificates can result in both a change in the priority of principal
payments with respect to certain Classes of Regular Certificates and either an
increase or decrease in the daily portions of original issue discount with
respect to such Regular Certificates.
In the case of a Non-Pro Rata Certificate, the Seller intends to determine
the yield to maturity of such Certificate based upon the anticipated payment
characteristics of the Class as a whole under the Prepayment Assumption. In
general, the original issue discount accruing on each Non-Pro Rata Certificate
in a full accrual period would be its allocable share of the original issue
discount with respect to the entire Class, as determined in accordance with the
preceding paragraph. However, in the case of a distribution in retirement of the
entire unpaid principal balance of any Non-Pro Rata Certificate (or portion of
such unpaid principal balance), (a) the remaining unaccrued original issue
discount allocable to such Certificate (or to such portion) will accrue at the
time of such distribution, and (b) the accrual of original issue discount
allocable to each remaining Certificate of such Class (or the remaining unpaid
principal balance of a partially redeemed Non-Pro Rata Certificate after a
distribution of principal has been received) will be adjusted by reducing the
present value of the remaining payments on such Class and the adjusted issue
price of such Class to the extent attributable to the portion of the unpaid
principal balance thereof that was distributed. The Seller believes that the
foregoing treatment is consistent with the 'pro rata prepayment' rules of the
OID Regulations, but with the rate of accrual of original issue discount
determined based on the Prepayment Assumption for the Class as a whole.
Investors are advised to consult their tax advisors as to this treatment.
Acquisition Premium
A purchaser of a Regular Certificate at a price greater than its adjusted
issue price but less than its stated redemption price at maturity will be
required to include in gross income the daily portions of the original issue
discount on the Regular Certificate reduced pro rata by a fraction, the
numerator of which is the excess of its purchase price over such adjusted issue
price and the denominator of which is the excess of the remaining stated
redemption price at maturity over the adjusted issue price. Alternatively, such
a subsequent purchaser may elect to treat all such acquisition premium under the
constant yield method, as described below under the heading '-- Election to
Treat All Interest Under the Constant Yield Method.'
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Variable Rate Regular Certificates
Regular Certificates may provide for interest based on a variable rate.
Under the OID Regulations, interest is treated as payable at a variable rate if,
generally, (i) the issue price does not exceed the original principal balance by
more than a specified amount and (ii) the interest compounds or is payable at
least annually at current values of (a) one or more 'qualified floating rates,'
(b) a single fixed rate and one or more qualified floating rates, (c) a single
'objective rate,' or (d) a single fixed rate and a single objective rate that is
a 'qualified inverse floating rate.' A floating rate is a qualified floating
rate if variations in the rate can reasonably be expected to measure
contemporaneous variations in the cost of newly borrowed funds, where such rate
is subject to a fixed multiple that is greater than 0.65 but not more than 1.35.
Such rate may also be increased or decreased by a fixed spread or subject to a
fixed cap or floor, or a cap or floor that is not reasonably expected as of the
issue date to affect the yield of the instrument significantly. An objective
rate is any rate (other than a qualified floating rate) that is determined using
a single fixed formula and that is based on objective financial or economic
information, provided that such information is not (i) within the control of the
issuer or a related party or (ii) unique to the circumstances of the issuer or a
related party. A qualified inverse floating rate is a rate equal to a fixed rate
minus a qualified floating rate that inversely reflects contemporaneous
variations in the cost of newly borrowed funds; an inverse floating rate that is
not a qualified inverse floating rate may nevertheless be an objective rate. A
Class of Regular Certificates may be issued under this Prospectus that does not
have a variable rate under the foregoing rules, for example, a Class that bears
different rates at different times during the period it is outstanding such that
it is considered significantly 'front-loaded' or 'back-loaded' within the
meaning of the OID Regulations. It is possible that such a Class may be
considered to bear 'contingent interest' within the meaning of the OID
Regulations. The OID Regulations, as they relate to the treatment of contingent
interest, are by their terms not applicable to Regular Certificates. However, if
final regulations dealing with contingent interest with respect to Regular
Certificates apply the same principles as the OID Regulations, such regulations
may lead to different timing of income inclusion than would be the case under
the OID Regulations for non-contingent debt instruments. Furthermore,
application of such principles could lead to the characterization of gain on the
sale of contingent interest Regular Certificates as ordinary income. Investors
should consult their tax advisors regarding the appropriate treatment of any
Regular Certificate that does not pay interest at a fixed rate or variable rate
as described in this paragraph.
Under the REMIC Regulations, a Regular Certificate (i) bearing a rate that
qualifies as a variable rate under the OID Regulations that is tied to current
values of a variable rate (or the highest, lowest or average of two or more
variable rates, including a rate based on the average cost of funds of one or
more financial institutions), or a positive or negative multiple of such a rate
(plus or minus a specified number of basis points), or that represents a
weighted average of rates on some or all of the Mortgage Loans, including such a
rate that is subject to one or more caps or floors, or (ii) bearing one or more
such variable rates for one or more periods, or one or more fixed rates for one
or more periods, and a different variable rate or fixed rate for other periods,
qualifies as a regular interest in a REMIC. Accordingly, unless otherwise
indicated in the applicable Prospectus Supplement, the Seller intends to treat
Regular Certificates that qualify as regular interests under this rule in the
same manner as obligations bearing a variable rate for original issue discount
reporting purposes.
The amount of original issue discount with respect to a Regular Certificate
bearing a variable rate of interest will accrue in the manner described above
under '-- Original Issue Discount,' with the yield to maturity and future
payments on such Regular Certificate generally to be determined by assuming that
interest will be payable for the life of the Regular Certificate based on the
initial rate (or, if different, the value of the applicable variable rate as of
the pricing date) for the relevant Class. Unless required otherwise by
applicable final regulations, the Seller intends to treat such variable interest
as qualified stated interest, other than variable interest on an interest-only
or super-premium Class, which will be treated as non-qualified stated interest
includible in the stated redemption price at maturity. Ordinary income
reportable for any period will be adjusted based on subsequent changes in the
applicable interest rate index.
Although unclear under the OID Regulations, unless required otherwise by
applicable final regulations, the Seller intends to treat Regular Certificates
bearing an interest rate that is a weighted average of the net interest rates on
Mortgage Loans as having qualified stated interest, except to the extent that
initial 'teaser' rates cause sufficiently 'back-loaded' interest to create more
than de minimis original issue discount. The yield on such Regular Certificates
for purposes of accruing original issue discount will be a hypothetical fixed
rate based on the
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fixed rates, in the case of fixed-rate Mortgage Loans, and initial 'teaser
rates' followed by fully indexed rates, in the case of adjustable-rate Mortgage
Loans. In the case of adjustable-rate Mortgage Loans, the applicable index used
to compute interest on the Mortgage Loans in effect on the pricing date (or
possibly the issue date) will be deemed to be in effect beginning with the
period in which the first weighted average adjustment date occurring after the
issue date occurs. Adjustments will be made in each accrual period either
increasing or decreasing the amount of ordinary income reportable to reflect the
actual Pass-Through Rate on the Regular Certificates.
Market Discount
A purchaser of a Regular Certificate also may be subject to the market
discount rules of Code Sections 1276 through 1278. Under these sections and the
principles applied by the OID Regulations in the context of original issue
discount, 'market discount' is the amount by which the purchaser's original
basis in the Regular Certificate (i) is exceeded by the then-current principal
amount of the Regular Certificate, or (ii) in the case of a Regular Certificate
having original issue discount, is exceeded by the adjusted issue price of such
Regular Certificate at the time of purchase. Such purchaser generally will be
required to recognize ordinary income to the extent of accrued market discount
on such Regular Certificate as distributions includible in the stated redemption
price at maturity thereof are received, in an amount not exceeding any such
distribution. Such market discount would accrue in a manner to be provided in
Treasury regulations and should take into account the Prepayment Assumption. The
Conference Committee Report to the 1986 Act provides that until such regulations
are issued, such market discount would accrue either (i) on the basis of a
constant interest rate, or (ii) in the ratio of stated interest allocable to the
relevant period to the sum of the interest for such period plus the remaining
interest as of the end of such period, or in the case of a Regular Certificate
issued with original issue discount, in the ratio of original issue discount
accrued for the relevant period to the sum of the original issue discount
accrued for such period plus the remaining original issue discount as of the end
of such period. Such purchaser also generally will be required to treat a
portion of any gain on a sale or exchange of the Regular Certificate as ordinary
income to the extent of the market discount accrued to the date of disposition
under one of the foregoing methods, less any accrued market discount previously
reported as ordinary income as partial distributions in reduction of the stated
redemption price at maturity were received. Such purchaser will be required to
defer deduction of a portion of the excess of the interest paid or accrued on
indebtedness incurred to purchase or carry a Regular Certificate over the
interest distributable thereon. The deferred portion of such interest expense in
any taxable year generally will not exceed the accrued market discount on the
Regular Certificate for such year. Any such deferred interest expense is, in
general, allowed as a deduction not later than the year in which the related
market discount income is recognized or the Regular Certificate is disposed of.
As an alternative to the inclusion of market discount in income on the foregoing
basis, the Regular Certificateholder may elect to include market discount in
income currently as it accrues on all market discount instruments acquired by
such Regular Certificateholder in that taxable year or thereafter, in which case
the interest deferral rule will not apply. See '-- Election to Treat All
Interest Under the Constant Yield Method' below regarding an alternative manner
in which such election may be deemed to be made.
By analogy to the OID Regulations, market discount with respect to a
Regular Certificate will be considered to be zero if such market discount is
less than 0.25% of the remaining stated redemption price at maturity of such
Regular Certificate multiplied by the weighted average maturity of the Regular
Certificate (determined as described above in the third paragraph under
'-- Original Issue Discount') remaining after the date of purchase. It appears
that de minimis market discount would be reported in a manner similar to de
minimis original issue discount. See '-- Original Issue Discount' above.
Treasury regulations implementing the market discount rules have not yet been
issued, and therefore investors should consult their own tax advisors regarding
the application of these rules. Investors should also consult Revenue Procedure
92-67 concerning the elections to include market discount in income currently
and to accrue market discount on the basis of the constant yield method.
Premium
A Regular Certificate purchased at a cost greater than its remaining stated
redemption price at maturity generally is considered to be purchased at a
premium. If the Regular Certificateholder holds such Regular Certificate as a
'capital asset' within the meaning of Code Section 1221, the Regular
Certificateholder may elect under Code Section 171 to amortize such premium
under the constant yield method. Such election will
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apply to all debt obligations acquired by the Regular Certificateholder at a
premium held in that taxable year or thereafter, unless revoked with the
permission of the Internal Revenue Service. Final Treasury Regulations issued
under Code Section 171 do not by their terms apply to prepayable debt
instruments such as the Regular Certificates. However, the Conference Committee
Report to the 1986 Act indicates a Congressional intent that the same rules that
apply to the accrual of market discount on installment obligations will also
apply to amortizing bond premium under Code Section 171 on installment
obligations such as the Regular Certificates, although it is unclear whether the
alternatives to the constant interest method described above under '-- Market
Discount' are available. Amortizable bond premium will be treated as an offset
to interest income on a Regular Certificate, rather than as a separate deduction
item. See '-- Election to Treat All Interest Under the Constant Yield Method'
below regarding an alternative manner in which the Code Section 171 election may
be deemed to be made.
Election to Treat All Interest Under the Constant Yield Method
A holder of a debt instrument such as a Regular Certificate may elect to
treat all interest that accrues on the instrument using the constant yield
method, with none of the interest being treated as qualified stated interest.
For purposes of applying the constant yield method to a debt instrument subject
to such an election, (i) 'interest' includes stated interest, original issue
discount, de minimis original issue discount, market discount and de minimis
market discount, as adjusted by any amortizable bond premium or acquisition
premium and (ii) the debt instrument is treated as if the instrument were issued
on the holder's acquisition date in the amount of the holder's adjusted basis
immediately after acquisition. It is unclear whether, for this purpose, the
initial Prepayment Assumption would continue to apply or if a new prepayment
assumption as of the date of the holder's acquisition would apply. A holder
generally may make such an election on an instrument by instrument basis or for
a class or group of debt instruments. However, if the holder makes such an
election with respect to a debt instrument with amortizable bond premium or with
market discount, the holder is deemed to have made elections to amortize bond
premium or to report market discount income currently as it accrues under the
constant yield method, respectively, for all premium bonds held or market
discount bonds acquired by the holder in the same taxable year or thereafter.
The election is made on the holder's federal income tax return for the year in
which the debt instrument is acquired and is irrevocable except with the
approval of the Internal Revenue Service. Investors should consult their own tax
advisors regarding the advisability of making such an election.
Treatment of Losses
Regular Certificateholders will be required to report income with respect
to Regular Certificates on the accrual method of accounting, without giving
effect to delays or reductions in distributions attributable to defaults or
delinquencies on the Mortgage Loans, except to the extent it can be established
that such losses are uncollectible. Accordingly, the holder of a Regular
Certificate, particularly a Subordinated Certificate, may have income, or may
incur a diminution in cash flow as a result of a default or delinquency, but may
not be able to take a deduction (subject to the discussion below) for the
corresponding loss until a subsequent taxable year. In this regard, investors
are cautioned that while they may generally cease to accrue interest income if
it reasonably appears that the interest will be uncollectible, the Internal
Revenue Service may take the position that original issue discount must continue
to be accrued in spite of its uncollectibility until the debt instrument is
disposed of in a taxable transaction or becomes worthless in accordance with the
rules of Code Section 166. To the extent the rules of Code Section 166 regarding
bad debts are applicable, it appears that Regular Certificateholders that are
corporations or that otherwise hold the Regular Certificates in connection with
a trade or business should in general be allowed to deduct as an ordinary loss
such loss with respect to principal sustained during the taxable year on account
of any such Regular Certificates becoming wholly or partially worthless, and
that, in general, Regular Certificateholders that are not corporations and do
not hold the Regular Certificates in connection with a trade or business should
be allowed to deduct as a short-term capital loss any loss sustained during the
taxable year on account of a portion of any such Regular Certificates becoming
wholly worthless. Although the matter is not free from doubt, such non-corporate
Regular Certificateholders should be allowed a bad debt deduction at such time
as the principal balance of such Regular Certificates is reduced to reflect
losses resulting from any liquidated Mortgage Loans. The Internal Revenue
Service, however, could take the position that non-corporate holders will be
allowed a bad debt deduction to reflect such losses only after all the Mortgage
Loans remaining in the Trust Estate have been liquidated or the applicable Class
of Regular Certificates has been otherwise retired.
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The Internal Revenue Service could also assert that losses on the Regular
Certificates are deductible based on some other method that may defer such
deductions for all holders, such as reducing future cash flow for purposes of
computing original issue discount. This may have the effect of creating
'negative' original issue discount which would be deductible only against future
positive original issue discount or otherwise upon termination of the Class.
Regular Certificateholders are urged to consult their own tax advisors regarding
the appropriate timing, amount and character of any loss sustained with respect
to such Regular Certificates. While losses attributable to interest previously
reported as income should be deductible as ordinary losses by both corporate and
non-corporate holders, the Internal Revenue Service may take the position that
losses attributable to accrued original issue discount may only be deducted as
capital losses in the case of non-corporate holders who do not hold the Regular
Certificates in connection with a trade or business. Special loss rules are
applicable to banks and thrift institutions, including rules regarding reserves
for bad debts. Such taxpayers are advised to consult their tax advisors
regarding the treatment of losses on Regular Certificates.
Sale or Exchange of Regular Certificates
If a Regular Certificateholder sells or exchanges a Regular Certificate,
the Regular Certificateholder will recognize gain or loss equal to the
difference, if any, between the amount received and its adjusted basis in the
Regular Certificate. The adjusted basis of a Regular Certificate generally will
equal the cost of the Regular Certificate to the seller, increased by any
original issue discount or market discount previously included in the seller's
gross income with respect to the Regular Certificate and reduced by amounts
included in the stated redemption price at maturity of the Regular Certificate
that were previously received by the seller, by any amortized premium and by any
recognized losses.
Except as described above with respect to market discount, and except as
provided in this paragraph, any gain or loss on the sale or exchange of a
Regular Certificate realized by an investor who holds the Regular Certificate as
a capital asset will be capital gain or loss and will be long-term or short-term
depending on whether the Regular Certificate has been held for the related
capital gain holding period. Such gain will be treated as ordinary income (i) if
a Regular Certificate is held as part of a 'conversion transaction' as defined
in Code Section 1258(c), up to the amount of interest that would have accrued on
the Regular Certificateholder's net investment in the conversion transaction at
120% of the appropriate applicable federal rate under Code Section 1274(d) in
effect at the time the taxpayer entered into the transaction minus any amount
previously treated as ordinary income with respect to any prior disposition of
property that was held as part of such transaction, (ii) in the case of a
non-corporate taxpayer, to the extent such taxpayer has made an election under
Code Section 163(d)(4) to have net capital gains taxed as investment income at
ordinary income rates, or (iii) to the extent that such gain does not exceed the
excess, if any, of (a) the amount that would have been includible in the gross
income of the holder if its yield on such Regular Certificate were 110% of the
applicable federal rate as of the date of purchase, over (b) the amount of
income actually includible in the gross income of such holder with respect to
such Regular Certificate. In addition, gain or loss recognized from the sale of
a Regular Certificate by certain banks or thrift institutions will be treated as
ordinary income or loss pursuant to Code Section 582(c). Generally, short-term
capital gains of certain non-corporate taxpayers are subject to the same tax
rate as the ordinary income of such taxpayers (39.6%) for property held for not
more than one year, and long-term capital gains of such taxpayers are subject to
a maximum tax rate of 20% for property held for more than one year. The maximum
tax rate for corporations is the same with respect to both ordinary income and
capital gains.
TAXATION OF RESIDUAL CERTIFICATES
Taxation of REMIC Income
Generally, the 'daily portions' of REMIC taxable income or net loss will be
includible as ordinary income or loss in determining the federal taxable income
of holders of Residual Certificates ('RESIDUAL HOLDERS'), and will not be taxed
separately to the REMIC Pool. The daily portions of REMIC taxable income or net
loss of a Residual Holder are determined by allocating the REMIC Pool's taxable
income or net loss for each calendar quarter ratably to each day in such quarter
and by allocating such daily portion among the Residual Holders in proportion to
their respective holdings of Residual Certificates in the REMIC Pool on such
day. REMIC taxable income is generally determined in the same manner as the
taxable income of an individual using the accrual
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method of accounting, except that (i) the limitations on deductibility of
investment interest expense and expenses for the production of income do not
apply, (ii) all bad loans will be deductible as business bad debts and (iii) the
limitation on the deductibility of interest and expenses related to tax-exempt
income will apply. The REMIC Pool's gross income includes interest, original
issue discount income and market discount income, if any, on the Mortgage Loans,
reduced by amortization of any premium on the Mortgage Loans, plus income from
amortization of issue premium, if any, on the Regular Certificates, plus income
on reinvestment of cash flows and reserve assets, plus any cancellation of
indebtedness income upon allocation of realized losses to the Regular
Certificates. The REMIC Pool's deductions include interest and original issue
discount expense on the Regular Certificates, servicing fees on the Mortgage
Loans, other administrative expenses of the REMIC Pool and realized losses on
the Mortgage Loans. The requirement that Residual Holders report their pro rata
share of taxable income or net loss of the REMIC Pool will continue until there
are no Certificates of any class of the related Series outstanding.
The taxable income recognized by a Residual Holder in any taxable year will
be affected by, among other factors, the relationship between the timing of
recognition of interest and original issue discount or market discount income or
amortization of premium with respect to the Mortgage Loans, on the one hand, and
the timing of deductions for interest (including original issue discount) or
income from amortization of issue premium on the Regular Certificates, on the
other hand. In the event that an interest in the Mortgage Loans is acquired by
the REMIC Pool at a discount, and one or more of such Mortgage Loans is prepaid,
the Residual Holder may recognize taxable income without being entitled to
receive a corresponding amount of cash because (i) the prepayment may be used in
whole or in part to make distributions in reduction of principal on the Regular
Certificates and (ii) the discount on the Mortgage Loans which is includible in
income may exceed the deduction allowed upon such distributions on those Regular
Certificates on account of any unaccrued original issue discount relating to
those Regular Certificates. When there is more than one Class of Regular
Certificates that distribute principal sequentially, this mismatching of income
and deductions is particularly likely to occur in the early years following
issuance of the Regular Certificates when distributions in reduction of
principal are being made in respect of earlier Classes of Regular Certificates
to the extent that such Classes are not issued with substantial discount or are
issued at a premium. If taxable income attributable to such a mismatching is
realized, in general, losses would be allowed in later years as distributions on
the later maturing Classes of Regular Certificates are made. Taxable income may
also be greater in earlier years than in later years as a result of the fact
that interest expense deductions, expressed as a percentage of the outstanding
principal amount of such a Series of Regular Certificates, may increase over
time as distributions in reduction of principal are made on the lower yielding
Classes of Regular Certificates, whereas, to the extent the REMIC Pool consists
of fixed-rate Mortgage Loans, interest income with respect to any given Mortgage
Loan will remain constant over time as a percentage of the outstanding principal
amount of that loan. Consequently, Residual Holders must have sufficient other
sources of cash to pay any federal, state, or local income taxes due as a result
of such mismatching or unrelated deductions against which to offset such income,
subject to the discussion of 'excess inclusions' below under '-- Limitations on
Offset or Exemption of REMIC Income.' The timing of such mismatching of income
and deductions described in this paragraph, if present with respect to a Series
of Certificates, may have a significant adverse effect upon a Residual Holder's
after-tax rate of return. In addition, a Residual Holder's taxable income during
certain periods may exceed the income reflected by such Residual Holder for such
periods in accordance with generally accepted accounting principles. Investors
should consult their own accountants concerning the accounting treatment of
their investment in Residual Certificates.
Basis and Losses
The amount of any net loss of the REMIC Pool that may be taken into account
by the Residual Holder is limited to the adjusted basis of the Residual
Certificate as of the close of the quarter (or time of disposition of the
Residual Certificate if earlier), determined without taking into account the net
loss for the quarter. The initial adjusted basis of a purchaser of a Residual
Certificate is the amount paid for such Residual Certificate. Such adjusted
basis will be increased by the amount of taxable income of the REMIC Pool
reportable by the Residual Holder and will be decreased (but not below zero),
first, by a cash distribution from the REMIC Pool and, second, by the amount of
loss of the REMIC Pool reportable by the Residual Holder. Any loss that is
disallowed on account of this limitation may be carried over indefinitely with
respect to the Residual Holder as to whom
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such loss was disallowed and may be used by such Residual Holder only to offset
any income generated by the same REMIC Pool.
A Residual Holder will not be permitted to amortize directly the cost of
its Residual Certificate as an offset to its share of the taxable income of the
related REMIC Pool. However, that taxable income will not include cash received
by the REMIC Pool that represents a recovery of the REMIC Pool's basis in its
assets. Such recovery of basis by the REMIC Pool will have the effect of
amortization of the issue price of the Residual Certificates over their life.
However, in view of the possible acceleration of the income of Residual Holders
described above under 'Taxation of REMIC Income,' the period of time over which
such issue price is effectively amortized may be longer than the economic life
of the Residual Certificates.
A Residual Certificate may have a negative value if the net present value
of anticipated tax liabilities exceeds the present value of anticipated cash
flows. The REMIC Regulations appear to treat the issue price of such a residual
interest as zero rather than such negative amount for purposes of determining
the REMIC Pool's basis in its assets. The preamble to the REMIC Regulations
states that the Internal Revenue Service may provide future guidance on the
proper tax treatment of payments made by a transferor of such a residual
interest to induce the transferee to acquire the interest, and Residual Holders
should consult their own tax advisors in this regard.
Further, to the extent that the initial adjusted basis of a Residual Holder
(other than an original holder) in the Residual Certificate is greater than the
corresponding portion of the REMIC Pool's basis in the Mortgage Loans, the
Residual Holder will not recover a portion of such basis until termination of
the REMIC Pool unless future Treasury regulations provide for periodic
adjustments to the REMIC income otherwise reportable by such holder. The REMIC
Regulations currently in effect do not so provide. See '-- Treatment of Certain
Items of REMIC Income and Expense -- Market Discount' below regarding the basis
of Mortgage Loans to the REMIC Pool and '-- Sale or Exchange of a Residual
Certificate' below regarding possible treatment of a loss upon termination of
the REMIC Pool as a capital loss.
Treatment of Certain Items of REMIC Income and Expense
Although the Seller intends to compute REMIC income and expense in
accordance with the Code and applicable regulations, the authorities regarding
the determination of specific items of income and expense are subject to
differing interpretations. The Seller makes no representation as to the specific
method that it will use for reporting income with respect to the Mortgage Loans
and expenses with respect to the Regular Certificates and different methods
could result in different timing of reporting of taxable income or net loss to
Residual Holders or differences in capital gain versus ordinary income.
Original Issue Discount and Premium. Generally, the REMIC Pool's
deductions for original issue discount and income from amortization of issue
premium will be determined in the same manner as original issue discount income
on Regular Certificates as described above under '-- Taxation of Regular
Certificates -- Original Issue Discount' and '-- Variable Rate Regular
Certificates,' without regard to the de minimis rule described therein, and
'-- Premium.'
Market Discount. The REMIC Pool will have market discount income in
respect of Mortgage Loans if, in general, the basis of the REMIC Pool in such
Mortgage Loans is exceeded by their unpaid principal balances. The REMIC Pool's
basis in such Mortgage Loans is generally the fair market value of the Mortgage
Loans immediately after the transfer thereof to the REMIC Pool. The REMIC
Regulations provide that such basis is equal in the aggregate to the issue
prices of all regular and residual interests in the REMIC Pool. The accrued
portion of such market discount would be recognized currently as an item of
ordinary income in a manner similar to original issue discount. Market discount
income generally should accrue in the manner described above under '-- Taxation
of Regular Certificates -- Market Discount.'
Premium. Generally, if the basis of the REMIC Pool in the Mortgage Loans
exceeds the unpaid principal balances thereof, the REMIC Pool will be considered
to have acquired such Mortgage Loans at a premium equal to the amount of such
excess. As stated above, the REMIC Pool's basis in Mortgage Loans is the fair
market value of the Mortgage Loans, based on the aggregate of the issue prices
of the regular and residual interests in the REMIC Pool immediately after the
transfer thereof to the REMIC Pool. In a manner analogous to the discussion
above under '-- Taxation of Regular Certificates -- Premium,' a person that
holds a Mortgage Loan as a
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capital asset under Code Section 1221 may elect under Code Section 171 to
amortize premium on Mortgage Loans originated after September 27, 1985 under the
constant yield method. Amortizable bond premium will be treated as an offset to
interest income on the Mortgage Loans, rather than as a separate deduction item.
Because substantially all of the mortgagors on the Mortgage Loans are expected
to be individuals, Code Section 171 will not be available for premium on
Mortgage Loans originated on or prior to September 27, 1985. Premium with
respect to such Mortgage Loans may be deductible in accordance with a reasonable
method regularly employed by the holder thereof. The allocation of such premium
pro rata among principal payments should be considered a reasonable method;
however, the Internal Revenue Service may argue that such premium should be
allocated in a different manner, such as allocating such premium entirely to the
final payment of principal.
Limitations on Offset or Exemption of REMIC Income
A portion (or all) of the REMIC taxable income includible in determining
the federal income tax liability of a Residual Holder will be subject to special
treatment. That portion, referred to as the 'excess inclusion,' is equal to the
excess of REMIC taxable income for the calendar quarter allocable to a Residual
Certificate over the daily accruals for such quarterly period of (i) 120% of the
long-term applicable federal rate that would have applied to the Residual
Certificate (if it were a debt instrument) on the Startup Day under Code Section
1274(d), multiplied by (ii) the adjusted issue price of such Residual
Certificate at the beginning of such quarterly period. For this purpose, the
adjusted issue price of a Residual Certificate at the beginning of a quarter is
the issue price of the Residual Certificate, plus the amount of such daily
accruals of REMIC income described in this paragraph for all prior quarters,
decreased by any distributions made with respect to such Residual Certificate
prior to the beginning of such quarterly period. Accordingly, the portion of the
REMIC Pool's taxable income that will be treated as excess inclusions will be a
larger portion of such income as the adjusted issue price of the Residual
Certificates diminishes.
The portion of a Residual Holder's REMIC taxable income consisting of the
excess inclusions generally may not be offset by other deductions, including net
operating loss carryforwards, on such Residual Holder's return. However, net
operating loss carryovers are determined without regard to excess inclusion
income. Further, if the Residual Holder is an organization subject to the tax on
unrelated business income imposed by Code Section 511, the Residual Holder's
excess inclusions will be treated as unrelated business taxable income of such
Residual Holder for purposes of Code Section 511. In addition, REMIC taxable
income is subject to 30% withholding tax with respect to certain persons who are
not U.S. Persons (as defined below under '-- Tax-Related Restrictions on
Transfer of Residual Certificates -- Foreign Investors'), and the portion
thereof attributable to excess inclusions is not eligible for any reduction in
the rate of withholding tax (by treaty or otherwise). See '-- Taxation of
Certain Foreign Investors -- Residual Certificates' below. Finally, if a real
estate investment trust or a regulated investment company owns a Residual
Certificate, a portion (allocated under Treasury regulations yet to be issued)
of dividends paid by the real estate investment trust or regulated investment
company could not be offset by net operating losses of its shareholders, would
constitute unrelated business taxable income for tax-exempt shareholders, and
would be ineligible for reduction of withholding to certain persons who are not
U.S. Persons. The SBJPA of 1996 has eliminated the special rule permitting
Section 593 institutions ('thrift institutions') to use net operating losses and
other allowable deductions to offset their excess inclusion income from Residual
Certificates that have 'significant value' within the meaning of the REMIC
Regulations, effective for taxable years beginning after December 31, 1995,
except with respect to Residual Certificates continuously held by a thrift
institution since November 1, 1995.
In addition, the SBJPA of 1996 provides three rules for determining the
effect of excess inclusions on the alternative minimum taxable income of a
Residual Holder. First, alternative minimum taxable income for a Residual Holder
is determined without regard to the special rule, discussed above, that taxable
income cannot be less than excess inclusions. Second, a Residual Holder's
alternative minimum taxable income for a taxable year cannot be less than the
excess inclusions for the year. Third, the amount of any alternative minimum tax
net operating loss deduction must be computed without regard to any excess
inclusions. These rules are effective for taxable years beginning after December
31, 1986, unless a Residual Holder elects to have such rules apply only to
taxable years beginning after August 20, 1996.
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Tax-Related Restrictions on Transfer of Residual Certificates
Disqualified Organizations. If any legal or beneficial interest in a
Residual Certificate is transferred to a Disqualified Organization (as defined
below), a tax would be imposed in an amount equal to the product of (i) the
present value of the total anticipated excess inclusions with respect to such
Residual Certificate for periods after the transfer and (ii) the highest
marginal federal income tax rate applicable to corporations. The REMIC
Regulations provide that the anticipated excess inclusions are based on actual
prepayment experience to the date of the transfer and projected payments based
on the Prepayment Assumption. The present value rate equals the applicable
federal rate under Code Section 1274(d) as of the date of the transfer for a
term ending with the last calendar quarter in which excess inclusions are
expected to accrue. Such rate is applied to the anticipated excess inclusions
from the end of the remaining calendar quarters in which they arise to the date
of the transfer. Such a tax generally would be imposed on the transferor of the
Residual Certificate, except that where such transfer is through an agent
(including a broker, nominee or other middleman) for a Disqualified
Organization, the tax would instead be imposed on such agent. However, a
transferor of a Residual Certificate would in no event be liable for such tax
with respect to a transfer if the transferee furnishes to the transferor an
affidavit stating that the transferee is not a Disqualified Organization and, as
of the time of the transfer, the transferor does not have actual knowledge that
such affidavit is false. The tax also may be waived by the Internal Revenue
Service if the Disqualified Organization promptly disposes of the Residual
Certificate and the transferor pays income tax at the highest corporate rate on
the excess inclusion for the period the Residual Certificate is actually held by
the Disqualified Organization.
In addition, if a 'Pass-Through Entity' (as defined below) has excess
inclusion income with respect to a Residual Certificate during a taxable year
and a Disqualified Organization is the record holder of an equity interest in
such entity, then a tax is imposed on such entity equal to the product of (i)
the amount of excess inclusions that are allocable to the interest in the
Pass-Through Entity during the period such interest is held by such Disqualified
Organization, and (ii) the highest marginal federal corporate income tax rate.
Such tax would be deductible from the ordinary gross income of the Pass-Through
Entity for the taxable year. The Pass-Through Entity would not be liable for
such tax if it has received an affidavit from such record holder that it is not
a Disqualified Organization or stating such holder's taxpayer identification
number and, during the period such person is the record holder of the Residual
Certificate, the Pass-Through Entity does not have actual knowledge that such
affidavit is false.
For taxable years beginning on or after January 1, 1998, if an 'electing
large partnership' holds a Residual Certificate, all interests in the electing
large partnership are treated as held by Disqualified Organizations for purposes
of the tax imposed upon a Pass-Through Entity by Section 860E(c) of the Code. An
exception to this tax, otherwise available to a Pass-Through Entity that is
furnished certain affidavits by record holders of interests in the entity and
that does not know such affidavits are false, is not available to an electing
large partnership.
For these purposes, (i) 'DISQUALIFIED ORGANIZATION' means the United
States, any state or political subdivision thereof, any foreign government, any
international organization, any agency or instrumentality of any of the
foregoing (provided, that such term does not include an instrumentality if all
of its activities are subject to tax and a majority of its board of directors is
not selected by any such governmental entity), any cooperative organization
furnishing electric energy or providing telephone service to persons in rural
areas as described in Code Section 1381(a)(2)(C), and any organization (other
than a farmers' cooperative described in Code Section 521) that is exempt from
taxation under the Code unless such organization is subject to the tax on
unrelated business income imposed by Code Section 511, (ii) 'PASS-THROUGH
ENTITY' means any regulated investment company, real estate investment trust,
common trust fund, partnership, trust or estate and certain corporations
operating on a cooperative basis. Except as may be provided in Treasury
regulations, any person holding an interest in a Pass-Through Entity as a
nominee for another will, with respect to such interest, be treated as a
Pass-Through Entity, and (iii) an 'ELECTING LARGE PARTNERSHIP' means any
partnership having more than 100 members during the preceding tax year (other
than certain service partnerships and commodity pools), which elect to apply
simplified reporting provisions under the Code.
The Pooling and Servicing Agreement with respect to a Series will provide
that no legal or beneficial interest in a Residual Certificate may be
transferred or registered unless (i) the proposed transferee furnishes to the
Seller and the Trustee an affidavit providing its taxpayer identification number
and stating that such
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transferee is the beneficial owner of the Residual Certificate and is not a
Disqualified Organization and is not purchasing such Residual Certificate on
behalf of a Disqualified Organization (i.e., as a broker, nominee or middleman
thereof) and (ii) the transferor provides a statement in writing to the Seller
and the Trustee that it has no actual knowledge that such affidavit is false.
Moreover, the Pooling and Servicing Agreement will provide that any attempted or
purported transfer in violation of these transfer restrictions will be null and
void and will vest no rights in any purported transferee. Each Residual
Certificate with respect to a Series will bear a legend referring to such
restrictions on transfer, and each Residual Holder will be deemed to have
agreed, as a condition of ownership thereof, to any amendments to the related
Pooling and Servicing Agreement required under the Code or applicable Treasury
regulations to effectuate the foregoing restrictions. Information necessary to
compute an applicable excise tax must be furnished to the Internal Revenue
Service and to the requesting party within 60 days of the request, and the
Seller or the Trustee may charge a fee for computing and providing such
information.
Noneconomic Residual Interests. The REMIC Regulations would disregard
certain transfers of Residual Certificates, in which case the transferor would
continue to be treated as the owner of the Residual Certificates and thus would
continue to be subject to tax on its allocable portion of the net income of the
REMIC Pool. Under the REMIC Regulations, a transfer of a 'noneconomic residual
interest' (as defined below) to a Residual Holder (other than a Residual Holder
who is not a U.S. Person, as defined below under '-- Foreign Investors') is
disregarded for all federal income tax purposes if a significant purpose of the
transferor is to impede the assessment or collection of tax. A residual interest
in a REMIC (including a residual interest with a positive value at issuance) is
a 'noneconomic residual interest' unless, at the time of the transfer, (i) the
present value of the expected future distributions on the residual interest at
least equals the product of the present value of the anticipated excess
inclusions and the highest corporate income tax rate in effect for the year in
which the transfer occurs, and (ii) the transferor reasonably expects that the
transferee will receive distributions from the REMIC at or after the time at
which taxes accrue on the anticipated excess inclusions in an amount sufficient
to satisfy the accrued taxes on each excess inclusion. The anticipated excess
inclusions and the present value rate are determined in the same manner as set
forth above under '-- Disqualified Organizations.' The REMIC Regulations explain
that a significant purpose to impede the assessment or collection of tax exists
if the transferor, at the time of the transfer, either knew or should have known
that the transferee would be unwilling or unable to pay taxes due on its share
of the taxable income of the REMIC. A safe harbor is provided if (i) the
transferor conducted, at the time of the transfer, a reasonable investigation of
the financial condition of the transferee and found that the transferee
historically had paid its debts as they came due and found no significant
evidence to indicate that the transferee would not continue to pay its debts as
they came due in the future, and (ii) the transferee represents to the
transferor that it understands that, as the holder of the non-economic residual
interest, the transferee may incur tax liabilities in excess of any cash flows
generated by the interest and that the transferee intends to pay taxes
associated with holding the residual interest as they become due. The Pooling
and Servicing Agreement with respect to each Series of Certificates will require
the transferee of a Residual Certificate to certify to the matters in the
preceding sentence as part of the affidavit described above under the heading
'-- Disqualified Organizations.'
Foreign Investors. The REMIC Regulations provide that the transfer of a
Residual Certificate that has 'tax avoidance potential' to a 'foreign person'
will be disregarded for all federal tax purposes. This rule appears intended to
apply to a transferee who is not a 'U.S. Person' (as defined below), unless such
transferee's income is effectively connected with the conduct of a trade or
business within the United States. A Residual Certificate is deemed to have tax
avoidance potential unless, at the time of the transfer, (i) the future value of
expected distributions equals at least 30% of the anticipated excess inclusions
after the transfer, and (ii) the transferor reasonably expects that the
transferee will receive sufficient distributions from the REMIC Pool at or after
the time at which the excess inclusions accrue and prior to the end of the next
succeeding taxable year for the accumulated withholding tax liability to be
paid. If the non-U.S. Person transfers the Residual Certificate back to a U.S.
Person, the transfer will be disregarded and the foreign transferor will
continue to be treated as the owner unless arrangements are made so that the
transfer does not have the effect of allowing the transferor to avoid tax on
accrued excess inclusions.
The Prospectus Supplement relating to the Certificates of a Series may
provide that a Residual Certificate may not be purchased by or transferred to
any person that is not a U.S. Person or may describe the circumstances and
restrictions pursuant to which such a transfer may be made. The term 'U.S.
PERSON' means a citizen or
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resident of the United States, a corporation, partnership (except to the extent
provided in applicable Treasury regulations) or other entity created or
organized in or under the laws of the United States or any political subdivision
thereof, an estate that is subject to U.S. federal income tax regardless of the
source of its income, or a trust if a court within the United States is able to
exercise primary supervision over the administration of such trust, and one or
more such U.S. Persons have the authority to control all substantial decisions
of such trust (or, to the extent provided in applicable Treasury regulations,
certain trusts in existence on August 20, 1996 which are eligible to elect to be
treated as U.S. Persons).
Sale or Exchange of a Residual Certificate
Upon the sale or exchange of a Residual Certificate, the Residual Holder
will recognize gain or loss equal to the excess, if any, of the amount realized
over the adjusted basis (as described above under '-- Basis and Losses') of such
Residual Holder in such Residual Certificate at the time of the sale or
exchange. In addition to reporting the taxable income of the REMIC Pool, a
Residual Holder will have taxable income to the extent that any cash
distribution to it from the REMIC Pool exceeds such adjusted basis on that
Distribution Date. Such income will be treated as gain from the sale or exchange
of the Residual Certificate. It is possible that the termination of the REMIC
Pool may be treated as a sale or exchange of a Residual Holder's Residual
Certificate, in which case, if the Residual Holder has an adjusted basis in its
Residual Certificate remaining when its interest in the REMIC Pool terminates,
and if it holds such Residual Certificate as a capital asset under Code Section
1221, then it will recognize a capital loss at that time in the amount of such
remaining adjusted basis.
Any gain on the sale of a Residual Certificate will be treated as ordinary
income (i) if a Residual Certificate is held as part of a 'conversion
transaction' as defined in Code Section 1258(c), up to the amount of interest
that would have accrued on the Residual Certificateholder's net investment in
the conversion transaction at 120% of the appropriate applicable Federal rate in
effect at the time the taxpayer entered into the transaction minus any amount
previously treated as ordinary income with respect to any prior disposition of
property that was held as a part of such transaction or (ii) in the case of a
non-corporate taxpayer, to the extent such taxpayer has made an election under
Code Section 163(d)(4) to have net capital gains taxed as investment income at
ordinary income rates. In addition, gain or loss recognized from the sale of a
Residual Certificate by certain banks or thrift institutions will be treated as
ordinary income or loss pursuant to Code Section 582(c).
The Conference Committee Report to the 1986 Act provides that, except as
provided in Treasury regulations yet to be issued, the wash sale rules of Code
Section 1091 will apply to dispositions of Residual Certificates where the
seller of the Residual Certificate, during the period beginning six months
before the sale or disposition of the Residual Certificate and ending six months
after such sale or disposition, acquires (or enters into any other transaction
that results in the application of Code Section 1091) any residual interest in
any REMIC or any interest in a 'taxable mortgage pool' (such as a non-REMIC
owner trust) that is economically comparable to a Residual Certificate.
Mark to Market Regulations
The Internal Revenue Service has issued final regulations (the 'MARK TO
MARKET REGULATIONS') under Code Section 475 relating to the requirement that a
securities dealer mark to market securities held for sale to customers. This
mark to market requirement applies to all securities of a dealer, except to the
extent that the dealer has specifically identified a security as held for
investment. The Mark to Market Regulations provide that, for purposes of this
mark to market requirement, a Residual Certificate is not treated as a security
and thus may not be marked to market. The Mark to Market Regulations apply to
all Residual Certificates acquired on or after January 4, 1995.
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TAXES THAT MAY BE IMPOSED ON THE REMIC POOL
Prohibited Transactions
Income from certain transactions by the REMIC Pool, called prohibited
transactions, will not be part of the calculation of income or loss includible
in the federal income tax returns of Residual Holders, but rather will be taxed
directly to the REMIC Pool at a 100% rate. Prohibited transactions generally
include (i) the disposition of a qualified mortgage other than for (a)
substitution within two years of the Startup Day for a defective (including a
defaulted) obligation (or repurchase in lieu of substitution of a defective
(including a defaulted) obligation at any time) or for any qualified mortgage
within three months of the Startup Day, (b) foreclosure, default, or imminent
default of a qualified mortgage, (c) bankruptcy or insolvency of the REMIC Pool,
or (d) a qualified (complete) liquidation, (ii) the receipt of income from
assets that are not the type of mortgages or investments that the REMIC Pool is
permitted to hold, (iii) the receipt of compensation for services, or (iv) the
receipt of gain from disposition of cash flow investments other than pursuant to
a qualified liquidation. Notwithstanding (i) and (iv), it is not a prohibited
transaction to sell REMIC Pool property to prevent a default on Regular
Certificates as a result of a default on qualified mortgages or to facilitate a
clean-up call (generally, an optional termination to save administrative costs
when no more than a small percentage of the Certificates is outstanding). The
REMIC Regulations indicate that the modification of a Mortgage Loan generally
will not be treated as a disposition if it is occasioned by a default or
reasonably foreseeable default, an assumption of the Mortgage Loan, the waiver
of a due-on-sale or due-on-encumbrance clause, or the conversion of an interest
rate by a mortgagor pursuant to the terms of a convertible adjustable rate
Mortgage Loan.
Contributions to the REMIC Pool After the Startup Day
In general, the REMIC Pool will be subject to a tax at a 100% rate on the
value of any property contributed to the REMIC Pool after the Startup Day.
Exceptions are provided for cash contributions to the REMIC Pool (i) during the
three months following the Startup Day, (ii) made to a qualified reserve fund by
a Residual Holder, (iii) in the nature of a guarantee, (iv) made to facilitate a
qualified liquidation or clean-up call, and (v) as otherwise permitted in
Treasury regulations yet to be issued. It is not anticipated that there will be
any contributions to the REMIC Pool after the Startup Day.
Net Income from Foreclosure Property
The REMIC Pool will be subject to federal income tax at the highest
corporate rate on 'net income from foreclosure property,' determined by
reference to the rules applicable to real estate investment trusts. Generally,
property acquired by deed in lieu of foreclosure would be treated as
'foreclosure property' for a period not exceeding the close of the third
calendar year after the year in which the REMIC Pool acquired such property,
with a possible extension. Net income from foreclosure property generally means
gain from the sale of a foreclosure property that is inventory property and
gross income from foreclosure property other than qualifying rents and other
qualifying income for a real estate investment trust. It is not anticipated that
the REMIC Pool will have any taxable net income from foreclosure property.
LIQUIDATION OF THE REMIC POOL
If a REMIC Pool adopts a plan of complete liquidation, within the meaning
of Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in
the REMIC Pool's final tax return a date on which such adoption is deemed to
occur, and sells all of its assets (other than cash) within a 90-day period
beginning on such date, the REMIC Pool will not be subject to the prohibited
transaction rules on the sale of its assets, provided that the REMIC Pool
credits or distributes in liquidation all of the sale proceeds plus its cash
(other than amounts retained to meet claims) to holders of Regular Certificates
and Residual Holders within the 90-day period.
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ADMINISTRATIVE MATTERS
The REMIC Pool will be required to maintain its books on a calendar year
basis and to file federal income tax returns for federal income tax purposes in
a manner similar to a partnership. The form for such income tax return is Form
1066, U.S. Real Estate Mortgage Investment Conduit Income Tax Return. The
Trustee will be required to sign the REMIC Pool's returns. Treasury regulations
provide that, except where there is a single Residual Holder for an entire
taxable year, the REMIC Pool will be subject to the procedural and
administrative rules of the Code applicable to partnerships, including the
determination by the Internal Revenue Service of any adjustments to, among other
things, items of REMIC income, gain, loss, deduction, or credit in a unified
administrative proceeding. The Master Servicer will be obligated to act as 'tax
matters person,' as defined in applicable Treasury regulations, with respect to
the REMIC Pool, in its capacity as either Residual Holder or agent of the
Residual Holders. If the Code or applicable Treasury regulations do not permit
the Master Servicer to act as tax matters person in its capacity as agent of the
Residual Holders, the Residual Holder chosen by the Residual Holders or such
other person specified pursuant to Treasury regulations will be required to act
as tax matters person.
LIMITATIONS ON DEDUCTION OF CERTAIN EXPENSES
An investor who is an individual, estate, or trust will be subject to
limitation with respect to certain itemized deductions described in Code Section
67, to the extent that such itemized deductions, in the aggregate, do not exceed
2% of the investor's adjusted gross income. In addition, Code Section 68
provides that itemized deductions otherwise allowable for a taxable year of an
individual taxpayer will be reduced by the lesser of (i) 3% of the excess, if
any, of adjusted gross income over $124,500 for 1998 ($62,250 in the case of a
married individual filing a separate return) (subject to adjustment for
inflation for each year thereafter), or (ii) 80% of the amount of itemized
deductions otherwise allowable for such year. In the case of a REMIC Pool, such
deductions may include deductions under Code Section 212 for the Servicing Fee
and all administrative and other expenses relating to the REMIC Pool, or any
similar expenses allocated to the REMIC Pool with respect to a regular interest
it holds in another REMIC. Such investors who hold REMIC Certificates either
directly or indirectly through certain pass-through entities may have their pro
rata share of such expenses allocated to them as additional gross income, but
may be subject to such limitation on deductions. In addition, such expenses are
not deductible at all for purposes of computing the alternative minimum tax, and
may cause such investors to be subject to significant additional tax liability.
Temporary Treasury regulations provide that the additional gross income and
corresponding amount of expenses generally are to be allocated entirely to the
holders of Residual Certificates in the case of a REMIC Pool that would not
qualify as a fixed investment trust in the absence of a REMIC election. However,
such additional gross income and limitation on deductions will apply to the
allocable portion of such expenses to holders of Regular Certificates, as well
as holders of Residual Certificates, where such Regular Certificates are issued
in a manner that is similar to pass-through certificates in a fixed investment
trust. Unless indicated otherwise in the applicable Prospectus Supplement, all
such expenses will be allocable to the Residual Certificates. In general, such
allocable portion will be determined based on the ratio that a REMIC
Certificateholder's income, determined on a daily basis, bears to the income of
all holders of Regular Certificates and Residual Certificates with respect to a
REMIC Pool. As a result, individuals, estates or trusts holding REMIC
Certificates (either directly or indirectly through a grantor trust,
partnership, S corporation, REMIC or certain other pass-through entities
described in the foregoing temporary Treasury regulations) may have taxable
income in excess of the interest income at the pass-through rate on Regular
Certificates that are issued in a single class or otherwise consistently with
fixed investment trust status or in excess of cash distributions for the related
period on Residual Certificates.
TAXATION OF CERTAIN FOREIGN INVESTORS
Regular Certificates
Interest, including original issue discount, distributable to Regular
Certificateholders who are non-resident aliens, foreign corporations, or other
Non-U.S. Persons (as defined below), will be considered 'portfolio interest'
and, therefore, generally will not be subject to 30% United States withholding
tax, provided that such Non-U.S. Person (i) is not a '10-percent shareholder'
within the meaning of Code Section 871(h)(3)(B) or a
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controlled foreign corporation described in Code Section 881(c)(3)(C) and (ii)
provides the Trustee, or the person who would otherwise be required to withhold
tax from such distributions under Code Section 1441 or 1442, with an appropriate
statement, signed under penalties of perjury, identifying the beneficial owner
and stating, among other things, that the beneficial owner of the Regular
Certificate is a Non-U.S. Person. If such statement, or any other required
statement, is not provided, 30% withholding will apply unless reduced or
eliminated pursuant to an applicable tax treaty or unless the interest on the
Regular Certificate is effectively connected with the conduct of a trade or
business within the United States by such Non-U.S. Person. In the latter case,
such Non-U.S. Person will be subject to United States federal income tax at
regular rates. Investors who are Non-U.S. Persons should consult their own tax
advisors regarding the specific tax consequences to them of owning a Regular
Certificate. The term 'NON-U.S. PERSON' means any person who is not a U.S.
Person.
The IRS recently issued final regulations (the 'NEW REGULATIONS') which
would provide alternative methods of satisfying the beneficial ownership
certification requirement described above. The New Regulations are effective
January 1, 2000, although valid withholding certificates that are held on
December 31, 1999, remain valid until the earlier of December 31, 2000 or the
due date of expiration of the certificate under the rules as currently in
effect. The New Regulations would require, in the case of Regular Certificates
held by a foreign partnership, that (x) the certification described above be
provided by the partners rather than by the foreign partnership and (y) the
partnership provide certain information, including a United States taxpayer
identification number. A look-through rule would apply in the case of tiered
partnerships. Non-U.S. Persons should consult their own tax advisors concerning
the application of the certification requirements in the New Regulations.
Residual Certificates
The Conference Committee Report to the 1986 Act indicates that amounts paid
to Residual Holders who are Non-U.S. Persons generally should be treated as
interest for purposes of the 30% (or lower treaty rate) United States
withholding tax. Treasury regulations provide that amounts distributed to
Residual Holders may qualify as 'portfolio interest,' subject to the conditions
described in 'Regular Certificates' above, but only to the extent that (i) the
Mortgage Loans were issued after July 18, 1984 and (ii) the Trust Estate or
segregated pool of assets therein (as to which a separate REMIC election will be
made), to which the Residual Certificate relates, consists of obligations issued
in 'registered form' within the meaning of Code Section 163(f)(1). Generally,
Mortgage Loans will not be, but regular interests in another REMIC Pool will be,
considered obligations issued in registered form. Furthermore, a Residual Holder
will not be entitled to any exemption from the 30% withholding tax (or lower
treaty rate) to the extent of that portion of REMIC taxable income that
constitutes an 'excess inclusion.' See '-- Taxation of Residual Certificates --
Limitations on Offset or Exemption of REMIC Income.' If the amounts paid to
Residual Holders who are Non-U.S. Persons are effectively connected with the
conduct of a trade or business within the United States by such Non-U.S.
Persons, 30% (or lower treaty rate) withholding will not apply. Instead, the
amounts paid to such Non-U.S. Persons will be subject to United States federal
income tax at regular rates. If 30% (or lower treaty rate) withholding is
applicable, such amounts generally will be taken into account for purposes of
withholding only when paid or otherwise distributed (or when the Residual
Certificate is disposed of) under rules similar to withholding upon disposition
of debt instruments that have original issue discount. See '-- Taxation of
Residual Certificates -- Tax-Related Restrictions on Transfer of Residual
Certificates -- Foreign Investors' above concerning the disregard of certain
transfers having 'tax avoidance potential.' Investors who are Non-U.S. Persons
should consult their own tax advisors regarding the specific tax consequences to
them of owning Residual Certificates.
BACKUP WITHHOLDING
Distributions made on the Regular Certificates, and proceeds from the sale
of the Regular Certificates to or through certain brokers, may be subject to a
'backup' withholding tax under Code Section 3406 of 31% on 'reportable payments'
(including interest distributions, original issue discount, and, under certain
circumstances, principal distributions) unless the Regular Certificateholder
complies with certain reporting and/or certification procedures, including the
provision of its taxpayer identification number to the Trustee, its agent or the
broker who effected the sale of the Regular Certificate, or such
Certificateholder is otherwise an exempt recipient under applicable provisions
of the Code. Any amounts to be withheld from distribution on the Regular
Certificates would be refunded by the Internal Revenue Service or allowed as a
credit against the Regular
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Certificateholder's federal income tax liability. The New Regulations change
certain of the rules relating to certain presumptions currently available
relating to information reporting and backup withholding. Non-U.S. Persons are
urged to contact their own tax advisors regarding the application to them of
backup withholding and information reporting.
REPORTING REQUIREMENTS
Reports of accrued interest, original issue discount and information
necessary to compute the accrual of market discount will be made annually to the
Internal Revenue Service and to individuals, estates, non-exempt and non-
charitable trusts, and partnerships who are either holders of record of Regular
Certificates or beneficial owners who own Regular Certificates through a broker
or middleman as nominee. All brokers, nominees and all other non-exempt holders
of record of Regular Certificates (including corporations, non-calendar year
taxpayers, securities or commodities dealers, real estate investment trusts,
investment companies, common trust funds, thrift institutions and charitable
trusts) may request such information for any calendar quarter by telephone or in
writing by contacting the person designated in Internal Revenue Service
Publication 938 with respect to a particular Series of Regular Certificates.
Holders through nominees must request such information from the nominee.
The Internal Revenue Service's Form 1066 has an accompanying Schedule Q,
Quarterly Notice to Residual Interest Holders of REMIC Taxable Income or Net
Loss Allocation. Treasury regulations require that Schedule Q be furnished by
the REMIC Pool to each Residual Holder by the end of the month following the
close of each calendar quarter (41 days after the end of a quarter under
proposed Treasury regulations) in which the REMIC Pool is in existence.
Treasury regulations require that, in addition to the foregoing
requirements, information must be furnished quarterly to Residual Holders,
furnished annually, if applicable, to holders of Regular Certificates, and filed
annually with the Internal Revenue Service concerning Code Section 67 expenses
(see 'Limitations on Deduction of Certain Expenses' above) allocable to such
holders. Furthermore, under such regulations, information must be furnished
quarterly to Residual Holders, furnished annually to holders of Regular
Certificates, and filed annually with the Internal Revenue Service concerning
the percentage of the REMIC Pool's assets meeting the qualified asset tests
described above under 'Status of REMIC Certificates.'
FEDERAL INCOME TAX CONSEQUENCES FOR CERTIFICATES AS TO WHICH NO REMIC ELECTION
IS MADE
GENERAL
In the event that no election is made to treat a Trust Estate (or a
segregated pool of assets therein) with respect to a Series of Certificates as a
REMIC, the Trust Estate will be classified as a grantor trust under subpart E,
Part 1 of subchapter J of the Code and not as an association taxable as a
corporation or a 'taxable mortgage pool' within the meaning of Code Section
7701(i). Where there is no Fixed Retained Yield with respect to the Mortgage
Loans underlying the Certificates of a Series, and where such Certificates are
not designated as 'Stripped Certificates,' the holder of each such Certificate
in such Series will be treated as the owner of a pro rata undivided interest in
the ordinary income and corpus portions of the Trust Estate represented by its
Certificate and will be considered the beneficial owner of a pro rata undivided
interest in each of the Mortgage Loans, subject to the discussion below under
'-- Recharacterization of Servicing Fees.' Accordingly, the holder of a
Certificate of a particular Series will be required to report on its federal
income tax return its pro rata share of the entire income from the Mortgage
Loans represented by its Certificate, including interest at the coupon rate on
such Mortgage Loans, original issue discount (if any), prepayment fees,
assumption fees, and late payment charges received by the Servicer, in
accordance with such Certificateholder's method of accounting. A
Certificateholder generally will be able to deduct its share of the Servicing
Fee and all administrative and other expenses of the Trust Estate in accordance
with its method of accounting, provided that such amounts are reasonable
compensation for services rendered to that Trust Estate. However, investors who
are individuals, estates or trusts who own Certificates, either directly or
indirectly through certain pass-through entities, will be subject to limitation
with respect to certain itemized deductions described in Code Section 67,
including deductions under Code Section 212 for the Servicing Fee and all such
administrative and other expenses of the
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Trust Estate, to the extent that such deductions, in the aggregate, do not
exceed two percent of an investor's adjusted gross income. In addition, Code
Section 68 provides that itemized deductions otherwise allowable for a taxable
year of an individual taxpayer will be reduced by the lesser of (i) 3% of the
excess, if any, of adjusted gross income over $124,500 for 1998 ($62,250 in the
case of a married individual filing a separate return) (in each case, as
adjusted for inflation for each year thereafter), or (ii) 80% of the amount of
itemized deductions otherwise allowable for such year. As a result, such
investors holding Certificates, directly or indirectly through a pass-through
entity, may have aggregate taxable income in excess of the aggregate amount of
cash received on such Certificates with respect to interest at the pass-through
rate or as discount income on such Certificates. In addition, such expenses are
not deductible at all for purposes of computing the alternative minimum tax, and
may cause such investors to be subject to significant additional tax liability.
Moreover, where there is Fixed Retained Yield with respect to the Mortgage Loans
underlying a Series of Certificates or where the servicing fees are in excess of
reasonable servicing compensation, the transaction will be subject to the
application of the 'stripped bond' and 'stripped coupon' rules of the Code, as
described below under '-- Stripped Certificates' and '-- Recharacterization of
Servicing Fees,' respectively.
TAX STATUS
Cadwalader, Wickersham & Taft has advised the Seller that, except as
described below with respect to Stripped Certificates:
1. A Certificate owned by a 'domestic building and loan association'
within the meaning of Code Section 7701(a)(19) will be considered to
represent 'loans . . . secured by an interest in real property which is . .
. residential real property' within the meaning of Code Section
7701(a)(19)(C)(v), provided that the real property securing the Mortgage
Loans represented by that Certificate is of the type described in such
section of the Code.
2. A Certificate owned by a real estate investment trust will be
considered to represent 'real estate assets' within the meaning of Code
Section 856(c)(4)(A) to the extent that the assets of the related Trust
Estate consist of qualified assets, and interest income on such assets will
be considered 'interest on obligations secured by mortgages on real
property' to such extent within the meaning of Code Section 856(c)(3)(B).
3. A Certificate owned by a REMIC will be considered to represent an
'obligation (including any participation or certificate of beneficial
ownership therein) which is principally secured by an interest in real
property' within the meaning of Code Section 860G(a)(3)(A) to the extent
that the assets of the related Trust Estate consist of 'qualified
mortgages' within the meaning of Code Section 860G(a)(3).
4. A Certificate owned by a 'financial asset securitization investment
trust' within the meaning of Code Section 860L(c) will be considered to
represent 'permitted assets' within the meaning of Code Section 860L(c) to
the extent that the assets of the Trust Estate consist of 'debt
instruments' or other permitted assets within the meaning of Code Section
860L(c).
An issue arises as to whether Buy-Down Loans may be characterized in their
entirety under the Code provisions cited in clauses 1 and 2 of the immediately
preceding paragraph. There is indirect authority supporting treatment of an
investment in a Buy-Down Loan as entirely secured by real property if the fair
market value of the real property securing the loan exceeds the principal amount
of the loan at the time of issuance or acquisition, as the case may be. There is
no assurance that the treatment described above is proper. Accordingly,
Certificateholders are urged to consult their own tax advisors concerning the
effects of such arrangements on the characterization of such Certificateholder's
investment for federal income tax purposes.
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PREMIUM AND DISCOUNT
Certificateholders are advised to consult with their tax advisors as to the
federal income tax treatment of premium and discount arising either upon initial
acquisition of Certificates or thereafter.
Premium
The treatment of premium incurred upon the purchase of a Certificate will
be determined generally as described above under '-- Federal Income Tax
Consequences for REMIC Certificates -- Taxation of Residual Certificates --
Treatment of Certain Items of REMIC Income and Expense -- Premium.'
Original Issue Discount
The original issue discount rules of Code Sections 1271 through 1275 will
be applicable to a Certificateholder's interest in those Mortgage Loans as to
which the conditions for the application of those sections are met. Rules
regarding periodic inclusion of original issue discount income are applicable to
mortgages of corporations originated after May 27, 1969, mortgages of
noncorporate mortgagors (other than individuals) originated after July 1, 1982,
and mortgages of individuals originated after March 2, 1984. Under the OID
Regulations, such original issue discount could arise by the charging of points
by the originator of the mortgages in an amount greater than the statutory de
minimis exception, including a payment of points that is currently deductible by
the borrower under applicable Code provisions or, under certain circumstances,
by the presence of 'teaser' rates on the Mortgage Loans. See '-- Stripped
Certificates' below regarding original issue discount on Stripped Certificates.
Original issue discount generally must be reported as ordinary gross income
as it accrues under a constant interest method that takes into account the
compounding of interest, in advance of the cash attributable to such income.
Unless indicated otherwise in the applicable Prospectus Supplement, no
prepayment assumption will be assumed for purposes of such accrual. However,
Code Section 1272 provides for a reduction in the amount of original issue
discount includible in the income of a holder of an obligation that acquires the
obligation after its initial issuance at a price greater than the sum of the
original issue price and the previously accrued original issue discount, less
prior payments of principal. Accordingly, if such Mortgage Loans acquired by a
Certificateholder are purchased at a price equal to the then unpaid principal
amount of such Mortgage Loans, no original issue discount attributable to the
difference between the issue price and the original principal amount of such
Mortgage Loans (i.e., points) will be includible by such holder.
Market Discount
Certificateholders also will be subject to the market discount rules to the
extent that the conditions for application of those sections are met. Market
discount on the Mortgage Loans will be determined and will be reported as
ordinary income generally in the manner described above under 'Federal Income
Tax Consequences for REMIC Certificates -- Taxation of Regular
Certificates -- Market Discount,' except that the ratable accrual methods
described therein will not apply. Rather, the holder will accrue market discount
pro rata over the life of the Mortgage Loans, unless the constant yield method
is elected. Unless indicated otherwise in the applicable Prospectus Supplement,
no prepayment assumption will be assumed for purposes of such accrual.
RECHARACTERIZATION OF SERVICING FEES
If the servicing fees paid to a Servicer were deemed to exceed reasonable
servicing compensation, the amount of such excess would represent neither income
nor a deduction to Certificateholders. In this regard, there are no
authoritative guidelines for federal income tax purposes as to either the
maximum amount of servicing compensation that may be considered reasonable in
the context of this or similar transactions or whether, in the case of the
Certificate, the reasonableness of servicing compensation should be determined
on a weighted average or loan-by-loan basis. If a loan-by-loan basis is
appropriate, the likelihood that such amount would exceed reasonable servicing
compensation as to some of the Mortgage Loans would be increased. Recently
issued Internal Revenue Service guidance indicates that a servicing fee in
excess of reasonable compensation ('excess servicing') will cause the Mortgage
Loans to be treated under the 'stripped bond' rules. Such guidance
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provides safe harbors for servicing deemed to be reasonable and requires
taxpayers to demonstrate that the value of servicing fees in excess of such
amounts is not greater than the value of the services provided.
Accordingly, if the Internal Revenue Service's approach is upheld, a
Servicer who receives a servicing fee in excess of such amounts would be viewed
as retaining an ownership interest in a portion of the interest payments on the
Mortgage Loans. Under the rules of Code Section 1286, the separation of
ownership of the right to receive some or all of the interest payments on an
obligation from the right to receive some or all of the principal payments on
the obligation would result in treatment of such Mortgage Loans as 'stripped
coupons' and 'stripped bonds.' Subject to the de minimis rule discussed below
under '-- Stripped Certificates,' each stripped bond or stripped coupon could be
considered for this purpose as a non-interest bearing obligation issued on the
date of issue of the Certificates, and the original issue discount rules of the
Code would apply to the holder thereof. While Certificateholders would still be
treated as owners of beneficial interests in a grantor trust for federal income
tax purposes, the corpus of such trust could be viewed as excluding the portion
of the Mortgage Loans the ownership of which is attributed to the Servicer, or
as including such portion as a second class of equitable interest. Applicable
Treasury regulations treat such an arrangement as a fixed investment trust,
since the multiple classes of trust interests should be treated as merely
facilitating direct investments in the trust assets and the existence of
multiple classes of ownership interests is incidental to that purpose. In
general, such a recharacterization should not have any significant effect upon
the timing or amount of income reported by a Certificateholder, except that the
income reported by a cash method holder may be slightly accelerated. See
'Stripped Certificates' below for a further description of the federal income
tax treatment of stripped bonds and stripped coupons.
SALE OR EXCHANGE OF CERTIFICATES
Upon sale or exchange of a Certificate, a Certificateholder will recognize
gain or loss equal to the difference between the amount realized on the sale and
its aggregate adjusted basis in the Mortgage Loans and other assets represented
by the Certificate. In general, the aggregate adjusted basis will equal the
Certificateholder's cost for the Certificate, increased by the amount of any
income previously reported with respect to the Certificate and decreased by the
amount of any losses previously reported with respect to the Certificate and the
amount of any distributions received thereon. Except as provided above with
respect to market discount on any Mortgage Loans, and except for certain
financial institutions subject to the provisions of Code Section 582(c), any
such gain or loss generally would be capital gain or loss if the Certificate was
held as a capital asset. However, gain on the sale of a Certificate will be
treated as ordinary income (i) if a Certificate is held as part of a 'conversion
transaction' as defined in Code Section 1258(c), up to the amount of interest
that would have accrued on the Certificateholder's net investment in the
conversion transaction at 120% of the appropriate applicable Federal rate in
effect at the time the taxpayer entered into the transaction minus any amount
previously treated as ordinary income with respect to any prior disposition of
property that was held as a part of such transaction or (ii) in the case of a
non-corporate taxpayer, to the extent such taxpayer has made an election under
Code Section 163(d)(4) to have net capital gains taxed as investment income at
ordinary income rates. Long-term capital gains of certain noncorporate taxpayers
generally are subject to a lower maximum tax rate (20%) than ordinary income or
short-term capital gains of such taxpayers (39.6%) for property held for more
than one year. The maximum tax rate for corporations is the same with respect to
both ordinary income and capital gains.
STRIPPED CERTIFICATES
General
Pursuant to Code Section 1286, the separation of ownership of the right to
receive some or all of the principal payments on an obligation from ownership of
the right to receive some or all of the interest payments results in the
creation of 'stripped bonds' with respect to principal payments and 'stripped
coupons' with respect to interest payments. For purposes of this discussion,
Certificates that are subject to those rules will be referred to as 'STRIPPED
CERTIFICATES.' The Certificates will be subject to those rules if (i) the Seller
or any of its affiliates retains (for its own account or for purposes of
resale), in the form of Fixed Retained Yield or otherwise, an ownership interest
in a portion of the payments on the Mortgage Loans, (ii) the Seller or any of
its affiliates is treated as having an ownership interest in the Mortgage Loans
to the extent it is paid (or retains) servicing
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compensation in an amount greater than reasonable consideration for servicing
the Mortgage Loans (see '-- Recharacterization of Servicing Fees' above), and
(iii) a Class of Certificates are issued in two or more Classes or Subclasses
representing the right to non-pro-rata percentages of the interest and principal
payments on the Mortgage Loans.
In general, a holder of a Stripped Certificate will be considered to own
'stripped bonds' with respect to its pro rata share of all or a portion of the
principal payments on each Mortgage Loan and/or 'stripped coupons' with respect
to its pro rata share of all or a portion of the interest payments on each
Mortgage Loan, including the Stripped Certificate's allocable share of the
servicing fees paid to a Servicer, to the extent that such fees represent
reasonable compensation for services rendered. See the discussion above under
'-- Recharacterization of Servicing Fees.' Although not free from doubt, for
purposes of reporting to Stripped Certificateholders, the servicing fees will be
allocated to the Stripped Certificates in proportion to the respective
entitlements to distributions of each Class (or Subclass) of Stripped
Certificates for the related period or periods. The holder of a Stripped
Certificate generally will be entitled to a deduction each year in respect of
the servicing fees, as described above under '-- General,' subject to the
limitation described therein.
Code Section 1286 treats a stripped bond or a stripped coupon generally as
an obligation issued at an original issue discount on the date that such
stripped interest is purchased. Although the treatment of Stripped Certificates
for federal income tax purposes is not clear in certain respects at this time,
particularly where such Stripped Certificates are issued with respect to a
Mortgage Pool containing variable-rate Mortgage Loans, the Seller has been
advised by counsel that (i) the Trust Estate will be treated as a grantor trust
under subpart E, Part I of subchapter J of the Code and not as an association
taxable as a corporation or a 'taxable mortgage pool' within the meaning of Code
Section 7701(i), and (ii) each Stripped Certificate should be treated as a
single installment obligation for purposes of calculating original issue
discount and gain or loss on disposition. This treatment is based on the
interrelationship of Code Section 1286, Code Sections 1272 through 1275, and the
OID Regulations. Although it is possible that computations with respect to
Stripped Certificates could be made in one of the ways described below under
'-- Taxation of Stripped Certificates -- Possible Alternative
Characterizations,' the OID Regulations state, in general, that two or more debt
instruments issued by a single issuer to a single investor in a single
transaction should be treated as a single debt instrument. Accordingly, for OID
purposes, all payments on any Stripped Certificates should be aggregated and
treated as though they were made on a single debt instrument. The Pooling and
Servicing Agreement will require that the Trustee make and report all
computations described below using this aggregate approach, unless substantial
legal authority requires otherwise.
Furthermore, Treasury regulations issued December 28, 1992 provide for
treatment of a Stripped Certificate as a single debt instrument issued on the
date it is purchased for purposes of calculating any original issue discount. In
addition, under these regulations, a Stripped Certificate that represents a
right to payments of both interest and principal may be viewed either as issued
with original issue discount or market discount (as described below), at a de
minimis original issue discount, or, presumably, at a premium. This treatment
indicates that the interest component of such a Stripped Certificate would be
treated as qualified stated interest under the OID Regulations, assuming it is
not an interest-only or super-premium Stripped Certificate. Further, these final
regulations provide that the purchaser of such a Stripped Certificate will be
required to account for any discount as market discount rather than original
issue discount if either (i) the initial discount with respect to the Stripped
Certificate was treated as zero under the de minimis rule, or (ii) no more than
100 basis points in excess of reasonable servicing is stripped off the related
Mortgage Loans. Any such market discount would be reportable as described above
under 'Federal Income Tax Consequences for REMIC Certificates -- Taxation of
Regular Certificates -- Market Discount,' without regard to the de minimis rule
therein, assuming that a prepayment assumption is employed in such computation.
Status of Stripped Certificates
No specific legal authority exists as to whether the character of the
Stripped Certificates, for federal income tax purposes, will be the same as that
of the Mortgage Loans. Although the issue is not free from doubt, counsel has
advised the Seller that Stripped Certificates owned by applicable holders should
be considered to represent 'real estate assets' within the meaning of Code
Section 856(c)(4)(A), 'obligation[s] . . . principally secured by an interest in
real property' within the meaning of Code Section 860G(a)(3)(A), 'loans . . .
secured by an
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interest in real property' within the meaning of Code Section 7701(a)(19)(C)(v)
and 'permitted assets' within the meaning of Code Section 860L(c), and interest
(including original issue discount) income attributable to Stripped Certificates
should be considered to represent 'interest on obligations secured by mortgages
on real property' within the meaning of Code Section 856(c)(3)(B), provided that
in each case the Mortgage Loans and interest on such Mortgage Loans qualify for
such treatment. The application of such Code provisions to Buy-Down Loans is
uncertain. See '-- Tax Status' above.
Taxation of Stripped Certificates
Original Issue Discount. Except as described above under '-- General,' each
Stripped Certificate will be considered to have been issued at an original issue
discount for federal income tax purposes. Original issue discount with respect
to a Stripped Certificate must be included in ordinary income as it accrues, in
accordance with a constant interest method that takes into account the
compounding of interest, which may be prior to the receipt of the cash
attributable to such income. Based in part on the OID Regulations and the
amendments to the original issue discount sections of the Code made by the 1986
Act, the amount of original issue discount required to be included in the income
of a holder of a Stripped Certificate (referred to in this discussion as a
'STRIPPED CERTIFICATEHOLDER') in any taxable year likely will be computed
generally as described above under '-- Federal Income Tax Consequences for REMIC
Certificates -- Taxation of Regular Certificates -- Original Issue Discount' and
'-- Variable Rate Regular Certificates.' However, with the apparent exception of
a Stripped Certificate qualifying as a market discount obligation as described
above under '-- General,' the issue price of a Stripped Certificate will be the
purchase price paid by each holder thereof, and the stated redemption price at
maturity will include the aggregate amount of the payments to be made on the
Stripped Certificate to such Stripped Certificateholder, presumably under the
Prepayment Assumption, other than qualified stated interest.
If the Mortgage Loans prepay at a rate either faster or slower than that
under the Prepayment Assumption, a Stripped Certificateholder's recognition of
original issue discount will be either accelerated or decelerated and the amount
of such original issue discount will be either increased or decreased depending
on the relative interests in principal and interest on each Mortgage Loan
represented by such Stripped Certificateholder's Stripped Certificate. While the
matter is not free from doubt, the holder of a Stripped Certificate should be
entitled in the year that it becomes certain (assuming no further prepayments)
that the holder will not recover a portion of its adjusted basis in such
Stripped Certificate to recognize a loss (which may be a capital loss) equal to
such portion of unrecoverable basis.
As an alternative to the method described above, the fact that some or all
of the interest payments with respect to the Stripped Certificates will not be
made if the Mortgage Loans are prepaid could lead to the interpretation that
such interest payments are 'contingent' within the meaning of the OID
Regulations. The OID Regulations, as they relate to the treatment of contingent
interest, are by their terms not applicable to prepayable securities such as the
Stripped Certificates. However, if final regulations dealing with contingent
interest with respect to the Stripped Certificates apply the same principles as
the OID Regulations, such regulations may lead to different timing of income
inclusion than would be the case under the OID Regulations for non-contingent
debt instruments. Furthermore, application of such principles could lead to the
characterization of gain on the sale of contingent interest Stripped
Certificates as ordinary income. Investors should consult their tax advisors
regarding the appropriate tax treatment of Stripped Certificates.
Sale or Exchange of Stripped Certificates. Sale or exchange of a Stripped
Certificate prior to its maturity will result in gain or loss equal to the
difference, if any, between the amount received and the Stripped
Certificateholder's adjusted basis in such Stripped Certificate, as described
above under '-- Federal Income Tax Consequences for REMIC Certificates --
Taxation of Regular Certificates -- Sale or Exchange of Regular Certificates.'
To the extent that a subsequent purchaser's purchase price is exceeded by the
remaining payments on the Stripped Certificates, such subsequent purchaser will
be required for federal income tax purposes to accrue and report such excess as
if it were original issue discount in the manner described above. It is not
clear for this purpose whether the assumed prepayment rate that is to be used in
the case of a Stripped Certificateholder other than an original Stripped
Certificateholder should be the Prepayment Assumption or a new rate based on the
circumstances at the date of subsequent purchase.
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Purchase of More Than One Class of Stripped Certificates. When an investor
purchases more than one Class of Stripped Certificates, it is currently unclear
whether for federal income tax purposes such Classes of Stripped Certificates
should be treated separately or aggregated for purposes of the rules described
above.
Possible Alternative Characterizations. The characterizations of the
Stripped Certificates discussed above are not the only possible interpretations
of the applicable Code provisions. For example, the Stripped Certificateholder
may be treated as the owner of (i) one installment obligation consisting of such
Stripped Certificate's pro rata share of the payments attributable to principal
on each Mortgage Loan and a second installment obligation consisting of such
Stripped Certificate's pro rata share of the payments attributable to interest
on each Mortgage Loan, (ii) as many stripped bonds or stripped coupons as there
are scheduled payments of principal and/or interest on each Mortgage Loan, or
(iii) a separate installment obligation for each Mortgage Loan, representing the
Stripped Certificate's pro rata share of payments of principal and/or interest
to be made with respect thereto. Alternatively, the holder of one or more
Classes of Stripped Certificates may be treated as the owner of a pro rata
fractional undivided interest in each Mortgage Loan to the extent that such
Stripped Certificate, or Classes of Stripped Certificates in the aggregate,
represent the same pro rata portion of principal and interest on each such
Mortgage Loan, and a stripped bond or stripped coupon (as the case may be),
treated as an installment obligation or contingent payment obligation, as to the
remainder. Final regulations issued on December 28, 1992 regarding original
issue discount on stripped obligations make the foregoing interpretations less
likely to be applicable. The preamble to those regulations states that they are
premised on the assumption that an aggregation approach is appropriate for
determining whether original issue discount on a stripped bond or stripped
coupon is de minimis, and solicits comments on appropriate rules for aggregating
stripped bonds and stripped coupons under Code Section 1286.
Because of these possible varying characterizations of Stripped
Certificates and the resultant differing treatment of income recognition,
Stripped Certificateholders are urged to consult their own tax advisors
regarding the proper treatment of Stripped Certificates for federal income tax
purposes.
REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
The Master Servicer will furnish, within a reasonable time after the end of
each calendar year, to each Certificateholder or Stripped Certificateholder at
any time during such year, such information (prepared on the basis described
above) as is necessary to enable such Certificateholders to prepare their
federal income tax returns. Such information will include the amount of original
issue discount accrued on Certificates held by persons other than
Certificateholders exempted from the reporting requirements. The amount required
to be reported by the Master Servicer may not be equal to the proper amount of
original issue discount required to be reported as taxable income by a
Certificateholder, other than an original Certificateholder that purchased at
the issue price. In particular, in the case of Stripped Certificates, unless
provided otherwise in the applicable Prospectus Supplement, such reporting will
be based upon a representative initial offering price of each Class of Stripped
Certificates. The Master Servicer will also file such original issue discount
information with the Internal Revenue Service. If a Certificateholder fails to
supply an accurate taxpayer identification number or if the Secretary of the
Treasury determines that a Certificateholder has not reported all interest and
dividend income required to be shown on his federal income tax return, 31%
backup withholding may be required in respect of any reportable payments, as
described above under '-- Federal Income Tax Consequences for REMIC
Certificates -- Backup Withholding.'
TAXATION OF CERTAIN FOREIGN INVESTORS
To the extent that a Certificate evidences ownership in Mortgage Loans that
are issued on or before July 18, 1984, interest or original issue discount paid
by the person required to withhold tax under Code Section 1441 or 1442 to
Non-U.S. Persons generally will be subject to 30% United States withholding tax,
or such lower rate as may be provided for interest by an applicable tax treaty.
Accrued original issue discount recognized by the Certificateholder on the sale
or exchange of such a Certificate also will be subject to federal income tax at
the same rate.
Treasury regulations provide that interest or original issue discount paid
by the Trustee or other withholding agent to a Non-U.S. Person evidencing
ownership interest in Mortgage Loans issued after July 18, 1984 will be
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'portfolio interest' and will be treated in the manner, and such persons will be
subject to the same certification requirements, described above under
'-- Federal Income Tax Consequences for REMIC Certificates -- Taxation of
Certain Foreign Investors -- Regular Certificates.'
ERISA CONSIDERATIONS
General
The Employee Retirement Income Security Act of 1974, as amended ('ERISA'),
imposes certain requirements on those employee benefit plans to which it applies
('PLANS') and on those persons who are fiduciaries with respect to such Plans.
The following is a general discussion of such requirements, and certain
applicable exceptions to and administrative exemptions from such requirements.
For purposes of this discussion, a person investing on behalf of an individual
retirement account established under Code Section 408 (an 'IRA') is regarded as
a fiduciary and the IRA as a Plan.
Before purchasing any Certificates, a Plan fiduciary should consult with
its counsel and determine whether there exists any prohibition to such purchase
under the requirements of ERISA, whether prohibited transaction exemptions such
as PTE 83-1 or any individual administrative exemption (as described below)
applies, including whether the appropriate conditions set forth therein would be
met, or whether any statutory prohibited transaction exemption is applicable,
and further should consult the applicable Prospectus Supplement relating to such
Series of Certificates.
CERTAIN REQUIREMENTS UNDER ERISA
General
In accordance with ERISA's general fiduciary standards, before investing in
a Certificate a Plan fiduciary should determine whether to do so is permitted
under the governing Plan instruments and is appropriate for the Plan in view of
its overall investment policy and the composition and diversification of its
portfolio. A Plan fiduciary should especially consider the ERISA requirement of
investment prudence and the sensitivity of the return on the Certificates to the
rate of principal repayments (including prepayments) on the Mortgage Loans, as
discussed in 'Prepayment and Yield Considerations' herein.
Parties in Interest/Disqualified Persons
Other provisions of ERISA (and corresponding provisions of the Code)
prohibit certain transactions involving the assets of a Plan and persons who
have certain specified relationships to the Plan (so-called 'parties in
interest' within the meaning of ERISA or 'disqualified persons' within the
meaning of the Code). The Seller, the Master Servicer, any Servicer or the
Trustee or certain affiliates thereof might be considered or might become
'parties in interest' or 'disqualified persons' with respect to a Plan. If so,
the acquisition or holding of Certificates by or on behalf of such Plan could be
considered to give rise to a 'prohibited transaction' within the meaning of
ERISA and the Code unless an administrative exemption described below or some
other exemption is available.
Special caution should be exercised before the assets of a Plan (including
assets that may be held in an insurance company's separate or general accounts
where assets in such accounts may be deemed Plan assets for purposes of ERISA)
are used to purchase a Certificate if, with respect to such assets, the Seller,
the Master Servicer, any Servicer or the Trustee or an affiliate thereof either:
(a) has investment discretion with respect to the investment of such assets of
such Plan; or (b) has authority or responsibility to give, or regularly gives,
investment advice with respect to such assets for a fee and pursuant to an
agreement or understanding that such advice will serve as a primary basis for
investment decisions with respect to such assets and that such advice will be
based on the particular investment needs of the Plan.
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Delegation of Fiduciary Duty
Further, if the assets included in a Trust Estate were deemed to constitute
Plan assets, it is possible that a Plan's investment in the Certificates might
be deemed to constitute a delegation, under ERISA, of the duty to manage Plan
assets by the fiduciary deciding to invest in the Certificates, and certain
transactions involved in the operation of the Trust Estate might be deemed to
constitute prohibited transactions under ERISA and the Code. Neither ERISA nor
the Code define the term 'plan assets.'
The U.S. Department of Labor (the 'DEPARTMENT') has issued regulations (the
'REGULATIONS') concerning whether or not a Plan's assets would be deemed to
include an interest in the underlying assets of an entity (such as a Trust
Estate) for purposes of the reporting and disclosure and general fiduciary
responsibility provisions of ERISA, as well as for the prohibited transaction
provisions of ERISA and the Code, if the Plan acquires an 'equity interest'
(such as a Certificate) in such an entity.
Certain exceptions are provided in the Regulations whereby an investing
Plan's assets would be deemed merely to include its interest in the Certificates
instead of being deemed to include an interest in the assets of a Trust Estate.
However, it cannot be predicted in advance nor can there be any continuing
assurance whether such exceptions may be met, because of the factual nature of
certain of the rules set forth in the Regulations. For example, one of the
exceptions in the Regulations states that the underlying assets of an entity
will not be considered 'plan assets' if less than 25% of the value of all
classes of equity interests are held by 'benefit plan investors,' which are
defined as Plans, IRAs, and employee benefit plans not subject to ERISA (for
example, governmental plans), but this exception is tested immediately after
each acquisition of an equity interest in the entity whether upon initial
issuance or in the secondary market.
ADMINISTRATIVE EXEMPTIONS
Individual Administrative Exemptions
Several underwriters of mortgage-backed securities have applied for and
obtained ERISA prohibited transaction exemptions (each, an 'UNDERWRITER'S
EXEMPTION') which are in some respects broader than Prohibited Transaction Class
Exemption 83-1 (described below). Such exemptions can only apply to mortgage-
backed securities which, among other conditions, are sold in an offering with
respect to which such underwriter serves as the sole or a managing underwriter,
or as a selling or placement agent. If such an Underwriter's Exemption might be
applicable to a Series of Certificates, the applicable Prospectus Supplement
will refer to such possibility.
Among the conditions that must be satisfied for an Underwriter's Exemption
to apply are the following:
(1) The acquisition of 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;
(2) The rights and interests evidenced by Certificates acquired by the
Plan are not subordinated to the rights and interests evidenced by other
Certificates of the Trust Estate;
(3) 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 either Standard & Poor's ('S&P'), Moody's Investors
Service, Inc. ('MOODY'S'), Duff & Phelps Credit Rating Co. ('DCR') or Fitch
IBCA, Inc. ('FITCH');
(4) The Trustee must not be an affiliate of any other member of the
Restricted Group (as defined below);
(5) The sum of all payments made to and retained by the underwriter in
connection with the distribution of 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 Mortgage Loans to the Trust Estate represents not more than the fair
market value of such Mortgage 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 Pooling and
Servicing Agreement and reimbursement of such person's reasonable expenses
in connection therewith; and
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(6) The Plan investing in the Certificates is an 'accredited investor'
as defined in Rule 501(a)(1) of Regulation D of the Commission under the
Securities Act of 1933, as amended (the 'SECURITIES ACT').
The Trust Estate must also meet the following requirements:
(i) the assets of the Trust Estate must consist solely of assets
of the type that have been included in other investment pools in the
marketplace;
(ii) certificates in such other investment pools must have been
rated in one of the three highest rating categories of S&P, Moody's,
Fitch or DCR for at least one year prior to the Plan's acquisition of
the Certificates; and
(iii) certificates evidencing interests in such other investment
pools must have been purchased by investors other than Plans for at
least one year prior to any Plan's acquisition of the Certificates.
If the conditions to an Underwriter's Exemption are met, whether or not a
Plan's assets would be deemed to include an ownership interest in the Mortgage
Loans in a mortgage pool, the acquisition, holding and resale of the
Certificates by Plans would be exempt from the prohibited transaction provisions
of ERISA and the Code.
Moreover, an Underwriter's Exemption can provide relief from certain
self-dealing/conflict of interest prohibited transactions that may occur if a
Plan fiduciary causes a Plan to acquire Certificates in a Trust Estate in which
the fiduciary (or its affiliate) is an obligor on the Mortgage Loans held in the
Trust Estate provided that, among other requirements: (i) 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 and at least fifty
percent of the aggregate interest in the Trust Estate is acquired by persons
independent of the Restricted Group (as defined below); (ii) such fiduciary (or
its affiliate) is an obligor with respect to five percent or less of the fair
market value of the Mortgage Loans contained in the Trust Estate; (iii) 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 (iv) 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 are invested in Certificates representing an interest in one or more
trusts containing assets sold or served by the same entity.
An Underwriter's Exemption does not apply to Plans sponsored by the Seller,
the underwriter specified in the applicable Prospectus Supplement, the Master
Servicer, the Trustee, the Servicer, any obligor with respect to Mortgage Loans
included in the Trust Estate constituting more than five percent of the
aggregate unamortized principal balance of the assets in the Trust Estate, or
any affiliate of such parties (the 'RESTRICTED GROUP').
PTE 83-1
Prohibited Transaction Class Exemption 83-1 for Certain Transactions
Involving Mortgage Pool Investment Trusts ('PTE 83-1') permits certain
transactions involving the creation, maintenance and termination of certain
residential mortgage pools and the acquisition and holding of certain
residential mortgage pool pass-through certificates by Plans, whether or not the
Plan's assets would be deemed to include an ownership interest in the mortgages
in such mortgage pools, and whether or not such transactions would otherwise be
prohibited under ERISA.
The term 'mortgage pool pass-through certificate' is defined in PTE 83-1 as
'a certificate representing a beneficial undivided fractional interest in a
mortgage pool and entitling the holder of such a certificate to pass-through
payment of principal and interest from the pooled mortgage loans, less any fees
retained by the pool sponsor.' It appears that, for purposes of PTE 83-1, the
term 'mortgage pool pass-through certificate' would include Certificates issued
in a single Class or in multiple Classes that evidence the beneficial ownership
of both a specified percentage of future interest payments (after permitted
deductions) and a specified percentage of future principal payments on a Trust
Estate.
However, it appears that PTE 83-1 does not or might not apply to the
purchase and holding of (a) Certificates that evidence the beneficial ownership
only of a specified percentage of future interest payments (after permitted
deductions) on a Trust Estate or only of a specified percentage of future
principal payments on a
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Trust Estate, (b) Residual Certificates, (c) Certificates evidencing ownership
interests in a Trust Estate which includes Mortgage Loans secured by multifamily
residential properties or shares issued by cooperative housing corporations, or
(d) Certificates which are subordinated to other Classes of Certificates of such
Series. Accordingly, unless exemptive relief other than PTE 83-1 applies, Plans
should not purchase any such Certificates.
PTE 83-1 sets forth 'general conditions' and 'specific conditions' to its
applicability. Section II of PTE 83-1 sets forth the following general
conditions to the application of the exemption: (i) the maintenance of a system
of insurance or other protection for the pooled mortgage loans or the property
securing such loans, and for indemnifying certificateholders against reductions
in pass-through payments due to property damage or defaults in loan payments;
(ii) the existence of a pool trustee who is not an affiliate of the pool
sponsor; and (iii) a requirement that the sum of all payments made to and
retained by the pool sponsor, and all funds inuring to the benefit of the pool
sponsor as a result of the administration of the mortgage pool, must represent
not more than adequate consideration for selling the mortgage loans plus
reasonable compensation for services provided by the pool sponsor to the pool.
The system of insurance or protection referred to in clause (i) above must
provide such protection and indemnification up to an amount not less than the
greater of one percent of the aggregate unpaid principal balance of the pooled
mortgages or the unpaid principal balance of the largest mortgage in the pool.
It should be noted that in promulgating PTE 83-1 (and a predecessor exemption),
the Department did not have under its consideration interests in pools of the
exact nature as some of the Certificates described herein.
EXEMPT PLANS
Employee benefit plans which are governmental plans (as defined in Section
3(32) of ERISA), and certain church plans (as defined in Section 3(33) of ERISA)
are not subject to ERISA requirements and assets of such plans may be invested
in Certificates without regard to the ERISA considerations described under
'-- General,' '-- Certain Requirements under ERISA' and '-- Administrative
Exemptions' above, but such plans may be subject to the provisions of other
applicable federal and state law.
UNRELATED BUSINESS TAXABLE INCOME -- RESIDUAL CERTIFICATES
The purchase of a Residual Certificate by any employee benefit plan
qualified under Code Section 401(a) and exempt from taxation under Code Section
501(a), including most varieties of ERISA Plans, may give rise to 'unrelated
business taxable income' as described in Code Sections 511-515 and 860E.
Further, prior to the purchase of Residual Certificates, a prospective
transferee may be required to provide an affidavit to a transferor that it is
not, nor is it purchasing a Residual Certificate on behalf of, a 'DISQUALIFIED
ORGANIZATION,' which term, as defined under 'Material Federal Income Tax
Consequences -- Taxation of Residual Certificates -- Tax-Related Restrictions on
the Transfer of Residual Certificates' above, includes certain tax-exempt
entities not subject to Code Section 511 such as certain governmental plans, as
discussed above under the caption 'Material Federal Income Tax
Consequences -- Federal Income Tax Consequences for REMIC
Certificates -- Taxation of Residual Certificates -- Tax-Related Restrictions on
Transfer of Residual Certificates -- Disqualified Organizations.'
DUE TO THE COMPLEXITY OF THESE RULES AND THE PENALTIES IMPOSES UPON PERSONS
INVOLVED IN PROHIBITED TRANSACTIONS, IT IS PARTICULARLY IMPORTANT THAT POTENTIAL
INVESTORS WHO ARE PLAN FIDUCIARIES CONSULT WITH THEIR COUNSEL REGARDING THE
CONSEQUENCES UNDER ERISA OF THEIR ACQUISITION AND OWNERSHIP OF CERTIFICATES.
THE SALE OF CERTIFICATES TO A PLAN IS IN NO RESPECT A REPRESENTATION BY THE
SELLER OR THE APPLICABLE UNDERWRITER THAT THIS INVESTMENT MEETS ALL RELEVANT
LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY PLANS GENERALLY OR ANY
PARTICULAR PLAN, OR THAT THIS INVESTMENT IS APPROPRIATE FOR PLANS GENERALLY OR
ANY PARTICULAR PLAN.
LEGAL INVESTMENT
As will be specified in the applicable Prospectus Supplement, certain
Classes of Certificates will constitute 'mortgage related securities' for
purposes of the Secondary Mortgage Market Enhancement Act of 1984, as amended
('SMMEA'), so long as (i) they are rated in one of the two highest rating
categories by at least one
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Rating Agency, and (ii) are part of a Series representing interests in a Trust
Estate consisting of Mortgage Loans originated by certain types of originators
specified in SMMEA. As 'mortgage related securities,' such Classes will
constitute legal investments for persons, trusts, corporations, partnerships,
associations, business trusts and business entities (including but not limited
to state-chartered depository institutions, 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 regulation, to the same extent that, under
applicable law, obligations issued by or guaranteed as to principal and interest
by the United States or any agency or instrumentality thereof constitute legal
investments for such entities. Pursuant to SMMEA, a number of states enacted
legislation, on or before the October 3, 1991 cut-off for such enactments,
limiting to varying extents the ability of certain entities (in particular,
insurance companies) to invest in 'mortgage related securities,' in most cases
by requiring the affected investors to rely solely upon existing state law, and
not SMMEA. Accordingly, the investors affected by such legislation will be
authorized to invest in the Certificates only to the extent provided in 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 mortgage related
securities without limitation as to the percentage of their assets represented
thereby, federal credit unions may invest in such securities, and national banks
may purchase such securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
Section 24 (Seventh), subject in each case to such regulations as the applicable
federal regulatory authority may prescribe. In this connection, the Office of
the Comptroller of the Currency (the 'OCC') has amended 12 C.F.R. Part 1 to
authorize national banks to purchase and sell for their own account, without
limitation as to a percentage of the bank's capital and surplus (but subject to
compliance with certain general standards in 12 C.F.R. Section 1.5 concerning
'safety and soundness' and retention of credit information), certain 'Type IV
securities,' defined in 12 C.F.R. Section 1.2(1) to include certain 'residential
mortgage-related securities.' As so defined, 'residential mortgage-related
security' means, in relevant part, 'mortgage related security' within the
meaning of SMMEA. The National Credit Union Administration (the 'NCUA') has
adopted rules, codified at 12 C.F.R. Part 703, which permit federal credit
unions to invest in 'mortgage related securities' under certain limited
circumstances, other than stripped mortgage related securities, residual
interests in mortgage related securities, and commercial mortgage related
securities, unless the credit union has obtained written approval from the NCUA
to participate in the 'investment pilot program' described in 12 C.F.R. Section
703.140.
All depository institutions considering an investment in the Certificates
should review the 'Supervisory Policy Statement on Investment Securities and
End-User Derivatives Activities' (the '1998 POLICY STATEMENT') of the Federal
Financial Institutions Examination Council ('FFIEC'), which has been adopted by
the Board of Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation, the OCC and the Office of Thrift Supervision, effective
May 26, 1998, and by the NCUA, effective October 1, 1998. The 1998 Policy
Statement sets forth general guidelines which depository institutions must
follow in managing risks (including market, credit, liquidity, operational
(transaction), and legal risks) applicable to all securities (including mortgage
pass-through securities and mortgage-derivative products) used for investment
purposes. Unitl October 1, 1998, federal credit unions will still be subject to
the FFIEC's now-superseded 'Supervisory Policy Statement on Securities
Activities' dated January 28, 1992, as adopted by the NCUA with certain
modifications, which prohibited depository institutions from investing in
certain 'high-risk mortgage securities,' except under limited circumstances, and
set forth certain investment practices deemed to be unsuitable for regulated
institutions.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any of the
Certificates, as certain Series or Classes (in particular, Certificates which
are entitled solely or disproportionately to distributions of principal or
interest) may be deemed unsuitable investments, or may otherwise be restricted,
under such rules, policies or guidelines (in certain instances irrespective of
SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, 'prudent investor' provisions, percentage-of-assets limits, provisions which
may restrict or prohibit investment in securities which are not
'interest-bearing' or 'income-paying,' and, with regard to any
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Certificates issued in book-entry form, provisions which may restrict or
prohibit investments in securities which are issued in book-entry form.
Except as to the status of certain Classes of Certificates as 'mortgage
related securities,' no representation is made as to the proper characterization
of the Certificates for legal investment purposes, financial institution
regulatory purposes, or other purposes, or as to the ability of particular
investors to purchase Certificates under applicable legal investment
restrictions. The uncertainties described above (and any unfavorable future
determinations concerning legal investment or financial institution regulatory
characteristics of the Certificates) may adversely affect the liquidity of the
Certificates.
Accordingly, all investors whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their legal advisors in determining
whether and to what extent the Certificates of any Class constitute legal
investments or are subject to investment, capital or other restrictions and, if
applicable, whether SMMEA has been overridden in any jurisdiction relevant to
such investor.
PLAN OF DISTRIBUTION
The Certificates are being offered hereby in Series through one or more of
the methods described below. The applicable Prospectus Supplement for each
Series will describe the method of offering being utilized for that Series and
will state the public offering or purchase price of each Class of Certificates
of such Series, or the method by which such price is to be determined, and the
net proceeds to the Seller from such sale.
The Certificates will be offered through the following methods from time to
time and offerings may be made concurrently through more than one of these
methods or an offering of a particular Series of Certificates may be made
through a combination of two or more of these methods:
1. By negotiated firm commitment underwriting and public re-offering
by underwriters specified in the applicable Prospectus Supplement;
2. By placements by the Seller with investors through dealers; and
3. By direct placements by the Seller with investors.
If underwriters are used in a sale of any Certificates, such Certificates
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices to be
determined at the time of sale or at the time of commitment therefor. Firm
commitment underwriting and public reoffering by underwriters may be done
through underwriting syndicates or through one or more firms acting alone. The
specific managing underwriter or underwriters, if any, with respect to the offer
and sale of a particular Series of Certificates will be set forth on the cover
of the Prospectus Supplement applicable to such Series and the members of the
underwriting syndicate, if any, will be named in such Prospectus Supplement. The
Prospectus Supplement will describe any discounts and commissions to be allowed
or paid by the Seller to the underwriters, any other items constituting
underwriting compensation and any discounts and commissions to be allowed or
paid to the dealers. The obligations of the underwriters will be subject to
certain conditions precedent. The underwriters with respect to a sale of any
Class of Certificates will be obligated to purchase all such Certificates if any
are purchased. The Seller, and, if specified in the applicable Prospectus
Supplement, Norwest Mortgage, will indemnify the applicable underwriters against
certain civil liabilities, including liabilities under the Securities Act.
The Prospectus Supplement with respect to any Series of Certificates
offered other than through underwriters will contain information regarding the
nature of such offering and any agreements to be entered into between the Seller
and dealers and/or the Seller and purchasers of Certificates of such Series.
Purchasers of Certificates, including dealers, may, depending on the facts
and circumstances of such purchases, be deemed to be 'underwriters' within the
meaning of the Securities Act in connection with reoffers and sales by them of
Certificates. Certificateholders should consult with their legal advisors in
this regard prior to any such reoffer or sale.
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If specified in the Prospectus Supplement relating to a Series of
Certificates, the Seller or any affiliate thereof may purchase some or all of
one or more Classes of Certificates of such Series from the underwriter or
underwriters at a price specified or described in such Prospectus Supplement.
Such purchaser may thereafter from time to time offer and sell, pursuant to this
Prospectus, some or all of such Certificates so purchased directly, through one
or more underwriters to be designated at the time of the offering of such
Certificates or through dealers acting as agent and/or principal. Such offering
may be restricted in the matter specified in such Prospectus Supplement. Such
transactions may be effected at market prices prevailing at the time of sale, at
negotiated prices or at fixed prices. The underwriters and dealers participating
in such purchaser's offering of such Certificates may receive compensation in
the form of underwriting discounts or commissions from such purchaser and such
dealers may receive commissions from the investors purchasing such Certificates
for whom they may act as agent (which discounts or commissions will not exceed
those customary in those types of transactions involved). Any dealer that
participates in the distribution of such Certificates may be deemed to be an
'underwriter' within the meaning of the Securities Act, and any commissions and
discounts received by such dealer and any profit on the resale of such
Certificates by such dealer might be deemed to be underwriting discounts and
commissions under the Securities Act.
USE OF PROCEEDS
The net proceeds from the sale of each Series of Certificates will be used
by the Seller for the purchase of the Mortgage Loans represented by the
Certificates of such Series from Norwest Mortgage. It is expected that Norwest
Mortgage will use the proceeds from the sale of the Mortgage Loans to the Seller
for its general business purposes, including, without limitation, the
origination or acquisition of new mortgage loans and the repayment of borrowings
incurred to finance the origination or acquisition of mortgage loans, including
the Mortgage Loans underlying the Certificates of such Series.
LEGAL MATTERS
Certain legal matters, including the federal income tax consequences to
Certificateholders of an investment in the Certificates of a Series, will be
passed upon for the Seller by Cadwalader, Wickersham & Taft, New York, New York.
RATING
It is a condition to the issuance of the Certificates of any Series offered
pursuant to this Prospectus and a Prospectus Supplement that they be rated in
one of the four highest categories by at least one Rating Agency.
Generally, a security rating addresses the likelihood of the receipt by
holders of Certificates of all distributions to which such holders are entitled.
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
Agency. Each securities rating should be evaluated independently of any other
rating.
REPORTS TO CERTIFICATEHOLDERS
The Master Servicer will prepare, and the Trustee or other Paying Agent
appointed for each Series by the Master Servicer will forward to the
Certificateholders of each Series, statements containing information with
respect to principal and interest payments and the related Trust Estate, as
described herein and in the applicable Prospectus Supplement for such Series
(the 'MONTHLY REPORTS'). No information contained in the Monthly Reports will
have been examined or reported upon by an independent public accountant. See
'The Pooling and Servicing Agreement -- Reports to Certificateholders.
The Seller intends to make the information contained in the Monthly Reports
available via the internet (at 'http://www.securitieslink.net'), facsimile,
computer modem and CD-ROM through SecuritiesLink(Registered) Investor
Information Services ('SECURITIESLINK(REGISTERED)'). On occasion, information
may be available to any interested investor through SecuritiesLink(Registered)
up to two business days prior to the related Distribution Date, and in that
event prior to the delivery of the Monthly Reports by the Trustee or other
Paying Agent to Certificateholders. The Seller also
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intends to make available to any interested investor through
SecuritiesLink(Registered) certain additional information not contained in the
Monthly Reports, including loss severity data and updated stratification reports
with respect to the Mortgage Loans underlying the Certificates. For further
information regarding SecuritiesLink(Registered), please contact Norwest
Integrated Structured Assets, Inc., 7485 New Horizon Way, Frederick Maryland
21703, telephone number (301) 846-8200.
In addition, each Servicer for each Series will furnish to the Master
Servicer (who will be required to furnish promptly to the Trustee for such
Series), a statement from a firm of independent public accountants with respect
to the examination of certain documents and records relating to a random sample
of mortgage loans serviced by such Servicer pursuant to the related Underlying
Servicing Agreement and/or other similar agreements. See 'Servicing of the
Mortgage Loans -- Evidence as to Compliance.' Copies of the statements provided
by the Master Servicer to the Trustee will be furnished to Certificateholders of
each Series upon request addressed to the Trustee for the applicable Series or
the Master Servicer c/o Norwest Bank Minnesota, National Association, 11000
Broken Land Parkway, Columbia, Maryland 21044-3562. Attention: Securities
Administration Services Manager.
WHERE YOU CAN FIND MORE INFORMATION
REGISTRATION STATEMENT AND OTHER MATERIALS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION
The Seller filed a registration statement relating to the Certificates with
the ('SEC' or the 'COMMISSION'). This Prospectus is part of the registration
statement, but the Registration Statement includes additional information.
Copies of the Registration Statement may be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549 upon payment of the
prescribed charges, or may be examined free of charge at the Commission's
offices, 450 Fifth Street N.W., Washington, D.C. 20549 or at the regional
offices of the Commission located at Suite 1300, 7 World Trade Center, New York,
New York 10048 and Suite 1400. Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661-2511. The Commission also maintains a site on the World
Wide Web at 'http://www.sec.gov' at which you can view and download copies of
reports, proxy and information statements and other information filed
electronically through Electronic Data Gathering, Analysis and Retrieval
('EDGAR') system. The Seller has filed the Registration Statement, including all
exhibits, through the EDGAR system and therefore such materials should be
available by logging onto the Commission's Web site. In this regard, you should
be aware that it is anticipated that the name of the Seller will be changed in
1999 in connection with the merger described in the applicable Prospectus
Supplement under 'Recent Developments.' The Commission maintains computer
terminals providing access to the EDGAR system at each of the offices referred
to above. Copies of any documents incorporated to this Prospectus by reference
will be provided to each person to whom a Prospectus is delivered upon written
or oral request directed to Norwest Integrated Structured Assets, Inc., 7485 New
Horizon Way, Frederick, Maryland 21703, telephone number (301) 846-8200.
DETAILED INFORMATION RELATING TO THE MORTGAGE LOANS OF A SERIES
The Seller intends to offer by subscription through
SecuritiesLink(Registered) detailed mortgage loan information in machine
readable format updated on a monthly basis (the 'DETAILED INFORMATION') with
respect to each outstanding Series of Certificates. The Detailed Information
will reflect payments made on the individual mortgage loans, including
prepayments in full and in part made on such mortgage loans, as well as the
liquidation of any such mortgage loans, and will identify various
characteristics of the mortgage loans. Subscribers of the Detailed Information
are expected to include a number of major investment brokerage firms as well as
financial information service firms. Some of such firms, including certain
investment brokerage firms as well as Bloomberg L.P. through the 'The
Bloomberg(Registered)' service and Merrill Lynch Mortgage Capital Inc. through
the 'CMO Passport(Registered) service, may, in accordance with their individual
business practices and fee schedules, if any, make portions of, or summaries of
portions of, the Detailed Information available to their customers and
subscribers. The Seller, the Master Servicer and their respective affiliates
have no control over and take no responsibility for the actions of such firms in
processing, analyzing or disseminating such information. For
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further information regarding the Detailed Information and subscriptions
thereto, please contact the Seller at 7485 New Horizon Way, Frederick, Maryland
21703, telephone number (301) 846-8200.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows the Seller to 'incorporate by reference' information it
files with the SEC, which means that the Seller can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this Prospectus.
Information that the Seller files later with the SEC will automatically update
the information in this Prospectus. In all cases, you should rely on the later
information rather than on any different information included in this Prospectus
or the accompanying Prospectus Supplement. The Seller incorporates by reference
any future annual, monthly and special SEC reports filed by or on behalf of the
Trust until termination of the offering of the Certificates.
As a recipient of this Prospectus, you may request a copy of any document
the Seller incorporates by reference, except exhibits to the documents (unless
the exhibits are specifically incorporated by reference), at no cost, by writing
or calling the Master Servicer in care of the Seller at 7485 New Horizon Way,
Frederick, Maryland 21703, telephone number (301) 846-8200.
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INDEX OF SIGNIFICANT DEFINITIONS
TERM PAGE
- ---- -----
1986 Act..................................... 67
1998 Policy Statement........................ 94
Accrual Certificates......................... 30
Additional Collateral........................ 15
Advances..................................... 44
ALTA......................................... 22
Asset Conservation Act....................... 62
Balloon Loans................................ 15
Balloon Period............................... 15
Bankruptcy Code.............................. 58
Bankruptcy Commission........................ 59
Bankruptcy Loss.............................. 31
Bankruptcy Loss Amount....................... 31
Beneficial Owner............................. 27
Book-Entry Certificates...................... 7
Buy-Down Fund................................ 15
Buy-Down Loans............................... 15
Capitol Life................................. 16
Cede......................................... 27
CERCLA....................................... 61
Certificate Account.......................... 41
Certificateholder............................ 27
Certificates................................. 5
Class........................................ 6
Cleanup Costs................................ 61
Code......................................... 8
Commission................................... 97
Companion Class.............................. 33
Component.................................... 32
condotels.................................... 12
contract underwriters........................ 19
cooperatives................................. 12
Correspondents............................... 17
Credit Score................................. 19
Cut-Off Date................................. 6
DCR.......................................... 91
Deferred Interest............................ 14
Definitive Certificates...................... 27
Delegated Underwriting....................... 18
Department................................... 91
Depository................................... 40
Detailed Information......................... 97
Disqualified Organization.................... 77
Distribution Date............................ 6
DTC.......................................... 7
DTC Participants............................. 27
Due Date..................................... 13
<PAGE>
TERM PAGE
- ---- ----
EDGAR........................................ 97
electing large partnership................... 77
Eligible Custodial Account................... 40
Eligible Investments......................... 42
ERISA........................................ 90
Excess Bankruptcy Losses..................... 31
Excess Fraud Losses.......................... 31
Excess Special Hazard Losses................. 31
Fannie Mae................................... 17
FDIC......................................... 40
FFIEC........................................ 94
FHLBB........................................ 63
FICO Score................................... 19
Fitch........................................ 91
Fixed Retained Yield......................... 30
Foreign National Loans....................... 23
Fraud Loss................................... 31
Fraud Loss Amount............................ 31
Freddie Mac.................................. 17
Garn Act..................................... 63
GEMICO....................................... 23
Ginnie Mae................................... 17
Graduated Pay Mortgage Loans................. 14
Growing Equity Mortgage Loans................ 14
Holder....................................... 64
Indirect DTC Participants.................... 27
IRA.......................................... 90
Joint Ventures............................... 17
Liquidation Proceeds......................... 41
Loan Stores.................................. 17
Loan-to-Value Ratio.......................... 21
Mark to Market Regulations................... 79
Master Servicer.............................. 5
Master Servicing Fee......................... 30
MERS......................................... 51
Monthly Reports.............................. 96
Moody's...................................... 91
Mortgage Interest Rate....................... 30
Mortgage Loans............................... 12
Mortgage Notes............................... 12
Mortgaged Properties......................... 12
Mortgages.................................... 12
NCUA......................................... 94
Net Foreclosure Profits...................... 30
Net Mortgage Interest Rate................... 30
New Regulations.............................. 82
No Ratio..................................... 23
99
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TERM PAGE
- ---- ----
No Ratio Loans............................... 23
Non-Pro Rata Certificate..................... 68
Non-U.S. Person.............................. 82
Norwest Bank................................. 17
Norwest Funding.............................. 16
Norwest Mortgage............................. 16
Norwest Mortgage Sale Agreement.............. 50
OCC.......................................... 94
OID Regulations.............................. 67
Other Advances............................... 44
OTS.......................................... 63
PAC.......................................... 33
PAC I........................................ 33
PAC II....................................... 33
Partial Liquidation Proceeds................. 29
Pass-Through Entity.......................... 77
Pass-Through Rate............................ 6
Paying Agent................................. 43
PCBs......................................... 61
Percentage Interest.......................... 29
Periodic Advances............................ 7
PHMC......................................... 15
PHMSC........................................ 16
Plans........................................ 90
Pledged Asset Mortgage Loans................. 15
Pool Distribution Amount..................... 29
Pool Insurers................................ 23
Pooling and Servicing Agreement.............. 26
Prepayment Assumption........................ 68
PTE 83-1..................................... 92
Rating Agency................................ 8
RCRA......................................... 61
Record Date.................................. 6
Regular Certificateholder.................... 67
Regular Certificates......................... 26
Regulations.................................. 91
Relief Act................................... 60
REMIC........................................ 65
REMIC Certificates........................... 65
REMIC Pool................................... 65
REMIC Regulations............................ 64
Remittance Date.............................. 41
REO Property................................. 52
Reserve Fund................................. 35
Residual Certificates........................ 26
Residual Holders............................. 73
Restricted Group............................. 92
Rules........................................ 27
<PAGE>
TERM PAGE
- ---- ----
S&P.......................................... 91
SBJPA of 1996................................ 65
Scheduled Principal Balance.................. 51
SEC.......................................... 97
Securities Act............................... 92
SecuritiesLink(Registered)................... 96
Seller....................................... 16
Senior Certificates.......................... 6
Series....................................... 5
Servicer..................................... 5
Servicer Custodial Account................... 40
Servicing Account............................ 45
Servicing Fee................................ 30
SMMEA........................................ 93
Special Hazard Loss.......................... 31
Special Hazard Loss Amount................... 31
Standard Hazard Insurance Policy............. 47
Startup Day.................................. 65
Stripped Certificateholder................... 88
Stripped Certificates........................ 86
Subclass..................................... 6
Subordinated Certificates.................... 6
Subsidy Account.............................. 14
Subsidy Loans................................ 14
Subsidy Payments............................. 14
Superliens................................... 61
T.O.P. Loans................................. 22
TAC.......................................... 33
Tiered Payment Mortgage Loans................ 14
TILA Amendment............................... 60
Title Option Plus............................ 22
Title V...................................... 63
Treasury Regulations......................... 51
Trust........................................ 5
Trust Estate................................. 5
Trustee...................................... 55
Trustee Fee.................................. 30
U.S. Person.................................. 78
UCC.......................................... 57
UGRIC........................................ 23
Underlying Servicing Agreement............... 5
Underwriter's Exemption...................... 91
UST.......................................... 61
Voting Interests............................. 53
Window Period................................ 63
Window Period Loans.......................... 63
Window Period States......................... 63
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NORWEST INTEGRATED STRUCTURED ASSETS, INC. 1998-3 TRUST
ISSUER
NORWEST INTEGRATED STRUCTURED ASSETS, INC.
[NISTAR LOGO] SM
SELLER
$227,445,655
(APPROXIMATE)
MORTGAGE ASSET-BACKED PASS-THROUGH
CERTIFICATES, SERIES 1998-3
---------------------------
PROSPECTUS SUPPLEMENT
---------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEHMAN BROTHERS
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS. NO ONE HAS BEEN AUTHORIZED TO
PROVIDE YOU WITH DIFFERENT INFORMATION.
THE OFFERED CERTIFICATES ARE NOT BEING OFFERED IN ANY STATE
WHERE THE OFFER IS NOT PERMITTED.
THE SELLER DOES NOT CLAIM THE ACCURACY OF THE INFORMATION IN
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
AS OF ANY DATE OTHER THAN THE DATES STAED ON THEIR
RESPECTIVE COVERS.
DEALERS WILL DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS
WHEN ACTING AS UNDERWRITERS OF THE OFFERED CERTIFICATES AND
WITH RESPECT TO THIER UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. IN
ADDITION, ALL DEALERS SELLING THE OFFERED CERTIFICATES WILL
DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS UNTIL NINETY
DAYS FOLLOWING THE DATE OF THIS PROSPECTUS SUPPLEMENT.
November 19, 1998
